Suburban condos can continue to outperform prime ones

May 23, 2022

Many people dream of owning a condominium unit close to the Orchard Road shopping belt or in the established private residential enclave of Bukit Timah or in the new downtown area of Marina Bay.

But one may be better off buying a home in the suburbs as a flat in Jurong, Tampines or Punggol likely enjoyed stronger price appreciation.

Based on data from the Urban Redevelopment Authority, prices of private non-landed homes in the outside central region (OCR) or suburbs rose by 14.7 per cent in Q1 2022 versus Q4 2019, which was prior to the start of the Covid-19 pandemic. Over the same period, among private non-landed homes, prices rose 3.4 per cent in the core central region (CCR) or prime areas, and 18.4 per cent in the rest of central region (RCR) or city fringe.

Between Q1 2010 and Q1 2022, prices of private non-landed homes in CCR, OCR and RCR increased by 13.2 per cent, 62.4 per cent and 35.8 per cent respectively.



Better connectivity and amenities in the suburbs, coupled with regulations, have probably contributed to OCR outperforming CCR. Going forward, these factors driving OCR’s outperformance appear to remain intact.

Transport and amenities

Firstly, in terms of connectivity, the suburbs are big winners from the expansion of the MRT network. Travel time on public transport from places such as Jurong, Punggol or Woodlands to many destinations has been slashed with the building of new MRT lines and stations.

The rail network will expand further, with the target by 2030 for the rail network to be about 360 km. This means connecting 8 in 10 households to within 10 minutes of a train station, and Singapore having a total rail length that is longer than major cities such as Tokyo or Hong Kong today.

Besides enjoying better transport links, residents in the suburbs have been getting more amenities such as park connectors and cycling paths to cater to fitness needs, as well as childcare and eldercare facilities.

Many malls have been built in the suburbs, and big suburban malls such as Waterway Point in Punggol, Jurong Point and Tampines Mall boast a wide array of food and beverage, retail and leisure offerings. Recreational facilities in the suburbs such as sports facilities, libraries and community clubs have been enhanced too.

There are better healthcare facilities in the suburbs - Khoo Teck Puat Hospital in Yishun opened in 2010, and Ng Teng Fong General Hospital in Jurong opened in 2015. A new integrated hospital located next to Bedok North MRT station will open around 2030.

Within the last decade, new institutes of higher learning have opened in the suburbs such as the Singapore University of Technology and Design, which is located off Upper Changi Road.

Decentralised office hubs have emerged in the suburbs, and there are urban transformation plans to encourage economic growth, and bring jobs and amenities closer to residents — such as that of the Punggol Digital District and Woodlands Regional Centre.

In short, suburban living has enjoyed an upward re-rating, with more improvements to come.

ABSD and property taxes

Secondly, regulations may be more supportive of homes in OCR than CCR.

Foreigners, who are not permanent residents (PRs), have seen Additional Buyer’s Stamp Duty for home purchases rise from 15 per cent to 20 per cent effective Jul 6, 2018, and to 30 per cent effective Dec 16, 2021. In contrast, the ABSD rate for Singapore citizens and PRs buying their first home is zero and 5 per cent respectively.

Generally, foreigners are more active home buyers in CCR than OCR. Non-PR foreigners accounted for close to 10 per cent and slightly over 1 per cent of new sales of private non-landed homes in CCR and OCR respectively in 2021. Thus, the adverse impact of high ABSD rates on foreign demand for homes here may be felt more in CCR than OCR.

The upcoming hikes in property tax rates on homes will hit pricier homes, which are generally located in the prime areas, harder. Compared to today, the annual property tax on a non-owner occupied suburban condominium unit with annual value (AV) of S$30,000 will rise by S$600 or 20 per cent to S$3,600 in 2024. For a non-owner occupied prime condominium unit with AV of S$45,000, the annual property tax payable rises by S$1,800 or 38 per cent to S$6,600 in 2024

Prime areas do have unique selling points. Some home buyers are drawn to the Bukit Timah area because of various popular primary schools. Residents in some prime areas can easily access lifestyle enclaves such as Orchard Road, Holland Village or Dempsey Hill.

Also, some residents in the CCR enjoy easy access to premier social clubs such as Tanglin Club or American Club, and the Singapore Botanic Gardens, which is a Unesco World Heritage Site.

As is, for a new leasehold condominium unit, one may need to pay around S$1,700 per square foot (psf) in OCR versus around S$2,700 psf in CCR. Perhaps, while home prices in prime areas should still command a premium to the suburbs, an estimated price premium of around 60 per cent may shrink over time.

Continuous improvements in the living environment of the suburbs coupled with a private home market that is heavily dependent on locals buying for owner occupation may support the continued outperformance of OCR versus CCR.

Still, there was a pick-up in transactions by foreign buyers in April versus March as Singapore relaxed pandemic-linked measures, including border curbs. As such, homes in CCR could see some support from foreigners despite high ABSD rates.

As long as good jobs continue to be created, decent profits can be made from selling built-to-order HDB flats and locals aspire to condominium living, demand and pricing of suburban condominiums should be on firm footing. Rising interest rates on home loans though may hamper affordability of suburban condominiums.

Developers will likely be rewarded if they bring their A-game to suburban condominiums by offering well-conceived developments that are strong on design, sustainability, functionality and greenery, and supplemented by high-end fittings and classy touches.

https://www.businesstimes.com.sg/opi...orm-prime-ones