The prominent location of houses and workplaces in the Central Business District might continue to command a price premium

Sep 26, 2022

In recent years, Singapore's suburbs have seen significant change. Locations in Singapore such as Jurong and Tampines have developed into desirable places to live, work, and play in recent years.

Will the price premiums that have traditionally been enjoyed by prominent neighbourhoods such as the Central Business District (CBD) for workplaces and districts 9, 10, and 11 for residences continue to exist, or will they begin to decline and eventually vanish?

The suburban office market has the potential to produce excellent work environments that are favourable to the collaborative production of new ideas. For instance, you may anticipate the development of high-quality work spaces in the Punggol Digital District, which is scheduled to open in stages beginning in 2024.

Today, many people who work in the suburbs benefit from convenient access to a wide variety of fitness centres, coffee shops, restaurants, drinking establishments, and other types of recreational and entertainment venues. Is it worthwhile to pay twice as much in rent to have a decent office space in the central business district as opposed to the suburbs?

After the end of the Covid-19 epidemic, it's possible that firms may transfer their activities from a single central site in the CBD to many locations around the country, including the suburbs.

CBD's attraction

Despite this, CBD Grade A office buildings are prospering in spite of the growing number of people returning to the workplace. According to Colliers, city-fringe and suburban office rents increased by one percent each to S$6.64 psf pm and S$4.53 psf pm, respectively. Core CBD premium and Grade A office rentals increased by 6.1 percent from a year earlier to S$11.10 per square foot per month (psf pm) in Q2 2022.

It's possible that the Central Business District (CBD) still has a lot to offer enterprises. Decentralization makes sense since it allows workers to reduce the amount of time they spend commuting, which in turn improves the environment. Bringing people's places of employment closer to where they reside. Nevertheless, the Central Business District (CBD) may be the best option for a company's primary place of employment. Businesses who are actively seeking new employees will discover that the Central Business District (CBD) is a handy location for people who reside in various parts of the island.

When there is a critical mass of firms already located in the CBD, others will move there. Workers are able to strengthen their relationships with their business partners through face-to-face encounters if they operate out of offices that are in close proximity to one another. In a world where Covids are endemic, the advantages brought forth by such a clustering effect will probably continue to exist.

In addition, the Central Business District is presently receiving alterations that will contribute to the enhancement of its allure as a leading location. Redevelopment work is being done on older structures, while construction of new integrated projects is ongoing. As more residences are created in the Central Business District (CBD), a greater number of knowledge workers may choose to live in close proximity to their place of employment. As a result, retail stores, restaurants, and other businesses located in the CBD may see increased foot traffic.

Prime residential lags

But the price increases of non-landed private residences in desirable neighbourhoods are trailing behind those seen elsewhere, despite the fact that premium CBD office buildings are booming. And the current enthusiasm with new private house openings has been produced by suburban developments like Lentor Modern and AMO Residence chalking up good sales, so that's another thing that's been generating that hype.

According to data provided by the Urban Redevelopment Authority, the price of private non-landed homes in the Rest of Central Region (RCR), also known as the city fringe, and the Outside Central Region (OCR), also known as the suburbs, increased by 44.5 percent and 65.8 percent respectively between the first quarter of 2010 and the second quarter of 2022. Prices in the Core Central Region (CCR), which includes districts 9, 10, and 11 in addition to downtown and Sentosa, increased by 15.4 percent during the same time period.

Prices of non-landed private dwellings in CCR, RCR, and OCR all went up by 7.7 percent, 26.7 percent, and 17.6 percent accordingly from the first quarter of 2020 to the second quarter of 2022.



It's possible that the homes in CCR that aren't on land will continue to underperform. Buyers may be happy to save money by purchasing a new condominium unit in OCR for S$2,000 psf rather than paying, say, S$3,000 psf or around 50 percent more for a new unit in district 10, especially given the fact that new suburban condominiums are being built that offer good design, comprehensive facilities, and high-end fittings. Buyers may be happy to save money by purchasing a new condominium unit in OCR for S$2,000 psf because new condominiums in the suburbs

It's possible that the late-2021 property cooling measures will be more detrimental to CCR than OCR. It is common practise that non-locals are responsible for a greater proportion of business conducted in CCR than OCR. As a result of the cooling measures, the Additional Buyer's Stamp Duty (ABSD) for non-Singaporeans purchasing a property in Singapore has increased to 30% (from 20%), while the ABSD for Singaporeans purchasing their first home remains unchanged at 0%.

The most costly private residences, the majority of which are located in desirable districts, will be the ones to suffer the burden of rising property taxes, which will increase in two stages beginning in 2023 and continuing through 2024. As of the first of the year 2024, the property tax rate for residences that are not occupied by their owners will increase to between 10 and 20 percent, from the current rate of 10 to 20 percent. The current property tax rate for owner-occupied residences in Singapore is 4-16 percent, however it will increase to between 6 and 32 percent beginning in 2024 for the amount of the home's yearly worth that is greater than $30,000.

However, even if the quality of life in the suburbs is getting better, premium locations still have their own distinct advantages to offer. Residents of the Tanglin neighbourhood have convenient access to the lifestyle enclave of Dempsey Hill as well as the Singapore Botanic Gardens, which are both on the list of UNESCO World Heritage Sites.

Residents of the Bukit Timah region take pleasure in a low-density neighbourhood that features a large number of landed properties and provides convenient access to a variety of highly regarded educational institutions. Living in the River Valley neighbourhood provides residents with handy access to the Singapore River as well as the Orchard Road retail district and the Central Business District of Singapore.

Because Singapore is an island with a relatively small land mass and an ever-improving transit connection, many regions of the island are not difficult to reach. Despite this, people who utilise the area are inclined to attribute price discrepancies to the location.

Because an ABSD framework discourages the purchase of numerous houses, some people may decide to buy just one property in a desirable location rather than purchasing many properties in a number of different areas. In the midst of heightened geopolitical tensions, the number of properties being purchased by foreign buyers has increased, with the majority of new private property purchases made by foreign buyers taking place in CCR in the month of August.

In the future, the Central Business District is expected to continue to command the highest rental rates and capital value in the office market, whilst districts 9, 10, and 11 are projected to continue to be the price leaders in the housing market.

Investors that are looking to park their money in a secure location It will be necessary for Singapore to determine whether the demand for high-quality office space will result in a wider gap in rental rates between the Central Business District (CBD) and the suburbs or whether the prices of non-landed homes in prime areas will be able to reverse their recent relative underperformance.