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Published November 22, 2006

Home supply in prime areas may fall 15%

Redevelopment of en bloc sites set to squeeze supply, but there could be mitigating factors


(SINGAPORE) The redevelopment of collective sale sites sold in the past two years could shrink the supply of apartments in 10 sub-locations in the prime districts about 15 per cent, says CB Richard Ellis.

The areas that face the greatest percentage reductions in existing supply are Leonie Hill (43 per cent), St Martin's/Nassim (29 per cent), Cairnhill (24 per cent) and Angullia (23 per cent).

The demolition of older apartments sold en bloc in 2005 and 2006 is expected to create a shortage of accommodation that should further boost rents and capital values in these locations.

But the effect may be offset if developers phase redevelopment or those who have sold their homes en bloc seek replacement units elsewhere, industry players told BT.

Hong Leong Group executive chairman Kwek Leng Beng said: 'Some (developers) will read the market better than others. If you delay launching new projects on the en bloc sites, you may make more profit if you take the position that the market is improving. Just look at the record after record being set for land prices.

'But, of course, developers who are listed may need to develop sites quickly and move on, in order to show growth. In the end it is a money game, because you sell at current prices and then you continue to replenish your land at higher prices.'

UOL Group chief operating officer Liam Wee Sin said: 'It's a bit of risk management. If you sell out a project early, you will have the opportunity to reinvest in the market by buying a new site for development - even if the market keeps going up.'

Mr Liam reckons most of the sites that have changed hands in en bloc sales in the past two years will be torn down as soon as possible - over the next 12 to 18 months - because of the high land cost involved.

However, CBRE executive director Jeremy Lake predicts that the reduction in supply of prime district apartments arising from redevelopment of 2005 and 2006 collective sale sites is likely to be phased out over the next two to five years, as developers launch their projects according to market demand.

Mr Lake reckons the impact will be more significant on the rental market. Tenants of apartments that have been sold en bloc may choose to move out and search for new rental apartments sooner, rather than wait and endure the uncertainty of not knowing when they will have to move while the deal goes through the Strata Titles Board or the developer decides just when to pull down the development.

'As a result, potential expat tenants will face an immediate shortage of apartments for rent in their desired locations, and landlords will seize the opportunity to raise rents,' he said.

Mr Lake predicts the shortage of rental apartments will ease by 2008 as new developments such as The Arc at Draycott, The Grange, The Cosmopolitan, The Metz and Paterson Residences will be completed.

Mr Kwek points out that prime district residential rents have started moving up anyway because of the influx of foreign professionals, including private bankers.

As for capital values in prime districts, CBRE's Mr Lake says they too may increase as home owners involved in en bloc sales look for replacement properties in the same locations because of the potential for high rentals and price appreciation. 'Nevertheless, some home owners may source for properties outside these locations,' he said.

UOL's Mr Liam agrees. 'Those selling their District 9 or 10 apartments through en bloc sales, if they had occupied the units, chances are they will want to look for a new apartment in the same location,' he said.

'But if they held it as investment for rental income, they may be more willing to consider finding a replacement unit in other locations. Or they could even be prepared to consider other investment options - like a real estate investment trust or an overseas property.'