UOL is right to bank on prime 99-year leasehold housing projects

Relative value, buying by PRs and dearth of freehold projects support demand for new prime leasehold condos

Leslie Yee

May 27, 2024

RESIDENTS of suburban condominiums can access various facilities within their developments as well as tap into public transport, shopping, healthcare, education and recreation amenities nearby.

As private home prices here surged following the Covid-19 pandemic, suburban condos led the way among non-landed homes.

Based on data by the Urban Redevelopment Authority (URA), non-landed home prices in the Outside Central Region (OCR) or the suburbs, and Rest of Central Region or the city fringe, rose by 40 per cent and 38 per cent respectively between Q4 2019 and Q1 2024. Meanwhile, non-landed home prices in the Core Central Region (CCR), which covers prime districts 9, 10 and 11, Downtown Core and Sentosa, increased by 14 per cent.

In the latest round of hikes in Additional Buyer’s Stamp Duty (ABSD) on home purchases, which took effect in late April 2023, Singapore citizens and permanent residents (PRs) who buy second and subsequent homes pay higher ABSD rates while the rate for non-PR foreigners buying any home doubled from 30 per cent to 60 per cent.

Citizens and PRs buying their first home were unaffected by the latest ABSD changes – they pay no ABSD and ABSD of 5 per cent respectively.

As non-PR foreigners were historically active in CCR condos, demand in this segment has been badly affected.

Today, land costs can account for the majority of costs in a private housing project. Construction costs are high, and financing costs are up due to higher interest rates.

Meanwhile, demand can be uncertain as buyers are more selective amid economic uncertainty, higher mortgage rates and greater choice in the market. And developers pay huge sums in clawback of ABSD remission if they cannot sell all their housing inventory within prescribed timelines.

Thus, housing developers may be wise to slow down on development activities or focus on projects catering largely to local first-time buyers such as suburban condos and executive condos.

Prime housing forays

Nonetheless, listed UOL Group has stepped forward to buy non-landed CCR housing sites.

An 80:20 joint venture between UOL and its subsidiary Singapore Land Group secured a 99-year leasehold Government Land Sale (GLS) site, zoned mainly for building private homes, at Orchard Boulevard in District 10, for S$428.3 million bid or about S$1,617 per square foot per plot ratio (psf ppr) in February.

Last week, a consortium of UOL (35 per cent), CapitaLand Development (35 cent), Singapore Land (20 per cent) and Kheng Leong (10 per cent) was awarded the 99-year leasehold GLS private housing site at Holland Drive in District 10 for S$805.4 million, or about S$1,285 psf ppr.



Sure, the land costs of the above two sites are far below that of nearby sites sold in state tenders in 2018.

Still, UOL and its partners must be banking that demand will be robust for new prime 99-year leasehold condos.

Perhaps, UOL’s optimism in prime condos is fuelled by the strong sales take-up of the freehold Watten House condo project in District 11, which is developed by UOL and Singapore Land. This project was launched for sale in November last year and has sold 78 per cent of its units as of April based on URA’s data on developers’ sales.

UOL’s big contrarian bets on 99-year leasehold condo projects in prime districts, which sit close to MRT stations, may pay off.

Reasons for optimism

First, the narrowing price gap between new non-landed home prices in OCR and CCR could encourage buyers to see relative value in pricier CCR homes.

New condos in the Orchard Boulevard and Holland Drive sites may sell for S$3,200 psf and S$2,800 psf respectively, or about 27 to 45 per cent above that of S$2,200 psf for a new condo unit in Lentor, near Lentor MRT station, in District 26.

In contrast, a buyer might pay S$3,500 psf on land area for a terrace house near Lucky Plaza in the Orchard Road vicinity, versus S$1,900 psf for one near Lentor MRT station – a premium of 84 per cent.

Second, while the Orchard Boulevard and Holland Road housing sites do not sit within 1 km of a popular local primary school, unlike Watten House or some suburban condos, this need not majorly deter some buyers.

Living within 1 km of a primary school can significantly raise a child’s chances of getting into the said school. Many buyers seek homes near sought-after schools as this attribute can increase the resale price of a home and draw a wider pool of buyers.

Still, lifestyle attributes could sway growing numbers of singles and childless couples to choose prime district homes that are not close to popular primary schools.

Third, expect well-heeled PRs, who are buying their first home here, to focus on prime condos.

Buying landed homes here can be tricky for PRs as they need approval to do so, unlike with condos. Should Singapore continue drawing wealthy and high income PRs, they could be a rich source of potential new prime condo homebuyers.

Fourth, while some buyers in prime districts prefer freehold units, supply of new freehold prime condos is limited. Hence, people looking for new condos in prime district may need to look at 99-year leasehold projects.

Generally, developers acquire older housing developments in the en bloc market to build new freehold condos. In existing developments where non-PR foreigners own a large share of units, getting support for en bloc sales can be tricky as non-PR foreigners who reinvest proceeds from an en bloc sale into another home will incur hefty ABSD.

Fifth, affluent buyers of prime district condos might cope better with any economic weakness as they may have adequate savings to help them tide through rough economic patches.

Moreover, expect well-heeled residents to be fine with paying more for that one home they can buy without paying hefty transaction taxes.

Doubtless, the recent deep slashing in prices to get sales moving at 99-year leasehold Cuscaden Reserve, near Orchard Boulevard, would have unnerved many developers.

Cuscaden Reserve has many one- and two-bedroom units, sized at under 1,000 square feet each. Might today’s condo buyers in prime districts prefer larger units?

If UOL and its partners build the right product, they may reap rich returns from their 99-year leasehold prime housing projects.

(The writer owns shares in UOL)

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