Jan 14, 2007

Mass market homes may make good investments

Well-located leasehold properties in particular enjoy higher rental yields than freehold projects

By Fiona Chan

Conveniently situated next to Yew Tee MRT, units at Yew Tee Residences are being launched at an average price of $498 per sq ft.

CONDOMINIUMS pitched at home buyers entering the private property market are taking their turn in the spotlight after years of stagnation.

Several projects aimed at this mass market segment have been launched recently, and more are set to come on stream soon.

At ClementiWoods, developed by Frasers Centrepoint, half of the 240 units were sold at a soft launch last weekend. Prices ranged from $360,000 to $1.7 million for a unit in the 99-year leasehold condo next to Clementi Woods Park, averaging $525 per sq ft (psf).

This weekend, NTUC Choice Homes is launching Yew Tee Residences in Choa Chu Kang, at an average price of $498 psf. The 139-unit project is located next to Yew Tee MRT station.

Most buyers of such properties choose to live in them as homes rather than use them for investment purposes, as they are usually 99-year leasehold and depreciate in value as their tenures run down.

But can these developments in fact make good investments?

Property consultants note that rental yields for 99-year leasehold homes tend to be higher than those for freehold homes.

This is because they both command similar rentals - a tenant is unlikely to care about whether his rented home is leasehold or freehold - but leasehold homes are generally cheaper in price.

Taking annual rents as a proportion of the home's value would therefore give leasehold homes higher rental yields, said Mr Ku Swee Yong, the director of marketing and business development at Savills Singapore.

He raised the example of Southaven I and II in Bukit Timah. Both phases were launched within a year by Ho Bee Group.

The former has a tenure of 99 years and the latter 999 years, which accounts for the difference in their launch prices.

Southaven I was launched in 1994 at $600 to $700 psf, whereas Southaven II was launched in 1995 at $660 to $780 psf.

However, they are both currently fetching similar rentals, said Mr Ku.

And in a rising market, even the capital values of leasehold properties can pick up, according to new data from property firm CB Richard Ellis (CBRE).

It showed that most recently-launched mass market condos located near MRT stations, such as Kovan Melody, have increased in price since their launch.

Current prices at Kovan Melody range from $580 to $600 psf, compared with $520 psf at its launch in September 2004.

'Prices of most of the mass market projects still under construction have risen by around 10 per cent since end-2005,' CBRE said.

It added that the supply of such developments this year is expected to be limited, as developers have been more focused on acquiring freehold and prime sites over the past two years.

This means that mass market projects which are well-located - near MRT stations and malls - will probably see good take-up rates.

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