'Dark condos' point to supply overhang

The Vermont on Cairnhill at Cairnhill Rise. PHOTO: THE BUSINESS TIMES

SINGAPORE (THE BUSINESS TIMES) - A year after lensmen from The Business Times put together a photo essay on "dark condos" to highlight the rising vacancies in the private housing market, they have gone in search of an update of the situation.

In May, they returned to the same 10 completed condo projects they photographed a year ago to capture these developments, as far as possible, from the same angles . They even went at around the same time - between 8 pm and 9.30 pm on a weekday, before the school holidays, when people could reasonably be expected to be home.

Their findings: Only one of the 10 developments was visibly more lit up than a year ago - The Interlace, a 1,040-unit condo along Depot Road; the other projects were, at best, just slightly brighter than 12 months ago.

This result is somewhat surprising, given that most of these projects have already been fully or substantially sold by their developers; it has been more than 18 months since they were completed and received their Temporary Occupation Permit (TOP). Moreover, leasing activity has been decent at these projects, going by the volume of lease commencements.

Property consultants and developers BT spoke to offered a few explanations for why the majority of BT's sample of dark condos have stayed relatively dark a year later.

One is the changing profile of expat tenants, in tandem with Singapore's rise as a regional business hub and a gateway city.

Jacqueline Wong, head of residential leasing and ad-hoc sales at Savills Singapore, said: "These days, Singapore attracts more foreigners who are based here but travel around the region for work. Such tenants may have leased apartments here but are out of the country for more than half of the lease period, so from the outside, the units look unoccupied, and this is especially obvious at night."

Another reason for the large number of units captured unlit, said consultants, would be that units in prime locations bought by well-heeled foreigners are among the several properties they own in the region or around the world. These may be holiday homes, occupied only a few times a year, and so are unlit the rest of the time.

Ong Kah Seng, director at R'ST Research, also points out that some local high-net-worth individuals (HNWIs) may be holding off from renting out newly-completed properties, given the weak rentals. "They may be afraid that if they were to lower rents, they could end up with the wrong profile of tenants who could damage their apartments," he said.

Agreeing, CBRE executive director for residential properties Joseph Tan added that these investors may prefer to keep the unit empty for an easier sale to a buyer looking to occupy it.

BT's sample of 10 dark condos included two mass-market projects - NV Residences in Pasir Ris and Canberra Residences in Sembawang.

Agents said the unoccupied units in these developments could be the result of their HDB-upgrader owners having been caught by the cooling measures, which have weakened resale prices of public-housing flats; these upgraders could thus have decided to stay on in their HDB flats, in hopes of getting a higher price for their flats before moving to their private condo unit.

Roving expats and rich foreigners occupying condos only part of the time could be seen as contributing to the sub-optimal use of Singapore's real estate, said DTZ South-east Asia's chief executive Ong Choon Fah, but then again, this is "the price you pay for being a global city".

"It is a reflection of our economy and the status that Singapore has achieved as a hub for business. In gateway cities, you will have mobile, global workers who travel a lot of the time. This is true not just for expats who are based here, but also Singaporeans," she said.

As for rich foreign buyers, Mrs Ong said it could be argued that, beyond the direct investment these HNWIs make, they generate other economic spinoffs: "Once they are here for a visit, chances are they would meet their private banker, insurance advisor, seek medical consultation - or they could have other business dealings."

Still, these arguments do not diminish the gravity of the overall supply overhang in Singapore's housing market, given the ramp-up in private home completions that began last year. The number of units that obtained TOP surged 51.6 per cent from 13,150 units in 2013 to a record 19,941 units last year. This level of completions is set to persist; nearly 22,000 units are projected to obtain TOP this year, and a further 21,000 units next year, based on official data.

The vacancy rate for Singapore's private housing stock rose from 5 per cent at the end of 2010 to 7.8 per cent at end-2014. It eased to 7.2 per cent at end-Q1 2015 from a fall in the number of completions in the first quarter to 2,976 units, from 6,366 units in Q4 2014. That said, completions are expected to step up in the Q2-Q4 period this year, which will push up vacancy rates again.

Savills' Ms Wong predicted: "Single-digit vacancies will rise to double-digits by year-end or second quarter next year."

The sustained high level of new private home completions aside, she cited another trend - the ongoing slowdown in the hiring of foreign expats, core contributors to private residential leasing demand.

With rising completions and vacancies, rents have eased. The Urban Redevelopment Authority's overall rental index for private homes has fallen 5.1 per cent from the Q3 2013 peak to Q1 2015; the drop for landed homes was larger, at 7.3 per cent, than the 4.8 per cent for non-landed homes.

Savills' average monthly rental value of high-end non-landed residential properties stood at S$4.51 per sq ft (psf) in Q1 2015, down 1.3 per cent from the previous quarter and 17.4 per cent below the last peak of S$5.46 psf in Q2 2011.

The rental slide for mass-market condos could be even more severe, suggested Savills Singapore's research head Alan Cheong. "Based on recent anecdotal evidence, leases for suburban condo units are being renewed at rental rates around 15 per cent lower than leases two years ago."

Savills' Ms Wong cited actual rent declines among units in the high-end segment: at the recent peak in 2011/2012, apartments above Level 20 at Ardmore Park condo fetched monthly rentals of about S$20,000; they now attract rentals of S$17,000, a 15 per cent drop.

Mr Cheong said that in the high-end condo market generally, individual landlords have been more flexible in their rental expectations to secure tenants quickly, unlike institutional or corporate landlords.

In the landed segment, the hardest hit have been the "Category A" Good Class Bungalows (GCBs) sitting on large plots, said Ms Wong. For instance, GCBs in Holland Road which commanded rents of around S$50,000 a month in 2011/2012 are now fetching around S$30,000.

Private residential rents are expected to continue facing downward pressure as the supply of private residential properties completed this year is higher than the leasing demand can comfortably absorb, said Savills. On the whole, rents could fall 10 per cent to 15 per cent this year, Mr Cheong estimated.

"The mass market will be hit most because the bulk of new home completions are in the suburbs, given that this was the segment where the government had supplied the most land in the past few years."


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