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Demand for turning condos to serviced apartments wanes

Some analysts attribute this to pick-up in home sales, others point to a soft patch ahead for such apartments

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The surge of interest in 2015 among property owners to convert residential developments to serviced apartments may have lost some steam this year.


THE surge of interest in 2015 among property owners to convert residential developments to serviced apartments may have lost some steam this year. Some market watchers attribute this to a pick-up in residential sales while others point to a soft patch ahead for serviced apartments.

Applications for such conversions jumped to 12 last year from five in 2014, and provisional permissions rose in tandem to eight last year from zero in 2014, the Urban Redevelopment Authority (URA) told The Business Times.

As at July 15 this year, however, there were only four such applications, and one was granted provisional permission.

Serviced apartments, which are rented out for lodging for seven days or longer, come under residential zoning but they have to obtain planning permission from the URA and comply with URA's guidelines.

Some market watchers reckon that interest in conversions of luxury condominiums to serviced apartments would have been stronger if not for the fact that the qualifying certificate (QC) conditions still apply. For land bought under a QC, the construction of the project has to be completed within five years and all residential units must be sold within two years of obtaining temporary occupation permit.

Developers of projects such as Nouvel 18 and OUE Twin Peaks in the prime districts were said to be mulling partial conversion of the projects into serviced apartments at some point, but have since dropped the idea. Word on the street is that Bukit Sembawang, too, has considered converting the Paterson Collection project into serviced apartments; the group has declined comment.

"Given a choice, developers prefer to sell individual units rather than to hold en bloc development for the longer term as this is taxing on a company's balance sheet," said Chesterton Singapore managing director Donald Han.

"From March to June this year, we saw a healthy primary sales market which may have deferred developers' consideration to apply or convert to serviced apartments. If the primary sales market peters out, I sense that applications for conversion to serviced apartments may increase."

Tasos Kousloglou, JLL's executive vice-president of strategic advisory and asset management for Hotels & Hospitality Group, told BT that over the past few years, some of his clients had expressed interest in exploring conversions of residential projects to serviced apartments given the muted residential market.

There have also been more mixed-use developments here that favour the growth of serviced apartments, he said. Locational restrictions have been eased on serviced apartments contained within a mixed-use development. Since October 2015, serviced apartments within mixed use areas, such as commercial centres, business parks and medical hubs, can be considered even if they do not front major roads.

From 2013 to July 15 this year, URA received a total of 48 development applications for serviced apartments, of which 60 per cent or 29 applications were for conversion of residential developments to serviced apartments. Over the same period, URA granted provisional permission to 20 development applications for serviced apartments, of which 11 were for conversion of residential developments to serviced apartments.

The only residential property that received approval for such conversion this year is Oxley Thanksgiving Residence, a five-storey property with 88 units at River Valley Road owned by Chinese temple Poh Ern Shih.

Last year, Newfort Realty converted its freehold property off Orchard Road to a 98-unit serviced residence managed by Oakwood, and Far East Organization converted Tower 3 of Orchard Scotts to serviced apartments. Orchard Scotts has since obtained above 80 per cent occupancy year-to-date, with the average length of stay between one and three months.

HVS Asia Pacific managing partner Chee Hok Yean noted that the serviced apartment segment has been less volatile than the hotel industry, thanks to its longer average period of stay. Occupancies of serviced apartments have been hovering in the 80-90 per cent range due to healthy demand-and-supply dynamics.

There are 13 members under the Serviced Apartments Association of Singapore (SAA) and they have 28 registered properties with 3,647 apartments as at end-2015. According to SAA, an estimated 400 apartments will come onstream within the next two years.

"Singapore remains a strong market for both business and leisure travellers and there appears to be a demand across the board for stays in serviced apartments, as seen in the average occupancy of 81 per cent year-to-date." said SAA president Tonya Khong, who is also area general manager for South-east Asia at Frasers Hospitality.

Hotel occupancies here, according to preliminary estimates by the Singapore Tourism Board, averaged 84.4 per cent between January and May.

There has been no new hotel sites for more than two years in the government land sales (GLS) programme amid an oversupply of hotel rooms; meanwhile, the supply of serviced apartments has been fairly stagnant in the last five years, Mr Han noted.

He believes there could be more serviced apartments to come from future GLS mixed-used sites and white sites as well as international hotel brands looking to diversify into serviced residences' longer-stay segment, targeting the corporate and business travel sector.

But market watchers also observed that serviced apartments' slice of the pie is increasingly encroached on by accommodation service providers that offer housing solutions to corporate clients or directly to individuals.

Although URA rules require private residential properties to be rented out for no less than six months, some property owners and their managing agents are flouting the rule by renting out homes for shorter periods. This situation may get worse.

Mr Han said: "I expect more conversions from residential units that have been built for multi-ownership to 'lesser scale' serviced apartments, which are more appropriately termed as 'apartments with services'."

But JLL's Mr Kousloglou felt that despite the influx of alternative accommodation supply, serviced apartments still retain some of their most important advantages such as brand standards, quality control and the provision of housekeeping and other services on a more regular basis.

"These key advantages will continue to allow serviced apartments to retain their core guests. However, in this dynamic market, serviced apartment operators will need to continue to evolve their product and service offerings to retain their target segments and cater to the needs of the millennials and e-generation business and leisure travellers," he said.

Cushman & Wakefield research director Christine Li noted that serviced apartments tend to have strong demand in locations that host global companies and have high corporate visitors year-round. But more companies are tightening their purse strings and offering smaller relocation packages with shorter tenures; there is also the continued policy tightening on expatriates here, as seen in the smaller increase in employment passes issued in recent years.

"Occupancy rates of the serviced apartments market could be further threatened by a maturing Airbnb scene," Ms Li added. "These factors will contribute to a lacklustre demand in the short to medium term."