Prime freehold resale homes now available at new leasehold suburban prices

AN ADVERTISEMENT for a resale condominium unit shouts: “Freehold selling at leasehold price!” Another says: “S$2,064 psf for a district 9 freehold project that’s less than 9 years old.” Yet another simply states: “Cheaper than 99-year leasehold.”

The properties above share a few common traits: They are prime district freehold, non-landed homes; and their asking (and transacted) prices are lower than the median selling price for the new 99-year leasehold AMO Residence project in Ang Mo Kio of S$2,110 per square foot (psf).

AMO Residence sold over 98 per cent of its 372 units by the first day of its launch on Jul 23, with 1 of its 3 penthouses transacting at an eye-watering S$6 million or S$2,406 psf.

Checks by The Business Times (BT) on Singapore’s largest property portal, PropertyGuru, found about 2 dozen projects in prime districts 9, 10 and 11 that are going for less.

The search criteria were for freehold or 999-year leasehold resale condominium units that received their Temporary Occupation Permit no more than 10 years ago, at sizes of between 500 and 1,500 square feet (sq ft) each, and asking less than S$2,100 psf.

A cross-check was also done to ensure that the asking prices reflect transacted prices.

BT’s search showed properties available in the Core Central Region (CCR) that could cost less than new leasehold properties in the Outside Central Region (OCR).

A freehold 797 sq ft 2-bedder Sophia Residence unit in District 9 could be had for S$1.6 million. A 1,066 sq ft 2-bedder unit at Verdure @ Holland Park in District 10 could sell for S$2.2 million and a 1,421 sq ft 3-bedder Cube 8 home on a high floor in District 11 could be yours for just under S$2.9 million.

There are even more affordable freehold homes in the prime districts if older condominiums were included.

The lure of OCR new launches

Why are buyers snapping up 99-year leasehold properties in the OCR at higher or comparable psf prices?

Analysts BT spoke to mostly cited familiarity with suburban locations and proximity to children’s schools and elderly parents as key reasons, especially for Housing Development Board (HDB) upgraders who want to remain in certain neighbourhoods.

The progressive payment scheme for new launches also allows buyers to spread out their payments over the construction period, said Catherine He, Colliers’ director and head of research. For a resale unit, payments are made upfront and the mortgage kicks in immediately.

Moreover, buying a new launch unit allows the buyer to ride long-term price uptrends. “By the time the project is completed, it would likely fetch a higher price if market conditions are stable,” said He. “Furthermore, as homes take about 3 years to complete, the Seller’s Stamp Duty (SSD) period would have been fulfilled and buyers can lock in profits without (paying) SSD if they choose to sell.”

The progressive payment scheme also helps young couples cross the Total Debt Servicing Ratio (TDSR) hurdle, which limits a mortgagor’s overall debt obligations to 55 per cent of income. One industry observer says the couple can pay an option fee to buy a new launch unit, and only secure a loan when construction starts and progress payments begin.

At that point, they can sell, say, a 1 per cent interest in the property to their parents, who – assuming this is not their first property – will pay a manageable Additional Buyer’s Stamp Duty for this minority stake. The couple, together with their parents, will then apply for financing. This way, their income for TDSR computation will go up, and they can afford a larger loan.

Also, there are buyers who are only keen on new homes, as opposed to a resale unit where renovation costs and time will likely be incurred.

Other reasons have more to do with marketing firepower.

“For any new launch, developers will mobilise 3 of the largest agencies, who will have more than 60 per cent of agents in Singapore, offering huge coverage and network,” said ERA Realty’s head of research and consultancy, Nicholas Mak.

Marketing resources – videos, infographics and marketing collateral – also flood social media, such that someone searching online for property will see the new project everywhere and be diverted there.

Agents are incentivised to sell new launch units as developers pay commissions of 2 per cent upwards, versus the 1 per cent typical of resale properties.

Another reason is that some buyers are unaware that CCR options within their budget are available. And even if they are aware, the process to find a suitable resale unit takes longer and more legwork, and may not yield a home on, say, a desired floor or preferred facing.

Up, up and away?

Huttons Asia senior director of research Lee Sze Teck noted that 40.6 per cent of new launch transactions in the OCR cost S$2 million or more in July 2022, compared with 9.9 per cent in August 2021.

His analysis of caveats shows 80 per cent of buyers with an HDB address were purchasing properties valued at up to S$2 million, while 80 per cent of those with a private address were purchasing at up to S$2.5 million.

“This shows that properties up to S$2 million are well within the means of buyers,” he said, adding that the proportion of homes valued at up to S$2 million may be between 40 and 50 per cent in future.

However, analysts also point out that AMO Residence was fairly unique in that it has been a long time since a new condo was launched in Ang Mo Kio – a mature estate with popular schools and other amenities, which has strong housing demand.

“So we have to be careful before we say that going forward, all condos in OCR will cost above S$2,100 psf,” said Mak.

Christine Sun, OrangeTee & Tie’s senior vice-president of research & analytics, noted that although 195 new OCR units cost at least S$2 million in July, they made up 23.9 per cent of total non-landed OCR sales.

Ferreting out gems

As demand has gravitated towards mass market properties due to attractive new launches, Colliers’ He observed that the gap in median unit prices between resale freehold CCR and new 99-year leasehold OCR units has been narrowing since 2021 (see Table 2).

“As such, there might be more value and upside in the high-end segment, in addition to a lack of new supply in the CCR,” she said.

Eyes will now turn to the upcoming suburban launches of GuocoLand’s Lentor Modern and Frasers Property’s Sky Eden@Bedok to see if AMO Residence’s success can be replicated.