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60 Year Lease Residential Site Awarded for $73.8 million

12.16.2012 · Posted in Real Estate, Singapore

I have been wanting to write about this for some time but other things kept coming up. Nevertheless, it is still a very important piece which some people may not be aware about.

In an earlier post, Comments on the new residential land sale with 60 years lease or shorter, I wrote that URA has announced the residential site at Jalan Jurong Kechil with a variable lease of 30, 45 or 60 years lease. The land received 23 bids with all on the 60 years and only one for 45 years. This is expected as this is the first time residential land has been released at less than 99 years, so developers should be somewhat cautious.

However, the prices which came in are nothing short of surprising. The site was awarded to top bidder World Class Developments, a subsidiary of SGX listed Aspial Corporation for $73.8 mil or $481 per square foot per plot ratio. It was 10% higher than the second bid of $66.9 mil by Chip Eng Seng.

At $481, breakeven is estimated to be between $840 and $870.  With that, selling price would be expected to be about $1,100. That would be $500 cheaper than the $1,600-$1,800 psf which nearby Bukit Timah new developments are selling for according to SLP International Property Consultants.

 

Comparison to Nearby Properties

My first question is whether the discount of $500 psf is worth it for the 60 years lease? It is also important to note that the area is not exactly Bukit Timah area either as it is not along Bukit Timah Road or Dunearn Road. Also, most of the Bukit Timah houses are freehold rather than 99 years leasehold. So is the discount worth it comparing to a freehold property? Personally I don’t think so.

 

Too Expensive For a Retirement Home

As $1,100 psf, it would also be comparable to condos with above 90 years lease left which may also be in good locations such as near MRT. So its not exactly cheap either when compared to existing leasehold condos. One of the ideas was to build it as a retirement home, but why would anybody pay $1,100 psf for a 60 year lease retirement home when there are plenty of other options which are much cheaper and have longer leases? In general, the idea of a retirement community would be one which is affordable and has reduced cost of living options, both of which are hard to achieve.

 

Financing The House Will Be Difficult

Financing would also be difficult with some banks not willing to lend and others willing to lend with reduced loan tenors and possibly reduced loan to valuation ratios. The lack of financing options also contributes to making the house much harder to sell say 5-10 years down the road as it would only have about 50 years lease left by that time.

 

However, judging from the developers’ lukewarm response, they seem to think that the 60 year lease project will be a viable one. Now what’s left is to see how well they sell to the public. If the project sells well, it could be a potential game changer for Singapore. We may start to see more shorter lease sites, which is similar to Hong Kong 50 year leasehold properties. I believe this will make freehold properties even more valuable.

 
For further information, you may be interested in:

Comments on the new residential land sale with 60 years lease or shorter

Comments on the UOB 50 Year Housing Loan

Further Comments on the 50 Year Loan

Bank Negara Measures Taking a Toll On Housing Prices

The Trouble With Shoe Box Homes

Calvin Yeo and Making Passive Income Featured on Singapore Business Times

Reader Questions and Answers on Leasehold Condos, Mickey Mouse Apartments and Investments

2 Responses to “60 Year Lease Residential Site Awarded for $73.8 million”

  1. Raymond Lim says:

    Hi Calvin,

    Just for reference, in order to achieve annually of around SGD$60K of passive income (source from dividend), one need to invest how much of principal ? (assuming of investing of defensive stocks which distribute decent dividend).

    It is possible to achieve this target as an average Joe ?

    Many Thanks here.

    • Hi Raymond, it is quite simple actually. If your dividend yield for the portfolio is 6%, you need $1mil in invested stocks to get $60k, for 5%, it would be $1.2mil. However, do note that the dividends must also grow, or the income actually decreases in purchasing power over time due to inflation.

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