Flat Hopper

Bite-Sized Portions Not Served Here.

The Shore Residences and Converted Freeholds (Part 1)

with 2 comments

Back for the new year, I noted a Straits Times article on 3 Jan, “Freehold better than Leasehold?”  where Joyce Teo talked about the emerging trend of buyers preferring leasehold to freehold properties with The Shore Residences as a case in point.

Originally a freehold plot, Far East Organisation repackaged the former Rose Garden site as a 103-year leasehold property. This means that the property returns to them at the end of the lease or at such point when Far East wishes to collectively repurchase it from the owners.

In the article, Joyce mentions 2 points that are rather interesting.

  1. The developer cannot yet get the full value for the property. (The 10-15% premium that freehold properties have over similar leasehold properties)
  2. There is a price gap between freehold and leasehold properties which may disappear during good times, but will appear as property ages.

For brevity, in Part 1, I will talk about the property’s full value and Part 2 will be more data-centred on the above price gap.

The Shore Residences at the preview in early December was priced at about $1,200 psf, so according to the article,  full value can be considered $1,380 ($1,200 * 115%) psf. Using that as the basis of comparison, lets look at the freehold and leasehold properties in the area to see if Far East indeed did not yet realised the value of the property.

Nearby projects,

  • Silversea (Far East Organisation, 99-Year): Tower 3 & 4 units are priced as a staggering $1,500 psf. However it is positioned as a luxury project with a magnificent sea view to boot.
  • One Amber (Brendale, Freehold): Highest sales by psf in December and November were $1,150 and $1,250 respectively, and for high storey units (20+).
  • The Esta (Richdeal, Freehold): The Esta sold between $1,050 and $1,200 psf during the last months of the year. It did peak at $1,334 psf during August.
  • The Sea View (Wheelock Properties, Freehold): Sold in December and November at $1,350 to $1,400 psf. It is arguably the most luxurious of the new projects along Amber Road.
  • Cote D’Azur (Fraser Centrepoint Homes, 99-Year): Its sale price hovers about the $1,000 psf mark. And being leasehold, it is the closest condo to The Shore Residences.

First off, Far East Organisation agents would surely tell you that compared to Silversea, The Shore Residences is some 20% cheaper. It may not have a view to East Coast beach, but comes with a man-made private beach built-in. Unfortunately because of slight but significant location difference, Silversea is not an ideal comparison. However, the fact that Silversea has sold out Towers 1 & 2, The Shore Residences could be worth more than the $1,200 might suggest.

Next the Amber Rd projects of One Amber, The Esta and The Sea View. It is clear that The Shore Residences is practically priced the same as both One Amber and The Esta. Having not seen the showflat, I cannot comment about their build and features similarity. But using full value as $1,380, then Shore Residences is considered by Far East to be closest to The Sea View levels. Realistically, I think that buyers would compare it to One Amber and The Esta, its closest neighbours.

Lastly we have Cote D’Azur, a 99-Year condo just a few blocks away at Marine Parade Rd. At $1,000 psf if we add the 15% premium put forth by the article, a freehold Cote D’Azur could be valued at $1,150. And that is just about right. One Amber and The Esta both averaged $1,150 during the last 2 months of the year. The Shore Residences, at 104-Year is remarkably priced closer to $1,200 and will likely be priced higher still once sales are open to the general public.

Conclusion

I dare say that The Shore Residences is already fully valued at freehold levels when released. Market buoyancy and economic optimism is doing its part to keep the leasehold and freehold price differential at a minimum. Far East Organisation has not only cleverly sold the project as “Buy 99 years and get 4 years free” while getting freehold value, the lease allows them to keep the land as an asset in their balance sheets and also participate in its future development.

Advertisements

2 Responses

Subscribe to comments with RSS.

  1. True enough the that the price gap between leasehold & freehold is closing up. However one has to be careful in the depre factor coming in in selling the development when the lease is using up, since one may find it difficult to sell with financing valuation turning to be nasty on the depre factor.

    keithyip

    January 11, 2010 at 9:10 pm

    • You are right and I think that valuation of 2nd hand properties is always going to be sketchy compared with developer sales.

      L

      January 12, 2010 at 2:40 pm


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: