Residential property developments in the CBD are so hot right now

The increasing trend of living in the city led to a spike in residential property developments within the Central Business District (CBD).

Developers have turned their eyes on redeveloping existing commercial buildings into residential properties to cash in on strong buyer interest.

For instance, all 202 units in Hong Leong’s inner city residences at 76, Shenton Way, were sold in one day.

Among new redevelopments in the city is the 99-year leasehold luxury apartment Lumiere by boutique property developer BS Capital.

There are only 50 units remaining in Lumiere, which sits on the site of the former HMC Building located right behind Marina House. The latter is also another property set for redevelopment.

However, the recent increase in development charge (DC) announced by the Government could pose higher barriers for developers to build luxury condos in the city. For instance, DC rates for conversion to residential non-landed properties in the Marina Bay and Raffles Place area have gone up to $7,700 per square metre (psm) for this month – a 15.8-per-cent rise from $6,650 psm in March.

As for the Shenton Way area, DC rates were revised from $5,460 in March to $6.300 this month, marking a 15.4-per-cent increase.

The rates make up about 5 to 10 per cent of the total land value and, coupled with the new property market cooling measures, analysts expect demand for inner-city living to soften.

“Redeveloping cases may also take a slower growth path. With higher DC rates and the new cooling measures, this may put off developers if the overall returns don’t make sense,” said Dr Chua Yang Liang, head of research of South-east Asia at Jones Lang LaSalle.

Analysts said DC rates in the city area could likely trend higher when the Marina Bay Sands becomes fully operational.

Currently, there are only a handful of office-to-residential properties dotting the CBD area and most of these properties have been sold at eyebrow-raising prices of close to $2,000 per square feet.

The Lumiere by BS Capital sold its 990 square foot unit for almost $2 million, which translates to about $1,999 per square feet in April – the most expensive unit sold in the development.

At 76, Shenton Way, Hong Leong sold a 969-square-foot unit for over $2 million, or $2,071 per square feet.

Developers looking to cash in on the expected rise in rents may want to consider owning pure office properties instead, said industry observers.

“The commercial market is seeing a revival of rentals, so the commercial element can be more attractive now compared to residential properties,” said Mr Donald Han, managing director of Cushman and Wakefield.

Rentals for Grade-A offices in the Central Business District are expected to go up by 10 to 12 per cent from the current $7 to $8 per square feet.

But, some developers are lucky enough to capture the city’s upside potential on both the commercial and residential end, said Mr Han.

He singled out plans set out by United Industrial Corporation to convert its former UIC building into a mixed residential and commercial development with a gross floor area of 926,589 square feet.

UIC paid $160.1 million in DC for this property at 5, Shenton Way. It will be torn down to build a 60-per-cent residential project, yielding about 593 residential units.

Source : Today – 6 Sep 2010