Tale of two cities for recent condo launches

During the weekend before last, four new private residential projects were put on the market and all of them had posted relatively tepid sales, ranging from five units for Cuscaden Reserve to 21 units at Meyer Mansion.

The other two projects released in that week were Uptown@Farrer, next to Farrer Park MRT Station in the Serangoon Road area, and The Antares, next to Mattar MRT Station in the Aljunied area, with respective sales of 12 units and 17 units.

These sales figures pale in comparison with Avenue South Residence, which was released the previous weekend and achieved sales of 276 units. Prior to that, Parc Clematis also did well, with more than 300 units sold on launch day in late-August.

Both Parc Clematis, which is being developed by SingHaiyi Group, and Avenue South Residence, being developed by a UOL Group-led consortium, have more than 1,000 units each.

No doubt, Avenue South Residence benefited from the positive news about the Greater Southern Waterfront. Another wow factor is its 56-storey height.

But size matters too. Economies of scale can be derived. Assuming developers set aside 1-2 per cent of a residential project’s gross development value for advertising and promotion costs, in absolute quantum, this works out to a much-bigger A&P budget for a big project than a small development. This creates more bang for the buck in creating awareness of the project in the eyes of potential buyers. Agents too would be motivated to find buyers for big projects – as there are more units to be sold.

The four projects released during the weekend before last and which saw lukewarm sales are much smaller in scale.

Most analysts say their pricing was on the high side and, in some cases, this was due to the developers having paid high land prices towards the end of the land-buying cycle that began in mid-2016 and ended in early July 2018, when the latest round of cooling measures were announced.

At the 99-year leasehold Cuscaden Reserve – being developed by SC Global Developments, New World Development and Far East Consortium, the median unit price of the five units sold is S$3,341 per square foot, based on data from URA Realis. This pricing level is not far off what new freehold luxe prime-district projects are commanding.

For example, 73 units have been sold at Boulevard 88 since the project’s release in March this year at a median price of S$3,662 psf. At 3 Orchard By-The-Park, the 14 units sold since July 17, 2018 went for a median price of S$3,621 psf.

The developers of 3 Cuscaden have moved 72 units at a median price of S$3,534 psf since last November.

There are differences among the four projects, for instance, in their median unit sizes. That said, those looking for a luxe condo property in the prime districts would mostly go for freehold.

Cuscaden Reserve’s developers clinched the site at a state tender in April 2018 for S$2,377 psf per plot ratio (psf ppr); the site drew nine bids. Analysts estimate the breakeven cost at S$3,100 psf, resulting in profit before tax margin of about 8 to 10 per cent.

At the same tender, the developers of The Antares – a joint venture involving Hock Lian Seng Holdings, Keong Hong Holdings and TA Corporation – clinched the Mattar Road site.

This site drew 10 bids. The S$1,109 psf ppr winning bid translates into about S$1,560 psf breakeven cost for The Antares. The profit margin is around 14 per cent.

The S$1,794 psf median price for the 17 units sold in the first weekend is deemed too steep for a relatively untested location.

The respective developers of The Antares and Cuscaden Reserve probably took the view that it was better to launch their projects now, despite the slim profit margin, given the substantial supply from projects in the pipeline that have yet to be launched.

It’s a slightly different story for the other two projects that saw tepid sales. The 21 units GuocoLand moved within the first week of releasing the freehold Meyer Mansion reflect a median unit price of S$2,728 psf. GuocoLand paid S$1,580 psf ppr for the site; analysts expect the breakeven cost at around S$2,200 psf – leaving a comfortable 25 per cent profit margin.

At Uptown@Farrer, too, developer Low Keng Huat’s margin is estimated at about 24 per cent. Realis data shows 12 units were sold in the first weekend at S$1,860 psf; analysts estimate the group’s breakeven at around S$1,500 psf. Low Keng Huat clinched the site for S$1,001 psf ppr at a state tender in January 2017, relatively early in the land-buying cycle.

Low Keng Huat and GuocoLand had room to price their projects more attractively – and move more units at launch.

But they probably took the view that private home prices are unlikely to correct, despite the weak economy, and that they will be able to sell off their projects over a period of time.

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