REC Insights Part 1 of 3 : Prime property at near Mass market prices?

 

In the previous article “5 things you must know before your next property investment”, I discussed about higher vacancy rates, rising interest rates and a potential oversupply situation from 2021 onwards. In addition to the previous discussed points, many Singaporeans would say that salary has not risen, or has not risen in line with inflation while property prices gone up, and most recently, gone up a huge amount that numerous property buyers are being priced out of the market. Fear not, there are and will be opportunities if you look hard enough.
Before we go on to insights (please note that this is my personal opinion only, disclaimer applies), it is important to understand what the future selling prices of en-bloc developments and government land sales will be. For the purpose of analysis, I will highlight selected estimated selling price below.
Fig 1. New Launch Price Table Source: Straits Times, Business Times. Compiled by: REC Notes: Outside Core Region (OCR), Rest of Central Region (RCR), Core Central Region (CCR)
Based on the above selling prices, new mass market developments are priced at the $1700psf range, while new city fringe developments are priced at $2000psf or higher range and new prime area developments will sell at $3000psf range.
As an investor, we often have to look for the arbitrage opportunities, or the gaps where not many investors are looking at. In my opinion, there is a window of opportunity in District 1 & 2, Marina Bay/Shenton Way/Tanjong Pagar area. Some properties in District 1 & 2 are selling for $2000-2200psf. Buying a prime CBD property at this price, which is just $100-400psf higher than a mass market / city fringe new development would be a good investment with a good margin of safety entry point. To elaborate further on Marina Bay and Tanjong Pagar Properties as an investment, the following three key factors analyzed are outlined below:
1. Price Disparity
 
An analysis on the property price difference between the average New Mass market (outside central region) properties and New Central Business District or CBD (central core region) properties was done and the results are shown in Fig 2 and Fig 2.1.
Fig 2. Price Disparity Table  Source: URA, Compiled by REC Research
Fig 2.1. Price Disparity Chart  Source: URA, Compiled by: REC Research
Based on Fig 2 and Fig 2.1, the trend seen is that the price gap between mass market and prime cbd properties have been narrowing. With prices of Mass market properties increasing while prices of Prime CBD property remain flat. Based on current price trends in fig 1, Prime CBD property prices are likely to rise bringing the price disparity from 1 : 1.4 back to 1 : 2.4 in 2012. Using the price disparity ratio, we can attempt to project the future price potential of Prime CBD properties which will be discussed further in point 3, price growth catalyst.

 

2. Location Growth Catalyst

Fig 3. List of Infrastructure Pipeline and Catalysts  Source: ST, Wiki Compiled by: REC
Marina Bay area has one of the most infrastructure spending by the Singapore government. First, the Marina Coastal Expressway (MCE) which costs S$4.3billion, was constructed to replace the East Coast Parkway (ECP) link to Ayer Rajah Expressway (AYE), creating an additional route to enter the Marina Bay CBD. The MCE would provide improved traffic going into the CBD. In addition, a total of 5 MRT lines converge into the Marina Bay and Tanjong Pagar vicinity with Marina Bay interchange having 3 MRT lines (north south line, circle line and future Thomson east coast line). Infrastructure is the first step in developing an area, after infrastructure is constructed, the government will be able to build more residential and commercial buildings. I believe this is exactly what the government has planned.
Marina Bay will have constant construction and development before it reaches its full potential some 20 years later. The first stage of marina bay’s growth was from 2005 to 2015, we are currently in the second stage of growth where the government is finishing up infrastructure developments till 2025, before more developments can be constructed, with the extension of the area towards Greater Southern waterfront city from 2025 onwards. I personally believe that Marina Bay’s growth timeline is summarized below,
a) Infrastructure Developments from 2005 to 2025
b) Next stage of demand growth from 2018 onwards and likely to have explosive growth from 2025 onwards when central subzone and straits view are built (fig 4.)
The next stage of growth has been kick off by the completion of Marina One by M+S Pte Ltd, a historical collaboration between both Khazanah and Temasek Holdings, the Sovereign Wealth Funds of Malaysia and Singapore Government. Marina One is the heart of Marina Bay, directly linked to Marina Bay MRT. Future developments will spread out surrounding this development. The next masterplan which is released every 5 years is expected to be in 2019, and is likely to cover more details of development plans about Marina Bay as well as Tanjong Pagar.
Fig 4. CBD Planning Overview Source: URA
      3. Price Growth Catalyst
 
Singapore’s finance industry transformation map (ITM) targets a total of 4000 new jobs (Fig 5.) created in the Finance and FinTech sector annually. This would contribute to higher rental demand which would in turn attract more investors.
Fig 5. Financial Services Industry Transformation Map
Source: Ministry of Trade and Industry
Attracting young well heeled individuals and property collectors, Wallich Residences, which is Singapore’s tallest building and residential development in Tanjong Pagar has seen units transact above $3800psf. With units on sale from $3800 to 4200psf, the trading range of CBD properties will eventually rise. Taking into consideration of the price disparity mentioned in point 1 above, based on 2018 mass market price of $1700psf, Prime CBD price should transact at $4000psf based on the old ratio of 1 : 2.4. It is only a matter of time before prices in the CBD will revise upwards.
With majority of infrastructure ready or waiting to be completed, the next phase of growth has started, for investors who missed the first wave of growth on The Sail, the next window of opportunity is here. Buying at a price of $2100psf range will provide a good margin of safety and good investment returns.
Our Views
Currently undervalued as seen from narrowing of price disparity (point 1) and multi-decade government growth plans, there are opportunities to invest selectively in properties in Marina Bay/Tanjong Pagar area with entry prices from as low as $1.1mil. For investors who have missed out the previous upcycle of this area, the next opportunity is here. If you like to find out other areas worth looking at, stay tuned for the next REC Insights article.

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