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25% discount offered by Hock Lian Seng.

Saturday, June 28, 2014

I have been receiving quite a number of emails recently offering discounts on asking prices for condominiums in Singapore. It would seem that local developers are feeling the heat and the decline in asking prices could persist for some time to come.

I received another email today and it is for Skywoods condominium which is being jointly developed by Hock Lian Seng, King Wan and TA Corp.


I said in an earlier blog post that the break even price for Skywoods is estimated to be $1,100 psf. So, if you would like to buy a unit in the project, getting a price that is very close to $1,100 psf would be like getting a home built for you at cost with almost no profit for the developer. This is hardly fair to the developer but this is life.

Source: www.stproperty.sg
 
For those who have been waiting to buy a condominium in Singapore, it is probably time to start looking around as it is now a buyers' market and it looks to be increasingly more so.

Related posts:
1. Hock Lian Seng: Won $221.8 million contract.
2. Buying an apartment: Some considerations.
3. Buying a private property as an owner occupier?
4. Buying a property: Affordability and value for money.

27 comments:

pf said...

Wow....that seems to be a good price!

I like that area. Lived nearby when I was a kid. Its really nice if driving.

AK71 said...

Hi pf,

The new Downtown Line will introduce the convenience of the MRT to the area. To be completed by 2015, if I remember correctly. So, driving will become optional. ;)

Yes, if we look at new 99 years leasehold condos launched in D3 (where I used to stay) which sell for $1,600 to $2,000 per square foot now, then, we have to wonder if the premium is worth it just to stay closer to town.

Even in D12, we see prices as high as $1,700 per square foot for the smaller apartments although they have moderated in recent months.

I believe that Hock Lian Seng et. al. are pricing this project more aggressively now to sell remaining units. They have competition from Eco Sanctuary by SP Setia in the same area.

pf said...

Need to walk abt 600m to the mrt which is equally difficult on very hot days and rainy days. Some more its private estates there. The town council not very enthusiastic to make sure the roads r tip top conditions for pedestrians. No obligation to have full covered shelter walk way.

That's why I don't prefer staying in condo over hdb flat. :)

AK71 said...

Hi pf,

There is much to be said in favour of HDB flat living, isn't there? ;)

I used to have to walk almost 1km to the nearest MRT station when I was an undergraduate, I remember. I was hardier and less spoilt in my younger days.

Eco Sanctuary is offering free shuttle bus service to Chestnut MRT station when completed. Maybe, Skywoods could consider offering a similar service.

pf said...

Yeah...for normal working level people its not that great to stay at a place with such daily inconveniences.

Btw, I've short listed 3 blocks of hdb flats in D12 for my first hdb purchase. :)

AK71 said...

Hi pf,

Of course, we must not forget all the goodies that the government gives in its annual budget to HDB flat dwellers. :)

pf said...

Correct. And the whatever subsidies that goes with the size of the hdb flat.

Are you planning to downgrade?

EY said...

Hi AK,

With 420 units to offer and only 68 units sold (based on URA website), I suspect the 25% discount offered doesn't apply across the board. If not, the developer will have to write off massive losses if your estimation of $1100psf breakeven is true. :)

It's probably another marketing gimmick to lure the crowd in. A few units would indeed be offered at 25% discount but they are probably the least ideal ones like low floor, road facing, west facing, odd shape, large balcony/void space.

Personally, I would be quite suspicious of such hefty discount considering that the macro environment is still relatively buoyant. When the economy turns really bleak with no light to be seen in the tunnel, then a mega sale of this magnitude is possible.

If it is a marketing gimmick, the original list price is probably inflated to give the impression of a high discount. :)

EY said...

But of course, if it is 25% discount to HLS' share price, it will pique my interest. :P

dexter choo said...

Hi may I know how you got the estimated price of 1100 psf ? And how did you calculate this to be the break even price?

AK71 said...

Hi pf,

I bought private because I didn't qualify for BTO HDB flats in the past. Actually, I still don't even with the government allowing singles to buy BTO 2 room flats now. :(

I am not sure that I want to buy resale HDB flats because they are not cheap, like you said, if we are buying in good locations within a stone's throw from a MRT station and amenities. It is in BTO flats that the purchase price is subsidised.

I understand the attractiveness of a well located HDB flat if we are thinking of renting out the spare rooms but I am not sure I want to share space with strangers, being a rather private person. -.-"

However, never say never. One day, I might just downgrade because a BTO 2 room flat at $100,000 is very attractive to me. I could do this when I am retired but I would, however, have to wait for 2.5 years after selling my condo to qualify.

AK71 said...

Hi EY,

My attempt to drum up some business for my company has been well and truly sunk! LOL! Well, you could be right, of course. ;)

Like I said during InvestX Congress, this is not a good time to be buying any private property in Singapore but there could be pockets of opportunity. So, people who are thinking of buying a private property here might want to start looking. Window shopping, so to speak. ;)

Everything else remaining equal, a 25% discount in Hock Lian Seng's share price now would not only pique my interest, it would send me into a feeding frenzy. ;p

AK71 said...

Hi Dexter,

I use a simple method that estimates development cost at $500 psf ppr.

So, since the Hock Lian Seng et. al. paid about $616 psf ppr for the land which has a plot ratio of 2.1, the breakeven price is about $1,116 psf.

It so happens that the experts also estimated the average breakeven price to be about $1,100 psf for the project. :)

pf said...

Ak71, I'm not sure how well subsidized are the bto these days now that hdb is not using a cost plus model according to my understanding.

My friend is waiting for his bto in clementi to be ready next year. He got a 90sqm 4 room, near mrt (not dbss) for 500k.

The 3 blocks of flats in D12 I shortlisted is about 18years old 108sqm and resale prices last few months is 580k to 630k.

Another group of flats in D12 on my list built 2006 and also selling around 600k, 4 room 90sqm.

In relative terms, I don't think what my friend has is considered cheap.

Even with subsidies, those subsidies would be taken back by govt in the form of resale levy if you ever sell the flat. Even if en bloc, the resale levy still applies.

What subsidy is there...nothing is cheap. 一分钱一分货。We can only try to find value.

hangloose said...

Bro AK71,

How to find out the purchase price the developer paid for a property?

AK71 said...

Hi pf,

Well, there is also the matter of the lease. Your 18 year old $580K resale flat would have only 81 years left. If we were to top up the lease to 99 years, proportionally, it would be $644K. The $630K resale flat would be $770K! It is also hard to say how much renovation would be required for an 18 year old flat. Anywhere between $40K to $60K?

Anyway, we really have to compare flats in the same district. I was told that resale flats in Clementi are very expensive. A friend's 3 room flat was recently sold for $425K. Mind boggling! Even more amazing was the fact that his neighbour's 4 room flat was sold a few months ago for almost $700K! These flats are 20 years or older! So, if we were to top up the lease to 99 years, imagine the prices. -.-"

So, your friend's BTO 4 room flat with a $500K price tag is much lower than market price. :)

I believe that being able to get a BTO flat is always better compared to buying resale from a value perspective, everything else remaining equal. :)

AK71 said...

Hi hangloose,

The information is usually available on the internet. Just do a search.

If it were a public listed company, they would usually make an announcement on their website which is usually reproduced in SGX's website.

pf said...

Hmmmm....I didn't really take the lease into consideration because if I compare new and older flats in a good location, the prices are not too different.

Same D12 location. 81 yr lease remaining is selling perhaps just 50k or so more expensive than those with 60 yr lease remaining.

For clementi, I don't think my friend can sell his flat very much above market price that other older flats are fetching.

AK71 said...

Hi pf,

I would take the remaining lease into consideration especially if we view the purchase as an investment too. It could be difficult to resell a property with a much shorter remaining lease when the time comes due to a greater difficulty in getting a loan from the banks by potential buyers.

In recent years, due to a housing shortage, people became less bothered with freehold, 999 year leasehold or 99 years leasehold. A longer lease or freehold used to command a premium. We even have brand new 60 years leasehold condos now and people responded enthusiastically to the more affordable prices: 60 years leasehold condominium.

However, whether this situation would persist or not is anyone's guess with oversupply set to worsen in the near future.

Singapore Man of Leisure said...

1) pf,

The resale levy is waived for my SERS case - if the flat was bought directly from HDB or from the open market with a CPF housing grant ;)

Friendly verification from the community.


2) AK,

Endrene "saw through" both you and me. think we need to buy lead underwear.

AK71 said...

Hi SMOL,

Wah! Lead underwear? You try first and let me know comfortable or not. -.-"

Anyway, why underwear? You think Endrene was eyeing your nether regions? OMG! O_o

pf said...

Yes, thanks smol. However, not all are exempted from levy.

http://www.hdb.gov.sg/fi10/fi10329p.nsf/w/eSERSBenefits?OpenDocument#Exemption

Point taken on the lease part.

EY said...

Hello the 2 archer big brothers,

Be careful of lead poisoning hor. Remember not to put your hands in your mouth and take more calcium and iron. Wash your hands as frequently as needed, pls!

AK71 said...

Hi Endrene,

It wasn't my idea. It was SMOL's! I think he was trying to lead me astray with all the talk about lead underwear! Well, he could become the leading figure in the male fashion industry if male celebrities were to follow his lead. ;p

I have no intention of getting lead underwear. Apart from being totally uncomfortable, I imagine that they would also be quite expensive. -.-"

Solace said...

Was monitoring the sale of skywoods on a monthly basis for Kingwan.

Guess you might be interested also for HLS.

Update till June 2014.

Total units - 420 units. Cumulative Units Launched to-date - 420 units. Cumulative Units Sold to-date - 101 units. Units Sold in the Month(June) - 19 units. Median Price - $1,235.00

https://www.ura.gov.sg/realEstateIIWeb/price/submitSearch.action

AK71 said...

Hi Solace,

Thanks for sharing this. I am quite ready to accept zero profit from this project. If they can breakeven, I will be quite happy. :)

AK71 said...

THE SKYWOODS condominium's expected TOP date is December 2016 but I expect it to to be a bit earlier. It could be early or mid 2016.

Upon the project obtaining its TOP, Hock Lian Seng could possibly see another earnings boost (but it could be a modest boost) as 282 units out of 420 units at THE SKYWOODS have been sold by end of last month. This is a vast improvement from 10 months ago when only 101 units were sold.

Average selling price of the 14 units sold in June 2015 was S$1,178 per square foot which is decent enough to turn in a profit. :)

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