High-end, completed, leased out

Straits Times: Wed, Mar 28

A SIGNIFICANT number of recently built new homes, many of them luxury units, are languishing unsold, as wealthy potential buyers watch nervously as global economic confidence ebbs and flows. Ever pragmatic, developers have turned to a logical solution to keep the cash coming in: They are leasing out unsold apartments at projects that have been completed. This way, the developers earn some income until buying confidence returns to this elite part of the market. About 25 projects have at least 10 units unsold, and a large number are upscale projects in the prime districts of 9, 10 and 11, which include the Orchard, River Valley, Bukit Timah and Tanglin areas. The figures were released by property consultancy Savills Singapore, and were based on an analysis of the Urban Redevelopment Authority's fourth-quarter data. Projects with units remaining unsold include Reflections at Keppel Bay, with 290 units unsold; Hilltops in Cairnhill Circle, with 208 units; Scotts Square in Scotts Road, with 74 units; and The Clift in McCallum Street, with 63 units available as at the end of last month. While upmarket homes were very popular with buyers with the means to buy them during the boom of 2007, the segment has been quiet in recent years, with prices languishing below their peaks and sales slowing to a trickle. City Developments Limited (CDL) is one developer that has chosen the leasing option. It said that last year it stopped active marketing for its 228-unit The Residences at W Singapore Sentosa Cove and diverted its efforts towards leasing instead. The project has 207 unsold units. A spokesman said CDL is awaiting the completion of the 240-room W Singapore Sentosa Cove Hotel and the retail component of the Quayside Isle Promenade in August before ramping up its publicity campaigns for The Residences at W. 'When completed, the Quayside Isle will be home to trendy cafes, fine dining restaurants, speciality shops and entertainment spots and bars,' he added. Keppel Land also said last week that 154 unsold units at Reflections will be set aside as corporate residences while the remaining 136 will be open to buyers. The average rent for these fully furnished units is about $9,500 a month. But Keppel said that the decision to set aside units for corporate leasing at Reflections followed a similar move at its previous project, the 969-unit Caribbean at Keppel Bay completed in 2004, where about 170 units were earmarked for lease. More than 200 units were still unsold when the project was completed. These units were sold many years after completion at a higher price, as the market moved up, benefiting the company. However, not all developers are jumping on the leasing bandwagon. KOP Properties chief executive Leny Suparman said the company has no plans to lease out the remaining units at its 58-unit The Ritz-Carlton Residences in Cairnhill Road, with 39 units unsold. 'The project has been completed for less than six months, and we are continuing to receive much interest from buyers. Therefore, we are not considering leasing at this point,' she added. Experts add that some developers prefer to keep their unsold apartments empty, as some wealthy buyers prefer purchasing brand-new units. But Mr Ong Kah Seng, director at consultancy R'ST Research, said the leasing out of unsold units is 'feasible', especially in a weakened market where the rental income can partially defray holding costs or delays in developer sales proceeds. This is typically an option if the developer expects market sentiment for the segment to remain cool for more than six to nine months. A lease of less than one year can then be considered, he added. Mr Alan Cheong, director of research and consultancy at Savills, said that if a developer had already recovered its costs but saw further sales to be challenging, it may consider leasing instead to maintain a good cash flow. 'Developers can't cut prices, because that would be shooting themselves in the foot, and other developers and their previous buyers will not be pleased... So leasing becomes the next best alternative,' he added. [e-mail] Source: The Straits Times