Developers gain from the new serviced apartments, while private landlords lose out
The threat to individual owners
Those who are or are interested in becoming private residential landowners need to be wary of the growing threat of long-term serviced flats.
Zion Road parcel A has a number of strong features that may appeal to a homebuyer looking for an investment. Renters may be attracted by the new flats built on this site due to its proximity from Havelock MRT station and Great World City.
The catch is that there are several hundred units of long-stay serviced apartments being built on the same land parcel. The developers will also be building long-stay serviced apartment units on the same site. This means that individuals who wish to rent a home which will be constructed there will need to compete. Most likely, a developer’s leasing campaign will be more successful than that of individual landlords.
As more long-stay apartment buildings are constructed islandwide, the new housing type is likely to grab a larger share of private home rental markets, possibly at landlords’ expense.
After all potential tenants could prefer to live in professionally managed, well-maintained long-stay apartments.
Yes, there is a pool of tenants that can grow if locals start renting and more internationals come to work or learn here.
However, being a residential landowner is a difficult task. It can be expensive to buy an investment property. Singaporeans are charged Additional Buyers Stamp Duty of 20% when they purchase a 2nd home and 30% for 3rd and subsequent properties.
The residential tax rate for those who do not own their home has also risen this year from 12 per cent to 36 per percent of the property’s annual value.
In addition, renting out private homes will become increasingly difficult in the near future as individual landlords face increasing competition from co-living space operators or owners of serviced residences.
Home renters have more options to choose from in the future. Renters have the option of choosing between public and privately owned homes, coliving spaces and serviced accommodations with a 7-day stay requirement. A new category is also available: long-stay apartments that require a 3-month stay.
Revenue Recurring
I think developers would be interested in purchasing land parcels so they could build apartments and houses for long-term rental. The developers will be able to generate development income and recurring revenue with such sites.
By selling uncompleted residential properties off-plan, the developers are able to receive cash inflows from buyers that pay according various milestones for project development. This can lower project financing costs while increasing the rate of return.
This is especially true when interest rates on property developments are high and margins on projects are small.
Besides focusing on the profits generated by building and selling properties, many developers also wish to increase their recurring revenue.
Stronger recurring revenues make earnings more stable and give property groups a buffer when they are not making enough money from their development projects, either because of project completion times or market conditions.
The developer will increase its income by owning long-stay apartments after the project has been completed.
Over time, the owner of a long-stay portfolio can create an entirely different business. Developers can secure a strong competitive advantage with investments in branding, customer relations, marketing, and property maintenance. They also benefit from economies of scale, which allows them to save money.
A developer active in long-stay serviced apartments can even place units in separate developments to target certain groups, including older renters looking for a higher level of service.
After that, the portfolio of serviced long-stay apartments can either be divested to a listed Real Estate Investment Trust (Reit) fund or private funds, depending on who offers a more attractive valuation.
Some users of space may benefit from the new long-stay apartment service. The list includes foreigners working or studying in Singapore, as well locals who want to rent a place while waiting for their own home or renovations.
When long-stay apartment serviced rentals are launched, people who wish to rent the apartments for longer periods do not have to compete in order to get them, as opposed to those seeking shorter stay, such a tourists and business travelers.
For long-term stays, rates are likely to be more reasonable than for shorter stays.
The developers’ appetite for this new type of housing is likely to be closely watched as the Zion Road site (Parcel A), which has a 99 year leasehold, closes its tender on April 4.
The Government Land Sales program has confirmed that the land parcel can be used to build 735 homes conventionally and 435 apartment-style long-stays. The site has an area of 85.551 square metres, of which 20,000 sqm must be dedicated to building long-stay services apartments.
The same as existing serviced accommodation, which has a seven-day minimum stay requirement, long-stay serviced accommodations cannot be strata divided for sale.
Would developers with a strong background in hospitality be willing to bid aggressively for residential sites that feature long-stay apartment components?
But building more long stay serviced apartments may help to mitigate a possible decline in private home rentals, if less people decide to invest in real estate because ABSD rates are high.
Ensuring that there is a sufficient supply of high-quality rental homes expands the choices available to tenants. That includes local youth and foreign talent who Singapore is keen on attracting. The lack of housing options that are competitively priced should not impede the luring of talented people to Singapore.
To democratise residential real estate ownership, the policymakers might encourage individuals to take ownership of serviced apartments for long stays through vehicles such listed Reits. Such assets should ideally not be largely owned by wealthy individuals and institutions.
Offer long-term serviced apartments to individuals looking to save or invest for retirement as a stable, exciting and exciting property asset.
