The Impact of New Launches On Surrounding Areas of Your Location

With plenty of en-bloc sales that has happened in 2017 and 2018, developers are now beginning to launch new properties at their newly acquired sites.

These new properties will be ready within 2-4 years’ time – depending on the developers construction time, marketing efforts and the sales responses.

For myself, I have been monitoring several areas that has achieved TOP (Temporary Occupation Permit) status. These newly-completed condo developments has added hundreds or even a 1000 new homes & units to the vicinity.

One of the biggest impact of these new developments is on the rental market in the surrounding areas.

What is the impact when there is suddenly a lot more choices available within your area?

In this article, I will be analyzing the rental markets in 3 different areas in Singapore.

Rental Market within the vicinity of Tanah Merah MRT Station

Within the last 2-4 years, new condo developments has sprung out in the empty plots of land around Tanah Merah MRT station.

In order of completion, these developments are:

• The Tanamera (1994, 288 units)
• East Meadows (2002, 482 units)
• Casa Merah (2009, 556 units)
• Optima @ Tanah Merah (2012, 297 units)
• Urban Vista (2016, 582 units)
• The Glades (2017, 726 units)
• Grandeur Park Residences (2021, 720 units)

Optima @ Tanah Merah Rental Transactions between 2013 to 2015

In 2013, 400-500 sqft units were being rented out at between $2800 – $3500 per month.

Urban Vista Rental Transactions In 2016

Urban Vista was completed in 2016. The rental transactions in 2016 for Urban Vista’s 400-500 sqft units was between $1800 to $2100 per month.

Optima @ Tanah Merah Rental Transactions In 2016-2017

The impact on Optima @ Tanah Merah’s rental transactions was almost immediate – transactions for similar sized units dropped from a high of $3500 per month  in 2013 to $2000 per month in Oct 2017.

Even in 2016, we could already see that the monthly rental dropping from $3000 to less than $2500 per month.

With the completion of The Glades in 2017, I anticipate further drops in the rental market.

For the investor and landlord, you might have to consider that the rental markets becoming more competitive within these areas – you might find that tenants might not be easily found if you maintain a higher than average price point.

Rental Market within the vicinity of Potong Pasir MRT

Just beside Potong Pasir MRT, there will be 2 relatively new condo developments coming soon.

Let’s look at 3 condo developments within the surrounding areas:

• One Leicester (2009, 194 units)
• Sennett Residence (2016, 332 units)
• The Poiz Residences (2019, 731 units)

Rental Transactions at Leicester Road between 2013 to 2015

In 2013-2014, units between 900 to 1000 sq feet commanded between $3100 to $3700 per month in rental rates.

Rental Transactions at Leicester Road between 2016 to 2017

In the periods between 2016 to 2017, the monthly rental rates began to reduce to below $3000.

Rental Transactions at Leicester Road between 2016 to 2018

The downward trend continues till now – dropping to $2400 per month for a 900-1000 sqft unit – in Jan 2018.

Sennett Residence Rental Rate in 2016

Sennett Residence was completed in 2016. For a smaller unit of 800-900 sqft, the rental was already established at below $3000 per month.

With the upcoming 731-unit Poiz Residences scheduled to be completed next year in 2019, what will the impact on the rental rates of Sennett Residences and other similar condo units in the surrounding areas?

Will the rental market become softer for both Sennett Residences and One Leicester?

This is something for your due consideration.

While for landlords-investors – the impact is clear, it applies even if you are an owner-occupier. 

Rental Market within the vicinity of Kovan MRT

Kovan has recently seen a flurry of mass market new launch condos within the area.

Let’s look at 4 condo developments within the area:

• Kovan Melody (2006, 778 units)
• Kovan Residences (2011, 521 units)
• Kovan Regency (2016, 393 units)
• Stars of Kovan (2020, 395 units)

Rental Transactions at Kovan Road (Kovan Melody) in 2015

Kovan Melody is the older development within the vicinity of Kovan MRT. The monthly rental it commanded was generally above $3000 per month for 800-900 sqft unit.

Rental Transactions at Kovan Road (Kovan Melody) in 2016

Kovan Regency went TOP in 2016. This seemed to align with the rental dropping in Kovan Melody within the same year as supply of units within the area increased.

Rental Transactions at Kovan Rise (Kovan Regency) in 2016

Kovan Regency is a newer development located at Kovan Rise.  For a 600-700 sqft unit, its rental rate was between $2500 – $2700 per month in 2016.

Rental Transactions at Kovan Rise (Kovan Regency) in 2017-2018

In 2017-2018, the rental rates started to slide to below $2500 per month for 600-700 sqft units.

Rental Yield of Kovan Melody versus Kovan Regency

Let’s look at Kovan Melody (2006):

• 900 sqft, 2 bedroom unit
• $2800 per month rental
• Bought at $1.065 million
• 3.15% Rental Yield

Let’s look at Kovan Regency (2016):

• 700 sqft, 2 bedroom unit
• $2700 per month rental
• Bought at $1.04 million
• 3.12% rental yield

It is interesting to take note of this: Both rental yields are similar even when one condo was cheaper and smaller than the other.

Kovan Melody Resale Transactions

In 2015 – 2016: Kovan Melody pricing was between $958K to $1.0X million.

Is there any correlation between dropping rental rates and cheaper transacted resale prices at Kovan Melody?

Perhaps the trend is not strong enough but I believe as more data comes in, it could become more obvious.

Key Lessons To Remember About Rental Rates & Rental Yield

Being a property agent on the ground everyday, rental rates are a strong clue to me.

It is important to take note of the significance of rental rates dropping.

Based on my experience, this indicates that it will become much harder to sell the unit at the peak price.

Some sliding rentals might not indicate a strong trend to you, but to wait before you take action can be dangerous.

Before the rental market drastically drops, do make a consideration whether it is time to make an exit from your property.

For some buyers out there, rental yield is a strong indicator of future returns. It is kept in mind all the time – a calculation that is easily done to check whether a unit is worth buying.

Time To Exit Before New Launches Are Completed?

If you currently own an older unit and there is a hyped-up new launch in your surrounding areas, you have to sit up and take notice.

There is no focus on your development but there will be plenty of people focusing their attention on the new launch there.

Be careful of the potential impact on your own existing property when there is going to be an increase in existing supply.

At the same time, there is also an opportunity that you can take advantage of – but decisions must be made before the new launch hits TOP and multiplies the number of units available within your vicinity.

There is also a possibility that your property might not appreciate as much – compared to other properties where there is no new development going on.

There is a certain herd mentality that goes on when there is a lot of attention and hype towards your area.

Your area suddenly becomes the centre of attention.

The potential of getting interested buyers are far higher – making it easier for you to make an exit from your property.

So far, I have analyzed 3 different locations within this article.

But I believe there will also be similar impact on rental yield for these 4 other locations:

• Tampines
• Jurong / West Coast
• Alexandra
• Robertson Quay

New Incoming Supply = Future Rental Drop Within Vicinity

Judging by the trends in the examples I shared above, it is important to monitor new incoming launches especially if you own a condo development within the same area.

With rental rates dropping, potential buyers who are investors will no longer find your unit attractive.

And with reduced rental rates, the only way to sell to such buyers is to lower the selling price – so investors will find it worthwhile to buy.

Remember, most investors will buy based on the returns of the rental income.

If you have plans to exit from your property within the next 3-4 years, you might want to consider to do it earlier instead of later.

Doing it later by procrastinating on this decision – could cost you more down the road.

If your rental drops by 30%, investors-buyers can use this to justify not paying a higher price.

For the home buyers, they might also not buy at such high price as it doesn’t make much investment sense. Unless they love the property so much, that high prices do not deter them.

But the likely scenario:

You might have to live with the possibility of letting go of your property at a price that might be unpalatable to you.

Being on the ground everyday, I have seen the expectations of both buyers and sellers.

I have seen sellers who will hold their ground and stick to their preferred higher price… despite the fact that buyers no longer see the property as being “worth that much”.

You can’t blame the buyers especially with so many similar units and choices available.

What happens then?

The expectation for both sellers and buyers will be more difficult to meet – resulting in a lower volume of transactions.

And with such tepid low volume, the property will eventually lose its shine.

Hence, it becomes essential that we ALWAYS review your property portfolio and decide whether is it time to make an exit from your investment.

Conclusion

You might previously have learnt that differences in psf prices could be an indicator whether a unit in a particular development is worth buying.

For example, a condo being launched at a lower psf pricing than surrounding area – indicates that buying a unit there is a good buy as it is “cheaper”.

But comparing PSF might not be good enough.

Even though the psf pricing might be different, the rental yield might be similar to each other.

Do not be surprised that certain condo developments – even older ones – are sold at much higher PSF because the returns on rental could be higher.

Warren Buffet once said – “Be greedy when others are fearful, but be fearful when others are greedy.”

This trend was already spotted about 2 years ago.

If you are an existing property owner who is looking to make an exit and extract your gains, you are welcome to contact me for a discussion on your next potential options. 

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