Developers benefit from new long-stay serviced apartment developments, but private landlords suffer.
Renters will have more options in the future. Renters will have more options in the future. They can select from co-living rooms, serviced apartments, and public or private homes.
Some space users may find that the new serviced long-stay apartments better suit their needs. Foreigners studying or working in the country, as well as locals renting a home while they wait for their new house to be completed or a renovation is being done, are all eligible.
Long-stay serviced apartment rentals will allow people to avoid competing with tourists and business travellers who are looking for shorter stays.
The rates for serviced apartments with a longer minimum stay will be lower than those without.
On April 4, the bid for Zion Road (Parcel A), a 99-year leasehold site for private housing, will close.
This land parcel is listed on the Confirmed List for the Government Land Sales Programme. It can produce 735 conventional houses and 435 serviced long-stay apartments. The site is 85,551 sq m in size with a minimum of 20,000 sq m for long-stay apartments.
The long-stay apartments are not strata subdivided like existing serviced apartment where the stay minimum is seven days.
Developers with strong hospitality experience might bid aggressively on housing sites that include long-stay serviced apartments.
Recurring Income
I believe developers will be interested in land parcels that allow them to build both homes for sale and long-stay serviced apartment rentals. Developers can make money from such sites and enjoy recurring income.
Developers receive cash from buyers when they purchase unfinished private homes. They pay according to various milestones in the project’s development. It helps reduce financing costs and increases the internal rate-of-return of projects.
When interest rates are high, and margins for property development projects are thin, these benefits are very important.
Many developers want to increase their income recurring, in addition to the development profits they will receive from selling properties.
A higher recurring income will stabilize earnings for property groups, and provide a buffer in times of low development profits due to timings for project completion or poor market conditions.
Ownership of the long-stay component of an apartment project after completion helps a developer increase its recurring income.
A developer who owns a large portfolio of serviced apartments for long-term stays can eventually create a new business. A developer could gain a competitive advantage by investing in branding and marketing, customer service, property management, as well as achieving economies of scale.
Developers who are active in the long stay serviced apartment market can position their units in various developments to target different groups. This includes elderly renters seeking higher service levels.
A portfolio of serviced apartments for long-term stays can be monetised by selling it to a real estate investment trust listed on the stock exchange (Reit), or a private fund depending on whose valuation is better.
Individual owners
The rise of serviced apartments for long-term stays is a threat to private residential landlords.
Zion Road (Parcel 3) has many positive attributes for a buyer looking to invest in a property. The proximity of the Havelock MRT Station, Great World City, and the Singapore River could attract tenants to the flats to be built there.
There is one catch. Individuals who want to rent out the home being built on the site will have to compete against the developer, who will build several hundred units of serviced apartments for long-term stays in the same parcel of land. The developer’s leasing effort will likely overshadow that of the individual residential landlords.
If more serviced apartments for long-term stays are built on the island, then this new type of housing could grab a significant share of the rental market of private homes, potentially at the expense of landlords who own conventional private homes.
Potential tenants may prefer to stay in well-maintained, professionally managed apartments for long-term stays that are equipped and well-maintained.
There will be more tenants to choose from if there are more foreigners who come to study or work here and more locals renting homes.
It is difficult to become a landlord. A Singaporean pays an Additional Buyer’s stamp duty (ABSD) at a rate of 20% for a second property and 30% for a third or subsequent home.
The non-owner-occupier residence tax rate also increased this year, from 12 to 36 percent of the annual property value.
In the future, it will be more difficult to rent out private homes, since landlords are competing with co-living operators and serviced apartment owners.
Even so, building more serviced apartments for long-term stays can mitigate the potential slowdown of growth in private homes available for rent, should less people purchase homes as investments due to high ABSD.
A good quality rental housing stock expands the housing options for tenants. This includes young locals as well as foreign talent that Singapore wants to attract. Lack of affordable housing should not hinder the attraction of talent to Singapore.
In order to democratise the ownership of real estate, policymakers could encourage many people to own long-stay serviced apartment through vehicles like widely listed Reits. In an ideal world, these assets shouldn’t be held primarily by wealthy families and institutions.
Long-stay serviced apartment ownership is a stable and exciting new asset class for those who are saving and investing for retirement.
