On Jan 20, URA launched for sale a 262,577 sq ft elevated site located within walking distance of the Tanah Merah MRT station. The site, currently marked by dense trees, will make way for an estimated 570 residential units in the coming years. It was triggered for sale by a developer with a minimum bid price of $320 million, which translates to $580 psf per plot ratio (ppr). The minimum bid price is considered “conservative”, as the developer is assuming that prices could correct by 15% from current levels over the course of 2016, says DTZ research head for Southeast Asia Lee Nai Jia.

Lee reckons the winning bid could range from $380 million ($690 psf ppr) to $400 million ($725 psf ppr). At these prices, the break-even price is $970 to $1,005 psf, with the selling price of units in the new development estimated to range from $1,260 to $1,315 psf.

The new site (Parcel B), situated at the corner of New Upper Changi Road and Bedok South Avenue 3, is in a neighbourhood that will have close to 4,000 private condominium units by 2017, with the upcoming completion of the 582-unit Urban Vista and 748-unit eCO this year, followed by the 726-unit The Glades next year. All these projects are developed on 99-year leasehold government land sites sold in recent years. The 3,959 units include existing stock of private condos such as the 556-unit Casa Merah, which was completed in 2009; the 297-unit Optima @ Tanah Merah, which obtained temporary occupation permit in 2012; and the 482-unit East Meadows, which was completed 14 years ago.

Parcel B (clump of trees), which has been put up for sale by URA, with Urban Vista on the left, eCO on the right and the Limau landed housing estate in the background. Click here for condos/aparments near Tanah Merah MRT station.

The addition of the new development at Parcel B will bring the total number of private condo units in the neighbourhood to 4,529. And that excludes another future site adjacent to Parcel B, which fronts the entrance to the Tanah Merah MRT station and has yet to be released for sale, points out Lee.

However, most of the projects launched in 2012 and 2013 are substantially sold. For instance, Urban Vista, which is jointly developed by Fragrance Group and World Class Land, has only one unsold unit. The most recent transaction there was in June last year, when a 689 sq ft unit was sold for $1 million ($1,452 psf), according to a caveat lodged with URA Realis.

Likewise, eCO, which is jointly developed by Frasers Centrepoint, Far East Organization and Sekisui House, is 97% sold, with only 23 units available. The most recent transaction was earlier this month, when a 3,595 sq ft townhouse was sold for $3.75 million ($1,043 psf).

As for The Glades, a joint venture between Keppel Land and China Vanke Co, 371 units (51%) were sold as at end-2015. Ten units were sold at a median price of $1,481 psf in December, according to URA data.

“Weakness is starting to show up in prices and rents in the Bedok neighbourhood,” says Ku Swee Yong, key executive officer of Century 21 Singapore. He points to the 583-unit Bedok Residences by CapitaLand, which was completed in September 2015. The project sits atop Bedok Mall and is linked to the Bedok MRT and bus interchange stations.

Bedok Residences is also just one MRT stop away from Tanah Merah. As at end-2015, the project was 98% sold, with only a dozen units unsold. The most recent transaction was the resale of a 1,259 sq ft unit on the 14th floor that was sold for $1.75 million ($1,390 psf), according to a Jan 16 caveat. The unit was purchased for $1.65 million ($1,310 psf) in December 2011.

Two-bedroom units of 882 sq ft at Bedok Residences are posting asking rents of $3,400, or $3.85 psf, a month. Meanwhile, a 527 sq ft, one-bedroom unit has an asking rent of $2,600, or $4.93 psf, a month. The most recent sale of a one-bedroom unit at Bedok Residences was in December, when a similar-sized unit on the seventh floor changed hands for $840,000 ($1,530 psf). This translates to a rental yield of 3.7% per annum. “Monthly rental rates in the $3 to $4 psf range with yields hovering below 4% are relatively low, considering the amenities available and transport links,” remarks Ku.

Investors at Bedok Residences are also competing with those from the surrounding HDB flats. For instance, a tenant with a tight budget of $2,000 a month could easily find an 800 sq ft, three-room HDB flat nearby and split the rent with others, rather than rent a 500 sq ft, one-bedroom unit for which he has to pay the full rent himself, explains Ku. “Homeowners of newer developments such as eCO, The Glades and Urban Vista at Tanah Merah will face similar issues as competition intensifies and tenants become more price-sensitive,” Ku cautions.

Rents and prices in the Tanah Merah neighbourhood are expected to weaken by about 5% over the next 12 months, predicts DTZ’s Lee.

However, Savills Singapore head of research Alan Cheong believes the oversupply problem is overstated. “The latest trigger of the New Upper Changi Road site shows that there is a limited number of government land sale sites available,” he says. “And there are developers who may continue to look for sites in the area to sustain their sales momentum, particularly those who have substantially sold off the units in their projects in the vicinity.” Even developers with a significant number of unsold units in their projects in the neighbourhood may bid for the site “to minimise competitive threats”, adds Cheong.

This article appeared in the City & Country of Issue 713 (Feb 1, 2016) of The Edge Singapore.