Price recovery at Sentosa Cove condos but more could be put up for auction

By Lin Zhiqin

/ EdgeProp |

December 9, 2017 8:30 AM SGT

An auction by ERA on Dec 11 will see a 2,433 sq ft four-bedroom unit at Turquoise put up for mortgagee sale at a guide price of $3.7 million ($1,521 psf), about 41% less than its $6.29 million ($2,586 psf) purchase price in October 2007, according to URA caveat data.

If the property goes under the hammer at that price, it will join the 23 condominium units at Sentosa Cove that have been sold at losses totalling $30.6 million so far this year. Based on the matching of URA caveat data as at Dec 5 by EdgeProp, 58% of the transactions this year were unprofitable deals, with an average loss of $1.33 million (21%). This is a slight improvement over 2016, when 71% of the transactions (15 out of 21) resulted in losses, which averaged $1.35 million (23%).

ERA’s auction on Dec 11 will feature the mortgagee sale of a 2,433 sq ft, four-bedroom unit at Turquoise

The spate of losses notwithstanding, prices have recovered at many of the Sentosa Cove condos. According to Alice Tan, director and head of consultancy and research at Knight Frank Singapore, overall prices for condos at Sentosa Cove recovered by 15.9% from 1Q2017 to 3Q2017, to an average of $1,593 psf. At the same time, transaction volume surged 180% to 31 units, compared with 11 in the first nine months of 2016 (see Chart 1).

With the recent exuberance in the private residential market and the record land prices achieved in government land sales and collective sale markets, “the average prices (on psf basis) of Sentosa Cove properties are looking increasingly attractive”, says Tan. “Coupled with the prestige, exclusivity and high quality of Sentosa Cove properties, homebuyers are returning to secure non-landed homes on the island.”

This comes after three years of subdued interest in Sentosa Cove properties, notes Tan, who adds that the volume of rental transactions also improved 23% y-o-y in 3Q2017. Sentosa Cove condos appeal to tenants who desire a unique waterfront lifestyle that is hard to find elsewhere, she says, attributing the increase in leasing activity to a mix of lifestyle appeal and the lower rents in recent quarters (see Chart 2).

There was a modest rise in rents at some projects in 3Q2017, says Tan, which could be the beginning of a “continuing revival into 2018 as overall market sentiment and economic growth are slated to improve”.

Meanwhile, purchasing demand appears to be driven by owner-occupiers who enjoy the serenity and waterfront living, as well as investors looking for capital appreciation, says Sharon Lee, director and head of auction at Knight Frank Singapore.

There could be a ready supply of units to match that demand. While some owners could continue to hold in anticipation of further price upside, others could be pressured by interest rate hikes into selling, says Tan. She estimates that up to eight Sentosa Cove properties could be put up for auction per quarter in 1H2018.

Out of the 29 Sentosa Cove properties put up for auction between 1Q2016 and 3Q2017, 14 were mortgagee sales, according to Knight Frank Research, as were two that ended up successfully auctioned.

The first is a 2,088 sq ft, third-floor unit at Turquoise that was sold at an auction by Knight Frank in May 2016. It had an opening price of $2.86 million and fetched $2.92 million ($1,399 psf). The previous owner had reportedly paid $5.4 million for it.

The other is a 4,241 sq ft, four-bedroom duplex penthouse at Seascape that was sold at JLL’s auction in October 2016. It went for $6.35 million ($1,497 psf), which is 42% lower than the $11 million ($2,594 psf) paid by the previous owner in December 2011, according to URA caveat data.

In January, a 4,069 sq ft unit at Seascape was put up for mortgagee sale at an opening price of $6.8 million but did not find a buyer. It was subsequently sold at $6.2 million ($1,524 psf) by private treaty in February. According to URA caveat data, the previous owner bought it from the developer at $12.8 million or $3,146 psf in June 2010.

Given that most of the owners purchased their properties at fairly high prices of above $2,500 psf, they are likely to incur losses ranging from 30% to 40%, based on the trajectory of transacted prices in Sentosa Cove, says Lee. “For those who are not able to keep up with loan repayments, [their properties] will likely be sold under mortgagee sale.”

A 4,241 sq ft, four-bedroom duplex penthouse at Seascape was sold at JLL’s auction in October 2016 for $6.35 million ($1,497 psf), 42% lower than its purchase price

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