We have been seeing headlines on “High end luxury Condominium set to dominate 2010”in bold these days. Everyone is upbeat with the buoyant sentiment towards the global and Asian economy. The Singapore property index is still climbing sharply since the first quarter 09.  4th quarter 2009 shows an increase of 7.3%, compared with the 15.8% increase in the previous quarter. Pls refer to the latest URA Private Residential Property Price Index dated 4 Jan 2010 for details.

With the opening of Integrated Resorts in Marina Sands & Sentosa by the corner and the statistical recovery in the economy, many people have set their eyes on high-end luxury property sector to catch up with the upward trend. The supply for mass & high end condos is rising, with the evident property launches appear on Newspaper advertisement columns (especially the Saturday Straits Times with new innovative cut-out and colorful columns). The demand appears to be even greater, with many sell-out news after the property launch. At the same time, the rental yield is falling with the greater capital appreciation of the property pricing. All these appear to be the sign of economic/property cycle in expansion.

Something is amiss here, what about the vacancy rate (which is supposed to be at the lowest point with the great demand rising)?

Before we go further, have you ever wondered how URA calculates the vacancy rate for residential units? Actually it is pretty straightforward. URA obtains the vacancy rate by gathering consumptions levels of water and electricity as recorded by the Power supply. This is the statistics showing the sign of property market performance. The lower the vacancy rate, the more difficult for people to find housing, and it normally happens during the economic good time. High vacancy rate then implies that there are many vacant houses with no occupation, and this normally happens in an economic downtime. The latest URA statistics dated 23 Oct 09 showed that the vacancy rate of completed private residential units is at 6.2% at the end of 3rd Quarter 2009.

Newton One by Lippo Group

Pavilion 11 by UOL

However, it does not appear to be the case when I walk around Newton One & Novena areas. These are the areas with many high end condominiums been completed lately.

Take example for Newton One & Pavilions 11 in District 11: both high-end projects have reflected high transaction deals with many sub-sales completed. Newton One is currently transacting at average $1550 psf, while Pavilion at $1250 psf. With such intense activities in the sub-sale market, it is quite disturbing to see that most of the units remain unoccupied and vacant after TOP around July & Aug 09. Roughly estimating from the external façades, it is estimated from 25 % to 30% of vacancy rate judging from its empty balcony and absence of curtain. (I will assume that that 5 months window period is more than adequate for an agent to lease out an unit)

Most of high end luxury residential buyers are not first house buyers. And they own more than 1 private residential unit. Therefore most of the projects they purchase are for investment, i.e. rental yield return or capital appreciation. If that is the case, it explains the units not being occupied after TOP.

However are the unit owners also asking unrealistic rental that most of the units are not able to be leased? Or they are waiting for another record breaking price before flipping on another piece of high end property? All these remain unanswered, waiting for further statistics to be collated by URA to show. Nevertheless, the relatively high vacancy in completed high end residence does imply that the rental & purchase demand by foreigners and expatriates may not be as optimistic as the headline mentioned. Remember at the end of the day, properties are meant for someone to stay and occupy (many people already start having the misconception that properties can solely for flipping purpose).

I will pay a visit to the projects again to update you the vacancy rate based on my  ’primitive’ visual site check. And I will then compare it with the URA newly released statistics:) Remember to check this out later!