Media Circle GLS tender - Developers not Interested in Serviced Apartment Land
Summary
The government tried to sell a residential site at Media Circle, near the MediaCorp campus to be built into a long-stay serviced apartment development.
However, many developers may view such serviced apartment project as riskier than the typical build-to-sell private housing development. Furthermore, the serviced apartment market at Media Circle is untested. Hence, the GLS tender for the residential site at Media Circle drew only one bid at a relatively low land rate of $460.81 per ppr.
If the government decides not to sell the Media Circle site to the sole bidder, it has three choices for this site. First, it can try to sell the site in the future. Second, it can change the allowable uses for this site. Third, it can build the stock of SA2 units itself.
Introduction: Media Circle land parcel for serviced apartments
The government offered a 5,764-square-metre site at Media Circle for sale by public tender. The site is located near the MediaCorp campus. The entire development on this site will consists of long-stay serviced apartments, which is also known as SA2. About 520 apartments can be built on this site.
What is SA2
SA2 units need not consist of full suite of living/dining/kitchen amenities but should minimally have en-suite attached bathroom. SA2 shall be rented out for accommodation purposes for a minimum period of 3 months or longer and shall be managed under one ownership.
Why the lack of interest from developers
The Government Land Sale (GLS) tender for the residential land parcel at Media Circle closed on 19 September 2024 and drew only one bid from a consortium consisting of Frasers Property and two other partners. At $120,088,888, the bid for the 60-year leasehold site translates to $460.81 per ppr, which is an unusually low land rate for a GLS residential land parcel.
The low level of interest from developers could be mainly due to the allowable use for this site. The developer must build and operate long-stay serviced apartments, also known as SA2, on this site. This is the first GLS site that is designated to be developed solely for long-stay serviced apartments.
The developer could not build any residential strata-titled housing units for sale. If the developer wants to sell the serviced apartments in the future, it will have to sell the entire serviced apartment project as a single asset. The buyer would likely be a major serviced apartment operator or real estate investment fund.
Competitors and an untested market
There are several reasons for the lack of interest among developers for this SA2 development site at Media Circle.
First, there are two existing serviced apartments projects in one-north business park, which can meet the housing needs of expatriates working in this location. One of the serviced apartment projects is located next to the one-north MRT Station, which gives it a strong advantage over its competitors. By contrast, the Media Circle site is not located near any MRT station.
Second, the two existing serviced apartment projects at one-north, which can offer shorter rental duration compared to the SA2 apartments, would be strong competitors to the future SA2 development at Media Circle. The minimum rental period of the units in the two existing serviced apartment projects is seven days, which is shorter and more flexible than the minimum rental duration of 3 months for SA2 units.
Third, the employment opportunities at Media Circle is not as many and concentrated as in one-north business park, which means that there may not be enough demand for serviced apartments at Media Circle.
Fourth, the serviced apartment rental market is untested in the location around Media Circle.
Fifth, not many property developers are interested or have the capacity to operate serviced apartments. Frasers Property, the sole bidder in the GLS tender for the Media Circle site, is one of the few developers in Singapore with experience in operating serviced apartments.
Sixth, since its peak in 3Q 2023, the residential rental market has cooled. The supply of newly completed housing units has normalised. More private and public housing projects are being completed. The private residential rental index has decreased by 5% since the peak and is expected to continue to decline for the next few quarters. As a result, the future demand and rental rates of serviced apartments face greater uncertainties.
Therefore, many developers may view that the investment and development of a SA2 project at Media Circle could be riskier than a typical build-to-sell residential development.
Private condominium prices and rentals at one-north and Queenstown
Queenstown and one-north are in the city-fringe areas. The median prices of the newer condominium units ranges from $2,200 to $2,612 psf.
The median rental rates of the newer condominium units in the Queenstown and Commonwealth area are rather high, varying between $6.00 psf and $7.30 psf.
Table 1: Private residential projects comparable to Media Circle development
Name of Project | Street Name | Completion Date | Total Units in project | Median price $psf | Median rental $psf |
The Hill @ One-North | Slim Barracks Rise | Uncompleted | 142 | $2,612 | - |
Blossoms By The Park | Slim Barracks Rise | Uncompleted | 275 | $2,562 | - |
One-North Eden | Slim Barracks Rise | 2024 | 165 | $2,263 | $7.14 |
Commonwealth Towers | Commonwealth Avenue | 2017 | 845 | $2,177 | $7.15 |
Queens Peak | Dundee Road | 2020 | 736 | $2,215 | $7.23 |
Stirling Residences | Stirling Road | 2022 | 1259 | $2,289 | $6.93 |
Margaret Ville | Margaret Drive | 2021 | 309 | $2,179 | $6.64 |
The Rochester Residences | Rochester Drive | 2011 | 366 | $1,568 | $4.99 |
Heritage View | Dover Rise | 2000 | 618 | $1,599 | $4.65 |
Dover Parkview | Dover Rise | 1997 | 686 | $1,394 | $4.24 |
Village @ Pasir Panjang | Pasir Panjang Road | 2016 | 148 | $1,303 | $4.65 |
Murano | Pasir Panjang Road | 2008 | 50 | $1,482 | $4.59 |
The Spectrum | Pasir Panjang Road | 2005 | 72 | $1,282 | $4.06 |
Palm Green | Pasir Panjang Road | 1999 | 40 | $1,200 | $3.34 |
Luxe Ville | Pasir Panjang Road | 2012 | 50 | $1,489 | $4.43 |
Source: Mogul.sg Research, URA
The median rental rates of the older condominium units near the Rochester and Buona Vista area are at a more palatable level of $3.30 psf to $5.00 psf.
There are many housing choices for tenants working in one-north and Media Circle. Therefore, any serviced apartments in this location would have to compete with the existing condominium and apartment units offered for rent.
Residential site with 60-year lease and equivalent land price
The leasehold tenure of the residential site at Media Circle is 60 years. It is rare for the government to sell residential site with 60-year lease. A large majority of the residential and commercial land parcels sold by the government have 99-year leasehold tenures.
The previous 60-year leasehold residential site was sold by the government was in November 2012 at the land rate of $481.51 per ppr. The 60-year leasehold site at Jalan Jurong Kechil was meant to be Singapore’s first privately built retirement village. However, the land was sold with insufficient development criteria. As a result, the developer subsequently built a residential project called The Hillford and sold the housing units to buyers even if they are not retirees.
The $460.81 per ppr land rate for the 60-year leasehold site at Media Circle submitted is converted to an equivalent land rate for a 99-year leasehold site, the land price would come to $553 psf ppr.
Another 99-year leasehold residential site at Media Circle was sold in this February at $1,191 psf ppr to Qingjian Realty and partners. Hence, even at the land rate of $553 per ppr, the land rate is still less than half of the $1,191 per ppr land rate paid for the nearby residential site at Media Circle seven months ago.
State land is one of the assets in Singapore’s national reserve and the government has a duty to safeguard the value of the reserve. Therefore, the government could reject any GLS bids from developers which the former deems to be too low.
Hence, there is a good chance that the government may not award the tender to the sole bidder for the Media Circle site due to the low land rate submitted.
Why the government wants long-stay serviced apartments
After receiving many complaints from foreign business associations that represents foreign companies and expatriates working in Singapore about the sharp rise in the local housing rentals in 2022 and 2023, the government plans to have a stock of rental apartments to buffer any sudden rise in leasing demand and rental rates in the future. This would help to maintain Singapore as an attractive destination for foreign talents and companies that contributes to the local economic growth.
However, the government does not want to put any skin in the game. It wants the private sector to build, operate and maintain this stock of long-stay serviced apartments.
Most real estate developers are not that keen to invest, build and operate such serviced apartments. The development and operation of serviced apartments are usually long-term investments that are riskier than the typical build-and-sell condominium projects.
Furthermore, most developers do not have the expertise and economies of scale to operate serviced apartments. As a result, the response to the GLS tenders for the residential sites that require developers to build SA2 serviced apartments has been lacklustre.
So, what’s next?
If the government decides not to sell the Media Circle residential site to the sole bidder in this tender, it would have three choices.
First, it can put up the site for sale in the future, with the same conditions and allowable uses. However, the future GLS tender could have the same lacklustre response.
Second, the government can change the allowable uses for this site to be a mix of SA2 units and strata-titled units which the developer could sell the latter to partially finance the development of the project. Alternatively, the government could give up the idea of having SA2 units on this site and sell the site to be built into a typical build-to-sell residential development.
Thirdly, if the government wants the stock of SA2 units as a housing rental buffer badly enough, it could build and operate the SA2 projects itself. Afterall, the government is the biggest real estate developer in Singapore. The government’s Housing and Development Board (HDB) has built more housing units than all the residential units built by the local private developers combined.
As Napoleon Bonaparte said: “If you want a thing done well, do it yourself.”
It is entirely up to the government what it wants to do with the Media Circle site and the future development of the stock of SA2 units. The ball is in the government’s court now.
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