Wednesday, December 30, 2009

Developers' New Selling Strategy: 103-year lease on freehold land


It was reported in The Straits Time today that Far East Organization will sell "THE SHORE RESIDENCES" - its new project in Katong - with a 103-year lease despite the land being freehold.

The wife and I have actually heard about this from a marketing agent at the sales gallery of ADRIA earlier this month. Both of us concluded then that it is a clever strategy on the developer's part, especially when the current price spread between lease and freehold projects in some area has narrowed substantially.

By settling for slightly lower prices for the units, the developer retains an interest in the site and may reap further rewards when the neighbourhood is further transformed. And should the owners of the development wish to do a collective sale in the future if the property market is good, they will have to negotiate with the holder of the freehold title - the developer in this case, instead of the Government. The developer can then have the options of either granting a lease top-up, buy back the land, sell the freehold tenure, or simply do nothing. The strategy is especially important for privately owned developers, as the move allow future generations to benefit by retaining the freehold title of the site.

Besides "THE SHORE RESIDENCES", Far East has also launched two cluster housing projects with 103-year leases on freehold land previously - "CABANA" in Sunrise Terrace/Yio Chu Kang and "THE GREENWOOD" in Greenwood Ave/Bt Timah.

Although selling a lease term instead of the entire tenure is still relatively rare, we beleive that more property developers may jump on the bandwagon especially if the psf selling price between lease and freehold developments continues to narrow in the future.

The 408-units "THE SHORE RESIDENCES" is located at the former Roase Garden site, which is opposite Katong Shopping Centre. It was reported that Far East bought the site in 2006 for $169.8 million, or $423psf of potential gross floor area. Preview sales over the past 2 weeks have already seen units being snapped up at $1,100 - $1,180psf. The project will be launched this Friday, so watch this space!

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