Building cost for Double Bay residences – Simei Singapore
According to a Straits times report published in July 2008, construction costs for medium-quality condominiums are in the $260 psf of GFA to $320 psf of GFA in Q1, 2008 and in Q2, it has increased from $280 to $350 psf of GFA range. This is in line with analysts expectations of a breakeven cost of $650 to $700 psf ppr.
“Construction cost consultancy Rider Levett Bucknall (RLB). said: ‘Construction prices for medium-quality condominiums indicatively range from $260 psf of GFA to $320 psf of GFA in Q1 2008, and prices have risen further to $280 to $350 psf of GFA for Q2 2008,’ it said. ‘High demand and competition for limited resources, the lack of tendering capacity among contractors, sub-contractors and suppliers, and volatile commodity prices have contributed significantly to building tender price escalation,’ the firm added.” (Source: Straits times, http://www.asiaone.com/Business/Story/A1Story20080724-78562.html)
Assumptions For Depreciation of Double Bay Residences in Singapore: –
• Depreciate the building more slowly with the 1st 10 years depreciating less and gradually more in the second 10 years and so on.
• Depreciate land more slowly in the earlier years and then depreciate faster in the later years.
In the absence of external factors, on an intrinsic value basis, double bay residences valuation should continue to drop in the years ahead.
What external factors could affect Double Bay residences value?
Developments, lifestyle, Population, etc.
Positive external factors could be increase in Free Hold land value in the vicinity of double bay leading to the base value of the land increasing. For Double bay, the land cost is $296 per square feet per plot ratio, if free hold land price has increased dramatically in the same area to $500 psf ppr 10 years later. Then by inference, the remainder 89 years of the lease of a 99 years lease hold property land will also increase in value. This increase in the land value could either partially offset the depreciation in the building value or completely offset it and increase in selling prices.
Sentiments
Sentiments drive up prices, leading to price distortions and anomalies. This factor is very pertinent in 99 years lease-hold investing. Developers and property agents alike have very compelling arguments promoting the sale of 99 years lease-hold properties. If enough people believe in it, the price gap will narrow between a 99 years leasehold property and a free hold property.
Government policies and changes in Differential premium
Government policies could impact the base value of future 99 years lease-hold land and consequently affect the remainder lease of any lease-hold land. Government can choose to release more land at a cheaper price, this will also affect the value.
So for double bay residences in Simei Singapore, the best form of increase in value stems mostly from increase in land prices. As far as en-bloc potential, it is almost NIL if the price increase in Free Hold land is not significant and the differential premium (by SLA), is not reduced from 75% to a lower figure.
Construction cost and raw materials
If construction costs go up, a similar or new replacement property would likely be more expensive, therefore any existing buildings still in fairly good condition will therefore fetch better prices. However, if the cost of construction go down, then it would be cheaper to build more units onto the market depressing (or moderating the increase of) the prices of existing units.
So Singapore property investors and buyers can still make money from any swing up in sentiment. But if fundamentals remained unchanged, it will be more a matter of the greater fool theory.
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