Some developers may turn residential projects into serviced apartments

Source : Channel NewsAsia - 20 Apr 2009

Some private property developers are thinking of turning their residential projects into serviced apartments.

Ascott Hospitality said it has been approached by some developers recently, but declined to say which were considering such a move.

Experts, however, said such conversions are unlikely to gain popularity in Singapore anytime soon as there are many factors against it.

Private home sales may have been on the rebound over the past two months, but that has largely been restricted to the mass to mid-market segment where developers used various pricing strategies to attract buyers.

Many developers are grappling with a poor global economic outlook and tighter credit conditions.

Gerald Lee, chief executive officer, Ascott Hospitality, said: “Now at a time where it’s more challenging for them to sell, they may want to do something about that.

“So one good solution is to convert them to serviced residences so it can be rented out for people relocating to the city. So there are more owners coming to… (ask) us to manage those properties for them.”

Ascott Hospitality said it is still evaluating proposals as not all properties fit the bill. For example, location is extremely important as the target clientele tends to have specific needs. Proximity to areas like shopping centres, or business parks is almost essential.

Projects found in central locations like the business district with small units and good amenities could consider going the serviced apartment route.

The Urban Redevelopment Board also needs to approve the change in land use. And if some units in the development are already sold, the property’s management committee must agree to the plan.

Some analysts said the numbers do not look good for such a conversion.

Karamjit Singh, managing director, Credo Real Estate, said: “It’s really a question of the operating cost here in Singapore. They are quite high. At the same time property costs are very high to a point where the net revenue accrued from operations of a serviced apartment won’t necessarily yield as much returns as an investor would be happy with.

“In the context of our capital values here, it is not very popular because yields for serviced apartments range from three to four per cent or so. So it is not very attractive unless they were designed right from scratch for serviced apartments and they were bought for that purpose, factored right from day one.”

To date, Ascott Hospitality has already turned down one proposal in Singapore.

But it said that conditions in markets outside Singapore, such as China and the Middle East, look very attractive for this trend.