Several private home developers are planning to convert their residential housing projects to serviced apartments.
According to Ascott Hospitality, the plan has become the recent approach of some developers, but they refuse to say more information about which residential projects are considered for conversion.
However, experts said that such plans will not likely to become popular in the country as many factors were against it.
For over the past months, sales of private homes have been on the rebound, but this becomes largely limited to the mass and mid-market sectors wherein developers have prepared numerous pricing strategies for them to attract potential buyers. Additionally, a lot of developers were also dealing with the weak economic output as well as the tighter credit situations.
"Now at a time where it’s more challenging for them to sell, they may want to do something about that,” said Ascott Hospitality CEO Gerald Lee.
“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 they are evaluating several proposals as not all properties may fit into the bill. For instance, the location of the property is significantly essential as the target clients seem to have specific needs. Close location to areas such as the business parks and shopping centres are very essential.
Projects located in central areas, like business district with good amenities but with small units could consider of going into the route of serviced apartments. Furthermore, the conversion of land use must also be approved by the Urban Redevelopment Board; and if some of the units have already been sold, the management committee of the property owner must be in agreement to the said plan.
Several analysts and consultants said these numbers doesn’t seem to be appropriate for such a conversion. Managing director of Credo Real Estate Karamjit Singh 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."
As of today, Ascott Hospitality has declined one of the several proposals in Singapore. However, they said the conditions of the market outside the country such as in the Middle East and China are looking and projecting a good image about the new trends.