‘VALUE FOR MONEY’ CO-LIVING OPTION
Doshi knows only too well the perils of being subjected to the vagaries of a private landlord. “The owner could sell the property or unilaterally increase the rent,” he says. “And there are always disputes over what costs ought to be borne by the landlord or tenant.”
Another major reason for wanting to take on a significant stake in joint ventures is to have greater control over the design, management and use of space in order to create a product that the market wants, explains Doshi. “We have to design the space from ground up: the amount of shared and private space needed, the kind of services we want to provide and customised furniture to suit the space,” he adds.
In Hong Kong, for instance, people still want their bedroom and bathroom spaces to be private, even though they are open to sharing the living and dining areas, kitchen or recreational facilities. Most of the accommodation units at Weave’s properties are therefore designed for single occupiers. There are also dedicated women-only floors. In the upcoming Weave on Anchor, besides single occupiers, there will be units that cater to double occupiers and are suitable for couples, says Doshi.
At the peak of the social unrest in Hong Kong in 2H2019, Weave still enjoyed an occupancy rate of more than 94% across its properties. “In times of uncertainty, people want to have a sense of security,” he adds. “All our properties have 24-hour security and CCTV, so there’s an element of safety. Residents found comfort in staying indoors as they were still able to talk and interact with other residents in the community.” Weave on Baker, which opened last November, was therefore able to break even operationally within a few months.
Weave’s cash flow profile is more similar to that of residential rental property owing to the longer lease tenures and income
“In Singapore, existing co- living products cater to a more transient population,” observes Doshi. “Our offering is more of a home. Weave residents in Hong Kong sign up for 10 to 12 months and end up staying longer. It has high brand stickiness.”
Doshi intends to continue his model of offering “value for money” rental accommodation in Singapore. “By providing value-added services for the rent, there’s greater certainty in terms of monthly rent that residents pay,” he says. Target monthly rental rates for the co-living units are likely to be on a par with those in Hong Kong, and predominantly in the $1,600 to $2,500 range.
Weave’s entry into Singapore has been “fortuitous”, reckons Doshi. “We held the view at the start of the year that there would be a lot more opportunities in Singapore,” he explains. “The property market has been reasonably robust, but we were beginning to see signs of a correction. The next six to nine months will present a very interesting window of opportunity for us.”
In Singapore, Weave’s initial target is to have 600 to 800 accommodation units, says
‘CASHED-UP AND WAITING TO BUY’
A number of hotels were put on the market before the Covid-19 outbreak, for instance, the 138- room Porcelain Hotel on Mosque Street in Chinatown that was put up for sale by expression of interest jointly by CBRE and Edmund Tie in February. The price tag on the hotel is $115 million or $830,000 per key.
Last year, average occupancy rate for hotels in Singapore was 87.1%, according to Singapore Tourism Board data. In January this year, it was 83.3%. By April, it fell to 41.1% due to travel restrictions and the measures during the “circuit breaker” period.
“Pre-Covid-19, hotel occupancy rates typically averaged about 80%,” says Galven Tan, deputy managing director, investment sales and capital markets at Savills Singapore. “Co-living and residential rental properties are likely to see higher occupancy rates and more stable rents, with lower operating costs compared to hotels.”
Co- living residential assets are still untested in Singapore, as there has not been any sold en bloc to date, observes Tan. However, such properties are likely to see higher yields in excess of 4%, compared to freehold hotel assets that previously traded at 3% net rental yields, and residential assets at 2%, he estimates.
Buying residential property en bloc will be tougher, given the property cooling measures introduced in July 2018, whereby corporate entities buying residential property have to pay a 25% additional buyer’s stamp duty. Borrowing limit has also been capped at a 15% loan-to-value ratio.
There were some exceptions. Last year, Singapore-listed Fragrance Group purchased two neighbouring apartment blocks, namely, Waterloo Apartments and Min Yuan Apartments, in collective sales. The group obtained URA’s approval to amalgamate and redevelop the two sites into a hotel property.
Not surprisingly, Savills’ Tan is optimistic that investment sales activity is likely to pick up in the coming months. “At the moment, underwriting income for the next 12 months is a challenge — because of the Covid-19 outbreak and phased reopening of the economy after the circuit breaker,” he adds. “But most private equity funds are cashedup and waiting to buy.”
Weave and 32RE are examples of such “cashed-up” private equity funds on the prowl for assets. “Our strategy is straightforward,” says Doshi. “We like to be in locations where young Singaporeans and expatriates want to be, and to create a community for them.” As such, he is interested in prime locations such as the Newton and Novena area, River Valley, East Coast and Tanjong Pagar. “We are looking at core locations that are close to public transport and amenities,” he says.
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