This city-fringe district, too often associated with vice, is on the path to change. Is it time to enter the market? We give you the Guru View.
By Chang Hui Chew
Geylang’s proximity to the city, MRT links and connection to two major highways should make it a more popular location for property buying than it currently is. However, mention Geylang and most people would inadvertently think of sex work, seedylorongs, and the eponymous red lanterns hanging outside the doorways of seedy establishments. But that is set to change in the near future, with corrupt activities being zoned out of Geylang.
Zoning out vice
In January of this year, the Urban Redevelopment Authority (URA) asked for public feedback on the rezoning of the areas between Lorong 2 and Lorong 22, as well as Geylang Road and Guillemard Road. Uses in the area would change from residential and institutional, to commercial and institutional. At the time, the URA said this was to “better manage issues arising from conflicting uses”. These changes went into effect without any fanfare on 10 July 2015. While the plot ratio remains the same at 2.80, commercial land generally has higher value than residential, because of the potential income it can generate.
With a popular batch of Build-to-Order (BTO) flats slated to come up in nearby Dakota Crescent, and a slew of condos, including two larger scale developments (Sims Urban Oasis and TRE Residences) being built in the vicinity, there is a potentially strong catchment of retail consumers in the area. This is not inclusive of the 40,000-plus households living in the area already, according to the 2010 Census of Population.
With a supply of older freehold projects like Wing Fong Court and Wing Fong Mansions, and plenty of smaller walkup apartment units in the area, the area is poised for shakeups with potential collective sales. Before rushing in to buy these older condos, however, it should be noted that there are land sites held in reserve in the area, which the state could release for development.
Like almost every other urban area in developed countries undergoing a wave of gentrification, there is incredible real estate potential in Geylang. The question, then, is one of timing — when should one to enter the market?
Dollars and sense
The answer to this question might be “not yet”. Figure 1 shows the movement of transaction volumes and median prices of condo units in Geylang from Q1 2012 to Q3 2015. For the purpose of analysis, landed property in Geylang (including shophouses) have been removed, as their volumes have been less than 10 a quarter for the past eight quarters, yet their much higher prices confound the picture.
Geylang, like the rest of Singapore, saw transaction volumes plummet after Q2 2012, after multiple rounds of cooling measures. However, median psf prices in Geylang continued to rise. It was only after mid-2013, with the introduction of loan curbs in the Total Debt Servicing Ratio (TDSR), that prices began to decline.
Median prices plummeted to a low of $1,198 in Q3 2014, with some lower priced smaller developments hitting the market, before rising 13 percent the next quarter. Prices have started to come down again in the most recent quarter, with a number of smaller developers offering discounts to move units.
The median transaction price at the close of Q3 2015 was $1,322 psf. We believe median PSF prices might continue to dip for the next few quarters, given poor market sentiment and a slowing global economy. The market is likely to become even more favourable for buyers than it already is.
However, median psf prices are only one part of the equation. With the implementation of loan curbs, overall affordability and quantum price become paramount, with the general sweet spot for most buyers somewhere between $500,000 and just over $1 million. Interestingly, while the psf price for Geylang apartments has dipped, quantums have actually been on an upward trend since the start of the year, and are currently hovering around a median $830,000.
For Geylang, the quantums are a more delicate consideration, as its designation as a vice area leads banks to be far more cautious in their lending. In general, commercial banks are unlikely to approve mortgages for projects on certain streets, or will only set aside a limited quota for annual approval for the area.
Those who wish to enter the market might therefore need to fork out cash, or turn to financial institutions with higher interest rates. Geylang’s rezoning and redevelopment should hopefully lead to commercial banks reconsidering their policies, which, in turn, would increase affordability for buyers.
Aside from the larger projects at the fringes of Geylang that are eligible for commercial bank loans, Geylang’s private housing projects tend to have smaller units. The average size of units transacted over the period of analysis was about 780 sq ft, and dipped to 632 sq ft in Q4 2013. The smaller boutique projects in Geylang tend to have more shoebox units.
The smaller units imply this is not an area raising families. After all, most families would simply not want to live in vice areas, even if the area is known for delicious food, and is convenient. The bulk of the HDB flats in the area are located away from where most of the sex work establishments are, either on or after Sims Drive, or in the Old Airport Road area. Developers might also choose to focus on smaller units due to bank mortgage restrictions, simply to make it more affordable for buyers.
As transformation continues and sex work is pushed out of Geylang, we expect to see larger units move from the fringes of the district to the area’s core.
Ending vice, keeping character
Even as Geylang gets a new coat of paint, it is important to keep the character of the district. The URA did an impressive job, with the Lorong 24A Shophouse Series project, for instance, employing eight local architects and designers to refresh and put a modern spin on eight historic shophouses in the street. Developers entering the market there should bear this in mind, and preserve the character of the area, as it increases the value proposition for buyers.
Gentrification cannot be separated from displacement. The history of restoration highlights that as districts see capital values increase, prices will rise, and the less well-off, who often are part of marginalized groups, become displaced. Even as we run the numbers and see the upsides to Geylang’s transformation, it is necessary to ask: where will sex work, its associated businesses and sex workers end up? As prices in Geylang go up, will another location’s head south, and where will this be?