“Five minutes walk to the future MRT station.”
This is an often-seen statement in the advertisements placed for Bukit Timah Road properties these days. These ads are referring to the Downtown Line Stage 2 (Bukit Timah Section) of the MRT network, on which construction began in mid-2009. There are 12 stations on this line which stretches 16.6 kilometres from Bukit Timah Road at Newton Circus, through Upper Bukit Timah Road, to Bukit Panjang.
Since the Land Transport Authority’s announcement in July 2008 to construct the line, many investors and property agents have raised their expectations of property prices along Bukit Timah Road. They see lots of promises — convenience, accessibility and reduced traffic jams, especially so for students from the many schools nearby and for expatriates who don’t drive. Rental demand for Bukit Timah properties will rise, while shops at Coronation Road, Sixth Avenue, Beauty World and Chun Tin Road, among others, will enjoy higher footfall.
Bukit Timah has long been a favourite residential precinct among locals due to the top schools flanking Bukit Timah Road and Dunearn Road. Now that it will be getting its own MRT line, the question is: do residences near MRT stations really trade at a premium?
Our experience in serving tenants seeking properties for rental shows that there is a preference for proximity to MRT stations. Property investors looking for rental returns also place this criterion near to the top of their list. If such properties are really preferred by tenants, then not only would these properties fill up faster, they would also enjoy higher rental values and with that, higher capital gains.
But — and there’s always a ‘but’ isn’t there? — the above is true only if the MRT station is within five to 10 minutes walking distance and already up and running.
Downtown Line Stage 2 is anticipated to be completed in five years’ time. What does that mean for property prices today? What about from now till 2015? Till 2016 and beyond?
The short answer is this: there will be pains before any gains. Weakness before strength.
What do I mean? I would like to illustrate using a segment of Stage 4 of the Circle Line, along Farrer Road (Farrer Road MRT Station) to the T-junction of Holland Avenue and Holland Road (Holland Village MRT Station).
Construction of the Circle Line started more than 10 years ago. It was originally scheduled to begin operations in 2006 with full operations by 2010. However, significant delays were caused by a major accident at Nicoll Highway and two incidents at the Telok Blangah-Alexandra junction near PSA Building and at Holland Rd near Cornwall Gardens. The Circle Line finally began running in May 2009 and is now expected to be fully operational in 2011.
For a period of about 10 years, a 600-metre stretch of Farrer Road from Woollerton Park, past Gallop Gables, Sommerville Grandeur, Spanish Village until The Levelz was affected by the construction of the Farrer Road MRT Station. The inconveniences included:
Table 16 shows the number of transactions at Spanish Village and Sommerville Park versus Ardmore Park, which has no MRT construction in its vicinity. I would consider Spanish Village residents to have suffered significant inconveniences as construction happened right in front of its main entrance and also adjacent to blocks 54, 64 and 66. Sommerville Park is somewhat less inconvenienced as only the Farrer Drive access is affected, the residents are further from the noise and there is another access via Sommerville East Road for some.
Table 16 Transactions at Spanish Village, Sommerville Park and Ardmore Park
* Year to October. Note: total number of units in Spanish Village, 226; Sommerville Park, 456; and Admore Park, 330. (Source: URA, IPA)
During the roaring years of 2005 until the Lehman crisis in late 2008, the percentage of units transacted in Spanish Village (with price quantum under $1 million) was paltry compared to that in Ardmore Park (price quantum of between $7 and $9 million over the same period). Sommerville Park’s transaction numbers are somewhere in between.
Now, apply this to what is going on in Bukit Timah, from Coronation Plaza to Hillview. We might see that condominiums near MRT construction sites will likely suffer from poor market interest and therefore low transaction volumes.
If potential tenants dislike the inconveniences and disruptions to their lives and those of their children’s, rentals will be more challenging to secure, rents may slide and property prices may weaken.
Furthermore, most of the construction sites on the Downtown Line along Bukit Timah have 24-hour construction permits. During the night, even though noise levels are controlled, the sites are still brightly lit, and workers and construction vehicles continue to operate.
Poorer accessibility, disruption to traffic, noise, dust and lights from night construction all add up to inconvenience for residents and reduced business for retailers.
Examples of the constituents I would consider as inconvenienced are students at Hwa Chong Institution and residents at Duchess, Watten and Hillcrest (Tan Kah Kee Station); residents at Fifth Avenue Condo (Sixth Avenue Station); residents in Nexus, Maplewoods, Casa Esperenza, The Sterling (King Albert Park Station); retail tenants and residents at the massive worksite around Chun Tin Road and Beauty World, and so on.
MRT construction works along Bukit Timah Road
It is difficult to find data sets that allow for better correlation to substantiate this argument more strongly. I have shared the feedback we received from serving clients who are investors, landlords, tenants or home-seekers. Although this article is focused on residential properties, it is not difficult to imagine the impact of the MRT construction on rentals in the retail sector and office space.
As Farrer Road Station and Holland Village Station will open by mid-2011, I am placing my bets on improved rentals and capital appreciation along Farrer Road and Holland Road.
As for Bukit Timah, let’s revisit its investment potential in about four years’ time, a year before its scheduled completion in 2015. Although the dozen top schools there will help to keep residential demand steady, there may also be delays to the completion of the Downtown Line, as we have seen for the Circle Line.
In stock market speak — we are upgrading Holland Road and downgrading Bukit Timah Road.