As a way to dispose of hard-to-sell property, developers are resorting to rental guarantees for some shop units to lure reluctant buyers without lowering prices, according to media reports.
In fact, one newspaper advertisement highlighted that a four percent guarantee is being offered for some shops at mixed development Novena Regency (pictured).
A rental guarantee means that the developer has assured buyers of rental income for a certain period, usually two years. This saves the buyer from having to find a tenant.
For a S$7,000 psf shop, a rental guarantee of four percent could translate to at least S$280 psf per year or S$23 psf pm. It is difficult to tell whether this rent is higher than expected considering that shop rentals vary widely based on location, size and other factors, noted property consultancy CBRE.
At Fragrance Realty's Icon @ Pasir Panjang, some retail units are being offered a two-year five percent rental guarantee. The mixed-use project has already sold about 20 of its 31 shop units, with prices ranging from S$3,000 psf to $5,500 psf.
Meanwhile, a report from Religare Capital Markets said: “At S$23 psf pm rental guarantee would be offering rents close to those at Orchard (average) and much higher than rents for suburban malls. While the deal at four percent rental guarantee might look appealing for the first two years (on a cap rate, perhaps close to 2.5 percent), (the) developer could struggle to find tenants willing to pay such high rents and absorb the guarantee.”
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email firstname.lastname@example.org