Should You Buy Cuscaden Reserve Because Of The Huge Price Drop?

Cuscaden Reserve has been in the news of late, due to their big relaunch and price drop: we’re now seeing prices starting from $2,800+ psf, down from $3,327 – $3,830 psf in its initial pricing. This is quite a steep drop, and a roughly 20 per cent discount makes this Orchard area condo look like a tempting deal. Many people have remarked that the OCR has already breached $2,000+ psf, but is it really a good buy, just because of the new discount? We took a closer look:

Why was Cuscaden Reserve relaunched at a lower price?

Simply put, units aren’t moving, and Cuscaden Reserve has already had an ABSD extension. Developers have to complete and sell all units in a condo within five years, or else they’ll pay the steep ABSD tax. In the case of Cuscaden Reserve, that’s about 15 per cent of the land price, as the developers luckily bought the land in May 2018, just before ABSD rates were raised in July that year. As the land price was about $410 million, this works out to a whopping stamp duty of around $61.5 million. 

So far, there are 12 transactions on record (from the original launch), and allegedly 45 units sold via private placement (after the relaunch). 

You’ve probably also noticed the five-year time limit was up last year; but Cuscaden Reserve received a deferment for the ABSD, that will stretch to sometime this year (We don’t know if the developers have paid anything related to the ABSD, deferment, etc. at this time).

This is a strong incentive for the developers to cut their losses and move the remaining units fast, hence the relaunch at a lower price. From what we’ve seen, prices have ranged from $2,800+ psf, which is down about 20 per cent from the initial $3,600+ psf pricing. 

The issue is likely down to the price and surrounding competition.

One of the quirks of new launch condos is the price. For example, a developer could have a breakeven price of $1,500 psf but decide to go crazy and price it at $6,000 psf. Now, that doesn’t necessarily mean that you can sell it at that price – but the strange thing here is that the banks will automatically accept this as the valuation, and will loan a buyer (subject to the usual requirements, of course) based on the price that the developer has set.

But like what you’ve seen with consumer products (remember the $5,000 Segway flop), price doesn’t always equate to value.

Also, price anchoring comes to mind here (we’ve written about this before with Grand Dunman and Continuum), in which the first price presented to us (the anchor) influences our perception of subsequent pricing information. So likewise $2,800+ psf for Cuscaden Reserve may actually be the “right” price today, but it seems like an even bigger bargain now because of the initial launch prices of $3,600+ psf.

In any case, here’s how it compares to the surrounding competition. We’ll just be looking at 1 and 2-bedders here since they form the majority of the unit types at Cuscaden Reserve:

And here’s the pricing for Cuscaden Reserve as a comparison:

As you can see from the above, the discounts now mean that the pricing for Cuscaden Reserve is more in line with the surrounding competition. It still isn’t cheaper, mind you, as it is still priced higher than similar-sized units nearby. And let’s not forget that besides The Loft, the rest are all freehold projects.

But does the lower pricing make Cuscaden Reserve a good buy?

Just because a condo is relaunched at a cheaper price, doesn’t mean it’s automatically a good deal – one of the questions to ask, for instance, is why the units were slow to move in the first place. And there are a couple of things to consider right now, despite the price drop:

• A leasehold property amidst freehold options
• Future resale prices likely won’t be based on the original pricing
• New cooling measures have worsened prospects in the CCR
• The location seems aimed at a niche group of buyers
• The Orchard Boulevard GLS

1. A leasehold property amidst freehold options

The most glaring issue for Cuscaden Reserve is its leasehold status. If you look at surrounding condos, such as Cuscaden Residences, 3 Orchard By the Park, Park Nova, etc., they’re all freehold condos – District 10 is dominated by these. 

Now we’re not saying freehold is always better, but context matters here: if there were a mix of leasehold and freehold in the neighbourhood, it may be less of an issue. As is, buyers were comparing Cuscaden Reserve – which originally had a $3,600+ psf price tag – to neighbouring projects that were almost as expensive but were freehold. That’s going to look bad, however you angle it. 

We have seen similar situations to this by the way, such as with OUE Twin Peaks: here, we covered how the leasehold status – in contrast to surrounding properties – caused similar problems to what Cuscaden Reserve is facing. In fact, OUE Twin Peaks is quite an apt example of what we’ve seen at Cuscaden Reserve, where a leasehold product in a high-end luxury sector at a high price (because of its more designer status) isn’t quite what buyers at this end of the market want. Since they have the deep pockets required anyway, they’d rather pay a higher price to buy the freehold property.

We do think dropping the price to $2,800+ psf will offset this somewhat, but remember that unless the prices in the area get pushed up a lot, future buyers will continue to see this issue. Resale negotiations remain tougher, when yours is the one leasehold unit of the lot.

2. Future resale prices likely won’t be based on the original pricing

It’s a minority of units (around a dozen) that were sold based on the original $3,600+ psf price. The majority of buyers will be purchasing at the new relaunch price – so when it comes time to sell your unit, the transaction history will reflect the lower amount. 

This is bad news for the first few buyers of course, but it’s also worth considering for current buyers. Don’t think of the relaunch price as a “big discount” since future sales are probably based on the relaunch prices. If the “norm” is going to be around $2,800+ psf – just like when you buy now – are you really getting a better deal? 

You’re only getting a big advantage over those 12 original buyers, and no one else. While prices could increase over the long term to an even higher number than the original buyers, the question is do you have the appetite to wait for it?

3. New cooling measures have worsened prospects in the CCR

We’ve gone into more detail on the CCR’s issues here. But to quickly summarise: the last round of cooling measures which raised ABSD rates to 60 per cent for foreigners impacts the CCR first. With affluent foreign buyers now deterred, prospects for the CCR have dimmed; and we’ve even begun to see the price gap between the CCR and RCR start to narrow. 

In light of wider economic issues, such as rising interest rates, the war in Europe, etc., companies may also turn cautious. This tends to mean budget cuts, fewer expatriate workers, or smaller housing allowances; all factors that may cause an exodus from the CCR into the more affordable city fringe. 

So even if Cuscaden Reserve is cheaper, do consider that you’re buying into the part of Singapore that’s most affected by cooling measures. It’s best to temper your expectations regarding yields and gains.

4. The location seems aimed at a niche group of buyers

There aren’t any schools in the surrounding area (not within one kilometre), and given the high quantum, many buyers are probably looking at one or two-bedders. We understand the appeal of owning a condo near Orchard for younger couples or singles; but unless you’re so well-to-do that you can write off the need for gains, do consider the future ramifications. 

As you can see from the profile of the area, it isn’t so much the problem of the location. Other high-end developments like Park Nova and Boulevard 88 have done very well for themselves, but they have a very different profile mix. Clearly, there’s a demand for freehold luxury large format units in the area – and those developments have fulfilled that.

If we were to look at smaller units instead, we can point to 3 Cuscaden nearby as an example. Unit sizes are smaller but are freehold, and perhaps buyers in this category rather pay for that – even if the overall price may be higher.

5. The Orchard Boulevard GLS

It’s hard to say too much about this at this point, given the scant details. But the arrival of this project in the future will certainly affect your exit – depending on how it’s priced.

The developers that won (UOL-Singapore Land) would certainly have been aware of the challenges of a leasehold site in this area, and the lower bid of $1,616 psf ppr as compared to the $2,377 of Cuscaden Reserve reflects that.

There will be learnings taken from here too, about how to create a compelling project in this area. And a well-priced product will be further competition when it comes to an exit in the future.

Finally, we think a lower marketing spend, and a recent preference for bigger projects, may also have played a part.

Before this article or the relaunch, have you heard of Cuscaden Reserve? 

We wouldn’t be surprised if the answer is no. One issue with small, luxury projects like this is the increasing developers’ reliance on agents for marketing. For bigger projects, developers usually have a lot more marketing spend: you’ll see the condo name plastered across public transport vehicles, there will be roadshows, banner ads all over websites, etc. 

But for small luxury condos, it’s often left to agents to use their network of affluent buyers, market their own listings, etc. In recent years, some agents have lost interest in this sort of project, as it’s much more expensive to find buyers – the developers seem to put in almost no money, whereas agents are left to shoulder the cost (and while commissions may be higher due to the quantum, agents face the risk of spending a lot of money with zero results)

We suspect the lack of attention regarding Cuscaden Reserve comes partly from this: the agents and developers both rely on the other to handle the marketing, while neither spent very much doing it. 

Overall, this relaunch may represent a good opportunity, but within the context of own-stay use

If you’re a pure home buyer, and all you want is to enjoy a home near Orchard (returns and yields in the short term don’t matter), then this is a good opportunity. $2,800 psf is a decent price for a new, high-end condo in 2024; so this relaunch may be one to look at. There’s no question that it looks great, is suitably luxurious, and for those looking for a differentiated design – it ticks all the right boxes.

If you’re focused on investment, however, Cuscaden Reserve shouldn’t dazzle you with the price drop. Again, $2,800+ psf is likely to just become the new baseline price, so you’re not immediately raking in profits compared to the original launch price. 

As such, the price drop allows the quantum to fall into a more affordable range, but the fundamentals of the project leading to future demand are still up in the air.

Remember, this is ultimately a project aimed at a niche group of buyers, and that group isn’t likely to change in the future. There are only so many buyers who can afford such prices and are willing to pay for design.