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Alternative real estate investments - Medical Suites

The term “medical suites” is probably relatively new to most, even among property investors. After all, it is a highly niche area, with the number of medical suites in Singapore numbering below 2,000 currently, the bulk of which are strata-titled units owned largely by doctors and a small group of investors. However, with the measures introduced by the government over recent years to cool speculation in other sectors of the property market, medical suites have seen keener interest from the investing public, with capital values rising – and to the benefit of these investors, so too have rents. Here, we give you an introduction into the sector, and the opportunities it presents.

What are medical suites?

But first, let’s gain a deeper understanding on what a medical suite really is. There is actually no official definition of what a medical suite is in Singapore currently. Broadly, it is understood that a medical suite is a facility that is meant for medical usage – as the name clearly suggests – and the Urban Redevelopment Authority (URA) currently allows medical suites to fall under commercial or healthcare zoning.

Property consultancy firm DTZ, in a report in 2014, gives a more specific and very detailed interpretation that defines medical suites in this manner, which perhaps gives potential investors a better idea on what medical suites are: “clinics/units in which private healthcare services are provided. These include medical, dental, surgical and aesthetic services. They are located in areas largely zoned for private health and medical care or within largely commercial developments for which the selected units have received the necessary approvals for medical use”.

DTZ then goes on to say that the unit “should not be a stand-alone unit, but instead be part of a larger conglomeration of units providing healthcare-related services”. Much of the supply of medical suites is in the Tanglin/Orchard area, as well as the Novena/Thomson area. Most units are below 1000 square feet (sq ft) in size, which raises their affordability on an absolute quantum basis.

Why invest in a medical suite?

Given the supply niche of such suites, some may wonder what the value proposition of this asset class is. On the whole, this is an asset class that is less impacted by general economic trends compared with other segments of real estate. URA requires that end-users of medical suites must be for medical purposes. This means that demand for such space is intrinsically linked to Singapore’s healthcare and medical sector, and there are at least four trends that support a thriving healthcare industry.

1) Singapore’s excellent reputation in the healthcare and medical industry 

Singapore has built strong fundamentals in healthcare excellence, and has the world’s 3rd best healthcare infrastructure and is the best in Asia (World Competitiveness Yearbook 2010, International Institute for Management Development – IMD). Singapore also came in first out of 51 countries in a 2014 Bloomberg ranking of healthcare systems, and came in first as the global favourite medical tourism destination in PHD Chamber Medical and Wellness Tourism Report 2013.

The standard of medical practice in Singapore also ranks among the best in the world, creating strong demand for the country’s medical services.

2) A largely buoyant medical tourism industry

Singapore has a strong reputation for providing high standards in the medical field, allowing the country to be a well-known medical hub in Asia, with a thriving medical tourism industry. In 2013, medical expenditure generated from travellers was S$832 million, far exceeding the $345 million in healthcare expenditure generated in 2000.

Given that tourists travelling to Singapore for medical reasons account for a large proportion of earnings in the private healthcare industry, continued strong demand for such services would help to keep demand strong for medical suites.

3) Rising internal demand for medical services A growing and ageing population, as well as the rising popularity of procedures such as those in the aesthetic and dermatological fields, have contributed ti higher demand for medical services domestically.

Domestic demand for medical needs have also been rising, experts say, citing a growing and ageing population, as well as the rising popularity of aesthetic procedures.

4) Increased expenditure on private healthcare

Spending on private healthcare in Singapore has increased over the years. In 2013, the private consumption on healthcare in Singapore S$9.6 billion compared to S$7.8 billion in 2010. This bodes well for the private medical profession – who are the end-users of medical suites.

Potential pitfalls

As with any investment, however, there are areas and issues that investors need to watch out for.

1) Location

Firstly, not all medical suites are equal. Factors such as location affect the price and rental yields a medical suite can command. Proximity to a hospital would help boost the value of medical suites, as certain treatments may need to be referred to hospitals.

2) Brand positioning

The prestige of being in a location that is well-known as an enclave for medical services, or has a reputation of providing medical excellence, will also add to the value and yields a unit can command.

3) Size of unit

As with any commercial or industrial property investment, investors should also take note of the unit size, and do their homework on what sort of medical services their dream unit would fit, to keep their leasing expectations in check. Do not simply take the word of the marketer, who may not be familiar with the product – especially given the rise in the number of residential property agents who are trying their hands at selling commercial and industrial property to boost income, but have limited knowledge of the new asset class they are trying to push.

4) Lack of clarity on classification of medical suites

Apart from characteristics relating to the unit that investors should watch out for, one general area that investors should bear in mind is the current uncertainty on how medical suites are/should be classified, and what constitutes a medical suite. What this means is that a buyer of a “medical suite” now may end up being in a situation where the unit no longer falls under such a classification, should the authorities decide in the future to specifically define what a medical suite is. Buyers therefore need to ensure that the necessary approvals for medical use have been obtained before they make their purchase.

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