Receive $80 Grab vouchers valid for use on all Grab services except GrabHitch and GrabShuttle when you subscribe to BT All-Digital at only $0.99*/month.
Find out more at btsub.sg/promo
THE Singapore luxury condo market has seen better days, with prices and volumes remaining well below the peaks last seen in the pre-Global Financial Crisis (GFC) property boom. Developers are still left with a substantial amount of unsold inventories and cooling measures have put a lid on demand. Hence, prices and volumes have remained soft. However, the luxury condo market is showing signs of thawing, with transaction volumes slowly creeping up, amid depressed prices, since the second half of 2014. In this article, we define luxury condos as non-landed private residential units located in the Core Central Region (CCR) that have transacted at prices above S$4 million.
Interest in the Singapore luxury condo market seems to be gaining momentum as evidenced by the pick-up in the number of transactions. After transaction volumes hit a low of 108 units in the first half of 2014, volumes have been moving up, and 165 units were transacted in H1 2015. The slow and steady rise in volumes amid dim market sentiments and cooling measures, suggests that both Singaporean and foreign buyers have largely acclimatised to the current property landscape and prices have fallen enough to justify investing in the segment, despite paying the additional buyer's stamp duty (ABSD). Word on the ground is that there has been a rise in the number of enquiries in the high-end market. The anecdotal evidence suggests that many investors are keeping a keen eye out for good bargains especially with current price levels being significantly discounted compared to their pre-GFC peaks.
In H1 2015, Singapore and Chinese buyers formed the two major sources of demand for the luxury condo market, having bought 57 and 31 units respectively, which together accounted for 53 per cent of luxury condo transactions during the period. Chinese demand has been on the rise, on the back of the appreciating yuan relative to the Singapore dollar. Many would also be investing for diversification purposes. Recent deals reflect Chinese interest in the Singapore luxury market and their willingness to pay top dollar for rare, good quality properties. For example, the sole penthouse unit at Le Nouvel Ardmore was snapped up by Chinese billionaire Sun Tongyu, co-founder of e-commerce site Alibaba. The 13,875 sq ft penthouse was bought at S$51 million, which is a historical record for the condo market here in terms of transaction value.
On the flipside, interest by Indonesian buyers, who were a traditional source of demand for luxury condos in Singapore, has declined as their purchasing power has been diminished by the continued depreciation of the Indonesian rupiah against the Singapore dollar. The unfavourable exchange rate coupled with the high ABSD has raised the cost of Singapore properties significantly for Indonesian buyers. Until exchange rates stabilise to previous levels or the ABSD is adjusted, Indonesian demand is not expected to come back anytime soon. Barring a hard landing in China's economy, the luxury condo market is expected to be supported by local and Chinese demand over the short to medium term.
Savvy investors are increasingly looking at the resale market in search of deals that are now selling at deep discounts compared to their previous selling prices. The table above shows secondary market transactions this year (as at Sept 30) at prices significantly below their previous transaction price, based on caveats data.
The largest discount was for a unit at Seascape, which was sold for S$5.8 million in May 2015, S$5.2 million lower than the previous transaction, representing a 47 per cent fall in value. Other transactions highlighted in the table saw buyers picking up units at around 26 per cent to 37 per cent below their respective previous transacted prices. With some units selling at prices significantly lower than their pre-GFC historical peaks, the upside potential is significant, assuming prices will return to their previous levels.
Value can also be found in the primary market, where some developers are facing hefty extension charges due to Qualifying Certificate (QC) conditions. QC regulations apply to foreign developers - defined as one that has even a single shareholder or director who is not a Singapore citizen - that have acquired their land from private sources such as collective sales. These developers have a two-year period to sell off all their units within the project after it obtains Temporary Occupation Permit (TOP). Failure to do so would make them liable to pay hefty extension charges to the state which are pro-rated based on the proportion of unsold units left in the project. Many completed luxury condo projects have a substantial number of unsold units, and developers that are facing or are already paying hefty extension charges, may be more willing to lower prices to attractive levels in order to move sales.
However, investors who are expecting developers to lower prices to cut-throat levels may be disappointed. Developers have other options. Some may choose to privatise and delist their company. Once all the shareholders and directors of the company are Singapore citizens, the developer may apply to the authorities for a clearance certificate, upon issue of which it may then apply to cancel the QC for the project. For instance, SC Global, which privatised in 2013, has saved millions in potential QC charges. Others may choose to dispose of unsold units in a project through internal sales. For instance, Hiap Hoe Group sold all 48 units in its Treasure on Balmoral project to its unlisted holding company.
In the primary market, one of the best-selling luxury condo projects this year (based on URA Realis caveats data as at Sept 30, 2015) has been the Urban Resort Condominium by CapitaLand. The project is located in Cairnhill Road and 17 units were sold in the first nine months of 2015 at a median price of S$2,270 psf. In comparison, 39 units were sold in the preceding period (before 2015), at a median price of S$2,760 psf. The project achieved TOP in 2013, and would be liable for QC extension charges in 2015. Other best-selling luxury condo projects in the first nine months of this year include Goodwood Residence and Leedon Residence.
Demand for luxury condos is expected to grow over the long term, driven by rising wealth in the Asia Pacific region. According to the World Wealth Report 2015 by Capgemini, Singapore is host to one of the biggest High Networth Individual (HNWI) populations in the world. Furthermore, the HNWI population in the Asia Pacific is expected to grow and is poised to be a major driver of global HNWI wealth over the next few years. A part of this wealth would find its home in Singapore, driving demand for Singapore luxury properties. With its attractive tax rates, high standards of living and transparent housing regulations, Singapore will continue to appeal to the HNWI population.
Demand for luxury condos would pick up if global economic conditions improve and prices would be underpinned by limited future supply. Overall future supply in the market remains limited with only 15 per cent of incoming completions to be located in the CCR over the next few years. The bulk of land supply from the Government Land Sales Programme is for mass-market homes. On the other hand, collective sales - the main source of land for luxury condo projects - remain muted due to ABSD and QC conditions. As the unsold inventory of luxury condos dwindles on the island, demand should eventually catch up with supply, setting the stage for a recovery in prices.
Over the short term, a broad recovery in luxury property prices is not expected, given the headwinds facing this segment. These include a dim economic outlook, the property cooling measures in place, rising interest rates and a substantial stock of unsold units in the market. Yet, with limited future supply, together with an expected increase in demand due to growing wealth in the Asia-Pacific region, the long-term fundamentals of Singapore's luxury condo market remain intact and the upside potential is likely to be significant, given the discount at current price levels compared to historical peaks. There is already growing interest in the luxury condo market, as reflected by the slow rise in volumes. Pockets of opportunity would appear in times of market uncertainty and discerning investors are standing ready to pounce when a good deal comes on to the market. With this in mind, it is wise to understand that investing in a luxury condo project is a long-term strategy that should reap rewards when the market recovers.