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High-end homes see price uptick
BEING the crème de la crème of the non-landed residential market, homes in the Core Central Region (CCR) are commonly referred to as high-end or luxury homes. According to the Urban Redevelopment Authority (URA), the CCR comprises postal districts 9, 10, 11, Downtown Core and Sentosa.
The URA CCR Non-Landed Residential Price Index rose 0.3 per cent quarter on quarter (q-o-q) in Q2 2016, marking a second consecutive quarter of increase after 11 quarters of price decline since Q2 2013 to Q4 2015. That said, flash estimates showed a 1.8 per cent price drop in the third quarter; the actual statistics for the full quarter will only be released at end-October.
When viewed in a broader context, Singapore recorded the ninth highest growth in ultra-luxury home prices out of 37 cities, with values rising 7.9 per cent in Q2 2016 from a year ago, according to Knight Frank's Prime Global Cities Index.
Following an overall price easing in the last three years, sales momentum in the CCR finally picked up in the first half of 2016. The total transaction volume of high-end homes increased by 31.3 per cent q-o-q, or 22.3 per cent year on year (y-o-y), to 767 units in Q2 2016. Buyers are capitalising on the relatively low prices to snap up luxury homes at more affordable levels.
The softened prices have also provided an opportune time for investors to explore bulk-purchase of high-end homes, as some developers look to avoid paying extension charges for the remaining unsold units in some of their projects which are at the tail-end of the seven-year grace period under the Qualifying Certificate rules. In May this year, 23 units of Starlight Suites were bought by private equity firm Evia Capital for about S$48 million.
This consistent healthy absorption in the new sales CCR market has resulted in the unsold private homes island-wide shrinking by 33.8 per cent to about 23,300 units in the last five years. Among the three market segments, the CCR experienced the largest decline in unsold inventory over the five-year period, falling by half to about 5,800 units in Q2 2016.
Prices and yields holding up
Despite the slew of cooling measures, CCR home prices have remained fairly resilient. Average prices of private non-landed new home sales in the Rest of Central Region (RCR) and Outside Central Region (OCR) fell by 5.2 per cent and 2.1 per cent y-o-y respectively in Q2 2016.
Conversely, CCR homes saw average prices rising by 15.7 per cent y-o-y over the same period. The resale market saw similar trends; while RCR and OCR home prices softened 0.4 per cent and 2.8 per cent y-o-y respectively in Q2 2016, average CCR home prices increased by 10.5 per cent over the same period.
Capital appreciation is a key consideration for homebuyers, especially those with long-term investment horizons. Despite a weakening leasing market, high-end homes continue to generate attractive rental yields for investors.
Knight Frank's analysis of a basket of private residential properties reveals that average yields of high-end homes rose 12 percentage points (ppt) to 3.15 per cent in Q2 2016, outpacing the 5 ppt and 6 ppt increases in the mid-tier and mass-market segments, respectively. This uptrend in investment returns is expected to spur greater interest in CCR properties.
The table shows a list of the top 10 private residential projects in the CCR, ranked by total number of units transacted over the last one year (Q2 2015 - Q2 2016). Analysing caveats lodged, the S$1-million to S$1.5-million price quantum proved to be the most common "sweet spot" price range for more than half of these developments.
Leading the competition in terms of transaction activity is mixed-use development Cairnhill Nine. With its prime Orchard location and direct connectivity to Paragon, the project had sold more than 75 per cent of its total units by end-Q2 2016.
Another key driver behind the strong sales is the realistic pricing strategy; based on caveats lodged as at the end of Q2 2016, more than half the units transacted had price tags ranging between S$1 million and S$2 million.
Sustainable price recovery
Based on Q2 2016 URA data, about 46,800 private homes are slated for completion by end-2020. Despite the looming supply glut, most of the units are in the OCR, while the CCR is projected to constitute only 16 per cent of this upcoming completion.
On a shorter-term perspective, new project launches in the CCR are expected to be few and far between. The Government Land Sales site at Martin Place awarded in July this year is likely to be the only new launch in the CCR from now till end-2017. With its prime location and proximity to the upcoming Great World MRT station, the project is expected to draw strong interest when launched.
As the site can only yield a maximum of 450 residential units, some homebuyers may have to delve into the resale market or existing CCR project launches such as Cairnhill Nine (57 unsold units ) and Marina One Residences (670 unsold units) to fulfil their luxury home aspirations.
According to Knight Frank's Wealth Report Attitudes Survey 2016, Singapore has re-emerged in the top-three most important global cities to ultra-high net worth individuals (UHNWIs). This accolade is reinforced by Mercer's 2016 Quality of Living City Rankings, in which Singapore has been named Asia's best city for expatriates.
Despite facing higher stamp duties for their property purchases, foreign homebuyers continue to be drawn to Singapore. Foreign purchasers of CCR homes rose from 33 per cent in Q1 2016 to 33.5 per cent in Q2 2016, marking a second consecutive quarter of increase.
As more expatriates and UHNWIs look towards the city-centre as their ideal place of residence, competition for CCR homes is expected to heighten further.
In light of the renewed interest in CCR homes, potential homebuyers keen on securing a "value-buy" in the high-end segment may find this period a reasonable time to enter the market.
As buyers continue to scour the high-end market for value-for-money properties, this return of interest is expected to further strengthen the green shoots of recovery for the luxury home segment.
- The writers are, respectively, director and head; manager; and senior analyst, consultancy & research, at Knight Frank Singapore.