Good time to acquire prime property

Despite overall decline in housing demand over the past few years, there is still a visible level of sales activity in the high-end segment.

SALES activity in the Core Central Region (CCR) has slowed since the introduction of the cooling measures: from 3,452 transactions in 2013 to 1,775 in 2014 and 1,640 in 2015. Buyers are waiting for more price adjustments before taking the next step. CBRE believes this is a window of opportunity for purchasing a prime property.

Despite the overall decline in housing demand over the past few years, there is still a visible level of sales activity in the high-end segment. Buyers are aware that prices are now at more realistic levels as the CCR price index has declined by 4.1 per cent in 2014 and another 2.5 per cent in 2015.

Some of the prime projects that were completed or were nearing completion sold fairly well because buyers could see the finished product. For example, Goodwood Residence, sold 52 units in 2014 and 38 units in 2015. The bulk of these units were above the S$4 million price range. Another prime project, Leedon Residence, saw 74 caveats lodged in 2015, way above the 20 caveats lodged in 2014. Similarly, the bulk of the units cost over S$4 million each. Both developments feature large units above 2,200 square feet. Over at Ardmore Park, four units of Ardmore Three sized about 1,800 sq ft were sold in 2015 at an average price of S$6 million a unit.

Two other projects located in the prime districts, Robin Residences and RV Residences, also sold well because of their more palatable price quantums. With mostly smaller units ranging from 630 sq ft to 900 sq ft, the bulk of the units sold were priced at below S$2 million, representing excellent value for money.

The latest upmarket project to be launched is Cairnhill Nine. The project is connected to The Paragon shopping centre via a link bridge. About 89 per cent of the 268 units are sized from 592 to 1,324 sq ft. Some 134 units were reportedly sold in early-March at an average price of S$2,500 per square foot. Caveats lodged for the units sold showed that nearly 77 per cent were priced below S$2 million. Clearly, the palatable price quantum is a winning strategy, as the successful sales at Robin Residences and RV Residences have shown.

The interesting fact is that in February alone, nine caveats of over S$10 million each have been lodged for luxury units in developments such as Bishopsgate Residences, Boulevard Vue, The Ritz-Carlton Residences and TwentyOne Angullia Park.

This compares with 20 and 17 caveats lodged in 2015 and 2014 respectively for the same price range and luxury developments in the locations of Ardmore Park, Cuscaden Walk, Tomlinson Road and others. It is possible that investors who have been waiting on the sidelines since the market slow-down in 2013 see 2016 as the window of opportunity to invest in luxury homes.

These buyers have gone through a longer decision-making process to weigh the options available against market conditions. As informed investors, they set aside a budget which included the additional buyer's stamp duty (ABSD) and the lower loan-to-value ratio available to them, as well as the four-year time frame taking into account the seller's stamp duty (SSD) should they want to dispose the unit at a later stage.

The prime resale market also picked up in 2015, partly driven by a lack of new launches. Some 1,200 caveats were lodged for non-landed homes, nearly three times the demand for new homes in the same year and a 35 per cent jump from the level in 2014.

There is a healthy interest in resale homes because of their larger unit sizes and freehold tenure. With some 40 per cent of the transactions priced within the S$1 million-S$2 million range, this is the sweet spot for resale prime homes, an amount which is palatable to cautious investors waiting for an opportune time to buy.


Nevertheless, luxury developments such as Ardmore Park still have an appeal even though it is 15 years old because of the large unit sizes (2,885 sq ft), good layout and spacious landscape.

Between 2013 and 2015, an average of eight units were sold each year within the price range of S$7 million-S$10 million. Similarly, 15 units at the 21-year-old Four Seasons Park were sold over the same period, with the 2,260-sq ft units fetching S$5 million-S$6 million each and bigger units fetching S$7 million and above. It is clear that prices hold better for prime projects in good locations, even in down-market times.

The demand for resale prime homes is expected to continue in 2016 primarily because the supply pipeline is running low. Including Cairnhill Nine, the known non-landed supply in the Core Central Region is around 2,500 units as at end-2015. Traditionally, nearly all the new supply in districts 9, 10 and 11 came from collective sales of older developments.

In recent years, this source of land supply has somewhat dried up due to the higher price expectations of owners, tighter collective sales rules and property measures. However, in emerging prime locations such as Marina Bay, the government could still carve out new residential sites. Until that happens, the 2,500 units are all that the market has for the next few years.

If the site at Martin Place (District 9) in the H1 2016 government land sales (GLS) programme is sold later this year, it will add another 455 units to the total tally of prime projects. This still represents a fraction of the total home supply and reinforces the value of prime projects over the rest of the market (See Exhibit 1). There has been a lot of concerns for projects which are subject to qualifying conditions (QC), particularly completed high-end projects such as D'Leedon, OUE Twin Peaks and TwentyOne Angullia Park.

Developers of such projects have a timeline of two years after the projects are completed to dispose all the units in the project, otherwise, they have to pay an extension charge based on land price and pro-rated according to the number of unsold units. In addition, residential land purchased on and after Dec 8, 2011 will be subjected to an ABSD of 10 per cent with interest on the land price if there are still unsold units when the five-year project completion deadline is reached. From Jan 12, 2013, this rate was raised to 15 per cent with interest.

Will developers affected by QC conditions and/or ABSD in 2016 and 2017 cut prices significantly to clear the unsold inventory? It is hard to tell because of the various factors at play such as the location and size of the project, land price, number of unsold units, prices of the remaining units and the financial strength of the developer. So far, any price adjustments had been selective and discretionary.

For example, in the case of The Trilinq, it has 524 unsold units as at end-February 2016.

The ABSD which the developer is required to pay by January 2017 has been reported to be around S$52 million, which will work out to about S$100,000 per unit. Based on the average price of S$1.3 million reflected by the 95 units sold in the past year, the S$100,000 works out to nearly 8 per cent per unit. On this basis, it may make more sense for any developer who has the financial muscle or long term plans or a business strategy to pay the ABSD instead of making price adjustments. After all, good sites from the GLS programme are hard to come by.

Foreign home buyers are said to be the hardest hit by the 15 per cent ABSD imposed on them from January 2013 for every home purchased. In 2012, before the measures were introduced, 628 caveats were lodged by foreigners for homes in the CCR.

By 2015, this number declined to 241, in tandem with the rest of the buyers. In the first three months of 2016, the market saw 54 purchases by foreigners.

This number was supported by the launch of Cairnhill Nine as half of the 134 units sold were bought by foreigners and permanent residents from Indonesia, Malaysia and China. The location and palatable price quantum of the units were attractive to these investors (See Exhibit 2).

The Singapore residential market is likely to remain measured for the rest of 2016, as cooling measures are still in place, with headwinds from a slowing economy and rising interest rates. The likely launch of the Tower 2 of Marina One Residences (521 units) at the end of the year could have a ripple effect on the market if it is as well-received as Tower 1 back in October 2014.

While there is pressure on prices, the limited prime supply will help to cushion significant price falls. Should the government relax the existing cooling measures, it may stoke buying interest. When that happens, it is possible for prime prices to see some upside as early as 2018, ahead of the rest of the market. Investors are in a good position now to weigh their options and decide on a purchase before it is too late.

  • The writers are respectively associate director at CBRE Research and executive director of residential at CBRE.


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