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Luxury market continues to draw investors

Singapore's solid economy and stable political climate make it one of the choice locations for potential investors, especially foreign ultra high net worth individuals seeking luxury residences.

IN the global real estate market, super-luxury residential deals can be hard to come by, especially this year with the word "uncertainty" surrounding us - a volatile stock market, political unrest (such as Brexit) or economic stalemate (the trade conflict between the US and China). These factors are disrupting the real estate landscape, one way or another.

However, when these super-luxury deals materialise, they are somehow able to "wow" the market and lift sentiments, particularly in a moribund market.

A case in point is New York which is currently laden with an oversupply of luxury homes. It was reported in January this year that Ken Griffin, founder of hedge fund Citadel, was the buyer of the super penthouse at 220 Central Park South in New York City, at a jaw-dropping price of US$240 million. And this was not his only purchase. The Wall Street Journal reported that days before this purchase, Mr Griffin paid US$122 million for a 200-year-old mansion overlooking London's St James's Park.

A spokesman with the fund said that Citadel was expanding to new offices at 425 Park Avenue, which is within walking distance of 220 Central Park South. Therefore, the residence gives Mr Griffin a place to stay whenever he is in NYC.

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Closer to home, where the residential market has decelerated since the latest cooling measures of July 2018, The Straits Times reported in July this year that a buyer had bought Singapore's biggest penthouse at Wallich Residence for a whopping S$73.8 million.

Barely two weeks later, a Good Class Bungalow (GCB) near Singapore Botanic Gardens was sold at around S$41 million.

This was followed in close succession by the news that an 84,543 sq ft GCB at Nassim Road was sold for S$230 million or S$2,721 psf to an investor, probably the most expensive GCB plot ever sold.

It speaks volumes for Singapore to be able to attract ultra-high-net-worth investors to our humble shores.

The critical point is: luxury deals do surprise the market, even though these deals do not necessarily reflect broader demand. They could be a one-off deal, an extraordinary sale when a billionaire went shopping and found exactly what he wanted.

Selective buying by investors

Where does the Singapore luxury residential market stand now? How have the GCB market, the Sentosa Cove bungalow market and the luxury apartments market performed in H1 2019? What can we expect for the rest of the year and beyond?

As there were generally more sellers than buyers in the market, astute home buyers were very selective in what they picked. That explains why some properties or projects performed better than others.

There were 17 transactions within the GCB areas in H1 2019, lower than the 25 deals in H2 2018 but the same number as transacted in H1 2018. The unit rate of GCBs at S$1,353 psf in H1 2019 was 12 per cent lower than the S$1,533 psf in H2 2018, due to a higher number of older bungalows sold in the period.

Over at Sentosa Cove, only three bungalow deals were done in H1 2019, compared to five in H2 2018 and six in H1 2018. The fall in sales volume this year could be attributed to the increase of five percentage points in the ABSD payable by foreigners from 15 per cent previously to 20 per cent since July 2018. As the bungalows at Sentosa Cove had historically been more reliant on foreign buyers, the higher stamp duty tends to deter buyers. The smaller number of transactions also reflected a lower unit rate of S$1,732 psf compared to H2 2018.

As for the luxury apartment market, 175 units were sold in H1 2019, outdoing the 142 units sold in H2 2018, but 28 per cent lower than the 242 sales in H1 2018.

Defined as good quality (and/or branded) apartments in the Core Central Region (CCR) with price quantum of S$5 million and above, the healthy showing in H1 2019 could be attributed to the launch of Boulevard 88 which sold 62 units in four months, including all four penthouses. Its success stimulated the sales of other luxury projects like 3 Orchard-By-The-Park, 8 Saint Thomas and South Beach Residences. The 175 sales translated to a unit price of S$3,071 psf, 9 per cent higher than the rate of S$2,806 psf six months ago.

For comparison's sake, in Hong Kong, the average price of luxury apartments that are above 1,722 sq ft (160 sq m) was around S$3,131 psf in H1 2019, just marginally higher.

Profile of home buyers

The Singapore Residential Property Act states that foreigners are not allowed to own landed properties, which include bungalows. However, foreigners are allowed to own the bungalows at Sentosa Cove, a planned resort island to attract high-net-worth foreign investors. There is no restriction for foreigners buying apartments in Singapore.

Of the 175 luxury apartments sold In H1 2019, foreigners and permanent residents (PRs) made up 70 per cent of the buyers, the highest proportion compared to 2018 and 2017. Chinese buyers have been consistently the top group of investors for the past five years. In H1 2019, the top five foreign investors were Chinese, Indonesians, Americans, Taiwanese and Cambodians. In total, they accounted for 58 per cent of the units bought by all foreigners and PRs.

Luxury projects in the pipeline

The government is anticipating a further slowdown in the economy in H2 2019 due to uncertainties on the global front. We can expect home buyers to take a cautious stance. Nevertheless, developers are likely to continue to launch new projects for sale due to the five-year time frame for project completion and the deadline for the sale of all units in a project. Failure to sell all the units will require developers to pay ABSD of 25 per cent plus interest.

Some of the upcoming launches are EDEN, located at Draycott Park (20 units), Cuscaden Reserve at Cuscaden Road (192 units) and a condominium at Nassim Road (20 units). Based on the high land price and luxury finishes and fittings, these projects are likely to be priced from S$4,000 psf upwards.

We expect the selective buying behaviour of investors to continue. Singapore's solid economic fundamentals, sound financial framework, ease of doing business, quality education and racial harmony make it one of the choice locations for potential investors. Sales of luxury homes could also be boosted by an influx of foreign UHNW investors.

  • The writer is the director of research for List Sotheby's International Realty, Singapore