Luxury homes reel from anti-money laundering blitz

IT’S generally thought that slowing economic growth and higher inflation do little damage to the demand for luxury goods as the wealthy have more buffers to deal with these challenges. 

However, a chill wind is blowing through luxury homes here. Blame this on the hike in Additional Buyer’s Stamp Duty (ABSD) - from 30 per cent to 60 per cent - for foreigners buying homes here. Foreigners have traditionally been an important source of demand for luxury apartments in prime districts.

Adding to the chill felt in luxury homes is the headline-grabbing S$2.8 billion money laundering case that has seen 10 foreigners arrested to-date.

This case has hurt buying sentiment and led to heightened scrutiny of potential foreign homebuyers’ sources of funds.

Transaction volumes are slowing across prime condominiums, conservation shophouses and even landed homes, according to lawyers, property agents and consultants whom my colleague Jessie Lim spoke to.

Jessie also reports that landlords of detached homes in Good Class Bungalows Areas are lowering rents as demand from ultra-high-net-worth individuals falls in the wake of Singapore’s money laundering bust. These houses, occupying sprawling grounds in leafy enclaves, sit atop Singapore’s housing market.

Perhaps, demand for luxury homes can get a boost if ABSD for foreigners is lowered, particularly for sums over a certain amount. 

It’s been nearly 12 years since ABSD on home purchases was introduced. In The Level Ground, I argue that there could be scope to tweak ABSD and property taxes to achieve more equitable outcomes for different buyer profiles.

Some parents use trusts to buy homes for children who are below 21 years old. Levying a non-remittable component to ABSD for trusts could be considered.

Resilience continues to be seen across the board in Singapore property. 

According to data by the Urban Redevelopment Authority (URA), the private home price index rose 0.8 per cent quarter-on-quarter (qoq) in Q3, reversing a 0.2 per cent dip in Q2. Market watchers see prices stabilising, on the back of high interest rates, cooling measures and cautious economic sentiment denting buying demand.

On the leasing front, there is a semblance of demand-supply balance emerging, with continued moderation in rental growth, amid a jump in housing completions this year, especially in Q3.

In the public housing segment, data from the Housing and Development Board (HDB) showed prices of resale flats rose 1.3 per cent qoq in Q3 - below a 1.5 per cent hike in Q2 and an average quarterly growth of 2.5 per cent in 2022. Analysts observed that resale HDB flat prices are finally starting to moderate, following several waves of cooling measures and ongoing economic uncertainty. 

Meanwhile, URA’s data showed office rents in the central region of Singapore rose 4.9 per cent qoq as the stock of office space decreased. Analysts expect rental growth of Central Business District office space to moderate in subsequent quarters, amid an expected higher-for-longer interest rate regime and global economic uncertainties.

Data from the URA also showed rents of retail space in the central region rose 0.5 per cent from the previous quarter, extending the 0.3 per cent increase in Q2, as the tourism sector recovered further and retail activity picked up pace.

Prices and rents of Singapore’s industrial spaces rose 1.4 per cent qoq and 2 per cent qoq respectively in Q3, amid overall inflationary pressures, according to JTC. The industrial price and rental indices have risen for 12 consecutive quarters.

While Singapore’s property market is resilient, housing developers have to contend with various property cooling measures. Also, the expected profit margin on housing projects may be thin. 

Growing operations overseas appears to be a good strategy for local property groups. Nonetheless, focusing on growth at home could make more sense for some players. Recently, I argued that GuocoLand should consider shrinking its geographic footprint to purely focus on the Singapore market.

Listed property trusts have been busy reporting results and business updates for the period ended September.

Among large cap trusts, CapitaLand Integrated Commercial Trust (CICT) posted year-on-year (yoy) growth in net property income (NPI) of 0.6 per cent in Q3. CICT benefited from new acquisitions and higher gross rental income from existing properties. However, the increase in rental income was offset by a rise in operating expenses. 

CapitaLand Ascendas Reit reported a slight increase in portfolio occupancy for Q3, as it also continued to register positive portfolio rental reversions.

Mapletree Pan Asia Commercial Trust saw its distribution per unit for the quarter ended Sep 30 fall 8.2 per cent yoy. The trust’s manager said this was due primarily to higher interest rates.

Hospitality trusts continue to report robust numbers. CDL Hospitality Trusts posted a 23.4 per cent yoy rise in NPI in Q3. The stapled group’s operational results reflected a continued recovery of international travel. 

Far East Hospitality Trust reported a 51 per cent yoy rise in distributable income for Q3. The trust achieved stronger performance for its Singapore hotels and serviced residences.

CapitaLand Ascott Trust’s gross profit for Q3 jumped 13 per cent versus a year ago as revenue growth offset higher operating and financing costs.

Singapore hotels’ average room rate surged in September to reach a record S$325.24, surpassing the previous year-to-date peak of S$292.46 in July, according to the Singapore Tourism Board. 

Abroad, surging mortgage rates in the United States are making the brutal housing market even more challenging for potential buyers.

House prices are declining in most of the United Kingdom, as stubbornly high mortgage costs start to bleed into values, according to property portal Zoopla.

Private home prices in Hong Kong fell 1.7 per cent month-on-month in September to the lowest since April 2017, according to official data, as rising interest rates and a bleak economic outlook weighed on homebuyer sentiment. Could the housing market get a boost from the Hong Kong government’s move to cut stamp duty on home purchases?

In China, property foreclosures rose 32.3 per cent yoy in the first nine months as homeowners grappled with debt amid a property market slump and shaky economic recovery.