The Singapore condo market (including both condominiums and apartments) capped off a robust 2022 with overall prices up by 8.1 per cent year on year, notwithstanding two rounds of cooling measures over the last two years. However, price growth differed across market segments, with condo prices in the Rest of Central Region (RCR) and Outside Central Region (OCR) locking in growth of 9.7 per cent and 9.3 per cent year on year respectively in 2022, while Core Central Region (CCR) prices grew only 4.8 per cent year on year.

The CCR comprises Prime Districts 9, 10, 11, the Downtown Core and Sentosa, and is viewed as a proxy for high-end and luxury homes. The RCR consists of areas within the Central Region, excluding the CCR and includes areas such as Queenstown, Toa Payoh and Bishan, which are city-fringe areas. The OCR consists of the rest of the island and reflects suburban housing areas.

The underperformance of CCR has persisted over the last decade. From 2013 to 2022, CCR condo prices have grown by only 3.6 per cent cumulatively. This pales in comparison to RCR and OCR prices, which have seen cumulative growth of 32.2 per cent and 37.3 per cent respectively.

Price gap narrowing

The CCR underperformance has led to a narrowing price gap between CCR condos vis-a-vis the RCR and OCR counterparts, based on our analysis of caveat data (data comprises non-landed transactions, 99-year leasehold, sizes between 800-1,100 square feet) between 2013 and 2022.

In 2013, CCR non-landed new sales median prices over RCR and OCR counterparts were about 1.5 times and 1.9 times respectively. The price multiple has shrunk to about 1.3 times for both RCR and OCR in 2022 and are both below their 10-year average.

A similar trend is seen for resale prices, though the gap has not closed as much as the new sales market. This could be due to a limited sample size for the resale market.

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The findings imply that there could be emerging value and potential future growth for the CCR market should the price gap revert towards their historical 10-year average, given an expected long-term uptrend in property prices.

Rental yields have gone up

While CCR condo price growth has strongly lagged, CCR rental growth has been more promising. CCR condo rents grew by 28.2 per cent in 2022, comparable to RCR and OCR year-on-year rental growth of 30.3 per cent and 31.8 per cent respectively. 

Given a sharp mismatch in price and rental growth, CCR estimated gross condo rental yields (based on resale prices) in 2022 has risen to about 3.3 per cent for 99-year leasehold properties, from 2.5 per cent in 2019. For comparison, RCR and OCR gross rental yields are currently about 3.2 per cent and 3.6 per cent respectively, from 2.8 per cent and 3.1 per cent in 2019. Yields for RCR and OCR properties have historically been higher compared to the CCR. However, the gap has tightened, increasing the value proposition of CCR homes. 

The CCR market is also underpinned by a limited supply pipeline. CCR non-landed units make up only about 23 per cent of total private residential non-landed housing (excluding executive condominiums) stock as of end-2022. The RCR and OCR take up about 32 per cent and 45 per cent of total non-landed stock. New supply of CCR units is expected to come up to about 10,000 units over 2023 and 2027, comparatively lower to RCR and OCR new supply of about 17,000 units each.

Is it time for the CCR to shine?

Future demand for CCR properties is poised to increase given an influx of wealth towards Singapore and ongoing efforts by the government to attract top global talent. For example, the number of family offices in Singapore has grown exponentially, having doubled from 2020 to reach more than 800 offices in April 2022. Also, the reopening of China is expected to bolster demand and sentiments in the CCR market.

Given Singapore’s pro-business environment, high standards of living and status as a gateway city in Asia-Pacific, the concentration of wealth and growth of high-net-worth individuals in Singapore is expected to continue.

Demand could first materialise in the CCR rental market before eventually converting into purchases in the CCR market over time. While the sales market remains underpinned by local demand, foreign demand has been resilient. Despite new cooling measures, CCR non-landed transactions for new and resale units from foreign buyers fell by only 5.6 per cent year on year in 2022 as compared to a year-on-year drop of about 29.2 per cent to 31.6 per cent for Singaporean citizens and permanent resident buyers.

We anticipate stronger demand for freehold properties in Districts 9, 10 and 11, which are the traditional prime districts in Singapore and are underpinned by limited supply and established amenities. Based on transactions over the past five years (2018-2022), about 64 per cent of CCR condo transactions were freehold or 999-year leasehold and located in Districts 9, 10 and 11. While rental yields are lower for freehold and 999-year leasehold properties, this is offset by expected better value retention over time.

In the Downtown Core, areas such as Anson, Maxwell and Shenton Way would benefit from increased accessibility due to the completion of new and upcoming MRT stations. This should result in higher rental demand and fuel higher prices.

However, investors are advised to adopt a long-term investment horizon.

The increase in buyer’s stamp duty from Feb 15 adds further friction to overall CCR price growth, effectively increasing the property cost by about 1-2 per cent for higher-priced residential properties.

The overhang of cooling measures continues to be a dampener for the CCR due to higher prices and its demand pool mix, which has resulted in tempered local and foreign demand.

Traditionally, the CCR market is driven by a significant proportion of foreign demand compared to the other market segments. The implementation of cooling measures, especially the Additional Buyer’s Stamp Duty (ABSD), has increased the costs of a residential property for foreigners and deterred foreign demand.

Before ABSD was implemented in end-2011, the proportion of foreign demand in the CCR was around 22 per cent on average from 2009 to 2011, and has since fallen to about 11 per cent in 2022. For OCR and RCR, the proportion of foreign demand pre-ABSD was about 10-15 per cent and has fallen to about 2-4 per cent in 2022.

Also, tightening loan curbs and higher stamp duty taxes have led to a gravitation of “affordability-focused” demand towards the RCR and OCR, where prices are lower than CCR.

Therefore, the CCR could outperform if and when cooling measures are relaxed. That said, trying to anticipate policy changes is a fool’s errand, and investors should take a long-term investment view.

Given the narrowing price gap, higher rental yields, relatively limited supply and expected increase in demand, CCR prices could surprise on the upside over the next five years. With private residential prices at historical peaks and still expected to trend higher in 2023, the value proposition of CCR properties looks increasingly attractive.

Wong Xian Yang is head of research at Cushman & Wakefield Singapore