GCBs keeping their allure

They are sought after for their uniqueness and exclusivity.

GOOD Class Bungalows (GCBs) are often described as the crème de la crème of the Singapore real estate market. With the Urban Redevelopment Authority's stipulation of a minimum 1,400 sq m plot size per GCB and a high prestige quotient due to their scarcity, GCBs are the most exclusive landed residential properties in Singapore. There are currently 2,700 such bungalows, largely owned by the wealthiest of families and high net worth individuals (HNWI). These are distributed across the 39 gazetted GCB Areas (GCBA), each with its own distinctive characteristics, attracting buyers of different profiles.

In recent years, the Singapore government has implemented a number of cooling measures such as the total debt servicing ratio (TDSR), additional buyer's stamp duty (ABSD) and seller's stamp duty (SSD) to cool the property market.

As a result, sentiment in the real estate market, especially the residential segment, has dampened. Property purchases have become more "financially technical" as buyers have to navigate multiple parameters circumscribed by the government's policies.

Coupled with rising mortgage rates, investing in bigger ticket residential real estate purchases have become tougher than before. When SSD and ABSD were first introduced in 2011, followed by an ABSD hike and introduction of TDSR in 2013, the impact on the GCB market was felt. The number of transactions fell from a high of 134 in 2010 to 57 in 2011 and 52 in 2012. It continued to fall to 28 in 2013 and 27 in 2014. Last year, the number of transactions picked up slightly to 40.

With the anaemic economy, rising interest rates and loan curbs, why are GCBs still an attractive segment in Singapore?

The tougher times and recent turbulence in the financial markets have prompted investors to look for safer investment returns and eventually they are steered into a "risk-off" or risk-averse environment. In general, a "risk-off" environment occurs when risk is perceived as high, with investors gravitating towards low-risk investments.

While the recent move by the US Federal Reserve to hold steady its benchmark interest rates triggered a rally in risk assets, including stocks and crude oil, it is a short-term knock-on effect versus a long-term real estate asset. Viewed strictly from an investment standpoint, the macro environment is motivating investors to seek safe-haven asset classes such as GCBs.


The landed housing segment in Singapore is often used for owner occupation and less for trading purposes, which means the GCB market is, somewhat, buffered from sharp price swings. There are also restrictions on foreign ownership of landed residential properties in Singapore (exceptions being strata-titled housing built on land and landed housing in Sentosa Cove). This has had an important impact on the GCB market, making it an investment class that is inaccessible to foreign investors.

Therefore, the GCB segment is often viewed as being less speculative and more resilient, allowing the well-heeled to acquire them as a long-term position in their overall investment portfolios. For instance, GCBs experienced positive price movements from 2005 to 2015, although this period straddled the 2008-09 global financial crisis, followed by the Singapore government's introduction of tough loan curbs. That GCB prices remain positive in spite of the current weak sentiment suggests GCBs are attractive as a low risk and stable investment product, and should continue to be so.

In the financial markets, going long involves buying a security such as a stock, commodity or currency with the expectation that the asset will rise in value. Would GCBs then be considered an ideal "big" long position for real estate? Data over the last decade seems to support this theory. From 2005 to 2015, average GCB prices rose from S$377 per square foot (psf) in 2005 to S$1,312 psf in 2015, representing a substantial increase of 350 per cent over the 10-year period.

It is evident that GCBs have performed well and made good returns during the last decade for their owners and investors. Strong fundamentals such as the finite supply of GCBs vis-à-vis steady demand (in contrast to the increasing inventory of condominium units) should support GCBs' good performance in the long term for owners and investors.

GCBs are fundamentally the premium and exclusive land bank of the well-heeled in Singapore. Nonetheless, not every HNWI will have the opportunity to purchase a GCB, since the stock of GCBs is limited in Singapore. Entry into the GCB club is therefore highly exclusive - almost competitive, even among the affluent, a trend that will continue in the coming years.

Looking back on the last 10 years, the market has witnessed low transaction numbers versus the overall stock of GCBs. This indicated an extremely low volume in change of ownership activity. Current owners have continued to hold on to their GCBs as part of wealth preservation for their families' future generations, which makes entry into this segment for the next generation of nouveau riche even more challenging.

GCBs will continue to be the "go-to" segment for wealth preservation. Unless there are additions to the 39 gazetted GCBAs, the supply of GCBs will remain limited. On the other hand, there is a growing number of nouveau riche who want to join the GCB club to cement their wealth stature. Their desire to enter this market will be highly driven and it is inherent in them to do so sooner rather than later.

While it is safe to say that wealth accumulation and preservation through real estate is a preferred choice among many, some owners may choose to sell to recycle their capital into other segments of the real estate market or even into other investment products. GCBs' steady price appreciation over the last decade has resulted in significant capital appreciation for some owners, putting them in a position to consider sale offers for their GCBs and take good profit.

While owners may wish to cash out on their GCBs, most of them also have strong holding power and may not necessarily sell at the prices that buyers have in mind. Given the current macro economic environment, buyers are looking for affordable buys among the GCB gems. Notwithstanding the mismatch in price expectations between sellers and buyers, it is being bridged due to a slight decline in average prices last year.

Still, the gap in price expectations should remain until the actual transacted prices show up in the completed deals. The unique nature and appeal of GCBs will continue to attract significant interest among the old-moneyed elite and the nouveau riche. The allure of GCBs is expected to endure for generations.

  • The writer is director of capital markets and investment services at Colliers International.

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