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Luxury homes hardest hit but price dip could moderate this year

Analysts see buying interest recovering and expect "innovative sales schemes" rather than price slashing, with better value proposition perceived

No matter how Singapore's private residential sales data is diced, it would still show that price falls have been deepest at the highest end of the market, hurting luxury homeowners the most.


NO matter how Singapore's private residential sales data is diced, it would still show that price falls have been deepest at the highest end of the market, hurting luxury homeowners the most. But property consultants are unfazed by the trend as they believe price declines in this segment will likely moderate this year (INFOGRAPHICS: Falling; How different baskets of housing units fare).

Estimates of various consultancies - most showing double-digit percentage price falls for luxury homes - appear to resonate with recent comments from Redas (Real Estate Developers' Association of Singapore) president Augustine Tan last week, who cited a 20 per cent drop last year in prices of luxury homes above S$2,800 per square foot (psf) from the 2013 peak.

An analysis by CBRE based on caveats lodged shows that the average price of new luxury apartments above S$5 million in the core central region (CCR) sold by developers plunged 17 per cent from S$2,950 psf at end-2013 to S$2,450 psf at end-2014. The resale market for these units held up better, falling by a smaller 6.2 per cent to an average S$2,650 psf.

Another analysis by DTZ that tracks luxury condos completed for at least a year shows a 9.7 per cent year-on-year drop in the median price over last year and an 11.5 per cent fall from the peak in Q3 2013. These luxury condos refer to selected projects in the prime districts 9, 10 and 11 that are less than 10 years old, where most units are 2,000 sq ft in size or larger.

In comparison, three-bedroom freehold condos of 1,000-1,300 sq ft in non-prime districts outside districts 1, 2, 4 and 9 to 11 showed a smaller 8.5 per cent year-on-year drop in their median price last year and 9.5 per cent drop from the Q3 2013 peak, DTZ said.

Meanwhile, ultra-luxury condos tracked by Knight Frank showed a 12.4 per cent fall in average prices over last year. These are prized homes with a prestigious address, generous unit sizes of at least 260 square metres (around 2,800 sq ft), with a current price of around S$3,000 psf or higher.

Admittedly, differences in how the consultancies define their baskets of units result in varying estimates, while official price indices by the Urban Redevelopment Authority (URA) show the broader trend taking place in each region. The NUS Singapore Private Residential Price Index has shown similar price trends over time.

For last year, the URA indices showed prices of non-landed residential units in the CCR, rest of central region (RCR) and outside central region (OCR) falling 4.1 per cent, 5.3 per cent and 2.2 per cent respectively for the whole of last year.

While pressures on luxury home prices could persist, property consultants reckon that prices of such units could find some support this year.

Desmond Sim, CBRE head of research for Singapore and South-east Asia, pointed out that the estimated 17 per cent drop in new luxury apartments last year are based on transactions that are "few and far between". He believes developers are likely to adopt "innovative sales schemes" rather than slash prices this year.

Alice Tan, head of research and consultancy at Knight Frank, expects the price fall for luxury homes this year to be less pronounced. "I envisaged some returning interest as interested buyers who still believe in Singapore's long-term prospects will find better value proposition for luxury homes."

The faster pace in reduction of unsold inventory of high-end homes for the past few quarters also suggests a recovery in buying interest for this segment, she said.

Unsold inventory for non-landed homes in the CCR region was cut down from 10,087 units at end-2013 to 8,978 units at end-2014.

Lee Nai Jia, DTZ associate director for research, noted that the impact of the total debt servicing ratio (TDSR) and the additional buyer's stamp duty (ABSD) is already reflected in the prices. So when interest rates will go up and whether the ABSD will be tweaked are the key wild cards.

"When interest rates go up, we expect to see more mortgagee sales, and potential buyers' affordability will be affected," Mr Lee said. Should Singapore's economic environment soften, the government could potentially lift some of the ABSD, he added.

Compared to the overall 3.5 per cent fall in prices of non-landed private homes last year, landed homes saw a steeper drop of 5.3 per cent, according to URA's index.

Good class bungalows (GCBs) tracked by CBRE reflected a 5 per cent drop in their average price last year to S$22.36 million. The average price of a GCB crossed S$20 million in 2011.

Mr Sim noted that the GCB market slowed further in the second half of last year, with 13 caveats lodged compared to 15 in the first half, after 29 GCBs were sold in the whole of 2013. He is expecting 20-30 GCBs to be sold this year as owners are still able to hold on to their properties if their price expectations are not met.

"We also expect the average price of GCBs with land areas of about 15,000 sq ft to hover around S$22 million, taking into account location, built-up area, age, design, terrain, frontage, etc, of the individual GCBs."

Only three Sentosa Cove bungalows were sold last year and the transactions took place in the second half, compared to 18 houses sold in 2013. Mr Sim attributed this to the hefty 15 per cent ABSD on foreign buyers that proved to be a major deterrent.

The average price of the three bungalows at S$1,676 psf was 20 per cent lower than the average price of bungalows sold in 2013. But Mr Sim pointed out that they fetched lower prices partly because of the property attributes - as they faced the waterway rather than the open sea.

"In view of the persistent uncertainty in the global economy, CBRE Research expects sales activity in Sentosa Cove to remain tepid in 2015," said Mr Sim. "Homeowners who are locals are allowed to lease out their bungalows while waiting for the market to recover."

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