Return of foreign buyers to S'pore property scene

YEAR 2017 was a watershed for the private residential market, with prices starting to recover in H2 2017.

According to the Urban Redevelopment Authority's price index for non-landed residential properties, prices for non-landed residential developments rose by 1.3 per cent year-on-year as at Q4 2017, after dropping by about 10.1 per cent from its peak in Q3 2013 to Q4 2016.

Separately, the number of home sales has been rising steadily since 2015. The total sales in 2017 reached 21,771 units, higher than the 21,329 units in 2013.

Demand from Singaporean buyers is still the primary driver of the private residential market's recovery. The proportion of Singaporean purchases increased to 74.6 per cent in 2017 from 68.1 per cent in 2014.

This demand also supported the housing market in the prime districts, as the proportion of Singaporean purchases in Districts 9, 10 and 11 rose to 68.1 per cent in 2017 from 52 per cent in 2014.

While the number of purchases by non-permanent residents (NPRs) and Singaporean permanent residents (SPRs) has also increased significantly by 44.8 per cent and 28.6 per cent, respectively, the rate of increase was considerably lower as compared to the last recovery after the Global Financial Crisis.

When the residential market last recovered in 2009, the number of purchases by NPRs nearly doubled. The number of purchases by SPRs also rose by more than 150 per cent.

With the market at its nascent stage of recovery, we explore the change in the profile of foreign buyers as compared to the previous recovery.

Chinese still forms majority

Mainland Chinese buyers accounted for the largest proportion of purchases by foreigners in 2017. This was also the case when the market recovered in 2009.

However, acquisitions by mainland Chinese buyers rose by nearly three times in 2009, while it increased by only 31.9 per cent last year.

Interestingly, the profile of mainland Chinese buyers has changed. In 2008, only 48 per cent of them were SPRs. But the proportion of Chinese buyers who were SPRs rose to 69 per cent of the purchases.

The Chinese economy was growing rapidly from 2008 to 2011, and Singapore attracted many mainland Chinese buyers with its stability and sound economic fundamentals.

From 2015 onwards, most of the Chinese buyers had become SPRs. The stringent capital controls from the Chinese government was among the reasons that contributed to the change.

There is also a difference in the quantum of the residential properties that they are purchasing. More mainland Chinese buyers are purchasing the higher-priced properties now. For instance, only 2 per cent of the units purchased by them in 2009 cost more than S$5 million. In 2017, this proportion grew to about 4.4 per cent.

The increase could be explained by price appreciation. In theory, mainland Chinese buyers could get more in 2008 as properties were cheaper then. However, the hypothesis falls through as the proportion of Chinese buyers purchasing luxury properties continued to rise even when prices were declining from 2014 to 2016.

It is thus likely that the current group of mainland Chinese buyers are those who have made their fortune through the new economy.

The diminishing proportion of Indonesian buyers

Indonesians have always been one of the top-three foreign buyers of residential properties in Singapore up till 2015, when the number of home purchases by Indonesians fell below that of by Indian buyers.

Given that most Indonesian buyers have already purchased a property in Singapore, most high-net worth Indonesian buyers have started to target other overseas markets, especially after Singapore's private residential prices started to dip.

In 2016, the number of home purchases by Indonesians rose slightly, partly due to the Indonesian Tax Amnesty. Although Indonesian purchases have declined steadily since 2013, they remained active in the prime and emerging districts (see chart). We anticipate that they will return when more prime projects are introduced to the market.

Meanwhile, the improvement in Singapore's residential market last year has also attracted buyers from Hong Kong, the UK, the US, Australia and other countries. The number of purchases by Hong Kong buyers saw a large jump to 79 units from 29 units.

This was the largest amount of transactions recorded by Hong Kong buyers in a decade. Of the 79 units purchased by Hong Kong buyers, 34 units were in Districts 9 and 10.

It is interesting to note that most of the buyers are coming from housing markets that are overvalued, according to The Economist, which compared home prices to the disposable income per capita of the nation.

For instance, home prices in Australia are 61 per cent overvalued against income, compared to Singapore house prices which are 42 per cent undervalued.

More foreign buyers return as market picks up

We also anticipate that there will be more foreign buyers with varied profiles returning to Singapore's housing market.

The first group of foreign buyers comprises established professionals who have worked in Singapore for some years and are willing to purchase homes outside the prime districts.

The second group includes younger professionals working in the information technology and banking sectors, who have built their wealth in the new economy.

While the additional buyer's stamp duty (ABSD) helped to keep any overexuberance in check, the restraining effect it has on foreign buyers will continue to wane.

Firstly, the ABSD is not unique to the Singapore housing market, and foreign investors are likely to incur similar costs if they invest in other markets. More countries, such as Australia, Hong Kong and Canada, are implementing cooling measures to curb speculation due to the flush of capital built up over the past few years.

Secondly, Singapore's housing market has bottomed out, while most housing markets have been booming in the past few years. More investors are drawn to Singapore given the optimistic outlook and upward potential for its housing market.

With the government's initiatives in place, Singapore is primed to become an innovative technology hub connecting to Asia, which further augments its current advantages as a destination to work and live.

The Republic is also liked for its stable political environment, diverse culture and world class educational institutions.

Singapore will continue to be a magnet for foreign talent who will generate future demand for properties here.

Adapted from: The Business Times, 29 March 2018