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S'pore luxury homes still in demand among foreigners

S'pore luxury homes still in demand among foreigners.

THE housing market recovery is, by now, firmly entrenched. After almost four years of tepid growth brought on by a series of cooling measures and a sluggish economy, housing unit sales and land prices have rebounded strongly since mid-2017 .

The cooling measures remain largely in place despite small tweaks to the seller's stamp duty (SSD). In fact, these measures were marginally strengthened when, at Budget 2018, the Finance Minister announced that the buyer's stamp duty was raised to 4 per cent for properties above S$1 million and purchased from Feb 20, 2018.

Taken together, these policy adjustments suggest that policymakers believe that the market is finely poised - not too hot for the government to worry about systemic risks to households' balance sheets and mortgage repayments, nor too cold to dampen the positive effects of mildly-rising prices that feed into consumer spending.

Expanding 'prime' areas

One important subset of the market is the luxury segment, defined as units priced at or above S$2,500 psf, and at least 1,500 sq ft in size. While the overall price uplift has now brought "mass market" homes (excluding executive condos) to consistently S$1,000 to S$1,200 psf - a level previously unthinkable - the luxe segment is still within the purview of wealthy buyers.

Over the past 10 to 15 years, the prime districts have expanded beyond the usual 9, 10 and 11 to include the city centre (Districts 1 and 2), and the cluster of properties at or near Sentosa/Harbourfront (D4).

The Amber/Marine Parade area (D 15) is another one that might soon join the ranks of "prime" districts. For the purpose of this article, D15 has been included in the sample, although it accounts for only 6.6 per cent of the total luxury caveats examined.

Our research shows a pick-up in volumes for the D9 to 11, and D1, 2 and 4 areas since the start of 2016 in the luxury segment, which is in line with the rest of the market.

As volume rises and excess inventory is absorbed, prices follow. The chart shows that average prices have also begun to turn around since the last quarter of 2017.

On the ground, brokers have reported quicker sales of properties listed, and therefore a shorter time that properties are staying on the market. The scarcity of new stock and carefully-timed launches of selected stacks in new projects also helped to spur price increases for luxe projects.

The inventory of brand-new luxe projects and those under construction have been declining. Units at Twin Peaks, Gramercy Park, Hilltops, The Nassim and Ardmore 3, for instance, have moved rapidly during this cycle, aided initially by deferred payment schemes and rental guarantee mechanisms which helped to mitigate downside risks for buyers.

Buyers who bought into these new projects over the past one to two years have no incentive to divest within three years of purchase due to the SSD. This means that buyers have little new or recent stock to consider, leading to price increases for a number of these projects.

The foreigner effect

Traditionally, foreigners are significant players in the luxe sector, particularly Indonesians who favour neighbouring Singapore for its healthcare facilities and also to park some of their wealth.

The Indonesian tax amnesty programme which concluded in late 2016 seemed to have had only a marginal impact on luxe property prices, perhaps because in recent years, the Chinese have overtaken the Indonesians in their purchase of prime properties. Indian national buyers are also becoming a more prominent group for D9 to 11 properties.

There has been a volume pick-up that runs across both the Singaporean and non-Singaporean segments for D9 to 11. A similar trend can be observed for D1, 2 and 4.

Drilling down a bit further, using D9 to 11, and D1, 2 and 4 as proxies for this luxe sector, we found that while the share of Singaporean buyers has increased, the prime areas draw relatively more non-Singaporean buyers compared to Singaporean buyers.

For 2017 as a whole, 23.5 per cent of all transactions were carried out by non-Singaporeans, compared to 30.3 per cent for these prime areas. Anecdotally, the luxe segment, if the S$2,500 psf filter is applied, is likely to be even more skewed toward foreign buyers.

Note that this occurred despite many of them paying a 15 per cent additional buyer's stamp duty (ABSD), from the very first property purchased.

Drivers and outlook

Besides the usual arguments for Singapore's attractiveness to global capital - stable and well-functioning financial markets, rule of law, low taxes, good governance, secure streets and political stability - local property prices look relatively affordable on a quality-controlled basis.

This is even after taking into account purchase costs, especially stamp fees, which were raised in a number of cities like Sydney, Hong Kong, and London - equalising the disadvantage Singapore had when it first introduced the ABSD.

Knight Frank's 2018 Prime International Residential Index (PIRI) showed that the change in Singapore's prime housing prices, that ranked 23rd in 2016 and dropped to 26th in 2017, placed Singapore's luxe property proposition as one that is now more value for money.

The momentum for luxe housing is likely to continue apace for the next 12 months.

At the fundamental level, inventory remains limited by historical standards. As at end 2017, the stock of unsold housing units in the Core Central Region (CCR) - as a proxy for prime inventory - will take 56 months to clear based on the 12-month trailing average.

By way of comparison, the average number of months needed to absorb all the CCR unsold stock for the four-year period from 2013 to 2017 is 94 months, or roughly double the end-2017 number. At its peak, this number totalled 174 months.

Future supply from 2018 to 2022 for the CCR averages only about 769 units per annum, far below the annual pipeline of 3,173 units for the past four years. This is a situation supportive of prices in the near term.

High bids in recent land sales, such as the Jiak Kim site and Cairnhill Mansions, coupled with strong demand for New Futura, suggest that unit prices will remain firm, and indeed, are likely to rise further.

A 5-6 per cent upside is anticipated for the luxe apartment and condominium segment for the rest of 2018.

Adapted from: The Business Times, 29 March 2018