Published 3 March 2011
The Business Times
By Han Huan Mei
Singapore can expect less growth in the inflow of foreign investors this year unless exciting new initiatives are announced by the government again
THE luxury condominium market rode a strong wave of recovery in 2010. New projects that were launched saw a reasonable take-up rate and a few existing projects that were put in cold storage during the financial crisis found buyers for multiple units.
As such, land-hungry developers started hunting for development sites in the prime districts again. By end-2010, it was clear that interest in luxury homes had returned and looked set to continue in 2011.
As response to new launches in the mass and mid-tier segments picked up in the second half of 2009, developers began to test the market with new luxury projects.
Knowing that there was ample liquidity in the market, they stepped up supply in 2010 even though the take-up rate was modest.
Transactions last year showed that luxury prices recovered some 20 per cent from end-2009 levels but were still about 10 per cent below the 2007 peak.
Institutional investors seized the opportunity to acquire multiple units in existing developments and projects that were nearing completion.
Alpha Investment Partners bought 23 units in Draycott Eight – mostly tenanted – for $157 million or $2,300 psf.
Real Estate Capital Asia Partners picked up 20 units of Paterson Suites for $118.6 million or $2,700 psf.
The interest in luxury homes pushed developers to acquire prime development sites via collective sales.
Meng Garden at Lloyd Road, with a land area of 35,639 sq ft and a 2.8 plot ratio (ratio of maximum gross floor area to land area), was sold to TG Development at $137 million or $1,380 psf per plot ratio (psf ppr) including a development charge.
Robin Court and its next-door site, together with the recently purchased Robin Star, with a combined area of 64,879 sq ft and plot ratio of 1.4, cost Sing Holdings a total of $124.3 million or $1,297 psf ppr including a development charge. Serene House at Jalan Serene/Cluny Park Road was bought by the Tuan Sing Group for $99.1 million or $1,388 psf ppr including an adjoining driveway.
As these land prices would translate to breakeven costs of $1,900 psf to $2,000 psf, it shows that developers were confident that upmarket home prices would hold in 2011 and beyond.
At the close of 2010, the report card showed the highest volume of 16,292 new homes sold and a 17.6 per cent hike in the overall home price index.
It was enough to convince the government to act.
The latest property measures introduced on Jan 13 this year were meant to discourage speculative buying fuelled by low interest rates and high liquidity.
These measures were also targeted at new mass-market housing (in the Outside Central Region) whose median price had climbed from $729 psf at end-2009 to $854 psf at end-2010.
Although players in the high-end segment generally have deeper pockets, they are not entirely immune from the property measures.
The imposition of the seller’s stamp duty for residential properties disposed of within four years of purchase – taxed on a reducing scale from 16 per cent of the sale price in the first year to 4 per cent in the fourth year – will tarnish the desirability of the properties as short-term investments.
The lowering of the loan-to-value (LTV) ratio from 70 per cent to 60 per cent for purchasers with at least one outstanding housing loan will increase the upfront cash burden, while limiting the LTV ratio to 50 per cent for loans to corporations and funds will deter the flow of hot money into Singapore.
These measures will weed out speculative demand leaving behind genuine buyers who either buy for owner-occupation or hold for longer term investment returns.
Assuming a healthy economy this year, sellers are not likely to reduce prices because they have holding power.
Rents in the prime residential districts (Core Central Region) have recovered by 18.6 per cent from end-2009 levels and will likely remain firm for the rest of the year.
Buyers who are looking for rental return will have to be content with a 2-3 per cent yield on luxury homes based on current price levels and rental rates.
According to the Ministry of Manpower, 58,300 jobs were created for foreigners in 2010, compared to a decline of 4,200 jobs in 2009.
However, employment numbers this year will not be as high since GDP growth is expected to slow to 4-6 per cent from 14.5 per cent last year. In terms of new supply, some 480 of the 10,399 new homes completed in 2010 were from luxury projects like 8 Napier, Ardmore II and The Orchard Residences.
Another 8,400 new homes are expected to be completed this year, with 440 units coming from luxury projects such as The Marq On Paterson Hill and Cliveden At Grange. Competition for top grade rents will be keen. As such, those who are buying luxury properties this year should be prepared to hold on to their units for three to five years before considering selling for capital gains.
Will luxury condos be the outperformers in 2011?
It would be more realistic to expect the luxury market to cruise along like it did in 2010.
Although more foreign and permanent resident buyers have bought new properties in the prime districts in 2009-10, the numbers were less than in 2006-7, during the initial excitement over Marina Bay as a global financial centre and the building of the two integrated resorts.
In the absence of similar government initiatives in 2011, we can expect less growth in both the inflow of foreign investors and home prices.
As such, the volume of luxury transactions this year is likely to be around 150-200 units with prices averaging at $3,000 psf and $3,500 psf for resale and new projects respectively (equating to a 5-10 per cent increase).
The writer is associate director, CBRE Research