Savvy investors to hold S’pore properties

A panoramic view of Singapore’s central business district. – CC SA 3.0 chensiyuan

SINGAPORE’S softening residential property market is due to the numerous measures imposed by the government to prevent an asset bubble, Jones Lang LaSalle Real Estate (Singapore) Pte Ltd national director (research and consultancy) Ong Teck Hui says.

Since 2009, the government has had up to eight rounds of cooling measures which include increasing the downpayment, stamp duty that both buyers and sellers need to pay, and macro-prudential measures a borrower’s outstanding debt obligations must not exceed 60% his total income.

These measures have affected certain areas, Ong says. The areas which have been affected more significantly are the prime districts, including the Sentosa enclave.

Ong says that according to the Urban Redevelopment Authority’s (URA) price index for non-landed homes in the Core Central Region (CCR), prices have slid 5.7% from the second quarter of 2013 to the third quarter of this year. CCR includes the prime districts, Sentosa and some districts in or near the city centre. 

However, certain projects have encountered larger price declines over the last 12-18 months, says Ong. Prices of units on Sentosa island have fallen 10% to 30% over that time period and may give the impression that price corrections in the overall market are more severe, he says in an email.

“Unlike Chinese developers who are more aggressive, Malaysian developers tend to be more selective in bidding for development sites. While they have made fair progress in the Singapore residential market, there are a few residential projects undertaken by Malaysian developers who are currently facing difficulties due to sluggish market conditions.

“Like other developers, Malaysian developers with on-going projects in Singapore will similarly encounter slow sales progress for those under marketing or unable to launch new ones due to poor demand. If this is prolonged, they may eventually have to consider price discounts in order to improve their bottom lines,” Ong says. He does not identity the Malaysian developers.

Singapore’s property market – like Hong Kong’s – is quite unlike Malaysia by any measure. This is due to land scarcity, the gateway status to Asia which both Hong Kong and Singapore enjoy and the foreign investor element in both these markets.

Says a source in Singapore linked to a Malaysian developer: “The general perception is that your Singapore property has good upside in terms of capital appreciation but in Malaysia, prices do not move.”

To a certain degree, this is true but since 2010, prices have moved quite a bit in Malaysia, due largely to the massive printing of money by central banks around the world known as quantitative easing (QE).

The Singapore and Hong Kong property markets are charactercised by their volatility, but this does not mean that both these markets are good or bad. Such labelling would be too simplistic. It just means that these markets are different.

Singapore has a two-tiered property system. There is the HDB (or Housing Development Board) and the private residential market. HDB housing makes up the bulk of the market, at about 80%. Private residential market accounts for only 20%.

The Singapore government has always kept an eye on price trends in this 20% portion of the market, and this underscores the primacy of the property sector in the country’s greater economy.

It also underscores the vast exposure in terms of value that this 20% commands in the overall Singapore property market. This private residential portion is primarily owned by foreigners where prices are many times that of the HBD portion.

Says a source working in Singapore linked to a Malaysian developer: “Both Hong Kong and Singapore are good places to invest in. This explains why despite the current slump, land continues to be snapped up. Savvy investors with a medium- to long-term perspective will still buy, and this applies to both house buyers and developers.”

On the current slump, he says: “Developers are taking a wait-and-see stand. We are realistic. We are aware of the situation – a slumber in the sector – so there is a (certain) level of optimism. Just look at the land sales. Foreign developers continue to snap up land. The price may not be as high but they will continue to buy,” he says.

Land cost in Singapore average about 60% of a project’s gross development value, says SLP International Property Consultants Pte Ltd executive director David Neubronner. It is even higher in Hong Kong. In Malaysia, it is about 20% and if a developer holds large tracks of planatation land, it could be 10%.

Neubronner says in Singapore there are three general residential segments – High End (CCR – central core region), Mid market (rest of central region) and Mass Market (outside central region)

The high end segment is located in the prime districts of 9 (Orchard Road), 10 (Orchard Road and Holland Road), 11 (Bukit Timah Road), 1 (Marina Bay) and 4 (Sentosa). Prices start from S$2,000 psf upwards, Neubronner says.

In prime Orchard Road, prices hit S$3,000 psf or more. Volume though is very thin as unit sizes are big and so price quantum is not quite affordable, ie S$5 million upwards. 

Neubronner says in Sentosa, prices have declined faster than other prime areas and some recent transactions have gone under S$2,000 psf.

“The decline in high end segment started since 2011 and after the euro crisis. This segment has been hit the most by the cooling measures. Despite these measures, seven out of 10 buyers in this segment are foreigners or permanent residents.”

Mid market include developments on the city fringe and prime East Coast (district 15) where prices range from S$1,500 psf to S$2,000 psf. Interest is weak but unlike the high end segment, there have been more transactions as units are generally smaller and price quantum under S$3mil in general. Target buyers in this segment are evenly shared between locals and foreigners.

Mass Market are developments in the suburban areas and in the vicinity of public housing estates across the island. Price appreciation accelerated the most in recent years from an average S$700 psf in 2010 to S$1,000 psf in 2014. Average price quantum remain at about S$1mil as developers downsize units to keep them affordable and compete. Singaporeans form the bulk of buying interest in this segment. 

Neubronner says this segment used to be popular with foreigners too but a 15% additional buyers’ stamp duty introduced for foreigners in early 2013 succeeded in reducing their market share.

Nevertheless. Singapore is still a preferred place to do business for many reasons but for now, property development is now more challenged than before, Neubronner says. - The Star