Thursday, October 12, 2006
[RealEdge] BT Property Supplements : GCB market set to appreciate further
| Published October 12, 2006  | |||
| GCB market set to appreciate further Growing wealth and a strong economic outlook form a favourable backdrop for the Good Class Bungalow segment to extend its recent gains. By STEVEN MING and YENNY BERLIANNA WITH the rapid growth of wealth in India and China, Singapore is not only strategically positioned to benefit as the region's leading financial and wealth management centre but also as a lifestyle trend-setter in Asia. Private banks have expanded their operations by two to threefold over the past two years, meeting increased demand for wealth management professionals to handle the rapid growth in these emerging markets. According to the latest World Wealth Report by Merrill Lynch and Cap Gemini, there were about 55,000 high net worth individuals in Singapore in 2005, with net investable assets of at least US$1 million. Although they only formed about 1.3 per cent of the population, the figure was 13.4 per cent higher than that in 2004. Evidently, the healthy growth and strong market performance helped drive wealth creation for these individuals. In addition, the government's pro-business policies have been attracting new investment dollars into the Lion City. This has been spurred by the planning of new tourism infrastructure to establish the nation as a tourism hub with the bold aim of doubling visitorship by 2015. All this would contribute to greater capital inflows into the country. This optimistic backdrop has seen investors flocking back to the local bourse and other traditional investments. The Straits Times Index (STI) is currently trading at around 2,500 compared with 1,600 to 1,900 two to three years ago. Property continues to be an investment favoured passionately by many investors, with the luxury residential market leading gains. The Good Class Bungalow (GCB) market has also benefited. GCBs, deemed as the highest class of residential housing available in Singapore, generally cost in excess of $10 million today. Because of their hefty price tags, GCB buyers are confined to the top echelon of society. Even before the recent surge in prices of luxury residential apartments, the GCB market started a strong run-up from mid-2004. Since then, prices in selected prime areas have surged by as much as 60 to 70 per cent. There have been 73 transactions recorded since the start of the year, compared with 104 transactions for all of 2005. The substantial price increase over the last eight months has also translated to the higher total value of transactions. To date, the total value of all GCB transactions is some $781 million, just a tad shy of the $845 million done for 2005. The growing affluence of buyers could be the main explanation for the increased number of large GCB transactions this year. There have been 28 GCB transactions for land sizes above 20,000 sq ft. This makes up 38 per cent of the total number of transactions for the first eight months of 2006, against 28 per cent for 2005. Due to the government's restriction on foreigners buying landed property here, GCB buyers have predominantly been Singaporeans, although there are a number of permanent residents who have also been granted approval to buy. Buyers are usually highly successful professionals and businessmen as well as captains of industry, with new wealth resulting from the listing of their companies on the stock exchange. Then, there are also the beneficiaries of recent en bloc transactions who want to join the exclusive GCB owners' circle. However, this group makes up just a small proportion of all GCB buyers. In another significant trend, there have been a number of opportunistic trades. We have seen several GCBs changing hands in a matter of months or even weeks, with each realising quite handsome capital gains in return. As rental revenues from GCBs are relatively low, these investors would therefore not be buying them for rental returns, but more likely for potential capital gains. Due to the current high demand and limited number of GCBs (estimated at around 2,000 to 2,500 units), and with fewer desirable sites for this 'cream of the crop' sector, these investors have made sizeable profits over a relatively short period. Since the beginning of this year, prices of GCBs have increased by double digits. On average, we have seen prices rise by 10 to 15 per cent. Based on recent transactions, the Bishopsgate GCB area seems to have enjoyed the fastest price escalation. A GCB land parcel in Bishopsgate was bought for $410 per sq ft in early 2004, while another plot on the same street was sold for $680 psf in June this year. In 1996, at the height of the property boom, the asking price for GCB land in Bishopsgate was $650 psf. Prospective buyers have begun to take notice of the government's plans to revitalise Singapore and how it's gearing up. With Singapore's strong economic outlook, we expect to see continued strong demand for GCBs. Even recent bungalow land parcel sales on Sentosa Cove have exceeded $800 psf. Although we note that Sentosa Cove offers a different lifestyle for the affluent, we believe that the record prices on Sentosa Cove will likely accelerate the price surge for GCB land. With GCBs currently going for $500 to $600 psf, it certainly looks well worth it for investors to put their money on the rarest of gems in the Singapore property market. Steven Ming is director, prestige homes and Yenny Berlianna, assistant manager, research & consultancy, Savills Singapore | |||
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