Thursday, October 12, 2006
[RealEdge] BT Property Supplements : On a high
| Published October 12, 2006  | |||
| On a high The recent surge in the luxury residential market has been fuelled by both local and foreign buyers, as NICHOLAS MAK and MICHELLE TEE explain SINGAPORE'S high-end private residential real estate market has been in the limelight for the past year and a half, with increased interest and transaction volume that can be traced back to when the green light was given for the development of two integrated resorts (IRs) in Singapore. Other factors include the stable recovery of the economy and the general perception that the rise in Singapore's property market lags other regional markets. This report will analyse the non-landed residential property market, particularly the high-end segment, consisting of homes in the prime districts of 9, 10, and 11 as well as new hotspots like Sentosa Cove (in District 4) and the financial district and New Downtown area (District 1). Both foreigners and Singaporeans can participate in this segment without restrictions, whereas foreigners require approvals from the government to purchase landed properties. We will examine the period from Q2 2005, when the government announced there would be two IRs, to Q3 2006. Foreign vs local buying There is a perception that most of the buyers of high-end homes are foreigners. In fact, although foreign buyers have a strong presence, the majority of the buyers are Singaporeans. Foreign buyers have always been active participants in the local property market. They tend to be more active in the high-end residential sector than the broad market. Out of the total non-landed residential properties purchased by foreigners in the past 1 1/2 years, 52 per cent of these properties were located in the prime districts of 1, 4, 9, 10 or 11. Some developments that attracted a high proportion of foreign buyers include St Regis Residences, The Sail @ Marina Bay and Rivergate. In the past 18 months, there was an almost equal percentage of foreign buyers purchasing high-end properties in the primary and resale market. The primary market refers to homes sold by developers, usually still under construction, while the resale market refers to units in completed developments sold by private owners. It can be inferred that the number of foreign buyers purchasing properties in anticipation of future returns is similar to the number buying properties for immediate occupation or rental returns. Foreign investors who seek to profit from short-term capital gains usually prefer to buy properties that are under construction, as they do not need to pay the full sum of the price upfront. Many of these buyers also prefer the progressive payment method to the deferred payment scheme, because of the 2-3 per cent discount for choosing the former. Interestingly, the majority of the foreign buyers in the high-end market were not Permanent Residents (PRs), while most of the foreign buyers in the rest of the island were Singapore PRs. The mix of foreign buyers in the high-end market also differed from that in the whole of Singapore. UK, US, Indonesia, Korea and Australia nationals were more active in the high-end market than in the rest of the island. Their individual market share in the high-end market is about one to four percentage points higher than their market share islandwide. Although Malaysian buyers make up about one-fifth of all foreign buyers in Singapore, they were active islandwide. While the proportion of foreign buyers out of the total number of buyers in the luxury market stands at a high 36 per cent as compared to their islandwide proportion of 25 per cent, they are still outnumbered by locals who make up close to 60 per cent of total home buyers in the high-end market. The dominating presence of local buyers is evident in both the new sale and resale market. A further analysis of buying patterns according to price range reveals that 38 per cent of those who purchased homes priced $5 million and above are foreigners. The percentage of Singaporean buyers is only slightly higher at 42 per cent. The remaining 20 per cent of buyers are companies. This indicates that though there were fewer foreign buyers in the high-end market compared to local buyers, most of the foreign buyers are high net worth individuals. Another example that illustrates this point is that 48 per cent of foreign buyers of homes in the prime districts purchased homes priced $1.5 million and above. On the speculative side The gap between the number of local and foreign buyers narrowed in the sub-sale market. Sub-sales are transactions by private sellers and not developers, before the development is completed. Sub-sales are often used as a proxy for the level of speculative activity in the property market. With foreign and local buyers making up 40 per cent and 56 per cent respectively of the total sub-sale transactions in the prime districts, it can be deduced that both groups of buyers were participating in speculative activities in the high-end market. High-end projects that recorded a relatively high number of sub-sale activities in the past 18 months include The Imperial, The Azure, Glentrees and The Sail @ Marina Bay. However, speculative activities have not reached an alarming level: the number of sub-sale transactions only constituted 4.7 per cent of the 8,000 sales in the prime districts. Given the optimistic market conditions in Singapore, speculative activity is not limited to new developments. For instance, two units in Ardmore Park were bought and sold within a seven-month period with price increases ranging from 14 per cent to 16 per cent. Record breaking prices In the 18 months from Q2 2005 to Q3 2006, average prices of non-landed homes in the prime districts rose by 31 per cent. Meanwhile, average private home prices in the rest of Singapore grew by only 13 per cent. The highest price increase in the prime districts was seen in the primary market, where average prices surged by 49 per cent to $1,249 psf. This was mainly due to the record-breaking prices set by luxury projects such as St Regis Residences, Scotts Highpark and The Grange. In the resale market, overall prices rose by 22 per cent, while they went up by 48 per cent in the sub-sale market. The sharp price increase in the sub-sale market was influenced by the price movement in the primary market, and the increased liquidity from the large number of collective sales in the prime districts. Even though empirical evidence suggests that foreign buyers are not the biggest group of property purchasers in the high-end market, the significant inflow of foreign demand has contributed to the robust rise in prices and sales. With the expected launch of more luxury properties such as those to be developed on collective sale sites in the prime districts, prices in the high-end home market are expected to reach new peaks, generated from activity by local buyers but supported by interest from foreign buyers. Nicholas Mak is a director and Michelle Tee is an analyst, research and consultancy at Knight Frank | |||
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