GCBs Looking Good Long Term

Source : Property Report "October" 2007

By Sonia Kolesnikov-Jessop

Good class bungalows (GCB), Singapore’s most prestigious homes, are now enjoying record asking prices. In August, Glencaird, a conservation property, was sold for S$28.8 million, at S$1,308psf, well above the previous record for a GCB of S$1,091psf, which had been set in March.

But while prices for GCBs have nearly doubled over the last three years, they’re still trailing behind those of landed properties on Sentosa as well as units in high-end condominiums, which are both benefiting from the strong interest of foreign buyers. The GCB market could boom if restrictions on foreigners were ever eased. However, even without foreign buyers, professionals believe such rare properties will always offer good long-term investment prospects.

GCBs are defined as bungalows that sit on at least 1,400sqm of land within one of the Urban Redevelopment Authority’s (URA) 39 designated GCB areas. There are an estimated 2,500 GCB units in Singapore, with either 999-year or freehold tenures.

Buyers of such properties are by and large Singaporeans, with only about 10-15% of plots sold this year going to Permanent Residents with special consent from the government, explains Steven Ming, Head of Investment Sales and Prestige Homes for Savills Singapore.

Not only must Permanent Residents seek consent from the Land Approval Dealing Unit (LADU) to buy any landed property but they’re also restricted by only being able to buy a property on a plot no more than 1,400sqm (the smallest size for a GCB) and cannot rent out the property.

In a June report, Goldman Sachs pointed out that the average price for a constructed top-end bungalow with a land area of 15,000sqft (about 1,400sqm) was about S$17 million. That’s 35% below that of a comparable condominium, such as a 7,500sqft unit priced at S$3,500psf, which sells for about S$26.3 million.

Slow risers
GCBs are usually viewed as a barometer of the residential property market in Singapore and it was the first residential property segment to enjoy a recovery in transaction activity back in 2003. Yet by mid-2004, the average price of land of GCBs, at S$367psf, was still down 45% from the previous peak of S$670psf in 1997 and down 24% from the average of S$479psf in 2000.

Prices started to pick up gently in 2005, rising to an average of S$395psf in the second half of the year, with some top addresses such as Bishopsgate, Jervois Hill and Cluny fetching S$550psf, up 20% on the year but still well below their 1996-1997 peak.

In 2006, prices rose further to an average of S$500psf as the market moved significantly. According to CBRE data, there were 119 transactions last year, up 40% on the year before, while the total value of transactions stood at S$1.23 billion last year, a 70% jump from 2005.

“Prices started to recover in 2005 at the time when Sentosa Cove started to release land to foreigners. This was ahead of the recovery in condominium units,” recalls Douglas Wong, Director of Grandeur Homes, PropNex Realty, who has been in the GCB market for over 10 years.

However, Wong points out that prices for bungalow plots on Sentosa surpassed those of GCBs in 2006, led by the strong demand from foreigners, assured of fast-tracked approval from the Land Dealings (Approval) Unit (LDAU). This was despite the fact that Sentosa plots are smaller and have only a 99-year leasehold tenure compared with typical freehold tenure for GCBs.

“Obviously if foreigners were allowed to buy GCBs, which are generally larger, prices would shoot up like Sentosa,” Wong says.

The last seafront bungalow plot at Sentosa Cove to be released was sold for a record S$1,473psf in May, surpassing the previous top price of S$1,308psf for plots bought in November 2006. Comparatively, a freehold bungalow on 15,075sqft of land at 63 Dalvey Road was sold in March for S$1,091psf by land area, at a total cost of S$16.45 million, the highest unit price for a GCB since 2000.

Asking prices for bungalows in coveted areas such as Nassim Road, Dalvey Estate, White House Park and Cluny Park now average S$900-$1,000psf and are expected to rise further following the sale of Glencaird.

Ming estimates that as of early September, the average GCB land prices this year was about S$675psf. “I think prices have the potential to rise another 10% before the end of the year and another 15% within the next 18 months,” Ming said.

“In general the property market is still on the move and with GCB land so scarce, I believe GCBs still have great potential for appreciation,” he added. “GCB pricing has not hit the peak yet, compared with the condos. If you consider that you’re paying $4,000psf for a condo and only S$1,100-$1,200psf for a GCB, it still holds very good potential.”

Quick turnaround
According to CBRE Research, 67 deals for GCBS were been completed to the tune of $850 million by August.

Although some buyers have been able to clock in quick resale profits, by and large, speculative activity is fairly rare in the GCB market, according to Ming. He estimated that about 10% of recently transacted GCBs have been bought and resold within a year.

One such property was 5A Bishopsgate, transacted at just under S$12 million late last year and recently resold at S$18 million. Another was 20B Nassim Road transacted for S$18.37 million in January and resold recently for S$24.1 million

“GCBs should not be viewed as a short-term investment,” Wong argues. “While some buyers have been able to flip their properties quickly and make a tidy profit, quick resales are generally more limited given that the potential pool of buyers is much smaller than for condos.

“GCBs are really a long-term investment which should give you better return and stable than equity. Ultimately, you’re buying a piece of land and there are only 2,500 GCBs, so it will always be a sought-after asset for its investment value and status.”

Although GCBs are not immune to the ups and downs of the property markets, the sector is a little bit more resilient than other property assets, notes Ming. “When you consider the profile of the buyers of these high-end properties, they can usually still afford to buy GCBs and hold them regardless of whether the stock market is falling.”