The Price Of Luxury

Source : The Business Times, September 27, 2007

Flush with cash, the high-end residential market is flourishing. KU SWEE YONG and JANE KWA look at what $5 million gets you

STRONG corporate profits and a global commodities boom in 2006 helped grow fortunes and sparked a surge in demand for trophy homes.

A survey by Cap Gemini and Merrill Lynch shows the number of high net worth individuals (HNWI) worldwide increased 8.3 per cent in 2006 to 9.5 million, with Singapore reported to have the fastest-growing number - up 21.2 per cent to 67,000. With this rising affluence, it is not surprising that high-end homes are being snapped up as soon as they go on the market, as they are just another example of luxury goods in hot demand.

Prices of high-end apartments continue to rise steadily, with new launches commanding increasingly higher rates in the prime districts of 9, 10 and 11. The average price of high-end residential property rose 9.1 per cent to $1,960 per sq ft from the last quarter, while the average price for super-luxury residential homes was even higher at $2,990 psf. The number of homes costing more than $5 million increased almost 54 per cent last year to 650. Foreign purchases at the top end of the market are also increasing.

'Singapore is increasingly acknowledged as a safe haven for investments, backed by a strong Singapore dollar and an attractive tax regime,' says Galen Tan, a managing director of EFG Private Bank. 'An increasing number of high net worth clients have included Singapore as a part of their multi-generation wealth succession planning and are attracted to the conducive environment for retirement.'

Foreign purchases stand at 60 per cent of transactions above $5 million, compared with 39 per cent in 2006 and 14 per cent in 2005 ( See Table 1). Looking at the top 10 transactions over the last five or six years in terms of price, the past two years have seen significant increases - from about $2,050 psf in 2000 to $3,090 in 2006 and $4,078 in first-half 2007. The number of units sold above $4,000 psf in July this year soared more than 350 per cent to a record 72, compared with just 16 in June. (See Table 2)

Escalating prices of super-luxury apartments have not put buyers off. In fact, most such developments - like The Marq at Paterson Hill, Parkview eclat, Scotts Square and The Boulevard Residences - have reported good sales, with foreigners buying off the plan without even viewing showflats. At the high end of the market, we are dealing with excess wealth, not merely income. Hence, some of the factors that influence the rest of the market do not come into play in this segment.

High-end apartments indisputably cost more nowadays, but what do you get for your $5 million? Is there really much difference between, say, a $1 million apartment, a $5 million and a $10 million model? Besides the current property boom which has pushed up land prices, there is another reason for the soaring prices of top-notch apartments. Developers are loading them with more luxurious features to justify higher pricing. We note that apartments above the $5 million mark boast dramatic additions, such as top-of-the-line fixtures and finishes, sophisticated amenities and sprawling living areas that normal apartments do not have. Parkview eclat, for example, offers superior finishes and state-of-the-art appliances such as mirror televisions, spas and custom showers to create a hideaway for hard-working owners to take a break from their hectic lifestyles.

Hayden Properties' latest development at 37 Scotts Road has taken opulence to an even higher level. It features a glass car elevator so owners can park their exotic wheels near their entrance. Assuming the development costs $3,000 per sq ft, it will cost as much as $600,000 for the parking space. Aside from providing additional functionality, such features imply a certain social status for owners. Large living areas and bedrooms are other common characteristics of luxury apartments. Hence, units that come with separate guest suites, spacious home entertainment rooms, wine cellars and open spaces, which were rare in the past for high-end apartments, are offered more commonly now.

The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. The love of space is reflected in the increasing number of large units sold. From January to July 2007, 1,250 units bigger than 2,500 sq ft were sold - 75 per cent more than in the same period last year. (See Table 3)

In terms of amenities, we have also seen vast improvements. Developers are increasingly aware that people are not buying a mere home but a lifestyle. In the past year, some developers have come up with creative ideas to provide a more attractive living experience for purchasers.
St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services. And Hilltops by SC Global promises a resort-style environment. We expect this trend of joint ventures between developers and prestigious hotel brands to continue.
Another distinguishing feature of luxury apartment buildings is the level of security. Developers are expected to place more emphasis on this as personal privacy and safety are big concerns. High-tech equipment such as fingerprint recognition and even eye scanners are being installed to identify residents and visitors. Cameras are mounted in every corner, panic buttons are wired to the bedside and a security guard placed outside each apartment to provide 24-hour surveillance.

The list continues, with buildings designed with infrared sensors that will sound alarms to warn security guards if moving objects are detected. Other security measures such as bullet-proof windows, a separate route and lifts for evacuation, a safe room that is bullet-resistant and wired with a phone line, back-up generators and keyless entry systems could be seen in future projects.

Compared with prices of high-end property elsewhere, Singapore has room for growth. In London, the average price for top-end apartments stands around $8,900 psf. In Monaco, the price of a luxury condominium averages $5,000 psf, while in New York it is about $4,500 psf. Apartments at Roppongi Hills, Tokyo, average around $3,400 psf, while in Hong Kong, prices of luxurious apartments average $3,100 psf, though those in the super-luxury category have now topped $7,800 psf.

Despite recent turmoil in global financial markets, the mid to long-term outlook for the Singapore economy remains positive, with the government upgrading GDP growth from 5-7 per cent to 7-8 per cent this year. The narrowing of the revised forecast to just a single percentage point range - from the usual two-point range - shows the government's confidence. Furthermore, Prime Minister Lee Hsien Loong has increased the long-term GDP growth target by one percentage point to 4-6 per cent per annum.
Going forward, we expect the property market to remain optimistic, with high-end prices likely to increase another 20-30 per cent a year until 2010, mainly due to the quality of projects and increasing land prices.

Land prices are likely to rise at a slower pace after strong growth in 2006. The increase in apartment prices is likely to be attributed to the fancy items and amenities that developers include. Furniture from the exclusive Lamborghini or Armani/Casa lines, Hasten Vividus beds that cost almost $120,000 apiece and high-end entertainment systems are just a few of the new frills that will allow developers to market the project as unique, so as to command a premium.

Ku Swee Yong is director of marketing and business development, Savills Singapore. Jane Kwa is an analyst, research & consultancy, Savills Singapore