Singapore’s Rising Fortunes

Source : Asia Property Report, Nov 17, 2007

Singapore’s luxury residential market looks set to continue its upward rise, both in the coming months and also the coming years.

Singapore’s residential property market is expected to resume its upward push in the final quarter of 2007, having taken a much-needed breather during the third quarter. A brief lull was no surprise, as the total of 11,458 transactions for the second quarter, according to figures from Knight Frank, was the highest ever achieved in Singapore for a single quarter.

The report noted, however, that while the number of new units launched during the third quarter had eased 7.2% quarter-on-quarter to 4,100 units, it was still a hefty 79.4% increase over the same period last year and a figure only topped by the first two quarters of 2007.

Industry watchers attributed the slowdown in transactions between July and September to both buyers and sellers taking a wait-and-see stance in the wake of market volatility stemming from US sub-prime mortgage woes, as well as anticipation of changes to laws governing collective sales.
The seasonal dip was also due in part to the traditional slow period during the Hungry Ghost Month on the lunar calendar (August 13- September 10), regarded by the Chinese as an inauspicious time to buy property.

The third quarter also coincided with summer holidays, when most expatriates are out of town, hence attributing to a further fall in property viewings, noted Ku Swee Yong, Director of Marketing and Business Development for Savills Singapore. “It’s good for the market to take a breather, for the fundamentals to solidify and grow even stronger from a firmer base,” he said.

Nevertheless, the relaxed market didn’t stop projects such as M21, the Parc Condominium and the Rochester from being launched and selling out, while others such as Scotts Square, Soleil and Latitude also enjoyed strong take-up. Property watchers pointed out that while the volumes were down, the market mood and optimism over prices were not. “Sellers (in the subsale and en-bloc markets) were still holding out for higher prices,” Ku said.

Nicholas Mak, Director of Research and Consultancy at Knight Frank, noted that while the number of transactions in the secondary market had fallen to between 6,000-6,500 units for the third quarter from about 7,700 units during the previous quarter, the total number for the first nine months amounted to about 19,000. This is significantly higher, by 41.4%, than the total of 13,800 units that changed hands for the whole of 2006.

Good times to roll on
Mak added that the appetite for real estate in Singapore would remain robust for some time to come, citing continued economic growth, strong fundamentals, healthy investor confidence and liquidity in the local market, notwithstanding the sub-prime fallout in the West.

Ku added: “Banks here are providing loans with their own funds, not borrowed funds. They have little or no exposure to the sub-prime problems. In fact, with the sub-prime problems in the West, we’re now seeing overseas investors such as retirement funds from the US and Europe reallocating their money to this part of the world.

“We’re talking about funds with a few billion British pounds or US dollars – enough to buy up Raffles Place – looking for investment opportunities and capital growth.”

Private bankers have already noticed a rise in the influx of high-net-worth individuals (HNWI) taking up residences or buying top-tier investment properties as a result of pro-business policies by the Singapore government, in its efforts to create a more globalised economy.

These initiatives include the Global Schoolhouse Programme, which hopes to attract 150,000 foreign students by 2015 (up from 70,000 in 2005) and the Headquarters Programme, which hopes to lure another 100 world-class companies to set up headquarter operations in Singapore by 2010. In addition, the government is also embarking on a drive to draw some 35,000 skilled foreigners annually to settle and so boost the quality of the Singapore workforce.

Said Ku: “The fact that Singapore doesn’t have a capital gains tax regime and has low property taxes are added attractions for HNWIs looking to preserve their wealth for their next generation.” He also pointed out that the relaxation of overseas investment laws in South Korea, punitive taxes in Japan and changes in US income tax laws for Americans living abroad have also spurred an increase in property purchases among the expatriate community.

Mak said an expanding economy and an increasing shortage of private apartments and condo residences, due in part to the feverish pace of en-bloc sales during the first half of the year, have led to rising rentals. This has prompted many permanent residents and long-time expatriates to commit to property purchases.

Foreign interest rises
According to Colliers International, 34% of foreign buyers’ purchases were in the S$1.5 million-$5 million range during the third quarter. Savills noted that the proportion of foreign purchases of properties above $5m has been rising from 14% in 2005 to 40% in 2006 and 60% so far this year.
Alfred Lim, Executive Director of VestAsia, said: “Expats are starting to convert their rental allowance into mortgages as companies are starting to amalgamate housing allowances into individual salaries. Usually, we see more modest and ‘smarter’ expenditure on housing from individuals once housing allowances are amalgamated.”

“Singapore is beginning to attract long-term and senior foreign talent who see themselves settling in Singapore for a while, so they’ll tend to buy their own properties instead of paying high rents. We’ll continue to see growth in the high and mid-end segments.”

He added that besides the traditional prime districts, areas with good access to transport, amenities and schools, like the East Coast, Tanjong Rhu, Bukit Timah, Novena and the West Coast, will continue to be attractive to foreign buyers.

Vincent Chong, Associate Director of Residential at Colliers International, said that besides saving on gross rentals, which rose from 7.6-10.2% per quarter for luxury apartments in the first three quarters, foreign buyers also stand to benefit from both capital appreciation and the continuing strengthening of the Singapore dollar.

The Monetary Authority of Singapore (MAS) surprised the currency market in October when it announced it would “increase slightly” the pace of appreciation of the dollar in a bid to contain imported inflation. Analysts said this meant the rate of appreciation would rise to between 2-3%, up from 1.5-2.5% previously.

Ku said there isn’t likely to be a let-up in foreign interest due to the dearth in the supply in both top-end residential and commercial properties. The Urban Redevelopment Authority (URA) has already tried to step in to cool the market with the release of 16 new sites for development, compared to nine for the same period last year.

High end just gets higher
According to Savills, the top 10 residential property transactions by price has seen significant increases, from about $2,050psf in 2000 to $3,090psf in 2006 and $4,078 in the first half of this year. The number of units sold above $4,000psf rose to a record 72 in July.

Looking ahead, Colliers expect the overall residential market for 2008 to increase by 15-20%. Savills expects the luxury property market to remain bullish, with prices likely to increase another 20-30% annually till 2010 as developers continue to raise the bar for high-end apartments, featuring more spacious surroundings, eye-catching features and services such as housekeeping, 24-hour concierge, sommeliers and doormen.

Hayden Properties’ development at 37 Scotts Road, for example, features a glass car elevator that allows owners to park their ride beside their living room. The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. Others like St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services.

Already, the start of the fourth quarter has seen a new record of $5,600psf paid for a S$28 million penthouse in The Orchard Residences in District 9, surpassing the previous $5,500psf for another penthouse sold at the same development in August.

Two prominent projects to watch for in the coming months include the Ritz-Carlton Residences at Cairnhill (58 units) and the development at 37 Scotts Road (56 units), the former Asia Hotel site, both by Hayden and both expected to fetch approximately $4,500psf or more.

Other new high-end residences expected to be launched during the fourth quarter include Hilltops at Cairnhill (241 units), Paterson Suites at Paterson Road (102 units), Latitude in Jalan Mutiara (127 units) and The Quayside Isle in Sentosa (228 units).

Future fundamentals
“Buyers are still positive on the markets, as the stock market has shown that Singapore is decoupling itself from the sub-prime concerns,” said Lim of Vest Asia. “The market will continue to be driven by the foreign investors and to a certain extent the stock market. The stock markets are hitting new highs again and confidence is coming back. The fundamentals for real estate are only going to get stronger.

“Rents and yields are strong, as Singapore is continuing to attract long-term corporations and talent. I believe that if the global concerns are contained and the key fundamentals don’t change, we’re likely to see very strong interest in the real estate market for the next 6-12 months and possibly beyond that.”

Ku noted that additional support for the overall residential market would come in the next two quarters from the unlocking of the S$10 billion of funds to sellers of en-bloc properties from the first half of the year.

In addition, he said 200,000 civil servants will be getting wage rises as well as special one-off year-end bonuses. Further down the road, there will be the privatisation of government executive condos in 2009, fuelling another round of liquidity in the market.

Colin Tan, Head of Research at Chesterton International, said Singapore’s ‘feel good’ factor would be further boosted by the staging of the Formula One race next year and the opening of the new integrated resorts, both of which will generate more visitors and prompt greater buying interest from abroad.

“There are still a few more steps to go before the Singapore market catches up with the likes of London and New York in terms of diversity and quality in cultural and entertainment attractions that are a draw for international buyers,” Tan added. “We have yet to see, for example, a strong influx of Middle East buyers.”

Ku also pointed out that in addition to the luxury inner-city precincts and the new waterfront properties at Sentosa Cove and Marina Bay, there are proposals to develop the Southern Islands into a playground for the rich in Asia, similar to Monte Carlo, which would open up another class of luxury property in the city state.