Is Singapore’s high end property market really losing its lustre?

Singapore’s high end property market took a beating in 2015, on the back of the Additional Buyers Stamp Duty (ABSD). The ABSD imposed an added 15% tax on home prices for foreigners, which drove affluent foreign buyers to seek alternatives in the region, primarily Hong Kong and Australia. Along with a teetering global economy, this was expected to spell doom for the luxury property segment. But the search results and activity on 99.co suggests an alternative:

The current sentiment surrounding luxury property

The overall view of Singapore’s luxury market remains negative for investors. A few signs of this are apparent:

• Luxury property prices have been in decline since 2013
• Interest rates are high and set to go even higher
• There is persistent fear of diminishing housing allowances for expatriates

1. Luxury property prices have been in decline since 2013

According to the Real Estate Developers Association of Singapore (REDAS) the prices of luxury property have declined by about 20% from their peak in 2013.

For example, Cluny Park Residence, which fetched about $3,100 psf in 2013, has fallen to about $2,600 psf (-16.1%). Even newer high end launches in 2014 haven’t been spared – Boulevard Vue on Cuscaden Walk has fallen from an average of $3,888 psf from its launch in 2014 to present values of about $3,200 psf (-17.7%). One recorded subsale on April 2015, on the URA website, reflects a sale price of just $2,792 psf (-28.4%).

The main cause of declining property prices has been pinned on the Additional Buyers Stamp Duty (ABSD), which imposes a 15% additional tax on properties for foreign buyers.

Foreigners now account for around 10% of buyers in the Core Central Region, down from around 20% in 2013.

The worst hit area, due to the ABSD, would be Sentosa Cove. Sentosa Cove is the only place in Singapore where foreigners can buy landed property without restriction, and affluent foreigners account for the bulk of property sales here.

In August 2015 we reported that Sentosa Cove properties had already seen price declines of between 18 and 36% from 2011, and the decline is set to persist until the ABSD is lifted. Our view on this remains unchanged.

Overall, the decline in luxury properties has been almost impossible to ignore, and may continue to affect market sentiment.

2. Interest rates are high and set to go even higher

Singapore banks do not offer perpetual fixed rates for mortgages. While fixed rate loan packages do exist, the fixed rate term usually expires within a period of 3 to 5 years.

This makes fluctuating interest rates a key concern. Most residential properties are pegged to the Singapore Interbank Offered Rate (SIBOR), which is currently around 0.84%. This is almost a 100% increase since end 2014.

The cause is the American Federal Reserve taking steps to normalise the economy in the United States. In 2008, in the aftermath of the Global Financial Crisis, the Fed set interest rates to zero. This sent SIBOR rates to historic lows which fuelled Singapore’s property purchases.

On December 2015 however, the Fed announced a rate hike of 0.25%, with an eye toward gradual increases. This effectively marks the end of cheap property loans.

While affluent owner-occupiers are seldom fazed by rising interest rates, it is a disincentive to investors. Higher monthly repayments eat into rental yields, and diminish capital gains upon resale.

3. There is persistent fear of diminishing housing allowances for expatriates

The global outlook is negative due to weak economic data from China, and the impact of unsustainably low oil prices. Coupled with rising interest rates, the situation does not bode well for businesses.

Although not conclusively proven, it is a prevalent sentiment among investors that the luxury market will always be worst hit during a global downturn. This is on the basis that housing allowances for expatriates will shrink, thus prompting a move from luxury properties toward mid-range properties in the rental market.

Falling rental yields are part of a trend that began in 2013, when a similar rationale was used to explain the decline.

4. Is there light at the end of the tunnel? What the 99.co data shows

Despite the apparently negative sentiment toward high end properties, we have seen a recent surge of attention toward them:

On 99.co, District 9 properties continue to top search results for both sale (accounting for 7% of searches) and rental (accounting for 7.55% of searches). On top of that, there is a continual and consistent increase in the number of people adding “Alerts”, a feature 99.co provides to users to get alerted about new listings or price drops of current listings, in District 9, suggest that more users are keeping a watch on the property options.

With regard to rental properties, this coincides with URA’s rental transactions records. District 9 remains the second most popular area for rentals, accounting for 10.43% of rental transactions.

The high volume of rentals, coupled with high view counts, suggest that expatriates continue to view the district as a desirable location to rent, regardless of the sluggish economy.

However, URA’s record of sales transactions for District 9 places it in 15th place, accounting for only around 3% of sales volume.

The combination of high interest, coupled with a low number of actual purchases, suggest buyers are adopting a waiting attitude. With prices consistently declining, buyers are waiting for the market to bottom out before making their move.

We observe a similar trend with searches of Districts 10 (third most searched district) and 11 (second most searched district.) Despite the high levels of interest, these districts account for very few sales on URA’s transaction records, with District 10 accounting for less than 4.3% of sales volume, and District 11 accounting for just 1.8%.

Again, we surmise that interest in these high end areas remains strong, and that buyers are simply awaiting further discounts or the amendment of the ABSD. The general sentiments of District 9-11 being the evergreen “safe” investment bets continue to prevail.

The only truly dismal news for luxury property owners is District 4 (Sentosa and surrounding properties near Harbourfront.) Low search results suggest weak interest, despite the steep fall in prices from 2013. URA results for rental and sales volumes in this district remain poor.

When to pull the trigger?

For property value-hunters, a key question is when would it be the best time to make the move? Experienced investors’ advice is to not wait for the prices to start rising as an indicator, since that means it would be too late to find the best deals. Instead, continual watching of listings and attend viewings to get familiarized with target area, and either spot fire-sale properties (often they may not be advertised as such, so you would need to enquire with the marketing agent to know if the unit is on urgent sale), and especially start seriously considering once you sense that the viewing volumes start to increase (but before transaction prices and volume start to pick up).   

In conclusion, the luxury segment has not lost its lustre. It is simply that circumstances give buyers no reason to act yet

The current cooling measures, such as the ABSD, were announced as temporary when they were first implemented. Buyers know (or in the case of foreign buyers, their wealth managers know) that the measures will end at some point.

Many will be inclined to wait out this 15% penalty, especially given that prices seem to keep declining in the meantime.

Another advantage of the high end property segment is that, unlike its mass market counterpart, it has less to fear from the potential supply glut of cheaper housing. Rising availability of resale or new flats, for example, are not a major concern for the luxury market, as these units appeal to a completely different demographic.

Singapore’s luxury property retains its appeal to affluent buyers. The fundamental aspects that draw these buyers – transparent governance, high political stability, and low taxation, have not changed in the slightest. Any decline in the luxury property market here will be temporary as long as these fundamentals remain in play.