City & Country: Where does the residential market go from here?

There was anecdotal evidence of a rush to close deals before midnight in some corners of Singapore following the Dec 7 announcement of additional buyer’s stamp duty that came into effect the next day. A Singaporean investor with a four-bedroom apartment at the 1,111-unit The Sail at Marina Bay received a call from a real estate agent who had an Indonesian client who was keen on buying the unit but didn’t want to pay the additional 10% stamp duty. He granted the option to purchase the unit at S$2,988(RM7,260) psf that very night on Dec 7. “They weren’t asking for a discount, they just wanted to avoid paying the additional stamp duty,” he says.

Real estate agents reported that some show flats had stayed open till late that evening to grant options to purchase as well. The recent government measures may have dampened sentiment but there were still some buyers. “These are mostly Singaporeans either buying their first or second property,” says a Samuel Eyo, associate director of Savills Prestige Homes. Singaporeans who buy their third and subsequent property will be hit by an additional 3% in buyer’s stamp duty, while permanent residents (PRs) will be subjected to an additional 3% in buyer’s stamp duty for their second or subsequent purchase.

By and large, prospective buyers and developers are expected to adopt a wait-and-see approach to assess the impact of “the harshest cooling measure seen so far”, says Chia Siew Chuin, director of research and advisory at Colliers International. Total private new-home sales for 2011 is expected to ring in at around 16,000 units, which is almost on par with 2010’s level of 16,292 units, which was a record year.

As for 2012, Chua Chor Hoon, DTZ’s head of Asia Pacific Research expects private new-home sales to be at the 11,000 to 14,000 level.

Views abound as to the impact the measures will have on Singapore’s property market. Some think they could affect the city-state’s reputation as an investment destination. “If you look at New York, London and Hong Kong, they don’t discriminate between foreigners and locals,” says a property analyst.

Wealth creation around Asia — in China, India, Indonesia and Malaysia — has led to an influx of these foreigners buying property in Singapore, as it’s regarded a safe haven in Asia. Naturally, the percentage of foreign buyers from these markets have grown, and hit record levels last year.

“This policy has been introduced to provide a financial firewall around the property investment market to discourage the flow of hot money into Singapore from Europe and the US where further quantitative easing measures could be introduced should conditions worsen,” says Chua Yang Liang, head of research for Southeast Asia at Jones Lang LaSalle (JLL). “This policy is particularly timely in light of Singapore slipping by one position (after Hong Kong, the US and the UK) in the Financial Development Report 2011 released by the World Economic Forum.”

Foreigners most affected
According to caveats lodged for the first 11 months of 2011, CB Richard Ellis (CBRE) found that foreigners accounted for 28.7% of the total transactions in the Core Central Region (CCR), defined as the traditional prime districts of 9, 10 and 11, as well as the CBD, Marina Bay and Sentosa Cove neighbourhood. Foreigners made up only about 20.2% of buyers in the Rest of Central Region (RCR) or city fringe locations, and 14.4% of those in the suburbs or Outside Central Region (OCR).

“These numbers show that foreign buyers are more active in the CCR and RCR where the luxury and prime properties are located,” says Joseph Tan, executive director of residential at CBRE. “The measures are introduced to reduce the excessive inflow of foreign liquidity. Therefore, foreigners intending to buy a home here are likely to reconsider their decision in view of the additional 10% stamp duty,” he says.

Sales at the top end of the market have already been sluggish for some time, and don’t need any further deterrent, point out some property consultants. “Even without the recent measures, we would have seen the heat come out of the residential market in 2012 anyway, with the slowdown in the economy and increase in land supply through government land sales,” says a property consultant who declines to be named.

The government’s concern could have stemmed from the increase in bulk unit purchases by foreigners, for instance, China buyers snapping up multiple units at mass-market launches, concedes DTZ’s Chua.

If the aim is to keep mass-market condos more affordable for Singaporeans, the measures could have been more targeted, for instance levying the additional 10% buyer’s stamp duty on private properties priced below $1.5 million, says a Singaporean property investor. “Now, shoebox units will continue to do well, or even better as people take into consideration the higher upfront stamp duty in doing their sums,” he says.  

Tighter and tighter
The theme last year seems to be tighter and tighter measures, with a hike in seller’s stamp duty at the start of the year, and the additional buyer’s stamp duty kicking in this December. It is the fifth round of property cooling measures by the government since September 2009. “The first four rounds of measures were targeted at speculative activity in the residential market,” says Tan. But URA data shows that sub-sales (an indicator of speculative activity) had fallen from 13.4% of total home sales in 2008 to 7.7% by 3Q2011.

New-home sales continued to remain strong from 2009 to 2011. Unlike 2007, demand during this period was driven by mass-market and upgrader-type homes. Demand for resale flats was equally strong, with HDB resale prices rising 85% above its trough in 3Q2005, and are now at record levels. By comparison, private home prices rose by 54.3% from the trough in 2Q2009. “It is possible that prices could have soared higher if there had been no property measures to cool the market,” says Tan. The rate of price increase has slowed significantly in 2011 to an estimated 6% to 6.5% compared with the rise of 17.9% in 2010, he adds.

Prices are widely expected to correct in 2012. Even before the recent measures, JLL had forecast a 12% to 15% drop in the mid-range to high-end residential market in 2012 on the back of the eurozone crisis. With the new government policy in place, JLL’s Chua is anticipating “a further downside of another 3% to 5% by next year-end”. The mass-market segment is expected to be more stable, with a possible softening in prices of 2% to 5% by end-2012.

Property analysts have been a lot more bearish. Standard Chartered in its report on Dec 7 predicts that the policy will lead to a 20% decline in sales volume in 1Q2012, and a 20% to 30% decline in residential prices in 2012.

If prices were to see a precipitous drop of 20% to 30% next year, high-net-worth individuals are expected to re-enter the market. “Some wealthy Singaporeans are taking position in the high-end segment, enquiring about prices with the intention of buying if prices hit a certain threshold,” adds JLL’s Chua.

Foreigners are still interested in buying property in Singapore, especially those who have children studying here, but are likely to adopt a wait-and-see approach for now, notes DTZ’s Chua.

“Property is still an attractive investment for most people given the current low interest rates. For the mainland Chinese with a certain budget to spend, looking across the region, Singapore property prices are still more affordable even with the higher stamp duty compared with Hong Kong prices.”

2011’s launch ‘surprise’
In 2011, it was the suburban residential launches that stole the show. The one that proved to be the biggest surprise was the 538-unit Bedok Residences, where queues formed outside the showflat three days prior to the preview date. According to URA data, 477 units (89%) were sold at a median price of $1,359 psf in November. About 82% of the buyers were said to be Singaporeans, with foreigners making up only 9% of buyers, while PRs accounted for 8%. “Bedok Residences goes down in my book as the highlight of the year because it was launched in the middle of the whole eurozone crisis and the overall market was already quite weak, and yet it saw a tremendous response,” says JLL’s Chua.

The other launches in 2011 that saw strong take-up were Boathouse Residences at Upper Serangoon View — of 389 units launched in the 493-unit project, 332 (85%) have been sold as at end-November, with the median price of $946 psf achieved for that month. Another is A Treasure Trove at Punggol Central, where of 882-units in the project, 785 (89%) were sold as at end-November with the median price of $922 psf.

Cecilia Chow is the editor of City & Country at The Edge Singapore

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 894, Jan 23-29, 2012