City&Country: OffShore-- Singapore luxury property: Are prices at the top yet?

Kris Ho, managing director of Newsman Connections, a firm that specialises in selling landed homes at Sentosa Cove, is busier than ever in the wake of the latest clampdown on soaring property prices in Hong Kong and China.

On Nov 22, even as shares in Hong Kong property developers were crashing in response to the tougher rules, she received at least three phone calls from potential buyers from mainland China asking about properties at the super-luxury enclave. “I’ve even booked apartments for them when they come to Singapore in January and February for a holiday and to view the waterfront bungalows,” she says. “My other Chinese clients are calling to double-check on interest rates and down payments compared with their native cities.”

Hong Kong announced its toughest measures yet to curb runaway property prices in the former British colony on Nov 19. Now, property owners in Hong Kong who sell within six months of purchase will be slapped with a hefty 15% stamp duty. Purchasers who sell within six to 12 months will be hit with a stamp duty of 10%, while those who sell within 12 to 24 months will have to pay a stamp duty of 5%. Hong Kong also tightened up its mortgage lending rules, by reducing the loan-to-value (LTV) ratio to 50%, from 60%, for homes valued at or above HK$12 million. Then, over the weekend, China said it would raise banks’ reserve requirement ratio by another 50 basis points to restrict liquidity and control credit.

While these moves are likely to dampen market sentiment, they do little to address the flow of hot money from the West that’s inflating property prices in Asia. “The measures in Hong Kong look quite effective in cutting out the more speculative elements of the market, but there are other very powerful engines driving prices higher,” says Simon Smith, Savills’ Hong Kong-based head of research and consulting. “One is the particularly low interest rates, which will be with us for some time yet, and the other is the very limited supply of new projects marketed in the next few years. The government is going to have to provide quite a strong counter-balance to those forces if it is to limit price appreciation and head off a bubble.”

In the meantime, Hong Kong’s measures to curb property prices might just temporarily divert the flow of hot money to other cities in the region. That could eventually force Singapore to impose further measures to rein in property prices in its own market. “At the moment, people do perceive a policy risk,” Smith says. “Hong Kong and Singapore have a lot in common — we’re both small, externally oriented economies. Often, what changes sentiment and moves our markets happen beyond our shores and are beyond our control — be it the Asian financial crisis, the global financial crisis or a war — so it’s hard to predict at which point the market will turn.”

Singapore’s Ministry of Finance said on Nov 22 it would be “vigilant about the possibility of a property market bubble and take further measures where necessary”. On the possible effects on Singapore from the latest round of quantitative easing by the US, Finance Minister Tharman Shanmugaratnam said the Monetary Authority of Singapore has “got a good handle” on the situation. “The government will continue to monitor the situation closely, and take additional steps if necessary to ensure financial stability and sustainable asset markets,” he adds.

More measures in the offing?
Singapore has moved to curb property market speculation three times in the last 12 months, and it has been releasing more land for development to increase the supply of new homes. On Nov 25, the government added 17 sites to its “confirmed list” under its land sales programme for 1H2011, which can yield some 8,100 residential units — a level similar to that in 2H2010. The reserve list, meanwhile, will have another 13 sites, which could yield some 6,200 units. This brings the total number of potential sites available to 30, with 14,300 resi­dential units — 400 more than the number available in 2H2010. “The availability of such sites will serve to keep the residential price increase in the mass-market and lower mid-tier segments in check in 2011,” says Donald Han, vice-chairman of Cushman & Wakefield in Singapore.

Many property market watchers expect that the government will now wait until the release of 4Q2010 real-estate statistics early next year before deciding whether to introduce more measures. But some market watchers also say any additional measures may be increasingly designed to specifically address the issue of affordability for mainstream homebuyers and protect banks from getting too exposed to the property market.

In August, when the last round of measures to curb property speculation were introduced, the government reduced the maximum mortgage loan for second and subsequent property purchases to 70% of the purchase price, from 80%. In addition, private property owners who buy an HDB flat in the resale market have to sell their private property within six months. And the minimum occupation period before one can sell for both new and resale HDB flats was raised to five years. In addition, the government imposed a 3% seller’s stamp duty on purchasers who sell their properties within a year of purchase. Those who sell within two years will be subject to a stamp duty of 2%, while those who sell within three years will have to pay a stamp duty of 1%.

By September, transaction volumes, particularly in the secondary market, sank as potential buyers paused to digest the effects of the measures. In October, however, new home sales surged 74% m-o-m. The increase in sales was not broad-based, though, notes Savills Research. While the high-end and mid-tier segments saw an increase in transaction volume, the number of suburban private condominiums transacted continued to fall from the previous month.

“The intersection between public and private housing has been choked off,” says the executive director of a leading brokerage house in Singapore. “That’s dampened enthusiasm and liquidity in the HDB market.” In addition to reducing speculation in the HDB market, the higher cash outlay for a second property indirectly reduced the number of HDB upgraders entering the private housing market.

Eugene Lim, associate director of ERA, expects cash-over-valuation (COV) for resale flats to fall to about S$20,000 by year-end. Lower COV translates into lower resale prices, which means a possible 5% to 8% downward adjustment in resale prices over the next six months, says Lim.

Investors in the top end of the property market are more optimistic, though. “The government’s measures are clearly aimed at reducing speculation in the HDB and mass-market segment,” says James Fan, a Hong Kong-born businessman and financier who owns a number of luxury apartments in Singapore. “If they wanted to control the top end, they would have introduced capital gains tax.” Fan doubts that Singapore will do much to deter foreigners from buying top-end properties even if prices keep rising. “That is why they have consciously given international investors a free hand in Sentosa Cove.”

Sentosa Cove hitting new highs
Indeed, sentiment in Sentosa Cove doesn’t appear to have been dented at all. Along Cove Drive, a 6+1-bedroom house with a land area of 6,851 sq ft and views of the lake at Sentosa Golf Club as well as the greens and fairways has an asking price of S$20 million, or around S$2,900 psf. The house, which comes with a koi pond, will be sold furnished. The seller had bought the property in June for S$13.6 million, or S$1,985 psf. Along the same road, a 15,000 sq ft house sitting on a 16,000 sq ft plot of land is being completed. The price tag? A cool S$48 million, or S$3,000 psf.

These aren’t just pie-in-the-sky asking prices. Luxury property developer Satinder Garcha of Elevation Developments recently sold a house on Ocean Drive for S$28.2 million, or a record price of S$2,988 psf. Now, he is trying to sell a five-storey bungalow at Lakeshore View that comes with a basement car park, internal lift, infinity pool, five bedrooms and roof garden. The property, with views of the sea and port, is listed for sale at S$3,460 psf, or S$26 million, based on the land area of 7,513 sq ft. Elevation Developments also has 20 luxury golf villas for sale, with prices said to be in the S$2,800 to S$3,000 psf range.

“Hot money, by its nature, will find the highest returns in the most transparent markets,” notes Savills’ Smith. Even now, Sentosa is still the only part of Singapore where foreigners are eligible to purchase landed property, with a fast-tracked 48-hour approval from the Land Dealings (Approval) Unit, or LDU. The opening of the integrated resort at Sentosa has also added to the glitter of owning a home at Sentosa Cove.

So, are luxury homes in Sentosa Cove a one-way bet? Should interested buyers plunge in now? Are there any bargains to be had in this enclave for the super-rich?

Interestingly, along Ocean Drive, a penthouse unit at The Azure, a 116-unit condo, has been foreclosed and will be put up for auction sale by Colliers International on Dec 9. The 3,164 sq ft duplex unit has 180° sea views from the living area and balcony, as well as from the master bedroom and en-suite bathroom. The unit has been vacant since it was completed two years ago. “It’s probably one of the first mortgagee sales of a penthouse at Sentosa Cove this year,” says Grace Ng, auctioneer and deputy managing director of Colliers.

But property consultants say this isn’t a sign that the market in Sentosa Cove is beginning to slump. “It’s an exceptional case, and does not reflect the rest of the high-end market,” Colliers’ Ng stresses. To be sure, the background to this mortgagee sale is unclear at the moment. And it may simply be a case of the owner suffering a business failure or some other misfortune. “Even in good times, there will be people who get into trouble,” points out Chua Chor Hoon, DTZ’s head of research for Southeast Asia.

Whatever the case, it appears that the property will likely be sold for much more than it was originally purchased. According to caveats lodged with URA, the owner of the penthouse had bought at S$3.33 million (S$1,053 psf) five years ago when the project was first launched. The indicative selling price now is between S$6.5 million and S$6.8 million, say sources, which works out to S$2,050 to S$2,150 psf. The most recent transaction in the project was a 2,508 sq ft apartment on the same level that changed hands in September for over S$4.75 million (S$1,875 psf).

A number of other properties are also coming up for auction soon, as owners increasingly test the market after the blistering run-up. On Nov 25, DTZ put a house at Sentosa Cove’s Treasure Island up for auction. An owner’s sale, the asking price of the two-storey, five-bedroom bungalow, with a land area of 8,650 sq ft and views of the waterway, was said to be S$21 million, or around S$2,430 psf. The opening price at the auction was S$16 million, and the property saw active bidding all the way to S$18.5 million before it was subsequently withdrawn, says Joy Tan, associate director of auction at DTZ. “But it saw a lot of interest,” she adds.

Meanwhile, a penthouse at The Berth by the Cove will be put up for sale at Knight Frank’s auction on Nov 30. The penthouse is a four-bedroom duplex with a floor area of 3,089 sq ft. This is also an owner’s sale, and the indicative price is around S$5.7 million, or S$1,850 psf. The first owner bought the property at its launch in December 2004 and paid only S$751 psf. The property has already changed hands twice in the sub-sale market — in 2006 at S$1,000 psf and a year later for S$1,350 psf.

When the Berth by the Cove was first launched in December 2004, prices averaged only S$850 psf. Today, they are easily 2½ times what they were six years ago. Recent launches at Sentosa Cove this year include The Residences at W Singapore and Seascape, with recent transactions priced at S$2,700 to S$2,800 psf. The Marina Collection was launched last year at S$2,200 to S$2,500 psf.

“The speed of the price increment at Sentosa Cove has been very swift,” says a property consultant. As such, he’s of the opinion that prices of condos at Sentosa Cove may have hit a plateau. Luxury homebuyers do, after all, have other options in the traditional prime districts on the mainland of Singapore.

Traditional prime districts, CBD
Hong Kong-born, Singapore-based businessman Fan is one property investor who believes he is better off hunting for opportunities in those traditional areas. “I’ve missed the boat at Sentosa Cove,” he admits. Now, he is on the lookout for properties in Districts 9, 10 and 11. He also likes the CBD and Raffles Place revitalisation story. “It’s a good area to buy into,” he says.

Fan’s most recent purchase was units at Allgreen Properties’ Suites at Orchard on Handy Road, priced around S$2,000 to S$2,200 psf. He was attracted by their location near the Dhoby Ghaut MRT station and interchange, which will see three train lines intersecting. The property is also close to the Plaza Singapura shopping mall and other amenities. In March, Fan was also one of the buyers at Hong Leong Group’s preview of the 202-unit 76 Shenton, where all the units were sold out within a day.

“There are so many foreigners coming into Singapore,” observes Fan. “More top bank executives from the US and the UK are moving to Singapore and there are also 10 to 15 hedge funds setting up here every month. These people — bankers, lawyers, hedge fund managers — will need high-end housing.” According to DTZ’s 3Q residential report, mainland Chinese have been the fastest-growing segment of foreign buyers. They now account for 20% of all foreign buyers, equivalent to Indonesians, who also accounted for 20% of transactions by foreigners. Malaysian buyers still occupy the top spot among foreign buyers, with 21% of transactions. Indian nationals were in fourth place at 17%, up from 14% a year ago.

Still, Fan says he is wary of the capricious nature of foreign buyers, who can disappear as quickly as they appear. While most foreign buyers, particularly from China and Hong Kong, gravitate towards the new launches, Fan is focusing on existing projects. “The existing properties are still under-priced,” he says. And when he attends a new property launch, he is careful to calculate what he considers “a fair value”, and to monitor the number of locals visiting the showflats, as that is a good gauge of whether there is genuine underlying demand.

Even as Singapore’s top-end property market continues to scale higher, it doesn’t hurt to be careful.

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 836, Dec 13-19, 2010

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