Potential gain from long term investment of luxury condominium
30 October 2015
On 22 October 2015, the Business Times reported that luxury condos showed a steady increase of transactions since 1H 2014. Defined as non-landed residential units in the Core Central Region (CCR) that have transacted SGD 4 million and above, luxury condominiums were among the hardest hit during the government’s implementation of cooling measures. 7 rounds of new regulations discouraging speculative buying later, luxury developments were the lowest transacted at 108 units in 1H 2014. Sold at highly discounted prices compared to its peak, bargain hunting savvy investors monitored these properties closely.
Seascape located at Sentosa Cove transacted at $5.2 million, a 47% discount from its last transacted price at only $5.8 million in 1H 2015. Similarly in 1H 2015, 3 units of St Regis Residences Singapore situated at Cuscaden Road within the Orchard area saw a range of 26% to 33% discount ($3.06 – $4.78 million). Steady increase in transaction of these luxury condos suggested that buyers had acclimatised to the Additional Buyers’ Stamp Duty (ABSD) introduced as part of 7 rounds of cooling measures and with the steep discounts, investors felt justified with their investment in the CCR with its current pricing.
It’s not just the resale market either, developers in primary market are also giving discounts to attract serious investors.
Under Residential Property Act, foreign developers have to apply for a Qualifying Certificate (QC) when private residential land is bought for development. With QC in place, developer is given 5 years to complete the project and to sell off all units within 2 years of obtaining the Temporary Occupation Permit (TOP), no renting of unsold units is allowed; Failure to do so, sees the developer at risk of not just forfeiting the banker’s guarantee worth 10% of the land purchase price as well as unsold units being force-sold by the state. That said, the laws are not draconian, extension of another 3 years to these developers can be made of course, but it will cost them 8% of the purchase price for the first year, 16% for the second and 24 % for the third. These add up to a significant sum since these parcels of land tend to run in the hundreds of millions of dollars. In order to minimise losses, developers with QC may choose a simpler route of slashing their prices to move sales. Or in the case of one developer, pivot to companies like Oakwood Group, turning the property into hotel properties and serviced apartments for expatriate stay (with permission from the relevant authorities of course).
CapitaLand closed 17 unsold units of its Carnhill project in CCR, Urban Resort Condominium, at median price of $2,270 psf in first nine months of 2015, discounted from $2,760 psf before 2015 after achieving its TOP in 2013.
THE TIME TO BUY IS NOW
If you are an investor waiting for the luxury condo prices to fall even lower, you will be disappointed. Two other options of escaping these charges by foreign company is either to delist their company to become a local Singapore company or to sell all unsold units to its’ privately-held Singapore company and sometimes to its local subsidary. Famous case of SC global holding high-end properties like The Marq on Peterson Hill had delisted in 2013, saving them millions of dollars of extension fee. Listed Hiap Hoe sold its entire luxury project-Treasure on Balmoral to its privately-held local company in December 2014 at a lower selling price.
As it stands, luxury condo investment shows immense potential in the long term. World Wealth Report 2015 by Capgemini showed Singapore hosting one of the biggest High Net Worth Individuals (HNWI) population in the world and HNWI in Asia Pacific is expected to continue to grow over the next few years. With its attractive tax rates, high standard of living and transparent housing regulations, Singapore attracts HNWI like Facebook co-founder Eduoardo Severin (famously giving up US citizenship and taking Singapore residency) into putting their wealth here, thus driving the luxury market. Supply of new completed luxury condo in CCR is only 15% of the whole Singapore in the next few years with most Government Land sales to be catered to the mass market.
Collective sales will be hard to achieve as a source of land by developers due to QC time line and ABSD. Overall, demand of luxury condo will steadily catch up with its already limited supply thus bringing the price up. That said, we are not expecting a fast recovery in the short term due to global economic slowdown, local transient cooling measures and ‘over-supply’ of unsold units, in long term we may expect potential gains in the luxury market as economic recovery continues in North America and Europe, combined with Singapore taking top position as the fastest growing density of HNWI in Singapore, potential buyers are advised to enter the market before it’s too late.
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