Luxury homes projected to drop 30 to 40 percent in next few quarters

Singapore’s luxury homes are likely to be hardest hit by the recent property cooling measures, with sales forecast to fall between 30 and 40 percent in the next two quarters, reported Bloomberg. In quoting Christine Li, a senior director and head of research for Singapore at Cushman & Wakefield Inc, the report suggested that foreigners may hesitate with their purchase of luxury homes considering the 20 percent stamp duties they would now be subjected to.

Overseas buyers accounted for one-third of luxury homes deals closed in Singapore last year.

“More foreign buyers have been eyeing Singapore’s luxury homes for the past year, but they may now take a back seat,” said Li.

Investment from foreign property buyers is expected to drive the property market prices to levels not seen in recent years, said DBS in a report released in March. It noted that transaction values are tracking above expectations in the first three months of 2018.

2017 saw the property market coming alive due to record-high bids for properties that were not seen since the property cooling measures of 2013. The March report said that a strong list of project launches from 1st Quarter 2018 will underpin the potential for volumes to head higher. It added that factors like the higher land cost, stronger economic growth, and higher housing demand, are all expected to drive prices higher this year.

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Singapore’s strategic location and its vibrant economy were strong pull factors for foreign buyers as there are no restriction on foreign purchase.

Low annual interest rates for loans and an active resale market are other reasons why foreigners continue to invest in luxury homes here.

The report also noted that demand by foreign property buyers for Singapore properties is back and that strong take-up is expected in the upcoming new launches. The report highlighted The New Futura condominium which sold 48 units out of 64 launched in a relatively short period of time and said:

“…sales momentum has been (surprisingly) strong for a luxury residential project, with close to 60% of the units sold to foreign property buyers despite the high outlay.”

The New Futura is the newest development of some of the most luxurious apartments situated at the very heart of District 9. Lee Nai Jia, former research head of Edmund Tie & Co, one of the marketing agents for The New Futura, said that the buyers of the luxury condominium were an “eclectic” group of foreigners including Chinese, Indonesians and South Koreans.

The returning demand by foreign property buyers and the sales of The New Futura launch provided hope for developers who have lined up several new project launches in the past few months.

Foreign property buyers with overseas income mostly use home loans with a lower loan-to-value (LTV) ratio of typically 60-70 per cent to finance their purchases.

The DBS report said: “…we estimate close to 10 projects with c. 2,583 units in total will hit the market in the coming weeks, and a further 15 projects (c.9,000 units) thereafter. Strong pre-sales from these projects will be strong catalysts to drive developer stocks higher”.

The Bank of Singapore research in January this year rightly noted that demand for Singapore’s residential real estate from foreigners is expected to return this year. The research said that demand for properties this year will be backed by the positive market sentiments, improved leasing situations and a price recovery.

Head of Strategy at Bank of Singapore, Mr Eli Lee, said in January that the bullishness in Singapore’s property market has been mainly driven by local buyers, but that he is expecting foreign purchasers to return (especially in the the luxury homes properties segment) and provide a significant boost to the real estate sector.

The January report suggested that luxury homes would find itself to be the centre of foreign property buyer interests in 2018.

Buyers from China especially have positioned themselves as the top foreign property buyers and investor group in Singapore over the past five years. While Malaysians and Indonesians came in at second and third place respectively. Properties located in the north-east and central regions of Singapore saw the highest level of demand last year from foreigners and Singapore permanent residents.

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Before the new property cooling measures, foreign property buyers viewed the Singapore market as a more affordable option for real estate investments, especially when compared to other major global cities, They had however  been deterred in previous years by property cooling measures such as the Additional Buyer Stamp Duty (ABSD) of 15 per cent imposed on foreigners investing in Singapore properties.

Only 5.6 per cent of the total number of transactions last year were concluded by foreign property buyers versus a long-term 18-year average of 8.7 per cent. But with countries (and jurisdictions) like Taiwan, Hong Kong, Canada and Australia increasing their transaction costs for foreigners looking to acquire property in their countries in recent years, the Singapore real estate market begin shining once again.

But with the recent hike of the Additional Buyer’s Stamp Duty (ABSD) from 15 to 20 percent on foreign property seekers and from 15 percent to 25 percent on entity buyers, the luxury homes market has especially felt the brunt of the Government’s property cooling measures as it is highly dependent on demand by foreigners.

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