How resilient is the demand for high-end condos?

By Cecilia Chow/ EdgeProp Singapore|January 10, 2020 8:58 AM SGT

SINGAPORE (EDGEPROP) – On Jan 3, just two days after ringing in the New Year, potential buyers thronged the preview of three prime, freehold projects in Districts 9 and 10.

Crowd at Leedon Green preview on Jan 3 (Photo: MCL Land-Yanlord Land)These were the 69-unit boutique development, Van Holland (former Toho Mansion) by Koh Brothers Group; the 638-unit Leedon Green (redevelopment of the former Tulip Garden) by a joint venture between MCL Land and Yanlord Land; and the 376-unit The Avenir on the site of the former Pacific Mansion, by joint venture partners, Hong Leong Holdings, GuocoLand and Hong Realty. Dominic Lee, PropNex Realty’s head of luxury team, calls it “an anomaly” to have three high-end developments in the Core Central Region (CCR) kickstart the rollout of new project launches for 2020.

“These developers probably want to launch ahead of the competition to avoid cannibalisation, especially for projects located near each other,” says Lee. Still, this was in line with last year when three new projects in the CCR debuted on the first weekend of January 2019. These were the 71-unit Fyve Derbyshire and 140-unit RV Altitude, both freehold projects by Roxy-Pacific Holdings; and Allgreen Properties’ 476-unit, 99-year leasehold Fourth Avenue Residences, located in the Bukit Timah Area right at the doorstep of the Sixth Avenue MRT station.

Crowd at Fyve Derbyshire at launch weekend in January 2019 (Photo: Roxy-Pacific Holdings)According to a report by ERA Research & Consultancy Department on Jan 9, there are about 20 prime residential developments in the CCR, with an estimated 3,700 units slated for launch this year. But who will be the buyers of these prime condominium units this year? Over the past five years from 2014 to 2019, only 7% of the total private housing units launched for sale were located in the CCR, says Nicholas Mak, head of research & consultancy department at ERA.

In its latest report, ERA compared the effects of the July 2018 property cooling measures on transaction volume of private non-landed housing units. Two 18-month periods were used for comparison: the period from January 2017 to June 2018; and from July 2018 to end December 2019. The study is based on URA transaction data, after stripping out units that were acquired in collective sales or en bloc sales during the two periods. Executive condos or ECs were also excluded because they are a hybrid private-public housing property and foreigners are excluded from purchasing until 10 years after completion. In the 18-month period from Jan 2017 to June 2018, a total of 32,866 private non-landed residential units were transacted in both the primary and secondary markets. Post-cooling measures, transaction volume sank by 23.5% to 25,148 units over the next 18-month period (See Table 1).

Source: URA, ERA Research & ConsultancyAccording to ERA’s Mak, the high-end segment was “more susceptible” to the latest market curbs compared to other market segments. This was evidenced by the steeper decline in transactions in the CCR which contracted by 36.5% to 3,716 units from 5,847 units before (See Table 2).

Source: URA, ERA Research & ConsultancyThe market share of high-end condominium transactions therefore shrank from 17.8% of overall non-landed residential property transactions to 14.8% post-property cooling measures, notes ERA. As the additional buyer’s stamp duty (ABSD) for foreigners was raised to 20% which is still higher than that for locals, the impact on homebuying demand also differs, explains Mak. Typically, about one-fifth to a third of private home transactions are attributed to non-Singaporean buyers. “The level of foreign participation in the Singapore private residential market wax and wane according to the market climate and government intervention,” says Mak. In the three-year period from January 2017 to December 2019, about 23.1% of the 58,000 private non-landed residential property transactions islandwide were purchases by foreigners. Foreign buyer representation is usually higher in the luxury condominium segment as these housing units are beyond the reach of most Singaporeans. Over the past three years for example, 31.9% of the transactions in the CCR were purchases by foreign individuals, says Mak.

The cooling measures introduced in July 2018 adversely affected foreign demand for residential real estate more than local demand in the overall market. Transactions by Singaporeans in the 18-month period post-cooling measures was 19,673 units nationwide. This was 20.1% below the transacted volume in the corresponding 18-month period before the cooling measures. Over the same period, purchases by foreigners fell a steeper 32.4% nationwide to 5,399 units, according to ERA.“Companies or non-individual entities staged the largest retreat from the private residential property market after the implementation of the market curbs,” notes Mak. The number of transactions from these parties plunged 71% in the 18-month period post-cooling measures compared to before. This significant drop is attributed to the hike in ABSD by companies or non-individual entities to 25% of the residential property purchase price – compared to 15% before. In the luxury residential real estate market, foreign buying demand proved to be more resilient than local demand in the face of the latest cooling measures. The number of non-landed transactions in the CCR by foreigners fell 30.2% to 1,254 units compared to local purchases, which saw a sharper drop of 38.3% to 2,413 units post-cooling measures. “The retreat by Singaporeans in the high-end residential property market was bigger than the contraction of foreign demand,” points out Mak. Foreign buyer across 61 countries reduced their real estate purchases in the CCR after July 2018. However, the rankings of the four biggest groups of foreign buyers by nationality — namely China, Malaysia, Indonesia and the US — remained largely unchanged, even though their volume of transactions dropped.

Among the foreign buyers of non-landed homes in the CCR, Chinese nationals maintained their pole position, even though they bought 30.1% fewer homes since the cooling measures. The proportion of Malaysian buyers dropped by a wider margin (–62.1%) compared to Indonesian buyers (–28.7%). Hence, Indonesians swapped places with Malaysians, taking second and third place respectively. Americans maintained their position in fourth place, even though they bought 22.1% fewer homes. Before the property cooling measures, homebuyers from India were the fifth biggest group of foreign buyers in the luxury segment. In the 18-months following the July 2018 curbs, they have dropped to 10th place, with Taiwanese buyers in fifth position. In conclusion, foreign buying demand in the high-end residential segment weathered the cooling measures better than foreign buying demand in the rest of the residential market, according to ERA. “The success of these high-end property launches will require demand from foreigners,” says Mak.

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