Long Term Lure Of Luxury Homes

Property Highlights 2013  Luxury Homes

Buyers view luxury homes as priced assets for long term capital gains

Buying into the luxury home market in Singapore is like buying into the Singapore story.

 Key factors that make property investments in Singapore attractive and compelling are political stability, excellent infrastructure, tax and business friendly regimes and a strong Singapore currency.

These have undeniably enlarged the range and scope of luxury property offerings with unique value propositions. For example:

Hamilton Scotts - Asia’s first luxury residence comes with en suite sky garages;

The Marq on Paterson Hill - the world’s first condominium to have swimming pools cantilevered outside of the building;

The Ritz-Carlton Residences - the first residential property offering legendary amenities and service excellence of the Ritz-Carlton Hotel Company.

Marina Bay and Sentosa Cove, marketed as posh residential developments in hip and exclusive precincts, attract the well heeled and the affluent.

The development of emerging prime districts such as Marina Bay, Sentosa Cove and the upcoming Southern Waterfront City as waterfront living areas is also expected to increase buyer interest, together with future project launches such as Marina One Residences and South Beach Residences.

Luxury homes usually encompass residences larger than 2,000 square feet (sq ft) in size and generally costing more than $2,500 per sq ft (psf).

They are located in the Core Central Region (CCR) which comprises the traditional

prime districts 9, 10 and 11, the downtown core and Sentosa.

With more choices in the market for buyers, how has the luxury home market in Singapore performed and what is the outlook going forward?

Stable prices

Following the Global Financial Crisis, the luxury residential property segment of the market in Singapore has underperformed other segments in terms of price growth and transaction volume.

Based on a basket of completed condominiums tracked by DTZ, as at Q2 2013, prices of luxury homes in the secondary market are still 6.4 per cent below their previous peak in Q1. 

2008 (Figure 1).

Prices have exceeded Q1 2008 in comparison:

Completed freehold condominiums in the prime districts of 9, 10 and 11 - up 11%

Completed leasehold condominiums in the suburban areas - up 22.8 per cent

Luxury homes prices underperformed because of :

  • weaker economic growth in the past two years
  • high unsold inventory in the Core Central Region (CCR)
  • the imposition of the Additional Buyers’ Stamp Duty (ABSD) in December 2011, which impacted foreign demand for luxury homes.

 In the secondary market, prices of luxury homes have stabilised since Q3 2012 and  remains unchanged into H1 2013, even after the ABSD was increased for all buyer groups in January 2013.

 This could be due to buyers in the high-end segment having deeper pockets and the 15 per cent ABSD having a limited impact on their purchases of luxury homes.

 Thin transaction volumes

After ABSD was introduced in December 2011, sales volume of luxury homes fell by more than half in Q1 2012 but resale prices held up.

They rebounded quickly in Q2 2012 because of discounts and incentives by developers to move sales.

For the whole of last year, a total of 223 luxury homes were sold, 4.7 per cent higher than that in 2011 (Figure 2).

However, only 82 luxury homes were sold in H1 2013, which is 37 per cent of 2012.

The ABSD has changed the purchaser profile in the luxury home market.

Local purchases share rose from 19 per cent in 2011 to 31 per cent in both 2012 and H1 2013 (Figure 3).

Foreign purchases share declined from 47 per cent in 2011 to 35 per cent in 2012 and 38 per cent in H1 2013.

The share of corporate purchases also fell sharply from 15 per cent in 2011 to 5 per cent in both 2012 and H1 2013 with the tighter loan-to-value limits.

With slower growth in the global economies, rental demand in the luxury segment remained weak, as companies cut expatriate housing packages and signed shorter leases.

In H1 2013, rents of luxury condominiums dipped 2.5 per cent while those of suburban condominiums climbed 1.3 per cent.

At the same time, rental growth was constrained by the high number of completions in the CCR.

In addition, some developers which are not subject to the conditions of the Qualifying Certificate (QC) have also started leasing out unsold units for rental income.

Notwithstanding low rental yield in the luxury segment, the main motivations behind luxury home purchasers are long-term capital appreciation and collection of these prized trophy assets.


In the near term, developers may face pressure to reduce prices to move inventory in order to avoid paying penalties under the conditions of the QC.

Other incentives may also include guaranteed rental yields or discounts for bulk  purchase.

However, with the expected recovery in the global economies, we expect supply-demand dynamics in the luxury segment to turn in favour of developers and the underperformance of the luxury property market to reverse in the middle to long term.

On the demand front, the Singapore story will continue to appeal to luxury home buyers with recent surveys indicating the country as a preferred place for expatriates and the ultra-rich to reside and work in.

In addition, the pipeline of luxury homes remains limited, especially those with freehold tenure.

The bulk of land supply from the Government Land Sales programme are for mass market homes and developers now have less impetus to buy land sites through collective sales due to the 15 per cent ABSD and the conditions of the QC.

As luxury homes with a unique value proposition are hard to come by and owners of completed properties have deeper pockets and are not willing to sell in the secondary market without a premium, potential buyers could start to look out for value purchases in the primary market and hold out for long-term capital appreciation as was the case with Ardmore Park during the Asian Financial Crisis.

source: Straits Times - 12 Sept 2013