Singapore Luxury Homes 2023H1
Government stepped in to manage investment demand
Caveat data showed only eight bungalow deals in the Good Class Bungalow (GCB) Areas in the first half of 2023. This is the first time in a six-month period that less than 10 bungalow were sold since 2013.
In 2013, following the announcement of cooling measures in June which included the introduction of the total debt servicing ratio (TDSR), only seven bungalow transactions were known to take place in the July-December period based on URA’s records, With the TDSR framework in place, a borrower’s debt servicing ability is to be assessed based on all outstanding debt obligations. Any loan extended by a financial institution must not exceed a TDSR threshold of 60%. In December 2021, the TDSR threshold was lowered to 55%.
The small number of bungalow transactions in 2023H1 could be due to the widening gap between sellers’ and buyers’ price expectations. As well, the latest increase in the additional buyer’s stamp duty (ABSD) for investors also caused home buyers to retreat to the sidelines while they assess the situation in the market.
The announcement of the hike in ABSD rates late on 26 April 2023 took the market by surprise. The ABSD rate for foreign buyers was raised from 30% to 60%; for locals and permanent residents buying their second and subsequent properties, the existing ABSD rates were raised by 3–5 percentage points. The new ABSD rates took effect from 27 April 2023 onwards. The press release, jointly issued by the Ministry of Finance, the Ministry of National Development and the Monetary Authority of Singapore, stated that the hike in the ABSD rates is meant to pre-emptively manage investment demand and prioritise housing for locals buying for owner-occupation. At the same time, the government will increase housing supply to address the problem of a tight housing market for owner-occupation and rental. The ultimate goal is to create a more sustainable housing market in Singapore.
Not surprisingly, an analysis of the caveat data for the bungalows at Sentosa Cove found that seven caveats were lodged between February and mid-May of 2023. There seemed to be no transactions following the hike in ABSD. Similarly, the sales volume of luxury apartments in May and June was visibly lower than the prior four months in 2023H1. Were it not for the cooling measures in April, the total sales volume could be higher than the 213 transactions registered.
Using the price per square foot as a yardstick for price growth, the $1,836 psf reflected by GCBs was 10% lower than the level in 2022H2. The drag could be attributed to the small number of transactions as well as to a 99-year leasehold bungalow at Eng Neo Avenue that was sold at below $1,000 psf. Bungalow prices at Sentosa Cove have been rising steadily because they are perceived to be more affordable compared to GCBs, notwithstanding their 99-year leasehold tenure. At $2,214 psf, it has already surpassed its previous peak of $2,167 psf in 2012 when most of the bungalows were newly built. Prices of luxury apartments rose 4.5% $3,078 psf from the level in 2022H2. The return of foreign investors, particularly the reopening of China’s borders on 8 January 2023, was a contributing factor to the increase.
Good Class Bungalows (GCBs)
With only eight caveats lodged for bungalow deals in the GCB Areas, 2023H1 saw one of the lowest number of transactions in a half-yearly period since 2013. It could be that potential investors took time to weigh their investment options in light of high asking prices amidst global economic uncertainties and rising interest rates.
The eight deals were half of the 16 deals done in the second half of 2022. The total transaction value of $207.77 mil translates to $1,836 psf on land area, which is 10.4% lower than the $2,050 psf in 2022H2. The lower price was partly due to the low number of deals and partly, to a 99-year leasehold bungalow that was sold for $907 psf.
However, we are aware that four GCBs that were sold in 2023H1 without caveats being lodged. It was reported in the media that the Singaporean members of the Fangiono family bought a GCB at Nassim Road for $88 mil in early-March followed by the three GCBs on the same road owned by Cuscaden Peak in late-March. The three GCBs were bought for a total of $206.7 mil or $4,500 psf, the highest land rate ever for a GCB. The land rate for the earlier deal worked out to be $3,917 psf. The inclusion of these four transactions will bring the total sales volume in 2023H1 to 12, totalling to $502.47 mil, which leads to a big jump in the land rate to $2,767 psf. Several ultra-high-net-worth foreigners who are not eligible to buy opted to rent GCBs instead in 2023H1. URA statistics showed that the highest rental went to a bungalow at Astrid Hill at $170,000 per month in January. A bungalow at Garlick Avenue was leased out at $125,000 per month in April while another at East Sussex Lane went at $95,000 in March.
Sentosa Cove Bungalows
Sales activity at Sentosa Cove kept at a steady pace between February and April of 2023. Seven bungalows were sold with the caveat for last one lodged on 12 May 2023. There was a high probability that this last deal was struck before the hike in ABSD rates came into effect on 27 April 2023.
Compared to 2022H2 which saw 10 transactions at the average price of $1,979 psf, the seven deals in 2023H1 reflected $2,214 psf, which is 12% higher. This shows that home buyers were willing to pay more because they saw value in the bungalows at Sentosa Cove. Most buyers are attracted to the tranquil environment, sea and waterfront views from Sentosa Cove.
Sentosa Cove is the only place where foreigners can obtain approval to buy and own bungalows, semi-detached and terrace houses. In 2023H1, foreigners and Singapore Permanent Residents (SPRs) bought two bungalows each while Singaporeans bought three. The foreigners and SPRs hailed from China and India. As for 2022H2, buyers of the 10 bungalows included three foreigners, 2 SPRs and five Singaporeans. The rental market at Sentosa Cove was equally vibrant with 12 bungalows leased out in 2023H1. Notably, two bungalows leased out in May 2023 fetched the highest rent per month for the period: a bungalow at Cove Way was leased out at $81,000 and another at Ocean Drive was leased at $80,000.
Some 213 caveats were lodged for luxury apartments in 2023H1, lower than the 228 transactions in 2022H2. Of the 213 units, Within the $5-$10 mil price band, there were 182 transactions while for transactions priced from $10 mil onwards, there were 31 transactions. In 2022H2, there were 186 units and 42 transactions in the two corresponding price bands.
Within the $5-$10 mil band, the average price of apartments rose by 5.9% to $2,800 psf from $2,644 psf in 2022H2. Similarly, prices of apartments priced from $10 mil onwards also rose by 5.9% to $3,978 psf from $3,758 psf over the same period. The upward momentum of prices could be attributed to investors’ confidence in Singapore’s residential market despite global recession threat and banking crisis in the US.
The most notable transactions in 2023H1 were the four units at Les Maisons Nassim that fetched between $30.76 mil and $45.00 mil. Two of the units were sold in late-June, after the hike in ABSD. It was reported that the two units were bought by SPRs. The 14-unit ultra-luxury Les Maisons Nassim is now fully sold, achieving an average price of $5,559 psf for all the units since the first unit was sold in May 2021.
Another significant sale was a duplex penthouse of Klimt Cairnhill on the 35th and 36th floor, with six bedrooms and a floor area of 5,920 sq ft. It was sold to a mainland Chinese buyer for $27.5 million ($4,645 psf) in February 2023.
On the rental front, a 6,000 sq ft apartment at The Marq On Paterson Hill was leased out at a monthly rental of $100,000 in February. In the same month, a 3,800 sq ft unit at Le Nouvel Ardmore were leased out at $70,000 and while another bigger unit was leased out at $75,000/month in May.
The profile of buyers for the 213 luxury apartments comprised 90 foreigners (42%), 55 PRs (26%), 62 Singaporeans (29%) and 6 companies (3%). In comparison, the 228 transactions in 2022H2 were made up of 67 foreigners (29%), 64 PRs (28%) and 96 Singaporeans (42%), with one unit purchased by a company. The increase in foreign buyers in 2023H1 could be attributed to the resumption of air travels in early-2023.
The top five foreign investors (including PRs) in 2023H1 came from China, USA, United Kingdom, Indonesia and Taiwan. The above statistics showed that the proportion of foreign buyers jumped to 42% in 2023H1 from 29% in 2022H2. Although the high-end residential market is generally the playing field of foreign buyers, the government saw the need to moderate investment demand by doubling the ABSD from 30% to 60%. We expect more foreigners might apply for PR status to enjoy the lower ABSD rates.
According to IMF’s report in April 2023, the global economic outlook remains uncertain amid financial sector turmoil, high inflation and the ongoing effects of Russia’s invasion of Ukraine. The US is expected to impose a couple more rate hikes in 2023H2 in order to bring inflation back to the Fed’s 2% goal. These concerns could slow down deals of luxury homes as high-net-worth investors weigh the options available to them.
For Singapore, in view of the latest ABSD hikes, we expect that GCB buyers will largely comprise locals and new citizens who are buying for owner-occupation and legacy planning. As for the bungalows at Sentosa Cove and luxury apartments, it is likely that more buyers will be new PRs buying their first homes so as enjoy lower ABSD rates.
In 2023H2, the focus of high-end residential market will be in the financial district. Three new 99-year leasehold projects, Marine View Residences (748 units), Newport Residences (443 units) and Skywaters Residences (215 units) will be launched. It is likely that most of the units offered will be studios, one- and two-bedrooms to cater to the needs of the executives working in the financial district.
With early signs of softening of overall home prices in 2023Q2, some easing of luxury home prices could be expected in the second half of 2023. The retreat of foreign buyers amid the recent increase of ABSD rates could affect the take-up rate of luxury homes.