Foreigners race for Singapore's luxury properties

In Q2, there were 139 transactions for property of more than $3,000 psf - a number that has not been seen since 2007.

In July, Britain’s wealthiest man James Dyson snapped up a 21,108 sqft, three-floor super penthouse at Singapore’s Wallich Residences for a record $73.8m. Just two weeks later, Dyson--who invented the bagless vacuum cleaner--purchased a hilltop Good Class Bungalow (GCB) with views of the Botanic Gardens for $41m.

The owner of e-commerce giant Alibaba Jack Ma has also been speculated to have bought a 30,000-sqft site at Victoria Park Close, where he is said to be building a two-storey bungalow with a basement and swimming pool; whilst Facebook co-founder Eduardo Saverin also hit the headlines after being the speculated party behind a real estate firm that purchased a sprawling 84,543 sqft GCB plot in the prestigious Nassim Road area.

Dyson, Ma and Saverin are just amongst the more prominent high net worth individuals (HNWIs) and ultra high net worth individuals (UHNWIs) following a trend of foreigners--or wealthy foreigners--who were observed to have flock to Singapore, helping the island’s luxury property sector weather a slowdown that plagued the rest of the property market.

With cooling measures still in place to rein in speculative activity (foreign non-permanent resident buyers, in particular, are required to pay a 20% Additional Buyers Stamp Duty on the purchase price for buying homes; whilst permanent residents pay an additional 5%), the active sales in the luxury segment particularly in super luxury units worth at least $10m each surprised the market to some extent, according to a report by Savills.

As of mid-August, the share of non-Singaporean purchases accounted for 25% of total residential transactions, higher than the 22% recorded for the first half of the year, according to Jefferies Equity Research.

Accordingly, deep-pocketed buyers from China, Malaysia, India and Indonesia were the most active, although the number of Chinese investors dipped by 0.5% QoQ. However, agents on the ground said that Chinese nationals were active in the segment, leading to speculations that the high proportion of the unspecified foreigners driving property sales in the first six months of 2019 could be from China.

There is notably an increase in the share of buyers from Hong Kong, China, and Taiwan, which rose to 14% in July. This marks a departure from the usual 10-11% share it had held since 2015 and more than four percent points ahead from 2011-2014 shares, which barely breached the 10% mark according to Jefferies. Their share increased further to 18% in mid-August. Accordingly, projects of developers with presence in Hong Kong, such as Artra, Margaret Ville, Parc Esta and Stirling Residences were preferred.

The second quarter alone recorded 139 transactions for property of more than $3000 psf--a number that has not been seen since 2007, before the Global Financial Crisis, according to Savills.

Also read: Luxury home sales take off in Q1

A recent report from Knight Frank noted that almost 2 in every 5 UHNWI prefer to buy a new home in Singapore. Analysts noted that island’s political stability, zero tolerance towards corruption, ease of doing business, supportive policies towards family formation and stable currency are some of the factors that attract foreigners and UHNWIs to Singapore property market.

“That foreign UHNWI are willing to pay a hefty duty to buy residential properties here would mean that the price of political serenity is worth more than the 20% duty,” Alan Cheong, executive director of research and consultancy at Savills Singapore, told Singapore Business Review. “This correlation probably manifested itself when global and regional political tensions mount. Unlike the UHNWIs of the past who bought to preserve their capital, the recent group of UHNWIs are buying for personal and family security and peace of mind.“

Also read: 17% of the world's ultra-rich want properties in Singapore

Leong Boon Hoe, chief operating officer of List Sotheby’s International Realty, Singapore, also noted that political and economic stability has made the island all the more attractive to UHNWIs. “The current global real estate market is surrounded by a lot of uncertainty arising from political and economic conflicts. Singapore has always been perceived as a safe haven, and the Singapore property market is considered by many as safe – both in terms of quality of the developments, as well as the prices and value appreciation of the properties,” he added.

Leong also noted that the choice could be due to tax purposes. “Top earners in Singapore are taxed 20% whereas some countries’ tax rate could be as high as 40%. There is also no capital gains tax on the sale of the property.”

High net worth individuals have not been too affected by cooling measures and loan curbs, and the total purchase cost--comprised of a total purchase price with relevant taxes and duties--is a lesser concern for them.

Housing demand from rich foreigners has become more selective, according to Christine Li, head of research at Cushman and Wakefield Singapore. “UHNWIs are on the lookout for iconic or trophy assets–a prized home to call their own. These are found in the prime districts of Singapore,” echoed Huttons’ Lee.

In particular, interest is concentrated in Core Central Regions (CCR), with properties costing from $4m or $5m upwards. These addresses come with the exclusivity and prestige that rich foreigners seek, according to analysts.

“In the traditional prime districts, they prefer the neighbourhood close to the Orchard Road shopping boulevard and the neighbourhood close to the Botanic Gardens,” said Leong. “In the new prime districts, these will be Marina Bay, Tanjong Pagar and Beach Road which are in the Central Business District, and Keppel Bay and Sentosa Cove which are the waterfront locations.”

Despite the growing share of affluent foreigners for luxury homes, locals are also playing a significant role in driving sales activity. “Rising affluence amongst local residents has resulted in an increase in household wealth and supported the movement up the housing ladder,” noted Sze Teck Lee, director of research at Huttons Asia. “There has been a doubling of households earning more than $20,000 per month over the past ten years,” he added.

Although the number of UHNWIs purchasing homes in Singapore has risen, sales are still mainly driven by Singaporeans. “Local demand is still the main driving force of the market,” said Li. “In the first half of the year, only around 5% [of transactions] are estimated to be from foreign demand.”

“The perception that foreigners are flooding into our private residential market is just perception,” said Cheong. “For the period April to August, Singaporeans still make up 78.6% of all non-landed property purchases [although] this is still marginally higher than the 77.7% recorded for the similar months in 2018.”

Analysts do not see a problem in the number of rich foreigners going to the island.

“There are no foreseeable problems as the number of UHNWIs purchasing properties is still a relatively small number of 200 to 300 a year. Moreover, most of these have set up their businesses here and need a place to stay or they have sent their children to study in Singapore,” according to Leong.

Prices in the luxury market segment are expected to increase due to strong demand--although sales are projected to be lower compared to the first half of the year.

“As the mood of the market has turned cautious in view of deteriorating external environment, we expect the luxury sales in the second half of 2019 to slow down as buyers will be selective and in no hurry to commit. Sales volume could be around 10% lower than H1’s volume although prices are expected to remain firm at current levels,” Leong said, although he noted that there will be more new luxury projects that will be launched in the second half of the year.

Meanwhile, C&W’s Li expects transaction volumes to be around the same range as the 555 sales last year, or between 500 to 600 units. Cheong was more optimistic for year-end sales. “There had been a spurt of such high priced transactions in the second quarter, but going forward, these numbers may settle down to about 100-120 per quarter. Still, this would add to about 460 transactions for the full year and better last year’s numbers by about 5%,” he said.

Huttons’ Lee also projects prices of luxury homes to rise up by 5% in 2019, supported by demand from both locals and foreigners, whilst prices are expected to remain firm at current levels. Meanwhile, prices in the CCR market is expected to inch up 1% or even fall by 2%, according to C&W’s Li.