The high life money can buy

Club facilities resembling a butterfly’s pupa at the pool area. The nature-inspired Eco Sanctuary in Singapore is developed by S P Setia.

Regional property markets cooling after a combination of factors

After five years of rapid growth and price appreciation, regional property markets including Malaysia and Singapore are finally heading south. A combination of global and local economic, social and political factors have brought some sanity to the market.

In Singapore, eight rounds of cooling measures over five years – the most draconian implemented last year – has impacted sales.

“The Singapore market has slumped by as much as 80% in sales volume for some areas,” says Savills Singapore senior director Alan Cheong.

House prices began their sharp climb in the middle of 2009 as confidence returned to the market after the 2008 Global Financial Crisis, before reaching their peak in the third quarter of 2013.

During a drive around in the city state, SLP International Property Consultants Pte Ltd executive director David Neubronner says the market has nosedived by 66% in a 12-month period.

At the 2013 peak, developers sold over 22,000 non-landed units. In 2014, this plunged to 7,300.

While transactions have dropped, the quantum of price decline is not big enough for the Singapore government, says Neubronner.

Prices have been resilient, largely due to strong fundamentals, sellers’ confidence and a relatively low interest rate environment. “Not in tandem with fall in sales at all,” says Neubronner.

The moderate drop in prices has been a respite for sellers, he says.

An artist impression of the sky pool which straddles two residential blocks in EcoWorld Ballymore group’s Embassy Gardens.

Non-landed property prices are estimated to have declined about 7% compared to an overall slump of 66% in sales.

Singapore’s resilient real estate – despite its affordability issues – coupled with Malaysia’s political push factors and its weak ringgit have not stopped Malaysians from buying.

An estimated 83,000 units including executive condominiums remain unsold, while vacancy rates shot up to 9% as at Q2 2015.

To put this number into perspective, Singapore has about 950,000 units of public housing and 327,000 units of private housing including landed ones.

Despite these factors, with affordability being a major issue – the ringgit is RM3.04 to S$1 on Friday – interest persists. Malaysians were top buyers of Singapore properties in the second and third quarter of this year. Mainland Chinese took second place, according to the Urban Redevelopment Authority.

For years, Malaysians have been among the top buyers of Singapore properties due to physical and emotional proximity as many have relatives there. The other top buyers are Indonesians and Indians. Neubronner says one in four private non-landed residential units are purchased by permanent residents and foreigners.

Says Savills Singapore senior director Alan Cheong: “It is very telling that despite the weak ringgit and strong Singapore dollar, Malaysians are top buyers.”

He says political uncertainty in Malaysia may be a factor. “For the January to September period, of the 2,041 properties that were transacted by overseas buyers, Malaysians made up 29.9%, from 28.8% in 2014,” Cheong adds. Chinese and Indians make up the second- and third-largest group of foreign buying.

Foreigners are only allowed to buy private properties and not Housing Developing Board units. They are subject to the 15% additional stamp duty of the retail price on top of the normal 3%. Due to strict lending rules, Malaysians have to fork out about half to 60% of the purchase price.

Despite these curbs, they still buy, says Cheong.

An aerial view of Embassy Gardens with the US Embassy in the centre.

He expects overall transactions to be flat next year with weak resale prices.

New-sale prices are expected to move up marginally next year despite the economic slowdown as developers have strong balance sheets.

“They are unlikely to bring down prices,” he says.

On Monday, ratings agency Standard & Poor’s released a report that Asia-Pacific’s residential property boom may be waning as the region’s growth rate slips.

Its managing director/credit analyst Terry Chan said the regional real estate slowdown will test the credit quality of the region’s financial institutions, property companies and related sectors.

Using three hypothetical scenarios, senior director and credit analyst Gavin Gunning says credit ratings on Asia-Pacific banks are generally resilient to a 10% decline in housing prices with no change in household disposable income.

“It can largely withstand a 20% decline (with a 2.5% in household disposable income), but may be widely affected if a 30% decline occurs (with a 5% decline in household disposable income),” says Gunning.

China’s recent stock plunge and other dark clouds over the region and country are not expected to go away soon.

These factors are expected to wrought various implications across the region, if not the world.

Better second half

Unlike the last crisis in 2008, this downturn is expected to be more gradual but protracted. In the best situation, we may see some recovery in the second half of 2016 provided the Singapore government removes some cooling measures.

If not, we may have to wait until the global economy recovers and the cycle runs its course, says Neubronner.

He says any policy change by the Singapore government to claw back some of the cooling measures will likely help to kick-start buying interest again as interest rates remain attractive for investors.

Sentosa and Orchard Road, after years of price declines and bullied by numerous cooling measures, looked most likely to recover first when confidence returns.

Recent transactions in Sentosa and Orchard Road have been concluded under S$2,000 per sq ft (psf), levels last seen in 2006. Put in perspective and in US dollar terms, US$1,400 psf is inexpensive in comparison to similar luxury apartments in Hong Kong and London, says Neubronner.

In the medium and long term, space will be a premium. After years of compact units, sizes of 2,000 sq ft or larger will be a rarity. As Singaporeans become more affluent and wealthy foreigners continue to park their money and settle in Singapore, big apartments are expected to be a premium.

Singapore’s Jones Lang LaSalle head of research South-East Asia Chua Yang Liang says prudence is needed when reading the last two quarters with regards Malaysian buyers.

He says the Malaysian interest over Mainland Chinese is very marginal and the trend can only be seen in the next quarter.

What is certain is the Singapore market has been consolidating for the last six quarters.

Overall, there is a 1.3% correction in pricing in private residential.

Britain offers a slightly different story. Prices there have risen steadily and those who bought when it RM4.60 to a £1 are sighing with relief today.

The ringgit has weakened to about RM6.80 to £1, a 47% decrease. The presence of some of Malaysian developers, SP Setia Bhd, IJM Bhd and the Eco World group, has helped to spur demand in Britain.

Both S P Setia and Eco World group also have projects in Australia. UEM Sunrise Bhd held a ground breaking ceremony of its maiden project, Aurora Melbourne Central this week. Buyers were from Malaysia, Singapore, China, Hong Kong and Australia.

The 92-storey Aurora Melbourne Central (gross development value: A$770mil) comprises 941 serviced apartments. Prices range from A$395,000 for a one-bedroom units to more than A$1.6mil for a three-bedroom unit.

UEM Sunrise MD/CEO Anwar Syahrin Abdul Ajib says the company will continue to look for land there. The project is fully sold.

SP Setia is offering the Battersea Power Station in UK and Fulton Lane in Melbourne. Malaysians were keen buyers of Battersea phase one when prices average £1,100 per sq ft. The number of Malaysian buyers has dwindled with subsequent rise in price for phase 2 and 3A.

SP Setia also has high-rise development 18 Woodsville, where 60% of buyers were Singapore-based. As for Eco Sanctuary, near Bukit Panjang, up to 90% of the buyers were based in Singapore. - By THEAN LEE CHENG, ZUNAIRA ZAIEED, CHERYL POO (The Star)

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