Outlook is rosy for property market

Outlook is rosy for property market

SENTIMENTS in the Singapore residential market are likely to remain upbeat this year even though the luxury market will lose some of its sizzle from the previous year, say property watchers.

The high-end segment, sparked by an influx of foreign buyers, experienced an astonishing rise of 30 per cent to 40 per cent last year. Prices for some niche large high-floor luxury units were sold for as high as $3,000 per sq ft (psf), way above the normal $1,800-$2,000 psf range for an average prime apartment.

Knight Frank managing director Tan Tiong Cheng notes that as the upmarket segment had risen from low recovery levels, any further increases would not be to the same degree, given the already steep increase in capital values over the past 18 months. Nevertheless, he says, the upward momentum is still strong.

Ms Tay Huey Ying, director of research and consultancy at Colliers International, says: "Interest in the upper-tiered market was mainly due to the excitement in the property market following the Government’s awards for the two integrated resorts (IR) at Marina Bay and Sentosa. In the absence of news of similar impact, we should expect a breather and probably see a 15 to 18 per cent rise for the luxury segment this year."

However, she expects prices for this thin super-luxury class to turn bullish again in 2009, when the two resorts and the new business financial district are completed. Prices of choice luxury units could rise to an average of $4,000 psf.

A recent Jones Lang LaSalle (JLL) report pointed out that while the robust outlook for the Singapore economy had helped to prop up the strong gains last year, the rise was also reflective of upbeat sentiments among high net worth individuals scouting for opportunities in global markets.

It noted that prices of niche luxury projects in Hong Kong were 70 per cent higher than in Singapore, and it expected high-end developments to continue to set new benchmark prices in 2007.

Dr Chua Yang Liang, associate director and head of research for Jones Lang La-Salle, notes that the new moneyed class, which has a more global outlook, preferred properties that offer unique lifestyle concepts, unlike the top–end buyers during the previous property boom who were more focused on location. This explains the appeal of Ardmore Park and Four Seasons Park in the mid-1990s.

Ms Tay notes: "These buyers are made up of the high echelons of Singapore society as well as the high net worth or ultra high-net worth individuals from around the globe. They are not just looking for an apartment but a lifestyle product."

As a result, luxury-end developers are now marketing their properties with high quality furnishing and finishes, and offering housekeeping, butler and concierge services to attract these niche buyers.

"Many of these foreigners are first-time buyers in Singapore. How much the benchmark prices for these luxury end of the market will rise will very much depend on how the developers packaged them as lifestyle offers," Ms Tay says.

Unlike the previous property upswings, when the top-end buyers generally comprised Indonesians and Hong Kongers, the overseas buyers now hail from China, India, Europe, America, Russia, Israel and the Middle East. And they are definitely richer too.

"We are talking about the really, really rich. I just shook hands with two billionaires this week. That has never happened before," says a property consultant.

For this segment of the market, prices and interest rates are less of a consideration as the buyers normally fork out the full payment for their purchases.

Another draw for these foreigners is the absence of a capital gains tax.

"Instead of paying the high taxes elsewhere in London, they can use their property purchases here as a way to preserve and enhance their capital wealth, especially when prices rise in the future," says Mr Ku Swee Yong, director of marketing and business development at Savills Singapore.

Mass market units see modest gains of 5 per cent to 10 per cent. Savills is projecting an average rise of 20 to 30 per cent for the upper-tiered residential properties in 2007. Mr Ku says the trickle-down effect of a strengthening economy could see the mass market rise by 5 per cent this year and 8 to 10 per cent for the next two years.

According to JLL’s Dr Chua, the current property boom is turning out to be a two-tiered phenomenon with the highend residential segment driving overall recovery and the mass market segments trailing behind. This is in contrast to the previous property bull run in 1996, when prices were driven up by HDB dwellers upgrading to private housing.

Dr Chua says that while there was evidence of “flipping of properties” for quick turnaround profits during the launch of Marina Bay Residences and One Shenton in the central district, such speculative behaviour remained isolated.

According to sub-sale transactions tracked by the Urban Renewal Authority, such speculative transactions made up only 4 per cent of the total sales volume in 2006. This compares with over 20 per cent during the previous all-time market peak in 1996.

There appears to be more genuine buyers these days who are seeking longterm returns or personal occupation. Hence, the bubble effect stemming from speculative buying is not expected to occur in the near future, says Dr Chua.

Generally, most property watchers are looking at a 5 to 10 per cent increase in 2007 and 2008 for the mass market, which comprises units from $400 psf for older units to $700 psf for units in the secondary market, and up to $800 psf for newer developments.

Mr Winston Liew, a research analyst at OCBC Investment, says: "Structurally, there is usually an excess of 10 to 15 per cent in the total supply of this market segment. Capital appreciation will be about 10 per cent, or about 2 per cent to 2.5 per cent per quarter, which is in line with the growth in the GDP (gross domestic product) and general income levels."

Given this scenario, Ms Tay of Colliers says that on average, the prospective house-hunter in Singapore should not be spooked into a rush for their property purchases.

Despite the news-grabbing headlines of new benchmarks from luxury sales or collective sales, she says: "There is no need to be panicked into buying new homes. Take your time to look around, not just the new developments but also the secondary market. Don’t get affected by the herd mentality. That would only encourage developers to push prices up."

The head of research at Chesterton International, Mr Colin Tan, says househunters should make it a point to visit more showflats to get a better feel of what are considered as quality developments in the residential market.

"By looking around, you will be better placed to know the difference between a highend or quality development and one that is just high-priced without the same quality finishing," he said.

Rental yields improving

For those looking for investment properties and rental returns, property consultants say that the good bets would be developments near MRT stations, parks, schools and other public amenities.

Rental yields are expected to rise at an average of 3 per cent to 3.5 per cent this year for 99-year developments and 2.3 per cent to 3 per cent for freehold properties.

Mr Ku of Savills says demand will come from an influx of foreign talent who will be working on the integrated resorts and other major government infrastructure projects.

"For people who rent these units, it doesn’t matter if they are freehold or 99-year leasehold properties as long as there are pool facilities and they are close to amenities. In this regard, 99-year property will deliver the best yield," he adds.

"The rental market will be tight for the next three years with demand coming from an increasing number of expatriates, especially with a large number of units taken off the market because of the en-bloc sales," Mr Ku says.

Mr Tan’s advice is that buyers should look for new completed units or those in good locations in the resale market to take advantage of the good rental returns in the next two to three years.

"After that, with the new developments coming into the market, the return yields may or may not be as strong. It really depends on how many new units developers are going to put into the market in future," he adds.