If time is a luxury it could be now

As data from the past two quarters suggest, the residential market is slowly rousing from its slumber. Focusing on the luxury segment, are we expecting a quick turnaround, or a slow pickup in this market?

01 Mar 2018

If time is a luxury it could be now
In 2017, according to 4Q URA statistics, the residential market saw just north of 25,000 transactions lodged. These include new sales, resales and sub-sales. 74% of these transactions were transacted below the quantum of $2 million. In fact, while the primary market saw a four year high in terms of sales volume at 10,566 units, 85% of the new private homes sold in 2017 was were below $2 million. Generally, the residential market was driven predominantly by quantum.

Unsurprisingly, the Rest of Central and the Outside Central regions accounted for homes at this sweet spot of below $2 million. However, there was a positive story forming in the Core Central region as well: for luxury apartments worth $5.00 mil and above in the Core Central region, a total of 372 caveats were lodged in 2017, the highest since 2011. The higher volume in the last six months of 2017 came on the back of the launch of Martin Modern, and buyers picking up units from previous launches such as Gramercy Park and Ardmore Three.

As data from the past two quarters suggest, the residential market is slowly rousing from its slumber. Focusing on the luxury segment, are we expecting a quick turnaround, or a slow pickup in this market?

More Bang for the buck

Overall, favorable macro indicators are injecting positive vibes back into the market. GDP growth has surprised on the upside, expanding by 3.6% for 2017, as compared to 2.4% in 2016. The annual average unemployment rate was still low at 2.2% in 2017. According to Oxford economics, there remains a healthy compound annual growth rate of 3.8% for residents above the income bracket of S$150,000, signaling that purchasing power is growing.

The price index for non-landed homes in the CCR has already risen slightly by 1.7% over the past two quarters. This is on the back of seventeen consecutive quarters of correction of 12.2% from Q1 2013 till Q2 2017. As such, value buys in the segment is a plausible opportunity. On this cusp of recovery, the Singapore residential market offers a better value proposition for price appreciation as compared with other key international residential markets, which are peaking or have peaked. The case for a price recovery is statistically sound even though cooling measures are still in place.

Foreign attraction

Foreign buyers have been a steady source of demand for the luxury market and is expected to continue to be a steady demand driver. Including PRs, foreign buying has accounted for 28.3% of all the buying activity in the CCR in 2017. It should be highlighted that the ABSD of 15% for foreign buyers remains unchanged.

Hurdle raised higher

In the recent Budget announcement, Minister Heng has introduced a top marginal buyer stamp duty rate that was raised from 3% to 4%, applying to the portion of residential property value in excess of S$1 million. This will prove to be a headwind for the luxury market as the raised buyer stamp duty is more impactful on larger transaction deals. While some may argue that the correction in prices may have soften the impact mathematically, there remains some barrier psychologically. Nonetheless, with key cities like Hong Kong and Australia implementing cooling measures for foreigners, it has levelled the playing field and put Singapore back onto investors’ radar as a viable opportunity

Eventually, in addition to being constantly ranked highly as a livable city, an investment into Singapore presents a sense of stability. Stability in terms of governance as well as in its currency. The latter entails capital preservation, and perhaps capital appreciation in a land scarce city state.

CBRE Research believes that overall luxury prices should recover in 2018, alongside rising land prices and the strong holding power of developers. Further, underpinned by a strengthening economy, and improving sentiments, the luxury residential market is still poised for a steady recovery.

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