Singapore slowdown: Have ultra-rich properties hit bottom?
Drawn by its glittering downtown core and luxury condominiums, villas and resorts, the ultra-rich have flocked to the city-state of Singapore.
Now, a host of government cooling measures have dampened the residential property market, with many discouraged by a sales tax of 18 per cent for most foreigners.
An influx of money started pouring into the region in the mid-2000s as the government pitched itself as a global financial and banking hub and loosened rules for foreign buyers. Developers took note, changing the downtown skyline and building luxury properties, particularly on the tiny island of Sentosa, a former British military base just off Singapore’s main island.
Marina Bay Sands Hotel and Casino, right. (Nicky Loh/Bloomberg)
Former professional footballer David Beckham, actors Jackie Chan and Jet Li, Australian mining heiress Gina Rinehart, and Brazil’s Eduardo Luiz Saverin, a co-founder of Facebook, are among the ultra-rich who have invested in property in Singapore – property that is worth a lot less now.
According to Colliers International, some homes, particularly high-end properties, are selling by as much as 20 to 30 per cent below the peak prices in 2007-08.
Solar-powered"supertrees" at Gardens by the Bay illuminate the night in front of the Marina Bay Sands Hotel and Casino. (Nicky Loh/Bloomberg)
“The market in Singapore has been soft for a while now, in the past 24 months,” says Nicholas Holt, head of research, Asia Pacific, for international real estate firm Knight Frank.
“We saw, in the prime end of the market, prices came down pretty steeply last year. It paints a bit of a gloomy picture … but it’s not a cyclical downturn but very much a government-induced slowdown.”
The years of accelerated growth have led to income inequality, rising living and housing costs, and the discontent of many Singapore citizens. The People’s Action Party – which has been in power since Singapore’s independence from Malaysia in 1965 – began taking steps to reduce foreign investment after the 2011 general election.
Diners in Lau Pa Sat food court in Singapore's central business district. (Nicky Loh/ Bloomberg)
Among the measures to cool the housing market, and stop prices from appreciating, is the Additional Buyer’s Stamp Duty (ABSD). Introduced in 2011 at 10 per cent of a property’s purchase price, it was increased two years later to 15 per cent.
“The ABSD has cooled off a lot of interest from foreign buyers,” Mr. Holt says. “There are exemptions to the ABSD, but Canada is not one of them. U.S. citizens don’t have to pay 15 per cent. Nor do Swiss, Norwegians, or purchasers from Iceland or Lichtenstein…. Plus there’s the standard Buyer’s Stamp Duty, which is approximately 3 per cent. So you’re actually paying 18 per cent on the purchase price, which is a lot.”
Residential buildings. (Nicky Loh/Bloomberg)
Aside from Hong Kong, Singapore is now the most costly place in Asia-Pacific for a foreigner to invest in real estate, according to new research from Knight Frank. However, signs of a downturn are everywhere. According to the 2015 Knight Frank Wealth Report’s Prime International Residential Index, which tracks the change in price of prime residential property in 100 cities around the world, Singapore came in 98th in terms of performance for 2014 at -12.4 per cent
“This is partly due to the rock-bottom interest-rate environment we’ve had the last few years,” Mr. Holt adds. “Because the Singapore dollar is loosely pegged to the U.S. dollar, we import the interest rate from the U.S., and that’s led to a lot of money going into property.
“We’re seeing …policy makers around the world becoming more active, more protectionist, not only with new taxes but also with new restrictions … to make sure mistakes that were made in pre-crisis boom aren’t made again.”
A pedestrian walks through Esplanade Park with commercial buildings in the central business district of Singapore in the background. (Nicky Loh/ Bloomberg)
Alan Cheong, senior director of research and consultancy in Singapore for Savills, a global real-estate company, says it’s “guesswork” to determine whether any of the cooling measures will be lifted any time soon.
“Given Singapore’s open economy, we do not have an interest-rate policy, which meant the interest-rate tool to contain inflation is absent. Therefore, administrative and taxation measures had to be implemented to prevent the market from running too far ahead of itself.”
However, Mr. Cheong says there are plenty of buyers just waiting to jump in now that the market appears to be hitting the bottom.
The residential market last year was characterized by fewer project launches, low sales volume, and resistant prices, Savills research has found. Primary market sales in 2014 were about half that of the year before.
[Singapore] has everything going for it. It’s an island, so there’s limited land. Long-term, I believe it’s a place where the market will continue to perform well.
Nicholas Holt, head of research, Asia Pacific, Knight Frank
Prices in the private residential market are expected to drop about 7.5 per cent this year, Savills states in its January residential sales briefing. Demand may start to build again among longer-term investors in particular.
“With potential rising interest rates, potential new supply coming in, and the potential easing of cooling measures, the market is potentially coming near the bottom, so it could be an opportunity,” Mr. Holt says. “There are buyers sitting on the sidelines.
Meanwhile, supply will increase: Six sites that are part of the 2015 Government Land Sale Programme will yield an estimated 2,530 new private homes.
“The long-term story for Singapore is still very positive,” Mr. Holt says. “It has a high standard of living and fantastic infrastructure. It’s clean, it’s safe, it’s very well connected to the world; it has a diverse, multinational population. It has everything going for it. It’s an island, so there’s limited land. Long-term, I believe it’s a place where the market will continue to perform well.”
Cable cars pass over Resorts World Sentosa, located on Singapore’s resort island of Sentosa. Besides casinos, attractions include a Universal Studios theme park, S.E.A. Aquarium and Dolphin Island. (Sanjit Das/Bloomberg)
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