Why are foreign investors still buying Singapore properties?

Almost one year after intervening to curb soaring home prices, Singapore has done what it set out to do and stabilised the property cycle, said Minister for National Development (MND) Lawrence Wong said in a Bloomberg interview.

The measures, which were rolled out in July 2018, introduced higher Additional Buyers’ Stamp Duty (ABSD) rates for residential properties. The second residential property had its rate raised from 7% to 12%, while the levy on the third and subsequent properties jumped five points to 15%. Meanwhile, foreigners and corporate entities were slapped with 20% and 25%, respectively, up from 15%.

In addition, the government also tightened loan-to-value (LTV) limits by 5%.

The measures came as a surprise, arriving just as property developers replenished their land banks throughout 2017 and into 1H2018, in anticipation of blockbuster sales.

Prices were rising very sharply and there was a very real risk that prices would outpace fundamentals, said Wong. “It was, as we had stressed then, not to bring down prices but to stabilise and moderate the cycle, and I think we have achieved that effect,” he explained.

Total sales volume has almost halved since, although prices have remained relatively stable with the price index rising by just 0.5 per cent over the last two quarters of 2018. However, it fell -1.1% in 1Q2019.

The roll-out of new private homes for sale has also been slower than initially predicted in the first quarter of 2019, with property developers holding back on new launches.

Despite this, the market has not lost its lustre among foreign investors, and this is most keenly observed in the high-end market segment.

Properties located within the CCR continue to demonstrate resilience despite a dip in overall transactions. This is observed in both pricing and sales volume of new projects in the region.

Based on URA data, interest from foreign buyers (non-permanent residents) in such properties has remained robust, accounting for roughly 37% of CCR new sales transactions in the three months following the end of 1Q2019 (as shown in the graph below).

In the first six months of 2019, there were at least 51 new sales transactions for properties priced between $3 million and $5 million in the Core Central Region (CCR). Within the same time period, there were at least 50 new sales transactions for properties priced above $5 million.

Notably, a 5,673 sq ft penthouse at the ultra-luxury condo, Boulevard 88 sold at $28 million or $4,936 psf – the highest in psf terms to be achieved at the freehold development – in May.

Two other penthouse units at Boulevard 88 also breached the $4,000 psf mark in March and April, with the units fetching $29.53 million ($4,899 psf) and $28 million ($4,297 psf) respectively.

Designed by renowned architect Moshe Safdie, the project is a joint venture by Hong Leong Holdings, City Developments Ltd (CDL) and Lea Investments. It comprises 154 units in twin 28-storey towers. In 1H2019, at least 53 units (35% of total units) at the development has been sold at an average price of $3,705 psf.

Another project that has enjoyed brisk sales within the same time period is the nearby 3 Cuscaden. Launched in November last year, the 96-unit development moved 39 units at an average $3,585 psf in the first half of 2019. Based on URA caveats, a total of 60 units (62.5% of total units) has been snapped up at the development to date.

The buyers at these high-end projects are said to be generally foreigners, namely, Chinese investors.

For a start, Singapore is still seen as a safe haven compared to other luxury property markets in the region. This may attract foreign investors who are interested in wealth preservation and who do not want to be exposed to unnecessary risks that could affect the value of their properties, such as political unrest or the changing of governments.

Some Hong Kong tycoons have reportedly started to move their personal wealth offshore as concern deepens over a local government plan to allow extraditions of suspects to face trial in China for the first time.

The extradition bill, which will cover Hong Kong residents and foreign and Chinese nationals living or travelling through the city, has sparked a nationwide concern that it may threaten the rule of law that underpins Hong Kong’s international financial status.

Pricing wise, Singapore properties are seen as being relatively affordable compared to cities like Hong Kong, which has long been touted as the world’s “most expensive city”. Wealthy investors seeking good buys will also take the recent price declines in Singapore properties as an opportunity to enter the market.

It is for these reasons that Singapore will remain an attractive investment destination for wealthy investors around the world.