With cooling measures taking a toll even on the well-heeled, where is the luxury segment heading?

By Chang Hui Chew

With a high concentration of millionaires in Singapore, one of the most expensive property markets in the world, the country’s luxury property market is affordable only for the elite one percent. However, a report released recently by consultancy Knight Frank suggests that Singapore’s prime market is currently the weakest of those being tracked by their indices. While the decline has slowed quarter-on-quarter, this is the seventh consecutive quarter that Singapore’s prime real estate market has slipped.

Numbers might be one thing. But psychologically, for many people (not just Singaporeans) buying one of our island-state’s luxury homes is a sign you have made it, not just here, but in the world. While Singapore definitely does not have the space available for the McMansions favoured by the American elite, or Manhattan’s US$100 million penthouses, our local property market is an elevated commodity because of the scarcity of supply.

Classy bungalows

We might not have McMansions, but in the available space we have, there are Good Class Bungalows (GCBs). There are about 2,400 GCBs located in 39 gazetted GCB areas on our island. Some of these include Cluny Road near Orchard, and Windsor Park along Upper Thomson Road.

To be classified as a GCB, the property must be located in one of these GCB areas, and cover a minimum land plot size of 1,400 sq m (15,070 sq ft). This is a huge expanse of land, considering that an average semi-detached house has a land area of about 330 sq m (3,552 sq ft), based on caveats lodged in the past four years. GCBs on Singapore’s mainland can only be bought by citizens and permanent residents (PRs), with only rare exceptions being made for foreigners.

Figure 1 shows the transaction volumes and values of GCBs over the past four years, according to lodged caveats. Both volumes and values have fallen year-on-year since 2011, with cooling measures such as the Additional Buyers Stamp Duty (ABSD) and Total Debt Servicing Ratio (TDSR) bringing down overall market sentiment.


In the first three quarters of 2015, 13 GCBs were sold, with a total value of about $419 million. This means the average value per home sold was about $32 million. A GCB in Ridout Road, part of the Ridout Park GCB area, sold for $91.6 million at an auction in Q2 2015, thus bringing the average value for 2015 significantly higher. Otherwise, the average value for GCBs sold in the first three quarters of this year would be lower, at about $27 million.

In comparison, 2014 and 2013 saw 14 and 18 GCBs respectively lodge caveats over the first three quarters of each year. Meanwhile, 2012 observed 19 transactions and 2011 had 24 GCBs change hands in their first three quarters as well. Between 2011 and 2014, the value of GCB transactions fell an average of 17 percent year-on-year.

Over the period of analysis, the GCB market also saw higher seasonal performance during the first half of each year. If this pattern were to continue for the latter half of 2015, we expect to see under eight GCB transactions, and likely less than $290 million in transaction values. This is further corroborated by PropertyGuru’s proprietary search data, as we traditionally see a 30 to 45 percent decline of search queries for GCBs between Q2 and Q3 each calendar year.

High-class high rise

While some might prefer the relative sprawl and space of a GCB, Singapore’s luxury apartments can easily go toe to toe with their counterparts in any major city around the world. Furnished with brand names like Poggenpohl and La Cornue, and tiled with luxe materials like Carrara marble, these apartments are extravagances only the extremely well-heeled can afford.

In general, luxury apartments are found in the Core Central Districts (1, 2, 9, 10 and 11), and Sentosa, and cost above $5 million. With loan curbs reducing affordability, and the minimum down payment for a $5 million property a cool $1 million in cash, splurging on a luxury apartment requires a bit more consideration, even for the well-heeled.

The other traditional buyer of luxury apartments, wealthy foreigners, are adopting a wait-and-see attitude, because of the 15 percent ABSD imposed on them. Foreigners buying now will have to sell minimally at a 20 percent premium in the future, simply to cover the duties and costs of ownership, and without any capital appreciation. Furthermore, with whispers that the ABSD will be one of the first cooling measures tweaked by the government post-General Election, most are likely to just sit on the sidelines, or transfer their wealth to other markets, like New York or London.

Like the rest of the property market, the transaction volumes for luxury apartments have fallen year-on-year over the period of analysis (refer to Figure 2). From over 400 apartments that crossed the $5 million mark in 2011, volumes fell to over 130 in 2014, an average drop of 17 percent each year.


At the same time, total transaction values have also been sliding downwards. From a high of $1.06 billion in Q2 2011 alone, the amount of money changing­­ hands in this property class petered to $219 million in Q3 2015. Median psf prices fluctuated over the period of analysis, from about $2,641 psf in Q2 2011 to $2,277 psf in Q1 2014.

However, it seems this particular property class reached an inflection point in 2014. According to caveats lodged, it seems only 136 units matching the criteria for luxury apartments were sold in 2014. In the first three quarters of this year, 134 units exchanged hands. If the average of 44 apartments sold per quarter this year were to hold true, we could close the year with around 180 luxury apartments sold. At the same time, median psf prices have been on an upward trend for the past three quarters, growing by an average of about 1.7 percent each quarter, suggesting burgeoning interest in the market.

Earlier this year, real estate consultancy CBRE suggested in a report that developers were marketing luxury apartments at around $2,600 per sq ft, a lower price that might have renewed interest in the segment. Furthermore, with no new luxury supply beyond 2017, it is likely that remnant inventory in the market will be absorbed.

PropertyGuru’s proprietary search data also indicates a degree of market recovery in the luxury segment. In the earlier half of this year, search queries for the prime Core Central Area peaked, with Districts 2 and 10 seeing heightened interest. Given aggressive advertising by developers who need to offload remnant inventory, buyers with the wherewithal to move in this segment might be convinced to enter the market.

The view ahead

The next bell-weather for the luxury segment is likely to be South Beach Residences in Beach Road. Developer City Developments Limited and IOI Group bought the site at $1.69 billion from the state, with construction on the offices, and the hotel completed and open for business. The 190 residential units in the much delayed mixed development have yet to be launched, even though construction is close to complete, with industry rumours of $4,000 per sq ft providing much grist for many market watchers’ mills. The price when launched, as well as the take-up of the units, will give us a better idea of the interest in the luxury segment in the market.

The slowdown in transaction volumes for luxury class properties however, is probably only temporary. Current owners on the mainland with holding power need not worry about being able to sell their current units with decent capital appreciation in future, because the fundamentals for the market are sound. As an asset class, GCBs are going to continue to enjoy decent appreciation in future, if only due to their scarcity. If the market has truly reached an inflection point, this might be the right time to enter.

GV End



The PropertyGuru News & Views This article was first published in the print version The PropertyGuru News & Views. Download PDF of full print issues or read more stories now!