GCB market set to appreciate further
Property 2006
Published October 12, 2006
GCB market set to appreciate further
Growing wealth and a strong economic outlook form a favourable backdrop for the Good Class Bungalow segment to extend its recent gains. By STEVEN MING and YENNY BERLIANNA
WITH the rapid growth of wealth in India and China, Singapore is not only strategically positioned to benefit as the region's leading financial and wealth management centre but also as a lifestyle trend-setter in Asia. Private banks have expanded their operations by two to threefold over the past two years, meeting increased demand for wealth management professionals to handle the rapid growth in these emerging markets.
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Exclusive: While Sentosa Cove properties are in a class of their own, their record prices are likely to accelerate the price surge for GCB land.
According to the latest World Wealth Report by Merrill Lynch and Cap Gemini, there were about 55,000 high net worth individuals in Singapore in 2005, with net investable assets of at least US$1 million. Although they only formed about 1.3 per cent of the population, the figure was 13.4 per cent higher than that in 2004.
Evidently, the healthy growth and strong market performance helped drive wealth creation for these individuals. In addition, the government's pro-business policies have been attracting new investment dollars into the Lion City. This has been spurred by the planning of new tourism infrastructure to establish the nation as a tourism hub with the bold aim of doubling visitorship by 2015. All this would contribute to greater capital inflows into the country.
This optimistic backdrop has seen investors flocking back to the local bourse and other traditional investments. The Straits Times Index (STI) is currently trading at around 2,500 compared with 1,600 to 1,900 two to three years ago. Property continues to be an investment favoured passionately by many investors, with the luxury residential market leading gains. The Good Class Bungalow (GCB) market has also benefited. GCBs, deemed as the highest class of residential housing available in Singapore, generally cost in excess of $10 million today. Because of their hefty price tags, GCB buyers are confined to the top echelon of society.
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Even before the recent surge in prices of luxury residential apartments, the GCB market started a strong run-up from mid-2004. Since then, prices in selected prime areas have surged by as much as 60 to 70 per cent. There have been 73 transactions recorded since the start of the year, compared with 104 transactions for all of 2005. The substantial price increase over the last eight months has also translated to the higher total value of transactions. To date, the total value of all GCB transactions is some $781 million, just a tad shy of the $845 million done for 2005.
The growing affluence of buyers could be the main explanation for the increased number of large GCB transactions this year.
There have been 28 GCB transactions for land sizes above 20,000 sq ft. This makes up 38 per cent of the total number of transactions for the first eight months of 2006, against 28 per cent for 2005.
Due to the government's restriction on foreigners buying landed property here, GCB buyers have predominantly been Singaporeans, although there are a number of permanent residents who have also been granted approval to buy. Buyers are usually highly successful professionals and businessmen as well as captains of industry, with new wealth resulting from the listing of their companies on the stock exchange. Then, there are also the beneficiaries of recent en bloc transactions who want to join the exclusive GCB owners' circle. However, this group makes up just a small proportion of all GCB buyers.
In another significant trend, there have been a number of opportunistic trades. We have seen several GCBs changing hands in a matter of months or even weeks, with each realising quite handsome capital gains in return. As rental revenues from GCBs are relatively low, these investors would therefore not be buying them for rental returns, but more likely for potential capital gains. Due to the current high demand and limited number of GCBs (estimated at around 2,000 to 2,500 units), and with fewer desirable sites for this 'cream of the crop' sector, these investors have made sizeable profits over a relatively short period.
Since the beginning of this year, prices of GCBs have increased by double digits. On average, we have seen prices rise by 10 to 15 per cent. Based on recent transactions, the Bishopsgate GCB area seems to have enjoyed the fastest price escalation. A GCB land parcel in Bishopsgate was bought for $410 per sq ft in early 2004, while another plot on the same street was sold for $680 psf in June this year. In 1996, at the height of the property boom, the asking price for GCB land in Bishopsgate was $650 psf.
Prospective buyers have begun to take notice of the government's plans to revitalise Singapore and how it's gearing up. With Singapore's strong economic outlook, we expect to see continued strong demand for GCBs. Even recent bungalow land parcel sales on Sentosa Cove have exceeded $800 psf. Although we note that Sentosa Cove offers a different lifestyle for the affluent, we believe that the record prices on Sentosa Cove will likely accelerate the price surge for GCB land. With GCBs currently going for $500 to $600 psf, it certainly looks well worth it for investors to put their money on the rarest of gems in the Singapore property market.
Steven Ming is director, prestige homes and Yenny Berlianna, assistant manager, research & consultancy, Savills Singapore
When will the mass market move?
Property 2006
Published October 12, 2006
When will the mass market move?
In the residential market, sales of 99-year leasehold property have slumped while other sectors experience a surge in demand. HAN HUAN MEI looks at the dynamics of the mass market
IN the first six months of this year, the private residential market registered 4,385 units in the primary market and 5,451 units in the secondary market. It has benefited from the brisk sales momentum, which started in 2005, when demand in the primary and secondary markets chalked up the corresponding transaction volumes of 8,955 units and 7,582 units for the year.
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This represents a 55 per cent increase in the primary market and a 38 per cent increase in the secondary market over 2004. Overall prices, according to the URA residential price index, also increased by 3.3 per cent in the first half of 2006 and 3.9 per cent in 2005, while luxury homes increased by some 25 per cent in the 12 months from mid-2005 to mid-2006. The outlook for the residential market looks bright; however, the question that begs to be asked is: Does this increased demand and the rise in prices apply to all segments of the residential market, especially the mass market? If not, when is the mass market ever going to pick up?
A breakdown of new home transactions according to different price bands ($ per square foot) shows that the proportions of homebuyers purchasing luxury, prime, prime-low and mid-tier residences have been on the increase. These are for properties that are priced at more than $700 psf.
However, the proportion of mass 99-year leasehold and freehold units being sold in the market (priced at less than $700 psf) has been decreasing from a high of 92 per cent in 1998 to a low of 53 per cent in 2005. In the first half of this year, it registered the lowest level of 50 per cent. With half of all homebuyers purchasing either a mid-tier, prime or luxury home in the six months, homebuyers' buying power has strengthened significantly.
The financial muscle of homebuyers is encouraging, but what about the long-term sustainable growth demand from the base of the market? After all, the overall sustained health of the private residential market will also have to depend on entry level homebuyers, consisting mainly of HDB upgraders.
According to the latest published HDB Sample Household Survey in 2003, 13.2 per cent of HDB residents were still considering upgrading. This translates into 108,389 households. In the same survey, 14.5 per cent of HDB households indicated that they would like to move to a private residence within the next five years. This is a potential 22,000 buyers between 2003 and 2008, or an average of about 4,400 HDB upgraders per year. And yet, the number of caveats lodged with HDB addresses (used as a proxy for HDB upgraders) in the private new home market has been decreasing from about 6,600 in 2002, to 2,300 in 2003, to 2,200 in 2004, before recovering to about 2,400 caveats in 2005.
In the first six months of this year, only 1,100 caveats were lodged by HDB addressees. The decline in HDB upgraders in the last few years suggests a possible build-up of demand from HDB upgraders that might occur sooner rather than later. However, the main obstacle that would prevent the floodgates from opening appears to be HDB resale prices.
The HDB resale factor
Since the 1990s, prices in the private residential market and the HDB resale market have moved in tandem and are strongly correlated. In 2002, HDB resale prices fell below 1998 levels but recovered by 11.7 per cent by Q1 2005. However, in April 2005, the recovery was abruptly halted by the government's implementation of anti-cashback measures. The HDB resale index fell by 4.8 per cent in Q2 2005 while private property prices strengthened. Currently, HDB resale prices are 9.3 per cent below the last peak in the first quarter of 2000 and 24.9 per cent below prices in the fourth quarter of 1996, when HDB resale prices were at their highest.
For many HDB homeowners who bought their flats when HDB resale prices were higher than they are now, there is little incentive to sell below their cost. However, should HDB resale prices increase by some 10 per cent, many of these HDB flat owners might be enticed by the still low private property prices in the mass market to sell their HDB flat and upgrade to a private home.
The drivers of upgrader demand appear to be the basic fundamental elements of employment prospects, wage levels, CPF contributions and gains from the sale of their HDB flats. Combined, these different elements directly affect upgraders' overall ability to afford to move to private residential homes from their present HDB one.
Suffice to say that there were only a few 99-year leasehold projects launched since 2005, traditionally viewed as the typical product type for HDB upgraders and first-time buyers of private residential property. This lack of new launches for the mass market has also been part of the reason why there has been very little activity affecting the lower end of the residential market.
Looking ahead in 2006, there are positive signs for the economy, with unemployment at 2.9 per cent as at Q2 2006 and wages likely to build on the estimated 6.5-7.5 per cent GDP growth for 2006. And after a year where there has been a dearth of affordable entry-level projects, the expected launches of mass market projects like Centris at Boon Lay MRT station, Ferraria Park at Flora Drive/Road and the apartments in a mixed development at Yew Tee MRT station might just trigger some pent-up upgrader demand for these private residential homes.
The writer is senior manager, CBRE Research