Property 2006
Published March 30, 2006

Luxury segment taking off

The high-end residential sector is set to build on last year's recovery in volume, say NICHOLAS MAK and MICHELLE TEE

WHILE Singapore's residential sector did fairly well in 2005 with both the price index and volumes on the uptrend, it was the high-end segment that took the spotlight.

This segment saw transactions more than double last year, and set a precedent by making up almost 20 per cent of total caveats lodged with the Singapore Land Authority (SLA) in the fourth quarter. Will the stellar recovery in the high-end market continue in 2006?

The significant volume recovery comes down to two key factors: the launch of new iconic developments and the influx of foreign investors.

While high-end property is usually located in the prime districts of 9, 10 and 11, new hotspots have emerged like Sentosa Cove and the New Downtown. The effect of iconic developments on volume can be seen from the data. Matching the launch dates of significant iconic developments with the high-end transaction volume chart, it is clear that the spike in volume coincides with the launch dates of these developments.

Jump in transactions

For example, when The Sail @ Marina Bay was launched in Q4 2004, new sale caveats lodged in that quarter almost tripled from the previous quarters. Likewise, when The Azure at Sentosa Cove was launched in late Q3 2005, new sale transactions soared.

In fact, the combined launch effect of The Azure and Tower 2 of The Sail @ Marina Bay, which was open for sale shortly after, saw new sale caveats surge to an all-time high of nearly 600 units in Q4 2005.

Another major reason for the spike in high-end sales volume is the return of foreign buyers. Numerous reports have noted that foreign citizens - especially from Indonesia, Malaysia, India, China, Hong Kong and the Middle East - are fast acquiring units in high-end developments.

Reasons for their purchase vary: some feel that Singapore's property market lags other comparable countries while others anticipate a boost from the integrated resorts. Active marketing of projects such as The Grange overseas also beefed up sales to foreign buyers.

Another contributing factor has been the speculative element in the high-end market. This can be seen from the larger numbers of sub-sale caveats in 2005. The outlook for the high-end segment remains bright given the new wave of foreign interest in Singapore's property market. Confidence was further boosted by the recent Budget which aims to keep Singapore relevant in an increasingly competitive global world. Moreover, even though banks in Singapore are raising mortgage rates, home loan rates here are among the lowest in the region. Hence, foreigners would still find it attractive to acquire and finance properties locally.

Another boost to the high-end residential market is expected to come from the potential demand of owners who have recently sold or are putting up their homes for sale collectively.

Disrupting the equilibrium

Although the new hikes in development charge (DC) rates may dampen the collective sale market, developers who are convinced of the need to build up their land banks will continue to acquire en bloc sites. If premiums in en bloc sales hit the 1996-97 levels, owners will be encouraged to park their profits in the high-end private residential market again.

However, a point to note is that the launch of iconic developments such as The Sail @ Marina Bay and The Azure has disrupted the equilibrium in the high-end market as units from these developments were swept off the selves regardless of their price and tenure. Given the dwindling supply of such projects, it is doubtful if such spectacular volume growth in the high-end segment can continue.

Perhaps the next peak can only be seen when new iconic developments enter the high-end market.

Among them would be City Development's St Regis Residences and its Sentosa Cove site, CapitaLand and Sun Hung Kai's Orchard Turn site, Keppel Land and its consortium's Business and Financial Centre (BFC) site and Far East Organization's former Natwest Centre site.

Nicholas Mak is director and Michelle Tee is analyst, Knight Frank