Luxury non-landed private residential market returns to a world without borders

Oct 10, 2022

When the additional buyer’s stamp duty (ABSD) for foreigners was raised from 20 per cent to 30 per cent on Dec 16, 2021, people could not be faulted for harbouring the view that the luxury segment of the non-landed private residential market would turn cold.

Now, more than half a year has gone by since the new regime came in – and the numbers are showing something counterintuitive. Instead of falling off a precipice, foreign purchases have been clawing their way back up. The percentage of foreign buyers of non-landed private residential properties in the Core Central Region (CCR), or the luxury segment, in Q2 2022 and part of Q3 2022 is higher than any of the quarters in 2021.

In Q2 2022 and for the period July and August 2022 (which we term Q3), the percentage of foreign buyers of non-landed properties in the CCR was 12.3 per cent and 11.9 per cent respectively. The highest percentage recorded in 2021 was 10.2 per cent. While the total number of foreign buyers declined quarter-on-quarter in Q3 2022, the number of Singaporean buyers fell by a bigger margin. As such, the former gained in percentage terms.

Nevertheless, the percentage this year is still about 63 per cent of that of 2018 and 2019. From a numerical perspective, the average quarterly purchases by foreigners in the non-landed CCR segment is 85.6 per cent of the 2018 and 2019 levels.

Furthermore, anecdotally – as no public data is available – we believe that in the past year, the number of super luxury purchases where no caveats were lodged have increased relative to the previous years. If so, this would lift both the percentage of foreign buyers and their numbers higher.



There are several reasons that foreign demand in the CCR market remained resilient in the face of measures designed to slow price increases by attriting demand.

One is the ingrained psyche of foreigners who believe that property in Singapore preserves its value over time. Despite the increasing ABSD rates, real estate still managed to eke out a marginal compounded annual growth rate (CAGR) of close to 1 per cent (using Savills’ basket of luxury non-landed properties) from end-2011 to Q2/2022.

Though this is lower than the 5.4 per cent and 6 per cent CAGR for non-landed mid-tier and mass market private residential properties, it may not matter to foreign buyers as the key for them is to preserve wealth.

The other reason is that the increasing volatility in the global political realm is motivating more ultra high net worth individuals to diversify their savings from their home turf to safe harbours. The two reasons are intertwined – each reason reinforces the other and cannot stand on its own; if one is absent, the other would not materialise.

But what about those who intend to buy for investment? Does it seem like a bad deal? For one thing, capital appreciation has been slow. What about rental growth? Since 2020, rents in the luxury segment (CCR) have been performing in line with the other segments of the market. And if the price appreciation had been lagging that of the Rest of Central Region (RCR) and Outside Central Region (OCR), the rising rents for the CCR – which is in tandem with the other two regions – would mean that yields are improving faster.

For the period 2018 to Q2 2022, the index of current yields (defined as current rental index divided by current price index) has been compressing for non-landed properties in the RCR and improved marginally for the OCR. Meanwhile, the CCR registered significant improvement since Q4 2020. From that period till Q2 2022, the current yield index for the CCR had risen by 16.1 per cent versus 0.9 per cent and 9.6 per cent for the RCR and OCR respectively.

Therefore, what has been lacking in the luxury segment of the private non-landed residential market – namely slower capital gains – has been made up for by higher rental growth. In our view, this is because the profile of owners of luxury properties are probably quite different from those in the RCR and OCR segments. They may have different and a greater range of motivations.

They may wish to pay a premium for a property that they adore, buying to house their children studying here, as their vacation home or for capital preservation. The ultra-high net worth individuals have much greater degrees of freedom with their income or wealth than the masses that make purchases in the mid-tier or mass market segments. The extra degrees of freedom with their wealth means they are not beholden to buying real estate solely to make money. Rather, what they spend on real estate could be just a small fraction of their overall affordability levels; and this fraction is likely very much smaller than those buying in the RCR or OCR.

Thus, the motivation for capital gains may not rank as high as those who are lower down the hierarchy of the wealth pyramid. Subsequent upward revisions of the ABSD rate for foreigners have weeded out those who look for capital gains when buying, distilling a base that comprises those who are purchasing for non-economic reasons.

In conclusion, the luxury segment of the non-landed private residential market should continue to attract a significant number of foreign buyers, even in an environment where the ABSD remains high. When it comes to the super luxury segment of the market (say, those priced above S$3,000 per square foot), the notion of buying for economic reasons or paying reasonable market rent can at times be overshadowed by other considerations.

Still, it should not be misinterpreted that ABSD rates can be raised again without having deleterious effects on the sales numbers and the performance of the segment. Although the numbers are still healthy and sales did not collapse, data has shown that the percentage of foreign buyers of CCR non-landed properties fell by about 37 per cent in Q2 2022 from 2018 and 2019 levels.

However, the ABSD for Singaporeans and PRs purchasing a second property means that the availability of units for lease in the secondary market would remain low. Foreigners who purchase property do so often for their own use. This would continue to drive up rents for the next 2 years, resulting in greater yield expansion compared to the RCR and OCR. Thus, the dynamics within the non-landed luxury market are quite different from other segments of the residential market.

As the global political cauldron has been stirred, this sub-ecosystem would evolve rapidly as Singapore draws in more and more ultra-high net worth individuals from abroad. This means that the pulse of this market has to be monitored more frequently because of its greater sensitivity to offshore developments. For now, the luxury market rides steady over troubled waters.





The writer is executive director of research and consultancy for Savills.

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