Stay calm when more luxury condos fetch above S$6,000 psf

Lofty premiums for fancy flats in ultra-prime areas will make headlines, but should have minimal impact on prices elsewhere

Mar 06, 2023

A PROFIT of S$3.46 million in just under three-and-a-half years is impressive.

The owner of a unit at the freehold luxury condominium Boulevard 88 along Orchard Boulevard achieved just that. It was bought for S$10.32 million or S$3,688 per square foot (psf) in July 2019, and sold for S$13.78 million or S$4,924 psf in December 2022.

Nonetheless, in recent years, price rises of apartments and condominiums in the Core Central Region (CCR) or prime districts have lagged that in the Rest of Central Region (RCR) or city fringe and Outside Central Region (OCR) or suburbs.

Based on the Urban Redevelopment Authority’s data, private non-landed home prices in CCR, RCR and OCR rose 8.4 per cent, 33.6 per cent and 22.7 per cent respectively between Q4 2019 and Q4 2022.

Could it be the turn for prices in CCR to shine, given that there is relative value to be found with homes in prime districts?

Some new ultra luxury condominium developments are doing fine. As at January, developer Shun Tak Holdings’ entities sold 11 of 14 units at freehold Les Maisons Nassim along Nassim Road and 47 of 54 units at freehold Park Nova on Tomlinson Road.

Based on caveats lodged of new sale units last year, the median prices for Les Maisons Nassim and Park Nova were S$5,379 psf and S$4,600 psf respectively. In February, a caveat was lodged for a Les Maisons Nassim unit for S$36 million or S$5,727 psf. Units in this development have been sold for over S$6,000 psf.

In recent months, a unit at Skyline @ Orchard Boulevard fetched S$20.2 million or S$5,371 psf, while a home at Le Nouvel Ardmore was sold for S$22.3 million or S$5,800 psf.

It is possible that more ultra luxury condominiums will soon transact for more than S$6,000 psf. Prices of S$7,000 psf or even S$8,000 psf may be seen within this decade.

The annualised price gain for the above-mentioned Boulevard 88 unit is about 9 per cent. Assuming an annual price rise of 5 per cent, a S$5,500 psf unit today would be worth over S$7,000 psf in five years’ time.

Growth drivers

The drivers for super luxury condominiums look strong.

Firstly, Singapore is a safe haven for the wealthy from Asia and elsewhere. Political stability, rule of law, transparency, social cohesion and a strong currency draw the rich to buy physical property here.

While some foreigners will buy non-residential properties, others will buy homes, as they can occupy those properties.

Foreigners can buy private non-landed homes here, but need to pay 30 per cent in Additional Buyer’s Stamp Duty (ABSD) on top of Buyer’s Stamp Duty.

Secondly, Singapore sits in a region where wealth creation is strong. China’s economy may no longer grow at an annual rate close to double digits as it matures and population growth stagnates or turns negative. Still, much wealth will be created in the world’s second-largest economy.

Meanwhile, populous countries such as India and Indonesia could see their economies grow fairly quickly in the years ahead, thus facilitating wealth creation.

The minting of more multi-millionaires and billionaires in the region will help drive demand for luxury homes here.

Thirdly, Singapore is growing strongly as a wealth management hub. Many rich foreign nationals are setting up family offices here.

Under the Global Investor Programme (GIP), eligible global investors who intend to drive their businesses and investment growth from Singapore can get Permanent Resident (PR) status.

Through the GIP, around 200 people became PRs from 2020 to 2022. However, getting PR status via this route will become harder – new applicants will need to invest more to become PRs under the GIP from Mar 15.

Generally, PRs cannot buy landed homes in Singapore. A PR pays ABSD of 5 per cent for buying his first home. As Singapore offers a good lifestyle for the wealthy, count on rich PRs to buy homes here – thus driving demand for luxury condominiums.

Fourthly, top talent – across different fields – will likely prosper in the years ahead. Economics explains this phenomenon. With digitalisation and ease of travel, sports stars, chefs and entertainers among others can build a global audience and monetise their global reach.

Expect wealth creators from diverse fields to pursue trophy homes in global cities for lifestyle and investment needs. Singapore’s top condominiums could feature high on such shopping lists.

Fifthly, premium condominiums command scarcity value. These may be found mainly in a few streets clustered around the western end of Orchard Road. Within these streets, wealthy buyers may focus on best in class developments.

Les Maisons Nassim can provide a template for developers targeting the super rich. Unit sizes are large at this development, starting from over 6,000 square feet. More housing developers may curate products aimed at the very wealthy.

A 13,000 sq ft super penthouse, with a private infinity pool, at the upcoming freehold Newport Residence in Tanjong Pagar could attract the super rich. With the right products, more wealthy persons can be drawn to buying homes here.

Impact on wider market

Lofty prices achieved for fancy flats will capture headlines. Still, such sales – if confined to a few developments – should have minimal impact on prices of other private homes in prime districts, let alone prices of city fringe and suburban condominiums.

The government need not fret if a few homes sell for stratospheric prices, as long as high-quality public housing flats are affordable and available for many residents, and private housing aspirations are reachable by some residents.

The community gains from high stamp duties and property taxes paid on luxury homes. Property tax is paid on a recurrent basis, and higher tax rates apply to homes with higher Annual Values (AVs). The AV of buildings is the estimated gross annual rent of the property if it were to be rented out, excluding furniture, furnishings and maintenance fees.

In 2024, property tax payable for a high-end home with AV of S$200,000 will be about S$44,000 for an owner-occupier and around S$61,000 for a non-owner-occupier. In perspective, the gross tax payable on a tax resident’s annual chargeable income of S$317,000 amounts to about S$44,000.

Building luxury homes can help developers overcome the tight profit margins of housing projects in Singapore. With the right product, the selling price may hardly matter for luxury homes in this global city.