Published March 22, 2007

Demand for GCBs set to stay high

Average land prices for good class bungalows may surge to $650-$750 psf this year, says STEVEN MING

THE surge in Singapore's stock market in the past year has not dimmed the allure of property. With property favoured by many wealthy investors across the region, Singapore's residential market is powering ahead, led by the luxury segment.

Limited supply: There are an estimated 2,000 to 2,500 GCBs across the island

While demand is focused on high-end condominiums, there is also strong interest in good class bungalows, or GCBs. GCBs are seem as the highest class of residential housing available in Singapore. Each GCB sits on a minimum plot of 1,400 square metres and they can be found in only 39 gazetted GCB areas.

Like anything of value, there are never enough of these prized properties to go around. In fact, there are a finite number of GCBs. Since the GCB areas are already gazetted and the boundaries defined, there is rarely new supply on the market unless a much larger parcel of land is sub-divided.

There are an estimated 2,000 to 2,500 GCBs across the island. This class of properties would generally cost in excess of $10 million each today and are affordable to only a small circle of buyers.

Due to the government's restriction on foreigners buying landed property here, GCB buyers are predominantly Singaporeans, although there are a number of permanent residents who have been granted approval to buy them. Buyers are usually businessmen who have made their fortunes on the back of a robust economy.

Some buyers have also benefited from the creation of new wealth following the listing of their companies on the stock exchange. High-flying professionals are another segment of GCB buyers. Then there are the beneficiaries of recent en bloc transactions who have enjoyed cash windfalls and are moving up the housing ladder to join the exclusive GCB club. However, they form a small proportion of GCB buyers.

Even before the recent surge in prices of luxury condos, the GCB market saw a strong run-up in mid-2004. Since then, prices in selected prime areas have surged by as much as 60 to 70 per cent. There were 118 transactions last year, up 13 per cent from the 104 transactions in 2005. The substantial price increase over the last 12 months has translated into a higher total value of transactions. This stood at $1.2 billion last year, a 42 per cent jump from 2005.

The growing affluence of buyers is probably the main reason for the increased number of large GCB transactions last year. We have also observed a rising trend of opportunistic buying and selling. We have seen several GCBs changing hands in a matter of months or even weeks, with each realising quite handsome capital gains. As rental yields from GCBs are relatively low, these investors would not be buying them for rental returns, but for potential capital gains.

Due to the limited number of GCBs available for sale, and their high demand, these fortunate investors would have easily made a sizeable profit over a relatively short period. There were at least 27 such buy and sell transactions that took place in the past six years, with sellers booking handsome gains. With the strong market, new owners may well be already sitting on paper gains.

With the bright economic outlook for Singapore, we expect to see continued demand for GCBs. Even recent 99-year leasehold bungalow land parcels on Sentosa Cove have crossed $1,100 per sq ft. We believe that the record prices there will only accelerate the price surge for GCB land. A recent Nassim bungalow plot has already achieved close to $1,000 psf. So it would not be too far-fetched to expect GCBs in other prestigious locations to quickly play catch-up. Average GCB land prices may surge to $650-$750 psf this year from $500-$600 a year ago.

This year looks set to be another good year for the GCB market with possibly more record-breaking prices.

The writer is director, Prestige Homes, at Savills Singapore