Foreign Demand for Singapore Luxury Homes Dries Up; Prices to Fall 15%

Singapore, one of the hottest property markets in Asia, is set to see a drop of up to 15 percent in prices of luxury homes this year, as foreign demand dries up on account of tightening measures and global economic uncertainty.

Private housing apartments in Singapore
Roslan Rahman | AFP | Getty Images
Private housing apartments in Singapore

“The residential market (in Singapore) is expected to see softer demand in 2012 given weaker economic conditions as well as government policy risk. We expect the prime market average resale values to shed some 10-15 percent by end 2012,” Chua Yang Liang, head of research, Southeast Asia, Jones Lang LaSalle, told CNBC.

Foreigners, which include permanent residents (PRs), made up 43 percent of sales in the prime property segment last year, according to U.K.-based real estate services firm Savills. This year foreign buyers will make up only 15 percent of sales of luxury homes in Singapore, forecasts Savills.

International buyers, largely from China, Indonesia, Malaysia and India have been the main drivers of luxury homes in Singapore, which according to Knight Frank is the most expensive market for high-end properties in Southeast Asia.

Properties priced above S$2,500 ($1,997) per square foot are broadly classified as luxury in Singapore.

“The latest round of cooling measures announced in December put a dampener on foreigners purchasing residential property. We expect overall property prices to fall by some 5 percent on a yearly basis with the luxury market being the worst hit, by up to some 10 percent," Toby Dodd, Singapore country manager at real estate consultancy Cushman & Wakefield, told CNBC.

In December Singapore introduced an Additional Buyers’ Stamp Duty, which requires foreigners, and not PRs, buying residential property to pay a 10 percent stamp duty on top of the 3 percent already in place.

Jin Kaur, a property agent in Singapore with global real estate services company Century 21, says her foreign clients, most of who are based in India, have put off their plans to buy multi-million dollar properties in Singapore due to the additional duty.

“I had a big shot client in India who was looking to buy a home in Sentosa Cove in December, the next day the government announced the stamp duty hike and the deal completely stopped in its tracks,” Kaur said. Singapore’s Sentosa Cove is one of the few seafront residential districts of its kind in Asia.

“The luxury segment is quiet now. Most of the transactions are happening in the mass market segment below S$1.5 million,” Kaur added.

Private yachts are berthed outside luxury homes and condominium apartments at Sentosa Cove in Singapore.
Bloomberg| Getty Images|
Private yachts are berthed outside luxury homes and condominium apartments at Sentosa Cove in Singapore.

Singapore is expected to see a surge in the supply of new units over the next few years both in the luxury and mass market segments, which will put further pressure on prices. A little over 32,000 new units will be completed in 2013 and 2014, 85 percent more than the number of units slated for completion in 2011 and 2012, according to the Urban Redevelopment Authority.

Chua of Jones Lang LaSalle adds that purchases of luxury apartments are also looking less attractive due to the declining rental yields on these properties. He said that a growing number of expatriates – the main group renting luxury homes - were now getting salary packages that didn’t come with housing allowances and thus were not willing to pay high rents.

“Corporate leasing has weakened because of the euro debt crisis and more expats are moving to local packages. Expats are now looking for alternative (cheaper) housing,” he said.

Alan Cheong, director, research and consultancy at Savills, says some developers in the luxury market in Singapore are offering block deals at discounted prices to attract buyers.

“Developers are trying to strike block deals of 10 to 20 units with high net worth individuals, corporates or funds so that they (developers) can recycle their capital,” Cheong said.

How Low Will Prices Go?

According to Cheong, price falls in the luxury segment will be capped at 10 percent, as the price gap between the mid-tier and luxury segment narrows.

“Last year the average price for a mid-tier apartment was S$900 a square foot, and for a high-end it was S$2,500. Now, the average price for a mid-tier apartment has risen to S$1,200 square foot, while the high-end has fallen to S$2,100,” he said.

As prices of apartments in the mid-tier segment creep up, buyers who have a flexible budget may begin to see more value in luxury apartments, which will limit the price fall in the segment, says Cheong.