The Singapore economy has bottomed up and gradually recover since 2Q 09. The low unemployment rate, GDP, attractiveness factors continue to be a magnet in attracting MNCs to set up their headquarters here. The expatriates and foreigners which follow will drive up both the rental and sales demand. Given the excellent investment climate in Singapore – strong financial fundamentals and political stability, this upward demand trend is likely to continue for at least the next 5 years. Above all, Singapore is top in corporate governance among all other Asian countries, displaying the determination of the government to do whatever it takes to make sure it remains competitive in the region.
Government Regulations and our Views on the Recent Cooling Measures It is in our view that the recent rounds of cooling measures are targeted at speculators who are manipulating the economy recovery as an opportunity to flip properties, resulting in price irrationality, causing a potential unsustainable property bubble. This may have negative connotations to the property market. We believe that the measures will affect sales in the private mass market projects as intending HDB upgraders have to fork out higher cash outlay. However, the measures would help maintain a stable and sustainable property market in Singapore, which proves to be beneficial for all genuine buyers, local and foreigners alike. We are recommending New Homes to cater to the luxury condominium sector and analyses will be further elaborated in the subsequent sections.
Condominium Subsectors in Singapore The condominium market in Singapore could be broadly classified into 5 subsectors, namely, the Mass Market (lower middle), the Upper Middle Class, Executive Condominium (EC), the Luxury and the Super Luxury. The price ranges from $900psf for a typical Executive Condominium unit to above SGD $2,500psf for a Super Luxury condominium unit. The different location, price, quality of fittings and facilities are the main factors that aid in the categorizing of the different developments into their respective subsectors.
Singapore Current Home Prices for the Luxury Sector From the figures provided by Singapore Real Estate Info, it can be seen that there is an increased of transacted volume of non-landed luxury properties that were sold from S$2,000psf to S$3,000psf in District 9 and 10 in recent months. It could also be observed that there was a pick-up of transaction involving developments that were sold for more than $$3,000psf (CBRE MarketView 3Q10). These trends give an indication of the high level of interest in luxury and super luxury units within District 9 and 10. As observed by Cushman & Wakefield, Singapore’s luxury prices are still some 18% below peak prices of 2008. The mean average for Hongkong’s luxury properties in 3Q 10 is S$3,636psf (CBRE Hong Kong Luxury 3Q10). This represents a potential for growth in luxury condominium market.
Reasons for Recommending Luxury Development We have identified 10 conceivable reasons to support our argument for recommending luxury development to New Homes. Some of which includes attractive rental yields, Singaporeans ranked 4th in personal wealth. Prospectively, it is Singapore’s openness and stability that make it a popular investment destination. One should not neglect the growing influence of Chinese investors resulting in ‘hot’ money flowing into Singapore’s property markets. More expatriates and foreign investors from other countries are also expected in the next five years, making them one of the key demand drivers for luxurious condominiums.
Restrictions on foreigners buying landed properties further enhance the appeal of luxurious condominiums, hence, catering to the demands of these expatriates as well as affluent foreign investors. The growing interest on real estate investment and increasing wealth of Chinese investors would also create demand for luxurious condominium. Wealthy Indonesians are expected to continue having a penchant for the luxury properties in Singapore too.
Projecting Condominium Demand Projection of the demand for condominium in Singapore for the next 5 years is based on the key demand and supply drivers. As the economy began its recovery in 2Q 09, developers and the secondary market saw confidence returning back to potential buyers. At the start of 3Q 09, many developers also launched their held-back uncompleted developments (due to recession), which could be seen as current quarterly supply that promised future space. As seen by the number of units sold directly by developers as well as in the secondary market, we can make a viable assumption that consumers’ confidence has grown as demand increases.
Past data and trends have been used to project the growth rate such as population and household size. In addition, press releases and speeches by minister are also taken into account which helped in the approximation of future population. With the target population of 6.5 million in the next 10 to 15 years, and with the local growth rate expecting to drop, the government is constantly and will continually woo foreign talents to make up for the shortfall in local population. Other statistics are obtained from the URA and REALIS which aid in the demand projection for the next 5 years as shown in Table 20. It is projected that the general housing demand would increase from 4439 to 19,953 from 2010 to 2014.