Singapore may have taken the crown as the world’s most expensive city for three years in a row but when it comes to snapping up a luxury home, Southeast Asia’s biggest financial center is offering increasing value for money.
Gone are the days when Singapore’s premium developments – generally those in the upper-middle income districts of 9, 10, and 11 – commanded record prices. Indeed, prices in this segment has lost as much as 20 percent of its value in the last five years.
Singapore’s residential market continues to be hit by cooling measures introduced by the government since 2010 such as the Seller’s Stamp Duty, Additional Buyer’s Stamp Duty, tighter loan limits and the Total Debt Servicing Ratio. The high-end market softened more significantly as most of the measures were targeted at foreigners, speculators and investors.
Karamjit Singh, Head of Residential at JLL Singapore, says: “Unfortunately the upper end of the market was already reeling from an oversupply situation, so it suffered a double whammy with these demand-suppressing measures.”
He adds that prices at the upper end have been steadily decreasing over the last five years, with the drop being more pronounced in the last two years.
For Singapore’s home buyers, however, falling prices and rising wages have put many in a stronger position than before the global financial crisis. According to JLL research, prime residential prices are 70 percent higher than 2003 levels but median household income is up 90 percent on 2003 levels. In real terms this means prime residential prices are more affordable in 2015 than they were in 2003.
Pockets of opportunity
Indeed, luxury properties in Singapore are highly undervalued in comparison to other global cities. According to JLL’s research, Hong Kong’s high-end properties are selling for around 165 percent more than Singapore’s, while luxury homes in New York and London are now 80-90 percent higher.
“Singapore’s properties offer tremendous relative value,” says Singh. “It’s worthwhile pointing out that Singapore’s decline was artificially induced by the government to reign in the sharp rise in prices when there was a housing shortage shortly after the global financial crisis. Now that the housing supply crunch has eased, there are expectations that some of the measures could be removed progressively in the medium term.
“Singapore’s private homes now about 5.5 times annual household incomes, down from 7 to 10 times at the peak of the market,” says Singh. “Hong Kong’s home prices, by comparison, are 19 times household incomes!”
As prices fall, well-built luxury condominiums around Singapore’s key prime districts in Orchard Road, Marina Bay and in Sentosa are ripe for the taking. These start from approximately S$4 million (US$2.8 million) and can go all the way up to S$50 million, and are of particular interest to high net worth individuals (HNWIs) as well as savvy international investors looking for assets primed for long-term growth.
Investors eye Singapore’s luxury pads
Investors have been buying. Recent high-profile purchases in Singapore include the reported purchase of two high-end 4,478 square feet apartments at shopping district Orchard Road belt by the co-founder and son of Pandora – famous for their charm bracelets – for over S$31.1 million (US$22.5 million). In April last year, one of the founders of Alibaba was said to have put down a hefty S$51 million for a 13,875 square feet penthouse at Ardmore Road.
While the upfront costs for foreigners acquiring a condominium are high with as much as 18 per cent stamp duties, the holding costs – factoring mortgage rates and property taxes -are low. Furthermore, there are no restrictions on foreign investment for condominiums as well as no inheritance tax or capital gains tax unlike other countries, says Singh.
Singh says: “In some jurisdictions, inheritance tax can take away 30 to 40 percent of a property’s value, while capital gains tax siphons off 20 to 30 percent of gains made.”
Citizens of five countries, namely the U.S., Switzerland, Norway, Iceland and Liechtenstein, enjoy an arbitrage of as much as 15 percent stamp duty savings when buying one home in Singapore, as they get accorded the same treatment as a Singapore citizen, owing to Free Trade Agreements with these nations.
While luxury homes in Singapore remain the preserve of the wealthy, those with the cash to spend are in a much stronger position than in previous years.
“The availability of good quality assets at depressed prices in a city with immense wealth, transparency, favorable tax regime, political and currency stability, great infrastructure and connectivity sounds like a great opportunity,” says Singh.