Why Are Singapore Investors Running Away from Luxury Properties?

Singapore Investors Running Away from Luxury Properties

Luxury property equals rich tenants / buyers; it used to be a simple formula. But over the past year, landlords have begun to see a different side of the formula – namely, that luxury doesn’t equal necessity.  We look at why sale and rental prices are diving like a brick glider:

 

Luxury Homes Are the First to Suffer Price Declines

Home prices are going down across the board, but luxury units in the core central region (CCR) are the first in the grinder. It’s expected that home prices in the CCR will fall by 2 – 3% by end 2014.

Rental rates for luxury properties aren’t doing well either – they’re down by 1.9%, compared to 0.6% from 4Q 2013. Monthly gross rents are down to $5.27 psf. The Singapore Business Review has the  numbers.

In effect, luxury homes are looking bad for capital gains, and also for rental yields. The probable reasons are:

  • Cooling Measures
  • Global Economic Factors
  • Real Estate Funds Might Mass Sell High End Homes

 

1. Cooling Measures

We’ve had a slew of cooling measures, but the real killer was the Total Debt Servicing Ratio (TDSR). With the TDSR capped at 60%, more high-end properties are out of reach. Sellers who need to offload their property right now are pretty much forced to accept losses.

The Additional Buyers Stamp Duty (ABSD) is also beginning to have an impact. According to property investor Charlie Sng:

Investors are not going to pay such high prices (referring to added cost from the ABSD – Ed.) for properties in the CCR. After all, properties in the CCR are already mostly at their peak – it’s not as if the prices will rise astronomically like properties on the fringe.

I feel any buyers right now will be owner occupiers, who are not bothered by the potentially low returns. Most investors are going to be looking elsewhere.”

 

2. Global Economic Factors

With QE tapering, interest rates are likely to rise. That has an obvious impact on Singapore’s housing market as a whole (home loan packages might get more expensive). However, there are concerns beyond that.

I spoke to Anthony (not his real name), who works for a major property developer. His outlook was bleak, despite his employer’s optimism:

Even if SIBOR doesn’t go up much, there is still going to be a liquidity crunch. MNCs will be less inclined to spend, and expat packages are usually the first things to shrink. When the housing allowances for expats drop, the rental yields for high-end property will follow.

There so many mass market properties that expats can defer to in Singapore. Landlords who don’t lower their expectations will be looking at vacancies, it’s that simple. And that makes high end properties unattractive to investors right now.”

 

3. Real Estate Funds Might Mass Sell High End Homes

Real estate funds are groups of investors, who pool their cash to invest in properties. Some of these funds have purchased high end properties in large numbers, relying heavily on rental yields for returns.

Now, there’s a worry that these funds might sell off their high-end properties en-masse.

They may decide these properties are not pulling their weight, because of the rental situation,” Charlie says, “And there is a rumour now that many of these funds will sell off their high end units. If they do that, it will flood the market with a supply of high end properties, and that will make the situation even worse.”

Do you think this is a momentary hiccup, or a disaster in the making? Comment and let us know!

 

Ryan Ong

I was a freelance writer for over a decade, and covered topics from music to super-contagious foot diseases. I took this job because I believe financial news should be accessible and fun to read. Also, because the assignments don't involve shouting teenagers and debilitating plagues.

  • EC NG

    The property tax is also a killer. Normally the max 20% would apply for such luxury properties. Being very efficient, IRAS will spare no effort in updating the annual value to be in line with market rental. And vacant or not, this is a high holding cost for many investors.