Is the increase in foreign purchase of luxury houses in Singapore in the second quart

Is the increase in foreign purchase of luxury houses in Singapore in the second quarter an indication of the market thawing after cooling?

The hike in Q2 is the first increase in foreign purchasers' market share since the government boosted ABSD rates in April 2023.

Sep 4, 2024

Foreign investment in Singapore's luxury residences is gradually returning after high stamp duty rises almost suffocated the market in 2018.

However, economists believe it is too early to predict a new wave of riches for the island, given present economic concerns and severe home-purchase restrictions for foreigners.

According to Savills Singapore data, in the second quarter of 2024, foreigners (excluding permanent residents) purchased 47 non-landed residences in the Core Central Region (CCR), a market category that is often used to represent high-end and luxury property. In contrast, this group of purchasers purchased 21 apartments in the preceding quarter.

Alan Cheong, Savills Singapore's executive head of research and consulting, highlighted that, although demand was much lower than that of Singaporeans and permanent residents (PRs), international purchasers almost quadrupled to 6.7% in Q2, up from 3.4% in Q1.

This was also the first quarter-on-quarter increase after four consecutive quarters of decline between Q2 2023 and Q1 2024, he said.

In April of last year, the government increased the Additional Buyer's Stamp Duty (ABSD) on foreigners acquiring any residential property to 60%.

Foreign demand, which normally accounts for a bigger percentage of sales in prime CCR than in city peripheral and suburban regions, vanished as a consequence and has yet to return.

Caveats data revealed that in Q2, foreigners made 82 non-landed residential deals, accounting for less than one-third of the 264 sales in Q1 2023 before the higher ABSD was implemented.

Lee Sze Teck, Huttons Asia's senior director of data analytics, said that some ultra-high-net-worth individuals (UHNWIs) want to keep a low profile and may not record cautions on their acquisitions.

"So even though the caveats showed a downward trend, it is not a true reflection of the demand," Lee said.

Given the ongoing global concerns, UHNWIs are looking for a stable and politically neutral refuge like Singapore, he added. Some consider the 60% ABSD a "safety premium" for living in the city-state.

Lee also said that the 60% ABSD, extended over a holding period of 10 to 15 years, amounts to a compound annual growth rate of 3.2% to 4.8%, which is comparable to price rises in the CCR from Q2 2009 to Q2 2024.

Other industry experts said that, despite present market difficulties, demand in luxury houses had increased.

According to Lewis Cha, executive director of List Sotheby's International Realty, more sales for bungalows in Good Class Bungalow (GCB) locations occurred in the first two months of Q3 than in Q1 or Q2. While GCBs may only be owned by Singapore residents, recent GCB purchasers have tended to be new citizens or members of the second or third generation of local rich families, he said.

These data do not include certain reported transactions for which no cautions were filed, he said. For example, in July, two contiguous freehold houses on Belmont Road sold for S$131.4 million, or almost S$3,000 per square foot of land area. Jennifer Tzelee Teo, a Singaporean in her late 40s, is associated to Zhang Lei, the founder and chairman of Hillhouse Investment, a private equity business with a "East Asian heritage."

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According to Cha, luxury apartment purchasers are mostly new PRs looking for bigger (2,000 to 4,000 square feet) CCR condos for their own houses.

Knight Frank research director Leonard Tay said that the overall value of luxury non-landed sales in the first half of 2024 was S$736.7 million, up 28.2% from the previous half-year's S$574.7 million.

Transaction volume increased 36.1 percent to 98 units in H1 2024, up from 72 in H2 2023, as more Singaporean purchasers preferred family-sized, ready-to-move-in homes, according to Tay.

"A key point that is often overlooked is that the majority of demand in recent years has come from Singaporeans and PRs, not just foreign buyers," said joint managing directors Harmeet Singh Bedi and Himmat Singh of Christie's International Real Estate Singapore.

The auction house's luxury property business, which left the Singapore market in early 2019, has returned, establishing an office two weeks ago as part of its expansion ambitions in Southeast Asia.

According to Bedi and Singh, high-net-worth people are "still willing to navigate the additional costs to invest in such a prestigious and stable environment".

Beyond homes

Aside from residential properties, Lee of Huttons believes global UHNWIs are interested in commercial assets such as offices and shophouses. There is no ABSD charged on commercial property.

Nicholas Keong, head of residential and private office at Knight Frank, said that these buildings are sometimes used to house enterprises or family offices.

According to Chia Siew Chuin, head of residential research, research, and consultation at JLL, the number of single-family offices increased by more than thrice between 2020 and 2023, from 400 to 1,400.

While China is Singapore's primary source of new money, the city-state also attracts cash from other quickly expanding economies. For example, the Republic holds almost 25% of all Indian cross-border capital, making it the leading hub for Indian wealth, she said.

Shophouses and excellent office properties are appreciated, with values remaining stable despite a decrease in sales, due to their scarcity. Huttons' Lee said that strata office rates in Suntec City would approach S$3,800 per square foot (psf) in 2024. In July, a single floor of the freehold Solitaire on Cecil was sold for S$55.2 million, or S$4,200 per square foot.

Analysts believe that investor interest in Singapore's real estate market would remain strong as they seek to preserve their riches.

She also said that luxury residences in this area are "comparatively fairly valued" in comparison to other established cities.

Under free-trade agreements, citizens of various countries, including Liechtenstein, Iceland, Norway, Switzerland, and the United States, are treated the same as Singaporeans in terms of stamp tax. "Notably, the most active foreign buyers among these countries in H1 2024 were those from the US," according to Chia.

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JLL Singapore Country Head Chris Archibold noted that Singapore may draw more global investment in the future as it improves its real estate transparency rankings.

The city climbed up one notch to 13th in JLL's most recent Global Real Estate Transparency Index, entering the most transparent markets for the first time. Singapore's market "is also one of the world's most liquid listed property sectors, accompanied by robust corporate governance and information disclosure standards" , according to him.

Nonetheless, Cheong from Savills believes that any return of overseas UNHWIs to Singapore's real estate market is still in its early stages.

"Activity in the shophouse, retail and strata office markets are still at a low after the February 2023 crackdown on the group of money launderers," according to Cheong. "It is still early days in all areas. However, it looks that the residential sector is beginning to thaw.

In its 2024 Wealth Report, Knight Frank stated that, although Singapore has had "great success" in creating its ultra-wealthy people, persuading them to invest locally offers a new difficulty.

"Though family office numbers have risen in Singapore, the link to direct spending and investing is not clear-cut," according to the report.