Big luxury condos: A rare species

In land-constrained Singapore, big units of over 2,000 sq ft are attractive to investors due to their scarcity.

The stock for such units is limited, and new supply is expected to diminish over time.

Condominium developments with apartments exceeding 2,000 sq ft are mostly located in prime districts 9, 10 and 11.

Besides Ardmore Park condo that comprises more than 300 large units, most of these are found in developments with fewer than 100 units each.

Such large apartments can also be penthouses within developments with smaller units. For the suburban districts, there are only a handful of penthouse units with such expansive floor areas.

Similarly, the stock of landed properties forms less than a quarter of the total private housing stock.

As at the fourth quarter of 2014, there were about 71,540 units of landed properties.

New supply of such large units has diminished significantly recently due to a confluence of government policies with market forces. With more competing land uses, the government encourages land use optimisation in land scarce Singapore.

This implies that new supply of big units will be limited and previously low-density developments will be assigned higher plot ratios.

The move would encourage developers to buy less dense developments via collective sales to build high-density projects.

SMALLER AFFORDABLE UNITS

At the same time, the weakened market conditions increased the developers' incentive to build smaller affordable units instead of large units to move sales.

Hence, new stock for landed properties has hardly increased - by more than 1 per cent year on year - since Q1 2008. Similarly, only a smattering of penthouses with areas bigger than 2,000 sq ft were built since 2012.

Despite facing a diminishing supply of such large units, prices for luxury condominiums, which comprise large units over 2,000 sq ft in prime districts, have experienced a 9.7 per cent year-on-year fall in Q4 2014 to S$2,300 psf.

The fall in prices registered by luxury condos is even higher than that for freehold suburban apartments, which registered an 8.5 per cent year-on-year decline in Q4 2014.

Incidentally, this has also been the case in 2008 when the US subprime crisis spilled over to the Singapore property market.

Prices for luxury condos plunged by 33 per cent year on year in Q1 2009, compared to the 15 per cent year-on-year fall in prices for three-bedroom freehold condominiums in non-prime districts.

However, the luxury condo segment registered the largest rebound when the market picked up in Q4 2009.

Prices for luxury condos rose by 23 per cent year on year in Q4 2009. In comparison, prices for non-prime three-bedroom condo units increased by a modest 4 per cent year on year over the same period.

The amplified price volatility in the luxury condominium segment can be attributed to foreign investors and a heavier reliance on the rental market.

Foreigners form a large proportion of buyers of luxury condos as they are attracted by their long-term returns. The ease in subletting these apartments to expatriates working in the Central Business District increases the allure of these properties.

However, these foreign investors who rely heavily on the rental stream to offset their borrowing costs, tend to be affected most by global economic shocks as observed in 2008 and cooling measures implemented from 2009 to 2014.

In contrast, landed properties, which are also limited in supply, appear to be most resilient across different private housing types.

Median prices for landed properties in prime districts slid 2.4 per cent year on year to S$2,062 per sq ft in Q4 2014, compared to the 10 per cent year-on-year fall registered by the luxury condo segment.

Median prices for landed properties in non-prime districts also experienced a moderate 6 per cent year-on-year decline to S$1,149 per sq ft in Q4 2014.

Similarly, the average price for landed properties island-wide only fell by 7 per cent year on year in Q1 2009 during the subprime crisis, a sharp contrast to the double-digit fall experienced in other segments.

Buyers usually purchase landed properties for owner-occupation and have a long term investment horizon. Hence, they are more resistant to shocks to the global economy and rental demand.

The recent change in the URA guidelines for landed housing, which give developers and architects more design flexibility, will further ameliorate any adverse impact that the economic environment and macro-prudential policies have on landed properties.

With more MRT lines and better bus services, there is also more upside potential for the value of landed properties.

OUTLOOK AND POTENTIAL VALUE

Looking forward, we anticipate the sales volume for these large units to remain slow in H1 2015.

The slowing sales are largely down to the price gap between buyers and sellers, which is amplified by the uncertainty surrounding the lifting of the Additional Buyer's Stamp Duty (ABSD).

Despite the reported price falls, owners of luxury condo units, who are backed by sound market fundamentals, remain bullish about the future.

In addition, such units possess the valuable option to be redeveloped via a collective sale. With the stamp duties capitalised into the prices of some developments, we anticipate that volume will pick up towards the second half of the year.

As discussed above, we also anticipate the luxury condo segment to make a fast recovery when the market picks up.

With the growing network of MRT lines and better bus services connecting key nodes, accessibility will no longer be a key feature for potential value buys in 2015.

Rather, we anticipate these potential value buys to exhibit features that are long-lasting and high value-added.

First, these developments will feature facilities and amenities that create an inclusive living environment for all ages and adapt to the family needs as the family grows.

Second, iconic developments designed by world esteemed architects with high CONQUAS (Construction Quality Assessment System) scores will also be value for money in the long run.

In this case, buyers are actually purchasing an art piece that will increase in value over time.

Wallich Residence at Tanjong Pagar Centre. For more info, please click below

Marina One Residences. For more info, Please click below

New Futura At Leonie Hill. For more info, please click below

Source: Business AsiaOne 19th March 2015

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Big luxury condos: A rare species

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