How much further will prices fall?

This year has seen some startling transactions in the high-end condominium segment, with some sellers sustaining staggering losses. This could be seen in St Regis Residences and The Orchard Residences in the prime Orchard area, Seascape and Turquoise in Sentosa Cove, as well as One Shenton in the CBD core. However, it could have been a lot worse, reckon property consultants.

What staved off a property crash was the fact that the big listed property developers would rather hold on to their unsold stock than offload units at a steep discount. A prime example is City Developments Ltd (CDL), which has an extensive portfolio of prime and luxury projects. The developer’s latest luxury project, the 174-unit freehold Gramercy Park on Grange Road, will be completed soon.

For more info for Gramercy Park, please click below

CDL said in its 3QFY2015 results announced on Nov 12 that it will “continue to monitor market conditions carefully” before launching Gramercy Park. The developer has another upcoming project called The New Futura, a high-end condo with 124 units on Leonie Hill Road, which has yet to be launched for sale.

For more info for New Futura, please click below

CDL’s joint venture project with Wing Tai Holdings, namely the 156- unit Nouvel 18 at Ardmore was completed at end 2014, but is still not on the market for sale. Another project is mixed-use development South Beach, a joint venture between CDL and Malaysia’s IOI Group. The 190- unit luxury South Beach Residences sits on top of the 654-room hotel tower, and is not for sale yet.

For more info for South Beach Residences, please click below

A penthouse at Seascape purchased for $11 million four years ago was sold in May this year for $5.8 million

Condo- Seascape

St Regis Residences has emerged as a value play for investors, with prices now between $2,000 and $2,100 psf

Condo- St Regis Residences

‘Value erosion of a discount’
“Demand for residential units, especially in the high-end segment, remains tepid,” commented CDL executive chairman Kwek Leng Beng in the company’s 3QFY2015 financial results. “Sales volume continues to be adversely impacted by the effects of the various government cooling measures, rising interest rate environment and concerns over the local and global economy.”

Developers are reluctant to offer discounts as that will impact their entire portfolio of high-end properties, says Desmond Sim, head of research for Singapore and South East Asia at CBRE. “The value erosion of a discount has a greater impact and it’s stickier,” he adds. “Once the caveat is lodged on URA Realis, it will stay at that price for a long time and will be used as a comparable.” As such, companies like CDL would rather pay the penalty for unsold units under the conditions of the Qualifying Certificate (QC) than offload the units at a discount, Sim adds.

The QC requires foreign developers (including most listed companies) to sell all the units in their residential development within two years of completion.

Creative manoeuvres
Smaller listed companies are reluctant to sell their units at a steep discount because of their land cost. They are equally unwilling to pay the substantial extension charges under the QC conditions and have, therefore, resorted to some creative deals involving a sale to a related party, or even privatisation.

Hiap Hoe Holdings, the parent company of the listed Hiap Hoe Ltd, for instance, acquired all the shares in Hiap Hoe Superbowl, the entity that holds all 48 units of its high-end project, Treasure on Balmoral. The deal was announced in December 2014 and completed in March this year. The purchase price was $185 million or $1,789 psf — a 15% discount to the guide price of $2,100 psf when Treasure on Balmoral was last offered for bulk sale.

Meanwhile, Rosy Yu Lo Si, wife of Lafe Corp executive chairman Christopher Ho, showed an insatiable appetite for units at Residences at Emerald Hill, having snapped up a unit in December 2014, another four units in June this year, and the remaining 21 in the project in September. The purchase price for the 21 units totalled $111.83 million, which translated to an average of $1,780 psf.

Popular Holdings Ltd, a bookstore chain turned property developer, was privatised following its compulsory acquisition by Grand Apex Holdings, a firm co-owned by CEO Chou Cheng Ngok and his wife, Hu Nan Lee. Following its delisting in May, Popular is now a subsidiary of Grand Apex. The reason for privatisation was to avoid the hefty extension charges under the QC requirements it would otherwise have had to pay for the unsold stock at its condo project Ei8ht Raja.

Individual sellers — the wild card
Thrown into the mix are individual owners of luxury condos who may need to divest their units for various reasons, says Samuel Eyo, managing director of Singapore Christie’s International Real Estate. “And it’s the individual sellers that are the most unpredictable.”

This makes forecasting the direction of luxury condo prices even more “complicated” owing to the different forces at play. “On the one hand, you have urgent sales by individuals,” says Eyo. “And on the other, you have developers who refuse to lower their prices. That’s why transaction volume is so thin at the top end.”

The price disparity between developers and individual sellers was most clearly demonstrated recently at Scotts Square in prime Scotts Road. Developer Wheelock Properties sold nine units in the high-end project on Scotts Road at prices ranging from $3,283 to $3,605 psf between May and August. All the one-bedroom units found buyers among Hong Kong investors at weekend road shows conducted by SQFT International in May.

Last month saw two units sold by indivi dual owners at $2,883 and $2,963 psf, which brought prices at Scotts Square to a new low — below $3,000 psf — for the first time in eight years. “A lot hinges on the holding power of the individual sellers, and they have been setting new benchmark prices in the luxury-condo market,” says Eyo. “For buyers on the other hand, it’s the best time to commit to a purchase as owners are more willing to consider genuine offers.”

Disenchanted sellers, road to recovery
Value buys have emerged in the luxury condo segment as there have been some units sold at steep discounts that were more than enough to offset the higher additional buyer’s stamp duty (ABSD), says Alan Cheong, head of research at Savills Singapore. “This might result in some price recovery in 2016.” The property cooling measures have caused dissatisfaction among owners of luxury condos, especially those who had purchased their units at the peak in mid-2007 and early 2008 and had been waiting for a recovery at the top end of the market. “Many of these disgruntled owners have disposed of their properties over the past two years,” adds Cheong.

Next year, two possible scenarios could emerge, reckons Eyo. If the property cooling measures remain intact, a greater number of individual owners in the luxury segment will head for the exit, because of concerns over the impact of interest rate hikes. However, if the government were to tweak some of the measures, for instance, reduce the ABSD for foreigners “it could boost the luxury segment as buyers who have been sitting on the sidelines may decide to return”, he adds. A silver lining to the high-end segment is that there isn’t much new supply entering the market, apart from the existing stock held by developers, says Cheong. “Therefore, prices in the segment may not fall all that much next year.” In fact, he thinks prices in the luxury condo segment may have bottomed, and is projecting a 0-3% increase in prices next year.

Source: The Edge Property 21st Jan 2016

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