Is this a good time to invest in a prime property in the Core Central Region?

The Mid-Year Property Market Outlook seminar was held at the sales gallery of One Bernam, a mixed-use development by joing venture partners MCC Land and HY Realty

SINGAPORE (EDGEPROP) - In the post-pandemic world, while there is economic growth, rising inflation amid rising interest rates is a concern, given the heightened risk of a global recession. On the bright side, recessions present good investment opportunities, says Francis Tan, investment strategist at UOB Private Banking, at EdgeProp Singapore’s Mid-Year Property Market Outlook on May 21.

Singapore’s interest rates may be rising in tandem with the hikes in the US Federal Reserve rates, but at a slower pace, Tan notes. However, Singapore’s inflation rate is at its highest in a decade. “In a high inflation climate, investors are increasingly looking for ways to invest in assets to hedge against inflation,” he observes.

In Singapore, households are sitting on $1.16 trillion worth of residential assets in their overall balance sheet — way ahead of deposits and other investment classes (see chart, “Singapore household balance sheet (assets)”).

Despite the global market uncertainties, rising interest rates and property cooling measures in December, the Singapore private housing market has been resilient, says Ismail Gafoor, CEO of PropNex. Over the past eight quarters, from 1Q2020 to 1Q2022, the URA private residential property price index (PPI) has increased 14.1%.

In 1Q2022, while the overall private residential price index was up 0.7% q-o-q, the landed property price index was up 4.2%. In the non-landed segment, suburban condos in the Outside Central Region (OCR) still showed a 2.2% increase q-o-q, while the city-fringe or Rest of Central Region (RCR) and prime condos (Core Central Region or CCR) were down 2.7% and 0.1% respectively.

New private non-landed property sales in the CCR peaked at 2,466 units in 2021 — the highest in more than eight years, according to PropNex. In the first four months of 2022, about 551 units units in the CCR were sold, adds Gafoor. Singaporeans and permanent residents (PRs) are the biggest group of buyers in the CCR, accounting for 89.9% of buyers in 2021, and 88.5% in the first four months of 2022. A decade ago in 2011, Singaporeans and PRs accounted for 61.1% of buyers in the CCR.

The recent round of property cooling measures on Dec 16, especially the 30% additional buyer’s stamp duty (ABSD) for foreigners, could have tempered demand, reckons Gafoor.

Rising rental rates, which have hit a high of $4.45 psf per month in 1Q2022 — the highest in nearly a decade — are also drawing investor interest to the CCR, Gafoor points out.

The gap between average new non-landed housing prices in the CCR and average prices in the RCR has also narrowed over the past year. In 1Q2022, prices in the CCR increased 3.4% y-o-y, while prices in the RCR and OCR were up 7% and 9.2% respectively over the same period, he points out.

This makes investing in a CCR property more compelling, says Gafoor, particularly in the CBD. The last two government land sale (GLS) sites launched in the CBD were the site at Bernam Street, which was sold to a joint venture between MCC Land and HY Realty at a land rate of $1,463 psf per plot ratio (ppr) in September 2019; and the site at Marina View, which was sold in September 2021 at $1,379 psf ppr to IOI Properties Group.

At the site of Bernam Street is the upcoming 351-unit One Bernam. Launched in May last year, a total of 99 units have been sold to date at an average price of $2,477 psf, according to caveats lodged.

Meanwhile, prices of new projects in the RCR have achieved new benchmarks. For instance, the 407-unit Piccadilly Grand at Farrer Park, was launched in May, and 77% of the units were sold at an average price of $2,150 psf. Joint developers City Developments and MCL Land had purchased the 99-year leasehold government land site for $1,129 psf ppr in January last year.

At Bukit Sembawang Estates’ 298-unit Liv@MB, 220 units were sold at the first day of launch on May 21 at an average price of $2,387 psf. The 99-year leasehold site is a redevelopment of the former Katong Park Towers on Mountbatten Road. The project is also in the RCR.

With land bids in the RCR hitting a high of $1,302 psf ppr at Jalan Tembusu in January this year, future home prices are also expected to be higher, notes Gafoor.

Beyond rising land prices, another reason for relooking at the CCR is the government’s plan to rejuvenate the CBD and longer-term plan for the Greater Southern Waterfront.

While Singaporeans are still eager to invest in residential property, the higher ABSDs on their second (17% ABSD) and third or subsequent properties (25% ABSD) have been a deterrent. That has led to many couples exploring “decoupling” as a means to purchase a second property.

In order to do so, however, the first property should be structured as a tenancy-in-common instead of a joint tenancy, advises Jennifer Chia, partner (head of banking & finance and corporate real estate) at TSMP Law Corp.

Some couples who purchase property under tenancy-in-common, have structured the ownership such that one of them holds a 99% stake, while the other owns 1%. This allows them to use their Central Provident Fund and to apply for a mortgage on their combined incomes, she explains.

However, if they wish to buy a second property later, the spouse who holds the 1% can sell it to the spouse who owns 99%, giving the latter full ownership of the marital home. The ABSD incurred by the spouse will be based on the value of the 1% stake.

This frees up the other party to purchase another residential property. As it will be considered the first residential property, the buyer will not incur ABSD.

Under a joint tenancy ownership, the couple are co-owners of the property and must act jointly, explains Chia. In fact, joint tenancy is the default manner of holding property for most married couples.

Among the cash-rich in Singapore, there was an interest in buying property under a living trust in the name of children or grandchildren, who are typically minors. The government has now imposed a 35% ABSD on the transfer of residential property to trusts with effect from May 9.

The Mid-Year Property Market Outlook seminar was held at the sales gallery of One Bernam. The event was organised by EdgeProp Singapore and sponsored by MCC Land and HY Realty Pte Ltd, joint developers of One Bernam.

Check out the latest listings near One Bernam, Piccadilly Grand, Liv @ MB