Where to invest?

/ The Edge Property |

March 18, 2016 9:00 AM SGT

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Australia, the UK and Japan are the top three destinations among Singaporeans looking to invest in property overseas, according to a survey by property investment company IP Global released on Feb 24.

“The rising value of the Singapore currency — which has strengthened against the Australian dollar, British pound and Japanese yen over the past 12 months — has opened up new opportunities for Singaporean investors in these countries,” says Alex Bellingham, director of IP Global.

Since the start of 2013, the Australian dollar has depreciated almost 30% against the Singapore dollar, while the yen is down more than 14%. The pound has weakened 8% against the Singapore dollar in the past five months.

Bellingham: From experience, periods of global economic volatility often increase interest

in such ‘safe haven’ property markets

Australia — Melbourne still the star In Australia, the two most promising markets for investors are Brisbane and Melbourne, says Bellingham. Median prices in Melbourne are said to have increased 11% for the whole of 2015.

Developers are using this window of opportunity to launch their projects. For example, on March 17, Malaysian developer Gamuda Land held a VIP lunch for 20 invited guests at Lewin Terrace in Fort Canning to introduce its maiden project in Melbourne to Singaporean buyers. The 30-storey residential tower, called 661 Chapel Street, contains 169 apartments and is located in the fashionable suburb of South Yarra, which is just 4km from the Melbourne CBD, says Phylicia Ang, head of residential services and prestige homes at Savills Singapore, who is marketing the project.

Units are priced at A$1,100 to A$1,200 psf. One-bedroom units sized from 41 sq m are priced upwards of A$571,000 ($587,000). Two-bedroom units with sizes from 60 sq m are priced from A$941,000, while two-bedroomplus- study units are priced from A$1.4 million.

More projects from Australia will be showcased in Singapore, says Stephen Ho, CBRE regional director for international project marketing in Asia. The majority of the projects are likely to be from Brisbane, Melbourne and Perth. For instance, CBRE launched 108 Sterling Street over four weekends in Singapore last month. The project saw one-bedroom units priced from A$440,000. In mid-2016, CBRE will be launching another project from Perth, namely Waterbank, Lendlease’s riverfront regeneration scheme.

Residential property prices in Perth have seen a 10%-to-15% drop from two years ago since the resources sector crashed, says Ho. “Prices in Perth are at their lowest point in the cycle, unlike in Sydney and Melbourne,” he adds. “That’s why people are buying now. They see it as an attractive opportunity to enter the market. There hasn’t been much supply coming onstream as well.”

Increasingly price-sensitive in London The average house prices in London have risen 12.4% over the past year. According to IP Global, the outer London areas are expected to see the strongest price growth of up to 25% from now to 2019. Regional cities such as Liverpool and Manchester are expected to see capital upside of 26.4% from now to 2020.

“While there’s still interest in London property, the relatively high prices have swung demand to Liverpool and Manchester, where prime freehold condominiums are still below $1,000 psf,” says Ku Swee Yong, CEO of Century 21. “That’s better value for money than a 99-year leasehold property in the suburbs of Sengkang.”

The total debt servicing ratio (TDSR) introduced by the Singapore government in June 2013 has restricted property buyers’ ability to obtain financing. The new tiered stamp duty structure introduced in the UK in December 2014 means properties priced above £1 million ($1.9 million) will incur a higher stamp duty. The cumulative effect is that buyers in Singapore have become more price-sensitive and are shopping for properties priced below £1 million, says Doris Tan, a veteran of more than 30 years in the international property marketing scene.

“There’s strong demand for units in the £400,000-to-£500,000 range and even up to £700,000,” says Richard Cook, head of residential at Lendlease Development in the UK. The Australian property giant launched the first phase of The Timberyard, a new regeneration scheme in Deptford, Zone 2. Called Cedarwood Square, the 203-unit project saw prices starting from £399,950 for a one-bedroom unit and average prices of £700 psf. The project is said to have sold more than 26 units in Singapore, making it one of the bestselling projects out of the UK this year, according to marketing agents.

Meanwhile, Oxley Holdings launched the third phase of its Royal Wharf regeneration scheme, called Mariner’s Quarter, in Singapore over the weekend of March 12 and 13. Prices start from £395,000 for a one-bedroom unit, with units averaging £800 psf. Over 20 units were sold in Singapore, say agents.

On the upper end of the price scale is a project at Notting Hill, an area made famous by a movie of the same name starring Hugh Grant and Julia Roberts. Called The Imperial at Notting Hill, the 16-unit boutique apartment block by Euroterra Capital saw strong interest even before the weekend launch on March 5 and 6. According to CBRE’s Ho, who was marketing the project, 10 units were sold in Asia, with the majority snapped up by Hong Kong buyers. Units were priced in the range of £1,700 to £1,800 psf.

Ku: The relatively high prices have swung demand to Liverpool and Manchester,

where prime freehold condominiums are still below $1,000 psf

UK’s stamp duty, Brexit The UK government has also started to roll out cooling measures to rein in house prices. A 3% hike in stamp duty for buy-to-let and second- home buyers will take effect from April. A reduction in the tax relief on rental income will be phased in from 2017.

“The additional 3% stamp duty will not matter much if investors are looking at gains of 15%,” reckons IP Global’s Bellingham. What’s more, the stamp duty that is paid upfront can be offset against the capital gains tax at the point of sale, he adds.

A referendum on Brexit — whether Britain should leave the European Union — will be held on June 23. Some investors are feeling jittery in the lead-up to the referendum as they weigh the consequences of a break-up. However, Bellingham does not see it having a major impact on the property market. “London is a global financial centre, and its property market is more affected by supply and demand forces,” he says.

Japan’s negative interest rates Since January, Japan’s central bank has kept interest rates at -0.1%. This has benefited Japanese homebuyers who are buying property for their own use, as mortgage rates have been cut from 1.7% to 0.5%, says Century 21’s Ku. As the discounts on mortgages are adopted by more banks in Japan, they could spill over to mortgages for investment properties as well, and foreigners could also benefit from lower mortgage costs, he adds.

Two of the bigger banks in Japan offering mortgages to foreign property buyers — namely Tokyo Star Bank and Bank of China (Japan) — are quoting annual rates of 2.5% to 2.8% per annum, according to Ku. With Japanese property gaining interest, it was no surprise that 30 people attended Ku’s seminar on March 12 and 13.

Amid the global market turmoil, the yen and Japan’s deep real estate market with few restrictions on foreign investors are seen as “a safe haven”, adds Ku. “Japan offers lower risk relative to most other global real estate markets I follow — Australia, the UK, Malaysia, Thailand and China.”

In Japan, condo prices have risen more than 20% since 2013, according to IP Global. There have been a spate of project launches from Japan over the past three years. The latest is by Japanese developer Mitsui Fudosan, which will be showcasing its latest project in Tokyo’s prime Minato ward in Singapore at month-end. Called Park Luxe, the project will have units with sizes starting from 25 sq m and priced upwards of $388,000. The freehold project will be launched in Singapore ahead of Japan, where balloting is scheduled to take place in May, says Savills’ Ang, who is marketing the property.

Emerging markets in Asia Emerging countries such as Cambodia, Myanmar and Vietnam are also presenting alternative investment opportunities to Singaporean investors. Some of these markets have relaxed their policies on foreign property ownership. Myanmar, for example, recently passed a draft on the Condominium Law that will permit foreigners to own up to 40% of a condo building, says Bellingham. Vietnam relaxed its foreign ownership policy last August, allowing foreigners to buy more than one residential property, which has opened up the investment market.

However, emerging-market properties attract a different clientele from those that buy in the traditional markets of the US and Australia, says Savills’ Ang. “Everyone has a different threshold when it comes to investing overseas. In an emerging market, you’re talking about prices in the $200,000- to-$500,000 range. The investors it attracts are the punters.”

Despite the lure of these emerging markets, many investors still prefer the more robust, heavily regulated and transparent markets of Australia, Japan and the UK, where real estate prices have increased over the medium to long term, says Bellingham. “From experience, periods of global economic volatility often increase interest in such ‘safe haven’ property markets,” he adds.

This article appeared in the City & Country of Issue 720 (March 21, 2016) of The Edge Singapore.

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