Nearly one-third of Singapore property investors keen to venture overseas

Nearly one-third of Singapore property investors keen to venture overseas

A growing number of property investors in Singapore are turning their attention abroad. Of the 803 respondents to the 2019 EdgeProp-Knight Frank Homebuyers’ Sentiment Survey, 29.4% said they would be keen to invest in overseas residential properties in the next 12 months.

This compared to the 28.6% of 611 respondents who indicated an interest in overseas properties in last year’s survey.

The increased interest in overseas properties could be due to the latest round of property cooling measures, which saw higher additional buyer’s stamp duty (ABSD) rates and tighter loan-to-value (LTV) limits from July last year.

Singaporeans buying their second property will now have to pay 12% ABSD, up from the previous 7%. Meanwhile, Singapore permanent residents will now have to pay an ABSD of 15%, up from the previous 10%, when they purchase a second residential property.

Residential properties located outside of Singapore are excluded from ABSD.


Melbourne, London and Bangkok most popular

Melbourne is the most popular overseas market among Singapore's property investors, according to findings from the EdgeProp-Knight Frank Homebuyers' Sentiment Survey

Based on the survey, which was conducted in 4Q2018, Melbourne (23%), London (21.7%) and Bangkok (17.9%) are the most popular overseas markets among Singapore property investors (see Chart 1).

Chart 1

This is a notable shift from the 2018 survey, in which Bangkok (29.1%), Melbourne (29.1%) and Kuala Lumpur (27.4%) were voted as the most popular overseas investment destinations.

A significant decline in interest in Kuala Lumpur properties was also noted in this year’s survey. Only 13.2% of respondents said they would consider investing in Kuala Lumpur properties in 2019. Political factors and tightening policies on foreign ownership could be possible reasons for the decline.

This might also be attributed to the change in demographics among the respondents in the recent survey: 86.8% indicated they were Singaporeans, compared to 79.2% in the previous survey.


Familiarity and growth potential are main considerations

“Usually, buyers will invest in markets they are familiar with, and those that are close to Singapore,” says Lee Nai Jia, senior director and head of research at Knight Frank. Other important considerations include the growth potential and political stability of these markets.

Australian cities such as Melbourne, Perth and Sydney are popular with Singaporeans as many have studied in those cities, and are familiar with the laws and property market there, says Lee. He adds that prices of residential properties in Melbourne, in particular, have continued to trend upwards, rising by 3% y-o-y in 3Q2018.

“Buyers are also inclined to invest in gateway cities such as London and New York,” he adds.

Lee says buyers are attracted to homes in London as home prices in the UK have declined due to political uncertainty and higher taxes on non-residents. “As at 2Q2018, residential prices have eased 1.8% y-o-y on average,” says Lee.

As for Bangkok, he shares that residential prices there are largely stable, although minor fluctuations have been observed in recent quarters.


Local properties still preferred

Despite the increased interest in overseas properties, the survey findings indicate that local properties are still largely preferred by Singapore investors. A lack of knowledge about overseas markets (65.8%) and confidence in Singapore’s stable economic environment (59.4%) were cited as top reasons for this preference (see Chart 2).


Chart 2

There tend to be an “asymmetry of information” and most buyers will seek overseas properties only if there is a compelling need to – for instance, moving overseas to work, says Lee. In addition, most buyers who invest overseas either know the market well or have a higher appetite for risk, he explains.

Further, about 40% said they believe Singapore investments provide better yields. This is reflected in the positive sentiments surrounding property prices (Chart 3) and rentals (Chart 4) in the coming months.

Chart 3

Chart 4

According to Knight Frank’s Lee, Singapore home prices are expected to remain stable in 2019. However, prices of older private properties with shorter leases will face greater downward pressure.

“We also expect vacancy rates and rents to stay stable given that there are fewer units being completed,” he says.


Preference for city-fringe condos

Perhaps owing to the high proportion of investors among the respondents, the results indicated a preference for private condos and apartments, with 66.4% of the respondents selecting that as their preferred property type.

This is followed by HDB flats at 18.8% and executive condos (ECs) at 5.5%, with the remainder split between landed houses, strata-landed properties and penthouses. HDB flats and ECs are subject to a five-year minimum occupation period and rules for resale and rental, which make them less favoured as investment properties.

Location-wise, most respondents preferred the city fringes when buying units with two or more bedrooms. However, those looking to buy one-bedroom units indicated a strong preference for the prime districts.

Survey findings indicated a clear preference to reside in the prime districts and the city fringes

“Based on the findings, it is likely that buyers seek convenience but are concerned about affordability. Hence, they are willing to compromise on distance to the CBD for more space,” says Lee. “However, the majority of the respondents belong to the middle-upper income group.”

He shares that buyers are also likely to be more “quantum sensitive” than before, with the majority of respondents citing a preference for prices below $1.8 million for three-bedroom units or smaller. Based on the survey findings, about 62% of respondents said they were looking for homes priced below $1.5 million.

Elsewhere, the survey showed there was a strong preference for two- or three-bedroom units. For instance, nearly 16% of the respondents indicated their preference for homes of 701 to 900 sq ft, while about 32% said they favour homes between 901 and 1,300 sq ft.

In addition, the survey findings indicated a clear preference to reside in the prime districts and the city fringes, although it is interesting to note that only a few indicated a preference to live in Outram Park. “This may be due to a lack of new offerings in the area,” says Knight Frank’s Lee.

Outside the Central Area, it is observed that there is interest in areas such as Ang Mo Kio, Serangoon, Clementi and Jurong East.

“Interestingly, the demand to live in Punggol and Sengkang does not seem to be significant. This is despite the fact that these areas will likely experience significant growth due to the upcoming Punggol Digital District.

The demand may only come into fruition when the construction is completed,” Lee concludes.

Also read: Higher ABSD deters homebuyers in 2019

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Higher ABSD deters homebuyers in 2019

Higher ABSD deters homebuyers in 2019

Findings from the EdgeProp-Knight Frank Homebuyers’ Sentiment Survey conducted in 4Q2018 revealed that higher Additional Buyer’s Stamp Duty (ABSD) rates from last year’s property cooling measures are the main hurdle facing homebuyers in 2019.

Effective July 6, 2018, Singaporeans buying a second residential property must pay an additional 12% ABSD on the property value, up from the previous 7%. Permanent residents (PRs) buying a second home now pay 15% compared to the previous 10%. Meanwhile, foreign buyers without permanent residency status must fork out 20%, instead of 15%.

This latest round of property cooling measures, announced just a day before they took effect, came as a surprise, arriving just as property developers have replenished their land banks throughout 2017 and into the first half of 2018 in anticipation of blockbuster sales. The cooling measures, intended to curb the exuberance in the housing market, introduced higher ABSD rates and tighter loan-to-value (LTV) limits.


Cooling a red-hot residential market

Property prices started to rise in 3Q2017 after falling for four consecutive years, increasing sharply by

9.1% y-o-y the same year. Demand for private residential property also saw a strong recovery, as transaction volumes continued to rise.

It was also around this time that developers heightened a growing collective sale fever. Based on URA data, the year 2017 saw 29 en bloc transactions totalling $7.31 billion, compared to $1.2 billion in 2016 and $380 million in 2015.

The fever continued unabated into 1H2018, which saw 31 en bloc deals totalling nearly $8.85 billion.

The collective sale of Park House hit a record-high price of $2,910 psf per plot ratio in
June 2018. (Image source: CBRE)


Notably, the collective sale of Park House in June 2018 hit a record-high price of $2,910 psf per plot ratio (ppr) when it was sold by Hong Kong-listed Shun Tak Holdings at $375.5 million. It smashed the record set by the former Hampton Court for $155 million ($2,526 psf ppr) in January 2013, where the buyer was Hong Kong-listed British conglomerate Swire Group’s Swire Properties.

Increased buying demand, coupled with the flurry of en bloc activities, resulted in a spike in property prices, which quickly prompted the government intervention to cool the red-hot residential market.


Post-ABSD housing affordability

The cooling measures have affected housing affordability because the LTV limit has been slashed to 75% from 80%.

According to Lee Nai Jia, senior director and head of research at Knight Frank, first-time buyers were most heavily affected by the latest cooling measures.

“With the new measures, even if they do not have to pay ABSD, financing could be clipped for these first-time buyers due to a tighter LTV ratio,” said Lee.

The frenzied buying that occurred in the evening before the cooling measures took effect caused a surge in new home sales in 3Q2018. Developers had brought forward three launches to allow buyers to lock in deals before changes to the ABSD and LTV kicked in, resulting in over 1,000 units sold in a single evening.

The following quarter saw a decline of 37.8% in new home sales. However, this decline could be due to the frenzied pre-ABSD buying and seasonal effects. Sales tend to be slower in the fourth quarter each year due to school holidays and festivities.


Fewer looking to buy homes this year

Of the 803 respondents to the EdgeProp-Knight Frank Homebuyers’ Sentiment Survey, only 43.1% said they were looking to purchase a residential property in Singapore in the next 12 months. The survey was jointly conducted by EdgeProp Singapore and Knight Frank Singapore in 4Q2018.


EdgeProp-Knight Frank Homebuyers’ Sentiment Survey


In the previous survey conducted in 2017, 55.6% of 611 respondents said they were on the lookout for a residential property. Meanwhile in 2016, 51.2% of the 500 respondents said they were on the lookout for a residential property here.

Based on responses to the survey, 42.6% said that higher ABSD rates were the main reason for not buying property in 2019. This was followed by the sentiment that property prices were expected to decline further (25.1%), while 24% said they did not have enough savings to make a downpayment.

It is worth noting that 16.7% of the respondents said they do not own any properties, while 60.5% indicated owning one property, 16.9% indicated two properties, and the remainder, three or more properties.

EdgeProp-Knight Frank Homebuyers’ Sentiment Survey


How will new launches fare in 2019?

For 2019, Knight Frank’s Lee said the survey results revealed a strong underlying housing demand in the market. “However, buyers [nowadays] are more discerning and likely to adopt a wait-and-see approach. That said, buyers are likely to enter the market if prices stay at their existing level,” he added.

According to Lee, new launches in 2019 will see sales of between 15% and 20% of total units per project. Already, this was observed for RV Altitude and Fyve Derbyshire, which were both launched in January. The survey suggested that buyers may wait on the sidelines as they expect prices to decline further, he said.

The 140-unit RV Altitude and 71-unit Fyve Derbyshire sold 14% and 18% of their total units during their launch weekends, with prices ranging from $2,729 psf to $3,100 psf and $2,200 psf to $2,700 psf respectively.

Before the cooling measures on July 6, 2018, some developers were able to achieve sales of up to 60% within the first weekend of launch. After the cooling measures, from July to December 2018, the average sales rate achieved was 28% for the same period.

The decline in sales probably reflects the heightened caution among buyers under current market conditions. However, buyers may return if prices continue to stay at current levels as they may have gotten used to paying the stamp duties.

Also read: More looking to buy homes in 2018

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