High-end market on a downward spiral?

Sluggish demand for high-end homes has lowered developers’ profits of late. If this trend continues, the luxury market could eventually hit rock-bottom in the days to come.

With prices of luxury homes expected to fall by 15 percent this year, foreign demand is expected to dry up due to tightening measures and economic uncertainties.

Early on, property developers are feeling the pinch over this weakening outlook.

Recently, SC Global warned of a S$10 million loss for Q1 2012, following weak profits recorded from its ready-for-occupancy projects. In fact, not even half the units released at The Marq on Paterson Hill and Hilltops were sold.

Ho Bee’s official figures revealed a shocking 71.6 percent plunge in Q1 2012 earnings to S$15.4 million. Its luxury projects, Turquoise and Seascape at Sentosa Cove, have recorded sales at 46 and 28 percent respectively.

The weakening interest in the high-end market may be attributed to the implementation of a 10 percent Additional Buyers’ Stamp Duty (ABSD) in December last year, which deterred foreign buyers.

Foreign buyers contribute significantly to the market, accounting for 40 percent of property transactions last year in prime district 10, which covers the Tanglin and Ardmore areas. Driving foreign buyers from the market will affect locals who have sold their homes to foreigners, as they cannot recycle their capital easily.

Savills Research has predicted that foreign buyers will account for a mere 15 percent of luxury homes sales this year. The ABSD immediately reduces return on investments (ROI) because these fees have to be paid upfront.

Singapore is considered the most expensive market for high-end properties in Asia, with buyers from China, Indonesia, Malaysia and India significantly contributing to the luxury home market.

However, a number of foreign buyers have put off their plans to buy multi-million dollar properties to avoid the ABSD. At the same time, the luxury market will likely see a surge in the supply of new units, putting further pressure on prices.

Even rentals are coming down as a number of expats no longer receive their usual housing allowances.

Moving forward, the luxury segment will likely suffer as the price gap between the mid-tier and luxury segment narrows.

Source : PropertyGuru – 9 May 2012

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