Prices of high-end homes bottoming out: JPMorgan

PRICES of high-end residential homes are bottoming out on the back of a host of reasons such as a significant volume pick-up, return in foreign interest, relatively cheaper pricing compared to global peers and a limited supply in the medium to long term.

This is according to the projections of JPMorgan, the latest among market watchers to call for a bottom in the high-end segment here.

A list of some 39 relatively liquid high-end projects tracked by JPMorgan in districts 9, 10, 11, Sentosa Cove and the CBD area shows an average price decline of 25 per cent from the peak. The declines range from as low as 4 per cent at Nassim Park Residences to as steep as 49 per cent at Seascape at Sentosa Cove.

But their benign rate of quarterly price declines of below 1 per cent in the first two quarters of this year, after preceding quarters of one to 3 per cent declines, “give us reason to believe that high-end prices have bottomed”, said JPMorgan analyst Brandon Lee in the report.

He also cited limited upcoming supply, with the stock of high-end homes likely growing by 3 per cent, 2 per cent and 3 per cent respectively in 2016, 2017 and 2018, given a scarcity of private en-bloc deals since 2012 and a lack of government land sites available for sale in prime areas.

In the second quarter, official statistics show that total transactions in the Core Central Region (CCR) jumped 31 per cent from a quarter ago to 767 units; unsold high-end units stood at 5,793 units, a ninth consecutive quarter of decline and a historical low. “We believe this will further underpin demand for high-end residential properties,” Mr Lee said.

While aggressive bidding by developers is said to be driving up land costs, Mr Lee offered another interpretation, saying that the average selling prices for high-end homes have fallen below replacement costs. He cited a parcel transacted at Martin Place for S$1,239 per square foot per plot ratio (psf ppr), which implies a breakeven cost of S$1,576 psf – “the highest discount since 2009”.

What is also encouraging of late is a return in foreign buyers, as seen in the 27 per cent quarter-on-quarter jump in units purchased by foreigners to 302 units in the second quarter, which marked a two-year high. Non-Singaporeans’ share of purchases stood at 24 per cent – above the historical average of 22 per cent. Foreigners are increasingly targeting the more expensive mid and high-end segments, Mr Lee noted.

In another recent report by Jefferies, the investment banking firm cited two other factors driving high-end transactions based on informal discussions with private bankers, real estate agents and corporate lawyers.

Some businesses are morphing into family offices or investment holding companies, Jefferies said. These non-real estate companies are closing down or merging for various reasons. Their business owners are partly re-investing cash proceeds into investment property to seek rental income.

Secondly, tax regimes have also changed in other cities. For instance, stamp duties have been introduced in London for second homes and application fees have been introduced for foreign property buyers in Australia. Thus, the additional buyer’s stamp duty (ABSD) regime in Singapore is finding parallels in other places too.

Meanwhile, the price gaps between Singapore’s high-end market and other gateway cities have widened. An earlier report by JLL showed that prime residential prices in London and New York are at respective premiums of 92 per cent and 82 per cent to Singapore in 2015, compared to just 10-30 per cent in 2010.

“Despite its ongoing restructuring efforts and economic slowdown, we think Singapore remains on the radar of most wealthy individuals in view of its stable government, ease of doing business, competitive tax rates, high level of safety and hub status for entrance into the growing Asean region,” Mr Lee said. “Given Singapore’s relative price attractiveness, we think this also explains why foreigners are returning despite the requirement to pay hefty additional buyer’s stamp duty of 15 per cent.”

To stoke demand, developers of high-end projects have also offered attractive discounts while rolling out innovative schemes for delicensed projects that allow buyers, upon paying the downpayment, to defer the balance payment of 80-90 per cent by one to three years’ time. The strong take-up at OUE Twin Peaks in prime District 9 since the introduction of its deferred payment schemes has prompted more developers to adopt a similar approach to clear inventory.

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