Anaemic sales show up in bottom line

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The Straits Times
May 3, 2012
Anaemic sales show up in bottom line

Developers of upmarket homes feeling the pinch as curbs bite

By Gan Yu Jia

TWO recent corporate announcements by luxury developers SC Global Developments and Ho Bee Investment have highlighted how the high-end residential market has almost ground to a halt.

SC Global has warned of a first-quarter loss of $10 million owing to the absence of significant profit recognition from projects that are ready for occupancy. Fewer than half the units at The Marq on Paterson Hill and Hilltops, both completed last year, have been sold.

The sluggish demand for upmarket homes has also affected Ho Bee, which saw its first-quarter earnings slide drastically by 71.6 per cent to $15.4 million compared with last year.

Its projects in Sentosa Cove, Turquoise and Seascape, were 46 per cent and 28 per cent sold respectively as at March 31. Both were completed in 2010.

Consultants said the recent dearth of interest in luxury properties is primarily due to the additional buyer's stamp duty (ABSD) imposed in December last year, which has hit foreigners especially hard.

Foreigners pay 10 per cent ABSD.

Mr Alan Cheong, director of research and consultancy at Savills, estimated that foreigners constituted 40 per cent of property transactions last year in the prime district 10, which includes areas such as Ardmore and Tanglin.

'Once you remove foreigners from buying, it also means locals who sold (homes) to foreigners also cannot recycle their capital that easily,' he added.

HSR Property Group special adviser Donald Han noted that the percentage of high-end properties of total home sales had fallen considerably since the ABSD measures were implemented.

'If you look at October to November numbers last year... the percentage of new home sales which are more than $2,000 per sq ft (psf) hit as high as 5 per cent. Then came the ABSD, and... (the number) went as little as 1 per cent,' he said, adding that there were only 17 or 18 transactions of high-end properties in January this year.

International Property Advisor chief executive Ku Swee Yong noted that the ABSD could deter investors by dampening returns.

He said the 10 per cent ABSD for foreigners and 3 per cent for Singaporeans is a hefty sum. 'It reduces immediately your return on investments because these are duties you pay upfront,' Mr Ku said.

Mr Han pointed out that some luxury developers had stepped in with stamp duty rebates and furniture vouchers to attract buyers, although results have not been obvious: 'While that may have worked for some of the lower mid-end projects... the high end hasn't really taken off.'

He also noted that the scrapping of the financial investors scheme (FIS) last month, which allowed foreigners with at least $10 million of assets in Singapore for five years to apply for permanent resident status, may have played a part in dampening demand for luxury properties.

'Previously, if you've got a few million, you can already buy your way in via the property route. But now, it takes more than that,' Mr Han said.

Mr Cheong, however, begged to differ: 'The whole of last year, there were only 26 transactions in Sentosa Cove, of which the majority were non-foreigners. So the FIS had naturally run its course, and its removal won't have any impact (on the high-end property market).'

Citing the ABSD as the main reason for falling demand, he added: 'Also, the lure of substitute properties from London and America are drawing high net worth foreigners to look at those instead.'

Mr Ku stressed that it is 'not all doom and gloom' for the luxury property market as the interest level remains high.

'The interest level hasn't subsided due to the ABSD, it's just that it's now more difficult to get them to commit. If you lessen the impact of the ABSD through a new policy, there will be a wave of investors who will quickly step up the demand for luxury properties,' he said.

Mr Han added that while he thinks there may be price adjustments of about 10 per cent, 'there will probably be no panic selling... because the rental market will remain resilient in the next six months'. He said the rental market hit a peak last year that is 'still being sustained in the first quarter of this year'.

'Because of that, lots of developers (with) high-end, completed projects have resorted to leasing them out.'
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