Singapore’s Beverly Hills shows signs of moss

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The Houses is a low-rise development of just 14 units on Nassim Road, a leafy street nestled between the bustling shopping district of Orchard Road on one side and the vast calm of the Singapore Botanic Gardens on the other. As Business Insider described it, Nassim is the Beverly Hills of Lion City. And right now, real estate prices along this mile-long stretch of hyper-exclusivity are scorching hot.

In May, a 6,092 square foot apartment in Maisons Nassim was sold by its Hong Kong-based developer Shun Tak Holdings, which is run by Pansy, Daisy and Maisy, daughters of late Macau gambling tycoon Stanley Ho. came in at S$37 million ($27 million), the fourth-highest price per square foot ever for a new condo in Singapore, according to OrangeTee & Tie, a real estate brokerage firm.

The identity of the buyer is not known. It may have been a Singaporean tycoon who signed the check, but the Les Maisons unit may well have been one of 84 bought up by foreigners in May, marking a resurgence of global interest in the real estate after first quarter lull. Nor would it be surprising if the money came from an expatriate banker: permanent residents bought 142 units in May, compared to 79 the previous month.

Notice, such things weren’t supposed to happen this year. For foreigners and PRs, the already high additional stamp duties were raised again in December. Foreigners must pay a 30% tax, while PRs now pay 25% on second homes and an unchanged 5% on first purchases. Only Singapore citizens buying their first home are exempt from additional duty, which is on top of the standard graduated rate which amounts to a maximum of 4% above S$1 million of market value. Despite such high taxation, there is suddenly no shortage of home buyers in Singapore, whether local or foreign. The inescapable conclusion is this: the city-state’s latest housing restrictions have already lost their spice.

Will the Singaporean authorities have to introduce more draconian restrictions? Maybe not this year, provided the US Federal Reserve remains hawkish enough to deliver a second 75 basis point interest rate hike in July.

Since the global era of cheap money began in 2009, Singapore has made 11 attempts to curb speculation in its residential real estate market. The goal has been to prevent prices from rising too fast too soon; the tools range from higher stamp duties to lower mortgage limits and tighter debt service ratios for homebuyers. But the effect of these so-called cooling measures does not last. “Sentiment typically recovers around two to six months after each turn,” says Christine Sun, senior vice president of research and analytics at OrangeTee & Tie.

This time it’s back to business as usual in five months. After jumping 10.6% in 2021, house prices in Singapore rose just 0.7% in the first quarter. However, developer sales for May seem to suggest strong pent-up demand. Also, activity seems to heat up when money is no longer cheap. DBS Group Holdings Ltd., the island’s largest bank, recently raised the rate on its two-year fixed-rate package by 0.3 percentage points to 2.75% per annum, according to The Straits Times. Other banks have already made their mortgage plans more expensive.

One of the reasons potential condo buyers are always excited is soaring rents. According to a Bloomberg News survey of real estate agents, rent prices are rising 20-40% on average for private accommodation rented by expats. Tenants are coming back. “Foreigners have slowly but surely begun to return to the city as the country further relaxes security management measures and opens its borders,” says PropertyGuru Pte., which runs a popular online property portal. This changes the buy-or-lease equation for self-occupiers, even at higher mortgage interest rates; it could also generate yield-seeking investment, or at least offset the impact of rising annual property taxes for non-owner occupiers from 2023. (Unlike stamp duties, property taxes are not a cooling measure; their main objective is to limit wealth inequalities in the financial centre.)

The limited supply of new homes is also attracting buyers to new projects that are being launched. City Developments Ltd. Billionaire Kwek Leng Beng and partner MCL Land Holdings sold 77% of their jointly developed 407-unit Piccadilly Grand in a weekend in early May at an average price of S$2,150 per square foot.

A rare Nassim Road property can afford to be expensive; Piccadilly Grand, too, is in a central enough location to command a bounty. But if, like last year, the scum starts to overflow into middle-class suburban homes, the authorities will have to step in and break up the party. For now, however, they could just wait for the Fed to do the job.

But will he? Singapore’s rapid reopening after the pandemic provides a stark contrast to arch-rival Hong Kong. Bloomberg Intelligence estimates that new home sales in China’s Special Administrative Region could drop 20% this year. It is in Hong Kong – not Singapore – that the rising cost of capital can really be felt. Indeed, the weakness of the economic activity means a sluggish rental demand. A landlord who will earn a rental yield of 2.2% on an investment property and pay a floating mortgage interest rate of 2.2% – subject to a sharp increase – can also go to Singapore. Looks like they already are.

More from this writer and others on Bloomberg Opinion:

• Singapore landlords unafraid of a global economy: Andy Mukherjee

• Real estate in Singapore is in vogue even without expats: Andy Mukherjee

• Worries about the housing market are only growing: John Authers

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.

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