Before the Lehman crisis, foreign buyers were widely considered to have helped drive prices of luxury properties in areas such as Orchard Road, Marina Bay and Sentosa Cove to record highs.
In the last two years, interest in the Core Central Region (CCR) that is home to the affluent postal codes has been lacklustre. On the other hand, transaction volumes in the mass market, or Outside Central Region (OCR), have remained strong and new record-high psf prices are regularly set, with a stunning S$1,600 psf being achieved. Then in 2Q11, the average price of a residential unit in the OCR surpassed the psychological hurdle of S$1 million.
Following on from the article, “Oversupply risks in Outside Central Region” (Today, Sept 23), we delved deeper into the numbers to examine the issue: Are foreigners ramping up purchases in the OCR and contributing to the oversupply risks or are locals still the main driving force?
Over the same period, Singapore Permanent Residents (SPRs) and foreigners made up 22 to 30 per cent of the buyers. If we focus on foreigners alone, the percentage fluctuated between 8 and 15 per cent, with the numbers tied to developers’ launch activities.
For example, in 1Q11, Singaporean buyers were spooked by the strong policy measures introduced in mid-January and the number of transactions attributed to locals plunged to 2,243 from 2,806 in 4Q10. The restraint of Singaporean buyers, coupled with new launch projects where developers conducted overseas sales exhibitions, caused the foreigners’ percentage contribution to rise to 15 per cent.
Most of the foreigners and SPRs who buy in OCR do so for practical purposes such as proximity to relatives, children’s schooling, commute to jobs, etc. In other words, most foreigners and SPRs purchase in OCR mainly for their own stay and it is a minority who buy OCR properties for pure investment returns.
The percentage contribution by foreigners and SPRs has been more or less steady and there is no clear trend that there is an increasing proportion of foreigners and SPRs buying into OCR. Increasing numbers, yes, but not necessarily increasing proportion. If we also take into account the fact that the proportion of foreigners in the total population is rising, a gradual increase in foreigner participation across all segments of non-landed residential properties is to be expected.
Who drove the average OCR price over the S$1-million mark?
The numbers in Table 3 show Singaporeans, not foreigners, to be the main driving force. 2Q11 data shows 44 per cent of total OCR transactions went above S$1 million. Of this, about 31 per cent is attributed to Singaporeans, while foreigners and SPRs combined accounted for only 12 per cent. Over the 6 quarters under review, the percentage of Singaporeans who purchased OCR properties priced over $1 million grew from 20 per cent to 31 per cent, while foreigners and SPR combined grew from 7 per cent to 12 per cent in the same period.
Singaporeans have been buying up OCR properties at higher and higher prices, partly due to rising Housing and Development Board (HDB) prices and partly due to the accumulated equity that upgraders have built up in their HDB flats. For those who are selling their HDB flats to move into mass-market private homes, selling into a rising HDB market allows them to afford a higher-priced purchase. After all, it is upgrading for their family enjoyment.
However, should there be a severe downturn in the global economy and unemployment in Singapore shoots up, might it be the locals who end up holding the more expensive OCR properties, and not so much the foreigners and SPRs?
By Ku Swee Yong – founder of real estate agency International Property Advisor. He is the author of Real Estate Riches: Understanding Singapore’s Property Market in a Volatile Economy.