Managers of the €1.6m Real Estate Capital Asia Partners (RECAP), SC Capital have said that property prices in Singapore need to drop another 30% before proving an attractive investment proposition.
The fund managers recorded a loss of almost €11m when it sold 18 condos at upmarket Patterson Suites to Blackstone in January for €5700/sqm after acquiring the properties in 2011 for just over €6000/sqm.
Founder of RECAP Mr Suchad Chiaranussatti said it was highly unlikely the fund would re-enter the Singapore residential market until a further decline of up to 30% is seen in the island's property prices.
Austere measures to cool Singapore's housing market effective
Referring to an additional stamp duty introduced in 2011 to cool rising prices Mr Chiaranussatti said: "We bought in 2011 and then the policies came in. The intensity and the severity of the policies caught us by surprise".
Property prices in Singapore fell for a sixth consecutive quarter in Q1 2015, the longest losing streak in more than a decade. Prime areas with a high proportion of luxury properties declined 0.6% over the same period.
To cool discontent arising from rapidly inflating property prices among the 5.5 million population of the city state, the government has introduced austere measures including taxes as high as 15% of the purchase price for foreign buyers.
Despite almost two years of declining prices, Mr Chiaranussattie who founded SC Capital in 2004 doesn't see the situation changing any time soon: "With interest rates on the way up there will be pressure but the policy is working, there is no reason whatsoever for the government to relax it".
Luxury property declined most in the last 2 years
According to figures from the Real Estate Developers' Association of Singapore, prices of luxury homes – defined as those larger than 140sqm and costing above €7200/sqm – have fallen by at least 20% since the start of 2013 according to the Real Estate Developers' Association of Singapore.
The three-month Singapore interbank offered rate topped 1% earlier in 2014 before settling at 0.82% - almost double the rate at the end of last year. Maybank Kim Eng Securities give a measure of the impact of this calculating that every percentage point increase in interbank rates raises repayments on an €890,000 property by 12% assuming an 80% LTV and 25 year mortgage term.
SC Capital's Mr Chairanussatti expects some investment opportunities to arise over the next couple of years when prices decline further because mass-market homes haven't lost as much value as luxury property, sliding by just 5%. He said that units in prime areas like Patterson are selling for around €5,600/sqm while condos in the suburbs are fetching around €4,200/sqm.
The bottom line for investors in Singapore's property markets is that time will deliver opportunities for both yield and capital appreciation although in the meantime, finding decent investment returns on SG property is rather like looking for a needle in a haystack.
- Monday 15 June 2015