Prime CBD Properties: Is Now The Best Time To Invest?

In the post-pandemic era, despite some economic growth, rising interest rates leading to higher inflation remain a concern given the increased risk of a global recession. Leo Kwek, a senior property consultant at a local property consultancy firm in Singapore, said that on the bright side, a recession presents good investment opportunities.

Kwek noted that interest rates in Singapore are likely to rise in tandem with the US Federal Reserve’s rate hikes, but at a slower pace. However, Singapore’s inflation rate is at its highest level in a decade. He observed: “In a high-inflation environment, investors are increasingly looking for ways to invest in assets to hedge against inflation.”

In Singapore, households hold S$1.16 trillion worth of residential assets in their overall balance sheets—far ahead of deposits and other investment classes (see chart “Singapore Household Balance Sheet”).

Local property agent Leo Kwek said that despite uncertainty in the global market, rising interest rates, and the introduction of property cooling measures last December, Singapore’s private residential market has remained resilient. From the first quarter of 2020 to the first quarter of 2022, over eight quarters, the Urban Redevelopment Authority’s (URA) Private Property Price Index (PPI) rose by 14.1%.

In the first quarter of 2022, the overall private residential price index rose by 0.7% quarter-on-quarter, while the landed private residential price index increased by 4.2%. In the non-landed private residential segment, suburban condominiums in the Outside Central Region (OCR) still grew by 2.2% q-o-q, while prices for prime condominiums in the Rest of Central Region (RCR) and Core Central Region (CCR) decreased by 2.7% and 0.1% respectively.

According to data from AnjiaSG, new non-landed private home sales in the Core Central Region (CCR) reached 2,466 units in 2021, the highest level in eight years. Kwek added that in the first four months of 2022, about 551 units were sold in the CCR. Singaporeans and Permanent Residents (PRs) were the largest group of buyers in the CCR, accounting for 89.9% of total buyers in 2021 and 88.5% in the first four months of 2022. A decade ago, in 2011, Singaporeans and PRs made up 61.1% of the buyer pool in the CCR.

Mr. Kwek believes that the latest round of property cooling measures on December 16, especially the 30% Additional Buyer’s Stamp Duty (ABSD) imposed on foreigners, could curb demand.

Kwek noted that rising rents—which reached a high of S$4.45 per square foot in the first quarter of 2022, the highest level in nearly a decade—have also drawn investor interest to the Core Central Region.

Over the past year, the price gap between new non-landed homes in the Core Central Region and those in the Rest of Central Region has also narrowed. He pointed out that in the first quarter of 2022, CCR prices rose by 3.4% year-on-year, while prices in the RCR and OCR increased by 7% and 9.2% respectively during the same period.

Kwek says this makes investing in properties in the Core Central Region more attractive, especially in the Central Business District (CBD). Two recent Government Land Sales (GLS) sites launched in the CBD are the site on Bernam Street, sold in September 2019 for S$1,463 per square foot (psf) to a joint venture between MCC Land and HY Realty; and the site at Marina View, sold in September 2021 for S$1,379 psf to IOI Properties Group.

The Bernam Street site is being developed into the 351-unit One Bernam. According to caveat records, a total of 99 units have been sold in the One Bernam condominium project, which was launched last May, at an average price of S$2,477 psf.

Meanwhile, prices for new projects in the Rest of Central Region have also hit new highs. For example, the 407-unit Piccadilly Grand in Farrer Park was launched in May, with 77% of its units sold at an average price of S$2,150 psf. The joint developers, City Developments (CDL) and MCL Land, purchased the 99-year leasehold government land site last January for S$1,129 psf.

The 298-unit LIV@MB, developed by Bukit Sembawang Estates, sold 220 units on its launch day on May 21, at an average price of S$2,387 psf. This 99-year leasehold site was formerly the location of Katong Park Towers on Mountbatten Road. This project is also located in the Rest of Central Region.

Kwek noted that with the bid for a site at Jalan Tembusu in the RCR reaching a high of S$1,302 psf this January, future property prices are expected to trend higher.

Besides rising land prices, another reason to refocus on the Core Central Region is the government’s CBD Incentive Scheme and the long-term plan for the Greater Southern Waterfront.

While Singaporeans still aspire to invest in residential property, the high Additional Buyer’s Stamp Duty (ABSD) also deters buyers, with ABSD rates at 17% for a second property and 25% for a third or subsequent property. This has led many couples to attempt to ‘decouple’ their names to purchase a second property.

Leo Kwek, a senior property agent in Singapore, advises that to do this, the first property should be held under a ‘Tenancy-In-Common’ rather than a ‘Joint Tenancy’.

Some couples who buy a property under tenancy-in-common arrange the ownership so that one person holds 99% and the other holds 1%. He explains that this allows them to use their Central Provident Fund (CPF) and apply for a home loan based on their combined income.

However, if they later want to purchase a second residential property, the spouse holding the 1% share can sell it to the spouse holding the 99% share, giving the latter full ownership of the matrimonial home. The buyer’s stamp duty paid by the spouse will be based on 1% of the property’s value.

This allows the other party to purchase another residential property. As this purchase will be considered their first home, no Additional Buyer’s Stamp Duty will need to be paid.

Kwek explains that under joint tenancy, the couple are joint owners of the property and must act together. In fact, joint tenancy is the default way most married couples hold real estate.

In Singapore, many cash-rich buyers purchase properties in the names of their children or grandchildren (often minors) through a living trust. Since May 9, the government has imposed a 35% Additional Buyer’s Stamp Duty on transactions transferring residential properties into a living trust.

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