Residential curb spells boon for alternative assets

10 December 2011, The Business Times (Singapore)

By Uma Shankari

INVESTMENTS into strata-titled office, retail and industrial units in Singapore, as well as overseas homes, are set to pick up as investors search for alternative assets to buy following fresh government measures to cool the residential market here.

Analysts expect to see a sharp drop in demand from foreigners and corporations for private homes in Singapore, which will lead to a moderate drop in overall demand. Liquidity could instead flow into other asset classes, the analysts said.

The government on Wednesday announced fresh measures to curb demand for private homes, including an additional buyer’s stamp duty of 10 per cent for foreigners and corporations on top of the existing buyer’s stamp duty of up to 3 per cent.

‘The latest measure could divert activity to other segments, such as strata-titled commercial and industrial sectors, since these are not affected by the additional stamp duty,’ said DBS Group Research.
Nicholas Mak, head of research at SLP International, likewise noted that interest in small strata-titled industrial and office units could pick up.

Interest in such properties began to slow down in August, when negative news from the eurozone started to adversely affect local investment sentiment. Prices of small industrial units have also climbed by about 30 per cent year-on-year, making them less attractive to investors. But now, interest could pick up again as cash-rich investors look for assets to soak up liquidity.
‘There could be a small percentage of buyers who may shift from buying a home in the core central region (CCR) to buying industrial properties,’ said Mr Mak, noting that ‘most property investors are still unfamiliar with the industrial property market’.

Small retail shops (sometimes as small as 150 square feet) have also started to appear on the market of late, market watchers said. They could find more takers going forward.

Interest in overseas properties could also heat up. In addition to foreigners who will now look elsewhere, Singaporeans – who now have to pay an additional buyer’s stamp duty of 3 per cent when they buy their third and subsequent residential properties – might also look abroad.

‘As the latest measures by Singapore government would turn away funds for property investment from foreigners, some of these funds could find their way to other overseas markets, such as those in countries with transparent rules and large Asian migrant communities,’ said Mr Mak. ‘These countries include Australia, Canada, UK, New Zealand and the US coastal cities.’

Camilla Dell, a managing partner at UK-based property consultancy Black Brick Property Solutions, said that her firm is already starting to see an increase in the level of enquiries from Asian and other overseas investors who were previously considering investing in the Singapore property market, but have now changed their mind because of the tax hikes.

In addition to the additional buyer’s stamp duty, investors in Singapore have to pay a seller’s stamp duty of between 4 and 12 per cent if they re-sell their units within four years of purchase, she pointed out.
‘All of this makes Singapore far less attractive for property investors, and London is bound to benefit as a result, where the tax system is far more favourable, particularly for overseas investors who pay no sellers tax or capital gains tax if they are a UK non-resident,’ Ms Dell said.

‘Stamp duty can also be significantly reduced in the UK as if the property is owned in a company name, buyers pay very little or no tax on the acquisition.’
Analysts also noted that most of the demand for strata-titled commercial and industrial units and overseas properties will mostly shift from the prime CCR area, which includes the prime districts 9, 10 and 11, Marina Bay and Sentosa Cove.
According to data compiled by SLP International, foreigners and corporations bought 36 per cent of all homes sold in the CCR from January to November 2011.

‘A foreign buyer of a private home here in Singapore will have to take a very bold move in investing amidst the global crisis and a grim economic outlook in 2012,’ said PropNex Realty chief executive Mohamed Ismail.
In contrast, in the outside central region or OCR (which is a proxy for suburban mass market locations), foreigners and corporations accounted for just 16 per cent of all sales in the first 11 months of this year, according to SLP’s analysis of caveat data from URA Realis.

Singaporeans bought 71 per cent of all home sold in the OCR, and demand from this buyer segment is expected to hold somewhat.

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