In Chapter 13, we put some parameters around how the luxury residential market should be defined. Ten years ago, this segment comprised districts 9, 10 and 11, characterised by Orchard Road, Holland Road and Newton Road.
Wrapped around these districts and in the east coast we have the ‘mid-tier’ markets of district 21 (Upper Bukit Timah), districts 15 and 16 (Meyer Road, Amber Road up till Upper East Coast Road), and then perhaps the city fringe areas of Tiong Bahru and Alexandra Road.
Even so, within the luxury and mid-tier segments we also find a very large proportion of freehold-titled private residential properties and a relatively lower proportion of HDB public housing units. Everything else outside the districts mentioned above was considered a little more suburbia and we classified them as ‘mass market’.
Furthermore, in the ‘mass market’ locations, the proportions of 99-year leasehold properties and HDB flats are higher than freehold properties.
And finally, aside from the main product attributes of location and neighbourhood, we can, with much certainty and conviction, say that the ‘dollar per square foot’ value of the luxury market is higher than the mid-tier market, which in turn is higher than the mass market.
The categorisation of Singapore’s residential property market was much simpler in 2000. Since then, several significant changes have occurred.
1. The introduction of SOHO, or ‘Small Office Home Office’. This new segment was popularised by Far East Organization through its project SOHO at Central in Clarke Quay. Launched in 2004, the two blocks of SOHO units was the first commercial property in Singapore allowed to be used as both a home and office.
In 2003 the Urban Redevelopment Authority (URA) implemented the Home Office Scheme. Under the scheme, businesses can be registered in private residences and up to two workers who are not residents are allowed to work in the premises. Since then, many residential projects have touted themselves as SOHOs. However, unlike SOHO at Central where the strata-titled commercial units are already designated for dual use, the owners of the new SOHO-styled residential units or their tenants must apply to the URA for permission to use the residential units as a home office.
If you plan to invest in such a property, ask your real estate agent this question: Is the property pre-approved for dual use, that is, for both living and working in, or is it simply designed around a SOHO lifestyle? What is the definition of a SOHO lifestyle anyway? Is it a SOHO lifestyle in Manhattan, New York, or that of the Docklands of London, or that of Tokyo?
2. The rise of new luxury residential developments in Marina Bay and Sentosa. Marina Bay, the new commercial downtown of Singapore, is located next to the Central Business District. The success of The Sail at Marina Bay and the subsequent prices it achieved (over $3,000 per sq ft), plus the prices achieved by Marina Bay Residences and One Shenton, anchored Marina Bay as the new location for luxury residences.
Between 2005 and 2007, interest in Sentosa Cove properties, which were purchased by high net worth families and the uber-rich from all over the world, brought the prices of houses and apartments there to a notch below that of Orchard Road’s. Adding to the bling factor of Marina Bay and Sentosa Cove were the multi-billion dollar investments of the Integrated Resorts of Marina Bay Sands and Resorts World Sentosa.
Homes in Sentosa Cove come with berths for private boats
Suddenly, the definition of luxury residences included two new districts: District 1 (Marina Bay) and District 4 (Sentosa Cove). Most properties in these districts have 99-year leasehold titles. Yet the quality of the products, the plush designs and the high prices have put the properties firmly within the category that is considered luxury. Some of us now say District 1, 4, 9, 10, 11 when referring to the locations of luxury residential properties.
3. The popularity of small-sized units. These include the studio, one-bedroom, one-bedroom plus study, and two-bedroom units. The growing popularity of ‘shoebox’ units — apartments of less than 500 sq ft — was already discussed in Chapter 8. There has also been an increase in the number of transactions of small units (sized between 500 and about 900 sq ft) which mass market investors find very affordable due to the low absolute price quantum.
Now, the definition of shoebox (sometimes also called ‘mickey mouse’ units) remains unclear. Some people may find these terms degrading. In 2007, when the media started to use such terms, I wondered why we did not just keep to the word ‘studio’. Are we being mean to the buyers who can only afford small apartments?
Somehow in the last two years, these terms have become mainstream. However, I am still wondering about what the terms are trying to refer to. If they refer to tight spaces, then I would consider a 700 sq ft two-bedroom unit to be a shoebox unit too. Because in order to fit two bedrooms — plus an air conditioner ledge, a small balcony, and possibly a planter or a bay window — into a unit 700 sq ft in size, it is quite obvious that the kitchen, living room and bedrooms would be suffocating-ly tight.
4. The value of homes near MRT stations. The network of the MRT system has grown more extensive with the North East Line commencing operations in 2003 and the Circle Line in 2009.
Some analysts believe that properties within walking distance to MRT stations deserve a significant premium in price. They forecast that eventually, the MRT system will be the great price leveler; when accessibility is improved across Singapore, the prices of homes in the outskirts will rise, closing the gap with prices of homes in the vicinity of Orchard Road. Think about this.
The combination of the popularity of small units plus the above average dollar per sq ft prices of such units mean that many 99-year leasehold projects in the outskirts of Singapore have achieved prices significantly higher than even freehold condominiums in the mid-tier and luxury markets.
Early in the book, I gave an example of a 99-year leasehold apartment in The Lakefront Residences in Jurong West which transacted at $1,362 per sq ft. This is a 507 sq ft apartment, but it is higher in price per sq ft terms than many of the older freehold apartments along Holland Road, an area within the prime luxury District 10.
Transacted prices in ‘mass market’ locations, especially for small-sized units, have gone higher in dollar per sq ft terms than prices in ‘luxury market’ locations. The increasing proportion of small units transacted at higher than average prices has also created an uplift to the URA private residential Property Price Index. (Note: a similar trend is brewing in the industrial property segment, where the increasing number of small-sized units transacted at very high dollar per sq ft prices will soon skew the average transacted prices higher and higher. But that is a story for another day.)
So how does that impact our definitions for luxury, mid-tier and mass market residential segments? In Chapter 13, we discussed the criteria that could be used to define the ‘luxury’ residential segment. Using similar sets of parameters, we can think about which product attributes will define the ‘mass market’ segment, and then consider everything else in between as ‘mid-tier’ markets.
Since our need to provide a better definition for ‘mass market’ properties arose from the confusion around pricing vis-à-vis the location, it means that the dollar per sq ft measure is not as useful an indicator. In considering the wide range of parameters to use, we also have to keep in mind that these definitions must serve our needs consistently over the medium to long term; they must stand the test of time.
On the top of my list of parameters is location. The property has to be more than 5 kilometres (straight line distance) away from the top three most luxurious residential addresses of Bishopsgate, Nassim Road and Chatsworth Road.
Secondly, the target and profile of the investors in the property should be above 80 per cent Singaporeans and Singapore permanent residents. On average, some 30 per cent of private residential properties are purchased by foreigners. As a comparison, for luxury projects such as those in Sentosa Cove or the St Regis Residences, foreign investors can make up as high as 70 per cent.
Furthermore, a large proportion — I would say about 30 per cent or higher — of mass market projects are also purchased by investors who reside in public housing; these would often be properties located within the same vicinity in order to be closer to family and relatives.
Using this definition, we have excluded the price quantum, the size of units and the unit price per sq ft. In a way, this is similar to the URA’s definition of mass market — OCR or Outside Central Region — except that I added a criterion based on the nationality of the investors (or target investors).
With such a definition set for the mass market, the ‘mid-tier’ market would comprise those properties that surround the luxury districts.
Or the mid-tier market could refer to projects that are located within prime locations such as Grange Road or Cairnhill, but with product attributes that do not qualify them as luxury projects. Such product attributes might include an average apartment size of below 1,200 sq ft, a car park to apartment ratio that does not allow for two parking lots per family, and an average price per apartment in the project of below $4 million.
Needless to say, with so much flux in the residential market since the heady growth days of 2006 and 2007, the sharp price drop in 2008 and 2009, and the subsequent recovery in 2010 with the implementation of cooling policies by the government, the jury is still out.
Right now, we simply do not have enough consistent points of references to clearly define the mass market and mid-tier market segments within the private residential market yet. We need a period of price stability like we had in the years 2004 and 2005 in order to chart our terrain better. If that period of price stability never arrives, we will have to rely on a combination of qualitative factors.
As for the point about our ever expanding MRT network leveling the prices between mass market properties and prime Orchard Road properties, I urge readers to consider the most highly prized residences in Victoria Peak, Hong Kong, which are not within reasonable walking distances from MTR stations. I believe that the prime residential addresses of Nassim Park, Bishopsgate and Chatsworth Road, established over a century ago with the black and white colonial houses, will remain at the top, and once prices of districts 9, 10 and 11 properties recover, the price definitions for mid-tier and mass markets will become distinct again.