Cape Royale is one of Sentosa Cove’s luxury condominiums.
Sentosa Cove is a private, exclusive enclave in Singapore, meant for the wealthiest of the wealthy. Cooling measures, however, have hit it hard, and transaction prices have fallen drastically. Can HDB upgraders ever reach this Promised Land? We give you the Guru View.
by Chang Hui Chew
When we think of holiday homes, we often think of exotic tropical villas in places like Bali or Boracay, snow-capped cabins in Hokkaido, or country cottages in the English countryside. But of course, what is exotic to one individual is every day to another.
For this edition of the Guru View, we will look at the enclave of Sentosa, one of the most expensive places for real estate in Singapore, and holiday homes to the wealthiest in the world.
A quick background
It is necessary to understand the background of Sentosa Cove, because like so many things in Singapore, its value is not a result of natural resources, but rather a focused effort of value creation.
This was through a process of careful urban planning on the state’s part to create what we know today as Sentosa Cove, where ultra-high net worth (UNHW) individuals can park a portion of their wealth in a luxurious immovable asset. The entity in charge of this was the Sentosa Development Corporation (SDC), a statutory board.
Most of what we know as Sentosa Cove today sits on either reclaimed land, or a small island to the east of Sentosa known as Buran Darat. According to the archives of the National Library Board, plans for Sentosa Cove started as early as 1991, when the SDC commissioned Benard Spoerry, a French architect, to draw up the land use master plan.
Land reclamation also commenced in 1991 and completed in 1993. However, dismal market conditions, and wrangling over prices delayed the sale of the land till 2003, a decade later. Today, Sentosa Cove is an ultra-luxury enclave featuring a yacht club, select shops and eateries, hotels, and of course, some of Singapore’s most expensive real estate.
Sentosa Cove is also a zone where certain ownership laws are relaxed to encourage foreign cash to flow in. For mainland Singapore, residential land titles can only be held by Singaporeans. Foreigners who wish to purchase these residential land titles will have to seek exemption from the Singapore Land Authority, which has a rather strict criteria for approval. However, foreigners can purchase land on Sentosa Cove without restriction, albeit only at a 99-year lease.
By the numbers
Figure 1 shows the break-down of transactions over the past 17 quarters in the part of District 4, where Sentosa Cove is located. Despite the focus on overseas buyers and foreigners, a majority of purchasers are Singaporeans, followed by Permanent Residents.
Perhaps a likely conclusion we can draw therefore, is that while the area remains marketed to global ultra-high-net-worth individuals (UNHW), we should not forget that many Singaporeans (or foreigners who become naturalised Singaporeans) fall into this category. Given the aggressive marketing done by Sentosa Cove Pte Ltd, the subsidiary of SDC which developed the land, and the various developers marketing their properties, Sentosa Cove has now become on aspirational asset, one many Singaporeans will try to work and strive after.
Figure 2 shows the breakdown of caveats lodged for properties at Sentosa Cove, by the address type of the purchaser. Clearly, Sentosa Cove is out of the range of most HDB upgraders, with HDB purchasing addresses accounting for only 6.6 percent of caveats lodged in the area.
However, it is a truism in Singapore that there are many millionaires living in HDB flats and we do see an example here. In 2007, a 4,779 sq ft condominium unit at The Coast at Sentosa Cove transacted for a cool $11,469,600, about $2,400 per sq ft. At the time, the average per sq ft price for Sentosa Cove condominiums was about $1,950 per sq ft, and was already considered high at the time.
Out of all those upgrading from HDB flats, only 16 percent (18 transactions) of them were for landed property. However, as a report from real estate consultancy CBRE notes, there is only a limited supply of 343 landed sites on Sentosa Cove, with no new sites in the pipeline.
These ownership numbers also suggests that those making the move off mainland Singapore to properties on the Cove are most likely to be current owners of private property already, and choosing to make a lifestyle transition.
Dollars and sense
While the property cooling measures, in large parts, have brought some sense back to the market, by halting a cycle of escalating prices and over-leveraged households, it has hit Sentosa Cove quite hard.
Figure 3 shows the number of transactions, as well as the median per sq ft price in Sentosa Cove, over the past 17 quarters. Post-2012, just under eight units on average were moved per quarter, with median prices coming off a high of $2123 per sq ft, to $1400 per sq ft in the quarter that just passed, or a decline of 34 percent in prices.
In this, one of the biggest issues is the implementation of the Additional Buyers Stamp Duty (ABSD), which mandates a tax on the second and subsequent properties for Singaporeans and PRs, and a blanked 15 percent for all foreigners.
Prior to 2014, the maximum quantum for a property transacted in that quarter often exceeded $30 million. However, since then it has barely come close. For a $30 million property, Singaporeans and PRs would be paying $3 million in duties if it is the third or subsequent property, while foreigners would be paying $4.5 million.
For UNHWIs, the amount paid in ABSD might be a negligible part of their wealth. It is however, the opportunity cost of that sum of money that would hold them back. That same $3 million could easily be invested in portfolio shares, in another property in a prime location, or even accumulate interest in the bank, with tidy returns being reaped.
Property owners selling on the Cove are also unlikely to let go at today’s prices, given the premium that they paid for their properties and are likely to have the holding power to weather out current market conditions.
A check of recent property auction listings shows only one recent mortgagee sale, where the bank repossesses the property, and places it on the auction block to recover the money loaned. This was a 2,088 sq ft unit at Turquoise, with a private lift. However, it is not known at time of print if the unit successfully exchanged hands.
Developers switch tack
Like many projects in prime locations in Singapore, there remain units on Sentosa Cove that developers have not successfully managed to offload. Fortunately for the developers, there are no restrictions if they decide to rent out their unsold units on Sentosa Cove. Some have chosen this route, biding their time until the market picks up, leasing out their units for corporate housing, for instance.
City Developments Limited (CDL) chose a rather interesting way to monetize their unsold units. Instead of leasing them outright, at the end of 2014, CDL went into a joint deal with CIMB Bank and The Blackstone Group, a United States based private investment banking company.
The details of the deal are complex, but it ultimately means that CDL’s gearing ratio went from 36 to 25 percent, and for five years, will distribute an annual payout, as well as dividends from the management of the Quayside Collection to its shareholders. At the end of the five year period, CDL and its investors are looking to sell the units at about $2,400 per sq ft, according to media reports.
Conclusion
In April, a bungalow at Sentosa Cove made the news as the sale of a bungalow was cancelled after the buyer was arrested. The buyer was Zhang Min, an executive of Ezubao, which was running the largest Ponzi scheme in China. This sparked a conversation about how legitimate the sources of income were for owners of these expensive properties.
Spots of drama aside, for most of us, Sentosa Cove remains an aspirational asset, a beautifully dreamy place to visit, but likely out of our reach to live in in this lifetime. If you’ve yet to visit the place, or strolled along Quayside Isle, it is definitely worth taking some time out to walk around the area. It is a different kind of Singapore, much like how the resort town of The Hamptons is different from Manhattan, even though both are in the state of New York.
If however, you have the pockets to go into Sentosa Cove, it is definitely a good time to keep a sharp look out. Prices are down, and if one meets a motivated seller who is willing to negotiate, you could potentially have a good deal.
For the Sentosa Cove area, there are unlikely to be external growth drivers that will help to accelerate prices upwards. What it has going for it has always been there from the start: ultra-luxurious waterfront living, private marinas, and the kind of exclusivity that only the most fabulously wealthy can enjoy.
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This article was first published in the print version The PropertyGuru News & Views. Download PDF of full print issues or read more stories now! | ||