Freehold Landed Homes: Asset For Wealth Preservation
Most Singaporeans aspire to own private property, and the ultimate dream is to own their very own landed home. According to data from the Singapore Department of Statistics, as of June 2018, about a fifth of the entire population live in private properties, but only 5.1% of Singaporeans live in landed homes.
To own land in land-scarce Singapore comes with a hefty price tag. During the colonial era, most of the land for residential properties sit on a freehold or 999-year leasehold tenure, which is equivalent to perpetual or almost perpetual ownership of land. Since 1947, when the Crown Lands Rules was passed, the government is to issue only 99-year leases or shorter ones for less permanent uses for all land, making properties that sit on perpetual land titles even more valuable.
Landed residential properties are classified as “restricted” properties by the government. Through the Residential Property Act, the Singapore Land Authority (SLA) mandates that only Singapore Citizens are allowed to own land.
The Act states that “A Foreign person who is not a Singapore Citizen, Singapore Company, Singapore Limited liability partnership or Singapore Society and wishes to purchase a landed residential property is required to seek approval under the Residential Property Act.”
Non-citizens are not allowed to own land in Singapore, with the exception of landed properties located at Sentosa Cove. Permanent Residents and foreigners have to apply to the Land Dealings Approval Unit under SLA to obtain permission to own land in Singapore.
Objectives & Methodology
This paper aims to achieve the following objectives: i) Analyse the market performance of landed properties; ii) Examine the effects of policy changes and planning initiatives such as new transportation lines on the landed housing market; iii) Identify prominent districts in Singapore in terms of $psf and sales volume; iv) Forecast the outlook of the landed housing market.
This paper will focus solely on freehold and 999-year leasehold private landed properties. Good Class Bungalows (GCBs), 99-year leasehold and strata landed properties are omitted from the study.
GCBs cater to a niche group of buyers, and, due to their high prices, they are likely to skew results towards the GCB Areas. As for 99-year leasehold landed properties, they are not really comparable due to the vast differences in the ownership duration with those of freehold or 999-year leasehold landed properties. Strata-landed properties are also excluded because the value computation for such properties is different because the owners only have rights to their strata lots and a share of the common areas.
List Sotheby’s International Realty, Singapore will publish reports on GCBs, 99-year leasehold and strata-landed properties at a later date.
Types & Stock
The government recognises the need for different housing types to cater to different needs and aspirations of the population. The government releases land for residential use through its land sales programme. Such residential land comes with 99-years lease tenure and can be used for landed or non-landed residential developments. The disparity in the tenure can sometimes lead to those properties with perpetual or almost perpetual ownership titles to command a premium against those with 99-year leasehold titles.
Besides the different duration of ownership, landed properties are also categorised into three broad types: Detached, Semi-Detached and Terrace Houses. As of 2019 Q1, the Urban Redevelopment Authority (URA) reported that there are 73,105 private landed homes (all types of tenure) in Singapore. In contrast, there are 297,839 private non-landed homes and around 1.3 million public housing flats in Singapore. Landed housing made up barely 5% of all the housing available in Singapore, making them a scarce and valuable category of housing type.
Though landed houses can be found at different parts of Singapore, most of the landed houses are located in the Central and North-East regions of the island. Some of the most luxurious landed homes can be found in Sentosa Cove. As of 2019 Q1, 53.5% of all the landed properties in Singapore are located in Districts 10, 15, 16, 19 and 20. Amongst them, District 19 has the highest number of landed homes, followed by Districts 15, 10, 16 and 20. Figure 1 shows the distribution of each type of housing in these five districts.
By absolute quantum, detached houses are generally the most expensive, followed by semi-detached and then terrace houses. Detached houses, by virtue of sheer land size (Figure 2), built-up area and the amount of space that the home owner enjoys, naturally command the highest price amongst the three types of landed housing.
Generally, buyers, sellers and real estate professionals look to the unit rate over the land area, $psf, as a guide to the price of a property. It is important, though, to note that the value of landed property is a function of a confluence of factors such as location, land size, type of housing, tenure, age of building and quality of finishes.
Besides these, the Singapore Master Plan also designates the specific locations for landed housing estates such as Good Class Bungalow Areas (GCBA).
This section discusses the impact of the following factors on the landed house market:
Impact Of The Global Financial Crisis
The global financial crisis, which started around 2008 and lasted till 2015, hit Asian economies with unexpected speed and force. Equally unexpected, the recovery in Asia was faster and stronger as it benefited from the massive fiscal and monetary stimulus introduced by the United States and European economies. High liquidity from the inflow of foreign funds and successive cuts in interest rates enabled a swifter recovery in Asian economies.
Within Singapore, the overall property prices fell sharply in 2008 and bottomed out in mid-2009. By 2010, with property prices still languishing at very low levels and the average price for all types of landed housing going at below $1,000 psf, droves of astute homebuyers saw an opportunity to enter the market. The active buying resulted in a spike in total sales volume to 3,111 landed homes transacted that year. Under a high liquidity and low-interest rates environment, landed homes prices began to rise in tandem with the rest of the residential market. Between 2010 and 2013, average landed home prices rose by 50% from $859 psf to $1,302 psf. (Figure 3)
By 2013, to curb the exuberance of homebuyers and prevent property prices from spiralling further, the government introduced measures to cool the property market. The measures brought about a sharp decline in demand for residential properties, and an ensuing 15 quarters of price correction.
One of the cooling measures was the Additional Buyer’s Stamp Duty (ABSD). The ABSD was tiered to target foreign buyers and buyers of multiple residential properties, and was adjusted over time from 10% in 2011 to 15% in 2013, and eventually to 20% in 2018. This additional layer of buying cost thus inflated the total price that a buyer has to pay when purchasing a property.
Another measure is the Total Debt Servicing Ratio (TDSR) framework, a measure that was designed to ensure financial prudence and limit borrowing beyond means. TDSR limits the financing available to home buyers by taking into account every loan liability they have. Buyers will have to come up with more equity to finance their homes. Those without readily available funds were unable to enter the market.
These measures, in particular the TDSR, drove home sales volume sharply down and sent prices in a downward trend that spanned the next four years until the first half of 2017.
Market Recovery in 2017 – Improved Market Sentiments
As the residential market bottomed out in 2017, sentiments eventually returned, against the backdrop of a more positive economic outlook and the fine-tuning of one of the cooling measures in March 2017. Interest in landed homes picked up, leading to a total of 1,653 transactions in the market. This record number of transactions was almost twice the transaction volume that occurred every year from 2013 to 2016.
The government’s fine-tuning of the Seller’s Stamp Duty (SSD) policy in March 2017 saw the holding period shortened and the levy lowered (Figure 4). While this tweaking of the cooling measure did not, and was not designed to, have an immediate impact on home buyers, the market took this as a sign of the government taking a proactive stance in moderating the cooling measures to respond to the changing dynamics of the market.
Two other factors which brought home buyers back to the market were the return of the collective sale of older developments and the return of the Government Land Sales (GLS) programme. The government had held back GLS programme between 2013 and 2016 and this led to the building up of pent up demand from developers who were eager to replenish their land bank. Aggressive bidding from developers for sites led to land prices inching upwards. Sensing that the property market has rebounded, home buyers who had been sitting on the fence entered the market, and sales volume soared. The landed market saw a surge in resale volume from 987 units in 2016 to 1,653 in 2017, in tandem with the rising volume trend in the broader residential market.
Recovery in 2017 – New Mass Rapid Transit Lines
The surge in resale volume coincided with the full opening of the downtown Line (DTL) in October 2017. The districts which experienced the most significant change in sales volume from 2016 to 2017 were Districts 13, 16, 23, 21 and 26 (Figure 5a).
The completion of the initial phase of DTL at the end of 2015 improved the connectivity for those living around District 23 by connecting the area to all the other major MRT lines in Singapore. Phase 3 of the DTL project saw the connection of Chinatown Station to Expo Station on the eastern part of the island. The improved connectivity led to a jump in transaction volume of landed homes in Districts 13 and 16 (Figure 5b).
With the recent announcement of the Land Transportation Master Plan 2040 by the Land Transport Authority (LTA) on 25 May 2019, we can expect the new Cross Island Line (CRL) to have a similar impact on the landed estates along its route. In particular, Serangoon Garden Estate (D19), Thomson Garden Estate (D20) and Sembawang Hills Estate (D20) may benefit from being situated very close to the proposed Tavistock Station, Bright Hill Station, Mayflower Station and Hougang Station along CRL.
Recent Policy Changes
While the market read the fine tuning of the SSD policy in 2017 positively, the significant rise in home sales volume that year due to the improved sentiments was short-lived. In mid-2018, another wave of property cooling measures struck. The market was caught off guard by the sudden announcement. This new wave of cooling measures included an increase in the ABSD rates by five percentage points to 20% for foreign buyers, as well as permanent residents and locals who are buying their second and subsequent properties. Developers have to now pay an additional non-remittable 5% ABSD upon the purchase of residential development sites. Loan-to-Value (LTV) ratios were tightened by roughly five percentage points to 75% as well. This revision made it harder for home buyers to purchase properties as they require more cash to fund their purchases and service their home loan. On a positive note, every home buyer now is stress tested for weathering a severe downturn when they make up their mind to invest in private residential properties.
The effect of these new measures was a drastic slowdown in sales momentum from the second half of 2018 onwards. Transaction volume in the first five months of 2019 fell below that of the first half of 2017 and 2018 and prices too, saw an easing (Figure 6). Some market players felt these measures were unwarranted when they were first introduced.
However, in view of the geopolitical tensions and uncertainties, the flurry of successful collective sales, the sharp increase in transaction volume in 2017, followed by the rapid rise of home prices up to the first half of 2018, the government might have been right in its intervention to ensure longer term market stability.
New Landed Projects
Apart from the returning sentiments, the surge in landed home prices in 2017 was also a function of the supply of new homes entering the market, such as Brooks Signature @ Springside (D26), Kismis Residences and Tranquilia @ Kismis (D21). In the case of Brooks Signature, it contributed 51 out of the 84 units sold in District 26. The average $psf of the new sale market was $1,643 psf in 2016. With new projects entering the market in 2017, prices for new homes sold rose to $1,740 psf. On the other hand, the resale market remained stable.
Moving forward, we can expect new landed developments to have a similar impact on the prices of new landed homes. One example would be the later phases of Luxus Hills in Seletar Hills/Ang Mo Kio Avenue 5 by developer Bukit Sembawang Estates.
Price by Different Housing Types
Generally, the $psf rate for terrace houses is the highest among the three housing types, and its average price quantum rose from $1.9 mil in 2010 to $2.9 mil in 2019Q2. Over the same period, the average price of semi-detached houses rose from about $3.0 mil to $4.4 mil, while average prices for detached homes increased from $6.8 mil to about $9.0 mil (Figure 7a). Similarly, the sales volume reflects the same trend with terrace houses in the lead since they are the most by virtue of stock and most affordable, followed by semi-detached and finally detached houses.
After the 2018 cooling measures, the average $psf rate for detached houses mellowed, while the average $psf rate for terrace and semi-detached houses continued to gain traction in 2019 (Figure 7b). The increase in the average $psf was attributable to nearly half of all the semi-detached homes transacted being located in the prime districts 10 and 11 at higher $psf. Historically, price stickiness tends to last for about a year. For example, after the 2013 cooling measures, prices for detached houses continued to rise between 2013 and 2014 before falling. Therefore, the prices for semi-detached houses in the coming months may ease so that they are in alignment with the prices of terraces and detached homes.
65% of all of Singapore’s landed housing stock are located in these seven districts (Figure 8), and they command more transactions than the others. Other than District 10, these districts are located outside the prime residential areas, therefore most of the transacted price $psf are relatively lower than the 10-year national average of $1,185, making them more attractive to buyers.
There are also more amenities, such as schools, public transportation, and lifestyle options. District 19 encompasses Hougang, Serangoon Gardens, Sengkang and Punggol, and is a district growing in popularity, especially the latter two areas, where the government’s good town planning and development have resulted in numerous newer lifestyle and recreational amenities. Improvement in the transportation network also helps to support a burgeoning residential district. Some landed estates like Serangoon Garden Estate, Golden Hill Estate and Charlton Park share the amenities that District 19 provides and residents commute around these amenities with ease due to the connectivity from the transportation network and infrastructure.
Despite being priced higher than the national average $psf, District 10 has prestigious addresses and is home to tycoons. Some well-known estates are Shamrock Park, Oei Tiong Ham Park and Queen Astrid Park. To a lesser extent, this applies to District 15, which also boasts waterfront living due to its proximity to the coastline. Both districts house premier schools, providing an edge over the other districts.
District 28’s sales volume is a result of on-going real estate and infrastructural development in the area. The once forested areas are rapidly being developed into new residential areas supported by amenities. Luxus Hills, a massive and relatively new landed estate, contributed approximately 20% of all of District 28’s sales volume in the past ten years.
Generally, the districts that registered a higher average $psf over the last 10 years are mainly located in the Central Region and are fairly close to the CBD (Figure 9). Embassies, international and well-established schools, as well as a host of amenities are also found in the prime residential districts.
District 9, where Singapore’s premier shopping belt Orchard Road is sited, commands a higher premium. Its proximity to shopping and entertainment, F&B outlets, and the CBD, and the very limited supply of landed homes has kept home prices at the district at a lofty position. Some of these landed homes can be found around Kim Sia Park and Sophia Road.
The landed homes at Bukit Timah and Holland Road in District 10, and those at Dunearn Road are perennial favourites. The reason why the prices here, though high, are not at the levels of District 9, is that there are considerably more landed homes stock in these two districts compared to District 9.
At city-fringe locations, landed homes along Cambridge and Hertford Roads in District 8, and Balestier area and St Michael’s Road in Disrict 12 are desirable too, though to a lesser extent compared to Districts, 9, 10 and 11.
While District 15 is not located within the Core Central Region, historically it has been an area where tycoons used to stay. The proximity to the East Coast Park, numerous top schools as well as recreational/F&B offerings enable the homes in District 15 to command a relatively higher $psf than other non-central parts of Singapore.
2019 Market Sentiments
The majority of the sales from this year were from the resale market. This could be due to very few new freehold/ 999-year leasehold landed supply entering the market. Based on caveats lodged, only 4 out of 351 units were from new sales since January to-date, as compared to the 51 new sales out of 1,518 transactions in 2018.
The top seven districts in sales volume mentioned in the previous section contributed to more than 60% of the numbers in both 2018 and 2019. A large chunk of transactions from Districts 15 and 19 made up 35% of the whole year’s transactions in 2018 and 28% so far in 2019 for the resale market. It is likely that these districts will continue to display the same contribution in demand in the coming years.
Based on the sales activity in the first half of 2019, the residential market has slowed down due to the global and economic factors mentioned earlier. In contrast, demand for the same period in the past two years was steadily growing. Assuming the sales momentum remains constant throughout the rest of 2019, the number of transactions would double to around 700 in total or slightly more by the end of the year (Figure 10). Unfortunately, this number will still be lower than 2018’s volume.
Landed homes offer a copious amount of living space that is suitable for multi-generation families, and as such, provide a relatively higher quality of life. On top of that, landed homes with freehold/999-year leasehold tenure rarely depreciates in value when held for the long term and thus serves as an excellent asset for wealth preservation.
Though landed homes seem to provide more bang for the buck on a $psf basis when compared to non-landed homes, the absolute quantum of $2 million and above for a freehold/ 999-year leasehold landed home of at least 1,500 sq ft poses a barrier to entry for most of the population. But for those who can afford, landed properties could be one option when considering to purchase a home.
Since there will no longer be any new freehold/999-year leasehold land distributed by the government, the existing stock of landed properties will become even more valuable.
The restriction on the ownership of landed properties means that the market is dependent solely on local demand. But even without foreign inflows, the market for landed property could still be sustained. As Singaporeans become more affluent, the desire to upgrade their homes is likely to increase. As a result, the demand for freehold/ 999-year leasehold landed properties is expected to continue to grow over time.