Singapore Housing Market is Too Costly: SC Capital

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Luxury Homes In Singapore
Private yachts berthed outside luxury condominium apartments at Sentosa Cove in Singapore, on Wednesday, 3rd February, 2010. Photographer: Munshi Ahmed/BloombergXXX Sentosa Cove/Marina Bay in Singapore, on Wednesday, Feb. 3, 2010. Singapore's luxury-home prices wonÕt match Hong Kong's because an increase in building ahead of two casino projects in the city-state will see nine times the number of new apartments going up over the next three years than in Hong Kong, according to real estate broker Savills Plc. Photographer: Munshi Ahmed/Bloomberg

SC Capital Partners, which booked a loss from the sale of Singapore apartments to Blackstone Group LP in January, said prices in the city-state need to drop another 30 percent.

Suchad Chiaranussatti, founder of the Asian property fund, said he won’t be re-entering the Singapore residential market until he sees a further decline in prices. Prices need to drop by about 20 percent to 30 percent to make residential investments attractive again, he said in an interview.

“We bought in 2011 and then the policies came in,” Chiaranussatti said referring an additional stamp duty introduced that year to cool home prices that had reached a record. “The intensity and the severity of the policies caught us by surprise.”

SC Capital, which manages $1.8 billion in real estate assets, booked S$12 million ($8.9 million) in losses when it sold 18 units at the upscale Patterson Suites condominium project to Blackstone in January for S$2,100 a square foot after acquiring the properties for about S$2,300 in 2011, he said. The fund returned 28 percent even after booking the loss, Chiaranussatti said.

Home prices across the island fell for a sixth consecutive quarter in the first three months of the year, the longest losing streak in more than a decade. Prices in prime districts, with a high proportion of luxury properties, declined 0.6 percent in the period.

Since 2009, Singapore moved to stem a surge in the property market that was fueling discontent in the city-state of 5.5 million people. The measures included taxes as high as 15 percent of the purchase price for foreigners.

Interest Rates

Prices of luxury homes -- defined as those larger than 1,500 square foot and costing above S$2,400 per square foot -- have dropped at least 20 percent since the start of 2013, the Real Estate Developers’ Association of Singapore estimates.

Still, Chiaranussatti, who started SC Capital in 2004, doesn’t see the government removing property curbs for the next two years.

“With interest rates on the way up, there will be pressure,” Chiaranussatti said. “The policy is working, there is no reason whatsoever for the government to relax it.”

The three-month Singapore interbank offered rate, against which most home loans are benchmarked, topped 1 percent earlier this year before settling at 0.82 percent, almost double the rate at the end of 2014. Every percentage point increase in interbank rates raises repayments on a S$1 million property by 12 percent, assuming an 80 percent loan-to-value ratio and a 25-year loan duration, according Maybank Kim Eng Securities.

Opportunities Ahead

Others are betting on a removal of the curbs. Blackstone Chief Executive Officer Steven Schwarzman said in March that the Singapore restrictions would be lifted over time.

The world’s biggest private-equity fund bought a 10-story apartment block in addition to the units at Patterson Suites, while a group of Singapore investors in January bought 16 units at a condominium project off the Orchard Road shopping strip.

SC Capital’s Chiaranussatti says he expects some investment opportunities to arise over the next couple of years when prices decline further because mass-market home prices haven’t dropped as much as those for luxury housing. Mass-market homes have slid only as much as 5 percent, according to Knight Frank LLP.

Units in prime areas like Patterson are selling for S$2,100 per square foot, while condos in the suburbs are fetching S$1,600 a square foot, Chiaranussatti said.

“Today, if I can go back to Patterson Suites and buy at S$1,900 a square foot then I would,” he said.

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