SHORTER economic cycles coupled with increasingly volatile equity markets have led to a growing desire for safer investment options.
In property investments, homebuyers seek to purchase assets that can weather an economic downturn and provide long-term capital appreciation potential. Landed properties, being limited in supply, have often been regarded as a safer property investment option compared to their non-landed counterparts.
This has been so in the past few years where a significant number of non-landed units were released to the market through the Government Land Sales (GLS) Programme.
In H1 2012, some 7,020 non-landed residential units are expected to be released via the confirmed list while another 7,120 will be supplied through the reserve list.
There are no landed sites.
While non-landed properties across Singapore have seen higher sales volume in recent years, landed properties have seen higher capital appreciation and proved to be more resilient during a downturn.
Should one consider landed homes as an investment option, particularly as the economy becomes more volatile and uncertain?
Different classes of landed properties
In general, there are four main classes of landed properties in Singapore: Good Class Bungalows (GCBs), conventional landed houses, strata landed houses, and Sentosa Cove landed houses. While there are no restrictions on Singaporeans buying landed properties, permanent residents (PRs) and foreigners face restrictions.
GCBs may be regarded as the crème de la crème of landed housing on mainland Singapore. These exclusive bungalows, which are located in Singapore's 39 gazetted GCB Areas, are governed by stringent planning requirements such as a minimum plot size of 1,400 square metres (sq m), maximum site coverage control of 35 per cent and a height restriction of two storeys. GCBs are among the most sought after properties in Singapore and are owned mostly by Singaporean high net worth individuals.
Elsewhere in Singapore, conventional landed homes comprise semi-detached, terrace and detached houses.
Strata-landed homes are low-rise properties that come with strata titles instead of land titles. Introduced in 1993, this housing type caters to homebuyers who desire bigger space with privacy in a secure gated community. Such homes also offer the convenience of communal facilities such as swimming pools and tennis courts.
In the case of strata landed properties within developments with condominium status, foreigners (including PRs) may buy such properties without seeking regulatory approvals.
However, for the purchase of other types of landed housing, non-Singaporeans have to seek permission from the Land Dealings (Approval) Unit (LDAU) . Applicants have to fulfil certain criteria before approval is given, including being a Singapore PR and making significant economic contribution to Singapore.
Sentosa Cove is the only place in Singapore where even non-Singapore PR foreigners may purchase a landed home, although subject to obtaining LDAU approval.
Foreigners granted approval to buy a landed home in Singapore including at Sentosa Cove are required to use the property for their own occupation. They are allowed to own only one landed home in Singapore.
During previous property cycles, prices in the landed segment underperformed the non-landed segment. For example, in the 1996-2000 property cycle, landed properties fell 6.4 per cent, compared with 5.3 per cent for non-landed homes during the market downturn between Q2 1996 and Q4 1998.
When the market recovered, landed properties appreciated less than non-landed homes. The weaker performance was also observed in other earlier property cycles.
However, the pattern has changed since the global financial crisis.
Prices of landed homes have appreciated more than non-landed properties during an upturn and fallen by a smaller magnitude during a market downturn.
Fundamental changes in the investment climate and other factors such as limited supply, changes in regulations and government measures may have indirectly contributed to the shift.
Shift in dynamics
As the government releases more sites for non-landed developments to cope with increasing demand from a rising population, landed homes as a proportion of total housing stock in Singapore has shrunk.
As at end Q4 2011, landed properties accounted for 26.3 per cent of the total housing stock, down from 35.3 per cent in 2000. In absolute numbers, while supply of landed houses has increased, it was at a much slower pace than that for non-landed homes.
Over the past 10 years, the rate of increase for landed stock averaged 0.6 per cent (compounded annual growth rate, or CAGR), significantly lower than that of non-landed houses (4 per cent).
Under the GLS Programme 2011, there were only two sites slated for landed housing development, with a total of 115 units out of the estimated 23,590 total residential units that can potentially be generated from sites under the confirmed and reserve lists. In the first-half 2012 GLS list, there are no landed housing sites.
The stock of GCBs is even more limited with about 2,400 houses in 39 areas, mainly in districts 10, 11, 21 and 23.
On the demand side, landed properties have become more desirable due to strong population growth over the past two decades. In addition to existing high demand from Singaporeans, new citizens who are used to landed living would also seek to own landed properties when settling in Singapore.
Recent government initiatives may have boosted the attractiveness of landed homes, leading to stronger demand. More flexibility has been given in the design of landed housing through the introduction of the Envelop Control Approach in September 2010. Under this pilot scheme, architects gain more leeway in terms of design, allowing landed homes to be built up to four storeys instead of being limited to three storeys previously.
While encouraging creativity and ensuring practical supply of landed houses, the government also monitors closely the quality of landed housing developments, as evident in the implementation of minimum plot size for strata landed developments in February 2009 where a minimum plot size per unit, depending on its housing form, is prescribed for strata landed homes.
Bungalows, semi-detached and terrace houses are required to follow a minimum plot size of 400 sq m, 200 sq m and 150 sq m respectively.
The revised guideline reduces the number of strata houses allowable per development and was implemented to resolve concerns of increasingly congested strata landed developments before the measures. After all, strata-landed buyers especially those with larger families prefer the bigger built-up space typical of landed homes but want the convenience of condominium facilities as well.
Future for landed properties
The looming global crisis and slowdown in the Singapore economy in 2012 will inadvertently dampen buying sentiment in the property market and buyers are likely to stay on the market sidelines over the next 12 months while awaiting a more favourable investment climate. Volumes will fall accordingly.
However, as compared to non-landed properties, prices of all landed housing types may prove to be more resilient. New supply of landed properties remains limited, providing support notwithstanding an expected slowdown in the economy.
The additional buyer's stamp duty is not expected to have a significant impact on the landed housing market as foreigners, who are largely affected by the new measures, make up a low percentage of landed home buyers.
Foreigners (non-PR) accounted for 0.6 per cent of landed property purchases (including Sentosa Cove) in 2010 and 1.8 per cent in 2011. More importantly, the limited supply and prestigious lifestyle offerings continue to back the continuous demand for this evergreen property class.
Png Poh Soon is director, valuation and head of consultancy & research; Joanna Chen Wanzi is senior analyst, consultancy & research; and Le Thi Dan Thuy is analyst, consultancy & research at Knight Frank.
- The Business Times
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