Investors warm to cooling condo prices

Sharp 40% drop in luxury Orchard Rd condo prices from peak in H2 2007 is making some investors sit up and take notice

By KALPANA RASHIWALA

(SINGAPORE) The sharp slide in high-end residential property prices is beginning to show up on the radars of serious investors.

From their peaks in the second half of 2007 to the first quarter this year, transacted prices of luxury condos in the prime Orchard Road belt have fallen by about 40 per cent.

This is the steepest islandwide decline in condo prices and the potential buying opportunities that this is opening up are not lost on investors keen on buying multiple units.

Credo Real Estate's analysis of URA Realis' caveats shows the average price transacted at St Regis Residences has fallen 38 per cent from $3,411 per square foot in H2 2007 to $2,099 psf in Q1 this year.

At Ardmore II, the average transacted price has slipped 43 per cent, from $3,073 psf in H2 2007 to $1,761 psf in Q1 2009.

Over the same period, Cairnhill Crest's average price declined 36 per cent to $1,430 psf in Q1 2009.

'The projects we selected were those that we believed stood as good proxies for their respective locations, and ideally have some history (that is, not launched recently),' said Credo's managing director Karam- jit Singh.

'Transaction volumes were thin in Q1 this year; there were only three luxury projects in the Orchard Road belt with at least two transactions each in the first three months of this year. It's not an ideal situation, where we would want to pick from a larger basket of transactions. But this study still serves to point towards where the market has been heading,' he said.

Credo's analysis also showed that, on average, condo prices in Sentosa Cove in Q1 2009 were about 30 per cent below H2 2007. In the city centre, the average price decline in the same period ranged from 22 per cent (for Icon) to 34 per cent (for The Sail @ Marina Bay).

In what Credo dubs the 'mid-prime segment' - covering River Valley, Bukit Timah, Novena/Thomson and Katong - it said average price declines generally ranged from about 20 to 30 per cent. Suburban condo prices generally fell less than 10 per cent.

'The analysis shows the greater price volatility in the prime districts, which also presents opportunity for greater upside when recovery sets in, compared with suburban condo prices, which tend to move in a more subdued fashion,' said Mr Singh.

The bigger price drops in the Orchard area have led to a narrowing price gap between the high-end and low-end segments. 'At some point, not too far from now, buyers will start upgrading from one tier to the upper tier,' Mr Singh reckons.

'What the price convergence illustrates is the buying potential of prime properties. It will pay - whether at this point in time or not very far off from now - to bet on prime,' he added.

The price declines have surfaced on the radars of potential investors - individuals, families and some property funds - who are studying top-notch prime- district projects, with a medium-term investment horizon. 'Some have capacity to take about 10 units, some 20 units. Some have budgets of more than $100 million,' according to Mr Singh.

CB Richard Ellis executive director Jeremy Lake said high-net-worth individuals here as well as in a three-hour flight radius from Singapore are among the key players actively looking for property investments here. 'Some are keen on investing in offices; some in residential - most would go for the high-end, where prices have corrected the most,' he added.

Mr Singh said acquisitions would be funded largely with equity. 'Right now, they're monitoring the big picture - homing in on a good time to make a swoop, which projects, at which prices,' he added.

Mr Lake adds: 'Some investors are willing to commit sooner rather than later, compared with a few months ago when everybody wanted to wait and found pricing to be unattractive. Now, some investors think pricing is good enough to go.'

Market watchers say the likelihood of deals being struck will also depend on the threshold of sellers, who could include individuals who are stretched from holding multiple condo units as well as developers of projects with low-cost land or who just want to clear unsold units.

DTZ senior director Shaun Poh says some private bankers are trying to arrange consortiums for high-net-worth clients and are sourcing for property investments of about $20-50 million per consortium. 'Their main target would be high-end condos; some may also be interested in commercial properties. The banks will also provide financing for the acquisition.The mandate given to these private bankers is to look for opportunities priced 20-30 per cent below current values,' he said.

However, Mr Singh's advice is: 'It's close enough to the bottom that it makes sense to buy at this stage, rather than buy when it has turned the corner - by which time the number of competing buyers will be greater.'

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