The evolution of the luxury home market
Despite the ever-evolving definition of luxury residences, two characteristics continue to stand out: location and space, says HAN HUAN MEI
WHAT constitutes luxury homes today, especially when the entire price structure of residential homes has changed so drastically in the past five years?
Prior to 2003, one could safely define prime residential areas as postal districts 9, 10, and 11 which comprise the Cairnhill, Orchard, Grange, Tanglin, Holland, Bukit Timah, Dunearn, Newton, and Novena areas. The districts immediately surrounding these three would comprise the next price range of housing.
Anywhere beyond, going into the HDB estates and new towns would be homes of the lower price range, catering to the masses. In dollar terms, prime residential had a price tag of $1,500 per square foot (psf) and above at that time. The mid-tier price range was $900-$1,400 psf and mass market homes were priced below $900 psf.
The prime residential market saw a watershed year in 2007 because there was a clear split between prime and luxury homes when the latter attained headline prices way above $3,000 psf. When some new projects hit $4,000 psf and above, they formed a new class called 'super-luxury' homes.
Unfortunately, a misnomer was created when small-format homes began to sprout in the prime districts to counter the high quantum. These units fetched prices ranging from $2,500 psf to $3,500 psf but their product attributes could not offer a luxurious lifestyle.
Luxury living in Singapore has evolved over time, from quality finishes to designer fittings to branded residences with butler services and lifestyle features like carpark lofts and private berths for waterfront homes.
The rich and well-heeled are attracted to them because owning a trophy residence beats owning a standard home any time. Two characteristics of luxury residences continue to stand out: location and space.
They are located at exclusive addresses and come with generous living areas for the enjoyment of space. URA has demarcated the Core Central Region (CCR) as the location where high-end homes are found.
This comprises the traditional prime districts 9, 10, and 11 as well as the waterfront locations of Marina Bay, Sentosa Cove, and Keppel Bay.
In recognition of the various types of residences and in consideration of the current higher price levels, the general consensus is that prime properties fall within the $2.5 million to $5 million price band, luxury homes within the $5 million to $8 million band, and super-luxury homes are those priced $8 million and above.
As a guide, luxury and super- luxury homes are taken to be 2,500 sq ft and above, befitting a lavish lifestyle.
In 2007, sales volume was at a record high and home prices peaked.
URA data for the selected districts where luxury homes are found showed that 230 homes in the primary market (Table 1) were sold at prices $5 million and above from Jan to Aug 2010. Within this basket, 144 new homes (Table 2) were of sizes 2,500 sq ft and above.
At the peak of the market in 2007, 701 new homes were sold at $5 million and above (Table 1) and of these, 402 were 2,500 sq ft and above. On the whole, luxury prices in 2010 are still lower than those in 2007.
In the secondary market, the first eight months of 2010 saw the sale of 182 luxury homes above $5 million sold in 2007, of which 166 were over 2,500 sq ft. This compared with 489 homes in the same price range sold in 2007 but a higher number of 532 homes were over 2,500 sq ft. The higher number of large units sold could be attributed to the more affordable price levels of older properties.
Back in 2007, the focus of the market was on new projects setting new benchmarks, causing the rift between luxury prices in the secondary and primary markets to widen.
It is foreseeable that the luxury transaction volume in 2010 will not measure up to that in 2007. Price-wise, the prices of secondary luxury homes have more or less caught up with the levels in 2007 but those in the primary market are still lagging behind by 10 per cent on the average.
The implication is that there is a potential for current prices of new luxury homes to rise as the economy strengthens and sentiment improves. Some 1,000 units in luxury projects like Ardmore II, 8 Napier, and Paterson Suites were completed this year, with another 1,400 units due for completion between September 2010 and December 2011.
Among them, around 900 units remain unsold. It was reported that property funds have been involved in the bulk deals of high-end apartments.
One of these was Arch Capital, who bought all 34 units of Royal Oak - a refurbished project in Anderson Road - at around $200 million or $2,337 psf. The likely route that developers will take is to source for such bulk purchasers. Alternatively, they may keep them for rental income until higher prices are achieved later.
The writer is associate director, CBRE Research, Singapore
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
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