Since government curbs on the local property market began to take effect from the beginning of last year, Singaporeans have begun to cast their eye towards residential properties overseas for better returns on their money. Most appear to be looking at capital appreciation rather than rental yield which, although better in many cases than interest from bank deposits here, is still rather low. With more than 105,000 millionaires in Singapore, one of the highest concentrations of the rich on the globe, we certainly have the means and penchant for investing around the world. And in many cases, money is channelled into property, a peculiar Asian trait.
Here we look at six real estate hot spots to invest in: London, New York, Sydney, Dubai, Tokyo and Kuala Lumpur. These cities remain a favourite not least because we are familiar with them – they also continue to offer valuable buys and have good growth potential.
Rental yield: 3–4 %
12-month price change: 6.7 %
Current mansion tax: 1%
Agent transaction cost: 6-8%
Stamp duty: 1.5-6%, depending on financing
Last year, some 42,000 property transactions took place, with a value of around US$37.5 billion (S$50 billion) and a median sales price at US$480,750. What makes New York attractive to us is the strength of the Singapore dollar which, at press time, was $1.35 to the greenback.
But investors should not hope to make quick returns here and must be able to hold on for at least five to eight years, if they expect good returns.
Rental for a one-bedroom apartment can reportedly fetch between US$3,000 and US$4,000 a month. According to real estate company Douglas Ellman’s March report, this upward trend on rental yield is expected to continue, with “an improving local economy and tight mortgage lending conditions”.
The trend in New York these days is for more modest units – even micro units – as prices continue to rise. Prices in Manhattan are expected to increase about 4 per cent this year, half of last year’s rate. One slight dampener, though, is New York Mayor Bill de Blasio’s proposal to raise mansion tax by an additional 1 to 2 per cent, on sales of residences over US$1.75 million. This would mean an increase by 1.5 per cent on sales of over US$5 million, or a total of 2.5 per cent.
While most sales are to local buyers, foreign sales to the Chinese nouveau riche are said to be increasing. Last year, Chinese buyers reportedly pumped some US$22 billion into the US property market, with a significant amount invested in New York.
One borough to consider is Brooklyn, where prices are said to be rising at a faster rate, with the average price going up 10 per cent to nearly US$750,000, despite an increase in inventory. Such a strong market this early in the year is “an indicator of a good year”, Frank Percesepe, regional senior vice-president of New York real estate brokerage Corcoran Group told New York Magazine in April. He adds: “The best is yet to come.”
Rental yield: 3-4 %
12-month price change: 7.4 %
Stamp duty: 5-7%
Capital gains tax: 18% or 28%, depending on individual’s tax rate
Agent transaction cost: 2-3%
Having been part of the British Empire, Singapore is familiar with the cosmopolitan English capital. Not only is it regarded as a safe place, parents value the city’s education facilities and often purchase apartments for their children who study there. Almost a third of buyers in central London, where the average property price is over £2 million (S$4.2 million), is said to be foreigners.
“London is the most transparent of cities to invest in and, therefore, an easy place to buy and sell property,” says Doris Tan, director of international residential property services at Jones Lang Lasalle Property Consultants. “It is a very interesting market and, although it is relatively expensive, there is no shortage of buyers from around the world.”
Also bullish about London is Kathrin Hersel, development director of London-based property developer Almacantar which is transforming the city’s landmark Centre Point into a luxury 82-apartment complex. Prices range from £1.8 million for a one-bedroom apartment to £55 million for a five-bedroom duplex penthouse.
Hersel says: “With London’s population projected to grow from the present eight million to over 10 million over the next decade, demand will always be there.” Nearly 8,000 luxury apartments worth some £12 billion are expected to be completed and will go on sale in Central London by year’s end.
In the first quarter of this year, homes in the prime areas of London saw their biggest rise in values. Buyers paid a 34 per cent premium in areas like Kensington and Chelsea, according to news service provider Property Wire.
As recent as early last month, some home owners slashed selling prices, for fear of falling values in the event of a Labour-led government and a proposed mansion tax. But now that the Conservatives are back in power, prices are expected to rise again.
Rental yield: 4-5 %
12-month price change: 4.5 %
Capital gains tax: 30% for properties sold within five years of purchase
Acquisition cost: 4-6% of purchase price
Property tax: 1.7% of appraisal value
Stamp duty: 200 yen (S$2.20) to a cap of 480,000 yen, depending on price of property
Although prices of new apartments are expected to continue to rise for the rest of the year, the weakening yen has attracted foreign buyers to the country’s property assets. Residential properties, even in Tokyo, are still priced at about half their peak values, which are considerably lower than prices in Singapore and Hong Kong. Moreover, they are freehold and there is no restriction on foreign buying. Financing for up to 70 per cent of valuation is available from several banks, including some Singapore banks.
Last year, the average price of new apartments in greater Tokyo reached 50.7 million yen (S$560,000), the highest since 1992’s average of 50.66 million yen. It looks like this trend will only persist, as Japan’s Real Estate Economic Institute anticipates “the recovery of the property market in central Tokyo to become even stronger”. Prices are said to have risen over 60 per cent since 2000, to 978,000 yen per sq m as at the end of last year. According to Tokyo-based real estate brokerage firm Japan Property Central, the rising costs of new apartments due to labour shortage and high construction prices “have caused consumers to turn their attention to the resale market, as second-hand apartments are typically less expensive than brand new ones”.
Total supply of new apartments for sale this year is projected to reach 45,000 units. Over 30,000 resale units are expected to be on the market. Buyers also look for properties near train stations to avoid driving on congested roads. The 2020 Olympics, to be held for the second time in Tokyo, is expected to give the property market a further boost, and some 6,000 units are expected to be made available after the Games, almost all in the Bay area where most of the venues will be.
To gain a better understanding of the Japan property market, prospective buyers are advised to attend seminars such as those held here by Sumitomo Realty & Development Co, one of Japan’s largest property developers.
Rental yield: 5.5-6 %
12-month price change: 2.6 %
Real estate broker fee: 2% of purchase price
Registration fee: 4% of property’s value
Buying off-plan: 10-15% deposit
Title deed: AED250 (S$90)
For those who want in on the emirate’s properties, now is the time. This is especially after measures were enforced to cool down an overheated market to avoid a repeat of the 2008 property bubble when values dropped 65 per cent, reported Bloomberg.
Despite reports of a softening economy – what with falling oil prices, currency issues (the dirham is pegged to the US dollar), stricter borrowing rules and doubling of property registration fees – investors who are willing to bite the bullet are likely to find bargains at good value and yield rental returns that are better than London’s.
Dubai’s prime residential property market is relatively inexpensive by international standards, according to Knight Frank’s 2015 Global Cities report which predicts property trends. It adds: “This, combined with the fact that the UAE economy and employment continues to grow strongly, suggests that the prime residential market in the emirate is likely to see ongoing expansion despite new market controls, such as the doubling of transfer fees to 4 per cent and newly introduced mortgage caps.” These new rules include foreigners being able to borrow only 65 per cent for residential property worth over 5 million dirhams (S$1.8 million), which is a stark contrast to the boom period of 2008 to 2009 when some banks offered 90 per cent finance.
Business Bay, Dubai’s CBD, and Dubai Marina remain the most popular areas, with over 8,400 units worth 16.4 billion dirhams exchanging hands, reported Abu Dhabi newspaper The National in January. Some 22,000 new homes are expected to be added to the current stock by the end of this year. Some Dubai agents are asking sellers to reduce asking prices by as much as a fifth, reported The National, pointing out that part of the shortfall could be made up through favourable currency exchange rates. Lenet Asatourian of Dubai real estate brokerage ERE Homes told Bloomberg: “This year, we are getting more enquiries than we did in the past six months… Buyers who held off last year as prices surged are coming back. To me, that signals a maturing market.”
Rental yield: 5-8 %
12-month price change: 0.7 %
Stamping, adjudication and search fees: RM180 (S$67)
Lawyer fees: 0.4-1%
Capital gains tax: 30% of profit for properties sold within three years of purchase
Stamp duty: 1-3%
While many have focused on Johor’s Iskandar Malaysia project, more investors are taking another look at the capital Kuala Lumpur. “The weak Malaysian dollar makes buying into Kuala Lumpur cheaper and easier,” says Doris Tan of Jones Lang Lasalle Property Consultants. “Banks are also keen to lend on Malaysian properties, so borrowing is not a problem.” At around 4.5 per cent as at the end of last year, mortgage interest rates are at a historic low.
While most home prices in Malaysia are still below the pre-Asian crisis 1997 levels, housing prices in KL have increased more than 75 per cent since 2005 and are almost at their pre-crisis levels.
This prompted central bank Bank Negara Malaysia to introduce cooling measures, including reducing the maximum home loan period from 45 years to 35 years, shortening the maximum personal loan period to 10 years from 35 years and removing pre-approvals for financial products. In January last year, taxes on capital gains were doubled. The Real Property Gains Tax for non-citizens on properties sold within five years is 30 per cent, while properties sold after that period still attract 5 per cent tax. As of March last year, foreigners can buy only properties priced at or above RM1 million (S$360,000), double the previous minimum threshold of RM500,000.
According to Malaysian property consultants C H Williams Talhar & Wong, the government’s Economic Transformation Programme has helped to increase the demand for luxury condominiums in the Klang Valley, which caters mainly to foreigners. Tan says the Singapore-Kuala Lumpur high-speed rail, which is targeted for completion in 2020, is expected to give another fillip to the KL property market as travelling time between the Malaysian capital and Singapore will be substantially reduced. She adds: “This makes a good investment opportunity. The downside is rentability may be low, due to lack of demand from foreigners and expatriates as KL is not a major city.”
Rental yield: 3-4 %
12-month price change: 11.6 %
Agent’s commission fee: 2-3.5%, depending on location of property
Stamp duty: 1.25-7%, depending on property value
As the Aussie dollar has gone down over the last year or so against the Singapore dollar, investing in Australia makes better sense now. It also helps that several of Australia’s biggest developers, like JV Jennings and Australand, are controlled by Singapore-based companies.
Still, Sydney is no longer a cheap place to buy a home. While prices stagnated in cities like Perth, Brisbane and Adelaide, the Sydney property market saw residential property prices soar 6.5 per cent last year. The city’s house-price-to-income ratio is higher than places like London, New York or Tokyo.
The medium sale price of residential units last year was over A$1 million (S$1.08 million) in seven of 23 Sydney suburbs, with the median in Palm Beach – where Sydney’s rich and famous play – being A$2.25 million. The lowest median price was in Brooklyn at A$716,000. Judging by recent sales by Singapore-listed Stamford Land in Sydney, there is no sign of interest relenting.
Executive chairman Ow Chio Kiat says: “Last December, we sold a freehold development site at Dulwich Hill for A$51 million, more than twice the A$23.7 million we paid in April 2013. We have also sold the last of our apartments at the 648-unit Macquarie Park Village development, grossing almost A$450 million in the process.”
Before buying a property in Australia, remember that foreigners can sell their properties only to Australian citizens and permanent residents. Mortgage rates are fairly low too, and likely to decline further till 2017.