Volumes strengthen as value emerges in Good Class Bungalow Market

By Wong Xian Yang, Head of Research & Consultancy, OrangeTee. 8th March 2017

The Good Class Bungalow (GCB) market has seen rising activities as of late, with the number of transactions steadily improving since 2014. Captains of industry in various fields ranging from retail to food were active in the GCB market in the past year. For example, Andy Chua, the owner of Yun Nam Hair Care purchased another GCB along Brizay Park off Old Holland Road for $33 million – next to a property he already owns. Other renowned names which snapped up GCBs in 2016 include Chen Tianqiao, the co-founder of Shanda Group, Zhang Yong, founder of the popular Hai Di Lao steamboat chain, the Wong family behind handbag and shoe maker Charles & Keith, and David Teo, chairman of Super Group.

GCBs are the crème de la crème of the Singapore residential market, with only about 2,800 GCBs on the island in 39 gazetted GCB areas. GCBs are safeguarded by strict planning requirements to preserve their exclusivity and low rise character. To be classified as a GCB, the property must have a land area of at least 15,000 sq ft and must be located in a HCB area. Currently, only Singapore citizens are allowed to buy landed homes in GCB areas, after a policy change in 2012. Due to their scarcity factor and potential for capital appreciation, GCBs are highly sought after by the Singaporean wealthy.

There were 37 GCB transactions in 2016, an improvement of 33 deals done in 2015. However, this is still far below 2010’s volume of 132 transactions. The majority of GCB transactions in 2016 were from district 10, which includes GCB areas such as Chatsworth Park, Ridout Park, Ridley Park etc. The Chatsworth Park and Ridout Park areas are particularly popular among GCB buyers as evidenced by the higher relative volumes as compared to the other areas over the past few years.

GCB volumes by area from 2010 to 2016

Source: URA, OrangeTee Research

The largest purchase in 2016 was a single storey GCB in Queen Astrid Park. The bungalow is located on a sprawling 35,011 sq ft site, and was sold for $44.5 million in July 2016. This translates to a per sq ft price of $1,271 over land area. The site is large enough to be subdivided into 2 smaller GCB plots. The buyer is believed to be a granddaughter of Mr Goh Cheng Liang, the founder of Nippon Paint group.

Overall GCB prices peaked in 2012, after gaining 76% from 2009. Since 2012, GCB prices have trended lower, buckling under the weight of cooling measures, loan curbs and anaemic economic growth. By the end of 2016, prices have fallen 14 % from 2012.

GCB price index and volumes

Source: URA, OrangeTee Research

The steep fall in GCB prices since 2012 may present a window of opportunity for prospective investors or own occupiers. GCB prices have experienced the steepest fall in prices as compared to other segments of the market. For example, overall landed and non-landed prices have fallen 13% and 8% respectively, from 2012 to 2016. The relatively steeper faller in GCB prices is largely due to their large quantum; current GCB prices range around $19 million to $27 million, depending on their locational attributes, land size and state of the property

GCB, overall landed and non-landed price indices

Source: URA, OrangeTee Research

Cooling measures and loan curbs have reduced buyers’ affordability and shrunk the potential demand pool for GCBs and big ticket properties. But the greater fall in GCB prices was partly shaped by government policies, which encouraged demand to flow towards more affordable properties. As such, the potential upside could be significant, should cooling measures be unwound in the future.

Demand for luxury properties is expected to grow over the long term, driven by rising wealth in the Asia Pacific region. According to the World Wealth Report 2016 by Capgemini, the HNWI population in the Asia Pacific is expected to grow and is poised to be a major driver of global HNWI wealth over the next few years. A part of this wealth would find their home in Singapore, driving demand for Singapore luxury properties. With its attractive tax rates, high standards of living and transparent housing regulations, Singapore will continue to appeal to the HNWI population.

Given the limited supply of GCB, together with an expected increase in demand due to growing wealth in the Asia Pacific region, the long-term fundamentals of GCBs remain intact and the upside potential is likely to be significant, when the market recovers. GCB prices have fallen significantly from their peaks, and price growth will remain suppressed due to cooling measures and the tepid economic outlook. However, GCB volumes have started to pick up, and can be interpreted as a sign of increased investors’ confidence in the property market.

Assuming economic conditions do not deteriorate sharply, property prices could possibly stabilise by the end of 2017. Buyers who are looking to pick up a GCB should keep a look out, as opportunities emerge during this uncertain landscape.

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