Good Class Bungalows still seen as a sure bet by the ultra-rich

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By Leslie Yee

source: The Business Times

IN SPITE of the economic damage wrought by Covid-19, Singapore’s Good Class Bungalow (GCB) market had a stellar 2020 with transaction value up 35 per cent from a year ago to $51.05 billion. Market watchers expect positive momentum to carry through this year.

As it is, caveats have been lodged for 11 GCBs worth $302 million between Jan 1 and Feb 1 this year, data from List Sotheby International Realty showed.

Globally, much has been written on the top 1 per cent – or indeed the top 0.1 per cent – taking much of the spoils of economic growth. Singapore is not immune to this. Wealth continues to be generated, be it from businesses tapping into a growing Asia or in gaining from the thriving sectors such as technology and pharmaceuticals. Wealth is also being created through exposure across various as set classes, including stocks on Wall Street that have surged in an ultra-low Interest rate environment.

Amid global geopolitical uncertainties, Singapore’s safe haven status is ever more valued. Family offices continue to set up in Singapore, the most recent being that of Google co-founder Sergey Brin. It demonstrates the confidence that the uber wealthy have in Singapore.

The rich have always been drawn to put their money into luxurious abodes, be it mansions in London’s Mayfair, townhouses around Central Park in New York, or villas in Hong Kong’s The Peak.

‘Wealth created in whatever areas, be it finance, technology, or consumer goods, invariably gets channelled into luxury residential homes. These homes provide an oasts of tranquility, comforts for the family, a great Venue to entertain friends, and a powerful status symbol.

‘The pandemic has likely increased the draw of the GCB. Jet setting life styles are now substantially curtailed and work from home is a large part of life today. The wealthy have the means to spend more time at home in a GCB with high specifications and the privacy of one’s own garden,

Given these factors, some think buying a GCB here is a oneway bet – with prices going up and up.

GCBs are arguably the most exclusive segment of the Singapore residential market and can be found in addresses such as Nassim Road, Leedon Park and Queen Astrid Park. Members, of Singapore’s old money live in GCBS and they have been joined by the new rich such as Haidilao’s Zhang Yong.

GCBs are typically restricted to Singapore citizens. This is unlike the case for landed homes in Sentosa or high-end condominium units any where in Singapore, where foreigners are not restricted from buying. GCBs also trump homes in Sentosa by typically having freehold status and larger land plots. Homes on Sentosa are sold. with original land leases of 99 years.

Critically, GCBs command scarcity value. There are only about 2,500 GCBs in Singapore and supply cannot grow by much. Large GCB plots can be subdivided but such plots are not that easily available in the market and a buyer may not wish to have any such plot subdivided.

In the luxury condominium market, supply is more elastic as old apartments in choice locations can be potentially redeveloped into new luxury condominium developments with more units.

Moreover, eye-popping prices paid for GCBs of $520 million or $$30 million or more need to be seen in perspective.

It takes a minimum net worth of around $$820 million to be considered among Singapore’s 50 richest, says the 2020 Forbes Singapore Rich List. For a patriarch with this net worth, buying three GCBs with one for himself and one each for his two children, at around $$30 million each works out to having just over 10 per cent of wealth tied up with Singapore residential property. Such proportion of capital allocation to residential property would be lower than for many Singaporeans.

When it comes to keeping price growth in private residential property under control, expect the government to be less concerned with how the GCB market is doing. than with prices of mass to mid-market condominium units.

Should the wealthy channel monies away from homes towards investing in business ventures that create jobs in a climate where job creations critical?

Whether money should be used for more productive purposes is a moral question. But if enough of the wealthy choose to spend more on investing in businesses, social enterprises and philanthropy, then luxury residential prices including those of GCBs may take a hit

More pertinently, the risks to GCB prices are likely to come from government actions. In land-scarce Singapore, authorities may decide that GCB areas can be shrunk with parts of certain GCB areas zoned for more intensive housing uses such as semi-detached houses or low-rise condominiums.

Monetary compensation should accrue to owners of the affected plots. But to those able and eager to retain their plots for bungalow use, change in the character of the enclave can nevertheless hurt the land’s value.

The big risk though, is likely to come from aggressive measures taken to fight inequality such as the use of a wealth tax, as advocated by economists such as Joseph Stiglitz and Thomas Piketty.

A tax of 2 per cent per annum on a $530 million GCB translates to $$600,000. This should be affordable to many GCB owners but could hurt the holding power of those with weaker net cash inflow. The signalling mechanism of such a tax may well lead to the wealthy reducing investment in luxury property.

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