Singapore’s success in using administrative measures to cool its real estate market — luxury prices have fallen about 20 percent in the past two years while Hong Kong’s have kept rising — means the restrictions are likely to get lifted, the Blackstone chairman said last week. His firm has been investing in high-end developments over the past four months.
Property has become Blackstone’s biggest profit driver as record-low interest rates and a U.S. economic recovery pushed prices higher. With Singapore poised to hold elections in the next two years, Schwarzman’s call on the luxury segment is a timely one, property analysts said.
“Historically, the government wants to please people before elections,” said Alice Tan, Singapore-based head of research and consultancy at Knight Frank LLP. “They would not want to be seen as being too punitive, especially for an area like property, which Singaporeans like to own as an asset class.”
Blackstone, the world’s biggest private-equity fund, bought a 10-story apartment block and another 18 units in Singapore’s prime residential district since December. A group of Singapore investors in January bought 16 units at 111 Emerald Hill, a condominium project off the Orchard Road shopping strip.
Starting in 2009, Singapore officials moved to stem a surge in the property market that was fueling discontent in the city-state of 5.5 million people. The highest taxes of as much as 15 percent of the purchase price were imposed on foreigners buying property in the island city.
As those measures took effect, prices of luxury homes — defined as more than 1,500 square foot in size and costing above S$2,400 ($1,744) per square foot — have dropped at least 20 percent since the start of 2013, the Real Estate Developers’ Association of Singapore estimates. Knight Frank has lately been fielding inquiries from funds and high-net-worth investors keen to purchase as developers with unsold stock are willing to cut prices, she said, adding that prices of prime units could rise 5 percent to 8 percent over the next three years.
The curbs “led to big drops in the value of certain properties and we bought after the decline happened — quite recently actually, within the last year — and we believe over time those restrictions will be terminated,” Schwarzman said on March 28 in an interview on the sidelines of the Boao Forum for Asia in Hainan, China.
Blackstone paid about S$164 million for the 34-unit block at 21 Anderson, within a short distance from Orchard Road, and S$83 million for the 18 units at Paterson Suites, a person familiar with the transactions said in February. Paterson Suites is a five-minute drive to Orchard and 10 minutes away from the office district.
“The smart money has started to come back,” said Donald Han, Singapore-based managing director at real estate broker Chestertons. “We are at rock bottom prices on the luxury housing market.”
The U.S. buyout giant is getting a bargain even after paying the extra stamp duty imposed on foreigners in 2011, said Alan Cheong, a director at property broker Savills Plc. It paid about S$2,000 per square foot based on the acquisition price, Cheong estimated.
“If you look at luxury segment prices, any transaction done below S$2,000 per square foot is a steal even if you have to pay the extra 15 percent stamp duty,” said Singapore-based Cheong. “Prime London property is going for S$3,500 per square foot.”
In the last decade, the average price of luxury homes in Singapore has been more than S$2,000, Cheong said. Average luxury home prices on Hong Kong Island, the most expensive of the city’s three territories, were at least HK$17,097 a square foot, or S$3,031, last year.
A representative for Blackstone declined to comment on the prices it paid.
Home prices fell for a sixth consecutive quarter, the longest losing streak in more than a decade. Prices in Singapore’s prime districts, with a high proportion of luxury properties, declined 0.6 percent in the first quarter.
While property restrictions have dented demand for high-end housing, the city-state retained its ranking as the most expensive city to buy a luxury home after Hong Kong in Asia, according to a 2015 Knight Frank wealth report.
Finance Minister Tharman Shanmugaratnam said in his budget speech on Feb. 23 that the government will continue to monitor the property market and adjust measures when necessary.
Singapore is home to the most millionaires per capita in Asia, according to a study by the Boston Consulting Group last year. Globally, only Qatar and Switzerland have higher millionaire density, the report showed.
Blackstone is moving to capitalize on that wealth. The firm has also entered into a deal with the country’s second-largest developer, City Developments Ltd., to take part in a financing for a luxury hotel, retail and residential development on Sentosa island. The deal would give Blackstone a fixed 5 percent coupon for five years and rights to any proceeds from the sale of the residential units.
“Blackstone seems to look for distressed assets and deep value,” said Vikrant Pandey, an analyst with UOB Kay-Hian Pte in Singapore. “In the U.S. it lapped up mass market apartments for their rental yields and deep value. In Singapore the luxury segment is offering deep value compared to mass market.”