Property prices on the isle, once pitched as Singapore’s playground for the rich and famous, are lagging far behind the mainland prime market.

Property prices on the isle, once pitched as Singapore's playground for the rich and famous, are lagging far behind the mainland prime market

Idyllic view of the Southern Islands from the private pool on the roof terrace of a sky villa at Cape Royale.

A bedroom in a strata townhouse at The Green Collection in Sentosa Cove, with panoramic views of the golf course.

IT HAD been marketed as "the world's most desirable address" and pitched as a playground for the rich and famous, but since the last peak in transaction activity in 2010, property prices in the waterfront housing district of Sentosa Cove have lagged those for high-end residences on mainland Singapore. Market watchers attribute this to several factors, including the introduction of the additional buyer's stamp duty (ABSD) in late 2011 at a rate of 10 per cent on foreign buyers of Singapore residential properties. In January 2013, the rate was hiked to 15 per cent before being raised further to 20 per cent last July. Because of the way Sentosa Cove had been marketed, it had historically relied more heavily on foreign buyers compared with high-end homes on the mainland. Hence many players with stakes in Sentosa Cove see ABSD as the "killer" for residential sales in the precinct. Says a spokesman for Hong Leong Group: "ABSD is a significant deterrence on foreign buyers/investors. This heavy tax increase can cause potential buyers to have some second thoughts."

The group is the parent of mainboard-listed City Developments, which was involved with developing The Oceanfront @ Sentosa Cove condo project and The Quayside Collection hotel, retail and residential mixed-use project.

Other factors have also contributed to the relatively quieter property market at Cove, including the precinct's master developer winding down overseas promotional activity for the location once it had finished selling the last of the big land parcels in 2008, said observers. More on this later.

First, a quick comparison of property price movements since 2010 on Sentosa Cove vis-a-vis the mainland.

A recent study by List Sotheby's International Realty (List SIR) shows that the average price of condo units transacted on Sentosa Cove fell nearly one-third from S$2,325 per square foot in 2010 to S$1,560 psf last year.

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In contrast, over the same period, the average transacted price for units in a basket of 22 comparable non-landed projects in prime districts 9 and 10 on the mainland rose 14.1 per cent from S$2,422 psf in 2010 to S$2,764 psf in 2018.

As a result, the average price for the district 9 and 10 basket was 77 per cent higher than that for Sentosa Cove last year. Back in 2010, the gap was just 4 per cent.

(The developments in the district 9 and 10 basket have similar attributes - such as quality of finishes, age, project size as well as unit sizes - as the nine launched condo projects on Sentosa Cove. All these developments were launched around the same time, that is, between 2004 and 2010. While the Sentosa Cove condo projects were developed on sites with 99-year leasehold tenures, all but one of the 22 projects in the district 9/10 basket are freehold.)

In the landed housing segment, List SIR compared bungalow sales on Cove against those in Good Class Bungalow (GCB) Areas on the mainland. The finding was that the average price for Sentosa Cove villas shrank 10.6 per cent from S$1,910 psf on land area in 2010 to S$1,707 psf last year.

On the other hand, prices in GCB Areas increased 37.5 per cent over the same period, from S$1,102 psf to S$1,515 psf.

The higher psf price on Sentosa Cove, despite 99-year leasehold tenures compared to predominantly superior freehold tenure in GCB Areas, is due partly to the fact that bungalows in Cove are mostly on smaller land plots averaging around 9,000 sq ft; in GCB Areas, the minimum plot size is typically 15,070 sq ft, with many plots much bigger than this.

The volume of sales in GCB Areas has fallen at a slower clip than for Sentosa Cove bungalows.

Last year, 11 villas were sold in Cove, about a fifth of the 54 deals in 2010. The number of bungalows transacted in GCB Areas has also eased, albeit at a slower pace: the 42 deals last year is 35 per cent of the 120 deals a decade earlier.

Fast track to luxury

The first Sentosa Cove residence was completed in 2006 and today, the precinct is home to more than 2,000 properties, of which about 20 per cent are landed homes and 80 per cent are condominium units, according to a spokesman for Sentosa Development Corporation (SDC). There are over 6,000 residents living in the precinct, which also has a marina, a hotel and F&B/retail outlets.

Sentosa Cove was built on a 117-hectare stretch of mostly reclaimed land on the eastern coast of Sentosa Island. Reclamation began in stages in the 1970s. With the reclamation and excavation works completed in the mid-1990s, five islets had been carved out of the reclaimed land along with a network of canals.

Sentosa Cove Pte Ltd (SCPL) was set up as a subsidiary of SDC in 1995 to master plan the precinct and market land parcels for sale, among other things.

SCPL launched its first land parcels for sale in 2003, marking the start of a new chapter in luxury living in Singapore with homes allowed to be built on the waterfront. The precinct was pitched to foreigners and hence, was more dependent on foreign buyers compared with plush residences on the mainland.

Singapore has restrictions on the purchase of landed residential property by foreigners. However, to attract international talent and high net worth personalities to have a stake in Singapore, a special arrangement was made at Sentosa Cove, where foreign individuals were allowed to buy either a completed landed home or land parcels for development into their home on Sentosa Cove. However, the landed property has to be for owner occupation and a foreigner may own no more than one so-called restricted property in Singapore. Foreign buyers still need the government's nod but fast-tracked approval within 48 hours was provided.

To promote the sale of sites in the waterfront housing precinct, SCPL engaged in an international marketing blitz, showcasing the precinct at prominent luxury residential property events in places such as Shanghai, Monte Carlo and London. This went hand-in-hand with an international advertising campaign that put forward the Cove as "the world's most desirable address", as mentioned in a coffee table book Sentosa Cove published in 2009 by Editions Didier Millet.

A developer told BT that prior to the 2008 global crisis, at least half of those who bought units in its condo projects on Sentosa Cove were foreigners (including Singapore permanent residents), compared with 20 to 30 per cent for high-end condo launches on the mainland around the same time. "The target market for Singaporean buyers on Cove is smaller because of reasons such as the lack of proximity to schools."

A wave of foreign buyers that receded

During the global crisis, the Singapore residential market tanked.

However activity quickly began to recover in 2009 and 2010, aided by the low interest rate environment. The era of quantitative easing and global equity sent foreign investors to Singapore's shores. List SIR's analysis showed that sales volumes of condo units rebounded in 2009 and 2010 at both Sentosa Cove and for projects in the district 9 and 10 basket on the mainland.

As a result, prices rose in 2010.

In that year, the average condo price in the district 9 and 10 basket rose 12 per cent, while the average condo price in Sentosa Cove shot up 32 per cent - resulting in the 4 per cent price gap in 2010. Besides the heightened awareness of Sentosa Cove among overseas investors, the opening of Resorts World Sentosa (RWS) integrated resort in 2010, could also have caused the strong price appreciation in the Cove, said List SIR.

To stem the flow of excessive foreign monies into the Singapore property market and prevent a bubble, the authorities unleashed a series of cooling measures from 2009. This, as well as a slowing economy, caused sales volume to decline in the years that followed, notes List SIR. The prohibitive ABSD rates imposed on foreign buyers hit Sentosa Cove more badly because it was more dependent on foreign money compared to districts 9 and 10, noted List SIR.

In short, having high dependence on foreign buyers turned out to be a double-edged sword for the waterfront housing district.

The en bloc revival

Yet other factors also came into play, that did not help condo prices on Cove but benefited the projects in the district 9 and 10 basket, such as the 2017-2018 en bloc fever.

From 2011 to 2015, the average condo price at Sentosa Cove eased 34 per cent to slightly above S$1,500 psf - and has remained at this level until the present.

Against that, the average price in the district 9 and 10 non-landed basket saw a smaller correction of 15 per cent over the same period. For the next one and a half years, prices hovered at around S$2,400 psf, with the downward slide arrested by the revival of the collective sales of older developments in the prime districts of the mainland from mid-2017 onwards.

Between June 2017 and June 2018, several en bloc sales took place in River Valley, Cairnhill, Cuscaden Road and Holland Road, with each sale setting new benchmarks for sites in the prime districts, says Han Huan Mei, List SIR's research director.

"In line with rising land prices, new projects in these locations that were launched for sale helped to reprice the existing properties.

"However, Sentosa Cove did not benefit from the enbloc fever. As it is already fully developed, there were no new projects to stimulate price growth; sales at the last condo project began in 2010," she adds.

Beyond comparing condo prices at Sentosa Cove against the List SIR basket of comparable properties in districts 9 and 10, a seasoned industry observer highlights another reason the buoyant winds from the round of price escalation of housing on the mainland did not catch the sails of the Sentosa Cove market.

"The rapidly increasing land prices in the mainland during the 2017 and H1 2018 enbloc frenzy had propelled the volume and prices of newer apartments; these are generally more compact and affordable on an absolute-price basis.

"The older and larger apartments in Singapore did not enjoy the huge price premiums seen for the newer-generation compact units. For Sentosa Cove, SCPL had stipulated very stringent requirements on the number of units to be provided in the condo projects because of traffic considerations. Consequently, the units in Sentosa Cove were much larger than those in the mainland and therefore much less affordable because of the absolute quantum involved. This was in spite of their psf capital values being much more attractive than the newer generation high-end or mass-market housing projects on the mainland in recent years."

Ms Han adds that the 99-year leasehold tenure of the projects on Cove also weighed down their prices. "In comparison, all but one of the projects in the district 9/10 basket are freehold properties, and thus they can hold their value better."

The industry observer cited another setback for developers marketing the last few condo project launches at the Cove: SCPL stopped its overseas promotional and publicity campaign for the precinct once it had sold the last major site in 2008. SCPL was dissolved in 2013, following the completion of the precinct and upon fulfilment of its role, SDC's spokesman says.

The bungalow market

It has been a familiar tale for the bungalow segment. Similar to non-landed properties, 2010 was a good year with strong volume and price recovery for both Sentosa Cove bungalows as well as in GCB Areas, as the economy rebounded as well as enjoying a boost from the opening of RWS.

List SIR says that in 2009, 2010 and 2011, prior to the introduction of ABSD in December 2011, foreigners and permanent residents made up 53 to 58 per cent of bungalow buyers at the Cove.

In 2014 and 2016, their share had dwindled to 50 per cent; in 2015 all the buyers were Singaporeans.

In 2014, prices of Sentosa Cove bungalows fell 24 per cent year on year. While two high-priced transactions in 2015 did lift prices (up by 24 per cent), the overall low sales volume continued to put pressure on prices, resulting in a 17 per cent decline over the next two years.

"By 2017, it became clear that prices of villas at Sentosa Cove had reached the trough and were beginning to stabilise, buyers began to re-enter the market looking for fair-value buys," says Ms Han.

On the other hand, bungalows in the GCB Areas saw a more gradual and sustainable price increase although sales volume also took a plunge in 2013 and 2014 before it began a slow recovery from 2015 onwards.

"Between Sentosa Cove and GCB Areas on the main island, the main difference is the resort and waterfront lifestyle which only Sentosa Cove offers. Astute buyers would see that now is a good opportunity to purchase a bungalow at Sentosa Cove for owner-occupation and mid- to long-term investment," says Ms Han.

Interest is returning; Ms Han notes that 15 Sentosa Cove bungalows were sold in 2017, and another 11 in 2018, more than the four sold in each of the preceding three years. And Singaporeans accounted for 53 and 55 per cent of bungalow buyers at the Cove in 2017 and 2018 respectively. Foreign buyers seem elusive.

Potential catalysts

Property agents are pinning their hopes on a few potential catalysts that could revive buying at the Cove. One could kick in when RWS's expansion plans announced earlier this year come into fruition.

"Likewise, when Keppel Land launches its residential project on Keppel Island, this could lead to a repricing of properties on Sentosa Cove," says Ms Han.

Another stimulus for Sentosa Cove is that it is part of the upcoming Greater Southern Waterfront or GSW (stretching across Singapore's southern coastline, from Pasir Panjang to Marina East), she added.

Fow now, developers with unsold properties are sticking to leasing them out.

Ho Bee Land, which has developed more properties than anyone else on Sentosa Cove, is left with half of the 91 units at the Turquoise condo (first sold in 2007) and two thirds for the 151-unit Seascape (launched in 2010). It did not even launch for sale its last project in the Cove, the 302-unit Cape Royale, choosing instead to adopt a leasing-only strategy. To date, slightly more than 80 per cent of the total unsold units in these three joint-venture projects have been leased.

At Cape Royale, monthly rentals range from S$6,500 for a three-bedroom apartment of 1,680 sq ft on a low floor to S$19,700 for a 3,143 sq ft four-bedder on a higher floor.

Two triplex sky villas of about 8,100 and 8,200 sq ft, each with its own private pool, are also available for lease.

The Hong Leong Group spokesman recalls: "When the first land parcels at Cove went for sale in 2003, the area was positioned as one of the world's most prestigious integrated oceanfront marina residential communities and the centrepiece of Singapore's billion-dollar Master Plan for Sentosa Island. The luxury enclave was heavily marketed to foreigners and investors. Zoned as a prime living area in Singapore, it is the only area where foreign ownership of private landed residences is allowed.

"Despite the huge monetary investment, incentives and efforts that have gone into nurturing and promoting Sentosa Cove, one could argue that in recent years, the precinct has not been receiving much marketing promotion efforts to help put it back on the the radars of international investors. The vision for Sentosa Cove to become the preferred residence for those who want an island resort as their playground has not been fully realised."

Developers and agents continue to hope that that the high ABSD rate on foreign buyers will be reduced if not removed. That may be a tall order for now.

Perhaps, the authorities could be more sympathetic with another suggestion, from the Hong Leong Group spokesman: "It may be timely to review the entrance fees into Sentosa Island as it may pose as a hindrance given the plethora of F&B offerings in the other parts of Singapore. This would make it appealing for locals and foreigners to visit the island's attractions and beaches, to enjoy staycations or dine at the establishments. Some of the local and foreign visitors may think of residing on Sentosa. These should be part of a new and more robust package to revitalise Sentosa."