Buying trophy properties in a country

Before Chinese New Year, hubby told me he had prepared new banknotes and red packets like what he did every year. I also passed him the red packets from my relationship manager.

“We can’t use those. Mine are special ones. I have to schedule an appointment at their priority banking branch in Orchard to collect these. See, they are all printed with the name of their priority banking brand.”

I immediately checked my red packets. They were in four nice designs. But none of them indicated that I am a VIP customer.

I also noticed that hubby’s special red packets were put in a paper bag printed with the same priority banking brand. I could imagine how he left the bank carrying it in an elegant way, which was different from HDB uncles and aunties queuing in front of the branches and leaving with red packets in their hands.

No wonder we ladies like to carry paper bags printed with luxury brand logos. Apart from the brand, there is nothing expensive about the paper bags. But we still walk around with them promoting the luxury brands for free.

But red packets are not for adults. They are for young children who probably like Peppa Pigs more than a priority banking name printed on top.

And isn’t the content inside more important than the packaging outside?

The charm of trophy properties

When a bank invites you to be their privileged customer, whether it is wealth management, priority or private banking, you feel good.

The bank may have yet to help you build your wealth. But the invitation signifies that you have reached there. The association with the brand name is a feather in your cap. It makes you feel great.

It is the same reason why some property buyers with deep pockets like to go after prestigious trophy properties. Think wealthy men who have enviable trophy wives as the symbol of social status and success in life.

Wiki defines trophy properties as the top two percent residential or commercial properties with impressive yields, spectacular views or extraordinary amenities.

Trophy properties are different for different people. Home buyers may have a trophy home in their mind. Likewise, real estate investors may have a trophy property as their target.

Trophy properties in Singapore

In Singapore, trophy properties include but not limited to Good Class Bungalows. They are rare and those who can afford them are rarer.

For residential homes, trophy properties can be high-end condos or landed properties in district 1, 2, 9, 10 or 11. Many projects are iconic development in the area. Mention their names and everyone knows. They include Ardmore Park, Four Seasons Park, Paterson Suites, The Marq, Hamilton Scotts, Ritz-Carlton Residences and St Regis Residence.

Trophy properties must be in a reputable location with a desirable address; in an exclusive environment with a breath-taking view; in a well-designed building with a spacious layout.

They are a different breed. Those new launch projects marketed by developers as “luxury condo” but target the mass market can never meet any criterion of trophy properties.

Can trophy properties keep their value?

Are trophy properties a safe haven to park your wealth? Well, it depends.

Their prices can fluctuate depending on economic condition and supply-demand in the market. But even after a major downturn, they can quickly regain their glory when the market recovers again.

When high-end condos and bungalows in Sentosa Cove first opened for sale in 2005, the city’s well-to-do rushed there to book their holiday homes.

And for the first time, foreigners are allowed to buy one 99-year landed home in the island for owner occupation. With the support of overseas buyers, prices soared to $2,240 psf in 2011.

However, after the introduction of ABSD for foreign buyers at 20 percent in 2013 and 25 percent from July 2018, prices of Sentosa properties crashed 30 to 40 percent. Prices and volumes were still depressed even when there was slight recovery of the Singapore property market in 2017 and first half of 2018.

The widely-publicized loss-making deals on the island were not helping. From 2016, every few months there would be miserable headlines, such as “Sentosa condo sold at loss of $3.8m”, “Sentosa condo unit auctioned off at $6.6m loss”, “Sentosa Cove property lost 42% of value after sale”, “Losses in at least half of Sentosa Cove home sales” …

With prices now hovering between $1,500 to $1,700 psf, trophy properties in Sentosa seem to offer better value-for-money compared with those new launch condominium projects in mainland Singapore.

Buying trophy properties in Taiwan

Every city has its trophy properties. Is the grass greener overseas?

In November 2012, I visited the sales gallery of The Only Royal (囯王1号院) in Taiwan’s Kaohsiung. The trophy property is a twin tower in the financial Central Business District and claims to be the future icon of the city.

I still remember the showflat is a multi-storey building with classical ceiling, glittering chandeliers and artistic decorations that modeled after the Hotel de Paris Monte-Carlo. The developer also built the actual lobby, elevators, guest reception hall, family dining hall and banquet ballroom.

A 3,000 sq ft unit was selling at TWD30,000 per ping (1 ping = 3.3057 sqm). Four years after its TOP in 2015, the recent transactions of bare units were around TWD24,000 per ping. Prices have dropped a whopping 20 percent.

If you want to buy a 2-carat diamond ring for the proposal, you can buy it at the flagship store of the prestigious jewellery brand. Or you can buy it at one of its retailer’s closing sale. Both are GIA certified with the same quality. But it can be easily 20 percent price difference. Not very romantic. But definitely better value-for-money.

The Kaohsiung new mayor Han Kuo-yu (韓國瑜) said in his election campaign that he would open up the city’s property market to Chinese buyers. He believed that properties in Kaohsiung are very much undervalued compared with Taipei.

The mayor is criticized by the media of trying to befriend China. Locals are afraid that property speculation and inflated housing prices will further discourage skilled workers from relocating to Kaohsiung.

But his new housing policy did help to stimulate the local real estate market. So far the splurge of new launches are mainly confined to small-size low quantum properties. Large-size luxury properties are still in a buyer’s market.

Honestly, I don’t think the Chinese are very interested to buy trophy properties there. Under the annual purchase quota and the strict 5-4-3 rule, Chinese buyers can borrow a maximum of 50 percent of the property’s value. They must have lived in Taiwan for four months. They also cannot sell the property within three years of purchase.

Identifying fake trophy properties

Last October, the developer of the once heavily-advertised, high profile Forest City project has informed the local government that it would review its development plan to include affordable housing and reserve 30 percent of the project for Malaysians.

Exactly how Country Garden can change the positioning of a 5-star trophy property to low-cost homes that even the locals can afford nobody knows. But early buyers are now facing the dangers of further depreciation in property value, frequent policy changes and inability to exit the market. (Read my blog post “Forest City proves buying an overseas home is to buy a cat in a sack”)

The Star newspaper reported that there is currently RM3.8 billion (S$1.27 billion) worth of unsold properties amounting to 5,988 units in the Malaysia state of Johor.

As Knight Frank Malaysia said, “For high-rise properties, the demand will remain weak in general. Developers will continue to clear unsold units with more attractive package and pricing. Even those high-rise properties sold during the boom years from 2012 to 2014 – many remained unoccupied. Many of these owners resort to short-term lease or put the unit on Airbnb.”

Marketers of property projects outside the capital cities often claim that their projects are much more affordable. And prices of properties in these up-and-coming cities are undervalued with great potential for upward movement.

However, they fail to cover the three main factors that support a booming property market:

1) What industries is the local government building there to attract foreign direct investment?

2) How many new jobs have been created by these new industries in recent years?

3) What is the growth in local population, GDP and income level to drive property prices?

If the answer to these key questions is no, where is the potential for the property market there? No wonder their projects are so affordable and undervalued.

With cheap money flowing around, there are many cash-rich investors eager to “park” their money in overseas markets. But there is also a long list of cities opening their arms to these affluent property shoppers. What makes these marketers think that buyers will go for properties in their city regardless of any investment return and capital appreciation?

With positive response from the last session, I am re-running the Finding and Managing Residential Rental Properties Workshop on March 9. Sign up now and see you there!