By Low De Wei and Faris Mokhtar
(Bloomberg) — Business in Singapore’s luxury real estate sector is drying up as one of the country’s biggest money laundering scandals weighs on the market.
Sales of luxury bungalows are set for their worst year in nearly a decade, with only eight sold by the end of September, according to data from Knight Frank. Realstar Premier Group Pte – an agency specialising in country homes – said it sold less than half of the 10 properties it usually brokers per month in September.
The drop in transactions follows money laundering investigations into a group of people of Chinese origin, significant tax hikes for foreign buyers and rising interest rates. Rental demand for villas that once cost S$150,000 ($110,000) a month has also fallen as the wealthy think twice about buying luxury properties in the city-state.
“The recent anti-money laundering offensive by the Singapore police has brought the luxury real estate market into disrepute,” said Lewis Cha, managing director of List Sotheby’s International Realty. “It will take some time for the dust to settle and for the market to forget this negative image of luxury real estate.”
Knight Frank’s figures do not include undisclosed deals, but the eight villas sold compare to 20 last year. That’s a fraction of the 60 units sold in 2021, an 80% drop from this year’s S$2.1 billion sales, the lowest figures since 2014, when S$431 million worth of such assets were purchased.
According to government data, home prices fell 3.6 percent in the third quarter of this year, compared with a 1.1 percent rise in the previous three months.
Sellers, landlords and agents are becoming more cautious and conducting more stringent background checks – in some cases they have even actively rejected offers from potential clients.
The owner of a so-called luxury bungalow turned away a prospective tenant from China’s Fujian province despite the tenant offering to pay the rent for the S$100,000-a-month home for five years in advance, said a person familiar with the matter, who asked not to be identified as the information is private. Authorities have revealed that most of the suspects arrested in the money laundering case are from Fujian.
While the Singapore Real Estate Agents Council advises against placing advertisements that are discriminatory or stereotypical towards any race or group, and threatens disciplinary action against real estate agents who do not comply with the guidelines, there are no laws that specifically penalize landlords for refusing to rent on such grounds. The Real Estate Agents Council did not respond to a request for comment.
Potential buyers are also “taking a wait-and-see approach to how the market will evolve in terms of pricing and the full extent of the investigations and penalties that will be imposed,” says Jennifer Chia, a partner at TSMP Law Corp. who heads the firm’s corporate real estate, banking and finance practices.
A preserve for the super-rich, luxury bungalows are villas with plots of at least 1,400 square meters (15,100 square feet) that are often located in the most exclusive neighborhoods. At least half of the 10 arrested lived in such apartments. Among them, Su Baolin lived in a villa on Nassim Road, an ultra-exclusive area where several embassies are located.
Another defendant, Vang Shuiming, lived in a villa with a large rooftop pool and gym in a leafy enclave called Bishopsgate, near Singapore’s main shopping district. Rental data released by the government shows that he paid at least S$150,000 a month to live in the property in November 2020, which was a record at the time.
After the money laundering case, “it is not easy to find someone who spends more than S$100,000 a month,” said Julian Yip, managing director of Realstar.
Interest rates, rising costs and tax increases have also dampened interest in buying. Upscale bungalows are usually reserved for local buyers – unless the government grants special permission. Foreigners therefore often pay exorbitant rents for such properties.
“Given the increased interest rates and uncertainty, buyers have become more cautious,” said Leonard Tay, head of research at Knight Frank Singapore. “The general price increases from 2020 onwards have also made the acquisition of these luxury properties more expensive.”
— With assistance from Kevin Varley.
(Updated with Singapore property sales figures. In an earlier version of this story, the second caption was corrected to show that it was Su Baolin’s house.)
©2023 Bloomberg L.P.
