How to capitalise on Singapore's declining luxury property sector

If you have been following property news in Singapore, you would have known by now that luxury properties prices in Singapore have been declining significantly over the past one to two years.

It's a common sight these days to chance upon articles talking about how these luxury properties in Singapore have been sold at heavy losses, such as a three-bedroom unit at Ritz-Carlton Residence being sold in April 2016 at a loss of $4.3 million. Just last month, a three-bedroom unit at the luxurious Hilltops sold at $3.75 million, or a loss of about $1.79 million from the original purchase price.

With some of these luxury units going at prices of about $2,500 psf, there have to be questions and interests among serious property investors on whether these units are now attractive enough to buy, and how investors can get involved in them.

The story thus far

It wasn't too long ago when luxury properties in Singapore were selling at much higher prices. For example, the Orchard Residence (condominium above ION Orchard) used to see prices of about $4,000 psf in 2013 and 2014.

Prices these days, while still expensive, have fallen to more realistic level of $2,800 to $3,200.

According to 99.co, most luxury properties have seen similar decline in prices since 2013. Prices have fallen from between 15 per cent to 20 per cent or more.

Realistically however, most Singaporeans, even high-net-worth individuals (HNWIs), defined as individuals with investable assets exceeding US$1 million, would not be able to seize the opportunity to purchase these luxury units. The reason is simple. The purchase of such properties could easily cost more than $3 million, and is far too rich, even for richer individuals.

Investing through an investment fund

One method that makes sense for those who are serious in investing in luxury properties would be to invest through an investment fund specifically created to acquire such undervalued assets. One such fund would be the SiS Real Estate Opportunity Fund.

The fund, which was launched earlier this year, is a private equity fund that offers accredited investors access to real estate investment opportunities. The fund will invest in undervalued or distressed real estate assets in the high-end residential and commercial sectors in Singapore.

Similar to investing through a unit trust, such a fund would allow investors to gain diversification in their real estate portfolio, rather than to simply put all their money into just one single property. The fund would have an active manager who will seek opportunities to find undervalued properties to invest in.

Unlike investing in a Real Estate Investment Trusts (REITS), where long-term dividend income would usually be the reason for investing, the SiS Real Estate Opportunity Fund aims to capitalise on the current weakness in the Singapore property sector and to deliver value through buying the right properties at the right time.

Who can invest?

Aside from institutional investors, accredited investors (i.e. individuals with an annual income above $300,000, or personal assets exceeding $2 million) are also able to invest in this private equity fund. At a minimum subscription of $200,000, accredited investors will be able to invest in a portfolio of high-end properties.

Accredited investors who are serious about investing in luxury properties can find out more about the fund through their website. If capturing a slice of the declining luxury property market is something you are thinking of doing, this fund offers an efficient way towards getting exposure in this niche segment.

DollarsAndSense.sg is a website that provides bite-sized and relevant articles to help Singaporeans make better financial decisions.