Are Sentosa Cove Properties a Poor Buy?
Updated: Dec 31, 2020
Once promised as a luxury resort home for foreign tycoons and entrepreneurs to buy, it seems like Sentosa Cove properties have fallen a long way from grace.
Gone are the days where purchasing a Sentosa Cove bungalow or condominium will bring you admiration from property investors, and more commonplace sneering and ridicule over your poor financial investment.
Is this the truth however? Will purchasing a Sentosa Cove property a bad purchase now?
This article will explore the different reasons to why the value of Sentosa Cove properties has dropped so drastically over the two decades, and what be done to improve the current value of the properties, and if it is a good purchase to make now after all the hype had died down.
Reduced New Supply at Present
Sentosa Cove properties provide a very different macroenvironment as compared to the properties found on mainland Singapore. Based on real estate economics, one of the reasons to what contributes to increasing housing prices is due to an incoming new supply of real estate.
As Sentosa Cove properties get older and worn out, developers will usually come into the picture, where these properties will be rebuilt with newer and modern infrastructure. Real estate developers will have to price these projects to earn a tidy profit, and yet price them competitively so as not to scare potential buyers away.
Poor Pricing Strategy at Launch
Have a look at the average PSF between popular areas like Bukit Timah, District 15, and the launch prices of Sentosa Cove in 2003. You will notice that the difference is almost $383 PSF! This is an extremely big difference taking into account inflation as compared to today’s estimate of new launch condominium prices which I will share later.
Extracted from Goods & Services Calculator from Monetary Authority of Singapore
Here are a few points to why the asking price was not validated back in 2003.
Not Priced Correctly in Local Context
Although it is not a 1 to 1 comparison, Sentosa did not have any existing residential developments back before 2003 and the closest demographic to price it on should be these two areas, which was and still, and is known to be a high net-worth cluster.
Notice how similar prices were for Bukit Timah and District 15 in comparison to Sentosa. This might be a pricing strategy however to clearly demarcate Sentosa Cove properties into the same playing field as prominent properties internationally like Shanghai, Monte Carlo and London.
Inflation Rate Not A Consideration?
Based on statistics from CEIC, housing prices were increasing at an average of 4.4% since 1976.
With that figure in mind, let us compare the current prices for Bukit Timah properties and Royalgreen, a new launch freehold property located in Bukit Timah.
The difference in pricing was at $446 PSF! I am not an economist, but why was new leasehold launches of Sentosa Cove back in 2003 priced at $383 PSF ($515 PSF in 2020 dollars), whereas in 2020, the difference for Bukit Timah freehold properties is on average $446 PSF?
For the sake of discussion, let us compare the prices of Tampines, an Outside Core Region (OCR) of Singapore with Treasure at Tampines.
The difference is at $58 PSF but take into consideration that Treasure at Tampines sales volume consists of three-quarters of total sales volume in Tampines.
Were construction, labor, and other variables such expensive commodities in 2003 which makes Sentosa Cove bungalows and condominiums worth the $383 PSF ($515 PSF in 2020 dollars) premium?
I honestly do not believe so.
Global Financial Crisis
The Global Financial Crisis (GFC) has brought about the crash in prices drastically. The unjustified subprime lending by banks in the United States has brought forth a sharp decline in housing markets worldwide. Luxury Properties are usually the hardest hit, as shown in the chart above.
The East Coast and Bukit Timah areas are mostly owner-occupied and were not badly affected by the GFC, which makes it safe from any speculative purchases.
Additional Buyer Stamp Duties on Foreigners
With the Additional Buyer Stamp Duties (ABSD) implemented on 8 Dec 2011, foreigners are required to pay an additional 10% in taxes for the purchase of their properties. This caused the prices to slowly taper downwards till 2015.
The last revision for ABSD was changed from 15 to 20% in 2018, however, this did not significantly impact Sentosa Cove prices.
This could possibly signify that most of the owners of these Sentosa Cove properties are well-heeled, and will not be subjected by fluctuations caused by external factors.
Poor Rental Choice due to Inconvenience
Expats will usually prefer to rent a closer apartment to their workplace as compared to Sentosa Cove properties.
There are definitely expats who are interested in renting these homes during their assignment in Singapore, however, its location will become a hassle should they choose not to drive. Owning their own transportation is furthermore not a viable option as those that are working within the Central Business District will have to deal with the high costs of season parking.
Furthermore, many of those that are based here will prefer to enjoy the nightlife here and it is always best to live nearby after late nights of partying!
Compare the rental data between Tanjong Pagar and Sentosa, and you will notice that the volume is higher for Tanjong Pagar. Although it might seem that the Sentosa Cove rentals are pretty high from this data, take note that Tanjong Pagar rentals are considered to be extremely niche in the first place.
Therefore, I have decided to add in the Novena area for comparison, which is another area that is popular with the expat community. Since Novena is in the Central Core Region (CCR) of Singapore, this shows that most of them still prefer convenience for a rental property over exclusivity.
Who are the Intended Buyers of These Properties?
Foreigners who buy these properties are usually extremely wealthy businessmen who like the exclusivity it brings. These properties will usually serve as holiday homes and will remain unoccupied most of the time throughout the year.
However, it is also a very contrary purchase for these businessmen who are tuned to real estate investing.
On 1st July 2006, sales of Sentosa Cove Properties came with the Long-Term Social Visit Pass (LTSVP) Scheme. This aided in the quick integration of wealthy businessmen and their families into Singapore. Right now, this scheme is no longer applicable to new sales of Sentosa Cove properties. However, those with the LTSVP will be able to renew the passes every 3 years.
From the perspective of a Singaporean, most of us hold our wealth in real estate. This makes it a very painful and poor choice to invest in Sentosa Cove properties in regard to its poor appreciation and loss of value! The location also serves much difficulty for the young family.
Can you imagine sending your children to school and heading to work every day from Sentosa? It is nothing short of exhausting!
However, there is still a selected group of Singaporeans that I believe this property still appeals to. These are the extremely wealthy retirees that do not have any children. Sentosa Cove provides them the lavish lifestyle without the worry of property depreciation, as these properties are not used as a vehicle for investment.
How can Sentosa Cove be improved upon?
Most of Sentosa Cove properties reside towards the South-East region of Sentosa. Most of these properties are only accessible through Artillery Avenue and Allanbrooke Road. As most of Sentosa Cove Residents are cyclists too, the road is shared with them. This contributes to the regulated speed limits (50km/h) in that location.
I believe it will be beneficial if the Land Transport Authority can revise the vehicle speed limits so that movement within the island will more convenient.
Without drastically changing the landscaping of Artillery Avenue and Allanbrooke Road, why not implement interesting amenities along this stretch?
Is Sentosa Cove Properties a Good Purchase Now?
Sentosa-Brani Master Plan
The revitalization of Sentosa and Brani Island through new implementations from the Sentosa-Brani Master Plan seeks to provide additional benefits to its Residents. Although I do not feel that the residential value will be affected drastically for the better, it still provides an additional incentive to owners who are interested in the facilities that will be offered.
Current Competitive Pricing
This might not be a popular opinion, but yes, I do feel that Sentosa Cove Properties are worth considering should you be interested in occupying it. Sentosa Cove provides a different outlook from mainland Singapore and its unique residential planning and design will be a draw to a select group of people, who might be previously be put off by the highly fluctuating prices.
From an investment point of view, forget the highs from 2004-2008 prices, as this is unlikely to occur again with the implementation of stamp duties from 2011 onwards. This reduced a majority of speculative purchases and stabilized the property values from 2014 onwards, and it is unlikely that prices of Sentosa Cove will drop. Huge capital gains are unlikely, and I believe the property values will remain resilient and not fall drastically, even during the current COVID-19 crisis.
Purchasing it as a rental property should be avoided due to the reasons mentioned above.
In addition, do take note that as all Sentosa properties are of leasehold tenure, they are still subjected to run their course of natural depreciation over long periods of time.
However, not all of these properties are suitable and you should do a careful analysis of the properties before purchase. We might do a review of one of these properties in the future, so if you are interested do let us know!
Once you are done with the paperwork of purchasing your new Sentosa Cove property, congratulations! Enjoy the spectacular view!
You might be familiar with the recent news of the 60-year leasehold Geylang terrace houses, which were returned to the state. This might bring about troubling images of Sentosa Cove properties falling to a grand sum of $0!
However, I strongly believe this to not be the case. Sentosa is a huge tourist destination with plenty of attractions. This might inadvertently draw some attention towards its residential properties, and any drastic depreciation might be harmful to Singapore's image as a safe haven for your assets through real estate.
My assumptions do have some weight to them, with the Greater Southern Waterfront plan and Sentosa-Brani Master Plan, which seeks to rejuvenate the immediate area. It will only be a matter of time before real estate developers turn their attention to Sentosa Cove properties to identify potential areas of profit.
Greater Southern Waterfront
The greater southern waterfront urban transformation also presents with the development of new residential private homes within the area. As of now, we have no further information about the type of private housing present. However, one thing that is certain will be the overall increase in housing prices within the Harbourfront area with increased demand for residential spaces.
Upon further research, it seems that my opinions on buying Sentosa Cove properties are not absolutely rare at all!
As of late 2020, the Business Times has recently reported that Sentosa Cove bungalow purchases have been revving up and to date, up to 10 villas have already been sold. An estimated number of 15 villas will be sold by the end of 2020.
For comparison, only 6 bungalows were sold in 2019.
Thanks for reading my thoughts on Sentosa Cove properties!
I currently do have on hand a few units (i.e., both condos and landed properties) on hand. These are going for great prices, and close to valuation. If you are interested in viewing some of these properties, or if you require my advice on which Sentosa Cove property will be a great buy, contact +6596329840 or email me at firstname.lastname@example.org
The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.