Luxury, luxury everywhere: but what does it really mean?

Let’s make it clear, not every property that the developer calls ’luxury’ is a luxury or choice property. In many, if not most cases in Singapore, the property that is up for a launch hails itself as a ’true luxury’ or ’luxury living’. Its advertisement is splashed with lush greeneries around the upcoming condo, usually accompanied by a smiling, dressed-up teenage model, who also strikes a pose by the swimming pool. I have never teenage girls buying luxury condominiums and I hope the readers do not confuse such properties with our discussion on luxury property investing.

In general, every market has its own definition of high-end and luxury properties, price wise. In Singapore, a luxury property is considered to be one that costs above S$2, 500 per sq ft. However, I do not entirely support this definition. The luxury property in general should be in prime location, have distinguished design, architecture and/or a brand. The view and surroundings also add a lot to the value.

Some developers buy an expensive plot and build a condo, hailing it as luxury, but then they also make cuts on the architecture, design and interior expenses. As a result, the layout and designs are lousy, the architects are not up to their task, and their work is far from smart, innovative or exciting. Unfortunately, too many of such condos are on the market – we better not name names to avoid offense.

Overall the property in Singapore is reasonably priced, if not quite underpriced, compared to other major similar level centers, such as Hong Kong, Tokyo, Manhattan or London. Given the fact that Singapore will be joining the ranks of casino city’s and having the F1 on our streets, we can also compare it to Monaco. We can then clearly see that Singapore is great value-for-money, with substantial upside in the mid to long-term.

Now is still a good time for bottom fishing, especially for highest end and luxury properties – no doubt about it. It does not mean that the price will not fluctuate in the near future, but probably it will not go down much, if at all. Therefore, the time is ripe for one to start searching and targeting.

Everyone thinks that it is a shaky market right now and that high-end property is out of fashion. However, a high-end property in top locations is always the major attraction for all investors. The demand for prime property in top locations, such as Manhattan, Monaco, HK and Singapore will return and the upside will be even more dramatic than the downside that we witnessed recently. The new money will go after these prime properties in the same intensity as we saw it in the last decades. Anyone who makes a fortune, wants to buy a better property – it is a human nature. Big corporations want to put their names on the top buildings and so are the big investors. Sooner or later, the crisis will end and the market will go on the next bull run.

The real luxury property for the ultra HNWI’s is in a league of its own. Such people, who fly around the world and stay in their own properties, require a full set-up of services, as well as a prime property and location. They need to have the possibility of arriving at short notice and have the property managed car with a driver waiting for them at the airport, their favorite food is ready for them, their favourite wine is at the right temperature and they can readily host a dinner for important guests with minimal effort. Therefore, the property suitable for such people would include a full high-end hospitality service. It is like a hardware and software store all bundled together.

Such properties are usually managed by top class or boutique hospitality groups. In our neighborhood there are several such top class properties – the 6-star St. Regis and the upcoming Ritz Carlton. St. Regis is the only such existing property on the market. You can buy a unit in the uber luxurious St. Regis for about $2, 600 to $2, 900 per sq ft: a steal compared to other locations such as Hong Kong. There, an official 6-star branded property would cost probably three to four times more and many times more in Monaco. Hong Kong is also a mature market, so one can rest assured that the local luxury market will go in that direction.

Overall, there are many more quality and luxury properties in Singapore now than there were just some five to six years ago. I recalled a case of an acquaintance of mine, a Japanese guy in his mid-thirties, who decided to move his financial trading business from Tokyo to Singapore some five years back. He came over one weekend and asked me – “What is the best property the foreigner can buy and preferably to have four to five bedrooms?” Without thinking much and with amusement, I told him – “Ardmore Park”. He checked it out. There were only two four-bedroom units on the market on that weekend. He saw both and bought one on the same day. In fact, there were barely any other real luxury properties for him to choose from. However, we now have more choices, though still not as much for the top class city Singapore is evolving into.

Will the current market sustain its bull run? I would say, do not be bothered in making short-term guesses. Many analysts from banks and real estate agencies had claimed that the market cannot go any further. However, one should not forget that just a couple of months ago, these same people had claimed the property market is collapsing and will nosedive even further. In contrast, the market was recovering spectacularly and is still going on strong.

These analysts had also said there is no rental support for high-end and luxury properties. I would say it is a complete nonsense given that bank loans can be arranged at interest rates as low as 1.5 percent per annum. Remember, analysts are neither investors nor buyers. They are only reading the past data and then try to ’speculate’ the next steps of the market. True luxury property is only just beginning in Singapore, so take my advice – watch the market not the analysts.

Alex Shlaen is an economist and holds an Executive MBA from Kellogg School of Management. He is the founder of Panache Management Pte Ltd, represents ultra luxury branded products, furnishings and interiors by Tonino Lamborghini and Formitalia in South East Asia and is a serial real estate investor. PanacheManage.com.

Source : Asia Property Report – 6 August 2009