Will Indonesians return to prime?

January 20, 2015 8:41 AM SGT

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SINGAPORE:Indonesia’s wealthy were once the leading foreign buyers of Singapore’s luxury private apartments, but the trend has reversed in the last four years. Property experts ponder when the big money will come back.

Sim Mong Teck, a private client lawyer who has been in practice for 20 years, has started to encounter a new breed of Indonesian buyers in the Singapore property scene.

Indonesians form the biggest group of foreign client base in his firm, Sim Mong Teck & Partners.

“For the longest time, my Indonesian clients have been the traditional ‘old money’,” he says.

“The typical profile is someone who already has a collection of properties in Singapore at the top end [of the residential market] in the likes of Four Seasons, Ardmore Park.

So, for years, I never expected Indonesian buyers to venture outside the Core Central Region [CCR].” Instead of luxury penthouses costing upwards of $10 million, the last 36 months saw Sim handling transactions of 99-year leasehold condominiums beyond the traditional prime districts, in the suburbs of Ang Mo Kio and Jurong where the ticket size was in the range of $1 million to $2 million.

“It’s what I call ‘new money’, first-time buyers in Singapore,” he explains.

“In the course of interaction, you can tell that they have made their first pot of gold in just the last three to five years.

So, this is a new trend.

And they don’t mind the 15% ABSD [additional buyer’s stamp duty].” Sim was speaking at the inaugural SMTP Forum held on Dec 2 entitled “Courting the Indonesian Buyers” organised by his firm and where he was the moderator that afternoon.

His observations have been borne out by URA statistics, which showed that from 1995 to 2010, transactions by Indonesians in the prime CCR surpassed the rest of Singapore.

Post-2010, buying in the mid-tier segment denoted by the Rest of Central Region (RCR) and the suburbs or the Outside Central Region (OCR) has not just caught up, but soared above purchases in the prime districts.

Since 2010, most of the new launches in Singapore have been of 99-year leasehold properties outside the CCR, Ku points out.

The CCR tends to have more freehold property than 99-year leasehold, while the sites purchased at government land sales in the RCR and OCR which have dominated the new launch landscape have largely been 99-year leasehold.

“It could be a function of the number of developers who have appointed agents to hold property exhibitions in Indonesia,” says Ku Swee Yong, CEO of Century 21 and key executive officer of International Property Advisors, and an invited speaker at the forum.

Freehold versus 99-year leasehold Even a decade ago, selling a 99-year leasehold condo in the non-traditional prime districts was “a bit difficult”, says Ku.

In 2003, Ku was head of the Singapore Tourism Board (STB) in Indonesia.

That was the year when the Severe Acute Respiratory Syndrome (SARS) epidemic had emptied out showflats across Singapore and tourists stayed away from the city-state, weakening an economy that was already in recession.

Giant property developer Far East Organization was the first to take a gamble of launching a major project just a few months after SARS.

And it paid off.

It was the 646-unit Icon at Tanjong Pagar, a 99-year leasehold condo sitting within a short walk to the Tanjong Pagar MRT station.

When Icon was brought to Jakarta on a roadshow in 2003, Ku decided to throw his weight behind the launch as he realised it was an ideal platform to revive Indonesians’ interest in Singapore after the SARS scare.

“At the launch, I even encouraged my colleagues from STB to talk about Singapore’s education, healthcare and security before the developer talked about the project they were selling,” he recalls.

Following the success at Icon, he decided to lend the same support to other Singapore players launching projects in Jakarta.

And that was when he decided to switch to real estate.

Having been marketing property since 1975, Jerry Tan, founder of JTResi and luxury condo specialist, is someone with a long view on the Indonesian market.

And he is a firm believer in the traditional prime freehold districts of 9, 10 and 11.

He started his firm back in October 2001, just one month after the Sept 11 terrorist attacks in the US.

It was also a year after the dotcom crash and the Singapore economy was in recession.

Tan took a bet that foreign interest could return with the lifting of the anti-speculation measures at the end of October 2001.

“I decided to try an experiment, and it was to go back to Indonesia and re-educate them on returning to the Singapore property market to buy on leverage,” he says.

“But after the Asian Financial Crisis, banks had viewed them as a bad risk.” Tan scouted the market and found an international bank which was willing to provide 40% cash and 60% financing for his Indonesian clients in their real estate purchases.

“The property market in 2001-02 was completely lacklustre,” recounts Tan.

“But it was clear that Indonesians are no fools to our market.

They like virgin offerings.

They don’t like projects that have already been offered here in Singapore or elsewhere, and then you go there and try to sell them [the remaining units].

They want projects that were never offered elsewhere before.” After he set up JTResi Jakarta office in 2002, Tan convinced the big property developers to let him launch their high-end projects in Jakarta first before they do so in Singapore.

He brought projects such as Sembcorp Properties’ The Edge on Cairnhill and the eight-unit Nassim 9 to Indonesia.

From then on, Tan started to earn his legendary reputation.

In 2004, when the residential market was still in the doldrums, Tan sold 63 units out of a total of 126 at Keppel Land’s Urbana in River Valley.

A year later, he sold 85 units out of a total 95 at The Grange on Grange Road.

The joint venture project by MCL Land and Wing Tai was effectively sold out without a launch.

In 2006, Tan sold 43 out of a total 85 units at Hong Leong’s Tate Residences in Claymore, mainly to his network of high-net-worth clients.

And 2007 was a spectacular year for Tan — he earned $23 million in commission, the equivalent of the price of a penthouse at Four Seasons Park.

He started the year by selling 122 out of 132 units at MCL Land’s Waterfall Gardens on Farrer Road.

And he is famous for selling 11 out of a total of 33 units sold at SC Global’s 66-unit The Marq on Paterson Hill, the most expensive luxury condo in Singapore.

Tan brokered the first sale at The Marq that crossed the $5,000 psf threshold in April that year, effectively setting a new record for prices in the top-end both in terms of absolute and per sq ft price.

It was for the sale of a 6,157 sq ft, four-bedroom unit at The Marq for $31.4 million ($5,100 psf).

Tan shattered his own record in 2010 when he sold another unit at The Marq.

This time, it was a 3,003 sq ft unit for over $17.5 million, or $5,842 psf.

Both buyers were foreigners, one of whom is believed to be Indonesian.

SC Global subsequently set historic highs at The Marq by selling two other 3,003 sq ft units at $6,393 psf and $6,840 psf in August and November 2011 respectively.

Ardmore Park condo mania Before The Marq, there was Ardmore Park.

What made Wheelock Properties’ Ardmore Park stand out for most property veterans was the fact that it was billed as the most luxurious condo at that time, and was launched just three months after the Singapore government had implemented a slew of anti-speculation measures that included capital gains tax and disallowing foreigners from borrowing in Singapore dollars to their residential property purchases.

“There was this queue that went on for a week outside the developer’s office at Wheelock Place and stretched all the way outside,” says Tan.

“The queue No 1 was sold for $250,000.” The 330-unit Ardmore Park condo had set new benchmarks at the last peak of the market in 1996, with prices averaging $1,800 psf and quite a number soared beyond $2,000 psf.

Singaporeans made up 60% of the buyers, with foreigners the remaining 40% at Ardmore Park.

While buyers from Hong Kong were also significant, they were outnumbered by the Indonesians who formed the biggest pool of foreign buyers for the typical units as well as penthouses.

All the units were sold out within days.

However, things soured a little during the Asian Financial Crisis in 1997/98.

At that time, Ku was a young analyst with HSBC.

“There were a lot of defaults and Ardmore Park saw a lot of units returned to Wheelock,” he says.

Some of the Indonesian buyers had even walked away from their purchases, and had their 20% deposit forfeited by the developer.

For Tan, his “Ardmore Park” moment happened toward the end of 1994.

And it was for The Anchorage, the freehold project along Alexandra Road located across the road from Ikea.

At that time, Frasers Centrepoint still had one block of large units in the 775-unit development.

The units in the block were mainly the large three- and four-bedroom units with sizes from 1,400 sq ft to over 2,000 sq ft.

The developer was looking at prices of around $600 psf, recounts Tan.

“There was a bit of a mixed reaction in Singapore at that time as new projects launched were testing highs,” says Tan.

The developer therefore approached Tan about launching in Indonesia.

There was also some scepticism about the reception in Indonesia given that it was just a few months after the riots in Medan.

However, Tan went ahead and held a three day event at the Grand Hyatt in Jakarta for the launch of the block of apartments at The Anchorage.

“When the first advertisements appeared in Kompas [the national newspaper] in Jakarta, the calls came in non-stop,” says Tan, who happens to be fluent in Bahasa Indonesia.

The exhibition room that Tan booked at the Grand Hyatt in Jakarta was the

This article appeared in the City & Country of Issue 657 (Dec 22) of The Edge Singapore.

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