Why Singapore can’t beat Hong Kong in the luxury residential property sales race

Even if prime homes are 26% cheaper here.

Both Singapore and Hong Kong are popular with Mainland Chinese looking to buy luxury residential properties. Although prime property prices are much cheaper in the city state, Singapore continues to lag behind Hong Kong when it comes to attracting wealthy Chinese luxury home buyers.

According to Nomura, prime luxury home prices in Singapore were on average 26% cheaper compared to prime luxury home prices in Hong Kong as of 2Q14, and the discount is wider than the average 14% since the beginning of 2000.

However, several factors are to blame for the sales lag. Buyers continue to favor the Hong Kong housing market because of its lower transaction costs. While both markets have imposed higher buyer’s stamp duty for foreign home purchases, the rate in Hong Kong is still slightly lower than Singapore.

Buyers of luxury homes in Hong Kong also benefit from shorter holding periods. While both HK and SG have introduced the seller’s stamp duty to curb speculative home purchases, the holding period of 36 months in HK is shorter than SG’s four years.

There’s also the fact that prices came off more than rents in Hong Kong in the first half of the year, as opposed to Singapore where rents fell but prices remained rather flat.

Prime luxury rents fell 4.8% in 1H14 in Singapore, but prime luxury home prices were off just 2% over the same period. The opposite was true for Hong Kong where prime luxury home prices fell 6.1% but rents were down just 1.7%, showing that prime luxury yields have compressed less in HK.