Good Class Bungalows (GCBs) enjoy a unique status in the Singapore residential market. These

detached houses, typically with a minimum plot size of 1,400 sqm and distributed in 39

designated areas, are highly exclusive as there are only around 2,400 units in the whole of

Singapore.

The GCB market is a stable and resilient one because GCBs are evergreen investment products

that are always preferred by ultra high net worth individuals. GCBs are limited in supply in urban

Singapore where landed housing is scarce. There will never ever be an over-supply situation.

For the buyer, the odds of prices appreciating are better than prices depreciating. Most owners of

GCBs have strong holding power, reducing the risk of falling prices during a downturn. Fire sales

are consequently hard to come by. This has been especially apparent in the recession year of

2009.

Despite the bleak economic outlook, 2009 was a brilliant year for the GCB market. The total value chalked up was in fact the highest since data was first made available in 1996, with 100

transactions amounting to $1.588.45 billion, far surpassing market expectations. The month of

July saw the highest number of 23 GCB caveats lodged in a single month.

As economic fundamentals catch up with sentiment in the residential market in 2010, the outlook

for GCB market remains healthy. Given an expected stable GCB market in 2010, the total

transacted value could range from $1.2 to $1.4 billion with 80 to 90 transactions. This is lower as

the majority of buyers could have already made their purchases in 2009 itself.

Buyers who had earlier expected prices of GCBs to dip had decided to make their purchases

before prices increased further as the equity market and sentiments improved. The recent

financial crisis caused many investors to recognise GCB as stable investments that are

comparatively less risky than other forms of investments. With such optimism in the market,

prices of GCBs could increase further in 2010.

While it is not possible to pinpoint the price increase on a per square foot basis due to the unique features and rules governing the sale of GCBs, anecdotally, an overall quantum of $20 million and above per transaction has been recurring more regularly. In 2009 there were 20 transactions at $20 million and above, compared to only 12 in 2008, 9 in 2007, and a mere 4 in 2006.

Basically, GCB prices are determined by three factors. The first of these is location. While there

are 39 designated bungalow areas in Singapore, some addresses are more exclusive than others, such as those in district 10 and 11 compared with those in districts 20, 21 and 23. This explains the popularity and higher volume of transactions in Nassim, Dalvey and Tanglin areas, which are the prime pickings from the GCB crop. The second factor is the land itself which includes its shape, terrain, frontage and its potential for sub- division. The final factor is the house on-site, whether it is single- or double- storey and its age. Previously, before the escalation of

construction costs in 2007, a bungalow on a GCB site made up around 20%- 25% of its total price. In recent months, it has risen to 25%-30%.

Most GCB sellers are people who have owned their GCBs for around 10 years, and who have

bought their homes when prices were lower. They usually own more than one GCB. With the

current high profit margins, they are prepared to cash out and invest in other areas. There are two

categories of buyers. One group of buyers is young professionals in their late 30s who buy for

their own stay. When in the past the typical age of a GCB buyer would be in the mid-40s, it would not be unusual to have a GCB buyer in the late 30s. The second group consists of ultra high net worth individuals who buy for long-term investment, and eventually passes on the properties to the next generation.

In recent months, young professionals and entrepreneurs and PRs have been observed to show

keen interest in the GCB market, thereby driving up demand in a market that already has a

limited supply. This trend is expected to continue in 2010, as younger affluent home buyers

recognise the investment value of GCBs.

Douglas Wong is Director, Luxury Homes, CBRE and Han Huan Mei is Associate Director,

CBRE Research.

This article first appeared in The Sunday Times in 17 January 2010.