From exuberance to caution

In just 12 months, Singapore has swung from Boom Town to seeing its slowest quarter in five
years.

ONE year ago, economic and business sentiment in Singapore was probably at an all-time high: The
property market was on a roll, banks and finance houses went on a hiring spree, and the economy,
flush with liquidity, looked headed for a fourth year of 7-9 per cent growth.

The signs spelt Boom Town everywhere you looked, and economists predicted that Singapore, restructured and reinvented, would trail only China and India among Asia’s fastest-growing economies for years to come. Whiffs of (near-irrational) exuberance were much in the air. Then, bang! Just days before National Day 2007, a global financial market meltdown threatened the party mood. The balloons popped, but as it turned out, the Singapore economy’s strong first-half momentum was enough to see it through the year. Gross domestic product (GDP) growth for 2007 still turned in at a robust 7.7 per cent.

Twelve months on, the mood is decidedly more sombre. Overnight, it seems, the property bubble (of
‘exuberance’, not so much ‘excess’ this time) burst, the buzz in the finance sector has all but fizzled,
hot hiring has cooled (with even talk of selective retrenchment in some segments), and the economy
has now seen its slowest quarter in five years.

Has there been a crack in the domestic underpinnings somewhere, or is – as is widely assumed – the
small open economy just taking hits from external headwinds?
The much-heralded US economic slowdown has finally come to pass, compounded by a sub-prime
mortgage crisis that continues to wreak havoc through not only the American economy but pretty
much globally, in second or third-round hits.
Slower growth has also set in elsewhere in the developed world, following several years of robust
performance. Not least, a surge in global energy and food prices has pushed inflation to the fore of
policy concerns in just about every part of the world.

And latest analyses by economists list more than several major economies ‘navigating towards (or
through) recession’ – including the US, Canada, Spain, Ireland, Italy, the UK and New Zealand.
Germany, France and Japan are also seen to be teetering on the brink of recession. In other words,
as RGE Monitor notes, a full-fledged G-7 recession in the making.

With this outlook, coupled with ever-present risks of yet another bout of global financial turbulence, it
is interesting to see some fairly upbeat forecasts of East Asian resilience, like the Asia Development
Bank’s (ADB) that expects the region to weather the global economic turmoil ‘relatively well’ and grow
7.6 per cent this year and next.

ADB has the Singapore economy growing 4.9 per cent in 2008 and 5.8 per cent in 2009 – probably a
little more bullish than the consensus here at this point – on the back of strong domestic demand
(driven by business investment) and buoyant exports. It’s not apparent that Singapore’s exports will
be too ‘buoyant’ this year – the official forecasts of 2008 export growth were pared a few months ago,
and still the May and June trade figures proved unexpectedly bad. Economists also generally see
Singapore – given its size, structure and exposure – as the region’s most vulnerable to a global
downturn.

Has the slowdown exposed, or widened, Singapore’s fault lines? Sure, inflation surged through the
economy, price pressures piled up. But apart from ever greater external uncertainties and a fall in
sentiment, fundamentally what has changed in the six months or so between Boom Town exuberance
in 2007 and sombre caution in 2008? Problems such as structural joblessness in older Singaporeans
and a growing income disparity have not and cannot be swept away overnight.

That said, none other than Minister Mentor Lee Kuan Yew has declared that the next five to 10 years
will be Singapore’s most promising yet as it stakes its place among the world’s top cosmopolitan
global cities.

‘We are moving to a new plateau, a new platform. You can see it visibly before your eyes,’ Mr Lee
said last month.

It’s surely a vision to inspire all Singaporeans. But, for all the spin around Singapore’s restructuring
and transformation, enhanced by a huge influx of foreign skills, some believe that its fortunes – and
Asia’s – will, for the foreseeable future, still largely be tied to the global economy. Which also means
that Singapore can and will ride on the next upturn, when – or if – it comes.

Business Times – 09 Aug 2008

PROPERTY: Where to find homes at or below $600,000

They include executive condos as well as older private apartments in suburban locations

THE property market has quietened considerably this year, but prices have yet to fall.

Nevertheless, if you have a modest budget of about $600,000 for a home, your choices are not just confined to HDB flats.

Some fairly new executive condominiums as well as older private condos or apartments are within reach, if you look hard enough.

These are typically 99-year leasehold properties in suburban locations such as Woodlands, Choa Chu Kang and Jurong.

Some city-fringe locations such as Geylang, where the red-light district is nestled, or small apartments in places such as Upper East Coast Road, may also offer some bargains. Landed homes, however, will require a bigger budget. So will new condo launches, unless you do not mind tiny studio apartments.

New versus Old

BUYERS tend to prefer buying new properties directly from developers, rather than old ones. They are drawn by the slick marketing promotions put out by developers and pay a premium for their new homes. But new properties may not be worth buying when you have a tight budget.

‘In 2006, all the record prices were achieved by new launches,’ said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

‘Units at Ardmore Park, an older development which is in a very good location and is well-maintained, were transacted at much lower prices than those in new high-end condos in not-so-good locations.’

It is the same in suburban locations, as buyers pay more for what is new, he said.

The 99-year leasehold apartments at the 636-unit Maysprings in the Bukit Panjang area are mostly going for $650,000 and below. A year ago, they went for $500,000 and below.

The 17-year-old, 616-unit Orchid Park Condominium in Yishun, which faces Lower Seletar Reservoir, also had some units that went for around $600,000.

At the West Bay Condominium, a 936 sq ft unit was sold for $585,000 in January, while a bigger 1,216 sq ft unit went for $650,000.

Studio apartments, which can range from around 500 sq ft to 600 sq ft, can be bought for $600,000 or less.

The only problem is that there are not many of them in suburban projects, Mr Mak pointed out.

Private versus HDB

NOW that HDB prices have risen and there is overwhelming demand for new HDB flats, buyers may do well to consider private homes if they can afford them.

‘There will be growing demand for mass market properties as Singapore continues to create jobs,’ said Savills Singapore’s director of business development and marketing, Mr Ku Swee Yong. The opening of the two integrated resorts alone will create a significant number of entry-level jobs, he said.

‘Our unemployment rate is at a 10-year low, which means that we will need foreigners for some of these jobs,’ he said. ‘As long as rental values remain strong, capital values should also trend up.’

For those buyers who may one day want to rent out their homes, a private property could be a better choice than an HDB flat.

First of all, not everybody can buy an HDB flat. Also, there are leasing restrictions.

Yields may be higher for some HDB flats than private homes, but a private condo unit may be easier to rent out as condos usually come with amenities and security, property consultants said.

On average, net rental yields for private homes across Singapore are at 3.6 per cent, said Mr Mak.

Government data shows that the median rental rate in the fourth quarter of last year for Maysprings was $2.38 per sq ft a month. For a 904 sq ft unit at Maysprings, the rent would work out to $2,151 a month, or a 5.2 per cent gross yield.

The median rate was $2.09 psf for Orchid Park Condominium and $2.98 psf for West Bay Condominium.

Using this rate, the rent at West Bay Condominium would work out to $2,789 a month for a 936 sq ft unit.

Whether you are buying a property to live in or to rent out, know that you have a fair number of choices even if your budget is only $600,000.

 

Source: The Sunday Times 17 Feb 08

ME & MY MONEY: He makes room only for property investments

Door company Slide & Hide MD places his faith in real estate in S’pore and China, and blue-chip property stocks

HE HAS worked in the construction industry for more than a decade and so it comes as no surprise to learn that Mr Andrew Lim, the managing director of door company Slide & Hide System, opts for property-related investments such as real estate and property stocks.

He said he has more than $500,000 invested in the Singapore stock market, mainly in blue-chip property counters like Wing Tai, CapitaLand and Chip Eng Seng.

‘I prefer to buy blue chips because they are well managed. The management is transparent so I can be assured that the company won’t collapse,’ he said.

His property investments include factories in Singapore as well as office space and an apartment in China.

Mr Lim, 48, has come a long way from his childhood days. His family was poor and he spent much of his time helping his father collect leftover food from households to feed the pigs at their squatter hut in Toa Payoh.

A polytechnic graduate in civil engineering and a student of the school of hard knocks, he had his fair share of challenges when he started Slide & Hide in 1994.

At that time, he was the first in Singapore to manufacture and supply a pre-fabricated, concealed sliding door wall system, and it took much perseverance before his product became accepted by architects and interior designers.

‘I was not able to secure any big project owing to the fact that my product was new and, hence, still not accepted in the construction industry yet. As I did not have enough money to employ people, I doubled as the salesman, factory manager, delivery man and site supervisor,’ he said.

He recalled how a contractor cheated him in his first project, creating cash-flow problems for his company.

Fortunately, he managed to avert going bust with a loan of $100,000 from his father-in-law, a retiree who used to work as a packager at flour miller Prima.

His business picked up in 1995 after he managed to secure bigger contracts, supplying his product to the Pebble Bay and Signature Park condominiums. By 1997, he had broken even and repaid his father-in-law.

His wife, Hui Ngoh, 47, whom he married in 1989, is an administrator. They have two sons aged 15 and seven.

Q What are your money habits?

A I draw a monthly gross salary of $5,000 from my company, which is enough for me and my family’s daily needs.

The profits the company makes are partly re-invested to grow the business and paid to me as director fees, which I use for my property and stock investments, whenever an opportunity arises.

I am a Buddhist and I always keep in mind the saying: Don’t consume more than what you need. For every cent I spend, I make sure it is spent wisely. I don’t buy branded goods just for the sake of flaunting them or feeling good, and we dine mostly at hawker centres and only in restaurants when I need to entertain business clients and friends.

Q What investments do you have?

A My investments are mainly in my business, properties and Singapore stocks. I started Slide & Hide with $200,000, and it has grown many folds.

As for my properties, I bought four adjoining units of a flatted factory in Singapore over time from 1996 for my own use and to guard against future rental increases, as well as to prevent eviction by the landlord.

I own a four-room HDB flat in Ang Mo Kio, which is being rented out. In late 1996, I bought a freehold condo unit in the River Valley area as an investment.

I began investing in China properties in 2005 with the purchase of an office unit in Shanghai for around half a million dollars. This was when I noticed that the supply of offices could not catch up with demand because of the influx of foreign companies there. The price has since appreciated more than 35 per cent.

I also bought two apartments in Zhuhai, a city in southern China that is next to booming Macau. One was sold for a 35 per cent profit in the middle of last year, while the price of the other unit has more than doubled. My China properties are generating net rental yields of above 7 per cent.

I started dabbling in the stock market in 1990, and I currently have more than $500,000 invested mainly in Singapore blue-chip property counters.

Q What about insurance planning?

A I don’t view insurance as an investment tool to earn a profit but as protection against disability and death.

That is why I believe in buying term insurance where the premium is low and the coverage is high. I am covered for more than $600,000 on my life. My annual premiums amount to nearly $10,000.

Q What is your investment philosophy?

A I don’t feel comfortable investing my money in instruments where I can’t make direct decisions such as unit trusts, or investing in an unfamiliar territory like a non-construction-related business.

When it comes to stock investing, I buy when there is an opportunity; that is, when there is bad news, and I feel that the price is value for money.

I monitor a few selected stocks which are mainly property-related. In the last few years, I have achieved average annual returns of about 20 per cent from my stock investments.

Q Money-wise, what were your growing- up years like?

A My parents worked very hard to support me and my two younger brothers and sister.

When we relocated from our kampung squatter to a 300 sq ft rental flat in Toa Payoh, the six of us had to adjust to sharing one small bedroom and a toilet. Living in such a cramped environment conditioned me to be more patient and tolerant.

From pig farming, my father went on to start a building construction business while I was studying at the Singapore Polytechnic.

Later, he was cheated by his partner. That experience taught me the danger of trusting people too easily, the importance of having full control and prudent management of my finances.

Today, my wife and I constantly remind our children to be thrifty. We give them only sufficient pocket money to spend on food, other necessities and transport to and from school.

Q What has been a bad investment?

A My worst investment was putting $10,000 with a friend working in a commodities company in 1990.

Over a one-week period, he made buy and sell transactions with a loss without my knowledge and called me to top up my account. I terminated it immediately.

I lost $10,000 of my hard-earned savings that week.

Q Your best investment to date?

A My best investment is my business.

It has provided me a stable income, a comfortable life for my family, as well as the freedom to decide what I want to do.

Q What is your retirement plan?

A I am financially independent now, but I want to carry on working as I enjoy the challenges of making my company grow.

My long-term plan is to use my civil engineering knowledge and experience to help charitable organisations or to link up with like-minded people to sponsor and build orphanages in poor countries.

I believe $4,000 a month is enough to cover my expenses and that of my wife in our old age.

Q And your home now is?

A When I sold my executive mansionette in 1994 to raise capital for my business, I promised my wife that I will buy her a condo unit 10 years later to show my gratitude for her support and sacrifice.

So in mid-2003, I bought a 1,400 sq ft unit near Bishan, and we have been living there ever since.

Q And your car is?

A A pearl white Toyota Camry.

Source: The Sunday Times 17 Feb 08

Circle Line key to higher plot ratios: JLL

Study looks at how Master Plan 2008 could change landscape, usher in new initiatives

(SINGAPORE) When Master Plan 2008 is unveiled sometime this year, certain areas are likely to see an increase in plot ratios. A study by Jones Lang LaSalle has tried to zero in on which areas could be allowed more intensive use of land.

Its conclusion: Look out for undeveloped state sites within walking distance of Circle Line MRT stations, particularly those that intersect with existing MRT lines. They are the top candidates for higher plot ratios.

The property consulting group specifically highlighted the areas near Paya Lebar MRT Station, Buona Vista MRT Station (which will see the Circle Line intersecting with the existing East-West Line) and HarbourFront MRT Station (Circle Line crosses North-East Line). Also, while Buona Vista is shaping into an R&D/commercial hub, the HarbourFront district’s redevelopment potential is increasing because of projects in Sentosa and Keppel Bay nearby.

Another promising area is in the vicinity of the Circle Line Station at Telok Blangah. Although it does not intersect with an existing MRT line, it will benefit from a spillover  from the ongoing redevelopment in Sentosa and HarbourFront.

JLL does not see major, across-the-board increases in plot ratios in MP 2008. But it argues that intensifying land use for undeveloped state plots along these stations will spread social benefits from the government’s investment in the Circle Line to more people and also improve accessibility.

Raising plot ratios (ratio of maximum potential gross floor area to land area) will also address the issue of rising demand for Singapore’s properties and prevent overcrowding in specific areas such as the central and CBD regions.

Although the Circle Line also touches locations near Dhoby Ghaut and Bishan MRT stations, JLL excludes them as these areas already have high plot ratios.

The study also suggests that white sites – with a range of uses and change in use mix allowed – will be more readily available islandwide instead of being confined largely to the CBD. ‘It further promotes creativity in future projects,’ says JLL’s head of research (South-east Asia) Chua Yang Liang.

He also sees the Urban Redevelopment Authority introducing more mixed use, rather than traditional single-use zones, to ‘further provide the flexibility needed to accommodate changing demand patterns as a result of shifting demographics’. MP 2008 could also be more tolerant of non-traditional types of residences. For instance, obsolete industrial buildings could be re-modelled along the lines of New York’s Manhattan lofts. ‘This will accommodate shifting market forces and tastes,’ Dr Chua argues.

JLL also suggests that URA may realign traditional industrial estates to support demand needs of the knowledgebased economy or rezone them for other uses. ‘For example, industrial areas within housing estates such as those found in Jalan Pemimpin could potentially be rezoned to residential or possibly an education hub,’ it said. After all, the area is near Raffles Institution and Raffles Junior College.

MP 2008 could also extend the ‘work, live and play’ concept beyond Marina Bay into the suburbs as Singapore cannot live by its business image alone, JLL predicts. ‘We can expect to see more areas designed for cultural developments, for example, the civic, cultural and retail complex in Buona Vista, and new conservation areas that serve to retain the fabric of the collective memory,’ Dr Chua said.

JLL also expects to see many more recreational zones across Singapore. ‘The likes of the recent Punggol announcement will be more common,’ the study said.

On the back of Sentosa Cove’s success, JLL expects other islets around Singapore like Southern Islands and Pulau Ubin to be put for waterfront residential use.

In the existing CBD, JLL suggests that Shenton Way will see a further shift towards a mixed-use (including residential) district, once the current office supply crunch eases. In May last year, URA announced a temporary ban on conversion of office use in the central area, including the CBD, to other uses until end-2009.

Last year, the government identified Jurong East and Paya Lebar for development into business hubs. Dr Chua says land around Paya Lebar MRT Station will be intensified in line with government plans to transform it into a subregional centre and that the location will be ideal for cost-conscious office tenants.

However, Dr Chua suggests that the area around Jurong East MRT Station is more suited for research and development because of its proximity to universities, the Science Park and one-north rather than as an alternative backoffice hub along the lines of Tampines.

National Development Minister Mah Bow Tan last year also ruled out massive, across-the-board islandwide increases in plot ratios for MP 2008 to cope with a higher population target of 6.5 million. The Master Plan, a detailed land use plan that guides Singapore’s medium-term physical development, is reviewed every five years.

 

Source: Business Times 4 Jan 08

Market St Car Park may be redeveloped into offices

The total project cost could range from $1 billion to $1.5 billion

CAPITACOMMERCIAL Trust (CCT) has been granted outline planning permission by the Urban Redevelopment Authority (URA) to redevelop Market Street Car Park into an office tower that could cost up to $1.5 billion.

Lynette Leong, chief executive of CCT’s manager CapitaCommercial Trust Management Ltd, said the viability of the project would depend on the development premium to be paid for changing the use of the 58,964 sq ft site from a car park to an office tower.

The premium will depend on the enhancement in land value as assessed by the chief valuer, which CCT expects to be made known by May.

Ms Leong said the outline permission is subject to the payment of 100 per cent of the enhancement in land value, instead of the standard 70 per cent, as well as there being no extension of the present lease, which runs to 2073.

Assuming a land value for 99-year commercial land of $900 psf per gross floor area, and adjusting for the shorter leasehold of the site, CCT estimates the land and development premium to be $800 psf.

Including construction and other costs, the project cost would be $1.25 billion.

But CCT said that depending on the development premium, the total project cost could range from $1 billion to $1.5 billion.

Assuming that necessary approvals are granted, a new office tower with an estimated gross floor area of 850,000 sq ft could be built within 36 or 40 months. Ms Leong said that existing tenants, who only moved into

Market Street Car Park in end-2006 after a $14 million renovation, will be given notice soon.

Currently, there are 704 car parking spaces, 28 tenants, and 21,205 sq ft of net lettable area. As at June 1, it was valued at $59 million.

Saying that CCT has no plans to divest the office tower if built, Ms Leong added: ‘When completed, the property would augment the core assets in CCT’s portfolio which currently includes landmark office buildings such as Capital Tower and 6 Battery Road.’

She said she was bullish on the office sector. While she did not reveal estimated yields for the development, she said that it was looking at projected rents of $12-$14 psf per month.

The outline planning consent comes years after CCT parent CapitaLand first mooted plans to redevelop both Market Street Car Park and Golden Shoe Car Park.

It was reported that the URA first rejected redevelopment plans for the car parks as earlier as in the mid-1990s when the properties belonged to the now defunct Pidemco.

Ms Leong said there are currently no plans to redevelop Golden Shoe Car Park, although it has also applied for a change of use for the site.

 

Source: Business Times 4 Jan 08

Rents for state-owned homes rise

(SINGAPORE) Now, you too can live like the colonial sahibs of old, as long as you are prepared to make the highest offer for monthly rental in an open bid.

But be warned, rents of homes under the Singapore Land Authority’s (SLA) first bidding exercise held recently, increased by between 40 to 230 per cent over previous rents.

Before the open bidding system, the allocation of homes was done through a balloting exercise or on a first-come-first-serve basis.

But in October and November, SLA piloted the new open bidding system of allocating homes to make the process fairer and more transparent with five homes awarded so far. One of these, a bungalow on a 2,687 sq m site at King Albert Park, also set a new benchmark rent of $23,222 a month for a state-owned residential property.

On the new system, SLA deputy director of land lease private Teo Cher Hian said: ‘This way, market forces decide the rental that can be fetched for the state properties.’

The new system appears to be popular with 84 bids received for the first five properties. Of these bidders, 64.3 per cent were locals, with companies and foreigners making up 22.6 per cent and 13.1 per cent of the bids respectively.

Mr Teo also said that many of the bids were higher than the guide rents set by SLA.

Although the widely held perception is that these state-owned properties are cheap to rent, SLA says that guide rents are determined by an independent valuer based on the size, condition, location and proposed tenure of each property.

The properties are also let in their existing condition, usually unfurnished with rents starting as low as $400 per month for a small flat. Enhancement of these properties is also not a primary objective as some of these units sit on sites that could eventually be redeveloped.

SLA has a total stock of 2,360 homes comprising landed and non-landed properties, representing about 19 per cent of the total estimated gross floor area of state properties it manages.

SLA’s rental homes have an occupancy rate of about 91 per cent. But existing tenants are usually allowed to directly renew their leases although the rents may be increased.

In its last financial year (April 1, 2006 – March 31, 2007) SLA says that its residential rental revenue was $78 million, up 2.6 per cent or $2 million from the previous year. SLA added that rents increased by an average of 5 per cent in this period with the highest increase of 23 per cent recorded for just one property.

Previously, rents for apartments ranged between $400-$3,800. Terrace, semi-detached and bungalow rents ranged between $600-$3,333, $800- $11,500, and $1,100- $23,222 respectively.

But the impact of the new bidding system to SLA’s rental revenue is, however, not likely to show any immediate significant increase, as so few of these properties actually come up for rent. For the first half 2008, SLA expects only about 36 homes to be made available for rent – upon being vacated – with six homes expected in January followed by seven in February and six in March.

Those interested in bidding for these can submit their bids to SLA at a stipulated time and date. The bidding period will be six days. More details will be available on SLA’s website www.spio.sla.gov.sg from Dec 14.

But do take note that for a bid to qualify, the bidder’s average monthly income has to generally be at least three times the monthly rental bid so only those earning over $60,000 a month need bother looking at those grand old black and white bungalows.

 

Source: Business Times 10 Dec 07

Land sales programme for 1H08 draws good reviews

Large supply of mass market homes but govt holds back on office sites

THE government will release a batch of suburban residential land parcels in the first half of next year but property analysts are divided as to whether there will be enough takers for the homes coming up on the sites.

And on the back of reports that Singapore could see an oversupply of office space come 2010, the government is releasing just one site for office use in its confirmed list in its land sales programme for the first half of next year.

The 21 residential sites on the list will yield 8,250 private homes, including executive condos. This compares to a supply of 8,000 private homes for the second half of 2007.

Eight of these sites – with the capacity for 2,840 homes – are on the confirmed list. The other 13 sites are on the reserve list.

Market watchers said that the large number of suburban residential sites seems to imply that the government is aware that housing prices in popular non-prime locations have risen substantially, which has in turn priced out HDB upgraders.

‘By providing sites in suburban locations that are within or near HDB estates, the completed units are likely to be less pricey as their land costs would be lower,’ said Li Hiaw Ho, executive director for research at CB Richard Ellis (CBRE).

The homes could also be suitable for expats, who are increasingly coming to Singapore on local terms, said Ku Swee Yong, director of marketing and business development at Savills Singapore.

‘As Singapore looks to grow its population, more expats earning in the mid-income range will be coming in,’ Mr Ku said. ‘These expats might not be able to afford homes in the prime districts and so could look at mass market homes.’

Among the sites offered, those at Lorong 2 Toa Payoh, Woodleigh Close, Tanah Merah Kechil and Bishan Street 14 are perceived as the best of the crop. These sites could fetch between $400 and $600 per square foot per plot ratio (psf ppr), CBRE’s Mr Li said.

However, others said that it might have been more prudent of the government to put more sites on the reserve list instead of the confirmed list.

‘The market can be very fickle,’ said Nicholas Mak, director of research and consultancy at Knight Frank. There is good demand for mass market homes at the moment, but this might not be the case in a few months, he said.

On the other hand, the government’s decision to hold off releasing more office sites was well received. In recent weeks, experts have said that Singapore could see a glut of office space after 2010 when several big projects – such as the Marina Bay Financial Centre and the redeveloped Ocean Building – come up.

Yesterday, the government said that it is only releasing one new white site on the confirmed list – bound by Rochor, North Bridge, Ophir and Beach roads and next to Parkview Square – for office and hotel use.

The white site can yield about 1.5 million sq ft of commercial space. Experts said that the site could go for $750-$1,000 psf ppr.

The only other new commercial site, located at North Buona Vista Drive, will be released on the reserve list. An estimated 1.3 million sq ft of commercial space can be developed on the land parcel.

The proximity of the site to one-north will likely see space there being sought after by the research institutes in one north, said Mr Li of CBRE.

 

Source: Business Times 7 Dec 07

Govt’s slate of land sales seen as prudent

List for H1 next year is roughly similar in scale to that for H2 this year

(SINGAPORE) The Ministry of National Development is adopting a measured strategy in its Government Land Sales (GLS) Programme, offering up a slate for the first-half of next year that’s roughly similar in scale to the offerings for H2 2007. Noting that the government is taking a “prudent approach”, some market watchers said the ministry is factoring in the recent caution in the property market triggered by the subprime crisis, but is not dumping land to ease a short-term supply crunch in, for instance, the office market.

“It’s not so bad, just 11 sites in all on the confirmed list. And of these, the eight private residential sites are in suburban locations like Choa Chu Kang, Tampines and Yishun, to cater to upgrader demand,” said a developer of yesterday’s GLS announcement.

For the first half of next year, the government is offering a total of 37 sites in H1 2008 – 11 in the confirmed list (down from 14 for the current H2 2007 programme) and 26 in the reserve list (one site fewer than in the current list).

The latest sites will yield about 8,250 private homes including executive condos (ECs), 4.4 million sq ft in gross floor area of commercial space and 5,850 hotel rooms. This is similar to the 8,000 private homes, 3.8 million sq ft commercial GFA and 6,500 hotel rooms supply for H2 2007.

And reflecting a market-led approach, the bulk of the supply for H1 2008 will continue to come from the reserve list, where sites are launched for tender only upon application by developers.

The latest confirmed list – where sites are released according to a stated schedule regardless of demand – will yield about 3,000 private homes, 1.6 million sq ft of commercial GFA and 1,670 hotel rooms – again close to the 3,000 private homes, 1.78 million sq ft commercial GFA and 1,810 hotel rooms in the current slate.

In all, MND has introduced 17 new sites, six in the confirmed list and 11 through the reserve list.

None of the two new sites with substantial office components are in the financial district, including the sizzling Marina Bay area.

Instead, one site – in the confirmed list – engulfs the Parkview Square development and is bound by Rochor, North Bridge, Ophir and Beach roads, and the other, a reserve-list site, is at one north, next to Buona Vista MRT Station.

“The authorities are adopting a more cautious approach on CBD office supply, despite an immediate supply crunch, because the sub-prime crisis is expected to lead international banks to downsize and scale down their office space requirements,” the developer suggested.

CB Richard Ellis executive director Li Hiaw Ho also described the government’s tack as prudent.

“The current office crunch is a short-term problem. There’s over 10 million sq ft of supply on the horizon, most of which will be completed in 2010 and beyond; so in the mid-term there will be sufficient supply. There’s no point for the government to dump 99-year office sites now as the supply will only be completed in the mid-term because of construction time.

“That’s why government is pushing for conversion of state properties and transitional, 15-year lease sites to address the office shortage in the short- term.”

A seasoned market watcher observed a similarly measured strategy for the residential market, where the high-end segment is now taking a breather after runaway prices fuelled by speculators and specu-vestors earlier.

“MND’s focus is on ensuring there’s sufficient supply in the mid-tier and mass-market private housing segments.

It’s offering a spread of suburban sites for upgrader private condos as well as four EC sites (through the reserve list), to make sure such homes are within the reach of genuine home buyers,” he added.

Three of the four EC sites are new additions – in Yishun, Jurong West and Sengkang East Avenue.

A developer welcomed the government’s decision to include, among its slate of eight residential sites on the latest confirmed list, two landed housing plots – at Westwood Avenue in Jurong West, and Sembawang Greenvale (Phase 2). “There’s really a shortage of landed housing sites,” he added.

He also viewed positively the fact that both hotel sites on the confirmed list – at Race Course Road in the Little India area and Balestier/Ah Hood roads – are in locations suitable for three- and four-star hotels, which are witnessing strong demand from the India and China markets in particular.

MND also highlighted additional sources of space the government will make available in H1 2008 – including about 1.3 million sq ft of commercial GFA from sources like interim use of vacant state buildings and transitional office sites; about 110 private homes including 90 serviced apartments at one north; and 780 hotel rooms.

MND said that 9.5 million sq ft GFA of offices, 4 million sq ft of business park space, 5.6 million sq ft of shops and 8,850 hotel rooms are expected to be completed by 2010.

For the private housing sector, about 44,500 new private homes are slated for completion by 2010, of which 40 per cent or 17,800 units will be in the Core Central Region, which includes all the high-end locations.

On the Singapore Exchange yesterday, the All Singapore Equities (Property) Index ended 12.09 points higher at 1,391.57.

“They are not releasing that many sites. They are calibrating supply very carefully in response to the economy,” the developer said.

 

Source: Business Times 7 Dec 07

Property players likely to zoom in on central locations

Topping the list is multi-use ‘white site’ not far from Bugis MRT

DEVELOPERS, and eventually homebuyers, can take their pick from 21 plots that the Government will release for private housing between now and June.

Property players, however, are likely to zoom straight in on the handful of land parcels that are more centrally located, industry experts say.

At the top of the list is the multi-use ‘white site’ bounded by Ophir Road, Beach Road and Rochor Road. The property sits next to Parkview Square and is a stone’s throw from Raffles Hospital and the Bugis MRT Station.

The sale of this 2.74ha plot will ‘kick-start the development of the… Rochor Road/ Ophir Road corridor’, linking Marina Centre to the Bugis area, the Ministry of National Development (MND) said yesterday.

The site, which will be launched for sale in June, must have some area set aside for offices and hotels, but the rest of the space can be put to other uses such as residential.

Bids will likely come in at $750 to $850 per sq ft per plot ratio (psf ppr) for this site, said Mr Nicholas Mak, the director of research and consultancy at Knight Frank.

Apart from this plum plot, there are a few other attractive residential sites, consultants say.

One is a new site at the corner of Woodleigh Close and Upper Serangoon Road, next to the Blossoms@Woodleigh condominium. It is near the yet-to-be-opened Woodleigh MRT Station on the North-East Line.

About 270 homes can be built on the 1.07ha plot, to be launched for sale in April.

Another choice site is at the junction of Lorong 2 Toa Payoh and Lorong 3 Toa Payoh, within walking distance of the Braddell MRT Station.

This 1.4ha site can host 535 homes and will be put up for sale in February. It was previously on the reserve list for developers to indicate interest, but it saw no takers. It has now been moved to the confirmed list to be launched at a fixed date.

Mr Li Hiaw Ho, the executive director of CB Richard Ellis research, picked out two more sites as being among the ‘best of the crop’.

The first, at Bishan Street 14, has an area of 1.2ha and can host a 535-unit project.

The other is a 1.19ha site at New Upper Changi Road.

These four residential sites may fetch prices in the range of $400 to $600 psf of potential gross floor area, Mr Li estimated.

Mr Mak has noted, however, that apart from the Woodleigh Close site, which is new, the other plots have been available for some time on the Government’s reserve list.

Reserve list plots will not be launched for sale unless a developer comes forward to bid for them. Usually, choice plots on the reserve list will move quickly.

Those that remain to be ‘recycled’ for the next round of land sales are generally less attractive.

This time, however, the ‘recycled’ plots are quite plum, said Mr Mak.

If even these sites cannot find takers, ‘maybe developers already have enough on their plates’, he said.

In that case, perhaps the Government is offering more sites than the market is ready to absorb, he suggested.

For private housing alone, the MND has added 12 new sites to its land sales programme, including the Woodleigh Close plot.

Others include sites at Choa Chu Kang Drive, Tampines Avenue 1, Upper Changi Road North, Chestnut Avenue, Upper Thomson Road, Sengkang West Avenue and Sembawang Road.

There are also three executive condo sites, as well as a plot for landed homes at Sembawang Greenvale Phase 2. This landed parcel will be put up for auction in February to cater to smaller investors.

Outside land sales, the Government will also offer about 110 private housing units, including 90 service apartments at one-north. It will also provide 120,000 sq m of commercial space.

 

Source: The Straits Times 7 Dec 07

More land for mass market private homes released

The 21 residential sites will help meet demand and avert sharp price increases

PRIVATE home buyers look set to be spoilt for choice after the Government unveiled an expansive programme of land sales for the first half of next year.

The big winners will be mass market buyers, who include home buyers upgrading from HDB flats.

A total of 21 residential sites – mainly mass market ones – feature in the programme including new plots at Choa Chu Kang, Tampines and Sengkang.

Industry observers say the move could help soak up strong demand for these homes and avert potentially sharp mass market price rises.

Counting commercial and hotel sites, the programme comprises 37 sites, after the Government released its largest-ever land package of 41 sites six months ago for the current second half year.

There are three commercial sites, two ‘white’ multi-use sites, one commercial-cum-residential site and 10 hotel sites – yielding about 8,250 homes, 410,000 sq m gross floor area of commercial space, and 5,850 hotel rooms.

‘This supply will be sufficient to meet the demand for the various properties over the medium-term and support the continued growth of our economy,’ said the National Development Ministry in a statement yesterday.

Industry observers say the programme comes as sentiment in the local property market has weakened due to the United States sub-prime mortgage crisis, high oil prices and a possible US economic slowdown.

Developers have also recently said it is difficult to micro-manage the market, which has taken almost a decade to turn around. Owing to this uncertainty, some consultants worry the mass market home supply may be a tad too much for the market.

‘This package comes across as fairly aggressive in addressing supply shortages because we still have the subprime problems, which remain very uncertain,’ said Chesterton International’s head of research and consultancy Colin Tan. ‘If the US economy is affected, Singapore’s real estate sector will surely be hit in some way.’

The land sales programme includes 17 new sites for sale, up from 15 this half year.

There are 11 confirmed sites – those that will be put up for sale on scheduled dates. Eight of these are residential, mostly in suburban areas such as West Coast Crescent, Yishun and Sembawang.

CBRE research executive director Li Hiaw Ho said the release of several suburban plots suggests the Government is aware that prices in popular non-prime locations have risen substantially – pricing out potential HDB upgraders.

The latest programme has 26 reserve-list sites, including five new residential sites in areas such as Chestnut Avenue, as well as three executive condominium sites that were recently announced.

Reserve-list sites are put up for sale only when a developer commits to bid a minimum price.

This time round, there are fewer commercial sites, with just one white site – a coveted plot in the soon-torevamped Ophir/Rochor area – up for confirmed sale. Consultants said this bodes well for the market as supply will come onstream from 2009.

 

Source: The Straits Times 7 Dec 07

Be vigilant about asset bubbles: Jackson Tai

Falling lending standards among key risks in Asia

FALLING standards of lending due to intense competition among banks and ‘too much money’ driving asset prices up are some of the main risks to Asia’s financial industry, said outgoing DBS Group chief executive Jackson Tai last week.

‘Underwriting standards for loans and financings have deteriorated in the region, and this development comes on top of the US sub-prime mortgage problems,’ he said in an interview with The Asian Banker. ‘Intense competition, including that from foreign banks and institutions who have rediscovered Asia, have brought credit spreads to unsustainably low levels. The risk-adjusted return on loans is not where it should be.’

He was responding to a question on what worried him most in Asia’s financial industry.

Lax lending practices at US mortgage lenders have been blamed for the sharp rise in bad loans there – especially in the sub-prime or high-risk mortgage segment – that triggered the recent turmoil in global financial markets. In Singapore, banks have seen rapid loans growth in recent months, although the proportion of bad loans remains low.

Last week, the latest monthly figures from the Monetary Authority of Singapore (MAS) showed that total loans made by banks and other financial institutions here grew by 15.5 per cent to $224.1 billion at end-October from a year ago – the fastest yearly rate of growth since December 1996.

Some $16.2 billion or more than half of the $30.1 billion in loans added over the year were made to the property sector, comprising consumer home loans and business loans to the building and construction industry.

While Asian economies have recovered well from the financial crisis of 1997 and the region is now ‘bounding with growth and optimism’, ‘we can’t get too carried away about Asia’s prospects’, said Mr Tai.

Besides falling underwriting standards, ‘we have the risk of asset values in the region going through the roof’, he added.

‘Yes, property and asset values have only just returned to pre-Asia financial crisis levels in many markets, but there is too much money and too much optimism chasing after assets.’

‘We must be vigilant about asset bubbles in the region,’ Mr Tai said.

Asia’s rapid economic expansion in the past few years has attracted large amounts of foreign investment into financial assets such as shares, and fixed assets including property and infrastructure from global fund managers seeking higher returns and cash-rich countries in the Middle East.

Some economists fear that a sudden steep fall in share prices in China – which have nearly tripled over the past 12 months – could dampen economic growth there at a time when Asia is bracing itself for a sharp slowdown in US demand for exports.

On Monday, MAS warned in its latest twice-yearly Financial Stability Review that Singapore banks’ profits could be hit in the short term by higher volatility in financial markets.

 

Source: Business Times 6 Dec 07

South Beach project to cost $2.5b: CityDev

(SINGAPORE) City Developments’ upcoming mixed-use project along Beach Road will cost some $2.5 billion in all – including the land cost of some $1.69 billion – the company’s chairman Kwek Leng Beng said yesterday.

Mr Kwek was speaking to reporters after signing the building agreement for the site.

CityDev, together with its partners Istithmar (part of the Dubai World Group) and US-based Elad Group, secured the 3.5-hectare site in a government land tender in September. The three partners hold a one-third stake each in the project.

The development, which will be called South Beach, is set to become a ‘revolutionary New Eco-Quarter in Singapore’ when it is completed by 2012, CityDev said. Construction will start next year.

South Beach will have premium office space, luxury hotels, residential apartments and retail space with a total gross floor area (GFA) of some 1.6 million square feet, CityDev said.

The partners are required to set aside at least 40 per cent of the total GFA for office use, and another minimum 30 per cent of the total GFA for hotel use.

In line with this, the consortium is planning two luxury hotels. One of the hotels will be a high-end boutique hotel with about 250 rooms, while the other will be a five-star hotel with about 450 rooms, CityDev said. The partners intend to bring in upmarket hotel brands for both hotels.

The partners are also looking to bring in branded residences for the luxury apartments they will be building on the site – such as The Plaza in New York, which is owned by Elad.

Looking ahead, Mr Kwek said he believed that the property market in Singapore is in a period of ‘consolidation’ brought on by the sub-prime mortgage crisis in the US. ‘In 2008, a lot will depend on how much the sub-prime recovers and whether the US will go into a deep recession,’ he said. ‘2008 will have a little storm here and there, but Asia Pacific will grow.’

For Singapore, Mr Kwek said that there is still a potential upside for mid-range home prices, which are still below their historical peaks.

 

Source: Business Times 5 Dec 07

2008 seen as year of mass market homes

Developers, consultants predict 10-20% hikes for this segment in 2008, high-end gains seen tapering to 0-10%

(SINGAPORE) As the year draws to a close, developers and property consultants are cautiously optimistic about prospects for the Singapore property market next year despite the US sub-prime mortgage crisis and rising oil prices.

For the residential sector, they expect the action to be concentrated in the mass market next year, after the stellar increases in high-end home prices this year.

They also generally expect the authorities to adopt a more measured approach to the Government Land Sales programme in the first half of next year, given the relatively thin bidding seen for most state sites recently.

CB Richard Ellis chairman (Asia) Willy Shee predicts high-end home prices will likely remain more or less at current levels next year – after a nearly 50 per cent price gain this year – on the back of new supply coming into the market. Prices of mass-market private homes are likely to appreciate 10 to 15 per cent in 2008, after rising about 25 per cent this year, he added. ‘I think building costs have already gone up over 30 per cent so far this year,’ he says.

Similarly, Ho Bee Investment executive director Ong Chong Hua says: ‘We cannot see the same magnitude of price growth in 2008 that we’ve seen in the past two years. It’s not sustainable. We’ll see more steady growth next year.’

Overseas Union Enterprise chief executive officer Thio Gim Hock says: ‘High-end prices will at least maintain or go up by 5 to 10 per cent, while the mass market will rise between 10 and 20 per cent in 2008.

‘By next year, sub-prime will be behind us and confidence will recover again.’

Mr Ong predicts a 10 per cent price gain for both upmarket and mass-market homes next year. ‘The increase in mass market home prices will be very measured until the sub-prime cloud clears,’ he says.

Knight Frank managing director Tan Tiong Cheng expects the fate of the high-end market to be determined by foreign investors (and their reading of the global economic outlook) as well as the extent to which those who’ve sold their prime district homes through en bloc sales buy replacement homes in the high-end of the market.

Hong Leong Group executive chairman Kwek Leng Beng says: ‘Even in a period of consolidation, the market will come back. The fundamentals of real estate in Singapore are still very good. There’s still upside for mid-range home prices, which are still below their peaks.’

Knight Frank’s Mr Tan said: ‘Fundamentally, Singapore is in a very sound position, property-wise. But what will determine the state of the market will be external events, especially sub-prime, oil prices and the US economy. If the external forces turn out to be quite benign, the Singapore property market recovery will continue. But if the external forces turn out to be malignant, then all bets are off.’

Mr Kwek stresses that because developers have enjoyed good profit margins over the past three to four years, they are now in a strong financial position and can afford to take longer to sell their projects.

After the current lull, Knight Frank’s Mr Tan expects developers to resume launches next year when the market’s direction becomes clearer. ‘They’re likely to start launching closer to Budget time, when the Government gives its official reading of the Singapore economy,’ he says.

Chesterton International’s head of research and consultancy, Colin Tan, reckons that high-end residential property will weather any market downturn better than the mass market, as luxury homes typically offer a more resilient long-term investment proposition because of their superior location. ‘Someone who buys a high-end home can always rent it out, even if he has to accept a lower rent,’ he says.

Market expectations have been running so high that the authorities will step up the Government Land Sales Programme to stem rising property prices and rents. However, some property players suggest the uncertainty may make the authorities think again. ‘Supply will continue to be released mostly through the reserve list, but some new housing sites in the city may be introduced in the confirmed list, as developing the Marina Bay area and rejuvenating the existing CBD seem to be a priority,’ Knight Frank’s Mr Tan suggests.

At Ho Bee, Mr Ong says that recent bidding at state tenders shows ‘developers are re-calculating the risk premium because of uncertainty created by sub-prime’.

‘(The) government will be careful about the confirmed list,’ he says.

 

Source: Business Times 5 Dec 07

Wages keeping pace with household debt

Household balance sheet strengthened by rising property, equity prices

SINGAPOREANS are a conservative lot. Despite strong wage growth, they are careful about borrowing too much.

And with strong appreciation in property prices, the negative housing equity situation continues to improve.

Household debt of $157.9 billion as a share of wages has continued to fall, from 195 per cent in 2005 to 181 per cent in 2006, according to the Monetary Authority of Singapore’s 2007 Financial Stability Review.

Households play an important role in the banking system as depositors and borrowers. Household deposits make up around half of domestic non-bank deposits and loans to households account for about half of domestic non-bank loans.

Rising property and equity prices have strengthened the household balance sheet, it said. In addition, wage growth has kept pace with growth in household debt.

Household debt grew in Q2 2007, but at a slower pace than remuneration and household assets.

As a share of gross domestic product (GDP), household debt has also fallen, from 81 per cent in Q4 2005 to 74 per cent in Q4 2006 and 71 per cent in Q2 2007.

‘Notwithstanding the strong economic growth and therefore positive consumer sentiment, loan growth underlying spending on large items such as cars and homes has been moderate,’ it said.

‘Indeed, housing loans grew 1.3 per cent year-on-year and growth of car loans was flat, compared to wage growth

of 8.5 per cent in second quarter 2007,’ it said.

But home loans growth has picked up considerably since then and in October accelerated to 14.4 per cent from a year ago. Car loans continued to shrink, down 1.8 per cent, their fourth consecutive month of contraction.

The MAS said there is some concern with stronger credit card loans, which rose 14 per cent in Q2 2007, although they currently constitute only about 3 per cent of total household borrowing.

Here, too, consumer spending seems to have moderated with credit card loans slowing to 11.5 per cent in October.

In addition, credit card charge-off rates have been falling.

Share financing provided by banks has shown even bigger increases but comprises only about one per cent of total household loans.

Not surprisingly, individual bankruptcies per quarter and non-performing loan ratio of loans to households have been falling this year.

Assets have continued to outpace liabilities in growth, resulting in net household wealth growing by 19 per cent year-on-year in Q2 2007 to $894 billion, or about four times the GDP.

The fast pace of the appreciation in the value of property and equity has also meant that net wealth has increased.

Investment assets were not the only factors behind the asset build- up. Cash and deposits also grew by a significant 18 per cent from Q2 2006 to Q2 2007. Cash and deposits alone have continued to exceed total liabilities.

Property prices have been a key driver of growth in asset value, with prices of private properties rising by 27 per cent year-on-year and those of Housing and Development Board (HDB) resale flats by 12 per cent year-on-year in Q3 2007.

A recent MAS survey of the six banks that account for almost the entire housing loans market shows that negative equity for private residential properties fell to 2.4 per cent of the total value of outstanding mortgage loans in September 2007, compared with 4.7 per cent a year ago.

Similarly, in terms of the number of mortgage accounts, 2.5 per cent were in negative equity in September 2007 compared with 5.1 per cent a year earlier.

 

Source: Business Times 4 Dec 07

Fewer sub-sales but value hits all-time high

Median Q3 sub-sale prices also hit record of $1,246 psf, up 25% year-on-year

(SINGAPORE) The level of sub-sale activity may be just about half of what it was in 1995 but the value of subsale apartments transacted in the first three quarters of this year is already at an all-time annual high of $6.7 billion.

An analysis of data by DTZ Debenham Tie Leung reveals that although the number of sub-sale transactions actually fell to 1,374 in the third quarter of this year – representing a quarter-on-quarter (qoq) decline of 23 per cent – sub-sales made up 19 per cent of the volume, up from 16 per cent in the second quarter.

Equally significant is the fact that median sub-sale prices also hit a new record high of $1,246 psf, a qoq increase of 13.6 per cent and a year-on-year increase of 25 per cent.

The value per transaction of sub-sale apartments is also at a record high this year at $1.71 million per transaction.

But while the level of sub-sale activity can sometimes be an indicator of market bullishness, DTZ executive director Ong Choon Fah points out that factors driving up numbers in the third quarter may have more to do with real demand in the light of short supply and with various new developments becoming available for immediate occupation.

The Icon for instance, has consistently been one of the top two developments in terms of sub-sales this year with its median sub-sale price increasing 26 per cent qoq to $1,495 in Q3. But as Mrs Ong notes, Icon has recently received its temporary occupation permit (TOP), and other attributes like its inner-city location and the affordability of its small units do make it popular.

Another popular development among sub-sellers is The Sail @ Marina Bay which increased 21 per cent qoq in terms of median sub-sale price in Q3 to hit $2,093 psf.

Interestingly, according to DTZ’s analysis, the number of units at The Sail and Icon that have been sub-sold is now 512 and 370 units respectively. And assuming that units were not repeatedly sub-sold, DTZ suggests that almost half of the units in these developments have changed hands already.

More telling perhaps is that of the recent launches, only The Lakeshore, which has received TOP for some phases, and One-north Residences registered a significant number of sub-sales.

The number of sub-sale apartments in the luxury band fell 41 per cent to 317 transactions but it still makes up 45 per cent of sub-sale transactions.

DTZ believes that while the sub-sale market is increasingly competitive and sub-sale activity is not likely to accelerate further, the overall value of sub-sale apartments in 2007 is expected to increase further, backed by potential price increases.

And foreigners could be helping to boost the sub-sale market. DTZ’s report reveals that although the number of foreigners buying sub-sale apartments in Q3 fell by 20 per cent qoq to 460 transactions, this number exceeds that of apartments bought directly from developers.

Indonesians made up 38 per cent of these buyers, followed by Malaysians and Koreans who made up 15 per cent and 9 per cent respectively.

Again, The Sail and Icon proved to be the most popular with these buyers with foreigners buying 26 and 25 units (41 and 36 per cent) respectively in the quarter.

DTZ believes the sub-sale market will continue to receive interest from buyers seeking immediate occupation with some investors looking to realise returns earlier by tapping on the buoyant leasing market. But with the withdrawal of the Deferred Payment Scheme, sub-sale activity may slow and deals look set to be more sustainable.

 

Source: Business Times 4 Dec 07

Fewer homes worth less than remaining loans as prices rise

Owners no longer in negative equity may be tempted to sell and cash in

THE number of home owners in negative equity – where the property is worth less than the loan taken to buy it – has been slashed due to soaring real estate prices.

Four years ago, about 13.7 per cent of owners with home loans were in negative equity but that has now fallen to just 2.5 per cent, said the Monetary Authority of Singapore (MAS).

The proportion a year earlier was 5.1 per cent.

In terms of the total value of outstanding home loans, only 2.4 per cent were in negative equity in September – down from 4.7 per cent a year ago and 14.1 per cent in 2003.

Property experts tip that the significant shift into ‘positive equity’ will tempt some owners, particularly investors, to sell and cash in.

Owner-occupiers may refinance – taking out a new mortgage at a lower rate – while others will wait for prices to rise even more before selling.

The MAS figures, contained in its latest Financial Stability Review, came from a survey of six banks, which account for almost the entire home loan market.

OCBC Bank’s head of consumer secured lending, Mr Gregory Chan, said: ‘In line with the healthy economic growth, we observe that home loans taken on properties bought in the mid-1990s have been steadily recovering from their negative equity positions since 2004.

‘We have also noted an increased trend of consumers selling their properties for a profit.’

The number of requests for loan refinancing has also gone up in the past three months.A local bank executive believes positive equity is one of the reasons for this.

Home owners who wanted to sell their properties while in negative equity would have had to pay the bank the difference between the outstanding mortgage and the sale price. But those who held on may now be willing to sell, said property consultants.

‘Singaporeans are quite averse to selling things – especially big-ticket items – at a loss,’ said Mr Nicholas Mak of property consultancy Knight Frank.

Mr Eric Cheng, executive director of property agency HSR, recalled one owner who bought a Mandarin Gardens unit for $950,000 in 1996, only to see its value drop to about $600,000 around 2001.

After holding out for more than a decade, he finally managed to sell his unit for $1.08 million earlier this year.

For such sellers who have had the distressing experience of being in negative equity, cashing out with a profit at the earliest chance is a must. ‘They don’t want to experience another slump, which may last for another eight to 10 years,’ said Mr Cheng.

Owners might also be tempted to get out while the going is good, given recent government steps to cool the market, said a banker. Stricter collective sale rules, hikes in development fees and the axing of deferred payments would moderate price rises.

But there will be others who will hang on, waiting for home prices to rise further.

Mr Geoffrey Ying of financial advisory firm New Independent said: ‘It’s human psychology: since they have waited so long, what’s a few more months or years?’

The MAS also said that the banking system’s overall property exposure has gone up further as the boom spreads to the mass market. While the rise in banks’ property exposure has been driven mainly by loans to property-related firms, loans to individual investors have also risen of late.

 

Source: The Straits Times 4 Dec 07

Property sales set for big drop in Q4

Early numbers show Q4 private property deals at $2.9b, nowhere near Q3’s $15.6b

(SINGAPORE) Weakening market sentiment could have a bigger impact on property sales if early numbers for the Q4 2007 transactions are anything to go by.

In a preliminary analysis of caveats lodged by DTZ Debenham Tie Leung (DTZ), the value of all private property transactions for Q4 to date is about $2.9 billion.

This figure does not represent the full fourth quarter. There is also a time lag between a transaction and the lodgement of a caveat. Still, doubling or even tripling this figure will not bring it close to Q3’s figure of $15.6 billion and Q2’s record breaking figure of $24.2 billion.

DTZ executive director Ong Choon Fah also pointed out that apart from the continuing effects of the US sub-prime crisis, the property market was also jolted by the withdrawal of the deferred payment scheme in October. ‘It made people understand that there were risks involved,’ she added.

Signs of poorer market conditions were already apparent in the third quarter. In DTZ’s analysis for Q3, transactions for all private homes fell 36 per cent to 8,416 units. But this was attributed to seasonal market activity marked by the Hungry Ghost Month, as well as the reduced number of developer launches.

Mrs Ong believes that fewer launches in Q4 could be the culprit if sales do fall.

According to its report, the number of developer sales in Q3 reflected a 41 per cent quarter-on-quarter (q-o-q) drop to just 1,956 transactions with developers apparently monitoring the market for possible sub-prime impact.

Now, well into the fourth quarter, new launches still appear to be on hold. Mrs Ong believes that there are ‘genuine buyers’ in the market but developers could nevertheless be choosing to take their time to decide on pricing, or, launch developments in phases to test the market.

But she said that there is no evidence that developers or sellers are prepared to accept lower prices. ‘Prices are still inching up even though the activity level has dropped,’ she added.

Mrs Ong said that the recent strong performance of the private residential market has allowed many developers to accumulate financial reserves and most are not in need of immediate revenue. ‘Developers don’t feel the need to launch immediately. They can still launch next year, while some may even be considering waiting until the opening of the integrated resorts creates more buzz,’ she added.

The number of transactions in Q3 was bolstered by the high number of deals in the secondary market which saw 6,434 homes change hands. This represents a q-o-q drop of 34 per cent, but the decrease is of a lesser magnitude compared with that of developer sales.

And although collective sales slowed in Q3, DTZ says apartments in the secondary market in the prime districts continued to perform, largely due to price increases.

The number of secondary market apartments sold in Q3 fell 33 per cent q-o-q to about 5,300 units with foreigners accounting for 1,590 or 30 per cent of these transactions. DTZ noted that this was among the highest since 1995.

The strength of the secondary market was partly due to the buoyant leasing market which also encouraged foreigners to buy homes ready for immediate occupancy.

Bucking the downward trend of all category of buyers were corporate or institutional buyers.

In Q3, transactions attributed to companies actually rose by 11 per cent with 958 homes changing hands. DTZ said this was the largest number of units purchased in a quarter.

Apart from the reported acquisition of a block at Costa Del Sol by the Ong Beng Seng family, DTZ highlighted the sale of 49 out of 58 units in Duchess Crest, registered as company transactions. DTZ executive director (residential) Margaret Thean added that unlike the bulk sale at Costa Del Sol, the Duchess Crest transactions were not done by a single company either.

She added: ‘This reflects that foreign investors and property funds still have confidence in the Singapore market.’

Ms Thean also said: ‘With the sub-prime crisis in the US, some of these funds may also be increasingly looking outside the US to invest.’

 

Source: Business Times 3 Dec 07

Where high finance meets high living

The new downtown will boast a casino, a financial hub, condos and retail areas

TIRED of Orchard Road? Jaded by Clarke Quay? Finding Robertson Walk just a trifle same-old, same-old? For the Singapore consumer – probably among the most avid in the world – Marina Bay may be the next big thing.

The new downtown will be home to a casino, a financial centre and several sparkling condominiums, so not surprisingly, shops and restaurants are eager for a presence there.

‘The Marina Bay area presents many exciting opportunities for both the business and leisure market,’ said Sulian Tan-Wijaya, general manager of The Fullerton Heritage, which is developing a string of commercial properties along the waterfront.

‘Our development is at the heart of the Central Business District, the Marina Bay Sands casino, the Esplanade theatres, new high-end residences like The Sail and The Clift, and the nearby Civic District,’ she said.

Edgar Huang, manager of marketing services for Esplanade – Theatres on the Bay, said the arts-performance centre expects to see ‘even more buzz in the area, with more people coming to work and live and play here’. The theatres, open since 2002 and famous for their domes that have been likened to durians, are also adjacent to a shopping mall.

David Martin, general manager of Marina Bay Financial Centre (MBFC), which will consist of high-rise office towers as well as retail space, estimates there will be 50,000 people living and working in the ‘immediate vicinity’ of the financial hub from 2011.

Along with the visitors who are sure to flock to the adjacent Sands, ‘we believe this creates a compelling offer to potential retail tenants, and this is also the feedback we are getting from the market’, he said.

Events being held in and around the public areas of Marina Bay will also help draw in the crowds, said the Esplanade’s MrHuang.

‘Marina Bay is also currently host to many celebrations like National Day, the Fireworks Festival and the New Year’s Day celebrations,’ he said.

Upcoming events like the Chingay street parade and the Grand Prix Formula One race, which Singapore will host in September next year, will also attract visitors, he added.

To entice what promises to be a diverse range of consumers, each developer is adopting a slightly different marketing tack.

The Fullerton development, for example, is aiming to be high-end and historical.

‘In addition to the Fullerton Hotel and a new waterfront 100-room luxury hotel, the Fullerton Heritage Precinct will offer a range of chic, trendy and elegant retail and dining experiences,’ said Ms Tan-Wijaya.

‘These include conservation buildings such as The Fullerton Waterboat House, Clifford Pier and Customs House, as well as One Fullerton,’ she said.

One Fullerton will revamp its second floor and offer even more food and beverage outlets, which should attract tourists who visit the nearby Merlion Park, she said.

The Esplanade is pitching itself as a kind of natural retail extension for the arts lover. ‘It’s a lifestyle experience pegged to the arts,’ said Mr Huang.

‘Besides coming here for a show, you can start or end your evening with drinks and food,’ he added. ‘There are many shops closely related to the arts for art lovers, and those unfamiliar with the arts won’t feel out of place either.’

Mr Huang said that business at the Esplanade has been bustling since its inception.

‘It’s been positive here at Esplanade Mall,’ he said. ‘The Esplanade also presents over 70 per cent of our artistic programmes free, which means visitors will always have something to look forward to after a meal or a visit to the shops.’

He said that some of the main attractions of the mall are the food centre Makansutra Gluttons Bay, award-winning restaurant My Humble House and library@esplanade, Singapore’s first performing-arts library.

Not forgetting the small but unusual Tatami Shop – ‘the world’s first tatami furnishings retailer outside Japan’, said Mr Huang.

Suntec City Mall, which welcomed its first customers in 1997, says its retail concept is ‘a little something for everyone’. The shopping centre’s larger tenants include hypermarket Carrefour and fashion retailers Mango, La Senza and Lacoste. It also boasts the gigantic Fountain of Wealth, which attracts visitors from all over the world.

‘Also, Suntec City Mall houses the embarkation point for the many tourists going for the Duck Tours and Hippo tours,’ said Marilyn Tan, investor relations manager at ARA Trust Management (Suntec).

As for the MBFC, Mr Martin said the financial hub aims to be ‘a vibrant and prestigious, yet convenient, shopping and dining precinct for the internationally-minded’.

Retail in the MBFC would address a ‘market gap’ in the central business district for serving the needs of higherincome earners and residents, he said. ‘This group of customers wants much more than what a conventional mixeduse centre offers. MBFC is designed as a place where residents, the office population and visitors can satisfy their everyday needs without leaving the business and financial district.’

Of the development’s 160,000 sq ft of underground retail space, about half will be for shops and the other half for food and beverage, he said. In addition, there will be a restaurant on the 33rd floor of the Tower One office block.

‘MBFC is in talks with a number of leading retail interests to be located within the centre,’ he said. The development will offer dining and entertainment options for ‘a spectrum of tastes’.

Then, of course, there is Marina Bay Sands, which will open in 2009. Its developers, Las Vegas Sands, declined to comment at this stage on the specifics of upcoming shops and restaurants.

Besides the casino, the entire integrated resort, as it is called, will feature three 50-storey hotel towers, linked by a two-acre Sky Garden. Not to mention an Arts and Sciences Museum shaped like a welcoming gesture, and onemillion square feet of ‘integrated waterside promenade and shopping arcade’, according to its website.

Clearly, there will be loads of shopping and dining opportunities there. So hang on to your hats, Singapore consumer – if not your purses.

 

Source: Busines Times 29 Nov 07

Oversupply looms in S’pore office sector: Citigroup

It downgrades two stocks with key exposure to sector – KepLand, CityDev

SINGAPORE is in danger of seeing an oversupply of office space from 2010 onwards, Citigroup is warning.

The bank’s research unit has also downgraded two Singapore stocks with significant exposure to the office market here – Keppel Land and City Developments.

‘The market is underestimating the potential supply of new office space in 2010 and beyond, in our view,’ said Citigroup analyst Wendy Koh in research report dated Monday.

‘Based on our estimates, occupancy rates are likely to peak in 2008-09 and decline thereafter with the impending supply.’

Since May 2007, six new sites with a total gross floor area of 5 million sq ft have been awarded amidst fears of an office space crunch. These sites could add some 3 million sq ft of new office space in 2010-11, Citigroup estimates.

Altogether, on average, 3.2 million sq ft of new supply could hit the market from 2010-12, the bank said. This compares to a historical average demand of 1.5 million sq ft per year.

Supply estimates could rise even further with more government land sales in the first half of 2008, Citigroup said.

All this will mean that buildings in core Central Business District will be competing for tenants.

Key projects that are scheduled to be completed in 2010-12 include Marina Bay Financial Centre, the redeveloped Ocean Building One Financial Centre and the South Beach Road and Marina View land parcels.

In response, Citigroup downgraded its ratings on office landlords Keppel Land and City Developments.

Keppel Land was downgraded to a ’sell’ from a ‘hold’, while CityDev was rated a ‘hold’, from a ‘buy’ previously.

‘Going forward, we expect Keppel Land to face keen competition while marketing the remaining space at the Marina Bay Finance Centre and One Financial Centre,’ Ms Koh said. She cut KepLand’s revalued net asset value (RNAV) estimate to $7.83 (from $8.85) and target price to $6.26 (from $8.97).

For CityDev, Citigroup cut its RNAV estimate to $14.47 from $15.28 and target price to $15.90 from $18.00 to reflect lower capital values of office buildings.

Other analysts however said that all the new projects coming onstream will not cause an oversupply – rather, they will ensure that supply catches up with demand.

‘I think that there will be significant pent-up demand for office space that will only be satisfied when supply hits the market in 2010-11,’ said Moray Armstrong, CB Richard Ellis’ executive director for office services.

This pent-up demand means that demand in 2010-11 will be significantly higher than the historical average, Mr Armstrong said.

 

Source: Business Times 28 Nov 07

S’pore launches pushed back as developers gauge sentiment

Some projects being launched overseas first, others struggle to finish showflats

(SINGAPORE) Developers here are holding back residential launches due to poor market sentiment – and in some cases are choosing to launch their projects overseas first as they wait for market sentiment here to recover.

Launches are also being held back as showflats are being delayed amidst a construction squeeze, market watchers said.

Major launches that can be expected over the next few months include City Developments’s Wilkie Studio and The Quayside Collection, Far East Organization’s Floridian and Cairnhill View, GuocoLand’s Goodwood Residences,

the Lippo Group’s Marina Collection and Wing Tai’s Belle Vue and L’VIV.

While several upcoming projects have most of the necessary approvals to launch in place, some of them are being held back in anticipation of a market recovery, BT understands.

‘Currently, we don’t know if Singaporeans will be willing to fork out that kind of money,’ said one developer who has yet to start selling the company’s project in Singapore. However, the luxury condominium in question is already being marketed abroad, with about half of the units sold to foreigners at prices exceeding $2,500 per square foot (psf).

In a recent report, UBS Investment Research also noted that several projects have obtained permission to launch in the past three months, but the launches were delayed due to the weak market sentiment.

‘Some projects with permits to launch in August and September have been held back due to weak sentiments,’ said the investment bank’s research unit in a recent note. ‘We expect these to be launched in late November or early 2008.’

Others point out that while some of the delays can be attributed to the poor market sentiment, showflats for some of the projects are not yet ready.

‘Sentiment is one reason for the quiet market,’ said Ku Swee Yong, director of marketing and business development at Savills Singapore. ‘But even if the market sentiment is good, some developers still can’t launch their projects because the showflats aren’t ready.’

One example is Lippo’s Marina Collection, Mr Ku said. The showflat for the 124-unit project is yet to be completed, he said. The project was supposed to have been launched last month.

Some developers are choosing to launch their projects overseas first. United Engineers, which is developing the 40-unit Sui Generis in the Balmoral area through a joint venture with Japan-based Kajima Corporation, recently said that it has sold 17 apartments via overseas previews in Indonesia and Hong Kong over the past two months.

The Singapore launch, on the other hand, is only planned for next year although the showflat is ready, BT understands.

Similarly, other developers are also waiting for next year to market their projects.

The weaker market sentiment also means that fewer projects are applying for permits to launch.

In October, for example, just three new projects received permits to launch, UBS said – City Developments’s Shelford Suites, Hayden Properties’ Ritz-Carlton Residences and a condominium at Kim Yam Road by Frasers Centrepoint.

However, industry players are confident that the market will recover soon – bringing with it a whole slew of project launches in the new year.

Some projects that went ahead with their planned launches recently did well. At Ritz-Carlton Residences, which started selling over the weekend, take-up was good and prices hit $5,000 psf, sources said.

 

Source: Business Times 27 Nov 07

S’pore ranked 9th most costly Asian city for expatriates

SINGAPORE has risen 10 places in a new global survey of the most expensive places for expatriates to live.

The Republic is closing the gap on higher-priced Hong Kong, which stayed at No. 79 in the survey, conducted by human resources firm ECA International.

Despite the jump, Singapore, at No. 122, is still significantly cheaper for expats than Hong Kong and other key global centres, such as London at No. 10 and New York at No. 48.

Singapore’s rise up the table from No. 132 was the result of rising expat costs such as higher rents, coupled with a stronger Singapore dollar.

In contrast, the Hong Kong dollar, which is pegged to the US dollar, is weakening – offsetting a rise in expat costs.

Singapore is the ninth most expensive Asian city, the survey found. Seoul is the most expensive, at No. 7 in the world. Tokyo dropped from 10th to 13th place, partly due to a decline in the yen.

Top spot went to the African city of Luanda in Angola. Places like this, which are off the beaten track, are more expensive because some expat consumer items are hard to get, and those who want them have to pay top dollar.

The survey compares a basket of 128 consumer goods and services such as groceries, drinks and tobacco, clothing and electrical goods that are commonly purchased by expatriates in more than 300 locations worldwide.

Multinational firms use the survey’s results to help determine how much to pay their staff working overseas.

Living costs for expats are affected by factors such as inflation, availability of goods and exchange rates.

Singapore has seen higher inflation, partly due to a 2 percentage point hike in the goods and services tax to 7 per cent.

Mr Sebastien Barnard, 32, at the British Chamber of Commerce, said living expenses, especially food, have risen. ‘A year ago, lunch for two adults and two children cost about $70, including drinks. But now it’s over $95.’

But the surge in property rents is still the biggest bugbear of expats here.

Mr Mark Brider, 43, head of international personal banking for the Royal Bank of Scotland in Singapore, said: ‘There is a growing number of international people living in Singapore, so the demand drives up rental. My landlord just told me my rent will be raised 80 per cent in March next year.’

Nonetheless, he added, Singapore’s cost of living is still ‘competitive’ and ‘has still not reached the level of Hong Kong’.

The rising Singapore dollar has also pushed up expat living costs, said Mr Lee Quane, general manager of ECA International Hong Kong.

He said Singapore’s rising cost of living is ‘bad news’ for global companies, which have to adjust their expat employees’ pay and allowances to help them maintain their spending power here.

 

Source: The Straits Times 27 Nov 07

Property may be big gainer as real interest rates plunge

Mounting inflation makes it tempting to borrow, but things may change in the long run

(SINGAPORE) Rising inflation may be starting to worry policymakers and the man on the street, but it has had an interesting side effect. It has pushed down the real interest rate dramatically and is expected to drive the property market as buyers and borrowers take on more mortgages, which are costing them very little in real terms.

In fact, real interest rates – which a borrower pays after inflation has been factored in – have fallen sharply as prices climb and could turn negative early next year when inflation is projected to hit a high of 5 per cent, economists said.

Some of the biggest companies – which borrow at wholesale rates – are already enjoying negative interest rates, as inflation since September has risen above the key three-month interbank rate.

Inflation in September was 2.7 per cent but the three-month Sibor or Singapore interbank offer rate was around 2.5 per cent, so real interest rates are in negative territory, according to United Overseas Bank economist Suan Teck Kin.

‘It’s bad for the depositor,’ said Mr Suan.

As OCBC’s Selena Ling put it: ‘There is no free lunch – our savings are also likely fetching a very low if not negative real return currently (calculated by subtracting the inflation rate from the nominal interest rates). The savings rate is about 0.25 per cent, while the 12-month fixed deposit rate is about 0.83 per cent.

But for borrowers, the effect is positive.

‘High inflation is beneficial to the borrower,’ said Standard Chartered Bank economist Alvin Liew. If you borrow $1 now, it will be worth less when you return it in two years.

Inflation jumped to 3.6 per cent in October, the highest since 1991, the Department of Statistics said last week. It is likely that the Monetary Authority of Singapore (MAS) will let the currency appreciate faster to dampen consumer price gains. This, in turn, will lead to more funds flowing to Singapore from investors betting on currency gains, which will keep the pressure on our already low interest rates.

While the three-month interbank rate is expected to remain around 2.5 per cent until the end of this year, some economists expected it to fall to as low as 2.1 per cent early next year before recovering to 2.5 per cent later. Home loan rates typically range from 3 to 4 per cent.

Generally, low interest rates fuel stock market activity. But with people feeling jittery about equities, economists said that many could turn to property to earn higher returns, because putting it on deposit is a ‘losing’ proposition.

Mr Liew pointed out that Singaporeans will have quite a lot of excess cash next year. Recent reports have said that en bloc sales will result in $6 billion swishing around in sellers’ accounts then.

‘One of the key things about high inflation and low interest rates – from an economist’s point of view – is that it will keep the property market robust for the next 12 months,’ he said.

With low interest rates, mortgage credit is cheap and will support the property market, said Citi economist Chua Hak Bin.

Real mortgage rates are probably only slightly positive now, about 0.5-1.0 per cent, compared with about 2-3 per cent three years ago, Dr Chua said. ‘Low real mortgage rates encourage leverage and may drive property prices higher.’

And if the US cuts interest rates aggressively, it may fuel asset inflation, he added.

Citi’s US economics team expects another 100 basis points cut, taking the US federal funds rate down to about 3.5 per cent by the end of Q3 2008, he said.

But all three economists cautioned against over-leveraging given the clouded economic outlook, and they expected inflation to moderate in 2009.

‘Debt servicing/repayment ability as well as degree of leverage of the borrower should be considered together when determining how much one should borrow,’ said Mr Suan. ‘Real interest rate may not be the sole criterion.’

The government is also watching the property market closely, he noted.

DBS Bank spokeswoman Karen Ngui said: ‘Consumers should be mindful that home loans are a long-term commitment and should not just consider the immediate interest rate outlook.’

 

Source: Business Times 26 Nov 07

two cents’worth – Traits a good property investment should have

IT’S important to keep this in mind: It’s easy to get into properties, but very difficult and costly to get out.

Hence you must get it right the first time and every time. Try to meet as many of the following criteria as you possibly can.

Buy in high-growth areas

These places experience traffic congestion. In many cases, people are forced to relocate closer to their places of work to cut down on travelling time and travelling expenses.

Hence, the demand for such properties is high. Given the limited land supply in choice locations, there will always be upward pressure on prices for these properties.

Buy 10 to 20 per cent below market

You must make money going into properties. The way to do it is to master property negotiating skills and buy from motivated sellers at 10 to 20 per cent lower than the market.

This is especially important when you are buying with the intention to keep forever. If you are planning to sell some time in future, it is still important to buy below market as doing so will ensure that you have made money at the point of purchase.

Buy properties facing the right direction

In a hot tropical country that has 10 to 12 hours of sunshine every day, properties facing the setting sun tend to get very hot after 2pm.

Properties that directly face the setting sun are priced 10 to 20 per cent lower than those facing the morning sun.

Besides properties facing the east, you should also consider north- or south-facing properties as the potential heat impact would be minimal.

Buy properties facing greenery or water

These properties will command a slight premium over others. It is more soothing to face nature in the form of parks and lakes. You will find it windier and cooler too thanks to the open spaces.

Buy corner units if you have the budget

With corner units, you will have much more flexibility than with intermediate units.

For landed properties, you will have far more options with regard to renovations, rebuilding your house and so on.

Excerpted from Milan Doshi’s How You Can Become A Multi Millionaire Real Estate Investor, published by Achievers Resource Centre.

 

Source: The Sunday Times 18 Nov 07

Home sales dive in upmarket core, pick up elsewhere

Bourse turmoil, sub-prime problems cited for foreign investors’ caution

 

(SINGAPORE) The private housing momentum is shifting decisively as sales and launches flag in the Core Central Region (where upmarket homes are located) but appear to be picking up in other areas.

In the so-called Outside Central Region – which includes suburban mass-market housing locales like Jurong, Woodlands and Bukit Batok – developers sold some 259 homes in October. The sales here were more than in both other regions in the Urban Redevelopment Authority’s geographical classification, according to Jones Lang LaSalle’s analysis and represented a 72 per cent jump over September.

The Rest of Central Region, which includes locations like Amber Road, Rochor, Geylang, Toa Payoh and Bishan, also saw a 123 per cent month-on-month rise in developer sales to 196 homes in October, according to Jones Lang LaSalle’s analysis.

In contrast, demand in the Core Central Region was shrinking sharply. Just 135 homes were sold there in October, compared to 290 units in September and 583 in August, when the market was rollicking.

JLL also noted that the number of new homes launched by private developers dropped 55 per cent month-on-month in October for the Core Central Region, but jumped 299 per cent and 30 per cent respectively in the Rest of Central Region and Outside Central Region.

Knight Frank, which made a similar analysis, attributed the lower sales volumes in Core Central Region to the stock market turbulence causing local buyers to be more cautious while the US subprime problems and credit crunch have also dented sentiment among foreign investors.

Islandwide, developers launched 629 homes in October, up 10.4 per cent from 570 units in September. The number of homes they sold also increased 11.5 per cent from 529 in September to 590 in October.

JLL pointed out that the average gap between the highest and lowest prices achieved for projects in the Outside Central Region widened to 25.7 per cent in October, from 14.8 per cent in August and 18.7 per cent in September, which JLL suggests reflects more buoyancy in this segment. ‘Buyers are more optimistic and confident of this submarket,’ Dr Chua said.

‘However, this method does not account for the product differentiation or any other physical attributes that may have resulted in this gap. It is to be used only as an indication of buyers’ mood or confidence rather than to predict the market,’ he added.

Knight Frank’s analysis of URA’s data showed that, islandwide, the median transacted price increased 3.3 per cent from $960 psf in September to $992 psf in October. ‘The increase signifies that the market is on a path of modest and steady growth,’ the firm said.

It also noted that the impact of the withdrawal of the deferred payment scheme, which took effect on Oct 26 was yet to be reflected. ‘However, in subsequent months, buyers could adopt a more cautionary stance and although a significant drop is not expected, the number of units launched and sold will likely remain close to current levels,’ Knight Frank added.

CB Richard Ellis’ analysis shows that Park Natura in Bukit Batok chalked up the most primary market sales during October, at 101 units, followed by Aalto at Jalan Kechil (in the Amber Road/Peach Garden vicinity), with 49 units.

Two luxury projects that sold fairly well last month were Hilltops in the Cairnhill area, and Scotts Square, with 24 units and 33 units sold respectively.

Hilltops’ median transacted price was $3,711 psf, while that for Scotts Square was $4,005 psf. The developers of The Orchard Residences saw nine units being sold at a median price of $4,476 psf, with the highest price achieved of $5,600 psf setting a new record, as reported by BT earlier.

‘In the mid-range, new projects in the east such as Aalto, De Centurion, Suites @ Amber and The Seafront On Meyer achieved median prices ranging from about $1,300 to $1,600 psf. For suburban projects, Park Natura’s median transacted price was $1,022 psf,’ CBRE said.URA’s data also revealed that the first unit at Far East Organization’s Boulevard Vue at Angullia Park was sold in October for $3,900 psf. In the eastern part of Singapore, the first 20 units in the 28-unit Suites @ Amber were sold at between $1,224 psf and $1,440 psf.

CBRE predicts that developers will sell about 1,800-2,000 private homes in Q4 this year, bringing their full-year sales to 15,000-16,000 units – which will still be much higher than the 11,147 new private homes they sold for the whole of 2006.

The official URA private home price index, which has already risen 22.9 per cent in the first nine months of this year from end-2006, is likely to increase another 3 to 6 per cent in the final quarter, to achieve a full-year gain of 27-30 per cent.

 

Source: Business Times 16 Nov 07

Soilbuild buys site for condo project

(SINGAPORE) Listed developer Soilbuild Group Holdings yesterday said that it bought a landed site off Meyer Road which it plans to amalgamate with Margate Mansion for a small luxury condominium project.

The group’s latest purchase is 10 Margate Road. It paid $30.8 million for the 16,967 sq ft freehold site. Together with Margate Mansion, total land cost – including a development charge of about $18.4 million – works out to $88.8 million or $987 per sq ft (psf) per plot.

Soilbuild said that its purchase of Margate Mansion, a collective sale site, is still pending the Strata Titles Board’s approval.

The group bid $58 million, or about $882 psf per plot including an estimated development charge then of $6.5 million, for the 34,804 sq ft freehold site. Development charges have since been revised upwards.

The combined land area for the two sites is 51,771 sq ft. Based on a plot ratio of 2.1, gross floor area for the amalgamated site is 108,719 sq ft.

Assuming average unit sizes of between 1,500 and 2,000 sq ft, the site can be redeveloped into about 50 to 70 luxurious residential units.

The East Coast site, in district 15, has easy access to the East Coast Park Expressway and is about 10 minutes from Suntec City and the Central Business District.

Soilbuild said that the group’s latest purchase will be funded by internal resources and borrowings.

 

Source: Business Times 15 Nov 07

S’pore home price gains set to slow

Buyers holding back purchases on US sub-prime fears, says Frasers CEO

(SINGAPORE) Singapore’s home prices will probably increase at a slower pace as buyers hold back their purchases amid the US subprime crisis, said Lim Ee Seng, chief executive officer of Frasers Centrepoint Group.

Losses related to US housing mortgages have sapped consumer confidence, Mr Lim said. Some buyers returned apartment units bought at the Singapore-based company’s new project, Soleil@Sinaran near the city’s downtown, forfeiting initial deposits, he said in an interview late on Tuesday.

The outlook among homebuyers may also slow land purchases by developers including Frasers, one of the biggest buyers of older apartments in the city-state’s downtown, where they’re torn down for new home developments through so-called en bloc sales.

The developer is a unit of Fraser & Neave Ltd, the city’s biggest beverage maker.

‘The sub-prime crisis has shaken investors’ confidence,’ he said. ‘We are still looking to boost our land bank, but we are opportunistic and won’t pay current values because our costs would be too high,’ he added, referring to the purchase of existing apartment buildings to increase its land holdings.

Singapore’s home prices have climbed 14 consecutive quarters since 2004, soaring to a 10-year high this year as the island- state’s economy posted its longest economic expansion since 1991. The developer’s outlook for property sales also indicates its appetite may ease for new land purchases.

The price gain has helped the developer on earlier purchases of existing apartments, which are sold at a profit.

An example is the St Thomas Suites development in the city’s downtown, where apartments were recently sold at $2,189 a square foot.

For a 2,605-square-foot apartment, the latest sale recorded by the government, the price was $5.7 million.

‘We bought the site of St. Thomas Suites at $600 per square foot,’ Lim said. ‘But nearby properties put up for en bloc sales are asking over $1,800, and a developer has to sell at at least $2,500 to cover costs.’

‘The sub-prime crisis has shaken investors’ confidence. We are still looking to boost our land bank, but we are opportunistic and won’t pay current values because our costs would be too high.’ – Mr Lim

 

Source: Business Times 15 Nov 07

HORIZON TOWERS HEARING – ‘Penthouses cost $20m, $30m…where am I to go?’

Apportionment method is unfair, argue some penthouse owners

(SINGAPORE) The minority owners of Horizon Towers who are objecting to the en bloc sale of the development took the stand for the first time yesterday, putting forth their reasons as to why the collective sale should not go through.

Arguments on how the penthouse owners would be penalised by the apportionment method – and how the price they would receive would not get them similarly sized units in the same area – were just some of those presented to the Strata Titles Board (STB) tribunal.

Ng Eng Ghee, a penthouse owner who is objecting to the en bloc sale, pointed out that the apportionment of the proceeds was unfair to owners such as himself.

The apportionment method used by Horizon Towers will assign proceeds to units according to an equal mixture of land area and share value. But Mr Ng pointed out that the share value assigned to a penthouse is only seven, compared to a share value of five for the smaller units, even though his penthouse is almost double the size of the smaller apartments.

This would result in him getting a much lower price for his unit, on a per-square-foot basis, than the smaller units.

But Senior Counsel Chelva Rajah – who represents the majority owners – pointed out that Mr Ng also contributes to the maintenance of the condominium according to his share value.

Mr Ng then lamented that the $3.8 million that he would get for his over-5,000 sq ft penthouse would not enable him to buy another comparable unit in the Orchard Road area. He said in his affidavit that he has not seen another penthouse that would suit him and his family of five people and two large dogs more than his Horizon Towers unit, which even has a private rooftop pool.

“Penthouses in the area cost $20 million, $30 million, $15 million. I saved for all this time, so that I could retire at this point. Now, where am I going to go?’ he said.

The apportionment method used by Horizon Towers was also objected to by Ong Sioe Hong, the sister of Metro Holdings group managing director Jopie Ong.

She also expressed her displeasure with some of the sales committee members who bought extra units in the development at the time the committee was formed to explore the potential of an en bloc sale. She felt that this gave them a different ‘tolerance of pain’ as these extra units were investments to them, rather than homes.

But Mr Rajah then asked her whether, if the sales committee members had bought extra units for the purposes of making money in an en bloc sale, they would not then wish to get as high a price for Horizon Towers as possible.

Ms Ong said that she felt that their agenda was different.

It is the minorities’ case that the en bloc sale of Horizon Towers to Hotel Properties Ltd (HPL) and its partners was done in bad faith, as the sales committee had not followed due process in conducting the sale, such as by seeking out other more attractive offers for the development. Harry Elias Partnership, which represents one group of minorities, called the collective sale ‘a comedy of errors’.

The high-profile hearing is expected to end today, after which the STB tribunal will deliberate on whether to grant a collective sale order to Horizon Towers. But even this decision will not necessarily spell the end of this saga.

For one thing, the tribunal needs to grant the order before the sale completion deadline of Dec 11. Even if it does, the minorities can still appeal against that decision. And if the tribunal decides not to grant an order, there is the possibility that HPL will proceed with the lawsuit it has filed against the majority owners for breach of the sale and purchase agreement.

 

Source: Business Times 15 Nov 07

Property boom expected to continue

Robust economy, jobs growth, strong housing demand and en bloc sales proceeds are key drivers

THE bullish sentiment in Singapore’s residential market continued into 2007 from where it left off in 2006. In the first nine months of this year, the market recorded a total of 29,331 sales transactions worth some $52 billion. This represents a year-on-year increase of 89 and 116 per cent respectively.

The demand for high-end residential housing has been growing at a feverish pace over the past two years and although the stock market plunge may have affected investor sentiment, new benchmark prices continued to make headlines over the past two quarters. Rising fast to support the high-end residential sector are the mid-tier and mass market segments, which have picked up significantly since early 2007 with record prices set at several project launches. Strong economic outlook, coupled with higher salaries and bigger bonuses and rapid jobs growth have brought new impetus for investors, home owners and speculators to upgrade and/or to purchase.

Comparing average prices with those at the end of 2006, the average price for homes in the super luxury market segment (luxury developments which crossed the $2,500 psf mark in Q4/2006) jumped 42 per cent to $3,700, while the high-end market segment (luxury developments in Districts 1, 4, 9, 10 & 11) rose by 36 per cent to $2,076 per sq ft. The average prices for both mid-tier and mass market developments have also risen by more than 50 per cent, albeit from a lower base, to $1,250 per sq ft and $700 per sq ft respectively.

One major market driver is en bloc sales, which have been very active since early 2005. However, with the prolonged US sub-prime credit woes, hikes in development charge rates and the tightening of en bloc sales legislation, the en bloc sizzle has taken a breather from the end of the third quarter of this year.

This has been a phenomenal year for en bloc sales. Since January, some 95 en bloc sales with a total value of $11.3 billion were transacted, compared to 65 transactions totalling $7.5 billion for the whole of 2006. The displaced tenants and owner-occupiers from these properties have contributed to the overall increase in rentals and capital values of homes in the mid-tier, mass and public market segments.

Notwithstanding the stock market shock in the third quarter, the buying momentum is expected to resume between next month and early 2008 given the wave of purchases from displaced en bloc-owners who are expected to collect their money and buy a replacement home around this time. This time round, the mid-tier and mass market segments will lead the way with a strong growth, lending solid fundamentals to prices in the high-end and luxury sectors.

For next year, the residential market in Singapore is expected to remain strong with all segments looking set to continue growing supported by robust domestic economy, jobs growth, wage growth in both the public and private sectors, strong housing demand from expatriates relocating to Singapore and reinvestment of proceeds from en bloc sales.

The general market consensus is that supply will tighten due to a short- term supply crunch in 2008, as the expected demolitions from en bloc sales outstrip the completion of new projects. The tightness in supply will be exacerbated by the need to fill job vacancies which stood at close to 40,000 by mid-2007 with unemployment standing at 1.7 per cent in September 2007.

An estimated 10,000 units from en bloc sales are also expected to be demolished in 2008 while TOPs from new projects are expected to re-supply only 8,000 units. (This is largely due to the few construction starts back in 2003 and 2004 when economic confidence was low, which resulted in low completion numbers in 2007 and 2008.)

Furthermore, there is also the potential risk for a slower pace of construction of residential properties arising from the strong competition for resources in the construction sector. This is largely due to the fact that several of these mega projects are also scheduled for completion within the next three to four years. Some of these mega projects include the two integrated resorts, BFC, petrochemicals plants in Jurong Island, public infrastructure such as the Circle Line and Circle Line Extension, common services tunnel in Marina Bay, sports hub at Kallang, and Gardens by The Bay.

On the demand side, there are several significant events that could spur investments into Singapore. The first is next September’s Formula 1 night race, which will bring international attention to Singapore starting from February, when the F1 season begins.

The weakening US dollar, strengthening Sing dollar, reduced confidence in US markets and political uncertainties as several key regional countries will be holding their general elections soon, could encourage more high-net-worth individuals (HNWIs) from around the region to park some of their wealth here.

The strong Singapore property market has also caught the eye of fund managers from Europe, the Middle East and Japan who have been investing in Asian real estate; and Singapore will benefit from that allocation in 2008 and beyond.

The high-end market is expected to remain steady with average prices likely to rise by another 15 to 20 per cent to hit an average of $3,000 per sq ft. With such strong demand, it would not be to far-fetched to expect some units in super luxury residential projects to cross the $6,000 per sq ft mark.

Developers will continue to raise prices for luxury high-end apartments with superior product quality, such as more spacious surrounding, and designer fixtures and fittings. At the same time, the replacement cost of land, whether from en bloc sales or government land sales, will continue to go up.

Meanwhile, Singapore’s status as a global financial centre, tax-friendly environment, strong currency and liquidity in the local market will keep attracting investment interest from the fast-growing private banking sector which, in turn, are attracting HNWIs to the region as well as expatriates entering Singapore’s job market.

While the high-end market takes a slower growth next year over an increased baseline, the mid-tier and mass markets will surge in 2008 due to strong demand and spill-over effects from the high-end market. Twelve months ago, we proclaimed that 2007 will be the year of resurgence for the mass market. We were spot on. We now know that the resurgence is backed by solid fundamentals and we expect this sector to soar in 2008.

Assuming two-thirds of home owners, who sold their properties en bloc in the first nine months of 2007, will buy replacement homes, we could expect to see some 4,300 buyers with a budget of approximately $7.5 billion looking for homes in the first half of 2008.

Soaring high-end prices and supply crunch in prime districts have forced some buyers to turn their attention to midtier projects. In addition, public and private sector wage rise backed by robust domestic economy, tighter job market will also drive up demands from HDB upgraders or families exceeding the HDB income ceiling, particularly in the mass market segment.

Strong demand could also push mid-tier prices up by another 20 to 40 per cent to between $1,500 and $2,000 per sq ft for the whole of 2008. Areas that will benefit from the rise in the mid-tier market include Balestier, Bukit Timah, Novena, Thomson and Upper East Coast. As many of the mass market areas are still relatively undervalued, it is expected that prices will grow strongly, up by between 30 and 50 per cent from a low base, with average prices reaching around $1,000 per sq ft. Areas likely to see the most significant price gains include Upper Paya Lebar, Hougang, Ang Mo Kio, Upper Thomson to Mandai, Clementi, West Coast, Jurong East, Upper Bukit Timah and Bedok.

There are several projects in the high-end and super luxury markets to keep an eye on in 2008, such as the Ritz-Carlton Residences at Cairnhill, Hilltops at Cairnhill, Paterson Suites at Paterson Road, and The Marina Collection and The Quayside Isle in Sentosa Cove. We would also be monitoring The Cascadia and Floridian at Bukit Timah, and the development by CDL in Thomson Road for signals of strength in the mid-tier market. For the mass market segment, it will be the developments at Simon Road and Bedok Reservoir and Park Natura at Bukit Batok. In the landed property sector, international attention-grabbers in Sentosa Cove could be launched in 2008.

The rental market is also expected to strengthen. Based on robust demand and limited supply being completed, coupled with the withdrawal of properties in the prime districts through en bloc sales, rentals are likely to hit new highs.

Rents in prime districts will increase by 20 to 30 per cent next year, to an average of $6 to $8 per sq ft per month.

The trend of existing tenants in prime districts moving out to fringe or suburban areas will continue, and this will support the annual 50 to 80 per cent growth of the suburban rental markets, at average rents of $4 to $5 per sq ft per month.

Though the property market continues to exhibit strong performance, there are several factors which could affect the residential sales market. Factors such as prolonged uncertainties in the global equity markets, further property measures imposed by the government to cool the market, rising oil prices and high inflation rate could possibly dampen investors’ sentiment and confidence. Increased operating costs due to rising residential and office rents have also sparked concerns about the erosion of Singapore’s attractiveness for MNCs.

The Singapore government targets a long-term economic growth of 4 to 6 per cent per annum. We have been making basic changes to diversify our economy, through the IRs (conventions/exhibitions, Universal Studios theme parks), through investments in R&D and intellectual property, through continued liberalisation of funds management, private banking and insurance industries. This re-positioning of Singapore as a vibrant, global city will continue to support the residential market.

Singapore is undergoing a structural upwards re-rating of the property market. Barring unexpected shocks, property prices will continue to rise for at least three years, and if the IRs deliver their performance, another five to seven years. And even if there were a downturn in the property sector beyond 2012, the authors believe that bottom prices then will still be higher than the prices of 2007.

Given the factors outlined above, what might be the opportunity cost of doubting the continued growth in this market and staying on the sidelines and waiting for it to drop?

Ku Swee Yong is director of marketing and business development; and Zeng Zhen assistant manager, research & consultancy, Savills Singapore

 

Source: Business Times 14 Nov 07

Modest bidding for CBD office site as caution sinks in

Top offer of $779.42 psf ppr half of next- door site’s recent bid

(SINGAPORE) The new-found caution surrounding the Singapore office market is now spilling over to the Central Business District.

Reflecting this, a site at Marina View diagonally behind One Shenton yesterday attracted a top bid from Macquarie Global Property Advisors (MGPA) of $779.42 psf per plot ratio – only about half of the group’s winning bid in September for the site next door.

Knight Frank managing director Tan Tiong Cheng acknowledged that office investors have turned cautious. ‘The outcome of the sub-prime episode may have an impact on demand for office space in Singapore, while the government has expressly stated recently it will boost supply of office land in the next few years to alleviate the current shortage,’ he said.

Another reason for the lower bid for the latest site – Marina View Land Parcel B – is that it has a minimum hotel component of at least 25 per cent of the site’s maximum gross floor area, property consultants said. ‘Hotel land values are a lot lower than office values,’ said Mr Tan.

‘The latest tender outcome is also a knee jerk-reaction to what has been happening lately in the US – the sub-prime crisis being worse than initially thought and big banks being affected. Banks are prime users of office space.’

The only other bid at yesterday’s tender came from units of CapitaLand, at $898 million or $734.52 psf ppr.

BT understands that CapitaLand was to team up with Thai tycoon Charoen Sirivadhanabhakdi’s privately held vehicle Pacific Coast Assets, had its bid been successful.

By most counts, the top bid at yesterday’s tender by MGPA unit MGP Kimi of $952.89 million or $779 psf ppr was lower than had been predicted.

CB Richard Ellis executive director Li Hiaw Ho had expected Marina View Land Parcel B to fetch about $1,200 to $1,300 psf ppr, lower than the $1,409 psf ppr that an MGPA unit paid in September for the next door Marina View Land Parcel A, considering the minimum hotel component for the latest plot. ‘There is a chance that the state’s reserve price may not have been met and that the latest site may not be awarded,’ Mr Li suggests.

However, other property consultants argued that the plot will be awarded.

Mr Tan said his firm, Knight Frank, predicted in late July projected that the site would attract bids of $1.1 billion to $1.3 billion, or $900-1,060 psf ppr. ‘Taking the mid point of $1.2 billion, the top bid was about 20 per cent lower than our projection. To me that is within range, and I would expect the site to be awarded,’ Mr Tan said. ‘The price is still substantially higher than other sites sold in the Marina Bay area in recent years.’

Jones Lang LaSalle’s Asia Capital Markets head Stuart Crow said: ‘The price seems fair going by recent land bids and taking into account the hotel component for this site.’

MGPA’s top bid at yesterday’s tender also ‘reinforces the foreign investor interest in the Singapore property market fundamentals’, he added. ‘In my view, the site will be awarded.’

Mr Crow estimates that MGPA’s bid price for Parcel B yesterday reflects a break-even cost of about $2,200 to $2,300 psf for the office component of a potential development on the site. As for the hotel component, market watchers estimate the break-even cost could be about $700,000 to $800,000 per room.

Marina View Land Parcel B has a site area of about 0.9 hectare and can be developed into a maximum gross floor area (GFA) of about 1.22 million sq ft, of which at least 60 per cent must be for offices and at least another 25 per cent for hotel use.

 

Source: Business Times 14 Nov 07

Interest-only loans: the pros and cons

They make sense to short-term investors and individuals who are high income earners and in high tax brackets, says BEN FOK

 CONSUMERS are constantly bombarded with offers of loans, overdrafts, credit cards and instalment plans that promise instant gratification.

We cannot avoid debt entirely, especially when it comes to acquiring the big ticket items, and not all debt is bad. But those who borrow must be prudent and know that they can make the repayments.

 Even high net worth individuals (HNWI) go to financial institutions for loans, which might seem strange since they are presumably cash-rich. But there are situations where it is worthwhile for the HNWI to borrow instead of paying with their own cash.

Some financial institutions offer interest-only loans targeted at the HNWIs. With such loans, you only repay the interest, not the principal, so the loan balance remains unchanged. Most interest-only loans offered by financial institutions are associated with the purchase of property.

Interest-only loans make sense to individuals who are high income earners and in high tax brackets.

The benefit comes from being able to save on tax on rental income. That’s because the interest portion of loan instalments for rental properties is tax deductible.

This package also works well for short-term investors. By repaying only the interest, investors fork out less cash each month, until they sell the property. As a result, they may be able to invest in two properties instead of one.

 

But interest-only loans are not for the long term, because at the end of the loan period, the payment is raised to the fully amortising level. If you’re still in your home at the end of the interest-only period, you’ll have to start paying off the principal. The payments will be considerably larger because they’ll be amortised over a shorter period. For example, if your interest-only option lasts for five years and you have a 30-year loan, your principal payments will be calculated on a 25-year term.

 Drawbacks of interest-only mortgages:

• You could experience payment shock. As mentioned earlier, your monthly payment will go up – sometimes by 30 per cent or more – when you start paying off the principal. And if the end of your interest-only period coincides with an upward adjustment in your mortgage rate, you could face an even sharper hike in monthly payments.

• You’re more vulnerable if your home value declines. Many borrowers with interest-only loans assume home price appreciation will help them build equity in their homes. In recent years, that’s been a good bet. But rising interest rates could deflate real estate values in some high-cost areas. It’s best to get a reputable financial institution to run the numbers for you and spell out the worst-case scenarios.

Equity provides a cushion against falling home values. Without it, you could find yourself owing more on your mortgage than your home is worth. If you sell, the proceeds won’t cover your loan balance, which means you’ll have to come up with money from another source. One way to avoid this problem is to make a good-sized downpayment on your mortgage.

 Advantages of interest-only mortgages:

• You have more flexibility. Some interest-only borrowers can afford a larger mortgage payment but their priority is to beef up their retirement nestegg or build up their emergency funds. Once they’ve accomplished those goals, they often decide to increase their mortgage payments.

Increasing your monthly payments will build equity and lessen payment shock when you’re required to start paying off the principal. If you’re interested in this option, make sure your loan doesn’t contain pre-payment penalties.

Interest-only mortgages are complicated, so make sure you understand the pitfalls before you sign anything.

And don’t rely on the financial institutions to figure out how much you can afford to borrow. A lender may not take into account all of your future expenses, such as child’s university fees or support of an elderly parent.

What worries me is Singaporeans taking two or more mortgages in a rising market. As property prices rise, the dollar amount also rises in line with higher selling prices. Affordability becomes an issue.

You’re in the best position to know what your financial obligations are, so get a mortgage you can afford. How much should one borrow? There are two ratios that financial advisers commonly use:

• Debt to asset ratio which is total debt/total assets. This ratio should be 50 per cent or less;

• Debt servicing ratio which is total monthly loan repayment/monthly take-home pay. This ratio should be 35 per cent or less.

After all, wealth equals assets less debt. It is built up over the years by accumulating assets and paying down debt, especially mortgage debt. When you pay down the balance of your mortgage, you are increasing your wealth by reducing debt. But an interest-only mortgage does not increase wealth in that way.

Of course, you may be increasing your wealth by accumulating assets instead. If that’s your plan and you have determined that it is more effective in building wealth during the interest-only period than paying down mortgage debt, fine. But paying down mortgage debt is the most effective way to build wealth, especially in today’s financial environment.

Four dangers related to borrowing too much:

• It can become a habit;

• It takes away money from other important needs;

• Your credit rating will be damaged if you don’t pay the bills;

• It can lead to high interest payments that are harder to make.

Three situations where it’s better to avoid borrowing:

• Paying your everyday expenses;

• Covering optional spending;

• Borrowing when you know you can’t afford the payments

It’s not a good idea to borrow a lot thinking that you will just pay the minimum back each month. It may take a long time to get out of debt and you’ll end up paying a lot of interest. Also, if you have one late payment, your credit rating may suffer and you’ll be charged penalties.

At the end of the day, paying down a loan is the best option, because once it’s paid it remains paid.

Ben Fok is CEO, Grandtag Financial Consultancy (Singapore) Pte Lt. He can be reached at ben.fok@grandtag.com  Source: Business Times 14 Nov 07 

Essential homework before taking loan

KEVIN LAM discusses five key areas that your home loan banker would be looking very closely at

THIS has been a special year for the property market. Not since the early 1990s has there been such euphoria about the property market – long queues at property launches, stories of someone we know making fast money by ‘flipping’ new property purchases in a matter of weeks, even days. Many people who have yet to join the party have been wondering if they should also jump on to the property bandwagon.

With the latest government measures to discontinue the deferred payment scheme, some measure of stability should return to the market such that even as prices continue to go up given our transformation into a global city, it would rise in a more measured manner.

For those who need to think very carefully about the finer details of taking out a loan with a bank to finance what would be one of the biggest financial commitments, you may want to consider some finer details as part of your overall decision-making process.

What should I consider about buying a house and financing it?

In Singapore, we have seen two boom-and-bust cycles of property price peaks and troughs in the past 17 years. While many people may think that we are currently in the midst of a boom, many others remain cautious and conservative about making a property financing commitment, and rightly so. The first and most important thing potential home owners should be looking at when they consider buying a house and taking up a mortgage to finance it is this – are you over-stretching yourself? To answer this, you have to look at five key areas that your banker would probably be also looking very closely at:

2. Quantum of financing: Since July 2005, the Monetary Authority of Singapore (MAS) has liberalised the quantum of financing for housing loans, up to 90 per cent loan-to-value (LTV). This means that as a home buyer, the minimum that one needs to raise is 10 per cent of the value of the property and the cash component can be a minimum 5 per cent with the balance of 5 per cent made up from the Central Provident Fund (CPF).

Typically, because the capital and credit cost associated with granting these higher quantum loans are higher, these loans come with higher interest rates when compared to 80 per cent LTV loans. In this market, a comfortable level for financing for banks would generally be at 80 per cent quantum of financing. This means that home buyers must have a minimum of 5 per cent cash and 15 per cent CPF lump-sum from their CPF Ordinary Account. For a $1 million property, this works out to $50,000 in cash and $150,000 in CPF OA monies, or if one prefers, this amount could be paid in cash.

With more cash upfront, this is generally viewed more favourably by the banker, that is, if you could use more than the minimum 5 per cent cash. For example, if there are two borrowers looking for 90 per cent financing, both of equal standing, the one who can put up the entire 10 per cent in cash downpayment, would be better positioned from a bank’s credit standpoint than the other who uses 5 per cent cash and 5 per cent CPF monies. More cash upfront shows more commitment from the potential customer, and this would generally put your financing request in a better light. Likewise, if a potential customer has the ability to fork out up to 30 per cent or more, cash or CPF down payment, and request only 70 per cent financing, he or she can be more confident of your request for financing.

3. Employment profile: The potential customer’s employment status is also one of the most important considerations to review when taking out a housing loan. He or she should consider the stability of his/her employment, regardless of whether the potential customer is a working employee or selfemployed.

Typically two years of qualified income coming from the same employer or same source of business should be a good indication of the borrower’s employment profile. On the other hand, if a borrower changes jobs frequently, even with higher income, it may be viewed by banks as being less secure and stable in employment.

4. Income and your CPF reserve: In home financing, one of the key commitments is to ensure that monthly housing loans instalments remain uninterrupted and consistent.

As a good rule-of-thumb, if housing loan instalments are kept to below 40 per cent of a person’s monthly income, the borrower would be better positioned in his/her monthly servicing ability. This is especially so if the borrower’s monthly CPF OA contribution is able to fund a good part of the housing loan instalment.

It would also be a prudent measure to have a reserve of at least six to 12 months of monthly instalments in the CPF OA. This provides more cushion should there be a change in a borrower’s employment status, and he/she needs time to find another job. This means that when one uses CPF for the initial downpayment, it is important to be conservative and keep a reserve, rather than using up all of one’s CPF for downpayment. As one goes through the sums for mortgage financing, one will realise that income, CPF resources, employment profile, and the quantum of financing are all interrelated.

Any home buyer should sit down and work out the numbers to ask the question: ‘Am I overstretching myself financially?’

5. Interest rate, monthly instalment and rental yields: One of the key considerations in taking a housing loan is interest rate. However, borrowers almost always ask the wrong question with regards to interest rate. ‘How low is your interest versus other banks?’ is the typical question.

Consider this alternative thinking; instead of asking how low a bank’s interest rates are, borrowers should seriously consider the exact opposite: ‘How high can interest rates be, while I can still afford the housing loan payment? Look at the accompanying table and consider various scenarios, such as a higher interest rate (note that the SGD mortgage interest rate is one of the lowest in the region) and whether a borrower can continue to service the loan, even if interest rate would double. Not possible?

Those of us who can remember the 1990s recall that housing loan rates were once at 8 per cent. These difficult economic periods when interest went up were often accompanied by periods where people found the stability of their income at risk. So, under such circumstances, if you were to lose your job, do you have sufficient reserves to last – and for how long?

This is where the difference of taking a fixed or a floating rate should be reviewed. Floating rates, while lower, do not have the stability of fixed rate loans. So a borrower may want to consider taking a two-in-one loan where a borrower can combine both fixed and floating rate loans in one mortgaged property. For example, the UOB two-in-one loan.

With rising rental yields, many are also thinking of buying a property as an investment which they intend to rent out to cover mortgage payments. Here. the question to ask would be: ‘Would I still be all right if rental should fall by half?’ Rents go up quickly due to shortage of housing, especially for foreigners with good housing budgets, but they can drop as quickly if there is a downturn.

In the current climate, these may seem faraway possibilities, but whether you are buying for your own stay, or for investment – consider the various scenarios and do your sums carefully.

Your credit performance: One of the other lesser known issues one should consider before taking up a housing loan is credit performance. In Singapore, all your credit performance in terms of number of loans applied for, whether for housing, cars, credit cards or other loans is stored in the Credit Bureau.

When you apply for a loan, you would have signed a consent for your bank to obtain a copy of your credit performance.

Some borrowers have been caught in a situation where they committed to a property by paying the option money, only to find that when they apply for a loan, their application is either turned down, or their request for financing reduced. This could be due the credit history, showing a habitual lateness for other loans. These information are transparent across banks, and a borrower would be advised to get a home financing in-principle approval before committing to a property. One of the ways to ensure that one is not ‘caught’ by credit performance is to ensure that payment is prompt in the borrower’s other loan repayments.

Many people think that housing loans are commodity products, but that cannot be further from the truth. In a very competitive market like Singapore where rates are so low, banks have learnt to compete not by price competition, but through value-added features.

All said, it is key for every potential home buyer to do some homework. Ask yourself if you have the resources both now and in the future to service the mortgage for the amount of loan you intend to take to buy that property. As daunting an exercise as this may be, it is one exercise that we must spend time pondering. At the end of the day, there is no free lunch.

Kevin Lam is head, loans division, United Overseas Bank

PROPERTY – Consider shop units for rental yields

Prime units offer yields of 3.5%-5% but they don’t come cheap, especially in Raffles Place, Orchard Road

SHOPPING, already a national pastime, is becoming even more popular, if rising retail rents and capital values are anything to go by.

Not only are the rents and values in the traditional shopping belt of Orchard Road on the up and up, but those in the business district of Raffles Place have also risen considerably.

This is good news if you are a landlord. For those aspiring to become one, shop units are an option if you have at least $500,000 lying idle in the bank.

Property consultants say retail rents in Singapore are on the rise, with double-digit growth expected for prime shop units in Orchard Road and Raffles Place.

A recent study by property consultancy Cushman & Wakefield showed that the capital values of shops in Raffles Place have risen by 23 per cent in the past two years.

Shops at The Arcade, a 77-year leasehold property in Raffles Place, were sold recently at about $1.5 million to $2.65 million, which works out to between $4,900 per sq ft (psf) and $5,300 psf.

And prices are still climbing, with asking levels now hovering at between $6,000 psf and $7,000 psf, depending on the size of the shop and its location within the building, said Mr Donald Han, the managing director of Cushman & Wakefield in Singapore.

However, before you rush out to buy one as an investment, you should know that there are very few retail units available for sale to individuals.

And those in popular malls do not come cheap.

Commercial properties are typically traded on an en bloc basis to institutional or investment companies. In any case, most are beyond the financial reach of individual or smaller investors.

‘Less than 5 per cent of the commercial stock here are strata-titled,’ said Mr Han. A strata title gives you ownership of a small piece of a bigger property. As a result, many small companies or retail operators tend to buy strata-titled shops for their own use instead of renting one.

Strata-titled retail properties can be found in buildings such as The Arcade, International Plaza right next to the Tanjong Pagar MRT station, and Tanglin Shopping Centre in Tanglin.

In the Orchard Road area, strata-titled retail properties include Far East Plaza, Lucky Plaza, Orchard Plaza and Orchard Shopping Centre.

Shop units typically range in size from just 200 sq ft to as much as 1,000 sq ft, with values starting from $500,000, said Mr Han.

Net yields can range from 3.5 per cent to as much as 5 per cent a year, depending on the property’s tenure, location, age, tenant mix, whether it is facing the road or the main concourse and so on, he said.

Some buyers might be able to buy a strata-titled unit with an existing tenancy. But shop units with a low rental rate and a long tenancy term might not fetch market prices. In contrast, a unit that is for sale with vacant possession might be able to achieve premium pricing.

Mr Han said vacant units attract both owner-occupiers as well as investors who wish to lease out the space at competitive rates, particularly in a rising market. At Far East Plaza, asking prices have increased significantly, in line with rising rents, said an agent familiar with the sale transactions there.

The highest-priced deal to date was done recently at slightly over $11,000 psf for a 269 sq ft shop, which works out to about $2.96 million. An investor bought the shop and is leasing it out to a shoe retailing business, the agent said.

Current asking prices for shops at Far East Plaza start from as low as $4,250 psf for a fifth-floor unit, which works out to around $850,000.

But a few owners of prime units there are asking for more than $10,000 psf; last year, such units could be had for $7,000 psf to $8,000 psf, the agent added.

Tips on buying a shop

• Get a reputable agent to search for the right property in the right location. Retail units are scarce and hard to come by, and not all agents have stock.

• Get a bank’s valuation first and secure financing.

• Check with the management corporation to see:

  1. If the seller still owes the corporation any maintenance fees; and

  2. If there are upgrading plans as the new owner might have to bear the costs.

• Verify what uses the premises can be put to. For instance, for food and beverage outlets or restaurants, you need to get approval from the relevant authorities. Know what you’re buying.

• If the unit is tenanted, get the tenancy agreement, and check that deposits are in place and tenancy terms protecting the landlord’s interests are watertight.

• Try to negotiate for a few units within the development, so that you can get a better feel for the price and perhaps work out a better deal.

• Get an experienced lawyer to advise you on specific issues. For example, you will have to pay 7 per cent in good and services tax (GST) if you buy from a GST-registered vendor. One way you can offset this is by incorporating your own GST-registered company.

• Get an estimate of the fit-out costs. If the unit requires renovation, make sure the purchase price and renovation budget combined are within your limits.

Source: Cushman & Wakefield (The Sunday Times 11 Nov 07)

Estate agents’ group objects to new regulatory scheme

CONSUMERS looking forward to greater regulation in the real estate industry might have to wait a bit longer, as the process has just hit a snag.

A group of property agencies is questioning a move by the Institute of Estate Agents (IEA) to launch a ‘practising certificate’ for its members, as there is already an accreditation scheme in place.

Launching the certificate back in September, IEA president Jeff Foo said it aimed to boost agents’ credibility and give homebuyers more confidence in their professionalism.

This was supported by the Consumers Association of Singapore (Case), which called for more regulation in an industry facing a rising number of complaints against agents amid the property boom.

IEA, representing about 1,000 agents, said its members were bound to adhere to the organisation’s strict guidelines and code of conduct.

But a separate group of agencies representing about 10,000 agents, including Knight Frank, HSR Group, DTZ Debenham Tie Leung and Global Real Estate, issued a statement yesterday that they were ‘most concerned about the state of affairs’ over the certificate. They have called a press conference today.

The Singapore Accredited Estate Agencies (SAEA) scheme, launched in November 2005 by IEA and the Singapore Institute of Surveyors and Valuers (SISV), seeks to raise the industry’s level of professionalism.

Agents have to pass a professional test and are held to a code of conduct. Agencies were meant to have all their agents accredited by next year.

When contacted, Dr Tan Tee Khoon, director of KF Property Network, Knight Frank’s agency division, told The Straits Times that IEA’s efforts were commendable, but questioned the certificate’s wording, which states that an agent is ‘hereby authorised to practise as a real estate agent in Singapore’.

‘This has a ring of legality to it, and will confuse the public. The industry should stand together and support one same scheme,’ he said.

The chairman of SAEA’s accreditation board, Dr Lim Lan Yuan, told The Straits Times that IEA’s latest move ran ‘counter’ to SAEA which IEA had co-launched.

It gives the wrong impression to the public that IEA is issuing licences, he said.

Dr Lim, who is also president of valuation and general practice at SISV, said more than 7,000 agents – out of an industry of about 30,000 – are now accredited under SAEA.

Mr Foo countered that IEA was moving towards self-regulation, and was entitled to issue certificates to its members, who would have to pass tests on property-related matters such as financing, law and codes of conduct.

PropNex chief Mohamad Ismail, who is IEA’s vice-president, added that no authority has made either test compulsory in order to practise.

‘We will be supportive of any licensing authority, or any scheme, that the Government mandates.’

 

Source: The Straits Times 10 Nov 07

CDL-Wachovia JV buying two blocks at Cliveden at Grange

CDL hints it may retain units in some future residential developments

A JOINT venture between City Developments Ltd (CDL) and US-based Wachovia Development Corporation is buying two blocks at CDL’s Cliveden at Grange condo for $432.4 million or an average price of about $3,750 per sq ft (psf).

And according CDL executive chairman Kwek Leng Beng, the deal attests to the freehold project’s ‘high investment potential’ and reflects CDL’s ‘business strategy of leveraging on the capital appreciation potential of our developments’.

In an interview with BT in May this year, Mr Kwek said he was considering retaining a portion of some new residential developments for rental income and capital appreciation.

At CDL’s Q2 results briefing in August, he said he was considering retaining two blocks at Cliveden.

A Hock Lock Siew column in BT later that month speculated on whether CDL was mulling a residential real estate investment trust (Reit) to which it could spin off apartments held for investment.

CDL was silent on this in its statement to the Singapore Exchange yesterday. But market watchers reckon a possible exit strategy for the CDL-Wachovia joint venture for their investment in the two Cliveden blocks would be to divest them to a residential Reit.

Without elaborating, a CDL spokesman said yesterday: ‘We will look into this business model of retaining units in some of our future residential developments.’

CDL is taking a 40 per cent stake in the joint venture company Grange 100 Pte Ltd that is buying the Cliveden blocks, comprising 44 apartments. Wachovia holds the majority 60 per cent.

The 44 units are three and four-bedders, and two penthouses. The prices at which they were bought range from $3,392 psf to $4,313 psf.

Before the deal was announced yesterday, CDL had sold 42 units at Cliveden at an average price of $3,690 psf since the project’s soft launch in June. More than 90 per cent of these units were bought by foreign buyers from the UK, Australia, Hong Kong, China, Taiwan, Indonesia, France, Korea and Japan.

After the latest deal, only 24 apartments will be left at the 110-unit Cliveden, which is coming up on the former Kim Lin Mansion site.

Last year, CDL bought the Lucky Tower site, diagonally opposite the Kim Lin plot, for $1,134 psf per plot ratio.

 

Source: Business Times 6 Nov 07

Market hit by property, bank fears

ST Index suffers 1.2 per cent fall, due also to sharp plunge in Hang Seng Index

SINGAPORE stocks started the week yesterday on a sour note due to renewed fears in the property and financial sectors, and a sharp plunge in Hong Kong’s main share index.

The Straits Times Index (STI) ended 45.14 points or 1.2 per cent lower at 3,670.18. Earlier in the day, it fell as much as 2.2 per cent below Friday’s close. Around the region, most major share indices also ended lower.

Hong Kong’s Hang Seng Index plunged 5 per cent – the largest one-day fall in percentage terms since Sept 12, 2001, the day after the terrorist attacks in the US.

Investors in the Hong Kong market were reacting to Chinese Premier Wen Jiabao’s remarks over the weekend, dampening hopes that a plan announced in August to allow mainland Chinese to buy Hong Kong stocks would be approved by Beijing in the near future.

The effects were felt in Singapore, as Hong Kong-based companies in the STI made up three of the top six laggards dragging the index lower at yesterday’s close.

Property developer Hongkong Land fell 4.9 per cent to US$4.64, while conglomerates Jardine Matheson and Jardine Strategic fell 4.3 per cent and 4.2 per cent to US$29.20 and US$15.80 respectively.

Singapore-based developers were also hit yesterday, as worries persisted over the impact of the government’s withdrawal of the deferred payment scheme for property purchases on Oct 26 to discourage speculative buying.

Among the large developers, CapitaLand fell 20 cents or 2.5 per cent to $7.70, while City Developments finished 20 cents or 1.3 per cent lower at $14.90.

Wing Tai, another developer, saw its share price slide 5.8 per cent to $2.94. It was the largest percentage loser among the blue chips yesterday.

In the banking sector, United Overseas Bank (UOB) led the losses in the STI, falling 50 cents or 2.4 per cent to $20.30 and dragging the index down 8.9 points. UOB’s share price has fallen $1.70 or 7.7 per cent since the close of Monday last week, the day before the bank reported its third-quarter earnings.

Its rivals DBS Group and OCBC Bank also saw their share prices dip in intraday trading, as some analysts said they expected to see more dents in the banks’ earnings due to further write-downs in the value of their collateralised debt obligation or CDO holdings.

Last week saw a slew of bad news from several major international banks which said they had suffered much bigger losses from the recent credit market turmoil than earlier estimates had suggested. The revelations led to Citigroup chief executive Chuck Prince quitting on Sunday – the latest high-profile casualty of the problems that started in the US sub-prime mortgage market.

Here, DBS’s share price closed 20 cents or 0.9 per cent lower at $21.40, while OCBC’s share price ended unchanged.

Of the STI’s 47 members, 28 fell and nine rose. Technology stocks were among the large gainers. Creative Technology saw the largest percentage gain among the blue chips, ending 5.6 per cent higher at $6.60, while electronics contract manufacturer Venture Corp rose 2.3 per cent to $13.50.

In the broader market, stocks mostly ended lower, with all but one of the SGX market sub-indices registering losses including the UOB Sesdaq index, which fell 7.66 points or 3.3 per cent to 225.58. Only the electronics sector showed a slight gain.

Overall, falling counters outnumbered rising ones by 445-86, excluding warrants and bonds. Trading volume, including warrants and bonds but excluding shares traded in foreign currencies, was 2.24 billion units worth $2.4 billion.

 

Source: Business Times 6 Nov 07

CDL, US group to buy 44 units of Grange Road condo

PROPERTY giant City Developments (CDL) has teamed up with United States financial services group Wachovia to buy 44 homes in CDL’s freehold Grange Road project for $432.4 million.

Industry analysts suggest CDL might be preparing to list a real estate investment trust (Reit) using the properties. Knight Frank executive director Peter Ow said: ‘The only reason I can think of for this deal is so that they can put the apartments in a Reit in the future.’

CDL, however, declined to say if a Reit was in the pipeline, but it acknowledged it was studying this as well as other business models.

Under the deal, which works out to an average price of $3,750 per sq ft (psf), Wachovia’s real estate arm, Wachovia Development, will take a 60 per cent stake in the joint-venture company.

According to CDL, there are plans to rent out the 44 three- and four-bedroom apartments and penthouses – which take up two of the four towers at Cliveden at Grange – as well as possibly selling them off later if prices rise.

CDL executive chairman Kwek Leng Beng said yesterday: ‘The development has seen strong foreign interest from both individual buyers and retail investors since its launch… The deal is in line with our business strategy of leveraging on the capital appreciation potential of our developments.’

He had earlier indicated that CDL was considering keeping two blocks of homes at Cliveden instead of selling them off in a rush.

The deal could also mark the start of CDL’s preparation for a residential Reit, property analysts said.

The venture would mean that there are now just 24 units left for sale at Cliveden, which was launched for sale in July.

A total of 42 units were sold at an average price of $3,690 psf before the joint venture was announced yesterday. Many of the buyers are foreigners from Britain, Australia, Hong Kong, China, Taiwan and Indonesia, among other centres.

Wachovia is not new to the local real estate scene. It is also teaming up with CapitaLand to redevelop Char Yong Gardens and Farrer Court.

Mr Ow said the deal was positive for CDL due to the limited upside now for luxury homes. Putting the homes in a Reit, he said, would allow CDL to keep the apartments over a longer period of time, say three to seven years, and ride out any possible drop in prices in the near future.

 

Source: The Straits Times 6 Nov 07

Buying completed homes gives investors instant rental income

Such cash inflow can help to cover mortgage payments and lowers one’s portfolio risks

PROPERTY investors love new launches – they can get their hands on a unit fresh off the plans and hope for huge overnight gains.

But long-term investors would do well to also check out completed properties that can generate an immediate rental income.

‘Too many people are overweight in their investment portfolio in terms of new launches,’ says Savills Singapore director for marketing and business development, Mr Ku Swee Yong. ‘To lower one’s risks, part of the portfolio should be income-producing.’

That will give investors a certain amount of income from property even during a short-term market dip, he says.

Although Singapore’s market is currently buoyant, it has its ups and downs as any homebuyer over the past 10 years knows only too well.

For those buying on a progressive payment scheme, the instant income from a completed property could help cover mortgage payments.

This option has become more attractive with the recent axing of the deferred payment scheme, which puts buying a completed property on a level playing field with buying an uncompleted one.

Buyers will have to take out a loan sooner since they can no longer defer the bulk of the payment for an uncompleted property until completion.

When it comes to getting a mortgage, it may not necessarily be easier to get a loan for a completed property compared with an uncompleted one.

OCBC Bank says it does not differentiate between completed and uncompleted property.

Still, in line with the pickup in home prices, the rental market has shot up across the board, making the purchase of a completed property for rental gains more worthwhile.

Official data showed that rents of private homes rose by 11.4 per cent in the third quarter, making a 32.2 per cent rise between January and September.

Completed properties are generally more ‘reasonably priced’ compared with new launches, says one investor.

A recent Jones Lang LaSalle study found that the gap between new sale prices and resale prices is at a record high.

But this is likely to narrow as buyers find it less attractive to buy new developments when habitable resale homes at more affordable prices are readily available, it said.

A tip from a seasoned investor: Consider projects that will get their temporary occupation permit within the next three to six months.

‘These projects would have been launched about three years ago when prices were low,’ he says, so their subsale prices will usually be lower than those of new launches.

‘Another advantage is that you will be the first landlord and have the privilege of charging rental based on the current market rate,’ he adds.

‘There’s no point taking over a lease that has two years to go and that was based on old, lower rental rates.’

As a guide, properties offering a rental yield of at least 3 per cent are a safe bet, says Mr Ku. These can be found in completed properties in city fringes such as Siglap and Balestier.

Bargains are tougher to find in hot areas like Amber and Meyer roads where asking prices have risen so much that yields have fallen below 2.5 per cent, he says.

Some older properties may offer fairly high yields but investors must factor in maintenance costs, consultants say.

 

Source: The Sunday Times 4 Nov 07

Take-up of JTC ready-built space rises to 2-year high

Strong demand for factory, business park premises in third quarter

THE take-up among businesses for JTC Corp’s ready-built facilities is at a two-year high.

Net allocation of such industrial space stood at 75,100 sq m in the July to September quarter – 29 per cent more than in the previous quarter and the highest since the third quarter of 2005.

This increase in take-up from the industrial landlord was due mainly to good demand for factory space and business park space.

Gross allocation of ready- built space in JTC’s business parks almost doubled to 5,300 sq m in the third quarter.

If the amount of space given up is taken into account, the net amount of business park space taken up stood at 1,800 sq m for the third quarter, more than double the figure achieved from April to June.

Occupancy of JTC’s business parks was 94 per cent as at the end of September.

The net take-up of JTC’s prepared industrial land stood at 55.9ha in the quarter.

This is 13 per cent down from the previous quarter but still more than twice the figure achieved in the third quarter of last year.

Such land – which has road access, drains, water and sewer mains so companies can develop their own facilities – is provided both inside and outside specialised parks such as Changi Business Park, International Business Park in Jurong East and Biopolis at one-north in Buona Vista.

JTC said demand came mostly from companies dealing in logistics, precision engineering and services.

Meanwhile, consultants expect more companies to consider moving operations from the Central Business District (CBD) as office rentals soar.

Rents grew 14.8 per cent in the third quarter and have shot up more than 40 per cent since the end of last year.

The director of research and consultancy at Colliers International, Ms Tay Huey Ying, said: ‘We are seeing firms that are more prepared to consider alternative business premises other than office space within the CBD.’

Companies providing management services or those in the insurance, design or aviation sectors, for example, have already made the move out or are preparing to do so, she said.

Ms Tay expects the trend to continue until more prime office space is added from 2010, mainly at Marina Bay.

Meanwhile, JTC said that the first phase of its research and development complex, Fusionopolis in one-north, is expected to be completed by the end of this year. It will offer about 120,730 sq m of business park space.

 

Source: The Straits Times 3 Nov 07

Confirmed: Atrium @ Orchard for sale

THE Singapore Land Authority has confirmed a BT report yesterday that it plans to sell The Atrium @ Orchard – the first state sale of a Grade A prime commercial building.

‘The government does not own other commercial buildings of the same grade and category as The Atrium,’ an SLA spokeswoman said. ‘It is not in the government’s strategic interest to continue to own a well-developed and pure commercial asset like The Atrium @ Orchard.

‘It is best to let the private sector take over its commercial utilisation. Given the buoyant market conditions, the government has decided that now is a good time to divest it with best value for the state.’

SLA has appointed CB Richard Ellis (CBRE) sole marketing consultant to advise on the planned sale.

CBRE was chosen from a short list of five firms, SLA said. It clinched the job based on its competitive bid and strong track record under a two-stage selection process, SLA said without elaborating.

Market watchers suggest the other contenders were likely to have been Colliers, DTZ Debenham Tie Leung, Jones Lang LaSalle and Knight Frank.

‘On the mode of sale, the government expects CBRE to recommend a sale strategy that is consistent with the prevailing best market practices for selling large commercial buildings, to enable the state to obtain the best price for the property in a level playing field for all interested buyers,’ SLA said.

The Atrium @ Orchard, next to Plaza Singapore and above the Dhoby Ghaut MRT Station, comprises two towers of seven and 10 storeys with a total net lettable area of about 375,000 sq ft. The building’s basement carpark has 100 lots. The project received Temporary Occupation Permit in April 2002.

SLA did not indicate how much the property is worth, but in yesterday’s BT report a market observer suggested a range of $2,500 to $3,000 psf of net lettable area, which would work out to $937.5 million to $1.13 billion.

A plus point is that SLA is expected to sell The Atrium on a fresh 99-year lease.

 

Source: Business Times 2 Nov 07

Far East opening $8m outpatient clinic at Novena

Project expected to break even within a year

FAR East Organization and a group of doctors are investing $8 million to set up a clinic called Novena Surgery, in response to what they say is an increasing need for outpatient surgery for Singaporeans and international patients.

Lim Beng Hai, director and senior consultant hand surgeon for the Centre for Hand and Reconstructive Microsurgery, Singapore, who is chairman of Novena Surgery, said that many local patients were opting for surgery as outpatients.

‘This demand is augmented by the rising number of international patients seeking treatment in Singapore,’ he said.

Novena Surgery, which takes up 8,000 sq ft, will be located on the eighth floor of the $257 million Novena Medical Center. It is expected to open its doors on March 1 next year.

It will be used by doctors practising at the centre and those from other hospitals, medical centres and clinics in the area.

Novena Surgery, which aims to provide ambulatory care and surgery facilities, will have three operating theatres and two endoscopy suites, with private rooms and common areas for patients to recover after surgery.

The facility will offer surgical specialties including eye surgery, ear-nose- throat and obstetrics and gynaecology.

Surgeons can look forward to a concierge service, which will arrange for patients to be picked up and arrive on time for surgery.

Patients will be able to use touch-screen monitors in the wards to make requests from nurses, to access the Internet and to send e-mail.

The board of directors is expecting Novena Surgery to break even in the space of a year, and bring in annual revenues of more than $10 million after three years.

The number of cases per day could reach a maximum of 100, they said at a press conference.

Heah Sieu Min, who is on the board of directors, described Novena Surgery as a ’seamless, convenient service which will be value for money’.

GL Yap, executive director of Far East Organization, said that Far East would be interested in tendering a bid for the hospital site at Novena Terrace/Ir- rawaddy Road launched this week by the Urban Redevelopment Authority.

 

Source: 2 Nov 07

Life after deferred payments starts with just 2 bids for site behind Icon

Developers could be turning cautious, say analysts

(SINGAPORE) In a sign that developers are turning cautious after the withdrawal of the deferred payment scheme, a state tender for a 99-year residential site at Enggor Street behind the Icon development drew just two bids yesterday.

The higher bid by Far East Organization was 55 per cent above the only other offer by GuocoLand.

Far East offered $233.8 million or about $852 per square foot of potential gross floor area for the 32,681 sq ft plot near Tanjong Pagar MRT Station. GuocoLand’s $150.98 million bid works out to around $550 psf per plot ratio.

All eyes are now on a tender for the residential site next-door closing on November 15.

Far East’s breakeven cost for a new condo project is understood to be in the $1,340 to $1,400 psf range. That still leaves it with a profit margin based on current prices being achieved at Icon.

Caveats show that mid-level units (on the 20th to 22nd levels) of Icon have been changing hands in recent months in the $1,500 to $1,600 psf range in the subsale market, although units above the 40th storey have been sold by Far East at above $2,000 psf.

The property giant is understood to have sold a penthouse on the 46th floor recently for about $2,300 psf. It is now left with about 30 units in the 646-unit project, and its prices range from $2,000 to $2,400 psf.

For the latest site, called Land Parcel A at Enggor Street, BT understands Far East’s scheme is for a 62-storey tower with about 200 apartments – likely to be a spread of unit types like Icon – and is targeting to launch the project around end-2008 or early 2009.

Far East will develop retail space on the project’s ground level to be linked to Icon Village, the street-level retail component of its earlier project.

While property market watchers attributed the thin participation at yesterday’s tender to developers turning cautious following the withdrawal of the DPS scheme, some were puzzled by the disparity between the two bids.

‘Far East has crunched their numbers and know what they are in for, based on their experience with selling Icon units,’ a seasoned property consultant said.

However, some analysts could not help but suggest that Far East’s significantly higher offer may also have been partly motivated by a need to support property prices, including the values of sites it bid earlier. In September, the property giant clinched a prime condo plot next to Ang Mo Kio Hub for $601 psf per plot ratio – a record for suburban 99-year leasehold condo land. That tender attracted a whopping 14 bids. Another state tender for a condo site next to Kovan MRT Station that closed in early October drew six bids.

‘Developers are a bit concerned after the DPS withdrawal. It looks like they’ve chickened out of this tender,’ a seasoned property consultant said, when explaining yesterday’s thin bidding.

However, another property consultant, CB Richard Ellis executive director Li Hiaw Ho suggested that another reason for the lukewarm response yesterday could be due to the site’s location.

‘It is behind Icon and is sandwiched between a commercial site that has been awarded and another residential site (Parcel B) whose tender will close on Nov 15. Nevertheless, the site is about five minutes’ walk from Tanjong Pagar MRT Station,’ he added.

 

Source: Business Times 2 Nov 07

$730k view – 5-room HDB flat in Marine Parade sold for record sum

AN UNRENOVATED 32-year-old five-room flat in Marine Parade, on a high level with a full sea view, has been sold for $730,000 – a new record for an HDB flat.

This trumps the previous record of $720,000, set in June by a fairly new five-roomer in Kim Tian Place.

The buyer, who declined to be interviewed, did not bother to wait for the flat’s valuation when he negotiated the price down from $750,000, said the seller’s property agent, Ms Joyce Lau, of agency ERA.

She said the deal was inked in half a day on Oct 13. The buyer viewed the 18th-floor flat in the daytime and confirmed the buy that night.

Mr Ken Ng, the 48-year-old son of the flat’s seller, said the flat has been vacant since his parents moved out to live with him some four years ago. His father agreed to sell recently.

‘I actually like the flat. I jacked up the price so high, thinking it is a crazy price. If nobody wants, I can withdraw it,’ he told The Straits Times.

‘But the first person who saw it liked the full sea view and wanted to buy it.’

The flat is in a prized point block with four flats per level.

The record sale comes as HDB resale prices have registered significant increases in a buoyant property market.

The HDB market has also benefited from spill-over demand. The dramatic spate of collective sales in the past year has created a pool of eager buyers, some of whom are downgrading to HDB flats.

The buyer of the run-down Marine Parade flat is believed to be in his 50s and an owner of more than one property.

It is understood that he may use the flat as his retirement home. He will have to pay $130,000 in cash for his flat, which is valued at $600,000.

This is well above the median cash-over-valuation sum of $85,000 for Marine Parade in the third quarter.

In the third quarter, the median resale price of five-room flats in the same town was at $560,000 – the second highest median price for the flat type after Queenstown.

But deals have been done at prices of up to $710,000.

Last month, a 30-year-old high-floor five-room Marine Drive flat sold for $710,000, while another five-roomer in the same block sold for $695,000 in September.

PropNex’s chief executive Mohamed Ismail said the difference lies in the lifestyle a home in the area offers.

‘It’s not too congested, near town and East Coast Park.’

But paying record prices or large cash amounts for it will not become a norm.

‘Those who pay such large cash amounts are private property downgraders or people who have profited from en bloc sales,’ said Mr Ismail.

‘Typical HDB buyers cannot afford such prices.’

 

Source: The Straits Times 2 Nov 07

Two 99-year sites up for collective sale

Chancery Court, Thomson View tenders likely to close in early Dec

(SINGAPORE) Chancery Court and Thomson View Condo, both 99-year leasehold properties, are being put up for collective sale, with respective guide prices of $468 million and $550 million.

Chancery Court, a privatised HUDC estate on a choice location along Dunearn Road, has been launched for tender.

The guide price of $468 million indicated by its marketing agent CB Richard Ellis works out to about $1,614 per square foot of potential gross floor area inclusive of two payments to the state.

These are a differential premium of about $65.5 million (for intensifying the site’s use) and a lease upgrading premium of $52 million for topping up the site’s lease to 99 years from a remaining term of about 73 years.

The breakeven cost for a new condo on the site will work out to around $2,075 psf based on the guide price, according to CBRE.

Chancery Court has a 259,137 square feet land area and can be redeveloped into a new condo with about 242 units with an average size of 1,500 sq ft. Chancery Court, which is near Anglo-Chinese School (Barker Road), is designated a 1.4 plot ratio (ratio of maximum potential gross floor area to land area) and a five-storey height limit.

Owners controlling more than 87 per cent of share values in the development have signed the collective sale agreement, before the latest en bloc legislation kicked in on Oct 4. Chancery Court’s tender closes on Dec 5.

Thomson View Condo, along Upper Thomson Road, is being marketed by First Tree Properties and Huttons Real Estate. The indicative price for the 540,314 sq ft site is $550 million, which works out to $652 psf per plot ratio inclusive of an estimated differential premium of $110 million and a lease-upgrading premium of about $80 million. First Tree managing director Alvin Er said that it may be possible to amalgamate the site with a strip of state land of about 39,000 sq ft along Bright Hill Drive subject to approval for its sale by the authorities.

‘If this is allowed, then the total unit land price to the buyer of Thomson View will be lowered to $620 psf ppr,’ he said.

The Thomson View site is designated for residential use with a 2.1 plot ratio and 24-storey maximum height. The plot can be redeveloped into a new condo with about 950 units averaging 1,200 sq ft. ‘Because the property is on elevated ground, the new project will boast 270-degree views of MacRitchie Reservoir, surrounding nature reserve as well as Singapore Island Country Club,’ Mr Er said.

Thomson View’s collective sale agreement has received approval from owners controlling at least 82 per cent of share values before the new en bloc laws kicked in. The tender is expected to be launched next week and is likely to close in early December, Mr Er added.

 

Source: 1 Nov 07

Brisk sales at newly-launched suburban projects

Analysts looking to see effect of scrapping of deferred payment

UIC Ltd is launching its 192-unit Park Natura development across from Bukit Batok Nature Park, and market watchers will be eager to see how sales will be affected by the US sub-prime mortgage crisis or by the withdrawal of the deferred payment scheme (DPS).

So far, sales look good. Priced at the higher end for a suburban condominium at an average of $1,000 psf, more than 100 units have already been sold at the private soft launch. UIC group general manager Vito Koh said: ‘The demand shows that the pricing is right.’

Mr Koh said he did not have a breakdown of the profile of buyers but added that Park Natura was not the type of development to attract speculators.

UIC received approval to offer deferred payment to buyers before the end of the DPS, but whether this alone is attracting buyers is hard to say.

Still, Mr Koh said that the withdrawal of DPS from future developments could affect buyers’ confidence, especially for HDB upgraders hoping to enter the private property market.

Mr Koh also pointed out that the withdrawal of the DPS has come at a time when prices in the high-end segment appeared to have levelled off. ‘Market prices have already adjusted themselves so withdrawing DPS is not necessary,’ he said.

Another development that was recently launched is the CGH Group’s 72-unit Esta Ruby in the Katong area.

Already, 25 per cent of the units have been sold at an average price of $1,160 psf.

CGH sales director Alex Chng said that recent events have affected the property market, with some potential buyers changing their minds. ‘But our feeling is that the buyers are still there.’ The good news seems to be that more foreigners and Singapore permanent residents appear to be buying units in suburban developments.

At Esta Ruby, Mr Chng estimated that 30 to 40 per cent of the buyers were non-Singaporean. ‘What is interesting is that the buyers are mainly from China, Indonesia and even Vietnam,’ he added. The remaining buyers are mainly those displaced by en-bloc sales, with 20 to 30 per cent of buyers being HDB upgraders.

Another development that has been selling through private previews is the 196-unit Aalto in the East Coast by Hong Leong Holdings. Units there are also selling fast with about 60 per cent – about 120 units – sold so far.

A spokesman for Hong Leong also said that transacted prices ranged from $1,500 to more than $2,500, or roughly the transacted prices for new developments in the area even before the US sub-prime mortgage crisis.

 

Source: Business Times 1 Nov 07

Atrium @ Orchard could fetch over $1b: analysts

Govt expected to put property up for sale with fresh 99-year lease

SINGAPORE Land Authority is putting up The Atrium @ Orchard for sale, BT understands.

Market watchers say the property is expected to fetch over $1 billion. They reckon the Orchard Road property, which will be sold with a fresh 99-year lease, could fetch up to $3,000 psf of net lettable area (NLA).

At $1 billion, the price works out to $2,667 psf based on the building’s NLA of about 375,000 sq ft. ‘I think it can fetch anything from $2,500 to $3,000 psf. The building has big-name tenants like Temasek, HSBC, Barclays and MTV, good-sized floor plates plus a prime location above Dhoby Ghaut MRT Station,’ one market observer said.

BT understands that agents were recently approached by SLA to handle the sale of the property, and it is believed that CB Richard Ellis has been selected for the job.

Most of the space in the building, which has two blocks, of 10 storeys and six storeys, is for offices but there is also some retail space. The building was completed in 2002 when Singapore was still experiencing a glut in office space.

The Atrium @ Orchard was built by the Land Transport Authority as a model planning project integrating land use and town and transport planning, and handed to SLA for management on behalf of the state.

The development has about 359,000 sq ft of office space and 16,000 sq ft of retail space, according to an earlier report in The Straits Times.

Market watchers expect The Atrium to attract strong demand from overseas as well as local real estate investors.

Interest in Singapore’s office market, which is currently experiencing a supply crunch and soaring rents, has been sizzling.

In August, a Goldman Sachs real estate fund bought the leasehold Chevron House at Raffles Place for $730 million or a record $2,780 psf of NLA. Goldman Sachs group is also said to be finalising a deal to buy the next door Hitachi Tower, a 37-storey office tower on a 999-year leasehold site facing Collyer Quay, at about $3,000 psf.

Another major overseas investor in the local office market is Macquarie Global Property Advisors (MGPA). In September, it put in a record bid of $2.02 billion, or $1,409 psf of potential gross floor area, for a 99-year leasehold site slated for a mostly-office development behind the One Shenton project.

In March, an MGPA fund bought Temasek Tower in the Anson Road area for $1.04 billion or $1,550 psf of NLA.

Later, MGPA sold 12 floors at Springleaf Tower, also in the Anson Road area, for $225 million to a unit of German pension fund manager SEB, making a neat profit as it had bought the floors for $134 million only in January.

SEB also bought SIA Building in April for about $526 million or $1,783 psf from TSO Investment, a fully-owned subsidiary of a property fund managed by CLSA Capital Partners. TSO had purchased the office block from Singapore Airlines in June last year for $343.88 million or about $1,165 psf.

 

Source: Business Times 1 Nov 07

Analysts see no property bubble

They’re mum on whether it’s a good time to buy, but agree S’pore fundamentals are pretty robust.

PROPERTY: boom or bust? This was the intriguing question to which a capacity turnout of about 170 investors recently sought answers, at a dinner hosted by financial advisory firm ipac. The good news is that the experts at the evening’s panel do not foresee a bubble in the offing, based on three presentations – albeit with some concern expressed by Jones Lang LaSalle’s head of research, Chua Yang Liang.

The not-so-good news is that the experts shied away from the multi-million-dollar question of whether this was a good time to buy. What is more, over the past weekend, the surprise news of a halt to  the popular deferred payment scheme for uncompleted properties appears to have cast a cloud over residential property’s upward trajectory.

In a deferred payment scheme, developers effectively extend free financing to buyers of uncompleted properties.

Buyers need only pay an initial deposit of 10 to 20 per cent, with the balance due when the property is completed in a couple of years.

Thanks to this form of free credit, a sizeable number of speculators have rushed in to new home launches, as a rising market gives them a window to sell their units at a substantial profit in a short period.

The base case of one panellist, HSBC senior Asian economist Robert Prior-Wandesforde, is that there are few obvious triggers for a sharp deceleration in prices.

‘If we’re in a bubble, we’re in the early stages. The fundamentals are pretty robust. The mass market is just starting to see a recovery and that’s probably the safest area for investment,’ he told the audience. The supportive factors include the expected growth in employment and personal incomes. 

The cost of servicing mortgage debt also remains relatively low at just about 14 per cent of household income, compared to 50 per cent in mature markets like London.

Contacted yesterday, he said: ‘I think the measure (to halt deferred pricing) will take a little bit of froth out of the market, but with employment booming, wages soaring and the real mortgage rate at its lowest level since 1990, the outlook still looks very promising.

‘We should also bear in mind that valuations are still way below the levels of the previous boom. When adjusted for the growth in incomes, the private residential property price index is little more than half of what it was in 1996.’

At the discussion, Dr Chua of JLL expressed concern over the price gap between new and resale homes in the prime districts. The gap has widened sharply this year, reaching a peak of 60 per cent, against a medium to longterm premium gap of 32 to 38 per cent. The resale market, he says, reflects true demand better, as deferred payment schemes in the new home market have inflated prices.

In terms of rental yields, rentals in the luxury prime segment have edged below the 10-year Singapore bond yield.

The clampdown on deferred payment schemes should remove the speculative froth, he says. ‘Generally prices will take a breather in the next two to three years with the sheer volume of (new) stocks coming on stream. We expect some kind of softening, not a correction, but a softening.’

Sing Tien Foo, deputy head of the National University of Singapore’s department of real estate, pointed to property’s ability to help diversify a portfolio, thanks to a low correlation with stocks and bonds.

Prof Sing’s research has shown that property provided a positive hedge against inflation between 1992 and 2007, a period in which stocks and bonds did not provide such a hedge.

While all types of property offered a more-than perfect hedge against inflation, the best hedge was that offered by detached housing, followed by semi-detached homes.

Meanwhile, advisers are sounding caution. Roy Varghese of ipac says: ‘If you’re looking to invest, be very careful.

You need to have an investment objective and that includes looking into the IRR (internal rate of return). You should be able to hold it for seven to 10 years. If you bought your property at a peak, your IRR will be low.’

Joseph Chong of New Independent expects the price gap between new uncompleted homes and resale homes to narrow. ‘The market should see a more moderate ascent in prices – instead of 20 per cent, perhaps 10 per cent in line with nominal GDP.

‘You should see more upside…But if your portfolio is not big enough, I don’t think you should bet on investment property in Singapore.’

Those with modest resources are better off investing in a global property fund or Reit, he adds.

Analysts, however, remained mostly sanguine over the medium-term outlook. Merrill Lynch’s property team wrote in a paper market that sentiment will be weak over one to two months. ‘However, we are of the view that genuine buyers do not buy houses on innovative purchase schemes by developers alone. We believe the more important considerations will be where Singapore is heading, will they be able to keep their jobs or businesses and will their salaries/profits increase.’

The firm’s economics team recently wrote that Asian property prices were not high relative to per-capita income, and advances have been modest compared to those in the UK, the US and Australia. The drivers include low real interest rates and positive demographics.

Citigroup analyst Wendy Koh said that while sentiment will weaken in the short term, residential prices are supported by strong fundamentals. In a note on Friday, she said: ‘We believe the current price increase is well supported by strong fundamentals such as the extremely tight physical supply and economic and wage growth.

‘We maintain our view that rental rates for residential units will continue to climb on the back of the relative net increase in housing stock due to low completion and relatively high demolition due to en blocs. The rise in rental rates will likely continue to support further price appreciation.’

 

Source: Business Times 31 Oct 07

Using HDB equity to pay for annuities

The median CPF member holds three times more in HDB housing equity than CPF cash holdings

A NEW scheme making annuities compulsory for Central Provident Fund (CPF) members has been greeted quite negatively by the public.

The scheme involves setting aside a small portion of the Minimum Sum to buy the annuity. When the individual reaches a certain age, say 75 or 80, the annuity gives a monthly payout for the rest of his life. The annuity is a form of longevity insurance.

One option of making annuities more palatable is by allowing CPF members to finance the annuities with their HDB housing equity. The median CPF member holds about $145,000 in HDB housing equity, more than three times the $45,000 in CPF cash holdings.

Retirees are generally asset rich but cash poor. Using the cash portion to purchase annuities would leave even less cash for retirement. That may not be the most optimal financial solution for most CPF members who are already holding a large portion of illiquid assets, their HDB flats, at retirement.

By design, the government’s social support and CPF system encourages citizens to invest their savings in housing during their working lives. We recommend that the government should also help citizens monetise their savings locked into HDB housing at the end of their working lives.

One option is for HDB to accept the pledging of the retiree’s HDB flat as collateral for a loan to purchase the annuity. This would allow HDB owners to partly monetise their assets and leave them with more cash at retirement. Such flexibility on HDB refinancing would also allow CPF retirees to stay in their existing HDB homes without necessarily having to sell their homes for the purpose of realising their savings.

Moreover, moving or downgrading from their existing homes can be a stressful experience for the elderly.

HDB can clearly play a financial intermediary role for the elderly. Retirees are not able to secure housing finance from private banks because they no longer hold a job, have a stable monthly wage, or are simply too old.

Retirees do not, moreover, want to completely reverse mortgage their HDB homes as they may want to leave an endowment and pass on some residual housing equity for the next generation. The retiree can also live on in his existing home for the rest of his life, if some refinancing is allowed.

From the perspective of the government, lending to an individual for the purchase of an annuity is probably more acceptable.

The withdrawal of the HDB housing equity is not for cash that will be wastefully spent. Allowing the housing equity to be tapped for buying longevity insurance improves the welfare and financial security of the individual.

Such an option might improve the public reception to the compulsory purchase of annuities.

The writer is an economist with Citigroup and chairperson of the Policy Study Workgroup on Economic and Employment Opportunities

 

Source: Business Times 31 Oct 07

PM Lee pledges further action on property if necessary

He says Friday’s measure will inject some market reality

(SINGAPORE) Prime Minister Lee Hsien Loong yesterday said the government will continue to monitor property market trends closely and take further action if necessary.

His remarks come shortly after Friday evening’s announcement on the scrapping of the deferred payment scheme for property purchases, which Mr Lee described yesterday as a step that will ‘help to dampen excessive speculation and help to inject some reality into the market’.

Touching on various facets of property in Singapore, Mr Lee said that the government will also inject more office space into the market over the next two to three years to boost supply for the sector, which is facing an acute shortage of prime office space because of strong growth.

The government is also releasing more land for executive condos (ECs), a hybrid of public and private housing, Mr Lee said in his speech at the NTUC National Delegates’ Conference yesterday morning.

‘But more fundamentally than the ups and downs of the property cycle, the government is committed to keeping housing affordable for Singaporeans, for all Singaporeans,’ he stressed.

‘We will continue to monitor the property market carefully and watch the trends and if necessary, we will continue to take more action. And therefore we will be able to make sure that the property market stays in balance over the long term.’

To keep public housing affordable, the Housing and Development Board is building more flats. And to cater to the aspirations of Singaporeans who aspire to own a private condo unit, the government will step up the supply of land for ECs. This housing form was first introduced in 1996, at a time when private home prices were running away.

ECs cater to the ’sandwich’ class of home buyers who cannot afford private housing but whose monthly household income is high enough to disqualify them from buying new flats in the public housing segment.

However, as the property market slumped and private home prices fell, the need for ECs diminished and the government stopped selling land for EC development. But the Ministry of National Development has reintroduced ECs into the Government Land Sales Programme, with a plot in Punggol that will be made available through the reserve list next month.

 

Source: Business Times 30 Oct 07

Restoring a genuine property market

PROPERTY stocks were sent reeling yesterday following the government’s announcement to discourage speculative buying in the real estate market. In contrast, bank stocks rose. The divergence in stock performance between the two market sectors comes down to this: what is bad news for speculators may prove to be good news for banks.

The scrapping of the scheme which allows homebuyers to delay payments on new property may turn out to be a positive for the financial institutions giving out housing loans, as the measure weeds out punters from genuine buyers. The deferred payment scheme introduced 10 years ago allowed buyers to make as little as a 10 per cent downpayment, and pay the rest upon completion – sometimes after a time lag of three years. This encouraged many to enter the property market. Speculators did not even take the trouble to get a loan – merely coming up with the downpayment, and selling before completion of the property.

In the last few quarters, when the market turned red hot, some observers were surprised by what appeared to be muted home loans growth. The reason was that the deferred payment scheme, which discourages the early draw-down on loans (or even taking up a loan in the first place), had diluted the impact of the booming market on housing loans. Indeed, it was common to hear, at the results briefings of the local banks, the deferred payment scheme put forward as one of the main factors for the slower-than-expected pace of home loans growth.

With deferred payment now no longer an option, more buyers will be driven to take up home loans. And loans will be drawn down progressively, with borrowers paying a certain percentage of the purchase price at various stages of completion of the property. This should be positive for the loan books of the banks.

Take DBS Bank, for one. Singapore’s biggest bank had felt the ‘lag’ impact of the deferred payment scheme – it said a few months ago that it was expecting a sharper spike in home loans only in future quarters, due to investors taking out loans to pay for homes purchased using deferred payment schemes.

With the scheme gone now, the bank told BT that the impact of the latest measure would be positive on its books – since, without the option of the deferred payment scheme, buyers have to seek financing and draw down the loans, if they don’t want to use a lot of their own cash.

The removal of the deferred payment scheme is not just positive on the loan books. For some time now, there has been growing concern that the scheme shifted the banks’ risk exposure from households to corporates. With buyers paying nothing in the early stages of a project with deferred payment, developers had to borrow more from the banks – or raise funds in the debt market – to finance their projects. This increased the banks’ exposure to property developers, and there is past evidence to suggest that corporates are more likely to default, should the market turn bad, than households.

According to MAS data, as at end-June, housing and bridging loans as well as loans to the building and construction sector made up nearly half of the more than $200 billion loan portfolio of commercial banks here. This has been a steady increase from the 33 per cent from about a decade ago, around the height of the last property boom. In absolute terms, housing and bridging loans were worth some $64 billion in

June, compared with about $63 billion six months ago. As the Monetary Authority of Singapore had also previously said, the use of the deferred payment scheme by property developers introduces additional risks to the developers (and to the banks which finance these developers) because property purchasers under this scheme are not subject to credit checks by developers.

‘This is unlike property purchasers who apply for housing loans and are subject to credit assessment by banks. MAS expects banks to exercise prudence in their financing to the property developers and be fully cognisant of the additional risks from the use of deferred payment schemes,’ MAS had said then. The removal of the scheme will restore some balance, and the banks should have their exposure to households raised while lessening their exposure to developers.

The government’s removal of the deferred payment scheme – and expectations of further cooling measures – could keep the property market cautious in the near term. Buyers may adopt a wait-and-see approach, and new projects could see a slower take-up rate. That could crimp home loans growth in the short term.

But in the longer term, doing away with deferred payment will put home financing on a far healthier plane. ‘Flippers’ who buy property to resell quickly to make a fast buck will be deterred, the speculative froth will be taken out of the market, and pricing will come to levels more in line with economic fundamentals. For banks, this means genuine homebuyers and investors as customers – and that cannot be a bad thing.

 

Source: Business Times 30 Oct 07

Property shares take a beating

Developers with inventory in prime districts may face pricing pressure

PROPERTY analysts were still busy yesterday predicting how the market will be affected by the end of the deferred payment scheme (DPS) as property shares received their expected drubbing when trading opened.

A report by OCBC Investment Research forecast tough times for the residential sector – but not everyone was gloomy.

The OCBC researchers said: ‘The significance of the current government move is that it is targeting at the demand side of the equation while previous measures (since end-2006) were mainly supply side . . . Demand-side measures historically tend to have severe repercussions on demand and hence pricing.

‘We thus see the latest action (and subsequent action if speculation continues) to be negative on the residential sector.’

A seasoned property consultant said: ‘The withdrawal of DPS will affect speculators, who have been focusing mainly on high-end homes but who have also filtered into mid-market projects as seen in One North Residences and The Rochester. However, even genuine home buyers and investors whose budgets are stretched by the rapid price appreciation will be affected. Sales volumes will come off.’

CIMB-GK Research said: ‘We believe developers with inventory in the prime districts could face pricing pressure as punters retreat. Developers are also likely to bear the brunt of greater financial prudence exercised by genuine home buyers as they no longer have the luxury of time to build up funds for repayment.’

The government’s announcement on Friday of the immediate withdrawal of the DPS means an end to the system in which private property buyers could buy units in uncompleted developments with just a 10 or 20 per cent downpayment, with the payment for the rest of the purchase price in some cases postponed until the completion of the project.

CIMB said in its research note yesterday: ‘We believe this move is aimed at discouraging speculative activity and is also a preventive measure to keep mass-market price escalations in check.’

There will be no new DPS developments available, although developers which have already obtained approval to offer the scheme for a project may continue to do so.

One development that seemed to be benefiting over the weekend from its approval for DPS was United Industrial Corporation’s (UIC) Park Natura, a five-storey freehold condo in the Toh Tuck area near the Bukit Batok Nature Reserve. The condo has an average price of about $1,000 per square foot. UIC is said to have sold more than 60 units over the weekend in the project, which has 192 units in total.

The developer is offering a partial deferred payment scheme where buyers pay an initial 10 per cent, with progress payments needed only after one year.

On the stock market yesterday morning, the Singapore Properties Equity Index fell as much as 2.1 per cent from Friday’s close to 1,545.16 points. It later recovered to end at 1,557.52 points – just 1.3 per cent lower than Friday’s finish.

City Developments lost 50 cents to close at $15.80, followed by SC Global Developments which eased 35 cents to finish at $5.50. Singapore Land lost 25 cents, closing at $9.85.

‘Purer developers with sizeable residential inventories are likely to be the most affected,’ CIMB said.

‘Stocks under our coverage with revalued net asset values that are particularly sensitive to asset price changes include Allgreen, Bukit Sembawang, City Developments, Ho Bee and UOL. We estimate that every 10 per cent change in residential prices will result in 5-10 per cent changes in stock valuations for these companies.

‘The sector is currently under review . . . we expect to lower our residential selling price assumptions by 10-15 per cent in the upcoming results season in view of mounting uncertainties in the property market,’ CIMB said.

Citigroup said that the DPS withdrawal has ‘probably removed the champagne from the party’ since property prices have been fuelled to some extent by the availability of deferred payments, which account for more than 70 per cent for some projects.

‘Sentiment will likely weaken in the short term, particularly in the luxury segment. Longer term, fundamentals, including strong economic growth, immigration and low interest rates will likely be supportive of property prices,’ the report said.

But other analysts, like JP Morgan’s Chris Gee, said that he was recommending investors to be underweight on the sector even before Friday’s announcement.

‘Pricing power is shifting very firmly away from developers because they now have more products to sell,’ he said.

‘But they’re not just competing among themselves for buyers but also with specu-vestors who’ve bought properties since 2005 and who can offer buyers properties that will be physically completed sooner than those that will be launched by developers in the near future.’

 

Source: Business Times 30 Oct 07

7,750 homes could still be sold using deferred payments

Units are in projects that had approval; developers may opt not to do so though

UP TO 7,750 unsold homes could still be available for purchase under the deferred payment scheme, even though it was scrapped last week.

The Urban Redevelopment Authority (URA) said these units are in developments that already have approval for the scheme, but which have not sold out yet.

On Friday night, the Government scrapped deferred payments with immediate effect, saying it was no longer relevant given the now-buoyant property market.

The scheme was introduced 10 years ago when the market was down. It allowed homebuyers to defer the bulk of a home’s purchase price until it was completed, which could be up to a few years later.

But the scheme was seen as encouraging speculation, as buyers could profit by reselling their homes before completion without much capital outlay.

Now, buyers will have to make progressive payments as construction proceeds.

The ending of the scheme is seen as a way to cool the hot property market. All developments that had not obtained approval for the scheme by last Friday can no longer offer it.

As at last Friday, 320 out of 443 licensed developers had approval to offer deferred payments for their projects, said the URA yesterday.

And about 140 of these developers still have a total of 7,750 residential units left unsold, it added.

But it is now up to the developers if they want to offer homebuyers the option of using the scheme, URA said.

The units include some in Bukit Sembawang’s 102-unit Paterson Suites in Paterson Road and its 123-unit Vermont on Cairnhill. Ho Bee offers the scheme for the 51 unsold homes in Turquoise, its 91-unit project in Sentosa Cove.

Buyers can also look to CapitaLand’s 327-unit Seafront @ Meyer in Meyer Road, which has 68 units left.

Developers which have approval for the scheme but have yet to start sales include Voda Land, for its 114-unit Amber Residences in Amber Road.

Even before deferred payments were axed, some developers had already dropped it of their own accord or never offered it. Those that did usually added a premium of 3 to 5 per cent of a home’s price to purchases under the scheme.

Many property analysts believe the withdrawal of the deferred payment scheme is likely to hit sentiment only in the short term. They point to factors such as robust demand, low interest rates and favourable sales even when developers do not offer the scheme.

Citigroup economist Chua Hak Bin said ending the scheme seems justified on prudential grounds. ‘There are growing signs of speculation, price distortions and accelerating mortgage growth,’ he wrote in a report.

‘Risk of a property glut longer-term cannot be ruled out if the boom is left unchecked.’

 

Source: The Straits Times 30 Oct 07

Exit of deferred payments not a fatal blow: Goldman

Mid to mass market may be hardest hit as some projects see 50% opt for scheme

(SINGAPORE) The withdrawal of the deferred payment scheme (DPS) for property purchases may quell demand in the short term, but will not deal a fatal blow to Singapore’s residential market, says Goldman Sachs.

The investment bank also expects negative investor sentiment on property developers in the short term, but kept its ‘buy’ on GuocoLand and a positive view on real estate investment trusts (Reits).

Goldman Sachs Global Investment Research’s report is among the first to be made available after the government announced last Friday that it was removing a scheme that allowed the bulk of payments for property purchases to be deferred till the project was completed.

Goldman said that parties that are likely to be affected by the move include property speculators, foreigners buying Singapore properties here and ‘buyers who are stretching their affordability to buy a property’.

The bank says that the key test bed for the negative impact is the mid to mass market, even though the prime to luxury end of the residential market will be affected as well.

This is because ‘there are projects in this segment where over 50 per cent of purchases are accounted for by buyers opting for the DPS route’, and ‘the need to secure financing upfront will cause buyers in this segment to hesitate in committing to buying’.

However, its analysts see certain mitigating factors like strong job creation and economic growth, which supports a positive long-term outlook on this segment.

In the short run, the pace of new launches and take-up of new launches are expected to slow over the next three to six months as property prices are likely to come under marginal pressure.

Goldman said that this would result from undiscounted selling prices, which could have been set higher using DPS, negative impact on certain pools of demand and negative impact on sentiment.

Indeed, the removal of DPS raises the risk of government intervention to curb rising property prices, the report added.

‘Given such a backdrop, we foresee developers being less aggressive in recycling monies earned from successful launches into beefing up residential land banks,’ it said.

Hence, its analysts have trimmed their forecast residential selling prices by around 3-4 per cent, assuming flat prices in 2008 as well as slower growth going forward.

‘We also remove the 10 per cent premium to return on net asset value, where applicable, to reflect a more murky picture on developers recycling capital to expand land bank.’

Against this backdrop, Goldman kept its ‘buy’ on GuocoLand with a price target of $6.20 as ‘we continue to like the China projects and find valuation attractive’.

Also, it maintains its ‘neutral’ stance on CapitaLand, City Developments and Keppel Land with price targets of $8.30, $15.70 and $8.90 respectively.

 

Source: Business Times 29 Oct 07

two cents’worth – Investing in property may be less profitable than buying shares

SHARE markets have generally produced higher investment returns than residential property over the long term.

Theoretically, then, those who rent a property and invest their money in quality shares should be wealthier than those who concentrate on paying off their homes.

However, the discipline of meeting regular mortgage payments and gradually taking ownership of a tangible asset, means home owners usually do better financially than those who rent.

Nevertheless, investing in residential property other than your family home is likely to result in higher risk and lower returns than investing in quality shares.

An economy in which business is performing well is likely to be one in which the property market is also growing strongly.

One of the main reasons shares outperform property over long periods is that demand for property, in a market-based economy, is derived from the success of business.

Of course, the business cycle and the property market do not work in perfect lockstep.

There are periods of economic stagnation in which the property market enjoys a ‘catch-up’ boom, and periods of recovery in which it goes through a down cycle.

On average, the risks of investing in property are understated and returns from investing in property are overstated.

As a result, investors pour too much money into residential property, forcing prices higher than they would be if investors accounted fully for the potential risks and returns.

Five myths about property investment hold sway in every boom:

• Property values are not as volatile as share prices;

• Property prices never fall;

• Property prices might fall occasionally, but never as far as share prices;

• Property prices rise with the cost of living, so investment in property always keeps you ahead of inflation;

• The only way to lose money on property is to buy real estate in a declining population centre, or a house on the main road.

  So why are property risks understated?

  Property seems easy to understand, so investors may have a perception of control. Property has the ability to elicit an emotional response unlike shares or bonds, which lack the sense of substance and permanence that attracts people to property.

  Just as important, the pricing of residential property is infrequent and informal. Property investors never see red ink on a statement unless it is on the day of the sale.

  And most property investors never formally evaluate the performance of their investments at all. Imagine if you looked in a newspaper at the price of your home each day, just as you do with the price of your shares.

  Your attitude to risk would most likely be quite different.

  Returns achieved from property are also generally overstated, which has the effect of further narrowing the risk/return trade-off for the asset.

  Indexes that measure property market performance generally capture only the increase in the sale price of existing dwellings, but fail to take into account major developments in a nation’s housing stock.

  Share investors can effectively ‘buy the market’ and participate in its long-term performance because of the ready availability of accumulation indexes that are net of costs incurred in achieving gains.

  Investors cannot ‘buy’ the return of the residential property market like this, because the sales measures available are gross of costs such as construction outlays.

  In practical terms, investing in residential property has it own risks, not unlike investing in a single stock.

  While these risks can be mitigated through research into location, the quality of the property and so on, opportunities for broad diversification and protection of a residential property investment portfolio are more restricted.

  The one main advantage of investing in residential property is that individual investors with time on their hands have a greater ability to add value to their investment.

  For many people, buying a family home is their one truly effective means of saving.

  But for the amateur investor, who does not wish to become a property investor, investing in a residential property is likely to be expensive, more time-consuming and riskier than investing in a well-run, diversified share portfolio. And it will probably yield a lower return too.

How Much Is Enough? – www.howmuchisenough.net - is distributed in Singapore by MarketAsia

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This is the fourth of a five-part series based on the book How Much Is Enough? that will challenge how you

 

Source: The Sunday Times 28 Oct 07

No delaying payments, so home hunters turn cautious

Move may have initial dampening effect but experts say it will chase away only speculators

MARKETING manager Simon Loh has put an abrupt halt to his house hunting.

The 38-year-old had been looking for a new place for the last six months, but now that he cannot defer payments until the new apartment is ready, he has had to shelve his plans.

The Urban Redevelopment Authority announced on Friday that buyers of uncompleted private homes and offices will no longer have the option of using a deferred payment scheme.

This allowed home buyers to pay as little as 10 per cent of the purchase price upfront, footing the rest only when the property is ready.

All buyers now will have to use the progressive payment scheme where they pay between 5 per cent and 25 per cent of the purchase price every few months.

Mr Loh, who currently has to pay the bank a monthly mortgage of $1,300 on his condominium unit in Yio Chu Kang, cannot afford to take up another loan to buy a new home in town.

‘I’ll have to drop the idea, but I could have done it with the deferred payment scheme,’ he said.

Other house hunters are also thinking twice.

Sales manager Lawrence Chen, 35, who has been looking for a terrace house since last year, said he has to be ‘more conservative’ now.

Some buyers, though, are not affected by the change, saying they will just have to take up bank loans earlier.

IT manager Daniel Lim, 36, who was at a showflat in Paya Lebar, said: ‘You still have to pay for the property eventually.’

Typically, a buyer who chooses to take the deferred payment route is charged between 3 per cent and 5 per cent more than one under the progressive scheme. Still, property agents say up to 90 per cent of their buyers take up the deferred scheme.

They agree that removing the scheme will achieve the Government’s aim of driving away speculators. But the agents believe low-budget buyers could also be hit.

ERA Singapore assistant vice-president Eugene Lim said: ‘The mass market projects will be most affected because buyers there could need the three years’ construction time to build up their funds.’

But most agents believe the market will remain strong.

Property developers believe the move would have a slight initial dampening effect on sales, chasing away speculators but not buyers.

They are not taking measures, like lowering prices, to counter the new rule.

Singapore-based developer Chip Eng Seng, which will launch CityVista Residences in Peck Hay Road in about two weeks, said: ‘There are many genuine buyers and though they may be more cautious initially, the demand’s still strong.’

 

Source: The Sunday Times 28 Oct 07

Buyers paying way above valuation for HDB flats

IF YOU are looking to buy an HDB resale flat, make sure you have plenty of cash on hand.

Due to soaring home demand, an average HDB resale flat now costs $17,000 above its valuation from $7,000 just three months ago.

This figure, called the cash-over-valuation amount, has to be paid in cash by a buyer under current rules.

Five-room flats in popular areas like Queenstown are going for about $110,000 above valuation, according to data released by the Housing Board yesterday.

In addition, more flats are being sold at higher prices.

Between April and June, only three out of every 10 resale flats went above valuation. Since July, however, this has applied to eight out of 10 flats, the HDB said.

The higher prices, however, may be starting to deter buyers.

The number of resale flats sold in the third quarter fell 11 per cent to 8,700, after rising 38 per cent in the previous three months.

HDB resale prices are soaring because rising private home prices are pushing buyers to the cheaper public housing segment.

Taking advantage of growing demand, flat sellers are now asking for prices that are significantly higher than valuations.

But this is creating unhappiness among buyers, said property agents.

‘With these kinds of asking prices, we are beginning to see some resistance in the market,’ said Mr Eugene Lim, assistant vice-president at property agency ERA Singapore.

‘The typical HDB homebuyer does not have or does not want to fork out too much cash. It just does not make sense.’

ERA’s data show that in the third quarter, there were fewer resales of all types of flats, from one-room units to executive flats.

But Mr Ku Swee Yong, director of marketing and business development at Savills Singapore, suggested that the lower sales could simply be due to the Hungry Ghost month in the third quarter.

Another property agency, PropNex, said the drop in flat sales is only slightly significant.

Over the last 10 years, the number of resale flats sold was 6,500 to 8,000 for most quarters.

Even with the fall in transactions in the third quarter, 7,700 resale flats were sold, said PropNex’s chief executive, Mr Mohamed Ismail.

‘It may be too early to conclude from this dip that consumers are price sensitive,’ he said, unless ‘the number of transactions continues to drop’.

Mr Ismail agreed, however, that the cash-over-valuation amount had increased significantly.

‘Today, without at least $50,000 in cash, homebuyers will not be able to purchase a resale flat in the Central location,’ he said.

According to HDB figures, buyers of executive flats are forking out the highest median cash-over-valuation amounts.

The median amount – the point at which half the homes sold for more cash and half for less – hit $155,000 in Clementi.

Overall, the median amount for this flat type was $25,000.

For four- and five-room flats, buyers paid a median of $18,000 above valuation. For two- and three-room flats, the amount was $15,000.

The highest amount paid above valuation for a five-room flat was $91,500. The figures were $57,500 for a four-room flat and $40,000 for a three-room flat.

In general, the areas requiring the least cash-over-valuation were Woodlands, Yishun and Bukit Panjang.

On the other end of the spectrum was the Central area, Queenstown and Marine Parade.

The HDB said, however, that in some of these cases, there were fewer than 10 sales of the specific flat type in that area. This means the figures may not be representative.

 

Source: The Straits Times 27 Oct 07

Office rentals main concern for Norway firms here

RISING office rentals is the biggest concern among Norwegian-owned businesses operating in Singapore.

While 88 per cent of these firms expect to expand in the next 12 months, many are increasingly concerned about spiralling business and manpower costs.

The findings came from a recent survey conducted by the Norwegian Business Association in Singapore over the past six weeks.

The respondents were from 60 Norwegian companies, with more than half having an annual turnover of over $50 million.

A total of 24.4 per cent of the respondents said office rentals were their main concern, while 22.6 per cent cited rising wage bills.

A further 20.2 per cent said they were worried about the recent steep rises in living costs.

The survey findings – which were presented at the Norway Asia Business Conference held in Singapore yesterday – echoed those of a poll released by the American Chamber of Commerce in June.

This showed that rising rents and housing costs are becoming more of a worry for senior executives at American firms in the Republic.

Economic Development Board (EDB) managing director Ko Kheng Hwa addressed the rents issue at the conference, saying the EDB and the Government are ‘very concerned’ about business competitiveness and are working to increase the supply of commercial and residential space.

Mr Ko, the conference’s keynote speaker, added: ‘When supply and demand are better matched in the next couple of years, the cost escalation should be moderated.’

Norway is the sixth-largest foreign investor in Singapore, with a total foreign direct investment of $7.9 billion in 2005 – the latest year for which figures are available.

It is the fourth-largest European investor in Singapore behind Britain, the Netherlands and Switzerland.

There are more than 150 Norwegian business entities in the Republic.

 

Source: The Straits Times 26 Oct 07

Prices of HDB resale flats keep accelerating

RIDING on the property boom, HDB resale prices are on the rise.

The price index of resale flats was 6.6 per cent higher in the third quarter compared to the previous quarter, the HDB said in a press release on Friday. Price increases were seen across most flat types and towns.

‘As at end-September, the HDB resale price index has increased by about 11 per cent since the start of the year,’ the HDB said.

For five-room flats, the median resale price in Queenstown is the highest at $603,000, followed by Marine Parade at $560,000 and Bukit Merah at $530,000.

Queenstown tops the list for median resale prices of four-room flats as well, fetching $410,000. This is followed by Bukit Merah which commands a price of $396,500 and Central at $382,500.

The median Cash-Over-valuation (COV), which is the difference between the Resale Price and Market Value of the flat, in the July to September period was $17,000.

Eighty per cent of all resale transactions required COV while 20 per cent of the transactions were conducted at or below valuation.

Five-room flats in Queenstown commanded the highest median COV of $110,000, followed by the Central region with $91,500 and Marine Parade at $85,000.

For four-room flats, apartments in Central fetched the highest median COV of $57,500. Queenstown at $57,000 and Bukit Merah at $40,500 were the next two highest on the list.

Highly popular in the last quarter were four-room flats, which made up the bulk of resale transactions. There were 2,833 in total.

Three-room flats were more popular than 5-room flats in the last quarter, with 2,179 transactions compared to 1,901.

New flats

With good take-up rates for public housing projects launched under the Build-To-Order system, HDB launched about 2,700 new flats under four BTO projects in the first three quarters of the year.

It launched another 916 units on Thursday and has plans to offer another 3,500 in the next six months.

‘There are also plans to release another three Design, Build and Sell Scheme (DBSS) sites with an estimated combined yield of 1,500 units over this period,’ the HDB said.

The new flats will be in addition to those offered under the Balloting Exercises for surplus Selective En bloc Redevelopment Scheme (Sers) flats and the bi-monthly or monthly sales exercises for unsold flats.

Rental market

Rents for subletting HDB flats were also up in the last quarter in line with higher rents for private residential properties.

Marine Parade commanded the highest median subletting rents for both three- and four-room flats at $1,250 and $1,700 respectively.

HDB approved the subletting of 3,500 flats in the third quarter, bringing the total number to about 16,000 units, up from about 14,600 units in the second quarter.

HDB said it will be leasing out flats vacated under Sers to the general public under a special pilot project. It recently concluded a tender for the leasing of vacated Sers flats at Tiong Bahru Road, and will assess the response to this pilot project before deciding whether to expand the scheme in future.

This scheme puts ‘the vacated Sers flats to better use in the interim period, pending their redevelopment’, it said.

HDB said it ‘has a potential supply of about 4,000 to 5,000 units that can be introduced to bolster rental supply in the HDB market over the next 3 years’.

 

Source: The Straits Times 26 Oct 07

Prices of HDB resale flats keep accelerating

RIDING on the property boom, HDB resale prices are on the rise.

The price index of resale flats was 6.6 per cent higher in the third quarter compared to the previous quarter, the HDB said in a press release on Friday. Price increases were seen across most flat types and towns.

‘As at end-September, the HDB resale price index has increased by about 11 per cent since the start of the year,’ the HDB said.

For five-room flats, the median resale price in Queenstown is the highest at $603,000, followed by Marine Parade at $560,000 and Bukit Merah at $530,000.

Queenstown tops the list for median resale prices of four-room flats as well, fetching $410,000. This is followed by Bukit Merah which commands a price of $396,500 and Central at $382,500.

The median Cash-Over-valuation (COV), which is the difference between the Resale Price and Market Value of the flat, in the July to September period was $17,000.

Eighty per cent of all resale transactions required COV while 20 per cent of the transactions were conducted at or below valuation.

Five-room flats in Queenstown commanded the highest median COV of $110,000, followed by the Central region with $91,500 and Marine Parade at $85,000.

For four-room flats, apartments in Central fetched the highest median COV of $57,500. Queenstown at $57,000 and Bukit Merah at $40,500 were the next two highest on the list.

Highly popular in the last quarter were four-room flats, which made up the bulk of resale transactions. There were 2,833 in total.

Three-room flats were more popular than 5-room flats in the last quarter, with 2,179 transactions compared to 1,901.

New flats

With good take-up rates for public housing projects launched under the Build-To-Order system, HDB launched about 2,700 new flats under four BTO projects in the first three quarters of the year.

It launched another 916 units on Thursday and has plans to offer another 3,500 in the next six months.

‘There are also plans to release another three Design, Build and Sell Scheme (DBSS) sites with an estimated combined yield of 1,500 units over this period,’ the HDB said.

The new flats will be in addition to those offered under the Balloting Exercises for surplus Selective En bloc Redevelopment Scheme (Sers) flats and the bi-monthly or monthly sales exercises for unsold flats.

Rental market

Rents for subletting HDB flats were also up in the last quarter in line with higher rents for private residential properties.

Marine Parade commanded the highest median subletting rents for both three- and four-room flats at $1,250 and $1,700 respectively.

HDB approved the subletting of 3,500 flats in the third quarter, bringing the total number to about 16,000 units, up from about 14,600 units in the second quarter.

HDB said it will be leasing out flats vacated under Sers to the general public under a special pilot project. It recently concluded a tender for the leasing of vacated Sers flats at Tiong Bahru Road, and will assess the response to this pilot project before deciding whether to expand the scheme in future.

This scheme puts ‘the vacated Sers flats to better use in the interim period, pending their redevelopment’, it said.

HDB said it ‘has a potential supply of about 4,000 to 5,000 units that can be introduced to bolster rental supply in the HDB market over the next 3 years’.

 

Source: The Straits Times 26 Oct 07

Global property investment expected to fall

Mortgage defaults in US may prompt lenders to tighten credit, says JLL

(TOKYO) Global direct real estate investment may fall this year as concerns about defaults on US mortgages prompted lenders to tighten credit, said Jones Lang LaSalle Inc, the world’s second-largest commercial real estate broker.

Asia may be the only market to experience an increase in investment in the second half of this year, Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said in Tokyo yesterday. Global direct property investment rose 41 per cent in 2006 to US$699 billion, advancing for a third-straight year.

‘The highly leveraged players who were very active earlier in the year are certainly sitting on the sidelines at the moment,’ Ms Murray said.

The four-year boom in real estate is threatened after the US housing slump raised concerns about the value of mortgages and bonds linked to those loans. Investors are finding it harder to borrow money when they want to fund property acquisitions.

Japan, Singapore, China and India are among the markets offering the best opportunities for investors, according to Jones Lang LaSalle research.

Grade A office rents in Japan have gained 80 per cent in the past three years and have more than doubled in Singapore, Ms Murray said. Grade A buildings are no more than 25 years old, with total leasable floor area of more than 10,000 square metres and more than 800 square metres a floor, according to Jones Lang LaSalle.

Japan features strong economic growth in a large market and is the only country where returns on office buildings exceed local interest rates, also known as a positive yield spread, Ms Murray said.

Morgan Stanley raised a record US$8 billion for a real estate investment fund in June. In April the firm agreed to buy 13 Japanese hotels from All Nippon Airways in the country’s biggest real estate deal.

Japan offers a positive yield spread of 1.56 per cent, compared with negative spreads in other major cities including London, Paris, Frankfurt and New York, said Takeshi Akagi, local director in Japan for Jones Lang LaSalle.

Investment in China rose 23 per cent in the first half of the year even after the government sought to curb property investment to cool gains in housing prices. India, where more than half the population is under the age of 25, doesn’t have enough offices, shops and houses to meet demand, Ms Murray said.

‘It will require major additions to the stock base across every sector over the coming years to accommodate its rapidly growing services sector and the increasing wealth of its population,’ Ms Murray said.

‘When the Indian government begins to deregulate investment for foreign players, we will see a flood of money pouring into that market.’

 

Source: Bloomberg (Business Times 25 Oct 07)

PROPERTY – 2,000 high-end homes may be launched soon

About 30 new condos may be launched by early next year, at least half of them in Orchard, Bukit Timah and Holland

SALES of new homes took a dive last month, but they might pick up soon as developers prepare to launch a string of projects over the next few months.

Almost 30 new condominiums could come on the market by early next year, said property consultancy Knight Frank.

‘Market sentiments are gradually picking up following the United States sub-prime crisis, and launches could also increase in tandem,’ said Mr Nicholas Mak, Knight Frank’s director of research and consultancy.

He estimates that more than half of the launches will be in the prime districts of 9, 10 and 11 – Orchard, Holland, Bukit Timah and Newton – as well as in luxury enclave Sentosa Cove.

If all these projects are launched as planned, about 2,000 high-end homes could flood the market over the next six months, added Mr Mak. Broadly speaking, these are properties that will cost at least $2,000 per sq ft (psf), with a three-bedroom unit going for at least $2.5 million, he said.

‘We are definitely counting on foreigners to come in and help absorb these homes, so we don’t end up with an oversupply problem in the top tier,’ he said.

Residential areas likely to be in the spotlight include Bukit Timah, Thomson, Holland Village and East Coast.

This is because prices in these areas have not moved as much as those in areas such as River Valley, Newton and Orchard.

Colliers International also predicted benchmark prices for two upcoming projects: the Ritz-Carlton Residences in Cairnhill and the development on the former Asia Hotel site. Prices at these projects could hit $4,500 psf on average, said Mr Vincent Chong, Colliers’ residential sales director.

Mr Mak believes there will be few launches in the closely-watched mass-market segment until the middle of next year because developers started acquiring sites only recently.

‘Most launches will come in nine to 18 months’ time, and they are likely to be priced on the high side at $800 to $900 psf,’ he said. ‘Until then, most activity will be in the resale market, where a lack of new launches could push prices up significantly.’

New Launches

 

Source: The Sunday Times 21 Oct 07

5.5m population more achievable for Singapore

THE 6.5 million population used as a guide for planning purposes in Singapore is not within reach in the next 50 years, an academic said yesterday. Saw Swee Hock of the Institute of Southeast Asian Studies said 5.5 million is a more achievable target.

Prof Saw – the second Singaporean after former deputy prime minister Goh Keng Swee to be elected an honorary fellow of the London School of Economics – was speaking at the soft launch of the second edition of his book The Population of Singapore.

His comments are consistent with those of Minister Mentor Lee Kuan Yew, who indicated in August that Singapore’s population is unlikely to touch 6.5 million.

Prof Saw said yesterday that for the population to hit 6.5 million by 2050, Singapore needs an influx of 1.85 million newcomers after 2015, assuming the non-resident population rises from 0.8 million in 2005 to 1.01 million in 2015.

The proportion of newcomers arriving after 2015 would constitute 40.5 per cent of the total population in 2050 – the highest ever.

But for the population to hit 5.5 million in 2050, the number of newcomers entering Singapore after 2015 would be 1.63 million and they would make up a smaller 29.6 per cent of the population.

‘The 5.5 million target is not only more achievable viewed in terms of the type of newcomers we want, but also more conducive to the maintenance of a harmonious multiracial society,’ Prof Saw says in his book.

The figures were generated assuming the total fertility rate stays constant at 1.31, which will result in the resident population growing from 3.55 million in 2005 to a peak of 3.64 million in 2015, before shrinking steadily.

The challenge, said Prof Saw, is to get newcomers to stay to make up for the declining resident population.

Alongside a contracting resident population, the resident labour force is estimated to decline from 1.74 million in 2005 to 1.15 million in 2050.

Workers aged 60 and over are projected to make up 13.6 per cent of the workforce in 2050, up from 4.4 per cent in 2005. And workers aged 30-39 are expected to account only for 19.3 per cent of the work force in 2050, down from 28.7 per cent in 2005.

 

Source: Business Times 20 Oct 07

Property booms, busts make economy vulnerable

SINGAPORE ECONOMIC POLICY CONFERENCE

Bubble cuts private spending, raises reliance on volatile foreign demand

PROPERTY price booms and busts make Singapore’s economic growth more vulnerable to volatile factors and should be prevented, an economist at a think-tank said here yesterday.

While the impact of a spike in property prices on overall GDP growth is ‘quite subdued’, a property price bubble causes private consumption expenditure to shrink, making the economy more dependent on foreign demand and business spending which are much more volatile, said Tilak Abeysinghe.

The deputy director of the Singapore Centre for Applied and Policy Economics (Scape) at the National University of Singapore, was speaking at the inaugural Singapore Economic Policy Conference organised by Scape at Four Seasons Hotel.

His team’s research found that while higher property prices spur construction investment, an accompanying dip in private consumption means overall economic growth does not change much as a direct result of property price inflation.

But the overall effect is still undesirable as it makes the economy far more dependent on business spending and foreign demand for its exports, both of which are more volatile than domestic consumption, he said.

The consumption expenditure share of Singapore’s GDP has fallen from more than two-thirds in 1997 to about 40 per cent today. ‘If consumption expenditure in Singapore falls further, GDP growth will be very vulnerable to external demand and investment demand,’ he said.

Research found that in contrast with economies such as the US, higher housing prices here do not seem to encourage more personal spending.

In Singapore, ‘housing wealth is relatively illiquid,’ he said. ‘You just can’t sell your house and move to a suburban house.’ This means the ‘wealth effect’ of housing price inflation seen in countries such as the US – when people spend more as the value of their homes rise – is much less noticeable in Singapore.

Also, ‘when housing prices go up, mortgage payments also increase, so people have less to spend on consumption,’ he said.

He believes policymakers here should ‘do their best’ to prevent a property price bubble because of its effect on private consumption spending and its tendency to widen the income gap between the rich and poor.

‘It should be possible’ to prevent another bubble from building by identifying the main cause of the recent run-up in property prices – likely to be people buying properties for investment rather than owner-occupiers – and introducing measures to dampen demand from this source, he said.

But he also cautioned against flooding the market with a vast supply of new homes, which could trigger a price crash and set the conditions for a new bubble.

 

Source: Business Times 19 Oct 07

No bubble in property market: NUS study

DESPITE Singapore’s red-hot property prices, no bubble is forming in the property market here, according to a study by National University of Singapore (NUS) economists.

In fact, the rise in home prices is below the market’s long-run ‘equilibrium’ level, based on factors such as income and property supply, preliminary findings of the ongoing study show.

In other words, the pace of housing price rises is still below the level that would be expected based on market fundamentals, according to the study conducted by a team led by Associate Professor Tilak Abeysinghe.

This is unlike the case in the early 1980s and mid-1990s, when property price inflation shot up above its longterm equilibrium levels, the study noted.

Early findings from the study, still a work-in-progress, was presented to a small audience at the Singapore Economic Policy conference yesterday.

House-price inflation is expected to hit 18 per cent this year, before easing to 13.7 per cent next year, and then to 3.2 per cent in 2009 and 3.4 per cent in 2010, the NUS team’s model predicted.

Factors used to determine the equilibrium price level include disposable income per person, housing stock and the new supply of property.

The study also found that it takes a long time for property price inflation to adjust to its long-run equilibrium.

And a rise in property price inflation would lead to a spike in construction investment a year or so down the road, but its effect fades after that.

The study concluded that price bubbles should be avoided, as they affect private consumption as well as income redistribution, among other things.

Prof Abeysinghe is the deputy director of the Singapore Centre for Applied and Policy Economics at the NUS, which organised yesterday’s meet.

The one-day conference also saw speakers examine issues ranging from fertility, migration and labour market trends, to CPF savings and the elderly.

The paper, entitled Singapore’s Property Market And The Macroeconomy, can be viewed at http://nt2.fas.nus.edu.sg/ecs/cent/ESU/conference.htm

 

Source: The Straits Times 19 Oct 07

Marina Bay’s key selling points

Its ‘live-work-play’ concept makes it an attractive location for home-buyers.

MARINA Bay is not just well on the way to becoming Singapore’s new financial hub, it is also shaping up as an attractive location for home-buyers.

Property analysts say that since the first residential project there – City Developments’ The Sail – was launched in late 2004, interest in the area has spiked, sending prices climbing.

Prices at The Sail averaged $970 per sq foot in 2004 after the project was launched in November that year.

But since then the average price – taking into account new sales, resales and sub-sales – climbed to $1,060 psf in 2005 and $1,300 psf in 2006, says Knight Frank’s director of research and consultancy Nicholas Mak.

And for the first nine months of 2007, units at The Sail went for an average of about $1,600 psf, he says.

He reckons prices could hit $1,800-$1,900 in about two years. The 1,111-unit development is fully sold.

‘The project was launched in 2004, which means it was just in time to rise on the property market upturn,’ he said.

Analysts say the upside for other residential projects in the area may not be as great because they were launched at higher prices. But they could still benefit from the ‘buzz’ now associated with the area.

Two projects have been launched since The Sail – Marina Bay Residences and One Shenton.

Marina Bay’s biggest selling point, analysts and developers agree, is its ‘live-work-play’ concept.

For one, office space there has been a huge hit with banking and financial institutions.

The top office draw at the moment is the massive Marina Bay Financial Centre (MBFC).

Two office towers in MBFC’s first phase will add about 1.7 million sq ft of lettable area when they come up in 2010. And the office tower in the second phase is expected to offer a further one million-plus sq ft of space.

Nearby One Raffles Quay, completed last year, has slightly over 1.3 million sq ft of office space.

In addition to this, the government has indicated that it intends to progressively release plots in the area.

Two parcels – known as Land Parcel A at Marina View and Land Parcel B at Marina View – will add at least 1.7 million sq ft of office space. Parcel A has been awarded, while the tender for Parcel B closes on Nov 13.

The authorities are also moving to increase the area’s vibrancy. And one eagerly anticipated project is Gardens by the Bay.

The waterfront is set to be home to three distinct gardens, each with its a unique look, the National Parks Board revealed last year.

The gardens will range in size from 10 to 54 hectares. It is estimated that $300 million-$400 million could be spent on them.

Perhaps most significantly, the $5.2 billion Marina Bay Sands integrated resort (IR) will come up in 2010 – significantly changing the look and feel of the place.

Besides drawing more tourists, the retail and F&B facilities at the IR could attract home buyers, market watchers say. All these goings-on have translated into greater local and foreign interest in homes in the area, analysts and developers point out.

‘We are seeing a keen appetite among investors confident in Singapore and interested in the live-work-play destination of Marina Bay,’ said Kan Kum Wah, head of residential marketing for Marina Bay Suites.

More residential projects are likely to be launched in the coming months.

For a start, Land Parcel A and Land Parcel B are ‘white’ sites, which means the successful bidders can use some of the gross floor area to build homes.

The Urban Redevelopment Authority is also setting aside some 60ha of land at Marina South for a landmark residential district.

Some 11,000 housing units are planned, with a mix of commercial, hotel and community facilities.

URA expects to start launching sites in the residential district within the next year, and interest is expected to be keen.

But the next project in the area to hit the market is likely to be Marina Bay Suites.

The 223-unit development, which is the second and last residential block at MBFC, will be launched early next year.

MBFC’s developers – Keppel Land, Cheung Kong Holdings/Hutchison Whampoa and Hongkong Land – expect strong interest in the project, as well as high prices, on the back of then-record prices achieved by Marina Bay Residences.

Last December, when Marina Bay Residences was launched, all 428 units were snapped up within days, with one penthouse fetching $3,450 per square foot (psf) – a record for private homes prices at the time.

‘Marina Bay Suites will be a fitting, even more upscale, sister development to the 428-unit Marina Bay Residences,’ said Mr Kan.

However, homes in the area still have some catching up to do before they reach the prices fetched by residential units in the traditional prime districts 9 and 10.

At Orchard Residences, CapitaLand and Sun Hung Kai Properties are said to have sold a penthouse on the 53rd storey for about $5,600 psf. In contrast, prices at Marina Bay have only hit $3,450 psf.

But home prices in the area could hit $3,500-$4,000, said Ku Swee Yong, Savills Singapore’s director of marketing and business development.

‘Once the casino is up – and perhaps with more traffic congestion due to the vibrant economy – younger high-flying execs in financial services, legal services, etc will come to appreciate inner-city living,’ Mr Ku said.

 

Source: Business Times 18 Oct 07

Sites in Jurong, Holland, Orchard up for sale

2 prime freehold sites could fetch $670-$700m each in collective sales

THREE sites for residential development were launched for tender yesterday – a 99-year leasehold, traditional suburban mass-market housing plot next to Lakeside MRT Station in the Jurong area, as well as two freehold, prime district sites offered through the collective sales of Villa delle Rose off Holland Road and Elizabeth Towers at Mount Elizabeth.

Villa delle Rose, with a land area of 297,132 sq ft, has a guide price of $700 million, which reflects a unit land price of $1,758 psf of potential gross floor area, inclusive of an estimated $31 million development charge. The site is zoned for residential use with a 1.4 plot ratio (ratio of maximum potential gross floor area to land area) and a four-storey maximum height under Master Plan 2003.

Its marketing agent CB Richard Ellis conducted an expression of interest for the property which ended in August and is said to have received offers of up to slightly over $1,600 psf per plot ratio (psf ppr). The EOI exercise had been launched before approval from majority owners was secured, which CBRE recently obtained.

CBRE executive director Jeremy Lake said in a news release yesterday that ‘a few parties have approached us with keen interest, but the owners would like a transparent public tender to achieve the best results’.

Villa delle Rose, developed by Pontiac Land and Keck Seng, comprises 104 units ranging from 2,800 sq ft to 3,200 sq ft. All but a handful of units are rented out, CBRE said.

Over in the Orchard Road area, Elizabeth Towers’ owners are looking at $673 million for their 54,318 sq ft site.

This works out to $2,666 psf ppr. No development charge is payable. Planning approval has been obtained from the Urban Redevelopment Authority to build up to a plot ratio of 4.647, translating to a maximum gross floor area of 252,416 sq ft.

In Jurong, URA has launched the tender for a 2.2-hectare site flanked by Lakeside MRT Station and LakeHolmz condo. Property consultants reckon the site can be developed into around 680 apartments averaging 1,200 sq ft.

CBRE executive director Li Hiaw Ho estimates the site to be worth about $300 psf ppr, translating to a breakeven cost for a new condo at about $650 psf and an average selling price of about $700-750 psf.

Knight Frank, which predicts the site will draw between four and eight bids, estimates the site’s land price at $325- $375 psf ppr, or a breakeven cost of around $650-$720 psf.

The firm’s managing director, Tan Tiong Cheng, said developers will take into account the fact that the ‘Jurong area has traditionally been a slower-moving market compared with other suburban/mass market locations’.

CBRE said that units in The Lakeshore condo a short distance away from the latest site are currently being marketed by its developer at around $800 psf.

In the subsale market, Lakeshore units have been sold recently at $650-750 psf, while apartments at The Centris one MRT station away have been changing hands at about $600-650 psf.

The Lakeholmz, a completed development, has been seeing sales in the $550-600 psf range, according to CBRE research.

 

Source: Business Times 18 Oct 07

SingPower Building on sale for expected $990m

Market watchers say leasehold property likely to fetch $1,800 psf

THE office market can be expected to continue teeming with deals, with the latest offering said to be the Singapore Power Building behind Somerset MRT Station. The 30-year-old building, once known as PUB Building, is being marketed through an expression-of-interest exercise, BT understands.

Market watchers expect the leasehold property to fetch about $1,800 per sq ft of net lettable area (NLA), which works out to $990 million based on the 17-storey building’s NLA of around 550,000 sq ft.

SingPower Building, completed in 1977 and refurbished last year, is on a site with a remaining lease of 67 years.

The building is being put up for sale by owners SingPower and Public Utilities Board. The latter moved out earlier this year. SingPower occupies some 200,000 sq ft, while the rest of the space is leased to other tenants.

SingPower is expected to structure a deal to lease back the space it occupies from the new buyer Industry sources say SingPower Building’s existing gross floor area reflects a 7.0 plot ratio – the ratio of maximum potential gross floor area to land area. This exceeds the 4.9 plot ratio indicated in Master Plan 2003. The site area is about 110,000 sq ft.

However, there may be a possibility of redeveloping the property in the medium term by building a more efficient modern structure, after existing leases expire.

SingPower Building has two basements with a total of 530 parking lots. There is also an auditorium for public use.

The building was originally developed for $32 million. It was clad in silvery metal when refurbished last year.

The building was described as a ‘ground-scraper’ – two parallel slab blocks facing north and south connected by a lift and stair core – in an article in The Straits Times in August this year. Between the two blocks is a landscaped court.

If SingPower Building changes hands for around $990 million, it will be one of the biggest office deals so far this year, along with the $1.04 billion sale of Temasek Tower to a fund managed by Macquarie Global Property Advisors in March, and the sales of separate one-third stakes in One Raffles Quay to K-Reit Asia and Suntec Reit for $941.5 million each.

In late August, CapitaLand, IP Property Fund Asia and NTUC Income Insurance Co-op sold the leasehold Chevron House, formerly Caltex House, at Raffles Place, for $730 million or a record $2,780 psf of NLA. The buyer is understood to be a Goldman Sachs-linked fund.

The Goldman Sachs group is also understood to be finalising a deal to buy the next-door Hitachi Tower, a 37- storey office tower on a 999-year leasehold site facing Collyer Quay.

The price is expected to be around $3,000 psf.

Hitachi Tower is 50:50 owned by CapitaLand and National University of Singapore.

 

Source: Business Times 18 Oct 07

HDB expects stock of unsold flats to drop to 2,200 units by year-end

THE stock of unsold Housing and Development Board (HDB) flats, which stood at about 10,000 three years ago, is now down to 3,500, and the board expects the stock to fall to 2,200 units by the end of the year.

Speaking at a press conference to release the HDB Annual Report 06/07 on Tuesday, HDB CEO Tay Kim Poh said: ‘Positive growth has resulted in strong demand for HDB flats.’

Indeed, according to the figures in the latest annual report, demand appears to have outstripped supply.

For the financial year ended March 31, HDB sold 5,712 new flats, down from 10,100 flats in the previous year, a drop of over 40 per cent. But the number of flats completed in the year was also down, to just 1,764, a decline of nearly 60 per cent from the 4,378 flats of the 2005-06 period, perhaps explaining the recent spike of 6.5 per cent in HDB’s Resale Price Index (flash estimate) for open market flats.

As at March 31, 14,212 flats were under construction, compared to 12,571 in the previous year. These flats have already been launched, and Mr Tay said: ‘BTO (Built-to-Order) subscription is also very high.’ HDB’s latest bi-monthly balloting/walk-in sale exercise also suggests that demand is high, with the 489 flats offered now almost 10 times oversubscribed. Four thousand and eight hundred online applications have been received so far.

New supply of about 6,000 flats from BTO exercises and the Design, Build and Sell Scheme is expected over the next six months but managing supply and demand will be a challenge.

HDB said that a projected 6,300 flats will be completed in FY07-08, followed by 1,700 in FY08-09, 4,000 in FY09-10, and 13,000 in FY10-11.

Savills Singapore director (marketing and business development) Ku Swee Yong said: ‘Assuming about 5,000 to 7,000 flats are completed between 2008 and 2009, we are at best even on supply and demand.’

Mr Ku said improved economic conditions and population growth could have some impact on this balance.

It is, of course, difficult to predict future demand. A case in point would be the backlog of 10,000 unsold flats just three years ago.

Knight Frank director (research and consultancy) Nicholas Mak said that in the past, HDB built flats ’speculatively’, hence the backlog. But, with the current practice of BTO exercises, the building programme has become more ‘market responsive’.

For now, any unsatisfied demand will have to be supplied by the resale market. ‘The resale market is very big and has great capacity to increase demand,’ added Mr Mak, but he also cautioned: ‘If the economy and job market continues to expand, we can expect demand for new flats to spill over into the resale market and this could impact prices.’

While resale prices have gone up, the HDB said that the number of resale applications actually fell 7 per cent in FY06-07. This could be because HDB buyers are still very price sensitive.

HSR Property Group senior vice-president Donald Yeo said that he does not believe a supply crunch is imminent because many potential buyers already own HDB flats. Based on feedback from HSR property agents, Mr Yeo said that about eight out of 10 buyers already own flats, so even if there is a desire to buy a new flat – regardless of whether it is to upgrade or downgrade – there is no dire need to.

‘Buyers who find resale prices too high are also prepared to wait for new flats rather than buy from the resale market,’ he added.

 

Source: Business Times 18 Oct 07

Economy’s solid growth to spill into 2008: NTU

It cites uptick in world electronics demand, sizzling construction activity

THANKS to the sustained health of the global economy, an uptick in world electronics demand and sizzling construction activity here, the rosy picture for Singapore’s economy will persist into next year, Nanyang Technological University economists said yesterday.

Singapore’s gross domestic product is expected to grow 8.3 per cent this year and 7.5 per cent in 2008, the Econometric Modelling Unit (EMU) of the Economic Growth Centre at NTU said in its bi-annual forecast for the economy.

‘The expected growth in 2008 is due to external demand conditions, mainly the world economy is expected to remain healthy, China and India are expected to drive growth in Asia and the aggressive policies of the Federal Reserve with regard to the sub-prime mortgage market in the US would likely contain the credit squeeze in the US,’ said NTU Associate Professor Joseph Alba.

Based on leading indicators for the electronics cluster, the upturn in global electronics demand will likely gather pace in 2008, while construction activity amid buoyant property prices and spillover effects from the building of the two integrated resorts here will provide further stimulus, he added.

The forecasts were made barring additional risks in the Middle East that could cause oil prices to spike further, but assumed high oil prices of US$80 a barrel.

Assoc Prof Choy Keen Meng, who has been spearheading the macro-economic forecasts since 2001, said the impact of oil price spikes on economic growth is not discernable as there are offsetting factors.

‘Historically, the impact of oil price increases on the Singapore economy has been ambiguous,’ said Assoc Prof Choy.

For the fourth quarter of this year, EMU expects Singapore’s economy to grow 8.6 per cent after the government’s advance estimates showed the economy growing 9.4 per cent in Q3.

Giving a sectoral breakdown, Assoc Prof Alba said growth in manufacturing, hotels and restaurants, transport and storage and information and communications is expected to accelerate in 2008 from 2007. But sectors like construction and financial services could see slightly slower growth in 2008 given the high base of comparison in 2007.

EMU also projects that one-off impact of the two percentage-point hike in the Goods and Services Tax will likely blow over by 2008, with the Consumer Price Index (CPI) to be 2.6 per cent in Q4, 1.6 per cent for the whole year and 2.4 per cent in 2008.

This falls within the official CPI forecast by the Monetary Authority of Singapore of 1.5-2 per cent for 2007 and 2- 3 per cent for 2008.

The buoyant economic outlook is expected to put more pressure on inflation as labour costs increase, EMU said, but added that these wage pressures may moderate in 2008 as productivity growth accelerates or employment is allowed to grow through Singapore’s flexible foreign labour policy.

It estimates that job creation will reach a record of 200,000 this year, after an all-time high of 176,000 last year.

EMU’s projected job creation would take the unemployment rate to 2.3 per cent for 2007 and 2 per cent for 2008 – the lowest level in a decade.

 

Source: Business Times 18 Oct 07

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Sim Lian top bidder for Toa Payoh site

Its $38.23m bid for 99-year leasehold commercial site beats eight others

SIM Lian Development Pte Ltd yesterday put in the top bid of $38.23 million, or $847.54 per square foot per plot ratio (psf ppr), for a 99-year leasehold commercial site next to HDB Hub in Toa Payoh.

The company, which is not part of the listed Sim Lian Group, plans to develop a largely office project with groundfloor retail space, Sim Lian Development director Ken Kuik said when contacted by BT yesterday.

‘Our all-in investment could come in at about $55-57 million, with a breakeven cost of about $1,500 psf of net lettable area. We’re looking at a net yield of over 5 per cent when the project is completed in, say, two years’ time,’ Mr Kuik said.

‘That’s on the assumption that the average gross monthly office rent in the location could climb to about $8 psf by the time the project is completed. The retail space may fetch around $15 to $20 psf a month,’ he added.

The development, which could be around 10 to 15 storeys, will have about 37,000 square feet net lettable area.

Sim Lian Development plans to hold the development for long-term investment. The company is a private vehicle of the Kuik family that controls listed Sim Lian Group.

The tender for the 15,035-sq-ft site at Lorong 6 Toa Payoh attracted nine bids. Sim Lian pipped the second-highest offer of $37.34 million by Hersing Corporation by just 2.4 per cent. The other bidders were United Engineers Developments ($36.10 million), HSR International Realtors ($35.54 million), Evan Lim & Co unit EL Development ($23 million), Mr Sia Kong Wah ($20 million), Superbowl F&B Pte Ltd ($19.3 million), MV Land ($18.18 million) and Eng Wah Organisation unit Wah Pho with a bid of just $1.29 million, or $28.70 psf ppr.

Hersing Corporation, which narrowly missed out being the top bidder, had a scheme for an eight-storey complex for the site, not unlike Sim Lian’s, comprising ground-floor retail and offices above. ‘The offices might have been partly for our own use with the rest, along with the retail space, to be rented out,’ Hersing director Janice Chng said.

Hersing holds the master franchise for ERA for 18 countries in Asia-Pacific. The group’s other businesses include providing self-storage facilities in Singapore under the Storhub banner.

 

Source: Business Times 17 Oct 07

Investors’ short memory is worrying

Granted, the sub-prime crisis has passed. But the US economy has other major problems. So it’s advisable to be prudent

By WONG SUI JAU

WHAT a difference two months makes. In mid-August, the sub-prime loans scare had just rocked markets around the world, causing them to fall for two weeks. The air was heavy with gloom. But now, it seems as if the sub-prime problem never happened. Many markets are back to their pre-crash levels and, indeed, some – including the US market as represented by the S&P 500 index – have recently hit record highs. As the accompanying table shows, many Asian markets have done very well from the start of the year up to end-September. There is reason for much cheer among investors.

While I was one of those urging calm at the time the sub-prime issue blew up, I find the short memory of many investors worrying. Before the sub-prime issue flared in the US, there was hardly anything to worry about; Asian economies were growing strongly and the rest of the world was doing decently too.

But in the aftermath of the sub-prime crash, some things are now different. Investors need to pay close attention to these developments – not just focus on the happy reality of rising markets. The most significant thing is that the US economy has turned. As recently as the second quarter, US GDP was still accelerating in terms of growth, growing at an annualised rate of 3.8 per cent in Q2, compared with an annualised 0.6 per cent in Q1.

However, the sub-prime issue has exposed weaknesses in the US economy that are not going to go away, rising markets notwithstanding. First, the US property cycle is on a clear downward trend – and this is accelerating rather than slowing. The supply of homes has almost doubled since end-December 2005. A large number of unsold homes will put further downward pressure on prices. The sub-prime fright has also made investors much more cautious about entering an already falling market. After all, if home prices are dropping, there is no hurry to buy, because it is better to wait for prices to fall further. Thus, we may see an even steeper decline in US home prices going forward (see chart).

Second, the woes in the US property market will affect many American consumers. Americans have been consuming ever more each year, and accordingly, their debt levels have risen. The ratio of household debt to disposable income was at a high of 2.29 in March 2007, compared with 0.82 in December 1990. This means that for every dollar of income earned, the average US household has $2.30 of debt.

Previously, the rising housing market enabled Americans to take out reverse mortgages and get money from the houses they stayed in. But with prices now falling, this will dry up. Some households may even run into problems paying off their home loans. Certainly, this will affect household spending going forward. Any weakness in consumer spending – which underpins so much of what drives the US economy – will put a question mark over growth next year.

Continued volatility

Third, the US continues to do things like reduce interest rates and deflate the dollar. This may work in the short term. But over the long term, it does not solve the fundamental problem that the US economy faces – which is that it spends far more than what it generates in income, resulting in its huge twin deficits. For now, since it is the sole superpower and with the US dollar still the most important and most used currency in the world, cutting interest rates and allowing the dollar to weaken may work in the short term. But eventually the US will have to face up to its problems – and when it does, its economy is likely to be affected. A recession is quite possible.

So while the recent recovery in markets has brought much cheer and relief to investors. I would urge people not to get too greedy and overexpose themselves to risk. While we believe that, ultimately, Asian economies with their many drivers will continue to grow even amid a US recession, their growth will ultimately be affected to some extent. And certainly, markets will continue to be volatile.

As data is released in the coming months, we expect that some of it relating to the US economy will not be rosy.

Companies at the epicentre of the sub-prime loans issue have had to close down entire divisions, and many banks are expected to report large provisions for loans made, which will certainly affect their earnings. For example, just recently, Bank of America, JP Morgan Chase & Co and Wachovia Corp posted profit declines as they wrote down more than US$3.4 billion. They will not be the last to report earnings hits.

In the midst of record-breaking markets, investors may have forgotten just how bleak the situation seemed just a couple of months ago. But they must be conscious of the risks they are taking in their portfolios. Try to stay diversified and not overly exposed to any particular sector or area, no matter how attractive it seems. With many investors already sitting on profits this year, it would be advisable to be prudent at this stage. Don’t let short memories and greed lead to overly aggressive risk-taking.

 

Source: Business Times 17 Oct 07

Home sales hit a wall as stock jitters spook buyers

Fewer launches add to September slowdown but analysts expect pick-up amid new benchmark prices

(SINGAPORE) Developer sales of new homes slowed to a crawl in September, hit by stock market jitters caused by sub-prime woes in the US.

Just some 529 new units were sold by developers last month, a sharp drop from the 1,731 units sold in August.

Property analysts said that September’s take-up rate for new homes could be the lowest monthly figure seen over the past four years.

The low sales were also caused, in part, by fewer launches.

Developers launched just 570 units in September, down from 1,885 units in August as many held back projects while waiting for the market to recover.

However, despite the low volume, new benchmark prices for private homes were set in several areas across Singapore – including Sentosa Cove, Boon Lay and science hub one-north – market observers pointed out. This means that genuine demand for homes still exists, they said.

The Urban Redevelopment Authority (URA) released its monthly update on private residential properties yesterday, showing that developer sales of new projects fell sharply last month.

‘The primary sales market was relatively quiet in the month of September,’ said Tay Huey Ying, Colliers International’s director for research and consultancy.

Like other analysts, Ms Tay attributed the low volumes to the global financial market turmoil as well as the traditionally quiet lunar seventh month.

Developers were also holding back projects, both due to market sentiment and because preparations for their launches could not be finished in time, others said.

‘A few developers’ projects have been held back because of contractors being delayed when it comes to getting the showflats ready,’ said Savills Singapore director of marketing and business development Ku Swee Yong.

The largest project launched during the month was the 163-unit Hillcrest Villa, a cluster housing project.

The poor market sentiment also affected sales at Frasers Centrepoint’s Soleil @ Sinaran as more than 10 per cent of buyers did not exercise their options to purchase their chosen units.

URA’s figures for August showed that 394 out of a total of 417 units launched in the development had been sold, but the number sold fell to 352 in September’s data. Frasers Centrepoint confirmed that 42 options were not exercised before their deadlines, but added that 12 of the units involved have since been resold. The total number of units sold in the project climbed to 395 as the market picked up in October, the developer said.

Analysts also noted that two other trends seen in July and August – the decline of speculative activity and the increased demand for mass market homes – continued into September.

‘Subsales of residential properties accounted for only a small 6.8 per cent of all transactions in the month of September compared to 9.4 per cent in August and 15.1 per cent in July,’ said Ms Tay. Subsale transactions are generally thought to be an indication of the level of speculative activity in the property market.

And in line with a recovering mass market, new units priced in the range of $751-$1,000 per square foot (psf) remained the most sought-after in the third quarter, accounting for 36 per cent of all units sold, Colliers analysis shows.

This was followed by units in the next price range of $1,001-$1,500 psf, which made up 26 per cent of all units sold. By contrast, luxury homes priced above $3,000 psf accounted for only 8 per cent of all new units sold in the quarter.

Analysts expect the property market to recover in the last quarter due to genuine buyer demand.

‘Going forward, we expect the sales momentum in the residential market to continue at a healthy pace against a backdrop of a strong economy,’ said Li Hiaw Ho, executive director at CBRE Research.

 

Source: Business Times 16 Oct 07

S’pore seeking property investments from Mid-East

SINGAPORE is wooing investments from the Middle East, as companies and individuals from the oil-rich region expand their presence in the Republic.

Government bodies such as the Urban Redevelopment Authority (URA), Singapore Tourism Board and the Building and Construction Authority have joined a host of other groups to showcase what Singapore has to offer at Cityscape Dubai, a major international real estate event starting today.

It will be the first time a Singapore pavilion has been set up at a top international property event in the Middle East.

The URA will speak about Singapore’s strong economic growth in various sectors, including real estate, real estate investment trusts and other investment opportunities.

There are more than 250 Middle East companies operating in Singapore, as well as an increasing number of individuals and equity funds from the region investing in mega development projects in the Republic.

Foreign direct investment from the Middle East grew from $5.8 billion in 2004 to $6.6 billion in 2005, the most recent year for data, according to the Statistics Department.

Based on caveats lodged, individual Middle East investors bought 34 homes worth $76 million in Singapore from 2004 to Sept 28. About 47 per cent of these deals were closed this year.

Meanwhile, Al-Nibras Islamic Real Estate Fund bought 56 homes in the Reflections at Keppel Bay project earlier this year.

The URA attended the Dubai event last year and pitched investment opportunities to investors, including the Istithmar Group. This is owned by Dubai World consortium, whose assets include the famed Palm in Dubai.

Istithmar has now teamed up with Singapore developer City Developments and the North American-based El-Ad Group to develop an office, hotel, retail and residential project worth an estimated $2.7 billion in Beach Road.

The URA said several Middle East investors had also indicated interest in sale sites that the agency has launched.

At the Dubai event, the URA will showcase Marina Bay, Singapore’s future downtown, which has attracted about $15 billion worth of international investment so far.

Other Singapore groups involved in the Singapore pavilion include the Ong & Ong architecture firm and the Singapore Institute of Architects, while upcoming developments Somerset Central and the Marina Bay Financial Centre will also be showcased.

 

Source: The Straits Times 16 Oct 07

Record prices for some properties despite sliding sales – Sentiment steady last month despite fears over impact of US credit crisis

PROPERTY sales slumped last month, as buyers stayed on the sidelines but there was a silver lining with prices at some projects hitting record levels.

The cause of the sales dip was clear – concerns in the United States over its subprime mortgage industry triggered meltdowns in share markets across the globe.

Many spooked buyers put purchases on hold but the fact that prices of the deals that were done stayed buoyant reflects the firm undertone for private residential properties.

Urban Redevelopment Authority (URA) data showed that the number of new homes sold last month fell nearly 70 per cent to just 529 units, from 1,731 in August. July sales amounted to 1,378.

Developers typically sell about 7,500 new homes a year, though the recent boom has lifted figures. The URA data is based on sale options given by developers to buyers.

With more sales in the lower price ranges, median transacted prices, or the mid-point in prices, fell 27.7 per cent, from $1,328 per sq ft (psf) in August to $960 psf last month.

And with the lunar seventh month barely over, there were only a few new launches. One of them was Hillcrest Villa, a cluster of 99-year leasehold terrace homes near Dunearn Road.

Yet MCL Land still sold 162 out of the 163 units with a median price at $865 psf – said to be fairly high for a landed project in the area.

‘The high sales volume in August has caused a bit of indigestion in the market,’ said Knight Frank director (research and consultancy) Nicholas Mak.

‘September’s figures can thus be viewed as a healthy breather before the market resumes its momentum.’

Mr Mak said monthly sales would gradually improve to 800 to 1,000 units.

Sub-sales of residential property accounted for 6.8 per cent of all transactions last month, compared with 9.4 per cent in August, according to Colliers International.

Prices in some projects managed to hit records.

In the high-end segment, Ho Bee sold 36 units of its latest Sentosa Cove project Turquoise. The 91-unit project’s median price hit $2,587 psf while the highest was $2,772 psf, a record for the Cove.

In Scotts Road, Wheelock Properties sold 27 units of Scotts Square, of which 12 were above $4,000 psf.

A high for the month of $4,359 psf was recorded, with the median price at $3,985. It was the only project to sell above $4,000 psf last month.

There were also a few record highs for suburban projects. Two units at the 318-unit Gardenvista in Dunearn Road were sold at $1,223 psf and a record high of $1,449.

Sales at The Lakeshore in Boon Lay Way ranged from $695 psf to a record $1,080.

‘These buyers could be buying for their own use because the properties have just obtained their temporary occupation permit,’ said Savills Singapore director of marketing and business development Ku Swee Yong.

New projects such as The Beacon Edge in Tembeling Road also did relatively well. Six of the 32 units sold at a median price of $1,306 psf, with a high of $1,327.

Achieving record highs in a slow month could mean there are serious buyers out there, said Mr Ku. ‘Right now, there is strong demand in the mid-tier and mass markets.’

These are homes costing $800 psf to $1,600 psf, he said.

Mr Ku said the market was doing better this month but sub-prime hangovers may keep activity slightly muted.

 

Source: The Straits Times 16 Oct 07

Why Singapore is what it is

Minister Mentor Lee Kuan Yew was the keynote speaker at the opening of the International Bar Association’s annual conference last night. This is his address.

TO UNDERSTAND Singapore, you have to know how we were suddenly thrown out of the Federation of Malaysia in 1965 and became an independent state. Peninsular Malaya had been Singapore’s hinterland ever since the British founded Singapore in 1819.

We faced a bleak future. We had no natural resources. A small island-nation in the middle of newly independent and nationalistic countries of Indonesia and Malaysia, each determined to cut Singapore off as the middleman. To survive, we had to create a Singapore different from our neighbours – clean, more efficient, more secure, with quality infrastructure and good living conditions.

We sought to provide an environment that our neighbours did not provide – First World standards of reliability and predictability. Important for investors and economic growth is the rule of law, implemented through an independent judiciary, an honest and efficient police force and effective law enforcement agencies. Had we not differentiated Singapore in this way, it would have languished and perished as a shrinking trading centre instead of becoming the thriving business hub it is today.

I studied law in the Cambridge Law School and am a barrister of Middle Temple, an English Inn of Court. I practised law for a decade before I first took office in 1959 as prime minister of self-governing Singapore.

Therefore I knew the rule of law would give Singapore an advantage in the centre of South-east Asia where the law was often what was decided by the leader, whether a president or prime minister, often an ex-military man.

Singapore inherited a sound legal system from the British. Clear laws, easy access to justice and an efficient legal system provide the basis for citizens to compete equally in the market and to grow the economy.

A stable and predictable legal environment facilitates the enforcement of contractual rights and protection of property rights. The common law heritage and its developed contract law are known to and have helped attract investors. Our laws relating to financial services are similar to those of leading financial centres in other common law jurisdictions such as London and New York. As these are the two leading financial centres in the world, their laws govern most financial transactions worldwide. They are used freely in Singapore.

Since 1959 we have adopted English as our working language.

While we have kept key English legal principles; after the United Kingdom joined the European Union, it adopted EU laws and doctrines. We have not followed them. Instead we have amended our laws to fit our needs and circumstances.

The independence of our courts is protected by the Constitution that prevents removal of judges from office by the executive. We established our final Court of Appeal in place of the Privy Council as our courts would be more familiar with our own legislation and local conditions and culture.

We still look to English precedents and examples, but increasingly we look also to those of United States, Australia, New Zealand and other Commonwealth countries. Even civil law countries have given us useful concepts and ideas, especially those adopted and incorporated as part of UNCITRAL trade laws.

Needs-based legislation

WE have special legislation to meet our needs: A multi-racial and multi-religious society is prone to conflicts.

Race, language and religion in Singapore have to be handled sensitively, especially during elections. We have enacted the Religious Harmony Act and set up the Presidential Council for Minority Rights. We created Group Representation Constituencies to ensure minority representation in Parliament.

For good industrial relations, we enacted the Employment Act and Industrial Relations Act to provide the framework for our tripartite system of industrial ties, a system for collective bargaining, and an Industrial Arbitration Court to resolve industrial disputes.

For law and order, we have strong deterrent sentences for offences such as drug trafficking, kidnapping, unlawful possession of firearms.

The Immigration Act provides for caning sentences to deter illegal immigrants and overstayers.

For national security, the Internal Security Act allows for preventive detention, an effective response to terrorists.

By the 1980s, the system of courts we inherited from the British could not cope with the increasing volume of work. It needed to be modernised and to make use of IT. This also needed a chief justice who is not only legally qualified, but also has managerial and administrative experience to reform the system.

It was Chief Justice Yong Pung How (1990-2006) who had practised law for over two decades before he became a merchant banker and finally chairman of Singapore’s largest bank. He restructured the system, instituted new procedures, used IT in the courts, increased the number of judges and courts and selected the most able and balanced of those at the Bar to become judges.

The World Bank, in a report this year entitled Judiciary-led Reforms In Singapore – Framework Strategies And Lessons, stated: ‘Over the past 15 years, Singapore’s judicial system has been transformed from one that many viewed as characterised by inefficiencies, delays, and inadequate administrative capacity to one widely seen as among the most efficient and effective in the world.’

Attorney-General Chan Sek Keong, who has since become Chief Justice, will maintain these standards.

Good governance, a sound legal framework and judiciary have resulted in stability and economic growth.

Transparency and integrity

OUR emphasis is on meritocracy, the building blocks of sound governance and integrity in our judiciary and legal system. The integrity of our financial systems withstood the turbulence of the 1997 Asian financial crisis that caused several of our neighbours’ banking systems to collapse. Singapore’s firm regulatory framework has facilitated economic progress.

Corruption, endemic in parts of the world, was seeping into Singapore in the 1950s when elections had introduced elected ministers in the transition to internal self- government. In 1959 when we took office in the first fully elected government, we moved swiftly to rid ourselves of corruption before it could become endemic.

Transparency International, a civil society organisation against corruption based in Berlin, has repeatedly listed Singapore among the top five of 163 countries. And the only one from Asia in the first five.

Our system does not tolerate corruption and we have avoided the problems of widespread corruption that have plagued Asia. Our Corrupt Practices Investigation Bureau (CPIB) annually tabulates the cases brought against officers and executives from the public and private sectors. In two cases, it led to the conviction and prison sentence of a junior minister. Another, a Cabinet minister, committed suicide after being investigated for corruption.

Three factors enabled Singapore to escape the poverty that plagued the region: First, clean and efficient government; second, the character and capabilities of the leadership in charge; third, an industrious people, eager and quick to learn to be productive and gainfully employed.

Defamation

POLITICAL leaders in Singapore take action against opponents who make statements against them that impute dishonesty and lack of integrity. Situated in a region where ‘money politics’ is part of the political culture and an accepted way of life, any allegation of corruption in Singapore must be taken seriously.

It leads to an investigation by the CPIB, and/or an action for defamation against the person making the allegation to clear any doubts on the integrity of the government.

As a result, people in Singapore do not equate their political leaders with second-hand car salesmen.

Economic competitiveness

INTERNATIONAL surveys of economic competitiveness of countries always include the legal framework and the administration of justice as key criteria in ranking such countries.

The Political and Risk Consultancy, World Economic Forum and other polls show that both foreigners and Singaporeans believe we have good judicial and legal systems, and fair administration of justice.

The Institute For Management Development World Competitiveness Yearbook has consistently ranked Singapore in the top two positions since 1997 under the Legal Framework component. (This category examines if the legal and regulatory framework encourages the competitiveness of enterprises.)

The World Bank released its study Doing Business Report 2007 in September last year. Singapore fared better in 2006, compared to the previous year, and has replaced New Zealand at the top spot.

Despite these endorsements, we cannot be complacent. We have to respond to new challenges that technology and globalisation have brought upon us.

With technology increasingly sophisticated in a world that is increasingly borderless, crime has become multifaceted, and multi-jurisdictional. Our legislative mechanisms have responded to meet these challenges. Many legal issues today require an international cooperation for solutions.

Law firms are also taking advantage of new global business opportunities and technologies. US and British law firms are able to venture aggressively into new markets, following their clients’ multi-jurisdictional businesses.

Businesses span many countries and lawyers must meet the needs of their multinational clientele.

We need to maintain Singapore’s position as a city par excellence, with an environment that is clean, safe and vibrant to work in and live in. We try to retain our best, and we attract the best to come, settle and raise their families here.

 

Source: The Straits Times 15 Oct 07

NEWS ANALYSIS – Asset inflation may not always be a bad thing

Property owners, for instance, could gain as asset prices climb

AS RECENTLY as four years ago, it was the fear of falling consumer prices and its corrosive effect on the stock market and residential properties which gave investors sleepless nights.

Now, economists are worrying about the very opposite phenomenon – rising levels of inflation and their impact on the global economy.

Inflation, like its cousin deflation, is usually seen as an economic bogeyman with the potential to wreak economic havoc if it runs out of control.

But there are circumstances under which investors – property buyers for instance – can win from rising consumer prices.

First, think back to 2003, when Sars stalked much of East Asia and the deflation beast was on the loose.

Buying sentiment was so poor that even though residential property prices plummeted, there were few takers.

Downward spiral

AND nearly every condo owner had a grim tale or two to tell of the blight on their posh estates – when, say, an unfortunate neighbour’s flat was repossessed by the bank and put up for mortgagee sale, after he had defaulted on his mortgage.

Such scenarios often turn into a downward spiral. The more buyers postpone purchases, the more sellers are forced to cut prices.

Deflation becomes the enemy of the borrower saddled with huge debts.

Even though he might have borrowed at a 1 per cent interest rate from the bank, if the price of his property falls by 5 per cent, he is actually paying 6 per cent rates in real terms.

Worse, he may suffer negative equity, as the value of his home slips below the amount owed on the mortgage.

In practice, this type of nasty economic downward spiral works like a massive dampener on the stock market too. From 2000 to 2002, the benchmark Straits Times Index ended lower each year for three consecutive years.

Fast forward to now, and the scenario could hardly be more different. Property prices are soaring and there is an air of growing prosperity.

The main gripe now is about how expensive condos are and how much extra cash is needed to fill up the car’s petrol tank, as inflation climbs.

Those old enough to have lived through the tumultuous 1970s, when inflation was in double digits, warn that too much inflation is a bad thing.

Then, like right now, inflation was unleashed by a lethal cocktail of rocketing oil prices and low interest rate policies by successive United States Federal Reserve chairmen, which caused prices of goods to surge, even as the global economy wallowed in recession.

But those looking back at the 1970s also observed that the era provided ample opportunities for great fortunes to be created.

Overall, the stock market performance back then was decidedly unimpressive.

After hitting record highs in 1972, blue chips such as OCBC Bank and United Overseas Bank sank to a fraction of their values, as a gigantic stock market bubble burst with the onset of rampant inflation, after oil prices quadrupled.

But in Singapore and Hong Kong, this also created an environment where interest rates on loans became effectively negative, as inflation galloped ahead of mortgage rates.

In other words, paying off a loan with 5 per cent interest was a breeze if, for instance, prices – and presumably wages – were rising at 7 or 8 per cent year.

Those who took out big loans to finance real estate purchases in Singapore and Hong Kong, where prime land was in scarce supply, were amply rewarded for taking the risks.

Inflation eroded the costs of their borrowings, while providing the perfect backdrop for soaring property prices.

This spawned a new generation of billionaires such as Hong Kong’s Li Ka Shing and the Hong Leong group’s late patriarch Kwek Hong Png, as they rode the property bubble caused by worldwide stagflation – inflation coupled with stagnant economies – to create massive business empires.

It is too early to say whether the world is on the verge of entering a scenario like that seen in the 1970s, which wrought havoc in global economies but also richly rewarded the few who were fortuitous enough to recognise how they might profit from it.

But one thing is certain. Inflation is here to stay, as long as oil prices continue to stay at their current sky-high levels of above US$80 a barrel.

Negative interest

AND with the Fed bowing to domestic pressure by cutting interest rates to combat a souring mortgage crisis back home, prices of prime assets such as Singapore real estate may go on a roll, as funds flee from the falling returns offered by a weakening dollar.

So just like in the 1970s, home owners may get to enjoy effective negative interest rates once again, as theirhome prices appreciate well above the servicing costs on their mortgages.

For a young couple just starting out in life, the best bet is to get married early and apply for a new HDB flat.

Although they will have to slog to pay back the enormous home loan they take out, it will be the best insurance they can take out to protect their Central Provident Fund life savings from being eroded over the years by inflation.

The odds are good that, like their parents before them, they will stand to reap huge capital gains, as property prices swing up.

Inflation can pose some serious economic headaches if it begins to run out of control, as it can create major uncertainty throughout an economy. People on fixed salaries suffer badly too.

But for some investors at least, inflation can represent a happy problem to live with, at least for now.

As one economist observes, the opposite of inflation – deflation – is like quicksand, easy to get stuck in, but difficult to escape.

Inflation may have its problems but, for some, it can be turned into fabulous investment opportunities.

 

Source: The Straits Times 15 Oct 07

Average capital value of luxury apartments tops ‘97 peak by 59%

THE average capital value of luxury apartments in Singapore has risen 43.5 per cent in the first nine months of this year since the fourth quarter of 2006. At $2,827 psf, the Q3 2007 average luxury apartment cap value has surpassed 1997’s peak level by 59 per cent, according to a report by Colliers International issued yesterday.

In the leasing market, average monthly gross rents of luxury apartments were up 27.9 per cent in the first nine months of the year. The increase was at a faster clip in the third quarter of this year, with a quarter-on quarter gain of 10.2 per cent to $6.86 per square foot a month. This was higher than earlier rises of 7.9 per cent and 7.6 per cent in Q2 and Q1.

‘The supply crunch, coupled with strong demand, continued to contribute to escalating rental growth, a growing concern among the expatriate population in the Republic and the government,’ Colliers noted.

The average cap value of luxury apartments rose 13.3 per cent in Q3 over the preceding quarter to $2,827 psf.

The property consultancy firm predicts that average capital values and monthly gross rents of luxury apartments will rise by up to 10 per cent in the final quarter of the year. But it acknowledged the downside risks in the coming months, including the negative spillover from the US housing market and potential negative oil supply shocks.

‘Nevertheless, the strong economic and demand fundamentals in the Singapore market, coupled with the continuing commitment of the government to maintain Singapore’s attractiveness as a stable market for investments, should lend support to the private residential property market amid cautious sentiments,’ the report added.

Colliers also highlighted the government’s assurance that it would continue to monitor the market and ensure that prices do not run ahead because of a shortage of supply.

Earlier this month, the Urban Redevelopment Authority said that it was reviewing the Government Land Sales programme for the first half of next year and that the government would make available more sites for private residential development through the GLS programme next year if the demand continues to remain strong.

 

Source: Business Times 13 Oct 07

Tanglin Village proves hot property for businesses

Offers flood in for two recently released plots, with top rental offer at five times the guide rent

TANGLIN Village, the latest lifestyle hot spot in town, is drawing massive crowds to its range of newly opened shops and restaurants.

And where consumers and foodies flock, so do business people. They have descended on the prime Dempsey Road enclave in a bid to clinch the remaining pieces of land.

Tanglin Village’s short-term leases – usually for three years, as the land is slated for residential use after 2015 – have not deterred tenants, said the Singapore Land Authority (SLA). It said businesses are confident of reaping most of their investments in the first three years.

Offers have poured in for two Tanglin Village plots released recently, said the SLA, which is managing the development.

A former chapel site at 39C Harding Road drew a record 23 bids when its tender closed last month. The top rental offer was $56,000 a month – five times the guide rent, SLA said.

It was put in by Ponte & Partners, the Singapore-based firm that brought in German brewery Paulaner Brauhaus at Millenia Walk.

The Harding Road property, which has a gross floor area of 4,456 sq ft, is safeguarded for conservation. It sits on a 43,172 sq ft plot.

Most of the other bidders for the site were also from the food and beverage industry, including Da Paolo Ristorante Italiano, Palm Beach Seafood and Select Catering Services.

A second site, at 45 Minden Road, was similarly popular with 15 bidders lodging offers. The highest was $51,000 a month, or more than double the $22,000 guide rent.

It came from the Siam Silk Company, a unit of Thailand’s Thai Silk Company, which was founded by the renowned Jim Thompson.

If it is awarded the 30,631 sq ft property – which has 10,156 sq ft of gross floor area – the firm plans to open a Jim Thompson Thai restaurant and wine bar, said Mr Steve Benhar, corporate counsel for the Thai Silk Company. The eatery will feature private indoor dining and a garden bar.

The strong response to the two sites is testament to how hot Tanglin Village has become in recent months.

A year ago, a building with 13,000 sq ft of gross floor area drew only 11 rental bids – the highest just $23,000 a month. Oosh, an alfresco bar and restaurant, is now operating at the site.

Earlier this year, some 27 sub-tenant businesses faced the prospect of being evicted when their master tenant, Tanglin Warehouse, fell behind in its rental payments to the SLA.

This was averted after Tanglin Warehouse settled the arrears in full.

And things have picked up quickly since then. In the last six months, 25 firms have set up shop in the area, according to the SLA.

Their offerings run a wide gamut, from restaurants and shops to education and entertainment centres. Some tenants even use the space for offices.

The burst of activity has brought occupancy at Tanglin Village to more than 70 per cent, said the SLA’s chief executive, Brigadier-General (NS) Lam Joon Khoi.

‘Tanglin Village tenders so far have attracted a number of entrepreneurs to build their dream businesses,’ he told The Straits Times.

To better serve these tenants and their customers, the SLA intends to review ‘basic infrastructural improvements’, such as road paving, lighting and utilities, BG Lam added.

More tenants, including an international school, are also expected to make their homes in the area soon.

It is also understood that a brewery will open, as well as an Italian restaurant and an outlet for the Long Beach Seafood restaurant chain.

Tanglin Village’s success has spurred the SLA to examine uses for other enclaves such as Keat Hong camp in Choa Chu Kang – a former Singapore Armed Forces camp – and Phoenix Park in Tanglin Road, the former headquarters of the Home Affairs Ministry.

Tanglin Village

Source: The Straits Times 13 Oct 07

$5,600 psf for penthouse new high in property price here

53rd-storey Orchard Residences unit fetches over $28m

A NEW record property price for Singapore has been set, even though fewer sales are being made in high-end residential projects since the time of the US sub-prime mortgage crisis.

CapitaLand and Sun Hung Kai Properties are said to have sold earlier this week a penthouse on the 53rd storey of The Orchard Residences for about $5,600 per square foot (psf), or over $28 million. This surpasses the previous benchmark of $5,500 psf set in August when a 54th storey penthouse fetched about $27.8 million.

This means that all four penthouses in the 99-year leasehold development are now sold.

The developers are said to have sold about 73 per cent of the total 175 units in the condo. The buyer of the final penthouse sold this week is believed to be a foreigner. The 5,048 sq ft unit has five bedrooms, a study and a family room.

A stone’s throw away, Wheelock Properties (Singapore) is said to have sold more than 30 apartments at its freehold Scotts Square since the official launch of the project on Sept 28.

The developer is said to have largely maintained its average price at around the $4,000 psf mark from its preview in July, when it sold about half of the project’s 338 apartments.

Over in Sentosa Cove, Ho Bee has sold 38 of the 50 units it has released so far in its 91-unit condo, Turquoise, since late September. The units have been sold at prices ranging from nearly $2,500 psf to $2,770 psf.

The average price is about $2,600 psf, Ho Bee Investment executive director Ong Chong Hua said when contacted by BT yesterday. Buyers of the 38 units – which include four penthouses – were an equal mix of foreigners and Singaporeans, he said.

Apartments at the 99-year leasehold Turquoise typically cost around $5.3 million for a three-bedroom unit, $6.4 million for a four-bedder and around $9.3 million for a penthouse.

DTZ Debenham Tie Leung executive director (residential) Margaret Thean acknowledges that buyers, both local and foreign, have been more cautious after the stock market setback at the time of the US sub-prime mortgage crisis.

‘But we still see activity going on. For the high-end projects, we’ve not noticed any withdrawal of liquidity. The only difference is that prospective buyers are more cautious, doing more calculations and being more selective in their choice of investment before making a commitment,’ she said.

Market watchers also say that the recovery in the stock market in recent weeks has led to a return of confidence in the property market, as seen in a pick-up in subsales activity lately.

Over in the Seletar Hills area, Tong Eng Brothers unit Fairview Developments is launching two landed developments. One is the freehold 8 @ Stratton, comprising eight cluster semi-detached houses priced at $1.98 million to $2.2 million.

The houses have built-up areas ranging from 3,595 sq ft to 3,649 sq ft and strata areas of 4,930 sq ft to 5,145 sq ft.

The second project is Nim Green, a collection of just three terrace houses – a corner unit with an asking price of $2.5 million and two intermediate units with a price tag of about $2 million.

 

Source: Business Times 12 Oct 07

Investment property sales jump 94% to $15.7b

INVESTMENT property sales nearly doubled, touching $15.69 billion, in the third quarter, reflecting buoyant investor sentiment.

This was 93.9 per cent higher than the $8.09 billion recorded in the same period last year, a new report by property consultancy CB Richard Ellis (CBRE) showed yesterday.

Most investment sales – 64.3 per cent, or $10.1 billion – came from the private sector, while public sector land sales made up 35.7 per cent, or $5.6 billion.

For the first nine months, major property deals worth $40.95 billion already exceed last year’s full-year value by 34 per cent, said CBRE.

In the third quarter, the office sector was the top performer, accounting for 43.5 per cent, or $6.83 billion, of major property deals – more than quadruple the $1.37 billion in the previous quarter.

Prime office rents also topped the 1990 historical peak of $11.50 per sq ft (psf) per month to hit $12.60 psf per month, up 82.6 per cent year-on-year.

CBRE expects occupancy levels to stay in the range of 91 per cent to 95 per cent for the next five years, even as more office space is built.

The third quarter also saw a rise in industrial property rents, except for warehouses.

The office space crunch has led to more demand for high-tech space, which has risen 8.5 per cent to $2.55 psf, and is set to reach $2.75 psf by year- end, said CBRE.

Its rental statistics are based on a selected basket of prime office buildings.

The Urban Redevelopment Authority said yesterday that its third-quarter statistics will be released by monthend, and will be more comprehensive as it is based on the tax records of all rental transactions in the quarter.

CBRE has also forecast that a record $50 billion in investment property sales would be completed by year-end.

 

Source: The Straits Times 12 Oct 07

Sing Holdings sells EastGate units for $63m

A DECISION to focus on the booming residential property market has seen Sing Holdings sell off 48 commercial units in its EastGate building for $63 million.

The 10-storey EastGate, developed by Sing Holdings, received temporary occupation permit (TOP) status in 1998 and is located along East Coast Road and near Marine Parade Central.

Of its 52 units, four were sold before TOP. Sing Holdings said yesterday that it had decided to sell off its remaining units to focus on residential property.

Managing director Lee Sze Hao said in a statement: ‘The divestment of EastGate is in tandem with the company’s current business model of focusing on residential property development.

‘With the appreciation in values of commercial space, we believe that it is now an opportune time to unlock the value of EastGate.’

The units are being sold to Develica Asia Pacific, a wholly owned unit of Develica Asia Pacific Management, which invests in regional commercial real estate.

Develica chief executive officer Chris Brown said: ‘This is an excellent acquisition as it allows us to tap into the decentralisation of office operations out of the central business district due to the rise in rentals there.’

The sale price works out to about $1,059 per sq ft based on a net saleable area of 59,491 sq ft.

Sing Holdings will reap a net gain of some $15.9 million from the sale, which is expected to completed on Dec 13.

It intends to use the proceeds to pursue opportunities to expand its land bank for residential property development projects. The sale was brokered by Savills Singapore.

 

Source: The Straits Times 12 Oct 07

HDB prices likely to go up as unsold flats dwindle

1,600 apply online for 489 flats offered in balloting/walk-in sale yesterday

THE number of unsold Housing and Development Board (HDB) flats is getting smaller, with prices expected to go up.

HDB put up 489 flats in the North and West zones for sale yesterday through its Bi-monthly Combined Balloting/Walk-in sale exercise, and at the end of the day, over 1,600 online applications had been received.

The number of flats offered, however, is significantly smaller than in previous sale exercises.

In April, 1,269 flats were offered in the North and West zones, with 1,172 sold, reflecting a take-up rate of 92 per cent.

In June, 992 flats in the North-east zone were offered and 892 were sold – a take-up rate of 97 per cent.

A spokesman for HDB said: ‘HDB has managed to clear a significant part of its stock of unsold flats; fewer unsold flats are now avail- able for sale under HDB’s Bi-monthly Combined Balloting/Walk-in sale exercises.’

HDB said that it would continue to inject the balance stock from the Built-to-Order (BTO) and Balloting Exercises, and make them available for sale under the bi-monthly sale exercises.

‘However, the total flat supply offered under these exercises is not expected to number into the thousands as it did in the past, given the gradual reduction of the stock of unsold flats,’ said HDB.

HDB would not say if prices have been increased but added: ‘In pricing HDB flats, one major consideration is the affordability of flats. In addition,

HDB also takes into consideration factors such as changes in their market value, arising from factors such as buyer demand and prevailing conditions in the resale markets and, individual attributes of the flats.’

HDB also suggested that buyers look to the resale market, ‘if they are unable to find a new flat that suits their needs and preferences’.

The backlog of unsold flats was estimated at 9,000 in 2006.

Propnex CEO Mohamed Ismail believes that this has dwindled to less than 2,000 units.

Interestingly, Mr Mohamed believes that the previous glut of unsold flats came about because the value of resale flats had dropped to below valuation in the last slump.

Resale prices have, however, been rising, with the latest resale price index registering an increase of 6.5 per cent in Q3 ‘07, quarter-on-quarter.

And ERA Singapore assistant vice-president Eugene Lim believes that the ‘push down’ effect from the private market could price some buyers out.

These price-sensitive buyers will have to wait for the supply of about 4,500 new HDB flats offered under the BTO system, or the 1,500 units through the Design Build Sell Scheme, over the next six months.

Still, Mr Lim does not believe that there is a supply crunch at the lower end of the property market. ‘People are

looking for value though,’ he added.

Rising rents are now a business challenge

Demand and supply mismatch has caused office rentals in the CBD to skyrocket

OFFICE rentals in the Central Business District (CBD) have been climbing relentlessly as a result of the demand and supply mismatch. Conversion of buildings for residential use and the redevelopment of ageing office blocks such as Ocean Building and Overseas Union House further exacerbate the office supply crunch.

The high demand for office space, which is propelled by financial institutions and business services, continues to drastically outpace new supply. During the first half of this year, supply of office space decreased by about 290,000 sq ft due to the conversion of office space for other use. As a result, the market could not keep up with the 1.29 million sq ft of new demand.

The islandwide occupancy rate for office space rose to a 10-year high of 92 per cent, while Grade A office space in the CBD stood at an almost full occupancy rate of 99 per cent.

In a bid to ease the current office supply crunch, the government has came up with ’stop-gap supply-side’ measures such as disallowing the conversion of office space for other uses until the end of 2009, releasing more land for office development under the Government Land Sales programme, as well as offering vacant government buildings for lease as offices.

As most of the major office developments such as Marina Bay Financial Centre (MBFC) will only be ready from 2009 onward, the demand-supply imbalance will continue for the time being. Rental hikes for better quality office space are expected.

Those that are feeling the heat are the smaller and medium-sized companies – both local and multinational corporations (MNCs). They have been leasing prime office space in the CBD area and are caught out by the spike in rentals. To them, coping with rising rentals represents a genuine business challenge.

Despite escalating rentals, foreign investment banks continue to snap up large office floor plates for expansion or relocation of their global operations hub. These financial institutions are eager to set up new offices in Singapore to meet the demands of Asia’s unprecedented growth in wealth management. One example is Standard Chartered Bank, which signed one of Singapore’s largest office-leasing deals in April. It leased about half a million sq ft of office space, equivalent to 24 floors at MBFC that is slated for completion in 2010.

Major office projects under development and expected to be up in the market in 2007 and 2008 include VisionCrest, Wilkie Edge, 200 Newton and Merrill Lynch Harbourfront, which is already fully leased.

Amid the current office property boom, one can still find cost-effective commercial rental options.

The Singapore Land Authority (SLA) has been releasing vacant state properties and putting them up for lease as offices. A few successful bidders have refurbished the existing sites for renting out to corporate office users. The current rental for these space ranges between $4.00 and $8.50 per sq ft (psf).

Closer to the CBD, 150 Cantonment Road and 341 River Valley Road are expected to be ready for occupation in the final quarter of this year. 150 Cantonment Road has a smaller floor plate of about 6,800 sq ft per floor, while 341 River Valley can cater to tenants which need floor plates of about 50,000 sq ft.

Another spot of interest is the former ITE Pasir Panjang site at 991 Alexandra Road. This site, largest of all the properties released by SLA, can be converted into eight modern low-rise office blocks ranging from one to four storeys and offices ranging from 5,000 sq ft to 41,000 sq ft. Capitalising on the size, the successful bidder, Richzone, plans to create a self-sufficient office environment, complete with cafe and gym, decorated with a lush landscape that is different from a typical city office. This property will be ready for occupation in the first quarter of 2008.

On the other hand, some companies have decided to renew their contracts at higher rents. To cope with expansion, they have to rearrange their office space by reducing the size of workstations and/or decreasing filing space.

Others opt for relocation, even though it is a less preferred choice, in which a number of them split their operations - the main office remains in the CBD while operation personnel are relocated to the fringe areas or regional centres.

Wrapping up, rising office rental is a by-product of a buoyant economy. Operating costs are certainly higher as a consequence but so are more opportunities to generate revenue. At the end of the day, the effects of the existing office supply crunch are only short-term and they will ease as developments begin to come on stream. In the meantime, companies can help themselves by exploring all possibilities, and the good news is that cost-effective rental options are not lacking.

 

Source: Business Times 11 Oct 07

Retail rents rise in Q3 but retail sales at a high

Some shops expand even as rents rise, others more sensitive to psf sales

(SINGAPORE) Rents for shops on Orchard Road may have increased by another 12 per cent in the third quarter to $44.30 per square foot (psf) per month, but retailers are unfazed, especially as the latest figures show that the second quarter of this year saw the strongest sales for 10 years.

According to a report by property consultancy Knight Frank, retail sales value (excluding motor vehicle sales) in the second quarter hit a 10-year high of $8.15 billion.

The figure for the quarter was also an improvement on the previous interim high of $7.8 billion seen in the final quarter of last year.

Not surprisingly then, rising rents in the Orchard Road vicinity as well as the Marina area, where rents increased by 3.7 per cent quarter-on-quarter (q-o-q) to an average $28.90 psf per month, are not upsetting retailers too much.

Knight Frank director (research and consultancy) Nicholas Mak says: ‘With the planned revitalisation of the Orchard area, retailers are optimistic that their retail sales figures are able to offset the increase in rentals.’

Knight Frank also expects full year figures to hit a record high, pointing out that at end-July 2007, total sales figures already stand at $18.4 billion compared to $29.5 billion for the full year of 2006.

Nash Benjamin, the CEO of FJ Benjamin, which owns Guess, Gap and Celine here, has noticed that rents have been rising but he says: ‘The bottom line is whatever rental you pay must finally be relative to the business, otherwise tenants will not be able to invest. We are fortunate that most malls we work with have a good understanding of this principle.’

With space getting more expensive, retailers are becoming more sensitive to rentals on a per square foot basis too.

Steven Goh, spokesman for the Orchard Road Business Association, believes the situation is not so much that retailers are prepared to pay higher rents for a prime space but more that they have become more savvy in measuring how ‘productive’ their businesses are.

‘For instance, a restaurant that was 2,500 sq ft before may streamline its operations to 2,000 sq ft because it gives the optimum return of $100 worth of sales on a per square foot basis, which can justify the rental,’ he explains.

Another example Mr Goh gives is that of fashion boutiques, which on average, must make between $120-$150 psf in sales. And the concern is not so much about rent. ‘The pressure is actually to find new concepts,’ he says.

Perhaps a sure sign that retailers and their landlords are doing well is when a shop decides to expand, even when rents keep rising.

High-end leather goods retailer Tod’s, in the equally high-end mall Paragon, has just moved into bigger and better premises with frontage on Orchard Road, increasing its store size by about 50 per cent.

Patrina Tan, deputy general manager of marketing at Paragon, says it does not discuss rents but does concede that all landlords do see the expiry of an existing lease as an opportunity to review rent levels. ‘Rentals are always relative,’ she adds.

She also reports that the sentiment among the tenants at Paragon is definitely ‘positive’.

The outlook for the future remains good too despite close to 2 million sq ft of retail space scheduled to be completed by next year. And at Knight Frank, Mr Mak says he does not expect demand to decrease either.

For the rest of the year, Knight Frank expects occupancy to increase by about one percentage point q-o-q. This will bring islandwide occupancy to between 93 and 94 per cent and Orchard Road occupancy to about 95.8-96.5 per cent.

Knight Frank also expects rentals for prime retail space to increase 15-20 per cent year on year, with capital values rising by 10-15 per cent.

 

 

Source: Business Times 9 Oct 07

Subsales picking up after lull as sellers temper their demands

Lock in profit if margin is good, some agents advise

(SINGAPORE) After a lull of about six weeks, activity seems to be picking up in the subsale market on the back of the stock market rally and more reasonable demands from sellers.

‘It’s not as good as before sub-prime but much better than during the subprime, from mid-July to mid-August,’ said CB Richard Ellis executive director (residential) Joseph Tan.

‘There have been definitely more inquiries and there’s been more response to ads. Whether this will lead to more subsale volume is hard to say,’ he added.

Jerrytan Residential Pte Ltd executive director Jason Tan too has seen a ‘mild pick-up’ in subsales of condos in Districts 9 and 10 in the past couple of weeks or so ever since the stock markets in the US and Singapore started rising again.

ERA Realty Network divisional director Andrew Soh too has seen more subsale deals in the last two to three weeks in the Sentosa Cove and Marina Bay locations. A unit at Oceanfront condo at Sentosa Cove was sold for $2,550 per square foot in the subsale market two weeks ago, reaping the seller a handsome profit of over $2 million as he had purchased the unit (also in the subsale market) in September last year for $1,750 psf.

Jerrytan Residential’s Mr Tan says: ‘Sellers are lowering their expectations after the reality check provided by the sub-prime stock market crash. But they’re still making healthy profits as they may have bought the units a little while ago.’

For instance, the owner of a unit at The Grange recently sold his 2,300 sq ft apartment in the subsale market for about $2,500 psf or a total of about $5.76 million, against his original purchase price of about $1,450 psf from the developer around July 2005. His net profit after factoring in agents’ fees, stamp duty and legal fees would be around $2.2 million.

In some instances, the spur to sell in the subsale market and take a profit now is that the projects may be receiving Temporary Occupation Permit (TOP) within the next year and those who bought their units on deferred payment schemes from the developer, paying only 20 per cent of the purchase price so far, will soon have to pay up another 65 per cent of their purchase price.

‘Our advice to these investors is that if there is a good margin from their investment, they could lock in their profit now. They can always reinvest in another property,’ Mr Jason Tan says.

‘Buyers picking up units through the subsale market are also starting to feel more confident again, after the stock market’s recovery. They’re prepared to hold the properties as a mid- to long-term investment but are also eyeing the possibility of selling much sooner, when the projects receive TOP. The outlook is still good, as there will be limited supply of completed brand-new developments in Districts 9 and 10 over the next six to 12 months,’ he added.

However, ERA’s Mr Soh sounds more cautious. ‘Supply in the subsale market is more than demand. I may be wrong but I think the high-end residential property clock is at 9 o’clock. My advice is to take a profit now and not be too greedy. Supply in the subsale market is greater than demand. It’s tough to find buyers in the subsale market now, unless you go overseas.’

Colliers International’s analysis of caveats captured by the Urban Redevelopment Authority’s Realis system shows that the months of May, June and July saw the most subsale activity in the first eight months of 2007, with more than 600 such deals in each of these three months.

The Sail @ Marina Bay, Citylights, Icon and The Lakeshore, were the most widely traded projects in the subsale market in the May-July period with 151, 93, 90 and 68 transactions respectively.

However, subsales fell drastically by more than 50 per cent to just 299 transactions in August. ‘Usually, caveats are lodged upon the option being exercised, so a slowdown in subsales from mid-July would only be reflected in the caveats about two weeks later, starting August,’ says the firm’s director of research and consultancy Tay Huey Ying.

She forecasts that subsale activity will stage a rebound.

 

Source: Business Times 9 Oct 07

S’pore still hot despite office space crunch

Its overall value proposition is what counts ultimately, not just rental costs

ASIA today is different from what it was 10 years ago – all the countries have undergone changes politically, economically and socially. Likewise, Singapore has emerged stronger fundamentally and is now one of Asia’s most conducive environments for business and investment, earning accolades for its many endeavours to transform the island state into a bustling metropolis not just for business but also for entertainment, the arts, and other lifestyle attractions.

In 2008, Singapore will host the Formula One race, while in 2009 and 2010, world-class integrated resort developments like the Marina Bay Sands and Resorts World Sentosa will open their doors. By 2012, the historic City Hall and the former Supreme Court buildings will become the National Art Gallery.

The Asian office property sector enjoyed strong growth underpinned by the robust economic performance in the region. A high correlation between the economic and office market cycles is evident. Singapore’s economy grew by 7.9 per cent in 2006 and is forecast to grow between 5 per cent and 7 per cent in 2007, with the FIRE (Financial, Insurance, Real Estate) sectors being the major growth contributors.

According to Russell Reynolds Associates, 50 per cent and 40 per cent respectively of Europe-based and US-based technology companies locate their Asia-Pacific headquarters here – more so than in any other Asian country.

Due to strong leasing demand, office occupancy continued to soar and in H107, the Singapore office rental index increased by 22.5 per cent, while the office price index grew by 13.5 per cent.

The financial services sector was a key driver for this demand growth, as evidenced by the increased space taken up in the last 18 months by Barclays, Credit Suisse, Merrill Lynch, Scotiabank, Societe Generale, Standard Chartered Bank, and The Royal Bank of Scotland.

In addition to a wave of M&A activity, the increase in demand for finance and business services was also driven by the emerging markets of countries in the region such as China, India and Vietnam, where progressive deregulation of these banking markets opened up new opportunities. As a result, mortgage lending, consumer credit and wealth management activities flourished.

Singapore’s office take-up escalated and the market attained a high occupancy of 97 per cent in the Central Business District (CBD). The unrelenting race for space continued to drive rents up in all micro-markets to historic highs. The financial hub of Raffles Place led the rental hikes with a 54 per cent increase in H107 to average $13.10 per square foot per month from $8.50 at end-2006, surpassing the previous peak of $11.25 psf recorded in 1990.

For the same period, average monthly rents in Marina Centre increased 48 per cent to $11.80 psf from $8 psf.

Many tenants found their renewal rents had increased by at least two to as much as three times their previous rents.

Some professional services groups opted for less costly fringe city locations while those companies that do not require a presence in the city decided it was timely to decentralise. Many industrial and technology-based companies that used to occupy office buildings were also compelled to take the logical step of substituting business park/high-tech industrial options for office space as the rental gap widened.

We also saw an increasing trend of financial institutions separating and locating their backroom operations away from their city offices, a rational strategy given the cost efficiencies and for ‘business continuity’ reasons.

A number of the banks we spoke to were rather sanguine about the rental hikes as comparatively, prime rents in other Asian financial centres like Tokyo and Hong Kong are still more expensive; for example, Hong Kong’s average Grade A rents are about a third higher than Singapore’s.

With just 2.18 million square feet of new supply scheduled to be completed between now and 2009, ie less than one million sq ft a year, the tight office situation is expected to persist till 2009. In 2010, 1.8 million sq ft of new supply, mostly Grade A space emanating from the Marina Bay Financial Centre, will enter the market followed by large-scale completions from new Government Land Sales (GLS) of development sites in Marina Bay, as well as the redevelopment of obsolete buildings in the CBD like Ocean Building, from 2011 onwards.

In the interim, the government has introduced some strategies to mitigate the tight supply situation. Several disused state properties were immediately made available for lease via public tender and the first ‘transitional office’ development site with a 15-year lease at Scotts Road was successfully tendered to provide near-term relief.

In addition, new office redevelopment sites in the CBD and suburban centres like Tampines have been sold or are being fast-tracked for sale under the GLS programme. All the above will provide a supply pipeline of over 12 million sq ft of office space in the medium term.

In addition, there will be potential new supply of business park space at Changi Business Park, Alexandra Business Park and One-North, which will provide alternative space options for businesses that qualify under the zoning criteria.

On the part of corporate occupiers, many have also implemented workplace strategies to maximise their space utilisation in line with today’s lifestyle and trends. For example, flexible concepts like ‘hot-desking’, ‘hotelling’, or ‘work anywhere, anytime’ allow staff to opt to work from home or to work part-time, and have contributed to more efficient use of office space.

Notwithstanding the rental trends above, cost of office space is only one aspect of a company’s overall costs and should be set against other more important considerations, like market access, business environment and availability of talent, among others. In a nutshell, the real issue for many businesses is a city’s or a country’s overall ‘value proposition’.

There are some pro-business initiatives that the government could adopt to alleviate the current space crunch.

Reviewing the business park and industrial use guidelines for greater flexibility or allowing the conversion of well-located, under-utilised industrial premises into offices for back-of-house operations and for SMEs are possibilities.

In addition, the development of other non-CBD offices, for example, in the Paya Lebar sub-regional centre, could be expedited in tandem with those in the CBD.

 

Source: Business Times 9 Oct 07

Ang Mo Kio attracting many suitors, high prices

District now a top draw for its accessibility, amenities and job opportunities nearby

A RECENT battle over a condominium site should silence those who still doubt whether Ang Mo Kio is becoming a property hot spot.

The land attracted 14 suitors and eventually went for more than $200 million – probably a record bid for a suburban district plot.

Such is the growing appeal of the district. Homes in Ang Mo Kio, well positioned just north of central Singapore, command a premium compared to those further out.

Four-room resale flats sold at a median price of $260,000 in the April-June period, 30 per cent higher than those in Yishun.

ERA Singapore’s assistant vice-president, Mr Eugene Lim, estimates that prices of resale Housing Board (HDB) flats in Ang Mo Kio have grown 10 to 20 per cent so far this year.

Private housing is thriving as well.

Consultancy Knight Frank said prices at Castle Green condo along Yio Chu Kang Road grew 39 per cent this year to hit $584 per sq ft (psf) in the July-

September period, while Grandeur 8 in Ang Mo Kio Central 3 rose 26.8 per cent to $606 psf.

It is a sign of things to come, given the advantages Ang Mo Kio has to offer.

Key among these advantages is Ang Mo Kio Hub, a mall in the heart of town that is integrated with an airconditioned bus interchange. It was completed last year and sits just across the road from the Ang Mo Kio MRT station.

Knight Frank’s director of research and consultancy, Mr Nicholas Mak, puts that development on par with major regional retail centres like Causeway Point, Tampines Mall and Jurong Point.

Ang Mo Kio Hub even has an edge over them, as it is far closer to the central business district – about 15 minutes by train from Orchard Road.

This means good demand from tenants wanting to be in flats close to the action. Four-room flats rented for a median $1,000 from April to June, while five-room units went for $1,300.

Upcoming developments may add more vibrancy to the area. The HDB last month put up for sale a plum 1.7ha plot along Ang Mo Kio Street 52, which private developers can use to build about 550 homes.

Private companies are being involved in designing, building and selling public housing in two other projects elsewhere in Singapore – and the idea looks a winner.

The first consisted of condominium-like flats in Tampines that sold like hot cakes last year, while the second, in Boon Keng, is expected to be equally well-received.

The Ang Mo Kio plot is expected to get just as enthusiastic a response.

Add to this the dogfight over a 0.6ha private condominium plot near Ang Mo Kio Hub along Ang Mo Kio Avenue 8.

Far East Organization trumped 13 rivals with a record bid of $202.9 million, or $601 psf per plot ratio.

Far East’s break-even cost is estimated to be around $900 to $1,000 psf, which means apartments will likely be priced at a record $1,100 to $1,200 psf.

Savills Singapore director of marketing and business development Ku Swee Yong believes this could lead to higher prices in the area if sellers use future condo units there as a pricing benchmark.

All in, Ang Mo Kio is ‘one of the few housing estates in Singapore’ that is accessible, has well-developed amenities and job opportunities in clean and well-organised industrial estates nearby, says Mr Mak.

PropNex senior associate manager Lester Tan and ERA’s Mr Lim expect HDB prices in the area to rise by 10 to 20 per cent by the end of next year.

Mr Mak, meanwhile, expects condo prices to grow by 25 to 30 per cent this year and by 15 to 20 per cent next year.

 

Source: The Sunday Times 7 Oct 07

Gap between new and resale homes at a high

But the difference is expected to narrow down the road, say analysts

(SINGAPORE) The gap between prices fetched by new and resale homes in the prime districts is now at a record high, an analysis of official data shows.

A preliminary analysis of caveats lodged in the third quarter of 2007 by Jones Lang LaSalle (JLL) shows that for new homes there was a record premium of over 60 per cent from July to September this year.

Since 2000, the average premium has been between 20 and 42 per cent, JLL said.

But strong demand for new luxury projects in the third quarter – such as for Scotts Square, Cliveden at Grange, Helios Residences and The Lumos – means that the price gap between new apartments and homes in the resale market has widened rapidly over the past year, said Chua Yang Liang, JLL’s head of research for South-east Asia.

In addition, prices of new homes could be climbing faster as buyers can use the deferred payment scheme for new projects, but not for resale units, said Knight Frank’s director of research and consultancy Nicholas Mak.

Resale transactions take into account sales of homes in completed developments, while sales of new units are in projects that have been launched, but are yet to be built.

However, JLL added that gap is likely to narrow as prices of resale homes will look more attractive.

‘Buyers will find it increasingly less attractive to purchase new developments when perfectly habitable resale dwellings at much more affordable price range are readily available,’ Dr Chua said.

The preliminary average selling price for new sales – based on caveats lodged in the prime districts – is estimated to be around $2,500 per square foot (psf) in the third quarter, JLL said.

In comparison, amidst the continuous strong interest in new sales, prices in the resale market rose to close at an average of $1,220 psf for the same three months, albeit during a traditionally seasonal weaker period.

This puts the price gap at around 105 per cent, but JLL’s Dr Chua says that once more caveats are lodged for third quarter transactions, the gap will come to ‘more than 60 per cent’.

In the short term, the high premium gap seen in the third quarter is unlikely to be sustained, experts said.

JLL, for one, estimates that the price gap will stabilise to between 32 per cent and 38 per cent over the next three to five years.

But with the gap narrowing, the collective sales market can be expected to slow down, JLL said.

‘The attractiveness and success of en bloc transactions depends largely on this premium gap. The wider the gap, the more attractive is the market for collective sales,’ the property firm said.

Dr Chua reckons that the collective sales market is likely to slow down in the medium term, given that growth in new sales prices are likely to decline over the same period.

As the premium gap narrows, en bloc activities should slow down as developers find it increasingly less attractive to undertake such redevelopments, especially in light of diminishing returns and impending changes to the Strata Titles Act.

 

Source: Business Times 5 Oct 07

Wise not to ignore market risks

SINCE the US Federal Reserve’s somewhat surprising 50-basis points interest rate cut on Sept 18, investors all over the world have piled back into stocks with much gusto. Wall Street on Monday rose to a new all-time high while most Asian markets continue to set records of their own.

The mood is once again bullish, restored by a seemingly unshakeable confidence that the Fed can be relied upon to cut rates further to keep the ball rolling. While the momentum is clearly positive however, over-eager investors have to be mindful of making the same mistake as before – ignoring risks while focusing solely on returns.

Although the Federal funds futures market is pricing in a further 25 basis points cut at the end of this month, this is by no means a certainty. September’s rate lowering has seriously undermined an already weak US dollar – which has now declined even against currencies such as the Turkish lira, Saudi rial and Canadian dollar – and over time, this cannot be good for an-already slowing economy labouring under the burden of a crashing housing market. Moreover, various Fed governors warned this week that more rate cuts can only be justified if the economy shows signs of very drastic weakness, which means that perversely, investors are buying stocks today in the hope that growth worsens significantly tomorrow – Monday’s Wall St record for example, was set after release of a weak manufacturing report that showed new orders dropping for the third consecutive month. This is an anomalous state of affairs. While it might last for a while, eventually reality will prevail.

Speaking of reality, the full extent of the sub-prime mess may not have been revealed yet. US and European banks have only just started to show alarming profit weakness stemming from sub-prime losses and there is doubt over whether rate cuts are sufficient to reverse losses.

That said, markets could continue to rally in the short term. One likely explanation for the strong bounces seen over the past fortnight is that they have come from widespread programme trading – with markets as interconnected as they are today, the big money has to employ sophisticated computer-driven trading strategies in order to react quickly enough and capitalise on shifts in economic and sentiment indicators.

As such, once certain parameters are met, powerful momentum forces take over and markets move almost as one. Invariably, the targets are always the largest stocks – that is why in Singapore at least, while the Straits Times Index has very rapidly regained new ground, the broad market has lagged.

The real danger however, is that the same momentum shifts work equally effectively on the downside.

Given that volatility has not subsided over the past few months – it has in fact increased – and given that the chances of a US recession are quite real, it would be wise for investors to be as cognisant of risks as they are of returns.

 

Source: Business Times 4 Oct 07

Growth of office rentals to slow

Tenants prepared to explore lower-cost locations and alternative premises: CBRE

ENOUGH is enough. Or so it seems for those having to pay high office rents.

CB Richard Ellis (CBRE) executive director (office services) Moray Armstrong foresees further rent rises but reckons that the pace of increases will slow.

‘We have observed tenants’ increasing resistance to rental hikes,’ he said. ‘Occupiers are more prepared to explore lower-cost locations and alternative premises such as business parks and high-tech space.’

CBRE’s analysis of Q3 2007 data shows prime office rents averaged $12.60 psf per month, an increase of 16.7 per cent quarter on quarter (QoQ) and 82.6 per cent year on year (YoY).

Grade A office rents now average $14.90 psf per month, an increase of 13.7 per cent QoQ and 96.1 per cent YoY.

CBRE said that at end-August, full potential supply – the sum of known private sector project supply, awarded Government Land Sales sites and potential supply from expected future land sales – was 10.8 million sq ft for 2007- 2012.

This reflects an increase of 147 per cent from full potential supply of 4.4 million sq ft identified two quarters ago at end-March 2007 and works out to average potential annual supply of 1.8 million sq ft for the next six years, higher than the past 10-year average supply of 1.5 million sq ft per annum.

Based on projected average annual take-up of 1.6 million sq ft for 2007-2012, CBRE forecasts relative equilibrium between supply and take-up over this period, remaining in the range of 91 to 95 per cent even if full potential supply materialises.

‘On the supply side, the government’s reaction has been measured so far, but care is required in monitoring any future change in demand for office space,’ says CBRE.

‘As such, it may be timely for all in the sector – landlords, tenants, policy-makers – to take stock of the market dynamics in setting out policy and making decisions.’

The temptation to keep pushing rents is why Colliers International expects a modest office building at 23 Middle Road to be attractive.

The indicative price for the six-storey building – which has a total gross floor area of 23,499 sq ft and a net lettable area of 17,314 sq ft – is $28 million or $1,600 psf of net lettable area.

Colliers’ executive director for investment sales Ho Eng Joo says: ‘If tenants in the CBD have to pay more than $10 psf per month they may as well consider buying their own property rather than face landlords who keep raising rents.’

Mr Ho expects accountancy and law firms may be among the bidders for the Middle Road building.

With space tight, office property also has good investment potential.

Based on average rent of $6-$8 psf per month in the Middle Road area, Mr Ho expects an investment yield of 4-5 per cent.

And with capital appreciation, gains could be much higher.

 

Source: Business Times 3 Oct 07

S’pore’s private home prices soar to 10-year high in Q3

Prices went up by 8% in July to Sept, more land may be released to meet demand

PRICES of both public and private homes in Singapore, continuing the upward trend, reached their highest level in a decade, early government estimates for the period July to September showed on Monday.

The Urban Redevelopment Authority (URA) said the price index for private residential properties rose 8 per cent, while that for HDB homes jumped 6.5 per cent for the same period.

The third-quarter gain for private homes follows an 8.3 per cent rise in the last quarter, and comes amid moves by the government to stabilise the property market by revising development charges, and tightening rules of collective sales.

Prices of non-landed private homes in the core region – which includes districts 9, 10 and 11 – went up 8.3 per cent, while in the rest of the central region it rose 7.7 per cent, and in the Outside Central Region, by 8.1 per cent.

The URA also said that about 43,000 new units of private housing are expected to be completed in the second half of 2010. Of these, about 19,000 units of these (46 per cent) have not been launched for sale by developers yet.

The URA is currently reviewing its Government Land Sales (GLS) Programme for the first half of next year and will announce details by year end.

It assured home buyers that there is an ‘ample pipeline supply of private housing’ and advised them to take this into consideration in their property decisions.

‘The government will continue to monitor prices closely,’ the URA said, adding that ‘the government will make available more sites for private residential development’ next year if demand remained strong.

Separately, the HDB also said on Monday that it will be increasing the supply of new flats, with 4,500 new units under its Build-To-Order system to come on stream in the next six months.

The jump in HDB home prices comes after a 3 per cent rise in the last quarter – which was until now, the biggest quarter-on-quarter increase since 1999.

The HDB added that it plans to release three new Design, Build and Sell Scheme (DBSS) sites with a combined yield of about 1,500 units in central and eastern Singapore over the same period – subject to market demand.

The advance estimates are compiled from transaction prices lodged during the first 10 weeks of the quarter as well as data from new apartments that have been booked.

URA and HDB’s official third-quarter statistics will be released at the end of October.

 

Source: The Straits Times 1 Oct 07

Prices and rentals rising fast in Upper East Coast

Spillover demand from nearby districts and rumours of collective sales push prices up

THE buzz in the property market these days is all about the price recovery in the suburban areas.

Cheaper private homes on the outskirts of town are seeing a rebound in prices and rentals, as the strong market sentiment at the top end filters down.

Homebuyers have started turning out in force for these entry-level condominiums. Many have sold en bloc and are seeking replacement units.

Apart from the central Orchard Road area, a popular collective sale district is the East Coast, which has seen nearby Upper East Coast Road become one of the biggest hot spots for home seekers.

Some projects in the district, which stretches from Upper East Coast Road to Bedok North Avenue 4, have rocketed in price, by up to 65 per cent, since January.

Figures from consultancy Savills Singapore show that overall home prices in the area climbed by 20 per cent to 65 per cent between January and August, depending on the specific street.

This compares with a rise of about 10.3 per cent for all suburban areas in the first six months of this year, according to the Urban Redevelopment Authority.

But Savills’ director of business development and marketing, Mr Ku Swee Yong, was quick to add that some of the Upper East Coast projects have seen such large jumps in price because of ‘collective sale rumours’.

‘The general price increase is nowhere near 65 per cent overall,’ he said.

Rentals in the Upper East Coast have also soared, supporting the price increases. Average asking rents jumped 13.7 per cent in July and August, on top of a 4.7 per cent rise in the previous three months, said

Savills. They average $3.07 per sq ft (psf), or about $3,000 for a 1,000 sq ft unit.

Mr Ku noted that the Upper East Coast is benefiting from a spillover in demand from nearby Districts 14 and 15, which include Marine Parade, Katong and Telok Kurau.

Several estates there have gone en bloc, forcing the sellers to seek new homes. Many of them have been priced out of the increasingly expensive East Coast properties, so they have shifted their focus to cheaper homes further east.

This situation is similar to that in town, where city-fringe areas such as Newton and Novena have benefited from the record number of collective sales in the Orchard Road area and its surroundings, said Mr Ku.

He added that even more developments in the vicinity are expected to go en bloc soon. These could include Ocean Park, Rich East Gardens, Bagnall Court and the two Eastern Lagoons.

Apart from the collective sale draw, Mr Ku noted that the Upper East Coast profits from its proximity to Changi Airport and East Coast Park, as well as various golf courses, including Tanah Merah Country Club and Laguna National Country Club. All these are attractive to ‘mobile professionals’, he said.

He predicts that by the end of next year, new benchmark prices will be achieved for the area. These could go up to $1,100 psf for the Bedok South Avenue 3 and Bedok Camp areas, and up to $1,700 psf from Siglap Centre to Bedok South Avenue 1.

 

Source: The Sunday Times 30 Sept 07

Mass-market sector rebounded in ‘06: CBRE

Non-landed projects in non-prime areas turn in strong sales volume

MASS-MARKET property sales actually staged a recovery last year, earlier than widely believed, said property consultant CB Richard Ellis (CBRE) yesterday.

In a study of the take-up rates of new non-landed projects in non-prime areas, CBRE found that the mid-tier and mass-market projects turned in strong sales volume in 2006, although prices for these segments only began rising this year.

‘Until now, the market had perceived that these segments trailed the luxury segment in their recovery, and had begun to recover only in early-2007, in terms of volume and price,’ it said.

An analysis of the new units launched last year and the corresponding take-up volumes ’shows otherwise’, it said.

It found that 68 per cent of the new projects launched last year in the West Coast, in districts 5 and 21, were taken up. Similarly, take-up rates for projects in districts 15 and 16 were about 90 per cent – ‘not far’ from the take-up rates of 74 per cent for projects in the prime districts 9 and 10 and 96 per cent for those in the downtown and Sentosa Cove areas.

‘Of course, in terms of pricing, the mass market and mid-tier projects have only begun to inch up in the previous two quarters of 2007,’ said Joseph Tan, executive director for residential property at CBRE.

‘But the strong sales of non-prime projects since a year ago show the return of buying power for upgraders and private homeowners, who, at that time, saw good investment value in the projects, while anticipating the upside in prices later on.’

Since then, the number of projects on the market has increased dramatically.

The number of new units launched in the west has tripled from a year ago, with the launch of One-north Residences, One Rochester, Botannia and The Parc Condominium, it said.

Meanwhile, the number of new units launched in the Newton/Novena area has doubled from 578 units in 2006 to 1,351 units so far this year. Take-up rates have been ‘very healthy’ at 90 per cent, said CBRE.

In districts 15 and 16 in the east, the take-up rate so far this year has been ‘equally strong’ at 85 per cent.

Residential rents have also risen sharply ‘due to the shortage of apartments for lease following the slew of collective sales of existing developments in the past two years’, said CBRE.

After rising 18.7 per cent on average in the first half, rents are expected to increase by another 8-10 per cent in the third quarter.

Rents in the popular areas of Tanjong Rhu, Meyer Road, East Coast, Dunman, Joo Chiat and Siglap have gone up 40.9 per cent since the fourth quarter of 2006, with median rents now at $2.62 per square foot per month.

The next biggest increase in rents were for apartments in the Orchard Road, Grange Road, Tanglin and Bukit Timah areas, where rents have gone up by 37.5 per cent to $3.74 per square foot per month on average.

The residential market is likely to remain active in the final quarter of this year, amid strong growth in the economy, CBRE said.

 

Source: Business Times 29 Sept 07

S’pore property seen as top buy in Asia-Pac

Sentiment strongest in rental apartment, office, hotel/resort, retail sectors: survey

SHANGHAI, Singapore and Tokyo have emerged as the top three most promising Asia-Pacific cities for real estate investment prospects, according to a report from the US-based Urban Land Institute (ULI) and the accountancy firm PricewaterhouseCoopers (PwC).

‘Sentiment was strong among survey participants to either buy or hold all types of properties in Shanghai, Singapore and Tokyo, rather than sell properties, illustrating the cities’ strong popularity with the investment community,’ a news release by PwC and ULI said.

For Singapore, the strongest sentiment for buying property was in the rental apartment sector, followed by the office, hotel/ resort, retail and indus- trial/distribution property.

The report, Emerging Trends in Real Estate Asia Pacific 2008, is the second annual investor survey from ULI and PwC. It shows that Singapore has jumped from fourth to second placing for investment prospect rankings, and from ninth to third spot for development rankings. Singapore is ranked first for city risk ratings.

One respondent in the survey said Singapore was ‘certainly one of the markets in the area that provides a very stable legal and tax environment, and property rights that are beyond question. And it therefore is certainly one of the markets where many, especially Westerners, are very comfortable.’

The report was based on interviews and surveys with more than 190 professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The survey covered 20 cities. Shanghai was in the top position in the latest 2008 investment prospect ranking, up from second spot in the earlier ranking. Tokyo maintained its third position, while Osaka, which was first in the 2007 ranking, moved down to fourth position. Hong Kong was ranked fifth in the latest survey, moving up six positions.

While Singapore moved from fourth to second spot in investment prospect, sell recommendations increased for office, retail, and hotel/resort from 0 per cent in the 2007 report issued last year to 19 per cent, 13 per cent and 13 per cent respectively in the latest 2008 report.

Buy recommendations for industrial/distribution property increased from 35 per cent to 44 per cent.

The 2008 survey also shows that the growing Asia-Pacific real estate market still offers opportunities for investors and developers next year. Asia-Pac real estate executives’ response remains strong on overall economic and market fundamentals, regardless of interest rate increases.

High levels of equity capital continue to pour into the Asia-Pacific property pool. For 2008, the hotels sector tops the list of real estate performance prospects, followed by the office sector.

PwC’s tax partner in Singapore, David Sandison, said: ‘It’s expected that even greater amounts of capital will be flooding Asia Pacific real estate markets in 2008. The real challenge for investors will lie in finding the right assets against the backdrop of yield compression and scrutiny by regional governments and tax authorities.’

The strongest sentiment for buying in Singapore was for rental apartments, with about 53 per cent of respondents recommending a buy, 34 per cent hold and 13 per cent sell.

For office space, 52 per cent advised buying, 29 per cent hold and 19 per cent sell.

The survey also showed that 48.5 per cent recommended buying hotel & resort property, 38 per cent advised holding, and 13 per cent, selling. For retail property, 45 per cent advised buying, 41 per cent holding and 13 per cent selling.

In the industrial/distri- bution sector, about 44 per cent of respondents recommended buying, 42 per cent holding and 14 per cent, selling.

ULI is a global education and research institute championing responsible leadership in land use to enhance the total environment.

 

Source: Business Times 28 Sept 07

Will the en bloc fever start cooling?

Activity may slow down with tighter regulation, higher costs and longer sales periods

THE past two years have been stellar for en bloc sales which saw some 160 redevelopment sites being sold across the island. From 2006 till 2008, more than 11,000 units would have been withdrawn, to be redeveloped into 16,000 to 19,000 new units. The final number could be lower if developers opt to build larger and more luxurious units.

The bulk of these redevelopment sites (about 95 in all) are located in the highly sought after Districts 9, 10 and 11.

This has resulted in a possible shortage of high-end residential homes in the short to medium term as units are being torn down and redeveloped into new luxury condominiums.

For the first seven months of this year alone, we estimate that 61 en bloc sites have been sold for a total value of almost $11 billion. This surpasses last year’s record of $7.75 billion. For the rest of the year, we can expect a new record, both in terms of total value and number of sites sold. (See Table 1)

Going forward, we believe that en bloc activity will continue well into the next year, albeit at a much slower pace than in the past 12 months. There are several reasons for this.

Firstly, we will see larger en bloc sites in terms of size, number of units and value coming to the market. These large sites would require a little more time to obtain consensus among the sellers, as well as to find buyers with the financial muscle to acquire them.

Secondly, developers who needed to replenish their land bank have already done so and will be more selective going forward. The en bloc market could become a buyers’ market with developers possibly looking to acquire only prime redevelopment sites – sites which already have 100 per cent owner consensus or even those with negligible development charges (DC) rates.

Additionally, the recent proposed amendments relating to en bloc sales under the Land Titles (Strata) Act, which could come into force in October, will reset the collective sales process for those developments yet to garner the 80 per cent consensus.

A higher level of regulation and transparency is being introduced with stricter guidelines on the setting up of an en bloc sales committee. This will slow the pace in getting the whole process started.

Besides the changes to the Land Titles (Strata) Act, the latest revision in DC rates, which were announced on Aug 31, could potentially dampen the en bloc market further.

Going forward, whilst the location of the redevelopment sites remains paramount, we could expect developers’ interests to be channelled towards sites with minimal or no DC.

Whether the en bloc sale fever will actually cool is anyone’s guess at this point. The rising cost of land acquisition, higher DC rates, rising construction costs and the global economic climate all have a part to play in order for the market to thrive.

What’s the impact?

The wave of over 60 en bloc transactions between January to July this year could give rise to several thousand millionaires. Just taking the three months of April, May and June, we tabulated that there were some 34 sites with a total of 2,796 units sold, where the owners are expected to receive an average $3 million a unit.

Taking into account the need to apply to the Strata Titles Board for approval to proceed with the sale, all 2,796 displaced families could receive 95 per cent of their money by H1 2008. Assuming at least 2,000 of these owners are looking to buy another home, this would inadvertently create a surge in demand for homes both in the primary and more so in the secondary market, especially for those who need a place to stay.

Going forward, we expect a lull as the number of en bloc sites sold could slow down in the second half due to uncertainty, the possible introduction of new en bloc laws and rising DC rates. This would remove the additional demand from owners displaced by an en bloc sale.

 

Source: Business Times 27 Sept 07

Time for some retail-tainment

Today’s malls – a careful mix of the right tenants, themes and well-planned layout to draw people in and keep them occupied longer

RETAILING these days is more than just about the shopping, it’s a total experience. That means both ‘hardware’ and ’software’ have to work together to give shoppers that feel-good factor.

This is a far cry from shopping malls of old, which were just clusters of shops and food outlets. There was little thought given to tenant mix, themes or architectural designs. But with the growing sophistication of shoppers, malls had to improve their offerings. Efforts were made to cluster shops (tenant-mixing) to enhance synergy among different retailers and generate the best traffic flow within the complex to derive optimal rental returns.

Mall owners went into retail positioning, tenant-mix planning and theming to draw more shoppers and increase sales opportunity for retailers, which translates to better rental value per retail space.

Junction 8 was among the pioneers that introduced cineplexes and games arcades in shopping centres. Gradually, other services such as fitness, medical and educational centres found their way into malls.

All this was aimed at making shoppers stay longer at the malls. This is evident in the incorporation of libraries in malls, found at Compass Point, Hougang Mall, Lot 1 and Jurong Point. As these malls are located within the heartlands, the presence of libraries enhances their attractiveness to families and students, boosting traffic flow.

Parkway Parade incorporated medical centres. The upmarket Paragon in Orchard Road has spas in its tenant mix that meld with its affluent shoppers’ lifestyles.

Apart from attracting more shoppers, these service trades help mall owners fill the less prime locations.

Other malls such as United Square and Velocity@Novena managed by UOL Group have resorted to theming as their selling point. United Square, which was relaunched in 2002, themed itself as a ‘kids’ learning mall’ since the mall owner saw an unmet demand for children’s education/enrichment facilities. About 55 per cent of its tenant mix caters to kids with another 15 per cent for F&B. This proved to be a great success as rentals increased by 38 per cent after the revamp and shopper count rose considerably.

Velocity@Novena Square is Singapore’s first sports and active lifestyle mall. Its anchor tenant is California Fitness Jacky Chan Sports, occupying three floors of about 27,000 sq ft. Sports mix takes up close to 40 per cent of the 170,000 sq ft mall, with F&B taking up another 30 per cent.

More than just a place for sports goods shopping, Velocity is becoming a favourite venue for sports events. The 2005 Sea Games flag-off, skating performances curling demonstration and the recent NBA Madness Asian Tour 2007 were just some of the events held at the mall. Since the revamp, rentals have jumped by more than 30 per cent.

Funan DigitaLife Mall started as a general shopping centre but it gradually attracted a critical mass of electronic and IT retailers as tenants. It has since established its niche as an IT mall, and was refurbished twice – in 1992 and 2005 – to meet shoppers’ demand.

Themed malls came to Orchard Road in 1996 with the opening of The Heeren Shops. Tenanted by lifestyle shops with unique product offerings, it has HMV as its anchor tenant. In 1997, the movie-themed Cathay Cineleisure Orchard opened. Aside from movie halls, its tenants offer entertainment and leisure activities, social clubs and dining.

Of late, as consumers pay more attention to health and wellness, we saw fitness and wellness centres setting up at malls, such as True Yoga at Pacific Plaza, California Fitness Centre at Bugis Junction, and Planet Fitness at VivoCity.

Retail has evolved from its traditional role of buying and selling to a lifestyle event. As lifestyle is an experience, it is dynamic and ever-evolving. Mall owners not only update a mall’s tenant mix, they likewise organise activities to enhance the shoppers’ experience.

The latest trend seen is the integration of a retail mall with other land uses to enhance the entertainment and lifestyle portion of shopping. The Singapore Flyer is one such development. It comprises a retail building, a 400-seat theatre and the Giant Observation Wheel. The soon-to-be-developed Sports Hub is another project that incorporates multiple uses, namely, sports, entertainment and lifestyle. Aside from the sporting facilities, leisure and commercial developments will be incorporated to drive mall traffic on event and non-event days alike.

As its name suggests, Marina Bay Sands Integrated Resort integrates all types of uses, namely, hotel, convention centre, casino and theatre. They complement each other to derive optimal benefits, targetting mainly the conventions business.

In this highly competitive environment, change is a certainty. We may not have the world’s largest nor tallest malls, but we can challenge ourselves to create the most innovative retail-lifestyle malls.

Why not have a retail-lifestyle mall amid nature? For instance, the Kranji countryside offers art galleries, pottery and woodwork. It also retails organically grown vegetables and plants. This amalgamation can be a new retaillifestyle mall, except that all the tenants are not housed under one roof but linearly located amid nature. This venue is ideal for families and nature-lovers as it offers a different shopping ambience.

Instead of just having souvenir shops within zoos, bird parks and botanical gardens, why not turn them into retaillifestyle malls? It is important, however, that such malls be aptly sized, with a critical mass of at least 50,000 sq ft to attract shoppers.

These malls will then become a destination for shopping, entertainment and interaction, with each ‘retail-tainment’ destination having its own distinct identity and selling point.

 

Source: Business Times 27 Sept 07

The price of luxury

Flush with cash, the high-end residential market is flourishing. Look at what $5 million gets you

STRONG corporate profits and a global commodities boom in 2006 helped grow fortunes and sparked a surge in demand for trophy homes.

A survey by Cap Gemini and Merrill Lynch shows the number of high net worth individuals (HNWI) worldwide increased 8.3 per cent in 2006 to 9.5 million, with Singapore reported to have the fastest-growing number – up 21.2 per cent to 67,000. With this rising affluence, it is not surprising that high-end homes are being snapped up as soon as they go on the market, as they are just another example of luxury goods in hot demand.

Prices of high-end apartments continue to rise steadily, with new launches commanding increasingly higher rates in the prime districts of 9, 10 and 11. The average price of high-end residential property rose 9.1 per cent to $1,960 per sq ft from the last quarter, while the average price for super-luxury residential homes was even higher at $2,990 psf. The number of homes costing more than $5 million increased almost 54 per cent last year to 650. Foreign purchases at the top end of the market are also increasing.

‘Singapore is increasingly acknowledged as a safe haven for investments, backed by a strong Singapore dollar and an attractive tax regime,’ says Galen Tan, a managing director of EFG Private Bank. ‘An increasing number of high net worth clients have included Singapore as a part of their multi-generation wealth succession planning and are attracted to the conducive environment for retirement.’

Foreign purchases stand at 60 per cent of transactions above $5 million, compared with 39 per cent in 2006 and 14 per cent in 2005 ( See Table 1). Looking at the top 10 transactions over the last five or six years in terms of price, the past two years have seen significant increases – from about $2,050 psf in 2000 to $3,090 in 2006 and $4,078 in first-half 2007. The number of units sold above $4,000 psf in July this year soared more than 350 per cent to a record 72, compared with just 16 in June. (See Table 2)

Escalating prices of super-luxury apartments have not put buyers off. In fact, most such developments – like The Marq at Paterson Hill, Parkview eclat, Scotts Square and The Boulevard Residences – have reported good sales, with foreigners buying off the plan without even viewing showflats. At the high end of the market, we are dealing with excess wealth, not merely income. Hence, some of the factors that influence the rest of the market do not come into play in this segment.

High-end apartments indisputably cost more nowadays, but what do you get for your $5 million? Is there really much difference between, say, a $1 million apartment, a $5 million and a $10 million model? Besides the current property boom which has pushed up land prices, there is another reason for the soaring prices of top-notch apartments. Developers are loading them with more luxurious features to justify higher pricing. We note that apartments above the $5 million mark boast dramatic additions, such as top-of-the-line fixtures and finishes, sophisticated amenities and sprawling living areas that normal apartments do not have. Parkview eclat, for example, offers superior finishes and state-of-the-art appliances such as mirror televisions, spas and custom showers to create a hideaway for hard-working owners to take a break from their hectic lifestyles.

Hayden Properties’ latest development at 37 Scotts Road has taken opulence to an even higher level. It features a glass car elevator so owners can park their exotic wheels near their entrance. Assuming the development costs $3,000 per sq ft, it will cost as much as $600,000 for the parking space. Aside from providing additional functionality, such features imply a certain social status for owners. Large living areas and bedrooms are other common characteristics of luxury apartments. Hence, units that come with separate guest suites, spacious home entertainment rooms, wine cellars and open spaces, which were rare in the past for high-end apartments, are offered more commonly now.

The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. The love of space is reflected in the increasing number of large units sold. From January to July 2007, 1,250 units bigger than 2,500 sq ft were sold – 75 per cent more than in the same period last year. (See Table 3)

In terms of amenities, we have also seen vast improvements. Developers are increasingly aware that people are not buying a mere home but a lifestyle. In the past year, some developers have come up with creative ideas to provide a more attractive living experience for purchasers.

St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services. And Hilltops by SC Global promises a resort-style environment. We expect this trend of joint ventures between developers and prestigious hotel brands to continue.

Another distinguishing feature of luxury apartment buildings is the level of security. Developers are expected to place more emphasis on this as personal privacy and safety are big concerns. High-tech equipment such as fingerprint recognition and even eye scanners are being installed to identify residents and visitors. Cameras are mounted in every corner, panic buttons are wired to the bedside and a security guard placed outside each apartment to provide 24-hour surveillance.

The list continues, with buildings designed with infrared sensors that will sound alarms to warn security guards if moving objects are detected. Other security measures such as bullet-proof windows, a separate route and lifts for evacuation, a safe room that is bullet-resistant and wired with a phone line, back-up generators and keyless entry systems could be seen in future projects.

Compared with prices of high-end property elsewhere, Singapore has room for growth. In London, the average price for top-end apartments stands around $8,900 psf. In Monaco, the price of a luxury condominium averages $5,000 psf, while in New York it is about $4,500 psf. Apartments at Roppongi Hills, Tokyo, average around $3,400 psf, while in Hong Kong, prices of luxurious apartments average $3,100 psf, though those in the superluxury category have now topped $7,800 psf.

Despite recent turmoil in global financial markets, the mid to long-term outlook for the Singapore economy remains positive, with the government upgrading GDP growth from 5-7 per cent to 7-8 per cent this year. The narrowing of the revised forecast to just a single percentage point range – from the usual two-point range – shows the government’s confidence. Furthermore, Prime Minister Lee Hsien Loong has increased the long-term GDP growth target by one percentage point to 4-6 per cent per annum.

Going forward, we expect the property market to remain optimistic, with high-end prices likely to increase another 20-30 per cent a year until 2010, mainly due to the quality of projects and increasing land prices.

Land prices are likely to rise at a slower pace after strong growth in 2006. The increase in apartment prices is likely to be attributed to the fancy items and amenities that developers include. Furniture from the exclusive Lamborghini or Armani/Casa lines, Hasten Vividus beds that cost almost $120,000 apiece and high-end entertainment systems are just a few of the new frills that will allow developers to market the project as unique, so as to command a premium.

 

Source: Business Times 27 Sept 07

Talking dollars and sense

Effective deployment of funds can boost the capital appreciation and rental yield of an estate

IT IS an important mandate of the management council to keep watch over the expenditure of their estate, ensuring that funds are sensibly ploughed into areas which best meet the estate’s needs.

For example, should the money in your sinking fund for the year be used for lobby upgrading, or should it be used to build a state-of-the-art swimming pool? When the council is clear about long-term plans and its objectives (ie, functional over aesthetic), as well as the impact of certain major works on the estate’s value, decision-making becomes much more painless and effective. The situation whereby too much money is spent on some areas with not enough left over for others can then be avoided.

Clearly-defined plan

The council, with help from the managing agent (MA), also has the responsibility of devising a well-planned budget for the year, phasing various works by importance and collecting appropriate amounts for the maintenance and sinking funds to carry out these works.

Defects management is one area where council members must learn how to discern appropriate professional advice, knowing their likely orientation. An inexperienced council serving their first term often feels pressured to go all out. Over time, such actions can often do more harm than good. From our experience, the hefty amounts spent on futile lawsuits could have been better used to enhance the estate’s ambience and facilities.

Having said that, council members must be careful not to save money at the expense of the well-being of the estate.

It is unwise to keep appointing different MAs in favour of the cheapest one, sacrificing the familiarity of the estate gained by the previous MA. Saving a few hundred dollars each month might look like a lot, but it is a negligible savings in the context of a budget for larger estates.

Similarly, experience tells us that it is often a short-sighted move to be stingy about the condominium manager’s salary, when he has the right skills to contribute to the estate. The returns of managing your estate effectively can outweigh the few hundred dollars saved per year many times over.

Council members would also do well by working with better established MAs who, by virtue of their portfolio size, are in the position to negotiate for better value through initiatives such as contractor accreditation, bulk purchase and so on. For example, Knight Frank Estate Management (KFEM) has in place panels of carefully selected and accredited contractors, subject to reassessment every year. Such value-added support for the council could help prevent instances where certain contractors are awarded jobs by certain council members ‘by default’, even if their pricing and workmanship are not necessarily above par.

Sinking fund for en bloc estates

We would caution owners not to stop maintaining their sinking fund unless they are certain that their collective sales is likely to go through and that there are sufficient funds for essential works before vacating the estate.

Even for estates which have just secured a collective sale, money from the sinking fund should still be spent on repair works pertaining to the safety, health and convenience of the residents, where necessary.

As there are usually one to two more years to go before the estate would be vacated, it would be unwise to ignore issues such as loose window grilles, faulty water tanks etc, in the hope that nothing major will happen before the developer takes over. On the other hand, it would certainly be pointless to spend money on further enhancing the estate aesthetically.

Under current rules, owners should not expect to collect back the sinking fund, though there have been some instances of developers redistributing the remaining sinking fund to subsidiary proprietors according to their share value. However, that would depend on the agreement between the buyers and the sellers before the closure of the deal. However, amendments to the law, which have yet to come into effect, would have money from the sinking fund returned to owners.

 

Source: Business Times 27 Sept 07

Sentosa Cove turns sea to gold with $3b land sales

Relaunched Pearl Island could see luxury villas going at hefty prices, market watchers say

(SINGAPORE) The combination of sand, sea and location have worked wonders for Sentosa Cove Pte Ltd (SCPL).

It has raised more than $3 billion selling land parcels in its namesake upscale waterfront housing district since late 2003, market watchers have calculated. And by the time SCPL finishes selling the last few land parcels that remain, the total takings are expected to go way over $4 billion.

By the time it is completed, Sentosa Cove will have about 2,500 homes.

The remaining 99-year leasehold plots that the master planner and developer of Sentosa Cove is now left with include four seafronting bungalow plots; the man-made Pearl Island which can be developed into 19 bungalows (this site is being relaunched today) and a plum condo site, dubbed The Pinnacle Collection at the entrance of Sentosa Cove’s marina basin.

The tender for The Pinnacle Collection was launched earlier this month and closes on Dec 12, with a reserve price set at $963.8 million or $1,600 per square foot per plot ratio. But most market watchers expect the winning bid to be much higher.

As for the 159,742.1 sq ft Pearl Island, CB Richard Ellis executive director Li Hiaw Ho expects it to draw bids of $800 to $900 psf of land area. This is about 30 to 46 per cent above the $617 psf that the next-door Sandy Island fetched during an expression of interest that closed in November last year.

Pearl Island was offered for sale during the same exercise but the site was not awarded by SCPL although it received offers above the reserve price.

Pearl Island, which can accommodate up to 19 luxury waterfront villas with private berths in their backyards, will not be sold to individual buyers seeking a plot. Instead, the entire land parcel must be bought at one go, presumably by developers. ‘This is an opportune time for developers to develop and offer luxury waterway villas in Sentosa Cove to satisfy the pent-up demand,’ said Ms Kemmy Tan, general manager of Sentosa Cove.

CBRE said that assuming land bids of $800-900 psf for Pearl Island, prices for the completed individual bungalow units will likely start from $8 million upwards.

Taking a more bullish view, Savills Singapore director of marketing and business development Ku Swee Yong predicts winning bids for Pearl Island will come in at $1,200 to $1,300 psf, reflecting absolute quantums of $191.7 million to $207.7 million.

The breakeven cost works out to about $13 million per bungalow. ‘This still leaves a profit margin for the developer. After all, the owner of a seafronting completed bungalow at Sentosa Cove with a 9,000 sq ft land area is said to be asking for close to $20 million,’ Mr Ku said.

The expression of interest for Pearl Island closes on October 25. Its award will be based solely on price.

SCPL yesterday also revealed that new benchmarks have been achieved for individual bungalow sites during an expression of interest that closed on Sept 4. A waterway plot fetched $1,247 psf of land area – a new high for such a site – while a fairway facing site achieved $1,527 psf, surpassing even the $1,473 psf that a seafronting bungalow site achieved during an expression of interest that closed in May this year.

 

Source: Business Times 27 Sept 07

Rush to launch collective sale sites

Chateau Eliza, Toho Garden, Vista Park among those offered for en bloc

DESPITE the cooling off in the property market, there seems to be something of a rush to launch collective sale sites this week.

The latest offerings are Chateau Eliza at Mount Elizabeth, Toho Garden in Yio Chu Kang, Vista Park at South Buona Vista Road, and a stretch of 15 houses at Jalan Bunga Raya near Balestier Road.

Property consultants said there are a string of other collective sale cases where agents have either recently secured the minimum consent levels or are rushing to do so before new en bloc sale legislation kicks in early next month.

In some cases, agents have had to raise minimum reserve prices a little in the collective sales agreements to entice the last few owners to sign up.

However, in other instances, they have also managed to persuade owners to set more realistic expectations, pointing to the perils of not achieving the minimum consent levels before the new rules are in force. The various processes and safeguards entailed in the new rules are expected to lengthen the time taken to get collective sale sites ready for launch, market watchers said.

CB Richard Ellis executive director Jeremy Lake said the US sub-prime mortgage woes in the past four to six weeks have also served to add a dose of realism to owners’ price expectations, helping to expedite securing minimum consent levels in some instances.

‘Prior to that, it seemed like a never-ending party,’ he said.

DTZ Debenham Tie Leung director (investment advisory services) Shaun Poh said: ‘I would say that in 50 per cent of our cases, we’ve had to up the reserve prices a bit to get the last few owners to sign up. But we’re also trying to ensure owners’ pricing expectations are realistic.’

In the remaining cases, Mr Poh did not have to raise minimum prices but persuaded owners to be more realistic and sign up.

‘Our advice to clients is: Let’s lock in the 80 per cent consent level first, before the new laws take effect. We can then watch the market and see how new residential property launches in the location fare before deciding whether to launch the tender for our en bloc sites,’ Mr Poh said.

Chateau Eliza at Mount Elizabeth has an indicative price of about $115 million to $120 million, which works out to $2,130 to $2,222 psf per plot ratio (psf ppr). No development charge (DC) is payable.

In July, the site was launched through an expression of interest before the minimum consent level had been secured, with an indicative price of $120 million.

Marketing agent Credo Real Estate is now launching a tender for Chateau Eliza as it has secured consent for a collective sale from owners controlling more than 80 per cent of share values. The freehold site has a land area of 17,997 sq ft and can have a maximum gross floor area of nearly 54,000 sq ft, based on preliminary checks.

Over in South Buona Vista, Newman & Goh is launching the tender for Vista Park, which stands on a site with a remaining lease of about 71 years. Owners are looking at about $265.7 million, which reflects a unit land price of about $680 psf ppr, inclusive of an estimated $37.3 million payable for upgrading the site’s lease to 99 years. No DC is payable.

Newman & Goh is also offering the freehold Toho Garden at Yio Chu Kang Road with an 86,881 sq ft site area through a tender. Its owners are seeking $60.8 million, which works out to $580 psf ppr including an estimated $9.7 million DC. Both Vista Park and Toho Garden have a 1.4 plot ratio (ratio of maximum gross floor area to land area).

DTZ has also launched the tender for Nos 1-15 Jalan Bunga Raya, with a freehold land area of 24,058 sq ft. Access to the terrace houses is by a road which can be alienated by the state for about $7 million, boosting the total land area to about 32,978 sq ft, according to DTZ.

A DC of $263,000 is also payable. The $66 million to $67 million price expected by owners reflects an all-in unit land price of about $800 psf ppr. The site is designated for 2.8 plot ratio.

Meanwhile, Jones Lang LaSalle yesterday launched the tender for a 28,798 sq ft freehold residential site with a 2.8 plot ratio at River Valley Road for sale by tender. It did not indicate price expectations in its release.

 

Source: Business Times 27 Sept 07

Real estate derivatives next for Singapore?

Despite their complexity, ONG CHOON FAH points out the distinct advantages this financial product can offer

THE management of risks is central to all investments, including real estate.

The financial markets have, since the 1970s, managed risks in the form of derivatives – financial instruments where the return is based on the return of another underlying asset eg, equity or bond. Often used by sophisticated investors such as investment banks and hedge funds, derivatives have a chequered history.

While some view them as a form of speculation, others view them as a way of hedging risk exposure.

With increasing sophistication and integration of the financial and real estate markets, underpinned by the globalisation of real estate investments, property derivatives are now available in many markets, including the UK, US, Germany, France, Australia, Japan and Hong Kong. Real estate derivatives usually have tenures of between one and five years and operate similarly as trades on the stock exchange.

Typically, one party bets that the total returns from the real estate, which includes rental income and capital appreciation, will exceed a stipulated figure while the other bets it will not. Like all derivatives, real estate derivatives serve some very important functions:

• They provide valuable information on the underlying real estate assets on which futures contracts are based and in so doing, facilitate price discovery which is currently lacking due to the absence of a central exchange for real estate. Pricing of real estate derivatives also indicates prospects of the real estate market

• They facilitate risk management through hedging, especially given the illiquid nature of real estate. Portfolio managers will then have the flexibility in terms of asset allocation and moving from one real estate market to another

• They lower transaction costs, reduce lead time and hence increase market efficiency.

  In addition, investors can get market exposure without issues relating to owning the physical real estate eg, management.

  In the case of a Property Total Return Swap (PTRS), it enables real estate owners to sell their exposure in the real estate market without disposing the physical assets.

  Unlike in the sale of real estate, where the vendor will need to build up his portfolio of assets all over again, in the case of PTRS, the vendor returns to his original market position upon maturity. Another advantage of PTRS is that it is liquid and can be traded in the secondary market before maturity.

There are many other forms of real estate derivatives. In a cash-backed contract, a single payment at the commencement of the contract is swapped for future payments in line with the performance of the underlying real estate asset. In other arrangements, cash flows are swapped periodically with payments, either pre-determined or dependent on the performance of the underlying real estate.

In the case of Property Index Forwards, it allows investors to gain exposure to the real estate market, without investing in the physical assets, where the return is equivalent to the capital performance of the real estate asset with consideration paid either at the start or upon maturity.

Yet another form is the Property Index Certificate (PIC), a total return instrument where payment is pegged to the rental income and capital return equivalent to the capital performance of an agreed real estate index. As the index reflects the appraisal of the underlying real estate asset, consideration payable for a PIC is equivalent to the level of the index at the time.

Being a financial instrument, there is no real estate agency fees payable with significantly lower legal costs and stamp duty compared with real estate transactions. The purchase price is also established at the onset, removing price uncertainty which is often clouded in a physical real estate transaction. With a fixed term contract, parties involved can establish an exit strategy based on the real estate index upon maturity.

In the UK, where real estate derivatives debut, derivatives for commercial properties are based on the All Property Annual Index by Investment Property Databank Ltd (IPD) which is widely accepted as an independent and good measure of real estate performance. The IPD represents over 40 per cent of the commercial market in the UK.

Derivatives remain highly controversial as they are complicated and potentially less transparent.

Being complex financial instruments, there is a need to understand them well in order to use them effectively and responsibly, to manage risks. They allow investors exposure to a particular real estate market without acquiring the underlying physical asset. They can also be traded in smaller denominations and allows retail investors an additional investment instrument.

Growth of the real estate derivative markets in the UK and US have been driven mainly by institutional investors as they increase their asset allocation to real estate. Real estate swaps are also being established for sub-sectors of the market, together with capital-only and income-only swaps.

In Asia, the first real estate derivative was created in early 2007 between ABN Amro and Sun Hung Kai Financial based on a residential index – The University of Hong Kong’s Hong Kong Island Residential Price Index Series (HKU-HRPI). In the arrangement, ABN Amro gets exposure to the Hong Kong residential property market through receiving the change in the residential price index from Sung Hung Kai Financial. In turn, Sung Hung Kai Financial receives a payment based on an interest spread fixed on HIBOR. In so doing, ABN Amro is effectively buying an exposure in the Hong Kong residential market with Sun Hug Kai Financial virtually (as opposed to directly) selling the property.

The Reit market in Singapore has developed successfully since its debut in 2001. Today, there are 17 Reits listed on the Singapore Exchange, comprising both real estate assets in Singapore and the region.

For the next lap, it is timely that Singapore develops a real estate derivative market. This will further grow and enhance its role as a financial hub.

However, infrastructure must be developed in terms of industry standards for appraising the real estate assets, regulations and trading platforms.

Critical to this is the need for a robust and widely accepted real estate index/sub-indices on which to base the trade.

These indices will need to be published as regular as on a monthly basis to underpin secondary market trades.

There is also a need for real estate forecasting capabilities to facilitate the market. As it is, various market participants are exploring the development of a real estate derivative market in Singapore and it is a matter of time before these instruments make their way to main street.

 

Source: Business Times 27 Sept 07

Property investing – doing the math

ROY A VARGHESE examines two real-life scenarios to show investors the importance of timing in calculating risks and returns

MOST individual investors of real estate have a gut feel about whether they made, lost or broke even after holding their property for a certain period. In reality, few attempt to do the math to measure how well the investment truly performed and whether they were rewarded for the risks they took.

The only ones who are fairly confident of quantifying their profit or loss are the ‘flippers’ who speculate and deal in the sub-sale market without involving bank loans, rental income and outgoings.

This article takes the reader through two real-life case studies of investing in private residential properties in Singapore over two different time periods. The focus is on getting a sense of timing, time horizon, interest rates, rental yields and rate of returns. The outcome is to help an individual investor assess if real estate investing is worth the risks involved.

Case 1: 1982 to 1991

Not many of us will recall that there was a red-hot residential property market in Singapore in the early 1980s.

Condominiums were making a splash and the Central Provident Fund was made available for investment in properties. It’s hard to believe but mortgage rates were in the low teens in Singapore at that time. The particular property in this case was in the Pandan Valley area. It was a brand new 1,000 sq ft studio apartment that was launched at $300 per sq ft. The initial tenancy was at $2,500 a month. This translated to a gross rental yield of 10 per cent, bearing in mind that mortgage rates were around 13 per cent a year.

Everything was fine until the recession of 1984. The monthly rent dropped to $900. The value of the condo unit languished at the $200,000 level for the next two years. The gross rental yield fell to a more realistic 5.4 per cent (annual rental of $10,800 divided by prevailing market value of $200,000), almost in line with mortgage rates prevailing through the brief recession.

If the owner had sold the property after holding it for five years, the capital loss would have been massive.

However, the property market recovered and by 1991, this studio apartment was sold for $400,000. The owner was not prepared to hold on because of the uncertainties connected with the first Gulf War.

More importantly, the investor decided to use the proceeds to upgrade his primary residence. Intuitively, he was satisfied that he had broken even in terms of cash flow. But he did not know (or care) that his actual internal rate of return (IRR) was only 6 per cent a year for the 10-year holding period.

Incidentally, an opportunistic investor who bought an identical unit in 1987 would have realised an IRR of 34 per cent a year in 1991. (see sidebar).

The question is: Was the investor who held the property from 1982 to 1991- while suffering the throes of economic upheavals – fairly rewarded for the risks he took?

Case 2: 1996 to 2007

This period in time will be more familiar to most of us. The climax of the bull market of the 1990s came about unexpectedly when the government intervened in May 1996 with anti-speculation measures. Our second investor bought a brand-new condo in District 9, a few months prior to the drastic new housing rules. The 1,300 sq ft threebedroom unit was acquired at $1,200 psf, or $1.56 million. The first tenant paid $4,500 a month for a gross rental yield of 3.6 per cent. The interest rate was 5 per cent a year in the initial period, but steadily dropped to 1.5 per cent in 2001.

Till today, this condo is very marketable and the maximum period of vacancy between tenants was six weeks. The rent fell to $3,000 a month in 2000 for a gross yield of 4 per cent (annual rental of $36,000 divided by the market value of $900,000 in the downturn years).

Other property owners who did not have the holding power were forced to sell at a loss at around the turn of the millennium. Our investor took the lumps and hung on. By the end of 2006, with strong interest for second tier properties, the investment broke even compared to the original purchase price in 1996.

If this unit is sold today, the investor can pocket $1 million after settling with the bank (sales price of $1.8 million less outstanding mortgage of $800,000). The internal rate of return from the date of acquisition now stands at 3 per cent a year over 11 long years.

The question is: Should the owner sell now or wait for a more respectable return? What is the appropriate benchmark to gauge if this investment has met the threshold for an acceptable return?

The two real-life cases were selected to demonstrate that timing in property investment is critical. Peak to peak time horizon within a property cycle may result in a lower than optimal rate of return. Investors cannot anticipate external forces that may derail the best laid plans. Speculators know this too well and they have no intention of holding property longer than necessary. It’s simply capital gain they chase.

Exposure to real estate is part of a sound overall investment strategy. This exposure may not necessarily be in bricks and mortar (which has no liquidity) and should be beyond Singapore (for diversification). One alternative for liquidity and diversification is to invest in a portfolio of global property shares, funds and Reits. Due to higher risks, the expected rate of return from a well-timed property investment will be higher than a globally diversified portfolio of property securities.

If we assume an average inflation rate of 3 per cent a year in Singapore, then any investment should exceed this minimum return in the medium to long term. Then, there is the risk premium for property: an average net rental yield of 3 per cent and capital gain of 5 per cent add up to 8 per cent a year total return, or 5 per cent a year above inflation.

A useful proxy for the local landscape is the All Singapore Equities Property Index (left). The total return for the period August 1997 to August 2007 was 4 per cent a year. That’s a dreadful performance indeed for the long-term investor in Singapore property stocks during this eventful decade. Maybe our Case 2 investor should not feel too badly after all.

In conclusion, investing in residential property provides pride of ownership and a hedge against inflation. Whether it delivers adequate income or capital gains to an investor depends on many factors. In a nutshell, the property investor should acquire a quality product, pay a reasonable price and have the ability to hold for a long enough time horizon to earn the appropriate return.

The property agent, conveyancing lawyer and banker play their part in the buying and selling of the asset. These roles are necessary to ensure a smooth transaction. An experienced financial adviser can offer advice on the required return on investment, asset allocation and risks connected with the property as part of an overall investment portfolio.

 

Source: Business Times 27 Sept 07

Mass market on the rebound

The outlook for this sector is bright, riding on strong demand fundamentals

PRICES of mass market residential property are finally seeing a clear uptrend, as reflected in the latest Urban Redevelopment Authority’s (URA) statistics. Non-landed residential properties sited outside the central region (OCR) – where most suburban mass market properties are located – enjoyed a price rise of 7.2 per cent in Q2 2007.

This trumped the 2 per cent rise in Q1 2007. It was the highest quarterly gain since the market bottomed in Q2 2004, and indicates that confidence in the high-end residential property market has filtered down to the mass market.

Upswing seen across all locations and projects

Based on caveats lodged, the upswing in prices of mass market developments occurred across most suburban locations, although to different degrees. (See Table 1) The steepest price rise was seen in District 5. Median prices in this district rose by some 46 per cent from the low point in Q3 2005 to Q2 this year. This was followed closely by District 22, with a 42 per cent price rise. District 21 saw a 41 per cent gain in median prices. District 18 had a slower recovery. As of Q2 2007, median prices of mass market projects in the east picked up by 13 per cent from its trough in Q4 2006. A similar trend was observed in district 27, where the median price of private homes registered an increase of 16 per cent between Q1 2007 (the district’s record low) and Q2 2007.

The upswing is also more pronounced in larger and newer projects, which boast comprehensive facilities, as well as in those close to MRT stations and amenities.

One example is Kovan Melody, located next to the Kovan MRT station in District 19. Median prices there rose by 16 per cent, from $520 per sq ft when it was launched in 2004 to $605 psf in Q2 2007. At the other end of the spectrum, smaller and older developments located further from amenities, saw slower or flat price recovery. For instance, Central View in district 19 recorded a price gain of about 6 per cent between Q4 2006, when median prices were at the lowest for the development and Q2 2007.

Buyers of mass market homes are genuine purchasers

URA figures show that new projects sold by developers and resale deals make up the bulk of transactions in mass market districts located in OCR. Such sales made up more than 95 per cent of all deals since the general market bottomed out in 2004. On the other hand, sub-sales – which refer to secondary market transactions in uncompleted projects and often seen as a proxy for speculative activity – remained low at under 5 per cent.

Although sub-sales as a percentage of total transactions in OCR have been rising since Q3 2006, they are still relatively low at 3.1 per cent as of Q2 2007. This compares to 19.4 per cent for high-end properties in the core central region (CCR) and 10.4 per cent for private homes located in the rest of central region (RCR).

When taken as a percentage of total new sales within the respective regions, the proportion of sub-sales was just 7 per cent for the OCR, compared to 53 per cent for the CCR and 27 per cent for the RCR.

Supply crunch driving the mass market recovery

The rapid pace at which residential developments in the central area have been collectively sold in the last two years created an acute supply crunch, stemming from the massive withdrawal of homes from the existing stock.

This became one of the main drivers of the recovery in the mass market, which enjoyed a filtering down of demand, both in the sale and rental markets. Evidence of this can be seen in the much higher proportion of mass market property buyers with private residential addresses – from a low of 12 per cent in Q2 2002 to 61 per cent in Q2 2007.

However, the supply crunch is expected to be short term. The estimated 6,200 homes already withdrawn or about to be withdrawn from the stock in the central area – due to collective sales between 2005 and June 2007 – will be replaced by some 13,000 spanking new, modern and more luxurious homes in the next two years.

Moreover, the recent injection of private residential sites into the government land sale programme for H2 2007 could add another 5,580 new mass market homes.

Upswing in the mass market sustainable

Unlike the mid-1990s upturn that was propelled largely by speculative buying and weak demand fundamentals, the current upswing is supported by strong demand fundamentals on the back of bright economic prospects.

Historically, Singapore’s property cycles, measured from trough to trough, last between 10 and 13 years. Taking that as a guide, the current upswing in the mass market, which commenced in mid-2004 and picked up momentum this year, is likely to continue and peak in 2010. This coincides with the expected completion for many of the infrastructure programmes (such as the integrated resorts and Marina Bay Financial Centre) which support Singapore’s economic restructuring.

However, downside risks remain and they stem from the recent turbulence in world financial markets and uncertainty over the impact of the US sub-prime mortgage woes. Nevertheless, while the US and Europe may suffer a hit over the next few months, the economic fundamentals of Singapore and Asia remain strong.

Mass market prices could hit the 1990s peak

Launch prices of new mass market residential projects during the 1990s property boom ranged between $550 psf and $1,050 psf. One of these projects was Bishan 8, which was launched at a median $1,050 psf in 1997. The highest unit price achieved for a mass market project during the mid-1990s peak was a unit in Heritage View, which sold for $1,127 psf in September 1997.

In comparison, in the first eight months of this year, new mass market housing was launched at prices ranging from $500 psf to $880 psf, just some 9 to 16 per cent lower than the levels achieved at the last peak. The highest price achieved for mass market property in the current market was for a unit in The Parc, which sold for $1,040 psf in August this year.

Meanwhile, in the secondary market, the median resale price of mass market properties as of Q2 2007 was $516 psf, just some 14 per cent below the peak in Q3 1996. However, for those projects that were launched at the height of the boom in the mid-1990s, their median resale prices as of Q2 2007 are still some 11 to 45 per cent off from their highs. (See Table 2)

With the upswing expected to be sustained until 2010 at least, and assuming a conservative price growth of 5 per cent per quarter, prices of new mass market projects are likely to attain the 1990s peak level by H1 2008, barring unforeseen circumstances. For mass market properties in the secondary market, resale prices should match the last high by the end of 2008.

 

 

Source: Business Times 27 Sept 07

Industrial space gets snapped up

Vacancy rates are the lowest in eight years, as Reit players push up demand for warehouse and factory space

IN TANDEM with the growth in residential and office space, average rents for the less glamorous but nonetheless expanding industrial space sector increased by 7.7 per cent in the second quarter this year.

This is all the more significant considering that the industrial space sector is still trying to clear the supply glut that has been stagnating in the market. In spite of this, vacancy rates are at the lowest in the past eight years. Besides a promising 8.3 per cent growth in the manufacturing industry, higher demand for business parks also accounts for the expansion in this property sector. Industrial space is made up of warehouse and factory space. The latter itself contains three sub-categories – single-user factories, multi-user factories and business parks.

In the first half of this year, factory and warehouse space saw an increase of 3.7 million and 1.6 million square feet in stock respectively. This has brought the total stock to 299 million sq ft for the former category and 65.7 million sq ft for the latter.

As at end Q2 this year, supply in the pipeline will channel a further 45.2 million sq ft into the market over the next five years.

Additionally, nine industrial sites have been released for the second half of 2007 under the government’s industrial land sales programme, which will provide an additional 3.74 million sq ft of space once completed.

On the demand side, the past half year recorded a healthy take-up of about 330.5 million sq ft of industrial space, contributed by 271.9 million sq ft of factory space and 58.6 million sq ft of warehouse space respectively. This resulted in a decline of vacancy rates to 9.1 per cent for factories and 10.9 per cent for warehouses.

The biggest demand in the industrial space market came from aggressive acquisitions by major Reits players like Mapletree, A-Reit, Cambridge and the recently listed MacarthurCook Industrial Reit.

In the first half of this year, more than 15 acquisitions have taken place, bringing the total value of transactions to almost $900 million, upping last year’s tally during the same period by 1.6 per cent.

Steadily increasing rents no doubt account for the active acquisition rates. According to URA statistics, rental and price indices for warehouses increased by 20.4 and 13.9 per cent in the first half of 2007 compared to the same period last year, while those of factories rose by 14.2 and 18.1 per cent year-on-year respectively.

During the first half of the year, average monthly rents for factory space increased by 3.8 per cent quarter-onquarter, standing at $1.60-$1.80 psf for ground floor units and $1.20- $1.40 psf for upper floor units. Average capital values for freehold factory space appreciated by about 5 per cent to $366 psf and $298 psf for ground floor units and upper floor units respectively. UE Print Media Hub, located at Tai Seng Drive, a project by United Engineers, catering mainly for the print and media industry, saw occupancy rates hit 88 per cent in one month.

High-tech space posted the largest rental growth of almost 12 per cent quarter-on-quarter, benefiting from the spillover of high demand for office space. With rents substantially lower than that of office space, yet providing similar functionality, it is no wonder that developments like The Comtech and Alexandra Technopark are enjoying near 100 per cent occupancy.

The Comtech, especially, has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors. Currently, average rents for high-tech space stand at $2.80 psf, up from $2.10 psf in the first quarter of the year. With a limited stock of high-quality warehouse space in the island, demand is fast catching up with supply, with an occupancy rate of 90 per cent. This is especially so in the east where a high concentration of logistics companies are located due to its close proximity to Changi Airport.

In addition to building specifications such as high floor loads, large floor plates and good cargo lift facilities, location remains important, with developments located near major transportation nodes seeing higher take-up rates than those in the outskirts. Warehouse space is now asking an average rental of $1.45 psf per month with higher floors asking $1.15 psf, a rise of 11.5 per cent quarter-on-quarter. Average capital values for freehold warehouses factories are also on the uptrend, coming in at $450 psf for ground floor units and $352 psf for higher floor units.

In light of the growing manufacturing sector, strong demand for industrial space will continue to support rents and capital values, despite a substantial amount of new stock entering the market during the second half of the year.

Rents of factories and warehouses are likely to rise another 10 per cent by the end of the year. Also, as industrial Reits continue to expand their portfolio, the sector may well see an overhaul for much of the existing stock, especially older sites that are centrally located.

 

Source: Business Times 27 Sept 07

HDB resale market rides high

It’s certainly a seller’s market as prices trend upwards and demand for larger units rise

HDB resale prices have been recovering slowly but surely since a dip in late 2005 when anti-cashback measures were introduced to stamp out the illegal over-declaration of resale prices.

The recovery was based purely on the market fundamentals of an improving economy and employment market; as well as the actual play of supply and demand.

From Q4 2006’s 103.6 points on the HDB Resale Price Index, resale prices for HDB flats jumped 4.2 per cent in the first half of this year to reach 108 points in Q2 2007. Besides demand being fuelled by improving sentiment, the spate of collective sales in the private property market has unleashed a group of cash-rich house hunters, many of whom are opting for high-end resale HDB units. These buyers are willing to pay top dollar for flats that fit their criteria.

In June, wide media coverage of two five-room HDB flats that changed hands in the resale market at recordbreaking prices of $675,000 in Jalan Mebina (off Tiong Bahru) and $720,000 in nearby Kim Tian Place spun the HDB resale market into euphoria. It led hopeful sellers all across Singapore to hike asking prices overnight, some by up to $200,000 above valuation.

This led to a mismatch of price expectations between sellers and buyers as these high-priced deals are limited to fairly new, well-renovated, high-floor resale flats in coveted estates such as Tiong Bahru and Queenstown.

The HDB was quick to respond to concern among home buyers about runaway prices and released additional data on median resale prices and median cash-over-valuation in all the housing estates. Median prices give a more accurate picture of the market and minimise the distorting impact of headline-grabbing prices.

With these additional statistics, to be provided by HDB on a quarterly basis from the second quarter, home buyers have better information on which to base their decisions. Sellers are also able to use these statistics to price their flats realistically and competitively.

Going forward, HDB resale prices are expected to continue trending upwards. HDB’s Resale Price Index rose by 3 per cent in Q2 2007 over the previous quarter, with price increases across most flat types and towns. Seventy per cent of the resale transactions in Q2 2007 were transacted at an average of $7,000 cash-over-valuation. As at the end of the first half, HDB resale prices have increased by 4.2 per cent. With such positive market sentiment, prices are likely to continue to rise in the subsequent quarters and we may possibly see an overall price increase of 6-9 per cent for the full year.

Resale volume

With improving sentiment, the volume of resale transactions jumped 39 per cent in Q2 2007 to 8,708 units from an all-time market low of 6,258 units recorded in Q1 2007.

HDB’s data also indicates a strong preference among buyers for larger flats. Between Q1 2007 and Q2 2007, executive flats saw the largest increase in resale transactions of 67 per cent (343 units); followed by five-room flats at 64 per cent (903 units); four-room flats at 31 per cent (726 units) and three-room flats at 25 per cent (482 units).

The resale mix for H1 2007 showed three-rooms making up 29 per cent (down from 2006’s 32 per cent; four-rooms at 37 per cent (about the same level as 2006); five-rooms at 25 per cent (up from 2006’s 22 per cent); and executive flats at 9 per cent (up from 2006’s 7.5 per cent).

This preference for larger flats is likely to continue for the rest of the year as the demand is fuelled by those upgrading from smaller flats as well as buyers who have been priced out of the booming private residential market.

By year-end, we may possibly see three-room flats accounting for 25 per cent of resale transactions, four-rooms at 37 per cent, five-rooms at 28 per cent and executive flats at 10 per cent.

Assuming the current momentum holds, we are likely to see this year’s total resale volume surpassing last year’s 29,723 units, which was an all-time low. Some 30,000 to 32,000 are estimated to be transacted for the whole year.

Changes in housing policy

At last month’s National Day Rally, Prime Minister Lee Hsien Loong announced a slew of housing policy changes.

These include:

Revised additional CPF housing grant: The Additional CPF Housing Grant (AHG) Scheme will be enhanced to provide more subsidy to lower-income families to help them buy their first HDB flat. The income ceiling for AHG will be raised from $3,000 to $4,000, while the maximum grant will be raised from $20,000 to $30,000.

The enhanced scheme can be used to subsidise the cost of buying a new or resale flat. It is expected to benefit an additional 1,300 first-timer households annually. In total, some 4,000 households are expected to benefit from this programme every year; and this may boost the demand for three-room flats which has been lessened in view of the current upgrading trend.

New HDB buy-back scheme: This scheme helps unlock the value of flats for elderly Singaporeans aged 62 and above, providing them with an income stream. HDB will buy back the tail-end of the lease on their two- or three-room flats, leaving them with a shorter lease of 30 years on the same flat.

The flat owner will then receive a payout from HDB in two parts – a lump sum upfront and monthly payments for the rest of his or her life which will serve as a form of annuity. This scheme is not expected to have a significant impact on the resale market as it focuses on the elderly.

Two new upgrading programmes: HDB will be introducing two new upgrading programmes, namely, the Home Improvement Programme (HIP) and the Neighbourhood Renewal Programme (NRP).

The HIP aims to address common maintenance problems in ageing flats, such as spalling concrete and ceiling leaks; while the NRP focuses on precinct- and block-level improvements.

These upgrading schemes are designed to improve the internal and external environment of affected flats. While the flats’ condition and aesthetics are improved, the possibility of fetching higher prices is basically dependent on supply and demand rather than upgrading per se.

With strong market fundamentals, supported now by added transparency in transaction information, the HDB resale market is expected to continue its uptrend for the rest of the year.

 

Source: Business Times 27 Sept 07

A glowing report card for the hotel industry

Business is brisk as visitor arrivals climb steadily, pushing up room rates and triggering a flurry of new hotel construction

SINGAPORE is all set to spur tourism in the next few years with high-impact projects like the two integrated resorts, the Singapore Flyer, the Formula One (F1) Grand Prix and a rejuvenated Orchard Road.

Last year, a new record was set with 9.7 million foreign visitors coming to Singapore. This year’s visitor arrivals are expected to hit a blistering 10.2 million with Singapore Tourism Board (STB) numbers showing a glowing midterm report card. From January to July this year, visitor figures reached 5.9 million, a 5 per cent rise over the same period last year. July alone saw hotels raking in $168 million in room revenue, a 28 per cent increase from a year ago. This puts it right on target for another record-breaking year.

STB has set a target of 17 million visitor arrivals by 2015 with $30 billion in tourism receipts. Based on the impressive year-on-year growth over the past 12 months, we should be on track to achieve the 2015 target.

To meet the growing number of visitor arrivals, more hotel rooms have to be built. Presently, there are about 37,000 rooms in Singapore. Based on new supply under construction, some 11,000 rooms will come on-stream by 2010. This includes 4,300 rooms from the two integrated resorts at Marina Bay and Sentosa. It is estimated that in 2010, a total of 14 million foreign visitors will visit Singapore. Based on a conservative average stay of 3.4 days, the city-state will experience an acute shortage of at least 35,000 rooms from now till 2010. Come next September, the F1 event alone will bring an estimated 50,000 visitors. In short, our existing hotel stock needs to be doubled in the next three years to meet surging demand.

To meet this need, the government has since 2006 offered 25 hotel sites for sale. Of this, 10 sites valued at $2.4 billion million have been acquired by developers. In addition, 11 hotels have effectively changed hands. Total private hotel investments soared to over $1.3 billion. Another two hotels, Paramount Hotel and Mitre Hotel, are either under negotiation or waiting for a finalised offer.

About 53 per cent or nine out of the total 17 hotel properties (including government sites), were sold to international investment funds, foreign hoteliers and investors since 2006. In the recent Beach Road tender, USbased Elad Group and Dubai-based Istithmar are joining forces to develop a $2.7 billion integrated hotel, office and retail project. The strong interest from foreign investors shows their astute reading of the opportunities arising from the shortage of Singapore hotel rooms, as well as the potential of reaping higher yields from room-rate increases. It is this overwhelmingly positive outlook that is driving investors’ appetite.

In the first half of this year, the average occupancy rate (AOR) hit a high of 86 per cent with average room rates (ARR) reaching $189. STB recently announced that ARR had increased to $210 in June, the highest rate ever achieved. AOR in July hit 91 per cent, a whisker shy away of November 2006’s 13-month peak of 92 per cent.

With the third and fourth quarters typically being the busy period for hoteliers, room charges and occupancy rates are likely to be maintained or surge further.

For 2008, we are projecting that AOR will test the 90 per cent level with ARR expected to grow by at least 15 per cent from current levels.

With higher occupancy and rising room rates, the burning question is: Can Singapore hotels maintain their competitiveness to continue attracting foreign visitors? The answer is a resounding yes, based on the following reasons.

Singapore ranks sixth out of 15 key Asian cities in terms of ARR, according to a recent Cushman & Wakefield survey. Tokyo has the distinction of having the highest room rates in Asia followed by Hong Kong.

The government has been releasing more three-star hotel sites as part of its strategy to have enough affordable class hotels. These hotels cater to budget-conscious tourists, predominantly from South-east Asia, China and India.

The hotel sites on the government sale list tend to be located at the city fringe such as Alexandra Road and Bencoolen Street. The latter is where Accor’s Ibis three-star 538-room hotel will be built.

The opening of Changi Airport’s Terminal 3 in January next year is set to bring in a steady stream of foreign visitors. The new terminal is capable of handling up to 22 million passengers a year and some of the world’s largest aircraft.

Despite the US sub-prime lending setback, Singapore’s hospitality sector is experiencing one of its strongest recoveries in over a decade. The market is at the initial stages of takeoff as the high-impact tourism projects start to unveil from 2008. This is when the world’s tallest observatory, the Singapore Flyer and the F1 Grand Prix take centrestage in thrilling visitors from around the world.

A year later, all eyes will be on the opening of Marina Bay Sands, which will be the most expensive casino-cumintegrated resort ever built. In 2010, Universal Studios and Resorts World will open their doors to charm a global audience.

Some cities looking to break onto the world stage have looked to hosting mega catalytic events like the Olympic Games, which would instantly give them global city status. Singapore has its own booster in the high-impact tourism projects that will be ready between 2008 and 2010. These should collectively propel Singapore to a different league in the global travel and hospitality industry.

 

Source: Business Times 27 Sept 07

Enjoying the sponsorship edge in acquisitions

Strong developer sponsorship allows Reits to trade at lower yield levels while boosting the former’s risk management portfolio, says LESLIE YEE

SINGAPORE commercial Reits have been enjoying rising office rents in 2007 but are facing fierce competition to acquire prime office assets amid competition from private equity funds and yield compression.

Three events stand out:

(i) CapitaLand sold its 90 per cent-owned Temasek Towers to a private fund and not to CapitaCommercial Trust (CCT);

(ii) CapitaLand sold its mixed development project Wilkie Edge to CCT; and

(iii) Keppel Land and Cheung Kong announced plans to sell their respective stakes in One Raffles Quay to K-Reit and Suntec Reit.

Questions from investors we spoke to include:

Why is CapitaLand exiting a development project instead of waiting to reap maximum benefit from completing the project and selling out post income stabilisation?

Why are Keppel Land and Cheung Kong entering interested person transactions involving payment of income support when perhaps better deals could be struck by selling to third parties?

Does CapitaLand’s sale of Temasek Towers to a bidder who could pay more than CCT set the standard for good governance and maximise value for CapitaLand’s shareholders?

Singapore’s five-year-old Reit market has been driven by developers divesting assets into Reits where they continue to hold a substantial stake and also own the fund management entity.

We believe investors prefer such sponsored Reits for their strong acquisition pipelines and trade them at lower yields. Still, conflict issues can arise when Reits buy assets from developer sponsors. Although regulations adequately protect Reits from over-paying for acquisitions, in the current Singapore market where asset prices are rising, the converse of developers under-pricing when selling to Reits may become more of a concern.

Over time, we spot a silver lining for Reits amid the global credit crunch in that private equity funds may become relatively less competitive than Reits in asset acquisitions due to possible increase in debt cost and pricing of risk.

In the medium to longer term, we look for reversal in yield compression for physical property in Singapore and a narrowing in distribution yield spread for Reits, which will help Reits grow via accretive acquisitions.

In selling an asset to its sponsored Reit, a developer can realise proceeds, yet ride any upside should it have a stake in the Reit. We see this model as providing a middle ground between being asset light and asset heavy as per the traditional Asian developer who holds investment properties for capital gains. Also, a developer who owns the Reit’s manager can earn management fees. The fund management business itself is potentially valuable given the recurrent stream of fee income.

Our analysis on the sale of a completed asset shows the net benefit to a developer is roughly the same from selling to a Reit or from selling to a third party at a price that is nearly 20 per cent more. Here, we ignore the potential for recycling the additional proceeds realised from a third-party sale into new development projects and the relative difficulty of selling a minority stake in a building compared with selling an entire building.

Looking at the Singapore Reit universe, we note that Reits which we think have strong sponsorship from developers, trade at current yields of around 100 basis points lower than other Reits in a similar asset class (See Table 2). We attribute this premium to the inside track the developer sponsor provides to the Reit in asset acquisitions.

Best practice

Essentially, a Reit’s chances of acquiring an asset from its sponsor are higher than that of a third party. Should a developer sponsor fail to help its Reit acquire assets, we expect the market will stop ascribing the developer premium to the said Reit, which in turn results in a loss in market capitalisation and higher cost of capital for future acquisitions.

We believe that the best practice for a developer sponsoring a Reit involves using its resources and expertise to help grow the Reit and not leave it static. We see value from a risk management perspective for a developer to build up a Reit platform, as having a Reit that is able to buy a development project on completion which allows a developer to be more confident and aggressive in taking on large-scale developments.

We think this matters as periodic bouts of financial market turbulence could lead to times when there may be a dearth of buyers for chunky real estate assets.

The writer is executive director, Asia-Pacific investment research, Goldman Sachs

 

Source: Business Times 27 Sept 2007

Can the credit crunch dent prime office market?

MEGAN WALTERS and ALVIN TEO examine the impact of sub-prime woes on the real estate needs of financial institutions here

Singapore’s fast growing financial sector has been a major user of prime office space and helped fuel the strong growth in rental and capital values of late. But the recent credit crisis in global markets stemming from defaulting US sub-prime loans has put a dampener on the financial sector.

At the start of the sub-prime fallout in July, Asian banks were thought to be relatively insulated from the problems.

But by the end of August, banks, including DBS and the Bank of China, appeared to have greater exposure to US mortgage debt than previously thought.

DBS admitted to $2.4 billion exposure to collateralised debt obligations (CDOs), double what the market had expected. The Bank of China saw its share price fall 8.1 per cent when it became apparent that it held $9.5 billion or 3.8 per cent total securities investments in CDOs.

What will be the effect on the Singapore office market from this shake-up in the banking system? Cushman and Wakefield examine the issue by looking at the performance of the top 25 office buildings here.

Financial services are a key part of the Singapore economy, making up 20 per cent of GDP. More importantly, financial services’ annual GDP growth was 17 per cent for Q2 07, more than double the manufacturing GDP growth rate of 8.3 per cent on the same basis.

Manufacturing is the largest single component of GDP accounting for 45 per cent GDP, but the growth rates in financial services means banking and related services is catching up fast.

The Singapore Department of Statistics found that for Q2 07, the financial services industry did extremely well with turnover growing at an astounding 39.7 per cent on an annualised basis.

A slowdown in the American economy is now expected – with higher borrowing costs, and falling house prices affecting US consumers. With the health of the financial sector dependent on the health of the main economy, the question is: to what extent is the slower growth of the US going to affect the financial sector in Singapore?

This will be two ways: first, the health of the general economy in Asia and, more specifically Singapore, and the second, where the interrelated nature of the financial markets means a downturn in the US financial sector will squeeze the financial sector here.

Of the two issues, the first – the general economic outlook for the region – is still very positive, whilst the second – the financial markets themselves – are still uncertain.

Following a review with 480 companies in seven Asian cities, including Singapore, IMA Asia, a consultancy firm, has revised its economic forecast for Asia (excluding Japan) upwards from 7.4 to 7.9 per cent for 2007 and 7.1 to 7.6 per cent for 2008, despite a substantial cut in the US GDP forecast.

The effect of the risk in the financial markets is much harder to judge – with no one really certain where the risk currently lies. This will be an issue for banks, uncertain whether to expand their regional operations to meet the projected regional growth, against the backdrop of uncertainty in the financial markets. What will be the effect of difficulties in the financial markets on Singapore prime office markets? As at end- August 2007, Singapore prime office rents are $12.21 psf/month with the Top 25 buildings at $12.28 psf/month.

It is expected that any immediate effect on the local prime office market will come from banks as tenants. Most banks are not the owners or landlords of the top 25 office buildings. The majority of the buildings are owned by local property developers or, most recently, funds.

C&W research has found that banks and financial institutions occupy nearly 40 per cent of floor space or nearly 4.8m sq ft in the top 25 prime office buildings, a long way ahead of the next largest category of occupants – professional services firms such as auditors and lawyers.

Given the current volatility of the market triggered by the sub-prime lending in US and the most recent fear of a liquidity crunch, would this affect this group of occupiers in their aggressive expansion plans as we have witnessed in the past 18 months?

A squeeze on bank profits from the credit crunch may result in a reduction in headcount, as already seen in Lehman and HSBC in the US, which will lead to some secondary supply back on to the market. It is possible that this may affect the developers in the real estate markets, but to date we have no evidence of any problems for developers occurring as a result of the current credit crunch.

We have consistently witnessed space being taken up due to expansions and new set-ups. Although at a slightly slower pace as compared to the first half of the year, it is largely due to a lack of supply of good class office buildings.

Vacancy rates are consistently hovering at only one per cent for this group of buildings. Many large financial institutions are also aggressively pre-committing spaces even before the building is constructed and this was best demonstrated in Marina Bay Financial Centre where the entire Tower 1 of about 600,000 sf was pre-leased three years ahead of the building completion! They include tenants like Standard Chartered Bank and French investment bank Natixis.

With 70 per cent of the Top 25 buildings achieving full occupancy consistently, many businesses have also resorted to reconfiguring their existing premises to contain more headcount due to shortage of spaces for their expansions.

The fundamentals of the Asia-Pacific economies remain strong with GDP rates remaining robust. Singapore’s own GDP figures have just been revised upwards by MTI from 5-7 per cent to an upbeat 7-8 per cent range. It is possible that the credit crunch will have little effect as fundamentals remain strong, and Singapore remains a competitive place to do business. Any reduction in headcount by banks and freeing up of supply will more than be met by demand from other sectors.

However, sentiment plays a strong part in stock markets particularly in Asia. In the longer term, the current market wobble may lead to a correction in prices which will affect firms’ expansion plans, and the banks’ willingness to lend.

 

Source: Business Times 27 Sept 07

Bright outlook for S-Reit market

With more overseas players seeking to list here and strong backing from the government to strengthen governance and the operation structure of the market, Singapore is fast developing into a regional Reit hub

SINGAPORE has established itself as one of the most developed markets in Asia for real estate investment trusts (Reits), supported by new listings and active acquisitions by existing Reits.

Reits have been the bright spot in the Singapore capital market and a major driver in the growth of market capitalisation on the Singapore Exchange (SGX). Currently, there are 17 Singapore Reits (S-Reits) listed on the SGX with a total market capitalisation of more than $25 billion as at end-August.

S-Reits have come a long way since the first retail Reit, CapitaMall Trust (CMT), was listed in 2002. The subsequent raising of the gearing cap from 25 per cent to 35 per cent contributed to the burgeoning market.

The investment trust framework allows an attractive level of tax-efficiency. S-Reits are granted tax transparency status, waiver of stamp duty and exemption from capital gains tax. Individual investors are given tax exemptions on Reit payouts. For these reasons, Reits have spurred considerable interest among investors and are now widely accepted as a high-quality investment option.

S-Reits themselves have been growing through acquistions. A total of $6.14 billion worth of properties was acquired by S-Reits in 2006, representing 20 per cent of the year’s total investment sales. This was also 39 per cent higher than the $4.41 billion of total assets acquired by S-Reits in 2005. So far this year, S-Reits have acquired properties of more than $3.7 billion.

Commercial Reits contributed the bulk of investment sales made by S-Reits in 2006 by acquiring a total of $3.84 billion worth of assets or 63 per cent of the total acquisition costs ($6.14 billion). The most significant transaction made by commercial Reits last year was the joint acquisition of Raffles City by CapitaCommercial Trust and CapitaMall Trust for a total of $2.17 billion, representing the highest price paid for any investment transaction in 2006.

So far this year, commercial Reits continue to account for the largest proportion of investment sales made by SReits, contributing $2.16 billion in transacted value or 58 per cent of the $3.71 billion in total investment sales. It was announced recently that both K-Reit and Suntec Reit have each acquired a one-third stake in One Raffles Quay for $1.88 billion. In addition, CapitaLand divested its interest in Wilkie Edge, a commercial-cum-serviced residence development, to CapitaCommerical Trust for $182.7 million.

The potential for further growth in the S-Reit market is substantial. The development of the S-Reit sector is largely supported by the proactive initiatives of the Monetary Authority of Singapore (MAS) to enhance their competitiveness in the region. In a move aimed at making Singapore a major Reit hub, the MAS released a consultation paper on proposed amendments to the Reit regulations in March. Key proposals include improving disclosure on short-term yield enhancing arrangements and their impact, allowing Reits to pay dividends in excess of current income, removing the aggregation rule for transactions with the same interested party and prohibiting discounts to institutional investors during IPOs.

An increasing variety of asset classes is expected to be listed as Reit vehicles in the medium term, beyond office buildings, shopping malls and industrial properties. Following the launch of the first healthcare S-Reit, First Reit, Lippo Group announced its plans to list two more S-Reits in the near term, 12 of which are shopping malls located in Jarkata with a total lettable area of 500,000 sq ft. The initial portfolio of the group’s third Reit will comprise commercial properties outside Indonesia, such as office buildings in Singapore, China and Hong Kong, worth about $2 billion in total.

JTC, the largest industrial developer in Singapore, announced its plan to list an industrial S-Reit in the near term.

Its initial portfolio, estimated at $1.4 billion to $1.6 billion, will include flatted factories, ramp-up and stack-up factories, three multi-tenanted business park buildings and a warehouse.

Pramerica Asia was reported to be looking to divest its retail property portfolio via a Reit. Shopping malls to be injected into its $1-billion initial portfolio include Century Square, Hougang Plaza, Tiong Bahru Plaza and White Sands. Mapletree Investments was also reported to be planning to launch a commercial trust with VivoCity as the anchor asset, valued at an estimated $1.6 billion to $2 billion. Other properties likely to be included in this Reit are St James Power Station, HarbourFront Centre, a 60 per cent stake in HarbourFront Towers One & Two, a 30 per cent stake in Keppel Bay Tower, PSA Building and PSA Vista. The total value of the entire portfolio, including VivoCity, is estimated to be $3 billion.

While the Singapore government continues to strengthen governance and the operation structure of S-Reits, it is also striving to turn Singapore into a regional Reit hub, which will give Reits direct and ready access to capital.

More incentives are being provided for local and foreign companies to establish cross-border Reits, to hold overseas properties on other bourses as a strategy to expand their portfolios. Geographically, more than $20 billion or 81 per cent of the total asset portfolio held by S-Reits are local properties and the remaining 19 per cent or $4.77 billion worth of portfolio are overseas assets.

The outlook for the S-Reit market remains positive as more Reit issuers divest their overseas assets into Reits here.

More sophisticated Reit products will be developed over time. An Indian-based developer, Embassy Group, was also reported to be looking at launching a Reit in Singapore with a portfolio comprising some of the group’s business parks in India.

Indonesian property developer, Gapura Prima Group, will be teaming up with Malaysian developer (Amanah Raya Bhd) to launch a Reit on the SGX in the near term. Its initial portfolio will comprise five malls in Indonesia and another two in Malaysia worth $400 million in total.

Tokyo-based Asia Pacific Land Group plans to list a Reit in Singapore, with an initial portfolio comprising some of its retail and office properties in Japan worth $2.3 billion in total. Another Tokyo-based real estate fund manager, Re-plus, plans to launch an S-Reit in early 2008, with a portfolio comprising two China office buildings worth at least US$400 million.

Saudi Arabia-based property developer, Tanmiyat Investment Group, was reported to be looking to launch an SReit with an initial portfolio of developments in Saudi Arabia, the United Arab of Emirates, Turkey, Jordan and Sudan, worth a total of $13.6 billion.

As Reit portfolios become more diversified, more so than in the mature US and Australian Reit markets, Reit managers in Singapore are challenged to find ways to increase yields of the various asset types to make it more attractive for investors.

Certainly, Reits have added a dimension to the real estate investment and capital markets that appeals to both investors and property companies. The expected growth in Reits would have a positive impact on the broader market as it adds depth to the market and gives investors here wider investment choices.

 

Source: Business Times 27 Sept 07

Boutique developer buys Sentosa Cove site for $79m

It beats 7 others for landed property plot; plans to build 20 houses there

A YOUNG entrepreneur who became a full-time polo player after selling his Silicon Valley dot.com firm has emerged as a successful property developer here.

Indian-born Satinder Garcha, 36, signalled his growing status in the industry yesterday when his company paid $78.68 million for a 200m-long landed plot in Sentosa Cove.

Boutique developer Elevation Developments beat seven other bidders in what Sentosa Cove, which is marketing the land, said was a highly competitive process.

Its price for the 71,589 sq ft plot, which faces the Sentosa Golf Club’s Tanjong course, works out to $1,099 per sq ft of potential gross floor area.

This surpassed the $771.25 psf collective sale price paid for the enclave’s Sandy Island in March.

Sentosa Cove now has just one last landed parcel to be sold en bloc to developers.

Mr Garcha’s property portfolio will be worth $400 million to $500 million once the developments are completed.

He has 22 other properties – about half of which are good class bungalows – in prime areas such as Swettenham Road and Gallop Road. Most are in various stages of development.

Mr Garcha, who is the captain of the Singapore polo team, plans to build 20 houses on the Sentosa site, each with a rooftop pool.

The houses will have 10m glass frontages giving residents a clear view of the golf course.

Many of the homes the firm is building around Singapore will be rented out but Mr Garcha intends to sell the Elevation Golf Villas for $9 million to $10 million each once they are completed around 2010.

These numbers are dwarfed by the price tag of two other properties he owns – bungalows in Nassim Road designed by world-renowned architect Zaha Hadid.

These houses, with a built- up space of 10,000 sq ft, will probably sell for $40 million to $50 million, he said.

The bungalows, now at the design stage, are expected to be ready by 2010. They are Ms Hadid’s first residential project in Asia, said Mr Garcha.

‘She was very excited about Singapore,’ he said.

The Iraqi-born architect, known for projects such as the classic Vitra Fire Station in Germany, had worked on the masterplan for Singapore’s science hub one-north.

When Mr Garcha first came to Singapore, he was intent only on playing polo.

He had sold his information technology company people.com in late 2000 to TMP Worldwide, a recruitment advertising business.

He then set up his own polo team that competed around the globe.

Mr Garcha used part of his dot.com windfall – he will not disclose his firm’s sale price – to enter property development about three years ago when he saw the opportunities.

‘I saw a lot of value in the property market. Prices were at a 10-year low,’ he said.

Mr Garcha, who is of Indian descent, has become a Singapore citizen.

 

Source: The Straits Times 26 Sept 07

REDAS CHIEF ON BRIEF PAUSE – Collective sales ease as new rules take hold

THE market for collective sales has had a spectacular run this year, but new rules are likely to act as a brake to it, Mr Simon Cheong, chief executive of property developer SC Global, said yesterday.

Mr Cheong, who is also chairman of the Real Estate Developers Association Singapore (Redas), said the market is still digesting changes in collective sale legislation passed in Parliament last week.

‘In the process of digesting, obviously there will be a pause,’ he said.

The new rules, which are likely to kick in next month, will lengthen the collective sale process and likely constrict land supply.

‘For us developers, we are already anticipating that it will be more difficult to get choice sites in the near future. If we do, it will be at a higher price,’ Mr Cheong said on the sidelines of a Redas lunch yesterday to mark the mid-autumn festival.

In a separate move, a Knight Frank report yesterday forecast a slowdown in collective sales. The property consultancy said developers have been spending $10.22 billion on sites for collective sales since January, more than the $8.08 billion outlay for all of last year.

Activity, however, is already abating, with only 13 deals worth $1.65 billion done in the third quarter. This compared with 27 deals worth $5.24 billion in the second quarter, said Knight Frank.

 

Source: The Straits Times 26 Sept 07

Singapore office rentals still competitive

COMPANIES are paying more for labour and rentals in Singapore than before, but prices are still competitive compared to global cities such as London, New York, Tokyo and Hong Kong.

Minister Mentor Lee Kuan Yew pointed this out yesterday, but said the Government would ensure prices stayed lower than countries ‘in a similar position’.

This is so that Singapore can stay competitive.

‘I think we should be able to manage that,’ Mr Lee said. ‘I believe we’ve got to watch it closely, make sure that it doesn’t run away and get us into an uncompetitive fashion.’

He gave this assurance at a dialogue which followed the inaugural Singapore Maritime Lecture. A member of the audience asked how Singapore was balancing its bid to be a cosmopolitan city, with the need to stem soaring costs.

Mr Lee noted there was a property crunch now, with both commercial and residential sectors hit, as a result of the ’sudden influx’ of bankers and top corporate types. However, the Government has already taken action to tackle it, he said.

‘I think we can sort it out in two to three years. In the meantime, we have put into our plans some release of buildings from one use to another in order to loosen up the market,’ he added.

On Monday, the Government also released a second temporary office site for sale to help ease an office crunch that has sent rents and prices soaring.

 

Source: The Straits Times 26 Sept 07

German fund manager eyes Asia properties

Union Investment looks to quadruple its regional portfolio over a 4-year period

GERMAN fund manager Difa Deutsche Immobilien Fonds (recently renamed Union Investment) is looking to quadruple its property portfolio in Asia over the next four years, its Asia-Pacific head has told BT in an interview.

‘Right now, we have 10 properties worth about 500 million euros (S$1,055 million) in Asia,’ said the group’s Asia- Pacific managing director, Steffen Wolf.

‘We would like to grow the portfolio value to at least two billion euros or so.’ he added.

Union Investment, which owns some 15 billion euros worth of real estate across the world, last year turned its attention to Asia in search of attractive acquisitions.

Since September last year, it has acquired 10 properties in the region, including six residential projects in Japan and two office properties in South Korea.

In Singapore, Union Investment has bought two properties.

In January, it acquired Vision Crest’s office block and the House of Tan Yeok Nee next door in the Penang Road/ Clemenceau Avenue area for a total of $260 million from mainboard-listed property group Wing Tai.

Union Investment is now working on more acquisitions in Japan, China and Singapore, Mr Wolf said.

‘We are also closely looking at Malaysia, India and Thailand,’ he added.

Right now, the group’s focus is on the key cities in all the countries, he said.

Asia, said Mr Wolf, is ‘very strategic’ to Union Investment.

The group has traditionally invested in Europe and the US, but has of late been building up its Asian team in Germany.

The logical next step was to set up a physical presence in the region, and so the group opened an office in Singapore in October 2006.

Right now, the office has just two people, but Mr Wolf wants to grow the team to six or eight by the end of the year, he said.

In Singapore, the group is looking at office properties as well as residential, retail and hospitality assets for acquisition, Mr Wolf said.

The group ideally has to acquire finished, freestanding and already leased-out buildings. It is, for example, not allowed to take on the risks involved with developing a greenfield project.

Its business model is based on collecting rents and distributing them to shareholders.

But Union Investment will not rush into acquisitions, Mr Wolf said.

The cash-rich company is in Asia for the long haul, and will be willing to wait for good acquisition opportunities to come by, rather than compete head-on with more aggressive bidders.

‘We can ride through market cycles,’ Mr Wolf said. ‘We are not affected by crises such as the sub-prime crisis. We have a lot of cash.’

 

Source: Business Times 25 Sept 07

En blocked: How Horizon Towers made history

The Leonie Hill condo was just one of scores of estates snapped up by developers in a collective sales frenzy over the past two years. Now its owners are being sued by a developer in a landmark case that will go before the High Court on Thursday. How did it all come to this?

THE first hint that the $500 million sale faced trouble can be traced to an anonymous letter dated April 25 that was sent to owners of the condo’s 210 units.

It started: ‘Dear fellow owners, Some of us begin to wonder if our en bloc exercise now makes sense.’

The letter writers urged decisive action, suggesting that the owners of the 25-year-old property were being short-changed and that a far higher price was possible.

‘If enough like-minded owners decide to rescind the (agreement) and the majority falls below 80 per cent, the application to the Strata Titles Board (STB) can be repealed.’

The buyers were local developer Hotel Properties Ltd (HPL) and its two partners Morgan Stanley Real Estate managed funds and Qatar Investment Authority.

They agreed in a private treaty deal in February to buy the 99-year leasehold condo for $500 million, which was the reserve price set last year. Until early February, it was a record price in absolute terms for an en bloc sale.

At that price, each owner of the condo’s 199 units would get about $2.3 million, with the 11 penthouse units reaping $4 million to $6.28 million.

But the letter writers were unhappy. Prices of neighbouring properties had skyrocketed since the deal was struck.

‘We are now believing that our en bloc price no longer reflects the true value of Horizon Towers and we strongly feel that if we sell our unit individually, we would achieve prices far better than what this en bloc has fetched us.’

One case the letter cited was neighbouring condo development The Grangeford.

Grangeford owners were asking for $660 million, or $2,016 per sq ft (psf) of potential gross floor area.

That was more than double the $850 psf of total floor area achieved by Horizon Towers. ‘Deep down…many owners may now be regretting this en bloc. They may be willing to join this…movement,’ the letter said.

It engendered enough discontent over the sale price to lead some owners to attempt a deal reversal. Also, 10 groups filed objections to the sale.

Mediation sessions before the STB to settle the dispute started in late May. But those attempts at mediation between the warring camps of owners failed.

A group of 42 disgruntled owners, who had hired a law firm for advice, called for an extraordinary general meeting at Horizon Towers.

They wanted to remove the sale committee, which was blamed for not consulting the owners when it granted the option to purchase nine months after the reserve price was set. This failed.

But most members of the first sale committee later resigned and were replaced by new ones – and a second committee took their place.

At this point, it is worth noting that when the original Horizon Towers sale tender closed in August last year, there were no offers at its reserve price.

But the property market picked up significantly after that. In late June this year, a developer said it wanted to buy The Grangeford for $592 million, or about $1,810 psf per plot ratio – the highest price achieved for a 99-year leasehold site.

According to an affidavit filed by HPL for the High Court case on Thursday, an anonymous letter was circulated around this time to Horizon Towers residents, asking them to ‘act quickly and decisively’ to salvage something for themselves as Horizon Towers was, the letter said, being given away at a relatively paltry sum.

The STB hearing

THE bitter dispute that had focused on the condo’s sale price took an unexpected turn on Aug 3.

That was when the STB threw out the application for sale approval because of procedural errors – the sale paperwork was not in order.

There was another problem: The contract between the HPL-led consortium and the sellers included an atypical condition, according to market players.

The sellers were given the option to extend the sale deadline by another four months if the sale was not completed within six months of the original deal in February – that is, by Aug 11.

A senior property consultant said: ‘The discretion to extend the time frame usually lies with the buyer in the first instance, and thereafter upon mutual agreement.’

With the deal now apparently dead, the HPL-led consortium, represented by lawyers K. Shanmugam and William Ong from Allen & Gledhill, immediately swung into action. They wrote to the sellers alleging they were in breach of the February contract and wanted them to extend the Aug 11 deadline so that the procedural errors could be corrected and the application to the STB refiled.

But the Aug 11 deadline came and went. By now, neighbour had turned against neighbour as the stakes grew higher.

The HPL-led consortium has now proceeded to sue the members of the first and second sale committees and is seeking an order to bind all the other sellers. If that order is granted by the court on Thursday, it will mean that all Horizon Towers sellers will be liable to pay damages to HPL.

HPL is seeking about $800 million to $1 billion in lost profits as a result of the alleged breach of contract. So the owners of each unit could be looking at a bill of more than $5 million.

Since then, some majority owners have reached out to HPL, and last Wednesday, a group of them met HPL chief Ong Beng Seng, where HPL made it clear that it will drop the suit only if a collective sale order is obtained.

A ray of hope emerged the following day, last Thursday, when a large group of owners met to appoint yet another – the third – sale committee. More significantly, they agreed to extend the sale deadline until Dec 11.

HPL and its partners are waiting for an official confirmation of the extension before they seek an adjournment of this Thursday’s hearing.

Even if the High Court case is adjourned, the sale would have a long way to go, given the disputes so far.

Lessons learnt

THE case – which has involved more than 10 lawyers – has underscored the point that a collective sale agreement is a legal document and sellers may be liable to legal action.

This is a sobering thought for property investors or owners who believe that the only serious question they have to consider in a collective sale is the price they will receive for their units.

Lawyer Henry Heng from Tan Peng Chin LLC said: ‘The case highlights and reinforces the potential consequences and liabilities of owners pushing for an en bloc sale when the en bloc process or application goes wrong.”

The Horizon Towers case has also changed the way collective sales are conducted. Owners, their property agents or lawyers involved would now pay more attention to procedural requirements, said Mr Heng.

The High Court hearing is fixed for this Thursday while a separate appeal by the sellers to the High Court to quash the STB order invalidating the original sale will be heard a day later.

If that appeal succeeds, the case could return to the STB. What would happen then is anyone’s guess – though many owners are no doubt longing for signs of a resolution on the horizon.

 

Source: The Sunday Times 23 Sept 07

The rant over rent: Landlords strike back

We’re not greedy, we’ve been ’subsidising’ tenants with low rates since 2003, they say

RETIRED doctor S.M. Soon, 62, is one happy landlord.

She collects $16,000 a month from her tenant at Emerald Hill, which means she doesn’t have to use her own funds to top up her monthly mortgage payments.

But things weren’t always so rosy.

From 2002 to last year, the monthly rent from her 5,000 sq ft Peranakan house was $12,000, and she was coughing up $4,000 every month to service the loan and pay for maintenance.

‘Prices are just returning to what they were 10 years ago. For us landlords, it’s not always Sunday,’ said Dr Soon.

Tenants have been crying foul over soaring rents which have shot up by 31.2 per cent over the past year.

Last week, The Sunday Times featured a family whose rent rose from $2,400 to $7,200 when the lease ended this year.

In the end, the family had to move from Jervois Road near the city to the East Coast area, and still pay rent that is twice as much.

But landlords are also keen to debunk their greedy image.

In a letter to The Straits Times’ Forum page last week, Madam Yeo Boon Eng pointed out that expatriates had been enjoying extremely low rents since 2003 and owners were ’subsidising’ tenants before the increase in rents.

She is now charging her tenant $2,100 for a corner terrace house in Yio Chu Kang, up from $1,600 last year.

She said her tenants did not complain or bargain. But if they did, she would have stood her ground and they would have had to look elsewhere.Nine of the 12 landlords who spoke to The Sunday Times said they, too, collected very low rents in the past few years.

The higher prices are not arbitrary, they argued. They simply reflect property prices now and are a function of demand.

It is only recently that landlords are seeing returns on their investments, with rental yields exceeding monthly instalments.

Said Dr Soon: ‘It’s not a matter of raising prices because we’re greedy. We get whatever the property will fetch in the market.

‘I wouldn’t dare ask for $16,000 if the market rent is $10,000.’

Retired lecturer H. Chu, 65, who is renting out three properties in Holland Grove View, Binjai Crescent and Eastwood, said: ‘Landlords are not unreasonable. It’s just that there are too many people at this time who want a place.’

He didn’t even have to raise the rent on his Binjai Crescent bungalow; the tenant offered him $8,500 this year, instead of the $5,600 he was paying.

‘He knows the market,’ he said.

Property agent Andrew Tan, 51, agrees. The only landlords he would call greedy are those with ‘moving targets’.

This year alone, he has dealt with five landlords who kept upping their prices even after letters of intent had been signed by prospective tenants. Among the landlords contacted by The Sunday Times, none admitted to doing this. Most said they try to keep their existing tenants.

Said Dr Soon: ‘It makes sense to keep a good tenant, instead of waiting another month for another tenant to come along and paying commission fees to the agent.’

She said she charged her existing tenant $16,000 when she could have put her property on the market for $20,000.

But no matter how much of a ‘discount’ existing tenants get, they are bound to be unhappy about the sudden rent hikes. And landlords are peeved by the attention the more vociferous tenants get.

‘When tenants were enjoying low rents, nobody thought about the landlord. It’s not that prices have gone up drastically. It’s that, in the first place, they went down so much,” said housewife V. Wong, who is in her 50s.

Her 1,800 sq ft apartment at Central Green in Tiong Bahru used to fetch $4,300, which meant she had to chip in about $800 to meet the mortgage payments and taxes. Now she rents it out at $6,800.

Ultimately, the sums have to add up.

Said landlord Ms Y. Tan, an accountant who is in her 60s: ‘Who wants to charge low rents? We’re not running a charity.’

simlinoi@sph.com.sg

Ups and downs

‘When tenants were enjoying low rents, nobody thought about the landlord. It’s not that prices have drastically gone up. It’s that, in the first place, they went down so much.’

HOUSEWIFE V. WONG, on why tenants are unhappy about the sudden rent hikes

 

Source: The Sunday Times 23 Sept 07

Potential risks of buying undeveloped land

THE gains from investing in undeveloped or raw land might sound attractive, but experts say retail investors need to take care.

Mr Ku Swee Yong, the director of marketing and business development at property consultant Savills Singapore, said such investments can be ‘a good tool’ because of the potential for capital gains and because they require smaller sums than direct property purchases.

He pointed out, however, that investors keen on land banking have other options, for instance, buying uncompleted properties or investing in real estate investment trusts.

The chief executive of wealth management firm dollarDEX, Mr Chris Firth, warned that ‘a big problem’ with land banking is that most of these activities are not regulated anywhere. Thus, the offerings vary greatly, ranging from ‘genuine ones to scams’.

Pricing is another issue. ‘In some cases, the markup from wholesale plots into retail plots is so huge, investors have virtually no hope of turning a profit.’

In July, in Britain, four firms that had sold plots of agricultural land to the public were wound up by the High Court after a probe into misrepresentations. It was revealed that the sites had little or no chance of getting planning permission.

The chief investment officer of private wealth manager Providend, Mr Daryl Liew, said investors should perform due diligence on the firm and assess the land’s potential.

Here are some issues you should consider.

Absence of regulation

The buying of raw land as an investment is not regulated in Singapore. If investors choose to deal with investments not regulated by the Monetary Authority of Singapore, they forgo legal protection.

Consumers are thus urged to find out as much as possible about the company, understand the product and ensure the investment fits in with their financial goals.

Long wait for developers to come in

There is no guarantee as to how soon developers will buy over the land. Estimates by strategic land investment companies range from three years to eight or even 14.

Fruitless wait; the land is never developed

It is possible the land might never undergo development. It was reported last November, that British land banking firm Land Heritage (UK) closed after a probe and its 700 investors were not refunded.

High ‘hidden’ costs

Depending on the country, you might have to pay capital gains tax, withholding tax or miscellaneous legal fees before you can realise the profits. These costs could well eat up half your profits.

Lack of liquidity

Land assets are illiquid. In most cases, there is a minimum holding period before you can sell your individual plots of land even if developers have yet to buy the area in question.

Exchange rates

If you bought the land in a foreign currency, there is a risk of currency moving against you.

 

Source: The Sunday Times 23 Sept 07

Banking on overseas land

Thousands of Singaporeans have sunk money into undeveloped plots overseas in the hope of getting high returns. Finance Correspondent Lorna Tan talks to three investors who have ventured into this foreign territory FOR some, it is not enough to have a roof over their heads. Singaporeans’ love affair with property has extended to owning raw land beyond the Republic’s shores, with more than 10,000 opting for this type of investment.

In the 1990s, there was just one firm marketing such undeveloped land, or raw land.

But now at least five firms are selling land in Britain, Canada, Thailand and the United States. The latest two entrants are Profitable Plots, which offers British land, and Royal Siam Trust, which sells beachfront plots in Thailand.

Investor Helen Tay

FOR Ms Helen Tay, 37, it has been a long wait for her raw land investment to bear fruit, and she is still waiting.

In 1998, the former lawyer turned network marketeer bought two plots of Canadian land for C$50,000 (S $74,485) after visiting a roadshow at a hotel. It was organised by land asset management firm Walton International Group.

Set up here in 1996, Walton markets plots of raw land in the Canadian cities of Calgary and Edmonton, as well as in Texas, in the US. It buys the land, keeps a portion for itself and sells the rest to individual investors, who in turn get a title deed in their name. Each unit of land costs about C$25,000. Investors are typically advised that there could be a wait of five to seven years before the parcel of land obtains development approvals. When that happens, Walton will sell the land to developers at a higher price, subject to 60 per cent of investors consenting to the sale.

For Ms Tay, the wait to see profits from her plots in Northridge, Calgary, has been longer than expected. ‘I still haven’t seen my money. It’s been a long wait…Back in 1998, I was given a forecast of five years. It’s not a great investment but if the money comes in, it should still be better than putting money in a fixed deposit,’ said Ms Tay.

But her long wait could be coming to an end.

In May, she was informed by Walton that there was an offer to buy the land at a price that worked out to C $130,000 per plot. This would mean a profit of about C$96,000 for Ms Tay, after she coughs up a capital gains tax of 40 per cent to the Canadian government, plus transfer fees.

If she had bought one plot of land, the tax would be a lower 25 per cent.

Investor John Khoo

UNLIKE Ms Tay, another raw land investor, Mr John Khoo, 50, made sure he saw his plot of land before purchasing it. Mr Khoo works in a foreign bank here but has been visiting relatives in Edmonton, Canada every year since 1990.

In 2004, he plonked about C$100,000 into two plots of land measuring 700 sq ft each (excluding the garden areas), after visiting the raw land sites to assess their appeal.

Mr Khoo took a loan for 60 per cent of the purchase price at an annual rate of under 2 per cent from a Canadian bank. He was also informed that he need not pay a property gains tax as it was his first property in Canada.

‘Location is the most important factor and that means buying land near a mall, a train station, an oil field, a windmill, biodiesel farmland…If you don’t go there, you don’t really know what kind of site you’ve bought. So unless you are familiar with the area, better go see for yourself,’ said Mr Khoo.

Before investing, he also consulted banker friends who were familiar with the location of his sites.

Mr Khoo added that by the time land banking firms sell their plots to Asian investors, the good ones would have been taken up by local investors, who would have picked the cream of the crop of the raw land sites.

The land that he bought had just received planning permission then, and two two-bedroom houses now sit on his two plots of land. The land is near a university in downtown Edmonton.

The value of his land has since doubled and Mr Khoo expects to pay a legal fee of about C$1,000 when he sells his land. Currently, he enjoys an annual rental yield of 10 per cent.

Investor Dr Chiu Jen Wun

DR CHIU Jen Wun, 45, said that ‘the main bugbear of raw land investing is time’, because you can never be sure when you can cash out.

In recent years, the anaesthesiologist has invested in Canadian and British land, which he purchased from Walton and Profitable Plots. He declined to reveal the amount.

Early this year, he made a net profit of about $20,000 from two plots of Canadian land, which were about half an acre, or 0.202ha, each. He had bought them at $37,000 per plot, 41/2 years ago.

Two years ago, he invested in British land. At that time, Profitable Plots was selling units of land with each ranging between £3,000 (S$9,044) and £28,000. Customers were told to expect returns of 2.5 to 14 times, said Dr Chiu. Profitable Plots has advised him that it may take five years to see results.

A personal friend of financial guru Robert Allen, Dr Chiu was motivated to invest in raw land as part of his overall investments so as to generate multiple streams of income.

‘This is one allocation in my diversified balanced portfolio of investments,’ said Dr Chiu, who aims for a minimum 7 per cent annual return on his investments. He adds that the advantage of buying British land for Singaporeans who do not work or live there, is that they need not pay either capital gains tax or stamp duty to the British government.

To boost the confidence of investors and to make it easier for them to part with their cash, both Walton and Profitable Plots offer some sort of buyback guarantee.

Instead of opting for such a guarantee, Dr Chiu decided to wait it out in the hope of bigger returns.

At Walton, investors can sell the land back to Walton at the original purchase price in five years, based on an agreement. But this is believed to be limited to Canadian land and not US land. In fact, the firm used to offer a financing scheme at a rate of 11.75 per cent a year but it has since been withdrawn.

And Profitable Plots, which has paid up capital of $2.1 million, offers two ways of getting a return. Group operations director Andy Nordmann said: ‘One is where the return is earned when planning permission is given and the land is sold to a developer. The other is a fixed return of 12.5 per cent paid annually. This allows our clients the choice of both a short-term and a medium-term investment strategy.’

The firm provides a warranty to all clients which allows a five-year opt-out with no loss of capital. And it also allows clients the flexibility of switching their plots to ones that have already received development approval, so that they can enjoy faster gains.

Mr Nordmann emphasised that Profitable Plots ensures that all funds are placed in the hands of an independent trust which helps to safeguard the investments no matter what happens to the seller of the land.

 

Source: The Sunday Times 23 Sept 07

Home market will grow even if punters retreat: report

Developers may go for higher volumes, lower margins in mass, mid-segment

(SINGAPORE) Recent events could make the residential property market vulnerable to declines in collective sales and speculative activity.

However, Goldman Sachs believes that other demand drivers such as the increase in resident population will help mitigate the fall in those selling their homes through collective sales and looking for replacement homes.

It reckons there will be little adverse impact from a drop in speculation while foreign buying will be relatively sticky. And the silver lining from the recent market slowdown brought about by the sub-prime mortgage crisis in the US is that it has weakened reasons for the Singapore government to curb price rises, argues a paper by Goldman Sachs Global Investment Research.

‘Going forward, we think all developers will see more of their residential exposure being tied to mid- and mass market projects via new site acquisitions so as to meet expected demand in those segments.

‘We look for achievement of strong selling prices and take-up in forthcoming residential launches to demonstrate the strength of demand in the residential market and drive share price performance of Singapore developers,’ according to the paper, titled ‘Residential market shaken but still good for developers’.

The paper, authored by Goldman Sachs executive director (Asia-Pacific Investment Research) Leslie Yee, says the sharpest increases for Singapore residential property prices are over.

However, the operating environment in Singapore for developers is good, as they can still enjoy fat margins from developing their existing prime district residential landbanks, and reinvesting the money they make from selling such projects into mass/mid market sites where profit margins will be lower but volumes will be high.

‘We see developers achieving margins of about 20 per cent in mid to mass market projects and tapping into opportunities as population increases,’ Mr Yee said. He expects a positive demand picture, with net incremental annual demand of around 19,000 private homes over the next few years.

New demand will come from increases in the resident population, of which an increase in the number of permanent residents is a major driver; increase in the non-resident population; sellers of properties that are the subject of en bloc sales; and Housing and Development Board (HDB) upgraders.

The bank said its demand numbers do not factor in speculative buying. ‘Given the speed and scale of price increases this year, we think a fall in speculative activity benefits the property market in the longer run by reducing pressure for government intervention to cool prices,’ it added.

Goldman Sachs says it is not overly concerned about a decline in en bloc sellers looking for replacement properties arising from a near-term slowdown in collective sales amidst higher development charges and changes in legislation. This is because other components of demand will remain strong.

As for a slowdown in the supply of redevelopment sites if en bloc sales cool off, the paper argues that developers have enough residential projects on hand to execute, and the ability to acquire mid- and mass-market land from state tenders.

Goldman Sachs says it does not expect foreign buying, which has been instrumental in driving up residential property prices here, to dissipate as the factors attracting these buyers to the local property market – including transparency, openness to foreigners, and absence of capital gains tax – still hold.

Also, foreign buyers include permanent residents, whose property purchases here are likely to remain strong provided the momentum of new investments and jobs is maintained.

Goldman Sachs favours GuocoLand and City Developments for their leverage to the Singapore residential sector, accounting for 35 and 38 per cent respectively of their revalued net asset values.

In the mass segment of the private housing market, ‘we see strong domestic economic factors and rising HDB resale prices underpinning price performance’, the paper says.

‘We think the government will be happy to see HDB resale prices rise so that larger segments of the population can enjoy the fruits of Singapore’s success while continuing to ensure affordable housing for citizens through the HDB primary market,’ Goldman Sachs reasons.

 

Source: Business Times 21 Sept 07

Marina View plot draws record $2b bid

It’s a vote of confidence in market, say property watchers, who had expected much lower bids

A PRIME plot in Marina View has drawn a top bid of $2.02 billion – the first time the price of state land here has crossed the $2 billion mark.

The whopping bid yesterday pipped two other close offers, which also came in at near-record levels.

Property experts say the bullish bids are a continuing vote of confidence in the property market and could serve as a shot in the arm for market activity, which has quietened somewhat in recent weeks.

‘It is exactly the confidence booster that the market needs to keep it going at this point in time,’ said Ms Tay Huey Ying, director of research and consultancy at Colliers International.

The $2.02 billion bid was submitted by Macquarie Global Property Advisers (MGPA), a private equity real estate fund management firm partly owned by Australia’s Macquarie Bank Group.

It is almost double what property watchers predicted the 1.02ha site would fetch in May, when its tender was first launched. The 99-year leasehold plot is located behind the One Shenton and Sail @ Marina Bay condominiums.

Indeed, all the three bids that came in before the site’s tender closed yesterday were ‘nearer the top band of the expected range’, said Mr Lui Seng Fatt, regional director and head of investments at Jones Lang LaSalle.

CapitaLand and Mapletree put in a joint bid of $1.84 billion, while Malaysia’s IOI Group offered $1.6 billion.

The result of the tender, which is based solely on price, will be announced by the Government later.

Consultants said the turnout was quite good, given the site’s high price and ongoing global credit uncertainty.

‘In a market like this, I’m amazed that three bidders came out to offer between $1.6 billion and $2 billion,’ said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore. ‘It’s a bid that very few people can afford.’

The top bid works out to about $1,409 per sq ft (psf) of gross floor area, said Mr Li Hiaw Ho, executive director of CB Richard Ellis.

He added that the plot could provide 800,000 sq ft of net lettable office space.

A 40-storey building can be built on the site, but 70 per cent of its gross floor area must be used for offices.

The rest can hold more offices, hotel rooms, homes or shops.

Experts said building homes or strata-titled office units could be a quick way for the winning bidder to recover most of its investment. Homes, for one, could fetch more than $2,500 psf, said Mr Li.

But MGPA appears to be favouring a full-office development. It said in a statement yesterday that the site ‘presents a rare opportunity to deve- lop a Grade A+ office building in the prime business district of Singapore, where strong demand coupled with limited supply makes now an ideal time for high quality office development’.

MGPA has been on an active buying spree here. In March, it agreed to buy Temasek Tower from CapitaLand for $1.04 billion.

Last month, it also bought 162 units of Allgreen Properties’ Cascadia condominium in Bukit Timah for a median price of $1,527 psf, sources said.

Marina Bay Site 

Source: The Straits Times 20 Sept 07

En bloc sellers ’set to spend over $4b buying new homes’

Savills expects sales to pick up as owners get paid and seek replacement homes

CASH windfalls will soon be arriving for the hundreds of home owners who sold their property en bloc during the frenzied April to June period.

As they look for new homes, they could pour more than $4 billion into the market by early next year, according to new estimates from Savills Singapore.

The property consultancy said the ‘bunching up’ of collective sales in the second quarter will yield almost $6.4 billion in total collective sale proceeds.

Most of the amount is due to come in between December and February, which is likely to prompt a pickup in market activity, said Mr Ku Swee Yong, Savills Singapore’s director of marketing and business development.

Assuming some sellers already have second homes, those who need a new place to live in will have about $4.2 billion to spend, he said.

His calculations showed that about 2,800 units were sold en bloc between April and June, for an average of $2.3 million a unit.

But he estimates that only about two-thirds of the owners will buy replacement homes. Still, this means almost 1,900 units in move-in condition will be needed in the months ahead.

Buyers are likely to seek these homes in areas such as Bukit Timah, Upper Bukit Timah, Clementi, Novena, Upper East Coast and Bukit Panjang, added Mr Ku.

This is because the bulk of the collective sales during the period were in the prime areas of Districts 9, 10, 11 and 15. Together, these cover Orchard, Holland, Bukit Timah, Newton and the East Coast.

Some of the larger projects sold en bloc in April-June include Farrer Court and Leedon Heights on Farrer Road, with more than 900 units between them. All these projects are in District 10, said Savills. In this prime district alone, 1,600 units were sold for $4.3 billion, it added.

‘Sellers in Districts 9 and 10 are likely to look for new homes in Districts 11 and 21 – Bukit Timah and Upper Bukit Timah,’ said Mr Ku. ‘Even if they have money to stay in the centre of town, they may have nothing to buy, as most of the older projects have already gone en bloc in the last two years.’

On the other hand, Bukit Timah and Upper Bukit Timah ‘have plenty of projects and not many collective sales’, he added.

He expects en bloc sellers to be out in full force buying new homes starting from December, thanks to the record run of collective sales this year – such deals from January to June hit almost $10 billion, according to Savills.

‘Almost all such sellers get their money within nine months of the sale,’ Mr Ku said, adding that Strata Titles Board sale approval takes about six months.

He added it has proven difficult for some sellers to buy a new home using a bridging loan. ‘So most of them won’t be able to buy a replacement unit until they actually get money in hand.’

 

Source: The Straits Times 19 Sept 07

‘Iconic’ condo site at Sentosa Cove up for sale

THE best of the condominium sites in the wildly-popular gated residential enclave of Sentosa Cove was left till last.

That site went on sale yesterday, at a reserve price of $964 million, or $1,600 per sq ft per plot ratio – the price psf of the potential floor space.

But property consultants are already expecting bids for the 99-year leasehold site to come in above $2,000 psf per plot ratio, pushing the overall price well over $1 billion.

That would put the eventual selling price of completed condo units there at a hefty $3,200 to $3,800 psf – a level that some Orchard Road homes are going for.

‘This is an iconic site, the equivalent of the Orchard Turn site for Sentosa Cove,’ said Mr Ku Swee Yong of property consultancy Savills Singapore.

This 231,677 sq ft site, called The Pinnacle Collection, is one of two condo land parcels that flank the entrance of the marina leading into Sentosa Cove. It is set to be the tallest development in the enclave, with a height limit of 20 storeys.

Until now, the tallest has been the 15-storey The Oceanfront@Sentosa Cove, which sits on the other condo parcel flanking the marina entrance.

The newest site also allows the highest density development in Sentosa Cove, with a plot ratio of 2.6. That allows for a gross floor area of nearly 602,360 sq ft. Up to 357 luxury apartments can be built at the new site, said Sentosa Cove in a statement.

Despite the reserve price, property analysts feel certain this site will beat the price paid by SC Global in late July for another site at the enclave, which set a record of $1,799 psf per plot ratio.

Property consultancy CB Richard Ellis anticipates that the new site will be the ‘most coveted’ parcel of all the Sentosa Cove plots.

‘The interest level in the site could be a measure of developers’ confidence in the high-end residential market, and their reaction to the stock market turbulence,’ said Mr Nicholas Mak of property consultancy Knight Frank.

The successful bidder is likely to produce an inspiring design with high-end finishing touches, they said.

They expect the break-even cost for this residential project to be between $2,800 psf to $3,000 psf based on a land price of $2,000 psf per plot ratio. This would translate to an estimated selling price of about $3,200 psf to $3,500 psf for the homes, they said.

Mr Ku expects end selling prices at $3,400 to $3,800 psf.

The tender, which closes Dec 12, will be awarded based on price as well as design.

 

Source: The Straits Times 19 Sept 07

Property: Mass market sales up in August, speculation slows

Fall in subsale deals as sub-prime fallout and Ghost Month cool buying fever

(SINGAPORE) In the traditionally quiet ‘Ghost Month’ of August – when property transactions slowed dramatically – two significant trends emerged.

The Urban Redevelopment Authority released its update on private residential properties yesterday, showing that sales by developers actually went up compared to July. But caveats lodged in August showed that there was a sharp drop in subsales, signalling a cooling down of speculative activity.

At the same time, Colliers International pointed out that compared to July, August saw far more activity in the mass market.

The trends emerged against the backdrop of the US sub-prime mortgage shock, which served as a reality check for those gripped by the market frenzy of earlier months. In tandem with the Hungry Ghost month, this reduced the total number of transactions in August to 2,875, compared to 4,492 in July.

Developers launched 1,847 units in August, and sold 1,720.

And Colliers International estimates that about 47 per cent of the units launched and around 40 per cent of those sold were in the mass market segment.

‘This trend differed from that of last month in which the bulk of 45 per cent of the units launched were mid-tier units located in the rest of central region (RCR). Mass market units only accounted for 27 per cent in July 2007,’ said Colliers’ director for research and consultancy, Tay Huey Ying.

Although Ms Tay believes it is still too early to say if developers’ focus has now shifted to the mass market, she added: ‘The high-end and luxury segment has dominated the market since 2005, but from what we are seeing, it does now seem to be more evenly spread.’

Prices growth appeared to be somewhat muted. ‘Median prices of developments with units sold in both July and August rose marginally by an average of 2.7 per cent only,’ Ms Tay said.

The US sub-prime crisis and the lack of high-profile launches could have contributed to the slowdown, she added.

The development which saw the highest growth in median price in August was The Orchard Residences. Its median price rose 25.8 per cent. However, only two units were sold – one at $5,500 psf and another at $4,687 psf.

A spokesman for CapitaLand said the $5,500 psf penthouse was bought by a foreigner.

The penthouse, which is expected to have cost between $23 million and $27.5 million, has set the record for the most expensive property in Singapore on a per square foot basis.

Prices for most properties, however, are seen to be stabilising.

Ms Tay expects overall prices to ‘resume with the return of market confidence’, but added that price growth will be more ‘controlled’.

Interestingly, more stable prices have been accompanied by a drop in subsale activity. Colliers’ analysis of caveats lodged in August show that it now stands at 7 per cent of the total volume of property transactions. In July alone, subsale activity was almost twice as high at 13 per cent.

But, overall, market confidence is still intact, noted CB Richard Ellis executive director Li Hiaw Ho, who pointed out that prices still rose in August – albeit more slowly.

‘The very prime projects were marketed at above $3,600 psf while those in the fringe area were sold at above $1,200 psf,’ he said.

Two hot launches – The Parc Condominium and Soleil @ Sinaran – accounted for over 60 per cent of developer sales. Mr Li said median prices of Soleil @ Sinaran, at $1,410 psf, and The Parc Condominium, at $870 psf, were ‘within expectations’.

‘For the rest of the third quarter, price levels are expected to remain stable,’ he said.

Although the mass market prices have been slower to rise, Savills Singapore director of marketing and business development Ku Swee Yong believes the increases on a year-on-year basis are significant.

‘Last year, most buyers’ definition of prices for a mass market development would have been around $600 psf,’ he said. Based on URA’s monthly figures, only 71 units, or about 4 per cent of the units sold in August, cost under $750 psf.

 

 

Source: Business Times 18 Sept 07

Investment sales to hit $50b in ‘07: CBRE

Target up from $35b set 3 months ago, with some $12.7b deals done since July

PROPERTY investment sales could hit $50 billion by the end of 2007, CB Richard Ellis (CBRE) predicted yesterday – increasing its full-year target from the figure of $35 billion it set just three months ago.

If CBRE’s target of $45-50 billion is met, it will be a substantial increase from the $30.6 billion worth of investment properties transacted in 2006.

The property firm arrived at the new target after total investment sales for the year to date came to some $37.9 billion – exceeding the previous prediction of $35 billion for the whole of 2007.

CBRE’s bullish prediction came on the back of news that some $12.7 billion worth of investment transactions have been recorded since the start of July, placing Singapore in a good position to end the year on a strong footing. ‘At this current pace, CBRE expects sales to peak at an all-time high of $50 billion by the end of 2007,’ the firm said in a report.

CBRE’s investment sales tally includes land deals, collective sales, transactions of entire office and other buildings as well as sales of strata-titled units including good class bungalows and condominiums worth more than $5 million apiece.

Investment sales in the private sector accounted for 84 per cent or $31.7 billion of total investment sales so far this year. The public sector contributed the remaining $6.2 billion.

So far this year, the residential sector has recorded $23.8 billion in transacted value – or 63 per cent of the year’s total investment sales, CBRE said. In particular, the collective sales market was fairly active in the third quarter of 2007, with a total of 16 sites generating some $1.7 billion of investment sales.

This was followed by sales of office properties. ‘On the back of the upbeat Singapore office market, investment activity in the office investment market remains robust,’ said CBRE. ‘Prime office properties continue to be highly sought after by investors, with some notable acquisitions made by real estate investment trusts and foreign funds.’Total office investment sales accounted for 24 per cent – or $9.2 billion – of the year’s investment sales.

Source: Business Times 18 Sept 07

URA data a boon for property market watchers

THERE has been a general welcome for the release by the Urban Redevelopment Authority of updates on the volume of property transactions and prices of new developer sales for three months now.

URA releases the details of transacted prices of new developments in different price brackets on its website. So for the 536-unit The Cascadia on Bukit Timah Road for instance, it is clear that although the price range of the 162 units launched and sold was between $1,038 and $1,638 psf, 58 units sold were in the $1,000-$1,500 psf bracket while 104 units sold were in the $1,500-$2,000 psf bracket.

‘It’s clear that the median price is leaning towards the higher side,’ said Savills Singapore director of marketing and business development Ku Swee Yong.

These data also reveal interesting nuggets of information like which developments are being launched in phases and which are not.

Projects launched in phases include The Marq on Paterson Hill and Helios Residences. Both still have units not launched.

The Parc Condominium and Soleil @ Sinaran were both launched completely and fully sold. Colliers International director for research and consultancy Tay Huey Ying said that this depends on the developers strategy, ‘cash out in the shortest time or maximise returns via phased launches in a rising market’.

Source: Business Times 18 Sept 07

Property investment sales may hit record $50b this year

MAJOR property deals in Singapore are set to reach an all-time high this year, according to property consultancy CB Richard Ellis (CBRE).

It predicted that a record $50 billion in investment property sales would be done by year-end. These are transactions above $5 million each.

CBRE said in a report yesterday that $37.91 billion worth of such sales have already been recorded since January, already surpassing last year’s total of $30.56 billion by 24 per cent.

CBRE’s prediction has been raised from an earlier forecast in June, when it said it expected $35 billion worth of investment deals.

The current pace of deals, however, has led it to raise its expectations by a substantial amount, Mr Jeremy Lake, CBRE’s executive director for investment properties, said.

Between June and September, $12.73 billion worth of investment transactions were carried out.

A quarter of these were in the public sector, where major deals included the $1.69 billion sale of a commercial site along Beach Road and the sale of two Anson Road office sites for $629.13 million in total.

Collective sales also remained strong for much of the third quarter, generating $1.74 billion in deals, said Mr Lake.

This helped the residential segment take the lion’s share of investment sales so far this year. Sales of residential properties accounted for 63 per cent of total sales, or $23.79 billion in all.

Offices made up 24 per cent, or $9.23 billion so far this year, while industrial properties contributed 4 per cent, or $1.51 billion.

 

Source: The Straits Times 18 Sept 07

Sales of office units jump amid space crunch

SALES of office units have shot up this year in the face of a crunch in office space here.

An impressive $491.79 million worth of single units in larger office buildings has changed hands since January.

This already outstrips the $386.39 million in deals for the whole of last year, according to new figures from property firm CB Richard Ellis (CBRE), which tracked deals above $5 million.

The price of each unit has also surged. Last year, a record 24 office units were sold, but only 19 have been sold so far this year.

This means that, on average, each of the units sold this year is fetching a much higher price than those sold last year.

Compared with earlier years, this year’s sales look even more impressive. Only $95.21 million in single office deals were done in 2005, and $8.14 million in 2003, said CBRE.

These standalone office spaces, called strata-titled office units in the property industry, are owned by one-off investors or businesses, as opposed to an office block that belongs to a single owner.

Price rises have been dramatic. In buildings such as Suntec City, the prices of strata-titled office units have trebled over the past 18 months, CBRE data showed.

Demand for office space here has been soaring in recent months, pushing up both sale prices and rental levels, as a shortage of prime office buildings coincides with booming investor and business demand.

Due to the limited supply of buildings in the Central Business District (CBD), investor interest has extended to strata-titled office properties in the fringe areas of the CBD, said Mr Jeremy Lake, CBRE’s executive director of investment properties.

‘The rising number of strata-titled office transactions is a logical consequence of a tight office rental market,’ he said. ‘Rather than pay rentals of $12 per sq ft (psf) per month, investors are finding it attractive to buy a unit and cash in on the high rentals.’

The most popular buildings for such deals this year are International Plaza and Suntec City, Mr Lake said.

There were 43 office sales in International Plaza this year, just shy of its 45 deals for the whole of last year.

However, these deals ranged in price from $215,000 to $3.3 million, so they were not captured by CBRE’s analysis of strata office deals above $5 million.

In Suntec City Tower One and Two, seven deals had taken place this year, at prices starting from $4.61 million.

Mr Lake also said the prices of units in these buildings had skyrocketed in the past 18 months. At International Plaza, they jumped from $491 psf in January last year to $1,150 psf in July.

In the same period, prices of units in Suntec City Tower One nearly tripled from $850 psf to $2,200 psf.

In Suntec City Tower Two, prices doubled from $1,148 psf in March last year to $2,360 psf last month, a new high for the tower.

‘Investors’ demand for office units at these buildings has been strong due to the scarcity of this type of medium-sized office space located in the core business districts,’ explained Mr Lake.

He suggested that some buyers of these units could be ’small- and medium-sized businesses’ whose space needs can be met by small office units, unlike multinational companies, which take up entire floors in a single building.

Other buyers could include investors ‘who have pocketed some gains in the stock market and are looking at attractive investment options’, Mr Lake said.

He expects the number of strata-titled office deals above $5 million to hit a new record this year.

 

Source: The Straits Times 17 Sept 07

Is red-hot property market starting to slow down?

Possible correction seen but underlying demand is still strong, say experts

AFTER months of racing along at a feverish pace, Singapore’s residential property market seems to be finally taking a breather.

Home sales and collective sales slowed last month, and property watchers have started to speak of a possible correction in the market.

‘A correction is going to take place. The question is: How severe?’ OCBC Investment Research analyst Winston Liew told Reuters.

Experts agree, however, that underlying housing demand is still strong, and that home prices will keep rising, although at a slower pace. Prices surged 13.5 per cent in the first six months of the year alone.

‘Property market fundamentals have not changed much over the period,’ said French bank BNP Paribas in a report on Thursday.

It is tipping mid-tier and suburban homes as the big growth areas for the rest of the year. These have lagged in the rebound, which has been led mainly by high-end homes setting new record prices.

‘We still see opportunities available on the fringe of the city and suburban areas, where land remains affordable to developers,’ BNP said.

It noted, however, that home sales had been falling since June, according to caveats lodged. Sales fell from 4,921 in May to 3,917 in June to 3,540 in July.

So far, just 1,127 sales have been lodged for last month, partly due to a time lag in caveats. BNP estimates, however, that even when all the data is in, last month’s sales will hit about 2,500 only.

Collective sales, which set a string of record land prices earlier this year, have also slowed to a trickle, with only one deal recorded last month.

Property analysts have offered several reasons for the current slowdown.

One is the sub-prime home loans crisis in the United States, which triggered weeks of stock market volatility in Singapore and in the rest of the region. Developers say this has led to more caution among foreign investors, some of whom are the biggest buyers of luxury homes in Singapore.

Consultants have also blamed the sharp run-up in property prices since the beginning of the year. With asking prices breaching the stratosphere, many buyers are now holding out for better deals.

Upcoming changes in rules on collective sales and higher development charges are also dampening the collective-sale market, previously a major source of housing supply and demand.

A fourth reason could be the month-long hungry ghost festival that ended last week. Fewer projects were launched during this time compared to previous months.

But projects that did go on sale last month. including The Parc in West Coast Walk and Soleil@Sinaran in Novena, received a strong response.

MCL Land has also quietly sold more than half its strata titled terrace homes in Bukit Timah since Monday, even before official previews. About a third of the 168 units at Hillcrest Villas have been taken up by the developer’s close associates at between $2.5 million and $3 million apiece.

‘Residential demand remains healthy, even though homebuyers and investors will tread cautiously,’ CB Richard Ellis executive director Li Hiaw Ho said.

He and other market experts agree that while market activity has slowed somewhat, the pace of growth will pick up again at year-end.

‘The stock market has started to stabilise and, come November, things will probably go back to the way they were before August,’ said Mr Lui Seng Fatt, regional director at Jones Lang LaSalle.

 

Source: The Straits Times 15 Sept 07

No signs of bubble in property sector, say two bankers

SINGAPORE’S buoyant property market shows no signs of a speculative bubble, two leading bankers said yesterday.

DBS Group Holdings chief executive Jackson Tai said home prices may have risen but this simply reflects the strong fundamentals of a balanced economy.

Mr Philip Lee, senior country officer of investment bank JPMorgan Chase, echoed Mr Tai’s views.

‘There’s no bubble in Singapore…while luxury prices have soared recently, mass-market prices have not gone up yet.’

They were among five corporate bigwigs from the thriving finance and property sectors who discussed Singapore’s booming economy at an annual Leadership Forum organised by newswire Bloomberg.

Four other speakers from sectors such as consulting and asset management spoke about the global risks at the 90-minute session held at the Ritz-Carlton Milennia Hotel.

Singapore does not face the same problems as the United States, where the US Federal Reserve has created ‘a housing bubble, inducing people to refinance their homes’ with ’spicy loans’ and ‘artificially low rates’, said Mr Tai.

In contrast, 90 per cent of people own their own homes in Singapore, so ‘the culture here of protecting one’s home is very different from that in the US,’ he noted.

While acknowledging that ’speculation is always in the marketplace’, Mr Tai said Singapore is ‘not a one-trick pony’ but has a well-diversified economy.

Property prices and broader economic growth will be sustained by a ‘rising population’ and more diversified economy, added Mr Chris Fossick, South-east Asia managing director at Jones Lang LaSalle, pointed to a ‘rising population’.

Singapore will enjoy new booster engines to its growth with the upcoming integrated resorts which will boost tourism and attract more high-networth clients, said Mr Kenneth Sit, chief executive of Bank Sarasin-Rabo (Asia).

Even in the event of a downturn in Asia or globally, Singapore may benefit from a ‘capital flight to quality’ because it is a reputable Asian financial hub, noted Mr Lim Cheng Teck, chief executive of Standard Chartered Singapore.

 

Source: The Straits Times 15 Sept 07

Property boom far from over: Kwek Leng Beng

CITY Developments executive chairman Kwek Leng Beng believes that the property boom here is far from over, despite the current financial market turmoil.

‘The boom actually just started in 2005, and if you’re thinking of a relapse, I don’t think that is possible,’ he told chief executives yesterday at the Forbes Global CEO Conference.

‘Sub-prime has to some extent affected Singapore … there’s a psychological fear of what will happen.’

But ‘our banks are still lending a lot of money’, Mr Kwek noted. ‘They’re a little bit more cautious, but we have plenty of liquidity.

‘The banking and financial systems here are very well controlled … they are well regulated and the central bank has taken action to pre-empt crises like what you’ve seen in sub-prime.’

The property tycoon, who is also chairman of Millennium & Copthorne Hotels, was speaking at a panel discussion on global real estate trends.

He said that, after adjusting for inflation, high-end residential property prices have risen only about 10 per cent in real terms from their lowest level over the past decade, ‘which is not alarming’.

He said: ‘My advice is, look at it realistically – crisis means opportunity. I’m a bottom-fisher, I like to go in when the market is bad.

‘I believe there’s still a lot of upside. The mid-end is still 19 per cent below the peak of ‘96.’

In addition, he said Singapore had introduced a lot of initiatives over the past 10 years to attract foreigners to live and work here, which has fuelled demand for property.

‘You may say it’s very dull, but we are going to have the integrated resorts, Formula One, and a host of other events that will make Singapore an exciting city to live, work and play.’

Other panellists were also optimistic on the prospects for further growth in property development in China, India, and the Middle East.

Vincent Lo, the chairman and chief executive of Hong Kong-based Shui On Group, who was also on the panel, said he was ‘very bullish’ on the property market in China. ‘We have waiting lists for our office space till 2010.’

Kushal Pal Singh, chairman of DLF Group, the largest real estate developer in India, said there remained a ‘huge gap between demand and supply’ of residential property there.

Hayan Merchant, chief executive of Dubai-based Ruwaad Holdings, said the current pace of development in Dubai and the United Arab Emirates more generally was ‘unprecedented’.

The property, hospitality and tourism investment and development company is looking at moving into Asia ‘in the next three to five years’, Mr Merchant told reporters in a separate briefing. He said Ruwaad was looking particularly at Singapore, Malaysia, China and India for expansion opportunities.

 

Source: Business Times 12 Sept 07

Plenty of upside left in mid-tier property market: Kwek Leng Beng

DESPITE woes in the United States’ housing market, there is still plenty of zing in Singapore’s red-hot property market.

Banks are still lending a lot of cash and mid-tier homes are still on offer at prices below 1996’s peak, says Mr Kwek Leng Beng, executive chairman of leading developers City Developments and Hong Leong Group.

‘I believe that there is still a lot of upside. At the mid-tier, prices are still less than 90 per cent of the peak in 1996,’ he told delegates yesterday at the Forbes Global CEO Conference.

His bullish view was echoed by his counterparts from other parts of Asia, including China, India and the Middle East.

They agreed that real estate remains hot property in their countries even as problems in the US have thrown global financial markets into a tizzy.

‘The (Shanghai) market is very strong because the inherent demand is just tremendous,’ said Hong Kong developer Shui On Group chief executive (CEO) Vincent Lo.

Residences next to the hip Xintiandi area are commanding prices of up to US$10,000 (S$15,236) per sq m, he said, adding that the waiting list for office space in the city stretches to 2010.

In the United Arab Emirates (UAE), property development is growing at unprecedented rates, said Dubai 9 Group managing director Hayan Merchant, noting that 26.5 per cent out of the world’s 130,000 cranes are in the UAE.

About 30 million sq ft of office space will be added in Dubai next year, he said, while another 42 million sq ft – equivalent to all the office space in downtown San Francisco – will come online the following year.

Singapore’s boom should continue even though psychological fears over the ongoing global credit crunch may take a little of the fizz out, said Mr Kwek. He said that lenders in Singapore are a little more cautious but there is still plenty of liquidity.

He added that historic prices over the past 10 years imply that the ‘right’ selling price for top-end properties should be about $3,600 per sq ft on average.

‘We are doing about $4,000. It’s about 10 per cent up, which is not alarming.’

The Government’s efforts to make Singapore a ‘global city’ that attracts foreigners to live here will help sustain the property bull run, he said.

He said that last weekend, he had met a group of foreigners, some of whom were developers, visiting Singapore for the first time. After four or five days, they started asking about buying high-end condominiums and office blocks.

‘All the real estate sectors – industrial, retail, commercial and residential – have kicked off. And this has to do with growing interest in Singapore as a global city.’

 

Source: The Straits Times 12 Sept 07

A quick guide to sub-prime issues

How individual loan defaults in a faraway land can have a domino effect all over the world – including here

PAUSE for a moment to consider these facts: HSBC, the world’s third-largest bank, announced that 50 per cent of its earnings in 2006 were wiped out by sub-prime losses from its US subsidiary. Since the beginning of that year, over 50 US mortgage companies have put themselves up for sale, closed or been declared bankrupt. In July this year, Bear Stearns closed two of its ailing hedge funds, while in June, BNP Paribas announced the suspension of three of its funds due to exposure to US mortgages.

With news like this making waves in financial markets lately, it is hardly surprising to see the proliferation of doomsday headlines like ‘Market falls parallel previous collapses’, and ‘Anxiety attack knocks markets down’. No longer confined to the US real estate or financial markets, the topic of America’s sub-prime mortgage market has taken centre-stage, as fears of a spillover spread to financial markets in Europe and Asia – even Singapore.

How did it all begin?

Before the US real estate bubble burst, sub-prime lending was a rapidly growing segment of the mortgage market.

It worked by banks extending credit to borrowers who, for a number of reasons, would otherwise be unable to qualify for credit. According to the US Department of Treasury guidelines issued in 2001, ’sub-prime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments and bankruptcies’.

Most US sub-prime mortgages have an attractive initial fixed-rate mortgage payment for a few years, followed by a higher adjustable rate for the remaining life of the mortgage. The sub-prime mortgage industry began to proliferate earlier this century and estimates say that about 21 per cent of all mortgage originations from 2004 to 2006 were sub-prime – a sharp increase from 9 per cent in 1996-2004. At its height in 2005, sub-prime mortgages were worth US$805 billion.

Although not all sub-prime loans are necessarily high-risk, many of them were made to homebuyers with poor credit or little income. As the US housing market boomed, thousands of lenders greedily sought greater profits by aggressively touting loans to individuals with poorer credit ratings and making greater exceptions to guidelines. In certain cases, individuals were not even required to produce any proof of their income.

These sub-prime loans were bought mainly by big banks which bundled the debt and sold them to Wall Street firms. To sell these ticking time bombs, Wall Street packaged these risky loans with supposedly safer loans to create instruments known as collateralised debt obligations (CDOs) – making them more attractive to risk-averse investors. In 2006, an estimated US$100 billion of sub-prime debt went into US$375 billion worth of CDOs.

In pursuit of higher yields, investors stretching from Europe to Asia invested in these instruments for their potentially higher returns, as compared to bonds with the same ratings.

What went wrong?

Trouble started brewing when the US economy began showing signs of slowing down. Interest rates crept up, house prices tumbled and sub-prime mortgage defaults began climbing at an alarming rate, reaching 12.6 per cent at one point.

As default rates soared, creating losses on the underlying mortgages of CDOs, investors began to question the reliability of the models and ratings which valued these CDOs; indeed, credit rating agencies like Moody’s have come under fire for misjudging default rates in sub-prime mortgages. With the uncertainty surrounding the current analysis and valuation of credit risk, many investors have decided to pull back on investments in CDOs and hedge funds with stakes in such securities.

Explained Jeremy Goh, an associate professor of finance at the Singapore Management University (SMU): ‘When investors heard all these negative things about default rates in the news, they started withdrawing their money from hedge funds and parked them in safer money market instruments like treasury bills.’

The result was a triggered chain of reactions which affected markets worldwide. Hedge funds were forced to unload their assets in order to raise cash.

The scattered ownership of CDOs has in turn created widespread loss of confidence in financial markets. Besides affecting all holders of sub-prime-related assets, the greater and more serious implication of the sub-prime crisis is a squeeze on liquidity. Due to the uncertainty over other financial institutions’ exposure to sub-prime losses, they became unwilling to lend to each other.

A tsunami or ripple effect?

However, central banks around the world have responded by injecting liquidity into the markets to ease fears of a liquidity crunch. The US Federal Reserve has also cut its discount rate (which it charges for emergency lending to banks) from 6.25 per cent to 5.75 per cent.

Asian equity funds have also been hit hard, and among those affected the most are funds from Singapore and Malaysia. Data from Morningstar Asia showed that funds from both countries sank an average of 10 per cent.

Asian stock markets has also been tumultuous, spreading fears that a slowdown in the US economy will extend to the rest of the world.

Although the sub-prime crisis in the US may be a cause for concern, investors here should not be overly worried as Asian fundamentals remain strong. Many industry watchers agree that Asia’s economies are no longer as reliant on the US as in the past. As intra-regional trade grows, Asian giants like China and India have become increasingly important trade partners for other Asian countries instead of the US.

Fundamentals of Singapore’s economy remain firm as well, analysts agree. With the introduction of Formula One and the integrated resorts in the coming years, demand and consumption is likely to continue to propel Singapore’s growth.

Prof Goh concurs: ‘I think the jittery stock market in Singapore is only temporary, and I believe that highly-rated CDOs are still safe. Even if the US economy is heading for a recession, it will be a mild one, so the problem could be due to panic selling in the markets or hedge funds unloading some illiquid assets.

‘ As a result, it triggers fear in the lending market. Lenders are more reluctant to lend, which might have some effect on the economy – but nothing major, in my opinion.’

 

Source: Business Times 10 Sept 07

Property loans: local banks turn cautious

(SINGAPORE) Banks are tightening up on the way they lend money for buying homes while the property market is coming off the boil, housing agents report.

With the world’s financial markets in turmoil, following a crisis in US mortgage lending to people with bad credit records, bankers in Singapore say that when it comes to assessing home loan applications, the ability of borrowers to pay is paramount.

The trouble in the financial markets, coupled with the ‘ghost month’ here which makes the third quarter traditionally a slower period for home sales, has led to asking prices easing, especially in the secondary market, agents say.

Citigroup economist Chua Hak Bin says: ‘Banks have definitely become more cautious.

‘Just look at The Straits Times classifieds – they’re flooded with speculators trying to offload.’

Dr Chua reckons that property prices have cooled about 5-10 per cent.

Knight Frank managing director Tan Tiong Cheng has a different take on the situation; he says prices from actual deals that he has seen have not slipped. ‘That impression may have come from those ridiculous (asking) prices,’ he said.

He said the apparent increased wariness of bankers was a reaction to the volatility in the stock market which was affected by the US sub-prime mortgage crisis. And bankers’ ‘natural instinct’ is also to be more prudent, said Mr Tan.

Generally, banks continue to finance a maximum of around 80 per cent of the value of a property, despite rules allowing up to 90 per cent funding. And some housing agents say banks have become stricter in valuations and are lending less than 80 per cent of the value of the property.

‘Banks control the valuations,’ said one agent.

The agent said feedback from buyers is that banks can’t match the valuations and they have to cough up more cash for the purchase.

Especially at times of rapidly changing prices, the notional value of a property as set by expert valuers can be adrift from what buyers are actually called on to pay.

Banks say they rely on their panel of experts appointed from property consultant firms for valuations.

Some also have in-house valuers to provide a view of the overall market.

‘In general, we will take the valuations by the appointed valuer as fair value,’ said Gregory Chan, OCBC Bank head of consumer secured lending.

‘However, where new benchmark pricing is concerned, we will take the average. Although valuation is a key component, a borrower’s creditworthiness remains the primary consideration in determining loan eligibility and some factors taken into account include income level, credit history and repayment ability.’

Helen Neo, Maybank Singapore head of consumer banking, said the bank does not discriminate against high-end properties, especially where purchase price is supported by valuation.

‘However, we would take a more conservative stance in terms of loan quantum should the purchase price exceed valuation significantly,’ she said. ‘However, for loans amount of $2 million and below, we require the borrower to use our in-house valuer.’

A DBS spokeswoman said: ‘In assessing loan applications, we accept valuations professionally done by reputable certified valuers who are on the DBS panel. In addition, we consider the buyer’s ability to repay and the purpose of the purchase.’

At DBS’s second-quarter results briefing in July, chief executive Jackson Tai said the bank had been taking a ’stringent view’ on credit quality and had ‘avoided any concentration’ in a single development or district.

At the very high end, foreigners make up a significant portion of buyers – and banks have been seeing more of such borrowers.

Edmund Koh, DBS’s head of regional consumer banking, said there had been an increase in foreigners taking up loans, from 5.6 per cent of the total new loans book last year to 7.8 per cent for the year to date. United Overseas Bank executive vice-president Eddie Khoo disclosed last month at the bank’s secondquarter results that foreigners account for about 10 per cent of home loans. Overall, too, the bank was being cautious, given the market conditions.

‘As you know, property prices are moving up quite rapidly,’ said Mr Khoo. ‘But what’s good is that we are seeing less than 10 per cent of loans being booked (with) more than 80 per cent financing. We have a good portion of customers putting in more cash and equity in the purchase of property.’

Dr Chua said that banks were becoming more cautious in extending property loans to foreigners, especially in cases where prices were sizzling and people were buying for investment.

Anecdotally, he was aware of several cases where people could not get valuations to match their purchase prices.

For the mid-tier segment and if it is for owner occupation, banks are still more relaxed in their loan criteria, Dr Chua said.

Latest official data show that borrowing by homebuyers was up 8.1 per cent in July, accelerating from 6.9 per cent in June.

Mortgage growth had been sluggish for several months despite the Singapore property boom.

In the 11 months to March, mortgage growth in Singapore remained under 3 per cent even though home sales surged.

A key factor for this is the popularity of deferred payment schemes offered by developers, and many of these projects are approaching completion.

Dr Chua expects mortgage growth to reach double digits by the end of the year.

UOB and DBS said their Singapore mortgage book grew at 15 and 14 per cent respectively in the first half of this year.

There is little similarity between US lending practices and those in Singapore, where the banks have a good buffer in their exposure to mortgages. Although the Monetary Authority of Singapore eased financing limits from 80 per cent to 90 per cent two years ago, most banks said the bulk of their loans are booked at not more than 80 per cent financing.

They also said that investment properties do not account for more than 20 per cent of total loans.

 

Source: Business Times 5 Sept 07

InCity Lofts offered for sale at $70m

INCITY Lofts, an eight-storey block of small office, home office (Soho) units at Beach Road completed about three years ago, is being offered for sale at a minimum price of $70 million or $1,149 per square foot (psf) of strata area.

The land lease tenure of the site has been extended to a full 99-year term starting April 2004, after the building was completed.

InCity Lofts, at 700 Beach Road, is being sold by its developer, In-Space Pte Ltd, whose shareholders are said to include Wee Chwee Heng of Kumpulan Akitek.

InCity Lofts comprises a ground-floor retail unit as well as 54 Soho units – ranging from studio units to maisonette penthouses – spread across the second to eighth levels of the building, which has a roof-top pool. There are also 24 surface and covered carpark lots on the ground level of the development.

‘The majority of the units in the development are leased; and leases are mostly short-term, hence the new investor can reposition or re-let the building and ride on the strong office rental market,’ said Cushman & Wakefield managing director Donald Han, whose firm is marketing the InCity Lofts en bloc sale through an expression of interest exercise that closes on Sept 28.

Nearby commercial buildings like The Concourse are operating near full occupancy with asking rents for office units in the region of $10 psf a month, Mr Han said.

Assuming InCity Lofts units are rented out conservatively at $6 psf a month and based on a minimum price of $70 million, the net yield for an investor works out to over 5 per cent a year, he added.

‘This is a top-end yield play for investors looking for an aggressive rental with capital appreciation growth,’ Mr Han said.

InCity Lofts has a land area of 18,401 sq ft and a fully built up plot ratio (ratio of maximum potential gross floor area to land area) of 4.15.

 

Source: Business Times 5 Sept 07

Property stocks sink on news of higher DC charges

Higher development costs likely to cool en bloc fever

PROPERTY stocks fell yesterday after Friday’s news that the government will increase development charge (DC) charges as much as 112 per cent.

Analysts said the revised DC rates will push up costs and also discourage developers from paying ever-increasing prices for collective sale sites.

The Singapore Property Equities Index – a weighted index of all stocks in the Singapore Exchange’s property sector – lost 9.2 points or 0.6 per cent to end at 1,447.6 points yesterday.

The fall was led by Singapore Land which slid 40 cents or 4.0 per cent to close at $9.50.

Guocoland fell 14 cents or 2.9 per cent to end at $4.62 and City Developments lost 10 cents or 0.7 per cent to close at $14.80.

Other property stocks that slipped include Allgreen Properties, Ascott Group, Wing Tai, Wheelock Properties, MCL Land, UOL Group, Ho Bee and SC Global.

The government announced what is possibly the sharpest hike in DC rates, payable for enhancing the use of some sites or building bigger projects on them.

On average, the DC rate for non-landed residential use was raised 58 per cent.

While the move is not expected to derail the rise in housing prices, analysts reckon it will affect developers because the overall cost of redeveloping sites will go up.

‘We estimate the revised DC rates could increase average redevelopment costs by 3-4 per cent from July 2007 levels,’ said CIMB analyst Donald Chua.

This in turn means that developers will be less willing to fork out record dollars for sites.

‘For future en bloc purchases the sentiment is likely to be negative as break-even cost is likely to be higher,’ said OCBC Investment Research analyst Winston Liew. ‘We do not anticipate any more benchmark prices to be reached.’

CIMB’s Mr Chua said developers will be more selective with land-banking, especially in the prime districts, where surging property prices could cause even greater cost pressure. As a substitute, government land sale sites could now attract more interest, he said.

Phillip Securities Research said the DC hikes could affect home prices. It expects they will continue to increase, but at a slower pace from now on compared with the first half of 2007.

‘First, the rises in DC rates are likely to slow en bloc sales and reduce the demand for replacement homes,’ the firm said in a research note. ‘Second, both local and foreign investors are likely to be more cautious when they select homes after the recent steep price increases.’

Also, the credit tightening in US and the economic slowdown there will affect sentiment among buyers here, who may have lost money in global equity and bond markets, Phillip added.

 

Source: Business Times 4 Sept 07

Sub-prime will hit global economy: bank CEO

(FRANKFURT) Global economic growth will take a hit as a result of the US sub-prime mortgage crisis, says the chief executive of Deutsche Bank, Germany’s biggest bank.

‘Growth, especially of private consumption in the United States, will suffer because of the housing crisis and that can naturally not go without negatively affecting the world economy overall,’ Josef Ackermann said in a guest column to be published in the German business daily Handelsblatt today. The daily made a summary of the column available to other media at the weekend.

Mr Ackermann said that many banks and investors affected by the credit market turmoil that arose in the wake of the sub-prime crisis had apparently taken risks that exceeded their size and risk-bearing capacity.

‘This is, to say it clearly, above all negligence on the part of the managements of these houses,’ he said. The distribution of credit risks in the international financial system had not been transparent to supervisory authorities and market participants, Mr Ackermann said.

Deutsche Bank has shut down its proprietary credit trading desk in London and is laying off some of the 14-strong team, a source familiar with the matter said on Friday.

Earlier last month a source close to Deutsche Bank told Reuters the bank was set to ditch its credit relative value trading strategy used by the London proprietary trading desk after losses of about US$135 million.

Deutsche Bank has declined to comment.

Two German banks, SachsenLB and IKB, have been bailed out after running into trouble due to their exposure to US sub-prime mortgages.

 

Source: Reuters (Business Times 3 Sept 07)

Wild ride for investors ahead: analysts

WALL STREET INSIGHT

But they expect rally once sub-prime uncertainty clears

IN NEW YORK

ON Wall Street, stock market analysts and money managers see stocks ready to register gains once the considerable cloud of dust kicked up by the turmoil in the world’s credit markets sparked by the sub-prime mortgage market settles in the weeks ahead.

But stock traders warned that investors should prepare themselves for potentially huge short-term dips and advances as the market reacts to a steady stream of data leading up to the all-important meeting of the Federal Reserve’s interest rate policymaking committee on Sept 18, which will coincide with the beginning of a pivotal third quarter earnings reporting season.

‘The only thing I’m ready to predict for this month is a wild ride for investors,’ said Hugh Johnson, chief investment strategist of Johnston Illington Investors.

The US stock market’s performance last week could have been a microcosm for the entire summer. Huge ups and treacherous downs leaving the major stock indexes, in the end, pretty much at the same point at which they started the week off.

‘There’s an old saying on Wall Street: go away in May, don’t buy until Labour Day,’ observed Joe Battipaglia, the chief investment strategist at Ryan & Beck, who has seen more than his share of stock market gyrations, volatile markets, bull runs and short term meltdowns over more than 30 years of stock market forecasting.

‘And if investors had followed that rule, they’d have made themselves some very nice returns from the beginning of the year, and be in a situation to enjoy what I think will be a strong run sometime this fall, once the uncertainty over the credit market meltdown, how it’s affecting the economy, and what the Fed will do in response, calms down,’ he said.

Mr Battipaglia’s prognosis sounds simple enough, but investors probably will have several more weeks of the kind of volatility witnessed throughout the summer months and typified in last week’s often frantic trading action, before answers to those three key questions become clear.

The market remains on the edge, poised to either jump in with both feet and start a buying frenzy like the one witnessed following the late February plunge, which eventually sent the Dow to new record highs in July; or to cut and run, pull money out of the market at the dizzying pace seen in August’s sell-off, which brought the stock indexes to the brink of a full-blown bear market.

‘It’s going to be a wild and crazy September,’ echoed Joe Kalinowski, chief investment strategist at Grace Financial.

‘You’re going to see a lot of speculative buying and selling until the dust clears on the economy.’

September is known as the worst month of the year for stocks, with the Dow losing an average of 1.2 per cent for the first month of fall since 1929, and it could happen again if the Fed does not act to cut rates, as the investment community is clearly expecting at this point. The Federal Open Market Committee convenes on Sept 19.

Speculation over the likelihood of the first cut in the Federal funds rate has been running hot and heavy since the Fed took the unusual action of raising the discount rate target by 50 basis points two weeks ago in order to keep liquidity from drying up in the credit markets and to reassure the world that it would not allow the financial system to be plunged into chaos by the greed and speculative behaviour that led to the sub-prime mortgage crisis, which has spread to all financial markets.

On Friday, Fed chairman Ben Bernanke’s much-anticipated comments at a conference in Jackson Hole only stoked those expectation to a higher degree. ‘Everybody thinks they heard what they wanted to hear from Bernanke,’ said Mr Kalinowski. ‘Bernanke said the Fed would not let the credit crisis spread to the economy. The market took that to mean he’s more than likely to cut rates at the Sept 18 meeting,’ he said.

Indeed, investors responded strongly to Mr Bernanke’s speech, sending the Dow Jones Industrial Average soaring 119 points, or up 0.9 per cent to 13,357.74. It was a broad-based rally, too: of the Dow’s 30 components, 27 finished higher. The S&P 500 rose 16.35 points, or 1.1 per cent, to close at 1,473.99. The Nasdaq closed up 31.06 points or 1.2 per cent, at 2,596.36.

For the week, the blue chip index advanced nearly 1.2 per cent while the S&P 500 finished with a loss of 0.4 per cent, and the Nasdaq gained 0.7 per cent.

All three indexes registered gains of more than one per cent for the month of August, with the S&P 500 leading the way with a 1.28 per cent gain. The Dow and the Nasdaq posted 1.1 per cent advances.

The coming holiday-shortened week will get off to a fast start for traders coming off their Labour Day break, concerns over the credit crunch and its effects on the economy remaining front and centre.

Tomorrow, the Institute for Supply Management’s August manufacturing index will be released. That will be followed two days later by the ISM services index, which gives a similar snapshot of the non-factory sector. ‘These are both important and timely indicators and are some of the earliest readings on economic activity for August and do include the period of market turmoil,’ said Joel Naroff, president of Naroff Economics.

Exactly how much the real economy has been affected will have a direct bearing on the Fed’s interest rate decision at its Sept 18 meeting. The Fed funds futures market is pricing in a 100 per cent chance of a quarter-point cut, with another quarter-point cut expected by year-end.

The credit markets will also face a big test starting tomorrow, when investment bankers will be looking to finance several major buyouts, including the US$26 billion buyout of First Data Corp by Kohlberg, Kravis, Roberts.

‘If that deal goes smoothly, it could give a big boost to the credit market and would be a step in the right direction of reassuring investors that liquidity is not still in crisis,’ said Mr Johnson.

 

Source: Business Times 3 Sept 07

DC rates hoisted by as much as 112%

Average rate raised by 58% for non-landed residential use, and 42% for commercial use

(SINGAPORE) The government yesterday announced what is possibly the sharpest hikes in development charge (DC) rates, which are payable for enhancing the use of some sites or building bigger projects on them.

The Ministry of National Development (MND) cited the rise in market values as the reason for the increases.

On average, the DC rate for non-landed residential use was raised by 58 per cent and that for commercial use by 42 per cent. The average DC rate was also increased 23 per cent for hotel use, 11 per cent for landed residential use, and 2 per cent for industrial or warehouse use.

But the escalations were much bigger in certain locations – as high as 112.1 per cent for non-landed residential use in the Everton/Spottiswoode Park vicinity and 104.5 per cent for commercial use in the Maxwell Road/Telok Ayer St and Anson Road areas, based on Jones Lang LaSalle’s analysis.

The latest increases, which take effect today, are in addition to the 40 per cent across-the-board appreciation in DC rates announced on July 18 arising from a change in formula for computing DC.

While yesterday’s increases look steep, they did not surprise most market watchers given the substantial appreciation in land values over the past six months.

As to whether the latest hikes will further slow en bloc sales, which have decelerated lately as developers become more cautious about land-banking amid the stock market rout and credit tightening fears, property agents offered a range of views.

Credo Real Estate’s managing director Karamjit Singh estimates that probably only about 20 to 30 per cent of all collective sale sites have substantial DC components amounting to 10 per cent or more of total land value. ‘For many of these sites with high DC component, the increase may have been anticipated and priced in, so things can move on. For those that haven’t, their progress for an en bloc sale could be affected if owners are unwilling to lower their price expectations.’

Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt too said: ‘Despite the stellar increases in DC rates, the impact of the DC hike on en bloc residential developments remains marginal on most sites, especially freehold sites. Some leasehold sites with substantial DC components, however, may feel the heat.’

CB Richard Ellis executive director Li Hiaw Ho said the hikes will to ‘a small extent, slow down collective sales’.

‘Coupled with homeowners’ expectations of high prices for their properties, developers might not be as aggressive in acquiring sites,’ he added.

Colliers International’s director for research and consultancy Tay Huey Ying said two rounds of DC hikes in July and September, and global credit tightening, will likely lead to more cautious bidding by developers and more realistic price expectations by sellers.

Ms Tay said that increases in land prices may not be as phenomenal in the coming six months compared with the past six months. ‘But demand for development land should stay healthy as the end-market for residential property is expected to remain healthy on the back of strong economic prospects,’ she added.

Analysts noted that in any case, the supply of collective sale sites will slow due to impending changes to en bloc sale rules requiring more safeguards and procedures.

DC is specified according to use groups and is listed by 118 geographical sectors or locations across Singapore.

The 112 per cent hike in non-landed residential DC rates in the Everton/Spottiswoode Park area was attributed by most analysts to the Spottiswoode Apartment and Oakswood Heights collective sales in April and June at $732 psf per plot ratio and $740 psf ppr respectively – more than twice the land value of $307 psf ppr implied by the July ‘07 DC rate for the location.

And the DC rate hikes of 107.5 per cent each in the Newton/Surrey/Lincoln roads and River Valley/Jalan Mutiara areas were attributed to the collective sales of Lincoln Lodge for $1,449 psf ppr, and Bishopswalk for $1,544 psf ppr respectively, which are about three times the $492 psf ppr land value implied by the July ‘07 DC rate for the locations.

The Maxwell Road and Anson Road areas topped the increases for commercial use with gains of 104.5 per cent each, likely due to prices achieved at two recent state tenders for commercial sites at Anson Road. The same two locations also recorded the biggest increases in hotel use rates, at 66.7 per cent each, and again, this was probably due to two hotel sites at Gopeng Street and Tras Street sold by the state at significantly higher land values than implied by July DC rates.

As for industrial DC rates, the highest increase of 15.8 per cent was for the Pasir Panjang/Science Park area, followed by 11.1 per cent hikes in 15 other locations including Henderson Industrial Park, Bukit Merah View, Redhill and Hoy Fatt Rd/Alexandra Road, according to JLL’s analysis.

 

Source: Business Times 1 Sept 07

Wing Tai chief cautiously upbeat on property prices

WING Tai Holdings’ head honchos yesterday said the US sub-prime woes have slowed property transactions across the whole market here but believe that property prices are still on a growth path ‘if the sub-prime (crisis) stabilises within a reasonable period’.

Wing Tai chairman Cheng Wai Keung said: ‘Yes, temporarily, it has affected some of the take-up rates.

But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last six to nine months. It’s just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We are not at the end of the property cycle.’

Mr Cheng and his brother, Edmund, the group’s deputy chairman, were fielding questions during the group’s full-year results briefing.

‘On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then of course it will be a completely different scenario,’ he added.

Mr Cheng also acknowledged that Wing Tai had seen an increase in buyers not exercising options but the rate is ‘not alarming’, at ‘just a handful’.

Buyers giving up options is a factor of two things: how aggressively a developer pushes for a sale and its selling price. ‘Our style is that given that the market is slow, there’s no point to push for a sale (and then have the buyer) back out later. Secondly, our pricing maximises our profit but we also leave something on the table (for the buyer) so at least he has a hope that the price is supportable,’ Mr Cheng said.

As for the proposed changes to legislation governing collective sales, Mr Cheng reckons they will slow down en bloc sales since such deals will now take longer to execute. ‘From a positive angle, it will slow down supply of land with redevelopment potential which means there will be less competition for companies that already have some landbank. But on the other hand, if you have less land to buy, then you cannot grow your business as fast as you would like to.

‘But given the recent run-up in property prices, people will be a lot more cautious in buying more development land. So in a nutshell, I think it’s good. At least it allows the market to consolidate and adjust itself, and also takes away some of the uncertainty under old en bloc rules.’

 

Source: Business Times 30 Aug 07

En bloc sales without tears

SELLERS both eager and reluctant in collective property deals will find out in time if the legislative changes Deputy Prime Minister and Law Minister S. Jayakumar tabled in Parliament on Monday balance their competing interests. What the latest draft amendments to the Land Titles (Strata) Act will do, as much as they can do for the time being, is to provide more safeguards and make the process more transparent for both groups. These will go a long way to helping them avoid doubt and dispute that could lead to drawn-out and costly litigation, such as in the current Horizon Towers case. The proposed changes could not have come sooner. They strengthen the practice in the crucible of a booming property market. Many – sellers, buyers, realtors and lawyers as well as the authorities – have learnt much in the last few months of en bloc frenzy.

More than 100 people recently made over 400 suggestions in six weeks of public consultation that resulted in more than 30 proposed measures. The intensive and extensive exercise appears to have thrown up fixes that are sorely needed. Up to now, no rules exist governing the establishment and conduct of an en bloc sales committee. With the changes, the decision to set one up and the consideration of its proposals will lie with the management corporation, thus effectively safeguarding owners from any sharp practices outsiders may have in mind. The requirement that a sale must be launched through public tender or auction will help ensure the best price. The five-day cooling-off provision will protect sellers from making a hasty decision. The presence of a lawyer to witness documents and to clarify terms will increase everyone’s comfort level while guarding the deal from technical pitfalls.

Another significant change is that the consent owners must give for an en bloc sale will relate to the size as well as the share value of their property. The additional condition is a sensible attempt to deal with the concerns of owners of residential properties, which generally have a smaller share value than offices or shops in a mixed development. Beyond that, the 80 per cent and 90 per cent owner consent requirement will be left untouched for developments more than 10 years old and less than 10 years old respectively. It is probably felt that increasing the percentages will make such deals unduly onerous. If the proposals make possible en bloc sales without tears while encouraging urban renewal at an optimal pace, an objective not to be lost sight of, they will have done their job. If not, further tweaks can always be made.

 

Source: The Straits Times 30 Aug 07

Property, financial boom drives growth in services

Overall turnover in the sector expands by 15.6 per cent in second quarter

SINGAPORE’S services sector racked up a robust second quarter, thanks to the booming property and financial sectors.

Overall business receipts for the three months ended June 30 were up 15.6 per cent over the same period last year, according to the Department of Statistics.

Financial services, real estate and business services were among the sectors that enjoyed bumper growth but economists were not optimistic that such robust expansion will be sustainable.

Fortis Bank strategist Joseph Tan said: ‘The main question is how the sub-prime activity in the United States will affect the market. If it is risk-averse, we will be negatively affected if trading volume falls.’

Financial services led the way with a 35.6 per cent rise in turnover, thanks mainly to brisk business in banks, stock brokers, funds managers and investment advisors.

The related field of insurance rose 28.2 per cent. If the financial and insurance sector figures were stripped out of the overall picture, services industry growth in Singapore was still 10.5 per cent.

United Overseas Bank economist Alvin Liew believes, however, that those two sectors are still key to further strong expansion. ‘Growth without financial services remains rather strong, but because financial services registered strong growth, if it slows, the overall robust growth seen here might not be sustainable.’

Real estate, excluding developers, grew by 27.2 per cent, which, in turn, came on the back of robust 19.2 per cent first-quarter growth.

The bumper figures stemmed from the dramatic recovery in the housing market but experts are divided over whether the good times will roll for much longer.

Mr Liew feels real estate ‘can be expected to do well over the next 12 to 18 months’, while Mr Tan believes demand could dry up.

‘A lot of the positive vibes in the property markets have been driven by gains in the equity markets,’ he said.

‘If activity in the markets slow down, real estate activity could slow down too.

‘But there are two trends in the sector. Fundamental demographic demand, such as with the integrated resorts and inflow of migrants, will continue to drive demand over time. But cyclically, we can expect retardation of demand as speculative buying and positive sentiments slow.’

Leasing services, a related field, also enjoyed a good quarter, with receipts up 12.7 per cent, thanks mainly to more business for firms leasing land and water transport gear.

Education services were up 15.9 per cent while business services rose 15.6 per cent. This sector covers fields such as legal and architecture but it was the 36.8 per cent surge in market research and management consultancy firms that really gave the sector a boost.

Transport saw growth across all sectors reflecting the higher returns from freight as regional trade boomed.

Receipts in storage and supporting services rose 12.4 per cent.

Economists expect the services sector to grow fairly strongly for the rest of this year and into 2008.

 

Source: The Straits Times 28 Aug 07

Rents, wages up but S’pore cheaper than HK, Tokyo

Also, it has qualities like liveability that economies in region cannot easily copy, says Lim Hng Kiang. But it has to keep an eye on costs

EVEN though property costs and wages are on the rise, Singapore remains cheaper than global cities in the region such as Hong Kong and Tokyo, said Trade and Industry Minister Lim Hng Kiang.

Nevertheless, the Republic cannot afford to be complacent, said Mr Lim. ‘We have to maintain vigilance over our costs, as excessive cost increases will dampen our growth prospects,’ he said.

Mr Lim was speaking in Parliament yesterday in response to MPs’ concerns about the impact of rising business costs on Singapore’s economic competitiveness.

In response to questions on this issue from Mr Liang Eng Hwa (Holland-Bukit Timah GRC), Mrs Josephine Teo (Bishan-Toa Payoh GRC), Dr Muhammad Faishal Ibrahim (Marine Parade GRC) and Madam Halimah Yacob (Jurong GRC), he laid out proactive steps that the Government has taken to address supply constraints.

Also, citing as examples London and New York, which are thriving hubs despite their high costs, Mr Lim said ‘competitiveness is more than offering low costs alone’, but also about value creation. In this respect, Singapore has attributes that economies in the region cannot easily replicate, such as its livability.

Also Mr Lim pointed out that in the past three years, the consumer price index has increased at an annual rate of 1 per cent, while overall unit labour cost actually declined at an annual average rate of 2.2 per cent.

‘However, in recent quarters, we have seen increases in property prices and rentals, as well as wages,’ he noted.

He cited recent moves to release land for temporary office space as well as provide more public flats for rental.

The Ministry of National Development (MND) also released additional information on property prices and rents ‘to allow the public and businesses to make more informed decisions on property purchases and rentals’.

And the MND has been putting out an ample supply of land with more than 42,000 private residential units and 640,000 sq m of office space to be completed by 2010.

The Government is also looking at ways to help more Singaporeans such as older workers and women take advantage of the strong employment market and rejoin the workforce.

Despite media reports of ’sky-high’ office rentals, Mr Lim said although the median prime office rent in the second quarter was $9.50 per sq ft per month, the median rent in other locations, accounting for about 80 per cent of office space here, was less than half of that.

Mr Lim also quoted studies which showed that Singapore remains cheaper than other global cities in the region.

A survey on global office market rentals by consultants CB Richard Ellis showed that Singapore was 30 per cent cheaper than Hong Kong, and 50 to 60 per cent cheaper than Tokyo.

 

Source: The Straits Times 28 Aug 07

What will happen from here on?

Few dare assume that the worst is really behind us

FINANCIAL markets have come back from the brink after last week, thanks to the Fed’s deft move to stave off a meltdown in global financial markets. But only the very brave dare believe the worst is now over.

When massive injections of short-term liquidity into shell-shocked money market systems from Japan to Europe and the US proved less than effective in stopping the deluge of nervous sell-offs in stock and currency markets, the Fed had no choice but to offer a half per cent cut in its discount rate.

In Asia, meanwhile, there were widespread reports of central banks stepping in to stop their currencies from selling off too sharply as things got from bad to worse. On the stock market side, there was also talk of covert stockmarket purchases, even before China announced (this week) that individuals on the mainland can now buy stocks direct in Hong Kong.

But before all of that, a few stock indices suffered painful relapses of 20 per cent or more from their 2007 highs, and the year’s carry-trade favourites like the Australian and New Zealand dollars likewise plunged a fifth or more against the low-yield yen in frenetic trading last Friday – before recovering this week.

The US dollar, meanwhile, received a respite from the appeal of safe-haven US Treasuries; except against the yen, the week’s biggest ‘comeback kid’ – where large carry trade positions favouring the Antipodean pair and even more exotic assets were nervously unwound.

And while we got the direction right here a week ago, all of our targets save one proved modest before the worst was over.

Here’s a sampling: Yes, in broader indexed terms, the US dollar easily breached our first overhead resistance area at 81.25 but ran out of steam at our next overhead carrier at 82.00-20. Elsewhere, however, the greenback blew past our first resistance area of S$1.53 – and even S$1.54 above that.

On the carry trade side, the yen surpassed all expectations as it exploded against the Australian dollar, New Zealand dollar, euro and British pound.

All were easily savaged below our week’s respective targets – at 95 yen, 85 yen, 160 yen and 235 yen for the pound. Before the Fed’s rescue, the Australian dollar was forced down to lows of 86 yen and S$1.18, the New Zealand dollar to 74 yen and S$1.02, the euro to 149 yen and S$2.05, and the pound to 219 yen and less than S$3.02. All have since recovered. In yen terms, for example, all four were trading at least five yen above the past week’s ugly lows yesterday.

Yet, all said and done, we are obliged to say that even as more intrepid souls return to nibble once more at the favourite currency plays of 2007 – selling the US dollar and buying high-yielders Down Under and elsewhere – there are reasons to suggest that the financial typhoons of the past week haven’t completely subsided.

True, the Long Term Capital Management (LTCM) debacle of October 1998 was followed by higher US stock prices and a stronger US dollar. However, it is seldom safe to assume that history will repeat itself, especially when the backdrop is quite different.

So here are some important factors to think about over the coming fortnight, even as trading rooms slowly return to full force at the end of the summer holidays.

If no one has really been able to unload any of their ugly sub-prime debt and unwieldy financial derivative structures in current market conditions, can we really say for sure that the worst is behind us? If we also combine the talk of weaker US growth in 2008 with growing expectations for two, if not more, cuts in the short-term US Fed funds rate, won’t the US dollar be in danger of resuming its slide?

And if the worst is indeed over, why are our friends at research firm Forecast telling us that the spread between safe-haven, three-month US Treasury bills and straight bank deposits has exploded this week to more than 2.5 per cent? We’re told it’s the widest gap between the two in more than three decades.

 

Source: Business Times 22 Aug 07

Market crisis just a speed breaker?

While agreeing that the bull market is intact for long-term investors, analysts say it would be prudent to revisit your asset allocation in the wake of the sub-prime crisis.

THE fallout from the crisis in sub-prime mortgages in the US has sparked a rout in credit and equity markets in recent days. The biggest question in investors’ minds must be whether the bull market in asset prices, fuelled by ample liquidity and relatively low interest rates, is over.

In this edition of Executive Money, strategists, analysts and fund managers share their views.

For long-term investors, the consensus is that the bull market is intact – but the consolidation may not be over. So far on a year-to-date basis, equity market indices based on the MSCI, remain positive, with gains of up to 24 per cent between January and Aug 13.

For some time now, strategists have been telling investors to take some profits off the table, while staying invested.

Now is not the time to panic, but it would be prudent to revisit your asset allocation. An asset class that has risen over the years could now comprise an outsize share of your portfolio. Here is what the experts say.

Lim Heong Chye, APS Komaba Asset Management:

‘The uncertainty may drag on for a while. Sub- prime mortgages actually comprise a small portion of the entire US mortgage backed securities market. But once they were packaged into collateralised debt obligations (CDOs), the contagion could spread into credit related issues – as it has today.

In credit markets, the only safe place is Treasuries. There will be volatility in the coming weeks, especially for credit issues lower than investment grade. In our fund we hold a lot of cash now, about 20 to 30 per cent. We’re looking to deploy the cash into issues where we see value. We bought some government bonds.’

David Bensimon, technical analyst and trader:

‘Ultimately there is no change to the larger picture. 2007 is a consolidation year. We haven’t finished the consolidation across a range of markets. My price target for the Straits Times Index is to go down to 2800. I’m looking for the S&P 500 to move to 1,360 and ultimately to 1,260. There is a structural difference between today’s environment and the past. In the past three years, the market drops have been 6 to 7 per cent.

There is a process of a re-pricing of risk to appropriate levels across a range of financial markets – interest rates, equities, commodities and currencies – because of the recognition that yields were not high enough to reflect the level of risk. With central banks moving to support the market, the perception has not been that the banks are solving the problem, but that there must be a bigger problem.

Between 2008 and 2010, we’ll see a resumption of tremendous prosperity. We really are living in a prosperity driven era of growth. We’re going to see substantial further gains. But this year is one of transition, and that has not finished. For stock markets, it’s almost just beginning.’

Dr Shane Oliver, AMP Capital Investors head of investment strategy and chief economist:

‘While shares have had a good bounce in recent days and there are signs that the credit market turmoil may be settling down, it’s too early to say the falls in shares are over.

While the ride is likely to be rough over the next few months and further declines are possible, the recent slump in share markets should not be seen as the start of a bear market. The historical record indicates that corrections of up to 20 per cent are not unusual in the context of cyclical bull markets, so investors should not get too alarmed by the recent turbulence.’

HSBC Investments:

‘Markets are now pricing a high probability that the Federal Reserve will cut US interest rates soon. In July this year we became concerned over a financial accident occurring in the second half of 2007. As a result, we have been cutting back our equity exposure since mid-July.

We do not think the current volatility will last long and would look to increase equity exposure on weakness.

Global equity valuations remain reasonable by historical comparison, and corporate earnings remain robust. As the economic cycle remains healthy, the longer term trend for equities is expected to be up.’

Robin Parbrook, Schroders head of Asia ex-Japan equities:

‘We expect Asia to be correlated to any short-term sell-off in global equity markets. But we continue to believe that buying Asia on weakness is the correct strategy. The region has a strong long-term growth outlook, and Asia’s dependence on the US economy for its growth has been much reduced.

While the current problems are worrying in terms of risk appetite (and the subsequent risk of market volatility), they do not undermine the fundamental investment case for Asia. The corporate sector in Asia is in good shape.

Balance sheets are strong, cash flows are buoyant, dividend payouts have been rising and capital expenditure plans to date have been relatively disciplined. Economically and politically, the region also looks sound. With the macroeconomic risks looking relatively benign in the region itself, we view a 15-20 per cent pull back from recent highs as a good entry point for long-term investors.’

Prudential Asset Management:

‘The recent sell-offs have been less dramatic than previous ones. Are investors really worried, or are they merely ‘testing’ the solidity of the underlying demand by aggressively selling? We think it is the latter.

Strong Asian growth will continue to support corporate earnings in this region. Corporate credit quality especially in Asia remains solid. 2007 may ultimately prove to be no more than a ’speed bump’.

Short-term valuations may look high but Asia’s valuations are not that high when looking at the longer term and comparing them against world levels. The Asian re-rating story is not over.’

Chen Zhao, managing editor, BCA Research (global investment strategy):

‘Market sentiment is still very fragile and emotional, as investors have been spooked. We urge clients to maintain composure. We should always be ready to buy when there is blood on the street.

The key point is that unless one believes the blow-up in the sub-prime mortgage market could significantly alter the underlying trends in the global economy and stock prices, the recent downturn in equity prices is in the very late stages and might have entered its final capitulation phase.

To be sure, like any bottoming process, this one will be volatile. But the prudent strategy is not selling into strength. Rather, investors should wait for opportunities to buy.’

Clariden Leu investment strategy team:

‘Equity markets in the emerging economies held their ground remarkably well in the recent correction. After a well earned breather in the summer, marked by heightened volatility, equity markets will resume their climb.

We recommend maintaining an overweight in equities and expanding it on price setbacks. Our preferred markets are Europe and selected emerging markets. In the light of further rises in interest rates, we remain underweight in bonds and overweight in the money market.’

 

Source: Business Times 15 Aug 07

Still plenty of liquidity, says CDL’s Kwek

But foreign funds seeking investment property are likely to proceed more carefully

‘THERE is still plenty of liquidity around,’ City Developments’ executive chairman Kwek Leng Beng said yesterday. But foreign funds seeking investment property are likely to proceed more carefully given the escalation of the US sub-prime woes, he noted.

Mr Kwek was speaking at a press conference to announce CDL’s 2007 second-quarter results, which saw revenue rising 28.8 per cent year-on-year to $775.2 million and net profit up more than four-fold from $44.9 million to $194.4 million.

On a half-year basis, revenue soared 35.1 per cent to $1.54 billion, an all-time high for the property developer. Sixmonth net profit jumped 272.3 per cent to $320.5 million.

Unlike most property companies, CDL did not factor investment property revaluation gains.

Speaking for the first time on the impact of the US sub-prime crisis and the ensuing credit squeeze, Mr Kwek said that he has seen fewer funds making enquiries about CDL’s burgeoning investment property portfolio. ‘Before, they would come knocking everyday,’ he said.

This interest in office buildings has been boosted by rising rental returns and CDL revealed yesterday that its Republic Plaza had recently achieved a new record rent of $17.50 psf per month and is now asking for over $18 psf per month.

For H1 2007, profit before tax for the rental properties segment, which includes office space, was $27 million, a year-on-year increase of 800 per cent.

Mr Kwek also said that CDL was considering but not in a hurry to sell its office buildings, or for that matter, launch an office real estate investment trust (Reit) of its own.

For the same period, profit before tax for its property development segment was $238 million, a rise of 266 per cent.

Interestingly, CDL is not rushing to sell off Cliveden at Grange either, its latest luxury condominium offering.

Saying that prices for luxury condos are not likely to keep increasing on the same steep curve it has been charting for the last 12 months, Mr Kwek revealed that he was considering retaining two blocks of Cliveden for rental purposes and long-term investments.

He added: ‘(Luxury prices) won’t be going up in a straight line anymore until things stabilise.’

The luxury end of the market has been largely driven by foreigners. Mr Kwek said that he had spoken to some of his foreign high net worth clients and they have told him the sub-prime crisis is not a ‘big issue’ for them. ‘They feel it will affect the private equity firms more,’ he said. However, he added: ‘It is fair to say some will be cautious and may defer their decision to buy now.’

Mr Kwek was much more bullish on the mid-tier residential segment in which he still sees upside. ‘It has not reached the previous peak yet,’ he said.

CDL is planning to launch four developments in the second half of the year including the 40-unit Wilkie Studio in the Mount Sophia area; a 77-unit project at Shelford Road; the 228-unit Quayside Collection at Sentosa Cove; and a 336-unit project at Thomson Road.

CDL also spent about $1 billion in the first half of the year increasing its landbank, and is consequently raising its gearing ratio to 56 per cent, up from 54 per cent in 2006.

Its residential landbank is now at about 3.5 million sq ft while its total landbank is close to 4.5 million sq ft.

Of the potential gross floor area of 8.9 million sq ft, about 80 per cent can be for residential development.

The positive outlook, boosted by earnings, has prompted CDL to declare a special interim dividend of 10 cents per ordinary share. The payment date will be released at a later date.

CDL closed yesterday at $14.60 per share, down 10 cents.

 

Source: Business Times 15 Aug 07

Prime office rents in Singapore still competitive

Corporates still see value in operating out of Singapore, says DTZ

(SINGAPORE) Occupancy cost in prime Singapore office locations has risen 54 per cent in the first six months of the year. Though the cost is still lower than in Hong Kong, the increase here is still the fastest in the Asia-Pacific region.

DTZ Debenham Tie Leung defines occupancy cost as the average total cost of leasing prime net usable space of 10,000 sq ft within a prime CBD location. It includes rent and outgoings, such as maintenance costs and property tax, if these are normally payable by the occupier.

And according to DTZ, average occupancy cost has more than doubled from a year ago in the Raffles Place and Marina Centre zones where average rents are now S$13.10 psf per month and S$11.80 psf per month respectively.

However, DTZ’s report does show that Grade A office rents in general are still competitive compared to other regional cities at S$10.89 psf per month.

And although DTZ believes that ‘unrelenting office demand’, will see occupancy cost keep rising, its executive director Ong Choon Fah said: ‘A lot of corporates still see value in operating out of Singapore.’

Demand for office space has been ‘extremely strong’ from the financial sector but Mrs Ong notes that this has also begun to ‘trickle down’ to other support sectors, boosting demand further.

Supporting this is DTZ’s data which shows that Grade A vacancy rates in Singapore is the lowest at 2.6 per cent after Delhi at 0 per cent, followed by Shanghai (2.8 per cent), Tokyo (2.96 per cent) and Hong Kong (3 per cent).

Asked to comment on the figures for occupancy cost in Singapore, a URA spokesman said that the statistics were computed based on DTZ’s knowledge of rental transactions for a selected basket of prime office buildings as well as their estimates of ‘achievable rentals’ where there were no actual transactions done in certain buildings.

URA, which had also consulted DTZ on its figures, added: ‘The inclusion of pre-committed space may result in instances of double-counting of occupied office space, as the tenants may be vacating other office buildings when they shift to their new premises.’

Noting that different methodologies may result in different statistics, URA also noted that DTZ estimates that office occupancy rates for prime office buildings in Raffles Place, Marina Centre and Orchard Road for Q2 2007 were 97.4 per cent, 98.9 per cent and 96.9 per cent respectively.

By comparison, URA’s office occupancy rate figure for Category 1 office buildings in the Downtown Core – which includes Raffles Place and Marina Centre and Orchard Planning Area – was 95 per cent for the same period, and computed based on the physical occupancy of space.

URA also said that based on Iras’ records of rental contracts signed in Q2 2007, the median rental for Category 1 office buildings was S$10.33 psf per month.

DTZ said that although the increase in occupancy cost was the greatest in Singapore, occupancy cost is still the highest in Hong Kong at US$180.27 psf per year where base Grade A rents in the Central and Admiralty areas is S$20.09 psf per month.

This is followed by Tokyo at US$119.30 psf per year with base rent at S$150.55 psf per month, and Singapore at US$102.61 psf per year with a base rent of S$10.89 psf per month.

 

Source: Business Times 14 Aug 07

Sub-prime mess just a Chicken Little flap

Recent global market tremors are a disturbing commentary on the power of fear

THE job of an economist, among many other duties, is to put things into perspective. So, because I am an economist, among other duties, here is a little perspective on the recent turmoil in the stock and bond markets.

First, when the story of this turbulence is reported, the usual explanation mainly has to do with some new loss in the sub-prime mortgage world – the universe of mortgages and mortgage-backed instruments related to buyers with poor credit histories or none at all.

Here is the first instance in which proportion tells us that something is out of whack: The total mortgage market in the United States is roughly US$10.4 trillion. Of that, a little over 13 per cent, or about US$1.35 trillion, is subprime – certainly a large sum. Of this, nearly 14 per cent is delinquent, meaning late in payment or in foreclosure.

Of this amount, about 5 per cent is actually in foreclosure, or about US$67 billion. Of this amount, according to my friends in real estate, at least about half will be recovered in foreclosure. So now we are down to losses of about US $33 billion to US$34 billion.

The rate of loss in sub-prime mortgages keeps climbing. In time, perhaps it will double, maybe back to US$67 billion. This is a large sum by absolute standards, and I would sure like to have it in my bank account.

But by the metrics of a large economy, it is nothing. The total wealth of the United States is about US$70 trillion.

The value of the stocks listed in the United States is very roughly US$15 trillion to US$20 trillion. The bond market is even larger.

Much more to the point, the fears and terrors about sub-prime mortgages have helped knock off about 6 per cent of the stock market’s value in recent weeks. This amounts to about US$1.1 trillion or more than 30 times the losses so far in the sub-prime market. In other words, these sub-prime losses are wildly out of all proportion to the likely damage to the economy from the sub-prime problems.

The disconnect goes even further. The Dow Jones industrial average has been heavily moved by fears about the sub-prime market. But how are most of the Dow 30 affected by sub-prime mortgages in any meaningful way? No Dow company is short of liquidity, and consumer spending is still strong.

Foreign stocks, especially in developing countries, have been hard hit, and this is supposedly connected with a ‘repricing of risk’, which in turn is connected with sub-prime mortgages. But how are the risks in Thailand or Brazil or Indonesia closely related to problems in a housing tract in Las Vegas? The developing countries are fantastically strong and liquid.

Why would problems at a mortgage company in Long Island have anything to do with them? European stocks have also been hard hit, and this has to do with relatively small amounts of sub-prime in some European banks. On a global scale, the numbers in Germany and France are minuscule for sub-prime exposure. For European markets to fall on sub-prime issues makes no sense.

News last Thursday that a small amount of unpriceable sub-prime mortgages was in a BNP Paribas fund in France sent the markets in Europe and the US sharply lower. Why? The losses in France are at most in the single billions, while the losses in US markets alone were in the hundreds of billions on the BNP news.

Then there is the supposed ‘drying up’ of credit for private equity deals because of fears of risk. But this is also puzzling. I can’t think of a single recent major private equity deal in which the bonds have defaulted.

Major hits

More to the point, suppose that all private equity deals were stalled for a year. Why would this affect the Dow?

None of companies in the Dow 30 is having trouble raising cash. And suppose that all private equity deals went away for good.

Taken together, they are not all that big a piece of the US economy. Why should they put the markets of the richest nation in the world, as well as all of the world’s other markets, into turmoil? Then let’s take a peek at Bear Stearns.

This venerable and clever financial house has taken some major hits on sub-prime mortgages lately. That is sad for the stockholders (I am a very small stockholder), and the price of Bear Stearns stock has tumbled.

A little over a week ago, news about Bear Stearns’ liquidity issues lowered the market value by more than US$1.2 billion.

That is a big hit to a single company, to be sure, but then came the shocker: that news also helped wipe out hundreds of billions of dollars off the total value of US stocks.

My point is this: I don’t know where the bottom is on sub-prime. I don’t know how bad the problems are at Bear. Yet I do know that the market reactions are wildly out of proportion to the real problems that have been revealed or even hinted at. Maybe there is some giant thing hiding in the closet that might rationalise the market’s fears.

But if it’s hidden, how can the market be reacting to it in the first place? More will be revealed, as the saying goes.

But recently investors have been selling out of all relation to what we know.

Reassurances in word and deed from Ben Bernanke, chairman of the Federal Reserve, helped calm the markets on Friday.

But recent events are a disturbing commentary on the power of fear.

This economy is extremely strong. Profits are superb. The world economy is exploding with growth. To be sure, terrible problems lurk in the future: a slow-motion dollar crisis, huge Medicare deficits and energy shortages. But for now, the sell-off seems extreme, not to say nutty.

Some smart, brave people will make a fortune buying in these days, and then we’ll all wonder what the scare was about.

 

Source: Business Times 14 Aug 07

Portfolios take a ’sub-primal’ beating

HOW quickly investment sentiment can sour. Up till a few weeks ago, punters were still betting on penny stocks like there was no tomorrow. But the turning point came last month when a US bank, Bear Stearns, spooked the markets with news of major losses and accounting difficulties with its investments linked to risky US housing loans.

Losses by other banks and investment funds have led to what has been termed the ‘US sub-prime housing crisis’ – the source of turbulence and uncertainty in global financial markets in the last couple of weeks.

How these financial losses will trickle down to the real economy – the consumers and companies – remains to be seen.

Meanwhile, banks are now setting aside cash as a precaution against further losses from their bad investments and have become far more cautious about lending.

This is known as a ‘credit squeeze’, but the fear is that this could become a veritable ‘credit crunch’ in which companies and consumers have inadequate access to loans, according to an AFP report.

‘As private sector banks, in a time of uncertainty, set aside more funds for their own funding needs, we are seeing a shortage of liquidity in the money markets,’ AFP quoted Societe Generale’s chief Asia economist Glenn Maguire as saying.

A shortage of liquidity would restrict the ability of companies, and eventually consumers, to borrow, potentially slowing economic growth worldwide.

In an attempt to avert a crisis of confidence in global credit markets, central banks in the US, Europe, Japan, Australia and Canada last week added about US$136 billion to the banking system.

The Federal Reserve, in a second day of action in concert with the European Central Bank (ECB), provided US$38 billion of reserves and pledged more ‘as necessary’, in a statement unprecedented since after the Sept 11, 2001 attacks.

Money market rates had risen worldwide in the previous two days on evidence that the sub-prime crisis is spreading.

By the end of Friday, the central bank actions helped spark a turnaround in American stocks and drive the US overnight bank lending rate below the Fed’s target.

The Dow Jones Industrial Average recovered from a 210-point deficit to end just 31 points lower.

‘They accomplished their short-term mission to make sure the market stabilised ahead of the weekend,’ Bloomberg quoted David Resler, chief economist in New York at Nomura Securities International Inc, as saying. ‘It remains to be seen how much more they’ll have to do.’

Our portfolios declined by an average of 7.5 per cent last week. The one which fell the least – the analysts’ upgrades portfolio – is also the one with the highest cash component. This illustrates the truth of the saying ‘cash is king’ in a turbulent market.

It slid only 2.2 per cent. It had about 30 per cent cash as at last week due to the privatisation of companies like MMI and Amtek, and Want Want Holdings soon.

Meanwhile, small-cap stocks with dubious fundamentals which have been carried along in the wave of euphoria until a few weeks ago have seen the biggest declines.

The one-month top winners portfolio and the one-year top losers portfolio shed the most last week. Each fell by 9.4 per cent.

Big losers included General Magnetics, JK Technology and China Education. The lowest forward PE portfolio and the lowest price-to-book portfolio were down by 8.5 per cent and 7.9 per cent respectively.

 

Source: Business Times 13 Aug 07

Markets fear more volatility ahead

Uncertainty as traders watch developments

THE dramatic intervention by the world’s central banks helped to calm jittery bourses on Friday, but as Asian markets reopen for trading today, investors will be watching to see if the relief is only temporary.

Many traders believe that any move by the more optimistic investors or ‘bulls’ to stage a rally today will be met by an equally determined attempt by pessimistic ‘bears’ to sell into any rebound in share prices.

So, share prices are likely to remain volatile today as traders react to any fresh developments coming out of the credit markets, where investors’ appetite for risk has been soured by the crisis-hit mortgage market in the United States.

Bank of America senior economist Gilles Moec told AFP: ‘One of the big issues is that no one has any real clue of the amount of sub-prime loans which have been purchased by foreigners.

‘The big question is what is the overall amount, and this is bad for the markets because if there is one thing that the markets hate, it is uncertainty.’

Sub-prime loans are offered at high interest rates to Americans who have a poor credit rating and might otherwise be denied credit.

But Commerzbank analyst Andreas Huerkamp was more optimistic and predicted that the crisis would blow over.

‘There are strong parallels with the crisis in the mid-1990s, so you have to be a brave investor to buy shares at the moment,’ he said. ‘But history shows that everything will be forgotten in six months, and the market will recover.’

But given the state of uncertainty that now exists in global financial markets, most analysts believe it may be better for investors to simply sit on the sidelines while waiting for the mortgage crisis in the US to blow over.

Share prices in Singapore and other major regional bourses had see-sawed last week as fears of tightening credit gripped financial markets globally.

Even the commodities markets were whiplashed as traders unwound risky positions, leading to hefty falls in the prices of crude oil and base metals.

The current panic started last Thursday after French bank BNP Paribas froze three hedge funds with US mortgage exposure, sparking widespread fears the contagion had spread to European financial institutions.

This caused international banks to be so risk-averse that they refused to take any form of debt securities as loan collateral, causing interbank lending to come to a virtual standstill.

The European Central Bank was forced to pump 95billion euros (S$197billion) on Thursday and another 61billion euros on Friday to restore calm to the banking system.

The US Federal Reserve followed with a US$24billion (S$36billion) infusion on Thursday, and another US $38billion in three separate operations on Friday to ease a growing liquidity crunch as stock markets crashed across the globe.

What made the Fed’s intervention as ‘lender of last resort’ all the more significant was its decision to accept mortgage bonds as collateral from banks – shoring up investors’ confidence in the badly shaken credit markets.

In Asia, Singapore managed to escape relatively unscathed, with the benchmark Straits Times Index closing down just 53.99 points, or 1.6 per cent, at 3,359.18 on Friday after dropping 115 points at one stage.

But European markets suffered their worst one-day drop in more than four years as London’s FTSE-100 Index slumped 3.7per cent down, while in Paris, the CAC-40 Index was down 3.2 per cent.

Wall Street, however, managed to steady itself, with the Dow Jones Industrial Average recovering to close a mere 31.14points lower at 13,239.54 following the Fed’s intervention after initially crashing by 200 points.

Phillip Securities’ managing director Loh Hoon Sun said yesterday the local stock market is likely to remain vulnerable to any bad news coming out of Europe and the US in the coming weeks.

And this may leave traders to bet on two scenarios with few alternatives in between – a swift recovery or a meltdown.

‘Stocks will look cheap if international banks can swiftly work out the extent of the credit woes arising from the sub-prime loans and chop off their losses,’ a stockbroking director said.

But share prices may fall a lot more if a few big financial institutions could not take the heat and collapse, he warned.

The only good news is that retail investors here have been partly spared from the financial carnage because of the trading curbs imposed recently by local brokerages on highly speculative penny stocks after their daily traded volumes exceeded a few hundred million shares each.

The big concern now is whether the booming residential property market will be affected if the international credit crunch continues.

‘Some investors are obviously growing uneasy about the ability of private equities funds to complete some of the collective property sales which had been announced recently,’ said a dealer.

The abortion of any blockbuster en bloc property sales may hurt the share prices of listed real estate developers and construction counters quite badly, he said. 

 

Source: The Straits Times 13 Aug 07

Sizzling real estate sector

Bullish investors may drive 2007 sales to a record high, while home prices and rents continue to surge.

AFTER years of being in the doldrums, the Singapore property market has been staging a spectacular recovery in the past couple of years. The rally is being fuelled by a surge in confidence from foreign investors as well as local buyers. The real estate sector is firing on all cylinders, including investment sales, residential and office.

A whopping $24.81 billion worth of investment sale deals were sealed in the first six months of this year, according to CB Richard Ellis (CBRE). Investment sale deals – a gauge of major property players’ confidence level in the mid-to-long-term prospects for the real estate sector – include collective sales, other land deals, transactions of entire office and other buildings, as well as strata-titled units above $5 million. The first half of 2007’s sparkling investment sale numbers include some 75 collective sales worth $9.3 billion, higher than $8.2 billion for the whole of last year.

CBRE expects the full-year investment sale figure to surpass the record $30.51 billion set in 2006, hitting as high as $35 billion.

Major deals in H1 this year include the $1.04 billion sale of Temasek Tower, the collective sale of Leedon Heights ($835 million) and Novotel Clarke Quay Hotel ($201 million).

In the residential sector, the Urban Redevelopment Authority’s (URA) Q2 price index for private homes was up 8.3 per cent from the preceding quarter and 21 per cent higher year on year. And latest Q2 official figures show that the residential price recovery that began some two years ago in the high-end segment fuelled by foreign buyers has started filtering down to other segments of the market, based on URA’s sub-indices.

Prices of non-landed private homes in the Core Central Region (CCR) – which includes prime districts 9, 10, 11, Downtown Core (including Marina Bay) and Sentosa – were up 7.9 per cent in Q2 over Q1, while prices of nonlanded homes in Rest of Central Region (RCR) – which includes areas like Bukit Merah, Queenstown, Geylang, Toa Payoh and Katong – rose 8.1 per cent over the same period. The Outside Central Region (OCR), covering suburban mass-market locations like Woodlands, Clementi, Jurong, Hougang, Tampines and Bedok, posted a 7.2 per cent quarter-on-quarter rise in Q2.

The rental market has also been sizzling, with residential rental indices of non-landed private homes rising 12 per cent in Q2 over Q1 for the CCR, and by 10 per cent and 9.4 per cent respectively for RCR and OCR in the same period. The Q2 rental indices were up around 35 per cent from a year ago for each of the CCR and RCR, and by 28.3 per cent for OCR.

In the public housing segment, the Housing & Development Board’s (HDB) resale flat price index rose 3 per cent quarter-on-quarter in Q2, compared with a 1.3 per cent gain in Q1.

The outlook for the residential sector is bright. Most property consultants predict that URA’s overall private home price index may surge a further 8 to 15 per cent in the second half, chalking a full-year increase of 23 to 30 per cent. Analysts generally expect HDB resale flat prices to post an 8 to 10 per cent full-year increase.

Interestingly, collective sales have caused a ripple effect. For instance, those who sell their homes through en bloc sales are looking for replacement homes, in many cases outside the prime districts where they sold their en bloc properties because of rapidly rising prices in the prime locations.

This has helped to spur a recovery in the other market segments, even HDB resale flats, where a few units have been purchased at record prices by those who sold their private homes through en bloc sales.

At the same time, as developers pull down en bloc sale sites to redevelop them, the resulting shortage of prime district apartments has helped fuel rental hikes for such homes. In the industrial property market, average rents for all categories of space increased in Q2 this year. High-tech space posted the biggest quarter-on-quarter gain of 11.9 per cent to $2.35 psf per month, as the office space shortage and rising office rentals led many qualifying occupiers to move to high-tech properties, according to CBRE. The average monthly prime retail rent along Orchard Road posted a 1.8 per cent quarter-on quarter gain in Q2 to $34.40 psf – close to the $35.10 psf achieved in 1996.

As for the office sector, a shortage of space in the near term, coupled with strong demand from occupiers including big-wig international financial institutions have been the key factors driving a whopping 80 per cent year-on-year rise in CBRE’s average prime rental in Q2 to $10.80 psf a month. This surpassed the 1996 peak of $9.90 psf a month, and is fast closing in on the 1990 historic peak of $11.50 psf a month. The Q2 office rental figure is also more than double the $4 psf during the current cycle trough in Q1 2004.

Market watchers expect office rents to head further north in the next few years because of the supply crunch.

However, the government has been releasing more office sites, including the maiden ‘transitional office’ plot which can be built into a low-rise office building in about a year.

In addition, it has made available more 99-year condo sites, mostly in suburban locations. Besides tackling the supply side, the authorities have also begun releasing more property market data so that participants can make more informed decisions. So far, the indication from government is that it is not inclined to intervene to cool demand.

Fundamentals for the Singapore real estate sector remain strong for the next couple of years, at least – barring unforeseen circumstances.

Of course, a sustained rout in the local stock market because of the selldown on Wall Street is likely dent sentiment in the Singapore property market. But there could also be a more direct hit if the US sub-prime mortgage default fiasco dries up some of the liquidity that has been powering the local real estate sector’s sparkling recovery.

 

Source: Business Times 9 Aug 07

Hot Spot – Kallang Basin

New condos coupled with the Government’s plans to revitalise the greater Marina Bay area will inject a lot more buzz into the Kallang Basin district. Already, the values of some residential projects in this area have risen. Check them out. Kallang Basin 

 

TANJONG RHU

Residential oasis near the city

TANJONG Rhu is a large upmarket condo belt with views of the Kallang Basin – and even the sea for some units.

The lungs of the area are the many large plots of greenery interspersed between the condos, which are fairly new, big and well-designed. Most sit on 99-year leasehold land rather than freehold.

They are valued for their proximity to the city and the sea. Residents also have easy access to the National Stadium – or the future Kallang sports hub – and several restaurants.

There are no new launches here, though prices have risen in line with the market and new projects in nearby areas, such as Meyer Road and Marina Bay.

In the past year, prices have risen 50 to 60 per cent, to an average of $800 to $1,000 per sq ft (psf) in the first quarter, said CB Richard Ellis (CBRE).

Buyers have shown keen interest in the past year. Last month, at least eight deals were done at Costa Rhu for about $877 psf on average. The 737-unit condo was launched in 1995 at $750 psf on average.

Agents said buyers prefer projects with views of the Kallang Basin, like Pebble Bay.

Rents in the area have also risen. For instance, monthly rents at Pebble Bay are up by nearly 27 per cent, going from $2.29 psf to $2.90 psf in the first quarter, CBRE said, citing data from the Urban Redevelopment Authority.

That means a three-bedroom unit at Pebble Bay will cost about $5,500 a month to lease. Asking rents are even higher, at $6,000 to $8,000 a month, said Savills Research. In general, asking rents for a two- to threebedroom unit in the area come to $4,000 to $6,000 a month, it said.

MEYER ROAD

Cosy community on the urban fringe

THE tranquil Meyer area, tucked away just north of the East Coast Parkway, offers a fairly wide mix of housing choices.

There is a clear delineation between the condominiums and the semi-detached houses on opposite sides of Meyer Road.

But both ends share the purely residential area’s relative peace and quiet.

The area is popular with Indian expatriates, who like it for its proximity to both East Coast Park and the city.

Lifted by new launches, prices in the area hit about $950 to $1,200 per sq ft (psf) on average in the first quarter of the year, up 35 to 50 per cent from a year earlier, said CB Richard Ellis.

The newest project launched for sale this year is CapitaLand’s The Seafront @ Meyer, following the launch of GuocoLand’s The View @ Meyer. Sing Holdings’ Meyer Residence was first marketed more than a year ago.

Some of the older projects – particularly those where owners are keen to attempt collective sales, such as Hawaii Tower – have attracted higher offers.

Deals done this year have averaged about $957 psf at Hawaii Tower and $1,075 psf at The Sovereign, said Savills Research, citing data from the Urban Redevelopment Authority.

Asking rents for a two- to three-bedroom unit in the area average $3,500 to $5,000 a month, Savills said.

But rents can be much higher. At The Sovereign, which has relatively large units, landlords are asking $9,500 to $11,000 a month for the larger 3,300 sq ft units, it said.

GEYLANG

More boutique apartments on the way

GEYLANG needs no introduction to most Singaporeans.

As one of Singapore’s best-known red-light districts, Geylang boasts a vibrant nightlife and a wide array of good food.

In fact, the area is buzzing with activity during the day too. It is dominated by many small budget hotels and is widely known for its casual eateries serving good local fare often well into the night.

Boutique apartments are also popular in the area.

More developments are on the way. Launches early last year included The Arizon and The Midas, followed by the 142-unit Atrium Residences, which is developed by the Novelty Group. All three are being built on freehold plots.

Existing developments include the 99-year leasehold The Alcove, where average prices are at $375 per sq ft (psf), and the freehold Le Crescendo, which has sold for a higher average of $670 psf this year.

At Central Grove, the average transacted price this year is $566,800 and asking rents are between $2,800 and $3,000 a month, said Savills Research.

In the area generally, asking rents for a two- to three-bedroom unit start a little cheaper at an average of $2,000 a month, rising to $3,000 a month, it said.

Home prices here have not risen much in the past year, said Savills Singapore’s director of marketing and business development, Mr Ku Swee Yong.

He added that the developments in this area attract HDB upgraders, particularly those living nearby, on Sims Avenue and Guillemard Road.

KALLANG

Heartland enclave all set to turn swanky

OLD public housing estates are the mainstay of the Kallang area, with basic amenities such as a train station, a community centre and coffee shops adding a true heartland feel.

But changes are in store that will inject an upmarket tone, as the area is near the Kallang Basin, which is set to be rejuvenated.

And just to the south, an upcoming posh 96-unit condo will also jazz things up.

The Riverine by the Park, which Wing Tai started selling in April, saw strong interest and is now fully sold. Located near Kallang Riverside Park, it is close to the city centre.

Asking prices in the sub-sale market have surged to as much as $2,000 per sq ft (psf) for a penthouse unit. Three-room HDB flats in the area have been sold for $160,000 to $215,000. Five-roomers have gone for $257,000 to $468,000.

In the years ahead, the public housing in the area will become more posh, as it will boast the first public waterfront homes just to the north. Five blocks of three- to five-room flats will be built on Bendemeer Road in about three years’ time.

On Boon Keng Road, a private developer will soon build condo-like HDB flats under HDB’s second design, build and sell scheme.

LAVENDER

Evolving estate with a bit of everything

THERE is no escaping the commercial flavour of much of the Lavender area.

Hardware stores, a funeral parlour and industrial sites pepper the area alongside residential estates.

Still, housing is slowly evolving, with older public housing estates near the Lavender MRT Station now mixed with newer condo developments such as Southbank and Citylights.

These two conveniently located condos have seen keen sub-sale interest and rising prices.

Southbank’s 197 residential units were launched nearly a year ago at $600 per sq ft (psf) on average – and prices have since climbed. Asking prices for these condos are near or above $1,000 psf now.

Due to its central location, the HDB flats in the area tend to command a premium. A fairly new five-room HDB flat in Jellicoe Road, near the Lavender MRT Station, for instance, was sold for $470,000 in April.

The area is becoming more attractive and the planned injection of more leisure and sports activities along the river should boost demand for housing, said Savills Singapore director of marketing and business development Ku Swee Yong.

Source: Sunday Times 10 Jun 07

Foreign Buying of Residential Land Soars

(SINGAPORE) Foreign investors have pumped $885.5 million into residential land purchases here so far this year, outstripping the $651.84 million for the whole of last year.

And CapitaLand said yesterday that it hopes to redevelop the $420 million Char Yong Gardens with US-based Wachovia Development Corporation, so the sum invested by foreigners is set to increase further.

According to an analysis of data by CB Richard Ellis (CBRE), purchases by foreign investors so far in 2007 amount to 11.4 per cent of a total of $7.13 billion, excluding Char Yong Gardens.

For the whole of 2006, they accounted for 7.12 per cent of a total of $8.17 billion.

Significant acquisitions with foreign investment include Horizon Towers by Hotel Properties Ltd (HPL) and Horizon Investments, an entity owned by funds managed by Morgan Stanley Real Estate and Qatar Investment Authority, the investment arm of the Emirate of Qatar. Two unnamed private funds, with HPL, also bought into CapitaLand’s Gillman Heights site.

On the marked increase in foreign investment, CBRE’s Jeremy Lake said: ‘The Singapore residential growth story has spread further afield. What was a secret 18 months ago is no longer a secret.’

On tie-ups with foreigners, Patricia Chia, chief executive of CapitaLand Residential Singapore, said: ‘Partners come along with us because they share our vision on the Singapore residential market and the sites that we have. More often than not, they do not have development and execution capabilities, but have real estate knowledge globally.

One of the consequences of so much global capital is that it could raise price expectations for prime collective sale sites.

CBRE’s analysis of data also shows that although the number of transactions overall is increasing, the number in prime districts appears to be dropping. In 2006, 30 of 76 collective sale deals were in District 9 alone, representing 39 per cent of all transactions.

This percentage has now dropped to 16 per cent or 10 out of 62 transactions done year to date.

The percentage of transactions in the prime districts of 9, 10 and 11 combined has also dropped, from 68 per cent for the whole of 2006 to 47 per cent year to date.

Prices, availability and location combine to make a site attractive. But as Mr Lake puts it: ‘Developers won’t buy a site if they don’t think they can make money on it. You only have to look at the sites that have been launched but not sold.’

The shift to non-prime districts is not necessarily a bad thing. As Mr Lake notes, it suggests that the recovery, supported by demand, has spread beyond traditional high-end areas.

In 2006, districts 5, 12, 19, 21 and 27 combined made up only 13 per cent of the collective sales pie. For the first five months of 2007, district 19 (Serangoon) alone made up 10 per cent. Other districts highlighted by CBRE include the combined districts 15 and 16 (19 per cent) and districts 2,4,5 and 8 (13 per cent).

Mr Lake believes one possible outcome of a more even spread of transactions across all districts is that the gap between prices for different districts could shrink.

Currently the gap can be extremely wide, even if the sites are just minutes apart. CBRE, for instance, is marketing Grangeford Apartments for $2,000 per sq ft per plot ratio and Alexandra Centre for around $300 psf ppr.

City Developments is one outfit that believes in paying the right price for the right property at the right time. ‘We have consistently maintained a valuable land bank which includes a fine range of sites in all parts of Singapore,’ said group general manager Chia Ngiang Hong.

‘With this strategy, CDL has the advantage of creating more value by being able to respond quickly to the market and selectively launch the most appropriate project at any given time so as to best maximise its investment returns.’

CDL’s most recent acquisition was Thomson Mansions in the Thomson/Balestier area.

Developers will now have to look harder. Lippo Realty executive director Thio Gim Hock said: ‘I believe en bloc asking prices are getting quite high. However, Lippo is always on the lookout for opportunities both in prime and other areas.’

Source: Business Times 13 Jun 07