The Pandora Box has been opened.
October began with some really bad news for the entire world, and ended with the worst stock market crash in three decades. At the time of writing this report in early November, the stock market is still battling to stay ‘head above water’.
After two consecutive quarters of shrinking growth, Singapore is now officially in a technical recession. As it is, the domestic economy contracted by 0.5% in the third quarter (Q3) of 2008 year-on-year. The last time the island city was in a similar fix was 2002.
The Ministry of Trade and Industry (MTI) has lowered its expectation on full year growth of 2008 to 3% and cautioned that Singapore export might drop drastically, due to the rising unemployment and slumping home prices in the United States.
The Monetary Authority of Singapore (MAS) has eased its monetary policy in early October to combat slowing growth. To boost export, the MAS have shifted Sing dollar to a neutral stance, making it cheaper in relation to other major currencies and thereby making domestic exports competitive. However, the flip side is that import of daily essentials, such as food stuff, will be more expensive, making life tougher for man-in-the-street.
On the real estate front, the private property segment was among the first to show the open-wound sustained from the stock market fall earlier. Prices of private homes fell by 1.8% in Q3 2008 – the first decline in prices in four-and-a-half years, officially ending the property boom that started in 2004. In fact, since Q2 2008, private property prices had been deadlocked within very narrow range, but they finally caved in after the buyers started to play the ‘missing-in-action’ (MIA) game.
All said, it is quite certain that we are in for an economic tailspin.
(A) The big picture of the larger economy
[A.1] Foreclosure crisis in US nowhere near end
Despite the US$700 billion rescue package to prevent banks in the US from going under, there has been no help from the US government to prevent foreclosure of homes. Since July 2008, the rate of foreclosures has been more than 2,700 homes a day.
According to the Mortgage Bankers Association in the US, more than four million homeowners throughout the US with a mortgage are at least one month late in their mortgage repayment. This is more than three times the total number of houses we have in Singapore.
A record 500,000 homes had entered the foreclosure process. For at least a year, no experts have correctly predicted the dire straits that the American homeowners are in today.
[A.2] Falling home prices see no reprieve
The home prices in the US have crashed, to put it mildly. The National Association of Realtors (NAR) said that in September 2008 alone, the median home price in the US dropped a further 9% from a year ago to US$191,600, and is down 17% from the peak in July 2006.
Almost a quarter of the total homeowners in the US with a mortgage are staring at negative equity, and the percentage of homes with negative equity is expected to rise to 28% by the same month next year.
According to research by Freddie Mac, about 36% of mortgage delinquencies were caused by loss of income or unemployment in 2006. But in 2008, that number has risen to 45% as the unemployment rate has ticked up to a five-year high of 6.1 %.
The massive job losses in October 2008 would make the situation worse as more delinquencies might follow suit before Santa comes calling in December.
[A.3] No way to escape hard landing for Singapore
Alluding to the current crisis, an International Monetary Fund (IMF) study pointed out that economic downturns caused by failures of financial institutions such as banks and insurers are often more severe, and tend to last much longer.
Most economists expect the economic downturn in Singapore to drag for at least nine months in 2009 if not longer. Some even predicted that the crisis in the US will last through 2010.
And as far as Singapore is concerned, its trade revenue is about 2.5 times of its GDP; and given its openness (and thus vulnerability) to global economy and its export-orientation, it cannot escape the repercussions of external shock.
Domestically, the danger of contagion has started to show, beginning with the tighter credit and higher costs of borrowing which have started to eat into corporate earnings and curtailed capital spending. Even companies with strong balance sheets are watching their cash flows carefully. Consumer consumption which grew 10.5% last year may come down to a fraction of that figure in the next couple of years.
The consequences will be slower wage growth, lower consumer spending, cautious job market, plunging stock prices, and deflation of asset prices. Especially dangerous is the higher refinancing costs and declining home values which may put home owners at greater risk of negative equity.
[A.4] More companies in Singapore default on payments
Credit rating agency Dun and Bradstreet (Singapore) said more businesses are falling behind in making payments. Apart from construction, more local businesses in other sectors will fall into the high-risk pocket this year and next. The riskiest industry appears to be retail, where more than half of them are expected to fall behind in payments in 2009.
Based on monthly payment data collected from an average of 4,000 to 5,000 firms based here, D&B says 22.2% of them have a high risk of not meeting payments this year, up from 19.77% last year. And with MTI lowering the growth forecasts for this year to about 3%, the proportion of high-risk firms may rise to almost 30%.
With the recent shake-up in the global financial market, the aggressive SME (small and medium enterprises) banking and collateral-free term loans that the banks were dishing out in 2006-2007 period would be a thing of the past.
[A.5] Retail spending in Singapore down for third consecutive month
According to the Retail Sales Index released by the Department of Statistics (DOS) in mid October 2008, retail spending was down 5.8% from July 2008. For the third straight month in August, demand for cars and recreational goods dropped amid the country's first recession since 2002.
Sales declined across the board from their July takings, with falls ranging from 3.6% to 20.4%.
A recent Straits Times survey of 62 tenants in six Orchard Road malls found retail revenues having plunged by as much as 30% from late September to mid October 2008, coinciding with bank failures, stock market routs and increased fears over the global financial turmoil.
[A.6] Even the once-revered REITs are now in trouble
Real estate investment Trusts (Reits), once touted as the safer investment in income-producing properties and a good substitute for direct investment of physical properties are now on shaky ground due to over-gearing in relation to their ‘suddenly depleted’ asset values (resulting from the recent stock market crash). The recent ‘roller coaster ride’ in their share prices had accentuated the risks of Reits.
[6.1] CMT puts works at three malls on hold
Due to high construction costs, Capital mall Trust (CMT) had, at the eleventh hour, pulled the plug on the upgrading plans for some of its properties.
The largest real estate trust in Singapore has reportedly said that it would not sacrifice liquidity for new projects. For now, enhancement programs that have not started at three malls - Funan DigitalLife Mall, Tampines Mall and Jurong Entertainment Centre (JEC) - have been put off.
This may have saved the largest Reit in Singapore $170 million in potential renovation costs. But the consequent loss of rental income from JEC for the following months (all JEC tenants had vacated before CMT decided to put the renovation work on hold) may negate the savings.
CMT said it had secured refinancing for $187.5 million and $80 million of loans due in December 2008 and May 2009 respectively; and is negotiating refinancing for $673.7 million due in August 2009. It is confident that funding would be secured.
[7.2] Worries of downgrading of credit rating
In the meantime, credit rating agencies have turned more pessimistic on two other real estate investment trusts (Reits) in Singapore: Frasers Commercial Trust (FCT) and Macarthur Cook Industrial Reit (MI-Reit).
FCT, which was rated BB, was downgraded by Standard & Poor’s (S&P) Ratings Services from positive to developing, on concerns over the $70 million it owed to the Commonwealth Bank of Australia, which will be due on 22 November 2008. Moreover, there are an additional $400 million and $150 million which would be due in July and December 2009 respectively.
S&P said that FCT had not finalised its refinancing plans to the level of certainty.
Separately, Moody's Investors Service yesterday placed MI-Reit's Baa3 corporate family rating on review for a possible downgrade. The review also recognised refinancing risks facing MI-Reit. Likewise, MI-Reit has $201 million or 91% of its total debt falling due next April, which is not covered by available committed facilities.
This sums up the desperate state many Reits are in right now.
The overall performance of Private Residential Property segment
Q3 officially ushered in the ‘decline phase’ of the property cycle with the overall prices of private homes down by 1.8%. More property consultants are jumping on the bandwagon by saying that prices are going to keep dropping deep into the second half of 2009, in view of the continuing financial turbulence and the global recession, which is still in its infancy. Below shows the performance of the respective geographic areas in Q3:
§ In the Core Central Region (CCR), where the posh Orchard Road, Holland and Bukit Timah districts are located, private home prices fell for the second consecutive quarter, from the 0.1% marginal dip in Q2 2008 to the 2% drop in Q3.
§ In the Rest of Central Region (RCR), from Queenstown, Bishan to Marine Parade and Sentosa, private home prices dropped by 2.1%.
§ Private home prices in Outside Central Region (OCR) held steady and actually rose slightly by 0.1% in Q3 2008, after rising 0.9% in Q2 2008.
[B.1] Developers braving bad time to launch over 2,000 new homes in Q4
A total of 34 residential projects with a total of 2,012 new home units may be launched before year end. The new home units will be located at the following areas:
New home projects to be launched in Q4 2008
Locality
Core Central Region
No. of projects 10 No. of units 1,104
Rest of Central Region
No of projects 13 No of units 718
Outside Central Region
No of projects 11 No of units730
Source of data – Straits Times
Evidently, developers had already slashed prices to try to bring down unsold inventory. In September, Far East Organisation and Wing Tai managed to sell eight units in Floridian after seven months of drought. But the median sale price of $1,443 psf was 16.8% lower than the January median prices of $1,735 psf.
Similarly, some units at Madison Residences along Bukit Timah Road were sold at median prices of $1,801 psf, or 10% lower than the median price a year ago.
Viva in Thomson Road and Park Infinia in Wee Nam Road achieved $1,555 psf and $1,501 psf - about 5% less than comparable projects early this year.
[B.2] Prices dropped amid lower transactions for luxury condo
While most of the luxury condo which were launched in the 2006/07 periods are still being transacted at above their original launched prices, the sub-sale prices have already come off their peak. Let’s look at some examples.
Prices at The Oceanfront @ Sentosa Cove have eased 26.4% since the third quarter of 2007.
Prices at Scotts Square likewise fell by 3.6% between their peak in Q3 2007, and Q2/Q3 2008.
The drop in prices was muted by the thin transaction volume. There were only about 10 transactions for each project in Q2/Q3 2008.
Statistics by an international consultancy show that prices of luxury apartments in Districts 9, 10 and 11 have fallen by 12% to 13% since early 2008.
Speculators who bought luxury homes under the now-defunct deferred payment scheme (DPS) may hasten their sale before the completion of more new condos next year. After all, historical trend does not weigh in their favour as during the Asian Financial Crisis, the official URA price index fell 40% from Q2 1997 to Q4 1998.
So, for these speculators, the risks of slipping into negative equity escalate each day as more TOP occurs from Q3 2009 onwards.
[B.3] Q3 Primary home sales continue to worry
The overall performance of the new home market in the past nine months has been a faithful reflection of the jitter, confusion and anguish that pervaded the entire financial market. As the financial crisis deepened in October 2008, the new home market bore the full brunt of the negative developments. With the latest round of stock market massacres in late October 2008, investors’ have been paralysed by fear. Many prospective buyers/investors have shelved their housing/investment plans altogether. It is now doubtful that the whole year sale volume would exceed 5,000 new homes.
For the new home market, the prospect looks grim for the next couple of quarters.
§ Performance of Private New Home Sales in Core Central Region (CCR)
Out of the 182 brand new condo projects on sale in the Core Central Region, only 16 projects had some sales. In all, the total new units sold in CCR in September 2008 were 70.
Finding – Median prices for new home SOLD in CCR in September dropped by 5.66%
When compared with the median prices of new home sold in January 2008, which was between $742 psf and $3,389 psf, the current median prices of new home sold in September was between $1,243 psf and $3,197 psf; and this represents a drop of 5.66% in median prices.
§ Performance of Private New Home Sales in Rest of Central Region (RCR)
Out of the 123 brand new condo projects on sale in the Rest of Central Region, only 20 projects had some sales. In all, the total new units sold in RCR in September 2008 were 224.
Finding – Median prices for new home SOLD in RCR in September dropped by 5.56%
When compared with the median prices of new home sold in January 2008, which was between $653 psf and $2,309 psf, the current median prices of new home sold in September was between $578 psf and $2,086 psf; and this represents a drop of 5.56% in median prices.
§ Performance of Private New Home Sales in Outside Central Region (OCR)
Out of the 136 brand new condo projects on sale in the Outside Central Region, only 26 projects had some sales. In all, the total new units sold in OCR in September 2008 were 82.
Finding – Median prices for new home SOLD in OCR in September dropped by 2.6%
When compared with the median prices of new home sold in January 2008, which was between $601 psf and $1,293 psf, the current median prices of new home sold in September was between $476 psf and $1,259; and this represents a drop of 2.6% in median prices.
[B.4] Secondary home market huffed and puffed in Q3
Likewise, secondary sale of private properties has hit a slippery path, with sales volume going down from 1,055 deals in July 2008 to 352 deals in October 2008, with no reprieve in sight. The figures below show the similar lacklustre performances of the private secondary market as its primary market counterpart.
[B.5] Fewer sub-sales and lower profit
There were a total of 462 sub-sales in Q3, compared to 518 such deals in Q2. In percentage terms, sub-sales accounted for 11.6% of all sale transactions in Q3, compared to 12.0% in Q2.
In the same period, the number of sub-sales in CCR accounted for 24.1% of total transactions in this area, compared to 22.0% in Q2. In RCR, it was 11.6%, higher than the 11.1% in Q2; while in OCR, sub-sales took up 7.3% of all deals, lower than the 8.5% in Q2.
§ Dwindling sub-sale profits
So far this year, a vast majority of 97% of sub-sale deals have resulted in profits. But the profits seen in Q3 were very much smaller as property prices started to hit the slippery patch.
In Q3, profitable sub-sellers made an average of $323,420, but this was because a single deal which turned in $6.7 million profit from the sale of a penthouse at The Sail at Marina Bay had jacked up the average figure. Without the abnormality, the average sub-sale gain was $301,784. This was about almost 40% lower than the average profit in the first half of the year.
On the other hand, sub-sale losses for Q3 averaged $76,820 for each negative sale. A unit at Watermark Robertson Quay chalked up the biggest loss of $207,552, while units at Soleil at Sinaran, 8 at Mt Sophia, and One Amber were also sold at losses of more than $100,000 each.
[B.6] Rents are marginally down in Q3
The latest data released by Urban Redevelopment Authority (URA) in October 2008 showed rents of most property types marginally down in Q3 2008. This may signal the beginning of a gradual down trend in rents.
In Q3, the private residential rents dropped by 0.9%; office rents were down by 0.8%; and rents for retail space cheaper by 0.6%. Bucking the down trend was industrial rents which went up marginally by 0.1% in the same period.
(C) The performance of Non-Residential Property segment
Due to the desperate financial situation in the United States and Europe, many foreign companies in Singapore are either cutting back on their expansion plans, or are giving up their queue position in the ‘wait listing’ for the spanking new offices to be completed later next year. With such a cautious mood ongoing from Shenton Way to Orchard Road, the only way office and shop rents can go is further South.
[C.1] Price for office property drop by 2% to 3%
In Q3 2008, capital values of office properties fell 2% to 3% ‘quarter-on-quarter’ in areas such as Marina Centre and Anson Road/Tanjong Pagar as demand softened. Some redevelopment projects scheduled to start work this year, such as International Factors Building, Robinson Tower and Marina House, have been put back into the leasing market. This will provide further impetus to the downward slide of office rents.
At the same time, due to the financial crisis that is raging in the US and Europe, office vacancies continue to rise. Grade A office vacancy has doubled in Q3 2008, rising from 0.6% in the previous quarter to the current 1.2%. The increase in vacancy also contributed to the downward pressure on office rents.
[C.2] Both rents and sale prices for retail space eased in Q3 2008
The overall rentals for shop and retail space in Singapore, based on leases which had commenced, decreased by 0.6% in Q3 2008, as compared with the increase of 5.2% in Q2 2008.
The median rental for shop space in the Orchard Planning Area (Orchard), Rest of City Area (RCA) and Outside City Area (OCA) are also down marginally to S$10.99, S$6.83 and S$5.68 psf pm respectively in Q3 2008.
Average prime first-storey monthly rents came to $42.40 psf in Orchard/ Scotts Road, $27.10 psf in other city areas and $33.70 psf in suburban areas. However, with ample supplies of retail space in Orchard Road, average rents for retail space look set to ease from 2009 onwards.
Meanwhile, the Monetary Authority of Singapore (MAS) said in its latest macro-economic review that retail sales volume fell 1.5% year-on-year from June to August, due to cautious local spending and lower demand from tourists. The central bank added that retailers could see slower business towards Christmas and into next year.
[C.3] Factory space bucking gloomy trend
On the other hand, demand for industrial space remains strong with business park occupancy averaged 92.5% in Q3, up 2% from the previous quarter.
Despite the gloom and doom in the residential property segment, strata-titled factories are doing just fine. The average capital value of 60-year leasehold strata-title factory units rose about 2.3% from Q2 to $309 psf and $225 psf respectively for ground- and upper-floor units.
The heightened activities in the light industry sector have been caused by active pre-letting of business park space by financial institutions.
The average monthly rent for factory space rose 3.2% from Q2 to $1.60 psf for ground-floor units and 3.8% to $1.35 psf for upper-floor units. The average monthly rent for warehouses stayed flat at $1.55 psf and $1.25 psf respectively for ground and upper-floor units.
(D) The performance of Collective Sales
[D.1] Parkway Centre going for $1,000 psf ppr
Parkway Centre in Marine Parade has received the mandatory 80% majority consent to go on collective sale for an indicative price of about $160 million. This works out to about $1,000 per square foot per plot ratio.
The 99-year leasehold Parkway Centre, which is directly opposite Parkway Parade, has three retail shop units and 107 office units. The retail rental is around $25 to $30 psf per month, and the office rental, $4 to $5 psf per month.
So far this year, the only successful collective sale was Katong Mall, which was sold in July 2008 for $865 psf ppr. In other words, the asking price of Parkway Centre is around 15% higher than the sale price of Katong Mall.
[D.2] Regent Court collective sale may go through after all
The High Court has ruled that the Strata Titles Board (STB) must continue to hear the appeal by the Regent Court’s collective sale committee against the STB’s decision.
The collective sale deal of Regent Court was struck in April 2007 for $34 million.
In December 2007, the STB rejected the application for a sale order citing that one of the objectors had suffered financial loss. Financial loss was defined as the sale proceeds not being sufficient to cover a property owner’s initial purchase price.
Appealing against the rejection, the sale committee revealed that the purchaser was willing to cover the losses of the individual objector. But the STB did not consider the merit of the argument.
(E) Foreign Interest in Singapore Real Estate
[E1] Foreign banks remain committed to Singapore
As more and more people see American banks and financial institutions as poisoned chalices, the firms in Asia are busy trying to counter all the negativities.
JP Morgan took pains to assure that their Asian operations are not affected by the turmoil in the US.
Meanwhile Citi said it is committed to staying invested in Singapore, which is a key market for Citi globally. The US bank has committed $220 million to integrate its back-office operations at Changi Business Park.
In the same vein, Barclays said it will continue to grow its business in Singapore and the wider Asia-Pacific region when opportunities arise.
[E2] German fund bought Changi Business Park building
The Applied Materials Building in Changi Business Park Vista has been sold to German fund manager Union Investment Real Estate for $63 million.
The 198,000 square foot industrial facility is sold on a 30 plus 30-year lease, with a sale-and-leaseback agreement.
Union Investment entered the Singapore market in 2007 with its purchase of 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.
[E.3] Largest commercial buildings buyer in trouble
Macquarie bank shares had lost some 41% of their value from mid September 2008. The bank has significant investments in Singapore, including all of Macquarie's operating groups, and the HQ of its Asia corporate advisory team here.
The bank's independently managed private equity real estate company Macquarie Global Property Advisors (MGPA) was the biggest foreign investor in Singapore's property market in 2007.
Earlier this year, MGPA said that it will spend about $2 billion building a 2.6 million sq ft commercial complex on two development sites at Marina View that it clinched last year. With the sites having costs close to $3 billion, the total investment will come to around $5 billion. It is also the largest foreign broker and the largest issuers of warrants.
(F) News on Government Land Sale (GLS) Programme
In October, another opportunistic bid was snubbed by URA. It was the fifth ‘sole bid’ that was rejected by URA. More frequent rejections by URA in its tender exercises, as well as more instances of sole bids received at respective tender exercises are symptomatic of a waning market.
[F.1] Two bidders for Ubi industrial site
In the state land tender of an industrial site at Ubi Avenue 4 in early October 2008, the URA received only two bids for the 123,693 sq ft site which has a maximum plot ratio of 2.5.
Eventually, it was Sim Lian Land which won the award at $26.3 million, or about $85 per sq ft per plot ratio (psf ppr). The winning bid was 13.6% higher than the only other bid of $75 psf ppr.
[F.2] Only one bid for URA industrial site at Kallang Pudding
The URA tender for an industrial site on Kallang Pudding Road received only one bid in early October 2008.
Orion-Four Development has put in a $10.8 million bid for the 61,819 square feet site with a 2.5 plot ratio. If awarded, the developer’s cost will be around $69.88 per sq ft per plot ratio (psf ppr). It will be much cheaper than the $85 psf ppr Sim Lian had paid for the Ubi Ave 4 industrial site earlier this month.
The previous successful bid prices for leasehold industrial sites in the vicinity were $88.74 psf ppr for a 60-year leasehold industrial site at Ubi Avenue 4/Ubi Road 2 in March 2008; and $142 psf ppr for an industrial site in Playfair Road in Ubi/Paya Lebar/Eunos area in February 2008.
[F.3] Sole bid for URA hotel site at Kallang/Jellicoe
A Hotel 81 subsidiary has put in the sole bid of $51 million for the hotel site at Kallang Road/Jellicoe Road in a state land tender conducted by the URA. If awarded, the developer’s costs will be around $249.56 per square foot per plot ratio (psf ppr).
With a plot ratio of 4.5, the future hotel will have a permissible gross floor area (GFA) of 204,363 sq ft.
[F.4] Tanah Merah condo site received keen bids
A 99-yr lease condo site next to Tanah Merah MRT attracted seven bids when it was put on sale by the URA. The top bid of $84 mil or $282 psf was from TID, a joint venture between Hong Leong Group and Japan's Mitsui Fudosan.
The 106,299 sq ft plot has a 2.8 plot ratio and can be developed into a condo with 240-250 units averaging 1,200 sq ft. The breakeven cost for a new condo is likely to be $700-750 psf, translating to possible sale prices ranging from $800-850 psf.
[F.5] Opportunistic bid for Mohd Sultan office site rejected
URA has snubbed the sole bid - submitted by RSP Architects Planners & Engineers - for a transitional office site in Mohamed Sultan Road, citing low tender price.
The sole bidder has put in an opportunistic bid of $4.65 million, which was equivalent to $46.67 per sq ft per plot ratio (psf ppr). The site area is 66,482 sq ft with the maximum permissible gross floor area (GFA) of 99,727.5 sq ft.
(G) Overall performance of the HDB resale market
Despite the general gloom in the private property sector, the HDB resale market is a picture of boom in Q3 of 2008. Below shows the encouraging statistics, including:
§ The HDB resale price index rose by 4.2% in Q3 when compared with Q2.
§ Resale transactions rose by about 4% in Q3 to 8,110 cases, from about 7,760 cases in Q2 2008.
§ The overall median transacted prices for HDB resale flats are also on a steady climb.
[G.1] Cash-Over-Valuation (COV) dropped as resale volume rose
The overall median Cash-over-valuation (COV) prices also dropped, except for 3-room flats. As the resale prices and resale transaction volume rose, the cash portion reduced correspondingly. This may be a result of HDB market valuation prices being more responsive to the market condition.
Cases requiring COV constituted 89% of all resale transactions in Q3, with 11% of resale flats sold at or below valuation.
[G.2] HDB flat dwellers’ share of private home purchases rose to 34%
HDB upgraders' share of private home purchases rose to 34% in Q2 2008 from 28% share in Q1 2008. This is the highest quarterly figure in at least three years. For instance, in absolute terms in Q2, HDB upgraders picked up the most number of units in The Verve in the Balestier area - 36 - followed by 32 at Stadia at Yio Chu Kang Road in the primary market (from developers). Proportionately, The Quartz was the most popular with 86% of its buyers being previous HDB flat dwellers.
HDB upgraders have also been more active in Q2 in the secondary market, where prices have dropped by as much as 10 to 12 % in Q2 2008 over Q1 2008 in some instances. The number of private apartments/condos changing hands in the subsale market bought by those with HDB addresses increased 52% Q-on-Q to 152 deals in Q2 2008.
[G.3] Sub-letting rents movement uneven in Q3
For HDB flats whose owners have received the approval from the authority for ‘whole flat subletting’, the overall median rents rose by between $50 and $100 for different flat types in Q3. However, when compared to the same quarter of last year, the increase in the overall median rents was more pronounced by between $200 and $400 for different flat types.
However, subletting transactions fell about 4% from about 4,120 cases in Q2 to about 3,960 cases in Q3.
The total number of HDB flats approved for subletting rose to about 21,400 units, compared to about 20,200 units in Q2.
[G.4] Resale transaction in October 2008 dropped by 105 cases
The total resale HDB flat transactions in October dropped by 105 cases (or 4.21%) to 2,389 transactions. When compared with October 2007, this October’s performance was also poorer by 74 transactions. A couple of reasons may have contributed to the drop in HDB resale transactions, including:
(4.1) The stock market turmoil in October 2008 may have terrified some prospective buyers into a more reflective mood. After all, this was one of the worst stock market meltdown in three decades.
(4.2) Over the past one year, the absolute price quantum of resale flats has gone up by more than 10% across the board, and many prospective buyers might have been put off by the high asking prices. This can be seen from the even drop pattern involving all flat types.
The percentage drop in 3-room flat transactions was 2.45%, while the drop for the other flay types are 2.71% for 4-room flats, 7.83% for 5-room flats, and 4.71% for E-flats.
Thursday, November 20, 2008
Wednesday, October 29, 2008
Park Infinia for Rent.
PARK INFINIA. High end brand new condo at Newton Rd 100% new furniture fittings furnishing. 2 bedroom each with attached toilets. High floor with city view, full condo facilities, Pool, Gym, tennis court ETC.....walk to MRT and 2 major shopping centers,United Square,Velocity, complete with full range of shops, eateries and supermarket. Rental $6000nego.HUARRY BEFORE ITS GONE! IMMEDIATE AVAILABLE.
Pls call 90224001.Wednesday, October 22, 2008
Policy Updates!
Bay Windows and planter boxes to be part of GFA.
New rules to KICK in 1st Dec 2008
Developers in Singapore have until the first day of December 2008 to include bay windows and planter boxes into the computation of the gross floor area (GFA) of residential developments.
In the past, bay windows and planter boxes were exempted from the computation of GFA for the following reasons:
(1) Bay windows were originally considered to be raised window ledges and not part of the floor slab. However, to be exempted they must not exceed width of 500 mm and must be raised at least 500 mm from the floor level).
(2) The objective of planter boxes is to encourage residents living in flats and condominiums to provide some vertical greenery to help create visual relief to the high-density living environment.
In fact, planter boxes are for the purpose of planting and cannot be converted to a balcony. In the past, the planter boxes are exempted from GFA computation if they did not exceed 1m in width and 500 mm in depth.
§ The abuses
However, the Urban Redevelopment Authority (URA) has recently discovered that the exemptions had been abused by developers to mainly increase the saleable strata area, whereby planter boxes and bay windows were converted to extra living spaces, and the developers had been charging buyers for them.
The loophole has now been plugged and the developers stand to lose at least 5% in future earnings when bay windows and planter boxes are all considered in the GFA.
This article will provide the background knowledge to the concepts of strata space, GFA (and the computation), and why the matter is relevant to real estate agents.
§ Gross floor area (GFA)
GFA is derived from multiplying the size of the land by its plot ratio*, e.g. when a piece of 15,000 sq feet land has a plot ratio of 1.4, it means the land owner can build up to 21,000 sq feet (15,000 sq ft x 1.4 plot ratio) of floor space. (* plot ratio of a site is the ratio of the gross floor area of a building(s) to its site area.
GFA represents the bulk and intensity of a development for the purposes of plot ratio control and computation of development charge. Using this GFA concept, the owners or developers can decide how much neutral areas they want to provide in their buildings.
For the purpose of computing development charge, all covered floor areas of a building, except otherwise exempted, and uncovered areas for commercial uses are deemed the gross floor area of the building.
In a typical condominium unit, the following floor areas are usually considered part of the GFA, including: balconies (which are open on at least 2 sides), intermediate floor such as a loft, covered enclosed space (regardless of accessibility use or height), CD bomb shelters, walls and columns etc.
§ Strata space
Strata space include space outside what has been defined as GFA, including the planter boxes, bay window, roof terrace, private enclosed space which are not covered and considered outdoor space. However, for many years, developers have been charging buyers for such outdoor space.
The floor area indicated in the Subsidiary Strata Certificate of Title (SSCT) refers to strata space and not GFA.
CPF Refund for property sellers aged 55 or older
Rules to change in January 2009
What will be changed?
From 1 January 2009 onwards, CPF members aged 55 years and above who sell their properties must refund the CPF moneys used in buying the properties to make up the Minimum Sum. However, if the properties were bought without using any CPF savings, the new rule does not apply.
Right now, the existing rule requires property sellers aged 55 years and above who have pledged their properties as part of the Minimum Sum to refund the pledge amount with accrued interest.
Let’s look at an example under the current CPF refund requirement.
Example of how much money Mr Ali has pledged to his own Minimum Sum and how much money he must return to his own CPF retirement account after selling his flat.
(a) Mr Mohad Ali’s Minimum Sum $90,000
(b) Balances in Retirement Account (excluding interest earned) $30,000
(c) HDB flat pledged plus the accrued interest on the pledge $51,000(The flat was pledged for $45,000 when Ali was 55 years old)
(d)Principal CPF withdrawn for the flat plus the accrued interest $100,000
If Mr Mohad Ali sells his HDB flat before 1 January 2009, he has to refund to his CPF Retirement Account (RA) the pledge amount plus accrued interest which is $51,000 ($45,000 original pledge plus accrued interest over the years).
However, if Mr Mohad Ali sells his HDB flat on or after 1 January 2009, he will have to refund to his CPF Retirement Account (RA) $60,000 (which is the shortfall between the Minimum Sum of $90,000 and the balance in RA). By the way, Mr Mohad Ali has withdrawn $100,000 from his CPF account to pay for the mortgage instalments (principal plus interest) of his flat. If he had withdrawn lesser amount, the refund of sale proceeds is different.
Those who use lower CPF amount
Let us look at another example where a property buyer had withdrawn lesser amount from his CPF savings.
Mr Tan Ah Kow is 60 years old and he has sold his HDB flat. Mr Tan has used less CPF moneys for his flat, and has earlier pledged his flat for a lower amount.
(a) Mr Mohad Ali’s Minimum Sum $80,000
(b) Balances in Retirement Account (excluding interest earned) $30,000
(c) HDB flat pledged plus the accrued interest on the pledge $39,000 (The flat was pledged for $33,000 when Tan was 55 years old)
(d) Principal CPF withdrawn for the flat plus the accrued interest $37,000
If Mr Tan sells his flat before 1 January 2009, he has to refund to his CPF Retirement Account (RA) the pledge amount plus accrued interest which is $39,000 ($33,000 original pledge plus accrued interest over the years).
However, if Mr Tan sells his flat on or after 1 January 2009, he only needs to refund $37,000 (which is [d]) to his RA. This because, unlike Mr Mohad Ali who has withdrawn $100,000, Mr Tan has only withdrawn $37,000 (including accrued interest) from his CPF to pay for the flat.
Exception
Property owners who reached the age of 55 before 1 July 1995 will not be affected by the change in the refund rules that will take effect from 1 January 2009.
Annex A – Withdrawal from Special and Ordinary Accounts at age 55 and beyond
The information below is reproduced from the official Central Provident Fund Board website.
If you reach 55 between 1 July 2008 and 31 December 2008, the following rules apply:
CPF Balance at age 55 (less Medisave Account balance)
Amount which can be withdrawn:
$5,000 or less The member can withdraw all his savings
$5,000 to $10,000 The member can withdraw $5,000 and set aside the remainder in his Retirement Account*.
$10,001 to $212,000 The member can withdraw 50% of the total balance in his Special and Ordinary Accounts. The remainder will be set aside in his Retirement Account.*
Above $212,000The member can withdraw all his savings after setting aside the Minimum Sum of $106,000 (as at July 2008) and the prevailing Required Amount ($14,000 for 2008) in the Medisave Account.
*The Retirement Account is created when a member reaches age 55.
From 1 January 2009, members who reach 55 can only withdraw 40% of their Special and Ordinary Account balances, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Required Amount in the Medisave Account. This percentage of withdrawal will go down by 10% points each year.
Following shows the percentage of Ordinary and Special Account balances that you can withdraw at age 55.
Withdrawal of Special and Ordinary Account Balances at age 55
Until 31 Dec 2008 is 50%
1 January 2009 is 40%
1 January 2010 is 30%
1 January 2011 is 20%
1 January 2012 is 10%
From 1 January 2013
Only the Special and Ordinary Account balances after setting both the CPF Minimum Sum and Medisave Minimum Sum can be withdrawn
From 1 January 2013, members who reach 55 can withdraw their Special and Ordinary Account balances only after setting aside the CPF Minimum Sum and Medisave Minimum Sum. However, members can still withdraw the first $5,000 at age 55.
New rules to KICK in 1st Dec 2008
Developers in Singapore have until the first day of December 2008 to include bay windows and planter boxes into the computation of the gross floor area (GFA) of residential developments.
In the past, bay windows and planter boxes were exempted from the computation of GFA for the following reasons:
(1) Bay windows were originally considered to be raised window ledges and not part of the floor slab. However, to be exempted they must not exceed width of 500 mm and must be raised at least 500 mm from the floor level).
(2) The objective of planter boxes is to encourage residents living in flats and condominiums to provide some vertical greenery to help create visual relief to the high-density living environment.
In fact, planter boxes are for the purpose of planting and cannot be converted to a balcony. In the past, the planter boxes are exempted from GFA computation if they did not exceed 1m in width and 500 mm in depth.
§ The abuses
However, the Urban Redevelopment Authority (URA) has recently discovered that the exemptions had been abused by developers to mainly increase the saleable strata area, whereby planter boxes and bay windows were converted to extra living spaces, and the developers had been charging buyers for them.
The loophole has now been plugged and the developers stand to lose at least 5% in future earnings when bay windows and planter boxes are all considered in the GFA.
This article will provide the background knowledge to the concepts of strata space, GFA (and the computation), and why the matter is relevant to real estate agents.
§ Gross floor area (GFA)
GFA is derived from multiplying the size of the land by its plot ratio*, e.g. when a piece of 15,000 sq feet land has a plot ratio of 1.4, it means the land owner can build up to 21,000 sq feet (15,000 sq ft x 1.4 plot ratio) of floor space. (* plot ratio of a site is the ratio of the gross floor area of a building(s) to its site area.
GFA represents the bulk and intensity of a development for the purposes of plot ratio control and computation of development charge. Using this GFA concept, the owners or developers can decide how much neutral areas they want to provide in their buildings.
For the purpose of computing development charge, all covered floor areas of a building, except otherwise exempted, and uncovered areas for commercial uses are deemed the gross floor area of the building.
In a typical condominium unit, the following floor areas are usually considered part of the GFA, including: balconies (which are open on at least 2 sides), intermediate floor such as a loft, covered enclosed space (regardless of accessibility use or height), CD bomb shelters, walls and columns etc.
§ Strata space
Strata space include space outside what has been defined as GFA, including the planter boxes, bay window, roof terrace, private enclosed space which are not covered and considered outdoor space. However, for many years, developers have been charging buyers for such outdoor space.
The floor area indicated in the Subsidiary Strata Certificate of Title (SSCT) refers to strata space and not GFA.
CPF Refund for property sellers aged 55 or older
Rules to change in January 2009
What will be changed?
From 1 January 2009 onwards, CPF members aged 55 years and above who sell their properties must refund the CPF moneys used in buying the properties to make up the Minimum Sum. However, if the properties were bought without using any CPF savings, the new rule does not apply.
Right now, the existing rule requires property sellers aged 55 years and above who have pledged their properties as part of the Minimum Sum to refund the pledge amount with accrued interest.
Let’s look at an example under the current CPF refund requirement.
Example of how much money Mr Ali has pledged to his own Minimum Sum and how much money he must return to his own CPF retirement account after selling his flat.
(a) Mr Mohad Ali’s Minimum Sum $90,000
(b) Balances in Retirement Account (excluding interest earned) $30,000
(c) HDB flat pledged plus the accrued interest on the pledge $51,000(The flat was pledged for $45,000 when Ali was 55 years old)
(d)Principal CPF withdrawn for the flat plus the accrued interest $100,000
If Mr Mohad Ali sells his HDB flat before 1 January 2009, he has to refund to his CPF Retirement Account (RA) the pledge amount plus accrued interest which is $51,000 ($45,000 original pledge plus accrued interest over the years).
However, if Mr Mohad Ali sells his HDB flat on or after 1 January 2009, he will have to refund to his CPF Retirement Account (RA) $60,000 (which is the shortfall between the Minimum Sum of $90,000 and the balance in RA). By the way, Mr Mohad Ali has withdrawn $100,000 from his CPF account to pay for the mortgage instalments (principal plus interest) of his flat. If he had withdrawn lesser amount, the refund of sale proceeds is different.
Those who use lower CPF amount
Let us look at another example where a property buyer had withdrawn lesser amount from his CPF savings.
Mr Tan Ah Kow is 60 years old and he has sold his HDB flat. Mr Tan has used less CPF moneys for his flat, and has earlier pledged his flat for a lower amount.
(a) Mr Mohad Ali’s Minimum Sum $80,000
(b) Balances in Retirement Account (excluding interest earned) $30,000
(c) HDB flat pledged plus the accrued interest on the pledge $39,000 (The flat was pledged for $33,000 when Tan was 55 years old)
(d) Principal CPF withdrawn for the flat plus the accrued interest $37,000
If Mr Tan sells his flat before 1 January 2009, he has to refund to his CPF Retirement Account (RA) the pledge amount plus accrued interest which is $39,000 ($33,000 original pledge plus accrued interest over the years).
However, if Mr Tan sells his flat on or after 1 January 2009, he only needs to refund $37,000 (which is [d]) to his RA. This because, unlike Mr Mohad Ali who has withdrawn $100,000, Mr Tan has only withdrawn $37,000 (including accrued interest) from his CPF to pay for the flat.
Exception
Property owners who reached the age of 55 before 1 July 1995 will not be affected by the change in the refund rules that will take effect from 1 January 2009.
Annex A – Withdrawal from Special and Ordinary Accounts at age 55 and beyond
The information below is reproduced from the official Central Provident Fund Board website.
If you reach 55 between 1 July 2008 and 31 December 2008, the following rules apply:
CPF Balance at age 55 (less Medisave Account balance)
Amount which can be withdrawn:
$5,000 or less The member can withdraw all his savings
$5,000 to $10,000 The member can withdraw $5,000 and set aside the remainder in his Retirement Account*.
$10,001 to $212,000 The member can withdraw 50% of the total balance in his Special and Ordinary Accounts. The remainder will be set aside in his Retirement Account.*
Above $212,000The member can withdraw all his savings after setting aside the Minimum Sum of $106,000 (as at July 2008) and the prevailing Required Amount ($14,000 for 2008) in the Medisave Account.
*The Retirement Account is created when a member reaches age 55.
From 1 January 2009, members who reach 55 can only withdraw 40% of their Special and Ordinary Account balances, and then the remaining balances, if any, after they have met the CPF Minimum Sum and the Medisave Required Amount in the Medisave Account. This percentage of withdrawal will go down by 10% points each year.
Following shows the percentage of Ordinary and Special Account balances that you can withdraw at age 55.
Withdrawal of Special and Ordinary Account Balances at age 55
Until 31 Dec 2008 is 50%
1 January 2009 is 40%
1 January 2010 is 30%
1 January 2011 is 20%
1 January 2012 is 10%
From 1 January 2013
Only the Special and Ordinary Account balances after setting both the CPF Minimum Sum and Medisave Minimum Sum can be withdrawn
From 1 January 2013, members who reach 55 can withdraw their Special and Ordinary Account balances only after setting aside the CPF Minimum Sum and Medisave Minimum Sum. However, members can still withdraw the first $5,000 at age 55.
Property Market Direction.
How to deal with the impending recession.
We know the crisis of epic proportion is going to hit town, how should we prepare ourselves as professional real estate agents, and the breadwinners to our family.
To begin with, let me say that we must be psychologically prepared that the population in the entire planet are going to be poorer than before. Some of the rich upper class will go down straight from the rich list to the bankruptcy list, starting with some top guns in many of the world’s leading investment banks, hedge funds, insurance company and many other private financial institutions who just a year ago were living the high life.
At the time of writing this article I did not know if the US$700 billion rescue package will be approved by the House of Representatives. But even if it does, the world will still have to go through some months of painful readjustments and recuperation as new realities set in.
The crux of the matters is that over the past six years or so, the housing inflation had also inflated the values of many companies, such as banks and major institutions, and emboldened many property investors, Singapore’s included. In short, the economy bubble was inflated out of proportion over the past years and it is still in the process of being put down to its correct size. In the process, spending will be curtailed, making the global economy look like an obese new recruit on his first day of Basic Military Training (BMT), trying to fit into a tight uniform. The moral of the story is: the fat boy needs to cut down the excess body fat very quickly by eating less and exercising more.
An old saying goes like this: “when US sneezes, Asia will have pneumonia”. But in today’s context, when the US has a tremor, Asia will have a tsunami. And as we are speaking, the sign of tsunami is ominous – the tide is receding and being sucked back into the sea, far away from the beach. There will be some moments of stillness in the air before the high waves strike. This time round, none of the economic sectors anywhere in the world could be spared from the fallout. In short, we are in for a rough ride from now.
We have to be prepared for widespread poverty, even in the world leading economy such as the United States and some parts of Europe.
What does that mean to the property market in Singapore?
In the first place, I would like to stress that not all ‘down trend’ markets are bad market for real estate agents. Though prices may fall by 5% to 10% in the next six months, the transaction volume is a different matter altogether. As far as property transactions (including sales and rentals) are concerned, there are many signs that point to an active year ahead of us – as investors and home owners alike are adjusting to their new circumstances.
§ More Sub-sales on the card
The record 18,000 sales of new home units achieved in 2007 and the ‘not-too-bad’ 11,147 sales of new home units in 2006 will combine to release thousands of completed new condos into the property market, starting from the early part of 2009 onwards.
More than 15,000 condo units are slated to be completed from the first quarter of 2009 onwards, with more than 8,000 units in the prime districts such as districts 9, 10 and 11; and another 4,400 units in the East Coast areas of districts 15 and 16. The rest of the thousands of new condo units will be scattered around the outlaying areas.
With banks tightening credit control, some of the property buyers who had purchased the properties on Deferred Payment Scheme might not be able to secure the financing and will have to dispose of the property in the sub-sale market.
§ More down-grading from condos to HDB flats
In fact, a ‘down trend’ market where some sellers are desperately trying to dispose of their units may be a good hunting ground for real estate agents of all shapes and sizes, whether rookies or veterans.
There may be more instances of condo owners wanting to downgrade to public flats due to the massive increase in costs of living in a condominium. With the new price hike in electrical tariffs from 1 October 2008 where average households will pay 21% more in utility bills, more ‘middle income’ households with a gross household income of between $5,000 and $10,000 with more than two ‘financially dependent’ children may have to adjust their lifestyle and spending habits – if they are living in a condominium.
This means that the HDB resale flat segment may experience a ‘mini-boom’ as it will become a ‘buffer zone’ in times of great ‘economic adjustment’. I expect younger 5-room flats to experience an increase in activities since the ‘middle income’ may not be comfortable to relocate into an old heartland area. Newer HDB precincts may offer a lifestyle concept that appeals more to the middle income group. In other words, I expect the newer HDB precinct to become the growth area in the next nine months to one-and-a-half year. [See case study in HDB price trend later]
§ Cheaper prices lower risks
In fact, from the list of 40 Best Selling Condos in Singapore in page 12 – 13 it is not difficult to detect the increased buying activities of mass market condominiums in the outlaying areas in the first half of the year, despite the fact that the US subprime mortgage crisis has already making regular headlines in the local newspapers.
The Best Selling Condo list has been dominated by transactions in Districts 5, 15, 16, 22 and 23 where the unit floor rate (i.e. per square feet price) are hovering from $700 to $1,200 for District 15 condos, and as low as between $400 and $600 for condos in Districts 22 and 23.
While the new home segment may take a hit in sales volume due to developer’s pricing strategy, the sub-sale market is more responsive to the basic market forces of ‘demand and supply’. As such, it is not surprising to see sub-sellers pricing their units on hand for ‘cut-throat’ prices that are lower than the developer’s listed prices.
§ Market Update
Property prices to drop by 20%?
Not this time, definitely
Some wishful buyers are hankering for the prices of their coveted properties to fall by more than 20% because of the looming global economic recession.
But the numbers do not add up to such a drastic drop in houses prices in Singapore – for at least the next six months. Here are some of the reasons why:
The rich lists have grown
There are three categories of wealthy individuals which are known as High Net Worth Individuals (HNWI).
§ Ultra rich – US$30 million per person
The ultra rich are individuals with investible assets of at least US$30 million. In Singapore, there are 1,000 such individuals with total wealth of US$159 billion.
Across the Asia-Pacific region, the number of this category of HNWI rose 16.4% to 20,400 last year. The number may drop back a little but as Asia is not as badly hit as elsewhere in the world, the rich list is not expect to shrink by much.
§ The rich – US$1 million per person
Next is the ordinary HNWI – individuals with at least US$1million in investible asset.
There are now 77,000 such wealthy Singaporeans, representing a growth of 15.3% annually, or 1.7% of the population. The total combined wealth of such individual Singaporeans grew by 18.4% to US$380 billion last year.
§ Emerging rich – US$750k to US$1 million per person Next level down the rung, the number of emerging high net worth individuals in Singapore also grew by 15% to 24,000 in 2007. Altogether, these people have a combined wealth of US$20 billion.
To be counted as an emerging HNWI, one must have at least US$750,000 to US$1 million in investible assets.
No doubt the asset growth of the ultra-rich in the region as well as in Singapore will slow down, it will not suddenly disappear. It may contract by 10% to 20% but the money need to be deployed somewhere for good returns, and the people working for the rich need to be put up somewhere when they trot the globe for investment opportunities. Granted, there will be some bad days at the office where there will be no sales but there is no reason for the property market to suddenly stop functioning altogether – there will be people jostling to get out and others trying to get in. The basic economics continue to function.
§ Singaporeans are all ‘house proud’
A recent report by Merrill Lynch and Capgemini found that the Singaporean HNWI have an average net worth of US$4.9 million, and it confirms that Singaporeans HNWI, regardless of their wealth, are indeed very ‘house-proud’.
They put 25% of their wealth in real estate with the rest in alternative investments like structured products, hedge funds and currency.
Though the same report also stated that the Asian high net worth individuals are likely to turn to fixed-income securities which are less volatile in the near future, there is nothing to stop them from buying into Orchard Road if the investment returns become attractive.
The report points out that in the longer term, the region's wealth will continue to expand at 7.9% annually - higher than the 7.7% global rate.
Singapore population has grown
According to National Population Secretariat, Singapore now has 4.84 million people living in the island city. Out of whom 1.2 million are foreigners working and living here.
Among the 1.2 million non-residents, 757,000 of them are on work permits, 143,000 on employment or S passes, and 85,000 on student passes, according to the Ministry of Manpower. The Ministry also said that the number of non-residents has been rising significantly since 2004.
Likewise, the number of permanent residents (PRs) rose 6.5% this year to 478,200.
This is THE statistics that we badly needed in this market – it is indeed a shot in the arm. It means that we are not speaking in vacuum. There are people to fill those condos, and new flats that are coming onto the property market later on.
The size of the population underpins the growth in real estate prices, including rental prices. Barring any more financial disasters which result in these 1.2 million foreigners being recalled home, there is going to be strong tenant base to provide the cushion for any future correction in rental prices. Or to put it another way, rents will not crash, barring a major disaster – man-made or natural.
Total quantity of residential units
How many houses do we have in Singapore? I can assure you that the statistics is quite reassuring. Let’s look at the numbers:
§ For public flats, there are about close to 900,000 HDB flats, of which about 30% are available for approved whole-flat subletting.
§ For condo and apartments, there are about 180,000, spread over 3,000 private housing projects. This number will increase to around 220,000 by 2011, if all the planned developments are built on schedule, which we now know is unlikely due to delays in legal completion of many huge en bloc sale projects.
§ For landed housing units, we have about 68,000 houses, out of which 25,000 are bungalows and the rest are semi-detached and terrace houses.
This means that had the economic bubbles not burst in the United States and Europe, there will be an acute shortage of rental properties in Singapore. This time round the consequences of the global financial fallout may not be so sinister for Singapore, because barely six months ago this country was still grappling with problems of burgeoning house rents, and lack of places in international schools.
Granted that home rentals will ease and landlords will have to wait for a longer time for an expatriate willing to pay the extortionist’s rents, but it is not all doom and gloom. At worse, we are going back to the 2006 situation where everything happened within reasons, and where nobody thought we were in an economic recession. The truth is that 2007 had made many people very greedy.
Taken together, we might have a difficult next few months when the entire global financial systems go through fundamental restructuring and major austerity drive, but the mid- to long-term prospect looks promising, especially for Singapore.
Investment is like F1 grand prix
Maybe we should look at a recent event for inspirations. The turmoil going on in the world now is like the Formula One night race – there are always accidents, mistakes, crashes, unexpected twists and turns, disappointments and jubilations, and along the way, very loud noises. But isn’t this why the crowd loves the race?
When it comes to property investments, it is like the F1 grand prix – so full of unexpected twists and turns, but ultimately the one who is able to take advantage of adversity will win the day.
All along, we in Singapore know the ‘who’s who’ in the world, but they don’t really know us. When the dust of the current financial crisis settles, Singapore will rebound and surge ahead faster than any regional countries; and with the F1 night grand prix being telecast ‘live’ all over the world, the world will get to know what Singapore is made of.
One does not get such a good opportunity to pick up a piece of the world’s most coveted real estate in Singapore. Last year’s prices were too high and too risky for wise investors to do that. Therefore, if there is no crash, those falling behind in the race have no chance to catch up and become the new champion.
This is really the opportunity of a lifetime.
How badly will the Landed Property Market be hit?
Let us not be alarmists
How have the recent poor economic numbers translated into real estate figures as far as the landed property segment is concerned? Can we expect the same trend that happens in the new home segment happening in the landed property segment?
Statistics don’t lie. The number of landed property transactions has come down considerably from the final quarter of last year, after the US subprime mortgage crisis first reared its head. The brief period of sanity in the property market in general has been replaced by a pervasive sense of apprehension, in stark contrast to the buoyant mood in the first half of 2007.
Let us look at some numbers and see how much the landed property market has been affected by the on-goings in the global financial market.
The landed property market hit its peak in May 2007, with a very impressive sale figure of 778 a month. That is an awesome figure considering the fact that the largest HDB heartland estate, i.e. Jurong West, has a monthly total resale transaction of around 190 flats. So, the transaction figure of 778 is slightly more than four times the size of the resale flat transaction in the largest HDB estate in Singapore. But, the buying frenzy lasted only three months and transactions per month trickled down to 191 units by the December 2007.
§ Fewer bungalows sold by end 2007
Among the landed housing types, secondary sale of detached houses came down faster than the other house types. At its peak, there were more than 100 detached houses sold in a month (e.g. 128 detached houses sold in May 2007), but by year end, the detached house transactions slide to a few tens in number.
Not Right to compare with 2007 bull-run
However, it must be pointed out that it is incorrect to compare the transaction figures of landed properties of 2008 with 2007 as the latter was an exceptionally bullish year for the real estate market in general. How often did we see audacious ‘flipping’ deals involving bungalows with the price tag of $9 million? It was not uncommon to see cheaper bungalows being sold in the sub-sale market for a $200,000 profit. Such was the speculative mood in the market where anything that could be put on the market, could be flipped instantly.
§ 2008 should be compared with 2006
A more realistic comparison should be with 2006 transaction figures. No one called 2006 a slump year; yet by comparison, 2008 looks much rosier than 2006. In truth, 2006 should be considered a year of upswings where the Singapore economy started to take shape after a long period of slump.
For example, if we use the period between May and August of 2006 to compare with the same period in 2008, one would find that more landed properties were transacted in the same period in 2008 (despite the fact that there are more sulking sellers this year).
The breakdowns are as follows:
§ In the month of May: a total of 124 landed homes were sold in May 2006; and a total of 195 houses were sold in the May 2008. (That was 57% improvement or 71 more houses sold this year)
§ In the month of June: a total of 89 houses were sold in June 2006; and a total of 170 houses were sold in June 2008. (That was 91% rise or 81 more houses sold this year)
§ In the month of July: a total of 77 houses were sold in June 2006; and a total of 177 houses were sold in June 2008. (That was 130% jump or 100 more houses sold this year)
In the month of August: a total of 105 landed homes were sold In August 2006; and a total of 119 houses were in August § 2008. (That was 14% increase or 14 more houses sold this year).
Prices have held steady so far
There is another indicator to gauge whether property investors are worse off today when compared to a similar period previously, i.e. the asset prices.
Let us look at the landed property market from the perspective of transacted prices to determine whether property sellers need to be alarmed or whether the buyers should pay more attention to attributes that will protect their investments from the major market shocks, such as the current financial market meltdown.
§ Landed home prices sustainable
On the other hand, there are no compelling reasons for landed home prices to go below the 2006 price level. Prices will continue to hold firm while the number of transactions ease amidst more uncertainties in the near term. Here are some of the factors that will continue to help sustain landed home prices:
(1) The Singapore economy did perform exceptionally well in 2006 and 2007 periods after the economic restructuring; and Singapore had witnessed three consecutive years of very robust growths.
(2) Massive inflation has pushed up the prices of all commodities, including construction materials such as steels, sand, and labour costs. The prices of one property are often influenced by the prices of its substitutes. In this case, it will never cost cheaper than 2006 to build a house now and even in 2009 and beyond, given the many massive government projects that will commence construction from next year onwards. The Sports hub is one case in point.
(3) The supply of new sites for landed homes is drying up soon. There will be around 72,000 landed homes by 2011. The numbers are finite and as such, the prices will not fall easily.
§ No basis for comparison
Let’s look at other reasons why the performance of landed property segment cannot be compared with the non-landed property segment, especially the primary home market which looks set to get a nasty bash in the next six months to a year.
Future is bright for landed properties
Landed homes are different cattle of fish, so to speak. They are subject to different fundamentals having the scarce resources, i.e. land, to underpin their value. The profile of landed property owners is also different from condos and apartments.
§ Interests in D15 and D19 sustainable
In times of great uncertainties such as now, more conservative home owners will take advantage of the general weakness in sentiment and prices to buy into neighbourhood of choice.
One example is the sustained demand for houses in District 15 and District 19 landed homes. In fact the transaction volumes of these two residential districts were strong in the first half of 2008, despite the global financial uncertainties In fact, the transactions of landed home in District 19 consistently make up more than 20% of the overall landed home sale figure in Singapore.
§ Less speculative buying of landed homes
Landed homes generally cost higher prices and require higher upfront cash payment in the purchase. As such, they are less vulnerable to speculative buying, though there were a number of isolated cases of ‘flipping’ of bungalows being spotted last year.
Due to the stability in buying behaviours and price trend, there should not be much fluctuation in landed home prices from this point on, unlike in the non-landed segment where some degree of speculative buying (many on Deferred Payment Scheme) had resulted in unrealistically high prices.
§ Ownership restrictions of landed homes in Singapore
Permanent residents and foreigners not residing in Singapore have to obtain special approval to own a landed property for their own use. They can only own one landed property and are not allowed to rent out the property under any circumstances.
Conclusion
All said, it does not mean that the landed property segment will be totally insulated from the global financial turmoil that is raging in the US and Europe right now.
Quite the contrary, we may still see some isolated distress sales going on if the current financial crisis drags on. But even when that occurs, it will be more like a cyclical adjustment, according to the general economic climate, rather than a massive and panic sell-out that is very likely to occur in the condo segment next year.
HDB resale flats may benefit from the slump
Underlying demand is still strong
Is the HDB resale market insulated from the on-going crisis? Or will it benefit from the likelihood of a horde of down-graders from the private condo?
It is anybody’s guess how the HDB resale market will react to the incoming recession from this point on. But, HDB resale prices have just received a boost from the recent market correction of the private property segment, and the down-grading trend may have started from beginning of the year.
I have done a case study on the HDB resale price trend and discovered that despite the bull-run in the private property segment in 2007, the HDB resale prices did not react much to the booming effect. But contrary, when the bull-run came to an abrupt halt in the fourth quarter of 2007, the HDB resale prices gained a hefty 10% to 15% from the end-2007 price point.
§ Finding of case study on 3-room flats
Traditionally, the demand of 3-room flats often comes from wider and varied sources, including new citizens, newly married couples, lower income groups and retirees. In view of the impending economic recession, the demand is expected to remain strong for 3-room flats in general.
§ Finding of case study on 4-room flats
Apparently, the historical price trend of 4-room flats across the nation tells more or less the same story as the 3-room flats. Resale prices of 4-room flats in general had received a tremendous boost by the slumping of the private property market.
§ Finding of case study on larger flats
The price increase of larger flats is more pronounced especially when compared to the same period last year. For example, while the percentage increase of the prices of 4-room flats in general was about 15% - 20% year-on-year; the percentage increase of the prices for larger flats was about 20% - 25%.
The massive price increases of larger flats may be due to the age-long ‘middle-income squeeze’ where the middle-income families, due to the current economic uncertainties, decide to move into larger flats rather than taking the financial risks of owning a private property.
We know the crisis of epic proportion is going to hit town, how should we prepare ourselves as professional real estate agents, and the breadwinners to our family.
To begin with, let me say that we must be psychologically prepared that the population in the entire planet are going to be poorer than before. Some of the rich upper class will go down straight from the rich list to the bankruptcy list, starting with some top guns in many of the world’s leading investment banks, hedge funds, insurance company and many other private financial institutions who just a year ago were living the high life.
At the time of writing this article I did not know if the US$700 billion rescue package will be approved by the House of Representatives. But even if it does, the world will still have to go through some months of painful readjustments and recuperation as new realities set in.
The crux of the matters is that over the past six years or so, the housing inflation had also inflated the values of many companies, such as banks and major institutions, and emboldened many property investors, Singapore’s included. In short, the economy bubble was inflated out of proportion over the past years and it is still in the process of being put down to its correct size. In the process, spending will be curtailed, making the global economy look like an obese new recruit on his first day of Basic Military Training (BMT), trying to fit into a tight uniform. The moral of the story is: the fat boy needs to cut down the excess body fat very quickly by eating less and exercising more.
An old saying goes like this: “when US sneezes, Asia will have pneumonia”. But in today’s context, when the US has a tremor, Asia will have a tsunami. And as we are speaking, the sign of tsunami is ominous – the tide is receding and being sucked back into the sea, far away from the beach. There will be some moments of stillness in the air before the high waves strike. This time round, none of the economic sectors anywhere in the world could be spared from the fallout. In short, we are in for a rough ride from now.
We have to be prepared for widespread poverty, even in the world leading economy such as the United States and some parts of Europe.
What does that mean to the property market in Singapore?
In the first place, I would like to stress that not all ‘down trend’ markets are bad market for real estate agents. Though prices may fall by 5% to 10% in the next six months, the transaction volume is a different matter altogether. As far as property transactions (including sales and rentals) are concerned, there are many signs that point to an active year ahead of us – as investors and home owners alike are adjusting to their new circumstances.
§ More Sub-sales on the card
The record 18,000 sales of new home units achieved in 2007 and the ‘not-too-bad’ 11,147 sales of new home units in 2006 will combine to release thousands of completed new condos into the property market, starting from the early part of 2009 onwards.
More than 15,000 condo units are slated to be completed from the first quarter of 2009 onwards, with more than 8,000 units in the prime districts such as districts 9, 10 and 11; and another 4,400 units in the East Coast areas of districts 15 and 16. The rest of the thousands of new condo units will be scattered around the outlaying areas.
With banks tightening credit control, some of the property buyers who had purchased the properties on Deferred Payment Scheme might not be able to secure the financing and will have to dispose of the property in the sub-sale market.
§ More down-grading from condos to HDB flats
In fact, a ‘down trend’ market where some sellers are desperately trying to dispose of their units may be a good hunting ground for real estate agents of all shapes and sizes, whether rookies or veterans.
There may be more instances of condo owners wanting to downgrade to public flats due to the massive increase in costs of living in a condominium. With the new price hike in electrical tariffs from 1 October 2008 where average households will pay 21% more in utility bills, more ‘middle income’ households with a gross household income of between $5,000 and $10,000 with more than two ‘financially dependent’ children may have to adjust their lifestyle and spending habits – if they are living in a condominium.
This means that the HDB resale flat segment may experience a ‘mini-boom’ as it will become a ‘buffer zone’ in times of great ‘economic adjustment’. I expect younger 5-room flats to experience an increase in activities since the ‘middle income’ may not be comfortable to relocate into an old heartland area. Newer HDB precincts may offer a lifestyle concept that appeals more to the middle income group. In other words, I expect the newer HDB precinct to become the growth area in the next nine months to one-and-a-half year. [See case study in HDB price trend later]
§ Cheaper prices lower risks
In fact, from the list of 40 Best Selling Condos in Singapore in page 12 – 13 it is not difficult to detect the increased buying activities of mass market condominiums in the outlaying areas in the first half of the year, despite the fact that the US subprime mortgage crisis has already making regular headlines in the local newspapers.
The Best Selling Condo list has been dominated by transactions in Districts 5, 15, 16, 22 and 23 where the unit floor rate (i.e. per square feet price) are hovering from $700 to $1,200 for District 15 condos, and as low as between $400 and $600 for condos in Districts 22 and 23.
While the new home segment may take a hit in sales volume due to developer’s pricing strategy, the sub-sale market is more responsive to the basic market forces of ‘demand and supply’. As such, it is not surprising to see sub-sellers pricing their units on hand for ‘cut-throat’ prices that are lower than the developer’s listed prices.
§ Market Update
Property prices to drop by 20%?
Not this time, definitely
Some wishful buyers are hankering for the prices of their coveted properties to fall by more than 20% because of the looming global economic recession.
But the numbers do not add up to such a drastic drop in houses prices in Singapore – for at least the next six months. Here are some of the reasons why:
The rich lists have grown
There are three categories of wealthy individuals which are known as High Net Worth Individuals (HNWI).
§ Ultra rich – US$30 million per person
The ultra rich are individuals with investible assets of at least US$30 million. In Singapore, there are 1,000 such individuals with total wealth of US$159 billion.
Across the Asia-Pacific region, the number of this category of HNWI rose 16.4% to 20,400 last year. The number may drop back a little but as Asia is not as badly hit as elsewhere in the world, the rich list is not expect to shrink by much.
§ The rich – US$1 million per person
Next is the ordinary HNWI – individuals with at least US$1million in investible asset.
There are now 77,000 such wealthy Singaporeans, representing a growth of 15.3% annually, or 1.7% of the population. The total combined wealth of such individual Singaporeans grew by 18.4% to US$380 billion last year.
§ Emerging rich – US$750k to US$1 million per person Next level down the rung, the number of emerging high net worth individuals in Singapore also grew by 15% to 24,000 in 2007. Altogether, these people have a combined wealth of US$20 billion.
To be counted as an emerging HNWI, one must have at least US$750,000 to US$1 million in investible assets.
No doubt the asset growth of the ultra-rich in the region as well as in Singapore will slow down, it will not suddenly disappear. It may contract by 10% to 20% but the money need to be deployed somewhere for good returns, and the people working for the rich need to be put up somewhere when they trot the globe for investment opportunities. Granted, there will be some bad days at the office where there will be no sales but there is no reason for the property market to suddenly stop functioning altogether – there will be people jostling to get out and others trying to get in. The basic economics continue to function.
§ Singaporeans are all ‘house proud’
A recent report by Merrill Lynch and Capgemini found that the Singaporean HNWI have an average net worth of US$4.9 million, and it confirms that Singaporeans HNWI, regardless of their wealth, are indeed very ‘house-proud’.
They put 25% of their wealth in real estate with the rest in alternative investments like structured products, hedge funds and currency.
Though the same report also stated that the Asian high net worth individuals are likely to turn to fixed-income securities which are less volatile in the near future, there is nothing to stop them from buying into Orchard Road if the investment returns become attractive.
The report points out that in the longer term, the region's wealth will continue to expand at 7.9% annually - higher than the 7.7% global rate.
Singapore population has grown
According to National Population Secretariat, Singapore now has 4.84 million people living in the island city. Out of whom 1.2 million are foreigners working and living here.
Among the 1.2 million non-residents, 757,000 of them are on work permits, 143,000 on employment or S passes, and 85,000 on student passes, according to the Ministry of Manpower. The Ministry also said that the number of non-residents has been rising significantly since 2004.
Likewise, the number of permanent residents (PRs) rose 6.5% this year to 478,200.
This is THE statistics that we badly needed in this market – it is indeed a shot in the arm. It means that we are not speaking in vacuum. There are people to fill those condos, and new flats that are coming onto the property market later on.
The size of the population underpins the growth in real estate prices, including rental prices. Barring any more financial disasters which result in these 1.2 million foreigners being recalled home, there is going to be strong tenant base to provide the cushion for any future correction in rental prices. Or to put it another way, rents will not crash, barring a major disaster – man-made or natural.
Total quantity of residential units
How many houses do we have in Singapore? I can assure you that the statistics is quite reassuring. Let’s look at the numbers:
§ For public flats, there are about close to 900,000 HDB flats, of which about 30% are available for approved whole-flat subletting.
§ For condo and apartments, there are about 180,000, spread over 3,000 private housing projects. This number will increase to around 220,000 by 2011, if all the planned developments are built on schedule, which we now know is unlikely due to delays in legal completion of many huge en bloc sale projects.
§ For landed housing units, we have about 68,000 houses, out of which 25,000 are bungalows and the rest are semi-detached and terrace houses.
This means that had the economic bubbles not burst in the United States and Europe, there will be an acute shortage of rental properties in Singapore. This time round the consequences of the global financial fallout may not be so sinister for Singapore, because barely six months ago this country was still grappling with problems of burgeoning house rents, and lack of places in international schools.
Granted that home rentals will ease and landlords will have to wait for a longer time for an expatriate willing to pay the extortionist’s rents, but it is not all doom and gloom. At worse, we are going back to the 2006 situation where everything happened within reasons, and where nobody thought we were in an economic recession. The truth is that 2007 had made many people very greedy.
Taken together, we might have a difficult next few months when the entire global financial systems go through fundamental restructuring and major austerity drive, but the mid- to long-term prospect looks promising, especially for Singapore.
Investment is like F1 grand prix
Maybe we should look at a recent event for inspirations. The turmoil going on in the world now is like the Formula One night race – there are always accidents, mistakes, crashes, unexpected twists and turns, disappointments and jubilations, and along the way, very loud noises. But isn’t this why the crowd loves the race?
When it comes to property investments, it is like the F1 grand prix – so full of unexpected twists and turns, but ultimately the one who is able to take advantage of adversity will win the day.
All along, we in Singapore know the ‘who’s who’ in the world, but they don’t really know us. When the dust of the current financial crisis settles, Singapore will rebound and surge ahead faster than any regional countries; and with the F1 night grand prix being telecast ‘live’ all over the world, the world will get to know what Singapore is made of.
One does not get such a good opportunity to pick up a piece of the world’s most coveted real estate in Singapore. Last year’s prices were too high and too risky for wise investors to do that. Therefore, if there is no crash, those falling behind in the race have no chance to catch up and become the new champion.
This is really the opportunity of a lifetime.
How badly will the Landed Property Market be hit?
Let us not be alarmists
How have the recent poor economic numbers translated into real estate figures as far as the landed property segment is concerned? Can we expect the same trend that happens in the new home segment happening in the landed property segment?
Statistics don’t lie. The number of landed property transactions has come down considerably from the final quarter of last year, after the US subprime mortgage crisis first reared its head. The brief period of sanity in the property market in general has been replaced by a pervasive sense of apprehension, in stark contrast to the buoyant mood in the first half of 2007.
Let us look at some numbers and see how much the landed property market has been affected by the on-goings in the global financial market.
The landed property market hit its peak in May 2007, with a very impressive sale figure of 778 a month. That is an awesome figure considering the fact that the largest HDB heartland estate, i.e. Jurong West, has a monthly total resale transaction of around 190 flats. So, the transaction figure of 778 is slightly more than four times the size of the resale flat transaction in the largest HDB estate in Singapore. But, the buying frenzy lasted only three months and transactions per month trickled down to 191 units by the December 2007.
§ Fewer bungalows sold by end 2007
Among the landed housing types, secondary sale of detached houses came down faster than the other house types. At its peak, there were more than 100 detached houses sold in a month (e.g. 128 detached houses sold in May 2007), but by year end, the detached house transactions slide to a few tens in number.
Not Right to compare with 2007 bull-run
However, it must be pointed out that it is incorrect to compare the transaction figures of landed properties of 2008 with 2007 as the latter was an exceptionally bullish year for the real estate market in general. How often did we see audacious ‘flipping’ deals involving bungalows with the price tag of $9 million? It was not uncommon to see cheaper bungalows being sold in the sub-sale market for a $200,000 profit. Such was the speculative mood in the market where anything that could be put on the market, could be flipped instantly.
§ 2008 should be compared with 2006
A more realistic comparison should be with 2006 transaction figures. No one called 2006 a slump year; yet by comparison, 2008 looks much rosier than 2006. In truth, 2006 should be considered a year of upswings where the Singapore economy started to take shape after a long period of slump.
For example, if we use the period between May and August of 2006 to compare with the same period in 2008, one would find that more landed properties were transacted in the same period in 2008 (despite the fact that there are more sulking sellers this year).
The breakdowns are as follows:
§ In the month of May: a total of 124 landed homes were sold in May 2006; and a total of 195 houses were sold in the May 2008. (That was 57% improvement or 71 more houses sold this year)
§ In the month of June: a total of 89 houses were sold in June 2006; and a total of 170 houses were sold in June 2008. (That was 91% rise or 81 more houses sold this year)
§ In the month of July: a total of 77 houses were sold in June 2006; and a total of 177 houses were sold in June 2008. (That was 130% jump or 100 more houses sold this year)
In the month of August: a total of 105 landed homes were sold In August 2006; and a total of 119 houses were in August § 2008. (That was 14% increase or 14 more houses sold this year).
Prices have held steady so far
There is another indicator to gauge whether property investors are worse off today when compared to a similar period previously, i.e. the asset prices.
Let us look at the landed property market from the perspective of transacted prices to determine whether property sellers need to be alarmed or whether the buyers should pay more attention to attributes that will protect their investments from the major market shocks, such as the current financial market meltdown.
§ Landed home prices sustainable
On the other hand, there are no compelling reasons for landed home prices to go below the 2006 price level. Prices will continue to hold firm while the number of transactions ease amidst more uncertainties in the near term. Here are some of the factors that will continue to help sustain landed home prices:
(1) The Singapore economy did perform exceptionally well in 2006 and 2007 periods after the economic restructuring; and Singapore had witnessed three consecutive years of very robust growths.
(2) Massive inflation has pushed up the prices of all commodities, including construction materials such as steels, sand, and labour costs. The prices of one property are often influenced by the prices of its substitutes. In this case, it will never cost cheaper than 2006 to build a house now and even in 2009 and beyond, given the many massive government projects that will commence construction from next year onwards. The Sports hub is one case in point.
(3) The supply of new sites for landed homes is drying up soon. There will be around 72,000 landed homes by 2011. The numbers are finite and as such, the prices will not fall easily.
§ No basis for comparison
Let’s look at other reasons why the performance of landed property segment cannot be compared with the non-landed property segment, especially the primary home market which looks set to get a nasty bash in the next six months to a year.
Future is bright for landed properties
Landed homes are different cattle of fish, so to speak. They are subject to different fundamentals having the scarce resources, i.e. land, to underpin their value. The profile of landed property owners is also different from condos and apartments.
§ Interests in D15 and D19 sustainable
In times of great uncertainties such as now, more conservative home owners will take advantage of the general weakness in sentiment and prices to buy into neighbourhood of choice.
One example is the sustained demand for houses in District 15 and District 19 landed homes. In fact the transaction volumes of these two residential districts were strong in the first half of 2008, despite the global financial uncertainties In fact, the transactions of landed home in District 19 consistently make up more than 20% of the overall landed home sale figure in Singapore.
§ Less speculative buying of landed homes
Landed homes generally cost higher prices and require higher upfront cash payment in the purchase. As such, they are less vulnerable to speculative buying, though there were a number of isolated cases of ‘flipping’ of bungalows being spotted last year.
Due to the stability in buying behaviours and price trend, there should not be much fluctuation in landed home prices from this point on, unlike in the non-landed segment where some degree of speculative buying (many on Deferred Payment Scheme) had resulted in unrealistically high prices.
§ Ownership restrictions of landed homes in Singapore
Permanent residents and foreigners not residing in Singapore have to obtain special approval to own a landed property for their own use. They can only own one landed property and are not allowed to rent out the property under any circumstances.
Conclusion
All said, it does not mean that the landed property segment will be totally insulated from the global financial turmoil that is raging in the US and Europe right now.
Quite the contrary, we may still see some isolated distress sales going on if the current financial crisis drags on. But even when that occurs, it will be more like a cyclical adjustment, according to the general economic climate, rather than a massive and panic sell-out that is very likely to occur in the condo segment next year.
HDB resale flats may benefit from the slump
Underlying demand is still strong
Is the HDB resale market insulated from the on-going crisis? Or will it benefit from the likelihood of a horde of down-graders from the private condo?
It is anybody’s guess how the HDB resale market will react to the incoming recession from this point on. But, HDB resale prices have just received a boost from the recent market correction of the private property segment, and the down-grading trend may have started from beginning of the year.
I have done a case study on the HDB resale price trend and discovered that despite the bull-run in the private property segment in 2007, the HDB resale prices did not react much to the booming effect. But contrary, when the bull-run came to an abrupt halt in the fourth quarter of 2007, the HDB resale prices gained a hefty 10% to 15% from the end-2007 price point.
§ Finding of case study on 3-room flats
Traditionally, the demand of 3-room flats often comes from wider and varied sources, including new citizens, newly married couples, lower income groups and retirees. In view of the impending economic recession, the demand is expected to remain strong for 3-room flats in general.
§ Finding of case study on 4-room flats
Apparently, the historical price trend of 4-room flats across the nation tells more or less the same story as the 3-room flats. Resale prices of 4-room flats in general had received a tremendous boost by the slumping of the private property market.
§ Finding of case study on larger flats
The price increase of larger flats is more pronounced especially when compared to the same period last year. For example, while the percentage increase of the prices of 4-room flats in general was about 15% - 20% year-on-year; the percentage increase of the prices for larger flats was about 20% - 25%.
The massive price increases of larger flats may be due to the age-long ‘middle-income squeeze’ where the middle-income families, due to the current economic uncertainties, decide to move into larger flats rather than taking the financial risks of owning a private property.
Tuesday, October 14, 2008
Investor Alert!
Dormitory for Sale at Ubi.
Tenure: 30yrs with effect 1st Feb 1997 + 30yrs.
5 Storey, Industrial Building, Bussiness 1, approved for Dormitory with roof top Swimming pool.
Site Area: Approx. 4569.6sqm. GFA: Approx 9128.961 sqm. Basement 39 carpark lots.
1 passenger lift n 2 cargo lift (3tonn).
Interested pls call Melvin 90224001 or email me: melvingohhb@gmail.com.
Tenure: 30yrs with effect 1st Feb 1997 + 30yrs.
5 Storey, Industrial Building, Bussiness 1, approved for Dormitory with roof top Swimming pool.
Site Area: Approx. 4569.6sqm. GFA: Approx 9128.961 sqm. Basement 39 carpark lots.
1 passenger lift n 2 cargo lift (3tonn).
Interested pls call Melvin 90224001 or email me: melvingohhb@gmail.com.
Friday, September 26, 2008
September Update!
At the time of writing this report, I was struck by the front page news on 6 September 2008 about the ‘bloodletting in Asia bourses’. A particular statement sent chills to my spinal cord and it reads: “The New York Times reported that China’s central bank was looking to shore up its capital base because of its US$1 trillion (S$1.4 trillion) exposure to US treasury bonds and debts issued by troubled mortgage giants Fannie Mae and Freddie Mac.” My question is: if China spent US$1 trillion, how much did Singapore government spend on the same thing?”
There are other telltale signs that point to a highly precarious situation. One is the upping of stake in Merrill Lynch by Singapore’s Temasek Holdings.
It was reported on 28 August that Temasek Holdings has received the approval from the US Federal Trade Commission to increase its stake in the 94-year old embattled banking giant, Merrill Lynch. The fact that Temasek is still able to buy into the third largest bank in the US means that it is still bleeding and needs urgent capital infusion. Whether what the Singapore sovereign wealth fund did is right or wrong, the current crisis is fast reaching an epic proportion.
The other telltale sign is the downgrading of world’s growth forecast by the International Monetary Fund (IMF) for this year to 3.9%, down from 4.1%. The IMF has further warned that the world economy will degrade further in the second half of this year, being particularly pessimistic about the EU zone economies.
The IMF has cut its forecast for euro zone growth this year to 1.4% from the 1.7% predicted and estimated next year's growth at 0.9%, down from 1.2%.
So, let us all keep our fingers crossed while we await the event unfold.
(A) The big picture of the larger economy
Another US bank collapsed in the midst of the credit crisis and more US households are falling behind on mortgage repayments. Locally in Singapore, more people fear losing their jobs and the stock market blood–letting has just begun. Property developers are getting the double whammy of increased unsold inventories and the embattled company share prices. Compassionately, the government has rolled out more measures to ensure that the truly needy have a place to live. All the indicators are pointing towards more uncertainties in the real estate market in the near term.
[A.1] Bleak outlook for global economy
Despite the US$100 billion in tax rebates given by the US government as part of the economic rescue plan, Americans are not spending like they should. US retail sales have been dipping this year. Reportedly, about 80% of the rescue package has been saved for tougher times ahead. The implications are clear – when the US is saving (when it should be spending), the exporting economies all around the world will suffer, including Singapore.
A panel of 50 US economists polled in early August 2008 predicted that the sluggish US economy will push the jobless rate to 6% in December and to 6.1% by the end of next year.
[A.2] More bad news for the US housing crisis
In August, the US continued to be beset by more bad news including the following:
§ [A2.1] Sub-prime losses cross half-way mark of US$1trillion
Sub-prime losses incurred by banks worldwide have crossed the US$500 billion mark with the announcement by UBS AG of a US$6 billion in write-downs.
With that, losses incurred by banks have reached the half-way mark of the US$1 trillion. It is now anybody’s guess as to whether the losses could reach US$2 trillion as more revelations are being made by banks affected by the crisis.
Banks and brokers have raised US$353 billion of capital to cope with the massive write-downs but the current economic slum might frustrate them further.
§ [A2.2] Delinquencies among prime mortgages rise in US
Actually, what was hard to believe was the fact that sub-prime loans only made up of less than 10% in the US. Right now, the percentage of other mortgages in arrears, such as alternative-A mortgages has quadrupled to 12% in April from a year earlier. Unlike sub-prime mortgage loans, Alt-A loans refers to loans with high loan-to-value ratio.
The vast majority of housing loans belonged to prime loans which make up of about 50% of the mortgages. However, delinquencies among prime loans, which account for most of the US$12 trillion market, doubled to 2.7% during the same period. In fact, it will be a scarier news if prime mortgages are also in trouble.
§ [A2.3] Another bank bites the dust
On 29 August 2008, Georgia regulators closed down an Alpharetta-based Integrity Bank, which has become the tenth US bank to be ravaged by the on-going credit crisis and had to be taken over by another bank, i.e. Regions Bank of Birmingham, Alabama.
The Federal Deposit Insurance Corp (FDIC) estimated the impact of Integrity on the US$45.2 billion insurance fund to be between US$250 million and US$350 million.
Integrity Bank ran into trouble in an all-too-familiar circumstance. It pursued aggressive loan growth in the metropolitan Atlanta real estate market and was badly hit by falling real estate prices. The Bank’s inadequate risk management and poor lending practices led to significant loan losses and erosion of its capital.
So far, a total of 117 banks are on the FDIC’s watch list. US banking regulators are prepared for more banks to collapse in this year and next as there are no signs to suggest that the current credit crisis may be near its end.
[A.3] Singapore is in a ‘U-shape’ slowdown
Singapore’s economy was said to be in a ‘stretched-U’ slowdown, which means slow growth and no quick rebound in sight. Unlike a V-shape slowdown where the economy fell sharply and rebound quickly, a U-shape slowdown is protracted, which means that the current economic sluggishness will continue into 2009.
Singapore is at the verge of a technical recession as its GDP has fallen 6% in adjusted annualized terms in the second quarter when compared with the previous quarter. Another negative GDP in the third quarter will mean the island city is in a technical recession.
The MTI is not ruling out such a scenario as an unexpected turn in any of the industry or sector can bring about another quarter of negative growth. As it is, the negative growth in the second quarter was a result of a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter. Manufacturing has slumped 21.9% in July 2008 compared to a year ago.
Exactly when Singapore will get out of the bind depends on the state of global credit and asset markets in the next one to one-and-a-half years. The most decisive factor is how the United States will pick itself up from the current financial turmoil.
[A3.1] Market capitalisation fell to 20-month low in Singapore
The present economic uncertainties have led to Singapore stocks shedding $237.8 billion or 28% of market capitalisation from its peak of $847.5 billion in October 2007.
The fall in market values in August 2008 from a month ago coincided with the second quarter (Q2) reporting season. Some 30% of the companies disappointed in their earnings and this is a large jump from the 14% in Q1.
According to analysts from the Citigroup, the current bear market is probably only two-thirds through and may drag on until early 2009. It added that the present bear market may last as long as the 2000/01 dot.com bust which was 91 weeks, or the 1997/1998 Asian financial crisis, which lasted 82 weeks.
[A3.2] Jobless rates in Singapore set to rise
The latest data from the Singapore Manpower Ministry shows that unemployment rate increased for two straight quarters. The rate stands at 2.3% in Q2 2008, up from 1.7% in Q1 2008.
It seems that only the construction sector is still bringing in more jobs. In fact, most of the 70,600 jobs created in Q2 have been contributed by the construction sector. Even that, the job growth in Q2 was lower than the 73,200 gained in Q1.
[A3.3] HDB rental flats to go to the truly needy
In a sign to show that the Singapore government is really concerned about probable massive layoffs in the near term, it has reiterated its resolve to ensure that rental flats are allocated to the truly needy.
The government is adamant that they will make the necessary checks to ensure that only the poor and less-fortunate will be granted flats to rent.
[A3.4] Major property developers reporting smaller profits in Q2
The current slowdown in the property market is reflected in the lower earnings of major developers, e.g. CapitaLand, CDL, Keppel Land etc.
CapitaLand’s Q2 profit fell to $515.2 million which is a tumbling of 43.5%. City Developments’ Q2 net profit dropped to $165.2 million, which is a 15.1% slide; while Keppel Land’s Q2 profit was $52.7 million, a worrying 16.4% drop.
Likewise, Wing Tai's fourth-quarter net profit fell 60% to $96.3 million, dragging down full-year net profit 40% to $229.4 million. The listed firm found its revenue more than halved in the fourth quarter to $107.3 million, and in the full year, to $428.2 million. It is not going to launch its keenly-watched Ardmore Park and Anderson 18 anytime soon.
(B) The overall performance of Private Residential Property segment
In the real estate scene, the government land sale programme which raked in billions of dollars last year has been given the cold shoulders in recent months. Private new home sales, though handed in a better-looking report card of 897 sales (compared with 801 sales in June), are having higher unsold inventories with developers rolling out more units than they could possibly dispose of (3,379 in June as compared with 3,841 in July).
[B.1] Only 897 new home units sold in July
In July, new home sales volume was down 35% year-on-year with 897 units sold, but does better month-on-month with 12% rise compared to June.
The worrying sign is that the ratio of new home sales to newly launched units increased to 1:1.47 compared to 1:0.9 a year ago and 1:1.33 in the previous month. As a result, the stock of unsold homes in the developers' inventory will gradually increase. This also means that the take-up rate was disappointing.
Still, the improved sales volume for July does suggest that there is underlying demand from owner-occupiers. This demand came from the Outside Central Region (OCR) in which 636 units were launched which accounted for 48.1% of launches in July.
The Core Central Region (CCR), in comparison, saw launches fall 40.7% month-on-month and accounted for only 9.9% of all launches in the month.
[B.2] Price trend of new home market between June and July 2008
A case study was done on the price trend of new homes to ascertain the gravity of the situation and here are the findings.
§ [B2.4] Findings of the Case Study
A vast majority of the new homes launched in all the three regions in July 2008 were sold at lower prices. Below are other observations:
(a) OCR enjoys strong underlying demand from the HDB heartlands
The demand from Outside Central Region (OCR) remains healthy, probably due to many HDB dwellers living in the same or nearby neighbourhood taking advantage of the lower prices to upgrade themselves to better housing.
(b) Sub-sale prices will be affected
The trend of lower launched prices for new home projects in OCR will affect sub-sale prices later on in OCR, as well as the Rest of Central Region (RCR) if the location of the projects is not too ideal.
(c) CCR’s future remain uncertain
As for the Core Central Region (CCR), both the volume and prices have come down by a big margin; and with the global recession looming larger each day, the future performance of this particular region remains highly uncertain.
With more than 30,000 new private condominiums and apartments coming on stream in the next couple of years, prices of private non-landed properties in the outlaying areas are not expected to rise by a big margin, if at all.
[B.3] Slower secondary home sales
The sale performance of secondary private homes is tracked by caveat searches and as such is affected by the inherent time lag in the caveat lodgement system. However, from the 3-week tally of the August sales figure, the situation does not look promising.
§ [B3.1] Secondary non-landed home sale performance
The three-week total for the month of August was lacklustre with only 470 caveats recorded. In the same three-week period in July 2008, 662 caveats were lodged.
The full month sales figure in July 2008 was 972 resale transactions.
Total secondary sales in July (by caveat lodged) = 972
District 15 enjoyed the highest transaction volume with 111 caveats lodged in July; followed by District 10 with 77, District 20 with 76, District 14 with 71, and District 9 with 67 caveats lodged in July 2008.
§ [B3.2] Secondary landed home sale performance
As for the secondary landed home sale market, the number of landed homes sold in the secondary market in July 2008 is as follows:
Detached houses = 13 (compared with 11 in June)
Semi-detached houses = 27 (compared with 29 in June)
Terrace houses = 73 (compared with 69 in June)
As for the three-week total in August [up to 22 August 2008], the number of landed homes sold in the secondary market is as follows:
Detached houses = 7
Semi-detached houses =18
Terrace houses = 43
Judging from the above statistics, it seems that landed homes have not lost their lustre. Though the sale volume might be marginally lower, the sales figures are still respectable given the current economic backdrop.
(C) The performance of Non-Residential Property segment
In the industrial space segment, the demand and supply situation mirrored that of the global economic situation. The economic slowdown in the developed economies has impacted the traditional manufacturing segment; however, demand for space in the Research & Development (R&D) and high-tech segments remains robust.
[C.1] JTC Ready-build facilities keen sought after
According to the latest JTC data, the occupancy level for ready-built facilities (RBF) rose to a record 94.9% in the second quarter (Q2) of 2008. Out of this increase, a hefty 51% was contributed by the Business Park segment. The biggest contribution has come from newly built spaces such as Fusionpolis.
However, in the traditional manufacturing segment, demand for flatted factory space fell due to surrendering of leases by the electronics sector, which has been badly hit by the economic slowdown in the US and EU.
[C.2] Office occupancy costs in Singapore stagnate
Average occupancy cost of Grade A prime office space in Raffles Place grew only 1.1% quarter-on-quarter to $19 per square foot per month (psf pm) in Q2 2008. Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat.
As more new supply comes on stream, office occupancy is likely to ease, thus thwarting growth in occupancy costs in the Central Business District (CBD) for the rest of 2008.
Besides, the cautious business outlook, the current market trend of companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties is also putting a downward pressure on office occupancies.
[C.3] More state properties for International schools here
The continuing influx of expatriates into Singapore in recent years has resulted in an increased demand for places in foreign schools. In August, four state buildings and three land parcels were released to help alleviate the limited supply of places at the 19 International Schools which have been having long waiting lists.
The buildings are the former Upper Serangoon Secondary School in Upper Serangoon Road, Nan Chiau High School in Kim Yam Road, Fuchun Primary School in Woodlands Centre Road and Jurong Town Primary School in Hu Ching Road. The land parcels - at Yishun Avenue 1, Hougang Avenue 1 and Bukit Batok Road - have lease periods of 30 years.
Usually, residential properties near international schools tend to enjoy higher rents.
(D) The performance of Collective Sales
[D.1] En bloc sale news: Maison Royale in Newton
Owners of the 20-unit Maison Royale, a freehold residential site in Newton, are asking at least $50 million, including an estimated $300,000 development charge (DC). If the deal is successful, the collective sale price will work out to be $1,273 per square foot per plot ratio (psf ppr).
The breakeven cost will be around $1,665 psf. The successful developer could launch the apartments in the new development at around $1,915 psf.
[D.2] Thomson collective sale faced a ‘road block’
The collective sale of five small estates near Thomson Road is stopped by a ‘road block’, in every sense of the word. The developer, KSH Holdings, which tried to buy a 1,000sq m section of a road from the Singapore Land Authority (SLA), has found out that the price of the road is $16 million - double what it had estimated.
While waiting for the outcome of KSH Holdings’ appeal to SLA, the collective sale contract may lapse. This means that the flat owners will keep the $12 million deposit while the buyer will be left with nothing but a little more wisdom.
The five small estates include Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui. The collective sale deal was concluded in November 2007 for $120 million.
(E) Foreign Interest in Singapore Real Estate
There have been no major new developments in this market segment in August 2008.
(F) News on Government Land Sale (GLS) Programme
The soaring construction costs are cutting too deep into the developers’ profit margin. Coupled with the deteriorating market situation, developers of mass-market projects, which traditionally yield a smaller profit margin, will have to be more cautious in their land-banking strategies. On the other hand, many big-timers have stayed out of the government land sale programme altogether.
It can be seen in recent times that small-time developers are trying their luck with opportunistic bids at URA tender, for example, in April 2008 an obscure construction/property development firm bid $61 million, or about S$1,750 per square metre per plot ratio (psm ppr), for a residential site at Ten Mile Junction at Choa Chu Kang Road/Woodlands Road; and the bid was roundly rejected by URA.
Earlier in March 2008, the top bid of $11.8 million or $$77.80 psf ppr for a landed housing plot at Westwood Avenue in Jurong West was also rejected by the URA for being too low.
It is believed that, if the current situation persists, the developers will stick to the cautious policy towards the Government Land Sale (GLS) program.
[F.1] URA rejected the sole bid for Tampines site
The same firm which was snubbed twice by URA this year, tried its luck again in August and put in the sole bid of $118 psf ppr for a 99-year leasehold plot at Tampines; and apparently despite the drastic change in the market climate, there was no change in the firm’s luck.
As such, it remains interesting to see whether the 1.39ha choice condominium site in Serangoon Avenue 3, next to the Lorong Chuan MRT Station will receive any bid, and if at all, the quantum of the bid price.
[F.2] Balestier hotel plot went on the cheap
In the first week of August, the URA awarded the Balestier Road hotel site to HH properties for $73.3 million or $172.09 psf which was below analysts’ earlier estimate of $350.470 psf.
The award despite the low bid could be because the URA has taken into consideration the high construction costs, and also due to the improvement plan the government has for the Balestier road area.
[F.3] SLA releases 8 infill sites for lease
Eight infill sites were offered by the Singapore Land Authority (SLA) for lease and the bidding was done on 28 August with a disappointing outcome. Usually, infill sites are released during a housing boom to ease the tension of low market supply.
However, the SLA seemed to have over-estimated the demand this time around. Only four of the eight sites were taken. The poor bidding result can be interpreted as a resounding pronouncement of the end of the property market boom.
Of the eight parcels, one received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily. BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold.
So, when it comes to property investment, it always boils down to three critical attributes, i.e. location, location and nothing but location.
[F.4] Lukewarm response expected for Mohd Sultan Road office site
The URA tender for the 0.62 ha office site at Mohamed Sultan Road is expected to receive a lukewarm response from developers due to the projection of four million sq ft of new office space to be ready in the Central Business District (CBD) by 2010.
Meanwhile, the URA also launched tenders for two industrial sites on the reserve list. This came after two developers applied to bid for the two 60-year leasehold sites. One of the firms has committed to a minimum bid of $10.8 million for the Kallang Pudding Road site; while another firm eyeing the Ubi Avenue 4 site has committed to at least $21.6 million bid.
(G) Overall performance of the HDB resale market
The Singapore government has announced a plan to allow owners of small flats who are 62 years or older to sell part of their flat’s lease, in excess of 30 remaining years, back to the HDB. The proceeds from the sale will go to a Central Provident Fund Life annuity plan, which gives the elderly sellers a stream of monthly payouts of $500 per month for retirement. With the remaining 30-year lease, the elderly owners will continue to stay in their homes.
About 25,000 households can sign up for the ‘lease sale’ scheme. Should the owners die prematurely; their estate will receive refund for the residual lease.
[G.1.] Flat owners enjoying spill-over from high private home rents
As rents for private homes in many popular private condo projects reached an unrealistic height, more expatriates are settling for cheaper alternatives of HDB rental flats.
Owners of four-room HDB flats set to gain the most from the current trend. According to HDB data, average monthly rents for 4-room flats have climbed from $1,600 to $1,750 – almost 10% rise in the previous three months.
Between April and June, eight out of every 10 towns saw higher rents for four-room flats, with Jurong East experiencing jumps of up to 21%.
The priciest place to rent a four-room flat is now Bukit Merah, where the average monthly rent is $2,300. Close behind are flats in the Central area, Toa Payoh and Bishan, which command $2,000 or more.
[G.2] Condo-style HDB flats at AMK four times oversubscribed
The recently launched Design, Build and Sell Scheme (DBSS) project Park Central @ AMK received over 2,300 applications - or four times the 578 units on offer. The average selling price for units in Park Central @ AMK is $490-$500 per square foot (psf).
This encouraging sign points to the underlying strengths in the demand for better housing in choice locations.
[G.3] Upside for HDB resale prices still good
Prices of HDB resale flats are still rising due to a number of factors:
§ the continuing demand from new families and permanent residents (PRs); and,
§ the economic uncertainties and the cautious mood in the private property segment nudging prospective condo buyers back to the resale flat arena.
In 2007, there were about 78,000 new citizens and PRs who may be buying HDB flats which they may not have been eligible to buy previously. Currently, there are no negative factors to prevent these new citizens and PRs from owning instead of renting the flats as rental prices are still high due to the continued arrivals of expatriates.
In the first half of 2008, the HDB resale prices had already climbed 8.2%. It appears that the resale prices will continue its upward trend.
To prevent a running away housing inflation, HDB will supply 8,400 new BTO flats for the whole of this year. This is an increase from the 6,000 flats offered last year and just 2,400 BTO flats in 2006.
[G.4] The overall performance of HDB resale flats in August 2008
The overall HDB resale transactions in August dropped to 2,186 from the previous month’s total transactions of 2,456. This could be due to the more subdued activities during the traditional Hungry Ghost Month on the Chinese lunar calendar and the generally higher asking prices by flat owners.
[G.5] Case study on Resale Price Trend
The sample group used in the Price Trend survey made up of the TOP 10 most populous public housing estates which happen to be the TOP best selling housing estates in Singapore.
§ [G5.1] The Findings of the Case Study
The case study has yielded the following observations:
(a) 3-Room Resale Flats
§ Smaller flats are definitely enjoying a very healthy up-swing in resale activities and prices. The total 3-room flat resale transactions in August 2008 were 10 better than the 652 transactions in July 2008. Obviously, it is due to more permanent residents (PRs) committing to ‘buying decisions’, rather than just renting the flats.
§ Seven (07) out of the 10 survey areas experienced price increases in 3-room flats; and the median prices of two (02) survey areas had the same median prices as the previous month. That means, only one (01) survey area experienced a dip in median prices for the 3-room flats there.
(b) 4-Room Resale Flats
§ The 4-room resale transactions drop more than 15% in August from the 910 transactions in July to only 769 deals in August.
§ Five (05) out of the 10 survey areas experienced higher median prices. Two (02) out of the five survey areas which did not experience any price rise had marginally lower median prices, such as Bedok’s median price for 4-room resale flats was $301,000 in July and $300,000 in August; while Jurong West had a median price of $282,000 in July and $280,000 in August.
(c) 5-Room Resale Flats
§ Though the 5-room resale transactions drop 15% in August from the 680 transactions in July to only 577 transactions in August, resale prices remain stable.
§ Eight (08) out of the 10 survey areas experienced higher median prices. Of the two (02) survey areas which did not experience higher median prices, Tampinese estate has the same median price; while Queenstown saw a drastic drop in resale prices in August, probably due to the already inflated resale prices there.
(d) Executive Flats
§ The executive flat resale transactions drop around 12% in August from the 214 transactions in July to only 187 transactions in August.
§ Resale prices remain stable with half the survey areas experiencing marginally higher resale prices and the other half marginally lower resale prices. This could be due to the fact that resale prices for E-flats had increased by a bigger quantum in the last few months.
Conclusion
Taken together, the case study ascertains that the resale prices of HDB resale flats are ‘steadily climbing and they fit a description of an up-swing market’. Though the volume of resale transactions had dropped, the resale prices are generally rising.
There are other telltale signs that point to a highly precarious situation. One is the upping of stake in Merrill Lynch by Singapore’s Temasek Holdings.
It was reported on 28 August that Temasek Holdings has received the approval from the US Federal Trade Commission to increase its stake in the 94-year old embattled banking giant, Merrill Lynch. The fact that Temasek is still able to buy into the third largest bank in the US means that it is still bleeding and needs urgent capital infusion. Whether what the Singapore sovereign wealth fund did is right or wrong, the current crisis is fast reaching an epic proportion.
The other telltale sign is the downgrading of world’s growth forecast by the International Monetary Fund (IMF) for this year to 3.9%, down from 4.1%. The IMF has further warned that the world economy will degrade further in the second half of this year, being particularly pessimistic about the EU zone economies.
The IMF has cut its forecast for euro zone growth this year to 1.4% from the 1.7% predicted and estimated next year's growth at 0.9%, down from 1.2%.
So, let us all keep our fingers crossed while we await the event unfold.
(A) The big picture of the larger economy
Another US bank collapsed in the midst of the credit crisis and more US households are falling behind on mortgage repayments. Locally in Singapore, more people fear losing their jobs and the stock market blood–letting has just begun. Property developers are getting the double whammy of increased unsold inventories and the embattled company share prices. Compassionately, the government has rolled out more measures to ensure that the truly needy have a place to live. All the indicators are pointing towards more uncertainties in the real estate market in the near term.
[A.1] Bleak outlook for global economy
Despite the US$100 billion in tax rebates given by the US government as part of the economic rescue plan, Americans are not spending like they should. US retail sales have been dipping this year. Reportedly, about 80% of the rescue package has been saved for tougher times ahead. The implications are clear – when the US is saving (when it should be spending), the exporting economies all around the world will suffer, including Singapore.
A panel of 50 US economists polled in early August 2008 predicted that the sluggish US economy will push the jobless rate to 6% in December and to 6.1% by the end of next year.
[A.2] More bad news for the US housing crisis
In August, the US continued to be beset by more bad news including the following:
§ [A2.1] Sub-prime losses cross half-way mark of US$1trillion
Sub-prime losses incurred by banks worldwide have crossed the US$500 billion mark with the announcement by UBS AG of a US$6 billion in write-downs.
With that, losses incurred by banks have reached the half-way mark of the US$1 trillion. It is now anybody’s guess as to whether the losses could reach US$2 trillion as more revelations are being made by banks affected by the crisis.
Banks and brokers have raised US$353 billion of capital to cope with the massive write-downs but the current economic slum might frustrate them further.
§ [A2.2] Delinquencies among prime mortgages rise in US
Actually, what was hard to believe was the fact that sub-prime loans only made up of less than 10% in the US. Right now, the percentage of other mortgages in arrears, such as alternative-A mortgages has quadrupled to 12% in April from a year earlier. Unlike sub-prime mortgage loans, Alt-A loans refers to loans with high loan-to-value ratio.
The vast majority of housing loans belonged to prime loans which make up of about 50% of the mortgages. However, delinquencies among prime loans, which account for most of the US$12 trillion market, doubled to 2.7% during the same period. In fact, it will be a scarier news if prime mortgages are also in trouble.
§ [A2.3] Another bank bites the dust
On 29 August 2008, Georgia regulators closed down an Alpharetta-based Integrity Bank, which has become the tenth US bank to be ravaged by the on-going credit crisis and had to be taken over by another bank, i.e. Regions Bank of Birmingham, Alabama.
The Federal Deposit Insurance Corp (FDIC) estimated the impact of Integrity on the US$45.2 billion insurance fund to be between US$250 million and US$350 million.
Integrity Bank ran into trouble in an all-too-familiar circumstance. It pursued aggressive loan growth in the metropolitan Atlanta real estate market and was badly hit by falling real estate prices. The Bank’s inadequate risk management and poor lending practices led to significant loan losses and erosion of its capital.
So far, a total of 117 banks are on the FDIC’s watch list. US banking regulators are prepared for more banks to collapse in this year and next as there are no signs to suggest that the current credit crisis may be near its end.
[A.3] Singapore is in a ‘U-shape’ slowdown
Singapore’s economy was said to be in a ‘stretched-U’ slowdown, which means slow growth and no quick rebound in sight. Unlike a V-shape slowdown where the economy fell sharply and rebound quickly, a U-shape slowdown is protracted, which means that the current economic sluggishness will continue into 2009.
Singapore is at the verge of a technical recession as its GDP has fallen 6% in adjusted annualized terms in the second quarter when compared with the previous quarter. Another negative GDP in the third quarter will mean the island city is in a technical recession.
The MTI is not ruling out such a scenario as an unexpected turn in any of the industry or sector can bring about another quarter of negative growth. As it is, the negative growth in the second quarter was a result of a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter. Manufacturing has slumped 21.9% in July 2008 compared to a year ago.
Exactly when Singapore will get out of the bind depends on the state of global credit and asset markets in the next one to one-and-a-half years. The most decisive factor is how the United States will pick itself up from the current financial turmoil.
[A3.1] Market capitalisation fell to 20-month low in Singapore
The present economic uncertainties have led to Singapore stocks shedding $237.8 billion or 28% of market capitalisation from its peak of $847.5 billion in October 2007.
The fall in market values in August 2008 from a month ago coincided with the second quarter (Q2) reporting season. Some 30% of the companies disappointed in their earnings and this is a large jump from the 14% in Q1.
According to analysts from the Citigroup, the current bear market is probably only two-thirds through and may drag on until early 2009. It added that the present bear market may last as long as the 2000/01 dot.com bust which was 91 weeks, or the 1997/1998 Asian financial crisis, which lasted 82 weeks.
[A3.2] Jobless rates in Singapore set to rise
The latest data from the Singapore Manpower Ministry shows that unemployment rate increased for two straight quarters. The rate stands at 2.3% in Q2 2008, up from 1.7% in Q1 2008.
It seems that only the construction sector is still bringing in more jobs. In fact, most of the 70,600 jobs created in Q2 have been contributed by the construction sector. Even that, the job growth in Q2 was lower than the 73,200 gained in Q1.
[A3.3] HDB rental flats to go to the truly needy
In a sign to show that the Singapore government is really concerned about probable massive layoffs in the near term, it has reiterated its resolve to ensure that rental flats are allocated to the truly needy.
The government is adamant that they will make the necessary checks to ensure that only the poor and less-fortunate will be granted flats to rent.
[A3.4] Major property developers reporting smaller profits in Q2
The current slowdown in the property market is reflected in the lower earnings of major developers, e.g. CapitaLand, CDL, Keppel Land etc.
CapitaLand’s Q2 profit fell to $515.2 million which is a tumbling of 43.5%. City Developments’ Q2 net profit dropped to $165.2 million, which is a 15.1% slide; while Keppel Land’s Q2 profit was $52.7 million, a worrying 16.4% drop.
Likewise, Wing Tai's fourth-quarter net profit fell 60% to $96.3 million, dragging down full-year net profit 40% to $229.4 million. The listed firm found its revenue more than halved in the fourth quarter to $107.3 million, and in the full year, to $428.2 million. It is not going to launch its keenly-watched Ardmore Park and Anderson 18 anytime soon.
(B) The overall performance of Private Residential Property segment
In the real estate scene, the government land sale programme which raked in billions of dollars last year has been given the cold shoulders in recent months. Private new home sales, though handed in a better-looking report card of 897 sales (compared with 801 sales in June), are having higher unsold inventories with developers rolling out more units than they could possibly dispose of (3,379 in June as compared with 3,841 in July).
[B.1] Only 897 new home units sold in July
In July, new home sales volume was down 35% year-on-year with 897 units sold, but does better month-on-month with 12% rise compared to June.
The worrying sign is that the ratio of new home sales to newly launched units increased to 1:1.47 compared to 1:0.9 a year ago and 1:1.33 in the previous month. As a result, the stock of unsold homes in the developers' inventory will gradually increase. This also means that the take-up rate was disappointing.
Still, the improved sales volume for July does suggest that there is underlying demand from owner-occupiers. This demand came from the Outside Central Region (OCR) in which 636 units were launched which accounted for 48.1% of launches in July.
The Core Central Region (CCR), in comparison, saw launches fall 40.7% month-on-month and accounted for only 9.9% of all launches in the month.
[B.2] Price trend of new home market between June and July 2008
A case study was done on the price trend of new homes to ascertain the gravity of the situation and here are the findings.
§ [B2.4] Findings of the Case Study
A vast majority of the new homes launched in all the three regions in July 2008 were sold at lower prices. Below are other observations:
(a) OCR enjoys strong underlying demand from the HDB heartlands
The demand from Outside Central Region (OCR) remains healthy, probably due to many HDB dwellers living in the same or nearby neighbourhood taking advantage of the lower prices to upgrade themselves to better housing.
(b) Sub-sale prices will be affected
The trend of lower launched prices for new home projects in OCR will affect sub-sale prices later on in OCR, as well as the Rest of Central Region (RCR) if the location of the projects is not too ideal.
(c) CCR’s future remain uncertain
As for the Core Central Region (CCR), both the volume and prices have come down by a big margin; and with the global recession looming larger each day, the future performance of this particular region remains highly uncertain.
With more than 30,000 new private condominiums and apartments coming on stream in the next couple of years, prices of private non-landed properties in the outlaying areas are not expected to rise by a big margin, if at all.
[B.3] Slower secondary home sales
The sale performance of secondary private homes is tracked by caveat searches and as such is affected by the inherent time lag in the caveat lodgement system. However, from the 3-week tally of the August sales figure, the situation does not look promising.
§ [B3.1] Secondary non-landed home sale performance
The three-week total for the month of August was lacklustre with only 470 caveats recorded. In the same three-week period in July 2008, 662 caveats were lodged.
The full month sales figure in July 2008 was 972 resale transactions.
Total secondary sales in July (by caveat lodged) = 972
District 15 enjoyed the highest transaction volume with 111 caveats lodged in July; followed by District 10 with 77, District 20 with 76, District 14 with 71, and District 9 with 67 caveats lodged in July 2008.
§ [B3.2] Secondary landed home sale performance
As for the secondary landed home sale market, the number of landed homes sold in the secondary market in July 2008 is as follows:
Detached houses = 13 (compared with 11 in June)
Semi-detached houses = 27 (compared with 29 in June)
Terrace houses = 73 (compared with 69 in June)
As for the three-week total in August [up to 22 August 2008], the number of landed homes sold in the secondary market is as follows:
Detached houses = 7
Semi-detached houses =18
Terrace houses = 43
Judging from the above statistics, it seems that landed homes have not lost their lustre. Though the sale volume might be marginally lower, the sales figures are still respectable given the current economic backdrop.
(C) The performance of Non-Residential Property segment
In the industrial space segment, the demand and supply situation mirrored that of the global economic situation. The economic slowdown in the developed economies has impacted the traditional manufacturing segment; however, demand for space in the Research & Development (R&D) and high-tech segments remains robust.
[C.1] JTC Ready-build facilities keen sought after
According to the latest JTC data, the occupancy level for ready-built facilities (RBF) rose to a record 94.9% in the second quarter (Q2) of 2008. Out of this increase, a hefty 51% was contributed by the Business Park segment. The biggest contribution has come from newly built spaces such as Fusionpolis.
However, in the traditional manufacturing segment, demand for flatted factory space fell due to surrendering of leases by the electronics sector, which has been badly hit by the economic slowdown in the US and EU.
[C.2] Office occupancy costs in Singapore stagnate
Average occupancy cost of Grade A prime office space in Raffles Place grew only 1.1% quarter-on-quarter to $19 per square foot per month (psf pm) in Q2 2008. Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat.
As more new supply comes on stream, office occupancy is likely to ease, thus thwarting growth in occupancy costs in the Central Business District (CBD) for the rest of 2008.
Besides, the cautious business outlook, the current market trend of companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties is also putting a downward pressure on office occupancies.
[C.3] More state properties for International schools here
The continuing influx of expatriates into Singapore in recent years has resulted in an increased demand for places in foreign schools. In August, four state buildings and three land parcels were released to help alleviate the limited supply of places at the 19 International Schools which have been having long waiting lists.
The buildings are the former Upper Serangoon Secondary School in Upper Serangoon Road, Nan Chiau High School in Kim Yam Road, Fuchun Primary School in Woodlands Centre Road and Jurong Town Primary School in Hu Ching Road. The land parcels - at Yishun Avenue 1, Hougang Avenue 1 and Bukit Batok Road - have lease periods of 30 years.
Usually, residential properties near international schools tend to enjoy higher rents.
(D) The performance of Collective Sales
[D.1] En bloc sale news: Maison Royale in Newton
Owners of the 20-unit Maison Royale, a freehold residential site in Newton, are asking at least $50 million, including an estimated $300,000 development charge (DC). If the deal is successful, the collective sale price will work out to be $1,273 per square foot per plot ratio (psf ppr).
The breakeven cost will be around $1,665 psf. The successful developer could launch the apartments in the new development at around $1,915 psf.
[D.2] Thomson collective sale faced a ‘road block’
The collective sale of five small estates near Thomson Road is stopped by a ‘road block’, in every sense of the word. The developer, KSH Holdings, which tried to buy a 1,000sq m section of a road from the Singapore Land Authority (SLA), has found out that the price of the road is $16 million - double what it had estimated.
While waiting for the outcome of KSH Holdings’ appeal to SLA, the collective sale contract may lapse. This means that the flat owners will keep the $12 million deposit while the buyer will be left with nothing but a little more wisdom.
The five small estates include Norfolk Court, Mergui Lodge, Northern Mansion, Mergui Court and The Mergui. The collective sale deal was concluded in November 2007 for $120 million.
(E) Foreign Interest in Singapore Real Estate
There have been no major new developments in this market segment in August 2008.
(F) News on Government Land Sale (GLS) Programme
The soaring construction costs are cutting too deep into the developers’ profit margin. Coupled with the deteriorating market situation, developers of mass-market projects, which traditionally yield a smaller profit margin, will have to be more cautious in their land-banking strategies. On the other hand, many big-timers have stayed out of the government land sale programme altogether.
It can be seen in recent times that small-time developers are trying their luck with opportunistic bids at URA tender, for example, in April 2008 an obscure construction/property development firm bid $61 million, or about S$1,750 per square metre per plot ratio (psm ppr), for a residential site at Ten Mile Junction at Choa Chu Kang Road/Woodlands Road; and the bid was roundly rejected by URA.
Earlier in March 2008, the top bid of $11.8 million or $$77.80 psf ppr for a landed housing plot at Westwood Avenue in Jurong West was also rejected by the URA for being too low.
It is believed that, if the current situation persists, the developers will stick to the cautious policy towards the Government Land Sale (GLS) program.
[F.1] URA rejected the sole bid for Tampines site
The same firm which was snubbed twice by URA this year, tried its luck again in August and put in the sole bid of $118 psf ppr for a 99-year leasehold plot at Tampines; and apparently despite the drastic change in the market climate, there was no change in the firm’s luck.
As such, it remains interesting to see whether the 1.39ha choice condominium site in Serangoon Avenue 3, next to the Lorong Chuan MRT Station will receive any bid, and if at all, the quantum of the bid price.
[F.2] Balestier hotel plot went on the cheap
In the first week of August, the URA awarded the Balestier Road hotel site to HH properties for $73.3 million or $172.09 psf which was below analysts’ earlier estimate of $350.470 psf.
The award despite the low bid could be because the URA has taken into consideration the high construction costs, and also due to the improvement plan the government has for the Balestier road area.
[F.3] SLA releases 8 infill sites for lease
Eight infill sites were offered by the Singapore Land Authority (SLA) for lease and the bidding was done on 28 August with a disappointing outcome. Usually, infill sites are released during a housing boom to ease the tension of low market supply.
However, the SLA seemed to have over-estimated the demand this time around. Only four of the eight sites were taken. The poor bidding result can be interpreted as a resounding pronouncement of the end of the property market boom.
Of the eight parcels, one received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily. BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold.
So, when it comes to property investment, it always boils down to three critical attributes, i.e. location, location and nothing but location.
[F.4] Lukewarm response expected for Mohd Sultan Road office site
The URA tender for the 0.62 ha office site at Mohamed Sultan Road is expected to receive a lukewarm response from developers due to the projection of four million sq ft of new office space to be ready in the Central Business District (CBD) by 2010.
Meanwhile, the URA also launched tenders for two industrial sites on the reserve list. This came after two developers applied to bid for the two 60-year leasehold sites. One of the firms has committed to a minimum bid of $10.8 million for the Kallang Pudding Road site; while another firm eyeing the Ubi Avenue 4 site has committed to at least $21.6 million bid.
(G) Overall performance of the HDB resale market
The Singapore government has announced a plan to allow owners of small flats who are 62 years or older to sell part of their flat’s lease, in excess of 30 remaining years, back to the HDB. The proceeds from the sale will go to a Central Provident Fund Life annuity plan, which gives the elderly sellers a stream of monthly payouts of $500 per month for retirement. With the remaining 30-year lease, the elderly owners will continue to stay in their homes.
About 25,000 households can sign up for the ‘lease sale’ scheme. Should the owners die prematurely; their estate will receive refund for the residual lease.
[G.1.] Flat owners enjoying spill-over from high private home rents
As rents for private homes in many popular private condo projects reached an unrealistic height, more expatriates are settling for cheaper alternatives of HDB rental flats.
Owners of four-room HDB flats set to gain the most from the current trend. According to HDB data, average monthly rents for 4-room flats have climbed from $1,600 to $1,750 – almost 10% rise in the previous three months.
Between April and June, eight out of every 10 towns saw higher rents for four-room flats, with Jurong East experiencing jumps of up to 21%.
The priciest place to rent a four-room flat is now Bukit Merah, where the average monthly rent is $2,300. Close behind are flats in the Central area, Toa Payoh and Bishan, which command $2,000 or more.
[G.2] Condo-style HDB flats at AMK four times oversubscribed
The recently launched Design, Build and Sell Scheme (DBSS) project Park Central @ AMK received over 2,300 applications - or four times the 578 units on offer. The average selling price for units in Park Central @ AMK is $490-$500 per square foot (psf).
This encouraging sign points to the underlying strengths in the demand for better housing in choice locations.
[G.3] Upside for HDB resale prices still good
Prices of HDB resale flats are still rising due to a number of factors:
§ the continuing demand from new families and permanent residents (PRs); and,
§ the economic uncertainties and the cautious mood in the private property segment nudging prospective condo buyers back to the resale flat arena.
In 2007, there were about 78,000 new citizens and PRs who may be buying HDB flats which they may not have been eligible to buy previously. Currently, there are no negative factors to prevent these new citizens and PRs from owning instead of renting the flats as rental prices are still high due to the continued arrivals of expatriates.
In the first half of 2008, the HDB resale prices had already climbed 8.2%. It appears that the resale prices will continue its upward trend.
To prevent a running away housing inflation, HDB will supply 8,400 new BTO flats for the whole of this year. This is an increase from the 6,000 flats offered last year and just 2,400 BTO flats in 2006.
[G.4] The overall performance of HDB resale flats in August 2008
The overall HDB resale transactions in August dropped to 2,186 from the previous month’s total transactions of 2,456. This could be due to the more subdued activities during the traditional Hungry Ghost Month on the Chinese lunar calendar and the generally higher asking prices by flat owners.
[G.5] Case study on Resale Price Trend
The sample group used in the Price Trend survey made up of the TOP 10 most populous public housing estates which happen to be the TOP best selling housing estates in Singapore.
§ [G5.1] The Findings of the Case Study
The case study has yielded the following observations:
(a) 3-Room Resale Flats
§ Smaller flats are definitely enjoying a very healthy up-swing in resale activities and prices. The total 3-room flat resale transactions in August 2008 were 10 better than the 652 transactions in July 2008. Obviously, it is due to more permanent residents (PRs) committing to ‘buying decisions’, rather than just renting the flats.
§ Seven (07) out of the 10 survey areas experienced price increases in 3-room flats; and the median prices of two (02) survey areas had the same median prices as the previous month. That means, only one (01) survey area experienced a dip in median prices for the 3-room flats there.
(b) 4-Room Resale Flats
§ The 4-room resale transactions drop more than 15% in August from the 910 transactions in July to only 769 deals in August.
§ Five (05) out of the 10 survey areas experienced higher median prices. Two (02) out of the five survey areas which did not experience any price rise had marginally lower median prices, such as Bedok’s median price for 4-room resale flats was $301,000 in July and $300,000 in August; while Jurong West had a median price of $282,000 in July and $280,000 in August.
(c) 5-Room Resale Flats
§ Though the 5-room resale transactions drop 15% in August from the 680 transactions in July to only 577 transactions in August, resale prices remain stable.
§ Eight (08) out of the 10 survey areas experienced higher median prices. Of the two (02) survey areas which did not experience higher median prices, Tampinese estate has the same median price; while Queenstown saw a drastic drop in resale prices in August, probably due to the already inflated resale prices there.
(d) Executive Flats
§ The executive flat resale transactions drop around 12% in August from the 214 transactions in July to only 187 transactions in August.
§ Resale prices remain stable with half the survey areas experiencing marginally higher resale prices and the other half marginally lower resale prices. This could be due to the fact that resale prices for E-flats had increased by a bigger quantum in the last few months.
Conclusion
Taken together, the case study ascertains that the resale prices of HDB resale flats are ‘steadily climbing and they fit a description of an up-swing market’. Though the volume of resale transactions had dropped, the resale prices are generally rising.
Monday, August 25, 2008
August Update.
Monthly Property Market Update for July 2008
Traditionally, July is a time for reflection. And when profit-making organisations are concerned, it is the time to balance the book and see whether the ultimate objective of business was met (or how much catching-up needs to be done). For the real estate sales industry, it is no different. Many official data is made available in mid-July to help all concerned parties in their performance analysis for the first half of the year.
July 2008 ushered in a mixture of both uplifting as well as dampening news, as the larger global economy is still on tenterhooks. The situation in the global financial market is extremely fluid, and volatility seems to be the order of the day in the stock markets all around the world. At times, it appeared like the entire stock market was going to crash land; but other times, it rallied like the sub-prime problems never existed in the first place.
It seems a foregone conclusion that the world economy is turning bad; but at this moment, it is still anybody’s guess as to the extent of the damage the on-going financial crisis has inflicted on the economy. The world is still bracing itself for some really bad news that might redefine the world order and the ultimate Who’s Who list. We just have to adopt an open mind that ‘anything is possible’.
The big picture of the larger economy
While the Singapore economy and the domestic real estate market fundamental remain resilient and generally sound, due to the openness, thus vulnerability, of the Singapore’s economy to the larger global environment, external events continue to dictate the market behaviours in the island city – be it the stock market movements or the buying behaviours in the new spanking show flats.
In order for me to provide a meaningful explanation of the current market situation it is worthwhile to look at the summary of the external events in July 2008.
US economy is growing – but do not read too much into the figure
After a GDP growth of 1% in the first quarter, the US government is set to announce another growth of 2% in the second quarter. Thus, a recession under the most common definition – two straight quarters of declining GDP – did not occur in the first half of 2008 – contrary to what many had deduced.
However, other qualitative indicators are showing damning evidence that all is not well for the US economy. Home prices are holding on to a slippery rope with a pair of sweaty palms, unemployment rate is growing like a genie freshly out of the bottle, and the stock market is rocking like a fishing boat caught in the perfect storm.
All these signs are pointing towards a strange situation whereby the US economy might be gaining fat but losing muscle.
In fact, the non-profit National Bureau of Economic Research (NBER) had said that the US has been 'sliding into a recession' since January 2008. NBER uses a different gauge to monitor the health of the economy. It looks for 'a significant decline in economic activity spread across the economy, lasting more than a few months'.
Those gauges include GDP, incomes, employment, industrial output and retail and manufacturing sales, and most of those gauges have been especially weak in recent months and some are in outright decline.
Recession in US looms larger as job losses continue
The US has suffered six straight months of job losses when it lost 62,000 jobs in June 2008. The number of unemployed people in the US now stands at 8.5 million. At the same time last year, seven million people were unemployed.
So far this year, a total of 438,000 jobs were lost – an average of 73,000 a month. Most of the jobs were lost in the following sectors, including construction, manufacturing, financial services and retailing. The small gain in education, health, leisure, hospitality, and the government sectors was not sufficient to compensate for the greater losses.
The Institute for Supply Management's index showed that the service sector, which has been a growth engine in recent years, fell to 48.2 in June from 51.7 in May. A reading below 50 signals activity is shrinking, while a reading above that suggests activity is expanding.
Furthermore, more write-downs by financial institutions in the US are expected in the coming weeks and many of them are expected to report greater losses. All these will drain the system of much needed capital. With less capital to go around, banks would be more weary of lending and ultimately it will impact on economic growth.
US billion-dollar bankruptcies highest since 2003
The ongoing US economic troubles have caused more firms with a billion dollar or more in assets to go bust. So far this year, a total of seven such companies have folded compared to only one in 2007.
And economists fear that more bankruptcy suits will follow as firms continue to reel in this difficult time.
Sales of existing US homes decline to 10-year low
The volume for resale homes in the US dropped 2.6% in June to 4.86 million, the lowest in 10 years. And the number of unoccupied homes stood at 18.6 million.
With unemployment rate rising to hit over 5% in the second quarter, coupled with low consumer confidence and the mortgage crisis that looked like a bad itch that just would not go away, the US residential property market looks likely to be in the doldrums for some time to come at least until 2009 or 2010.
Fed likely to keep interest rates on hold for a while
Economists are mostly in agreement that the US Fed will most likely maintain the interest rate at the current 2%.
Although there is a valid case for the Fed to increase the interest rate to beat down the menacing inflation, other tougher challenges may present a more pressing demand for the rate to remain at status quo.
Firstly, the economy is still fighting against the more dreaded situation, i.e. recession. A higher cost of using money might tip the sinking boat the wrong way.
Next, the tight credit situation and the on-going housing crisis, which has so far inflicted almost every other household in the US, call for a pair of steady hands to balance the delicate situation.
Last but not least, the easing of energy prices in recent weeks may be able to bring the much needed respite on inflationary pressure.
Oil prices start to fall and US dollar strengthens
As the US dollar begins to strengthen, the price of oil drops as investors moved their funds away from oil. The dollar traded at US$1.5688 to the euro recently, while against the yen, it appreciated 0.4% to 107.84 yen.
Since 11 July 2008, oil has fallen 16% and when asked if this will cause OPEC to cut down on production volume, an OPEC official said that it would be most highly unlikely. The top priority would be to ensure that supply could meet demand.
IMF pessimistic about US housing crisis
The IMF has warned that there is no end in sight to the US housing recession and warned that deteriorating credit conditions for consumers and banks may prolong a period of slow economic growth. And it stood by its April forecast of about US$1 trillion (S$1.36 trillion) in losses stemming from the US sub-prime mortgage crisis as foreclosures will continue to rise.
In this regards, it is worthwhile to look at the performance of Merrill Lynch which Singapore’s Temasek has recently injected more funds in bid to rescue the bank.
Merrill Lynch’s woes far from over
As expected, Merill Lynch's problem seems to be getting worst. Barely two weeks after announcing a second-quarter loss of US$4.9 billion and a US$9 billion write-downs, it has now said that it will take another huge write-down of US$5.7 billion for the third quarter. It also said that it will raise a further US$8.5 billion by issuing new stocks as well as selling a huge slice of its debt portfolio. In this regard, it has agreed to sell US$30.6 billion of collateralised debt obligations (CDOs), a kind of repackaged debt, to an affiliate of private equity fund Lone Star Funds for just US$6.7billion, or about 22 US cents on the dollar.
Merrill has lost US$19.2 billion in the past year alone and suffered over US$40 billion of write-downs. And it seems there is no end in sight for the beleaguered bank's troubles.
Singapore Temasek playing Santa Claus
Back in December 2007 Merrill had sold to Temasek some US$4.4 billion at US$48 a share but with a caveat that it would compensate Temasek should the share price fall.
After the months of free-fall in Merrill’s share prices, the US banking giant now had to compensate Temasek to a tune of US$2.5 billion which was taken out from the US$8.5 billion that Merrill had succeeded in raising in its latest share issue. Fortunately though, Temasek has agreed to plough back the US$2.5 billion into Merrill. The latest purchase will put Temasek’s share of Merrill to more than 10%.
Analysts said that for Temasek it is a sound strategic move to gain access into the US financial market and it is an opportunity that is not going to be repeated. For the long-term, this investment might just prove to be a very good one.
Singapore Central Bank up vigilant level
In an apparent move to cater to the volatility in the financial market, the Monetary Authority of Singapore (MAS) will allow more banks to access its standing facility. Despite the authorities’ denial that something ‘isn’t right’ in the financial market, such a forward planning does suggest that the financial market is not without some unusual challenges. Officially, the MAS explained that the standing facility is to strengthen Singapore's financial system as well as improve liquidity.
The Standing Facility allows banks to place excess funds with or borrow from MAS against Singapore Government Securities (SGS) collateral. It is currently open to the 11 primary dealer banks - the most active banks in the Singapore dollar money market, and non-primary dealer banks could access the facility through them. It will now extend the facility to all banks that are using the MEPS+ (MAS Electronic Payment System), which is a national interbank payment system that allows participants to make immediate settlement of funds and SGS transactions.
Singapore economy continues to grow
Economic activity continues to expand in Singapore despite all the uncertainty that prevails around the world. The overall expansion in May 2008 was driven by higher lending to businesses and consumers.
According to MAS data, bank lending for the month of May was at a record $256.9 billion, or 26.1% compared to the same month a year ago. And month-on-month, loans growth gathered momentum to reach 2.3%, a pick-up from April's indifferent 0.6% growth, due mainly to increased lending to the transport, storage and communication sector.
Despite the strong growth in the bank lending however, the MAS is unlikely to change its tight monetary to fight inflation. For example, the supply of money in the domestic economy actually dipped 1.2% to $314.5 billion at the end of May.
Central banks in most of Asia have been urged to tighten monetary policy, either by raising interest rates or allowing currencies to strengthen, to prevent runaway inflation.
Singapore capital markets raised $76b in net funds last year
The Singapore capital markets, where debts or equity securities are traded in either the stock market, bond market or the money market, had their good run for the money last year, raising $22.7 billion in the whole of 2007.
But the outlook for 2008 is not so rosy due to the global credit crisis. In the first quarter of 2008, the total net funds raised, including both the private and public sectors’ were only $14 billion. At that rate, total capital raised this year will never be able to match last year’s figure.
Net funds, including the private and public sectors', totalled just over $14 billion in the first quarter of this year, compared with last year's total of $75.6 billion [and the $40 billion raised in 2006].
However, the total assets handled by fund managers in Singapore grew 32% to $1.17 trillion last year, bolstered by a doubling in assets held by hedge funds. One reason is because Asia-Pacific continues to be a key driver of growth for the industry.
More home owners owing more than $1m
Another factor contributing to higher lending by banks, even though the number of first time home loan borrowers dropped, is the two-fold increase in the number of borrowers who owe more than a $1 million on their home loans. The number of such millionaire borrowers has doubled to 8,280 in April 2008, from 4,695 in May last year.
The property boom of 2007 and that higher transaction number of luxury apartments have contributed to the increase in loan quantum of individuals.
The good news from Credit Bureau is that the number of home buyers getting into problems continues to fall. In April 2008, 4,102 borrowers were delinquent or 1.42 %, down from 2.10 % in May last year.
The new challenge of higher jobless rate
However, with the weakening of the global economy and the uncertainties it brought, firms in Singapore are now more reluctant to hire as readily as last year. Herein lies the danger.
Singapore's jobless rate rose to 2.3% in the second quarter of the year compared to 2% in the first three months of the year.
The smaller percentage rise suggests that the labour market is still tight but is now proceeding at a more sustainable rate. This slight fall may indeed lessen inflationary pressure brought about the high costs of labour.
In general, while large scale retrenchments are unlikely to occur, the jobless rate may continue to rise in the coming months due to the uncertainties in the global economy.
Continuous challenges posed by inflation
The consumer price index (CPI) for June 2008 rose 7.5% compared to the same month last year. The index has been driven by a hefty rise in housing which rose 13.4% due to higher electricity tariffs, and higher food prices.
The high oil price has translated to a more costly transport and communication costs with that sector rising 5.1%. Meanwhile, healthcare too was getting pricier.
Analysts said that with this latest data, the government's projection of 5-6 per cent inflation rate for the full year will most likely be revised upwards to a more plausible 6.5%.
Condo land falling below building costs
Due to the breath-taking inflation, construction costs have now overtaken the land cost for some 99-year condo sites.
And with unit sale price set to drop further, developers may have no choice but to bid even lower for land to maintain their dwindling profit margin. However, whether the government is inclined to lower the prices of state land for sale remains t be seen.
Currently, developers are still bidding around the $200 psf to $250 psf price range for most mass-market condo sites. At this level, the break-even cost is around $650-$700 psf.
For medium-quality condominiums, the construction costs range from $260 psf to $320 psf in Q1 2008, and prices have risen further to $280 to $350 psf for Q2 2008. Construction costs are estimated to have risen 20% to 25% for Q4 2007 compared with the corresponding period in 2006 for average medium quality condominiums.
Government defers projects worth $1.7b
To ease inflationary pressure on the construction sector, which has been suffering from 20% to 30% inflation in the past year, the Singapore government has decided to shelf a total of $4.7 billion of public sector projects until 2010 and beyond. This includes the deferment of $1.7 billion worth of projects which the government has recently announced.
The move will allow construction resources to be used to ensure the timely delivery of big projects such as the integrated resorts, Marina Bay Financial Centre and the Downtown MRT line. Most should be finished by late next year.
This year alone, about $23 to $27 billion of construction projects are expected in Singapore, compared to $24.5 billion last year.
Singapore is getting dearer each year for expatriates
In a latest survey by Mercer, Singapore has been ranked as the 13th most expensive city for expatriates, and the fifth in Asia. This year's 13th ranking followed a 14th ranking last year. In 2006 it was ranked 17th and the previous year it was at 34.
The survey which covers 143 cities on six continents, measures the comparative cost of more than 200 items in each location, including housing, transport, food, clothing, household goods and entertainment. Singapore's relatively high rank is attributed to the appreciation of the Sing dollar and the inflow of foreign talents into the country which has resulted in the increased demand for transport and housing.
The overall performance of Private Residential Property segment
Apparently, investors and home owners alike continue to be ruffled by the global economic uncertainties and the soaring inflation which are short-changing exporters who transact in US dollars. The threat of insolvency is knocking on every exporter’s door, if the green back does not rebound quickly. However, economists are optimistic that the property market will not crash-land as the two upcoming Integrated Resorts (IRs) will provide the necessary support in terms of the demand for quality housing, and attracting related investments.
Singapore’s property boom fizzles out
After a spectacular 31% growth in 2007, Singapore's private home market appears to be fizzling out. Private home prices rose a mere 0.4% in the second quarter (Q2 2008), the slowest increase in four years. The Q2 growth was also much slower than the 3.7% increase achieved in the previous three months.
Prices of both apartments and condominiums rose 0.1% in Q2 2008.
Prices of landed properties rose 0.6% in the same period, compared with 3.9% in the previous quarter. Prices of detached, semi-detached and terrace houses rose 0.7%, 0.5% and 0.7% respectively.
Price growth in the various geographic sectors
Q1 2008 growth for Core Central Region (CCR) 3.8%, Rest of Central Region (RCR)
3.3%, Outside Central Region (OCR)3.8%
Q2 2008 growth for Core Central Region (CCR) - 0.1%, Rest of Central Region (RCR) 0.7%
Outside Central Region (OCR) 0.9%
In this respect, the following developments may have some negative impact on home prices in the mid-term of three to six months.
New homes launched with cheaper prices
One example is Dakota Residences at Dakota Crescent, a 99-year leasehold project by Ho Bee Investments and NTUC Choice Homes whereby 348 units are being offered at $950 psf compared to the targeted $1,000 to $1,100 psf.
While City Developments' (CDL) Shelford Suites in Shelford Road has also started previews for its 77 units at about $1,600 psf on average lower than the previous target of $1,869 psf and $1,905 psf.
Likewise, CDL’s 724 units, 99 year lease, Livia condo at Pasir Ris was launched for an average price of $650 psf in the second weekend of July 2008. Some analysts said the price was about 10% lower than what CDL would have offered 12 months earlier.
Developers Han Seng Juan and David Loh Kim Kang, soft-launched the 512-unit Kovan Residences at an average price of $850 psf.
Record home completion next year may dampen prices
According to recent URA data, about 13,400 new homes are expected to be completed next year, putting downward pressure on sale and rental prices.
One estimate said rents could fall by 5% to 10% next year. And in prime areas such as Orchard and East Coast, the effect could be worst with rents expected to fall by as much as 15%. This is because in East Coast, 3.341 new homes will be completed; while in Orchard, 4,240 new ones will be added.
Suburban areas could be spared because they are mostly owner-occupied.
Private home rents dropped marginally but transactions rose
According to URA data on private home rents, there were 193 condo projects with more than 10 new Tenancy Agreements (TAs) signed in Q2 2008, compared with 132 projects in the first three months of this year. This could mean that more TAs were signed in Q2 2008 than the previous quarter – due to lower rental prices.
When compared with Q1 2008, Q2 saw a healthy growth in the number of transactions for condo projects in popular locations. Let’s look at the rental trend from the same period last year.
§ In Q2 2007, there were 156 condo projects with at least 10 new TAs signed;
§ In Q3 2007, the figure went up to 202 projects with at least 10 new TAs signed.
§ In Q4 2007, rental transactions dropped sharply to 107 projects with at least 10 TAs signed, probably due to the widespread rental hike.
However, things have since taken a turn for the better. Since Q1 2008, the number of new TAs signed has improved steadily, reaching 138 projects with at least 10 new TAs signed. In Q2 2008, the number of condo projects with at least 10 new TAs signed within three months grew to 193 condo projects.
This means that the take-up rate for private rental properties remains healthy as Singapore continues to attract foreign talents to work and live here.
First half 2008 Private New home sales lacklustre
801 private homes were sold in June 2008 and 441 units in the preceding month. All in, the total sale of new homes in the first half was 2,311.
However when compared with the same time last year, the first half numbers amounted to just about a quarter of the volume in the same period last year. From the look of things, the full-year sales volume should be around 4,000-5,000 units, less than half the record 14,811 private homes that developers sold in 2007.
At end-June, there were 13,005 private new homes that have been held back from public launches from their developers. This figure is 20.5% higher than the preceding quarter and 68.5% higher than the 7,720 units as at the end of last year.
These units are in projects with the necessary approvals for sale - that is, they have secured sales licence and Building Plan approvals - and include projects under construction as well as those that have received Temporary Occupation Permit.
In addition, there were 3,209 [excluding Executive Condos] units launched but remained unsold at the end of June. The inventory is 40.3% higher than the figure in end-2007.
Private secondary home market huffed and puffed
The figures below show the similar lacklustre performances of the private secondary market as its primary market counterpart.
Prime property prices show first fall in four years
Prices for prime property are beginning to show signs of weakness especially in prime districts such as Districts 9, 10 and 11.
Outside the prime districts, capital values of freehold and leasehold non-landed resale residential units remained unchanged, averaging $750 psf and $610 psf respectively, holding steady at this level for three consecutive quarters after both sectors registered 7% increases in Q4 last year.
With the threat of inflation and an economic slowdown in the horizon, prices may drop further as developers try to rid of unsold properties by slashing prices. Furthermore, more people who had bought their units under the Deferred Payment Scheme (DPS) might offload their units so as not to overstretch their finances.
The performance of Non-Residential Property segment
Despite the uncertain economic future and the number of developments that will be coming on stream in the very near future, rentals for prime retail space along Orchard Road are expected to do well as location is the most critical success factor in retail sales and top brands are willing to pay a high premium for it.
Super-prime retail rents hit record $80 psf per month
One sector of the property market that seemed to be resilient is the super-prime retail space along Orchard Road. Super-prime retail space is defined as space facing Orchard Road or in atriums. The rentals for such prime retail space have hit a record high of $80 psf per month at Ion Orchard – the 325,000 sq ft upscale shopping complex. The sudden increase in the top rent has brought the average psf rent per month to over $40 – a new record.
Rents for retail space at Ion start at $20 psf per month for units at the basement levels, which will include F&B outlets and bridge brands.
Some retailers raring to go big in Ion Orchard – others fell casualty to high rent
Local retailers such as Club 21, Kwang Sia Fashion and Wing Tai have already signed deals to occupy 40,000 sq ft at between $20 psf and $80 psf per month depending on different attributes of the retail space.
Club 21 has already agreed on 22,000 sq ft for brands such as Giorgio Armani, Dolce & Gabbana, Marc Jacobs and Armani Exchange.
Kwang Sia, which manages the Hugo Boss franchise here, will open Max Mara, Max & Co, Dsquared and Boss Selection in Ion.
Meanwhile Wing Tai will close its Topshop/Topman outlet in Wisma next Thursday and re-open the store in the form of a 12,000 sq ft, double-storey flagship in Ion next year.
However, some top retailers have already fled the Orchard belt. For example, Belbon, the agent for luxury brands Jean Paul Gaultier and Kenzo was locked out of its two stores in Paragon Shopping Centre after failing to pay rents since 6 months ago.
As such, whether pay such a premium will be a folly remains to be seen.
Retail property market remains stable in Q2
According to a report by DTZ, retail property market remained stable in the second quarter due mostly to positive consumer sentiment and the Great Singapore Sale. Turnover rents rose but growth for fixed growth rents was limited.
First-storey monthly fixed gross rents remained largely unchanged quarter on quarter, hovering at an average of $42.40 per square foot (psf) for prime areas such as Orchard/Scotts Road, $33.70 psf in suburban areas and $27.10 psf in other city areas.
However, the future supply of about 5.4 million square feet of retail space from Q3 2008 to 2012 may put a lid on any drastic price spike. The retail space will be from projects such as ION Orchard, Orchard Central and Marina Bay Sands.
Business parks and high-tech sites gaining popularity
Riding on the back of a sizzling hot office rental market, rents in business parks and high-tech industrial sites are heading north as well.
According to a report by CB Richard Ellis, not only the occupancy rate for these sites is at about 90%, the rents have also increased by about 6.8% in May 2008.
The increasing popularity of business parks is due to companies shying from the over-priced downtown prime office space - some commanding as high as $16 psf per month.
Last year, prime office rents nearly doubled on the back of tight office space and a strong demand from occupiers, including global financial institutions expanding their operations in Singapore. This was on top of the 50%-plus rise that prime office rents registered in 2006.
And in order to placate this demand, more business park and other high-tech sites are being built in Singapore. Recently, two business park sites in one-north were awarded.
The performance of Collective Sales
All is quiet on the en bloc sale scene. Lately, all news regarding collective sales or collective sale sites were mostly negative. For example, some projects were being re-launched after many months of hiatus with markedly lower asking prices; many applications to the Strata Titles Board for sale orders were unsuccessful; and buyers of collective sale sites delaying the scheduled redevelopment works as well as postponing the marketing of the redeveloped sites. Below are some examples.
En bloc site re-launched with 40% lower price tag
A site at District 10 Robin Drive has been offered for a collective sale for the second time. This time though, the asking price is 40% lower than the previous price when it was first launched in December 2007. It is now priced at $956-$996 psf. This is indicative of the weak private residential market currently.
Meanwhile, Straits Trading is selling two blocks consisting of 38 large apartments in Gallop Gables. Situated off Farrer Road, Gallop Gables, which was completed in 1997, has seven low-rise blocks with 140 apartments in all.
En bloc sites buyers leasing back the units – stabilizing rents in the process
The move by developers to lease back en bloc units to existing occupiers in the en bloc sites instead of commencing construction has a calming effect to the existing tenants. At the very least, there is no urgency for the existing tenants to look for alternative accommodation amidst rising rents.
On the other hand, there will be more new condominium units receiving the Temporary Occupation Permit (TOP) from the final quarter of this year onwards. The twin developments will add further pressure on the downward trend of private home rents – and eventually the sale prices.
En bloc sale of Tampines Court cancelled
The Strata Titles Board (STB) has ruled against awarding an approval for the collective sale of Tampines Court citing the lack of good faith in view of the sale price and method of distributing the sales proceeds.
The minority owners who were against the sale had argued that the Sale Committee had not obtained an updated valuation when the deal was signed last year. The valuation used was dated from 2005.
Also they had argued that $405 million deal also involved an amount of $10 million called the beta sum that is meant to compensate owners for financial loss. This was unfairly distributed among owners at the discretion of the sales committee.
Foreign Interest in Singapore Real Estate
Despite the widespread turmoil in the financial markets all over the world which has seriously impacted the social-political situation in many regional countries, such as Malaysia, the pristine City-State of Singapore is a picture of calm, joy and positive vibes. Already touted as the safe haven for global funds, the aspiring international hub continues to draw scores of private bankser, wealth managers, fund managers and financial consultants to set up the vantage point here before venturing into the highly volatile regional market.
Private equity real estate funds in Asia still booming
Continued to be spooked by the never ending revelations of bad news in the United States and Europe, private equity real estate funds are rushing to Asia with suitcases bulging with cash.
So far, a total of 13 new Asia-focused private equity property funds have been set up here in Singapore since March 2008, and they have raised a combined US$13 billion. It is estimated that a haul of 78 funds will be achieved by year end and the estimated combined funds to be raised will be in the neighbourhood of US$81 billion for Asian property investments.
Foreign interest in Singapore commercial properties
Foreign funds continue to pick up good quality commercial properties in Singapore.
A Hong Kong investor is believed to have bought Wisma Sugnomal at 75 High Street for $23.5 million or $1,349 psf. The seven-storey office block, which has shops at street level, is about 12 years old.
Lum Chang Holdings announced that it has sold all 16 units of its refurbished 2 Belmont for a total sum of $65 million or $1,600 to $1,700 psf to 3 Singapore firms controlled by Indian investors.
The property, formerly known as Belmont Gardens, was bought for $22 million in 2006. Since the site is located in a designated Good Class Bungalow (GCB) Area, this means that if the property is completely torn down and the site redeveloped, it can be redeveloped only into GCBs, accommodating perhaps three bungalows at most given the minimum GCB plot size of 1,400 sq m (15,069 sq ft). So it made more sense for Lum Chang to refurbish the asset instead of redeveloping it.
News on Government Land Sale (GLS) Programme
The response to the Government Land Sale (GLS) Programme often acts as the barometer of the general health of the real estate market. The number of bidders and the quantum of the competing bids in each GLS exercise are a direct reflection of the on-going market sentiment and the developers’ confidence in the near- to mid-term prospect of the property market.
URA awards Woodlands site to Soilbuild
The Urban Redevelopment Authority (URA) has awarded a Woodlands industrial site to top bidder Soilbuild Group Holdings - two days after the tender closed on 22 July, with a bid of $13.61 million or $30.10 psf.
The 180,835 sq ft site, at Woodlands Industrial Park E5, comes with a 60-year lease and development costs are expected to be around the region of $35-$40 million. The site is expected to be completed in 2010 and is targeted at Small and Median Enterprises (SMEs).
Meanwhile, for a tender last week for a hotel site in Balestier Road that drew three bids - all below market expectations - there is no announcement yet from the URA on its decision.
Developers are stalling construction due to higher costs
According to URA data, 46,480 private homes are expected to be completed between Q3 2008 and end-2011. This figure is 18% – or 10,021 units – lower than the figure of 56,501 units slated for completion between Q2 2008 and 2011 listed in URA's Q1 data.
Notwithstanding this, URA highlighted that the total supply of new private homes in the pipeline stood at 67,569 units as at end–Q2 2008 – about the same as 67,736 units at end–Q1. However, more of these units may now see completion after 2011.
The double whammy of rising construction costs and faltering sentiments have apparently caused some private residential property developers to delay their projects.
Overall performance of the HDB resale market
According to URA figures, the prices for HDB resale flats were up 4.5% in Q2 208, after increasing 3.7% in Q1 2008. The resale transactions grew 22% to reach 7,760 in Q2 2008.
July started promisingly and ended with a bang with a total resale tally of 2,456 – the highest one-month sale since December 2007, and the third highest since January 2007.
The above table shows that, in terms of resale transaction volume, it is all the way up, especially for the bigger flats.
It is worth noting that for the first time in many years, the transaction volume of Executive Flats has crossed the important 200 mark – reaching 214 transactions in July 2008. The increase in the transactions of bigger flats is often underpinned by a robust economy where the average Joes are enjoying good runs in wage increases. Despite the increase in the unemployment rate, new wealth is being created in many new frontiers such as private banking and wealth management which might well replace the traditional growth engine such as manufacturing.
HDB resale flat buyers paying lower Cash-over-Valuations (COV)
In Q2 2008, buyers of resale flats in popular locations paid lower COV, i.e. $1,000 lower than the first three months of the year. When compared to the COV portion of Q4 2007, the savings was $22,000 cash. Last year, it was not uncommon for buyers to pay between $80,000 and $100,000 in COV.
One of the reasons for a lower COV in Q2 could be the higher market valuation of resale flats. However, there would still be rare occasions where the buyers paid extremely high COV probably due to the limited supply of flats in choice location such as Marine Parade and Bukit Timah. For example, a buyer paid $93,000 COV for a 5-room flat in Toh Yi estate.
Another reason for a higher valuation is the responsiveness of the HDB resale unit in releasing the transacted prices via the HDB Info-Web. Nowadays, successful transacted prices are released publicly via the Info-Web upon the first appointment date of the transactions. This makes the sale data more current, and as a result the valuers are able to give a better estimate of the current market valuation of the flats being marketed.
More Permanent Residents are buying HDB resale flats rather than renting them
According to the Department of Statistics, Singapore's PR population rose from 287,500 in 2000 to 386,800 in 2005. And this will underpin the demand for HDB resale flats in the near- to mid-term.
In recent months, as much as 20% of resale flat buyers were PRs compared to a mere 5% two years ago. Last year, 29,436 resale flats changed hands. If the volume holds for this year, it will mean about 6,000 flats could be snapped up by PRs. About 70% of the PR buyers are from China and India with the rest from countries such as Malaysia and the Philippines.
With the spiralling rents, it simply makes more sense to buy. For example, rents for a four-room flat in an established estate ranged from $1,000 to $1,200 two years ago. Today, they are $1,800 to $2,000.
Subscribe to:
Posts (Atom)