Monthly Property Market Update for JUNE 2008.

Introduction
June 2008 was overshadowed by the media hype of a number of public launches of mid-market new home projects such as Dakota Residences, Clover by the Park, Parc Sophia and the high-end Nassim Residences.

The URA’s announcement of the 55% jump in the sale of private new homes in the preceding months added some dressings to the shop-window, but to the initiated, the underlying truth is not as ‘Ra Ra’ as that on the surface. This is because the huge percentage increase was a result of a very pathetic showing in the preceding months.

There is definitely some media hype being built up in the past weeks to dilute the fact that seller’s price have been shaved off some 10% to 15% and more new projects to be launched soon will come with more humble price tags. While the market forces are being played out, it won’t hurt to bring in some drum beats.

Private property prices may have reached its plateau

In terms of prices, the price growth in Q2 2008 was much slower than Q1 of this year.

For the first time since the second quarter of 2007, private residential property price growth has almost halted for CCR and RCR. Even though prices in OCR have appreciated, they are actually crawling out of the valley as this particular region had missed most part of the bull-run last year, for example, some new private condo projects in Bukit Panjang, Sengkang, Yishun areas did not do very well since the middle of 2007.

In short, June 2008 may mark the beginning of a slower growth phase with a probable gradual decline in price trend. This may trigger off the ‘competition to sell’ among housing developers in Singapore as more completed new homes are available for occupancy.


(A) Uncertainties reign in the larger market

The global situation, especially the decline of the US economy and the soaring food and oil prices, remains the vital factor affecting the property market performance in Singapore. June ushered in some mixed indicators which, taken together, provides a blurry, wobbly and ‘out-of-focus’ image. In short, the market prospect is still uncertain in many ways.

The ongoing energy crisis and massive inflation have definitely plunged the world into a greater depth of chaos in June this year. Most legitimate governments in the world, from the US to England, PRC China to South Korea, and from Thailand to Indonesia are facing mounting pressure every each day from their own people stricken by soaring food and energy prices. Singapore is perhaps the only exception - this is a place where calm and reasons prevail. TV images of fare cheats being caught at MRT stations presented a sharp contrast to all the video footage of unrest and chaos in the rest of the world.

In June, Singapore witnessed the record-breaking CPI inflation figure standing tall at 7.5% while the mass transport companies are stretching out the long arm of the law rounding up all fee dodgers (also called fare cheats) with a strong sense of mission. The ironic picture tells not a thousand but just three words, that is, ‘times are bad’ – even for the big boys.

Here are some market highlights in June that may provide the cues for the property market direction in the near term.


(A.1) Worries of poor corporate earnings due to inflation sidelined fund managers

A Merrill Lynch global survey released in June showed that the vast majority of fund managers believed that inflation is the greatest single threat to financial market stability.

As the fear of stagflation – defined as massive inflation during a period of economic stagnation – gains currency, fund managers are moving away from the stock markets and preferring to hold more cash in hand. This is because a majority of the fund managers believe that corporate earnings would be hard hit if the current situation persists.

In the survey, 27% of fund managers said that stocks are overvalued compared to only 5% in March 2008. Compared to 25% in March, only 1% said that stocks were undervalued.

The Asian stock markets have been particularly hit by such apprehension as US$4.66 billion (S$6.4 billion) of Asian stocks have been dumped by the foreign fund managers.

Shanghai has been the worst hit with 46% of its capitalization wiped out. Only less than 8% of the stock punters there had made money this year. Singapore is the second hardest hit with 13% of shares value wiped off.


(A.2) Top of US government’s worries are oil prices and inflation

The US Federal Reserve Chairman, Ben Bernanke is a worried man. While it is very clear that there will not be any further rate cut or hike, Bernanke warned that economic activity will still be weak in the second quarter of 2008.

The unemployment rate hit 5.5% in May and rising oil prices are putting pressure on growth and causing the very severe inflation to spread. While the US$168 billion stimulus package is said to have eased the credit crunch and housing woes, the Fed Chairman said that the government will continue to monitor and take remedial actions when necessary.


(A.3) Job layoffs amidst uncertain global outlook

Domestically, a cause for worries is the number of layoff from the high-value manufacturing sector. Though more new jobs are created, they are in the low-value-adding construction sector which employs mostly foreign construction workers.

The latest job figures released by the Ministry of Manpower (MOM) confirmed the state of flux in the Singapore job market.

In March the unemployment rate was 2%, up from 1.7% in December 2007 whilst job vacancies jumped from 37,400 to 38,200 in the same period.

At the same time, a still tight labour market pushed nominal earnings in the first quarter of 2008 (Q1) up 11% over the year - much higher than the 4.3% in the preceding quarter (Q4 2007) and 5% in Q1 2007.

MOM also added that employment continued to expand strongly in a healthy economy, but were cautious about the future due to an uncertain outlook.

(A.4) Capital inflow to Asian real estate to continue

However, there is some good news. Spooked by the grime prospect of the housing crisis in the US and UK, many overseas real estate funds are heading towards Asia. A recent report by KPMG noted that the inflow of capital into Asia's real estate market is accelerating and the momentum will continue due to higher returns in Asia.

Total investment in the region has continued to increase, growing by over 27% in 2007 to reach US$121 billion with Japan grabbing half of the pie and China following close behind.

Japan accounts for half of 2007’s real estate transactions and China continued to produce attractive returns for investors.

(A.5) Singapore ranked world 6th in fastest growing millionaires

A report by Merrill Lynch and Capgemini showed countries in Asia and the emerging markets have been ranked in the top ten as having the fastest growing wealthy population in 2007 with Singapore coming in sixth. The report tracked the wealth of the world's high net worth individuals - defined as those with investible assets of US$1 million.

For Singapore, the report finds that the number of Singaporean wealthy individuals rose 15.3 per cent to about 77,000. The average wealth per individual is estimated to have risen from US$4 million previously to US$4.9 million. This is higher than the global average wealth per high net worth individual (HNWI) of about US$4.04 million.

As for the type of investment, the report pointed out that more and more of the wealth are being placed in cash and fixed income assets. The expected economic slowdown has caused the wealthy to move away from parking their money in real estate and towards currencies.

Though not entirely good news, it at least provided clues that the HNWI may return to real estate investment in near term when the financial crisis has been resolved.

(B) Private property sales in Singapore

As pointed in the opening statement, Singapore is a picture of calm amidst the turmoil and unrest in other countries. The buying sentiment is likewise calm in the second quarter with the total sale figure standing at 3,027 residential units transacted. Given the time lag of around two to three weeks for caveat information to be available, the second quarter residential sale performance would very likely mirror the 3,200 transactions in the first quarter of 2008. In other words, despite the media hype surrounding the supposed successes achieved by the recent launches of a few mid-market home projects, the volume of private property transactions was actually very subdued in the second quarter.

Below describes the market performance of the various different property segments.

(B.1) Performance of big-ticket properties
(a) Investment sales

Total investment sales of Singapore real estate had dipped to $3.7 billion in Q2 2008. In Q1 2008, the volume of investment sales stood tall at $8.9 billion. The hefty 58% slide reflects the gloomy confidence in the property sector.

Investment sales are defined as deals with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.

(b) Good Class Bungalows (GCBs) sales

A total of 23 GCBs have changed hands so far this year for a total of $380 million. It is generally expected that there will be around 50 to 60 GCBs transactions for the whole of this year as the economy continues to stay on course for another year of moderate growth [See Annex A for an article on High Net Worth Individuals].

The estimated number of GCB transactions is lower than the 87 GCB deals totalling $1.15 billion transacted in 2007. In 2006, a total of 119 GCBs worth $1.23 billion were transacted.

(c) High end luxury apartment sales

At least 50 luxury apartments costing above $10 million each have been sold so far this year. So far, the highest-priced transaction is a $19.7 million ground-floor unit sold at Nassim Park Residences in June 2008.

The 50 transactions of high end apartments include units sold at Nassim Park Residences, Cliveden at Grange, The Tomlinson, The Grange and The Orange Grove condos.

From the look of it, this year’s transactions of luxury apartment is unlikely to follow last year’s act of 139 transactions.


(B.2) Private new home prices easing

The ominous sign of a fierce ‘competition to sell’ has emerged. Major developers have started slashing prices to off-load the high inventories of unsold new homes.

(a) High end projects

The more noticeable price reduction is seen at the Nassim Residences – one of the most prestigious addresses in Singapore. In June, 39 of 70 units launched were sold at a median price of $2,929 per square foot (psf). This is a far cry from the average $4,000 to $4,500 psf achieved by the Orchard Residences a year ago when the property market was red-hot.

(b) Mid-market projects

At the mid- range market, other examples include District 14 Dakota Residences in Dakota Crescent and District 10 Shelford Suites.

Units at Dakota Residences, a 348-unit 99-year leasehold project by Ho Bee Investment and NTUC Choice Homes are being offered at $950 psf compared to the targeted $1,000 to $1,100 psf.

Shelford Suites in Shelford Road by City Development Limited (CDL) 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.

(c) More mass-market projects to be launched with reduced prices

With the help of the media hype, more developers are bringing out their armours from their closet before releasing more reduced-price mass to mid-market condo projects.

In the pipeline is Livia by CDL, a 740-unit condo in Pasir Ris which analysts are expecting to be offered at below $700 psf.

Also in the pipeline is The Dakota in Geylang. The 348 unit condo is expected to be priced at below $1,000 psf.

(B.3) Developers turn landlords as rents and construction costs stay high

A new trend has emerged as a result of the property market slowdown. Some developers, who had bought en bloc sites but are now postponing any redevelopment until the market has picked up again, are leasing out the properties in the interim.

This situation has been prompted by three separate market developments coalescing together, i.e.

1) the market is still in demand for rental property with good qualities, such as convenient location, proximity to international schools, proximity to the Central Business District (CBD) and Orchard Road area etc. 2)rental income is still very strong [See Annex B for current rent figures]
3)the construction costs have soared to an unbearable point

For example, Koh Brothers who bought Lincoln Lodge for $243 million in June last year, decided to lease out the units for 6 months and thereafter on a monthly extension basis for about $2,700 to $4,500 per month.

Likewise, other major developers are also offering the rental option to their en bloc site sellers. GuocoLand offered residents short-term leases at Sophia Court in Adis Road last year, followed by Leedon Heights off Holland Road earlier this year. Frasers Centrepoint said it may offer short-term leases to the former owners of the 185-unit Flamingo Valley, a freehold site in Siglap Road that it bought for $194 million in February last year. And City Developments (CDL) has said it is still exploring the renting option.

(B.4) Foreign buyers still buying into Singapore success story

A recent study has noted that foreigners (including permanent residents) accounted for 28% of overall private home purchases in Q1 2008, up slightly from a 27% share in the preceding quarter. This shows that interests coming from overseas are still strong and this finding gives a shot in the arm that is badly needed. The foreign buyers never give up Singapore.

Indonesians and Malaysians continued to be the biggest buyers, accounting for 18% and 15% respectively of private homes bought by foreigners in Q1 2008.

More buyers from India are buying Singapore real estate, accounting for 14% in Q1 2008. Their share of the purchase was 11% in Q4 2007. Koreans' share slipped from 8% to 5% over the same period.

[See A4 for inflow of overseas real estate funds into Asia]


(C) HDB resale transactions in June


While the private property prices appeared to have peaked, the HDB resale prices are boarding a north-bound train – going up. In the flash estimate of Q2 2008, which HDB recently released, it showed that the resale prices had increased 4.4% over Q1 2008. This is slightly higher than the 3.7% increase in Q1 2008.

(C.1) Both HDB resale volume and prices inched up

The HDB resale market had a better showing this June with 79 more resale transactions over last month. The bigger flat types did slightly better than last month, especially E-flats which have been on a steady climb since February this year. However, prices of E-flat have moderated somewhat probably due to the weakness in the private property sector and more realistic demands from the sellers.

This means that the increase in HDB resale prices have come from other flat types. This may mean that demand for resale flats remains strong while supply remains constant.

When transactions remain stable over a period of time such as from April to June, resale prices have edged up. It means that, on the average, the demand over the existing supply has increased.

Annex A
Singapore is world 6th fastest in having High Net Worth Individuals (HNWI)

A June 2008 report by Merrill Lynch and Capgemini showed that Singapore is ranked within the Top 10 countries in the world as having the fastest growing population of High Net Worth Individuals (HNWI) in 2007. HNWI is defined as individuals with investible assets of US$1 million, excluding the property they are living in.

The number of Singaporean wealthy individuals rose 15.3% to about 77,000. The average wealth per individual is estimated to have risen from US$4 million previously to US$4.9 million. This is higher than the global average wealth per high net worth individual (HNWI) of about US$4.04 million.

Globally, the combined wealth of the world's HNWI rose 9.4% to US$40.7 trillion in 2007 which is lower than the 2006 growth of 11.4%, due partly to a slower pace of world economic growth.

The report ascertained that more and more of the wealth are being invested in cash and fixed income assets. The expected economic slowdown has caused the wealthy to move away from parking their money in real estate and towards currencies.

Annex B
Current apartment rents

A quick check with recent transacted rented properties reveals that as of July 2008, rental prices still hold firm and given the shortage of quality rental projects, residential rents look set to sustain their strong position for at least another six months.

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Monthly Property Market Update for May 2008

May 2008 was an uneventful month as the same old story of ‘uncertainties in the global financial market’ was replayed again and again. The buyers continue to adopt the ‘wait-and-see’ attitude while the developers continue to hold back launches. While waiting for a new market impetus and direction, the market looks set to slide into oblivion in June 2008.

(A) Uncertainties reign in the larger market

Singapore economy faces triple threat

The Ministry of Trade and Industry (MTI) has recently expressed concerns that the economy is facing a threat from three areas, i.e. rising inflation, slower growth and weaker exports.

Rising global oil and food prices will have a significant impact on Singapore’s inflation whilst the economic crisis facing Singapore's major export markets such as US and Europe will affect our exports and growth. At the time of this report, oil price was hovering between US$120 and US$124 per barrel.

Consequently, the Malaysian and Indonesian governments took drastic measures to reduce state subsidies on petrol prices, causing pump prices to shoot in the two countries. In the case of Malaysia, the increase in pump prices is a hefty 40%.

As it is, the inflation risks in Singapore had overtaken slowing growth as the main worry for the government. The MTI had maintained its economic growth forecast for this year at 4% to 6%.

Regional instability may impact Singapore’s real estate market

The Malaysian government suddenly announced a 40% increase in pump prices, triggering widespread unhappiness. Earlier, the Indonesian government had also withdrawn the state subsidies on petrol prices, triggering massive student protests. The chain of events is significant to the Singapore real estate market as the citizens of both the regional neighbours make up slightly more than 40% of the total number of foreign buyers of Singapore real estate, especially in the high-end property segment.

The current disquiet may develop into large scale anti-government movements that may even topple a government – very much like the situation in 1998 where President Suharto was sidelined amidst widespread unrest. What follows is usually a period of great uncertainty and violence that will prevent the free flow of investment money into Singapore. At the rate oil prices are rising, the probability of the ‘worst case scenario’ cannot be ignored.

PM Lee said slowdown may stretch into next year but MAS disagreed

At first, Prime Minister Lee Hsien Loong sounded rather pessimistic about the immediate economic prospect. But three weeks later, the de facto central bank of Singapore the Monetary Authority of Singapore (MAS) issued an optimistic statement saying that the ‘slowdown’ is unlikely to be significant

The central bank insisted that there were robust expansions in both the domestic and offshore banking segments. Commercial bank loans continued to record strong growth, with firm gains across most non-bank customers, particularly building and construction. Also looking rosy is wealth management and domestic loans sector.

However private analysts are more cautious saying that if the credit crisis is not solved soon, even these sectors will be impacted.

PM Lee sees the economic momentum slowing in the next few quarters as the US economy struggled to stay above the troubled water of the sub-prime mortgage problems.

However, PM Lee acknowledged that whatever happens in the US downturn, the impact on the Singapore economy will be uneven. He pointed out that construction, marine engineering, ports and shipyards will be 'all right'; but tourism, financial services and information technology may not be as lucky.

The discrepancies between PM Lee’s and MAS’ statements best summed up the current market uncertainties.

Financial gurus’ take on the on-going crisis in the US

The following gurus have recently given their thoughts on the US situation.

· George Soros
George Soros believes that the 'acute phase' of the financial crisis is 'largely behind us', even as the US economy is only now starting to feel the effect.

The damage done to the global financial system has to affect the real economy but the effect of that is only beginning to be felt as there is a certain time lag.

· Jim Rogers
Separately, renowned investor Jim Rogers warned that the credit crisis 'isn't halfway through' and there may be more write-offs from European and Asian banks.

He added that considering the scale of the credit bubble that burst, it would likely take years to 'clean it up'.

· Alan Greenspan
Earlier, Mr Greenspan doubted there would be an immediate recovery, saying stagnation for the rest of the year was the most likely outcome. The economy would not start turning around until home prices started settling and eased pressure on finance companies to write off mortgage-related losses.

· Warren Buffett
Investment guru, Warren Buffett has said that the United States is already in a recession, though the pattern of the decline does not conform to the traditional definition of an economic recession which is two consecutive quarters of negative growth.

He added that this recession will be longer and deeper than what many people expect.

A quick review of the aftermath of the sub-prime mortgage crisis

There has been a prevalent belief that the impact of the sub-prime mortgage crisis is still not at its hardest and the worst has yet to come.

The summaries below will shed some light on the full impact of the crisis [for those who are interested in the details, they are in Annex A]:

(a) First of all, the foreclosure rates in the US are still at its highest and will continue to pose great danger to the US economy. [Annex A.1]
(b) Major banks, such as Citi and UBS are either offloading assets or laying off staff to cut costs. [Annex A.2 and A.3]
(c) Investors are staying away from US real estate. [Annex A.4]
(d) Perhaps the most serious of all, major banks are camouflaging their losses in the books. [Annex A.5]

A new world order creates the newly rich

A joint study conducted recently by the Citigroup and international property consultant Knight Frank ascertained that the soaring prices of natural energy and food have created many multi-billionaires despite the on-going credit crunch. And the good news is: they are buying more properties across different continents.

The report ranks high net-worth individuals in four categories - those with US$1 million to US$10 million; US$10 million to US$100 million; US$100 million to US$1 billion; and more than US$1 billion.

The study found that 15.7% of the entry-level high net-worth individuals own four or more homes. One notch above, 23.3% of those with US$10m to US$100m in wealth own as many homes. As the wealth increases, the individuals own more homes, with 31.5% of the third category and 60% of the wealthiest category owning four or more homes.


(B) Private property sales in Singapore

Developers face higher funding costs

Banks are lending less against the value of new projects. Before the US sub-prime mortgage crisis broke, property companies in Asia could borrow at spreads of less than 100 basis points or one percentage point above interbank lending rates. But now banks are quoting 200, 300 and for some smaller developers they are being quoted 400 basis-point spreads.

What this means is that developers will have to pay higher interest rate on loans.

Price correction for private homes appears to be on the card

A pessimistic economist from the Barclays Capital thought that this is the beginning of a multi-year price correction. He reckoned that the private residential property prices could easily fall by up to 30% by 2010.

A property review conducted by Credit Suisse in May 2008 saw rents and property prices falling even more steeply by as much as 40%, and downgraded its investment recommendation for the sector to 'underweight'.

[Full details in Annex B]

A number of high profile transactions of luxury properties – a sign of things to come?

There is some good news in the high-end market in May 2008. There were some high profile transactions in the high-end segment which may signal the end of the drought; and here are the numbers:

· Four bungalows near Eng Neo Avenue were sold for $5.5 million each at a preview on 9 May. The $22 million transaction works out to $1,128 psf of built-up area.

· A penthouse at The Grange was sold for 11 million recently.

· The first high-end condo project, Nassim Park Residence, that has been released this year has achieved good supports from buyers who snapped up 38 units [out of 100]. The project in the prestigious Nassim area has reportedly bagged a whopping $10 million or more for each apartment. Each unit is believed to be priced upwards of $3,000 psf.

Singapore luxury homes ninth most expensive globally

At about US$2,423 per sq ft, luxury homes in Singapore are the second most expensive in Asia and the ninth most expensive in the world.

At US$4,507 psf, high-end apartments in Hong Kong are the most expensive in Asia; while London is the most expensive place on earth to own a luxury residence at an average of US$6,191 psf.

(C) Non-residential properties and the rental market

Sales of strata offices down, may fall further

With only eleven transactions, sales of strata-titled offices have dropped considerably in 2008 so far. While prices are holding up for now, there are telltale sign to suggest that prices might start to ease in the coming months. For example, at International Plaza, the average price of units sold in January to March 2008 was $1,375 per sq ft (psf), down from $1,449 psf in the previous three months.

The slowdown in deals comes despite a continuing shortage of office supply, which helped boost sales and prices of strata office units to record highs last year. Some $1.7 billion of offices changed hands last year.

Rental continue to hold up

A telltale sign to suggest that the rental market is still holding up is the recent rental transaction at Seletar airbases vicinity. Rents there have almost doubled for the 131 units that will remain intact in the former Seletar airbase after the area has been earmarked for redevelopment into an aerospace hub in 2018.

Of the 378 Seletar houses, 131 will be retained as homes, and as a result the rentals for these houses have soared. In one such case, a two-storey terrace house recently attracted a bid of $5,000 - more than three times the guide rent of $1,500 set by the Singapore Land Authority (SLA).

Across the nation, rental rates jumped 69% between the first quarter of 2006 and the first quarter of this year.

Sale of NTUC Income Beach Road Property keenly watched as market going through lull

NTUC Income is selling Beach Junction, a small 999-year leasehold commercial property in Beach Road that could fetch around $24 million to $26 million.

New investors or owner-occupiers will also be able to give the building a new name.

The six-storey development has a net lettable area of about 19,000 sq ft and is fully tenanted. It is expected to worth about $1,300 to $1,400 psf. Many analysts are watching this closely as a gauge of sentiments in the commercial property market.

Real Estate Investment Trust (REIT) market may see some M&A or privatisations

As the market for listed property trusts in Singapore matures, analysts are predicting that some will merge or go private. One analyst went as far as to say that there are three to five Reits in Singapore that seem obvious for acquisitions or privatisations.

One reason why consolidation has not happened is that private equity funds, which could help engineer some of these deals, might be 'all cashed out' due to the global credit squeeze.

(D) News on En bloc Sale

There have been no new en bloc projects being introduced into the market.

Developers renting rather than building new project on en bloc sites

Due to the market weakness, some developers have decided to ride out the lull by putting up those en bloc sites that they have earlier acquired onto the rental market for income, rather than launching them for sale.

This is another evidence that the developers are feeling the pinch of the current weakness and are improvising in the interim.

(E) Foreign interest in commercial buildings in Singapore

Underpinning foreigner’s confidence in the Singapore success story, foreign funds are still buying up commercial properties in Singapore. On top of that, one of the international consultancies has restored its agency arm and repositioned itself in the new home market segment as it sees the potential in the new home sale market in the mid-term.

Beach Rd building sold for $70m

An Irish private equity firm and renowned international interior design firm Hirsch Bedner Associates have bought In-City Lofts at 700 Beach Road for $70 million. A further $3.5 million will be invested to upgrade the eight-storey building into a boutique office block and renamed 700 Beach.

The building is located between Golden Mile Tower and Golden Mile Complex and it has 8,500 to 12,000 sq ft floor plates and when the refurbishment is completed in August this year.

JLL re-entering housing project sales business

After seven years of absence from the new home sale market, Jones Lang LaSalle (JLL) has re-entered this market and clinched appointments to market Floridian, a 336-unit freehold condo development in Bukit Timah by Far East Organization and Wing Tai Holdings, as well as Lippo's Centennia Suites at Kim Seng Road. It is also marketing 34 units at the completed 99-year leasehold Amaryllis Ville condo in the Newton area on behalf of Goodearth Hotel group of Australia.

A spokesman of JLL said that the firm sees the huge upside for the private new home market which will be brought about by a vibrant and glossy economic prospect with many global events converging in Singapore in near- to medium-term.


(F) News on Government Land Sale (GLS) Programme

Plot ratio increases not needed for now

Minister for National Development Mah Bow Tan said that the government have no plans to increase the plot ratios despite the projected increase in population to 6.5 million people in the long term.

In fact, the new Master Plan 208 has plan for fewer homes. It allows for 327,200 new homes in Singapore. Whereas, the previous plan, MP 2003, allowed for 371,000 homes, 13.4% more than MP 2008.

URA added: 'In the medium term, around 350,000 dwelling units is a comfortable, reasonable number for land safeguarding purposes, which still allows some flexibility to meet market demand. Both MP 2003 and MP 2008 have safeguarded about 350,000 dwelling units.'

An extra 900 hectares of land added for park space in MP 2008 suggests Singaporeans will not be crowded out soon.

(G) News on HDB Resale Market

The HDB resale market had a relatively quiet month with only 2,179 transactions, as compared with 2,339 transactions in the previous month. Likewise, transacted prices have also dipped.

Sign of resistance spotted in HDB rental market

Although the rents for HDB flats are up due to the spill-over demand from private home market, property analysts do not expect price to rise much further.

Rents for some executive flats in Queenstown have gone as high as $2,900 a month, a price previously seen only with private apartments.

An analyst however quipped that although demand will continue to rise mainly because of the continuous influx of foreign talent, especially with the upcoming casino and international events such as Formula One, rentals are unlikely to surge from current levels as there are already signs of some resistance.

Case study of transacted prices of E-flats in Tampines over the past 5 months

A ‘thin slice’ of transactions was taken from the past 5 months of transactions of E-flat in Tampines for comparison. It is clearly shown that the transacted prices of E-flats have risen from the early part of the year, peaked in March 2008 and began its decline from April 2008 onwards. The drop was quite significant in May in the highest price category, suggesting that buyers in general are not willing to pay higher for older flats.

Annex A
News articles related to the impact of the US sub-prime mortgage crisis

(A.1) High foreclosure rates hurt broad economy: Bernanke

Federal Reserve Chairman Ben Bernanke warned that the rise in late mortgage payments and home foreclosures poses considerable dangers to the US economy and wants congress to take action.

Some 1.5 million US homes entered into the foreclosure process last year, up 53% from 2006 and the rate of new foreclosures looks likely to be even higher this year.

The current housing crisis has left them with mortgages that are bigger than the value of their home. When that's the primary problem, Mr Bernanke said the best solution may be reducing the amount that the borrower owes on the loan or some other permanent modification to the loan.

(A.2) Citi to sell up to $550b worth of assets

Citigroup has planned to offload US$400 billion (S$550 billion) of assets – 20% of its total - over the next two to three years for the sake of efficiency and profitability as a result of the credit crunch.

Its CEO, Vikram Pandit says that it will trim its US$500 billion of 'legacy assets' which includes real estate, leveraged commitments, sub-prime collateralised debt obligations and structured investment vehicles to less than US$100 billion within two to three years. He adds that it will be in an orderly fashion and expects to see US$15 billion in 're-engineering benefits' from the restructuring.

Since December last year, Citi has embarked on active restructuring and downsizing of the company and all these sales could raise billions of dollars for Citi at a time when the bank is feverishly raising capital. However, this process is spooking many analysts who looked on with scepticism that they sell-off might be a sign that more losses are to be revealed.

(A.3) UBS is laying off to cut costs

Swiss bank UBS had announced in early May that it would reduce a further 5,500 jobs on top of the 1,500 staff it already planned to get rid of by the end of last year, these lay-offs will mainly be in Britain and the US.

Of the planned cuts, up to 2,600 will be at its investment banking arm, which was the culprit behind the cumulative write-downs of US$37.4 billion (S$51.1 billion) the bank has made since last July.

(A.4) US project hit by pullout of many Singapore buyers

The decline in the local property market sentiment is now affecting overseas investment targets as well.

Two-thirds of Singapore buyers have backed out of their purchases of units in the much-hyped Chicago Spire in the United States. When it was launched in Singapore in early March, almost 40 buyers have placed their reservation but more than 20 changed their minds after the US sub-prime crisis threatened to take a turn for the worse in the weeks following the launch.

An analyst quipped that it doesn't make sense to buy and hold on to US properties when there are still sub-prime problems.

The 150-storey Chicago Spire is touted as the world's tallest condo, and boasts a unique spiral-shaped design.

As there is a cooling-off period which is a standard practice in US home sales, those buyers who backed out from the deal actually got a full refund of their reservation fee.

(A.5) US Banks camouflaged $48b in write-downs

The US regulatory authority has found out that banks and securities firms, suffering from unprecedented losses from the collapse of the mortgage securities market, are camouflaging at least US$35 billion (S$48.3 billion) of additional write-downs in their balance sheets.

Citigroup and ING have been found to be under-declaring their losses in their quarterly report to the Securities and Exchange Commission.

Adding the US$35 billion leaves the banks with a US$116 billion mountain of losses to climb.

The balance sheet adjustments are in addition to US$344 billion of write-downs and credit losses already reported on the income statements of more than 100 banks.

These firms have raised US$263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance sheet write-downs also reduce equity, which needs to be replenished.

Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments.

But observers say that keeping those markdowns off income statements just delays the realization of the losses.

Annex B
Singapore developers at risks of higher borrowing and lower profit

Separately, a property market analysis conducted by BNP Paribas identified the high financial risks borne by small developers including Bukit Sembawang, Low Keng Huat and Lian Beng.

The report pointed out that these developers have almost all their debts due within a year. The bank’s assessment is that even major builders such as Allgreen, Keppel Land and GuocoLand could face difficulties after steep drops in profit in the last quarter as they launch fewer projects.

This situation has accentuated the developers' debt-to-equity ratio to dangerous levels above 70%, up from the industry average of about 62%.

In this respect, JPMorgan identified three developers, namely Allgreen, GuocoLand and Keppel Land, that could face some pressures on cash flow as their debt-to-equity ratio could be pushed up to a very dangerous level of between 80% and 130%.

Speculators who bought properties with little upfront cash before the Deferred Payment Scheme was scraped last October may need to dispose of about 700 units on the cheap this year, and another 2,000 next year, as the properties near completion and instalments are due. And this will increase the developers’ risks.

On the contrary, some ‘big gun’ developers are still hoping that the slump may be temporary and clinging on to the theory that there was always a seven-year cycle. Their wisdom stemmed from the continued arrivals of foreign investments as Singapore sees the completion of two casino projects and the influx of major events such as Formula One races and the Youth Olympics over the next few years.

However, the experts are looking at the numbers that tell a very different story.