Lion City Property News

NOVEMBER PROPERTY MARKET UPDATE !

2009-12-18T15:02:00.002+08:00

Introduction

November 2009 will be remembered for central bank interventions in the real estate market throughout the world.

The US Federal Reserve has added one more provision onto the objectives of a central bank – which traditionally deals only with monetary policy including economic growth, inflation, and stability of currency – to include monitoring of property price movements.

Monetary Authority of Singapore (MAS) quickly followed the big brother’s foot step. The de-facto central bank has said that further action may be needed to cool the property market if the recent measure* to dampen property speculation prove insufficient.

* The Singapore Government had cancelled the use of interest absorption scheme (IAS) and interest-only loans (IOL) for property purchasers in September 2009. Except for some new home projects that have already received the green light, all purchases of new home units are subject to the normal progress payment scheme of old which requires the purchasers to pay according to the construction progress.

Will private property investors bear the brunt of yet another round of ‘anti-speculation’ curb measures? Are property prices really unsustainable? Can the two Integrated Resorts save us from the miseries? These are questions that need to be asked and answered before more potential buyers head back to the property showrooms again.

(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] HOME PRICES IN ALL MARKETS MAY HAVE REACHED BUBBLE LEVEL

The recent half-a-year property rally in Singapore mirrored those in other countries, including the US and other major Asian cities such as Shanghai, Hong Kong, and South Korea. Policymakers in these countries are contemplating tightening lending standard to tame the spiking home prices.

IN THE UNITED STATES

In the US, home prices in certain areas, e.g. Minneapolis and San Francisco, have risen by double digits over the past four months. When considered on an annualised basis, the home prices appear to be in 'bubble territory'.

US home prices in August 2009 rose for the fourth straight month. The Standard & Poor's/Case-Shiller composite index of home prices in 20 metropolitan areas rose 1.2% in August from July 2009.

According to the same index, prices in the top 10 US metropolitan areas gained 1.3% in August 2009 after a 1.7% rise the previous month.

IN HONG KONG

In Hong Kong, home prices have climbed 26% so far this year. For example, a one-bedroom, 816 sq ft apartment in Kowloon district was sold for HK$24.5 million (S$4.3 million) in September 2009.

The rampant price hike had spurred the HK authorities to tighten down-payment requirements for luxury homes. The authorities have also reduced loan-to-value ratio of private homes costing more than HK$20 million from 70% to 60%.

The Hong Kong Mortgage Corp, a government-backed home-loan insurer now only insures owner-occupied homes.

IN SOUTH KOREA

South Korea's financial regulator said on Oct 8 2009 that it planned to tighten regulations on lending to households; and the authorities have cut loan-to-value ratios in mortgages to 50% from 60% in some Seoul areas.

IN SINGAPORE

The sharp rise in private home prices in the third quarter (Q3) of 2009 [see page 6 – 12 – Overall Performance of Private Home Segment] could have precipitated the increase of residential sites in the government land sale (GLS) programme for 2010. [Page 13 – 15 on Government Land Sale Programme]

While there has been no announcement of any similar tampering of the property market like the other countries, property speculators are still on tenterhooks waiting for the ‘unexpected’ to happen. The unusual involvement of the central bank in monitoring price swing of private homes – an add-on to the traditional role of a central bank – may have ruffled some feathers among the speculators.

IN PRC

Official statistics showed that from January to October 2009, real estate investments in China had gone up by 18.9%, compared with a mere 1% rise in the first two months of the year.

Large Chinese banks have been told by the central bank to increase write-offs against bad loans and maintain their capital adequacy.

The Chinese central bank has also recently called for immediate halt of the country’s real estate stimulus policies which include low down-payments, low mortgage rates and tax cuts or risk a housing bubble. Some Chinese officials share the concern that home prices in some areas may not be affordable to ordinary citizens.

[A.2] HAVE PRICES GONE TOO HIGH?

Is there genuine cause for concern over the price-run in the private home segment? Well, judging from the recent sub-sale activities so far, many speculators seem to have adopted the ‘safety-first’ approach this time round.

[A2.1] Sub-sale activities subdued compared with last bull run

In terms of sub-sale, the barometer for market speculation, 2009 has been a much quieter year so far with only 2,780 sub-sale deals from January 2009 to September 2009. In the same period in 2007, a total of 4,193 home units had been sub-sold by the end of Q3 2007.
The tables below show the comparison of sub-sale volume between the 2009 rally with the earlier property rallies in 1996 and 2007.

Table [1] – Comparison of 2009 sub-sale volume with the peak of the rally in 1996 and 2007
Period Sub-sale Sub-total of sub-sale at peak of Rally Total Sub-sales Total Sales Transaction
Q1 1996 1,238 2,888 2,888 31,921*
Q2 1996 1,650
Q1 2007 766 3,427 4,863 40,654
Q2 2007 1,892
Q3 2007 1,535
Q4 2007 670
Q1 2008 435 N.A 1,830 13,642
Q2 2008 562
Q3 2008 566
Q4 2008 267
Q1 2009 414 2,366 2,972 25,793
Q2 2009 1,309
Q3 2009 1,057
Source of data: URA website

*1996 figures include New Home Units sold by developers and sold in the secondary market which accounted for 19,699 units and caveated sales of 12,222 completed units. Both sets of figures have been culled from URA website.

All three periods, i.e. 1996, 2007 and 2009, were marked distinctly by extremely high sales volume in the new private home segment. However, the following compares the difference between the three rallies:

At the peak of 1996 bull-run, sub-sale deals transacted at the height of the rally amounted to 2,888 deals.
The height of the 2007 bull-run witnessed 3,427 sub-sale deals.
In 2009, the peak of the rally produced 2,366 sub-sale deals. This makes 2009’s rally a relatively quieter one.

IN PERCENTAGE TERM

In fact, the percentage of sub-sale deals in relation to overall sales had maintained at double digit level since Q2 2007, until Q3 2009.(See Table 1.1 below)

Table [1.1] – Percentage of sub-sale deals to overall sales volume
Period Percentage of sub-sale deals to overall sales volume
Q1 2007 7.5%
Q2 2007 12.8%
Q3 2007 15.0%
Q4 2007 12.4%
Q1 2008 12.8%
Q2 2008 12.9%
Q3 2008 13.3%
Q4 2008 16.3%
Q1 2009 10.0%
Q2 2009 12.9%
Q3 2009 9.0%
Source of data: URA website

As such, Q3 2009 was considered one of the quieter quarters in recent history with sub-sale deals accounting for only 9% of all home sales, compared to 12.9% in Q2 and 10% in Q1 2009.

MORE END-USERS BUYING

One of the reasons why sub-sale activities were much subdued in 2009 could be due to the fact that the vast majority of the original purchases of mass market homes were done by home owners who are HDB flat dwellers.

Savills Singapore’s analysis published on 23 November 2009 in Business Times showed that HDB dwellers accounted for 39% of the 1,300 private sub-sale deals in Q2 2009 and 36.6% in Q3 and 33.7% in October 2009 alone.

Comparatively in 2007, HDB residents' shares of sub-sale deals were much lower at 20.8% and 23.1 % share of sub-sale deals done amidst the property bull-run in Q2 and Q3 2007. It has been an established fact that the 2007 bull-run was characterised by high number of foreigners buying luxury homes.

PROJECTION OF SUB-SALES FOR 2010

The overall sub-sale level is likely to stay firm for the next 2 to 3 quarters if the following factors remain:

market value of HDB resale flats remain firm;

rents for HDB flats remain at current high level.

Other supporting factors include the gradual recovery of the global economy and the advent of foreign employees at the two upcoming Integrated Resorts (IRs) which are due for opening in 2010.

CHALLENGES AHEAD

However, there are valid concerns for speculators as the market awaits further moves by the central bank to further depress soaring property prices.

Coupled with the falling private home rents, speculators may fear the cost-cushion being pulled off from their feet as holding costs, as well as the risks of rental void are now correspondingly higher.

[A2.2] The Difference between the two bull-runs

Though both 2007 and 2009 were spurred by spectacular rallies in the new home segment, the combined value of the new home units sold in 2009 is estimated at $11.2 billion - which is a far cry from the $23 billion worth of new homes sold in the 2007 bull-run.

A recent market analysis published by CBRE showed that the median quantum per unit sold by developers in 2009 was $930,000, compared with $1.18 million for 2007. The median per-square-foot price of new home sold so far this year was $863, compared with $928 for 2007.

The highest price for new home unit transacted in 2009 was $13.89 million for a third-floor apartment at Seven Palms Sentosa Cove; while the top price in 2007 went to a 19th-floor unit at The Marq On Paterson Hill which sold for $31.40 million.

HOUSES BECOME SMALLER

The median size of units sold by developers also went down from 1,292 sq ft in 2007 to 1,206 sq ft this year. Because unit sizes have fallen, the total quantum of the home price is lower and the market value of transactions in 2009 actually remains at about the same level as last year which only sold slightly more than 4,000 new home units in a year.

POORER TAKING FOR IRAS

This can also be seen from the modest amount of stamp duty collected by the Inland Revenue Authority of Singapore (IRAS) so far this year.

According to the Department of Statistics (DOS), the IRAS took in $1.37 billion in stamp duty from January to September 2009, though almost 25,800 private homes were sold in the same period.

The Government received $3.8 billion in stamp duty in the whole of 2007; and $1.84 billion in 2008. (Note: 98% of stamp duty comes from real estate transactions)

FEWER FOREIGNERS

Likewise, the number of foreign buyers has also shrunk in the aftermath of the financial tsunami. So far, only 651 foreigner buyers were accounted for new home purchases in the first three quarters of the year. At the same period in 2007, a total of 1,736 foreign buyers were accounted for new home sales.

The drastic drop in private home rents may also have deterred many foreign buyers as more quality condo units are slated for completion eventually in the first six months of next year.

(B) OVERALL PERFORMANCE OF PRIVATE HOME SEGMENT

According to the recent URA report, private home prices increased by 15.8% in Q3 2009, compared with the 4.7% price fall in Q2 2009.

In Q3 2009, apartment prices went up by 16.2%, while condo prices shot up by 15.8%.

[B.1] NON-LANDED PRIVATE HOME PRICES BROKE 20 YEAR RECORD

In the Core Central Region (CCR) which comprises the prime districts such as Districts 9, 10, 11 and Sentosa Cove, non-landed home prices climbed by 15.2% in Q3 2009; while the same in the Rest of Central Region (RCR) and Outside Central Region (OCR) increased by 18.5% and 16.1% respectively

Landed home also became dearer by 14.9% in Q3 2009, compared with the 4.7% fall in prices in Q2 2009.

Prices of detached, semi-detached and terrace houses increased by 15.6%, 13.4% and 15.1% respectively in Q3 2009.

The comprehensive increase in home prices has not been seen for more than 20 years in Singapore, despite the fact that Singapore is now in one of the worst economic recessions since Independence.

[B.2] RALLY IN LANDED HOME SEGMENT RECEDED IN OCT/NOV PERIOD

Thanks to the sudden upsurge of home-buying activities, landed homes enjoyed a brief revival reminiscent of the vintage 2007 bull-run. For example, between June and August 2009, more than 450 landed homes were transacted. The transaction volume, especially detached houses, was quite close to April 2007 (see Table 2.1 below).

However, the sales volume seems to have receded after the IAS and IOL were scrapped in September 2009.

Table [2] – Overall sales volume of Landed homes between January and November 2009
2009 Detached Semi-D Terrace Total
Jan 13 35 49 97
Feb 8 22 57 87
Mar 20 50 138 208
Apr 40 87 134 261
May 55 97 171 323
Jun 106 158 246 510
Jul 71 116 350 537
Aug 70 109 271 450
Sept 94 100 191 385
Oct 55 100 179 334
Nov *12 *32 *66 *110
Dec - - -
Source of data: SISVRealink
*November sales figures are incomplete due to lag in caveat time.

In good years, such as 2007, the monthly sale volume of landed homes would stay above 200-unit level; and sometimes breaching the high-700-unit level, such as in May 2007. (See Table 2.1 below)

Table [2.1] – Overall sales volume of Landed homes in 2007
2007 Detached Semi-D Terrace Total
Jan 83 106 188 377
Feb 55 110 194 359
Mar 59 130 213 402
Apr 105 168 317 590
May 128 211 439 778
Jun 106 213 374 693
Jul 123 184 382 689
Aug 70 116 258 444
Sept 38 57 160 255
Oct 48 88 230 366
Nov 52 83 177 312
Dec 31 56 104 191
Source of data: SISVRealink

In normal times, such as 2008, the monthly sale volume of landed homes would stay below the 200-unit level. As such, 2009 can be considered a jolly good year with monthly sales figures going beyond the 200-unit level in most months.

Table [2.2] – Overall sales volume of Landed homes in 2008
2008 Detached Semi-D Terrace Total
Jan 34 47 116 197
Feb 20 38 101 159
Mar 18 37 119 174
Apr 21 39 107 167
May 31 56 108 195
Jun 17 39 114 170
Jul 21 41 115 177
Aug 9 33 91 119
Sept 15 40 88 143
Oct 12 28 60 100
Nov 12 17 55 84
Dec 8 17 47 72
Source of data: SISVRealink

In the final analysis, much of what will happen to the landed home segment would depend on the impact of the withdrawal of the Job Credit Scheme in July 2010. The massive stimulus cash-handout programme to employers has been credited as the main force behind the recent property rally. However, with employers facing the bleak prospect of a fragile economic recovery, more landed homes may be made available on the resale market; and that may be music to prospective landed home seekers but a bad news to those who are selling.

[B.3] PRIVATE HOME RENTS ON A LOSING STREAK

According to URA’s Q3 2009 rent figures, the 15.8% surge in private home prices was not matched by any increase in rental income for landlords.

In fact, private home rents have been in decline for the fifth consecutive quarter, losing a further 2.2% in Q3 2009. Private home rents had dropped a massive 5.2% in the previous quarter.

Rentals of non-landed private homes in CCR, RCR and OCR fell by 2.1%, 2.3% and 2.3% respectively in Q3 2009.

In all, private home rents have fallen over 15% since Q1 2009. This could mean that the current rally in the private home segment is not being supported by economic fundamentals and the soaring prices may be considered speculative. In other words, if there are no significant improvements in the larger economy, the down-side to private home prices will remain huge.

[B.4] NEW HOME SALES WENT BELOW 1,000 UNITS IN OCTOBER 2009

After 8 consecutive months of strong showing, the mass market home segment has begun to show signs of weariness, losing 55.17% over the previous month’s sales volume. The statistics below show the sluggish performance of the new home segment in October 2009.

Table [3] – Comparison of new home units sold in the past 10 months of 2009
2009 Total Number of Units in Project Cumulative Units Launched to-date Cumulative Units Sold to-date Cumulative Units Launched but Unsold Units Launched in the Month Units Sold in the Month
January 48,128 32,197 27,870 4,327 204 107
February 48,371 33,244 29,168 4,076 1,069 1,323
March 48,902 34,048 30,314 3,734 832 1,220
April 48,821 34,645 31,025 3,620 1,083 1,207
May 49,223 35,802 32,656 3,146 1,161 1,668
June 50,490 37,371 34,389 2,982 1,637 1,825
July 50,884 39,893 36,898 2,995 2,878 2,767
Aug 53,047 41,269 38,256 3,013 1,641 1,699
Sept 52,803 41,989 38,832 3,157 1,413 1,143
Oct 54,068 42,505 39,557 2,948 566 811
Total New Home Units Sold so far 13,770
Source of Data: URA website

Table [3.1] below shows that despite the two-fold increase in new home units sold in the Core Central Region (CCR) in October 2009, the overall percentage of transactions in prime districts still fell below the 25% mark, accounting for only 22.8% of all new home sales; while the mass market homes still dominated the proceedings with 42.9%.

Table [3.1] – Sale volume of the three regions i.e. CCR, OCR & RCR over the past 10 months
2009 JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT TOTAL %
CCR 13 102 133 322 617 526 514 449 152 311 3,139 22.80%
RCR 49 381 300 362 609 867 751 722 431 249 4,721 34.30%
OCR 45 840 787 523 442 432 1,502 528 560 251 5,910 42.9%
TOTAL 107 1,323 1,220 1,207 1,668 1,825 2,767 1,699 1,143 811 13,770 UNITS
Source of Data: URA website

[B.4.1] Sale of New home units in Core Central Region (CCR) jumped two-fold

Below are two tables showing the sales performance of new home units in the Core Central Region (CCR) in October 2009.

Table [3.2] – New home units sold in CCR in October 2009
Project Name Units launched so far but UNSOLD Units Sold in the Month Lowest Price ($psf) Highest Price ($psf) Median Price ($ psf)
1 Cyan 9 81 1,712 1,983 1,821
2 Trilight 22 58 1,639 1,836 1,684
3 Lincoln Suites 3 53 1,530 2,365 1,845
4 Vivace 0 28 1,445 2,111 1,906
5 Sophia Residence 35 10 1,141 1,605 1,452
6 Madison Residences 3 9 1,639 1,754 1,677
7 Estrivillas 31 8 494 862 616
8 Shelford Suites 11 8 1,158 1,457 1,431
9 Nassim Park Residences 2 5 2,774 3,480 3,89
10 VIVA 3 5 1,548 1,801 1,755
11 Alba 12 4 2,310 2,531 2,488
12 Icon 9 3 1,430 2,022 1,921
13 Luma 13 3 1,696 1,768 1,725
14 The Trizon 77 3 1,352 1,523 1,396
15 Villas @ Gilstead 6 3 658 906 763
16 8 Rodyk 13 2 1,416 1,503 1,460
17 D'Ixoras 19 2 1,150 1,175 1,163
18 Latitude 20 2 1,640 1,758 1,699
19 Lush on Holland Hill 8 2 1,465 1,465 1,465
20 Martin No 38 0 2 2,048 2,722 2,385
21 The Orange Grove 3 2 2,101 2,300 2,201
22 Volari 1 2 1,856 2,077 1,967
23 Boulevard Vue 1 1 4,150 4,150 4,150
24 Dukes Residence 4 1 1,531 1,531 1,531
25 Jia 13 1 1,366 1,366 1,366
26 Marina Collection 26 1 1,872 1,872 1,872
27 One Devonshire 1 1 1,912 1,912 1,912
28 Parc Mackenzie 13 1 1,146 1,146 1,146
29 Seven Palms Sentosa Cove 0 1 3,429 3,429 3,429
30 Signature At Lewis 10 1 1,307 1,307 1,307
31 Skyline 360° at St Thomas Walk 0 1 2,125 2,125 2,125
32 The Greenwood (Phase 5) 32 1 952 952 952
33 The Lincoln Residences 33 1 1,708 1,708 1,708
34 The Promont 2 1 2,096 2,096 2,096
35 The Wharf Residence 8 1 1,496 1,496 1,496
36 Ventura Heights 4 1 675 675 675
37 Vida 33 1 2,498 2,498 2,498
38 Watten Residences 0 1 780 780 780
311 (152 in September 2009)
Source of Data: URA website

With the increase in sales volume, the median price of new home units in CCR had also risen to $1,684 psf from $1,666 psf in September 2009.

The highest transacted price also rose to $4,150 psf from $3,353 psf in September 2009.

[B.4.2] Sale of New home units in Rest of Central Region (RCR) receded in October

New home sales in the Rest of Central Region (RCR) further receded from 431 units in September 2009 to only 249 units in October 2009.

Table [3.3] – New home units sold in RCR in October 2009
Project Name Cumulative Units Launched but Unsold Units Sold in the Month Lowest Price ($psf) Highest Price ($psf) Median Price ($psf)
1 Suites @ Guillemard 0 66 896 1,514 1,234
2 City Loft 0 40 880 1,280 1,181
3 Silversea 92 21 1,189 1,647 1,381
4 Clover By The Park 132 17 673 895 784
5 The Interlace 115 14 728 1,110 1,046
6 Trevista 73 13 905 1,083 1,013
7 Reflections at Keppel Bay 13 11 1,528 2,097 1,685
8 Bliss Loft 18 10 951 1,052 1,018
9 Concourse Skyline 40 8 1,553 2,063 1,781
10 Ascentia Sky 19 5 1,240 1,477 1,282
11 The Peak @ Balmeg 18 5 982 1,098 1,007
12 Vista Residences 3 5 1,158 1,257 1,174
13 Prestige Heights 8 4 1,250 1,400 1,322
14 The Serennia 14 4 681 1,006 836
15 Dakota Residences 8 3 943 982 977
16 Floridian 53 3 1,327 1,380 1,360
17 Ritz Regency 20 3 940 994 979
18 The Seafront On Meyer 34 3 1,253 1,281 1,261
19 Ventura View 1 3 772 823 809
20 Amber Residences 15 1 1,060 1,060 1,060
21 D'Fresco 4 1 825 825 825
22 Esterina 0 1 685 685 685
23 Evergreen View 1 1 596 596 596
24 Goodman Crest 1 1 776 776 776
25 Oasis Garden 1 1 870 870 870
26 Parc Aston 9 1 870 870 870
27 Parc Seabreeze 26 1 1,210 1,210 1,210
28 Stillz Residence 15 1 941 941 941
26 The Arte 5 1 943 943 943
30 The Verve 4 1 734 734 734
249 (431 in September 2009)
Source of Data: URA website

The median price of new home units in RCR had slide to $979 psf from $995 psf in September 2009.

The highest transacted price also fell from $2,482 psf to $2,097 psf in September 2009.

[B.4.3] Sale of New home units in Outside of Central Region (OCR) halved in October

Sales of new home units in OCR took a tumble in October losing more than 50% of the volume in the previous months.

The withdrawal of the Interest Absorption Scheme (IAS) and Interest-Only Loans (IOL) appeared to have impacted HDB upgraders harder than it did wealthier buyers of high-end homes – who in October 2009 came out in force to buy more new home units and along the way sent the highest psf price to cross the $4,000 psf mark in October 2009.

Table [3.4] – New home units sold in OCR in October 2009

Project Name Units launched so far but UNSOLD Units Sold in the Month Lowest Price ($psf) Highest Price ($psf) Median Price ($ psf)
1 Hundred Trees 24 52 799 1,029 799
2 Mi Casa 109 43 635 780 685
3 Livia 28 18 572 683 641
4 Prestige Loft 3 16 1,013 1,159 1,109
5 Elliot at the East Coast 14 14 731 1,074 810
6 Wembly Residences 19 14 675 997 801
7 Oasis @ Elias 17 13 599 730 648
8 Meadows @ Peirce 53 10 737 1,126 920
9 Double Bay Residences 17 8 686 746 717
10 Pavilion Park (Phase 2) 2 7 766 941 891
11 Waterfront Key 94 6 748 888 761
12 Waterfront Waves 21 6 696 931 727
13 Cubik 0 5 1,219 1,332 1,264
14 Rosewood Suites 4 5 493 586 572
15 Centro Residences 86 4 1,134 1,229 1,217
16 Envio 20 4 955 975 965
17 Breeze By The East 0 2 707 712 710
18 Chateau La Salle 0 2 621 632 627
19 D'Pavilion 28 2 876 921 899
20 Hillvista 70 2 1,079 1,085 1,082
21 St Patrick's Residences 7 2 905 1,031 968
22 The Gale 29 2 778 793 786
23 Verdana Villas 46 2 630 649 640
24 Coastal Breeze Residences 15 1 533 533 533
25 D'Almira 0 1 695 695 695
26 Dunsfold Residences 4 1 468 468 468
27 Fontaine Parry 7 1 910 910 910
28 Kovan Residences 31 1 887 887 887
29 Landed housing 6 1 814 814 814
30 Serangoon Garden View 4 1 657 657 657
31 Suncottages 1 1 800 800 800
32 The Amery 24 1 922 922 922
33 The Lattiz 9 1 812 812 812
34 The Lenox 15 1 1,163 1,163 1,163
35 The Parc Condominium 35 1 950 950 950
251 (560 in July 2009)
Source of Data: URA website

Though the sales volume in OCR had suffered, the median price of new home units in OCR had actually risen to $899 psf from the low of $741 psf in September 2009.

However, the highest transacted price fell from $1,550 psf in September 2009 to $1,332 psf in October 2009.

(C) PERFORMANCE OF NON-RESIDENTIAL SEGMENT

At the height of the bull-run in 2007, Grade A office space went at $18.80 psf/pm.

However, with the key occupiers of Grade A office space still nursing the bruises afflicted on them by the global economic crisis, the average Grade A office rent has slipped to $8.80 per square feet per month (psf/pm) in Q3 2009.

In general, office prices and rents had fell by 2.1% and 4.1% respectively in Q3 2009. Likewise, shop prices and rents also dropped by 1.2% and 0.9% respectively in Q3 2009.

With the substantial supply pipeline of about 7.7 million sq ft of offices slated for completion from Q4 this year to end-2012, office rents look set to head south for a few more quarters.

[C.1] LATEST PSF/PM PRIME OFFICE RENTS

The following shows the latest office rents in the central business district in the first 6 weeks of Q4 2009:

In the Shenton way area, prime office rents fell 0.8% to $5.99 per sq ft (psf) per month (pm) from $6.04 psf/pm in Q3 2009.

In the City Hall area, prime office rents dipped 0.4% to $6.77 psf/pm from $6.80 psf/pm in Q3 2009.

At the Orchard Road area, prime office rents are down a cent psf from $6.90 psf/pm in Q3 2009 to $6.89 psf/pm.

At Raffles Place area, Grade A rents fell 3.5% to $7.85 psf/pm, from $8.13 psf/pm in Q3 2009. Prime rents there also dropped 2.6% to $7.60 psf/pm, from $7.80 psf/pm in Q3 2009.

In the prime office arena in the CBD, there is no escaping the fact that the 2.2 million sq ft of new prime office space in 2010 must be absorbed first before any hope of a recovery in prime rents can be realised.

(D) GOVERNMENT LAND SALE (GLS) PROGRAMME

The Government announced in November 2009 that at least eight residential sites - and as many as 26 - will be offered to developers in 2010 under the government land sale (GLS) programme. In all, the 26 sites can yield a total of 10,500 private homes in the next two to three years.

All the 26 new residential sites to be released for tender are in the outside central region (OCR) and rest of central region (RCR) where common folks live.

[D.1] DEVELOPERS SNAPPING UP LAND PARCELS

A local developer, Treasure Well Investments, has placed the top bid of about $251.3 million or $533.34 per square foot per plot ratio (psf ppr) for a 99-year leasehold condo plot at Upper Thomson Road. The next highest bid was $438.83 psf ppr by Far East Organization.

The tender attracted just six bids in total - about half the 12 to 15 bids received for each of the other four GLS sites in the reserve list in the past few months.

The Upper Thomson Road site boasts a good location opposite the Singapore Island Country Club's Island Golf Course and Lower Peirce Reservoir. Freehold units at Meadows@Peirce nearby are being sold at about $900 psf

[D.1.1] Developers seeking to enrich own land-bank

Recently, the government land sale tenders had attracted a lot of interests from housing developers.

13 bidders were attracted to the tender of Chestnut Avenue in August 2009. The eventual successful bid price was $143.7 m or $280 psf ppr.

13 bidders vied for Dakota Crescent in September 2009 and UOL clinched the site with $329 m or $508 psf ppr.

In September 2009, Far East Organisation edged out 11 other bidders to win the site at Seletar/Yio Chu Kang Roads with the successful bid price of $119.1 m or $376 psf ppr.

In October, 15 developers competed for a site at Serangoon Ave 3 which is right above the Lorong Chuan MRT station. Eventually, a unit from Hong Leong Holding clinched the deal at $221.2 m or $529 psf ppr.

Rightly or wrongly, the keen competitions are clear signs that housing developers are optimistic of the near future and are afraid to lose out in their bids. However, the real test of the market hinges on how potential buyers and prospective tenants react to the generous supply of the thousands of ‘ready-built’ quality condominium units in 2010 and beyond.

[D.1.2] Landed housing sites on reserve list set for sale

An unidentified developer has triggered for public tender a government landed housing site with a minimum bid price of $15 million or $99 psf ppr for the 99-year leasehold parcel on Westwood Avenue, Jurong West. This site has an area of 14,098.9 sq m and is surrounded by other landed estates such as Westwood Park and The Floravale condominium.

About 60 terrace houses with a minimum plot size of 150 sq m can be built on the site and the eventual sale price of completed units should be around $1.1m to $1.2m.

A search with URA website reveals that terrace houses at the adjacent Westwood Park changed hands at $454-510 psf, or $850,000 to $1.13 million.

Due to low bid prices, the govt had rejected two earlier bids of $11.8 million and $10.33 million for the same site at Westwood Avenue.

(E) NEWS ON COLLECTIVE SALES

The first successful en bloc sale for 2009 was sealed sometime in late November 2009. Dragon Mansion at 18 Spottiswoode Park Road has been sold in a collective sale arrangement for $100.8 million or $863 per sq ft per plot ratio (inclusive of development charge).

On the other hand, the residents of Laguna Park have thrown in the towel in late November 2009 and withdrew from the collective sale market after yet another failed attempt to secure a good enough offer.

(F) CONCLUSION

It is still early day to gauge the impact of the withdrawal of the interest absorption scheme (IAS) and interest-only housing loans (IOL). There is also no point second-guessing the central bank’s intention in watching the price swing of private homes. Whatever follows next may well be a reaction to a global event beyond any player’s calculation or fancy.

However, at home the private home prices may have fallen due to ‘fatigue’ suffered by buyers after the 6-month rally. Traditionally, the house-hunting season has been overtaken by Christmas shopping; and the buyers deserve a good holiday breather.

For whatever reasons it is worth, the Minister for National Development, Mr Mah Bow Tan has come out saying that he is pleased with the weakening in private home prices. He explained that the government’s aims are to curb erratic price hikes arising from excessive speculation, inaccurate information or market manipulation, but ultimately prices have to be determined by market forces, based on genuine demand from home buyers and investors.

October updates.

2009-10-27T16:46:00.003+08:00

Introduction

Two years after scrapping the Deferred Payment Scheme which effectively truncated the spectacular bull-run in 2007, the government has wielded the big axe again – this time by scrapping the Interest Absorption Scheme (IAS) and the Interest Only Loan (IOL). This move may well have the same effect on the property market like two years ago.

Following Minister Mah Bow Tan’s announcement to withdraw IAS and IOL, the Monetary Authority of Singapore (MAS) has also announced the probable increase in capital requirements for local banks. The de-facto central bank also made clear its stand on medium-term price stability for the property market.

In fact, the MAS’ recent policy stance will have a much deeper impact on the demand for private homes because one can now expect to see more stringent credit controls by lenders in general.

(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] SINGAPORE NOW HOME TO FIVE MILLION PEOPLE

Singapore will be home to more than five million people by 2010. We now have 4.99 million residents as a result of a 3.1% increase in the population, primarily through the very ‘pro-active’ immigration-friendly policy. This is despite more economic migrants having ‘gone home’ since jobs have become tough to come by recently. The growth in population was the slowest since 2007.

There is now a sizeable numbers of permanent residents (PRs) and guest workers on permits, relative to the citizen component. The Singapore population profile is a one-third foreigner content of 1.8 million. It breaks down to 1.25 million transients and 533,000 PRs.

[A.2] JOBLESS RATE FELL FOR THE WRONG REASONS – MANY GRADUATES PURSUE FURTHER STUDIES

According to a Straits Times report on 16 September 2009, eight in 10 local residents were chronically unemployed as of June this year. This means that they had been unsuccessful to land themselves a job after 25 weeks of searching. The majority of them are university graduates in their 30s and 40s, and the lowly-educated in their 40s.

In all, Singapore lost 13,900 jobs in the first half. This is 26% lower than the estimate of 18,800 by the Ministry of Manpower (MOM).

A September report by MOM showed unemployment at 3.3% in the second quarter (Q2) of 2009. At the same time, the resident unemployment rate fell from 4.8% to 4.6%. But the reason for the decline was that many stopped seeking jobs to pursue courses, which means they are no longer counted as unemployed.

Manpower Minister Gan Kim Yong was quoted as saying that the employment outlook remains uncertain; and the labour market is likely to remain weak for the rest of the year.

(B) OVERALL PERFORMANCE OF PRIVATE RESIDENTIAL PROPERTY SEGMENT

New home sale volume in September 2009 was well supported by the remnant projects which had earlier received the authority’s blessing to use the now-defunct Interest Absorption Scheme (IAS). With a respectable 1,143 new units transacted in the aftermath of the scrapping of the IAS and Interest Only Loans, the grand total of new home units sold thus far this year is standing tall at 12,959 units. The whole year sale volume for new home units might even surpass the historic peak achieved in 2007.

Transacted prices are also very respectable with the freehold Hundred Trees in the old Hong Leong Garden site commanding a median price of $941 psf, with more expensive units going beyond $1,200 psf.

[B.1] NEW HOME SALE EASED IN SEPTEMBER 2009 COMPARED MONTH-ON-MONTH

However, when compared month-on-month the new home sale volume has eased in August 2009 and further in September. Sales volume in the new home segment appears to be on a slippery slope. But the buying mood can still be considered generally optimistic with good units still flying off the shelves within days of the project’s launch.

[B.1.1] OCR was the star performer this year.

The total transactions at the respective regions over the past 9 months, with the Outside Central Region (OCR) chalking up the most impressive sales volume so far this year.

In fact, while CCR and RCR had lost 66.15% and 40.30% respectively in sales volume in September 2009; the sales volume in OCR gained 6.0% in September 2009 with strong sale performance coming from the aforesaid freehold Hundred Tree project in the west coast area.

In all, 43.67% of all the new home units sold so far this year took place in the outlaying areas, with only 21.82% and 34.5% sold at the Core Central Region (CCR) and the Rest of Central Region (RCR).

[B.2] LUXURY MARKET SHOWED SOME SIGN OF LIFE BUT IT MAY BE TOO EARLY TO POP CHAMPAGNE

The luxury market segment saw some ‘pink’ signs in August 2009 with 11 new home units in the District 9 and 10 areas changing hand at higher than the psychological benchmark of $2,500 psf, including the following:

THREE units at The Orchard Residences were sold at $2,780 psf, $3,499 psf and $4,099 psf respectively.
THREE units at Nassim Park Residences were sold at $2,782 psf, $2,829 psf and $3,403 psf respectively.
THREE units at Orchard View were sold at $3,057 psf, $3,155 psf and $3,181 psf respectively.
ONE unit was sold at The Hamilton Scotts at a median price of $3,313 psf.
ONE unit at Scotts Square was sold for the highest median price of $4,304 psf in August 2009. This was a rare phenomenon this year.

Likewise in September 2009, NINE brand new luxury units broke the psychological barrier of $2,500 psf with some super-rich individuals shelling out more than $3,000 psf to acquire SIX out of 10 units launched at Seven Palms at Sentosa Cove. Here are the statistics:

SIX units at Seven Palms Sentosa cove were sold at a median price of $3,273 psf. The cheapest unit went for $3,091 psf and the highest psf price was $3,353 psf.
TWO units at Nassim Park Residences were sold at a median price of $3,062 psf; with the lowest psf price at $2,856 psf and the highest psf price at $3,268.
One unit at District 9 Alba condo by Far East Organisation was sold at $2,500 psf.

While the higher-than-$3,000 psf prices were not unprecedented, it had been a long while since the high-end market was abuzz with such optimism.

In fact, according to a Straits Times report on 16 September, two transactions at above the $4,000 psf level were recorded for August 2009 - Scotts Square ($4,304 psf) and The Orchard Residences ($4,099 psf). The last time the market saw transactions at above the $4,000 psf mark was in May 2008 when four units at Scotts Square were sold at prices ranging from $3,779 to $4,612 psf.

[B.3] TRANSACTIONS OF HIGH-END HOMES IMPROVED OVER THE PAST TWO MONTHS

[B.3.1] More high-end homes in District 9 exceeding the psychological $2,500 psf mark

In August 2009, out of the total 287 transactions in District 9, only FIVE transactions [Table 2.1] or a mere 1.74% of the total exceeded the psychological benchmark of $2,500 psf. In the meantime, 52 or 18.12% out of the total transactions exceeded the $3,000,000 mark.

In September 2009, there were so far 117 transactions in District 9; however already FOUR transactions [Table 2.2] or 3.42% (1.7% in August 2009) of the total had surpassed the psychological benchmark of $2,500 psf. And 32 or 27.35% (18.12% in August 2009) of the total transactions exceeded the $3,000,000 mark. The September sales data will be further updated by URA later this month and the total number of transactions will be different.

[B.3.2] More high-end homes in District 10 exceeding the psychological $2,500 psf mark

In District 10, a total of 263 high-end homes were transacted with TEN transactions [Table 2.3] or 3.8% of the total exceeding the psychological benchmark of $2,500 psf. Out of the total transaction, 95 or 36.12% of them exceeded the $3,000,000 mark.

In September 2009, there were so far a total of 148 transactions in District 10, but already SEVEN transactions or 4.73% (3.8% in August 2009) of the total had exceeded the psychological benchmark of $2,500 psf. Out of the total transactions, 46 or 31.08% (36.12% in August 2009) of them exceeded the $3,000,000 mark.

However, the budding high-end property market may well be snubbed by the recent global stock market correction and the policy stance of the Monetary Authority of Singapore (MAS) to ensure medium-term property price stability. Furthermore, with the MAS’ call to increase capital requirements of local banks, the liquidity that fuelled the recent rally may be severely curtailed from now on.

[B.3] NEW HOME SALE PERFORMANCE IN DIFFERENT REGIONS

[B.3.1] Sale of NEW home units in Core Central Region (CCR) dropped in September

FACTS – 29 projects in CCR reported at least one transaction in September 2009, compared with a month ago where 42 projects there did so. The highest median price achieved in September 2009 was $3,356 psf by Seven Palms at Sentosa Cove, which was 22.02% lower than the highest median price of $4,304 psf achieved by a unit at Scott Square in August 2009.

In terms of transaction volume in CCR, there was a 66.14% drop in September 2009 compared with a month ago.

Below are comparisons of sale prices between September 2009 and the previous months in some selected new condo/apartment projects in CCR.

In the drop zone

In SEPTEMBER 2009, 5 units at Belle Vue Residences at Oxley Walk were sold at a median price of $1,627 psf, compared with 17 units sold at a median price of $1,831 psf in August 2009. In July 2009, the median price was $1,869 psf. A year ago in August 2008, the median price was $2,044 psf. It was a drop of 11.14% in September 2009 compared with a month ago.

In SEPTEMBER 2009, 5 units at Latitude at River Valley area were sold at a median price of $1,751 psf, compared with 27 units sold at a median price of $1,786 psf in August 2009. It was a 1.96% drop in the median price.

In SEPTEMBER 2009, 17 units at Sophia Residences were sold at a median price of $1,459 psf, compared with 43 units sold at a median price of $1,504 psf in August 2009. It was a 2.99% drop in the median price.

On the way up

In SEPTEMBER 2009, 10 units at Madison Residences at Dunearn Road area were sold at a median price of $1,661 psf, compared with 37 units sold at a median price of $1,686 psf in August 2009. It was a 1.5% rise in the median price.

In SEPTEMBER 2009, 14 units at Viva condo at Suffolk Walk at District 11 were sold at a median price of $1,623 psf, compared with 203 units sold at a median price of $1,537 psf in August 2009. It was a 5.59% rise in the median price.

FINDING – Despite the withdrawal of IAS and IOL, there has been no drastic fluctuation of prices in CCR. The biggest drop in median price was registered at Belle Vue Residence where the median price dropped 11.14% compared with a month ago. However, median prices of the majority of the projects moved within a very narrow range of between 1% and 6% in both directions.

[B.3.2] Sale of NEW home units in Rest of Central Region (RCR) eased in August/September

New home sales in the Rest of Central Region (RCR) slide in two consecutive months in August and September 2009 from 722 units to 431 units compared with 751 units sold in July 2009.

FACTS – The number of new home projects that reported at least one transaction stagnated at 32 projects in September 2009 while the sales volume dropped 59.7% in the same period.

Below are comparisons of sale prices between September 2009 and the previous months in some selected new condo/apartment projects in RCR.

In the drop zone

In SEPTEMBER 2009, 3 units at Dakota Residences at Dakota area were sold at a median price of $950 psf, compared with 11 units sold at a median price of $956 psf in August 2009. It was a 0.6% drop in the median price.

In SEPTEMBER 2009, 59 units at Trevista at Toa Payoh were sold at a median price of $938 psf, compared with 413 units sold at a median price of $943 psf in August 2009. It was a 0.53% drop in the median price.

On the way up

In SEPTEMBER 2009, 5 units at Concourse Skyline at Beach Road were sold at a median price of $1,753 psf, compared with 10 units sold at a median price of $1,528 psf in August 2009. It was a 14.72% rise in the median price.

In SEPTEMBER 2009, 9 units at Ascentia Sky at Alexandra Road were sold at a median price of $1,254 psf, compared with 36 units sold at a median price of $1,221 psf in August 2009. It was a 2.7% rise in the median price.

In SEPTEMBER 2009, 17 units at Clover by the Park at Bishan were sold at a median price of $788 psf, compared with 21 units sold at a median price of $774 psf in August 2009. It was a 1.8% rise in the median price.

Source of Data: URA website

FINDING – The narrow movement in sale price in RCR mirrored that of CCR – with the exception of Concourse Skyline where the median price of the FIVE transactions in September 2009 were 14.72% dearer than the median price of the 10 units sold there a month ago. Except that, the drop in the primary sale volume in RCR also coincided with the general softness in prices.

[B.3.3] Sale of NEW home units in Outside Central Region (OCR) edged up in September 2009

The sales volume at OCR edged up in September 2009 after dipping in August 2009. A total of 560 units were sold from OCR with Hundred Trees being the star of the month.

Price wise, the improvement in sale volume did not lead to increase in sale prices. Except Centro Residences at Ang Mo Kio which hit a median price of $1,184 psf, most others are transacting in competitive prices with the freehold Hundred Trees hitting the highest psf price of $1,219 and a median price of $6 shy of the psychological $1,000 psf mark.

Below are comparisons of sale prices between the June 2009 and July 2009 in some selected projects in OCR.

In the drop zone

In SEPTEMBER 2009, 15 units at Oasis@Elias at Elias Road were sold at a median price of $639 psf, compared with 30 units sold at a median price of $636 psf in August 2009. It was a 0.47% drop in the median price.

In SEPTEMBER 2009, 15 units at Livia at Pasir Ris area were sold at a median price of $646 psf, compared with 24 units sold at a median price of $651 psf in August 2009. It was a 0.76% drop in the median price.

In SEPTEMBER 2009, 7 units at Waterfront Waves at Bedok Reservoir area were sold at a median price of $690 psf, compared with 21 units sold at a median price of $691 psf in August 2009. It was a 0.14% drop in the median price.

In SEPTEMBER 2009, 14 units at Meadows @ Peirce at Upper Thomson area were sold at a median price of $868 psf, compared with 52 units sold at a median price of $894 psf in August 2009. It was a 2.9% drop in the median price.

On the way up

In SEPTEMBER 2009, 15 units at Double Bay Residences at Simei were sold at a median price of $708 psf, compared with 32 units sold at a median price of $704 psf in August 2009. It was a 0.56% rise in the median price.

In SEPTEMBER 2009, 8 units at Waterfront Key at Bedok Reservoir area were sold at a median price of $772 psf, compared with 22 units sold at a median price of $765 psf in August 2009. It was a 0.92% rise in the median price.

Source of Data: URA website

FINDING – The price movements in OCR were negligible if any. This is probably due to the fact that the withdrawal of IAS and IOL has yet to filter down to the heartland areas as most of the projects being marketing right now are still enjoying the benefits of the financial schemes.

However, it remains to be seen how the newer projects that do not have the convenience will fare in the months to come.

[B.4] MORE LOSSES IN SUB-SALE DEALS

According to an August 2009 Straits Times report, losses in sub-sale deals have quadrupled in the first eight months of this year. More than 340 sub-sales of condos and apartments ended in the red within that period.

For example, out of the 71 sub-sale deals done at Casa Merah in Tanah Merah, 16 deals or 22.53% resulted in losses averaging $30,601.

Most sellers made gains at Rivergate, which was completed in the first quarter of the year, but 10 suffered hefty losses of around $371,355, with one of them losing $985,000.

At popular projects like The Sail @ Marina Bay, eight out of 19 sub-sale deals this year were done at an average loss of $949,343. According to a separate ST report, the six sub-sale deals done at Alexis in Alexandra Road this year had average gains of $62,833.

Those who lost money in the sub-sale market in January to August this year chalked up an average loss per unit of $267,616.

According to the same August ST report, the vast majority of those who sold their properties in the sub-sale market from January to August this year held their units for at least two years. Over half (52%) bought their properties in 2007. Another 36% had bought in 2006, while nearly 7% of 2009 sub-sale deals involved properties purchased this year.

The general mood in the sub-sale market may turn cautious now that the Interest Absorption Scheme (IAS) and Interest Only Loan (IOL) have been withdrawn. This may severely impact the bottom-line of many sub-sellers in the months to come when more quality condos receive their Temporary Occupation Permit (TOP).

September Update!

2009-09-06T23:57:00.003+08:00

Introduction

While troubled banks in the United States are still being shut down, banks in Singapore are busy writing ‘Letters of Offer’ to home buyers and there may now be a shortage of mobile bankers on duty at newly launched condominium showrooms across the island. Exactly what is causing the buying frenzy is not immediately known as official statistics still point to a fragile, if improving, global economy. Cabinet Ministers in Singapore are hinting at tougher times ahead for wage earners, but few Singaporeans are able to read between the lines.

Of late, property experts have maintained that there was no speculative froth in the market at this moment; but it is foolhardy for anyone to point to the positive GDP growth in the last quarter as evidence of an economic upswing as the figure is largely the resultant effect from the current property rally and must not be used to justify the buying decision.

In short, the recent buying spree in the property market has caused an improvement in the GDP growth; and at the same time, the GDP growth has also caused more property buying to occur. If this cannot be called a ‘property bubble’, then what is?

(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] FIVE US BANKS SHUT DOWN IN ONE GO

Regulators in the United States (US) had shut down Colonial BancGroup, a lender in real estate development, in the biggest US bank failure this year, and also closed four banks in Arizona, Nevada and Pennsylvania.

The failure of Colonial is expected to cost the deposit insurance fund an estimated US$2.8 billion.

Altogether, 77 US banks have been shut down this year, compared with 25 in 2008 and three in 2007.

FDIC officials warned that while home mortgages may have seen the worst year, commercial real estate loans are now facing tremendous challenges. There could be more defaults on such loans if the recession deepens.

So far, bank failures in the US have sapped out deposit insurance fund which stands at US$13 billion as of the first quarter of 2009. This means that another round of banking crisis is not a remote possibility, but a likelihood.

[A.2] DR TONY TAN SAID THE WORST OF CRISIS WAS OVER

The Government of Singapore Investment Corporation (GIC) deputy chairman and executive director Tony Tan said recently that the worst of the crisis seems to be over for Asia which is expected to continue to improve economically through 2010.

Dr Tan had earlier correctly predicted the ‘worst scenario’ though he was lambasted by many private sector economists after his ‘worst in 60 years’ prediction.

However, Dr Tan warned that the greatest risk to the outlook for Asia is a global economic and financial environment that does not stabilise and recover by 2010. Despite signs of stabilisation, downside risks remain high.
Besides the threat of ‘protectionism’, another risk is the US consumer spending less and saving more. This could result in sustained deflation, and America relapsing into recession.

[A.3] UNIONS WARNED OF PERMANENT LOSS OF SOME JOBS

Labour chief Lim Swee Say warned that retrenchments are likely to climb in the months to come as the ongoing global economic slump has prompted many manufacturers to downsize their operations here or move out of Singapore completely. And Mr Lim is worried that once these jobs are lost to Singapore, they will be gone forever.

Mr Lim said several unionised companies had told the NTUC that they would retrench over 1,500 workers later this year. This is because the companies do not see a pick-up in global demand and many do not want to hold on to spare capacity.

A decline in the jobs situation could lead to what Mr Lim described as a 'double-dip' - a W-shaped economic recovery.

Although preliminary second-quarter figures show this has since eased to 4,800, Mr Lim said this did not mean Singapore and the global economy were back on a path to growth. The outlook for the second half of the year remains uncertain, and layoffs were on the horizon.

[A.4] HOME LOANS MARKET ACTIVE AGAIN

What a difference three months make. Just then, amid gloom over the economic outlook and falling home price valuations, banks reportedly tightened lending criteria.

But now, a cocktail of low interest rate, the availability of money and the pent-up demand had fuelled the recent property rally. The slowing of Housing & Development Board construction over the years also helped to push some of the demand towards private condominiums which are always favoured by younger families. And the banks could also be instrumental in fuelling the rally as they are reportedly lending up to 90% of the home value recently.

According to Bloomberg data, the three-month Sibor has been hovering at about 0.68% for a few months, not far from the 10-year low of 0.56% in 2003. And most market observers do not expect interbank rates to go up in the near future as economic uncertainties still looms over the horizon.

[A.4.1] Bank Lending surged again in June 2009

According to an estimate by the Monetary Authority of Singapore (MAS) issued in mid-August 2009, the total amount of Singapore-dollar loans held by banks in Singapore went up by 0.5% to $272.2 billion at end-June, hot on the heel of an expansion in overall bank lending of 0.3% a month ago. The continuous rises give the market some self-belief that the Singapore economy could already be in the recovery mode.

Consumer housing and bridging loans were the main sources of growth, which rose 1.5% in June to $82.9 billion, after a 0.8% increase in May 2009.

Total consumer loans rose 1.5% in June 2009 to $118.7 billion at the end of the month, compared to $116.9 billion at end-May.

Business borrowing continues to fall for the eighth consecutive month in June, to $153.5 billion or 0.2%. The worst of the lots were borrowing from the manufacturing sector, shrinking 2.6% over the month to $11.2 billion. This simply means that orders in this particular sector continue to stay low.

(B) OVERALL PERFORMANCE OF PRIVATE RESIDENTIAL PROPERTY SEGMENT

As the global economy seems on track for a recovery, home buyers who have been restrained by the sudden meltdown of the financial market pounced on the property market with impunity, and along the way pushed the market to another historical high – barely a month after it hit the first historical height of 1,825 new homes sold in a month.

NEW HOME MARKET PERFORMING BEYOND ECONOMIC FUNDAMENTAL

By the end of July 2009, a total of 10,117 new home units have been sold in Singapore belying an on-going economic recession.

The phenomenal performance of the new home segment starting from May 2009.

[B.1.1] Almost half the total transactions of new homes were outside central region

Total transactions at the respective regions over the past seven months, with the Outside Central Region (OCR) chalking up the most impressive sale performance so far this year.

By percentage term, 45.18% of all the new home units were sold in OCR, with only 22.01% of them sold at the Core Central Region (CCR). The remaining 32.81% of the new home units changed hands in the Rest of Central Region (RCR).

Traditionally, foreign investors do not buy into heartland areas as home units there are mostly for ‘own use’ by locals. Likewise, capital appreciation in outlaying areas, if it occurs, will not be as fast and as huge as in the prime areas where more ‘big hitters’ are playing.

41 projects in CCR reported at least one transaction in July 2009, compared with a month ago where only 30 projects there did so. The highest median price achieved in July was $3,273 psf, way below the $3,813 psf recorded in June 2009. Though fewer projects were accounted for in CCR in June 2009, there were more transactions there as compared to July 2009.

Below are comparisons of sale prices between the June 2009 and July 2009 in some selected new condo/apartment projects in CCR.

• In JULY 2009, 18 units at Belle Vue Residences at Oxley Walk were sold at a median price of $1,869 psf, compared to 31 transactions in June 2009 at a median price of $1,786 psf. While the JULY’s median price of $1,869 psf was 8.56% lower than the $2,044 psf median price achieved in August 2008, it was 4.6% higher than June 2009’s median price.

• In JULY 2009, 15 units at Martin Place Residences at Kim Yam Road were sold at a median price of $1,741 psf, compared with 61 units sold in June 2009 at a median price of $1,536 psf. The July median price was 6.24% lower than its original median price when the project was launched but it was 13.34% higher than the June median price of $1,536 psf.

• In JULY 2009, a unit at Miro at Keng Lee Road was sold in for $1,770 psf, compared with 30 transactions in June 2009 at $1,436 psf. That was a 2.36% rise in median price.

FINDING – Despite the phenomenal rise in transaction volume in July 2009, sale prices in CCR continue to slide when compared with a year ago. However, when compared month-on-month with the June 2009’s median price, prices in July 2009 rose impressively. For example:

(a) The $2,792 psf median price achieved at The Hamilton Scotts in July 2009 was a 10.57% rise over the median price of $2,525 psf of June 2009.

(b) The July median price of $1,771 psf at RiverGate was a 14.2% increase over the median price of $1,551 psf in June 2009.

CONCLUSION – The recent buying frenzy has helped recover some lost grounds in home prices in CCR. There is conclusive evidence to show that the high-end new home segment has stabilised for now. However, whether prices will continue to climb remain a fluid proposition as the larger economy remains uncertain.

45 projects in RCR reported at least one transaction in July 2009, compared with a month ago where 43 projects did so. The highest median price achieved in July was $1,649 psf for five units at Reflections at Keppel Bay, compared with $1,501 psf achieved in June 2009 for one unit at Jardin along Upper Bt Timah Road. However, the sale volume dipped slightly in July 2009 compared with a month ago.

Below are comparisons of sale prices between June 2009 and July 2009 in some selected new condo/apartment projects in RCR.

• In JULY 2009, 48 units at Dakota Residences at Dakota Crescent were sold at a median price of $894 psf. The median price suffered an 8.6% drop when compared with last year’s $978 psf median price of June 2008. However, when compared month-on-month with the $870 psf median price in June 2009, there was a 2.7% rise in the price.

• In JULY 2009, 54 units at Clover by the Park at were sold at a median price of $745 psf. While it was a shade lower than the $753 psf median price in July 2008, it is a 2.2% rise in median price over June 2009.

• In JULY 2009, 16 units at Concourse Skyline at Beach Road were sold at a median price of $1,438 psf. It was a 9.67% drop in median price when compared month-on-month with the 68 units sold in September 2008 but an 8.2% rise in median price when compared with the 21 units sold in June 2009 at a median price of $1,329 psf.

• In JULY 2009, 18 units at Beacon Heights at the junction of St Michael’s Road and Mar Thoma Road were sold at a median price of $786 psf. It was a 14.28% drop in median price when compared with the 34 units sold in August 2008 but a 1.15% rise in median price when compared month-on-month with the 32 units sold in June 2009 at a median price of $777 psf.

• In JULY 2009, three units at 8@Woodleigh were sold at a median price of $956 psf, compared with 330 units sold in June 2009 at a median price of $804 psf. The latest median price was 18.9% higher than last month’s median price.

• In JULY 2009, 94 units at Parc Seabreeze were sold at a median price of $1,320 psf, compared with the 51 units sold there in June 2009 at a median price of $1,228. The latest median price was 7.49% higher than last month’s median price.

• In JULY 2009, 20 units at The Ariel were sold in July 2009 at a median price of $839 psf, compared with the 5 units sold there in June 2009 at a median price of $872. The latest median price was a 3.93% drop in median price.

Source of Data: URA website

FINDING – The price trend in RCR is similar to that of CCR with July 2009 median prices generally higher than those of June 2009 but much lower than last year’s. The same conclusion can be drawn for developers’ pricing strategy in RCR, i.e. they appear to be in a hurry to offload as many as they can.

[B.1.4] Sale of primary home units in Outside Central Region (OCR) hit over-drive

The sales volume at OCR soared more than three times to hit 1,502 units compared with 432 new home units sold in June 2009.

A total of 903 units were sold from four new projects launched in the Outside Central Region (OCR), accounting for the lion’s share of the total 1,502 units sold in OCR in July 2009. These projects included The Gale which sold 294 units with ease, Meadows @ Peirce which sold 286 units at a very bullish median price of $919 psf, Waterfront Key which sold 191 units, and Optima @ Tanah Merah which sold 132 units at $822 psf.

Together with the other 40 on-going projects, OCR hit back with a vengeance by closing an unprecedented 1,502 new home units in July 2009.

Price wise, the phenomenally high transaction volume did not shore up sale prices by much. Instead, units at the freehold project The Gale at Flora Road in Upper Changi/Loyang Area were transacted at a competitive median price of $696 psf. Though units at other projects were all selling at higher prices, the increase was restricted to around 5% to 6% over the June 2009 sale prices.

Below are comparisons of sale prices between the June 2009 and July 2009 in some selected projects in OCR.

• In JULY 2009, 107 units at Double Bay Residences were sold at a median price of $686 psf, compared with 39 units sold in June 2009 at a median price of $659 psf. The July median price was a 4.09% improvement over the previous month.

• In JULY 2009, 27 units at Waterfront Waves were sold at a median price of $687 psf, compared with 41 units sold in June 2009 at a median price of $651 psf. There was a 5.53% rise in median price in July 2009.

• In JULY 2009, 82 units at Livia were sold at a median price of $638 psf, compared with 35 units sold in June 2009 at a median price of $620 psf. There was a 2.9% increase in median price in July 2009

• In JULY 2009, three units at St Patricks’ Residences were sold at a median price of $894 psf, compared with 10 units sold in June 2009 at a median price of $835 psf. There was a 7.06% increase in median price in July 2009.

• In JULY 2009, 20 units at Coastal Breeze Residences were sold at a median price of $653 psf, compared with six units sold in June 2009 at a median price of $640 psf. There was a 2.03% increase in median price in July 2009.

• In JULY 2009, 33 units at Riz Haven were sold at a median price of $731 psf, compared with Six units sold in June 2009 at a median price of $694 psf. There was a 5.33% increase in median price in July 2009.

Source of Data: URA website

[B.2] PRICIER UNITS MAKING UP BIGGER SHARE OF HOME SALES

The proportion of private homes sold at over $1.5 million has risen by 6% in June and July 2009. According to a DTZ analysis, 18% of caveats lodged from January to June this year were for apartments in this price range.

From January to April, private homes costing more than $1.5 million accounted for a smaller 12% of the 4,401 caveats lodged.

According to URA data, 72% of the 1,637 units launched by developers in June 2009 were from the core central region and rest of central region. This was a marked increase in quantity of quality home units launched when compared with April 2009.

74.4% of the total 2,227 new home units sold in CCR occurred in May, June and July. 67% of the total of 3,319 new home units sold in RCR was likewise done in May, June and July 2009.

Some of the examples include Allgreen Properties’ freehold One Devonshire near Killiney Road where a caveat showed a unit costing $2.02 million or $1,690 psf was sold.

Sim Lian also launched Rochelle at Newton in May. Several caveats were lodged for units above $1.5 million, with one going for $1.83 million or $983 psf.

A unit at The Oceanfront@ Sentosa Cove changed hands at $11.5 million or $1,922 psf.

Seven units at Ardmore Park were also sold at $6 million or more each, with the highest at $7.25 million or $2,513 psf.

(C) PERFORMANCE OF NON-RESIDENTIAL PROPERTY SEGMENT

While the private residential segment was basking in glory, the commercial and industrial property segments are both in sorrowful state with rent quantum and occupancy rate sinking into new depth.

[C.1] STEEPEST FALL IN OFFICE OCCUPANCY COST IN SINGAPORE

Singapore has become more competitive in terms of business costs under a dubious circumstance, i.e. the plunging office rents. The weakening demand for office space and rising supply have conspired to cause the negative net take-up of office space for three consecutive quarters since Q4 2008.

According to Colliers International, monthly gross rents for Grade A offices in Singapore's central business district (CBD) posted the sharpest fall in Q2 2009, compared with other major cities in the region. Rents in CBD are now at about $6.73 psf per month in Q2.

Though other analysts are making similar but different projections, the outcome does nothing to cheer any commercial landlords.

Cushman & Wakefield's mid-Q3 analyses show a slower decline in prime office rents. For instance, Raffles Place Grade A office rents fell 18% from $10.61 in Q1 to $8.70 in Q2. But since then, they have dipped just 2.9% to $8.45.

Jones’ Lang Laselle has put the average monthly rental value for prime Grade A Raffles Place (small space) at $9.50 psf in Q2 2009, about half the peak figure of $18.40 psf in Q3 last year.

Prime office rents in the Shenton area dropped 5.8% from Q2 to $6.32 - a smaller decline compared with the 17.9% drop from $8.17 in Q1 to $6.71 in Q2.

The prime office vacancy rate at mid-Q3 is 6.1%, up 0.4 of a percentage point from Q2.

[C.1.1] Office rents unlike to go up in near term

Due to some companies’ plan to downsize in the months ahead, the downward pressure on rents in the next few quarters and positive take-up of space might not emerge until next year.

At the moment, leasing activity has been dominated by companies relocating for better propositions, such as more competitive rents or more efficient floor plates.

According to URA figures, the pipeline supply for the office sector stood at about 13.3 million sq ft gross floor area as at end-Q2 2009, of which about 12 million sq ft is slated for completion by 2012.

[C.2] PREPARED INDUSTRIAL LAND ALLOCATION FELL IN Q2 2009

The net allocation of JTC prepared industrial land performed poorly in Q2 as the economic recession starts to rear its ugly head in the industrial segment. Almost a quarter of terminations were due to companies shutting down operations – with nearly half of total terminations coming from the electronics segment.

JTC's Q2 facilities report shows net allocation at negative 32.2 hectares, compared with a net allocation of plus 14 ha in Q1 and 34 ha in Q2 2008.

Gross allocation in Q2 this year slid to 5.4 ha. And termination jumped to 37.6 ha, from 16.7 ha in Q1.

(D) PERFORMANCE OF COLLECTIVE SALE

As private home prices have risen by 16% to 26% in July 2009 from the lowest point in March 2009 and sales volume has surged 200% year-on-year, the current rally is similar in outlook as the recent 2007 bull-run, though the current state of the economy is anything but uncertain. However, hopeful en bloc site sellers cannot help but to try their luck at this juncture. But whether the speculative prod at collective sales will yield any results, nobody is the wiser.

[D.1] INTEREST IN RESIDENTIAL LAND REKINDLED

The number of en bloc sales has fallen from 116 collective sales completed in 2007 to eight such deals in 2008. As for 2009, the looming uncertainties have made any talk of an emerging en bloc sales drive highly premature.

However, this year's only collective sale tender so far, for Dragon Mansion at 18 Spottiswoode Park Road, has closed with more than one interested bidder. However, the marketing agent stopped short at revealing the offers.

Dragon Mansion is a small-size site with only 41,874 sq ft to boast. It has a plot ratio of 2.8 and could potentially yield an estimated 120 units of 1,000 sq ft apartments in a new development. The main selling point of this site is its freehold status.

[D.2] GUILLEMARD ROAD APARTMENT ON EN BLOC SALE MARKET

The newfound optimism in the market has prompted Cassia View at 320 Guillemard Road to be put up for sale by expression of interest. The freehold development sits on a 35,511 sq ft site and comprises 72 two- to three-bedroom apartments and penthouse units, with a total strata area of 89,362 sq ft.

The marketing agent said it has received nearly 10 preliminary inquiries about the site and expects to have at least three serious bids by the time the offer closes in early September.

[D.3] ELEVEN APARTMENTS ON BALMORAL ROAD ON EN BLOC SALE MARKET

A development of 11 freehold apartments on No 3 Balmoral Road is on the en bloc sale market for $65 million. The apartments are owned by an investment company which has leased out all the units.

The land area is 23,821 sq ft and it has a permissible plot ratio (ratio of maximum gross floor area to land area) of 1.6 and a height restriction of 12 storeys. The site can be redeveloped into 30 residential units.

The $65 million price works out to $1,705 per square foot per plot ratio (psf ppr) based on the 1.6 plot ratio.

[D.4] TEACHERS HOUSING ESTATE ON EN BLOC SALE MARKET

An 86,402 sq ft plot at No 162 Tagore Avenue, within the Teachers Housing Estate, has been put up for collective sale with an indicative price of $15 million. It will be sold on a 99-year leasehold tenure by the Singapore Teachers' Union, which holds the freehold interest in the property.

The Tagore Avenue site, although currently zoned as 'civil & community institution', has the approval for a three-storey mixed landed development, allowing a potential development of either 33 landed homes or 40 cluster houses.

(E) FOREIGNERS’ INTERESTS IN SINGAPORE REAL ESTATE

There are two sides to the same story of the abundant opportunities available in the current weakness in high-end home prices. On the one hand, foreign buyers are reportedly coming back to Singapore to take advantage of the competitive prices; but on the other hand, some foreign owners are disposing of their high-end properties in Singapore at huge losses. How the situation will pan out later is anybody’s guess. Will there be more foreigners trying to get rid of the ‘hot potatoes’ on hand or will there be more buying in the months to come?

Lest one forgets, the current global economic downturn inflicts the rich in the developed countries more than it does the heartlanders in Singapore. The script has not been completed yet as far as the story of economic recovery is concerned.

[E.1] HONGKONGER OWNER SOLD HILLTOPS CONDOS AT HUGE LOSSES

18 apartments at Hilltops condo at Cairnhill Circle were disposed of in late August 2009 in the sub-sale market for a total of $48.2 million or an average price of about $2,560 per square foot (psf), which is a far cry from the average price of around $3,900 psf for the first 28 units.

A check with SISVREALINK data showed that NINE units were sold by the project's developer, SC Global subsidiary Taraville, between October and December 2007 at prices ranging from $3,501 psf to $4,812 psf or at absolute prices of between $4,371,500 and $43,146,832.

By such extrapolation, the loss suffered by the seller was estimated to be more than 35%.

[E.2] PROPERTY FUND SNAPS UP 21 CONDO UNITS FOR $65M

Bulk sales of apartments, or marriage deals between developers, involving huge ‘bulk discounts’ seem to be a common phenomenon during recession. An overseas property fund is understood to have made a ‘bulk purchase’ of the remaining 21 units at Sui Generis condo at Balmoral Crescent for $65 million.

The price works out to about $1,260 per square foot (psf) on average, which is thought to be about half the average price of about $2,460 psf achieved for the earlier 19 units in the 40-unit development that were sold in 2007 and 2008 at prices ranging from $1,991 psf to $2,717 psf.

[E.3] INVESTMENT SALES STILL IN THE DOLDRUMS

The investment sales deals struck in the first six months of this year is only about $2.2 billion, compared with $17.9 billion for the whole of last year and the record $53.7 billion in 2007.

However, experts reckon that things will get slightly better in the second half of this year as demand for Government's reserve list has warmed up and sales of some big-ticket items can be expected to come to fruition.

Besides, Lion Properties Group has recently disposed of the 50-room Hotel Nostalgia in the Tiong Bahru area for about $22 million. Hotel Nostalgia, a freehold property, is expected to receive Temporary Occupation Permit soon.

An expression of interest closed last week for a portfolio of four malls owned by Asian Retail Mall Ltd (ARML) 1 fund, which comprises White Sands in Pasir Ris, Century Square in Tampines, Hougang Mall, Tiong Bahru Plaza and the next door Central Plaza office block. The seller is asking for $1.5 billion for the above properties.

(F) GOVERNMENT LAND SALE (GLS) PROGRAMME

[F.1] GOVERNMENT RESIDENTIAL SITE AT SERANGOON AVE 3 UNLOCKED FOR TENDER

A 99-year leasehold residential site at Serangoon Avenue 3 in front of Nanyang Junior College has been triggered off for release from the reserve list.

A developer has put in a minimum price bid of $83.7 million for the plot for the Urban Redevelopment Authority (URA) to unlock the reserve site and put it up for public tender.

The proposed bid price of $83.7 million works out to about $200 per square foot of potential gross floor area. URA will release the site for tender in about two weeks.

[F.2] GOVERNMENT RESIDENTIAL SITE AT SELETAR HILL AREA TRIGGERED FOR SALE

A URA’s 2.1ha commercial and residential site at the corner of Yio Chu Kang and Seletar roads has been triggered off for sale after a developer committed to bid at least $40.5 million for it.

The site is the third URA site triggered for sale in as many weeks after developers tendered bids on land in Dakota Crescent and Chestnut Avenue.

With a gross plot ratio of 1.4, the Yio Chu Kang site which is near the future Seletar Aerospace Park, can generate a maximum permissible gross floor area of about 29,400 sq m. URA estimates the site can accommodate 225 housing units. Shops and food and beverage outlets can be built on 4,500 sq m of commercial space within the proposed development.

[F.3] KAKI BUKIT INDUSTRIAL SITE ATTRACTS 18 BIDS

A 1.07 ha industrial site along Kaki Bukit Road 2 put up for sale by the government attracted 18 bids by the close of tender.

URA said that the highest bid received for the 30-year leasehold site was $12.1 million, more than double the minimum bid price of $5 million.

The highest bid works out to be around $105 per square foot per plot ratio (psf ppr), with the second highest at $90 psf ppr.

(G) OVERALL PERFORMANCE OF HDB RESALE MARKET

Like its private counterpart, HDB resale flats are doing very well in recent months. The strong improvements in sales volume starting from February 2009.

With the advent of more permanent residents (PRs) and the media drumming up the ‘economic recovery’ story, buyers are coming out in full force to compete for ‘good’ units at popular locations, driving resale prices at the same time.

August update

2009-08-08T22:36:00.005+08:00

MONTHLY PROPERTY MARKET DIRECTION UPDATE

Introduction

Is there a real estate bubble; or is there not? This is also what we are asking ourselves now. This report will show readers that despite being in one of Singapore’s deepest recession, new home sales broke the national record of having the highest number of new units (i.e. 1,825 units in all) sold at all time. However, when prices are scrutinised another picture emerges. It appears that housing developers are in the hurry to offload their inventories by keeping prices at very affordable level. At this moment, the situation still intrigues most property analysts as to who will be the real winner at the end of the day.

(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] MINISTER MAH CAUTIONED AGAINST EXCESSIVE SPECULATION

Where the taxman added more confusion and unnecessary trepidation by the untimely announcement of the Gain Tax, Minister Mah Bow Tan scored with his usually crisp comment that the Government will take 'whatever action necessary' to prevent excessive speculation in the property market.

However, as of now, Mr Mah does not believe “there is excessive speculation at the moment, but there is some element of speculation involved”. He pointed out that “some of the practices and habits that you saw in the last property boom are beginning to come back, so I think we'll have to be careful.”

He also warned about a property bubble forming.

Recently, the mass market segment has gone crazy with frequent sightings of long queues curling in front of new show rooms days before they were opened. For example, Optima, next to the Tanah Merah MRT and the 329-unit Centro Residences opposite Ang Mo Kio MRT station.

[A.2] SLIGHT IMPROVEMENT IN FOREIGN PURCHASERS’ SHARE AND SUB-SALE VOLUME

According to URA data, the number of sub-sale deals for private homes reached 1,041 in the second quarter (Q2) of 2009, and the median sub-sale price has likewise gone up to $959 psf or 18.1% over Q1 2009.

HDB upgraders' share of total caveats, which had been increasing for six consecutive quarters since Q4 2007, slipped in Q2 this year as purchases by those with private addresses rose at a faster pace. (see statistics of new home sales at Outside Central Region (OCR)B.1.3.

Q2 2009 also saw higher number of mid and mid-upper projects being launched and these are products that are typically beyond the reach of HDB dwellers. Coupled with the fact that there were fewer launches of mass-market projects in Q2 2009, the share of HDB dwellers of total purchases was therefore smaller this time round.

The number of caveats for private homes lodged by foreigners, including PRs, showed the same upward trend, reaching 1,418 in Q2 compared with 496 with Q1 2009. This is not surprising as the market has reached fever pitch.

[A.3] RETRENCHMENT CONTINUES IN SINGAPORE WHILE FEWER NEW JOBS WERE CREATED IN Q2 2009

According to a preliminary report from the Ministry of Manpower (MOM) published on 31 July 2009, a total of 5,500 workers lost their jobs in the second quarter (Q2) of 2009; and this is less than half the 12,760 redundancies in Q1 2009.

2,600 workers lost their jobs in the manufacturing sector in Q2 2009, compared with 9,250 in Q1 2009. 2,400 workers were laid off in the service sector in Q2 2009, compared with 3,170 in Q1 2009. The rest of the 500 workers who lost their jobs were from the construction industry.

Total employment was also reduced by 12,400 in Q2 2009, double the losses in Q1 2009.

[A.4] US JOBLESS RATE TO STAY HIGH – A REAL BAD NEWS

The US Federal Reserve expects the unemployment situation to worsen this year, probably topping 10%. The central bank previously predicted that job losses will be around 9.6%. The nation's unemployment rate climbed to a 26-year high in June 2009, hitting 9.5%.

The Fed also gives a range of all the forecasts including some officials’ expectation that the jobless rate would hit 10.5% this year, and 10.6% in 2010.

The post-World War II high was 10.8% at the end of 1982, when the country had suffered through a severe recession. The jobless rate averaged 5.8% last year.

(B) OVERALL PERFORMANCE OF PRIVATE RESIDENTIAL PROPERTY SEGMENT

[B.1] SOMETHING BIZARRE IS HAPPENING IN THE NEW HOME MARKET

Officially, Singapore is still in one of the worst recessions it ever had. But the country is in one of the best property bull runs as 1,825 new home units were sold in June 2009, knocking down the highest sales record of 1,723 new home units sold at the height of the 2007 bull-run before the market came to an abrupt halt.

And since February 2009, property analysts have been saying the rally would not last. Nothing can be more bizarre than this. The rally just defies logic.

By now, property developers have already sold more than 7,300 units in all. In theory if the situation remains more or less stable, the full year take-up may well exceed the record sale of 14,811 new home units.

But before any educated guesses are made, two things need to be ascertained: (1) the sale prices achieved so far this year; and (2) the market trend of home rents.

So far, it has been ascertained that prices of new home units did not improve much (please refer to last two reports in June and the findings in the July ‘Property Market Direction’ magazine). In subsequent chapter, we will look at the fall home rents and determine how long more before the ignorant buyers will wise up. First of all, let’s look at the details of the new home transactions.

[B.1.1] Good sales number at Core Central Region (CCR) but developers appear to be in a hurry

In June 2009, high-end homes in CCR sold 526 units from 34 projects, compared with 617 units from 32 projects in May 2009. This shows that developers are launching more projects but had sold fewer units in CCR. Likewise, median prices across the board appeared to be rather subdued.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected new condo/apartment projects in CCR. The June transacted prices are also compared with April prices to make sense of the actual market situation.

• 22 units at Zenith at Zion Road were sold in January 2008 at a median price of $1,682 psf, compared with two recent transactions in June 2009 at a median price of $1,300 psf (in April 2009 the median price was $1,199 psf).

• 13 units at Mulberry Tree at Moulmein Road were sold in September 2008 at a median price of $1,337 psf, compared with two May 2009 transactions at a median price of $1,198 psf (in April 2009 four transactions were done at between $1,194 psf and $1,217 psf).

• Three units at Visioncrest were sold in July 2008 at a median price of $2,123 psf, compared with two transactions in June 2009 at a median price of $1,730 psf (in April 2009 the median price was $1,651 psf).

• Six units at Belle Vue Residences at Oxley Walk were sold in August 2008 at a median price of $2,044 psf, compared to 31 transactions in June 2009 at a median price of $1,786 psf (in April 2009 the median price was $1,503 psf).

• Two units at Martin Place Residences at Kim Yam Road were sold in April 2008 at a median price of $1,857 psf, compared with 61 units sold in June 2009 at a median price of $1,536 psf. (in May 2009, a total of 186 units were sold at a median price of $1,423 psf)

• A unit at Miro at Keng Lee Road was sold in October 2008 at a median price of $1,616 psf, compared with 30 transactions in June 2009 at $1,436 psf. There was a fall of 11.13% in median price.

• A unit at Orchard Scotts at Anthony Road were sold in October 2008 at $2,407 psf, compared with a June 2009 transaction at $1,750 psf. There was a fall of 27.29% in median price.

Finding: Despite the spike in transaction volume, sale prices in CCR continue to slide when compared with a year ago. However, in general the improved sentiments recently did edge up sale prices a notch. Let’s look at two typical examples.

(1) 61 units at Martin Place Residences units were sold in June 2009 at a median price of $1,536 which was 17.28% cheaper than the median price of $1,857 psf transacted in April 2008. However, when compared with the 186 units sold in May 2009, the June 2009 median price was about 8% stronger than the $1,423 psf in May 2009.

(2) 31 units at Belle Vue Residences were sold in June 2009 at a median price of $1,786 psf which was 12.6% cheaper than the $2,044 psf median price achieved a year ago. However, the June median price was a 18.8% improvement over the $1,503 psf median price achieved in April 2009.

Conclusion: Housing developers in general appear to be in a hurry to offload units before the flood of completed new home units hit the market in the final quarter of this year.

[B.1.2] Record sales volume at Rest of Central Region (CCR) but prices are falling

In June 2009, a total of 876 units were transacted from 46 projects, compared with 609 new home units sold at 38 projects. This was a 43.8% surge in sales performance over the previous month.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected new condo/apartment projects in RCR.

• 144 units at Dakota Residences at Dakota Crescent were sold in June 2008 at a median price of $978 psf, compared with 27 units sold in June 2009 at a median price of $870 psf. (10 units were sold in May 2009 at a median price of $883 psf)

• 100 units at Clover by the Park at were sold in July 2008 at a median price of $753 psf, compared with 33 sold in June 2009 at a median price of $729 psf. (16 units were sold in April 2009 at a median price of $730 psf.)

• 68 units at Concourse Skyline at Beach Road were sold in September 2008 at a median price of $1,592 psf, compared with 21 units sold in June 2009 at a median price of $1,329 psf. (20 units were sold in May 2009 at a median price of $1,314 psf)

• 47 units at The Peak @ Balmeg at Balmeg Hill were sold in September 2008 at a median price of $1,011 psf, compared with 13 transactions in June 2009 for a median price of $1,019 psf. (two transactions in April 2009 of between $935 psf and $950 psf).

• 34 units at Beacon Heights at the junction of St Michael’s Road and Mar Thoma Road were sold in August 2008 at a median price of $917 psf, compared with 32 units sold in June 2009 at a median price of $777 psf. (four units were sold at a median price of $771 psf in April 2009).

• Four units at Woodsville 28 were sold in August 2008 at a median price of $919 psf, compared with 12 units sold in June 2009 at a median price of $770 psf. (34 units were sold in April 2009 at a median price of $751 psf).

Source of Data: URA website

Finding: The price trend in RCR is similar to CCR with June 2009 median price higher than April 2009 but much lower than last year’s. The same conclusion can be drawn for developers’ pricing strategy in RCR, i.e. they appear to be in a hurry to offload as many as they can.

Median price in June 2009 improved slightly over the previous month due to the support provided by the buying frenzy. However, when compared to the same time last year, median price in RCR still has much lost ground to claw back.

[B.1.3] Sale of primary home units in Outside Central Region (OCR) slides

In all, a total of 432 new home units from 39 projects were sold in June 2009, compared with 442 new home units in 40 projects sold in OCR a month ago. However, when compared to the sales performance of 787 new home units sold from 40 projects in March 2009, the June 2009 figure was a drop of 44.5% in volume. It appears that the buying momentum caused by the droves of HDB upgraders is on the wane.

Below are comparisons of sale prices between the whole of 2008 and June 2009 in some selected projects in OCR.

• 22 units at Breeze By The East at Upp East Coast Road were sold in April 2008 at a median price of $948 psf (with the highest psf price at $1,080 psf), compared with 16 units sold in June 2009 at a median price of $838 psf. (Three units were sold at a median price of $740 psf in April 2009).

• Seven units at The Amery at Lorong K Telok Kurau were sold in July 2008 at a median price of $877 psf, compared with four units sold in June 2009 at a median price of $863 psf. (Three units were sold in April 2009 at prices between $727 psf and $863 psf).

• Seven units at Naturalis at Lorong M Telok Kurau/Still Road were sold in September 2008 at a median price of $909 psf, compared with four units sold in June 2009 at a median price of $830 psf. (Three units were sold in April 2009 at prices between $827 psf and $881 psf).

• Four units at Park Natura at Bt Batok East Ave 6 were sold in February 2008 at a median price of $1,034 psf, compared with two units sold in June 2009 at a median price of $950 psf. (Three units were sold in April 2009 at a median price of $949 psf).

Source of Data: URA website

[B.2] CONDO RENTS CONTINUE TO FALL – ALBEIT SLOWER THAN BEFORE

The number of condo projects that meet the URA criterion of at least 10 tenancy agreements signed in a quarter increased by 40 projects (or 20.7%) from 193 projects in Q1 2009 to 233 in Q2 2009. This may mean higher instances of ‘break lease’ cases – which mean that the tenants may have exercised the ‘diplomatic clause’ and terminated the tenancy agreements earlier, resulting in higher number of tenancy agreements being replaced within the respective projects – hence more entries into the data.

Another telltale sign is the comprehensive rent fall amidst higher number of rental transactions. When the increase in tenancy agreements was caused by higher demand, the rents amount would have gone up instead of coming down. As such, the higher number of tenancy agreements amidst falling rents could have been caused by tenants going through some ‘financial adjustments’ during this difficult time.

Some of the rent drops were severe, for example:

 At District 9, Cairnhill Crest the median rent dropped from $6.43 psf per month to $4.10 psf pm, which worked out to be 35.23% drop in rent.

 In other popular locations such as District 3 Queens at Stirling Road, the median rent dropped $1 psf per month from $4.52 psf pm to $3.52 psf pm or 22.12% slide.

 The median rent at Water Place at District 15 also dropped $1.73 psf pm or 37.7% from $4.59 psf pm to $2.86 psf pm.

The year-on-year comparison of private home rents of 100 quality condos between Q2 2008 and Q2 2009 across different districts. Both sets of statistics for Q4 2008 and Q1 2009 were culled from the URA’s rental price index where information on rents collected at condo/apartment projects with at least 10 tenancies is captured.

 [B.2.1] Median month rent below $2.00 psf

From the statistics available, it appears that in Q2 2009 there were a total of 46 projects (or 20% overall) having their median rent going below $2.00 psf per month. In Q1 2009, only 35 projects (or 18% overall) were renting at below $2.00 psf pm in median rent. These projects are either very old former HUDC flats or are located at outlaying areas including districts 17, 18, 19, and 23.

In Q2 2009, a total of 109 projects (or 47% overall) enjoyed median rent of below $3.00 psf per month. In Q1 2009, 126 projects (or 65% overall) were renting below $3.00 psf pm.

The other 78 projects (or 33% overall) shown in the URA statistics enjoyed rents of above $3.00 psf per month in Q2 2009. The majority of the projects are located near the central business districts including Districts 1,2,3,4,5,7,8,9,10,11, and 15. Only two units at two relatively newer projects in the outlaying districts, i.e. Gardenvista and Lakeshore managed to rent out for $3.32 psf pm and $3.48 psf pm respectively.

In Q1 2009, 39 projects (or 20% overall) featured in the URA record enjoyed rents of above $3.00 psf per month. However, despite the 2-fold increase in the number of projects enjoying above $3.00 psf rent per month, more high-end projects rather than fewer are suffering from sliding rents.

At the very top end of the home rent spectrum, only six projects had units renting out at $6.00 psf pm or higher. The rental prices of high-end condo units in District 9, 10 and 11 also succumbed to the general downward slide. In Q2 2009, only one unit at The Pier at Robertson managed to rent out at above $6.00 psf pm threshold. The unit was rented out at $6.08 psf pm.

New Launch!

2009-07-21T11:36:00.005+08:00

Its been 8 yrs snice a new project is being launch in Ang Mo Kio the latest being Grandeur 8.

Finally we all been waiting for the launch of a new project which many have been eyeing on snice 2years ago.

Some info about project:
34 storey single block of 329units. 255carpark lots.

2/3/4/Penthouse

2 rooms approx. 775sqft-885sqft.est 124 units.
3 rooms approx. 914sqft-1025sqft.est 136 units.
3 rooms(excutive)approx. 1104sqft-1208sqft.est 36 units.
4 rooms approx. 1305sqft. est 28 units.
4 rooms Penthouse approx. 1740sqft-2704sqft.est 5 units.

Prices Est. $800k up for 2 rooms, Est. $950k up for 3 rooms.

Mins to Ang Mo Kio Mrt,Interchange and Ang Mo Kio Hub.
3 views available ie. City View, Yishun View and Ang Mo Kio Park View.

All you need is a cheque to gain access to the VIP Launches this coming 29th July and enjoy a discount of up to 12%. IAS and NPS available(price 3% different).

Expected TOP Dec 2014.

June Updates

2009-06-24T14:47:00.003+08:00

Introduction

Don’t bring out the Champagne yet. Yes, the worst does seem to be over for now; but NO, it is not time for celebration yet.

At best, this is a situation like a doctor declaring a critically ill patient ‘stable’ but still needed in the intensive care unit. It does not mean that the patient will leap from the bed and ‘boogie’ again. How long the patient will remain bed-ridden and be highly dependent on intensive care remains an agonising mystery. Worse still, nobody can be sure that the patient will not suffer a relapse after a while.

This is the problem we are facing right now as many of our customers do not seem to be able to differentiate ‘stabilising’ from ‘full recovery’. Official statistics are still pointing to an economic contraction, though things are beginning to look ‘less menacing’. But to call this the beginning of the revival is ‘jumping the gun’ and uninformed.

The situation now is at best uncertain and ambiguous. Some economists said over the recent weeks that the world is entering a twilight zone of conflicting signs, with key indicators pointing towards a recovery but economic data continues to be grim and employers continue to trim jobs; and such view is echoed by the Ministry of Trade of Industry (MTI) in Singapore.

It is true that some semblance of confidence has crept back to the real estate market, resulting in heightened home-buying activities in March, April and May 2009. Some bargain hunting has definitely taken place with buyers hoping to own a piece of prime real estate at the posh locations with more affordable price. But the luxury market is still devoid of any actions despite the much taunted opening of Singapore’s first casino in six months’ time.

This month’s review will attempt the million dollar question of ‘is it’ or ‘is it not’ a real market revival.

(A) Overview of the Larger Economy

[A.1] Singapore Finance Minister not Optimistic

First and foremost, the Singapore Finance Minister Tharman Shanmugaratnam had said in late May that it was ‘still too early' to conclude that the world economy is in 'recovery mode'. For one, he did not believe that the ‘green shoots’ in some countries and specific industries will spread across the world economy; nor did he believe they would last.

His message was sombre and cannot be ignored, that is, 'a large part of the world economy is still contracting. Even among the optimists, the consensus is that the recovery, when it materialises, is likely to be weak, given the magnitude of the unresolved problems in the global financial system.

[A.2] IMF Forecasts Slow Recovery for the World

Economists from the International Monetary Fund (IMF) forecast that the Singapore economy will contract by 10% this year and then followed by flat growth next year.

Asian exports and investment spending, including Singapore’s, are likely to stay weak for years as easy credit in the US is all but gone, and demand by the heavily indebted US consumers for high and medium-tech manufactured exports, such as cars, cosmetics, and electronics products is likely to stay subdued for many years.

IMF figures also showed that Europe sank deeper into recession in Q1 2009. Data showed that France, Austria and Romania officially entered recession and Germany recorded its worst quarter on record. Likewise, the 16-nation euro zone shrank by a record 2.5%.

In Japan, car exports plunged almost 70% between September 2008 and March 2009. And exports to China from the rest of emerging Asia declined 80% in the same period. In the meantime, Japanese central bank data hinted that the Japanese economy may be facing a repetition of its 1990s deflationary spiral when falling prices led to weak consumer spending.

[A.3] Employees in Singapore Set to Get Lower Wages in 2009

A recent international ‘salary hikes’ Survey conducted by a human resource consultancy across the Asia-Pacific region in the January-February 2009 showed that 36% of the 89 companies polled in Singapore shared the same thought of freezing pay this year.

The survey also showed that employers in Singapore have trimmed their budgets for 2009 salary increments to a median 3%, down from 4.3% in November 2008.

This makes the pay hikes in Singapore the lowest at a time where salaries across the Asia-Pacific region are set to grow by a median 5%.

[A.4] MTI Believes Worst is Over; but Downside Risks Remain

And finally when some ‘slightly better news’ arrived from the Ministry of Trade and Industry (MTI) i.e. that the Singapore economy has probably bottomed and things have stopped getting worse, the government looks set NOT to increase the stimulus package beyond the original S$20.5 billion. This means that while many who are waiting for things to return to normalcy, there will be more ‘belt tightening’ for corporations as well as individual consumers as a second fiscal aid is unlikely.

MTI had announced that Singapore GDP shrank 10.1% in Q1 year-on-year, the sharpest on-year contraction since the country’s independence.

However, the biggest irony of all was that the Singapore stock market cheered the figure because it was better than the minus 11.5% initially estimated by MTI.

Besides, according to MTI, downside risks are still high because of the uncertainties in US banking, where lending continues to be restricted, and the risks of a second round of financial sector collapses cannot be totally ruled out.

In short, it is MTI’s unequivocal position that for now ‘it is not clear that Singapore has begun to rebound from the bottom’.

[A.5] Business Volume and Bank Loans Dropped in Tandem

Estimates from the Monetary Authority of Singapore (MAS) show a 0.3% slide in the total Singapore-dollar bank loans at $270 billion at end-April. The same official data showed that loans to businesses contracted by $92.3 billion, or some 5.7% over the half-year to end-April.

Loans to businesses fell 1.1% in April to $154 billion, the sixth consecutive monthly decline. Lending to the manufacturing sector dipped 3.1% over the month to $11.5 billion. And rather unexpectedly, loans to the building and construction sector also dipped 0.1% to $50.8 billion.

Only consumer lending was growing with total consumer loans rose 0.8% in April to $116 billion at the end of the month. That included $81 billion worth of housing and bridging loans, which grew 0.6% over the month. However, unpaid personal debts also rose in the midst of the economic gloom. All together, banks wrote off $15 million in credit-card bad debt in April, the most since December 2004.

[A.6] Inflow of Foreign Fund to Asia Stopped

In Hong Kong, foreign funds investing in equities there have started to move out in mid-May 2009. A net US$3.3 million flowed out in mid-May after US$59.4 million had been invested in the first week of May 2009.

Likewise, foreign cash flowing into funds buying China shares in Singapore dropped by almost half to US$273.3 million at the same time from a weekly average of US$501.4 million in late April and early May period.

Foreign investors have stayed muted over Singapore. They poured only about US$8 million into funds investing in local equities in mid-May. The bulk of trading on the bourse here is still driven by retail investors.

Some analysts are also worried that the sharp rise in valuations in emerging Asian markets might not be supported by a similar recovery in corporate earnings as their main export markets in the United States and Europe remain mired in recession.

(B) Overall Performance of Private Residential Property Segment

[B.1] Cautious Optimism Reinvigorated Private Home Sales

Data from the Urban Redevelopment Authority (URA), shows 1,207 new home units sold in April 2009. Judging by the way things go, it will not surprise anyone if new home sales in the second quarter were to reach 3,000 units.

The recent stock market rally across the globe has given the sentiment in the property market a huge boost. Developer sales in the January-April period have already reached 90% of the whole of 2008. In the first quarter (Q1) of 2009 alone, a total of 2,660 homes were sold.

[B.1.1] High-end homes in Core Central Region (CCR) sold well

High-end homes in CCR sold 322 units compared with only 133 homes sold in March 2009. The sale performance in CCR is a 19-month high.

What is interesting is that many projects witnessed higher unit price of above $1,000 psf, which was not seen in the past 18 months. This is evidence that the market sentiment has improved. However, one can also interpret that developers’ pricing strategy had attracted better buying interests.

The following comparisons in sale price may be able to throw some lights on the factor(s) causing the recent buying activities. In fact, it is not difficult to notice that the psf prices of new home units were much higher last year. It means that developers have indeed adjusted their asking prices in order to quickly offload unsold units.

Below are comparisons of sale prices between the whole of 2008 and April 2009 in some selected new condo/apartment projects in CCR.

• 22 units at Zenith at Zion Road were sold in January 2008 at a median price of $1,682 psf, compared with three recent transactions at a median price of $1,199 psf.

• 19 units at RV Suites at River Valley Road were sold in November 2008 at a median price of $1,350 psf, compared with 35 recent transactions at a median price of $1,180 psf.

• 12 units at Mount Sophia Suites at Sophia Road were sold in January 2008 at a median price of $1,719 psf, compared with 20 recent transactions at a median price of $1,231 psf.

• 16 units at Parc Sophia were sold in August 2008 at a median price of $1,474 psf, compared with two units sold in April 2009 for $1,018 psf and $1,070 psf respectively.

• 13 units at Mulberry Tree at Moulmein Road were sold in September 2008 at a median price of $1,337 psf, compared with four recent transactions at between $1,194 psf and $1,217 psf.

• Three units at Visioncrest were sold in July 2008 at a median price of $2,123 psf, compared to a median price of $1,651 psf in April 2009.

• Six units at Belle Vue Residences at Oxley Walk were sold in August 2008 at a median price of $2,044 psf, compared to two units sold at a median price of $1,503 psf in April 2009.

• Three units at Luma at River Valley Grove were sold in March 2008 at a median price of $2,754 psf, compared with one recent transaction at $1,548 psf.

• Two units at Lucida at Suffolk Road were sold in July 2008 at prices ranging between $1,442 psf and $1,459 psf, compared with eight recent transactions at a median price of $1,100 psf.

• A unit at The Lincoln Residences was sold in September 2008 for $1,435 psf, compared with 39 units recently transacted at prices ranging between $927 psf and $1,293 psf.

Source of data – URA

Conclusion: It appears that most developers have lowered the asking prices significantly so as to clear the inventory of ‘leftover’ units in projects that have already been launched publicly since last year.

In fact, it will become more challenging for developers to offload ‘leftover’ units when the projects reach their TOP stage. This is because by the TOP stage, buyer’s attention will be shifted to the completed units for sub-sales.

* [B.1.2] Mid-tier homes in Rest of Central Region (RCR) did not disappoint either

In all, a total of 362 new home units in 33 projects were sold in RCR in April 2009, compared with 300 units sold in March. See table below for details.

Below are comparisons of sale prices between the whole of 2008 and April 2009 in some selected new condo/apartment projects in RCR.

• 100 units at Clover by the Park at Bishan were sold in July 2008 at a median price of $753 psf, compared with 16 units recently sold at a median price of $730 psf.

• 68 units at Concourse Skyline were sold in September 2008 at a median price of $1,592 psf, compared with 23 units sold recently at a median price of $1,164 psf.

• 47 units at The Peak @ Balmeg at Balmeg Hill were sold in September 2008 at a median price of $1,011 psf, compared with two recent transactions of between $935 psf and $950 psf.

• 34 units at Beacon Heights at the junction of St Michael’s Road and Mar Thoma Road were sold in August 2008 at a median price of $917 psf, compared with the four units sold at a median price of $771 psf in April 2009.

• Seven units at The Rochester were sold in July 2008 at a median price of $1,300 psf, compared with the current median price of $900 psf.

• Four units at Woodsville 28 were sold in August 2008 at a median price of $919 psf, compared with 34 recent transactions at a median price of $751 psf.

• One unit at Versilia on Haig was sold in August 2008 at $995 psf, compared with one recent transaction at $823 psf.

Source of data – URA

Conclusion: Most developers appear to have taken the correct professional advice and the leading market indicators by slashing their asking prices for projects in RCR – some by more than 25% – so as to lighten unsold inventory amidst growing uncertainties in the real economy. The pattern is also repeated in the mass market home segment in OCR.

*B.1.3] Sale of primary home units in Outside Central Region (OCR) slides

In all, a total of 523 new home units in 42 projects were sold in OCR in April 2009. However, when compared to the 779 new home sale figures in March 2009, there was a drop of 32% in sales volume.

The 779 new home transactions in OCR in March 2009 were contributed chiefly by the stellar performance of Double Bay Residences at Simei Street 4 and Mi Casa at Choa Chu Kang Ave 3. Both the projects continue to chalk up impressive sales in April; and they have both enjoyed slightly higher median price at their respective showrooms.

Below are comparisons of sale prices between the whole of 2008 and April 2009 in some selected projects in OCR.

• 22 units at Breeze By The East at Upp East Coast Road were sold in April 2008 at a median price of $948 psf (with the highest psf price at $1,080 psf), compared with three recent transactions at a median price of $740 psf.

• Seven units at The Amery at Lorong K Telok Kurau were sold in July 2008 at a median price of $877 psf, compared with three recent transactions at prices between $727 psf and $863 psf.

• Seven units at Lynwood Eight were sold in August 2008 at a median price of $734 psf, compared with a unit sold recently at $464 psf.

• Seven units at Naturalis at Lorong M Telok Kurau/Still Road were sold in September 2008 at a median price of $909 psf, compared with three recent transactions at prices between $827 psf and $881 psf.

• Four units at Park Natura at Bt Batok East Ave 6 were sold in February 2008 at a median price of $1,034 psf, compared with three recent transactions at $949 psf.

• Four units at The Lucent at Lorong N Telok Kurau were sold in October 2008 at a median price of $958 psf, compared with four recent transactions at prices between $620 psf and $750 psf.

• Three units at The Verte at Lorong H Telok Kurau were sold in September 2008 at a median price of $908 psf, compared with two recent transactions of between $682 psf and $687 psf.

• Two units at Botannia at West Coast Park were sold in January 2008 at a median price of $829 psf, compared with nine recent transactions at a median price of $690 psf.

• Two units at 3@Sandilands at Sandilands Road were sold in August 2008 at $863 psf and $841 psf respectively, compared with a recent transaction done at $724 psf.

• A unit at Bayou Residence at Upper Paya Lebar Road was sold in August 2008 at $854 psf, compared with another unit sold recently at $300 psf.

Source of data – URA

* [B.1.4] No transactions in luxury homes

However, for the fourth consecutive month, there has been no transaction in the luxury segment, where prices are typically higher than $2,500 psf.

It seems that the acid test for the ‘recovery theory’ is still the performance of the real economy which appears to be rather subdued despite all the euphoria at both the stock as well as the property markets.

[B.2] Unsold inventory very much Digested

As the market went through four consecutive months of heightened buying activities, the new home inventory has come down to a more decent level of slightly over three thousands.

However, the Achilles’ heel of the private home market in the second half of 2009 may be those new home units bought earlier under the now-defunct Deferred Payment Scheme (DPS). Mass defaults may derail the healthy showroom sales performance.

[B.3] Deferred Payment Scheme – the Achilles’ heel of private home market

The possibility of mass default by speculators who had booked their units under the now-defunct Deferred Payment Scheme (DPS) remains the Achilles’ heel of the new home market segment. When buyers default on payments, especially when a big group of them walk away from the sale contracts, it will have great impacts on the developers’ bottom-line; and the delay in payment may cost the developers millions of dollars in interest losses; and in the worst case scenario, may serious hamper the developers if they are unable to redeem their construction loans by the expected maturity date.

However, it is still too early to draw any meaningful conclusion from the isolated default cases. Firstly, probably for fear of encouraging more buyers to emulate the ‘no shows’, the aggrieved developers have kept the negotiations with the defaulters ‘hush hush’. As such, no discernable patterns can be deduced from the two default cases.

And, secondly, these are early days of ‘difficulties’ and only a small portion of the projected 10,000 newly completed condos/apartments have hit the sub-sale market. Hopefully, the global financial situation will improve when the massive supplies of new home units materialise by the final quarter of the year. Below are the brief facts of the default cases:

* [B.3.1] China buyer unable to pay upon TOP at Fernhill

The China buyer, Concordia Overseas, who failed to make balance payment to MCL Land for 20 units at The Fernhill at the corner of Orange Grove and Fernhil roads when the project received its Temporary Occupation Permit recently has successfully sold 19 of the units.

Reportedly, the sub-sale price was about $1,180 per square foot, below Concordia's purchase price of $1,410 psf. However, market rumors had it that all the 20 units were sold to local investors for a lump sum of $39 million.

Concordia Overseas had earlier taken advantage of the DPS in January 2007 for all the 25 units at The Fernhill. It paid the initial 20% of the purchase price to the developer and later sub-sold five units to foreigners at an average price of about $2,200 psf.

* [B.3.2] ‘Big-time buyer of The Suites @ Central unable to pay upon TOP

An unknown buyer of 51 units in the 157-unit The Suites @ Central project has been unable to make payment upon the project receiving Temporary Occupation Permit (TOP) in May 2009. The developers (i.e. Keppel Land and Chip Eng Seng) have since granted the buyer a six-month payment extension subject to monthly payment of $500,000 for the period of extension.

The big-timer had purchased the 51 units in a ‘package’ deal for an average price of $1,806 per sq ft under the DPS in June 2007 – just before the property bubble burst. Under the DPS, the buyer had paid the initial 20% down-payment, with the balance of $1,445 psf due after the project obtains its temporary occupation permit (TOP).

* [B.3.3] 11 individual DPS buyers of RiverGate units defaulted

Buyers of 11 units at the 542-units RiverGate project have been unable to pay up upon the issuing of Temporary Occupation Permit (TOP) in March 2009.

The 11 units were sold separately to individual buyers under the DPS at the same time when more than 90% of the projects were sold under the same deferred payment scheme.
However, unlike the above two default cases where the properties were bought at the height of the market bull run in 2007, RiverGate, a 43-storey freehold project was launched in 2005 at an average price of $1,080 psf and later in 2006 at $1,600 psf on average.

Conclusion: The situation will be more telling when projects launched and sold at or near the height of the market bull-run in 2007 receive their TOP. As of this point, the threat of mass defaults by speculators is still potent given the current economic gloom.

[B.4] Falling Condo Rents a Major Worry for Investors

The rental prices of high-end condo units in District 9 which are relatively new, with some having received TOP in late 2008. Of grave concern is the fact that most of the high-end units are unable to command the benchmark $6 psf per month rents.

(C) Overall Performance of Non-Residential Property Segment

* [C.1] Rents for ground floor shops in Orchard Road hold up

According to statistics from Cushman and Wakefield, the average monthly rental value for prime street-level retail space on Orchard Road dipped 1.1% in the six weeks between end-Q1 2009 and mid-Q2 2009, lower than the 4.6% quarter-on-quarter contraction seen in Q1 2009.

The average monthly rental value for prime ground floor Orchard Road retail space stood at $36.50 psf from $36.90 psf as at mid-May. The latest mid-Q2 2009 figure represents a fall of 5.7% since end-2008.

According to Knight Frank, ION Orchard, Orchard Central, 313@Somerset and Mandarin Gallery are among the new malls that will add a total 1.8 million square feet of net retail space in Singapore's prime Orchard Road shopping belt from now till mid-2010. This will be 40% increase from the current stock of 4.5 million sq ft.

However, despite the downward pressure on retail rents due to the on-going H1N1 pandemic and the reduced tourist arrivals, rents for ground floor space at Orchard Road will probably hold up better than rents for upper floors retail space. This is because street-level units facing Orchard Road are always in short supply.

* [C.2] Office Buildings in CBD Sold at Huge Losses

After a nine-month lull, two commercial buildings in the central business district (CBD), namely Parakou Building and Anson House, have changed hands. (The last major office investment sales deal was in June 2008 when City Developments Ltd sold the 999-year leasehold Commerce Point near Raffles Place MRT Station for $2,200 psf.)

However, while some property analysts see the sales as the return of investor’s confidence, the bad news was, both the transactions reeked of ‘desperation in an extremely challenging time’ where the sellers realise capital losses of $46.62 million and $44.5 million for Parakou Building and Anson House respectively. Below are the brief facts of the sales.

o [C.2.1] Parakou Building sold at a loss of $46.62 m

Parakou Building, at the corner of Robinson Road and McCallum Street, has been sold to a Cathay Organisation subsidiary at $81.38 million or $1,280 per square foot of net lettable area (NLA).

The $81.38 million transacted price for the 16-storey freehold office block is about 36% lower than the $128 million the seller, UK fund manager New Star Asset Management Group, paid for the property two years ago.

o [C.2.2] Anson House owner lost $44.5 m in sale

Anson House, a 13-storey office block along Anson Road, has been sold to an unidentified group of investors for about $85 million or slightly over $1,100 per square foot of net lettable area (NLA).

The sale price reflected a loss of $44.5 million as the Macquarie-managed fund had bought the office block for $129.5 million in 2007.

The office block has a remaining lease of about 87 years. The net yield on the investment based on the $85 million transaction price would be more than 6%.

* [C.3] Prime Office Rent Fall Continues

Based on figures released by the Urban Redevelopment Authority (URA), the office take-up rate has slid for two consecutive quarters of 366,000 sq ft in Q4 2008 and nearly 323,000 sq ft in Q1 2009.

The office market continues to be troubled by the upcoming new supply of 9.9 million sq ft net lettable area (NLA) of offices slated for completion from 2009 to 2013. This year alone, the new supply is projected at about 2.56 million sq ft, 83% above last year's 1.4 million sq ft

o [C.3.1] Prime Raffles Place office rents drop 33.5% Y-O-Y

According to data from Cushman & Wakefield, the monthly average rent for prime Raffles Place office is now $9.44 psf in May 2009. In percentage term, the average rent dropped 6.6% in the six weeks since the end of Q1 2009. However, the fall is much smaller than the 28.8% quarter-on-quarter drop registered in Q1 2009.

This brings the total year-to-date decline to 33.5% from $14.20 psf a month at end-2008.

o [C.3.2] Grade A Raffles Place office rents ease 8.7% Q-O-Q

The average Grade A Raffles Place rental eased 8.7% in mid-Q2 2009, again a more moderate drop than the first quarter's 27.7% Q-on-Q slump.

In the other micro-markets such as, Shenton, City Hall and Orchard, the overall prime office vacancy rate inched up 0.4 percentage point to 5.5% as at May 2009, milder than the 2.1-percentage point Q-on-Q hike to 5.1% in Q1 2009.

* [C.4] Distressed properties may flood markets

The GIC Real Estate chief said in a public seminar in May that distressed property assets may emerge in developed markets in the next two years as a result of refinancing difficulties. A ‘flood’ of distressed properties may develop if the credit markets remain tight as large volumes of loans mature in the near future.

Citing estimates from Goldman Sachs, another speaker at the public seminar, Professor Joseph Gyourko said that US$1.2 trillion worth of commercial property debt will mature in the United States from 2009 to 2011. And with the near shutdown of the commercial mortgage-backed securities market, some property owners will not be able to obtain refinancing.

Such a ‘flood’ will affect the capital value of all commercial properties in the entire world due to the inter-connectivity of the markets in the various global cities, of which Singapore is a part.

* [C.5] JTC Ready-Built Space Suffer Negative Take-Up

Net take-up of JTC ready-built factory space fell in Q1 2009. This has been the third straight quarter of negative growth in take-up rate for JTC Corporation.

The negative net allocation of 8,900 sqm in Q1 had resulted from 10,800 sq m of space leased out and 19,700 sq m of space surrendered. This is a sharp deterioration from the minus 1,200 sqm registered in Q4 2008, and the minus 500 sqm in Q3 2008.

A large decline in the amount of space leased or rented out accounted for the poor showing in Q1. The gross allocation of 10,800 sqm fell 46% quarter-on-quarter and 64% from Q3 2008.

o [C.5.1] JTC Ready-Built Space – Flatted Factories

A total of 19,700 sq m of space were returned in Q1 and the surrendering was 7% less than Q4 2008 and 35% less compared with Q3 2008. Most of the 64 companies which returned their flatted factories to JTC.

Support industries in logistics, services and construction together accounted for the bulk of terminations, at 53%. The precision engineering industry also fared poorly, making up another 26% of terminations.

* [C.5.1] Prepared Industrial Land

The only comfort is in the prepared industrial land segment in Q1 2009 where the net take-up rose 80% from Q4 2008 to 15.3 ha. However, the net take-up of prepared industrial land was 114.9 ha in Q1 2008 - more than seven times that in Q1 this year.

In terms of surrendering of leases, 13 companies returned prepared industrial land to JTC in Q1 – with electronics and precision engineering industries contributed to more than half of the terminations.

(D) Performance of Collective Sales

* [D.1] Regent Garden En Bloc Deal

The Court of Appeal has dismissed the appeal of the majority owners of Regent Garden, who had objected to Allgreen Properties making additional payments of $2 million to six minority owners to entice them to agree to the collective sale. The Court was of the opinion that there was nothing in the agreement between buyer and seller, or the law, to prohibit Allgreen making such additional payments.

Allgreen had earlier obtained an order from the High Court on 16 April 2008, compelling the majority owners to complete the sale and purchase of Regent Garden. Four months earlier in January 2008, the Strata Titles Board (STB) rejected the sale on the grounds that the valuation was too low and the deal was not done in good faith.

In deciding that there was no bad faith, the Court of Appeal said: 'A purchaser does not owe any duty of care, much less duty of good faith, to a vendor of property in relation to the price of the property. The general principle is caveat emptor.'
The Court of Appeal also said that if collective sales committees do not want to find themselves in a similar predicament vis-a-vis incentive payments, they can make provision for similar contingencies by providing for them in the Sale and Purchase (S&P) Agreement.

(E) Foreign Interest in Singapore Real Estate

* [E.1] Asia Property Investment Sales Dived

The cumulative weight of the current credit crunch, uncertainty over market direction and a significant gap between asking prices and what buyers are willing to pay combined to sink the investment sale market in Asia on the whole.

According to a report by CB Richard Ellis (CBRE), such sales slumped 83% quarter-on-quarter in Q1 2009 with Japan, Singapore and Hong Kong among the biggest victims.

Singapore was the hardest hit with only isolated investment sale transactions totalling some $204.2 million in Q1 2009. It is a decline of 51.8% from the previous quarter; and a fall of 97.7% from the same period a year ago.

The industrial property sector suffered the largest drop by market segment, plummeting 95% from the same quarter a year earlier. Office transactions sank 89%, while retail transactions shrank a much smaller 40%.

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

There have been no major developments in this area.

(G) Overall Performance of HDB Resale Market

[G.1] Median HDB Flat Rents Falling

Median rents for five-room flats dropped from $2,000 to $1,800 a month in the first three months of this year, while those for four-room flats fell from $1,800 to $1,700.

The decline was across most locations, affecting central areas such as Bukit Merah as much as outlying ones, including Punggol.

But, according to the latest HDB data, two- and three-room flats maintained their median monthly rents at $1,100 and $1,500, respectively.

At Normanton Park near Queensway, for instance, a 1,200 sq ft three-bedroom apartment can be rented for about $2,300 to $2,500 monthly – down from about $3,000 at the peak of the market. This may attract HDB-dwellers to move over, as a five-room flat in nearby Holland, Queenstown or Telok Blangah would cost about $2,000 or more a month to rent.

The lower rents of nearby condos or apartments often affect the rents of HDB flats. If the current trend persists, HDB sub-letting rents will have some way to fall.

[G.2] HDB Resale Prices Easing in Most Heartlands

Despite decline in the overall transaction volume in April and May 2009, resale HDB flats at the top three best selling heartlands estates, i.e. Jurong West, Tampines, and Woodlands continue to attract droves of buyers and the median resale prices of 3-room, 4-room, and 5-room flats continue to rise.

*The resale volume of 5-room flats at Woodlands went up from 57 units to 62 units and the median price went up from $341.5 to $346.

* The resale volume of 4-room flats at Jurong West went up from 63 units to 66 units and the median price went up from $285 to $305.

In May 2009, the only flat type that enjoyed a rise in the resale volume was E-flat which rose to the highest 140 deals in 2009. However, resale prices for E-flats continue the downward trend in 8 out of the 10 most sellable estates. With Bt Batok enjoying an impressive rise in the resale prices as well as resale volume.

Update for January 2009

2009-01-24T17:55:00.003+08:00

Monthly Property Market Update for December 2008

Introduction

The global economic pie is shrinking rapidly, and when that happens, there will not be enough business to keep everyone happy. So far, all the economic numbers, data, and statistics that have been released by both the governments and private sector analysts the world over are pointing to a long and torturous year in 2009.

And as for now, nobody is any wiser about when the recovery will begin. As for the interim period, there will be no denying or escaping it – in order for the global economy, including Singapore’s to get better, there will be many bitter pills to swallow. In short, the global situation will get worse before it gets better.

Fortunately, not all the housing sectors in Singapore will be adversely affected by the on-going downturn – at least not the public flats that continue to provide more than 70% of the secondary market transactions for real estate agents. Demand for resale flats continue to stay on the healthy level; and as the crisis deepens, more prospective buyers may be forced to go for the safer option of public flats which are being heavily subsidised by the state.

The big picture of the larger economy

Global economy in serious trouble – IMF

The International Monetary Fund (IMF) reported that the unemployment rate in the 15-nation euro region will reach 8.3% in 2009.

A study by the Organisation for Economic Cooperation and Development (OECD), which includes the world's richest economies, said that the financial turmoil that started in the US has rapidly spread to the rest of the world. The study indicated that the number of unemployed people in its 30 member nations will rise to 42 million in 2010 from 34 million now.

Prospect bleaker for US economy

The year-old recession in the US began to intensify with the third quarter growth shrinking by 0.5%.

Consumer spending and corporate earnings down

According to revised figures from the US Commerce Department released on 23 December 2008, consumer spending along with corporate earnings fell the most in almost three decades and the contraction in GDP was the worst since 2001.

Residential investments down

Residential investments contracted 16% at an annual pace in Q3 2008. Besides, new-home sales plunged 2.9% to 407,000 in November 2008, the lowest level since January 1991.

The National Association of Realtors (NAR) reported on 23 December 2008 that sales of existing homes fell 8.6% to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October.

Job losses up in US

On 5 December 2008, the US Labour Department confirmed that some 2.7 million jobs have been lost since the US slipped into recession in December 207. It also revealed that the US economy lost another 533,000 jobs in November 2008 and the unemployment rate now stands tall at 6.7%. Many economists are expecting the unemployment rate to rise to 8% in 2009.

The government report also corrected the previous months’ job loss data as follows: October saw a loss of 403,000 jobs (up from an earlier estimate of 240,000) and September job losses were revised up to 320,000 from 284,000.

In the week ended 20 December 2008, the number of Americans on dole rose 140,000 to 4.506 million people – the highest since December 1982 which saw 4,509 people receiving unemployment benefits.

This means that the current economic recession is far worse than the last two recessions and may need much longer time to recover.

US subprime mortgage crisis spread to other domains

Rising unemployment in the US has intensified and widened delinquencies on mortgages across the nation.

More prime mortgages in trouble

The continual slide in property value are causing more prime mortgages to sour, and exacerbating foreclosures on prime mortgages.

The US government efforts to rescue the massive housing slump can at best be described as slow. In earlier December 2008, the Federal Reserve began its first move to buy up to US$100 billion of government-back mortgages. It was the first step in the right direction but the journey will be a long and painful one.

Home foreclosures in the US may rise to 8.1 million homes over the next four years, according to Credit Suisse.

US Commercial real estate asking for help

Even big commercial real estate players in the US are not spared the blushes. The US$6 trillion industry of hotels, office buildings and shopping malls, has recently asked the US government for help in providing some ‘credit market support’.

The commercial property industry is bracing itself for a record total debt of close to US$530 billion due for refinancing in the next few years. In 2009 alone, about US$160 billion of the huge pile will need to find fresh financing. However, with credit virtually in non-existence, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.
The trade associations are asking that their members be included in a US$200 billion lending facility that was created by the government for consumer debt such as car loans, student loans and credit cards.

The overall performance of Private Residential Property segment

Private homes prices continue down trend as export stalls

The final quarter of 2008 (Q4) saw the steepest drop in private home prices in a decade – shedding 5.7% quarter-on-quarter. This is on top of the 2.4% overall drop in home prices in the previous quarter (Q3) of 2008. (See Table [1] below for details)

The price fall in consecutive months brought the overall price growth to the negative region of minus-4.3% for the whole of 2008 year-on-year. This is a stark contrast to the 31.2% price hike in private home in 2007.

Since late 2007, potential buyers have played the ‘wait-and-see’ game; and their patience has been rewarded with cheaper home prices over the months.

In Q4 2008, prices for apartments in the Core Central Region (CCR) were down 6.3%; while those in the Rest of the Central Region (RCR) slipped 5.5% and Outside Central Region (OCR) dropped by 4.7%. This follows declines of 2.7%, 2.4% and 1.5% respectively in those areas in Q3 2008.

Price of non-landed private home dropped across all regions

Regions - Price growth of non-landed private homes Q-on-Q
Core Central Region (CCR) – 6.3% (previous quarter growth –2.7%)
Rest of Central Region (RCR) – 5.5% (previous quarter growth –2.4%)
Outside Central Region (OCR) – 4.7% (previous quarter growth –1.5%)
Overall private home prices – 5.7% (previous quarter growth –2.4%)
Whole year growth – 4.3% (previous quarter growth 31.2%)

Looking over the horizon, the private home prices are likely to stay down for at least the next six to nine months as the property market will have to digest the over-supply situation amid one of the worst global recession in decades.

Prospective buyers sitting on the fence certainly feel vindicated and are likely to persist in their strategy of ‘sitting out the crisis’.

Primary home sales did better in November 2008

Primary home sales did slightly better in November 2008 only because the sale figures were compared with the ‘flat performance’ of 112 sales transactions in the preceding month. The overall sales volume rose to 192 transactions – which could only be described as an ‘indifferent’ performance.

The unsold inventories of new home units continue to pile up with unsold units outweighing sold units by 6,033 to 4,208.

Performance of primary sales in Core Central Region (CCR)

Out of the 188 brand new condo projects on sale in the Core Central Region, only 6 projects had some sales. In all, the total new units sold in CCR in October 2008 were 63. See table below for details.

Performance of primary sales in Rest of Central Region (RCR)

Out of the 123 brand new condo projects on sale in the Rest of Central Region, only 13 projects had some sales. In all, the total new units sold in RCR in Nov 2008 were 28.

Performance of primary sales in Outside Central Region (OCR)

Out of the 140 brand new condo projects on sale in the Outside Central Region, only 19 projects had some sales. In all, the total new units sold in OCR in November 2008 were 101. See table below for details.

Secondary home market faces steep challenges in 2009

Secondary sales of Condo/Apt in Nov-Dec period halved

The revised November 2008 secondary sales figures fell way short of expectation, falling more than 50% of October’s transactions. The December 2008 interim figures fared even worse.

This is clear evidence that home owners and buyers alike are wary of the current market situation, preferring to be ‘safe than be sorry’. The current economic downturn, which has been exacerbated by the on-going corporate layoffs and insolvencies, is expected to continue to suppress buying activities for at least the next six months to a year. The near term prospect for secondary sales does not look good.

*Interim figures according to the latest search results on 10 January 2009. The final figures will be revised in the next update in February 2009.

Sales of Landed homes slide

The overall sales of landed homes in Q4 were clearly affected by the on-going stock market turmoil and in particular the 10 Oct stock market meltdown all over the world.

Property investment sales slow to a trickle

Investment sales – an effective gauge of developers' and investors' medium– to long–term confidence in the investment climate – are likewise in the doldrums in 2008, giving a faithful reflection of the currently weak market sentiment. The total investment sales of Singapore real estate achieved for 2008 (up to 9 December 2008) were just $17.8 billion, year–on–year. This is a far cry from the record $54 billion achieved for the whole of 2007 in investment sales.

In 2008, the residential sector brought in $6.25 billion worth of transactions and accounted for 35% of total investment sales. The breakdown of the various residential property transactions is as follows:

Collective Sales
A total of seven collective sales worth a total $371 million were transacted in 2008. In 2007, a total of 111 collective sales worth a total of $12.4 billion were transacted.

Good Class Bungalows
A total of 48 Good Class Bungalow (GCB) transactions worth $763.7 million were done in 2008, down from $1.2 billion from 90 deals in 2007.

Office investments
Office investment sales worth $5.4 billion were transacted in 2008, compared with $14.3 billion for full-year 2007.

Industrial property
The only growth came from the industrial property sector where a 66% growth was recorded. A total of $3.32 billion of investment sales deals were done in 2008, the best showing since 2002.

About 50% of the industrial investment sales for 2008 were accounted for by JTC Corporation's $1.7 billion divestment of its industrial portfolio to a joint venture involving Mapletree Investments, Arcapita and Mapletree Industrial Fund.

Auctioneers expect more mortgagee sales in 2009

Given that the loan default rate will rise due to the worsening economic situation and the rapid rise in unemployment, most auctioneers expect mortgagee sales to increase next year by leaps and bounds.

In fact, mortgages sales had already inched up in 2008 in the aftermath of the various major stock market clashes in the year. Out of the $69.1 million auction sales in 2008, about 36% were mortgagee sales, slightly higher than the 32% mortgagee sale share of the total $422.3 million auction sales in 2007.

Besides, there may be a significant jump in the number of speculators and investors, who bought their properties with the defunct Deferred Payment Scheme (DPS), dumping their properties onto the market before the completion dates draw nearer.

A veteran auctioneer reckoned that 'success rates at auctions may improve if a continued worsening in economic conditions forces some sellers to further lower reserve prices and satisfy the price expectations of some buyers who are bottom fishing'.

Home rents set to fall as more previously en bloc project come back for lease

More condominium and apartment projects that were sold collectively during the 2006/07 property bull-run have been put back by their new owners on the market for rental. Below are some recent examples:

All the 91 units at Lucky Tower at Grange Road, which was snapped up by city Developments Ltd (CDL) in May 2006, have been leased to one single tenant.

OUE, the developer who purchased The Grangeford at Leonie Hill has similar plan to lease out all the 192 units in the District 9 project.

Frasers Centrepoint has so far rent out about 60% of the 185 units at Flamingo Valley at Siglap, which it acquired in early 2007.

Other en bloc developments back on the rental market include Pin Tjoe Court, Furama Towers, Fairways Condominium, Sophia Court, and Lincoln Lodge.

This means that the potential supplies of new apartment units will be fewer going forward. However, the flip side of the coin is that home rents are expected to ease due to the increase in supply of rental properties in prime locations.

The performance of Non-Residential Property segment

Prime office rents slide – vacancies Up

For the first time since Q4 2003, prime office rents in Raffles Place have come down.

In the final quarter (Q4) of 2008, these rents dropped a whopping 15.8% on a quarterly basis. The average prime office rent now stands at $16 psf per month.

Office rents in the Marina Centre micro market also fell by a big percentage of 12.9% on a quarterly basis to $13.50 psf pm.

Likewise, office vacancies edged up further in Q4 2008 as demand slowed in tandem with the global economic downturn.

In Raffles Place, the average office occupancy fell 1.3% compared with Q3 2008 to 95.6% in Q4 2008. Island-wide, office occupancies slid 0.8% to 95.6%. Only Tampines Finance Park bucked the trend with 96.8% occupancy.

Major developers have reacted to the situation by delaying the development of new office buildings, for example, City Developments (CDL) has delayed the South Beach project. Plans to extend office buildings by other developers were also shelved, for example, Tampines Mall and Funan DigitaLife Mall and the redevelopment of Marina House. As such, potential office supply from 2009 to 2013 would be at 11.3 million sq ft, instead of the earlier estimate of 12.1 million sq ft.

Occupancy rates and rents are expected to decline further in 2009.

Shop space rents getting cheaper

Prime Orchard Road shop rents have fallen 1.9% quarter-on-quarter to an average of $36.10 per sq ft per month (psf pm) in the final quarter of 2008 (Q4). This is the first time in five years these rents have fallen.

Measured year-on-year, prime retail rents in the Orchard Road area fell by 0.8%, reversing their 5.4 % growth in the same quarter in 2007.

Outside of Orchard Road, prime suburban rents also dropped, though by a moderate 1% quarter-on-quarter to an average of $29 psf pm in Q4 2008. This is the first time in nine years since these rents fall.

In the next few years, there will be ample supply of about six over million square feet of retail space with the completion of new malls, shops within the integrated resorts, and refurbished shopping centres. As such, prime Orchard Road rents could contract another five to 10% in the first half of 2009; while prime suburban malls another two to three per cent.

Industrial rents and capital value almost reached ‘tipping point’

The industrial property sector may have reached its tipping point in the final quarter of 2008 as manufacturing activity dips and relocations from offices slow to a crawl. Besides, sub-letting of excess space may start with more redundancies appearing in the manufacturing sector, thereby bringing down rents.

There are lots of glooms over the horizon beginning with the expected slowdown in GDP growth and the poor reading of the Purchasing Managers' Index (PMI) which fell to the record low of 44.3 in November 2008. The demand for industrial space is likely to moderate, to say the least.

According to the latest DTZ study, average rents of first-storey and upper-storey private industrial space could each drop by more than 2% in the fourth quarter of 2008 (Q4) from the previous quarter to $2.30 and $2.00 psf pm respectively. The average rent of high-tech and business park space could drop to $4.30 psf pm in Q4.

Likewise, JTC Corporation has been taking back more space as manufacturing and related companies consolidated their operations. JTC had reported that termination at its ready-built facilities surged 25.7% quarter-on-quarter and 45% year-on-year in the third quarter.

Economic uncertainty has already spurred the Trade and Industry Ministry to suspend sales of state-owned industrial land on the Confirmed List for the first half of 2009.

The performance of Collective Sales

En bloc sale news: Laguna Park condominium

The owners of Laguna Park condominium along Marine Parade Road have the second bite of the cherry after a majority of more than 80% of them voted in favour to try their luck for collective sale again.

The 667,000 sq ft project was first put up for collective sale in 2007, but in vain. That year, a total of 111 collective sale transactions worth $12.4 billion were sealed, but Laguna Park missed the boat due to a very high asking price of $3million per unit.

This time around, the 528 apartment owners are asking for $1.2 billion for the former HUDC project – or $1.8 million to $2.3 million per unit.

Laguna Park is one of the rare offerings for collective sale in 2008 where only seven collective sales worth a total of $371 million were successfully transacted.

Foreign Interest in Singapore Real Estate

Another ‘Runaway bride’ in property joint venture

US-based El-Ad Properties, owned by Israeli billionaire Yitzhak Tshuva, is seeking to find a buyer to buy out its stake in the high-profile South Beach development in Singapore.

The group clinched the 99-year leasehold South Beach site jointly with City Developments Ltd (CDL) and Dubai World unit Istithmar in September last year for $1.69 billion or $1,069 psf per plot ratio (psf ppr).

El-Ad Properties owns one-third stake in the South Beach project and also has half-share with CDL in the Futura condo site at Leonie Hill Road. The total worth of El-Ad’s stakes in both the project in Singapore is estimated to be around $707 million.

El-Ad has also had some problems with its investment in the US. It would delay the construction for a casino project in Las Vegas in the US to 2010, due to financing difficulties and high construction costs.

News on Government Land Sale (GLS) Programme

2009 Government Land Sales Programme will be halted

Ministry of Nation Development (MND) has decided not to add any new sites to the Government Land Sales (GLS) Programme for first half (H1) 2009, in view of the negative forecast for the economy.

The H1 2009 slate - comprising the entirely reserve list sites, will have a total of 38 sites, comprising 37 plots that are being carried over from the H2 2008 reserve list and the unsold executive condo site at Punggol Road/Punggol Field.

The potential total floor areas that can be developed from the H1 2009 GLS Programme will be 7,920 private homes, 512,000 sq metres gross floor area (GFA) of commercial space and 5,160 hotel rooms.

There will also be a reduced supply of commercial space and no new supply of private residential units from Government agencies. The H1 2009 supply from this source will comprise about 40,000 sq metres GFA of commercial space and 240 hotel rooms.

Kallang River and Stamford sites put off

The impending release of a hotel site in the Kallang River area has been postponed to next June by URA, yet another planned project delayed in view of the floundering market.

The 1.59ha hotel site at Kallang River - part of plans to transform the Kallang Riverside into a waterfront lifestyle precinct – will be relegated to the reserve list.

Likewise, a historic site in North Bridge Road - which contains Singapore's first cinema Capitol Theatre and two other heritage buildings - has been released on the reserve list sale system as planned.

This means that the site will be put up for tender only if developers indicate interest by committing to a minimum bid.

Overall performance of the HDB resale market

HDB resale price continue to climb despite recession

Price of resale HDB flats continue to rise despite the ongoing economic slowdown. The prices have climbed 1.5% in the final quarter (Q4) of 2008 – on top of the 4.2% rise in Q3 2008. The final figure of Q4 adds up to a total of 13.9% price growth for the whole of 2008, building on the 16.6% price increase in 2007.

This means HDB resale flat prices have reached a new peak since the 1996 high.

More HDB flat owners behind in instalments

There has been an increase in HDB home loan defaults since late 2003.

About 8,000 households or 8% of them are unable to pay back their monthly instalments for three consecutive months. This means that in Singapore one in 12 households has been unable to pay for their basic housing for more than three months.

HDB has revealed that at the end of 2003, 25,000 flat owners out of the 517,300 households with HDB loans were in arrears for three months or more; however, the figure went up recently with 33,000 delinquencies out of 420,000 HDB home loans.

The spike in delinquency could be due to higher HDB resale prices. The latest flash estimates published by the Urban Redevelopment Authority (URA) on 28 December 2008 showed that HDB flat prices rose 13.9%, despite the recession. The recent price increase was on top of the 17.4% gain a year earlier in 2007.

Another reason for the increase in the delinquency figures could be due to the fact that HDB seldom repossesses defaulters' flats, leaving their numbers to accumulate in the system. Some home owners in arrears can take up to a few years to pay off debts.

Members of Parliament (MPs) interviewed by the Straits Times confirmed that more HDB flat owners are seeking help for home loan problems at their Meet-the- People sessions.

The HDB will consider the following measures to help with the increasing delinquencies:

It may allow defaulters to pay reduced loan instalments on a temporary basis and work out a solution to their financial situation.

It may allow owners to sublet a room to generate income, or include working family members as joint owners to help pay for the flat.

Finally, the HDB may also consider providing an additional HDB loan to help owners downgrade to a smaller, more affordable unit.

Resale transaction in December 2008 down

Due to the long festive season in December 2008, the HDB resale transactions were down in that month, though it still stays above the 2,000-deal level and finishes the whole year on a strong note.

Case Study – 5-room resale prices kept at bay
After the spectacular rise in November 2008, the resale prices for 5-room flats in the 10 survey areas were held at bay in December 2008. Only four places had higher median resale prices. This shows that the drop in the resale transactions of 5-room flats was followed by the drop in the resale prices, due to the prevailing cautiousness.

Update for November 2008

2009-01-05T22:39:00.003+08:00

Monthly Property Market Update for November 2008

Introduction

The October stock market turmoil continued right into November 2008, crushing whatever that was left of the consumers’ confidence about their own financial future.

Here in Singapore, exactly how the recent global stock market meltdown will affect the real estate market remains debatable. But one thing for sure, Singaporeans at large have started to adjust their spending behaviours in anticipation of more financial turbulences to hit town.

Here are the summaries of the important events affecting the property market in November 2008.

(A) The big picture of the larger economy

[A.1] US housing crisis deepens

Miseries continue to pile on homeowners in the United States. Higher unemployment rate of 6.3%, 10 straight months of falling payrolls, and more stringent mortgage standards are throwing more US homeowners onto the streets, sinking home prices further into the abyss.

Home values in the United States fell 9.7% in the third quarter (Q3) of 2008, extending its seventh consecutive decline to a median US$202,966. In the meantime, one in seven homeowners had negative equity, or owed more on their mortgages than their houses were worth.

30.2% of US homeowners who sold their property in the last 12 months through to September 2008 ended up taking huge losses; and 20% of all housing transactions were foreclosures.

[A.2] US Jobless rate hits 14-year high

The US unemployment rate bolted to a 14-year high of 6.5% in October, after hitting 6.1% a month ago and continuing a 10th straight month of payroll reductions. Another 533,000 jobs were cut in November and more layoffs are expected as more corporations are unable to find fresh capital to continue to operate – the three major car manufacturers, i.e. Ford, GM and Chrysler, are just some high-profile examples.

Altogether, around 2 million jobs have been lost so far this year. Out of which, 651,000 of them were lost in the third quarter alone. The unemployment rate looks certain to surpass the peak of 6.3% in the last recession in 2001. Many expect the jobless rate to climb to 8% or higher next year.

[A.3] The rich gets poorer

The world’s richest people have become a little poorer, at least on paper. American Bill Gates lost US$3.2 billion in the value of his Microsoft shares. He is now worth a total of US$55.5 billion from US$57 billion, according to Forbes' calculations.

Warren Buffett lost US$5.29 billion based on his 350,000 Berkshire shares; but managed to be slightly richer by US$8 billion, bringing his personal wealth to US$58 billion. Buffett’s new found wealth makes him the richest man in the US, unseating Bill Gates who had been the wealthiest for the past 15 years.

Hong Kong tycoon Li Ka Shing lost about US$12 billion, bringing his total wealth from about US$26 billion at end-September to US$14 billion now. In Singapore, wealthy property developer, Kwek Leng Beng of City Developments (CDL) may be poorer by S$780 million from his earlier estimated wealth of S$2.7 billion in early October 2008.

Veteran banker Wee Cho Yaw lost almost S$1 billion in October and may be worth about S$3.2 billion, down from more than S$4 billion.

[A.4] Multiple years of slow growth for Singapore

According to Prime Minister Lee Hsien Loong, Singapore is likely to face several years of slow growth after the current recession; and any hope of a speedy recovery will not depend on Singapore’s own measures but the health of the US economy.

Mr Lee explained that the current crisis differed from the 1985 recession and 1997 Asian financial crisis, as this time around, the crisis has brought the entire global financial system to its kneel and bankrupted many iconic financial institutions across the US and EU.

However, the Singapore government would maintain the current 7% rate of the Goods and Services Tax and use the revenue in a targeted way, such as by helping businesses affected by the crisis. Any cuts to the CPF scheme 'in the immediate term' were also ruled out by Mr Lee.

[A.4] Property News Update

§ [4.1] Master Plan 2008 becomes law

The Chief Planner has gazetted the Master Plan 2008 (MP 2008) on 5 December 2008. It means the latest MP 2008 has become law. Master Plan is a detailed statutory land use plan that guides the physical development of Singapore for the next 10 to 15 years.

As part of the public consultation process, the draft MP 2008 was put on public exhibition in May. More than 200,000 visitors visited the exhibition over the past six months; and about 300 feedback inputs were received from the exhibition and incorporated into the final MP 2008.

The four key thrusts of the MP 2008 are:

§ to enhance Singapore as a home of choice,
§ a magnet for business,
§ an exciting playground and
§ a home to cherish.

Three new commercial and mixed-use sub-regional hubs have been introduced at Jurong Lake District, Kallang Riverside and Paya Lebar Central. Marina Bay is the centrepiece of Singapore’s urban transformation into global distinctive city, with many exciting developments shaping up.

§ [4.2] URA re-introduces plot size control for Cluster Houses

The URA will re-introduce a cap to limit the number of allowable units in strata landed housing developments from 3 February 2009.

The total number of units allowed in a new cluster home project will be less than or equal the quotient obtained by dividing the total site area by the minimum plot size control for the relevant landed housing form.

The minimum plot size control for the relevant landed housing form includes 400sq m for Bungalows; 200 sq m for semi-detached houses; and 150sq m for terrace houses.

§ [4.3] IRAS ordered by the High Court to relook Property Tax rules

The Court of Appeal has ruled that monies in the sinking fund need not be included in the property tax calculation, if they were not used for capital improvements in the year of assessment. However, if they were utilized for maintenance and repairs which would add to capital enhancement on the property's value, then they should be included in the calculation.

The Court of Appeal also held that the onus on showing that the sinking funds were used for maintenance and repair should lie with the taxman; and it also ordered the IRAS to come up with clear guidelines on the exclusions.
Currently, contributions to the management fund are exempted from property tax calculation, as the fund is meant for general purposes not necessarily related to improvements.

(B) The overall performance of Private Residential Property segment

[B.1] Primary home sales heavily sedated in October

§ [1.1] Total primary sales figures

Official data from the URA showed that only 112 new home units were sold in October 2008, down from 376 units a month ago. In all, 159 new home units were launched in October 2008, much fewer than the 767 units launched in the previous month.

§ [1.2] Performance of primary sales in Core Central Region (CCR)

Out of the 183 brand new condo projects on sale in the Core Central Region, only 9 projects had some sales. In all, the total new units sold in CCR in October 2008 were 14. See table below for details.

§ [1.3] Performance of primary sales in Rest of Central Region (RCR)

Out of the 123 brand new condo projects on sale in the Rest of Central Region, only 12 projects had some sales. In all, the total new units sold in RCR in Oct 2008 were 27.

§ [1.4] Performance of primary sales in Outside Central Region (OCR)

Out of the 141 brand new condo projects on sale in the Outside Central Region, only 24 projects had some sales. In all, the total new units sold in OCR in October 2008 were 71.

[B.2] Secondary home market hit the slippery path in Q3

Likewise, secondary sale of private properties has hit a slippery path, with sales volume going down from the height of 1,728 deals in July 2008 to the sub-1,000-deal level recently. There were only 242 deals in the secondary sales market in November 2008, with no reprieve in sight.

The figures below show the lacklustre performance of the private secondary sale market similar to its primary market counterpart.

§ [2.1] More are letting their Option lapse

More purchasers of new home units have been elbowed out of their property deals in October 2008, probably due to the sudden stock market crashes worldwide. Buyer’s confidence is now trapped at the basement level of a skyscraper.

In October alone, about 50-odd new home buyers let their Option to Purchase (OTP) lapse by the expiry dates. This number is five times higher than the norm.

[B.3] Transaction volume in Q3 rose 9% but value crawled – indicating price dip

In Q3, a total of 4,287 caveats were lodged for private homes (including ECs), covering both primary and secondary markets. It was 9% higher than the 3,934 caveats lodged in Q2.

However, the total value of private homes transacted edged up only slightly to $5.68 billion in Q3 from $5.62 billion in Q2, indicating a price dip. Compared with the previous quarter, island-wide landed home private prices slipped 1.9% quarter-on-quarter.

Prices of apartments/condos in all geographic regions also declined. Below shows the details of price dip across the different segments:

§ Core Central Region – home prices declined by 2.7%
§ Rest of Central Region– home prices declined by 2.4%
§ Outside Central Region – home prices declined by 1.5%

The average price for high-end and super luxury residential homes stood at $2,065 psf and $3,240 psf respectively in Q3 2008. This was a decline of 14.3% and 12.0% respectively since the beginning of this year.

[B.5] Landed property segment – Sales volume by House Types

§ [5.1] Sale volume of Detached houses

Sales of detached houses in all districts continue their downward trend in Q3, falling from a total of 69 transactions (including new and resale units) in the previous quarter to 47 deals in Q3.

Apparently, the detached house market has reacted cautiously to the slew of bad news streaming in from the rich nations. Coupled with the worst performances ever from Singapore’s main economic engine – the manufacturing sector*, more prospective bungalows buyers will do their maths carefully before committing to any purchase.

* Note – the electronic shipments from Singapore, which has already fallen for seven consecutive quarters before October 2008, had plunged by 15% in the previous month. Singapore’s Non-Oil Domestic exports, which have fallen for six straight months before October, likewise fell 15.3% in October 2008.

§ [5.2] Sale volume of Semi-detached houses

Sales of semi–detached houses were likewise reduced in Q3, after rising marginally in the previous quarter. The factors affecting the semi–D segment are similar to the detached house segment as the prospective buyers are also from the high income groups that are more vulnerable than average wage earners to external economic shocks.

§ [5.2] Sale volume of Terrace houses

Sales of terrace houses were down in Q3 after the spectacular rise in Q2 2008. However, when compared with Q1 2008, the performance in Q3 was only slightly subdued.

This shows that the underlying demand for landed homes, especially at the price range of sub-one-million dollar and slightly over a million dollar, is still very strong. The cheaper terrace houses also attract many upgraders from nearby HDB heartland estates and the mid– to high–income groups in general.

[B.6] Price Trend of landed property segment – by House Types

Prices of landed homes held steady throughout the year and across all house types – probably due to limited supply of quality homes. Many landed home owners are still able to hold on to the mortgages at these early stages of the economic slowdown. However, with the ‘domino effects’ coming from the on-going layoffs and cost-cutting measures across the various industries, prices of landed homes might be affected in six to nine months’ time, if things do not look up sooner.

§ [6.1] Price trend of Detached houses

As of now, 2–storey bungalows in popular areas such as District 10, 15 and 19 held firmly, though they are expected to come down a shade lower in 2009, due to widespread layoffs in the wake of the worsening economy in Singapore.

§ [6.2] Price trend of Semi-detached houses

So far, despite the fewer transactions, prices of semi-detached houses have managed to stay firm, probably due to the limited supply of quality houses in the recent months.

However, the situation may be altered in the next few months when more layoffs occur in tandem with the worsening economy.

[B.6] Private home rents set to slide

Some experts are predicting that the rent drop could be as severe as over–20% in the next few months, as more corporate layoffs, cost-cutting and capital flights materialise.

Making matters worse is the impending completion of more condominiums in the prime districts. For example, another 681 units at the Sail @ Marina Bay, 172 units at St Regis Residences, and 110 units at Paterson Residence will be available for immediate occupancy from early next year onwards.

[B.7] More developers feeling the heat

Other worrying signs pointing to a slowing property market include news on delays or cancelations of high-profile building projects, and price reduction by developers etc. Here are some examples.

§ [7.1] Marina Bay IR may open in phases

Due to the trying times ahead, Las Vegas Sands has applied to the Singapore authority to open its casino in Marina Bay in phases from the end of 2009 instead of all at once. This is definitely a bad news for the ailing domestic economy where the unemployment rate is climbing; and thousands of people have been re-trained to take up the various positions promised at the casino.

Itself in serious financial peril, Las Vegas Sands had decided to halt projects in Macau and the United States to conserve cash. However, the gaming giant has vowed to go ahead with the planned Marina Bay Sands casino resort in Singapore, which is expected to cost nearly US$5 billion.

§ [7.2] CDL shelved South Beach project

City Developments (CDL) and its two joint-venture partners, Istithmar of the Dubai World Group, and El–Ad Group, have shelved the $2.5 billion high–profile South Beach project. The 3.5–ha site at the former Beach Road Camp was won by the CDL–led consortium for $1.69 billion.

The economic turmoil and the high construction cost were cited as reasons for the stoppage. CDL will delay the project until building costs fall to 'reasonable levels'.

§ [7.3] District 9 project re–launched at half price

A 75–unit freehold luxury condominium at River Valley Grove, Luma, has been re–launched at half its last year’s original launched price of $2,800 psf.

The transacted prices of Luma units were between $3,349 psf and $3,291 psf in August 2007; and between $2,837 psf and $2,586 psf in April 2008.

Luma sits an en–bloc site at St Thomas Walk which the Novelty Group bought in 2006 for $76.5 million, or about $810 psf of potential gross floor area.

(C) The performance of Non-Residential Property segment

[C.1] Prime office rents lower and trend to continue

The latest data released by the URA showed office rents lower by 0.8% in Q3 2008.

In October 2008, prime office rents slide by 5% from the previous month to reach $14.05 psf per month, as more corporations are down-sizing their operations here. But the fall in net effective prime office rents was even more pronounced, with landlords giving rent–free periods before the actual commencement of the leases.

Average office rents are now back to the 2007 level and may go down another 10% to 20% if the economic situation does not improve quickly.

[C.2] More office tenants expected to ‘break lease’

More tenants will ‘break lease’ in the next year as the full impact of the global financial tsunami hits the Singapore shore. It is estimated that about 3.5% of existing Grade A office space, amounting to about 450,000 sq ft, could be returned by tenants in the next 12 months as corporations in general consolidate their operations here.

As the way things go, the downward pressure has already sliced 1.2% off the average Grade A asking monthly rent in Singapore in Q3 2008, when compared with the previous quarter. The average rents fell to $14.92 psf in Q3, from the height of $15.10 psf in Q2 2008.

Bucking the downtrend, office space at Raffles Place, City Hall/Marina Bay, Beach Road/Middle Road, and Shenton Way actually became dearer by 2.2%. However, outside the prime Golden Shoe areas, average asking rents for offices fell by 3.3% in Tanjong Pagar; and by 0.91% in the Orchard area.

In the pipeline, there will be almost nine million sq ft of new office space supply in and around the Central Business District over the next four years; and at least 80% of them will be of Grade A standard.

[C.3] Fear for recession leads to more leases surrendering

Another telling sign of a weakening economy is showing up in the industrial sector. In Q3 2008, more Ready-built facilities (RBF) leased by JTC Corporation were returned. The rate of surrendering of JTC leases jumped 25.7% quarter-on-quarter and 45% year-on-year.
More leases surrendering occurred in manufacturing and related businesses as many tenants have started to consolidate their operations, following the drastic fall in demand from abroad.

In total, termination of leases of flatted factories, standard factories and business parks amounted to 30,300 sq m from lessees who were from the services and precision engineering sectors. They each accounted for 30% of the termination.

Another 18% of the terminations were from the electronic sector. And around 67% of termination in Q3 was the result of consolidation of operations, and about 12% was due to poor business.

(D) The performance of Collective Sales

There was no news in the collective sales segment in November 2008.

(E) Foreign Interest in Singapore Real Estate

[E.1] Australian fund pulled out from Singapore property deals

An Australian private property fund manager, Blaxland, has pulled out from industrial property deals worth some $200 million in Singapore.

Blaxland Funds Group is a joint venture between its executive staff and The Myer Family Company. It set up a representative office in Singapore earlier this year and had planned to build up an industrial property portfolio worth over $300 million, including eSys Technologies' building in Changi North and SH Cogent Logistics' warehouse building at Penjuru Close in Jurong.

[E.2] US buyer backed out of Ho Bee deal

American buyer of Ho Bee Group's Frontech Centre backed out of the deal in November 2008. The agreed sale price of the eight-storey high-tech industrial building was $30 million. Ho Bee had earlier planned to use the sale proceeds to pare down borrowing and increase working capital. The purchaser is understood to be a US-based property fund.

[E.3] Foreign Funds eying cheaper Asian properties

In November 2008, Merrill Lynch reportedly raised some US$2.65 billion for its Asian Real Estate Opportunity Fund, which is intended for direct acquisition of real estate assets and companies in Asia.

Likewise, it was also reported that an Australian fund, AMP Capital Investors, was in the process of raising up to S$2.9 billion for direct property investments in Asia, including malls in Japan, and offices in Singapore.

According to KPMG, pension funds, hedge funds and private equity funds are showing keenness in Asian real estate due to the structural shortage of commercial properties in the growing economies, including Australia, Singapore and China.

[E.4] Foreign home buyers made up 22% of home purchases in Q3

In Q3, a total of 903 private homes were sold to foreign buyers, based on the caveats lodged with the Singapore Land Authority (SLA).

Malaysians accounted for 22% of the total transactions by foreigners. Among the other nationals, Indonesians accounted for 19% of the total caveats lodged, while PRC Chinese took up 13%, Indian 12%, and UK citizens 6%.

Among the most popular projects that attracted the highest numbers of foreign buyers in Q3 2008 were Clover by the Park (40 units), Livia (30 units) and Kovan Residences (20).
In terms of the total private home transactions, foreign buyers (including PRs) made up 22% of total private home transactions in Q3 – down 3% from the previous quarter of 25% of total sales.

Among the foreigner buyers, PRs contributed the lion shares of 53% or 476 of the total 903 private homes bought by foreigners in Q3. Non-PR foreigners accounted for the remaining 47%.

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

[F.1] Government Land Sale (GLS) programme suspended

The Singapore government has suspended sale of state sites from the Confirmed List for the first half of next year. The remaining sites on the Confirmed List will be transferred to the Reserve List.

In good measures, the government has also lifted an earlier ban on converting office space in the central area to other uses, such as serviced apartments.

Any developers that need land will still be able to acquire it through the Reserve List where the government will release a site for sale if an interested party submits an application and guarantees to pay a minimum price acceptable to the state.

[F.2] No show at tender of Punggol EC site

The fourth executive condominium (EC) site launched for sale by the Housing & Development Board (HDB) received no bid at the close of the tender in November. The 242,159 sq ft and 99-year leasehold site is near Punggol MRT Station and the future Punggol Town Centre.

The no-show by developers may be due to the uncertain prospect of the property market amidst one of the worst economic crises the world has witnessed for decades.

There might be a valid concern among buyers that some resale 99-year leasehold condo units might cost the same or less than EC units as the current economic crisis takes fuller shape later.

[F.3] URA tries its luck with Dakota and Seletar sites

Despite the no-show at the last tender of an executive condo site in Punggol, the URA has released sales details for two Reserve List sites - at Dakota Crescent and Seletar Road.

The 1.7 ha site at Dakota Crescent is for a residential project with a gross floor area of 647,599 sq ft. It is near the future Singapore Sports Hub and upcoming Dakota MRT station.

The 2.1 ha site at Seletar Road is meant for a mixed commercial and residential development with a gross floor area of 226,042 sq ft. It is in a residential area at Seletar Hills near the future Seletar Aerospace Park.

(G) Overall performance of the HDB resale market

[G.1] Punggol BTO flats more than three times subscribed

2,344 Singaporeans are vying for 750 new flats at Punggol Arcadia, the latest Build-To-Order (BTO) HDB flats in Punggol. The BTO project is located at the junction of Punggol Place and Punggol Field and was launched in mid-November 2008.

Buyers could choose from 120 three-room, 465 four-room, and 165 five-room flats. The flats cost between $181,000 and $211,000 for a three-room unit, between $268,000 and $327,000 for a four-room unit, and between $356,000 and $416,000 for a five-room unit.

The overwhelming response to the BTO project means that the underlying demand for new flats is still strong, amidst the general cautiousness. The current economic worries may have prompted more home buyers to go for the safer option of public flats.

[G.2] Pricey condo-like HDB flats drew few buyers

Natura Loft at Bishan, the latest HDB’s Design, Build and Sell Scheme (DBSS) flats, has drawn about 600 applications for its 480 units, a far cry from the previous overwhelming responses seen at Premiere @ Tampinese, City View @ Boon Keng, and Park Central at Ang Mo Kio.

Besides the apparent economic woes, another reason for the lukewarm response might be the high asking price. For example, typical four-room 95-sq m units are asking from $465,000 to $586,000; while the five-room 120-sq m flats cost $600,000 to $739,000. On the average, the unit price works out to about $450 to $570 per sq ft (psf).

Comparatively, a new 99-year leasehold condo, Rosewood Suites in Woodlands, is being attractively priced at between $590 to $600 psf.

[G.3] HDB sub-letting rents to fall in tandem with private rents

As rents for private condos and apartments are softening and expected to continue sliding due to the deteriorating economy and increasing supply of new condos next year, HDB sub-letting rents are expected to follow suit.

In fact, the downward pressure is already being felt. First of all, the sub-letting rents for HDB flats have shown smaller increases in the third quarter (Q3) of 2008.

For example, HDB sub-letting rents for 4-room and 5-room flats in popular areas such as the Central areas, Bukit Merah, Queenstown, and Marine Parade are facing downward pressure.

Secondly, the number of HDB flats which received the green lights from HDB for ‘whole flat sub-letting’ increased in Q3 to 21,400 units from the 20,200 approved units in Q2 2008. However, ‘whole flat sub-letting’ deals fell 4% to 3,960 cases in Q3. If the trend continues, the sub-letting rents will fall further.
Note: HDB flat owners are allowed to rent out their whole flat after having fulfilled the minimum occupation period (MOP) of three years, if the flats have been purchased from the open market without any housing subsidies from the government. The MOP is five years if the flat owners have taken the government subsidy, such as the CPF Housing Grant.

[G.4] Resale transaction in November 2008 increased by 43 cases

The total HDB resale volume in November 2008 was the third highest this year. After hitting the highest volume in September 2008, the resale activities dipped slightly in October with 2,389 resale transactions. However, with more bad news of corporate layoffs and the heightened fears for the economic uncertainties, more home buyers opted for the safety of subsidised flats; and the buying trend is likely to continue into 2009.

[G.5] Larger flats in demand – with volume of 5-room flats hitting year’s highest

The deteriorating economy may have compelled many aspiring private home buyers to switch to larger public flats (and probably also to take advantage of the subsidised home financing).

The demand for bigger flats, such as 5-room and executive flats, has increased steadily since January 2008, as the global financial crisis deepened. The resale volume of 5-room flats reached its highest level this year, hitting 699 deals in November – 64 deals more than in October 2008 and 102 deals more than in January 2008.

The resale volume for executive flats crossed the 200-deal threshold for the second time in the year, reaching 204 deals in November – 22 deals more than the previous months.

[G.6] Case Study – 5-room resale flats more expensive in November 2008

The highest resale volume of 5-room resale flats was accomplished with generally higher resale prices. Samples of resale prices of 5-room flats in the 10 largest HDB heartland estates were used in the latest case study to ascertain the price trend of 5-room resale flat across the island.

It was discovered that the 5-Room resale flats in seven out of the 10 largest HDB heartland estates experienced higher median resale prices.

Likewise, a similar study was done on the smallest heartland estates. It was ascertained that, as the resale prices in the smallest estates are already very high, the general upswing in resale prices for larger flats elsewhere did not occur to the larger units in the smaller estates, except for Marine Parade which is still the choicest location.

Findings: Only one (01) out of the three (03) smallest HDB heartland estates experienced higher median resale prices for the 5-Room resale flats.

[G.7] Higher resale prices supported by high demand for resale flats

Checks on the 5-Room flat resale volume in the 10 largest heartland estates revealed that there were 21 more resale 5-room flat transactions in November 2008. Likewise, at the smallest HDB estates, where resale prices tend to be much higher than elsewhere due to limited supplies, there were 12 more resale 5-room flat transactions

This means that the rise in median resale prices was supported by higher demand from the buyers, many of whom are probably making the necessary financial adjustments in these tumultuous times. It also means that the underlying strengths in the HDB resale market are strong, while the country goes into an unchartered economic territory next year 2009.

Monthly Property Market Update for October 2008

2008-11-20T15:17:00.003+08:00

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.

Park Infinia for Rent.

2008-10-29T18:51:00.003+08:00

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Policy Updates!

2008-10-22T16:35:00.002+08:00

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.

Property Market Direction.

2008-10-22T15:09:00.004+08:00

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.

Investor Alert!

2008-10-14T15:04:00.004+08:00

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.

September Update!

2008-09-26T14:52:00.003+08:00

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.

August Update.

2008-08-25T14:45:00.003+08:00

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.

Semi-Detach for Sale in Serangoon Area!!!

2008-08-12T17:56:00.007+08:00

Monthly Property Market Update for JUNE 2008.

2008-07-14T14:20:00.000+08:00

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.

Residential for sale!

2008-07-13T00:39:00.000+08:00

3+1 @ Hillview Park.
3+1, 1250sqft, nicely renovated, high floor, facing greenery n pool view, swimming pool, tennis court, close proximity to PIE.Amenities:MRT / LRT : a. LRT Station: Pending (BP8) b. LRT Station: Petir (BP7) c. LRT Station: Bukit Panjang (BP6) Shopping Centres : a. Rail Mall, Theb. Bukit Panjang Plaza And Shopping Centrec. Ten Mile Junction Community Clubs & Centre : a. Bukit Gombak Community Club/Centre b. Bukit Panjang Khek Community Guild c. Bukit Panjang Community Club/Centre Educational Institutions : a. Chij (Bukit Timah) Primary School b. Methodist School Of Music Libraries : a. Bukit Panjang Community Childrens Libraryb. Bukit Panjang Community Library Sports & Recreation Facilities : a. Bukit Gombak Stadiumb. Bukit Gombak Sports Hallc. Cdans Country Club Parks & Gardens : a. Chestnut Drive Playgroundb. Cashew Road Playgroundc. Bukit Batok Town Parkd. Bukit Timah Nature Reservee. Bukit Batok Nature Park Reserve Market & Food Centre : a. Hillview Avenue Block 16 Food Centre b. Hillview Avenue Block 15 Market Pls Call Melvin 90224001

1+study @ Springbloom.
893sqft, 1+study, Spring Bloom condo for sale, Near Mrt, Nanyang JC, High Floor, nicely renovated full condo facilities! Call Melvin 90224001.

Brand New! Condo @ Zion Rd
Located opposite Great World City, it brings you all the convenience ofyour daily needs.Leisure and business are also easily accessible with minutes away fromOrchard Road and the Central Business District.Property Type : 1 Block of 13 storeys (Apts (1, 1+1, 2, 2+1, 3Penthouses)District: 10Tenure: 999 yearsSite Area : 21,864 sq ftExpected T.O.P : 30 Dec 2013Total Unit : 85Maintenance: $240-$360Price at $16xx psf onwardsPls call Melvin 90224001.

Office space for rent.

2008-07-09T18:04:00.000+08:00

Manhattan house
office 613sqft with 2 partition rooms,Outside Cbd, 5 mins To Chinatown MRT, near hawker, aircon, mins drive to orchard, Convenient, $4psf.neg. Available Immediate. Newly Painted and newly carpetted!

Service office for rent.
Genting Lane 120sqft/150sqft last 3units with window/without window rental, fully furnished, inclusive of power supply bills,cleaning services, free internet access, Free web hosting, Free Accounting service, free flow of coffee and tea in pantry, confrence room, reception service, fax, copier, daily banking and mailing services, 24/7 access etc...

Interested can call Melvin @ 90224001.

Residential Units for Lease/Rent

2008-07-08T19:10:00.000+08:00

The Tiara 3+1, 1345sqft fully furnished 270 degree Panaromic view High Floor, just renovated. Full Facilities, mins to Orchard, next to Great World City.

Parc Emily 2 bedroom, partial/full furnished, high floor mins to Orchard Rd, Plaza Singapura.

Blk 76, 2+1, hdb unit for rent at Marine Parade high floor with Sea View, fully furnished and aircon.

Blk 79, Toa Payoh central, 2 common rooms, furnished, near MRT, Centre, Coffee Shop, Library, Bus interchange, prefer ladies only available in AUG 2008.

Interested parties can call Melvin @ 90224001.

Monthly Property Market Update for May 2008

2008-07-07T15:45:00.000+08:00

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.