BT Property 2010 - 23/09/10

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Published September 23, 2010

The next wave

By UMA SHANKARI


WHAT is next for Singapore's property market? No one - neither developers, analysts nor homebuyers - can answer the question with any certainty right now.

After subdued sales through all of 2008, the residential market here took off in February last year. And the buying volume and price growth continued into 2010 - despite a slew of government measures announced over the past 12 months to dampen demand for both private homes and HDB flats, and boost supply.

But the latest round of cooling measures, announced by National Development Minister Mah Bow Tan on Aug 30, are considered to be harsher than the previous policy changes and could have a greater impact.

Developers trust that the measures - which include the decision to disallow concurrent ownership of HDB flats and private residential properties within the specified minimum occupation period - are not likely to keep away genuine buyers. They are also hoping that the flux in the market will settle in a few months and that buying interest will continue apace.

Over the next few pages, we examine the key aspects of Singapore's property market, taking an in-depth look at the residential market and the commercial sector as well as key overseas markets.

We ask experts for their views on the impact of the latest round of government measures and look at where the next wave of activity will come from after the market, investors and homebuyers digest the latest news.

There is no denying the importance of Singapore's property sector. How the market fares will impact not only developers, investors and 'regular Joe' homeowners, but also related sectors. These include banks which have been enjoying brisk business dishing out housing loans over the last two years.

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Published September 23, 2010

Too hot to handle?

WENDY TANG and PNG POH SOON examine the impact of cooling measures on HDB, mass, mid- and high-end residential properties


MUCH has been said about the government's recent cooling measures and their likely impact on the residential property market. While some think the latest measures have enough bite to cool the entire market, others expect that only the mass market and public housing (HDB flats) segments will be affected.

In the aftermath of the financial crisis, China, Hong Kong, Singapore, and Australia have seen their property markets performing strongly in tandem with the recovering economies. Prices had risen so rapidly that there were worries about a property bubble. China has tried to cool its property market as has Singapore, with three rounds of cooling measures.

The property market generally turns cautious when the government changes the demand and supply levers. The market is still digesting the new measures and market watchers are anxiously monitoring response to new project launches.

How will the new measures affect the HDB, mass, mid- and high-end residential properties? Prior to the new measures, HDB buyers typically comprised locals, PRs, upgraders, downgraders or even private property owners.

The wide range of buyers was due to the relaxation of rules by the Housing and Development Board in the late 1980s. This allowed permanent residents (PRs) to buy HDB flats and HDB owners to invest in private property, with certain conditions. Later on, private property owners were allowed to buy HDB flats from the resale market as these units were deemed not to be subsidised. Collectively, this group forms the base of HDB buyers.

Over the past 10 years, Singapore's population (residents and non-residents) grew by 26 per cent. The number of Singapore residents (citizens and PRs) rose by 15.6 per cent, and non-residents (foreigners) by a hefty 72 per cent. The number of new completed HDB flats, however, has dropped significantly since 2006 while the overall population has increased. HDB resale prices escalated in response and have risen by some 45 per cent since 2000.

The new measures are likely to affect the HDB segment most since demand will be crimped as those owning private property here and overseas will no longer be allowed to buy HDB flats unless they sell the private property within six months of getting the HDB flat.

Existing HDB owners upgrading or downgrading to another HDB flat are also affected. To qualify for 80 per cent financing, they have to show proof of sale of their existing unit within two weeks of the first sales appointment. Hence, arrangements with the buyer of their existing flat and the seller of the flat have to be well planned. Otherwise, buyers are limited to borrowing no more than 70 per cent of the purchase price of their new flat. In addition, the cash downpayment will be doubled to at least 10 per cent.

The seller's stamp duty, which used to apply to properties sold within a year, has now been extended to those sold within three years. But this should not affect the HDB segment as buyers have to occupy the new flat for at least five years before they can sell it.

On the supply side, 16,000 new flats will be offered in 2010 which is more than 3.5 times the average number of new HDB flats completed between 2006 and 2008. Going forward, the HDB is prepared to launch up to 22,000 new flats in 2011 should demand continue to be strong. The new supply will eventually ease demand pressure on existing stock.

The introduction of the new measures is in line with the government's view that HDB flats are homes to live in rather than investments. The restrictive measures which crimp demand, in addition to the looming supply, will dampen any capital appreciation of HDB flats. This will happen even when the private property market recovers in the future.

In fact, in the HDB resale market, anecdotal evidence points to early signs of price moderation, in particular the cash over valuation (COV) component, as buyers' and sellers' expectations change. However, any decline in HDB prices should not be drastic in the near term due to the limited completed stock. In the medium term, prices will remain stable with limited price appreciation.

The private mass market segment will also be significantly affected as those with HDB addresses typically form the bulk of such buyers. This group of buyers are usually price-sensitive and have been motivated by the current low interest rates.

A lower loan to value quantum raises the hurdle for HDB owners looking to make their first private property investment. Assuming a purchase price of $1 million, a total of $300,000 is payable, of which $100,000 must be in cash. The latter is double what was required in the past. Buyers without the additional funds will have to wait longer before they can enter the market.

Previously, buyers whose monthly household income ranged from $8,000 to $10,000 a month were not able to buy new HDB flats. Some opted to buy smaller private residential units in order to keep the absolute price affordable. This was a more appealing option than paying high COV for older HDB resale flats.

The new measures now allow these buyers to purchase new flats under the Design, Build, and Sell Scheme (DBSS). If the response to DBSS flats is good, more of them may be released. As such, some demand for private homes may be diverted to public housing.

Buyers now have more housing options, including executive condominiums (EC) which were introduced in 1995 for buyers whose household income was too high to qualify for a new HDB flat but who might not have found private property affordable. ECs are sold with eligibility and ownership restrictions similar to public housing, but are fully converted to private housing after 10 years. Going forward, the government will be launching three EC sites in Pasir Ris, Bukit Panjang, and Tampines that are expected to yield 1,415 units.

Developers seem more cautious of late judging from recent results of government land sales (GLS) tenders. The highest tender price of $340 per sq ft per plot ratio at Hougang Avenue 7 was 25 per cent lower than that of another site sold at Hougang Avenue 2 in May. The premium between the top and second bidder narrowed to 2.5 per cent.

In the second half of 2010, land that can potentially yield about 13,900 new private homes will be up for tender. It is the highest in the history of the GLS programme. Of the upcoming supply, about 8,100 units are confirmed for sale without the need for prior developer interest. If demand remains strong, the government is prepared to increase supply in the first half of 2011.

In light of this, prices of mass market properties may ease by 10 per cent in a year's time. This is not to say all mass market prices will follow suit as developments in better locations, near MRT stations or which offer good value should hold up.

Mid- to high-end properties are less likely to be adversely affected by the cooling measures as buyers are not as price-sensitive as those in the mass market. As such, the lower loan to value ratio for an investment property is unlikely to affect them as much as buyers of mass market and HDB properties. Sellers' stamp duties will also not affect investors so long as they do not sell within three years. In any case, the amount is not significant in relation to the overall value of the property.

Interest in prime property remains strong. However, buyers are cautious as the global economy is still fragile. Buying activity remains selective. Assuming there isn't another crisis, mid- to high-end properties are likely to remain fairly stable with prices down by 5-10 per cent over the next 12 months.

To sum up, the property market is unlikely to crash as the government monitors the market closely. In the past, measures have been taken to revive the property market if prices are depressed and vice versa. While the new policies benefit some people, they adversely affect many others. Time will tell whether this round of measures is well-calibrated or excessive. The authorities are equally anxious to monitor the impact and may well ease up should it hurt more deeply than intended.

No one benefits if the residential market is badly destabilised, particularly in a country where property is viewed as a valuable investment. Hopefully, the latest round of cooling measures will bring Singapore closer to a stable and sustainable property market.

Wendy Tang is director, residential services, Knight Frank and Png Poh Soon is senior manager, consultancy & research, Knight Frank

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Published September 23, 2010

Strata-landed market gaining ground

Strata-landed homes have changed hands so far this year at prices averaging $646 per sq ft, report DOREEN GOH and ELIZA LEE


STRICTER development guidelines on the density of strata-landed housing developments, which were implemented on Feb 3, 2009, had effectively reduced the potential supply of new strata- landed homes. Notwithstanding, there are plenty of options available in the secondary market for those keen on owning a strata-landed property. Where should buyers begin their search? What kind of price range can they expect? And for those who still prefer new developments, what are some of the upcoming projects they can look out for?

Strata-landed housing are landed houses with strata-titles and common facilities. Most are found in cluster housing developments that are allowed within Designated Landed Housing Areas, and may comprise of solely bungalows, semi-detached or terrace houses, or a combination of these housing types. To a lesser extent, they are also known as townhouses within mixed landed/non- landed developments. Based on caveat records from the Urban Redevelopment Authority's Real Estate Information System (URA Realis), on Aug 26, 2010, 337 strata- lnded homes have changed hands so far this year at prices averaging $646 per sq ft, up 13.7 per cent from 2009's level and surpassing the previous peak of $621 per sq ft in 2007 by 4.1 per cent.

Strata terrace houses which traditionally dominated transaction activity has to date accounted for about two-thirds of this year's strata-landed transactions, with prices averaging $637 per sq ft. Another 22 per cent of the transactions involved semi-detached houses at an average price of $681 per sq ft, while the remaining 11 per cent were bungalows at prices averaging $632 per sq ft.

Unlike the past five years where most deals were sealed in the primary market, the majority (64.7 per cent or 218 units) of the strata-landed transactions so far this year occurred in the secondary market, with the potential to exceed the 237 secondary market transactions in 2009.

The heightened level of activity in the secondary market is unsurprising since the revised guidelines for strata-landed developments stipulating a minimum plot size per unit type will effectively reduce the potential supply in the market.

The number of new strata-landed units launched had declined from a high of 108 units in Q3 2009 to 42 units in Q2 2010, as the effect of the revised guidelines kicked in. As such, prospective buyers would need to warm up to the idea of house hunting within the secondary market.

What's available in the secondary market

The secondary strata-landed housing market offers prospective buyers many options in terms of location, price, housing concept/type, and strata area to suit varying budgets and lifestyle.

To date, there are some 120 developments supplying over 3,000 strata- landed houses in Singapore. The highest concentration of units can be found in Bukit Timah (684 units), Bedok (653 units), and Serangoon (527 units), while established residential areas like Ang Mo Kio, Yishun, and Novena house smaller pockets of strata-landed units.

While most are small-scale or boutique developments of less than 50 units, with limited facilities such as swimming pools, security, and Jacuzzis, there are about 10 large- scale strata-landed projects with over 100 units each, supplying around half of the estimated available supply of strata-landed houses in the secondary market.

These developments also offer more facilities such as swimming pools, gymnasiums, tennis courts, children's playgrounds, security, club houses, Jacuzzis, barbecue pits, spas, mini golf ranges, etc. Examples include The Shaughnessy (254 units) in Yishun, D'Manor (174 units) in Bedok, Hillcrest Villa (163 units) and The Teneriffe (148 units) in Bukit Timah, Horizon Gardens (157 units) in Ang Mo Kio, and Springhill (115 units) in Sembawang.

In terms of pricing, projects located in the Outside Central Region (OCR) are the most affordable. Using transactions in 2010 (as of Aug 26, 2010) as a guide, prospective buyers with a maximum housing budget of $1.5 million could consider terrace houses with strata area of less than 5,000 sq ft in the OCR, whereas those with a more generous budget of up to $2.5 million can consider semi- detached and detached houses in developments such as Aston Green in Hougang, Dalla Vale in Yishun, Sungrove in West Coast, Water Villas in Kovan, and Northshore Bungalows in Punggol.

As for those with a budget of above $2.5 million, they could extend their options to a wide range of terraces, semi-detached, and detached houses in high-end/luxury projects in the Core Central Region (CCR) with varying strata areas. Popular examples include Barker Terraces, Barker Ville, Estrivillas, Hillcrest Villas, Shamrock Villas, The Teneriffe, Villas@Gilstead, and Watten Residences in the Bukit Timah and Novena localities.

What's available from developers

If one is set on a first-hand property, he/she could still turn to new launches by developers. However, the numbers could be limited in years to come, as developers with the option of developing either non-landed and/ or strata-landed housing forms are likely to have a preference for the former which allows them to maximise the potential gross floor area of a site.

For those who do not wish to wait for future project launches, there are still unsold units for selection in some of the launched projects such as Five Chancery on Chancery Road, Mosella on Muswell Hill, Mt Sinai Residences on Mount Sinai Lane, Residences at Emerald Hill on Emerald Hill Road, Seven Crescent on Crescent Road, Sommerville Residences and Water Villas in Kovan.

As for those who prefer new projects, there are still some 600-plus units planned or in the pipeline. Major projects include Cabana (Phase 4) with 78 units; Watercove Ville (80 units); Nim Park, a proposed 121-unit cluster housing development by MCL Land; and a proposed 193-unit cluster housing development on Mount Rosie.

Conclusion

Strata-landed housing, in particular cluster housing projects, is expected to remain an appealing housing option to home buyers seeking the best of both worlds, ie a landed property with condominium-style facilities.

The expected healthy demand, coupled with the limited new supply in the pipeline, could translate into some potential upside in prices, as well as generate more activity in the secondary strata-landed housing market, where a wide selection of developments are available to suit varying needs.

Doreen Goh is a senior manager and Eliza Lee is a research analyst, research & advisory. Both are with Colliers International

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Published September 23, 2010

The evolution of the luxury home market

Despite the ever-evolving definition of luxury residences, two characteristics continue to stand out: location and space, says HAN HUAN MEI


WHAT constitutes luxury homes today, especially when the entire price structure of residential homes has changed so drastically in the past five years?

Prior to 2003, one could safely define prime residential areas as postal districts 9, 10, and 11 which comprise the Cairnhill, Orchard, Grange, Tanglin, Holland, Bukit Timah, Dunearn, Newton, and Novena areas. The districts immediately surrounding these three would comprise the next price range of housing.

Anywhere beyond, going into the HDB estates and new towns would be homes of the lower price range, catering to the masses. In dollar terms, prime residential had a price tag of $1,500 per square foot (psf) and above at that time. The mid-tier price range was $900-$1,400 psf and mass market homes were priced below $900 psf.

The prime residential market saw a watershed year in 2007 because there was a clear split between prime and luxury homes when the latter attained headline prices way above $3,000 psf. When some new projects hit $4,000 psf and above, they formed a new class called 'super-luxury' homes.

Unfortunately, a misnomer was created when small-format homes began to sprout in the prime districts to counter the high quantum. These units fetched prices ranging from $2,500 psf to $3,500 psf but their product attributes could not offer a luxurious lifestyle.

Luxury living in Singapore has evolved over time, from quality finishes to designer fittings to branded residences with butler services and lifestyle features like carpark lofts and private berths for waterfront homes.

The rich and well-heeled are attracted to them because owning a trophy residence beats owning a standard home any time. Two characteristics of luxury residences continue to stand out: location and space.

They are located at exclusive addresses and come with generous living areas for the enjoyment of space. URA has demarcated the Core Central Region (CCR) as the location where high-end homes are found.

This comprises the traditional prime districts 9, 10, and 11 as well as the waterfront locations of Marina Bay, Sentosa Cove, and Keppel Bay.

In recognition of the various types of residences and in consideration of the current higher price levels, the general consensus is that prime properties fall within the $2.5 million to $5 million price band, luxury homes within the $5 million to $8 million band, and super-luxury homes are those priced $8 million and above.

As a guide, luxury and super- luxury homes are taken to be 2,500 sq ft and above, befitting a lavish lifestyle.

In 2007, sales volume was at a record high and home prices peaked.

URA data for the selected districts where luxury homes are found showed that 230 homes in the primary market (Table 1) were sold at prices $5 million and above from Jan to Aug 2010. Within this basket, 144 new homes (Table 2) were of sizes 2,500 sq ft and above.

At the peak of the market in 2007, 701 new homes were sold at $5 million and above (Table 1) and of these, 402 were 2,500 sq ft and above. On the whole, luxury prices in 2010 are still lower than those in 2007.

In the secondary market, the first eight months of 2010 saw the sale of 182 luxury homes above $5 million sold in 2007, of which 166 were over 2,500 sq ft. This compared with 489 homes in the same price range sold in 2007 but a higher number of 532 homes were over 2,500 sq ft. The higher number of large units sold could be attributed to the more affordable price levels of older properties.

Back in 2007, the focus of the market was on new projects setting new benchmarks, causing the rift between luxury prices in the secondary and primary markets to widen.

It is foreseeable that the luxury transaction volume in 2010 will not measure up to that in 2007. Price-wise, the prices of secondary luxury homes have more or less caught up with the levels in 2007 but those in the primary market are still lagging behind by 10 per cent on the average.

The implication is that there is a potential for current prices of new luxury homes to rise as the economy strengthens and sentiment improves. Some 1,000 units in luxury projects like Ardmore II, 8 Napier, and Paterson Suites were completed this year, with another 1,400 units due for completion between September 2010 and December 2011.

Among them, around 900 units remain unsold. It was reported that property funds have been involved in the bulk deals of high-end apartments.

One of these was Arch Capital, who bought all 34 units of Royal Oak - a refurbished project in Anderson Road - at around $200 million or $2,337 psf. The likely route that developers will take is to source for such bulk purchasers. Alternatively, they may keep them for rental income until higher prices are achieved later.

The writer is associate director, CBRE Research, Singapore

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Published September 23, 2010

HDB market set to normalise

Measures to cool the property market appear to have made some impact already, says EUGENE LIM


A MASSIVE building programme was undertaken by the Housing and Development Board (HDB) in the 1970s due to a shortage of housing for the masses. Back then, there was no resale HDB market. From the 1980s to the mid-1990s, as the housing shortage eased, the public housing programme shifted from building to satisfy a shortage, to deregulation and the creation of a resale market.

In 1989, the government made major policy changes by removing the income ceiling for buying resale HDB flats; allowing HDB owners to invest in private residential properties; as well as allowing private property owners and Singapore permanent residents (PRs) to buy resale HDB flats for owner occupation.

Since then, resale HDB prices have seen their ups and downs. But in the second quarter of this year, HDB numbers showed that resale HDB prices hit their highest point since 1990. Resale HDB prices were 18 per cent higher than the first peak in Q4 1996; and five times more than flat prices in 1990, when the resale market started.

Despite higher valuations, 96 per cent of resale transactions in Q2 were done at higher and higher cash-over-valuation (COV). Prices continued to climb in July and August. Resale HDB transactions handled by ERA agents showed that the median COV increased to $35,000, up 17 per cent from Q2's $30,000.

But it was 11 times more than the market low of $3,000 just 14 months ago. On the ground, many deals were closed by negotiating on the COV rather than the resale price of the flat.

For five straight quarters starting in Q2 2009, resale transactions shot past 8,000 units; with three-room transactions accounting for 30 per cent; four-room 36 per cent; five-room 25 per cent; and executive 9 per cent.

This exuberance in the resale market was happening despite the HDB's launch of some 66,500 new flats since 2006 - including the estimated 16,700 units this year.

Many first-time buyers, priced out of the resale HDB market, put the blame on, among other things, the artificial demand coming from those buying HDB flats for investment or short-term speculation.

These were people who did not need a roof over their heads but were riding the buoyant resale HDB market for personal profit, and in the process driving up prices.

While there were no official statistics as proof, these claims have some validity. A three-room resale flat bought at $300,000 that rents for $2,000 a month gives a yield of 8 per cent per annum; well above the average private property yield of 3-4 per cent.

A resale flat bought in 2008 and sold in 2010 could net the seller a gain of at least 30 per cent. A PR can buy a resale flat, rent it out for an income stream, and after a few years sell it for a good profit. The profit could be channelled to buy a better house back home and other luxuries.

An astute investor with spare cash could be tempted to take a punt in the resale HDB market, despite flouting public housing rules.

Impact of new measures

On Aug 30, the government announced measures designed to help first-time buyers, as well as to keep the resale HDB market in check. These measures were:

# Minimum occupation period for resale HDB flats extended to five years.

# Private property owners who buy resale flats have to sell their private home within six months of buying the flat. Private homes include overseas properties.

# Those with existing mortgages can only take a maximum loan of 70 per cent; and need to fork out a mandatory cash deposit of 10 per cent.

# First-timer households with monthly income of between $8,000 and $10,000 can buy new flats under the Design, Build, and Sell Scheme (DBSS).

# HDB speeds up completion of flats from three years to two-and-a-half years.

While these measures may help to rein in runaway prices, they have also made buying and selling property more complicated.

Those who buy a resale flat from Aug 30 onwards can no longer buy private property within the first five years of the resale flat purchase.

Should they buy private property after five years, they will have to put up a higher cash downpayment of 10 per cent of the purchase price if their current loan is not fully paid up. In addition, they can only take a maximum loan quantum of 70 per cent.

After buying the private property, it may not make sense for them to sell their resale flat to buy another one, unless they are prepared to sell the private property within six months. This means they can no longer bequeath their private property to their children or rent it out for income.

Meanwhile, should PRs buy a resale HDB flat, they will have to part with any property they own in their homeland within six months of the flat purchase. With non-genuine demand taken out of the equation, PRs are placed in a dilemma.

First-time buyers will have a large supply and variety of flats to choose from: Build-To- Order (BTO) flats (16,700 units in 2010 and up to 22,000 units in 2011), DBSS flats (up to 7,000 units in 2010 and 2011), and executive condominiums (up to 8,000 units in 2010 and 2011). As such, we estimate that demand for resale HDB flats may drop by some 30 per cent.

If that happens, total resale volume this year could dip below 30,000 units and median COVs fall to $20,000 or lower by year's end. With lower transacted prices, valuations will also be lower and this may again impact future resale prices. A price correction in the resale HDB market is in the offing.

Measures to cool the property market appear to have made some impact already. The recent launch of the Yishun Riverwalk BTO project attracted only 3,225 applications for 1,408 flats - well below the ratio seen in past BTO launches when up to six times the number of bids were seen for each unit.

This may indicate that first-timers may be intending to return to the HDB resale market in anticipation of falling prices. These buyers had been priced out of the resale market during the property boom and flocked to join the queue for new HDB flats. They may now be waiting to see if resale prices will drop.

Those who have an immediate need for homes will probably go to the resale market instead of queuing for a new flat which may take three years to build.

The five-year minimum occupation period (MOP) only affects resale applications received by HDB from Aug 30. For those who bought their flats before that, the previous MOP of three years, 2.5 years or one year still applies, depending on when they acquired their flats and the type of loans they took.

These HDB owners can sublet their HDB flats after occupying it for three years. They can also invest in a private property during their MOP; unlike buyers after Aug 30.

Days of high COV transactions may be over

With the new measures taking effect, the froth in the resale HDB market has been removed. Coupled with new housing options for first-time buyers and the sandwiched class, the key driver for the resale HDB market going forward will be those with immediate housing needs - whether they are Singapore citizens or PR households.

The resale HDB market should now reflect the real demand for housing. As such, the days of high COV transactions may be over.

The writer is associate director, ERA Asia-Pacific

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Published September 23, 2010

Sentosa Cove still a coveted address

The luxury enclave saw the return of buying interest on the back of an improving global economy, report STEVEN MING and ZENG ZHEN


SENTOSA Cove, Singapore's first gated waterfront residential enclave located on the eastern shores of Sentosa island, is taking shape with the completion of some 920 upscale condominium units and 200 waterfront and hillside bungalows since its inception in 2004. In tandem with the buoyant home sales on the mainland and coupled with the opening of the integrated resorts (IRs), the luxury enclave of Sentosa Cove saw the return of buying interest on the back of an improving global economy.

There are now nine condominium and seven landed housing developments for sale. The most recent launches include City Developments' 228-unit The Residences at W Singapore Sentosa Cove, and Ho Bee & IOI's 151-unit Seascape, both of which saw good take-up.

Non-landed

Amid favourable market conditions, sales remain strong for non-landed residential homes in Sentosa Cove. There were 104 sales transactions registered from January to July 2010.

Despite falling short of the 130 sales transactions recorded for 2009, the sales value for the first seven months of 2010 has outperformed that of last year, with $541 million recorded thus far compared with $497.9 million in 2009.

With the release of new projects, the primary market enjoyed a 430 per cent increase in volume, albeit from a relatively low base in the previous year. In the secondary market, because only The Oceanfront@Sentosa Cove received Temporary Occupation Permit (TOP) in March this year, the sub-sale activity has turned relatively quiet with only 21 caveats, down from 101 in 2009, whilst resale activity has firmed up by 57.9 per cent from 19 in 2009 to 30 transactions.

The first seven months of this year have seen rising prices across the board. Fuelled by higher prices of new launches in the vicinity, the prices of projects that were launched before 2010 have shown an increase ranging from 2.2 per cent to 30.8 per cent, with some surpassing their previous peaks in 2007.

As a result, the average price of non-landed residential in Sentosa Cove has soared from $1,691 per sq ft in 2009 to $2,344 per sq ft in 2010, representing a 38.6 per cent increase.

Appreciation in capital values of non-landed homes has lent support to the investment activities in Sentosa Cove, especially the sub-sale transactions in those projects approaching TOP dates.

Caveat matches of 19 sub-sales from January to July show that 94.7 per cent, or 18 sub-sales, yielded a profit between $179,400 and $3.06 million, significantly higher than the 71.7 per cent for the whole of 2009.

In addition, the average gain per unit almost doubled from $600,025 in 2009 to $1.16 million in the first seven months of 2010. This was a result of increased percentage of sub-sales that yielded gains exceeding $1 million.

So far this year, the sub-sales of nine units in The Oceanfront@Sentosa Cove have earned profits from $1,005,970 to $3,056,700, accounting for 47.4 per cent of the total profitable sub-sales.

On the other hand, there were only seven out of the 67 profitable sub-sales that reaped a profit of more than $1 million in the preceding year.

Landed

Unlike Good Class Bungalows (GCBs) on the mainland, the landed housing segment in Sentosa Cove is unique as it offers an exclusive waterfront.

More importantly, the landed houses in Sentosa Cove appeal to a wider market as foreigners who do not have permanent residence status are allowed to purchase them.

According to the caveats lodged between January and July 2010, 39 landed houses in Sentosa Cove have been sold, only one less than the total recorded for the whole of 2009. The transaction value has surged by 20.5 per cent from $507.3 million in 2009 to $611.3 million in the first seven months of 2010, attributed to the 19 houses costing more than $15 million each that were transacted during this period. In stark contrast, there were only nine transactions above $15 million in the preceding years from 2005 to 2009.

Of these 39 sales, foreign buyers chalked up 19 transactions or 48.7 per cent, with Chinese investors being the most dominant, inking 12 transactions, or 63.2 per cent, of all foreign purchases in the reviewed period. The Chinese buyers have ranked top among the foreigners since 2009; overtaking the Indonesians.

The average unit price based on land area climbed from $1,568 per sq ft in 2009 to $1,892 per sq ft in 2010, up by 20.7 per cent. In terms of unit price, the most expensive home sold this year was a terrace house in The Villas@Sentosa Cove which was transacted at $8 million or $2,929 per sq ft in May.

Interestingly, this house was first bought in June 2007 from the developer for $4.6 million or $1,682 per sq ft, yielding the vendor a profit of $3.4 million.

Outlook

On the economic front, Singapore has probably not seen better days. The government has revised the GDP growth forecast for 2010 up to 15 per cent from its previous forecast of 7 to 9 per cent.

Despite this, the market is not absolutely immune from external downside factors. Market sentiment has been affected by the rising concerns over the uncertainty of US economic recovery and the eurozone debt crisis. Meanwhile, the government's latest tightening measures, coupled with the ample supply from the government land sales programme, has cast a cloud over the property market.

Nevertheless, we expect that these cooling measures would have limited impact on the luxury developments in Sentosa Cove. The government's measures are designed to curb speculation, especially in the mass-market and public housing re-sale segments.

Still, the sales activity in Sentosa Cove may soften in the near term as buyers adopt a wait-and-see approach to the new measures.

However, the broader fundamentals for the private residential market are still good, and driven by the low interest environment, and abundant liquidity from Asia's booming wealth, Sentosa Cove would continue to attract both local and foreign buyers who take a mid to longer term view of the market.

Steven Ming is executive director, Savills Singapore and Zeng Zhen, senior manager, Savills Research & Consultancy

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Published September 23, 2010

Market may be in state of denial

KELVIN TAY looks at how the new measures introduced by the government will affect residential property prices here


THE 1980s witnessed one of the most spectacular property bubbles in modern history. It was brought on by a combination of a buoyant Japanese economy, the forced appreciation of the Japanese yen by virtue of the 1985 Plaza Accord, and low interest rates. The mixture was so potent that, at its height in 1989, prime properties in Tokyo's Ginza district were being sold for $125,000 per square foot (psf).

In 1991, the Japanese property market bubble burst spectacularly and almost 20 years later, the market remains moribund. More recently, the collapse of the US housing market brought capitalism to its knees in October 2008, with the resulting de-leveraging ramifications still being felt in the global economy almost 24 months later.

Although some market observers are still debating whether there is a bubble in the Singapore property market and therefore a need for price stabilisation measures, the fact that there is such debate is already proof of a pie in the making. As of the second quarter of this year, the HDB resale price index was 18 per cent above its previous peak in 1996. Prices in the mass market segment of the private residential market are as much as 23 per cent above its previous peak in 1996 as well.

In fact, the HDB resale and mass market segments may currently be in a state of denial - that prices will keep rising forever, a fundamental myth of asset bubbles. During a bubble, people generally believe prices would not fall. Although this has been proven wrong so many times in the past, many have not learnt from the past. And very often, homeowners are often the biggest victims of any property bubble.

It is with these thoughts in mind that we view the latest round of government policies to stabilise property prices in Singapore with relief. This is especially so as the recent run-up in property prices in Singapore has been concentrated largely in the HDB resale and mass market segments of the private residential market, where the majority of Singaporeans reside.

Most of the policies that were introduced three weeks ago are targeted at the HDB resale market, which in turn underpins prices in the mass market segment of the private residential market. Any decline in HDB resale prices will in turn affect the private mass market segment and vice-versa. The measures are broad-based, targeting both market demand and supply, with the 'demand' focused measures largely aimed at reducing speculative demand.

For example, buyers with a second mortgage now require a higher down payment of 30 per cent (previously 20 per cent), while the minimum cash payment has been increased to 10 per cent (previously 5 per cent). In our view, these two measures are likely to seriously dampen the HDB dweller's enthusiasm to upgrade to private property at current prices, as it reduces affordability.

A typical HDB upgrader would be looking at purchasing a 1,200 sq ft apartment at $850 psf, or around $1 million. Assuming that the couple still has an existing mortgage for the HDB flat they are upgrading from, they would need to cough up at least $100,000 in cash to meet the 10 per cent cash requirement and fund the remaining $200,000 from their CPF accounts. If we include the usual renovation expenses of about $30,000, then the cash requirement becomes a rather prohibitive $130,000, or close to 11 months of the couple's monthly net median income of $12,000.

Over time, the increase in supply of Design, Build, and Sell Scheme (DBSS), Build-to-order (BTO), and executive condominiums (ECs) in the market will also affect prices of the HDB resale market as buyers have a greater choice of homes available.

Some of the latest measures also reversed a long-standing policy that sparked the previous upturn in the HDB resale market in the 1990s. Back in 1991, the Ministry of National Development allowed HDB flat owners who have passed the minimum occupation period (MOP) of five years to invest in a private property.

Subsequently in 1993, the HDB relaxed mortgage valuations from 1984 values to current values and also permitted funds in the CPF ordinary account to be used for mortgage payments. Arguably, these two landmark policy changes at that point in time started the strong upturn in the HDB resale market in the 1990s, with the market hitting a peak in Q2 1996 before turning down sharply as a consequence of the Asian financial crisis.

Part of the package of measures announced at the end of August now disallow home owners from concurrently owning a private and public property within the MOP.

We expect this tightening to have a meaningful impact on the HDB resale market, as this is likely to reduce volumes and moderate price appreciation, if any. The subsequent impact is a decline in the average cash-over-valuation (COV) of the HDB resale market, which currently hovers at an average of $30,000.

With all these measures targeting the HDB resale market, it is difficult not to envisage the mass market segment of the private residential market being impacted as the former acts as a firm price support and catalyst for the latter. The last year or so has seen the emergence of 'shoebox' apartments ranging from 350 to 650 sq ft in size.

These smaller apartments are usually the targets of speculators as the absolute financial outlay and commitment is smaller and not surprisingly, we believe these apartments are also likely to be among the first to decline as the HDB resale and private mass market segment takes a breather.

Ironically, the most effective 'policy' of the government in stabilising the property prices might be interest rates. The Singapore property market has never been an interest rate sensitive market until 2007 and our sense is that the average home buyer may not be sanguine about how interest rates would impact his mortgage payments.

Prior to 2007, most housing loan rates in Singapore were pegged to the banks' and finance companies' prime lending rates (plus a premium of one per cent), which not only tended to be much higher than the Singapore Interbank Offered Rate (Sibor) or Swap Offer Rate (SOR) but also usually stayed consistently high, regardless of how low the base rates were.

However since 2007, the bulk of home loans are now pegged to Sibor or SOR (plus a premium of 1.25 per cent). With Sibor at historically low levels (0.51 per cent as of Sept 16, 2010), mortgages are currently artificially low, making homes that were once out of reach based on the old lending rates very affordable. However, the current low Sibor rates will normalise at some point. It is just a question of when and how fast.

Have there been instances where Sibor behaved erratically? The Asian financial crisis was one such example. Sibor spiked to a high of 7.75 per cent before finally sliding to 1.9 per cent in December 1998. The average rate of Sibor during that 18-month period hovered at 4.9 per cent.

As Asia was fortunately not at the epicentre of the credit crisis in 2008, Sibor did not behave erratically but averaged around 1.3 per cent, almost three times the current rate of 0.51 per cent.

So what is the likelihood of the above scenario panning out? At this point in time, with the global economic recovery still wobbly, a high interest rate environment looks rather unlikely. The good news is that history has shown that there are usually several warning signs before a financial crisis engulfs an economy.

We are also hopeful that history would have taught the average Singaporean buyer not to overextend his debt like his Japanese and American counterparts, buying property that cost more than they could rationally afford because they assumed that values would only rise and interest rates would always remain at such levels. The bad news is that humans seldom learn from history.

The writer is chief investment strategist Singapore, UBS Wealth Management

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Published September 23, 2010

HDB rental market surging ahead

By EUGENE LIM


THE rental scene in the HDB market is buzzing, with strong demand for flats that is likely to continue as Singapore's economy powers ahead.

The number of flats approved for sub-letting by the Housing and Development Board (HDB) exceeded 14,000 in the first half of this year.

This is almost 94 per cent of the total for 2009. This year's quarterly average of 7,000 transactions is almost double last year's average of 3,750 units.

In particular, the number of rental transactions for three-room HDB flats has already exceeded last year's total by 235 units or 4 per cent.

Though Q3 numbers from the HDB are not yet available, it is likely that rental transactions for all the other flat types would have surpassed last year's total.

The surge in rental demand is not surprising, considering the country's double-digit GDP growth and full employment.

As companies increase hiring and the two integrated resorts continue to create buzz, the HDB rental market should remain strong.

Tenants for HDB flats are typically Asian professionals, service industry staff, foreign students, and permanent residents (PRs).

Currently, three-room flats account for about 39 per cent of rental transactions; four-room - 31 per cent; five-room - 22 per cent; and executive flats - 7 per cent.

ERA's transactions show that median rents across all flat types have increased by an average of 5 per cent in Q3.

Going forward, rental demand will continue to surge as Singapore's economy powers ahead.

Also, PRs affected by HDB's new policy of having to sell their properties in their home country when they buy a HDB flat could decide to rent for now. This will add to the rental demand for HDB flats.

We may soon see quarterly transactions come close to 8,000 units and this is likely to push rentals up again - possibly by 8-10 per cent over the next year.

The writer is associate director, ERA Asia-Pacific

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Published September 23, 2010

How en bloc sales may pan out

ONG TECK HUI says Singapore is faced with a looming under-supply situation in the prime and mid-prime segments


THE residential property market roared back to life in the second half of 2009 with both transaction volume and prices surging upwards, following a year of relative inactivity due to the global financial crisis. Against this backdrop, buyers flooded the market again and developers were busy replenishing their land banks so as to capitalise on the growing demand. The recently announced measures to cool both the HDB resale and private housing sectors may change certain dynamics in the market for enbloc sites so it may be timely for a quick review.

Prime shortage looming?

As the market became more buoyant, transactions in prime district residential properties picked up. Buyers are attracted by their central location, ability to command better rental yields, investment appeal, and other reasons.

During the first half of 2010, prime residential properties accounted for nearly one-third of primary market sales. Interest in the prime districts has been picking up in the last couple of years - in 2008, 23 per cent of primary market sales were attributable to prime properties while in 2009, there was an increase to 25 per cent.

Year-to-date, developers have poured more than $2.5 billion into residential sites (excluding executive condominium or EC sites) offered under the Government Land Sales programme (GLS).

Most of the GLS residential sites cater to mass suburban housing where the bulk of housing demand lies. It is certainly a sub-market which no housing developer can ignore. Furthermore, GLS sites are large, offering economies of scale in the entire investment chain for a developer, including site search, acquisition, planning, design, development, marketing, and sales.

While the GLS programme caters more to the suburban sector, demand for prime and mid-prime residential properties are generally met by sites offered within the private domain, including those under collective sales.

Year-to-date, developers have spent some $1.3 billion on private residential sites, with prime district sites accounting for 33 per cent of that value. Over the total amount invested in both GLS and private sites, it accounts for just 11 per cent. This seems to suggest an under-investment in prime district sites. The amount invested in mid- prime sites is also low, at 14 per cent of the total.

At this rate there would be a shortage of supply of prime and mid-prime residential properties. Barely 300 units will be generated by the prime sites transacted thus far while mid-prime sites would yield about 700 units.

In contrast, GLS residential sites would result in well over 7,000 suburban housing units being developed. It is noted that as at the second quarter of 2010, there are 10,997 units with pre-requisites for sale but not yet launched and 39 per cent of that supply is from the prime districts. However, that quantum is barely equivalent to demand in a good year and we need to address the needs of the market beyond that time horizon.

Fallout from new measures

We now consider the recent measures to cool the market in our review. The increased holding period for Sellers' Stamp Duty (SSD), reduced loan limit of 70 per cent, and increased upfront cash of 10 per cent for buyers with one or more outstanding mortgages would deter speculators and short- term investors, and encourage greater financial prudence amongst buyers in general. This should result in some calming effect on the market.

The HDB measures, on the other hand, have been designed to cool the HDB resale market.

The higher income ceiling for Design, Build, and Sell Scheme (DBSS) flats, increased supply for executive condominiums and DBSS flats, longer minimum occupation period (MOP) of five years for resale flats, and ban on concurrent ownership of HDB resale flats and private housing during the MOP - these are expected to moderate HDB resale activity.

As HDB households ride on a buoyant resale market to upgrade into the suburban housing market, we believe this housing segment will feel the effects of the market moderation more than the upper market segments. The prime and mid-prime residential markets appear to be more insulated from lower end market risks and could be more resilient.

While the suburban housing market appears set to have more challenges, it does not mean that it is to be avoided by developers. At realistic price levels, buyers would surely bite and any housing developer would strive to maintain an adequate suburban land stock to realise such opportunities.

However, good investment is about balance and ability to manage exposure and risks. It is timely for housing developers to review their portfolios and to re-balance if necessary. We are faced with a looming under-supply situation in the prime and mid-prime segments while the suburban market is more amply supplied.

Collective sales trends

During the course of this year, residential collective sales activity has been gradually picking up with increasing interest from buyers. In Q1, $141 million worth of collective sales were done. The quantum rose to $505 million in Q2 and registered $586 million in Q3 to date.

The outlook is for this trend to continue for the rest of this year into 2011. As suburban residential sites are likely to face more challenges from the new measures, we see a likely shift by developers toward collective sales.

An additional trend is toward increased investment in collective sale sites in prime locations. Year-to-date, only three out of 20 successful collective sales have occurred in the prime districts, accounting for 31 per cent of total collective sales value. As developers realise the under-investment in prime as well as mid-prime sites and a potential shortage of supply from these locations, they are expected to focus more on these segments.

Demand for collective sale sites will be met by more than 80 sites awaiting sales launches. Nearly half of these are in prime districts and a good number are in mid-prime locations. The stage is set for a change in market play in collective sales - all that is needed is for the players to act.

The writer is executive director, research and consultancy, Credo Real Estate

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Published September 23, 2010

A Tale of Two Centres

Jurong Gateway and Paya Lebar Central are two up-and-coming commercial hubs, report DESMOND SIM and CHUA YANG LIANG


SINGAPORE'S population reached 5.08 million as at end-June 2010 based on advance estimates. This is a 26 per cent increase from the last census conducted in 2000. The Ministry of Trade and Industry also forecast that the economy would grow between 13 and 15 per cent in 2010 while the long-term economic growth should moderate to a more sustainable level of 5-6 per cent as most economists have suggested. If this population trend supported by the strong economic growth prospect continues, we should expect greater urbanisation of suburban centres.

The rise of these regional centres not only spreads jobs across the island (so as to avoid overloading the downtown) but effectively expanded the commercial area which was traditionally in the downtown, to meet Singapore's long-term economic needs.

Four regional centres were first identified in 1990: Tampines, Jurong East, Woodlands, and Seletar. Seletar was subsequently dropped while Tampines regional centre became an exemplary success of this decentralisation plan. In 1992, Tampines New Town was given the World Habitat Award by the Building and Social Housing Foundation of the United Nations for outstanding contribution toward human settlement and development.

In addition, several sub-regional centres were also identified to serve as supporting hubs between the Central Business District and these regional centres. They include Buona Vista, Bishan, Serangoon, Paya Lebar, and Marine Parade. These commercial hubs are to be linked by orbital rail lines like the Circle Line. To date, Bishan is an exemplary sub-regional centre, buzzing with a large day and night population served by an MRT interchange, a modern retail mall, offices, and a regional riverine park.

In May 2008, the Urban Redevelopment Authority (URA) revealed the Master Plan 2008 and announced that there would be further plans to intensify these decentralised commercial hubs. Two of the plans include the Jurong Lake District and Paya Lebar Central. The former is to be transformed into a regional centre for business and leisure and the latter into a sub-regional centre with offices, retail, hotels, and attractive public spaces.

Jurong Lake District

Since the 1960s, Jurong has been synonymous with the industrialisation of Singapore. However this image is fast changing. Currently, in addition to the existing industrial areas, there is also a large resident population housed predominantly in public housing and smaller pockets of private housing estates.

The 2008 Master Plan unveiled grand plans to re- brand Jurong into a more vibrant neighbourhood. Renamed as Jurong Lake District, this 360-hectare precinct will consist of a commercial hub focused on the Jurong East MRT interchange - appropriately named as the Jurong Gateway plus a synergistic connection to the leisure destination around the existing Jurong Lake.

The 70-hectare Jurong Gateway will be set in a unique lakeside environment, providing some 500,000 sq m of office stock and another 250,000 sq m of retail and entertainment space. This quantum is in fact more than two-and-a-half times the size of today's Tampines regional centre. Complementing the Jurong Gateway is the International Business Park, as well as the research and educational institutions in the vicinity. Coupled with plans for 1,000 new private homes to be added around the MRT station, and up to 2,800 hotel rooms in the area, it is poised to be the biggest commercial hub outside the CBD.

The public, including property developers, has embraced the plans for this new district. A few months after the launch of the 2008 Master Plan, Frasers Centrepoint Homes launched Caspian - a 712-unit, 99-year leasehold condominium located close to Lakeside MRT station. This project, despite being launched in the midst of a global economic slowdown, was sold out within weeks of its launch.

Riding on this momentum, there was also strong interest from developers when another 99-year leasehold residential site adjacent to Lakeside MRT station was launched on the confirmed list in March this year. This 16,117.2 sq m site attracted a total of 14 bids with Keppel Land putting up the winning bid of $499 psf per plot ratio. This is double the land price that Frasers Centrepoint Homes paid for the Caspian site at $248 psf per plot ratio in December 2007.

In June 2010, the white site at Jurong Gateway Road was awarded to Lend Lease when it submitted the highest tender price for the site at $650 psf per plot ratio.

As a result of strong interest in Jurong over the past six months, the Ministry of National Development has revised upwards the development charge (DC) rates for the area. According to the URA's DC map, the Jurong Gateway falls within Sector 112 while Lakeside falls within Sector 113. Based on the commercial use group, Sector 112 witnessed the highest growth among the other 118 sectors at 25 per cent, while Sector 113 was tagged with a growth of 7 per cent. On the non-landed residential use group, both Sectors 112 and 113 saw increases of 13 per cent and 17 per cent respectively.

In the residential use group, both Tampines and Jurong Gateway started off at a similar implied land value. Possibly through greater interest in the Tampines region since the late 90s, its implied land value has edged higher. Post 2003, the residential implied land value for Jurong Gateway witnessed a surge and now commands a notable premium over Tampines. More residential developments especially in the West Coast/Clementi areas is the main factor.

Interest for development land in the Jurong Gateway and Lakeside areas are likely to intensify over the next few years. Land prices in these areas are likely to face upward pressure resulting in a narrower gap between Lakeside and Tampines, and Jurong Gateway to command an even higher premium over Tampines eventually.

Over on the commercial use group, Tampines has been enjoying a premium over the other two sectors since the mid-90s. Recent land transactions however have reduced the premium that Tampines has over Jurong Gateway. It is probable that the implied land value in Jurong Gateway would eventually surpass that in Tampines.

Paya Lebar Central

Based on the 2008 Master Plan, the vision for Paya Lebar Central is to develop it into a lively, pedestrian-friendly commercial hub with a distinctive Malay cultural identity. A new public plaza next to Paya Lebar MRT will be developed as a focal point. There are about 12 hectares of land available for development, translating to some 294,000 sq m of office, and another 200,000 of hotel and retail, spaces. In addition, there will be more community spaces and a new and wider pedestrian mall that would enhance the area's distinctive Malay heritage.

Listed under the government land sales reserve list, there is presently a commercial site available for tender that is located next to the Paya Lebar MRT interchange. This 1.42-hectare site can generate about 59,640 sq m of commercial gross floor area with further details to be released in December 2010.

Of all the new growth areas identified by the 2008 Master Plan, Paya Lebar Central seems to be the most inert in terms of activity so far. As compared to Sector 104 (Bishan sub-regional centre), the implied land values for Sector 101 (Paya Lebar Central) for both commercial and residential use groups still lag far behind.

Perhaps due to the proximity to good schools and established amenities in Bishan, Sector 104 (Bishan sub-regional centre) commands a much higher residential land premium over Paya Lebar Central. In commercial use group terms, the Bishan sub-regional centre again has had a sustained premium over Paya Lebar Central since 1996.

Looking ahead, as the development plans for Paya Lebar Central are focused mainly on commercial activities around the Paya Lebar MRT interchange, there will be greater pressure on the implied land value to rise to that of the Bishan sub-regional centre. However the same cannot be said for the residential implied land value.

Conclusion

Tampines regional and Bishan sub-regional centres are two living examples of the impact of the 1991 Concept Plan. These areas have not only established, but commanded a premium over other areas in terms of land values. If the planner's vision is upheld and Singapore continues to enjoy sustained economic growth, more property investments in the suburban growth centres can be expected. Land values in places such as Jurong Lake District and Paya Lebar Central can but only move northwards.

Desmond Sim is associate director, research and consultancy Singapore and Chua Yang Liang is head of research, South-east Asia, Jones Lang LaSalle

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Published September 23, 2010

Housing loans demystified

DENNIS NG explains what the latest changes in property financing are and what they mean to you


WHAT is the outlook for interest rates? How will the latest changes in property financing affect you? Fret not, this article will help guide you in the right direction.

From Aug 30, 2010, regardless of whether you're a Singaporean, permanent resident or foreigner, if you have an existing housing loan on a property - whether the property is in Singapore or overseas - the maximum financing you can get for your property purchase has been revised downwards to 70 per cent from 80 per cent previously.

And also from Aug 30, 2010, if you have an existing housing loan, and if you want to purchase another property, the minimum cash downpayment has been revised to 10 per cent from 5 per cent previously.

Thus, if you have an existing housing loan and are thinking of buying a property, it is time to re-work your numbers. And you might need to put off the decision to buy a property for the time being if you do not have the required minimum 30 per cent downpayment for the property, as the maximum financing has been reduced to 70 per cent.

However, if you have an existing property that is fully paid, and have no outstanding housing loan, and if you buy a property, you can still get up to 80 per cent financing. The above measures on the cash downpayment and 70 per cent financing limit apply to all property purchases with date of option to purchase dated Aug 30 or later.

How does it affect upgraders and people in the process of selling their property?

The government's main intention of introducing this new measure is to deter speculation in property. However, it can affect upgraders and people in the process of selling their existing property.

For instance, if you have an existing property which has an outstanding housing loan, but want to buy a new condominium project to be completed in a few years' time, you can only get maximum 70 per cent financing.

Those with plans to move are affected as well. If you plan to move to a new home and you purchase the new home before you sell your existing home, and if there is an outstanding loan on your existing home, you can only get a maximum of 70 per cent financing for your new home.

For those who have sold their property but the transaction is not completed yet, they might be affected as well.

In order to qualify for 80 per cent financing, homebuyers must prove the sale of their existing home to get the 80 per cent loan. For HDB flats, this requires an approval letter from HDB to the seller within two weeks from the date of the first sales appointment, which typically is about one to two months after the date of option to purchase.

For private properties, a signed sales and purchase agreement is required as proof, and a certificate from Iras showing that the stamp duty has been paid by the buyer of the existing home.

Types of housing loan packages available

With the recent entry of new players into the market, such as ANZ Bank and CIMB Bank, there are currently altogether 16 financial institutions that are active in providing housing loans in Singapore.

Each financial institution offers five to 10 different home loan packages. Thus, at any point in time, there are easily over 120 different housing loan packages available for you to choose from.

Housing loan packages with interest rates pegged to Sibor and SOR were only introduced since 2007.

Over the last three years, as interest rates remain low, and with more consumers aware of the availability of such packages, there seems to be a trend of more people choosing a housing loan package pegged to Sibor or SOR instead of floating rate packages, with interest rates pegged to bank board rates.

The reason for this is Sibor and SOR are transparent and are average market interest rates and are not subject to unilateral changes by individual banks, but each bank has its own discretion in determining the board rates.

Which is the best housing loan package?

Because of competition, banks change their housing loan packages very often. Furthermore, other than interest rates, banks vary their other terms and conditions, such as the penalty period, which varies from zero penalty period to three years' penalty period; penalty fees, which might vary from one per cent to 1.5 per cent; flexibility in making partial repayment within the penalty period; number of years of free fire insurance provided; amount of legal subsidy provided; etc.

A common misconception is that consumers might think there is such a thing as a best housing loan package.

The fact is, different home loan packages are suitable for people with different needs and priorities. Thus, there is no one-size-fits-all solution. You need to choose a housing loan package that is most suitable for you.

In this aspect, instead of trying to check with different banks on the different home loan packages available, which can be very confusing to consumers, a better choice might be to talk to an independent mortgage consultancy, who will, based on your needs and priorities, help you shortlist a few of the housing loan packages that are most suitable for you.

This service is provided free to you as a consumer, as the mortgage brokers are separately paid a fee by the banks for the service they provide.

Outlook for interest rates

Sibor (Singapore Interbank Offered Rate), the average interest rate banks borrow/lend money to one another, is used as a guideline by banks in setting interest rates on housing loans.

Currently, Sibor is at its lowest level. The three-month Sibor (as at Sept 3) was 0.543 per cent while the SOR (Swap Offer Rate) was at 0.308 per cent. SOR is basically Sibor + US$ swap cost into S$ rates, it involves swapping US$ into S$. Thus SOR is also affected by the volatility of the exchange rate of US$ versus S$.

In turn, Sibor is affected by mainly two factors. Namely, the US Fed interest rates and the liquidity of the Singapore banking sector.

Given that the US economy remains weak, it is likely that the US will continue to keep interest rates low for the next six to 12 months. And given the ample liquidity in Singapore's banking sector, it is likely that Sibor, and thus housing loan interest rates, will remain low in the next six to 12 months as well.

Outlook for housing loans market

This year saw the entry of two new players to the housing loan market, namely CIMB and ANZ Bank, which makes the already competitive housing loan industry even more competitive.

This is indeed good news to consumers as competition typically results in better and more competitive home loan offers from banks.

The writer is an accountant by training with 17 years of bank lending experience. In 2003, he set up www.HousingLoanSG.com, an independent mortgage consultancy portal

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Published September 23, 2010

Bank loans looking more enticing

Several banks are enjoying decent HDB home loan sales, reports SIOW LI SEN


THE recent property measures have not dented HDB flat buyers' enthusiasm for taking on bank loans because the historic low interest rates have made them cheaper than borrowing from the government. In addition, banks sweeten their deals with cash payouts which can run into the thousands. For example, interest savings from a bank loan from HSBC can be as high as almost 50 per cent over an initial two- year period versus taking on the HDB concessionary loan based on a $100,000 loan amount.

Under HSBC's loyalty package, the interest payable for the two years comes to $2,623, a savings of 47 per cent against $5,007 payable if one took the HDB concessionary rate. On a loan from Maybank which is offering special deals as part of its 50th anniversary, for every $100,000 loan, interest paid over three years would come to $4,470, against paying $7,468 on the HDB concessionary loan. This represents a hefty 40 per cent savings or $2,998, according to Maybank Singapore. Maybank also offers a three-year fixed rate package and savings here is 36 per cent when compared with a HDB loan.

The HDB concessionary interest rate is currently at 2.6 per cent. It is pegged at 0.1 per cent point above the CPF Ordinary Account Interest Rate which is subject to a minimum of 2.5 per cent.

If interest rates slide further, the HDB concessionary rate remains at 2.6 per cent but if interest rates rally sharply, the HDB concessionary rate could be revised upwards.

Here though is the major factor why some refuse to be tempted by the banks' current lower rates. The view is that the government will not raise its HDB concessionary rate without taking other factors - such as the public good - into consideration, while the banks will revise them at the drop of a hat, or rather any time interest rates move.

But for the present, it's no wonder that several banks continue to enjoy decent HDB home loan sales in the three weeks since the government unleashed restrictions to stop the property market from running away.

OCBC Bank and United Overseas Bank though said they are seeing a slowdown in HDB loan applications. Still, with the current record low interest rates looking to slide further, those who are buying, they are likely to look for bank loans rather than borrow from the HDB, said bankers.

Those who worry about interest rate movements can lock in their rates for as long as five years, an option which is gaining favour, said some bankers.

Jeremy Soo, DBS Bank managing director and head of consumer banking group (Singapore), said most HDB home buyers want certainty in their repayments as they are purchasing for long-term occupation.

'For many, this is their first big financial commitment. Thus, the fixed rate packages remain most popular with our customers who continue to see value in locking in the fixed rates in the current, low interest rate environment,' said Mr Soo.

With the new five-year minimum occupation period (MOP), DBS is seeing an increased interest in its five-year fixed rate (at 2.25 per cent) which is lower than the concessionary rates charged by HDB (of 2.6 per cent).

Under DBS' five-year fixed rate package, for a $250,000 loan over a 25-year period, the monthly instalment is about $44 lower or about 4 per cent when compared to the HDB concessionary package. Over the five- year fixed rate period, the savings amount to $2,600. This is on the assumption that the concessionary rate stays at 2.6 per cent.

Citibank, HSBC, Maybank, and Standard Chartered say since Aug 31 it's pretty much business as usual for sales of HDB home loans. 'As of now, we have not seen a significant drop in applications for loans,' said Vibha Coburn, Citibank Singapore business director for secured finance. Helen Neo, Maybank Singapore consumer banking head, said, 'So far, it is business as usual for HDB loans with minimal negative impact.'

Dennis Khoo, Stanchart general manager retail banking products, Singapore, and Malaysia, said the bank does not expect a significant change in the behaviour of its customers. 'Currently, there is a spike in terms of enquires about the new property measures - some have provided feedback that they are thinking of putting their purchases on hold in anticipation of a drop in property prices,' said Mr Khoo.

'However, there are also some customers that will continue to take up loans with us as they are buying properties for homeownership,' said Mr Khoo.

But OCBC Bank said it is seeing more caution among buyers. 'Based on our observations, the market has slowed down as buyers become more cautious and are taking time to understand the implications of the new measures on them,' said Phang Lah Hwa, OCBC Bank head of consumer secured lending.

Bankers said the majority of HDB loans are for the bigger four- and five-room flats and many borrowers are young couples. Borrowers are buyers of 'mainly four rooms and above, and are young professionals', said Ms Neo.

As for their borrowers' views on the direction of interest rates, banks report a mixed picture. Maybank and StanChart said there is a balanced take-up between the floating rate and fixed rate loans.

The preference is still for the conventional fixed rate packages, although there is a growing pool of borrowers who hold specific views of the interest rate market and therefore opt for variable packages, said Ms Phang. HSBC and Citi see more clients who prefer variable rate loans.

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Published September 23, 2010

There's life in the ol' CBD yet

The old CBD is fast shedding its drab image and becoming more lively, says CHUA CHOR HOON


SHENTON Way, which saw the building of many office blocks in the 1970s, stood on par with Raffles Place in terms of rents at the time. But it was overtaken by Raffles Place which grew in the last three decades to be the prime office area, with bigger and newer office buildings. Average rents in Raffles Place in the second quarter of 2010 were 34 per cent higher than those in Shenton Way.

Rents in Raffles Place were more than 100 per cent higher than those in the Anson/Tanjong Pagar area in the 1970s as the latter was further away from the centre of activity.

However, the rental gap closed to about 70 per cent in the 1990s as buildings like Fuji Xerox Tower, Southpoint, and Keppel Towers improved the stock offering. Nevertheless, the area remains a poor cousin to Raffles Place. And so is Shenton Way, with its assorted buildings that do not form a critical mass.

But things are looking up for both Shenton Way and the Anson/Tanjong Pagar area, even as interest and hype centre on Marina Bay which is taking shape. The two older parts of the Central Business District (CBD) are undergoing a rejuvenation and becoming more vibrant too.

Living in the city taking off

Living in the city did not take off for many years despite government efforts through its land sales programme. International Plaza was one of the few pioneer buildings in the 1970s that integrated residential with office use.

The Urban Redevelopment Authority's (URA) 1995 planning report for the Downtown Core listed the lack of a live-in population in the predominantly office area as a weakness. Plans were made to introduce residential developments into the central business district.

State land was sold for mixed developments that included residential use. Office space was allowed to be converted into other uses including residential, except for a brief period between May 2007 and October 2008 when office space was in short supply.

This has resulted in new residential developments springing up in the old CBD like the Icon (completed), One Shenton, 76 Shenton, The Clift, Lumiere (completed recently), and Altez.

Their prices range from $1,700 to $2,110 per sq ft, slightly below the $2,000 to $2,600 per sq ft which smallish developments in District 9 like the Espada, Vivace, and Vida currently command. Owning a home in the CBD has become an investor's favourite, as evidenced by the quick sale of units at The Icon, One Shenton, and 76 Shenton when they were launched.

Hotel cluster is forming

There are currently only two large hotel developments - M Hotel (413 rooms) and The Amara (380 rooms) - in the Anson/Tanjong Pagar area. There are, however, numerous boutique hotels such as Klapsons, Berjaya Singapore, and New Majestic Hotel.

The cluster of hotels is growing, with two hotels (660 rooms) currently being built on government sale sites at Tanjong Pagar, and a confirmed site next to Tanjong Pagar MRT, which was launched for tender on July 30, that could supply an estimated 315 hotel rooms.

In addition, there are three reserve hotel sites in the H2 2010 government land sale programme - two at Tanjong Pagar and one at Robinson Road - which could contribute close to 900 rooms. When completed, the cluster of hotels at Tanjong Pagar will be comparable in size to those at the Singapore River.

Rental gap with Raffles Place closer

The office rental gap between Raffles Place and Anson/ Tanjong Pagar has closed since the 1990s to 42 per cent recently as new office buildings of prime quality were completed. Some occupiers from the prime Raffles Place area have moved to the new buildings at Anson/Tanjong Pagar, which reflects the area's growing attraction.

For example, BlueScope Steel has relocated its office from Singapore Land Tower to Twenty Anson while QBE and Sumitomo Corporation have shifted from OCBC Centre and Equity Plaza respectively to Mapletree Anson.

Although the rental gap between the Raffles Place and Shenton Way areas has remained at about 35 per cent since 1990, this could become closer in the future as more old buildings are renovated or redeveloped. There is hardly any state land in Shenton Way that the government can sell to assist in rejuvenation. However, the private sector has in recent years been active in refreshing the area.

Many old buildings have or are undergoing rebuilding such as Tokio Marine Centre (former Asia Chambers Building), UIC Building, Afro Asia Building, and VTB Building. More changes are in the pipeline as several old buildings have recently changed hands, like Marina House, Chow House, Aviva Building, Cecil House, and DBS Building.

The old CBD is fast shedding its drab image and becoming more lively. The Anson/Tanjong Pagar end is developing into a mixed use area with spanking new offices and hotels while the Shenton Way area is becoming more residential with old offices being upgraded. The 24-hour McDonald's at Springleaf Tower speaks volumes for the growing population and nightlife in the old CBD.

The writer is head of South-east Asia research, DTZ

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Published September 23, 2010

Office market poised to climb

The post-crisis downturn could be characterised as steep and short, says MORAY ARMSTRONG


THE world was a different place 15 to 18 months ago and Singapore's office market was no exception. The calamitous events of the global financial crisis had impacted Singapore's economy and its trade in a particularly brutal fashion. We were contemplating a contraction in GDP of 6-9 per cent. Office take-up feeds off growth or shrinkage in the economy and it was no surprise that occupier demand was in deep negative territory.

In May 2009, CBRE's semi-annual Global Market Rents Report recorded that Singapore led the world with the sharpest year-on-year drop in office occupancy costs (at -34 per cent). Meantime, the office market was just about to enter a three to four year period in which a number of massive new office developments would be completed.

It all added up to a very troubled office market landscape. It was against this backdrop that we posed the question in July last year in this supplement: Will Singapore's office market take many years to recover?

While at the time there were no obvious miracle cures that would have pointed to a return of the office market to health we did suggest that Singapore's office market's healing powers were legendary.

It always tends to outperform in recovery cycles (and indeed underperform in correction phases). In conclusion we speculated that the market could well surprise and tenants in particular might want to factor in that the window to secure the best leasing deals could close fairly swiftly.

So as we move toward the close of 2010 it is instructive to check how the market fared. The post-crisis office market downturn could be characterised as steep and short. There were only three quarters of negative demand, in contrast to the last office market downturn in 2002-2003 when the market endured nine consecutive quarters of negative demand.

Rents stabilised pretty early in the proceedings by Q3 2009 (less than a year of correction) and strong leasing momentum kicked in by late 2009. The market held up more robustly than would realistically have been expected. A few touchpoints on market performance year-to- date will provide a sense on the general direction.

Rents: As at Q3, Grade A and prime rents average $9 per sq ft (psf) a month and $7.40 psf a month respectively. That's an increase of 12.5 per cent and 10.4 per cent since the market trough a year ago.

Vacancy: In core CBD, fringe CBD, and decentralised areas, the vacancy rates have fallen to 5 per cent, 7 per cent, and 6.2 per cent respectively. The equivalent vacancy rates in Q3 2009 were 8.8 per cent, 15.6 per cent, and 9.1 per cent.

Demand: In the first half, office demand totalled 635,076 sq ft - a level comfortably above the market's 10-year average.

Major lease commitments: There has been frenetic leasing activity over the past nine months, much of which is focused on the new Grade A buildings.

Pre-lease commitment levels for the 6.2 million sq ft of Grade A space completing between 2010 and 2013 stand at a very respectable 57 per cent (up from 33 per cent representing about 1.5 million sq ft of new leasing deals concluded since a year ago).

The last pointer is of particular significance for a number of reasons. Major occupiers such as Barclays, Nomura, BNP, and ANZ's preparedness to commit to large, long-term deals is a sign of underlying confidence in Singapore's position in the future. There are further leasing deals in the pipeline which will reaffirm this belief.

Leasing has not all been about the banks or Grade A products and it is encouraging to see deals by many other occupier sectors (eg, insurance, commodities, IT) in the next tier buildings. It certainly feels as if the office market is enjoying a decent base of occupier demand. This is not surprising when one factors in the extraordinary H1 GDP growth of 17.9 per cent.

So what of the future?

With the consensus view that Singapore's economy is set to enjoy decent growth rates, the outlook for occupier demand is favourable. Lingering concerns persist, however, that lower growth in the US and Europe will expose Singapore. Headcount freezes in London or New York have a nasty habit of spreading to Asia.

Nonetheless, based on what we can observe and after applying standard caveats, we believe that demand will outperform (versus historic rates) over the next few years and an additional 1.8-2.2 million sq ft per annum appears supportable.

The supply side is particularly intriguing. We are now around the half-way point in the three to four year phase of major new office development completions. The first phase of the Marina Bay Financial Centre (MBFC) has just been completed with its 1.6 million sq ft fully let on opening.

There remain some great opportunities for large occupiers in buildings completing in the next couple of years (including MBFC's final phase Tower 3 and One Raffles Place). Leasing activity is pretty strong, however, and the volume of available space is contracting. Strange as it may seem, there is a real possibility of a supply shortage emerging beyond 2013.

The more limited array of longer term confirmed developments such as Ho Bee's office project on the plum site in one-north will be particularly welcome. The strength of developer interest in the Tanjong Pagar GLS site which is up for tender in November 2010 will be keenly monitored as indeed will any URA plan for future release of sites in the prime Marina Bay area beyond the recently announced JV between Temasek and Khazanah Nasional.

As matters stand, the latter project in terms of overall scale (it is a 3.67 million sq ft GFA potential mixed use site) looks set to be the dominant contributor to CBD office supply within a 2014 to 2015 timeframe.

The business park sector may be poised to enjoy bolstered levels of interest particularly with further upward pressure on rents in the CBD.

Developments such as Mapletree Business City and UE Bizhub in Changi Business Park will likely capitalise on this. In closing, landlords, developers, and investors can be justifiably optimistic about the market outlook, but may not want to lose sight of potential threats on the horizon.

In the meantime, with careful planning, occupiers have every opportunity to navigate the choppy waters of the next few years.

The writer is executive director, office services, CB Richard Ellis

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Published September 23, 2010

The changing retail landscape

JOANNA CHEN looks at how the retail market has changed since the 1980s and what the future holds


THE retail scene in Singapore has undergone massive change since the 1980s when shopping centres were fewer and less differentiated. The 1990s to early 2000s saw rapid growth in the supply of retail space, especially in the suburbs. Between 2002 and 2009, we have seen transformations in landlord- tenant relationships, space reconfiguration in malls, the listing of real estate investment trusts (Reits), government policy changes, and more discerning consumers.

With new shopping malls springing up in the central area as well as the success of suburban malls, the retail sector has come into its own. Here's an insight into how Singapore's retail market has changed since the 1980s and what the future holds.

Late 1980s: Strata-titled, family-oriented malls

With only a few single-owner malls such as Parkway Parade and Goldhill Square (now United Square), shopping centres then were mostly strata-titled. As such, any refurbishment carried out was generally piecemeal and involved individual shops rather than the entire mall.

Most of the developers in the late 1980s focused on creating family-oriented shopping malls. Tenant mix usually comprised a few anchor tenants and shops that catered to the needs of the entire family.

Tenant mix of three prominent shopping malls (Wisma Atria, Marina Square, and Plaza Singapura) showed a considerable portion (28-52 per cent) of lettable area allocated to department stores. In Plaza Singapura, both Yaohan and OG Elite were anchor tenants occupying at least four floors in the development. Tokyu and Metro, on the other hand, were secured at the two strategic ends at the cross- shaped structure of Marina Square.

To attract the target customers that ranged from children to the elderly, these malls allocated at least 10 per cent of net lettable area to bookstores, electronic stores, and arts and crafts shops. Even though Wisma Atria had the largest percentage of fashion retailers, it also offered special features such as a large aquarium at the basement and a children's playground on the rooftop podium for a more family-friendly atmosphere.

1990s to early 2000s: Into the suburbs

Singapore's retail landscape saw tremendous growth between 1992 and 2002 when retail supply grew by more than 80 per cent.

In line with the Urban Redevelopment Authority's (URA) Concept Plan to have decentralised regional and sub-regional commercial hubs, a slew of suburban malls were built, giving consumers the option of being able to shop without going into Orchard Road.

The move by URA created micro markets which allowed retailers to expand their foothold into different regions. Such expansion was well-received by retailers and shoppers alike.

These suburban malls achieved high occupancy and attracted foreign retailers. Foreign department stores such as Seiyu opened in Lot One Shoppers' Mall. Both John Little and Marks & Spencer expanded in malls like White Sands Pasir Ris, and Yishun Northpoint.

New retail trends also surfaced during this period of change. Suburban malls interweaved shopping with entertainment, leisure, and education. Cineplexes and libraries could be found in malls such as Hougang Mall and Junction 8 to provide a more holistic experience for shoppers. Atriums were also created within the malls for entertainment and family activities.

Malls in Orchard Road and other downtown core areas offered the alternative of concept shopping where themes and niche marketing were carefully thought through and implemented, typical examples being The Heeren Shops and Funan DigitaLife Mall.

2002-2009: Retail transformation

From 2002 to 2009, there was a dramatic transformation in the retail landscape. The successful landlord-tenant relationships where the developer, major owner, major tenant, and even mall manager are related companies, as seen in Ngee Ann City, are rare. Most malls before 2002 followed the typical landlord (developer) and tenant (retailer) relationship.

However, with the listing of Reits in 2002, this relationship was transformed. The role of landlords could pass from developers to asset managers, while shoppers could also have vested interest in these malls as shareholders of listed Reits.

More importantly, the nature of Reits constantly challenges the asset managers to think out of the box to create better value for shareholders. This includes growth strategies to acquire properties and initiatives to enhance existing retail assets. This led to positive trickle-down effects for shopping malls here.

During this period, the configuration of the typical shopping mall also evolved. Government policy allowed creative use of space, as seen in malls like Bishan Junction 8 and Tiong Bahru Plaza in 2003.

Unit sizes of shops shrank due to the growing preference for smaller mini-anchor tenants such as Mango, Zara, etc. Such preferences are likely due to higher spending power and the increasingly affluent lifestyle of consumers.

There were also malls that comprised many small niche retailers to provide variety. A pioneer of this trend was Far East Plaza. In 2002, with the closure of department store Metro on the first level, Far East Organisation successfully put in place a variety of shops catering to the young and trendy.

2010 & beyond: The best is yet to be

With the continued success of suburban malls and the opening of new city malls like ION Orchard, 313@Somerset, and Orchard Central, Singapore's retail scene has grown colourful and vibrant. The success of the suburban malls is clearly demonstrated in the opening of Uniqlo's first flagship store in Tampines One. Orchard Road, the main shopping boulevard, has its own innovative architecture with malls such as Orchard Central and *Scape. The multi-sensory experience in ION Orchard has also taken the retail experience to a higher level.

So what lies ahead? The prospects are bright for the retail market. On the supply side, malls in Orchard Road near Cuscaden Road, Claymore Drive, and Angullia Park have potential for development. There will also be an upcoming wave of supply from both refurbished and new suburban malls. The former Katong Mall is undergoing a $60 million facelift to create a new shopping experience with a Peranakan theme. At the opposite end of Singapore, JCube (the former Jurong Entertainment Centre) offers an Olympic-sized ice-skating rink, a multiplex cinema, and retail offerings around the clock.

On the demand side, the many new shopping malls added in the central area have enhanced Singapore's status as the retail city of the East. Complemented by the vibrancy from the two integrated resorts, the city is likely to attract more tourists and shopping dollars.

There will be a rising tendency for locals to prefer hanging out at shopping malls, given the combination of smaller homes to relax in and a growing preference for eating out. With increased affluence, there will also be greater propensity for locals to spend on their favourite pastime - shopping.

Over the last 30 years, Singapore's retail landscape has grown increasingly vibrant. But this does not mean there isn't room to grow. With the synergy from exciting events such as Formula One and the bustling activity generated by the integrated resorts and Marina Bay, the best is yet to come.

The writer is an analyst with Knight Frank Consultancy & Research

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Published September 23, 2010

Vietnam residential market starting to shine again

Once legislative changes have settled, and buyers are aware of their actual impact, sales will start to increase, says MARC TOWNSEND


AFTER a slow start to the year, Vietnam's residential property market, at least on the surface, appears to have picked up significantly in the third quarter of 2010. Nationally, CBRE Vietnam has witnessed significant increases in the number of enquiries and estimated supply of 2010 is expected to be equal to that of 2007, representing an increase of roughly 40 per cent when compared to 2009.

This has disappointingly not translated into significant increases in sales as yet. Buyers are spending, but not close to the levels seen in the boom years up to 2008, largely due to a number of external influences, namely, social, economic, and legislative.

Decree 71, a new law governing residential housing, came into effect at the start of August 2010 with the intended effect of decreasing short-term speculation in the housing market and increasing transparency - thus providing greater buyer protection in the process.

It would seem that investors are sitting back waiting to see the influence this will have on the market before they decide to buy. Furthermore, local superstitions with regard to purchasing in the ghost month - most of August and September - have also had a recent impact on sales figures throughout the country. Gold trading has become more difficult due to currency fluctuations, along with the fact that stock markets are underperforming, something that the property market in Vietnam has traditionally shadowed.

Indeed there is no doubt that this is a buyers' market and subsequently developers are going to greater than ever means to promote their residential projects. At the end of the day however, price reigns supreme with projects providing discounts on pricing producing the most successful sales figures, especially those that are either soon-to-be or newly launched.

Pricing for residential condos is on average $4,500 a square metre for luxury, $1,900 for high-end, $1,000 for mid-end, and $700 for affordable units. Developers are offering increasingly competitive payment terms in order to lure in more buyers with smaller deposits and a larger number of instalments over a longer period helping to manage investors' cash flows.

With regard to the condo market, 2010 has seen significant increases in project launches across the mid-end and affordable sectors, while there has been little more than a handful of high-end and luxury projects launched this year.

A change in buyer preference for more affordable, rather than luxury, condos has caused this shift; and as more and more of these projects complete, this is having a downward effect on rentals with average rents for a mid-high end condo building sitting around the $10 per sq m a month mark and continuing to drop as more projects reach completion which is set to continue until well into 2012.

Average sizes of condos are getting smaller and two bedroom configurations are now more popular than three bedroom; their attractiveness increasing as they provide greater returns for investors.

Recent months have seen low-rise projects out performing their high-rise counterparts, largely due to limited supply. Semi-detached and townhouse projects as opposed to villas are also becoming more popular as the affordability factor plays an ever-increasing role in demand.

Traditionally established suburban districts for villas such as Phu My Hung and District 2 in Ho Chi Minh City (HCMC) are taking a back seat to up-and-coming suburban districts where land prices are lower and subsequently, overall prices can be a great deal cheaper.

Villa prices are now anywhere between $250,000 for a semi-detached or townhouse property in a new neighbourhood and $1.5-2 million in reputable suburban areas with larger land plots, higher quality finishes, and more amenities.

Recent improvements in local infrastructure have also meant that more areas outside of HCMC and Hanoi are becoming accessible, thus opening up districts outside of the CBD for development. Limited supply within central locations due to legislation impacting freehold opportunities has also pushed development to the outskirts and beyond.

Buyer profiles for new housing are now no longer just wealthy Vietnamese investors. The increase in affordable projects has introduced a new type of buyer to the market - the end user.

Families and couples with good jobs in international companies and members of the older generation with savings are now opting to buy. There are also new options for financing property investment in Vietnam.

While the majority of buyers still pay in cash, developers are now working with banks, many of them leading international ones, to offer mortgages to buyers. This new phenomenon of bank lending has, however, failed to take off and therefore has not had any serious impact on selling rates due to high interest rates sitting between 15 per cent and 18 per cent, and strict loan procedures.

So what's next for 2010? It's unlikely that there will be any noticeable increase in sales for the remainder of the year and the wait to see sentiment of buyers is likely to continue into 2011.

Certainly, buyers are under no pressure and they will likely continue to watch developers suffer into the start of the new year. It is likely, however, that once legislative changes have settled, and buyers are aware of their actual impact, that sales will start to increase within the residential market.

Bank reforms and increased competition in the mortgage sector as more international players join the scene will also create favourable conditions for those wishing to purchase through finance. Vietnam has a steady platform for economic growth and as confidence returns to the stock market, this will no doubt have a positive effect on property sales.

A continuing buyer shift from existing unplanned shophouse areas to well-designed managed residential compounds will add to demand for new residential projects as Vietnam continues to develop.

The writer is managing director, CBRE Vietnam

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Published September 23, 2010

Australian residential market stabilising

An increase in residential property prices has occurred in all major capital cities, reports DANIEL BOMAN


AUSTRALIAN residential property price growth has moderated over the past quarter, with the growth spurt of late 2009 being replaced in mid-2010 by stabilising prices.

The orderly slowing in price growth, partly achieved by disparaging words from the Reserve Bank of Australia, and three interest rate rises, has quelled fears that Australian housing may be becoming overpriced.

Australia's capital cities recorded a weighted average of 3.1 per cent growth in established housing prices over the quarter ending June 2010, a reasonable decrease from the 4.8 per cent growth figure during the March 2010 quarter.

Over the past year, data from the Australian Bureau of Statistics show an 18.4 per cent increase in the weighted average established house price for Australia's capital cities, a strong result that has been buoyed by a strong consumer confidence and an undersupply of housing created by a drop off in housing construction during the global financial crisis.

The increase in residential property prices has occurred in all major capital cities but has been concentrated in the south, with Melbourne recording the largest increase of 24 per cent over the last 12 months, followed by Sydney at 21 per cent, and Canberra at 20 per cent.

In the west, Perth recorded 13 per cent, and on the north-eastern coast Brisbane returned 9 per cent. The stronger growth in the southern cities can be attributed to their relatively poor performance during 2006/07, with the current high growth rates considered to be 'catch up' to the other centres of Perth and Brisbane.

While Australia's diversified economy, stable political climate, and secure banking system allowed it to avoid a technical recession, worldwide funding shortages lead to a reduction in bank lending to residential developers.

As a result, housing construction failed to keep pace with Australia's strong population growth.

Across the country only 139,000 dwellings commenced construction during 2009, despite an indicative need for an additional 166,000 dwellings due to a population increase of 432,000.

This undersupply has been most acute in New South Wales (undersupplied by 19,000 dwellings) and Queensland (undersupplied by 12,000 dwellings).

In some states the total number of houses constructed exceeded the supply by a small amount, such as South Australia (oversupplied by 3,000 dwellings).

Across the country the net total was an undersupply of 27,000 dwellings, providing the basis for the recorded price growth.

With the easing of the global financial crisis, the availability of funding has improved and housing construction has gained pace.

During the last quarter of 2009, dwelling commencements were slightly above the indicative requirement, partly filling the undersupply created in the earlier part of the year.

Looking forward, dwelling commencements are expected to continue improving, but it will take some time to meet this undersupply and providing resistance to price falls.

The writer is research manager, DTZ Australia

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Published September 23, 2010

London an attractive option for int'l investors

They will account for a greater share of the market next year, reports YOLANDE BARNES


EVEN in these globally uncertain times, there are a host of reasons for overseas buyers to come to London. The city attracts overseas buyers from countries with strong currencies who see they are getting property more cheaply than before, or those looking for a safe haven in uncertain times and even a hedge against falls in their own currency.

Volatility is inevitable in a low turnover market that is heavily dependent on highly discretionary equity buyers and demand will remain fragile against the background of economic and fiscal uncertainty in the UK, eurozone, and beyond. That said, the fundamentals of the prime central London market remain sound, provided London retains its status as a major world city and financial centre.

As such, we are forecasting some softening of values across the market in general, followed by a period of flat growth through 2011, with prime central London values being restored to peak levels in the third quarter of 2013.

The upper tiers of prime

The very top end of the market has shown slightly greater value recovery, largely propelled by international buyer activity. To date, super prime properties, which average around £5 million (S$10.4 million), rose by 1.3 per cent in the second quarter of 2010, which is now just 5.5 per cent from the peak. This suggests a resilience that is based almost exclusively on low stock levels and the sector's appeal to international buyers. Ultra prime properties, which average £15 million and above, grew by 1.5 per cent, but that is on the basis of a delayed recovery (following later falls than the lower tiers of prime), and values remain 15.8 per cent below the peak.

International buyers are the lifeblood of this market sector, accounting for around half of all prime central London buyers, rising to 63 per cent at the top end of prime. These high net worth individuals have rebuilt their wealth by around 20 per cent over the past year and this, coupled with the benefits of a low sterling, means they remain committed buyers.

Prime London new build market

The new-build market in London is outperforming all other markets right now, with turnover several times the low levels seen in 2009.

Savills has exchanged contracts on around three times the number of prime London development units to date this year compared to the same period last year, with the total value of sales some four times higher. The average value of the properties exchanged this year exceeds £1.2 million, compared to just over £750,000 last year.

'International investors are now very active off-plan buyers, buying in prime and more mainstream developments, while domestic buyers are once again active but are focused only on finished developments,' says Ed Lewis, Savills' head of London new homes.

'For international investors, good quality mainstream new-build is seen as a rock solid mid-term investment, while the trophy apartment at the very top end of the market is the safety deposit for the super rich.'

International buyers are very comfortable buying off plan, not least because they believe they are buying into a rising market, with significant growth forecasts over the next five years.

These buyers are buying on forecast yields of 4-4.5 per cent and are looking for quality, long-term investments. Invariably, they are looking for a balanced worldwide portfolio of assets and London - which they see as a transparent world city with good rental potential - is generally their first call for residential investments.

UK buyers have not returned to the off-plan market - they are looking to cut a deal and developers, particularly in the current low stock London market, simply don't need to make deals - but they have returned to the new- build London market, where owner occupier buyers are quickly eroding available stock.

Savills' expectation is that international buyers will account for a greater share of the market next year, and as finished stock levels shrink, the choice of quality developments will be dominated by new starts. The firm is also seeing international investors looking beyond London. For example, it recently launched an off-plan riverside scheme in central Cambridge that has attracted significant interest.

'The risk to international investors will come if they buy into secondary schemes in their rush to get into the London market. We advise our clients always to be mindful of their exit route and recommend a focus on quality schemes, in high-demand locations, that will offer solid long-term investments, both from a yield and capital growth perspective,' adds Mr Lewis.

Prime central London rental market

Tenant demand, in particular from corporate tenants, has recovered well and the surplus stock that was a feature of the rental market during the downturn is either sold on to owner occupiers or rented out.

Prime central London rental growth is accelerating, with values up 2.5 per cent in the quarter. This builds on 2.8 per cent growth in the first three months of the year, and takes annual growth up to 5.6 per cent, leaving rental values just 8.8 per cent off the peak. Rents are forecast to end the year 8 per cent up on the end of 2009, with a further 7 per cent annual growth to come in 2011 and 2012.

Flats have outperformed houses over the past three months, with 9 per cent growth in rents year-on-year, compared with 6 per cent for houses. The core prime rental sector, for properties worth around £1.8 million on average, is outperforming the total market, with rental values now just 0.2 per cent off the peak. Yields are currently at 4.3 per cent and rising, reflecting a rising demand from corporate tenants benefiting from the first wave of economic recovery.

Investors don't generally buy into prime London residential for income. However, yields are now moving up, and as rents rise and capital values stall over the autumn and early part of next year, yields can only improve.

In the mid- to long-term, London remains a capital growth investment, with capital values expected to turn back to positive by mid- to late-2011.

International tenants continue to be an important force in the market, accounting for 65 per cent of Savills prime central London demand, with financial sector employee demand slipping back from 68 per cent in 2007 to the current 54 per cent.

The writer is head of residential research, Savills

http://www.businesstimes.com.sg/sub/...71940,00.html?

Published September 23, 2010

Malaysian market bouncing back

Prices of landed houses in some popular areas have appreciated by 10-30% over the last six to eight months, reports UMA SHANKARI


MALAYSIA'S economic recovery has fuelled a resurgence in the residential property market in Kuala Lumpur as well as the lesser-known investment destinations of Penang and Johor. The year started off on a positive note for Malaysia, with the economy registering a robust growth of 10 per cent in the first quarter - the fastest in a decade.

In the nation's capital Kuala Lumpur, developers' and buyers' confidence have been renewed with the economic recovery. There has been revived interest in the high-end condominium market as reflected in the fairly successful launches in H2 2009 and H1 2010, with more developers undertaking re-branding and repositioning exercises of previously deferred projects.

'The high-end condominium market has bottomed and with recovery setting in, further improvement is expected by the end of the year or early next year,' said Knight Frank in its Q2 report on the Malaysian property market. 'Most developers have changed their game plan from prudently deferring their planned projects earlier to actively updating and revamping their proposals, with several launches planned in the next six months.'

A number of new condominiums and service residences are scheduled to launch over the rest of the year. Data from another property firm, CB Richard Ellis (CBRE), shows that the Kuala Lumpur luxury residential market performed steadily during Q2 of 2010 with prices for secondary transactions edging up 0.7 per cent quarter-on- quarter to RM704 per square foot (psf).

A number of projects which had their official launches during Q2 sold well, including Kiaramas Danai Tower 1 (136 units, about 70 per cent sold), Seri Ampang Hilir (40 units, about 85 per cent sold) and Verve Suite's Vox Tower (250 units, more than 75 per cent sold).

In addition, Vox Tower set a new benchmark price for the Mont Kiara area, with a reported average selling price of RM1,250 psf. And the most significant sale during Q2 2010 was that of a penthouse at The Binjai On The Park development in Kuala Lumpur City Centre (KLCC), which went for RM38 million (S$16.3 million).

The 42nd storey unit has an area of 14,300 sq ft and the price works out to about RM2,660 psf. That makes it one of the most expensive homes to have been sold in Malaysia in recent years, and possibly the country's largest ever condominium transaction.

Observed Knight Frank: 'Demand is predicted to grow gradually in selected markets and locations, particularly for projects by reputable developers with marginal price appreciation expected in newly completed projects while the rental market is expected to remain competitive in view of the high impending supply coming onstream within the next three years.'

Penang

Penang continues to be a property hotspot with developers from both the island and Klang Valley on the acquisition trail to increase their landbanks on the island. In particular, the housing market in Penang is expected to remain fairly resilient with the landed housing sector continuing to attract strong interest.

But the high-end condominium market is not expected to be as strong in view of the mediocre occupancy rates at many completed projects, analysts said.

Knight Frank's data showed that prices of units in high-end completed condominiums and those nearing completion within the prime areas of Tanjung Bungah and Pulau Tikus have generally remained unchanged at H2 2009 level, ranging from RM380 psf to RM600 psf. Asking monthly rentals of fully furnished units have also remained stable within the range of RM6,000 per unit to RM13,000 per unit.

However, achieved rentals - especially for the higher- priced units - are likely to be lower in view of increasing competition from the impending new supply entering the market, the property firm noted.

Johor

Boosted by the development momentum of Iskandar Malaysia and the positive impact of the 10th Malaysia Plan, the property market in Johor is expected to be more active for the rest of this year and 2011.

In particular, developers on both sides of the Causeway were excited by the joint statement by the prime ministers of Malaysia and Singapore in May that Khazanah Nasional will form a 50:50 joint venture company with Singapore's Temasek Holdings to develop a 'wellness' township on a 500-acre site in Iskandar Malaysia.

And under the 10th Malaysia Plan tabled in Parliament in June, the federal government will form a facilitating fund under which funds will be allocated to Johor for various projects.

Among the main projects outlined were the RM1.8 billion Johor Baru city transformation plan, the RM8 billion double tracking rail project from Gemas to Johor Baru and the Bus Rapid Transit System in Iskandar Malaysia.

Analysts said that the high-end residential market in Johor Baru should benefit from the expected investment inflows. Looking ahead, there are concerns over whether the booming housing market will lead to an asset bubble and if there is a need for more tightening measures to curb speculative buying and ensure the market stays sustainable. Prices of landed houses in some popular areas like Klang Valley, Penang, and Johor have appreciated by 10 per cent to 30 per cent over the last six to eight months, reports said.

But for the Kuala Lumpur luxury residential market, incoming supply is likely to curb capital appreciation, at least in the short term. 'Capital values are expected to remain stable in the short term while rentals may come under downward pressure due to large supply and high vacancy,' said Jones Lang LaSalle (JLL) in its Q2 report on Kuala Lumpur's luxury residential market.

But JLL added that Kuala Lumpur's luxury condominium market is expected to perform well over the next 12 months as it rides on a surge in supply and demand picks up as the economy strengthens.

Your guide to house hunting this season

If all these experts are to be believed, then only those who invest in D9,10,11 can make money because the "prime" market is 100% risk free investment and any other districts are bad investments. D9,10,11 and Sentosa Cove not affected by government measure, not affected by global economy and can only go up. Government measures are only targeted to hurt the masses - that is what the Singapore government has always been famous for - take from the poor to enrich the rich. Anyway, nowadays I read these reports with a huge pinch of salt. As long as fundamentals like genuine demand and rental yields remain strong for the mid/mass market, it will remain relatively unscathed - these are the low-beta stocks. At the end of the day, a home should be a place for occupation - not for investment houses to flip here flip there like most of the luxury condos - which most still remains unsold to genuine home buyers till today (900 out of 1000+ unsold? Why would anyone consider that a good investment is beyond me).

In short, what all these reports are trying to say is "BUY LUXURY" condos isn't it because it is sure make money? Maybe it's too much "hard-selling" such that these luxury condos are sounding "desperate" and that's why no one is taking heed?