Developers weigh odds for launches after Ghost Month

Some may want to test market now rather than risk deterioration in sentiment

Some developers have been quietly oiling their launch machinery in the past few weeks as they get ready for previews and launches, especially with the Hungry Ghosts Month ending this Saturday.

With the property outlook expected to worsen before it gets better, there may just be an incentive for some to launch their projects sooner – or wait it out till late-2009/2010, a seasoned property consultant told BT.

Another consultant, Knight Frank executive director Peter Ow, said: ‘Whatever name you call it – preview, private invitation, etc, the aim is for developers to test the market. If the response is sufficient at the price they want, they’ll begin sales. If the response isn’t up to what they want, they won’t sell. As a developer, you don’t want to risk launching a project, selling a few units and getting stuck.’

Projects that have begun to be previewed this month include Far East Organization’s 85-unit freehold Miro at the corner of Lincoln and Keng Lee roads (at an average $1,600 per square foot) and a 54-unit cluster housing project at Greenwood Avenue. Units in the 103-year leasehold development range from 3,000 to 3,700 sq ft.

Over at Nathan Road, Tat Aik Group has been inviting potential buyers to view Nathan Residences, a 91-unit freehold project priced at around $2,000 psf on average.

Keppel Land is also expected to release this weekend in Hong Kong and Singapore about 30-40 units under the next phase of Reflections at Keppel Bay.

The average price is expected to be similar to the earlier phase launched around April last year, at about $1,800 to $2,000 psf. Deferred payment is expected to continue to be offered.

Hong Fok Corporation’s 360-unit Concourse Skyline apartments at Beach Road, KepLand’s 56-unit freehold Madision Residence near the junction of Bukit Timah and Keng Chin roads, and City Developments Ltd’s The Arte at Thomson are understood to be other projects that could hit the market soon.

In the high-end segment – where sentiment is weakest – Far East Organization, which has already sold two units at its 28-unit luxury development Boulevard Vue at Cuscaden Road, opened its showflat for the project recently and is expected to step up marketing activity.

The project’s 26 apartments (one per floor) are about 4,500 sq ft each, while the two duplex penthouses occupying the top four levels are 8,000-plus sq ft and 11,000-plus sq ft. Prices for low- and mid-level units in the 33-storey freehold project range from $3,600 psf to $3,900 psf.

BT understands the price tag for the bigger penthouse will likely be around the $4,500 psf mark, working out to an absolute sum of about $50 million. If achieved, the absolute amount would set a new record for a penthouse in Singapore.

Boulevard Vue’s facade will be designed by well-known Japanese interior designer Super Potato. BT understands that the unit layouts will be customised to buyers’ preference.

A critical factor affecting developers’ launch decisions is pricing, given the bearish sentiment.

‘Pricing will be more realistic for fresh launches, but for projects released earlier, it would be difficult for established developers to trim prices without upsetting earlier buyers, especially VIPs,’ the seasoned property consultant said.

Agreeing, Jones Lang LaSalle Singapore’s residential head Jacqueline Wong said: ‘Such developers may just hold the remaining units in the project if necessary and have another shot at selling them upon the project’s completion. For new projects too, the financially stronger players can hold off developing for a while.

‘However, developers who are fairly new or need the cashflow will have to be realistic in their pricing and will be more amenable to negotiating with buyers.’

Another industry observer said that instead of outright price cuts, it may be easier for developers to attract new buyers into existing projects by offering furnishing vouchers, guaranteed yields (for newly completed projects) or arranging for attractive mortgage packages.

A mid-sized developer said: ‘We have to accept the fact that prices have to be marked to market; otherwise we can’t sell enough units to generate the required cashflow. For sites bought within the past 12 months, developers would need to sell at least 50 per cent of the development to generate sufficient cashflow to finance the project’s construction – taking into account high land price paid and rising construction costs, among other factors.’

Source : Business Times – 28 Aug 2008

S’pore housing: Get the bigger picture right

THE media recently highlighted bearish analyst reports about the Singapore residential market. One, I recall, predicted a decline of 40 per cent over three years. Another forecast plunging rents in 2009 and consequent sharp falls in capital values. Perhaps this is why some owners have chosen to sell prime freehold units at implied gross yields of 4 per cent.

However, looking at the same data, I could not arrive at the same dour conclusion. I could not arrive at the same conclusion because I looked at data from other sources as well – in particular, HDB statistics. Since HDB rules on owners leasing out flats have been liberalised, the housing market is now a continuum. Indeed, on a per sq ft basis, rents commanded by well-located HDB flats are now comparable to those for private residential apartments, going by HDB and URA data.

The big picture in housing has always been driven by supply and demand – total supply and demand, not just private residential. If more households are created than housing units completed, there is upward pressure on rents and capital values.

Let’s look at supply first: A net 10,000 private residential homes are estimated to be completed in 2009. HDB does not publish completion data, but based on 2006 build-to-order data, only 2,400 units are estimated to be completed in 2009. In total, that’s 12,400 housing units.

Now let’s look at demand: According to the HDB’s website, sub-letting approvals in 2007 totalled about 12,800, or 50 per cent more than 2006. Yes, the HDB rental market is hot. For 2008, sub-letting approvals are running 30 per cent higher than in 2007, or about 16,300 units. This is consistent with data from the Department of Statistics on population and workforce growth in Singapore. The new (foreign) households are not living in tents. If they cannot afford private housing, they rent HDB flats.

We see that rental demand alone for HDB flats will probably exceed total private and HDB housing completions of about 12,400 units in 2009. Although the world economy is probably going to feel recessionary in 2009, Singapore will be somewhat insulated. This is because of a number of large projects coming on stream will boost job creation significantly in 2009. In particular, the integrated resorts (IRs) are expected to have 20,000 employees and create 50,000 new jobs overall. Given the nature of the IRs, I would expect a significant portion – perhaps 50 per cent of their employees initially to be foreigners, thus boosting household formation in 2009.

Nonetheless, I expect some softness in the private residential rental market relative to the HDB in 2009, as the bulk of completions will be private. For developments with adjacent completions, rents will be restrained by competition. Indeed, we see this happening already.

URA publishes comprehensive data on the property market. I believe it would be helpful for the market if the HDB published similar data, especially vacancy rates and building completion numbers. Even better would be for the authorities to publish composite data that amalgamates HDB and URA data.

Interestingly, despite the liberalised HDB rental market, HDB rents have risen despite volume growth. Demand has clearly been very strong. With average gross HDB rental yields of 6 per cent, or a net yield of about 5 per cent, HDB upgraders buying private property have a financial planning and investment choice. Upgraders who have the liquidity and risk tolerance may want to look out leasing out their HDB flats and taking a bigger mortgage, instead of selling their flats to finance the upgrade to private housing.

The net rental yield of about 5 per cent versus mortgage costs of about 3 per cent means a positive spread of 2 per cent. This 2 per cent on $400,000 delivers an additional $8,000 a year, assuming rental income does not rise with time. This would be handy in accelerating the reduction of the overall mortgage principal. Over the life of the mortgage, it could amount to more than $200,000 – a nice contribution to the retirement nest egg.

The author is CEO of financial adviser New Independent. He welcomes feedback at josephchong@ni.com.sg. This article is for information only. Readers should seek independent advice before making any investment decisions.

Source : Business Times – 27 Aug 2008

Home prices stable till 2010: Wing Tai

PROPERTY developer Wing Tai Holdings is in no hurry to launch the two sites it owns in the prestigious Ardmore Park area: the Ardmore Park condominium and Anderson 18.

Wing Tai chairman Cheng Wai Keung said yesterday that although home prices are softening, he expects them to remain mostly stable until at least 2010.

This is because projects that are being completed this year and next were originally sold at relatively low prices in 2005 and 2006, so there is no urgency for buyers of these projects to unload their units.

‘Developers are also quite strong financially, so if they can hold and allow the orderly release of units, I do not see prices dropping drastically,’ he told reporters and analysts at the release of Wing Tai’s full-year results.

Beyond 2010, however, the situation may change. Projects to be completed then were launched at ‘very high prices’ last year, and if the economy does not improve by then, these expensive apartments may flood the market while financially strong developers will probably also weaken, Mr Cheng said.

But he added that while prices have softened, it is not because Singapore’s economic fundamentals have worsened but rather because ‘traders’, or speculators, have left the market. ‘I maintain that fundamentals are sound,’ he said.

In fact, Mr Cheng said he is prepared to hold out for prices to reach $4,000 per sq ft (psf) again at Ardmore Park. ‘Even at the peak, when they were talking about $4,000 psf, I still think that was relatively cheap, compared to values in the world and in Singapore.’

He added that Wing Tai owns two of the three sites to be launched in the Ardmore Park area. SC Global has the third, The Ardmore. ‘We are the ones who will set the price; if we never lower prices, how can it lose value?’

For now, Wing Tai has already locked in construction costs for Ardmore Park and is renting out the units in Anderson 18 rather than tearing down the building for redevelopment.

In the meantime, the developer may launch some of the other sites in its land bank this year or next, said Wing Tai’s chief operating officer Tan Hwee Bin.

Belle Vue Residences in Oxley Walk will be launch-ready next month, while a 99-year leasehold site in Alexandra Road near the Redhill MRT Station will obtain all the necessary approvals by the year end.

Ms Tan said the group will position the Alexandra Road condo as a mid-tier project minutes away from Orchard Road, and may bring to it some of the features it has used in its high-end Draycott8 development.

For the past year, slower home sales have taken their toll on the performance of the property and retail group.

Wing Tai’s fourth-quarter net profit fell 60 per cent to $96.3 million, dragging down full-year net profit 40 per cent to $229.4 million. Revenue more than halved both in the fourth quarter, to $107.3 million, and in the full year, to $428.2 million.

Earnings per share dropped to 30.11 cents for the year to June 30, from 53.12 cents the previous year. Net asset value per share slipped to $2.03 as at June 30, from $2.07 a year ago.

Wing Tai is proposing a dividend of six cents per share for the year, comprising a first and final dividend of three cents and a special dividend of three cents.

Source : Straits Times – 27 Aug 2008

Subsale property gains top out at $4.2m

But Cosmopolitan penthouse seller nurses $463,400 loss

The biggest profit in absolute dollar terms from a subsale deal in the first seven months of this year was $4.2 million, reaped for a 22nd-floor unit at The Grange.

It was offloaded in the subsale market in April for $11 million, compared with a $6.8 million purchase price in September 2005 paid to the developer.

In fact, on an average basis too, The Grange has seen the most profitable subsale deals this year, with the 13 units sold in the project between Jan 1 and July 31 generating an average profit of slightly over $2 million per unit.

In percentage terms, the average subsale gain at The Grange worked out to 52 per cent, according to Savills Singapore, which analysed caveats for subsale transactions from Jan 1 to July 31 captured by the Urban Redevelopment Authority’s Realis system as at Aug 19.

The biggest subsale loss was $463,400 for a penthouse unit at The Cosmopolitan at Kim Seng Road. It was sold in April for about $2.3 million, against the $2.8 million purchase price paid in July last year.

Other projects with sub sale losses included two units at Soleil @ Sinaran, four at City Square Residences, three at Citylights and one each at One St Michael’s, Park Infinia at Wee Nam and Marina Bay Residences.

Percentage-wise, some of the biggest subsale profits were recorded for The Sail @ Marina Bay. The seller of a unit on the 49th floor reaped a 178 per cent return when he disposed of it in May for $1.43 million, compared with the $510,400 he paid to buy the apartment from the developer in late 2004.

Owners of 14 other units at The Sail also doubled their money or more, when they sold their properties in the subsale market this year. However, there was also a unit in the development that chalked up a $63,000 subsale loss.

Among prime district projects, profitable subsales included a 17th floor unit at St Regis Residences, which yielded a handsome $2.78 million return for its seller in June, after a two-year holding period. A subsale deal at The Orchard Residences also generated a $1.44 million profit.

Over in the waterfront housing district of Sentosa Cove, four subsales of The Azure condo resulted in gains of at least $1 million per unit. One unit, in fact, generated a $3 million profit for a two-year-plus holding period.

However, the owner of another unit in the 99-year leasehold condo incurred a $106,000 loss when he sold his unit in the subsale market in April for about $3.4 million after a 10- month holding period.

Analysts note that, given the current weaker market sentiment, profits from subsales can be expected to shrink in the days ahead, or there may be even more loss cases, particularly for those who bought at the peak of the market in the first half of last year.

Savills Singapore director of marketing and business development Ku Swee Yong suggests that there is no reason for panic selling if investors consider that interest rates are still very low.

‘So owners who have not lost their jobs can still afford to hold on to their mortgages,’ he said.

Also demand for rental properties should increase by early 2009 as the Marina Bay Sands resort boosts its employment drive ahead of its planned opening late next year.

A seasoned developer highlighted the fact that subsale transactions, whether at a gain or loss, are still taking place, is a good thing.

‘There’s diversity of different sellers, with varying financial strengths and abilities to hold, and similarly, there’s a diversity of buyers. There’s still liquidity out there. That’s a good thing.

‘If we didn’t have this diversity of behaviour and ability to buy, sell or hold, we’d have a very uni-dimensional and monolithic market.

‘That wouldn’t be a good thing because, then, you may have everybody wanting to sell at the same time (and nobody wanting to buy). Then the market would grind to a halt,’ he said.

Source : Business Times – 26 Aug 2008

Sharp fall in property prices unlikely

But there are more people keen to sell than buy now, says DTZ study

SINGAPORE’S property market presents plenty of buying opportunities for institutional investors now that it has cooled somewhat, according to a study by property firm DTZ Debenham Tie Leung.

But buyers waiting for a major price correction will be disappointed.

While the growth in prices may slow, there is unlikely to be a significant fall in property prices here, said Mr John Stinson, DTZ’s regional director of sales and investments for Asia-Pacific’s capital markets.

‘Singapore hasn’t had a long boom, unlike some other countries… I don’t think there will be a repricing,’ he told reporters yesterday at a briefing on Money Into Property, DTZ’s latest research report about investing in Asia-Pacific property.

The report is directed at institutional property investors, who can have a significant impact on the property market, given that they buy and sell large numbers of properties.

Mr Stinson also said the Government’s measures to boost Singapore’s population could prop up demand for property and support prices.

So far, no recent transactions by institutional investors have reflected a repricing in the market, added Mr Shaun Poh, DTZ’s senior director for investment advisory services and auctions.

‘Sellers here have become more realistic and lowered their expectations,’ he added.

But because their expectations were so high previously, this has not necessarily led to lower transacted prices, he said.

What it has actually resulted in is more investors coming back to look at properties that may have previously been overpriced but are now open to negotiation, Mr Poh said.

Currently, there are many more people interested in selling Singapore properties than in buying them, DTZ’s study showed.

It polled investors and found that 12 per cent of them intend to sell their properties in Singapore soon, while fewer than 5 per cent plan to buy properties here.

This is creating a situation quite different from the one last year, when there was no lack of demand for properties but very few available for sale.

Now, growth funds and some opportunistic investors are pulling out of the plateauing Singapore market, at a time when owners – including banks, foreign firms and opportunistic funds – are becoming more willing to sell.

‘There is an increasing number of buying opportunities in gateway markets such as Singapore, Hong Kong and Tokyo,’ said Mr Stinson.

‘Six months ago, it wasn’t about whether you wanted to buy property, but whether you were lucky enough to win the race.’

Interest in Singapore properties remains high, however, especially in the logistics and industrial market. This sector still offers a ‘decent return’ as growth has not been as rapid as in other sectors, said Mr Poh.

Commercial assets in Singapore are also in demand to some extent, but the residential sector is likely to turn in a weak performance in the investment market this year, DTZ said in its report.

‘Given the cautious economic outlook, investor focus for the rest of the year would be on occupier fundamentals in the commercial and industrial sectors,’ it added.

These fundamentals include, for example, the quality of the buildings and their tenants.

While repricing is not an apparent risk in Singapore’s property market, the Asia-Pacific region is facing an average repricing of 25 to 100 basis points, or 0.25 per cent to 1 per cent, Mr Stinson said.

The markets that will be the worst hit include Japan, Australia and New Zealand.

Source : Straits Times – 26 Aug 2008

Home sales up, but pace slowing

Prices slip in July though sales up for 3rd straight month; high-end hard hit

NEW home sales rose last month for the third month in a row, but the pace of growth braked sharply and the prices of sold homes slipped.

Developers sold 897 new private homes in July, 12 per cent more than in June and the highest number since last August, according to data released by the Urban Redevelopment Authority yesterday.

Close to nine out of every 10 homes sold last month were suburban units that cost $1,000 per sq ft (psf) or less. No homes were sold above $4,000 psf for the second consecutive month.

This trend is likely to continue, property consultants said, as persistent caution in the high-end market is causing developers to delay expensive launches.

Even then, developers continued to launch more units across the board than they were able to sell last month, adding to the inventory of unsold homes, observed Mr Nicholas Mak, director of research and consultancy at Knight Frank.

Consultants also predicted that the pattern of rising sales will be reversed this month.

Launches and transactions will probably fall thanks to the perceived unlucky ‘Hungry Ghost’ period, while market sentiment is expected to remain negative amid more dismal global economic news coming out of the United States and Europe.

Already, last month’s sales growth was a far cry from the 77 per cent jump in sales between May and June, consultants said.

Last month’s figures were boosted by sales from four large-scale suburban projects that together accounted for almost two-thirds of the whole month’s deals. Livia in Pasir Ris saw 301 apartments taken up, at a median price of $671 psf. Of these, four crossed the $750 psf mark, but the rest were well within the $500 to $750 psf range.

Clover by the Park in Bishan sold 100 units at a median price of $753 psf, down slightly from the median $765 psf it had fetched in June.

And Kovan Residences in Kovan Road sold 87 units at a median price of $882 psf – just below its $887 psf in June – while Beacon Heights in St Michael’s Road sold 61 units at a median price of $865 psf.

In the mid-tier segment, Parc Sophia in Dhoby Ghaut was the best performer, selling 25 units at a median price of $1,503 psf.

CapitaLand’s Wharf Residences near Robertson Quay sold 23 units at a median price of $1,506.

Generally, prices have come under pressure from the gloom in the market and are starting to dip, consultants said.

The lowest transacted price in the suburban region fell 23 per cent last month from June, while the lowest price in the central region fell 7 per cent, noted Dr Chua Yang Liang, Jones Lang LaSalle’s head of South-east Asia research.

He said buyers of suburban projects are probably comfortable with paying $650 to $850 psf right now, while those looking for well-located city-fringe homes have budgets of $850 to $1,000 psf.

Sales were dismal in the high-end segment, with only eight units – less than 1 per cent of total sales – transacted above $3,000 psf. At the height of the property fever in July last year, 217 units fetched more than $3,000 psf, accounting for more than 15 per cent of the total units sold then.

But there are still some buyers willing to pay a premium for prime projects, said Mr Li Hiaw Ho, executive director of CB Richard Ellis Research.

He noted that five units were sold at The Hamilton Scotts in Scotts Road, for between $3,000 and $3,676 psf.

Source : Straits Times – 16 Aug 2008

July boost for private home sales

But sector’s outlook still cloudy on slower growth

DEVELOPERS sold 897 private homes out of the 1,322 launched last month, the highest number since last August, according to monthly data released on Friday by the Urban Redevelopment Authority (URA). This represents a 68-per-cent take-up rate.

While the sales were a modest increase from June, when 1,069 units were launched and 801 sold, there was little to suggest that the property sector would see a sustained pick-up in the coming months. The take up rate then was 75 per cent. The rise was also not as significant compared to the surge in June from May, when launches and sales more than doubled.

Most of last month’s transactions came from projects outside the core central region, such as Livia in Pasir Ris, Clover by the Park in Bishan and Kovan Residences, that catered to mid-range to mass-market home buyers.

Livia, which was priced at an average of $671 per square foot, accounted for a large chunk of the sales in July, with 301 units in the Pasir Ris Grove condominium sold. Prospective buyers were still largely holding out, as developers launched many more residential units for sale than they were able to sell, said Mr Nicholas Mak, consultancy and research director of property firm Knight Frank.

“The stock of unsold homes in the developers’ inventory will gradually increase,” said Mr Mak.

The outlook for the property sector is likely to stay cloudy due to worries that the limping United States economy would lead to slowing growth here. Just last week, the Government cut its forecast for Singapore’s growth rate to 4 to 5 per cent from its earlier forecast of 4 to 6 per cent.

“Since the end of July, there has been a slowdown in launch activity and take-up momentum due to more dismal news of the US sub-prime debacle being released,” said Mr Li Hiaw Ho, executive director of CBRE Research.

There may also be fewer launches and sales this month as superstitious buyers generally avoid buying a home duringthe Hungry Ghost Month, which lasts from Aug 1 to Aug 30 this year.

There are concerns that rising interest rates may weigh on property market sentiment. With the Singapore dollar heading into its fourth week of decline, the reduced expectations for currency strength should see the Singapore interbank offered rate (Sibor) start to rise. Housing loans in Singapore are typically pegged to Sibor.

But analysts said that with interest rates at the current low levels – Sibor at slightly more than 1 per cent – a gradual rise would not affect the behaviour of prospective home buyers, especially with banks keen on pricing their mortgages competitively to maintain or increase their market share.

“Property transactions are long-term investments and most investors hold on to their property for about five to seven years,” said Mr Donald Han, the managing director of property consultancy Cushman and Wakefield.

“Most owner-occupiers are more affected by fundamentals than anything else,” he added, saying that speculators are more affected by changes in interest rates.

Source : Today – 16 Aug 2008

Home sales up for third month in a row

New home sales rose for the third month in a row in July.

However, the pace of growth slowed significantly, with developers launching more homes than they could sell.

According to latest figures released by the Urban Redevelopment Authority (URA), buyers picked up some 900 new private homes last month, 12 per cent more than in June. This comes after new home sales almost doubled between May and June.

But developers launched about 250 more units for sale in July than in June. This meant that more units were launched than sold in July.

Still, property consultants said July’s performance could be close to as good as it gets this year. Last month’s sales were boosted by mass-market condominium projects, with two large-scale launches accounting for almost half the whole month’s figures.

City Developments “Livia” in Pasir Ris sold 301 apartments at S$671 per square foot. “Clover by the Park” in Bishan sold 100 units at an average S$753 per square foot.

While mass-market homes are seen to have the highest potential for sales for the rest of the year, analysts said this may be compromised by the lack of large development launches.

Nicholas Mak, Knight Frank’s director, said: “Going forward, we’re going to see a shortage of such big projects in the pipeline for the remainder of this year.

“We’ll still see launches, just smaller in size, and there won’t be this ‘wow’ factor or excitement that we saw in the previous month. As a result, the sale volume is likely to remain steady or decline in the next few months.”

Analysts said transactions are likely to be spread over different project segments, compared to recent months where most attention has been on the suburban segment.

Knight Frank expects an even spread of 30 to 40 per cent sales from each of the sectors. While a substantial amount of projects launched in July were in the mid-tier range, sales failed to keep pace.

The high-end segment showed continued weakness. No units priced S$4,000 per square foot or more were sold. However, prices in that segment are unlikely to come down anytime soon.

Colin Tan, head of research & consultancy at Chesterton, said: “I think developers who are in this segment are in healthy financial position to hold on. So if prices were to come down, it will take some time but not in immediate future.”

The highest sale price in July was achieved by a unit from The Hamilton Scotts. It was sold at S$3,676 per square foot.

Source : Channel NewsAsia – 15 Aug 2008

Property firms report weak set of Q2 numbers

Most developers see their business hit in 3rd and 4th quarters

HIT by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains – and even the stronger Singapore dollar – property companies largely reported weak results for the second quarter.

And the future doesn’t look rosy either.

Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only ‘cautiously optimistic’.

The big three developers – CapitaLand, City Developments and Keppel Land – all posted lower profits for Q2.

CapitaLand, Singapore’s and South-east Asia’s largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.

City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.

Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.

‘I think the mood is generally very cautious, and this has hurt the developers,’ said an analyst. ‘The trend is likely to continue for the rest of the year.’

Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.

The Ministry of Trade and Industry’s latest quarterly economic survey showed there are increasing signs that segments within services – including the retail trade and hotels – are showing slower growth.

Property stocks with exposure to those sectors – such as CapitaLand, CityDev and UOL Group, to name just a few – could see contributions from those divisions drop.

For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.

As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.

‘Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,’ Citi noted in a recent report. ‘Some developers may have also over-committed in terms of land purchases during the boom periods.’

Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent.

Source : Business Times – 15 Aug 2008

One man’s panic is another’s bargain…

CDL chief points to some good buys as panic-sellers offload, but he’s not alarmed

(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday acknowledged that there have been some cases of high-end property buyers resorting to panicselling in the secondary market. These are people who’d bought their units during the early stages of the property boom ‘It is not as alarming as what some people think. Just bear in mind, because of a couple of transactions, these few swallows do not make a summer,’ he told analysts and journalists at a briefing to announce CDL’s second quarter results.
In some cases, these desperate sellers are offloading their units at prices that may be 20-30 per cent
below current market values, providing attractive bargains for astute property investors, Mr Kwek
said.

‘There are what I call bargains because some buyers, towards Temporary Occupation Permit or even
before TOP, just want to get out as long as they make $100 psf profit. ‘As an example, there were some projects launched at $2,200 psf. Then (the price) went up to $3,400-3,500 psf. Today there are some people who have gotten so frightened, they will sell off at $1,700 psf. That is the time, if you are smart enough, you can pick up (a bargain)! Buying property is not short term. Buying property is medium to longer term.’
High-end home prices are in a period of consolidation after a sharp escalation. ‘What has gone up in
a straight line will also come down,’ as Mr Kwek put it.
‘My key advice to you is as long as you can service your instalment and with the (current) cost of
construction so high, how can you be worse off than during the bad times in ‘96 and ‘97? If you are
smart enough to pick up (a property) when some people want to commit suicide, you just pick (it) up
cheap – keep it, rent it, stay – there’s your chance.’

Saying he was not too worried about the current consolidation, he added: ‘This is the time you should
buy. This is not the time you should get out, unless of course circumstances dictate that you should
get out.’

Regaling his audience with an anecdote, Mr Kwek said: ‘For example, The Sail @ Marina Bay, we
started selling at $900 psf, and the price went up to $3,000 psf-plus. The other day, somebody told
me that his friend, a broker, said there’s one unit, ninth floor, $1,800 psf. He asked me: ‘Do you want
to buy?’ I said: ‘Which unit? I want to check. I am going for a meeting. When I come back, we’ll talk
about it.’ By the time I came back, the whole thing was gone.’

The high-end residential sector will recover ‘when the sub-prime crisis is over and the integrated
resorts are in operation’, Mr Kwek said. ‘You’ll have a lot of high rollers coming in. They come in, they
like Singapore – very clean, things get done. We have a lot of (positive) attributes but we’re always
taking them for granted.’

Mr Kwek, who is also chairman and managing director of Hong Leong Finance, said that although ‘we
don’t have Freddie Mac and Frannie Mae’ here, Asia will be hit to some extent by the sub-prime crisis.
‘However, our banks are well capitalised. Monetary Authority of Singapore is monitoring closely.’
He also recalled Minister for National Development Mah Bow Tan’s comments that ‘they don’t want to
see property prices going (up) in a straight line nor do they want to see it going down in a straight line.
So I am confident they are monitoring the whole situation’.

Much of CDL’s land bank, even in the high-end, was acquired at relatively cheap cost. ‘As an
example, for the Lucky Tower site (at Grange Road), if I were to launch my project tomorrow at
$2,500-$2,600 psf, I can still make very healthy profit compared to Cliveden (nearby) which we sold at
$3,750 psf. It’s a question of whether I want to let go at $2,500 psf or whether I should keep it.

‘Don’t forget if you go ahead and construct, you incur two sets of interest costs – on land and
construction. By the time the market improves, the (unit) sizes and the design may be outdated, so
you cannot maximise the profit from that. It’s better to keep the land and wait for a better opportunity
before you sell.

‘I’m sure some (other) developers feel the same way. I will guarantee you many of these people will
not go ahead with construction,’ Mr Kwek said.

CDL, in its results statement, also cited other reasons why a feared oversupply of new private home
completions may not materialise. Tight bank financing is making developers more cautious in their
land purchases. The sharp hike in construction costs means developers who delay their launches
may hold back their construction plans as well. Given tight construction resources, contractors may
continue to find it hard to complete projects on schedule.

Business Times – 15 Aug 2008