Banner year for good class bungalows

Demand looks robust going into new year after the $1.6b chalked up in 11 months

The Good Class Bungalow (GCB) market – the creme de la creme of the Singapore landed residential property market, at least on the mainland – has seen nearly 100 transactions worth a total of $1.6 billion in the first 11 months of this year.

The numbers, based on analyses of caveats by CB Richard Ellis (CBRE), are almost double the 51 deals valued at $827 million for the whole of last year.

The value also surpasses the full-year record for total value transacted of $1.23 billion set in 2006. But the number of deals so far this year is still shy of the record 119 set in 2006.

Credo Real Estate estimates GCB prices could have risen 5-10 per cent this year and projects a further 5-15 per cent appreciation in 2010. ‘Current GCB prices are not far off the peak levels established between mid-2007 and mid-2008,’ says the company’s managing director Karamjit Singh.

Sentiment in the GCB market is tipped to remain firm next year on the back of Singapore’s economic growth, and as the country attracts more high net worth new citizens.

However, some observers expect a slight easing in transactions as the strong pool of demand seen earlier this year has been substantially sated following a year of brisk sales.

CBRE director (luxury homes) Douglas Wong predicts 80-90 GCB deals next year worth a total of $1.2-$1.4 billion.

William Wong, managing director of RealStar Premier Property Consultant, also sees an easing in the number of GCB deals in 2010. ‘Demand is still strong, but the pool of buyers right now is not as big as, say, earlier this year. Most of those who wanted to buy a GCB have already bought this year, so demand has been substantially satisfied for now,’ he says.

‘Of course, the buying pool may expand again, for instance, as more high net worths from overseas become Singapore citizens.’

An upbeat Mr Singh declares: ‘Demand for GCBs is poised to remain robust as Singapore’s economy begins to grow again and the rich get to feel richer. GCBs are also popular investment tools played by seasoned high net worth individual investors when they smell capital appreciation potential.’

CBRE’s analyses of caveats data captured by URA Realis and SISV Realink as at Dec 11 show that 99 transactions worth a total of $1.58 billion have been done so far this year in GCB areas.

But with caveats yet to be lodged for any deals this month as well as some of November’s transactions, some industry watchers estimate the actual year-to-date tally could be closer to $1.7 billion, if not higher. There’s also talk of a few buyers choosing not to lodge caveats, perhaps to keep a low profile, although this can happen only if they’ve not taken a mortgage.

July was the busiest month this year with 23 deals done for $356 million. CBRE says 2009 has seen 20 GCB transactions at $20 million apiece and above, up from 12 in 2008, nine in 2007 and four in 2006. The number of GCB deals priced at $1,000 per square foot of land area and above has also risen from zero in 2006 to nine in 2007, 12 in 2008 and 24 in 2009.

This year’s strong showing was due to buyers deciding to make a commitment before prices increased further – when a price dip they had been hoping for earlier in 2009 did not materialise, says CBRE’s Mr Wong. This was amid a sudden improvement in property market sentiment when the stock market posted a stunning recovery.

Analysts also say a general distrust of financial instruments following the global financial crash has enhanced the appeal of GCBs to the well-heeled.

‘They’re evergreen investment products that would always be preferred by ultra-high net worth individuals. GCBs are limited in supply – the existing stock is about 2,400 – in an urban environment where landed housing is scarce. So there’ll never be an oversupply situation for GCBs. Most owners have strong holding power, reducing the risk of falling prices in a downturn,’ says CBRE’s Mr Wong.

Mr Singh says most buyers these days already own existing GCB properties and tend to trade in them. ‘There are also a handful of buyers seeking to upgrade from smaller landed properties or large apartments. The third category of buyers are new PRs and citizens, who qualify to own landed properties.’

Says CBRE’s Mr Wong: ‘About four, five years ago, the typical age of a GCB buyer would be in the mid-40s, but these days it would not be unusual to have a GCB buyer in the late 30s. Young professionals and entrepreneurs and PRs have been showing keen interest in the GCB market,’

In Singapore, foreigners need permission from the Land Dealings (Approval) Unit (LDAU) before they can own landed property.

On mainland Singapore, the main criteria are whether the foreigner is a Singapore PR and his or her economic contribution to Singapore. However, non-PR foreigners may buy landed homes on Sentosa Cove subject to LDAU approval.

Whether on the mainland or on Sentosa Cove, the landed home a foreigner is allowed to buy usually must not exceed 15,000 square feet in land area.

Source : Business Times – 17 Dec 2009

Pricey is right for 2010 home sales

Mass-market sales may ease, focus is on high-end homes

Markets are stabilising and developers here are ready to roll out pricey homes. Industry watchers are keeping their fingers tightly crossed for the high-end residential sector, which could see more launches next year if economies sail smoothly towards recovery.

According to Colliers International estimates, 10,671 private homes are set for launch next year. And 46 per cent or 4,958 units will be in the core central region (CCR).

Prime projects that could hit the market include the former Farrer Court site, which CapitaLand and partners bought en bloc in 2007, and Wheelock Properties’s Ardmore 3.

Another 33 per cent or 3,498 units will originate from the rest of central region (RCR). The outside central region (OCR) will account for the remaining 21 per cent or 2,215 launch-ready units.

The distribution of homes already launched this year is almost exactly the reverse, with the bulk of units coming from the booming mass-market sector. Colliers estimates that by end-December, 13,542 homes will have been released, of which 43 per cent or 5,822 units will be from OCR.

About 33 per cent or 4,429 units will be from RCR, while 24 per cent or 3,291 units would be from CCR.

‘Developers are likely to be encouraged to release more mid-tier or high-end units in 2010,’ says Colliers research and advisory director Tay Huey Ying. She cites several reasons – signs of investors and foreign buyers returning, improved economic prospects and the opening of the integrated resorts.

The strong take-up rate at Marina Bay Suites’ recent preview has raised hopes. Of the 90 units released, 87 were sold and the average price ranged from $2,200-$2,500 psf.

Jones Lang LaSalle (JLL) head of South-east Asia research Chua Yang Liang adds: ‘Positive sentiment from high net worth individuals and wealthy foreign buyers could return by H1 2010 and support transactional activity.’

Backing this view, a recent study by Barclays Wealth and the Economist Intelligence Unit found that wealthy individuals here plan to allocate a larger share of their investment portfolios to property in the next two years.

The big question is how much developers can sell fancy homes for, as doubts linger over the sustainability of economic recovery. DTZ Southeast Asia research head Chua Chor Hoon is one of several observers who expect ‘more upside potential’ for high-end property prices in the coming year.

According to Urban Redevelopment Authority indices, prices of non-landed CCR properties are still some way below the 2008 peak – 16.8 per cent down at Q3. In comparison, non-landed OCR property prices shot up this year and were just 2.5 per cent short of the peak.

Deutsche Bank analysts wrote in a report on Monday that high-end prices could rise 5-10 per cent in the coming year.

But even as optimism grows, some players are quick to highlight uncertainties. JLL’s Dr Chua stresses that new demand for property has to be backed by global or regional economic growth.

Several economists have flagged the risk of bubbles forming in Asian property markets. The Singapore government introduced cooling measures in September.

The Monetary Authority of Singapore also said more action may be needed if recent measures to dampen speculation prove insufficient.

City Developments executive chairman Kwek Leng Beng told BT last month the private home market here ‘will slow down’, following the MAS warning and the return of the confirmed list.

By EMILYN YAP
Business Times Dec 2009

Private home prices may hit new high in 2010

 

Private home prices here are expected to hit a new high in 2010 and perhaps rise even further after that, should the economy continue to grow.

But analysts said on Friday that sales volumes in 2010 are likely to fall back to sub-10,000 levels seen in previous years.

Observers are projecting that 15,000 to 16,000 units will be sold in the primary market in 2009 – the highest on record.

The launch of a mass market project in Jurong West – Caspian – broke the dam for new home sales in Singapore earlier in 2009.

Some 10 months later, home sales during the economic downturn are projected to exceed even July 2007’s record of 14,811 homes. Data already shows that about 13,905 units have been sold from January to September this year.

Analysts said this performance is driven by pent-up demand, and is unlikely to be repeated in the years ahead.

Donald Han, managing director, Cushman & Wakefield, said: “This has been a spectacular year by virtue of pent-up demand. The second and third quarter probably produced about 60 to 70 per cent of total demand for 2009.

“In the third quarter alone, we sold something like 5,700 new home units. We sold more in the third quarter than in 2008. That kind of demand is not sustainable.

“The fact is that the government put on the brakes by discontinuing the interest absorption scheme. Also, they are making promises to ensure enough supply in the marketplace by introducing more government land sales programmes in 2010.”

Mr Han said sales are likely to average around 800 new homes a month, or some 9,000 to 10,000 units for the whole of 2010. However, some analysts said prices will not be falling in tandem with lower sales.

That is because the strong economy and fundamentals of the country will support prices, and may even drive them higher.

Nicholas Mak, real estate lecturer, Ngee Ann Polytechnic, said: “Going forward, average home prices still have some way to grow. They could still expand conservatively at about 10 per cent, while in some segments they could go as high as 20 per cent.”

Units in the mid- to high-end segments will see prices rise higher than those in the mass market.

Analysts said this is mainly because prices in the mass market, which accounts for about 45 per cent of all private homes sold to date, started heading upwards earlier, and are close to their peak.

But they are not ruling out factors that could temper price growth such as government measures to cool the market, should speculation get out of hand.

Source : Business Times – 4 Dec 2009

 

Supply, interest rates frame housing debate

The property market yesterday toasted the sale of a record 5,719 private homes in the third quarter, even though the industry posted a second consecutive month-on-month drop in sales to 1,143 units in September. Despite the high point, the discussion in property circles was marked by circumspection.

The number of homes that developers manage to sell in the fourth quarter as well as next year will be limited by the shrinking stock of launch-ready homes and developers’ fast-depleting landbanks.

While the economic outlook is improving, the accompanying scenario of rising interest rates may cause some to re-evaluate their property investment decisions as mortgage rates rise. If savings rates on bank deposits also increase, this will take some shine off parking money in property, which is what many investors have been doing this year, says DTZ executive director (consulting) Ong Choon Fah.

Urban Redevelopment Authority figures released yesterday showed that developers sold 1,143 private homes (excluding executive condos) in September, down 36.6 per cent from the 1,804 units they sold in August, which in turn was about 35 per cent below the July high of 2,772 units.

The 5,719 units developers sold in Q3 busted the previous record of 5,129 units in Q2 2007. With 12,969 private homes sold in the first nine months of this year, developers will have to sell an average of just 614 units a month from October to December this year to match the full-year record of 14,811 units set in 2007.

The drop in September sales, which was the second consecutive month-on-month decrease, is seen by some property consultants as evidence of price resistance setting in after rapid price hikes in recent months.

Colliers International’s director for research and advisory Tay Huey Ying highlighted an increase in the proportion of transactions at or below $1,000 psf to 54 per cent in September from a 49 per cent share in August. ‘This is a reversal of the downward trend since April 2009,’ she added.

Yet another sign of price-resistance setting in could be the pretty mixed bag of results obtained by analysts who studied URA’s data and compared prices achieved by developers between August and September.

Market watchers say another factor for slower sales last month could be the government’s move on Sept 14 to scrap the interest absorption scheme (IAS), which some blamed for oiling the wheels of property speculation.

Last month’s drop in private housing sales was also supply-led, said Real Estate Developers Association of Singapore CEO Steven Choo. The number of units launched by developers slipped 12.4 per cent from 1,613 units in August to 1,413 units in September.

This drop, however, was much less than the nearly 37 per cent decline in units sold. And that meant the ratio of units sold to units launched fell from 111.8 per cent in August to 80.9 per cent last month – the lowest since February this year – as buyers became more selective, observed DTZ’s South-east Asia research head Chua Chor Hoon.

‘Suburban projects and developments with small units continued to be favoured,’ she added. The Outside Central Region was the only segment which posted an increase in units sold, from 531 in August to 560 in September – against month-on-month decreases of 72 per cent and 40 per cent respectively for the Core Central Region and Rest of Central Region.

September’s top selling projects were Hundred Trees (327 units sold at a median price of $941 psf), followed by The Interlace (243 units transacted at $1,047 psf median price), and Elliot at the East Coast (65 units; $947 psf), CB Richard Ellis noted. Hundred Trees and Interlace made up about half of September’s sales.

Colliers’ analysis showed that whereas the highest price achieved in August was the ‘above $4,000 to $4,500 psf range’ with two transactions, the highest price band in September was the ‘above $3,000 to $3,500 psf range’ with seven units sold.

These comprise six units sold at Seven Palms Sentosa Cove at between $3,091 psf and $3,353 psf and an apartment at Nassim Park Residences that fetched $3,268 psf.

Source : Business Times – 16 Oct 2009

Luxury apartment sector feels the rush

More deals clinched as sentiment improves, foreign buyers sniff around

Luxury apartment deals picked up in the second and third quarters of this year as a more cheerful mood spread to the upper realms of the private residential market.

The number of apartments priced above $4 million changing hands rose rapidly from just 15 deals in the first quarter of this year to 87 in Q2 and 210 in Q3.

The total of 312 apartments in this price range sold in the first nine months of this year are 11 per cent more than the 280 transacted for the whole of 2008, which was generally a quiet year for the Singapore residential market following the global financial crisis, notes CB Richard Ellis (CBRE). It analysed caveats information from URA’s Realis system up to Oct 12.

During 2007 – the peak year for the luxury housing market – a total 1,740 apartments were sold at over $4 million each.

CBRE studied caveats data for condo and apartment deals in the Core Central Region, which includes the prime districts 9, 10 and 11; the financial district; and the HarbourFront and Sentosa Cove locations. The transactions include both primary and secondary market transactions but exclude collective sales.

Joseph Tan, the firm’s executive director (residential), says that some investors feel this is a good time to buy luxury apartments as they stand to net capital gains before the price surge sweeps this segment.

‘In addition, with the appreciation of foreign currencies against the Sing dollar in recent months, foreign investors could have found prices of luxury apartments here fairly attractive,’ he said.

Looking ahead, he sees an increase in high-value transactions with upcoming new luxury projects such as Marina Bay Suites and Seven Palms Sentosa Cove as there will be investors interested in these projects. ‘Buying interest will be project-driven, based on the uniqueness of each project,’ Mr Tan added.

Developers report a pick-up in sales of luxury apartments to both Singaporeans and foreigners.

Wheelock Properties (Singapore) CEO David Lawrence says: ‘A lot of foreigners talk to us about buying quality property assets in Singapore. They include high-net-worth (HNW) Indians and Chinese who are thinking of becoming Singapore permanent residents and wish to move their families here.’

Savills Singapore managing director Michael Ng also says the Republic has been a beneficiary of wealthy Asians from places like China, Malaysia and India coming out again to buy luxury properties with renewed confidence upon sensing that the worst is over in the overall global economy.

‘A lot of them see Singapore as a safe place to park their family and money,’ he added.

The thinking in property circles is that foreign buying will strengthen further when Singapore’s two integrated resorts (IRs) open next year. And this should translate to stronger demand for luxury apartments.

CBRE’s data showed that about 86 per cent or 268 of the 312 units sold at above $4 million in the first nine months of 2009 were in the ‘above $4 million to $7 million range’.

They included developer sales in projects like Volari at Balmoral Road, Residences@Killiney, One Devonshire, Latitude at Jalan Mutiara, Madison Residences in Bukit Timah, and The Orchard Residences. This segment saw the biggest recovery in transaction volume over full-year 2008.

A total of 35 caveats were lodged for properties that cost between $7 million and $9 million in the first nine months of this year. The transactions, which were mostly in Q3, include The Hamilton Scotts and The Orchard Residences in the primary market (developer sales), and Ardmore Park, St Regis Residences and Scotts Highpark in the secondary market.

There was a caveat lodged for a unit at Nassim Park Residences that cost nearly $13.3 million in July and two in August (at about $9.6 million and $9.8 million), based on URA Realis caveats data as at Oct 12.

However, BT understands that since then, two more units were sold in the development in September, followed by a further two so far this month.

The four units were sold at prices ranging from $9.6 million to $14 million, or from about $2,850 per square foot to $3,480 psf.

BT understands there have been close to a dozen transactions at Nassim Park Residences since mid-year. However, buyers of some units have yet to lodge caveats.

Source : Business Times – 15 Oct 2009

The new design ascetic

Pared down, simplified and minimal, architects are all reassessing what is really essential in life WHETHER it is because of the constant talk about the economy, wealth destruction or the periodic stockmarket jitters, homeowners appear to have lost the desire to build ever bigger and flashier homes.

Instead, the prevailing design aesthetic seems to be more about ascetism, as more people decide that living in excess is just so last century. Pared down, simplified and minimal, architects are all reassessing what is really essential in life.

Daniel Libeskind, who designed Reflections at Keppel Bay, has perhaps gone a step further by designing a prototype of a house that is prefabricated and can be shipped anywhere in the world. He describes the house as ‘a limited artistic edition of a new space, of a new way of living, a total work of art’.

Called the Libeskind Villa, the four-bedroom house is a composition of three simple interlocking volumes that generate a myriad of geometric spaces. And in keeping with volatile oil prices, it offers maximum insulation and durability, cutting-edge technologies and compliance with some of the toughest energy-saving standards across the world. In designing Libeskind Villa, Mr Libeskind reduces the essence of a home to only the most critical elements and the design just stops short of being austere. And there is no shame in austerity, especially today.

Architect Gwen Tan of Formwerkz has even chosen to celebrate it. Describing a house she is designing for a client, she said that one of the biggest constraints was that the site was so tight it could only accommodate a very small house. Fortunately, her client’s needs were simple and Ms Tan decided that this should be ‘celebrated’. Eventually, the design of the house evolved such that the architectural forms were reduced to a simple building block or as described by Ms Tan: ‘A very basic house form that any three-year-old child could draw.’ But the size (and shape) of the house is not a reflection of the spatial quality which is ‘very intimate’. To ensure there is no excess, Ms Tan needs to understand her client very well. ‘Architecture is livable art. The client’s lifestyle becomes a medium that you paint with and because it’s something that the client can associate with, there’s added meaning and dimension to the product,’ she says.

When the design was finished, the client was instinctively drawn to it. ‘I think sometimes the most simple idea can be the most powerful and effective,’ says Ms Tan. Simple ideas can also be cheaper, which helps, because for whatever reason, fewer people will be wanting to pay for gold taps and Italian marble these days.

Mink Tan of Mink Architects says that he has noticed that some of his clients have asked for less expensive materials, simpler details and cheaper construction methods. Of course, it would be false economy to spend millions of dollars on the land and then penny-pinch when it comes to building the house. So one strategy is to use expensive materials where they matter. Mr Tan describes his approach to design simply as having an ‘Asian soul wrapped in a modern skin’. One of the houses he is currently working on is essentially a series of glass pavilions wrapped by continuous folding walls and floors to form one contiguous volume.

The glass box is about as simple as you can get if you want to create a space but Mr Tan wraps his in a layer of titanium, ‘to signify what I feel is quintessentially Singaporean – an Asian soul clothed in something modern and contemporary’. It is this pragmatic approach to architecture that is also fast emerging as a ‘Singapore style’. Mr Tan describes this style as centred around the modernist ‘glass box’ but with a more highly developed sense of ‘tactility’. Perhaps a concern some homeowners will have is that if design is reduced to too simplistic forms, everything might start looking the same, or worse, quickly go out of style.

To this, Aamer Taher of Aamer Architects says: ‘I think cutting edge designs may get dated but never go out of style – if by dated, one means old.’ For example, he notes that while the architecture of 1960s Brazilian architect Oscar Niemeyer belongs to the now defunct futurist school of architecture, it ’still looks beautiful today’. It is nevertheless difficult to say, without hindsight, what is good or bad architecture. But recalling the 1970s and 1980s, it is probably quite safe to say that architecture of excess is never a good thing.

Many will know of at least one example of the ‘wedding cake’ houses of that era – ‘Those poor copies of western classical architecture that symbolised wealth’ – and beloved by business tycoons, muses Mr Taher. Today, as he wryly points out, these have very much fallen out of fashion. So it’s probably a good thing that clients are a bit more budget conscious these days. It should, however, be said that while the budget may affect the look of a house, the approach to design does not change. ‘Since I like to incorporate some sculptural forms in my work and treat each as a work of art, it wouldn’t necessarily be any different if I had designed it 10 years ago,’ he says. Timeless architecture of today may lack some of the cultural cues that reflect wealth and prosperity but it is no less rich in symbolism.

Claudio Silvestrin, who has designed 18 villas for developer YTL Corp at Sentosa Cove, believes that architecture is akin to ‘composing poetry on earth in partnership with the earth . . .’. Mr Silvestrin is known for designing Giorgio Armani stores and his designs are not cheap. Yet the Sentosa Cove villas look almost uncompleted in their simplicity.

‘The project is about a vision and about architecture to be appreciated as architecture in its purest form,’ says Kemmy Tan, director of international real estate, YTL Singapore. Ms Tan explains that Mr Silvestrin’s architecture ‘explores the innate nature of place rather than the visual excitement of superficial building form’.

So, are home buyers sold on this new age architecture? Well, at Sentosa Cove anyway, more than half of Mr Silvestrin’s 18 villas have been sold so some people certainly are. What is clear, though, is that the best architecture of today is transcending the physical realm of nuts and bolts. And if there is one thing the global recession has taught us, it is that just as money cannot buy happiness (ahem . . . Mr Madoff?), a house needs only to define the space in which you live. How you choose to live your life is another matter.

Source : Business Times – 24 Sep 2009

S’pore home prices slide down the ladder since 2008

FROM around the top of the heap to near the bottom of the pile in just 12 months!

A year ago, Singapore was ranked as the fourth best-performing market in the world under Knight Frank’s Global House Price Index based on the first-quarter’s year-on-year price change. This week, it emerged as the third-worst in a table that listed a total of 46 markets.

The house price index for Singapore slipped 23.8 per cent in Q1 2009 over the same year-ago period. And with the index declining 16.2 per cent quarter-on-quarter in the first three months of this year, Singapore emerged as the second worst-performing market based on a quarter-on-quarter ranking, compared with its ninth position a year ago.

Knight Frank’s index for Singapore was pegged to the official Urban Redevelopment Authority’s price index of non-landed private homes in the Core Central Region.

Israel was the top performer over the 12-month period ending Q1 2009, recording price growth of 10.9 per cent, followed by the Czech Republic with a 9.9 per cent increase. The worst performers were Latvia, Dubai and Singapore with declines of 36 per cent, 32 per cent and 23.8 per cent respectively.

On a quarter-on-quarter comparison, Dubai posted the worst performance with a fall of 40 per cent, followed by Singapore.

Hong Kong, saw its Q1 ranking (based on a year-on-year comparison) slip from third spot last year to 40th position, with a price drop of 15.7 per cent. United Kingdom was ranked 42nd on an annual-change comparison (the price slide was 16.5 per cent) while the US was in 43rd position with a 16.9 per cent decrease.

India made it to the top 10 list; it was ordered fifth with a 5.1 per cent year-on-year price appreciation in Q1 2009.

The percentage changes are calculated in local currency terms and are hence not affected by fluctuations in exchange rates.

‘There is sporadic evidence of buyers snapping up relative bargains. However, of those buyers in a position to move, many are still waiting for clearer signs that markets are approaching the bottom of the cycle,’ Knight Frank said.

Fourteen of the 46 markets covered by the index had not reported Q1 data at the time of the writing of the report.

‘The latest data suggest some easing in the plight of markets. On a quarterly basis, 48 per cent of the countries from whom we received Q1 data reported a drop in prices, compared to 88 per cent in our Q4 2008 index.

‘On an annualised basis, 48 per cent of countries also showed a fall in values compared to 77 per cent in Q4. Given the high proportion of ‘absentees’ for Q1, however, it would be potentially misleading to jump to too many hasty conclusions, although over half had shown annual and/or quarterly price falls at the last time of reporting. Nonetheless, the shorter-term future direction of most underlying economies suggests that the world’s residential markets are likely to continue to suffer for some while,’ Knight Frank’s report said.

The consultancy’s director of research and consultancy in Singapore, Nicholas Mak, said that while there has been a pick-up in private home sales lately (with developers managing to inch up prices for better-selling projects), a sustained price recovery will hinge on an improvement in the jobs market. ‘If expats are not coming into Singapore, the strength of the rental housing market will be affected and that will, in turn, affect investment demand for residential properties,’ he added.

A developer said: ‘While we are seeing price stability in the mass-market segment, I think the high-end sector will not stabilise until the perception of DPS-buyers defaulting clears away’.

The government scrapped the Deferred Payment Scheme (DPS) in October 2007.

The 30 to 40 per cent slide in high-end residential prices, coupled with more cautious bank lending to property investors, could mean that some DPS-buyers may not complete payments for units bought during the 2007 peak. A surfeit of such properties making their way back to the market could depress prices. While developers could take legal action against local buyers, they may have a harder time pursuing foreign buyers, especially companies registered in the world’s tax havens.

Source : Business Times – May 2009

Gradual rise in home prices seen

PRIVATE home prices in most sectors could start to rise gradually this year but high-end property will stay in the doldrums until later next year, according to tycoon Kwek Leng Beng.

Mr Kwek – executive chairman of the Hong Leong Group – said there are many cash-rich buyers waiting for the right time to buy.

‘Every time the market turns, some people would get caught out,’ he added.

The key question that many buyers are asking is: Has the market turned?

Urban Redevelopment Authority data shows that 1,207 new private homes were sold in April, making it the third consecutive month that sales have crossed the 1,000-unit mark.

It is a level reminiscent of the boom period and one that some analysts believe is unlikely to be sustained for long.

But Mr Kwek, who was speaking to The Straits Times on the sidelines of a recent hotel investment conference, feels that these levels of sales can be maintained ‘if the world economy stabilises’.

‘Confidence is the quick key to recovery. When you have confidence, you will invest,’ he said.

Mr Kwek said developers are sometimes wrong but the key is to be more often right than wrong.

He also reiterated that property is an investment over the medium to long term, anywhere from three to 10 years.

Developers got the market message this year and have cut prices to meet buyers’ expectations, following a stand-off that saw just 100-plus units sold in January.

‘If you’re listed, you’ll have to sell something. Otherwise, every quarter, you have no sales,’ said Mr Kwek.

Some developers have actually started to raise their asking prices slightly from their adjusted lows.

The strong sales so far this year have largely prompted two foreign investment houses to turn more positive on the residential market.

A recent UBS report points out that the sales momentum has been stronger than expected, with the possibility of higher prices in the second half of this year and next year.

It had already in a late April report called a ‘buy’ on the property sector, saying that demand from domestic upgraders – not foreign buying – will jump-start the recovery, as with previous recoveries in the 1990s.

Goldman Sachs has also projected a 5 per cent gain in Singapore private home prices next year, reversing its earlier tip of a 10 per cent fall.

‘We think the alignment of developers’ asking prices and buyer expectations would be key for generating sustainable demand,’ said the UBS report.

Nevertheless, not all are optimistic about the market.

‘This wave of purchases, once it’s over, won’t come back until the economy has recovered and embarked on its way up,’ said a property fund manager who declined to be named.

The pent-up demand is coming mostly from owner-occupiers or small investors and these people usually cannot afford to buy more than one unit, he said.

‘Foreigners are still leaving Singapore. When there are not enough real users for all the supply, prices will continue to fall.’

What is happening now in the real estate sector could be similar to the bear rally some analysts foresee for the stock market, he said, adding that the only good news is that mass-market prices are likely to hold at current levels.

Unlike high-end prices, which have fallen at least 35 per cent to 40 per cent from their all-time peak, the mass and mid-market sectors have had falls that are much less steep.

The price fall in high-end homes – which shot to more than $5,000 per sq ft during the boom from around $1,800 psf – is thus steeper, he said.

Average high-end prices may dip to around $2,300 psf, which is still higher than pre-boom levels.

Mr Kwek said the Hong Leong Group – which includes listed Hong Leong Finance, developer City Developments, Hong Leong Asia and London-listed Millennium & Copthorne Hotels – will hold off high-end home launches for now, preferring to start building first.

City Developments, the developer behind projects such as The Sail @ Marina Bay, has in its pipeline The Quayside Isle Collection in Sentosa Cove, a 99-year leasehold enclave where values have more or less collapsed.

High-end home prices were to a large extent boosted by foreign buying. ‘Foreigners will slowly come back but not so soon,’ said Mr Kwek.

The Indonesians, he said, are very slowly returning. Although the trend is barely discernible, it is a change from the previous downturn where they had all but disappeared.

Still, he cautioned against comparing prices with levels done a decade ago: ‘Ten years ago and now, Singapore has changed. Fundamentals are good.’

The country will soon benefit from two integrated resorts, for instance.

‘Worldwide, it is the worst downturn ever. But you see the amount of stimulus around. You can’t see the effects immediately. It will take some time,’ he said.

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MAIN INGREDIENT

‘Confidence is the quick key to recovery. When you have confidence, you will invest.’- Mr Kwek, on the recent improvement in property sales

Source : Straits Times –  May 2009

Property investors going back to basics

THE property investment landscape has changed significantly because of the global financial crisis, speakers at a panel discussion said yesterday.

For a start, investors are going ‘back to basics’, said Blake Olafson, director and head of the Asia real estate group at international investment bank Arcapita.

For example, pension funds that used to invest in riskier asset classes are now beginning to redirect their investments into less risky assets, he said.

Agreeing that the industry is going back to basics, John Evans, managing director of Tractus Asia, said: ‘Looking at it from a global economic perspective, the Asian real estate market had become a market where everyone was trying to get in, everyone was becoming a property developer.’

Mr Olafson and Mr Evans were speaking at Cityscape Asia, an annual real estate exhibition and conference aimed at investors.

The ‘back-to-basics’ approach includes a focus on making existing assets work harder.

‘There’s a lot more emphasis around true asset management, a shift towards hiring third-party facilities managers, and much more effort is going into tenant retention strategies,’ Mr Olafson said. ‘Before the downturn the focus was on building development, now asset management has become a lot more important.’

Players in the industry are going back to their core competencies and this, combined with tighter credit conditions, is driving a ‘flight to quality’ and a focus on assets that generate cashflows from day one, he said. ‘There is liquidity, but it is being driven towards good quality projects.’

Panellists agreed that liquidity is beginning to return to the Asian market, although banks are still very selective about which projects to back.

Speakers were also quizzed about when they expect real estate markets to emerge from the current slump. In response, the panellists said there was no way to put a timeline to recovery.

‘Everyone is trying to tell where the bottom is,’ said panellist Stuart Labrooy, chief executive of Malaysia’s Axis Reit Management. ‘I think the full effects of the recession have not reached Asia yet.’

Property valuations should start to bottom out in Asia in the second half of 2009, he said.

More than 3,000 real estate developers, investors and regulators are expected to attend Cityscape Asia, which focuses on all aspects of real estate development, on May 19, 20 and 21.

Source : Business Times – May 2009

Interest absorption greasing market – selectively

Is the interest absorption scheme (IAS) helping to grease home sales?

The answer seems to be yes, if there is no price premium charged by developers for the IAS. However, if developers charge more in exchange for interest absorption, then the buyers’ profile may decide whether they opt for IAS, industry players say.

Generally, buyers in projects targeted primarily at owner occupiers, such as suburban, mass-market condos prefer to buy on normal progress payment scheme (NPS) rather than IAS, under which they may pay only the initial 20 per cent with no further payments until the project is completed.

For example, slightly over a quarter of those who bought 626 units at Caspian near Jurong Lake since its release in February and 100 units at Waterfront Waves in the Bedok Reservoir area relaunched at lower prices since March have opted for IAS.

At Double Bay Residences in Simei, the proportion of IAS buyers is said to be higher, at 40-50 per cent. At Mi Casa in Choa Chu Kang, no buyer has opted for IAS. Those who bought on IAS in these projects paid 2 or 3 per cent more for their units. The thinking is that mass-market home buyers are usually more price sensitive and prefer NPS if it costs them less, say property pundits.

Projects that have drawn investors may see more buyers inclined to opt for IAS even though there is a price premium. Here, again, the quantum of premium may matter.

For instance, Frasers Centrepoint, which is charging 2 per cent more under IAS for Martin Place Residences, has found that 75 per cent of those who picked up the 80 units in the condo over the weekend opted for IAS. On the other hand, only 5 per cent of buyers of the 109 units that CapitaLand sold since last Friday at The Wharf Residence (nearby) chose IAS. This could be due to the heftier premium of 5 per cent for IAS.

However, some observers suggest another reason: Wharf Residence could have drawn a fair number of short-term investors.

With IAS, buyers have to immediately sign up for a housing loan (even if they don’t need to make a drawdown until much later). And they will have to pay a penalty if they redeem their loan early.

‘So short-term buyers in an investment grade project may prefer to opt for NPS to avoid being tied down to a loan and having to pay a penalty to the bank for early loan repayment,’ explains Knight Frank executive director Peter Ow.

Agreeing, EL Development managing director Lim Yew Soon told BT that feedback from some buyers who chose NPS for its Illuminaire On Devonshire project (despite the group not charging any price premium for IAS) indicates that they did not intend to hold their units till the project was completed.

The penalty for early loan redemption is typically said to about 1.5 per cent of the loan quantum. ‘So it may be a deterrent for smaller speculators,’ as Mr Lim suggests. However, this may not be a serious issue for deep-pocketed investors eyeing bigger gains.

‘Investors are taking advantage of IAS, which is the old DPS (deferred payment scheme) all over again, except that you have to talk to the banks earlier. Essentially IAS, like DPS, provides a financial option on the real estate market. By paying just 20 per cent of the value of the property, you can take a (bet) that property prices will appreciate by when it’s time to pay up,’ said a property analyst.

Under IAS, buyers have to sign up at once for a home loan. This is unlike DPS, where they could wait much later, closer to the project receiving Temporary Occupation Permit, when they have to pay the bulk of the purchase price to the developer.

Still, some like Mr Ow argue that IAS does not encourage speculation. ‘Whether speculation kicks in depends on the stage of the market. In today’s condition, only the very brave will come in to speculate.

‘IAS involves obtaining a bank loan approval upfront and banks are cautious about granting loans to property investors. It is quite unlikely banks will approve mortgages for those buying multiple units in a project.’

Others point out the current buying flurry does not stem from IAS. ‘The buying interest seems spurred by positive sentiments about the market as people are drawn to buy/upgrade due to reasonable prices,’ a spokesman for Far East Organization said.

Source : Business Times – May 2009