The Housing and Development Board (HDB) is reviewing its rules to curb speculation and illegal subletting in the public housing market.

National Development Minister Mah Bow Tan said the move is to ensure prices are not being artificially inflated.

The review comes amid fresh concerns over the affordability of public housing sparked off by HDB’s latest data that showed resale flat prices continued to climb in the fourth quarter of last year.

In addition, the median cash premium that home owners have to pay upfront doubled to S$24,000, prompting calls for the government to step in.

But Mr Mah noted that the resale market should be allowed to operate as a free market, with prices set on a “willing buyer, willing seller” basis.

He said: “Now, if you are a buyer, you feel anxious because you want prices to be low. But if you are a seller, you want prices to be high. So it’s not possible for the government to set the resale prices.

“If you were to interfere in the COV (Cash-Over-Valuation), or the resale flat market, essentially, you are saying the government should set the resale flat prices which I think both parties will be unhappy. Why? Because the buyer may be happy today, but today if he’s a buyer, tomorrow he would be a seller. Then when we set the prices and he wants to sell, he will be unhappy.”

While promoting a free market, Mr Mah drew the line at speculation and stressed that HDB flats are for “owner-occupation, not speculation or rental investment.”

As such, Mr Mah said the housing board is relooking rules to ensure that prices are not being artificially inflated.

“If somebody is coming in and buying because they hope to make money, through flipping or selling the flats later on, or to buy to rent without staying in there, I think that’s not possible. That’s not the idea of HDB flats,” he said.

Mr Mah declined to say which rules are being studied. But he noted that the review will be completed in a few months’ time.

How much impact will the review have? Housing analysts said speculators are not the main problem, because prices are not rising fast enough to lure them in.

ERA’s Asia-Pacific associate director Eugene Lim noted that for speculators to be lured into the market, prices have to be moving up very fast. But that’s not happening in the public housing market. For example, prices of HDB flats only increased by 8.2 percent in the past year.

He added that the mandatory holding period before you can sell your flat – one year if you’ve taken a bank loan; 2.5 years for those who borrowed from HDB – also acts as a deterrent against flipping.

Mr Lim said: “It’s basically a case of demand more than supply, because there are probably more people with immediate housing needs now, who cannot wait for the three years for new flats to be built. There is also an increasing population of PRs. They’re not allowed to buy from HDB direct, so they have to go to the resale market.”

But Mr Lim noted that while business from PRs now accounts for 25 percent of his firm’s business, up from 20 percent previously, that is still considered small. He added the review of rules is a sign that HDB is “leaving no stone unturned”.

But demand is being pushed up partly by those who buy flats to earn rent.

Mr Lim said: “If an investment gives you 7 to 8 percent (returns), it is certainly very attractive to look at. Because it’s quite easy to rent out HDB flat. It doesn’t cost much – with $300,000 or $400,000 you can get a HDB flat, you can get good returns, it does attract a fair number of people to look at this option.”

Latest HDB figures showed that between January 2008 and December last year, 56 homeowners were caught renting out their flats illegally.

And recent reports suggested that some flat owners at the newly completed Pinnacle@Duxton had rented out their entire units without a minimum occupation period. This is illegal under HDB’s housing rules.

Home buyers who received a grant from HDB must stay in their flat for a minimum of five years before they can sublet their entire unit. For those who do not use a grant, there’s a minimum occupation period of three years.

Offenders face a fine of between S$1,000 and S$21,000 and may even have their flats repossessed.

Mr Mah said: “I’ve asked HDB to also step up on any possible breaking of the rules. I don’t know if it’s extensive but anecdotally you do hear one or two cases. So we want to make sure that this is not happening.”

But observers said many of these transactions are done under the table. So even if rules are tightened, enforcement will be difficult.

However industry players like Chris Koh of Dennis Wee Realty noted that new rules requiring homeowners to report the details of their tenants are an incentive for them to be honest.

But he felt that there is scope to increase the penalties further, and to penalise agents who facilitate illegal transactions.

And to help curb demand, analysts suggested tweaking rules on how flats are financed.

Currently, a buyer can take out a loan to pay for up to 90 percent of the purchase price of a new or resale flat.

Analysts suggested HDB lower that quantum and make buyers fork out a larger down-payment. This could force them to reassess just how much they can afford, thereby serving as a check on escalating prices.

Source: Channel News Asia, 28 Jan 2010

The opening of the second phase of the Circle Line MRT in April is definitely something to look forward to for residents living nearby. But those looking to sell or rent their homes are set to benefit as well.

Property agents said the opening of the 11 new stations along the Circle Line is likely to push property prices up.

Agents MediaCorp spoke to estimate home prices will increase by 10 per cent while office rents will go up by 20 per cent.

They said estates like Serangoon, Bishan and Paya Lebar have a lot of market potential while units in industrial estates are also expected to be in high demand.

Eddy Ng, division director, ERA Real Estate, said: “Most of the workers are taking public transport, it can be very accessible for them, if there’s an MRT line that leads them back home after work.”

Source: Channel News Asia, 28 Jan 2010

The Ministry of Law is proposing that law firms set up a new type of bank account – a conveyancing account – for lawyers to hold funds entrusted to them by homebuyers and sellers.

The pilot trial of the new scheme could take place as soon as April this year, with the entire scheme taking off as early as next year, BT understands.

These conveyancing accounts will have a host of security measures in place to make sure that lawyers cannot abscond with clients’ money, such as requiring signatures from both the buyer’s and the seller’s lawyers before any money can be moved.

‘A home is often a person’s most substantial asset. The money intended for its purchase and arising from its sale should be properly protected,’ the Law Ministry said in a statement yesterday.

The proposed changes follow the infamous case involving lawyer David Rasif, who ran off with some $10 million of his clients’ money in 2006, as well as other recent cases in which lawyers absconded with their clients’ conveyancing money.

Conveyancing money, which is used for housing transactions, includes stamp duty payment and option deposits. A seller receives an option deposit – typically 4 or 9 per cent of the purchase price, which a buyer pays – once the option to purchase is exercised.

The law currently does not prohibit lawyers from holding clients’ conveyancing money.

In a public consultation paper released in August 2009, the Ministry of Law suggested prohibiting lawyers from holding any conveyancing money. The Singapore Academy of Law (SAL) will be the main entity appointed to hold conveyancing money, the paper said then.

But after public feedback – which included suggestions to allow banks to hold conveyancing money – the ministry has made revisions to the proposed measures. A second public consultation paper was released today.

Under the newest set of measures, approved banks will be permitted to open conveyancing accounts for law firms. But, as an alternative, buyers and sellers may still choose to use the service provided by SAL to hold option deposits in private property or HDB industrial/commercial property transactions.

The Law Ministry also said that a central signature repository will be established to allow the approved banks and SAL to check the signatures.

A pilot trial of the proposed measures will be conducted soon. BT understands that about 30 law firms and the three local banks – DBS Bank, United Overseas Bank (UOB) and OCBC Bank – will be involved in the pilot, which could take place in April and May this year. The new measures could be implemented in early 2011, sources said.

Lawyers welcome the new proposed measures, though they add that it will mean more time for administrative procedures, such as getting the counter signatures.

They also highlight some concerns. For one thing, they say the cost to customers could increase if banks charge a fee for the conveyancing accounts. For another, the interest earned from these accounts will be kept by the banks, as opposed to the current practice where interest earned from law firms’ client accounts is returned to the clients.

Source: Business Times, 18 Jan 2010

Westerners choose units in $1.5-5m band; most Asians prefer $500,000-1m

Among the top foreign buyers of private homes last year, Asians (excluding Indonesians) primarily bought units in the $500,000 to $1 million range, while most Western buyers (Australians, UK and US citizens) picked up homes mostly in the $1.5-5 million range.

Indonesians were in the same category as the Western buyers, with the $1.5-5 million range being their most favoured price band. In fact, 47 per cent of the 1,219 caveats for private homes lodged by Indonesians last year were in this band, shows Jones Lang LaSalle’s analysis of URA Realis caveats.

On the other hand, Malaysians, mainland Chinese, Indians, Koreans and Burmese were more likely to have bought a private home last year in the $500,000 to $1 million category.

DTZ executive director (consulting) Ong Choon Fah argues that Indonesians tend to buy a property here as a home away from home, often as a residence for their children studying here, and as a safe haven to park their wealth in a nearby country. Hence they are prepared to invest more for a property in Singapore.

Generally, though, Asians may set aside smaller budgets for their property investments in Singapore because they also compare property prices here relative to their home markets, Mrs Ong suggests.

JLL’s South-east Asia research head Chua Yang Liang observes that while there is no noticeable difference in the location (district) preference between Asian and Western foreign buyers, there is a more prominent difference in terms of their price range. He suggests that this could be because the majority of Western foreign buyers are probably here on expatriate terms, while Asian buyers are likely to be working here under local terms or are just investors.

Mrs Ong suggests that Asians may be more ‘adventurous’ and prepared to shop for a property in Singapore’s suburban locations, where deals below $1 million can still be found, whereas Western buyers may be more comfortable sticking to their traditional investment locations such as Districts 9 and 10 where expats have traditionally lived and property is pricier.

However, property market watchers point to a stronger presence by mainland Chinese in the higher-end property market in Singapore. JLL’s analysis shows that they picked up 22 properties exceeding $5 million apiece last year. Most of their purchases in this price band were in Districts 10 and 4. District 4 includes Sentosa Cove, while District 10 is one of Singapore’s traditional prime districts covering such locations as Ardmore Park, Cuscaden Road and the Nassim area.

Some 41 Indonesians, 28 Malaysians, 18 British Virgin Islanders and 16 UK citizens each bought properties costing over $5 million apiece in Singapore last year.

JLL’s caveats analysis showed that foreigners’ share of private home purchases increased to 27 per cent in Q4 last year, from a low of 15 per cent in Q1 2009, when the property market was still eschewed by foreign investors who had gone into hibernation in the aftermath of the global financial crisis. Foreigners lodged 20 and 23 per cent of caveats in Q2 and Q3 last year.

Their relatively low share in the first two quarters of last year dragged down their full-year share to 21.8 per cent from 24.1 per cent in 2008. However, in absolute numbers, the number of private residences bought by foreigners doubled from 3,176 in 2008 to 6,472 last year, amid the spectacular overall recovery in private home sales following price cuts by developers in the earlier part of last year. As well, investors soon developed a preference towards investing in property as an asset class after the global financial slump when billions vaporised overnight in investments in financial instruments.

Dr Chua forecasts that foreigners will continue to be active in the local property scene this year as the regional economies improve.

Source: Business Times, 21 Jan 2010

UK fund manager expects double-digit returns as home ownership slides

Henderson Global Investors is raising US$400 million to invest in rental apartments in the United States, where it sees potential for double-digit returns on the back of falling home ownership and cheap finance.

US home ownership has fallen dramatically in the past six years, in the latest boom-bust real estate cycle, and could fall further, meaning more people looking to rent, the UK-based fund manager said on Tuesday.

‘We think the US apartment sector is best positioned for a recovery both in terms of fundamentals and financing,’ Edward Pierzak, Henderson’s chief property investment strategist for North America, said in an interview.

The home ownership rate dropped two percentage points from 69.5 per cent in early 2004 to about 67.5 per cent at end-2009, and could fall further to 66 per cent in the next two years, he said.

‘You’re really looking at two million households or so that could be entering the for-rent market, so it’s a big plus for apartment owners,’ Mr Pierzak said.

Henderson’s chief property investment strategist for North America

An improving investment market for apartments could benefit listed residential real estate investment trusts such as Equity Residential and AvalonBay Communities.

Henderson, which has £pounds;57.7 billion (S$131.4 billion) of assets under management, plans to launch its CASA V fund before end- March to acquire US apartments, and is targeting to raise US$400 million from US and international investors.

‘We think there is an opportunity in core apartment markets that can give you returns in the 10-12 per cent range with modest leverage of about 50 per cent,’ Mr Pierzak said.

Henderson is not looking at the Stuyvesant Town and Peter Cooper Village, however, due to the size of the project.

Tishman Speyer and a unit of BlackRock decided on Monday to give up control of the 11,200 apartment Stuyvesant Town complex in Manhattan, after a default on the debt used to finance their US$5.4 billion purchase of it.

‘Conceptually apartments in New York would be what we’re interested in, but likely not at that size,’ Mr Pierzak said, adding the fund will look to buy apartment buildings at lot sizes in the US$20 million-US$60 million range.

Its favoured markets include coastal California, the Washington DC metro area, and south-east Florida.

The apartments sector also benefits from the cheapest financing available for real estate in the US. Some apartments that qualify for a tax-exempt bond financing could bring borrowing costs to as low as 3 per cent, Mr Pierzak said.

Other commercial real estate sectors such as offices, retail, and industrial properties are also starting to look attractive although their fundamentals remain weak, he said. ‘You can get attractive cap rates on those properties, but you also have to recognise that vacancies as well as rental growth will be more challenged in the next couple of years.’

Source: Business Times, 28 Jan 2010

MORE than a dozen Indian real estate firms have lined up plans for initial public offers to raise about US$6 billion, buoyed by an 81 per cent rise in the Mumbai stock index last year and as property buyers return. Following are key facts about India’s property market.

# The property market contributes 5 to 6 per cent of India’s gross domestic product, or about US$50 billion annually to the US$1 trillion economy.

# Total foreign direct investment in housing and real estate in India, since investment norms were first eased in 2005, stands at US$7.7 billion, including US$2.2 billion in April-November 2009.

# The Bombay realty index underperformed the main index last year, rising 70 per cent after a slump in the first quarter, versus the market’s 81 per cent gain.

# The major cities of Mumbai, New Delhi and Bangalore have the most expensive residential property in India, with rates comparable to New York, London and Tokyo, due to limited land and the government’s push to develop the services industry.

Source: Business Times, 28 Jan 2010

Observers cite competition from large public sector offerings

Investors are more likely to choke on a glut of India property IPOs set to hit the market this year than gobble them up.

Even though Godrej made a strong debut this month in the first Indian property listing in two years, the initial public offers of other developers could meet more restrained investor buying as they compete with a slew of large public sector offerings.

At least 16 real estate firms have lined up plans for initial public offers to raise about US$6 billion, buoyed by an 81 per cent rise in the Mumbai stock index last year and as property buyers return.

‘If all the IPOs get bunched up, we have a problem. Everybody may not see the light of day,’ said Jayesh Shroff, fund manager at SBI MF, which manages about US$8 billion worth of funds.

What awaits India’s property IPO rush may be exactly what happened to China’s offerings in recent years. The Chinese property sector saw early success from some offerings several years ago, but a dozen or so that followed suffered as investors grew tired of the same old IPO story.

And it could also play out as it did in India in 2007, when DLF and others floated, but are now among the worst market performers, trading way below their IPO prices, with market valuations sliding between 70-90 per cent.

Godrej has already dropped 17 per cent from its Jan 5 debut high after its around US$100 million IPO.

India’s real estate industry, like the sector globally, was hard hit by the 2008 credit crisis after years of booming demand.

Property prices doubled in the two years to 2007, fuelled by interest from foreign investors.

But the sharp rise was followed by interest rate rises to calm inflation and the global financial turmoil, pulling down property sales by more than half. Left with unsold and incomplete projects, developers were forced to restructure spiralling debt obligations.

The equity market rally since March threw a lifeline, and several real estate firms are again dusting off plans to raise public money.

‘Although many developers were able to defer repayments, high interest costs and requirement of funds for project execution are still a concern,’ said Sushanto Roy, chief executive at Sahara Prime City, which plans a US$650 million IPO this year.

A recovery in the property market has also been encouraging.

A series of interest rate cuts and pent-up demand from a large urban middle class have helped push up prices by about 30 per cent from last year’s lows in the first quarter.

Indian companies sold shares worth US$17.5 billion last year, mostly by property and power sector firms. IPOs made a comeback in July after an 18-month drought, with 21 companies raising a total of US$4.1 billion since then.

These numbers should be dwarfed this year, mainly by a government roadmap to raise funds through stake sales in state-run firms, as it strives to speed up reforms and cover a widening fiscal deficit in Asia’s third-largest economy.

So all eyes will be on the next property IPO, which could be DB Realty, which set a price for its US$325 million IPO, sources said this week.

Others in the likely line-up include a US$650 million IPO by Lodha Developers, an US$830 million offering by Emaar MGF, an Indian joint venture of Dubai’s Emaar Properties, and a US$650 million IPO by Sahara Prime City.

Investors, still scarred by the sub-prime crisis, remain cautious of investing in a property market that is beset with red-tape, land disputes and difficulty in valuations due to the huge quality difference among India’s developers.

‘If greed overtakes you and you price it very high, the IPO might fail,’ Pranay Vakil, chairman of property services firm Knight Frank India, told Reuters Insider.

Mr Vakil is adviser to several of the upcoming offers.

Source: Business Times, 28 Jan 2010

Sales of new apartments and existing homes in Beijing fell some 70 per cent in the first three weeks of January from a month earlier, the local Beijing News reported yesterday.

The newspaper cited real estate agents as saying that home buyers were taking a wait-and-see attitude as the government has moved to douse speculation in the property sector, fuelling expectations that prices will fall.

Prices of existing homes have already started to dip as buyers gain the upper hand, the report added.

Conditions in the Beijing property market are not necessarily indicative of those in other cities, but the fall in transaction volumes and prices suggests that the government’s measures to tame surging prices are beginning to gain some traction.

Along with trying to rein in bank lending, officials have also scrapped a tax policy that encouraged property buying and have discussed raising mortgage rates on acquisitions of second homes to discourage speculation.

Source: Business Times, 28 Jan 2010

The city’s rental rates are among the region’s most competitive

KUALA LUMPUR remains one of the region’s most competitive office locations and with over nine million square feet of new supply over the next three years, average rental rates are expected to hold steady, said a leading property group.

Rental rates of Grade A offices have rebounded to about RM7 (S$2.86) per sq ft after a 15 per cent drop for the greater part of last year. This was achieved despite the addition of 4.76 million sq feet of space from 14 new office buildings, said CB Richard Ellis Malaysia executive chairman Chris Boyd.

By the year’s end, vacancy rates had stabilised at 13 per cent because the bulk of new supply was non-speculative and substantially pre-let prior to completion.

CBRE Malaysia does not regard the additional planned supply as excessive, but a ‘tenant’s market is expected to prevail’ in the short term.

What would give the office segment a fillip is Kuala Lumpur getting back on the radar of international investors. According to Mr Boyd, this is already happening and was one of the driving forces behind the establishment of the local CBRE office — the latest affiliate of the CBRE group.

‘We have received more and more enquiries from international investors,’ Mr Boyd, who used to helm Regroup Associates, said, adding that Kuala Lumpur’s modern infrastructure, quality facilities and comparatively cheap rentals will help attract more investors.

The company expects broad-based demand from various sectors to pick up this year following last year’s liberalisation of foreign equity ownership rules, which did away with a tedious approval process – unless the transaction results in a dilution of bumiputra or government interests and the property costs RM20 million or more.

Although the RM3.5 billion worth from 28 major commercial transactions in the second half of last year mostly involved Malaysians, Mr Boyd is confident that further liberalising of the economy will pull in more local and foreign investments.

Malaysia’s leaders have hinted that the new economic model, which is to be announced next month, could substantially cut the restraints hindering the country’s competitiveness so that private investors would be encouraged to invest in the domestic economy rather than overseas.

The services sector would continue to receive greater emphasis as Malaysia has lost most of its competitive edge in manufacturing. Financial services were one beneficiary, with a number of international players awarded licences to operate in Malaysia. These include Goldman Sachs, the Industrial & Commercial Bank of China, Aberdeen, Nomura and BNP Paribas which are expected to set up offices this year, and drive demand for Grade A buildings.

Malaysia has not marketed its real estate as well as its regional competitors, observed CBRE Asia chairman William Shee. Other consultants had previously criticised a tendency to changes policies in mid- stream.

As at the end of last year, the average transaction price for Kuala Lumpur offices was 14 per cent lower at RM814 psf from RM950 a year ago. Office capital values are expected to remain range- bound at between RM800 and RM1,200 psf.

Partly as a result of state incentives, more green buildings are coming up, and Mr Boyd said these and ‘really high spec’ buildings could command rentals of RM8.50 to RM9 psf.

Kuala Lumpur currently has an estimated 29.9 million sq ft of Grade A office space.

Source: Business Times, 28 Jan 2010

Numbers point to softening of housing recovery

Sales of newly built US single-family homes fell unexpectedly in December, data showed yesterday, the latest indication that the government- led housing recovery might be losing some steam.

The Commerce Department said that sales fell 7.6 per cent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.

Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November’s previously reported 355,000 units.

New home sales for the whole of 2009 fell 22.9 per cent to a record low 374,000 units, the department said.

The housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.

It has since been expanded and extended until June this year. While analysts expected home sales to pick up as a result, they reckoned that the pace will not be as strong as witnessed with the initial tax credit.

The housing market was the main catalyst of the most painful downturn in 70 years, and renewed weakness could hobble the economic recovery.

Despite the slump in sales, there were a few bright spots in yesterday’s report. The median sale price for a new home rose 5.2 per cent last month from November to US$221,300, the highest in seven months and the biggest rise since April 2009. Compared to December 2008, the median sale price fell 3.6 per cent.

The number of new homes on the market last month dropped 1.7 per cent to 231,000 units, the lowest level since April 1971.

However, December’s weak sales pace left the supply of homes available for sale at 8.1 months’ worth, the highest since June 2009, from 7.6 months in November.

New home purchases, while accounting for less than 10 per cent of the market, are considered a leading indicator because they are based on contract signings.

Source: Business Times, 28 Jan 2010