SENTOSA COVE was like Treasure Island for developer Ho Bee, which surfed on the wave of demand for high-end property at the enclave to make a mint. Then the tide went out.

The financial crisis and the crash in prime real estate suddenly gave the exclusive seafront estate a forlorn air and Ho Bee the look of a firm that had overplayed its hand.

The developer dismissed such concerns back then and it continues to maintain that the enclave will be a winner.

Ho Bee got in early on Sentosa Island, bought aggressively and made piles of money selling the developed units.

But when the downturn hit, that close association with Sentosa meant it quickly fell out of favour with investors.

Ho Bee shares dived to a 52-week low of 27.5 cents each at one point in March last year, but shares have since climbed as high as $1.90 in January.

There seemed cause for concern. Ho Bee, with IOI Properties, bought The Pinnacle Collection, the last condo plot on Sentosa Cove for $1.097 billion or a whopping price of $1,822 per sq ft (psf) of potential gross floor area just before the crisis set in.

Ho Bee chairman and chief executive Chua Thian Poh told The Straits Times he remained confident of the prospects of Sentosa Cove properties throughout the crisis because they are scarce.

But the market and analysts did not share that view. By early last year, Sentosa Cove values had plunged and there was talk of defaults. An agent reportedly said the enclave had lost its appeal.

Data from Colliers International then showed that some non-landed Sentosa Cove properties were sold at an average of $1,318 psf, or 46 per cent below the average of $2,431 psf at the peak in early 2008.

There were also fears of deferred payment scheme (DPS) defaults. Ho Bee completed four projects last year – The Coast, Vertis, Quinterra, Orange Grove Residences – that exposed it to risks from DPS defaults.

‘At the beginning of last year, many people were looking at whether those who bought under the deferred payment scheme could fulfil their obligations to complete their purchases,’ said Mr Chua.

‘Our board was very cautious. We went through a lot of simulations on what was the worst scenario.

‘We talked about a 10 per cent default, 20 per cent default on DPS and even up to 50 per cent default. But we were still very comfortable with it.’

Concerns lingered for a while as consumers had trouble getting financing at one point, said Mr Chua. But the situation turned the corner sooner than expected and DPS concerns evaporated.

Ho Bee said it has had just one default for The Coast in Sentosa Cove and one for Orange Grove Residences.

‘We hope to have more people default so we can then take (the property) back and resell it straightaway at a higher price,’ said Mr Chua with a laugh.

‘Most developers should be quite comfortable during the last six to eight months of 2009.’

While the financial crisis has not flattened Ho Bee as some have feared, it has given it an opportunity to reflect.

‘You focus on… your next step. You have time to think,’ said Mr Chua.

Ho Bee started to explore overseas opportunities at the start of last year, a strategy it used before. It moved to London during the 1996 property peak here to avoid a property bubble that it was convinced would burst.

The bubble did burst and Ho Bee found that its British move was a godsend: Its main income until 2000 came from London.

Things are not that desperate now. Prices have risen. Take Ho Bee’s The Coast condo: Sub-sale deals went for as low as $1,195 psf early last year but has since bounced back to above $2,000 psf, though deals are few.

Its gamble on Sentosa Cove has paid off, although the market has changed much in the past five years, making life harder for developers.

‘Previously, when you bid for land, your margin may be low, but you still have a margin,’ said Mr Chua.

But developers are now bidding for land at forward prices, he said.

‘You look at the Singapore market. Almost every project is an ad hoc project as you can’t have a big land bank.’

Ho Bee had the first mover advantage in Sentosa Cove, ‘but when you build up the market, you have to compete with other developers for the land in Sentosa.

‘Now, you are getting more and more competition in the bidding of land… less margins and more competition… so our next push will be to venture overseas,’ said Mr Chua.

Over the next one to two years, Ho Bee hopes to deploy 30 to 40 per cent of its capital overseas, focusing on residential and mixed development projects.

China is under intense scrutiny. The company is in the midst of a study on jointly developing a residential project in Tangshan Nanhu Eco-City with Yanlord Land Group. It also just acquired a residential development site in Shanghai with the same partner.

‘In China, you can have a big land bank. Land cost is only about 20 per cent to 30 per cent of project cost,’ said Mr Chua. ‘In Singapore, it is about 50 per cent to 70 per cent, so you can’t afford a big land bank here.

‘Hopefully, China will become our Sentosa Cove in two to three years.’

Source: Straits Times, 20 Feb 2010

YOU could hear a pin drop in the private homes market at the start of last year. No hype, no launches, no buyers.

Just six months later, it seemed as if all hell had broken loose.

Demand went through the roof, showflats were back on centre stage, buyers were queueing around the block and developers couldn’t believe their luck.

The astonishing surge in interest – it was a recession, after all – sent sales rocketing to 14,725 units last year, just a tad below the 2007 record of 14,811 units.

Turnarounds don’t get much more dramatic than that, but the tumultuous year did more than just get once-fearful buyers rushing back to the market.

It also underlined the huge risks – and rewards – that lie in property development, while igniting an intense Darwinian selection process that sorted out the quick-witted and cashed-up from the slow and complacent.

Property cycles seem shorter nowadays, said property tycoon Kwek Leng Beng.

‘The world moves so fast, you have to adjust your thinking to the new circumstances,’ said the executive chairman of the Hong Leong Group.

Indeed, it was a make-it-up-as-you-go sort of year for developers.

They certainly had no help from conventional wisdom, which dictates that property cycles take about seven years from boom to bust. The Urban Redevelopment Authority’s price index for private homes shows that values were relatively stable from 2000 to the early part of 2007 before a dizzying three-year spell that took the market from boom to bust and back to boom.

In 2007, prices in the high-end sector were largely chased up by foreign demand. Some new prime condominiums sold for more than $4,000 per sq ft – an unprecedented level – but mass-market homes attracted little interest.

But it was the reverse last year, with the mass-market sector under siege as HDB upgraders rushed in, sending prices at some new condos to record levels in their area, while the high-end segment had yet to recover fully.

‘The fluctuations within a cycle are more pronounced these days,’ said the chief executive of the Real Estate Developers Association of Singapore (Redas), Dr Steven Choo.

A CALCULATED GAMBLE

TO MANY of us, property development still seems like a no-brainer: Buy a patch of land, erect posh condo blocks with all the trimmings, sell for vast profits to cashed-up foreigners or starry-eyed locals. How hard can it be?

Well, as last year showed, it can be pretty darn hard. What looks like a licence to print money turns out to be a multi-million-dollar high-wire act of timing, taste, instinct, pluck and luck, according to Dr Choo.

‘It is very challenging. It may seem very glamorous but when you get down to it, it’s actually very tough,’ he said.

‘It does take a lot of experience to stay profitable and ride through the cycles. You must come up with the right product mix, time it right and calculate it right.’

The process starts with the initial land purchase and that is also the most crucial factor: Over-pay, and you can struggle to ever make the deal work, given that the land price can comprise 50 to 70 per cent of total development cost.

Analysts have been warning that developers risk over-paying for land this year as they rush to replenish their land banks.

But even assuming that the plot has been secured at a favourable price, time lag is always an issue, say consultants.

Developers have to work quickly as holding costs – fees, interest charges, taxes and so on – are high.

And once a project gets the green light, there are initial costs for professionals such as consultants, engineers and architects before a labourer even lifts a shovel.

‘Once you buy land, you have to follow through a development timeline. If you buy government land, you have to complete construction within a certain period,’ said Knight Frank chairman Tan Tiong Cheng.

This period is now seven years, after it was extended by a year last year.

This is where timing is vital and when any number of uncertainties can upset even the best-laid plans.

The sale price factored in at the start of the project may not hold up nine months or so down the track when the launch is held.

Construction costs may continue to rise while selling prices fall, as was the case in mid-2008.

And sales figures may not be what developers had hoped for.

And if they cannot sell their units before demand slows, they will be stuck with unwanted flats – possibly for years.

Singapore’s largest private developer, Far East Organization, for instance, still has a few unsold units from Rafflesia in Bishan, which was completed in 2003.

‘From a cashflow point of view, you can sell everything out,’ said the firm’s executive director and chief operating officer of property sales, Mr Chia Boon Kuah.

‘But if you’re fully sold, you can’t participate in the cycle. You need inventory to do so.’

Developers in Singapore have been known to hold on to unsold units for more than a decade, but holding on to a 99-year leasehold mass-market project poses another risk as the tenure runs lower every year.

‘Once the remaining lease gets closer to 80 years, the price depreciation starts to be more apparent,’ said Cushman & Wakefield managing director Donald Han.

During the Asian financial crisis, developers who bought sites at a high in 1996 could not turn a profit as demand waned and prices weakened.

That was after the Government increased land supply for private homes in May 1996 to temper prices, as well as lowered loan-to-value limits to 80 per cent, said a UBS Investment Research report last month.

‘In some cases, developers held the land for up to three to eight years before launching the homes for sale,’ it said.

Of course, it is impossible for any developer to get the timing perfectly right. All sorts of external factors, such as the health of the global economy, can affect property cycles.

When the property market heads south, what developers need are deep pockets.

‘There was nothing much one could do when the market was down. Those developers that did not have holding power undercut to sell,’ said Mr Kwek.

‘Those with financial clout could decide to hold instead because they knew the market was going to return and could wait for it.’

That is one thing that separates the big boys from the tiddlers, who often have limited capital and a hard time convincing nervous bankers to lend to them.

‘If you don’t have deep pockets, and you make a wrong development decision, you can keel over very quickly,’ said an industry observer who declined to be named.

In April 2008, small developer Bravo Building Construction pulled out of three collective sale deals when the market turned sour. The biggest of the deals was the mega $516 million Tulip Garden in Holland Road, which it bought in mid-2007 and for which it had to forfeit its $25.8 million deposit.

That is why alarm bells rang over some smaller listed players, such as SC Global and Ho Bee, around a year ago.

Analysts feared they had borrowed too much to buy land in prime areas where prices were falling fast. The concern was that these smaller firms could go under as they were stuck with the high cost of servicing their bank loans, and unable to launch or shift new high-end units.

Their stock was punished. SC Global shares lost more than 90 per cent of their value, falling from a high of $3.37 in 2007 to just 29.5 cents in March last year. They have since recovered to about $2, thanks to the market turnaround.

The banks got worried too. They started scrutinising the books of developers they had lent to, and looked at their collective loan position.

Credo Real Estate managing director Karamjit Singh said: ‘Because of the banks’ lack of confidence, it became very difficult for land transactions to take place. If anyone could buy land, he would need a lot of cash to cover the bulk of the purchase price. Basically, banks were not prepared to lend.’

To make things worse, developers faced the risk of previous sales coming undone.

The two great fears, said an industry observer, were the possibility of foreigners bailing out of Singapore, and large numbers of defaults from buyers who used the deferred payment scheme.

The scheme allowed buyers to defer paying the bulk of their purchase price until completion of the project.

‘Banks were worried. Everybody was sweating,’ said a property expert who declined to be named.

Many analysts were predicting fire sales and different degrees of defaults, as banks had turned very cautious on lending. Developers held their breath.

Fortunately, the large defaults that many had anticipated did not materialise, though there were some who lost out on their bets.

In February last year, a small developer, Jewel 1, backed out of a planned $44 million en bloc purchase of Cairnhill Heights at the 11th hour. It had bought the site during the collective sale frenzy in 2007, subject to government approval.

Two months later, a China investor made the news for failing to pay $30 million for 20 units at The Fernhill condo when the project obtained its temporary occupation permit. The investor later managed to resell 19 units, albeit at a loss.

Keppel Land also had to grant a six-month payment extension to a buyer who bought 51 units at its The Suites @ Central project.

MOVING FAST

LUCKILY, the global recession – while deep – did not last very long.

Just six months after the financial meltdown, the local property market stirred back to life together with a global rally in stock markets.

The suddenness and improbability of the turnaround caught everyone by surprise.

The pace at which things changed brought home to developers the need to be fast on their feet if they wanted to avoid being caught napping.

Being nimble, and being able to change tack to meet changed conditions, can make the difference between laughing all the way to the bank and crying into your beer.

ECG Property Group chief executive Eric Cheng told The Straits Times: ‘You can’t control the market but you can get a feel of it. So when the market is right, you must get your showflat and permits ready to launch as quickly as possible.’

Developers showed fast footwork last year when they quickly came up with small units to satisfy buyers shy about plonking down large amounts of cash amid a slumping economy and languishing stock market.

EL Development managing director Lim Yew Soon said his company was fortunate to have reacted fast by switching to small units for Illuminaire, when it had originally planned to ride out the year. If the firm had stuck to Plan A, it would not have been able to sell out the project at the price it achieved by switching to small units.

Some smaller developers slashed prices by up to half to move units and generate cashflow, while others offered sweeteners such as stamp duty waivers.

Far East Organization said it cut prices across the board after Lehman Brothers collapsed in September 2008. Prices of mid-end projects went down by 10 to 23 per cent.

But it quickly raised prices when it saw that demand was more resilient and pushed out several projects in the second half, said Far East Organization’s Mr Chia. In the end, the company had a record year.

The financial crisis was unlike anything that had hit the industry before and was more unforgiving on smaller players than big guns like Far East Organization.

‘If the worst-case scenario materialised – that is, the economy had shrunk 10 per cent – many businesses which had expanded during the previous three to four years would have failed,’ said CIMB-GK regional economist Song Seng Wun.

‘Many developers, especially the newer players which jumped into the fray in the high-end sector, or the highly leveraged ones, would have been under severe pressure. They may even have failed.’

The crisis was a sobering event for developers, coming right after the euphoria of 2007.

‘Every cycle will be an eye-opener for the smaller boys. They typically do not have strong holding power like the big boys do,’ said Cushman & Wakefield’s Mr Han.

Yet despite the victims and the bloodletting that occurs in every cycle, the lure of bricks and mortar and the profit they can bring soon work their magic again.

But as ECG’s Mr Cheng cautioned, it’s not a game for learners: ‘Developers must have the courage to buy land when others are not buying, and sell when you feel the market is right. And that’s when experience comes in.

‘Property development is not easy.’

Source: Straits Times, 20 Feb 2010

It is tipped to be 2% to 3% this year after change in weightings

THE outlook for inflation this year has been lowered slightly, but mainly because the pricing measure will now be calculated in a different way.

The measure – called the consumer price index (CPI) – assesses changes in the prices of a basket of goods and services commonly bought by the majority of households.

It is rebased every five years to reflect the latest consumption patterns.

This process has resulted in some minor re-weightings for food and other items, but the key change has been to give greater weighting to housing costs.

These costs include utility fees, furniture and housing rents. This category will now comprise 25per cent of the CPI, up four percentage points on the 2004-based system of calculation.

The Department of Statistics (DOS) said yesterday that the change was mainly due to higher expenditure on both rented and owner-occupied housing.

It will also switch to using monthly data on rents to make the CPI more sensitive to cost changes in the housing market. Previously, it used annual value – the estimated annual rent a property could fetch.

This means that changes in housing costs will be reflected in a more ‘timely manner’, said the DOS.

For instance, under the 2009-based CPI, housing costs rose by 1.7per cent last year. But under the older methodology, a 0.3per cent decline would have been recorded as any rise in housing values last year would have been reflected only in 2010′s CPI, when the annual values were changed.

With these changes factored in, inflation is now tipped to come in at between 2 per cent and 3per cent, down from the 2.5 per cent to 3.5per cent previously estimated, said the Ministry of Trade and Industry yesterday.

The Straits Times understands that it was mainly the move to using monthly rentals as a price indicator for owner-occupied housing costs that lowered the inflation forecast.

Other areas of the CPI calculation have also been altered slightly. The share of food has fallen by a single percentage point from the 2004-based CPI, to 22per cent.

Within this category, the weighting for ‘non-prepared meals’ dropped, while that of ‘prepared meals’ rose, signalling a growing expenditure on restaurant food.

Weightings for transport, and ‘recreation and others’ – including expenditure on holidays and government levy on domestic maids – each fell by one percentage point.

The share of education and stationery fell by a similar margin.

Households have increased expenditure on specialised medical treatment, dental services, pharmaceutical products and medical insurance premiums, prompting the health-care share to rise from 5 per cent to 6per cent.

The new 2009-based CPI will cover 6,500 brands and varieties, up from 5,170 in the 2004 composition.

Under the newly weighted CPI, the inflation rate for general households last year was revised to 0.6per cent, north of 0.2per cent under the 2004-based CPI.

Source: Straits Times, 20 Feb 2010

A STRONGER than expected global economic recovery means Singapore’s economy is likely to grow significantly more this year than earlier predicted.

The Ministry of Trade and Industry (MTI) yesterday hiked its growth forecast for this year to between 4.5 per cent and 6.5 per cent – up from 3 per cent to 5 per cent.

This makes it more in line with what private sector economists are predicting.

The revision comes after the economy proved more resilient than expected in last year’s recession. It shrank by only 2 per cent, less than the 2.1 per cent contraction earlier estimated and the 2.4 per cent decline in the 2001 recession.

But while the outlook has improved considerably for the first six months of this year, risks still remain in the second half, MTI Permanent Secretary Ravi Menon said yesterday.

This ‘tale of two halves’ means that Singapore’s economy will perform strongly until the middle of the year, followed by some pullback in the latter half.

‘The green shoots of recovery that we saw six months ago have grown stronger and taller and taken deeper root, and will deliver a fairly strong first half for 2010,’ Mr Menon told reporters.

These encouraging factors include a jump in world trade flows and a surprisingly strong improvement in the American economy. It also helps that Asia is experiencing a robust recovery led by China, which is expected to grow at least 9 per cent this year, giving a helping hand to its neighbours along the way.

Singapore’s exports, for example, are forecast to grow by 10 per cent to 12 per cent this year after shrinking 10.6 per cent last year, said MTI yesterday.

Several industries in Singapore will also benefit from rebounding global demand, including manufacturing, trade-related sectors, electronics, biomedicals, chemicals and tourism, Mr Menon said.

But going into the second half of the year, ‘clouds remain on the horizon, and they will cast a shadow over the outlook for the year’, he added.

Risks include demand from US consumers and firms faltering and financial market weaknesses emerging once government stimulus wears off later this year.

Asset price inflation in China and other Asian countries is also a potential problem, as is the rising risk that European nations such as Greece and Spain might default on debt, said Mr Menon.

OCBC economist Selena Ling said the performance of the economy in the second half of the year will be more telling as to the sustainability of this recovery.

‘We cannot ignore that the strong first-half growth numbers that lie ahead will be mostly attributable to the low base last year as well as very accommodative fiscal and monetary policy settings.’

Many of the growth drivers for Singapore’s economy this year still depend heavily on the worldwide economic recovery, said Standard Chartered economist Alvin Liew.

But while some volatility is to be expected on the way up, he believes Singapore will recover from the financial crisis with growth of 5.1 per cent this year.

Citigroup economist Kit Wei Zheng, who is anticipating 6.5 per cent growth this year, said the Government’s raised forecast was no surprise as its previous tip was ‘conservative’ given the recovery’s strong momentum.

The economy performed better in the fourth quarter of last year than earlier thought, MTI said yesterday. It expanded by 4 per cent compared to a year earlier, higher than the 3.5 per cent estimate.

This stemmed from a last-minute surge in December in the manufacturing and services sectors, which together make up the bulk of the economy.

For the whole year, inflation is expected to come in at 2 per cent to 3 per cent, a shade lower than the previous forecast of 2.5 per cent to 3.5 per cent. This is due to a change in the way inflation is calculated.

As for how Singapore’s monetary policy will be adjusted in light of the stronger recovery and returning inflation, Monetary Authority of Singapore (MAS) deputy managing director Ong Chong Tee remained tight-lipped yesterday, saying only that the current stance is appropriate.

This has left economists divided over whether the Singapore dollar, now in a zero appreciation zone, will resume its previous path of gradual appreciation in April or in October: when MAS issues its monetary policy statements.

Source: Straits Times, 20 Feb 2010

The Government has introduced two new measures that will take effect Saturday to temper sentiments and pre-empt a property bubble from forming in the private residential market.

It said they will help to ensure a stable and sustainable property market.

The first is a Seller’s Stamp Duty on all residential properties and residential lands that are bought after Friday and sold within one year from the date of purchase. The stamp duty will be applied at the standard ad valorem stamp duty rates for the conveyance, assignment or transfer of property.

Housing and Development Board (HDB) flats will not be subjected to the stamp duty as they are already subject to a minimum occupation period of at least one year.

The Ministry of National Development (MND) said the objective of this new tax measure is to discourage short-term speculative activity that could distort underlying prices. It stressed that it is not targeted at the purchase of properties for owner occupation or longer term investment.

The housing loan limit will also be capped at 80 per cent of the private property’s value, instead of the current 90 per cent.

The 80 per cent Loan-To-Value limit will apply to all housing loans granted by financial institutions for private residential properties, Executive Condominiums, HUDC flats and HDB flats, including those under the Design, Build and Sell Scheme.

Loans granted by the HDB for flats – including those under the Design, Build and Sell Scheme – will still have a cap of 90 per cent.

MND said this is because HDB flats are already subject to other criteria to prevent speculation and encourage financial prudence, such as minimum owner occupation period and restriction on ownership to one flat per household.

Explaining the rationale for the measures, MND said there is a risk that the market could overheat in the next few months, given the optimism fuelled by the economic recovery and low global interest rates.

However, it noted that the current level of speculative activity is still lower than what it was at the height of the property market boom. Overall price levels are below the previous peak.

MND warned that any excessive exuberance will make the property market vulnerable to the continuing risks in the global economy.

The Government described the new measures as “calibrated”, saying it prefers to take small steps early, rather than be forced to impose more drastic measures after a bubble has formed.

It will continue to ensure that there is adequate supply of housing to meet demand. Sites that can yield 10,550 private housing units have already made available in the Confirmed and Reserve List of the Government Land Sales (GLS) Programme in the first half of 2010.

This is the highest supply quantum in the history of the GLS Programme.

Source: Channel News Asia,– 19 Feb 2010