Move may drive speculators to target lower end of property market

Hong Kong raised taxes on luxury homes for the first time in more than a decade, a move some analysts said may backfire by fuelling speculation in the cheaper housing market.

Stamp duty on sales of more than HK$20 million (S$3.6 million) will rise to 4.25 per cent from 3.75 per cent from April 1, Financial Secretary John Tsang said yesterday in his Budget speech, citing the increased risk of a property bubble.

For people buying their own homes ‘there might be some impact, but it shouldn’t be that big,’ said Buggle Lau, chief property analyst at realty company Midland Holdings Ltd. ‘For speculators, the cost of speculation increases, so they may shift their target to the lower end of the property market.’

The lowest mortgage rates in at least two decades and an influx of overseas capital equivalent to more than a third of Hong Kong’s annual gross domestic product helped fuel a 29 per cent gain in property prices last year.

The government is concerned at the risk to the economy should interest rates rise and will move to limit speculation if it spreads, Mr Tsang said.

‘If there’s a reappearance of speculation, we will act quickly with measures to cool down the market,’ Mr Tsang told reporters yesterday. While ‘it’s easy for the government to roll out some measures pushing home prices down, it’s difficult to push them back up. We won’t act recklessly.’

The new transaction tax on luxury homes, the first increase since 1999, will only affect about 2 per cent of the property market. Of 110,000 Hong Kong residential sales in 2009, about 2,000 sold for more than HK$20 million, according to Midland.

‘It will have a 0.01 per cent impact because they raised the stamp duty by half a percent on properties accounting for 2 per cent of the total market,’ said Nicole Wong, a Hong Kong- based real estate analyst at CLSA Asia-Pacific Markets, the regional brokerage unit of Credit Agricole SA. ‘What they announced today is only paying lip service. It will have almost no impact because there is no sign of determination.’

Mr Tsang said the government will also seek to address the supply of land for development by putting more residential sites up for auction.

The change in auction policy could also have an unintended effect as prices ‘in bull markets become signposts’, said Ms Wong. ‘More auctions more frequently could even fuel the property market further.’

In Hong Kong, the primary source of land available to property developers is through government auctions. The operator of the city’s Mass Transit Railway, the MTR Corp, and the Urban Renewal Authority also put sites up for tender.

Under the current system for government auctions, developers must indicate interest in a site on a government list. Once a ‘trigger price’ has been met, the land is auctioned. Mr Tsang said the government would now put sites up for sale at its own discretion.

He said the government will also ensure an increase in the supply of small and medium-sized flats by imposing conditions of future land sales. The government held the first land auction of 2010 on Feb 22.

‘Overall the government wants to increase the land supply,’ said Midland’s Mr Lau, who noted there were only two auctions last year. ‘In the past the land bank replenishment pace has not been very fast.’

Luxury property prices, for which there is no official index, may have risen as much as 40 per cent last year, Ms Wong said. Buyers of luxury homes were undeterred by an October increase in downpayment requirements from 30 per cent to 40 per cent.

Since the fourth quarter of 2008, HK$640 billion of capital had flowed into Hong Kong’s HK$215 billion economy, Mr Tsang said.

Sun Hung Kai Properties Ltd, the world’s biggest developer by market value, reported selling 900 homes in the suburban Yuen Long area for HK$4.2 billion on Feb 20 and 21, or an average of HK$5,400 per square foot. That compared with HK$3,000 in the same area a year ago, Centaline Property Agency Ltd said.

‘The increased risk of a bubble forming in the property market has also aroused public concern about the difficulty in buying homes,’ Mr Tsang said.

Shares of real estate developers gained after the speech, with Sun Hung Kai adding 1.5 per cent to HK$107.20 at the close of trading and Sino Land Co. up 1 per cent at HK$13.92. The Hang Seng Property Index was the only one of the four industry groups on the benchmark gauge to rise.

The stocks gained because ‘there is nothing too radical on property’ in the Budget, said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd.

Source: Business Times, 25 Feb 2010

Stamp duty on luxury property sales raised in Budget; supply of flats to increase

Hong Kong’s government yesterday raised the stamp duty on luxury property sales and warned that more such measures could follow – the clearest sign yet that officials there fear the consequences of a bubble forming, and then bursting, in the territory’s private- home market.

The transaction tax on properties worth more than HK$20 million (S$3.63 million) will be increased to 4.25 per cent on April 1, from 3.75 per cent now, Financial Secretary John Tsang said in his Budget speech yesterday. In addition, buyers will no longer be allowed to defer payment of stamp duty on such transactions.

The government may also raise the transaction tax on properties valued at HK$20 million or less, ‘if there is excessive speculation in the trading of these properties’, Mr Tsang warned.

An inflow of over HK$640 billion of funds into Hong Kong since the fourth quarter of 2008 has increased the risk of creating asset-price bubbles, he said. ‘We are also concerned that if capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy.’

The large inflow of capital has also pushed up the prices of luxury flats, as well as smaller apartments, he said. Overall, property prices are 8 per cent above their peaks before the recent financial crisis; some luxury-flat prices have even returned to their peaks reached during the 1997 property boom, he added.

The rise in property prices has picked up again after slowing slightly in the fourth quarter of last year, and turnover has also increased, Mr Tsang said. He added that he was ‘particularly concerned’ that some people would be unable to meet their mortgage payments if interest rates rise from their current, unusually low, levels.

The government will also work to increase the supply of affordable flats, and will put up several urban residential land sites for sale by auction or tender in the next two years, if the sites have not been triggered by an application by a private developer, Mr Tsang said.

‘The measures are quite similar to those introduced recently by Singapore to rein in excessive exuberance in the residential property market,’ said Leonard Ong, executive director at KPMG Tax Services here. ‘The Hong Kong government is clearly concerned with the risk of a property bubble forming.’

Tracy Ho, tax partner at Ernst & Young in Hong Kong, said that the moves to cool the property market were not surprising, given the sky-high prices seen in a number of property transactions in recent months. ‘I wouldn’t call it unbelievable, but you wouldn’t think some of this would happen after the financial tsunami.’

The aim of raising the stamp duty ‘is really to increase the transaction costs for speculators, to cut down the speculative atmosphere’, she added.

Last October, the Hong Kong Monetary Authority reduced the loan-to-value limit on housing loans for properties worth HK$20 million or more to 60 per cent, from 70 per cent, and capped the maximum loan amount for cheaper properties at HK$12 million.

In Singapore, the government also introduced various measures late last year to curb speculation in the property market.

Last Friday, it announced a seller’s stamp duty to be levied on those who buy a residential property and sell it within a year, and lowered the loan-to-value limit on housing loans to 80 per cent, from 90 per cent.

Yesterday, Mr Tsang said he expects the Hong Kong economy to expand 4-5 per cent this year, after shrinking 2.7 per cent last year.

He also introduced several proposals to promote a ‘green economy’, including a HK$300 million fund to spur the transport industry to test energy-saving and low-carbon-emission transport technologies; a HK$540 million subsidy scheme to encourage the replacement of older, more polluting diesel commercial vehicles; and tax incentives to promote the use of environment-friendly commercial vehicles.

Source: Business Times, 25 Feb 2010

CONSTRUCTION and property group United Engineers yesterday reported a net profit of $52.2 million for 2009, a significant jump from $6.0 million in 2008.

The company’s revenue rose 13 per cent to $703.7 million in 2009, from $624.6 million in 2008, mainly due to the progressive recognition of revenue from residential development projects The Rochester in one-north and Park Central @ AMK in Ang Mo Kio, as well as an engineering project for the Marina Bay Sands integrated resort.

Gross profit rose 12 per cent to $162.0 million in 2009 as revenue increased.

The bottom line was also boosted by a $6 million increase in ‘other income’ to $10.6 million, mainly due to fair value gains from the group’s short-term investments. It also recognised a surplus of $745,000 on the revaluation of investment properties, compared with a deficit of $570,000 in 2008.

Earnings per share was 22.1 cents compared with 2.7 cents in 2008.

But the main boost for the net profit came from a $32.7 million fall in ‘other expenses’ to $17.7 million mainly due to 2008’s provisions for the Fusionopolis project, a $9.3 million impairment charge on available-for-sale investments and $6.9 million fair value losses on short-term investments.

The group had cash and cash equivalents of some $308 million as at end-December 2009.

United Engineers said that it will continue to execute several large-scale building and infrastructure projects over the next 12 months.

But while existing projects will keep the company busy, it ‘will face stiffer competition in replenishing its order books due to the challenging environment brought about by the economic slowdown in Singapore and the countries it operates in’, United Engineers said.

The company’s stock gained 4 cents, or 2.1 per cent, to close at $1.99 yesterday.

Source: Business Times, 25 Feb 2010

I REFER to Mr David Goh’s letter on Tuesday (‘They don’t go far enough in curbing excess’) about the new measures to curb property speculation. While the causes of the property price spike mentioned are valid, the proposed solutions may not be in Singapore’s best interests.

Raising the interbank interest rate too quickly could put the Singapore economy out of sync with the rest of the world. Our competitiveness may be hampered.

In addition, it must be noted that raising interbank interest rates has widespread ramifications. It should be undertaken only if it is deemed beneficial for the economy at large, and not just to curb speculation in a specific market.

There were also suggestions to ban collective sales of properties that are less than 30 years old, and requiring developers to redevelop en bloc properties within three years of acquisition. These measures would be detrimental to the free market principles that Singapore has thrived on.

I agree that the authorities should intervene in the property market as justified by the exuberance shown.

However, the two proposed solutions seem like an attempt to micro-manage the industry, which could hurt our free-market, business-friendly image.

Business activities, including property development, and prices should largely be established by free market participants.

The Government should not be deciding optimal property prices or which properties to acquire and when to develop them. Its role is to act in a counter-cyclical manner in terms of broad policy direction, so as to guide the market away from extreme booms and busts.

The latest steps by the Government seem moderate and considered. If the property market heats up further, an escalation of macro measures can be introduced subsequently. Drastic measures must be avoided as they can plunge the market into disarray.

Loke Hon Yiong

Source: Straits Times, 25 Feb 2010

MINORITY owners have had a key victory in yet another court fight over the failed $500 million Horizon Towers en-bloc deal.

An assistant registrar in the High Court yesterday threw out a bid by two former members of the sales committee to halt an action against them by the owners.

The three sets of minority owners are suing the two – ex-committee chairman Arjun Samtani and ex-member Tan Kah Gee – over costs incurred when they tried to block the collective sale.

They want to be reimbursed for more than $800,000 in costs. This includes the cost of hiring lawyers to advise them and other administrative costs.

The sum is expected to be partially offset when the costs awarded to the owners by the Court of Appeal last year, after the en-bloc deal was quashed, are assessed.

The owners argue that both committee members were ‘key players in the process leading up to the commencement, facilitation, management and finalisation of the collective sale process’, according to court documents.

Lawyers for the committee members countered that the minority owners’ suit should be struck off as the action was ’scandalous, frivolous (and) vexatious’. They also pointed out that the Court of Appeal awarded costs last April in a case that dealt with all outstanding issues of reimbursement.

But the minority owners argued that the new case is different from the one settled last year.

In that case last year, costs were awarded for the minority owners’ conduct in opposing the proposed sale by the consenting majority owners.

The present action is different as it is based on what they claim is the lack of good faith in the collective sale deal struck by Mr Arjun and Mr Tan as members of the sales committee.

They allege that this ‘lack of good faith’ resulted in minority owners having to put in a great deal of effort and spend a lot of money to oppose the sale.

In effect, they claim there was a breach of fiduciary duties and they want to be compensated for the costs from the resulting damages.

Mr Kannan Ramesh, who is acting for the owners, said in his submissions: ‘The causes of action in both cases are appreciably different.’

At a closed-door hearing yesterday, assistant registrar Leong Weng Tat ruled in a reserved judgement that the suit by the minority owners should proceed.

Mr Arjun and Mr Tan, represented by Mr N. Sreenivasan and senior counsel Tan Cheng Han respectively, can appeal to the High Court against the decision, otherwise the case will advance to a full hearing. Lawyers say either way, the case may eventually go to the Court of Appeal.

The Horizon Towers collective sale spanned more than two years and involved two Strata Titles Board hearings and two High Court hearings before being thrown out by the Court of Appeal last year.

Source: Straits Times, 25 Feb 2010

SINGAPORE’S second integrated resort, the Marina Bay Sands (MBS), will open on April 27.

Like its counterpart on Sentosa, MBS will open in phases, with the casino, some hotel rooms, restaurants, part of the shopping mall and convention centre opening first.

Unlike Resorts World Sentosa (RWS), however, MBS has detailed when its various attractions will open.

In a statement yesterday, the resort said its first major event, a meeting of lawyers worldwide for the Inter-Pacific Bar Association’s 20th annual conference, will be held on May 2 to 5, just days after it opens.

It added that a grand opening ceremony has been planned for June 23, when the Skypark and several other attractions will begin to accept visitors.

Other areas of the resort, such as its theatres and museums, will throw open their doors progressively till the end of the year.

However, MBS added a caveat to its statement: The timeline could change if there are construction delays, for example. Getting regulatory approval is another factor, it added.

Casino Regulatory Authority spokesman Vivian Heng said it received MBS’ casino licence application in November last year, and the clearing process is under way.

Yesterday’s announcement comes after three years of work, including several delays. MBS was originally slated to open last December, but construction woes – the resort said it suffered a shortage of sand and other materials – led to the opening date being pushed back twice.

At one stage, there were even questions about whether MBS’ parent company, Las Vegas Sands (LVS), could complete the US$5.5 billion (S$7.7 billion) project, given the battering it took during the global financial crisis.

At its low point, there were fears that the company could go belly-up because of its debts. Several analysts questioned then whether LVS was using the delays to paper over its financial woes.

But Mr Sheldon Adelson, chairman and chief executive officer of LVS, stressed several times that MBS was ‘probably the company’s most important project’.

Yesterday, Mr Adelson said: ‘Despite the challenging, and at times unprecedented economic conditions companies like ours recently faced, our dedication to completing this development never wavered, not even for a second.’

Analysts and industry experts contacted yesterday welcomed the announcement of an opening date, saying MBS would add a different dimension to Singapore.

They agreed that while the two integrated resorts (IRs) will help Singapore become more attractive to tourists, give a boost to the economy and create a wealth of jobs, MBS will add extra wattage to the cityscape by injecting a dose of glitz, glamour and culture.

Singapore hopes to attract 17 million visitors, who will spend $30 billion, to the country by 2015. The two IRs are also expected to add some $5.4 billion to the economy yearly, and create at least 20,000 jobs.

CIMB-GK regional economist Song Seng Wun said that while RWS will draw leisure travellers and families – an important segment of the tourism market, no doubt – the Marina Bay IR will pull in movers and shakers with fatter wallets and influence worldwide.

MBS will also add to Singapore’s nightlife and cultural scene too, with such world-class shows as The Lion King, said National Association of Travel Agents Singapore chief executive Robert Khoo.

But analysts were quick to point out that both sides have their own strengths, and will do a good job of appealing to their own market segments.

One group that had an opposite reaction was travel agents, who feel RWS, not Marina Bay, will be the game-changer for them, since their business covers mainly leisure travellers.

But convention organisers were rubbing their hands with glee.

Mr Edward Liu, president of the Singapore Association of Convention and Exhibition Organisers and Suppliers, said MBS’ opening is something that the local meetings, incentives, conventions and exhibitions (Mice) industry has been looking forward to with great anticipation.

Its location and the number of attractions under one roof mimic the Las Vegas business model, a proven winner, he said.

He has already booked two mega- events at the IR.

Shares of Genting Singapore, which owns RWS, ended 1.5 cents lower at 94 cents yesterday after the announcement.

LVS shares opened slightly higher in early trading on the New York Stock Exchange, despite a recent trend of pressure on Las Vegas casino operators due to fears of falling room rates and worries over MGM Mirage’s newly opened US$8.5 billion, 6,000-room CityCenter project.

What’s coming up this year
April 27: Phase One opening with 963 hotel rooms, part of shopping mall and convention centre, three of six celebrity-chef restaurants and other dining outlets and the casino
May 2 to 5: Hosting of its first event, the Inter-Pacific Bar Association 20th Annual Conference
June 23: Phase Two opening with the sky garden – Sands SkyPark – its event plaza in front of Marina Bay, the rest of the retail mall, more dining outlets and nightlife offerings. Grand opening celebration is also scheduled.
October: Disney’s The Lion King to open at one of its two theatres
Later in the year: Second theatre to host a variety of special events; headline acts to open
December: Marina Bay Sands museum to open

Source: Straits Times, 25 Feb 2010

High Court dismisses striking out action by 2 former sales committee members

The latest legal tussle involving Horizon Towers looks set to go into full swing, with the High Court having dismissed the action by the two defendants to strike out the lawsuits filed against them.

This means the court will hear the claims brought by three sets of minority owners against the two former sales committee members – unless the defendants succeed in appealing against yesterday’s decision.

BT understands that the first defendant – former sales committee chairman, Arjun Samtani – will appeal the High Court decision, while the second defendant, Tan Kah Gee, is still deliberating if he should appeal.

The High Court yesterday also ordered both Mr Samtani and Mr Tan to jointly bear the costs of the striking-out application and the court hearing – amounting to a total of $6,000.

The minority owners are suing the two former sales committee members to reclaim close to $1 million in legal and administrative costs which they say they incurred during the lengthy fight to keep their homes.

The en bloc sale of Horizon Towers was a saga that dragged out for more than two years, and involved several High Court and Strata Titles Board hearings. The Court of Appeal eventually decided in April last year that the deal could not go through because the development’s sales committee had failed in its duty.

The Court of Appeal had ordered the bulk of costs to be borne by the development’s potential buyer, Hotel Properties Ltd (HPL), and its majority owners.

But three sets of minority owners, represented by Kannan Ramesh of Tan Kok Quan Partnership, are now seeking compensation for the sums not covered by the Court of Appeal judgment. The three sets of owners are seeking between $117,000 and $370,000 in costs – making for a total claim of more than $800,000.

The minorities say they were made to defend their homes against an en bloc process actuated by a lack of good faith on the part of the sales committee, and had to spend much for their effort.

They said Mr Samtani and Mr Tan were ‘key players in the process leading up to the commencement, facilitation, management and finalisation of the collective sale process’.

In his defence, Mr Samtani – represented by N Sreenivasan of Straits Law Practice — said he was not alone in driving the sale process. He said ‘each and every member of the SC (sales committee) played an equally important role’ and that he ‘did not have any special powers’ that could influence the committee’s decisions.

Mr Samtani also claimed that the committee ‘followed up on all expressions of offer’ for Horizon Towers and that it received no offer better than HPL’s at the relevant time. He said the committee was advised by its lawyers to proceed with the HPL offer.

Mr Tan, represented by Senior Counsel Tan Cheng Han and Ian Lim of TSMP Law Corporation, said he was ‘not a key player’ and cited various correspondence and minutes of sales committee meetings which he said showed that he did not play a major role in the various aspects of the collective sale.

Mr Tan also said that the sales committee did not seriously consider an alternative offer made at the time by a Vineyard Holdings, as it had ‘questioned the credibility of the expression of interest from Vineyard and their level of seriousness given that Vineyard was a Hong Kong company that was not well known and its lawyers were not from a Singaporean firm, but from a small Malaysian law firm’.

He claims he suggested waiting for a higher offer, but that the majority of the sales committee did not agree. He said the sales committee genuinely felt they would not get a better offer than the one by HPL, and that they had been advised by their lawyers to accept the offer.

Mr Tan had also sought to strike out the minorities’ suits against him and Mr Samtani, saying that the entire remedy sought by the minorities was already dealt with by the Court of Appeal last April, when it decided on how it would award costs to the various parties. But the High Court chose to dismiss this application yesterday.

The defendants have 14 days to submit their appeal.

Source: Business Times, 25 Feb 2010

Weekend sales of about 45 units at Waterscape at Cavenagh and over a dozen units at L’VIV

THE buzz in private home sales appears to be continuing even after last Friday evening’s government announcement of new measures to cool the property market.

About 45 units at Hiap Hoe’s Waterscape at Cavenagh are said to have been sold since Saturday – the bulk of them one bedders although some two and three-bedroom units were also sold. Hiap Hoe is understood to have offloaded 61 units so far in the 200-unit project, which will be officially launched soon. The majority of buyers are understood to be Singaporeans; foreigners made up about 15-20 per cent of purchasers.

The freehold project is five to seven storeys high. The average price achieved is understood to be about $1,873 per square foot, with prices ranging from $1,738 to $2,010 psf. The lowest-priced unit sold was a one-bedder of 581 square feet on the second level that fetched $1.03 million or $1,778 psf.

Wing Tai is also understood to have sold slightly more than a dozen units over the weekend at L’VIV at Newton Road. This takes total sales to about 35 units.

The 147-unit freehold project comprises almost entirely of one and two-bedroom units (both with study). The average price is said to be about $2,000 psf and buyers have to purchase on the old deferred payment scheme (DPS). They pay 20 per cent of the purchase price initially with the rest deferred till the 32-storey project receives Temporary Occupation Permit, which is expected around 2013.

Developers that had obtained approval from the authorities to sell projects on DPS prior to the scheme being scrapped in October 2007 are still allowed to offer DPS.

Last Friday, just hours before the government’s announcement, a joint venture between Sing Holdings and Forum Partners is said to have sold more than 40 units at The Laurels on Cairnhill Road, which is being developed on the former Hillcourt Apartments site.

The units were sold at a one-day private preview held for former owners of Hillcourt Apartments as well as the developers’ staff and business associates. Those who turned up for the preview were quoted a price range of $2,500 to $2,900 psf, although a one-bedder on the 18th floor is said to have sold at just a shade below $3,000 psf. In absolute quantum, the highest-priced unit transacted was a penthouse with four bedrooms and a garden that fetched almost $9.9 million or about $2,040 psf, BT understands.

The buyers were mostly Singaporeans, although some Indonesians who had formerly lived in Hillcourt are also said to have bought. The Laurels will be next previewed in a fortnight, on March 13.

The project is near Capitaland’s Urban Suites, where 88 units were sold last month at prices ranging from $2,213 psf to $2,921 psf.

The landed housing market also continues to teem with activity. RealStar Premier Property Consultant managing director William Wong says that his firm has brokered or co-brokered four bungalow deals in the past few days. These include a two-and-a-half-storey property at Berrima Road off Dunearn Road that sold for $8.75 million or $1,944 psf, based on its land area of about 4,500 sq ft. The bungalow was completed a few months ago.

At Kheam Hock Road nearby, a brand new bungalow sold for $8.5 million or $1,577 psf. The other two transactions were at Namly Grove ($10.8 million or $1,125 psf) and Coronation Road West ($10.4 million or $906 psf).

Mr Wong does not expect the measures announced by the government last Friday – which include a seller’s stamp duty for those who sell a residential property within a year of purchase – to affect landed property buyers. Those who buy bungalows often renovate them and this could take six months to a year; so they’re unlikely to have been planning to resell within a year, according to Mr Wong. Besides, bungalow buyers usually have more holding power, he added.

Mr Wong forecasts a 5-10 per cent rise in landed home prices this year, citing limited supply; the stock of landed homes on the island is much smaller than condos/apartments.

Singaporeans make up about 60 per cent of Mr Wong’s bungalow buyers these days; the other 40 per cent are permanent residents, who are allowed to buy bungalows with land areas up to around 15,000 sq ft.

Meanwhile, at West Coast Crescent, agents marketing The Vision are said to be collecting cheques ahead of the 99-year leasehold project’s preview planned in the second week of March.

Those issuing cheques are said to have been told prices could be in the $1,000 to $1,200 psf range, although there will be an early bird discount.

The Vision, being developed by a Singapore unit of Cheung Kong Holdings, comprises 281 apartments housed in two 33-storey towers and 14 strata houses. The development will not have any one-bedroom apartments, which typically are the first to be snapped up these days because of the lower entry barrier in terms of a smaller lumpsum investment.

Instead, The Vision’s apartments will be two, three, and four bedders as well as penthouses. The majority of units are three-bedroom apartments – mostly ranging from 1,259 to 1,313 sq ft, with three ground floor units (inclusive of private enclosed space) of 1,776 sq ft to over 2,000 sq ft.

Summing up the continued enthusiasm of home buyers, a seasoned property consultant said: ‘Buyers are quite confident prices won’t fall; in fact, they’re likely to rise because of the improving economy and the completion of the IRs.’

Agreeing, an agent says: ‘There’s still a lot of money; if you can’t put it in property, where else can you put it?’

Source: Business Times, 25 Feb 2010