Singaporean Norsiah Suja’i thought she had found her dream home when she forked out her life savings to buy a double-storey terrace house in Johor Baru in 1998 for more than RM335,000 (S$141,500 now).

Instead, the retired teacher and 72 other Singaporeans in Taman Permata are about to lose their property to the developer’s bank – after the developer went bust in 2000.

The bank won a court order from the Johor Baru High Court to auction off their property four years ago. The court also ruled that the houses were an abandoned project.

Yesterday, some 30 of the 73 Singaporeans travelled by bus to Putrajaya, about 40km from Kuala Lumpur, to hear their appeal against the High Court’s decision.

But the case was adjourned after their lawyer Rosli Kamaruddin asked for one of the three judges to recuse himself, as he was the same judge who allowed the bank to auction off three houses in Taman Permata.

‘We have suffered so much loss, I hope we can all get some justice in this case,’ said Madam Norsiah, 65.

Most of the Singaporean buyers are retirees, who paid for their houses in cash with their pension and life savings.

The developer had failed to deliver on its promise that the 136-unit Taman Permata would be a posh residential area complete with condo facilities such as a swimming pool and security guards.

Most of the Singapore buyers have been forced to live there now, as they cannot afford another property in Singapore.

‘I spend my weekdays in JB and I visit my daughters in Singapore on weekends,’ said Madam Norsiah. ‘I have no choice.’

Another buyer, who wanted to be known only as Madam Safia, 60, said the JB High Court had also ordered buyers to pay another 10 per cent on top of what they paid for their houses to obtain their title deeds. But only a few were willing to pay and even then they did not immediately get the title deeds.

She said although the houses were built in 1998, they were allowed to move in only after they obtained the certificate of fitness in 2005. ‘By that time, our houses were already in bad shape and each of us had to fork out about RM50,000 to fix our houses,’ she said.

Madam Safia said they had tried various ways to save their houses.

In 2003, they had even met then Prime Minister Abdullah Badawi and then Local Government and Housing Minister Ong Ka Ting.

The bank’s lawyers declined to comment on the case.

Source: Straits Times, 25 Mar 2010

Collective sales of such properties tend to be slow

SINCE the phenomenon of collective sales started in 1994, there have been over 400 en bloc developments sold to date. Of these, only a handful, possibly about 10 or so, were mixed developments, that is, buildings with a variety of uses like shops, offices and apartments. Most of the successful en bloc sales were purely residential developments, or those with a few shops within the condominium.

In the most recent property boom in 2006/07, prime land and buildings were hot commodities, and en bloc sales were the predominant way for developers to lay their hands on them. So if demand was so strong, why were there so few sales of prime strata titled commercial or mixed developments?

Firstly, only a minority of mixed developments and shopping centres in Singapore are strata titled. The majority of them have single owners – usually an institutional fund, trust or investment company. Take Raffles Place as an example. Of the 30 office buildings located in the vicinity of the MRT station, only three are strata titled.

It is relatively easy for single owners to monetise unused plot ratios or give a facelift to their building. These moves usually enhance the owner’s investment returns which serve to motivate the building’s redevelopment or refurbishment.

Keppel Land, for example, tore down Ocean Building and is redeveloping the site into Ocean Financial Centre. OUB Centre has an annex block under development. Shell Tower was transformed several years ago into a modern office block, now called Singapore Land Tower.

However, amid these spanking new Grade A offices in Raffles Place, there are some old strata-titled buildings like The Arcade and Clifford Centre, which many regard as tired and outdated.

In the case of strata-titled buildings, especially those with no major owners, the motivation to build consensus among the owners and incur large sums to upgrade common areas is usually not high.

Owners of many older strata-titled complexes have contemplated pursuing an en bloc sale. But in most cases, they find it difficult to devise a formula to distribute the sale proceeds among the different use groups.

This is made more complicated by the allotment of share values which vests more shares per square metre for shops than offices. Apartments are in third place. The weightage ratio determined by the authorities is 5:4:1 respectively.

To add to the complexity, some old commercial buildings even have their car park space separately strata titled, as in the case of Orchard Towers and Shenton House.

Aside from the challenge of slicing the sale proceeds among the different use groups, finding an equitable apportionment formula for the retail units can be difficult. The values of two shop units of equal size located in different parts of the same floor can differ tremendously. A unit facing a busy concourse, escalator or with a main road frontage could be worth double a unit of the same size tucked away in the rear or close to the toilets or loading bay.

Another challenge that owners of shop space tend to face – especially those that run thriving businesses from their units – is the heavy cost of relocating. There are fit-out costs, business disruptions and perhaps most significantly, the loss of goodwill when they move. The goodwill factor is difficult to quantify and factor into any apportionment formula.

For some trades, there could be just one or two buildings they can consider operating in. The rest simply do not work. For example, a major computer retailer would not for a moment contemplate anywhere other than Sim Lim Square or Funan DigitaLife Mall.

For many shop owners, the motivation to sell may not increase as the building ages, especially when they enjoy a thriving business arising from a unique location.

Little wonder then that major mixed developments or strata titled retail buildings that were sold en bloc – like Katong Mall, Kim Seng Plaza, UIC Building and Kim Tian Plaza – had one or several major owners who controlled substantial portions of the floor space and share values. Without that, getting a consensus of more than 80 per cent may not have been possible.

The main aim behind the en bloc law that allows for a majority rather than a unanimous vote is to facilitate urban renewal. Over the past 10 years, the en bloc phenomenon has helped transform Singapore’s urban landscape in many precincts as modern buildings replace old ones.

So, if the en bloc sales mechanism in its present form does not work effectively for ageing strata-titled mixed developments or shopping centres, town planners may need to think of alternative solutions for them.

One option is the classic ‘carrot-and-stick’ approach. Provide the owners incentives to band together to sell collectively or spruce up the building within a reasonable time frame. The incentives may be bonus plot ratios or reductions in development charges (DC) which would enhance the monetary gains if they comply within the time frame.

In 1994, the Urban Redevelopment Authority (URA) had successfully transformed the Hillview area near Upper Bukit Timah from an old industrial belt into a district of modern condominiums, with the aid of time-sensitive bonus plot ratio carrots. That was a win-win approach.

The alternative is the draconian win-lose approach of invoking the state’s land acquisition powers.

The situation is by no means dire. Some could even argue that older buildings with all their imperfections widen the range of offerings at economical rates.

Old office buildings offer more affordable rents to price-sensitive businesses. Some old shopping centres like Queensway Shopping Centre and Katong Shopping Centre appeal with their specialty goods at cheaper prices, not to mention the nostalgia of their older setting.

Karamjit Singh is managing director and Pamela Kow is senior manager of Credo Real Estate

Source: Business Times, 25 Mar 2010

DESMOND SIM says demand likely from financial, biomedical sectors

THE leasing market for non-landed homes showed signs of recovery in the final quarter of 2009, going by Urban Redevelopment Authority numbers. Median rents saw their first quarter-on-quarter growth of 0.5 per cent following five quarters of continued decline from a peak in Q2 2008. The monthly median rent in Q4 2009 was $3.02 per sq ft. Occupancy rates also jumped, achieving 94.5 per cent in Q4 2009 – a level previously seen only in 2006/2007.

While these indicators may suggest a recovery in the leasing market, the strength and sustainability of this positive turn are yet to be ascertained.

Overall, leasing demand has been rising over the years as a result of a boost in the foreign workforce. Singapore’s strategy to open its employment market to more foreigners has benefited the leasing market as this transient group looks for short-term housing in the private residential market. The population of Singapore has grown from 4.03 million in 2000 to 4.99 million in 2009. The number of foreigners grew in tandem from 754,500 in 2000 to 1.25 million in 2009.

On the back of better economic performance, the Ministry of Trade and Industry has revised its growth forecast for 2010 from a range of 3-5 per cent to 4.5-6.5 per cent. Job creation has improved, marked by the doubling of total employment from 14,000 in Q3 2009 to 37,500 in Q4 2009. The result is the creation of some 37,600 jobs for the whole of 2009 – a remarkable feat considering the economy was in a recession.

Although the number of foreigners employed has declined by 4,200 in 2009, there are still some 1.05 million of them working in Singapore. The job losses were mainly in the manufacturing sector. The construction and services industries, on the other hand, gained 19,700 and 10,400 new hires respectively.

Demand by industry

Anecdotally, leasing demand remains driven by the financial industry. This sector is making a strong rebound from the financial tsunami, with total employment in Q4 2009 turning a positive 3,000. This trend is expected to continue, further supported by recent poll results from the Business Expectations for the Services Sector Q4 2009 survey by the Department of Statistics. The financial services sector has the most positive outlook in terms of employment and general business expectations.

In addition, based on the latest report on wages in Singapore by the Ministry of Manpower, the financial services sector recorded the second highest median gross wage in 2008 at $9,170 per month for managers aged 35 to 39.

The other emerging leasing demand driver is the biomedical industry. Under the government’s aggressive drive to develop Singapore into a biomedical hub, the country reportedly bagged some US$2 billion worth of investments over the past four years. They include plans to set up six new biologics manufacturing plants that are expected to create some 1,380 jobs. Despite the manufacturing sector reporting negative 4.1 per cent growth in 2009, biomedical manufacturing expanded by 11.5 per cent.

Looking ahead, new leasing demand is likely to come from either the financial or the biomedical industry.

Demand profile

The foreign employment market today is different from what it was a decade ago. Currently, instead of the traditional top management hire, foreign employment involves more middle management to executive levels with a limited housing budget. These expatriates are likely to be young executives working for a financial institution or researchers and laboratory executives. Despite the increase in foreign employees, the average housing budgets have remained relatively low. These new expatriates are likely to be given a housing allowance and are motivated by cost savings. They either downsize or seek discounted rents whenever the opportunity presents itself. As a result, smaller residential units close to their workplace or with good accessibility to public transport remain the main attraction.

Based on rental transactions recorded by URA Realis and sorted by districts, several observations can be made from the rental transaction volume over the decade.

While the prime districts of 9, 10 and 11 remain the traditional hot spots for leasing, the number of leasing deals there has been observed to be falling. At the same time, the Central Area (CBD/HarbourFront) comprising districts 1 to 5 has gained popularity as can be judged from the increase in leasing volume. A key factor is the revival of inner city living with tenants attracted by the proximity to the CBD, the arts and cultural activity, and other amenities within the area.

In addition, there are two emerging regions where we expect strong leasing demand in the future.

Based on the backroom operations of multinational financial institutions such as Credit Suisse, Citigroup and Standard Chartered Bank, residential projects in the vicinity of the Changi Business Park will be in demand. As such, we expect leasing demand growth in Simei, Upper East Coast and Tampines (Districts 16,17 and 18).

With the biomedical industry expected to expand in Biopolis, leasing demand in residential projects in the vicinity of this purpose-built biomedical estate (District 5) is also expected to increase.

The drivers and leasing profiles have changed dramatically over the decade. This has influenced developers’ product offerings and also recently caught the attention of investors who have been making a beeline to these areas.

Evolving supply

Over the decade, developers have also been tweaking their product offerings to match changing demand. Overall, the market supply is shifting towards smaller apartments. Smaller units are easier to lease while maintaining a high per sq ft rental value. Similarly, smaller units are also more palatable in terms of absolute quantums paid. At the same time, developers are able to maintain their selling price on a per sq ft basis. Using a sample of major launches in the prime districts (9,10 and 11), an analysis of the composition by bedrooms was done. Studio apartments were excluded from the analysis.

There is a stronger focus on units with fewer bedrooms. Increasingly, one and two-bedroom apartments are found in the new supply. Based on the sample comparison study, one and two-bedroom apartments account for half the supply launched currently. This compares with 2000, when two-bedroom apartments made up just 15 per cent of the supply (with no count of one-bedroomers). This sample comparison shows that while demand has shifted over the decade, developers are also redesigning their product offerings to accommodate these changes.

Market outlook

After a challenging 2009, Singapore, along with the rest of Asia, is expected to experience a strong economic recovery this year. Financial markets are reported to have stabilised, while trade flows and industrial production have also picked up strongly. However, the recovery in Europe and the US remains weak. A pan-continental movement of talent from Europe and the US to Asia can be expected.

As Singapore continues to attract top talent here, leasing demand is also expected to grow. This is coupled with the improved economic outlook and the planned business expansions that are scheduled for the second half of this year. Island-wide rents are expected to grow in the region of 3-5 per cent by end-2010. However, rents will still remain affordable as they have generally come off during the recent economic downturn. Further rental upside is expected in the Central Area (Districts 1-4), Buona Vista (District 5) and Simei/Tampines and Upper East Coast (Districts 16,17 & 18).

The writer is associate director, research and consultancy, Jones Lang LaSalle

Source: Business Times, 25 Mar 2010

Developers shift focus to affordability, say NG WEI EN and CHUA CHOR HOON

LAST year saw the second highest volume of private residential transactions in history, with the 30,830 caveats lodged falling short only of the 37,304 recorded in the 2007 boom.

A combination of factors helped to boost demand for residential property. These were pent-up demand from those who had missed out on the previous boom, low interest rates and a lack of alternative investment options, after the debacle with financial products. These, coupled with the appearance of ‘green shoots’ in the economy and a rally in the stock market, helped the residential market stir to life in late Q1 2009.

The mass market was the star performer of the residential market. Of the 30,830 caveats lodged in 2009, 23,240 – or 75 per cent – were for transactions outside the prime districts of 9,10,11, the Central Business District and Sentosa/Harbourfront areas.

Quick-thinking developers rode the popular wave of affordable homes by altering their plans – downsizing units and releasing mass market projects to appeal to the buyers who were then dominating the market.

Buyers with HDB addresses accounted for 41 per cent of total buyers in 2009, almost double the 22 per cent in 2007 when higher-end projects were leading the rise in the market. Many in 2009 saw the opportunity to upgrade to private housing, which was also supported by rising HDB resale prices.

Affordability

Over the past year, we have seen a 13 per cent rebound in the average price of secondary mass market units recovering back to the peak level in Q4 2007.

Through this period, the affordability index has also moved up 13 per cent to 136. The affordability index tracks the minimum gross household income required to qualify for an 80 per cent loan-to-value mortgage for the purchase of a private home. It takes into account property prices, CPF contribution rates, as well as interest rates. The lower the index, the more affordable it is as a lower income is required to qualify for a mortgage from the bank.

In other words, a higher income is now required to purchase a mass market unit compared to a similar one in Q1 2009.

Nevertheless, mass market units are more affordable now than they were in 2007. This is largely due to the difference in the mortgage rates as the three-month Sibor rate has fallen close to two percentage points during the period (Figure 1).

Furthermore, according to the Key Household Trends 2009 survey, the average monthly household income from work for 2009 in the 81st to 90th decile is $12,290, which is higher than the $11,330 in 2007.

Based on the affordability index, mass market units at end-2009 were more affordable compared to the period between Q1 2006 and Q3 2008. However, as interest rates are at an all-time low, it is a matter of time before they head north. A one-percentage-point increase in interest rates will result in a 14 per cent rise in the affordability index with no change in price. If prices were to increase by five percentage points at the same time, the index would rise by 19 per cent to 162 (Table 1).

There is no hard and fast rule as to the threshold index level at which buyers would find mass market purchases affordable as this also depends on income level.

However, there exists an inverse relationship between the affordability index and the number of home buyers with HDB addresses. During periods when the index declines, the proportion of buyers of HDB addresses increases.

Looking at the more recent period from 2006 to the present, the proportion of buyers with HDB addresses fell to below 30 per cent when the affordability index was above 150, indicating that this could be the threshold level. In most quarters, the proportion of buyers with HDB addresses was above 40 per cent.

Hence, mass market housing could become generally less affordable if: (i) prices were to increase by more than 10 per cent; (ii) prices rise by 5 per cent with a 0.5-percentage-point increase in interest rates, or (iii) interest rate rises by one percentage point with no change in prices.

Besides affordability, recent government measures affecting both the public and private segments would have some impact on the volume of transactions and are likely to check the increase in prices to less than 10 per cent this year.

At the moment, despite more new projects being launched at prices above $800 per sq ft, there are still a number of projects in the resale market available for less than $700,000 for unit sizes of above 1,000 sq ft. This shows that affordable units still exist and that purchasers are not restricted to micro-sized and high-priced residential units (Table 2).

Greek historian Thucydides once said: ‘Few things are brought to a successful issue by impetuous desire, but most by calm and prudent forethought.’

For potential buyers, it would be prudent to look beyond the current interest rates to assess the ability to repay the monthly mortgage payments over the next 20-30 years when interest rates move up eventually.

Ng Wei En is research analyst and Chua Chor Hoon is head of research, South-east Asia, DTZ

Source: Business Times, 25 Mar 2010

With relatively few landed home launches, buyers are always keen on older houses in the resale market, writes HAN HUAN MEI

WHEN private home prices made their sterling recovery in the second half of 2009, landed homes didn’t miss out on the action. The Urban Redevelopment Authority (URA) price indices for detached, semi-detached and terrace houses recovered by 22-26 per cent in 2H 2009, after falling some 18-21 per cent from the market peak in the second quarter of 2008 to Q2 2009.

This upward trend is likely to continue because of the scarcity of landed homes in Singapore. Out of a total housing stock of 1.14 million units, only 69,500 or 6.1 per cent are landed homes.

While new landed projects are limited, home buyers are always willing to buy older properties in the resale market. On average, 380 new landed homes and 2,800 resale landed homes changed hands annually between 2004 and 2009.

Moreover, there is also a certain degree of speculative activity in the landed market. An analysis of the caveats lodged for subsales of new landed properties in the past year shows a gain of 5.5 to 34 per cent from their original prices two to three years ago.

Landed properties offer a certain prestige to homeowners in the middle to high-income groups. Nowadays, well-heeled homebuyers in their mid-30s are especially attracted to entry level bungalows with a land area of 4,000-5,000 sq ft and costing $4-$5 million. Some of these can be found in Lynwood Grove and Cotswold Close.

Equally popular are strata bungalows like Goodman Crest and Bellaville which have the same built-up area as the average bungalow but cost less – around $2.5-$3.5 million – because of the shared ownership of land and communal facilities like swimming pool and landscaped garden.

Similarly, cluster terrace houses are seen as value for money as opposed to condominiums because of their generous built-up areas of over 3,000 sq ft. These also come with communal facilities which appeal to families with young children.

However, the downside of cluster terrace developments is the rather crowded conditions within the compound and the higher volume of vehicular traffic they generate in the neighbourhood.

At the top of the Singapore housing pyramid are the good class bungalows (GCBs) which are the most prestigious and expensive type of housing. In just the first two months of 2010, some 14 GCBs were transacted, compared with just three in the first quarter of 2009.

Among the 14, the most expensive GCB was a Swettenham Road house, which sold for $31.5 million in January. It has a land area of 29,569 sq ft.

In 2009, the highest priced GCB was sold in October at $38.67 million. It is located in Victoria Park Road and has a land area of 32,077 sq ft.

Over at Sentosa Cove, Kasara villas, which range from 9,000 sq ft to over 14,000 sq ft, were sold at $14-$22 million in November 2009. These villas come with designer finishes and top quality fittings.

The reason why leasehold landed homes in Sentosa Cove can fetch prices equivalent to, if not higher than, their freehold counterparts on the mainland is because of the resort island status, foreigners’ eligibility to buy and above all, limited supply of around 400 units. Foreigners are not allowed to buy landed properties on the mainland and even permanent residents need special approval from the authorities to buy one.

In 2009, a landed project in Seletar Hills estate called Luxus Hills was launched. The first phase of 78 terrace houses was sold within a few weeks. In the second phase, another 30 units sold quickly at a similar price range. The terrace houses fetched $1.7-$2 million while the semi-detached houses fetched $2-$2.2 million.

Estrivillas, a cluster housing project in Jalan Lim Tai See comprising 38 semi-detached and one detached house, was launched in November 2009. By January this year, 24 of the 39 units had been sold at $3.5-$3.8 million.

In the resale market, transactions in January and February this year show that the median price of semi-detached and terrace houses was $2.5 million and $1.5 million respectively. A year ago, the corresponding median prices were $1.76 million and $1.16 million.

Developers marketing landed properties should emphasise the limited land resources and hence, the value of landed properties in the long-term. Secondly, owners do not have to pay maintenance fees for houses, unlike condominiums. Unless a house is very old, the upkeep is generally inexpensive. Spending money on one’s own property beats contributing $3,000 to $4,000 a year to a condo management or sinking fund.

Landed homes are also attractive as investments as they can fetch good rentals. Proximity to premier schools, international schools and embassies is definitely an advantage.

At the top, GCBs in Bukit Timah can be leased out at $18,000 to $25,000 a month while standard detached houses can fetch $12,000 to $18,000, depending on their size and condition. Semi-detached houses can command a monthly rent of $8,000 to $12,000 while terrace houses can achieve $3,000 to $7,000.

Limited supply results in the relatively inelastic prices of landed homes, and increasingly, those who hold such properties will find them a boon as more often than not these are assets that appreciate in value over time.

The writer is associate director, CBRE Research

Source: Business Times, 25 Mar 2010

PETER OW and ONG KAH SENG examine high-end residential properties that may see increasing buying interest from foreigners and locals

THIS is the year that high-end residential properties are expected to shine. Indeed, prices of luxury homes could recover by at least 10 per cent in 2010, bringing them close to the all-time high at end-2007. As Singapore’s economic recovery takes hold, the traditional prime districts of 9, 10 and 11 should re-emerge as residential hotspots.

But new high-end enclaves are also likely to gain prominence. These hotspots will be found along the southern corridor, in places like Marina Bay, Tanjong Pagar/Shenton Way and Sentosa Cove/Keppel Bay.

The emerging luxury enclaves are the beneficiaries of several defining developments in Sentosa Cove and Marina Bay, which are coming to fruition this year.

Marina Bay

Homes in Marina Bay will benefit from the opening of the Marina Bay Sands integrated resort, slated for end-April. But the prestige of this area also comes from the fact that Marina Bay is the newest prime office hub, where up-and-coming executives want to be seen at. Having a loft in this sophisticated new hotspot would certainly be something to flaunt.

The Sail @ Marina Bay was the first high-end residential project in the area to come on the market. Completed in the second half of 2008, the 1,111-unit Sail saw median monthly rents climb steadily, from $4.25 per sq ft in Q1 2009, to $5.15 psf in Q4 2009, going by figures from the Urban Redevelopment Authority (URA).

Although there will be no major residential projects to be launched after Marina Bay Suites is entirely released, the buzz in Marina Bay is expected to translate into encouraging resale and leasing activity.

Tanjong Pagar/Shenton Way

The excitement of city living extends beyond Marina Bay. The traditional CBD, such as Tanjong Pagar and Shenton Way, is increasingly popular with working professionals. Icon, One Shenton and The Clift are successful projects that were launched from 2003. The completed Icon condominium is enjoying monthly median rents of about $6 per sq ft. Meanwhile, Altez, a 60-storey development in Tanjong Pagar, was recently launched. Offering panoramic sea and city views, the project is priced from $2,100 psf to $2,300 psf.

UIC Building and 76 Shenton Way, both office buildings, will soon be converted into prime residential developments, enhancing the attractiveness of the area. 76 Shenton, a 39-storey condominium, is the newest launch in the area. These projects are testimony to the attractions of inner city living, where residents enjoy maximum convenience, whether at work or play.

The Economic Strategies Committee, in looking at maximising Singapore’s land use, has recommended turning Tanjong Pagar into a new waterfront district, by relocating the Tanjong Pagar port to Tuas once its lease is up in 2027.

Sentosa Cove & Keppel Bay

The excitement in Sentosa Cove started with the launch of the first condominium project – The Berth by the Cove – in 2004. Since then, several other waterfront condominiums have been completed on Sentosa. According to URA figures, The Berth by the Cove and The Coast at Sentosa Cove enjoyed attractive monthly rents of between $3.50 psf and $4.80 psf at end-2009.

Sentosa Cove is poised to become more exciting this year. Two new condominiums – The Oceanfront@Sentosa Cove and Turquoise – are scheduled for completion in 2010 while the Marina Collection will be ready in 2011. Meanwhile, Seascape and The Residences at W Singapore – both at Sentosa Cove – are being released this week. When these developments are built, Sentosa Cove will be a lively residential enclave with all the supporting amenities. These developments will transform Sentosa island into a self-sufficient waterfront haven.

The Keppel Bay area, comprising Caribbean at Keppel Bay and Reflections at Keppel Bay, will also remain attractive to investors.

Traditional prime

The traditional prime residential districts are perennially attractive to home buyers and investors who prize a central location and all its conveniences, particularly the allure of shopping along Orchard Road. Generally, prices of high-end residential resale properties in the prime districts recovered by about 15 per cent in 2009, following a 27 per cent slide in 2008.

Prices this year could well hit the all-time high seen at end-2007, as experience shows that prime residential properties are the first to move in the early stages of an economic recovery.

The prime leasing market is also expected to improve, as companies boost their senior expatriate headcount incrementally and become more generous with housing allowances.

For the first time in a long while, Orchard Road last year saw the opening of three new malls – Ion Orchard, Orchard Central and 313 @ Somerset. The new malls have refreshed the shopping experience in the premier shopping belt. This will benefit existing property owners as well as help sell new projects in the vicinity, such as The Vermont on Cairnhill and Hilltops.

Property investors should be able to find opportunities in all these residential hotspots, from the southern corridor to the traditional prime districts. However, the performance of the property sector will depend on the bigger picture – the economy and market sentiment.

As such, astute investors will need to analyse the prospects for the high-end residential market, before looking for their preferred property.

The government recently introduced measures to cool speculative activity, by lowering the loan-to-value ratio and introducing a seller’s stamp duty if a property is re-sold within a year. These measures, however, are likely to only impact speculators. Perhaps investors of high-end residential property can safely read that, following the latest government measures and pronouncements, there will be no further attempts for the time being to cool the residential market.

After all, the pace of recovery for the high-end segment this year will be modest compared with 2007 and can be seen as a recovery rather than price escalation. A realistic price recovery this year may offer investors who commit today a chance to enjoy gradual capital appreciation in 2011 and 2012.

Foreign interest

Owners and developers of high-end residential properties can also expect to enjoy increasing buying interest from foreigners. Although Singapore is seeing more competition from regional cities where developers are improving luxury residential offerings, escalating prices in domestic markets in China and Hong Kong could make buyers there view our high-end properties favourably.

The full impact of the IRs on the property market will be felt this year, with the opening of Resorts World Sentosa and Marina Bay Sands strengthening the appeal of high-end residential properties in the southern corridor. The benefit of the IRs could extend to high-end property throughout Singapore, as the developments take the city up a rung in international exposure.

Visitors may be increasingly interested in Singapore for work and leisure, which would lead them to consider investment opportunities in high-end residential hotspots. This could lead to an increasingly international buyer profile in the luxury market.

Peter Ow is managing director of residential services and Ong Kah Seng is manager of consultancy & research at Knight Frank Pte Ltd

Source: Business Times, 25 Mar 2010

Short-term trading profits in real estate are not high, while the risks are considerable.
DENNIS NG shows you the numbers

IT’S tough enough figuring out which housing loan package is the best for you. But how will the latest changes in property financing rules affect your property purchase?

The recent curbs on the property market include measures such as the scrapping of interest-only loans, capping financing to 80 per cent of the property’s value, and a stamp duty on properties sold within a year of purchase.

Also, are there different things to consider in financing a property that you mean to live in versus one you intend to rent out? What are the things to look out for in choosing a housing loan?

Fret not, this article will help you to decipher housing loan packages like a pro, even if you’re buying property for the first time.

Scrapping of interest-only loans

In interest-only loans, the borrower chooses not to repay any principal at all, and only services the interest cost in his monthly instalments.

Many home buyers are shocked by the idea, and unable to understand the logic of not making any principal repayment on a housing loan.

However, for a property investor, one simple way to reduce his monthly cash outlay and increase return on investment is to minimise the capital outlay on the property. Interest-only loans help by minimising the monthly cash outlay, thereby increasing the possibility of positive cashflows from the property. That is, the rental income from the property more than covers the monthly instalment. It also enables the property investor to cut his monthly debt repayment obligations, and reduce his debt-service ratio, or DSR.

Thus, Minister for National Development Mah Bow Tan announced the discontinuation of interest-only property loans in September last year to dampen speculative demand. However, this measure does not affect the average home buyer or investor since most people take housing loans that repay both principal and interest.

Property as home or investment

Is there a difference between taking a housing loan for an an owner-occupied home versus one for investment?

Yes, there is. Because a person buying a property for investment has quite different considerations from someone buying it as a home. The main differences are summarised in the table.

How banks view rental income

If a tenant pays you rent of $3,000 a month, does your monthly income go up by $3,000? Most people mistakenly think that it does. But what happens is that the bank might factor in just 50 per cent of the gross rental income as your additional income in calculating your debt-service ratio (DSR).

The all-important debt service ratio

The DSR is basically the percentage of your income used to repay your monthly debt obligations.

Here’s an illustration. Let’s say Mr A’s gross salary is $5,000. He has a car loan with a monthly instalment of $500 and a housing loan instalment of $2,000. Thus, his total monthly debt repayment obligation works out to $2,500. Divide that by his gross income and his DSR works out to 50 per cent.

In general, provided you have a prompt debt repayment record, banks would work out the maximum loan they can grant you based on a maximum DSR of 50 per cent.

Now Mr A plans to buy a second property for $1 million. He expects to rent it out for $3,500 a month. He estimates that if he takes an 80 per cent loan ($800,000) with a 30-year loan period, his monthly instalment would be $2,956.95. This is based on the current interest rate of about 2 per cent for housing loans.

However, he does not know that because there are incidental costs to a property, such as maintenance fees, insurance and other costs, banks do not take the gross rental income of $3,500 as additional income. Some banks, for the sake of prudence, might only factor in half the rental income, or $1,750. Thus, his total income works out to $5,000 plus $1,750 or $6,750.

What interest rate should one use to estimate housing loan instalments? Interest rates on housing loans fluctuate from time to time. When the economy is strong, such as in 2007, housing loan interest rates were about 4 per cent.

Thus, in calculating DSR, it might be prudent for banks and property investors to use a higher interest rate, such as 4 per cent, to calculate the cost of the loan.

Based on 4 per cent, Mr A’s monthly instalment for a loan of $800,000 works out to $3,819 (or about 30 per cent higher than using a 2 per cent interest rate.) His revised total monthly debt repayment obligation works out to $6,319, while his revised total income is $6,750.

Thus, his revised DSR stands at 93.6 per cent, which means that his loan application for a second property is likely to be rejected by the bank.

So to avoid nasty surprises, it is best to get in-principle approval for a bank loan before committing to a property.

Effect of seller’s stamp duty

As of Feb 20, any investor who sells a property within one year of purchase will have to pay a seller’s stamp duty, which is roughly 2.5 per cent of the purchase price. This could greatly reduce the gains from selling a property within a year.

If you had bought a property for $1 million, and sold it for $1.1 million, what are your gains after deducting the cost of property purchase and sale? Refer to the table (above right) for the calculations.

The table shows that short-term trading profits in real estate are in fact not high, while the risks are considerable. If you sell your house two years later, you would not have to pay the seller’s stamp duty of $27,600 (based on the $1.1 million sale price). However, you would have to bear more interest payments for an extra year of loans.

The interest cost could come up to an extra $30,000. So if property prices rise by 10 per cent, you would not make much money at all. Of course, property agents might not volunteer such information.

To put your housing loan on a sounder footing and to get an unbiased analysis and comparison of all housing loan packages on offer, it might make sense to talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.

Dennis Ng is an accountant by training with 17 years of bank lending experience.

Source: Business Times, 25 Mar 2010

THE property market has made a dramatic recovery over the past year. In the residential sector, prices of mass-market homes have even surpassed their 2007 peak. Expectations are running high that some time this year too the luxury segment will touch 2007 record highs.

Things are also picking up in the office market, which has seen a flurry of leasing activity since Q4 last year. Demand has already turned positive and there are even predictions in some quarters of a 30 per cent increase in Grade A office rentals this year.

However, one should not get carried away. The authorities in many parts of Asia are already keeping a watchful eye on asset bubbles building from hot money flowing into real estate. Liquidity and low interest rates remain the key fuel of the property upturn.

The question on everyone’s mind is whether this recovery can be sustained. A lot depends on how well Singapore and the rest of the world perform. Sovereign debt default concerns in several European countries continue to stoke worries about a double-dip recession. Closer to home, the drive towards higher labour productivity could give rise to job insecurity and dampen demand from house hunters.

2010 sees the completion of several major landmark projects here – including the Marina Bay Financial Centre and the Marina Bay Sands and Resorts World Sentosa integrated resorts.

The two IRs are expected to boost Singapore’s tourism numbers, which should generate multipliers for the broader economy. That will be positive for the Singapore property market.

Many property industry players have long been pinning their hopes on the IRs drawing high-rollers into town who will be impressed with Singapore and want to invest in property here. Singapore will also be on the radar screens of overseas investors if the IRs are successful.

Domestically, though, affordability remains a key concern, especially in the mass-market housing segment. A substantial interest rate increase could also hit price-sensitive buyers.

The Singapore government for its part has come up with a few measures to weed out speculators from the housing market. It also has the option of increasing land supply.

The following posts will hopefully guide you through the Singapore property market. I leave you with the timeless advice of property market doyen Kwek Leng Beng: Always buy within your means and remember that property is a mid to long-term investment.

Source: Business Times, 25 Mar 2010

New, monthly price index will also help in development of property derivatives

Singapore now has a second price index to provide information on the state of the private housing market here.

The new Singapore Residential Price Index, or SRPI, aims to provide a resource for the development of property derivatives. It tracks month-on-month price movements in the private non-landed residential property market.

Right now, property investors have just one price index to work with: the Urban Redevelopment Authority’s (URA) private residential property price index. That index is released on a quarterly basis and has sometimes been criticised for lagging a fast-moving market.

The National University of Singapore’s Institute of Real Estate Studies developed the SRPI after a dialogue with industry players as well as help from the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX).

The institute hopes that, as real estate grows in importance as an asset class in the region, the SRPI will serve as a benchmark index and a reference for structuring property derivative products.

‘As the index gains in acceptance, it can potentially be used for risk management through the development of products such a property derivatives,’ said Senior Minister of State for National Development Grace Fu, who officially launched the SRPI yesterday. ‘Such derivatives may be one way for real estate developers, asset managers, banks and investors to hedge their property exposure.’

The new index differs from URA’s in several significant ways. For one thing, it will be updated every month, instead of once a quarter.

The SRPI is also computed using the market values of a basket of only completed properties. Right now, the basket has 364 private residential projects located across the island that were completed between October 1998 and September 2009.

Uncompleted projects were not included in the basket as price movements in such projects can be vastly different from those seen for the rest of the market. But the impact of new launches on the prices of completed properties in the vicinity will be factored in.

The URA index, on the other hand, includes transactions at new launches and sub-sales.

The SRPI also considers the address, completion date, tenure, leasehold maturity, floor level and strata area of all units in the projects in its basket.

The differences mean that the two indices can throw up very different numbers.

According to the SRPI, prices of non-landed private homes rose 22.2 per cent from December 2008 to December 2009. But URA’s private residential property price index showed that prices of non-landed properties increased just 0.5 per cent for the whole of 2009.

And as for Singapore’s central areas, the SRPI showed a 27.3 per cent jump in prices from December 2008 to December 2009 for the ‘central region’ (postal districts 1-4 and 9-11). The URA price index, by contrast, showed that prices of non-landed properties in the ‘core central region’ fell 1.8 per cent over 2009.

Knight Frank chairman Tan Tiong Cheng pointed out that the methodology used to develop the SRPI is ‘clearly spelled out’ while that used by URA for its price index is ‘less known’.

‘This can lead to some misunderstanding of the URA price index, especially in a volatile market,’ Mr Tan said. ‘What it means is there will be a lag effect when price movements in a fast-moving market do not get reflected immediately in the price index. This became quite obvious when the market corrected itself significantly post-Lehman, and the URA index clearly did not reflect that.’

A developer BT spoke to also said that it might be easier to ‘bet’ on the property market using the SRPI, instead of the URA price index, as more information is available about how the SRPI is calculated.

But he warned that there will still be some lag effect in the new index as it still uses transaction data from URA. This is derived from caveats lodged by buyers, who can sometimes take months to lodge a caveat – or even choose not to lodge one at all.

URA said the SRPI is compiled for the purpose of trading property derivatives. It lets market participants refer to an index that tracks the price movements of a specific basket of properties, or the specific sector of the property market which they wish to gain exposure to or hedge against.

On the other hand, URA’s property price index is designed to provide the general public and industry players with a ‘broad indication of price trends in the private residential market’.

URA’s index captures ‘all transactions and so may present a different picture from specific parts of the market’, a spokesman said.

Source: Business Times, 25 Mar 2010

Source: Business Times, 25 Mar 2010