SINGAPORE real estate is ‘exceptionally attractive’ from a yield and capital appreciation perspective, says Bank Sarasin chief investment officer Burkhard Varnholt.

He dismisses fears of a bubble, even in the wake of new measures here to quell speculation.

Last Friday, the government announced the imposition of a new seller’s stamp duty for those buying residential properties from Feb 20, and a reduction in the loan to value limit for home loans from 90 per cent to 80 per cent. New private home sales had rebounded sharply last month.

‘Even though concern for monetary tightening in Asia is widespread, fundamentally I continue to view markets like Singapore as exceptionally attractive . . . I think real estate prices can double over the next three to five years and maintain attractive yields.

‘That’s based on comparing property prices in Singapore against global peers, and the expected capital inflow from the rest of Asia into the Singapore market in the next few years.’

Dr Varnholt says the crisis in Greece has made central bankers in developed markets wary of how stimulus is withdrawn.

‘The combination of cheap money and strong growth in the east, as well as weakness in the west, with the sustainable recovery in corporate and non-financial earnings and balance sheets – I think those make a powerful case for real assets, for real estate and equities.’

His preference in Asia, he adds, is for real estate over equities ‘because for the first time in many years, Asian equities have become more expensive than the MSCI World’.

For Sarasin clients, he is recommending real estate funds, as single real estate purchases are ’something the clients should do themselves because of the lack of liquidity’.

‘Travelling the world, I can’t see a bubble yet and for the foreseeable future in a place like Singapore . . . which has the quality of life, business friendliness, political and economic stability.’

Dr Varnholt remains positive on the prospects for emerging markets, but the bank’s ‘roadmap’ for investments differs markedly from last year when its balanced portfolio’s exposure to emerging markets were at a high of 55 to 60 per cent.

This year, the allocation has been cut drastically to about 10 per cent, thanks to valuation concerns. ‘We shifted our equity exposure from emerging markets to super-competitive western blue chip companies that benefit from cheap currencies and leverage on the boom in Asia and the emerging markets,’ he says, citing companies such as Coca-Cola and Nestle.

These defensive companies pay an ‘extraordinarily’ attractive dividend yield against low corporate and sovereign bond yields.

He sees a number of key risks in the horizon. One is a ’super’ spike in commodity prices caused by resources bottlenecks. A second risk is China’s ‘ballooning’ money supply growth which is likely to prompt more tightening measures.

Meanwhile, China’s reserves held in US bonds have shifted substantially to short dated bonds. In this context, the bank maintains a weighting in gold as an insurance against a dollar crisis, even though the latter is not its base case.

A third risk, is that the housing market globally is likely to have more downside as in many markets, prices look expensive based on price to income and price to rent ratios.

Still, the current cycle remains positive for equities, he says. The recovery in non-financial earnings will lead into 2011. ‘The environment is not too hot or too cold. It’s historically one of the best environments for equities,’ he says.

Source: Business Times, 24 Feb 2010

MALAYSIANS are snapping up more private homes in Singapore than any other nationality, according to a new report.

DTZ Debenham Tie Leung found that last year, they accounted for 27 per cent of total transactions by non-Singaporeans, who include foreigners and Singapore permanent residents (PRs).

This is the second year in a row that Malaysians have emerged as the most active non-Singaporean purchasers in this type of study, which is based on Urban Redevelopment Authority data and uses caveats lodged as a proxy for sales transactions.

Indonesians were behind 19 per cent of transactions last year, the lowest proportion since 1995, when caveat data became available.

In all four quarters of last year, Malaysian buyers came out tops – a turnaround from the period between 2004 and 2007 when this position was held by Indonesians. And in the final three months of last year, Malaysians were responsible for 25 per cent of transactions by non-Singaporeans, significantly higher than the 17 per cent that went to Indonesians. The two groups of buyers were on an equal footing during the same quarter in 2008.

Mr Joseph Tan, executive director for residential at CB Richard Ellis, said geographical proximity and cultural similarities were key reasons for the interest shown in Singapore by its nearest neighbours.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said the legal system and language make it more comfortable for Malaysians to deal with Singaporeans.

Malaysians look at a wider spectrum of property compared to Indonesians, who are more likely to focus on upper-middle tier to high-end homes, noted Mr Tan.

Indonesians made up one-third of total transactions worth more than $1.5 million during the second quarter of last year, according to a previous DTZ study on private residential demand during the period.

In contrast, Malaysians were well represented among the transactions below the $1.5 million mark – particularly in the under $500,000 and the $500,000 to $1 million segments.

Up to 75 per cent of the transactions by Malaysians were made by Singapore PRs, the same report noted.

These PRs – especially those living in Singapore for more than 10 years – have adopted buying patterns similar to Singaporeans’, Mr Mak said. He credited the strong continuing demand from the mainly PR Malaysian buyers to their tendency to buy properties to live in, mainly in the mass-market segment, rather than as investments.

Source: Straits Times, 18 Feb 2010

SINGAPORE’S private property market is off to a strong start this year, with new-home sales in January coming in at a record-setting pace.

The Urban Redevelopment Authority (URA) said yesterday that 1,476 new homes were sold last month, sharply higher than the 481 units sold in December and 601 sold in November.

It is also the first time monthly sales figures have risen since July last year.

In fact, January’s sales were so exuberant that buyers bought more units than the number launched by developers that month.

They also set a faster pace than the average 1,230 units sold per month in 2007 – a year which saw a record 14,811 new homes snapped up.

Property analysts said yesterday that this has set the tone for this year. Demand for new homes is expected to be strong, especially in the higher-end segments of the market.

URA figures seemed to confirm this trend. Almost half of the new homes sold – 699 units – were in prime areas such as Cairnhill and Holland Road, otherwise known as the core central region.

The region saw the largest jump in number of units launched and sold. Developers launched almost five times the number of units – 690 in January, up from 126 in December – while the number sold tripled in January from 218 in December.

By comparison, mass market or suburban condominiums, which drove the property boom last year, accounted for just 29per cent of the units sold last month.

PropNex chief executive Mohamed Ismail said: ‘The middle- to high-end markets are certainly moving. Some 76per cent of homes were sold at above $1,000 per sq ft (psf), a proportion not seen for over 30 months.’

CBRE Research executive director Li Hiaw Ho said that a positive economic growth forecast for this year and pent-up demand following sluggish sales in the last three months of last year could have contributed to the sterling start.

Prime property sales were led by RVEdge in River Valley, where 91 units were sold at a median price of $1,696 psf, and Urban Suites in Cairnhill, where 88 units were sold at a median of $2,506 psf.

URA’s figures showed that another 350 homes sold were in the city-fringe areas, led by City Developments’ Cube8 in Thomson Road – January’s top-seller. Out of 177 Cube8 homes launched, 167 units sold at a median price of $1,286psf.

Far East Organization’s The Shore Residences, in the East Coast, also did well, with 144 units sold out of 202 launched, at a median psf price of $1,200.

CBRE’s Mr Li noted that, in general, the smaller one- or two-bedroom units continued to be popular because they cost less in absolute terms.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak added that based on caveats that have come in for January so far, the resale market is also showing similar strong volume.

But for now, prime properties are nowhere near the record-breaking levels of the last property peak in 2007. Last month’s sales did not see any homes priced above $4,000 psf, he noted.

In a separate report released yesterday, property consultancy DTZ Research said that the move towards higher-priced homes was already evident in the last quarter of last year, when home purchases of $3million and above made up 8per cent of all transactions, inching up from 7per cent in the previous quarter.

DTZ agreed that the high-end segment will see greater price appreciation this year. But it said that a runaway increase in prices is not likely as concerns like credit tightening in China and weak consumer demand in the US and Europe remain.

Following the Chinese New Year holiday, developers are expected to launch more projects, such as The Estuary in Yishun and Sentosa Quayside.

Source: Straits Times, 18 Feb 2010

They account for 76% of home deals last year, highest since 2005: DTZ

Singaporeans had a better shot at owning a private home in 2009 as property prices fell in the early part of the year and mass-market launches were the order of the day.

Analysing caveats lodged, real estate consultancy DTZ found that Singaporeans’ share of private residential transactions reached 76 per cent last year. This exceeded the 73 per cent in 2008 and was the highest level since 2005.

Permanent residents accounted for 13 per cent of the deals – unchanged from the previous year.

In contrast, foreigners’ share shrank to 9 per cent from 11 per cent in 2008. But some market watchers believe this group of buyers could become more active this year, with more high-end projects in the market.

HDB upgraders spurred the revival in the property market last year when they snapped up suburban homes, taking advantage of lower prices at the height of the financial crisis. Encouraged by sentiment in this sector, developers focused on rolling out more mass-market projects.

DTZ pointed out that last year, those with HDB addresses made up 41 per cent of all private home buyers – almost double the 22 per cent in 2007.

Real Estate Developers Association of Singapore CEO Steven Choo said: ‘Typically, upgraders and mass-market buyers are locals, many of whom buy for owner-occupation’. This would be a key reason why Singaporeans accounted for a greater proportion of private home transactions last year.

Mr Choo said the same trend had played out in 1999 after the Asian Financial Crisis.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said that on the other hand, foreigners who buy property as an investment still prefer prime districts. But high-end or luxury launches were few and far between until the later part of last year.

In 2007, when prime projects were making headlines in an exuberant property market, Singaporeans accounted for just 67 per cent of private residential deals, whereas foreigners accounted for 13 per cent. PRs and companies together accounted for the other 20 per cent.

Industry watchers expect to see foreigners’ share of transactions edge up this year compared with 2009. ‘That’s nothing out of the ordinary, quite consistent with the (historical) pattern,’ said Mr Choo, explaining that this could happen as property prices rise and the pace of purchases by HDB upgraders slows.

He said it is too early to say whether foreigners’ share of deals will return to the level in 2007 – there is still uncertainty in the markets, and there is a need to see how the global economy pans out in the second half of the year.

DTZ’s data does show HDB upgraders being increasingly sidelined as property prices rise. In Q4 2009, those with HDB addresses made up 34 per cent of all private home buyers, down from 56 per cent in Q1.

Prices of mass-market homes increased to $610 per sq ft in Q4 – 6.6 per cent up from Q2 and ‘back to almost the peak price level in Q4 2007′.

Going by sales reports from developers, foreign buyers are returning. There is also talk in the market that some buyers from China made their way here to view showflats over the Chinese New Year holiday.

According to DTZ, Malaysians were most active among non-Singaporeans in the property market last year, accounting for 27 per cent of transactions by foreigners and PRs. Indonesians followed with a 19 per cent share – the lowest since 1995 when caveats were available for analysis.

The Chinese were in third place, accounting for 15 per cent of the deals. Indians ranked fourth with a 12 per cent share.

DTZ noted that in the second half of 2009 there were more foreign buyers from other countries, particularly the UK, Korea and Australia.

Source: Business Times, 18 Feb 2010

Big turnaround after blip of last year’s Q4; choice locations feel the buzz too

The private housing market has entered the year on a firm footing, with developers’ home sales in January rising to 1,476 units – three times as high as the previous month. They also hit their highest level since August last year.

Of the units launched in January as well as units sold in the same month, about half were in the Core Central Region, reflecting a revival in activity in the choicest housing locations in Singapore. Another interesting statistic gleaned from the latest monthly data released by the Urban Redevelopment Authority (URA) yesterday is that 76 per cent of the total units sold in January were priced at at least $1,000 per square foot (psf). Such a high proportion has not been seen since URA began releasing such data in June 2007, observes property agency PropNex CEO Mohamed Ismail.

Industry players expect this trend to continue for the rest of 2010, pointing to high land prices achieved at state tenders late last year, which would translate into higher target selling prices by developers.

As a developer put it: ‘Increasingly, people will accept that $1,000 psf is not a shocking price for mass-market private homes anymore.’ He acknowledged, however, that further price increases in this segment will be checked by what HDB upgraders can afford.

Also, many expect sales volumes and price gains this year to shift to the mid and higher price segments, hence supporting a bigger proportion of higher-priced transactions.

It was not price reduction but more launch activity that helped raise developers’ January sales volume, notes real estate lecturer Nicholas Mak. ‘Average prices in many recently launched projects either increased marginally or remained unchanged,’ he added.

A brighter economic outlook and pent-up demand after low sales in Q4 last year also gave January numbers a push, felt CB Richard Ellis (CBRE) executive director Li Hiaw Ho. ‘The 1,476 units sold in Jan 2010 alone is about 80 per cent of the 1,860 new homes sold in the entire fourth quarter of 2009,’ he said.

House-hunters also moved after noting that the government’s property-cooling measures last September did not translate into price reductions, noted Knight Frank chairman Tan Tiong Cheng.

CBRE’s Mr Li said the stronger sales volume in January was also partly driven by anticipation of a possible price hike in the mid and high-end segments this year.

The 1,476 private homes (excluding executive condos) developers sold last month was triple the 481 units sold in December last year. The latest January number is nearly 14 times the 108 units sold in January last year.

Developers launched 1,424 private homes last month, almost double the December figure of 734 units, according to URA.

Industry observers also say private home-buying activity is being driven mostly by investment demand rather than owner occupation. ‘We’re getting a lot of interest from mainland Chinese buyers because luxury home prices in Singapore have not recovered to the extent seen in gateway Chinese cities and Hong Kong,’ says DTZ executive director Ong Choon Fah.

CBRE predicts URA’s overall private home price index could appreciate 8 to 10 per cent in 2010 after last year’s 1.8 per cent rise.

Developers are expected to rev up launches in the coming weeks. ‘Some developers who were supposed to have released projects before Chinese New Year held back their launches, for greater clarity on the price of land when the first few state land tenders this year close,’ said a senior executive with a major developer. Assuming land costs remain firm, that will give developers greater confidence in pricing their end units, he added.

Low interest rates and improving sentiment will support buying interest from Singapore residents as well as foreigners this year, he argues.

January’s top-selling projects in the primary market were Cube 8 at Thomson Road (167 units), The Shore Residences in the Katong area (144 units), RV Edge along River Valley Road (91 units), Urban Suites in the Cairnhill area (88 units) and Parvis at Holland Hill (73 units).

The lowest psf price for a developer sale last month was for a unit sold at $544 psf at Oasis @ Elias; the highest price, $3,243 psf, was for an Orchard View unit.

Source: Business Times, 18 Feb 2010

China’s Dec property price surge steepest in 18 months

Real estate prices in China, Singapore and Hong Kong need monitoring for signs of bubbles forming as Asia continues to grow rapidly this year, said Fred Hu, Goldman Sach Group’s chairman of Greater China.

China, Singapore and Hong Kong need to be watched for asset bubbles, especially real estate prices, Mr Hu told a conference in Taipei yesterday. He also warned of inflationary pressures in China and said that China and India would lead the way in economic growth.

Home prices in Hong Kong are at their highest in 12 years, while residential and commercial real-estate prices in 70 cities in China climbed 7.8 per cent in December, the fastest pace in 18 months. In Singapore, a record number of private homes were sold last year.

China’s economy is overheating as asset bubbles and inflation pressures build, posing a ‘major risk’ to global growth, the World Economic Forum said on Jan 14.

Hong Kong residential property prices will rise about 5 per cent this year, Credit Suisse Group AG analysts led by Hong Kong- based Cusson Leung said last week. Prices of existing homes in Hong Kong, which rose 29 per cent last year, advanced further to reach their highest in almost 12 years as at Jan 10, according to Centaline Property Agency Ltd, one of the city’s biggest.

Record-low mortgage costs, near-zero interest rates on savings deposits and buying from rich mainland Chinese stoked demand even as Hong Kong Chief Executive Donald Tsang said on Jan 14 there is no ‘obvious bubble’ in the city’s property market.

In November, Mr Tsang had warned that asset prices in cities including Hong Kong and Singapore were ‘going up to levels that are incompatible or inconsistent with the economic fundamentals.’

To help ease a shortage of homes, Hong Kong will hold its third land auction in the current financial year next month, it said last Friday.

In China, property prices rose at the fastest pace in 18 months in December, with residential and commercial real-estate values in 70 cities climbing 7.8 per cent from a year earlier, the National Development and Reform Commission said last week.

To cool speculation, the government this month reimposed a sales tax on homes sold within five years of their purchase, after cutting the taxable period to two years in January 2009 to bolster a market that was then flagging.

The central bank also raised lenders’ reserve requirements from yesterday, seeking to rein in liquidity from record lending without stalling a recovery.

A total 14,991 units were sold in 2009 in Singapore, according to Bloomberg calculations, beating the historical high of about 14,800 units set in 2007.

Source: Business Times, 19 Jan 2010

They are evergreen investments with no oversupply problem

Good class bungalows (GCBs) enjoy a unique status in the Singapore residential market. These detached houses are highly exclusive as there are only around 2,400 units in the whole of Singapore.

They typically have a minimum plot size of 1,400 sq m, or 15,070 sq ft, and are distributed in 39 designated areas. The GCB market is stable and resilient because GCBs are evergreen investment products that are preferred by ultra-high net worth individuals.

GCBs are limited in supply in urban Singapore where landed housing is scarce. There will never be an oversupply situation. For the buyer, the odds of prices appreciating are better than that of them depreciating.

Most GCB owners have strong holding power, reducing the risk of falling prices during a downturn. Fire sales are thus hard to come by. This has been especially apparent in the recession year of 2009.

Despite the bleak economic outlook, last year was a brilliant year for the GCB market. The total value chalked up was in fact the highest since data was first made available in 1996, with 100 transactions amounting to $1.59 billion, far surpassing market expectations.

The month of July, in particular, saw the highest-ever number of 23 GCB caveats lodged in a single month. As economic fundamentals catch up with sentiment in the residential market this year, the outlook for the GCB market remains healthy.

Given an expected stable GCB market this year, the total transacted value could range from $1.2 billion to $1.4 billion with 80 to 90 transactions. This is lower than last year as the majority of buyers could have already made their purchases in 2009 itself. Buyers who had earlier anticipated that prices of GCBs would dip may have bought these properties last year, before GCB prices increased further along with the improvement in the equity market and market sentiments.

The recent financial crisis caused many investors to recognise GCBs as stable investments that are comparatively less risky than other forms of investments. With such optimism in the market, prices of GCBs could go up further this year.

While it is not possible to pinpoint the price increase on a per sq ft basis due to the unique features and rules governing the sale of GCBs, anecdotally, an overall quantum of $20 million and above per transaction has been occurring more frequently. Last year, there were 20 GCBs sold at a price of $20 million and above, compared to only 12 transactions in 2008, nine in 2007, and a mere four in 2006.

Basically, GCB prices are determined by three factors.

The first of these is location. While there are 39 designated bungalow areas in Singapore, some addresses are more exclusive than others, such as those in districts 10 and 11 compared with those in districts 20, 21 and 23. This explains the popularity and higher volume of transactions in the Nassim, Dalvey and Tanglin areas, which are the prime pickings from the GCB crop.

The second factor is the land on which the bungalow sits. Considerations to take into account here include the shape of the land, its terrain, its frontage and its potential for sub-division.

The final factor is the actual house on site: whether it is single- or double-storey, and how old it is.

Previously, before the escalation of construction costs in 2007, the actual bungalow on a GCB site made up around 20 to 25 per cent of its total price, with the land itself accounting for the rest. But in recent months, this proportion has risen to 25 to 30 per cent.

Most GCB sellers are people who have owned their GCBs for around 10 years, and who bought their homes when prices were lower. They usually own more than one GCB. With the current high profit margins, they are prepared to cash out and invest in other areas.

As for buyers, there are two categories. One group is young professionals in their late 30s who buy for their own stay. While in the past the typical age of a GCB buyer would be in the mid-40s, it is now not unusual to find GCB buyers in their late 30s.

The second group consists of ultra-high net worth individuals who buy for long-term investment, and eventually pass on the GCBs to the next generation.

In recent months, young professionals and entrepreneurs, as well as permanent residents, have been observed to show keen interest in the GCB market, driving up demand in a market that already has a limited supply.

This trend is expected to continue in 2010, as younger affluent home buyers recognise the investment value of GCBs.

The writers are CB Richard Ellis’ director of luxury homes and associate director of research.

Source: Sunday Times, 17 Jan 2010

Smaller units being offered in mass market private housing sector; mild price hikes likely

Mass market private homes gave a roaring start to the recovery of Singapore’s property market last year, fuelled by pent-up demand and priced-to-sell projects in the earlier part of the year.

Home hunters, dominated by HDB upgraders, thronged showflats in the euphoria of improved market sentiment. The speed at which these units were taken up, and the number of long queues spotted at property launches, stunned market watchers.

The mass market rally showed little signs of easing until anti-speculative measures were introduced by the Government in September last year.

Having given a resounding overall performance, surpassing even the levels attained in the 2007 market boom, would the mass market segment remain a star performer this year?

The strong run-up in the sales of new mass market homes had seen prices of new launches slowly inching up over the last few months.

The transacted prices of these new homes rose from between S$500 per sq ft (psf) and $700 psf in July last year to between S$750 psf and $1,000 psf in November.

The number of mass market transactions surpassing the $1,000 psf mark also increased. There were 392 such transactions last year, compared with 75 in 2008. The highest-priced mass market home was a unit at Centro Residences in Ang Mo Kio which, at $1,289 psf, fell comfortably within the mid-tier range.

More mass market projects have also achieved average prices in excess of $1,000 psf. Besides Centro Residences, some of the projects were Hillvista in the Hillview area and The Lenox along Changi Road.

Moreover, a 99-year leasehold residential plot located along Serangoon Avenue 3 drew a winning bid of $221.2 million, or S$529 psf per plot ratio, from a unit of Hong Leong Holdings. Based on this land price and current construction costs, the selling price for this mass market development could breach the $1,000 psf mark when launched.

Although prices of mass market private homes have increased, a growing number of developments is also offering a new product mix to keep prices affordable.

The popularity of smaller unit types (studio, one bedroom plus study, two bedroom, and two bedroom plus study) within the central region seems to have filtered down to the mass market segment.

Unlike the high-end and mid-tier segments, mass market homes are usually larger in sizes as buyers often purchase them for their own occupation rather than for investment. Therefore, only an estimated 10 per cent to 20 per cent of units within a mass market development are designed with smaller sizes.

However, recent trends seem to indicate that more mass market developments are offering smaller units. For instance, 59 per cent of Optima @ Tanah Merah and 43 per cent of Hundred Trees are given to smaller unit types. Buyers seem receptive, going by the good take-up rates seen in both projects.

As the Government remakes the outskirts of Singapore into attractive satellite towns, more investors may start to see investment value in mass market private homes located in these regions.

For example, the transformation of the Jurong Lake District may have contributed to the spike in property transactions in the western part of the island. Popular projects in the western region last year were Caspian, Mi Casa, Lakeshore, The Centris, Lakeholmz and Parc Vista.

The rejuvenation of Bedok Town Centre, expansion of the Tampines Regional Centre and Changi Business Park, and the building of the fourth university may also have increased interest in developments in the eastern suburbs such as Optima @ Tanah Merah, Livia, The Gale, Oasis @ Elias, Waterfront Waves and Ferraria Park Condominium.

As more towns undergo rejuvenation, mass market homes may become even more attractive in future.

Going forward, prices of mass market private homes are likely to increase at a more moderate and sustainable pace this year.

For one thing, more mass market homes will come on stream over the next few quarters. About 14,500 such new homes will be completed over the next five years, with another 8,960 potential units to be added from the Government’s land sales programme for the first half of this year.

Also, HDB resale prices are expected to ease with the Government’s plan to introduce 10,000 to 12,000 new flats annually over the next five years.

The writer is senior manager of research and consultancy at Savills Singapore.


Source: Sunday Times, 17 Jan 2010

There’s still housing demand but heavy reliance on investor buyers poses risks

In July last year, a buying wave of tsunami proportions drove developers’ sales for the month to an astounding 2,772 units.

To put that into context, the number was huge even for a quarter, let alone a single month. It is easily more than three times the monthly average sales of 700 to 900 units over the past decade.

If robust sales for the previous five months – averaging over 1,400 units per month – had not made policymakers sit up, this result certainly caught everyone’s attention.

Was it pent-up demand? Quite a few thought so. Speculative? The Government thought so. It announced measures in September to ‘temper the exuberance in the market and pre-empt any speculative bubble from forming’.

Developers were dismayed, thinking the measures were a death knell for the fragile market. Actually, the impact was more psychological than real, because the measures were aimed at pure speculative plays, not investors.

Have the measures worked? It is hard to tell. Sales in the following months fell, but they would have come down anyway, with or without the measures. July’s figures were simply too high.

Many predicted even fewer sales with the approaching year-end holiday period. But November’s figures showed a solid 600 units sold. Considering it was a ’slow’ month, sales were good as they were achieved despite rising prices.

The actual price rise in the fourth quarter of last year will probably be more than the 7.3per cent estimate last month. Certainly, this is not a market which has seen better days.

Will buying continue? There is no reason why not. Investors are buying, not speculators, so the cooling measures have little impact.

Chinese investors in particular are leading the charge. Many have taken profit in China’s real estate boom, and their funds are now moving into Hong Kong and spilling over to Singapore.

So what might happen this year? Unless there are alternative channels for this massive liquidity, the buying will likely continue until the authorities are forced to step in to limit the risks arising from the banking sector’s increased exposure to the property sector.

As I see it, there are two possible scenarios for this year: continued healthy growth, or a sharp correction.

Demand still genuine

There is genuine pent-up demand for homes as there has been a rapid increase in the number of households over the past two years. Many are buying now instead of renting, with the majority buying for their own occupation.

While incomes have not risen as rapidly as prices, most buyers are sitting on accumulated wealth. In the case of new permanent residents, many have made huge capital gains on properties in their home countries.

The opening of the integrated resorts will bring in more employees. Even if these are not of managerial level, they will stoke the Housing Board resale market, which in turn supports the private housing market as HDB upgraders cross over.

The economy’s exposure to property will be moderate as most buyers are not borrowing up to the 80per cent allowed, as they are using their accumulated wealth to lower their loan-to-price ratio.

Importantly, the economy is growing again. So will incomes, even if both are expected to see slow growth. The widening gap between home prices and economic fundamentals will narrow eventually.

Money from China and elsewhere is flowing in in search of long-term investments. Even if they are not living here now, most investors intend to make Singapore their home in the not-too-distant future. Many are not likely to pull out their funds at the drop of a hat.

Investing in property is a hedge against inflation. Where stock prices may go down, property will hold its value. Investing in property is a sure thing if you hold it long enough.

Over-reliance on investors?

But part of the capital inflow that is driving up property sales and prices is hot money seeking high yields. If returns are better elsewhere, it could leave quickly.

Liquidity also feeds on confidence. When that is lost, funds move out, such as in Dubai.

At current price levels, most genuine owner-occupiers have been crowded out. This explains the sudden popularity in HDB resale flats and the sharp rise in resale prices.

Many of those still buying homes are investors. Developers recognise this and are focused on the investor buyer: apartment sizes have shrunk to as little as 300 to 400 sq ft to raise affordability and some sales previews are limited to buyers interested in multiple units.

If investors form the bulk of buyers, who will occupy the completed units? Private rentals are not moving up just yet. Traditionally, owner-occupiers form the bedrock of property purchasers. When that balance is heavily distorted, you can expect serious repercussions.

Also, property prices move in cycles. Gone are the days when prices moved up in a straight line. Buying at the peak means waiting a full cycle before prices come up again. In the meantime, will rentals cover investors’ loan repayments?

The stimulus packages rolled out by governments worldwide helped save the financial system from collapse. However, this situation is unsustainable and the stimulus will need to be rolled back eventually, leading to rising interest rates.

With rates so low now, any big increases could translate to a doubling or even tripling of mortgage payments.

Even if Singapore manages its asset inflation situation prudently, a domino effect is still possible if overseas property bubbles burst.

To sum up, the health of the market depends on the number of investors versus those buying for their own use. But even if there are many more investors, it still does not guarantee that the market will correct immediately, although cracks will eventually surface.

The writer is director and head of research and consultancy at Chesterton Suntec International.

Source: Sunday Times, 17 Jan 2010

Range to choose from but projects skewed towards high-end sector; overall home prices expected to rise at steady pace of 8% to 10%

Mass market and mid-tier housing launches had dominated the market last year while developers held off launching their posh projects.

But the scene is set to reverse this year, with high-end project launches taking centrestage.

These are projects located in districts 9, 10 and 11 as well as in Sentosa Cove and Marina Bay. Quite a few are around the Orchard Road area such as Ardmore Park, Emerald Hill Road and Handy Road.

In the Cairnhill area, new launches will include the 229-unit The Laurels and the 64-unit Urban Resort Condo.

Projects coming up for launch in another posh residential area, Sentosa Cove, include the 228-unit branded condo in Sentosa Quayside and the 151-unit Seascape.

High-end projects are already starting to stream into the market.

Savills Singapore said it launched the 20-unit 42 Stevens yesterday at an average price of $1,900 per sq ft (psf), and plans to start selling 8 Nassim Hill at $3,100 psf on average on Tuesday via a preview by appointment.

Some of the projects that CBRE is marketing in the first quarter of this year include Cube 8 along Thomson Road, Holland Residences, The Holland Collection, Emerald Hill Residences and Cheung Kong Holdings’ project along West Coast Crescent, said its executive director, residential, Mr Joseph Tan.

Still, upgraders need not fret as there is still a list of mass to mid-tier projects available.

This year, new launches could be between 7,000 and 9,000 units, down from 14,725 last year, said Colliers International’s director of research and advisory, Ms Tay Huey Ying.

‘In terms of projects, it will be highly skewed to the high-end sector.’

But in terms of units, there are still a fair number available in suburban or city fringe areas, she said.

Developers who bought government land sales sites last year are expected to launch their projects on these non-city sites this year.

These are in Chestnut Avenue, Dakota Crescent and Serangoon Avenue 3.

City Developments and Hong Leong Group plan to launch the condo in Chestnut Avenue, a joint development, within the first half of the year.

Ms Tay estimates a minimum selling price of $670 psf to $700 psf for the Chestnut Avenue site, and roughly $1,000 psf to $1,100 psf for the other two sites in Dakota Crescent and Serangoon Ave 3, which could be launched in the second half of the year.

‘Actual selling prices depend on market conditions,’ she said.

‘But because the developers had bought these three land parcels at or near benchmark prices for the areas they are in, they should be selling the developed units at these levels, at the minimum.’

Said CBRE’s Mr Tan: ‘The bar is set to be raised in terms of pricing this year. Possibly fewer than five projects might be priced below $1,000 psf.’

Most of the projects in the city centre or what the Government calls the Core Central Region are expected to be priced between $1,600 psf and $2,500 psf, he added.

At the annual construction and property prospects seminar last week, CBRE Research said it expects residential prices to increase in a ’steady fashion’ this year.

Overall home prices, it predicted, could rise by 8 per cent to 10 per cent this year.

Source: Sunday Times, 17 Jan 2010