IN THE rush to secure a home amid escalating property prices, first-time homebuyers, especially young adults, may inadvertently commit themselves to properties beyond their means.

Since mortgage payments and other home bills take priority over other basic necessities, rising mortgage rates may push some homebuyers to suffer a housing-induced fall in their standards of living. It is important, thus, to take a long-term perspective on housing affordability.

Affordability is usually measured by the ratio of monthly mortgage payment to current monthly household income. In the United States, if this ratio is less than 30 per cent it is assumed that the property is affordable. In Singapore, a cut-off ratio of 40 per cent is one of the criteria banks use to decide on home loans.

However, this is not a good measure of affordability for two reasons. First, by extending the amortisation period, monthly mortgage payment can be reduced. This can give the impression that affordability has improved, although the total interest burden has gone up. Second, the measure essentially focuses on short-run housing affordability by using current income instead of an estimate of permanent income. Undue reliance on short-run housing affordability measurements was one of the triggers in the US sub-prime mortgage crisis.

A much better indicator of housing affordability is the ratio of house price to lifetime income – house price being the discounted present value of future mortgage payments. Lifetime income can also be worked out as a discounted present value of the future income stream, using the same mortgage rate.

(For example, if the annual interest rate is 5 per cent, the discounted present value of $105 one will receive next year is $100. Alternatively, if one saves $100 today at the 5 per cent interest rate, one will receive $105 next year.)

Under some conditions, the two ratios – mortgage payment to permanent income, and house price to lifetime income – are the same. We can thus use a cut-off ratio like 30 per cent to define an affordability limit. We have not worked out an optimal cut-off value for Singapore yet.

Homebuyers know the prices of the houses they want and the transaction costs involved. What they need is an estimate of their lifetime income – that is, their accumulated savings plus the discounted present value (DPV) of their earnings, over their remaining working life.

Using survey data collected by the Department of Statistics, we can decipher predicted income profiles by birth cohorts for different income groups over the working ages of 20-64. We now have data only for three income levels: lower (25th), middle (50th) and upper (75th ) percentiles.

Since our focus is on young homebuyers, the accompanying table presents estimates of the DPV of household income for households headed by 30-year-olds. By adding their own accumulated savings to the income figures, young homebuyers can obtain an estimate of their lifetime income. They can then divide the price (including the transaction cost) of the home they are buying by their estimated lifetime income to see what percentage of their lifetime income will be consumed by the property.

The rest of the table provides illustrative computations of housing affordability for the three income group references. Accumulated savings (including interest earnings) were estimated from household expenditure survey data, and transaction costs were estimated using current rates on stamp duties and other fees and charges. Property taxes and costs of home insurance and maintenance were not included.

Some general observations that emerge from this table are worth highlighting:

# First, when the mortgage rate goes up, homebuyers have to spend a higher percentage of their lifetime income on housing, and affordability goes down.

# Second, given that current mortgage rates are above 5 per cent, and if we use the 30 per cent cut-off rule, HDB resale flats of four rooms and above are not that affordable for low-income groups.

# Third, at current mortgage rates, HDB resale flats are well within the affordable range for middle- and upper-income groups.

# Fourth, private properties are obviously for high-income groups. Still, even for those in the 75th income percentile, private residential properties at median prices are not within the affordable range at current mortgage rates.

Tilak Abeysinghe is deputy director of the Singapore Centre for Applied and Policy Economics, National University of Singapore. Gu Jiaying is pursuing a PhD at the University of Illinois at Urbana-Champaign.

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A much better indicator of housing affordability is the ratio of ‘house price’ to ‘lifetime income’.

For a 30-year-old earning $5,520 a month with savings of $118,900, affordable homes would be an HDB executive flat or lower, using a cut-off ratio of about 30%.

Source: Straits Times, 4 Aug 2010

Republic is 10th most expensive country to build in worldwide

(SINGAPORE) Singapore is the most expensive Asian country to build in except Japan and one of the 10 most expensive worldwide, according to a new report from EC Harris.

The consultancy’s international construction cost report, which covers 50 countries, found Singapore is the 10th most expensive country to build in worldwide, on a list topped by Switzerland. Hong Kong, the second most expensive Asian country to build in, is ranked 21st globally.

The report does not include values for Japan, as EC Harris did not have any projects there in the past two years. Generally, tender prices in Tokyo are around 20-30 per cent higher than in Singapore and Hong Kong.

Richard Warburton, EC Harris’s regional head of cost and commercial management in Asia, said Singapore continues to be the most expensive Asian country except Japan to build in despite a drop in tender prices of 5-8 per cent last year.

‘The Singapore market appears to be recovering on the back of sustained demand and strong economic growth,’ he said. ‘We are also seeing localised ‘hot’ markets, such as the substantial amount of new office building fit-out activity that is under way.’

This may create supply chain pressures and lift tender prices further. Mr Warburton expects 3-5 per cent growth in general tender prices over the coming year, although a key factor determining this will be how much commodity prices rise, he noted.

Another property and construction consultancy, Rider Levett Bucknall, predicted in April that building tender prices in Singapore could climb 3 per cent this year.

Analysts have said recent hikes in iron ore prices are likely to lead to higher steel prices. Increases in the foreign worker levy and cut in man-year entitlements will also cause construction costs to rise.

According to EC Harris’s survey, which benchmarks the cost of building in each country against the UK, the price of construction in Singapore is almost 7 per cent higher than in the UK, where it fell almost 20 per cent from its peak in the previous year.

Hong Kong is Singapore’s closest Asian counterpart on the expensive list. It ranks second in Asia, at 7 per cent below the UK benchmark.

China ranks fifth among Asian countries, behind South Korea and Thailand. At the other end of the scale, Sri Lanka is the cheapest Asian country to build in, at 27 per cent of the cost of UK construction.

According to Mr Warburton, the greatest uncertainty in tender price inflation in Asia exists in Hong Kong.

Construction workloads and tender prices in Hong Kong rose steadily throughout 2009, driven largely by government spending on infrastructure. Now there is a sense that a period of readjustment is on the way, Mr Warburton added.

EC Harris calculated the figures through a survey of construction costs in 50 countries. The survey was conducted across the consultancy’s offices worldwide, with data collected in cost per square metre format for a wide range of buildings, including industrial, offices, retail, residential and hotels.

Source: Business Times, 4 Aug 2010

DATA released by the Urban Redevelopment Authority and the Housing Board last week showed price increases had accelerated across the property sector, from resale flats and private housing to industrial and retail properties.

Rentals are also spiking, as the economy forges ahead strongly.

For the second quarter, private residential rentals registered a 5.9 per cent quarterly growth, while demand for office space rose about 71 per cent to 441,320 sq ft, from 258,334 sq ft in the first quarter.

Traders hope the rental increases mean bumper earnings for property counters going ahead.

In a report, Deutsche Bank said property companies are trading at an average discount of 18 per cent to their revalued net asset value.

‘With rising risks for residential, we continue to prefer the office and integrated players and Reits (real estate investment trusts),’ the report said last week.

But risks include an economic growth trend reversal and further government tightening measures.

Traders can get exposure to property counters by trading the covered warrants issued by foreign banks. For CapitaLand, Macquarie Bank will list two call warrants and one put warrant today.

One of the new call warrants offers investors the option to buy the mother share at $4.20 till next January, while the other call gives them till next June to buy at $4.30. This will enable a profit if the warrant moves in tandem with any gains made by CapitaLand.

For the put warrant, investors can sell the counter at $4 until next February. Investors stand to gain from any rise in the warrant, if CapitaLand falls in price.

Source: Straits Times, 2 Aug 2010

But prelim figures for June, upcoming projects paint brighter picture

(SINGAPORE) The value of construction contracts awarded in the first five months of the year was less than hoped for, keeping the building industry on edge.

Nevertheless, authorities are keeping their full year construction demand forecast intact as preliminary June figures and upcoming projects paint a brighter picture of the industry.

According to figures released by the Building and Construction Authority (BCA) to the public, construction demand from January to May was $8.17 billion. Some 59 per cent or $4.84 billion of this came from the private sector, and the remaining 41 per cent or $3.33 billion was from the public sector.

The demand up to May – compared with BCA’s full year forecast of $21-27 billion – triggered some unease among industry insiders.

‘It looks as though the target of $21-27 billion may not be reached this year,’ said Rider Levett Bucknall (RLB) managing partner Winston Hauw yesterday. He was giving an update on how the construction sector has fared at a conference organised by the Real Estate Developers’ Association of Singapore (Redas).

He cited other figures from BCA that implied slowing construction demand. The value of contracts awarded in April and May was $2.6 billion, which is around 18 per cent less than the $3.1 billion in the same period last year.

Davis Langdon & Seah director Seah Choo Meng shared similar concerns with BT. ‘Contractors feel that there is still not enough work in the market,’ he said.

Construction demand has come off sharply from the record $35.7 billion in the boom year of 2008. The subsequent economic slowdown forced many private sector projects off the pipeline, and the construction sector was left with excess capacity after completing large jobs.

The arrival of more foreign contractors looking for work as construction demand dries up in markets such as Dubai has exacerbated the situation. ‘Competition is high at the moment,’ said Lum Chang Building Contractors executive director Tan Wey Pin.

While the current situation does not look too promising, Mr Hauw, Mr Seah and Mr Tan hesitated to write off the year’s performance. Construction demand might still meet BCA’s full- year forecast if the public sector awards more contracts later this year, they said. One of the most awaited projects is Stage 3 of the MRT Downtown Line.

Still, there is hope. In response to queries from BT yesterday, BCA shared preliminary figures on the value of construction contracts awarded from January to June – about $11 billion.

Going by the agency’s mid-year review, another $10 billion to $16 billion worth of contracts are likely to be awarded in the second half.

These projects include the widening of Keppel Viaduct and the conversion of the former Supreme Court and City Hall to the National Art Gallery. Contractors will also be needed for the International Cruise Terminal, Lanxess Butyl’s synthetic rubber plant, and various condominium developments.

‘This will bring the total construction demand for this year to $21-27 billion, similar to the original projection released by BCA in January,’ said a BCA spokesperson.

At yesterday’s seminar, Redas launched a new Real Estate Sentiment Index, which it developed jointly with the National University of Singapore’s real estate department.

‘Redas will work even more closely with higher institutes of learning, professional bodies and government agencies to embark on new initiatives in research and executive programmes,’ said Redas president Simon Cheong.

Source: Business Times, 30 Jul 2010

(SINGAPORE) The Republic’s wealthiest are enjoying better fortunes this year, in tandem with the local economy’s improving performance, according to data collected by Forbes Asia.

The publication, which tracks the wealth of Singapore’s 40 richest people, said their total net worth this year is US$45.7 billion (S$62.4 billion) – up 17 per cent from last year’s US$39 billion.

Of the lot, 26 tycoons saw their wealth increase this year, while seven suffered declines.

The family of the late Ng Teng Fong – who died in February – topped the list with a combined net worth of US$7.8 billion.

Still, they were among the few whose wealth declined – from US$8 billion the year before, as the value of their shareholding in Hong Kong developer Tsim Sha Tsui Properties fell 18 per cent over the past year, on fears of a slowdown in China. Forbes Asia said the biggest chunk of the family’s wealth continues to come from its privately held Singapore property development company Far East Organization.

Meanwhile, the family of the late Khoo Teck Puat (who died in 2004) is second, with a total net worth of US$5.9 billion, up from US$5.5 billion in 2009. The family – the 14 children who inherited the fortune – sold its stake in Standard Chartered Bank to Temasek for US$4 billion in 2004. Its main asset is the Goodwood Group of hotels and a minor stake in the Ng family’s Orchard Parade Holdings.

United Overseas Bank chairman Wee Cho Yaw moves up to third from fifth place last year, adding US$500 million to his wealth. Wilmar International’s chairman Kuok Khoon Hong holds steady in fourth place with a net worth of US$3.5 billion. He’s expected to add more to his fortunes, however, with the recently inked US$1.5 billion deal to buy Sucrogen (the largest raw sugar producer in Australia and maker of fuel ethanol) expected to be completed by September.

There were also some notable entrants to the list this year. Making a debut, at No 5, is New Zealand- born social entrepreneur Richard Chandler, who became a Singapore resident in 2008. The 52-year-old heads RF Chandler (a fund which invests in emerging markets) and has also set aside US$100 million for educational causes in the developing world.

The other newcomers to the top-40 list this year are Otto Marine’s Yaw Chee Siew, who comes in at No 22, with a total net worth of US$385 million, and ARA Asset Management’s John Lim at No 38, with US$202 million.

And returning to the list, after a two-year absence, is Osim International’s Ron Sim. He re-enters at No 28, with a net worth of US$301 million, after having written off his investment in loss-making Brookstone in 2008.

Hotelier Ong Beng Seng and his wife Christina Ong are also first-time billionaires – with a combined wealth of US$1 billion, up from US$700 million last year, thanks to the better performance of their hotel and retailing empire. Between them, they control Hotel Properties, UK fashion house Mulberry, the Club 21 retail chain and the Como Group.

Meanwhile, among those suffering a decline in fortunes is Yanlord Land Group’s Zhong Sheng Jian, who made his fortune from China’s property boom over the last two decades, and was named ‘Businessman of the Year’ at BT’s Singapore Business Awards 2010. His net worth fell 10 per cent from the year before, to US$1.8 billion this year, as Yanlord’s stock price fell due to worries about the Chinese government’s efforts to curb real estate prices.

The full list of Singapore’s richest can be found in the August issue of Forbes Asia.

The magazine said it compiled the list by calculating the individuals’ public net worth using share prices and exchange rates as at July 14. For privately held wealth, it estimated what they would be worth if they were public.

The publication also said that this ranking, unlike the Forbes billionaire list, includes numerous family assets shared by individuals and their children, grandchildren and siblings. Where family assets are held by extended families, such as the Kwek cousins (that is, Kwek Leng Beng, Kwek Leng Kee and Kwek Leng Peck), Forbes Asia split them into separate entries.

Source: Business Times, 30 Jul 2010

A NEW index tracking the property market shows that developers and other industry players remain positive but believe conditions will cool down from the bullish levels seen in recent months.

More developers also believe the slowing global economy and an increased supply of new development land may hit market sentiment over the next six months.

The Real Estate Sentiment Index, which was launched at a seminar yesterday, also points to rising interest rates and an excessive supply of new property launches as market risks. The index has been jointly developed by the Real Estate Developers Association of Singapore (Redas) and the department of real estate at the National University of Singapore (NUS). It is based on data collected in a quarterly survey of Redas members to get a snapshot of market sentiment. The poll started in the first quarter.

The reading for the second quarter stood at 5.9, down from 6.8 in the first quarter. This shows that while industry players are still positive, they expect market conditions to worsen.

With empirical data, it is always about the past, said Dr Yu Shi Ming, head of NUS’ department of real estate.

‘With the index, we hope that as soon as a policy is announced, we can get a sense of how the industry feels,’ he said.

Redas chief executive Steven Choo said that apart from its members, policymakers, banks and other firms may find it useful.

There have been about 70 respondents for the survey each quarter – about 60 per cent are developers and the rest consultants and other industry figures.

About 51 per cent of developers polled for the second quarter expect prices of new launches to rise, compared with 85 per cent in the first quarter. About 68 per cent expect more new units to be launched over the next six months, compared with 83 per cent in the first quarter.

About half of the developers polled feel the level of interest for public and private development land will remain unchanged in the near term. Developers are most concerned with rising land prices, followed by the cost of building materials and labour.

At Redas’ seminar yesterday, Rider Levett Bucknall’s managing partner, Mr Winston Hauw, said: ‘It’s good to tender this year as there’s more uncertainty next year. We think prices will go up slightly next year.’

Source: Straits Times, 30 Jul 2010

But Q2 consensus as indicated by net balances weaker than in Q1 poll

MORE respondents polled for Real Estate Developers’ Association of Singapore’s (Redas’s) and NUS Department of Real Estate’s (DRE’s) Q2 2010 survey were still positive rather than negative on the overall performance of the prime and suburban residential markets over the next six months. However, the consensus as indicated by the net balances was weaker compared with the Q1 survey.

A net balance of +32 per cent of respondents in Q2 said that they expect better future market performance (over the next six months) in the prime residential sector, down from a +54 per cent net balance in Q1.

Likewise, the net balance of respondents who indicated better future market performance for the suburban private housing sector also slipped from +38 per cent to +27 per cent.

For an assessment of current market performance (now compared with six months ago), the net balance also declined from +79 per cent to +43 per cent for the prime residential sector. In the suburban housing segment, the net balance for current performance fell from +69 to +47 per cent.

Net balance is defined as the difference between the proportion of respondents who have selected positive options (such as ‘Better’) and the proportion of respondents who have selected the negative options (such as ‘Worse’).

The respondents who selected the neutral option (such as ‘Same’) are omitted from the calculation. A ‘+’ sign in the score denotes a net positive sentiment (optimism) and a ‘-’ sign indicates net negative sentiment (pessimism). The derived net balance scores are not weighted by the size of the respondents’ business.

Market watchers said the survey findings tallied with ground feedback. Generally, sentiment for the private housing market was less upbeat in Q2 as the sovereign debt problems in European economies unfolded. Some potential buyers also felt priced out of the market after rapid price increases and took a break during the World Cup and June school holiday season.

On the other hand, the outlook for the Singapore office sector improved in April-June as net office take-up continued to increase against the backdrop of the Republic’s economic recovery.

Reflecting this, the survey shows net balance of +63 per cent in Q2 for future performance of the office sector, an improvement from the Q1 figure of +43 per cent. A lower percentage of developers in Q2 expect stronger interest in land sales – both the Government Land Sales (GLS) Programme and private sector en-bloc sales market – over the coming half year compared with those polled in Q1.

About half of the developers in the latest survey said that the level of interest for both sources of land will remain unchanged in the next half year.

Only about 27 per cent of developers surveyed in Q2 expect more interest in the GLS Programme in the next half year, down from 71 per per cent in Q1.

Similarly, in Q2, 31 per cent of developers forecast a higher interest level in the en bloc sales market, down from 61 per cent in the preceding quarter. Of developers polled in April-June, about 24 per cent and 15 per cent foresee lower interest in GLS and en bloc sales respectively in the next half year.

Developers were also asked to identify the potential risks that may adversely impact market sentiment in the next six months.

In the second quarter, about 73 per cent and 63 per cent view a global economic slowdown or decline and an increase in supply of new development land respectively as the key threats – significantly higher than the 56 per cent and 44 per cent recorded in the previous quarter.

Other major risk factors listed by developers in the latest Q2 survey include rising interest rates (49 per cent of developer respondents) and excessive supply of new property launches (54 per cent).

Notably, about 49 per cent of the developer respondents were concerned with government intervention to cool the market over the next six months, significantly lower than the 81 per cent registered in Q1 this year.

Following government measures to cool the market in September last year and February and the record GLS programme for second half 2010 announced in May, the market probably read that the danger of further cooling measures has receded for now, say market watchers.

Among development cost concerns over the coming half year, developers said that their biggest worry is rising land prices, building materials cost and labour cost, with 90, 76 and 73 per cent respectively of developers polled expressing a moderate to high level of concern.

Interestingly, the percentage of developers who are ‘very concerned’ about escalating land cost fell from 83 per cent in Q1 to 35 per cent in Q2. ‘This could be due to the unexpected or suddenness of the spike in land bid prices seen at state tenders in Q1. In contrast, the ‘shock effect’ probably lessened as more tenders closed in the second quarter. However, I must emphasise that rising land cost is a very major issue for the development business,’ says Redas CEO Steven Choo.

Source: Business Times, 29 Jul 2010

(SINGAPORE) Latest flash estimates from National University of Singapore (NUS) confirm what property industry players have already experienced on the ground – a rapid slowdown in the growth of non-landed private home prices in June compared with May.

NUS’s overall price index for non-landed homes for June rose 0.3 per cent month on month, compared with month-on-month gains of 2.4 per cent each for May and April.

It was the same story for the sub-index for the Central region, which covers a basket of properties in districts 1-4 and 9-11. It increased 0.7 per cent month on month in June, slower than gains of 2.1 per cent in May and 3.4 per cent in April.

The sub-index for Non-Central region was unchanged in June from the preceding month, after rises of 2.7 per cent in May and 1.7 per cent in April.

The Singapore Residential Price Index (SRPI), compiled by the NUS Institute of Real Estate Studies, covers only completed properties.

DTZ executive director (consulting) Ong Choon Fah said: ‘The latest indices confirm the slowdown in buying momentum felt on the ground in June – because of the school holidays, World Cup and continued uncertainty in the eurozone economies.

‘People found no reason to rush and buy a home. Developers have also been holding back launches and the projects they did launch were not priced at the top end of their own target range; so developers have also moderated their own price expectation.’

Since the end of last year, all three NUS indices have appreciated – to the tune of 8.7 per cent for the overall index, 8.2 per cent for Central region and 9.2 per cent for Non-Central region. Based on the latest June flash estimates, NUS’s overall SRPI is now 36.3 per cent above the post-financial crisis low in March 2009. Over the same period, the growth for the Central region has been 42.1 per cent and that for the Non-Central region, about 33.3 per cent.

The June flash estimate for Central region is still 3.5 per cent below the pre-crisis high in November 2007. However, for the Non-Central region, the latest index surpassed its respective pre-crisis peak in January 2008 by 11.2 per cent. As a result, the overall SRPI flash estimate for June is 5.7 above its November 2007 high.

Looking ahead, Mrs Ong reckoned the overall and Central region indices are likely to remain flat in July, but the index for the Non-Central region could either be flat or post a marginal increase, supported by high cash-over-valuations in the HDB resale market.

Meanwhile Hong Leong Holdings said yesterday it has sold over 75 per cent of the 468 units available at The Scala, a 99-year condo at Serangoon Avenue 3. The units are sized between 474 and 2,142 sq ft, and sold at an average of $1,150 per square foot. Buyers comprised a good mix of HDB upgraders and investors, with the majority made up of locals.

Source: Business Times, 29 Jul 2010

New industry-backed index to measure sentiment shows mood has sobered slightly

(SINGAPORE) In a historic move, the Real Estate Developers’ Association of Singapore has teamed up with the National University of Singapore’s Department of Real Estate (DRE) to develop a Real Estate Sentiment Index (RESI), and it shows a lower reading for the second quarter of this year than for the first quarter.

Developers and industry players continue to express positive sentiments but expect market conditions to be less robust, Redas and DRE said.

More respondents were still positive (rather than negative) on the overall performance of the prime and suburban private residential markets over the next six months but the consensus as indicated by net balances weakened in the second quarter compared with the first quarter.

On the other hand, the net balance for offices improved substantially, in tandem with improving sentiment in this segment in April-June.

The survey also found that 51 per cent of developers polled for Q2 expect price growth for new residential launches, down from 85 per cent in Q1.

About 68 per cent of developers surveyed in Q2 expect more units to be launched over the next six months, down from 83 per cent in the Jan-March period.

The findings of the survey will be officially released this morning at the Redas Property Prospects Update 2010 seminar at Orchard Hotel.

Some market watchers welcomed Redas efforts in coming up with an objective method of gauging the confidence level of senior executives of property developers – and making it public. ‘It’s good to hear from the horse’s mouth,’ said DTZ executive director Ong Choon Fah.

Redas CEO Steven Choo noted that ‘while business expectation surveys are available for the manufacturing and service industries, there is currently no indicator specifically tracking sentiment in the fast-paced real estate market of Singapore’.

Some industry watchers also pointed to the refreshing change at Redas. ‘Previously, something like this, showing a slowdown in sentiment, would have been considered extremely sensitive and developers may have tried to hide it. Now they’re more open about it,’ said an observer.

Mrs Ong said: ‘Releasing the RESI shows just how far Redas has come. It reflects the maturity of the property market and stakeholders. It’s important to give the true market signals to all stakeholders – including home buyers and government – if we’re going to have a sustainable property market based on sound fundamentals.’

Redas and DRE developed the quarterly structured-questionnaire survey, which is conducted among senior executives of Redas member firms – mostly developers but also property consultants, architects, quantity surveyors and other professionals.

Dr Choo, who assumed the post of Redas CEO nearly a year ago, says: ‘The partnership between NUS and Redas has ensured academic rigour and added credibility to the new index. We are confident that in time, RESI will become an authoritative index and a highly-valued forward indicator for the property market, as well as an invaluable tool to guide the market and industry players, including investors and policymakers.’

Redas received about 70 responses for each of the Q1 and Q2 surveys – from largely the same people.

The survey measures respondents’ perceptions of current market conditions/ performance (now, compared with six months ago) and future expectations (over the next six months).

The RESI comprises three indices. The Current Sentiment Index, where respondents are asked to rate overall Singapore real estate market conditions now compared with six months ago, fell from 7.2 in Q1 to 5.8 in Q2. The Future Sentiment Index, where respondents rate overall property market conditions over the next six months, also slipped from 6.4 to 5.9.

As a result, the Composite Sentiment Index, which is the average of the two indices, declined from 6.8 in Q1 to 5.9 in Q2.

The index ranges from 0 to 10, with a score below 5 indicating deteriorating market conditions. A score above 5 shows improving market conditions. The Q2 score shows that developers and industry players continue to express positive sentiments and expect market conditions to remain favourable, but less robust than before.

Source: Business Times, 29 Jul 2010

A large number of new properties are set to be launched in the next six to 12 months. The Sunday Times looks at what savvy buyers should look out for.

Sovereign debt crises may have hobbled property markets elsewhere, but not here it seems.

Buoyed by Singapore’s strong economic recovery, optimism has staged a vigorous comeback, with property developers set to launch at least 3,500 new homes by year-end on top of about 8,500 they have already released so far this year.

This will result in an estimated total of between 12,000 and 14,000 new units this year.

And the supply of available building land shows no sign of drying up: 31 residential sites will be up for grabs from the Government Land Sales (GLS) programme in the second half of this year.

In the years ahead, new residential enclaves are predicted to emerge with the completion of the Circle Line, boosting once sleepy areas such as Paya Lebar, Mountbatten and Dakota.

Up, up and away

Analysts say that despite the uncertainty triggered by eurozone sovereign debt issues, overall buying interest here remains positive – especially in mass-market and mid-tier projects.

Although the overall upbeat sentiment has dipped slightly of late, with lower volume and slower price increases, the residential market looks set to remain largely strong given the strength of the economic rebound.

The Government forecasts a stunning 13 to 15 per cent growth in gross domestic product (GDP) this year, up sharply from an earlier prediction of 7 to 9 per cent, due mainly to the huge recent surge in manufacturing.

DTZ South-east Asia research head Chua Chor Hoon is upbeat about the market. ‘There is still buying interest and more new developments are being planned for launch in the coming months. If they are well taken up, that would motivate more developers to launch other projects and stimulate more buyer interest,’ she said.

Knight Frank manager of consultancy and research Ong Kah Seng is slightly more cautious about prospects, but still thinks the outlook is good.

‘Buyers are likely to rethink about rushing into home purchases and adopt a wait-and-see attitude… However, although sales will moderate, it is still reflective of a healthy residential market.’

Against this broadly bullish backdrop, prices have continued to climb ever higher.

Official estimates show they rose a higher-than-expected 5.2 per cent in the second quarter of this year after a 5.6 per cent jump in the first.

Prices are now 1.5 per cent above their peak in the second quarter of 1996.

And property experts are pencilling in price increases for the full year of between 12 per cent and 20 per cent, with the average estimate at about 15 per cent.

CB Richard Ellis (CBRE) residential director Joseph Tan thinks that because economic fundamentals ‘are still intact’, home prices will increase slightly in the second half of the year.

‘Projects which are well located and are close to main transport nodes could still enjoy a slight premium,’ he added.

Prime pickings

With developers looking to make the most of this positive market, Knight Frank is anticipating another 17 major launches (of at least 50 units each) within the next six months – a total of 4,056 apartments added to the market.

Upscale residences in districts 9, 10 and 11 are likely to make up almost half of these major launches, but a surge of mid and mass-market developments is slated from next year onwards as GLS land sites situated mainly outside the central regions are released, Mr Ong said.

CBRE notes that 38 apartment launches – inclusive of small to mid-size projects – are likely within the next six months.

Of these, 22 are located in the core central region, 10 in the rest of the central region and six outside the central region – allowing home buyers to cherry pick according to their budgets.

They range from Allgreen Properties’ prime 360-unit Skysuites @ Anson in Enggor Street to the mass market 408-unit executive condominium project in Yishun Avenue 10 by MCC Land.

In addition, experts say that prime developments are beginning to appear in numbers on the horizon as developers scent rising prices.

Mr Colin Tan, research and consultancy director of Chesterton Suntec International, said developers may have held back many of their high-end launch-ready projects, some of which were prime freehold sites from the ‘en bloc’ fever three years ago.

‘Some developers may have decided that high-end prices may take even longer to reach their desired levels. Given that there are still risks ahead, they may decide to make the best of an uncertain situation and launch within the next few weeks and months,’ he added.

A buyer’s spread

With 15 residential sites sold through the GLS programme in the first half of this year (four of which were executive condominiums) – and more than double that number planned for the second half – the property pipeline shows no sign of drying up.

Mass and mid-market homes are likely to be launched on these sites in areas such as Simei Street 3 and Hougang Avenue 2 as the Government attempts to dampen demand.

The plots are certainly being snapped up by developers eager to replenish their land banks and willing to pay top dollar for well-located plots.

A 99-year leasehold residential site at Simei Street was released for tender in March received a total of 18 bids, with the top bid at $152.7 million or $523 psf per plot ratio (ppr) coming from developer Chip Eng Seng. This was well above market expectations of between $300 and $400 psf ppr.

UOB Kay Hian property analyst Vikrant Pandey estimates the break-even price for the site to be in the range of $800 to $850 psf and, assuming a 15 per cent development margin, the average selling price to upwards of $970 psf.

‘Resale prices for the secondary market projects in the vicinity are in the range of $600 to $800 psf. The top bid is quite aggressive, factoring in a 20 to 30 per cent future price appreciation in the region,’ he said.

Similarly, the hotly contested tender of a choice residential plot in Boon Lay Way next to Lakeside MRT station attracted a whopping 14 bids in May, with Keppel Land (Mayfair) putting in the top bid of $499 psf ppr, or $302.98 million.

Property experts estimate the break-even level for units on the site will be $800 to $850 psf, with an eventual selling price of about $950 psf – which factors in a 10 to 20 per cent future rise in prices within the next year.

DTZ’s Ms Chua said that developers were already inching up prices at new projects, with many recent launches being priced higher than neighbouring projects.

However, the bumper release of 31 residential sites by the GLS programme in the second half of this year could dampen some of the exuberance in the market, moderating mass market prices.

There are 18 residential or residential/commercial sites on the programme for confirmed sale, with another 13 sites for residential use put on the reserve list.

The plots – which include 20 that are new and not rolled over – could accommodate 13,905 new homes and are anticipated for launch next year.

They are located in areas such as Jurong West and Pasir Ris but also in mass-market areas like Hougang and Tampines.

The sites commanding the most attention are, predictably, those with the best locations and amenities.

CBRE’s Mr Tan said sites with better amenities and close to MRT stations will generally attract more interest from developers. And mixed-use sites located at the town centre of HDB estates are likely to be vied for.

One of the most attractive sites is the land parcel at the junction of Woodland Avenue 1 and Woodgrove Avenue, he said, which is located within the American expatriate enclave and close to the Singapore American School.

Mr Tan pointed out that condominiums and landed homes in the nearby Woodgrove Estate were enjoying strong rentals, and the last condominium project launched in this location – Rosewood Suites in November 2008 – was fully sold.

Elsewhere, the commercial- cum-residential site in New Upper Changi Road and Bedok North Drive is expected to attract strong bidding, given that it will be the first comprehensive development in Bedok New Town and comprise a retail mall, residential units and a bus interchange.

Knight Frank’s Mr Ong added that close proximity to existing and upcoming MRT sites could well drive prices higher at a number of new plots.

These include the Alexandra Road site, the Tanah Merah Kechil site – near existing condos East Meadows and Optima@Tanah Merah – and the Petir site next to City Developments’ recently launched 429-unit Tree House.

Chesterton’s Mr Tan said: ‘The fact that there are still en bloc transactions taking place – most of which are in the suburbs – indicates that developers will still bid for land.’

However, with economists predicting a slowdown in growth in the second half of this year due to concerns over the European debt crisis and the bumper supply of land released, some analysts are less bullish.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said that with an average of three tenders a month, developers were both limited in their budget and manpower resources.

‘We might see the level of interest in GLS sites drop towards the end of this year… If signs of economic uncertainty re-emerge and if companies start putting their expansion plans on the backburner, developers might start bidding more cautiously,’ he said.

Source: Sunday Times, 18 Jul 2010