Property News & Market Trends

Property News in a Nutshell - Aug

How Bad is Bad for the property market?
The Sunday Times on 31 Aug reported that many experts says there is no panic selling. In fact, Savills had a recent analysis that says many make profits of $400k on the average. That's fantastic returns. Except for the fact that many would have made much more if they had sold before 2008! Is there panic selling? I guess not.

Many who sold reaped hefty profits because they had bought much earlier from 2004 - early 2007. Citylights in Jellicoe Road, for instance, which saw the most number of sub-sales this year, was first launched in December 2004 at an average price of $590 per sq ft (psf). Up till the development was completed earlier this year, units changed hands at steadily rising prices, topping out at $1,200 to $1,300 psf. But are they selling lower than expectations? You bet.

The United States sub-prime crisis is still not over. The latest casualty that can no longer hold down their losses is Lehman Brothers. They are carrying $30-$40b worth of mortgages. Now they have to spin it off as a separate entity or they will become the next Bear Stearns. Property investors have no urgency to offload their uncompleted units at fire-sale prices and drive home prices down yet. But with the current depressed market sentiments, many sellers may have no choice to put up their properties for sale if they can't hold till 2011.

The impact of IR is still unpredictable. Many are hopeful. I'm sure the tourism & consumerism market will do well. How much money will the 50,000 foreign workers pump back into the economy is a big question mark. Worst to come, how many of these foreigners will become PR and buy a property? If 10% went into the market to buy a private home over a 2 years period, we can see an increase of transactions up to 20% max. The rest will move the rental market. The HDB will see a massive boom, followed by those private homes who allow group rentals. Owners will have to scale down their hope of renting their property as a whole to family.

So, for the next 2 years, the HDB will lead the market and bless the private. Renting a HDB home is very challenging for foreigners, especially Indians & Chinese(I'm not a racist but that is a fact). These difficulties and escalating rentals will spur the private market on. Owners renting out to groups will benefit first. Studios & smaller units next. So, what will happen to the luxury with rentals of $10-20k? These are the sandwich class. There are plenty by 2010. Estimated about 20,000 in the market by then.

Next comes the super luxury of $20k and above. Demand will stagnate at this level. There won't be a surge unless we become a super luxury city like New York, London or Paris. Then again, many who can afford to buy at this end may not require leases to tide over their installments. They may not even have installments, for all we know. But while the selling hysteria of private properties may not happen this year and even next year, some industry players caution that 2010 may be a different.

The projects that will be completed then were mostly launched during the peak of the market last year and this year. Buyers bought high and are likely to register losses if they want out of their investments, experts say. So come 2010, if prices stay soft and the economy has not made a spectacular recovery from the current slowdown, buyers might start to feel a greater urgency to sell their properties and the market might be flooded with these properties. Already, the profits that were reaped by sub-sellers this year have dwindled according to how recently they bought their units, consultants noted.

Those who made the original purchase in 2004 and 2005 gained more than $600,000 each on average, while those who bought their units last year made only $230,000 on average, according to Savills’ data. Investors who bought and sold within this year reaped only about $175,000 on average. This spectacular growth is unlikely to be repeated, removing a cushion from investors still hoping to resell their units before completion in 2010 and beyond.

But a glimmer of hope for the property market lies in the healthy profits that investors have made so far this year. Savills estimates that punters took home a total of $350 million in profits alone from sub-sales in the first seven months of this year. While consultants think it is unlikely that all the money has already been ploughed back into property, they expect it to return to the market eventually, which may help to prop up prices. Many return only when you think prices have bottomed out.

Shunfu Ville in Marymount Road goes private
The Housing Board (HDB) approved the required mandate for the estate to go private more than a week ago. Out of 18 HUDC estates in Singapore, Shunfu Ville is the 13th to go private. In April, it was reported that a mass-signing exercise by residents of its 358 units had secured enough votes to go ahead with the move.

This was after an unsuccessful exercise in 2001 held by Shunfu’s pro-tem committee, which fell short of the 75 per cent of votes needed. Some residents were reluctant because of the uncertain economic outlook and the high cost of privatisation. Now, Shunfu’s residents are allowed to sub-let their units without prior approval from HDB. They will also be allowed to purchase a second property. Lessees will be able to re-finance or re-mortgage their properties. When an estate is made private, HDB takes over the ownership of common areas, such as carparks, along with the management of the estate from the town councils.

How will IR be impacted by downturn of tourists?
After setting tourist arrival records for more than a year, growth in April and May slowed to 0.8 per cent year-on-year. In June and July, the numbers were lower than those in the same months last year. More worryingly, arrivals from 11 of the top 15 visitor-generating markets declined compared to last year.

Still, Las Vegas Sands continues to be ‘bullish’, top executives said yesterday. Unlike IRs elsewhere, which focus mainly on their casino operations, the Marina Bay Sands will devote much of its space and effort to attracting business from the meetings, incentives, conventions and exhibition sector, also known as Mice. Marina Bay Sands, which opens next year and features a 1.2 million sq ft convention centre, is already in talks with about 30 exhibitors and organisers of about 40 meetings and conferences to bring events to Singapore.

The group’s chairman and chief executive officer, Mr Sheldon Adelson, added that the IR has 240 meeting rooms - equal to the combined number of Singapore’s top 30 to 40 hotels. The IR is expected to open on schedule in the last quarter of next year. It has started ramping up the hiring of senior management, and plans to hire 10,000 staff for the resort in the middle of next year.

Swissotel Merchant Court is for Sale
The 476-room hotel near Clarke Quay has been put up for sale by global tender, closing on Oct 3. It is hoping to fetch about $350 million. Room rates start from about $250 a night, hotel booking websites show. ‘A hotel in (that) location can fetch around $700,000 to $800,000 per key,’ said Mr Mike Batchelor, MD, Asia investment sales for Jones Lang LaSalle Hotels, which is handling the sale. Owner Merchant Quay is controlled by fund manager LaSalle Investment Management, which bought the Swissotel Merchant Court for an undisclosed sum from Colony Capital early last year. It is rumoured to have paid under $200 million. The hotel was one of 41 properties in the Raffles Hotels and Resorts chain that Colony Capital bought in 2005 for $1.45 billion from CapitaLand’s Raffles Holdings.

In May last year, CDL Hospitality Real Estate Investment Trust bought the nearby Novotel Clarke Quay in a deal that priced the 398-room hotel at $219.8 million or about $552,000 per room. Mr Batchelor argues that Swissotel Merchant Court’s average room size of 30 square metres is larger than Novotel Clarke Quay’s. Also, room rates are higher at Swissotel Merchant Court, which would allow for a higher pricing on the hotel. ‘Historically, hotels in Singapore have been transacted at net yields ranging from about 4 per cent to 5.5 per cent,’ he noted.

Investors typically take a five- to 10-year view of the market and outlying fundamentals here are very strong, said Mr Batchelor. ‘In line with strong growth in visitor arrivals to Singapore and rising room rates, hotel values have increased.’ Swissotel Merchant Court recently went through a multimillion-dollar refurbishment, hence its contemporary-style rooms now provide a platform for future revenue growth, he said. Whoever buys it will have the opportunity to further enhance the asset by redeveloping the prime riverfront space overlooking Clarke Quay, he added. The site comes with a remaining lease of about 85 years

Fragrance Group bidded $125k per mth!
The hotel and property developer has submitted a bid twice as much as its next bidder in a tender for the use of two blocks at the old Changi military camp for Hotel use. . Fragrance Group chief executive Koh Wee Meng, 45, recently made headlines with his debut at No. 24 on Forbes magazine’s list of the 40 richest Singaporeans. He has a net worth of $230 million.

Keppel is still bullish on Vietnam
Few companies have more confidence in the long-term future of Vietnam than Keppel Land. It’s investing $1 billion in Vietnam’s tallest building, an 88-storey complex of shops, offices and residences in the commercial capital of Ho Chi Minh City. It is, by far, the biggest Singapore-based landlord in Vietnam, with more than 25,000 homes in the pipeline in not only Ho Chi Minh, but also in Hanoi and elsewhere in the country of 86 million people. “Vietnam is where China was 10, 15 years ago; a country with a rapidly growing middle class,” says Mr Linson Lim, KepLand’s chief representative in Vietnam.

KepLand’s The Estella development, which is expected to yield up to 1,500 high-end apartments has sold more than half of the 500 units of its first phase it put up for sale a month ago at prices between US$2,000 and $2,300 per sq m. The current shortage of office space has spurred the company to embark on two huge multi-purpose towers, one 88-storeys high and the other 66-storeys high, adjoining its Saigon Centre in Ho Chi Minh’s central business district. “There’s a severe shortage of Grade-A office space in Saigon with rentals now at up to US$60 per sq m,” says CB Richard Ellis (Vietnam) managing director, Mr Marc Townsend.

The "Singapore" brand is amongst the world's top
This is according to a global survey of 200 countries conducted by Washington-based East West Communications. Hong Kong and Malaysia were ranked second and third respectively. The bottom three countries were Sudan, Iraq and Afghanistan.

Site next to Lor Chuan MRT open for tender
A land plot for a condominium has been made available for sale in Serangoon Avenue 3, next to the Lorong Chuan MRT Station on the new Circle Line. Despite lacklustre activity in the private housing market, property consultants expect this 1.39ha site to be favourably received, given its choice location. The plot is adjacent to Nanyang Junior College and near other schools such as St Gabriel’s Primary and the Australian International School. It is also close to Serangoon Gardens and the Chomp Chomp food centre, as well as the mega mall in the future Serangoon Hub. Bids are expected to range from $83 million to $107 million, or $200 to $255 per sq ft (psf) of potential gross floor area. Mr Ku Swee Yong, director of business development and marketing at Savills Singapore, was slightly more optimistic. He said bids could come in at about $130 million, or $300 per sq ft of potential gross floor area, based on an expected selling price of $850 psf for the finished units.

Can Government Land Sales (GLS) Programme helps balance supply?
Will the Government Land Sales (GLS) Programme fizzle out because developers are offering low land bids in the face of rising construction costs? Two suburban condo sites - at Woodleigh Close and Choa Chu Kang Drive - were sold at state tenders over the past few months at land prices below construction costs. The question is: Will the government still keep awarding Confirmed List sites if land bids continue to fall?

The problem with the Confirmed List system is that the government doesn’t reveal the minimum or reserve price for sites in this list, which are released according to a pre-stated schedule regardless of demand. Reserve List sites, on the other hand, are launched for tender only if a developer undertakes to bid at a minimum price that is acceptable to the state. Since this minimum price is publicised by the government when the sites are triggered for release, developers that take part in the ensuing tender will know the minimum price they need to bid. Given the uncertain environment, it was a good move on the part of the authorities to have leaned more towards the Reserve List for the current H2 2008 GLS Programme.

As for sites on the Confirmed List (where the minimum price is not made public), these too have by and large been awarded. But there has been the odd case here and there where the government could not award a site because the top bid was too low. Some market watchers are wondering if that could become more commonplace. A BT story last month highlighted that land bids for 99-year suburban condo sites have fallen below construction costs. This is the first time in at least two decades this has happened. Examples include Confirmed List sites at Woodleigh Close and Choa Chu Kang Drive, which fetched top bids of $270 psf of potential gross floor area (GFA) and $203 psf of GFA respectively at state tenders that closed in June and May respectively this year. In both instances, the top bids were below construction costs.

‘Rising construction costs, coupled with a ceiling selling price, will put downward pressure on land tender prices,’ the study predicted. But will it reach a point where the bids are too low for the state to award Confirmed List sites? A lot will depend on the Chief Valuer’s assessment of reserve price, which might be adjusted lower if construction costs keep escalating. So state land awards should still be possible as long as bids are reasonable, and not seen as opportunistic attempts by developers to get land on the cheap.

After all, keeping land prices up has never been the objective of the GLS Programme. Rather, it has aimed to ensure a steady state of supply for the property market. However, one could argue that land is a strategic resource of Singapore and should not be sold on the cheap, even if market conditions warrant it. There are other dimensions to this discussion. Construction costs will not keep rising forever. Once oil prices are tamed and/or economic growth slows all over the world, construction material prices should also ease. Meanwhile, if land bids slip further, perhaps one should be prepared for even fewer sites being released on the Confirmed List - unless they serve a strategic purpose.

Russell Investments wants to boost its exposure to Asian real estate
Russell, which manages over US$211 billion in assets,  sees growing markets in China and India withstanding a global downturn. The company, which raises money from institutions such as pension funds and invests them with other fund managers, said it expects to more than double its investments in Asia properties over the next three years, from about US$300 million currently. ‘Our clients tell us they want to be in Asia property, and we go where our clients want to go,’ said Martin Lamb, newly appointed Asia Pacific head of property for Russell, the funds and indices unit of Northwestern Mutual Life Insurance. ‘Regardless of the downturn in the US and Europe, there is a strong domestic need particularly in India and China that continues to fuel demand for housing and retail,’ said Mr Lamb, who is Russell’s first property chief to be based within the region.

Former UNSW Asia site to be "Silicon Valley" buzz.
Singapore’s fourth publicly-funded university will be fully operational in Changi in five years’ time, it should feature a Silicon Valley-type buzz. Plans are underway to use its permanent location next to Changi Business Park - home to high-tech enterprises and knowledge intensive facilities, as well as industry giants such as IBM and Honeywell - to its advantage.

Education Minister Ng Eng Hen said the new varsity will cultivate a vibrant ecosystem of industry and academia, to nurture skills much needed in the new economy. “In the United States, for example, the industries work very well with universities and they sometimes even share facilities. We think this is one area that we can develop because Changi Business Park is a growing area, and if we build a university there, there are opportunities for industry to have linkages,” said Dr Ng.

Stanford University is one that has benefited from collaborations with nearby techno hub Silicon Valley. Meanwhile, the new university is set to open its doors to an initial intake of500 students in 2011, at an interim campus yet to be confirmed. This will grow to an annual intake of 2,500. Its permanent site at Changi - which incorporates the land once earmarked for the University of New South Wales’ Asian campus - is about 22.6 hectares, big enough for hostels and 600 metres from the Expo MRT station. Drawing up the masterplan for this campus will be a steering committee chaired by Mr Philip Ng Chee Tat, chief executive officer of Far East Organisation.

Prices resilient despite sub-prime woes in US
Economic growth is slowing. Shares are crashing. Property sales have slowed. Yet private home prices have refused to fall. Indeed, they have barely budged since the slowdown began about nine months ago, despite conventional wisdom saying they should be plunging. But property experts see increasing signs that a price fall is coming, and while no one knows by how much, few believe a crash is on the cards. Anyone waiting for bargain basement deals might be out of luck, with the local market trading at a higher range based on the country’s rosier long-term prospects. Prices are being kept up partly by low mortgage rates and the ability of developers flush from last year’s bumper returns to hold off launching new flats.

A seasoned market watcher said the impression that Singapore was not dramatically hit by the United States’ sub-prime woes has helped keep prices stable. However, new sales have slowed significantly, and prices are starting to reflect this. The Urban Redevelopment Authority showed that private home prices inched up just 0.17 per cent in the second quarter - the least in four years and well below the 3.8 per cent in the first quarter.

With price growth disappearing amid sluggish demand, a downtrend - with a bigger blip seen for the luxury sector - seems inevitable, said market watchers. But any correction is likely to be gradual, with experts tipping a timeframe of a year or more. It will not be steep at this point as interest rates are low and the economic outlook is not that bad. Home prices will take a long time to fall because the decline is being led by individual investors. They will be forced to sell when their rentals cannot meet mortgage payments, a situation that will become increasingly apparent as more units go on market.

These will mostly be the flats bought at the market’s peak around the middle of last year, said the market watcher. Investors who bought low under the deferred payment scheme will be able to sell below developers’ asking prices and still make a profit. When they do, their deals will weigh on the market. The decline will not be led by developers as they have profited immensely from the price run-up in 2006 and 2007. At the moment, they only have to sell enough units to keep revenue streams flowing. If the market remains weak in the next six months, prices could easily fall 20 per cent to 30 per cent on average over a period of time to levels seen in 2006, with the high-end sector bearing the brunt.

Still, the lows seen in the post-Asian financial crisis days or the Sars period are gone forever unless Singapore is hit by a major catastrophe, experts say. ‘We do not see a repeat of the prices in 1997 or 2003 because those were big shocks,’ said National University of Singapore associate professor, real estate, Mr Sin Tien Foo. ‘There is no bubble effect.’ Besides, prices hinge on quality. ‘Nowadays, people are looking for better designs and materials, which would increase developers’ costs,’ he said. Jones Lang LaSalle’s head of research for South-east Asia, Dr Chua Yang Liang, said: ‘Theoretically, property values appreciate over time.’ While poor fundamentals can send prices below the replacement cost level, this is an unlikely scenario here as fundamentals have been good and look to remain stable, he said. Singapore’s employment rate is still strong and income growth stable. As the director of Savills Residential, Mr Ku Swee Yong put it: ‘The sellers are not losing their jobs.’

PM reduces growth forecast to 4-5%
But the Republic is holding its own. Be prepared for a bumpy year ahead, the PM cautioned. Yet, the latest economic figures he unveiled yesterday were not as bad as some had feared. Growth forecast for the full year has been trimmed as expected, but only by one percentage point at the top-end - from 4-6% to 4-5%. Less upbeat economists in the private sector had said it might be revised to the 3-5% range. For the first half of the year, the economic growth was actually 4.5%, higher than the earlier flash estimate of 4.3%. ‘Considering the external challenges, Singapore’s economic results are good,’ PM Lee said. Still, the revised growth forecast underlines the fact that the weakening American and global economy has finally hit Singapore. And Mr Lee predicted that the US difficulties sparked by the housing crisis would ‘probably drag on well into next year before getting better’.

More ...

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