Monday, July 14, 2008

Prices Of Good Class Bungalows Still Going Up, But Volume Falls

Source : The Business Times, July 14, 2008

25 deals done in H1 worth $440.65m, against 87 deals for 2007 worth $1.15b

THE volume of transactions of good class bungalows (GCBs) may have fallen along with other property sectors but values have not.

A GCB is one that sits on designated land no smaller than 15,000 sq ft. And according to an analysis by CB Richard Ellis (CBRE), there were 25 GCB transaction in the first half of 2008.

While this may be a fraction of the 87 transactions in 2007, the total value for H1 2008 is already $440.65 million, almost 40 per cent of the total value for the whole of 2007 which saw $1.15 billion worth of deals.

There are several explanations for this, including the possibility that bigger GCBs were sold this year, but it also seems clear that prices have risen.

Upon closer analysis, CBRE found that some of the GCBs sold in 2008 had already changed hands once before in 2007. For instance, a house at Fifth Avenue was sold for $17.4 million in June 2007 and then sold again for $19.7 million in March this year - representing a gain of about 13 per cent.

Another house in Cluny Hill was sold in January 2007 for $15 million, re-sold six months later for $20.2 million and then sold again in May this year for $21.5 million.

CBRE director (luxury homes) Douglas Wong says: 'There is still buying interest in the GCB market as it is always regarded as an attractive investment in the long term and/or for owner-occupation.'

This certainly seems to be supported by the fact that CBRE and Mr Wong handled possibly the biggest GCB deal ever done here - a house in Leedon Park which sold for $43.2 million in May, bought by a Singaporean.

That locals make up the bulk of GCB buyers is interesting as foreigners have been very much credited with bolstering the luxury non-landed sector. Mr Wong also believes that of the estimated 2,400 GCBs in Singapore, these are owned by a small pool of about 1,000 wealthy individuals, suggesting that many own more than one GCB.

In tracking GCB transactions, CBRE found that there were two recent 'peaks' in the sector. (CBRE defines 'peak' in terms of volume rather than price).

The first peak occurred in 1999, when 77 transactions were recorded after the property market bottomed out during the Asian financial crisis.

The second peak occurred in 2006 with 119 deals done following a protracted period of market stagnation from 2000 to 2004.

In 2006, the 119 GCBs were sold with transacted value totalling $1.225 billion, double the value in 1999.

On average, each GCB cost $9 million to $10 million. In comparison, at the bottom of the market in 2002, the average price of a GCB was $6 million to $7 million.

Of the 25 GCBs sold in H1 2008, about half were sold for over $15 million. Of these, six were sold for more than $20 million.

And as CBRE notes, luxury properties are often seen as a barometer of the health of the overall market. When there are signs of the market turning, GCBs and luxury apartments will reflect this first and post bigger gains ahead of the broader residential market.

So it is good news then that for the rest of the year, CBRE expects GCB prices to remain firm or even see a marginal upside.


Richard Yeo said...

Good Class Bungalow land prices peaked in July 2007

The Business Times, July 17, 2008

I REFER to the report, 'Prices of Good Class Bungalows still going up, but volume falls' (BT, July 14) by Arthur Sim.

I am not alone in having received numerous calls from owners who own Good Class Bungalows (GCBs), as well as architects.

The article is misleading and flawed.

GCB land prices peaked in July 2007. If one were to take the average, one would be looking at the top end of $1,100 psf. 11 Queen Astrid Park was offered $35 million for 31,806 sq ft which equals to $1,100 psf. GCB land prices have been declining since the onset of the sub-prime crisis at the beginning of August 2007.

16 Leedon Park was contracted for $823 psf, almost 25 per cent off the peak of $1,100 psf. The property was bought for speculative purposes as it was immediately put up for sale at $1,000 psf. It remains unsold as of today. 11 Ford Avenue was sold for $782 psf, reinforcing the view that GCB land prices are declining. 2 Swettenham Road was transacted for $810 psf, further indicating the weakness of GCB land prices. 39 Leedon Park which was launched with much fanfare for $35 million was subsequently sold for $27.5 million.

The current market for GCB land prices would find buying support at around $800 psf. This is clearly a drop of almost 30 per cent. I foresee in the next six months that the support level could test $700-750 psf.

One reason why GCB land prices are declining could also be the high cost of reconstruction. At current levels of around $600 psf for a relatively good quality development, costs of building are weighing down on GCB Land prices. In fact, I foresee construction cost rising as high as $1,000 psf in the next one to two years. This would add further pressure on GCB land prices.

The bright side, however, are GCBs with existing buildings would be more resistant to price pressures. Buyers could reduce costs significantly by retrofitting the existing structures. The current level of new bungalows would find buying support at around $1,100 psf.

On a closing note, I find that it is absurd to justify price increases by taking into account the dollar value divided by the number of bungalows sold.

Michael French
Managing director
Asia Premier Property Consultants Pte Ltd

Arthur Sim replies: The report clearly states that the GCB peak in 2006 refers to the volume of transactions and not the highest prices achieved. Anyone looking to buy a GCB will know that the price for a newly constructed GCB and an old GCB can vary tremendously, even if these are on the same street. The price for the a new GCB will reflect construction costs while the price for the old GCB will more likely only reflect land cost. As such, using an average land price for GCBs to calculate price movements of GCBs (as the letter writer does) is not accurate. The price increases referred to in the report come from examples of transacted prices of the same property over 2007/2008. In the examples provided, prices increased.

Richard Yeo said...

Fall in GCB land prices is bad sign

Source : The Business Times, July 18, 2008

I AGREE with Michael French's letter (BT, July 17) that your original article 'Prices of Good Class Bungalows still going up, but volume falls' (BT, July 14) is misleading and flawed. The opening line of the article reads: 'The volume of transactions of good class bungalows (GCBs) may have fallen along with other property sectors but values have not.' As Mr French correctly points out, the GCB market peaked in the summer of 2007, along with prime condominium prices in districts 9 and 10.

The fact that GCB land prices have fallen is not a good omen for the overall market for two reasons:

1. House prices are no more than a proxy for land prices. When land prices fall, house prices follow in short order, and

2. The turning of prices in the GCB market has proved to be the top of the property market cycle in each of the last two cycles. The fundamentals this time around are no different than in the past.

Gerry Ball