Source : TODAY, Jul 10, 2009
Proposed change under spotlight:
Individuals who sell a property on or after Jan 1, 2010 will automatically not be subject to income tax, if he has not sold other properties in the previous four years. Even if he has, Iras will determine if a tax on income should be levied, just like existing practice.
What the situation is now:
When an individual sells a property for a profit, Iras decides if the gain is income in nature based on the facts of the sale. Factors include circumstances leading to sale, how long the individual held the property, how frequently he was selling properties in the past.
Intent of proposed change:
To provide certainty of non-income-taxation to individuals who sell a property.
Unintended effect:
Perceived to be an anti-speculation measure by some dampened market sentiment.
Friday, July 10, 2009
URA Launches Hotel Site At New Bridge Road
Source : The Business Times, July 10, 2009
THE Urban Redevelopment Authority (URA) yesterday launched a public tender for a hotel site in New Bridge Road.
The 0.45 ha site, which went on the reserve list in April 2007, was made available after a developer triggered its release with a $43.9 million bid last month.
The site has a maximum permissible gross floor area of 168,853 sq ft, which means the trigger price equates to $260 per sq ft. But analysts say it could fetch more than $300 psf as interest seems to be returning to small development sites with good attributes.
Last month, a government tender for a small hotel site on Short Street closed with 14 valid bids received. The number of bids - 15, including one judged invalid because it was below the minimum bid price - is among the highest in a government land sale tender.
'Small sites have been quite well-received recently,' said Cushman & Wakefield managing director Donald Han, citing the Short Street tender as an example.
The New Bridge Road site is in the Chinatown historic district, a popular tourist area with many historic, cultural and architectural attractions.
THE Urban Redevelopment Authority (URA) yesterday launched a public tender for a hotel site in New Bridge Road.
The 0.45 ha site, which went on the reserve list in April 2007, was made available after a developer triggered its release with a $43.9 million bid last month.
The site has a maximum permissible gross floor area of 168,853 sq ft, which means the trigger price equates to $260 per sq ft. But analysts say it could fetch more than $300 psf as interest seems to be returning to small development sites with good attributes.
Last month, a government tender for a small hotel site on Short Street closed with 14 valid bids received. The number of bids - 15, including one judged invalid because it was below the minimum bid price - is among the highest in a government land sale tender.
'Small sites have been quite well-received recently,' said Cushman & Wakefield managing director Donald Han, citing the Short Street tender as an example.
The New Bridge Road site is in the Chinatown historic district, a popular tourist area with many historic, cultural and architectural attractions.
Making Sense Of The Property Gains Tax Amendment
Source : The Business Times, July 10, 2009
More clarity needed on proposed refinement and about the tax itself
THE Ministry of Finance (MOF) has sought public feedback on certain proposed amendments to the Income Tax Act. One of these, which has received much publicity over the last few days, relates to a proposed 'refinement' to the policy on taxation of gains and losses from property sales.
Under the current tax regime, gains from property sales 'may' be taxed, either as trading gains or as 'gains or profits of an income nature'.
The proposed amendment seeks to add some clarity to this. Under the current regime, it is not clear who will be taxable or when. But under the amendment, anyone who sells only one property within any four-year period will not be taxable. However, if the person sells another property within four years of the first sale, the gains from the second sale 'may' be taxable. If passed, the amendment will take effect from next year.
News of the proposed amendment has set off jitters among people in the property business and the investment community.
A common (mis)interpretation is that a form of capital gains tax on property transactions is about to be introduced, and rigorously enforced.
Thus, after the news of the proposed amendment was publicised, one broking house put out a report which said: 'We find this news adversely affecting sentiment, especially in the upper-mid to high-end . . . We see developers with large unsold inventory in the high-end as potential losers from this news.'
The MOF subsequently clarified that the proposed amendment 'involves no tightening of the current income tax policy for individuals who sell their properties'. It is only aimed at 'giving certainty of non-taxation to individuals who do not sell properties frequently'.
But the heart of the matter is that even under the amendment, the provision for a property gains tax remains on the books.
The fact that it was already there is news to some people, especially as it has apparently been very sparingly enforced: over the years, hundreds of speculators have flipped properties for a profit, and then done it again within days of the first flip, without being hit by the taxman. Investors everywhere have come to presume that Singapore has no property gains tax.
But it is there, on the books. And now, there is a proposal for it to be 'refined'. What should one make of this?
What's the rationale?
The first question is, what is the rationale for having such a tax? One possible rationale is to curb speculation, which is fair enough.
But the government maintains that the proposed change is not an anti-speculation measure. Another rationale is to prevent people from passing off income gains as property gains. This could well be the reason why the provision to tax property gains exists. But if so, it needs to be clarified that the tax would only be enforced when this happens and at no other time.
But then, why the proposed four-year interval before property transactions are deemed to be free of tax? What happens to those who dress up income as property gains every five years?
The rationale apart, another problem with the tax is its apparent lack of fairness. It might be levied on some people, but not on others who do the same thing, and nobody except the taxman knows why.
A third problem is unpredictability - despite the greater element of certainty that the proposed amendment seeks to introduce. You definitely won't be taxed if you sell two properties more than four years apart. But if you do so within four years, you might be taxed. Or you might not.
At a minimum, we need a lot more clarity, not just about the proposed amendment to the property gains tax, but also about the tax itself.
The fact that some other countries have it too is not an adequate reason for keeping it, or for assuming that it is flawless. And if it isn't, then the government should consider another option: sometimes, the best way to refine a flawed policy is to abolish it.
More clarity needed on proposed refinement and about the tax itself
THE Ministry of Finance (MOF) has sought public feedback on certain proposed amendments to the Income Tax Act. One of these, which has received much publicity over the last few days, relates to a proposed 'refinement' to the policy on taxation of gains and losses from property sales.
Under the current tax regime, gains from property sales 'may' be taxed, either as trading gains or as 'gains or profits of an income nature'.
The proposed amendment seeks to add some clarity to this. Under the current regime, it is not clear who will be taxable or when. But under the amendment, anyone who sells only one property within any four-year period will not be taxable. However, if the person sells another property within four years of the first sale, the gains from the second sale 'may' be taxable. If passed, the amendment will take effect from next year.
News of the proposed amendment has set off jitters among people in the property business and the investment community.
A common (mis)interpretation is that a form of capital gains tax on property transactions is about to be introduced, and rigorously enforced.
Thus, after the news of the proposed amendment was publicised, one broking house put out a report which said: 'We find this news adversely affecting sentiment, especially in the upper-mid to high-end . . . We see developers with large unsold inventory in the high-end as potential losers from this news.'
The MOF subsequently clarified that the proposed amendment 'involves no tightening of the current income tax policy for individuals who sell their properties'. It is only aimed at 'giving certainty of non-taxation to individuals who do not sell properties frequently'.
But the heart of the matter is that even under the amendment, the provision for a property gains tax remains on the books.
The fact that it was already there is news to some people, especially as it has apparently been very sparingly enforced: over the years, hundreds of speculators have flipped properties for a profit, and then done it again within days of the first flip, without being hit by the taxman. Investors everywhere have come to presume that Singapore has no property gains tax.
But it is there, on the books. And now, there is a proposal for it to be 'refined'. What should one make of this?
What's the rationale?
The first question is, what is the rationale for having such a tax? One possible rationale is to curb speculation, which is fair enough.
But the government maintains that the proposed change is not an anti-speculation measure. Another rationale is to prevent people from passing off income gains as property gains. This could well be the reason why the provision to tax property gains exists. But if so, it needs to be clarified that the tax would only be enforced when this happens and at no other time.
But then, why the proposed four-year interval before property transactions are deemed to be free of tax? What happens to those who dress up income as property gains every five years?
The rationale apart, another problem with the tax is its apparent lack of fairness. It might be levied on some people, but not on others who do the same thing, and nobody except the taxman knows why.
A third problem is unpredictability - despite the greater element of certainty that the proposed amendment seeks to introduce. You definitely won't be taxed if you sell two properties more than four years apart. But if you do so within four years, you might be taxed. Or you might not.
At a minimum, we need a lot more clarity, not just about the proposed amendment to the property gains tax, but also about the tax itself.
The fact that some other countries have it too is not an adequate reason for keeping it, or for assuming that it is flawless. And if it isn't, then the government should consider another option: sometimes, the best way to refine a flawed policy is to abolish it.
Govt Clears Air Over Tax On Property Gains
Source : The Business Times, July 10, 2009
Ministry says proposed change aimed at giving certainty and is not a move against property speculation
Has the market worked up a storm in a teacup over a suggested change to income tax laws on gains from property sales? Keen to quell rumours about an anti-speculation drive, the Ministry of Finance (MOF) clarified yesterday that the proposal is unlikely to lead to more individuals being taxed.
Still, some industry watchers believe that the potential change is enough to worry property investors - many of whom have returned to the market only recently.
Currently, property sellers do not pay tax on gains unless the Inland Revenue Authority of Singapore (IRAS) sees them as traders and treats the gains as income. The IRAS makes its decision on a case-by-case basis, considering factors such as why the properties were sold, how long the sellers owned them and how frequently the sellers transacted properties in the past.
These factors are derived from case law and are not clear-cut. According to MOF's statement, just 'a small number of individuals' have been taxed on gains from property sales in the past.
There are individuals who want greater clarity on whether their gains will be taxed, MOF said. Responding to feedback, it proposed last month a condition that would guarantee no tax: An individual who sells a property on or after Jan 1, 2010 will not be taxed on the gains if he has not sold any other property in the previous four years.
This is actually 'a relaxation of income tax treatment aimed at giving certainty of non-taxation to individuals who do not sell properties frequently', MOF explained.
The proposal does not mean that those who sold more than one property within a four-year period will definitely be taxed on the gains. In line with existing arrangements, IRAS will still assess these cases individually. 'There is no change to the current and long-standing income tax treatment in this regard,' MOF pointed out.
MOF did not reveal the exact number of individuals who have been taxed on gains from property sales. But it said in an email to BT: 'If the proposed change is implemented, MOF does not expect the number of cases to increase. This is because the change does not involve a tightening of the rules.'
In fact, 'the number of cases may fall if all things remain constant' after the change, it says.
Rumours that the government was trying to curb speculation in the property market gained ground after news of the potential change got round. Property sales have been buoyant since February this year, and selling prices in some projects are said to have risen by a few per cent. Some market watchers attributed the improvement in part to the return of speculators.
In its statement, MOF emphasised that the proposed change is not an anti-speculation measure. It also reiterated that Singapore does not have a capital gains tax.
MOF's clarification has soothed the market somewhat. On Wednesday, fear that investors could exit the property market and perhaps confusion over the proposal had pushed prices of several property counters down. The selling pressure eased notably yesterday. City Developments, for instance, gained 43 cents to close at $8.31, while CapitaLand rose 12 cents to $3.50.
Despite the official reassurance, there are still nagging worries that the potential change to income tax laws could hurt investor sentiment, particularly in the prime property sectors.
'Demand for mass-market homes should hold, backed by HDB upgraders, while mid to high-end segments may experience slower take-ups from reduced speculative interest,' said AmFraser Securities analyst Lau Wei Chong in a note yesterday.
There are also industry watchers who stand by the anti-speculation theory. 'We remain believers of the idea that the government may be sending out a signal through this proposal to cool property transactions, especially in the high-end,' said CIMB analyst Donald Chua in a note.
To curb speculation in the property market in 1996, the government had imposed income tax on gains which individuals made from selling properties within three years of purchase. It lifted the rule in 2001.
Ministry says proposed change aimed at giving certainty and is not a move against property speculation
Has the market worked up a storm in a teacup over a suggested change to income tax laws on gains from property sales? Keen to quell rumours about an anti-speculation drive, the Ministry of Finance (MOF) clarified yesterday that the proposal is unlikely to lead to more individuals being taxed.
Still, some industry watchers believe that the potential change is enough to worry property investors - many of whom have returned to the market only recently.
Currently, property sellers do not pay tax on gains unless the Inland Revenue Authority of Singapore (IRAS) sees them as traders and treats the gains as income. The IRAS makes its decision on a case-by-case basis, considering factors such as why the properties were sold, how long the sellers owned them and how frequently the sellers transacted properties in the past.
These factors are derived from case law and are not clear-cut. According to MOF's statement, just 'a small number of individuals' have been taxed on gains from property sales in the past.
There are individuals who want greater clarity on whether their gains will be taxed, MOF said. Responding to feedback, it proposed last month a condition that would guarantee no tax: An individual who sells a property on or after Jan 1, 2010 will not be taxed on the gains if he has not sold any other property in the previous four years.
This is actually 'a relaxation of income tax treatment aimed at giving certainty of non-taxation to individuals who do not sell properties frequently', MOF explained.
The proposal does not mean that those who sold more than one property within a four-year period will definitely be taxed on the gains. In line with existing arrangements, IRAS will still assess these cases individually. 'There is no change to the current and long-standing income tax treatment in this regard,' MOF pointed out.
MOF did not reveal the exact number of individuals who have been taxed on gains from property sales. But it said in an email to BT: 'If the proposed change is implemented, MOF does not expect the number of cases to increase. This is because the change does not involve a tightening of the rules.'
In fact, 'the number of cases may fall if all things remain constant' after the change, it says.
Rumours that the government was trying to curb speculation in the property market gained ground after news of the potential change got round. Property sales have been buoyant since February this year, and selling prices in some projects are said to have risen by a few per cent. Some market watchers attributed the improvement in part to the return of speculators.
In its statement, MOF emphasised that the proposed change is not an anti-speculation measure. It also reiterated that Singapore does not have a capital gains tax.
MOF's clarification has soothed the market somewhat. On Wednesday, fear that investors could exit the property market and perhaps confusion over the proposal had pushed prices of several property counters down. The selling pressure eased notably yesterday. City Developments, for instance, gained 43 cents to close at $8.31, while CapitaLand rose 12 cents to $3.50.
Despite the official reassurance, there are still nagging worries that the potential change to income tax laws could hurt investor sentiment, particularly in the prime property sectors.
'Demand for mass-market homes should hold, backed by HDB upgraders, while mid to high-end segments may experience slower take-ups from reduced speculative interest,' said AmFraser Securities analyst Lau Wei Chong in a note yesterday.
There are also industry watchers who stand by the anti-speculation theory. 'We remain believers of the idea that the government may be sending out a signal through this proposal to cool property transactions, especially in the high-end,' said CIMB analyst Donald Chua in a note.
To curb speculation in the property market in 1996, the government had imposed income tax on gains which individuals made from selling properties within three years of purchase. It lifted the rule in 2001.
Marina IR Delay 'No Surprise'
Source : The Straits Times, July 10, 2009
TOURISM players say the signs that there would be a delay in the opening of the Marina Bay Sands integrated resort (IR) were visible: Construction at the site was proceeding slower than it should have been.
A view of the Singapore skyline from the 50th floor of the Marina Bay Sands' hotel towers. The IR's opening has been delayed, but tourism players say the signs were obvious. -- ST PHOTO: DESMOND FOO
They said the fact that work had not started on its 1.2ha rooftop garden - which has to be lifted 200m into place - with less than half a year left to the opening was a massive hurdle to overcome.
Said CIMB-GK economist Song Seng Wun: 'Anyone who has driven by could have seen it's impossible.'
Mr Song and others, however, said the delayed opening would not have much of an impact, given the sorry state of the industry right now.
This year has been a write-off as far as tourism arrivals are concerned, they said, and whatever boost a year-end opening of the IR would have given would have been minimal.
Las Vegas Sands' chairman and chief executive officer Sheldon Adelson said on Wednesday that the IR's opening would be pushed back to January or February.
The admission came after months of assurances by Marina Bay Sands' other executives that the 2,600-room casino-resort would open by the year end, as scheduled.
But while industry observers and agents contacted by The Straits Times say they saw a delay coming, they said the explanation given for it - that there was a shortage of materials and labour - was puzzling.
The Building and Construction Authority, for example, said it had not received any feedback from the industry about a shortage of raw materials.
Whatever the reasons for the delay, experts said there were several reasons why it mattered little.
Singapore Management University's adjunct lecturer for world travel and tourism, Mr Aaron Hung, said the state of the world economy meant few people were ready to travel anyway.
Others said the year-end period was a slow one for business travellers - Marina Bay Sands' target group - so the IR would not lose out either.
CTC Holidays spokesman Alicia Seah said that most travellers at the end of the year are leisure tourists who are less interested in the facilities for meetings, incentives, conventions and exhibitions that the resort would offer.
CIMB-GK's Mr Song went a little further and suggested that the delay might be a blessing in disguise.
By next year, he said, things will pick up in the industry, and back-to-back openings by the Sands resort and the other IR, Resorts World at Sentosa, would create a 'Big Bang' effect.
He added that a delay of a few months 'does not really mean much in terms of the long-term strategy of developing the meetings and conventions market or providing Singapore economic growth'.
Asked about the impact of the delay yesterday, Senior Minister of State for Trade and Industry S.Iswaran would only say that tourism has been hit by the slump like other industries, and that the spread of H1N1 flu 'sort of exacerbated that some'.
He added that the Singapore Tourism Board (STB) and other government agencies were in talks with the IR over the matter and 'we expect to have a good outcome'.
Neither he nor STB would be drawn into details of the discussions, such as whether a penalty will be imposed for the delay.
STB spokesman Muhammad Rostam Umar said: 'For Singapore, it is important that the developers maintain the integrity of the concept of an integrated resort as envisaged, to fulfil the objective of enhancing Singapore's tourism appeal.'
However, not everyone agreed that the postponement means little.
Gaming analyst Jonathan Galaviz, for instance, felt that the impact would be keenly felt. Having a mega-attraction open during the downturn, he said, would be a shot in the arm for the country, and would send an important signal that plans are going ahead despite the stormy weather.
He added: 'Every day that one of the IRs is not fully open is another day that the country is not receiving sorely needed tourism revenue and visitation.'
TOURISM players say the signs that there would be a delay in the opening of the Marina Bay Sands integrated resort (IR) were visible: Construction at the site was proceeding slower than it should have been.
A view of the Singapore skyline from the 50th floor of the Marina Bay Sands' hotel towers. The IR's opening has been delayed, but tourism players say the signs were obvious. -- ST PHOTO: DESMOND FOOThey said the fact that work had not started on its 1.2ha rooftop garden - which has to be lifted 200m into place - with less than half a year left to the opening was a massive hurdle to overcome.
Said CIMB-GK economist Song Seng Wun: 'Anyone who has driven by could have seen it's impossible.'
Mr Song and others, however, said the delayed opening would not have much of an impact, given the sorry state of the industry right now.
This year has been a write-off as far as tourism arrivals are concerned, they said, and whatever boost a year-end opening of the IR would have given would have been minimal.
Las Vegas Sands' chairman and chief executive officer Sheldon Adelson said on Wednesday that the IR's opening would be pushed back to January or February.
The admission came after months of assurances by Marina Bay Sands' other executives that the 2,600-room casino-resort would open by the year end, as scheduled.
But while industry observers and agents contacted by The Straits Times say they saw a delay coming, they said the explanation given for it - that there was a shortage of materials and labour - was puzzling.
The Building and Construction Authority, for example, said it had not received any feedback from the industry about a shortage of raw materials.
Whatever the reasons for the delay, experts said there were several reasons why it mattered little.
Singapore Management University's adjunct lecturer for world travel and tourism, Mr Aaron Hung, said the state of the world economy meant few people were ready to travel anyway.
Others said the year-end period was a slow one for business travellers - Marina Bay Sands' target group - so the IR would not lose out either.
CTC Holidays spokesman Alicia Seah said that most travellers at the end of the year are leisure tourists who are less interested in the facilities for meetings, incentives, conventions and exhibitions that the resort would offer.
CIMB-GK's Mr Song went a little further and suggested that the delay might be a blessing in disguise.
By next year, he said, things will pick up in the industry, and back-to-back openings by the Sands resort and the other IR, Resorts World at Sentosa, would create a 'Big Bang' effect.
He added that a delay of a few months 'does not really mean much in terms of the long-term strategy of developing the meetings and conventions market or providing Singapore economic growth'.
Asked about the impact of the delay yesterday, Senior Minister of State for Trade and Industry S.Iswaran would only say that tourism has been hit by the slump like other industries, and that the spread of H1N1 flu 'sort of exacerbated that some'.
He added that the Singapore Tourism Board (STB) and other government agencies were in talks with the IR over the matter and 'we expect to have a good outcome'.
Neither he nor STB would be drawn into details of the discussions, such as whether a penalty will be imposed for the delay.
STB spokesman Muhammad Rostam Umar said: 'For Singapore, it is important that the developers maintain the integrity of the concept of an integrated resort as envisaged, to fulfil the objective of enhancing Singapore's tourism appeal.'
However, not everyone agreed that the postponement means little.
Gaming analyst Jonathan Galaviz, for instance, felt that the impact would be keenly felt. Having a mega-attraction open during the downturn, he said, would be a shot in the arm for the country, and would send an important signal that plans are going ahead despite the stormy weather.
He added: 'Every day that one of the IRs is not fully open is another day that the country is not receiving sorely needed tourism revenue and visitation.'
Not To Penalise Investors
Source : The Straits Times, July 10, 2009
TAX PROPOSAL ON GAINS FROM PROPERTY SALES
Aim is to ensure sellers are not taxed on gains if they don't sell frequently
THE proposal to clarify the law on taxing profits from property sales is not a backdoor attempt to impose a capital gains tax or a pre-emptive strike against speculators.
ST PHOTO: ALPHONSUS CHERN
The clarification from the Ministry of Finance (MOF) on Thursday came after two days of confusion and disquiet over proposals to amend the Income Tax Act.
Concerns among property investors and analysts helped to send real estate shares plunging on Wednesday, but Thursday's statement from the ministry sparked a stock rebound.
The MOF said the proposed change is aimed at ensuring that investors are not taxed on any gains made if they do not sell property frequently. It proposes that anyone who sells only one property in any four-year period will not be taxed on any profit. If it becomes law next January, it will provide certainty for owners. At present, they cannot be sure if they will be taxed on any gains, even if they have held the property for four years or more.
The proposal was made in response to public feedback over the years demanding more certainty over the tax treatment property-owning individuals might face, said the MOF.
It is believed to have arrived at the four-year timeframe, after studying the legal precedents on taxing property sale gains over the years.
The proposed tax change does not mean tougher rules in income tax policy for individuals who sell their properties.
Instead, the only proposed change involves assuring individuals who do not sell properties frequently that they will not be taxed on a real estate gain.
The ministry said the proposed change is also not an anti-speculation measure. It does not mean that individuals who have sold more than one property within a four-year period will automatically be taxed.
'There is no change to the current and longstanding income tax treatment in this regard. Whether an individual who sells properties more frequently is subject to income tax depends on the facts and circumstances of each case,' the ministry said.
It is believed that there are fewer than 100 instances each year where a property seller is deemed to be a trader and needs to pay tax on gains.
And unlike many countries, Singapore does not have a capital gains tax, but profits from selling a property can be taxed at the appropriate income tax rates if the Inland Revenue Authority of Singapore (Iras) deems the seller to be a trader.
Iras uses various yardsticks to determine if a seller is a trader. These include the circumstances leading to the sale, how long the individual has held the property and how frequently he has sold properties in the past.
The Finance Ministry also clarified that individuals will still not be required to report to Iras every time they sell a property.
'Iras has always conducted its own audits of property transactions for possible cases of assessable income,' it said.
Market experts welcomed the Government's move to clear the air on the proposed tax change.
'Individuals can take comfort that if they sell more than one property within a four-year period, this would not automatically subject them to income tax,' said Mr Owi Kek Hean, KPMG's head of tax services.
'The statement removed any lingering misgivings investors might have over the proposed tax changes. They can go back to business as usual,' said Mr Tan Tiong Cheng, chairman of property consultant Knight Frank.
The stock market also heaved a sigh of relief, as the statement quelled earlier fears raised by analysts that the proposed tax change might be a disguised move to impose a capital gains tax.
Property giant City Developments rose 5.5 per cent, while CapitaLand gained 3.5 per cent, following Wednesday's sell-off when investors had reacted badly as news on the proposal broke.
# NO CHANGE to current and longstanding income tax treatment for individuals who sell properties frequently
# NO NEED for individuals to report to Iras every time they sell a property
# NO MOVE to impose a capital gains tax. Only those sellers deemed by Iras to be traders will be taxed
TAX PROPOSAL ON GAINS FROM PROPERTY SALES
Aim is to ensure sellers are not taxed on gains if they don't sell frequently
THE proposal to clarify the law on taxing profits from property sales is not a backdoor attempt to impose a capital gains tax or a pre-emptive strike against speculators.
ST PHOTO: ALPHONSUS CHERNThe clarification from the Ministry of Finance (MOF) on Thursday came after two days of confusion and disquiet over proposals to amend the Income Tax Act.
Concerns among property investors and analysts helped to send real estate shares plunging on Wednesday, but Thursday's statement from the ministry sparked a stock rebound.
The MOF said the proposed change is aimed at ensuring that investors are not taxed on any gains made if they do not sell property frequently. It proposes that anyone who sells only one property in any four-year period will not be taxed on any profit. If it becomes law next January, it will provide certainty for owners. At present, they cannot be sure if they will be taxed on any gains, even if they have held the property for four years or more.
The proposal was made in response to public feedback over the years demanding more certainty over the tax treatment property-owning individuals might face, said the MOF.
It is believed to have arrived at the four-year timeframe, after studying the legal precedents on taxing property sale gains over the years.
The proposed tax change does not mean tougher rules in income tax policy for individuals who sell their properties.
Instead, the only proposed change involves assuring individuals who do not sell properties frequently that they will not be taxed on a real estate gain.
The ministry said the proposed change is also not an anti-speculation measure. It does not mean that individuals who have sold more than one property within a four-year period will automatically be taxed.
'There is no change to the current and longstanding income tax treatment in this regard. Whether an individual who sells properties more frequently is subject to income tax depends on the facts and circumstances of each case,' the ministry said.
It is believed that there are fewer than 100 instances each year where a property seller is deemed to be a trader and needs to pay tax on gains.
And unlike many countries, Singapore does not have a capital gains tax, but profits from selling a property can be taxed at the appropriate income tax rates if the Inland Revenue Authority of Singapore (Iras) deems the seller to be a trader.
Iras uses various yardsticks to determine if a seller is a trader. These include the circumstances leading to the sale, how long the individual has held the property and how frequently he has sold properties in the past.
The Finance Ministry also clarified that individuals will still not be required to report to Iras every time they sell a property.
'Iras has always conducted its own audits of property transactions for possible cases of assessable income,' it said.
Market experts welcomed the Government's move to clear the air on the proposed tax change.
'Individuals can take comfort that if they sell more than one property within a four-year period, this would not automatically subject them to income tax,' said Mr Owi Kek Hean, KPMG's head of tax services.
'The statement removed any lingering misgivings investors might have over the proposed tax changes. They can go back to business as usual,' said Mr Tan Tiong Cheng, chairman of property consultant Knight Frank.
The stock market also heaved a sigh of relief, as the statement quelled earlier fears raised by analysts that the proposed tax change might be a disguised move to impose a capital gains tax.
Property giant City Developments rose 5.5 per cent, while CapitaLand gained 3.5 per cent, following Wednesday's sell-off when investors had reacted badly as news on the proposal broke.
# NO CHANGE to current and longstanding income tax treatment for individuals who sell properties frequently
# NO NEED for individuals to report to Iras every time they sell a property
# NO MOVE to impose a capital gains tax. Only those sellers deemed by Iras to be traders will be taxed
No Sign Of Excessive Speculation In Private Property: Mah
Source : The Straits Times, July 10, 2009
THE recent spike in private property sales is being monitored by the Government but there has been no sign of excessive speculation, said National Development Minister Mah Bow Tan on Thursday.
Mr Mah (left) said 'speculation is always part and parcel of any market. Whether there's excessive speculation or not, that is something we have to look at and watch out for.' -- ST PHOTO: LUIS ENRIQUE ASCUI
Mr Mah said 'speculation is always part and parcel of any market. Whether there's excessive speculation or not, that is something we have to look at and watch out for.'
'So far, anecdotally, we don't see any. But if there is, we will take the appropriate action,' added the minister, who was speaking on the sidelines of an HDB event.
The private property market kicked back into life in February after a sluggish 2008 that saw home prices and sales volume plunge on the back of the global economic recession.
The surge in activity, primarily supported by the healthy sales of private suburban homes, has helped stem the slide in private property prices.
Recent flash figures from the Urban Redevelopment Authority show prices fell 5.9 per cent from April to last month, following a record 14.1 per cent slide in the first quarter.
Mr Mah yesterday acknowledged the spike in activity, but added that prices have come down some 25 per cent over the last two to three quarters.
'I guess some of this increase in take-up rate is due to the property prices coming down. So whether this will be sustainable, I think it's really hard to tell.'
Sustainability will depend on two factors - sentiment and fundamentals, he added.
How the public perceive the health of the local and global economy will be crucial as will various factors, such as the supply, take-up rate and transacted prices in the private market over the coming months.
As far as the Government is concerned, 'our main interest is to make sure that the property market is an efficient one', said Mr Mah.
'By that, I mean that it functions well, and prices are more or less in line with economic fundamentals.'
The Government has released information on how much supply is coming onto the market, the transacted prices and how many units have been sold on the deferred payment scheme.
This gives buyers complete information, rather than to have reports of high prices alone, he said.
'For example, there are about over 40,000 units coming onto the market in the next three or four years - I think people must know that.'
The Government is also monitoring the market and will adjust the supply through its land sales programme.
'The objective is to keep the market efficient and (to do so), you need to give timely, accurate and comprehensive information to the public,' said Mr Mah.
THE recent spike in private property sales is being monitored by the Government but there has been no sign of excessive speculation, said National Development Minister Mah Bow Tan on Thursday.
Mr Mah (left) said 'speculation is always part and parcel of any market. Whether there's excessive speculation or not, that is something we have to look at and watch out for.' -- ST PHOTO: LUIS ENRIQUE ASCUIMr Mah said 'speculation is always part and parcel of any market. Whether there's excessive speculation or not, that is something we have to look at and watch out for.'
'So far, anecdotally, we don't see any. But if there is, we will take the appropriate action,' added the minister, who was speaking on the sidelines of an HDB event.
The private property market kicked back into life in February after a sluggish 2008 that saw home prices and sales volume plunge on the back of the global economic recession.
The surge in activity, primarily supported by the healthy sales of private suburban homes, has helped stem the slide in private property prices.
Recent flash figures from the Urban Redevelopment Authority show prices fell 5.9 per cent from April to last month, following a record 14.1 per cent slide in the first quarter.
Mr Mah yesterday acknowledged the spike in activity, but added that prices have come down some 25 per cent over the last two to three quarters.
'I guess some of this increase in take-up rate is due to the property prices coming down. So whether this will be sustainable, I think it's really hard to tell.'
Sustainability will depend on two factors - sentiment and fundamentals, he added.
How the public perceive the health of the local and global economy will be crucial as will various factors, such as the supply, take-up rate and transacted prices in the private market over the coming months.
As far as the Government is concerned, 'our main interest is to make sure that the property market is an efficient one', said Mr Mah.
'By that, I mean that it functions well, and prices are more or less in line with economic fundamentals.'
The Government has released information on how much supply is coming onto the market, the transacted prices and how many units have been sold on the deferred payment scheme.
This gives buyers complete information, rather than to have reports of high prices alone, he said.
'For example, there are about over 40,000 units coming onto the market in the next three or four years - I think people must know that.'
The Government is also monitoring the market and will adjust the supply through its land sales programme.
'The objective is to keep the market efficient and (to do so), you need to give timely, accurate and comprehensive information to the public,' said Mr Mah.
Home Away From Home
Source : The Straits Times, July 10, 2009
WHILE the hotel industry has been hit by the economic downturn, serviced apartments - which come with their own kitchens, suiting professionals on short contracts who want a homely environment - are on a roll.
The 50-unit Fraser Place Fusionopolis located in the heart of Singapore's thriving research and development scene at JTC Corporation's Fusionopolis @ one-north research hub at Buona Vista. --PHOTO: FRASERS PLACE
Two developments, totalling 204 rooms, have opened this year and two more with 675 rooms altogether will open within the next three years, all outside the city belt.
The latest to open is the 50-unit Fraser Place Fusionopolis located in the heart of Singapore's thriving research and development scene at JTC Corporation's Fusionopolis @ one-north research hub at Buona Vista.
The serviced apartments, which are on levels 17 to 19 of the park's 'Symbosis' Tower, opened last Wednesday and rates start from $6,300 a month.
Read the full report in Saturday's edition of The Straits Times, Life!.
WHILE the hotel industry has been hit by the economic downturn, serviced apartments - which come with their own kitchens, suiting professionals on short contracts who want a homely environment - are on a roll.
The 50-unit Fraser Place Fusionopolis located in the heart of Singapore's thriving research and development scene at JTC Corporation's Fusionopolis @ one-north research hub at Buona Vista. --PHOTO: FRASERS PLACETwo developments, totalling 204 rooms, have opened this year and two more with 675 rooms altogether will open within the next three years, all outside the city belt.
The latest to open is the 50-unit Fraser Place Fusionopolis located in the heart of Singapore's thriving research and development scene at JTC Corporation's Fusionopolis @ one-north research hub at Buona Vista.
The serviced apartments, which are on levels 17 to 19 of the park's 'Symbosis' Tower, opened last Wednesday and rates start from $6,300 a month.
Read the full report in Saturday's edition of The Straits Times, Life!.
Got Lift But No View
Source : The Straits Times, July 11, 2009
HDB LIFT UPGRADING PROGRAMME
HDB expects more complaints as it tackles more complex blocks
FOR some Eunos HDB residents, getting a lift that stops on every floor has been more of a nightmare than a dream come true.
Residents have complained about the loss of privacy and blockage of light from walls built at the additional lift shaft. -- ST PHOTOS: ALBERT SIM
They say that new lift shafts built on the outside of their blocks have robbed their flats of privacy and ventilation and blocked their views, as well as some light.
The external shafts being built under the Lift Upgrading Programme (LUP) affect 14 out of 116 units in each of three 13- and 17-storey blocks near the Geylang Serai market.
Blocks 411, 415 and 417 at Eunos Road 5 are U-shaped blocks combining two-storey maisonettes with single-storey corner units. This means that not every floor has a common corridor, and that is where the problem arises.
Last month, the small group of residents who have objected to the LUP since plans were first mooted in 2006 went so far as to ask that the lift shafts be torn down - even after the Housing Board had made several modifications to the design to address their complaints.
On Thursday, the HDB cited the Eunos example when it said that more such problems are likely to crop up as the LUP moves to other blocks across the island with unusual designs.
The protruding external lift shafts (above) at Block 411, Eunos Road 5, have resulted in loss of privacy for some residents. -- ST PHOTO: ALBERT SIM
When the programme began in 2001, it said, the blocks involved were mostly slab-sided ones.
Providing lift upgrading was thus a straightforward affair of making existing lifts stop on every floor.
But since 2004, the LUP has been moving to blocks with more complex designs.
These blocks present different challenges the HDB said, but it would work with residents to come up with solutions to problems, and will tweak its designs to address some of their concerns.
At Eunos, for example, the board made changes to the lift design before polling started because of residents' feedback, said Mr Sng Cheng Keh, director of the HDB's development and procurement department. As a result, he said, the lift shafts are now positioned further away from the blocks - 6.3m, rather than the planned 5m.
More modifications may be in store: To allow more light and ventilation, the HDB is looking into replacing part of the length of brick wall linking the lift shaft to the corridor with aluminium fins instead, so residents of affected units do not look out onto a full brick wall.
Such fins have been used in lift upgrading in other HDB blocks. They also help protect residents' privacy - the angle at which they are positioned blocks a direct view into a flat.
Despite the changes it plans, the HDB admits it is not possible to eliminate all inconveniences for affected units. It can only reduce them, said Mr Sng, explaining that LUP solutions had to be 'technically feasible, cost-effective and practical'. But despite the complaints of some, other residents say a lift upgrade is worth it.
Read the full story in Saturday's edition of The Straits Times
HDB LIFT UPGRADING PROGRAMME
HDB expects more complaints as it tackles more complex blocks
FOR some Eunos HDB residents, getting a lift that stops on every floor has been more of a nightmare than a dream come true.
Residents have complained about the loss of privacy and blockage of light from walls built at the additional lift shaft. -- ST PHOTOS: ALBERT SIMThey say that new lift shafts built on the outside of their blocks have robbed their flats of privacy and ventilation and blocked their views, as well as some light.
The external shafts being built under the Lift Upgrading Programme (LUP) affect 14 out of 116 units in each of three 13- and 17-storey blocks near the Geylang Serai market.
Blocks 411, 415 and 417 at Eunos Road 5 are U-shaped blocks combining two-storey maisonettes with single-storey corner units. This means that not every floor has a common corridor, and that is where the problem arises.
Last month, the small group of residents who have objected to the LUP since plans were first mooted in 2006 went so far as to ask that the lift shafts be torn down - even after the Housing Board had made several modifications to the design to address their complaints.
On Thursday, the HDB cited the Eunos example when it said that more such problems are likely to crop up as the LUP moves to other blocks across the island with unusual designs.
The protruding external lift shafts (above) at Block 411, Eunos Road 5, have resulted in loss of privacy for some residents. -- ST PHOTO: ALBERT SIMWhen the programme began in 2001, it said, the blocks involved were mostly slab-sided ones.
Providing lift upgrading was thus a straightforward affair of making existing lifts stop on every floor.
But since 2004, the LUP has been moving to blocks with more complex designs.
These blocks present different challenges the HDB said, but it would work with residents to come up with solutions to problems, and will tweak its designs to address some of their concerns.
At Eunos, for example, the board made changes to the lift design before polling started because of residents' feedback, said Mr Sng Cheng Keh, director of the HDB's development and procurement department. As a result, he said, the lift shafts are now positioned further away from the blocks - 6.3m, rather than the planned 5m.
More modifications may be in store: To allow more light and ventilation, the HDB is looking into replacing part of the length of brick wall linking the lift shaft to the corridor with aluminium fins instead, so residents of affected units do not look out onto a full brick wall.
Such fins have been used in lift upgrading in other HDB blocks. They also help protect residents' privacy - the angle at which they are positioned blocks a direct view into a flat.
Despite the changes it plans, the HDB admits it is not possible to eliminate all inconveniences for affected units. It can only reduce them, said Mr Sng, explaining that LUP solutions had to be 'technically feasible, cost-effective and practical'. But despite the complaints of some, other residents say a lift upgrade is worth it.
Read the full story in Saturday's edition of The Straits Times
Building On Its Success
Source : TODAY, Jul 09, 2009
Guocoland To Market Sophia Residence Soon
SPURRED by the success of recent property launches at the upper end of the middle-class market, GuocoLand Ltd, the Singapore-listed arm of Malaysian tycoon Quek Leng Chan, will soon start marketing its Sophia Residence project on - where else? - Sophia Road.
Sophia Residence
The 272-unit project comprises several blocks of between eight and 14 storeys nestled in landscaped surroundings on a 166,000 sq ft freehold site, which was bought in September 2007 for some $230 million.
It is one of only three residential developments to have won the 2009 BCA Green Mark Platinum Award, the highest accolade for green buildings here.
Units will range from 610 sq ft studios to four-bedroom apartments of up to 2,960 sq ft, and will cost $1,500 to $2,000 per sq ft, depending on the view and floor.
The condominium, scheduled for completion in three years, is designed to be energy- and water-efficient, said investor relations and corporate communications head Chan Kong Leong. He expects investors to take to the well-located project - it is close to the Dhoby Ghaut MRT Station and Orchard Road.
All 272 units will be on sale at the launch - with the exception of 21 penthouses.
GuocoLand is also holding back the launch of its Goodwood Residence in Bukit Timah Road to wait for the "impending upturn" in the higher end of the property market.
Among the main features of Sophia Residence is a 200m-long landscaped roof garden, solar panels and a smart water management and harvesting system.
Earlier in the year, GuocoLand relaunched the remaining 182 units in The Quartz in Buangkok and the complex is now almost fully sold, it said.
Guocoland To Market Sophia Residence Soon
SPURRED by the success of recent property launches at the upper end of the middle-class market, GuocoLand Ltd, the Singapore-listed arm of Malaysian tycoon Quek Leng Chan, will soon start marketing its Sophia Residence project on - where else? - Sophia Road.
Sophia ResidenceThe 272-unit project comprises several blocks of between eight and 14 storeys nestled in landscaped surroundings on a 166,000 sq ft freehold site, which was bought in September 2007 for some $230 million.
It is one of only three residential developments to have won the 2009 BCA Green Mark Platinum Award, the highest accolade for green buildings here.
Units will range from 610 sq ft studios to four-bedroom apartments of up to 2,960 sq ft, and will cost $1,500 to $2,000 per sq ft, depending on the view and floor.
The condominium, scheduled for completion in three years, is designed to be energy- and water-efficient, said investor relations and corporate communications head Chan Kong Leong. He expects investors to take to the well-located project - it is close to the Dhoby Ghaut MRT Station and Orchard Road.
All 272 units will be on sale at the launch - with the exception of 21 penthouses.
GuocoLand is also holding back the launch of its Goodwood Residence in Bukit Timah Road to wait for the "impending upturn" in the higher end of the property market.
Among the main features of Sophia Residence is a 200m-long landscaped roof garden, solar panels and a smart water management and harvesting system.
Earlier in the year, GuocoLand relaunched the remaining 182 units in The Quartz in Buangkok and the complex is now almost fully sold, it said.
Frasers Launches Serviced Apartments At Fusionopolis
Source : The Straits Times, July 9, 2009
Frasers Hospitality has obtained commitments amounting to a 60% occupancy rate for the 50 units.
FRASERS Hospitality launched its serviced apartment complex at Fusionopolis yesterday - its third property in Singapore and certainly not its last.
Frasers Hospitality has obtained commitments amounting to a 60 per cent occupancy rate for the 50 units at Fusionopolis, all one-bedroom loft apartments ranging from 46 sq m to 99 sq m. -- PHOTO: FRASERS HOSPITALITY
Fraser Place Fusionopolis, located on levels 17 to 19 of the Symbosis Tower of Fusionopolis @ one-north, has 50 units, all one-bedroom loft apartments ranging from 46 sq m to 99 sq m.
It has obtained commitments amounting to a 60 per cent occupancy rate. The first few guests, including a professor from the nearby business school Insead, have checked in.
Frasers Hospitality chief executive officer Choe Peng Sum told The Straits Times that occupancy at its two other properties here - Fraser Suites in River Valley and Fraser Place in Robertson Quay - stands at 90 per cent despite the global downturn.
However, it has had to cut rates and the completion of a few of its planned projects overseas has been delayed, added Mr Choe.
The effect of the global downturn kicked in around February but the drop in occupancy has been slight so far, just two or three percentage points, he said.
He attributed it to more expatriates seeking shorter stays or more flexibility in the light of the uncertainty.
The downturn has been kinder to the serviced apartment sector than hotels.
'We saw this during the Hong Kong handover. All the serviced apartments in Hong Kong were full and rates were very good,' said Mr Choe.
Singapore's hotel rates may have fallen by 35 per cent this year but serviced apartment rates are down by only 15 per cent, he said.
Overall, the serviced apartment sector here has an occupancy rate of about 75 to 80 per cent compared with 50 to 60 per cent for hotels.
Mr Choe said Singapore can still accommodate more branded serviced apartments and Frasers Hospitality is looking at opening more.
Elsewhere, occupancy levels remain healthy, he said. Its expansion plans, while still proceeding, have had to slow somewhat in certain areas. While the downturn has had an impact in some areas, others are experiencing construction delays.
The opening of a few projects has been moved to next year. These include a project in Dubai, which has been affected by a downturn-induced construction delay.
Frasers Hospitality will have 5,300 units in operation by the end of this year, and 8,000 units, including those in the pipeline, by the end of next year.
Frasers Hospitality has obtained commitments amounting to a 60% occupancy rate for the 50 units.
FRASERS Hospitality launched its serviced apartment complex at Fusionopolis yesterday - its third property in Singapore and certainly not its last.
Frasers Hospitality has obtained commitments amounting to a 60 per cent occupancy rate for the 50 units at Fusionopolis, all one-bedroom loft apartments ranging from 46 sq m to 99 sq m. -- PHOTO: FRASERS HOSPITALITYFraser Place Fusionopolis, located on levels 17 to 19 of the Symbosis Tower of Fusionopolis @ one-north, has 50 units, all one-bedroom loft apartments ranging from 46 sq m to 99 sq m.
It has obtained commitments amounting to a 60 per cent occupancy rate. The first few guests, including a professor from the nearby business school Insead, have checked in.
Frasers Hospitality chief executive officer Choe Peng Sum told The Straits Times that occupancy at its two other properties here - Fraser Suites in River Valley and Fraser Place in Robertson Quay - stands at 90 per cent despite the global downturn.
However, it has had to cut rates and the completion of a few of its planned projects overseas has been delayed, added Mr Choe.
The effect of the global downturn kicked in around February but the drop in occupancy has been slight so far, just two or three percentage points, he said.
He attributed it to more expatriates seeking shorter stays or more flexibility in the light of the uncertainty.
The downturn has been kinder to the serviced apartment sector than hotels.
'We saw this during the Hong Kong handover. All the serviced apartments in Hong Kong were full and rates were very good,' said Mr Choe.
Singapore's hotel rates may have fallen by 35 per cent this year but serviced apartment rates are down by only 15 per cent, he said.
Overall, the serviced apartment sector here has an occupancy rate of about 75 to 80 per cent compared with 50 to 60 per cent for hotels.
Mr Choe said Singapore can still accommodate more branded serviced apartments and Frasers Hospitality is looking at opening more.
Elsewhere, occupancy levels remain healthy, he said. Its expansion plans, while still proceeding, have had to slow somewhat in certain areas. While the downturn has had an impact in some areas, others are experiencing construction delays.
The opening of a few projects has been moved to next year. These include a project in Dubai, which has been affected by a downturn-induced construction delay.
Frasers Hospitality will have 5,300 units in operation by the end of this year, and 8,000 units, including those in the pipeline, by the end of next year.
Move Could Dampen Market Sentiment: Experts
Source : The Straits Times, July 9, 2009
PROPERTY experts fear the proposed change to tax laws affecting real estate gains could crimp speculation and hurt sentiment in the fragile market.
The issue was a talking point among investors worried about being taxed, while real estate stocks went south yesterday.
'I have received about 50 calls on this topic today. They are all worried about being taxed,' said HSR Property Group executive director Eric Cheng.
If the proposal becomes law in January, it will mean that anyone who sells a property in any four-year period will not be taxed on his profit. But a second sale within four years of the first sale may be taxable.
There will surely be some knee-jerk reaction, though the change may have the eventual effect of dampening flipping interest, industry sources said.
One who declined to be named said if enacted right, the clearer rules will be a benefit, but if they are applied in a heavy-handed way, there will be 'horrible consequences' for the market.
'Speculators may start to think twice about going into the market,' said Credo Real Estate executive director Tan Hong Boon. 'But genuine investors holding for long-term rental income should not worry at all.'
But one investor said: 'Without the element of speculation, the market would not be buoyant.'
Some speculators are already aware that they will be taxed on their profits if the Inland Revenue Authority of Singapore (Iras) deems them traders. But this has been a subjective exercise.
The amendment also does not make clear what constitutes a trader.
'Some people think it's a big deal but the proposed change is not even new. Only the four-year period is new. Previously, you may even be taxed if you trade only one property in your life,' said another investor. 'If you resign yourself to the fact that you will be taxed, you might as well continue selling, if not more aggressively, to cover the tax component.'
To curb speculation, the Government modified tax rules in 1996 so that income tax was payable on profits made from the sale of a residential property within three years of purchase. This was lifted in late 2001.
Property expert Nicholas Mak thinks the change could dampen foreign demand. Some investors hoping to time the market may be taxed on their profits given that the two bull runs in the past 10 years have lasted less than four years, he said.
PROPERTY experts fear the proposed change to tax laws affecting real estate gains could crimp speculation and hurt sentiment in the fragile market.
The issue was a talking point among investors worried about being taxed, while real estate stocks went south yesterday.
'I have received about 50 calls on this topic today. They are all worried about being taxed,' said HSR Property Group executive director Eric Cheng.
If the proposal becomes law in January, it will mean that anyone who sells a property in any four-year period will not be taxed on his profit. But a second sale within four years of the first sale may be taxable.
There will surely be some knee-jerk reaction, though the change may have the eventual effect of dampening flipping interest, industry sources said.
One who declined to be named said if enacted right, the clearer rules will be a benefit, but if they are applied in a heavy-handed way, there will be 'horrible consequences' for the market.
'Speculators may start to think twice about going into the market,' said Credo Real Estate executive director Tan Hong Boon. 'But genuine investors holding for long-term rental income should not worry at all.'
But one investor said: 'Without the element of speculation, the market would not be buoyant.'
Some speculators are already aware that they will be taxed on their profits if the Inland Revenue Authority of Singapore (Iras) deems them traders. But this has been a subjective exercise.
The amendment also does not make clear what constitutes a trader.
'Some people think it's a big deal but the proposed change is not even new. Only the four-year period is new. Previously, you may even be taxed if you trade only one property in your life,' said another investor. 'If you resign yourself to the fact that you will be taxed, you might as well continue selling, if not more aggressively, to cover the tax component.'
To curb speculation, the Government modified tax rules in 1996 so that income tax was payable on profits made from the sale of a residential property within three years of purchase. This was lifted in late 2001.
Property expert Nicholas Mak thinks the change could dampen foreign demand. Some investors hoping to time the market may be taxed on their profits given that the two bull runs in the past 10 years have lasted less than four years, he said.
Tax Proposal Puzzles Property Players
Source : The Straits Times, July 9, 2009
NEWS ANALYSIS
They question timing of change and ask if they must alert Iras when selling second property
A GOVERNMENT proposal to make the rules clearer on taxing gains on property sales has left developers and investors scratching their heads.
Since the public consultation paper on the subject was put up by the Finance Ministry last month, there have been quiet discussions in some circles on the impact the step might have on the property market.
So quiet that most people were apparently unaware of it.
Thus when the proposal finally made it into the news yesterday, investors took it badly. Shares of property giant City Developments fell 6.6 per cent while those of CapitaLand dropped 4.8 per cent.
A Citi report yesterday said the change is likely to curb any excessive speculation in the market. 'We think there will be downward pressure on the prices and volumes, especially new launches,' it said.
At first sight, the proposed change seems innocuous. It makes clear that a home owner who sells his property for a profit will not be taxed on his gains as long as he had not sold any other real estate in the past four years.
But if an owner had sold other properties within that period, the taxman will decide if he should be taxed on the gains from this sale. Its decision will be based on the circumstances that precipitated the sale.
Most home owners will not be affected by the proposed tax change as their home is the only house they own, said real estate agency PropNex chief executive Mohamed Ismail.
In fact, they may be better off as the change provides certainty that they will not be taxed should they sell their house for another home every four years or so.
But an estimated 10 per cent to 15 per cent of home owners own more than one property and these are the people who are worried about how the change might affect them.
An investor does not pay tax on gains unless - and this is where the uncertainty lies - the taxman decides that the owner is a trader, namely someone who buys and sells a number of properties over a short period.
But tax and property experts are concerned over the timing of the proposal.
Real estate is only just beginning to recover from the doldrums it fell into last year, so some feel the Government should have left things as they were.
'In the current economic environment, we do not understand the need for such a provision, as it only provides a certainty of tax treatment for individuals who do not sell more than one property,' said Mr Owi Kek Hean, KPMG's head of tax services.
Others have welcomed the proposal as a strong signal sent by the Government to dampen any speculative froth in the recovering property market.
Only last December, there was considerable concern over the number of home buyers who might default under the deferred payment scheme. But this was quickly forgotten once the market picked up and developers replaced deferred payment with an interest absorption programme to lure buyers back.
With the proposed change, an investor cannot be sure that he can avoid a hefty tax bill on his gains if he sells several properties within a four-year period.
This will surely dampen speculation and help to prevent the market from suffering another heart attack if the global economic outlook nosedives again.
Still, others note that the need to own a house for at least four years to make sure that one does not get taxed on any gains from its sale is far too long for property-loving Singaporeans.
We like to move house a lot, whether to downgrade to a smaller flat in bad times or to be nearer to a desired school. Surely, a shorter timeframe of two years would be adequate.
One reader also noted that the proposed tax change is unfair to investors who hold on to multiple properties for a long period and then decide to sell them all within the same four-year period.
'If I come across a peak in the property market, does this mean I will be taxed if I sold more than one property, no matter how long I have held them?' he asked.
But the biggest question bugging home owners is that they do not know if they should contact the Inland Revenue Authority of Singapore (Iras) to discuss any assessment that may be made on a property sale profit.
Should they alert Iras as soon as they sell a second property within a four-year period and declare any gains while making a case to get a waiver on paying any levy?
Or should they stick to the current practice and assume they are not liable for tax on any gains until they get a call from the taxman?
Whatever their misgivings, home owners should trust Iras to exercise its judgment judiciously on whether to tax the gains.
NEWS ANALYSIS
They question timing of change and ask if they must alert Iras when selling second property
A GOVERNMENT proposal to make the rules clearer on taxing gains on property sales has left developers and investors scratching their heads.
Since the public consultation paper on the subject was put up by the Finance Ministry last month, there have been quiet discussions in some circles on the impact the step might have on the property market.
So quiet that most people were apparently unaware of it.
Thus when the proposal finally made it into the news yesterday, investors took it badly. Shares of property giant City Developments fell 6.6 per cent while those of CapitaLand dropped 4.8 per cent.
A Citi report yesterday said the change is likely to curb any excessive speculation in the market. 'We think there will be downward pressure on the prices and volumes, especially new launches,' it said.
At first sight, the proposed change seems innocuous. It makes clear that a home owner who sells his property for a profit will not be taxed on his gains as long as he had not sold any other real estate in the past four years.
But if an owner had sold other properties within that period, the taxman will decide if he should be taxed on the gains from this sale. Its decision will be based on the circumstances that precipitated the sale.
Most home owners will not be affected by the proposed tax change as their home is the only house they own, said real estate agency PropNex chief executive Mohamed Ismail.
In fact, they may be better off as the change provides certainty that they will not be taxed should they sell their house for another home every four years or so.
But an estimated 10 per cent to 15 per cent of home owners own more than one property and these are the people who are worried about how the change might affect them.
An investor does not pay tax on gains unless - and this is where the uncertainty lies - the taxman decides that the owner is a trader, namely someone who buys and sells a number of properties over a short period.
But tax and property experts are concerned over the timing of the proposal.
Real estate is only just beginning to recover from the doldrums it fell into last year, so some feel the Government should have left things as they were.
'In the current economic environment, we do not understand the need for such a provision, as it only provides a certainty of tax treatment for individuals who do not sell more than one property,' said Mr Owi Kek Hean, KPMG's head of tax services.
Others have welcomed the proposal as a strong signal sent by the Government to dampen any speculative froth in the recovering property market.
Only last December, there was considerable concern over the number of home buyers who might default under the deferred payment scheme. But this was quickly forgotten once the market picked up and developers replaced deferred payment with an interest absorption programme to lure buyers back.
With the proposed change, an investor cannot be sure that he can avoid a hefty tax bill on his gains if he sells several properties within a four-year period.
This will surely dampen speculation and help to prevent the market from suffering another heart attack if the global economic outlook nosedives again.
Still, others note that the need to own a house for at least four years to make sure that one does not get taxed on any gains from its sale is far too long for property-loving Singaporeans.
We like to move house a lot, whether to downgrade to a smaller flat in bad times or to be nearer to a desired school. Surely, a shorter timeframe of two years would be adequate.
One reader also noted that the proposed tax change is unfair to investors who hold on to multiple properties for a long period and then decide to sell them all within the same four-year period.
'If I come across a peak in the property market, does this mean I will be taxed if I sold more than one property, no matter how long I have held them?' he asked.
But the biggest question bugging home owners is that they do not know if they should contact the Inland Revenue Authority of Singapore (Iras) to discuss any assessment that may be made on a property sale profit.
Should they alert Iras as soon as they sell a second property within a four-year period and declare any gains while making a case to get a waiver on paying any levy?
Or should they stick to the current practice and assume they are not liable for tax on any gains until they get a call from the taxman?
Whatever their misgivings, home owners should trust Iras to exercise its judgment judiciously on whether to tax the gains.
Developers Cash In On Improved Sentiment
Source : TODAY, Jul 09, 2009
IT'S launches galore in the property market, as developers take advantage of improved sentiment to release their residential projects.
Silversea, in the East Coast area, will be launched this weekend.
Yesterday alone, three developers announced plans for the sale of two residential and one serviced apartment developments.
Sky villas
Silversea, a 383-unit condominium in the East Coast area, will be launched this weekend by Far East Organization, with prices starting from $1,300 per square foot (psf).
This comes a week after the private developer launched part of its 280-unit Vista Residences in the Thomson area. This project has so far sold 130 units at an average of $1,070 psf, out of 182 released to date, Far East said yesterday.
Lap pool
Also coming on board this weekend is Bukit Sembawang Estate's landed project Luxus Hills located along Ang Mo Kio Avenue 5.
The Singapore-listed developer has already sold 50 of the 78 units in the development.
In the serviced apartment segment, Frasers Hospitality yesterday launched Fraser Place Fusionopolis, a serviced residence in North Buona Vista targeting a clientele of researchers, academics and working professionals.
Luxus Hills
The 50 loft apartment units, which have a bedroom each, are located on levels 17 to 19 of the Symbiosis Tower.
Fraser Place Fushionopolis
IT'S launches galore in the property market, as developers take advantage of improved sentiment to release their residential projects.
Silversea, in the East Coast area, will be launched this weekend.Yesterday alone, three developers announced plans for the sale of two residential and one serviced apartment developments.
Sky villasSilversea, a 383-unit condominium in the East Coast area, will be launched this weekend by Far East Organization, with prices starting from $1,300 per square foot (psf).
This comes a week after the private developer launched part of its 280-unit Vista Residences in the Thomson area. This project has so far sold 130 units at an average of $1,070 psf, out of 182 released to date, Far East said yesterday.
Lap poolAlso coming on board this weekend is Bukit Sembawang Estate's landed project Luxus Hills located along Ang Mo Kio Avenue 5.
The Singapore-listed developer has already sold 50 of the 78 units in the development.
In the serviced apartment segment, Frasers Hospitality yesterday launched Fraser Place Fusionopolis, a serviced residence in North Buona Vista targeting a clientele of researchers, academics and working professionals.
Luxus HillsThe 50 loft apartment units, which have a bedroom each, are located on levels 17 to 19 of the Symbiosis Tower.
Fraser Place Fushionopolis
No Easy Game Predicting Office Cycles
Source : The Business Times, July 9, 2009
THERE is a tendency in the office market to look to the extremes as representative of the market norm. Nowhere is this more apparent than in Singapore, which seems to 'enjoy' particularly volatile market cycles.
Landlords naturally focus on purported record-busting rents in the upswings while tenants conveniently latch on to rumours of extraordinary discounted deals when the tide shifts. It therefore becomes challenging for all involved in the sector to formulate a measured and objective opinion.
The statistics often don't really help. As recently as November 2007, CBRE's semi-annual Global Market Rents Report recorded that Singapore was the fastest rising rental market year-on-year (+82.6 per cent). Last month, we reported that the Republic led the world with the largest year- on-year drop in office occupancy cost (-34.4 per cent). Neither ranking is particularly desirable.
The Singapore office market is undergoing a sharp correction brought on by the financial crisis and severe weakening of the local economy. With an economy expected to contract by 6-9 per cent this year, it's no surprise that demand for offices has wilted.
The most recent growth period of 2004-2007 (GDP 8.2 per cent average) saw office take-up at an average two million sq ft per annum. Impressive for sure, but still well below the mid-1990s' (GDP 9 per cent average) office take-up rates of just under 2.5 million sq ft per annum.
In contrast, during the 2001-2003 downturn (GDP 1.8 per cent average) we saw take-up of 0.18 million sq ft to minus 0.32 million sq ft per annum. This year looks pretty grim and negative take-up of 1.2-1.5 million sq ft is possible.
Core CBD vacancy has almost doubled since the start of the year to 8.5 per cent. The short-term outlook is worrying for landlords and we foresee that vacancy will grow through 2010 to exceed levels in past market downcycles.
Rents have already fallen 46 per cent from the market peak in mid- 2008 with average Grade A and prime rents now standing at $10.15 psf per month and $8.60 psf per month respectively as at Q2 2009. Further downward pressure on rents is a given, even as the pace of decrease shows clear signs of easing.
As if this was not challenging enough, we have a fairly sizeable pipeline of new supply over the next four years - 8.6 million sq ft in total or an average 2.15 million sq ft per annum. This is almost double the 10-year average of new supply and represents a 15 per cent increase in the existing private sector stock.
A feature of the new supply is that a high proportion (65 per cent) are Grade A offices. When the five new developments that fall into this basket are completed, the total size of the existing Grade A office stock will have grown by 81 per cent.
New supply will exceed demand through the next few years even before we take into account further availability arising from sub-leased space (currently about 400,000 sq ft).
So are we looking at an office market landscape that will take years and years to recover? We think this is far from a given. No one should underestimate the robustness of Singapore's office market, which has a habit of outperforming predictions (both in correction and recovery cycles). It is useful to look at previous stress points to illustrate the point.
In July 1992, The Business Times ran an article headlined Office properties face biggest glut ever. The report noted: 'A combination of a huge supply and falling demand has created the office market's biggest glut ever and led developers into a fierce price war to draw new tenants.'
Singapore's office market was enduring an uncomfortably high islandwide vacancy of 11.2 per cent. Of even greater concern was the prospect of a staggering 16 million sq ft of new office construction coming on stream over the following five to six years. This level of new office construction represented an increase of 53 per cent on the then total private office stock. Many market watchers were bearish. Some said there would not be a true recovery for four to five years. There was grave concern about prospects for the mega-office projects in the emerging Marina Centre area.
How did things pan out? The eight new office towers in the Marina Centre area achieved an average 60 per cent pre-let level upon completion. By 1996, vacancy had fallen to 8.5 per cent and prime rents had risen 32 per cent from the 1992 level.
At the depth of the Asian crisis in 1998, vacancy had risen to 14.6 per cent with around 5.1 million sq ft in the development pipeline (an increase of 10 per cent of the then total private office stock).
The conventional wisdom was again a prolonged period of over-supply and depressed rents. Yet, two years later vacancy had actually fallen to 11.3 per cent and prime rents had increased by 23 per cent from the 1998 level.
More recently in 2003 with the perfect storm (global finance and IT downturn, consolidation of local banks, local recession, declining foreign investment, Sars, etc) Singapore's office vacancy stood at 17.9 per cent (representing 12.6 million sq ft of vacant space) and prime rents were at a record low of $4 psf per month. Some market observers said it would take five to seven years before the excess space was absorbed, notwithstanding the limited supply of future confirmed new developments (estimated at only 2.8 million sq ft or a mere 5 per cent increase on total private office stock).
Not quite. Three years later in 2007, islandwide vacancy had shrunk by half from the 2003 level and Singapore was facing a critical shortage of office space. Prime rents had by then risen a staggering 275 per cent from the 2003 market low.
Today, one cannot see on the horizon 1) a new Asia-Pacific boom or 2) a dotcom boom or 3) a tremendous economic growth surge in Singapore. These were the three events that unfolded immediately following previous market crashes and which confounded the predictions of long-term office market malaise. The sheer scale of the economic and financial challenges today could point to a longer road to office market recovery.
Nonetheless, do not underestimate the swiftness with which supply could be absorbed when business growth returns. Landlords and developers look set to have to tough it out for at least the next couple of years.
But it could well be that the best leasing transactions from a tenant's standpoint will need to be concluded within the next six to 12 months before the market recovery is at hand.
The writer is executive director, office services, CB Richard Ellis
THERE is a tendency in the office market to look to the extremes as representative of the market norm. Nowhere is this more apparent than in Singapore, which seems to 'enjoy' particularly volatile market cycles.
Landlords naturally focus on purported record-busting rents in the upswings while tenants conveniently latch on to rumours of extraordinary discounted deals when the tide shifts. It therefore becomes challenging for all involved in the sector to formulate a measured and objective opinion.
The statistics often don't really help. As recently as November 2007, CBRE's semi-annual Global Market Rents Report recorded that Singapore was the fastest rising rental market year-on-year (+82.6 per cent). Last month, we reported that the Republic led the world with the largest year- on-year drop in office occupancy cost (-34.4 per cent). Neither ranking is particularly desirable.
The Singapore office market is undergoing a sharp correction brought on by the financial crisis and severe weakening of the local economy. With an economy expected to contract by 6-9 per cent this year, it's no surprise that demand for offices has wilted.
The most recent growth period of 2004-2007 (GDP 8.2 per cent average) saw office take-up at an average two million sq ft per annum. Impressive for sure, but still well below the mid-1990s' (GDP 9 per cent average) office take-up rates of just under 2.5 million sq ft per annum.
In contrast, during the 2001-2003 downturn (GDP 1.8 per cent average) we saw take-up of 0.18 million sq ft to minus 0.32 million sq ft per annum. This year looks pretty grim and negative take-up of 1.2-1.5 million sq ft is possible.
Core CBD vacancy has almost doubled since the start of the year to 8.5 per cent. The short-term outlook is worrying for landlords and we foresee that vacancy will grow through 2010 to exceed levels in past market downcycles.
Rents have already fallen 46 per cent from the market peak in mid- 2008 with average Grade A and prime rents now standing at $10.15 psf per month and $8.60 psf per month respectively as at Q2 2009. Further downward pressure on rents is a given, even as the pace of decrease shows clear signs of easing.
As if this was not challenging enough, we have a fairly sizeable pipeline of new supply over the next four years - 8.6 million sq ft in total or an average 2.15 million sq ft per annum. This is almost double the 10-year average of new supply and represents a 15 per cent increase in the existing private sector stock.
A feature of the new supply is that a high proportion (65 per cent) are Grade A offices. When the five new developments that fall into this basket are completed, the total size of the existing Grade A office stock will have grown by 81 per cent.
New supply will exceed demand through the next few years even before we take into account further availability arising from sub-leased space (currently about 400,000 sq ft).
So are we looking at an office market landscape that will take years and years to recover? We think this is far from a given. No one should underestimate the robustness of Singapore's office market, which has a habit of outperforming predictions (both in correction and recovery cycles). It is useful to look at previous stress points to illustrate the point.
In July 1992, The Business Times ran an article headlined Office properties face biggest glut ever. The report noted: 'A combination of a huge supply and falling demand has created the office market's biggest glut ever and led developers into a fierce price war to draw new tenants.'
Singapore's office market was enduring an uncomfortably high islandwide vacancy of 11.2 per cent. Of even greater concern was the prospect of a staggering 16 million sq ft of new office construction coming on stream over the following five to six years. This level of new office construction represented an increase of 53 per cent on the then total private office stock. Many market watchers were bearish. Some said there would not be a true recovery for four to five years. There was grave concern about prospects for the mega-office projects in the emerging Marina Centre area.
How did things pan out? The eight new office towers in the Marina Centre area achieved an average 60 per cent pre-let level upon completion. By 1996, vacancy had fallen to 8.5 per cent and prime rents had risen 32 per cent from the 1992 level.
At the depth of the Asian crisis in 1998, vacancy had risen to 14.6 per cent with around 5.1 million sq ft in the development pipeline (an increase of 10 per cent of the then total private office stock).
The conventional wisdom was again a prolonged period of over-supply and depressed rents. Yet, two years later vacancy had actually fallen to 11.3 per cent and prime rents had increased by 23 per cent from the 1998 level.
More recently in 2003 with the perfect storm (global finance and IT downturn, consolidation of local banks, local recession, declining foreign investment, Sars, etc) Singapore's office vacancy stood at 17.9 per cent (representing 12.6 million sq ft of vacant space) and prime rents were at a record low of $4 psf per month. Some market observers said it would take five to seven years before the excess space was absorbed, notwithstanding the limited supply of future confirmed new developments (estimated at only 2.8 million sq ft or a mere 5 per cent increase on total private office stock).
Not quite. Three years later in 2007, islandwide vacancy had shrunk by half from the 2003 level and Singapore was facing a critical shortage of office space. Prime rents had by then risen a staggering 275 per cent from the 2003 market low.
Today, one cannot see on the horizon 1) a new Asia-Pacific boom or 2) a dotcom boom or 3) a tremendous economic growth surge in Singapore. These were the three events that unfolded immediately following previous market crashes and which confounded the predictions of long-term office market malaise. The sheer scale of the economic and financial challenges today could point to a longer road to office market recovery.
Nonetheless, do not underestimate the swiftness with which supply could be absorbed when business growth returns. Landlords and developers look set to have to tough it out for at least the next couple of years.
But it could well be that the best leasing transactions from a tenant's standpoint will need to be concluded within the next six to 12 months before the market recovery is at hand.
The writer is executive director, office services, CB Richard Ellis
The Allure Of Sydney And Melbourne
Source : The Business Times, July 9, 2009
However current asking prices are still above palatable levels; market expected to bottom out in about a year at best
AUSTRALIA'S currently under-supplied housing market will see increasing demand in the coming 12 to 24 months, which is likely to result in residential price increases as owner occupiers enter the market, and investors attempt to realise asset growth and secure strong yields.
Reaching up: The long-term investment fundamentals are quite solid for high-density projects in Australia's capital cities
Residential price growth in most Australian capital cities has been strong for the best part of six years, with house and apartment prices holding up relatively well, albeit at a slower pace over the past 12 to 18 months. House and land 'packages' continue to dominate as the preferred housing type as has been the tradition in Australia, with large swathes of undeveloped land remaining around the main metropolitan regions set aside for development for future generations.
Higher density living, typically in CBD and inner suburban locations, has gained acceptance over the past 10 years in Australia. However, its uptake has fluctuated considerably as a result of market over-supply and price issues.
The provision of high-density projects in CBD locations has seen CBD populations grow from a virtually non-existent base to several thousand persons in a relatively short time.
House and land packages as investments are more likely to be attractive to those investors who want to hold assets for long periods, achieve consistent returns and potentially occupy the asset in the long term.
By buying 'off the plan' homes, investors can benefit from significant tax deductions and may lead to cash flow positive returns for those wanting to contribute minimally to holding a residential asset.
For example, display homes are often leased back by builders for several years at a fixed rate of return, often up to 2 per cent above lending rates. The combination of the current low cost of borrowing (around 5.5 per cent in Australia), tax depreciation benefits and a high guaranteed return (for residential), makes this an attractive investment for many Australians and foreigners alike. For many foreigners, Singaporeans included, high-density apartments in inner city or CBD locations are the preferred investment type due to the familiarity of their built form.
High-density apartments developed in the CBDs of Melbourne and Sydney have historically had around 70 per cent of their sales to investors. In Perth and Brisbane, large-scale high-density residential apartments have predominately been developed in the past five years.
Irrespective of location, the early stages of this market activity has been dominated by off the plan sales. Relatively low initial prices and tax depreciation incentives make the relative scarcity and above average quality of new apartments appealing to investors. In many cases, early investors attempt to sell properties prior to settlement.
This potentially enables them to benefit from the price growth resulting from increased demand during the 18-month or so development timeframe, while only having to fund the initial deposit.
There are hundreds of completed apartments across Australia's capital cities currently competing with new stock and projects being marketed for sale.
Purchaser demand is stalling. However, in light of continuing strong population growth and historically low interest rates, investors are beginning to find value in this type of property asset again.
Gross yields for CBD apartments are around 3 per cent to 4.5 per cent. However, the yields vary considerably with building age, location and cachet.
A significant additional cost for these types of premises are body corporate fees (building maintenance, security, facilities, insurance) which are typically around 1.5 per cent of the purchase price per annum. These fees are tax deductible. However, they can significantly limit the attractiveness of potential long-term capital growth due to the relatively high holding costs.
The truism that increased risk equates with increased return holds true for CBD apartments. Purchasing at a time of oversupply in the market may limit short-term price growth, whereas investing when prices have bottomed will provide an increased chance of capital growth in the longer term.
The geographic separation of the Australian capital cities is likely to result in demand improving at different times across the country.
For example, Sydney and Melbourne are expected to see demand improve in the coming 12 months as the lack of stock and government grants drives up house values in the middle and outer suburbs.
Demand for CBD properties is also expected to improve with the investment fundamentals proving attractive for many.
In both cities, vacancy rates are at historic lows with few new large- scale apartment projects expected to commence marketing or construction in the coming year. While globally the economic climate is uncertain, there are many investors who are satisfied that both locations are likely to experience improving demand in the medium term.
Pent-up demand is significant for CBD apartments in Melbourne and Sydney. However, the palatable price for the majority of apartments is below current asking prices.
It is expected that demand will rapidly return once sentiment and market evidence suggest that prices have bottomed, which in the current climate will be around 12 months at best.
Brisbane and Perth are historically a year or two behind the larger cities at different points in the property cycle.
The recent resources boom in each state has generated high demand for housing. The improvement in demand in each of these capitals has been considerable from very low bases.
Overzealous developers seeking to make the most of strong conditions has resulted in an oversupply of CBD apartments. Accordingly each market is still absorbing the significant apartment supply marketed and developed in the past two to three years.
This is resulting in current asking prices falling as investors attempt to sell assets in the weaker economic climate, often at below purchase price. Both markets are likely to observe falling asset values in CBD locations for several years, as prices are driven down by the over-construction and falling demand.
To conclude, the long-term investment fundamentals are quite solid for high density projects in Australia's capital cities.
Past the current economic hurdles, pent-up demand is likely to see appropriately priced apartments sold quickly, and high construction costs are likely to limit the number of new projects commenced.
Short-term investment horizons of typically less than five years have the potential to realise limited asset growth.
However, with careful research and an understanding of the risk involved, this can be minimised.
Long-term investors are likely to see strong capital growth in their assets over a 10-year period. The long- term stability of Australia, along with its favourable lifestyle, is likely to see it continue to be on the radar of local and overseas investors for many years to come.
The writer is associate director, research, DTZ Australia
However current asking prices are still above palatable levels; market expected to bottom out in about a year at best
AUSTRALIA'S currently under-supplied housing market will see increasing demand in the coming 12 to 24 months, which is likely to result in residential price increases as owner occupiers enter the market, and investors attempt to realise asset growth and secure strong yields.
Reaching up: The long-term investment fundamentals are quite solid for high-density projects in Australia's capital citiesResidential price growth in most Australian capital cities has been strong for the best part of six years, with house and apartment prices holding up relatively well, albeit at a slower pace over the past 12 to 18 months. House and land 'packages' continue to dominate as the preferred housing type as has been the tradition in Australia, with large swathes of undeveloped land remaining around the main metropolitan regions set aside for development for future generations.
Higher density living, typically in CBD and inner suburban locations, has gained acceptance over the past 10 years in Australia. However, its uptake has fluctuated considerably as a result of market over-supply and price issues.
The provision of high-density projects in CBD locations has seen CBD populations grow from a virtually non-existent base to several thousand persons in a relatively short time.
House and land packages as investments are more likely to be attractive to those investors who want to hold assets for long periods, achieve consistent returns and potentially occupy the asset in the long term.By buying 'off the plan' homes, investors can benefit from significant tax deductions and may lead to cash flow positive returns for those wanting to contribute minimally to holding a residential asset.
For example, display homes are often leased back by builders for several years at a fixed rate of return, often up to 2 per cent above lending rates. The combination of the current low cost of borrowing (around 5.5 per cent in Australia), tax depreciation benefits and a high guaranteed return (for residential), makes this an attractive investment for many Australians and foreigners alike. For many foreigners, Singaporeans included, high-density apartments in inner city or CBD locations are the preferred investment type due to the familiarity of their built form.
High-density apartments developed in the CBDs of Melbourne and Sydney have historically had around 70 per cent of their sales to investors. In Perth and Brisbane, large-scale high-density residential apartments have predominately been developed in the past five years.
Irrespective of location, the early stages of this market activity has been dominated by off the plan sales. Relatively low initial prices and tax depreciation incentives make the relative scarcity and above average quality of new apartments appealing to investors. In many cases, early investors attempt to sell properties prior to settlement.
This potentially enables them to benefit from the price growth resulting from increased demand during the 18-month or so development timeframe, while only having to fund the initial deposit.
There are hundreds of completed apartments across Australia's capital cities currently competing with new stock and projects being marketed for sale.
Purchaser demand is stalling. However, in light of continuing strong population growth and historically low interest rates, investors are beginning to find value in this type of property asset again.
Gross yields for CBD apartments are around 3 per cent to 4.5 per cent. However, the yields vary considerably with building age, location and cachet.
A significant additional cost for these types of premises are body corporate fees (building maintenance, security, facilities, insurance) which are typically around 1.5 per cent of the purchase price per annum. These fees are tax deductible. However, they can significantly limit the attractiveness of potential long-term capital growth due to the relatively high holding costs.
The truism that increased risk equates with increased return holds true for CBD apartments. Purchasing at a time of oversupply in the market may limit short-term price growth, whereas investing when prices have bottomed will provide an increased chance of capital growth in the longer term.
The geographic separation of the Australian capital cities is likely to result in demand improving at different times across the country.
For example, Sydney and Melbourne are expected to see demand improve in the coming 12 months as the lack of stock and government grants drives up house values in the middle and outer suburbs.
Demand for CBD properties is also expected to improve with the investment fundamentals proving attractive for many.
In both cities, vacancy rates are at historic lows with few new large- scale apartment projects expected to commence marketing or construction in the coming year. While globally the economic climate is uncertain, there are many investors who are satisfied that both locations are likely to experience improving demand in the medium term.
Pent-up demand is significant for CBD apartments in Melbourne and Sydney. However, the palatable price for the majority of apartments is below current asking prices.
It is expected that demand will rapidly return once sentiment and market evidence suggest that prices have bottomed, which in the current climate will be around 12 months at best.
Brisbane and Perth are historically a year or two behind the larger cities at different points in the property cycle.
The recent resources boom in each state has generated high demand for housing. The improvement in demand in each of these capitals has been considerable from very low bases.
Overzealous developers seeking to make the most of strong conditions has resulted in an oversupply of CBD apartments. Accordingly each market is still absorbing the significant apartment supply marketed and developed in the past two to three years.
This is resulting in current asking prices falling as investors attempt to sell assets in the weaker economic climate, often at below purchase price. Both markets are likely to observe falling asset values in CBD locations for several years, as prices are driven down by the over-construction and falling demand.
To conclude, the long-term investment fundamentals are quite solid for high density projects in Australia's capital cities.
Past the current economic hurdles, pent-up demand is likely to see appropriately priced apartments sold quickly, and high construction costs are likely to limit the number of new projects commenced.
Short-term investment horizons of typically less than five years have the potential to realise limited asset growth.
However, with careful research and an understanding of the risk involved, this can be minimised.
Long-term investors are likely to see strong capital growth in their assets over a 10-year period. The long- term stability of Australia, along with its favourable lifestyle, is likely to see it continue to be on the radar of local and overseas investors for many years to come.
The writer is associate director, research, DTZ Australia
Shophouses: Best Of Both Worlds
Source : The Business Times, July 9, 2009
They have traditionally been good investment properties as they are very lettable and are suitable for both business and residential use
IF YOU'RE looking for a property investment that could allow you to own a bit of Singapore's history and offer attractive yields at the same time, you might consider buying a shophouse. These shophouses can be found lining the main streets of Singapore. They are typically two- to four-storey buildings with distinctive facades and form part of the city's architectural heritage since many were built before the war.
Shophouses are built on land zoned for commercial or residential use, with commercial use reserved for the first storey. Most of them are found in conservation areas, namely:
# The historic districts of Boat Quay, Chinatown, Kampong Glam and Little India;
# The residential historic districts of Blair Plain, Cairnhill and Emerald Hill;
# The secondary settlements of Balestier, Beach Road, Geylang, Jalan Besar, Joo Chiat, River Valley, Tanjong Katong and Tiong Bahru.
Outside these conservation areas, there are clusters of shophouses in Killiney Road, Serangoon Gardens, Holland Village, Pasir Panjang and Thomson Road.
Shophouses have traditionally been good investment properties as they are very lettable being generally able to provide both business and residential use. But if they fall within commercial zoning, they are strictly for retail use or offices.
Before the mushrooming of shopping complexes, most retail trades were found on the ground floors of shophouses with ancillary offices and dwellings on the upper floors. This explains the popularity of shophouses among family businesses and small operators as they can house all their trade operations and accommodation under one roof.
Due to limited supply and their unique design, shophouses hold their value well especially if they are located in the Central Business District or near MRT stations. Their values will also command a premium if there is a possibility of change of use to boutique hotels or boarding houses.
Sales activity
A total of 1,148 shophouses changed hands between 2006 and the first half of this year, representing about 40 per cent of all shophouses transacted since 1995. A record 526 shophouses were transacted in 2007, which points to prices becoming so attractive that owners who felt some pride of possession were tempted enough to sell.
In the first half of this year, several shophouses have been sold for decent profits. This is remarkable considering that property prices have suffered a major drop since end-2008.
Rental yield
Generally, yields of shophouses are fairly attractive, as some tenants are willing to pay rental premiums to enjoy their unique features. It is possible to achieve net rental yields of about 6 per cent or more for shophouses in choice locations which have been refurbished and fully restored.
Some shophouses within shopping belts such as Orchard Road can possibly fetch double-digit rents of $20 to $40 per sq ft (psf) a month, which are levels commanded by prime retail space. Elsewhere, such as Holland Village, where shophouses are used as bank branches, spas and food & beverage outlets, rents range from $12 to $20 psf.
Notes to buyers - what to look out for
Financing
As with most property transactions, getting funding is pivotal to the buying decision. Since July 2006, Central Provident Fund savings cannot be used to finance a shophouse purchase. As such, getting a bank loan is critical.
With most banks granting loans of 70-80 per cent of the purchase price or valuation (whichever is lower), prospective buyers must have cash upfront for the remaining 20-30 per cent.
And should the shophouse require addition and alteration, a budget of another few hundred thousand dollars must be set aside.
Zoning
Shophouses sited on land zoned residential are essentially terrace buildings with 'tolerated' commercial uses and the occupants have to pay Temporary Occupation Licence (TOL) fees to the relevant authority for the non- residential usage.
Some of these buildings are found in Blair Road and Onan Road. Buyers cannot assume that the building erected on residential zoned land can continue to run as a shophouse when there is a transfer of ownership.
Temporary Occupation Licence (TOL) fees
Some older shophouses have balconies or parts of the building encroaching on state land. In some cases, TOL fees are payable on a yearly basis for these encroachments and buyers have to be aware of the amount payable.
Road lines
Shophouses that face the main road are often affected by road lines. If the property is adversely affected - say, by a major road line - it will be more difficult to get bank financing as there is the risk of government acquisition for road widening.
However, if the shophouses are conserved or located within a conservation area, they are generally safe buys as these are 'protected' areas.
Building features
a) Shophouses with external side staircases are usually preferred by investors as they can lease the various floors to different tenants because of easy access to the upper floors via the external staircases. b) Shophouses with concrete upper floor slabs also appeal more to buyers because they have higher loading than those with timber floors.
High plot ratio
Some shophouses under commercial zoning have plot ratios of three or four which are not fully utilised. In such cases, the owners can build rear extensions up to the maximum height allowable for the area. This increases the usable floor area and value of the property.
Possible change of use
Change of use to commercial or retail use is permitted in the historic districts subject to the Urban Redevelopment Authority's approval. However, note that the strictest form of conservation is practised in these districts.
Corner Units
Corner shophouses are sought after because they occupy more prominent sites in the row of buildings. In addition, they usually have more window openings at the sides and bigger end walls for advertisement signages.
Carparks
Most shophouses do not have carpark lots within their compound so having a public carpark nearby or access to parking in buildings in the vicinity is a major consideration.
With sentiment improving in both the stock and property markets in the past three months, shophouse activity is stirring again. As commercial space is facing a rental correction now, buyers of investment shophouses have to be aware of the challenging rental prospects in the short term. Notwithstanding that, their limited supply and potential for capital appreciation make shophouses gems in the long run.
The writer is executive director and auctioneer, Knight Frank
They have traditionally been good investment properties as they are very lettable and are suitable for both business and residential use
IF YOU'RE looking for a property investment that could allow you to own a bit of Singapore's history and offer attractive yields at the same time, you might consider buying a shophouse. These shophouses can be found lining the main streets of Singapore. They are typically two- to four-storey buildings with distinctive facades and form part of the city's architectural heritage since many were built before the war.
Shophouses are built on land zoned for commercial or residential use, with commercial use reserved for the first storey. Most of them are found in conservation areas, namely:
# The historic districts of Boat Quay, Chinatown, Kampong Glam and Little India;
# The residential historic districts of Blair Plain, Cairnhill and Emerald Hill;
# The secondary settlements of Balestier, Beach Road, Geylang, Jalan Besar, Joo Chiat, River Valley, Tanjong Katong and Tiong Bahru.
Outside these conservation areas, there are clusters of shophouses in Killiney Road, Serangoon Gardens, Holland Village, Pasir Panjang and Thomson Road.
Shophouses have traditionally been good investment properties as they are very lettable being generally able to provide both business and residential use. But if they fall within commercial zoning, they are strictly for retail use or offices.
Before the mushrooming of shopping complexes, most retail trades were found on the ground floors of shophouses with ancillary offices and dwellings on the upper floors. This explains the popularity of shophouses among family businesses and small operators as they can house all their trade operations and accommodation under one roof.
Due to limited supply and their unique design, shophouses hold their value well especially if they are located in the Central Business District or near MRT stations. Their values will also command a premium if there is a possibility of change of use to boutique hotels or boarding houses.
Sales activity
A total of 1,148 shophouses changed hands between 2006 and the first half of this year, representing about 40 per cent of all shophouses transacted since 1995. A record 526 shophouses were transacted in 2007, which points to prices becoming so attractive that owners who felt some pride of possession were tempted enough to sell.
In the first half of this year, several shophouses have been sold for decent profits. This is remarkable considering that property prices have suffered a major drop since end-2008.
Rental yield
Generally, yields of shophouses are fairly attractive, as some tenants are willing to pay rental premiums to enjoy their unique features. It is possible to achieve net rental yields of about 6 per cent or more for shophouses in choice locations which have been refurbished and fully restored.
Some shophouses within shopping belts such as Orchard Road can possibly fetch double-digit rents of $20 to $40 per sq ft (psf) a month, which are levels commanded by prime retail space. Elsewhere, such as Holland Village, where shophouses are used as bank branches, spas and food & beverage outlets, rents range from $12 to $20 psf.
Notes to buyers - what to look out for
Financing
As with most property transactions, getting funding is pivotal to the buying decision. Since July 2006, Central Provident Fund savings cannot be used to finance a shophouse purchase. As such, getting a bank loan is critical.
With most banks granting loans of 70-80 per cent of the purchase price or valuation (whichever is lower), prospective buyers must have cash upfront for the remaining 20-30 per cent.
And should the shophouse require addition and alteration, a budget of another few hundred thousand dollars must be set aside.
Zoning
Shophouses sited on land zoned residential are essentially terrace buildings with 'tolerated' commercial uses and the occupants have to pay Temporary Occupation Licence (TOL) fees to the relevant authority for the non- residential usage.
Some of these buildings are found in Blair Road and Onan Road. Buyers cannot assume that the building erected on residential zoned land can continue to run as a shophouse when there is a transfer of ownership.
Temporary Occupation Licence (TOL) fees
Some older shophouses have balconies or parts of the building encroaching on state land. In some cases, TOL fees are payable on a yearly basis for these encroachments and buyers have to be aware of the amount payable.
Road lines
Shophouses that face the main road are often affected by road lines. If the property is adversely affected - say, by a major road line - it will be more difficult to get bank financing as there is the risk of government acquisition for road widening.
However, if the shophouses are conserved or located within a conservation area, they are generally safe buys as these are 'protected' areas.
Building features
a) Shophouses with external side staircases are usually preferred by investors as they can lease the various floors to different tenants because of easy access to the upper floors via the external staircases. b) Shophouses with concrete upper floor slabs also appeal more to buyers because they have higher loading than those with timber floors.
High plot ratio
Some shophouses under commercial zoning have plot ratios of three or four which are not fully utilised. In such cases, the owners can build rear extensions up to the maximum height allowable for the area. This increases the usable floor area and value of the property.
Possible change of use
Change of use to commercial or retail use is permitted in the historic districts subject to the Urban Redevelopment Authority's approval. However, note that the strictest form of conservation is practised in these districts.
Corner Units
Corner shophouses are sought after because they occupy more prominent sites in the row of buildings. In addition, they usually have more window openings at the sides and bigger end walls for advertisement signages.
Carparks
Most shophouses do not have carpark lots within their compound so having a public carpark nearby or access to parking in buildings in the vicinity is a major consideration.
With sentiment improving in both the stock and property markets in the past three months, shophouse activity is stirring again. As commercial space is facing a rental correction now, buyers of investment shophouses have to be aware of the challenging rental prospects in the short term. Notwithstanding that, their limited supply and potential for capital appreciation make shophouses gems in the long run.
The writer is executive director and auctioneer, Knight Frank
KL, Penang Markets Looking Good
Source : The Business Times, July 9, 2009
Many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire
ALWAYS a favourite, landed real estate is receiving more interest in the current property lull. According to property agents, there has been a slight pick-up in the past two months, mainly in primary sales and landed properties located in popular suburbs. Zerin Properties' chief executive Previn Singhe described April and May as 'surprising months with very strong interest in landed properties', centred mainly in the Klang Valley as prospective purchasers act on the premise that prices are unlikely to slip because of the limited supply.
Idyllic: Nusajaya's jewel is Puteri Harbour with its integrated waterfront and marina development
In some places, demand continues to outstrip supply, he said, citing Bangsar, Bukit Damansara, Damansara Heights, Taman Tun Dr Ismail, Seputeh, Taman Desa and Jalan Ipoh where prices - which had held steady - have started to inch up as investors turn to property as a hedge against inflation.
'If you want to buy for owner occupation, any time is a good time. If it's for investment, you need to be looking now,' advised CH Williams Talhar & Wong managing director Goh Tian Sui.
Mr Singhe lists those on the property hunt: the first timers attracted by low interest rates; investors in the 30-55 age group who are acquiring for their children; professional investors looking at Kuala Lumpur landed real estate for capital appreciation or condominiums for rental yields; and non-resident Malaysians.
There are also foreigners who have started to look at condos in the Kuala Lumpur City Centre and Mont Kiara areas since the price of some units have dropped by 20 per cent. Location-wise, Penang is another hot-spot, popular with Penangites and other northerners, as well as KL-ites looking to retire there.
Across the South China Sea, Kota Kinabalu real estate has received a boost from the oil and gas boom, as well as tourism which has led to numerous Koreans and Europeans succumbing to its charms, Mr Singhe said.
In the south of the peninsula, Johor's Iskandar Malaysia remains a major point of interest. Central to Iskandar is the Nusajaya area with its strategic location across the Straits of Johor. Nusajaya's jewel is the 687-acre Puteri Harbour with its planned integrated waterfront and marina development.
The precinct is to be gradually developed and because of its geography, has attracted the attention of a number of foreign builders which are keen to be involved. One of them is Limitless Holdings, a unit of Dubai World, which plans to jointly develop luxury residences with Nusajaya's master developer, UEM Land.
Another planned joint venture between UEM Land and the Middle East's Damac Properties was scrapped recently after Damac - which was to buy 43.5 acres in the enclave for nearly RM400 million (S$164.9 million) - did not fulfil conditions for the sale to proceed.
Still, most believe Puteri Harbour's location, quality of build, management, and security will prove a big attraction to investors - especially foreign ones - just as they have in places slightly further afield such as Leisure Farm, Horizon Hills and Ledang East in Nusajaya.
Mr Singhe is of the view that the better quality products in Iskandar have allowed Johoreans to 'upgrade'. Indeed, many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire and could make a difference in a project's 'sell-ability'.
KGV-Lambert (M) executive director Samuel Tan agrees that the higher-end developments in Iskandar have drawn the most interest in Johor. The rest of the market has been softer.
'People think that Nusajaya is Iskandar Malaysia,' he observed wryly, pointing out that it is only a fraction of the special economic zone which is three times the size of Singapore. He highlighted new developments in brownfield areas as well as mature ones in the Tebrau Corridor, Skudai and Pasir Gudang which have been under-promoted but which might be worth a second look. 'There are more opportunities in the secondary market because the primary market development costs have gone up.'
For those considering the lower- to mid-range of the market, bad debts have created a 'sub-market' of auctioned properties in Johor, he revealed, with auctions held weekly. Each auction offers 20-50 properties and they go for about 30 per cent less than their market value.
Despite the global financial crisis, Iskandar investors remain committed, the biggest to date being Middle Eastern firms which plan to develop the area called Medini, located near the Second Link.
Still, property developers caution that the pace of construction could be slowed. On the bright side, the state government has already moved into the new administrative buildings in Kota Iskandar, and overall infrastructure works are continuing.
Mr Singhe believes the 2003-04 pattern of funds sniffing for deals which resulted in a property boom in 2006-07 is being repeated now based on the number of funds that are making inquiries. Accordingly, he expects a property upswing to materialise in 2011-12.
The Quill Group of Companies, which designs and constructs purpose-built offices, confirms growing interest in Malaysia. Its property director, Ng Chee Kheong, said that multinationals were showing keen interest in the area of shared services, particularly in the Klang Valley and Penang.
Of late, Malaysia has started to speed up its liberalisation of many sectors of the economy to attract more investments. Should it succeed, the expatriate market ought to increase which would in turn stimulate demand for rented properties and help arrest some of the decline in yields.
Because of the downturn, a number of developments had been put on hold, including one by Singapore's Kwek Leng Beng who was to have launched a 42-storey luxury condominium last year in the Kuala Lumpur golden triangle.
A prospective buyer expressed disappointment at the delay as he had been looking forward to purchasing a unit in the Carlos Ott-designed building which is to be constructed next to the tycoon's Millennium Hotel.
Kuala Lumpur high-end condo prices have dipped to an average of RM1,000 per sq ft although the more prestigious ones still command a premium. Because of the weak ringgit, prices remain very affordable, especially for foreigners.
Ferrari team's ex-boss Jean Todt, who is engaged to well-known actress Michelle Yeoh, recently revealed he had acquired a unit in OneKL, which sits opposite the iconic Petronas Twin Towers.
Many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire
ALWAYS a favourite, landed real estate is receiving more interest in the current property lull. According to property agents, there has been a slight pick-up in the past two months, mainly in primary sales and landed properties located in popular suburbs. Zerin Properties' chief executive Previn Singhe described April and May as 'surprising months with very strong interest in landed properties', centred mainly in the Klang Valley as prospective purchasers act on the premise that prices are unlikely to slip because of the limited supply.
Idyllic: Nusajaya's jewel is Puteri Harbour with its integrated waterfront and marina developmentIn some places, demand continues to outstrip supply, he said, citing Bangsar, Bukit Damansara, Damansara Heights, Taman Tun Dr Ismail, Seputeh, Taman Desa and Jalan Ipoh where prices - which had held steady - have started to inch up as investors turn to property as a hedge against inflation.
'If you want to buy for owner occupation, any time is a good time. If it's for investment, you need to be looking now,' advised CH Williams Talhar & Wong managing director Goh Tian Sui.
Mr Singhe lists those on the property hunt: the first timers attracted by low interest rates; investors in the 30-55 age group who are acquiring for their children; professional investors looking at Kuala Lumpur landed real estate for capital appreciation or condominiums for rental yields; and non-resident Malaysians.
There are also foreigners who have started to look at condos in the Kuala Lumpur City Centre and Mont Kiara areas since the price of some units have dropped by 20 per cent. Location-wise, Penang is another hot-spot, popular with Penangites and other northerners, as well as KL-ites looking to retire there.
Across the South China Sea, Kota Kinabalu real estate has received a boost from the oil and gas boom, as well as tourism which has led to numerous Koreans and Europeans succumbing to its charms, Mr Singhe said.
In the south of the peninsula, Johor's Iskandar Malaysia remains a major point of interest. Central to Iskandar is the Nusajaya area with its strategic location across the Straits of Johor. Nusajaya's jewel is the 687-acre Puteri Harbour with its planned integrated waterfront and marina development.
The precinct is to be gradually developed and because of its geography, has attracted the attention of a number of foreign builders which are keen to be involved. One of them is Limitless Holdings, a unit of Dubai World, which plans to jointly develop luxury residences with Nusajaya's master developer, UEM Land.
Another planned joint venture between UEM Land and the Middle East's Damac Properties was scrapped recently after Damac - which was to buy 43.5 acres in the enclave for nearly RM400 million (S$164.9 million) - did not fulfil conditions for the sale to proceed.
Still, most believe Puteri Harbour's location, quality of build, management, and security will prove a big attraction to investors - especially foreign ones - just as they have in places slightly further afield such as Leisure Farm, Horizon Hills and Ledang East in Nusajaya.
Mr Singhe is of the view that the better quality products in Iskandar have allowed Johoreans to 'upgrade'. Indeed, many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire and could make a difference in a project's 'sell-ability'.
KGV-Lambert (M) executive director Samuel Tan agrees that the higher-end developments in Iskandar have drawn the most interest in Johor. The rest of the market has been softer.
'People think that Nusajaya is Iskandar Malaysia,' he observed wryly, pointing out that it is only a fraction of the special economic zone which is three times the size of Singapore. He highlighted new developments in brownfield areas as well as mature ones in the Tebrau Corridor, Skudai and Pasir Gudang which have been under-promoted but which might be worth a second look. 'There are more opportunities in the secondary market because the primary market development costs have gone up.'
For those considering the lower- to mid-range of the market, bad debts have created a 'sub-market' of auctioned properties in Johor, he revealed, with auctions held weekly. Each auction offers 20-50 properties and they go for about 30 per cent less than their market value.
Despite the global financial crisis, Iskandar investors remain committed, the biggest to date being Middle Eastern firms which plan to develop the area called Medini, located near the Second Link.
Still, property developers caution that the pace of construction could be slowed. On the bright side, the state government has already moved into the new administrative buildings in Kota Iskandar, and overall infrastructure works are continuing.
Mr Singhe believes the 2003-04 pattern of funds sniffing for deals which resulted in a property boom in 2006-07 is being repeated now based on the number of funds that are making inquiries. Accordingly, he expects a property upswing to materialise in 2011-12.
The Quill Group of Companies, which designs and constructs purpose-built offices, confirms growing interest in Malaysia. Its property director, Ng Chee Kheong, said that multinationals were showing keen interest in the area of shared services, particularly in the Klang Valley and Penang.
Of late, Malaysia has started to speed up its liberalisation of many sectors of the economy to attract more investments. Should it succeed, the expatriate market ought to increase which would in turn stimulate demand for rented properties and help arrest some of the decline in yields.
Because of the downturn, a number of developments had been put on hold, including one by Singapore's Kwek Leng Beng who was to have launched a 42-storey luxury condominium last year in the Kuala Lumpur golden triangle.
A prospective buyer expressed disappointment at the delay as he had been looking forward to purchasing a unit in the Carlos Ott-designed building which is to be constructed next to the tycoon's Millennium Hotel.
Kuala Lumpur high-end condo prices have dipped to an average of RM1,000 per sq ft although the more prestigious ones still command a premium. Because of the weak ringgit, prices remain very affordable, especially for foreigners.
Ferrari team's ex-boss Jean Todt, who is engaged to well-known actress Michelle Yeoh, recently revealed he had acquired a unit in OneKL, which sits opposite the iconic Petronas Twin Towers.
Making Sense Of Housing Loans
Source : The Business Times, July 9, 2009
Can't tell your Sibors from your SORs? Get a quick primer here
SENTIMENT seems to have made a 180-degree turn in the property market in recent months with buyers coming out in force as the economic outlook stabilises. Sellers have been known to up asking prices by 10 per cent or more. Some home buyers who were taking a wait and see attitude a few months ago rushed in to buy properties.
Taking the plunge: Before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35% of your gross income
But before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35 per cent of your gross income. On top of that you should set aside enough funds to service at least six months of your housing loan instalments. This would provide some buffer should you suffer a pay cut or job loss.
Home buyers might also want to take note that supply of homes should be ample, going forward. Between 2009 and 2013, a total of 55,838 condo units are expected to be completed, according to numbers from the Urban Redevelopment Authority (URA). The supply more than meets the average demand of about 8,000 units a year.
Some developers are offering an interest absorption scheme (IAS), where the developer helps the buyer pay the interest on the housing loan while the property is under construction. Of course, such a scheme typically raises the sale price by 2 to 5 per cent, so there really is no free lunch.
Also, note that housing loan packages tied to the IAS generally charge higher interest rates. The difference can be 0.5 per cent or more. And because the IAS is offered by a single bank, taking it means losing the freedom to shop around for the best loan package. So you could forgo savings in interest of several thousand dollars.
Under the IAS, only the interest is paid while the principal outstanding is not reduced. Thus, when your property is completed, your housing loan outstanding will be higher than that of someone who has been making progressive payments.
Lastly, should the developer get into financial difficulties, the buyer is still liable to the bank for the interest on the housing loan.
Short loan tenor vs long loan tenor
Some people choose to pay off their housing loan as quickly as possible to save on interest payments. On the other hand, there are people who want to stretch the loan repayment period to the maximum so they have smaller monthly cash outflows.
Instead of going to either extreme, you could consider matching the loan tenor to your intended retirement age. For instance, if you're 40, you can take up a 20-year loan that will be paid off by the time you retire at 60.
Interest rate outlook
Sibor or the Singapore Interbank Offered Rate is the average interest rate at which banks lend or borrow local dollars from one another in Singapore. The two main factors that affect Sibor are the United States Federal Reserve rate and liquidity, or availability of funds, in the local banking sector.
The US Federal Reserve has maintained interest rates at 0.25 per cent, a historical low. Sibor has stayed slightly below 0.7 per cent in the past six months and is likely to remain there as long as US interest rates are low and liquidity here is ample.
If you want certainty of interest rates for the next few years, then go for a fixed-rate housing loan, which can be as low as 1.5 per cent for the first year.
So what is the difference between Sibor and SOR? The latter stands for the Swap Offer Rate, which comprises the Singapore Interbank Offer Rate plus market reserve costs. It represents the average cost of funds used by banks in Singapore for commercial lending.
Swap also accounts for the exchange rate of the US$ vs S$. Thus, SOR tends to be more volatile than Sibor. If you want lower volatility, go for a loan pegged to Sibor rather than SOR.
Should you aim to be debt free as soon as possible?
Most personal finance books recommend that you should aim to be debt free as soon as possible. In my opinion, as long as you have not overborrowed, you can plan to pay off your housing loan by the time you retire.
If you think about it, a housing loan is the cheapest loan on the market. In Singapore, the interest rate on a housing loan is currently about 2 per cent, while a car loan is about 4 per cent, a renovation loan 7 per cent and a credit card 24 per cent!
So it is difficult for people to fail to beat housing loan interest rates. Why? Imagine that you know nothing about investing. Just putting money into endowment savings plans gives you annual returns of about 4 per cent over a 20-year period.
Say a person has a $200,000 housing loan to be repaid over 20 years. Assuming an interest rate of 4.5 per cent on the loan, the total interest paid over 20 years is only $105,515.
If he has $200,000 in cash or CPF savings and uses this money to earn a yield of 3.5 per cent, in 20 years, he would have earned $168,453!
Most people forget that interest on a housing loan is calculated on a reducing balance basis while savings compound (interest is added on interest).
Thus, you can get ahead financially if you focus on making your cash or CPF funds work harder for you than by trying to pay off your housing loan as soon as possible.
To get an unbiased view of the housing loan packages offered by banks, you can talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.
Typically, the service offered by a mortgage broker is free as they are paid separately by the banks.
Dennis Ng is a certified financial planner with 16 years of bank lending experience. He founded mortgage consultancy http://www.HousingLoanSG.com in 2003
Can't tell your Sibors from your SORs? Get a quick primer here
SENTIMENT seems to have made a 180-degree turn in the property market in recent months with buyers coming out in force as the economic outlook stabilises. Sellers have been known to up asking prices by 10 per cent or more. Some home buyers who were taking a wait and see attitude a few months ago rushed in to buy properties.
Taking the plunge: Before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35% of your gross incomeBut before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35 per cent of your gross income. On top of that you should set aside enough funds to service at least six months of your housing loan instalments. This would provide some buffer should you suffer a pay cut or job loss.
Home buyers might also want to take note that supply of homes should be ample, going forward. Between 2009 and 2013, a total of 55,838 condo units are expected to be completed, according to numbers from the Urban Redevelopment Authority (URA). The supply more than meets the average demand of about 8,000 units a year.
Some developers are offering an interest absorption scheme (IAS), where the developer helps the buyer pay the interest on the housing loan while the property is under construction. Of course, such a scheme typically raises the sale price by 2 to 5 per cent, so there really is no free lunch.
Also, note that housing loan packages tied to the IAS generally charge higher interest rates. The difference can be 0.5 per cent or more. And because the IAS is offered by a single bank, taking it means losing the freedom to shop around for the best loan package. So you could forgo savings in interest of several thousand dollars.
Under the IAS, only the interest is paid while the principal outstanding is not reduced. Thus, when your property is completed, your housing loan outstanding will be higher than that of someone who has been making progressive payments.
Lastly, should the developer get into financial difficulties, the buyer is still liable to the bank for the interest on the housing loan.
Short loan tenor vs long loan tenor
Some people choose to pay off their housing loan as quickly as possible to save on interest payments. On the other hand, there are people who want to stretch the loan repayment period to the maximum so they have smaller monthly cash outflows.
Instead of going to either extreme, you could consider matching the loan tenor to your intended retirement age. For instance, if you're 40, you can take up a 20-year loan that will be paid off by the time you retire at 60.
Interest rate outlook
Sibor or the Singapore Interbank Offered Rate is the average interest rate at which banks lend or borrow local dollars from one another in Singapore. The two main factors that affect Sibor are the United States Federal Reserve rate and liquidity, or availability of funds, in the local banking sector.
The US Federal Reserve has maintained interest rates at 0.25 per cent, a historical low. Sibor has stayed slightly below 0.7 per cent in the past six months and is likely to remain there as long as US interest rates are low and liquidity here is ample.
If you want certainty of interest rates for the next few years, then go for a fixed-rate housing loan, which can be as low as 1.5 per cent for the first year.
So what is the difference between Sibor and SOR? The latter stands for the Swap Offer Rate, which comprises the Singapore Interbank Offer Rate plus market reserve costs. It represents the average cost of funds used by banks in Singapore for commercial lending.
Swap also accounts for the exchange rate of the US$ vs S$. Thus, SOR tends to be more volatile than Sibor. If you want lower volatility, go for a loan pegged to Sibor rather than SOR.
Should you aim to be debt free as soon as possible?
Most personal finance books recommend that you should aim to be debt free as soon as possible. In my opinion, as long as you have not overborrowed, you can plan to pay off your housing loan by the time you retire.
If you think about it, a housing loan is the cheapest loan on the market. In Singapore, the interest rate on a housing loan is currently about 2 per cent, while a car loan is about 4 per cent, a renovation loan 7 per cent and a credit card 24 per cent!
So it is difficult for people to fail to beat housing loan interest rates. Why? Imagine that you know nothing about investing. Just putting money into endowment savings plans gives you annual returns of about 4 per cent over a 20-year period.
Say a person has a $200,000 housing loan to be repaid over 20 years. Assuming an interest rate of 4.5 per cent on the loan, the total interest paid over 20 years is only $105,515.
If he has $200,000 in cash or CPF savings and uses this money to earn a yield of 3.5 per cent, in 20 years, he would have earned $168,453!
Most people forget that interest on a housing loan is calculated on a reducing balance basis while savings compound (interest is added on interest).
Thus, you can get ahead financially if you focus on making your cash or CPF funds work harder for you than by trying to pay off your housing loan as soon as possible.
To get an unbiased view of the housing loan packages offered by banks, you can talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.
Typically, the service offered by a mortgage broker is free as they are paid separately by the banks.
Dennis Ng is a certified financial planner with 16 years of bank lending experience. He founded mortgage consultancy http://www.HousingLoanSG.com in 2003
Tips For Investing In Property
Source : The Business Times, July 9, 2009
Evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that
REAL estate is among the world's safest investments in that it cannot be lost, stolen or carried away. If managed with reasonable care, its value can be maintained or even enhanced. In Singapore, a property cycle typically lasts four to seven years.
As such, a property investor should have a similar investment horizon to ride out any market vagaries so as to best enjoy rental and capital appreciation over time. Empirical evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that.
For example, a unit at Ardmore Park which was bought for $4.4 million in 2005 was sold in May this year for $6.2 million, representing a healthy profit of about 40 per cent. This has yet to take into account rental income that may have been earned over the period.
Rental yields are an attractive enticement for property investors, giving them a steady stream of cashflow in good times and bad. Typically, gross residential rental yields stand at 3-5 per cent, depending on the location, project and tenure of the property.
Investors seeking rental yields should note that while residential yields have improved markedly since property prices declined from their peak in mid-2008, rents are now correcting, and are likely to continue their slide till year's end at least.
There was a recent spike in rental yields, which is due to rents falling at a slower rate than prices. According to Q1 2009 data released by the Urban Redevelopment Authority (URA), property prices islandwide have declined by some 21 per cent from the peak while rents have come off some 14 per cent.
High-end residential yields have risen from a low of 2.8 per cent in Q4 2007 to 3.5 per cent in Q1 2009. However, they are expected to stabilise around the long-term average of 3- 3.4 per cent in the near- to mid-term. This is on the expectation that prices will moderate their decline from here while rents remain weak in the face of strong new housing supply this year.
However, residential prices have shown recent signs of consolidation, supported by opportunistic home purchases at discounted prices, introduction of the interest absorption scheme as well as pent-up demand in certain areas.
Leveraging
Positive carry, which is the difference between the cost of financing the property and rental income, looks set to shrink further on falling rents. This is an important factor for investors who look to pay off their mortgages with rental income. But a positive carry still exists and it can be particularly rewarding for those who can finance their properties with a larger portion of equity or a lower loan-to-value ratio.
This is made possible by the current low interest rates - Singapore's three-month interbank rate has steadied near an all-time low of 0.69 per cent since the beginning of the year. This represents an excellent opportunity for property investors to take advantage of relatively low borrowing costs to maximise their return on equity (ROE).
Take for example a studio apartment that costs $400,000, a borrowing cost of 2 per cent per annum and an 80 per cent loan-to-value ratio. In this case, a yield of 4 per cent would lead to an ROE of 1.76 per cent. By bringing down the loan-to-value ratio to 60 per cent, ROE would improve to 3.1 per cent. This rate of return is higher than the savings and time deposit rates today.
Taking potential capital appreciation into consideration, ROE could be even higher. Extending the above example, an investor's ROE would rise to 25 per cent on the assumption of a loan-to-value ratio of 60 per cent and capital appreciation of 10 per cent. So, with proper use of leveraging, one can maximise returns.
Location, location, location
Location, location, location is the mantra of those looking to invest in property. It seems easy enough to say 'Let's buy in Orchard Road' or 'Let's buy East Coast' just because these are well-established residential locations. But what are the factors that make a good location? Why do people want to own or rent a property in a given location? These are the demand drivers that we need to understand.
What makes living in Orchard Road attractive? Beyond the glitz of the shopping belt, it is the proximity to international schools, the Central Business District, the up-and-coming Marina Bay Sands integrated resort (IR) as well as the excellent road and rail connectivity to other parts of Singapore.
The future development of the area is also important. The impact of the up-and-coming IR on residential property is probably best demonstrated by the prices fetched by The Sail @ Marina Bay. In 2004, six months before the IRs were confirmed, the price for the first residential tower was launched at $900 per sq ft (psf).
About a year later, about six months after the IR was given the green light, the second tower was launched at $1,080 psf. After that, resale prices escalated to more than $2,000 psf at the peak of the market.
More recently, the government has focused on building up Singapore as a leading R&D hub in Asia and earmarked areas like one-north in Buona Vista for development.
One-north is a 200-hectare project designed to house Singapore's growing biomedical, infocomm and digital media industries. As such, condominiums in the vicinity like one-north Residences have been well received, with many investors buying for potentially good rentals.
Affordability
In times of economic uncertainty, it pays to be prudent. One should be careful not to borrow too much. Maintaining a debt service ratio of 25-30 per cent of income is ideal as it allows some buffer for any rise in mortgage rates.
Savills' affordability index showed that the average household's ability to service its monthly mortgage repayment has improved. From a peak of 40 per cent in Q3 2007, the debt service ratio has dropped to 26 per cent as at Q4 2008, following the steep price declines.
Valuation
It is important to be familiar with property prices in the vicinity to ensure that one does not overpay. Generally, when buying a new property from a developer, you have greater certainty that banks would be able to match the valuation. In the secondary market, buyers would do well to get a bank valuation on the property before committing, to avoid overpaying.
Risks-rewards
Going by past transactions, prime properties - though more volatile - offer better potential for capital appreciation as investors in this segment are perceived to be less price sensitive.
The recent bull cycle saw the average price of residential properties in our basket for Districts 1, 4, 9, 10, and 11 rise from $1,250 psf in Q1 2005 to $2,400 psf in Q4 2007. Since then, the average price has slipped about 30 per cent to $1,640 psf as at Q1 2009. Given a reasonable investment horizon, there is potential for peak prices to be regained again.
When is it a good time to buy? That's a question many buyers ask. Everyone wants to land a good deal given that property is a big-ticket investment. In some instances, just waiting a few months can mean saving tens of thousands of dollars.
However, the reverse is also true - one may end up paying more if the market suddenly turns up. It's never easy trying to call the bottom of a market as one often only knows it in hindsight.
The writer is director of investment sales & prestige homes, Savills Singapore
Evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that
REAL estate is among the world's safest investments in that it cannot be lost, stolen or carried away. If managed with reasonable care, its value can be maintained or even enhanced. In Singapore, a property cycle typically lasts four to seven years.
As such, a property investor should have a similar investment horizon to ride out any market vagaries so as to best enjoy rental and capital appreciation over time. Empirical evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that.
For example, a unit at Ardmore Park which was bought for $4.4 million in 2005 was sold in May this year for $6.2 million, representing a healthy profit of about 40 per cent. This has yet to take into account rental income that may have been earned over the period.
Rental yields are an attractive enticement for property investors, giving them a steady stream of cashflow in good times and bad. Typically, gross residential rental yields stand at 3-5 per cent, depending on the location, project and tenure of the property.
Investors seeking rental yields should note that while residential yields have improved markedly since property prices declined from their peak in mid-2008, rents are now correcting, and are likely to continue their slide till year's end at least.
There was a recent spike in rental yields, which is due to rents falling at a slower rate than prices. According to Q1 2009 data released by the Urban Redevelopment Authority (URA), property prices islandwide have declined by some 21 per cent from the peak while rents have come off some 14 per cent.
High-end residential yields have risen from a low of 2.8 per cent in Q4 2007 to 3.5 per cent in Q1 2009. However, they are expected to stabilise around the long-term average of 3- 3.4 per cent in the near- to mid-term. This is on the expectation that prices will moderate their decline from here while rents remain weak in the face of strong new housing supply this year.
However, residential prices have shown recent signs of consolidation, supported by opportunistic home purchases at discounted prices, introduction of the interest absorption scheme as well as pent-up demand in certain areas.
Leveraging
Positive carry, which is the difference between the cost of financing the property and rental income, looks set to shrink further on falling rents. This is an important factor for investors who look to pay off their mortgages with rental income. But a positive carry still exists and it can be particularly rewarding for those who can finance their properties with a larger portion of equity or a lower loan-to-value ratio.
This is made possible by the current low interest rates - Singapore's three-month interbank rate has steadied near an all-time low of 0.69 per cent since the beginning of the year. This represents an excellent opportunity for property investors to take advantage of relatively low borrowing costs to maximise their return on equity (ROE).
Take for example a studio apartment that costs $400,000, a borrowing cost of 2 per cent per annum and an 80 per cent loan-to-value ratio. In this case, a yield of 4 per cent would lead to an ROE of 1.76 per cent. By bringing down the loan-to-value ratio to 60 per cent, ROE would improve to 3.1 per cent. This rate of return is higher than the savings and time deposit rates today.
Taking potential capital appreciation into consideration, ROE could be even higher. Extending the above example, an investor's ROE would rise to 25 per cent on the assumption of a loan-to-value ratio of 60 per cent and capital appreciation of 10 per cent. So, with proper use of leveraging, one can maximise returns.
Location, location, location
Location, location, location is the mantra of those looking to invest in property. It seems easy enough to say 'Let's buy in Orchard Road' or 'Let's buy East Coast' just because these are well-established residential locations. But what are the factors that make a good location? Why do people want to own or rent a property in a given location? These are the demand drivers that we need to understand.
What makes living in Orchard Road attractive? Beyond the glitz of the shopping belt, it is the proximity to international schools, the Central Business District, the up-and-coming Marina Bay Sands integrated resort (IR) as well as the excellent road and rail connectivity to other parts of Singapore.
The future development of the area is also important. The impact of the up-and-coming IR on residential property is probably best demonstrated by the prices fetched by The Sail @ Marina Bay. In 2004, six months before the IRs were confirmed, the price for the first residential tower was launched at $900 per sq ft (psf).
About a year later, about six months after the IR was given the green light, the second tower was launched at $1,080 psf. After that, resale prices escalated to more than $2,000 psf at the peak of the market.
More recently, the government has focused on building up Singapore as a leading R&D hub in Asia and earmarked areas like one-north in Buona Vista for development.
One-north is a 200-hectare project designed to house Singapore's growing biomedical, infocomm and digital media industries. As such, condominiums in the vicinity like one-north Residences have been well received, with many investors buying for potentially good rentals.
Affordability
In times of economic uncertainty, it pays to be prudent. One should be careful not to borrow too much. Maintaining a debt service ratio of 25-30 per cent of income is ideal as it allows some buffer for any rise in mortgage rates.
Savills' affordability index showed that the average household's ability to service its monthly mortgage repayment has improved. From a peak of 40 per cent in Q3 2007, the debt service ratio has dropped to 26 per cent as at Q4 2008, following the steep price declines.
Valuation
It is important to be familiar with property prices in the vicinity to ensure that one does not overpay. Generally, when buying a new property from a developer, you have greater certainty that banks would be able to match the valuation. In the secondary market, buyers would do well to get a bank valuation on the property before committing, to avoid overpaying.
Risks-rewards
Going by past transactions, prime properties - though more volatile - offer better potential for capital appreciation as investors in this segment are perceived to be less price sensitive.
The recent bull cycle saw the average price of residential properties in our basket for Districts 1, 4, 9, 10, and 11 rise from $1,250 psf in Q1 2005 to $2,400 psf in Q4 2007. Since then, the average price has slipped about 30 per cent to $1,640 psf as at Q1 2009. Given a reasonable investment horizon, there is potential for peak prices to be regained again.
When is it a good time to buy? That's a question many buyers ask. Everyone wants to land a good deal given that property is a big-ticket investment. In some instances, just waiting a few months can mean saving tens of thousands of dollars.
However, the reverse is also true - one may end up paying more if the market suddenly turns up. It's never easy trying to call the bottom of a market as one often only knows it in hindsight.
The writer is director of investment sales & prestige homes, Savills Singapore