Source : The Business Times, July 13, 2009
Investors, home seekers throng property launches over weekend
FEAR and uncertainty over how gains from property sales would be taxed vanished as quickly as they came last week.
Home seekers still thronged showflats over the weekend and smaller apartments remained popular picks.
Turnout at property launches was healthy, observed DMG & Partners Securities analyst Brandon Lee, who visited a handful of showflats in the last few days.
News that the government could change income tax laws on profits from property sales did not seem to have an adverse impact, he said.
Word got round last Wednesday of a proposal to make current laws clearer - by guaranteeing that anyone who sells only one property in any four-year period will not be taxed on the gains.
This left many industry players wondering if sellers who failed to meet the criterion would automatically be taxed. Their fears were eased when the government said that this was not the case.
Given how much property prices have fallen, there is still a chance to profit - with or without taxes - said Mr Lee in a note last Thursday. 'Even if a maximum 20 per cent personal income tax rate is levied on profits, the seller should still reap healthy income.'
Investors seemed to recognise this and joined genuine homeseekers at showflats for new projects, such as Parc Imperial at Pasir Panjang, Ascentia Sky along Alexandra Road and Sophia Residence at Mount Sophia.
According to agents, buyers had taken up around 80 per cent of Parc Imperial's 138 units by yesterday afternoon.
Studio and two-bedroom apartments at the freehold project were the most popular, with prices starting from $1,200 psf.
At Luxus Hills, a recently-launched 999-year leasehold landed development at Ang Mio Kio, 63 of 78 units have been sold. Prices ranged from about $1.75 million for intermediate terrace homes to $2.05 million for corner terraces.
Existing properties also found buyers. In four days, The Straits Trading Company sold 10 units at Gallop Green, a freehold estate near Farrer Road which received Temporary Occupation Permit in 2002.
Prices averaged $1,400-$1,435 psf and buyers comprised owner-occupiers and investors, said the company's executive vice-president Eric Teng.
Wednesday, July 15, 2009
Recession Over, Strong V-Shaped Recovery Seen
Source : The Business Times, July 14, 2009
THERE are tentative signs that Singapore's worst ever recession is over and a strong V-shaped recovery is to follow over the rest of this year, according to HSBC's Asian Economics report for the third quarter.
'Unemployment is expected to peak at the end of this year at 4.2 per cent and then come down to 3.4 per cent at the end of 2010,' said Robert Prior-Wandesforde, HSBC senior Asian economist, at a media briefing for Asian Outlook 2009.
'For Singapore, we're looking at negative 6 per cent GDP growth this year, towards the better end of the government's forecast range. For 2010, we're looking at positive 5.3 per cent growth.'
For Asia ex-Japan, GDP growth is expected to 4.2 per cent this year, and 6.9 per cent in 2010.
'We are optimistic about the recovery and we see increased evidence that recovery has begun,' Mr Prior-Wandesforde said.
In the Asian Economics report for Q3, three overlapping stages of the recovery process which underpin HSBC's belief in a sustained pick-up in growth are discussed - initial post-crisis relief bounce, effects of various policy stimulus packages across Asia, and the self-sustaining phase of growth.
'Since the collapse of Lehman Brothers, there was a feeling that we were heading into a second great depression, the end of the financial world as we know it,' said Mr Prior-Wandesforde.
'But thanks to the very aggressive policy action that is being taken by governments and central banks around the world, particularly the US, it seems to us that scenario is pretty much gone.'
Asia ex-Japan will see quarter-on-quarter annualised GDP growth of more than 8 per cent in the second quarter, the report says. 'Omens are looking even better for the third quarter, with double-digit quarter-on-quarter annualised GDP growth.'
The HSBC coincident indicator includes Chinese and South Korean composite lead indicators, the Commodity Research Bureau index, German IFO business expectations and the S&P 500 equity market index.
This means that 'we can rule out an L-shaped kind of recovery, and also an U-shaped one', explained Mr Prior-Wandesforde.
The second phase relates to various policy stimulus packages put in place across Asia - the biggest and most synchronised easing of fiscal policy and monetary policy ever.
It is estimated that these will add 'at least one per cent of GDP growth in the region this year and another 2 per cent in 2010'.
'This reflects the length of time it often takes in Asia to get these infrastructural projects in place, and also the fact that monetary policy works with a significant lag in Asia - with 12 to 24 months' lag being typical,' noted Mr Prior-Wandesforde.
With all these policy effects stimulating domestic demands within Asia, it is expected to 'at least create a regional trade recovery before world recovery'.
Tracking the level of Asia ex-Japan private consumption and investment as a proportion of the equivalent series for the US, the latter was actually 20 per cent higher than its American counterpart last year.
Asian private consumption came to just 40 per cent of the US level in 2008 but it has grown more in absolute terms in each of the last two years.
'Our Asia ex-Japan and China export lead indicator points to a pick-up in year-on-year real export growth Q309,' Mr Prior-Wandesforde said.
'It's typically the most open economies, like Singapore and Malaysia that crashed the most, which we think will see the greatest trade recovery kicking in.'
THERE are tentative signs that Singapore's worst ever recession is over and a strong V-shaped recovery is to follow over the rest of this year, according to HSBC's Asian Economics report for the third quarter.
'Unemployment is expected to peak at the end of this year at 4.2 per cent and then come down to 3.4 per cent at the end of 2010,' said Robert Prior-Wandesforde, HSBC senior Asian economist, at a media briefing for Asian Outlook 2009.
'For Singapore, we're looking at negative 6 per cent GDP growth this year, towards the better end of the government's forecast range. For 2010, we're looking at positive 5.3 per cent growth.'
For Asia ex-Japan, GDP growth is expected to 4.2 per cent this year, and 6.9 per cent in 2010.
'We are optimistic about the recovery and we see increased evidence that recovery has begun,' Mr Prior-Wandesforde said.
In the Asian Economics report for Q3, three overlapping stages of the recovery process which underpin HSBC's belief in a sustained pick-up in growth are discussed - initial post-crisis relief bounce, effects of various policy stimulus packages across Asia, and the self-sustaining phase of growth.
'Since the collapse of Lehman Brothers, there was a feeling that we were heading into a second great depression, the end of the financial world as we know it,' said Mr Prior-Wandesforde.
'But thanks to the very aggressive policy action that is being taken by governments and central banks around the world, particularly the US, it seems to us that scenario is pretty much gone.'
Asia ex-Japan will see quarter-on-quarter annualised GDP growth of more than 8 per cent in the second quarter, the report says. 'Omens are looking even better for the third quarter, with double-digit quarter-on-quarter annualised GDP growth.'
The HSBC coincident indicator includes Chinese and South Korean composite lead indicators, the Commodity Research Bureau index, German IFO business expectations and the S&P 500 equity market index.
This means that 'we can rule out an L-shaped kind of recovery, and also an U-shaped one', explained Mr Prior-Wandesforde.
The second phase relates to various policy stimulus packages put in place across Asia - the biggest and most synchronised easing of fiscal policy and monetary policy ever.
It is estimated that these will add 'at least one per cent of GDP growth in the region this year and another 2 per cent in 2010'.
'This reflects the length of time it often takes in Asia to get these infrastructural projects in place, and also the fact that monetary policy works with a significant lag in Asia - with 12 to 24 months' lag being typical,' noted Mr Prior-Wandesforde.
With all these policy effects stimulating domestic demands within Asia, it is expected to 'at least create a regional trade recovery before world recovery'.
Tracking the level of Asia ex-Japan private consumption and investment as a proportion of the equivalent series for the US, the latter was actually 20 per cent higher than its American counterpart last year.
Asian private consumption came to just 40 per cent of the US level in 2008 but it has grown more in absolute terms in each of the last two years.
'Our Asia ex-Japan and China export lead indicator points to a pick-up in year-on-year real export growth Q309,' Mr Prior-Wandesforde said.
'It's typically the most open economies, like Singapore and Malaysia that crashed the most, which we think will see the greatest trade recovery kicking in.'
CBRE Expects Smaller Fall In Retail Rents This Year
Source : The Business Times, July 14, 2009
It cites healthy demand for Orchard Rd space, limited suburban supply
CB RICHARD Ellis (CBRE) now expects Orchard Road retail rents to fall 10-12 per cent this year - less than its earlier estimate of 15-20 per cent.
Good demand at new malls: Ion Orchard said recently that it is 94 per cent leased while 80 per cent of the space at Orchard Central (above) is committed
'We expect the rate of rental decline for prime space along Orchard Road to ease given the healthy demand for existing shop space as well as high pre-commitment levels at yet-to-be completed malls,' CBRE said in a report released yesterday.
The firm now also expects suburban mall rents to contract just 5-6 per cent for the whole year - down from its earlier estimate of 10-15 per cent.
Prime Orchard Road rents fell to $33.90 per sq ft (psf) per month on average in Q2 2009 - down 2.9 per cent quarter-on-quarter and 7.8 per cent year-on-year. This means that according to CBRE's data, prime Orchard Road rents fell 6 per cent in the first half of this year.
Prime suburban rents were unchanged in Q2, averaging $28.30 psf pm. They were supported by the limited pipeline of supply in the suburbs, and the fact that suburban malls owned by real estate investment trusts (Reits) are under pressure to be yield-accretive and so are less likely to drop rents drastically. Prime suburban rents dipped a marginal 2.4 per cent in H1 2009.
The three new major malls coming up in Orchard Road have so far reported healthy leasing figures. Ion Orchard said recently that it is 94 per cent leased. And at the other end of Orchard Road, 80 per cent of the space at Orchard Central is committed. 313@Somerset, which is due to open at year-end, has said that it is 85 per cent leased so far and will be 100 per cent let by the time it opens.
Analysts have said that the fall in retail rents is expected to moderate in H2 2009 with seasonal activities such as the Great Singapore Sale, F1 Grand Prix and Christmas festive season.
It cites healthy demand for Orchard Rd space, limited suburban supply
CB RICHARD Ellis (CBRE) now expects Orchard Road retail rents to fall 10-12 per cent this year - less than its earlier estimate of 15-20 per cent.
Good demand at new malls: Ion Orchard said recently that it is 94 per cent leased while 80 per cent of the space at Orchard Central (above) is committed'We expect the rate of rental decline for prime space along Orchard Road to ease given the healthy demand for existing shop space as well as high pre-commitment levels at yet-to-be completed malls,' CBRE said in a report released yesterday.
The firm now also expects suburban mall rents to contract just 5-6 per cent for the whole year - down from its earlier estimate of 10-15 per cent.
Prime Orchard Road rents fell to $33.90 per sq ft (psf) per month on average in Q2 2009 - down 2.9 per cent quarter-on-quarter and 7.8 per cent year-on-year. This means that according to CBRE's data, prime Orchard Road rents fell 6 per cent in the first half of this year.
Prime suburban rents were unchanged in Q2, averaging $28.30 psf pm. They were supported by the limited pipeline of supply in the suburbs, and the fact that suburban malls owned by real estate investment trusts (Reits) are under pressure to be yield-accretive and so are less likely to drop rents drastically. Prime suburban rents dipped a marginal 2.4 per cent in H1 2009.
The three new major malls coming up in Orchard Road have so far reported healthy leasing figures. Ion Orchard said recently that it is 94 per cent leased. And at the other end of Orchard Road, 80 per cent of the space at Orchard Central is committed. 313@Somerset, which is due to open at year-end, has said that it is 85 per cent leased so far and will be 100 per cent let by the time it opens.
Analysts have said that the fall in retail rents is expected to moderate in H2 2009 with seasonal activities such as the Great Singapore Sale, F1 Grand Prix and Christmas festive season.
KL's Policy Shift Set To benefit property sector
Source : The Business Times, July 14, 2009
MALAYSIA'S decision to scrap a key approval process for most property transactions is expected to jump-start the sector and benefit commercial and international-class properties the most, property analysts say.
Regroup Associates managing director Allan Soo expects that the sector would be more opened up since larger funds would find Malaysia more attractive following last week's announcement that the Foreign Investment Committee (FIC) would no longer process property transactions, except where it involves a dilution of bumiputra or government interests. Even then, the approval is required only if the property costs more than RM20 million (S$8.13 million).
'The most important impact is that the big funds can come in without needing to find bumiputra partners to take up a 30 per cent stake,' Mr Soo said.
Previously, owing to rules under the affirmative-action New Economic Policy, a foreign firm proposing to buy commercial property would invariably be asked to set up an entity, which had to be 30 per cent held by bumiputras.
On the odd occasion, the 12-man FIC would use its discretion and make an exception, one such example being the Four Seasons Resort Langkawi - sold by Malaysia Airlines to a company controlled by Saudi Arabia's Prince Al-Waleed bin Talal in 2007 for RM435 million.
The FIC's powers have now been pared, and guidelines on the 30 per cent bumiputra quota covering the acquisition of equity stakes, mergers and takeovers have been repealed. The government concedes that, by so doing, it had removed a major 'irritant' to investors.
Property players say this would definitely improve the perception of investibility and save time. Quill Group general manager Ng Chee Kheong said that FIC approvals took three to four weeks, but sometimes up to six weeks. Quill has a joint venture with Singapore's CapitaLand in an office Reit that is listed on the Malaysian stock exchange.
But FIC approval is still needed where transactions involve bumiputra or government-owned properties that exceed RM20 million.
Minister in the Prime Minister's Department Nor Mohamed Yakcop assured that the government would be 'reasonable and flexible' in considering applications. He said this last week when asked if the additional restriction would create a 'two-tier system' and lead to a bias against bumiputra and government-owned properties given the additional process.
In at least two states - Johor and Kedah - property consultants aver that many bumiputras themselves prefer buying real estate which does not attract any restrictions.
'Anything that has any sort of restriction will fetch less,' Quill's Mr Ng said, adding that his experience in Kedah revealed that bumiputras preferred buying non-bumi lots.
His view is echoed by Tanah Sutera Development general manager Steven Shum who has urged a review of the practice. He maintains that because properties endorsed as 'bumiputra title' in Johor have to be re-sold to other bumiputras - unless the state allows otherwise - many bumiputras do not like buying bumiputra units, the developer discount offered on such units notwithstanding.
But commercial properties might not attract the same problems. Regroup's Mr Soo observed that most buildings in Kuala Lumpur do not have bumiputra interests. Moreover, buying decisions are made on the basis of location and the quality of the building - whether it is a class-A building and let to good tenants. 'If you put the Maxis building on sale, everyone would bid for it,' he commented.
Located in the prime Kuala Lumpur city centre area, Menara Maxis is 67 per cent owned by a subsidiary of Tanjong plc - the listed power and gaming company controlled by tycoon Ananda Krishnan. But the 49-storey prime building is also 33 per cent owned by KLCC Property, which is in turn 53 per cent held by national oil company Petronas.
Petronas'a property arm also has interests in other prestigious buildings in the area: Petronas Twin Towers (51 per cent) Suria KLCC (60 per cent), Mandarin Oriental (75 per cent), Menara ExxonMobil (100 per cent) and Dayabumi (100 per cent). Dayabumi is located slightly further out.
As the 'largest commercial property owner in the super prime KLCC area', KLCC Property stands to be the prime beneficiary of last week's policy changes, said HwangDBS-Vickers analyst Yee Mei Hui.
MALAYSIA'S decision to scrap a key approval process for most property transactions is expected to jump-start the sector and benefit commercial and international-class properties the most, property analysts say.
Regroup Associates managing director Allan Soo expects that the sector would be more opened up since larger funds would find Malaysia more attractive following last week's announcement that the Foreign Investment Committee (FIC) would no longer process property transactions, except where it involves a dilution of bumiputra or government interests. Even then, the approval is required only if the property costs more than RM20 million (S$8.13 million).
'The most important impact is that the big funds can come in without needing to find bumiputra partners to take up a 30 per cent stake,' Mr Soo said.
Previously, owing to rules under the affirmative-action New Economic Policy, a foreign firm proposing to buy commercial property would invariably be asked to set up an entity, which had to be 30 per cent held by bumiputras.
On the odd occasion, the 12-man FIC would use its discretion and make an exception, one such example being the Four Seasons Resort Langkawi - sold by Malaysia Airlines to a company controlled by Saudi Arabia's Prince Al-Waleed bin Talal in 2007 for RM435 million.
The FIC's powers have now been pared, and guidelines on the 30 per cent bumiputra quota covering the acquisition of equity stakes, mergers and takeovers have been repealed. The government concedes that, by so doing, it had removed a major 'irritant' to investors.
Property players say this would definitely improve the perception of investibility and save time. Quill Group general manager Ng Chee Kheong said that FIC approvals took three to four weeks, but sometimes up to six weeks. Quill has a joint venture with Singapore's CapitaLand in an office Reit that is listed on the Malaysian stock exchange.
But FIC approval is still needed where transactions involve bumiputra or government-owned properties that exceed RM20 million.
Minister in the Prime Minister's Department Nor Mohamed Yakcop assured that the government would be 'reasonable and flexible' in considering applications. He said this last week when asked if the additional restriction would create a 'two-tier system' and lead to a bias against bumiputra and government-owned properties given the additional process.
In at least two states - Johor and Kedah - property consultants aver that many bumiputras themselves prefer buying real estate which does not attract any restrictions.
'Anything that has any sort of restriction will fetch less,' Quill's Mr Ng said, adding that his experience in Kedah revealed that bumiputras preferred buying non-bumi lots.
His view is echoed by Tanah Sutera Development general manager Steven Shum who has urged a review of the practice. He maintains that because properties endorsed as 'bumiputra title' in Johor have to be re-sold to other bumiputras - unless the state allows otherwise - many bumiputras do not like buying bumiputra units, the developer discount offered on such units notwithstanding.
But commercial properties might not attract the same problems. Regroup's Mr Soo observed that most buildings in Kuala Lumpur do not have bumiputra interests. Moreover, buying decisions are made on the basis of location and the quality of the building - whether it is a class-A building and let to good tenants. 'If you put the Maxis building on sale, everyone would bid for it,' he commented.
Located in the prime Kuala Lumpur city centre area, Menara Maxis is 67 per cent owned by a subsidiary of Tanjong plc - the listed power and gaming company controlled by tycoon Ananda Krishnan. But the 49-storey prime building is also 33 per cent owned by KLCC Property, which is in turn 53 per cent held by national oil company Petronas.
Petronas'a property arm also has interests in other prestigious buildings in the area: Petronas Twin Towers (51 per cent) Suria KLCC (60 per cent), Mandarin Oriental (75 per cent), Menara ExxonMobil (100 per cent) and Dayabumi (100 per cent). Dayabumi is located slightly further out.
As the 'largest commercial property owner in the super prime KLCC area', KLCC Property stands to be the prime beneficiary of last week's policy changes, said HwangDBS-Vickers analyst Yee Mei Hui.
London Market Still Risky
Source : The Business Times, July 14, 2009
Estate agents such as Savills predict that there is further downside of 10%
ESTATE agents report that buyers have returned to the London and UK residential real estate market in recent weeks and prices have improved a little.
In demand: On the positive side, good quality properties in prime locations are difficult to find
Despite this optimism the London property market is dangerously speculative for foreign investors. On average, house prices have fallen by around 15 per cent from their bubble heights and apartment prices by around 25 per cent.
But the declines were from extraordinary peaks. Estate agents such as Savills predict that there is further downside of 10 per cent, but economists fear that declines could be more.
Earlier this year, Asian, Russian and other foreign buyers were tentatively examining potential residential London property investments, according to agents.
At the time sterling had depreciated by 34 per cent from a heady 2008 peak of US$2.10 to below US$1.40. Compared with 2008, a Singaporean investor could buy sterling at a third lower than levels seen in 2008.
For Singaporeans and other foreign investors, the effective property price discounts from the top were 40 to 60 per cent.
In recent months, however, the British pound has appreciated by around 20 per cent from the lows, so the discount has been reduced considerably.
Since currency economists estimate that fair value for the pound is around US$1.50, compared with current levels of around US$1.63, Asian investors are now subject to greater risk from a currency downturn.
The UK real estate market, especially London, is difficult to read because of its diversity. On the positive side, good quality properties in prime locations are generally difficult to find. Sterling, at current rates, is 22 per cent below its 2008 top and much lower mortgage rates are positive factors.
On the negative side, the market experienced an extraordinary bubble and price declines from those levels haven't been extensive.
Deposits on properties must be 25 per cent to 40 per cent to obtain mortgages. This extra finance is well over levels required during the property boom of 2005 to 2008. In recent months, the long government bond yield has risen sharply.
Mortgage rates follow this long-term rate and are thus rising. Layoffs from banks, brokers and other financial services have only taken place in recent months.
As redundancy payments become depleted, people with high mortgages have been under pressure to sell. Redundant foreigners who can't find jobs in the City have to return home, leaving landlords with rental voids.
Houses and apartments of these unfortunate people have not been sold easily.
Thus although estate agents have reported renewed interest from bargain hunters, it is still a buyer's market.
Moreover, reports of an uptick in some prices need to be seen in perspective. Volumes of transactions have been low as unwilling sellers have been trying to keep their property off the market for as long as possible.
Stressed sellers who can't offload their houses or apartments, have decided to rent their properties and downsize.
There has thus been a sharp increase in rental properties coming onto the market and a general decline in rents.
Earlier this year, agents Savills and Knight Frank reported that gross rental yields of prime properties in London were around 4.5 per cent and net yields 3.5 per cent.
Since prices haven't fallen much since March and there have been declines in rentals on new leases, gross rental yields on average can be estimated at 4.25 per cent and net yields around 3.25 per cent.
This compares with long-term government bond yields of around 3.9 per cent and the FTSE 100 earnings and dividend yields of 10.1 per cent and 4.7 per cent respectively.
High and rising stamp duty on property purchases to fund the huge UK budget deficit, raises the cost of purchasing property in the country and effectively lowers the net yield over the years, cautions Brendan Brown, London-based head of research at Mitsubishi UFJ Securities International.
In short, compared to financial assets, which are far more liquid and with a much smaller spread between buying and selling and much lower transaction costs and red tape, current property values are generally unattractive.
Besides the cyclical factors that could cause prices to fall further in the short and medium term, there is also a long-term structural problem. Growing numbers of baby boomers born between 1945 and 1955 are either falling due or are being forced into early retirement.
Growing numbers of companies are terminating their final salary pension schemes.
Following severe stockmarket declines in 2008, private pension funds have shrunk and payments have fallen sharply. In the UK, the bulk of private pensions must be placed in annuities and their rates have fallen sharply.
Savings are at punitively depressed levels. Equity markets have recovered from their nadirs, but pensions invested in equities are well below their 2007 highs.
In short, baby boom middle-class professionals and others, who are not on company or government schemes, are under pressure to sell their homes to supplement income earning capital. Long term, the supply of residential properties could thus trend upwards.
Estate agents such as Savills predict that there is further downside of 10%
ESTATE agents report that buyers have returned to the London and UK residential real estate market in recent weeks and prices have improved a little.
In demand: On the positive side, good quality properties in prime locations are difficult to findDespite this optimism the London property market is dangerously speculative for foreign investors. On average, house prices have fallen by around 15 per cent from their bubble heights and apartment prices by around 25 per cent.
But the declines were from extraordinary peaks. Estate agents such as Savills predict that there is further downside of 10 per cent, but economists fear that declines could be more.
Earlier this year, Asian, Russian and other foreign buyers were tentatively examining potential residential London property investments, according to agents.
At the time sterling had depreciated by 34 per cent from a heady 2008 peak of US$2.10 to below US$1.40. Compared with 2008, a Singaporean investor could buy sterling at a third lower than levels seen in 2008.
For Singaporeans and other foreign investors, the effective property price discounts from the top were 40 to 60 per cent.
In recent months, however, the British pound has appreciated by around 20 per cent from the lows, so the discount has been reduced considerably.
Since currency economists estimate that fair value for the pound is around US$1.50, compared with current levels of around US$1.63, Asian investors are now subject to greater risk from a currency downturn.
The UK real estate market, especially London, is difficult to read because of its diversity. On the positive side, good quality properties in prime locations are generally difficult to find. Sterling, at current rates, is 22 per cent below its 2008 top and much lower mortgage rates are positive factors.
On the negative side, the market experienced an extraordinary bubble and price declines from those levels haven't been extensive.
Deposits on properties must be 25 per cent to 40 per cent to obtain mortgages. This extra finance is well over levels required during the property boom of 2005 to 2008. In recent months, the long government bond yield has risen sharply.
Mortgage rates follow this long-term rate and are thus rising. Layoffs from banks, brokers and other financial services have only taken place in recent months.
As redundancy payments become depleted, people with high mortgages have been under pressure to sell. Redundant foreigners who can't find jobs in the City have to return home, leaving landlords with rental voids.
Houses and apartments of these unfortunate people have not been sold easily.
Thus although estate agents have reported renewed interest from bargain hunters, it is still a buyer's market.
Moreover, reports of an uptick in some prices need to be seen in perspective. Volumes of transactions have been low as unwilling sellers have been trying to keep their property off the market for as long as possible.
Stressed sellers who can't offload their houses or apartments, have decided to rent their properties and downsize.
There has thus been a sharp increase in rental properties coming onto the market and a general decline in rents.
Earlier this year, agents Savills and Knight Frank reported that gross rental yields of prime properties in London were around 4.5 per cent and net yields 3.5 per cent.
Since prices haven't fallen much since March and there have been declines in rentals on new leases, gross rental yields on average can be estimated at 4.25 per cent and net yields around 3.25 per cent.
This compares with long-term government bond yields of around 3.9 per cent and the FTSE 100 earnings and dividend yields of 10.1 per cent and 4.7 per cent respectively.
High and rising stamp duty on property purchases to fund the huge UK budget deficit, raises the cost of purchasing property in the country and effectively lowers the net yield over the years, cautions Brendan Brown, London-based head of research at Mitsubishi UFJ Securities International.
In short, compared to financial assets, which are far more liquid and with a much smaller spread between buying and selling and much lower transaction costs and red tape, current property values are generally unattractive.
Besides the cyclical factors that could cause prices to fall further in the short and medium term, there is also a long-term structural problem. Growing numbers of baby boomers born between 1945 and 1955 are either falling due or are being forced into early retirement.
Growing numbers of companies are terminating their final salary pension schemes.
Following severe stockmarket declines in 2008, private pension funds have shrunk and payments have fallen sharply. In the UK, the bulk of private pensions must be placed in annuities and their rates have fallen sharply.
Savings are at punitively depressed levels. Equity markets have recovered from their nadirs, but pensions invested in equities are well below their 2007 highs.
In short, baby boom middle-class professionals and others, who are not on company or government schemes, are under pressure to sell their homes to supplement income earning capital. Long term, the supply of residential properties could thus trend upwards.
Top-End Home Sales Gently Pick Up Pace
Source : The Business Times, July 14 2009
More transactions streaming in at higher price bands as bottom-up recovery starts to take root.
High-end residential transactions continue to stream in steadily, in both the primary and secondary markets. Two units were sold recently at Nassim Park Residences by its developer at above $3,000 per square foot (psf), one of them at $3,813 psf.
Buyers returning: Two units were sold recently at Nassim Park Residences at above $3,000 psf, one of them at $3,813 psf
In the sub-sale market, a caveat has surfaced for a 37th floor unit at The Orchard Residences at about $3,550 psf last month.
Caveats have also been lodged for transactions of three units at The Ardmore Park at $2,375-$2,513 psf, and for a sub-sale deal at Marina Bay Residences at $2,200 psf in June.
Also in the sub-sale market, a three-bedroom unit on the 13th floor of Tate Residences at Claymore Road has been sold for $2,400 psf or about $5.25 million.
The seller and buyer were both Indonesians, says Jerry Tan, managing director of JTResi, which brokered the sale. The option was exercised about 10 days back. Two months ago, JTResi had also handled the sale of a 17th-floor unit in the development, facing the same way, at a lower price of $2,150 psf.
The 36-storey freehold project is slated for completion in a few months. 'Prices at Tate Residences have trended up from the lows of $1,850-1,950 psf seen in March-April. Those were some of the scariest months in the property market,' Mr Tan adds.
In the primary market, at the freehold Nassim Park Residences near Botanic Gardens, an option was exercised last week for a second-storey unit at $3,813 psf or $13.25 million. The unit is in the premium block, on an elevated part of the project, with a pool view and with the back facing Nassim Hill.
The 3,477 sq ft unit has four bedrooms and a study. The buyer is Indonesian, said CB Richard Ellis (CBRE) executive director Joseph Tan, whose firm is the joint-marketing agent for Nassim Park Residences.
The project's developer is also said to have issued last weekend an option for the sale of a fourth-level unit at $3,081 psf. The five-storey condo is being developed by UOL Group, Kheng Leong and Orix Corporation.
'Of late, we have been seeing an increase in transactions in the market above $2,000 psf. However, what this covers may be the top 5 per cent of buyers, who remain selective and are project specific. We're seeing an equal mix of foreigners and Singaporeans buying. Current prices - which are about 20-25 per cent off the 2007 peak levels - are pretty attractive,' CBRE's Mr Tan added.
CBRE also brokered the sale of a fifth floor unit at Ho Bee development The Orange Grove last week for $2,200 psf, or $4.7 million, to a Singaporean buyer. According to government data, five units in the project were sold by Ho Bee in May at between $2,255 psf and $2,380 psf. These levels are roughly 20 per cent lower than the $2,800 psf average price for the project early last year.
Orchard Turn Developments has sold 10 units at The Orchard Residences since May at $2,700 psf to $3,300 psf. The buyers comprise a mix of Singaporeans, permanent residents (PRs) and foreigners.
Despite a return of transactions in the higher-price segments, DTZ executive director Margaret Thean notes that 'buyers are more cautious with their offers'.
JTResi's Mr Tan observes that the pick-up in transactions of higher-priced units has led some developers, who had earlier planned to launch or relaunch projects, to hold back. 'They basically don't want to under-price their projects,' he added.
Ho Bee executive director Ong Chong Hua said: 'Sales are beginning to filter to the higher end, but not in a big way yet - because the overall quantums involved are usually quite large. Banks are also more cautious about granting home loans for this segment, whereas for the mass and mid-market projects, banks have relaxed on lending and valuations are no longer an issue.'
Hong Leong Holdings said yesterday that 215 units have been sold at The Gale, a freehold condo in the Upper Changi area, since last Friday. The average price is said to be about $650-660 psf.
At Alexandra Road, Wing Tai sold over 70 units at the 99-year leasehold Ascentia Sky during last weekend's preview. The average price is $1,250 psf.
Over the weekend, MCL Land sold 55 units at The Peak @ Balmeg, a freehold condo at Pasir Panjang, bringing total sales to 100 units. The average price is $1,000 psf.
Interest absorption schemes are available for all three projects at price premiums.
Remarks Mr Ong: 'What we're seeing is a bottom-up recovery, which is more sustainable - unlike the last recovery from 2005 to 2007, which was top down.'
More transactions streaming in at higher price bands as bottom-up recovery starts to take root.
High-end residential transactions continue to stream in steadily, in both the primary and secondary markets. Two units were sold recently at Nassim Park Residences by its developer at above $3,000 per square foot (psf), one of them at $3,813 psf.
Buyers returning: Two units were sold recently at Nassim Park Residences at above $3,000 psf, one of them at $3,813 psfIn the sub-sale market, a caveat has surfaced for a 37th floor unit at The Orchard Residences at about $3,550 psf last month.
Caveats have also been lodged for transactions of three units at The Ardmore Park at $2,375-$2,513 psf, and for a sub-sale deal at Marina Bay Residences at $2,200 psf in June.
Also in the sub-sale market, a three-bedroom unit on the 13th floor of Tate Residences at Claymore Road has been sold for $2,400 psf or about $5.25 million.
The seller and buyer were both Indonesians, says Jerry Tan, managing director of JTResi, which brokered the sale. The option was exercised about 10 days back. Two months ago, JTResi had also handled the sale of a 17th-floor unit in the development, facing the same way, at a lower price of $2,150 psf.
The 36-storey freehold project is slated for completion in a few months. 'Prices at Tate Residences have trended up from the lows of $1,850-1,950 psf seen in March-April. Those were some of the scariest months in the property market,' Mr Tan adds.
In the primary market, at the freehold Nassim Park Residences near Botanic Gardens, an option was exercised last week for a second-storey unit at $3,813 psf or $13.25 million. The unit is in the premium block, on an elevated part of the project, with a pool view and with the back facing Nassim Hill.
The 3,477 sq ft unit has four bedrooms and a study. The buyer is Indonesian, said CB Richard Ellis (CBRE) executive director Joseph Tan, whose firm is the joint-marketing agent for Nassim Park Residences.
The project's developer is also said to have issued last weekend an option for the sale of a fourth-level unit at $3,081 psf. The five-storey condo is being developed by UOL Group, Kheng Leong and Orix Corporation.
'Of late, we have been seeing an increase in transactions in the market above $2,000 psf. However, what this covers may be the top 5 per cent of buyers, who remain selective and are project specific. We're seeing an equal mix of foreigners and Singaporeans buying. Current prices - which are about 20-25 per cent off the 2007 peak levels - are pretty attractive,' CBRE's Mr Tan added.
CBRE also brokered the sale of a fifth floor unit at Ho Bee development The Orange Grove last week for $2,200 psf, or $4.7 million, to a Singaporean buyer. According to government data, five units in the project were sold by Ho Bee in May at between $2,255 psf and $2,380 psf. These levels are roughly 20 per cent lower than the $2,800 psf average price for the project early last year.
Orchard Turn Developments has sold 10 units at The Orchard Residences since May at $2,700 psf to $3,300 psf. The buyers comprise a mix of Singaporeans, permanent residents (PRs) and foreigners.
Despite a return of transactions in the higher-price segments, DTZ executive director Margaret Thean notes that 'buyers are more cautious with their offers'.
JTResi's Mr Tan observes that the pick-up in transactions of higher-priced units has led some developers, who had earlier planned to launch or relaunch projects, to hold back. 'They basically don't want to under-price their projects,' he added.
Ho Bee executive director Ong Chong Hua said: 'Sales are beginning to filter to the higher end, but not in a big way yet - because the overall quantums involved are usually quite large. Banks are also more cautious about granting home loans for this segment, whereas for the mass and mid-market projects, banks have relaxed on lending and valuations are no longer an issue.'
Hong Leong Holdings said yesterday that 215 units have been sold at The Gale, a freehold condo in the Upper Changi area, since last Friday. The average price is said to be about $650-660 psf.
At Alexandra Road, Wing Tai sold over 70 units at the 99-year leasehold Ascentia Sky during last weekend's preview. The average price is $1,250 psf.
Over the weekend, MCL Land sold 55 units at The Peak @ Balmeg, a freehold condo at Pasir Panjang, bringing total sales to 100 units. The average price is $1,000 psf.
Interest absorption schemes are available for all three projects at price premiums.
Remarks Mr Ong: 'What we're seeing is a bottom-up recovery, which is more sustainable - unlike the last recovery from 2005 to 2007, which was top down.'
Don't Let Your Home Loan Haunt You
Source : The Straits Times, July 12 2009
In picking a mortgage package, factors such as interest rates and lock-in period matter.
Nothing beats having your own pad - especially the very first home you own.
For me, it was a 732 sq ft studio in Siglap that I bought in 2005.
When I paid the 1per cent deposit for the place, everything about it was perfect. It had an unblocked view of the East Coast, nice Italian marble flooring, a spacious kitchen (yes, single men do cook) and a huge balcony.
It had all the ingredients of a picture-perfect yuppie life.
I saw myself chilling out on lazy Saturday afternoons on the balcony, whipping up al dente pasta in the kitchen and taking cool evening walks by the beach, which was just around the corner.
So, like most Singaporeans, I emptied my CPF account, signed up for a home loan and, three months later, became the proud owner of my very own bachelor pad.
Buying my first home was a relatively painless and seamless process at the time.
All I did was put my John Hancock down on some papers - actually legal documents which I did not even bother reading - and there I was: a 20-something, first-time homeowner with a $250,000 mortgage.
Everything was cool until I received a letter from my bank just a couple of weeks before my first instalment payment was due.
It was my first mail at my new address and naturally I was ecstatic about opening it, but my fervour died when I read its contents.
The letter said something to the effect that because of fluctuations in the interest rate environment, my monthly instalments would have to be increased. In other words, I needed to pay more each month to service my home loan.
I was shocked. I had not even started unpacking my cartons of belongings and here was the bank telling me my monthly instalments had been raised.
That, however, is the reality that many often face when taking a home loan with variable interest rates, as I would later learn.
Buying a home is arguably one of the biggest financial commitments people will have in their lifetime, and a home loan is the heaviest debt they will have to pay if they take up a mortgage.
It baffles me now that I had actually signed up for a quarter-of-a-million dollar loan without carefully considering the conditions that were tied to it.
As the saying goes, the devil is in the details, and my sin was complacency. But what was an even bigger surprise was that many first-time homeowners were just like me.
I polled my peers and found that most of them also could not recall details like what interest rates their loans were on, how much their monthly instalments were, or even when their loan tenures would end.
Maybe we were just so preoccupied with the excitement of getting that dream home that we ignored the due diligence that should have gone into our hunt for the loan.
For me, the sheer number of banks that offered home loans and the various options available certainly added to the confusion. But I recently found out - when I was buying my second home - that a little research can go a long way in avoiding nasty surprises.
So if interest rates are what really matters to homeowners, then it will probably be a relief for you to know that there are really only two main types of home loan in the market: loans with fixed interest rates, and loans with variable or floating interest rates.
With a fixed rate loan, you are somewhat protected from the fluctuations of interest rates, and typically you can expect to pay the same monthly instalment for at least the first few years of the loan tenure.
So if you want some sense of certainty that your monthly payments will always remain the same, go for a loan with fixed rates. But it is only really any good if you sign up for the loan when interest rates are low.
However, if you do sign up for a fixed rate loan, bear in mind that the annual fixed rate - which these days could go as low as 1.5per cent per year - usually ends after the initial one to three years, depending on your bank. After that, you will be charged the bank's prevailing variable or floating rate, which for many is where the confusion and worries start.
Loans with variable or floating rates are of course the other alternative you could choose right from the start.
The interest rates of these loans are benchmarked against references like the Singapore Interbank Offered Rate or Sibor.
Sibor is the average interest rate at which banks borrow from one another. The key determinant of this is the United States Federal Reserve rate and overall liquidity, or availability of funds, in the banking sector.
Since the economic crisis broke, the Fed has so far managed to keep interest rates at 0.25per cent, a historical low. At the same time, Sibor has hovered at just around 0.7per cent in the last half year.
Industry observers say that because banks here are highly capitalised - meaning they have ample supplies of cold-hard cash - Sibor will likely remain low for now, unless the Fed rate suddenly spikes.
There is also another type of variable loan, one where interest rates are pegged to the Swap Offer Rate or SOR.
SOR essentially comprises Sibor plus the lending costs incurred by the banks, and is calculated over a period of time: usually three or six months.
For example, if your loan is based on a three-month SOR, your interest rate will be the three-month SOR plus a small margin for the bank, and that rate will be revised every three months.
Like Sibor, SOR is available to the public in newspapers and on the Internet. But SOR is also affected by the exchange rates of the US dollar versus the Singapore dollar, so it tends to be a little more volatile than Sibor.
Of course there are other factors to consider when signing up for a home loan. They include making sure you have the capacity to service the monthly payments, and are comfortable with the interest rates and lock-in period that come with the loan package.
Lock-in periods determine how long you are tied to the bank and allow it to penalise you if you decide to redeem your loan early.
So do not just get excited over what are now staple freebies such as legal fee subsidies, property insurance or even the free shopping vouchers that come with some home loan packages.
Getting the right home loan can mean more peace of mind and maybe even some savings in the long term.
Shop around for a loan that fits your needs instead and keep an eye on the details that really matter when signing up for one - whether it is a fixed or floating rate loan.
You really do not want to match your dream home with a nightmare of a home loan.
In picking a mortgage package, factors such as interest rates and lock-in period matter.
Nothing beats having your own pad - especially the very first home you own.
For me, it was a 732 sq ft studio in Siglap that I bought in 2005.
When I paid the 1per cent deposit for the place, everything about it was perfect. It had an unblocked view of the East Coast, nice Italian marble flooring, a spacious kitchen (yes, single men do cook) and a huge balcony.
It had all the ingredients of a picture-perfect yuppie life.I saw myself chilling out on lazy Saturday afternoons on the balcony, whipping up al dente pasta in the kitchen and taking cool evening walks by the beach, which was just around the corner.
So, like most Singaporeans, I emptied my CPF account, signed up for a home loan and, three months later, became the proud owner of my very own bachelor pad.
Buying my first home was a relatively painless and seamless process at the time.
All I did was put my John Hancock down on some papers - actually legal documents which I did not even bother reading - and there I was: a 20-something, first-time homeowner with a $250,000 mortgage.
Everything was cool until I received a letter from my bank just a couple of weeks before my first instalment payment was due.
It was my first mail at my new address and naturally I was ecstatic about opening it, but my fervour died when I read its contents.
The letter said something to the effect that because of fluctuations in the interest rate environment, my monthly instalments would have to be increased. In other words, I needed to pay more each month to service my home loan.
I was shocked. I had not even started unpacking my cartons of belongings and here was the bank telling me my monthly instalments had been raised.
That, however, is the reality that many often face when taking a home loan with variable interest rates, as I would later learn.
Buying a home is arguably one of the biggest financial commitments people will have in their lifetime, and a home loan is the heaviest debt they will have to pay if they take up a mortgage.
It baffles me now that I had actually signed up for a quarter-of-a-million dollar loan without carefully considering the conditions that were tied to it.
As the saying goes, the devil is in the details, and my sin was complacency. But what was an even bigger surprise was that many first-time homeowners were just like me.
I polled my peers and found that most of them also could not recall details like what interest rates their loans were on, how much their monthly instalments were, or even when their loan tenures would end.
Maybe we were just so preoccupied with the excitement of getting that dream home that we ignored the due diligence that should have gone into our hunt for the loan.
For me, the sheer number of banks that offered home loans and the various options available certainly added to the confusion. But I recently found out - when I was buying my second home - that a little research can go a long way in avoiding nasty surprises.
So if interest rates are what really matters to homeowners, then it will probably be a relief for you to know that there are really only two main types of home loan in the market: loans with fixed interest rates, and loans with variable or floating interest rates.
With a fixed rate loan, you are somewhat protected from the fluctuations of interest rates, and typically you can expect to pay the same monthly instalment for at least the first few years of the loan tenure.
So if you want some sense of certainty that your monthly payments will always remain the same, go for a loan with fixed rates. But it is only really any good if you sign up for the loan when interest rates are low.
However, if you do sign up for a fixed rate loan, bear in mind that the annual fixed rate - which these days could go as low as 1.5per cent per year - usually ends after the initial one to three years, depending on your bank. After that, you will be charged the bank's prevailing variable or floating rate, which for many is where the confusion and worries start.
Loans with variable or floating rates are of course the other alternative you could choose right from the start.
The interest rates of these loans are benchmarked against references like the Singapore Interbank Offered Rate or Sibor.
Sibor is the average interest rate at which banks borrow from one another. The key determinant of this is the United States Federal Reserve rate and overall liquidity, or availability of funds, in the banking sector.
Since the economic crisis broke, the Fed has so far managed to keep interest rates at 0.25per cent, a historical low. At the same time, Sibor has hovered at just around 0.7per cent in the last half year.
Industry observers say that because banks here are highly capitalised - meaning they have ample supplies of cold-hard cash - Sibor will likely remain low for now, unless the Fed rate suddenly spikes.
There is also another type of variable loan, one where interest rates are pegged to the Swap Offer Rate or SOR.
SOR essentially comprises Sibor plus the lending costs incurred by the banks, and is calculated over a period of time: usually three or six months.
For example, if your loan is based on a three-month SOR, your interest rate will be the three-month SOR plus a small margin for the bank, and that rate will be revised every three months.
Like Sibor, SOR is available to the public in newspapers and on the Internet. But SOR is also affected by the exchange rates of the US dollar versus the Singapore dollar, so it tends to be a little more volatile than Sibor.
Of course there are other factors to consider when signing up for a home loan. They include making sure you have the capacity to service the monthly payments, and are comfortable with the interest rates and lock-in period that come with the loan package.
Lock-in periods determine how long you are tied to the bank and allow it to penalise you if you decide to redeem your loan early.
So do not just get excited over what are now staple freebies such as legal fee subsidies, property insurance or even the free shopping vouchers that come with some home loan packages.
Getting the right home loan can mean more peace of mind and maybe even some savings in the long term.
Shop around for a loan that fits your needs instead and keep an eye on the details that really matter when signing up for one - whether it is a fixed or floating rate loan.
You really do not want to match your dream home with a nightmare of a home loan.