Source : The Business Times, March 27, 2008
But increasing buyer resistance and and an expected surge in supply may take away some sheen, says EUGENE LIM
HDB resales prices accelerated their climb in the second half of 2007 for a full-year gain of 17.5 per cent, on the back of a strong economy, brighter job prospects and supply-demand factors. The HDB Resale Price Index (RPI) rose 6.6 per cent in the third quarter and 5.7 per cent in Q4, after 1.3 per cent and 3 per cent increases for the first and second quarters.
The 17.5 per cent jump in resale prices last year was dramatic compared to just 2 per cent in 2006. But it was still much less than the 34.3 per cent surge seen in 1996. At 121.7 points, the RPI at Q4 2007 is just 11 per cent shy of the peak of 136.9 points recorded in Q4 1996. As the economy improved, more buyers were upgrading to larger flats. The government's target for an eventual population of 6.5 million has seen increasing numbers of permanent residents (PRs) in Singapore. The latter typically buy their HDB homes from the resale market as they do not qualify to buy new flats directly from the HDB.
The surge in private property prices last year priced out a segment of would-be upgraders, who had no choice but to buy their homes from the HDB resale market. Also, the booming stock market and the spate of collective sales in the private property market have unleashed a group of cash-rich house hunters, many of whom are opting for high-end resale HDB units. This group is willing to pay top dollar for flats that fit their criteria.
The increased demand, coupled with the stronger purchasing power of some of these buyers, helped steepen the resale market price curve in the second half of 2007.
In November 2007, it was reported in the media that a 32-year-old five-room flat in Marine Parade with a full sea view was sold for $730,000. That trumps the previous record of $720,000, set in June by a fairly new five-room flat in Kim Tian Place. Apparently, the buyer did not even bother to wait for the flat's valuation and bought it simply because he liked it.
In January this year, a 20-year-old 'penthouse' executive maisonette in Bishan changed hands for almost $100,000 cash over valuation (COV). The buyers, who had been house-hunting for almost nine months, were willing to pay top dollar because there are limited numbers of such flats. There are no more than two dozen of these units in Bishan. On top of making the large cash outlay, the buyers are planning extensive renovations to create their ideal lifestyle home.
Such highly publicised transactions have kept the HDB resale market in a state of euphoria since the middle of last year. Many hopeful sellers hiked asking prices overnight, with some demanding as much as $200,000 COV.
The COV is the amount that is paid over and above the valuation of a flat and cannot be paid from a home loan or monies from the Central Provident Fund (CPF). The higher the COV demanded by sellers, the more cash is required of the buyers.
Cash component
With the high COV demanded by sellers of centrally located HDB resale flats, buyers who do not have or are not willing to part with so much cash have been turning to outlying HDB estates like Sengkang and Punggol. These areas, which were shunned several years ago, have become increasingly popular among those looking for better value. According to HDB's Q4 2007 numbers, the median COV for a five-room HDB resale flat in Sengkang was $23,000; compared to $79,000 for a similar flat in centrally located Queenstown.
To avoid having to pay high COV in the resale market, many buyers who are not in urgent need have been attracted to new flats that are built or marketed by the HDB and private developers. This is because these buyers would have to foot at most 5 per cent of the purchase price if they are taking a bank loan to finance the purchase. Those who qualify for an HDB loan would be fully financed by CPF monies together with the loan from the HDB. Very little cash, if any, is needed; hence, these flats are crowd pullers whenever they are put on sale.
Centrally located projects - those in established estates under the recent HDB bi-monthly sale of surplus flats and privately developed City View @ Boon Keng - saw overwhelming response. Recent HDB Build-To-Order (BTO) projects, mainly in Sengkang and Punggol, are also seeing good response although they have yet to be fully taken up.
With the increased demand, the HDB's unsold stock of surplus flats, currently estimated at 2,000 units, is depleting. The HDB is now stepping up its building programme via the BTO scheme and will be launching some 4,500 units in the first half of this year. However, as the new flats will take several years to build, the BTO programme is a longer term solution and will not be able to cater to those with immediate housing needs.
As such, in the interim, we can expect continued strong demand in the resale market. However, as the majority of resale flat buyers depend on financing, there is a limit to how high COV transactions can go. Sellers that demand more than $50,000 cash may find it difficult to secure buyers. In January, it was reported by the HDB that 25 per cent of resale transactions were completed at prices no higher than $10,000 above valuation.
Resale volume
Though sentiment was good in 2007, the total resale volume of 29,436 units was a shade lower than the 29,723 units closed in 2006. However, the number of five-room and executive flat transactions increased in 2007 over 2006.
There were 7,275 five-room resale transactions in 2007 compared to 6,421 units the previous year. This represented a 13.3 per cent increase. Similarly, for executive flats, there were 2,627 transacted in 2007 as compared with 2,229 in 2006; or a 17.9 per cent increase in transaction numbers.
Five-room and executive resale flat transactions now account for 25 per cent and 9 per cent of total transactions; up from 2006's 21 per cent and 7 per cent respectively. This preference for larger flats is likely to continue for the rest of the year. That will be good news for the developers of mass market condominium projects as the support for their projects has traditionally come from buyers staying in the larger HDB flats.
Outlook
Despite worries of a US-led global recession hitting Singapore, our economic fundamentals remain strong. The buzz in the HDB resale market is expected to continue in 2008. However, with the increased number of new flats coming on stream, some demand will be taken away from the resale market. As such, we may see resale volume stay at around 30,000 units for the whole year.
Resale prices are expected to continue to rise but possibly at a more measured pace of 5-8 per cent in the coming months due to increasing buyer resistance and more new supply coming on stream.
Eugene Lim is assistant vice-president, ERA Realty Network Pte Ltd.
Thursday, March 27, 2008
Changing Home Investment Scene
Source : The Business Times, March 27, 2008
Non-landed residential market most likely to gain from influx of foreign talent, say CHUA YANG LIANG and JACQUELINE WONG
SINGAPORE'S non-landed residential market put in a strong performance last year, sub-prime notwithstanding, driven by the luxury and prime segments whose resale capital values saw stunning year-on-year growth of 51.7 per cent and 50.6 per cent respectively.
Lights, camera, action: Key projects and events, including the Marina Bay Sands integrated resort (above), the Singapore Formula One Grand Prix and the Singapore Youth Olympics in 2010, will push Singapore up a notch on the tourist destination list and also increase the expatriate work force and demand for housing
The buoyant buying sentiment coupled with high global liquidity helped propel high-end condominium prices beyond the $4,000 per square foot mark, with one new development reportedly closing at $5,000 psf - a historic milestone.
Spurred by the large gap of around 35 per cent between resale and new residential launch prices in prime districts (9-11), investor interest was at a crest in 2007. There was $8.5 billion worth of collective sales transacted by institutional investors and developers. This is 18 per cent more than the value of en bloc deals done in 2006 and 2005 put together ($7.2 billion).
With the new en bloc regulations introduced last October, overall costs of collective sale deals have risen and coupled with the overall cautious sentiment, the level of en bloc transactions will be more moderate in 2008.
The euphoria in the non-landed residential market is an unexpected by-product of an enlarged foreign population that catapulted leasing demand to a new level and changed the residential investment climate. While the clouds brought on by the US sub-prime debacle remain in the short term, the long-term outlook is positive.
Shifting buyer demographics
As the birth rate of the indigenous population is below replacement level, immigration is necessary to sustain the continued growth of the local economy. In 2007, the total population stood at 4.59 million with foreigners making up well over a million. This is an increase of 33 per cent from the 750,000 foreigners recorded in 2000.
Naturally, the residential market feels the impact of this sudden influx. The ratio of Singaporean buyers in the Core Central region today is less than half while foreigners of non-resident status have edged up to a quarter of the total buyers. Although less pronounced in the Outside Central region, foreign ownership (excluding companies) has also increased by some nine percentage points.
Continual government efforts to attract foreign investments and immigration-friendly policies to support this long-term economic growth will benefit the residential market tremendously.
Last year, the Economic Development Board brought in more than $16 billion worth of commitments in fixed-asset investment. These are expected to create some 28,600 new jobs and add $11.6 billion per year to Singapore's GDP. This strong job creation benefited both locals and foreigners - local employment grew by 92,100 while foreign employment jumped by a remarkable 144,500. As a result of the slower growth in Singapore's indigenous work force and a faster increase in employment opportunities, one out of three of the 2.73 million people employed in Singapore is a foreigner.
Continual population growth is essential to fuel our economic engine. The estimated population of 6.5 million is projected to be met in 40 to 50 years' time, predominantly through immigration. These foreigners do not qualify for subsidised public housing and require ministerial approval for the purchase of any landed properties. So the non-landed residential market is likely to feel the bulk of this demand.
Just in 2007 alone, foreigners and permanent residents (PRs) chalked up 8,884 units in sales (some 77.8 per cent higher than 2006), which accounts for 29.1 per cent of total private non-landed residential transactions. This sales figure is the highest in 13 years and is likely to rise further over time.
While foreign purchasers are still predominantly from our neighbouring countries - Indonesia, Malaysia and Thailand - the buyers are increasingly becoming more diversified. The next emerging groups are South Koreans (7 per cent), mainland Chinese (7 per cent) and Indians (12 per cent). Notable countries making their first foray into the Singapore market include Myanmar, the Middle East, Russia and Ireland.
Return of corporate buyers
Another rising trend is residential investments made by property funds and financial institutions since 2003. Attracted by yields above 4 per cent between 2003 and H105, these foreign institutional investors snapped up residential units to inject into their yield-focused investment portfolios. In the last 12 months, although yields have compressed to below 4 per cent, interest from Middle Eastern funds and opportunistic funds has been strong.
Out of the total $2.6 billion worth of non-landed residential developments, 42 per cent was transacted by these funds, and included anything from several units to whole condominium blocks and even development sites. These investors include Macquarie Global Property Advisors, Kuwait Finance House and US-based Wachovia Development.
Institutional investors remain optimistic about the upside potential of the Singapore residential market. Many of these investors are looking at total return, that is, including capital appreciation rather than just income yield. The majority of the investors have pumped these projects into their investment portfolio.
The minority have exited by riding on local capital growth or price differential when these properties were marketed in the home country of these foreign funds. This trend of institutional buyers in the residential market is likely to remain. Their interest is fuelled by the remaking of Singapore where several new developments and initiatives have been slated to transform it into a global city.
New lifestyle
With tourism a key component of GDP, two massive integrated resorts are now under construction - Marina Bay Sands, located at Marina South (completion in 2009) and Resorts World at Sentosa (completion in 2010). Other key projects and events include the Singapore Formula One Grand Prix and the Singapore Youth Olympics in 2010. The completion of these projects and events will push Singapore up a notch on the tourist destination list and also increase the expatriate workforce and demand for housing.
Pro-business environment
Singapore's strength lies in its corruption-free government, socially and politically stable climate, sound economic fundamentals, favourable tax policies, and a well-regulated and robust financial sector. Singapore has always been perceived as a safe, pro-business environment that is supported by a well-respected government with transparent and consistent policies that protect companies' physical and intellectual property (IP) investments.
Investors can also enjoy the benefits of an extensive global network of free trade agreements, avoidance of double taxation agreements and investment guarantee agreements. No longer seen as a little red dot on the global stage, Singapore has transformed itself into a global hub for business and investment. In the 2007 World Competitiveness Yearbook, Singapore was ranked second to the US as the most competitive economy globally.
While the banking and insurance-related services still constitute the largest component of financial sector GDP, several emerging financial clusters have contributed increasingly to its growth. These include the sentiment-sensitive industries of wealth advisory, brokerage and treasury clusters. Collectively, these sectors all contribute towards the growth of Singapore as an internationally competitive financial centre.
Singapore's multicultural and racial base also offers the corporate world a platter of business platforms conducted in a choice of languages other than English.
The network and cultural connections that the indigenous population has with its neighbouring countries make Singapore the ideal melting pot where deals are made between Asia and the rest of the world. Coupled with a well-educated and highly skilled work force, and a world-class network of air, sea and IT infrastructure, it is not surprising that capital, enterprise and talent have been attracted to this island city-state.
Consequently, more than 26,000 international companies have made Singapore their base camp as well as a gateway to the region.
Hubs of hubs
Singapore is also recognised as one of the premier asset management centres in the Asia-Pacific. Its pro-business regulatory framework and competitive tax framework also spearheaded its success as a Reit hub.
The operation of Changi Airport's Terminal 3 along with the proposed Seletar Aerospace Park has enabled the city state to consolidate its status as a regional aviation hub as well as an aerospace maintenance, repair and overhaul (MRO) hub.
Ranked the best in Asia by the World Health Organisation, Singapore has also established itself as a multi-faceted medical hub serving Asia and the world and is earning a global reputation as a medical convention and training centre.
More than 400,000 international patients visit Singapore for a whole range of healthcare services annually. It has also attracted many world renowned medical professionals to work in the internationally accredited hospitals and specialty centres located here.
Besides priding itself on an international standard education system, Singapore has also attracted world-class institutions with strong industry links to set up centres of excellence in education and research. They include respected names such as Insead and University of Chicago Graduate School of Business.
To meet the rising demand for quality schools for expatriate children, the list of international schools has also been growing. The NPS International School, part of a pioneering group of educational institutions headquartered in Bangalore, India, opened its Singapore campus in January 2008, while United World College of South-east Asia has announced plans to set up a second campus.
With such accolades and continual developmental growth in each economic sector, Singapore continues to attract a global pool of investors and talent. Incoming talent will not only bring their unique expertise but also put demand on the housing market. Eventually, some of them will bring their families and possibly even consider permanent residency.
All these developments have collectively positioned Singapore high on the list of many global investors and given them the confidence to continue investing in the Singapore residential market.
A global city in the tropics
With Singapore being a base for many regional and international conglomerates, it is also now home to a myriad of global talents and their families. Singapore is indeed transforming itself into a global city in the tropics, possibly close to being on par with London and New York in the West.
The economic rise of Asia, especially China and India, has filtered through to a buoyant economy in Singapore, resulting in a surge in demand for both office and housing space. Both office rents and housing prices have escalated over the past year. Nonetheless, prices remain highly competitive when compared to global cities such as London, New York and Hong Kong.
Singapore's strategic placement between two rising global economic engines of India and China makes it a popular choice of relocation, if not as a base for a second home for expatriates.
The non-landed residential market will continue to benefit further from the influx of these foreigners. The demand pool for the non-landed residential market, which traditionally came from the local population and residents of neighbouring countries - Malaysia and Indonesia - will become ethnically more diverse with buyers from China, India, Korea and corporate entities increasing their share.
Its multiculturalism and tolerance of diverse ethnicities support the quick and smooth assimilation of new immigrants into the larger society - a sociological strength that favours Singapore greatly. This attribute will continue to attract expatriates as well as residents of other Asian cities to Singapore.
In the longer term, the foreign ownership of residential properties in Singapore will become increasingly more cosmopolitan than that of Hong Kong, which is likely to remain dominated by mainland Chinese. The level of foreign ownership will continue to rise and eventually resemble what is found in London today - making Singapore the first global city of the tropics.
Chua Yang Liang is head of research, South-east Asia, Jones Lang LaSalle; and Jacqueline Wong is head of residential, Singapore, Jones Lang LaSalle
Non-landed residential market most likely to gain from influx of foreign talent, say CHUA YANG LIANG and JACQUELINE WONG
SINGAPORE'S non-landed residential market put in a strong performance last year, sub-prime notwithstanding, driven by the luxury and prime segments whose resale capital values saw stunning year-on-year growth of 51.7 per cent and 50.6 per cent respectively.
Lights, camera, action: Key projects and events, including the Marina Bay Sands integrated resort (above), the Singapore Formula One Grand Prix and the Singapore Youth Olympics in 2010, will push Singapore up a notch on the tourist destination list and also increase the expatriate work force and demand for housingThe buoyant buying sentiment coupled with high global liquidity helped propel high-end condominium prices beyond the $4,000 per square foot mark, with one new development reportedly closing at $5,000 psf - a historic milestone.
Spurred by the large gap of around 35 per cent between resale and new residential launch prices in prime districts (9-11), investor interest was at a crest in 2007. There was $8.5 billion worth of collective sales transacted by institutional investors and developers. This is 18 per cent more than the value of en bloc deals done in 2006 and 2005 put together ($7.2 billion).With the new en bloc regulations introduced last October, overall costs of collective sale deals have risen and coupled with the overall cautious sentiment, the level of en bloc transactions will be more moderate in 2008.
The euphoria in the non-landed residential market is an unexpected by-product of an enlarged foreign population that catapulted leasing demand to a new level and changed the residential investment climate. While the clouds brought on by the US sub-prime debacle remain in the short term, the long-term outlook is positive.
Shifting buyer demographics
As the birth rate of the indigenous population is below replacement level, immigration is necessary to sustain the continued growth of the local economy. In 2007, the total population stood at 4.59 million with foreigners making up well over a million. This is an increase of 33 per cent from the 750,000 foreigners recorded in 2000.
Naturally, the residential market feels the impact of this sudden influx. The ratio of Singaporean buyers in the Core Central region today is less than half while foreigners of non-resident status have edged up to a quarter of the total buyers. Although less pronounced in the Outside Central region, foreign ownership (excluding companies) has also increased by some nine percentage points.
Continual government efforts to attract foreign investments and immigration-friendly policies to support this long-term economic growth will benefit the residential market tremendously.
Last year, the Economic Development Board brought in more than $16 billion worth of commitments in fixed-asset investment. These are expected to create some 28,600 new jobs and add $11.6 billion per year to Singapore's GDP. This strong job creation benefited both locals and foreigners - local employment grew by 92,100 while foreign employment jumped by a remarkable 144,500. As a result of the slower growth in Singapore's indigenous work force and a faster increase in employment opportunities, one out of three of the 2.73 million people employed in Singapore is a foreigner.
Continual population growth is essential to fuel our economic engine. The estimated population of 6.5 million is projected to be met in 40 to 50 years' time, predominantly through immigration. These foreigners do not qualify for subsidised public housing and require ministerial approval for the purchase of any landed properties. So the non-landed residential market is likely to feel the bulk of this demand.
Just in 2007 alone, foreigners and permanent residents (PRs) chalked up 8,884 units in sales (some 77.8 per cent higher than 2006), which accounts for 29.1 per cent of total private non-landed residential transactions. This sales figure is the highest in 13 years and is likely to rise further over time.
While foreign purchasers are still predominantly from our neighbouring countries - Indonesia, Malaysia and Thailand - the buyers are increasingly becoming more diversified. The next emerging groups are South Koreans (7 per cent), mainland Chinese (7 per cent) and Indians (12 per cent). Notable countries making their first foray into the Singapore market include Myanmar, the Middle East, Russia and Ireland.
Return of corporate buyers
Another rising trend is residential investments made by property funds and financial institutions since 2003. Attracted by yields above 4 per cent between 2003 and H105, these foreign institutional investors snapped up residential units to inject into their yield-focused investment portfolios. In the last 12 months, although yields have compressed to below 4 per cent, interest from Middle Eastern funds and opportunistic funds has been strong.
Out of the total $2.6 billion worth of non-landed residential developments, 42 per cent was transacted by these funds, and included anything from several units to whole condominium blocks and even development sites. These investors include Macquarie Global Property Advisors, Kuwait Finance House and US-based Wachovia Development.
Institutional investors remain optimistic about the upside potential of the Singapore residential market. Many of these investors are looking at total return, that is, including capital appreciation rather than just income yield. The majority of the investors have pumped these projects into their investment portfolio.
The minority have exited by riding on local capital growth or price differential when these properties were marketed in the home country of these foreign funds. This trend of institutional buyers in the residential market is likely to remain. Their interest is fuelled by the remaking of Singapore where several new developments and initiatives have been slated to transform it into a global city.
New lifestyle
With tourism a key component of GDP, two massive integrated resorts are now under construction - Marina Bay Sands, located at Marina South (completion in 2009) and Resorts World at Sentosa (completion in 2010). Other key projects and events include the Singapore Formula One Grand Prix and the Singapore Youth Olympics in 2010. The completion of these projects and events will push Singapore up a notch on the tourist destination list and also increase the expatriate workforce and demand for housing.
Pro-business environment
Singapore's strength lies in its corruption-free government, socially and politically stable climate, sound economic fundamentals, favourable tax policies, and a well-regulated and robust financial sector. Singapore has always been perceived as a safe, pro-business environment that is supported by a well-respected government with transparent and consistent policies that protect companies' physical and intellectual property (IP) investments.
Investors can also enjoy the benefits of an extensive global network of free trade agreements, avoidance of double taxation agreements and investment guarantee agreements. No longer seen as a little red dot on the global stage, Singapore has transformed itself into a global hub for business and investment. In the 2007 World Competitiveness Yearbook, Singapore was ranked second to the US as the most competitive economy globally.
While the banking and insurance-related services still constitute the largest component of financial sector GDP, several emerging financial clusters have contributed increasingly to its growth. These include the sentiment-sensitive industries of wealth advisory, brokerage and treasury clusters. Collectively, these sectors all contribute towards the growth of Singapore as an internationally competitive financial centre.
Singapore's multicultural and racial base also offers the corporate world a platter of business platforms conducted in a choice of languages other than English.
The network and cultural connections that the indigenous population has with its neighbouring countries make Singapore the ideal melting pot where deals are made between Asia and the rest of the world. Coupled with a well-educated and highly skilled work force, and a world-class network of air, sea and IT infrastructure, it is not surprising that capital, enterprise and talent have been attracted to this island city-state.
Consequently, more than 26,000 international companies have made Singapore their base camp as well as a gateway to the region.
Hubs of hubs
Singapore is also recognised as one of the premier asset management centres in the Asia-Pacific. Its pro-business regulatory framework and competitive tax framework also spearheaded its success as a Reit hub.
The operation of Changi Airport's Terminal 3 along with the proposed Seletar Aerospace Park has enabled the city state to consolidate its status as a regional aviation hub as well as an aerospace maintenance, repair and overhaul (MRO) hub.
Ranked the best in Asia by the World Health Organisation, Singapore has also established itself as a multi-faceted medical hub serving Asia and the world and is earning a global reputation as a medical convention and training centre.
More than 400,000 international patients visit Singapore for a whole range of healthcare services annually. It has also attracted many world renowned medical professionals to work in the internationally accredited hospitals and specialty centres located here.
Besides priding itself on an international standard education system, Singapore has also attracted world-class institutions with strong industry links to set up centres of excellence in education and research. They include respected names such as Insead and University of Chicago Graduate School of Business.
To meet the rising demand for quality schools for expatriate children, the list of international schools has also been growing. The NPS International School, part of a pioneering group of educational institutions headquartered in Bangalore, India, opened its Singapore campus in January 2008, while United World College of South-east Asia has announced plans to set up a second campus.
With such accolades and continual developmental growth in each economic sector, Singapore continues to attract a global pool of investors and talent. Incoming talent will not only bring their unique expertise but also put demand on the housing market. Eventually, some of them will bring their families and possibly even consider permanent residency.
All these developments have collectively positioned Singapore high on the list of many global investors and given them the confidence to continue investing in the Singapore residential market.
A global city in the tropics
With Singapore being a base for many regional and international conglomerates, it is also now home to a myriad of global talents and their families. Singapore is indeed transforming itself into a global city in the tropics, possibly close to being on par with London and New York in the West.
The economic rise of Asia, especially China and India, has filtered through to a buoyant economy in Singapore, resulting in a surge in demand for both office and housing space. Both office rents and housing prices have escalated over the past year. Nonetheless, prices remain highly competitive when compared to global cities such as London, New York and Hong Kong.
Singapore's strategic placement between two rising global economic engines of India and China makes it a popular choice of relocation, if not as a base for a second home for expatriates.
The non-landed residential market will continue to benefit further from the influx of these foreigners. The demand pool for the non-landed residential market, which traditionally came from the local population and residents of neighbouring countries - Malaysia and Indonesia - will become ethnically more diverse with buyers from China, India, Korea and corporate entities increasing their share.
Its multiculturalism and tolerance of diverse ethnicities support the quick and smooth assimilation of new immigrants into the larger society - a sociological strength that favours Singapore greatly. This attribute will continue to attract expatriates as well as residents of other Asian cities to Singapore.
In the longer term, the foreign ownership of residential properties in Singapore will become increasingly more cosmopolitan than that of Hong Kong, which is likely to remain dominated by mainland Chinese. The level of foreign ownership will continue to rise and eventually resemble what is found in London today - making Singapore the first global city of the tropics.
Chua Yang Liang is head of research, South-east Asia, Jones Lang LaSalle; and Jacqueline Wong is head of residential, Singapore, Jones Lang LaSalle
Residential Rents Seen Rising Further
Source : The Business Times, March 27, 2008
En bloc sales and population increase caused by influx of foreigners will continue to fuel demand, writes LEONARD TAY
RESIDENTIAL rents bottomed out in 2004, recovering until 2007 when they staged an extraordinary rise, surging by more than 40 per cent within the year. This was the highest rate of increase in Urban Redevelopment Authority's private residential rental index since the index started in 1990.
And 2008 is likely to see continued strength in rentals, although growing at a more modest pace of 5-10 per cent.
Rents rose a negligible 0.2 per cent in 2004, and then a stronger 3.1 per cent in 2005, according to the URA private residential rental index. But as the residential sector recovered strongly from 2006 onwards, rental values rose more steeply.
The non-landed residential segment, which forms the bulk of the leasing market, chalked up rental growth of 15 per cent in 2006 before sky-rocketing 43.1 per cent in 2007.
A key reason for the supernormal growth in rents was the population increase as a result of immigration. Singapore's total population rose from 4,401,400 in 2006 to 4,588,600 in 2007, an addition of 187,200, of which Singapore residents made up 57,200 while foreigners constituted 130,000. This is a 14.8 per cent rise year-on-year and is the largest increase in the number of foreigners seen in over seven years. The foreign population refers to professionals, workers, students and their family members. This is the first time the total has crossed the one-million mark. The increase in 2006 was 9.7 per cent.
Main attractions
The positive run in the economy, growth prospects for the country and an attractive living environment brought many here, leading to the surge in demand for housing accommodation. The foreigners chose Singapore because of the job opportunities here and its connectivity to other major cities in Asia. Generally, they formed the bulk of the tenant pool and the prime districts (Orchard, Holland and Bukit Timah areas) were their favourite locations. However, due to the recent escalating rents, more expatriates have opted to move out of the prime districts for cheaper accommodation elsewhere. Some have even gone ahead to buy their own homes instead of renting.
The swelling demand was further fuelled by the number of residential projects that were sold on the collective sale market. A number of displaced home owners have rented in the interim while waiting for their new replacement homes to be completed.
While rents have increased islandwide, some regions are ahead of the pack. Rents in the Core Central Region (districts 9, 10, 11, Downtown Core and Sentosa) lead the market with a median rent of $3.86 per sq ft per month, going by URA's median rent numbers at end-2007. This is followed by the Rest of Central Region with a median rent of $2.74 psf per month and the areas Outside of Central Region with a median rent of $2.01 psf per month.
Using CBRE Research's basket of properties for the luxury, prime and island-wide segments of the leasing market, average rents have reached even higher levels. The average rent for luxury residences ended 2007 at $6.10 psf per month, having risen 36 per cent during the year. Properties in this luxury class include the top 10 to 15 completed condominiums located in the prestigious areas around Orchard Road.
Average rents for prime residential properties were $4.50 psf per month, having increased by 55 per cent in 2007, while islandwide rents were $2.65 psf per month, after rising 33 per cent in the same period.
As rentals at prime and popular locations become more expensive, both local and foreign residents have been moving further out; first to the city fringe and eventually along the east-west axis of the MRT lines to the suburban areas. A comparison of non-landed median rents from the URA's Realis system in December 2006 and December 2007 shows that the most significant increases have not been restricted to the central areas, but have been seen in the eastern and western parts of the island.
It should be noted that although districts 9 and 10 remain the most popular among expatriates, these districts have a range of old and new residences, leading to a relatively lower median rent compared with those in district 4. The residential landscape in district 4 (Telok Blangah/Harbourfront) is generally more homogenous and comprises newer developments that can fetch a premium.
Outlook for 2008
The leasing market is expected to remain firm in 2008 and rents will continue to rise, albeit at a more moderate pace in line with the less aggressive growth projected for the economy. The same phenomenon experienced in 2007 will continue into 2008 as fringe and suburban areas become more sought after by occupiers who find the higher rents in the prime central areas prohibitive. The spillover from the central area would cause rents to rise in other parts of the island and lead to overall growth in the leasing market.
At the same time, as Singapore continues to attract the well-heeled from around the world, rents for luxury and city living condominiums in the popular areas around Orchard Road and the CBD will continue to move upwards. Average residential rents are expected to increase by about 5-10 per cent this year.
Leonard Tay is a director of CBRE Research
En bloc sales and population increase caused by influx of foreigners will continue to fuel demand, writes LEONARD TAY
RESIDENTIAL rents bottomed out in 2004, recovering until 2007 when they staged an extraordinary rise, surging by more than 40 per cent within the year. This was the highest rate of increase in Urban Redevelopment Authority's private residential rental index since the index started in 1990.
And 2008 is likely to see continued strength in rentals, although growing at a more modest pace of 5-10 per cent.
Rents rose a negligible 0.2 per cent in 2004, and then a stronger 3.1 per cent in 2005, according to the URA private residential rental index. But as the residential sector recovered strongly from 2006 onwards, rental values rose more steeply.
The non-landed residential segment, which forms the bulk of the leasing market, chalked up rental growth of 15 per cent in 2006 before sky-rocketing 43.1 per cent in 2007.
A key reason for the supernormal growth in rents was the population increase as a result of immigration. Singapore's total population rose from 4,401,400 in 2006 to 4,588,600 in 2007, an addition of 187,200, of which Singapore residents made up 57,200 while foreigners constituted 130,000. This is a 14.8 per cent rise year-on-year and is the largest increase in the number of foreigners seen in over seven years. The foreign population refers to professionals, workers, students and their family members. This is the first time the total has crossed the one-million mark. The increase in 2006 was 9.7 per cent.
Main attractions
The positive run in the economy, growth prospects for the country and an attractive living environment brought many here, leading to the surge in demand for housing accommodation. The foreigners chose Singapore because of the job opportunities here and its connectivity to other major cities in Asia. Generally, they formed the bulk of the tenant pool and the prime districts (Orchard, Holland and Bukit Timah areas) were their favourite locations. However, due to the recent escalating rents, more expatriates have opted to move out of the prime districts for cheaper accommodation elsewhere. Some have even gone ahead to buy their own homes instead of renting.
The swelling demand was further fuelled by the number of residential projects that were sold on the collective sale market. A number of displaced home owners have rented in the interim while waiting for their new replacement homes to be completed.
While rents have increased islandwide, some regions are ahead of the pack. Rents in the Core Central Region (districts 9, 10, 11, Downtown Core and Sentosa) lead the market with a median rent of $3.86 per sq ft per month, going by URA's median rent numbers at end-2007. This is followed by the Rest of Central Region with a median rent of $2.74 psf per month and the areas Outside of Central Region with a median rent of $2.01 psf per month.
Using CBRE Research's basket of properties for the luxury, prime and island-wide segments of the leasing market, average rents have reached even higher levels. The average rent for luxury residences ended 2007 at $6.10 psf per month, having risen 36 per cent during the year. Properties in this luxury class include the top 10 to 15 completed condominiums located in the prestigious areas around Orchard Road.
Average rents for prime residential properties were $4.50 psf per month, having increased by 55 per cent in 2007, while islandwide rents were $2.65 psf per month, after rising 33 per cent in the same period.
As rentals at prime and popular locations become more expensive, both local and foreign residents have been moving further out; first to the city fringe and eventually along the east-west axis of the MRT lines to the suburban areas. A comparison of non-landed median rents from the URA's Realis system in December 2006 and December 2007 shows that the most significant increases have not been restricted to the central areas, but have been seen in the eastern and western parts of the island.
It should be noted that although districts 9 and 10 remain the most popular among expatriates, these districts have a range of old and new residences, leading to a relatively lower median rent compared with those in district 4. The residential landscape in district 4 (Telok Blangah/Harbourfront) is generally more homogenous and comprises newer developments that can fetch a premium.
Outlook for 2008
The leasing market is expected to remain firm in 2008 and rents will continue to rise, albeit at a more moderate pace in line with the less aggressive growth projected for the economy. The same phenomenon experienced in 2007 will continue into 2008 as fringe and suburban areas become more sought after by occupiers who find the higher rents in the prime central areas prohibitive. The spillover from the central area would cause rents to rise in other parts of the island and lead to overall growth in the leasing market.
At the same time, as Singapore continues to attract the well-heeled from around the world, rents for luxury and city living condominiums in the popular areas around Orchard Road and the CBD will continue to move upwards. Average residential rents are expected to increase by about 5-10 per cent this year.
Leonard Tay is a director of CBRE Research
Don't Overpay For Your Home Loan
Source : The Business Times, March 27, 2008
With over a hundred home loan packages available in Singapore, DENNIS NG discusses how to pick the right one
WHAT interest rate are you paying on your housing loan? If you are paying 3.5 per cent or more, you might be overpaying. With the US Federal Reserve cutting interest rates, the Singapore Inter-bank Offered Rate, or Sibor, has been on a downward trend. Sibor is the rate at which banks lend to one another. Currently, the three-month Sibor has fallen to about 1.4 per cent, down from about 2.5 per cent last year.
If consumers hold the view that interest rates are likely to fall, choosing a housing loan package pegged to Sibor would enable them to automatically enjoy lower interest rates as Sibor moves lower.
Banks have started lowering interest rates offered on housing loans to as low as 2.08 per cent. Thus, if you're paying an interest rate of 3.5 per cent or more, it might make sense for you to refinance your housing loan to enjoy interest savings.
For example, if your outstanding loan is $500,000 and you're currently paying 3.5 per cent interest with a remaining loan period of 20 years, the total interest savings for the next three years from refinancing can work out to $13,831.38. After factoring in the cost of refinancing, the net interest saving still works out to $13,331.38. Thus, by refinancing, you can be 'richer' by over $10,000.
Floating rate vs Sibor/SOR pegged packages: Each bank will usually set its own board rate and after deducting a 'discount factor', arrive at the floating (adjustable) interest rate charged to clients. The problem is that each bank will set its own board rate arbitrarily and there might be occasions when Sibor rates fall, and banks don't reduce the interest rates charged on floating (adjustable) rate packages. Thus, in a bid to increase the transparency, some banks have recently introduced housing loan packages with interest rates pegged to Sibor or Swap Offer Rates (SOR).
The advantage of such packages is that as and when inter-bank offer rates move up or down, your interest rate would be adjusted as well - it would not be at the bank's discretion. Currently, Sibor/SOR have fallen below 1.4 per cent and interest rates charged on such loans can be as low as 2.08 per cent.
With the US expected to continue cutting interest rates in the next few months, Sibor is expected to remain low or even fall further in the next six to 12 months. Thus, if consumers hold the view that interest rates are likely to fall, choosing a housing loan package pegged to Sibor would enable them to automatically enjoy lower interest rates as Sibor moves lower.
Beware: Fixed rate packages typically come with lock-in periods. Some banks recently also adjusted interest rates charged on their fixed rate packages downwards to an average of 2.58 per cent for the first three years. However, such packages come with a penalty period of three years. Thus, such packages might not be suitable for consumers who intend to sell their property within the next three years, as they are liable to a penalty fee.
Should you apply for a housing loan now for properties purchased on a deferred payment scheme? You might have purchased a property on a deferred payment scheme and only need to take a loan when the project gets its Temporary Occupation Permit (TOP), which might be in 2009 or 2010. Should you apply for a housing loan now?
By applying for a loan now, you eliminate the risk of loan rejection should there be any adverse change in your financial situation in future, for instance, a pay cut or job loss when the property is ready. You also eliminate the risk of banks granting a lower loan quantum should the property market turn and prices fall. To safeguard your interests, you can choose a loan package that allows you a free loan conversion so that you can switch to a better package should one be available nearer TOP.
Cash in on your property without selling it: With property prices having gone up in the past three years, you might now own a property whose value has doubled. In that case, your current debt-to-asset ratio might have fallen considerably.
For instance, say you bought a $1 million property three years ago and took an 80 per cent loan, or $800,000. Currently, the loan outstanding is about $750,000, while the current value of this property might have gone up to $2 million. This means your current debt-to-asset ratio is only 37.5 per cent.
How can you benefit from the rise in the property price without selling your property? You can consider taking an equity loan on the property. For instance, in the above example, subject to your credit score, banks might grant you an additional equity loan of up to $850,000. To be conservative, you can consider taking up a lower equity loan of, say, $450,000, bringing your debt-to-asset ratio to a comfortable 60 per cent. You can use the $450,000 equity loan granted by the bank to start a business, or even to invest in another property. The interest rate on equity loans in Singapore is very low and can be as low as 2.2 per cent currently.
Should you pay off or reduce your housing loan?: The Singapore government has projected the inflation rate in 2008 to be about 5 per cent. On the other hand, the interest rate on housing loans is about 2.2 per cent. Thus, we have a rare scenario of negative interest rates, that is, a person who takes a housing loan is actually ahead of someone who saves money in bank deposits because of the shrinkage of money from inflation.
On the other hand, interest rates on bank deposits have fallen to about 1.5 per cent. With inflation at 5 per cent, it means that a consumer is losing 3.5 per cent a year by putting money in bank deposits.
Instead of paying down your housing loan which charges low interest rates of less than 3 per cent, you can consider investing your cash in a stable investment that is not subject to large price fluctuations and offers higher returns than fixed deposits. One example is UK-traded endowments, which have a guaranteed cash value and generate annual returns of 6-8 per cent.
How to choose a suitable housing loan?: There are over 113 different housing loan packages available in Singapore at any one time. Each package has its own unique features, with its own pros and cons and different terms and conditions. Consumers might be confused by the wide array of choices. In the last few years, with the emergence of independent mortgage brokers in Singapore, home loan shopping and comparison have been made easier.
Basically, an independent mortgage broker who knows your requirements can help you zoom in on the most attractive home loan packages suitable to your needs. You typically do not have to pay for the service of a mortgage broker as banks pay them a fee.
In more advanced countries such as the US and Australia, people usually apply for home loans through a mortgage broker rather than go to the bank directly. In Singapore, many people are still unaware of the services and benefits of engaging a mortgage broker, but things are likely to change with public education and increasing awareness.
Dennis Ng is a Certified Financial Planner with 15 years of experience in bank lending. He co-founded an independent mortgage consultancy portal www.HousingLoanSG.com in 2003.
With over a hundred home loan packages available in Singapore, DENNIS NG discusses how to pick the right one
WHAT interest rate are you paying on your housing loan? If you are paying 3.5 per cent or more, you might be overpaying. With the US Federal Reserve cutting interest rates, the Singapore Inter-bank Offered Rate, or Sibor, has been on a downward trend. Sibor is the rate at which banks lend to one another. Currently, the three-month Sibor has fallen to about 1.4 per cent, down from about 2.5 per cent last year.
If consumers hold the view that interest rates are likely to fall, choosing a housing loan package pegged to Sibor would enable them to automatically enjoy lower interest rates as Sibor moves lower.Banks have started lowering interest rates offered on housing loans to as low as 2.08 per cent. Thus, if you're paying an interest rate of 3.5 per cent or more, it might make sense for you to refinance your housing loan to enjoy interest savings.
For example, if your outstanding loan is $500,000 and you're currently paying 3.5 per cent interest with a remaining loan period of 20 years, the total interest savings for the next three years from refinancing can work out to $13,831.38. After factoring in the cost of refinancing, the net interest saving still works out to $13,331.38. Thus, by refinancing, you can be 'richer' by over $10,000.
Floating rate vs Sibor/SOR pegged packages: Each bank will usually set its own board rate and after deducting a 'discount factor', arrive at the floating (adjustable) interest rate charged to clients. The problem is that each bank will set its own board rate arbitrarily and there might be occasions when Sibor rates fall, and banks don't reduce the interest rates charged on floating (adjustable) rate packages. Thus, in a bid to increase the transparency, some banks have recently introduced housing loan packages with interest rates pegged to Sibor or Swap Offer Rates (SOR).
The advantage of such packages is that as and when inter-bank offer rates move up or down, your interest rate would be adjusted as well - it would not be at the bank's discretion. Currently, Sibor/SOR have fallen below 1.4 per cent and interest rates charged on such loans can be as low as 2.08 per cent.
With the US expected to continue cutting interest rates in the next few months, Sibor is expected to remain low or even fall further in the next six to 12 months. Thus, if consumers hold the view that interest rates are likely to fall, choosing a housing loan package pegged to Sibor would enable them to automatically enjoy lower interest rates as Sibor moves lower.
Beware: Fixed rate packages typically come with lock-in periods. Some banks recently also adjusted interest rates charged on their fixed rate packages downwards to an average of 2.58 per cent for the first three years. However, such packages come with a penalty period of three years. Thus, such packages might not be suitable for consumers who intend to sell their property within the next three years, as they are liable to a penalty fee.
Should you apply for a housing loan now for properties purchased on a deferred payment scheme? You might have purchased a property on a deferred payment scheme and only need to take a loan when the project gets its Temporary Occupation Permit (TOP), which might be in 2009 or 2010. Should you apply for a housing loan now?
By applying for a loan now, you eliminate the risk of loan rejection should there be any adverse change in your financial situation in future, for instance, a pay cut or job loss when the property is ready. You also eliminate the risk of banks granting a lower loan quantum should the property market turn and prices fall. To safeguard your interests, you can choose a loan package that allows you a free loan conversion so that you can switch to a better package should one be available nearer TOP.
Cash in on your property without selling it: With property prices having gone up in the past three years, you might now own a property whose value has doubled. In that case, your current debt-to-asset ratio might have fallen considerably.
For instance, say you bought a $1 million property three years ago and took an 80 per cent loan, or $800,000. Currently, the loan outstanding is about $750,000, while the current value of this property might have gone up to $2 million. This means your current debt-to-asset ratio is only 37.5 per cent.
How can you benefit from the rise in the property price without selling your property? You can consider taking an equity loan on the property. For instance, in the above example, subject to your credit score, banks might grant you an additional equity loan of up to $850,000. To be conservative, you can consider taking up a lower equity loan of, say, $450,000, bringing your debt-to-asset ratio to a comfortable 60 per cent. You can use the $450,000 equity loan granted by the bank to start a business, or even to invest in another property. The interest rate on equity loans in Singapore is very low and can be as low as 2.2 per cent currently.
Should you pay off or reduce your housing loan?: The Singapore government has projected the inflation rate in 2008 to be about 5 per cent. On the other hand, the interest rate on housing loans is about 2.2 per cent. Thus, we have a rare scenario of negative interest rates, that is, a person who takes a housing loan is actually ahead of someone who saves money in bank deposits because of the shrinkage of money from inflation.
On the other hand, interest rates on bank deposits have fallen to about 1.5 per cent. With inflation at 5 per cent, it means that a consumer is losing 3.5 per cent a year by putting money in bank deposits.
Instead of paying down your housing loan which charges low interest rates of less than 3 per cent, you can consider investing your cash in a stable investment that is not subject to large price fluctuations and offers higher returns than fixed deposits. One example is UK-traded endowments, which have a guaranteed cash value and generate annual returns of 6-8 per cent.
How to choose a suitable housing loan?: There are over 113 different housing loan packages available in Singapore at any one time. Each package has its own unique features, with its own pros and cons and different terms and conditions. Consumers might be confused by the wide array of choices. In the last few years, with the emergence of independent mortgage brokers in Singapore, home loan shopping and comparison have been made easier.
Basically, an independent mortgage broker who knows your requirements can help you zoom in on the most attractive home loan packages suitable to your needs. You typically do not have to pay for the service of a mortgage broker as banks pay them a fee.
In more advanced countries such as the US and Australia, people usually apply for home loans through a mortgage broker rather than go to the bank directly. In Singapore, many people are still unaware of the services and benefits of engaging a mortgage broker, but things are likely to change with public education and increasing awareness.
Dennis Ng is a Certified Financial Planner with 15 years of experience in bank lending. He co-founded an independent mortgage consultancy portal www.HousingLoanSG.com in 2003.
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