Residential Leasing - The Laws Of Demand And Supply

Source : The Business Times, July 9, 2009

RENTS of private residential property have been correcting since August last year, in line with the weak economy. While the traditionally busy period in April saw a surprise 2 per cent spike in rental values, the question is whether a more sustainable recovery is in sight. To get an answer to this, we have to look at the supply-demand dynamics in the residential market.













A quarter of Singapore's 4.84 million residents are foreigners, and this is the group that drives the leasing market. This is because Singaporeans generally don't rent, choosing to live with their parents until they can buy their own homes.

Employment in the services sector grew by over 30 per cent in 2007, especially in financial and professional services, according to numbers from the Ministry of Manpower. This is a major factor accounting for the surge in the expatriate workforce. Foreign employment stood at 1.06 million, or 35 per cent of the total workforce of 2.95 million.

The profile of the expatriate workforce has evolved through the years. Expatriate employment is no longer limited to top management posts and now includes middle management and executive functions. There is a wider variety of expatriates as well - from Europeans and Americans to other Asian nationalities; and from singles to couples with teenage kids. Depending on demographics and employment status, their accommodation preferences vary.

For expatriates, location is a key consideration. They would prefer to stay 1) near transportation and amenities (MRT station, malls, even expatriate clubs), 2) near schools, and 3) close to the workplace. Residential projects that meet these criteria will generally see steady demand which means they can command good rentals.

Expatriate packages

Expatriate packages have been revised with the changing times. It is rare today to see the typical full expatriate relocation package that covers housing, car, club and school costs. With tighter budgets, mid-management expatriates are now mostly offered a package under localised terms that covers accommodation costs. Or it may be a hybrid package that offers a mix of benefits.

The expat housing terms usually fall into three categories. The first, a corporate lease, allows the landlord to deal directly with the employer. It is most commonly adopted for a full expatriate or hybrid relocation package.

The other two forms of leases, namely 1) corporate lease with personal indemnity and 2) personal lease, are usually signed under a package with localised terms. Under these terms, the employee is responsible for the expenses under the lease. The only difference is that under a personal lease, the leasing contract is between the employee and the landlord. Under a corporate residential lease with personal indemnity, the employer signs the leasing contract with the landlord while the personal indemnity is borne by the employee.

Under the latter two leases, the tenant bears the burden of any additional cost in a lease should it exceed the allocated budget. If the rent is below the allocated budget, the tenant who takes up a personal lease enjoys the savings. For the tenant who uses the corporate residential lease with personal indemnity, any savings on rent is split between the company and the tenant. This burden of costs/savings will have a major impact when it comes to rental negotiations.

Supply

A collective sale frenzy in 2006 and 2007 saw a slew of prime residential projects taken off the market for redevelopment, especially in districts 9, 10 and 11. There were close to 100 such developments transacted in the two years, which reduced the leasing inventory by about 6,000 units.

In the interim, the impact of this large withdrawal has been greatly felt. Of course, this removed stock will eventually return to the market as new supply. While this will give tenants more choices, landlords will face greater competition, especially if the economy doesn't improve and demand remains muted.

There are an estimated 4,000 prime residential units due to be completed by 2011. These include both luxury (usually with larger units) and typical prime units. Following the popularity of luxury units during the property boom, there are a few such projects scheduled to come into the market in the next two years. They include The Marq (66 units), The Hilltops (241 units), Ritz Carlton Residences (58 units), Ardmore II (118 units), Grange Infinite (68 units) and Orchard Residences (175 units).

This does not include the projects sold en bloc to developers for redevelopment into luxury condominiums which have yet to get their sales licences. As such, the names or number of units in these developments are not known. Among these projects are Ardmore III (Wheelock Properties), Pin Tjoe Court (Pontiac Land Group), Anderson 18 (joint venture between Wing Tai and City Developments), The Ardmore (SC Global), Lucky Tower (City Developments), Beverly Mai (HPL Properties) and Grangeford (OUE).

Rents are expected to come under severe pressure when ample new supply comes onstream at a time when market demand is weakening.

Overview and outlook

With the dampened sentiment in the corporate sector, housing budgets have seen cuts of 10-20 per cent. Expatriates, especially those on personal lease or corporate residential lease with personal indemnity, will be motivated to downsize or be on the lookout for discounted rents as they seek greater savings.

The softening demand and the new supply of some 2,000 non-landed units in the first quarter have put further downward pressure on rents. Some large completed projects include Rivergate (545 units), The Suites at Central (157 units) and the remaining City Square Residences (estimated at 439 units). In addition, there were about 1,600 previously en bloc units that have been released back into the rental market as short-term leases at much discounted rental rates.

These are the main reasons for the major rental correction of about 18 per cent over the past few months. Any recovery of the leasing market in April 2009 can be attributed to the following factors. Traditionally, the months from April to July are the seasonal highs in lease take-ups and renewals. Leases are usually signed to coincide with the summer break in international schools.

Islandwide demand has remained fairly stable as the retrenchment of the expatriate workforce in the financial sector was offset by new hires in other industries such as R&D and biomedical science. In addition, there has been restructuring of some financial institutions where business units in Europe and the US have been relocated to Singapore to tap into Asia's growing wealth.

A recent survey of five large, Singapore-based moving companies by the American Chamber of Commerce in Singapore has shown that inbound shipments rose more than 10 per cent from 2007 to 2008 and outbound shipments increased nearly 8 per cent from 2007 to 2008. However, they are expected to drop by 2 per cent in 2009.

As a cautionary note, there could be a delay in the correction of expatriate demand as most expatriates today hold personal employment passes (PEP). Under this scheme, PEP holders do not need to re-apply for a new employment pass when changing jobs. They also can stay for up to six months here without any valid employment compared to only two months previously. Should the employment market remain weak, we may begin to see a delayed exodus of these expatriates if they do not get re-employed soon.

Leasing demand may also soften as more expatriates weigh the attractions of buying their own home as opposed to leasing it. With the current low interest rates and discounted housing prices, it is possible that expatriates who have been living in Singapore for some time may seek a more permanent accommodation and residential status.

Having said that, supply remains limited this year, especially for larger luxury units. Existing projects such as The Claymore, Claymore Point, Four Seasons Park, Ardmore Park, The Colonnade, Regency Park, and Yong An Park are enjoying high occupancies. As such, renovated units in these older developments are still commanding high rentals.

Similarly, supply of quality residential projects in prime districts remains limited this year. The spillover demand for luxury projects will likely benefit these sub-markets. Residential projects in the prime districts are still the preferred choice for many expatriates.

But with more completions in the pipeline, impending supply remains the biggest concern for the market. Unless the global economy picks up and expatriate inflows increase, prospects for the leasing market here will be bearish, particularly in the luxury segment.

Jacqueline Wong is head of residential and Desmond Sim is associate director of research, Jones Lang LaSalle

Is Housing Market Recovery In Sight?

Source : The Business Times, July 9, 2009

The factors driving the rebound in private home sales are mostly short term but current exuberance could continue

AFTER being dormant for 17 months, the private residential market sprang to life in February. That month saw a burst of buying that took new homes sold by developers to over 1,300, against an average of less than 400 during the lull.















Since then, monthly sales of new homes have consistently stayed above the 1,200 mark, bringing total sales for the first five months to 5,478 units. This already exceeds the 4,264 new units sold for the whole of last year!

Why the sudden buzz in private home sales? After all, Singapore is suffering its deepest recession with job losses hitting a historical high of 12,760 in the first quarter.

Price weakness was what sparked the home buying mania in February. The pressure on developers to clear inventory, after months of standoff between buyers and sellers, finally saw them relenting by either launching projects at competitive prices or resizing apartments to keep the absolute cost affordable.

For example, February saw the launch of the 712-unit The Caspian in Jurong, where over 90 per cent of the 600 launched units were sold at an initial price of $580 per sq ft (psf). In the same month, the 293-unit Alexis in Alexandra Road sold out at prices ranging from $950 psf to $1,250 psf. Its popularity can be explained in part by the small apartment sizes; more than 70 per cent of the development comprises one- and two-bedroom apartments ranging from 366 sq ft to 786 sq ft.

These moves could not have come at a better time because there was a noticeable lift in sentiment at the time from the job-saving measures in the 2009 Budget, announced in January. This created a greater sense of job security among home buyers, allowing them to commit to long-term mortgage payments.





















Then the stock market started to rally in early March, as the economic outlook brightened, with indicators pointing to a slowing contraction. All these encouraging factors, coupled with a bit of herd instinct among buyers, led to another month of strong sales in March, which saw 1,220 new units sold.

Also, private home prices had already dropped about 14 per cent in Q1, the sharpest quarterly decline seen in Singapore's housing market. This gave comfort to many that home prices might have finally bottomed or were close to it.

Encouraged by the good sales, developers reduced their discounts and incentives, while sellers in the secondary market started to raise asking prices. Panic buying set in as house hunters worried that they might miss the boat if they did not act soon. This contributed to primary home sales hitting 1,668 units in May - the second highest figure, after the last recorded peak of 1,723 units in August 2007.

The positive sentiment spilled over to higher-tier homes. Sales of new high-end units located in the Core Central Region doubled for two months running, from 133 units in March to 322 in April and 617 in May.

To a large extent, the buying was backed by affordability. The economic boom in 2007 had significantly raised the incomes of many Singaporeans. According to the Department of Statistics, the average household income of Singaporeans and permanent residents rose by a hefty 24 per cent in the past two years, from $5,720 in 2006 to $7,090 in 2008.

Singapore residents also saw their wealth grow exponentially during the 2007 property boom. Besides the billions of dollars owners realised from collective sales which reached fever pitch in 2007, substantial sums were also made through property investment and speculation.

Property investors/speculators are estimated to have made a total net gain of $2.8 billion between January 2007 and March 2009, going by caveats lodged for sub-sale transactions. Eighty per cent of the money was made in 2007.

This translates to an average gain of $390,000 per sub-sale transaction, a tidy sum that can comfortably cover a 40 per cent downpayment on an investment property costing up to $800,000. Alternatively, it could fund a 20 per cent downpayment for an owner-occupied property costing up to $1.7 million. So it is not surprising that homes priced under $1.7 million made up some 90 per cent of all transactions since January.

On the public housing front, the diverging price trends of private homes and HDB resale flats narrowed the gap between them and improved the ability of HDB dwellers to upgrade. As at March, HDB resale prices were up an average 5 per cent from the mid-2008 level, while private home prices contracted by a steep 21 per cent in the same period. The Singapore stock market's 50 per cent surge since its March low has also added to liquidity.

Does the rebound signify market recovery?

Market recovery is characterised by sustained sales momentum and prices, which calls for a continued lift in sentiment, and a return of fundamentals that support long-term as opposed to short-term affordability and liquidity.

However, market sentiment is fragile and vulnerable to adverse developments in the economy and stock markets, and potential disasters like a deadlier wave of the H1N1 flu.

The stock market is volatile and cannot be depended on to provide sustained liquidity for the property market. And affordability backed by wealth accumulated from the boom years is not boundless and will deplete if not replenished in time.

While buying by HDB upgraders might be sustainable, this group is extremely price sensitive, as can be seen from past behaviour.

There were two occasions in the past when HDB upgraders increased their presence in the private home market even after HDB resale prices had peaked. This was between Q4 1996 and Q4 1998, as well as between Q1 2000 and Q2 2002. HDB upgraders continued to increase their presence in the private home sales market even after HDB resale prices peaked in Q4 1996 and Q1 2000.

This took place alongside continued softening of private home prices. But buying by HDB upgraders trended down the moment private home prices gained strength.

Currently, given that private home prices are already creeping up as developers and sellers take advantage of the strong buying momentum, HDB upgraders may fade as a driver of sales as they see private homes becoming less affordable.

Hence, the factors driving the rebound in private home sales since February are mostly short term and are not supportive of a sustainable market recovery. Such a recovery would be possible only with growth in employment and personal income on the back of robust economic expansion.

For the luxury segment, sales would also have to be underpinned by the return of foreign demand. For now, foreign high net worth individuals are focusing their attention on more battered markets such as London and Tokyo where the prospect of capital appreciation is higher.

Where is the market heading then, in H2 2009?

Nevertheless, over the next six months, barring adverse developments, market sentiment is likely to stay upbeat. The current exuberance could continue, despite the weak rental market, as most buyers are looking to capital appreciation in the medium term. This could underpin demand and help maintain average monthly private home sales at above the 1,000-unit level till the end of the year.

Beyond 2009, sustainable buying momentum amid rising home prices would have to come about on the back of robust economic expansion. In the meantime, the impending completion of the two integrated resorts could boost confidence and lend some support to home sales, particularly for high-end properties located close to the resorts.

The writer is director of research and advisory, Colliers International

The Market Stirs

Source : The Business Times, July 9, 2009

THE buzz has returned to the property market. Developers' home sales have recovered impressively since February. Private home prices have begun to pick up after hitting a low in the first quarter.

The revival in home buying is being fuelled by pent-up demand, low interest rates and a lack of trust in financial instruments after the Lehman Minibond fiasco. Some buyers are also motivated to make a commitment sooner rather than later for fear of missing the boat.

However, short-term factors are also at play, such as the spectacular stockmarket rally from March to mid-June. But the stock market is hard to predict, and with the Singapore economy still in recession, the jury is out on whether the property market will continue its recovery.

Still, some may find this a good time to buy. It would, of course, be wise to keep an eye on the debt-service ratio as a proportion of income and to set aside reserve funds for loan payments. One also has to be savvy when shopping for a mortgage.

For those eyeing overseas property, the weaker Singapore dollar has made investment more costly.

The articles in this supplement give some pointers for a decent property investment strategy. And as always, remember that property is a long-term commitment and that it's best to buy within one's means.

New Bridge To Sentosa Open To Traffic

Source : The Business Times, July 9, 2009

CONSTRUCTION of the new bridge to Sentosa is complete - and the first traffic crossed it yesterday.

Until July 22, all traffic to and from the island will be diverted to the new bridge, which runs parallel to the existing bridge. The existing bridge will be closed for works.

The $80 million new bridge was commissioned by Resorts World at Sentosa (RWS) to handle the 13 million visitors it expects when it opens in early 2010.

Australian-based engineering and construction company McConnell Dowell started the bridge project in March 2008.

The new bridge will carry traffic from the mainland to Sentosa. The existing bridge will carry traffic the other way.

When enhancement of the Sentosa Gateway is completed, there will be a three-lane carriageway for traffic in each direction.

Mike Barclay, CEO of Sentosa Leisure Group, said: 'Sentosa Gateway is poised to take on the increase in traffic when RWS opens and as more residents move into Sentosa Cove.'

RWS's executive vice-president of projects, Michael Chin, said: 'We built the new bridge as we are committed to providing our visitors a world-class destination. Their memorable experience must include hassle-free access to and from our resort and Sentosa.'

In 2008, the Land Transport Authority announced a package of road improvement measures aimed at enhancing travel for visitors to the Sentosa-HarbourFront area, including the construction of a new Gateway Tunnel to meet a long-term increase in traffic volume.

The tunnel is slated for completion in 2015.

Sentosa Leisure Group will boost transport on the island by increasing the Sentosa Express fleet.

Mount Faber Leisure Group will upgrade and expand its cable car system and rebrand the cable cars as a premium gateway to Sentosa.

Marina Bay Sands Opening Delayed To 2010

Source : The Business Times, July 9, 2009

LAS VEGAS Sands (LVS) will launch its Marina Bay Sands (MBS) integrated resort later than expected, with doors opening in January or February instead of at end-2009.

Topping out ceremony: Mr Adelson, flanked by his wife and two sons, with George Tanasijevich (back row), GM and VP of Sands' Singapore Development

Early-2010 will also be when LVS is likely to re-start construction work on stalled sites in Macau, as financing is expected to be 'settled' by September, LVS chairman and CEO Sheldon Adelson said yesterday.

In town for a ceremony to mark the topping out of three 55-storey hotel towers at MBS, Mr Adelson said that depending on future market conditions, LVS could sell non-core assets at MBS, such as the retail mall, and use the cash to repay loans.

His comments on non-core assets were in response to questions on whether LVS might float MBS here.

There are no plans for an IPO of Singapore assets. But in Macau - where LVS owns several casino resorts, including the Venetian Macau - Mr Adelson said that LVS is 'actively and seriously' looking at several options to secure funding for its stalled Macau projects.

These include an IPO on the Hong Kong stock exchange of its Macau properties, which could raise US$3 billion - US$4 billion.

However, Mr Adelson said that LVS is also considering new equity partners and selling non-core assets in Macau, including retail malls and condominiums.

LVS announced late last year that it would suspend the development of Sites 5 and 6 on Macau's Cotai Strip due to the global credit crunch, and focus on completing MBS instead.

Financing for MBS is secured.

One reason for the delay in opening MBS is said to be the complex structure of the Sands SkyPark, an aerial park that will link and crown the three hotel towers. As such, MBS is likely to open in phases, Mr Adelson said. But the phases are not likely to be far apart, he added.

Building conditions have not always been favourable, he explained.

'We can't control the flow of sand to make concrete. We can't control the availability of steel. And we can't control the availability of labour due to other projects that are in the market.'

The first attractions to open will be key revenue drivers - including the casino, which is at an advanced stage of construction.

No events are expected before April 1 for the meetings, incentives, conventions and exhibition (Mice) facilities.

However, Mr Adelson, a Mice veteran, said that MBS is negotiating about 150 Mice events contracts - most of them new to Singapore.

The hotels will also be a key component of MBS, with about 2,600 rooms and suites in total. While the number of rooms is lower than the projected 3,000 when LVS won the public tender to build the IR in 2006. Mr Adelson said that MBS will be 'pushing business to other hotels'.

MBS has been in discussions with other hoteliers in the area, he revealed. Some had feared MBS would wage a price war to attract customers. Mr Adelson said that MBS wanted to assure other players it would not do this.

On the contrary, he said 'we will be pushing up room rates', because MBS will offer something unique.