Sniffing Out Buys In The Mass Market

Source : The Business Times, March 26, 2009

CHUA CHOR HOON and LIM HUI LING compare the current situation with past downturns to gauge where we stand today in terms of oversupply and time to recovery

WITH the economic downturn, the residential market landscape has changed as developers shrink the size of units and offer steeper discounts to lure cautious buyers while banks tighten credit. So how will this downturn play out?

We compare the current situation, particularly in the mass market segment, with past downturns to gauge how prices are likely to perform and when recovery will be in sight.

The mass market segment has proved to be less volatile than homes located in the prime districts of 9, 10 and 11 - on the way up as well as on the way down. While average prices of luxury homes rose 66 per cent during the property bull run in 2007, average prices of three-bedroom leasehold homes outside the prime districts only rose 27 per cent.

Gentler declines

Similarly, on the way down, mass market homes have seen gentler declines compared with higher-end condos. Last year, prices of luxury homes fell 30 per cent while average prices of non-landed three-bedroom leasehold homes outside the prime districts fell just 8 per cent to $560 per square foot as at end-2008.

The average prices of homes outside prime districts as at end-2008 are 33 per cent higher than the trough prices in 1998 and 27 per cent higher than the trough prices in 2003. However, they are 25 per cent lower than the peak in 1996 and 11 per cent lower than the peak in 2000.

The extent of price fall, while dependent on economic performance, also depends on supply in the private residential market. Based on Urban Redevelopment Authority (URA) numbers as at end-2008, an average of 11,626 private housing units a year are scheduled for completion in the five years from 2009 to 2013. This is 34 per cent more than the annual average of 8,671 units in the last 10 years (1999 to 2008).

However, the overall housing supply is much less compared with the level in 1998 which saw a supply glut in the public housing market. Around 31,600 public housing flats were completed each year between 1996 and 2000 compared with about 5,000 units completed annually in the last five years. To avoid over-building of flats, the Housing Development Board (HDB) had put in place the build-to-order (BTO) system in 2001 to provide the main supply of new flats.





















Under the BTO system, construction will only start when a majority of the units have been booked and buyers would have to wait three to four years for the flats to be completed. HDB's stock of unsold inventory is now estimated to be at a record low of under 1,000 units. Hence, the limited supply of new HDB flats will provide some support for the public housing resale market. This, in turn, should help hold up prices of mass market private homes.

The strong demand in the HDB resale market is closing the price gap between HDB flats and non-landed private homes, especially those in the suburban areas. However, there is room for the price gap to narrow further based on historical trends.

The price premium of private homes over HDB flats rose sharply in 2007 to unsustainable levels and will narrow as the private property market declines more steeply than the public housing market. Prices of HDB resale flats are likely to decline as the economy contracts further. The moderating rate of increase in the HDB resale price index and declining demand in Q4 2008 are signs of a weakening HDB resale market. Some HDB resale flats have already transacted below valuation this year. In this bearish scenario, private property prices would be further depressed. In Q1 2009, developers have already cut prices of new leasehold projects by 5-10 per cent.

So how long will this downturn last? The previous downturns lasted 2.5 to five years. While the property market saw a quick recovery after the 1998 Asian financial crisis, the recovery was slow after the 2001 Internet bubble burst, being compounded by a spate of adversities - the Sept 11, 2001 terrorist attacks, the Iraq war in 2003 and the Sars epidemic in 2003. The current downturn in the private residential market started only four quarters ago and is unlikely to bottom this year as the economic outlook is deteriorating. As to the timing and speed of the market's recovery, that will hinge on the economic recovery of the major developed nations.

Going forward, developers are expected to resize the units of developments that have yet to be launched to make them more affordable. This would be aided by declining construction costs which would lower total development costs.

Purchases under IAS

Developers continue to offer an interest absorption scheme (IAS) which is similar to the deferred payment scheme (DPS). Under the IAS, buyers sign up for a loan with a bank but won't have to fork out any cash other than the 20 per cent downpayment until the project gets its Temporary Occupation Permit (TOP). Although buyers may find it attractive not to have to make any progressive payment or service a loan before TOP, they should be aware that they may have to pay a premium of around 3 per cent under the IAS.

In addition, they would usually be locked into the loan for two years under the scheme. So complications could arise should they need to sell their property within the lock-in period.

Meanwhile, those shopping around for a property now should keep this checklist in mind:

# Purpose (whether it is for own stay or investment)
# Holding period
# Budget
# Preferred location
# Surrounding environment
# Proximity to workplace, school and amenities
# Accessibility to expressways and public transport nodes
# Rental yield/resale value (especially for investment)
# Reputation of the developer
# Design of building and unit layout.

While one naturally prefers to buy at the bottom of the cycle, this is harder to do with property than with stocks as each unit and project is different. The unit you want may not be up for sale when prices are at their lowest.

And there are a range of personal decisions that cannot be perfectly timed with the market cycle. For instance, newly married couples setting up home, parents moving closer to their children's schools, foreigners buying for their children who are studying in Singapore, etc. In addition, a home buyer with a longer holding period is more prepared to ride out the down cycle.

A home buyer should work out his budget to ascertain if he can afford to service the mortgage even in the worst-case scenario. A general guide is that the monthly mortgage payment should not be more than 40 per cent of monthly household income. But in these uncertain times, it would be more prudent to consider a lower monthly mortgage service ratio. The key at this point is to buy within one's means.

Chua Chor Hoon is senior research director, DTZ; Lim Hui Ling is senior research analyst, DTZ

Sifting For Gems

Source : The Business Times, March 26, 2009

There's nothing like a quiet property market to start looking for that dream house. Or to begin doing research on buying that investment property which can turn into a cash cow to help see one through the golden years. With attractive loan packages offered by banks and interest absorption schemes extended by developers, some potential home buyers may find they can make the numbers work for them.

Tenants may also look forward to renewing leases at more earth-bound rental rates, whether it's for condos or prime offices.

But do your homework before getting carried away with the euphoria of wanting to strike a good deal with your landlord. Office occupiers in particular will have to take into account considerations like pressures to cut costs immediately even though the leases may expire only next year. A mutually beneficial lease restructuring could result in a win-win situation for both tenant and landlord.

And for those eyeing overseas properties, a mix of price declines and currency movements could make an appealing cocktail. For instance, London residential real estate prices have fallen 20-30 per cent from the bubble heights in late 2007. Combined with a weak sterling, prices for Singaporeans and other foreign investors are at 40 to 60 per cent discounts from the top.

Articles in this supplement should provide you some guidance in your quest to unearth real estate gems during this slump.

Of course, it would be wise to adopt an investment time-frame of at least five to seven years. As even some veteran developers advise from time to time, buying a property should be a long-term commitment, not a short-term flip motivated by prospects of reaping overnight gains. This lesson is being learnt all too painfully once again.

Far East Priming For Market Swing With Sub-Brands

Source : The Business Times, March 26, 2009

Village will be the first of such labels, it says at launch of hotel Quincy in Orchard Road

FAR East Organization, which unveiled its new Orchard Road hotel Quincy yesterday, said that it would launch hospitality sub-brands as it gets ready to welcome more tourists to Singapore in the coming years.

Quincy: Had its soft opening in February and achieved occupancy of 76 per cent that month. It kicked off with a rate of $198++ but has since raised it to $208++

The first of these sub-brands - called Village - will debut in the third quarter of this year. It will group 8-9 Far East hotels and serviced apartments with 'similar attributes' under one umbrella. Boutique hotel Quincy will not be part of the Village brand.

'By launching a brand, we will better articulate the hospitality offerings from the Far East group,' said Chia Boon Kuah, executive director of Far East's hospitality business.

Far East has currently six hotels and 11 serviced residences. The Village brand will group those properties with a 'village' feel, such as Changi Village Hotel.

Mr Chia said that the 108-room Quincy, which is located on Elizabeth Walk, has been a success so far. The hotel had its soft opening in February and achieved an occupancy of 76 per cent that month. It kicked off with a rate of $198++ for its opening month and has since raised it to $208++.

'There is no such product on Orchard Road,' said Mr Chia.

In what is believed to be an industry first in Singapore, Quincy offers a distinctive all-inclusive stay - the room rate includes a limousine transfer service from the airport, all three meals at the hotel, all mini-bar amenities, and cocktails and drinks each evening.

Most of the clientele so far have been corporate guests.

Mr Chia told BT that the property group opened its hotel even amid the economic downturn as it was confident that tourist arrivals in Singapore would pick up. 'With the current climate, we believe that intra-Asean and intra-Asian travel will increase.'

Quincy, in particular, is located within walking distance of the main shopping belt of Orchard Road. Mr Chia believes that upcoming malls - including Far East's Orchard Central and CapitaLand-Sun Hung Kai's Ion Orchard - will add to demand for Quincy's rooms.

Property Investment Sales Plummet 98%

Source : The Straits Times, March 25, 2009

Buyers and sellers are far apart in price expectations, says CBRE

PROPERTY investment sales in Singapore have fallen off the cliff since the start of the year and could slip to levels not seen since the Asian financial crisis.

Le Mercier House in Mohamed Sultan Road was sold for 35.8 million. - ISABEL REDRUP AGENCY PTE LTD.

According to the latest figures from CB Richard Ellis (CBRE), sales so far this year total $184.6 million, down 98 per cent on the same period a year ago and 56.4 per cent lower than the last quarter of 2008.

For the full year, total investment sales could plummet to levels not seen for over 10 years, with buyers and sellers locked in a stalemate and far apart in terms of price expectations, the consultancy warned yesterday.

The only quarters that saw lower investment sales were the first quarter of 1998 - when they were just $49.28 million - and the third quarter of that same year - when they hit $110.62 million. So far this year, the market has witnessed isolated individual deals but there have been no public sales or collective sales.

Residential sector sales accounted for 51.5 per cent of total sales during the period in question.

Apart from $18.2 million worth of deals for three good-class bungalows, Fragrance Properties bought a freehold Pasir Panjang site for $25 million, with plans to develop it into a residential apartment building. CBRE forecasts that such development site sales will be rare this year because most developers are concentrating on their existing projects and are not looking for new sites.

There have been no minimum bid applications from developers for any of the Government land sale sites, it added.

In the commercial market, sales total $77.3 million so far this quarter, with the only major sale being the $35.8 million, or about $900 psf, deal for Le Mercier House in Mohamed Sultan Road.

There was only one transaction in the industrial sector - a Loyang Crescent site that sold for $6.2 million, or $74 psf.

The report suggests that total investment sales for this year might revisit 1998 levels when the total annual quantum was $1.35 billion.

'The lack of volume will continue to feature until such time when price expectations between buyers and sellers meet,' CBRE stated.

Real estate investment trusts are unlikely to make many new acquisitions this year as dividend yields have increased significantly and it would be extremely challenging to make purchases that are yield accretive.

Property Investment Sales Fall To 10-Year Low

Source : The Business Times, March 25, 2009

Q1 2009 sales drop 56.4% from previous quarter and plunge 98% year-on-year

PROPERTY investment sales have fallen to levels last seen in 1998, registering a 10-year low.

CB Richard Ellis says that total investment sales have so far amounted to $184.6 million in the first quarter of 2009. The last time quarterly investment sales were lower, was in Q1 1998 at $49.28 million, and in Q3 1998 at $110.62 million.

The Q1 2009 sales figures also represent a decline of 56.4 per cent from the previous quarter and a fall of 98 per cent compared to a year ago.

Sales from the residential sector accounted for the most number of transactions.

Total residential investment sales including Good Class Bungalow (GCB) sales have so far accounted for 51.5 per cent of the quarter's total investment sales or $95.1 million in transacted value. This was 60.7 per cent lower than the $241.79 million residential investment sales recorded in the last three months of 2008.

Interestingly, the sale of just three GCBs accounted for almost 20 per cent of total residential sales.

The GCBs, at 28A Olive Road, 39 Cornwall Gardens and 8 Queen Astrid Gardens, were sold for a combined total of $18.2 million with 8 Queen Astrid Garden sold for $11.4 million in February, some 12.3 per cent lower than the $13 million previously transacted some 19 months ago in July 2007.

Noting that prices have fallen at a relatively slower pace compared to the luxury non-landed segment, Douglas Wong, CBRE director, luxury homes residential services, said: 'Owners are still holding on despite the financial situation. And there are a lot of buyers waiting on the sidelines.'

CBRE does expect average GCB prices to fall 10 per cent in 2009.

While there were no collective sales in Q1 2009, Fragrance Properties bought a 49,969 square foot site in Pasir Panjang together with two units of strata-titled town houses of 2,680 sq ft each for a total acquisition cost of $25 million.

The commercial investment market accounted for 41.9 per cent of total investment sales in the quarter, or $77.3 million. The only major sale was for Le Mercier House at 65 Mohamed Sultan Road for $35.8 million or about $900 psf on 39,000 sq ft of gross floor area.

There was only one sale in the industrial sector - 29 Loyang Crescent, with a site area of 83,367 sq ft, which was sold in February for $6.2 million or $74 per square foot on land. This contributed to 3.4 per cent of total investment sales.

CBRE believes that the total investment sales for 2009 might eventually be a revisit of 1998 levels where the total annual quantum came to $1.35 billion.

CBRE executive director (investment properties) Jeremy Lake added: 'As the market corrects and price expectations close, transaction volumes will pick up again.'

Number Of Mortgagee Properties On Auction Block Up In Q1

Source : The Business Times, March 27, 2009

The number of repossessed properties put up for auction sale by banks and financial institutions in Singapore has risen by 18 per cent - from 45 in fourth quarter 2008 to 53 in Q1 2009, according to Colliers International.

'This indicates an impending trend of continued growth in the number of properties put up for mortgagee sale, which is in tandem with the deteriorating economy and rising level of retrenchments,' the property consultancy said in a release issued on Friday evening.

Colliers deputy managing director and auctioneer Grace Ng said: 'We can expect to see a more significant number for repossessed properties in the later part of the year or in 2010. This is due to the general lag time of approximately six months or more - between when a buyer defaults on his loan repayments and when the bank repossesses the property and puts it up for auction sale.'

Business Park Space Offers Long-Term Cost Advantage

Source : The Business Times, March 26, 2009

Cyclical rental fluctuations are much less volatile compared to those for offices

MUCH has been written about the global economic downturn in terms of the financial industry, the impact on non-financial industries and the knock-on effect on occupier demand across the globe. While this forms the backdrop to this article, we will be discussing Jones Lang LaSalle's (JLL) view on the likely impact on business park and high-tech occupancy rates and rental trends over both the short term (next one to two years) and the long term (next five to 10 years).

Looking into the future: Artist's impression of Mapletree Business City, one of the major upcoming developments. The current high-tech/business park supply pipeline shows 7.9 million sq ft of space over the next four years.

Over the past four years, Singapore has seen rapid growth on a number of fronts; the financial services sector and its supporting industries, professional services, multinational corporations and small and medium enterprises (SME). The most startling of this growth is in the financial services sector. This is a result of Singapore's efforts to reposition itself as a financial hub. The growth of the financial services sector has been in both front office and back office functions.

The share of office space usage of Grade A CBD Core buildings by financial services companies has risen from 37 per cent to 46 per cent between 2004 and 2008.





















Similarly, the growth in the financial services back office function is evidenced by the recent acquisitions of significant chunks of business park space by Citi, Standard Chartered Bank, DBS Bank and HSBC over the last 24 months.

Post Sept 15, the economic environment has changed fundamentally across the globe and hence, we are unlikely to see growth in short-term occupier demand whether it be financial services industry or others.

Current market trends show that we are now in negative growth and many occupiers are surrendering space.

The current high-tech/business park supply pipeline shows 7.9 million sq ft of space over the next four years. The major developments include Mapletree Business City (1.3 million sq ft), Icon @ International Business Park (386,000 sq ft) and Ascendas-Frasers Centrepoint development at Plots 61-63 (645,000 sq ft) at Changi Business Park.

With significant new pure office supply coming on-stream islandwide between 2009 and 2012 (about 9.7 million sq ft), the office market is becoming increasingly competitive with landlords reducing rents to attract tenants. The anticipated effect on high-tech/business park space will be that there will be less spillover of occupier demand from a point of view of both availability of pure office space and reduced rental differentiation.

















At the peak of the market in 3Q 2008, average Raffles Place Grade A rents stood at $18.40 per square foot a month whereas high-tech rents stood at $4.25 psf a month. This is a differential of $14.15 psf. Based on this, the financial driver behind much of the back office operation is compelling. As rents in the CBD decline, this differential will reduce.

The office market bottomed out in the second half of 2004 and saw a rental rise of 23 per cent in 2005, followed by a 63 per cent jump in 2006 and a further 67 per cent surge in 2007, peaking Q3 2008 at $18.40 psf a month. However, with the rapid acceleration of the financial crisis and a global recession currently being experienced, 4Q 2008 saw demand drop off and the overall y-o-y rental growth was reduced to 7 per cent given a Q4 2008 rental of $14.95 psf a month.

The high-tech sector also saw rent increases of 13 per cent, 11 per cent and 98 per cent in 2005, 2006 and 2007 respectively. The high-tech market correlated with the office market in 2008 as rents also fell in the last quarter of 2008 to an overall correction of 5 per cent. While 2007 saw a virtual doubling of high-tech rents, the increases from the bottom of the market till today has nowhere been as dramatic as the office market which has trebled.

We have a scenario today where there is still a significant gap between office and high-tech rents. To put that in perspective, average Raffles Place Grade A office rents are currently tracking $14.95 psf. while average high-tech rents are currently commanding $3.75 psf. That difference in rents is still compelling but with rents for both the office and high-tech market expected to ease in line with the economic slowdown and significant new supply coming on stream in both markets, especially within the CBD, we should expect the gap to narrow. This, as office rents fall at a faster clip compared with the high-tech sector.

Over the last three years, the landscape of the high-tech/business park space in Singapore has changed dramatically. This comes about with the significant developments in Changi Business Park, one-north in Buona Vista as well the establishment of Alexandra as a high-tech hub with a proposed new development known as Mapletree Business City. There have also been a number of high quality high-tech buildings developed in various locations across Singapore.

Our view is that the long-term outlook for high-tech/business park space remains a positive story even if it is challenging in the near term. The reason for this view is based on a number of factors. Once the economic downturn is over, Singapore is well-positioned to continue its growth as a financial services hub and this will include back office growth which is likely to be located in business park space.

Business park space is much less volatile in terms of cyclical rental fluctuations. This can be seen in the trough to peak rents for both segments: The most recent office market cycle saw rents rise from $4.80 to $18.40 psf a month whereas high-tech rents over the same period went from $1.60 to $4.25 psf a month.

Given that most back office functions are not directly revenue generating, they cannot contend with such a widely ranging impact on their cost base. A front office operation would generally have increased revenue that would counteract the impact of increased rent.

Another key point to note is that a number of the business parks are now reaching critical mass in terms of the number of employees working in the parks to support much needed local infrastructure, such as retail amenities. The lack of amenities had been a major criticism of business parks in previous years.

Finally, our house view is that there will always be a compelling cost advantage argument for business park space when viewed on a long-term basis, ie, 10-15 years or two to three property cycles.

Chris Archibold is regional director and head of markets, Singapore, Jones Lang LaSalle; and Tahlil Khan is associate director of markets, Singapore, Jones Lang LaSalle

Property Transactions With Contract Dates Between March 9th - 13th, 2009

大宗房地产交易 首季同比锐减98％

Source : 《联合早报》March 25, 2009
　
大宗房地产交易(investment sales)在今年第一季几乎暂停，总交易额仅1亿8460万元，较去年同期锐减了98％，较上一季则少了56.4％。

世邦魏理仕投资性质房地产执行董事杰理米(Jeremy Lake)表示，淡静的情况将持续一段时间，直到买卖双方的价格期望能扯平为止，这将使2009年全年的大宗房地产总交易额重温1998年亚洲金融危机时的情况。1998年的全年大宗房地产交易额为13亿5000万元。

世邦魏理仕(CBRE)最新发表的研究报告指出，今年第一季的大宗房地产总交易额是自1998年第三季以来最低。1998年第三季，大宗房地产交易额为1亿1062万元，历来最低则是在1998年第一季创下，总交易额为4928万元。大宗房地产交易指的是售价超过500万元的房地产。　　

过去10个星期，主要有三间优质洋房(Good Class Bungalow)、两间分层地契共管排屋、一间商业房地产和一间工业厂房转手。这与过去三四年集体出售市场蓬勃的情况呈反比。

其中，约一半(51.5％)的大宗房地产交易额来自私宅市场，总交易额达9510万元。不过，这较去年第四季的2亿4179万元大宗私宅交易总额低了60.7％。

今年以来转手的优质洋房为奥立夫路28A、康华花园39号以及爱士特女皇花园8号，总交易额为1820万元。2月份以1140万元转手的爱士特女皇花园8号，较上一次在2007年7月转手时取得的1300万元售价来得低12.3％。

集体出售交易 首季完全消失

另外，于2006和2007年带动私宅大宗交易的集体出售交易在今年第一季完全消失。不过，飞龙置地(Fragrance Land)属下的Fragrance Properties在巴西班让买下了一个拥有两间分层地契共管排屋、面积为4万9969平方英尺的地段。这个地段属于永久地契，容积率为1.4。据了解，发展商计划在这个地段上发展私宅单位。

然而，这相信是现时孤立的例子。杰理米指出，由于大部分发展商目前专注于发展现有项目，有买家收购可供发展的土地将相当罕见。自从政府在去年底宣布暂时冻结政府售地计划(GLS)；把 “正选名单”上的地段，转到“备售名单”之后，至今没有任何发展商所呈上的投标申请达到政府最低预示标价的要求，因此没有任何地段推出市场出售。

商业市场方面，今年第一季的总交易额达整体交易额的41.9％，达7730万元。位于莫罕默苏丹路65号的乐美赛大厦(Le Mercier)本月以3580万元，或每平方英尺900元出售。乐美赛大厦可被重新发展为15层楼的私宅项目，但在大厦内经营家具生意的买家Ka$h International，目前计划继续保留和使用该大厦。

至于工业厂房市场，今年首10个星期唯有罗央弯29号转手，占整体大宗交易的3.4％。这个占地8万3367平方英尺的厂房上月以620万元、或每平方英尺74元易手。

工业厂房市场是去年大宗房地产交易的唯一亮点，由房地产投资信托(REITs)买入资产纳入组合所带动。杰理米表示，由于银行收紧银根，要取得贷款不易，而在目前股息收益率节节攀升的环境里，要买入可增进收益的资产具挑战性，REITs相信在今年不会活跃于市场。

尽管如此，杰理米对本地的大宗房地产交易还是感乐观。

他说：“投资者对新加坡有信心，本地市场依然具吸引力。只要市场顾虑渐渐逝去，而买卖双方的价格期望扯平，交易量将会重新上升。”

据了解，看准房地产价格已从2007年高峰期退低，一些机构基金和私人银行目前正在本地和其他亚洲市场物色房地产，并已准备数亿元等待时机进场。

法国兴业银行私人银行(SG Private Banking)希望在明年底前将另外5亿美元投入亚洲房地产，而韩国股票经纪公司友利投资证券(Woori Investment & Securities)则计划在未来两年，在亚洲房地产上投资3亿至5亿美元。ARA亚腾基金(ARA Asia Dragon Fund)的目标则是在未来两三年内在亚洲房地产投资另外10亿美元。