Monday, August 24, 2009

Vacancy Rate A Key Statistic

Source : The Sunday Times, August 23, 2009

Residential property buyers should zoom in on this in the URA quarterly release

Every quarter, the Urban Redevelopment Authority (URA) releases data on supply and demand in the residential property market.

In this year's second-quarter release, there were 16 annexes filled with many charts, ratios and other statistics. Multiply this by the historical releases, and the amount of data could be mind-boggling.

So, what should one focus on in this buffet of figures? For me, it is the vacancy rate. Residential property buyers should zoom in on this key statistic. It can be found in Annex E-1 of the release.

The vacancy rate is the number of vacant units divided by the total number of available units in Singapore. Previously, the vacancy rate was also expressed by the URA in the inverse way - as the occupancy rate. This is the number of occupied units divided by the total number of available units.

The vacancy rate is important because there is a positive correlation between the occupancy rate and prices. From intuition, this makes sense - a fuller 'Hotel Singapore' would result in higher rents, and thus capital values. The occupancy rate was 94.1 per cent in the second quarter.

Unfortunately, prices tend to lead changes in the occupancy rate by two to three quarters. The key, therefore, is to figure out how the vacancy is likely to change. So, how does the vacancy rate look going forward in the next two years?

The clues are in the URA data, HDB policy and the mechanics of supply and demand.

According to URA data, an additional 8,100 private homes on average have been occupied every year since 1995, notwithstanding three severe economic downturns. With the recovering global economy, we should at least see this number next year.

The opening of the integrated resorts next year, which will attract more foreigners, may push this number even higher.

Here again, the published vacancy rate delivers another nugget, as URA's Annex E-1 shows how it is derived. Despite numerous completions in the first half of the year, the vacancy rate was steady as the number of homes occupied increased by 4,774 in the first half of the year - 2,616 in the second quarter and 2,158 in the first quarter.

This took place despite Singapore's worst recession since independence. It also proved wrong the projections made by a foreign investment bank that hundreds of thousands of foreigners were expected to leave Singapore, thereby affecting occupancy.

This strong underlying demand is probably driven by immigrants. From data published by the Singapore Department of Statistics, growth in the resident population has been driven by the growth in the number of permanent residents (PRs).

From 2000 to last year, the number of citizens grew by 0.6 per cent annually, while that of PRs grew by 5.8 per cent. PRs have been growing at an average rate of almost 22,000 per annum, and they need a roof over their heads.

On the supply side for private residences, there will be only 5,233 completions next year, according to Annex E-2 of the URA quarterly release. Here, I have used expected completions of units under construction and ignored those that are still being planned. It is unlikely that developments which have not broken ground can be completed in 15 months.

This shortfall will push the rental vacancy rate down. I estimate that this will fall from the current 5.9 per cent to below 4.9 per cent.

The last time this happened, in early 2007, rents and capital values moved quite a fair bit. Moreover, unlike in 2006, the cushion of unsold HDB flats is probably no longer available.

Supply relief will come only in 2011, with 9,339 units expected to be completed. As for 2012, it is too early to tell, given the possibility that some developers might complete their recently launched projects early. Hence, the next 12 months appear to signal good times for the residential property market, and perhaps this is what investors and speculators have concluded too.

Speculative interest will wax and wane depending on market conditions. Speculative interest is important because it provides liquidity. It makes it easier for buyers and sellers to perform transactions. And with more transactions, the fair value of an asset is reached more quickly.

Nevertheless, if one feels uneasy about the current rally and is hesitant about investing in a property, there will be other opportunities.

In the investment world, another bus will always come along. In the near term, the United States property market is an opportunity. Investors may want to check out funds that include this bombed-out sector.

In the longer term, Singapore office properties should offer compelling value by 2011, when the oversupply drives vacancy rates up.

The writer is chief executive of financial adviser New Independent. Readers should seek independent advice before making any investment decisions.

Ghost Month Won't Spook Buyers

Source : The Sunday Times, August 23, 2009

Developers go ahead with launches, hoping buying fervour will overcome superstition

Strong buying momentum in the property market is expected to hold up a traditionally slow month of sales in August as the Hungry Ghost Month - the seventh month of the lunar calendar - kicked in last Thursday.

For non-superstitious home buyers, the good news is developers seem to be going full steam ahead with launches.

The property market typically goes into a lull during this period, which ends on Sept 18 this year, as many Chinese consider it inauspicious to make housing commitments, move house or start renovation work at this time.

But practicality often overrides superstition, especially when buyers are presented with attractive options.

Property consultant Nicholas Mak, who is also a Ngee Ann Polytechnic real estate lecturer, said developers would likely want to 'capitalise on the buying momentum and current positive sentiment' and push the projects out.

One keenly watched upcoming launch is NTUC Choice Homes' Trevista, located at the junction of Toa Payoh Lorong 2 and Lorong 3.

The developer told The Sunday Times that the launch will go ahead next weekend, and market watchers are anticipating crowds to swamp the showflat despite the Hungry Ghost festival.

This is primarily due to the popular location of the 590-unit leasehold condominium.

Mr Mak noted that it has been more than 10 years since a condominium was launched in Toa Payoh. 'I won't be surprised if there is a long queue. If it is attractively priced, buyers will bite, regardless of superstition,' he said.

Trevista's marketing agents ERA Asia-Pacific and CB Richard Ellis (CBRE) say the indicative price has not been disclosed by the developer, but Mr Mak reckons it might be priced in the $900 to $1,000 psf range, similar to city-fringe property prices.

The project of three 39-storey blocks will offer the interest absorption scheme, where buyers can postpone the bulk of payment until completion, which is expected to be late 2012.

Elsewhere, in Balestier, estate agents have started marketing special previews for freehold condominium Prestige Heights, developed by the Fragrance Group.

The 18-storey condominium will offer 154 units and is said to be priced from $1,100 psf.

The seventh month weighed heavily on August sales figures last year - only 325 private homes were sold by developers - but this was also coupled with the impact of the global financial crisis.

It is expected to have far less impact this year.

While analysts are predicting that this month is unlikely to match July's stunning figure of 2,767 private units sold, sales will still be healthy, they said.

CBRE executive director of residential Joseph Tan estimates that 1,500 units will be sold this month.

This number includes units that are sold from projects that are currently being marketed as well as new projects that will be launched over the rest of the month.

This number also takes into account that some transactions will spill into September, especially for projects that are launched this week.

The 1,500 level is healthy, considering that since market sentiment improved in March, the monthly sales from March to June ranged between 1,200 and 1,800 units, said Mr Tan.

ERA's associate director, Mr Eugene Lim, observed that the profile of buyers has been changing over the years.

'Things literally came to a standstill five to 10 years ago during the seventh month, but buyers now are younger and are less superstitious,' he said.

But Mr Mak feels the Hungry Ghost Month will still have an impact to a certain extent.

'There are some buyers who will still be reluctant to make big commitments,' he said.

One certainty, he added, is that the period is unlikely to affect prices as developers will not revise prices downwards given the current optimistic sentiment in the property market.

CBRE's Mr Tan said there will be 12 to 15 projects launched during the lunar seventh month this year, including re-launches.

'Generally, if it is a good product, at any time of the year, it will be able to sell,' he said.

1 Semi-D + 1 Cluster House = 1 Flat And $700k Loss

Source : The Straits Times, August 22, 2009

In mid-1990s, many made mistake of thinking prices would keep going up

IN 1995, Mr Zachary Tsai (not his real name) paid nearly $1.3 million for a second house. A general manager with a manufacturing company in his early 40s, he earned a five-figure salary and lived in a semi-detached house he owned in Upper East Coast with his wife and four children.

But pressured by his 'rich and successful' friends, he decided to pool his hard-earned savings of $300,000 with his sister to put down a deposit on a three-storey cluster house in Kew Gate, a 31-unit leasehold development in the Upper East Coast area.

Intending to sell it about 10 years later, and confident of being able to repay the mortgage and make a handsome profit, he took out a 90 per cent bank loan.

Any thought that he would lose his job and house prices would drop like a stone never occurred to him. But the unthinkable became an unpleasant reality.

In 2001, after his employer merged with another company, he lost his job.

He managed to cover monthly payments on the loan with the remnants of his savings, but that did not leave much for his family.

Desperate to make ends meet, he tried to sell the cluster house in which his sister and mother had been living, but for two long years was unable to do it.

Although he managed to secure a new job in 2003, his salary barely covered the monthly payments. Then the Sars crisis hit and property prices plunged further, recalls Mr Tsai, who is now an operational manager in his late 50s. He eventually disposed of the house at a bank foreclosure sale in 2003 for $680,000 - almost half of the original value and $300,000 below valuation. In total, he lost about $700,000 on the house.

The Tsais, who had to sell their semi-detached home to pay off the debt, now own and live in a five-room HDB flat - also in the Upper East Coast area - bought with Mr Tsai's Central Provident Fund savings. 'I've dreamed of owning private property again and going back to a semi-D. But next time I'm not going to think twice - I'm going to think three or four times,' Mr Tsai says.

Home owner M.K. Kung, 42, has also been hit by shrinking values.

She purchased a two-bedder at Yio Chu Kang condo Seasons Park in 1996 with her husband for about $700,000. They are still living there with their child, but she reckons the apartment is now worth only $650,000 or less.

'We have been thinking of upgrading, but it's not easy to sell something when you know you're going to make a loss on it,' says the public accounting executive.

Mr Tsai and Mrs Kung - along with thousands of others - had bought into what PropNex chief executive officer Mohamed Ismail terms 'the myth that prices would only keep going up'.

'Prior to that we had little experience of prices being crushed. Queueing up for two, three days was common, and queue spots were changing hands for $15,000 to $30,000,' he says. Some property analysts draw parallels with the upbeat market we have today, but are keen to point out differences between the last property crash and today's situation.

DTZ's head of South-east Asia research Chua Chor Hoon says: 'The market right now is reminiscent of 1996 in atmosphere with the queues, the packed showrooms and good take-up rates for popular projects.

'But the level of speculation now has not reached the feverish state seen in 1996 and it's still too early to tell whether it will turn out the same way.''

Dr Chua Yang Liang, head of Southeast Asia research at Jones Lang LaSalle, agrees: 'It seems that there is a market euphoria that is quite similar to that in 1996...but the market fundamentals are quite different.'

What may cut the danger of another crash is the fact that properties in many areas are still worth less than at the time of their launch, while others have made only relatively small gains. Prices still have a lot of catching up to do, just to make up for inflation over the years.

Recent transaction data from the Urban Redevelopment Authority website shows that suburban properties launched in 1996 lost more value over the past 13 years than those in prime districts, some of which have actually risen in value.

Prices at Seasons Park, where Mrs Kung lives, have fallen from $610-$670 per sq ft (psf) at launch to around $520 psf now. And Hougang Green units now fetch around $520 psf, down from their average launch price of $560 psf.

At Ardmore Park in Orchard, however, the 2,885 sq ft apartments, launched at an average of $1,850 psf in 1996, have been selling for $1,976-$2,513 psf since August last year.

'The average price of resale leasehold suburban properties in the second quarter of this year was about a quarter below that in the second quarter of 1996; whereas the average price of resale freehold properties in prime districts in the second quarter of this year was about 5 to 10 per cent above that in the second quarter of 1996,' Ms Chua points out.

Ms Tay Huey Ying, director for research and consultancy at Colliers International, explains: 'Prime district prices recovered in the property boom of 2007 but the mass market recovery came later and was short-lived due to the United States sub-prime mortgage crisis.'

Current launches in suburban areas, such as Optima in Tanah Merah and Centro Residences in Ang Mo Kio, have sold for about $810 psf and around $1,170 psf respectively, on average. These are record prices in their districts.

Asked whether such new launches are overvalued, Dr Chua says: 'It's hard to tell now. There are no signs pointing to a major correction...but I don't think the current rate of price increase is sustainable if it is not supported by economic growth.'

More Foreign Investors Snapping Up Homes Here

Source : The Straits Times, August 22, 2009

Buyers from the region are returning now that prices have corrected

THE number of foreign buyers in Singapore's property market shot up in the second quarter, but they are not quite the high-spending ones seen during the 2007 boom, according to property experts.

The globe-trotting high-spenders flocked to Singapore in droves then, helping to lift high-end prices even higher and setting record highs. It was not just individuals and funds - foreign developers also wanted a slice of the action.

A recent study by consultancy Jones Lang LaSalle found that foreign buyers - including permanent residents - lodged 1,662 caveats in the second quarter of this year, up from 489 caveats in the first quarter.

It was the highest quarterly sales figure since the third quarter of 2007 when 2,444 caveats were lodged.

In the second quarter of this year, the proportion of foreign buyers to Singaporeans and corporate buyers rose to 22 per cent, from 17 per cent in the last quarter.

It hit about 30 per cent during the previous boom.

Jones Lang LaSalle head of South-east Asia research, Dr Chua Yang Liang, said foreigners are beginning to return now that the worst of the financial crisis seems to be over and property prices have corrected.

'The price correction following the Lehman collapse last year has brought average resale values of non-landed prime properties in Singapore down 31 per cent from the peak. As long as prices remain stable and do not increase too drastically, foreign buying interests can be expected to continue,' said Dr Chua.

More foreigners bought higher-priced properties of between $1.5 million and $5million from April to June, compared with the first quarter, when most foreign buyers bought homes in the $500,000 to $1 million bracket.

But there was only a moderate rise in the number of those who bought homes priced at $5 million or more.

The largest group of foreign buyers here is still the Malaysians but Singapore also draws buyers from Indonesia and, in recent years, from China and India.

'We are seeing more foreign buyers from around the region, but not so much yet from the rest of the world,' noted Savills Residential director Phylicia Ang.

Market experts say more will come once there are clearer signs of recovery.

More Homes In The Pipeline

Source : The Straits Times, August 22, 2009

More than 40,000 units are due to come onto the market over the next few years

PROPERTY supply is not a problem, according to National Development Minister Mah Bow Tan. He believes that there are plenty of homes in the supply pipeline for Singaporeans, pointing out at a recent event that more than 40,000 units are due to come onto the market over the next three or four years.

The latest market data certainly supports his view. Figures from Savills Research and Consultancy point to a healthy stream of launches.

It says 5,753 units will become available in the second half of this year and 5,576 units next year. In 2011, 13,418 will be launched; 13,751 in 2012; and 11,058 in 2013.

Of those becoming available between this year and 2012, the bulk - 52 per cent - will be in prime districts 9, 10, 11 and 15, which analysts suggest is a direct consequence of the en bloc buying sprees in these districts in 2005 and 2006.

The rest will largely come from city-fringe developments at Sentosa and the new Marina Bay.


OF THE 5,753 units becoming available in the second half of the year, most are mid-tier and mass-market units. They number 2,292 and 2,083 respectively.

These include 556 units in Casa Merah at Tanah Merah, 610 units in The Centris at Boon Lay and 338 units in Carabelle on the west coast.

But more than 90 per cent - 5,284 units - have already been sold, so Savills anticipates no oversupply situation this year.


ANALYSTS have mixed views about the supply situation next year.

The 5,576 units available next year will be concentrated in prime areas, with 3,304 units up for grabs.

They include 428 units at Marina Bay Residences and 231 units at The Trillium along Kim Seng Road. Savills estimates about 75 per cent of the uncompleted units have been sold, leaving little room for oversupply.

Instead, the concern is insufficient supply given the drastic fall in supply numbers.

In the first quarter of last year, 17,545 units were projected for completion in 2010. The number tumbled to 8,538 in last year's third quarter and continued downwards to 5,394 from the second quarter of this year, according to the Urban Redevelopment Authority.

But Ms Tay Huey Ying, director for research and advisory at Colliers International, feels the supply trend is in line with expected economic conditions, making a supply shortage an unlikely scenario.

'While the worst may be over for Singapore's economy, growth will remain slow for a few more quarters. Moreover, the major economies of the United States and European Union remain weak,' she says.

'Hence, Singapore's expatriate population is largely expected to see only moderate growth in 2010.'

DTZ senior director and head of Southeast Asia research, Ms Chua Chor Hoon, adds that with the economy apparently on the mend, rent declines will begin to moderate and could bottom out in the first half of next year.


2011 will bring an explosion in supply, particularly in the prime districts.

Some 13,418 units are slated to be completed during the year, Savills figures indicate.

About half, or 6,512 units, will be situated in the prime districts and 4,224 in the mid-tier districts.

Among the developments in the prime districts, Martin Place Residences in River Valley, for example, will offer 302 units. Scotts Square in Orchard will have 338 units and One Shenton in the Central Business District another 341 units.

About half of the 13,418 units have been sold, while the remainder are unsold or have yet to be launched.

The demand for uncompleted units between 2000 and 2008 has hovered at an average of 7,230 units per year.

With a high of almost twice this number becoming available in 2011, market watchers fear oversupply.

But some factors may help mitigate this.

Developers are likely to pace construction and launches in line with market needs; the Government's move to suspend the sale of confirmed sites helps sustain demand; and, if the economy returns to growth in 2011, accompanying growth in the expatriate population will support demand for new homes.

One upside to any glut - if you are a tenant - is that new supply will keep rental increases down, says DTZ's Ms Chua.


THE 13,751 units to be completed in 2012 will further boost supply.

Some 6,414 units will be located in the prime districts and 4,774 from the mid-tier market. The rest will be for the mass market.

Mid-tier offerings include Soleil at Sinaran in Novena with 417 units, Rosewood Suites in Woodlands with 200 units, and The Arte@Thomson with 336 units.

Of these, 30 per cent of units planned and under construction have been sold.

These numbers are, however, subject to change with developers adjusting project timings to market conditions, says Ms Chua.

And Collier's Ms Tay thinks a return of collective sale market fever could be a factor that moderates the net new supply coming on stream in 2011 and 2012.


HOW the supply situation in 2013 will pan out is too far ahead to determine right now.

Homes Near MRT Stations On Right Track

Source : The Straits Times, August 22, 2009

They are easier to rent out; fetch higher prices

TWO property developers were recently in the spotlight for including unconfirmed locations of future MRT stations in their condominium advertisements.

The incident clearly highlighted the popularity of housing developments located near MRT stations.

UOL Developments' recent advertisement for Meadows@Pierce, a condominium project in Upper Thomson Road, had a map showing sites of stations on the future Thomson Line. The line's alignment and its stations have yet to be confirmed. -- PHOTO: MEADOWS@PIERCE

Property agents say the benefits of such a location are myriad, though buyers can expect to pay significantly more for such properties.

'Singapore has a very comprehensive MRT network which is constantly being expanded, and being near an MRT station will reduce travelling time,' said Mr Eugene Lim, associate director of ERA Asia Pacific. He added that this is a key factor in the attractiveness of such properties to owner-occupiers and tenants.

Property agents The Straits Times spoke to said that buyers can expect to pay a premium of $10,000 to $15,000, or 5 to 15 per cent of the purchase price, for HDB flats located near MRT stations. For private properties, this premium ranges from $20,000 to $50,000.

This is a premium based not just on convenience; there are several other long-term benefits that come with a location near an MRT station.

'Flats near MRT stations are definitely easier to rent out,' said Mr Adam Tan, spokesman for property firm Propnex. Non-Singaporeans working here make up more than 50 per cent of the rental market, and to them, 'public transport is key' as they are unlikely to want to purchase a car, he noted.

'For young expat foreigners with no kids, good schools mean nothing. In contrast, the MRT will link them to work and wherever they need to go,' he added.

The resale value of properties located close to MRT stations is also higher. Coupled with the fact that a number of MRT stations are located in the heart of town centres, it is no surprise that properties close to these stations are more popular and command higher premiums.

'Other amenities such as shopping malls and offices near the MRT station will definitely drive up demand and price,' said Mr Tan.

For a property to be considered near an MRT station, it should be within walking distance of five to eight minutes, or within a 0.5km to 1km radius around the station.

A few additional minutes spent walking make a big difference in price. Property agents say that a property located five minutes away from an MRT station will command a selling price 10 per cent above one that is located 15 minutes away. This premium rises to 15 per cent compared to a property 25 minutes away.

ERA's Mr Lim noted that a flat within five to eight minutes' walk of Tampines Central, now home not just to Tampines MRT station but also three shopping malls and a number of offices, would easily have a resale value of about $20,000 more than a flat of the same age located in a more inaccessible part of the estate.

In addition to the perks that come with convenience, purchasing a property close to an MRT station is a sound investment decision.

Mr Tan cited Astoria Park, near Kembangan MRT station, as an example of a property whose value is likely to appreciate significantly. Units there sold for about $630 per sq foot about six months ago, and are now selling for about $750 psf. Mr Tan said prices of similar developments close to MRT stations should appreciate by 20 to 30 per cent over the next 10 years.

All the agents The Straits Times spoke to agreed that there will always be a demand for properties located close to MRT stations, regardless of market conditions.

But while proximity to MRT stations is a perk, it is possible to be too close. One property agent said that residents of some units in The Jade, a condo development situated right next to Bukit Batok MRT station, have to put up with beeping noises from the station and the roar of trains passing by.

'You definitely should not be getting a place right next to an MRT station if you want total peace and quiet,' said Mr Tan.

7 Types Of Buyers In The Market

Source : The Straits Times, August 22, 2009


These are the people who buy property with a view to flipping it to make a quick profit.

They have no intention of actually living in their property. As long as they can make money from the property, its design or layout is of little importance.

Some speculators have even bought units without bothering to step into the showflats, while others have sold homes only hours after buying them.

This is the group you can count on for the queues, blank cheques and recession-defying rise in prices.

They can continue playing the market as long as their actions do not get out of control.


Coined in recent years, this term refers to those who buy to flip but can afford to hold on to their investment if necessary.

Property consultants use it to differentiate a new group of speculators with financial muscle from those who were active during the boom - or rather bubble - of 1996.


Investors buy property with a long-term view. They intend to either rent it out to earn a regular monthly income, or sell it at the best time for capital appreciation.

Seasoned investors are likely to do their own research and consider more carefully than speculators the attributes of the property.


Such buyers are typically first-time investors. They do not mind staying in their property if they have problems selling or renting it out.

They may be risk-averse or have a marginal interest in investing, but nonetheless want to benefit from any rise in values.


Perhaps the pickiest of buyers, they are looking for a home to live in.

Timing is less of an issue for this group of buyers, given that their needs come first. They can take forever to find the right property.

During times of uncertainty, when investors prefer to stay on the sidelines, this is a group well-loved by sellers.

They are happy to sell in a rising market, even though they will usually have to buy a replacement property.


There are two groups of such buyers. One is made up largely of buyers from Malaysia and Indonesia who have long bought into the Singapore market.

They usually have family, friends or businesses here.

The other is made up largely of high-spending foreigners who were only recently attracted to Singapore because of its growth.

Although there is not much evidence at the present time, the second group of foreigners buys a property here for investment purposes, to speculate or as a second or third home.

These foreigners bought up a lot of the ultra-posh homes during the 2007 boom and were responsible for the previous high-end boom.

Obviously, property developers - particularly those with swanky projects in the pipeline - can't wait to welcome them back to Singapore.


There are as many as 30,000 agents in Singapore today. Although their job is to serve the types of buyers mentioned above, some of them cannot resist a good buy when they see one.

'It is not surprising that some agents invest as the agents are in the position to sniff out the best buys,' says ERA Asia-Pacific associate director Eugene Lim.

They get the first bite of the cherry at new launches - although not necessarily at a better price.

7 Signs Of The Property Craze

Source : The Straits Times, August 22, 2009


Far East Organization launched its Centro Residences in the heart of suburban HDB town Ang Mo Kio at prices starting from $1,100 per sq ft (psf). Deals done last month were at $1,117 psf to $1,228 psf.

According to property experts, such prices are more typical of city-fringe or prime projects and set a record for suburban leasehold homes.

In the mid-1990s boom, Far East set a leasehold record with its Bishan 8 project selling for up to $1,100 psf.

At a number of recent launches, above-market prices were also seen. For example, Ascentia Sky in the Alexandra Road area sold for $1,064 psf to as much as $1,459 psf.

Next door, The Metropolitan - launched at $780 psf on average in late 2006 - recently traded at around $900 psf to $1,200 psf.

In Tanah Merah, the 99-year leasehold Optima went for $810 psf on average. Right behind it is Casa Merah, which was first released in April 2007 at an average price of $588 psf.


A look at the number of pairs of shoes outside a showflat tells you immediately how packed the place is. Showflats are usually 'no shoes' zones.

Some of the recent new launches have attracted scores of visitors, who leave countless pairs of shoes outside the showflats.

They include yuppies, couples looking to settle down, extended families with grandparents in tow as well as speculators or investors.


Queues at newly launched condominiums were common during the booms of 1996 and 2007, with people waiting for hours to secure a unit. They disappeared last year after the world went into a recessionary tailspin.

But now they are back. A queue of more than 40 people was reported outside the Optima showflat days before it opened late last month.


At recent launches such as Optima, Meadows@Peirce, The Gale and 8@Woodleigh, buyers have been willing to hand over blank cheques in a bid to secure a favourable unit.

The cheques - for the booking fee of typically 5 per cent - are given to agents even before the final pricing is released. One property agent said that offering blank cheques was a way for buyers to show their sincerity - never mind that the price list is not out and the showflat has yet to open.


Close to midnight on a Friday, buyers and onlookers at the 297-unit Optima showflat in Tanah Merah cheered each successful buyer when the balloting results were announced. For every person who managed to commit to a big-ticket unit at a premium to the market, four others went away disappointed.

Developer TID chose to sell via balloting when buyers again started queueing a day before the public preview.

A spokesman for TID said that balloting was more transparent and the crowd could be dispersed faster. It also stopped people from trying tactics like selling their places in the queue, he said.

At the 152-unit One Devonshire in Devonshire Road, demand from buyers was so strong that a last-minute ballot was held.


A look at the classified advertisements on property pages will tell you that the flippers are back.

They have been placing advertisements for just- launched or sold-out projects, hoping to make a quick buck. Ads for Optima units surfaced only days after the housing project was sold out.

Sellers and agents are still placing ads for projects popular with investors, including The Metropolitan.

At new launches, property agents are appealing to potential buyers' kiasu mentality, or the fear of missing the boat, and urging them to act now before prices rise.


Never mind that pay cuts are still in place at some firms or that retrenchment continues at others. You never miss a good opportunity to buy when you are presented with one.

Certainly, Singaporeans have been out in droves whenever projects deemed affordable come on the market.

Back in February when sentiment was poor, the 293-unit Alexis in Alexandra Road was launched at $850 psf to $1,100 psf and, within days, it was sold out.

Other new launches that quickly sold out in recent months include 8@Woodleigh in Potong Pasir, Illuminaire on Devonshire Road and Optima in Tanah Merah.

Boom Or Bubble?

Source : The Straits Times, August 22, 2009

Property prices appear to be on the rise again, but is the rebound sustainable?

ON A Monday night in the last week of July, commuters taking the train home to the eastern part of Singapore may have witnessed a small commotion at the Tanah Merah MRT station.

It was about 10pm, and a group of about 40 people who had formed a queue beside the station since late afternoon was being told to go home.

Apparently, they were queuing to be first in line when a new condominium - Optima@Tanah Merah - opened its doors for bookings. Except that it was not being launched the morning after, but on Friday morning. They were prepared to stand in line for three whole days to get first dibs.

Representatives from the developer TID, a tie-up between Hong Leong Group and Japan's Mitsui Fudosan, implored the crowd to go home.

'The queue will not be recognised. We will not sell anything until Friday morning,' they said.

The crowd dispersed. But their desperation quickly became the talk of the town, and the clearest symbol yet of how unexpectedly hot the local property market has become.

Elsewhere around the world, many property markets are locked into a downward spiral. But the story is startlingly different in Singapore.

Last month, developers like TID sold a whopping 2,767 units of new private homes, smashing the record of 1,825 units set only in June.

These are numbers that have never been seen in Singapore - not even during the stratospheric heights of the 2007 property boom. In just two months this year, developers have sold 328 more homes than in the whole of last year.

In the midst of this buying frenzy, developers have begun raising their prices. Some have even dared to launch new units at record-high per sq ft (psf) prices.

Indeed, the classic signs of a boom are in place: weekend crowds at showflats, blank cheques handed to agents to secure prime units, and flyers flooding the mailbox of every home.

But this boom is different from the last one because of one very important reason: The 2006-07 boom coincided with a period of rapid economic expansion. Today, house prices are rising in the wake of Singapore's deepest-ever recession, and at a time when the entire global economy is only just starting to recover from the shock of a financial crisis.

This has sparked a debate over whether the property boom is hopelessly out of sync with economic fundamentals.

The Government seems worried, and National Development Minister Mah Bow Tan has already suggested that an element of speculation may be involved in the current boom.

Politically, market watchers say the stakes are higher this time around for the Government, because it is the more accessible suburban projects rather than the posh condominiums that are breaking the records.

With the prospect of ordinary folk potentially getting burnt in a price crash, the million-dollar question is whether the current rebound in the market is a genuine recovery.

Or is it just another unsustainable bubble pumped up by hype?

The answer varies, depending on whom you talk to, of course.

Veteran property developer Kwek Leng Beng, chairman of real estate giant City Developments, thinks the market is not getting too frothy.

'It should not be viewed as over-exuberant or extraordinary, bearing in mind that developers had put on hold many of their launches in 2008,' he said at a recent press conference.

In other words, people could have wanted to buy new homes last year, but there was no supply in view of 2008's lacklustre conditions.

Now that there are more launches in 2009, this pent-up demand for homes is being satisfied all at once, accounting partly for the record sales volume in recent months.

Prices are not unreasonably high, Mr Kwek added, noting that the low- and mid-tier markets have yet to recover since their peaks in 1996.

CBRE Research data shows that me-dian prices of new non-landed homes reached $690 psf in the second quarter, compared with $749 psf at the 1996 peak, though the level surged to $800 psf last month.

Analysts also say that the demand is real, driven by buyers awash with liquidity.

People still have money saved from the bonuses of the boom years, and some may have profited from the stock market rally in April and May.

But investment options are few and far between, with savings interest rates near zero and the stock market now losing some steam.

'After the Lehman Brothers structured products failure, property is also increasingly viewed as a safe investment alternative as its value will not drop to zero,' says Ms Chua Chor Hoon, head of South-east Asia research at property consultancy DTZ.

At the same time, labour market resilience is helping. The job market gloom and doom prevalent at the start of the year has been replaced by guarded optimism as government stimulus spending has halted a large upswing in the number of jobless people.

'No matter how much cash you have, if you think you're going to lose your job in the next six months, you're not going to invest in property,' says Citigroup economist Kit Wei Zheng.

But with the economy looking up and the spectre of job losses fading, many feel there is no better time than now or place to park their money than in bricks and mortar.

After all, some see a bet on the property market as a bet on the long-term growth of Singapore as a global city.

Mr Leong Sze Hian, president of the Society of Financial Service Professionals, points out that 79,000 permanent residents and 21,000 citizens were added to the population last year.

And more will be added in the future as Singapore heads towards its target population of 6.5 million.

The buzz generated by the completion of the integrated resorts could hasten foreigner arrivals, say optimists.

Finally, some analysts note that this buying power in the market is being supported by younger home buyers who are coming up against a tight supply of Housing Board flats. This has the effect of hiking HDB prices and narrowing the price gap between public and private homes.

With home loan rates also near historic lows, cheap funding is another key factor driving the demand - combining with the other factors to make private property a very attractive and affordable proposition.

It is primarily because of these factors that most experts agree there is some real demand that justifies the higher prices and sales volumes in the market.

They say the current market should be seen against the backdrop of a market that was stuck in the doldrums only four or five months ago.

With buyers reluctant to commit, some developers had to slash prices by as much as 30 to 35 per cent early this year to generate interest in their projects.

Still, despite the resale and sub-sale markets moving ahead, experts say there remain a lot more over-optimistic sellers than there are buyers.

A collective sale frenzy, like the one that gripped the property market in 2006 and 2007, is also nowhere in sight.

'What we are seeing is recovery phase activity,' says Associate Professor Sing Tien Foo from the National University of Singapore's real estate department. 'It takes a while for a bubble to build up.'

DTZ's Ms Chua notes: 'A bubble means that prices are rising way too fast relative to GDP (gross domestic product) growth. So far, we have seen only one quarter of rising prices in the property market.'

But while many experts don't see a bubble yet, it doesn't mean that one won't form, and what happens next will be very important.

Property consultant Nicholas Mak expects home prices to reach a plateau, with the lows seen earlier this year unlikely to be repeated.

'Right now, prices may continue to run for a few months before stabilising. Ultimately, the market has to return to market fundamentals,' he says.

The problem is that prices may not take that rational trajectory if buyers get carried away. Property consultants and developers have warned that demand is coming from those who missed out on the 2007 high-end boom.

Eyebrows have already been raised at the sort of prices buyers have been willing to pay for suburban properties.

Units at Centro Residences, which is next to Ang Mo Kio MRT station, sold for between $1,117 psf and $1,228 psf last month, a record for suburban homes in Singapore.

'When there is fear or belief that prices are going to keep rising, and many speculators jump in in the hope of making capital gains over the next few years, prices could be driven up beyond fundamental levels like in 1996 and 2000,' says Ms Chua.

'The future's a sure bet but what's happening right now is beyond our wildest dreams. No one would have predicted the July sales figure,' says Cushman & Wakefield managing director Donald Han.

'We've seen price increases of 15 per cent on average since April. It seems too short, too fast a time... At some stage, prices should stabilise.'

One property expert, who declines to be named, thinks that for this to happen, buyers must do a serious reality check: 'Every round of recovery, we see people getting carried away by the herd instinct. There's a total disconnect with reality. It's momentary madness.'

That is why economists and analysts recommend that home buyers sober up by reminding themselves of some hard economic truths before signing on the dotted line.

One such truth is that how the economy fares over the coming months will be a key indicator of the future of property prices. And on that, the jury is still out.

Although the economy surged 20.7 per cent between April and June compared to the first quarter, Trade and Industry Minister Lim Hng Kiang says it is too early to cheer.

Key markets like the United States and Europe have pulled out of recession but growth is likely to be anaemic for the next few years.

CIMB-GK economist Song Seng Wun says: 'The global slowdown does seem to have stabilised, but a recovery could still be far away.

'And while Asian growth may be holding steady, it may not be as strong as we are used to, as developed economies are not seeing the strong recovery.'

HSR Property Group executive director Eric Cheng points to another cold, hard truth: ample property supply.

There are still 62,350 uncompleted homes in the pipeline, according to Urban Redevelopment Authority data. Slightly less than half have been sold.

In particular, major developers are still holding back their large luxury launches because the foreign funds and investors who bought into the posh homes in districts 9, 10 and 11 have not returned in significant numbers.

'The key is whether the price growth at this recovery stage can be sustained. It remains unclear who will pick up the prime homes,' says Prof Sing.

Many buyers also seem to have ignored the fact that residential rents are still falling.

'But Singapore has never been a yield-driven market like mature markets like Australia and the UK,' concedes Credo Real Estate managing director Karamjit Singh. 'The two key drivers here are owner-occupier demand and sentiment.'

Looking ahead, property commentators forecast a variety of outcomes for the months to come - from another slump to continued buoyancy.

Credo's Mr Singh is looking at the recovery lasting up to 12 months before prices start to moderate as more launch-ready projects come onstream.

More bearish analysts like RBS' Fera Wirawan say a mass market bubble has already formed. In an Aug 13 report, she predicted that the bubble will burst, sending residential prices plummeting by 10 to 20 per cent over the next 12 months.

Then, there is the wild card factor of the Government.

'If queues continue to form and people continue to flip, then we may see some (government) intervention,' says Mr Song.

Property experts say this could mean the re-introduction of outright land sales to boost supply, or the abolishment of the interest absorption scheme that allows buyers to defer paying the bulk of the purchase price until the development is completed.

But they also believe the Government will exercise extreme caution. Mr Song believes policymakers won't want to prick the bubble too early as that may deflate the economy.

But he adds: 'But if you let it simmer and build up, it will also be troublesome when it bursts.'

One expert, who does not wish to be identified, warns that if a crash were to come, 'it may take us all by surprise', just as the recovery did.

The best thing to do, advises Mr Song, is to exercise the same type of 'extreme caution' over the coming 12 months.

He says: 'My take is that this recovery's not going to be simple. Global growth is not going to rebound to the previous pace. We can show a couple of quarters of sharp rebound, but it is likely to slow after that...

'Any bubble could well deflate on its own.'

Homes More Affordable As Incomes Rise

Source : The Straits Times, August 22, 2009

Relatively cheaper than in 1996 boom year, data from two reports say

PRIVATE home prices may be on the rise again but new data suggest home buyers swept up in the latest frenzy are not necessarily overstretching themselves.

Buyers are finding condominiums far more affordable relative to their income now than they did during the mass market property boom of 1996, thanks to strong wealth creation in recent years.

This is the conclusion of separate new figures from financial giant Citigroup and property consultancy Jones Lang LaSalle.

Citigroup economist Kit Wei Zheng said: 'Today, the average condominium is probably selling for around 19 times the annual income of the average Singaporean. While this is by no means cheap, it is still significantly lower than the peak of over 40 times in 1996, and around 24 times in 2007, though obviously higher than the lows of around 15 times from 2003-2006.'

Mr Kit's study looked at absolute prices rather than the price per square foot.

His measure of affordability does not take account of a couple of factors boosting affordability in the current market.

First, the average condo buyer earns a higher-than-average wage, and is likely to have enjoyed faster wages growth.

Second, interest rates are far lower now than in 1996 and 2007. Analysts say this is helping to fuel demand.

Also, Mr Kit's study uses average income, which could be significantly higher than the median - or midpoint - given the widening gap between rich and poor.

As well, he uses the average selling price of condos, which also could be higher than the median as the former is pulled up by the sale of expensive prime units, especially in recent years.

Jones Lang LaSalle compiles an affordability index looking mainly at the interaction between economic growth rates, housing prices and mortgage rates.

Its index has been falling since 2007.

It now shows private mass market homes are more affordable to first-time home buyers and HDB upgraders than in 2007 or 1996, said the firm's head of research for South-east Asia, Dr Chua Yang Liang.

For HDB upgraders, affordability has improved a lot more than for first-time home buyers because HDB prices have risen substantially, he said.

Overall, strong wealth creation in recent years has also helped. Total economic output, or gross domestic product (GDP), per capita was $50,022 last year - exceeding the 15-year average of $40,866 by 22 per cent, said Dr Chua. Private apartment or condo prices have surpassed the 15-year average by just 16 per cent, he said.

The Urban Redevelopment Authority price index - designed to give a broad indication of price trends for private homes - fell 4.7 per cent in the second quarter.

A URA spokesman said prices for both uncompleted and completed projects still fell over the quarter even though some developers are raising prices for selected projects with good take-up.

Still, consultancies say home prices rose in the second quarter from the first.

Property consultant Nicholas Mak said more suburban condos are being launched at higher prices than in 1996.

However, 'at the moment, prices in most projects are still within fundamental levels, even though many people have their pay frozen or cut and rents have fallen', said DTZ's head of South-east Asia research, Ms Chua Chor Hoon.

'This is because income and rents had risen in the last few years when the economy was doing well; hence there was fat to cushion this current downturn.'

Mr Kit said: 'Put another way, in nine out of the past 11 years, growth in wages has outpaced growth in property prices.'

Households also have far less debt than five or six years ago, with the household debt to GDP ratio falling from over 96 per cent in 2003, to about 70 per cent today.

These factors, combined with a resilient labour market, helped lift demand.

Also, many projects now have smaller units. 'The new projects may look very affordable if you consider the absolute amount paid but you're buying a smaller apartment,' said Mr Mak.

The future, though, is hazy.

Many analysts think price growth is unlikely to be sustainable if the economic recovery is slow and incomes do not keep pace.

'You can identify a bubble only retrospectively but I think we can't deny that one could be forming as the recent uplift in home prices and volume is not accompanied by a broad-based economic recovery,' said Dr Chua.

Mr Kit said: 'The uncertainty lies in whether the current demand will be sufficiently sustained to absorb the substantial pipeline of new supply coming onstream, especially if interest rates rise, or when prices become substantially less affordable to the average home buyer.'