KL, Penang Markets Looking Good

Source : The Business Times, July 9, 2009

Many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire

ALWAYS a favourite, landed real estate is receiving more interest in the current property lull. According to property agents, there has been a slight pick-up in the past two months, mainly in primary sales and landed properties located in popular suburbs. Zerin Properties' chief executive Previn Singhe described April and May as 'surprising months with very strong interest in landed properties', centred mainly in the Klang Valley as prospective purchasers act on the premise that prices are unlikely to slip because of the limited supply.

Idyllic: Nusajaya's jewel is Puteri Harbour with its integrated waterfront and marina development

In some places, demand continues to outstrip supply, he said, citing Bangsar, Bukit Damansara, Damansara Heights, Taman Tun Dr Ismail, Seputeh, Taman Desa and Jalan Ipoh where prices - which had held steady - have started to inch up as investors turn to property as a hedge against inflation.

'If you want to buy for owner occupation, any time is a good time. If it's for investment, you need to be looking now,' advised CH Williams Talhar & Wong managing director Goh Tian Sui.

Mr Singhe lists those on the property hunt: the first timers attracted by low interest rates; investors in the 30-55 age group who are acquiring for their children; professional investors looking at Kuala Lumpur landed real estate for capital appreciation or condominiums for rental yields; and non-resident Malaysians.

There are also foreigners who have started to look at condos in the Kuala Lumpur City Centre and Mont Kiara areas since the price of some units have dropped by 20 per cent. Location-wise, Penang is another hot-spot, popular with Penangites and other northerners, as well as KL-ites looking to retire there.

Across the South China Sea, Kota Kinabalu real estate has received a boost from the oil and gas boom, as well as tourism which has led to numerous Koreans and Europeans succumbing to its charms, Mr Singhe said.










In the south of the peninsula, Johor's Iskandar Malaysia remains a major point of interest. Central to Iskandar is the Nusajaya area with its strategic location across the Straits of Johor. Nusajaya's jewel is the 687-acre Puteri Harbour with its planned integrated waterfront and marina development.

The precinct is to be gradually developed and because of its geography, has attracted the attention of a number of foreign builders which are keen to be involved. One of them is Limitless Holdings, a unit of Dubai World, which plans to jointly develop luxury residences with Nusajaya's master developer, UEM Land.

Another planned joint venture between UEM Land and the Middle East's Damac Properties was scrapped recently after Damac - which was to buy 43.5 acres in the enclave for nearly RM400 million (S$164.9 million) - did not fulfil conditions for the sale to proceed.

Still, most believe Puteri Harbour's location, quality of build, management, and security will prove a big attraction to investors - especially foreign ones - just as they have in places slightly further afield such as Leisure Farm, Horizon Hills and Ledang East in Nusajaya.

Mr Singhe is of the view that the better quality products in Iskandar have allowed Johoreans to 'upgrade'. Indeed, many property consultants believe branded developments or designer buildings are what discerning investors increasingly desire and could make a difference in a project's 'sell-ability'.

KGV-Lambert (M) executive director Samuel Tan agrees that the higher-end developments in Iskandar have drawn the most interest in Johor. The rest of the market has been softer.

'People think that Nusajaya is Iskandar Malaysia,' he observed wryly, pointing out that it is only a fraction of the special economic zone which is three times the size of Singapore. He highlighted new developments in brownfield areas as well as mature ones in the Tebrau Corridor, Skudai and Pasir Gudang which have been under-promoted but which might be worth a second look. 'There are more opportunities in the secondary market because the primary market development costs have gone up.'

For those considering the lower- to mid-range of the market, bad debts have created a 'sub-market' of auctioned properties in Johor, he revealed, with auctions held weekly. Each auction offers 20-50 properties and they go for about 30 per cent less than their market value.

Despite the global financial crisis, Iskandar investors remain committed, the biggest to date being Middle Eastern firms which plan to develop the area called Medini, located near the Second Link.

Still, property developers caution that the pace of construction could be slowed. On the bright side, the state government has already moved into the new administrative buildings in Kota Iskandar, and overall infrastructure works are continuing.

Mr Singhe believes the 2003-04 pattern of funds sniffing for deals which resulted in a property boom in 2006-07 is being repeated now based on the number of funds that are making inquiries. Accordingly, he expects a property upswing to materialise in 2011-12.

The Quill Group of Companies, which designs and constructs purpose-built offices, confirms growing interest in Malaysia. Its property director, Ng Chee Kheong, said that multinationals were showing keen interest in the area of shared services, particularly in the Klang Valley and Penang.

Of late, Malaysia has started to speed up its liberalisation of many sectors of the economy to attract more investments. Should it succeed, the expatriate market ought to increase which would in turn stimulate demand for rented properties and help arrest some of the decline in yields.

Because of the downturn, a number of developments had been put on hold, including one by Singapore's Kwek Leng Beng who was to have launched a 42-storey luxury condominium last year in the Kuala Lumpur golden triangle.

A prospective buyer expressed disappointment at the delay as he had been looking forward to purchasing a unit in the Carlos Ott-designed building which is to be constructed next to the tycoon's Millennium Hotel.

Kuala Lumpur high-end condo prices have dipped to an average of RM1,000 per sq ft although the more prestigious ones still command a premium. Because of the weak ringgit, prices remain very affordable, especially for foreigners.

Ferrari team's ex-boss Jean Todt, who is engaged to well-known actress Michelle Yeoh, recently revealed he had acquired a unit in OneKL, which sits opposite the iconic Petronas Twin Towers.

Making Sense Of Housing Loans

Source : The Business Times, July 9, 2009

Can't tell your Sibors from your SORs? Get a quick primer here

SENTIMENT seems to have made a 180-degree turn in the property market in recent months with buyers coming out in force as the economic outlook stabilises. Sellers have been known to up asking prices by 10 per cent or more. Some home buyers who were taking a wait and see attitude a few months ago rushed in to buy properties.

Taking the plunge: Before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35% of your gross income

But before you join the rush, remember that buying a property is a long-term commitment. Make sure you can comfortably service your mortgage by capping your debt-service ratio at 35 per cent of your gross income. On top of that you should set aside enough funds to service at least six months of your housing loan instalments. This would provide some buffer should you suffer a pay cut or job loss.

Home buyers might also want to take note that supply of homes should be ample, going forward. Between 2009 and 2013, a total of 55,838 condo units are expected to be completed, according to numbers from the Urban Redevelopment Authority (URA). The supply more than meets the average demand of about 8,000 units a year.















Some developers are offering an interest absorption scheme (IAS), where the developer helps the buyer pay the interest on the housing loan while the property is under construction. Of course, such a scheme typically raises the sale price by 2 to 5 per cent, so there really is no free lunch.

Also, note that housing loan packages tied to the IAS generally charge higher interest rates. The difference can be 0.5 per cent or more. And because the IAS is offered by a single bank, taking it means losing the freedom to shop around for the best loan package. So you could forgo savings in interest of several thousand dollars.

Under the IAS, only the interest is paid while the principal outstanding is not reduced. Thus, when your property is completed, your housing loan outstanding will be higher than that of someone who has been making progressive payments.

Lastly, should the developer get into financial difficulties, the buyer is still liable to the bank for the interest on the housing loan.

Short loan tenor vs long loan tenor

Some people choose to pay off their housing loan as quickly as possible to save on interest payments. On the other hand, there are people who want to stretch the loan repayment period to the maximum so they have smaller monthly cash outflows.

Instead of going to either extreme, you could consider matching the loan tenor to your intended retirement age. For instance, if you're 40, you can take up a 20-year loan that will be paid off by the time you retire at 60.

Interest rate outlook

Sibor or the Singapore Interbank Offered Rate is the average interest rate at which banks lend or borrow local dollars from one another in Singapore. The two main factors that affect Sibor are the United States Federal Reserve rate and liquidity, or availability of funds, in the local banking sector.

The US Federal Reserve has maintained interest rates at 0.25 per cent, a historical low. Sibor has stayed slightly below 0.7 per cent in the past six months and is likely to remain there as long as US interest rates are low and liquidity here is ample.

If you want certainty of interest rates for the next few years, then go for a fixed-rate housing loan, which can be as low as 1.5 per cent for the first year.

So what is the difference between Sibor and SOR? The latter stands for the Swap Offer Rate, which comprises the Singapore Interbank Offer Rate plus market reserve costs. It represents the average cost of funds used by banks in Singapore for commercial lending.

Swap also accounts for the exchange rate of the US$ vs S$. Thus, SOR tends to be more volatile than Sibor. If you want lower volatility, go for a loan pegged to Sibor rather than SOR.

Should you aim to be debt free as soon as possible?

Most personal finance books recommend that you should aim to be debt free as soon as possible. In my opinion, as long as you have not overborrowed, you can plan to pay off your housing loan by the time you retire.

If you think about it, a housing loan is the cheapest loan on the market. In Singapore, the interest rate on a housing loan is currently about 2 per cent, while a car loan is about 4 per cent, a renovation loan 7 per cent and a credit card 24 per cent!

So it is difficult for people to fail to beat housing loan interest rates. Why? Imagine that you know nothing about investing. Just putting money into endowment savings plans gives you annual returns of about 4 per cent over a 20-year period.

Say a person has a $200,000 housing loan to be repaid over 20 years. Assuming an interest rate of 4.5 per cent on the loan, the total interest paid over 20 years is only $105,515.

If he has $200,000 in cash or CPF savings and uses this money to earn a yield of 3.5 per cent, in 20 years, he would have earned $168,453!

Most people forget that interest on a housing loan is calculated on a reducing balance basis while savings compound (interest is added on interest).

Thus, you can get ahead financially if you focus on making your cash or CPF funds work harder for you than by trying to pay off your housing loan as soon as possible.

To get an unbiased view of the housing loan packages offered by banks, you can talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.

Typically, the service offered by a mortgage broker is free as they are paid separately by the banks.

Dennis Ng is a certified financial planner with 16 years of bank lending experience. He founded mortgage consultancy http://www.HousingLoanSG.com in 2003

Tips For Investing In Property

Source : The Business Times, July 9, 2009

Evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that

REAL estate is among the world's safest investments in that it cannot be lost, stolen or carried away. If managed with reasonable care, its value can be maintained or even enhanced. In Singapore, a property cycle typically lasts four to seven years.




























As such, a property investor should have a similar investment horizon to ride out any market vagaries so as to best enjoy rental and capital appreciation over time. Empirical evidence has shown that the longer the investment horizon, the greater the likelihood of making a profit, and higher profits at that.

For example, a unit at Ardmore Park which was bought for $4.4 million in 2005 was sold in May this year for $6.2 million, representing a healthy profit of about 40 per cent. This has yet to take into account rental income that may have been earned over the period.

Rental yields are an attractive enticement for property investors, giving them a steady stream of cashflow in good times and bad. Typically, gross residential rental yields stand at 3-5 per cent, depending on the location, project and tenure of the property.

Investors seeking rental yields should note that while residential yields have improved markedly since property prices declined from their peak in mid-2008, rents are now correcting, and are likely to continue their slide till year's end at least.

There was a recent spike in rental yields, which is due to rents falling at a slower rate than prices. According to Q1 2009 data released by the Urban Redevelopment Authority (URA), property prices islandwide have declined by some 21 per cent from the peak while rents have come off some 14 per cent.

High-end residential yields have risen from a low of 2.8 per cent in Q4 2007 to 3.5 per cent in Q1 2009. However, they are expected to stabilise around the long-term average of 3- 3.4 per cent in the near- to mid-term. This is on the expectation that prices will moderate their decline from here while rents remain weak in the face of strong new housing supply this year.

However, residential prices have shown recent signs of consolidation, supported by opportunistic home purchases at discounted prices, introduction of the interest absorption scheme as well as pent-up demand in certain areas.

Leveraging

Positive carry, which is the difference between the cost of financing the property and rental income, looks set to shrink further on falling rents. This is an important factor for investors who look to pay off their mortgages with rental income. But a positive carry still exists and it can be particularly rewarding for those who can finance their properties with a larger portion of equity or a lower loan-to-value ratio.

This is made possible by the current low interest rates - Singapore's three-month interbank rate has steadied near an all-time low of 0.69 per cent since the beginning of the year. This represents an excellent opportunity for property investors to take advantage of relatively low borrowing costs to maximise their return on equity (ROE).

Take for example a studio apartment that costs $400,000, a borrowing cost of 2 per cent per annum and an 80 per cent loan-to-value ratio. In this case, a yield of 4 per cent would lead to an ROE of 1.76 per cent. By bringing down the loan-to-value ratio to 60 per cent, ROE would improve to 3.1 per cent. This rate of return is higher than the savings and time deposit rates today.

Taking potential capital appreciation into consideration, ROE could be even higher. Extending the above example, an investor's ROE would rise to 25 per cent on the assumption of a loan-to-value ratio of 60 per cent and capital appreciation of 10 per cent. So, with proper use of leveraging, one can maximise returns.

Location, location, location

Location, location, location is the mantra of those looking to invest in property. It seems easy enough to say 'Let's buy in Orchard Road' or 'Let's buy East Coast' just because these are well-established residential locations. But what are the factors that make a good location? Why do people want to own or rent a property in a given location? These are the demand drivers that we need to understand.

What makes living in Orchard Road attractive? Beyond the glitz of the shopping belt, it is the proximity to international schools, the Central Business District, the up-and-coming Marina Bay Sands integrated resort (IR) as well as the excellent road and rail connectivity to other parts of Singapore.

The future development of the area is also important. The impact of the up-and-coming IR on residential property is probably best demonstrated by the prices fetched by The Sail @ Marina Bay. In 2004, six months before the IRs were confirmed, the price for the first residential tower was launched at $900 per sq ft (psf).

About a year later, about six months after the IR was given the green light, the second tower was launched at $1,080 psf. After that, resale prices escalated to more than $2,000 psf at the peak of the market.

More recently, the government has focused on building up Singapore as a leading R&D hub in Asia and earmarked areas like one-north in Buona Vista for development.

One-north is a 200-hectare project designed to house Singapore's growing biomedical, infocomm and digital media industries. As such, condominiums in the vicinity like one-north Residences have been well received, with many investors buying for potentially good rentals.

Affordability

In times of economic uncertainty, it pays to be prudent. One should be careful not to borrow too much. Maintaining a debt service ratio of 25-30 per cent of income is ideal as it allows some buffer for any rise in mortgage rates.

Savills' affordability index showed that the average household's ability to service its monthly mortgage repayment has improved. From a peak of 40 per cent in Q3 2007, the debt service ratio has dropped to 26 per cent as at Q4 2008, following the steep price declines.

Valuation

It is important to be familiar with property prices in the vicinity to ensure that one does not overpay. Generally, when buying a new property from a developer, you have greater certainty that banks would be able to match the valuation. In the secondary market, buyers would do well to get a bank valuation on the property before committing, to avoid overpaying.

Risks-rewards

Going by past transactions, prime properties - though more volatile - offer better potential for capital appreciation as investors in this segment are perceived to be less price sensitive.

The recent bull cycle saw the average price of residential properties in our basket for Districts 1, 4, 9, 10, and 11 rise from $1,250 psf in Q1 2005 to $2,400 psf in Q4 2007. Since then, the average price has slipped about 30 per cent to $1,640 psf as at Q1 2009. Given a reasonable investment horizon, there is potential for peak prices to be regained again.

When is it a good time to buy? That's a question many buyers ask. Everyone wants to land a good deal given that property is a big-ticket investment. In some instances, just waiting a few months can mean saving tens of thousands of dollars.

However, the reverse is also true - one may end up paying more if the market suddenly turns up. It's never easy trying to call the bottom of a market as one often only knows it in hindsight.

The writer is director of investment sales & prestige homes, Savills Singapore

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