singapore property weekly issue 2

Issue 2 | www.Propwise.sg

SINGAPORE PROPERTY WEEKLY – Issue 2

Copyright © 2011 www.Propwise.sg. All Rights Reserved. Page | 1

Welcome to the second issue of the Singapore Property Weekly. Through this e-magazine we hope to bring interesting and pertinent articles on the Singapore property market to our members. We’ll be adding new sections over time. Let us know what else you’d like to see – we welcome all feedback!

To wisdom and beyond,Mr. Propwise

Contribute

Do you have articles and insights and articles that you’d like to share with tens of thousands of readers interested in the Singapore property market? Send them to us at [email protected], and if they’re good enough, we’ll publish them here, on our blog and even on Yahoo! News.

Advertise

Want to get your brand, product, service or property listing out to tens of thousands of Singapore property investors at a very reasonable cost? Head over to www.propwise.sg/advertise/to find out more

Contents

Singapore Property This Week Pg 2Why Are Investors Still Buying? Pg 9Where Will the Market Go in theNext Few Months? Pg 14

http://www.propwise.sg/

mailto:[email protected]

http://www.propwise.sg/advertise/



Singapore Property This Week

Residential News

NUS Singapore Residential Price Index rose in AprilThe NUS Singapore Residential Price Index (SRPI) rose 14.1% in April year-on-year for the Non-Central Region and 5.6% for the Central Region. There is also an increase of 1% month-on-month and 10.4% year-on-year for the overall SRPI for April. The sub-indices for the month-on-month gains for Non-Central and Central Regions in April were 1.1% and 0.8% respectively. The Non-Central Region sub-index is 23.6% beyond its pre-global financial crisis peak in January 2008, while the Central Region sub-index is 0.8% below its November 2007 pre-crisis high. The overall index in April stood at 13.6% above its pre-crisis peak in November 2007.

BTO projects may not be introduced in all mature estates: Minister KhawDue to better amenities and transport networks, flats in mature towns tend to be more popular. For example, there were almost 8,000 applications for the 4,000 new BTO flats that HDB launched recently and according to Minister Khaw, the projects in mature estate Tampines has the highest application rate for 4-room and 5-room flats. By increasing the supply of flats in mature estates, Minister Khaw hopes that this will increase young couple’s chance to secure their own units in new towns such as Sengkang. But not all mature estates will see the introduction of BTO projects (at least in the short-term) because estates such as TanjongPagar are already substantially developed and have limited space for public housing development.




However, he stressed that mature towns such as Tampines and Kallang will see BTO launches next year. Newer estates such as Sengkang and Punggolwill also see greater opportunities for BTO projects.

Government policies likely to lead to moderation in residential sector: Credit SuisseCredit Suisse mentioned that the recent government policies to make public housing more attractive may affect the demand for mass-market private houses. However, prices for private houses are unlikely to fall in short term. A sensitivity analysis by the bank showed that the completion of an average of 14,500 private houses in the next few years will still have its demand, if immigration growth stays at 70,000 and above per year and assuming a household size of 5 persons. The demand-supply over the next 3 to 5 years in the residential sector will be more balanced with the new policies.

Eunosville HUDC has been privatizedEunosville HUDC, which is situated along Sims Avenue and consists of 330 flats, was privatized yesterday. The individual owners in the estate now own their respective strata units and common property such as car parks and open landscaped areas. The Marine Parade Town Council ceased its responsibility in managing and maintaining the common properties of the estates, and it will be taken over by The Management Corporation Strata Plan No 3642.




MND to prioritize housing needs of young couples, divorcees, and family with low income: Minister KhawWith the rapid economic recovery, housing prices are rising sharply in Singapore. The new National Development Minister Khaw Boon Wan mentioned that his policies for the near future will focus on the housing need of groups such as young couples, divorcees with kids, and families with low income.

HDB to increase housing supply in 2011 from 22,000 units to 25,000 unitsCurrently under the BTO scheme, HDB will only call a tender for its flats after 70% of orders have been confirmed. With the new policy, a tender will be called when architectural drawings and tender documents are ready. This is expected to increase the supply of residential units under HDB in the whole of 2011 from 22,000 to 25,000 units, when HDB brings forward the projects planned for Q1 2012 by a few months. According to Minister Khaw, this scheme will allow more young couples to buy their houses from HDB directly and prepare

HDB for the upcoming increase in demand when the income ceiling of $8,000 on HDB flats is increased. Sale of land sites for 4,000 DBSS flats and 4,000 EC units for 2011 are expected to be scheduled. Apart from the 4,000 new flats rolled out in Punggol, Pasir Ris, Tampiness and Woodlands, HDB will introduce about 12,000 new BTO flats.

Supply of rental flats to increase: MNDMND will be increasing the supply of rental flats for single parents. According to Minister Khaw, supply of rental flats should increase by tens of thousands as soon as possible. The scheme is aimed to solve the under-supply problems of rental flats. Minister Khaw noticed that HDB registered an average of 2,700 rental applications per year in the past three years, while there are only about 45,000 rental flats in Singapore today. This scheme will benefit people who do not have the financial capability to purchase their own flat and have to rely on rental flats, such as single mothers and divorcees.


Austral View sold for $81 million and a site in Hillview sold for $45 million Brokered by DTZ, Austral View that is situated in Tanjong Rhu on a 30,540 sq ft site has been sold for $81 million through a collective sale. The price worked out to $1,342 psf ppr, including a DC that is slight above $5 million. Also, Mequity (Hillview) PteLtd (a Roxy-Pacific group’s associated company), bought 7 adjoining factories that are situated on a 49,164 sq ft land area in the Hillview area. The $45 million deal that equates to $662 per sq ft of potential gross area included a DC of approximately $17.5 million to convert the place for residential purpose with a plot ratio of 1.92.

Dragon Mansion up for sale at $150-$156 million till 5th JulyThe freehold residential development Dragon Mansion, which is located near CBD, is up for sale at a price of $150-$156 million, or $1,340-$1,392psf ppr. The site, which consists of Dragon Mansion and a substation, has an area of 39,176 sq

ft. It houses 68 units of 123 sq metres each currently and has the potential to be developed to house 112 apartment units with an average of 950 sq ft each. Zoned for residential use, the site has a gross plot ratio of 2.8 and has the potential to be built up to 36 storeys. Even though no DC is to be paid, marketing agent Jones Lang LaSalle mentioned that successful bidder may have to foot a land premium of approximately $1.22 million for the alienation of some 1,167 sq ft of state land.




The Viridian priced at an average of $1,550 psf and Wing Tai Holdings sold more than 140 units in its Foresque ResidencesGlobal Orion Properties will develop its freehold project The Viridian on an industrial site at JalanAmpas. The Viridian, which will be 23-storey high and consist of mainly one- and two-bedroom units, is priced at an average of $1,550 psf. The overall price for a single-bedroom unit will begin from $785,000. Apart from that, Global Orion Properties will launch its Hougang project near the end of the year. The Hougang project will have larger units and its main target purchasers will be HDB upgraders. At Upper Bukit Timah, Wing Tai Holdings sold more than 140 apartments in its 496-unit Foresque Residences.

Pasir Ris DBSS site awarded at a bid of $123.9 millionKay Lim Holdings and a unit of Singapore-listed SingXpress Land were awarded the Pasir Ris DBSS site with a top bid of $123.9 million, or $281 psfppr at a tender. The top bid, which was more than the market’s speculation of $250 psf ppr or less, was 19% above the second highest bid of $103.7 million ($235 psf ppr) made by Yuan ChingDevelopment. The site, including a 48-month construction period, has a lease term of 103 years. The site, which has a maximum gross floor area of about 441,000 sq ft, can house about 410 units.




http://www.propwise.sg/secretsofsingaporepropertygurus/

Commercial News

DTZ’s report shows that Singapore, ranked top 5 among Asia Pacific cities, is a ‘hot’ choice for property investmentSimilar to the findings in Q4 2010, DTZ revealed that offices, retail and industrial property markets in Singapore still bear great potential for investments. The DTZ FVI score for Q1 2011 for Asia Pacific stood at 65, and the Singapore office market is ranked top five among the Asia Pacific cities covered in DTZ’s study. DTZ saw a recovery of sales in secondary markets and private houses volumes in Singapore for March and April. However, DTZ also mentioned that the increased supply of residential houses introduced into the market may cause a fall in prices and rentals in the next few years.

Singapore prime retail rents ranked 16th

globally: CBREThe average prime retail rent in Singapore in Q1 2011 was US$470 psf per annum, which was

S$49.20 psf per month. As compared to the average super prime rent of US$473 psf per annum (S$51.80 psf per month) in Q3 2010, Singapore prime retail rents dropped from 15th to 16th on the global stage. Despite the decline, CBRE stressed that Singapore prime rents will remain competitive as around 523,000 sq ft of retail space along Orchard Road is expected to be completed between Q2 2011 and 2013. The rents in Orchard Road will remain stable in the medium to long termif economic growth remains stable.

77 Robinson Roadmay be up for sale soon77 Robinson Road, a 35-storey office tower situated on a site with remaining lease of approximately 82 years (expires in 2093), is speculated to be put up for sale soon. The site, with a total NLA of around 295,000 sq ft and 180 parking lots, was said to have reached its maximum development potential. Property consultants have speculated that the site may not be able to further its lease.




This thus ruled out the possibility of using the site for residential development. However, some analysts believed that the site will be able to draw interested investors based on its current use and balance site lease.

Capitamalls Asia, CMT and CapitaLand to develop their Jurong site in a $1.5 billion projectAfter being awarded the plot in Jurong Gateway in a $969 million bid, Capitamalls Asia, CMT and CapitaLand plan to develop the site into a 25-storey retail-cum-office project. The total development cost for the site, which has a maximum permissible gross floor area of 957,780 sq ft, is estimated to be approximately $1.5 billion. 60% of the site will be used for retail space which is likely to be of 5 storeys high, while the remaining 40% will consist of offices of 20 storeys. Rents for retail spaces are expected to be around $16-$18 psf while rents for office spaces are $8 psf.

Site at Paya Lebar Central to fetch bids of $860-940 psf ppr; most popular out of the 3 sites added to reserve list.Three new 99-year leasehold sites were being offered under the reserve list: i) 2.07 hectare mixed-use site at Paya Lebar Central, ii) 0.38 ha hotel spot at Little India, and iii) an EC housing parcel at Upper Serangoon View. Analysts mentioned that the site at Paya Lebar Central, which can produce around 935,600 sq ft of GFA, is the most popular and will be able to sell for $860-$940 psf ppr.






Why Are Investors Still Buying?Despite round after round of cooling measures in 2010 and 2011, many investors remain eager to park their funds in residential properties.

The tightening measures have merely relegated a fraction of the investors to the sidelines and, while they watch the market closely, others continue to invest.

Why are investors so attracted to residential property investments?

Low interest rate environment Savings interest rates are at an all-time low of 0.1 to 0.2 per cent per annum, while fixed deposit rates average about 0.3 to 0.8 per cent per annum, well below the rate of inflation, estimated at 3 to 4 per cent for this year (Feb 17, 2011, Ministry of Trade and Industry).

On the flip side of the coin, home loan rates start from below 1 per cent per annum. Interest expenses on property investments have never been so low since 2003 to 2004, right after SARS.




Currently, floating rate home loan packages are priced at 0.65 to 0.80 per cent above the three-month SIBOR or three-month SOR or, in the case of ANZ Bank’s package, a blend of both. These home loans cost borrowers about 1 per cent per annum.

Therefore, for those who are already invested in properties, there is no urgency to sell even if rental returns edge lower, because holding costs are low.

Although rental returns average about 3 to 4 per cent yield per annum, the interest coverage ratio is high, at 2.5 to 6 times. The interest coverage ratio here refers to the number of times rental returns, net of expenses, can cover interest costs.

A rental yield of 4 per cent per annum is double the bond yields of about 2 per cent on securities recently issued by Temasek-linked companies. And those bonds were two to four times oversubscribed by institutional and retail investors.

Interest rates and mortgage rates are expected to remain low for another 12 to 18 months because the money supply continues to grow strongly. In the 24 months of 2009 and 2010, M3 money supply — the widest form of money supply measured in Singapore, defined as coins and notes in circulation, money in savings accounts, fixed deposits, demand drafts, etc — grew by S$67.7 billion or almost 20 per cent.

The Monetary Authority of Singapore (MAS) has stated that it will allow the local dollar to gradually strengthen against a concealed basket of currencies of the country’s major trade partners, a move that will alleviate the pressures of imported inflation.

In addition, global investors, especially high net worth individuals from Europe, are confident about the strength and stability of the Singapore economy, and are driven to sell their home currencies to park their funds here.




Banks take in the new deposits, and after setting aside the reserve requirement, they may lend out the money, adding new money supply into the system. But when money supply growth is faster than the pace of lending growth, i.e. lenders are holding more money than borrowers are allowed to borrow, interest rates will continue to be pressured downwards. So, we have on the one hand low interest rates that are reducing the value of our money, because the interest we earn from our savings is only about 0.1 per cent while the costs of living is expected to rise by up to 4 per cent. On the other hand, we have mortgage rates of less than 1 per cent, meaning the costs of borrowing money against a residential asset is so low that the cash flow from rentals is attractive even at low rental yields.

An actual example illustrates: Our clients acquired a mid-floor three-bedroom apartment at Blue Horizon in West Coast Crescent. Blue Horizon is a 99-year leasehold condominium with full facilities

and beautifully landscaped grounds. It was completed about six years ago and very popular with expatriate tenants. More than half of the 616 units are occupied by foreigners.

This particular apartment has a strata area of 1,152 sq ft and came with an expatriate teacher from an international school as a tenant. The lease runs until November next year. The transacted price was S$1.02 million, or about S$885 per sq ft, which was similar to other transactions in Blue Horizon at the end of last year.

Our clients funded the purchase with 40 per cent cash, i.e. S$408,000. Their CPF is used to fund the home they are staying in today. Stamp duty and legal fees added another S$25,200 and S$2,500, respectively. The total cash outlay was S$435,700 for this investment. They took up a loan for 60 per cent of the value at 1 per cent on a floating rate package with a local bank.



Copyright © 2011 www.Propwise.sg. All Rights Reserved. Page |12

Rental income for the unit is S$3,800 per month or S$45,600 per year (Note: This produces a gross rental yield of about 4.5 per cent per annum). Expenses for property management and sinking fund amount to S$3,120 per year, while interest expenses at 1 per cent (assuming interest rates neither went up nor down during the first year) cost S$6,120 per year. Making provisions for property tax at about 10 per cent of the annual rental income means we deduct another S$4,560 from the equation.

Now, rental income minus expenses produced a net surplus of S$31,800 (=S$45,600-S$3,120-S$6,120- S$4,560). This would have gone towards paying down the principal part of the loan. If the loan was taken over a 25-year term, they would need to contribute S$2,040 a month or S$24,480 a year towards the principal. Still, they are cash positive.

Note that the cash surplus of S$31,800 versus the clients’ total cash outlay of S$435,700 implied a

cash-on-cash return of 7.3 per cent. This is 10 times higher than the cash returns of placing S$435,700 into a fixed deposit. The return is also higher than the expected rate of inflation for 2011.

The example above is conservative in that I have included the maximum costs such as legal fees (which are usually subsidised by banks that provide the mortgage) and I did not deduct expenses before applying the 10 per cent property tax. Furthermore, as we pay down the principal of the loan, the interest expenses will drop.

Therefore, I believe the clients are making a cash-on cash return that is higher than 7.3 per cent this year.

Property investment come with its own risks: Tenants may move out and the apartment may be empty for a while, costs may rise, etc. Rentals may come down but we have room to absorb that slide.


In the event global stock markets take a second plunge, interest rates will be forced even lower, and a secured rental income will limit the downside of the property’s value. What happens if interest rates rise? In that case, the economy must be growing fast and there is a good chance we can raise the rentals on the tenants during contract renewal. This is why real estate assets are a hedge against inflationary growth.

And for many of the foreign investors whose base currencies are the euro, British pound, Hong Kong dollar or US dollar, the strength of the Singapore dollar will add to their total returns when they divest and convert the returns back to their home currencies.

This article has been shared with the kind permission of Ku Swee Yong, founder of real estate agency International Property Advisor, which provides services to high net worth individuals. He is also author of Real Estate Riches: Understanding Singapore’s Property Market In A Volatile Economy, available in bookstores now.



http://www.ipa.com.sg/




Where Will the Market Go in the Next Few Months?Roman Abramovich, a Russian billionaire and the 53rd richest person according to 2011 Forbes list, said: “investors have very short memories”. In today’s bullish climate it is hard to imagine that just about two years ago, there were genuine fears of a global financial meltdown. These days we are no longer concerned about our assets becoming worthless; instead we are more concerned about property prices escalating beyond what we can afford.

In view of this, some people may inevitably believe that this current “bull” run will last forever and make risky investments in fear of losing out. They attempt to rationalise that it is different this time round and that the spectacular market performance is due to the emergence of Asia as a new financial powerhouse.

John Templeton, a very prominent stock investor

once commented,” the four most dangerous words in investing are ‘This time it’s different’.” According to the historical URA Private Property Price Index (PPPI), we can tell that the property market is cyclical and no trend lasts forever. In a blog post I wrote in July 2009, I mentioned then that the property market will not remain depressed indefinitely. In a similar vein, I am confident that the current price appreciation will not go unabated and it will correct in the near future.

The question is how can we tell when the Singapore property market is going to dip?

In my second book entitled Buy RIGHT Property –Taking the R.I.G.H.T. Approach to Property Investing in Singapore, I shared that my company has developed a proprietary index called the Ascendant Assets Index (AAI).




The basic premises of the AAI are (1) there is a lead-lag relationship between the stock and property market and (2) we are able to tell how the property market is performing by analysing the correlation between the stock and property market. For example, in bullish (or bearish) market conditions, we would expect the correlation between the stock and property market to be high as prices are increasing (or decreasing) in tandem.

On the other hand, we would expect the correlation between the stock and property markets to be low during turning points as stock prices, being more liquid, would diverge from the less responsive property prices.

So how is the market like now? Figure 1 shows the AAI for the recent quarter 2011Q1. From the figure, we can tell that the Singapore property market (shown in green colour) is presently in the strong growth stage with both STI and URA PPPI increasing in tandem. However, it is noteworthy that the AAI has dropped from over 90% to under

80%. Over the next few quarters, we expect the AAI to drop further. When the AAI falls below the 50% mark (represented by the dotted line), it signals a turning point as the stock market will be almost completely out of sync with the property market. It signals an overall change in underlying market sentiments and the property market would be expected to decline shortly after.

Figure 1: Ascendant Assets Indicator (2011Q1)




ConclusionIt is important to note that the AAI is only one tool to gauge how the property market is performing. There are other aspects to consider before making a buy or sell decision. Nonetheless, I have been asked by several prospective clients if it is a good time to buy properties. My personal view is that unless it is an essential purchase (e.g. buying a home to stay), I would stay out of the market right now. In fact, I had recently sold two properties to accumulate cash to prepare for the next market downturn.

As a parting shot, let me leave you with a quote by Warren Buffett that I often make reference to, “We simply attempt to be fearful when others are greedy and to be greedy when others are fearful”. With the URA PPPI reaching a new peak in the last quarter, I can’t help but to feel a slight sense of fear…

By Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm.


http://www.ascendantassets.com/index.html

http://www.propwise.sg/advertise/

singapore property weekly issue 2

Real Estate

singapore property market

new flats

singapore property investors

singapore property youd

supply of flats

hdb flats

bto flats

non flats