The invest guide to the current property run

This was published in the recent Sunday Times. One should read section 5 with caution as these statistics are aggregated and is not a true reflection of the price movements in projects. Some projects moved a lot (10% a month since Mar which might be a liklier sign of speculation), some sideways, some have barely any unit for sale (which is a good sign that the landlords are stayers or long-term investors who can hold and waiting for better prices).

Recession? What recession? The residential property market is on a roll with owner-occupiers, speculators and investors rushing in to buy during what they see as the bottom of the market. Demand has shot through the roof and prices are rising. But is it a boom or just a blip? Property Correspondent Joyce Teo considers key aspects of this most unlikely boom to see if there is an answer to the puzzle.

1 Suburban boom

Unlike the 2007 boom, which was in high-end and prime homes, this buying rush began with the pick-up in demand for mass-market homes.

HDB upgraders are leading the way. They may have missed out on the previous bull run and now want in.

It all started with the Caspian, a large 99-year leasehold project in Jurong West that attracted hordes of visitors. The ‘Caspian effect’, as one industry source calls it.

The 712-unit project sold 300 units at between $340,000 and $990,000 – an average of $580 per sq ft (psf) – over three days in early February.

New mass-market projects such as Double Bay Residences in Simei and Mi Casa in Choa Chu Kang followed.

Developers also re-launched older projects at lower prices, such as The Quartz in Buangkok.

Jones Lang LaSalle’s head of South-east Asia research Chua Yang Liang said people are significantly better off than in 2000 and since mass-market property prices have moved down from the peak, the units remain very attractive.

After the flurry of mass-market launches in the first quarter, buying spilled over into the mid-tier and upper end segments, said property consultants DTZ.

New private home sales are estimated at up to 6,900 units in the first half of the year, surpassing the 4,268 sold in the whole of last year, it said.

But with HDB upgrader demand still going strong, developers continue to target this group.

New releases of mass-market projects include Oasis @ Elias in Pasir Ris and The Gale in Flora Road, where units were offered for preview sale at $600 to $700 psf on Friday.

2 Interest absorption

Just how buyers pay for their new homes has changed since the last big buying rush.

The era of the deferred payment scheme may be over, but not the concept.

The interest absorption scheme (IAS) offers a similar arresting proposition – pay 20 per cent of the property upfront and become an owner.

The rest of the payments will be deferred until the project’s temporary occupation permit period.

Unlike the deferred payment scheme, IAS requires you to take up a bank loan at the time of purchase but the developer absorbs the interest payments until the project has been finished.

Dr Chua said stable HDB prices and the availability of credit in the form of IAS have helped spur demand.

IAS became very popular earlier this year and helped drive sales at mass- to mid-market developments, particularly if the scheme was offered at no additional cost.

Some have argued that the popularity of the IAS shows that this boom has plenty of staying power as buyers using the scheme would have met the banks’ credit assessment criteria.

But some cash-rich buyers may opt out of the scheme if it is offered at an additional cost of 2 per cent to 5 per cent above the property price, experts said.

Experts warn euphoria may not last long

At The Wharf Residence, IAS take-up was very low as the scheme was offered at a 5 per cent premium.

Although the deferred payment scheme is now defunct, developers who obtained approval before it was halted in late 2007 can still offer it.

The 152-unit One Devonshire in Devonshire Road is one such project. It offered IAS at a 2 per cent price premium and deferred payment at a 3 per cent premium.

While some did go for either of the two schemes, many opted for the normal progress payment, even though they had to pay for 30 per cent of the project upfront as construction has started.

3 Small is beautiful

When demand nearly evaporated last year, some developers went back to the drawing board to reconfigure projects to offer smaller, more affordable units.

The freehold 293-unit Alexis @ Alexandra, near Queenstown MRT station, was an instant hit, selling out after its February launch.

Most of the flats were small – it has 114 one-bedroom units of just 366 sq ft to 527 sq ft and costing around $450,000 each – and 77 one-plus-one bedroom units at around $550,000 each.

Alexis was ample proof that size matters little as affordability is key. Small is beautiful, in other words.

Launches of more projects with small units followed.

Once termed ‘Mickey Mouse’ units as they seemed rather unreal, tiny apartments of 400 sq ft to 500 sq ft have become common enough to be simply referred to as the typical studio units or one-bedders.

Because they are unlikely to appeal to owner-occupiers with families, buyers tend to be speculators or investors looking to flip or rent them out to singles or couples.

4 VIP previews

The VIP preview is clearly for very important persons but at some developments these days, you become truly important the minute you show keen interest. Entry to a special preview is instant when you call to register interest.

The advantage of attending a condo preview is getting the first bite of the cherry.

You are among the first to buy and can take your pick and often, preview prices are lower than launch ones.

That said, different developers have different strategies. Some may launch just the low floors or the less appealing units at attractive levels during the preview.

‘Soft launches are one of the ways to test the market. If the market is good, they will probably push up the prices at the official launch,’ said Credo Real Estate executive director Tan Hong Boon.

Projects holding previews at the moment include the 34-unit Ferrell Residences in Bukit Timah Road. It is going for $1,550 psf to $2,000 psf, or from $3 million.

5 Where are prices now?

Early estimates of the official property index show that the fall in private home prices has slowed. But experts said caveats lodged indicate that prices have actually risen recently on strong demand.

DTZ said price recovery has been happening across the board since May.

CB Richard Ellis analysed caveats lodged in the top five districts. It found that the median prices of new 99-year leasehold apartments rose to $655 psf in the second quarter, up 7 per cent from the first quarter.

In the resale and sub-sale market, prices climbed from $600 psf to $628 psf.

In the freehold and 999-year leasehold segment, median prices of new homes have dropped nearly 13 per cent to $951 psf.

But resale and sub-sale prices have climbed by 12.7 per cent in the same period to $850 psf.

The euphoria may continue for just a few more months, experts said.

‘People are getting ahead of themselves a little bit,’ said IP Global managing director and founder Tim Murphy, who is keen on Singapore over a five- to 10-year period.

‘There seems to be a lot of activity and we are not sure how much of that is underpinned by fundamentals.

‘Some of these properties have gone up 10 per cent to 15 per cent in the last quarter. We think it’s a little bit frothy for us.’

Jones Lang LaSalle’s Dr Chua said a pullback in the market is ‘not unimaginable’ should the larger economy not show any positive growth.

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Small sells

Once termed ‘Mickey Mouse’ units as they seemed rather unreal, tiny apartments of 400 sq ft to 500 sq ft have become common enough to be simply referred to as the typical studio units or one-bedders.

Things looking up?

Early estimates of the official property index shows that the fall in private home prices has slowed. But experts said caveats lodged indicate that prices have actually risen recently on strong demand.

Source : Sunday Times – 12 Jul 2009

High-end segment is moving!

The signs are growing stronger that this recovery is perhaps the real one. Perhaps it's time to change the mindset and expectations that the property trend might continue, prices to stabilise and fire sales deals to be a thing of the past. If the super-rich now are biting at prices at 20-30% below the peak and the mass market launches from 600-1300psf have done exceptionally well since Jan, then how much further can the prices drop? The question probably should be how much can the prices increase? The IRs are 1 of the main factors to trigger the previous run together with the stock market. Now the stock market is very resilient despite a slight decline recently, the IRs are nearer, feel-good sentiments is almost everywhere, we might even see prices going back to the 2007 peak and beyond.

High-end residential transactions continue to stream in steadily, in both the primary and secondary markets. Two units were sold recently at Nassim Park Residences by its developer at above $3,000 per square foot (psf), one of them at $3,813 psf.

Buyers returning: Two units were sold recently at Nassim Park Residences at above $3,000 psf, one of them at $3,813 psf

In the sub-sale market, a caveat has surfaced for a 37th floor unit at The Orchard Residences at about $3,550 psf last month.

Caveats have also been lodged for transactions of three units at The Ardmore Park at $2,375-$2,513 psf, and for a sub-sale deal at Marina Bay Residences at $2,200 psf in June.

Also in the sub-sale market, a three-bedroom unit on the 13th floor of Tate Residences at Claymore Road has been sold for $2,400 psf or about $5.25 million.

The seller and buyer were both Indonesians, says Jerry Tan, managing director of JTResi, which brokered the sale. The option was exercised about 10 days back. Two months ago, JTResi had also handled the sale of a 17th-floor unit in the development, facing the same way, at a lower price of $2,150 psf.

The 36-storey freehold project is slated for completion in a few months. ‘Prices at Tate Residences have trended up from the lows of $1,850-1,950 psf seen in March-April. Those were some of the scariest months in the property market,’ Mr Tan adds.

In the primary market, at the freehold Nassim Park Residences near Botanic Gardens, an option was exercised last week for a second-storey unit at $3,813 psf or $13.25 million. The unit is in the premium block, on an elevated part of the project, with a pool view and with the back facing Nassim Hill.

The 3,477 sq ft unit has four bedrooms and a study. The buyer is Indonesian, said CB Richard Ellis (CBRE) executive director Joseph Tan, whose firm is the joint-marketing agent for Nassim Park Residences.

The project’s developer is also said to have issued last weekend an option for the sale of a fourth-level unit at $3,081 psf. The five-storey condo is being developed by UOL Group, Kheng Leong and Orix Corporation.

‘Of late, we have been seeing an increase in transactions in the market above $2,000 psf. However, what this covers may be the top 5 per cent of buyers, who remain selective and are project specific. We’re seeing an equal mix of foreigners and Singaporeans buying. Current prices – which are about 20-25 per cent off the 2007 peak levels – are pretty attractive,’ CBRE’s Mr Tan added.

CBRE also brokered the sale of a fifth floor unit at Ho Bee development The Orange Grove last week for $2,200 psf, or $4.7 million, to a Singaporean buyer. According to government data, five units in the project were sold by Ho Bee in May at between $2,255 psf and $2,380 psf. These levels are roughly 20 per cent lower than the $2,800 psf average price for the project early last year.

Orchard Turn Developments has sold 10 units at The Orchard Residences since May at $2,700 psf to $3,300 psf. The buyers comprise a mix of Singaporeans, permanent residents (PRs) and foreigners.

Despite a return of transactions in the higher-price segments, DTZ executive director Margaret Thean notes that ‘buyers are more cautious with their offers’.

JTResi’s Mr Tan observes that the pick-up in transactions of higher-priced units has led some developers, who had earlier planned to launch or relaunch projects, to hold back. ‘They basically don’t want to under-price their projects,’ he added.

Ho Bee executive director Ong Chong Hua said: ‘Sales are beginning to filter to the higher end, but not in a big way yet – because the overall quantums involved are usually quite large. Banks are also more cautious about granting home loans for this segment, whereas for the mass and mid-market projects, banks have relaxed on lending and valuations are no longer an issue.’

Hong Leong Holdings said yesterday that 215 units have been sold at The Gale, a freehold condo in the Upper Changi area, since last Friday. The average price is said to be about $650-660 psf.

At Alexandra Road, Wing Tai sold over 70 units at the 99-year leasehold Ascentia Sky during last weekend’s preview. The average price is $1,250 psf.

Over the weekend, MCL Land sold 55 units at The Peak @ Balmeg, a freehold condo at Pasir Panjang, bringing total sales to 100 units. The average price is $1,000 psf.

Interest absorption schemes are available for all three projects at price premiums.

Remarks Mr Ong: ‘What we’re seeing is a bottom-up recovery, which is more sustainable – unlike the last recovery from 2005 to 2007, which was top down.’

Source : Business Times – 14 Jul 2009

Which direction is property trending towards?

Read this
Analysts say a sustained increase in the price index that develops into a full-blown rally by the end of the year is unlikely.

A more probable scenario is a plateau: prices and sales stabilising at their current levels for the next few months, with occasional moderate dips or increases, until there is more certainty about the economic outlook next year.

Would-be buyers hoping for another crash in the market are likely to be disappointed unless a major shock takes place, such as a delayed economic recovery, a stock market collapse, or the H1N1 virus turning more deadly, analysts say.

In fact, many dire predictions trumpeted by bears have failed to materialise. Fewer expatriates have left the country than expected. Unemployment is below the all-time high in 2003.

A YEAR after it started, the recession to end all recessions has yet to hit bottom officially.

But private home buyers in Singapore don't seem to care. Since February, they have been snapping up almost as many homes each month as during the frenzy of 2007.

The strong demand has caught even property veterans by surprise, and set off furious discussions among property-obsessed Singaporeans.

Their million-dollar question: is this rally for real?

Opinion is divided. For every analyst proclaiming a sunny recovery, there is another warning of a false dawn.

To recap: after a hiatus of several months following the credit crunch last year, the property sector came back to life in February with unexpectedly healthy sales of new condominiums.

Even the stock market collapse in March didn't deter buyers of new homes, who picked up more than 1,000 units that month for the second time in a row - 10 times what was sold at the low point in October last year. The buying momentum has held steady since then, despite more doomsayers predicting anew each month that the numbers are unsustainable.

Interest in new homes has spilled over to resale homes in the secondary market - which clocked a 70 per cent increase in sales in the second quarter over the first - as well as the harder-hit luxury home segment, where sellers are starting to turn a profit again.

As confidence in the property market builds up, boom times seem to have returned to the showflats. At the recent launch of One Devonshire in Somerset, the two-bedders were so much in demand that buyers had to ballot for them.

Agents for the upcoming Ascentia Sky project in Redhill have begun to take orders - and cheques - even before the showflat opens in the coming weeks.

There is certainly no denying that the property market is faring much better than expected, given that in the first quarter of this year, the economy contracted a record 10.1 per cent and shed the most number of jobs since Sars in 2003.

But some industry veterans, such as Knight Frank managing director Danny Yeo, are reluctant to call the increased buying activity a true rally. Even though sales are up, prices generally are not.

Between April and June, even as buyers returned to the market, the price index for private homes dropped 6 per cent, according to estimates released by the Urban Redevelopment Authority on Wednesday. Prices have now fallen for four straight quarters and are about 25 per cent off their peak last year.

Experts say that demand for private homes is returning precisely because prices have nosedived. They plunged a precipitous 14.1 per cent in the first quarter, the biggest drop in history.

This is a far cry from 2007's property boom, when some developers raised prices for their projects multiple times in a single weekend.

Some consultants believe the price index is lagging and will show a slight increase when all the second-quarter sales are taken into account at the end of the month. Wednesday's estimates are mostly based on deals done in April and May.

But even if this happens, the index isn't expected to keep rising. Analysts say a sustained increase in the price index that develops into a full-blown rally by the end of the year is unlikely.

A more probable scenario is a plateau: prices and sales stabilising at their current levels for the next few months, with occasional moderate dips or increases, until there is more certainty about the economic outlook next year.

Would-be buyers hoping for another crash in the market are likely to be disappointed unless a major shock takes place, such as a delayed economic recovery, a stock market collapse, or the H1N1 virus turning more deadly, analysts say.

In fact, many dire predictions trumpeted by bears have failed to materialise. Fewer expatriates have left the country than expected. Unemployment is below the all-time high in 2003.

Home-owners and buyers are still able to afford their properties, especially as they have lowered their debt levels and increased their savings. The surprisingly low level of mortgagee sales so far this year - half of that during the Asian Financial Crisis - seems to bear this out.

Concern about oversupply of new homes crashing prices have abated in the light of the robust take-up of recent launches. Instead, low interest rates are encouraging buyers to take up mortgages.

The gravity-defying rise in HDB resale flat prices, which hit an all-time high in the second quarter, provides a firm floor for prices of mass market condos and helps support all the other price levels.

On the other hand, sellers who hope to hold out for a marked improvement in prices, could end up waiting a long time.

For one thing, the stock market resurgence appears to be tapering off, as sentiment gives way to the sobering fundamentals of an uncertain economic recovery, underscored by still-rising unemployment in the United States.

Anecdotally, buyers are also still price-sensitive, a further sign of the fragility of their confidence, although more seem willing to jump on the buying bandwagon for fear of rising prices in future.

Demand may also be limited. Most buyers now are owner-occupiers who were shut out of the 2007 market surge and are unleashing their pent-up demand. When this runs out, sellers and developers will be relying on investors and foreigners to pick up the slack, which may not happen as rentals are expected to continue falling with more homes being completed.

Then there is the deferred payment scheme. Properties sold via the scheme reach completion this year and next, and analysts fear some buyers will dump their units when full payments are due.

In the near term - say, six months - the market should be stable, given that supply and demand factors seem more or less balanced at this point.

But Singapore's sentiment-driven property market has seldom been rational and hardly predictable, as the last six months have shown.

So it ultimately comes down to which typical Singaporean home-buyer behaviour wins out: the panic of being left out of a property boom, or the fear of buying now and being left high and dry if there is a slump.
Source : The Straits Times, July 04, 2009

Private Home Prices Fall 5.9% In Q2

How is this possible when prices have increased? Does anyone know how URA compute the PPI?

PRIVATE home prices slowed their downward slide in the second quarter, with suburban homes helping to hold up the market.

The Urban Redevelopment Authority (URA) announced yesterday that its initial estimates showed a 5.9 per cent fall in private home prices from April to last month, following a record 14.1 per cent slide in the first quarter.

Some property experts yesterday expressed surprise at the larger-than-expected drop. And with the recent strong demand, they are expecting to see a much smaller fall in four weeks' time, when final second-quarter figures are released.

A few are even expecting to see a small price rise by then because of last month's buying craze, which saw project launches attracting rising numbers of investors and speculators.

But given that the current frenzy is being whipped up against a still-weak economic backdrop, more analysts are turning cautious, saying it is unsustainable.

Yesterday, the URA reported prices of non-landed homes in the suburban areas falling just 2.6 per cent in the second quarter, compared with a bigger 6.6 per cent slide in city-centre prices and a 6.3 per cent decline in city-fringe prices.

The smaller mass-market price fall reflected the strong buying support from upgraders in the HDB market, where resale prices reversed a marginal fall to rise by 1.2 per cent in the second quarter.

The stock market rally, coupled with strong liquidity, has resulted in a surge in second-quarter new home sales. CBRE Research estimated that 4,000 new homes were sold - more than 50 per cent above the 2,596 units sold in the first quarter.

The volume lent support to home prices and, in some cases, allowed developers to raise their prices when supply was tight, it said.

The second quarter also saw more new launches at higher price levels because they were located either on the city fringe or in prime districts, CBRE Research added. These include Martin Place Residences, The Wharf Residence, One Devonshire and the sold-out 8@Woodleigh.

CBRE Research executive director Li Hiaw Ho said the 5.9 per cent decline in private home prices is 'contrary to the present market perception' as actual price levels in the second quarter are known to have risen more than 10 per cent from the first quarter.

DTZ head of South-east Asia research Chua Chor Hoon described the fall as 'surprising' because prices picked up around last month - especially in the prime districts of 9, 10 and 11.

Average home prices were still relatively flat in April and May - some developments saw price increases, while others saw price falls - she said. But last month, resale home prices rose from 3 per cent in the mass-market segment to as much as 11 per cent in prime areas, she added.

'Going forward, developers are likely to test the market with gradual price increases. Should the current momentum hold, we can expect private property prices to increase by 5 per cent to 8 per cent in the second half of the year,' said ERA Asia-Pacific associate director Eugene Lim.

While local buyers are now supporting the market, more foreign investors may come when the integrated resorts open, he added.

Colliers International director for research and advisory Tay Huey Ying thinks the strength of pent-up demand should not be underestimated as new home sales had sunk to a low of 4,264 units last year - half of the annual average of about 8,500 new units since 2000.

Home sales could remain robust in the second half of this year, possibly reaching 12,000 units or more. This will hinge on price rises not exceeding 5 per cent for mass-market homes and 10 per cent for higher-tier homes, as buyers remain price sensitive in view of the absence of economic expansion and growth in employment and personal income, she said.

If the positive buying mood continues, the third-quarter price index may show a rise, said OrangeTee's executive director (residential), Mr Steven Tan.

Others, like Ms Chua, think the final second-quarter index may already show some increase when more June caveats are included in the computation of the index. But she thinks this could be a 'temporary blip' with resistance setting in at some levels and prices possibly stagnant or falling from as early as the the third quarter onwards.
Source : The Straits Times, July 2, 2009

Job losses lower than feared

Do you remember the report by Credit Suisse that forecasts a whooping 200000 people by 2010 leaving SGP resulting in 15000 vacant homes by 2011? Well, they are revising their analysis now...

Summary

Back in Jan 2009

• forecasts a whooping 200000 people by 2010 leaving SGP resulting in 15000 vacant homes by 2011
• private home prices to fall by as much as 60 per cent from the peak to 2005 levels

Now in June 2009

• 3,000 private homes will be vacant from 2009 to 2011
• prices could dip 25 per cent in 2009 before recovering 10-15 per cent in 2010.
• Net employment fell by only 6,200 in Q1 2009

I love being an analyst. You get to say 1 thing, then say another thing, put in all the disclaimers in the world and still get a big fat pay cheque. Haha...

Credit Suisse, which predicted in January that an astonishing 200,000 foreigners and permanent residents (PRs) might leave Singapore in 2009 and 2010 on the back of job losses, now thinks that the exodus may not be as bad as it had expected.

The evidence for this can be gleaned from the bank’s forecasts for the property market.

Based on its economists’ expectations of historically high job losses (up to 240,000) and an exodus of foreigners (up to 200,000) by the end of 2010, the firm’s property analyst Tricia Song had previously assumed that 15,000 homes could be vacated by 2011.

But in a report dated June 19, she says she now believes that just 3,000 private homes will be vacant from 2009 to 2011 as foreigners leave the country.

‘Anecdotally, we expect that the number of foreigners leaving Singapore will not be as high as we had expected,’ said Ms Song in the report.

This also means that private home prices will not be as badly hit as the firm predicted just six months ago. Credit Suisse had expected private home prices to fall by as much as 60 per cent from the peak to 2005 levels, partly because of the projected 200,000-foreigner exodus.

However, in part due to the smaller-than-expected job losses and foreigner exodus, Ms Song now says home prices could dip 25 per cent in 2009 before recovering 10-15 per cent in 2010.

The main cause for the change of view is a recent update by economist Cem Karacadag, who was part of the team that in January predicted that some 200,000 foreigners and PRs might leave Singapore in 2009 and 2010.

Credit Suisse said then that the potential drop in employment and population would have far-reaching implications for the economy.

But in a recent report, Mr Karacadag said job losses have not been as large as he had feared.

‘Singapore’s labour market has held up remarkably well in this recession and much better than we had anticipated,’ he said in a June 19 economics note.

Among various things, employers appear to have adjusted labour costs through salary cuts rather than cuts in headcount, he said.

Job losses so far this year have been surprisingly low against unprecedented job gains in 2007 and 2008, the note said. Net employment fell by only 6,200 in Q1 2009, although Singapore’s real GDP was 10 per cent lower in Q1 2009 compared to Q1 2008.

Mr Karacadag also upgraded his forecast for Singapore’s 2010 GDP growth to 4.4 per cent, from 3.9 per cent.

Source : Business Times – 29 Jun 2009