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Singapore property weekly issue 2

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Singapore property weekly issue 2

  1. 1. Issue 2 |
  2. 2. SINGAPORE PROPERTY WEEKLY – Issue 2 Welcome to the second issue of the Singapore Contribute Property Weekly. Through this e-magazine we hope to bring interesting and pertinent articles on the Do you have articles and insights and articles that Singapore property market to our members. We’ll be you’d like to share with tens of thousands of adding new sections over time. Let us know what else readers interested in the Singapore property you’d like to see – we welcome all feedback! market? Send them to us at, and if they’re good enough, we’ll publish them To wisdom and beyond, here, on our blog and even on Yahoo! News. Mr. Propwise Advertise Contents Want to get your brand, product, service or Singapore Property This Week Pg 2 property listing out to tens of thousands of Why Are Investors Still Buying? Pg 9 Singapore property investors at a very reasonable Where Will the Market Go in the cost? Head over to Next Few Months? Pg 14 to find out more Copyright © 2011 All Rights Reserved. Page | 1
  3. 3. SINGAPORE PROPERTY WEEKLY – Issue 2 Singapore Property This Week Residential News NUS Singapore Residential Price Index rose BTO projects may not be introduced in all in April mature estates: Minister Khaw The NUS Singapore Residential Price Index (SRPI) Due to better amenities and transport networks, rose 14.1% in April year-on-year for the Non- flats in mature towns tend to be more popular. For Central Region and 5.6% for the Central Region. example, there were almost 8,000 applications for There is also an increase of 1% month-on-month the 4,000 new BTO flats that HDB launched and 10.4% year-on-year for the overall SRPI for recently and according to Minister Khaw, the April. The sub-indices for the month-on-month projects in mature estate Tampines has the highest gains for Non-Central and Central Regions in April application rate for 4-room and 5-room flats. By were 1.1% and 0.8% respectively. The Non-Central increasing the supply of flats in mature estates, Region sub-index is 23.6% beyond its pre-global Minister Khaw hopes that this will increase young financial crisis peak in January 2008, while the couple’s chance to secure their own units in new Central Region sub-index is 0.8% below its towns such as Sengkang. But not all mature estates November 2007 pre-crisis high. The overall index in will see the introduction of BTO projects (at least in April stood at 13.6% above its pre-crisis peak in the short-term) because estates such as Tanjong November 2007. Pagar are already substantially developed and have limited space for public housing development. Copyright © 2011 All Rights Reserved. Page | 2
  4. 4. SINGAPORE PROPERTY WEEKLY – Issue 2 However, he stressed that mature towns such as Eunosville HUDC has been privatized Tampines and Kallang will see BTO launches next Eunosville HUDC, which is situated along Sims year. Newer estates such as Sengkang and Punggol Avenue and consists of 330 flats, was privatized will also see greater opportunities for BTO yesterday. The individual owners in the estate now projects. own their respective strata units and common property such as car parks and open landscaped Government policies likely to lead to areas. The Marine Parade Town Council ceased its moderation in residential sector: Credit responsibility in managing and maintaining the Suisse common properties of the estates, and it will be Credit Suisse mentioned that the recent taken over by The Management Corporation Strata government policies to make public housing more Plan No 3642. 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. Copyright © 2011 All Rights Reserved. Page | 3
  5. 5. SINGAPORE PROPERTY WEEKLY – Issue 2 MND to prioritize housing needs of young HDB for the upcoming increase in demand when couples, divorcees, and family with low the income ceiling of $8,000 on HDB flats is income: Minister Khaw increased. Sale of land sites for 4,000 DBSS flats With the rapid economic recovery, housing prices and 4,000 EC units for 2011 are expected to be are rising sharply in Singapore. The new National scheduled. Apart from the 4,000 new flats rolled Development Minister Khaw Boon Wan mentioned out in Punggol, Pasir Ris, Tampiness and that his policies for the near future will focus on Woodlands, HDB will introduce about 12,000 new the housing need of groups such as young couples, BTO flats. divorcees with kids, and families with low income. Supply of rental flats to increase: MND HDB to increase housing supply in 2011 MND will be increasing the supply of rental flats from 22,000 units to 25,000 units for single parents. According to Minister Khaw, Currently under the BTO scheme, HDB will only call supply of rental flats should increase by tens of a tender for its flats after 70% of orders have been thousands as soon as possible. The scheme is confirmed. With the new policy, a tender will be aimed to solve the under-supply problems of called when architectural drawings and tender rental flats. Minister Khaw noticed that HDB documents are ready. This is expected to increase registered an average of 2,700 rental applications the supply of residential units under HDB in the per year in the past three years, while there are whole of 2011 from 22,000 to 25,000 units, when only about 45,000 rental flats in Singapore today. HDB brings forward the projects planned for Q1 This scheme will benefit people who do not have 2012 by a few months. According to Minister the financial capability to purchase their own flat Khaw, this scheme will allow more young couples and have to rely on rental flats, such as single to buy their houses from HDB directly and prepare mothers and divorcees. Copyright © 2011 All Rights Reserved. Page | 4
  6. 6. SINGAPORE PROPERTY WEEKLY – Issue 2 Austral View sold for $81 million and a site in ft. It houses 68 units of 123 sq metres each Hillview sold for $45 million currently and has the potential to be developed to Brokered by DTZ, Austral View that is situated in house 112 apartment units with an average of 950 Tanjong Rhu on a 30,540 sq ft site has been sold for sq ft each. Zoned for residential use, the site has a $81 million through a collective sale. The price gross plot ratio of 2.8 and has the potential to be worked out to $1,342 psf ppr, including a DC that is built up to 36 storeys. Even though no DC is to be slight above $5 million. Also, Mequity (Hillview) Pte paid, marketing agent Jones Lang LaSalle Ltd (a Roxy-Pacific group’s associated company), mentioned that successful bidder may have to foot bought 7 adjoining factories that are situated on a a land premium of approximately $1.22 million for 49,164 sq ft land area in the Hillview area. The $45 the alienation of some 1,167 sq ft of state land. 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 July The 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 Copyright © 2011 All Rights Reserved. Page | 5
  7. 7. SINGAPORE PROPERTY WEEKLY – Issue 2 The Viridian priced at an average of $1,550 Pasir Ris DBSS site awarded at a bid of psf and Wing Tai Holdings sold more than $123.9 million 140 units in its Foresque Residences Kay Lim Holdings and a unit of Singapore-listed Global Orion Properties will develop its freehold SingXpress Land were awarded the Pasir Ris DBSS project The Viridian on an industrial site at Jalan site with a top bid of $123.9 million, or $281 psf Ampas. The Viridian, which will be 23-storey high ppr at a tender. The top bid, which was more than and consist of mainly one- and two-bedroom units, the market’s speculation of $250 psf ppr or less, is priced at an average of $1,550 psf. The overall was 19% above the second highest bid of $103.7 price for a single-bedroom unit will begin from million ($235 psf ppr) made by Yuan Ching $785,000. Apart from that, Global Orion Properties Development. The site, including a 48-month will launch its Hougang project near the end of the construction period, has a lease term of 103 years. year. The Hougang project will have larger units The site, which has a maximum gross floor area of and its main target purchasers will be HDB about 441,000 sq ft, can house about 410 units. upgraders. At Upper Bukit Timah, Wing Tai Holdings sold more than 140 apartments in its 496-unit Foresque Residences. Copyright © 2011 All Rights Reserved. Page | 6
  8. 8. SINGAPORE PROPERTY WEEKLY – Issue 2 Commercial News S$49.20 psf per month. As compared to the average super prime rent of US$473 psf per annum DTZ’s report shows that Singapore, ranked (S$51.80 psf per month) in Q3 2010, Singapore top 5 among Asia Pacific cities, is a ‘hot’ prime retail rents dropped from 15th to 16th on the global stage. Despite the decline, CBRE stressed choice for property investment that Singapore prime rents will remain competitive Similar to the findings in Q4 2010, DTZ revealed as around 523,000 sq ft of retail space along that offices, retail and industrial property markets Orchard Road is expected to be completed in Singapore still bear great potential for between Q2 2011 and 2013. The rents in Orchard investments. The DTZ FVI score for Q1 2011 for Road will remain stable in the medium to long Asia Pacific stood at 65, and the Singapore office termif economic growth remains stable. 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 77 Robinson Roadmay be up for sale soon volumes in Singapore for March and April. 77 Robinson Road, a 35-storey office tower However, DTZ also mentioned that the increased situated on a site with remaining lease of supply of residential houses introduced into the approximately 82 years (expires in 2093), is market may cause a fall in prices and rentals in the speculated to be put up for sale soon. The site, next few years. with a total NLA of around 295,000 sq ft and 180 parking lots, was said to have reached its maximum development potential. Property Singapore prime retail rents ranked 16th consultants have speculated that the site may not globally: CBRE be able to further its lease. The average prime retail rent in Singapore in Q1 2011 was US$470 psf per annum, which was Copyright © 2011 All Rights Reserved. Page | 7
  9. 9. SINGAPORE PROPERTY WEEKLY – Issue 2 This thus ruled out the possibility of using the site Site at Paya Lebar Central to fetch bids of for residential development. However, some $860-940 psf ppr; most popular out of the 3 analysts believed that the site will be able to draw sites added to reserve list. interested investors based on its current use and Three new 99-year leasehold sites were being balance site lease. offered under the reserve list: i) 2.07 hectare mixed-use site at Paya Lebar Central, ii) 0.38 ha Capitamalls Asia, CMT and CapitaLand to hotel spot at Little India, and iii) an EC housing develop their Jurong site in a $1.5 billion parcel at Upper Serangoon View. Analysts project mentioned that the site at Paya Lebar Central, After being awarded the plot in Jurong Gateway in which can produce around 935,600 sq ft of GFA, is a $969 million bid, Capitamalls Asia, CMT and the most popular and will be able to sell for $860- CapitaLand plan to develop the site into a 25- $940 psf ppr. 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. Copyright © 2011 All Rights Reserved. Page | 8
  10. 10. SINGAPORE PROPERTY WEEKLY – Issue 2 Why Are Investors Still Buying? Despite round after round of cooling measures in On the flip side of the coin, home loan rates start 2010 and 2011, many investors remain eager to from below 1 per cent per annum. Interest park their funds in residential properties. expenses on property investments have never been so low since 2003 to 2004, right after SARS. 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). Copyright © 2011 All Rights Reserved. Page | 9
  11. 11. SINGAPORE PROPERTY WEEKLY – Issue 2 Currently, floating rate home loan packages are Interest rates and mortgage rates are expected to priced at 0.65 to 0.80 per cent above the three- remain low for another 12 to 18 months because month SIBOR or three-month SOR or, in the case of the money supply continues to grow strongly. In ANZ Bank’s package, a blend of both. These home the 24 months of 2009 and 2010, M3 money loans cost borrowers about 1 per cent per annum. supply — the widest form of money supply measured in Singapore, defined as coins and notes Therefore, for those who are already invested in in circulation, money in savings accounts, fixed properties, there is no urgency to sell even if rental deposits, demand drafts, etc — grew by S$67.7 returns edge lower, because holding costs are low. billion or almost 20 per cent. Although rental returns average about 3 to 4 per The Monetary Authority of Singapore (MAS) has cent yield per annum, the interest coverage ratio is stated that it will allow the local dollar to gradually high, at 2.5 to 6 times. The interest coverage ratio strengthen against a concealed basket of here refers to the number of times rental returns, currencies of the country’s major trade partners, a net of expenses, can cover interest costs. move that will alleviate the pressures of imported inflation. A rental yield of 4 per cent per annum is double the bond yields of about 2 per cent on securities In addition, global investors, especially high net recently issued by Temasek-linked companies. And worth individuals from Europe, are confident those bonds were two to four times about the strength and stability of the Singapore oversubscribed by institutional and retail investors. economy, and are driven to sell their home currencies to park their funds here. Copyright © 2011 All Rights Reserved. Page | 10
  12. 12. SINGAPORE PROPERTY WEEKLY – Issue 2 Banks take in the new deposits, and after setting and beautifully landscaped grounds. It was aside the reserve requirement, they may lend out completed about six years ago and very popular the money, adding new money supply into the with expatriate tenants. More than half of the 616 system. But when money supply growth is faster units are occupied by foreigners. than the pace of lending growth, i.e. lenders are holding more money than borrowers are allowed This particular apartment has a strata area of 1,152 to borrow, interest rates will continue to be sq ft and came with an expatriate teacher from an pressured downwards. So, we have on the one international school as a tenant. The lease runs hand low interest rates that are reducing the value until November next year. The transacted price of our money, because the interest we earn from was S$1.02 million, or about S$885 per sq ft, which our savings is only about 0.1 per cent while the was similar to other transactions in Blue Horizon at costs of living is expected to rise by up to 4 per the end of last year. cent. On the other hand, we have mortgage rates of less than 1 per cent, meaning the costs of Our clients funded the purchase with 40 per cent borrowing money against a residential asset is so cash, i.e. S$408,000. Their CPF is used to fund the low that the cash flow from rentals is attractive home they are staying in today. Stamp duty and even at low rental yields. legal fees added another S$25,200 and S$2,500, respectively. The total cash outlay was S$435,700 An actual example illustrates: Our clients acquired for this investment. They took up a loan for 60 per a mid-floor three-bedroom apartment at Blue cent of the value at 1 per cent on a floating rate Horizon in West Coast Crescent. Blue Horizon is a package with a local bank. 99-year leasehold condominium with full facilities Copyright © 2011 All Rights Reserved. Page | 11
  13. 13. SINGAPORE PROPERTY WEEKLY – Issue 2 Rental income for the unit is S$3,800 per month or cash-on-cash return of 7.3 per cent. This is 10 S$45,600 per year (Note: This produces a gross times higher than the cash returns of placing rental yield of about 4.5 per cent per annum). S$435,700 into a fixed deposit. The return is also Expenses for property management and sinking higher than the expected rate of inflation for 2011. fund amount to S$3,120 per year, while interest expenses at 1 per cent (assuming interest rates The example above is conservative in that I have neither went up nor down during the first year) included the maximum costs such as legal fees cost S$6,120 per year. Making provisions for (which are usually subsidised by banks that provide property tax at about 10 per cent of the annual the mortgage) and I did not deduct expenses rental income means we deduct another S$4,560 before applying the 10 per cent property tax. from the equation. Furthermore, as we pay down the principal of the loan, the interest expenses will drop. Now, rental income minus expenses produced a net surplus of S$31,800 (=S$45,600-S$3,120- Therefore, I believe the clients are making a cash- S$6,120- S$4,560). This would have gone towards on cash return that is higher than 7.3 per cent this paying down the principal part of the loan. If the year. loan was taken over a 25-year term, they would need to contribute S$2,040 a month or S$24,480 a Property investment come with its own risks: year towards the principal. Still, they are cash Tenants may move out and the apartment may be positive. empty for a while, costs may rise, etc. Rentals may come down but we have room to absorb that slide. Note that the cash surplus of S$31,800 versus the clients’ total cash outlay of S$435,700 implied a Copyright © 2011 All Rights Reserved. Page |12
  14. 14. SINGAPORE PROPERTY WEEKLY – Issue 2 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. Copyright © 2011 All Rights Reserved. Page |13
  15. 15. SINGAPORE PROPERTY WEEKLY – Issue 2 Where Will the Market Go in the Next Few Months? Roman Abramovich, a Russian billionaire and the once commented,” the four most dangerous words 53rd richest person according to 2011 Forbes list, in investing are ‘This time it’s different’.” said: “investors have very short memories”. In According to the historical URA Private Property today’s bullish climate it is hard to imagine that Price Index (PPPI), we can tell that the property just about two years ago, there were genuine fears market is cyclical and no trend lasts forever. In a of a global financial meltdown. These days we are blog post I wrote in July 2009, I mentioned then no longer concerned about our assets becoming that the property market will not remain worthless; instead we are more concerned about depressed indefinitely. In a similar vein, I am property prices escalating beyond what we can confident that the current price appreciation will afford. not go unabated and it will correct in the near future. In view of this, some people may inevitably believe that this current “bull” run will last forever and The question is how can we tell when the make risky investments in fear of losing out. They Singapore property market is going to dip? attempt to rationalise that it is different this time round and that the spectacular market In my second book entitled Buy RIGHT Property – performance is due to the emergence of Asia as a Taking the R.I.G.H.T. Approach to Property new financial powerhouse. Investing in Singapore, I shared that my company has developed a proprietary index called the John Templeton, a very prominent stock investor Ascendant Assets Index (AAI). Copyright © 2011 All Rights Reserved. Page | 14
  16. 16. SINGAPORE PROPERTY WEEKLY – Issue 2 The basic premises of the AAI are (1) there is a 80%. Over the next few quarters, we expect the lead-lag relationship between the stock and AAI to drop further. When the AAI falls below the property market and (2) we are able to tell how 50% mark (represented by the dotted line), it the property market is performing by analysing the signals a turning point as the stock market will be correlation between the stock and property almost completely out of sync with the property market. For example, in bullish (or bearish) market market. It signals an overall change in underlying conditions, we would expect the correlation market sentiments and the property market would between the stock and property market to be high be expected to decline shortly after. as prices are increasing (or decreasing) in tandem. Figure 1: Ascendant Assets Indicator (2011Q1) 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 Copyright © 2011 All Rights Reserved. Page |15
  17. 17. SINGAPORE PROPERTY WEEKLY – Issue 2 Conclusion It 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. Copyright © 2011 All Rights Reserved. Page |16

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