WHICH gives you better returns in terms of capital gains? Freehold or leasehold? Neither really. The evidence is inconclusive.

Some years back, I made several comparisons. Depending on the period analysed or property cycle selected, you can declare one better than the other. What this really means is: You do get what you pay for.

There is some confusion in the market which only benefits unscrupulous agents. They will try to convince you that the tenure of the property they are selling is better. The general perception is that freehold is better. Yes, but only in ownership rights, not capital gains.

In terms of rental yield, the leasehold property comes out better because you are not likely get more rent on the basis of tenure.

To correct an earlier report, the price gap between the tenure types does not disappear during good times. It widens during bullish periods and narrows over downturns but it is always there.

The reason for the premium lies in ownership rights, not in housing services provided. The housing benefits (e.g. location, surrounding amenities, etc) for similar properties with different tenures are the same. From my observations, the premium is also not a fixed gap, i.e. $200 or $300 per sq ft, nor is it a percentage. It is a combination of the two. So, as prices rise, the percentage actually drops slightly.

Also, a lone leasehold among freehold does not fetch any more less than it should. Vice versa. But if you think about it, a leasehold among freeholds should fetch more as there is no competition whereas a freehold among leaseholds will stand out as being more expensive and having to justify its higher cost.

Recently, a developer made the news by selling the leasehold rights on a property to which it holds the freehold title.

Are there any potential pitfalls? Well, in a collective sale, the sellers may not get a better price than if the master owner were someone other than a developer. Which developer would allow a competitor to earn on a property which it could earn for itself? So, any sale would likely be a collective sale back to the master owner.

Another disadvantage of leasehold properties cited by some is that a lease top-up is never guaranteed by the master owner.

On that matter, I would say that no property is guaranteed, especially in a small place like Singapore. Freehold properties have been compulsorily acquired before. Nothing stands in the way of redevelopment.

A leasehold property is a depreciating asset. When a significant proportion of the lease has expired, its value may drop sharply. But this has to do with the policy of granting loans here. Some banks do not lend on leases with less than 65 years remaining. Without the aid of loans, demand for such properties shrinks due to affordability issues, not tenure per se.

In conclusion, we should not be overly-fixated with tenure because the substantial value of a property actually lies in its location – not tenure, not facilities, not fittings.

People often forget this, even developers. Sometimes, prospective buyers are blown away by the branded fixtures and fittings, forgetting that these depreciate over time.

HDB valuers very often experience problems from sellers because of extensive renovations done five years or more previously. These owners forget that designs get outdated, while some improvements are a matter of taste. Get a buyer who shares the same taste and you should be able to get well above market value.

Keep it simple if you intend to sell your flat a few years down the road.

The writer is the director of research and consultancy at Chesterton Suntec International. The opinions expressed here are his own.

Source : Today – 16 Jan 2010

There is a low-grade property fever going round and I’ve caught it.

Property fever is endemic in land-scarce, high-savings-rate Singapore. It comes and goes in waves.

Last year’s actions by the Government to curb speculation and boost supply staved off what could have become a raging 40 deg C fever. The assurance of having eight residential sites on the confirmed list and another 16 on the reserve list, which together will yield about 10,550 units, also cooled demand.

Despite all that, the fever persists.

Property analysts can give you the big picture to explain the emerging property frenzy. The economy is turning the corner and expected to grow by 3 per cent to 5 per cent this year. The opening of the integrated resorts will give a fillip to the economy – if not in large gross domestic product terms, at least in consumer sentiment. And as everyone knows, the property market here is all about sentiment.

Which is why no cold statistics can give you a good sense of what it’s like to be a Singaporean caught up in the property fever.

Here’s how it is, from one febrile patient. I take my pulse and I know my property fever is back, but it’s a mild one at 37.5 deg C.

Symptoms: I’m back to my bad old ways of scanning property classifieds and calling up agents to inquire about viewings and prices. Weekends are spent shuttling from one development to another, exploring potential buys.

My beleaguered support system of boyfriend, patient bankers, financial adviser and real estate agent has had to contend with my ’should I or shouldn’t I’ questions, come up with quick valuations of places I’m interested in, and send me quotations for loans I will take up when – and if – I take the plunge.

From a contented Housing Board flat-dweller, I am being converted by the day into a potential ‘upgrader’.

I actually love my home, a quiet spacious HDB flat with 180-degree green views and lots of birdlife to watch from my windows. It’s walking distance to markets and kopitiam, which to me are a quintessential part of HDB life. There’s a swimming pool and neighbourhood gym minutes away.

And still, when the fever hits, I hanker after a condo. I want 24-hour security, an on-site swimming pool, sauna and steam room optional, a resident gym, tennis courts, BBQ pits and big balcony.

Meanwhile, HDB resale prices are hitting a record high. I get fliers in my mailbox every day showing a list of prices flats in the neighbourhood were sold for. I think: Maybe my tastefully renovated unit with gorgeous views will set a new record high for the area. Maybe my flat will be one of those featured in the papers, like that iconic $770,000 Bishan penthouse maisonette sold in 1997 that people still remember. And if I sell my flat high, all I need to do is top up another $300,000 to own my dream condo.

Meanwhile, my employer is restoring pay cuts. As behavioural psychologists will tell you, getting back $100 you lost gives you more happiness than if you had that $100 all along.

My modest investment portfolio has fewer minus signs to show losses. Some funds have even made gains. Suddenly, I feel rich. The condo itch surfaces.

But I had better act fast. Private property prices are rising steadily. They are higher today than they were a year ago, but have still not reached the levels of the 2007 mini-boom. Nor are prices in some developments as high as the last Big Boom of 1996/1997.

Quick, there’s a window of opportunity. Seize the moment, grab that condo now while HDB resale prices are firm, before private property prices rise further and that dream home gets out of my reach!

There are many buyers thinking like this out there, rushing to clinch dream homes or dream investment opportunities, before private property prices spiral up. Never mind that the economy remains uncertain. Or that forecasters say the big supply coming onstream this year will moderate the market.

In fact, the Government has set aside enough land this year for 10,500 condominium units, with 87 per cent of these outside the central region, in suburban areas. This should soothe HDB upgraders, who form the bulk of buyers of these suburban condos.

As of the third quarter last year, 34,120 out of 59,700 private homes in the pipeline were unsold. As for young couples, the HDB is prepared to build 12,000 new flats this year if there is demand.

My head tells me supply is plentiful, so by the rational laws of demand and supply, prices should not rise unduly. I recall doomsayers who warn that the crisis is not over, and that the current upswing is the result of rescue action that merely papers over deep crevasses. Governments’ debt positions due to massive borrowing for stimulus packages could ironically trigger further turmoil.

But the fever just tells me one thing: That dream home may be out of my reach in six months’ time, or a year, if prices rise further.

One Saturday, I called up about a freehold condo unit in Upper Bukit Timah. I could not make the viewing that day and arranged to view it on Sunday. On Saturday night, the agent sent me an SMS to cancel the viewing. The unit had just been sold.

Last weekend, I viewed another apartment in the west. The next day, the agent told me it was sold. ‘I had three offers in one day! Three! It’s crazy. Why are people rushing to buy?’

I could have told her: ‘Because they think prices are going up and they fear missing the boat.’

Would-be buyers know the property cycle is unpredictable. Miss the boat now and prices could continue on an upswing and remain high for years. It could be five years, seven years or more before that condo comes back within your reach.

And meanwhile? If you chose the wrong HDB estate to live in, you put up with smelly lifts, dog poo in void decks, and resign yourself to jostling with schoolchildren and ah pek in the $1-per-entry public swimming pool ($1.30 on weekends when you have to literally elbow people out of the way and mind your safety as swimmers literally kick in your face).

I have hospitable friends who tell me I can use their condo pool. Still, I think wistfully, how nice to live in a condo and swim at dawn, dusk or whenever the mood strikes, and throw BBQ and tennis parties (never mind if I hate standing over a smoking fire and that I don’t even have a tennis racket).

I’m old enough to be mindful of the risks of a property purchase: falling prices and the risk of negative equity.

I also know the arguments against property as an investment in Singapore: low rental yields, the risk of rising interest rates, problems getting tenants or getting the wrong types of tenants, higher property tax and higher income taxes from rental income.

But the fever persists.

Now, if only I can find a sucker – I mean a buyer – to pay a record price for my HDB flat. Then I could swoop on one of those dream condo units before prices get out of reach. But I have to act fast!

Or I could stay put in my lovely home and let the fever subside.

As it surely will.

Source : Sunday Times – 17 Jan 2010

At US$5.4 billion, it was – and remains – the most expensive single property sale of all time.

What it bought in 2006 was Stuyvesant Town and Peter Cooper Village, twin housing projects that sprawl across 32ha on the East Side of Manhattan in New York City, home to some 25,000 tenants.

Built by US insurance giant MetLife in the 1940s, the projects comprise 56 blocks of boxy apartments – not unlike Singapore’s own HDB flats.

The developments, targeted at New York’s hard-working middle- income earners, have been described as one of the most iconic and successful of post-war private housing communities.

But according to the latest issue of The Atlantic magazine, they are ‘entirely barren of inviting corners or eye-catching detail’. American writer and historian Lewis Mumford dubbed them ‘the architecture of the police state’.

MetLife spruced up the World War II-era developments and put them on the market in 2006. Real estate moguls, heads of pension funds and international investment banks, and investors from Dubai jetted in for the sale.

A joint venture put together by established real estate developer Tishman Speyer and private equity giant BlackRock were the winning bidders through their willingness to pay a whopping premium to unlock what they saw as the deal’s huge potential profits.

Three years on, those profits are still locked within the property’s 11,232 apartments, many of which remained rent-controlled despite strenuous efforts to convert them to upscale market-rate rentals.

The deal is now on the verge of becoming the biggest real-estate default ever.

On Jan 8, Tishman Speyer and BlackRock announced they would miss a US$16 million (S$22 million) debt payment due that day as their reserves to pay off the debt on their highly leveraged deal had run dry.

The companies had financed their huge purchase with loans totalling more than 80 per cent of the price. In all, there is US$3 billion in debt financed through the sale of bonds. But based on current rents being paid by the tenants, the property is worth just US$1.8 billion, says credit rating company Fitch.

An official notice of default is expected, and the special servicer, CWCapital, will sort through the numerous investors who hold the debt on the property – including the Government of Singapore Investment Corporation (GIC).

The GIC reportedly holds US$575 million in mezzanine debt backed by the property and a further US$100 million in equity. Last Monday, the state investment company said it had ‘recognised the losses’ on its investment last year. It is also believed to have written down the value of the loan.

Some of the bondholders are reportedly demanding payment within this week from the owners, in what would be the first step towards a foreclosure.

How did this deal go so far wrong?

The missed payment was just the beginning of an end of three years of pain for the owners, who bet big at the market’s peak that rents could only keep going up, said The Atlantic magazine.

They also gambled that they could remove rent-regulated tenants at a faster rate than they already had been doing, converting the apartments to market rates that could pay twice as much rent.

Then came the recession: rents flattened and then fell; the rate of conversions slowed. With net income well under projections, the partnership started spending down its US$900 million in reserves, said the magazine.

Worse was to come: In October last year, a New York court ruled that the partnership had improperly decontrolled the rent for thousands of apartments, and would have to return them to their original status.

The problems began when New York City Council member Daniel Garodnick, a lifelong resident of Peter Cooper Village, organised a tenants group to make a buyout offer to MetLife for the projects back in 2006. Its bid fell short of the winner’s.

Galvanised, ‘Stuy Town’ and Peter Cooper residents filed a class action lawsuit against MetLife and Tishman Speyer claiming that they were improperly charging tenants market-rate rents while at the same time receiving real estate tax benefits for rent-controlled apartments.

Tishman Speyer was also hit with a lawsuit for unlawfully attempting to evict residents from the historically affordable development.

Now analysts are predicting default in a matter of months unless the partnership’s huge debt can be restructured – a shaky prospect, given that the owners may owe some tenants as much as US$200 million in rent overcharges and damages, The Atlantic reported.

What happens next is unclear, and will depend what road the special servicer and bondholders decide to go down, said the magazine. The property could be sold, though there is uncertainty over the price given outstanding litigation following the court decision on rent controls, it added.

The travails of Tishman Speyer and BlackRock are duplicated across the US commercial real estate market where prices have fallen 43 per cent since late 2007.

But while the US housing market’s boom and bust is often depicted as a tale of unsophisticated home buyers led astray by greedy bankers, the commercial sector’s landlords had all the expertise they should have needed to put a fair price on properties.

Take Tishman Speyer which has been in the real estate business for decades; the investors who trusted the firm with their money were blue-chip institutions like the Hartford Financial Services Group and the California Public Employees’ Retirement System.

Yet, according to The Wall Street Journal, when Stuyvesant Town was sold, lenders were projecting that the Tishman Speyer-BlackRock partnership would be able to triple its net income in five years through building upgrades and rent decontrol.

But The Atlantic argued that even before the financial crisis sapped demand in the rental market, this plan was questionable.

‘The buildings simply were not built as deluxe rentals – the mosaic tile in the public areas has been replaced by marble, but in the cramped vestibules and narrow hallways, the effect isn’t luxurious; the buildings just look like they’re dressed up for Halloween,’ said the magazine.

‘With mostly tiny kitchens, and no room in the lobbies for a doorman, these apartments were never going to command the kind of rents that would justify the partnership’s bid,’ it added.

Besides, said the magazine, rent-controlled tenants like to sue, and everyone but a tourist would know New York’s housing law is notoriously tenant-friendly.

Even if the new owners had found tenants willing to pay top dollar, there was a good chance they would never have been allowed to charge it.

The magazine concludes that the best explanation for the calamity ‘may simply be that cheap money makes us all stupid’.

Cash-rich investors poured money into the US – and global – loan markets, driving interest rates lower and fuelling the property bubble in both the commercial and housing sectors. Until the bubble burst.

Source : Sunday Times – 17 Jan 2010

In the last 30 years, the real estate arm of the Government of Singapore Investment Corporation (GIC) has grown from a small internal division to one of the top 10 property companies in the world.

Formed in 1982 as GIC’s real estate investment department, GIC Real Estate now has seven offices – in Singapore, London, New York, San Francisco, Seoul, Shanghai and Tokyo – and employs almost 150 people all over the world, according to its website.

GIC RE accounts for about 12 per cent of GIC’s portfolio, which is worth more than US$200 billion (S$278 billion), according to reports. GIC is estimated to be the world’s fourth-biggest sovereign fund.

Alongside conventional assets such as apartment and office buildings, GIC RE also owns unusual properties, including student housing and sports facilities. In total, it holds over 300 investments across more than 30 countries.

Some of its trophies include the Queen Victoria Building in Sydney, Australia; the Seoul Finance Centre in South Korea; the Westin Paris in France; the Shiodome City Centre in Tokyo, Japan; the Franklin Centre in Chicago, the United States; and the Bluewater Shopping Centre in Greenhithe, England.

In recent years, GIC RE has embarked on a buying spree around the world.

In 2007, it formed a joint venture with Sumitomo Corporation to invest up to US$1.3 billion in Japanese retail properties, making it one of the largest private retail property investors in Japan.

That year, it also bought stakes in MetroCentre, Europe’s largest shopping centre, and Westfield Parramatta, one of Australia’s biggest malls.

In February 2008, the company partnered ING Real Estate to buy a shopping centre near Rome, Italy, for 400 million euros (S$832.3 million), in what was the largest single-asset transaction in the Italian retail market.

In the same month, GIC RE also bought the Westin Tokyo in Japan and a stake in a mall in Helsinki, Finland.

But not all of GIC RE’s investments have been profitable. Last week, the company reported losses from its investment of about US$675 million in New York’s Stuyvesant Town and Peter Cooper Village, the largest residential enclave in Manhattan.

Source : Sunday Times – 17 Jan 2010

Good class bungalows (GCBs) enjoy a unique status in the Singapore residential market. These detached houses are highly exclusive as there are only around 2,400 units in the whole of Singapore.

They typically have a minimum plot size of 1,400 sq m, or 15,070 sq ft, and are distributed in 39 designated areas. The GCB market is stable and resilient because GCBs are evergreen investment products that are preferred by ultra-high net worth individuals.

GCBs are limited in supply in urban Singapore where landed housing is scarce. There will never be an oversupply situation. For the buyer, the odds of prices appreciating are better than that of them depreciating.

Most GCB owners have strong holding power, reducing the risk of falling prices during a downturn. Fire sales are thus hard to come by. This has been especially apparent in the recession year of 2009.

Despite the bleak economic outlook, last year was a brilliant year for the GCB market. The total value chalked up was in fact the highest since data was first made available in 1996, with 100 transactions amounting to $1.59 billion, far surpassing market expectations.

The month of July, in particular, saw the highest-ever number of 23 GCB caveats lodged in a single month. As economic fundamentals catch up with sentiment in the residential market this year, the outlook for the GCB market remains healthy.

Given an expected stable GCB market this year, the total transacted value could range from $1.2 billion to $1.4 billion with 80 to 90 transactions. This is lower than last year as the majority of buyers could have already made their purchases in 2009 itself. Buyers who had earlier anticipated that prices of GCBs would dip may have bought these properties last year, before GCB prices increased further along with the improvement in the equity market and market sentiments.

The recent financial crisis caused many investors to recognise GCBs as stable investments that are comparatively less risky than other forms of investments. With such optimism in the market, prices of GCBs could go up further this year.

While it is not possible to pinpoint the price increase on a per sq ft basis due to the unique features and rules governing the sale of GCBs, anecdotally, an overall quantum of $20 million and above per transaction has been occurring more frequently. Last year, there were 20 GCBs sold at a price of $20 million and above, compared to only 12 transactions in 2008, nine in 2007, and a mere four in 2006.

Basically, GCB prices are determined by three factors.

The first of these is location. While there are 39 designated bungalow areas in Singapore, some addresses are more exclusive than others, such as those in districts 10 and 11 compared with those in districts 20, 21 and 23. This explains the popularity and higher volume of transactions in the Nassim, Dalvey and Tanglin areas, which are the prime pickings from the GCB crop.

The second factor is the land on which the bungalow sits. Considerations to take into account here include the shape of the land, its terrain, its frontage and its potential for sub-division.

The final factor is the actual house on site: whether it is single- or double-storey, and how old it is.

Previously, before the escalation of construction costs in 2007, the actual bungalow on a GCB site made up around 20 to 25 per cent of its total price, with the land itself accounting for the rest. But in recent months, this proportion has risen to 25 to 30 per cent.

Most GCB sellers are people who have owned their GCBs for around 10 years, and who bought their homes when prices were lower. They usually own more than one GCB. With the current high profit margins, they are prepared to cash out and invest in other areas.

As for buyers, there are two categories. One group is young professionals in their late 30s who buy for their own stay. While in the past the typical age of a GCB buyer would be in the mid-40s, it is now not unusual to find GCB buyers in their late 30s.

The second group consists of ultra-high net worth individuals who buy for long-term investment, and eventually pass on the GCBs to the next generation.

In recent months, young professionals and entrepreneurs, as well as permanent residents, have been observed to show keen interest in the GCB market, driving up demand in a market that already has a limited supply.

This trend is expected to continue in 2010, as younger affluent home buyers recognise the investment value of GCBs.

The writers are CB Richard Ellis’ director of luxury homes and associate director of research.

Source : Sunday Times – 17 Jan 2010

When it is fully developed in 2014, Sentosa Cove will have just over 2,100 homes.

Inspired by Port Grimaud in France, the area offers residents a style of living that is sharply different from what they can find on mainland Singapore. Residents in this gated waterfront enclave enjoy a resort lifestyle next to the sea, complete with private berth facilities.

The area – which has been just one big amorphous construction site in the past two years – is slowly taking shape. Access has been enhanced with improved road infrastructure, and Resorts World Sentosa is nearing completion, with the partial opening of four hotels on Wednesday.

Other parts of Sentosa have been or are being upgraded. As the jigsaw pieces fall in place and a far more vibrant Sentosa emerges, more buyers – especially foreigners – will be drawn to housing there.

In 2004, when Sentosa Cove’s first project, The Berth by the Cove, was launched, only 26 per cent of the units were taken up by non-Singaporeans – that is, permanent residents (PRs), foreigners and companies.

The proportion of foreign buyers has increased since then. Last year, non-Singapore citizens accounted for around half of the transactions at Sentosa Cove.

In contrast, non-Singaporeans made up only 38 per cent of the buyers of waterfront housing in Districts 1 and 4, which cover Marina Bay, the HarbourFront and Telok Blangah.

When Seven Palms at Sentosa Cove was launched in October last year, four of the six units in the condominium were bought by foreigners: three from Hong Kong; the other from the Philippines.

Similarly, three of the six units sold during last month’s preview of Kasara were taken by non-Singaporeans.

In the past two years, the top foreign and PR buyers at Sentosa Cove have hailed from Indonesia, Malaysia, Britain and China – mirroring those who bought homes in Districts 9, 10 and 11.

However, the proportion of Indonesian buyers at Sentosa Cove dropped during this period. They made up less than a fifth of the home sales at Sentosa Cove, but accounted for more than a third of the private home transactions in the prime districts.

Malaysians also accounted for fewer home sales at Sentosa Cove – 16 per cent, against 22 per cent in the prime districts.

In contrast, British and mainland Chinese buyers took up more homes in Sentosa Cove than they did in the prime districts.

The British accounted for 14 per cent of home sales at Sentosa Cove, compared with just 6 per cent in the prime districts.

Similarly, mainland Chinese bought 12 per cent of homes in Sentosa Cove, but just 7 per cent of homes in the prime districts.

During the boom period in 2007, Sentosa Cove homes did as well as other waterfront homes in mainland Singapore, and homes in Districts 9, 10 and 11. Prices in these segments outstripped those for the rest of the market.

Landed homes in Sentosa Cove cost only slightly less than the much-coveted good class bungalows (GCBs), although they have smaller land areas and 99-year leasehold tenures.

For detached houses in Sentosa Cove, the land area typically ranges from 650 sq m to 950 sq m, or about 7,000 sq ft to 10,225 sq ft. Price-wise, they cost $11 million to $16 million in the second half of last year.

As a comparison, a freehold GCB with a land area of 1,400 sq m to 2,000 sq m costs $12 million to $19 million.

Detached houses in Sentosa Cove are now fetching far higher prices than they did during the 2007 property boom. Buyers who bought these homes then and sold them last year have made a profit of 25 per cent on average.

In contrast, freehold detached homes in prime districts enjoyed an 18 per cent rise in price between 2008 and last year.

When fully developed, Sentosa Cove will have only around 400 landed homes, whereas there are about 2,500 GCBs on the mainland. The limited supply of Sentosa homes could explain why they are so desirable.

Furthermore, Sentosa Cove is the only place in Singapore where foreigners are allowed to own landed homes without first becoming PRs.

Singapore has always been viewed as a safe haven for investment because of its political stability, well-regulated property market and transparent policies.

With the integrated resorts at Marina Bay and Sentosa due to open soon, investors are likely to turn more confident about Singapore’s private property market.

Well-heeled foreign investors are increasingly turning their attention to the high-end segment of the property market here, which has historically shown greater upside potential during periods of economic expansion.

This group of investors has a preference for trophy investments that offer unique attributes. Hence, Sentosa Cove homes are likely to attract heavy interest as economic prospects brighten.

The writer is head of South-east Asia research at DTZ Debenham Tie Leung.

Source : Sunday Times – 17 Jan 2010

Mass market private homes gave a roaring start to the recovery of Singapore’s property market last year, fuelled by pent-up demand and priced-to-sell projects in the earlier part of the year.

Home hunters, dominated by HDB upgraders, thronged showflats in the euphoria of improved market sentiment. The speed at which these units were taken up, and the number of long queues spotted at property launches, stunned market watchers.

The mass market rally showed little signs of easing until anti-speculative measures were introduced by the Government in September last year.

Having given a resounding overall performance, surpassing even the levels attained in the 2007 market boom, would the mass market segment remain a star performer this year?

The strong run-up in the sales of new mass market homes had seen prices of new launches slowly inching up over the last few months.

The transacted prices of these new homes rose from between S$500 per sq ft (psf) and $700 psf in July last year to between S$750 psf and $1,000 psf in November.

The number of mass market transactions surpassing the $1,000 psf mark also increased. There were 392 such transactions last year, compared with 75 in 2008. The highest-priced mass market home was a unit at Centro Residences in Ang Mo Kio which, at $1,289 psf, fell comfortably within the mid-tier range.

More mass market projects have also achieved average prices in excess of $1,000 psf. Besides Centro Residences, some of the projects were Hillvista in the Hillview area and The Lenox along Changi Road.

Moreover, a 99-year leasehold residential plot located along Serangoon Avenue 3 drew a winning bid of $221.2 million, or S$529 psf per plot ratio, from a unit of Hong Leong Holdings. Based on this land price and current construction costs, the selling price for this mass market development could breach the $1,000 psf mark when launched.

Although prices of mass market private homes have increased, a growing number of developments is also offering a new product mix to keep prices affordable.

The popularity of smaller unit types (studio, one bedroom plus study, two bedroom, and two bedroom plus study) within the central region seems to have filtered down to the mass market segment.

Unlike the high-end and mid-tier segments, mass market homes are usually larger in sizes as buyers often purchase them for their own occupation rather than for investment. Therefore, only an estimated 10 per cent to 20 per cent of units within a mass market development are designed with smaller sizes.

However, recent trends seem to indicate that more mass market developments are offering smaller units. For instance, 59 per cent of Optima @ Tanah Merah and 43 per cent of Hundred Trees are given to smaller unit types. Buyers seem receptive, going by the good take-up rates seen in both projects.

As the Government remakes the outskirts of Singapore into attractive satellite towns, more investors may start to see investment value in mass market private homes located in these regions.

For example, the transformation of the Jurong Lake District may have contributed to the spike in property transactions in the western part of the island. Popular projects in the western region last year were Caspian, Mi Casa, Lakeshore, The Centris, Lakeholmz and Parc Vista.

The rejuvenation of Bedok Town Centre, expansion of the Tampines Regional Centre and Changi Business Park, and the building of the fourth university may also have increased interest in developments in the eastern suburbs such as Optima @ Tanah Merah, Livia, The Gale, Oasis @ Elias, Waterfront Waves and Ferraria Park Condominium.

As more towns undergo rejuvenation, mass market homes may become even more attractive in future.

Going forward, prices of mass market private homes are likely to increase at a more moderate and sustainable pace this year.

For one thing, more mass market homes will come on stream over the next few quarters. About 14,500 such new homes will be completed over the next five years, with another 8,960 potential units to be added from the Government’s land sales programme for the first half of this year.

Also, HDB resale prices are expected to ease with the Government’s plan to introduce 10,000 to 12,000 new flats annually over the next five years.

The writer is senior manager of research and consultancy at Savills Singapore.

Source : Sunday Times – 17 Jan 2010

Many property owners have been asking us: Is it time to sell en bloc? Are developers ready to buy? Should we start the process now, or wait for the market to pick up further? Are the new en bloc laws too onerous?

In 2007, there were more than 100 such deals, but 2008 saw fewer than 10, and there was just one last year. So what is in store for 2010?

We certainly do not have the answers to all of these questions.

However, it is probably safe to say that last year’s tally of one deal will be beaten this year. In fact, it could well be surpassed this month itself.

To deal with all the other questions, we have to first understand how en bloc sales work, and why at times they do not.

Developers buy land when they are confident of the market ahead and of the potential profits from the deal. So when the market outlook is uncertain – or worse, outright bad – they simply stop buying. This explains the relatively barren years of 2008 and 2009.

The unique characteristic of en bloc sales is that they follow the general property market cycles, but in a rather dramatic fashion, basically accentuating each up and down curve of the cycle.

Each typical property market cycle can be sub-divided into four – by dividing each of the upswings and downswings into two.

When the market begins to move up, in the first quarter of the property market cycle, land prices move up the fastest as developers tend to do most of their land acquisitions then. That is when the en bloc sales fever reaches its peak, as in the 1995/96, 1999/2000 and 2006/07 periods.

In the second quarter of a typical market cycle – while the market is still moving up but at a slower pace than earlier – seasoned developers start getting cautious and take their feet off the pedal. They buy very selectively, if at all.

In the third quarter, when the market starts falling and land prices fall even faster, some developers (and en bloc sales professionals) start looking for other businesses or markets.

In the last quarter of the cycle, the market begins to find a floor showing signs of stabilisation. From a developer’s perspective, that is actually the best time to buy distressed assets. But in reality, very rarely are gems available for sale then – certainly not en bloc sales, as land prices at that stage do not stack up for sellers.

So it is actually only in the first quarter of a market cycle that most of the en bloc sale activity takes place. It is during that quarter that land prices will outperform apartment prices, and rise to levels that offer attractive premiums over the total value of all the units in a particular development.

And it is precisely in this period that owners in suitable projects should act decisively to seize their en bloc chance.

So if the market takes, say, four to six years for a complete cycle, en bloc sellers in effect have an average window of opportunity of one to 11/2 years per cycle. It also means that if you miss the boat this time, you have to wait for the next one, three to five years later.

Based on our reading of the market today, we believe this year could see booming business in en bloc sales as the market emerges from the woods and recovers broadly from the lows of 2008 to 2009.

It is difficult to say just yet whether this new cycle would be short or long – that is, whether collective sale activity will last the year and even spill over to 2011. Much is dependent on the strength of the new wave of factors driving the uptrend, as the factors differ in each cycle.

At this point, we understand that owners of as many as 50 projects have recently formally started their en bloc sales processes and are gearing up to hit the market sometime in the first half of this year, some as early as this month. They range from small to large projects and are located in all major residential districts.

Many more owners are likely to jump on the bandwagon, especially if the earlier ones prove successful. Of course, it remains to be seen if all of the projects being worked on manage to secure the owners’ agreement to sell in the first place.

If the projects are priced reasonably, we believe they should have a good chance of landing a buyer this year.

The projects that were marketed last year were mainly initiated in 2007 or early 2008, which means their minimum sale prices were locked in at the market peak then.

The projects to be marketed this year have just been initiated, and many would be more aligned with the current market, although there are some seeking prices higher than at the 2007 peak.

Reacting to the sharp upturn in mass market homes last year, the Government is releasing more land sites this year. Owners should note that these would compete for developers’ interest.

But given that most of the government sites are located in suburban areas, en bloc sale projects located in more central or prime locations could still do well.

The announcement of the exact locations of new MRT stations could also help resuscitate the prospects of previously unsuccessful en bloc projects.

In terms of pricing, developers are willing to pay between $30 million and $300 million per deal. This could grow as market sentiment and confidence improve.

The writer is managing director of Credo Real Estate.

This year could see booming business in en bloc sales as the market emerges from the woods and recovers broadly from the lows of 2008 to 2009.

In July last year, a buying wave of tsunami proportions drove developers’ sales for the month to an astounding 2,772 units.

To put that into context, the number was huge even for a quarter, let alone a single month. It is easily more than three times the monthly average sales of 700 to 900 units over the past decade.

If robust sales for the previous five months – averaging over 1,400 units per month – had not made policymakers sit up, this result certainly caught everyone’s attention.

Was it pent-up demand? Quite a few thought so. Speculative? The Government thought so. It announced measures in September to ‘temper the exuberance in the market and pre-empt any speculative bubble from forming’.

Developers were dismayed, thinking the measures were a death knell for the fragile market. Actually, the impact was more psychological than real, because the measures were aimed at pure speculative plays, not investors.

Have the measures worked? It is hard to tell. Sales in the following months fell, but they would have come down anyway, with or without the measures. July’s figures were simply too high.

Many predicted even fewer sales with the approaching year-end holiday period. But November’s figures showed a solid 600 units sold. Considering it was a ’slow’ month, sales were good as they were achieved despite rising prices.

The actual price rise in the fourth quarter of last year will probably be more than the 7.3per cent estimate last month. Certainly, this is not a market which has seen better days.

Will buying continue? There is no reason why not. Investors are buying, not speculators, so the cooling measures have little impact.

Chinese investors in particular are leading the charge. Many have taken profit in China’s real estate boom, and their funds are now moving into Hong Kong and spilling over to Singapore.

So what might happen this year? Unless there are alternative channels for this massive liquidity, the buying will likely continue until the authorities are forced to step in to limit the risks arising from the banking sector’s increased exposure to the property sector.

As I see it, there are two possible scenarios for this year: continued healthy growth, or a sharp correction.

Demand still genuine

There is genuine pent-up demand for homes as there has been a rapid increase in the number of households over the past two years. Many are buying now instead of renting, with the majority buying for their own occupation.

While incomes have not risen as rapidly as prices, most buyers are sitting on accumulated wealth. In the case of new permanent residents, many have made huge capital gains on properties in their home countries.

The opening of the integrated resorts will bring in more employees. Even if these are not of managerial level, they will stoke the Housing Board resale market, which in turn supports the private housing market as HDB upgraders cross over.

The economy’s exposure to property will be moderate as most buyers are not borrowing up to the 80per cent allowed, as they are using their accumulated wealth to lower their loan-to-price ratio.

Importantly, the economy is growing again. So will incomes, even if both are expected to see slow growth. The widening gap between home prices and economic fundamentals will narrow eventually.

Money from China and elsewhere is flowing in in search of long-term investments. Even if they are not living here now, most investors intend to make Singapore their home in the not-too-distant future. Many are not likely to pull out their funds at the drop of a hat.

Investing in property is a hedge against inflation. Where stock prices may go down, property will hold its value. Investing in property is a sure thing if you hold it long enough.

Over-reliance on investors?

But part of the capital inflow that is driving up property sales and prices is hot money seeking high yields. If returns are better elsewhere, it could leave quickly.

Liquidity also feeds on confidence. When that is lost, funds move out, such as in Dubai.

At current price levels, most genuine owner-occupiers have been crowded out. This explains the sudden popularity in HDB resale flats and the sharp rise in resale prices.

Many of those still buying homes are investors. Developers recognise this and are focused on the investor buyer: apartment sizes have shrunk to as little as 300 to 400 sq ft to raise affordability and some sales previews are limited to buyers interested in multiple units.

If investors form the bulk of buyers, who will occupy the completed units? Private rentals are not moving up just yet. Traditionally, owner-occupiers form the bedrock of property purchasers. When that balance is heavily distorted, you can expect serious repercussions.

Also, property prices move in cycles. Gone are the days when prices moved up in a straight line. Buying at the peak means waiting a full cycle before prices come up again. In the meantime, will rentals cover investors’ loan repayments?

The stimulus packages rolled out by governments worldwide helped save the financial system from collapse. However, this situation is unsustainable and the stimulus will need to be rolled back eventually, leading to rising interest rates.

With rates so low now, any big increases could translate to a doubling or even tripling of mortgage payments.

Even if Singapore manages its asset inflation situation prudently, a domino effect is still possible if overseas property bubbles burst.

To sum up, the health of the market depends on the number of investors versus those buying for their own use. But even if there are many more investors, it still does not guarantee that the market will correct immediately, although cracks will eventually surface.

The writer is director and head of research and consultancy at Chesterton Suntec International.

Source : Sunday Times – 17 Jan 2010

Mass market and mid-tier housing launches had dominated the market last year while developers held off launching their posh projects.

But the scene is set to reverse this year, with high-end project launches taking centrestage.

These are projects located in districts 9, 10 and 11 as well as in Sentosa Cove and Marina Bay. Quite a few are around the Orchard Road area such as Ardmore Park, Emerald Hill Road and Handy Road.

In the Cairnhill area, new launches will include the 229-unit The Laurels and the 64-unit Urban Resort Condo.

Projects coming up for launch in another posh residential area, Sentosa Cove, include the 228-unit branded condo in Sentosa Quayside and the 151-unit Seascape.

High-end projects are already starting to stream into the market.

Savills Singapore said it launched the 20-unit 42 Stevens yesterday at an average price of $1,900 per sq ft (psf), and plans to start selling 8 Nassim Hill at $3,100 psf on average on Tuesday via a preview by appointment.

Some of the projects that CBRE is marketing in the first quarter of this year include Cube 8 along Thomson Road, Holland Residences, The Holland Collection, Emerald Hill Residences and Cheung Kong Holdings’ project along West Coast Crescent, said its executive director, residential, Mr Joseph Tan.

Still, upgraders need not fret as there is still a list of mass to mid-tier projects available.

This year, new launches could be between 7,000 and 9,000 units, down from 14,725 last year, said Colliers International’s director of research and advisory, Ms Tay Huey Ying.

‘In terms of projects, it will be highly skewed to the high-end sector.’

But in terms of units, there are still a fair number available in suburban or city fringe areas, she said.

Developers who bought government land sales sites last year are expected to launch their projects on these non-city sites this year.

These are in Chestnut Avenue, Dakota Crescent and Serangoon Avenue 3.

City Developments and Hong Leong Group plan to launch the condo in Chestnut Avenue, a joint development, within the first half of the year.

Ms Tay estimates a minimum selling price of $670 psf to $700 psf for the Chestnut Avenue site, and roughly $1,000 psf to $1,100 psf for the other two sites in Dakota Crescent and Serangoon Ave 3, which could be launched in the second half of the year.

‘Actual selling prices depend on market conditions,’ she said.

‘But because the developers had bought these three land parcels at or near benchmark prices for the areas they are in, they should be selling the developed units at these levels, at the minimum.’

Said CBRE’s Mr Tan: ‘The bar is set to be raised in terms of pricing this year. Possibly fewer than five projects might be priced below $1,000 psf.’

Most of the projects in the city centre or what the Government calls the Core Central Region are expected to be priced between $1,600 psf and $2,500 psf, he added.

At the annual construction and property prospects seminar last week, CBRE Research said it expects residential prices to increase in a ’steady fashion’ this year.

Overall home prices, it predicted, could rise by 8 per cent to 10 per cent this year.