For extra value, focus on yield

When buying a property for investment, the rental income it could attract is a key consideration

As a value investor, I am naturally attracted to investments that produce decent yields. This is because these investments tend to be more stable and less likely to give one a heart attack.

Other more gung-ho investors may prefer investing purely for capital gains, even if they are to get little or no yield.

My interest was therefore piqued when The Straits Trading Company last month offered for sale 10 units of its Gallop Gables condominium at Farrer Road by dangling a big carrot in the form of a guaranteed rental yield of 7 per cent for two years.

For those who are unfamiliar with the term, yield is the recurring annual income you get divided by the amount you paid for an investment. In properties, yield is derived from rental income. In stocks and shares, it is based on dividends that companies pay.

With savings in banks drawing a paltry annual interest of half a per cent or less these days, Straits Trading's offer was understandably snapped up by eager buyers.

Seasoned property investors will tell you that it's rare to get rental yields as high as 7 per cent, not unless you convert your property illegally into a workers' dormitory. For residential properties, a yield of 2.5 per cent to 4 per cent is the norm.

As an investment class, real estate generally provides a lower yield compared to investing in corporate bonds and equities. This is an acceptable trade-off as the risks of investing in physical properties are lower than those for stocks and shares.

The focus on yield, however, is only half the picture.

Another pertinent question an investor should ask is whether the current yield of a property is real or sustainable.

According to the Urban Redevelopment Authority, rents for private homes in the first quarter fell by 8.5 per cent. They had dropped by 5.3 per cent in the fourth quarter of last year.

In a prolonged economic downturn such as the one we are probably experiencing, there is further room for rents to fall. This is notwithstanding the recent revival in the residential property market.

On the demand side, numerous companies have slashed or are reducing head counts. Some have stopped operations altogether while many more have cut the pay of their staff. There is less discretionary income all around.

On the supply side, vacancy rates are likely to rise as more new homes are completed while some older developments that were earmarked for demolition have been put back into the rental market as their redevelopment plans get frozen.

Rising capital prices combined with falling rents spell bad news for yields, something property investors should be mindful of.

Equity investors tend to be more savvy when it comes to matters of investment yields and their sustainability.

Which is why the stock market today is littered with numerous instances of shares that seemed to be going for a song when measured against their historical yield. Stock investors are not buying these high yielding stocks because they suspect they will not repeat the high dividend payouts of the previous year.

To be sure, there are people who see real estate investing purely as a capital gain game. In the bull run from 2005 to 2007, many home owners were content to leave their units unoccupied while waiting for the right opportunity to resell them for a big profit.

Such windfalls are harder to come by in the current climate and a prudent investor cannot afford to look through the prism of 2007 and hope for a repeat of these fabulous gains any time soon.

For investors who acquire properties with the help of a bank loan, rental yield takes on added significance.

Mortgage rates currently vary from as low as 1.5 per cent to 3.75 per cent or more. As an investment, income from renting out a property should preferably be able to cover the monthly bank interest charges plus a portion of the principal repayment.

For those lucky enough to obtain a low rate such as Standard Chartered Bank's 1.5 per cent promotional offer for the first year, the bar for rental income is low.

But for those who are locked in to significantly higher rates, their rental income should at least match the interest they are paying for their mortgages if they don't want to end up working for the bank for free.

Don't forget, mortgage rates tend to rise over time as initial teaser rates give way to prevailing ones. One way for a borrower to maintain a low mortgage rate is through the regular refinancing of his home loan. But this assumes that the current low interest rate environment will remain benign.
Refinancing may not be feasible if the property's valuation has fallen sharply or if the refinancing bank decides to offer a lower loan quantum.

Unlike stocks and shares, yields on property investment are also more easily manipulated. A crafty seller can sometimes entice a buyer to overpay for a property by promising an abnormally high rental yield. To achieve this, the seller will sell his property and execute a leaseback agreement with the buyer.

In such a deal, the seller will guarantee the buyer for a limited period - typically not exceeding two years - a monthly rental income that will meet the promised yield.

The seller then sub-leases out the unit to a genuine tenant at the prevailing market rate. If the rent is below the guaranteed amount - as is likely to be the case for an overvalued property - the seller will top up the rental shortfall. But he does not lose out as he is able to count on the extra profit he had made earlier from selling his property at a higher price. The buyer ends up worse off even though he gets a higher monthly income rental for two years.

An example of how this can be done is illustrated in the accompanying table.

Rental guarantees are not illegal and, in fact, are the de rigueur practice of some developers that simply refuse to lower their selling price of unsold, completed projects during a downturn for tactical reasons.

They are also not necessarily detrimental to buyers.

Getting an attractive rental guarantee in today's market will appeal to investors who believe that home prices will recover by 2011 or 2012, as they will enjoy higher-than-usual returns in the next two years while awaiting the recovery to take place.

In the case of the Gallop Gables apartments, the buyers probably got a good deal.

Apart from getting guaranteed rental yield of 7 per cent for two years, these purchases were done, on average, at prices about 23 per cent below what Straits Trading had asked for last July.

The developer has since raised the price of the remaining few units to $1,400 per square foot (psf) from the $1,188 psf average it had sold at in the past six weeks.

But the cheapest unit still went for a tad above $3 million.

If only I had a few million dollars to spare.

Source: Straits Times, 31 May 2009

High-end property starting to move

Analysts say buyers looking for good value slowly trickling back into market

Interest in the top end of the property market appears to be slowly picking up from near non-existent levels.

Several investors have trickled back to the resale property market, taking the chance to pick up posh apartments at prices mostly below $2,000 psf, or way below what was quoted last year.

One such unit at the 55-unit The Ladyhill that cost no less than $6.5 million has just been sold to a Korean investor.

The price for the freehold apartment works out to $1,700 per sq ft - which was the average price of the first 20 units sold at the condo's 2000 launch.

Prior to this deal, only two caveats had been lodged for the property in the past 12 months. Both were done at higher levels - one was for a bigger unit in July last year at $2,149 psf or $9 million, and the other was for a 3,283 sq ft unit for $2,193 psf or $7.2 million last November.

Consultancy Cushman & Wakefield, which brokered the latest deal, said the volume of top-end deals is not quite there yet but interest is certainly slowly picking up.

Buyers are looking for good value, said property experts.

Resale deals are slowly being done because some sellers are more willing to be flexible and there is limited supply in the market, they said.

Developers are still lying low where top-end launches are concerned, said Savills residential director Phylicia Ang.

Indeed, few developers of high-end developments want to sell at today's prices, said Cushman's managing director Donald Han.

They would rather wait for the right time to launch as going to market now would require them to cut their price levels by a significant amount, he said.

Government data compiled by Cushman & Wakefield shows that six deals - each worth more than $5 million - were done last month, up from three deals in March.

It is a slight improvement from the dismal levels last November (zero deal) and December (one deal). Before the downturn got worse, such deals numbered 21 and 43 in May and June last year.
While high-end prices have not stabilised, there may not be a repeat of some very low price levels registered in recent months, experts said.

'Just about three months ago, you could get an Ardmore II unit at less than $1,800 psf. At that time, you couldn't see the daylight in the market,' Ms Ang said.

Indeed, a mid-floor Ardmore II unit was sold for only $3.375 million or just $1,668 psf in February while a high-floor unit went for $3.6 million, or $1,779 psf in March, according to caveats lodged.

Caveats lodged last month show four deals done from $1,600 psf to $1,917 psf.

At the 2006 launch of Ardmore II, apartments were sold for an average price of about $2,300 psf, or between $4.2 million and $5.5 million per unit.

At the nearby 330-unit Ardmore Park - long associated with posh living - no deals were registered in the first three months of this year.

Caveats lodged show that three deals were done last month at $1,976 to $2,184 psf, below the deals of $2,635 to $2,791 psf in June and July last year.

Come the second half of the year, Mr Han said he expects to see more resale activity in the upper end of the market for deals worth $5 million and above.

Top-end launches, however, may not surface this year.

'If you're talking about the high-end market, as in those priced above $2,000 psf, there won't be any launches until the market improves,' said a consultant who declined to be named.

'If you go above $2,000 psf today, these buyers will disappear.'

Source: Straits Times, 31 May 2009

S'pore home prices slide down the ladder

From being among world's best performers last year, it's among the worst in Q1

FROM around the top of the heap to near the bottom of the pile in just 12 months!

A year ago, Singapore was ranked as the fourth best-performing market in the world under Knight Frank's Global House Price Index based on the first-quarter's year-on-year price change.

This week, it emerged as the third-worst in a table that listed a total of 46 markets.

The house price index for Singapore slipped 23.8 per cent in Q1 2009 over the same year-ago period. And with the index declining 16.2 per cent quarter-on-quarter in the first three months of this year, Singapore emerged as the second worst-performing market based on a quarter-on-quarter ranking, compared with its ninth position a year ago.

Knight Frank's index for Singapore was pegged to the official Urban Redevelopment Authority's price index of non-landed private homes in the Core Central Region.

Israel was the top performer over the 12-month period ending Q1 2009, recording price growth of 10.9 per cent, followed by the Czech Republic with a 9.9 per cent increase. The worst performers were Latvia, Dubai and Singapore with declines of 36 per cent, 32 per cent and 23.8 per cent respectively.

On a quarter-on-quarter comparison, Dubai posted the worst performance with a fall of 40 per cent, followed by Singapore.

Hong Kong, saw its Q1 ranking (based on a year-on-year comparison) slip from third spot last year to 40th position, with a price drop of 15.7 per cent. United Kingdom was ranked 42nd on an annual-change comparison (the price slide was 16.5 per cent) while the US was in 43rd position with a 16.9 per cent decrease.

India made it to the top 10 list; it was ordered fifth with a 5.1 per cent year-on-year price appreciation in Q1 2009.

The percentage changes are calculated in local currency terms and are hence not affected by fluctuations in exchange rates.

'There is sporadic evidence of buyers snapping up relative bargains. However, of those buyers in a position to move, many are still waiting for clearer signs that markets are approaching the bottom of the cycle,' Knight Frank said.

Fourteen of the 46 markets covered by the index had not reported Q1 data at the time of the writing of the report.

'The latest data suggest some easing in the plight of markets. On a quarterly basis, 48 per cent of the countries from whom we received Q1 data reported a drop in prices, compared to 88 per cent in our Q4 2008 index.

'On an annualised basis, 48 per cent of countries also showed a fall in values compared to 77 per cent in Q4. Given the high proportion of 'absentees' for Q1, however, it would be potentially misleading to jump to too many hasty conclusions, although over half had shown annual and/or quarterly price falls at the last time of reporting. Nonetheless, the shorter-term future direction of most underlying economies suggests that the world's residential markets are likely to continue to suffer for some while,' Knight Frank's report said.

The consultancy's director of research and consultancy in Singapore, Nicholas Mak, said that while there has been a pick-up in private home sales lately (with developers managing to inch up prices for better-selling projects), a sustained price recovery will hinge on an improvement in the jobs market. 'If expats are not coming into Singapore, the strength of the rental housing market will be affected and that will, in turn, affect investment demand for residential properties,' he added.

A developer said: 'While we are seeing price stability in the mass-market segment, I think the high-end sector will not stabilise until the perception of DPS-buyers defaulting clears away'.
The government scrapped the Deferred Payment Scheme (DPS) in October 2007.

The 30 to 40 per cent slide in high-end residential prices, coupled with more cautious bank lending to property investors, could mean that some DPS-buyers may not complete payments for units bought during the 2007 peak. A surfeit of such properties making their way back to the market could depress prices. While developers could take legal action against local buyers, they may have a harder time pursuing foreign buyers, especially companies registered in the world's tax havens.

Source: Business Times, 30 May 2009

Canadian school's campus rumpus

With work on Jurong West Campus stalling, some parents threaten to stop paying building fee

FOR an institution that is in the business of providing answers, the privately-owned Canadian International School (CIS) has left a group of irate parents with a $7.7 million question, now that the school's new campus development has failed to materialise.

Since late 2007, $7.7 million has been raised from about 1,600 parents of students in three of CIS's campuses who have been paying $1,100 per semester for what they believed had been contributions to a Building and Development fund set up for the construction of the school's new Jurong West campus.

The new five-storey campus will consolidate three out of four of CIS's campuses on the island. Construction on the campus - slated to open in February this year - has stopped since last October.
'There has been no explanation for why the work has stopped and they have been less than precise about what will happen,' said Anthony Phillips, who has paid $8,800 in building fees to date for his two children over four semesters. 'The site appears to have come to a standstill, but we've been getting an invoice every six months for building and development fees.'

When contacted by BT yesterday, CIS's head of school, Glenn Odland, said that the halt in construction was 'a function of the change in global economic circumstances'.

'We have reassured the parents that construction will resume by the end of this school term, which is June 12.

'By then, we will also explain to our parents in detail the reasons behind the delay and how we've resolved them,' said Mr Odland.

He was unable to provide BT with an estimated date of completion.

There are also conflicting views on what the fund was originally intended for.

'We were told that the money went for maintenance purposes, but that was not what the Building and Development fee was for, and that is unacceptable,' said Martine Guerin, who has contributed $4,400 for her son who is now in Grade 3 at CIS.

Mr Odland maintains, however, that this was never the case. 'We have made it clear from the start that the building fee would go towards maintenance of existing structures as well as new developments; it is mentioned in our admissions policy online,' he said.

In a letter - issued by the previous principal - dated October 2006, the new campus is mentioned as the reason for the Building and Development fee, but not the existing facilities.

The school will continue to include the fee on invoices. 'The building fee is a common part of the fee structure in many international schools, and it will continue as a permanent element in the fee structure,' said Mr Odland.

Fanning the furore, news of a Korean school's impending takeover of CIS's Bukit Tinggi campus in August 2010 has surfaced, leaving parents to wonder whether their children will still have a middle school campus if the Jurong West site is not ready by then. Mr Odland refused to elaborate on current negotiations with the Korean school. 'While it is ongoing, it would be grossly unfair to the process for it to be published to the public,' he said.

Despite a CIS email to parents on Tuesday that reassured them about ongoing negotiations with the Korean school and the resumption of work on the site before June 12, some of the parents remain unplacated.

'With the new West Jurong campus running almost two years behind schedule, many parents are extremely disappointed at there being almost nothing to show for the multi-million dollar investment in the project,' said Mr Phillips.

Mr Phillips and John Cappetta will be among the many parents who will not be paying future Building and Development fees. 'I was initially happy to pay, because my son, who is in Grade 1, would get to use the new facilities. But there has been absolutely no transparency over what's been happening to these funds,' said Mr Cappetta.

Parents like them might find themselves in a standoff with the school as a result. 'We will treat it as we would a delinquent account; we are pursuing and trying to facilitate payment. No family will be allowed to not pay,' Mr Odland told BT.

Source: Business Times, 30 May 2009

Next change at Icon Village: A food haven

Good location, but mall tenants bemoan poor layout, lack of publicity

THE Icon Village, a shopping mall occupying the ground level of the Icon Condominium, is undergoing renovations and a rebranding exercise, less than two years after opening its doors.

Originally billed as a mall offering stress relief, the 30,000 sq ft retail space about five minutes away from the Tanjong Pagar MRT station now wants to remodel itself as a food haven.

Its developer, Far East Organization, said this rejuvenation will allow the mall to meet greater demand from several new developments such as hotels and residential estates.

Tenants are looking forward to the revamp as business has been poor, leaving many of them floundering. They chose to set up shop at the Icon Village because of its good location. But most tenants said they have 'yet to cover costs' and that there are days when they do not see 'a single customer'.

From late last year, the mall's tenants have dwindled from 50 to the current 14.

The main reasons for the low traffic, tenants said, are the confusing layout - many shops are hidden from plain view - and the lack of publicity.

Checks with 20 people working or living near the mall show that most do not know where or what Icon Village is.

Ms Jeanine Ang, 28, a clerk, said she knew of the condominium but did not realise there was a mall in the building. Others said the shops did not appeal to them.

Tenant mix is another reason residents at the Icon, which has 646 units, have given the mall a miss.
Mr Simon Buechi, 25, a bank consultant, said: 'The shops are not very exciting. Many are also closed on weekends when I am free to shop.'

A 40-year-old banker said he prefers shopping in town and would have appreciated a place where he could buy his groceries.

Ms Irene Tan, a realty adviser, added: 'The mall is in a very prime location so it is a pity it isn't popular. The tenant mix is important - people need a reason to visit.

'They could bring in a supermarket as an anchor tenant to cater to the residents in the condominium.'

To bring in more foot traffic, Far East Organization is spending $2 million to improve the layout and ambience of Icon Village. The rebranding will have a tenant mix of 65 per cent food and beverage outlets, with the rest devoted to lifestyle and service shops.

Other than the tenant mix, renovations - which started this month and will be completed in the latter part of the year - will also make the mall brighter. Plans are to transform an existing 7m walkway into a stretch of food outlets. Promotional activities are in the pipeline.

Mr Steven Toh, owner of the Advance Shoe Repair & Locksmith Services, recently signed another three-year lease: 'I am staying on because I am looking at the long run.

'There are offices, flats and other estates coming up in Tanjong Pagar. With the right tenants and promotional activities, I see a good glimpse of hope.'

Source: Straits Times, 30 May 2009

Regent Garden majority owners' appeal rejected

They were upset over buyer's $2m 'side deal' with 6 minority owners

ONE of Singapore's most unusual collective sale disputes, over Regent Garden, has been settled by the Court of Appeal even though the sale has been done and dusted for 12 months.

In a strange twist, a total of 23 out of 25 majority owners of the West Coast Road condo had opposed the sale even though they initially supported it.

One of the reasons: They were upset that buyer Allgreen Properties had paid six minority owners a total of $2 million in a 'side deal' to share among themselves in return for withdrawing their objections to the $34 million sale.

Yesterday, the Court of Appeal dismissed an appeal seeking clarification on this point, saying such payments are not prohibited. 'We acknowledge that the practice of some developers in making direct payments to minority owners to secure their consent can be potentially divisive and may even sometimes be ethically challenging,' it said in its judgment. 'This, nevertheless, does not mean that the law, as it now stands, prohibits such incentive payments.'

The High Court had ruled in April last year - before the project's May sale completion - that the sale of the 31-unit Regent Garden to Allgreen must go ahead.

The majority owners also wanted to know if the minority owners are entitled to retain the extra payments without sharing the sum with them.

Allgreen issued a statement saying it was an 'unprecedented and curious case' of a collective sale being opposed by the majority who had initially agreed to sell.

Although the majority owners had opted for a fixed $34 million price, they were unhappy that a development charge payable by Allgreen to the authorities turned out to be much lower than expected. The majority owners then sought to renege on their agreement, after finding out about the side deal. Before the High Court, they had complained that because Allgreen had paid extra sums to the minority, the sale price to the majority owners was too low. They refused to complete the deal, until ordered to do so by the High Court.

The Court of Appeal said the sale committee sowed the seeds of its unhappy predicament when, to save $11,000, it made a deliberate decision not to accurately ascertain the development baseline of the property. 'Since they opted to seize and keep the proverbial bird in the hand, it is only just that they cannot now be allowed to complain that the bird is not what they thought it was,' said its judgment.

Credo Real Estate managing director Karamjit Singh said the practical lesson is that the sale committee must ensure it has all important information needed before selling a property collectively so as not to under-sell it.

The Regent Gardens case was also unusual in that it went to the Strata Titles Board, which heard the merits of the case and threw it out even though there were no objections.

Allgreen was represented by Senior Counsel Davinder Singh of Drew & Napier while the majority owners were represented by Senior Counsel Molly Lim.

Source: Straits Times, 30 May 2009

Regent Garden enbloc deal: majority owners lose appeal

THE Court of Appeal yesterday dismissed an appeal by the majority owners of Regent Garden who oppose a $34 million collective sale deal with Allgreen Properties.

The appeal was lodged on May 15, 2008, by 23 of 25 majority owners of the 31-unit project, who were unhappy that Allgreen made extra payments totalling $2 million to six minority owners who initially opposed the collective sale.

The appeal was lodged after Allgreen obtained an order from the High Court on April 16, 2008, compelling the majority owners to complete the sale and purchase of Regent Garden.

Four months earlier in January 2008, the Strata Titles Board rejected the sale on the grounds that the valuation was too low and the deal was not done in good faith.

In its judgement, the Court of Appeal dismissed the appeal of the majority owners, saying that there was nothing in the agreement between buyer and seller, or the law, to prohibit Allgreen making additional payments to the minority owners.

The Court of Appeal also reiterated that the Land Titles Strata Act exists to protect minority owners and not to protect majority owners from their own 'improvident' bargain.

Allgreen, represented by Davinder Singh of Drew and Napier, also relied on an affidavit of Knight Frank managing director Tan Tiong Cheng which said: 'It is also my experience that it is not uncommon for the developer to contribute to the payment of the premium to the minority owners to procure their consent to the collective sale.'

On whether the collective sale was done in good faith, the Court of Appeal said: 'A purchaser does not owe any duty of care, much less duty of good faith, to a vendor of property in relation to the price of the property. The general principle is caveat emptor.'

In its concluding observations, the court said collective sales committees that do not want to find themselves in a similar predicament vis-a-vis incentive payments can easily make provision for similar contingencies by providing for them in the sale-and-purchase agreement.

Source: Business Times, 30 May 2009

Is property becoming king again?

EVERYBODY wants to believe that the light at the end of the tunnel of the current economic crisis is now discernible. And why not? After almost two years of persistently gloomy news, it is certainly time for a change, even if most economic indicators say otherwise.

One of the places in which this optimism is reflected is the property market. Earlier this month, the Urban Redevelopment Authority released data revealing that developer sales in April hit over 1,200 transactions, following two consecutive months of exuberant sales. Indeed, the developer sales for the January-April period with 3,867 units sold now represents almost 90 per cent of all developer sales in 2008 (4,382 units). And unlike earlier months, the transactions in April were done across various market segments, which could suggest a broad base recovery.

Yet, the last time we checked, the Singapore government had revised its GDP forecast downward, unemployment had risen, and exports had fallen. And while there is persistent talk of 'green shoots' of recovery, even if one buys into the rhetoric, what is curious is that the property market appears to have jumped the gun. Yes, the stock market has recovered somewhat of late, but at least for the last week, property stocks have outperformed the overall market.

So is it blind optimism that is driving the property market? Some believe that these buyers are just following the herd. Property prices of new homes have begun to moderate downwards and while new homes are still by no means cheap, some argue that buyers are afraid of 'missing the boat'.

But can this really be a concern? After all, as has been well reported, there is expected to be a glut of new housing supply next year.

One reason could be that investors are buying into forecasts, now coming in thick and fast, of an economic recovery next year. Therefore they don't want to lose out on the discounts being offered now, even at the risk of having to hold on to their new properties for a longer time in the future before the recovery really gets underway and the market turns decisively.

Another plausible reason for the surge in sales could be that fixed deposit rates have fallen to near five-year lows, inducing many to move their savings into property instead - which implies that as the deflationary environment abates, property is replacing cash as king.

Whatever the reason, the ongoing surge in property transactions certainly warrants some study. Singapore is unique in many ways, but if the property market here is an anomaly, it would be useful to know why - if only to help the market function more efficiently and help those who really need a home to get a clear picture of where property prices are headed.

Source: Business Times, 29 May 2009

MP proposes ‘limited rights’ two-room flats

WITH more Singaporeans facing difficulties with their HDB mortgages or applying for rental flats, more housing options need to be made available.

With some families finding even the cost of two-room flats prohibitive, perhaps an alternative would be to offer such flats — presumably cheaper — with short tenures, or with fewer rights to be traded in the open market, said Member of Parliament Muhammad Faishal Ibrahim (Marine Parade GRC).

These flats with a “limited bundle of rights” would help those who need “temporary reprieve from the downturn or any personal crisis”, said Dr Faishal. Tenures could be between five to 10 years, to give families enough time to move on and up.

Noting how he had been getting more requests from his constituents for help in renting a flat, he said some did not mind buying smaller two-room flats because of the long queue for rental flats. “But they are unable to do so due to the high cost.”

Dr Faishal also said Singapore’s real estate policies — such as the lease structure of land — need to be relevant to the times, and account for shorter economic cycles. For instance, companies might require shorter leases as part of their risk-reduction strategies.

In addition, he asked that the Urban Redevelopment Authority enhance the partitioning or classification of the property market data it releases regularly, to help players and investors in their decision-making.

Source: Today, 29 May 2009

Developers readying for launches as activity rises

MORE developers are preparing to launch new properties in response to a marked improvement in sentiment in Singapore's property market, experts say.

Activity has picked up in the past two to four weeks, they observe.

Some developers are now rushing to prepare projects for launch, but they face some inevitable delays. They may lack promotional materials, for instance.

Starting today, Frasers Centrepoint Homes will be releasing more units at its 302-unit freehold Martin Place Residences in the River Valley area. It recently sold more than 100 units of the project after it cut prices. The units were released at $1,260 per sq ft (psf) to $1,700 psf, compared with $1,700 psf to $2,000 psf last year.

Chief operating officer Cheang Kok Kheong said prices ranged from $1.5 million for a two-bedder to about $2 million for a three-bedder. He said Frasers was aiming to sell the remaining units at $1,350 psf to $1,700 psf.

Other weekend launches include Balcon East in Upper East Coast Road. Tong Eng Group started sales at its 37-unit development on Thursday last week and managed to sell 28 units. Prices ranged from just below $500,000 to $1.39 million, with the one- to two-bedders costing about $850 psf, and three-bedders at $780 psf, said Savills Residential director Phylicia Ang.

Next month, new re-launches could include the 91-unit Nathan Residences in Nathan Road and Frasers' 330-unit leasehold project near the Woodleigh MRT station. The former's preview last September at an average of $2,000 psf met with no success.

Frasers has reconfigured the layout in the Woodleigh project, which previously had 300 units, to accommodate the more affordable one-bedders of 400 sq ft. The rest will be two-, three- and four-bedders. Prices will be 'at the upper end of $750 psf to $780 psf', said Mr Cheang.

There are still many projects waiting to be launched and certainly not all will be on the market soon.
'Those developers who are ready will see this as a good window period to launch, but the really high-end projects won't come out soon,' said Ms Ang.

Developers will launch if they can accept today's pricing, as the recent re-launches are easily 25 per cent to 30 per cent below the peak, said Knight Frank executive director Peter Ow.

Source: Strait Times, 29 May 2009

Too early to say economy is recovering

IT IS still 'too early' to conclude that the world economy is in 'recovery mode', said Finance Minister Tharman Shanmugaratnam yesterday.

While many now point to 'green shoots' in some countries and specific industries, he said there is 'little confidence' that they will spread across the world economy - or even that they will last.

He noted in his keynote address at yesterday's KPMG Asia-Pacific IFRS Conference: 'A large part of the world economy is still contracting. It is too early to conclude that we are in recovery mode.'

The topic of green shoots has been a popular talking point in recent weeks.

Mr Tharman said: 'The fastest growing sector appears to be the 'green shoots' industry itself - as of last night, Google entries on 'green shoots' had reached 5.57 million.'

'Even among the optimists, the consensus is that the recovery when it comes is likely to be weak, given the large and unresolved problems in the global financial system.'

Source: Straits Times, 28 May 2009

Circle Line trains start rolling today

Five stations open, with work on rest of 33.3km line nearing completion

TRAINS start rolling through the Circle Line's first five stations this morning, as work on the rest of the underground line nears completion.

Marymount, Bishan, Lorong Chuan, Serangoon and Bartley stations will begin operations today, with the first train arriving at about 6am.

The remaining 24 stations will open from next year. Progress at these stations is on track, Transport Minister Raymond Lim said yesterday.

About 98 per cent of the 33.3km-long Circle Line tunnels have been completed. The rest will be finished by September, said the Land Transport Authority (LTA).

While the LTA would not say which stations will open next, it is likely that Circle Line stages 1 and 2 are next in line.

With 11 stations in all, these two stages include those in the City Hall and Paya Lebar area.
Six stations - Dhoby Ghaut, Bras Basah, Esplanade, Promenade, Stadium and Tai Seng - have already obtained Temporary Occupation Permits, which means they can be occupied.

The Circle Line, which will eventually run from HarbourFront to Dhoby Ghaut, helps commuters transfer between existing lines without the need to travel to the city centre.

Among the five stations open today are two interchanges, Bishan and Serangoon, where commuters can transfer to the North-South line and North-East line respectively.

Deputy Prime Minister Teo Chee Hean, who opened the stations in a ceremony at Bishan MRT yesterday, said: 'It will open up multiple new connections for residents in the north and the north-east.'

With the Circle Line, a commuter will now take only four minutes to travel from Bishan to Serangoon, compared to 15 minutes by bus or more than 25 minutes on existing rail lines.
Mr Teo added: 'Singaporeans expect high standards and the LTA and the public transport operators must work hard to meet the expectations of the Singaporean commuter.'

A Gallup world poll of 20 cities last year found that Singaporeans were the most satisfied with their public transport system.

With more than $40 billion to be spent on doubling the rail network by 2020, the LTA and the two operators have their work cut out for them maintaining that ranking.

About 55,000 commuters are expected to use the Circle Line's first five stations. Daily ridership will climb to about 500,000 when the entire line opens.

Trains will run at a frequency of one every three to four minutes during peak hours at the five stations.

Adult ez-link fares, ranging from 73 cents to $2.07, are similar to those on the North-East line, but higher than those on the older North-South and East-West lines.

The Circle Line's operator, SMRT, said it will donate takings from the first 22 days of operations to charity.

SMRT's president and chief executive officer Saw Phaik Hwa said the operator expects to collect about $400,000 to $500,000 over the 22 days.

The company also unveiled yesterday a new uniform for its staff, who will now don the company's corporate colours of red, black and white.

The start of the new train service will also mark the launch of new careers for more than 300 SMRT staff hired to run the Circle Line.

They will fill positions like customer service officers, technical officers and engineers.

Among them is Miss Siti Nuraidah, 26, a train service controller for the new line. One of three women in the team of 20 controllers, she said: 'I might be new to the job but I want to challenge myself and prove that I can do as well as the others'.

Source: Straits Times, 28 May 2009

Consider top-up rule when selling below valuation Sale rule

OWNERS of Housing Board flats, already hit by a softening market, may now have to stump up cash if they are selling their properties below valuation.

This is the result of a longstanding rule by the Central Provident Fund Board which property agents say was enforced loosely until recently.

Under this rule, a property owner who had used his CPF funds to pay for his property is required to refund the principal withdrawn and interest accrued into his CPF account after settling any outstanding debt. If there is a shortfall, he needs to make good on that amount if he is 'unable to provide good reasons for selling his flat at a price below the fair market value'.

This clause was not an issue when the market was booming as recently as a year ago, but could hurt transactions now that property prices are sliding and more flats are being sold below valuation.

Overall resale prices dropped 0.8 per cent from January to March this year, after climbing 14.5 per cent over the whole of last year. Meanwhile, the median cash over valuation amount - an indication of how coveted a particular property is - was just $4,000 from January to March, less than a third of the $15,000 registered in the previous quarter.

Property owners selling their flats below valuation say they are being advised by Housing Board staff that they may have to top up any shortfall in their CPF refunds - or get the CPF Board to accept their reasons for pricing the flat below valuation - before the transaction can go through.

The situation is making people such as civil servant S. Salim fret. The 44-year-old father of one signed an agreement early this year to sell his Jurong West maisonette for $10,000 below its valuation of $358,000.

'I don't have the money (for the top-up). But if I don't go through with the sale, who knows, the buyer may sue me for breach of contract.'

He has written in to the CPF Board listing the reasons for his flat's price - like the fact that it is on the second storey and his kitchen does not get much sunlight - and is still waiting for a reply.

The CPF Board, when asked how many people have been asked to make a top-up over the years, would only say: 'Of those who sold their property over the last 12 months, fewer than 10 members had to top up the difference in cash to make up the full required CPF refund.'

This figure, however, does not include home owners who may have altered the selling price of their flat to match valuations in order to avoid hassle.

The CPF Board said: 'These members understood the Board's rationale for this requirement, which is to preserve their retirement savings. They have since made the necessary arrangements to put back the amounts into their own CPF accounts for their retirement needs.'

Last year, 28,419 flats changed hands, with the majority paying for them with CPF savings.
Mr Eric Cheng, executive director of HSR Property Group, reckoned that the CPF Board was tightening up on policing transactions after having learned their lessons from before.

'Perhaps they see the trend of cashback coming back, and they could be trying to pre-empt it,' he said.

'Cashback' practices were rampant about five years ago. Under this illegal arrangement, buyers and sellers collude to inflate the price of a flat so that the buyer can get a bigger home loan than is allowed.

As home loans are usually paid through CPF savings, this allows a buyer to prematurely 'withdraw' money from his retirement savings account before reaching age 55.

Mr Cheng said cashback practices in this climate would differ slightly: A buyer and seller could collude to understate the price of a flat - with the difference paid to the seller in cash - so that the seller need not refund the full amount to his CPF account.

Despite the concerns over fraud, the chief executive of property agency PropNex, Mr Mohamed Ismail, feels that the CPF Board should waive the rule altogether for flats which are sold not less than 10 per cent below valuation.

He reasoned: 'There is always a lag time for valuation to catch up with the actual price of flats. Having the buffer would mean that people need not be so anxious waiting for approval.'

Meanwhile, the director of Dennis Wee Properties, Mr Chris Koh, advised sellers who are selling their flat below valuation to write to the CPF Board before signing on the dotted line. Or else, 'they may be caught in a situation whereby not only are they not making from the sale of their flat, but they have to further cough up cash', he warned.

Source: Straits Times, 28 May 2009

Woodlands industrial plot up for public tender

THE industrial property market may be weak but the Urban Redevelopment Authority has received a successful application for the release of a 2.5-hectare plot at Woodlands Industrial Park E5.

The minimum $12.5 million that the successful applicant has undertaken to bid at tender for the 60-year leasehold plot works out to $18.57 per square foot of potential gross floor area (GFA).

The plot has a maximum 2.5 plot ratio, which means it can be built up to a GFA of 673,077 square feet. The maximum building height is 10 storeys.

The site is zoned for Business 2 development, suitable for a range of uses such as clean/light industry, general industry and warehousing.

Colliers International director (industrial) Tan Boon Leong reckons that the plot is likely to draw a handful of bidders, with the top bids at around $20-23 psf per plot ratio (psf ppr).

Developers that are also involved in the construction business are best placed to bid for the site as they have better control of construction costs, he reckons.

Mr Tan estimates that construction costs to build an industrial project on the site could be around $100 psf of GFA - about five times the minimum land bid.

'The more space the developer builds, the bigger his outlay will be relative to his investment in the land. Because of the poor economic outlook translating to weaker demand for industrial space, and construction costs being so high in relation to land cost, it may not make sense to fully maximise the plot ratio.'

The site is next to an earlier plot sold at a state tender that closed in July last year (before Lehman's collapse) to Soilbuild Group Holdings for $30.10 psf ppr.

Soilbuild is expected to launch for sale later this year a flatted factory and terrace factory project on the plot.

An industrial property market watcher, observing SMEs' penchant for landed factories, quipped: 'I guess that just like our towkays like to live in their own landed homes instead of condos, they also fancy owning their own landed factory with a carpark lot in front.'

Flatted factories in the Woodlands area are said to be fetching a median price of about $180-190 psf of net saleable area (NSA), while terrace factories are worth about $170-190 psf of NSA.

About 11.5 million sq ft of net new industrial space is expected to be completed this year, or 8.5 per cent higher than last year's net new supply of 10.6 million sq ft.

Given the easing in demand, the higher supply will put downward pressure on rents.

'However, this downward pressure on rentals will be cushioned by the fact that about 40 per cent of 2009's new supply is of the single-user type, of which most is built-to-suit and hence already
committed,' said Colliers director for research and advisory Tay Huey Ying.

The average gross monthly rental value for ground-floor prime factory space eased 12.2 per cent quarter-on-quarter to $2.16 psf in Q1 2009, while the average ground-floor prime warehouse rent slid 10.2 per cent over the same period to $2.20 psf a month.

The average monthly rental for high-specification industrial space dipped a smaller 5.7 per cent to $3.82 psf.

Source: Business Times, 27 May 2009

US housing market seen hitting bottom soon

But weak rebound likely, with housing starts near WW2 low

(BOSTON) The slump in the US housing market that caused the median value of homes to decline 24 per cent since 2006 may bottom next month without any prospect of a rebound for another year, according to estimates from chief economists at Fannie Mae and Freddie Mac, the Mortgage Bankers Association and national realtors and homebuilder groups.

Existing home sales probably won't reach pre-boom levels until the third quarter of 2010 and housing starts won't surpass one million until 2011, a barrier last broken six decades ago, the economists said.

'There are very few V-shaped recoveries in the history of real estate, and this one is likely to be even slower because of the size of the bubble,' said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor's.

The rebound will be so anaemic that 2009 building starts will total about 496,000 homes, the lowest since the end of World War II in 1945, according to the economists' forecasts.

Foreclosures on pay option adjustable-rate mortgages and a backlog of bank-owned properties will slow any revival and keep housing from playing its traditional role of boosting economic recovery.

Residential construction and home sales led the way out of the previous seven recessions, with housing starts improving an average seven months and resales gaining strength about four months before the economy picked up.

The world's largest economy probably will grow 1.9 per cent next year, according to the average estimate of 56 analysts surveyed by Bloomberg. After each of the last seven contractions, it expanded more than 3 per cent on average in the first year of recovery.

Federal Reserve Bank of Dallas president Richard Fisher said earlier this month that the US is on the verge of rebounding with 'healthy signs - the stirrings of what I call green shoots.' So did former Fed chairman Alan Greenspan, who cited 'seeds of a bottoming' in housing during a May 12 speech at a National Association of Realtors conference in Washington.

'If you are looking at prices relative to income and rents, you could argue that we are at the bottom, and I'm cautiously optimistic that we may be,' said Thomas Lawler, a former Fannie Mae economist in Leesburg, Virginia. 'It's possible, however, that we could have a second wave of foreclosures and the very small amount of support the economy might have gotten will turn into the reverse.'

The recession started after US banks and Wall Street firms securitised mortgage loans made to the riskiest borrowers to earn fees only to see homeowners default, prices fall and the value of the bonds dwindle.

Homeowners like Craig Mitchell of Boise, Idaho, said they're paying the price for Wall Street's greed. Mr Mitchell, 66, said his video-editing business has dwindled in the recession. He said he's now being forced to sell his truck to make his mortgage payment while he seeks a buyer for the three-bedroom home he owns in a state with the fifth-highest foreclosure rate in the US.

The house is priced at US$289,000, about US$140,000 less than what it would have fetched three years ago.

Mr Mitchell may be waiting a long time for a buyer as the housing market tries to recover from the worst slump since the Great Depression.

While new-home sales traditionally lead all other indicators in a recovery, it may not be the case this time because the drop has been unlike any other since the 1930s, Mr Lawler said.

'History suggests that new-home sales bottom long before unemployment peaks, and perception of the economy starts to improve long before we see actual economic improvement,' Mr Lawler said. 'This time around we don't know if that will hold true.'

Prices in California fell for six years during the last major housing slump in the 1990s, and didn't return to their 1991 peak until 2006, according to the Federal Housing Finance Agency.

About US$40 billion of mortgages at US banks have payments 90 days or more overdue, more than triple the US$11.5 billion of homes the banks already hold, according to data from the Federal Deposit Insurance Corp in Washington. Another US$78.8 billion are 30 to 89 days overdue, the FDIC said. -- Bloomberg

Source: Business Times, 27 May 2009

Lawyer missing with $68k from property sale

Tribunal recommends that he be tried for professional misconduct

TWO men meet discreetly in a dark carpark of an obscure building, and money changes hands. One man passes the other $20,000, promising that the rest of the $88,000 will be handed over later. The man disappears, and the $68,000 is never handed over.

This happened at the carpark of Kim Seng Plaza one Friday night in August 2007. The missing man: lawyer David Khong, 42, who met his client, Mr

Brian Loo, to confess that he had swiped the latter's $88,000 deposit. He even gave Mr Loo a note, acknowledging that he had committed a crime by taking the money. A day after the meeting, though, Mr Khong had already skipped town.

On Monday, a Disciplinary Tribunal appointed by the Chief Justice published its report recommending that Mr Khong be tried by a Court of Three Judges for professional misconduct.
The tribunal, the first set up since the laws were changed late last year to reduce the composition of the tribunal from four to two members, was made up of former judicial commissioner Goh Joon Seng and lawyer Harish Kumar. Mr S. Wijaya prosecuted the case for the Law Society.

The tribunal found that the $88,000 was a 4 per cent deposit paid by a seller for Mr Loo's $2.2 million apartment in Kim Seng Walk. When the lawyer received the cheque in June 2007, he placed it in the office account of his own firm, David Khong & Associates. This was against the rules for how lawyers handle clients' money as the cheque should have been deposited in the client's account instead.

The following month, Mr Khong wound up his firm and joined law firm Sim & Wong. But he did not transfer the $88,000 into either the client's account or Sim & Wong's office account.

The shortfall came to light in August 2007 when Mr Loo complained to the firm about the missing funds at the time the property sale was completed.

It emerged that Mr Khong was riddled with debts amounting to more than $200,000 involving credit card debt, bank overdrafts and loans from friends. His long-time financial difficulties arose from gambling and excessive spending, and the $68,000 was meant to pay off his creditors.

Mr Khong subsequently sent an e-mail message from an unknown source to his firm apologising for his actions. A check with court records showed that he managed to stave off a Citibank bankruptcy petition against him in March 2007 for a $27,000 debt he owed the bank. But five months later, he was made bankrupt for not repaying a $17,000 United Overseas Bank loan.
Hong Kong-based Mr Loo, 47, said it was a 'very big shock' to learn that Mr Khong had run away.
'As a lawyer, it is a small amount for him and it is not worth it as he has lost a career, family and friends. I did not expect him to run away at all.'

Contacted by The Straits Times yesterday, Mr Loo, who is a senior financial markets executive, said he had known Mr Khong for more than a year at that time and was an occasional mahjong-playing partner. He added he was 'disappointed and frustrated' that till today, he has not received any compensation for the $68,000 lost from any quarter. He said he had written to the Law Society a fortnight ago to seek a claim.

The Law Society manages a compensation fund which it may use to help defray losses incurred by a client arising from a lawyer or his staff's dishonesty. For the financial year 2007/2008, the Society paid out some $631,000 from this fund, which all lawyers contribute to annually.

Source: Straits Times, 27 May 2009

M'sian Resources plans RM1.8b office projects

(KUALA LUMPUR) Malaysian Resources Corp, developer of the nation's biggest transport hub, will build two office projects valued at RM1.8 billion (S$746 million), gauging that property markets will revive as the global recession eases.

Malaysia's biggest office supplier expects to sign up a foreign oil company to anchor the RM1 billion tower at the 348 Sentral project in Kuala Lumpur by taking up as much as 60 per cent of the building's office space, Malaysian Resources managing director Shahril Ridza Ridzuan said in an interview. The project also includes serviced apartments.

'The global recession is not going to last forever,' Mr Shahril said on May 22. 'It's a good time to start building now. Materials prices are at a fairly low ebb of the cycle.'

The company, whose shares surged 91 per cent since Jan 1, plans to return to profit this year and expects to expand its order book by 50 per cent to RM3 billion as a government stimulus package spurs domestic demand.

The two office projects in Kuala Lumpur Sentral, an urban centre built around Malaysia's largest bus and rail hub, will generate an average of RM600 million a year from 2010, based on the project's total expected revenue.

Shares of Malaysian Resources, controlled by the country's biggest pension fund, rose 5.4 per cent to a 12-month high of RM1.36 at 12.14pm. The company is the third-biggest climber on the Kuala Lumpur Construction Index this year and has outpaced the benchmark Composite Index's 20 per cent gain.

The 348 Sentral development covers 1.1 million square feet of office space. The second project, worth RM800 million, is about half the size. Kuala Lumpur Sentral is already home to the Hilton and Le Meridien hotels. A St Regis hotel is also planned for the area.

'Once we have our office deals signed up, then that seals our pipeline for the next three years in terms of revenue and profits,' Mr Shahril said. 'When you are willing to take the view that we're going to come out of this, a three-year time frame is well within striking distance of putting your office on the market.'

Loans approved for buying Malaysian residential property surged 49 per cent in March from a month earlier, the second monthly gain, according to central bank data, adding to signs the industry may be rebounding.

'The worst is over' for the company, said Norfauzi Nasron, an analyst at OSK Research Sdn. While there are some 'concerns about incoming office supply, the Kuala Lumpur Sentral development is very strategic'.

Malaysia Resources expects to win RM1 billion of new orders this year, with 30 per cent of that coming from projects to clean up the country's rivers, Mr Shahril said. The company won two building contracts valued at RM239 million over the past two months, its first construction jobs secured this year, increasing its order book to RM2 billion, Mr Shahril said.

One of the projects includes upgrading road networks in Kuala Lumpur Sentral, funded through the government's stimulus package, he said. The government has unveiled RM67 billion of planned spending to help revive economic growth.

'We've definitely turned a corner from the fourth quarter last year,' he said. 'The rest of the quarter will show business strength.'

The construction division is leading the turnaround for Malaysian Resources, after surging building material prices and the economic slowdown pushed the company to losses in 2008.

On May 6, RHB Research Institute Sdn raised its profit forecast for Malaysian Resources by 34 per cent for 2010 and 36 per cent for 2011 to reflect higher construction earnings.

Malaysian Resources reported a RM39.3 million loss in the fourth quarter of last year as sales slid and building materials including steel surged. -- Bloomberg

Source: Business Times, 26 May 2009

Qatar plans 20b riyal Doha downtown development

(DUBAI) Qatar, the world's biggest producer of liquefied natural gas (LNG), has announced a 20 billion riyal (S$7.9 billion) development project to rejuvenate 35 hectares of the capital's downtown, the project developer said on Sunday.

The five-phase Heart of Doha project, scheduled for completion in 2016, will include 226 buildings and more than 12 hectares of open space, Dohaland, a subsidiary of the Qatar Foundation, said in a press release. A national archive, a 500-700 person auditorium, three hotels and a primary school will be constructed, Dohaland said.

Allies and Morrison of the UK and US-based Burns & McDonnell have been hired to do design work for the project, said Chatura Poojari-Abbasi, a communications manager for Haggie Hepburn, which represents Dohaland.

Qatar, which has a per capita GDP of US$101,000, has used revenue from oil and LNG exports to turn the country's capital into a cultural centre.

IM Pei designed the Museum of Islamic Art, a white-stone building on an artificial island. The government backed Education City, a campus with branches of six US universities, including Cornell University's medical school and George- town University's foreign service programme.
The first phase of the Heart of Doha project is scheduled for completion in 2012, Mr Poojari-Abbasi said. -- Bloomberg

Source: Business Times, 26 May 2009

Gulf builds hotels worth US$140b amid crisis: study

Just 19% of 893 projects surveyed have been cancelled or suspended

(DUBAI) Gulf Arab countries have more than US$140 billion worth of hotel projects under construction, with just 19 per cent being suspended or cancelled as the industry faces a global slowdown, a survey showed on Sunday.

Of 893 hotel projects surveyed in the Gulf, 5 per cent had been cancelled, 14 per cent put on hold, and 42 per cent were under execution, showed the survey by research house Preloads Global. The rest were under study, planning, bidding, design, or had been completed.

The Gulf Arab region had 306 new hotels, with 108,600 rooms under development, and cash flow is expected to recover in most of the region next year after falling this year, it said.

The United Arab Emirates (UAE), which includes Dubai and Abu Dhabi, hosted 62 per cent of the projects. The country saw the cancellation of almost 5,000 planned rooms during the month of May, and 6,500 since the beginning of this year.

Dubai, the Gulf's trade and tourism hub, faces a sharp slowdown in its property sector, with real estate prices tumbling 41 per cent in the first three months of 2009, according to property consultant Colliers. The slowdown has led to project cancellations worth billions of dollars.

Active cash flow, or money available for project construction, in the Gulf is estimated at US$30.4 billion for 2009, and is projected to increase to US$31.6 billion in 2010, the survey showed. But cash flow in the UAE is expected to fall to US$18.4 billion in 2010, from US$19.9 billion in 2009.

The economic downturn had impacted the region's cash flow negatively, said the survey, resulting in 'much more cash flowing out of the hotel construction sector than into it'.

This has led to a fall in cash flow in 2009, compared with 2008, it said, without giving a figure for last year. A recovery is expected by late 2010, and more cash flowing into the industry than out of it by 2011.

Hotel occupancy levels have remained relatively stable throughout the Gulf since 2003, but the economic slowdown has had a negative impact and 2009 is expected to be a 'challenging' period for the hotel industry, the study said.

UAE hotel occupancy levels are expected to drop to 61 per cent in 2009 from 79 per cent in 2008, while the rest of the Gulf could see 45 per cent to 55 per cent occupancy levels in 2009. A pick-up in occupancy levels, to 2008 levels, will occur by the end of 2010, followed by accelerated 'real growth' by 2013.

'Given projected increases in demand from 2013 onwards, more hotels will be required if relatively high occupancy levels are to be maintained,' Emil Rademeyer, director of Preloads, told reporters. 'With an average completion period of two to three years, 108,600 rooms should come online by 2011.'

The region will need to increase its construction activity starting in 2010 in order to satisfy the projected growth in demand to follow, the paper said, especially with the area's population and visitors expected to grow. Visitors to the Gulf region are expected to reach just below 40 million in 2010, Mr Rademeyer told Reuters by telephone. -- Reuters

Source: Business Times, 26 May 2009

Analysts upgrade property stock calls

Private residential prices now expected to rise next year


PROPERTY analysts now expect private home prices to climb again next year - a turnaround from previous forecasts that they would continue to slide into 2010 - as there is now a sense that the residential market has hit bottom.


And amid this new- found optimism, analysts' recommendations on several property stocks have been upgraded.

The residential price index chalked up its worst-ever quarterly decline of 14.1 per cent in Q1 2009, according to official figures from the Urban Redevelopment Authority.

'A bottom has been established for the housing market, as price cuts have catalysed latent demand and accelerated inventory clearance, in our view,' said Deutsche Bank analysts Gregory Lui and Elaine Khoo in a note yesterday.

With this in mind, analysts now expect to see the residential price index move up in 2010 - or even as early as the second half of this year.

UBS Investment Research, for one, said in a recent report that there is a possibility of higher prices in H2 2009 and 2010.

'We think it suggests prices are stabilising and could potentially rise 5-20 per cent in 2010, versus our assumption of flat pricing for 2010,' UBS Research analysts Michael Lim and Regina Lim said in a May 19 note.

Likewise, Goldman Sachs is now projecting a 5 per cent gain in private home prices next year, reversing its previous forecast of a 10 per cent fall in 2010.

'The recent pick-up in transaction volumes in the primary residential market is a harbinger of price stabilisation being just around the corner, in our view,' the bank said in a May 12 report.

Price increases could already be on the way - recent reports have indicated that developers are already raising prices of select units by 2-5 per cent where demand seems resilient.

The price creep is difficult to ascertain, UBS said, but it estimates that up to six months ago, early-bird discounts were a permanent feature for new launches. 'Developers have since limited the discount duration to the initial launch,' it said. 'We think this is a positive development, though unexpected, and suggests a high probability of a meaningful recovery in H2 2009.'

The drop in prices in Q1 meant that transaction volume showed a significant increase. More than 1,200 homes were sold each month in February, March and April - after just 108 homes were sold in January.

'In our view, the strong momentum suggests buyer confidence is returning and could provide the next wave of momentum for developer stock prices,' said UBS. And developers are in stronger positions after inventory clearance this year and cash calls, noted Deutsche Bank.

UBS's analysts issued a 'buy' call on City Developments. 'We believe City Developments would be a key beneficiary as it has the largest market share in residential sales volume in Singapore, and its share price is strongly correlated to resale transactions,' said the bank's analysts.

Goldman Sachs likewise upgraded CityDev to 'buy' from 'sell'.

Deutsche Bank also yesterday upgraded two developers from 'hold' to 'buy' - Keppel Land and Allgreen Properties.

However, while upbeat on the residential sector, analysts said the outlook for the office sector is less rosy. Deutsche Bank, for one, expects vacancies to approach 17 per cent in 2012. While the rental decline will decelerate sharply in H2 2009, any recovery is likely to lag, the bank said.


Source: Business Times, 26 May 2009

Firm demand boosts sales of private homes

Some developers have raised prices as a result

DEVELOPERS continued to report encouraging private home sales last week, and some have upped prices on firmer demand.

BelleRive on Keng Chin Road and Martin Place Residences on Kim Yam Road are among the projects where prices have been raised. BelleRive's average price is now 13 per cent higher than when it was previewed in mid-April.

Frasers Centrepoint sold 60 more units last week at Martin Place Residences; new units were released over the weekend at prices that were about 5-7 per cent higher.

Chia Boon Kuah, Far East Organization chief operating officer, property sales, told BT that 'in recent weeks, we're seeing growing broad-based demand for our products across our portfolio in every price bracket, from upgrader market to the upper-middle segments to high-end luxury projects'.

Last week, the property giant sold more than 40 units, up from the 30 a week earlier. Far East's home sales for the May 18-24 week include two units at Vida on Peck Hay Road which fetched an average price of $2,030 psf; the buyers did not take up the rental guarantee offered by Far East for the recently completed condo. The developer also sold nine units at Floridian in Bukit Timah at an average price of $1,220 psf.

In the upgrader housing segment, it sold seven units at Mi Casa in Choa Chu Kang, nine units each at Lakeshore near Jurong Lake and Waterfront Waves near Bedok Reservoir. Waterfront Waves is a joint development with Frasers Centrepoint.

Frasers Centrepoint also sold four units each at its Caspian condo in the Jurong Lake location and Woodsville 28 last week.

At Martin Place Residences, the developer released fresh units below the 14th floor sky terrace in the second and final block in the 33-storey condo.

Prices of the freshly released units start from $1,350 psf, higher than the $1,260 psf starting price in the earlier block during the preceding weekend's marketing campaign.

However, the latest pricing is still below the $1,700 psf starting price for the 33-storey freehold project when it was previewed last year. Inclusive of the units sold last week, 168 units in the 302-unit condo are now sold.

Frasers Centrepoint is offering an interest absorption scheme (IAS) for all its four projects on the market - in exchange for a 3 per cent price premium for Caspian and a 2 per cent premium for the rest.

Over in Bukit Timah, a Sing Holdings subsidiary is understood to have sold five units last weekend at BelleRive, taking total sales to 39 units in the 51-unit freehold project. BelleRive was initially priced at $1,350 psf average when it was previewed in mid-April; this was raised to $1,430 psf last week and upped further to $1,530 psf this week. This translates to a 13 per cent price hike in about six weeks.

The average pricing is for the apartments in the 15-storey project, and excludes the two penthouses. About 75 per cent of BelleRive buyers have taken up the IAS offered by the developer at no extra cost.

The units were picked up predominantly by Singaporeans. BelleRive's draws include its proximity to Anglo-Chinese School (Primary) on Barker Road and Singapore Chinese Girls' School along Dunearn Road.

In the Balestier area, Soilbuild is understood to have sold another 25 units at Mezzo over the weekend. The project is priced at about $850-900 psf on average; the cost is 2 per cent more for IAS.

Property giant City Developments also sold 14 units last week for The Arte at Thomson condo. The average price in the project is now $900-930 psf, compared with $880 psf when previews began in March. The 336-unit condo is 84 per cent sold.

Near Botanic Gardens, Straits Trading has upped the price of the remaining few units at Gallop Gables to $1,400 psf, from the $1,188 psf average achieved for units sold in the past six weeks. The price increase comes after the developer achieved the sale of its 40th unit in the completed freehold condo.

In the secondary market, some 50-plus units are said to have been sold last week at RiverGate condo near the Singapore River. These are out of 88 units listed in a sales campaign last week. The average price is about $1,400 to $1,500 psf.

The 88 units were from an original pool of 100 units purchased in 2005 by a fund managed by Ferrell Asset Management.

Source: Business Times, 26 May 2009

Developers dangle rent guarantees

Buyers respond well to scheme introduced at some projects

(SINGAPORE) Some developers here are turning to rental guarantees to lure buyers in the current down-market.

Under such schemes - which are offered only for certain units within selected projects - developers help buyers secure tenants, and also ensure that the owner gets a minimum pre-determined yield.

Far East Organization, for example, offers rental guarantees for selected units in selected projects such as Orchard Scotts, Vida, River Place, Tanglin View and Icon.

'Through our marketing efforts over the years, we found that investors do not have the time to lease out or manage the tenancy of their apartments that they have bought from us,' said Chia Boon Kuah, chief operating officer for property sales at Far East Organization.

'Therefore, in 2006, we rolled out the rental guarantee scheme to assist our investment buyers in leasing out their properties. With our own in-house leasing and estate management teams, we are able to provide a seamless one-stop service to our buyers.'

For Vida, which is located in Cairnhill Rise, Far East is now offering a guaranteed rental yield of 5 per cent a year. This, according to Far East, can potentially work out to a return on invested equity of about 10-13 per cent a year.

'Vida is a superior investment as we are offering a yield or return on invested equity of around 10-13 per cent per annum,' said Far East in a recent letter to potential buyers.

Several other developers are offering schemes along the same vein.

At Belle Vue Residences, Wing Tai Holdings is offering a guaranteed return of 20 per cent on the downpayment a buyer makes if he picks up a unit using the deferred payment scheme. (DPS).
Under the scheme, the buyer will have to pay 20 per cent of the property's price as the
downpayment. For a property worth $4 million, for example, this works out to $800,000.

But under Wing Tai's scheme, he will get some of that money back.

Buyers who use the DPS to buy units in Belle Vue will get a guaranteed income of 10 per cent a year for two years on their downpayments. The guarantee will kick in once Belle Vue receives its temporary occupation permit (TOP) at the end of 2010. Using the same example as earlier, the buyer will get some $160,000 two years after TOP.

Market watchers said yield guarantee schemes are generally well-received in a down-market.
Investors, for example, snapped up units at high-end residential development Gallop Gables after The Straits Trading Company offered a two-year guaranteed rental yield of 7 per cent on 10 units there in April. All 10 units at the freehold Farrer Road estate sold in three days.

Elsewhere, at its preview for The Mezzo, Soilbuild Group Holdings offered a 6 per cent annual rental guarantee for two years, apart from the interest absorption scheme. The rental guarantee kicks in right after the TOP date. Soilbuild said recently that the launch of the first phase of The Mezzo was 'met with an encouraging response'.

Market sources told BT that at least a few more new upcoming projects will offer variations of such schemes. Developers have historically offered such schemes to entice buyers when the property market is weak.

Hong Leong Group's 71-unit luxury development Cuscaden Residence had such a scheme when it was launched in 2004 shortly after the Sars scare. Wing Tai Holdings also offered something similar for Duchess Crest in Bukit Timah in 1998, during the Asian financial crisis.

However, yield guarantees are a popular option for developers, said Joseph Tan, CB Richard Ellis' executive director for residential. This is because such schemes force developers to manage units once they have been sold.

A check with Singapore's three largest listed developers - CapitaLand, City Developments and Keppel Land - showed that none of them are currently offering any kind of rental guarantee schemes.

Units with yield guarantees could also come at a higher price, said Peter Ow, executive director for residential at Knight Frank. For example, developers who offer the interest absorption scheme at their properties usually charge a price premium of 2-3 per cent for units sold under the scheme, Mr
Ow pointed out. This is because the developers have to absorb the interest costs that would otherwise have been borne by the buyers. The same principle applies for units offering yield guarantees, he said.

Source: Business Times, 26 May 2009

Gradual rise in home prices seen

Hong Leong boss says many buyers out there, but luxury sector still listless

PRIVATE home prices in most sectors could start to rise gradually this year but high-end property will stay in the doldrums until later next year, according to tycoon Kwek Leng Beng.

Mr Kwek - executive chairman of the Hong Leong Group - said there are many cash-rich buyers waiting for the right time to buy.

'Every time the market turns, some people would get caught out,' he added.

The key question that many buyers are asking is: Has the market turned?

Urban Redevelopment Authority data shows that 1,207 new private homes were sold in April, making it the third consecutive month that sales have crossed the 1,000-unit mark.

It is a level reminiscent of the boom period and one that some analysts believe is unlikely to be sustained for long.

But Mr Kwek, who was speaking to The Straits Times on the sidelines of a recent hotel investment conference, feels that these levels of sales can be maintained 'if the world economy stabilises'.

'Confidence is the quick key to recovery. When you have confidence, you will invest,' he said.

Mr Kwek said developers are sometimes wrong but the key is to be more often right than wrong.
He also reiterated that property is an investment over the medium to long term, anywhere from three to 10 years.

Developers got the market message this year and have cut prices to meet buyers' expectations, following a stand-off that saw just 100-plus units sold in January.

'If you're listed, you'll have to sell something. Otherwise, every quarter, you have no sales,' said Mr Kwek.

Some developers have actually started to raise their asking prices slightly from their adjusted lows.
The strong sales so far this year have largely prompted two foreign investment houses to turn more positive on the residential market.

A recent UBS report points out that the sales momentum has been stronger than expected, with the possibility of higher prices in the second half of this year and next year.

It had already in a late April report called a 'buy' on the property sector, saying that demand from domestic upgraders - not foreign buying - will jump-start the recovery, as with previous recoveries in the 1990s.

Goldman Sachs has also projected a 5 per cent gain in Singapore private home prices next year, reversing its earlier tip of a 10 per cent fall.

'We think the alignment of developers' asking prices and buyer expectations would be key for generating sustainable demand,' said the UBS report.

Nevertheless, not all are optimistic about the market.

'This wave of purchases, once it's over, won't come back until the economy has recovered and embarked on its way up,' said a property fund manager who declined to be named.

The pent-up demand is coming mostly from owner-occupiers or small investors and these people usually cannot afford to buy more than one unit, he said.

'Foreigners are still leaving Singapore. When there are not enough real users for all the supply, prices will continue to fall.'

What is happening now in the real estate sector could be similar to the bear rally some analysts foresee for the stock market, he said, adding that the only good news is that mass-market prices are likely to hold at current levels.

Unlike high-end prices, which have fallen at least 35 per cent to 40 per cent from their all-time peak, the mass and mid-market sectors have had falls that are much less steep.

The price fall in high-end homes - which shot to more than $5,000 per sq ft during the boom from around $1,800 psf - is thus steeper, he said.

Average high-end prices may dip to around $2,300 psf, which is still higher than pre-boom levels.
Mr Kwek said the Hong Leong Group - which includes listed Hong Leong Finance, developer City Developments, Hong Leong Asia and London-listed Millennium & Copthorne Hotels - will hold off high-end home launches for now, preferring to start building first.

City Developments, the developer behind projects such as The Sail @ Marina Bay, has in its pipeline The Quayside Isle Collection in Sentosa Cove, a 99-year leasehold enclave where values have more or less collapsed.

High-end home prices were to a large extent boosted by foreign buying. 'Foreigners will slowly come back but not so soon,' said Mr Kwek.

The Indonesians, he said, are very slowly returning. Although the trend is barely discernible, it is a change from the previous downturn where they had all but disappeared.

Still, he cautioned against comparing prices with levels done a decade ago: 'Ten years ago and now, Singapore has changed. Fundamentals are good.'

The country will soon benefit from two integrated resorts, for instance.

'Worldwide, it is the worst downturn ever. But you see the amount of stimulus around. You can't see the effects immediately. It will take some time,' he said.

MAIN INGREDIENT
'Confidence is the quick key to recovery. When you have confidence, you will invest.'
Mr Kwek, on the recent improvement in property sales

Source: Straits Times, 26 May 2009