Sunday, July 12, 2009

The invest guide to the current property run

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

1 Suburban boom

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

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

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

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

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

Developers also re-launched older projects at lower prices, such as The Quartz in Buangkok.
Jones Lang LaSalle's head of South-east Asia research Chua Yang Liang said people are significantly better off than in 2000 and since mass-market property prices have moved down from the peak, the units remain very attractive.

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

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

But with HDB upgrader demand still going strong, developers continue to target this group.
New releases of mass-market projects include Oasis
@ Elias in Pasir Ris and The Gale in Flora Road, where units were offered for preview sale at $600 to $700 psf on Friday.

2 Interest absorption

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

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

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

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

Unlike the deferred payment scheme, IAS requires you to take up a bank loan at the time of purchase but the developer absorbs the interest payments until the project has been finished.
Dr Chua said stable HDB prices and the availability of credit in the form of IAS have helped spur demand.

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

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

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

Experts warn euphoria may not last long

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

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

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

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

3 Small is beautiful

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

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

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

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

Launches of more projects with small units followed.

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

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

4 VIP previews

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

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

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

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

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

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

5 Where are prices now?

Early estimates of the official property index show that the fall in private home prices has slowed.

But experts said caveats lodged indicate that prices have actually risen recently on strong demand.
DTZ said price recovery has been happening across the board since May.

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

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

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

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

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

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

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

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

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


Small sells

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

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

Source: Sunday Times, 12 July 2009

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