Buying a home: freehold vs leasehold

NICHOLAS MAK examines how both tenures perform in rising and falling markets as well as in collective sales

THE question of whether to own freehold or leasehold property seems a perennial one, with pros and cons shifting with market cycles and new trends. Here, we examine the issue from the perspective of both a home owner and investor, and see how both tenures perform in rising and falling markets as well as in collective sales.

The chief attraction of 99-year leasehold property is that it is typically priced lower than a comparable freehold property. As a result, they are popular with HDB upgraders as entry-level private properties. Most mass-market homes are 99-year leasehold condominiums, with prices ranging from $500 per sq ft to $900 per sq ft. A typical family-size apartment could cost anything from $600,000 to $1.2 million.

For investors, leasehold properties usually offer a higher rental yield because of their lower capital cost. However, the higher yield merely compensates the owner for the decaying lease.

One of the more apparent disadvantages of owning a 99-year leasehold property is that the length of the lease is contracting daily. All else being equal, this would result in falling property value. However, certain external factors could slow the decline in value, such as if the property is sought after by tenants or buyers. This could be due to a prime location, improving infrastructure (such as a proposed MRT station nearby), or good amenities or popular schools in the vicinity.

When it comes to collective sales, there are usually fewer opportunities for them with 99-year homes. One reason is that many of them are still relatively new and in good condition. Thus, the owners do not feel any urgency to sell their homes collectively.

A more pertinent reason is that the premium payable to the government to top up a 99-year lease is quite high, based on the existing formula. And since developers factor the premium as part of the total land cost, the higher the premium the less the owner of the ageing leasehold would get in any collective sale.

As such, collective sales are not attractive to many owners of 99-year leasehold apartments unless the expense of maintaining their ageing properties are so high that a collective sale becomes the cheaper alternative.

A key benefit of owning freehold real estate is that the land value does not generally depreciate in the long term. Although all properties are subject to market fluctuations, the price of freehold land tends to be more stable than that of leasehold land over time. However, the value of a freehold property could still decrease over time due to the depreciating value of the ageing building. Over the long term, while the value of freehold land may increase or remain little changed, the value of the building would decline.

One factor that supports the value of freehold land in Singapore is its scarcity. Since all the land sold by the government is leasehold, the amount of freehold land would not increase. In fact, it might shrink over time if the government makes acquisitions of such land.

Another advantage of owning a freehold property is the potential of a windfall from a collective sale. If the value of the freehold land increases while the value of the ageing building declines, it could reach a stage where the redevelopment value of the property is worth more than the utility value of the existing building. As a result, the property owners may find a collective sale of their property to a developer to be highly profitable.

Some developers looking to acquire residential land for development may also prefer freehold land to ageing 99-year leasehold property because freehold land would not require the payment of a hefty premium for extending the lease.

For all these reasons, freehold residential properties are generally priced higher than 99-year leaseholds. The price range of freehold non-landed properties is also wider than that of comparable leasehold properties. Depending on the location, freehold property prices could vary from $600 psf to $4,000 psf or more. The majority of high-end residential properties are freehold.

For investors, one disadvantage of freehold property is the lower rental yield, a function of the higher cost of the property.

Also, while freehold properties have a higher likelihood of a collective sale than their leasehold counterparts, that can prove to be a double-edged sword. The property boom of 2005 to 2008 whipped up a collective sale frenzy. But some property owners who sold for a windfall found they could not get a replacement home in the same location from their proceeds. As the collective sale boom was powered by surging property prices, by the time en-bloc property sellers received their proceeds, the prices of comparable replacement homes would have moved out of reach.

Now, we look at the price performance of freehold and leasehold properties. Although freehold properties are usually priced higher than their leasehold counterparts, their rate of appreciation does not always outperform.

There were two property cycles between end-1998 and mid-2009. The first market boom, which started at end-1998 and ended in mid-2000, was a bottom-up price recovery. Demand started in the mass-market sector and moved up to the mid-tier and finally the high-end segment.

During this 18-month period, the average price of 99-year condominiums rose faster than that of freehold homes. The average price of freehold condominiums grew by 38.2 per cent, while the average price of 99-year leasehold condominiums surged by 46.2 per cent.

But on the way down, leasehold home prices also fell more steeply. On the downcycle between mid-2000 and the first half of 2004, the average price of leasehold condominiums fell 26.1 per cent, steeper than the freehold price decline of 17.6 per cent.

The most recent boom that lasted four years from mid-2004 to mid-2008 started with high-end property and gradually filtered down to the mass market.

Even when the mass-market sector started to pick up in 2007, the momentum in the high-end segment did not let up. As a result, freehold condominium prices jumped by an impressive 64.7 per cent on average, while the average leasehold property price rose some 50 per cent.

When the property market here started to contract in mid-2008 due to the global financial crisis, freehold condominium prices fell 26.5 per cent year on year, just slightly more than 99-year leaseholds, which dropped by 23.8 per cent.

What this study shows is that if the upswing in the property market is bottom-up, leasehold condominiums could outperform freehold ones. Conversely, if the boom is top down, freehold condominiums would deliver superior results. However, this study also illustrates that the faster the rise, the harder the fall. So in a top-down property boom, owners of freehold condominiums who had enjoyed a sharper price appreciation should be nimble enough to lock in their gains before the downtrend sets in.

In comparing freehold and leasehold residential properties, there is no conclusive evidence to show that one is better than the other. Ultimately, the decision boils down to budget and preference.

The writer is a real estate lecturer at Ngee Ann Polytechnic


Source: Business Times, 1 Dec 2009

Is cash really king?

Does holding excessive cash provide security or is it time to analyse cash allocation?

‘A dollar today is worth more than a dollar tomorrow.’ This adage used to describe a common desire of many investors to secure their wealth rather than grow it is a good explanation for why we see so much cash in investors’ portfolios at the moment.

Despite the return of a modest appetite for riskier investments in recent months, investors still seem very much attached to cold hard cash. This is despite historically low interest rates. The need for security, a cultural bias as well as mistrust of many investment products that exist are all valid reasons why investors hold on to cash. But how much cash should one hold to prevent it from becoming a destroyer, rather than a preserver of wealth?

Holding excess cash can result in a sub-optimal investment portfolio and lower the portfolio returns. Opportunity costs from lost alternative investment opportunities and the effect of inflation on the yield of the cash held are examples of how cash can turn into a wealth destroyer if it is not managed correctly.

To determine the optimum cash allocation investors should view cash as they would any other investment and apply a systematic approach to the investment process. In this low interest rate environment investors may seek extra yield pick up through the inclusion of alternative liquidity solutions (ALS). ALS are often structured money market products which behave much like cash, often providing the investor with daily liquidity and capital and accrued interest protection but giving much higher returns than typical call and fixed term deposit products. However, even in the world of cash there is no such thing as a free lunch and in return for these enhanced returns the investor will have to bear some additional risks not typically associated with regular cash deposits.

It is important to understand some of the psychological motivations that drive investors to hold excessive cash. Cash provides perceived safety and security. Compared to innovative products, cash enjoys a reputation as being simple and has the key benefit of daily liquidity. The easy to understand nature of fixed term and call deposits gives cash a competitive advantage over more complex investments. As a result investors feel more comfortable with cash and tend to neglect other often more suitable products.

Cash is also closely linked to some of our most basic needs. Abraham Maslow’s hierarchy of needs places the need for safety after our physiological needs in terms of importance. In today’s society cash provides investors with a sense of security against the many uncertainties that we face. However, this sense of security is often misplaced especially when considering the wealth damaging effects of inflation.

With the knowledge that an investor will always hold cash, how should they determine the appropriate allocation of cash within the overall portfolio? By applying a systematic process to understand why cash is being held, and if the levels of cash being held are warranted, it is possible to determine an optimal cash portfolio allocation.

Cash allocation analysis

There are three major reasons for holding cash that can be looked at in the context of a cash allocation analysis. (see table)

# Consumption Cash (transaction motive): This is cash that is needed for financing future cash consumption, for example, to pay bills and consumption which goes beyond your monthly income. The higher an investor’s income, the more they consume, meaning that consumption cash typically increases with personal wealth. When considering the amount of consumption cash needed an investor should ask themselves whether or not they will be purchasing fixed assets in the near future or if they have any big-ticket expenses coming up such as tax bills, etc.

# Iron Reserve (Precautionary Cash): Iron reserve cash is cash that is held to provide security against unforeseen events. This is cash that is needed to sleep well. Even though this cash may remain untouched for many years it can be seen as a constant source of liquidity, providing a comforting element to an investor’s financial holdings.

# Asset Portfolio (Speculative): Cash should also be held as liquidity for future investments in stocks and bonds. This cash is normally of a speculative nature. As a rule of thumb, about 5 per cent of the value of your investment portfolio should be held as cash to service the needs of the investment portfolio.

An investor seeking to determine their optimum cash allocation should then look at each of the buckets above and consider the following questions:

# What are my annual consumption expenses and what should be set aside to cover this (eg. two times annual living expenses).

# What is my risk attitude and how important is it for me to have cash set aside to sleep well at night (ie. how much risk and return do I want).

# What does my investment portfolio look like, how much cash should I set aside to service this?

Once cash has been allocated into these three buckets, any cash that is left over can be considered excess liquidity which should be invested into a higher yielding diversified investment portfolio. To assist with this process UBS Wealth Management has built a research-based framework to help investors make better investment decisions. The framework takes into consideration the investor’s needs as well as the current portfolio allocation and provides fact-based research about appropriate products.

Alternative liquidity solutions

It is clear that a systematic cash analysis is essential to define an investor’s actual cash needs. By performing such an analysis it is possible to identify excess liquidity for reinvestment into other products, and it is possible to identify cash needed for near term consumption as well as cash needed to sleep well at night. As cash in both the consumption and the iron reserve bucket does not necessarily get used straightaway (particularly true for iron reserve cash) this cash runs the risk that inflation might lessen its worth (eg. 0.5 per cent earned on a fixed deposit versus 2-3 per cent long term inflation)

Given the low interest rate environment and the superior returns that can be achieved from some of the ALS products that are available today, leaving cash in fixed deposit products is not the best option.

An ALS is typically structured in note or certificate form and behaves much like cash in that it can provide the investor with daily liquidity and typically provide capital and accrued interest protection. The benefit is that the returns are often superior to traditional deposits.

It is, however, only with some additional risks that some of these ALS products are able to offer returns that are higher than basic money market instruments. As ALS are not considered deposits they do not enjoy the deposit protection schemes that many governments around the world have implemented post financial crisis. They also require the investor to take on the credit risk of the issuer of the product, meaning he is fully exposed to the potential default of the issuer.

Some of the more complicated ALS products do not provide daily liquidity. Investors should consider this liquidity risk and be prepared for the fact that there may not be an active secondary market or they may be charged a fee for early redemption. Finally, some of the more complicated products may also face market volatility risk as the daily value is marked to market.

Such products are therefore not for everyone, but if investors understand the risks they can be an attractive addition to a cash portfolio.

The recent market volatility has created a flight to safe haven assets such as cash. However, with interest rates at historically low levels, excessive cash holding might perhaps be doing more damage to your wealth than good. Undertaking regular reviews of your cash needs and carefully identifying the parts of your portfolio which can benefit from investing in products such as ALS is key to avoiding the undesirable effects of too much cash – value erosion through inflation, and investment opportunity costs. More importantly, identifying excess liquidity which can then be put to work in a well-diversified portfolio can help to raise your overall return and should be considered a key activity in the successful management of your investment portfolio.

EMMANUEL BUCAILLE – Managing Director and Head of Products at UBS Wealth Management Singapore


Source: Business Times, 1 Dec 2009

What’s in store next year

Asia’s strong recovery means that higher interest rates and stronger currencies will be two key features in 2010

ASIA is rapidly approaching the end of its sharpest V-shaped recovery on record. It’s been quite a ride on both sides of the trough: two quarters of double-digit GDP contraction for most countries (ending in 1Q 2009), followed by two quarters of double-digit expansion. We are now halfway through the second of the upside quarters with Singapore, China and Korea having reported double-digit growth rates (in q-o-q, seasonally adjusted terms) in 3Q 2009. Malaysia, Thailand and Taiwan will likely report similar numbers over the next two weeks.

If the end is nigh – and it is – let’s not rush there just yet. There’s plenty of time to prepare for what’s coming and there’s little to fear anyway. Let’s first take a minute to consider how extraordinary the recovery has been. One way to get a sense of it is to look at Singapore.

Back in January, most government and private sector professionals expected to see a 2.4 per cent contraction in the Singapore economy in 2009. By May, those expectations had plunged a full five percentage points to an alarming -7.5 per cent. But only five months later, in October, expectations were right back where they were at the start of the year: to a contraction of 2.6 per cent. That’s how convincing the downward head fake was, that’s how sharp the V-shaped recovery was. We all would have come closer to the truth if we had left our 2009 forecasts untouched back in January.

Naturally, the ‘thought leaders’ who led consensus in predicting Armageddon in the first half of the year had more backtracking to do later on. One lesson they and everybody else learned this year is that it’s not about being ‘ahead of the curve’; it’s about being right at the end of the day. Not many were this year.

For Asia overall, the roller coaster was almost as wild as it was in Singapore. Industrial production – Asia’s economic backbone – peaked in the summer of 2008; not surprisingly, just before the Beijing Olympics in August. But the downturn continued with the collapse of Lehman Brothers in September 2008 and by January 2009, industrial production in the Asia-9 had fallen by 14 per cent. That’s twice the drop that occurred during the financial crisis of 1997/98 or the high-tech global recession of 2000/01.

Not surprisingly, exports led the collapse on the demand side of the GDP equation. In US dollar terms, Asia’s exports dropped by 40 per cent between July 2008 and January 2009. Like the drop in industrial production, the export drop was twice as big as what occurred during the global tech recession of 2000/01 and four times bigger than the export contraction in 1997/98.

What continues to surprise is that Asia’s export collapse had almost everything to do with China and almost nothing to do with the US, either directly or indirectly. Between July 2008 (when exports peaked) and January 2009 (when they hit bottom), Asia-8 exports to China fell by 45 per cent. To the US they fell by less than half that, or 21 per cent.

But the percentage drops don’t tell the real story, because China is a bigger buyer of Asia’s exports than the US. And it’s the dollar changes that make or break a business. In revenue terms, Asia-8 exports to China fell by US$111 billion between July 2008 and January this year. To the US, they fell by US$27 billion. In other words, in the revenue terms that matter, the export shock delivered by China was four times greater than the shock delivered by the US.

This explains why the countries hit the hardest were those with the closest links with China. And it helps explains why Asia was able to bounce back with no help from the US.

And bounce back it did. Exports and industrial production hit bottom in January and by July, Asia’s industrial production had fully recovered its pre-crisis levels. Six months down, six months back up – the very definition of ‘V’. By September, though, output had advanced another 2-3 per cent. So it’s no longer just a V-shaped recovery. We’ve passed that. Now it’s a V+.

V, V+, no matter. What is so amazing, to some, is that Asia pulled it off with no help from the US. Think about it: Asia’s industrial output recovered to pre-crisis levels by July while US imports turned north only in June. It’s a big deal. But is it really so surprising? Not when you remember that Asia’s export collapse was related to China, not the US.

Moreover, it isn’t the first time this has happened. Back in 2000/01, Asia beat the US in getting out of recession by a good four months. This fact – and the reasons behind it – is what allowed DBS to say, way back in December last year, that Asia would pull the same trick this time, but even more forcefully. This was when everyone else was saying that Asia would have to wait for the US to recover before it could.

Times change, and the biggest change underway in the global economy today is how much Asia contributes to global growth each year relative to how much the US does, or did. This structural shift – it’s been going on for 20 years and will go on for the next 20 – explains much of why Asia was able to pull off the V-shaped recovery with no help from the US.

The question now is, will Asia’s double-digit GDP growth continue? The answer is, of course not, for any of a thousand reasons. Double digit growth will soon give way to sideways movement in output levels. Asia’s V-shaped recovery will turn into a ’square root’ shaped recovery: that is, a sharp drop, a sharp rise, and then a palpable turn sideways.

When will Asia hit the kink in the square root sign? Probably by the end of the year or early 2010. In terms of GDP growth, Asia will experience a second quarter of double-digit growth in 3Q 2009 that should drop to high single-digits (6-8 per cent) in the fourth quarter. By 1Q 2010, growth should be back to normal.

Three things will constrain growth very soon: demand, supply, and policy. On the demand side, growth is running at double-digit rates now only because it fell at double-digit rates earlier on. What Asia is experiencing is the snapback from a series of four to five one-off events in late 2008 that included, perhaps most notably, the shock from the collapse of Lehman Brothers in September 2008. That sharp downturn had a bottom. The sharp upswing will have a top. With speeds on both sides of the ‘V’ about equal, the upswing will last for as long as the downswing: two quarters. But only as long as the downturn, because the upturn is nothing but its flipside.

And if demand does manage to surge for longer, there’s the supply side to contend with. Output can grow as fast as demand does when there is excess capacity, as there is today. But with demand soaring back, excess capacity will soon vanish. And once demand hits the brick wall of capacity constraints, output can grow only as fast as those walls can be moved.

Finally, policy will have a hand in slowing growth, and probably sooner than most imagine. Because once excess capacity is exhausted – and it will be by year-end – double digit demand growth starts to imply double digit inflation in most countries. That’s too high. Policies will change.

Throughout Asia, monetary tightening will be a key feature of 2010, with higher interest rates and stronger currencies expected to share the burden about equally. In general, we expect tightening will begin in earnest around 2Q 2010, with a few exceptions. On the tighter side, Korea and India will move sooner, probably in January or February. On the slower side, Thailand seems unlikely to tighten until the third quarter.

For Asia overall, much will depend on China, where we expect rate hikes and currency appreciation to begin in 2Q 2010. We look for the benchmark one-year lending rate to rise by 81 basis points (to 6.12 per cent) by the year-end. We also expect the yuan to resume its appreciation vis-a-vis the US dollar in 2Q 2010 and to strengthen to 6.61 per dollar by the end of 2010. This will set the stage for currency appreciation elsewhere in Asia, allowing other currencies to rise more comfortably than if they went solo. Asia’s currencies have risen by 6-7 per cent on average against the dollar since the start of this year and we expect to see another 6-7 per cent appreciation by the end of 2010.

Other things being equal, currency appreciation and higher interest rates will help cool regional economies and keep a lid on imported inflation as well. The trouble is, higher rates and the prospect of local currency gains have the tendency to attract foreign inflows. And inflows have the tendency to wreak havoc with the best laid monetary plans. They drive interest rates back down and push currencies further north than authorities might have wanted. Raise interest rates again and you just get another round of inflow: Asia-vu.

The only ’solution’, if you can call it one, is to control inflows. Nobody likes controls and for good reason. They are clumsy and messy and have the awful tendency to change from week to week. But they do afford central banks a greater ability to control interest rates and currencies at the same time. And for this reason the controls debate always comes back when inflows are pounding on the door. Asia’s strong recovery means that higher interest rates and stronger currencies will be two key features of Asia in 2010. Capital inflows and another debate over controlling them seem likely to be two more.

DAVID CARBON – MD, Economics & Currency Research, DBS Bank Ltd


Source: Business Times, 1 Dec 2009

Realising Jurong Island's potential

Completed 21 years in advance, the island has become a magnet for petrochemical investments

FROM seven idyllic islands to one big bustling petrochemical centre, the formation of Jurong Island in the last 14 years has been nothing short of extraordinary. Even more striking is how reclamation works on the island recently ended - 21 years ahead of schedule.

'We had defied great odds to complete this reclamation ahead of time,' said JTC Corporation chairman Cedric Foo at Jurong Island's reclamation completion ceremony in September.

Jurong Island is the answer to a vision that came about as early as in the 1960s. Back then, Singapore was among the top three oil refining centres in the world, but it was looking for a 'quantum leap' to maintain its edge in the petrochemical industry.

'Regional countries were also planning to set up refineries for their own domestic market,' Minister for Trade and Industry Lim Hng Kiang recounted at the reclamation completion ceremony. 'We realised that we needed a quantum leap to stay ahead of the competition.'

What Singapore needed was to build up and integrate the petroleum industry with the petrochemical industry. But there was insufficient industrial land on the mainland to house more chemical companies. 'This gave rise to the bold idea to reclaim and join seven southern islands into what we know today as Jurong Island,' Mr Lim said.

Three oil giants were already operating on three of the islands - Esso on Pulau Ayer Chawan, Singapore Refining Company on Pulau Merlimau and Mobil Oil on Pulau Pesek.

The other four islands - Pulau Ayer Merbau, Pulau Pesek Kecil, Pulau Sakra and Pulau Seraya - also became important pieces of the vision.

In 1991, JTC became the agent for developing Jurong Island. Working closely with various government agencies, it delivered the necessary infrastructure and services such as roads, drains and utilities.

Reclamation works began in 1995 and a fair number of challenges cropped up as Jurong Island took shape.

For instance, in 2005, the authorities had to divert and realign a stretch of the Jurong Island Highway - together with 17 pipelines and 4 core fibre-optic cables - to meet ExxonMobil's needs for a contiguous plot of land next to their current cracker.

'This was a mammoth undertaking,' Mr Lim said. 'JTC worked closely with the affected companies and agencies to devise innovative solutions to minimise disruption to business operations on the island.'

Alternative ways

Disruptions to the import of sea sand also posed a risk to progress. But 'we opened up alternative sources of sand supply and explored other ways to meet our needs', Mr Lim said.

The aim was to complete reclamation works in 2030. But as demand for land on Jurong Island surged, JTC brought the third and fourth phases of the project forward and completed the reclamation well ahead of schedule.

Jurong Island is today the cornerstone of Singapore's energy and chemical industry. It spans 3,000 hectares - a giant compared with the seven islands which occupied a total land mass of just 991 ha.

Not only has Jurong Island grown in size, it has also grown in economic clout. In 2000, 61 petrochemical companies invested $21 billion on the island. Today, there are 95 firms pouring in over $31 billion into fixed assets.

The recession had at one point forced some companies to postpone projects on Jurong Island. But with the economy picking up, some plans are back on track.

For instance, China Huaneng - the new owner of Tuas Power - will go ahead to build a $2 billion clean coal and biomass cogeneration plant on Jurong Island. Reports also note that Jurong Aromatics Corporation could resume its US$2 billion petrochemical investment.

Because of strong investor interest, Jurong Island is running out of space. Some 75 per cent of the 3,000 hectares of land has been taken up or reserved by oil and petrochemical investors, JTC told BT recently. 'JTC is in discussions with companies for the remaining 25 per cent,' the agency's spokeswoman said. In his speech at the reclamation completion ceremony, JTC's Mr Foo said that the agency will continue to improve infrastructure on Jurong Island to anchor more investments.

One new facility Jurong Island will be getting is a barging terminal. This will give chemical companies an alternative transport option to trucking - there are only a few roads which trucks carrying hazardous materials can use to get to the island currently. The terminal will be built on the western part of the island and the first phase of the project will be ready by 2011.

New roads

There could also be a new road link to Jurong Island. JTC has completed a preliminary study on building another road from the mainland, which would cater to the growing working population. Some 38,000 people pass through the island's checkpoint daily. JTC still needs to iron out details such as the position and cost of the second link, which could be ready by 2017.

To boost security on Jurong Island, JTC will also introduce a biometric access system at the checkpoint. The system should be completed by 2011.

'We will continue to find ways to adjust the Jurong Island profile to bring about stronger integration for greater operating efficiencies by the companies, and in particular to include new entrants,' said Minister Lim.

'Our vision is for Jurong Island to be a global energy and chemical hub. We intend to achieve a critical mass of feedstock, move to higher value chemical chains which produce speciality chemicals and advanced materials, and partner companies in developing new chemical products.'

Source: Business Times, 1 Dec 2009

NZ's home- building approvals up 11.7% in Oct

(WELLINGTON) New Zealand's home-building approvals rose for a fourth month in October, signalling that lower interest rates are kick-starting demand for property.

Permits increased 11.7 per cent from September, Statistics New Zealand said in Wellington yesterday, citing seasonally adjusted figures. Excluding apartments, approvals rose 11.2 per cent to a 16-month high.

Reserve Bank governor Alan Bollard last month said he is unlikely to raise borrowing costs from a record low until the second half of 2010 to help the economy emerge from its worst recession in three decades. The average variable home-loan interest rate fell to 6.02 per cent in September from 7.2 per cent in January, according to central bank figures.

'Things are looking a lot better than they did six months ago,' said Stephen Walters, chief economist at JPMorgan Chase & Co in Sydney. 'That's pretty important for what the Reserve Bank of New Zealand is going to do with interest rates next year.'

Mr Bollard on Nov 11 said a return to riskier home lending of the past must be resisted to ensure there is no return to a debt-fuelled housing cycle.

Economists monitor approvals excluding apartments because apartment consents are volatile. There were 103 apartment approvals in October, down from 155 in September and up from 50 in October last year.

Excluding apartments, approvals in the three months through October rose 22 per cent from the three months ended July 31, yesterday's report showed.

Economists expect building approvals will keep pacing gains in house sales, property prices and immigration.

Home sales rose 36 per cent in October from a year earlier, the Real Estate Institute reported this month. House prices increased 1.3 per cent from September. The number of permanent migrant arrivals exceeded departures by 18,560 in the year ended Oct 31, the most since 2004, the government said last week.

Property construction has slumped from a year earlier amid a recession, which began in the first quarter of last year, and as a credit crisis curbed development projects. In the 12 months ended Oct 31, approvals fell 31 per cent from a year earlier. -- Bloomberg

Source: Business Times, 1 Dec 2009

HK weekend home sales down 16%

Concerns over Dubai crisis holding back buyers

(HONG KONG) Hong Kong's weekend home sales fell 16 per cent at major developments as concerns about Dubai World's debt prompted buyers to slow purchases, Centaline Property Agency Ltd said.

Residential transactions at Hong Kong's 10 biggest developments dropped to 32 between Nov 28 and Nov 29 from 38 the prior weekend, Louis Chan, general manager of residential properties at Centaline, said by phone yesterday .

'Since the global financial crisis erupted last year, buyers have become more wary of any adverse news coming from the financial markets,' Mr Chan said.

Concerns about Dubai World's attempts to reschedule its debt last week also affected sales at Cheung Kong (Holdings) Ltd's Le Prime residential project, Mr Chan added.

Markets from Asia to the United States fell last week after Dubai's state-owned investment company sought a 'standstill' agreement to delay repayment on much of its US$59 billion of borrowing.

Hong Kong's Hang Seng Index fell 4.8 per cent on Nov 27, the most in eight months, led lower by bank shares. The Hang Seng Index finished yesterday's session with a gain of 3.25 per cent after the central bank in the United Arab Emirates on Sunday pledged support for banks in Dubai.

Hong Kong home prices have surged more than 30 per cent this year, according to Centaline, as record low interest rates and a rebound in the local economy help fuel demand for housing.

The rally has prompted the government to limit lending for luxury apartments, and suspend mortgage insurance for rental properties.

Hong Kong recently said it would clamp down on sales tactics that had been criticised by lawmakers.

Developers selling uncompleted homes will have to quote prices per square foot based on the usable space as opposed to the previous practice of including a proportion of common areas on the square footage. -- Bloomberg

Source: Business Times, 1 Dec 2009

Demerit system for agents enough to protect clients

I REFER to last Saturday's letter by Mr Ho Kah Chuen, 'Rules should cover concerted action by agents'.

The purpose of regulating against the practice of dual representation is to ensure that consumer interests (be it seller or buyer) in a real estate transaction are safeguarded by restricting the same estate agent to acting for either of the two parties instead of both. There exists a conflict of interest when the estate agent acts for both parties.

However, there is no necessity to further prohibit two agents from the same team in an estate agency from acting for seller and buyer respectively. Such a practice, known as internal co-brokerage, is a form of general co-brokerage.

It is unfair to imply that estate agents are more likely to collude with their own team members to the disadvantage of their clients if they co-broke internally since the same can also be said of estate agents from different companies who co-broke regularly with each other as friendly business allies.

Besides, it is the seller's prerogative to grant exclusivity and it is both a contractual as well as ethical obligation of the estate agent to make known all valid offers to the seller regardless of their origin (from his team or elsewhere).

Moreover, in the proposed regulatory regime, estate agents shall be individually accredited to practise and are subject to a demerit point system should there be professional misconduct. Estate agencies to which they belong shall also bear the brunt of the demerit points and other punitive measures meted out to their agents.

These proposed regulatory measures, currently absent in the industry, are adequate as a whole to deter estate agents from compromising on the interests of their clients. It would suffice to regulate against dual representation and not dual agents.



Dr Tan Tee Khoon

Chief Executive Officer

Singapore Accredited Estate Agencies
 
 
Source, Straits Times, 1 December 2009