Recent strong home sales, refinancings help boost demand
(SINGAPORE) Away from the glare of the market, valuations departments of property consultancy groups here have been quietly doing brisk business despite the property slump.
Valuers attribute this in part to a pick-up in sales at private residential property launches since February. Also contributing to demand are buyers who are getting loans for units bought earlier on Deferred Payment Schemes (DPS), and borrowers who are seeking better refinancing packages and switching banks.
Some property consultants say banks are requesting more frequent valuations of properties in their loans portfolio, given declining property values. 'It's not just for housing loans, but offices, factories, etc. I suppose banks have to monitor if the properties are in negative equity,' says DTZ Southeast Asia's CEO Ho Tian Lam.
Said Joseph Wong, OCBC Bank's group chief credit officer (consumer credit risk), group risk management: 'We conduct regular reviews on our loan portfolio which cover various factors including update of valuation of properties.'
Mr Ho said the volume of valuations at DTZ has risen more than 10 per cent in the past one or two months compared with the same year- ago period. The firm has redeployed two senior marketing executives from its investment sales department to its valuations department.
Knight Frank managing director Tan Tiong Cheng told BT the number of valuation instructions for private residential properties clinched by his firm has increased 36 per cent in Q1 this year compared with the preceding quarter. For March alone, the figure has gone up 59 per cent from the preceding month. These instructions, which are requested either by lending banks or borrowers, refer to paid valuations and not indicative ones, which are often provided to banks for free or for a token sum.
Jones Lang LaSalle's head of valuation advisory services Tan Keng Chiam said his firm has seen a 10-20 per cent rise in the number of weekly valuation enquiries since late March compared with the January-February period. 'But this has not translated to huge volumes of business,' he added.
Mr Tan said there have been 'more enquiries for refinancing purposes as well as a noticeable, though slight, increase related to home purchases'.
Despite higher business volumes, none of the firms, citing competition, has any plans to raise its valuation fees, which can be as little as $300 to $500 for valuing small apartments. Commercial buildings cost several thousands to tens of thousands of dollars to value, depending on the size and complexity of the valuation required, which also depends on the lender's profile. Package fees for valuing an entire portfolio of buildings for a property group or real estate investment trust (Reit) can run into hundreds of thousands of dollars.
'For Reits, in particular, valuations are a lot more meticulous. We have to go through individual tenancies and do more checks in general. And we don't just use the comparables method but also discounted cashflow to arrive at the property valuations,' Knight Frank's Mr Tan said.
Most valuers BT spoke to say a key reason they have been kept busier lately is the gush of private residential property launches of affordably priced mass- market and small-sized apartments. With fewer launches these days offering DPS, buyers have to sign up for a housing loan soon after their purchase - whether they are opting for interest absorption or taking a normal progress payment scheme.
For projects sold earlier on DPS that are nearing completion (when DPS expires), buyers need to get their home loans in place, and this has also led to more valuations required, explains Mr Tan of Knight Frank.
In addition, the increase in primary market home sales by developers has spilled over into the secondary market, and this has been another source of higher demand for valuations.
The head of another property consulting group told BT that some real estate funds have been asking for monthly valuations of their property portfolio to 'track the market more closely instead of relying just on annual valuations'.
DTZ's Mr Ho says Reits seeking refinancing have also contributed to an increase in valuation requests at the firm.
Valuers note that besides Reits, other property owners who have opted to refinance mortgages - for their homes, for instance - because of more attractive packages offered by rival banks have also raised demand for valuation services.
DTZ's Mr Ho said that the firm's professional services - which besides valuation include research and consultancy, property management and project/ facilities management - account for about 30-40 per cent of revenue in normal times, with agency activities like property sales, leasing and investment sales taking the lead.
Source: Business Times, 14 April 2009