Published January 18, 2011

After red-hot December, property braces for chill
Private home sales sizzled before cooling measures; 2011 expected to be a more sobering story

By KALPANA RASHIWALA

(SINGAPORE) December may have been chilly in the rest of the world, but for Singapore's property market, it was simply sizzling. The latest numbers underscore the backdrop against which authorities introduced last week's cooling measures.




Developers sold 1,332 private homes (excluding executive condos) in the traditionally slow month, exceeding the combined figure for the three preceding Decembers. This took the total for 2010 to a fresh high.

But property consultants expect the numbers to drop dramatically this year from the 16,364 private homes that developers sold in 2010 - in the face of the latest cooling measures.

Forecasts for developers' private home sales this year range from 8,000 to 12,000 units. Prices too are expected to drop with one consultant pegging the dip at 5 per cent for the mass market in the first quarter.

Speculators may now turn their attention to shoebox industrial units and strata offices and shops as non-residential property has been spared under the latest cooling package, observers say.

The 2010 sales number was 11.4 per cent above 2009's 14,688 units and surpassed the previous high of 14,811 units set in 2007, according to figures released yesterday by the Urban Redevelopment Authority.

The secondary market has also been buoyant.

Knight Frank's analysis of URA Realis caveats data shows a 23 per cent increase in the number of private homes (excluding ECs and en bloc sale units) sold in the resale market last year to 18,468 units. In addition, 3,264 caveats were lodged for private homes traded in the subsale market in 2010, close to the 3,838 units in 2009.

The 2010 resale and subsale figures are expected to increase as more caveats are lodged in the coming weeks. Resales refer to secondary market deals in projects which have received Certificate of Statutory Completion while subsales involve secondary market transactions in projects that have yet to receive CSC.

DTZ's South-east Asia research head, Chua Chor Hoon, forecasts that this year, developers may sell about 8,000-10,000 private homes. Knight Frank's number is 10,000-12,000 units.

Ms Chua reckons that prices would decline this year but not in the first quarter, when transactions are likely to thin amid a standoff between buyers and sellers. 'When sellers see demand is not coming back, those who need to sell will have to be more open to negotiation. I think prices in the mass and mid-market segments are likely to fall more as the lower loan-to-value (LTV) limits will hit those on a tighter budget.'

Knight Frank consultancy and research head Png Poh Soon foresees an up to 5 per cent price decline in Q1 for the mass-market segment while prices remain flat in the mid and luxury markets. 'Developers of mass-market projects, which are typically bigger, may be more inclined to price their projects attractively to draw buyers.'

Mr Png also reckons that sales of shoebox apartments would plunge as these have drawn many speculators, who are expected to be affected by the stiffer penalties for short-term trading now.

The government last week hiked the seller's stamp duty rate to as high as 16 per cent for private homes sold within the first year. The LTV limit for new home purchases by individuals servicing one or more existing housing loans has been lowered from 70 per cent to 60 per cent.

Ms Chua said that strong primary market sales for two consecutive years reflect 'a lot of speculative and investment demand'. 'Now, with the clampdown on the residential sector, a lot of investors will look at other property sectors as well as overseas properties.'

Savills Singapore senior manager Christine Sun said: 'Small investors may switch from buying 'mickey mouse' apartments to small strata industrial and office units, or HDB shophouses which still command attractive yields without bearing the brunt of the property measures.'

URA's figure of 1,332 private homes sold by developers in December was 30.4 per cent lower than November's 1,915 units but significantly above sales of 481 units in December 2009, 131 units in December 2008 and 305 units in December 2007.

Including ECs, the trend was similar, with the sales tally at 1,699 units for December 2010, more than the 940-unit total for the preceding three Decembers.

Including ECs, developers sold 17,438 private homes last year, up from 14,688 units in 2009 and also surpassing the 2007 figure of 14,967 units.

The Outside Central Region (OCR), where mass-market projects are located, made up 45 per cent of private homes (excluding ECs) sold by developers in December. The number of units they sold in Core Central Region (CCR), which includes the prime districts, CBD and Sentosa Cove, doubled from 218 in November to 449 in December.

'Reflecting the pick-up in investor confidence in CCR, where the price rise has lagged, 75 non-landed homes were transacted at above $3,000 psf in December, up significantly from 11 units in November and the most deals in this price-band since the 103 units sold in December 2007,' said Colliers director Tay Huey Ying

December's priciest deal was $4,307 per square foot, for a unit at The Ritz-Carlton Residences Singapore Cairnhill, followed by Nassim Park Residences ($3,833 psf) and Tomlinson Heights ($3,643 psf). Last month's best selling project was Prive, an EC in Punggol (326 units), followed by The Tennery in Choa Chu Kang (220 units), D'Leedon at Farrer Road (180 units) and Robinson Suites (157 units

Source: www.businesstimes.com.sg

Published January 17, 2011

Developers offer price cuts, discounts on new projects
They want to entice buyers to exercise their options to purchase

By UMA SHANKARI

(SINGAPORE) DEVELOPERS have started to cut prices and offer discounts on a case-by-case basis in a bid to stop buyers from walking away from planned purchases.

At least one developer, Roxy-Pacific Holdings, has cut asking prices for the upcoming launch of its new residential project, Spottiswoode 18. Previously, prices for one-bedroom units started from $700,000. Now, in light of the new measures to cool the property market announced last Thursday, prices will start from $600,000 instead. Prices for other types of units at the project have been cut as well.

More such price cuts at upcoming launches are likely, market sources said.

In addition, some developers are giving potential buyers discounts on a case-by-case basis in order to entice them to exercise their options to purchase, the sources said.

In one case, a listed developer offered a group of investors a discount of around 5 per cent to persuade them to exercise their option to purchase a unit at a project in Cairnhill. But the investors still chose to walk away and forfeit their deposit. Some developers have also offered to absorb the buyer's stamp duty, which is up to 3 per cent of the price, sources said.

Developers are reacting to the government's decision to raise the seller's stamp duty for private homes to 16 per cent, 12 per cent, 8 per cent and 4 per cent for properties that are bought on or after Jan 14 this year and sold in the first, second, third and fourth year after purchase respectively.

Previously, owners who sold houses and apartments less than three years after buying them had to pay a seller's stamp duty of only up to 3 per cent.

The Loan-To-Value (LTV) limit on housing loans was also lowered from 70 per cent to 60 per cent for individual buyers with one or more outstanding housing loans.

The measures dampened buying sentiment over the weekend. Showflats on Saturday and Sunday were markedly quieter as agents reported a fall in buyer interest - although a few projects still drew interest.

'Turnout at showflats was quite mixed,' said DMG & Partners property analyst Brandon Lee who visited showflats over the weekend.

But there were deals done. Far East Organization said in an update that it sold 18 units over the weekend across its mid and high-end projects. Eight of the units sold were from The Tennery at Bukit Panjang. A handful of units were also sold at Allgreen Properties' The Cascadia in Bukit Timah.

Oxley Holdings also rolled out its 36-unit Vibes@Kovan, along Kovan Road, over the weekend. The developer could not provide a sales update yesterday.

A spokeswoman for CapitaLand, Singapore's largest listed developer, also said it was 'business as usual' for the group. She added that homebuyers who recently bought its properties have completed the Sale and Purchase agreements.

Looking ahead, developers are likely to hold back property launches as they wait for the market to absorb the news.

City Developments and Far East Organization have both said they are assessing the situation. Lim Yew Soon, managing director of EL Development, similarly said that the launch of his company's Skysuites17 at Balestier could be delayed.

'We were scheduled to launch it in March, but now we will monitor how the market reacts before deciding whether to launch it or to hold it back,' Mr Lim said

Source: www.businesstimes.com.sg

In a changed market, there is little, if anything, to be excited about

by Ku Swee Yong

05:55 AM Jan 14, 2011

Several articles have been published in the media and by property analysts in recent months about the frenzy surrounding en bloc deals and the increasing values of these collective sales.

Some of these are really bullish about the potential for such transactions this year.

I cannot see where the excitement is because I understand the hurdles to en bloc deals have increased.

Several things have changed since the last peak of the en bloc market in 2007. The most obvious one has been highlighted by some of the articles: The average size of residential en bloc deals last year was about $50 million and only one exceeded $100 million. In comparison, more than 20 of the 200 residential en bloc deals in 2007 exceeded $100 million in value, as shown in Table 1.



THE DEVELOPERS

There are several reasons for the current lack of interest in large en bloc offerings - that is, those over $100 million in value - even though many developers are actively building up their land banks.

From the developers' point of view, the economics of an en bloc deal are less attractive today than in 2007 because of the following reasons:



a) The Government Land Sales (GLS) programme was at a record high in 2010. And, given the seemingly-insatiable demand from property investors and upgraders, the GLS will be at least as high in 2011. Developers participate in the GLS as it is a straightforward way to purchase 99-year leasehold land. It is hassle-free compared to the process of purchasing from an en bloc sale (unless there is 100-per-cent agreement from the owners of the en bloc development).

An en bloc sale requires clearance from the Strata Titles Board and the subsequent relocation of the existing owners of the project. Developers do not want to risk their investment cashflow being delayed by potentially lengthy appeals. The Land Titles (Strata) Act was last amended in the middle of last year to improve en bloc rules, making the process more transparent but more onerous.



b) From January 2009, planters within a residential unit and bay windows in all developments are not exempted from gross floor area (GFA). Based on this rule change, the uplift from the en bloc development's current plot ratio to the new buildable GFA is more limited compared to that during 2007.

For example, Tulip Garden was sold en bloc for $516 million in mid-2007 (although the buyer did not follow through the following year). At that time, developers were betting on launching new projects at Farrer Road upwards of $1,600 per sq ft. Additional profit margins for the developers could be derived from the sellable GFA of bay windows and planters (exceeding the plot ratio limit).

Today, without the additional GFA, developers would have to launch at higher prices in order to maintain their 15- to 20-per-cent profit margin. As a comparison, Tulip Garden is asking for $650 million in the current 2010 en bloc exercise.



c) Development Charge (DC) rates have gone back up to just below 5 per cent of the peak levels of March 2008. Average DC rates for September last year are 2 per cent below those of September 2007, 53 per cent above July 2007 and 114 per cent above March 2007.

Given the last few months of strong sales, particularly when looking at prices achieved in the mass market residential segment, I believe DC rates will increase in March this year, possibly exceeding those of March 2008 in many of the sectors.



d) Construction cost estimates, according to RLB, a global property and construction consultant, are higher in Q3 2010 than in Q3 2007, as shown in Table 2.



Developers now face higher costs from the DC impost and with less strata area to sell, even as market prices are about the same as those in 2007 for the Holland Road stretch.

For developers to view en bloc deals as economically viable investments, the reserve/asking prices cannot go too high up. En bloc sellers need to be realistic if they want to achieve a win-win deal for themselves and the developers.



THE FINANCIERS AND LENDERS

However, the biggest dampener to the fever of the en bloc market is the drastically reduced access to financing. This point has escaped the discussion of all the recent articles.

In 2007, there were many sources of financing - debt funds, hedge funds, etc. Developers could also choose to partner with investment banks such as Lehman Brothers, Goldman Sachs, Wachovia or hedge funds such as Citadel, etc. In addition to getting senior debt at up to 70 per cent of the price of the land and construction, developers/investment funds may also avail themselves of another 20 per cent more in junior debt, mezzanine financing or convertible bonds, and so on.

A lot depends on the credit standing of the developer, but it does mean that, to buy Pine Grove en bloc, a top notch developer could require as little as $170 million, or about 10 per cent of equity.

Today, we are left with simple, senior debt (normal straight loans from banks) and the lending ratio may be capped at 60 per cent - which means the developer wishing to buy Pine Grove en bloc would need to invest well over half a billion dollars of equity. And, on top of that, the developer has to put up even more cash for development charges and construction costs, which are now also subject to lower loan limits.

Most real estate consultants will only look at the developer side of the equation. But we cannot forget that the lenders play a big role. Without credit and financing, the real estate market can at best stroll at a leisurely pace. And for the en bloc market to continue to grow actively, we need financial institutions and debt funds, especially the non-bank lenders, to regain their appetite for real estate risks.

Otherwise, the success of large en bloc deals such as Hawaii Tower, Pine Grove, Pandan Valley, Tanglin Park and Tulip Garden will remain a dream.



Ku Swee Yong is the founder of real estate agency International Property Advisor (IPA), which provides services to high-net-worth individuals.

Source:www.todayonline.com