by Tan Kok Keong
05:55 AM Jan 28, 2011

The Government's move to introduce a new set of property market cooling measures two weeks ago was widely anticipated but the harshness of the measures surprised many.

The initial reaction from buyers was mixed. On the weekend immediately after the Jan 14 measures, buyers at Spottiswoode 18 snapped up 170 out of the 251 units launched, surprising many observers. The nonchalant reaction could be because the cooling measures were already a known market risk. These buyers had already overcome their reservations during the pre-launch marketing period and were primed and ready to buy.

This was somewhat similar to the good response to the launch of NV Residences after the earlier round of cooling measures on Aug 30 last year.

In contrast, over the same weekend after the Jan 14 measures, sales cooled in Austville Residences - an executive condominium project - despite earlier reports of potential buyers queueing overnight.

Beyond these anecdotal examples, we collaborated with the research team at leading real estate portal PropertyGuru.com to get a clearer picture of pre-transaction activities.

The number of visitor sessions to the website fell 10.7 per cent in the week after the measures compared with the week before. Comparatively, visitor sessions only fell by 3.5 per cent following the Aug 30, 2010 measures. Visitors searching for resale HDB flats saw the sharpest decline (Chart 1A and 1B). In addition, the number of new listings fell by 6 per cent, while the number of listings rose 2 per cent following the Aug 30 measures.

While there are many other factors that affect the visitor numbers, the comparison gives us a clearer picture of market activity following the measures.

The statistics above reinforce the consensus view that overall marketing activity has fallen. If this persists, transaction volumes will decline. Based on historical analysis, a drop in total sales volume over four quarters tends to lead to a fall in the overall Urban Redevelopment Authority's private residential price index thereafter. This happened at two most recent turning points for prices - in Q2 '00 and Q2 '08. The question remains as to whether the current market cooling measures would lead to a persistent fall in volume and thus prices.

To answer this, an analysis of events after the May 1996 market cooling measures could be a good gauge, as that was the last time when a similarly harsh set of measures was introduced.

Within a year from May 1996, overall private home prices fell 8.9 per cent. While there can be no doubt that market cooling measures played an important role, a closer look suggests that other factors could have contributed to the plunge in prices.

Firstly, the rental market weakened over the same period. Overall occupancy rate fell from 93.8 per cent in Q2 '96 to 91.7 per cent in Q2 '97 due to an increase in the number of units completed. As a result, rents also fell by 9.9 per cent over the same period. In addition, interbank three-month Sibor rose slightly to 5.94 per cent from 5.75 per cent over that period. Buying property for investment became less appealing.

Secondly, the stock market also began to decline over the same period. The benchmark Straits Times Index fell 13.4 per cent within a year from June 1996. To add to the woes, the Asian Financial Crisis started in mid-1997. The loss in wealth in the stock market probably motivated investors to sell assets, which could be another important factor that precipitated the continued fall in property prices.

The above analysis shows that for the current set of market cooling measures to cause another prolonged period of price decline, other conditions need to fall in place. This could come in the form of a decline in the stock market or the business environment, higher unemployment and a deterioration of property market basics. The lack of "wealth destructive" factors was the key reason for the ineffectiveness of the last two rounds of market cooling measures, in my opinion.

Going into the new year, the wealth creation effect appears to be largely on track. According to various equity strategists, the Singapore stock market is expected to perform well this year, on the basis that forward price-to-earnings ratios are still undemanding compared with previous peaks. Business prospects look more promising and employers are planning to expand hiring and increase wages and bonuses.

For the property market, the occupancy rate looks like it could remain above historical average of 92 per cent as completions in 2011 are expected to reach only 6,722 units - below the historical average, according to Urban Redevelopment Authority numbers.

Meanwhile, the prospect for a sharp increase in interest rate appears to be muted. Taken together, this suggests that the slowdown in transaction activity and price growth might again turn out to be temporary. Ironically, if that is the case, we should expect more market cooling measures, which will remain as a market risk in 2011. But by themselves, the measures may not be enough to turn sentiment.

In conclusion, while I expect the market to face immediate downward pressure on volume and prices, the year-on-year price fall in 2011 could be marginal. In the meantime, people interested in properties should keep watch for any of the "wealth destruction" catalysts, which in some instances can fall into place very fast.

Buyers should also note the potential for a weaker rental market from next year due to the large number of housing units to be completed from then onwards. Buyers who are stretching their last dollar to buy their dream home might want to dream less and work their numbers based on more prudent assumptions and exit strategies.



Tan Kok Keong is Head of Research and Consultancy at Orange Tee.


Source: www.todayonline.com

Published December 13, 2010

High-specs industrial, office rental gap grows
But consultants say the difference not big enough for firms to move out of the CBD

By EMILYN YAP

(SINGAPORE) The rental gap between office and high-specs industrial space has widened, with the commercial property sector picking up at a faster pace last year

But consultants say that the difference has not become large enough to drive companies out of the central business district - and the flight to the suburbs seen in 2007 and 2008 may not be repeated just yet.

According to Colliers International, the projected average monthly gross rent of CBD Grade A office space in the fourth quarter (Q4) is $8.09 per square foot (psf). This is $4.94 more than the projected rent of $3.15 psf for high-specs industrial space.

Next year, the rental spread could widen to as much as $6.60 - the largest since Q4 2008, when the financial crisis unfolded.

Colliers defines high-specs space as industrial premises with some office features and higher than normal specifications, such as business parks.

Firms saw the benefits of moving to such space in 2007 and early 2008 when the economy flourished and office rents surged. The cost savings were considerable - the rental gap between offices and high-specs industrial space was as high as $10.07 in Q1 2008.

A considerable number of companies, especially financial institutions, shifted their operations from offices downtown to business parks and other high-specs space. Standard Chartered Bank, Citi and DBS were some which moved their back-office functions to Changi Business Park.

It was not until the economic downturn hit that the rental gap shrank. It fell to $3.09 in Q3 last year - the narrowest since Q4 2005.

As the recession ended, both the office and industrial property sectors started to recover but the former has been 'charging ahead faster', causing the rental gap to widen again, said Colliers research and advisory director, Tay Huey Ying.

Nevertheless, CB Richard Ellis (CBRE) Research believes the difference in rents is 'not significant enough at the moment' for firms to move out of town again.

Jones Lang LaSalle (JLL) head of South-east Asia research, Chua Yang Liang, also pointed out that suitable office space was in short supply during the boom years. 'Given the conditions today, there are fewer push factors to drive firms to relocate immediately,' he said.

Dr Chua expects the rental gap to widen further next year, but only marginally. New office space from the upcoming OUE Bayfront, Ocean Financial Centre and Asia Square will meet rising demand, which should keep the growth of CBD prime Grade A office rents in check and the rental gap, therefore, 'fairly stable'.

Colliers agreed that companies which rely on being centrally located are likely to stay in town. But others, according to Ms Tay, 'are increasingly viewing high-specs industrial space as an attractive alternative, not just from the rental-savings perspective, but also due to the narrowing gap in the offerings of (such space) and traditional office developments, particularly the older ones'.

The high-specs industrial sector has had a tough climb out of the economic slowdown. According to Colliers, the average monthly gross rent for such space fell from $4.05 psf in Q4 2008 to $3.08 psf a year later, and then to $3 in Q1 this year.

The rent has been inching up since. If Colliers's forecasts materialise, it could reach $3.15 psf in Q4 - 5 per cent higher than at the start of the year - and climb another 5 to 10 per cent next year.

The recovery has been stronger for conventional industrial space. The average monthly gross rent for upper level prime factories is projected to be $1.70 psf in Q4, up 5 per cent from Q1, while that for upper level prime warehouses could reach $1.64 psf, rising 8 per cent.

Capital values of conventional industrial space have surged on the back of strong investor interest. Upper level prime freehold factories could be worth $460 psf in Q4, reflecting a 20 per cent hike since Q1.

Views are mixed when it comes to how well this sector might do next year. 'Business sentiment for H1 2011 is cautious because of uncertain demand from overseas. We expect rents to hold steady for the first six months,' said CBRE Research.

But JLL's Dr Chua believes that the outlook for conventional industrial space is 'promising' and he expects monthly rents for conventional industrial space to rise 8 per cent by the end of next year.

Source: www.businesstimes.com.sg

05:55 AM Sep 20, 2010
by Jo-Ann Huang Limin

Rental rates in the private property market are poised to rise with the expected influx of some 80,000 foreign workers this year.

Analysts said this is because of the shortage of private housing. And the supply situation may not improve this year, as only 5,000 private housing units are expected for completion by the end of the year.

The Government's forecast on the number of foreign workers here comes on the heels of an expected boom in the job market. And as housing needs for these foreign workers increase, rental rates are likely to follow.

Mr Nicholas Mak, executive director of research and consultancy at SLP International, said: "(The influx) would actually still support the rental market in Singapore. And this could cause rentals to rise anywhere from 2 to 5 per cent for the second half of this year."

Second quarter figures from the Urban Redevelopment Authority showed private property vacancy rates were at 5.4 per cent.

Analysts added that private residential property rental yields are currently 3 to 4 per cent. With the rise in foreign workers, they expect rental yields for non-landed properties to increase by about 1 per cent by the end of this year.

"With the inflow of foreign workers into Singapore, we expect rental yields to probably be at a steady level because of the rent take-up," said Mr Eugene Lim, associate director of ERA Asia Pacific.

"Typically, the rental market in Singapore is pretty stable. It will only drop, for example, in times when the economy is undergoing recession. That is when big numbers of foreign workers may then leave the country," said Mr Lim. Jo-Ann Huang

Source: http://www.todayonline.com