Singapore Real Estate Market Review August 2009

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Introduction – Monthly Property Market Update for August 2009

While troubled banks in the United States are still being shut down, banks in Singapore are busy writing ‘Letters of Offer’ to home buyers and there may now be a shortage of mobile bankers on duty at newly launched condominium showrooms across the island. Exactly what is causing the buying frenzy is not immediately known as official statistics still point to a fragile, if improving, global economy. Cabinet Ministers in Singapore are hinting at tougher times ahead for wage earners, but few Singaporeans are able to read between the lines.

Of late, property partners have maintained that there was no speculative froth in the market at this moment; but it is foolhardy for anyone to point to the positive GDP growth in the last quarter as evidence of an economic upswing as the figure is largely the resultant effect from the current property rally and must not be used to justify the buying decision.

In short, the recent buying spree in the property market has caused an improvement in the GDP growth; and at the same time, the GDP growth has also caused more property buying to occur. If this cannot be called a ‘property bubble’, then what is?

(A) OVERVIEW OF THE LARGER ECONOMY

[A.1] FIVE US BANKS SHUT DOWN IN ONE GO

Regulators in the United States (US) had shut down Colonial BancGroup, a lender in real estate development, in the biggest US bank failure this year, and also closed four banks in Arizona, Nevada and Pennsylvania.

The failure of Colonial is expected to cost the deposit insurance fund an estimated US$2.8 billion.

Altogether, 77 US banks have been shut down this year, compared with 25 in 2008 and three in 2007.

FDIC officials warned that while home mortgages may have seen the worst year, commercial real estate loans are now facing tremendous challenges. There could be more defaults on such loans if the recession deepens.

So far, bank failures in the US have sapped out deposit insurance fund which stands at US$13 billion as of the first quarter of 2009. This means that another round of banking crisis is not a remote possibility, but a likelihood.

[A.2] DR TONY TAN SAID THE WORST OF CRISIS WAS OVER

The Government of Singapore Investment Corporation (GIC) deputy chairman and executive director Tony Tan said recently that the worst of the crisis seems to be over for Asia which is expected to continue to improve economically through 2010.

Dr Tan had earlier correctly predicted the ‘worst scenario’ though he was lambasted by many private sector economists after his ‘worst in 60 years’ prediction.

However, Dr Tan warned that the greatest risk to the outlook for Asia is a global economic and financial environment that does not stabilise and recover by 2010. Despite signs of stabilisation, downside risks remain high.

Besides the threat of ‘protectionism’, another risk is the US consumer spending less and saving more. This could result in sustained deflation, and America relapsing into recession.

[A.3] UNIONS WARNED OF PERMANENT LOSS OF SOME JOBS

Labour chief Lim Swee Say warned that retrenchments are likely to climb in the months to come as the ongoing global economic slump has prompted many manufacturers to downsize their operations here or move out of Singapore completely. And Mr Lim is worried that once these jobs are lost to Singapore, they will be gone forever.

Mr Lim said several unionised companies had told the NTUC that they would retrench over 1,500 workers later this year. This is because the companies do not see a pick-up in global demand and many do not want to hold on to spare capacity.

A decline in the jobs situation could lead to what Mr Lim described as a 'double-dip' - a W-shaped economic recovery.

Although preliminary second-quarter figures show this has since eased to 4,800, Mr Lim said this did not mean Singapore and the global economy were back on a path to growth. The outlook for the second half of the year remains uncertain, and layoffs were on the horizon.

[A.4] HOME LOANS MARKET ACTIVE AGAIN

What a difference three months make. Just then, amid gloom over the economic outlook and falling home price valuations, banks reportedly tightened lending criteria.

But now, a cocktail of low interest rate, the availability of money and the pent-up demand had fuelled the recent property rally. The slowing of Housing & Development Board construction over the years also helped to push some of the demand towards private condominiums which are always favoured by younger families. And the banks could also be instrumental in fuelling the rally as they are reportedly lending up to 90% of the home value recently.

According to Bloomberg data, the three-month Sibor has been hovering at about 0.68% for a few months, not far from the 10-year low of 0.56% in 2003. And most market observers do not expect interbank rates to go up in the near future as economic uncertainties still looms over the horizon.

§  [A.4.1] Bank Lending surged again in June 2009

According to an estimate by the Monetary Authority of Singapore (MAS) issued in mid-August 2009, the total amount of Singapore-dollar loans held by banks in Singapore went up by 0.5% to $272.2 billion at end-June, hot on the heel of an expansion in overall bank lending of 0.3% a month ago. The continuous rises give the market some self-belief that the Singapore economy could already be in the recovery mode.

Consumer housing and bridging loans were the main sources of growth, which rose 1.5% in June to $82.9 billion, after a 0.8% increase in May 2009.

Total consumer loans rose 1.5% in June 2009 to $118.7 billion at the end of the month, compared to $116.9 billion at end-May.

Business borrowing continues to fall for the eighth consecutive month in June, to $153.5 billion or 0.2%.  The worst of the lots were borrowing from the manufacturing sector, shrinking 2.6% over the month to $11.2 billion. This simply means that orders in this particular sector continue to stay low.

(B) OVERALL PERFORMANCE OF PRIVATE RESIDENTIAL PROPERTY SEGMENT

As the global economy seems on track for a recovery, home buyers who have been restrained by the sudden meltdown of the financial market pounced on the property market with impunity, and along the way pushed the market to another historical high – barely a month after it hit the first historical height of 1,825 new homes sold in a month.

[B.1] NEW HOME MARKET PERFORMING BEYOND ECONOMIC FUNDAMENTAL

By the end of July 2009, a total of 10,117 new home units have been sold in Singapore belying an on-going economic recession.

Table [1] below shows the phenomenal performance of the new home segment starting from May 2009.

Table [1] – Comparison of new home units sold in the first seven months of 2009

Source of Data: URA website

§  [B.1.1] Almost half the total transactions of new homes were outside central region

Table [2] shows the total transactions at the respective regions over the past seven months, with the Outside Central Region (OCR) chalking up the most impressive sale performance so far this year.

By percentage term, 45.18% of all the new home units were sold in OCR, with only 22.01% of them sold at the Core Central Region (CCR). The remaining 32.81% of the new home units changed hands in the Rest of Central Region (RCR).

Table [2] –   Sale volume of the three regions i.e. CCR, OCR & RCR over the past seven months

Source of Data: URA website

Traditionally, foreign investors do not buy into heartland areas as home units there are mostly for ‘own use’ by locals. Likewise, capital appreciation in outlaying areas, if it occurs, will not be as fast and as huge as in the prime areas where more ‘big hitters’ are playing.

§  [B.1.2] Sale of primary home units in Core Central Region (CCR) maintains its strengths

Table [3] – New home units sold in CCR in July 2009

Source of Data: URA website

FACTS – 41 projects in CCR reported at least one transaction in July 2009, compared with a month ago where only 30 projects there did so. The highest median price achieved in July was $3,273 psf, way below the $3,813 psf recorded in June 2009. Though fewer projects were accounted for in CCR in June 2009, there were more transactions there as compared to July 2009.

Below are comparisons of sale prices between the June 2009 and July 2009 in some selected new condo/apartment projects in CCR.

FINDING – Despite the phenomenal rise in transaction volume in July 2009, sale prices in CCR continue to slide when compared with a year ago. However, when compared month-on-month with the June 2009’s median price, prices in July 2009 rose impressively. For example:

CONCLUSION – The recent buying frenzy has helped recover some lost grounds in home prices in CCR. There is conclusive evidence to show that the high-end new home segment has stabilised for now. However, whether prices will continue to climb remain a fluid proposition as the larger economy remains uncertain. 

§  [B.1.3] Sale of primary home units in The Rest of Central Region (RCR) eased somewhat

Table [4] – New home units sold in RCR in July 2009

Source of Data: URA website

FACTS – 45 projects in RCR reported at least one transaction in July 2009, compared with a month ago where 43 projects did so. The highest median price achieved in July was $1,649 psf for five units at Reflections at Keppel Bay, compared with $1,501 psf achieved in June 2009 for one unit at Jardin along Upper Bt Timah Road. However, the sale volume dipped slightly in July 2009 compared with a month ago.

Below are comparisons of sale prices between June 2009 and July 2009 in some selected new condo/apartment projects in RCR.

Source of Data: URA website

FINDING – The price trend in RCR is similar to that of CCR with July 2009 median prices generally higher than those of June 2009 but much lower than last year’s. The same conclusion can be drawn for developers’ pricing strategy in RCR, i.e. they appear to be in a hurry to offload as many as they can.

§  [B.1.4] Sale of primary home units in Outside Central Region (OCR) hit over-drive

The sales volume at OCR soared more than three times to hit 1,502 units compared with 432 new home units sold in June 2009.

A total of 903 units were sold from four new projects launched in the Outside Central Region (OCR), accounting for the lion’s share of the total 1,502 units sold in OCR in July 2009. These projects included The Gale which sold 294 units with ease, Meadows @ Peirce which sold 286 units at a very bullish median price of $919 psf, Waterfront Key which sold 191 units, and Optima @ Tanah Merah which sold 132 units at $822 psf.

Together with the other 40 on-going projects, OCR hit back with a vengeance by closing an unprecedented 1,502 new home units in July 2009.

Price wise, the phenomenally high transaction volume did not shore up sale prices by much. Instead, units at the freehold project The Gale at Flora Road in Upper Changi/Loyang Area were transacted at a competitive median price of $696 psf. Though units at other projects were all selling at higher prices, the increase was restricted to around 5% to 6% over the June 2009 sale prices.

Table [5] – New home units sold in OCR in July 2009

Source of Data: URA website

Below are comparisons of sale prices between the June 2009 and July 2009 in some selected projects in OCR.

Source of Data: URA website

[B.2] PRICIER UNITS MAKING UP BIGGER SHARE OF HOME SALES

The proportion of private homes sold at over $1.5 million has risen by 6% in June and July 2009. According to a DTZ analysis, 18% of caveats lodged from January to June this year were for apartments in this price range.

From January to April, private homes costing more than $1.5 million accounted for a smaller 12% of the 4,401 caveats lodged.

According to URA data, 72% of the 1,637 units launched by developers in June 2009 were from the core central region and rest of central region. This was a marked increase in quantity of quality home units launched when compared with April 2009.

74.4% of the total 2,227 new home units sold in CCR occurred in May, June and July. 67% of the total of 3,319 new home units sold in RCR was likewise done in May, June and July 2009. See table below:

Table [6] –   Pricier units took over from May 2009

Source of Data: URA website

Some of the examples include Allgreen Properties’ freehold One Devonshire near Killiney Road where a caveat showed a unit costing $2.02 million or $1,690 psf was sold.

Sim Lian also launched Rochelle at Newton in May. Several caveats were lodged for units above $1.5 million, with one going for $1.83 million or $983 psf.

A unit at The Oceanfront@ Sentosa Cove changed hands at $11.5 million or $1,922 psf.

Seven units at Ardmore Park were also sold at $6 million or more each, with the highest at $7.25 million or $2,513 psf.

(C) PERFORMANCE OF NON-RESIDENTIAL PROPERTY SEGMENT

While the private residential segment was basking in glory, the commercial and industrial property segments are both in sorrowful state with rent quantum and occupancy rate sinking into new depth.

[C.1] STEEPEST FALL IN OFFICE OCCUPANCY COST IN SINGAPORE

Singapore has become more competitive in terms of business costs under a dubious circumstance, i.e. the plunging office rents.  The weakening demand for office space and rising supply have conspired to cause the negative net take-up of office space for three consecutive quarters since Q4 2008.

According to Colliers International, monthly gross rents for Grade A offices in Singapore's central business district (CBD) posted the sharpest fall in Q2 2009, compared with other major cities in the region. Rents in CBD are now at about $6.73 psf per month in Q2.

Though other analysts are making similar but different projections, the outcome does nothing to cheer any commercial landlords.

Cushman & Wakefield's mid-Q3 analyses show a slower decline in prime office rents. For instance, Raffles Place Grade A office rents fell 18% from $10.61 in Q1 to $8.70 in Q2. But since then, they have dipped just 2.9% to $8.45.

Jones’ Lang Laselle has put the average monthly rental value for prime Grade A Raffles Place (small space) at $9.50 psf in Q2 2009, about half the peak figure of $18.40 psf in Q3 last year.

Prime office rents in the Shenton area dropped 5.8% from Q2 to $6.32 - a smaller decline compared with the 17.9% drop from $8.17 in Q1 to $6.71 in Q2.

The prime office vacancy rate at mid-Q3 is 6.1%, up 0.4 of a percentage point from Q2.

§  [C.1.1] Office rents unlike to go up in near term

Due to some companies’ plan to downsize in the months ahead, the downward pressure on rents in the next few quarters and positive take-up of space might not emerge until next year.

At the moment, leasing activity has been dominated by companies relocating for better propositions, such as more competitive rents or more efficient floor plates.

According to URA figures, the pipeline supply for the office sector stood at about 13.3 million sq ft gross floor area as at end-Q2 2009, of which about 12 million sq ft is slated for completion by 2012.

[C.2] PREPARED INDUSTRIAL LAND ALLOCATION FELL IN Q2 2009

The net allocation of JTC prepared industrial land performed poorly in Q2 as the economic recession starts to rear its ugly head in the industrial segment. Almost a quarter of terminations were due to companies shutting down operations – with nearly half of total terminations coming from the electronics segment.

JTC's Q2 facilities report shows net allocation at negative 32.2 hectares, compared with a net allocation of plus 14 ha in Q1 and 34 ha in Q2 2008.

Gross allocation in Q2 this year slid to 5.4 ha. And termination jumped to 37.6 ha, from 16.7 ha in Q1.

(D) PERFORMANCE OF COLLECTIVE SALE

As private home prices have risen by 16% to 26% in July 2009 from the lowest point in March 2009 and sales volume has surged 200% year-on-year, the current rally is similar in outlook as the recent 2007 bull-run, though the current state of the economy is anything but uncertain. However, hopeful en bloc site sellers cannot help but to try their luck at this juncture.  But whether the speculative prod at collective sales will yield any results, nobody is the wiser.

[D.1] INTEREST IN RESIDENTIAL LAND REKINDLED

The number of en bloc sales has fallen from 116 collective sales completed in 2007 to eight such deals in 2008. As for 2009, the looming uncertainties have made any talk of an emerging en bloc sales drive highly premature.

However, this year's only collective sale tender so far, for Dragon Mansion at 18 Spottiswoode Park Road, has closed with more than one interested bidder. However, the marketing agent stopped short at revealing the offers.

Dragon Mansion is a small-size site with only 41,874 sq ft to boast. It has a plot ratio of 2.8 and could potentially yield an estimated 120 units of 1,000 sq ft apartments in a new development. The main selling point of this site is its freehold status.

[D.2] GUILLEMARD ROAD APARTMENT ON EN BLOC SALE MARKET

The newfound optimism in the market has prompted Cassia View at 320 Guillemard Road to be put up for sale by expression of interest.  The freehold development sits on a 35,511 sq ft site and comprises 72 two- to three-bedroom apartments and penthouse units, with a total strata area of 89,362 sq ft.

The marketing agent said it has received nearly 10 preliminary inquiries about the site and expects to have at least three serious bids by the time the offer closes in early September.

[D.3] ELEVEN APARTMENTS ON BALMORAL ROAD ON EN BLOC SALE MARKET

A development of 11 freehold apartments on No 3 Balmoral Road is on the en bloc sale market for $65 million. The apartments are owned by an investment company which has leased out all the units.

The land area is 23,821 sq ft and it has a permissible plot ratio (ratio of maximum gross floor area to land area) of 1.6 and a height restriction of 12 storeys. The site can be redeveloped into 30 residential units.

The $65 million price works out to $1,705 per square foot per plot ratio (psf ppr) based on the 1.6 plot ratio.

[D.4] TEACHERS HOUSING ESTATE ON EN BLOC SALE MARKET

An 86,402 sq ft plot at No 162 Tagore Avenue, within the Teachers Housing Estate, has been put up for collective sale with an indicative price of $15 million. It will be sold on a 99-year leasehold tenure by the Singapore Teachers' Union, which holds the freehold interest in the property.

The Tagore Avenue site, although currently zoned as 'civil & community institution', has the approval for a three-storey mixed landed development, allowing a potential development of either 33 landed homes or 40 cluster houses.

(E) FOREIGNERS’ INTERESTS IN SINGAPORE REAL ESTATE

There are two sides to the same story of the abundant opportunities available in the current weakness in high-end home prices. On the one hand, foreign buyers are reportedly coming back to Singapore to take advantage of the competitive prices; but on the other hand, some foreign owners are disposing of their high-end properties in Singapore at huge losses. How the situation will pan out later is anybody’s guess. Will there be more foreigners trying to get rid of the ‘hot potatoes’ on hand or will there be more buying in the months to come?

Lest one forgets, the current global economic downturn inflicts the rich in the developed countries more than it does the heartlanders in Singapore. The script has not been completed yet as far as the story of economic recovery is concerned.

[E.1] HONGKONGER OWNER SOLD HILLTOPS CONDOS AT HUGE LOSSES

18 apartments at Hilltops condo at Cairnhill Circle were disposed of in late August 2009 in the sub-sale market for a total of $48.2 million or an average price of about $2,560 per square foot (psf), which is a far cry from the average price of around $3,900 psf for the first 28 units.

A check with SISVREALINK data showed that NINE units were sold by the project's developer, SC Global subsidiary Taraville, between October and December 2007 at prices ranging from $3,501 psf to $4,812 psf or at absolute prices of between $4,371,500 and $43,146,832.

By such extrapolation, the loss suffered by the seller was estimated to be more than 35%.

[E.2] PROPERTY FUND SNAPS UP 21 CONDO UNITS FOR $65M

Bulk sales of apartments, or marriage deals between developers, involving huge ‘bulk discounts’ seem to be a common phenomenon during recession. An overseas property fund is understood to have made a ‘bulk purchase’ of the remaining 21 units at Sui Generis condo at Balmoral Crescent for $65 million.

The price works out to about $1,260 per square foot (psf) on average, which is thought to be about half the average price of about $2,460 psf achieved for the earlier 19 units in the 40-unit development that were sold in 2007 and 2008 at prices ranging from $1,991 psf to $2,717 psf.

[E.3] INVESTMENT SALES STILL IN THE DOLDRUMS

The investment sales deals struck in the first six months of this year is only about $2.2 billion, compared with $17.9 billion for the whole of last year and the record $53.7 billion in 2007.

However, partners reckon that things will get slightly better in the second half of this year as demand for Government's reserve list has warmed up and sales of some big-ticket items can be expected to come to fruition.

Besides, Lion Properties Group has recently disposed of the 50-room Hotel Nostalgia in the Tiong Bahru area for about $22 million. Hotel Nostalgia, a freehold property, is expected to receive Temporary Occupation Permit soon.

An expression of interest closed last week for a portfolio of four malls owned by Asian Retail Mall Ltd (ARML) 1 fund, which comprises White Sands in Pasir Ris, Century Square in Tampines, Hougang Mall, Tiong Bahru Plaza and the next door Central Plaza office block. The seller is asking for $1.5 billion for the above properties.

(F) GOVERNMENT LAND SALE (GLS) PROGRAMME

[F.1] GOVERNMENT RESIDENTIAL SITE AT SERANGOON AVE 3 UNLOCKED FOR TENDER

A 99-year leasehold residential site at Serangoon Avenue 3 in front of Nanyang Junior College has been triggered off for release from the reserve list.

A developer has put in a minimum price bid of $83.7 million for the plot for the Urban Redevelopment Authority (URA) to unlock the reserve site and put it up for public tender.

The proposed bid price of $83.7 million works out to about $200 per square foot of potential gross floor area. URA will release the site for tender in about two weeks.

[F.2] GOVERNMENT RESIDENTIAL SITE AT SELETAR HILL AREA TRIGGERED FOR SALE

A URA’s 2.1ha commercial and residential site at the corner of Yio Chu Kang and Seletar roads has been triggered off for sale after a developer committed to bid at least $40.5 million for it.

The site is the third URA site triggered for sale in as many weeks after developers tendered bids on land in Dakota Crescent and Chestnut Avenue.

With a gross plot ratio of 1.4, the Yio Chu Kang site which is near the future Seletar Aerospace Park, can generate a maximum permissible gross floor area of about 29,400 sq m. URA estimates the site can accommodate 225 housing units. Shops and food and beverage outlets can be built on 4,500 sq m of commercial space within the proposed development.

[F.3] KAKI BUKIT INDUSTRIAL SITE ATTRACTS 18 BIDS

A 1.07 ha industrial site along Kaki Bukit Road 2 put up for sale by the government attracted 18 bids by the close of tender.

URA said that the highest bid received for the 30-year leasehold site was $12.1 million, more than double the minimum bid price of $5 million.

The highest bid works out to be around $105 per square foot per plot ratio (psf ppr), with the second highest at $90 psf ppr.

(G) OVERALL PERFORMANCE OF HDB RESALE MARKET

Like its private counterpart, HDB resale flats are doing very well in recent months. The table below shows the strong improvements in sales volume starting from February 2009.

With the advent of more permanent residents (PRs) and the media drumming up the ‘economic recovery’ story, buyers are coming out in full force to compete for ‘good’ units at popular locations, driving resale prices at the same time.

Table [7] –   HDB Resale activities in ascendency

Source of Data: HDB website

[G.1] MEDIAN HDB RESALE PRICE WENT UP MORE THAN IT CAME DOWN – CASE STUDY

In terms of median resale prices, Table [8] below shows that there have been more rises than declines in the NINE selected popular locations for the case study – indicating that the HDB resale flat segment may have the ability to progress on its own term regardless of the general economic health of the country.

Table [8] –   Comparing HDB Median Resale Prices between Q1 and Q2 2009

Source of Data: HDB website

For details of transactions at specific heartlands please see Table [9] below.

Table [9] –   HDB Resale volume in JULY 2009

Source of Data: HDB website

Buy, Sell, Rent, Invest, In Singapore

Mindy Yong 杨雯诗

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