Singapore Real Estate Market Review October 2007

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As though they had planned this for a long time, in October 2007 the Singapore government, not once but twice, ‘flexed its muscle’ against property purchasers purportedly to keep property prices in check against a backdrop of a comprehensive inflation, global financial market uncertainties, dwindling supply of office space and prime residential homes, and a large inflow of foreign companies into Singapore along with their huge war chest. 

 

In two swift and surprising moves, the government made into law the proposed new en bloc sale rules which aimed to make en bloc sales tougher; and later in the same month, it withdrew Deferred Payment Scheme for uncompleted properties – a move seen as preventing a property bubble and a prelude to more things to come.

Below describes the ‘nerves of the market’ after the respective government initiatives had been announced.

 

(A) Uncertainties reigns in October market

 

• (A.1.) 2208 may not be as good – projected 4-6% growth

 

The Monetary Authority of Singapore (MAS) said that for the first time in four years, Singapore faces a very uncertain outlook for 2008 due to high oil prices and the chances of further turmoil in the global financial market.

 

The economic sectors that powered Singapore ahead this year – property, wealth advisory and capital markets – are likely to be subdued due to the above-mentioned negative factors.

 

Among the domestic asset market-related activities, financial services are expected to continue to perform well in the last quarter of the year. But equity trading activities may slow down in 2008. Domestic debt market could also be dragged down by a more tentative mood amid lingering concerns over the credit market. Demand for wealth management services may be affected as a result.

 

Prospects for the construction sector are very promising, as many projects will reach completion stages and payments will be forthcoming.

 

However, the Asian region will continued to be spooked by the uncertainties in the US. Exports and growth will be affected by the situation in the US.

 

• (A.2.) Oil spike threaten to shave off Singapore’s GDP growth

 

Crude oil surpassed US$90 a barrel in late October. This will push up business costs in Singapore, noticeably in wages, rents and daily essentials.

 

One of the vital counter measures taken by Monetary Authority of Singapore (MAS) was to gradually strengthen Sing dollar to avoid importing inflation from outside. However, if oil prices continue to increase unabated, MAS will have to tighten the measure further.

Every US$10 increase in oil prices from the current levels would shave Singapore's GDP growth by about 0.5 to 1 percentage point. Singapore’s GDP growth this year is estimated to be between 7% and 8%. (22 Oct)

 

• (A.3.) US may go into recession next year

 

Although sub-prime mortgage assets account for only 14% of all securitised assets in the US, the crisis has become the largest economic problem in three decades. If it drags on, Asian economies will be similarly hard hit like in 2001.

 

In the first half of 2007 and before the sub-prime mortgage crisis reared its head, US consumption accounted for a record 72% of GDP, or about US$9.5 trillion.

 

Now that the economy is hit by the mortgage crisis, consumer spending may drop drastically. If the US consumers start to save, nobody on the demand side can fill the big shoe.

 

The root of the problem is that the high consumption in the past few years were not supported by rising income but by a wealth effect which was caused by a property bubble that has now burst.

 

The ballooning effect has all but disappeared and it is now unlikely for US consumers to extract equity from their home with prices still going through a free fall.  (18 Oct)

 

• (A.4.) With s strong Sing dollar more liquidity is expected

 

However, the mixed signal comes from a strong Sing dollar. Interest rates in Singapore are going to stay cheap for some time. This is because the Monetary Authority of Singapore (MAS) has announced that it will raise the pace of Singapore dollar appreciation to counter imported inflation. The move will lead to higher money inflows and will benefit home buyers, consumers and corporate borrowers.

 

Instead of a higher interest rate to combat volatility of the financial markets and the increased chance of a recession in the United States, borrowers will now enjoy lower interest rate as foreign funds began to flow back to take advantage of a strong Singapore dollar.

 

There will be higher liquidity in the local market which will continue to keep interest rates and cost of borrowing low.

 

A stronger Sing dollar will make people want to invest in local equity markets as they will get both capital and asset returns. (12 Oct)

 

(B) Government passed new en bloc rules to dampen collective sales

 

• (B.1.) New collective sale rules took effect on 4 October

 

The Land Titles (Strata) (Amendment) Act, enacted by Parliament on 20 September 2007, took effect from 4 October 2007.

 

The new rules aimed at making the sale process more regulated and transparent. More stringent conditions would have to be met, such as setting up of a Sale Committee at an extraordinary general meeting (EOGM) and be endorsed by at least 50% of the residents. A new five-day cooling-off period after signing the collective sale agreement was also introduced.

 

The changes will apply to all developments that have not obtained the mandatory majority consent from at least 80% of owners by share value, or 90% for estates less than 10 years old.

 

Full details in attachment – Annex A

 

• (B.2.) En bloc sale volume dwarfed in third quarter

 

Having been primed, en bloc sale volume had already nosedived in the third quarter even before the new en bloc laws were made official. From July to September of 2007, only 24 sites worth a total of $1.96 billion were sold compared with 51 sites worth $6.92 billion in the second quarter.

 

The cautious mood in the collective sales market was due to the global credit tightening, the higher price tags and the two hikes in DC rates in July and September 2007. (The July revision was ad hoc and aimed to douse the en bloc sale fever)

 

For the first time since 2006, the residential investment sales only accounted for $2.9 billion or 21.4% of the total investment sales in the third quarter.

 

The cautious mood in the third quarter had caused the residential investment sales to nosedive 68.3% from the previous quarter. (16 Oct)

 

• (B.3.) Mad rush to meet new collective sale rules

 

As there was earlier no mention of the actual start date for the new en bloc rules, the sudden announcement caught many real estate agents by surprise. And what ensued was a mad rush for signatures. They had to knock on doors and cajole owners right up to the last minute.

 

Some of the projects got their go-ahead at the eleventh hours, such as the Newton Lodge when the last signature was faxed from Shanghai a few minutes before midnight. Chestnut Ville in Upper Bukit Timah had the last signature appended at 10pm.

 

Three prospective en bloc projects which barely made it were Amber Park, Thomson View and Villa delle Rose.

 

For those who have missed out the deadline, such as Clementi Park, Pine Grove and Botanic Gardens View, they would have to restart the process all over again under the new rules. (7 Oct)

 

• (B.4.) Only one collective sale site sold – District 19 Toho Garden

 

District 19 Toho Garden, a condominium on Yio Chu Kang Road near the junction of Ang Mo Kio Avenue 3 and Hougang Avenue 2, has been sold en bloc to GuocoLand for $62.5 million or $594 psf ppr, inclusive of a development charge of $9.8 million.

 

The site has an area of 86,900 sq ft and a plot ratio of 1.4, which gives a maximum height of five storeys.

 

However, the other 17 collective sale projects in other parts of Singapore are not as fortunate. See details of other en bloc project in Annex B. (22 Oct)

 

(C) URA launched more land to meet increasing demand

 

In fact, more individual plots of vacant land were officially launched for tender in October than any other months this year. Below outlines the information:

 

• (C.1.) Simon Road plot near Kovan Melody attracted fierce bidding

 

The URA land sale of Simon Road was awarded to Duke Development, a new property development company set up by former UOB Kay Hian brokers, amidst a fierce tender which included property bigwigs such as Far East Organization, Hong Leong Holdings, Frasers Centrepoint and Allgreen Properties.

 

The 190,000 sq ft site near Kovan Melody went to the top bid of $290 million or $437 psf per plot ratio. The breakeven point will be about $800 psf. To be profitable, the developer must sell above $900 psf. (3 Oct)

 

• (C.2.) Jurong East land parcel for tender

 

URA has launched the tender for a 2.2-hectare site flanked by Lakeside MRT Station and LakeHolmz condo. The site can be developed into around 680 apartments averaging 1,200 sq ft.

 

The site is estimated to be worth about $300 psf ppr. The breakeven cost for a new condo should be about $650 psf and the average selling price should be around $700-750 psf.

 

A vacant plot of land near to Lakeshore has been earmarked for an International School. That may prompt more developers to bid for the land. (18 Oct)

 

• (C.3.) State resumed sale of in-fill sites to meet rising demands

 

For the second time in history, the Singapore Land Authority (SLA) released in-fill sites at popular residential areas for private individuals to build their own dream home.

 

Two GCB sites in District 11 Eng Neo Avenue Good Class Bungalow (GCB) area had been auctioned off, along with Moonbeam Walk off Holland area, Bedok Close, Jalan Insaf at Bishan vicinity, and Somm Road off Petain Road. All the sites, including the pair in the GCB areas, will be granted a 99-year leasehold tenure.

 

In-fill sites are essentially disused state land within popular areas which have been put to economic use. They could be parks, gardens, sub-stations, or even septic tanks previously. At least four of the above sites are at a cul-de-sac (end of a no-through road).

 

The benefits of re-using this land within the popular and matured estates include saving resources since these sites are nearby or already connected to infrastructure and they are cheaper. (26 Oct)

 

• (C.4.) URA auction of Sembawang land fully taken up

 

12 sub-divided landed housing plots near Sembawang Beach were sold at a competitive bidding held by URA for a total $37.09 million or an average of about $285 psf. The plots can be developed into a total of 57 landed homes. (31 Oct)

 

Response to the auction reflected the current bullish market mood as small-time developers, contractors/engineering firms and individual investors thronged the auction venue.

Here are some facts on the winning bids.

 

• The only bungalow plot of 4,477 sq ft was won by an individual investor for $940,000.

• The biggest plot of land measuring 43,687 sq ft and is designated for 23 terrace houses was won by an engineering firm at $14.3 million or $327.33 psf.

• Two plots of land - one designated for 14 terrace houses and another for three terrace houses were won by Fragrance Group for $9.2 million and $1.76 million respectively. The bid prices work out to be $294 psf and $270 psf respectively.

• Another single semi-detached plot was sold to the boss of Fragrance Group for $289 psf.

 

(D) Price trend in October 2007

 

Despite a general slowdown in new home market, a few benchmark home prices were created at some areas, giving testimony that the underlying strength of the market is still strong. However, having said that, it must be pointed out that the benchmark was made before the announcement of the withdrawal of Deferred Payment Scheme.

 

• (D.1.) Prices of private properties rose in third quarter

 

According to the Urban Redevelopment Authority (URA), prices of all properties have increased from end-2006 to the end of the third quarter 2007. Below are the details:

 

 

Likewise, rentals of all properties have also increased. The details are as follows:

 

 

About 65,400 private residential units are in the pipeline, comprising the supply from projects that are already under construction and those that have been granted planning approval and will be constructed within 6 months to 2 years. (26 Oct)

 

• (D.2.) New benchmark prices before DPS was scrapped

 

All the following sales had registered a new benchmark price for the respective areas including:

 

• $2,772 psf for Turquoise at Sentosa Cove

• $2,888 psf for Three Buckley in Newton area

• $1,577 psf for The Rochester in the one-north vicinity

• $1,449 psf for Gardenvista on Dunearn Road in the Upper Bukit Timah area

• $1,327 psf for The Beacon Edge at Tembeling Road

• $1,044 psf for Vetro at Mar Thoma Road

• $1,080 psf for The Lakeshore in Boon Lay Way (16 Oct)
  
   

• (D.3.) New record sale price for Orchard penthouse

 

The new sale record for penthouse is $28 million or $5,600 psf for a 53rd storey penthouse at the Orchard Residences. The buyer of the 5,048 sq ft unit is believed to be a foreigner.

 

The 175-unit condo right in the heart of Orchard Road has been 73% sold, with all four penthouses already snapped up. The project sits on a 99-year leasehold land. (12 Oct)

 

• (D.4.) Average capital value of luxury apartment surpassed 1997 peak

 

In the first three quarters of 2007, the average capital value of luxury apartments in Singapore has risen 43.5% since the last quarter of 2006.

 

The average value of luxury apartments achieved in the third quarter this year has surpassed the 1997's peak. At $2,827 psf, it is 59% higher than the $1,778 psf achieved in 1997 before the market suddenly ground to a halt in the aftermath of the Asian currency crisis. (13 Oct)

 

• (D.5.) Private home prices rise unevenly

 

While property prices rose averagely across the board in the third quarter of 2007, the quantum of increases are uneven and the price gap between different projects at different locations and with different attributes can be quite wide. Quite a number of uncompleted private residential projects in the suburban areas are still very affordable. (See table below for information)

 

 

The number of vacant units has gone up from 11,506 units in the second quarter this year to 12,550 units. In percentage term, vacancy rate has gone up from 4.9% to 5.4%.

 

In the meantime, another 9,224 new units have been added into the supply line to be ready by 2011. In total, the potential new supply of condos and apartment has increased from 56,182 to 65,406 units. (26 Oct)

 

• (D.6.) Rents for private home continue upward trend

 

According to URA’s statistics, rents for private homes have risen in the July-September period. Rents for private home are expected to go up by another 40%. The percentage increase across the island is as follows:

 

• Rents rose 12.2% in the core central region, which covers Orchard, Holland, River Valley, Bukit Timah, Marina Bay and Sentosa.

• Rents rose 11.9% in the rest of the central region, which covers Marine Parade, Queenstown, Geylang and Bishan.

• Rents rose 11.8% in the Outside Central Region. (27 Oct)

 

See “Why rents for private homes will continue to go up?” – Annex C

 

• (D.7.) Office rents continue to go up

 

Office rentals went up 14.8% in the July-September period. In the April-June period, office rents went up by 11%. From the end of 2006, office rents have gone up by 40.7%.

 

URA figures also showed that occupied office space rose by 645,840 sq ft in the July-September period. This was almost 54% higher than the 419,796 sq ft recorded in the April-June period.

 

Median rents for prime offices reached $11.89 per sq ft (psf) per month in the July-September period compared with the increase from $10.33 psf per month in the April-June period.

 

Median rent for general offices was up from $4.60 psf a month in the April-June period.

 

Vacancy rate for prime office space fell to 2.8% from 5% in previous quarter. (27 Oct)

 

(E) October 2007 price trend in HDB resale flats

 

• (E.1.) Prices for new and resale flats to go up

 

HDB has managed to sell a huge portion of its stock of unsold new flats. For example, 1,269 new HDB flats were offered in the North and West zones in the April bi-monthly sale exercise. Out of these, 92% or 1,172 flats were sold. Then in June, 992 new flats in the North-east zone were offered and 97% or 892 flats were snapped up.

 

HDB has stated in general that the pricing policy takes into consideration the affordability factor for the public, changes in the market value of resale flats, individual attributes of the flats and the general demand and supply condition in the resale market.

 

So far, resale prices have been rising steadily with the latest resale price index registering an increase of 6.6% in the third quarter of 2007 quarter-on-quarter. (11 Oct)

 

• (E.2.) Number of unsold new HDB flats drop to 3,500

 

The stock of unsold HDB flats has dropped to 3,500 units. It may be further reduced to about 2,200 units by year end.

 

In the recent HDB’s bi-monthly walk-in sale exercise, 4,800 people filed in online applications for 489 units available for sale. This means that the flats were almost 10-time oversubscribed.

 

The projected completion programme of HDB flats in the next few years is as follows: (18 Oct)

 

 

• (E.3.) Higher cash over valuation (COV) for HDB flats

 

According to data released by the Housing Board on 26 October 2007, five-room flats in popular areas like Queenstown, Tiong Bahru and Toa Payoh are being sold for more than $100,000 above valuation.

 

Since July this year, COV has become a norm and about 80% of HDB resale transactions attracted cash above valuation. This may be due to middle-income buyers, who had been priced out of the private home market, buying cheaper public flats.

 

According to HDB figures, buyers of executive flats are forking out the highest median cash-over-valuation amounts. For example, the median price is $155,000 in Clementi. Overall, the median amount for this flat type was $25,000.

 

The median price for four- and five-room flats, are $18,000 above valuation. For two- and three-room flats, the median amount was $15,000.

 

The highest amount paid above valuation for a five-room flat was $91,500. The figures were $57,500 for a four-room flat and $40,000 for a three-room flat.

 

In general, the areas requiring the least cash-over-valuation were Woodlands, Yishun and Bukit Panjang. The Central area, Queenstown and Marine Parade were the locations where buyers have to fork out more cash in order to stand a chance to own a flat there.

 

However, total HDB resale transactions in the third quarter were 8,700 units - a fall of 11% after rising 38% in the second quarter. (27 Oct)

 

See “Why HDB resale prices will continue to rise?” – Annex D

 

• (E.4.) Median HDB rent went up

 

The overall median rental for HDB five-room flats went up by 21.2% in the July-September period.

 

For HDB resale flats, median rents crossed the $2,000 mark for five-room flats in Bukit Merah and the Central area, as well as executive flats in Bishan, Kallang/ Whampoa, Clementi and Queenstown.

 

Overall, median rents were $1,200 for three-room units, $1,400 for four-room units, $1,600 for five-room flats and $1,700 for executive flats. (27 Oct)

 

(F) Deferred payment scheme withdrawn

 

The government on 26 Oct 2007 made a surprise withdrawal of the Deferred Payment Scheme (DPS) for property purchases with immediate effect - in view of the strong economic and property market conditions.

The rationale for DPS is no longer valid with the current robust economy. In fact, with no requirement to prove repayment abilities, many speculators have taken advantage of the DPS to engage in sub-sale activities, causing a property bubble to form recently.

 

From now on, buyers will have to ensure that they have sufficient funds or are able to secure adequate loans from banks before they commit to buying a property. (26 Oct)

 

The withdrawal of DPS immediate brought about the following responses:

 

• (F.1.)Stock exchange in tailspin

 

Except for CapitaLand which has extensive overseas operations, major local developers have become poorer in stocks. The table below gives a gist of their losses in share prices.

 

 

Many believe the sell-down was just a knee-jerk reaction to the Government's surprise move on 26 Oct 2007.

 

Many bankers were of the view that the change would only affect only a small group of HDB upgraders who cannot afford two mortgages. Most property analysts were of the view that the run-up in the residential property market has been buttressed by strong economic fundaments such as high economic growth, rising rents, and a tight supply of new properties. (30 Oct)

 

• (F.2.) Investors buy into bank shares

 

However, bank stocks rose after the announcement of the withdrawal of Deferred Payment Scheme (DPS).

The exit of DPS was seen as positive for banks whose risks have been considerably reduced as more genuine buyers will come forward. The buyers will be compelled to take up home loans which will be drawn down progressively. The net result, the property market will be backed by the correct fundamentals.

 

The second reason for the bank to cheer the government’s initiative is that the risks of default by corporate borrowers are always higher than individual households in a downward market.

 

The removal of the scheme will restore some balance, and the banks should have their exposure to households raised while lessening their exposure to developers.

 

The removal of DPS will definitely cool the property market somewhat and buyers will become more cautious in the near term. For the time being, newly launched projects may suffer from a slower take-up rate.

 

But in the longer term, property prices will be rising more realistically or falling in line with economic fundamentals.

 

• (F.3.) All is not lost with DPS withdrawal – real economy is still red-hot

 

A report by Goldman Sachs Global Investment Research said that those who are likely to be affected by the withdrawal of the Deferred Payment Scheme (DPS) are speculators, foreign buyers and buyers who are stretching their affordability to buy a property.

 

While the high-end residential market will also be affected by the withdrawal, it is the mid to mass market which will take the full brunt of the government’s move. This is because such projects saw more buyers using the DPS. With the new rule, there will be a need for buyers in these two categories to secure financing before they could commit to the purchase.

 

As such, in the short run, the pace of new launches and take-up of new launches are expected to slow as property prices are likely to come under some downward pressure. This may lead the developers to offer lower discounts on price.

 

However, all is not lost as there are also positive factors to support the growth of the property market. Such factors include strong job creation and economic growth.

 

 

Buy, Sell, Rent, Invest, In Singapore

 

MINDY YONG

( +65 ) 91002985

Fax: (+65) 64021826

mindy@mindyyong.com