Thursday, July 31, 2014

20's the magic number when comes to easing of cooling measures?


According to an internet survey conducted by our Lianhe Zaobao, 70% of the 1,262 respondents said that it is still not time for our government to ease off on property cooling measures. 40% of them even go as far as saying that such considerations should only be made if property prices fall by at least another 20%. 

In addition, 18% of the respondents felt that more cooling measures should be imposed to curb rising private home prices, as current measures seemed to have insignificant effects. 

The Lianhe Zaobao survey seemed to suggest that a 20% price drop is the "physiological barrier" for most respondents when comes to easing of current cooling measures. Conversely, only 27% of those who responded felt that the existing measures should be relaxed now. 
 

The wife and I wonder if the survey conducted is really an accurate reflection of the current sentiments on the ground. To be fair, 1,200+ respondents is only a small proportion of those who read Lianhe Zaobao (even for their online version). The figure is even smaller if you consider the number of existing/potential participants in the private home market. 

But let us assume that the "20% price drop" is really what home buyers want before they deem it necessary for the government to ease off on the cooling measures. We wonder if those respondents that made this call have considered the repercussions of such a 20% drop carefully enough. One might ask at this juncture: if private home prices will to drop by 20%, surely this is a good thing especially for those who are waiting to enter the market. So what possible repercussions are there? 

The wife and I believe that those who are waiting to enter the private home market largely fall under 3 broad groups: 

The "Cash Rich"
They can jolly well enter the market yesterday already if they choose to, but are remaining on the sideline and waiting for the market to hit their "ideal" price before entering. You be surprised how many of our HDB dwellers actually belong to this group. 

The "Risk Taker"
Those who have sold their property earlier or are selling their existing property now (while the market is still lukewarm), and betting that prices will fall drastically in the near future so that they can re-enter the market again. Meantime, they will go on rental or move back to live with their parents. 

The "Upgraders" 
Those who want to move from HDB to private or a small private to a bigger private apartment, but need to sell their existing homes before they have enough cash to make the switch.

For the "Cash Rich" and "Risk Taker", they will probably want cooling measures to stay till the property market crashes, if possible. The bigger the price drop, the better it is for them as it increases the potential upside in value of the property that they eventually buy. 

But for the "Upgraders", a significant price drop in private home prices may not necessarily be a blessing. History do indicate that when prices of new private home fall significantly, it will bound to have a "knock on" effect on private resale and eventually HDB resale prices. Although the degree of price drop in the three housing sectors may not be proportional, the price gap that the "Upgrader" group needs to bridge may still remain too wide for them to upgrade. And to make things worse, they now find themselves in a double whammy whereby their existing properties have fallen in value and also become more difficult to sell in a bear market.

So depending on which group of potential market entrant you belong to, a 20% drop in private home prices may not spell tragedy for developers alone...
 
 

 

Wednesday, July 30, 2014

Now this is what we call a marketing campaign!


Maybe we have been living in a well all these while but the wife and I are rather impressed by the marketing efforts from the folks who are developing/marketing Quartermile in Edinburgh.

Our opinion with this one may be a tad vested but how often do you find a developer who is actively engaging potential buyers with

A stunning website (http://www.qmile.com/)



On Facebook



And even a monthly newsletter on the latest happenings at the development?


Some may deem us naïve but such proactive engagements do help inject confidence to both existing owners and potential buyers about the development. Maybe something for our local developers to think about?



Tuesday, July 29, 2014

Trouble on both (Completed & Uncompleted) fronts!


Wary buyers shun completed homes
Threat of an oversupply of private homes and a poor rental market are deterring home-seekers from buying completed homes. This is especially for homes in the city centre.

the upscale Districts 9, 10 and 11 account for the bulk of unsold units at completed developments across Singapore.

Private home vacancy rates have reached their highest point since 2006, according to URA figures.

Developers appear to be responding by cutting prices further to boost sales in order to avoid penalties for failing to sell all their units by a dateline. Fines are imposed if a builder fails to sell all their apartments in a project within 2 years of completion, under the Qualifying Certificate (QC) rules.

There were 1,412 completed but unsold homes at the end of June - 1,259 condominium units and private apartments, and 153 landed houses - according to URA last Friday.

The city centre accounted for the bulk of that - about 894 units, or 63.3% - while the city fringe had about 414 unsold units, or 29.3% of the total. said OrangeTee research head Christine Li.

Both areas far outstripped the suburbs, where there were only 104 unsold completed units, or 7.4% of the total.

Ms Li pointed out that the prices of completed homes in the city centre slid 1.9% in April through June from the previous three months, the largest quarterly drop since 2Q'2009.

"This could suggest that some developers have started to become skittish and have started to cut prices in order to move units to avoid QC fines."

Still, buyers will likely stay on the sidelines partly due to rising vacancy rates and a possible supply overhang in the near future.

The islandwide vacancy rate for all private homes, including landed housing, climbed from 6.6% in the first quarter of this year to 7.1% in the second - the highest level since the 7.4% recorded in 1Q'2006.

City centre homes were the worse hit in the second quarter of this year, with a vacancy rate of 8.5%.

Consultants said that a bumper crop of completed homes could weaken the leasing market even further.

JLL Singapore research director Ong Teck Hui pointed out that there were 9,016 private homes completed in the first 6 months of this year, compared to 13,150 units throughout the whole of last year and 10,329 units over 2012.
 


Steady increase in number of unsold units in launched but uncompleted projects
Many private developments have been launched but remain unloved by buyers as home loan curbs continue to suppress demand.

The number of launched but unsold homes as at the end of June was higher than at  the same time the previous year, according to official data last week.

There has been a "stead increase in unsold units in launched private residential projects" since the middle of last year, when tough restrictions were imposed under the TDSR framework, JLL Singapore research director Ong Teck Hui said.

Mr Ong noted that there were around 5,200 unsold units in launched private residential projects, as at the end of June last year. However, that jumped about 20% to reach 6,300 units, as at the end of last month, he said.

The three projects with the highest number of launched but unsold units were all in suburbs - The Santorini (Tampines), Hillview Peak (Bukit Batok) and The Skywoods (UPPPPPER Bukit Timah).
 
Info source: ST

So completed homes cannot sell. Uncompleted homes also finding it a tough sell. But developers are mostly still unwilling to drop prices because of possible "knock on" effects and the high land costs that they had paid over the past 2 years. Looks like we have ourselves a good 'o fashion "Mexican stand-off " - now to see who (buyer or seller) blinks first...

 

Hot off CNA: Resale prices down 1% on-month in June 2014!

 

Resale prices of private homes fell in June after inching up in May, according to Singapore Residential Price Index (SRPI) estimates released on Tuesday (July 29).
 
The SRPI, compiled by the National University of Singapore’s Institute of Real Estate Studies, showed overall prices decreased by 1 per cent in June from the previous month. In May, prices rose 0.4% from April.
 
 
Prices of homes in the central region led the decline, with a 1.5% fall in June from the previous month. Prices in the non-central areas dipped 0.4%.
 
The figures exclude prices for small units with a floor area of 506sqft and below, which also fell 0.4% in June from May, the SPRI data showed.
 

Source: CNA

Monday, July 28, 2014

Vancouver House: Our visit to the road-show

 
Recall our post on July 19th about this new iconic development in Vancouver?
 
The wife and I were unable to make it to the July 19/20 weekend preview of Vancouver House at Four Seasons Hotel. But we were pleasantly surprised to learn that they were holding another road-show - at ION Orchard this time - over last weekend. So we decided to drop by to have a look yesterday.
 
Firstly, one advice to marketing agent/foreign developers looking to market their projects here in Singapore: Please stick to holding your property previews/launches at the function rooms of our local hotels or at least some dedicated enclosed locations. The spot that was chosen to hold the road-show was so "open" that once the mall started filling up with human traffic (especially on a Sunday), the surrounding noise level became rather distracting and not conducive at all to talk shop. It did not help when Mediacorp had decided to hold an event at the atrium one level down later that afternoon. We reckoned that whatever conversation will be mostly drowned out once the event starts.
 
 
As far as sales status is concerned, we were informed that about 35 units were sold during the July 19/20 preview. This already exceeded the 30 units that was earmarked for pre-launch in Singapore. Given the better than expected take-up, the marketing agent has managed to secured more units for sale in Singapore and thus explained the second road-show at ION.
 
 
A preview was held in Hong Kong last week, where another 100 units were put out for pre-launch. Another preview will be held in Taiwan this week.
 

Some additional information we have gotten on Vancouver House yesterday:

  • Units on levels 48 - 57 are deemed the "Estate Floors". These consist of larger units - the smallest units are 2 bedrooms with library of over 1,800sqft) and come with high-end furnishings and an island kitchen.
 
  • The aircon/heat are included in the maintenance charge, which will cost you 55 Canadian cents per square foot per month. This means that you can (if you so choose to) switch on the air-conditioning 24 hours a day during summer or heat during winter without busting your power bills.
 
  • There are 2 additional payments that are involved in the purchase, GST (5%) and Title Transfer Tax - which is the equivalent of stamp duty (2%). However, these are payable only upon the project's completion in 2018. And should you choose to resell your unit before completion, the GST/Title Transfer Tax will become your buyer's problem.
 
  • Speaking of resale ("subsale" in our local terminology), you can start to resell your unit once the S&P is signed. This will be done via a reassignment of your unit. And unlike in the UK where the "assignment" rights are only partial (i.e. the developer will only deal with the original buyer even after the resale is made, and has the legal right of recourse from the original buyer if the new buyer fails to complete the purchase), the "reassignment" of properties in Vancouver is more akin to what we are familiar with in Singapore, i.e. the apartment concerned becomes the new owner's problem once the resale is transacted.
 
  • A capital gains tax is applicable when you sell your apartment. The tax rate may be subjected to revision every year. But for 2014, any capital gain is taxed based on 21% of half of your total gains, e.g. if you sell your apartment by 31st December 2014 and make a profit of say, C$200K, your tax will be 21% of C$100K = C$21K.
 
  • Mortgage wise, one can only take a bank loan of up to a maximum of 65% of the total purchase price. The current interest rate being offered by banks is around 3%.
 
  • So what will it cost you to rent out your apartment? The typical charge from property agents is 1 month's commission + another 5 - 6% (based on annual rental) for management fees. But with Vancouver House, the developer has thrown in a "Rental Management Package" for the first 2 years. What this means is that they will absorbed the rental commission and management fees during this period.
 
  • The expected rental yield is around 5 - 7% gross. The current vacancy rate in Vancouver is said to be about 1.8% - what this means is that 98% of the apartments up for rental are currently occupied. 
 
  • Unlike most property transaction, no legal fees will be incurred for conveyance. The S&P document for property purchase in Vancouver is said to be so standard that there is no need to get the lawyers involved. However, one can always arrange for a lawyer in Singapore to review the S&P - the marketing agent can help facilitate this @S$1,200.
 
  • One question may come to mind since there is no lawyer involved in the conveyance: does this mean that whatever initial down-payment that you pay will go straight to the developer's bank account? If so, what happens if they abscond/go bankrupt?? The wife and I checked (since we had the experience of a supposed renowned developer going bust on us in NZ) and whatever money that is paid will still be held in trust by a lawyer appointed by the developer. So one can rest easy. 
 
And speaking of payment, below is how the payment scheme works for Vancouver House
 

    1. Reservation fee of S$5,000 payable on reservation.
    2. 10% purchase price payable upon execution of S&P agreement. The reservation fee will be refunded upon receipt of full 10% deposit by developer's solicitor.
    3. Further 15% of purchase price payable within 6 months after execution of S&P agreement.
    4. Balance is payable at closing on completion


In terms of unit orientation, apartments within Vancouver House have primarily two facings:
 
  • North/North-West, with a view of English Bay and North Shore Mountains
 
  • South/South-East, facing Yale Town
 
The wife and I were told that apartments facing North/North-West is supposedly the "premium" units, which probably explained why most of the North/North-West facing apartments are the larger apartments. Also, many of the North/North-West units have already been sold.
 
Pricing wise, the North/North-West units are typically at about C$100/psf premium compared to its South/South-East counterparts. So we were advised that one should look at North/North-West units if buying for resale/subsale purposes. But if buying for rental yields, one should probably go with the cheaper South/South-East facing units.
 
The apartment layouts are generally quite regular in shape (i.e. no awkward corners). But between the standard 1-bedroom apartment and the 1-bedroom "flex" unit, the wife and I preferred the former.
 
 
This is because the standard 1-bedder has what we termed as a "proper" bedroom + living + dining area, while the "flex" unit only has a sliding partition between the bedroom (which also acts as the living area) and dining area. Also, the "flex" unit is a tad too small for our liking.
 
 
The 1-bedroom units were priced at around C$1,000 - $1,200psf, which were quite comparable to the selling price of other new developments in Vancouver.
 
While the wife and I typically do not prefer large balconies, we were told that units with bigger balconies at Vancouver House are much sought after as the balcony provides an extensive view. It can also be utilised as an external dining area during the warmer months.
 
Despite some bad press that was generated back in Vancouver over the pre-launches of Vancouver House in Asia(http://www.theprovince.com/Vancouver+tower+makes+enemies+before+built+some+complain+units+offered+sale+buyers+Asia+first/10067128/story.html),
the wife and I believe that the strong interests seen in their Asian previews thus far is a big affirmant to this development.
 
Although the Singapore road-show is now over and done with, you can still contact the Singapore marketing agent for queries about Vancouver House:
 
SQFT Global Properties Singapore Pte Ltd
#03-11 Golden Agri Plaza, Singapore 118535
Tel: +65 6471 1488
 
 
 

Sunday, July 27, 2014

This 七月 (seventh month) will "haunt" new launches even more...


The Hungry Ghost Month begins on Sunday (July 27) and observers say the private residential market will likely see fewer launches during that period compared to previous years, in light of current weak buying sentiments.

However, they also say some launches may still take place if developers are confident in their pricing and product offerings.

The seventh month of the lunar calendar, better known as the Hungry Ghost Month, usually falls in late July or August. The property market is typically tepid during this period, as it is traditionally viewed as an inauspicious month to make home purchases.

In 2011 and 2012, the number of new units launched dropped in August from July. The figure rebounded in September in both years.

In 2013, developers launched fewer new units in July compared to August, following the introduction of the Total Debt Servicing Ratio in late June. But the number of new homes launched in September that year surged, in line with past years.

Altogether, the number of new units launched in August over the past three years averaged 1,159 units. Property watchers say that this year's Ghost Month is likely to see relatively worse numbers.

"Reason being the general sentiment is not as encouraging as previous years. It is inevitable and I think developers would rather time their launches at the right moment to leave a good impression with buyers," said Daniel Teu, associate division director of the Dennis Wee Group.

"Today, sales momentum is very important,” added Eugene Lim, key executive officer of ERA Realty Network.

“Any new project that you have, you need to build the momentum and you cannot have any element of risk that will slow the momentum down. The initial launch stage is very important. I think no developer will want to take that risk today to roll out a major project during the ghost month."

Some observers believe property agents may find some reprieve in the rental market during this lull period as home owners are less likely to view leasing of properties as inauspicious.

 
Source: CNA


Friday, July 25, 2014

Private home prices down for THIRD consecutive quarter!


Prices of private residential properties in the second quarter fell by 1% from the previous quarter – the third consecutive quarter of decline, the Urban Redevelopment Authority (URA) said on Friday (July 25).

The price decline was observed across all segments of the private residential property market, URA said.
Prices of non-landed properties in the Core Central Region (CCR) declined by 1.5% from the previous quarter, following the 1.1% decrease in the January to March period.

Prices in the Rest of Central Region (RCR) declined by 0.4%, after decreasing by 3.3% in the previous quarter.

In the Outside Central Region (OCR), prices declined by 0.9%, after the 0.1% decline in the previous quarter.

Prices of landed properties declined by 1.7%, significantly more than the decrease of 0.7% in the previous quarter.

Rentals of private residential properties in the second quarter fell by 0.6% from the previous quarter, compared with a 0.7% decline in the January to March period.

LAUNCHES AND TAKE-UP
Developers launched 2,843 uncompleted private residential units excluding Executive Condominiums (ECs) in the second quarter, compared with 1,964 units in the first quarter, URA said.

A total of 2,665 private residential units (excluding ECs) were sold by developers during the quarter, compared with 1,744 units in the January to March period.

No new EC units were launched for sale during the quarter. Developers sold 154 EC units in the second quarter, compared with the 149 units sold in the previous quarter.

RESALES AND SUB-SALES
The number of resale transactions rose to 1,314 in the second quarter, up from 941 transactions in the previous quarter. Resale transactions accounted for 31.9% of all sale transactions during the quarter, compared with 33.5% in the first quarter.

There were 139 sub-sale transactions in the second quarter 2014, compared with 128 transactions in the previous quarter. Sub-sales accounted for 3.4% of all sale transactions in the quarter, lower than the 4.6% recorded in the January to March period.

Source: CNA
 
 

Thursday, July 24, 2014

Sharp rise in Q2 private home purchases


Here's a possible reason why the authorities are not inclined to remove any property cooling measures just yet: There was an across-the-board increase in caveats lodged for private home purchases in the second quarter compared to the previous quarter.

DTZ's analysis of URA Realis caveats database shows a 37.1% quarter-on-quarter increase in the total number of private homes transacted to 3,369 units in Q2.

A segmental breakdown showed that the number of units picked up in the resale market climbed nearly 41% or 386 units to 1,328 units in Q2 from 942 units in Q1 - ending three consecutive quarters of decline.

New sales by developers too rose by 511 units or 36.8% to 1,898 units. In the subsale market, 143 units changed hands in Q2, up 11.7% from Q1.

Across buyer segments, too, there were increases. Singaporeans, PRs and foreigners all bought more homes in Q2 than they did in Q1.

Purchases by Singaporeans rose 45% quarter-on-quarter to 2,491 units in Q2. The number of private homes picked up by Singapore PR climbed 24% to 574 units, while purchases by non-PR foreigners rose 2% to 260 units.

Those with HDB addresses bought 1,629 units in Q2, up 41.3% from Q1. The number of private home acquired by those with private addresses climbed 33.4% to 1,740 units.

Despite the recovery in Q2, the 5,826 total private homes sold in the first-half of this year is not even half the 13,651 units transacted in the first-half last year - reflecting the dent on transactions created by the Total Debt Servicing Ratio (TDSR) framework since its introduction in late-June 2013, notes Lee Lay Keng, regional head (SEA), research at DTZ.

Still the pick-up in the Q2 caveats would give the policy makers a reason to pause and reflect, amid calls by developers and other parties urging the authorities to start rolling back cooling measures such as the ABSD and SSD, she added.

Most industry watchers accept that TDSR is here to stay for the long term. 

"The reason caveats have recovered in Q2," said Savills Singapore research head Allan Cheong, "is that demand is extremely price elastic or price sensitive. Even a slight price decline would lure many potential buyers back to the market".

"In 2012 and 2013, the market was fixated with new property launches. In 2014, the genuine upgraders and even investors who are not overwrought by new-fangled small-format homes have started to look at the resale market where more habitable, larger apartments are to be found, and they have started to plunge into the market.

"And the sellers of such properties being individuals, unlike developers, have little bargaining power and acceded to the buyer's price offer. Hence, prices in the resale market have gone down."

DTZ's Ms Lee said the strong new home sales in Q2 was amid an increase in launches by developers.

DTZ's caveats analysis also showed that because Singaporeans' share of private home purchases rose at a faster clip in Q2 compared with more modest increases in buying by PRs and foreigners, the proportion of units bought by Singaporeans rose four percentage points quarter-on-quarter to 74%.

Conversely, PRs saw a two percentage point retreat in their share to 17% in Q2. Foreigners too poised a three percentage point fall in their share to 8%.

Another finding is that 58% of private homes picked up by Singaporeans in Q2 were new sales by developers. Among foreigners, the figure was 62%. For PRs, however, it was roughly equal split of the source of units between new sales and resales. "It appears that a higher proportion of PRs are buying for owner occupation and hence want a completed property they can move into immediately," suggests Ms Lee.
 
Info source: BT

 Our thoughts after reading the BT report: 

  1. The rebound in private home sales in Q2 is kinda expected given the dismal sales figures in Q1. But the Q2 figures is still the second lowest since Q2'2009. 

  1. Even professional property watcher had acknowledged that apartments in the resale market are more habitable compared with new launches over the past 2 years by virtue of their larger sizes. This makes us wonder if "less than 400sqft" for one-bedroom apartment is really the norm going forward for home dwellers or will buyers eventually wise up to the fact that such size is really too small to be considered habitable?

  1. The percentage of Singaporean buyers have risen while those of PRs and foreigners have correspondingly fallen. And for purchases from PRs, which constitutes the second largest proportion of overall home purchases, about half of these are supposedly bought for own stay. Maybe this should appease (at least a little) them chest-thumping locals that have been harping about foreigners coming into Singapore to speculate on our private properties, thereby jacking up prices and making such homes unaffordable to Singaporeans? You are back to competing with your fellow countrymen more and more...
 
 
 

Ease cooling measures? Too early, says MAS


The property market may be stabilising but it is still "too early" to ease the cooling measures that were introduced in recent years, the Monetary Authority of Singapore (MAS) said on Thursday (July 24).

This is because home prices remain elevated while global interest rates are at historical lows, MAS Managing Director Ravi Menon said.

Speaking at the release of MAS' annual report for the 2013/14 financial year on Thursday (July 24), Mr Menon said property prices have risen 60% over the last four years but have declined by just 3.3% over the last three quarters.


He also said relaxing property measures at a time of low interest rates may set off another spiral of price increases.

Some Singapore households remain highly leveraged, and they would need time to reduce their debt levels, he added.

Mr Menon said the measures introduced to cool Singapore's housing market can be divided into two categories – structural measures such as the total debt servicing ratio which are meant for the long term, and cyclical measures such as loan-to-valuation limits and stamp duties that can be "recalibrated according to market conditions".

On the whole, it would be premature to ease property cooling measures now as it was important to secure the gains made in stabilising the market and restoring financial prudence.


Source: CNA

Wednesday, July 23, 2014

Research reports that may be of interests to you...


Here are two research reports for your reading pleasure.


The first is produced by DTZ, which provided an analysis of the buying patterns in the Singapore residential market in 1Q'2014:
http://www.scribd.com/doc/234845576/Singapore-Residential-Demand-1Q2014



The second is a Knight Frank report on residential property demand in Edinburgh for 2Q 2014:
http://www.scribd.com/doc/234846077/Edinburgh-City-Index-2Q2014


Tuesday, July 22, 2014

London property market: Prices fall in July for second month running


Asking prices for London property fell for a second month in July as an increase in the number of homes for sale softened the market for sellers, Rightmove plc said.

Prices sought in the UK capital fell 0.4% from June to an average GBP587,174 (S$1.25 million), the property website operator said in a statement yesterday.

Across England and Wales, prices fell 0.8%, their first decline since December.

The UK property market is losing steam, after the Bank of England said it posed the greatest risk to the economic recovery.

Financial stability officials set a cap on loan-to-income ratios last month to prevent surging prices leading to an excessive build-up of debt.

The declines are "a sign of some sellers asking beyond what buyers and lenders judge to be affordable or fair value",  Miles Shipside, director at Rightmove, said in a statement.

"Market conditions still compare favourably with this time last year, with growth in both the economy and employment, plus a comparative thaw in mortgage availability."
 

The number of properties offered for sale in London is 15% higher this year than the same period in 2013, according to Rightmove. New sellers rose 28% from a year earlier.

The decline in the capital was led by three districts, Islington, Wandsworth and Kingston, each of which fell 3.8% on the month.

Nationally, of the 10 regions tracked by Rightmove, seven posted declines. These were led by 1.9% falls in the East Midlands and the North.

Rightmove yesterday refined its forecast for 2014 house price growth to 8% from a previous prediction of 6 - 8%.

A stronger pound may also be deterring foreign buyers by making UK assets more expensive, Rightmove said.

The UK currency reached US$1.7192 on July 15, the highest since October 2008.

That point was echoed last week by Deutsche Bank economist George Buckley, who said the gains in Sterling along with global economic weakness and the withdrawal of BOE stimulus may sap demand for homes in the capital.

"There seem to be more downside than upside risks to London housing going forward," Mr Buckley said.

"While we do not expect a crash in London property prices, we do expect price pressures to ease going forward and would not be surprised to see outright falls in asking prices."- Bloomberg.

Info source: BT

The wife and I were kinda glad that we decided to exit the London market during the early part of this year, immediately upon the TOP of our property. It is still very much the norm that UK home buyers prefer to buy properties that are ready for occupation. Our original intention was to "hold and rent" but after seeing the deluge of private homes that were coming onto the market over the past year, we reckon that it may take a longer than expected time to rent the place out, especially if we insist on a certain level of rental yield.

Although investment in London properties may not seem to be as attractive now, it may not be a reflection on the state of affairs for the whole UK.  If one bothers to look north of the border (i.e. Scotland), there are still some decent opportunities to be found. As one prominent Scottish property consultant commented on their latest price report for June 2014,  "The improvement in market activity (in East Central Scotland, which include Edinburgh) in 2013 has continued into 2014 with a notable rise in the number of homes being bought and sold. Conditions are more favorable for sellers, with more homes achieving Home Report valuation and selling times shortening. We’ve also seen a continued rise in the popularity of the Offers Over approach to selling a home, with roughly two-thirds of homes coming onto the market being advertised in this way.

"Whilst the market has improved it’s worth putting the growth we’ve seen in perspective. The number of sales we’re seeing is still around 25% lower than at the peak of the market and the rate of house price inflation in most areas in moderate, especially when compared to the rapid rises being observed in some areas south of the border."

 
 
 

Monday, July 21, 2014

Spring Grove: Beginning of the end for freehold developments..?


A canny purchase of a block of freehold land in Grange Road by the US government 64 years ago is turning into the proverbial goose that lays the golden egg.

The first windfall came in 1991 when it reaped $80 million from selling a 99-year lease on the 24,481sqm (263,600sqft) site, which at one time housed the ambassador's residence.

City Developments developed the plot into the 325-unit Spring Grove condo.

 
Now the US government stands to get another big bite of the cherry as the Spring Grove owners have launched a collective sale at the eye-popping price tag of $1.39 billion.

As the land owner, the US government would enjoy a windfall of $245 million just to top up the lease by a further 27 years - to 103 years - if the collective sale attracts a buyer.

This is three times what it was paid for the original 99-year lease which it sold on the land 23 years ago.

For home owners who bought leasehold property on freehold land not owned by the Government, the Spring Grove collective sale will hopefully provide some clarity on how they can realise the potential of their estate through such a sale as the duration of the lease runs down.

Thus, the yardstick by which the US government arrived at its asking price for the top-up premium is likely to attract considerable scrutiny, especially since it may set the benchmark for any subsequent collective sale on a leasehold estate whose freehold rights are not held by the Government or the home owners.

Currently, when a lease runs down for 99-year projects on land owned by the Government, firms that redevelop the site after a collective sale pay the Government a top-up premium to get the lease rewound to 99 years.

In the Farrer Court collective sale in 2007 - the priciest collective sale ever at $1.34 billion - a sum of between $175 million and $225 million was reported to have been paid for topping up the lease from the remaining 69 years to 99 years.

But while the top-up premium paid for the Farrer Court collective sale was similar in quantum to what is being demanded by the US government for Spring Grove, the site had a shorter remaining tenure and a land area three times the size of Spring Grove.

For real estate developers sitting on a cache of freehold property, the Spring Grove collective sale also bears watching.

As a rule, most of them do not retain any reversionary interest on the freehold land. Their connection ends once all the condos have been sold.

Yet, the handsome gain the US government may reap from the Spring Grove collective sale may cause developers to have a change of heart.

Leasehold units typically sell at a 10 - 15% discount to similar freehold homes so the full value of the land cannot be realised.

But even if developers have to take a discount to sell leasehold condos on freehold land, this may still be worthwhile as some developments may turn out to be gold mines like Spring Grove and offer them a second bite of the cherry, like what the Americans are attempting.

The battle for Spring Grove once again casts the spotlight on how valuable freehold land has become in Singapore. It will only reinforce the view that such land can only get pricier as time passes.
Info source: ST

When news of the Spring Grove en bloc sale was first reported on 16 July, the wife and I had decided not to feature this on our blog. We reckoned that every other property-related blog and web sites will be talking about it, since it is slated as the largest ever collective sale in Singapore in terms of value. 
 
But today's article in the ST has reignited our interests - not because of the collective sale per se but the discussion about developers choosing to develop leasehold projects on freehold land while retaining reversionary interest in the land.
 
Not many developers to date are keen on the strategy for the simple reason that 99 years is a long wait and they may not be around to enjoy the fruits of their effort. And for listed companies, the management may not have the luxury of time to see profit only in 20 to 30 years.  But the wife and I are aware of at least one developer that has subscribed to the strategy - Far East Organization.
 
So what do projects like Cabana (Yio Chu Kang), The Greenwood (Bukit Timah) and The Shore (Katong) have in common other than all were developed by Far East? No prize for guessing that all three are leasehold (103 years) residential projects developed on freehold land. 
 
In all fairness, these are all fairly new developments so any en bloc talks are probably way too premature. But when the time comes for owners to want to do a collective sale, they will have to refer to the holder of the freehold title - which is Far East, instead of the Government. Far East will then have the options of either granting a lease top-up, buy back the land, sell the freehold tenure or simply do nothing. And they will continue to profit from any  top-up premium as long as they hold on to the land title - provided that the Company continues to exist, of course.

So will we see more of such strategy being deployed by Far East or maybe even by other developers? Only time will tell but the wife and I reckon that there will likely be more 103-year projects on freehold land from Far East at least.
 
And for the record, the $1.39 billion that Spring Grove is asking translates to $2,512psf ppr, based on the maximum gross floor area of about 553,377sqft. The breakeven cost is expected to be around $3,400 - $3,500psf.
 



New project sales update: City Gate


City Gate, a 99-year leasehold mixed-development in Beach Road, has pulled in solid sales over the weekend. This is after its developers launched it at lower-than-expected prices and enlisted as many as six real state agencies to market it.

 
It has sold around 78 residential units and 62 commercial units as of 4pm yesterday. This is about half the 150 residential units and two-fifths of the 155 commercial units released.

The residential units were sold at a median price of more than $1,800psf. This is lower than the $1,900 to $2,000psf that the homes had earlier been expected to sell at, going by previously released marketing materials.

Located at 371 Beach Road, City Gate has 311 apartments and 188 commercial units.

 
Units at the project range from 431sqft one-bedders to 1,819sqft four-bedroom penthouses. It also has two- and three-bedroom dual-key units.

Dual-key homes have two separate entrances for privacy and appeal to investors who want to rent out part of their home.

 
The 30-storey project will have a three-storey shopping and dining podium with over 155,000sqft of gross floor area.

It will be connected by a sheltered bridge to the Nicoll Highway MRT station along the Circle Line.

 
The project is jointly developed by World Class Land and Fragrance Group and will be built on the site of Keypoint, bought for $360 million in 2012 from Frasers Commercial Trust.

The estimated TOP of City Gate is end-October 2019.

Info source: BT/ST 
 

Sunday, July 20, 2014

Overdue mortgage payments on the rise!


A report in the ST said that more private home owners are not making their mortgage payments on times. This is according to figures from the Credit Bureau of Singapore. 

·         The number of borrowers with delinquent mortgages hit 4,186 in May, up 20% from the 3,340 a year earlier.

·         Delinquent borrowers comprised 0.82% of private home loans in May, up from 0.7% in the same month last year.

·         Banks wrote off six mortgages in the first five months of the year, a touch up from the five bad loans in the same period last year. 

Banks typically consider accounts with payments that have been overdue for 90 days or more as a defaulted loan.
 
Although the percentage rise in the number of delinquent accounts was more than the increase in total private home loans, experts note that the figures are not yet alarming.
 
The increase on the number of  overdue payments may be due to highly leveraged individuals who took out large loans before the TDSR was introduced. Another possible reason could be the slight rise in the overall jobless rate, which increased from 1.8% in December last year to 2% in March.
 
Mr Song Seng Wun, regional economist at CIMB, pointed out that it could be a reflection of the correction in the property market.
 
The number of private condominium homes completing this year is expected to hit 17,000, up from 13,150 last year.
 
As tenants have more options amid a softening market, owners who bought units expecting to finance them with rental income could find themselves burdened instead, Mr Song said.
 
Moreover, mortgages are almost fully drawn down upon the completion of a new property, bumping up the monthly payments, he noted.
 
This underlines the increasing number of properties that were put up for auction by banks.
 
Earlier reports showed that 42 mortgagee sale properties went to auction in the second quarter, the highest since the third quarter of 2009, when 63 homes were up for a fire sale.
 

On a related note, the wife and I have noticed that the interest rate have been creeping up over the past 9 months. We have a mortgage that is currently pegged to the 3-month SIBOR. It was at 1.1513% in December last year, then went up to 1.1520% in March 2014 and the last revision in June 2014 saw the rate inched up further to 1.1537%. It will be interesting to see what the September rate is gonna be.

We also realised that the bank notification for interest rate revisions these days only provide you with the new rate. So unless you bother to keep track, you may only realised it when your mortgage repayment starts showing significant increase.

Maybe our local banks can start issuing advice that says "Your interest rate will change from  xxxx to yyyy from ..." for better transparency and clearer information?


And finally, we are keeping our fingers crossed that this post will not get spammed by all them "loan companies" promising to give out all kind of loans at 3% interest rate (no mention of whether it's per year or month) without stress and can supposedly dispense the loan to you within 2 days!