Will property market see a repeat of 1996?

Will property market see a repeat of 1996?
Industry watchers expect govt to take more calibrated approach this time round
By KALPANA RASHIWALA

THERE’S a sense of deja vu in the air for those of us who witnessed the last residential property boom in the 1990s. Record prices being reported by developers, an en bloc sale being attempted in just about every private estate, foreign buying at record levels, and subsales again in favour.
Even the government’s approach to dealing with the situation seems reminiscent of 1996, according to some market watchers.

The Ministry of National Development and Urban Redevelopment Authority have been giving assurances lately that there will be sufficient supply of homes and that they will make more sites available, if necessary. And just like over a decade ago, MND and URA have recently been making public more information on the property market to provide greater transparency.

Flashback to the mid-90s. As far back as 1994, the government raised booking and forfeiture fees to curb speculative activity. But speculation picked up again and in January 1996, URA announced that the government had set aside enough land for 100,000 private homes for the five-year period from 1997 to 2001 - more than thrice the amount necessary to meet its target of releasing land for 6,000 private homes a year.

The following month, URA revealed the sales status (as defined by options granted by developers) of individual private residential projects, and said it would do this each quarter. This was to correct any wrong impression of high take-up rates.

Fast forward to 2007. Last month MND announced the biggest Government Land Sales (GLS) Programme with enough land for about 8,000 private homes.

Earlier this month, URA said that there were about 32,700 yet-to-be-sold private homes in uncompleted projects as of Q1 2007 - possibly enough to meet demand for the next three years.

On the transparency front, URA last week released for the first time information on the number of units sold for each uncompleted private residential project by price bracket, in the month of June. Such information will henceforth be released monthly.

But what if, like in 1996, such measures fail to calm the market?

The thing with the property market is that it is primarily sentiment driven. In a bull run, people may not heed reason and logic and are driven by fear and greed instead.

When the strategy of giving assurances of adequate supply and releasing more market information failed to stem speculation in 1996, the authorities were forced to announce a slew of measures on May 14 that year. These included taxing as income the gains made from selling properties within three years of purchase and introducing a sellers’ stamp duty for those who sold residential properties within three years of purchase.

Financing was also clamped down. Banks could not make housing loans for more than 80 per cent of the purchase price or value of a property, whichever was lower. Permanent residents were limited to one Singapore dollar housing loan each while foreigners were denied such loans altogether.

All of the May 1996 anti-speculation measures were subsequently removed during the property doldrum.

To many market industry participants now, the writing is on the wall. They figure that the government may come up with measures to cool the market if the property bull run threatens Singapore’s competitiveness.

However, the stakes are higher now. Many credit the current property boom to the government’s efforts to promote Singapore, which have put Singapore on the radar screens of overseas property investors again, and its embrace of foreign talent and high net-worth individuals.

In short, many of the foreign investors in the local property market today were wooed by Singapore. Slapping a set of harsh measures might send out a negative message about Singapore as an investment destination as a whole.

Also, speculation is yet to reach the heady levels seen in 1996.

Some in the industry think a ‘whisper campaign’ by the government to tighten financing targeted at banks and developers may be less harsh and avoid a panic crash.

For example, banks could be asked to be more careful in screening housing loan applications. ‘Maybe, instead of giving loans up to the maximum 90 per cent of the value of homes, they could limit this to 80 per cent. This will make people think twice before they pay record prices for homes,’ reckons a seasoned industry observer.

Deferred payment schemes extended by developers could also be moderated or suspended, some industry players said. The ability to buy a property by making an initial payment of just 10 or 20 per cent of its value, with the next payment postponed to after the project is completed, makes things a whole lot easier for those thinking of flipping properties for a quick gain. Removing deferred payments should help take the froth from the market.

But there is a school of thought which believes that getting rid of the deferred payment, which often entails buyers paying 3 to 5 per cent more for the price of a home than under a progressive payment scheme, could crash the market.

Some suggest that taxing gains from selling properties within a short period of time may be a fairer way to contain the current exuberance. Those who make quick gains from flipping their properties should be prepared to part with a portion of their gain by paying income tax on it.

It remains to be seen if history will repeat itself.
Source : Business Times - 25 Jul 2007

City Towers’ asking price doubles in 3 mths

City Towers’ asking price doubles in 3 mths

By ARTHUR SIM
CITY Towers on Bukit Timah Road is for sale by tender with an indicative price of $458.7 million, almost double the price indicated just three months ago.
City Towers: The successful bidder can build an estimated 183 units of average 1,200 sq ft each 
An expression-of-interest exercise was held in April by marketing agents Knight Frank. Senior manager (investment sales) Steven Tan said it drew about five bids.

At the time, only 75 per cent of the owners had agreed to proceed with a collective sale.

‘The owners believe the new indicative price is reflective of market prices,’ said Mr Tan. The minimum 80 per cent approval from owners to sell has now been obtained.

The development is on 104,535 sq ft of freehold land, which is zoned for residential use at a plot ratio of 2.1, with a height restriction of 24 storeys.

Mr Tan says the successful developer can build an estimated 183 units of average 1,200 sq ft each.

Together with an estimated development charge of about $2.2 million, the indicative price reflects a land value of $2,100 per square foot per plot ratio.

As the current development is close to the maximum gross floor area, the development charge is only slightly more than the estimated $1.7 million it would have been three months ago before the rates were revised.

The break-even price is estimated at $2,870 psf, and Mr Tan expects the new units to sell for at least $3,000 psf.

On East Coast Road, Savills Singapore is marketing 48 strata-titled commercial units at EastGate, a 52-unit freehold development, for sale en bloc by expression of interest.

‘All 48 units are currently near full occupancy and are generating good cash flows from its rental collections,’ said Steven Ming, director (investment sales) of Savills Singapore. The freehold property has an indicative price of $80.3 million or $1,350 psf, based on current net lettable area.

‘Investors and buyers have begun to look at opportunities beyond the traditional CBD locations for good commercial buildings that could still present good upside potential in terms of both rental rates and capital value appreciation,’ said Mr Ming.

Potential average rentals are expected to be $5 psf.
Source : Business Times - 25 Jul 2007

Start-ups boom as the business bug bites

Start-ups boom as the business bug bites
Record numbers incorporated, many of them profitable
By NANDE KHIN

(SINGAPORE) Start-ups are mushrooming at unprecedented rates, as a buoyant economy gets the entrepreneurial juices flowing. A record number were incorporated last year while the pace this year is even faster, according to new data obtained from the Accounting and Corporate Regulatory Authority of Singapore (ACRA).
 
 
Some 45,545 enterprises - an all-time high - were set up in 2006. Of these, 24,054 were businesses (sole proprietorships and partnerships), 19,734 were companies and 1,757 were limited liability partnerships (LLPs).

This year could top that. During the first six months of 2007, some 25,048 start-ups were incorporated. This is a 9 per cent increase over the second half of 2006 and an 11 per cent year-on-year increase. Businesses - numbering 12,362 - accounted for half of these start-ups, as in previous periods. Meanwhile, 11,763 companies and 923 LLPs were incorporated.

These H12007 figures are an ‘encouraging’ sign of the health of the economy, positive business sentiments as well as the strengthening entrepreneurial spirit in Singapore, said Ong Siew Kim, general manager of DP Bureau which assists small and medium-sized enterprises (SMEs) and entrepreneurs handle cash management and acquire financing advice.

Over each of the three half-year periods starting from January 2006, the services sector has consistently produced about 40per cent of start-ups and the wholesale sector 20 per cent, according to ACRA data.

Noting that this confirms findings by DP’s own survey on start-ups released earlier this year, Ms Ong said that these sectors attract the highest number of new entrants probably because new enterprises do not require much initial capital.

‘Most start-ups have limited resources to begin with since 90 per cent of their initial set-up capital is supplied by the entrepreneur’s own savings or borrowed from friends and family as shown by our survey,’ she said.

DP’s survey, done in partnership with the Action Community for Entrepreneurship (ACE), had found that 39 per cent of start-ups were in the services sector while 33 per cent were in the commerce (wholesale and retail) sector.

However, reflecting the property boom, the first six months of this year saw a 29 per cent increase in the number of start-ups in the property sector, and a 20per cent rise in construction over the corresponding period last year.

Other sectors also seeing more start-ups are communications and logistics, which saw a 27 per cent jump, and food and beverages, where start-ups rose 20 per cent compared to H12006.

Not only are there more enterprises being set up, most of them manage to become profitable as well.

Survey findings show that 63 per cent of start-ups are profit-making by their third year. In fact, more than a third (36 per cent) are profitable within the first 12 months of their operations.

This is partly because the business environment has been made more conducive for start-ups.

‘When we started focusing on the issue of small and medium-sized financing several years ago, sources of funds for SMEs were confined mainly to loans and grants,’ said Inderjit Singh, deputy chairman of ACE and chairman of the Finance Action Crucible within ACE.

Today, SMEs enjoy a variety of financing options ranging from micro-loans for very small businesses with under 10 employees to more sophisticated financial instruments like the over-the-counter trading platform.

‘More and more young and aspiring entrepreneurs have become quite savvy in seeking out ways to get assistance and access to funds,’ said Mr Singh.

But more still needs to be done. DP’s Ms Ong noted: ‘The start-up segment will find bank financing out of reach. These young entrepreneurs have no collateral and nothing to substantiate their credit applications, no track record except their ideas and projects.’

Business angel funds and venture capitalists are still not entrenched here, she noted.

Start-ups also face other challenges, like finding ways to add or create value to stay in the race, said Chew Mok Lee, Spring Singapore’s group director of Enterprise Promotion.

Juthika Ramanathan, chief executive of ACRA, also noted that most start-ups are not aware of the regulatory and operational requirements of running a business.

‘For example, many of them do not know what reporting requirements they have to fulfil for tax purposes, or even how to maintain accounts or prepare financial statements,’ she said.

To raise awareness of such matters and address other issues faced by start-ups, DP Bureau and ACRA are organising the Start-up Enterprise Conference tomorrow to address issues faced by start-ups. ACE is collaborating as a strategic partner.

Source : Business Times - 25 Jul 2007

Economists hike S’pore trend growth to near 8%

Economists hike S’pore trend growth to near 8%
Main drivers include foreign labour growth, rise of Chinese and Indian economies
By ANNA TEO
(SINGAPORE) The Singapore economy can grow at a near-8 per cent pace for the next several years, economists believe.
Driven by an influx of foreigners, the economy’s underlying growth potential has risen above the long-assumed 4-6 per cent range, they say.

Already, in the last three years, the economy has grown an average 7.8 per cent a year - without stoking inflation, which has averaged just over one per cent a year over the period.

In a recent research report, HSBC economist Robert Prior-Wandesforde said: ‘Singapore enjoys by far the best growth-inflation trade-off of any developed country in the world and it is hard to see what will stop this impressive performance from continuing over the foreseeable future. Indeed, it may get even better still.’

He reckons that the economy probably bottomed out in the first quarter of 2007 when it grew 6.4 per cent. ‘Either overall policy conditions have been unusually supportive of activity and/or the trend rate of growth is considerably higher than the 4-5 per cent number suggested by the government and others.’

Singapore’s medium-term growth potential has long been estimated at, initially 3-5 per cent, later raised to 4-6 per cent, with contributions from labour, capital and productivity.
But recent developments - reinforced by early Q2 growth estimates - suggest a higher trend growth rate. Despite a slump in export and manufacturing growth, the economy has remained buoyant, growing 8.2 per cent in Q2.

Mr Prior-Wandesforde thinks Singapore’s new potential trend growth ‘may be something in the order of 6.5 per cent’, but other economists figure higher.

Says Nanyang Technological University economist Choy Keen Meng: ‘My gut feel is that Singapore should be able to grow at a range of 5-7 per cent, rather than 3-5 per cent, in the next five to eight years. Why? Because, barring unforeseen but especially political events that might throw spanners into the works, the rise of China and India will easily add a percentage point or two to GDP growth in Singapore, simply by servicing the needs of these economies.’

Most of the expansion is likely to come from foreign labour growth, he adds. ‘The ability to attract foreign investments and an open-door policy on foreign talent will be critical.’

Agreeing, Citigroup economist Chua Hak Bin believes that Singapore’s trend growth has probably risen to about 6-8 per cent over the next five years.

‘I attribute the large part of the increase in trend growth to the labour component. For a small open economy like Singapore, foreign labour growth is an important driver. A more liberal immigration policy has lifted the potential labour growth component; it’s no longer constrained by declining fertility rates and an ageing local population.

‘Allowing gaming and lower tax rates have also opened up investment opportunities and raised returns on capital. This has increased investment and capital growth.’

He estimates that labour growth will contribute about 2.5-3.5 percentage points to GDP growth, capital growth about 2-3 points, and total factor productivity (TFP), about 0.5-1.5 points.

TFP can be seen as the qualitative part of economic growth that is not due to sheer increases in labour or capital. It reflects the efficiency with which people and capital are combined to produce output, and is conventionally measured as the residual in economic growth after the contributions of labour and capital are accounted for.

More bullish, PK Basu, Daiwa Institute of Research chief economist for Asia ex-Japan, thinks Singapore’s potential growth is currently 7-8 per cent.

‘Annual employment growth has averaged 2.8 per cent over the past 10 years, so it is reasonable to assume that the sustainable pace of labour force growth is actually closer to 3 per cent than the long-held figure of 1-2 per cent,’ he says. And annual productivity growth across the economy has averaged 4 per cent over the past five years. ‘I think this is the new sustainable pace of productivity growth.’

As for TFP, he believes that Singapore’s TFP growth is improving as the economy ‘now requires substantially less capital (gross domestic investment rates of 22-25 per cent now) to generate the 7.8 per cent annual growth in real GDP we’ve witnessed over the last three years, and which I expect to be sustained into this year and next’.

And given that external balances around the region are now more stable, it is reasonable to assume that Asia will be less subject to systemic crises in the next 10 years, he adds. Singapore will also be less vulnerable to the global IT cycle now that pharmaceuticals’ contribution to manufacturing value-added looks set to exceed electronics’ by next year.

‘So yes, real GDP growth of near-8 per cent is actually quite sustainable for Singapore now - as evident in the fact that inflation hasn’t risen at all during the past three years, even with growth being sustained at that pace,’ MrBasu says.

HSBC’s Mr Wandesforde says that the higher trend growth probably reflects underlying improvements in the services sector, as well as a rise in the investment share in GDP.

‘It seems likely that the corporate sector has now repaired its balance sheet after the Asian crisis and is prepared to start spending in a meaningful and sustained fashion. This is particularly true of the construction sector.’

Source : Business Times - 25 Jul 2007

SC Global in $268m top bid for Sentosa site

SC Global in $268m top bid for Sentosa site 
By Joyce Teo, Property Correspondent 
SC GLOBAL Developments has set its sights away from its traditional playground in Orchard Road to snap up a prime Sentosa Cove site.
The developer made a winning bid of $268.3 million for a beachfront condominium plot in the exclusive residential enclave.

But it was a close contest, with Ho Bee bidding around $260 million, just 3 per cent lower. There were five contenders in all.

SC Global’s price of $1,799.78 per sq ft (psf) of potential gross floor area is a new benchmark for Sentosa Cove.

The 99-year leasehold site was touted as Singapore’s first and only beachfront condo site facing Tanjong Beach.

It can be built up to 149,074 sq ft of gross floor area and can accommodate a four-storey condominium with up to 88 luxury units.

SC Global chief executive officer Simon Cheong said it has been eying the plot for some time.

‘This site is very exclusive. It is the only one in Sentosa Cove with the beachfront on one side and the golf course on the other.’

He said that it was too early to talk about the company’s plans for the site but added that ‘we have a very unique concept for it’.

SC Global, while being a boutique developer, has been able to achieve eye-popping prices for some of their properties.

Yesterday’s condo plot was the second-last such site available for sale in Sentosa Cove. The last condo plot has not been launched.

The previous Sentosa Cove condo plot benchmark was set in March by Ho Bee and Malaysia’s IOI Properties, when they bid $459.8 million or $1,361.33 psf.

Source : Straits Times - 25 Jul 2007

Strong home sales boost KepLand profit by 42%

Strong home sales boost KepLand profit by 42% 
By Gabriel Chen 
REGIONAL FOCUS: KepLand’s managing director Mr Wong says the group will continue to pursue residential and township developments in countries such as China and Vietnam. In Singapore, residential developments have also performed well because of strong demand from local and foreign homebuyers, he adds.
 
STRONG residential sales and a thriving market for office space have helped boost Keppel Land’s (KepLand’s) second-quarter net profit by 42.3 per cent to $63 million.
For the quarter ended June 30, sales rose 55.1 per cent to $359.2 million, which the property developer attributed to the ’strong performance’ of its projects in Singapore and overseas.

Such examples include The Belvedere and Urbana in Singapore, Villa Riviera in China and Elita Promenade in India.

KepLand’s earnings from overseas represented 48 per cent of profits during the quarter, well down from 75 per cent a year earlier on the back of stronger sales in Singapore.

For the half-year, group turnover was $654.6 million, way higher than the $350.5 million in the year-ago period.

This was the result of revenue coming from existing projects and new projects launched this year, such as Sixth Avenue Residences in Singapore.

Rental income from the group’s office buildings was lower than that for the second quarter of last year, as KepLand had sold four of its office buildings - Bugis Junction Towers, Prudential Tower, Keppel Towers and GE Tower - in April last year.

However, revenues from KepLand’s hotels and resorts, fund management and property services were higher than in the year-ago period.

Earnings per share for the half-year rose to 17.4 cents, up from 11.2 cents, while net asset value per share rose to $2.24 as at June 30 from $2.21 as at Dec 31 last year.

Looking ahead, KepLand managing director Kevin Wong said Singapore’s property market is expected to remain strong.

Meanwhile, the group will continue to pursue residential and township developments in countries such as China and Vietnam.

Mr Wong said: ‘We are very bullish on the Vietnam market and we will continue trying to secure new projects.’

In Singapore, residential developments have also performed well, he said, due to strong demand from local and foreign homebuyers.

For example, sales of Reflections at Keppel Bay have reached about 97 per cent of the 493 units launched and Park Infinia at Wee Nam has hit the 89 per cent sales level. The Suites at Central, Urbana, The Linc, Freesia Woods and Elysia have all been fully sold.

Source : Straits Times - 25 Jul 2007

Govt to ensure property market not overly bullish

Govt to ensure property market not overly bullish 
THE Government will not intervene in private transactions concluded at sky-high prices, but it does want to ensure that there is no unwarranted ‘exuberance’ in the market, Minister of State for National Development Grace Fu said yesterday.
Her comments came about a week after the Government’s surprise move to raise the development charge that developers pay to enhance a site.

Some property analysts worry that the hike will raise developers’ land acquisition costs and affect the market for collective sales.

National Development Minister Mah Bow Tan said over the weekend, however, that the move was not a reaction to the collective sale fever.

Yesterday, Ms Fu said in response to a question on whether cooling measures lie ahead: ‘The Government is not doing anything to dampen the market. We just want to make sure there’s no exuberance that’s not warranted.’

The Government’s objective, she added, is to make sure there is sufficient information for people to make informed decisions. ‘In a rising market, what you are going to pay is more than what has been transacted in the past. The economy is doing well, so expect the market to trend up. That is the right direction. As the Government, we should not be unduly worried about the trend,’she said.

Source : Straits Times - 25 Jul 2007

Market nervous over possible steps to cool property sector

Market nervous over possible steps to cool property sector 
Hike in devt charge has industry players speculating about further measures
By Joyce Teo, Property Correspondent 
THE surprise hike in the development charge (DC) last week has left some property investors frantically trying to interpret the signals the Government might be sending the market.
The uncertainty has led to a 4.2 per cent dip in property stock prices since they hit a peak a month ago.

While the Government stated that the move last week was not a cooling measure, it was seen by many in real estate circles as a sign that it could hit the brakes if it felt the need.

Experts say it will not come to that but there is talk about what other moves the Government could take if it does opt to step in. These measures essentially fall into two categories - those that hit demand or supply.

National Development Minister Mah Bow Tan tackled the supply side of the equation on Sunday when he assured the public that when supply falls short, land sales will be stepped up.

Some see the 40 per cent DC hike as a supply-side measure in that it could slow collective sales. But supply-side measures could take years to work. ‘And if you don’t do it properly, you might kill the market down the road,’ said one expert.

Moves to hit demand can take effect far quicker, as the anti-speculation curbs imposed in 1996 attest. But these hit the market so hard it took years for it to recover.

One idea at the top of some lists is the axing of the deferred payment scheme, which would hit speculators.

Some experts believe the scheme encourages speculators - which in turn helps to push prices up - as it lets them buy and sell without investing much equity. Deferred payment allows buyers to put off paying the bulk of the purchase until the property is ready for occupation a few years down the road.

Doing away with the scheme will mean buyers have to pay in tranches as construction of the property proceeds.

The Government could also allow a lower loan quantum for purchases, forcing buyers to stump up more of their own cash.

Since July 2005, buyers have been able to borrow up to 90 per cent of a property’s value instead of just 80 per cent previously.

Banks could also be encouraged to reduce their exposure to property. Some said the capital gains tax, which was part of the 1996 anti-speculation package, may be revived.

‘The chances of implementing a capital gains tax is very low at this point because there are other measures the Government can use,’ said Mr Nicholas Mak of property consultancy Knight Frank.

‘Also, implementing such a tax can damage investors’ sentiment very drastically.’

Although these ideas have been bandied about in the industry, the real unknown is the trigger point that forces the Government’s hand.

Some say it will be when business costs get out of control. Others say there is a magic number the Government is watching for when it comes to the level of speculation or price increases.

‘Where it sees excessive price movements or unnatural markets being created, then it will act,’ said JP Morgan analyst Christopher Gee.

The concern is that excessive speculation leads to distorted prices, said Citigroup economist Chua Hak Bin. Citigroup expects the residential supply crunch to worsen despite government assurances that supply remains sufficient over the next few years.

OCBC analyst Winston Liew anticipates the Government coming up with more soft measures, such as removing the deferred payment scheme.

Knight Frank’s Mr Mak said the Government may not need to impose drastic measures at all, but if people believe it might get tough, that may be enough to keep things in check. ‘Sometimes, the fear of death is worse than death itself.’
 
Source : Straits Times - 25 Jul 2007

HDB to release rental data soon

HDB to release rental data soon
Govt to make such info available in bid to give clearer picture of prices
By Jessica Cheam
MORE data on rents for Housing Board (HDB) flats will be released soon, to add transparency to a market dealing with increased talk of rising prices.
The move comes after recent reports that monthly rents of HDB flats are exceeding $2,000 in some locations.
The information will give a clearer picture of recent price movements in the rental market, and will be similar in nature to figures on average resale prices released last week.
Minister of State for National Development Grace Fu said yesterday that this ‘objective data’ will ‘give potential tenants better understanding of the market’.
‘The Government will continue to make such information more widely available so people can make more informed decisions,’ she added.
The HDB is looking into the possibility of breaking down the data by the 26 HDB towns instead of by regions.

Some market players had concerns about the way average resale prices were collated on the HDB’s website.
They said the regional grouping made it difficult for buyers or sellers to get a clear picture of how flats similar to their own are faring.
Ms Fu said the Government is considering the feedback but will remain ‘careful’ as it has to assess ‘if there’s sufficient data to give meaningful comparisons’.
The chief executive of property agency PropNex, Mr Mohamed Ismail, said the industry welcomed such information as comprehensive data on national rental rates is non-existent.
‘If there are median prices provided, landlords and tenants will know what is a fair price to ask for and pay,’ said Mr Ismail.
Breaking down the information by town will also be more relevant as prices do differ from one town to the next, even if they are in the same region, he added.
Ms Fu also urged buyers, especially young couples, to do their homework before making a commitment to buy.
‘There are other options, including flats in different geographical areas, resale flats and first-time flats in less mature estates, that are offering good value,’ she said.
Ms Fu was speaking on the sidelines of a visit to an HDB block in Jurong East, where a new system of installing lifts was completed in April.
The new lifts, which are powered by much smaller, cost-effective machines, save up to 20 per cent in costs and have enabled more blocks to be eligible for the Lift Upgrading Programme.
In the past, low-rise blocks of up to four storeys had been left out of such programmes because they were too expensive to upgrade.
The upgrade can go ahead if it costs under $30,000 for every household to benefit.
HDB expects to save $230 million on its lift upgrading programme by harnessing new technology.
Another benefit - the amount of concrete used is cut by 90 per cent.
Ms Fu added the HDB was ‘on track’ to complete lift upgrading of all public housing blocks by 2014.
There are about 2,000 out of a total of 5,000 blocks still to be upgraded.

Source : Straits Times - 25 Jul 2007