Singapore Real Estate 2008, 6-Month Market Review and Projection

“Where is the Market Heading?”

6-Month Market Review and Projection For Singapore Real Estate 2008

The Myth, Reality and Awkwardness of 2008

Now, let me take you through the market performance in the past six months by way of answering the following questions and then do a projection of the real estate market in the next six months:

(A) How has the market performed? (B) How different is it this time than last? (C) What do all these mean to real estate agents in general? And where do we go from here?

A – How Has the Market fared?

(1) Private Home Prices Jump 31% in the whole of 2007

From October up to end of December 2007, Singapore private home prices rose 6.6%, compared to 8.3% in the third quarter. For the whole year, home prices climbed 31% over 2006. Take up rate for new homes hit a record 15,000 new homes in 2007. It is a 34.5% growth over the 11,147 new homes sold in 2006.

Here are the price movements of condos and apartments in the last quarter of 2007 (Oct – Dec):

- In the Core Central Region, prices increased 7.0% (8.3% in the third quarter) on a quarterly basis in second quarter. This region comprises the traditional prime districts 9, 10 and 11 and Marina Bay and Sentosa.
- In the Rest of Central Region, prices increased 7.3% (7.9% in the third quarter) on a quarterly basis in the second quarter. This region comprises locations like Queenstown, Bukit Merah, Outram, Bishan, Kallang and Marine Parade.
- Outside Central Region, prices increased 7.5% (7.9% in the third quarter) in the same period. This region comprises locations like Woodlands, Jurong, Hougang, Ang Mo Kio, and all the outlaying areas.

Myth or Reality (1) : For the whole of 2008, barring any miracles, the take-up rate of new homes should be less than 10,000 given current uncertainties in the global economy. With Singapore’s domestic economy continued to be strong (driven by the ongoing boom in the construction sector) and the allure of Singapore as a safe haven and a global financial hub for a bigger portion of private wealth, the upside is still good.

The booming domestic sector should continue to support the sale of mid-end and mass-market homes which are expected to experience a healthy growth of 10% to 15% price rise. For the luxury homes segment, prices and take-up rate are expected to moderate, having gone through a vintage year of fast growth.

Awkwardness (1) : Sale volume and prices may continue to grow in 2008 on the back of sustained inflow of foreign funds seeking safe haven outside the United State of America, but buying activities may be restricted to institutional and corporate type of portfolio investments, such as bulk purchases (e.g. overseas property funds acquiring a number of blocks in a project), swop deals (e.g. between developers) and marriage deals (e.g. local and overseas joint ventures buying back own projects for mid-term investment income). Such purchases usually occur in selected areas like the Core Central Region and the outskirt of Orchard Road areas.

(2) Condo / Apartment Sales and Foreign Ownership of Private Homes in 2007

Table 1 – FIRST HALF 2007 Total Sale of private apartments/condos (including sub-sales)

(FB = foreign buyers) Source of statistics SISV RealinkFirst half private property sales were 19,801 units. Foreigners accounted for 2,763 or 13.95% of total transactions.

Table 2 – SECOND HALF 2007 Total Sale of private apartments/condos (including sub-sales)

(FB = foreign buyers) Source of statistics SISV Realink

Second half private property sales were 11,666 units. Foreigners accounted for 1,986 or 17.02% of total transactions.

Table 2.2 – Comparison between FIRST and SECOND HALF 2007 non-landed properties transactions (including sub-sales)

In the second half of 2007, while primary sales dropped 81.65% to only 2,565 units sold, private secondary sales actually improved 56.23% to 9,101 units sold, on the strength of spectacular hikes in private rentals. For the whole year, the first half outperformed the second half by 8,135 transactions.

Table 3 – Percentage of foreign ownership of condos / apartment in First and Second half of 2007

In the second half, the absolute numbers of foreign purchasers of condo / apartments were down. However, the percentage of foreign purchasers actually went up 2.02 percentage point. It means that while the overall purchases were reduced due to one reason or another, the number of foreign purchasers did not change drastically. It was reduced by only 1,103 units (3,205 – 2,102) for the whole year.

Myth or Reality (2) : Although the overall private home sales went down in the second half of 2007, foreign ownership of Singapore private homes gained in percentage term, especially for high-end homes.

The Million Dollar Question now is: “Will the trend of ‘sustained foreign buying’ continue in the first half of 2008?” From the appearance of the statistics, the answer has to be a YES. This is because of the following reasons:

(i) The threat of an economic recession in the US in 2008 looms larger each time a global financial institution made a revelation of massive write-down in relation to its exposure to the US sub-prime mortgages (e.g. UBS, Citigroup, and Merrill Lynch).
(ii) The value of US dollar will continue to weaken against Singapore dollar throughout the year, and Singapore will continue to be a safe haven for international funds.
(iii) The European economy is similarly under the weather due to its symbiotic relationship with the US market.
(iv) The Chinese real estate market has shown signs of over-heating and the risks of investing there have grown much larger.

Awkwardness (2) : With limited upside of less than 10% projected price growth, the buying activities may continue to thin, which means the percentage gain of foreign ownership will continue to rise amid smaller business volume for real estate agents.

(3) Landed Property Sales in 2007

(3.1) Good Class Bungalows (GCBs)
In 2007 so far, a total of 96 GCB were transacted amounting to $1.28 billion. The value is an all-time record and has surpassed slightly the $1.24 billion achieved for the whole of 2006.

However, in terms of transaction volume, GCB transactions from January to November this year still falls short of the 118 deals transacted for the whole of 2006. This could be due to the phenomenal rise in GCB prices and the restrictions placed on non-residing foreigners (only PRs are allowed to own GCB provided they obtained the approval from the land authority).

(3.2) Upside of Landed Home Prices Good
There are a number of compelling reasons for landed home prices to rise further:
 Limited stock - Currently, there are 68,360 landed houses in Singapore, making up only 29% of the total 233,143 private property stock.
 Limited new supply - In the next five year, supply of landed homes will remain subdued with only 1,872 landed units under construction and another 2,579 landed units being planned, accounting for only 6.6% of all new supply expected from the second half of 2007 to 2011.
 High rental return - Rents of landed homes have outpaced its capital values, according to URA’s rental indices for all the landed property types. In the first half of the year, rents of detached houses increased by 13%, semi-detached houses by 11.4% and terrace houses 17.3% hike in rents.

Table 4 - Sale of Landed Properties in First-half of 2007

Source of statistics SISV RealinkTable 5 - Sale of Landed Properties in Second-half of 2007

Source of statistics SISV RealinkTable 6 – Sale of Landed Properties in 3 Years starting 2005

Myth or Reality (3) : The increase in demand for landed properties continues to go up from 2005 onwards. However, the fundamentals on landed properties are different from non-landed properties. The former hinges on continued good performance of locals; while the latter the continued confidence in Singapore by foreigners. The following factors may lead to more locals having to dispose of their landed properties and down grade to smaller homes in 2008 and 2009:(i) the domestic economy relies only on the construction and services sector,
(ii) the traditional economic drivers such as electronics and pharmaceuticals continue their slump especially the electronics sector which has gone through 15 quarters without growth,
(iii) the threat of our trading partners, i.e. the EU and the US going into recession this year.

Awkwardness (3) : With more positives than negatives in the domestic economy in 2008 and a general expectation that 2009 will be an even better year, sellers in general will factor in the completed casinos, the F1 Circuit, the Gardens at the Marina (which has nothing to do with their landed property prices) when putting their homes on the market. With such a rosy economic backdrop, it will be tough for inexperienced agents to ‘talk down’ the asking price.

(4) Sub-sales of private homes – volume down but value hit 10-year high

The number of sub-sale transactions fell to 1,374 (or a quarter-to-quarter decline of 23%) in the third quarter of 2007. There were 1,184 or 13.9% of sub-sales in the second quarter and 6.3% in the first quarter of 2007.

Sub-sale value of apartments transacted in the first three quarters of 2007 was at an all-time annual high of $6.7 billion. However, in terms of volume, it is about half of what it was in 1995.

Sub-sales deals made up 19% of the volume, up from 16% in the second quarter. Median sub-sale prices are at a new record high of $1,246 psf. Quarter-to-quarter, the increase is 13.6% and a year-on-year increase of 25%.

The value per transaction of sub-sale apartments is also at a record high this year at $1.71 million per transaction. However, some prestigious projects have already shown sign of fatigues such as The Sail in Marina Bay which, according to caveats lodged, saw six (6) transactions in December 2007. The sub-sale prices of many units have drastically dropped – suggesting forced sales.

Table 7 – Sub-sale activities over the past 3 years

Myth or Reality (4) : In 2008, the developers will price their new launch projects at a 15% to 20% premium to factor in higher inflation risks and to protect the value of redevelopment sites where construction have not started. It will take longer time for developers to offload leftover units due to higher asking prices and ample supply of new condos and hybrid HDB flats in the next one to two years. By 2010, there will be an additional 43,000 new condos and apartments available either for occupation or launches in many parts of Singapore.

Awkwardness (4) : With a short-lived bull-run, investors and speculators alike will be left with high-priced properties that they have bought in 2007 before the en bloc craze came to a sudden halt. With Deferred Payment Scheme scrapped and banks tightening credit, sellers and agents will be hit be a double whammy of high inflationary pressure on holding / marketing costs while new supply of similar condos continue to rise.

(5) En bloc deals at all time high

For the whole of 2007, a total of 109 en bloc sale deals worth $13.3 billion were done. But, en bloc sales will be a passing phenomenon this year due to a combination of negative factors against en bloc sales such as:

 Massive Government Land Sale Programme (since January 2007)
 Withdrawal of Stamp Duty postponement (from January 2007)
 Withdrawal of Deferred Payment Scheme (from September 2007)
 Increase of Development Charge percentage from 50% to 70% of market value (from July 2007)
 Change in the Collective Sale Law (from Oct 2007)

Table 8 – Past 10-year en bloc sale record

Myth or Reality (5) : The slew of collective sales in the whole year of 2007 yielded $13.3 billion in total collective sale proceeds. The huge cash windfalls would be arriving for thousands of en bloc sellers who would need replacement properties. Most of the amount is due to come in between mid 2008 all the way to 2010, and this will prompt a pickup in market activity. Assuming 50% of the sellers affected by en bloc sales already have a second home, there will be at least $5 billion about to be ploughed back into the market from 2008 through to 2011.

Many owners of old condos and apartments, such Bayshore Park and some privatised HUDC projects, are hoping that the Government will increase the plot ratio in the new Master Plan to be promulgated this year, and this will allow them to sell their apartments collectively for a huge windfall.

Awkwardness (5) : A minority of en bloc sellers already flexed their muscles at the HDB resale flat market pumping up prices to unrealistically high level. Almost all flat sellers are now hoping to sell their flats to en bloc sellers and they will be willing to pass over a chance to sell at the market price and prefer to wait for their ‘Prince charming’.

(6) Investment sales hit historic high at $51 billion in 2007

Total investment sales of property registered an all-time historic record of $50.8 billion in 2007. It is a 66% jump from 2006’s $30.57 billion. Incidentally, the aggregate investment sales figure for eight long years of recession - from 1996 to 2003 - was only $54.9 billion.

Investment sales refer to major investment transactions like office buildings and shopping centres, as well as sites bought for development including collective sale deals, Government Land Sale (GLS) programme and strata-titled units of at least $5 million. They do not cover purchases of single property units by individuals.

Investment sales are considered a barometer of developers’ and big investors’ mid-to-long-term confidence in the market.

Table 9

With the passing of the new collective sales law and hefty increase in Development Charge percentage and DC rate, en bloc sales are expected to dwindle.

Residential deals halved from $20.3 billion in first half of the year (due mainly to robust collective sales) to $10.3 billion in the second, due to the sudden and drastic slowdown in collective sales.

Myth or Reality (6) : 2008’s overall investment sales of property are likely to be lower and hover around $30 billion. This is based on the assumption that foreign funds are still keen on Singapore’s commercial buildings and developers are still bullish about the Government Land Sale Programme. However, the situation will pan out depending very much on the resilience of the US economy against recession.

Awkwardness (6) : Sale of big ticket properties continue to shore up official numbers while individual agents are struggling to attract enquiries about their resale residential listings.

(7) HDB Resale Flat Prices Grew 17.4% in 2007

HDB resale flats price index registered a 5.6% increase in the fourth quarter of 2007. The quarter-on-quarter increases of HDB resale flats are as follows:

Table 10 – Price growth of HDB resale flats quarter-on-quarter

For the whole year, prices of HDB resale flats grew by 17.4% in 2007. The whole year resale transaction volume was 26,215 (excluding resale flats sold by HDB itself) and the majority of resale flats were transacted at high cash-over-valuation (COV) towards the second half of the year.

(7.1) More and more resale flat buyers need to fork out higher cash
Spurred on by the upward trend, flat sellers are now asking for prices that are significantly higher than valuations. And since July 2007, Cash-over-Valuation (COV) has become a norm for HDB resale flats and about 80% of HDB resale transactions attracted cash above valuation.

According to HDB figures, 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 $150,000. The figures were $57,500 for a four-room flat and $40,000 for a three-room flat.

HDB statistics show that the median COV for executive flats in Bukit Timah rose to $137,500 in the third quarter of 2007. In Marine Parade, the COV for five-room flats hit $84,000 in the same quarter.

(7.2) Interests in HDB Resale Flats Up since July 2007
The table below shows the transaction volume of HDB resale flats for the whole of 2007.

Table 11 – Increasing volume of HDB resale flats transactions Month-on-Month

The tables below show that the 10 largest Housing estates have the highest number of flats sold; while the 3 smallest housing estates enjoy the highest transacted prices, due to rarity and good location.
Table 12 – The 10 largest HDB Estates sell the highest number of flats

Table

13 – The highest transaction prices always come from smaller HDB Estates

(7.3) HDB Resale Prices are Trending Upwards since July 2007
In December 2007, newer Design-and-Build 5-room flats at the precincts around Blocks 687 (A-D) and 690 (A-F) of Woodlands were transacted at between $320,000 and $347,000 depending on different attributes such as floor levels and facing. Other 5-room flats at older precincts have been transacted at the price range of between $270,000 and $300,000.

Six months earlier in June 2007, similar Design-and-Build 5-room flats at the same Woodlands precincts were transacted at between $270,000 and $315,000. That is a difference of 18.5% and 10% growth in transacted prices over a 6-month period.

Likewise, in December 2007, newer Design-and-Build 5-room flats at the precincts of Blocks 680 (A-E) to 683 (A-E) of Jurong West were transacted at between $307,000 and $370,000 depending on different attributes such as floor levels and facing. Other 5-room flats at older precincts have been transacted at the price range of between $205,000 and $287,000.
In June 2007, similar Design-and-Build 5-room flats at the same Jurong West precincts were transacted between $290,000 and $318,000. That is a price growth of around 15% for the similar resale flats.

(7.4) Case study on Tampinese Executive Flats
A study was done on the capital appreciation of Executive flats in Tampines during the past 12 months.

The parameter of the study is to compare prices of two categories of E flats – one group with poor attributes (therefore lower sale prices) and the other with good attributes (therefore higher sale prices) - and track the price mobility. The study yielded the following results:

Table 14

* LF = Low Floor / MF = Mid-Floor / HF = High Floor

 The price growth year-on-year (October 06 and Nov 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = $47,000 (14.7% increase in price)
Price increase of Highest priced E flat = $119,000 (27.3% increase in price)

 Compare First half-year growth (Oct 06 and May 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = - ($3,000) (price actually dropped)
Price increase of Highest priced E flat = $12,000 (2.8% increase in price)

 Compare Second half-year growth (May 07 and Nov 07) between Executive flats with same attributes:

Price increase of Lowest priced E flat = $50,000 (15.7% increase in price)
Price increase of Highest priced E flat = $107,000 (24.5% increase in price)

The following conclusions are drawn from the study:

(i) The comparative data shows that the price increase occurred only in the second half of 2007. This means that the HDB resale market is beginning to experience the effect of a better economy and the heightened activities may continue for a few years.
(ii) Price surge in E flat occurred after prices for private homes had reached a new historic height. It also showed that many middle-income group purchasers have been squeezed out of the private home market.
(iii) Resale flats with good attributes, such as high floor level, younger in age (newer in flat design) and closer to amenities like MRT station and shopping mall, achieve higher and faster appreciation in capital value.

Myth or Reality (7) : HDB resale activities have returned to the forth after the past 8 years of doldrums. While the psf prices of private condominiums have increased by leaps and bounds, the unit floor area costs of HDB flats in the heartlands remain affordable. With more and more middle income earners being squeezed out of the private property market, resale HDB flats have regained their favour among the higher income earners – hence the increases in transaction volumes as well as resale prices of larger HDB flats such as 5-room and executive flats.
Sellers of HDB flats that attracted high COVs may upgrade to mass market private homes with spare cash from the high COVs and thereby pumping up market activities. However, the high COVs for HDB resale flats may cause mass market property prices to climb and once again put private homes out of reach of HDB upgraders.

Awkwardness (6) : More and more sellers of mass market private homes are increasing their asking prices with the logical thinking that if HDB flats could fetch more than $700,000, a four-room private condo should command at least $1 million. Before more new condos come on stream, the tug-of-war between the sellers’ asking prices and the realistic prices buyers are willing to pay may cause the market to go through a three- or four-month drought.

B – How different is this time?

The second half real estate market told a very different story from the first half. The global situation has worsened since last August with the revelation of the sub-prime mortgage problems in the US effectively sidelining the majority of buyers. While the whole year records look impressive, the detailed numbers of the second half results were worrying, to say the least.

(1) The world may go into recession following the cues from the US

The huge losses experienced on the first day of Wall Street augur ill for the entire global economy. Year 2008 will be a volatile and difficult year for the US – the world’s largest economy. The US domestic economy will slow down due to the financial market woes.

The housing crisis in the US is far from over and the credit markets and still saddled with bad debts. With write-offs of over US$40 billion by banks looking to clear their books of sub-prime loans and investments, 2008 looks set to be more of the same story.

This will certainly drag down the entire economy and put pressure on corporate earnings. The crisis is affecting everybody, not just the financial sector.

The threat of recession, inflation and even stagflation cannot be dismissed. It appears that 2008 will be amongst the most challenging market environments facing the US and the rest of the world in many years.

(2) Massive inflation causing entire market to be jittery about 2008

As houses become more expensive and prices of food and petrol continue to climb, Singapore inflation rate could hit a high of 6% in the first three months of 2008.

With an 18% to 25% upward revision, the increase in annual values of properties is significantly higher this year and the quantum of the recent taxi fare hike, food price and oil price increases are all much higher than earlier expected. As such, the inflation rate this year will exceed the Monetary Authority of Singapore’s forecast of 3.5 to 4.5 per cent for 2008.

The consumer price index (CPI) surged 4.2% in November 2007 year on year, a 25-year high. And housing value has a significant weight in the CPI.

However, the irony facing Singapore is that a likely US recession this year could ease inflationary pressure with demand for essential goods and oil going lower as a result.

(3) Inflation but a falling real estate rate

With the cheapening of US dollars, more foreign investors are bringing their funds into the Singapore system in bid to salvage the value of the money they are holding. This has resulted in two developments: firstly, an asset price inflation, and secondly a falling interest rate.

The two phenomena do not usually occur together. When they happen, that is, rising asset prices despite a falling Sibor (Singapore Interbank Offered Rate), asset price inflation will escalate.

The three-month rate has fallen from 3.44% a year ago to 2.13% in the second week of January 2008. This is a negative real interest rate as the bank’s interest rate is lower than the inflation rate.

The challenge this year for Singapore economy is how to stave off the possibility recession in the US. There will be a second round of gradual appreciation of Sing dollar against the US dollar. It is expected that Sing dollar will appreciate against the US unit from 1.43 at the end of the first quarter to 1.39 in the same period in 2009.

(4) Foreigners account for a quarter of total residential sales

Foreigners and permanent residents (PRs) chalked up 7,902 sales from January to November, which accounted for 24.9% of total residential sales so far.

The sales figures are the highest in 13 years, due to a robust regional economy and increasing arrivals of expatriates in Singapore.

Institutional investors also entered the market in a big way, picking up anything from several units to whole condo blocks and even development sites. They include Macquarie Global Property Advisors, Goldman Sachs and United States-based Wachovia Development.

The buying momentum propelled high-end condo prices pass the $4,000 psf mark and surged past the $5,000 psf mark for the very first time in local history. A 53rd floor 5,048 sq ft penthouse unit at The Orchard Residences went for $5,600 per sq ft in October, or slightly more than $28 million.

All thanks to participation of foreign buyers, other developments that have registered sales of above $4,000 psf include Hilltops, Ritz-Carlton Residences and Scotts Square.

In the meantime, MAS data shows deposits by non-residents totalled $29.8 billion in October 2007. Compared to 2002, the deposits were only $10.6 billion. Foreigners not residing in Singapore are not allowed to open bank accounts here in Singapore but the rule does not apply to individuals who intend to invest in real estate in Singapore.

(5) Foreign investment funds are top buyers of Singapore real estate

The total investment sales volume so far this year is $50.78 billion. Likewise, foreign funds are responsible for the majority of the purchases of investment properties. These foreign funds include names like Macquarie Global Property Advisors (MGPA), US-based Goldman Sachs, US-based Wachovia Development Corporation, German SEB and Dubai World Group – with MGPA topping the chart with $4.3 billion of purchases.

(6) One million foreigners making Singapore home

Singapore’s population is 4.68 million. This number has been contributed by qualified foreigners coming to Singapore in drove – to be exact 1,005,500. This is the highest number of immigrants in more than twenty years and the first time Singapore receives over a million new immigrants.

In terms of percentage rise, this year’s increase is 14.9% compared with last year which also achieved an impressive growth at 9.7%. The number of Singaporeans and permanent residents here also grew 1.8%, the same as the previous year.

In terms of population increase, the one-million-addition makes up a 4.4% rise over the previous year. The last time Singapore enjoyed a higher increase in population was in 1982 where population grew by 4.5%.

(7) Sales in the second half of 2007 were not as brisk the first

Despite strong overall sale figures for the whole year, the actual situation on the ground (especially towards the end of the year) was harsher than it appeared on paper. Let’s look at two aspects of the general market: (a) transaction figures; and, (b) marketing period (as such per listing’s holding costs).

(7.1) Transaction figures

Table 15 – Transaction figures with statistics on foreign purchasers

The allure of oceanfront living at Sentosa Cove and Keppel Bay can be seen in the second half of 2007. Despite a general weakness of the market, District 4 continues to attract strong demands from foreign buyers.

(7.2) Marketing period and holding costs
Listings took longer marketing period to sell, if they are sold at all. Below shows the statistics of marketing period (therefore holding costs) for every listing sold.

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All Singapore property condo / apartment, Real Estate name list

All Singapore property condo / apartment, Real Estate name list

01, Singapore Property Condo / apartment Listing - Project Start from 01 - 09

02, Singapore Property Condo / apartment Listing - Project Start from A

03, Singapore Property Condo / apartment Listing - Project Start from B

04, Singapore Property Condo / apartment Listing - Project Start from C

05, Singapore Property Condo / apartment Listing - Project Start from D

06, Singapore Property Condo / apartment Listing - Project Start from E

07, Singapore Property Condo / apartment Listing - Project Start from F

08, Singapore Property Condo / apartment Listing - Project Start from G

09, Singapore Property Condo / apartment Listing - Project Start from H

10, Singapore Property Condo / apartment Listing - Project Start from I

11, Singapore Property Condo / apartment Listing - Project Start from J

12, Singapore Property Condo / apartment Listing - Project Start from K

13, Singapore Property Condo / apartment Listing - Project Start from L

14, Singapore Property Condo / apartment Listing - Project Start from M

15, Singapore Property Condo / apartment Listing - Project Start from N

16, Singapore Property Condo / apartment Listing - Project Start from O

17, Singapore Property Condo / apartment Listing - Project Start from P

18, Singapore Property Condo / apartment Listing - Project Start from Q

19, Singapore Property Condo / apartment Listing - Project Start from R

20, Singapore Property Condo / apartment Listing - Project Start from S

21, Singapore Property Condo / apartment Listing - Project Start from T

22, Singapore Property Condo / apartment Listing - Project Start from U

23, Singapore Property Condo / apartment Listing - Project Start from V

24, Singapore Property Condo / apartment Listing - Project Start from W

25, Singapore Property Condo / apartment Listing - Project Start from X

26, Singapore Property Condo / apartment Listing - Project Start from Y

27, Singapore Property Condo / apartment Listing - Project Start from Z

What’s NEW in Singaporepore REAL ESTATE Market From 01 Dec to 30 Dec 2007

What’s NEW in Singaporepore REAL ESTATE Market From 01 Dec to 30 Dec 2007

Introduction

As expected, the last month of 2007 was very quiet and uneventful – to the disgust of many agents who subscribe to the notion of productivity equals profit from activities. There were a number of inconsequential policy changes concerning the real estate market. They are not expected to have any major impact on the fate of the property market.

Most of the changes, including CPF changes and Development Charge changes, have already been made known months ago and therefore did not cause a ripple.

More announcements were made regarding the Government Land Sale Programme for next year and that too did not cause any excitement as investors and developers had already been primed. Here are summaries of December’s news.

(A) Global financial market still uncertain in 2008

(A.1.) More bad news from the US sub-prime woes

The US sub-prime problems continue to claim their victims going into Christmas. A couple of embarrassing corporate news was unveiled including one that concerned Switzerland’s largest bank UBS and the world’s largest wealth manager. The bank announced further write-downs of around 10 billion dollars (6.8 billion euros) due to the US subprime mortgage crisis.

In an unprecedented move, Singapore’s Government Investment Corporate bought, together with an unknown Middle Eastern investor, roughly 9% stake of the bank.

On 17 December 2007, Washington-based mortgage finance company Fannie Mae forecast further decline in US housing market in 2008. It said that existing home sales will drop 12% and existing home prices will fall another 4.5% in 2008, painting a bleak picture for the troubled US housing market.

According to forecasts from the National Association of Realtors (NAR), median home prices in the US declined for the first time since the Great Depression. Not only have homebuilders and mortgage companies been affected by the subprime crisis, banks and brokerages have been hit, posting write-downs and losses of more than $80 billion.

There was evidence in abundance to show that the US housing crisis is not yet over. Economists of all subscriptions expect US housing prices to decline further as an increase in foreclosures adds to a glut of unsold homes on the market, forcing sellers to cut prices.

(A.2.) MAS sees more uncertainties next year

The Singapore central bank has also sounded warning that there will be more uncertainties in 2008 due to the current financial market turmoil. The region is facing increased risks to its growth outlook.

The Asia Pacific region as a whole is enjoying strong inflows of funds which have been channelled into property, equity and other financial assets. However, the risk is increasing and this makes it difficult for corporations and banks to sustain financial performance.

MAS said that household debts growth in October accelerated to 15.5% due to increase demands which are evenly spread. The growth is the fastest in almost 11 years. Home loan growth was up 14.4% while business loans galloped at 18.5%.

The negative housing equity situation has improved a great deal, with the proportion of negative mortgage accounts having halved to 2.5% in September 2007 from 5.1% in the same period in 2006.

The rise in banks’ property exposure has been driven mainly by loans to property-related firms. Loans to individuals for investment purposes have also increased recently.

However, the MAS continues to be concerned about the double-digit growth of business loans being driven by the building and construction sector though the non-performing loans ratio of this industry has improved likewise.

(B) New measures concerning properties announced this month

(B.1.) New definition of Development baseline takes effect 1 January 2008

From 1 Jan 2008, the old definition of development baseline being the highest of either the value resulting from the intensity guideline of 1958 Master Plan or 1980 Master Plan will be abolished.

Development baseline will be simply defined as the value of the approved development. The historical baseline values in the master plans of 1958 and 1980 will no longer play any part in the calculation.

The Development Charge payable is the difference of development ceiling (being the maximum value approved) and development baseline.

However, land owners who keep to the allowed use under the current master plan will still not be affected by the new way of computing Development Charge.

(B.2.) New CPF interest rates to be effective on 1 January

From 1 Jan 2008, CPF members will earn one percent higher interest on their first $60,000 of savings as follows:

• Their Special, Medisave and Retirement Account (SMRA) will attract 5% instead of 4% previously.

• Their Ordinary Account (OA) will receive 3.5% for up to $20,000.  Anything higher than the required $60,000 attracts the same interest rate.

For savings beyond $60,000, a minimum rate of 2.5% will apply. However, the HDB subsidised loan rate will not be affected by the latest CPF interest rate change.

(C) Events that could affect 2008 real estate market

(C.1.) Luxury home segment unlikely to dominate market like last year

There could be only 4,600 private homes, or 26% of the total number of new homes, to be launched next year in the Core Central Region (CCR). This year, there were 5,700 new units or 38% of the total 15,000 new homes launched.

Altogether, a total of 17,800 new private homes are expected to be launched in 2008. Though this figure is higher than last year’s, there will be fewer luxury homes. As such, prices of high-end homes should hold strong in CCR.

Among the high-end projects expected to be launched next year are Marina Bay Suites, Sentosa Quayside, Goodwood Residence in Bukit Timah and The Hamilton at Scotts Road.

However, developers are not expected to rush the launches as there are good reasons for them to time the public launches to take advantage of the casino effect later on in 2009 and 2010.

The few positive factors such as en bloc sellers seeking replacement properties, foreigners looking for a safer haven, and soaring rents may still be the major deciders to hold the market together.

(C.2.) Mass market home may dominate next year

For the residential sector, the buying activities should be concentrated in the mass market next year as high-end homes have become too expensive for most.

Government Land Sales programme should be more subdued in the first half of next year as the demand has already cooled off in the fourth quarter of 2007.

Prices of mass-market private homes are likely to appreciate 10% to 15% in 2008, after rising about 25% this year. But development costs had shot up by more than 30% so far this year. As such, there is still upside for mid-range home prices, which are still below their peaks.

While foreign buyers may not affect mid-range market so much, other external factors such as the US sub-prime market problems, rising oil prices and the US economy are universal and will likewise affect the mid-range market. If the external forces turn out to be neutral, the Singapore property market recovery will continue. But if they worsen, nobody will be spared.

(C.3.) More mass market home in mid-term

The Government has again played a heavy hand in state intervention of the real estate market by announcing an expansive programme of land sales for the first half of 2008.

A total of 21 residential sites, mainly in the mass market segment which include new plots at Choa Chu Kang, Tampines and Sengkang will be released for public tender soon.

The land sales programme includes 17 new sites for sale, out of which 11 are in the confirmed list. Eight of them are residential, mostly in suburban areas such as West Coast Crescent, Yishun and Sembawang.

(C.4.) Fewer new property launches in the last quarter of 2007

Property sales in the fourth quarter of 2007 stood at $2.9 billion so far. The figure dwarfed in comparison with the previous quarter’s $15.6 billion

Even with the time lag between a transaction and the lodgement of a caveat, it is unlikely that the fourth quarter figure can suddenly rise to match any of the previous quarters’ sales figures this year. In fact, property sales broke record with closing figure of $24.2 billion in the second quarter.

In fact, the weak performance of the property market is not surprising at all after the double whammy of US sub-prime crisis and the withdrawal of the deferred payment scheme in October. Buyers now understand the risks involved in property purchases and have been more prudence in their purchases.

Another reason for the sharp fall in transactions is the lack of new property launches in the last quarter of the year.

(D) News on Government land Sale programme

(D.1.) Lukewarm response at Boon Lay site

At the close of the tender, only two bids were received by URA for the 99-year leasehold site between Boon Lay Way and Lakeside Drive.

The top bid was put in by Frasers Centrepoint at $205.6 million - or $248 per sq ft per plot ratio (psf ppr) - for the 236,731 sq ft site. The site which could yield 828,552 sq ft in gross floor area (GFA), is a stone throw away from the Lakeside MRT station. The surprising weak response of the site may be due to the withdrawal of an earlier plan by Canadian International School to relocate to Jurong East.

Rising building costs and shrinking profit margin may have kept out the other bidders.

(D.2.) Government Land Sale (GLS) programme will continue in 2008

The Ministry of National Development will continue to release more quality land through its Government Land Sales (GLS) Programme, despite some private property analysts predicting supply glut in the near future.

[See Annex A for “Where are the GLS sites”]

A total of 37 sites will be offered in the first half of 2008 - 11 in the confirmed list (down from 14 for the current 2007 second half programme) and 26 in the reserve list (one site fewer than in the current list).

The number of sites to be released in the first-half of next year will roughly be similar in scale to the offerings for second half of 2007. See table below for details.

	1st half 2008	2nd half 2007
Private homes	8,250 units	8,000 units
Commercial space	4.4 million sq ft	3.8 million sq ft
Hotel rooms	5,850 rooms	6,500 rooms

The bulk of the supply for the first half of next year will continue to come from the reserve list, where sites are launched for tender only upon application by developers.

About 44,500 new private homes will be completed by 2010. Out of these, 17,800 units or 40% will be in the Core Central Region, which includes prime Orchard Road, Marina Bay and Sentosa Cove.

(E) Sub-sale may make a return next year

(E.1.) Fewer sub-sales deals but sub-sale value hits all-time high

Sub-sale value of apartments transacted in the first three quarters of this year is at an all-time annual high of $6.7 billion. However, in terms of volume, it is about half of what it was in 1995.

The number of sub-sale transactions fell to 1,374 (or a quarter-to-quarter decline of 23%) in the third quarter of this year.

Median sub-sale prices are at a new record high of $1,246 psf. Quarter-to-quarter, the increase is 13.6% and a year-on-year increase of 25%.

The value per transaction of sub-sale apartments is also at a record high this year at $1.71 million per transaction.

(E.2.) Lower supply and more TOP may drive up sub-sale deals

In light of a lower supply of quality homes in choice locations and with various new developments becoming available for immediate occupation, sub-sale activities may hot up early next year.

The number of sub-sale apartments in the luxury band fell 41% to 317 transactions but it still makes up 45% of sub-sale transactions.

The overall value of sub-sale apartments for the whole of 2007 is expected to increase further, backed by potential price increases.

[See Annex B for “Who is the hottest in Sub-sales”]

(F) En bloc sales news

(F.1.) En bloc deals surpassed $13 billion this year

The sparkle of en bloc sales has been doused in the second half of the year. With December drawing to a close, only 27 sites worth $2.81 billion were sealed in the second-half this year. In the first half of the year, a total 82 en bloc deals worth $10.49 billion were transacted.

However, compared with the whole of last year where 79 deals amounting to $8.2 billion, this year’s tally of $13.3 billion from 109 deals is still breath-taking.

En bloc sales for 2008 look set to be a subdued affair with the Development Charge percentage still standing tall at 70% of market value; and the new Collective sale rules making all parties work doubly hard for their money.

However, on a brighter note, with the economy cruising at comfortable speed, developers may still be keen to land-bank as long as there are ‘quality sites’ ripe for the picking. Any site with good investment potential will still attract fierce bidding.

Industry players also agree that the pace at which developers acquire more redevelopment sites through en bloc sales will be a function of how their newly launched projects perform.

(F.2.) Developers unlikely to pay high price for collective sale

Developers will probably not pay high prices for collective sale sites from now on as the US sub-prime market woes have taken some froth out of the exuberant market. As such, supply volume may begin to slip.

Though not expecting a massive landslide in property prices, developers in general acknowledge that there would be a little slowdown in activities next year.

Developers have become the victims of their own success. They are now grappling with rising costs, shortage of construction materials and inadequate skilled labour.

However, the developers are well aware of the imminent challenges posed by rising oil prices, a weakening US dollar, the sub-prime crisis and occasional shocks in the supply of construction materials.

(F.3.) En bloc sale news: Amber Park at $750m

District 15 Amber Park, in Amber Gardens, Katong, is now on the collective sale market for $750 million or $1,234 per square foot per plot ratio.

The freehold site has a land area of 213,673 sq ft and has an approved gross floor area of 607,601 sq ft. The site could yield about 375 apartments with an average size of 1,600 sq ft.

There will be no development charge based on the existing plot ratio of 2.843, which is slightly higher than the gross plot ratio of 2.8 in the 2003 Master Plan.

(G) Foreigner’s interest in Singapore real estate never wanes

(G.1.) 78 Shenton Way sold for $650m to German group

Germany’s Commerz Grundbesitz Investmentgesellschaft (CGI) group has acquired 78 Shenton Way for $650 million or $1,857 psf based on a total net lettable area of about 350,000 sq ft.

The building seller, a joint-venture between Credit Suisse and CLSA funds, made a cool $301.5 million from the transaction. The joint venture had bought the building in January 2007 for $348.5 million. Not bad for a year’s work.

CGI, which is the capital investment company for the open-ended fund Haus-Invest, is making its maiden entry into the Singapore real estate market

(G.2.) Apollo Centre sold to US funds for $205m

AEW Capital Management, an US property fund manager, has acquired Apollo Centre for $205 million or $1,378 per sq ft (psf) of lettable floor area.

Apollo Centre, located at the junction of Eu Tong Seng Street and Havelock Road, is a seven-storey commercial building with shops on the basement, first and second storeys and offices on the upper floors.

It sits on 54,600 sq ft of land and has a gross floor area of around 217,500 sq ft. The lettable floor area is 148,700 sq ft. It is on a 99-year lease, with 75 years left.

[See Annex C for “Who is AEW”]

(G.3.) Goldman seeking to make $1 billion on DBS Building

After holding on to the purchase of DBS Building along Shenton Way for two years, the building owner Goldman Sachs is sourcing for a buyer to pay it a cool $1 billion profit.

Goldman had acquired DBS Building for $789 psf or $690 million two years ago and is now asking for at least $2,000 psf of net lettable area (NLA) or $1.75 billion.

However, property analysts estimated that in the current market, Goldman Sachs may fetch around $1,750 psf to $1,800 psf of NLA for DBS Building, given the building’s age and short balance land tenure.

[See Annex D for “What has Goldman been up to”]

(G.4.) Foreigners bought a quarter of total residential sales

Foreigners and permanent residents (PRs) chalked up 7,902 sales from January to November, which accounted for 24.9% of total residential sales so far.

The sales figures are the highest in 13 years, due to a robust regional economy and ever increasing arrivals of expatriates in Singapore.

Institutional investors also entered the market in a big way, picking up anything from several units to whole condo blocks and even development sites. They include Macquarie Global Property Advisors, Goldman Sachs and United States-based Wachovia Development.

The buying momentum propelled high-end condo prices pass the $4,000 psf mark and surged past the $5,000 psf mark for the very first time in local history.

A 53rd floor 5,048 sq ft penthouse unit at The Orchard Residences went for $5,600 per sq ft in October, or slightly more than $28 million. The 175-unit leasehold condominium is being built above the Orchard MRT Station.

All thanks to participation of foreign buyers, other developments that have registered sales of above $4,000 psf include Hilltops, Ritz-Carlton Residences and Scotts Square.

In comparison, last year’s price record - set in December by a unit in Marina Bay Residences - was only $3,450 psf.

[See Annex E for “Foreign participation in buying commercial buildings”]

(H) News on HDB Resale Market

(H.1.) Buyers snap up new flats from HDB

As though it still needs further proof – the property bull is in the HDB market.

On 10 December 2007, HDB received more than 1,700 hopeful applications for just 316 new flats in Hougang, Punggol and Sengkang.

The 316 flats comprise 233 four-room, 57 five-room and 26 executive flats, with prices ranging from $142,000 for a four-room flat in Hougang to $358,000 for an executive flat in Sengkang.

In terms of sales, almost every unit of the HDB’s unsold stock, released once every two months, has been snapped up immediately.

Just three years ago, there were as many as 10,000 unsold flats languishing in the market. But this figure had been dramatically trimmed to 2,400 as at 31 Oct 2007.

The HDB has said it would progressively offer all its unsold stock for sale in near term.

Annex A

Where are the GLS sites

Below are tables showing the estimated launch dates for all the sale sites next year.

Residential sites on the confirmed list

Location	No of units	Estimated Launch Date
Westwood Avenue	50	January 2008
West Coast Crescent	305	January 2008
Yishun Ave 1/ Ave 2	515	January 2008
Lorong 2 Lorong 3 Toa Payoh	535	February 2008
Sembawang Greenvale Phase 2	94	February 2008
Choa Chu Kang Drive	495	March 2008
Woodleigh Close	270	April 2008
Tampines Ave 1/Ave 10	575	June 2008

Residential sites on the reserve list

Location	No of units	Estimate Launch Date
Tampines Road (Landed)	35	Available for sale
Jalan Jurong Kechil	240	Available for sale
Punggol Field/Punggol Road (EC)	620	Available for sale
New Upp Changi/Tenah Merah Kechil	305	Available for sale
Bishan Street  14	535	Available for sale
Yishun Ave 11 (Executive Condo)	375	February 2008
Upp Changi Rd North/Flora Dr	380	March 2008
Chestnut Ave	435	March 2008
Jurong West ST 42 (EC)	465	March 2008
Sengkang East Ave/Buangkok Dr (EC)	465	April 2008
Upp Thomson Road	380	April 2008

Sengkang West Ave/Fernvale Link	465	June 2008
Sembawang Road/Canberra Dr	290	June 2008

Annex B

Who is hottest in Sub-sales

Icon has consistently been one of the top two developments in terms of sub-sales this year.  Its median sub-sale price went up 26% quarter-on-quarter to $1,495 in the third quarter. So far this year, 512 units in Icon have been sub-sold once.

The other hot candidate for sub-sale is The Sail @ Marina Bay which saw median sub-sale price going up by 21% quarter-on-quarter to $2,093 psf.  So far this year, a total of 370 units at The Sail have been sub-sold.

One-north Residences also registered a significant number of sub-sales, probably due to the allure of a ‘Silicon Valley’ look-alike culture of the R&D hub and the promises of high rental.

Annex C

Who is AEW

AEW and its affiliates manage more than US$41 billion of real estate assets and securities in North America, Europe and Asia. The group set up an office in Singapore in April as a base from which to expand in the region.

Office rents in the city fringe area are about $8.00 psf per month (psf pm) while retail rents range from $8.00 to $8.50 psf pm.

Annex D

What has Goldman been up to

Goldman has been very busy of late buying up prime office buildings in the central business district. In August this year, it purchased Chevron House at Raffles Place from CapitaLand for $730 million or $2,780 psf of NLA.

It is also expected to purchase the adjacent Hitachi Tower from CapitaLand for around $3,000 psf, or about $840 million.

Thanks to foreign funds such as Goldman Sachs, investment in Singapore’s office sector has seen an astonishing $14.9 billion worth of transactions so far this year -  three times the sales figure for the whole of last year.

The severe constraints in demand/supply situation have pushed prime office capital values to nearly $3,000 psf from about $2,000 psf at the start of this year.

Annex E

Summary of foreign participation in buying of commercial buildings

In April this year, TSO Investment, a unit of a CLSA Capital Partners-managed property fund, sold SIA Building at Robinson Road to European pension fund manager SEB for about $1,780 psf of net lettable area.

In Septemb