Issue 146

Copyright 2011-2013 www.Propwise.sg. All Rights Reserved.

CONTENTS
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7 Singapore Property Market Trends in
2014 and Beyond Singapore Property News This Week Resale Property Transactions (February 19 February 25)

FROM THE

EDITOR

Welcome to the 146th edition of the Singapore Property Weekly. Hope you like it!

Mr. Propwise

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SINGAPORE PROPERTY WEEKLY Issue 146

7 Singapore Property Market Trends in 2014 and Beyond

By Paul Ho (Guest Contributor) The numerous property cooling regulations imposed by the MND, URA, MAS and IRAS have done much to curb the speculative fever in the property market, but regulations to stop the latent demand are futile. In short, if there are 20,000 people needing houses and only 10,000 houses, then prices will surely go up. Brute force measures to artificially restrict 10,000 people from changing their minds to stop buying or defer buying will only momentarily solve the problem.

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SINGAPORE PROPERTY WEEKLY Issue 146 A brief background to Singapore's prices will continue to shoot up. We believe that this is also the reason behind Mr. Ku Swee Yongs observation of a unique Singaporean phenomenon that when land

housing woes Its not clear if the Singapore government is sincere in wanting to solve these problems given the way government land sales are structured, where the chief valuer lets the bid price meet an undisclosed minimum before releasing the land out for tender. By the time the prices of land parcels rise to meet the minimum bid price the Singapore government wants, the pressure of demand outstripping supply has already been built up. And given that houses need two to three

supply is released, prices shoot up. Why?

Because when land is released, developers are already starved of land, and will bid aggressively for the land. Developers would also know that this supply is released on the

back of demand outstripping supply. Why else

would they bid so high?

years to build, during this phase, the land

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SINGAPORE PROPERTY WEEKLY Issue 146 Here is a chart of the sequence of events that is behind a run up in property prices: market or solve the issue of property prices running out of control, they would do well to solve the inherent problems in the system. Many people have already suggested the remedies for fixing wild property price swings, but I doubt anything has been adopted thus far. The following are seven trends I see shaping the Singapore property market in 2014 and beyond. Trend #1 Pockets of extra HDB supply from PRs will be an overhang on the market Since January 2013 Permanent Residents have not been allowed to rent out their units after the expiry of their current lease. This means that by January 2014 or 2015 many of these Permanent Residents will be looking to

Figure 1: Sequence of events behind a run up in property prices So if the government really wants to cool the
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SINGAPORE PROPERTY WEEKLY Issue 146 sell their HDBs if they continue to be away from Singapore. This creates a small pocket of extra supply of HDB flats that will be an overhang on the market. Permanent Residents who are away from Singapore and cannot secure permission to rent out their HDB flats have no economic benefit from keeping these units and will be Trend #2 It may be more difficult to get financing for an HDB or EC than a condo The imposition of the Mortgage Servicing

Ratio (MSR) of 30% or less for Executive

Condominiums (EC), combined with the income ceiling of $12,000, means that the maximum price of an Executive Condominium is about $880,000 (assuming an 80% loan).

keen to sell their HDB units. We have come

across several Permanent Residents who have left Singapore to work overseas and decided to sell their HDB due to being unable to obtain a license to rent out their HDB flats.

Buying an EC or HDB will be tough as many

will fail the MSR criteria. A couple would have an easier time to borrow a larger quantum for Condominiums than for an HDB flat or an EC.

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SINGAPORE PROPERTY WEEKLY Issue 146 Many property buyers have chosen to buy private residential homes instead of ECs or HDB flats due to financing difficulties. And since they could not afford a large quantum, Currently, new PRs are barred from buying HDB resale flats for three years after obtaining their PR. By 2016, these new PRs (numbering in the tens of thousands) would

they ended up buying very tiny private

apartments or condos. Trend #3 Artificially depressed HDB demand and prices may bounce back from 2016 HDB prices will be artificially depressed due to the MSR of 30% or less, at least for the short term. But at the same time, the government has deliberately slowed down the

be eligible to buy HDB, causing a demand

and supply imbalance. As HDB is the base benchmark for property prices, if HDB prices rise, every property class will likely follow. Thus HDB prices may bounce back from

2016, after the elections.

supply of HDB flats. This may lead to a

buildup of demand pressure for HDB flats in a few years time.

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SINGAPORE PROPERTY WEEKLY Issue 146 Trend #4 The private residential vacancy rate will increase

Figure 2: URA Q4 2013 stock, vacancy and supply in the pipeline

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SINGAPORE PROPERTY WEEKLY Issue 146 For private property, there are 18,003 vacant units representing a vacancy rate of 6.2% in the 4th Quarter of 2013. This is considered a low rate versus historical comparisons. If you take a look at the Property Price Index (PPI) from 2002 to 2005, the vacancy rate at which property price is more or less at equilibrium (i.e. neither increasing nor dropping) is about 7.5% to 8%. Hence prices for private properties are still holding up fairly well even though we hear anecdotal evidence of softening ahead of the actual supply coming on-stream. The supply in the pipeline is 83,702 units, versus an annual demand of about 11 to 15 thousand units, thus representing roughly 5 to 7 years of supply that will be coming onstream in the next 5 years. While this might seem like a lot, there is some room for more supply to come in before the vacancy rate reaches 7.5% to 8%. Trend #5 A larger share of household incomes will be going into property purchases and loan repayment servicing The artificial channeling of buyers into private residential dwellings may increase the long term sales trend line, even though the average household income has been falling. In other words, more and more people are buying private residential housing despite having weaker incomes. And it is not because they really want the luxurious lifestyles or high life as the government is prone to highlight, but because they could not wait for the HDBs anymore having been repeatedly rejected by the BTO balloting process, or were not able to obtain a loan due to the MSR.
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SINGAPORE PROPERTY WEEKLY Issue 146 Hence developers are building ever smaller private residential units for this substantial group of people, while charging ever higher per square foot (PSF) prices. developers stock is absorbed, prices will firm up again. HDB shortages will set the baseline prices and all the other classes of properties will have upward pricing pressure. It's basically a scarcity game. Trend #7 The Core Central Region is becoming more attractive The Core Central Region (CCR) has become very attractively priced relative to the Outside of Central Region (OCR). This is an anomaly which is not justified. There is currently no change so material that makes Punggol or Sengkang more attractive than Orchard Road. Historically prime regions in the CCR always command a premium relative to the other two regions. The OCR overshooting the CCR may indicate that many people are buying into the hype and are overpaying for these
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Trend #6 Developers will be under pressure, but prices may not crash
There is pressure on developers to launch uncompleted units for sale to ease their financing costs. Highly leveraged or weaker developers may be more hard pressed to launch and garner sales faster. As many developers rush to launch, these uncompleted units come into the market (as uncompleted supply), giving rise to the impression that the market is softening dramatically or even crashing with so many units for sale. The stronger developers will have holding power and not act rashly. Once the weaker
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SINGAPORE PROPERTY WEEKLY Issue 146 properties (on a per square foot basis). not too expensive after all. The CCR will have more good pickings for long term rental income, capital downside protection as well as capital gain potential. But the relatively low per square foot prices could reflect poor total quantum affordability as many of the units there are bigger in size and hence could cost between $3 million to $10 million. Many of the buyers of OCR properties could be sitting on stagnant prices for years to come. If there is no recession or further regulatory actions, we expect property prices to soften about 10% based on the current trend. Figure 3: Property Price Index Q3 2013 Non-landed Private Residential Property If property buyers start to look at the prime areas, they may realize that these areas are
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By Paul Ho, holder of an MBA from a reputable university and editor of www.iCompareLoan.com, Singapores first Cloud-based Home Loan reporting platform used by Property agents, financial advisors as well as Mortgage brokers.
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SINGAPORE PROPERTY WEEKLY Issue 146

Singapore Property This Week

Residential
Resale HDB flat COV hits zero for the first time in almost a decade
The overall median cash-over-valuation (COV) for resale HDB flats hit zero in February, the first time since 2006, as demand for resale public homes dropped. The overall median COV for January was $3,000. According to the transaction records from agencies registered with the Singapore Real Estate Exchange (SRX), 37.3 percent of HDB resale deals last month closed below valuation compared with 29.4 percent in January. HDB resale prices also fell 1.8 percent month-on-month, the hardest since April 2013. Resale volume stood at 734 deals, down 20 percent from a month ago. 12
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out of 26 HDB towns had zero or negative median COV, compared with 8 HDB towns previously. (Source: Business Times) Property players divided on COVs for HDB resale flats As the latest COV fell to zero from $32,000 a year ago and might even decrease further, property analysts and agencies are divided on having cash over valuation (COV) in HDB resale transactions. COV is the cash premium paid by buyers in excess of the valuation of an HDB flat. ERA Realty key executive officer Eugene Lim said that COV figures and cash under valuation figures should be scrapped as negative COVs will trigger a downward
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SINGAPORE PROPERTY WEEKLY Issue 146 spiral of HDB resale prices, and that only the market price should be released. Mr. Lim said when HDB started to publish COVs for different estates and flat types to educate the public and deal with the perception of COVs being too high, people then used these as a benchmark to mark up their prices above it, thus making the next valuation higher. However, Ong Kah Seng, director of R'ST Research, said that COVs are relevant as they are a brake to over-buying during average and thriving market conditions. (Source: Business Times) Cluny Park Residence receives strong interest Although up-market freehold condominium Cluny Park Residence was not launched for sale until March 8, 40 percent of its 52 units had received purchase commitments from
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professionals and businessmen at private previews. 70 percent of the buyers are Singaporeans. The strong interest was believed to be due to the condos excellent location and long-term investment potential, despite the current uncertain residential property market affected by cooling measures. (Source: Business Times) Commercial Macpherson Mall confirms inclusion of FairPrice and ibis Styles Macpherson Mall (M2) has announced that it will feature NTUC FairPrice as its anchor tenant and ibis Styles as its hotel operator upon its opening in the second half of 2015. The mall is 53,000 square foot in size and is a freehold mixed development at the junction of Aljunied Road and Macpherson Road, where
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SINGAPORE PROPERTY WEEKLY Issue 146 the Windsor Hotel previously stood. The mall has one basement level, three shopping levels above ground with NTUC Fairprice supermarket on the second floor, and a ninestorey economy hotel on top of the shopping levels. (Source: Business Times) Borneo Motors Pandan site to receive makeover Borneo Motors Singapore (BMS) will be giving its Pandan Crescent property a makeover which will turn the site into an eight-storey complex to house motor vehicle businesses. The makeover is estimated by property analysts to cost $40 million. BMS is part of the spreading Inchcape Group (UK) and is located at 33 Leng Kee Road in Singapore. It distributes Toyota, Lexus, Suzuki, and Hino.
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(Source: Business Times) More benefits for property market from Reits

According to an independent report commissioned by the non-profit Asia Pacific Real Estate Association (APREA), Reits are now considered a positive force to help with the development of property markets. Reits are thought to offer predictable income, low cost of exposure to property, and will improve the operation of real estate market by attracting capital, in particular foreign capital, and allowing institutional and retail investors to invest in commercial real estate. Reits fundamentally break large pieces of property into smaller, tradable pieces, guarantees income, and improves liquidity.
(Source: Business Times)

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SINGAPORE PROPERTY WEEKLY Issue 146 Developers encounter more difficulties from cooling property market As property valuations drop, developers are reported to encounter more difficulties in a tougher operating environment, such that some are pushed to make provisions for their projects. For instance, Wheelock Properties made an accounting provision of $110 million for 99-year leasehold condominium The Panorama in Ang Mo Kio, while also posting a loss of $91.3 million for its fiscal fourth quarter compared with the $30.8 million profit the year before. Wheelock had a net profit of $40 million as of the full year ended December, which was a 36.7 percent decrease from the previous year. OUE also posted a net fair value loss of $76.8 million on its investment properties, and a net attributable loss of $36.6 million for the full year ended December. One year ago, it had a net profit of $90.1 million.
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(Source: Business Times) Mixed responses over Reit impact Although there are calls in Parliament for the government to control industrial and commercial rents to stop them from increasing, as well as for the reversal of JTC's land divestment programme, economists are divided on this issue. JTC divested most of its industrial property a decade ago to create a more open and vibrant market, and give the private sector more freedom. However, Member of Parliament Inderjit Singh (Ang Mo Kio) now said the divestment was a mistaken policy during the Budget debate, since the government failed to influence rental prices, allowing developers and investors to make more passive income instead of productive income. However, other economists said Mr. Singh had too quickly used Reits as the
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SINGAPORE PROPERTY WEEKLY Issue 146 reason behind business rents, and suggested that it could be due to supply lagging demand. (Source: Business Times) Government to take action on unfair Reit practices At the Committee of Supply debate on the Ministry of Trade and Industry (MTI), Minister of State for Trade and Industry Teo Ser Luck said that the government will take action upon seeing collusion or abuse of market dominance by any landlord including Reits. This statement came along the louder calls for help with increasing business costs, especially that Reits were blamed for shorter lease renewals and larger increases in rentals. Some of those Reits were formed after JTC and HDB divested space to private owners. Minister Teo said that Reits accounted for only 13 and 16 percent of retail and industrial rental spaces respectively, and
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they are not the leading players in the rental market. He also believed that rents for space will moderate in the medium term after the government has released a large amount of land. (Source: Business Times) 3 industrial sites up for sale Three industrial sites were up for sale. One of them is a four-storey property in the JTC Food Zone and has a corporate office, a research laboratory, a factory floor and cold rooms located in Pandan Loop. It has an asking price of $17 million, a gross floor area (GFA) of 90,762.6 sq ft on a 100,070.90 sq ft site. The site is zoned for Business 2 use with a plot ratio of 2.5 and has 18 years left on its tenure, and is marketed by Jones Lang LaSalle (JLL). An expression-of-interest exercise is held from now until April 16.

(Source: Business Times)

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SINGAPORE PROPERTY WEEKLY Issue 146

Non-Landed Residential Resale Property Transactions for the Week of Feb 19 Feb 25
Postal District 1 3 5 8 9 9 9 10 10 10 12 14 14 15 15 15 15 15 15 15 16 16 16 Area (sqft) 614 1,270 936 1,141 1,798 2,013 915 614 1,259 1,356 1,367 1,313 1,324 1,442 1,410 1,582 1,259 861 1,087 1,582 786 1,195 786 Transacted Price ($) 1,325,000 1,250,000 1,100,000 1,650,000 3,800,000 3,100,000 1,400,000 1,266,110 2,288,800 2,400,000 1,468,000 1,828,000 1,200,000 3,180,000 2,080,000 2,300,000 1,785,000 1,128,888 1,100,000 1,435,000 1,045,000 1,200,000 750,000 Price Tenure ($ psf) 2,160 99 984 99 1,175 99 1,446 FH 2,114 FH 1,540 FH 1,530 929 2,064 FH 1,817 FH 1,770 FH 1,074 FH 1,392 99 906 99 2,205 FH 1,475 FH 1,454 FH 1,417 FH 1,311 FH 1,012 99 907 FH 1,330 FH 1,004 99 954 99

Project Name THE SAIL @ MARINA BAY LANDMARK TOWER DOVER PARKVIEW OXFORD SUITES THE TRILLIUM THE PROMONT UE SQUARE THE MONTANA BOTANIC GARDENS VIEW HOLLAND RESIDENCES BALESTIER PLAZA DAKOTA RESIDENCES THE ALCOVE AALTO THE ESTA THE MAKENA ONE AMBER AXIS @ SIGLAP VILLA MARINA SUNSHINE RESIDENCE RIVIERA RESIDENCES EAST MEADOWS EASTWOOD LODGE

Postal District 16 18 18 19 21 21 23 23 23 25

Project Name FAIRMOUNT CONDOMINIUM TROPICAL SPRING TAMPINES COURT THE SPRINGBLOOM THE BLOSSOMVALE FREESIA WOODS CASHEW HEIGHTS CONDOMINIUM REGENT HEIGHTS REGENT GROVE ROSEWOOD SUITES

Area (sqft) 904 1,378 1,711 1,302 840 1,690 1,227 1,023 1,163 678

Transacted Price ($) 818,000 1,250,000 1,010,000 1,500,000 1,140,000 2,080,000 1,250,000 925,000 930,000 705,000

Price Tenure ($ psf) 905 99 907 99 590 101 1,152 99 1,358 999 1,231 FH 1,019 999 905 99 800 99 1,040 99

NOTE: This data only covers non-landed residential resale property transactions with caveats lodged with the Singapore Land Authority. Typically, caveats are lodged at least 2-3 weeks after a purchaser signs an OTP, hence the lagged nature of the data.

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