Residential Market News Extract - 10 September 2012

Fancy a million-dollar HDB apartment?

An executive maisonette on Queenstown's popular Mei Ling Street could become the first public housing apartment to be sold for a million dollars.

The Singaporean buyer has agreed to pay a cash premium of $195,000 for the flat, which is located near the Queenstown MRT Station. No details were given on the size of the apartment.

If the sale goes through, the home will sit at the top of a list of HDB apartments that have been sold at prices close to $1 million this year. At least 19 homes have changed hands for over $800,000, with nine of them crossing the $900,000 mark, data from SRX and ERA Realty showed.

Experts, however, say there is no bubble in the market. Homes transacting at such prices are usually located in popular areas, and may have highly sought-after design features that are rare for public housing.

For an executive maisonette in Bishan that was sold at close to $1 million, the home came with a roof terrace, which is rare for public housing, said ERA Realty key executive officer Eugene Lim. "There are not many of such units (that come with a roof terrace). So they are a highly sought-after commodity," said Mr Lim. "But the majority of transactions are not like that".

He noted that homes in "hot areas" - such as Bishan, Toa Payoh, Queenstown and Marine Parade - generally see buyers who are willing to fork out top dollar. But in other areas, prices are far more moderate.

"So what you see (for these homes that are sold at over $800,000) is top-of-the-range pricing. If you draw a bell curve, they will be right at the top, but they are not reflective of the general market."

According to an SRX report issued yesterday, the median resale price of homes in Bishan compiled on Aug 5 was $520,000, and in Marine Parade it was $532,500. The median resale price of HDB apartments in Queenstown was $517,500.

In contrast, homes in Ang Mo Kio fetched a median resale price of $398,000, while for those in Bedok it was $412,000.

When it comes to median cash over valuation (COV), Bishan homes had a $47,000 cash premium, based on data compiled on Aug 5, said the SRX report. In Marine Parade, this was $45,000, and in Queenstown, $38,944.

Houses in Ang Mo Kio and Bedok registered a median COV of $30,000.

Source: Business Times – 8 September 2012

 

Freehold Mt Elizabeth condo sold for $92.2m

The freehold Chateau Eliza on Mount Elizabeth is being sold through a collective sale for $92.2 million to Newfort Realty Pte Ltd, a consortium of private investors.

The price works out to $1,743 per square foot per plot ratio (psf ppr), assuming Newfort redevelops the 17,997 sq ft plot into a new project that matches the existing development's gross floor area (GFA) of 52,887 sq ft.

The site can potentially be redeveloped into a boutique residential development comprising more than 70 apartments averaging 800 sq ft each. The breakeven cost is estimated to be between $2,400 and $2,500 psf.

As for Chateau Eliza, its existing GFA figure reflects a plot ratio of 2.939 - higher than the 2.8 plot ratio for the site under 2008 Master Plan. No development charge (DC) is payable if the new development is built up to the existing GFA.

However, if the developer were to build an additional 10 per cent GFA for balconies, taking the total GFA to about 58,176 sq ft, it would have to pay a DC of about $4 million, translating to a unit land price of $1,654 psf ppr based on Newfort's acquisition price.

Chateau Eliza currently comprises 37 residential apartments with unit sizes ranging from 829 sq ft to 3,337 sq ft.

With the sale, each Chateau Eliza apartment owner stands to receive gross sales proceeds of between $2.08 million and $6.26 million. The completion of the sale is subject to Strata Titles Board's approval.

Source: Business Times – 8 September 2012

 

Property fund buys former convent

Home-grown property fund management outfit Lucrum Capital has bought the former CHIJ St Joseph's Convent premises at Hillside Drive off Upper Serangoon Road for $34.4 million.

Lucrum's purchase price works out to $422 per square foot based on a land area of 81,467 sq ft. The property is being sold on a 103-year leasehold tenure by its registered owner, The Lady Superior of the Convent of the Holy Infant Jesus in Penang, BT understands.

The church holds 999-year leasehold title on the site starting December 1878.

On site are the former school premises, which are thought to be around 70 years old but which have been vacant when the school moved to Sengkang around 10 years ago.

When contacted, Lucrum Capital director David Batchelor said the property will be a "rental income play". The plan is to stick to the property's current "education" use. Lucrum is mulling whether to spruce up the building and lease it out for rental income or to redevelop the site and build a new structure on it to be leased out for educational use.

However, market watchers say that under Master Plan 2008, the site is zoned for residential use with a 1.4 plot ratio (ratio of potential gross floor area to land area). This means that the plot can be redeveloped into a private residential project up to five storeys, subject to payment of a development charge (DC) to the state for the change of use.

Based on a conversion to residential use, Lucrum's purchase price would translate to a unit land price of $648 per square foot per plot ratio (psf ppr) including an estimated DC of $39.5 million.

Lucrum made the headlines earlier this week when it teamed up with Wee Hur for a $590 million purchase of Thomson View Condominium through a collective sale.

The price reflects a unit land price of $712 psf ppr, taking into account two premiums payable by the site's developers to the state - a differential premium to tap a higher plot ratio and a lease upgrading premium to top up the site's lease from a balance term of 62 years to 99 years.

Thomson View Condo sits on land area of 540,314 square feet along Upper Thomson Road (opposite Thomson Plaza). The site is zoned for residential use with a 2.1 plot ratio and 24 storeys maximum height under Master Plan 2008, and is close to the recently announced Upper Thomson MRT Station under the upcoming Thomson Line.

Market watchers say the $712 psf ppr unit land price for Thomson View Condo is close to the $720 psf ppr that a UOL Land-Singapore Land joint venture paid at a state tender last month for the neighbouring 99-year leasehold condo plot at Bright Hill Drive.

Source: Business Times – 8 September 2012

 

Property bubble? Read the numbers

Property prices tend to rise faster when the gap between real GDP growth and interest rates is bigger. There were eight years when the URA private property index chalked up double-digit growth in real terms (that is, net of inflation). Those years were 1989, 1991 to 1994, 1999 and 2007 and 2010. In those eight years, real GDP growth was higher than real interest rates by an average of 8.4 percentage points. The median was 7.4 points.

So, looking back, the big property bubble of 1993 and 1994 was caused by too low a real interest rate. In 1993, real GDP growth was a blistering 11.5 per cent while the real interest rate was a mere 0.6 per cent. In 1994, real GDP surged 10.6 per cent, while the real interest rate was zero.

The next big jump in property prices was in 1999. But that was more a result of a rebound following the plunge during the Asian financial crisis in 1997 and 1998.

The next bubble came in 2007, when property prices jumped 29 per cent in real terms. But that bubble was pricked by the global financial crisis in 2008.

In 2010, recovering from the global recession, Singapore's real GDP shot up 17 per cent. But in a bid to resuscitate the US economy, the US Federal Reserve flooded the world with liquidity. In that year, inflation in Singapore was 2.8 per cent while the one-year interbank rate was 0.625 per cent. Consequently, we had a negative real interest rate; that is, you lose money by keeping your cash in the bank. The amount you take out a year later will buy you less than at the time you put the money in the bank.

So again, money found its way to the real estate sector and the property index went up 14.4 per cent net of inflation that year.

But having experienced how painful it was to cope with the aftermath of a massive property bubble, the government was quick to act in 2010. In August that year, it announced measures to cool the property sector. More measures were introduced in 2011 and in 2012. As a result, private property prices edged up only 0.6 per cent in real terms in 2011. Net of inflation, property prices have actually slid so far this year.

So the question is: do we have a bubble now?

One, after adjusting for inflation, the private property index is still below the peak registered in 1996. As at end-2011, the inflation adjusted index was 131 points compared with 140 points back in 1996.

Two, the STI has been more volatile than the property index. If we start both indices at 100 in 1987, the property index reached 292 points at the end of 2011, while the STI was at 237. Again, both indices have been adjusted for inflation.

Three, during that period, real Singapore GDP grew significantly. From a base of 100, it expanded to 487 points by 2011.

Falling affordability

But even if income tracked property price increase, affordability can still fall. A 10 per cent increase in property price - because of its bigger quantum - would need multiple times of income increase for affordability to remain unchanged.

For the median household, it would require 37 months of income in 2000. But this fell to around 30 months between 2001 and 2005. It then surged to 38 months in 2007, and is now at 37 months.

For households in the 70th to 80th income percentile, some 20 months of income is required for the downpayment - that is, under two years. It started at 21, fell to a low of 16.7 in 2005 and is now at 20.4 months. A condominium is used in this example. And its price is arrived at by assuming a 100 square metre condo, based on the median per sq m price as listed by URA statistics.

It would take 12 years of their entire household income for a median-income family to pay off their outstanding loan. This compared with 6.7 years for a household in the 70-80 percentile.

In terms of monthly mortgage payment, the 70-80 percentile income household would have to put aside 30 per cent of their monthly income to service the housing loan. One-and-a-half percentage points are added to the interbank rate to arrive at the housing loan rate.

But what if interest rates were to rise? Based on the numbers, housing loan rates would have to climb to 4.5 per cent before real estate investors with an 80 per cent loan would lose money on their investment - as long as current rental yields hold up. Not a big margin. But at a real interest rate of minus 4.6 per cent and with no sign of nominal rates rising any time soon, perhaps putting money into property is as rational an option as one can find. Barring, of course, any further property cooling measures from the government.

Source: Business Times – 8 September 2012

 

Resale prices, rents rise for private and public housing

Resale home prices and rents have climbed across the board after a lull in July, according to data out yesterday.

The public and private segments both posted strong showings, and indicate that the third quarter might be a more buoyant one for the property market.

Private resale prices were up 4.5 per cent last month over July.

This puts the average resale prices in July and last month at $1,134 per sq ft (psf), 1.2 per cent more than $1,121 psf in the second quarter.

Condominium rents increased by 2.4 per cent in the same period.

The same positive sentiment was seen in public housing, with overall median Housing Board (HDB) prices increasing by 1.8 per cent to a record $448,000.

Median monthly HDB rents gained 4.3 per cent to $2,400, after holding steady at $2,300 in the last four quarters.

Experts say that interest in the resale market has returned as potential buyers scout for alternatives in the light of sky-high prices at developer launches. Some of these new launches have also lifted the prices of resale homes in surrounding estates.

Third quarter prices might increase by 2 per cent to 3 per cent as sentiment improves on the back of the "improving big picture". There was more clarity in the euro zone crisis, while the improving stock market is increasing confidence in the property sector.

But ERA Realty key executive officer Eugene Lim expects prices to rise by just under 1 per cent this quarter, dampened slightly by the Hungry Ghost Festival. "Things are moving, but the market is not buoyant. Don't expect prices to run away," he said.

Private home prices were mostly flat in the first six months this year, while HDB resale prices gained 1.9 per cent, said the Urban Redevelopment Authority.

Source: The Straits Times – 8 September 2012

 

It may not pay to invest in shoebox units

A recent report has identified hot spots across Singapore for "shoebox" homes but has questioned the viability of these tiny homes as investments.

Even before the Government's move this week to restrict the ballooning number of shoebox units outside the central area, market experts were raising a red flag.

These homes of less than 50 sq m used to be mainly in the central areas, but many small studio apartments are now springing up on the outskirts.

An analysis by Maybank Kim Eng found that the highest number of new shoebox apartments has been sold in Bales-tier, MacPherson and Geylang. Since 2005, 2,401 tiny homes have found buyers in these areas.

This is followed by the city and south-west areas with 1,371 units, and the East Coast area with 1,359 units changing hands.

The stock of completed shoebox units is expected to reach 11,000 units by the end of 2015, with 3,800 of these in suburban areas, the Urban Redevelopment Authority said.

Experts note that while shoebox units with affordable price tags, typically less than $1 million, are usually bought for investment, those in suburban areas might not pull in rental yields similar to centrally located units'.

The Maybank Kim Eng report noted that rental yields in central areas may not be representative of potential yields in suburban areas.

The lack of transactions of completed units in the resale market could also suggest a certain level of difficulty in realising capital gains on shoebox units, it added.

However, data found that rental yields for shoebox homes in suburban areas were 4.77 per cent in the second quarter of the year.

This is comparable to the yields of 4.75 per cent for shoebox units in the city centre and 4.86 per cent for similar units in the city fringe regions.

But experts say these yields might not hold in the long run as a slew of new suburban shoebox units get built.

Of the 11,000 shoebox units, 2,200 units will be in the city centre and 5,000 units are set for the city fringe region.

As the completions gain momentum, yields are likely to be compressed across the board but suburban shoebox units far from MRT stations and amenities are likely to be the most vulnerable.

Suburban areas will also see tens of thousands of private homes completed in the coming years and shoebox units will face stiff competition for tenants. Rents for central shoebox units are expected to fall by about 1 to 2 per cent in 2014 while those in suburban areas will see larger drops of 6 to 7 per cent.

Source: The Straits Times – 8 September 2012

 

Condo cluster in the east still attracting buyers

It is one of the older condo clusters around but Bayshore Park, Costa Del Sol and The Bayshore just off Upper East Coast Road are still attracting buyers - even without an MRT station nearby.

There is plenty to attract, from the impressive sea views many high-floor units enjoy to the quiet, private surroundings, the proximity to the beach and the rental potential.

The nearest MRT and bus interchange is in Bedok. There is an upcoming Eastern Region Line, slated for completion in 2020 at the earliest. Details of station locations have not been disclosed yet.

Resale activity in the enclave has been "consistently fairly active" in the past two or three years.

And 30 to 50 units were transacted in each quarter during 2010 and 2011. There has been a slowdown in resale activity since, but that is in line with islandwide trends.

Whether or not sellers reaped profits depends on the time of purchase. But generally, those who held on to their units at The Bayshore and Bayshore Park for at least two years saw a price increase of at least 15 per cent, while owners at Costa Del Sol would have made at least 18 per cent.

Broadly speaking, prices at the condos are about 5 per cent higher than those in nearby Upper East Coast Road.

Rents ranged from $3 to $3.80 per square foot (psf) a month in the first six months of the year. Rents tend to be lower at The Bayshore, where the sea views are blocked.

Larger launches in areas like Punggol and Pasir Ris may have diverted interest away from the Bayshore cluster.

Source: The Straits Times – 8 September 2012

 

Property buyers, mind that lease

When investing in private property, I hold the notion that freehold is best and 99-year leasehold is to be avoided, but this view has been tested in recent years.

Values for many leasehold properties are holding up well and some are even outstripping that of similar freehold developments, so the old certainties do not always apply.

Freehold is not a universal concept either. Residential land in China is typically sold with tenure of 70 years and only 50 years in some cases in Hong Kong.

Australian property is mostly freehold while in Britain, it can vary from freehold to leasehold.

Having a longer tenure means freehold commands a premium to leasehold. On that score, since rents would not differ that much, the higher yields for a leasehold property are one factor in its favour.

But leasehold properties here have also kept their value well in recent years.

For example, the leasehold project The Sail sells for around $2,000 per sq ft (psf). Recent transactions at Caribbean at Keppel Bay show that units were going at around $1,500 psf, with some going for even higher prices like $1,800 psf.

Contrast that to the more than 900-year leasehold properties in the prime River Valley area where transactions for Valley Park and Aspen Heights hover around the $1,500 psf range too.

Of course, no two projects are alike. The latter two I cited are older but they are large plots of land, offering a range of facilities for residents. They are even candidates for collective sales, something that should help to prop up their value.

In recent years, it has been proximity to MRT stations that gives a fillip to values, even if they are leasehold projects.

Last week, the Government launched a residential site for sale where developers have an option to bid for a 30-, 45- or 60-year lease period. The site offers the option of building retirement housing.

However, as home buyers are familiar only with tenures that are 99 years, freehold or 999 years leasehold, there would be less clarity about the pricing of projects with other lease periods.

Applying straight line depreciation, the value of land erodes by about 1 per cent a year for a 99-year leasehold site and 1.7 per cent a year for a 60-year lease.

After 20 years, the difference is starker. The land value would have depreciated by 20 per cent for the 99-year site and 34 per cent for the 60-year site.

In any case, with a project's pricing subject to many factors such as location and design, it is not clear if that full difference will eventually be reflected in the selling price. All it takes is for developers to price their projects just a tad lower and property agents to trumpet the attractive yield before investors may jump on the bandwagon.

Source: The Straits Times – 9 September 2012