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Thread: Property 2009 - The Business Times Supplement

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    Published March 26, 2009

    Sifting for gems


    There's nothing like a quiet property market to start looking for that dream house. Or to begin doing research on buying that investment property which can turn into a cash cow to help see one through the golden years. With attractive loan packages offered by banks and interest absorption schemes extended by developers, some potential home buyers may find they can make the numbers work for them.

    Tenants may also look forward to renewing leases at more earth-bound rental rates, whether it's for condos or prime offices.

    But do your homework before getting carried away with the euphoria of wanting to strike a good deal with your landlord. Office occupiers in particular will have to take into account considerations like pressures to cut costs immediately even though the leases may expire only next year. A mutually beneficial lease restructuring could result in a win-win situation for both tenant and landlord.

    And for those eyeing overseas properties, a mix of price declines and currency movements could make an appealing cocktail. For instance, London residential real estate prices have fallen 20-30 per cent from the bubble heights in late 2007. Combined with a weak sterling, prices for Singaporeans and other foreign investors are at 40 to 60 per cent discounts from the top.

    Articles in this supplement should provide you some guidance in your quest to unearth real estate gems during this slump.

    Of course, it would be wise to adopt an investment time-frame of at least five to seven years. As even some veteran developers advise from time to time, buying a property should be a long-term commitment, not a short-term flip motivated by prospects of reaping overnight gains. This lesson is being learnt all too painfully once again.

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    Published March 26, 2009

    Sniffing out buys in the mass market

    CHUA CHOR HOON and LIM HUI LING compare the current situation with past downturns to gauge where we stand today in terms of oversupply and time to recovery

    WITH the economic downturn, the residential market landscape has changed as developers shrink the size of units and offer steeper discounts to lure cautious buyers while banks tighten credit. So how will this downturn play out?

    We compare the current situation, particularly in the mass market segment, with past downturns to gauge how prices are likely to perform and when recovery will be in sight.

    The mass market segment has proved to be less volatile than homes located in the prime districts of 9, 10 and 11 - on the way up as well as on the way down. While average prices of luxury homes rose 66 per cent during the property bull run in 2007, average prices of three-bedroom leasehold homes outside the prime districts only rose 27 per cent.

    Gentler declines

    Similarly, on the way down, mass market homes have seen gentler declines compared with higher-end condos. Last year, prices of luxury homes fell 30 per cent while average prices of non-landed three-bedroom leasehold homes outside the prime districts fell just 8 per cent to $560 per square foot as at end-2008.

    The average prices of homes outside prime districts as at end-2008 are 33 per cent higher than the trough prices in 1998 and 27 per cent higher than the trough prices in 2003. However, they are 25 per cent lower than the peak in 1996 and 11 per cent lower than the peak in 2000.

    The extent of price fall, while dependent on economic performance, also depends on supply in the private residential market. Based on Urban Redevelopment Authority (URA) numbers as at end-2008, an average of 11,626 private housing units a year are scheduled for completion in the five years from 2009 to 2013. This is 34 per cent more than the annual average of 8,671 units in the last 10 years (1999 to 2008).

    However, the overall housing supply is much less compared with the level in 1998 which saw a supply glut in the public housing market. Around 31,600 public housing flats were completed each year between 1996 and 2000 compared with about 5,000 units completed annually in the last five years. To avoid over-building of flats, the Housing Development Board (HDB) had put in place the build-to-order (BTO) system in 2001 to provide the main supply of new flats.

    Under the BTO system, construction will only start when a majority of the units have been booked and buyers would have to wait three to four years for the flats to be completed. HDB's stock of unsold inventory is now estimated to be at a record low of under 1,000 units. Hence, the limited supply of new HDB flats will provide some support for the public housing resale market. This, in turn, should help hold up prices of mass market private homes.

    The strong demand in the HDB resale market is closing the price gap between HDB flats and non-landed private homes, especially those in the suburban areas. However, there is room for the price gap to narrow further based on historical trends.

    The price premium of private homes over HDB flats rose sharply in 2007 to unsustainable levels and will narrow as the private property market declines more steeply than the public housing market. Prices of HDB resale flats are likely to decline as the economy contracts further. The moderating rate of increase in the HDB resale price index and declining demand in Q4 2008 are signs of a weakening HDB resale market. Some HDB resale flats have already transacted below valuation this year. In this bearish scenario, private property prices would be further depressed. In Q1 2009, developers have already cut prices of new leasehold projects by 5-10 per cent.

    So how long will this downturn last? The previous downturns lasted 2.5 to five years. While the property market saw a quick recovery after the 1998 Asian financial crisis, the recovery was slow after the 2001 Internet bubble burst, being compounded by a spate of adversities - the Sept 11, 2001 terrorist attacks, the Iraq war in 2003 and the Sars epidemic in 2003. The current downturn in the private residential market started only four quarters ago and is unlikely to bottom this year as the economic outlook is deteriorating. As to the timing and speed of the market's recovery, that will hinge on the economic recovery of the major developed nations.

    Going forward, developers are expected to resize the units of developments that have yet to be launched to make them more affordable. This would be aided by declining construction costs which would lower total development costs.

    Purchases under IAS

    Developers continue to offer an interest absorption scheme (IAS) which is similar to the deferred payment scheme (DPS). Under the IAS, buyers sign up for a loan with a bank but won't have to fork out any cash other than the 20 per cent downpayment until the project gets its Temporary Occupation Permit (TOP). Although buyers may find it attractive not to have to make any progressive payment or service a loan before TOP, they should be aware that they may have to pay a premium of around 3 per cent under the IAS.

    In addition, they would usually be locked into the loan for two years under the scheme. So complications could arise should they need to sell their property within the lock-in period.

    Meanwhile, those shopping around for a property now should keep this checklist in mind:

    # Purpose (whether it is for own stay or investment)

    # Holding period

    # Budget

    # Preferred location

    # Surrounding environment

    # Proximity to workplace, school and amenities

    # Accessibility to expressways and public transport nodes

    # Rental yield/resale value (especially for investment)

    # Reputation of the developer

    # Design of building and unit layout.

    While one naturally prefers to buy at the bottom of the cycle, this is harder to do with property than with stocks as each unit and project is different. The unit you want may not be up for sale when prices are at their lowest.

    And there are a range of personal decisions that cannot be perfectly timed with the market cycle. For instance, newly married couples setting up home, parents moving closer to their children's schools, foreigners buying for their children who are studying in Singapore, etc. In addition, a home buyer with a longer holding period is more prepared to ride out the down cycle.

    A home buyer should work out his budget to ascertain if he can afford to service the mortgage even in the worst-case scenario. A general guide is that the monthly mortgage payment should not be more than 40 per cent of monthly household income. But in these uncertain times, it would be more prudent to consider a lower monthly mortgage service ratio. The key at this point is to buy within one's means.

    Chua Chor Hoon is senior research director, DTZ; Lim Hui Ling is senior research analyst, DTZ

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    Published March 26, 2009

    Soft market, hard-nosed investments

    Keep a sharp eye on cashflow when buying an investment property and it could turn into a cash cow later, advises PETER OW

    IS this the right time to buy? That's the question we are often asked these days - obviously by people who have managed to sidestep the worst of the current crisis and have the spare cash to consider buying property.

    Importance of location: Areas with potential for capital appreciation are those the government has earmarked for major projects and has undertaken to spend millions of dollars on infrastructure or developments, such as the Jurong Lake District (above) or One North

    While Singapore has gone through recessions before, this time around the general feeling is that the downturn could last longer than usual. As such, nobody can accurately call the bottom of the property market or figure out when it will start to recover. This uncertainty increases the challenges for those who are trying to time the market. To help home buyers along, we highlight some factors they should consider as they go house hunting.

    # Timing. Everyone wants to buy low and sell high but in reality, very few of us can catch the bottom or the peak of the market. Even the experts are not always successful! When buying for your own occupation, the timing of the purchase is not the single most important factor. Rather, it is finding a property that fits your needs, be it in terms of location or design. The current soft property market has presented many good buying opportunities because prices have fallen significantly.

    No one can pin-point the day when property prices will hit bottom. Very often we realise that the market has bottomed only after we have passed that point.

    Unlike other assets such as shares and gold, real estate is a heterogeneous product. No two properties are perfectly identical. If you find a property that you really like but delay the purchase in the hope that the price will fall further, you may discover that it is no longer available. For investors, now is the right time to start looking and to take advantage of negotiable deals.

    # Location, present environment and future potential. Regardless of market conditions, location is still the most important factor when buying a property. All homebuyers should start looking out for property launches in their target area, as project launches in some locations are few and far between.

    Property prices in certain locations may have upside potential if new projects or infrastructure are going to be developed in the vicinity. For example, if a major new university were to start operating in a certain location, there would be higher demand for leased accommodation in the surrounding area from students and foreign staff.

    For investors looking for rental income and capital appreciation, it is important to study what potential a location offers. Carefully sieve for projects that are close to MRT stations as these properties would be the most rentable. One should also look at the potential of the location. Similarly, an up and coming business park will have the same impact.

    Other areas with potential for capital appreciation are those districts where the government has drawn up big plans and has undertaken to spend millions of dollars on infrastructure or developments such as the Jurong Lake District or One North.

    # Price. In a soft market, buyers have the upper hand and this is the best time to get a good deal. However, one still needs to do some homework to become familiar with prices in the surrounding area. Bankers these days tend to be conservative, so if they can give you a loan or valuation that matches your purchase price, you can be assured that the property is priced reasonably.

    However, be careful not to over-stretch your budget. And make sure that your bank can provide you the financing before you pay a deposit or the option money.

    # Cashflow. Planning your cashflow is critical as we do not know how long this recession will last. Using history as a guide, the last two downturns in 1986 and 1997 saw a recovery after two years of falling prices. Do not use all your cash upfront to pay for the property; instead, set aside enough cash or CPF funds to service the loan for the next two to three years. This is a defensive strategy that ensures your ability to service the loan even if you are unlucky enough to lose your job at some point.

    In a situation where you have the funds but they are not immediately available (for example, enbloc sale proceeds have yet to be paid, a fixed deposit that has not matured), or you prefer to keep some cash for a rainy day, you can opt to buy a new property under the interest absorption scheme. Most developers are offering the scheme. It is similar to the now- defunct deferred payment scheme, where a buyer can defer paying the mortgage until the development is completed. This is especially useful if one is tight on cash and would need to sell the existing home to help pay for the new one.

    # Time-frame. Speculative activity is definitely not advisable with so much market uncertainty. Instead, one should take a longer-term view as the market will ultimately recover. A five-to-seven-year investment time-frame will allow you to experience recovery in the property market and reap some handsome gains. One should also have a longer investment horizon so that in the event of limited capital appreciation, one can still rent out the property.

    A down market offers the best opportunity to look for a good buy. Just be careful about cashflow. And when the economy recovers you are likely to find yourself sitting on a cash cow.

    The writer is executive director (residential) at Knight Frank

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    Published March 26, 2009

    Tenants get to call the shots

    With rents island-wide falling, tenants of residential properties now have more bargaining power. PATRICK LAI and AVIN SEOW offer advice to bargain-hunters.

    RENTS in the private residential market began to fall from their peaks in 2008 even as the year saw strong leasing activity, with the highest leasing volume on record of 35,125.

    Prime homes: Exclusivity and location are still key factors in commanding good rentals. (Above) the 73-unit Scotts Highpark located on Scotts Road

    The strong momentum in leasing in the third quarter continued into the final quarter of 2008, with more than 8,890 leasing transactions recorded, surpassing the seven-year average of 6,695. The buoyant activity, however, failed to ease downward pressure on rents as market conditions deteriorated at an unexpected pace, especially in the last quarter of 2008.

    As such, the fourth quarter saw a 5.3 per cent slide in the overall rental index for private residential properties quarter-on-quarter, representing the steepest quarterly drop since Q1 1999. Still, compared with a year ago, rents island-wide were 2 per cent higher at end-2008.

    According to the Urban Redevelopment Authority (URA), average rent for the Rest of Central Region (RCR) in Q4 fell by 5.9 per cent quarter on-quarter to $2.80 per square foot a month, while those in Outside Central Region (OCR) declined 4.3 per cent to $2.10 psf a month.

    On a year-on-year comparison, however, both regions managed to post positive growth, with OCR registering a rise of 2.1 per cent and RCR of 0.8 per cent.

    Meanwhile, rents for high-end, non-landed private residential properties tracked by Savills continued to trend lower in Q4, with a quarter-on-quarter drop of 4.9 per cent to $5.34 psf a month. This was the third successive quarter of decline, and the biggest quarterly drop since Q1 2003.

    What then does 2009 hold for tenants and landlords?

    Rents island-wide are likely to moderate further with prime rents easing by 15 to 20 per cent over the year in view of the strong housing supply (about 10,400 units) coming on-stream this year and the potential return to the market of rental units from en-bloc developments, on the back of anticipated weakening in leasing demand.

    About 30 per cent of the new homes entering the market this year will be in the prime districts. It is anticipated that a flight to quality will ensue. Tenants who were previously priced out of the prime districts may return as rents fall to more affordable levels. Savills expects more local movement this year which could be as high as 50 per cent. Prominent prime projects due for completion this year include the 545-unit Rivergate, the 275-unit One Jervois, the 264-unit The Oceanfront @ Sentosa Cove and the 249-unit The Coast @ Sentosa Cove.

    The year ahead bodes well for tenants who now have more bargaining power. A wider selection of rental homes means tenants can now negotiate for better terms such as flexible lease periods and more competitive rents. Tenants could therefore enjoy relatively lower rents at sought-after luxurious developments which were previously beyond their budget. For example, a unit at Ardmore Park which used to fetch about $20,000 a month more than a year ago is now asking for between $15,000 and $18,000 a month. Similarly, asking rents for 2,100 sq ft units at St Regis Residences have slid from between $16,000 and $17,000 a month to between $10,000 and $12,000 a month.

    At the same time, tenants with smaller budgets will continue to find condominiums located at the city fringe more affordable. For instance, average rents in District 15 (Katong, Marine Parade and Siglap) stood at $2.65 psf a month in Q4 last year, down by 9.2 per cent from the previous quarter and 6 per cent year-on-year. Other city fringe areas like Districts 5 (Buona Vista, Dover, Pasir Panjang and West Coast), 7 (Beach Road) and 8 (Little India and Farrer Park) also saw similar declines of at least 5 per cent.

    While it appears to be turning into a tenants' market, here's a gentle word of caution to those who might be carried away by the euphoria of striking a 'good' deal. Tenants would be well advised not to be too hasty in committing to a lease. We have some pointers below to safeguard their interests:

    # Conduct an ownership search to verify that the rental property belongs to the landlord;

    # If possible, meet the landlord in person before signing the tenancy agreement;

    # Check for mortgagee's consent to ensure that consent is given to allow tenant's occupancy of the premises;

    # Obtain a 30-day defect liability period from the lease commencement date.

    As for landlords, the competition for tenants will heat up this year. Here are a few tips to increase the possibility of leasing out their units and securing a good rent:

    # Engage professional and experienced real estate agents to market the property. This is to tap the agent's experience and clientele;

    # Be open to one-year leases as this is a growing trend due to rising concerns about job security and potential home-buying opportunities during the downturn;

    # Include 'extras' such as quality curtains and blinds, kitchen appliances, etc;

    # Provide a copy of the floor plan where available, for reference.

    Landlords of studio and one-bedroom apartments may find them easier to let out since the rent quantum is affordable due to their smaller size. Such tenants would tend to be young expatriates, singles or newly-weds who may have smaller budgets or are unwilling to commit to a home purchase due to the expectation of further price weakening.

    Ultimately, exclusivity and location are still key factors in commanding premium rentals. Well-located and niche projects that boast lower density living and high-quality fittings should still attract a premium. For instance, the 73-unit Scotts Highpark located on Scotts Road offers large interior living spaces with private lifts and lush sky gardens on every fourth floor. Conversely, projects with a large number of units may face stiff leasing competition which may then lead to a price war, thereby exerting downward pressure on rents in the development and ultimately the neighbourhood.

    Patrick Lai is associate director, corporate residential leasing, and Avin Seow is analyst, research & consultancy, Savills Singapore

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    Published March 26, 2009

    Toasting to a healthy HDB market

    The Housing Board market holds the key to the longer-term prospects of mass market private condominiums, says EUGENE LIM

    NEW private home sales in Singapore surged in February to an 18-month high of more that 1,000 units, after hitting an all-time low of 104 units in January.

    In demand: The top-selling HDB estates include Woodlands, Jurong West, Hougang and Punggol (above) where most resale flats sold are priced in the $250,000-$450,000 range

    Some 80 per cent of the buyers who snapped up units in projects like Caspian and The Quartz have HDB home addresses, as ERA has observed. Of these buyers, 94 per cent are Singapore citizens and permanent residents. Typically, they are dual-income households earning $8,000 to $12,000 a month. Most of them are in the 35-45 year age group and have one or two children. These HDB upgraders are buying for their own occupation rather than for investment or speculation.

    Indeed, this recent surge confirms the trend shown by data from the Urban Redevelopment Authority's Realis that HDB upgraders' contribution to total private home purchases rose from 22 per cent in 2007 to 36 per cent in 2008. That's the highest level in four years.

    With some 80 per cent of Singapore's population living in HDB flats, the aspiration to upgrade to private residential property remains strong. The main reason for buying a private property is to upgrade their lifestyles.

    Let's look at some contributing factors that are enabling the HDB homeowner to upgrade to private residential property.

    Resale prices

    From a modest 2 per cent increase in 2006, the HDB Resale Price Index went up by 17.5 per cent in 2007 and 14.5 per cent in 2008. That means prices have risen by some 34 per cent over the past three years.

    After an average quarterly rise of 4.1 per cent in the first three quarters of 2008, HDB resale prices slowed to a 1.4 per cent increase for Q4 2008, primarily due to a temporary mismatch of price expectations between buyers and sellers. Nonetheless, with this moderate increase, the HDB Resale Price Index has hit a new peak at 139.4 points, and is now higher than the previous peak in Q4 1996 by 1.8 per cent. This means HDB homeowners who bought their flats during the last peak can now resell the flats at prices equal to, if not higher than, what they had paid for them.

    Over the past three years, the rise in HDB resale prices was fuelled primarily by demand from a mix of upgraders, downgraders and the increasing population of permanent residents (PRs). Those who are financially stable upgrade to larger flats while those facing financial constraints have been downgrading to smaller flats. The government's push to raise the population to 6.5 million is steadily increasing the pool of PRs, and they typically buy their HDB homes from the resale market as they do not qualify to buy new flats directly from the HDB.

    Most HDB upgraders to private condominiums tend to own four- or five-room flats. Currently, four-room flats account for 37 per cent of total resale transactions while five-room flats account for 26 per cent. Three-room and executive flats account for 29 per cent and 8 per cent respectively. We expect the proportion of four- and five-room flats sold in the resale market to remain constant for the rest of the year. However, the ratio for three-room resale flats may rise to 32 per cent while the market share for executive flats may fall to just 5 per cent should the current economic gloom be prolonged.

    The median resale price of an HDB five-room flat is currently $380,000. Assuming the original purchase price from the HDB some five years earlier was $250,000, the homeowner can make a profit of $130,000 upon resale. Similarly, a four-room flat sold at a median resale price of $310,000 today and which had been bought for $190,000 would result in a $120,000 profit on resale. This profit would help the homeowner make the downpayment on a private property.

    Going forward, HDB resale prices are expected to stabilise as sentiment may be affected by the gloomy economic environment. Also, buyers have been resisting high cash-over-valuation (COV) transactions and this trend is expected to continue as homebuyers rein in unnecessary cash expenditure. Median COVs for various flat types are now $15,000 (three- and four-room); $11,000 (five-room) and $12,000 (executive); quite a shade lower than the Q4 2007 market high of $18,900 (three-room); $22,000 (four-room); $26,000 (five-room) and $33,500 (executive).

    Quarter-on-quarter, we may continue to see sub-one per cent price increases as the market finds its footing. If the current crisis worsens, buyer resistance may intensify and HDB resale prices could start to fall. During the 1997 Asian financial crisis, HDB resale prices fell by some 29 per cent over two years from the market peak in Q4 1996 before starting to recover.

    For now, HDB resale prices are stable and we do not foresee any significant downward pressure on prices for the next two quarters, at least.

    Resale volume

    Over the past three years (2006-2008), the HDB resale volume has stabilised around an average of 29,000 units a year. That's an 11.3 per cent drop from the average of 32,700 units transacted a year between 2003 and 2005. This drop in volume is expected as buyers now have more new flats to choose from under the HDB's build-to-order (BTO) system and the Design, Build and Sell Scheme (DBSS) by private-sector developers.

    During this period, the HDB intensified its BTO programme. In 2008 alone, the HDB launched a total of 7,793 units under the BTO system in towns like Punggol, Choa Chu Kang, Yishun, Woodlands and Bukit Panjang. This was the highest in recent years. Just this February, HDB launched another 815 units in Woodlands and will continue to offer more flats of different pricing, sizes, design types and locations to cater to the different needs and budgets of flat-buyers. BTO flats are entry-level public housing targeted primarily at first-time homeowners. They are generally priced between $120,000 and $350,000, depending on flat type and location.

    So far, the HDB has awarded a total of six DBSS sites to private-sector developers, of which five have been launched. DBSS flats are priced higher at between $450,000 and $750,000. Another target segment would be those upgrading from flats originally bought from the HDB as buying DBSS flats exempts them from having to pay the resale levy. DBSS flats are thus in direct competition with mass market private condominiums as they are after the same target market. However, DBSS flats priced in the $650,000 to $750,000 range may prove to be more difficult to sell as their pricing would overlap with entry-level mass market condos that have more appeal due to their private property status.

    Resale volume for HDB flats seems to have stabilised within the range of 28,000 to 30,000 units a year. As these flats are primarily bought by households that cannot wait for new flats to be completed or do not qualify to buy them, we do not foresee the volume dipping below 28,000 this year. The top-selling HDB estates are Woodlands, Jurong West, Tampines, Hougang, Sengkang, Punggol and Yishun where the majority of resale flats sold are priced in the $250,000 to $450,000 range. A stable HDB resale market provides a firm base for upgraders to private property.

    An emerging trend

    HDB rentals have been on the rise over the past three years. Current HDB policies have also made it easy for owners to sub-let the entire flat. Those who bought flats directly from the HDB can obtain approval to rent out the whole flat after they have occupied it for five years. Those who bought from the resale market can rent out their flats after living in it for three years.

    As such, we are seeing a new trend of HDB dwellers upgrading to live in private condominiums while renting out their HDB flats. Currently, the median rent of $1,800 a month for a four-room flat and $2,000 a month for a five-room flat can give their owners a return of 6-7 per cent, based on median resale prices of $310,000 and $380,000 respectively.

    The usual tenants are foreigners working or studying here who do not have a big enough budget to rent private property. Demand currently outstrips supply and those renting out their HDB flats would have an income stream that helps pay the mortgage on their condominium.

    Many believe that the HDB market is 'recession-proof'. With 80 per cent of the population as its base, it has shown its resilience in these troubled times. With the resale transaction volume somewhat stabilised at about 29,000 units a year, resale prices are also expected to hold steady for the rest of the year.

    Buyer resistance is likely to contain further price increases to marginal levels. Resale flats selling at below $500,000 are likely to form the bulk of transactions as those on a budget try to avoid having to stretch themselves financially. Those who can afford it will be looking to upgrade to competitively priced private condominiums, as we have seen recently. So HDB flats priced above $500,000 may take much longer to find buyers.

    A stable HDB market is essential to support the private condominium market, but a healthy HDB market holds the key to the longer-term prospects of mass market private condominiums.

    The writer is associate director, ERA Asia Pacific

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    Published March 26, 2009

    Likely pitfalls in getting a housing loan

    Problems can arise from changes in valuations, deferred payments and loan-approval criteria, warns DENNIS NG

    IF YOU are looking to buy a property, beware of potential pitfalls, including those related to getting a housing loan.

    In the past, most home buyers would pay the one per cent option to secure the property before looking for a housing loan. If you do this now, you might regret it and here's why.

    It has been clear over the past few months that property prices in Singapore have turned down. And with global economies expected to weaken further, the trend for property prices is more likely to be down than up in the months ahead.

    So, even before you put money down on your option, check the market valuation of the property. There have been instances where buyers checked the market valuation of a property with the bank only to get a nasty surprise some weeks later when they finally write out a cheque for the option. That's when they find out that the bank's valuation of their property has gone down.

    Latest valuation

    We know an instance where someone purchased a property for $2 million and then found out some months later that the valuation had fallen by about 10 per cent to $1.8 million. In other words, he ended up having to fork out an additional $160,000 in cash as the bank was only willing to grant a loan of $1.44 million, or 80 per cent of the revised valuation of $1.8 million, rather than the original loan of $1.6 million.

    The buyer could have avoided this pitfall if he had gotten a mortgage broker to check the latest indicative valuation within a few days of buying the property.

    Another problem can arise with deferred payments. In 2007, properties were selling like hot cakes and many people had bought them from developers under the deferred payment scheme. That's where buyers were only required to come up with 10-20 per cent of the purchase price and pay nothing more until the property obtains its temporary occupation permit (TOP) about three years later.

    According to estimates, more than half the buyers who bought property under the deferred payment scheme have yet to apply for a housing loan. In the past year or so, many properties have seen their values fall by 10 per cent to 30 per cent, so when these buyers finally apply for a home loan, they are likely to have to cough up an additional 10-25 per cent of the purchase price.

    For example, someone who bought a property for $1 million in 2007 would see the current valuation of the property drop to about $800,000. In other words, he would probably be able to get a maximum loan of 80 per cent of $800,000 - or $640,000. That's $160,000 extra that he would have to foot in cash or CPF savings. In effect, he is putting up 36 per cent of his purchase price upfront.

    With global stock markets falling further in recent weeks as economic conditions deteriorate, property valuations might drop further. Thus, if you have bought a property under a deferred payment scheme but have yet to apply for financing, I strongly advise you to get financing as soon as possible.

    There are housing loan packages out there which offer free loan conversions. If you apply for a housing loan now and a better loan package comes along when the property reaches TOP, you can always convert to a more attractive package without penalty.

    Getting financing earlier is safer too, should there be any adverse change in a home buyer's financial position, such as a pay cut, or deteriorating credit standing due to delays in paying existing loans. Then, the home buyer might not be able to obtain any financing for his property at all!

    To mitigate the risks of falling collateral value, banks have become more cautious in granting financing for properties. Very few banks are willing to offer 90 per cent financing, and if they do it would primarily be for first-time home buyers.

    Banks are also more stringent in assessing the borrower's ability to service and repay debt. There are instances where property speculators might only obtain financing of 70 per cent for properties bought for investment purposes. For borrowers who have a slightly weaker credit profile, financing might even be capped at 60 per cent of the purchase price or valuation, whichever is lower.

    Prudent step

    To be prudent, property buyers should approach a mortgage broker to help secure a prior bank loan approval before committing to a property. By doing so, you would avoid the danger of being unable to obtain sufficient bank financing for your property.

    The silver lining in all this is that interest rates are also dropping. Over the past year, the Singapore inter-bank offered rate (Sibor) - the interest rate at which banks borrow from one another - has fallen from over 2 per cent to about 0.7 per cent currently.

    If you had taken a home loan one to two years ago, chances are you might be paying an interest rate of 3-4 per cent. It is possible for you to refinance your loan today and end up paying as low as 1.65 per cent, from say, 3.5 per cent. Assuming an outstanding loan of $300,000 and a remaining loan period of 20 years, by refinancing, you might save as much as $5,500 in the first year alone! Even after deducting the cost of refinancing of about $1,000, you are still $4,500 better off.

    Thus, refinancing your existing housing loan now might be one of the best ways to 'create money' for yourself by cutting down on your interest expenses.

    You can also take advantage of cheaper mortgage rates by borrowing more if your property has appreciated from its original price. If you had bought your property a few years ago, chances are its current valuation is still much higher than your purchase price.

    Say, you had bought a property costing $1 million five years ago and have an outstanding loan of $500,000 on it. The current valuation might be $1.5 million. Thus, even if you take out an additional loan of $500,000, bringing the total loan amount to about $1 million, it works out to just 67 per cent of the property valuation and well within the 80 per cent financing limit for a property.

    The good news is that the additional loan of $500,000 comes at a low interest rate of about 2 per cent, which is possibly the cheapest loan a typical consumer can obtain.

    Securing a housing loan has become more tricky with fast-changing circumstances in terms of property valuation and loan-approval criteria. One's financial situation might also change due to pay cuts and threat of retrenchments. So to be safe, get your home loan approved before you commit to buying your property.

    The writer is a Certified Financial Planner with 15 years of experience in bank lending. He co-founded an independent mortgage consultancy portal in 2003

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    Published March 26, 2009

    A good time to shop for office space

    What should tenants look out for in a market where prime rents slid 17.8% in the last quarter of 2008?


    WE have barely turned the page on a turbulent 2008 and are already confronting a 2009 that is shaping up to be equally difficult. Indeed the unremitting flow of grim economic news in recent months has dashed hopes of a quick recovery. While the pain has been intense, there are signs that what we are currently feeling is the worst part of the downturn. Governments around the world have formulated strong stimulatory responses. We are hopeful that these actions will sow the seeds of a robust recovery for the global and Singapore economies.

    Mirroring the broader economic environment, Singapore's office market softened considerably towards the end of 2008. Statistics from the last quarter of 2008 indicated that we are firmly in a tenant's market.

    Cushman & Wakefield (C&W) spot prime rents declined by a sharp 17.8 per cent in the last three months of 2008 to $12.20 per square foot per month while prime vacancy rates increased by 1.1 per cent to 3 per cent over the quarter. The rent drops were led by steep falls in our City Hall-Marina-Bugis and Orchard Road micro markets while the Raffles Place and Shenton Way micro markets fell by a comparatively smaller amount.

    We believe that the sharp declines can be attributed partly to the decisive and pro-active response of landlords to the weakening external environment after the September 2008 financial market turbulence.

    Moving into the new year, our January and February market read shows that the downward momentum in spot rents has not abated across all four of our micro markets. Our overall prime vacancy rate in February also crept up slightly to 4.25 per cent, a 1.25 percentage point increase from our fourth quarter 2008 figure.

    As with the broader economy, we believe we are currently seeing the worst of the rent declines. As leasing activity picks up, we think rent declines will follow the contour of economic growth and show signs of moderation as we progress into the year.

    Turning to supply, we expect a total of 2.4 million square feet of office supply this year and a further 2.6 million sq feet in 2010. A portion of the future supply has been pre-committed. However, some of the pre-committing tenants are either relocating from existing spaces or consolidating operations at the new sites. These pre-committing tenants will leave space behind in their wake.

    On the flip side, we are also now forecasting potential deferments of up to four million sq ft of supply. The vast majority of our forecasted supply deferments were scheduled to come on stream between 2011 and 2013. This would potentially constrict new space choices for tenants starting from 2011. In aggregate, our latest projection calls for a total 7.8 million sq ft of office supply from 2009 to 2013.

    Based on current trends, office rents are therefore likely to see meaningful declines in 2009 before alleviating in 2010. In the context of sharp rent increases in 2006 and 2007, these declines merely represent partial retracement of the gains made in those two years.

    We also think that in view of our forecasts for a significantly lowered supply in 2011-2013, a more stable office market could emerge in 2011.

    In the current tenants' market, what is our advice to tenants?

    From a real estate perspective, this recession is good for tenants. Landlords are now more open to negotiations and prepared to offer concessions. This is, therefore, a good situation to be in for tenants currently looking for new space or renewing their leases. Nonetheless, we would temper rent expectations. Rent concessions would be provided primarily by landlords facing weaker take-ups or significant upcoming lease renewals.

    A tenant wishing to take advantage of the situation must, therefore, be very flexible about location. This is usually not the case. Tenants typically have specific requirements which may justify accepting market or slightly above market rents. This is the reason why commercial real estate advisers usually undertake a detailed analysis of clients' business and business requirements to recommend optimal lease solutions.

    Abundance of options

    The other constraint that tenants face is timing. Leases that are negotiated for a certain time window would typically generate rents appropriate to those time windows.

    The timing constraint also affects tenants whose lease expiries are happening next year but who are under pressure to cut costs immediately. We would suggest lease restructuring for these tenants. A mutually beneficial lease restructuring would see tenants receive immediate cost savings in exchange for providing landlords with greater certainty in the future.

    Turning our attention to possible locations, we note that there will be an abundance of options for tenants in new and existing prime grade buildings both in the Central Area and outside it. Most of this space would be at very attractive rent rates compared to levels in 2007 or early 2008. It really is a good time for tenants to go shopping for office space.

    Given the government's efforts to build up the Marina area as the new downtown, we think tenants looking for premium space should not ignore the Marina Bay Financial Centre development. But there are numerous other attractive options, each with its own unique selling points. We list a few below.

    # 2 Havelock Road (the former Apollo Centre) is a mid-sized development with a typical floor plate of 25,000 sq ft and balconies on every floor.

    # 51 Telok Ayer Street, a development converted from the former China Square Food Centre, has a crystal glass facade and a ceiling height of 3.2 metres, offering prime office space with a spacious feel.

    # Mapletree Anson is a new development which is a two-minute walk from the Tanjong Pagar MRT station with nine-metre high lobbies.

    # Another new development, Straits Trading Building, promises tenants exclusivity, with no more than two tenants per floor. Its location in Raffles Place is another key attraction.

    Besides the non-exhaustive list of new buildings highlighted here, we also see many space options opening up in existing buildings. Apart from the usual turnover of tenants, a new source of space in the current climate is coming from existing tenants sub-letting space that they may have over-committed to in better times.

    Overall, we advise tenants to adopt a longer-term strategic view and take this opportunity to plan their real estate needs in anticipation of the recovery that will inevitably happen.

    Ang Choon Beng is Cushman & Wakefield's director, head of research services (Asia- Pacific); Kelvin Chiang is C&W's associate director, tenant strategies & solutions, transaction services; and Lee Peiying is C&W's research analyst (Singapore)

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    Published March 26, 2009

    What's cool in retail mix

    As shop space multiplies, mall owners could take their cue from trends in more advanced markets to stay in the game, writes SHERENE SNG

    AFTER a lull of years, Singapore will see a spate of new shopping destinations opening for business from this year. First off the block will be Tampines 1 at Tampines Central and iluma at Victoria Street. This will be followed by the Orchard Road malls - Orchard Central, ION, [email protected] and Mandarin Gallery. Close on their heels will be the malls at integrated resorts Marina Bay Sands and Resorts World at Sentosa.

    With tourist arrivals falling in the face of the global slowdown and increasing competition from the new kids on the block, existing mall owners and retailers are under immense pressure to remain relevant. To stand head and shoulders above the competition, they have to study consumer behaviour to know what makes shoppers tick. Increasingly, they have to design malls and offer products that cater to consumers' changing lifestyles.

    Level One at Far East Plaza, The Heeren and Cathay Cineleisure are examples of malls that successfully cater to the young and trendy. Retailers there enjoy brisk sales and mall owners are reaping good returns.

    F&B: Emerging trends

    An emerging trend is the reconfiguration of retail space for food and beverage (F&B) use. Whether they are found inside shopping centres or in independent properties, these F&B outlets are drawing crowds and contributing to the changing lifestyles of Singaporeans.

    Take Dempsey Hill, for example. It is not uncommon for friends to head there after work or on weekends to 'chill'. What attracts them are the abundant dining and wining options, new-to-Singapore F&B concepts, an atmosphere of laidback charm, a choice of dining indoors or al fresco, and quirky shops.

    This trend isn't exactly new. Boat Quay was an early success. However, Boat Quay also shows that owners and operators have to be nimble and sensitive to consumers' changing needs or be overtaken by the competition. Clarke Quay, for instance, is now a more 'happening' place compared with Boat Quay.

    This month, iluma, an urban entertainment mall in Victoria Street, opens for business. This development aims to be a unique attraction with a mix of entertainment, thematic dining as well as shopping spaces. Up to 60 per cent of the floor area will be dedicated to entertainment uses so Singaporeans can look forward to a new destination where they can shop, dine and play.

    How should mall owners respond to the new malls and fresh trends?

    Take the shift to F&B, for example. In older malls, F&B constitutes 10-15 per cent of lettable space. In more contemporary malls, the proportion is 20-30 per cent. Mall owners have to reconfigure their space to meet new demand. This could come from students looking for a place to hang out, young PMETs (professionals, managers, executives and technicians) gravitating to chill-out joints or families sitting down for a meal together.

    Marina Square, Raffles City Shopping Centre and Level One @ Far East Plaza show the results when owners are willing to take a leap of faith, extensively repositioning their malls to create compelling concepts for target customers.

    The concepts take into account interior design, ambience as well as the profile of existing retail tenants. The owners then invite suitable operators to implement the concepts. That these malls continue to be favourite shopping destinations are a testament to their success.

    Going forward, the challenge is coping with the dramatic increase in retail space. As a comparison, from 1993 to the present, total retail space grew from 2.8 million square metres to 3.2 million sq metres. That's an increase of about 400,000 sq metres, or 14 per cent. But in the next two years, 531,000 sq metres of new retail space will come on the market - much more than the total added in the last 15 years.

    In Orchard Road, ION,[email protected], Orchard Central and Mandarin Gallery will contribute 180,000 sq metres. The rest will come from Marina Bay Sands and Resorts World, City Square at Kitchener Road and Serangoon Central.

    The challenge ahead for mall owners is addressing the downward pressure on rents. For the whole of 2008, overall prime retail rentals saw a rise of 0.8 per cent year-on-year. The retail sector performed impressively in the first half of 2008, with prime retail rentals growing by 13.9 per cent compared with 1H 2007. But the trend reversed in mid-2008 when the global financial crisis struck, resulting in a decline in retail rentals in the second half.

    Internet generation

    Given the circumstances, retail rents held up well in 2008. Going forward, however, it is imperative for mall owners and retailers to find creative ways to capture consumer attention and stay in the game. They have to look beyond current needs and prepare for competition of the future.

    They could take their cue from trends in more advanced economies, like Japan and the US, which will shape lifestyles changes in Singapore. One of these changes will be propelled by the Internet generation. The other, as mentioned, is the changing F&B scene. Operators who capitalise on opportunities presented to them as rents face downward pressure may find themselves well placed when the recovery comes.

    The writer is head of retail, Knight Frank Pte Ltd

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    Published March 26, 2009

    Going, going ... to sales by auction

    Owner sales are outstripping mortgagee sales at auctions. Given the transparent process, the lively interest in property auctions and the high probability of a quick sale, this is hardly surprising, says GRACE NG

    IT used to be that property auctions were where distressed assets wound up since banks used them for mortgagee sales, as was the case in the last two recessions of 1985 and 1998.

    But things have changed since, as a growing number of property owners themselves approach auction houses to sell their properties. In fact, owner sales now outnumber mortgagee sales at auctions. The proportion of owner sales has increased from 50 per cent in 1998 to 72 per cent in 2008. In comparison, the proportion of mortgagee sales has declined from 50 per cent in 1998 to just 28 per cent in 2008.

    During the property boom years of 2006/2007, developers like Sentosa Cove and Tuan Sing Holdings successfully conducted auctions on an international level to sell high-end land parcels in Sentosa and several residential units in Botanika, respectively. Not only did these developers achieve record prices, they also attracted a high level of foreign participation and gained good exposure for their projects.

    Singapore's property market has matured over the years, mirroring markets such as Australia where auctions are the most popular method used by owners to sell their properties. Both sellers and buyers here have grown to accept the auction mode of sale as the open bidding system is transparent and efficient.

    One can find a wide variety of properties at auctions today. Properties ranging from mass market apartments at Braddell View, Telok Kurau and Tiong Bahru to high-end bungalows on Sentosa, good class bungalows at Astrid Hill as well as prestigious apartments like St Regis Residences have been put up for auction by their owners.

    Properties under construction, such as those in The Clift, [email protected] and The Oceanfront, have also featured at auctions.

    Besides residential properties, owners and companies have also used auctions to sell shop units in prime locations such as Peninsula Plaza as well as shophouses in popular suburban towns like Ang Mo Kio, Clementi, Tampines and Toa Payoh.

    With deteriorating economic conditions and an expected increase in job losses, the number of repossessed properties is likely to rise in the next six months. Attendance and interest at auctions will continue to be buoyant as buyers look to auctions to find their ideal property. Strong interest is expected in the mass market segment as well as for properties priced around $1 million as upgraders seek out opportunistic buys.

    Despite the lull in the property market amid the global financial crisis, the market is seeing strong buying interest at auctions. However, the sales volume is low due to a mismatch between the expectations of sellers and buyers. A turnaround is likely to take place only when buyers start to perceive that the market has bottomed out.

    Auction houses like Colliers International, DTZ, Jones Lang LaSalle and Knight Frank typically hold one auction a month, usually in the function room of a hotel. It is usual for these auction halls to be jam-packed with potential buyers and attendees, who often spill out to the corridor, with hardly any standing room.

    Serious buyers are flocking to auctions in search of their dream home or to clinch an opportunistic buy from a distressed sale. From just one or two requests received per day from the public to be put on the mailing list last year, auction houses are now receiving an average of five requests a day.

    The strong underlying demand presents opportunities to sellers and buyers alike.

    A public auction ensures that the process is transparent as there is open competition which ensures that the best price is obtained for the property. In a soft market, determining the selling price of a property can be difficult. Hence, companies that want to dispose of their excess properties or re-organise their portfolio can do it through an auction as it satisfies the objective of shareholder accountability.

    If you are an owner looking to sell your property in this lacklustre market, an auction could also be the answer. Auctions generally capture a wider target market given the auction houses' prominent advertisements and extensive database and mailing lists. The publicity and interest generated consequently increase the probability of a sale.

    Moreover, auctions are a quick mode of sale as the sale date is fixed. This is good for owners who need to sell their property quickly to get their finances in order.

    Those who choose to sell their property via auction can expect a higher success rate as the potential buyer would have done his homework and ascertained his financing prior to the auction date, whereas in a private sale, sellers can find themselves in a situation where a buyer has to terminate the purchase because he cannot get the required financing. That's because most buyers approach the banks after they have identified the property they want.

    There's another factor that contributes to the higher success rate - buyers who purchase a property at auction are required to pay a 10 per cent deposit instead of just one per cent in the case of a private sale. And they sign the sale and purchase agreement as soon as the property is knocked down to them. These are deterrents to any buyer thinking of walking away from a sale by forfeiting the option.

    Even if a property fails to sell on the scheduled auction day, the property owner can take the last bid price as the basis for negotiation. This is definitely a plus point compared to a private treaty sale as the seller may not get any offers since many buyers are hesitant to make a commitment.

    Tips for owners wanting to sell in a weak market

    # Be realistic in fixing your asking price. It should be as close to valuation as possible so that potential buyers will be encouraged to make an appointment for a viewing and consequently make a firm offer for it. On the other hand, if they think the asking price is high relative to comparable properties, they will not be interested to view your property.

    Case in point: Seller A wants to sell his apartment in Bukit Timah and has set his asking price at valuation. He receives an offer, which is 8 per cent below the valuation price. After some negotiation, the seller manages to seal the deal at 5 per cent below the valuation price and he is now awaiting the completion of the sale. In this case, a buyer was found within a month of marketing the property.

    On the other hand, Seller B has tagged an asking price that is 20 per cent above valuation for his apartment near Orchard Road. Despite marketing the property for three months, he was not able to attract buyers to view his property and there was no offer to purchase.

    # Ask the auctioneer for advice on the valuation price, comparable asking prices, recent transactions and feedback on the viewing appointments before fixing your reserve price, that is, the minimum price below which you will not sell. This will increase the chances of success.

    # Give the auction house at least three weeks' lead time so that there is enough time to organise the mailing list, advertisements and viewings before the scheduled auction date. The longer the lead time, the higher the chances of success.

    # Determine whether you are selling your property with vacant possession or tenancy and decide on the completion period. Your lawyer will need your instructions to prepare the terms and conditions of the sale. A typical completion period is three months. If you require more time than that, you can discuss fixing a longer completion period with your lawyers.

    Tips for buyers in a weak market

    # Set a realistic budget.

    # Understand that the prices of repossessed properties are still guided by valuation.

    Case in point: An enthusiastic foreigner quipped that in his country, the banks will sell a repossessed property for anything. Failing to understand that the price of repossessed property in Singapore is guided by valuation, he rattled off his wish list for a bungalow in Bukit Timah Road as well as an apartment on Orchard Road and asked to be notified of such good buys.

    # Give realistic counter-offers. Generally, auctioneers are not able to accept a counter-offer that is way below the opening price, for example, one that is 50 per cent below it. A reasonable gauge would be about 5 per cent below the opening price.

    The writer is deputy managing director and auctioneer, Colliers International

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    Published March 26, 2009

    How to participate in an auction sale

    # LOOK out for advertisements in the classified pages as auction houses usually advertise one to two weeks before the scheduled auction date.

    # Alternatively, you can call the auction house and ask to be put on its mailing list so that you are kept posted of the auctions on a regular basis.

    # Call the auctioneer to make an appointment for viewing.

    # Obtain a copy of the property's particulars and conditions of sale, that is, whether it is to be sold with tenancy/vacant possession and the completion period for the sale.

    # Do your homework. Check the valuation figure with the bank and the quantum it is prepared to finance. Some banks have mobile teams who can visit your home and are able to revert within three days with an in-principle approval for your loan.

    # Determine the price that you are willing to bid for the property and discuss it with the auctioneer.

    # Arrive early on the day of the auction to get a seat so that you can bid in comfort. Due to the overwhelming response, latecomers may not be able to get into the auction room.

    # Bring your cheque book and identity card as you have to pay the deposit and sign the sale and purchase agreement immediately if you are the successful purchaser.

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    Published March 26, 2009

    Check-ins dip, so hotels must check out options

    The period of rapid and easy growth is over and the sector now faces the combined pressures of reduced demand and increased supply, writes ROBERT MCINTOSH

    HOTELS in Singapore have witnessed a spectacular performance over the past few years, reaching unprecedented highs in 2008. Singapore hotels reaped the benefits of strong tourism demand, achieving a record in average room rates at $246 in 2008, and garnering a record $2.1 billion in room revenue, a 12.1 per cent increase over 2007.

    Hotel room rates (also called average daily rates or ADRs) have grown at an impressive pace since 2004, with a compounded annual growth rate of over 19 per cent. The strength of this performance is unmatched in many markets, and is testament to Singapore's image as a vibrant destination for both business and leisure. The result is that revenue per available room (RevPAR) grew from approximately $100 to $200 between 2004 and 2008.

    But Singapore's record-breaking run was to end in mid-2008. Since June 2008, visitor arrivals have declined, and as the gravity of the current financial crisis began to unfold, changing consumer sentiment across the region saw travel budgets and plans cancelled or restricted, impacting hotel performance.

    Recent indications suggest that performance in 2009 will continue to weaken. In January 2009, hotel rates declined by an estimated 11.7 per cent year on year, while occupancy levels dropped to 67 per cent (the lowest level since the Sars crisis).

    While the decline in performance may in part be due to the occurrence of Chinese New Year in January, much of it is attributable to the deteriorating worldwide economy and poor consumer sentiment.

    The extent to which falling demand for hotel rooms impacted on different hotel tiers is difficult to determine at this stage. However, in assessing the most recent data in January 2009 compared to January 2008, economy hotels in Singapore saw a 26.8 per cent decline in RevPAR while hotels in the luxury tier registered a drop of 32.4 per cent over the same period.

    This suggests that while all hotels have suffered a considerable decline in RevPAR, the impact is less apparent in the economy sector vis-Ó-vis the luxury market.

    Uncertain future

    Looking forward, there are few signs of the global economic crisis abating, and a high degree of uncertainty regarding the future remains. Economists are revising market projections on a daily basis, superceding previous forecasts as the market continues to fluctuate.

    The difficulty in forecasting hotel performance is that no one really knows how deep or how protracted the economic crisis will be. However, at a fundamental level, future hotel performance in Singapore will primarily depend on two key drivers: the demand for, and supply of, hotel rooms in the market.

    In January, the United Nations World Tourism Organisation (UNWTO) projected international tourism to either stagnate or decline by up to 2 per cent this year. While tourism in Asia is expected to fare slightly better and retain positive growth rates, projections will likely be revised downwards if the global economy continues to deteriorate.

    The Singapore Tourism Board (STB) has also adjusted previous forecasts for 2009, with visitor arrivals now expected to be nine to 9.5 million, a decline of between 5.9 and 10.9 per cent on 2008 figures.

    In addition to shrinking demand, Singapore is expected to see the largest increase in room supply across South-east Asia in the next few years. According to CBRE Research, an estimated 32 new hotels with over 12,000 hotel rooms are expected to enter the Singapore hotel market by 2012. Assuming all projects proceed as planned, total room nights available will increase by 40 per cent to reach 15.2 million in 2012.

    Impact of IRs

    The largest contributors to future room supply are the two integrated resorts (IRs) which offer a combined 3,978 rooms. At the opposite extreme, conversions from historical buildings into creative boutique properties will provide diversity in the market.

    In forecasting future supply in the current environment, it is inevitable that some projects will experience delays in construction, and the probability that a project will face postponements or even cancellations increases the later the hotel is expected to open. In the current economic climate, difficulty in accessing finance from capital markets may force some investors in the smaller projects to reassess their developments.

    While the IRs will be the largest contributors to future supply, they will also generate significant additional demand for both the tourism industry, and more broadly, the economy.

    In addition to the gaming facilities, the massive increase in conference and exhibition space will enable Singapore to host larger business and MICE (Meetings, Incentive Travel, Conventions and Exhibitions) meetings, and further build on the Republic's reputation as a venue for top international meetings. Furthermore, leisure visitors will be drawn to new attractions and events hosted in the new IRs, including Universal Studios, Marina Life Parks and the new ArtScience Museum.

    So how will hotels perform in 2009? If STB visitor arrival forecasts hold true, and the fundamental ratios between arrivals, length of stay and visitor days remain stable, occupancy levels may decline to around 71 per cent in 2009.

    However, CBRE Hotels believes demand will show a strong recovery in 2010, driven by additional attractions and, hopefully, increased stability in the global economy.

    CBRE Hotels is of the opinion that the fall in occupancy will impact room rates which are likely to decline by 10 to 15 per cent in 2009, to reach an average room rate of between $209 and $221. This would still be above 2007 levels. RevPAR will then face the most significant decline, and it is likely to drop by 20-25 per cent, to reach an average of between $148 and $158. The decrease in RevPAR represents a downward revision from previous industry estimates and is due to declining performance and continued uncertainty in the global economy.

    At present, it is difficult to predict what will happen in 2010 and beyond. While the additional supply will have a negative impact on room rates, this will be countered by the potential improvement in the economic environment and the new demand drivers. Nevertheless, occupancy levels appear likely to take several years before they recover to 2007 levels.

    Fortunately, the underlying fundamentals in the Singapore market are extremely strong. In addition, the Singapore government has announced a variety of initiatives to support businesses in general, and the tourism industry specifically.

    The recent $90 million BOOST (Building on Opportunities to Strengthen Tourism) package aims to generate demand through activities such as global marketing campaigns, value-focused packages, funding support and training.

    Hoteliers should make sure that they participate and throw their support behind these proposals, as a way of helping to mitigate the adverse impact of the downturn. There will be changes and challenges over the short term. For example:

    # Hotels will need to be more innovative by offering value-added packages and benefits such as free breakfast, wireless Internet, spa vouchers or complimentary transportation.

    # Hotels will be looking to further develop and nurture their existing customer base, revisiting customer preferences and requirements and exploring other opportunities to provide value to loyal existing customers.

    # Long-haul travel is also being sacrificed for short- and medium-haul destinations. This is particularly true for leisure travellers. Hotels will be exploring opportunities to attract regional demand and provide packages which offer a strong value proposition.

    # Hotels will need to ensure that their product and services are clearly differentiated from competitors. A strong marketing strategy targeting both existing and new customers through a variety of channels is essential to ensure sufficient publicity during competitive times.

    # Finally, downturns also present opportunities to focus on efforts which are often overlooked in busier periods. Hotels could go ahead with refurbishment and upgrading of facilities during quiet periods; this is less likely to impact overall performance and will ensure that they are well-placed for a market recovery.

    In the short term, the hotel market is going to be under the combined pressures of reduced demand and increased supply. The extraordinary period of rapid and easy growth is over. The next few years will be challenging and this is when well-managed and branded hotels in strong locations will outperform the general market.

    The writer is executive director, CBRE Hotels,Asia-Pacific

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    Published March 26, 2009

    M'sia property: Waiting out the crisis

    Malaysia's property players expect the sector to consolidate this year following decent gains in the past few years. PAULINE NG reports

    THE Malaysian property market was relatively bullish at the start of last year, but as economic problems in the United States mounted and spread, interest headed south.

    Many launches were put on ice. In the popular Klang Valley, for example, the launch of new residential units declined by 57 per cent from 2007 to 6,747 units in 2008. Holding back made sense given the over-supply - especially in the luxury and serviced condominium segments, noticeably in the prime Kuala Lumpur City Centre (KLCC) and Mont Kiara areas.

    According to property consultants CH Williams Talhar & Wong (WTW), an additional 1,000 new luxury condos and 7,000 serviced apartments (some 10 per cent more) came on-stream last year, when occupancy rates were already inching down to around 80 per cent from 86 per cent in the first half of the year, even before all the new units were delivered.

    On average, the developer selling price for units launched last year ranged from RM650 (S$270) per sq ft to RM1,180 psf for luxury condos, and RM800 psf to RM1,300 psf for serviced apartments.

    Prices have generally held because they had not run up as much. But poorer sentiment and increasing supply have led to prices dipping in selected areas. In the KLCC area, which saw more feverish building over the past few years, prices have dropped by an estimated 15-20 per cent. In contrast, landed properties are holding firmer given the more limited supply.

    But promoters with bigger wallets and risk appetites are taking advantage of lower commodity prices to push ahead. In the Klang Valley, the Four Seasons Place, located within a stone's throw of the Petronas Towers, is scheduled for completion in 2012.

    Developed by businessman Syed Yusof Syed Nasir, together with his partners the Sultan of Selangor, Sharafuddin Idris Shah, and Singapore's Ong Beng Seng, piling works have been completed on the 65-storey tower mixed development comprising a hotel, apartments and a mall.

    Design changes resulted in some delay but Mr Syed Yusof has said that contractors would proceed in the third quarter.

    Property consultants had thought the Four Seasons Place apartments might set a new benchmark of RM3,000 psf for the city. But that was last year. Mr Syed Yusof recently indicated that the estimated 140 apartments would sell for about RM2,500 psf.

    Another prestigious project within the KLCC vicinity is gearing up. Ground-breaking has begun on the 450-room Grand Hyatt hotel. The Brunei Investment Agency's 40-storey mixed development includes apartments and commercial offices, and is expected to be completed in three years.

    The economic slump aside, property consultants say Malaysians have the buying potential but prefer to wait out the economic and political uncertainties. However, they might be tempted if attractive bargains come along - preferably at fire-sale prices.

    According to a recent survey by, two-thirds of 137 respondents surveyed were of the view that there was a high likelihood that property prices would decline over the next six months. Ninety per cent of Singaporeans surveyed were of a similar view while in Hong Kong only 14 per cent agreed, the rest believing prices would not drop much further.

    Website activity remains high, iProperty executive chairman Patrick Grove said. 'People are still buying, selling and renting, and are definitely on the lookout for great bargains and opportunities.'

    In the main, property players are resigned to the sector consolidating this year following more than decent gains in the past few years - the last more applicable to the Klang Valley and Penang.

    Leisure Farm Resort senior sales and marketing manager Koh Boon Teng told BT that the number of inquiries has 'definitely dwindled' but he is counting on the company's established name to continue to pull in buyers, nearly all foreigners, including Singaporeans. The Johor-located resort-style development has not reduced prices - currently about RM50 psf for land -'but if buyers are sincere we can consider giving construction rebates', Mr Koh said. Constructed bungalows start from RM1.5 million.

    While Iskandar Malaysia has reportedly attracted RM47 billion in investments - a substantial chunk from Middle East investors - local businessmen complain that there has not been any discernible pick-up in business activity.

    Mr Koh concedes the lack of activity, but believes the special economic zone will deliver in the longer term. For now it has rendered a new lease of life to infrastructure projects in Johor, WTW said, pointing to the start last year of infrastructure developments such as the 8.5 km Eastern Dispersal Link joining the Customs, Immigration and Quarantine (CIQ) complex to the North-South Expressway, the 15 km coastal highway linking Johor Baru and Nusajaya, the 9 km Second Pernas Bridge and road to Pasir Gudang, and the Ulu Tiram flyover.

    But patience is crucial. Johor recorded the highest percentage change value per transaction last year - likely because of much higher prices obtained for some land transactions in Iskandar, WTW managing partner Goh Tian Sui said. However, he cautioned that the overall data indicated the state 'is not an interesting market at the moment'.

    One state which did reasonably well last year, recording a 27 per cent increase in value per transaction over the previous year, was Penang. Its residential sector was the dominant driver on the island as well as the mainland.

    The electronics slump has hurt industries in Penang and created uncertainty, but the state is one of the more, if not most, creative in Malaysia. A Unesco World Heritage Site listing last year for its capital Georgetown, together with Malacca, gave it a tremendous boost, while the on-going construction of the second Penang bridge will make the state more accessible in the future.

    Developers are admittedly more cautious now, but there are pockets of interest. WTW noted that the shophouse and residential property sub-sectors are relatively resilient, sought more for owner occupation as well as for investment.

  13. #13
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    Published March 26, 2009

    Window of opportunity opens in Aussie commercial property


    THE Australian commercial property market is currently offering global investors with a medium-term horizon a combination of relative stability and increasingly attractive investment returns.

    Jones Lang LaSalle recently undertook a number of investor briefings across Asian markets, including Singapore. It was apparent from these briefings that there is significant Asian interest in the Australian property market, due to its relatively stable fundamentals. This has presented a window of opportunity for investment in Australia - with commentators suggesting that these are the best conditions for foreign investment that we have seen in the past decade.

    The fundamentals of Australian commercial property markets have deteriorated moderately in the face of a broad economic slowdown. Australian institutional property investors have not been immune from the effects of softening asset prices, rising debt levels and tighter credit markets.

    The A-Reit (Australian real estate investment trust) index has lost about A$120 billion (S$125.1 billion) in value over the past 15 months.

    The benchmark S&P/ASX 200 A-Reit Index is around 690 points, down 73 per cent from its high of 2,575.6 points in February 2007.

    A-Reits require debt refinancing of around A$60 billion over the next three years. About A$26 billion has been lent by foreign banks, some of which have shown an inclination to repatriate these funds during this difficult period. Given the imminent debt expiry profile in the next three years, there are now realistic vendors willing to offer quality assets for disposal in an attempt to reduce funding pressure.

    Furthermore, the pool of funds invested in superannuation will continue to be a force in the domestic property markets. While the pool accounts for A$1.1 trillion today, it is forecast to grow to over A$3 trillion by 2016. With an average 10 per cent of this pool, or A$23 billion per annum, allocated to real estate, a significant amount of capital is destined to seek out a home in property markets in the years to come.

    A window of opportunity does exist for foreign investors to capitalise on a culmination of market forces that make investment in Australian property an attractive proposition in 2009.

    What we are currently seeing is a number of Asian-based institutional investors taking advantage of these market forces. Australia is not immune from what is happening in the global property market, but we do compare favourably to the United States, Europe and Asia in terms of the impact of the global credit crisis.

    Due to the impact of the global economic environment, there are superior Australian assets on the market that have traditionally been tightly held and have not been on offer for over a decade.

    There are estimations that these assets probably won't be offered again for years to come, so now is the time for opportunistic cashed-up investors to act. It is a rare opportunity and we are seeing some prospective investors who are awaiting further falls in values of prime Australian assets, but they should be careful not to wait too long.

    We are currently witnessing investors out of Asia with an appetite for Australian property. These are largely private equity firms or groups acting on behalf of institutional investors. Such investors are best characterised as opportunistic funds with a focus on income stabilised assets, with no immediate vacancy.

    The Australian market is attractive to foreign investors due to its high level of real estate transparency, historically low interest rates, lower hedging costs and relatively stable returns. Australia has historically been an attractive market for investors seeking to lower volatility in their portfolio.

    International investors are now spoilt for choice, with significant levels of stock available on both a local and international level. Property markets are increasingly competing on a global scale with increased investigation of country economic fundamentals, property cycle position, vendors' willingness to transact and other property market specifics. We believe the Australian market is well poised to meet such criteria.

    Australia enters this cycle with very low vacancy in the major CBD office markets. Research figures for the fourth quarter of 2008 show that the vacancy rate across all CBD office markets that Jones Lang LaSalle monitors nationally was only 5.5 per cent.

    Vacancy pressures are clearly increasing. However, the headline vacancy rate remains below the long-term average of 8-9 per cent. The future supply pipeline is moderate, much different from the previous down cycle in the 1990s. Over the next three years there is presently only 1.31 million square metres under construction in the CBD office supply pipeline, which compares favourably to the 2.52 million sq metres that was completed in the three years leading up to 1992.

    The headwinds buffeting the global economy have continued in recent weeks and we know that 2009 will be a tough year. There are many factors to consider in this economic environment and owners and investors need to constantly monitor their portfolios to ensure they are positioned to take advantage of the market fundamentals.

    The writer is director, international investments, Jones Lang LaSalle, Australia

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    Published March 26, 2009

    Renewed interest in UK homes

    Sliding home prices and the weaker pound are wooing investors back to London. NEIL BEHRMANN reports

    ASIAN, Russian and other foreign buyers are back, tentatively examining potential investments in London's residential property market, according to agents. These investors are at an exceptional advantage over local residents and investors as sterling has depreciated considerably since its peak in the first half of 2008. Compared with last year, a Singaporean investor can buy sterling at a third lower than its peak levels.

    The UK property market reached its bubble heights towards the end of 2007. Since London residential real estate prices have fallen between 20 and 30 per cent, according to agents, prices for Singaporeans and other investors are at 40 to 60 per cent discounts from the top.

    'There will be many stages and regional variations in the future trajectory of apartment and house prices,' says Yolande Barnes, director of research at Savills. 'The market will test the nerves of both home owners and investors but the opportunities for those wanting income returns and the prospect of long-term growth are clearly in place now.'

    UK investors will benefit from the sharply lower home prices and mortgage rates; however, they face the disadvantage of banks now requiring deposits of at least 30 to 40 per cent, whereas during the free-wheeling boom days, deposits could be 10 per cent and sometimes even lower.

    Ms Barnes and other estate agents and economists thus caution that in the current depressed economic climate property prices could slip further in the coming months. But they believe there are potential bargains. They expect the market to bottom out in 2010 and begin rising in 2011 and 2012.

    There are some economists, however, who fear that the market will remain depressed for several years. Roger Bootle, head of economic forecasting agency Capital Economics, predicts a rise in repossessions and an increase in those entering negative equity. His figures indicate that about 3.5 million UK households will fall into arrears - double the number seen in the early 1990s downturn. Repossessions could hit 90,000 this year, he says - much more than the Council of Mortgage Lenders' prediction of around 75,000.

    Mr Bootle, who had predicted property price declines some time before the bubble hit its peak, now expects a further drop in UK house prices with a peak-to-trough fall of between 40 per cent and 45 per cent..

    There is also the danger that a depressed, over-borrowed British economy is vulnerable to further sterling weakness and that the present currency rally won't last. Thus foreign investors need to proceed with caution and be highly selective, both with properties and locations, if they intend to go bargain-hunting in the London and broader UK real estate market. For example, property in the London Docklands surrounding Canary Wharf, where several stricken major investment banks are situated, is very depressed. Supplies of apartments are well in excess of demand, estate agents say. The same applies to Notting Hill Gate, a favourite with investment bankers.

    Anecdotal evidence, however, suggests that interest from foreign and local buyers who don't require mortgages is already much higher, says Ms Barnes of Savills. The decline in values has raised gross rental yields of prime properties to 4.5 per cent from around 3 to 3.5 per cent during the 2007/2008 property bubble while net yields have risen from 2.3 per cent to 3.5 per cent. This compares with money market rates of around one per cent and long-term government bond yields of around 3 per cent.

    Brendan Brown, head of research at Mitsubishi UFJ Securities International, believes that considering the illiquidity of property as an investment and the risk of 'voids', or vacant periods, the rental yields are still inadequate. The crisis in the financial sector has caused banks in the City to retrench employees. Foreign banks and other corporations thus need to rent fewer properties.

    According to the Land Registry index of houses and apartments traded, average prices in Kensington and Chelsea have fallen from £pounds;856,000 at the end of 2007 (S$2.6 million at the exchange rate at the time) to £pounds;752,000 (S$1.65 million at the current rate), while in the City of Westminster they have fallen from £pounds;612,000 to £pounds;564,000. Tower Hamlets, near the financial centre of Canary Wharf, has seen prices fall from £pounds;376,000 to £pounds;329,000 and in favoured areas such as Richmond they have fallen from £pounds;455,000 to £pounds;383,000.

    These prices, however, are averages of properties ranging from small apartments to semi-detached and detached houses. In truth, house prices in Chelsea and Kensington currently trade from around £pounds;2 million with prices of £pounds;1.5 million to £pounds;3.5 million for areas surrounding Hampstead, St Johns Wood, Islington, Richmond and Wimbledon. Prices of two-bedroom purpose-built apartments in these areas have dropped to between £pounds;350,000 and £pounds;600,000.

    Although Ms Barnes expects the market to bottom out in 2010 and revive in the following two to three years, she agrees that London prices could decline by a further 10 per cent by the end of the year. In that event, the fall from the peak would be around 30 per cent.

    Liam Bailey, head of residential research at Knight Frank, estimates that from peak to trough, the price fall for prime London property from March 2008 to date is 23 per cent. Activity levels are beginning to rise, albeit from a low base, with viewings up 28 per cent in February on a year-on-year basis. After an absence of six months, Russian buyers are back in the market, he says.

    'After a period of sustained price falls in the central London market, it is rather early to suggest that we are seeing the beginning of a recovery,' says Mr Bailey. 'However with bad news seemingly all pervasive, even a slowing in the rate of price falls can be viewed positively.'

    With prices for some new build properties falling by as much as 40 per cent, yields of over 10 per cent are possible, he contends. The proviso is that the properties can be let. There are reports that the rental supply of apartments and houses is increasing. Financially-stressed owners with large mortgages who cannot sell their properties are being forced to downsize. They are renting out their pricey properties and seeking lower rentals.

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