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Thread: BT Property, 25 March 2010

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    Published March 25, 2010

    Sustaining an upturn


    THE property market has made a dramatic recovery over the past year. In the residential sector, prices of mass-market homes have even surpassed their 2007 peak. Expectations are running high that some time this year too the luxury segment will touch 2007 record highs.

    Things are also picking up in the office market, which has seen a flurry of leasing activity since Q4 last year. Demand has already turned positive and there are even predictions in some quarters of a 30 per cent increase in Grade A office rentals this year.

    However, one should not get carried away. The authorities in many parts of Asia are already keeping a watchful eye on asset bubbles building from hot money flowing into real estate. Liquidity and low interest rates remain the key fuel of the property upturn.

    The question on everyone's mind is whether this recovery can be sustained. A lot depends on how well Singapore and the rest of the world perform. Sovereign debt default concerns in several European countries continue to stoke worries about a double-dip recession. Closer to home, the drive towards higher labour productivity could give rise to job insecurity and dampen demand from house hunters.

    2010 sees the completion of several major landmark projects here - including the Marina Bay Financial Centre and the Marina Bay Sands and Resorts World Sentosa integrated resorts.

    The two IRs are expected to boost Singapore's tourism numbers, which should generate multipliers for the broader economy. That will be positive for the Singapore property market.

    Many property industry players have long been pinning their hopes on the IRs drawing high-rollers into town who will be impressed with Singapore and want to invest in property here. Singapore will also be on the radar screens of overseas investors if the IRs are successful.

    Domestically, though, affordability remains a key concern, especially in the mass-market housing segment. A substantial interest rate increase could also hit price-sensitive buyers.

    The Singapore government for its part has come up with a few measures to weed out speculators from the housing market. It also has the option of increasing land supply.

    The following pages will hopefully guide you through the Singapore property market. I leave you with the timeless advice of property market doyen Kwek Leng Beng: Always buy within your means and remember that property is a mid to long-term investment.

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    Published March 25, 2010

    Appealing to the mass market

    Developers shift focus to affordability, say NG WEI EN and CHUA CHOR HOON

    LAST year saw the second highest volume of private residential transactions in history, with the 30,830 caveats lodged falling short only of the 37,304 recorded in the 2007 boom.

    A combination of factors helped to boost demand for residential property. These were pent-up demand from those who had missed out on the previous boom, low interest rates and a lack of alternative investment options, after the debacle with financial products. These, coupled with the appearance of 'green shoots' in the economy and a rally in the stock market, helped the residential market stir to life in late Q1 2009.

    The mass market was the star performer of the residential market. Of the 30,830 caveats lodged in 2009, 23,240 - or 75 per cent - were for transactions outside the prime districts of 9,10,11, the Central Business District and Sentosa/Harbourfront areas.

    Quick-thinking developers rode the popular wave of affordable homes by altering their plans - downsizing units and releasing mass market projects to appeal to the buyers who were then dominating the market.

    Buyers with HDB addresses accounted for 41 per cent of total buyers in 2009, almost double the 22 per cent in 2007 when higher-end projects were leading the rise in the market. Many in 2009 saw the opportunity to upgrade to private housing, which was also supported by rising HDB resale prices.


    Over the past year, we have seen a 13 per cent rebound in the average price of secondary mass market units recovering back to the peak level in Q4 2007.

    Through this period, the affordability index has also moved up 13 per cent to 136. The affordability index tracks the minimum gross household income required to qualify for an 80 per cent loan-to-value mortgage for the purchase of a private home. It takes into account property prices, CPF contribution rates, as well as interest rates. The lower the index, the more affordable it is as a lower income is required to qualify for a mortgage from the bank.

    In other words, a higher income is now required to purchase a mass market unit compared to a similar one in Q1 2009.

    Nevertheless, mass market units are more affordable now than they were in 2007. This is largely due to the difference in the mortgage rates as the three-month Sibor rate has fallen close to two percentage points during the period (Figure 1).

    Furthermore, according to the Key Household Trends 2009 survey, the average monthly household income from work for 2009 in the 81st to 90th decile is $12,290, which is higher than the $11,330 in 2007.

    Based on the affordability index, mass market units at end-2009 were more affordable compared to the period between Q1 2006 and Q3 2008. However, as interest rates are at an all-time low, it is a matter of time before they head north. A one-percentage-point increase in interest rates will result in a 14 per cent rise in the affordability index with no change in price. If prices were to increase by five percentage points at the same time, the index would rise by 19 per cent to 162 (Table 1).

    There is no hard and fast rule as to the threshold index level at which buyers would find mass market purchases affordable as this also depends on income level.

    However, there exists an inverse relationship between the affordability index and the number of home buyers with HDB addresses. During periods when the index declines, the proportion of buyers of HDB addresses increases.

    Looking at the more recent period from 2006 to the present, the proportion of buyers with HDB addresses fell to below 30 per cent when the affordability index was above 150, indicating that this could be the threshold level. In most quarters, the proportion of buyers with HDB addresses was above 40 per cent.

    Hence, mass market housing could become generally less affordable if: (i) prices were to increase by more than 10 per cent; (ii) prices rise by 5 per cent with a 0.5-percentage-point increase in interest rates, or (iii) interest rate rises by one percentage point with no change in prices.

    Besides affordability, recent government measures affecting both the public and private segments would have some impact on the volume of transactions and are likely to check the increase in prices to less than 10 per cent this year.

    At the moment, despite more new projects being launched at prices above $800 per sq ft, there are still a number of projects in the resale market available for less than $700,000 for unit sizes of above 1,000 sq ft. This shows that affordable units still exist and that purchasers are not restricted to micro-sized and high-priced residential units (Table 2).

    Greek historian Thucydides once said: 'Few things are brought to a successful issue by impetuous desire, but most by calm and prudent forethought.'

    For potential buyers, it would be prudent to look beyond the current interest rates to assess the ability to repay the monthly mortgage payments over the next 20-30 years when interest rates move up eventually.

    Ng Wei En is research analyst and Chua Chor Hoon is head of research, South-east Asia, DTZ

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    Published March 25, 2010

    Luxury hotspots set to re-emerge

    PETER OW and ONG KAH SENG examine high-end residential properties that may see increasing buying interest from foreigners and locals

    THIS is the year that high-end residential properties are expected to shine. Indeed, prices of luxury homes could recover by at least 10 per cent in 2010, bringing them close to the all-time high at end-2007. As Singapore's economic recovery takes hold, the traditional prime districts of 9, 10 and 11 should re-emerge as residential hotspots.

    But new high-end enclaves are also likely to gain prominence. These hotspots will be found along the southern corridor, in places like Marina Bay, Tanjong Pagar/Shenton Way and Sentosa Cove/Keppel Bay.

    The emerging luxury enclaves are the beneficiaries of several defining developments in Sentosa Cove and Marina Bay, which are coming to fruition this year.

    Marina Bay

    Homes in Marina Bay will benefit from the opening of the Marina Bay Sands integrated resort, slated for end-April. But the prestige of this area also comes from the fact that Marina Bay is the newest prime office hub, where up-and-coming executives want to be seen at. Having a loft in this sophisticated new hotspot would certainly be something to flaunt.

    The Sail @ Marina Bay was the first high-end residential project in the area to come on the market. Completed in the second half of 2008, the 1,111-unit Sail saw median monthly rents climb steadily, from $4.25 per sq ft in Q1 2009, to $5.15 psf in Q4 2009, going by figures from the Urban Redevelopment Authority (URA).

    Although there will be no major residential projects to be launched after Marina Bay Suites is entirely released, the buzz in Marina Bay is expected to translate into encouraging resale and leasing activity.

    Tanjong Pagar/Shenton Way

    The excitement of city living extends beyond Marina Bay. The traditional CBD, such as Tanjong Pagar and Shenton Way, is increasingly popular with working professionals. Icon, One Shenton and The Clift are successful projects that were launched from 2003. The completed Icon condominium is enjoying monthly median rents of about $6 per sq ft. Meanwhile, Altez, a 60-storey development in Tanjong Pagar, was recently launched. Offering panoramic sea and city views, the project is priced from $2,100 psf to $2,300 psf.

    UIC Building and 76 Shenton Way, both office buildings, will soon be converted into prime residential developments, enhancing the attractiveness of the area. 76 Shenton, a 39-storey condominium, is the newest launch in the area. These projects are testimony to the attractions of inner city living, where residents enjoy maximum convenience, whether at work or play.

    The Economic Strategies Committee, in looking at maximising Singapore's land use, has recommended turning Tanjong Pagar into a new waterfront district, by relocating the Tanjong Pagar port to Tuas once its lease is up in 2027.

    Sentosa Cove & Keppel Bay

    The excitement in Sentosa Cove started with the launch of the first condominium project - The Berth by the Cove - in 2004. Since then, several other waterfront condominiums have been completed on Sentosa. According to URA figures, The Berth by the Cove and The Coast at Sentosa Cove enjoyed attractive monthly rents of between $3.50 psf and $4.80 psf at end-2009.

    Sentosa Cove is poised to become more exciting this year. Two new condominiums - The [email protected] Cove and Turquoise - are scheduled for completion in 2010 while the Marina Collection will be ready in 2011. Meanwhile, Seascape and The Residences at W Singapore - both at Sentosa Cove - are being released this week. When these developments are built, Sentosa Cove will be a lively residential enclave with all the supporting amenities. These developments will transform Sentosa island into a self-sufficient waterfront haven.

    The Keppel Bay area, comprising Caribbean at Keppel Bay and Reflections at Keppel Bay, will also remain attractive to investors.

    Traditional prime

    The traditional prime residential districts are perennially attractive to home buyers and investors who prize a central location and all its conveniences, particularly the allure of shopping along Orchard Road. Generally, prices of high-end residential resale properties in the prime districts recovered by about 15 per cent in 2009, following a 27 per cent slide in 2008.

    Prices this year could well hit the all-time high seen at end-2007, as experience shows that prime residential properties are the first to move in the early stages of an economic recovery.

    The prime leasing market is also expected to improve, as companies boost their senior expatriate headcount incrementally and become more generous with housing allowances.

    For the first time in a long while, Orchard Road last year saw the opening of three new malls - Ion Orchard, Orchard Central and 313 @ Somerset. The new malls have refreshed the shopping experience in the premier shopping belt. This will benefit existing property owners as well as help sell new projects in the vicinity, such as The Vermont on Cairnhill and Hilltops.

    Property investors should be able to find opportunities in all these residential hotspots, from the southern corridor to the traditional prime districts. However, the performance of the property sector will depend on the bigger picture - the economy and market sentiment.

    As such, astute investors will need to analyse the prospects for the high-end residential market, before looking for their preferred property.

    The government recently introduced measures to cool speculative activity, by lowering the loan-to-value ratio and introducing a seller's stamp duty if a property is re-sold within a year. These measures, however, are likely to only impact speculators. Perhaps investors of high-end residential property can safely read that, following the latest government measures and pronouncements, there will be no further attempts for the time being to cool the residential market.

    After all, the pace of recovery for the high-end segment this year will be modest compared with 2007 and can be seen as a recovery rather than price escalation. A realistic price recovery this year may offer investors who commit today a chance to enjoy gradual capital appreciation in 2011 and 2012.

    Foreign interest

    Owners and developers of high-end residential properties can also expect to enjoy increasing buying interest from foreigners. Although Singapore is seeing more competition from regional cities where developers are improving luxury residential offerings, escalating prices in domestic markets in China and Hong Kong could make buyers there view our high-end properties favourably.

    The full impact of the IRs on the property market will be felt this year, with the opening of Resorts World Sentosa and Marina Bay Sands strengthening the appeal of high-end residential properties in the southern corridor. The benefit of the IRs could extend to high-end property throughout Singapore, as the developments take the city up a rung in international exposure.

    Visitors may be increasingly interested in Singapore for work and leisure, which would lead them to consider investment opportunities in high-end residential hotspots. This could lead to an increasingly international buyer profile in the luxury market.

    Peter Ow is managing director of residential services and Ong Kah Seng is manager of consultancy & research at Knight Frank Pte Ltd

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    Published March 25, 2010

    New engines drive expat rental hubs

    DESMOND SIM says demand likely from financial, biomedical sectors

    THE leasing market for non-landed homes showed signs of recovery in the final quarter of 2009, going by Urban Redevelopment Authority numbers. Median rents saw their first quarter-on-quarter growth of 0.5 per cent following five quarters of continued decline from a peak in Q2 2008. The monthly median rent in Q4 2009 was $3.02 per sq ft. Occupancy rates also jumped, achieving 94.5 per cent in Q4 2009 - a level previously seen only in 2006/2007.

    While these indicators may suggest a recovery in the leasing market, the strength and sustainability of this positive turn are yet to be ascertained.

    Overall, leasing demand has been rising over the years as a result of a boost in the foreign workforce. Singapore's strategy to open its employment market to more foreigners has benefited the leasing market as this transient group looks for short-term housing in the private residential market. The population of Singapore has grown from 4.03 million in 2000 to 4.99 million in 2009. The number of foreigners grew in tandem from 754,500 in 2000 to 1.25 million in 2009.

    On the back of better economic performance, the Ministry of Trade and Industry has revised its growth forecast for 2010 from a range of 3-5 per cent to 4.5-6.5 per cent. Job creation has improved, marked by the doubling of total employment from 14,000 in Q3 2009 to 37,500 in Q4 2009. The result is the creation of some 37,600 jobs for the whole of 2009 - a remarkable feat considering the economy was in a recession.

    Although the number of foreigners employed has declined by 4,200 in 2009, there are still some 1.05 million of them working in Singapore. The job losses were mainly in the manufacturing sector. The construction and services industries, on the other hand, gained 19,700 and 10,400 new hires respectively.

    Demand by industry

    Anecdotally, leasing demand remains driven by the financial industry. This sector is making a strong rebound from the financial tsunami, with total employment in Q4 2009 turning a positive 3,000. This trend is expected to continue, further supported by recent poll results from the Business Expectations for the Services Sector Q4 2009 survey by the Department of Statistics. The financial services sector has the most positive outlook in terms of employment and general business expectations.

    In addition, based on the latest report on wages in Singapore by the Ministry of Manpower, the financial services sector recorded the second highest median gross wage in 2008 at $9,170 per month for managers aged 35 to 39.

    The other emerging leasing demand driver is the biomedical industry. Under the government's aggressive drive to develop Singapore into a biomedical hub, the country reportedly bagged some US$2 billion worth of investments over the past four years. They include plans to set up six new biologics manufacturing plants that are expected to create some 1,380 jobs. Despite the manufacturing sector reporting negative 4.1 per cent growth in 2009, biomedical manufacturing expanded by 11.5 per cent.

    Looking ahead, new leasing demand is likely to come from either the financial or the biomedical industry.

    Demand profile

    The foreign employment market today is different from what it was a decade ago. Currently, instead of the traditional top management hire, foreign employment involves more middle management to executive levels with a limited housing budget. These expatriates are likely to be young executives working for a financial institution or researchers and laboratory executives. Despite the increase in foreign employees, the average housing budgets have remained relatively low. These new expatriates are likely to be given a housing allowance and are motivated by cost savings. They either downsize or seek discounted rents whenever the opportunity presents itself. As a result, smaller residential units close to their workplace or with good accessibility to public transport remain the main attraction.

    Based on rental transactions recorded by URA Realis and sorted by districts, several observations can be made from the rental transaction volume over the decade.

    While the prime districts of 9, 10 and 11 remain the traditional hot spots for leasing, the number of leasing deals there has been observed to be falling. At the same time, the Central Area (CBD/HarbourFront) comprising districts 1 to 5 has gained popularity as can be judged from the increase in leasing volume. A key factor is the revival of inner city living with tenants attracted by the proximity to the CBD, the arts and cultural activity, and other amenities within the area.

    In addition, there are two emerging regions where we expect strong leasing demand in the future.

    Based on the backroom operations of multinational financial institutions such as Credit Suisse, Citigroup and Standard Chartered Bank, residential projects in the vicinity of the Changi Business Park will be in demand. As such, we expect leasing demand growth in Simei, Upper East Coast and Tampines (Districts 16,17 and 18).

    With the biomedical industry expected to expand in Biopolis, leasing demand in residential projects in the vicinity of this purpose-built biomedical estate (District 5) is also expected to increase.

    The drivers and leasing profiles have changed dramatically over the decade. This has influenced developers' product offerings and also recently caught the attention of investors who have been making a beeline to these areas.

    Evolving supply

    Over the decade, developers have also been tweaking their product offerings to match changing demand. Overall, the market supply is shifting towards smaller apartments. Smaller units are easier to lease while maintaining a high per sq ft rental value. Similarly, smaller units are also more palatable in terms of absolute quantums paid. At the same time, developers are able to maintain their selling price on a per sq ft basis. Using a sample of major launches in the prime districts (9,10 and 11), an analysis of the composition by bedrooms was done. Studio apartments were excluded from the analysis.

    There is a stronger focus on units with fewer bedrooms. Increasingly, one and two-bedroom apartments are found in the new supply. Based on the sample comparison study, one and two-bedroom apartments account for half the supply launched currently. This compares with 2000, when two-bedroom apartments made up just 15 per cent of the supply (with no count of one-bedroomers). This sample comparison shows that while demand has shifted over the decade, developers are also redesigning their product offerings to accommodate these changes.

    Market outlook

    After a challenging 2009, Singapore, along with the rest of Asia, is expected to experience a strong economic recovery this year. Financial markets are reported to have stabilised, while trade flows and industrial production have also picked up strongly. However, the recovery in Europe and the US remains weak. A pan-continental movement of talent from Europe and the US to Asia can be expected.

    As Singapore continues to attract top talent here, leasing demand is also expected to grow. This is coupled with the improved economic outlook and the planned business expansions that are scheduled for the second half of this year. Island-wide rents are expected to grow in the region of 3-5 per cent by end-2010. However, rents will still remain affordable as they have generally come off during the recent economic downturn. Further rental upside is expected in the Central Area (Districts 1-4), Buona Vista (District 5) and Simei/Tampines and Upper East Coast (Districts 16,17 & 18).

    The writer is associate director, research and consultancy, Jones Lang LaSalle

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    Published March 25, 2010

    Landed homes: Lure of scarcity

    With relatively few landed home launches, buyers are always keen on older houses in the resale market, writes HAN HUAN MEI

    WHEN private home prices made their sterling recovery in the second half of 2009, landed homes didn't miss out on the action. The Urban Redevelopment Authority (URA) price indices for detached, semi-detached and terrace houses recovered by 22-26 per cent in 2H 2009, after falling some 18-21 per cent from the market peak in the second quarter of 2008 to Q2 2009.

    This upward trend is likely to continue because of the scarcity of landed homes in Singapore. Out of a total housing stock of 1.14 million units, only 69,500 or 6.1 per cent are landed homes.

    While new landed projects are limited, home buyers are always willing to buy older properties in the resale market. On average, 380 new landed homes and 2,800 resale landed homes changed hands annually between 2004 and 2009.

    Moreover, there is also a certain degree of speculative activity in the landed market. An analysis of the caveats lodged for subsales of new landed properties in the past year shows a gain of 5.5 to 34 per cent from their original prices two to three years ago.

    Landed properties offer a certain prestige to homeowners in the middle to high-income groups. Nowadays, well-heeled homebuyers in their mid-30s are especially attracted to entry level bungalows with a land area of 4,000-5,000 sq ft and costing $4-$5 million. Some of these can be found in Lynwood Grove and Cotswold Close.

    Equally popular are strata bungalows like Goodman Crest and Bellaville which have the same built-up area as the average bungalow but cost less - around $2.5-$3.5 million - because of the shared ownership of land and communal facilities like swimming pool and landscaped garden.

    Similarly, cluster terrace houses are seen as value for money as opposed to condominiums because of their generous built-up areas of over 3,000 sq ft. These also come with communal facilities which appeal to families with young children.

    However, the downside of cluster terrace developments is the rather crowded conditions within the compound and the higher volume of vehicular traffic they generate in the neighbourhood.

    At the top of the Singapore housing pyramid are the good class bungalows (GCBs) which are the most prestigious and expensive type of housing. In just the first two months of 2010, some 14 GCBs were transacted, compared with just three in the first quarter of 2009.

    Among the 14, the most expensive GCB was a Swettenham Road house, which sold for $31.5 million in January. It has a land area of 29,569 sq ft.

    In 2009, the highest priced GCB was sold in October at $38.67 million. It is located in Victoria Park Road and has a land area of 32,077 sq ft.

    Over at Sentosa Cove, Kasara villas, which range from 9,000 sq ft to over 14,000 sq ft, were sold at $14-$22 million in November 2009. These villas come with designer finishes and top quality fittings.

    The reason why leasehold landed homes in Sentosa Cove can fetch prices equivalent to, if not higher than, their freehold counterparts on the mainland is because of the resort island status, foreigners' eligibility to buy and above all, limited supply of around 400 units. Foreigners are not allowed to buy landed properties on the mainland and even permanent residents need special approval from the authorities to buy one.

    In 2009, a landed project in Seletar Hills estate called Luxus Hills was launched. The first phase of 78 terrace houses was sold within a few weeks. In the second phase, another 30 units sold quickly at a similar price range. The terrace houses fetched $1.7-$2 million while the semi-detached houses fetched $2-$2.2 million.

    Estrivillas, a cluster housing project in Jalan Lim Tai See comprising 38 semi-detached and one detached house, was launched in November 2009. By January this year, 24 of the 39 units had been sold at $3.5-$3.8 million.

    In the resale market, transactions in January and February this year show that the median price of semi-detached and terrace houses was $2.5 million and $1.5 million respectively. A year ago, the corresponding median prices were $1.76 million and $1.16 million.

    Developers marketing landed properties should emphasise the limited land resources and hence, the value of landed properties in the long-term. Secondly, owners do not have to pay maintenance fees for houses, unlike condominiums. Unless a house is very old, the upkeep is generally inexpensive. Spending money on one's own property beats contributing $3,000 to $4,000 a year to a condo management or sinking fund.

    Landed homes are also attractive as investments as they can fetch good rentals. Proximity to premier schools, international schools and embassies is definitely an advantage.

    At the top, GCBs in Bukit Timah can be leased out at $18,000 to $25,000 a month while standard detached houses can fetch $12,000 to $18,000, depending on their size and condition. Semi-detached houses can command a monthly rent of $8,000 to $12,000 while terrace houses can achieve $3,000 to $7,000.

    Limited supply results in the relatively inelastic prices of landed homes, and increasingly, those who hold such properties will find them a boon as more often than not these are assets that appreciate in value over time.

    The writer is associate director, CBRE Research

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    Published March 25, 2010

    Clinching the smartest home loan deals

    Short-term trading profits in real estate are not high, while the risks are considerable. DENNIS NG shows you the numbers

    IT'S tough enough figuring out which housing loan package is the best for you. But how will the latest changes in property financing rules affect your property purchase?

    The recent curbs on the property market include measures such as the scrapping of interest-only loans, capping financing to 80 per cent of the property's value, and a stamp duty on properties sold within a year of purchase.

    Also, are there different things to consider in financing a property that you mean to live in versus one you intend to rent out? What are the things to look out for in choosing a housing loan?

    Fret not, this article will help you to decipher housing loan packages like a pro, even if you're buying property for the first time.

    Scrapping of interest-only loans

    In interest-only loans, the borrower chooses not to repay any principal at all, and only services the interest cost in his monthly instalments.

    Many home buyers are shocked by the idea, and unable to understand the logic of not making any principal repayment on a housing loan.

    However, for a property investor, one simple way to reduce his monthly cash outlay and increase return on investment is to minimise the capital outlay on the property. Interest-only loans help by minimising the monthly cash outlay, thereby increasing the possibility of positive cashflows from the property. That is, the rental income from the property more than covers the monthly instalment. It also enables the property investor to cut his monthly debt repayment obligations, and reduce his debt-service ratio, or DSR.

    Thus, Minister for National Development Mah Bow Tan announced the discontinuation of interest-only property loans in September last year to dampen speculative demand. However, this measure does not affect the average home buyer or investor since most people take housing loans that repay both principal and interest.

    Property as home or investment

    Is there a difference between taking a housing loan for an an owner-occupied home versus one for investment?

    Yes, there is. Because a person buying a property for investment has quite different considerations from someone buying it as a home. The main differences are summarised in the table.

    How banks view rental income

    If a tenant pays you rent of $3,000 a month, does your monthly income go up by $3,000? Most people mistakenly think that it does. But what happens is that the bank might factor in just 50 per cent of the gross rental income as your additional income in calculating your debt-service ratio (DSR).

    The all-important debt service ratio

    The DSR is basically the percentage of your income used to repay your monthly debt obligations.

    Here's an illustration. Let's say Mr A's gross salary is $5,000. He has a car loan with a monthly instalment of $500 and a housing loan instalment of $2,000. Thus, his total monthly debt repayment obligation works out to $2,500. Divide that by his gross income and his DSR works out to 50 per cent.

    In general, provided you have a prompt debt repayment record, banks would work out the maximum loan they can grant you based on a maximum DSR of 50 per cent.

    Now Mr A plans to buy a second property for $1 million. He expects to rent it out for $3,500 a month. He estimates that if he takes an 80 per cent loan ($800,000) with a 30-year loan period, his monthly instalment would be $2,956.95. This is based on the current interest rate of about 2 per cent for housing loans.

    However, he does not know that because there are incidental costs to a property, such as maintenance fees, insurance and other costs, banks do not take the gross rental income of $3,500 as additional income. Some banks, for the sake of prudence, might only factor in half the rental income, or $1,750. Thus, his total income works out to $5,000 plus $1,750 or $6,750.

    What interest rate should one use to estimate housing loan instalments? Interest rates on housing loans fluctuate from time to time. When the economy is strong, such as in 2007, housing loan interest rates were about 4 per cent.

    Thus, in calculating DSR, it might be prudent for banks and property investors to use a higher interest rate, such as 4 per cent, to calculate the cost of the loan.

    Based on 4 per cent, Mr A's monthly instalment for a loan of $800,000 works out to $3,819 (or about 30 per cent higher than using a 2 per cent interest rate.) His revised total monthly debt repayment obligation works out to $6,319, while his revised total income is $6,750.

    Thus, his revised DSR stands at 93.6 per cent, which means that his loan application for a second property is likely to be rejected by the bank.

    So to avoid nasty surprises, it is best to get in-principle approval for a bank loan before committing to a property.

    Effect of seller's stamp duty

    As of Feb 20, any investor who sells a property within one year of purchase will have to pay a seller's stamp duty, which is roughly 2.5 per cent of the purchase price. This could greatly reduce the gains from selling a property within a year.

    If you had bought a property for $1 million, and sold it for $1.1 million, what are your gains after deducting the cost of property purchase and sale? Refer to the table (above right) for the calculations.

    The table shows that short-term trading profits in real estate are in fact not high, while the risks are considerable. If you sell your house two years later, you would not have to pay the seller's stamp duty of $27,600 (based on the $1.1 million sale price). However, you would have to bear more interest payments for an extra year of loans.

    The interest cost could come up to an extra $30,000. So if property prices rise by 10 per cent, you would not make much money at all. Of course, property agents might not volunteer such information.

    To put your housing loan on a sounder footing and to get an unbiased analysis and comparison of all housing loan packages on offer, it might make sense to talk to an independent mortgage broker. After all, bank officers can only offer packages from the bank they work for.

    Dennis Ng is an accountant by training with 17 years of bank lending experience. He founded, a mortgage consultancy, in 2003.

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    Published March 25, 2010

    More auctions expected in high-end residential sector

    The market is likely to chalk up more than $200 million worth of transactions this year, says GRACE NG

    IT was a stellar year for auctions last year despite the unfavourable market conditions. About $168.4 million worth of properties were sold at auctions in 2009, doubling the $83.67 million done in 2008.

    The residential sector was the star performer, chalking up $88.4 million worth of transactions, or slightly over half the total sales value. The retail sector was the next best performer, with $43.4 million worth of sales.

    Strong interest was seen for shops and shophouses, as investors chose to park their money in higher yielding investments rather than keep it in the bank for paltry interest rates. The sector that saw the highest growth rate was industrial property. Sales value jumped 223 per cent, from $6.2 million in 2008 to $20 million last year.

    Buoyant market pushes up sales

    Mirroring the buoyant sales in the primary residential market, residential properties at auctions saw a 250 per cent jump in sales value in 2009. The figure soared from $25.2 million in 2008 to $88.4 million last year.

    More residential buyers are turning their attention to auction sales because the properties available at auctions are deemed to be better value for money as most of the older properties tend to have much larger land or built-up areas.

    In addition, buyers who are owner-occupiers can move into the property when the sale is completed, which is typically three months after the payment of deposit. In comparison, purchasing from a developer could mean a wait of about two years before the property is ready for occupation.

    Popular picks in 2009

    # Landed properties: Terrace and semi-detached. In our land-scarce country, owning a landed property remains the aspiration of many Singaporeans. It is also a status symbol, as these properties are only available to Singaporeans and permanent residents with approval from the Land Dealings (Approval) Unit.

    Even though landed properties do not come with facilities like those found in cluster housing or condominiums, they remain popular, as such properties usually have a private garden and car porch and do not have maintenance charges. Thus, it is not surprising that landed houses have become popular at auctions.

    In 2009, terrace houses costing around $1 million and below were in demand because of their affordability. Five terraces were sold at prices ranging from $820,000 to $1.25 million.

    Corner terraces and semi-detached houses, especially those that sit on large land areas, were the favourites, as these properties are rarely available. A total of 11 semi-detached houses were sold during the year at prices ranging from $1.05 million to $3.7 million. The majority of the transactions were below $2 million and the properties had land areas ranging from 2,400 sq ft to 4,414 sq ft.

    Buyers also favoured semi-detached houses with large land areas. Nine of the 11 semi-detached houses sold at last year's auctions had land areas in excess of 3,500 sq ft.

    The popularity of this type of property can be attributed to the fact that newer semi-detached houses have smaller land areas of about 2,150 sq ft, which could translate to a higher price per sq ft.

    # Apartments with large floor areas: With developers building smaller apartments - some of them dubbed Mickey Mouse flats - in their new developments, the older and larger apartments have become a popular alternative at auctions with owner-occupiers as well as upgraders.

    Apartments in the secondary market are generally larger with a 2-bedroom unit averaging 800 sq ft, a 3-bedroom 1,250 sq ft and a 4-bedroom unit 1,800 sq ft. In comparison, new apartments today are much smaller starting from 300 sq ft for a studio, 527 sq ft for a 2-bedder and 861 sq ft for a 3-bedder.

    Given the limited number of large apartments in the primary market, many throng the auction halls in search of their ideal apartments. Apartments ranging from 1,000 sq ft to 1,299 sq ft were popular at auctions. Eighteen out of the 42 units sold last year fell within this category.

    The apartments bought were at various locations. At International Plaza at Tanjong Pagar, a 1,033 sq ft 2-bedroom apartment was sold at auction for $800,000. At Shanghai One in River Valley, an 883 sq ft 2-bedroom unit went for $1.08 million and in Oxford Road, a 1,097 sq ft 2-bedroom apartment in Kentish Green was sold for $620,000.

    # Properties below $1million: Apartments and condominiums below $1 million were popular too, as evidenced by the 27 successful transactions seen in this category out of the 42 made available at auctions.

    # Apartments in prime districts: The other property type that was sought after at auctions in 2009 was high-end apartments. Apartments located in the prime inner city and District 10 under mortgagee sales were in demand. Two apartments at The Clift were sold for $605,000 and $1.047 million. Another two apartments at Four Seasons Park were sold for about $4.8 million each.

    What will be popular in 2010?

    In line with the recovery in the high-end sector, homes in districts 9, 10, 11, as well as prime inner city and Sentosa, will continue to be popular at auctions. We can expect to see an increase in sales of homes in these areas this year. The proportion of apartment sales is likely to rise to 35 per cent compared with 29 per cent achieved last year.

    The opening of the two integrated resorts (IRs) will enhance Singapore's reputation as a world-class city. Residential properties located near the two IRs were given a boost in value as a result, and were in demand as buyers aimed to cash in on the market.

    Apartments such as The Sail and Marina Bay Suites, as well as properties in Sentosa Cove, will be sought after by investors and owner-occupiers alike.

    Prices of high-end homes in the Core Central Region are still about 11 per cent below their Q1 2008 peak. Improving market sentiment in line with the recovery in the economy, ample liquidity and a low interest rate environment, as well as a hunger for alternative investment opportunities, are factors pointing to a recovery.

    As such, we are likely to continue to see owners taking the auction route this year to sell their high-end properties in hopes of achieving the best price through competitive bidding.

    We could also see some developers exploring auctions as a mode of sale for their properties if the high-end market picks up steam.

    Some developers had success when they used an auction to sell their high-end properties. For instance, 12 parcels of bungalow land in Sentosa Cove were successfully auctioned off in 2006 for a total value of $86.34 million.

    And in 2007, another developer successfully auctioned 12 luxury apartments at The Botanika for $52.92 million, which set new benchmark prices for the area.

    The competitive bidding helped these developers achieve record prices for their developments, and they also gained international exposure as the auctions were beamed live via satellite to cities such as Hong Kong, Jakarta, London and Sydney to tap foreign buyers.

    With an improved economy, the number of properties sold at auctions this year should rise to more than 140, from the 118 seen in 2009.

    More activity is expected in the high-end residential sector and this is likely to boost the sales value at auctions. As such, the market is likely to chalk up more than $200 million worth of transactions this year.

    Grace Ng is deputy managing director (agency & business services) and auctioneer, Colliers International

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    Published March 25, 2010

    HDB resale market to stay buoyant

    EUGENE LIM reckons the current huge base of upgraders, downgraders and PRs is likely to grow and prop up demand for resale HDB flats

    THE HDB resale market has been sizzling of late. In fact, prices have hit their highest level since 1990 when the Housing & Development Board started tracking resale HDB flat prices through its quarterly resale price index.

    Prices of resale HDB flats rose 3.9 per cent in Q4 2009, for an 8.2 per cent rise for the year. This took the resale index to its all-time high of 150.8 points.

    Last year's performance follows from a rise of 17.5 per cent in 2007 and 14.5 per cent in 2008. Over the last three years, resale prices have increased by some 40.2 per cent, or an average of 13.4 per cent a year.

    Resale volume, as shown by the number of resale applications registered quarterly, hovered around 28,000 to 29,000 units annually from 2006 to 2008.

    Last year, the total volume jumped by more than 8,000 units to 37,205 resale applications. Resale volume for 4-room flats saw the largest increase of more than 13,600 units over 2008; followed by 3-room flats with an increase of nearly 10,400 units. Five-room and Executive flats saw a smaller increase of over 9,800 and almost 3,000 units respectively.

    HDB's numbers also show that the median cash-over-valuation (COV) across all flat types was $24,000 in Q4 2009; double the $12,000 in Q3 2009; and the highest since Q2 2007 when such figures were made available. In particular, the Q4 2009 median COV of $20,500 for 3-room and $25,000 for 4-room flats have exceeded their peaks of $19,000 and $20,000 in Q3 2008 by 8 per cent and 25 per cent respectively.

    Why the market is hot

    Various reasons have been cited as the cause for the sizzling market in resale flats.

    One view is that there are not enough HDB flats to meet demand as there are massive over-subscriptions whenever the HDB launches new flats through its build-to-order (BTO) programme.

    However, it was reported in Parliament recently that while the HDB released 13,500 new flats last year and plans to release another 12,000 or more this year, in recent selection exercises, one-third of the flats were rejected on the first day of selection, when all the flats were available. So, the idea that there are not enough HDB flats to meet demand is not true.

    Some have pointed to permanent residents (PRs) as the culprits who have been pushing prices up. PRs cannot buy new flats directly from the HDB and can only buy from the resale HDB market.

    While PR buyers currently make up some 20-25 per cent of resale transactions, it was reported by the government that the median COV paid by PRs was the same as the nationwide median COV in the past two quarters. Cases of PRs paying high COVs are an exception, forming only 14 per cent of the 58 cases of resale transactions with COV exceeding $70,000.

    A third view is that private property owners are the ones pushing up prices.

    But according to the government, their numbers are not large enough to have a significant impact on prices. This group accounts for less than 20 per cent of resale transactions with COV exceeding $70,000.

    While no one group can be blamed for driving up prices, they all add to the total numbers.

    Resale HDB transaction volume jumped by almost 8,800 to more than 37,000 units in 2009. This is significant for any one year, especially when annual resale volume has been in the 28,000 to 29,000 range in recent years.

    New policy changes

    In response to calls to rein in potentially runaway prices, the HDB recently announced several policy changes. Two of them are likely to have some impact on the resale HDB market.

    The first is the standardised minimum occupation period (MOP) for non-subsidised flats. This policy change is designed to curb speculation in HDB flats.

    Data from HDB shows that the proportion of flat owners who sell their units within three years of purchase rose to 8.9 per cent for the first 10 months of last year. In 2008, 7.9 per cent of buyers sold their units within three years.

    In comparison, less than 7 per cent of buyers sold their flats within three years between 2005 and 2007. There were concerns that some buyers were using HDB flats to speculate in the property market and driving up prices in the process.

    To reduce the number of people speculating in HDB flats, the time that buyers are required to stay in their flats before reselling them - the MOP - will be increased to three years for all flats bought in the resale market without a CPF Housing Grant.

    Before this change, the MOP was 2.5 years for buyers who took a HDB concessionary loan and just one year for buyers who either took a commercial bank loan or did not take any loan.

    Based on ERA's transactions last year, 50 per cent of buyers took loans from commercial banks while 10 per cent bought with cash. This means that before the policy change, 60 per cent of the buyers would be able to resell their properties after just one year.

    By standardising the MOP at three years, the turnover rate is slowed down from one year to three years. This has the effect of preventing flippers from pushing up resale prices with their short-term objectives.

    Next, HDB will now allow buyers to take a second concessionary loan from the agency even if they downsize or move to a flat of the same size. Previously, only upgraders qualified for a second concessionary loan.

    This may actually lead to an increase in market activity due to an increase in downgraders, and it could boost resale prices for smaller flats.

    However, it is still early days and we would need to continue monitoring the market.

    What else can be done?

    One populist view is that the rampant subletting of flats is a key factor in driving up flat prices, and the recent slew of measures to curb speculative buying and selling of HDB flats did not address this issue.

    Under current rules, buyers of resale HDB flats can sublet the entire flat after three years if they did not take a government grant.

    According to government numbers, of the 682,000 HDB flats that are eligible for subletting, only 3 per cent are sublet, suggesting that most flat owners are buying for occupation, and not rental.

    However, the rental market indirectly influences the price of resale flats. For example, a 3-room HDB flat will yield a return of almost 7 per cent with a median rent of $1,500 a month at a median resale price of $260,000. There is no way one can achieve a 7 per cent return by investing in private residential property.

    Also, the continued price rise in the private property market makes HDB flats very attractive in terms of capital outlay and yield.

    Home owners, realising that they can make money from rentals, may be unlikely to sell their HDB flats even if they go on to buy private property. This leads to a drop in the number of resale flats in the market, hence driving up prices.

    Also, 'investors' may be attracted to buy HDB resale flats to rent out immediately. Though this infringes HDB's subletting rules, some may find a yield of 7 per cent too attractive to pass up. These buyers may already own a private home and are not in need of a HDB flat.

    With such attractive returns, it is no surprise that some, if not many, may be prepared to flout the rules. Whether this group is large or small, it adds to overall demand for flats and therefore impact resale prices.

    It may be an opportune time for the HDB to relook the current subletting rules that were implemented in 2007 following amendments made in 2005 and 2003 to allow HDB home owners to monetise their flats.

    Before 2003, owners were not allowed to rent out their flats unless they were going overseas to work or had other valid reasons. Another way is to step up policing. Unless the current rules are enforced strictly, some people will continue to flout them.

    Going forward, with the improving economy, we can expect the HDB resale market to remain buoyant for the rest of the year.

    As for COVs, they are likely to stabilise as there is beginning to be some resistance to the current quantums.

    With more new flats being built and priority given to first-timers, this group is shunning the resale market for obvious reasons.

    However, the current base of upgraders, downgraders and PRs remain huge and is likely to grow, and they are propping up demand for resale HDB flats.

    The writer is associate director, ERA Asia Pacific

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    Published March 25, 2010

    Building world-class public housing

    HDB offers a range of lifestyle options for the majority of the population. ADAM TAN explores the new public housing landscape

    IF the Resale Price Index (RPI) released by the Housing & Development Board (HDB) is anything to go by, public housing in Singapore is gaining popularity by the day. Quarterly results have recorded just four dips in over five years, with the RPI growing a modest 3.2 per cent annually for the past decade.

    Despite the rising prices, a very visible explanation for this increasing preference for HDB flats would be the evolving lifestyle landscape of public housing estates. Public housing no longer means a collection of cookie-cutter buildings across the island offering exactly the same designs for each flat type.

    The fact is that public housing for the masses has come a long way from its beginnings in 1960. The early flats and their surroundings were far simpler than flats and estates built today, with the objective being to house the burgeoning population as quickly as possible.

    Fast forward to today and the landscape is very different. New blocks now have lifts on every floor. Individual units and blocks are better designed and estates now incorporate more recreational facilities within them, such as jogging tracks, gardens and exercise areas. Each cluster of flats has its own identity, from the colour of the flat blocks and the design of the playgrounds, to the layout of the greenery in the estate and the amenities offered nearby.

    Living in the heartlands has certainly changed over the years, with malls near most estates and an improved infrastructure connecting the residents to the rest of the island via the MRT and Light Rail Transit (LRT) network. Bus services have also improved for greater connectivity.

    And it all boils down to an improvement in living standards for the masses. The HDB has progressed from merely providing roofs over people's heads, to proffering a range of lifestyle options for the mass population.

    The [email protected]

    A prime example is The [email protected] at Cantonment Road, the landmark public housing development that offers a higher standard of living than previously seen in public housing. Housed in seven 50-storey blocks, The [email protected] also holds the record for being the tallest public housing buildings in Singapore.

    Flats for The [email protected] were completed in December 2009 and its new residents enjoy facilities like the two unique skybridges, which create possibly the world's longest continuous sky garden. These skybridges play a leading role in the lifestyle of residents there.

    The skybridges, located at the 26th and 50th storeys, offer views of Chinatown, Marina Bay, Mount Faber and the city. Besides that, the skybridge on the 26th floor also incorporates a residents' committee centre, children's playground and exercise facilities such as a jogging track, senior citizens' fitness corner and outdoor gym.

    The anticipated demand for the skybridges is such that there are restrictions in place to maintain a level of comfort and safety for all visitors and users. For instance, only 1,000 people are allowed onto the skybridges at any one time and the 26th floor skybridge is reserved exclusively for residents. Furthermore, non-residential access to the sky garden on the 50th floor is chargeable at $5 per person per entry, to help defray maintenance costs.

    Rounding off the estate's amenities are a food centre and daycare centre, while sports and recreational facilities can also be found within the estate. In terms of accessibility, six bus services go to The [email protected] while Outram Park and Tanjong Pagar MRT stations are but a short stroll away.

    Two other notable public housing projects are the recent build-to-order (BTO) launches by HDB, namely [email protected] and [email protected]

    Once built, these two BTO projects will be among the closest HDB flats to the Orchard shopping belt. Besides their proximity to Orchard Road, there are also various amenities nearby. These include a supermarket, eateries, parks, schools and recreational facilities.

    Mainly because of the location, these public homes are naturally priced on the high side. During the balloting exercise held in September 2008, the price range of 5-room flats at The [email protected], at $545,000 to $646,000, was comparable only to the median resale prices for 5-room flats in the Central area, Marine Parade and Queenstown (Table 1).

    Similarly, the price range for a 5-room flat at [email protected] and [email protected], at their launch in mid-December 2009, was $532,000 to $643,000. The median price for such units was below the median resale prices for 5-room flats only in Bukit Merah, Queenstown and Marine Parade ( Table 2 below).

    For those who may baulk at paying such high prices for public housing, but still crave a vibrant lifestyle in the surrounding environs, Punggol is an increasingly viable, and more cost-efficient, alternative.

    In the last 12 months, six out of the 16 BTO projects launched were located in Punggol. The prices of flats there ranged from $228,000 to $322,000 for 4-room flats, and no more than $409,000 for a 5-room flat, roughly 60 per cent of the price tag for the units in [email protected] and [email protected] In addition, the BTO projects at Punggol also introduced studio, 2-room and 3-room flats to the estate, providing more variety for future residents there.

    One factor behind the focus on Punggol is the Punggol21 Master Plan. There are government plans to remake the estate into a vibrant waterfront town, a recreational and housing hub that is also set to be Singapore's first eco-town for the tropics.

    Work on the waterway is set to be completed by the end of the year, and will offer the targeted 21,000 public and private homes along its banks the allure of waterfront living. By end-2011, there will be about 23,000 completed flats in Punggol.

    Another exciting development in public housing is Clementi Town Centre. The former bus interchange is set to be unveiled this year as a new 40-storey complex housing a new air-conditioned bus interchange, a five-storey mall, a community library, Town Council office and 388 units of public housing. This will be the first time that a single complex will house public residences, commercial properties and a transportation hub.

    In a bid to act as an example of a typical 21st Century HDB town, Punggol is being designed as an eco-town. It will act as a test-bed for various eco-friendly and energy-saving initiatives, such as solar panels to harness energy for lighting common areas, a rainwater collection system and the Energy SAVE Programme. The latter is designed to reduce energy usage in households by 10 per cent over the next five years. These new measures are all part of HDB's sustainability efforts and Punggol is set to spearhead them.

    Then, in January this year, HDB launched the tender for two executive condominium (EC) sites in Sengkang and Yishun. ECs, while considered public housing, offer facilities that are comparable to private condominiums, and have a monthly household income cap of $10,000. These will be the first ECs to be launched since mid-2005, simply because the gap between public housing and mass market private properties had been relatively narrow for years.

    However, even as household incomes have been rising, the prices of new launches in the mass market have also been going up.

    There is therefore a growing segment of the population whose household income of above $8,000 makes them ineligible for new HDB flats, yet for whom the prices of mass market properties are beyond their means. The demand from this 'sandwich class' makes the re-introduction of ECs a welcome move from the government.

    Staying affordable

    In short, all these new developments point to the future of public housing: a richer lifestyle offering enhanced connectivity, more choices for dining, entertainment and education, as well as other amenities, and all within a convenient distance.

    And while the government has made it clear that it will not control prices in the property market, it has also stated that public housing will always remain affordable.

    Naturally, there will be estates where the prices of public housing units are similar to those of some mass market private properties, but, geographically, prices will never overlap.

    To illustrate, one could opt to stay in a centrally located HDB flat or opt for a private property unit in the Outside Central region. That is why Singapore's public housing will never challenge entry-level private housing.

    The choice between one and the other all depends on how status-conscious the buyer is, and whether there is a need for private amenities.

    As there is a minimum occupancy period for the new projects, there should be no effect on the resale prices of surrounding flats. The HDB resale price index is expected to see an overall 5-8 per cent growth this year, barring any unforeseen financial crises.

    The writer is corporate communications manager, PropNex Realty Pte Ltd

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    Published March 25, 2010

    Always a way to do up a micro unit

    Space planning is paramount, Axis ID boss William Ong tells KALPANA RASHIWALA

    'A LOT of people don't understand that you can still make a small apartment feel comfortable if you do not put in the wrong things. Space planning to me is the most important part of interior design; it is not about decoration first,' says William Ong, executive chairman of Axis ID.

    Micro apartments and shoebox units have gained currency in the past year or so as some developers have shrunk apartment sizes to keep lumpsum unit prices within reach of lower-budget investors.

    However, there has been concern about the challenges that buyers will face in fitting out their units when they take possession of their properties.

    Mr Ong argues that while such units are small, they can still be practical and liveable if designed and laid out correctly. And one can always count on some clever interior design tricks to help make them appear bigger than they are.

    'In terms of space, you have to first see the space; then see how to lay out the furniture so that it is usable, it doesn't clutter up (the room); and thirdly, the scale of the items and the furniture you put inside must complement the space.

    'So you can't put in super-large sofas; or if you can only put in a two-seater, you should not force in a three-seater, for instance . . . If you put in the right scale, things will turn out right.'

    No matter how small an apartment is, there is a way to lay out the bed so that it sits nicely and still gives occupants space to move around, to have access to the wardrobes without having to climb over the bed.

    'If you put your bed against the wall, you have a lot more space to walk in a small room. But if you want to put your bed as an island by itself, then you need space around it, and it (the room) will look a lot smaller.'

    Design tricks

    Besides careful space planning and the use of correctly scaled furniture, one can employ mirrors and lighter colours to make small apartments appear bigger.

    'Another issue that a lot of people find with a small apartment is they don't have enough storage space. But there are so many ways to cleverly design and build storage areas without having to clutter up the whole apartment.' An example would be to have a full-height storage cabinet that forms part of a wall.

    In any case, size is just one factor. The configuration of the apartments, how they are laid out by the architects, is also important, says Mr Ong, who also co-founded Axis' architectural business.

    'Sometimes layouts are very odd because of site constraints. In such a case, even if you have a bigger apartment, it would be quite useless. There would be a lot of wasted space with long corridors, for instance, or a lot of odd-shaped rooms. Instead, if you have a nice regular-shaped apartment, then even if it's small, you can do quite a lot with it.'

    Practical necessity

    The phenomenon of tiny apartments is neither new nor unique to Singapore. Studio apartments have been around for ages, Mr Ong points out. 'When the cost of real estate is very high, people can only afford to buy smaller units, especially in prime areas,' says Mr Ong.

    Small apartments may serve the needs of a single person or even a couple, and are also suitable for leasing to expats who just want to have a pad when they are in town. 'I see a trend where these small apartments may also be bought by companies for housing their foreign staff,' Mr Ong says.

    A major part of Axis ID's business is designing and building showflats for residential projects of Singapore developers such as City Developments, Ho Bee, Allgreen and Wing Tai.

    Singaporean home owners increasingly want their homes to look like showflats and boast a wow factor, according to Mr Ong.

    'A home used to be something comfortable to come back to, and live in. It didn't have to be glamorous and eye-catching. But increasingly, owners want their homes to be more like showflats, a place they can show off to their friends. The wow factor must be there.'

    As a result, the interior design gap between real apartments and showflats is closing, says Mr Ong.

    While Axis ID's staple business is showflats for residential project launches, the firm also does interior design for homes of individuals - but only selectively and usually when its sister company, Axis Architects Planners, also provides the architectural design services to these clients.

    Growing affluence has spawned several trends on the Singapore ID scene. For one, home owners are acquiring a feel for luxury and quality. 'It has nothing to do with the style. Luxury can be very modern, can be very traditional, can be very eclectic. It has to do with versatility of people travelling, living in beautiful hotels all over the world.'

    The affluent and well-travelled are also expressing their own personal style when it comes to their homes - instead of following the crowd. 'Nowadays, I don't think there is a definite design style that people will follow, not like before when there was a certain design direction, for example, minimalist or Asian.'

    Another thing that Singaporeans have picked up as they've acquired greater wealth is a penchant for collecting - antiques, artworks, furniture.

    Their budgets for doing up their homes have also grown.

    'You can see the trend. When housing was cheaper than what it is now, people did not want to spend a lot on interior design. But now when they spend millions for an apartment, they wouldn't want the interiors to be fitted up cheaply. Probably the norm is within the range of $400,000 to $600,000 for a new homeowner with an average-sized three-bedroom apartment in the prime districts, as many would prefer their homes to be fitted with imported designer furniture. '

    It's worth investing in more expensive furniture as it is of better quality and lasts longer, argues Mr Ong.

    'Somehow, when you custom-make something locally, it will never match the quality of something you buy from a furniture maker because they specialise in designing and making the furniture; how could a contractor here do something comparable?'

    Axis ID also has clients in the hospitality industry - resorts, hotels and serviced residences - here and in the region. It opened a Shanghai branch in early 2004.

    The 56-year-old Mr Ong says: 'I don't take my job as work, I take it as a hobby. I enjoy what I'm doing. I think that's very important.'

    He also lists travelling overseas as a hobby. 'Every trip, I make it a point to visit new places, hotels, new developments, visit other people's showflats and see how they do things. I can tell you Singapore showflats are some of the best I have seen. I am talking not just about the ones done by us but also some of the other firms.

    'I was very happy when I was in Bangkok recently. I spoke to one of the big developers there and he said to me: 'You know how we improve our standards? We go to Singapore and study the showflats there. They have become our benchmark'.'

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    Published March 25, 2010

    Mixed development en bloc sales need incentives

    Collective sales of such properties tend to be slow


    SINCE the phenomenon of collective sales started in 1994, there have been over 400 en bloc developments sold to date. Of these, only a handful, possibly about 10 or so, were mixed developments, that is, buildings with a variety of uses like shops, offices and apartments. Most of the successful en bloc sales were purely residential developments, or those with a few shops within the condominium.

    In the most recent property boom in 2006/07, prime land and buildings were hot commodities, and en bloc sales were the predominant way for developers to lay their hands on them. So if demand was so strong, why were there so few sales of prime strata titled commercial or mixed developments?

    Firstly, only a minority of mixed developments and shopping centres in Singapore are strata titled. The majority of them have single owners - usually an institutional fund, trust or investment company. Take Raffles Place as an example. Of the 30 office buildings located in the vicinity of the MRT station, only three are strata titled.

    It is relatively easy for single owners to monetise unused plot ratios or give a facelift to their building. These moves usually enhance the owner's investment returns which serve to motivate the building's redevelopment or refurbishment.

    Keppel Land, for example, tore down Ocean Building and is redeveloping the site into Ocean Financial Centre. OUB Centre has an annex block under development. Shell Tower was transformed several years ago into a modern office block, now called Singapore Land Tower.

    However, amid these spanking new Grade A offices in Raffles Place, there are some old strata-titled buildings like The Arcade and Clifford Centre, which many regard as tired and outdated.

    In the case of strata-titled buildings, especially those with no major owners, the motivation to build consensus among the owners and incur large sums to upgrade common areas is usually not high.

    Owners of many older strata-titled complexes have contemplated pursuing an en bloc sale. But in most cases, they find it difficult to devise a formula to distribute the sale proceeds among the different use groups.

    This is made more complicated by the allotment of share values which vests more shares per square metre for shops than offices. Apartments are in third place. The weightage ratio determined by the authorities is 5:4:1 respectively.

    To add to the complexity, some old commercial buildings even have their car park space separately strata titled, as in the case of Orchard Towers and Shenton House.

    Aside from the challenge of slicing the sale proceeds among the different use groups, finding an equitable apportionment formula for the retail units can be difficult. The values of two shop units of equal size located in different parts of the same floor can differ tremendously. A unit facing a busy concourse, escalator or with a main road frontage could be worth double a unit of the same size tucked away in the rear or close to the toilets or loading bay.

    Another challenge that owners of shop space tend to face - especially those that run thriving businesses from their units - is the heavy cost of relocating. There are fit-out costs, business disruptions and perhaps most significantly, the loss of goodwill when they move. The goodwill factor is difficult to quantify and factor into any apportionment formula.

    For some trades, there could be just one or two buildings they can consider operating in. The rest simply do not work. For example, a major computer retailer would not for a moment contemplate anywhere other than Sim Lim Square or Funan DigitaLife Mall.

    For many shop owners, the motivation to sell may not increase as the building ages, especially when they enjoy a thriving business arising from a unique location.

    Little wonder then that major mixed developments or strata titled retail buildings that were sold en bloc - like Katong Mall, Kim Seng Plaza, UIC Building and Kim Tian Plaza - had one or several major owners who controlled substantial portions of the floor space and share values. Without that, getting a consensus of more than 80 per cent may not have been possible.

    The main aim behind the en bloc law that allows for a majority rather than a unanimous vote is to facilitate urban renewal. Over the past 10 years, the en bloc phenomenon has helped transform Singapore's urban landscape in many precincts as modern buildings replace old ones.

    So, if the en bloc sales mechanism in its present form does not work effectively for ageing strata-titled mixed developments or shopping centres, town planners may need to think of alternative solutions for them.

    One option is the classic 'carrot-and-stick' approach. Provide the owners incentives to band together to sell collectively or spruce up the building within a reasonable time frame. The incentives may be bonus plot ratios or reductions in development charges (DC) which would enhance the monetary gains if they comply within the time frame.

    In 1994, the Urban Redevelopment Authority (URA) had successfully transformed the Hillview area near Upper Bukit Timah from an old industrial belt into a district of modern condominiums, with the aid of time-sensitive bonus plot ratio carrots. That was a win-win approach.

    The alternative is the draconian win-lose approach of invoking the state's land acquisition powers.

    The situation is by no means dire. Some could even argue that older buildings with all their imperfections widen the range of offerings at economical rates.

    Old office buildings offer more affordable rents to price-sensitive businesses. Some old shopping centres like Queensway Shopping Centre and Katong Shopping Centre appeal with their specialty goods at cheaper prices, not to mention the nostalgia of their older setting.

    Karamjit Singh is managing director and Pamela Kow is senior manager of Credo Real Estate

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    Published March 25, 2010

    Office market beckons

    Singapore set to emerge as premier gateway city in region, say JUNE CHUA and CHRISTINE SUN

    ONE year into the global financial crisis that almost brought all major economies to their knees, Asia staged an impressive rebound at the end of 2009 with an ensemble of massive government stimulus packages.

    Despite lingering doubts about the debt-laden European economies, Asia is expected to continue its strong recovery in 2010. The guarded optimism should continue to boost business confidence and revive corporate spending here.

    While the local residential and retail sectors were beneficiaries of the market exuberance, the office sector is still suffering the brunt of the financial meltdown. Office vacancy remains above equilibrium as supply outstrips demand. On the back of tenant relocations and corporate downsizing in the first half of 2009, it is estimated that 300,000 sq ft of shadow space has emerged in the Raffles Place and Marina Centre areas.

    Consequently, Grade A office rents, which had been rising at a double-digit rate since 2007, tumbled from a peak of $15.10 per sq ft per month in Q2 2008 to $8.80 psf in Q4 2009. Taking into account the incentives provided by landlords, effective office rents now range from $6 to $8 psf per month.

    Between 2010 and 2013, the rental correction may slow down as leasing demand rises to mop up the new supply entering the market. With the gradual return of business confidence, more companies are expected to revisit their office space planning with a view to expansion.

    Recent trends seem to affirm this proposition as the market saw a slowdown in the surrender of unused space and a withdrawal of shadow space.

    Nevertheless, the 10-year average demand of 670,000 sq ft per annum is well below the new supply entering the market at an average rate of 2 million sq ft per annum.

    Grade A rent fell by 35 per cent last year and is predicted to continue falling albeit at a slower rate of 20-25 per cent this year before a plausible bottoming out in 2011/2012.

    On a more positive note, the prospect of distress may bring the potential for opportunities.

    First, the delayed rental recovery supported by sound market fundamentals might bode well for the Republic in the short term. Singapore and Hong Kong are often the preferred Asian cities for incorporation or expansion of businesses among foreign investors.

    In a recent Savills survey that compared the top five buildings in each market, Hong Kong ranked first in terms of prime office costs, followed by Tokyo, then Singapore and Seoul in third place.

    Due to limited supply, Grade A rents in Hong Kong are expected to rise between 5 and 10 per cent this year. The spike in rents could be further exacerbated as Hong Kong is likely to face a severe shortage of office space once current vacancies are filled.

    Little is also expected in the way of new supply in Hong Kong with a mere one million sq ft per annum is likely to be added between 2010 and 2013.

    A rising cost base in Hong Kong with the consolidation of regional office markets could result in many multinational corporations relocating their businesses to lower cost centres such as Singapore. Singapore's advantage lies in its financial stability, cultural affinity and strategic location.

    Hence, Singapore may outpace other Asian Tigers to be a premier gateway city for MNCs to expand their influence here in South-east Asia. In recent years, over 7,000 MNCs have set up their operational bases here, with more being expected to expand further as office rentals decline to more affordable levels.

    Secondly, a more sanguine outlook for the office investment market has emerged with the turnaround of capital values in the latter half of 2009. Average Grade A capital values held steady at $1,700 per square foot (psf) in the fourth quarter of 2009, ending five quarters of decline.

    In January 2010, a private fund of AEW Asia purchased Robinson Point for $203.25 million or $1,527 psf, a 20 per cent uplift from the $1,280 psf paid for Parakou Building, another office building located further down the street, in May 2009.

    Outside the CBD, City Developments Ltd (CDL) sold the Office Chamber at Jalan Besar for $13.2 million or $940 psf in December 2009, and its majority stake in the 999-year leasehold North Bridge Commercial Complex near Bugis Junction for $46 million or $1,194 psf of strata floor area in November last year.

    In the strata-office market, average capital values at Suntec City and The Central have increased by 5.7 per cent and 9.8 per cent quarter-on-quarter to $2,000 psf and $1,686 psf respectively in Q4 2009.

    Due to more steady income derived from contractual rental streams, the office investment market could be an attractive alternative in the current market. As the office sector continues on its road to recovery, we could expect more investors to diversify into the office market.

    Therefore, buying interest in the investment market is expected to gain momentum in 2010 and an increase of 5-10 per cent in Grade A capital values is likely for the full year. Buyers may also be looking to capitalise on possible long-term rental growth beyond 2010/2011.

    Thirdly, the commercial landscape of Singapore is set to be rejuvenated with the emergence of a two-tier Grade A office market. New Grade A offices such as Marina Bay Financial Centre (3 million sq ft), Ocean Financial Centre (one million sq ft) and Asia Square (2.3 million sq ft) have begun to lace the city facade, raising Singapore's office standards several notches higher with more efficient layouts, state-of-the-art facilities and larger floor plates.

    Vacancies in the older Grade A and B buildings will continue to intensify. The situation could be exacerbated when tenants move out of existing buildings to new buildings like Marina Bay Financial Centre Towers 1 and 2 this year. This would continue to weigh down rents and may prompt landlords of older office buildings to upgrade or redevelop their investment properties to remain viable.

    June Chua is director, commercial leasing, and Christine Sun is senior manager, research & consultancy, Savills (Singapore) Pte Ltd

  16. #16
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    Published March 25, 2010

    Govt stimulus buoys M'sian property

    Market may not have rebounded to levels seen elsewhere but it posted a decent performance in 2009, reports PAULINE NG

    IT may have been counter-intuitive, but 2009 proved to be a good year for Malaysian developers, the recession notwithstanding. The property market may not have rebounded to the levels experienced in other markets such as Singapore, Australia or Hong Kong, but it was generally decent.

    Despite economic output contracting by 1.7 per cent, Jones Lang Wootton executive director Malathi Thevendran described last year as 'exceptional' for the property sector, which was buoyed by a RM67 billion (S$28 billion) stimulus package, cuts in lending rates, and attractive developer incentives such as the 5:95 home deal, where buyers foot just 5 per cent of the bill until completion.

    CH Williams Talhar & Wong (CTW) director Foo Gee Jen observed that landed properties did well, listing Lake Edge and Sunway Kiara Hills as examples, because 'the rich were less affected'.

    Generally, there were no major price reductions of residential properties, except for high-end condominiums in areas where mainly foreign interest had led to intense speculation and hence strong capital appreciation in 2008. This would be largely in the premium Kuala Lumpur City Centre area and Mont Kiara where existing stock is estimated at slightly below 4,500 and 9,000 units, respectively. Because of the robust supply pipeline and a limited expat base, recovery is expected to be slower.


    Last month, the central bank moved to curb the swirling liquidity and possibility of inflated assets by lifting the key interest rate by 25 basis points to 2.25 per cent. It has hinted at more increases to come but plans to keep rates 'supportive of growth.'

    Notwithstanding monetary tightening, property analysts do not foresee too much of an impact on launches or transactions given that developers are expected to continue to offer buyers the best deals.

    CTW's Mr Foo anticipates a greater range of new products this year, 'likely not high-end, but mid to mid-high' types of around RM250,000 to RM500,000 - mainly terrace houses outside the more established townships since those in the more popular suburbs of the Klang Valley cost upwards of RM800,000.

    Ms Thevendran concurs. Houses in the RM400,000 to RM500,000 price range have seen 'higher sales rates' in recent months and 'schemes by reputable developers particularly to the west of Kuala Lumpur continue to experience strong demand', she said.

    With the lower end category over-done in the 1990s, builders are now focusing on the higher end as buyers have grown more discerning. She said the supply of houses over the past decade has expanded by 9 per cent per annum compared to 21 per cent for the high end and 11 per cent for lower end condo segments respectively.

    Besides the Klang Valley - the centre for employment opportunities and hence inter-state migration - Penang and Johor Baru should also continue to see robust housing demand, especially projects with reputable developers and in close proximity to upgraded roads, new highways and public transport.

    Because of the government's aim to leverage Iskandar Malaysia as a growth area, infrastructure development is currently strongest in Johor Baru. New highways and links are being built especially in the south near the city and state administrative centre, Causeway and Second Link.

    With better links and more commercial and leisure activities taking place, Iskandar promoters expect a 'tipping point' to be reached next year or the year after. The blueprints being rolled out appear to support this belief.

    Big projects

    Take the two massive developments in the pipeline. The 300-acre South Key project on the former Majidi Army camp site in the city, envisages festive malls, alfresco dining, shops, corporate offices and the like in a fully integrated development that could be built over 12-15 years. Its estimated gross development value (GDV) is RM12 billion.

    Lido Boulevard, although a third of South Key's GDV, will not be minor. Undertaken by Central Malaysian Properties (CMP), the 123-acre project along the Johor Straits will stretch from the current abandoned Lot 1 shopping mall to the Harbour Master's office.

    Land reclamation will soon commence for the waterfront development which will include high-end condos, hotels, a mall, cultural centre, indoor snow park and a 'garden city.' CMP plans to launch the Lido Residences by the second half of the year. Its managing director Chan Tien Ghee said the 908-unit residences attracted a lot of foreign interest (Singaporeans and Indonesians in particular) at a soft launch.

    The waterfront apartments would be fully furnished and sized from about 1,800 square feet. When asked about pricing, he told BT: 'We are talking about a very high niche.'

    CTW director Danny Yeo said the Johor property market has had a generally poor decade. But looking ahead, he said the 'right projects' - waterfront, secure, and those boasting developers with a good track record - will have minimal downside risks. He also recommends inter-city developments as they are 'even cheaper than in a smaller town like Kuantan.'

    'If you are a Singaporean and have the intention to buy with a view to reside, it is a good time to do so now especially near the Nusajaya side,' he opined. For investors, he suggests that commercial real estate is 'a better bet.' As in the case of the administrative city of Putrajaya, pricing for some of the residential developments could be 'ahead of time'.

    He believes now is the time for developers eyeing Iskandar to make a move as once the tipping point has been reached, land will cost more. 'The question is do you believe in Iskandar?'

    Penang prices

    Going by Penang's ever-rising property prices, many appear to believe in the island state. 'Penang property has gone crazy because of the limitations (of being an island). Prices on the mainland have also improved but it's industry driven,' said Mr Foo.

    A Penang think-tank attributed property increases in the state to the lack of land but also to speculation, robust investor demand from wealthy Malaysians and foreigners, and low cost of funds.

    Over the period 1999 to 2008, Penang properties had increased a tenth more than the national average, according to Michael Lim, a senior fellow at the Socio-Economic and Environmental Research Institute. But with developers focusing mainly on the growing demand for higher-end products, signs of an under-supply of affordable housing were beginning to emerge, Mr Lim told a roundtable on the gap in affordable housing in George Town recently.

    Penang could also be a victim of its own success with a growing number of residents upset over the burgeoning high-rise projects now dominating the landscape.

    Henry Butcher Malaysia senior manager Fook Tone Huat has a suggestion: Look across the island to Seberang Prai - twice the island's size and about 40 per cent cheaper. He expects the area to see a 10 per cent appreciation in price owing to its higher population density compared to the surrounding areas in the north.

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    Published March 25, 2010

    UK home sector evolving into 2-tier market

    NEIL BEHRMANN observes that prime real estate in London outperforms the rest of the country

    THE UK residential property sector has become a two-tier market.

    Prime real estate in London and the stockbroker belt have outperformed the rest of the country by a wide margin in the past year. Wealthy foreign buyers taking advantage of a cheap pound, the stock market recovery and banker, broker and trader bonuses are behind the revival. Much lower mortgage rates have also helped over-stretched property owners, enabling them to hang on to their pricey properties. There were thus less forced sales than expected. The supply of properties declined and this has played a part in pushing up prices.

    The result is that after the property bubble in 2006 to 2007 and the crash in 2008, prices of selected residential properties, especially prime London, jumped in the past year.

    The chart from the Royal Institute of Chartered Surveyors describes what has happened in the UK. Despite the revival, however, average residential property values are still well below their peaks and so far this year, are declining in real, inflation-adjusted terms. In contrast there has been a smart recovery in London's plush areas but even those prices, on average, are still below their 2007 bubble peaks.

    Savills' indices show that average values in the prime central London market increased by 4.6 per cent in the final quarter of 2009, raising annual growth to 8.9 per cent. In prime south-west London, values rose by as much as 17.8 per cent during the course of the year.

    'One of the key features of the prime London property market during the past decade was the demand for large-scale dwellings,' says Yolande Barnes, a director of Savills. 'The sheer scarcity of these much larger properties led to premiums being paid.'

    The average value of a 1,000 to 1,500 square foot prime central London property was under 1,100 (S$ 2,320) per sq ft in 2009. Units between 5,000 and 10,000 sq ft averaged 1,850 per sq ft, with second-hand properties larger than 10,000 sq ft exceeding the 2,000 per sq ft barrier.


    This premium for large properties is the result of purchases from super-rich multinational buyers who have been seeking big townhouses in the most prestigious addresses, according to Savills.

    In 2009, international buyers accounted for 45 per cent of all central London purchasers above 2 million, according to Knight Frank. Above 5 million, the proportion reached 60 per cent. The most significant individual nationalities buying real estate in London were Russians (14 per cent of all international buyers), Italians (11 per cent), US (9 per cent) and the French (7 per cent). Asians and Middle Eastern investors were active too.

    The corresponding rise in demand for luxury accommodation paved the way for high-profile luxury flat developments such as The Bromptons in Chelsea, The Knightsbridge and One Hyde Park. Price premiums have not been confined to these rarefied markets as there were also above-average bids for large older London apartments.

    Likewise, in the more domestic prime markets of south-west London, units over 3,500 sq ft also were priced at noticeable premiums, says Savills. Similar trends were apparent in St Johns Wood and Hampstead in North London.

    According to the UK Land Registry index of houses and apartments that have been traded, average prices in Kensington and Chelsea slid from 856,000 at the end of 2007 (US$1.8 million at the exchange rate at the time) to 752,000 (US$1.1 million at the current rate) early 2009, but have since risen to 821,000; City of Westminister fell from 612,000 to 564,000 and have increased to 594,000; Tower Hamlets, near the financial centre of Canary Wharf, declined from 376,000 to 329,000, but the area experienced a minimal rise to 339,000.

    Other popular areas such as Richmond slid from 455,000 in 2007 to 383,000 early 2009 and are currently 416,000, Islington from 450,000 to 383,000 has risen to 402,000, Barnet down from 355,000 to 318,000 is up to 333,000; and Camden, including Hampstead, tumbled from 538,000 to 473,000, but has since revived to 503,000.

    These are averages of properties ranging from small apartments to semi-detached and detached houses. In practice, large houses in Chelsea and Kensington are currently trading from around 2 million to 5 million with prices of 1.5-3.5 million in areas surrounding Hampstead, St Johns Wood, Islington, Richmond and Wimbledon. Two-bedroom purpose-built apartments in these areas which dropped to between 350,000 and 600,000 have recovered by 5-10 per cent.

    For international investors, property was a bargain when sterling was trading below 1.40 against the US dollar and was depressed against the euro. But since then sterling and property values have risen, so there are fewer bargains. The British government has also tightened tax regulations for foreigners resident in the country.

    Tax rates jumped to 40 per cent for individuals earning just below 40,000 a year and will rise to 50 per cent for earnings above 150,000. Due to the more stringent tax regime, hedge funds, other asset managers and several corporations are moving out of the country. Medium to long term, this will be to the detriment of property prices.

    Price revival

    Now that prices have revived to levels not far below bubble levels, the London market cannot be regarded as cheap for either local or foreign buyers. Since the market is distorted by a shortage of supply there tends to be a wide spread between bid and offer prices and there is a high stamp duty.

    Growing numbers of people are seeking rental accommodation, but despite this demand, rents have only increased slightly. The standard of rentals varies greatly. Yields are at uneconomic levels for potential property investors who want to buy quality property in good locations.

    The surge in property prices from 2000 to 2007 slashed average gross income yields from 8.1 per cent to around 4.6 per cent, estimates Savills. There are wide yield differentials between properties in the poorer districts where gross yields are around 6 per cent and prime properties where gross yields are as low as 3.8 per cent.

    Net yields, including maintenance, agents' fees and voids, are below 3 per cent for prime properties and approach that level for lower quality real estate because of higher maintenance costs and unreliable tenants.

    Supply is also beginning to rise. A growing number of home owners are placing their properties on the market following the price recovery, according to figures from the Royal Institute of Chartered Surveyors.

    The number of people offering properties for sale in February rose at twice the rate as those wishing to buy. With uncertainty leading up to the UK elections, expected in early May, real estate prices are forecast to flatten out.

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    Published March 25, 2010

    Australian property returns to growth

    The nation avoided the recession that hit most developed countries, says DANIEL BOMAN

    AUSTRALIAN residential property prices have been quick to return to growth after the global financial crisis, underpinned by a strong economy and increasing population growth.

    Australian capital cities recorded an average of 5.2 per cent growth in dwelling prices over the fourth quarter of 2009, a strong improvement on the 1.3 per cent decrease in the corresponding quarter a year ago.

    Over the past year, figures from the Australian Bureau of Statistics show house price growth has equated to 13.6 per cent, a strong result that has been buoyed by a strong recovery in consumer confidence and consistently strong economic growth.

    Due to its diversified economy, stable political climate and secure banking system, Australia was able to avoid the recession experienced in most of the developed world during 2008/09.

    Over the last 12 months Australia's GDP grew by 2.7 per cent, well above the averages of the G7 countries at -0.9 per cent, the European Union at -2.3 per cent and the US at 0.1 per cent. Economic growth is forecast to continue, with Oxford Economics predicting a further 2.7 per cent growth for 2010 and 4 per cent for 2011.

    The strong economic performance is attracting an increasing number of foreign migrants to the country, with a net total of 285,300 persons moving to Australia during the year ended June 2009, up from 213,600 the previous year. Coupled with a strong natural increase of 157,800, the demand for Australian property continues to be underpinned by a need for new dwellings to meet a rising population.

    The increase in residential property prices is occurring in all major capital cities in Australia, with the largest city, Sydney, recording price growth of 12.8 per cent over the past year.

    The city of Melbourne, located to the south of Sydney recorded the largest increase last year, returning 19.7 per cent, while Brisbane to the north recorded 10.9 per cent.

    In the west, Perth recorded 11.5 per cent growth, largely underpinned by the strong performance of the mining sector which comprises a large proportion of the city's economy.

    Due to the lack of bank finance created by the global crisis, the construction of new dwellings has not kept pace with Australia's strong population growth.

    During the year ended June 2009, Australia's population increased by 443,100 persons. With an average household size of 2.6 persons per dwelling this creates an indicative demand for an additional 170,000 dwellings.

    Yet during the same period, only 131,300 new dwellings commenced construction, creating an indicative shortage of 39,000 dwellings. This is expected to place further upward pressure on prices and rents.

    On a closing note, it is interesting to note a changing demand in dwelling types by Australian buyers and renters.

    In the past, new development has usually taken the form of house-and-land packages located on the outer fringes of major cities, but now development is increasingly focused on inner city apartment developments and smaller lot housing.

    In our view, this change is a response to a growing shortage of land in the outer suburbs driving up prices, coupled with a desire of many people to live closer to their workplace and to the inner city restaurants, bars and shopping.

    Changing demographics have also increased the proportion of people seeking to rent a property rather than to own, creating opportunities for investors to own low-maintenance inner city units.

    Daniel Boman is research manager at DTZ Australia

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