Singapore property weekly issue 2

SINGAPORE PROPERTY WEEKLY – Issue 2

Welcome to the second issue of the Singapore
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Property Weekly. Through this e-magazine we hope to
bring interesting and pertinent articles on the Do you have articles and insights and articles that
Singapore property market to our members. We’ll be you’d like to share with tens of thousands of
adding new sections over time. Let us know what else readers interested in the Singapore property
you’d like to see – we welcome all feedback! market? Send them to us at info@propwise.sg,
and if they’re good enough, we’ll publish them
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Contents
Want to get your brand, product, service or
Singapore Property This Week Pg 2 property listing out to tens of thousands of
Why Are Investors Still Buying? Pg 9 Singapore property investors at a very reasonable
Where Will the Market Go in the cost? Head over to www.propwise.sg/advertise/
Next Few Months? Pg 14 to find out more

Copyright © 2011 www.Propwise.sg. All Rights Reserved. Page | 1


Singapore Property This Week
Residential News

NUS Singapore Residential Price Index rose BTO projects may not be introduced in all
in April mature estates: Minister Khaw
The NUS Singapore Residential Price Index (SRPI) Due to better amenities and transport networks,
rose 14.1% in April year-on-year for the Non- flats in mature towns tend to be more popular. For
Central Region and 5.6% for the Central Region. example, there were almost 8,000 applications for
There is also an increase of 1% month-on-month the 4,000 new BTO flats that HDB launched
and 10.4% year-on-year for the overall SRPI for recently and according to Minister Khaw, the
April. The sub-indices for the month-on-month projects in mature estate Tampines has the highest
gains for Non-Central and Central Regions in April application rate for 4-room and 5-room flats. By
were 1.1% and 0.8% respectively. The Non-Central increasing the supply of flats in mature estates,
Region sub-index is 23.6% beyond its pre-global Minister Khaw hopes that this will increase young
financial crisis peak in January 2008, while the couple’s chance to secure their own units in new
Central Region sub-index is 0.8% below its towns such as Sengkang. But not all mature estates
November 2007 pre-crisis high. The overall index in will see the introduction of BTO projects (at least in
April stood at 13.6% above its pre-crisis peak in the short-term) because estates such as Tanjong
November 2007. Pagar are already substantially developed and have
limited space for public housing development.



However, he stressed that mature towns such as Eunosville HUDC has been privatized
Tampines and Kallang will see BTO launches next Eunosville HUDC, which is situated along Sims
year. Newer estates such as Sengkang and Punggol Avenue and consists of 330 flats, was privatized
will also see greater opportunities for BTO yesterday. The individual owners in the estate now
projects. own their respective strata units and common
property such as car parks and open landscaped
Government policies likely to lead to areas. The Marine Parade Town Council ceased its
moderation in residential sector: Credit responsibility in managing and maintaining the
Suisse common properties of the estates, and it will be
Credit Suisse mentioned that the recent taken over by The Management Corporation Strata
government policies to make public housing more Plan No 3642.
attractive may affect the demand for mass-market
private houses. However, prices for private houses
are unlikely to fall in short term. A sensitivity
analysis by the bank showed that the completion
of an average of 14,500 private houses in the next
few years will still have its demand, if immigration
growth stays at 70,000 and above per year and
assuming a household size of 5 persons. The
demand-supply over the next 3 to 5 years in the
residential sector will be more balanced with the
new policies.



MND to prioritize housing needs of young HDB for the upcoming increase in demand when
couples, divorcees, and family with low the income ceiling of $8,000 on HDB flats is
income: Minister Khaw increased. Sale of land sites for 4,000 DBSS flats
With the rapid economic recovery, housing prices and 4,000 EC units for 2011 are expected to be
are rising sharply in Singapore. The new National scheduled. Apart from the 4,000 new flats rolled
Development Minister Khaw Boon Wan mentioned out in Punggol, Pasir Ris, Tampiness and
that his policies for the near future will focus on Woodlands, HDB will introduce about 12,000 new
the housing need of groups such as young couples, BTO flats.
divorcees with kids, and families with low income.
Supply of rental flats to increase: MND
HDB to increase housing supply in 2011 MND will be increasing the supply of rental flats
from 22,000 units to 25,000 units for single parents. According to Minister Khaw,
Currently under the BTO scheme, HDB will only call supply of rental flats should increase by tens of
a tender for its flats after 70% of orders have been thousands as soon as possible. The scheme is
confirmed. With the new policy, a tender will be aimed to solve the under-supply problems of
called when architectural drawings and tender rental flats. Minister Khaw noticed that HDB
documents are ready. This is expected to increase registered an average of 2,700 rental applications
the supply of residential units under HDB in the per year in the past three years, while there are
whole of 2011 from 22,000 to 25,000 units, when only about 45,000 rental flats in Singapore today.
HDB brings forward the projects planned for Q1 This scheme will benefit people who do not have
2012 by a few months. According to Minister the financial capability to purchase their own flat
Khaw, this scheme will allow more young couples and have to rely on rental flats, such as single
to buy their houses from HDB directly and prepare mothers and divorcees.



Austral View sold for $81 million and a site in ft. It houses 68 units of 123 sq metres each
Hillview sold for $45 million currently and has the potential to be developed to
Brokered by DTZ, Austral View that is situated in house 112 apartment units with an average of 950
Tanjong Rhu on a 30,540 sq ft site has been sold for sq ft each. Zoned for residential use, the site has a
$81 million through a collective sale. The price gross plot ratio of 2.8 and has the potential to be
worked out to $1,342 psf ppr, including a DC that is built up to 36 storeys. Even though no DC is to be
slight above $5 million. Also, Mequity (Hillview) Pte paid, marketing agent Jones Lang LaSalle
Ltd (a Roxy-Pacific group’s associated company), mentioned that successful bidder may have to foot
bought 7 adjoining factories that are situated on a a land premium of approximately $1.22 million for
49,164 sq ft land area in the Hillview area. The $45 the alienation of some 1,167 sq ft of state land.
million deal that equates to $662 per sq ft of
potential gross area included a DC of approximately
$17.5 million to convert the place for residential
purpose with a plot ratio of 1.92.

Dragon Mansion up for sale at $150-$156
million till 5th July
The freehold residential development Dragon
Mansion, which is located near CBD, is up for sale
at a price of $150-$156 million, or $1,340-
$1,392psf ppr. The site, which consists of Dragon
Mansion and a substation, has an area of 39,176 sq



The Viridian priced at an average of $1,550 Pasir Ris DBSS site awarded at a bid of
psf and Wing Tai Holdings sold more than $123.9 million
140 units in its Foresque Residences Kay Lim Holdings and a unit of Singapore-listed
Global Orion Properties will develop its freehold SingXpress Land were awarded the Pasir Ris DBSS
project The Viridian on an industrial site at Jalan site with a top bid of $123.9 million, or $281 psf
Ampas. The Viridian, which will be 23-storey high ppr at a tender. The top bid, which was more than
and consist of mainly one- and two-bedroom units, the market’s speculation of $250 psf ppr or less,
is priced at an average of $1,550 psf. The overall was 19% above the second highest bid of $103.7
price for a single-bedroom unit will begin from million ($235 psf ppr) made by Yuan Ching
$785,000. Apart from that, Global Orion Properties Development. The site, including a 48-month
will launch its Hougang project near the end of the construction period, has a lease term of 103 years.
year. The Hougang project will have larger units The site, which has a maximum gross floor area of
and its main target purchasers will be HDB about 441,000 sq ft, can house about 410 units.
upgraders. At Upper Bukit Timah, Wing Tai
Holdings sold more than 140 apartments in its
496-unit Foresque Residences.



Commercial News S$49.20 psf per month. As compared to the
average super prime rent of US$473 psf per annum
DTZ’s report shows that Singapore, ranked (S$51.80 psf per month) in Q3 2010, Singapore
top 5 among Asia Pacific cities, is a ‘hot’ prime retail rents dropped from 15th to 16th on the
global stage. Despite the decline, CBRE stressed
choice for property investment
that Singapore prime rents will remain competitive
Similar to the findings in Q4 2010, DTZ revealed
as around 523,000 sq ft of retail space along
that offices, retail and industrial property markets
Orchard Road is expected to be completed
in Singapore still bear great potential for
between Q2 2011 and 2013. The rents in Orchard
investments. The DTZ FVI score for Q1 2011 for
Road will remain stable in the medium to long
Asia Pacific stood at 65, and the Singapore office
termif economic growth remains stable.
market is ranked top five among the Asia Pacific
cities covered in DTZ’s study. DTZ saw a recovery of
sales in secondary markets and private houses 77 Robinson Roadmay be up for sale soon
volumes in Singapore for March and April. 77 Robinson Road, a 35-storey office tower
However, DTZ also mentioned that the increased situated on a site with remaining lease of
supply of residential houses introduced into the approximately 82 years (expires in 2093), is
market may cause a fall in prices and rentals in the speculated to be put up for sale soon. The site,
next few years. with a total NLA of around 295,000 sq ft and 180
parking lots, was said to have reached its
maximum development potential. Property
Singapore prime retail rents ranked 16th
consultants have speculated that the site may not
globally: CBRE be able to further its lease.
The average prime retail rent in Singapore in Q1
2011 was US$470 psf per annum, which was



This thus ruled out the possibility of using the site Site at Paya Lebar Central to fetch bids of
for residential development. However, some $860-940 psf ppr; most popular out of the 3
analysts believed that the site will be able to draw sites added to reserve list.
interested investors based on its current use and Three new 99-year leasehold sites were being
balance site lease. offered under the reserve list: i) 2.07 hectare
mixed-use site at Paya Lebar Central, ii) 0.38 ha
Capitamalls Asia, CMT and CapitaLand to hotel spot at Little India, and iii) an EC housing
develop their Jurong site in a $1.5 billion parcel at Upper Serangoon View. Analysts
project mentioned that the site at Paya Lebar Central,
After being awarded the plot in Jurong Gateway in which can produce around 935,600 sq ft of GFA, is
a $969 million bid, Capitamalls Asia, CMT and the most popular and will be able to sell for $860-
CapitaLand plan to develop the site into a 25- $940 psf ppr.
storey retail-cum-office project. The total
development cost for the site, which has a
maximum permissible gross floor area of 957,780
sq ft, is estimated to be approximately $1.5 billion.
60% of the site will be used for retail space which
is likely to be of 5 storeys high, while the remaining
40% will consist of offices of 20 storeys. Rents for
retail spaces are expected to be around $16-$18
psf while rents for office spaces are $8 psf.



Why Are Investors Still Buying?
Despite round after round of cooling measures in On the flip side of the coin, home loan rates start
2010 and 2011, many investors remain eager to from below 1 per cent per annum. Interest
park their funds in residential properties. expenses on property investments have never
been so low since 2003 to 2004, right after SARS.
The tightening measures have merely relegated a
fraction of the investors to the sidelines and, while
they watch the market closely, others continue to
invest.

Why are investors so attracted to residential
property investments?

Low interest rate environment
Savings interest rates are at an all-time low of 0.1
to 0.2 per cent per annum, while fixed deposit
rates average about 0.3 to 0.8 per cent per annum,
well below the rate of inflation, estimated at 3 to 4
per cent for this year (Feb 17, 2011, Ministry of
Trade and Industry).



Currently, floating rate home loan packages are Interest rates and mortgage rates are expected to
priced at 0.65 to 0.80 per cent above the three- remain low for another 12 to 18 months because
month SIBOR or three-month SOR or, in the case of the money supply continues to grow strongly. In
ANZ Bank’s package, a blend of both. These home the 24 months of 2009 and 2010, M3 money
loans cost borrowers about 1 per cent per annum. supply — the widest form of money supply
measured in Singapore, defined as coins and notes
Therefore, for those who are already invested in in circulation, money in savings accounts, fixed
properties, there is no urgency to sell even if rental deposits, demand drafts, etc — grew by S$67.7
returns edge lower, because holding costs are low. billion or almost 20 per cent.

Although rental returns average about 3 to 4 per The Monetary Authority of Singapore (MAS) has
cent yield per annum, the interest coverage ratio is stated that it will allow the local dollar to gradually
high, at 2.5 to 6 times. The interest coverage ratio strengthen against a concealed basket of
here refers to the number of times rental returns, currencies of the country’s major trade partners, a
net of expenses, can cover interest costs. move that will alleviate the pressures of imported
inflation.
A rental yield of 4 per cent per annum is double
the bond yields of about 2 per cent on securities In addition, global investors, especially high net
recently issued by Temasek-linked companies. And worth individuals from Europe, are confident
those bonds were two to four times about the strength and stability of the Singapore
oversubscribed by institutional and retail investors. economy, and are driven to sell their home
currencies to park their funds here.



Banks take in the new deposits, and after setting and beautifully landscaped grounds. It was
aside the reserve requirement, they may lend out completed about six years ago and very popular
the money, adding new money supply into the with expatriate tenants. More than half of the 616
system. But when money supply growth is faster units are occupied by foreigners.
than the pace of lending growth, i.e. lenders are
holding more money than borrowers are allowed This particular apartment has a strata area of 1,152
to borrow, interest rates will continue to be sq ft and came with an expatriate teacher from an
pressured downwards. So, we have on the one international school as a tenant. The lease runs
hand low interest rates that are reducing the value until November next year. The transacted price
of our money, because the interest we earn from was S$1.02 million, or about S$885 per sq ft, which
our savings is only about 0.1 per cent while the was similar to other transactions in Blue Horizon at
costs of living is expected to rise by up to 4 per the end of last year.
cent. On the other hand, we have mortgage rates
of less than 1 per cent, meaning the costs of Our clients funded the purchase with 40 per cent
borrowing money against a residential asset is so cash, i.e. S$408,000. Their CPF is used to fund the
low that the cash flow from rentals is attractive home they are staying in today. Stamp duty and
even at low rental yields. legal fees added another S$25,200 and S$2,500,
respectively. The total cash outlay was S$435,700
An actual example illustrates: Our clients acquired for this investment. They took up a loan for 60 per
a mid-floor three-bedroom apartment at Blue cent of the value at 1 per cent on a floating rate
Horizon in West Coast Crescent. Blue Horizon is a package with a local bank.
99-year leasehold condominium with full facilities



Rental income for the unit is S$3,800 per month or cash-on-cash return of 7.3 per cent. This is 10
S$45,600 per year (Note: This produces a gross times higher than the cash returns of placing
rental yield of about 4.5 per cent per annum). S$435,700 into a fixed deposit. The return is also
Expenses for property management and sinking higher than the expected rate of inflation for 2011.
fund amount to S$3,120 per year, while interest
expenses at 1 per cent (assuming interest rates The example above is conservative in that I have
neither went up nor down during the first year) included the maximum costs such as legal fees
cost S$6,120 per year. Making provisions for (which are usually subsidised by banks that provide
property tax at about 10 per cent of the annual the mortgage) and I did not deduct expenses
rental income means we deduct another S$4,560 before applying the 10 per cent property tax.
from the equation. Furthermore, as we pay down the principal of the
loan, the interest expenses will drop.
Now, rental income minus expenses produced a
net surplus of S$31,800 (=S$45,600-S$3,120- Therefore, I believe the clients are making a cash-
S$6,120- S$4,560). This would have gone towards on cash return that is higher than 7.3 per cent this
paying down the principal part of the loan. If the year.
loan was taken over a 25-year term, they would
need to contribute S$2,040 a month or S$24,480 a Property investment come with its own risks:
year towards the principal. Still, they are cash Tenants may move out and the apartment may be
positive. empty for a while, costs may rise, etc. Rentals may
come down but we have room to absorb that slide.
Note that the cash surplus of S$31,800 versus the
clients’ total cash outlay of S$435,700 implied a

Copyright © 2011 www.Propwise.sg. All Rights Reserved. Page |12

In the event global stock markets take a second
plunge, interest rates will be forced even lower,
and a secured rental income will limit the
downside of the property’s value. What happens if
interest rates rise? In that case, the economy must
be growing fast and there is a good chance we can
raise the rentals on the tenants during contract
renewal. This is why real estate assets are a hedge
against inflationary growth.

And for many of the foreign investors whose base
currencies are the euro, British pound, Hong Kong
dollar or US dollar, the strength of the Singapore
dollar will add to their total returns when they
divest and convert the returns back to their home
currencies.

This article has been shared with the kind
permission of Ku Swee Yong, founder of real estate
agency International Property Advisor, which
provides services to high net worth individuals. He
is also author of Real Estate Riches: Understanding
Singapore’s Property Market In A Volatile
Economy, available in bookstores now.



Where Will the Market Go in the Next Few Months?
Roman Abramovich, a Russian billionaire and the once commented,” the four most dangerous words
53rd richest person according to 2011 Forbes list, in investing are ‘This time it’s different’.”
said: “investors have very short memories”. In According to the historical URA Private Property
today’s bullish climate it is hard to imagine that Price Index (PPPI), we can tell that the property
just about two years ago, there were genuine fears market is cyclical and no trend lasts forever. In a
of a global financial meltdown. These days we are blog post I wrote in July 2009, I mentioned then
no longer concerned about our assets becoming that the property market will not remain
worthless; instead we are more concerned about depressed indefinitely. In a similar vein, I am
property prices escalating beyond what we can confident that the current price appreciation will
afford. not go unabated and it will correct in the near
future.
In view of this, some people may inevitably believe
that this current “bull” run will last forever and The question is how can we tell when the
make risky investments in fear of losing out. They Singapore property market is going to dip?
attempt to rationalise that it is different this time
round and that the spectacular market In my second book entitled Buy RIGHT Property –
performance is due to the emergence of Asia as a Taking the R.I.G.H.T. Approach to Property
new financial powerhouse. Investing in Singapore, I shared that my company
has developed a proprietary index called the
John Templeton, a very prominent stock investor Ascendant Assets Index (AAI).



The basic premises of the AAI are (1) there is a 80%. Over the next few quarters, we expect the
lead-lag relationship between the stock and AAI to drop further. When the AAI falls below the
property market and (2) we are able to tell how 50% mark (represented by the dotted line), it
the property market is performing by analysing the signals a turning point as the stock market will be
correlation between the stock and property almost completely out of sync with the property
market. For example, in bullish (or bearish) market market. It signals an overall change in underlying
conditions, we would expect the correlation market sentiments and the property market would
between the stock and property market to be high be expected to decline shortly after.
as prices are increasing (or decreasing) in tandem.
Figure 1: Ascendant Assets Indicator (2011Q1)
On the other hand, we would expect the
correlation between the stock and property
markets to be low during turning points as stock
prices, being more liquid, would diverge from the
less responsive property prices.

So how is the market like now? Figure 1 shows the
AAI for the recent quarter 2011Q1. From the
figure, we can tell that the Singapore property
market (shown in green colour) is presently in the
strong growth stage with both STI and URA PPPI
increasing in tandem. However, it is noteworthy
that the AAI has dropped from over 90% to under



Conclusion
It is important to note that the AAI is only one tool
to gauge how the property market is performing.
There are other aspects to consider before making
a buy or sell decision. Nonetheless, I have been
asked by several prospective clients if it is a good
time to buy properties. My personal view is that
unless it is an essential purchase (e.g. buying a
home to stay), I would stay out of the market right
now. In fact, I had recently sold two properties to
accumulate cash to prepare for the next market
downturn.

As a parting shot, let me leave you with a quote by
Warren Buffett that I often make reference to, “We
simply attempt to be fearful when others are
greedy and to be greedy when others are fearful”.
With the URA PPPI reaching a new peak in the last
quarter, I can’t help but to feel a slight sense of
fear…

By Getty Goh, Director of Ascendant Assets, a real
estate research and investment consultancy firm.


Singapore property weekly issue 2

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