insight
工程技術，地產投資，信仰家園，時尚生活
The property market continues to be favoured by investors despite several rounds of cooling measures.
In particular, mass-market private condos are much sought after - on the back of strong upgrading demand amid still-buoyant HDB resale flat prices. Another factor helping to fuel demand for private homes is developers' strategy of minting a higher proportion of smaller units in their projects to keep the lump-sum deal size within the budgets of more investors. Low interest rates offer another incentive to enter the property market.
In the following pages, we offer a guide for your property decisions - whether you're looking for tips on where to find completed private condos with good investment potential, are scouring for upcoming property launches, or keen on executive condos or the HDB resale market.
There are also tips on housing loans, as well as factors to consider when investing in property as a retirement asset.
We also cover the outlook for the industrial, office and retail markets, and look at the potential in overseas residential markets like London and Malaysia. But before you take the plunge, remember this: property is a mid- to long-term commitment and one should always stay within one's means.
THE private housing market in Singapore scaled new heights in 2010 and 2011 as prices escalated past previous peaks, while the volume of new home sales hit fresh highs.
THE private housing market in Singapore scaled new heights in 2010 and 2011 as prices escalated past previous peaks, while the volume of new home sales hit fresh highs. Though attention was mostly focused on the primary market, the secondary market was also active with healthy price gains.
Secondary market transactions of private residential property totalled some 16,357 units last year. Although 27.7 per cent lower than the 22,608 units sold in 2010, secondary market transactions still made up more than half of all private home sales for 2011, at 50.7 per cent.
Prices of private homes in the secondary market also strengthened. According to the National University of Singapore's Singapore Residential Price Index Series (SRPI), prices of such properties rose by 25 per cent between end-2009 and end-2011. The SRPI tracks price changes in its basket of completed non-landed private homes.
This outperformed the 24.4 per cent rise for all private residential property types and the 19.2 per cent gain for non-landed private homes, going by the Urban Redevelopment Authority's (URA) price indices over the same period. These URA indices include completed and uncompleted homes.
Hotspots in Singapore
In 2011, buyers who bought from completed non-landed private residential projects at least five years old were particularly keen on five districts. Ranked in terms of transaction volume, they were 15, 23, 16, 10 and 19. Based on caveat records in the URA's Real Estate Information System (Realis) on Jan 30 this year, these districts chalked up the highest transaction volume for secondary market non-landed homes.
Singaporeans accounted for more than 54 per cent of all such transactions in each of these hotspot locations.
Buyers from China were most active in districts 23 (covering areas such as Hillview, Diary Farm, Bukit Panjang and Choa Chu Kang) and 19 (including Serangoon Gardens, Paya Lebar, Hougang and Punggol). They accounted for a significant 31.8 and 27.7 per cent respectively of all foreign purchasers of resale non-landed residential properties in these locations last year.
Homebuyers from India favoured the eastern part of Singapore, where they formed the largest proportion of foreigners who picked up resale non-landed homes in districts 16 and 15 - at 31.7 and 26.7 per cent respectively.
Indonesians were the largest group of foreign buyers in district 10, with a 20.3 per cent share.
District 15: The three most actively transacted developments in the secondary market in district 15 were Costa Rhu, Mandarin Gardens and Water Place. In Costa Rhu, units from 990 square feet to 5,813 sq ft were sold at between $1.18 million and $5.05 million last year. Water Place commanded prices of $1.1 million to $1.94 million for units between 904 sq ft and 1,636 sq ft. At Mandarin Gardens, prices ranged from $700,000 to $1.93 million for units measuring 732 sq ft to 2,034 sq ft.
These three 99-year leasehold developments are sought after for their proximity to the city, the waterfront as well as the green lungs at the Marina Bay Golf Course and the East Coast area. They are also close to established lifestyle and food and beverage haunts in the Katong and Geylang neighbourhoods.
Buyers are also likely to be attracted to the spacious living and dining areas of Costa Rhu units. In Mandarin Gardens, residents get to enjoy an Olympic-sized swimming pool and four tennis courts. Over at Water Place, all apartment blocks are widely spaced out, providing a sense of space.
Buyers are also known to purchase units in these developments for potential capital appreciation and rental income. For instance, those who bought units in Costa Rhu and Water Place in the Tanjong Rhu area in 2010 and sold them in 2011 saw capital gains of 18-19 per cent, according to caveats lodged.
This is before taking into account the seller's stamp duty (SSD) payable on all residential properties bought on or after Feb 20, 2010 and sold within 12 months from the date of purchase. The stamp duty rates applicable are one per cent for the first $180,000 of the sale price, 2 per cent for the next $180,000, and 3 per cent for the balance.
However, prospective investors should note that under the prevailing SSD regime effective Jan 14, 2011, aimed at dampening speculative activity, the holding period for the imposition of SSD has been extended to four years. The SSD rates have also been hiked to 16 per cent, 12 per cent, 8 per cent and 4 per cent of the sale price for residential properties bought on or after Jan 14, 2011, and sold within the first, second, third and fourth year of purchase, respectively.
In the leasing market, units at Costa Rhu and Water Place garnered net rental yields of 2.5 per cent to 4.1 per cent last year. Prices at Mandarin Gardens in Siglap appreciated by about 17 per cent last year and net rental yields ranged from 2.4-3.7 per cent during the year.
District 23: In this district, the three most sought-after developments last year were Regent Heights, Northvale and Palm Gardens. According to caveat records, units measuring 689 sq ft to 2,594 sq ft found in these 99-year leasehold developments changed hands at prices ranging from $705,000 to $1.6 million last year.
Those who bought units in these developments in 2010 and sold them last year enjoyed capital gains of between 11 per cent and 30 per cent. They also reaped rental yields ranging from 2.8-4.5 per cent.
District 16: In this district in the east, buyers in the secondary market last year were mostly keen on The Bayshore, Costa Del Sol and Bayshore Park. These 99-year leasehold developments are close to established housing estates such as Bedok and Marine Parade as well as the airport. They also boast impressive views of the nearby East Coast Park and the sea.
Buyers of apartments at Costa Del Sol are also likely to have been attracted to the large living and dining areas of the units as well as the functional and regular layout of the rooms.
In 2011, units in these developments were transacted at prices ranging from $580,000 to $3.6 million for units measuring 624 sq ft to 3,800 sq ft. Those who bought units in The Bayshore and Bayshore Park in 2010 and disposed of them in 2011 realised capital gains of about 8 per cent to 20 per cent.
Those at Costa Del Sol saw a price increase of about 17 per cent to 30 per cent. Rental yields for the three projects ranged from 3-5 per cent in 2011.
District 10: Valley Park, The Tessarina and Duchess Crest were the three most transacted developments in the coveted district 10 last year. Units measuring 753 sq ft to 1,808 sq ft in the 999-year leasehold Valley Park in River Valley Road were transacted at prices ranging from $960,000 to $2.77 million in 2011.
At the freehold Tessarina on Wilby Road, buyers bought units ranging from 969 sq ft to 1,367 sq ft, at prices ranging from $1.31 million to $2 million last year. At Duchess Crest, a 99-year leasehold condominium on Duchess Avenue, buyers bought units of 936 sq ft to 2,088 sq ft at prices ranging from $1.14 million to $2.63 million in the same year.
Valley Park is popular as it is conveniently located next to Valley Point Shopping Centre and is close to Great World City. Units in the project also have large living and dining areas as well as service yards. Similarly, units at The Tessarina have large bedrooms and good layouts.
Those who bought units at Valley Park and The Tessarina in 2010 and sold them last year saw capital gains of between 10 and 20 per cent. In Duchess Crest, price gains in the same time frame were higher - between 25 and 29 per cent. Units in these three developments provided rental yields of 2.1-3.7 per cent in 2011.
District 19: Secondary market buyers in this district mostly opted for Kovan Melody, Rio Vista and Compass Heights last year. These 99-year leasehold developments are popular largely for their attractive locations. Kovan Melody, for instance, is adjacent to the Kovan MRT station. Units measuring 872 sq ft to 1,518 sq ft in size were transacted at prices ranging from $845,000 to $1.51 million last year. Investors in such units achieved rental yields of 3.1-3.8 per cent.
Compass Heights is integrated with the Compass Point mall, the Sengkang MRT station and the Sengkang bus interchange. Such integrated developments have proven to be popular. In 2011, Compass Heights commanded prices ranging from $675,000 to $1.68 million, for units between 667 sq ft and 2,519 sq ft. Rental yields for this development were in the range of 2-3.9 per cent.
Meanwhile, those who bought units in Kovan Melody and Compass Heights in 2010 and sold them a year later reaped capital gains of 13 per cent to 33 per cent.
Rio Vista is situated adjacent to Sungei Serangoon, the Serangoon bicycle track and park connector, and is close to Punggol Park. The location offers residents a green and park-like living environment. Units in the development also offer large service yards and private enclosed spaces. In 2011, units measuring 1,055 sq ft to 2,573 sq ft were sold at prices ranging from $785,000 to $1.8 million. Prices of units at the development appreciated by about 14 per cent in 2011 and rental yields ranged from 3-3.9 per cent.
Prospective buyers, however, need to be clear about the pros and cons of buying homes in the secondary market and assess if the available options meet their needs.
Those who buy such properties will have the advantage of occupying the property immediately or getting immediate rental returns. Another draw of buying into an older project is the availability of larger units compared with what's on offer at most new launches these days. In addition, buying a completed unit allows one to visually assess the unit as compared to buying an uncompleted unit off the plan. The downside, particularly with older units, is dealing with potential problems with electrical fittings and plumbing and general wear and tear. There may be a need for extensive renovations in some cases.
Some buyers may be put off by the higher initial monthly repayments required for resale homes compared with progress payments for uncompleted units. Another drawback could be the more stringent rules for financing properties whose leases are running low. For such properties, there are limitations on the withdrawal of funds from the Central Provident Fund as well as for financing loans.
Overall, options abound in the secondary market and the hotspot locations highlighted here can point potential homebuyers and investors to some attractive choices.
The writer is director, research & advisory, Colliers International
2011 was a record year for mass market home sales. Urban Redevelopment Authority (URA) numbers indicate that 10,374 units or 65 per cent of the total number of new private homes sold were in the Outside Central Region (OCR). The figures exclude executive condominiums (ECs).
Mass appeal: Large-scale residential-and-mall developments which are linked to an MRT station are able to attract homebuyers even in a more cautious market; the success of Bedok Residences (above) and Watertown (next) testify to the popularity of this lifestyle concept
2011 was a record year for mass market home sales. Urban Redevelopment Authority (URA) numbers indicate that 10,374 units or 65 per cent of the total number of new private homes sold were in the Outside Central Region (OCR). The figures exclude executive condominiums (ECs).
In comparison, home sales in the OCR numbered 7,357 units (45 per cent share) in 2010 and 6,060 units (41 per cent) in 2009. It is our view that this segment of the residential market, particularly projects with good location and product attributes, will continue to be fairly resilient in the coming months.
URA defines Core Central Region (CCR) as districts 9, 10, 11, Downtown Core and Sentosa while the Rest of Central Region (RCR) comprises the Central Region excluding districts 9, 10 and 11, Downtown Core and Sentosa.
OCR comprises the rest of the island outside the Central Region. Most of the HDB new towns and private mass-market housing are located in the OCR.
The strong take-up of new mass-market homes in 2010-2011 could be attributed to both population growth and supply, under a climate of healthy economic fundamentals and low interest rates.
According to the Department of Statistics, Singapore's total population grew from five million in 2009 to 5.08 million and 5.18 million in 2010 and 2011 respectively.
The proportion of households living in private apartments/ condominiums grew from 10.4 per cent in 2009 to 11.2 per cent in 2010. The proportion in 2011, although not available, ought to be higher. Moreover, Singapore's open economy continued to attract foreigners to our shores.
URA's figures show that the number of foreigners and permanent residents who bought new private homes increased from 2,911 in 2009 to 3,887 in 2010 and to 4,337 in 2011.
On the supply side, developers launched a total of 17,710 new homes in 2011, 6.8 per cent more than the 16,575 units launched in 2010. Of this number, 11,248 units (64 per cent) were located in OCR, 4,419 units (25 per cent) in RCR and 2,043 units (11 per cent) in the CCR.
In 2010, developers launched 7,866 units (47 per cent) in OCR, 4,731 units (29 per cent) in the RCR and 3,978 units (24 per cent) in the CCR.
Developers were able to put on the market the large volume of homes in these past two years as they built up sizeable land banks through the Government Land Sales (GLS) Programme and private collective sales when the market recovered in H2 2009.
Between H2 2009 and 2011, developers bought a total of 43 GLS sites in the OCR (excluding executive condominiums). These sites can potentially yield over 18,300 new homes.
From the pool of private sites, developers bought at least 52 sites in the OCR which can be developed into 2,600 homes or more. To date, developers have launched about 60 per cent of the total supply on GLS and private sites.
Based on caveats lodged for mass-market homes sold in 2009 to 2011, the median price of new non-landed homes rose by 35 per cent from $688 psf in 2009 to $927 psf in 2010. And in 2011, the rate increased 4 per cent to $966 psf.
2009 saw the highest proportion of buyers, or 76 per cent, forking out less than $1 million for their new homes. The proportion was 56 per cent in 2010 and 62 per cent in 2011.
Interestingly, since 2009, the median size of OCR homes has been shrinking from 115 sq m to 97 sq m in 2010 and 85 sq m in 2011. Clearly, developers have been careful to manage the rise in prices by building smaller units.
Innovative approaches used by developers in recent years have proven to be popular with homebuyers. Firstly, the provision of a higher percentage of studios, one- and two-bedrooms have found a ready pool of buyers - singles, young professionals, retirees who are downgraders and/or empty-nesters and investors looking for rental income. Then there is the introduction of Soho-style units to facilitate a live-work-play lifestyle.
Thirdly, large-scale residential-and-mall developments which are linked to an MRT station are able to attract homebuyers even in a more cautious market. The success of Bedok Residences and Watertown testify to the popularity of this lifestyle concept.
A fourth innovative strategy by developers has been the provision of strata houses within condominium projects. Prices of these houses range from $2.5 million to $4 million each and these properties have proved especially popular among foreigners, who may buy strata landed homes that are within approved condominium developments without seeking government approval.
In 2012, we expect to see more innovations in the mass-market projects to continue to attract a steady stream of buyers. Developers face more challenging market conditions in the new year.
Under the new additional buyer's stamp duty (ABSD) tax regime, developers participating in the H1 2012 GLS Programme will have to assess the risks involved.
Developers buying any residential sites from Dec 8, 2011, will have to pay a 10 per cent ABSD. However, upfront remission of this can be granted to licensed housing developers provided they undertake to complete developing projects on such sites and selling all the units in these projects within five years from the date of contract or agreement to purchase the site, among other conditions.
For sites with strong attributes for example near an MRT station, developers may not need to factor in ABSD as they will be more confident of selling the entire project within five years.
However, they will be cautious in their bids so that they can manage costs. Since land costs are fixed once committed, developers will be as creative as possible to manage construction and marketing costs to sell units.
Homebuyers will remain price sensitive, especially to projects with poorer location and product attributes. Moreover, some of the demand could be satisfied by executive condominiums.
The writer is associate director at CBRE Research
THE Singapore economy is now expected to move on to a more stable growth path, with real Gross Domestic Product having expanded by 4.9 per cent in 2011.
Marina Bay Sands: Islandwide revenue per available room (RevPAR) grew 14.7% last year to $212 and is expected to increase between 5 and 8% this year; RevPAR for upscale hotels - a category which includes the hotels in the two IRs - increased 18% to $244 from $206 a year ago
THE Singapore economy is now expected to move on to a more stable growth path, with real Gross Domestic Product having expanded by 4.9 per cent in 2011. As the Singapore economy remains largely unchanged structurally and continues to be open to the global market, it will continue to be exposed to fluctuations in global demand. The outlook for 2012 is uncertain in the current global economic environment. Singapore's hospitality sector may be weakened this year due to the eurozone crisis.
In 2011, Indonesia (2,591,701 visitors), China (1,577,420 visitors), Malaysia (1,140,677 visitors), Australia (956,007 visitors) and India (868,963 visitors) were Singapore's top five visitor-generating markets. These markets accounted for over 54.2 per cent of total visitor arrivals. More than 75 per cent of the visitor arrivals were from the Asia-Pacific region.
Singapore clearly remains an attraction for travellers in the region, given that the Republic's economic growth remains positive and its exposure to the US/Europe tourist markets is limited. The projected demand for meetings, incentive travel, conventions and exhibitions (MICE) and conferences in the island for this year is positive, largely driven by the two integrated resorts.
Major new attractions will support this growth in visitor arrivals. These include Gardens by the Bay, West Zone (Equarius Water Park and Marine Life Park) and the new International Cruise Terminal. Against this backdrop, CBRE Hotels expects 13.5 million to 14.5 million visitors in 2012.
Arrivals to Singapore continue to grow and some 46.5 million passengers passed through Changi Airport in 2011. This was an increase of 10.7 per cent over 2010. The entry of more budget airlines into Changi Airport, such as IndiGo, should further increase passenger traffic. IndiGo started operating from Changi Airport last September, with flights from Singapore to New Delhi.
Medical tourism demand is also growing strongly. Singapore is continually investing in resources and skills, to differentiate itself from low-cost medical destinations, in order to position itself as a leading medical hub in Asia. Patient flows in medical tourism tend to follow low cost airline routes and shorter flight times.
CBRE Hotels expects average room rates to increase between 5 and 10 per cent from 2011 levels. Average room rates islandwide increased 12.9 per cent y-o-y in 2011. According to data from STB, average room rates for upscale hotels made the greatest improvement with a 16.9 per cent increase in rates from $238 in 2010 to $278, largely due to the two IRs' performances.
CBRE Hotels anticipates islandwide occupancy levels to stay above 80 per cent and hover between 83 and 86 per cent in 2012 despite the increase in net hotel room supply. Room supply is expected to increase by 1,600 or 4.2 per cent this year. The projected average occupancy rate for 2012 underpins a very active year for the hospitality sector, given the healthy number of arrivals expected. In fact, the increase in rooms will help ease the current tight supply.
New hotel developments in Singapore will be mostly mid-tier (46 per cent) and economy (28 per cent) hotels over the next few years. The mid-tier hotels will cater to the business and leisure travellers who might choose to downgrade in light of lower accommodation budgets.
Islandwide revenue per available room (RevPAR) grew 14.7 per cent last year to $212 and is expected to increase between 5 and 8 per cent this year. RevPAR for upscale hotels - a category which includes the hotels in the two IRs - increased 18 per cent to $244 from $206 a year ago. RevPAR should not fall to 2009 levels as Singapore has re-structured its tourism industry and is now more immune to the effects of the global environment.
The market does face some uncertainty in 2012, reflecting the outlook for the global economies. The occupancy levels certainly support rises in room rates but the lower confidence levels amongst hoteliers will temper these increases.
After China, Singapore has been the most active hotel investment market last year with eleven transactions representing US$1.25 billion, accounting for 20 per cent of the total investment volumes in Asia. China accounted for 24 per cent.
Although investment sales in Asia were impacted slightly due to the events in Japan in the first quarter of 2011, investment levels have risen sharply elsewhere, particularly in China and Singapore. Market fundamentals in the region remain positive and investors are still bullish on the major Asian cities
Major hotel sales in Singapore in 2011 included Raffles Hotel and its retail space ($340 million), Crowne Plaza, Changi Airport ($250 million), Park Regis ($184 million), Studio M ($154 million) and Ibis Novena ($118 million).
The writer is executive director, CBRE Hotels, Asia Pacific
WITH the stock of unlaunched high-end condominiums stacking up, prospects for these properties appear worrisome. It hasn't helped that a 10 per cent additional buyer's stamp duty (ABSD) has been slapped on foreign buyers, who traditionally favour this segment.
WITH the stock of unlaunched high-end condominiums stacking up, prospects for these properties appear worrisome. It hasn't helped that a 10 per cent additional buyer's stamp duty (ABSD) has been slapped on foreign buyers, who traditionally favour this segment.
Will developers submit to market forces or can they simply batten down the hatches and wait out the storm?
It has been a turbulent 2011 for the private residential market. The government imposed two rounds of stamp duty actions on property transactions even as a growing number of analysts were of the view that prices would be affected by increasing supply.
Even before the ABSD was imposed in December last year, there were some 6,000 high-end units alone with permission to launch but which had yet to do so.
And in a surprising development, attention shifted to the mass market segment. The chart shows that in 2011, mass-market properties dominated sales. The question for developers now is what strategy to adopt for their mid-tier and high-end projects.
The simple answer might be to complete the unsold inventory and rent out the units to the increasing number of foreigners here. However, despite the buoyant rental market, anecdotal feedback from developers indicates that there could be a mismatch between tenants' budgets and the stock available (that is, mostly large units). So there are no straightforward solutions. With the residential sector in a time of flux, we offer some pointers that could help both developers and buyers find the sweet spot in the current market. Our analysis focuses on unit size and absolute quantum paid, rather than price per square foot (psf) since the latter is a by-product of the first two factors.
The following are some salient facts about buyers' preferences:
- Buyers' preference by size
Since 2007, there has been rapid growth in transactions of units under 800 sq ft. In 2011, this segment accounted for 24 per cent of all non-landed private homes sold (excluding executive condos or ECs). In 2007, it was just 8 per cent.
- Buyers' preference by price
In terms of absolute quantums, the largest segment in 2011 was in the range of $600,000 to $1 million. Next was the $1-1.5 million segment. Together, these two segments made up two-thirds of non-landed properties sold last year (excluding ECs).
- Foreign buyers' make-up
For both mid-tier and high-end properties, Chinese nationals, Malaysians and Indonesians have been consistently present in the market. One interesting observation is that buyers from India are not active in the high-end segment.
- Foreign buyers' purchase quantums
For high-end properties (represented by the Core Central Region or CCR), Chinese nationals have been buying units mostly ranging from $2-3 million. This is similar to the price range for Indonesian buyers.
For mid-tier properties (represented by Rest of Central Region or RCR), Chinese buyers preferred units priced between $500,000 and $1 million, while the Indonesians mostly bought properties in the $1-1.5 million bracket.
- Rental
Total leasing transactions for private residential properties in 2011 hit a record 45,062, which was 8.4 per cent higher than the previous record in 2010 of 41,573.
Median rentals have also surpassed the previous peak in 2008. As more so-called shoebox apartments come on the market and are leased, rental rates on a per sq ft basis should be ratcheted up.
With these five statistics, we can start to analyse what developers and buyers should look for to enhance the development saleability and liquidity of their investment. Given that real estate is a relatively illiquid investment, end-buyers purchasing for occupation or investment must consider the liquidity factor.
Looking at transactions by size, demand has been growing fastest for units under 800 sq ft and that goes for all segments, from mass market to high-end. In part, this trend has been spurred by the penchant to own real estate even by those with limited financial resources.
A small unit makes the absolute quantums more manageable. Despite the higher prices on a psf basis, many such units cost less than $1 million. A few years back, they would have been deemed speculative investments because the rental market for such small apartments was untested.
However, given the weaker economic climate, the profile of expatriates coming to Singapore is changing. The high-budget tenant is giving way to one who is likely to be single, with a more constrained housing budget, and an employment contract that is likely to be localised within two or three years.
Therefore, these newer expatriates may not mind smaller apartments. So it appears that the speculators who took a bet on the shoebox apartment concept have won big.
Foreign buyers in search of mid-tier units have made districts 15 (Katong, Joo Chiat and Amber Road) and 21 (Upper Bukit Timah, Clementi, Ulu Pandan) their top two preferred districts in the past two years.
For high-end residential, over the same period, the top three districts were, not surprisingly, 9, 10 and 11.
But developers and buyers should go beyond these broad trends to find out the preference of different nationalities within each tier of the market.
For mid-tier non-landed properties (as proxied by the Rest of Central Region), the mainland Chinese - who make up the biggest group of foreign buyers in this segment with a 26 per cent share - have a preference for units priced between $500,000 and $1 million.
Indonesians, the third largest pool of foreign buyers in this tier, are prepared to spend more - from $1 million to $1.5 million.
For high-end properties, Chinese buyers mostly prefer to spend $2-3 million on non-landed properties, similar to the Indonesians. But, in these prime districts, Indonesian buyers outnumber the Chinese. The former make up 28 per cent of foreign buyers while the Chinese rank second, with a 20 per cent share.
Investors who keep a property to lease out should be happy to note that the rental market is extremely healthy. But they must note the changing profile of expatriates here. With less generous employment terms going forward, such tenants may prefer to rent either HDB flats or smaller private apartments.
Singles might look for units under 900 sq ft while families are likely to opt for units ranging from 900-1,200 sq ft.
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The writer is director of research and consultancy at Savills Singapore
ALMOST one in 10 Singapore residents are aged 65 and above. There is no dispute that Singapore's resident population (defined as Singapore Citizens and Permanent Residents) of 3,789,300 is ageing.
ALMOST one in 10 Singapore residents are aged 65 and above. There is no dispute that Singapore's resident population (defined as Singapore Citizens and Permanent Residents) of 3,789,300 is ageing.
Recent media discussions about the proposed building of several eldercare centres threw the spotlight on the lack of space to provide our elders with better comfort. We would need to do more to provide for our elders, many of whom have survived the war and contributed to building this country.
The next largest category of our population is aged between 45 and 49 years. This group is 324,000 strong. No surprise that the population distribution bulges in the middle: low birth rates, alongside the need to maintain a strong workforce, meant that immigration policies of the past decade have favoured high net worth families and economically productive young foreigners.
Those who are approaching 50 and are sizing up their nest egg and looking forward to their next decade will increasingly demand retirement planning. Unfortunately, our bills do not retire. They continue to pour in monthly: credit cards, utilities, phones, cable access, etc. How many investment classes provide monthly incomes to help one maintain a reasonable standard of living post-retirement?
I am all for diversified investment portfolios. Depending on one's risk appetite, one might have some shares, foreign currencies, fixed income, real estate and perhaps some passion investments such as art, wines and watches. As we reach retirement, the portfolio might take on a lower risk profile, for example with less stocks and private equity and with more fixed income and cash.
At this point, a monthly rental income from real estate ranks high on the list of preferred investments. Real estate is a long-term investment, with low price volatility, steady income stream and especially for freehold property, well suited for multi-generational wealth preservation and wealth transfer.
Considering the above, and with the Central Provident Fund (CPF) withdrawal age being pushed further out, more people are investing their accumulated CPF funds into residential properties and collecting rental income from this source. This is an indirect use of CPF funds which might otherwise be available only when one reaches 65 years. There is no denying that life spans are getting extended due to the good quality of our environment and high standards of medical care. Consequently, CPF withdrawal policies might change further down the road.
Even within a portfolio of properties, one should diversify to include various property segments. Each segment of real estate has its own supply-demand cycles and policy risks. Policy risks in the residential segment are the highest, as evidenced by the numerous cooling measures introduced in the past three years. Therefore, the various streams of rental income should include retail, commercial and perhaps overseas properties.
If we were to broaden our scope further, within the real estate space, alternative investments include debt, private equity in completed buildings or development projects, convertible bonds and even Real Estate Investment Trusts (Reits). Several good quality Reits pay quarterly dividends of between 4 and 7 per cent per annum. This is an opportunity for some clients: they took additional leverage on their largely paid-up property at the current home mortgage rates of about 1.2 per cent to invest in Reits. With interest rates expected to stay low for a few more years, some clients also leverage on their property investments to invest in fixed income instruments such as corporate bonds and private equity debt.
Include some debt
We generally recommend clients to take some debt but not so much that it would stretch their finances, especially for retirement planning. A loan-to-value (LTV) ratio of 60-70 per cent, depending on the property type and the client's risk appetite, provides a good balance between cashflow and risks.
As most mortgages are available to borrowers until they are 70 years old, when investing in a property for retirement cashflow, borrowers need to note the loan repayment plans (which include principal plus interest) versus the potential rental income. For example, an investor aged 58 who has invested in a $1.5 million freehold residential property might take a $900,000 loan (60 per cent LTV) for 12 years. His monthly rental income could be $4,500 but his mortgage payment would be about $7,000 (principal plus interest).
Negative cashflow is not a good thing during retirement. Those who have access to private banking facilities might overcome the negative cashflow situation with revolving credit facilities. A private bank may view a client's total risk based on the total financial assets and property investments pledged with the bank.
Here, the loan against the client's property could be structured such that interest payments are serviced regularly but payments towards reducing the principal sum are deferred until, for example, when the client's investment in a unit trust matures or when a fund is redeemed.
Taking on some debt is good for cashflow purposes but when we consider handing over our wealth to the next generation, having liabilities on the family balance sheet is less desirable. Most of us would not want our children to bear the burden of the property loans upon our demise. In our diversified retirement portfolio, we should always include a Universal Life (UL) insurance plan which has a payout that will cover all the outstanding principal sum of loans.
Those who have several property investments of very different values - say, a landed property, two conservation shophouses and four apartments - might find it challenging to distribute the assets equally to their beneficiaries. In such cases, they could invest in a larger UL that will ensure that the liabilities are paid down upon their demise and in addition, allow for a more even distribution of assets to their beneficiaries.
Involve trustworthy partners
There are a few other things we should consider around our property investments before we can enjoy the cashflow. For legacy planning, would we want to hold the properties under a trust or a foundation? How active do we want to be in managing the investment portfolio after we have retired? Are there tax implications especially where foreign properties may be involved?
Right from the beginning of planning for our retirement, before we even begin to select the assets for our retirement portfolio, we should look for a trustworthy real estate agent and a personal banker. A good banker will assist in managing the loans, the outward payments and reinvesting the incoming rentals. A responsible property agent will help manage the leases and the tenants. Most importantly, the well-qualified property agent must keep tabs on market fluctuations, policy changes and recommend suitable divestments and additions to the portfolio of properties.
Having these strong partners will ensure that our retirement will be a relatively carefree and peaceful one.
The writer is CEO of real estate agency International Property Advisor Pte Ltd and the author of 'Real Estate Riches - Understanding Singapore's Property Market in a Volatile Economy'
JUST mention 'property financing' and some people start to get a headache, especially those who do not like to look at or crunch numbers.
JUST mention 'property financing' and some people start to get a headache, especially those who do not like to look at or crunch numbers. Fret not, we share with you some tips in this article that will help you get savvy on property financing, including the latest rules and finer details.
Property cooling measures - how do they affect your housing loan?
If you have an existing housing loan, for the next property you purchase, you can get a maximum of only 60 per cent financing, which means you will need to come up with at least 40 per cent of the purchase price yourself including at least 10 per cent cash.
If you have an existing property which uses Central Provident Fund (CPF) savings, when you purchase a second property and wish to use your CPF, you need to set aside the CPF Minimum Sum Cash Component, which currently stands at $65,500. This CPF Minimum Sum Cash Component is made up of balances in your CPF Ordinary Account and CPF Special Account.
Here's an example.
If you have $50,000 in your CPF Ordinary Account and $30,000 in your CPF Special Account totalling $80,000, how much CPF savings can you use to purchase your second property? You need to deduct the CPF Minimum Sum Cash Component (currently at $65,500 and revised upwards annually on July 1 of each year). In this example, the maximum CPF savings you can use for the purchase of your second property is $14,500, not the full $50,000 balance in your CPF Ordinary Account.
However, if you have an existing property which is fully paid up, you can still get the maximum 80 per cent financing on your next property purchase. This is regardless of how many properties you currently own, as the maximum 60 per cent financing applies only to people with at least one existing property loan. Thus, some clients with a very low housing loan outstanding on their existing home will choose to pay off the existing loan in order to qualify for the 80 per cent financing for their next property purchase.
If you are looking at property as an investment and are in no hurry to invest, do not rush to pay off your existing property loan because there is a possibility that this maximum 60 per cent financing rule might be abolished when the property market turns sluggish. If history serves as any guide, in May 1996, a slew of property cooling measures were announced, but these were removed when the property market corrected significantly a few years later.
Taking housing loans on home purchase vs property investment: any difference?
If you ask most people, they will probably tell you that they want to borrow as little money as possible for property purchase, and if they can afford it, they will pay off their housing loan as soon as possible. Is there a difference in taking housing loan on home purchase vs property investment?
For a home purchase, I would suggest taking the maximum financing approved by the bank, which is currently 80 per cent for the first property purchase, even if you can afford to borrow less. Why? Because to me, I see a housing loan instalment as a form of 'rental replacement', because if you decide not to buy a property for own use, you would have to pay rent. So taking a lower loan, in a way, is similar to paying rent in advance, which does not make sense.
Furthermore, a housing loan is the cheapest loan you can ever get; currently the interest rates are about 1.2 per cent - less than half of the 2.5 per cent that CPF pays you.
So for a home purchase, it is okay to take the maximum 80 per cent financing and as for the loan period, this should tie in with your intended retirement age. If you intend to retire at age 60, then the loan should be fully paid off by age 60 and not 70, for example.
You should also only buy a home that you can comfortably afford by making sure that your housing loan instalment does not exceed 35 per cent of your gross income. For a home purchase, you can consider using two thirds of your CPF Ordinary Account contribution and top up in cash payment any excess amount. Why not use up all of your CPF Ordinary Account contribution? The reason is we must remember that the primary objective of our CPF is to build a retirement nest egg and thus, we should try not to use up all of our CPF Ordinary Account savings for property financing.
For property investment, even prior to the current loan-to-value limits taking effect and when you could take 80 per cent financing, for prudence's sake, you might want to limit maximum financing to 70 per cent of the property price.
By doing so, even if property prices fall, you minimise the risk that the bank would ask you to top up money. For instance, if you take 80 per cent financing and if property prices fall by 30 per cent, the bank might ask you to top up 10 per cent. However, if you take 70 per cent loan, this is unlikely to happen.
Should you apply for a loan for a property that will receive Temporary Occupation Permit (TOP) three years from now?
If you buy a property under construction, you can choose to apply for a housing loan later rather than at the point of purchase. However, you should consider applying for a loan now because firstly, property prices can move up or down and banks would only grant financing based on latest valuation figures. In the event that property prices fall when the property is completed and the valuation falls, you might fail to get the quantum of financing you need. Furthermore, there might also be changes to your income and financial situation, which might affect loan approval. Thus, it is advisable for you to apply for a housing loan at the point of property purchase rather than to wait.
Would interest rates remain low for housing loans?
Singapore Interbank Offered Rate (Sibor) is the average market interest rate banks pay when they borrow from or lend to one another in the interbank market. The three-month Sibor is used by banks as a gauge of interest rate trends. Thus, If you want to know the trend of interest rates on housing loans, you should keep a close watch on the movement of the three-month Sibor.
Currently, the three-month Sibor is at about 0.39 per cent and may remain low for the next six to 12 months if US interest rates stay low. However, interest rates do not stay at low levels forever. Thus, if you are worried about the possibility of interest rates moving up in 2013 and beyond, you might want to choose a housing loan package with fixed interest rates for the next three years, or a Sibor-pegged package that has a 'cap' on interest rates for the next few years.
If you plan to sell your property within the next two to three years, then you might want to consider home loan packages with a shorter penalty period or with zero penalty period instead. There are frequent changes to packages offered by banks and at any one time, there might be over 113 different packages offered by 16 major financial institutions in Singapore. Thus, you may wish to consider engaging the services of an independent mortgage broker who can provide you with unbiased analysis and comparison of all home loan packages from all banks. Typically, the service is provided to you free as banks would pay them a fee separately.
The writer is an accountant by training and has 19 years of bank lending experience.
He founded www.HousingLoanSG.com, a mortgage consultancy in Singapore, in 2003 and also set up www.MasterYourFinance.com, a financial education portal, in 2009
THE Housing and Development Board (HDB) moderated its 17-year-old income ceiling policy when Prime Minister Lee Hsien Loong announced during the 2011 National Day Rally that the monthly household income ceiling would be increased from $8,000 to $10,000 for those buying HDB's build-to-order (BTO) flats, and from $10,000 to $12,000 for executive condominiums (ECs).
Home sweet home: Artists' impressions of The Rainforest (above) in Choa Chu Kang and Arc at Tampines (next); Arc at Tampines was the first EC project to benefit from the increase in income ceiling, with 220 of 574 units sold on
the first day of the launch
THE Housing and Development Board (HDB) moderated its 17-year-old income ceiling policy when Prime Minister Lee Hsien Loong announced during the 2011 National Day Rally that the monthly household income ceiling would be increased from $8,000 to $10,000 for those buying HDB's build-to-order (BTO) flats, and from $10,000 to $12,000 for executive condominiums (ECs). This announcement brought relief to the middle-income group, also known as the 'sandwich class', whose monthly household incomes are in the range of $8,000 to $12,000.
Couples in such households now have a wider option of homes - new BTO flats or EC units - where they used to be limited to the option of purchasing HDB resale flats or mass market private condos.
For the past five years, from Q4 2006 to Q4 2011, HDB's resale flat price index has risen 83.8 per cent.
However, with the release of about 28,000 new flats under the BTO system and Sale of Balance Flats exercise in 2011 plus another 25,000 BTO units in 2012, we are expecting prices to stabilise and have a cooling effect on the resale market as more young couples turn from resale HDB flats with high cash over valuation (COV) premiums to a wider choice of new BTO flats with a lower price tag or executive condominiums (ECs).
ECs are favoured by many homebuyers with the recent increased income ceiling as they cater to Singaporeans aspiring to own a private property. The government's ramping up of supply of new EC units through the Government Land Sales Programme is definitely of great help for higher-income Singaporeans to own private condominium units in an affordable way.
Let's take a look at how ECs came about in the earlier days. In the mid-1990s, the spike in private property prices was so fast that much of the young generation found their dream house out of reach. To meet the hopes of these younger people, ECs were introduced, targeting young graduates and professionals who wanted more than a HDB flat but could not afford a private property.
ECs are a hybrid of public and private housing with initial buyer eligibility and resale conditions similar to HDB homes for the first five years. These restrictions are completely lifted 10 years after the completion of an EC project. Similar to private condominiums in terms of facilities and designs, ECs are developed and sold by private developers on 99-year leasehold sites under the Government Land Sales Programme.
When ECs were first introduced, they were very popular. However, from 2005 to 2009, no EC project was launched in Singapore as demand for private property dropped significantly after the Sars epidemic in 2003 and the economic crisis in 2008. The demand for ECs was depressed as 99-year leasehold suburban private condo prices were affordable.
Homebuyers were opting for mass market private condominiums as these do not have buyer eligibility and resale restrictions. Thus, the government left it to the works of the market and did not see a need to make EC sites available during that period of time.
Making a comeback
EC projects made a comeback in 2010, mainly due to the fact that many first-timers have higher combined incomes exceeding the $8,000 monthly household income ceiling for HDB's BTO flats. At the same time, however, prices of 99-year mass market private condos recovered sharply after the global financial crisis, once again slipping out of the reach of many first-time buyers.
Many young couples are getting married at a later age, which puts them into the middle-management pay group and these are the 'sandwich class' who may have little choice but to consider getting either the highly-priced HDB resale flats or shoebox units in mass market private condo projects. Many in this segment of homebuyers were priced out of the EC market due to the $10,000 monthly income ceiling policy at the time.
In the 2011 General Elections, affordable housing was a key concern for many Singaporeans and many dreams will be shattered if Singaporeans' aspiration of owning a private property becomes unattainable. Thus, with the escalating private home prices, the government had decided to increase the income ceiling and augment the supply of ECs to cater to the needs of the 'sandwich class'.
The total stock of completed EC units was 10,430 at end-Q4 2011. In addition, there are 6,058 EC units in the pipeline. Another 2,900 units could be generated from EC sites that will be released for sale via the first half 2012 Government Land Sales Programme.
It is an unprecedented move to increase the supply of so many ECs within a year, compared to approximately 15,000 ECs introduced in the last 15 years. Let's look further at the attractiveness of ECs.
In general, such properties are 20 to 25 per cent cheaper than similar-sized 99-year leasehold private condos. The other perk associated with EC ownership is the ability to qualify for a CPF housing grant of $30,000 to be used as part of the downpayment for first timers. Second-timers can save on the resale levy on the sale of their HDB flats when they purchase new EC projects which were launched from 2009 onwards.
Affordablility of ECs
ECs are relatively more affordable compared with private properties because of the restrictive criteria in qualifying for ownership and the minimum occupation period. Couples earning $12,000 (combined monthly income) or above do not qualify to buy a new EC unit from a developer. Also, EC buyers cannot sell their units within the first five years from the date of the Temporary Occupation Permit (TOP) of the project. It is only after the fifth year that these EC owners are allowed to sell their units, and that too only to Singaporeans and Singapore Permanent Residents (PRs). After the 10th year from the TOP date, EC owners can then sell their units in the open market, including to foreigners and companies.
In 2010, many sites were released for EC development. It is clear that whenever there is a need, ECs will play their role in bridging the gap between the HDB and private property markets. The new launches of EC projects in 2011 include the Arc at Tampines, which was the first EC project to benefit from the increase in income ceiling, with 220 of 574 units sold on the first day of the launch.
In line with HDB's plan to increase the supply of ECs, prices of ECs are expected to moderate from the current range of $750 per square foot to $700 psf in the coming months. This is definitely lower than current mass market condominium prices averaging at about $900 psf. Currently, more than 20 EC projects have passed the five-year period and about half of them have fulfilled the 10-year requirement, which means foreigners can buy into such projects. Thus, the capital appreciation from owning an EC unit is rather positive, especially after it is privatised, allowing it to be sold in the open market.
Based on statistics in Table A, ECs that were completed in the 1990s have seen their prices almost double compared with the prices when the first owners bought them, especially after they were fully privatised. Capital appreciation is 100 per cent in projects such as Eastvale, Westmere, Simei Green, Windermere and Chestervale. ECs are definitely a good option for many to consider especially for HDB upgraders, due to the limited supply and their value after 10 years. Some ECs that are in the five to 10-year completion period (Table B) are already seeing their prices escalating to as high as $919 psf such as Bishan Loft, based on the last transaction in December 2011.
In conclusion, Singaporeans are looking forward to the opportunity of owning a private property at more affordable prices and the alternative of upgrading to an EC will definitely be fulfilling many Singaporeans' dreams. HDB flats have reached their peak and are likely to undergo a correction - or at least see muted price growth - in the next few years.
On a longer-term perspective, upgrading to an EC that is six to eight years from completion will definitely reap greater benefits as upon its 10th year, the capital appreciation and returns are expected to be higher.
The writer is CEO of PropNex Realty
CAPITAL has been shifting from residential to industrial properties in the past few years, with investors increasingly viewing non-residential strata properties as an alternative to strata residential properties.
Trendspotting: The retail sector has offered stable yields of between 5 and 6 per cent even through the sub-prime crisis, but it behoves lay investors to educate themselves on the market risks specific to that sector
CAPITAL has been shifting from residential to industrial properties in the past few years, with investors increasingly viewing non-residential strata properties as an alternative to strata residential properties.
This conclusion is borne out by Jones Lang LaSalle's study of strata caveats lodged for all sectors between 2007 and 2011.
Over the past five years, strata residential transactions have dominated the number of caveats lodged, especially during the first half of 2009, when the economy began recovering from the global financial crisis. In an effort to stem the flow of capital into the residential sector, the government introduced the first of five cooling measures in the third quarter of 2009.
Strata residential units' share of total caveats subsequently fell 6.6 percentage points from a peak of 96.6 per cent in Q2 2009 to 90 per cent in Q4 2011. At the same time, strata industrial units' share of total caveats rose 4.6 percentage points from 2.9 per cent to 7.5 per cent. The proportion of caveats lodged for office and retail properties also rose in tandem with the industrial sector, up 0.6 and 0.9 percentage points respectively over the period.
Property sector trends
Even before the government imposed cooling measures in 2009, the negative relationship has been strongest between the industrial and residential sectors as seen by caveats lodged from 2007 to 2011. The inverse relationship is less pronounced between residential and the retail and office sectors due to their smaller market size. Despite this, it appears that retail and office transactions lead the way. When the proportion of retail and office property transactions rise, the proportion of industrial transactions frequently follows shortly after.
While the relationship has been strong historically, intervention by the government in the industrial sector from this year onwards might cause the association to weaken. Investors should expect some form of mean reversion, with strata office and retail properties taking up a greater proportion of transactions. The proportion of residential transactions should remain stable if not dip given the highly uncertain outlook after the introduction of the additional buyer's stamp duty (ABSD).
For investors looking for a yield play in this environment, industrial properties offer the highest yield at a net 5.5 per cent, compared with retail at 5.3 per cent, offices at 3.8 per cent and residential properties at 3 per cent.
Industrial properties might seem an attractive asset class to invest in right now given their high yields against other investment instruments such as savings rates, but capital values are at their highest since 2008. Investors buying in at this time might be paying a premium given the higher level of speculation in the market. Similarly, residential prices are at a peak with recent cooling measures likely to further compress prices in the high-end segment, and to a lesser extent, the mass market.
Investment market performance in 2012
Looking ahead, the industrial sector still offers the highest yield. There is a growing substitution effect between traditional office space and industrial properties for back-office operations. However, given the impact of economic headwinds on consumption and production, prices of industrial assets could drop by around 20 per cent in 2012. But with economic recovery expected in 2013, this sector should also rebound.
The residential market, despite the policy risks, will continue to offer long term price appreciation given land scarcity and population growth, albeit at a slower rate. We expect prices of high-end residential property to soften around 15 per cent this year, before recovering by a similar magnitude in 2013.
Investing in the office sector is more challenging given the limited strata units available within the central business district (CBD). Nonetheless, on the back of weakening global demand and lower GDP growth, capital values for office space could see some downside before recovering next year.
The retail sector has offered stable yields of between 5 and 6 per cent even through the sub-prime crisis, but it behoves lay investors to educate themselves on the market risks specific to that sector. Price movements are smaller compared with other sectors but a slight drop is expected this year, while prices may remain flat in 2013.
The eurozone crisis continues to dampen market sentiment in the region and could weigh on the domestic economy. Signs of a slowdown have emerged especially in the electronics sector. Most investors are waiting on the sidelines for greater clarity in global market conditions which are expected to stabilise by the second half of the year. Buying opportunities should reappear by then. With government measures in place in several sectors potentially keeping a lid on prices, such market conditions should prove attractive for retail investors in the medium term.
Jason Lee is research analyst and Chua Yang Liang is head of research and consultancy at Jones Lang LaSalle
Basic guide for investing in strata properties
FOR investors seeking to capture the yields and capital appreciation opportunities in the strata property market, here are some pointers:
- Non-residential strata properties are viewed more as a factor of production in the economic equation. Investors need to be more attuned to global economic trends to anticipate the needs of potential occupiers and be better able to generate adequate returns on the asset;
- Investors have to incur marketing and leasing costs including potential loss of revenue during fit-in and fit-out periods for tenants of non-residential strata properties. Rent-free periods to entice occupiers may be needed if conditions are weak;
- Higher capital expenditure may be required to maintain values of non-residential assets. Unlike residential properties, these assets require more rigorous maintenance to keep their value. The higher foot traffic and greater wear and tear suggest that higher capital expenditure may be needed to hold up rental and capital values in the longer term;
- While banks typically grant a higher loan-to-value ratio for non-residential investment assets, investors cannot use their Central Provident Fund (CPF) monies to buy non-residential properties;
- Although the recently introduced additional buyer's stamp duty does not apply to non-residential properties, investors will incur the Goods and Services Tax and higher interest rates; and,
- Tenure of non-residential assets can be shorter. For example, industrial developments are typically built on sites that have a tenure of 30-60 years. For all industrial sites sold under the Government Land Sales Programme from this year, the minimum strata unit size is 150 square metres of gross floor area (GFA). In addition, for selected sites, such as those near MRT stations or as decided by the government, strata sub-division of the industrial development is not allowed in the first 10 years of the project. Thereafter, if the developer decides to sub-divide the development, the minimum strata unit size is 150 sq m of GFA.
SHORTER economic cycles coupled with increasingly volatile equity markets have led to a growing desire for safer investment options.
Landed assets: In general, there are four main classes of landed properties in Singapore, which include Good Class Bungalows (above) , conventional landed houses, strata landed houses (next), and Sentosa Cove landed houses (third picture)
SHORTER economic cycles coupled with increasingly volatile equity markets have led to a growing desire for safer investment options. In property investments, homebuyers seek to purchase assets that can weather an economic downturn and provide long-term capital appreciation potential.
Landed properties, being limited in supply, have often been regarded as a safer property investment option compared to their non-landed counterparts. This has been so in the past few years where a significant number of non-landed units were released to the market through the Government Land Sales (GLS) Programme. In H1 2012, some 7,020 non-landed residential units are expected to be released via the confirmed list while another 7,120 will be supplied through the reserve list. There are no landed sites.
While non-landed properties across Singapore have seen higher sales volume in recent years, landed properties have seen higher capital appreciation and proved to be more resilient during a downturn. Should one consider landed homes as an investment option, particularly as the economy becomes more volatile and uncertain?
Different classes of landed properties
In general, there are four main classes of landed properties in Singapore: Good Class Bungalows (GCBs), conventional landed houses, strata landed houses, and Sentosa Cove landed houses. While there are no restrictions on Singaporeans buying landed properties, permanent residents (PRs) and foreigners face restrictions.
GCBs may be regarded as the crème de la crème of landed housing on mainland Singapore. These exclusive bungalows, which are located in Singapore's 39 gazetted GCB Areas, are governed by stringent planning requirements such as a minimum plot size of 1,400 square metres (sq m), maximum site coverage control of 35 per cent and a height restriction of two storeys. GCBs are among the most sought after properties in Singapore and are owned mostly by Singaporean high net worth individuals.
Elsewhere in Singapore, conventional landed homes comprise semi-detached, terrace and detached houses.
Strata-landed homes are low-rise properties that come with strata titles instead of land titles. Introduced in 1993, this housing type caters to homebuyers who desire bigger space with privacy in a secure gated community. Such homes also offer the convenience of communal facilities such as swimming pools and tennis courts.
In the case of strata landed properties within developments with condominium status, foreigners (including PRs) may buy such properties without seeking regulatory approvals.
However, for the purchase of other types of landed housing, non-Singaporeans have to seek permission from the Land Dealings (Approval) Unit (LDAU) . Applicants have to fulfil certain criteria before approval is given, including being a Singapore PR and making significant economic contribution to Singapore.
Sentosa Cove is the only place in Singapore where even non-Singapore PR foreigners may purchase a landed home, although subject to obtaining LDAU approval.
Foreigners granted approval to buy a landed home in Singapore including at Sentosa Cove are required to use the property for their own occupation. They are allowed to own only one landed home in Singapore.
Shift in landed housing dynamics
During previous property cycles, prices in the landed segment underperformed the non-landed segment. For example, in the 1996-2000 property cycle, landed properties fell 6.4 per cent, compared with 5.3 per cent for non-landed homes during the market downturn between Q2 1996 and Q4 1998. When the market recovered, landed properties appreciated less than non-landed homes. The weaker performance was also observed in other earlier property cycles.
However, the pattern has changed since the global financial crisis. Prices of landed homes have appreciated more than non-landed properties during an upturn and fallen by a smaller magnitude during a market downturn. Fundamental changes in the investment climate and other factors such as limited supply, changes in regulations and government measures may have indirectly contributed to the shift.
Shift in dynamics
As the government releases more sites for non-landed developments to cope with increasing demand from a rising population, landed homes as a proportion of total housing stock in Singapore has shrunk. As at end Q4 2011, landed properties accounted for 26.3 per cent of the total housing stock, down from 35.3 per cent in 2000. In absolute numbers, while supply of landed houses has increased, it was at a much slower pace than that for non-landed homes.
Over the past 10 years, the rate of increase for landed stock averaged 0.6 per cent (compounded annual growth rate, or CAGR), significantly lower than that of non-landed houses (4 per cent). Under the GLS Programme 2011, there were only two sites slated for landed housing development, with a total of 115 units out of the estimated 23,590 total residential units that can potentially be generated from sites under the confirmed and reserve lists. In the first-half 2012 GLS list, there are no landed housing sites.
The stock of GCBs is even more limited with about 2,400 houses in 39 areas, mainly in districts 10, 11, 21 and 23.
On the demand side, landed properties have become more desirable due to strong population growth over the past two decades. In addition to existing high demand from Singaporeans, new citizens who are used to landed living would also seek to own landed properties when settling in Singapore.
Recent government initiatives may have boosted the attractiveness of landed homes, leading to stronger demand. More flexibility has been given in the design of landed housing through the introduction of the Envelop Control Approach in September 2010. Under this pilot scheme, architects gain more leeway in terms of design, allowing landed homes to be built up to four storeys instead of being limited to three storeys previously.
While encouraging creativity and ensuring practical supply of landed houses, the government also monitors closely the quality of landed housing developments, as evident in the implementation of minimum plot size for strata landed developments in February 2009 where a minimum plot size per unit, depending on its housing form, is prescribed for strata landed homes.
Bungalows, semi-detached and terrace houses are required to follow a minimum plot size of 400 sq m, 200 sq m and 150 sq m respectively. The revised guideline reduces the number of strata houses allowable per development and was implemented to resolve concerns of increasingly congested strata landed developments before the measures. After all, strata-landed buyers especially those with larger families prefer the bigger built-up space typical of landed homes but want the convenience of condominium facilities as well.
Future for landed properties
The looming global crisis and slowdown in the Singapore economy in 2012 will inadvertently dampen buying sentiment in the property market and buyers are likely to stay on the market sidelines over the next 12 months while awaiting a more favourable investment climate. Volumes will fall accordingly.
However, as compared to non-landed properties, prices of all landed housing types may prove to be more resilient. New supply of landed properties remains limited, providing support notwithstanding an expected slowdown in the economy.
The additional buyer's stamp duty is not expected to have a significant impact on the landed housing market as foreigners, who are largely affected by the new measures, make up a low percentage of landed home buyers.
Foreigners (non-PR) accounted for 0.6 per cent of landed property purchases (including Sentosa Cove) in 2010 and 1.8 per cent in 2011. More importantly, the limited supply and prestigious lifestyle offerings continue to back the continuous demand for this evergreen property class.
Png Poh Soon is director, valuation and head of consultancy & research; Joanna Chen Wanzi is senior analyst, consultancy & research; and Le Thi Dan Thuy is analyst, consultancy & research at Knight Frank
Urban Redevelopment Authority (URA) statistics released last month show that developers sold a record breaking 18,787 private homes (including 2,883 executive condominium units) in 2011.
Urban Redevelopment Authority (URA) statistics released last month show that developers sold a record breaking 18,787 private homes (including 2,883 executive condominium units) in 2011. With such a vibrant private residential market, it would have been natural to expect a similar performance in the resale HDB market. After all, the resale HDB market tracks the ups and downs of the private residential market.
Despite the strong showing in the private residential market, an unusual observation emerged in the resale HDB market - transaction volumes of the HDB resale market actually decreased while prices continued to climb last year.
In 2011, resale HDB transactions yielded only 24,633 units; a sharp 24 per cent decline from the 32,257 units transacted in 2010; and this is the lowest volume recorded since the 2008 recession.
Resale HDB flat prices are at a record high; after posting a 10.7 per cent increase in 2011; though this is lesser than the 14 per cent rise seen in 2010. It should be noted that the rate of price increase is slowing down; with 1.7 per cent quarter-on-quarter increase in the fourth quarter as compared with 3.8 per cent in the third quarter.
What has caused the decline in resale volume?
Extensive supply of BTO flats and EC units
The past year saw the release of some 25,200 Build-to-Order (BTO) flats into the market; by far the largest number in 10 years. This year, the government will continue to release another 25,000 BTO units.
The BTO programme has also been modified to become a 'build ahead of order' system; cutting the waiting time for a BTO flat to 2.5 years from the previous four years.
For each BTO launch, the HDB has been offering a larger number of flats in more varied locations instead of just one location as in the past. This has improved the application rate of first-timers to 1.5 times the number of flats offered - a vast improvement from the days of five to 10 times. With the improved application rate, almost anyone that applies for a BTO flat will get a chance to choose a unit.
With more choices, improved success rate, a more affordable price tag and smaller initial capital outlay, many a first-timer has been lured away from the resale market. Past statistics show that first-time buyers account for some 23 per cent of transactions in the HDB resale market. And more buyers crossing over to the BTO side means fewer buyers for the resale market.
This year, the government will release land sufficient for another 5,000 executive condominiums (ECs) - which are a public-private housing hybrid - to cater to the growing needs of the 'sandwich class'.
With the gap between HDB resale prices of five-room or executive flats and ECs narrowing in recent years, more buyers have chosen ECs as they come with facilities and lifestyle features just like private condos. The increased $12,000 monthly household income ceiling for ECs has also made it possible for more first-timer households to take the EC route, whereas previously they had only resale flats to choose from when the income ceiling was $10,000.
Impending policy changes affecting second-time buyers of BTO flats
Minister for National Development Khaw Boon Wan has promised to modify existing balloting rules for BTO flats to benefit second-time buyers and the new rules are likely to be announced next month, in line with the next batch of BTO launches.
In anticipation of the changes to come, many second-time buyers have held back their move into the resale market.
Should the new rules increase the number of BTO flats made available to second-time buyers substantially, the HDB resale market may be greatly impacted since these buyers form the bulk of the resale market.
When that happens, demand for resale flats will come only from families that have immediate housing needs, those downgrading from private properties, and singles and permanent residents as they do not qualify to buy new HDB flats.
Cautious sentiment beginning to set in
Singapore, being an export-driven market, is easily influenced by developments in the global economy. European economies are either in recession or suffering from anaemic growth. Coupled with China's weaker growth prospects in 2012, Singapore companies have begun to adopt cost-cutting measures to sustain operations. This has caused some worries over the stability of jobs and salaries. Hence, homebuyers could be waiting for stronger and clearer signals from the market before they are willing to commit to a housing purchase - a probable cause for sales momentum for HDB resale flats to slow down in recent months.
Why are resale prices still so high?
Supply crunch
Despite increased supply and impending policy changes, resale prices have continued to increase. The double whammy of the minimum occupation period of five years and low average completion rates of new HDB flats between 2002 and 2010 have resulted in a general supply shortage of resale flats currently.
Private property prices, in particular those of mass-market condominiums, have increased beyond the reach of many HDB dwellers who had intended to upgrade. It is not uncommon that many three-bedroom apartments in suburban condominium projects are going for above $1 million. This may be a stretch for many HDB dwellers who had intended to upgrade and many of them have postponed their upgrading plans in the interim.
Economic growth and the tight labour market over the past two years have led to a buoyant subletting market; with increased rental demand and rents. In the past, those who had upgraded to private properties usually sold their HDB flats so that they did not have to service dual mortgages. However, as they can now easily sublet their HDB flats for an attractive return of some 6 to 8 per cent, many have kept their flats even as they moved over to live in the private property. This is because the rent collected from subletting the HDB flats could well defray the monthly mortgage payments.
Many who have upgraded to private homes and apartments do not want to sell their HDB flats because if they wanted to buy a HDB flat again, they would have to first sell their private property. As part of the cooling measures implemented in August 2010, owners of private property - including overseas residential properties - who buy HDB resale flats will have to sell their private homes within six months of taking possession of the HDB flat. So, they might as well rent out their HDB flats while they move over to live in private properties.
For home owners who are servicing existing housing loans and are intending to change dwellings, they are only eligible for a 60 per cent bank loan should they buy before they sell. Though they would eventually end up with one HDB flat and one housing loan, this cooling-measure policy makes it very inconvenient for genuine home sellers to change properties. Many have thus put off their plans to relocate for now.
The net effect is a supply shortage as fewer flats are being put onto the resale market.
Outlook
Currently, the main deterrent for resale flat buyers seems to be the overly high asking prices and cash over valuation (COV) premiums. Market prices are at their peak now.
The current large supply of BTO flats and possible tweaks in government policy affecting second time purchasers of these flats, combined with deteriorating economic fundamentals, may cause resale prices and COVs to decline in 2012.
When this happens, resale volume may be up again as there are many interested buyers on the sidelines waiting for prices to become more affordable.
However, even with the increased demand, instability in the macroeconomic environment and gloomy job prospects are likely to curb any runaway resale price growth - keeping flat prices realistic, as they should be.
Eugene Lim is key executive officer and Chan Hui Xin is research executive at ERA Realty Network Pte Ltd
THE Singapore office market is facing competitive pressures from within. Upcoming business park space is creaming off demand from traditional office space.
THE Singapore office market is facing competitive pressures from within. Upcoming business park space is creaming off demand from traditional office space. Regional centres sprouting up will soon create further dynamics. The effect is that the office landscape may soon consist of a wide array of new and well-designed buildings offering a spectrum of rentals from the very affordable to AAA grade rates.
Office sector economics in Singapore is quite different from the residential sector. For one thing, most offices are held for income and landlords treat their projects as an 'evergreen' cash cow, earning the spread between their borrowing costs and free cash flow rental income - very much like how a bank earns the spread between lending out at a higher rate and paying for deposits.
However, over the past year, plans have been afoot to develop new regional hubs in the Jurong East and Kallang Districts. In addition, there is also the development of business parks in the Changi, Jurong and Buona Vista areas. These developments are set to change the office landscape. They pose opportunities for some as well as threats for others. Interesting times lie ahead.
In short, three developments could potentially change the economics of the office market:
- Regionalisation through the development of hubs
- Business parks
- Greater tendency towards mixed-use developments
As these developments are inter-linked, they should be addressed together. Unlike the traditional CBD offices, many of these regional hub developments come with a mix of office and retail uses. In recent developments, the size of the retail component has been quite significant.
For example, the regional commercial development with the lowest retail space content is the Paya Lebar Square project being developed by Low Keng Huat, Guthrie and Sun Venture, where a significant 20 per cent of gross floor area is allocated for retail. The highest is 70 per cent for Jem in Jurong.
The construction cost of office space is generally higher than that for retail developments, but as retail rentals are significantly higher than that for offices, developers of projects which include a significant retail component will have the flexibility of using the higher retail rentals to 'cross-subsidise' the office component that the developers intend to lease out.
If developers intend to sell the space, given that office units on sites with dwindling leasehold tenure at International Plaza and Maxwell House are transacting between $1,421 psf and $1,815 psf (as at Q4 2011), a new development, albeit in say the Kallang regional hub, should easily generate interest among investors and end-users.
The implications arising from the new retail/office mix developments in the regional centres can be viewed as opportunities for developers and also points of contention for pure office landlords in the Central Business District (CBD). If these regional centres start to attract tenants who traditionally take up space in the CBD, then the possibility of landlords using the retail rental portion to subsidise their office component may result in very low office rentals signed. The sheer size of real estate offered in the regional centres may change the landscape of our CBD office market.
For example, the 65-hectare Kallang Riverside has earmarked 3.23 million sq ft of office space and another 3.23 million sq ft of retail, hotel and entertainment spaces. The 70-hectare Jurong Lake District has earmarked 5.38 million sq ft of office space. In total, 8.61 million sq ft of office space will ultimately be built in these two centres alone.
As at Q4 2011, the total amount of office stock (both private and public) was 77.8 million sq ft. Going by these numbers, both regional centres will ultimately constitute 10 per cent of the currently available stock of office space islandwide.
With 8.61 million sq ft of offices coming up in the regional hubs, and assuming that buildings in the CBD from which the tenants vacated will be rebuilt for office use, these new space would also require another 86,100 workers (100 sq ft per worker) to fill.
Impact on rentals
What does all this mean for the future of office rentals? At the moment, two opposing forces are at war. One is deflationary and comes from business parks that are built to specifications by end-users. As the cost to the user is just ground rent, maintenance and the amortisation of the construction cost, the breakeven costs are very low.
In contrast, developers who bought land parcels in the CBD and regional hubs have a higher fixed cost in the form of land cost. This means that their breakeven cost will be significantly higher than the breakeven cost for business parks.
Given that the latter has been attracting users that would otherwise have taken up office spaces, such as a bank for its backroom functions, demand for traditional office space use has been diluted.
In fact, some tenants who have taken sizeable floor space in business parks used to be in traditional offices located in the CBD.
On the other hand, inflationary forces are at work because new strata-titled office units in regional centres are being sold at prices north of $1,550 psf (Paya Lebar Square). It must be said that these office units are smaller and therefore appeal to a different market - small investors and owner-occupiers.
The latter are entrepreneurial set-ups serving the 'real economy' and in industries such as oil trading, shipping, training and consultancy, head-hunting, wealth management, and representative offices of foreign small and medium enterprises.
What will be interesting to see in the near future is how prime CBD offices will fare when financial institutions scale back their investment banking activities and revert to their traditional role of being lenders to the real economy.
Will the receding liquidity create even more shadow space in prime office buildings, exerting downside pressures on rental?
Given the fluidity of labour with globalisation and with an eye on cost savings, what are the prospects for business parks? One must remember that with falling communications costs, many of these backroom functions can be located in lower cost countries.
In the final analysis, two things can be said.
First, we believe that prospects for strata-titled office space in regional hubs will remain good. As the world goes back to basics, end-users of office space that serves the real economy will be better shielded from uncertainty in the financial sector.
Second, for office space catering to the financial sector, the situation is fluid. This market will be fraught with uncertainties arising from both global events and the onslaught of supply from business parks and traditional office developments.
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The writer is director of research and consultancy at Savills Singapore
RIDING the waves of a rapid economic rebound from late 2009, prices and rents of industrial properties in Singapore climbed northwards.
The Elitist: Artist's impression of the building, which comprises two stories of ramp-up factory units and seven stories of flatted factory units with an average selling price of $470 psf
RIDING the waves of a rapid economic rebound from late 2009, prices and rents of industrial properties in Singapore climbed northwards. Capital values of industrial properties islandwide increased 23.7 per cent in 2010, followed by a stronger 27.2 per cent jump in 2011, while overall rentals went up by 13.5 per cent and 15.5 per cent year on year respectively over the two years.
Despite the persistent price growth, the industrial real estate sector continues to attract investors who are keen on property assets as investments amid a volatile financial market.
Decreasing allure of residential property sector
Since the start of the property market recovery in 2009, the successive rounds of government intervention in the residential real estate market have raised the financial barrier of entry for investors and reduced the return on equity.
The present regime of sellers' stamp duty (SSD) has also increased the exit cost for investors with an investment horizon of less than four years. Therefore, some investors are exploring alternative real estate assets that can offer a higher return without the high entry and exit costs.
Increasing allure of industrial property
To exploit the emerging investment demand, certain industrial developers began to aggressively launch 'shoebox' strata-titled units that were each 1,000 sq ft or smaller, in their new industrial projects. Some retail investors who were unfamiliar with the industrial property sector were attracted to invest in these shoebox units because the price quantum appeared to be affordable as it was similar to that of a one-bedroom housing unit.
However, the prices of these small industrial units on a per square foot basis were significantly higher than other industrial properties in the same vicinity. The result of the aggressive marketing of such shoebox industrial units was that business space was introduced as an investment asset to a wider range of retail investors.
Types of industrial properties
Industrial properties can be classified mainly into single-user and multi-user developments. A single-user development is intended for use by only one occupier, while multiple-user developments are usually subdivided into strata-titled units.
As with most industrial developments, a minimum 60 per cent of the total gross floor area (GFA) must be used for the main industrial activities, which include manufacturing and warehousing, while the remaining 40 per cent of the GFA is permitted to be used for ancillary purposes that support the main industrial activities, such as office space, meeting rooms and display area.
All industrial properties can then be categorised into two zonings - Business 1 (B1) and Business 2 (B2). B1 is usually intended for light and clean industrial uses that do not impose a nuisance buffer of more than 50 metres and can therefore be found in selected housing estates such as Bukit Batok and Woodlands.
Developments zoned under B2 on the other hand may be used for heavy industries that have a much greater impact on the environment, where the users will need to impose nuisance buffers of more than 50 metres. Therefore, such industries are almost always located a distance away from housing estates, such as those in Tuas.
Business parks are meant for non-pollutive industries that are characteristic of high-technology and research-oriented industries. Business park properties are usually bought and developed by Real Estate Investment Trusts to be leased out for rental income. Thus, individual unit spaces in business parks are only available for rent and not for sale.
Types of industrial factories
There are several types of factories with B1 and B2 zoning, including flatted, ramp-up, food and landed factories. Flatted factories are used for general manufacturing. They usually provide common facilities such as passenger and cargo lifts, loading and unloading bay and car parks.
Ground-floor space in flatted factories usually commands higher rental values due to higher floor loading capacities and better accessibility. Local SMEs are the main users of this type of factory.
Ramp-up factories provide direct vehicular access to each individual industrial unit in the building, conferring convenience upon business users with heavy loading and unloading requirements. A combination of ramp-up and flatted factory units within the same development is becoming more common in Singapore, where units on the lower floors are ramp-up units and flatted factory units are on the higher floors.
A notable example is the recently launched project in Bukit Batok - The Elitist, which comprises two stories of ramp-up factory units and seven stories of flatted factory units with an average selling price of $470 per square foot (psf). Premier @ Kakit Bukit is another project offering a combination of ramp-up and flatted factories developed into two separate blocks of eight and nine stories respectively.
Food factories occupy a unique niche as they are limited in supply due to the strict licence regulations. Likewise, landed factories available for sale are also limited in supply due to their low efficiency ratio. Ranging from one to five stories, they are now seldom developed for sale and each factory is usually occupied by a single user.
Supply of different types of industrial factories
A total of 13 sites were sold through the industrial Government Land Sales (GLS) Programme in 2011, and most of the developments on these sites can be expected to be launched this year. At least three of these sites are slated for development into ramp-up factories. These sites include those at Woodlands Avenue 12, Soon Lee Street and Kaki Bukit Road 4.
With the H1 2012 industrial GLS Programme offering an extensive supply of land for industrial development, an oversupply situation is a growing concern among industrialists and investors who have recently bought industrial space.
This should however be mitigated by the introduction of new conditions on future industrial developments. An example is that developers will no longer be allowed to strata subdivide the development on selected sites in the first 10 years after the completion of the project.
Developers of multi-user projects are also required to build a minimum GFA of 150 square metres for each strata-titled unit on sites sold through the industrial GLS Programme from H1 2012 onwards. Such conditions could reduce the supply of shoebox industrial units and deter speculative demand.
Industrial properties will always find favour with investors as they continue to evolve to cater to the changing business needs. However, investors who are new to this asset class should understand the market dynamics and regulations before investing in industrial properties.
The writer is executive director, SLP International
2011 seems to be a year plagued with woes for retailers. Earlier in the year, ALT, the three-storey anchor department store at The Hereen abruptly closed its shutters after less than a year of operations at the mall.
Crowd pleasers? Artist's impression of the revamped Wisma Atria (subject to change)
2011 seems to be a year plagued with woes for retailers. Earlier in the year, ALT, the three-storey anchor department store at The Hereen abruptly closed its shutters after less than a year of operations at the mall. This was then followed by the shocking demise of Borders and shortly after, home-grown book retailer Page One announced its exit from Vivocity citing rental issues. There have been some indications that retailers have been facing the double whammy of slowing retail sales and increasing rental and manpower costs.
Despite these, we also saw a boom in the entry of high street fashion brands such as H&M, Abercrombie & Fitch and Aeropostale. Notably, the much awaited H&M opened with much fanfare and the same enthusiasm was also observed at Abercrombie & Fitch's opening last December when shoppers swarmed the store to take photographs with the shirtless male models.
This inevitably leads one to ask if Singapore is really facing a retail gloom with retailers' woes trickling down to the landlord and the market. Based on the recent influx of new brands and recent government land sales, the local retail market looks promising as it undergoes a new phase, with retailers and landlords streamlining their operation costs to improve productivity and differentiating themselves from competitors.
The need to be different
Gone are the days when a cookie cutter model can be applied to malls across Singapore. With the rising numbers of affluent and well-travelled Singaporeans, expectations of our favourite pastime are raised. Shopping no longer is just an activity to buy merchandise. Shopping has become a dynamic experience that constantly needs to be different to draw and sustain the shoppers.
Hence, both retailers and landlords see the need to differentiate themselves in the market. Established F&B operators have been actively reinventing their menu and introducing interesting new F&B concepts to shoppers. For example, at 112 Katong, the BreadTalk group opened its first duplex Din Tai Fung restaurant and offers Peranakan-themed buns exclusively at its BreadTalk outlet there.
Over at Orchard Central, Kitchen Language, the franchised fast food and restaurant arm of Far East Organization, will be opening New York artisanal gourmet supermarket Dean & Deluca's first flagship store in Singapore in the first half of this year.
Landlords are not sitting idle either and are spending millions revamping old malls. Established malls such as Plaza Singapura, Wisma Atria and Suntec City are carrying out extensive asset enhancements to compete with the new kids on the block and attract new brands.
To encourage more diversification in malls, industry observers have even suggested the inclusion of the proportion of new retail brands versus existing brands in the market when submitting land tender bids for commercial sites - to ensure that developers continue to bring in fresh and exciting concepts for the malls.
Other challenges ahead
Besides the need to differentiate, market players also recognise other challenges ahead and the formula to be on top of the game. High operating costs continue to be of concern for both retailers and landlords. Manpower costs are another. For the Paradise Group, which recently launched its latest dining concept Canton Paradise in the revamped 112 Katong and plans to open its second outlet at the new JCube shopping mall in March, the shortage of manpower has been 'crippling' for its growth.
'Our key challenge is manpower,' said Eldwin Chua, chief executive officer of Paradise Group. 'Hiring people with the right calibre to work in the restaurant business is relatively difficult as long hours are required. Hence, at most times we are crippled by the shortage of manpower in our expansion plans. On top of that, we are constantly faced with other issues like high rent, increasing operating costs and finding the right location for our restaurants.'
Most commercial landlords have also seen costs go up for utilities, security and cleaning, and are looking at ways to streamline these.
Furthermore, with the completion of more than a handful of new malls such as Changi City Point, 112 Katong, Clementi Mall in the suburbs; Scotts Square in Orchard Road and new upcoming developments such as JEM, Westgate, JCube, the Bedok Interchange site, the former Lion City Hotel site and Waterway Point, competition is going to be strong with an estimated 2.5 million square feet coming on-stream over the next two years.
Promising outlook
Market players have shown their confidence in the retail market despite the challenges.
Government land sales for retail spaces were sealed at record prices; a joint venture between Singapore Press Holdings (SPH) and the United Engineers Group recently secured a commercial site at Sengkang for $328 million, which works out to $1,156 per square foot per plot ratio (psf ppr). This is about 50 per cent higher than the $800 psf ppr bid price that market analysts had expected.
Retailers we spoke to remain cautiously optimistic that new brands will continue to enter the local market because Singapore is a strategic location for new brands looking at entering the South-east Asian market.
R Dhinakaran, managing director of Jay Gee Group, put the matter in perspective: 'The Singapore retail scene is vibrant and growing with many new malls with distinct concepts coming up in the recent years. Brands flock to Singapore as it is seen as an important destination in Asia and one which shapes aspirations and patterns in the neighbouring countries which are larger markets.
'However, it is also recognised that good site locations at the right rentals are factors taken into consideration by retailers.
'It is important for the market to remain viable for good choices to be continually available. With the rising cost of doing retail, we run the risk of denying our customers options over the period in time,' added Mr Dhinakaran. According to the latest figures released by the Department of Statistics, excluding motor vehicles, the value of retail sales rose by 8.1 per cent year on year in December 2011.
Despite the uncertain global economic outlook, the prime Orchard Road retail rents for Q4 2011 held steady at $41.55 per sq ft per month, representing a marginal year on year increase of 0.8 per cent. The monthly gross rent for suburban areas in Q4 was $32.07 per sq ft per month, representing a 3.1 per cent increase year on year.
An exciting landscape
'The high land and development cost and expected returns in the traditional areas should persuade mall operators to stay away from repeating existing retail formats. To create new retail and interesting concepts, malls may require ground breaking thoughts in planning policy. The way forward perhaps is to look at non-traditional areas such as industrial parks and outlying areas where land and development costs are relatively lower, in order to attract interesting retail and F&B concepts,' said Steven Goh, managing director of SG Retail Network Pte Ltd.
An interesting concept to explore will be the premium outlet malls similar to the newly opened Johor Premium Outlet. The outlet mall concept is not exactly new in Singapore as we already have two malls - IMM and Changi City Point offering similar outlet stores without the premium brands. The brands carried here typically include sportswear and mid-range priced brands such as Esprit and G2000.
Premium outlets overseas are typically situated in the suburbs, away from the main shopping belt. However, in land scarce Singapore where retail malls are dotted over almost every MRT station and accessibility to town locations is easily within reach, finding a suitable location to house the premium outlet mall can be challenging.
On the whole, we look forward to seeing a rejuvenation of the established malls with more exciting concepts and the influx of new brands. Despite the stiff competition and volatility of the global economy, 2012 will be a year when both landlords and retailers will have to navigate cautiously through the murky waters for suitable growth opportunities. Nevertheless, we remain positive that with the right concepts in place, it will be a win-win situation for all.
Peter See-Toh is managing director, retail services; and Claudia Tang is assistant manager, retail services at Knight Frank
RENTAL growth of private residential properties slowed down significantly to 3.8 per cent in 2011 from 17.9 per cent in 2010, according to the Urban Redevelopment Authority's rental index.
Room to grow? Older properties in the CCR face competition from newly completed properties as more units are available for rent and they come with more up-to-date finishes and facilities.
Berth by the Cove at Sentosa Cove (above)
RENTAL growth of private residential properties slowed down significantly to 3.8 per cent in 2011 from 17.9 per cent in 2010, according to the Urban Redevelopment Authority's rental index. Much of the 2011 rental growth was in the first half (2.5 per cent) compared with 1.2 per cent in the second half. In particular, rents almost stagnated in Q4 with only a 0.4 per cent quarter-on-quarter (q-o-q) increase.
The second half of 2011 was less optimistic due to the worsening of the eurozone debt crisis with companies reducing expatriate hiring and housing allowances. Rental growth was also hampered by the larger addition to the stock, as around 7,800 units were completed in H2 2011 compared with around 4,600 units in H1.
Government policies also played a part in the rental market. In 2011, the government implemented a series of measures to regulate the inflow of foreign labour. The qualifying salaries for certain employment pass holders were raised on July 1, 2011 and again on Jan 1, 2012. The increase in qualifying salaries not only reduces demand for foreign labour but may also be passed on to the employees in terms of smaller housing allowances.
Non-landed rents in suburban areas posted the best performance in 2011. According to Urban Redevelopment Authority (URA) statistics, the rental index of non-landed properties for Outside Central Region (OCR) recorded the best performance compared with that in the Core Central Region (CCR) and the Rest of Central Region (RCR) in 2011.
The rental index for OCR rose 4.7 per cent while that for CCR and RCR increased by 2.6 and 3.5 per cent respectively in 2011 (Figure 1). The tighter housing allowances and hefty increase in rents from 2010 led to stronger demand for apartments in the suburban areas which command a smaller rent quantum compared with those in the city areas.
In addition, the proportion of non-landed completions in the OCR was also smaller compared to the CCR and RCR. Around 41 per cent of the non-landed completions in 2011 were located in the CCR, followed by 32 per cent in the RCR and only 27 per cent in OCR.
Due to weaker demand coupled with higher supply-side pressure, rental growth of non-landed private homes in CCR has started to moderate; the rental index rose only 0.1 per cent q-o-q in Q4. In comparison, the non-landed rental index for RCR and OCR increased by 1.2 per cent and 0.5 per cent respectively.
In particular, older properties in the CCR faced competition from the newly completed properties as more units are available for rent and tenants become more selective, preferring newer projects with more up-to-date finishes and facilities.
Rents in Marina Bay held up better than other micro markets of CCR. The rental performances in different parts of CCR varied in 2011. Median rents of residential properties around Marina Bay obtained from URA's website showed that they performed better than median rents in Sentosa Cove (Table 1). This is likely due to Marina Bay being closer to the tenant pool working in the CBD and the area has many activities and events providing buzz and vibrancy.
The predominantly smaller-sized units command higher rents on a per square foot basis and attract singles and couples who work around the financial district. The relative inaccessibility of Sentosa can be a major deterrent for tenants, especially if they do not drive to work.
Condominiums in Sentosa Cove also face competition from the prime districts 9, 10 and 11, where bigger units are also available to cater to the needs of families. Rents in the nearby Harbourfront area also held up better than those in Sentosa Cove as they are more conveniently located on the mainland and closer to transportation nodes and retail amenities.
In the prime districts of 9, 10 and 11, the rental performance was mixed across different projects (Table 1). Based on a basket of condominiums tracked by DTZ Research, rental values of non-landed private homes and luxury condominiums in prime districts of 9, 10 and 11 rose 4.1 per cent and 1.3 per cent respectively in 2011. However, the rental market in the prime districts has turned negative in Q4 as rents of non-landed private homes declined by 1.6 per cent q-o-q and those of luxury condominiums fell by 2.6 per cent over the same period.
Rents to face demand and supply headwinds
Rental demand in 2012 is expected to be weaker due to lower foreign hiring as a result of a projected slower business climate and tighter government policies. This may be mitigated somewhat for a temporary period by the imposition of the 10 per cent additional buyer's stamp duty (ABSD) on foreign purchase as some foreigners who had intended to buy may turn to renting a flat for accommodation. However, they may be tempted back to the purchase market if prices fall.
Rental growth is also expected to face supply-side headwinds from the large number of completions. URA's islandwide private non-landed residential vacancy rate has crept up from 5.5 per cent in Q1 2011 to 6.8 per cent in Q4 2011, as the increase in supply of 11,710 units in 2011 was not matched by the increase in demand of 7,126 units.
According to URA's statistics as of Q4 2011, 12,639 private non-landed residential units are expected to be completed by 2012, around 22 per cent higher than the three-year historical annual average completion of 10,375 units.
URA's estimates tend to fluctuate quarter to quarter and may differ from actual completions as developers adjust their completion dates. The annual average private non-landed home completions in 2012-2014 is even higher at around 15,500 units, suggesting a high level of completions in 2012 even if developers were to delay or bring forward completion dates. The three-year historical annual demand is lower at around 8,270 units.
Rents in the OCR, which have performed best in 2011, are also expected to face supply-side pressure as there are a number of projects to be completed in the suburban areas in 2012 (Table 2). Demand will however be supported by the growing number of tenants with smaller housing budgets.
With a weaker rental market anticipated in 2012, rents for newer properties in close proximity to transportation nodes will hold up better than the older ones.
Chua Chor Hoon is head of Asia Pacific Research and Li Jinquan is research analyst at DT
(KUALA LUMPUR) Malaysia's real estate sector is expected to be more subdued this year with property transactions seen slowing particularly in the first quarter as buyers adopt a wait-and-see attitude to the eurozone crisis and softening global economy, say realtors.
Bigger picture: Kuala Lumpur attracted the bulk of foreign buying and key government-led initiatives under the Greater KL plan to revitalise the capital city can be expected to add to the city's attractiveness when completed
(KUALA LUMPUR) Malaysia's real estate sector is expected to be more subdued this year with property transactions seen slowing particularly in the first quarter as buyers adopt a wait-and-see attitude to the eurozone crisis and softening global economy, say realtors.
Also, more stringent guidelines on lending are expected to rein in the exuberant borrowing of the past.
On the brighter side, after years of focusing on high-end properties, developers are likely to turn their attention to more affordable housing where demand is still robust.
According to Zerin Properties' chief executive Previn Singhe, asking prices on the secondary market are also becoming more realistic because the market is expected to remain relatively stagnant. 'Condominiums in Kuala Lumpur will be flat but we see some good deals in KLCC (Kuala Lumpur City Centre) and Mont Kiara now.'
Barring further external shocks, the property consultant is projecting an increase in demand and transactions in the second quarter, with the former nudging prices up especially in the landed market. Landed properties in established areas of the Klang Valley will continue to hold up well, but Mr Singhe is bullish about Puchong as well as the up-and-coming locations of Serdang and Bukit Jalil.
International Real Estate Federation Malaysia president Yeow Thit Sang had previously observed that multinational companies have not put down roots in the country quickly enough to occupy many of the luxury properties built, with the result that rental yields have dipped to below 6 per cent.
Foreign ownership of the residential sector is also minimal at about 2 per cent, but Malaysian Property Incorporated (MPI) is working to get more buy-in.
'RM1 million (S$412,560) is usually the pain barrier,' quipped its chief executive Kumar Tharmalingam in reference to the average price threshold for Singaporean purchasers.
Established in 2008 as a government initiative to attract real estate investments into the country, the MPI seeks to brand Malaysia's real estate in key markets including Singapore, Korea, Indonesia and China.
Mr Tharmalingam believes foreign interest is picking up. Of RM110 billion spent on real estate last year, RM12 billion or 11 per cent was by foreign investors. Developers at MPI's Malaysia Property Gallery in Singapore sold a total of RM115 million worth of residential properties last year, 15 per cent more than their target of RM100 million.
Greater KL
Invariably, Kuala Lumpur attracted the bulk of foreign buying and key government-led initiatives under the Greater KL plan to revitalise the capital city - such as the Mass Rapid Transport system, Kuala Lumpur International Financial District, and River of Life project (rehabilitation of the Klang River) - can be expected to add to the city's attractiveness when completed.
Foreign interest in Johor residential properties is, however, on the increase. A quarter of the 40-odd residential units costing RM1 million or more sold in the southern state in the first half of last year were bought by foreigners. In contrast, foreign buyers made up only 11.5 per cent of the 900-odd units sold in Kuala Lumpur.
'Iskandar has finally turned the corner,' Mr Tharmalingam observes, noting that even Chinese developers were in the special economic zone - thought to be building with an eye to their home market. 'Johor is near enough to Singapore but cheaper than Singapore.'
Recent queries indicate sustained foreign interest, he adds, noting that a group of 26 Japanese industrialists are scheduled to meet him in March on a mission: In the aftermath of Thai floods last year which crippled many business operations, the Japanese are on the look-out for 40 hectares for an industrial park in Malaysia.
There is also an emergence of European and US funds into South-east Asia, including Malaysia, in search of opportunities to invest in real estate, added Zerin Properties' Mr Singhe.
At the same time, the Malaysia My Second Home (MM2H) scheme appears to be attracting a new wave of buyers. Mr Tharmalingman noted the growing trend of Iranians, Pakistanis and Bangladeshis using the MM2H scheme to secure residency in Malaysia - viewed as a moderate Islamic nation - as an insurance should conditions at home deteriorate.
Real Estate and Housing Developers' Association Johor chairman Simon Heng agrees that more job opportunities have been created in the state because infrastructure projects are getting off the ground, and this has in turn created greater housing demand.
Another consequence has been the doubling of prices over the past two years in areas such as Nusajaya, with high-end apartments going for RM600-800 per square feet compared to RM280-300 psf previously, he said.
Because land prices have also soared - outside of Nusajaya leaping to RM15-25 psf compared to RM8-10 psf in 2009-2010 - developers have turned to high-rise developments.
Mr Heng said that some 60-70 apartment projects are believed to have been approved by the local council - a significant jump when one considers that two to three years ago, there would have been fewer than 20 projects in the pipeline, and those too were mainly landed developments.
'Location counts. If all these projects are launched together, it could take a while for the market to absorb,' he cautioned. A proposed MRT link between Johor and Singapore will make properties in the state much more desirable but the infrastructure is only expected to be launched in 2018 at the earliest.
But local demand for landed properties in Kempas, Skudai, Tebrau, Austin and Kulai costing less than RM500,000 - foreigners are restricted to properties over RM500,000 - remains steady, he said.
The anticipated slowdown notwithstanding, Penang continues to look good because the island is popular with a growing number of locals and foreigners. MPI's Penang Week attracted 60 people last year, all Penangnites working in Singapore who snapped up some RM40 million worth of properties.
Asked to comment about Penang real estate, Mr Singhe surmised: 'Penang Island is hot!'
SINGAPORE-BASED developers have long recognised the possibilities available in China and an increasing number are moving to get a finger in the pie.
Space to grow: Ascendas Cross Tower in Shanghai
SINGAPORE-BASED developers have long recognised the possibilities available in China and an increasing number are moving to get a finger in the pie.
The demand for integrated communities in the world's second-largest economy was recognised early on by Ascendas, which first entered the China market in 1995 when it pioneered the ready-built industrial park concept in Suzhou.
Today, its operations span 10 major cities, such as Shanghai, Suzhou, Beijing, Shenzhen, Dalian, Nanjing, Xian, Tianjin and Hangzhou. The property group has $1.66 billion worth of assets under management and provides some 10 million square feet of business space to multinational corporations and leading local companies. This comprises approximately 40 per cent industrial space, 40 per cent business/IT parks, and 20 per cent commercial space across China.
Within the Science, Business, and IT Parks space, Ascendas has eight parks, including Dalian Ascendas IT Park in Dalian, Ascendas iHub and Ascendas-Xinsu in Suzhou and Singapore-Hangzhou Science & Technology Park in Hangzhou; commercial buildings Ascendas Plaza, Ascendas Ocean Towers and Ascendas Cross Tower in Shanghai; and built-to-suit sites in Beijing and Tianjin.
Under its built-to-suit offering, the projects are developed to the customers' exact requirements and Ascendas oversees the entire real estate process from design, construction and project management, to renovations and ongoing property management.
Its latest project, a 30-hectare integrated business park at Guangzhou Knowledge City, is expected to be developed in phases over the next 10 years, at a total cost of 2.3 billion yuan (S$460 million).
Jointly developed with Singbridge International Singapore and Guangzhou Development District (GDD), the integrated park will offer 600,000 square metres of space to companies in the hi-tech, software development and R&D sectors. By 2016, 330,000 sq m of work-live-play space will be completed.
Ascendas holds a 52 per cent stake in the project, while Singbridge and GDD hold 48 per cent through a joint venture.
Others have since followed Ascendas into the country. Surbana, HDB's former building and development unit, first ventured into the township business in China in 2003.
The company has since developed townships in Chengdu, Wuxi, Xian and Shenyang, and has sold more than 14,400 homes. The company says that it is on track to build and sell 57,000 homes by 2018.
In July last year, Surbana announced that it had acquired a residential site in Chengdu for 677 million yuan through a public auction.
The 7.5 ha site, which is located in the Swan Lake Area within Longquanyi District of Chengdu city, is about 15 kilometres south-east of the city centre. It will yield a potential gross floor area (GFA) of over 300,000 sq m or about 3,400 apartments.
Construction on this proposed fifth residential project in China is expected to start in early 2013, with the sales launch targeted for first half of 2013.
In April last year, CapitaLand bought a 40 per cent stake in Surbana as part of its strategy to accelerate the growth of its value-housing segment under CapitaValue Homes (CVH).
CVH is working with Surbana on the design of its first project, Lakeside, which is located in Caidian district, Wuhan. Yielding some 2,500 units, the project is targeted for launch by Q4 2012.
In addition, CVH has secured two sites in Guangzhou's Panyu District and Shanghai's Pudong District which will yield approximately 1,500 and 900 value homes respectively.
A significant portion of CapitaLand's mid-to-high-end residential portfolio includes its 20 luxury developments, including Imperial Bay located in Hangzhou and The Paragon which is located in Shanghai. These developments constitute 29,869 units, of which 8,521 have been launched, as of December 2011.
CapitaLand has a pipeline of some 21,000 units for its mid-to-high-end residential business in China over the next four to five years, with a target to launch an average of 4,000 residential units annually.
The group's China assets, worth $12.0 billion, or 38 per cent of its balance sheet is contributed by retail (30 per cent), commercial and mixed developments (22 per cent), serviced residences (7 per cent) and others (2 per cent). Its holdings in Surbana constitute one per cent of the group's assets in China, while its residential portfolio constitutes 38 per cent.
Its integrated shopping mall business, CapitaMalls Asia, targets to open an additional seven malls in China this year, bringing the total number of operational malls it has in China to 49, out of the total portfolio of 56 malls. Its landmark shopping malls in the country include CapitaMall Crystal in Beijing, Hongkou Plaza in Shanghai and CapitaMall Jinniu in Chengdu.
The group also has eight Raffles City branded integrated developments - two in operation, six under development - spread across six cities and valued at $12 billion when completed.
The two Raffles City developments that are in operation are Raffles City Shanghai and Raffles City Beijing.
The eighth Raffles City, otherwise known as the Chao Tian Men site, is in the heart of Yuzhong district in Chongqing. The development - held by CapitaLand (25 per cent), CapitaMalls Asia (25 per cent), Singbridge Holdings (30 per cent), and unrelated parties (20 per cent) - will comprise a shopping mall and eight towers for residential, office, serviced residence and hotel use. Raffles City Chengdu and Raffles City Ningbo achieved their structural top-up in 2011, and are expected to commence operations from Q2 2012.
The group's serviced residence business unit, Ascott, has 40 properties, comprising over 7,400 apartment units spread across 16 cities. It intends to grow its China portfolio through acquisitions and management contracts to achieve its target of 12,000 apartment units by 2015.
The importance of China as a market is not lost on Keppel, which set up wholly-owned subsidiary, Keppel Land China, in 2010.
Keppel Land China has a pipeline of more than 43,000 homes in residential and waterfront developments, as well as townships. It intends to launch 6,652 units and 7,055 units this year, and in 2013 respectively.
In 2011, Keppel Land China sold more than 1,400 homes, mainly from its township projects, including The Botanica in Chengdu, Central Park City in Wuxi, and The Seasons in Shenyang.
As at end-2011, China constitutes 28 per cent of Keppel Land's assets.
Keppel Land's foray into China was in 2000 when it first acquired the Park Avenue enclave in downtown Shanghai. Its Spring City Golf & Lake Resort started operations in the 1990s.
It has made its mark since, particularly with its township developments. The developer's township strategy began in 2003 when it developed the 42 ha The Botanica in Chengdu. Since then, it has started work on another five township projects in China - including part of the 3,000 ha Tianjin Eco-City in Tianjin.
In this landmark Singapore-China government project, Keppel Land is an investor, as well as developer-cum-project manager for the Keppel development.
Both Keppel Corporation and Keppel Land have taken up interest of 45 per cent and 55 per cent respectively in a 36.6 ha site located in the start-up area of the eco-city for the development of about 5,000 eco-homes as well as commercial properties including office and retail spaces.
The entire Tianjin Eco-City project, which the Chinese and Singapore governments agreed to jointly build in 2007, will accommodate a population of 350,000 people when completed.
Keppel is also looking to grow its commercial presence in China. The Seasons City in the Tianjin Eco-City is its first commercial development. The company also acquired a commercial development in Beijing's CBD last month.
Seasons City comprises three office towers, retail premises and serviced apartments with a total GFA of about 254,398 sq m while the Beijing commercial development will have about 100,000 sq m of office and retail space.
Smaller players too have got into the Chinese scene. Following City Developments Limited's (CDL) founding of CDL China in 2010, the company has since actively expanded its footprint in China, with its third acquisition in just over a year.
Its latest acquisition is a a site in Chongqing, which it clinched for 540 million yuan in a government land tender in January this year. The land parcel can be developed into a GFA of 108,686 sq m, on which it will build 900 residential apartments and a commercial complex.
Its previous acquisition is a site in Suzhou Industrial Park which has GFA of 295,455 sq m, on which it intends to build 750 high-end residential apartments, an office tower, a mall, and a luxury hotel.
Its maiden acquisition in Chongqing was a residential site, consisting two adjacent plots of land totalling 27,200 sqm.
UOL Group, though still very much a domestic player, too, has property exposure in China. It has two projects in the pipeline: The Esplanade, a mixed-use development in Tianjin, and a residential-retail development in Changfeng, Shanghai.
The Esplanade, which is UOL's first mixed-use development comprising residential, retail, office, and hotel, will comprise four 28-storey blocks of luxury residential apartments, a 30-storey five-star hotel, two 13-storey office towers, and a retail mall. It is expected to be launched in the first half of this year.
The Changfeng project, which is jointly developed by UOL, SingLand, and Kheng Leong, sits on a 40,000 sq m site 10 km west of the Shanghai city centre. The development will feature a series of taller buildings arranged along two sides of the site. Inside, a series of low-rise townhouse blocks will sit amid landscaped gardens.
The development will comprise approximately 430 luxury residential units, leisure amenities, a kindergarten and an 8,000 sq m retail complex. It is expected to be launched in the second half of 2013.
UOL's hotel arm, the Pan Pacific Hotels Group, is in Xiamen and Suzhou, and has plans to expand to Ningbo, Tianjin and Shanghai in the next few years.
Property developer, Ho Bee, too has a finger in the China pie. In China, the group is jointly developing two residential projects with Yanlord Land - a 1,257-unit project in Qingpu, Shanghai, and a 1,898-unit development at Nanhu Eco-City, Tangshan. The projects are slated for completion in 2014 and 2015 respectively. The plan is to launch the Tangshan project, near Nanhu Lake, this year and the Shanghai project in 2013.
SC Global's long-term strategy to expand its regional footprint and participate in the developing China market was established under its new brand, Kairong Developments, which focuses on high-end luxury residential in first-tier cities such as Shanghai and Beijing.
In November 2006, Kairong Developments undertook its maiden development, Kairong International Gardens, in a 60:40 joint venture with Malaysia's Lion Group in Shenyang, the capital city of the Liaoning province.
With a potential GFA of up to 2.3 million sq ft, the project is expected to yield 2,000 homes and offer retail area totalling some 340,000 sq ft.
The development is located near the Shenyang Economic and Technological Development Zone.
(LONDON) Prime residential property in London defied the gloomy British economy and achieved sharp gains in 2011.
Classy locale: Money flowed from Italy, Greece and Egypt, according to agents, while Russian and other billionaires and multi-millionaires continued to favour the city. Such money tended to head for Knightsbridge, Kensington (left), Mayfair, Chelsea, Regents Park, St John's Wood, Hampstead and other prime London boroughs
(LONDON) Prime residential property in London defied the gloomy British economy and achieved sharp gains in 2011.
The price jump and mild rental increases caused yields to slide to such low levels that top notch London residential real estate may well have entered bubble territory.
The eurozone crisis and Middle Eastern revolutions turned out to be bullish for prime properties priced anywhere between £500,000 (S$1 million) and £20 million (S$40 million) or more. Money flowed from Italy, Greece and Egypt, according to agents, while Russian and other billionaires and multi-millionaires continued to favour the city.
Such money tended to head for Knightsbridge, Kensington, Mayfair, Chelsea, Regents Park, St John's Wood, Hampstead and other prime London boroughs. Price changes of other London boroughs, on the other hand, were mainly mixed with small increases and declines.
John D Wood & Co's price and yield indices - based on sales data from all leading agents and compiled independently by Nuffield College (Oxford) and the London School of Economics - illustrate the extent of the London prime residential real estate boom. The price index for houses over 3,500 sq ft rose by 10.7 per cent in 2011 and is up by 21.5 per cent from the low point in 2009.
The index is below the August 2011 peak, which was a new record, but it fell back and in December was 4.6 per cent below the 2008 pre-recession peak. The performance of large prime area flats over 1,500 sq ft has been staggering. In 2011, the apartment price index jumped by 24.9 per cent and was up by 64.5 per cent from the 2009 nadir.
Indeed, the appreciation matched the revival of the FTSE 100 from its 2009 depths. The difference, however, was that the real estate rise took place on very low volumes.
Following such a run, gross yields on rentals have tumbled to around 3.3 per cent on apartments and 2.9 per cent for houses. James Wyatt, head of valuation at John D Wood, estimates that after deducting agent and management fees, maintenance, other charges and tenant voids, net rental yields can be estimated at only 2.3 per cent for flats and 2 per cent for houses.
The low returns indicate that the prime market has become over-blown for investors, although foreign super-rich buyers and others sought London homes for a variety of other reasons.
Some of the money reportedly entered the market to evade taxation, though this could not be confirmed. Regardless of the reasons for purchase, London prime real estate has become far more pricey than depressed US city properties.
'The cardinal rule is to be highly selective,' says Michael Ross, head of Stockton Estates, a London-based commercial and residential property company. He is wary of ultra low rental yields, but notes that since property is a non-homogeneous market, careful buyers can find opportunities to refurbish units and boost valuations.
In the great recession of 2008/2009, John D Wood prime house price indices fell by 21 per cent from the peak of the preceding boom, and apartments by 23 per cent. Similar to the recent revival, sales volumes during the bear market were small, recalls Mr Ross.
The market stabilised and then recovered because the Bank of England slashed interest rates, thus reducing the pressure on mortgaged home owners. Once again the market improved as London is in the centre of the global time zone and has cultural and higher educational advantages for both UK and international buyers.
The UK Land Registry's sales data to end November 2011 shows the wide price differential between London areas. Average prices in Kensington and Chelsea of around £950,000 compare with outer areas, such as Sutton and Croydon of around £240,000. Gross yields on properties of lower priced London boroughs range between 4 per cent and 6 per cent, but high maintenance and wide tenant voids can slash the net yield below 3 per cent, caution agents.
The London property market faces a year of considerable uncertainty in a nation which is experiencing recession and high unemployment. Despite a stock market rally late December, January and February, trading, initial public offering and merger and acquisition volumes have shrunk. Widespread layoffs are occurring in the City of London and bonus payments have fallen.
'The raft of City job losses announced in recent weeks is a reminder that London will not escape the recession unscathed,' says Ed Stansfield, head of property research at Capital Economics. On the face of it both prices and rentals could slip although demand from overseas buyers could support prices in the short run. London, however, is likely to underperform on a medium-term view because valuations are stretched, he maintains.
Savills, which estimates that international buyers accounted for around 55 per cent of prime London real estate demand last year, predicts that average central London prices will rise by 3 per cent in 2012. The firm contends that supply is constrained.
Drivers Jonas Deloitte's latest London Residential Crane Survey found, however, that large numbers of developments will be completed this year. The more buoyant market raised construction levels to 39,300 units within 247 development schemes.
Drivers Jonas Deloitte's unconventional research, which counts the number of cranes on residential schemes with 50 units or more, concludes that new build real estate in the pipeline is heavily dominated by flats, which account for 95 per cent of all units.
Liam Bailey, head of residential research at Knight Frank, forecasts that London prices will fall by 3.7 per cent in 2012, but that prime area prices will still manage to increase by 5 per cent.
The firm believes there is a 75 per cent chance that conditions in the UK mainstream market over the next few years 'will resemble a slow correction under which the market will experience an extended period of low transaction numbers and price falls in real terms'.
It contends that there is a 20 per cent chance of a sharp fall, similar to the 2008/2009 property bear market, if there is a severe sovereign debt crisis, a collapse of the euro or an unexpected rise in interest rates.
(HONG KONG) Retailers from Forever 21 Inc to Gap Inc have rushed to Hong Kong to reach the 28 million Chinese tourists passing through last year. One big cost: paying the rent.
Tenacious retailer: Jeans and T-shirt maker Gap in November opened its first Hong Kong store in the Central financial district
(HONG KONG) Retailers from Forever 21 Inc to Gap Inc have rushed to Hong Kong to reach the 28 million Chinese tourists passing through last year. One big cost: paying the rent.
Hong Kong retail rents, which rose 32 per cent in prime locations last year according to Savills plc estimates, may climb more even as global economies and property markets slow. That may make marketing to Chinese teenagers in Hong Kong's Causeway Bay as expensive - or even more - than a storefront in New York's Times Square.
Forever 21, which opened its first Hong Kong store last month, said that it is paying US$1.4 million a month - its highest rent in the world, both in total terms and per square foot. It pays less in New York's Times Square.
'Hong Kong is the gateway to China; we feel it is important to establish our brand within China,' said Larry Meyer, executive vice-president of closely held, US-based Forever 21.
Rents of US$1,943 per square foot in Hong Kong's Causeway Bay made it the second most expensive shopping street in the world last year, behind Fifth Avenue's US$2,250 and topping Tokyo's Ginza, London's Bond Street and the Champs Elysees in Paris, according to Cushman & Wakefield, a New York-based property services firm.
The most tenacious retailers, such as San Francisco-based Gap, Abercrombie & Fitch Co and Forever 21, are willing to pay for face time with Chinese tourists. Others, such as Esprit Holdings Ltd, which is trying to revive global profits, have been forced to shut some Hong Kong stores.
There are often long queues of Chinese tourists outside Louis Vuitton, Burberry and Gucci stores on Tsim Sha Tsui's Canton Road in the Kowloon peninsula.
Jeans and T-shirt maker Gap in November opened its first Hong Kong store in the Central financial district. Louise Callagy, a spokeswoman for the company, wouldn't comment on the rent.
The store is a 'good investment', Jeff Kirwan, Gap's managing director for Greater China, said in Shanghai.
'We put aside a budget, and when we think about the returns we need, we're exceeding that,' he said. 'Hong Kong is expensive, and so is Manhattan, and so is Shanghai.'
Burberry Group plc, the UK's largest luxury-goods maker, is planning to pay HK$6.5 million (S$1 million), or 250 per cent more than the last tenant, for a 5,200-square-foot space in Causeway Bay, Hong Kong Economic Times reported. George Prassas, London-based spokesman of Burberry, declined to comment on the report.
Hong Kong retail sales grew 25 per cent in 2011 from a year earlier, driven by mainland Chinese travellers snapping up luxury and retail goods, according to government data.
'The rent in Hong Kong leads that of London or New York,' said Nick Bradstreet, head of leasing at Savills, a property agency. 'The higher the sales, the higher the rent.'
He expects overall retail rents on prime Hong Kong streets to rise 15 per cent this year after a 32 per cent growth in 2011.
Urban land is scarce in densely populated Hong Kong, which has a population of seven million and where less than 25 per cent of the land is developed.
The high rent is pushing out some local and global retailers. Well-known brand Shanghai Tang, which is owned by Cie Financiere Richemont SA and sells Chinese-style outfits, in October left the Hong Kong premises that housed its flagship store for 17 years after the monthly rent 'went totally out of control' from the HK$3 million it had been paying.
The company will move next month to a 1,800 sq m, four-storey building - to be called Shanghai Tang Mansion - about 320 metres from its old store, Raphael le Masne de Chermont, the brand's executive chairman, said in October.
The old space of Shanghai Tang, founded by Hong Kong businessman David Tang, was picked up by New Albany, Ohio-based Abercrombie & Fitch.
'Brands like Abercrombie consider it essential to be visible in Hong Kong because of the awareness and the traffic of mainlanders,' said Erwan Rambourg, head of consumer & retail research at HSBC.
'It's important for them to make a statement. Profitability is not the main target. It's essentially a PR advertising approach rather than a profitability approach.'
Foreign retailers, such as Forever 21, said that they are in Hong Kong for the long haul.
'We paid up,' Forever 21's Mr Meyer said in a Bloomberg Television interview. 'We are optimistic that we will get good sales, profitable sales on the store.'
They face some challenges. Hong Kong retail growth is likely to slow to 15 per cent this year from 25 per cent in 2011, according to Caroline Mak, chairwoman of the Hong Kong Retail Management Association.
This year 'is going to be a crucial moment to test the foreign retailers' stamina and their commitment in China markets,' said Eddie Lau, head of regional consumer research at Citigroup Inc.
'Unless they are very bullish on long-term growth and are prepared to invest heavily, we might see them pulling out. Sales growth is likely to slow while operating expenses remain incredibly high in the near term.'
Esprit, the clothing retailer that saw global profits plunge 98 per cent in last fiscal year, is set to shut three of its Hong Kong's stores in the city's most sought-after shopping spaces this year. Esprit doesn't want to pay 'crazy prices' in rent to renew the contracts, said Patrick Lau, a company spokesman. The company is still committed to Hong Kong and China, he said.
Inditex SA's Zara may rent a Hong Kong store being vacated by Esprit for HK$3.5 million a month, Hong Kong publication Apple Daily reported this month. Esprit currently pays a monthly rental of HK$1.62 million, the Chinese-language newspaper said, without saying where it got the information from. Zara didn't comment.
'We forecast another strong year for retail rental market in Hong Kong mainly due to excessive demand,' said Richard Kirke, managing director of real estate company Colliers in Hong Kong.
'Given its size, Hong Kong always faces a supply constraint.' - Bloomberg
