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Q MORE than six years ago, I bought a 1,200 sq ft apartment for $750,000.

There were several defects which the developer was supposed to rectify. The developer made the promise verbally after a few inspections, but it has never been fulfilled completely despite numerous reminders.

Now, my patience has run out. There’s $14,000 still withheld by the Singapore Academy of Law because of this dispute. I would like to know the following:

As the developer has not rectified the defects during this time, can I claim back the deposit to rectify them myself?

Besides lodging a civil suit against the developer, which may be costly, what non-legal options are open to me?

There are a few units in my estate facing the same problem. Most of the owners have paid up fully for their homes and feel that there’s no recourse left for them.

A I assume you bought your property from a licensed developer and you refer to defects discovered within 12 months of the date you took possession of it from the developer.

In licensed development projects, the standard sale and purchase agreement prescribes the manner in which a portion of the purchase price has to be paid to the Singapore Academy of Law.

The amount is either 5 per cent or 13 per cent, depending on whether the certificate of statutory completion comes before or after the legal completion.

The academy will hold this sum for the vendor (that is, the developer) and the purchaser (’the stakeholder’s sum’).

I assume you have already quantified your claim for rectification and if so, you have to follow the academy’s rules for making the claim.

Briefly, you have to file a prescribed form with the academy if you want a deduction to be made from the stakeholder’s sum.

If the developer disputes your claim, the developer will file another prescribed form with the academy.

The academy will release the disputed amount in either of the following circumstances:

The developer and the purchaser have come to an agreement on the disputed sum; or

There is a court order on the final apportionment or division of the disputed amount.

If you and the developer cannot come to an agreement, you may have to resort to litigation to have the dispute adjudicated by the court.

I assume your case is within the ‘limitation period’: Action cannot be brought six years after the date on which the cause of action accrued. If you do not wish to litigate, you may refer your claim, provided the developer agrees, for mediation by an independent third party.

Thomas Toh Honorary Secretary Association of Management Corporations In Singapore

Source : Sunday Times - 13 Aug 2006

Luxury homes lead the way, as rents post biggest increase in at least eight years for the previous quarter

AS HOME prices start to rise slowly but steadily, rentals of residential properties are also beginning to show signs of creeping up.

The rental market, which has been in a slump in recent years, registered its largest increase in at least eight years for the April-to-June period this year.

According to the latest figures from the Urban Redevelopment Authority, rents rose by 2.1 per cent for the second quarter over the preceding three months, compared with a quarter-on-quarter increase of just 1 per cent in the first three months this year.

As with home prices, luxury residences are leading the way in stirring the rental market.

Although average rentals across all districts and residential property types are still around 25 per cent below their peak levels in the late 1990s, rents for high-end non-landed homes - that is, apartments and condominiums - have surpassed the most recent high in 2000.

New figures from property consultancy Savills Singapore show that monthly rentals for such properties have hit $3.53 per sq ft (psf), up from $3.41 psf in May and overtaking the 2000 peak of $3.50 psf.

The number of residential leasing transactions is also on the rise, said Savills’ senior manager of research and consultancy, Mr Wallace Chu.

He noted that there were 8,807 transactions for the first quarter of this year, 15.8 per cent more than in the same period last year.

Preliminary numbers for the second quarter already indicate almost 6,000 transactions for the April to June period, and this figure looks set to surpass that of the first three months when the final numbers come in, Mr Chu added.

Due to an increasing number of senior-level expatriates coming to work in Singapore, rental demand is strongest in the prime areas of Districts 9, 10 and 11, he said.

‘Large properties and landed homes are still the most popular, and I think the rental market should keep increasing,’ he added.

In District 9, which covers Orchard Road, Cairnhill and Leonie Hill, monthly rents have reached highs of almost $6 psf, according to figures from Colliers International.

The most sought-after developments include The Light @ Cairnhill, Ardmore Park and Leonie Hill Residences, with The Light @ Cairnhill fetching rents of $5.77 psf per month, said Colliers’ director of research and consultancy, Ms Tay Huey Ying.

But certain ‘non-traditional areas’ such as Woodlands, Toa Payoh and Bishan are starting to increase in popularity due to nearby international schools such as the Singapore American School in Woodlands and the Australian International School at Lorong Chuan, added Mr Chu.

‘Although prices are not skyrocketing, we are seeing the number of leasing transactions go up in these areas,’ he said.

For the rest of the year, he expects average apartment rents to rise by another 3 per cent to 5 per cent, while rents for high-end prime properties could go up by as much as 10 per cent.

Source : Sunday Times - 13 Aug 2006

OVERVIEW

THE proper-ty market in Singapore has climbed out of its trough reached in early 2004. The recovery in the last two-and-a-half years has been slow but steady. However, not all sectors have seen the same degree of strengthening. In the next one to two years, which sector offers the best upside? And which stocks will give investors the best exposure to these sectors? We asked our panel of analysts for their views.

PARTICIPANTS

in the roundtable:

Moderator: Teh Hooi Ling, BT’s senior correspondent.

Panelists:

Colin Tan, head of research at Chesterton International.

David Lum, analyst at Daiwa Institute of Research.

Michael Ng, managing director, Savills Singapore.

Nicholas Mak, director of research and consultancy at Knight Frank.

Sean Monaghan, analyst at Merrill Lynch.

Hooi Ling: At current prices, and at the current stage of the economic cycle, which sector of the Singapore property market (residential - top-end, mass-market, commercial or industrial) do you see having the biggest upside - both in terms of price and rental?

Michael Ng: In terms of capital values, we see the high-end residential market having the biggest upside given that prices of these properties are still considered attractive compared with similar developments in key global cities.

Singapore’s stable political environment, strong economic fundamentals and favourable business-friendly environment have encouraged businesses to relocate their operations here. Multinational corporations which are already here are also expanding their operations. The government’s plans to make Singapore the regional hub for financial, R&D, education, maritime and aerospace services have benefited the high-end residential market as more top management personnel relocate their families here.

Repositioning Singapore as a truly global city has also attracted a steady flow of international investors to our investment grade properties. We expect prices to grow between 15 and 20 per cent in the next 12 to 15 months especially for developments located in prime districts 9, 10, 11 and in Downtown Core (CBD living, which is near the Integrated Resorts).

In terms of the rental market, we expect commercial market segment to have the biggest upside. We expect the rental rates for Grade A office space to continue to climb given the limited new supply coming on stream. The most significant development in the pipeline is the Business & Financial Centre at Marina Bay (BFC Phase 1) which is only slated for completion in 2010. Rents for Grade A office buildings are likely to rise by another 20 to 30 per cent from current value by the end of 2007. Grade B office buildings will also gain from the ’spillover’ effect over the next couple of years. We see office rents for these buildings rising between 10 and 15 per cent by the end of the year.

Nicholas Mak: I think the sectors that have greater potential for more upside are the mid-tier residential market and well-located office space. The high-end residential market already had a good run in the past 18 months. There are signs that the growth momentum is spreading to the mid-tier segment.

Colin Tan: At this point in time, the high-end segment of both the office and private residential markets still looks to have the most upside to be followed most probably by the high-end segment of the retail sector.

However, we must understand that how well the property market performs at present depends not just on the current economic performance but on confidence levels as well. At the moment, the ‘hype’ surrounding the future high segment of the office and private residential segment have led to rentals and prices racing upwards - seemingly very much ahead of economic fundamentals.

Some of the increases are, no doubt, deserved but some of it are due to clever marketing - aided no doubt by parties which have vested interests - investors and speculators included.

They paint a very optimistic future scenario exploiting the expected benefits of the BFC and the two Integrated Resorts.

As Singapore is entering uncharted territory - we are talking about attracting more than twice the number of visitors we ever had to Singapore - there are no previous benchmarks to act as guideposts. Marketeers, therefore, have free rein to paint a cautious, moderate, optimistic or even very optimistic scenarios. In truth, nobody really knows and so nobody can prove these marketeers right or prove them wrong. Prospective buyers or renters should be very aware of the maxim ‘caveat emptor’.

However, having said that, some of the hype have a way of becoming real as the economic fundamentals catch up as the Singapore economy does have a tendency to surprise by sometimes outperfoming itself. (This can easily happen especially when the property market is still in the early stages of its recovery cycle.) The danger is when the hype gets really played to the hilt and races too far ahead for even the economy to catch up in the near term. Buyers/renters have to ask themselves when the hype becomes the absurd.

Things become more complicated when its comes to the high-end housing segment where the intended target market is the global market. What is absurd to the local buyer is not so for the global purchaser as affordability levels for foreign owner-occupiers will be as varied as the width of the intended target market.

Sean Monaghan: For us at Merrill Lynch, we see strong fundamentals for all sectors of the Singapore property market although we believe the prime residential sector is positioned very well to outperform over the next three to five years.

Our positive outlook for residential is based on our expectations for continued strong population and employment growth. Singapore is already attractive on a regional setting in terms of both price and lifestyle even before you take into consideration the massive transformation underway with the Integrated Resorts, Orchard Road and infrastructure projects such as the circle line.

This transformation of Singapore by way of major new projects is consistent with catalysts such as the awarding of the Olympics to cities like Sydney which resulted in a decade of growth.

David Lum: Now that the recovery of the property market is firmly underway, I believe we are near the beginning of a sustainable upward trend in the cycle, and for everyone’s sake, I hope the uptrend will continue to be stable and moderate.

As for sector, I would agree that the upward momentum already evident in office properties is likely to continue. The broad office sector is still about 50 per cent below the peak in 3Q96 and 36 per cent below the recent peak in 4Q00.

As a major financial centre in Asia, our office rents are still extremely competitive compared with Hong Kong and Shanghai. At the micro-level, there also appears to be a supply vacuum between the release later this year of One Raffles Quay, which is almost fully pre-committed, and phase one of the BFC towards the end of this decade.

Hooi Ling: Which are the sectors you think are in danger of a correction?

David: On my radar screen, there is no danger of correction from any sector in the next six months. In the longer term, I believe the major risk is over-optimism and the obvious danger signs would be when property prices in whatever sector start to show double-digit gains for several quarters or more, exceed their historical peaks, most of which are still far away, and disconnect entirely from the underlying growth of the economy.

Sean: In the absence of any major regional or global economic shock, we do not expect any of the Singapore property segments to experience a correction in the next 12 months. While some of the residential prices have moved significantly, this is consistent with the recovery process and where we see Singapore moving to in the future.

Colin: At the moment, I still feel the ‘hype’ surrounding the property market is still within reasonable limits. There is a good chance that the economic fundamentals can still catch up in the not-too-distant future. However, if it gets played up and turns into a frenzy in the coming months, we will quickly reach a point when a property bubble will emerge.

Michael: In the short term, we don’t foresee this happening given the strong economic outlook.

Nicholas: Neither do I. There would still be some expansion of prices and rentals, but certain sectors, such as those that had experienced high growth in the past year may see a slower rate of increase.

Hooi Ling: What will the impact of easing interest rates have on the various markets? And what if interest rates continue to climb?

Sean: We don’t expect a material change in Singapore interest rates over the next 12 months. Any significant increase in interest rates could result in a significant appreciation in the currency which may not be the desired intention of the Singapore government.

David: I don’t believe interest rates were ever a big factor in where the property market is today, and as long as the Singapore currency remains stable and there are no external shocks, interest rates are unlikely to change much or play a major role in the property market going forward, in my opinion.

Nicholas: Easing interest rates would contribute to an increase in investment demand, especially in the residential property market. Although there is already strong investment demand for commercial space, there is a shortage of investment-grade space for sale, resulting in fewer deals. If interest rates continue to climb, demand for medium-term property investment would be lower as sellers may not be willing to meet the higher yield demanded by investors.

Michael: Easing interest rates means good news for businesses and the property sector, especially the mass residential market, where lower interest rates could help to revive the already sluggish market. It will spur potential home owners, who have been sitting on the sidelines to seriously look at buying their first private property.

On the flip side, any increase in interest rates will impact the demand for mass residential market the hardest. It will also impact business sentiment as companies may look at either maintaining or reducing rather than expanding their office space, as the cost funding goes up.

Colin: I think easing interest rates are less of a problem than if there are continued hikes. If rates continue to rise and are quickly transmitted to the housing loans market, it will hurt the recovery in the ‘very price-sensitive’ mass-market private residential segment which is only starting to show signs of a recovery.

However, this can be mitigated if banks re-introduced fixed rates for the first two or three years in a big way. Current housing loans based on floating rates are much too risky and will lower the affordability levels of buyers. This may, in turn, affect purchases. Hooi Ling: Which are the stocks that will benefit most from the anticipated market trend?

David: According to our valuations, the shares of most property developers have already run ahead of the property market recovery. We believe Singapore-listed Reits, particularly CapitaMall Trust, Macquarie MEAG Prime Reit, Suntec Reit, Mapletre Logistics Trust, Ascott Residence Trust, and CapitaCommercial Trust are the best plays during the current gradual uptrend phase of the market. Investors should realise that the yields of S-Reits are not static and are more likely to expand in a rising rental market, along with their net asset values.

Sean: We believe all property companies that have exposure to Singapore are in a good position to benefit from the anticipated strong recovery. The companies with large existing land banks in the prime areas, such as City Developments, are arguably in a better position than companies which are now having to re-stocking their holdings.

Nicholas: The stocks with both overseas and local exposure are likely to benefit more from a market upturn. But just because a property stock is highly exposed to a particular segment and that segment is doing well, the stock price may not necessarily increase accordingly.

Hooi Ling: What are the developments that could prevent your expectations from becoming reality? What are the chances of these events taking place?

David: I believe one reason that the Singapore property market has been a laggard for most of this decade compared with almost any other property market in the world is that local buyers have been cautious, and that is a good thing. I would get really worried when market participants forget what happened to them during 1997-98 or 2001-2003 because their memories, in my opinion, will be their most valuable defence.

Sean: We believe the current cycle in residential property should run for at least another three to five years. The only threats that could conceivably undermine this strong outlook could be large regional or global macro shocks which impair investor confidence generally. Alternatively, if there was an event specific to Singapore, then this also could impact the outlook for growth. Luckily, we do not see any clouds on the horizon.

Colin: The property segments - high-end sectors of the office, residential and retail markets - which are benefiting currently take their cue as much as from local happenings as from global events. So, major events such as the possibility of the widening conflict in the Middle East, oil and interest rates hikes as well the possibility of an avian flu pandemic could easily scuttle whatever gains made in the past few quarters.

Nicholas: The property market could face a correction if the Singapore economy experienced a severe slowdown or the stock market is battered by sustained poor sentiments. However, the chances of these events occurring appears to be slim.

Michael: Unforeseeable circumstances like an epidemic, energy crisis, slowdown in global and regional economies and natural disasters will have a negative impact on Singapore’s economy. This will, in turn, affect the growth of all the sectors mentioned above.

KEY POINTS

The Singapore property sector looks to be on a sustained recovery cycle, with high-end residential and office space seeing the most upside.

But the market has to watch out for over-optimism, when prices start to shoot up in double-digit figures over consecutive quarters.

Interest rates are not expected to rise drastically in the next 12 months, and if they did, the mass residential market will be hardest hit. However, the negative effect on the property market may be mitigated if banks re-introduce fixed rate housing loans.

The panel is not in total agreement if property stocks still represent a good investment opportunity. One reckons that valuations of property developers have run ahead of the physical property market recovery, and sees Reits as better buys. Another still sees value in stocks like City Developments, and those with large land banks in prime areas.

The current up-cycle can last three to five years with only major events like the widening conflict in the Middle East, oil and interest rates hikes as well the possibility of an avian flu pandemic posing a danger to the uptrend.

Source : Business Times - 12 Aug 2006

But risk factors seen checking exuberant bidding

All eyes in the property market are on next week’s state tender for the Somerset Central site above the Somerset MRT Station.

Most property consultants and observers expect the 99-year leasehold commercial site to fetch a top bid 5 to 15 per cent more than the $1,085 per square foot per plot ratio that Far East Organization paid for the nearby former Glutton’s Square site in January. But some industry watchers reckon that risk factors could rein in exuberant bidding.

Some consider Somerset Central a superior site to the Glutton’s Square site, as a development on the former will be directly connected to Somerset MRT Station. As well, it is touted to be the last major site in Orchard Road available for a sizeable retail project - although Singapore Tourism Board has designated two other smaller sites for sale on short-term leases.

Factors such as these are expected to drive up bidding for the 78,702 sq ft site that can be built up to 424,205 sq ft gross floor area (GFA). At least 60 per cent of the GFA has to be for retail, food and beverage or entertainment use.

Market watchers expect mostly the same bidders who contested for the Glutton’s Square site to bid for Somerset Central when the Urban Redevelopment Authority’s tender for the latter closes on Wednesday next week.

These would be Far East Organization, Frasers Centrepoint (possibly in partnership with Far East), Lippo, Pacific Star group, City Developments and Hong Kong’s Park Hotel Group (the owner of Crown Hotel at the corner of Orchard and Bideford roads). Other bidders could include United Overseas Land, which owns the former UOL Building plot behind Somerset Central, which it is redeve loping into a serviced apartment project, and property giant CapitaLand.

‘The benchmark has been set by Far East’s bid for the Glutton’s Square site, and anyone who wants the Somerset Central plot will have to bid higher,’ a potential bidder said.

The inevitable bidding war is expected, but some bidders may be more restrained because the site is not without risks, some analysts say.

First, there will be competition from bigger mall developments.

Farther down Orchard Road, CapitaLand and Sun Hung Kai are developing a mall with about 600,000 to 700,000 sq ft net lettable area, above Orchard MRT Station. It is slated to open by Christmas 2008. ‘The area around Somerset MRT Station will still play second fiddle to the Orchard MRT Station location, which is superior in terms of pedestrian traffic circulation and street activity,’ says a developer who is in the running for Somerset Central.

And then there will be about 1 million sq ft of retail space at the Marina Bay Sands integrated resort (IR) development to be completed in late 2009. ‘One has to come up with a concept for Somerset Central that does not clash with the Marina Bay IR,’ reckons a top executive with a major mall developer.

Retail market watchers generally expect the retail component of Marina Bay IR to feature more high-end names, like luxury brands, watches and fine dining.

The developer of the Somerset Central site could try to differentiate its mall by capitalising on the youth theme along that stretch of Orchard Road, as seen at Orchard Cineleisure, The Heeren and Youth Park.

‘Hopefully, the IR will bring the intended tourism spin-offs so that the Singapore retail cake will get bigger, instead of the same cake being sliced into smaller pieces,’ is how a market watcher put things.

The successful bidder for the Somerset Central site may also have to contend with competition right next door if it can’t strike a deal to cooperate with the owners of two neighbouring properties - Specialists’ Shopping Centre, held by OCBC, and the Glutton’s Square site sold to Far East Organization. Far East and OCBC are said to have formed some sort of alliance to cooperate - involving either a massive retrofitting of Specialists’ Centre or a total redevelopment of the more than 30-year-old complex along with the development of Far East’s site - although details will only be finalised after Somerset Central is awarded.

If Far East or Frasers Centrepoint (part of the OCBC stable) clinches Somerset Central, the cooperation will be extended to include the latest site, market watchers say. However, if another party bags the plot, Far East and OCBC may decide not to team up with it. If this is the case, the Somerset Central project risks being dwarfed by a bigger project next door that will compete with it for both tenants and shoppers.

Interesting forces could be at play at next week’s tender.

Source : Business Times - 10 Aug 2006

Lenders taking cautious approach to interest rates

Despite the recent upswing in the property market, owner-occupiers - rather than investors - continue to account for the bulk of new home loan applications here, according to major mortgage lenders.

Owner-occupiers account for 80 per cent of the new home loans granted by market leader DBS Bank, said Koh Kar Siong, its managing director of secured loans.

He said that although foreigners and investors have been showing more interest in the property market, the proportion of owner-occupiers among DBS’s new home loan customers has remained constant.

At least one other major player in the home loan market shares a similar view. ‘While we note an increasing trend among home loan applicants purchasing properties for investment … such cases are not broad-based and are generally skewed towards good class bungalows and luxury condominiums in prime locations,’ said Gregory Chan, OCBC Bank’s head of consumer secured lending.

But Mr Koh of DBS pointed out that there is typically a lag between a surge in new property sales and fresh loan applications, since developers require only a relatively small downpayment for a buyer to secure a property while it is still under construction. Much of the recent interest has centred on high-end properties that are still two or three years from completion, he noted.

DBS saw a dip in the size of its Singapore home loans book earlier this year as customers - spooked by rising interest rates - paid down their mortgages after receiving their annual bonuses in the first quarter. But Mr Koh said the bank has maintained its market share of about 25 per cent and he expects this to stay roughly the same. The bank enjoyed 40 per cent growth in new mortgage loans in the second quarter compared with the first quarter, he said.

Asked if DBS - which has raised its mortgage rates just once this year - will increase them again soon, he said that it is tracking competitors’ moves and ‘we are reviewing the situation carefully’.

Explaining why home loan rates have been on the rise, the head of United Overseas Bank’s loans division, Kevin Lam, said the average three-month interbank rate rose 1.76 percentage points between January 2005 and June 2006. ‘In this environment of rising lending costs, our loan rates have been adjusted to reflect rational pricing and commercial viability,’ he said. The three-month interbank rate is now 3.56 per cent.

Other market players are also keeping a close watch to see how fast and by how much home loan rates will continue to move up this year. Many of the smaller players seem to be engaged in a game of wait-and-see.

‘It is quite possible the industry may see another round of rate increases soon,’ Citibank Singapore’s secured assets group business director Tan Chia Seng warned last week.

A spokeswoman for HSBC told BT: ‘While we have no immediate plans for a rate increase, we will continue to monitor the market closely.’

Standard Chartered Bank’s consumer banking head Ajay Kanwal said only that ‘the bank has been pricing interest rates in line with the market’.

A Maybank spokeswoman said: ‘As it is, interest rates are still moving up and we do not rule out revising the rates on our walk-in packages.’

OCBC’s Mr Chan did not rule out further hikes either. ‘Any future rate increases will depend on the competitive environment and our assessment of the interest rate trends,’ he said.

As competition in the home loans market intensifies, banks are coming up with increasingly innovative ways to attract new customers. In March, Stanchart launched a home mortgage scheme that allows borrowers to link their home loans with up to 10 deposit accounts belonging to family members, each earning interest at a full percentage point above the prevailing savings rate.

Last December, DBS launched its Managed Mortgage product, which combines both fixed and floating rate loans in a single mortgage. Mr Koh told BT that more than 60 per cent of new home loan applications to the bank since then have been for the product, which allows customers to mix and match up to four different loan packages from a range of 11 choices, comprising a floating rate package and fixed rate packages with tenures from one to 10 years.

Other industry players have balked at introducing home loans with fixed rates of more than five years, saying that few borrowers go for such loans.

Indeed, just one per cent of applicants for the product choose a fixed rate package of five years or more as part of their bundled mortgage, according to Mr Koh, although he insists the bank does have customers who choose its 10-year fixed rate package.

Source : Business Times - 9 Aug 2006