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Sentiment strongest in rental apartment, office, hotel/resort, retail sectors: survey

SHANGHAI, Singapore and Tokyo have emerged as the top three most promising Asia-Pacific cities for real estate investment prospects, according to a report from the US-based Urban Land Institute (ULI) and the accountancy firm PricewaterhouseCoopers (PwC).

Hot Markets

‘Sentiment was strong among survey participants to either buy or hold all types of properties in Shanghai, Singapore and Tokyo, rather than sell properties, illustrating the cities’ strong popularity with the investment community,’ a news release by PwC and ULI said.

For Singapore, the strongest sentiment for buying property was in the rental apartment sector, followed by the office, hotel/ resort, retail and indus- trial/distribution property.

The report, Emerging Trends in Real Estate Asia Pacific 2008, is the second annual investor survey from ULI and PwC. It shows that Singapore has jumped from fourth to second placing for investment prospect rankings, and from ninth to third spot for development rankings. Singapore is ranked first for city risk ratings.

One respondent in the survey said Singapore was ‘certainly one of the markets in the area that provides a very stable legal and tax environment, and property rights that are beyond question. And it therefore is certainly one of the markets where many, especially Westerners, are very comfortable.’

The report was based on interviews and surveys with more than 190 professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The survey covered 20 cities. Shanghai was in the top position in the latest 2008 investment prospect ranking, up from second spot in the earlier ranking. Tokyo maintained its third position, while Osaka, which was first in the 2007 ranking, moved down to fourth position. Hong Kong was ranked fifth in the latest survey, moving up six positions.

While Singapore moved from fourth to second spot in investment prospect, sell recommendations increased for office, retail, and hotel/resort from 0 per cent in the 2007 report issued last year to 19 per cent, 13 per cent and 13 per cent respectively in the latest 2008 report.

Buy recommendations for industrial/distribution property increased from 35 per cent to 44 per cent.

The 2008 survey also shows that the growing Asia-Pacific real estate market still offers opportunities for investors and developers next year. Asia-Pac real estate executives’ response remains strong on overall economic and market fundamentals, regardless of interest rate increases.

High levels of equity capital continue to pour into the Asia-Pacific property pool. For 2008, the hotels sector tops the list of real estate performance prospects, followed by the office sector.

PwC’s tax partner in Singapore, David Sandison, said: ‘It’s expected that even greater amounts of capital will be flooding Asia Pacific real estate markets in 2008. The real challenge for investors will lie in finding the right assets against the backdrop of yield compression and scrutiny by regional governments and tax authorities.’

The strongest sentiment for buying in Singapore was for rental apartments, with about 53 per cent of respondents recommending a buy, 34 per cent hold and 13 per cent sell.

For office space, 52 per cent advised buying, 29 per cent hold and 19 per cent sell.

The survey also showed that 48.5 per cent recommended buying hotel & resort property, 38 per cent advised holding, and 13 per cent, selling. For retail property, 45 per cent advised buying, 41 per cent holding and 13 per cent selling.

In the industrial/distri- bution sector, about 44 per cent of respondents recommended buying, 42 per cent holding and 14 per cent, selling.

ULI is a global education and research institute championing responsible leadership in land use to enhance the total environment.

Source : Business Times - 28 Sep 2007

Flush with cash, the high-end residential market is flourishing. KU SWEE YONG and JANE KWA look at what $5 million gets you

STRONG corporate profits and a global commodities boom in 2006 helped grow fortunes and sparked a surge in demand for trophy homes.

High Life.

A survey by Cap Gemini and Merrill Lynch shows the number of high net worth individuals (HNWI) worldwide increased 8.3 per cent in 2006 to 9.5 million, with Singapore reported to have the fastest-growing number - up 21.2 per cent to 67,000. With this rising affluence, it is not surprising that high-end homes are being snapped up as soon as they go on the market, as they are just another example of luxury goods in hot demand.

Prices of high-end apartments continue to rise steadily, with new launches commanding increasingly higher rates in the prime districts of 9, 10 and 11. The average price of high-end residential property rose 9.1 per cent to $1,960 per sq ft from the last quarter, while the average price for super-luxury residential homes was even higher at $2,990 psf. The number of homes costing more than $5 million increased almost 54 per cent last year to 650. Foreign purchases at the top end of the market are also increasing.

‘Singapore is increasingly acknowledged as a safe haven for investments, backed by a strong Singapore dollar and an attractive tax regime,’ says Galen Tan, a managing director of EFG Private Bank. ‘An increasing number of high net worth clients have included Singapore as a part of their multi-generation wealth succession planning and are attracted to the conducive environment for retirement.’

Foreign purchases stand at 60 per cent of transactions above $5 million, compared with 39 per cent in 2006 and 14 per cent in 2005 ( See Table 1). Looking at the top 10 transactions over the last five or six years in terms of price, the past two years have seen significant increases - from about $2,050 psf in 2000 to $3,090 in 2006 and $4,078 in first-half 2007. The number of units sold above $4,000 psf in July this year soared more than 350 per cent to a record 72, compared with just 16 in June. (See Table 2)

Escalating prices of super-luxury apartments have not put buyers off. In fact, most such developments - like The Marq at Paterson Hill, Parkview eclat, Scotts Square and The Boulevard Residences - have reported good sales, with foreigners buying off the plan without even viewing showflats. At the high end of the market, we are dealing with excess wealth, not merely income. Hence, some of the factors that influence the rest of the market do not come into play in this segment.

High-end apartments indisputably cost more nowadays, but what do you get for your $5 million? Is there really much difference between, say, a $1 million apartment, a $5 million and a $10 million model? Besides the current property boom which has pushed up land prices, there is another reason for the soaring prices of top-notch apartments. Developers are loading them with more luxurious features to justify higher pricing. We note that apartments above the $5 million mark boast dramatic additions, such as top-of-the-line fixtures and finishes, sophisticated amenities and sprawling living areas that normal apartments do not have. Parkview eclat, for example, offers superior finishes and state-of-the-art appliances such as mirror televisions, spas and custom showers to create a hideaway for hard-working owners to take a break from their hectic lifestyles.

Hayden Properties’ latest development at 37 Scotts Road has taken opulence to an even higher level. It features a glass car elevator so owners can park their exotic wheels near their entrance. Assuming the development costs $3,000 per sq ft, it will cost as much as $600,000 for the parking space. Aside from providing additional functionality, such features imply a certain social status for owners. Large living areas and bedrooms are other common characteristics of luxury apartments. Hence, units that come with separate guest suites, spacious home entertainment rooms, wine cellars and open spaces, which were rare in the past for high-end apartments, are offered more commonly now.

The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. The love of space is reflected in the increasing number of large units sold. From January to July 2007, 1,250 units bigger than 2,500 sq ft were sold - 75 per cent more than in the same period last year. (See Table 3)

In terms of amenities, we have also seen vast improvements. Developers are increasingly aware that people are not buying a mere home but a lifestyle. In the past year, some developers have come up with creative ideas to provide a more attractive living experience for purchasers.

St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services. And Hilltops by SC Global promises a resort-style environment. We expect this trend of joint ventures between developers and prestigious hotel brands to continue.

Another distinguishing feature of luxury apartment buildings is the level of security. Developers are expected to place more emphasis on this as personal privacy and safety are big concerns. High-tech equipment such as fingerprint recognition and even eye scanners are being installed to identify residents and visitors. Cameras are mounted in every corner, panic buttons are wired to the bedside and a security guard placed outside each apartment to provide 24-hour surveillance.

The list continues, with buildings designed with infrared sensors that will sound alarms to warn security guards if moving objects are detected. Other security measures such as bullet-proof windows, a separate route and lifts for evacuation, a safe room that is bullet-resistant and wired with a phone line, back-up generators and keyless entry systems could be seen in future projects.

Compared with prices of high-end property elsewhere, Singapore has room for growth. In London, the average price for top-end apartments stands around $8,900 psf. In Monaco, the price of a luxury condominium averages $5,000 psf, while in New York it is about $4,500 psf. Apartments at Roppongi Hills, Tokyo, average around $3,400 psf, while in Hong Kong, prices of luxurious apartments average $3,100 psf, though those in the super-luxury category have now topped $7,800 psf.

Despite recent turmoil in global financial markets, the mid to long-term outlook for the Singapore economy remains positive, with the government upgrading GDP growth from 5-7 per cent to 7-8 per cent this year. The narrowing of the revised forecast to just a single percentage point range - from the usual two-point range - shows the government’s confidence. Furthermore, Prime Minister Lee Hsien Loong has increased the long-term GDP growth target by one percentage point to 4-6 per cent per annum.

Going forward, we expect the property market to remain optimistic, with high-end prices likely to increase another 20-30 per cent a year until 2010, mainly due to the quality of projects and increasing land prices.

Land prices are likely to rise at a slower pace after strong growth in 2006. The increase in apartment prices is likely to be attributed to the fancy items and amenities that developers include. Furniture from the exclusive Lamborghini or Armani/Casa lines, Hasten Vividus beds that cost almost $120,000 apiece and high-end entertainment systems are just a few of the new frills that will allow developers to market the project as unique, so as to command a premium.

Ku Swee Yong is director of marketing and business development, Savills Singapore. Jane Kwa is an analyst, research & consultancy, Savills Singapore

Source : Business Times - 27 Sep 2007

The outlook for this sector is bright, riding on strong demand fundamentals, says CHIA SIEW CHUIN

PRICES of mass market residential property are finally seeing a clear uptrend, as reflected in the latest Urban Redevelopment Authority’s (URA) statistics. Non-landed residential properties sited outside the central region (OCR) - where most suburban mass market properties are located - enjoyed a price rise of 7.2 per cent in Q2 2007. This trumped the 2 per cent rise in Q1 2007. It was the highest quarterly gain since the market bottomed in Q2 2004, and indicates that confidence in the high-end residential property market has filtered down to the mass market.

Upswing Price Recovery By Districts

Playing Catch-Up

Upswing seen across all locations and projects

Based on caveats lodged, the upswing in prices of mass market developments occurred across most suburban locations, although to different degrees. (See Table 1) The steepest price rise was seen in District 5. Median prices in this district rose by some 46 per cent from the low point in Q3 2005 to Q2 this year. This was followed closely by District 22, with a 42 per cent price rise. District 21 saw a 41 per cent gain in median prices. District 18 had a slower recovery. As of Q2 2007, median prices of mass market projects in the east picked up by 13 per cent from its trough in Q4 2006. A similar trend was observed in district 27, where the median price of private homes registered an increase of 16 per cent between Q1 2007 (the district’s record low) and Q2 2007.

The upswing is also more pronounced in larger and newer projects, which boast comprehensive facilities, as well as in those close to MRT stations and amenities.

One example is Kovan Melody, located next to the Kovan MRT station in District 19. Median prices there rose by 16 per cent, from $520 per sq ft when it was launched in 2004 to $605 psf in Q2 2007. At the other end of the spectrum, smaller and older developments located further from amenities, saw slower or flat price recovery. For instance, Central View in district 19 recorded a price gain of about 6 per cent between Q4 2006, when median prices were at the lowest for the development and Q2 2007.

Buyers of mass market homes are genuine purchasers

URA figures show that new projects sold by developers and resale deals make up the bulk of transactions in mass market districts located in OCR. Such sales made up more than 95 per cent of all deals since the general market bottomed out in 2004. On the other hand, sub-sales - which refer to secondary market transactions in uncompleted projects and often seen as a proxy for speculative activity - remained low at under 5 per cent.

Although sub-sales as a percentage of total transactions in OCR have been rising since Q3 2006, they are still relatively low at 3.1 per cent as of Q2 2007. This compares to 19.4 per cent for high-end properties in the core central region (CCR) and 10.4 per cent for private homes located in the rest of central region (RCR).

When taken as a percentage of total new sales within the respective regions, the proportion of sub-sales was just 7 per cent for the OCR, compared to 53 per cent for the CCR and 27 per cent for the RCR.

Supply crunch driving the mass market recovery

The rapid pace at which residential developments in the central area have been collectively sold in the last two years created an acute supply crunch, stemming from the massive withdrawal of homes from the existing stock. This became one of the main drivers of the recovery in the mass market, which enjoyed a filtering down of demand, both in the sale and rental markets. Evidence of this can be seen in the much higher proportion of mass market property buyers with private residential addresses - from a low of 12 per cent in Q2 2002 to 61 per cent in Q2 2007.

However, the supply crunch is expected to be short term. The estimated 6,200 homes already withdrawn or about to be withdrawn from the stock in the central area - due to collective sales between 2005 and June 2007 - will be replaced by some 13,000 spanking new, modern and more luxurious homes in the next two years.

Moreover, the recent injection of private residential sites into the government land sale programme for H2 2007 could add another 5,580 new mass market homes.

Upswing in the mass market sustainable

Unlike the mid-1990s upturn that was propelled largely by speculative buying and weak demand fundamentals, the current upswing is supported by strong demand fundamentals on the back of bright economic prospects.

Historically, Singapore’s property cycles, measured from trough to trough, last between 10 and 13 years. Taking that as a guide, the current upswing in the mass market, which commenced in mid-2004 and picked up momentum this year, is likely to continue and peak in 2010. This coincides with the expected completion for many of the infrastructure programmes (such as the integrated resorts and Marina Bay Financial Centre) which support Singapore’s economic restructuring.

However, downside risks remain and they stem from the recent turbulence in world financial markets and uncertainty over the impact of the US sub-prime mortgage woes. Nevertheless, while the US and Europe may suffer a hit over the next few months, the economic fundamentals of Singapore and Asia remain strong.

Mass market prices could hit the 1990s peak

Launch prices of new mass market residential projects during the 1990s property boom ranged between $550 psf and $1,050 psf. One of these projects was Bishan 8, which was launched at a median $1,050 psf in 1997. The highest unit price achieved for a mass market project during the mid-1990s peak was a unit in Heritage View, which sold for $1,127 psf in September 1997.

In comparison, in the first eight months of this year, new mass market housing was launched at prices ranging from $500 psf to $880 psf, just some 9 to 16 per cent lower than the levels achieved at the last peak. The highest price achieved for mass market property in the current market was for a unit in The Parc, which sold for $1,040 psf in August this year.

Meanwhile, in the secondary market, the median resale price of mass market properties as of Q2 2007 was $516 psf, just some 14 per cent below the peak in Q3 1996. However, for those projects that were launched at the height of the boom in the mid-1990s, their median resale prices as of Q2 2007 are still some 11 to 45 per cent off from their highs. (See Table 2)

With the upswing expected to be sustained until 2010 at least, and assuming a conservative price growth of 5 per cent per quarter, prices of new mass market projects are likely to attain the 1990s peak level by H1 2008, barring unforeseen circumstances. For mass market properties in the secondary market, resale prices should match the last high by the end of 2008.

The writer is associate director of research and consultancy, Colliers International

Source : Business Times - 27 Sep 2007

THERE is a lot to smile about these days.

A broadbased recovery in the housing market now looks imminent with some developers feeling confident enough to put in new benchmark bids for 99-year suburban leasehold sites.

URA Private Home Price Index

But HDB upgraders are finally making a comeback, bolstered no doubt by salary revisions in the civil service and mid-year bonuses.

Even the much-anticipated fallout from the United States sub-prime crisis and subsequent global credit crunch appears to have left the Singapore property market relatively unscathed. Not only have foreign institutional investors continued to pump money into the property sector, a new base of investors, most notably from the Middle East, are making their presence felt.

Of course, there is still a level of volatility in some segments. The high-end and luxury residential sector may see both foreign and local investors make more cautious decisions about buying into a segment that is already a little peakish.

Speculators, who have been driving up prices in the high-end and luxury segments, also appear to be beating a retreat, after considering the upsides in flipping properties no longer worth the risks.

Emerging markets are also looking like pretty safe bets though.

Few will have failed to notice that when the US sub-prime situation started to unravel in July and August, the China and India markets seemed impervious to its effects.

The growth story of both these powerhouses is well known, so much so that industrialists and developers alike are looking for new frontiers.

Vietnam is certainly a hot favourite now but closer home, Malaysia too holds many opportunities.

And if the Singapore market is anything to go by, the increasingly buoyant high-end sector in its capital city certainly bodes well for the rest of the real estate market.

Risk aversion may yet be the catch phrase of choice for the months ahead.

Not surprising then, financial analysts have come out in support of the mass market and the mid-cap developers most exposed to this segment.

Also looking relatively safe is the growing Singapore real estate investment trust (S-Reit) sector. The first Reit was listed in 2002 and, to date, there are 17 S-Reits with more expected to be listed here, giving even more depth to the market.

Source : Business Times - 27 Sep 2007

I REFER to the report, ‘Redas: Mass market poised for double-digit growth’ (BT, Sept 26).

It is interesting to note that the first vice-president of Redas, an interested party in Singapore’s booming property market, commented that just because mass market prices have not moved in tandem with prices in the high-end market, the former should have double-digit growth over the next 12 months.

Also, I regret to note the statement by the NTUC Choice Homes CEO that just because building costs have gone up, selling prices also must go up. There is an assumption here that the buyers of mass market property can and do have the cash to pay these higher prices and to service expensive mortgages.

The president of Redas, Simon Cheong, is wise to hint that choice locations will be hard to come by and the prices for such properties will continue to go up. This is very probable as he is targeting high net worth foreigners and high income Singaporeans.

In my opinion, the mass market developers’ comments look like attempts to talk up the market. My advice to Singaporeans?

If you are going to live to 85 and may not have enough money to tide over daily expenses, your best response to these ‘interested forecasters’ is: If you raise your prices, I will not be able to afford to buy your properties.

Lu Keehong Singapore

Source : Business Times - 27 Sep 2007