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Prices of Good Class Bungalows are expected to hold steady at least for the rest of the year. STEVEN MING and AVIN SEOW explain why

Good Class Bungalows (GCBs), as defined by the Urban Redevelopment Authority (URA), are bungalows that sit on at least 1,400 sq m of land and are located within one of URA’s 39 designated GCB areas. The more popular GCB addresses are located within Nassim, Cluny, Bishopsgate and White House Park estates. They are widely viewed as a barometer of the overall health of the economy.

These bungalows are homes to the upper echelon of Singapore society - successful businessmen, high flying professionals and captains of industries. This housing segment does not have a high concentration of foreign buyers as they are generally not allowed to acquire any landed properties, except on Sentosa Cove.

The recent slew of bad economic news on global economic conditions has slowed down the sentiment-sensitive property market, as seen by the lower sales volume and fewer development launches. Together with the rest of the market, the GCB segment is feeling the impact of an economic slowdown, although from a price point, it has been relatively unscathed to-date.

The first eight months of 2008 saw a total of just 31 GCBs worth some $550 million changing hands, down from the 84 transactions worth $1.1 billion in the same period last year. The first six months accounted for 27 of the 31 transactions in the review period, signalling a significant slowdown in activity after June. Transaction volume has declined to its lowest since 1998.

On the other hand, the transacted value of each GCB this year has averaged around $16 million, with eight GCBs transacted remarkably above the $20 million quantum.

Consequently, the average price of a GCB stands at around $836 per sq ft (psf) as at end-August 2008, more than twice the average price of $365 psf transacted in 2005. The highest price paid this year in terms of psf is for a property located at Leedon Road, sold in May for $1,303 psf. It is observed that for GCBs transacted this year at over $1,000 psf on land area, most were sold with a new or relatively new bungalow, or a bungalow that had undergone some recent refurbishment and hence been able to command the price premium.

In spite of the much hyped pessimism overhanging the property market, the underlying fundamentals of the GCBs remain fairly sound.

Firstly, the inherent scarcity of land in Singapore should continue to lend support to the landed housing segment, especially GCBs, given there are only about 2,400 of such homes in Singapore. It is little wonder then that these prestigious homes are much sought after and justifiably more expensive over time.

We also note that there is growing accumulated wealth in Singapore, as backed by a recent World Wealth 2007 Report by Merrill Lynch and Capgemini. The report said that the number of millionaires in Singapore with net assets of at least US$1 million has grown by 15.3 per cent per annum to 77,000 (or 1.7 per cent of the population) in tandem with recent strong economic performance of the Asian region. The new and more accumulated wealth among Singaporeans creates new demand for the limited number of GCBs, which will then lend support to the current prices.

Government initiatives like the integrated resorts, Formula One (F1) race, the revamp of the Orchard Road shopping belt and the growing stature of Singapore as a financial hub should also lend more support to the property market in the longer term. The economy will receive its much-needed jab in the arm once these initiatives are up and running successfully.

The integrated resorts at Marina Bay and Sentosa, scheduled to be ready by 2009 and 2010 respectively, are expected to create an additional 75,000 jobs island-wide and generate millions of revenue for the government - and hence boost the economy. The same spillover effects are expected from the F1 and other government initiatives.

GCBs tend to be bought and kept as a long term investment. A GCB owner’s average hold of the property is for well over 10 years. Drawing from past performance, GCBs have proven to be a very stable and secure investment.

For example, a GCB located along Second Avenue, which was transacted at a price of $4 million, or $142 psf, in 1990, was sold again in 2003 at around $8 million, or $280 psf, according to the URA’s lodged caveats. Similarly, a unit located along Mount Echo Park bought for $9.3 million, or $501 psf, in 1996 was sold at $13.3 million, or $714 psf, this year.

The high construction cost is another factor shoring up the current GCB prices. According to Rider Levett Bucknall’s May 2008 report, construction cost for landed detached homes has risen by more than 20 per cent year-on-year to about $311-$525 psf of construction floor area. Therefore, given today’s higher replacement cost as a result of the higher construction cost, buyers would prefer GCBs that are reasonably well-maintained and priced with minimal refurbishment required.

Outlook

The extent of the impact of the US crisis on Singapore property market is as good as anyone’s guess. However, if history were anything to go by, where a major crisis like the 1997 Asian Crisis led to a plunge in property prices, GCB prices should also come under significant downward pressures once the US credit crisis fully blows out.

The 1997 Asian Crisis then saw average prices of GCBs reaching a high of $637 psf before sliding by more than 70 per cent to $359 psf in the following year.

With US recession imminent, it should be no surprise if history replays itself with a free fall in asset prices especially since given that the current US sub-prime is widely seen as a crisis with a magnitude stronger than the 1997 Asian Crisis.

However, there are no strong indications yet to subscribe to such a pessimistic view, especially after taking the above mentioned factors into consideration. Barring a greater-than-expected slowdown in US economy and sudden changes in macroeconomic conditions, GCB prices are expected to hold steady at least for the remainder of the year.

Steven Ming is director of Savills Prestige Homes; Avin Seow is analyst, research & consultancy, at Savills Singapore

Source : Business Times - 26 Sep 2008

Prices are attractive in suburban areas but buyers need to be aware of the property’s condition

Owning a landed property may feel like a distant dream for some after the prices of such homes surged significantly last year, but the dream may not be as distant as it seems.

If one looks hard enough in suburban locations, such homes can be found for as little as $800,000.

The good news for potential buyers is that price growth in landed homes is slowing in line with the general market.

Indeed, suburban bungalows and terrace houses have already registered a drop in prices, according to data from Savills Singapore.

For instance, in the second quarter, prices of suburban terrace houses dropped 6.8per cent to an average price of $605 per sqft, compared with a 2.4per cent rise in the first quarter.

Overall, official data from the Urban Redevelopment Authority on Friday showed that landed home prices rose 0.6per cent in the second quarter, down from a rise of 3.9per cent in the first three months of the year, and 23.4per cent for the whole of last year.

While the downward growth trend may continue, landed home prices are at least supported by a limited supply of such homes and a relatively illiquid market, market watchers say.

As more houses are being converted into apartment blocks, landed homes could become rarer in 15 years’ time, says the director of Savills Residential, Mr Ku Swee Yong.

He foresees an annual rise of at least 5per cent in the general landed home market in the next three years even as growth slows.

What to look out for

Those with a small budget of around $800,000 should check out locations such as the MacPherson area, or Jalan Hari Raya in the Thomson area, according to Mr Eugene Lim, assistant vice-president of ERA Asia-Pacific.

Those with a slightly bigger budget of around $1million might like to consider older, 99-year leasehold landed homes in Paya Lebar, Hougang and Rifle Range Road.

They could also look at the terrace houses in Choa Chu Kang, Kallang, Pasir Ris, Sengkang, Sembawang and Toa Payoh, or semi-detached homes in Jurong West.

A 2,399sqft terrace unit in Pasir Ris Heights, for example, was sold for $870,000 last month, while a bigger 3,674sqft unit in the same area went for $818,000 in April.

Generally, though, landed homes below $800,000 are few in number, are likely to be very old and are often single-storey terrace houses. Buyers would likely need to spend money on renovation, said Mr Lim.

With older homes, potential buyers should pay particular attention to the structure and look for signs of leakage, he said.

But even if a buyer has money set aside for renovation, said experts, he may find it tough securing a contractor, as the construction sector is stretched in the current market.

Aside from location and the cost of renovation, buyers should also consider the shape of the site on which the house sits.

‘Odd-shaped land means there is less effective land area for built-up space, and that compromises on space maximisation as well as the prospect for redevelopment or even sub-division,’ said the head of KF Property Network, Dr Tan Tee Khoon.

Fortunately, most houses sit on rectangular or square-shaped plots.

‘Other practical considerations include ensuring that there is no termite problem and that the property has no illegal extensions or erection of structures,’ he added.

Also, buyers typically want a landed home for their own use. Those buying for investment should note that landed homes are generally less attractive to tenants than condominium units because of the lack of facilities, said Savill’s Mr Ku. Many tenants also do not want to be bothered with maintaining a landed property.

Median rents for suburban terrace units have remained stable this year at $1.84 psf - the same median rent level for semi-detached houses in the second quarter. Median rents for surburban bungalows have fallen to $2.40 psf in the second quarter, from $2.67 psf in general.

‘In general, the lower rental value is reflected in the lower price on a per square foot basis. This is why landed prices are a laggard to the general market,’ said Mr Ku.

Beware extra costs

Generally, landed homes below $800,000 are few in number, likely to be very old, and are often single-storey terrace houses. Buyers would likely need to spend money on renovation.

Source : Sunday Times - 27 Jul 2008

I AGREE with Michael French’s letter (BT, July 17) that your original article ‘Prices of Good Class Bungalows still going up, but volume falls’ (BT, July 14) is misleading and flawed. The opening line of the article reads: ‘The volume of transactions of good class bungalows (GCBs) may have fallen along with other property sectors but values have not.’ As Mr French correctly points out, the GCB market peaked in the summer of 2007, along with prime condominium prices in districts 9 and 10.

The fact that GCB land prices have fallen is not a good omen for the overall market for two reasons:

1. House prices are no more than a proxy for land prices. When land prices fall, house prices follow in short order, and

2. The turning of prices in the GCB market has proved to be the top of the property market cycle in each of the last two cycles. The fundamentals this time around are no different than in the past.

Gerry Ball
Singapore

Source : Business Times - 18 Jul 2008

I REFER to the report, ‘Prices of Good Class Bungalows still going up, but volume falls’ (BT, July 14) by Arthur Sim.

I am not alone in having received numerous calls from owners who own Good Class Bungalows (GCBs), as well as architects.

The article is misleading and flawed.

GCB land prices peaked in July 2007. If one were to take the average, one would be looking at the top end of $1,100 psf. 11 Queen Astrid Park was offered $35 million for 31,806 sq ft which equals to $1,100 psf. GCB land prices have been declining since the onset of the sub-prime crisis at the beginning of August 2007.

16 Leedon Park was contracted for $823 psf, almost 25 per cent off the peak of $1,100 psf. The property was bought for speculative purposes as it was immediately put up for sale at $1,000 psf. It remains unsold as of today. 11 Ford Avenue was sold for $782 psf, reinforcing the view that GCB land prices are declining. 2 Swettenham Road was transacted for $810 psf, further indicating the weakness of GCB land prices. 39 Leedon Park which was launched with much fanfare for $35 million was subsequently sold for $27.5 million.

The current market for GCB land prices would find buying support at around $800 psf. This is clearly a drop of almost 30 per cent. I foresee in the next six months that the support level could test $700-750 psf.

One reason why GCB land prices are declining could also be the high cost of reconstruction. At current levels of around $600 psf for a relatively good quality development, costs of building are weighing down on GCB Land prices. In fact, I foresee construction cost rising as high as $1,000 psf in the next one to two years. This would add further pressure on GCB land prices.

The bright side, however, are GCBs with existing buildings would be more resistant to price pressures. Buyers could reduce costs significantly by retrofitting the existing structures. The current level of new bungalows would find buying support at around $1,100 psf.

On a closing note, I find that it is absurd to justify price increases by taking into account the dollar value divided by the number of bungalows sold.

Michael French
Managing director
Asia Premier Property Consultants Pte Ltd

Arthur Sim replies: The report clearly states that the GCB peak in 2006 refers to the volume of transactions and not the highest prices achieved. Anyone looking to buy a GCB will know that the price for a newly constructed GCB and an old GCB can vary tremendously, even if these are on the same street. The price for the a new GCB will reflect construction costs while the price for the old GCB will more likely only reflect land cost. As such, using an average land price for GCBs to calculate price movements of GCBs (as the letter writer does) is not accurate. The price increases referred to in the report come from examples of transacted prices of the same property over 2007/2008. In the examples provided, prices increased.

Source : Business Times - 17 Jul 2008

25 deals done in H1 worth $440.65m, against 87 deals for 2007 worth $1.15b

The volume of transactions of good class bungalows (GCBs) may have fallen along with other property sectors but values have not.

A GCB is one that sits on designated land no smaller than 15,000 sq ft. And according to an analysis by CB Richard Ellis (CBRE), there were 25 GCB transaction in the first half of 2008.

While this may be a fraction of the 87 transactions in 2007, the total value for H1 2008 is already $440.65 million, almost 40 per cent of the total value for the whole of 2007 which saw $1.15 billion worth of deals.

There are several explanations for this, including the possibility that bigger GCBs were sold this year, but it also seems clear that prices have risen.

Upon closer analysis, CBRE found that some of the GCBs sold in 2008 had already changed hands once before in 2007. For instance, a house at Fifth Avenue was sold for $17.4 million in June 2007 and then sold again for $19.7 million in March this year - representing a gain of about 13 per cent.

Another house in Cluny Hill was sold in January 2007 for $15 million, re-sold six months later for $20.2 million and then sold again in May this year for $21.5 million.

CBRE director (luxury homes) Douglas Wong says: ‘There is still buying interest in the GCB market as it is always regarded as an attractive investment in the long term and/or for owner-occupation.’

This certainly seems to be supported by the fact that CBRE and Mr Wong handled possibly the biggest GCB deal ever done here - a house in Leedon Park which sold for $43.2 million in May, bought by a Singaporean.

That locals make up the bulk of GCB buyers is interesting as foreigners have been very much credited with bolstering the luxury non-landed sector. Mr Wong also believes that of the estimated 2,400 GCBs in Singapore, these are owned by a small pool of about 1,000 wealthy individuals, suggesting that many own more than one GCB.

In tracking GCB transactions, CBRE found that there were two recent ‘peaks’ in the sector. (CBRE defines ‘peak’ in terms of volume rather than price).

The first peak occurred in 1999, when 77 transactions were recorded after the property market bottomed out during the Asian financial crisis.

The second peak occurred in 2006 with 119 deals done following a protracted period of market stagnation from 2000 to 2004.

In 2006, the 119 GCBs were sold with transacted value totalling $1.225 billion, double the value in 1999.

On average, each GCB cost $9 million to $10 million. In comparison, at the bottom of the market in 2002, the average price of a GCB was $6 million to $7 million.

Of the 25 GCBs sold in H1 2008, about half were sold for over $15 million. Of these, six were sold for more than $20 million.

And as CBRE notes, luxury properties are often seen as a barometer of the health of the overall market. When there are signs of the market turning, GCBs and luxury apartments will reflect this first and post bigger gains ahead of the broader residential market.

So it is good news then that for the rest of the year, CBRE expects GCB prices to remain firm or even see a marginal upside.

Source : Business Times - 14 Jul 2008