On the road to recovery

How would you explain the recent pick-up in the property market despite a weak economy? Is it likely to be sustained? Is there any cause for concern at this stage?

Pauline Goh Managing Director CB Richard Ellis Singapore
DESPITE an economy that’s still in negative territory, there has been significant demand for private residential housing. New home sales totalled 7,250 in the first half of 2009 – up 70.0 per cent from 4,264 sold in the whole of 2008.

Several factors combined to bring about this pick-up. Potential home-buyers who had substantial savings when the economy was booming from 2005-07 were priced out of the private residential market as prices rose too quickly. Now that prices have corrected – some 25 per cent from the peak in Q2 2008 – buyers are taking advantage of the opportunity to purchase. In addition, investors have switched their focus to property after losing faith in structured products during the debacle that affected big-name financial institutions last year.

Kelvin Lum, Executive Director, L C Development
GLOBAL market conditions remain challenging due to weak economic fundamentals. But there has been positive data signalling some form of recovery in Singapore. Positive signs are also showing up in the United States, with home prices there rising in May for the first time in three years. The fact of the matter is, economies are faring better than they were a year back.

Recent positive indicators have likely fuelled the rallies in the equity markets and lifted investor confidence. With borrowing costs and deposit rates at all-time lows, investors are looking to re-invest in the real estate market to obtain a better yield and to hedge against inflation.

The pick-up is evident in the mass to mid-market residential sectors. The commercial and luxury residential sectors remain relatively subdued. In a market such as this, positive sentiment makes all the difference. The sustainability of the pick-up, therefore, depends on continued investor confidence which, in turn, will be driven by economic news out of the US and major regional markets such as China.

Barring unforeseen circumstances, players will likely support the equity markets, which in turn will have an impact on the sustainability of the property market. Although Singapore’s economic well-being depends on the economies of its major trading partners, it is unlikely that a correction – if any – will be as acute as that seen in 2008.

Gary Harvey, CEO, iPac Wealth Management Asia
LIKE most investment markets, in the latter half of 2008, the Singapore residential property market may have overshot on the downside. Demand almost dried up as a result of the extremely poor economic outlook. Moving through 2009, Singapore has not truly seen the forced sales that many parts of the world have experienced. Nor did the forecast number of foreigners leaving materialise. These factors, combined with low interest rates and the willingness of banks to still lend, have led to the property market returning to a more realistic level.

For the rally to be sustained, investors should now start focusing on fundamentals. Vacancy rates, rental yields and an increase in foreign investment will need to improve for any recovery to be sustained. I believe speculators should be cautious as we are in a market that depends on global trade. Any sign that recovery is not gaining momentum would be a cause for concern.

Darren Thomson, President and Chief Executive, Manulife (Singapore)
Chairman, Manulife Asset Management (Singapore)
WE are living in unusual times and should expect to see movements in markets that may make us feel uncomfortable. However, my experience of the Singapore property market is that it is somewhat erratic – which means that the unusual is usual.

Our market has a number of variables that others do not have to contend with. In particular, the proportion of foreign buyers and speculators may be disproportionate compared with other markets. And, of course, we have insufficient land.

Property is a popular asset class, and the imbalance of investor money – institutional and private – vis-a-vis the domestic home buyer market may be the key variable to analyse.

I have seen violent swings in the past four to five years in both directions. In particular, the speed of price movements can be quite remarkable. I have, therefore, conditioned myself to expect the unexpected.

The paradox is that I would become concerned if the property market became stable or less volatile. But that would be unusual, which is, er, usual?

Krishna Ramachandra Managing Director, Arfat Selvam Alliance
THE recent accelerated pick-up in prices has boosted hopes that the property market may be over the worst. As prices had fallen rapidly, market activity picked up as more bargain-hunters – confident that prices did not have much further to fall – joined the fray. The frenzy simply perpetuated itself. And as lenders loosened their lending criteria, prices started rising further.

These factors, combined with pent-up demand in the past nine months, defines the irrational way in which the property market has risen so quickly. I believe the market is likely to sustain itself and perhaps ride on the performance of the stock market.

In addition, there will be pockets of property – those directly affected by the opening of the integrated resorts, for instance – that will keep on rising after prices generally stabilise.

I think government intervention at this point would be premature. The banks are still relatively tight with credit, and those who are coming out to play – institutions and investors – do not need interventionist measures to rein them in. There is no sizeable bubble to be concerned about right now. On the contrary, the rising property market engenders positivism, which even if slightly misguided, is to be encouraged.

Dora Hoan, Group CEO, Best World International
SEVERAL factors have triggered the current price boom. Low interest rates due to the weak global economy makes investing in properties quite tempting. Investors have also become extra-cautious about complex financial products. For this reason, many have bet on Singapore as the safest place to park their money by investing in property here.

To add to that, there are signs of economic recovery, the stockmarket rally, and the pending completion of major tourism infrastructure projects. Population increase is also a significant factor in a nation with limited land, where the aspiration of every family is home ownership.

However, we should be on the lookout for speculative buying. We do not have to go far back to know what happens when greed gets the upper hand. In view of this, the responsibility of market players is to steer clear of unwarranted speculation that could send prices soaring out of control. That would hurt the economy at a time when it is barely recovering from a slump.

Glenndle Sim, Chief Executive Officer, Mencast Holdings
THE recent pick-up in the property market can be attributed largely to two pools of buyers – foreigners who are attracted to Singapore and plan to set up homes here, and Singaporeans who are picking up properties to buffer against inflation, or who have liquidity after withdrawing from equities when the stock market was down last year.

Foreign buyers are drawn to Singapore not only because of its political and social stability but also the ease of settling down in a comfortable and cosmopolitan city with many facilities. The open economy makes it attractive for people to start businesses and to work here. And the multicultural environment of different races, religions and nationalities makes it easier for foreigners to be assimilated.

Locals and foreigners will likely be willing to pay a premium for properties here as long as Singapore continues to be an attractive place to live and work. Going forward, prices may stabilise, with some dips. But they are unlikely to crash.

Liu Chunlin, CEO, K&C Protective Technologies
THE property market seems to have moved in tandem with the stock market and commodity prices. The same question of whether it is sustainable applies to the stock market and the property market. I believe recent market movements may be running ahead of the economic upturn.

The little bits of good economic news from the stimulus efforts here and abroad, plus recent commodity price increases, have fanned this sentiment. From what I hear, there have also been some genuine property buyers moving in. Having waited, they are now afraid of higher prices.

While a bit of such sentiment is good to stoke optimism, I believe the focus in the coming months should be on re-structuring, consolidation and regaining productivity. After all, jobs are still being lost and companies are still digesting the structural changes and trying to regain output.

My concern is that a premature pick-up in the property market, especially if it becomes heady, will add to inflationary pressures, force a serious correction later on and divert the focus from productivity efforts.

Cathlyn Leyau, Managing Director, FIL Skin, Body & Spa Intelligence
OVER-SUPPLY and recession are causing developers to sell units at lower prices to attract buyers, which has catalysed the recent hype in the property market. The plain fact is the property market may not recover before the stock market does. It has long been noted that a recovery in the stock market precedes one in the property market, and there is always a lead-lag effect. Buyers snapping up homes in recent weeks may be jumping into the market way before it has hit rock bottom. The property market remains largely weak, even though recent sales have sparked a glimmer of hope. The big concern is that many people may jump the gun and mistake the pick-up in property market as the first sign of recovery. There are lots of opportunities to do things with your money, but the big danger is that you might end up locked up for a long time. The key for investors is patience. Do not be misled by false dawns.

Choe Peng Sum, CEO, Frasers Hospitality
THERE has been a drop in real estate prices since the economic downturn in October last year. Hence, consumers who are on the hunt could be afraid to ‘miss the boat’ if they do not capitalise on some of the ‘good buys’ currently on offer. Unlike the past few years, however, I think that this time, consumers will tread with greater caution, and will not jump on the bandwagon. Further, the situation will be closely monitored and necessary action could be taken if the market gets too hot too fast.

Wee Piew, CEO, HG Metal Manufacturing
BEFORE the property bubble burst last year, the market was going from strength to strength fuelled by easy money and confidence that Singapore was re-inventing itself. Then came Bear Sterns, AIG and Lehman Brothers, which sent the property market, not just in Singapore but almost everywhere else, into a steep decline.

If there had not been a global meltdown last year, would Singapore’s property market have continued its run from 2007? I believe the answer is yes, because in the medium to longer term, Singapore’s re-invention story is still intact. I, therefore, believe the current pick-up in property prices is a continuation of the run from 2007. Yes, confidence has been badly bruised, but it is beginning to get back on its feet.

What is different now from 2007 is that while there has been a speculative element of late, buyers and investors remain cautious towards all investments – not just property – after the collapse of 2008. If you believe in the Singapore re-invention story, the property market will remain healthy, though hopefully at a less fanatic pace compared with 2007.

Another positive for the property market boils down to Economics 101. When you print money, inflation goes up and real assets go up. This is fundamental. So what have all the governments in the world been doing? Printing money. And not just printing money, but an unprecedented amount of it. A corollary is low interest rates, which I believe governments are likely to maintain for a while as economic recovery at this stage is still fragile.

All this means that property, like all other real assets, is likely to move up in price. We are already seeing this in many parts of Asia besides Singapore – for example, Hong Kong and China.

Tan Tiong Cheng, Chairman, Knight Frank
THERE is a general feeling that we have seen the worst in the global, regional and local economies. This is reflected in the stockmarket rallies since March. The local residential property market, being sentiment driven, has followed suit. Buyers, local and foreign, sense that we are poised for price recovery, and developers are capitalising on the opportunity to embark on new launches and clear previously launched projects. This explains the market activity in the past five months.

Many will recall that sales fell off a cliff after the Lehman collapse. Today, that fear has largely dissipated. As long as the economic numbers show an improving situation, coupled with greater job opportunities and a low interest rate environment, a sustained recovery can be expected. The danger is over-zealous buying leading to over-zealous pricing that chokes the market.

David Leong, Managing Director, PeopleWorldwide Consulting
SINGAPORE’S liquidity-driven economy has propped up not only the Straits Times Index but all asset classes. The 52-week range is 1,455.47-2,843.57 – a doubling. The Singapore dollar remains strong and stable, and functions as a channel for financial intermediation from investors in Asia, Europe and the Middle East. Such a channel will give rise to volatile cross-border capital flows that typically are driven by factors or reasons unrelated to local economic fundamentals.

The sharp spike in demand for property can be mostly attributed to such fund flows from overseas. It is patently clear that the domestic economic weakness cannot spur such frivolous consumption.

Foreign capital inflows can be unpredictable and volatile. The property pick-up is unlikely to be sustainable if this is the major force supporting it.

Domestically, we are seeing more local investors taking strong positions in the hope of economic recovery in 2010. With a high take-up rate at new property launches, there is clearly a certain momentum. Snapping up risky assets is also fuelled by attractive interest rates.

The economic tide seems to have turned. It is not about pessimism in the air, but how strongly the tide will turn to lift everyone up for fresher air.

Roland Mathys, CEO, Jurong Cement
I THINK there are two fundamental forces at play:

People in Singapore have a lot of wealth they need to put at work and, in the long run, property is a safe bet in a country with limited land and a formal policy to increase population to six million;

People realise that the money-printing exercise happening all over the world will ultimately result in high inflation, if not hyper-inflation, and the only way to protect your wealth is to invest in real assets.

Lim Soon Hock, Managing Director, Plan-B ICAG
I DO not believe the recent pick-up in the property market can be sustained. The recovery is more likely to be a ‘W’ shape, with a broad base and low vertex.

The recent rally is due to buyers who were bottom fishing, saw signs of pick-up, then panicked and made a bull run. These are also likely to be purchasers – locals and foreigners – who have access to loans or have cash on stand-by, and are taking advantage of more favourable prices.

I do not believe there are too many such people. Therefore, I do not believe the recovery can be sustained. My pessimism is largely due to the continuing global malaise. The world financial system remains unhealthy; global unemployment is on the rise, especially for PMETs; demand and consumption of goods and services is still weak and the global property market has yet to turn the corner. If there is one barometer of imminent economic recovery, it is the latter – the same factor that triggered the sub-prime crisis – that must pick up. Until then, in such an adverse environment, it is difficult to sustain a market rally, given that property purchases are big-ticket items.

Speculation thrives in such an environment, generally driven by the herd mentality. It needs to be kept in check to avoid a bubble that is completely out of step with the depressed state of the economy. In this regard, it is heartening to note that the government has sounded the alarm bells.

Pramod Ratwani, President and Executive Chairman, Consilium Software
THE underlying economic reasons which caused the downfall of property prices remain. The recent increase is mainly due to speculation plus some genuine demand from first-time buyers who were waiting for property to cool. There is risk for people looking for investment gains if prices were to pull back due to lack of demand and over-supply of completed housing that will start hitting the market in the next few months. This is likely going to be a ‘W’-shaped recovery and people need to be cautious in spending their hard-earned money.

Loi Pek Yen, Group CEO, CWT
GREED and fear drive prices. Barely half a year ago, gloom dominated and fear led to panic selling by some. Now, with low housing loan rates, fear of perceived inflation and fear of missing the boat, prices are being chased up. At the same time, greed has resulted in speculators loading up on property to cash in on the ascent. Property prices are rising in other part of Asia too – not just in Singapore. The pick-up is likely to be sustained so long as lending rates remain low.

Tan Ka Huat, Managing Director, CEI Contract Manufacturing
THE property pick-up seems to be the result of convergence of several factors:

Direct correlation with the STI and other Asian stockmarket indices.

Recent positive news on economic recovery.

The relatively high savings and cash holdings of Singapore households.

Expectations, coupled with bandwagon syndrome.

David Low, CEO, Futuristic Store Fixtures
IN comparison to the 2007 boom when saw prestige homes take centrestage, the recent spate of property sales is very much mass-market driven. The rush has been mainly triggered by low interest rates coupled with pent-up demand from those who did not capitalise on the last boom.

The pick-up will be sustained as long as long-term investment is pursued rather than speculation. Speculation is like a party – it can lead to a vicious hangover. And we are talking about mass-market buyers, so the negative effect can be alarming. So as long as prices do not escalate overnight, there should be no cause for concern.

Thomas Preben Hansen, CEO, Rickers Maritime
LOWER property prices, excess liquidity and low interest rates are likely to have been key drivers in the recent property rebound. With the benefit of built-in inflation protection, the property investment proposition could make good sense in today’s uncertain times.

However, investors and banks should be careful not to commit to excessive leveraging, as near-term returns could be volatile. A backlog of launches equals a substantial amount of supply in the pipeline, which could add to pressure on rents. A combination of falling rents and higher interest rates could rapidly erode yields in the near term.

With Asia set to lead the world out of recession, and talk of an ‘Asian century’, we can expect to see an acceleration in foreign investment and in the number of people seeking a career in Asia, all of which, over medium to long term, should stimulate property prices in Singapore.

Stefanie Yuen Thio, Head, Corporate, TSMP Law Corporation
THE reason for the rally can be summed up in something a Generation Y-er said: ‘If this is the world’s worst recession ever, it ain’t so bad.’

I don’t think people have truly felt the harsh reality of the recession in Asia. Governments have been incredibly adept at going into damage control, pumping billions into the system, shoring up lending and helping businesses stave off retrenchment. These were necessary measures from an economic and confidence viewpoint. But they had the side-effect of insulating most of the population from the naked reality of the economic crisis we’re going through.

Talk to people on the street and you may find, as I have, that there are some who have not been able to find a job for a year, and others – mostly under 30 – whose spending patterns have hardly changed since the boom days of 2007.

Because many have been sheltered from the real effects of the global financial crisis, I think we may be living in what is another, potentially much larger, bubble. And while we had quick-acting governments to come charging in to save us from the last one, who can we look to for salvation when the governments’ rescue plans run out of ammunition?

I think it’s crucial that we work out what went wrong and put in place measures to try to prevent similar mistakes. This is the responsibility not just of national regulators but also global banks and professionals who form the backbone of so many corporate structures. It’s time we brought corporate social responsibility out of the charitable arena and into the boardroom.

Deb Dutta, Vice-President, Asia-Pacific, Brocade
THERE is a general perception that the real estate market has bottomed out. As a result, people are rushing in, which is boosting property prices. I don’t want to rain on the parade but I do not quite agree with this optimism, despite Singapore’s limited land supply.

Singapore’s reputation and the government’s efforts to make the island a regional educational hub attract foreign students, which supports the rental market somewhat. At the same time, we have low interest rates, which is motivating upgraders to buy property, putting a somewhat positive spin on the market.

None of the factors that have driven the global slowdown have changed markedly – anywhere in the world. And Singapore does not have the critical mass to set its own trend.

I am starting to see promising signs, but we are definitely not out of the woods.

Reto Isenring, Managing Director, VP Bank (Singapore)
THE current popularity of property can be attributed to its tangible nature. Many investors were burned or turned cautious after the Lehman collapse. The resulting lack of confidence in financial regulations has dented the appeal of mutual and hedge funds, currency options and commodities, etc. So a lot of savings/assets have been sitting idle in almost-zero yielding accounts for the past year. Property prices have also fallen reasonably in the last year.

All of this has created the perfect backdrop for a surge of investment in property, driving prices up more than 20 per cent in the past three to six months alone. It also appears that many property purchases are for investment rather than owner occupancy.

With the amount of liquidity available, prices can be sustained in the short term. But unless rental demand and yield remain strong, the longer-term outlook for property can be bleak.

Teng Yeow Heng Michael, Managing Director, Corporate Turnaround Centre
THE recent pick-up in the property market is due to feel-good sentiment from the rise of the equity market. Funds are flowing into Asia again owing to fiscal stimulus injected by the various central banks a few months ago. Also, residents in Singapore who sold their homes previously in en bloc deals are looking for property to buy to occupy. Others are finding that the banks are offering very low interest rates on fixed deposits, and have decided it is better to park their money in property. Some are anticipating hyper-inflation in the years to come and are investing in property to hedge against this. Others are rushing into the fray so as not to miss the boat.

I do not think that this is a sustainable trend. The world is still in recession, though signs are indicating the worst may be over. It will take several years for things to get back to normal. Companies will continue to downsize even when the economy recovers, and when people lose their jobs they will have less appetite to invest in property.

Source: Business Times, 17 Aug 2009

Mass-market home prices ‘at 2007 peak’

Residential prices may fall about 20%: Analyst

ANTI-SPECULATIVE measures, falling rental yields and ballooning supply may drive residential property prices down by about 20 per cent, says an analyst.

Sounding a contrarian view that runs against current sentiments, RBS Singapore analyst Fera Wirawan warned that prices of some segments of the market have risen to 2007 peaks amid a strong upswing in buying levels.

Based on her analysis, prices of mass-market homes, or low-end private properties, are now at peak October 2007 levels, while prices of mid-tier and high-end homes are just 8 per cent and 22 per cent off their peaks respectively.

With prices surging 16 per cent to 26 per cent in recent months, the residential property sector may have peaked, Ms Wirawan cautioned.

‘The residential sector recovery was initially driven by pent-up demand and cheap capital values, but we now see speculation in all residential segments, particularly the mass segment,’ she said.

Average selling prices (ASPs) at recent property launches are 30 per cent to 80 per cent above the ASPs of nearby projects. This is markedly higher than the historical average of 20 per cent.

‘Capital values have been rising in the face of falling rents and a full supply pipeline, a phenomenon we attribute to low average mortgage rates of 2 per cent.’

She noted that the strong residential volumes were triggered by Frasers Centrepoint’s launch of the mass market Caspian project at an affordable $580 per sq ft in February, which attracted a high take-up owing to pent-up demand in the mass residential segment.

The positive sentiment from the sale of Caspian units quickly filtered through to the mid-tier and high-end segments.

This frantic level of buying, in annualised terms, almost matched the record number of new homes sold by developers in 2007.

Property developers here sold more than 7,000 private homes in the first half of this year, double what they sold in the same period last year.

When annualised, sales are only 2 per cent short of the record 14,811 sold in the 2007 boom year.

The low-end segment performed the best in the first three months of this year, contributing 63 per cent of the 2,552 primary units sold.

The second quarter, however, saw a change, with 40 per cent of the 4,552 units sold represented by the mid-tier segment, followed by 31 per cent in the high-end segment.

The broad-based recovery has fuelled a sharp rally of property counters such as City Developments and SC Global Developments.

The Singapore FTSE ST Real Estate index, which tracks Singapore-listed property stocks, has doubled from its March lows.

With increasing speculation, worsening affordability, declining rental yields and plentiful supply in the property development pipeline, prices are likely to cool, said Ms Wirawan.

‘The Government is watching the market and could implement anti-speculative policies if speculation in the market goes on unabated,’ she said. ‘We expect prices to fall 10 per cent to 20 per cent in the residential sector over the next 12 months.’

National Development Minister Mah Bow Tan said last month that signs of speculation are re-emerging in the property market and stressed that the Government is monitoring the the situation closely. His comments came after speculative pricing practices began to emerge late last month, especially in the mass-market segment.

Ms Wirawan pointed to the sale of Centro Residences, a mass-market 99-year leasehold project located at Ang Mo Kio, which was sold at between $1,100 and 1,200 psf.

That price, she said, was close to the price of a bulk purchase of Sui Generis, located at Balmoral Park, a prime area, which sold for $1,260 psf.

Industry players generally agree that it is not sustainable to price low-end properties at about $1,000 psf.

The Government recently made cautionary statements owing to concerns that such homes may become unaffordable to the mass-market home-buyer.

The warning, however, appeared to have fallen on deaf ears as property launches continued to attract throngs of buyers, including many Housing Board upgraders, over the first two weekends of this month.

DMG & Partners Securities analyst Brandon Lee said that he expects ‘residential sales momentum to continue’, while OCBC Investment Research analyst Foo Sze Ming said demand in the mass-market segment was more sustainable.

Source: Straits Times, 17th August 2009

Property scene not too frothy: CDL

Resuming regular land sales is what Govt may do if there is over-exuberance

PROPERTY tycoon Kwek Leng Beng believes the Government may try to cool the property market – if it gets too frothy – by resuming its regular land sales programme as a way to boost supply.

However, the City Developments (CDL) chairman also said yesterday that the current buying momentum can be sustained and should not be seen as over-exuberant.

He was speaking at a press conference during which CDL unveiled its second-quarter results – another weak set of figures.

Mr Kwek said the recent resurgence in property sales should be put into context.

‘It should not be viewed as over-exuberant or extraordinary, bearing in mind that developers had put on hold many of their launches in 2008,’ he said.

He added that property prices for the low- and mid-tier market had yet to recover since their peak in 1996.

In response to a question on whether the Government would introduce any cooling measures, he said: ‘I think Mr Mah (Bow Tan) is correct to say he doesn’t want a bubble to be built, but I don’t know if he is going to introduce (any measures).

‘Probably what he would do is offer a confirmed list. The deferred payment scheme has already been abolished. Maybe he will abolish interest paid for on behalf of the buyer.’

Mr Mah, the Minister for National Development, warned on July 29 against a property bubble forming and speculation creeping back into the market. He vowed to ‘take whatever action is necessary’.

Mr Kwek said the Government would have to approach this decision carefully.

‘Don’t forget that the Government’s statement is that the market is still uncertain. In an uncertain time if you press the wrong button, it will be a disaster. I’m a strong believer that whatever the Government is going to do, they have to think very carefully and they will,’ he said.

With a confirmed list, sites are put up for tender at scheduled dates, regardless of developers’ interest. It is a way of forcing supply into the market.

The Government suspended confirmed list land sales last October, but Mr Mah has suggested that it could be reintroduced in the first half of next year.

The interest absorption scheme allows buyers to defer the bulk of their payments until their units are completed.

Mr Kwek said that the low property prices in the market were a result of developers being realistic.

He added: ‘I am always afraid to encourage people not to buy, because especially in a low market, if you encourage not to buy and the market goes up, they lose the opportunity of buying cheap.

‘If you are smart, you make money; if you’re not smart, you speculate, you lose your pants. Nobody in this world can really predict whether the market is going up or down.’

He said property investors should take a medium- to long-term perspective.

Mr Kwek said that he hoped to resume construction of CDL’s stalled South Beach project as soon as practicable, adding that it would probably be in the third quarter of next year and be completed before 2016.

He added that CDL and Hong Kong property group Nan Fung, the newest investor in the consortium, would be willing to pump more money into the project should the need arise.

The $2.5 billion project, originally slated for completion in 2012, had been delayed by the financial crisis.

Mr Kwek said the other two Middle Eastern partners, El-Ad and Dubai World, had other priorities.

Under the terms of the agreement with the Government, the consortium has till 2016 to complete the project.

Mr Kwek said that the partners are on very good terms, but that CDL is taking the lead and has Nan Fung’s support.

He added that people have asked if the other partners want to sell their stakes in the project, but the other partners, so far, have not indicated to him that they want to.

CDL’s second-quarter net profits were down 15.3 per cent from the same period last year to $140 million as hotel occupancies kept falling. Revenue edged up 0.8 per cent to $787 million.

For the first half, net profits sank 32.4 per cent to $223.1 million as revenue fell 8.4 per cent to $1.41 billion.

One positive trend: net profits shot up 68.3 per cent from the first quarter, in line with a gradual global recovery.

The group’s net profits do not include valuation differences arising from investment properties.

Revenue for the second quarter was split almost evenly between hotels and its property development and rentals segments.

Revenue from hotels was hit bad, dropping 25.2 per cent to $364.5 million in the second quarter from the same period last year. Occupancy rates had fallen across Asia, Europe and the United States.

However, CDL was able to realise profits from beginning the construction of The Arte @ Thomson last year even before its launch in March this year.

Earnings per share for the three months was down 16 per cent at 14.7 cents over the same period last year. Net asset value per share was $6.18 as at end-June, up from $5.97 as at Dec 31.

Net borrowings stood at $3.35 billion at end-June, down from $3.36 billion as at March 31. CDL shares closed 19 cents or 1.9 per cent higher at $10.02 yesterday.

Source: Straits Times, 14 Aug 2009

CapitaLand reports loss, issues $1.1b in bonds

PROPERTY giant CapitaLand yesterday posted its first quarterly loss in six years and announced plans to raise $1.1 billion by issuing convertible bonds.

The money raised will be used primarily to refinance existing debts, said South-east Asia’s largest developer. Any balance left over will go towards new investments and working capital. The firm announced a $156.9 million loss for the second quarter yesterday morning, its first red ink since the last quarter of 2003.

This was down from a net profit of $515.2 million in the same quarter last year. It was due to revaluations and impairment provisions for its office assets in Singapore, property in Australia and the former Char Yong Gardens estate here, CapitaLand said.

At 10pm, the developer issued a statement saying it plans to issue $1.1 billion in convertible bonds, which can be converted into new ordinary shares. The issue will be placed with institutional and sophisticated investors.

The latest bonds bear a coupon rate of 2.875 per cent per annum, lower than the previous two issues. This is not surprising given the low interest rate environment, which may be behind CapitaLand’s decision to issue bonds now. Their conversion price is $4.79, a 20 per cent premium over yesterday’s closing price.

This bond issue is CapitaLand’s fifth and its third billion-dollar one in three years, following a record $1.3 billion bond issue in February last year and another $1 billion bond issue in May 2007. In February this year, CapitaLand also launched a one-for-two rights issue to raise $1.84 billion, which the firm said would allow it to pursue acquisitions and other investment opportunities. Yesterday, the developer said it had a cash position of $4.2 billion as at the end of last month and maintained a net debt-to-equity ratio of 0.43.

But CapitaLand has had to meet cash calls from some businesses. On Monday, it said it would inject A$281.6 million (S$333 million) into its Australian unit Australand by taking up all its allotted shares in Australand’s latest rights issue.

Australand, which posted a net loss of A$268.8 million in the first half of the year, said the money would help strengthen its balance sheet as it goes into a challenging second half. For the Singapore property market, however, things are looking up, said CapitaLand chief executive Liew Mun Leong yesterday morning.

He believes the exuberance in the market could send prices up about 5 per cent to 10per cent by the year end and into next year.

Mr Liew told a results briefing that demand for private homes is in a healthy state at the moment and it does not appear there is a bubble forming.

‘If people are buying homes only as investment tools, then it’s a different story,’ added Mr Liew, who pointed to demand from newly-weds needing homes and affordability as drivers of the recent buying activity.

He added that CapitaLand has been waiting on the sidelines while other developers launched projects to capitalise on the renewed buying interest.

The firm is waiting ‘to pull the trigger at the right time’, said Mr Liew. It will launch projects at the former Gillman Heights in Alexandra Road and the former Char Yong Gardens in Cairnhill for sale by the end of this year.

CapitaLand has seen strong buyer interest at the relaunch of The Wharf Residence, where 94 per cent of the 173 apartments have been sold, he added.

While the immediate future looks rosier than it has been for months, the second quarter was painful for CapitaLand.

Apart from revaluation and impairment costs, revenue also declined: It was down 27.9 per cent to $591.1 million for the three months to June30. Excluding revaluation and impairment costs, profit during the quarter was $124 million.

China continued to be a growth area, with healthy sales from new launches in Beijing, Chengdu and Foshan. In Vietnam, the group sold more residential units at The Vista in Ho Chi Minh City. Loss per share for the second quarter was 3.7 cents, down from earnings per share of 15.1 cents a year ago, while net asset value stood at $2.86, down from $3.78 as of Dec 31.

For the first half, the firm lost $114.1 million compared with a net profit of $762.7 million last year. Revenue dropped 25.7 per cent to $1.08 billion.

CapitaLand’s stock, which has jumped about 55 per cent this year, closed 1 cent down at $3.99 yesterday.

Source: Straits Times, 31 July 2009

Property upswing: Beware the exuberance

THE real estate sector is stirring, though not lustily yet. There is every reason to support the rationale that the upswing this time is better moderate than precipitous. The lesson learnt of the irrational exuberance in the second half of 2007 was that asset price inflation that began to eviscerate purchasing power in Singaporeans’ foremost ownership ambition was socially fraught. The trap can be avoided. Now that the second-quarter GDP rebound and intermittent stock market rallies will provide real estate momentum, it is not too early to counsel caution.

But one should still be thankful. The property turnaround is tracking closely the people’s confidence, which has withstood better than thought the effects of the recession. There are also the multiplier gains for businesses providing appliances, furniture, electronic gadgets, home decor and renovation works. Although the Urban Redevelopment Authority’s monitoring showed that prices of private property declined again in the second quarter, what was noteworthy was that the slower rate of quarterly dip (4.7 per cent against 14.1 per cent) mirrored the improved buyer sentiment evident since February. In the HDB market, confidence has been more pronounced as prices and values stayed up through the worst of the economic slump.

Real estate companies have a responsibility to steer the recovery along a steady path that will bring them sustained earnings while keeping condominiums and flats affordable. The temptation to raise prices too sharply and quickly to catch the crest of the wave (it is not rolling fast yet) must be resisted. Precipitate repricing when the market is still tentative will set the recovery back – then it will be a case of all fall down. Property consultancies for their part should stay true to their ethical principles to not talk up the market and drive fear into people waiting to time their purchases correctly. So far, the actions of these two market catalysts have been mainly responsible. Long may this continue.

And buyers? They should never give in to the unwarranted fear of ‘missing’ their entree in a rising market. The evidence shows that HDB upgraders, en-bloc sellers and middle-aged types with savings have been the dominant buyers. Young couples with neither the CPF cache nor dependable careers can be expected to dive into the private market soon. They should stay well clear. The HDB is created for them as a step-up ladder. This cautionary tale may require review when rich foreigners and funds start buying sight unseen, as in 2007. Even then, prices can get out of whack only to the eventual dismay of developers – to say nothing of bona fide home owners.

Source: Straits Times, 28 July 2009

HDB prices hit record high

As confidence returns to market, sellers are asking for higher COVs

IN WHAT appears to be confidence that the green shoots of the economic recovery are slowly bearing fruit, prices of resale Housing and Development Board (HDB) flats have hit a record high in the second quarter, and property agents say this is leading to a renewed climb in the cash-over-valuation (COV) for the secondary market transactions.

The HDB reported on Friday that its resale price index rose 1.4 per cent to 140.2, beating the earlier flash estimate of a 1.2 per cent increase and reversing the 0.8 per cent dip in Q1.

The rebound followed news earlier this month that Singapore had emerged from a technical recession as the 20.4 per cent sequential growth in the second quarter snapped four straight quarterly contractions.

The recovery in the COV started as recently as this month as market confidence continued improving over the last quarter, property agents told Today.

The COV refers to the amount that is paid above the valuation of a resale flat. A higher COV means that the buyer has to fork out more cash, as banks will only lend up to a certain percentage of the valuation.

The Q2 HDB data showed that COV for five-room and executive condominiums was almost non-existent for transactions in most estates. Yishun flats enjoyed the highest median COV of $8,000.

The COV has been dipping over the last year after surging to a high during the boom in 2007. In Q2 this year, average COV was $3,000 – down from $22,000 in Q4 of 2007.

With confidence returning to the market, the trend of higher COVs will be sustained if the recovery remains on track, but with higher and stable valuations, the COVs are unlikely to touch the levels seen in 2007, property watchers told Today.

“COV is pretty much a reflection of the way things are in the economy,” said Mr Eugene Lim, an associate director at ERA Asia Pacific. He expects the average COV to hit $5,000 to $15,000 in Q3.

At PropNex, sellers who have engaged the real estate agency have been asking for COVs of $10,000 or more on average in the last few weeks, said its chief executive Mohamed Ismail.

The rebound in HDB prices was accompanied by a 58-per-cent surge in transaction volume in Q2, when 10,184 applications were made, up from 6,446 in Q1.

Industry veteran Nicholas Mak noted that most of the increase was among the larger flats.

“(It) is a reflection of strong demand from HDB upgraders who sold their HDB flats to purchase private homes,” he said.

Indeed, HDB upgraders have been the focus of market watchers since they thronged private housing projects such as the Caspian and Alexis condominium showflats in February and stirred the property sector to life. Last month, developer sales recorded a high of 1,825 units.

Data from the Urban Redevelopment Authority (URA), also released on Friday, showed that prices of private homes fell by 4.7 per cent in Q2 – a more moderate decline than the flash estimate of 5.9 per cent released three weeks ago, and much better than the 14.1 per cent decline in Q1.

But amid all the euphoria, Chesterton Suntec’s research and consultancy director Colin Tan sounded a warning.

“If people see this as a recovery, they must recognise that it’s liquidity-driven (as buyers are using cash savings and earnings from the stock market rally) and based on something fragile called sentiment,” said Mr Tan.

“When it’s sentiment-driven, then everything can go wrong when sentiments fall.”

Source: Today, 25 July 2009

Negative take-up shrinks in Q2: URA

THE office market has posted a third consecutive quarter of negative take-up, according to government data for Q2. However, the negative take-up of 247,570 square feet in the second quarter was smaller than the 322,917 sq ft in Q1 and the 365,973 sq ft in Q4 last year.

CB Richard Ellis executive director Li Hiaw Ho expects take-up to remain in negative territory for the rest of the year. ‘The impact of downsizing will be felt in the office sector for the next six months at least.’

Urban Redevelopment Authority (URA) figures show that the islandwide vacancy rate for offices continued to increase, hitting 10.8 per cent as at end-Q2 2009, compared with 10 per cent at end-Q1 2009 and a low of 7.3 per cent in second half 2007.

The vacancy rate for Category 1 space – office space in buildings in the Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area – was 6 per cent at end-Q2, up from 5.3 per cent at end-Q1. The vacancy rate for Cat 2 space (the rest of Singapore’s office stock) rose from 11 per cent at end-Q1 to 11.9 per cent at end-Q2.

The median rental contracted in Q2 for Cat 1 offices was $10.59 per square foot per month, down 8.4 per cent from the preceding quarter. The drop was smaller than a 12 per cent decline in Q1.
However, the median rental for Cat 2 space fell 7.6 per cent to $5.11 psf per month in Q2 – a bigger fall compared with the 6.9 per cent drop in Q1.

Cat 1 median rental has eased nearly 28 per cent from the peak of $14.70 psf in Q2 2008. Over the same period, the Cat 2 median rental has slipped 21 per cent.

Looking ahead, property consultants are predicting gentler declines in office rents for the rest of 2009, while cautioning that the office market is unlikely to be out of the woods until demand turns positive.

In the retail property sector, the completion of ION Orchard and Orchard Central caused the vacancy rate for shop space in the Orchard Planning Area to spike to 16.2 per cent at end-Q2 from 4.7 per cent a quarter earlier. URA pointed to the lag time taken for tenants to retrofit and occupy the shop space in the newly completed malls.

CBRE’s Mr Li said: ‘These new malls already have high pre-commitment levels and vacancy rates in Orchard should move back to the 90 per cent level within a year, once tenants have moved in and started operations.’

The median rental signed in Q2 eased 2.4 per cent over Q1 in Orchard and Rest of City Area and fell a smaller one per cent in Outside City Area.

URA’s rental indices for flatted factories and warehouses slid 4.2 per cent and 9.2 per cent respectively in Q2 over Q1. Warehouse vacancy rate rose from 7 per cent in Q1 to 9 per cent in Q2. Factory vacancy increased from 7 per cent to 7.8 per cent over the same period.

Source: Business Times, 25 July 2009

HDB resale flat prices surge to record high

Some industry watchers are predicting further upside for the year

THE HDB resale market seems to be chugging along nicely despite the recession. Soaring demand for resale flats sent prices to a record high in the second quarter, and some industry watchers are predicting further upside for the year.

Data from the Housing and Development Board yesterday showed the resale price index rising 1.4 per cent from the previous quarter to 140.2 in Q2. This is the highest level seen since 1990.

The increase surpassed HDB’s flash estimate of a 1.2 per cent rise. It also reversed a 0.8 per cent fall in Q1 – the first slide after nine straight quarters of growth. The price dip in Q1 now seems like a ’statistical blip’, said property consultant Nicholas Mak.

Executive flats saw the biggest percentage rise in median resale prices, up 2.2 per cent from a quarter ago to $455,000.

Strong interest in resale flats helped sustain the market. Buyers and sellers filed 10,184 resale applications in Q2 – swelling 58 per cent from Q1 and 31 per cent from a year ago. According to HDB, the quarterly resale registration volume last crossed the 10,000-mark more than four years ago – it was 11,562 in Q4, 2004.

Most of the 10,184 applications in Q2 were for four-room flats, followed by three-roomers and then five-roomers.

However, applications for executive flats showed the greatest increase, doubling from a quarter ago to 753 in Q2. Those for five-room flats also jumped 80 per cent to 2,713. The sharp surge in resale activity involving larger flats suggests that there were more owners who sold their flats to buy private homes, said Mr Mak.

Market analysts have flagged HDB upgraders as a significant group of buyers who revived the private property market. Many went for units in mass-market projects such as Mi Casa and Double Bay Residences.

C&H Realty managing director Albert Lu pointed out that owners of smaller flats are also moving to larger flats. Prices of five-room and executive flats have languished in the last few quarters, making the move more attractive, he said.

Upgrading activity aside, the inflow of permanent residents (PRs) also contributed to demand for resale flats. HSR Property Group chief operating officer Dennis Yong observed that his firm has up to 10 per cent more resale transactions involving PRs in the last few months, and many of them are from China and India.

Buyers remained unwilling to pay high premiums for HDB flats. The median cash-over-valuation (COV) was $3,000 across all flat types in Q2, down slightly from $4,000 in Q1. Notably, most five-room and executive flats were still unable to command any COV.

In a way, the low COV sustained demand for HDB resale flats, said PropNex CEO Mohamed Ismail. ‘As the demand is strengthening quickly, sellers are expected to demand a higher COV.’ Mr Ismail expects the resale price index to gain around 3 per cent to 145 points by the end of the year. C&H Realty’s Mr Lu also projects a 2-3 per cent increase in resale prices.

Just a few months ago, property consultants had feared that HDB resale prices would drop as much as 10 per cent for the whole year. Signs of a stabilising economy and improved sentiment in the property market seem to have soothed nerves.

Statistics from the Urban Redevelopment Authority yesterday also painted a more calming picture. While prices in the residential, commercial and industrial sectors still fell in Q2, the declines were smaller than a quarter ago.

Source: Business Times, 25 July 2009

Home supply pipeline shrinks, prices stiffen

However, URA price index for private homes still shows fall in Q2, confounding analysts

LATEST government numbers are offering clues as to why some developers are busy looking for land and nudging up home prices. The supply pipeline for private homes has shrunk, from about 71,600 units at end-Q2 last year to 62,600 units as at end-Q2 2009. The stock of unsold units in uncompleted projects with planning approvals has also contracted from about 43,500 units to around 38,500 units over the same period.

Developers had not acquired much residential land over the past year or so in the aftermath of the financial crisis but have enjoyed a spectacular revival in home sales over the past six months. Lately, however, two sites from the government reserve list were triggered for launch by developers.

Developers have also regained some pricing power of late. Urban Redevelopment Authority’s (URA) price index for private homes fell 4.7 per cent in Q2 over the preceding quarter. The fall was less steep than the 5.9 per cent decline for the period that URA’s flash estimate had shown earlier this month. The latest decline is also much less than the 14.1 per cent quarter-on-quarter price drop in Q1. While a debate rages on why URA’s Q2 price index lags the price gains seen in the market during the period, property consultants are expecting further price increases in the current half.

‘But we’re not going to see runaway prices as there will be price resistance from buyers, especially in the upgraders market as there’s the issue of affordability,’ says Knight Frank chairman Tan Tiong Cheng. ‘Developers will be mindful of competition from the secondary market as new projects are completed. From a consumer’s viewpoint, if prices get too high, they could either give the market a miss or look for alternatives – like picking up a home from earlier investors who can afford to sell below developers’ prices,’ he said.

‘There’s another reason why prices are unlikely to run away, at least not in the mass market – and that’s because the government has, under its reserve list, a substantial supply of land for this segment,’ Mr Tan added.

Giving a more bullish take, Credo Real Estate managing director Karamjit Singh says private home prices started to turn in April/May and estimates that depending on market segment, prices have increased anywhere between 15 and 30 per cent from the bottom in Q1. He forecasts the total increase between April and year-end could be in the order of 20 to 60 per cent, with the biggest hikes in the high-end segment. ‘So far, the home buying has been led mainly by Singaporeans and PRs. When foreigners and institutional funds buy in a bigger way, then momentum in the high-end residential sector will receive a boost.’

URA’s real estate data yesterday showed a 79 per cent quarter-on-quarter jump in private home sales by developers to 4,654 units in Q2 – the third highest quarterly figure on record, according to CB Richard Ellis (CBRE). Significantly, there was a more even spread of sales across the regions in Q2, unlike Q1, when developer sales were concentrated in the Outside Central Region (OCR), where mass-market suburban condos are located.

In Q2, the Core Central Region (CCR), which includes the prime districts 9, 10 and 11, financial district and Sentosa Cove, accounted for 31.2 per cent of homes sold by developers. The Rest of Central Region (RCR) had a 39.2 per cent share, thanks to projects such as 8 @ Woodleigh, The Arte, The Mezzo and Vista Residences; while OCR’s share was 29.6 per cent. The housing recovery is filtering up.

The momentum of sales in the secondary market was also strong, with 3,059 units sold in the resale market in Q2, almost three times the 1,144 units in Q1. Subsale deals more than doubled from 412 in Q1 to 940 in Q2. In the residential leasing market, 10,327 leases were contracted in the April-June period, 7.8 per cent above the 9,579 leases done in Jan-March, CBRE said. With more expats being hired on local terms or smaller housing allowances, rents continued to slide in Q2, albeit more moderately.

Source : Business Times – 25 Jul 2009

Next year may not see oversupply of homes

GLUT? What glut? Fears of an oversupply of private homes next year have eased – in fact there could even be a shortage.

The Urban Redevelopment Authority’s (URA) second quarter real estate statistics, released yesterday, suggest any potential oversupply has been pushed back to 2011 or even later as private property developers delay and cut down on projects.

The number of private homes slated for completion for the whole of next year has fallen sharply to just 5,394.

That is down about 70 per cent from an estimated 17,454 early last year at the height of the last boom.

Just as developers have cut back on building, home buying has shot back up to boom-time levels.
For the past three months, more than 1,000 private homes have been sold each month. An average of 8,000 private homes have been sold each year since 2000.

This means that private home prices and rents could rise next year, as the supply of private property units in 2010 may not meet demand, especially if the current strong sales streak keeps up.
Caveats apply, of course, market watchers say. URA’s statistics rely on figures that developers have provided, and dramatic changes from quarter to quarter have occurred before.

Also, the number of completed units could differ from the number sold, as developers could sell uncompleted units or be unable to sell completed units.

According to URA statistics, during the last boom in 2007 and last year, developers – confident that people would snap up private homes – obtained licences to sell 11,150 private homes set to be finished this year, and 9,188 homes in 2010.

But the collapse of Lehman Brothers last September and the resulting recession triggered fears last year that there would be too many private homes on the market next year amid an economic slowdown.

Concerned that units would not sell, developers have since slashed some projects and pushed back the completion dates of others. As a result, URA’s figure for the total planned units slated for completion this year and beyond has fallen by 6,000 – from over 68,000 in the first quarter of 2008 to the current 62,350.

But although almost all of URA’s projected completion figures have declined gradually over the period from the third quarter of last year to the first quarter this year, the slide shows signs of having just bottomed out.

In the third quarter of last year it was projected that around 13,400-16,000 units would be completed every year after 2010. This fell to a range of 12,100-13,900 in the fourth quarter and then to 10,900-13,800 last quarter.

Although it still remains below pre-recession levels, this range has risen slightly in the last quarter to 11,200-13,600 units every year from 2011 onwards.

The bulk of project completions has been shifted from next year to 2011 and later, with project completion figures increasing by an average of 350 for each year from last quarter’s figures.

To date, 5,158 private units have been finished in the first half of this year, and URA expects 1,051 more units to be ready within the next six months.

Source: Straits Times, 25 July 2009