Archive for the ‘Property Bubble’ Category

Property boom far from over: Kwek Leng Beng

September 12, 2007

CITY Developments executive chairman Kwek Leng Beng believes that the property boom here is far from over, despite the current financial market turmoil.

‘The boom actually just started in 2005, and if you’re thinking of a relapse, I don’t think that is possible,’ he told chief executives yesterday at the Forbes Global CEO Conference.

‘Sub-prime has to some extent affected Singapore … there’s a psychological fear of what will happen.’

But ‘our banks are still lending a lot of money’, Mr Kwek noted. ‘They’re a little bit more cautious, but we have plenty of liquidity.

‘The banking and financial systems here are very well controlled … they are well regulated and the central bank has taken action to pre-empt crises like what you’ve seen in sub-prime.’

The property tycoon, who is also chairman of Millennium & Copthorne Hotels, was speaking at a panel discussion on global real estate trends.

He said that, after adjusting for inflation, high-end residential property prices have risen only about 10 per cent in real terms from their lowest level over the past decade, ‘which is not alarming’.

He said: ‘My advice is, look at it realistically – crisis means opportunity. I’m a bottom-fisher, I like to go in when the market is bad.

‘I believe there’s still a lot of upside. The mid-end is still 19 per cent below the peak of ‘96.’

In addition, he said Singapore had introduced a lot of initiatives over the past 10 years to attract foreigners to live and work here, which has fuelled demand for property.

‘You may say it’s very dull, but we are going to have the integrated resorts, Formula One, and a host of other events that will make Singapore an exciting city to live, work and play.’

Other panellists were also optimistic on the prospects for further growth in property development in China, India, and the Middle East.

Vincent Lo, the chairman and chief executive of Hong Kong-based Shui On Group, who was also on the panel, said he was ‘very bullish’ on the property market in China. ‘We have waiting lists for our office space till 2010.’

Kushal Pal Singh, chairman of DLF Group, the largest real estate developer in India, said there remained a ‘huge gap between demand and supply’ of residential property there.

Hayan Merchant, chief executive of Dubai-based Ruwaad Holdings, said the current pace of development in Dubai and the United Arab Emirates more generally was ‘unprecedented’.

The property, hospitality and tourism investment and development company is looking at moving into Asia ‘in the next three to five years’, Mr Merchant told reporters in a separate briefing. He said Ruwaad was looking particularly at Singapore, Malaysia, China and India for expansion opportunities. 

Source : Business Times – 12 Sept 2007

Wing Tai chief cautiously upbeat on property prices

August 30, 2007

WING Tai Holdings’ head honchos yesterday said the US sub-prime woes have slowed property transactions across the whole market here but believe that property prices are still on a growth path ‘if the sub-prime (crisis) stabilises within a reasonable period’.

Wing Tai chairman Cheng Wai Keung said: ‘Yes, temporarily, it has affected some of the take-up rates. But it is actually not a bad thing. The market needs a bit of consolidation. High-end home prices have gone up 100 per cent within the last six to nine months. It’s just not sustainable. But if sub-prime settles within a reasonable period, I believe there is still room to grow in the property market. We are not at the end of the property cycle.’

Mr Cheng and his brother, Edmund, the group’s deputy chairman, were fielding questions during the group’s full-year results briefing.

‘On the other hand, if sub-prime or the credit market continues to be in turmoil and it affects confidence in general, then of course it will be a completely different scenario,’ he added.

Mr Cheng also acknowledged that Wing Tai had seen an increase in buyers not exercising options but the rate is ‘not alarming’, at ‘just a handful’.

Buyers giving up options is a factor of two things: how aggressively a developer pushes for a sale and its selling price. ‘Our style is that given that the market is slow, there’s no point to push for a sale (and then have the buyer) back out later. Secondly, our pricing maximises our profit but we also leave something on the table (for the buyer) so at least he has a hope that the price is supportable,’ Mr Cheng said.

As for the proposed changes to legislation governing collective sales, Mr Cheng reckons they will slow down en bloc sales since such deals will now take longer to execute. ‘From a positive angle, it will slow down supply of land with redevelopment potential which means there will be less competition for companies that already have some landbank. But on the other hand, if you have less land to buy, then you cannot grow your business as fast as you would like to.

‘But given the recent run-up in property prices, people will be a lot more cautious in buying more development land. So in a nutshell, I think it’s good. At least it allows the market to consolidate and adjust itself, and also takes away some of the uncertainty under old en bloc rules.’

Source : Business Times – 30 Aug 2007

Stock declines may hurt certain real estate segments

August 20, 2007

SOME say the fortunes of the stock and property markets are inextricably linked.

Property industry watchers say, however, it is too soon to tell if the recent stock market volatility – and a feared global credit squeeze – will spoil the party for the booming property market.

‘We’re waiting to see how severe and how prolonged the volatility will be,’ said Ms Tay Huey Ying, director of research and consultancy at Colliers International.

At least one economist, however, believes that there will be a definite, although gradual, impact on sectors that have seen a high level of foreign participation – high-end homes and offices.

Citigroup economist Chua Hak Bin said the recent volatility ‘will slow down property market transactions, especially for the luxury end of the residential segment’.

The recent sharp run-up in home prices in the luxury end of the market has been supported by ‘generally very favourable liquidity conditions’, but volatility in the stock market could dampen this trend, he said.

He added that so far this year, about 28 per cent of home purchases have been made by foreigners – a segment ‘more sensitive to global market conditions’.

In addition, over the last six months, ‘about 9 per cent of residential transactions were company-related purchases, and chances are, these companies are going to face tighter credit conditions’, he said.

Dr Chua expects demand for commercial space to also start cooling down. He said financial institutions – a big driver for the office demand – may scale back their hiring.

He added, however, that the impact on local home demand is likely to be limited for now. ‘Ultimately, local demand will be more conditional on jobs, on generally the overall economic growth and wage gains,’ he said.

Colliers’ Ms Tay agreed, saying if the stock market volatility ends soon, the property market may not feel any pain at all.

‘In the short term, the primary sale market will remain active, as we’ve seen for projects like Soleil @ Sinaran.’ About 80 per cent of the development’s 417 units were sold in only two weeks.

‘But the secondary sale market may slow down a bit, as people with no urgent need to buy may refrain from committing until they see the full impact of the sub-prime mortgage crisis,’ she said.

Mr Nicholas Mak, director of research and consultancy at Knight Frank, said ‘on the whole, the property market is still quite sound’.

‘This is not the Asian financial crisis,’ he said. ‘If investors become convinced that it is a more localised problem in the United States and Europe, they will still be cautious, but I don’t think there will be panic selling here,’ he said.

Source : Straits Times – 20 Aug 2007

Market crisis just a speed breaker?

August 15, 2007

While agreeing that the bull market is intact for long-term investors, analysts say it would be prudent to revisit your asset allocation in the wake of the sub-prime crisis, reports GENEVIEVE CUA

The fallout from the crisis in sub-prime mortgages in the US has sparked a rout in credit and equity markets in recent days. The biggest question in investors’ minds must be whether the bull market in asset prices, fuelled by ample liquidity and relatively low interest rates, is over.

In this edition of Executive Money, strategists, analysts and fund managers share their views.

For long-term investors, the consensus is that the bull market is intact – but the consolidation may not be over. So far on a year-to-date basis, equity market indices based on the MSCI, remain positive, with gains of up to 24 per cent between January and Aug 13.

For some time now, strategists have been telling investors to take some profits off the table, while staying invested. Now is not the time to panic, but it would be prudent to revisit your asset allocation. An asset class that has risen over the years could now comprise an outsize share of your portfolio. Here is what the experts say.

Lim Heong Chye, APS Komaba Asset Management:

‘The uncertainty may drag on for a while. Sub- prime mortgages actually comprise a small portion of the entire US mortgage backed securities market. But once they were packaged into collateralised debt obligations (CDOs), the contagion could spread into credit related issues – as it has today.

In credit markets, the only safe place is Treasuries. There will be volatility in the coming weeks, especially for credit issues lower than investment grade. In our fund we hold a lot of cash now, about 20 to 30 per cent. We’re looking to deploy the cash into issues where we see value. We bought some government bonds.’

David Bensimon, technical analyst and trader:

‘Ultimately there is no change to the larger picture. 2007 is a consolidation year. We haven’t finished the consolidation across a range of markets. My price target for the Straits Times Index is to go down to 2800. I’m looking for the S&P 500 to move to 1,360 and ultimately to 1,260. There is a structural difference between today’s environment and the past. In the past three years, the market drops have been 6 to 7 per cent.

There is a process of a re-pricing of risk to appropriate levels across a range of financial markets – interest rates, equities, commodities and currencies – because of the recognition that yields were not high enough to reflect the level of risk. With central banks moving to support the market, the perception has not been that the banks are solving the problem, but that there must be a bigger problem.

Between 2008 and 2010, we’ll see a resumption of tremendous prosperity. We really are living in a prosperity-driven era of growth. We’re going to see substantial further gains. But this year is one of transition, and that has not finished. For stock markets, it’s almost just beginning.’

Dr Shane Oliver, AMP Capital Investors head of investment strategy and chief economist:

‘While shares have had a good bounce in recent days and there are signs that the credit market turmoil may be settling down, it’s too early to say the falls in shares are over.

While the ride is likely to be rough over the next few months and further declines are possible, the recent slump in share markets should not be seen as the start of a bear market. The historical record indicates that corrections of up to 20 per cent are not unusual in the context of cyclical bull markets, so investors should not get too alarmed by the recent turbulence.’

HSBC Investments:

‘Markets are now pricing a high probability that the Federal Reserve will cut US interest rates soon. In July this year we became concerned over a financial accident occurring in the second half of 2007. As a result, we have been cutting back our equity exposure since mid-July.

We do not think the current volatility will last long and would look to increase equity exposure on weakness. Global equity valuations remain reasonable by historical comparison, and corporate earnings remain robust. As the economic cycle remains healthy, the longer term trend for equities is expected to be up.’

Robin Parbrook, Schroders head of Asia ex-Japan equities:

‘We expect Asia to be correlated to any short-term sell-off in global equity markets. But we continue to believe that buying Asia on weakness is the correct strategy. The region has a strong long-term growth outlook, and Asia’s dependence on the US economy for its growth has been much reduced.

While the current problems are worrying in terms of risk appetite (and the subsequent risk of market volatility), they do not undermine the fundamental investment case for Asia. The corporate sector in Asia is in good shape. Balance sheets are strong, cash flows are buoyant, dividend payouts have been rising and capital expenditure plans to date have been relatively disciplined. Economically and politically, the region also looks sound. With the macro-economic risks looking relatively benign in the region itself, we view a 15-20 per cent pull back from recent highs as a good entry point for long-term investors.’

Prudential Asset Management:

‘The recent sell-offs have been less dramatic than previous ones. Are investors really worried, or are they merely ‘testing’ the solidity of the underlying demand by aggressively selling? We think it is the latter.

Strong Asian growth will continue to support corporate earnings in this region. Corporate credit quality especially in Asia remains solid. 2007 may ultimately prove to be no more than a ’speed bump’.

Short-term valuations may look high but Asia’s valuations are not that high when looking at the longer term and comparing them against world levels. The Asian re-rating story is not over.’

Chen Zhao, managing editor, BCA Research (global investment strategy):

‘Market sentiment is still very fragile and emotional, as investors have been spooked. We urge clients to maintain composure. We should always be ready to buy when there is blood on the street.

The key point is that unless one believes the blow-up in the sub-prime mortgage market could significantly alter the underlying trends in the global economy and stock prices, the recent downturn in equity prices is in the very late stages and might have entered its final capitulation phase.

To be sure, like any bottoming process, this one will be volatile. But the prudent strategy is not selling into strength. Rather, investors should wait for opportunities to buy.’

Clariden Leu investment strategy team:

‘Equity markets in the emerging economies held their ground remarkably well in the recent correction. After a well-earned breather in the summer, marked by heightened volatility, equity markets will resume their climb.

We recommend maintaining an overweight in equities and expanding it on price setbacks. Our preferred markets are Europe and selected emerging markets. In the light of further rises in interest rates, we remain underweight in bonds and overweight in the money market.’

Source : Business Times – 15 Aug 2007

Are we headed for a CRISIS?

August 14, 2007

Easy credit in the US led to rapid expansion. Now some banks are worried about unpaid loans

Are we approaching ‘the great unwind’?

The economy, stock and property markets are all doing fine. But something feels wrong.

For one thing, stock market volatility has increased. Last week, the Straits Times Index rose and fell more than 100 points.

It was the same for the US Dow index with swings of 200 points.

In the past 30 years, the world’s economy has taken three big hits. We will check them out and then ask: ‘Are we headed for hit number four?’

3 + 1 ECONOMIC DOWNTURNS

Crisis #1: The US Savings and Loan (S&L) crisis of the 1980s.

S&Ls are like banks but specialise in US home loans. Many took in deposits costing 3 per cent and used the money to make risky real estate investments earning more than 15 per cent.

Investors didn’t care about the risks since their deposits were guaranteed by the US government. They were certain to get their money back.

The government eventually cracked down and regulated S&Ls more closely but it was an expensive lesson.

The US paid over $100 billion to bail out depositors of the more than 1,000 S&Ls which failed.

The crisis contributed to a worldwide recession in 1982.

Crisis #2: The Asian currency crisis began on 1 Jul, 1997 when Thailand announced its US dollar reserves had fallen to zero. That shocking news led to a sell-off of the Thai baht.

It drew in currency speculators which triggered a sell-off of all Asian currencies. Hardest hit was the Indonesian rupiah. The crisis was largely confined to Asia. Singapore managed to sidestep the most devastating effects.

Still, the Straits Times Index dropped to a low of 805 on 4 Sep, 1998. The index now trades at around 3,400, a rise of 300 per cent in nine years.

Crisis #3: On 10 Mar, 2000 the US Nasdaq stock index hit a high of 5,048.

From there, high-tech counters began their long slide downhill. This became known as ‘the burst of the Internet bubble’.

It took 2 1/2 years for the Nasdaq to finally hit bottom at 1,114 on 9 Oct, 2002, a drop of 80 per cent.

Since then, the Nasdaq has risen to 2,600 for a gain of more than 100 per cent. It is now half-way back to its former high of 5,048.

The sell-off contributed to the worldwide recession in 2002.

Crisis #4?: Are we headed towards a fourth economic crisis?

If so, June 2000 will mark its beginning. That was when the US Central Bank cut its key short-term lending rate to 1 per cent and kept it there for one year.

Only Japan had such low rates and easy credit terms. It was unprecedented in the US, and it has led to an expansion that some say is another bubble ready to burst.

The low rates gave rise to hedge funds, private equity and a slew of creative financial products that seem to make risks disappear.

It all works as long as credit is easy and asset prices rise.

The first prick at the bubble came two months ago when US finance companies stopped making home loans requiring:

(i) no down payment and,

(ii) no proof of income.

Now, US borrowers must have a job before they can get a home loan. Gee, what will they think of next?

Are S’pore banks safe?

LAST week, we saw our three local banks explain their exposure to the risky sub-prime US housing market.

Banks own debt that is based on these loans. One local bank said it expects to lose about $50 million.

That is a lot of money and it shouldn’t have happened. But the amount is manageable.

DBS, UOB and OCBC have just reported earnings for the last three months.

Each earned over $500m. It means a $50m loss is only 10 per cent of one quarter’s earnings.

Singapore dollar deposits are guaranteed by the Singapore Deposit Insurance Corporation (SDIC) for up to $20,000 minus your outstanding loans from the bank.

The amount covers more than 80 per cent of depositors at full banks and finance companies.

Bigger deposits are not guaranteed. But in the remote chance of a bank crisis, I doubt that the Singapore Government would let a local bank fail.

The damage to the economy would be too great.

As for foreign banks, most are larger than our three local banks which would seem to make them even safer. Not true. While the SDIC guarantee applies, the parent bank does not guarantee local deposits.

We saw this in Argentina’s banking crisis in December 2000. At the height of the crisis, depositors tried withdrawing their US dollars all at once. The banks ran out of money and closed their doors.

The big foreign banks were not obligated to make good on deposits at their affiliates and, of course, they didn’t. Billions of dollars were lost in this country of 36 million people.

The conclusion is deposits at foreign banks may face a slightly higher risk than at the three local banks.

By Larry Haverkamp (Doc Money)
 
Source : New Paper – 14 Aug 2007

Sizzling real estate sector

August 9, 2007

Bullish investors may drive 2007 sales to a record high, while home prices and rents continue to surge. KALPANA RASHIWALA reports

After years of being in the doldrums, the Singapore property market has been staging a spectacular recovery in the past couple of years. The rally is being fuelled by a surge in confidence from foreign investors as well as local buyers. The real estate sector is firing on all cylinders, including investment sales, residential and office.

A whopping $24.81 billion worth of investment sale deals were sealed in the first six months of this year, according to CB Richard Ellis (CBRE). Investment sale deals – a gauge of major property players’ confidence level in the mid-to-long-term prospects for the real estate sector – include collective sales, other land deals, transactions of entire office and other buildings, as well as strata-titled units above $5 million. The first half of 2007’s sparkling investment sale numbers include some 75 collective sales worth $9.3 billion, higher than $8.2 billion for the whole of last year.

CBRE expects the full-year investment sale figure to surpass the record $30.51 billion set in 2006, hitting as high as $35 billion.

Major deals in H1 this year include the $1.04 billion sale of Temasek Tower, the collective sale of Leedon Heights ($835 million) and Novotel Clarke Quay Hotel ($201 million).

In the residential sector, the Urban Redevelopment Authority’s (URA) Q2 price index for private homes was up 8.3 per cent from the preceding quarter and 21 per cent higher year on year. And latest Q2 official figures show that the residential price recovery that began some two years ago in the high-end segment fuelled by foreign buyers has started filtering down to other segments of the market, based on URA’s sub-indices.

Prices of non-landed private homes in the Core Central Region (CCR) – which includes prime districts 9, 10, 11, Downtown Core (including Marina Bay) and Sentosa – were up 7.9 per cent in Q2 over Q1, while prices of non-landed homes in Rest of Central Region (RCR) – which includes areas like Bukit Merah, Queenstown, Geylang, Toa Payoh and Katong – rose 8.1 per cent over the same period. The Outside Central Region (OCR), covering suburban mass-market locations like Woodlands, Clementi, Jurong, Hougang, Tampines and Bedok, posted a 7.2 per cent quarter-on-quarter rise in Q2.

The rental market has also been sizzling, with residential rental indices of non-landed private homes rising 12 per cent in Q2 over Q1 for the CCR, and by 10 per cent and 9.4 per cent respectively for RCR and OCR in the same period. The Q2 rental indices were up around 35 per cent from a year ago for each of the CCR and RCR, and by 28.3 per cent for OCR.

In the public housing segment, the Housing & Development Board’s (HDB) resale flat price index rose 3 per cent quarter-on-quarter in Q2, compared with a 1.3 per cent gain in Q1.

The outlook for the residential sector is bright. Most property consultants predict that URA’s overall private home price index may surge a further 8 to 15 per cent in the second half, chalking a full-year increase of 23 to 30 per cent. Analysts generally expect HDB resale flat prices to post an 8 to 10 per cent full-year increase.

Interestingly, collective sales have caused a ripple effect. For instance, those who sell their homes through en bloc sales are looking for replacement homes, in many cases outside the prime districts where they sold their en bloc properties because of rapidly rising prices in the prime locations.

This has helped to spur a recovery in the other market segments, even HDB resale flats, where a few units have been purchased at record prices by those who sold their private homes through en bloc sales.

At the same time, as developers pull down en bloc sale sites to redevelop them, the resulting shortage of prime district apartments has helped fuel rental hikes for such homes. In the industrial property market, average rents for all categories of space increased in Q2 this year. High-tech space posted the biggest quarter-on-quarter gain of 11.9 per cent to $2.35 psf per month, as the office space shortage and rising office rentals led many qualifying occupiers to move to high-tech properties, according to CBRE. The average monthly prime retail rent along Orchard Road posted a 1.8 per cent quarter-on quarter gain in Q2 to $34.40 psf – close to the $35.10 psf achieved in 1996.

As for the office sector, a shortage of space in the near term, coupled with strong demand from occupiers including big-wig international financial institutions have been the key factors driving a whopping 80 per cent year-on-year rise in CBRE’s average prime rental in Q2 to $10.80 psf a month. This surpassed the 1996 peak of $9.90 psf a month, and is fast closing in on the 1990 historic peak of $11.50 psf a month. The Q2 office rental figure is also more than double the $4 psf during the current cycle trough in Q1 2004.

Market watchers expect office rents to head further north in the next few years because of the supply crunch. However, the government has been releasing more office sites, including the maiden ‘transitional office’ plot which can be built into a low-rise office building in about a year.

In addition, it has made available more 99-year condo sites, mostly in suburban locations. Besides tackling the supply side, the authorities have also begun releasing more property market data so that participants can make more informed decisions. So far, the indication from government is that it is not inclined to intervene to cool demand.

Fundamentals for the Singapore real estate sector remain strong for the next couple of years, at least – barring unforeseen circumstances.

Of course, a sustained rout in the local stock market because of the selldown on Wall Street is likely dent sentiment in the Singapore property market. But there could also be a more direct hit if the US sub-prime mortgage default fiasco dries up some of the liquidity that has been powering the local real estate sector’s sparkling recovery.

Source : Business Times – 9 Aug 2007

It’s talent, not property, that is SM’s real worry

August 5, 2007

The so-called property bubble is a short-term phenomenon – and the government is not too worried about the recent spike in the price of real estate. Nor is it overly concerned about rising costs, as that only reflects a higher standard of living and more income in real terms, according to Senior Minister Goh Chok Tong.

Instead, what Mr Goh frets about is how Singapore’s talent pool will grow in the longer term, he told CNBC in an interview broadcast yesterday morning.

‘It’s a longer-term worry. It’s not a short-term worry,’ he said. ‘For Singapore to grow, you need talent, talent from Singaporeans or within Singapore and talent from outside.’

While the property market is currently ‘active’, he said the prices are rising more at the higher end. ‘Prices for the middle income and for the HDB heartlanders – prices there are still quite affordable for Singaporeans in general.’

Mr Goh said costs are always a factor but, generally, the government wants the standard of living to rise. ‘And a higher standard of living means more income in real terms, in the real sense.’

To compete in a high-cost environment, he said Singapore would have to move into higher value-added industries like biomedical services and financial services, education and health. ‘We cannot be doing things which we were doing before 1997, where China and India will become much more competitive.’ While costs will always be important, Mr Goh said the government is not going to let them stop Singapore growing. ‘(We) just move into the right sector,’ he said.

The interview was part of a CNBC special programme to mark the 10th anniversary of the Asian financial crisis. Recalling that dark event in Asia’s recent history, Mr Goh said the main worry then was whether the crisis would engulf Singapore or instil a sense of confidence in Singaporeans.

‘Once we have taken note of the whole situation, knowing that internally, our economy is strong, we were not too worried. We knew that we could survive.

‘So, the most difficult thing was to give confidence to Singaporeans that we can survive the crisis. That’s where the cost cutting measures amounting to some $10 billion was a very important move on our part. It’s to restore confidence not just among investors, but among Singaporeans that we could withstand the crisis.’

And one big lesson learnt was the need for a strong financial sector. ‘We realised very much earlier that the financial industry is a global industry and therefore, you’ve got to be more aware of what’s happening in the world and in the region, in particular . . . In other words, it requires cooperation from other countries as well.’

Source : Business Times – 7 Jul 2007

It’s talent, not property, that is SM’s real worry

August 5, 2007

The so-called property bubble is a short-term phenomenon – and the government is not too worried about the recent spike in the price of real estate. Nor is it overly concerned about rising costs, as that only reflects a higher standard of living and more income in real terms, according to Senior Minister Goh Chok Tong.

Instead, what Mr Goh frets about is how Singapore’s talent pool will grow in the longer term, he told CNBC in an interview broadcast yesterday morning.

‘It’s a longer-term worry. It’s not a short-term worry,’ he said. ‘For Singapore to grow, you need talent, talent from Singaporeans or within Singapore and talent from outside.’

While the property market is currently ‘active’, he said the prices are rising more at the higher end. ‘Prices for the middle income and for the HDB heartlanders – prices there are still quite affordable for Singaporeans in general.’

Mr Goh said costs are always a factor but, generally, the government wants the standard of living to rise. ‘And a higher standard of living means more income in real terms, in the real sense.’

To compete in a high-cost environment, he said Singapore would have to move into higher value-added industries like biomedical services and financial services, education and health. ‘We cannot be doing things which we were doing before 1997, where China and India will become much more competitive.’ While costs will always be important, Mr Goh said the government is not going to let them stop Singapore growing. ‘(We) just move into the right sector,’ he said.

The interview was part of a CNBC special programme to mark the 10th anniversary of the Asian financial crisis. Recalling that dark event in Asia’s recent history, Mr Goh said the main worry then was whether the crisis would engulf Singapore or instil a sense of confidence in Singaporeans.

‘Once we have taken note of the whole situation, knowing that internally, our economy is strong, we were not too worried. We knew that we could survive.

‘So, the most difficult thing was to give confidence to Singaporeans that we can survive the crisis. That’s where the cost cutting measures amounting to some $10 billion was a very important move on our part. It’s to restore confidence not just among investors, but among Singaporeans that we could withstand the crisis.’

And one big lesson learnt was the need for a strong financial sector. ‘We realised very much earlier that the financial industry is a global industry and therefore, you’ve got to be more aware of what’s happening in the world and in the region, in particular . . . In other words, it requires cooperation from other countries as well.’

Source : Business Times – 7 Jul 2007

There’s upside yet in S’pore property

August 5, 2007

SINGAPORE’S property market is booming, with activity centred in districts 4, 9, 10, 11 and 15. And I believe there is a lot more upside yet. Why? For each key event listed below, I expect an above average movement of $200 per square foot for the districts mentioned in the years ahead:

Year 2008: Singapore will host the world’s first Formula One night racing. The world will be invited to Singapore, interact with and invest in Singapore.

Year 2009: The first integrated resort (IR) at Marina Bay will be completed with US$5 billion flowing into Singapore from the first wave of tourists. They will come from the business travel, meetings, conventions and dexhibitions segment.

Year 2010: The second IR on Sentosa will be completed with another US$5 billion flowing in from the second wave of tourists. These tourists will come from destinations beyond a nine-hour flight radius.

Year 2011: My guess is that there will be a general election in Singapore which could see some election year goodies.

Year 2015: Singapore celebrates her 50th birthday and hopefully fulfils Prime Minister Lee Hsien Loong’s vision of Singapore as the jewel of the region.

Can we really profit from investing in the property market?

While many wealth creation fads come and go, property investment has consistently created more permanent millionaires than any other investing strategy in history. Here are what some of the wealthiest Americans have said:

‘Real estate is the basis for all wealth.’ – Theodore Roosevelt

‘Eighty per cent of all millionaires made it through real estate.’ – Andrew Carnegie

‘Buying real estate is the best, safest way to become wealthy.’ – Marshall Fields

The truth is that property investment is not just for the rich. If done correctly, anyone who has the desire to succeed can create enough passive income or a lump sum of cash to become financially free.

According to an annual World Wealth Report compiled recently by Merrill Lynch and research firm Capgemini, Singapore has 66,660 millionaires (in US$ terms). They account for about 1.5 per cent of the population, that is, three out of every 200 people here are millionaires.

But the sad truth is that only three out of every 200 Singaporeans will be financially independent when they retire. The rest will either be dependent on family, friends or charity, or have to work indefinitely.

If you’re spending all the money you make and banking on your Central Provident Fund (CPF) for retirement, I want you to wake up from your sweet dreams! The CPF is designed as a supplement to your retirement plan. If CPF savings are all you’ve got, you are either going to have to continue working well past retirement age, or live a meagre lifestyle.

Most people think that the safest option is to park their money in fixed deposits. But they fail to take account of inflation. Today’s inflation rate is about one per cent a year. You need to earn one per cent on your money in fixed deposits just to break even. You’ll need to earn more if you want to create wealth. As such, you will definitely want to invest in instruments that will not only give you a good return but also appreciate in value over time. One good way is to invest in property.

There are two roles to consider. In the beginning, you enter the property market as a buyer and after some time, you exit as a seller. We call this: ‘Buy low, sell high, make money.’ I’ll use a real-life example of the process that made a buyer a cool profit of almost $1 million in a year.

Step 1: The buyer places a one per cent deposit for an option to purchase a property at $1.6 million. That comes to $16,000. The option gives the buyer the right, but not the obligation, to buy the property within two weeks. The owner of the property is not allowed to sell the property to someone else during this period.

Step 2: The buyer exercises the option two weeks later with an additional payment of 4 per cent or $64,000. Once this step is completed, the buyer will have about eight weeks to raise money for the outstanding amount.

Meanwhile, conveyancing work will have started to ensure both parties are legally approved by the authorities for this transaction.

Step 3: Eight weeks later, the buyer pays another 5 per cent – or $80,000 – to complete the purchase.

All in, the buyer has to fork out a cash amount of a $205,600. This comprises 10 per cent for the downpayment, $42,600 for the stamp duty and $3,000 for legal fees. (Stamp duty is taxed at 3 per cent of $1.6 million minus $5,400).

At this stage, the buyer would have invested 10 per cent of the value of the property in cash. The other 90 per cent is financed through bank borrowing. Once this process is completed, the seller hands over the house key to the buyer.

One year later, the owner sells the property for $2.7 million and reaps a profit of $970,715. That is calculated on the sale price of $2.7 million minus the purchase price of $1.6 million. On top of that are the other expenses: stamp duty of $42,600, legal fees of $3,000 X 2 (incurred on the buying and selling); bank redemption of $26,685 (the bank’s penalty as part of loan agreement); 2 per cent for agent’s fee of $54,000 (this is double the market rate to incentivise performance).

There is no secret formula to investing in the property market. All it takes is an understanding of the key terms, a commitment of time and most importantly, a ready lump sum of cash to initiate the purchase.

Where are the areas to invest?I highly recommend Sentosa Cove and District 10.

Sentosa Cove offers one of the most exciting propositions – a residential enclave that shares the island with an integrated resort. The wealthiest individuals in the world will be looking to buy your property which will be situated right next to their favourite entertainment spot.

In district 10, the Duchess area is the place where you can invest in your child’s future. Within a one-km radius, it offers several premier schools: the Nanyang and Raffles Girls’ primary schools, St Margaret’s Secondary School, Nanyang Girls’ High, Chinese High School, Hwa Chong Institution, National Junior College and Hwa Chong Junior College.

When do we invest in the property market? The answer is: Now! There is no better time to start investing for the future.

The writer is CEO, Freely Business School.

Source – Business Times – 4 Jul 2007

URA signals caution as rise in home prices spreads

August 5, 2007

Official flash estimates show the rise in home prices spreading beyond the high-end to other parts of the market including private condos in the city fringe, mass market areas and even to the HDB resale market – prompting some words of caution from the Urban Redevelopment Authority (URA).

Market watchers say the trend is being driven by people who have sold their prime district homes through en bloc sales finding replacement properties further from prime locations.

The URA price index for private homes rose 7.9 per cent in the second quarter over Q1 – the biggest quarter-on-quarter gain since Q2 1999. The latest flash estimate shows a year-on-year gain of 20.6 per cent for Singapore as a whole.

The biggest price gains were not in luxury homes, as reflected in URA’s Core Central Region, covering districts 9, 10 and 11, Downtown Core (including Marina Bay), and Sentosa. While non-landed private home prices in this region increased by 7.6 per cent in Q2 over Q1, the Rest of Central Region (which covers places like Bukit Merah, Queenstown, Geylang, Toa Payoh and Katong) posted an even bigger 7.9 per cent gain over the same period.

Prices in the Outside Central Region – which covers suburban mass-market locations like Woodlands, Clementi, Jurong, Hougang, Tampines and Bedok – were 6.5 per cent higher in Q2 than in the first three months of the year.

The Housing & Development Board’s resale flat price index registered a 2.9 per cent increase in Q2 over Q1, going by the board’s latest flash estimate. This shows prices for public housing rising faster than before, as there was a quarterly gain of just 1.3 per cent in the index in Q1.

In a departure from recent tradition, the URA yesterday advised potential home buyers that they should take into account that there is ’sufficient pipeline supply of private housing, as well as the potential supply from Government Land Sales sites, when deciding to make a property purchase’.

The URA reminded people that the Government will ensure there are sufficient homes to meet demand, saying that it will continue to monitor the market closely.

DTZ Debenham Tie Leung executive director Ong Choon Fah said: ‘There has been a sense of urgency for some people to buy a home when they see the market going up. Obviously the Government is a little bit concerned, but this market is driven by fear and greed. Fear of missing the boat, and greed to make more. These are very emotional things, so people may not act rationally.’

Another property consultancy, CB Richard Ellis, noted that the URA’s overall price index for private homes has increased 13.1 per cent in the first six months of this year. It predicts a full-year gain of 20 to 25 per cent for the whole of this year.

ERA Singapore similarly forecasts an increase of 20 per cent or more for 2007. For the HDB resale flat price index, ERA predicts an increase for the whole year of about 8 to 10 per cent. PropNex also reckons the gain will be about 10 per cent.

Market watchers see yesterday’s data as evidence that the recovery in the high-end residential sector is at last filtering through to other parts of the market.

Knight Frank managing director Tan Tiong Cheng says the key driver of this trend is the growing number of owners of prime district homes who went through en bloc sales and are priced out of the most expensive districts. ‘They are instead forced to find replacement homes outside these locations, starting with city-fringe locations and even spreading to the suburbs,’ Mr Tan said.

In some cases, especially en bloc sales of privatised HUDC estates, the replacement homes may even be HDB resale flats in Queenstown, Bukit Merah and other areas, Mr Tan reckons.

ERA Singapore assistant vice-president Eugene Lim reckons that fear among home buyers that they may miss the boat and lose out on good property buys is also fuelling the current buying frenzy.

‘Everyone seems to want a piece of the action. Those who can’t afford the high prices in prime locations are moving outwards,’ Mr Lim added.

PropNex CEO Mohamed Ismail reckons the increases in the price indices for the Rest of Central Region and Outside Central Region are due to many buyers previously sitting on the fence deciding to buy out of fear that prices may escalate further.

CBRE executive director Li Hiaw Ho highlighted projects in several locations that saw new price levels being achieved in Q2, including Kallang (The Riverine By The Park, $1,400-1,500 psf), Novena (Novelis@Novena, $1,400 psf) and suburban areas (Botannia in the West Coast area, Casa Merah near Tanah Merah MRT Station, Northwood in Sembawang, and Parc Mondrian at Woodleigh Close, in the $600 to $720 psf range).

PropNex’s Mr Mohamed warned that the 7.9 per cent hike in the private home price index for Q2 is ‘bullish and if the growth continues at this pace, it is not healthy for the property market in the long run’.

Source : Business Times – 3 Jul 2007


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