Property boom far from over: Kwek Leng Beng

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

Plenty of upside left in mid-tier property market: Kwek Leng Beng

DESPITE woes in the United States’ housing market, there is still plenty of zing in Singapore’s red-hot property market.

Banks are still lending a lot of cash and mid-tier homes are still on offer at prices below 1996’s peak, says Mr Kwek Leng Beng, executive chairman of leading developers City Developments and Hong Leong Group.

‘I believe that there is still a lot of upside. At the mid-tier, prices are still less than 90 per cent of the peak in 1996,’ he told delegates yesterday at the Forbes Global CEO Conference.

His bullish view was echoed by his counterparts from other parts of Asia, including China, India and the Middle East.

They agreed that real estate remains hot property in their countries even as problems in the US have thrown global financial markets into a tizzy.

‘The (Shanghai) market is very strong because the inherent demand is just tremendous,’ said Hong Kong developer Shui On Group chief executive (CEO) Vincent Lo.

Residences next to the hip Xintiandi area are commanding prices of up to US$10,000 (S$15,236) per sq m, he said, adding that the waiting list for office space in the city stretches to 2010.

In the United Arab Emirates (UAE), property development is growing at unprecedented rates, said Dubai 9 Group managing director Hayan Merchant, noting that 26.5 per cent out of the world’s 130,000 cranes are in the UAE.

About 30 million sq ft of office space will be added in Dubai next year, he said, while another 42 million sq ft – equivalent to all the office space in downtown San Francisco – will come online the following year.

Singapore’s boom should continue even though psychological fears over the ongoing global credit crunch may take a little of the fizz out, said Mr Kwek. He said that lenders in Singapore are a little more cautious but there is still plenty of liquidity.

He added that historic prices over the past 10 years imply that the ‘right’ selling price for top-end properties should be about $3,600 per sq ft on average.

‘We are doing about $4,000. It’s about 10 per cent up, which is not alarming.’

The Government’s efforts to make Singapore a ‘global city’ that attracts foreigners to live here will help sustain the property bull run, he said.

He said that last weekend, he had met a group of foreigners, some of whom were developers, visiting Singapore for the first time. After four or five days, they started asking about buying high-end condominiums and office blocks.

‘All the real estate sectors – industrial, retail, commercial and residential – have kicked off. And this has to do with growing interest in Singapore as a global city.’

Source : Straits Times – 12 Sept 2007

Sizzling real estate sector

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

There’s upside yet in S’pore property

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

Citigroup sees rise in home prices

CITIGROUP Investment Research expects prices of private homes to climb 20-25 per cent this year – substantially more than the 12-15 per cent increase the bank predicted just a couple of months ago in April.

Home prices rose 10.2 per cent last year.

This year, rents as well as prices are likely to continue to surge as the supply of rental property dwindles, Citigroup said in a research note yesterday.

Net negative supply in the first quarter – about 880 units were demolished but only 716 units were completed – coupled with strong demand of 2,225 units pushed the occupancy rate to a record 94.9 per cent, the note said.

Property analyst Wendy Koh believes strong demand was due to strong employment, drawing foreign workers here. As many as 48,000 jobs were created in the first three months of 2007. Citigroup expects the residential occupancy rate to rise to new records of 96.6 per cent and 97.2 per cent by end-2007 and 2008 as supply continues to tighten.

Only 4,573 units are scheduled for completion from April to December 2007, Citigroup estimates. In 2006, about 3,500 units were affected by en bloc sales. Assuming 2,700 units are demolished from April to December, the net increase in supply for 2007 is likely to be just 1,700 – versus demand of 8,000.

Ms Koh also believes fewer units will be ready in 2008 and 2009 than the Urban Redevelopment Authority’s estimates of 6,600 and 10,600, as not all units are under construction yet. This will support a further rise in occupancy rates to above 97 per cent in 2008, she said.

Ms Koh also said as rents continue to outpace price rises, rental yields in the broader market – particularly the mass market, where price rises have lagged – will continue to rise. The current gross rental yield for mass market properties now averages 5.3 per cent, versus 5 per cent six months ago and 4.5 per cent a year ago.

‘Such yield improvement will start to attract some investors into the mass market segment, especially given that rents are likely to continue to surge as the occupancy rate continues to reach a record high,’ she said. Positive sentiment and strong affordability among first-time buyers is also likely to drive prices sharply higher in this segment, she predicts.

The report has ‘buy’ calls on Allgreen Properties, City Developments and Keppel Land and a ’sell’ call on CapitaLand.

Source :  Business Times – 7 Jun 2007

Property cycles remain alive and well

The property market’s ascent is welcome news to anyone who has lived through the boom and painful bust cycle of the 1990s. The relief would be acute for those who endured the black hole that a mortgaged property in negative equity would have put them. How long can this bull cycle last? For now, the signs are encouraging.

Plans to turn Singapore into a tourist capital, most visibly headlined by the billion dollar integrated resorts projects; coupled with the ongoing push to become a hub for private wealth management, higher education and various other initiatives are set to unleash structural changes that provide a solid underpinning for property values. These changes include new jobs and new expatriate residents who will be looking for homes. After all, Singapore’s home prices and rents, even with the recent spike, still lag those of developed markets.

The financial backdrop is also conducive. A thriving economy, relatively low interest rates and a buoyant stock market are conspiring to make risk taking seem a pretty easy proposition. The appetite for leverage, in particular, is growing, and recent data on home loans attest to this. In March, housing loans grew 3.6 per cent, the strongest pace in a year. The Credit Bureau’s preliminary data show a trend towards larger loans and banks report a rise in the number applying for second or third mortgages. For those who have invested and still are investing in property, the going looks good. Rising rents can easily cover loan instalments, and a reasonable holding period can produce profits in the triple digits. But those who think that ‘this time is different’ could rue their words. There are clearly a number of risks that could mar the Goldilocks scenario, even if these seem remote for now. Rising interest rates and job uncertainty can easily cause a heavily geared balance sheet to come undone.

Risk management is key, particularly for those who do not have the resources to hold the properties in the event of a downturn. A substantial number is likely to have bought uncompleted properties on deferred payment schemes and will be looking for a profitable exit. Timing will be critical, and yet timing is something even veteran fund managers get wrong. This is particularly so for individuals who tend to develop attachments to their investments.

The onus is then on individuals to exercise restraint. In this context, the recent move by the government to improve the transparency of the property market will be critical, as individuals count on publicly available data for their decisions. At the moment, developers often highlight record prices of homes sold, when average prices could present a far different picture. Details are currently being worked out by the Urban Redevelopment Authority.

Meanwhile, individuals would do well to remember that cycles are alive and recurring, even if the good times seem extended. Throwing prudence to the wind risks a recurrence of the black hole of negative equity, a prospect that is surely to be avoided.

Source : Business Times – 31 May 2007

More S’pore investors eye London property

More Singaporeans are venturing into the London property market despite the sky-high prices, says Benham and Reeves Residential Lettings, a UK company that specialises in renting out properties in the city.

There are about a hundred owners here who rent out their properties in London through Benham and Reeves, and the number has increased by about 50 per cent over the past four years, says the company.

In addition, the firm, which has an office in Singapore, has seen increased interest from Singaporeans looking to own and rent out properties in London, says Anita Mehra, the firm’s managing director.

‘They (Singaporean investors) know that the market is there,’ she says.

‘If they buy a property in London, they will end up with more value than they put in.’

London is in the midst of a property bull run that has lasted for about 15 years now. In just the past three years, prices of residential property in London have climbed by about 30 per cent, says Marc von Grundherr, Benham and Reeves’ director.

And the gain, he says, has been highest for the prime London market, where prices rose an estimated 21 per cent last year alone.

A few years ago, concerned that the property upturn in London was peaking, some Singapore investors sold their properties and exited the market.

Mr Von Grundherr estimates that as much as 25 per cent of Singaporean investors working with the firm sold their properties.

But until today, the anticipated property crash has not happened. Realising that there is still room for a price upside, many Singaporeans are now investing in London again, either in new developments or period properties.

Benham and Reeves does not expect the property upturn to end any time soon. Mr Von Grundherr points out that the massive bonuses paid out in the city last year, as well as the strong economic growth across the country, will continue to support growth in the property sector.

The profile of Singaporean investors in London is also changing, says the firm.

In the past, most Singaporean owners bought properties in the city mainly for their own use – such as to put up their children who were studying in the city.

But now, more people here are buying properties in London solely for investment, says Ms Mehra. This is especially so as rental yields are high.

This year, for example, property owners can expect yields of 4-6 per cent, says Mr Von Grundherr.

The strong price and rental growth, he says, will no doubt moderate in the future, but is unlikely to totally taper off, he adds.

Source : Business Times – 17 May 2007

Check before investing in commercial properties

With more MNCs choosing Singapore as a base for their regional headquarters, and increasing Reit activity, commercial property is becoming a popular investment choice. Today, many SME business owners are jumping on the bandwagon, choosing to purchase commercial property – some with the hope of selling it at a profit in the future, and others for more practical reasons, such as owner-occupancy in the face of rapidly rising rentals.

According to Standard Chartered estimates, the total demand for commercial property has increased by some 5 per cent over the past five years. In spite of this, supply remains limited with many new commercial projects being held by developers or Reits. Given the limited amount of land in Singapore, it is highly unlikely that there will be an over-supply of commercial property in the future, meaning that potential returns from such investments look promising.

However, while investing in commercial property looks promising, investors should be aware of the dependency of commercial property to the business cycle. Commercial property is also subject to government intervention should rents rise excessively to prevent office space from becoming unattractive to foreign businesses setting up shop in Singapore.

Another point to note is that commercial property investments may be more suitable for those looking for a stable yield rather than high returns from capital gains. Commercial properties are generally segmented into four categories – shops, offices, hotels and industrial usage – with the first two being most popular.

Investing in commercial property usually means investing in a large piece of property, and can entail quite a bit of risk. SMEs looking to invest in commercial property should consider the following:

Tailor the investment to your budget. Many SMEs overestimate their financial ability to invest in commercial property, and underestimate the cost of fixing up these properties. It might be best for first-time investors to consider investments on a smaller scale and in areas with future growth potential. They can then rely on the property increasing in value.

Diversify through commercial real estate. Investing in commercial real estate can help SMEs to diversify their business, as real estate developments can translate into condominiums, shopping centres and offices, just to name a few. In the short term, SMEs can continue to ensure income flow to retain the property by obtaining a lease agreement.

Compare rental yields with Reit yields. A quick way to establish rental yield would be to look at Reit yields. For example, an SME investing in shops might want to find out the rental rate that retail Reits are charging to get a better idea of the yield one might be able to obtain. Location, surrounding amenities, population catchment, trade mix and anchor tenant also play a role in rental yield.

Do your homework. Commercial properties are relatively sizable investments, and it pays to scrutinise all aspects of the transaction. Investors should check the sale and purchase agreement, and fully understand the terms and conditions. Ensure that finance arrangements and builders’ inspection are attached and adhered to, and that the owner is not a bankrupt. Search the property title and confirm its ownership.

Check the master and zoning plan to ensure that the premises can be used for commercial purposes, and confirm with the relevant authorities that the property is not affected by any government notice or projects. It will help you to obtain the necessary clearance and permits for commercial leasing as well. Ensure that there are no illegal alterations and additions to the premises as the ultimate responsibility lies with the owner, and not the renovation contractor.

Commercial property buyers fall under two main categories – business owners and investors. Both types of buyers tend to have more sophisticated needs than an average residential property buyer. Hence, traditional rate-based mortgage packages may not best serve their needs.

The writer is General Manager, SME Banking, Standard Chartered Singapore

Source : Business Times – 15 May 2007

Plenty of potential in residential

KWEK Leng Beng is so confident about the ongoing property bull market that he’s considering retaining a portion in some new residential developments for rental income and capital appreciation.

‘We’ll do this selectively and it will help us even out earnings fluctuations from our core property development/trading business,’ says Mr Kwek, who is executive chairman of Hong Leong Group and its listed property unit City Developments.

This new business model is no different from keeping office buildings for rental income, he explains in a recent interview with BT.

‘Residential also has a lot of potential. Let’s say, I had two towers in a residential project. I could sell one, and keep the other – and maybe sell later when prices are higher, keep for rental income, or even go for an en bloc sale one day, when I will be entitled to a windfall,’ he said.

The issue in today’s hot property market is that ‘the selling price of your current project becomes the break-even cost for your next project’ because of the ever-increasing cost of buying replacement land. ‘You might as well not sell your residential development,’ Mr Kwek argues.

He says that retaining a portion of units in residential developments makes sense also because residential rentals are set to appreciate further on the back of leasing demand created by the influx of foreign talent into Singapore.

He also points out that the number of new homes built on sites sold through collective sales may be smaller than the existing stock that is being pulled down because of the trend of building bigger homes.

Mr Kwek also says that with the Singapore real estate sector booming, he would rather use his resources in a place where he has the best local knowledge and experience.

‘I’ve always believed our strength is here. We are the proxy to the Singapore real estate sector. Why should we go overseas when we can make a lot more money here?’

‘Also, for our group’s property activities, we want to be a pure real estate company. We don’t want to be a half-breed – half real estate, half financial. But things may change one day. Many institutional investors love the model of a financial, real estate company. But I tell investors: if they’re looking for yield, they can buy into a Reit. There are people who like my model and are today enjoying a lot of capital gains.’

Mr Kwek also addressed recent concerns about the risks posed to banks that lend to developers which sell homes on deferred payment schemes. As most banks lend developers only up to 70 per cent of land and construction costs for residential projects, developers have to put in at least 30 per cent equity. And assuming they collect around 20 per cent payment from home buyers under the deferred payment scheme, these developers will have a cushion of about 50 per cent that will serve as a buffer to banks’ exposure to them in the event of a housing price slide.

Mr Kwek also says that based on his model, if a developer sells half its high-end residential project and assuming that of the units sold, half are sold with normal progress payments and the rest on deferred payment, the sales proceeds collected by the developer should be able to pay for construction and related costs, depending on profit margins.

He also doles out advice for individual property investors, saying those who have sold their homes through en bloc sales should quickly re-invest their windfall in another property, to continue riding on the current buoyant property market.

On the common complaint among owners that sales proceeds from en bloc sales are insufficient to buy a replacement property, he suggests: ‘Why don’t you use the sales proceeds to fund half of your purchase and borrow the other half? This makes sense because the purchasing power of money becomes smaller over time.’

Another common complaint: ‘If I sell, I can only afford a replacement property in an inferior location.’

Mr Kwek’s answer: ‘This is faulty thinking, because you are exchanging an old property of, say, 20 or 30 years, for a new one. If you want to be in the same location, you have to pay the new price. But do you need the larger older unit or a similarly large new unit where the cost is much higher? A new and smaller unit could be the answer.’

En bloc sellers should make the most of their windfall to re-invest for another windfall that will come about in the years to come, he says.

Another compelling reason to include real estate as part of one’s investment portfolio: ‘If you look at Forbes’ list of the world’s richest persons, many of them have their wealth backed by real estate.’

Source : Business Times – 10 May 2007

How not to be the first to sell and last to buy

Human beings are funny creatures. If there’s a new type of funky shoes in the market and nobody wears them, you probably won’t either. But if enough people wear them so that they attain ‘cool’ status, then their popularity will explode. This phenomenon follows the theory set out by Malcolm Gladwell in his book The Tipping Point.

Similarly for a book, if it makes it to the bestsellers list, more people will be enticed into reading it and that in turn will boost sales. So apparently one trick employed by publishers is to buy the books they want to promote from the retail outlets themselves. They have a rough idea of how many books they need to buy in order for the book to make it to the list of the week’s top 10. Once on the list, sales will have their own momentum.

The same mechanics work for stocks and shares, as well as the property market. Some people know that certain stocks are trading below their intrinsic value. But they are unwilling to put money there, until and unless they see that the share price is stirring.

The thinking, of course, is they want their money to get to work almost immediately. This is the trader mentality.

And once a stock starts moving, many more buyers will jump in. And if there is more demand than there is supply, the price will be pushed up even further.

It’s the same story in the property market. Up till two years ago, many people had reservations about committing to a property investment. Now that prices have moved up sharply, and at an accelerating pace, more people are coming into the market to buy.

Now let’s examine the effect of price changes on people’s decisions.

Price changes will attract more supply or demand. On the supply side, it is easily understandable. When a producer sees that he can get more money by selling more products, the logical decision might be to produce more. But that decision cannot be carried to its logical conclusion, which is to keep increasing production capacity. At some point, demand will taper off, and if the producer is not careful, he will be stuck with a lot of excess capacity.

Different tactic

But some suppliers might employ a different tactic. When they see prices moving up fast, and if they cannot increase their supply, they may well hoard their products. In other words, they will hold back their supply to the market, in the hope of subsequently getting a much higher price.

On the demand side, the effect of price change is more intriguing. According to economics theory, for elastic demand, the higher the price, the lower the demand. This would apply to discretionary spending and goods with close substitutes.

So if prices get too high, and assuming income does not increase as fast, people will have to cut down on consumption or shift to cheaper goods with similar functions.

A change in price has less of an impact on the demand for necessities. For example, if someone is sick and needs a doctor and medicine, that person will have to pay whatever is asked.

Then there’s another type of product, where the higher the price, the bigger the demand. Perhaps two types of products would exhibit this kind of characteristics. The first are luxury goods, or goods that signal to the world one’s elevated wealth or taste status. Another would be products whose value is difficult to ascertain. This would include stocks and shares. In this group of products, the element of fear and greed will come into play.

One of the oldest tricks in the con-man’s bag is this: Approach a stranger and offer to sell something totally worthless, like a bag of stones or obsolete semiconductor chips. Quote a price, say, $100, and the stranger will say: ‘You are mad.’

Then the con-man’s accomplice will act as a passer-by who has overheard the conversation. The accomplice will say: ‘Wow, you mean there are still these products around? I thought there is a shortage now. I know this person who’s willing to buy this at $150 per bag. OK, I will pay you $100 for this bag.’

After the first con-man has left, the accomplice will say to the victim: ‘Oh, I just remembered that I have to bring my mum to see the doctor. I’m supposed to meet this buyer in half hour. Do you want to make some quick money? I’ll sell these two bags to you for $120 and you sell to him at $150.’

Some people actually fall for the trick. In this instance, the promise of being able to sell at a higher price is the motivation for the purchase. Of course, there is no guarantee that the promise will be fulfilled.

Jack Treynor, author of the article ‘What does it take to win the trading game?’ identified three key trading motives: value, news/information, and cash flow.

Value buyers act when they see things they consider cheap, and are willing to wait for the market to recognise the value. They can take their time to accumulate a stock, and hence reduce the cost of trading.

Information traders, meanwhile, act on new information and changing expectations of the market. So if one has new information not widely known in the market, one can reap the benefits.

Therefore information traders are always under pressure to complete trades before the information spreads across the market. They are time-sensitive: their goal is to get the trades done quickly, even if this means paying up for liquidity.

As for traders with cash flow motivations, buying or selling is dependent on their desire to increase or decrease equity exposure, independent or even ignorant of the prospects for the stocks. Those getting into the market believing they can make a quick profit belong to this group.

Ultimately, a successful investor and trader is someone who can adapt quickly to a changing market.

A value investor may have identified a stock early and have held on for two to three years before the market starts to recognise it. And when the market starts to bid up the share price, the value investor may be tempted to sell once his target price is met. However, if he noticed continued strong buying interest – as every completed trade provides feedback to the trader – then he may want to hold out a bit longer.

Objective

In the final analysis, the objective of any investor or trader is: To avoid being the first to sell and the last to buy.

Everyone wants to be the last person to trade with a big contraparty – not the first.

This is evident in the numerous property en-bloc sales taking place now. When the wave was just taking off, many owners who missed their last opportunity to sell their properties in the last bull run grabbed the first offer that came along. And the offer was generally not great, on hindsight. But after the developer has accumulated a big enough plot of land, the last project to hold out – generally the smallest piece of land – will be paid the most.

But of course holding out for more entails the risk of missing the last buy order.

But what’s true is: being savvy in reading the market, and timing and implementing one’s sales and purchases, is as important as picking a good investment in maximising one’s overall returns.

Source : Business Times – 28 Apr 2007