Seller Stamp Duty (SSD)

Momentum spurs series of project launches

Momentum spurs series of project launches
But consultants warn that the buying drive may not be sustainable
By EMILYN YAP


STRIKING while the iron is hot, more developers - big and small - are riding on buying momentum to relaunch or spur interest in their properties.

Hoi Hup Realty has soft-launched the freehold Shelford 23 in the Bukit Timah area. Of the project's 33 apartments, close to half have been sold at an average price of $1,250 per square foot (psf).

Buyers can opt for an interest absorption scheme at no extra cost, Hoi Hup told BT. The project is expected to receive a Temporary Occupation Permit (TOP) in 2012.

Hoi Hup opened Shelford 23's showflat for preview in September last year but later closed it. The average launch price then was $1,400 psf. Based on Urban Redevelopment Authority (URA) data, no units had been taken up by April this year.

Preparations to launch the freehold Holland Residences near Holland Village also appear to be under way. The development, by Allgreen Properties, comprises three five-storey blocks with a total of 83 units. It is due to obtain TOP in a few years. BT understands that private previews may start from end-June and that agents are currently ascertaining interest.

Similarly, the freehold Nathan Residences in the River Valley area may soon be back on the market. Indicative asking prices appear to start from $1,200 psf. According to URA data, developer Tat Aik Property launched the 91-unit freehold project in September last year but nothing had been sold by April this year.

Projects in the east are also getting in on the action. Private previews of Oasis@Elias in the Pasir Ris area could start in the next few weeks. BT understands that launch prices could be in the range of $600 psf. The 99-year leasehold Chip Eng Seng development has 388 units.

Meanwhile, marketing of the 26-unit Spring@Langsat near the Eunos MRT station began last Friday night.

Over in the west, City Developments (CDL) said last Friday that it is accelerating plans to launch a project at the former Hong Leong Garden Condominium.
Sentiment in the residential property sector has improved in the past few months. And brisk sales recently have encouraged more developers to try their luck.

Evan Lim & Co said last Friday that it sold the last 44 units at Parc Centennial after a relaunch some two weeks ago. And CDL said that its Botannia is fully sold, with the 33 remaining units having been taken up in the past few weeks.

Despite the activity, some property consultants warned that the buying momentum may not be sustainable until there are clear signs of a global economic recovery.

Developers sell close to 1,200 homes in May

Business Times - 02 Jun 2009

Estimated number based on BT survey comparable to April figures; Frasers Centrepoint leads the pack

By KALPANA RASHIWALA AND EMILYN YAP

DEVELOPERS sold an estimated 1,200 private home units in May, according to market watchers. This is comparable to the 1,207 units they sold in April, based on official Urban Redevelopment Authority (URA) numbers.

A BT survey across nine developers as well as some property agents yesterday already showed that some 1,130 units were sold last month. 'Developers could have easily sold about 1,200 units in May if you include all the smaller pockets of developments as well,' a seasoned residential property consultant estimated.

However, BT understands that some units may also be returned by buyers who may have got caught up in the home-buying frenzy fuelled by the stockmarket rally in the past few weeks.

Frasers Centrepoint sold a total 294 units in May - comprising 186 units at Martin Place Residences at Kim Yam Road, 46 at Caspian in the Jurong Lake District, 22 units at Woodsville 28, and 40 homes at Waterfront Waves.

Frasers Centrepoint is developing Waterfront Waves, near Bedok Reservoir, jointly with Far East Organization. The latter sold a total of 165 units (inclusive of Waterfront Waves) last month.

BT eliminated the double-counting for joint-venture projects in arriving at the May sales tally.

City Developments reported total sales of 138 units (of which 97 units came from The Arte at Thomson and 36 units from Livia in Pasir Ris) in May.

CapitaLand also achieved brisk sales for The Wharf Residence at Tong Watt Road.

EL Development also found buyers for a total of 74 units last month (comprising Parc Centennial at Kampong Java Road and Rosewood Suites in Woodlands).

Soilbuild is understood to have sold close to 90 units at The Mezzo in the Balestier location. In other developments, sales of around 30 units were seen for Kovan Residences and 21 units at BelleRive in Bukit Timah.

According to official government numbers, developers sold 1,332 private homes in February, followed by 1,220 units in March and 1,207 units in April.

Lower property prices have been the main attraction for buyers, said DTZ executive director Ong Choon Fah.

Many developers have either re-priced or re-sized their units to make them more affordable.

Many people also feel that residential property prices have corrected substantially, she added.

'The thinking is: whether it's the bottom or not, probably the worst is over so it's about time to go in.'

The recent stockmarket rally has also helped to improve sentiments, Mrs Ong said.

With sales momentum gathering, developers have been gradually inching up prices for mass-market and mid/upper segment projects, following earlier price reductions from the 2007 peak levels.

However, pricing power is not expected to return to developers of luxury projects anytime soon. 'The price push in 2006-2007 period came from overseas buyers; this segment is still out of action,' a developer said.

A veteran developer observed that buyers now include those who had been sidelined by the rapid price surge in 2007.

Whereas the 2006/2007 residential property bullrun was substantially wealth-driven, with a strong element of overseas money, the current recovery in home buying has started in the mass-market and is now permeating to the mid/upper-middle segments, he added.

'So this is a traditional, bottom-up recovery, which is more sustainable. Upward price movements will be constrained by affordability at the end of the day,' he added.

DTZ's Mrs Ong too agrees that while there is 'cautious optimism' in the property market, developers are unlikely to raise prices significantly at this point in time.

Some developers may have lowered the level of discounts for projects that have sold well but they are doing this carefully.

'You don't want to derail the momentum that has been built up,' she said.

MCL books profit on just 5 Fernhill units in Q1

HONG Kong Land subsidiary MCL Land, which yesterday posted a 72 per cent year-on-year drop in net profit to US$1.4 million for the first quarter ended March 31, 2009, said that the buyer of 20 units at The Fernhill project has not made the necessary payment when the project received Temporary Occupation Permit (TOP) in March. This confirms a recent BT report.

As a result, MCL booked for Q1 the profit for only the five units in the 25-unit freehold project for which buyers have paid the outstanding purchase price by the payment date.

MCL Land’s policy is to recognise 100 per cent of sales and profits on units sold only when the project receives TOP. However, for Fernhill, it has deferred income recognition for the 20 units because of the outstanding payment.

The company, which reported Q1 revenue of US$8.3 million, said that had the purchaser of the 20 units paid up in full, MCL’s Q1 revenue and profit would have been US$31 million and US$9.3 million higher respectively.

If the buyer of the 20 units - which BT has reported as Concordia Overseas Pte Ltd - fails to pay up by the time a 21-day notice period to repudiate the sale and purchase agreement ends around late-May, MCL would be entited to treat the 20 per cent paid so far as forfeited and resell the units. At that point, MCL can book the 20 per cent as forfeiture income. As and when it resells the freehold apartments, it can book profit on them. If MCL sells at above $1,128 psf ($1,410 psf sale price to Concordia less the 20 per cent collected so far), then the total profit on the 20 units would be higher than the said US$9.3 million. This is likely to be the case given prices being fetched at recent launches in District 10.

BT’s earlier report said that Concordia, controlled by Hong Kong resident Chan Ki, had bought all 25 apartments in The Fernhill in January 2007 at $1,410 per square foot. Later the same year, it flipped five of these units to foreigners at an average price of nearly $2,200 psf.

Market watchers say the outcome for The Fernhill reflects the risk of selling the chunk of units in a project to a single buyer on a deferred payment scheme (DPS), where typically only 10-20 per cent of the purchase price is paid initially, with the bulk due when the project receives TOP. DPS was scrapped in October 2007.

MCL has another two projects slated for completion this year - - the 129-unit Tierra Vue condo at St Patrick’s Road and Hillcrest Villa, a 163-unit cluster terrace homes development in the Dunearn Road area.

These projects have been sold to individuals although a handful of buyers are believed to have purchased two to three units each. For Hillcrest, another factor that should reduce the risk of non-completion of sales is that all the buyers are Singaporeans (the project is classified as landed housing). Property consultants say that property investors, especially foreigners and even if they are permanent residents in some cases, are finding it tough to get housing loans from banks.
In February, MCL became the first Singapore-listed developer to book provisions for its residential landbank this market downcycle. It wrote down the value of development properties for sale by US$180.2 million, and this pushed MCL into the red, with a US$107.3 million net loss.
The provisions leave MCL with flexibility to launch new projects at an opportune time, generate cash flow and begin a new cycle of profit-booking.

MCL Land chairman YK Pang said in yesterday’s results statement: ‘With strong cash flow generated from the sale of development properties and a healthy balance sheet, the group is well placed to weather the difficult economic and market conditions.’
Earnings per share fell from 1.36 US cents in Q1 2008 to 0.38 US cent in Q1 2009.
Source : Business Times - 30 Apr 2009

Hot News! Singapore Real Estate Market Outlook - Latest Analysis (October 2008)

Singapore property market news, views, price trends & prospects Oct 21, 2008

How to deal with the impending recession In view of the impending recession, consumers should equip themselves and be prepared for the impact which cou ld see some of the rich upper class falling straight into the bankruptcy list, starting with some of the top guns in many of the world's leading investment banks, hedge funds, insurance companies and other private financial institutions which were just a year ago, living the high life. Over the past six years or so, the housing inflation had also inflated the values of many companies, such as banks and major institutions, and emboldened many property investors, including Singapore. In short, the economy bubble was inflated out of proportion over the past years and it is still in the process of being put down to its correct size. In the process, spending will be curtailed, resulting in an "obese" global economy. Currently, the market is at the quiet part of the cycle just before the crash. All parties need to be prepared for widespread poverty, even in the world leading economy such as the United States and certain parts of Europe. What does that mean to the property market in Singapore? It is noteworthy that while prices may fall by 5% to 10% in the next six months, the transaction volume is a different matter. As far as property transactions (including sales and rentals) are concerned, there are many signs that point to an active year ahead, as investors and home owners alike adjust to their new circumstances. • More Sub-sales on the card The record 18,000 sales of new home units achieved in 2007 and the 'not-too-bad' 11,147 sales of new home units in 2006 will combine to release thousands of completed new condos into the property market, starting from the early part of 2009 onwards. More than 15,000 condo units are slated to be completed from the first quarter of 2009 onwards, with more than 8,000 units in the prime districts such as districts 9, 10 and 11; and another 4,400 units in the East Coast areas of districts 15 and 16. The rest of the thousands of new condo units will be scattered around the outlaying areas. With banks tightening credit control, some of the property buyers who had purchased the properties on Deferred Payment Scheme might not be able to secure the financing and will have to dispose of the property in the sub-sale market. • More down-grading from condos to HDB flats There may be more instances of condo owners wanting to downgrade to public flats due to the massive increase in costs of living in a condominium. With the new price hike in electrical tariffs from October 1, 2008 where average households will pay 21% more in utility bills, more 'middle income' households with a gross household income of between S$5,000 and S$10,000 with more than two 'financially dependent' children may have to adjust their lifestyle and spending habits – if they are living in a condominium. This means that the HDB resale flat segment may experience a 'mini-boom' as it will become a 'buffer zone' in times of great 'economic adjustment'. I expect younger 5-room flats to experience an increase in activities since the 'middle income' may not be comfortable to relocate into an old heartland area. Newer HDB precincts may offer a lifestyle concept that appeals more to the middle income group. In other words, I expect the newer HDB precinct to become the growth area in the next nine months to one-and-a-half year. • Cheaper prices lower risks Despite the fact that the US subprime mortgage crisis had already been making regular headlines in the local newspapers, the first half of the year saw an increase in buying activities of mass market condominiums in the outlaying areas. The Best Selling Condo list has been dominated by transactions in Districts 5, 15, 16, 22 and 23 where the unit floor rates (i.e. per square feet price) hovered from S$700 to S$1,200 for District 15 condos, and as low as between S$400 and S$600 for condos in Districts 22 and 23. While the new home segment may take a hit in sales volume due to developer's pricing strategy, the sub-sale market is more responsive to the basic market forces of 'demand and supply'. As such, it is not surprising to see sub-sellers pricing their units on hand for 'cut-throat' prices that are lower than the developer's listed prices. Property prices to drop by 20%? Some wishful buyers are hankering for the prices of their coveted properties to fall by more than 20% because of the looming global economic recession. But the numbers do not add up to such a drastic drop in houses prices in Singapore – for at least the next six months. Here are some of the reasons why: The rich lists have grown • Ultra rich – US$30 million per person The ultra rich are individuals with investible assets of at least US$30 million. In Singapore, there are 1,000 such individuals with total wealth of US$159 billion. Across the Asia-Pacific region, the number of this category of HNWI rose 16.4% to 20,400 last year. The number may drop back a little but as Asia is not as badly hit as elsewhere in the world, the rich list is not expect to shrink by much. • The rich – US$1 million in investible asset per person There are now 77,000 such wealthy Singaporeans, representing a growth of 15.3% annually, or 1.7% of the population. The total combined wealth of such individual Singaporeans grew by 18.4% to US$380 billion last year. • Emerging rich – US$750k to US$1 million in investible assets per person Next level down the rung, the number of emerging high net worth individuals in Singapore also grew by 15% to 24,000 in 2007. Altogether, these people have a combined wealth of US$20 billion. No doubt the asset growth of the ultra-rich in the region as well as in Singapore will slow down, it will not suddenly disappear. It may contract by 10% to 20% but the money need to be deployed somewhere for good returns, and the people working for the rich need to be put up somewhere when they trot the globe for investment opportunities. Granted, there will be some bad days at the office where there will be no sales but there is no reason for the property market to suddenly stop functioning altogether – there will be people jostling to get out and others trying to get in. The basic economics continue to function. • Singaporeans are all 'house proud' A recent report by Merrill Lynch and Capgemini found that the Singaporean high net worth individuals (HNWI) have an average net worth of US$4.9 million, and it confirms that Singaporeans HNWI, regardless of their wealth, are indeed very 'house-proud'. They put 25% of their wealth in real estate with the rest in alternative investments like structured products, hedge funds and currency. Though the same report also stated that the Asian high net worth individuals are likely to turn to fixed-income securities which are less volatile in the near future, there is nothing to stop them from buying into Orchard Road if the investment returns become attractive. The report points out that in the longer term, the region's wealth will continue to expand at 7.9% annually - higher than the 7.7% global rate. Singapore population has grown According to National Population Secretariat, Singapore now has 4.84 million people living in the island city. Out of whom 1.2 million are foreigners working and living here. Among the 1.2 million non-residents, 757,000 of them are on work permits, 143,000 on employment or S passes, and 85,000 on student passes, according to the Ministry of Manpower. The Ministry also said that the number of non-residents has been rising significantly since 2004. Likewise, the number of permanent residents (PRs) rose 6.5% this year to 478,200. This means that there are people to fill those condos, and new flats that are coming onto the property market later on. The size of the population also underpins the growth in real estate prices, including rental prices. Barring any more financial disasters which result in these 1.2 million foreigners being recalled home, there is going to be strong tenant base to provide the cushion for any future correction in rental prices. Or to put it another way, rents will not crash, barring a major disaster – man-made or natural. Total quantity of residential units How many houses do we have in Singapore? The statistics are quite reassuring. Let's look at the numbers: • For public flats, there are about close to 900,000 HDB flats, of which about 30% are available for approved whole-flat subletting. • For condo and apartments, there are about 180,000, spread over 3,000 private housing projects. This number will increase to around 220,000 by 2011, if all the planned developments are built on schedule, which we now know is unlikely due to delays in legal completion of many huge en bloc sale projects. • For landed housing units, we have about 68,000 houses, out of which 25,000 are bungalows and the rest are semi-detached and terrace houses. This means that had the economic bubbles not burst in the United States and Europe, there will be an acute shortage of rental properties in Singapore. This time round, the consequences of the global financial fallout may not be so sinister for Singapore, because barely six months ago this country was still grappling with problems of burgeoning house rents, and lack of places in international schools. Granted that home rentals will ease and landlords will have to wait for a longer time for an expatriate willing to pay the extortionist's rents, it is not all doom and gloom. At worse, we are going back to the 2006 situation where everything happened within reasons, and where nobody thought we were in an economic recession. The truth is that 2007 had made many people very greedy. Taken together, we might have a difficult next few months when the entire global financial systems go through fundamental restructuring and major austerity drive, but the mid- to long-term prospect looks promising, especially for Singapore. By Sam Gian – Independent Real Estate Sales Trainer

How AIG's Collapse Began a Global Run on the Banks

By Porter Stansberry
October 4, 2008

Something very strange is happening in the financial markets. And I can show you what it is and what it means...

If September didn't give you enough to worry about, consider what will happen to real estate prices as unemployment grows steadily over the next several months. As bad as things are now, they'll get much worse.

They'll get worse for the obvious reason: because more people will default on their mortgages. But they'll also remain depressed for far longer than anyone expects, for a reason most people will never understand.

What follows is one of the real secrets to September's stock market collapse. Once you understand what really happened last month, the events to come will be much clearer to you...

Every great bull market has similar characteristics. The speculation must - at the beginning - start with a reasonably good idea. Using long-term mortgages to pay for homes is a good idea, with a few important caveats.

Some of these limitations are obvious to any intelligent observer... like the need for a substantial down payment, the verification of income, an independent appraisal, etc. But human nature dictates that, given enough time and the right incentives, any endeavor will be corrupted. This is one of the two critical elements of a bubble. What was once a good idea becomes a farce. You already know all the stories of how this happened in the housing market, where loans were eventually given without fixed rates, without income verification, without down payments, and without legitimate appraisals.

As bad as these practices were, they would not have created a global financial panic without the second, more critical element. For things to get really out of control, the farce must evolve further... into fraud.

And this is where AIG comes into the story.

Around the world, banks must comply with what are known as Basel II regulations. These regulations determine how much capital a bank must maintain in reserve. The rules are based on the quality of the bank's loan book. The riskier the loans a bank owns, the more capital it must keep in reserve. Bank managers naturally seek to employ as much leverage as they can, especially when interest rates are low, to maximize profits. AIG appeared to offer banks a way to get around the Basel rules, via unregulated insurance contracts, known as credit default swaps.

Here's how it worked: Say you're a major European bank... You have a surplus of deposits, because in Europe people actually still bother to save money. You're looking for something to maximize the spread between what you must pay for deposits and what you're able to earn lending. You want it to be safe and reliable, but also pay the highest possible annual interest. You know you could buy a portfolio of high-yielding sub prime mortgages. But doing so will limit the amount of leverage you can employ, which will limit returns.

So rather than rule out having any high-yielding securities in your portfolio, you simply call up the friendly AIG broker you met at a conference in London last year.

'What would it cost me to insure this sub prime security?' you inquire. The broker, who is selling a five-year policy (but who will be paid a bonus annually), says, 'Not too much.' After all, the historical loss rates on American mortgages are close to zilch.

Using incredibly sophisticated computer models, he agrees to guarantee the sub prime security you're buying against default for five years for say, 2% of face value.

Although AIG's credit default swaps were really insurance contracts, they weren't regulated. That meant AIG didn't have to put up any capital as collateral on its swaps, as long as it maintained a triple-A credit rating. There was no real capital cost to selling these swaps; there was no limit. And thanks to what's called 'mark-to-market' accounting, AIG could book the profit from a five-year credit default swap as soon as the contract was sold, based on the expected default rate.

Whatever the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year - long before the actual profit on the contract was made.

With this structure in place, the European bank was able to assure its regulators it was holding only triple-A credits, instead of a bunch of subprime 'toxic waste.' The bank could leverage itself to the full extent allowable under Basel II. AIG could book hundreds of millions in 'profit' each year, without having to pony up billions in collateral.

It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple A have ended up being worth less than $0.15 on the dollar.

Even so, it all worked for years. Banks leveraged deposits to the hilt. Wall Street packaged and sold dumb mortgages as securities. And AIG sold credit default swaps without bothering to collateralize the risk. An enormous amount of capital was created out of thin air and tossed into global real estate markets.

On September 15, all of the major credit-rating agencies downgraded AIG - the world's largest insurance company. At issue were the soaring losses in its credit default swaps. The first big write-off came in the fourth quarter of 2007, when AIG reported an $11 billion charge. It was able to raise capital once, to repair the damage. But the losses kept growing. The moment the downgrade came; AIG was forced to come up with tens of billions of additional collateral, immediately. This was on top of the billions it owed to its trading partners. It didn't have the money. The world's largest insurance company was bankrupt.

The dominoes fell over immediately. Lehman Brothers failed on the same day. Merrill was sold to Bank of America. The Fed stepped in and agreed to lend AIG $85 billion to facilitate an orderly sell off of its assets in exchange for essentially all the company's equity.

Most people never understood how AIG was the linchpin to the entire system. And there's one more secret yet to come out...

AIG's largest trading partner wasn't a nameless European bank. It was Goldman Sachs.

I'd wondered for years how Goldman avoided the kind of huge mortgage-related write downs that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company's exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded; Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The collapse of the credit default swap market also meant the investment banks - all of them - had no way to borrow money, because no one would insure their obligations.

To fund their daily operations, they've become totally reliant on the Federal Reserve, which has allowed them to formally become commercial banks. To date, banks, insurance firms, and investment banks have borrowed $348 billion from the Federal Reserve - nearly all of this lending took place following AIG's failure. Things are so bad at the investment banks, the Fed had to change the rules to allow Merrill, Morgan Stanley, and Goldman the ability to use equities as collateral for these loans, an unprecedented step.

The mainstream press hasn't reported this either: A provision in the $700 billion bailout bill permits the Fed to pay interest on the collateral it's holding, which is simply a way to funnel taxpayer dollars directly into the investment banks.

Why do you need to know all of these details? First, you must understand that without the government's actions, the collapse of AIG could have caused every major bank in the world to fail.

Second, without the credit default swap market, there's no way banks can report the true state of their assets - they'd all be in default of Basel II. That's why the government will push through a measure that requires the suspension of mark-to-market accounting. Essentially, banks will be allowed to pretend they have far higher-quality loans than they actually do. AIG can't cover for them anymore.

And third, and most importantly, without the huge fraud perpetrated by AIG, the mortgage bubble could have never grown as large as it did. Yes, other factors contributed, like the role of Fannie and Freddie in particular. But the key to enabling the huge global growth in credit during the last decade can be tied directly to AIG's sale of credit default swaps without collateral. That was the barn door. And it was left open for nearly a decade.

There's no way to replace this massive credit-building machine, which makes me very skeptical of the government's bailout plan. Quite simply, we can't replace the credit that existed in the world before September 15 because it didn't deserve to be there in the first place. While the government can, and certainly will, paper over the gaping holes left by this enormous credit collapse, it can't actually replace the trust and credit that existed... because it was a fraud.

And that leads me to believe the coming economic contraction will be longer and deeper than most people understand.

You might find this strange... but this is great news for those who understand what's going on. Knowing why the economy is shrinking and knowing it's not going to rebound quickly gives you a huge advantage over most investors, who don't understand what's happening and can't plan to take advantage of it.

Porter Stansberry