Poor demand, more space seen lowering occupancy rates, rents in 2009

Prime office rents in Raffles Place sank 15.8 per cent quarter-on-quarter (qoq) in the final three months of 2008 to an average of $16 per square foot per month (psf pm), representing the first decline since Q4 2003, according to DTZ Research.

The drop was the biggest among the micro markets tracked by DTZ. Office rents in the Marina Centre micro market also fell a hefty 12.9 per cent qoq to $13.50 psf pm.

‘While the low level of new office supply supported rents in the first nine months of 2008, the market began to favour occupiers in Q4 as demand fell,’ DTZ said. ‘Landlords have lowered their asking rents and are offering attractive incentives to retain existing tenants and attract new ones.’

Office vacancies edged up further in Q4 2008 as demand dwindled. Except for Tampines Finance Park, where occupancy remained at 96.8 per cent, occupancy in all other micro markets declined.

In Raffles Place, the average office occupancy fell 1.3 percentage points qoq to 95.6 per cent in Q4 2008. Island-wide, office occupancies slid 0.8 of a percentage point qoq to 95.6 per cent, as new supply was added and demand weakened as companies shelved expansions, cut back on space needs or shifted to cheaper locations such as high-tech industrial space or converted state property.

DTZ said that shadow space is beginning to surface as occupiers dispose of excess space, although the amount available for occupation in Q4 2008 was still insignificant, at about one per cent of total vacant office space island-wide.

In response to falling demand, there has been a cutback in new office supply - but not enough to ease an impending glut as most major projects are already under construction, DTZ noted. Deferred developments totalling about 872,000 sq ft of new office space include South Beach, office extensions at Tampines Mall and Funan DigitaLife Mall and the redevelopment of Marina House. DTZ puts potential office supply from 2009 to 2013 at 11.3 million sq ft, compared with an earlier estimate of 12.1 million sq ft.

DTZ said that in view of the deteriorating global financial situation and the large amount of new office space coming on stream in Singapore this year, occupancy rates and rents are expected to decline further in 2009.

The firm also noted that sentiment in the industrial property market has soured, as the manufacturing and office sectors continue to weaken. Rents for private conventional industrial space declined in Q4 2008 for the first time since Q3 2003.

Rents for first-storey and upper-storey private industrial space dipped 2.1 per cent and 2.4 per cent respectively qoq to $2.30 and $2 psf pm. Rents for hi-tech industrial property slid 4.4 per cent qoq to $4.30 psf pm - the first decline since Q2 2004.

Source : Business Times - 6 Jan 2009

PROPERTY hunters put aside the gloomy economic outlook last weekend and turned out in force to check out - and even buy - new flats.

At Nova 88 in Balestier - likely to be the only new official launch so far this year - about 500 visitors thronged the showflat, said developer Roxy Homes.

Some 20 per cent of the flats in the 88-unit development were sold at prices ranging from $900 to $990 per sq ft, it said.

Potential buyers also flocked to re-launches, indicating that pockets of the market are still showing signs of life.

The Nova 88 showflat numbers were similar to those pulled in during the firm’s launches last year, but like most other developments, sales have slowed, with buyers and sellers sitting on the sidelines looking for clearer market signals.

Roxy Homes launched Nova 88 last Saturday after holding special previews over two weekends last month.

‘We don’t hold back launches as our properties are in the mid-range segment,’ said Mr Teo Hong Lim, chief executive of listed Roxy-Pacific, the developer’s parent.

‘If we advertise today and there are no visitors to our showflats, then the market is dead. But now, potential buyers are still going to showflats, so that is the positive part.’

When the Asian financial crisis hit in 1997, showflats were empty, he added.

Still, demand has taken a big hit since Lehman Brothers collapsed in September last year.

‘In the pre-Lehman collapse days, I would have launched Nova 88 at $1,250 psf,’ said Mr Teo. ‘Now, our style is to go for a reasonable price because we are serious in selling.’

Nova 88 is on the former Aik Khiam Mansion site and a piece of state land, which together cost just under $350 psf of gross floor area.

‘The sales are encouraging,’ said a property consultant of the Nova 88 sales.

The consultant, who declined to be named, said developers are holding off launching projects as buyers are worried about their jobs or possible pay cuts and few are in the mood to buy.

Some property hunters also headed for showflats of relaunches and recent launches such as The Ambra, The Lucent, Lucida and Newton Edge.

Most launches will come only after Chinese New Year later this month. The 293-unit Alexis near Queenstown MRT station is one of them.

While developer ECPrime has yet to finalise Alexis’ prices, it has already tweaked the product given the weaker market sentiment.

‘We adjusted the mix recently such that a large number of the units will be smaller and thus more affordable,’ said director Melvin Poh.

At least 80 per cent of Alexis comprises small units, with one to two bedrooms, up from 60 per cent previously, he said.

Source : Straits Times - 6 Jan 2008

A 30-per-cent fall in rental market expected this year

TENANTS for office space are beginning to enjoy more bargaining power as increased supply for such commercial property and a weakening economy drive rents lower.

This is good news for business owners such as Mr Hu Yinghan. Mr Hu, who runs an events company Apesnap in Chinatown, will be asking for much lower rent when his lease runs out at the end of the year.

“I shouldn’t have locked in last year,”Mr Hu told Today, adding he hoped toget a 30-per-cent discount from the $4 per square foot (psf) per month he is currently paying.

His wishes are likely to come true, if the forecast of seasoned property consultant Colin Tan proves to be accurate.

Mr Tan, head of consultancy and research at Chesterton Suntec International, said that the office rental market would face a sharp decline of about 30 per cent this year.

“For now, some landlords may not feel the pressure because they still have healthy occupancy. There’s a time lag with administrative procedures,” said Mr Tan, who added that most landlords would feel the pain by the middle of the year.

“Last year, some landlords may have been too greedy and taken advantage of the situation to squeeze the market,” saidMr Tan. “Now it’s facing shrinking demand and everyone’s locked in. There will be a lot more vacant space.”

And it’s not just small business owners who stand to benefit from the lower rents.

Prime office rents in Raffles Place fell last quarter, the first decline since the fourth quarter of 2003. Tenants there paid an average$16 psf per month in the last quarter, representing a 3-per-cent drop from the corresponding period a year earlier, said property consultants DTZ Research.

Grade A office market rents hit as high as $20 psf per month last year, but the office rental market is now turning into a tenant’s market, DTZ Research said.

In the last quarter, more offices became vacant as companies braced themselves for tough economic times by freezing headcount, reducing space needs, shelving expansion plans, as well as moving to cheaper locations outside the CBD. This resulted in office occupancy rates dropping by 2.6 percentage points to 95.6 per cent in Raffles Place, compared to the same period a year ago, said DTZ Research.

Analysts are predicting that prime office rents in the Central Business District (CBD) will dip to between $10 and $12 psf per month.

With the economy expected to remain weak, landlords who have been used to dictating terms now find themselves having to offer attractive lease incentives to retain existing tenants and secure new ones, they said. These include lease packages with rent-free intervals so that the overall effective rates are lower.

Although there have been some cutbacks on new office supply following weaker demand from recession-hit businesses, it does little to ease the impending supply glut, said analysts.

Potential office supply from 2009 to 2013 is now 11.3 million sq ft, just slightly down from the previous estimate of 12.1 million sq ft, said DTZ Research.

DTZ’s executive director, Ms Cheng Siow Ying, said: “More shadow space is likely to emerge, a lagged effect following retrenchments.”

More pockets of office space would become available when companies start relocating from their existing premises to pre-committed space in transitional offices and business park developments that will be completing this year,” she added, citing Citigroup’s move to Changi Business Park as an example.

To compound the oversupply, on top of the 3 million sq ft of new office space to be added islandwide this year, there could be an additional 1 million sq ft vacated by troubled companies as the recession deepens, Chesterton’sMr Tan estimates.

The retail rental market is also facing pressure. CBRE said that prime retail rents in Orchard area fell 1.9 per cent to an average of $36.10 psf per month in the fourth quarter last year, the first time these rents have headed south since 2003.

In the same period, rents of private industrial space also saw its first decline since 2003, said DTZ Research. Private industrial rents dipped by about 2 per cent quarter-on-quarter between $2 and $2.30 psf per month.

Source : Today - 6 Jan 2008

ARA Asset Management (ARA) is on the move, announcing yesterday that it has completed the acquisition of Nanjing International Finance Center (Nanjing IFC) for 1.6 billion yuan (S$340 million).

The acquisition was done through the ARA Asia Dragon Fund (ADF). ARA also manages several Reits, including Fortune Reit and Suntec Reit.

ARA group chief executive John Lim said: ‘We are extremely pleased to have the opportunity for ADF to acquire a prime office building in the heart of Nanjing, one of the major cities in China.’

The group sees many ‘value opportunities’ in China’s real estate sector as a result of the current liquidity crunch, he said.

‘We maintain a positive medium to long-term view for China and will continue to invest there via our funds.’

Located in Nanjing’s central business district and retail hub of Xinjiekou, Nanjing IFC is a just-completed 51-storey grade A office and retail building with gross lettable floor area of 109,196 sq m.

ADF completed its third and final closing in June 2008 with aggregate capital commitments in excess of US$1.13 billion. It has a mandate to invest across Asia. Its primary focus is on the main cities of China, Singapore, Hong Kong, Malaysia. Its secondary focus is on the region’s emerging economies.

Investors include public pension funds, foundations and global institutions seeking exposure to a diversified portfolio of Asian real estate investments.

ARA’s total assets under management at Sept 30, 2008 were $12 billion (US$8.4 billion).

For the nine months ended Sept 30, 2008, ARA posted a net profit of $27.2 million, 138 per cent up from $11.4 million in the previous corresponding period. Total revenue rose 95 per cent year on year to $51.8 million, from $26.6 million.

Source : Business Times - 6 Jan 2009

KHAZANAH Nasional, the Malaysian government’s investment arm, is mulling a plan to buy several choice pieces of land in the Desaru region of Southern Johor to kick-start a tourist development that has been contemplated since the late 1980s.

Desaru, often touted as one of the great tourist destinations of the state, is located at the south-eastern tip of Johor, 3,800 acres of predominantly forested land with around 25 kilometres of beach facing out to the South China Sea.

Indeed, it has about the only significant beach frontage of any kind in the state which is why businessmen have been trying to develop it for years. Government officials said that was also the reason why Khazanah was taking an interest in it, although it is not within the boundaries of the Iskandar Development Region, which the agency is pushing, its tourist potential and proximity to Iskandar could help boost the other’s attractiveness to investors.

The potential involvement of the relatively well-heeled Khazanah in Desaru signals the federal government’s determination to make the neighbouring Iskandar a success by enticing Singaporean interest in a beachfront development that will be even closer to the republic than Bintan, which is the preferred destination currently.

It also will slake the state government’s frustration over a tourist project that should have been completed years ago but wasn’t because of various economic crises that starved its developers of funding.

On Khazanah’s part, the government officials said that the time was right as the industrial area nearby including oil and gas projects in Pulau Langsat and the various ports were up and running. In addition, a long planned RM1.5 billion (S$631.52 million), 77-kilometre highway linking Senai in the west to Desaru in the east that will cut travel time to the latter from 2 hours to 45 minutes is expected to be completed in March.

Development in the area has been by fits and starts. In the mid-1980s, businessman T Thangathurai together with Japan’s Kajima Corporation proposed an ambitious billion-ringgit development of the area but the plan ran afoul of the recession of 1986.

In the 1990s, the state gave architect-businessman Esa Mohamad the nod. His group is, apparently going ahead with the development of a 19-acre site that includes beachfront frontage, a golf course and a lake around which luxury villas are to be developed.

Even so, most of Desaru remains a strictly local affair with occasional Singaporean visitors with no chic resorts, no fancy restaurants and little hip nightlife to talk about.

All that may be changing with the advent of the new highway as corporate names have begun taking an interest in the area. In August, IJM Land, in which the Government of Singapore Investment Corporation has a significant interest, bought Desaru’s Sebana Golf and Marina Resort including 1,000 acres of land for RM120 million. The company intends to upgrade the facilities and develop the land for high-end housing and commercial property.

Source : Business Times - 6 Jan 2009

Office occupancy in Singapore is down in the last quarter of 2008 due to deteriorating global financial situation.

According to real estate adviser DTZ Research, office occupancy islandwide dropped by two percentage points to 95.6 per cent, compared to the same period last year.

This is because of weaker demand as companies shelved expansion plans or relocated to more cost-effective premises.

DTZ said office rentals have also declined. One example is office rentals at Marina Centre which fell by about 7 per cent to S$13.50 per square foot per month, compared to the same period last year.

DTZ said landlords have lowered their asking rents and offering attractive lease incentives to retain existing tenants and entice new ones.

It added that potential office supply from this year to 2013 is now estimated to be at 11.3 million square feet, compared to the earlier estimate of 12.1 million square feet.

With a larger supply of new office space this year, occupancies and rentals are expected to decline further.

Source : Channel NewsAsia - 5 Jan 2009

ARA Asset Management said on Monday it bought a 51-storey office cum retail building in Nanjing, China, for about S$340 million (US$232.9 million).

The purchase of the 51-storey Nanjing International Finance Center was done through ARA Asia Dragon Fund, the Singapore firm’s flagship private real estate fund.

John Lim, Group CEO of ARA, said:’We are currently seeing many value opportunities in the real estate sector in China as a result of the current liquidity crunch. The Group maintains a positive medium tolong-term view for China and will continue to invest in China via our funds.’

Singapore-listed ARA is an affiliate of Hong Kong property giant Cheung Kong.

Source : Business Times - 5 Jan 2009

SINGAPORE-listed real estate investment trusts (Reits) are now victims of their own success.

Over the past three years, most Reits here have taken an aggressive growth path, snapping up expensive properties and pushing up rentals in their properties as they took advantage of the property boom. This has allowed them to increase net property incomes and deliver good dividends to their unitholders.

But now, the good times have come to an end, and it is unclear how these Reits will deliver the kind of returns shareholders have gotten used to.

When reporting their Q3 results, the Reits admitted that growth through acquisitions will slow, what with the current credit squeeze making merger and acquisitions (M&As) more difficult and expensive across all sectors. The Reits said they will look to organic growth, such as enhancing their existing lettable space in search of higher rents.

But how much organic growth there can be under these conditions is debatable.

Retail Reits, for example, increase their property incomes in three ways - from acquisitions, through rental increases after they enhance their properties, and increased sales from their tenants, which they typically take a cut of.

But now, all three avenues for property income growth appear to be blocked. Acquisition growth, as mentioned, is no longer as viable. Retail sales are expected to take a beating this year as consumers cut back on spending as concerns over job and wage security take hold. Because of this, landlords, who typically take a percentage of turnover as part of the rent, will also see takings fall.

And rents will fall, as tenants try to bring landlords back to the negotiating table to ask for more manageable rates. ‘A prolonged depression in consumer spending could affect retailers’ ability to service their rents and we think it is possible that more retailers would renegotiate for lower rental rates, and retail mall managers may have to give in to avoid a high turnover in tenants,’ noted OCBC Investment Research in a recent report. As one market observer put it, ‘Reits can’t really squeeze the tenants anymore or they will just simply close shop.’

In 2009, CB Richard Ellis reckons that prime Orchard Road rents could contract 5-10 per cent in just the first half of the year. At prime suburban malls, a 2-3 per cent decline is likely, the property consultancy said. Prime Orchard Road rents fell 1.9 per cent quarter-on-quarter in Q4 2008, while prime suburban rents shed one per cent, the firm’s data showed.

The same trend holds true for the office and industrial sectors. CBRE’s data showed that average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in Q4 2008. More falls are expected this year. Likewise, rents for industrial space could see double-digit percentage falls, analysts have said.

With retail, office, and - to a lesser extent - industrial Reits, having raised rentals quickly over the last few years, tenants are finding themselves in a tough spot during these trying times. Office rents, for example, nearly doubled in 2007, rising 96 per cent in the Grade A category and 92 per cent for prime space. That was on top of gains of 53 and 50 per cent respectively posted in 2006.

What this means is that tenants, who have been paying jacked-up rentals over the past two years, will in some cases lack the reserves to withstand the current crisis. They are also more likely to push for substantial rental decreases, which could affect the Reit model.

Jannie Tay, president of the Singapore Retailers Association, called for a drop in retail rents - in light of weaker sales - as early as September last year. Recently, she again asked retail landlords to cut rents by between 30 and 50 per cent. Reits are going to face pressure to give in.

Source : Business Times - 5 Jan 2009

Cost and pricing advantages and public spending set to put construction industry in a good spot

The construction sector looks to be the only pillar of growth in the Singapore economy this year, especially if there are significant increases in public infrastructure spending.

Latest official flash estimates reveal that the sector continued to grow in Q4 2008, albeit at a slower 13.3 per cent.

While this is down from 18.6 per cent in the previous quarter, a recent survey of financial analysts conducted by the Monetary Authority of Singapore revealed that the general sentiment was that construction activity is expected to expand relatively strongly in 2009 - although at just around half the pace in 2008 - of about 7.5 per cent.

‘The construction sector will lead GDP growth in the next two years, but it only accounts for about 5-7 per cent of 2009/2010 GDP,’ said CIMB-GK analyst Song Seng Wun.

Still, Mr Song reckons the sector could grow by about 15 per cent year-on-year over the next two years, which is about as optimistic as one can get about any sector.

It is also notable that forecast growth is nowhere near trough levels in Q3 ‘99 and Q1 ‘03, which fell to minus 11.9 per cent and minus 14.9 per cent year- on-year respectively.

The executive chairman of contractor Lian Beng Group, Ong Pang Aik, is sanguine about this year’s prospects. He expects to see an increase in the number of public sector projects starting in the first half of 2009.

As chance would have it, Mr Ong believes the likely fall in construction costs will also accelerate the pace of new projects and possibly even fatten profit margins of contracts inked earlier.

‘We had to bear the cost of materials going up before. So when they come down, we will also make a bigger profit,’ he added.

United Engineers’ group managing director and CEO Jackson Yap is also optimistic about the year ahead.

‘Thanks to the relatively long project cycles - as most construction projects will take about two to three years to complete - construction contracts secured during the industry boom over part of this and last year will keep many construction companies busy for at least the next two years,’ he said.

According to property and construction consultancy Rider Levett Bucknall (RLB), steel export prices started to fall in the second half of 2008 with the average supply price of steel reinforcement now down by about 30 per cent from about $1,500 per tonne to $1,100.

RLB managing partner Winston Hauw said that based on current demand and cost trends, the tender price escalation is anticipated to decline, averaging in the order of minus 10 per cent to minus 15 per cent year-on-year for 2009.

But while traded prices for base metals are currently much lower compared to the first half of 2008, Mr Hauw says that prices of mechanical and electrical (M&E) services for building developments have not as yet moderated.

‘The limited pool of specialist subcontractors in the local market is for now pre-occupied with the large existing workload,’ he added.

RLB also noted that notwithstanding the general decline in many base construction materials, the average supply prices for cement and granite aggregates have actually increased as at November 2008, although he believes the impact of this on building tender prices is insignificant.

Mr Hauw said: ‘We see the forthcoming year as a period of consolidation for the construction sector, with the management of costs and cash flows as key priorities, while positively looking ahead to opportunities, both locally and regionally.’

How low construction costs fall could be influenced by monetary policy too.

National University of Singapore economist Tilak Abeysinghe said that a weaker Singapore dollar will increase the import cost of building materials and will have a negative effect on residential property construction.

‘Unlike the export sector where you get an offset of the import cost from increased export revenue, the construction sector has to bear the import cost resulting from the weaker dollar,’ he said.

Tempering expectations some more, construction consultancy Hill International’s senior vice-president and managing director (Asia-Pacific) John Brells foresees developers deferring more projects. ‘Such delays consequently would give rise to more construction-related disputes,’ he said.

The bright spot again is infrastructure and public sector construction. In his discussions with contractors, Mr Brells said some who have not previously bid on government works are now looking to do so with more ‘looking at areas of construction outside their normal comfort zone’.

Job prospects in the sector could also be hit.

Construction information services provider BCI Asia estimates the value of projects under construction will contract by 20-30 per cent and its managing director Thor Kerr said: ‘Unemployment will rise quickly as the construction volume declines.’

He added that construction companies should survive provided their existing contracts have appropriate fee structures and payment schedules, and that ‘contractors do not quote below market price in order to maintain sales volume’.

To this, Lian Beng’s Mr Ong says that ‘undercutting’ is unlikely, because of the volatility of construction material prices.

On the jobs front, Mr Ong said that the sector is still reeling from poaching of staff over the past year. ‘Salaries have been frozen but we will not cut because the staff will leave,’ he said.

Source : Business Times - 5 Jan 2009

I REFER to last Wednesday’s letter, ‘Bank unfair to existing home loan clients’, and would like to share my experience with another bank.

I took a mortgage loan with OCBC Bank in May 2007 to finance the purchase of a property. Predicting that the interest rate was on a downward trend, I signed up for a floating rate package. There was no option then for a more transparent variable interest rate loan package pegged to the Singapore Inter-Bank Offered Rate, which I would certainly have taken up had it been available.

I had expected to see some interest cost savings when the rates went down. I also had the mistaken belief that banks will act in good faith to adjust the interest rates downwards for customers on a floating rate package when the market rate falls.

The interbank interest rates have seen a sustained and meaningful drop since August 2007. In April last year, I requested that the bank reduce the interest rate on my loan since it was on a floating-rate basis. I was told that the bank was still monitoring the situation and that I could enjoy a lower interest rate only if I re-financed the loan by signing up for a new package and paying the repayment penalty on the existing loan. With the prohibitive penalty costs, there would be no gains from re-financing the loan.

It has been 14 months since the market interest rates started falling significantly from the 3.08 per cent interest rate on my home loan and, instead of receiving good news from OCBC that it will be adjusting the interest rate on my loan downwards, I have been told that it has been increased to 3.78 per cent, a princely premium over the rate new mortgage loan customers are paying.

I am sure I am not the lone borrower facing such unfair bank practices. My brother had the same experience with his mortgage loan from United Overseas Bank. Is there any form of redress or help that borrowers like us can expect from the Consumers Association of Singapore or the Monetary Authority of Singapore?

Toh Hai Joo

Source : Straits Times - 5 Jan 2009

DESPITE news that private home prices dropped by a sharp 5.7 per cent last quarter, shares of property developers shone on Friday which helped the related warrants to post strong gains.

CapitaLand and City Developments rallied on 2009’s first day of trading. CapitaLand hit an intra-day high of $3.30 on Friday, eventually closing 16 cents higher at $3.27 with 8.3 million shares traded. City Developments was also 3.6 per cent higher at $6.60 with two million shares traded.

Analysts believe there are still buyers out there and some expressed confidence that developers will likely weather the storm.

A warrant issued by Macquarie Securities on CapitaLand rose one cent to six cents with 44,000 units traded. It has an exercise price of $3.90 and a conversion ratio of one share to three warrants.

Another warrant issued by Macquarie on CapitaLand gained nearly 10 per cent or three cents to close at 34 cents, with 4.1 million units changing hands. It has an exercise price of $2.90 with a conversion ratio of one share to two warrants.

Oil prices rose on the first day of trading of the new year, with crude briefly touching US$46 a barrel after fog delayed Gulf Coast tankers. This may have reignited buying interest in rig builders, whose shares have slumped in recent months.

A warrant issued by Macquarie on Keppel Corp surged nearly 10 per cent to close 1.5 cents higher at 17.5 cents with 935,000 units traded. The warrant offers an exercise price of $4.90 and a conversion ratio of one share to four warrants.

The rise was in line with the Keppel counter which rose 18 cents to $4.51 with 4.8 million shares traded.

Source : Straits Times - 5 Jan 2009

SIGNS of the credit squeeze are emerging everywhere in Singapore.

After a final, Christmas sales spending binge, consumers are really starting to tighten their belts. This has cast a shadow over the traditionally joyous mood before each Chinese New Year.

News of job cuts at multinational firms such as Philips and in the financial sector by Citibank and DBS Bank are fuelling fears of more job losses.

This, in turn, is leaving consumers worried about their ability to repay housing loans, for example.

The cycle of fear and caution is causing them to scale back on their spending drastically, even though it may ultimately prove unnecessary to do so.

Conspicuous consumption is out and austerity is in, as people switch from eating at restaurants to hawker centres and food courts.

Overseas travel is also taking a hit. Fewer Singaporeans are booking tour packages for the Chinese New Year holiday at the end of the month.

Investors, meanwhile, are extremely reluctant to take a punt on the market, preferring to hoard cash instead. As a result, daily traded volumes on the Singapore Exchange have fallen to their lowest levels since the Sars crisis six years ago.

Some of this may be an over-reaction but there could be valid reasons for adopting a wartime belt-tightening mentality.

Take a typical working couple with school-age children, paying off a hefty mortgage and servicing car loans. If either one loses that monthly pay cheque, they would face hardship - and if both are retrenched, it would spell financial calamity.

But widespread belt-tightening can cause an economy to literally collapse from fear.

One priority, therefore, is to find ways to put cash back into Singaporeans’ pockets as they grapple with possible job losses or a cut in their pay.

For many Singaporeans, their home is their key financial asset, while home loans form an integral part of many banks’ core assets, making up 28.4per cent of the lending which banks make to companies and individuals.

So far, the spotlight in the weakening property market has focused on a potential over-supply crisis, should cash-strapped buyers fail to complete transactions on flats on which they have deferred most of their payments until the projects are built.

But it is crucial to keep the rest of the property market healthy, too.

In Britain and the United States, the rotting housing market has devastated their economies. Singapore should take heed to avert a similar fate.

There are precedents from previous economic crises to offer a blueprint on how the credit crunch can be tackled.

In 2003, as Sars struck Singapore, fears emerged that the economy might sink into a deep recession.

Against this grim backdrop, DBS Bank came to the rescue of cash-strapped Singaporeans with a home loan package which allowed them to pay only the interest for the first three years.

Then-chief executive Jackson Tai said the deal was good for customers and shareholders alike. It allowed home-owners to free up their cashflow and the bank to maintain the quality of its loan book.

And why not? So long as the interest is serviced, the loan is healthy and there is no need for the bank to make any provision in its books for bad loans.

For consumers struggling to make their monthly mortgage payments, DBS’ move was a boon.

Take a $500,000 20-year home loan pegged at an interest rate of 3per cent. If a borrower had to service both interest and principal, he would have to pay a monthly instalment of $2,778. By servicing the interest only, his monthly payment drops to $1,250, putting an extra $1,528 back into his pocket.

Therefore, even if a working couple were deprived of one income, the fear of losing their home would be considerably reduced. They could pay their monthly housing instalment using Central Provident Fund cash if they were only servicing the interest on the loan.

We are now six years on from the Sars crisis.

Although DBS has received flak for selling worthless products linked to failed investment bank Lehman Brothers, it still retains its status as the people’s bank, mainly because of the acquisition of the much-loved and widely-patronised POSB in 1998.

As current chief executive Richard Stanley has said, the bank would never knowingly do anything that could hurt its customers.

At a time of crisis, it is in the position of being able to help Singaporeans. As the largest local bank, it is a big lender to HDB flat-owners via its extensive POSB network. It is also a key player in private housing loans.

It would be good if DBS could again display the leadership shown six years ago by offering interest-only loans to help consumers here through the inevitable tough times ahead.

This would enable Singaporeans to set aside less cash for their monthly housing instalments. It would also remove fears of a collapse in the residential housing market in the event that cash-strapped owners could not keep up their mortgage payments.

Fresh from a successful $4billion fund-raising exercise, DBS can lend Singaporeans a helping hand from a position of strength. Such a loan scheme would be the best Chinese New Year present it could give to the people of Singapore.

Source : Straits Times - 5 Jan 2009

Developers cutting prices and offering discounts; some small projects on the way

The property market is off to a quiet start this year, with some developers even closing their show-flats temporarily in response to dwindling crowds.

But as home prices continue to fall, house hunters tempted back into the market do have some places to go shopping.

Several small developments are coming on the market, while other projects that have been launched earlier are giving discounts or other buying incentives.

In the Balestier area, developer Roxy Homes is soft-launching two freehold boutique projects this weekend - Nova 48 in Prome Road and Nova 88 in Bhamo Road, both off Balestier Road.

Nova 48 has 48 units while Nova 88 has 88. Both are priced at about $1,000 per sq ft (psf), with a one-bedroom unit of 506 sq ft in size starting at about $500,000.

Another upcoming launch is that of Alexis in Alexandra Road. The freehold development has about 300 units and is less than 10 minutes’ walk to Queenstown MRT Station, according to property agents.

Indicative prices are about $900 to $1,000 psf, according to agents. The developer is offering a payment scheme similar to deferred payment, where buyers can pay 20 per cent upfront and then nothing until completion.

Closer to town, the Heritage Group is holding private previews for Vivace, a new 999-year leasehold project to be built at the former Tong Watt Mansion near Robertson Quay.

The 85-unit development has mostly small units, ranging from one-bedroom apartments of 388 sq ft in size to penthouses of 990 sq ft. Prices are understood to start at about $580,000, or about $1,500 psf.

There are also a number of developers that have cut prices or are offering carrots to buyers.

Novelty Group, for instance, has lowered the price of its Lucida project along Thomson Road. The 62-unit development was launched at close to $1,600 psf early last year, but is now selling at about $1,200 psf.

The one-bedroom units are 624 sq ft in size, while two-bedroom apartments are 1,066 sq ft.

In the East Coast, the asking price for Mountbatten Suites has fallen from $1,100 psf at its launch to over $900 psf now. The developer is reportedly offering deferred payment and absorbing stamp and legal fees.

Frasers Centrepoint is also giving renovation vouchers to buyers of its Woodsville 28 project in Potong Pasir. Two-bedroom units come with a $20,000 voucher, while buyers of a three-bedroom unit get $30,000. Prices remain at $850 psf on average for the freehold development.

For the rest of the year, interested buyers can look out for three offerings from City Developments, which is planning to launch Phase 2 of Livia in Pasir Ris, The Arte in Thomson Road, and the Quayside Isle in Sentosa Cove.

While the prices for the last two projects have yet to be finalised, prices start at $797,000 for a three-bedroom apartment at Livia.

Far East Organization is also understood to be planning to launch the latest phase of cluster houses in its Greenwood landed housing development, as well as a new 99-year leasehold project in Choa Chu Kang.

Source : Sunday Times - 4 Jan 2009

Number of cases has jumped by 8,000 since year-end 2003, making up 8% of all such loans

The number of home buyers defaulting on their home loans for three months or more has risen significantly over the last five years.

Figures obtained by The Sunday Times from the Housing Board show that the number of these defaulters has jumped by about 8,000 since the end of 2003.

Also, such defaults have climbed from 5per cent to 8per cent of all HDB home loans.

The figures underscore what seems to be a growing problem. From one in 20 borrowers being in arrears, the proportion is now one in 12.

Parliament was told recently that 33,000 out of 420,000 HDB home loan borrowers were in arrears for more than three months.

When asked for historical data, HDB said that at the end of 2003, 25,000 flat owners out of the 517,300 households with HDB loans were in similar arrears.

At the end of 2002, the number was even lower - at 4per cent, or about 21,800 of the 540,000 households.

On the decreasing number of total HDB loans, market analysts say this is likely due to new rules that took effect on Jan1, 2003, which stated that those upgrading their flats for a second time, as well as all downgraders, must borrow from banks instead of the Housing Board.

HDB loans - which offer a concessionary rate - are available only for first-time buyers or first-time upgraders.

Analysts told The Sunday Times that the increase in defaulters was likely due to the fact that HDB flat prices were ‘very much lower in 2003′ than they were last year.

HDB flat prices have risen steadily over the last four years during Singapore’s property boom to a ‘new peak’, said ERA Asia-Pacific associate director Eugene Lim.

‘Incomes were also on the rise. During good times, it is possible that some home buyers overstretched in a rising market and may now be in a fix as the economy sinks into recession,’ he said.

HDB flat prices enjoyed a spectacular bull run with a 17.4per cent gain in 2007, the strongest growth in a decade.

Latest estimates last Friday showed that while private property prices fell 4.3per cent last year, HDB flat prices rose a further 13.9per cent.

Property agency PropNex’s chief executive officer, Mr Mohamed Ismail, said an increase in affluence and higher costs of living over the last five years could have contributed to the higher incidence of people being in arrears.

Finally, HDB rarely repossesses defaulters’ flats, leaving their numbers to accumulate in the system. Some home owners in arrears can take up to a few years to pay off debts.

Still, the number of HDB home owners in trouble is clearly on the rise.

Members of Parliament interviewed confirmed the trend, noting a rise in residents seeking help for home loan problems at their Meet-the- People sessions.

Dr Teo Ho Pin, Mayor of the North West District, MP for Pasir Ris-Punggol GRC Teo Ser Luck and Aljunied GRC MP Cynthia Phua are among those who have noticed the trend.

In many cases, said Dr Teo, home owners were retrenched or had to switch to lower-paying jobs and could not maintain their loan payments.

‘A lot of them are coming to me for help to find them jobs,’ added Mr Teo.

The MPs pointed out HDB’s various assistance measures, such as allowing for the restructuring of loans, postponing payments, and even helping borrowers to downgrade to smaller flats.

The HDB also said it has several comprehensive measures to help such cases.

Banks which give market-rate loans for HDB flat purchases say they have not yet seen a significant increase in the number of defaulters.

Maybank said there had been a slight increase ‘but nothing at an alarming rate’.

OCBC and DBS said there had been no significant increase in arrears.

Mortgage consultant Dennis Ng from portal www.HousingLoanSG.com said banks generally charge defaulting home owners higher interest, but will, on a case by case basis, help those facing difficulties to restructure their home loans.

Repossession of their flats is a last resort.

Looking ahead as the recession deepens, MPs said more HDB borrowers will probably have problems paying off their mortgages.

Madam Phua said the limited supply of smaller flat types could become a problem that needs fixing quickly as families start to downgrade.

The HDB is addressing this by beefing up the supply of two- to three-room flats to around 4,000 over the next two years for lower-income families and those home owners who need to downgrade.

These, however, will be ready only in two to three years. ‘We’ll have to explore other options in helping such default cases in the coming year,’ said Madam Phua.

Source : Sunday Times - 4 Jan 2009

Two years ago, renovation contractor Ting Kah Ping was up to his neck in debt, owing the Housing Board more than $80,000 for his home loan. He was unable to meet the instalments.

Today, the father of four owns a flat without an outstanding loan - and he said it is thanks to the HDB.

Mr Ting, 54, and his wife bought a four-room flat in Tampines in 1998 for $112,800 but started having problems paying the instalments about five years ago.

Work as a renovation contractor was inconsistent and he was unable to service his loans regularly. He approached the HDB for help and it agreed to let him make smaller payments and, for a time, postpone his payments for half a year.

Still, despite his wife taking on part-time jobs while looking after their four children, now aged 11 to 21, they had difficulty paying their debts.

The HDB advised the couple to downgrade their flat and, earlier this year, they sold their home for $303,000. With the money, he bought a three-room home nearby and fully paid up his debt to the HDB.

‘I’m just glad the HDB did not force me to give up my flat or take it back. I think banks wouldn’t have had as much patience,’ Mr Ting said in Mandarin.

He is one of many home owners whom the HDB hopes to help with its various initiatives.

The board will consider allowing them to pay reduced loan instalments on a temporary basis and work out a solution to their financial situation.

Owners can also sublet a room to generate income, or include working family members as joint owners to help pay for the flat.

The board may also consider providing an additional HDB loan to help owners downgrade to a smaller, more affordable unit.

Source : Sunday Times - 4 Jan 2009

SISV Services is fixing problem with caveats lodged for some subsale deals

PRIVATE home prices have fallen but in some cases, the drop may not be as much as suggested by SISV Services’ Realink database.

Savills Singapore has spotted more than 60 instances of ‘duplicate caveats’ listed at different prices for the same transaction and which give the impression of a unit changing hands within a span of a few months at a significantly lower price, when in fact it hadn’t.

The common thread running through these cases is that they involved subsale deals transacted in the past six months for projects which either received Temporary Occupation Permit in 2008 or are nearing TOP.

For example, Realink shows a caveat for a 47th floor unit at The Sail @ Marina Bay sold in the subsale market in September for $508,024 or $858 psf, when actually the unit was sold for $1.45 million or $2,450 psf and which was caveated three months earlier (and also shown in Realink). The lower price was the price at which the developer first sold the unit back in 2005.

In another instance, Realink shows a caveat for a unit at Park Infinia at Wee Nam in November for $1.16 million or $868 psf, one-third lower than the $1.77 million or $1,325 psf caveat lodged for the same unit two months earlier. Actually, both caveats were lodged by the same buyer, who paid the higher price.

Rodyk & Davidson LLP partner Tang Woon Ee told BT that it was ‘good practice’ to advise clients who buy in the subsale market to lodge two caveats. The first is when the buyer exercises his subsale option and has to fully pay up the initial 5 per cent deposit; this caveat will reflect the actual transacted price.

Then, two or three months later, when this subsale transaction is completed and the buyer enters into a fresh sale and purchase agreement (SPA) with the developer, the buyer should lodge another caveat to protect his interest in the unit. This fresh SPA will reflect the original price at which the developer sold the unit, since this is the price it is entitled to collect.

‘So if the developer originally sold the unit to Buyer 1 for $1 million and Buyer 1 later sells to Buyer 2 in the subsale market for $1.2 million, the fresh SPA issued by the developer to Buyer 2 will still reflect the $1 million price; the profit (or loss) made by Buyer 1 from his subsale transaction is not relevant to the developer,’ Ms Tang explained.

As a result, the original sale price of the unit gets reflected in the second caveat lodged by the purchaser in the latest subsale deal. In this instance, two caveats will be lodged by Buyer 2 for the same transaction - the first at $1.2 million followed by another a few months later at $1 million.

SISV’s Realink database, by listing both caveats, gives the impression that the price of the unit has fallen about 17 per cent in the past three months.

Said Ms Tang: ‘A caveat is a legal claim against a property. When the developer issues a fresh SPA to a buyer who picked up his unit in the subsale market, it establishes a relationship between the buyer and the developer - that’s a caveatable interest.’

SISV Services is in the midst of rectifying the problem, which has been caused by the service provider not eliminating ‘duplicate caveats’ lodged for subsale transactions which show the original price at which the developer sold the unit a few years ago (and which is listed in the fresh Sale & Purchase Agreement issued by the developer to the latest subsale buyer).

An SISV Services spokesman attributes the problem in Realink to an increase in subsale cases involving projects originally sold on deferred payment schemes (DPS) as the original buyers who may have picked up their units from developers a few years ago are now feeling the pinch from the economic downturn and facing difficulty getting bank loans.

This has led to an increase in subsales being registered and duplicate caveats showing up, according to him.

To fix the problem, SISV Services has added a ‘history’ button, next to transactions with two or more caveats lodged, for the professional version of Realink. ‘Users can view the caveats’ history and if they see the latest price is identical to the initial transaction in the primary market say a couple of years ago, they can disregard the latest caveat as being a ‘duplicate’,’ the spokesman said.

‘For the free version of Realink available to the public, we are in the process of devising a computer programme to help us identify the duplicates, so we may remove them.

‘We didn’t remove the duplicate caveats earlier because we could not determine readily that they were ‘duplicates’ as we do not have the buyers’ names in the raw caveats data that we buy from SLA (Singapore Land Authority).’

Savills Singapore compiled a list of over 60 subsale transactions covering projects like The Sail, Cosmopolitan, The Esta, Park Infinia at Wee Nam, The Sea View, The Azure, Watermark, The Calrose and Parc Emily where Realink’s database showed latest caveats at significantly lower prices than caveats lodged for the same units just a few months earlier. Typically, the latest caveated price was also the original transacted price for the unit a few years ago.

Savills did individual searches for a few of these cases using Singapore Land Authority’s Inlis system and, in each instance, found two caveats being lodged for the property by the same buyer, just a few months apart - and with the second caveat at a lower price than the first.

Raw caveats data that SISV Services purchases from SLA does not contain information on the buyers’ or sellers’ identities to protect privacy. SLA confirmed that it provides identical data to both SISV Services and the Urban Redevelopment Authority.

Interestingly, URA’s Realis system does not list these ‘duplicate caveats’ that do not reflect the latest transacted prices.

When asked how it sifts out caveats lodged when developers issue a fresh SPA based on original sale price, a URA spokeswoman said: ‘If a caveat is lodged against a developer, we will ascertain whether it is a new sale or a fresh agreement arising from a subsale.

‘We do this by checking whether a caveat for the same unit has been lodged against the sub-seller, whether a previous caveat has been lodged for the unit when it was originally sold and also against our database on new sales compiled from monthly surveys of developers. If the caveat is lodged against a developer arising from a sub-sale, we will not show the record in Realis.’

On the duplicate caveats in SISV Services’ Realink database, Savills Singapore director for investment sales and prestige homes Steven Ming said: ‘Analysts who do not distil the information carefully can come to very wrong conclusions of the market, thus further aggravating the already weak market conditions.

‘Had end-users, investors and property owners relied on such data without first seeking a professional opinion, they can easily be making a misinformed decision as a result.’

There may also be a minority of rogue agents who may use such erroneous low-priced caveats to their advantage in convincing less savvy owners to close on low offers given market conditions, he added.

Source : Business Times - 3 Jan 2009

Some consultants notice yawning bid-ask gaps leading to distressed transacted prices

IN its worst showing since Q4 1998, the official private home price index slid 5.7 per cent in Q4 last year over the preceding quarter. For full-year 2008, the index fell 4.3 per cent, reversing a 31.2 per cent jump in 2007.

Property consultants are predicting a further decline of 10-20 per cent this year in the benchmark index, with upmarket homes continuing to be the worst hit, as in 2008. This sector was the most overheated during the run-up in 2006 and 2007.

‘The bid-ask gap is very high; any buyer that comes in now wants to make sure he’s buying at very attractive prices to cushion against future risk. As a result, most transacted prices are quite distressed,’ said DTZ executive director Ong Choon Fah.

BT understands buyers are looking at prices at least 20 per cent below Q3 2008 levels before they are willing to commit.

URA’s non-landed private home price index for Core Central Region (CCR) fell 6.3 per cent quarter-on-quarter in Q4, or a full-year drop of 5.5 per cent. CCR includes the prime districts, financial district and Sentosa Cove. In the Rest of Central Region, the price drop was 5.5 per cent for Q4, and 4 per cent for the full year. Outside Central Region, a proxy for suburban mass-market locations, suffered the smallest declines, of 4.7 per cent in Q4 and 1.6 per cent for the whole year.

The declines in URA’s indices were far smaller than the price drops estimated by property consultants. CB Richard Ellis said that last year, average prices of new luxury homes under construction fell 30 to 35 per cent for prime districts 9 and 10, while those in Marina Bay and Sentosa Cove eased 10-13 per cent.

URA’s price indices are weighted according to the moving average mix of transactions for the preceding 12 quarters, and this tends to make changes in the indices more muted during sharp market swings.

For this year, JP Morgan analyst Chris Gee said: ‘The critical factor that will affect private home prices in 2009 - probably more importantly than the economy and jobs market - will be banks’ financing of property. Banks seem happy to lend to the right type of buyers, but they’re more conservative on valuations and tighter on loan-to-value.’

As for developers, smaller players have already started to chop prices. ‘Among bigger developers, some are restructuring their portfolios and re-evaluating their risk positions,’ DTZ’s Mrs Ong noted.

A seasoned developer pointed to a diversity of strategies among developers, according to their financial strength, profit margin for each project and their view of when the recovery will take place. ‘Some will cut and sell; some will package things that effectively give more discounts; some will lease instead of selling; some will just sit it out and wait for better times.

‘Projects will be slowed down or delayed, stretching out the supply coming into the market, which in itself is a regulating mechanism,’ he said.

In the public housing segment, the Housing & Development Board’s (HDB) resale flat price index still inched up 1.5 per cent quarter-on-quarter in Q4 to scale a new peak. But this was slower than the 4.2 per cent rise posted in Q3.

ERA Asia Pacific associate director Eugene Lim said: ‘We’ve been seeing more transactions with decreasing cash-over-valuations (COVs). The days of transactions with above $50,000 COVs are over.’

He is predicting a sub-1 per cent rise in the HDB resale flat price index for each of Q1 and Q2 this year. ‘If the recovery takes longer, we may see the price index flatten in H2 2009 before decreasing, if the situation worsens.’

Knight Frank director Nicholas Mak predicted a 5 to 10 per cent correction in HDB resale flat prices this year, as the weakening economic conditions filter into the HDB market.

ERA’s Mr Lim noted that ‘in uncertain times, home buyers go for the ’safer’ option of HDB flats to ease their financial burden’. He estimated 30,000 to 31,000 HDB resale transactions were done in 2008 - surpassing the 29,436 in 2007.

As for the private housing sector, CBRE predicted developers may sell 5,000-6,000 units in 2009, as falling prices boost take-up. It put the figure for last year at 4,300 to 4,400 units - just 30 per cent of 2007’s record volume. Sales also slowed in the secondary market. CBRE estimated about 7,400 to 7,600 resale deals were done last year - against nearly 21,000 transactions in 2007. The 1,600 to 1,650 subsale deals it estimated for 2008 were also a far cry from the 2007’s figure of 4,863.

Source : Business Times - 3 Jan 2009

Economic slowdown expected to lead to people downgrading later in year

PRICES of HDB resale flats have continued to rise even as the economic downturn takes its toll on jobs, wages and private home prices.

But analysts warn this recent steady rise may not last long.

According to flash estimates of HDB’s Resale Price Index released yesterday, prices of flats in the fourth quarter of last year rose 1.5 per cent over the preceding quarter.

This figure is considerably lower than the 4.2 per cent increase in the third quarter, and it is the first time that growth has dipped below 3 per cent in six months, said real estate agency PropNex.

But while average prices of HDB resale flats are now at an all-time high, property analysts say that they are likely to dip some time this year.

‘Sentiment is pretty soft as many people are taking a wait-and-see approach,’ said Mr Eric Cheng, executive director of HSR Property Group. ‘If prices dip, they will do so in the second and third quarters of this year.’

Mr Eugene Lim, associate director of ERA Asia Pacific, said: ‘With the economy likely to contract further and more layoffs expected in the months ahead, home buyers have become very practical.

‘In uncertain times, home buyers go for a ’safer’ option - HDB flats - to lessen the financial burden. This is especially so for the ’sandwiched’ class that may find private housing a little too stretched for their comfort.’

Mr Nicholas Mak, Knight Frank’s director of research and consultancy, said: ‘Buyers are increasingly cautious and prefer to purchase HDB flats instead of private homes to limit their exposure to the uncertain market. A number of homeseekers are re-aligning housing requirements from aspirations to functional needs.’

He expects prices to remain flat in the current first quarter, and overall prices to drop 5 to 10 per cent in the full year.

‘At the moment, there are still people who need homes. But the economic slowdown and job losses will eventually cause some people to downgrade from larger flats to smaller ones, and only by the second quarter will we start to see a pronounced rate of decline,’ he added.

PropNex chief executive Mohamed Ismail is slightly more optimistic.

‘If the economy does not improve… there will be more downgraders and cautious home buyers in the wake of retrenchments and tighter budgeting. If more people shy away from the bigger flats above the $500,000 mark, it’s just a matter of time before prices dip.’

‘Clarity will come in the second half of the year. But we should still see overall average growth of between 3 and 5 per cent in 2009.’

What seems certain to decline, however, are cash-over-valuations (COVs).

‘The days of transactions with above $50,000 COV are over. Remote exceptions are well-renovated flats with unobstructed, panoramic views,’ said ERA’s Mr Lim.

Mr Ismail agreed: ‘Today, the bigger flats that are valued at $500,000 and above on the resale market can sit without a buyer for two to three months. The en bloc frenzy of last year has already dwindled, affecting the demand for the bigger flats.’

Added Mr Lim: ‘We are thus likely to see the COV statistics continue to decline in the coming quarters.’

Source : Straits Times - 3 Jan 2009

PUBLIC housing resale prices have stubbornly continued to climb even as private home prices are accelerating downhill and pundits are betting on flat prices still holding firm this year if not seeing a modest single-digit growth, then staying level for the most part.

Flash estimates from the Housing and Development Board (HDB) showed that its resale price index grew by 1.5 per cent in the fourth quarter, after six quarters of robust growth of at least 3 per cent per quarter.

On the heels of this slower growth, ERA which has a 45-per-cent market share of the resale flat market predicts a “sub-1-per-cent increase” in resale prices in the first two quarters this year.

“If the (economic) recovery takes longer, we may see the price index flatten in the second half before decreasing if the situation worsens,” said ERA Asia Pacific associate director Eugene Lim.

PropNex chief executive Mohamed Ismail was even more bullish, expecting 3- to 8-per-cent growth this year. This would be slower than last year’s estimated 13.9 per cent overall increase in prices, but there would still be growth as demand exceeds supply, predicted Mr Ismail.

But one analyst found a certain “perversity” in the buoyancy of the resale market. Calling the 1.5-per-cent growth in the last quarter “alarming”, in light of the recession and gloomy outlook, Chesterton Suntec International research director Colin Tan asked “Why are people buying? Why are they paying a higher price despite the fact that their incomes may be affected in the future?”

As the market’s resale prices are factored into HDB’s pricing of new flats, the overall rise in the prices of public housing coupled with more expected job losses ahead could work out adversely for prospective buyers, he said.

Nonetheless, prices should be tightly reined in by an almost zealous reluctance by buyers now to fork out cash above valuation (COV). “The days of transactions with above $50,000 COV are over,” said Mr Lim.

With further economic contraction expected, buyers have become “very practical”, he said “Most start by making offers below valuation, and invariably, most deals today are closed at valuation, or at most $5,000 to $30,000 over.”

What most of the property players Today spoke to agree on, is that smaller flats three- and four-room units will benefit from strong demand.

Mr Ismail expects prices of three- and four-room flats to grow by 5 to 8 per cent, and larger flats to post increases of 1 to 3 per cent. “There will be more downgraders and cautious home buyers in the wake of retrenchments and tighter budgeting,” he said.

Mr Victor Ong, 29, of Huttons RealEstate Group, said foreigners, too, were eyeing smaller units.

The resale price index for the full quarter, as well as more detailed public housing data and upcoming new flat supply, will be announced at the month’s end.

Source : Today - 3 Jan 2009

THE comparison rings with foreboding the last time private home prices took a bigger dive than this, it was exactly a decade ago, in the midst of the Asian financial crisis.

In the last three months of 2008, the private resident property price index dropped 5.7 per cent, more than double the rate of decrease a quarter ago, according to flash estimates. The final tally due for unveiling in four weeks’ time which would include dismal sales data from the last two weeks of December could be even more depressing.

And in the year ahead, with the worst yet to come for the economy, analysts are warning that prices could decline by 10 per cent at best, and more than 25 per cent at worst.

For some private home-owners, this brings back dark echoes of 1998, when prices tumbled by one-third.

The biggest plunge of 13.2 per cent came in the third quarter, followed by a 8.7 per cent slide before prices finally rebounded.

Already, the last three months’ drop in private residential property prices is more than what some analysts had expected, which was a 3- to 4-per-cent dip. But does this herald a repeat or worse of the market’s performance in 1998?

Property experts Today spoke to would not commit to saying so, but it was clear the usually upbeat lot was taking a subdued view of the future.

“This (current drop) could mean that there’s some sort of breakthrough,” said Chesterton Suntec International research director Colin Tan.

“There has been a stalemate all this time in the market, but we can tell for certain that the prices are coming down now.”

Investors vs buyers: Who will out wait the other?

Overall, prices of private homes dipped a modest4.3 per cent year on year. How far prices will come down this year would depend on property investors rather than developers, said analysts.

Unlike 10 years ago, when developers were giving discounts on their surplus properties, this time it is individuals who bought during the “unusual” property boom in recent times who are now setting the prices.

In the current climate, it’s often about how long they can hold on to their properties before selling it at a loss, or whether they can hold out for the next upswing. Indeed, the last quarter’s decline in prices could be due to the “overly-invested” looking to raise quick cash or make a quick exit, said ERA Asia Pacific’s associate director Eugene Lim.

For now, those investors with enough fortitude are holding out for as long as they can.

“Sellers are not willing to let go at fire sale prices. And a lot of agents are optimistic that things will pick up; the overall feeling is better than in the last financial crisis,” said property agent Angeline Chong, 35.

But, by and large, buyers have the definite upper hand. Most, especially in the high-end segment, says Mr Lim, are waiting in anticipation of price decreases, and astute ones are shopping around for value buys.

Agent Peter Yu, 40, who has seen the ups and downs of the market since 1988, said: “1997 was a crazy time, and so was last year, but people are still buying … It’s all about price, it’s a buyer’s market.”
Developers have muscle to hold on

Meanwhile, developers are likely to hold off new property launches for now, and focus on clearing unsold units in currently marketed projects.

According to CB Richard Ellis, six major mass-market projects launched this year had sold just20 to 46 per cent of units as of end-2008.

This year and the next will also see more than 7,000 units bought under the Deferred Payment Scheme completed. With the financial crunch and banks tightening credit lines, it is a question of how many may be returned to developers should buyers fail to find the needed financing.

Still, price cuts by developers are unlikely as “many of them have done well over the last two years” and have the financial muscle to wait out the downturn, said ERA’s Mr Lim.

The one segment that has seen the greatest dive in prices last year: Luxury homes.

According to CBRE, new projects under construction in districts 9 and 10 saw a 30- to 35-per-cent fall in prices; those in the much touted Sentosa Cove and Marina Bay experienced a 10- to 13-per-cent dip.

But overall, adds CBRE: “The fall in prices may encourage sales and push take-up volume to 5,000 to 6,000 units for the entire year.”

Source : Today - 3 Jan 2009