Contents of the Monthly Update
(A) Uncertainties reign in the larger market
(A.1) Worries of poor corporate earnings due to inflation sidelined fund managers
(A.2) Top of US government’s worries are oil prices and inflation
(A.3) Job layoffs amidst uncertain global outlook
(A.4) Capital inflow to Asian real estate to continue
(A.5) Singapore ranked world 6th in fastest growing millionaires
(B) Private Property Sale in Singapore
(B.1) Performance of big-ticket properties
(B.2) Private new home prices easing
(B.3) Developers turn landlords as rents and construction costs stay high
(B.4) Foreign buyers still buying into Singapore success story
Annex A – Singapore is world 6th fastest in having Hign Net Worth Individuals (HNWI)
Annex B – Current apartment rents
Monthly Property Market Update for JUNE 2008
Introduction
June 2008 was overshadowed by the media hype of a number of public launches of mid-market new home projects such as Dakota Residences, Clover by the Park, Parc Sophia and the high-end Nassim Residences.
The URA’s announcement of the 55% jump in the sale of private new homes in the preceding months added some dressings to the shop-window, but to the initiated, the underlying truth is not as ‘Ra Ra’ as that on the surface. This is because the huge percentage increase was a result of a very pathetic showing in the preceding months (See Table [1] below).
There is definitely some media hype being built up in the past weeks to dilute the fact that seller’s price have been shaved off some 10% to 15% and more new projects to be launched soon will come with more humble price tags. While the market forces are being played out, it won’t hurt to bring in some drum beats.
Table [1] – monthly primary sale figure from January 2008
Month Primary sale
Jan 320
Feb 174
March 174
April 274
May 441
Source of info: URA website
Private property prices may have reached its plateau
In terms of prices, the price growth in Q2 2008 was much slower than Q1 of this year.
Table [2] – Prices of condos/apartments went up by the following percentages
Areas % increases (1Q) % increases (2Q)
Core Central Region (CCR) 3.8% 0.2%
Rest of Central Region (RCR) 3.3% 0.7%
Outside Central Region (OCR) 3.8% 1.3%
For the first time since the second quarter of 2007, private residential property price growth has almost halted for CCR and RCR. Even though prices in OCR have appreciated, they are actually crawling out of the valley as this particular region had missed most part of the bull-run last year, for example, some new private condo projects in Bukit Panjang, Sengkeng, Yishun areas did not do very well since the middle of 2007.
In short, June 2008 may mark the beginning of a slower growth phase with a probable gradual decline in price trend. This may trigger off the ‘competition to sell’ among housing developers in Singapore as more completed new homes are available for occupancy
A) Uncertainties reign in the larger market
The global situation, especially the decline of the US economy and the soaring food and oil prices, remains the vital factor affecting the property market performance in Singapore. June ushered in some mixed indicators which, taken together, provides a blurry, wobbly and ‘out-of-focus’ image. In short, the market prospect is still uncertain in many ways.
The ongoing energy crisis and massive inflation have definitely plunged the world into a greater depth of chaos in June this year. Most legitimate governments in the world, from the US to England, PRC China to South Korea, and from Thailand to Indonesia are facing mounting pressure every each day from their own people stricken by soaring food and energy prices. Singapore is perhaps the only exception - this is a place where calm and reasons prevail. TV images of fare cheats being caught at MRT stations presented a sharp contrast to all the video footage of unrest and chaos in the rest of the world.
In June, Singapore witnessed the record-breaking CPI inflation figure standing tall at 7.5% while the mass transport companies are stretching out the long arm of the law rounding up all fee dodgers (also called fare cheats) with a strong sense of mission. The ironic picture tells not a thousand but just three words, that is, ‘times are bad’ – even for the big boys.
Here are some market highlights in June that may provide the cues for the property market direction in the near term.
(A.1) Worries of poor corporate earnings due to inflation sidelined fund managers
A Merrill Lynch global survey released in June showed that the vast majority of fund managers believed that inflation is the greatest single threat to financial market stability.
As the fear of stagflation – defined as massive inflation during a period of economic stagnation – gains currency, fund managers are moving away from the stock markets and preferring to hold more cash in hand. This is because a majority of the fund managers believe that corporate earnings would be hard hit if the current situation persists.
In the survey, 27% of fund managers said that stocks are overvalued compared to only 5% in March 2008. Compared to 25% in March, only 1% said that stocks were undervalued.
The Asian stock markets have been particularly hit by such apprehension as US$4.66 billion (S$6.4 billion) of Asian stocks have been dumped by the foreign fund managers.
Shanghai has been the worst hit with 46% of its capitalization wiped out. Only less than 8% of the stock punters there had made money this year. Singapore is the second hardest hit with 13% of shares value wiped off.
(A.2) Top of US government’s worries are oil prices and inflation
The US Federal Reserve Chairman, Ben Bernanke is a worried man. While it is very clear that there will not be any further rate cut or hike, Bernanke warned that economic activity will still be weak in the second quarter of 2008.
The unemployment rate hit 5.5% in May and rising oil prices are putting pressure on growth and causing the very severe inflation to spread. While the US$168 billion stimulus package is said to have eased the credit crunch and housing woes, the Fed Chairman said that the government will continue to monitor and take remedial actions when necessary.
(A.3) Job layoffs amidst uncertain global outlook
Domestically, a cause for worries is the number of layoff from the high-value manufacturing sector. Though more new jobs are created, they are in the low-value-adding construction sector which employs mostly foreign construction workers.
The latest job figures released by the Ministry of Manpower (MOM) confirmed the state of flux in the Singapore job market.
In March the unemployment rate was 2%, up from 1.7% in December 2007 whilst job vacancies jumped from 37,400 to 38,200 in the same period.
At the same time, a still tight labour market pushed nominal earnings in the first quarter of 2008 (Q1) up 11% over the year - much higher than the 4.3% in the preceding quarter (Q4 2007) and 5% in Q1 2007.
MOM also added that employment continued to expand strongly in a healthy economy, but were cautious about the future due to an uncertain outlook.
(A.4) Capital inflow to Asian real estate to continue
However, there is some good news. Spooked by the grime prospect of the housing crisis in the US and UK, many overseas real estate funds are heading towards Asia. A recent report by KPMG noted that the inflow of capital into Asia's real estate market is accelerating and the momentum will continue due to higher returns in Asia.
Total investment in the region has continued to increase, growing by over 27% in 2007 to reach US$121 billion with Japan grabbing half of the pie and China following close behind.
Japan accounts for half of 2007’s real estate transactions and China continued to produce attractive returns for investors.
(A.5) Singapore ranked world 6th in fastest growing millionaires
A report by Merrill Lynch and Capgemini showed countries in Asia and the emerging markets have been ranked in the top ten as having the fastest growing wealthy population in 2007 with Singapore coming in sixth. The report tracked the wealth of the world's high net worth individuals - defined as those with investible assets of US$1 million.
For Singapore, the report finds that the number of Singaporean wealthy individuals rose 15.3 per cent to about 77,000. The average wealth per individual is estimated to have risen from US$4 million previously to US$4.9 million. This is higher than the global average wealth per high net worth individual (HNWI) of about US$4.04 million.
As for the type of investment, the report pointed out that more and more of the wealth are being placed in cash and fixed income assets. The expected economic slowdown has caused the wealthy to move away from parking their money in real estate and towards currencies.
Though not entirely good news, it at least provided clues that the HNWI may return to real estate investment in near term when the financial crisis has been resolved.
(B) Private property sales in Singapore
As pointed in the opening statement, Singapore is a picture of calm amidst the turmoil and unrest in other countries. The buying sentiment is likewise calm in the second quarter with the total sale figure standing at 3,027 residential units transacted. Given the time lag of around two to three weeks for caveat information to be available, the second quarter residential sale performance would very likely mirror the 3,200 transactions in the first quarter of 2008. In other words, despite the media hype surrounding the supposed successes achieved by the recent launches of a few mid-market home projects, the volume of private property transactions was actually very subdued in the second quarter.
Below describes the market performance of the various different property segments.
(B.1) Performance of big-ticket properties
(a) Investment sales
Total investment sales of Singapore real estate had dipped to $3.7 billion in Q2 2008. In Q1 2008, the volume of investment sales stood tall at $8.9 billion. The hefty 58% slide reflects the gloomy confidence in the property sector.
Investment sales are defined as deals with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.
(b) Good Class Bungalows (GCBs) sales
A total of 23 GCBs have changed hands so far this year for a total of $380 million. It is generally expected that there will be around 50 to 60 GCBs transactions for the whole of this year as the economy continues to stay on course for another year of moderate growth [See Annex A for an article on High Net Worth Individuals].
The estimated number of GCB transactions is lower than the 87 GCB deals totalling $1.15 billion transacted in 2007. In 2006, a total of 119 GCBs worth $1.23 billion were transacted.
(c) High end luxury apartment sales
At least 50 luxury apartments costing above $10 million each have been sold so far this year. So far, the highest-priced transaction is a $19.7 million ground-floor unit sold at Nassim Park Residences in June 2008.
The 50 transactions of high end apartments include units sold at Nassim Park Residences, Cliveden at Grange, The Tomlinson, The Grange and The Orange Grove condos.
From the look of it, this year’s transactions of luxury apartment is unlikely to follow last year’s act of 139 transactions.
(B.2) Private new home prices easing
The ominous sign of a fierce ‘competition to sell’ has emerged. Major developers have started slashing prices to off-load the high inventories of unsold new homes.
(a) High end projects
The more noticeable price reduction is seen at the Nassim Residences – one of the most prestigious addresses in Singapore. In June, 39 of 70 units launched were sold at a median price of $2,929 per square foot (psf). This is a far cry from the average $4,000 to $4,500 psf achieved by the Orchard Residences a year ago when the property market was red-hot.
(b) Mid-market projects
At the mid- range market, other examples include District 14 Dakota Residences in Dakota Crescent and District 10 Shelford Suites.
Units at Dakota Residences, a 348-unit 99-year leasehold project by Ho Bee Investment and NTUC Choice Homes are being offered at $950 psf compared to the targeted $1,000 to $1,100 psf.
Shelford Suites in Shelford Road by City Development Limited (CDL) has also started previews for its 77 units at about $1,600 psf on average lower than the previous target of $1,869 psf and $1,905 psf.
(c) More mass-market projects to be launched with reduced prices
With the help of the media hype, more developers are bringing out their armours from their closet before releasing more reduced-price mass to mid-market condo projects.
In the pipeline is Livia by CDL, a 740-unit condo in Pasir Ris which analysts are expecting to be offered at below $700 psf.
Also in the pipeline is The Dakota in Geylang. The 348 unit condo is expected to be priced at below $1,000 psf.
(B.3) Developers turn landlords as rents and construction costs stay high
A new trend has emerged as a result of the property market slowdown. Some developers who had bought en bloc sites but are now postponing any redevelopment until the market has picked up again, are leasing out the properties in the interim.
This situation has been prompted by three separate market developments coalescing together, i.e.
the market is still in demand for rental property with good qualities, such as convenient location, proximity to international schools, proximity to the Central Business District (CBD) and Orchard Road area etc.
rental income is still very strong [See Annex B for current rent figures]
the construction costs have soared to an unbearable point
For example, Koh Brothers who bought Lincoln Lodge for $243 million in June last year, decided to lease out the units for 6 months and thereafter on a monthly extension basis for about $2,700 to $4,500 per month.
Likewise, other major developers are also offering the rental option to their en bloc site sellers. GuocoLand offered residents short-term leases at Sophia Court in Adis Road last year, followed by Leedon Heights off Holland Road earlier this year. Frasers Centrepoint said it may offer short-term leases to the former owners of the 185-unit Flamingo Valley, a freehold site in Siglap Road that it bought for $194 million in February last year. And City Developments (CDL) has said it is still exploring the renting option.
(B.4) Foreign buyers still buying into Singapore success story
A recent study has noted that foreigners (including permanent residents) accounted for 28% of overall private home purchases in Q1 2008, up slightly from a 27% share in the preceding quarter. This shows that interests coming from overseas are still strong and this finding gives a shot in the arm that is badly needed. The foreign buyers never give up Singapore.
Indonesians and Malaysians continued to be the biggest buyers, accounting for 18% and 15% respectively of private homes bought by foreigners in Q1 2008.
More buyers from India are buying Singapore real estate, accounting for 14% in Q1 2008. Their share of the purchase was 11% in Q4 2007. Koreans' share slipped from 8% to 5% over the same period.
[See A4 for inflow of overseas real estate funds into Asia]
Annex A
Singapore is world 6th fastest in having Hign Net Worth Individuals (HNWI)
A June 2008 report by Merrill Lynch and Capgemini showed that Singapore is ranked within the Top 10 countries in the world as having the fastest growing population of High Net Worth Individuals (HNWI) in 2007. HNWI is defined as individuals with investible assets of US$1 million, excluding the property they are living in.
The number of Singaporean wealthy individuals rose 15.3% to about 77,000. The average wealth per individual is estimated to have risen from US$4 million previously to US$4.9 million. This is higher than the global average wealth per high net worth individual (HNWI) of about US$4.04 million.
Globally, the combined wealth of the world's HNWI rose 9.4% to US$40.7 trillion in 2007 which is lower than the 2006 growth of 11.4%, due partly to a slower pace of world economic growth.
The report ascertained that more and more of the wealth are being invested in cash and fixed income assets. The expected economic slowdown has caused the wealthy to move away from parking their money in real estate and towards currencies.
High Net Worth Individual (HNWI) Growth, 2006-2007
Growth (%) HNWI Population, 2007
India 22.7% 123,000
China 20.3% 415,000
Brazil 19.1% 143,000
South Korea 18.9% 118,000
Indonesia 16.8% 23,000
Slovakia 16% 4,000
Singapore 15.3% 77,000
United Arab Emirates 15.3% 78,000
Czech Republic 15.1% 17,000
Russia 14.4% 136,000
Annex B
Current apartment rents
A quick check with recent transacted rented properties reveals that as of July 2008, rental prices still hold firm and given the shortage of quality rental projects, residential rents look set to sustain their strong position for at least another six months.The table below layouts the rental prices of 2-bedroom apartments at various popular locations in Singapore.
Location District Rents Psf Rent Commence
Visioncrest D9 $6,000 $6.64 July 2008
Visioncrest D9 $7,000 $7.39 May 2008
Visioncrest D9 $6,500 $6.86 Mar 2008
Pebble Bay D15 $3,000 $3.75 May 2008
Costa Rhu D15 $4,100 $3.05 May 2008
Cote D’azur D15 $4,500 $4.06 May 2008
Makena D15 $3,600 $3.89 Jan 2008
Santuary Green D15 $3,900 $3.55 May 2008
Parc Oasis D22 $3,000 $3.80 May 2008
