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LATEST POLICY UPDATE - REVISED PROPERTY POLICIESANNEX AREVISED PROPERTY TAX RATES
From January 2011, there will be a three-tier property tax rate for all home owners. The first $6,000 of ANNUAL VALUE (AV) will be exempted from property tax. The next $59,000 AV will be taxed at 4% and the balance of AV above $65,000 will be taxed at 6%.
The property tax for non-owner-occupied residential properties as well as other properties will remain at a flat rate of 10% of AV.
As a result of the rate change, all owner-occupied homes will enjoy tax savings of $240 due to the exemption of the first $6,000 of AV. Owners of high-end properties will see increases in tax payable as follows:
WORKINGS OF THE NEXT TAX RATES
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Household A:
AV of $80K
|
Household B:
AV of $120K
| |
1st tier
|
$6,000 = $0
|
First $6,000 = $0
|
2nd tier
|
$59,000 x 4% = $2,360
|
$59,000 x 4% = $2,360
|
3rd tier
|
$15,000 x 6% = $900
|
$55,000 x 6% = $3,300
|
New Tax payable
|
$3,260
|
$5,660
|
Old Tax payable
|
$80,000 x 4% = $3,200
|
$120,000 x 4% = $4,800
|
New Tax Rate
|
$3,260
|
$5,660
|
Difference in tax
|
Household pays $60 more
|
Household pays $860 more
|
REVISED LOAN-TO-VALUE (LTV) RATIO
A home buyer will have to fork out more cash to buy a property with the latest change in the stamp duty rules. Besides, he will reap a smaller profit if he sells it within a year. Take, for example, a buyer who pays $1 million for a home before the rules changed and sold it in less than a year for $1.1million.
BEFORE THE NEW MEASURES
The buyer could enjoy LTV of 90% - so he could purchase the property with only $100,000 as a down-payment. By selling, he would have made a fast $100,000, less the stamp duty he paid when he bought the property - $24,600 under the stamp duty formula. That means he would pocket a profit of $75,400. [Return on capital: 75,400/100,000 = 75.4%]
AFTER THE NEW MEASURES
The buyer can only enjoy LTV of only 80% of the price which means a down-payment of $200,000. He would have made $100,000 minus his original buyers' stamp duty ($24,600), and now minus an additional sellers' stamp duty, of $27,600. This means a greatly reduced profit of $47,800. [Return on capital: 47,800/200,000 = 23.9%]
REVISED HDB POLICIES
On 5 March 2010, the Ministry of National Development introduced a series of measures to ensure financial prudence and to prevent ethnic enclaves in Singapore. This is hot on the heel of an earlier round of measures which saw the implementation of seller’s Stamp Duty for private properties sold within a year of its purchase; and the introduction of a three-tier property tax rate.
In Support of an Inclusive and Cohesive Home
EMPHASIS ON SINGAPORE CITIZENSHIP
The amount of CPF Housing Grant is reduced by $10,000 for families with only one Singapore Citizen (SC) and at least one Singapore Permanent Resident (SPR)
SPR can apply for a $10,000 Citizen Top-Up if they take up citizenship or if the couple has an SC child while still in ownership of the flat
PREVENTING SPR ENCLAVES FROM FORMING
With the above objective in mind, the following policies have been introduced:
A new SPR Quota for non-Malaysian SPR families buying resale flats
SPR families cannot buy flats in areas that have exceeded the 8% (block) quota and 5% (Neighbourhood) quota except from non-Malaysian SPR sellers.
The principle of SPR Quota is similar to Ethnic Integration Policy (EIP) – i.e. when the SPR quota is filled, SPR can only buy a flat from a non-Malaysian SPR
RESPONDING TO CHANGING DEMOGRAPHICS
For the Ethnic Integration Policy, the limits for the Indian/Others ethnic group have been increased by two percentage points to 12% at the Neighbourhood level and 15% at the Block level, in view of Singapore’s changing demographics
See below for EIP table
Ethnic Group Maximum Ethnic Limits
Neighbourhood Block
Malays (no change) 22% 25%
Chinese (no change) 84% 87%
Indians & Others 12% 15%
The status of changes of ethnic proportions is updated on a monthly basis.
Reinforcing of Owner-Occupation among HDB Flat Owners
The Minimum Occupation Period (MOP) for resale of non-subsidised flats (i.e. resale flats bought without CPF Housing Grant) is increased to 3 years.
The increase in MOP is regardless of whether the buyer takes an HDB loan, a bank loan or no loan at all.
The revised MOP policy will apply to resale transactions where applications are received by HDB from 5 Mar 2010 onwards.
Existing lessees of non-subsidised flats will not be affected, i.e. the original MOP of 2.5 or 1 year continues to apply to them.
In Support of Right-sizing and Financial Prudence
Second-timer households are no longer required to buy bigger flats to qualify for a second concessionary loan from HDB.
The second concessionary loan will be made available to all eligible households regardless whether they upgrade, downsize or move to the same flat type
HDB has reduced the amount of the second concessionary loan by the full CPF proceeds and part of the cash proceeds from the sale of the existing or immediate past HDB flats.
Flat buyers can keep half of the cash proceeds (including the cash deposit received) or $25,000 in cash, whichever is greater.
THOSE WHO BUY THE NEXT FLAT AFTER SELLING THE EXISTING ONE
Must use up to 50% cash proceeds from the sale of the immediate past HDB flat and all CPF balance to finance the purchase of the next flat.
This will apply regardless of when the previous HDB flat was sold
THOSE WHO BUY THE NEXT FLAT BEFORE SELLING THE EXISTING ONE
HDB will first grant them a bigger loan at commercial interest rates.
After the sale of their existing flat, they will have to redeem this loan with the full CPF refund and part of the cash proceeds.
Upon redemption, the loan will be converted to a concessionary rate loan
Lease Buyback Scheme to Benefit More Elderly HDB Households
To enable more lessees to benefit from the Lease Buyback Scheme, HDB has extended it to those owning 4-room and bigger flats.
PRIVATE RESALE VOLUME SOARED IN JANUARY/FEBRUARY 2010 PERIOD
There were 1,128 resale deals in January 2010 and 1,167 resale deals in February 2010 and these are 437% rise over the 210 resale deals in January 2009 and 382% rise over the 242 resale deals in February 2009.
WHO ON EARTH ARE BUYING THOSE HOUSES?
It has always been assumed that property rallies in Singapore are caused by massive foreign participation, especially at this moment with the inflow of ‘cheap money’ from Europe and the United States. It has also been frequently theorised that it was HDB flat dwellers that are cashing in on the appreciated value of HDB flats to move upscale into private homes.
Was it really an ‘upward mobility’ of the middle-income households who have so far been living modestly in the heartlands? Are we witnessing the ‘flight to quality’ due to an improved socio-economic circumstance of the middle-income groups in Singapore? Or is it a case of a typical property speculation gathering momentum?
The following TWO case studies seek to ascertain whether the recent property rally was fuelled:
(1) by the soaring resale prices of HDB flats; and/or
(2) by foreign participation.
Particular attention has been paid to two areas: (1) the purchaser’s profile of Singaporean purchasers; and (2) the nationalities of foreign purchasers with emphasis placed on the supposed participation of buyers from Europe, United Kingdom (U.K.) and the United States of America (USA) where most of the so-called ‘cheap money’ originated.
DID THE HDB FLAT OWNERS DO IT?
PRIVATE HOME OWNERS VERSUS HDB FLAT DWELLERS
The case study pitted private home owners against HDB flat dwellers so as to ascertain ‘who’ bought more of the houses in the first two months of the year. Table [2] shows that purchasers with private property addresses dominated the proceeding at popular and prime areas such as Districts 1, 4, 9, 10 and 11 in both January & February 2010
US ECONOMIC FRAGILITY AND HOUSING WOES ARE FAR FROM OVER
The fallout of the 2008 ‘free market’ failures in the United States (US) is claiming more victims in fresh foreclosures in recent months; and more desperate measures are being taken by the Obama administration to cope with the increasingly desperate situation in the US. Ironically in Singapore, the government was blamed by private developers for meddling too much in the free market which the former deemed too speculative for its liking.
NEAR ZERO INTEREST RATES TO STAY FOR SOME TIME IN THE UNITED STATES (US)
On 25 March 2010, the Chairman of the US Federal Reserve, Ben Bernanke, told the US Congress that the record ‘near zero’ interest rates are still needed to rev up the US economic recovery.
Mr. Bernanke cited the still-fragile economic conditions, and noted that inflation is low, which gives the Fed leeway to keep interest rates at rock-bottom levels. However, some analysts believe the rates will have to go up by the second half of the year.
MORE PRIME BORROWERS DEFAULTING ON MORTGAGES
According to a news report from New York on 25 March 2010, more of the prime borrowers (the opposite of sub-prime borrowers) who make up 68% of all home loans are defaulting on their mortgages in late 2009.
The delinquency rate of the prime borrowers was nearly 14% in late last year. The increase in seriously delinquent mortgages was most pronounced among prime borrowers, with an increase of 16.5% in the fourth quarter of 2009. The sharp rise in seriously delinquent mortgages is likely to lead to a rise in foreclosure actions.
MORE BAILOUT PLANS FOR HOME LOANS UNDER THE WATER
In the meantime, the Obama administration is announcing a plan to reduce the amount some troubled borrowers owe on their home loans.
The Federal Housing Administration, a government agency that insures home loans against default will get US$14 billion (S$19.6 billion) to grant new loans to home owners who are holding on to a negative equity. The fund is on top of the existing US$75 billion foreclosure-prevention program.
In addition, their existing mortgage companies will be able to receive incentives to lower their principal balances. The program also includes assistance to help unemployed homeowners keep paying their mortgages.
Taken in all the above facts, it means that the US housing woes are far from over and the fragile recovery may still stall due to on-going massive unemployment and other related problems.
HIGH INCOME GROUP SUFFER BIGGER FALL IN HOUSEHOLD INCOME
According to a Singapore’s Department of Statistics (DOS) report released in February 2010, higher income groups in Singapore suffered larger decline in household income in 2009. Consequently, income distribution among employed households in Singapore has narrowed.
Among all resident households, ‘median monthly household income from work’ dropped by $100 or 1.9% to S$4,850 in 2009 from a year ago. If CPI* in 2009 was taken into consideration, income dropped even greater at 2.5%.
*CPI = Consumer price inflation
In 2009, among employed households (those with at least one working person), median household income from work was S$1,090 for those in HDB one & two-room flats, S$3,190 for HDB three-room flats, S$5,560 for HDB 4-room or larger flats, and S$12,500 for private flats, condominiums and private houses. All these indices were lower in 2009 when compared with 2008.
GROWTH PROJECTION RAISED FOR 2010
The Ministry of Trade and Industry (MTI) said on 19 February 2010 that it expects gross domestic product to grow by 4.5% to 6.5% in 2010, up from a forecast of 3% to 5% made earlier in January 2010. For the whole of 2009, Singapore's GDP shrank by 2% following a revised 1.4% rise in 2008.
The government also raised its 2010 trade growth outlook to a range of 9% to 11%. It expects non-oil domestic exports to rise by 10% to 12% this year. It lowered its 2010 inflation forecast to 2% to 3% from the previous 2.5% to 3.5% due to a rebasing of the consumer price index.
However, it remains cautious for the economic outlook for the second half of the year.
MEASURES TO RID MARKET OF SPECULATORS
On 19 February 2010, the Ministry of National Development (MND), Ministry of Finance (MOF) and Monetary Authority of Singapore (MAS) jointly introduced a series of calibrated measures to rid the property market of speculative elements. The following measures to ensure a stable and sustainable property market were to take immediate effect, including:
(a) Lowering the LOAN-TO-VALUE (LTV) limit to 80% for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore (MAS). (However, purchasers of HDB flats that are financed by HDB’s concessionary loans are not affected by the revised policy.)
(b) Introducing a SELLER’S STAMP DUTY (SSD) on all residential properties and residential lands that are bought after 19 February 2010 and sold within a year from the date of purchase.
(c) From January 2011, there will be a 3-TIER PROPERTY TAX RATE for all home owners where the first $6,000 of ANNUAL VALUE (AV) will be exempted from property tax. The next $59,000 AV will be taxed at 4% and the balance of AV above $65,000 will be taxed at 6%. All owner-occupied homes will enjoy tax savings of $240 as a result of the exemption of the first $6,000 of AV. (The property tax for non-owner-occupied residential properties as well as other properties will remain at a flat rate of 10% of AV.)
[See ANNEX A for details on the revised property tax rate and implications of the change in Loan-to-Value (LTV) ratio and the implementation of the seller’s stamp duty.]
MORE MEASURES TO PREVENT OVERHEATING OF PROPERTY MARKET IN SINGAPORE
On 5 March 2010, another series of measures to ensure financial prudence and to prevent ethnic enclaves in Singapore were introduced by the Housing and Development Board.Government Introduces Two Measures To Cool Property Market
The Government has introduced two new measures that will take effect Saturday to temper sentiments and pre-empt a property bubble from forming in the private residential market.It said they will help to ensure a stable and sustainable property market.
The first is a Seller's Stamp Duty on all residential properties and residential lands that are bought after Friday and sold within one year from the date of purchase. The stamp duty will be applied at the standard ad valorem stamp duty rates for the conveyance, assignment or transfer of property.
Housing and Development Board (HDB) flats will not be subjected to the stamp duty as they are already subject to a minimum occupation period of at least one year.The Ministry of National Development (MND) said the objective of this new tax measure is to discourage short-term speculative activity that could distort underlying prices. It stressed that it is not targeted at the purchase of properties for owner occupation or longer term investment.
The housing loan limit will also be capped at 80 per cent of the private property's value, instead of the current 90 per cent. Loans granted by the HDB for flats - including those under the Design, Build and Sell Scheme - will still have a cap of 90 per cent.
MND said this is because HDB flats are already subject to other criteria to prevent speculation and encourage financial prudence, such as minimum owner occupation period and restriction on ownership to one flat per household.Explaining the rationale for the measures, MND said there is a risk that the market could overheat in the next few months, given the optimism fuelled by the economic recovery and low global interest rates.However, it noted that the current level of speculative activity is still lower than what it was at the height of the property market boom. Overall price levels are below the previous peak.
MND warned that any excessive exuberance will make the property market vulnerable to the continuing risks in the global economy.The Government described the new measures as "calibrated", saying it prefers to take small steps early, rather than be forced to impose more drastic measures after a bubble has formed.It will continue to ensure that there is adequate supply of housing to meet demand.
Sites that can yield 10,550 private housing units have already made available in the Confirmed and Reserve List of the Government Land Sales (GLS) Programme in the first half of 2010.
This is the highest supply quantum in the history of the GLS Programme.
HISTORIC LOW INTEREST RATE A BIG HELP TO INVESTORS
The received wisdom today calls for the investors to get their feet wet while bank interest rates are still at their historical valley so as to enjoy the fruit of passive income made possible by the unprecedented low costs of capital; rather than waiting for the interest rates to eventually rise when the economy gets better.
The same argument has converted many prospective buyers into believing that real estate investments are the best hedge against inflation.While there are no obvious flaws in the optimistic assessment of the current market, it is not to say that there are no inherent risks in property investments. But before we discuss the risks, here are some useful information on the candidates for sub-sales in this year and next.
WORST CASE SCENARIO
However, there is a flip side to the same coin. Luckily, it is not at all bad for the man in the middle – the real estate agents.Since the 2008 market dip, there have been some signs of incipient fears that some of the condo units which were purchased under the now-defunct Deferred Payment Scheme (DPS) at the height of the 2007 bull-run may be up for distressed sales due to the increasingly cautious banks. Some speculators may have their attempts at bank financing snubbed at these tentative moments.
Financial institutions in developed countries, including China, are being warned by their central bank to tighten credit risk management to prevent a runaway asset bubble. Some buyers who had back in 2007 taken advantage of the DPS may find themselves at the receiving end with the banks becoming more cautious after MAS had raised the alarm in November 2009.
The worst case scenario depicts a sudden collapse of the market confidence in Singapore after a few high profile defaults a.k.a. the Dubai World fashion.
BEST CASE SCENARIO
However, many property investors seem to have firmly subscribed to the best case scenario which forecasts that property prices will continue to rise by 3% to 5% in 2010, if not higher, because of the impending opening of the two Integrated Resorts.
However, regardless of how the scenarios pan out, this should be good news for real estate agents as the sub-sale volume should be much higher than last year due to the record number of new units ready for vacant possession and the uncertainties ahead.
And the best case scenario seems to be gathering currency at this moment as many housing developers are prepared to roll out the high-end projects that they had shelved in 2009 in anticipation of the better times ahead.
LOOKING OVER THE HORIZON
Buoyed by the renewed optimism, housing developers are lining up more projects located in districts 9, 10 and 11 as well as in Sentosa Cove and Marina Bay for launch in the first half of 2010.
A 228-unit condo in Sentosa Quayside and a 151-unit Seascape will be launched in Sentosa Cove.
In District 9, a 20-unit 42 Stevens was launched in mid-January 2010 at an average price of $1,900 per sq ft (psf). In District 10, 8 Nassim Hill has been launched at $3,100 psf on average in mid-January 2010.
A 229-unit The Laurels and the 64-unit Urban Resort Condo will be launched in the Cairnhill area.
Other projects will be in the vicinity of Ardmore Park, Emerald Hill Road, Handy Road, Thomson Road, Holland Residences, The Holland Collection, Emerald Hill Residences and a condo project along West Coast Crescent.
CDL and Hong Leong Group will commence construction on sites they bought in Chestnut Avenue in 2009. Two other GLS sites, Dakota Crescent and Serangoon Avenue 3 will be launched in the second half of 2010.
LEADING INDICATORS ANALYSIS FOR 2010 SINGAPORE PROPERTY MARKET
What kind of ‘Year of Tiger’ will 2010 turn out to be?
Will the TIGER roar or give out a cat’s ‘meow’? Will it be a Smiling Tiger, Toothless Tiger, or worst of all, a ‘Hello Kitty’?
SCENARIO #1 – YEAR OF THE ROARING TIGER
I have been told umpteen times in recent months that property prices will continue to go up because: ‘Singapore will have two casinos’. And many of them have reasoned that the two Integrated Resorts (IRs) will provide the sudden jolt to send property prices up another notch in Singapore.
The optimists believe we can throw all other factors out of the window for now – whether exports are rising or dropping, whether people are getting or losing jobs is not important.
In fact, I suspect such optimists comprise the vast majority of Singaporeans at this moment. It is little wonder that every other prospective property buyer is afraid that they might not be able to own their dream home.
To these optimists, the Tiger this year will be a symbol of awe and authority, and to them, the property market will continue to be a roaring seller’s market, regardless of what happens in the economy.
SCENARIO #2 – YEAR OF THE WOUNDED TIGER
But, for the optimists who think that the global financial tsunami is already behind them, they have failed to realise that while the developed economies may be the ones bearing the full brunt of the financial meltdown, small countries whose very survival depends on the purchasing powers of the richer nations cannot hope to be spared the aftermath of the meltdown.
It fact, all exporting countries in this world are caught in the intricate web of international trade and none of us can be insulated from the challenges faced by others in this long and tortuous road to full recovery.
For Singapore, the journey to a full recovery will likely be fraught with road bumps and challenges not unrelated to the dire situation in the United States and Europe.
Consequently, the Singapore government is right now running an unprecedented budget deficit to help alleviate the heavy burdens borne by the domestic exporters/employers with the massive $4.5 billion stimulus package.
But, the extension of the monetary incentives for another six months for the SPUR program and Jobs Credit Scheme, and for 12 months the Special Risk-Sharing Initiative, does little to quell the disquiet felt by the many who have been made redundant and are still without a job. How will the economy, which underpins the fundamental value of real estate, look like when the government’s generosity ends in July 2010? Will the disgruntles shift from the prospective home buyers to the home owners?
It seems the world has entered 2010 with a huge old excess baggage that has already delayed the economic take-offs.
Singapore economy shed 2.1% in a lean 2009
The GDP figure for the final quarter of 2009 might have lifted morale a little, but it certainly did not overturn the grim reality. The verdict is now out: Singapore economy shrank by 2.1% for the whole of last year. The figure seems mild but the implications are grave because we did fewer businesses in 2009 than a year ago which was also a recession year.
Singapore port and shipping business badly bruised in 2009
Other market indicators also did not bode well, starting with shipping – the lifeblood of international trade. According to Singapore Shipping Association (SSA), shipping rates were slashed desperately in response to the shocks caused by the drastic drop in demand for shipping services and the drying-up of letters of credit in 2009. On average, container volumes are believed to have dropped 20% to 30% on the main trades during 2009.
The Port of Singapore ended last year with overall throughput of between 25.5 million and 25.7 million twenty-foot equivalent units (TEUs) - about 15% down from 2008. This means that all the growth the port achieved in the bull-run year of 2007 was completely reversed.
One of the largest shipping lines, Maersk Line Asia-Pacific, suffered a half-year loss in 2009 which was its first loss in a century. In other words, shipping business had never been this bad before.
SCENARIO #3 – YEAR OF THE TOOTHLESS TIGER
US President Obama’s popularity has fallen sharply after only one year in the White House. His party has just lost by almost three to one the Senate seat in Massachusetts that the Democrats had held since 1953. Earlier, President Obama also lost two governors – one in New Jersey and the other in Virginia. Cumulatively, the successive defects were resounding as they were embarrassing.
And at this critical moment while the world needs a strong leader to rescue it from the worst economic recession, the man who is supposed to be wearing the biggest pair of shoes (it looks like a size 10) is fighting to retain his own supporters who are quitting his Facebook as quickly as they had joined it earlier.
And the economic restructuring works have barely begun.
President Obama now has no choice but to shift his policy stance towards the centre where he will be seen spanking the greedy investment bankers and top Wall Street executives to avoid antagonising more of his own main street supporters.
US appears to have lost its superpower swagger And, on the world stage, much as we hate to admit, Uncle Sam appears to have lost a lot of his teeth.
As the largest debtor nation in the world, the US now needs to deal the right card with its opposite number, China – the largest creditor nation to the US. The Chinese are wasting no time in flaunting its new found influence and it has been seen throwing its weight around on a few high-profile occasions, for example, it sent a relatively junior official to meet President Obama in the recently concluded Copenhagen summit on climate changes.
Unfortunately, at this moment, China is far from being a suitable substitute to take over the global leadership position from the US; nor is China able to replace the US as the largest importer of consumer goods from the rest of the developing countries.
Quite the contrary, China is facing problems of a mammoth scale on its own and needs other major powers including the US and EU to continue to absorb its millions of ‘made in China’ products. In other words, neither China nor the US is able to offer much help to unravel the current financial mess.
The world economy is still in serious trouble and none of the major players have enough teeth to ensure consensus – a pre-requisite to identify the cause of the problems, let alone solving them.
As such, this year may turn out to be a year of the toothless tiger.
Nobody can lend you the money now
At this moment, many unknown factors are still lurking around every corner of the globe and nobody can be 100% sure that no other developed countries would suddenly ‘drop a bomb’ – so to speak - before going down the same slippery lane as Greece and Spain. Quite the contrary, everyone seems to be sure that more ‘bombs’ will go off in 2010 than last year – both factually and figuratively speaking.
It may well start with Singapore where a ‘time-bomb’ is ticking at the new home market where more than 10,000 quality condominium units will be ready for occupancy from this year onwards.
SCENARIO #4 – YEAR OF THE SMILING TIGER
Will the property sector in Singapore see a smiling tiger this year?
Should property buyers rush in before the official opening of the highly-hyped Integrated Resorts (IRs) or should the buyers wait for a little longer for better bargains?
To answer these questions, one has to be very certain of the economic fundamentals behind any country’s prosperity that underpins real estate value.
Will wage earners be smiling in 2010?
The symptom of the weak export and convalescent economy also shows up in the wages Singaporeans are getting from their bosses. It seems that 2010 may be a year of minimal wage growth, if at all.
This is because a Singapore Manpower Ministry survey published on 1 December 2009 showed that the median monthly income of full-time workers in Singapore had gone up only by $10 in one year to $2,600 in June 2009. This works out to a mere 0.5% rise.
The median income of all employed residents – Singaporeans and Permanent Residents – fell 1.2% from 2008 to $2,420 in June 2009. This is rather unusual because wage increases seemed to be a norm in Singapore. For example, even in the worst of years, wages still went up by 11% in 2008 and 7.7% in 2007 – but not in 2009.
The employment rate for prime working-age men (aged 25 to 54) has fallen in second straight year to 91.6%. It was lower than the 93% employment rate in 2008.
How much wages will go up in dollar term this year remains a mystery. And the political leadership is laying the ground for workers to subscribe to the notion of productivity, rather than growth. And the difference between the two notions is that with productivity, one has to produce better results with the same wage; while the ‘growth’ simply refers to bigger numbers.
SCENARIO #5 – YEAR OF THE CAPTIVE TIGER
The thermometer of the economic health is commercial and industrial rentals which together tell you whether sufficient production and business activities are creating sufficient legal wealth for the country. When rental prices for factory, warehouses, offices and shops come down, it can only mean there is lower demand than there is supply; or there is more empty space than there are users.
Simply put, there have not been enough wealth creation activities going on right now e.g. in factory production or office activities.
Office rents have fallen 53.4% from their peak in Q3 2008 to Q3 2009; and from Q3 to Q4 2009 office rents fell another 7.8%.
URA data released on 21 January 2010 showed that median rentals for office space in Downtown Core areas fell from $13.14 psf per month in Q4 2008 to $8.76 psf/pm in Q4 2009. That was a 33.33% fall.
Office vacancy rate has jumped in the same periods from 4.6% in Q4 2008 to 12.3% in Q4 2009; while occupancy cost - rent plus local taxes and service charges - is now US$63.89 (S$88.25) psf a year, down 23% from six months ago. That is down more than half from US$135.13 psf a year ago.
Overall, a net 223,397 sq ft of Grade A space was left unoccupied in the first nine months of this year, taking into account new space. And with more supply materialising, it will mean higher vacancy rate and more competitive rents.
And at this moment, commercial landlords are suffering from double vision.
SCENARIO #6 – YEAR OF THE ‘HELLO KITTY!’
With the high profile absence of major investment banks from the United States and Europe as well as the Middle Eastern fund companies now appearing anaemic collective sale may turn out to be the ‘hello Kitty!’ in the year of the tiger.
With many redevelopment sites being left idle after the collective sale buyers have taken vacant possession, there is no real urgency for any developers to pay the king’s ransom for any sites right now.
Moreover, with President Obama whacking the investment banks back in the US, there won’t be any cowboy investment bankers shooting from the hip and pay wild prices for any en bloc site.
In fact, there multiple fold-ups of investment banks in the US have resulted in only one major investment deal in the residential segment in 2009 which was the $100.8 million collective sale of Dragon Mansion.
Background: more than a quarter of the 200-odd collective sales that were struck between 2006 and 2007 were funded by investment banks including Lehman Brothers, Wachovia, Morgan Stanley etc which are already history.
Two weeks ago, after losing another Senate seat, President Barack Obama proposed to reform the US financial sector by slicing the banking business away from proprietary stock trading, hedge funds and private equity.
This may mean that US banks no longer be able to act like giant casinos, placing big bets on financial markets and should stick to good old-fashioned banking.
In other words, there may still be collective sales going on but not at the crazy level that we saw in 2007.
INFLATION – A MENACING TIGER ON THE LOOSE – A CHINESE EXPRESSION
Will there be high inflation this year?
Well, the economists from the United Nation (UN) and the HSBC research team certainly thought so.
In its paper released in mid-December last year, the HSBC team of economists stated that inflation in Singapore could hit a high of 4% in the first half of 2010 due to the surge in property prices which saw few signs of abating with a sustained environment of low interest rate and relatively low debt-to-income ratio of most Singaporean households.
The main determining factor of domestic inflation in Singapore is the prices of HDB flats which account for more than 85% of the residential properties.
Plus the fact that the price gap between HDB flats and private homes is close to the narrowest it has been since the 1990s, home buying activities appear to be well supported by good economic logic for many people.
According to the same mid-December 2009 HSBC paper, a 1% rise in private home prices leads to a 0.03% rise in consumer price inflation; while the same increase in HDB flat prices adds 0.13% to inflation. For example, with the recent revision in *Annual Values for HDB flats, the official estimate for inflation is between 2.5% and 3.5% for 2010 – up from the previous estimate of 1% to 2%.
*Annual value is the estimated rent a property can fetch if it were rented out. Every property has an AV regardless of whether it is an owner-occupied homes or other type of properties.
Inflation was described as a menacing Tiger by Mr Chiang Ching Kuo, former President of the Republic of China (Taiwan) when he was the Finance Minister in the old capital Nanking. Mr Chiang labelled the campaign to tame the hyper-inflation ‘Arresting the Tiger’.
Note: Chiang Ching Kuo’s father was Chiang Kai Shek.
The Dubai World debacle may repeat in Singapore
A top United Nations (UN) economist had on 1 December 2009 warned that asset bubbles may have re-appeared in Asia, citing Dubai as an example of how the financial crisis had not been solved.
In fact, according to the Monetary Authority of Singapore (MAS) the only loans that grew last year were consumer loans which were primarily driven by home loans. Loans to other businesses slumped 7.7% over a year in 2009.
In short, the banks may be lending too little to the business but too much to home buyers.
Such a phenomenon in Singapore is consistent with the worldwide trend where governments of developed economies, e.g. the US, UK, Japan, China, are making massive capital infusion to prevent deflation.
Such short term infusion of loose cash may have flown into Asia. And the money might quickly flow out again when the easy money policies are eventually reversed. And once the liquidity is withdrawn a situation similar to Dubai may reappear in other Asian countries.
If the economists from the UN and HSBC are both correct, there will be a menacing tiger on the loose in 2010. And the man-in-the-street will definitely not be smiling.
SCENARIO #7 – YEAR OF THE CROUCHING TIGER
In the final analysis, I believe 2010 will be a year of the ‘Crouching’ tiger where every one of us will have to go back to ‘basic fundamentals’ and start strengthening our base again.
Why is it a year of the ‘Crouching’ tiger?
This is because to crouch means to bend low with the limbs pulled up close together, especially (of an animal) in readiness to pounce. See picture of an athlete crouching.
A tiger crouches when it is taking aim at a prey – WAITING to pounce. How long it will crouch depends on its determination, strength of the limbs, and how hungry it is.
In 2010, there will be plenty of business opportunities both in the new home segment and HDB resale segment. But the opportunities will be hidden rather than displayed openly, hence the analogy ‘crouching tiger’.
And to crouch is to have good leg muscles.
A CROUCHING TIGER in business is someone with huge potential and will one day take the market by storm.
Property sellers at large will insist on high price and prefer to WAIT for the good time to materialise. Whether the good time will arrive at all and if it does, how long will it last begs an elusive answer. In the meantime, those without deep fundamental knowledge and skills in real estate brokerage will not be able to unlock the tremendous market potential.
Go back to basic.
Taking together all the above factors, one can see property prices going sideways over the medium term of three to six months with no factors substantial enough to elevate the economy to the next height.
Hence I reckon what awaits us is a stagnant property market with unsustainable asking prices and gradually escalating risks. In other words, it is time for property seller to SELL whatever they do not intend to keep over a long term.
"Good idea" to invest in Singapore's properties
One of Hong Kong's most popular TVB actresses, Charmaine Sheh, and its top earner for 2009 (from dramas and endorsements), is considering putting her money on properties on the island. A "good idea" to invest in Singapore's properties. Investors here, take notes.
The 34-year-old, who was in town last weekend for the inaugural StarHub TVB Awards ceremony, had recently declared wanting to "invest in property" but has yet to "decide on a location."
When reporters suggested Singapore, her face lit up and she enthused in excitement, "That is a pretty good idea!" before she continued rattling on how she's impressed and in love with the country's "cleanliness and the good city-planning."
Resorts World at Sentosa awarded casino licence
Resorts World at Sentosa has been awarded its casino licence. It is the first of Singapore’s two integrated resorts to get the go ahead for its casino operations.
Although the opening date of the casino at Resort World has not been announced, preparations are in full swing.Some are hoping the casino will be open in time for the Lunar New Year which begins on February 14.
The S$6.6 billion integrated resort at Sentosa is opening in phases, starting with its hotels last month.
Many are also waiting for the theme park, Universal Studios Singapore to open.
While foreigners do not have to pay the US$100 levy before entering the casino, locals will have to do so at this booth.
The opening of the two casinos are expected to bring in positive effects to the property prices in Singapore especially properties that are near to Sentosa and Marina Bay.
The properties are at The Sail, Marina Bay Residences and The Reflections. For more information on the specific locations and current prices of these properties, please contact us at Enquiry@Loanhub.sg for the list of properties ready for sale. We will help you to search these property location by individual project name and thereby saving your time in searching.
MONTHLY PROPERTY MARKET DIRECTION UPDATE
Two years after scrapping the Deferred Payment Scheme which effectively truncated the spectacular bull-run in 2007, the government has wielded the big axe again – this time by scrapping the Interest Absorption Scheme (IAS) and the Interest Only Loan (IOL). This move may well have the same effect on the property market like two years ago.
Following Minister Mah Bow Tan’s announcement to withdraw IAS and IOL, the Monetary Authority of Singapore (MAS) has also announced the probable increase in capital requirements for local banks. The de-facto central bank also made clear its stand on medium-term price stability for the property market.
In fact, the MAS’ recent policy stance will have a much deeper impact on the demand for private homes because one can now expect to see more stringent credit controls by lenders in general.
According to the same August ST report, the vast majority of those who sold their properties in the sub-sale market from January to August this year held their units for at least two years. Over half (52%) bought their properties in 2007. Another 36% had bought in 2006, while nearly 7% of 2009 sub-sale deals involved properties purchased this year.
The general mood in the sub-sale market may turn cautious now that the Interest Absorption Scheme (IAS) and Interest Only Loan (IOL) have been withdrawn. This may severely impact the bottom-line of many sub-sellers in the months to come when more quality condos receive their Temporary Occupation Permit (TOP).
HOME LOANS MARKET ACTIVE AGAIN
What a difference three months make. Just then, amid gloom over the economic outlook and falling home price valuations, banks reportedly tightened lending criteria.
But now, a cocktail of low interest rate, the availability of money and the pent-up demand had fuelled the recent property rally. The slowing of Housing & Development Board construction over the years also helped to push some of the demand towards private condominiums which are always favoured by younger families. And the banks could also be instrumental in fuelling the rally as they are reportedly lending up to 90% of the home value recently.
According to Bloomberg data, the three-month Sibor has been hovering at about 0.68% for a few months, not far from the 10-year low of 0.56% in 2003. And most market observers do not expect interbank rates to go up in the near future as economic uncertainties still looms over the horizon.
Bank Lending surged again in June 2009
According to an estimate by the Monetary Authority of Singapore (MAS) issued in mid-August 2009, the total amount of Singapore-dollar loans held by banks in Singapore went up by 0.5% to $272.2 billion at end-June, hot on the heel of an expansion in overall bank lending of 0.3% a month ago. The continuous rises give the market some self-belief that the Singapore economy could already be in the recovery mode.
Consumer housing and bridging loans were the main sources of growth, which rose 1.5% in June to $82.9 billion, after a 0.8% increase in May 2009.
Total consumer loans rose 1.5% in June 2009 to $118.7 billion at the end of the month, compared to $116.9 billion at end-May.
Business borrowing continues to fall for the eighth consecutive month in June, to $153.5 billion or 0.2%. The worst of the lots were borrowing from the manufacturing sector, shrinking 2.6% over the month to $11.2 billion. This simply means that orders in this particular sector continue to stay low.
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