Zen Chee

IN JANUARY, as the global financial storm lashed Singapore shores, fears took hold that large numbers of cash-strapped home owners might default on their monthly mortgage instalments, as businesses went belly-up and jobs were lost.

DBS Bank went out of its way to calm the jitters by offering to resurrect the interest-only payment scheme to allow borrowers to make only interest payments on their home loans, to give them breathing space to sort out their finances.

Only months later, in a surprise to many, the tide turned and there was a huge revival in the residential market. The gloom lifted as confidence grew and buyers rushed back to snap up properties – despite the stress that continued to be felt in the corporate sector.

The statistics are impressive. In the second quarter, 10,184 HDB resale flats changed hands – up from 6,446 units in the first quarter and 7,763 units in the same quarter last year.

This, in turn, triggered a boom in lower-priced condos, as HDB sellers upgraded to private developments.

For many, buying an HDB resale flat has turned out to be a sure-win investment. Despite the onset of the global financial crisis two years ago, HDB prices have scarcely fallen. In fact, they are up 35 per cent since 2007.

And why not? As one housing agent observes, even though the prices of HDB resale flats are high, they have become more affordable. Buyers need only to fork out a down payment – as low as 10 per cent of the purchase price – in order to qualify for a bank loan to buy their dream homes.

Some observers have been quick to attribute the hike in housing prices to the growing number of foreigners becoming permanent residents, which makes them eligible to buy HDB resale flats.

For many new permanent residents coming from countries such as China, where payment for a house must be made in full by cash, Singapore is a paradise. It is impossible for them to get an appointment to see the bank manager in their home country, let alone get a loan if they do not have the necessary ”guanxi” or connections.

In Singapore, as long as they are gainfully employed and have some savings, they have a bevy of banks competing for their attention and offering them loans on attractive terms to help them buy their homes.

But stock traders offer a different explanation for the exuberance in the housing market. Could the explanation be a little more sinister? Does the argument about buying an HDB flat because past trends show rising prices have a familiar ring to it?

In 2002, to make up for the loss of business elsewhere, banks in the United States started to extend huge loans to home buyers with the cheap credit supplied by the US central bank to fight the bursting of the dot.com bubble.

The US housing market record was even more impressive than HDB’’s, with home prices experiencing an almost uninterrupted upswing since World War II.

The upshot of the lending frenzy: Home owners borrowed ever bigger sums against their properties to finance their consumption, while even those with doubtful credit histories were extended huge housing loans too.

That reckless drive caused grief for the US, as a huge number of mortgages turned sour two years ago and unleashed a credit crisis so severe it almost caused the global financial system to collapse.

For some, there is a striking resemblance between the boom in the US housing market in 2002 and our own real estate rally now.

Let us recognise that our housing boom might have been shaped by events far beyond our shores – the loose monetary policies implemented by US Federal Reserve chairman Ben Bernanke, as he trimmed interest rates to almost zero, in order to combat falling US prices.

Because the US dollar is the world’’s reserve currency, this has the effect of sharply depressing interest rates around the world, including Singapore, where POSB now pays its depositors a paltry 0.125 per cent interest on their savings.

In such a situation, it is not surprising to find depositors looking for investment opportunities, while banks sit on huge swathes of cheap funds that they are desperate to lend out.

Like the US situation in 2002, banks in Singapore have refrained from lending aggressively in the corporate sector, as recession-hit businesses struggle to regain their footing.

Instead, they have also turned to the home loans market to make up for the slack in business.

But if this housing rally is financed by the cheap credit boom provided by Mr Bernanke, it is only temporary and will screech to a halt as soon as he starts to remove the trillions that he has poured into the global financial system.

For banks lending merrily on the real estate market with few strings attached, there is the chilling prospect that the fears that emerged in January, over possible mortgage defaults, might be realised this time around.

What can be done?

Rather than press the HDB to build more flats that might, in turn, create a housing glut as the economic cycle plays out, let us insist that our lenders tighten their generous lending terms.

For a start, they should consider raising the down payment, which a home buyer has to fork out before he qualifies for a mortgage, from the current 10 per cent to 20 per cent or even 30 per cent of the purchase price.

Given the important role banks play in our economy, such a move would be prudent, given the danger of a bubble building up in the real estate market.

Sure, this move may mean a delay for some in buying their dream homes, as they will have to save longer to make the down payment.

But it will ensure that the Singapore dream of owning one’’s home does not turn into a sub-prime style nightmare for them and for the rest of us.
By Goh Eng Yeow
engyeow@sph.com.sg

Cai Jin runs every Monday and covers financial matters and corporate governance issues that can affect investors. The two Chinese characters marry wealth with good fortune – the two crucial factors that any investor needs to prosper.

How did they fare in May 2009?

[G.1] Median HDB Flat Rents Falling

Median rents for five-room flats dropped from $2,000 to $1,800 a month in the first three months of this year, while those for four-room flats fell from $1,800 to $1,700.

The decline was across most locations, affecting central areas such as Bukit Merah as much as outlying ones, including Punggol.

But, according to the latest HDB data, two- and three-room flats maintained their median monthly rents at $1,100 and $1,500, respectively.

At Normanton Park near Queensway, for instance, a 1,200 sq ft three-bedroom apartment can be rented for about $2,300 to $2,500 monthly – down from about $3,000 at the peak of the market. This may attract HDB-dwellers to move over, as a five-room flat in nearby Holland, Queenstown or Telok Blangah would cost about $2,000 or more a month to rent.

The lower rents of nearby condos or apartments often affect the rents of HDB flats. If the current trend persists, HDB sub-letting rents will have some way to fall.

[G.2] HDB Resale Prices Easing in Most Heartlands

Despite decline in the overall transaction volume in April and May 2009, resale HDB flats at the top three best selling heartlands estates, i.e. Jurong West, Tampines, and Woodlands continue to attract droves of buyers and the median resale prices of 3-room, 4-room, and 5-room flats continue to rise.

The resale volume of 5-room flats at Woodlands went up from 57 units to 62 units and the median price went up from $341.5 to $346.

The resale volume of 4-room flats at Jurong West went up from 63 units to 66 units and the median price went up from $285 to $305.

In May 2009, the only flat type that enjoyed a rise in the resale volume was E-flat which rose to the highest 140 deals in 2009. However, resale prices for E-flats continue the downward trend in 8 out of the 10 most sellable estates. With Bt Batok enjoying an impressive rise in the resale prices as well as resale volume.

This article first appeared in Sam Gian’s Property Market Update May 2009 which was published in June.

Home-seekers may be snapping up HDB flats amid this recession as well, but don”t dream of making a killing by investing in a public flat.

For one thing, HDB flats are meant to provide basic housing for the masses, which means they are not investment-grade properties.

”If you”re looking to make capital appreciation or good rental income, then it is still the private condominiums because people who rent look for facilities,” said Mr Eugene Lim, associate director at property firm ERA Asia Pacific.

”The highest you can fetch in rent for an HDB flat in a good location is probably $2,000 plus. Any higher, people will go to condos,” he added.

HDB figures show that a three-room flat in Ang Mo Kio, Jurong West or Serangoon typically fetched rent of about $1,400 a month in the second quarter of this year.

Forget about making huge gains from selling your HDB property either.

”HDB is not a market that swings very widely. It is a gradual market,” said Mr Lim.

Strict HDB rules make it hard for anyone to profit from renting or selling his flat.

The board imposes a minimum occupation period on a home owner before he can sell his flat on the open market. This period depends on the mode of purchase, financing and the flat type.

Those who bought subsidised flats from the HDB would need to hold on to them for five years.

A flat owner who bought a resale flat without subsidy can sell it after 21/2 years if he has taken a loan from the HDB.

If he has not, or has taken a loan from a bank to finance his purchase, he can sell his flat after one year.

When it comes to renting out flats, those who bought resale flats without a housing grant from the government are allowed to sublet their entire flat only after three years of occupation.

Those who bought their flats from the HDB or from the open market with a housing grant will have to occupy their flats for at least five years before they are allowed to sublet their entire flat.

To sublet the whole flat, prior approval from the HDB is needed, and it is usually given if you have already fulfilled the minimum occupation period requirement.

Home owners do not need to seek permission from the HDB if they want to sublet just rooms in their flat, but they must continue to live in the flat during the period of subletting.

Only those who own a three-room or bigger flat are allowed to sublet a room.

Since the beginning of this year, the HDB has taken action against 12 flat owners who sublet their entire flat without prior approval. Last year, it caught 28 such flat owners.

It is understood that some got away with a warning and some were fined, but the most severe penalty could be having your flat taken away by the HDB.

The agency relies on tip-offs from the community and combs through the classifieds section of newspapers to sniff out those who illegally sublet their flats.

It also conducts half-yearly flat inspections for approved subletting cases.

Subletting rules for entire flats have been gradually relaxed since 2003 to allow flat owners to make some supplementary income and provide more rental options to those who do not own a home.

The maximum number of subtenants allowed per flat is four persons for one- and two-room flats, six persons for three-room flats, and eight persons for four-room and bigger flats.

Flat owners who own a private property can sublet their flat if they have met the minimum occupation period – three years for non-subsidised resale flats and five years for subsidised flats bought from the HDB.

But again, they must get written approval from the HDB first.

Tan Dawn Wei

SALES of new condominium projects continued at a robust pace last weekend, despite some developers starting to test the market with slightly higher prices.

Buyers picked up 120 units at Waterfront Key in Bedok Reservoir at an average price of $735 per sq ft (psf), even though that price is higher than that at the neighbouring Waterfront Waves condo, where units are going at $700 psf on average.

Both are 99-year leasehold projects and are being jointly developed by Far East Organization and Frasers Centrepoint.

In the Upper Changi area, Hong Leong Group sold 50 more units of The Gale on Flora Road at prices ranging from $650 to $725 psf – up from $650 to $700 psf the previous weekend. This makes 265 units sold to date at the 329-unit freehold development, or about 80 per cent.

In the higher-end segment of the market, City Developments (CDL) has also raised prices for its newly launched Volari@Balmoral by 2 per cent, after it saw a fairly good take-up rate over the weekend.

CDL released 65 units out of a total of 85, and sold about 55 of them. The average price of the units sold was over $2,000 psf, it said in a press release.

The developer added that almost half the buyers were foreigners. Prices start from $2.7 million for a two-bedroom unit.

The transactions over the weekend indicate that this month’’s home sales figures are likely to maintain the strong momentum started in February, which has seen more than 1,000 new homes sold every month.

Another interesting point: fewer buyers appear to be taking up the interest absorption scheme, which allows them to defer the bulk of their payments until their apartment is completed but often at a higher price.

Only a third of the buyers at The Gale took up the interest absorption scheme. About 20 per cent of Volari@Balmoral’’s buyers opted for the scheme, which means they paid 2 per cent more for their units.

At Waterfront Key, ”practically all” the buyers went with the normal progressive payment scheme, said Far East Organization’’s chief operating officer Chia Boon Kuah. This could be because interest absorption for this project comes at a 4 per cent premium.

When asked why the prices were higher at Waterfront Key than at Waterfront Waves, Mr Chia mentioned the project’’s ”thoughtful facilities”, including three outdoor villas and two ”island villas”, as well as the fact that all units would have views of either the park, reservoir or pool.

The developers released 176 units at Waterfront Key last Friday. A further 102 units will be released during the project’’s public launch this Saturday. The condo has 437 units in all.

Of the buyers last weekend, about 60 per cent were HDB upgraders, said Mr Chia. They bought mainly the smaller units: all the 57 two-bedroom units from the first to 15th storeys have been sold, at prices starting from $593,000. The four-bedders, which are 1,518 sq ft in size, are going for up to $1.42 million each.

fiochan@sph.com.sg

A CAP on increases in the resale prices of HDB flats would be ”unrealistic”, Parliament heard yesterday.

Senior Minister of State for National Development Grace Fu argued that prices of properties – especially HDB flats which are owned by 85 per cent of Singaporeans – should be a reflection of Singaporeans” wealth, and hence it was ”not such a bad idea for prices to move steadily over time”.

Referring to a letter published in The Straits Times” Forum page last Saturday, she noted that there are Singaporeans who bought their flats at the height of the property boom in 1996 and are waiting for prices to return to that level so that they will no longer be in ”negative equity” – with their flats worth less than the loans they took out.

Ms Fu was replying to a question from Madam Ho Geok Choo (West Coast GRC), who asked if a cap should be imposed on rising HDB resale prices. Madam Ho raised concerns about whether or not HDB resale prices were being artificially propped up by inflated valuations.

Responding, Ms Fu pointed out that HDB valuations were not made by the Government, but by independent valuers based on recent transacted prices. She said the HDB resale price index has fluctuated within a narrow range of between plus 1 per cent and minus 1 per cent in the last few quarters, suggesting that prices have stabilised.

In fact, the cash over valuation or COV amounts have fallen – from a high of $22,000 in the fourth quarter of 2007 to below $5,000 in the second quarter of this year, said Ms Fu. The COV refers to the amount that a seller wants over and above the valuation of his flat.

A lower COV means that the buyer has to fork out less in cash, as banks lend only up to a certain percentage of the valuation amount.

Ms Fu noted that HDB flats remained affordable to Singaporeans, as first-time home buyers who purchase a resale flat in non-mature estates use on average about 25 per cent of their household income to service their loans. This is ”well below” the benchmark of 30 per cent the HDB uses to measure affordability, she noted.

She also reminded Parliament of housing grants the Government gives to first-time home buyers who opt for resale flats.

There is a CPF housing grant of $30,000, or $40,000 for those buying a flat near their parents. Those whose household income is less than $5,000 per month may get an additional grant of up to $40,000. The income ceiling for this was raised from $4,000 to $5,000 in February this year.

JESSICA JAGANATHAN

When private home sales unexpectedly jumped in February, in the thick of Singapore’’s worst-ever recession, pundits called it a false dawn and warned that the rally would not last.

But now, the market has sustained its rebound for five straight months and is expected to keep growing.

Figures released last Wednesday showed that last month’’s new home sales hit a record high of 1,825, while recent news reports indicate that this month’’s sales figures will still be strong.

All this has prompted previously sceptical analysts to turn more decidedly positive on the sector.

At least three research houses – UOB Kay Hian, DMG & Partners and DBS Vickers – are now overweight on Singapore property, which means they see property stocks as better valued compared with stocks in other sectors.

Why the change in sentiment? Recent data offers a whole host of reasons, according to the analysts.

One is that the worst of the economic crisis is over, and Singapore in particular looks to have turned the corner. Last Tuesday, the Government said the economy jumped 20.4 per cent between March and June to rise out of recession, pulling up market confidence and the full-year growth forecast along with it.

In the same quarter, developers sold 4,714 brand-new units – already more than the 4,370 they sold for the whole of last year.

The improvement in home sales is also spreading to more segments of the market, said UOB Kay Hian’’s property analyst Vikrant Pandey.

While the rally in private home sales started in entry-level homes – a result of pent-up demand from HDB upgraders and genuine owner-occupiers shut out of the last property boom – the positive sentiment has widened to include pricier units.

Sales of high-end and luxury homes have gained traction recently, with ”a steady increase noted in the number of transactions above $1,500 per sq ft since the beginning of this year”, said Mr Pandey.

Last month, high-end sales were boosted by the 146 units sold in One Devonshire in Somerset, at a median price of $1,771 psf. Three units were also sold above the benchmark price of $3,000 psf: at The Orchard Residences, Nassim Park Residences and The Ritz-Carlton Residences.

Most importantly, the rebound is pushing property prices up in some projects – and buyers are still biting.

Despite prices increasing by 5.2 per cent on average last month, buyers seemed undeterred, said DMG analyst Brandon Lee.

”We attribute it to the buoyant HDB upgrader demand, pent-up demand, low interest rates and improved macro-economic landscape.”

More pent-up demand may still be on the way, from buyers who sold their previous units en bloc and have yet to buy another home, said DBS Vickers analysts Adrian Chua and Lock Mun Yee in a report published last week.

They also take heart from the fact that long-held fears of an impending surge of new units have failed to deflate the market.

”We believe we should not see a short-lived spike unless prices rise beyond economic fundamentals,” they added.

But not all analysts are so upbeat.

OCBC’’s Mr Foo Sze Ming has maintained a neutral rating on the property sector because he thinks that there will be no additional impetus for home sales to keep rising.

In fact, he said the number of unsold suburban homes rose last month for the first time in four months – evidence that the pent-up demand from HDB upgraders has been gradually met.

What is now helping to drive demand for new homes is sideline liquidity from investors who see a chance to get in on the action.

But he said it remains uncertain as to how long this can last. Unless wages start rising again or foreign funds start coming in to buy Singapore property – neither of which Mr Foo thinks is likely to happen soon – the recovery may well peter out.

Of the stocks that analysts are now bullish about, City Developments seems one of the most popular due to its relatively large exposure to the Singapore residential market.

UOB Kay Hian and DBS also like Ho Bee, which has both mid-end and high-end projects, and Allgreen, which has at least two mid-tier projects launch-ready.

fiochan@sph.com.sg

AN ESTATE agents” group has launched a push to heighten the professionalism of property agents.

Singapore Accredited Estate Agencies (SAEA) wants all housing agents to have at least an entry-level Common Examination for Salesperson (CES) certificate. SAEA wants ”to move the estate agency profession to the next lap”, said its recently appointed chief executive officer Tan Tee Khoon.

At present, about 6,000 out of 24,000 property agents at accredited agencies have either first-tier Common Examination for Housing Agents (CEHA) or second-tier CES certification.

Although SAEA wants all agents to be accredited, obtaining a certification will be voluntary and there will be no penalty should an agent choose to not be accredited. But property agencies and SAEA are confident that the agents will choose to be accredited ‘’since it will benefit them in the long run”, Dr Tan said.

To encourage them to obtain certification, SAEA has obtained funding from the Workforce Development Agency (WDA) for first-tier CES accreditation. The funding will cover up to 80-90 per cent of the course fee, which is about $350, excluding examination charges. Some agencies, such as HSR, will fully subsidise the remaining costs.

Another SAEA initiative will improve the procedure for dealing with complaints and disputes involving estate agencies.

Dr Tan said that the procedure has been enhanced to provide greater transparency for consumers, from the time that a complaint is lodged until when the matter is closed. SAEA will also work with CES external examiner Ngee Ann Polytechnic to introduce a Certificate in Real Estate marketing so that CEHA and CES holders can upgrade to a recognised professional qualification.

The first 120-hour course will run from November this year. SAEA and Ngee Ann Polytechnic are working on the prospect of getting funding from the Skills Development Fund for the course, which will cost $1,500 for six months.

Business Times – 18 Jul 2009
By ZEINAB YUSUF

When you’re thinking about buying or selling your property, you need to ask yourself the following questions:

1. Do you have the time, energy, sources of information, and contacts to do the job yourself?
2. If you are one of the ‘do-it-yourself’ people, would the results be as good or better than they would be if you had professional assistance?
3. Would it go smoother?
4. Would it give you more personal time?
5. Would you purchase for less, or sell for more, if a real estate agent was involved?

Read the rest of this entry →

There is a standard percentage that real estate agents expect to earn as a commission. Upon appointing the exclusive agent to represent in your property dealings, you and your agent will agree on the amount of commission payable after the property transaction. When you agree to a commission with a listing agent, you should keep in mind that there are usually two agents involved in most transactions. Most of the time, only part of the commission goes to the listing agent’s company. The other portion goes to the company representing the buyer.

Some commission-related questions you could ask:

Will my property be listed in the Multiple Listing Service (MLS)? Being listed in the MLS expands your sales force. Every agent is invited to bring potential buyers to your property. This large supply of buyers will increase your pricing power and the ability to sell your home more quickly.

What kind of Internet marketing will you do? There are many high profile web sites you will want your agent to advertise on. Ask which ones he/she will use and ask for specific statistics. What about the agent’s company and personal website? What newspapers do you advertise in? Ask if the agent advertise your property in the classified newspapers? What is the frequency of advertisements? Does the agent provide any virtual tours to your property marketing?

What multi-media marketing options do you employ? What kind of Virtual Tours is offered? Is 24/7 streaming video available? Where can it be found?

What Exclusive and Customized services do you offer? Go beyond the “traditional” marketing services that are available through most fine companies and find out what your agent and his/her company offers that the other companies and agents do not offer.

What is the effect of your co-broke offering on the company representing the buyer? Since part of the commission usually goes to the company representing the buyer, you may want to ask whether that portion of the commission being offered is the standard amount. As mentioned above, the more agents bringing their clients to show your property, the more pricing power you will have and the sooner your property will be transacted. And the larger amount of commission being shared with the co-broke agent, the more agents will be willing to show your property.

What is the effect of your marketing to other agencies? Very few properties are sold through advertising or open houses, but it does happen. Most often, those ads generate calls from potential buyers or sellers, who end up as clients for real estate agents — and you want agents to bring potential buyers to your property. Advertising your property to other agents has a higher impact than direct advertising to consumers.

Lastly, ask yourself…

What is more important to you – getting the most amount of money from your sale, or paying the lowest sales fee? Once you decide which is more important, how much commission to invest in your property sale becomes clear.

A property agent should work in his client’s best interest, so look out for anything that indicates otherwise.

1. Do your homework. Always get a valuation done on the property so you know if you are being cheated, said Mr C.M. Tan, 64, a retired bank manager who has worked on home loans.

2. Don’t rush to appoint an agent. Meet a few and have detailed discussions with them before deciding on one, said Ms Ivy Lee, chief executive of Ivy Lee Realty.

3. Get a reputable agent from recommendations by friends.

4. If an agent is unwilling to advertise or co-broke your property, he is not exposing it to a maximum number of buyers, said experts.

5. Be wary of agents who make promises that sound too good to be true, said Ms Lee.

6. Do not leave your agent alone to do his work. Check up on him every two weeks or so to ensure that he is working hard to sell the property.

This article was first published in The Straits Times on February 08, 2009.