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SINGAPORE PROPERTY WEEKLY Issue 1

A very warm welcome to the first edition of the Singapore Property Weekly. Through this e-magazine we hope to bring interesting and pertinent articles on the Singapore property market to our members. Well be adding new sections over time. Let us know what else youd like to see we welcome all feedback! To wisdom and beyond, Mr. Propwise

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Do you have articles and insights and articles that youd like to share with tens of thousands of readers interested in the Singapore property market? Send them to us at info@propwise.sg, and if theyre good enough, well publish them here, on our blog and even on Yahoo! News.

Contents
Singapore Property This Week Book Review Real Estate Riches Is it a Good Time to Borrow Money Now? Are We Talking Up the Market? Pg 2 Pg 8 Pg 10 Pg 13

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SINGAPORE PROPERTY WEEKLY Issue 1

Singapore Property This Week

Residential News
Prices for non-landed luxury houses remain stable Property firm Savills Singapore mentioned that the prices for non-landed luxury houses remain stable. The difference in the average price of non-landed high-end private houses in Q1 2011 and Q4 2010 remains small; there was only a 0.5% increase from $2,258 psf in Q4 2010 to $2,269 psf Q1 2011. The current prices, which stand just 5.9% and 7.2% below the peak points for high-end and super luxury properties respectively, come close to those during the peak in Q4 2007. Similarly, the growth in the average monthly rent of non-landed luxury houses remained slow at a mere 0.7% quarter-onquarter.

Developers land banks expected to grow thanks to GLS Developers have been accumulating unsold residential units in their land banks through government land sales (GLS) sites. Sim Lian, which topped the chart, has 1,441 private houses, 660 executive condo units and 680 HDB flats in its collection. Developers are expected to accumulate even more in the second half of this year when the government sells land under its GLS program, which happens twice a year. Knight Frank predicted that some developers might choose to sell off what they have before taking in new supply. Knight Frank also mentioned that developers can sell off their land banks over time if the demand remains stable.

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Price recovery for 99-year suburban condo leads to increase in demand for EC units More people are opting for executive condominium (EC) units as the price gap between ECs and 99-year suburban condos widened because of a recovery in the latters price. The price for an EC and a 99-year suburban unit at a similar location is around $650-700 psf and $900950 psf respectively. The increase in demand for ECs, which ranges from $600,000 to $700,000 per unit, is evident in the sale results of the Belysa project, where 147 out of 315 units launched were sold on the first day of launch at a price of $670 psf. Increase in non-Singaporean buyers for private houses: DTZ analysis While the number of Singaporeans purchasing houses that cost below $500,000 increased from 72% to 80% from Q4 2010 to Q1 2011, the number of foreigners purchasing private houses in Singapore increased to 16% from January to March 2011. The analysis by DTZ, which takes into consideration new and secondary sales, showed that foreigners purchasing houses that cost at least $1.5 million increased from 17% in Q4 2010 to 21% Q1 2011. Knight Frank saw an increase from around 20% in previous quarters to 31% in Q1 2011 in non-Singaporean buyers purchasing their marketed units in new launches. KSH Holdings awarded $78.7 million contract for project in Ardmore Park The residential development project Ardmore Three in Ardmore Park, which is expected to commence work next month and be completed by August 2013, will be carried out by KSH Holdings. The contract for the residential development that involves the 84 units in Ardmore Park was awarded to KSH Holdings by Wheelock Properties subsidiary Bontanic. KSHs construction business current order book is said to be around $245 million with the award of this $78.7 million contract.

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New residential and industrial launches in Pasir Ris and Hougang NTUC Choice Homes and Chip Eng Seng Corporation unit CEL Development will launch their 315-unit Executive Condominium (EC) Belysa at Pasir Ris Drive 1/ Elias Road. The average price of $670 psf will only be available for buyers who choose the normal progressive payment scheme. The EC will cost from $574,000 for units starting at 829 sf and $882,000 onwards for units beginning at 1,335 sf. In Hougang Avenue 2/ Yio Chu Kang Road, MCL will launch its 414-unit Terrasse Condo at an average price estimated at around $950 psf. At Yishun Industrial Street 1, Soilbuild Group will also launch its 454-unit North Spring BizHub with an average of $311 psf for its unit with sizes from 1,507 sf to 36,511 sf.

Commercial/Industrial News
ING Fund Buys Anson House for $148m Anson House, 96% occupied with a remaining lease of around 85 years and net lettable area (NLA) of approximately 77,244 sf, has been sold to a property fund under ING Real Estate. In 2009, Anson House was purchased for $85 million but right now, it has been sold for $148 million. Other office deals this year include: i) Finlayson Green, a freehold office block with NLA of approximately 89,950 sf, which was sold for $227 million or $2,524 psf of NLA ii) Ergo Insurance Group also sold Capital Square to Alpha Investment Partners Macro Trends Fund and NTUC Income for $889 million or $2,300 psf (the biggest office transaction this year) iii) Singapore Technologies Building that has NLA of about 98,906 sf was sold for $146 million or $1,476 psf of NLA to Genting Singapore subsidiary Resorts World Properties.

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Tanglin Shopping Center up for sale yet again Tanglin Shopping Center, which is around 68,512 sf, is put up for sale again after its previous failed attempt to get a buyer. The sale will be handled by ERA Real Estate this time round. As ERA remains mum about the reserve price, speculation was made based on the previous reserve price of $1.25 billion, or around $3,300 per square foot for the existing 380,000 sf strata area. The bid for Tanglin Shopping Center will end on 16 June, 2011. CMA, CMT and CapitaLand made top bid of $969 million for site at Boon Lay Way Among the 5 bidders, Capitamalls Asia (CMA), CapitaMall Trust (CMT) and CapitaLand have collaborated to make a top bid of $969 million, which equals to $1,012 psf ppr, for a white site at Boon Lay Way. The site, which has a maximum permissible gross floor area (GFA) of 957,772 sf, will be split 50:30:20, with CMA holding the largest stake and CapitaLand having the smallest stake. Executive director of CBRE Research predicted that the site might be used for retail purposes and is likely to generate an average rental of $15 psf and $6 psf for retail and office space respectively every month. Ascendas Group, MIT and Soilbuild Group said to be in the final round of bidding for JTCs two tranches of properties Market watchers speculated that the shortlisted bidders for two tranches of JTC Corporations flatted factories and amenity centers are: a unit of Ascendas group, Mapletree Industrial Trust (MIT) and Soilbuild Group. The 3 groups will be participating in the final 2 rounds of bidding for the JTC properties that consist of 21 blocks of flatted factories and amenity centers locating in places such as Bedok and Tai Seng. These properties, which total an area of more than 300,000 square meters, are said to be worth $600 to $650 million. The bid price will likely be the driving factor behind JTC Corporations decision in awarding the properties.

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Office rental values growing moderately: CBRE According to CB Richard Ellis, there is a rise in office rentals and demand for office space in countries like Singapore in Q1 2011. For example, the monthly rental value for an average Grade A office in Q1 2011 is $10.30 per square foot (psf); this is a rise of 4% quarter-on-quarter. CBRE director Moray Armstrong predicts a slower growth for rental value for 2011 with only an increase of 16.2% to $11.50 psf as compared to 22.2% in 2010; this is because supply for office space will likely increase in 18 months time when new and second-hand office space is made available. Good sales results for residential and industrial launches In Hougang, MCL Land sold 150 out of 200 units launched at its 414-unit Terrasse condo at $950 psf on average. The cheapest unit costs $580,000. Also, MCL sold 2 out of 4 launched five-bedroom penthouses (about 2,217 sqaure feet) at $1.85 million. In Pasir Ris Drive 1, NTUC Choice Homes and CEL Development launched its 315-unit Belysa EC priced at $670 psf on average, which received 520 e-applications. Marketed by Colliers International, 151 out of 454 units launched at North Spring Bizhub were sold at $311 psf for a 1,539 sf unit. The smaller units (about 1,500 to 1,600 sf) cost around $311 while the larger units (about 11,000 to 36,000 sf) cost about $210 psf. A-Reit won the bid for Fusionopolis site with a bid of $110 million ASCENDAS Real Estate Investment Trust (A-Reit) had the highest bid for a site at Fusionopolis The $110 million bid offered by A-Reit equals to $4,397.89 psm ppr for the 6,253 square meters site. A-Reit, who plans for a gross floor area of 25,000 square meters for the site, will allocate 60% of the site for the development of a business park. The remaining 40% will be used as office space. AReit plans to cater the site for the IT and media industry, and R&D in physical science and engineering.

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Large Orchard commercial properties sales coming up Marketed by CB Richard Ellis and Jones Lang LaSalle, TripleOne Somerset is up for sale for around $1.2 billion or $2,132 psf on net lettable area (NLA) by Pacific Stars Asia Real Estate Income Fund (AREIF). Analysts believe that the building, with a remaining lease of around 63 years and NLA of about 563,000 sf, will have an asking price of $1.2 billion. Also, there have been speculations that Lend Lease might put 313@Somerset up for sale or sell about a quarter stake of the mall. Judging from its NLA (294,000 sf), 313@Somerset might fetch near to $1.18 billion according to analysts. Elizabeth, majority owners are putting up their freehold units up for collective sale at a price of $630 million, which is $2,496 psf ppr. However, Credo Real Estate sees the possibility of the price being lowered to $2,323 psf ppr, which will lead to a development cost of approximately $15 million. Increase in rents in countries like Singapore: JLL According to a report by Jones Lang LaSalles (JLL), one can expect to see a rise in rents across most Asia-Pacific markets such as Singapore. The increase in rents for conventional and high-tech industrial space in the industrial sectors is greatest in Singapore. Commercial real estate investment volumes in Singapore also increased by 60% in Q1 2011 as compared to Q4 2010. The rise in rents is driven by the increase in investment activities, mentions JLL.

Office block at 70 Shenton Way and Elizabeth Tower up for sale A five-member consortium is selling the office block at 70 Shenton Way at approximately $270 million, or $1,583 psf per plot ratio (psf ppr). Over at Elizabeth Tower, which is located in Mount

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SINGAPORE PROPERTY WEEKLY Issue 1

Book Review Real Estate Riches

If youre looking to get a deeper understanding of the Singapore property market, Real Estate Riches Understanding Singapores property market in a volatile economy is a great guide to help you do so. The book is mainly a collection of articles by Ku Swee Yong, CEO and Director of International Property Advisor Pte Ltd, a real estate family office. Most of these articles have previously been published in Today and The Business Times, although there is some new material as well. The book is split into five parts, covering: Recent events such as the government policy measures Physical supply Development of the market including shoebox apartments and en bloc sales Thoughts on the market including whether to buy from developers or the resale market Investment tips
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SINGAPORE PROPERTY WEEKLY Issue 1

What I enjoyed about this book is that it is thoroughly researched and full of interesting facts and figures. Swee Yong is a thoughtful writer and does not make blanket statements without having the necessary data to back it up. Id recommend the book for anyone interested in the Singapore property market. There are also some good tips in there for property investors. I dont want to give you a spoiler, but heres a quick tip from the book watch out for areas where MRT line construction is going on! Real Estate Riches is available at major bookstores including Times, Kinokuniya, Popular, Page One, NUS, and the airport bookshops (Dufry and Relay). Published by Marshall Cavendish Business, it has 188 pages and retails for $18.

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SINGAPORE PROPERTY WEEKLY Issue 1

Is it a Good Time to Borrow Money Now?

With interest rates in Singapore close to their alltime lows, it may feel like a good time to go out and borrow money. Certainly the buoyant housing market can be at least partially attributed to low mortgage rates which increase the affordability of a property purchase. In this article well take a look at where interest rates are in Singapore relative to their history, what typical interest rates for different types of loans are currently, and consider whether its a good idea to go out and take a loan now. The Singapore Interbank Offered Rate (or SIBOR) is based on the interest rates at which banks offer to lend unsecured funds to other banks in the Singapore interbank market. As many mortgage loans are now pegged to it, it has become a key rate to look at and also gives a rough indication of where deposit and other lending rates are headed.

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For foreign banks that do not have a large deposit franchise in Singapore, they have to rely on the interbank market to fund their lending. When SIBOR is high, they might offer attractive fixed deposit rates to attract Singapore dollar deposits, forcing the local banks to also increase their rates to prevent depositors from switching. Currently 3-month SIBOR is at 0.4375%, the lowest level in the past ten years. Interest rates have been low for an extended period of time the 3-month SIBOR has been under 1% since the beginning of 2009. In the past ten years, the 3-month SIBOR has gone as high as 3.5% (in 2006). 1. Home Loans These are the cheapest and largest loans that consumers can get, but you will need to use a property as collateral. Floating rate packages based on SIBOR can go as low as 0.80% for the first year currently while fixed rates packages can start from around 1.20% for the first year. 2. Personal Loans Covering the gamut from renovation to furnishing to consumption loans, they typically have an effective interest rate of 10% to 15%. Watch out for low advertised rates that come with a processing fee or are flat and not effective rates, which will raise your true cost of borrowing. 3. Credit Cards Annual interest rates still hover around 20% to 24%, making credit card borrowing the most expensive form of consumer borrowing out there (other than going to a loan shark!).

Typical interest rates for different loan products

Doing a quick survey of the various loan products out there, we found that the current low interest rates have mainly benefitted mortgage borrowers due to low home loan rates, but rates for unsecured personal loans have not come off as much. For example:

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If you have outstanding credit card debt, it makes sense to do a balance transfer, or take out some other form of personal loan to repay it. policymakers will decide to continue additional monetary stimulus. If not, interest rates could rise. Meanwhile, many central banks around the world are raising their domestic interest rates to combat rising inflation. Beyond low rates, before borrowing money you should examine whether you really need to do so and what your current debt servicing ratio is. For property investors, while the current gap between rental yields and mortgage rates may be seductive, do not base your calculations on a permanently low interest rate. For home buyers who are buying for your own stay, you may want to consider a fixed rate package to lock in the current low interest rates and reduce the future uncertainty of your mortgage payments if interest rates spike. www.MoneyMatters.sg is your guide on how to make more money, save smarter, invest intelligently, and enjoy your money like a pro. Visit our site to get our free report on financial freedom.

Is now the best time to borrow?

It is clear that interest rates have been unnaturally low for an extended period of time thanks largely to the Quantitative Easing program (known popularly as QE1 and the follow-on QE2) of the United States Federal Reserve, which has pumped a huge amount of liquidity into the system. Interest rates in Singapore are heavily influenced by rates in the United States as our central bank (the Monetary Authority of Singapore) does not attempt to control rates but instead relies on the exchange rate as its primary monetary policy tool. When making any borrowing decision, do not assume that interest rates will stay low forever. The United States Federal Reserve is scheduled to end its program of support for the American economy (QE2) in June, and it is not clear whether

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SINGAPORE PROPERTY WEEKLY Issue 1

Are We Talking Up the Market?

This year started off strongly for Government Land Sales (GLS) en-bloc sales. Under the GLS, seven residential sites, including two for executive condominiums, were launched and sold, generating over S$2.5 billion for government coffers. With the residential market hot from robust sales volumes and continued strong interest from developers, I am concerned that some of the estimates for break-even and launch prices quoted in the media or published in financial reports might be adding fuel to the fire. For example, the Bartley Road GLS site was awarded to the top bidder at S$621 psf per plot ratio early this month. One of the media reports estimated that the developers break-even cost could be around S$1,000-1,050 psf.

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Assuming the developer targets a profit margin of S$150 psf, it would mean that the 99-year leasehold residences might be launched for sale at S$1,150-1,200 psf. Taking into consideration that the Bartley Road site can take a gross floor area of about 660,000 sq ft, we can assume good economies of scale and bargaining power for the procurement of materials. In a mass market location such as Bartley Road, we see from Table 1 that construction costs should be about S$251 psf. Total costs for this project are summed up in Table 2. Going by the example above, the conservative break-even cost is S$372 psf above the land price, close to the S$380-430 psf estimate using rule of thumb that was quoted in the media. However, items 4 to 6 are overestimated. Permits and professional fees for large projects may be as low as 5 to 8 per cent. Marketing fees are usually 2 to 4 per cent of the total sales value and, in a large project like this, the expenses are usually at the 2 per cent level: 1 per cent for agents fees and 1 per cent for advertising, show flat, brochures and so on. The interest expenses stated above are a conservative estimate given that most developers today opt for floating rate packages from below 2 per cent per annum all in. Developers also pay down the principal of the land loan when they collect progress payments from buyers of the units. In the last two years, developers have launched projects within nine to twelve months of securing the GLS sites. Due to the progress payment mechanism, developers are not likely to incur interest expenses on the construction costs given that the initial payment of 20 per cent or S$240 psf (assuming selling price of S$1,200 psf) is enough to take care of almost the full construction costs of S$251 psf.

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Therefore, if a project was substantially sold prior to construction starting, there will not be a need for construction financing and the loan for the land can be paid down as the construction progresses beyond foundation stage. Also, most developers aim for a Return on Investment (ROI) of 15 to 20 per cent. In this Bartley Road example, assuming a 60-per-cent loan on the land costs, the invested equity should be about S$240 psf on land. Loading the full costs of items 2, 4, 5 and 6, the investment requires S$370 psf. An ROI requirement of 20 per cent would merely add S$75 psf to the break-even price, meaning that the developer can sell out the whole project and achieve a 20 per cent profit if they sold with an average price of S$1,070 psf. This is S$130 psf below our assumed average selling price of S$1,200 psf (but our marketing costs have been conservatively loaded up based on this selling price assumption). If the Governments efforts to maintain price stability are to succeed, we would need media articles and analysts published viewpoints to accurately reflect projections of break-even and launch prices. Otherwise, the danger is that we over-estimate break-even prices, we over-state replacement costs and we exaggerate projected launch prices, adding to the hype and froth in the market. Originally published in Today, this article has been shared with the kind permission of Ku Swee Yong, founder of real estate agency International Property Advisor, which provides services to high net worth individuals. He is also author of Real Estate Riches: Understanding Singapores Property Market In A Volatile Economy, available in bookstores now.

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