: Value Investing Forum - Singapore, Hong Kong, U.S.

Full Version: New condos command fat premiums
You're currently viewing a stripped down version of our content. View the full version with proper formatting.
Now I know why it is so tough to predict if prices are indeed going to fall! See section in BOLD. All factors are so favourable for people who aspire to "upgrade". A colleague once asked me on this (i.e. upgrading) and I said no because I wanted to be able to actually afford the installment payments!

Business Times - 09 Jun 2011

New condos command fat premiums

Prices of condos at recent Govt Land Sale sites generally higher than at nearby developments


(SINGAPORE) Despite the record supply of state land, launch prices of new 99-year condos continue to climb, spurred by strong demand.

A study by DTZ shows that median prices of new 99-year leasehold condos launched in 2010 and 2011 on sites sold at Government Land Sale (GLS) tenders have generally been 8-35 per cent higher than those of comparable nearby condos released earlier.

Wing Tai recently launched Foresque Residences at Petir Road at an average price said to be about $1,100 per square foot (psf) - or 32 per cent higher than the median price for units at Tree House next door in the preceding three-month period. In February, Chip Eng Seng released My Manhattan in Simei for $1,219 psf median price - or 42 per cent higher than the $856 psf per plot ratio (ppr) median price of the Double Bay Residences nearby.

Last November, Keppel Land released The Lakefront Residences in Jurong at a median price of $1,075 psf, about 35 per cent higher than the median price for the neighbouring Caspian project over the previous three months.

DTZ's SE Asia research head Chua Chor Hoon noted that 'developments with fewer units and/or smaller units tend to have higher per square foot prices'. For instance, at Petir Road, Foresque Residences has one- to four-bedroom units whereas the next-door Tree House has two bedrooms and upwards. In Simei, My Manhattan has 301 units, half the 646 units at Double Bay Residences.

DTZ's COO and head of consulting and research for SE Asia Ong Choon Fah notes that, generally, developers have been incorporating more one-bedders and even slightly smaller one- and two-bedders in some instances compared to earlier projects. By keeping the lump-sum prices affordable, they have been able to achieve higher psf prices.

Also, units in new property launches are sold on the progressive payment scheme, which means buyers do not draw down the entire housing loan immediately. This leaves them more willing to pay a higher psf price for a new launch than for an older project nearby for which they would have to pay up the full price in a short time. 'Concerted efforts by developers to market new launches also create an emotive appeal to buyers which would be missing when one shops for an older property in the secondary market,' Mrs Ong added.

Analysts note that since last year, the government has been releasing more 99-year condo sites near projects that have sold like hot cakes in a bid to cool the market. However, strong demand for new projects from owner occupiers as well as investors keen on a hedge against inflation has been depleting land banks of developers, leading them to bid competitively for land at state tenders. This has translated to higher prices when they launch new projects.

As Credo Real Estate executive director Ong Teck Hui says: 'Many of us who have been burnt in the financial markets feel property is a more reliable, long-term investment. Cash-flush investors also see property as a desirable investment.

'For a family that has been aspiring for years to upgrade to private property, the conditions seem favourable: the job market and the economy are good, interest rates are low.

'It's difficult for policymakers to discourage people from buying property under these circumstances.'

Mr Ong also suggests: 'Releasing more land now to try and slow down end-unit take-up doesn't work, because when people are in a buying mood, numbers on future supply aren't going to deter them.'

For now, developers continue to bid for land, and prices have gone up, even for average sites. A 99-year condo site at Buangkok Drive fetched a top bid of $391 psf ppr in June, or 22 per cent higher than the $320 psf ppr that an Upper Serangoon View plot sold for last November.

This week, a Woodlands Avenue 2 plot sold for $367 psf ppr, 10 per cent more than what a neighbouring site fetched last November.

DTZ's Ms Chua expects developers to continue to bid for 99-year sites as many have a small land bank and need to replenish fast, especially since the time to launch a project is now shorter.

'With many developers in the market, including some new foreign players, they need to bid competitively to win tenders, especially for well-located sites. And due to high land prices, developers will continue to build smaller units as there is more demand for units below $1.5 million.'

Analysts warn about a potential glut when all the units being sold at property launches are completed - if there are no occupiers for a large number of these units, and the completions coincide with an economic downturn. A slowdown in the rate of immigration will also affect demand. 'There are so many variables that affect the equation. At the end of the day, people have to be mindful and buy within their means,' advises Mrs Ong.

As a real estate company executive director, he has to be positive about his own industry right? As they say "Old wong sell melons". Hah

On the other hand, I read a report yesterday about the housing market. Interesting statistics, not so sure about their conclusion.
After reading the following latest BT reports, I actually shivered a little with the thought of a perfect storm coming and an eventual massive collapse of our now overly inflated residential property market.....

June 9, 2011, 5.14 pm (Singapore time)
MND minister voices concerns over sharp rise in property price


'Sharp property price increases cannot go on forever', National Development Minister Khaw Boon Wan wrote in a blog entry on Thursday.

Sharing his worries on the current property market, Mr Khaw warned those who borrow to go into properties thinking that prices will rise will be thrown into financial hardship should prices drop and interest rates rise.

Citing three reasons, Mr Khaw wrote that things can suddenly go very wrong.

Firstly, 35,000 private properties, though still in construction, have already been sold, with another 45,000 units waiting to be built and sold.

Secondly, the Ministry of National Development (MND) announced on Thursday that it would inject into the market, another 8,100 residential units under the Government Land Sales Programme for the second half of 2011. Together with committed investments, some 53,000 units will be looking for buyers over the next few years.

Lastly, Mr Khaw highlighted that the external situation is not exactly bullish. The European sovereign debt will take a long time to clear, and the Middle East crisis can still go ugly.

If these lead to a spike in oil prices, the impact on Asia and Singapore will be direct and immediate.

Foreign buyers have also been strong, accounting for 16 per cent of all private property buyers in the recent quarter.

Many Singaporeans also buy properties with the intention of renting them to foreigners who come to Singapore to live or work.

Should there be any external shock, both foreign demand and rental demand can fall quite quickly.

'The impact can be serious if the drop in demand happens at a time when there is a substantial increase in supply,' Mr Khaw wrote.

Further, low interest rates will not remain so forever. Households must factor in the rise in cost of borrowing and repayment.

Mr Khaw wrote that he is not alone in his worries.

He cited a property analyst who recently said some property investors seem either 'blissfully ignorant' of the massive supply that will hit the market from 2013, or are under the belief that the impact would affect others and not themselves.

'A market correction or any crash is not a given,' Mr Khaw wrote.

'If all goes well, the economy will continue to grow and those who bought properties here will enjoy good returns.'

'No one is immune to mishaps,' he added.

Mr Khaw advised investors and upgraders to bear these considerations in mind when they go to the show rooms and contemplate if they should sign up.

June 9, 2011, 4.06 pm (Singapore time)
Half of private residential units unsold in Q1: MND


The Ministry of National Development (MND) revealed on Thursday that 34,270 private residential units out of a total of 68,890 are unsold as at the first quarter of 2011.

This figure may rise to about 53,000 units if the potential supply from recently sold GLS sites and sites from the Confirmed List of the 2H2011 GLS Programme is considered. There is also an additional 4,220 EC units in the pipeline.

The MND made the remarks in its statement which announced the Confirmed List and Reserve List sites under its 2H2011 GLS Programme.

June 9, 2011, 4.11 pm (Singapore time)
Update: MND says more land supply to be released under 2H2011 GLS


The Ministry of National Development (MND) announced on Thursday that it will inject 17 private residential sites, which can yield about 8,100 residential units, into the Confirmed List of the second half 2011 (2H2011) Government Land Sales (GLS) Programme.

The 17 Confirmed List sites comprise 16 residential sites (including 2 Executive Condominium (EC) sites) and 1 commercial and residential site.

In addition, the Reserve List in 2H2011 will have 13 sites which can yield about 6,100 residential units.

Both the 2H2011 Confirmed List and Reserve List supplies are comparable to the supply made available in the first half of the year.

The 2H2011 GLS Programme will therefore have a total of 30 sites for residential development, including 4 EC sites and 1 commercial & residential sites, which can generate about 14,200 private residential units.

The MND revealed that 34,270 private residential units out of 68,890 are unsold as at the first quarter of 2011.

This figure may rise to about 53,000 units if the potential supply from recently sold GLS sites and sites from the Confirmed List of the 2H2011 GLS Programme is considered. There is also an additional 4,220 EC units in the pipeline.

The Confirmed List will also see the inclusion of new commercial sites - Sims Avenue / Tanjong Katong Road and Sengkang West Avenue / Fernvale Road - for sale.

A 'white' site at Marina View, which gives developers more flexibility in development options, will be made available on the Reserve List.

'This will provide the opportunity for the market to initiate more office space, in particular prime office space in the CBD, for development, if needed,' MND said.

It added that more supply of commercial space can be expected from the development of six plots of land at Marina Bay and Ophir Road / Rochor Road.

These land parcels can potentially yield a combined GFA of about 500,000 sqm.

A new hotel site at Rangoon Road / Farrer Park Station Road and a 'white' site with hotel component at Thomson Road / Irrawaddy Road will be added to the Reserve List.

This brings the total number of Confirmed List and Reserve List sites to 19 and 24 under the programme respectively.

Apart from the GLS Programme, the government plans to initiate about 35,000 sqm GFA of commercial space outside the programme, which includes the leasing of vacant state properties for commercial uses and localised retail facilities at Sentosa, parks, MRT stations and community centres.

a major property market correction within the next few years is unlikely, barring any black swam events. global economy is on the mend and global growth can be expected to be stable/moderate. we won't see blistering growth, due to debt and inflation problems in US, europe, china and india. but we shouldn't be expecting any market-cycle recession either. singapore can expect to grow 3-5% for the next few years.

barring external circumstances, singapore government is able to control supply (land sales, bto) and demand (immigration, FT), and hence effectively stabilize prices if it wishes to. the unsold units will eventually be absorbed by excess liquidity and immigrants, albeit at a slower rate. the market operates very well under normal conditions.

a sars-like event or 9/11-like event is the kind of black swam that has the potential to destroy lots of demand overnight. a sudden loss of demand is what will crash the market. to purchase an investment property now offers no margin of safety. i will go for corporate bonds if i'm not savvy enough for stocks.

the same is probably also true for the stock market. the sti should remain be in its current range for the next few year or two. inflation plus slow growth means earnings are unlikely to surprise and push valuations.
(09-06-2011, 08:27 PM)karlmarx Wrote: [ -> ]barring external circumstances, singapore government is able to control supply (land sales, bto) and demand (immigration, FT),

Sorry, Singapore govt cannot control demand. If nobody wants to come and long term prospects are poor, then nobody wants to buy, and there's not much the govt can do about it.
not sure whether got statistics about how many units of public/private property in the market? maybe exceed the demand of the total population of Singapore?
(09-06-2011, 04:51 PM)piggo Wrote: [ -> ]As a real estate company executive director, he has to be positive about his own industry right? As they say "Old wong sell melons". Hah

On the other hand, I read a report yesterday about the housing market. Interesting statistics, not so sure about their conclusion.

Haha.. I fully agree that he has to be positive about his own industry. As Warren Buffett once said "Don't Ask The Barber Whether You Need a Haircut"