Plotting a balance

Letter from Hwang Yu-Ning Group Director (Physical Planning) Urban Redevelopment Authority

IN HIS Property commentary “Time to relook plot ratios” (July 30), Today editor-at-large Conrad Raj commented that the plot ratios in Singapore could be less restrictive and suggested that plot ratios should be raised for popular areas. The writer also queried the need to restrict the height of developments.

The URA agrees with the writer that land is a valuable resource in Singapore. Optimising the use of land is key to our land use planning. We want to assure Mr Raj that our general practice has indeed been to accord higher plot ratios to developments in locations within and near the Central Business District and near MRT stations.

Nonetheless, optimising land use does not necessarily mean that every piece of land should be built up to the maximum height and plot ratio. There are wider considerations when determining the appropriate plot ratios and height for a particular area.

Variation of plot ratio and building height is adopted to provide choices and confer character to an area. This is an important consideration to ensure a quality living environment for Singapore residents. For instance, providing a variety of housing types in terms of density mix gives people the choice to live in a high, medium, low-rise development, or in a landed home.

Together with our partner agencies, the URA takes a holistic perspective to ensure that intensification of land use is in tandem with the growth and the efficient use of our public infrastructure, such as roads and rail lines. We also ensure that development and intensification are not done at the expense of the quality of the living environment. Raising the plot ratios of too many land parcels in a particular area can lead to overcrowding and severe traffic congestion in the area.

The writer also noted that a development charge may be imposed on developers and architects who exceed the plot ratio stipulation in their designs. We would like to clarify that development charge leviable is not based on the plot ratio stipulation, but the enhancement in land value above the approved development.

Beating high COVs

Source : Straits Times – 7 Aug 2010

Targeting older flats and those in less popular areas can mean paying well below the high cash-over-valuation prices

When homebuyer Ng Hui Hui and her husband, Mr Edwin Soon, read newspaper reports of how median cash-over-valuation (COV) prices hit a high of $30,000 recently, they heaved a sigh of relief.

This may seem a surprise, given that having to fork out a higher cash premium to snare that home-sweet-home resale flat is a hot topic among property purchasers.

However, the couple were not being perverse – the pragmatic pair were just glad that they managed to nab a home with a COV that was under $30,000.

COV is the cash amount paid upfront by a buyer over a flat’s valuation by the Housing Board, and is not covered by a bank loan.

The Soons, who have been married for two years, got the keys to their five-room HDB resale flat in Sengkang last month. They paid $448,000, inclusive of $28,000 COV.

Ms Ng, 30, a corporate communications specialist, says that while $28,000 is way above their budget of $20,000 COV, ‘it is a small blessing that we paid less than what is the norm for this area’.

According to HDB resale transactions, the median COV for a five-room flat in Sengkang is $35,000.

The couple have been house-hunting for the past nine months and say they saw more than 100 resale flats.

They did not want new flats – which are sold directly by HDB and do not involve paying COVs – as they did not want to wait about three years to get their keys.

‘When we told agents that our budget was $20,000 COV, they told us it would be impossible to find a flat,’ says Mr Soon, 32, a program manager.

An Hougang maisonette that they viewed came with an asking price of $150,000 COV. A ground-floor unit in Bedok had a low $7,000 COV, ‘but we do not like ground-floor units as they offer little privacy’, says Ms Ng.

In the end, the couple settled for their fourth-floor, seven-year-old flat in Sengkang, which comes with floor-to-ceiling windows, white floor tiles and is opposite a primary school.

‘It will be convenient for our daughter, Charlotte, to enrol there,’ says Ms Ng.

The couple had set aside $40,000 for COV and renovation works. They now have a roof of their own over their heads, but they cannot move in yet.

With the higher COV price that they paid out of their savings, renovations will have to wait. Works they want done include upgrading the kitchen, which can be costly.

‘We will have to renovate our home in stages,’ says Ms Ng. Meanwhile, they will continue to live with Mr Soon’s parents in a terrace house in East Coast Road.

The $30,000 median COV figure was for resale cases registered with HDB in the second quarter of this year. It was a $5,000 increase on the previous quarter.

Typically, the agreed price for a HDB resale flat includes a cash premium on top of the official valuation determined by an HDB panel of independent professional valuers. It is an amount that a seller wants over and above the valuation.

However, there is some small cheer for disheartened home-hunters: Property experts that Life! spoke to say it is possible to find resale flats whose owners are not asking for such large cash amounts upfront. The caveat: Be prepared for the flat to come with less than ideal conditions, such as a less popular location and advanced age.

COV unlikely to top $35,000, say experts

Sales manager Alan Wong, 44, paid $26,000 COV for his three-room flat in Boon Lay. It is not a central location, but he says the COV paid is ‘reasonable, as it is on the 17th floor, a corner unit and nicely upgraded’.

Mr Eric Cheng, chief executive of ECG Property, says it is possible to find a flat for $15,000 COV in Jurong. Four-room flats in areas such as Choa Chu Kang, Pasir Ris, Woodlands and Jurong East come with a COV lower than $30,000 (see table).

Mr Lim Yong Hock, senior vice-president at PropNex, recalls a recent deal where a three-room flat in Ang Mo Kio sold with a $15,000 COV. ‘In today’s market, $15,000 is low,’ he says.

Despite the flat being nearly 30 years old and not on a floor with a lift landing, ‘the buyer bought it because other units in the area were going for $40,000 COV’. On the other hand, some COVs have soared way above the latest median, as much as several times that figure.

Mr Cheng’s firm recently brokered a deal for a rare penthouse maisonette in Bishan. The buyer, who declined to be interviewed, paid $170,000 COV for it. ‘He saw the flat, loved it and was willing to buy it even before he sold his former five-room flat,’ says Mr Cheng.

But before sellers rub their hands in glee at the prospect of seeking sky-high cash premiums, Mr Eugene Lim, ERA Asia-Pacific associate director, says that ‘$100,000 COV is very rare, usually one- off cases and usually for flats on very high floors’.

PropNex’s Mr Lim says that these days, ‘it is natural for the seller to ask for $40,000 to $50,000 COV because buyers are willing to pay’.

Ms Tay Yi Ling, 36, a senior manager, agreed to fork out $38,000 COV for her three-room flat in Bedok North, despite finding the amount on the high side.

‘It is a corner unit, big for a three- room flat, and it is right next to my parents’ flat,’ she says.

The highest median COV record on HDB’s books is $42,000 in 1996, when the property market was at its peak.

Mr Chris Koh, director at Dennis Wee Group, says ‘paying for high COV is becoming a norm now, but it should not keep rising’.

Property experts interviewed all say that median COV prices are unlikely to go higher than $35,000 in the next quarter of this year.

‘Once the threshold is hit, buyers just won’t pay,’ says Mr Koh.

Property agent Vincent Koh, who runs his own firm, MindLink Vincent Koh, says that with more new flats being launched, prices of resale flats and COV amounts will stabilise.

The HDB launched almost 9,000 new build-to-order flats in the first half of the year and will launch another 7,200 in the second half. The total amounts to 80 per cent more than last year’s number.

In addition, there are about 4,700 new flats under the design, build and sell scheme and the executive condominium housing scheme. In the pipeline are four more executive condominium sites in Punggol, Pasir Ris, Bukit Panjang and Tampines, which should yield 1,900 units.

However, despite more new flats on the market, some potential buyers say they will stick to hunting in the resale market.

Among them is tax officer Joanne Chang, 36. She has a flat in Sengkang, but spends most of her time at her mother’s home in Hougang.

She is on the hunt for a four-room flat in Hougang. ‘I want to live near my mum and also be near the school where I hope to enrol my daughter in next year,’ she says. She has viewed three flats since she began her home search a few weeks ago.

‘Most sellers are asking for a COV of $35,000 to $50,000, which I find steep. But I’m willing to fork out that sum if I like the unit,’ she says.

Account director Joseph Yeo and his consultant wife, Ms Hing Ying Ling, are also flat-hunting. They now live with his parents in an executive flat in Jurong East, but want to have a home of their own. Private housing is not an option as the couple find the prices too high and their joint income exceeds the $8,000 ceiling set for new HDB flats.

‘Our budget for COV is $30,000 or less,’ says Mr Yeo, 35.

They have seen more than 20 flats this year, in areas such as Clementi, Jurong East, Delta and Cantonment.

He says there are flats in Jurong East that fit his budget, but ‘it is a real hassle to drive to work in town daily’.

They recently viewed a four-room, 75 sq m flat in Cantonment Close where the seller was asking for $50,000 COV. ‘But it was just too small for our liking,’ says Ms Hing.

One of the more expensive flats they saw was in Clementi, which came with a $100,000 premium. ‘That is way beyond our budget,’ says Mr Yeo, who does not think he is being too picky. ‘A flat is a long-term investment.’

Mr Roy Varghese, foundation adviser and director at Ipac Financial Planning Singapore, advises buyers to do their sums before coughing up any cash.

He suggests dividing the premium over 10 years to see if they can afford it. ‘If not, buyers should be realistic and consider other flats that are cheaper but are in less central locations or are smaller in size, or even give up their cars, as a flat is a long-term asset,’ he says.

‘You must do your maths, and not depend on agents to tell you whether or not to buy.’

Cheaper home loans in store

Source : Straits Times – 7 Aug 2010

Sibor and SOR, rates that mortgages are pegged to, have fallen

KEY interest rates that determine mortgage levels have fallen steeply, promising cheaper home loans but even leaner times for those with bank deposits.

The rates have been driven down by the economic recovery, which has led to an increased willingness by banks to lend and a flood of cash coming in from foreign investors.

The falling rates have followed the trend of the rates set by the United States Federal Reserve, which continue to be at historic lows. They have also come as the Singdollar has been allowed to strengthen since April.

Both key banking industry rates display the same trend.

The Singapore Swap Offer Rate (SOR), the average cost of funds used by banks for commercial lending, was at 0.304 per cent yesterday. This was up slightly from the 0.298 per cent on Thursday – the lowest in at least 10 years. This rate is used by United Overseas Bank and OCBC to peg their loan packages.

It is a similar story with the Singapore Interbank Offered Rate (Sibor), the rate at which banks lend to one another.

The Sibor, which serves as a handy benchmark for all kinds of rates, was at 0.547 per cent yesterday. It has ranged from 0.524 per cent to 0.563 per cent since May after hovering at about 0.65 per cent for the previous 14 months. DBS, HSBC and Standard Chartered peg their loans to Sibor.

Mr Vinod Nair, chief executive of website Smartloans.sg which offers home loan comparison, said a 0.1 percentage point difference in interest rate for a $500,000 mortgage on a 30-year loan could work out to about $8,000 in total savings.

Stanchart economists, however, project the three-month Sibor to rise to 1.5 per cent by the end of next year and up to 3.2 per cent by the end of 2012.

Mr Dennis Khoo, Stanchart general manager of retail banking products in Singapore and Malaysia, said customers looking for peace of mind and certainty in monthly cash flow should opt for fixed-rate packages instead of floating-rate or Sibor-linked ones.

But customers who feel interest rates will change or fall more can pick Sibor-linked packages, he added.

Economists say the low interest rate climate has created a disincentive to save, encouraging people to take advantage of available ‘cheap money’ to invest in assets like property.

DBS Bank economist Irvin Seah added: ‘There are substantial millions in the region and with Singapore being a financial hub, a lot of money is making its way here.’

CIMB Research economist Song Seng Wun said that given the general global uncertainty, including the risk of a jobless recovery in the US, central banks are in no hurry to raise rates just yet.

‘Rates in the US are similarly low, and low interest rates here might be a reflection of the likelihood that US rates might stay lower for longer than expected,’ he added.

No comparison to Sentosa homes

Exclusivity is a major attraction

I was asked recently for my comments on pricey homes in Singapore and my thoughts on Sentosa homes compared to those on the mainland. When I tried to explain why they are strictly not comparable, I ran into difficulties.

I then realised many of us have read about Sentosa Cove. But how many of us have been there and seen these homes for ourselves? Not many, I suspect.

Therein lies the first distinction between homes on the mainland and those on Sentosa – exclusivity and the status that comes with it.

You cannot be at Sentosa Cove if you have no business being there. I can drive by Bukit Timah and other good-class bungalow areas to show foreign visitors where the rich and famous in Singapore live. However, I cannot simply bring them around Sentosa Cove if I do not have a valid reason. I cannot take a picture of one of the condo projects on Sentosa if I cannot get past the security post.

The closest description I have for Sentosa Cove is that it is Singapore’s first gated housing community. It is of a very high quality and not the run-of-the-mill ones you get in other countries. The individual houses and condo projects do not have boundary walls or fences.

In terms of housing designs, a photograph of one of the lakeside properties with its own individual boating berths may lead you to think that the property is in one of the top European cities. My foreign visitors gaped in amazement saying they could never imagine this in Singapore if they have not seen it with their own eyes.

I see many of these gated projects – but of a far lower quality – on my overseas assignments in neighbouring countries. In these countries, security is a big issue. But in Singapore, crime is not a big problem even in our poorest public housing estates.

On Sentosa Cove, the security posts guard privacy more than against crime.

Another important distinction I would tag on to Sentosa homes is that they are not meant to be your typical home. Holiday homes would be a more apt description. After all, Sentosa is a holiday destination.

You do not have the usual social amenities nearby such as schools, libraries, post offices, cineplexes, public transport services, banks, shops and eating places. It is much less of a hassle to stay on the mainland even if it is in the heart of the business district.

Sentosa homes are more suited for people with plenty of time to spare. While many may not be holiday homes now, they will be in time to come.

Nevertheless, whatever opinion one may have about residential properties on Sentosa, most will agree that it has turned out to be a hugely successful and profitable commercial venture.

And already there are some thoughts of replicating this model in other parts of Singapore. The Southern Islands have been mentioned as a possible venue.

But I have my reservations. I see Sentosa Cove as an enclave for the haves. In my opinion, enclaves, whether they be slums or populated mainly by a single ethnic group or just for the wealthy, should not be encouraged. They separate rather than integrate society.

Nevertheless, I can understand the strategic reasons for such a place to attract the Bill Gates of this world and other top foreign talent who will bring in much needed investments and create jobs for citizens.

However, there should be an audit before we replicate this model. Making huge profits and using them to fund other attractions is not a good enough reason. Or else, we will be carving out choice pieces of land all over Singapore and selling them to foreigners.

We need to establish whether Sentosa Cove has indeed been successful in attracting the desired top foreign talent to live and invest in Singapore. From press reports and feedback from agents, some of the buyers seemed less than desirable.

Is this the exception or the norm?

By Colin Tan, head of Research and Consultancy at real estate consultancy Chesterton Suntec International.

Higher supply of new BTO flats may take heat off resale market: property watchers

Source : Channel NewsAsia – 6 Aug 2010

Property watchers believe a higher supply of new Build-To-Order flats for 2011 will help to take some heat off the resale market where prices have been hitting record highs.

Minister for National Development Mah Bow Tan said the Housing & Development Board is prepared to launch 16,000 new flats next year.

They believe that this will allay concerns that prices are climbing too fast.

And they hope that prices will stabilise so that the Cash-Over-Valuation amounts will moderate.

Chris Koh, director, Dennis Wee Group, said: “They’re trying to allay the fears of the public because prices are going up high. We hope that prices will more or less stabilise so that the Cash-Over-Valuation will come down.”

However, he added if the demand is there and buyers are willing to pay more, this would still push prices up.

Overall, he said the increased supply of flats may not have a “very big impact” as the groups of buyers who buy brand new flats and resale flats are different.

And those who are not eligible for new flats will continue to turn to the resale market.

At least 16,000 new BTO flats in 2011 for first-time home buyers: Mah

Source : Channel NewsAsia – 6 Aug 2010

First-time home buyers can look forward to at least 16,000 new Build-To-Order (BTO) flats next year, should demand continue to be strong.

The National Development Minister gave this assurance while speaking to reporters after his ministry’s National Day Observance Ceremony Friday morning.

Even while recognising the work of the various agencies under the umbrella of the National Development Ministry, attention soon turned to the issue of the supply of public flats.

Minister Mah Bow Tan said the Housing and Development Board (HDB) ramped up the supply of BTO flats this year to meet increased demand.

And that HDB is prepared to launch some 16,000 flats this year alone.

Mr Mah said he expects this momentum to continue next year, and HDB is geared up to offer the same number of flats in 2011, if not more.

Mr Mah said: “Going forward, I can safely say that we will continue to see this growth, and therefore we are preparing for continued supply. We are confident it will be taken up. It will be at least 16,000 new flats.”

HDB is also looking to expand its building plans into other towns.

Now that Punggol has achieved critical mass of 21,000 units, which can comfortably support a range of amenities, Mr Mah said HDB is turning its attention to building in other established estates.

But he declined to give further details, and would only say more information will be released at a later date.

He said: “Many young couples want to stay near their parents, or near their children’s schools, or their workplace. So not necessarily everyone wants to stay in Punggol, attractive though it may be.”

Mr Mah said the priority now was ensuring that first-time home buyers get their flats through the BTO system.

As for those who are upgrading or downgrading, Mr Mah urged those whose needs are not urgent to hold back on their purchase.

Mr Mah said: “If you’re a second-timer, you already have a flat to stay in. And if it’s not urgent, please consider holding back a while, until the resale market stabilises.”

Auctions fast becoming more popular with both property owners and buyers

“Going once, going twice, sold!” This is a phrase commonly heard at property auctions in Singapore, which have – over the years – gained favour with both sellers and buyers.

Auction houses, such as Colliers International, DTZ, Jones Lang LaSalle and Knight Frank, typically conduct auctions on a monthly basis in a hotel. About 200 people on average show up at each session, comprising both local and foreign buyers.

The stigma of auctions associated with properties that have been repossessed by banks has slowly eroded over the years, as witnessed by the decreasing number of such properties surfacing at auctions versus the increasing number put up by property owners.

In 1H 2010, mortgagee sales accounted for a mere 14 per cent of the total number of properties being put up for auction. The rest were sales by owners. This is a stark contrast to the 50-50 split between mortagagee and owner sales seen in 1998.

The paradigm shift to using auctions as a mode of sale in Singapore has become more prevalent today, with both sellers and buyers acknowledging that the auction process is transparent and more efficient.

In fact, property auctions are also increasingly gaining favour with developers and foreign buyers.

During the property boom years in 2006 and 2007, developers – including Sentosa Cove and Tuan Sing Holdings – successfully sold their land parcels and new residential units to an international audience via auction sales.

Not only did these developers achieve record prices, they also gained great exposure for their projects and garnered high participation from foreign purchasers hailing from Australia, Hong Kong, India, Indonesia and Malaysia.

Property Auctions Increase The Probability Of Sale

The increasing trend of property owners opting for auctions as the mode of sale can be attributed to a number of reasons.

Typically, sellers have three sale opportunity windows: 1) Before the scheduled auction date, if the price meets the seller’s expectations; 2) On the auction day; and 3) After the auction date, through private treaty negotiations.

Before a scheduled auction, auction houses would market the properties to the contacts in their database. This is accompanied by an intensive two-to-three-week advertising campaign to reach out to prospective buyers. Hence, property owners can be assured that the reach to prospective buyers is maximised.

The fixed auction date will encourage genuine buyers to do their due diligence in researching the property and work out their financing without procrastination, so that they can reach a decision by the date of auction.

Competitive bidding at the auction also enables the seller to obtain the best price for his property.

If the bid price meets the minimum reserve price set by the seller, a confirmed sale then takes place on-site with the knockdown of the hammer, followed by a down-payment (usually five per cent of the sale price for residential properties) and the signing of the sale and purchase agreement.

Hence, the probability of a sale through auction is higher. Given the trend that more vendors are using auctions as a method to sell their properties, auctions will continue to gain popularity in Singapore.

Popular Property Types Seen at Auctions

Mass market apartments that are well located in established areas – including Bedok, Changi, Jurong, Serangoon, Telok Kurau and West Coast, among others – are generally very popular with upgraders.

Buyers are attracted to older properties in the secondary market due to their large floor area, compared to new developments which are much smaller in size.

Some properties successfully auctioned off in the first half of the year included apartments in Chiltern Park (Serangoon), Changi Green (Changi) and The Warren (Choa Chu Kang), which were sold at $1.015 million, $918,000 and $830,000, respectively.

Landed properties are in demand due to their limited supply in land-scarce Singapore. Houses located in the Bukit Timah vicinity, such as Watten Estate and Hillcrest, are the most sought after due to their proximity to reputable schools and the Circle Line. Four semi-detached houses at Hillcrest Road and two at Watten Estate were sold for between $3.32 million and $3.53 million each.

What Are Popular In 2010?

Properties with en bloc potential

With the collective sale market showing a recovery, older properties with en bloc potential are once again back on buyers’ radar.

Apartments in Windsor (Upper Thomson Road) and Greenlodge (Toh Tuck Road) were sold for between $1.08 million and $1.28 million earlier this year.

High-end properties

High-end properties are making a comeback, propelled by the return of foreign buyers and the opening of the two Integrated Resorts (IRs).

Five high-end apartments worth a total of $13.38 million were sold at auctions in the first half of the year. They included a unit at Oceanfront (Sentosa Cove), which was sold for $3.15 million.

The most expensive luxurious apartment sold by far this year was an apartment in D’Grove Villas, which was knocked down at $5.42 million.

High-end properties in developments that have the potential to be put up for en bloc sale, such as Claymore Plaza Apartment (Claymore Hill), D’Grove Villas (Orange Grove Road) and The Beaumont (Devonshire Road), were sold at auctions this year.

Popular Property Types To Watch For In The Near Future

Inner city apartments

Investors are turning their attention to apartments such as The Sail (Marina Bay), and Icon (Tanjong Pagar) – especially those in the region of $1 million to $1.5 million.

Their close proximity to the two new IRs and downtown area as well as ease of access to other parts of Singapore have made them highly rentable and they generate attractive yields.

New properties which are nearing completion or have obtained Temporary Occupation Permit (TOP)

Such properties appeal to both owner occupiers and investors due to their near-term rental generation ability, as well as near-term owner-occupation opportunity.

By Grace Ng, deputy managing director (Agency and Business Services) and Auctioneer at Colliers International.

The visible hand

A new era in property market governance

Residential property demand has surged in many Asian cities as speculators and homeowners alike clamour to get a piece of the action before prices exceed their threshold buying level.

We have seen volume and prices of new launches in Singapore rising unabated. In 3Q09, the Property Price Index, a national price index developed by the Urban Redevelopment Authority on residential stock island-wide, took a sudden upturn, jumping by an amazing 15.9 per cent – the largest “initial turn” ever recorded during a recovery since 1975, suggesting that the market could have over-corrected in the previous quarters.

Monthly new sales also recorded a similar surge, particularly in the month of January, which saw sales tripling from the previous month.

The average monthly sales of 1,437 recorded over the first three months of this year is already 1.7 and 5.7 times the monthly average of 850 and 250 transacted over the corresponding periods last year and in 2008, respectively.

This exuberance in the residential market set off cautionary bells, spurring the Government to introduce several contractionary measures as early as Sept 14 last year.

Contractionary measures seek to reduce demand, for example, an increase or introduction of stamp duty or capital gains tax. Conversely, expansionary policies are those that seek to improve demand, such as lower interest rates and a higher loan-to-value ratio.

More intervention, but less bite?

For the past 30 years, the Government has been involved in the property market in a number of ways, from the sale of State land to steer urban development to the imposition of taxes to ensure the smooth operation of the residential market.

In the final two decades of the last century, the State did not intervene in the market as much as it has over the first decade of this new millennium. The State intervened over nine times from 1980 to 1999, especially towards the later part of the period.

But just in the past 10 years from 2000 this year, the Government has already introduced several property-related policies on eight occasions.

For the first time, contractionary measures were introduced immediately after a shock to the real economy. For the past 30 years, the State has adopted mostly expansionary policies.

Following the recession in 1984 to 1985, there were two policies that helped increase the demand for private housing market by allowing CPF funds to be used for the purchase of private properties. And after the Asian financial crisis, stamp duties were suspended to spur demand.

Interestingly, since the collapse of Lehman Brothers, the State has introduced contractionary measures – the removal of interest absorption and interest only loans schemes, reduction of the loan-to-value ratio and the introduction of a seller stamp duty. These measures were aimed at cooling the overheated property market that had been brought forth by the lower interest rate necessary to encourage growth in the larger economy.

Emergence of the soft policy era

The impact of these policies is not necessarily hard-hitting, especially as some of them have been restrained.

For example, the current seller stamp duty is only imposed on those who sell within a year of purchase compared to the three years when a similar policy was introduced in May 1996.

The impact of the policy is soft even though the market seems more heated today than it was in 1996. The average quarterly increase in the property price index over the past three quarters before the introduction of the recent policy is 9.4 per cent compared to 4.8 per cent per quarter over the same period when the policy was introduced in 1996.

The sales volume following the introduction of these policies showed they did not seem to have an immediate effect on the market.

The average monthly new sales over the first three months of this year hit a high of 1,437, exceeding one-and-a-half times the recorded figure for the same period a year ago.

Recent policies could have been more aggressive but it would not help the larger economy over the short to medium term.

The condition facing policy makers today is different. The recent financial crisis has required the injection of state funds to spur domestic consumption. This, coupled with the low interest rate environment, has added inflationary pressures to the physical assets.

While a growing property market would lend some initial lift to the local economy, an asset-led inflation could potentially damage the recovery. The policy makers have the unenviable task of balancing these two countervailing factors.

As China’s late paramount leader Deng Xiaoping once said: “Cross the river by feeling for the stones”.

In other words, a soft and consultative approach to market regulation is a better option today than a heavy-handed one.

The long and arduous path to the property market recovery after 1996′s anti-speculative policy would also serve to remind us of the damage that overly-aggressive policies could do to the market.

Expect more adjustments

We expect the State to retain the soft approach towards the regulation of the property market. There is sufficient free play in the current policies for the State to tweak according to varying conditions.

For example, the stamp duty policy could be extended from the current one year to those transactions within three years of the purchase.

The main concern is the sustainability of the property market. The recent jump in prices has exceeded the real growth in the economy. There have been only a few occasions when that happened and these usually occur immediately following a correction.

The mid-term economic forecast for Singapore is expected to remain at 4 to 5 per cent. As long as the property price growth is moderate and does not exceed the real economy for an extended period of time, the market should remain healthy.

Otherwise, a market correction can be expected, either as a result of market forces or government intervention.

By Dr Chua Yang Liang, Head of Research, South-east Asia, at property consultancy Jones Lang Lasalle.

Buy from developers or in resale market?

Source : Today 6 Aug 2010

With the interest rate on savings near zero and not able to beat even Singapore’s benign inflation, forecast at 2.5 to 3.5 per cent by the Monetary Authority of Singapore, many are looking to work their savings harder by buying an investment property.

Having decided that, the next question is whether to invest in a new property bought from the developer or a unit from the resale market. There are arguments for both.

Buying from Developers

Brand new property. Being the first owner, the investor does not have to worry about the history of the unit, its previous owners or occupants.

Progressive payments. The investor may be better able to manage his finances. The loan drawdown is staged and the instalments start low, allowing one to build up the nest-egg during construction. If one’s investment time horizon is short, say two years, one can sell into a rising market and make a profit even before the substantial drawdown on bank loan when the Temporary Occupation Permit is issued. Developers may also tie up with banks to offer attractive financing packages for home buyers.

Defects liability period. The developer guarantees against defects for the first 12 months from TOP.

Early bird discounts. These can often be enjoyed at developers’ previews. Some developers may offer special prices for investors who are willing to commit even before the showflats are ready. Developers always step up prices, or reduce discount levels, when the pace of sales is strong, so early buyers stand to make paper gains quickly.

Choice units. If you get ahead of the queue, all the units that are released are available for your selection.

Configurable. In a limited way, many developers allow room for making minor adjustments. The most common features are selection of materials, tiles, finishes, etc. But it could be more substantial, such as an open versus closed kitchen, or say, the removal of a plunge pool at the rooftop terrace. At the extreme, Far East Organization’s bespoke condominium called Boulevard Vue offers a white plan for individual customisation and “the luxury of creating interior spaces that mirror your personal preferences and taste” (quoted from developer’s website). Such customisation was previously only available if we built our own landed home.

Investing In Tenanted Apartments

Low upfront commitment as simplified by the catchphrase “1+4, not 5+15!”. Buying a new unit from a developer requires a 5 per cent option fee and 15 per cent more eight weeks after exercising the option to purchase. This is in line with practices allowed by the Controller of Housing at the Urban Redevelopment Authority. In the case of a resale transaction, the buyer normally pays a 1 per cent option fee and 4 per cent more to exercise.

Immediate income stream. Despite the relatively low yields of Singapore residential properties, most tenanted homes yield positive cash flow for the landlords, thanks to cheap mortgages.

Significant discounts. Older resale properties often trade at significant discounts to new launches on the same street. There are many examples to support this point, say, around Raffles Place and Shenton Way, along Grange Road, Nassim Road, in Serangoon, East Coast, West Coast, Pasir Panjang, and River Valley, etc. The price gaps between new launches and properties more than five years old in the same street, or even sharing the same perimeter wall, can range from 5 per cent to 50 per cent, or from $100 to $1,500 psf. For 99-year leasehold properties, one might further discount based on the age of the lease, but examples abound for freehold properties too. Given that construction costs range from $300 to $500 psf for luxury properties, if the cost of an older property is lower than its recently launched neighbours by a gap of $500 psf, then one could take a view that the older property was purchased at land cost, and the buildup area was given free.


Developers’ sales prices are peakish. Anecdotal evidence from URA data (see graph) indicates that a majority of investors who have bought from developers’ launches this year have yet to make paper gains despite the more than 10 per cent rise in the URA Private Property Index over the same period. The PPI increase was most likely due to the price gains from resales and landed properties.

En bloc potential. With the rebound in sentiment and collective sales coming back into favour, the en bloc potential must not be ignored. But the investor must do his homework and ask for evidence that the project is indeed a likely, economically feasible, candidate.

As is, where is. What you see is what you get. The investor is buying a completed apartment, flaws and gems all included. There is no guesswork as to the quality of the workmanship and the finishes that will be delivered, unlike with new apartments.

The overall trend in the Singapore home market may be up but confidence is still lacking in some quarters. Global economic uncertainties loom and Singapore is not immune.

For now though, I would recommend properties that are under-valued relative to their neighbours, minimising downside risks and collecting steady rental income.

By Ku Swee Yong, founder of real estate agency International Property Advisor (IPA)

Unit at The Arte hits $1,250psf

Source : The Edge – 26 Jul 2010

Prices of units at the newly built, 336-unit condominium The Arte by City Developments Ltd (CDL) have been on an uptrend this year, hitting a high of $1,250 psf last month versus an average of only $880 psf during its launch last year. This comes as it attains its temporary occupation permit (TOP) and rides the ongoing transformation of the Thomson- Balestier area.

At the moment, Balestier Road still retains an old-world charm, for instance, at the cluster of old shophouses near the Thomson Road end, where famous eateries like the original “Tau Sar Piah” shop, the Boon Tong Kee chicken rice restaurant and the reputedly best “Bak Chor Mee” stall in town continue to draw crowds. The neighbourhood is also near good schools like SJI International and CHIJ Secondary Toa Payoh and is just a short drive to Toa Payoh Central and Novena MRT station as well as to both Orchard Road and the CBD.

But, signs are emerging that the sleepy area is being rejuvenated. Balestier is benefiting from the cluster of hospitals and medical centres at the Novena end, with the latest player being Parkway Holdings, which is building a new medical centre along Irrawaddy Road. It is also near the existing Tan Tock Seng Hospital and Far East Organization’s Novena Medical Centre.

The upcoming Zhongshan Park by Hiap Hoe Ltd and sister company Superbowl Holdings, comprising an office block, a retail podium and two hotels to be managed by Wyndham Hotel Management — the 405-room Days Hotel Singapore and 390-room Ramada Singapore Hotel — will also tap both the offices and medical cluster at Novena. The project is scheduled to be completed in 2014.

CDL is also instrumental in the transformation of the cluster at the junction of Thomson Road and Balestier, having snapped up several collective sale sites adjacent to each other in 2006 to 2007. They include The Albany, Thomson Mansions, Lock Cho Apartments, Comfort Mansion and a four-storey walk-up apartment block, followed by three more en bloc sites — Concorde Residences, Balestier Court and Bright Building.

Located along a quiet winding slip road off Balestier Road, The Arte (former Lok Cho Apartments), is the first of CDL’s project launches in that Thomson- Balestier Road cluster. In January, CDL launched the 177-unit Cube 8 (former Albany and Thomson Mansions), followed by the 157-unit 368 Thomson (former Concorde Residences), at an average selling price of $1,250 and $1,350 psf, respectively. The units in all three freehold condo projects are substantially sold. According to a CDL spokesperson, only one unit at The Arte is available for sale, while there are only two units left at 368 Thomson and three units at Cube 8, as at July 21. The encouraging response to 368 Thomson and Cube 8 has also lifted prices at The Arte. Cube 8 and 368 Thomson are scheduled for completion in 2014 and 2015, respectively.

The Arte, which comprises two 36-storey towers, is located on Jalan Raja Udang just off Balestier Road, with direct access to the Pan Island expressway via Thomson Road.

From June 29 to July 6, there were three transactions at The Arte, ranging from $1,014 to $1,250 psf, which is an all-time high, according to caveats lodged with URA Realis. One unit, a 1,873 sq ft, four-bedroom apartment on the 32nd floor, was sold for $2.3 million ($1,250 psf) on June 29. That represents a 23% gain for the seller, who bought the unit for $1.9 million ($1,016 psf) last year.

Another four-bedroom unit on the eighth floor of the same block was sold for $1.9 million ($1,014 psf). The unit went for $1.58 million ($843 psf) last year, giving the previous owner a 20% gain. Also in the same block, a 1,399 sq ft, three-bedroom unit on the fifth floor was sold for $1.46 million ($1,043 psf). That’s a 15% gain for the original owner, who paid $1.26 million or $903 psf for the unit during the launch last year.

Just across the road is the 280-unit Vista Residences developed by Far East Organizzation, which was launched last year at an average selling price of $1,070 psf. The project is expected to receive TOP in 2013. According to a Far East spokesperson, 68 units are available for sale. The latest transaction was for a 1,313 sq ft unit on the 28th floor, which went for $1.78 million ($1,361 psf).

Across the expressway, the latest transaction at Sky @ Eleven was for a 2,271 sq ft unit, which sold for $3 million ($1,321 psf) on July 2. That’s a 20% gain for the seller, who bought the unit for $2.49 million in 2007. The 273-unit, 43-storey condo developed by Singapore Press Holdings received TOP in May. There’s no doubt that with these new developments transforming the Balestier area, projects like The Arte will see further capital appreciation over the long term.

CDL to sell prime land in KL shopping belt

Source : Today – 5 Aug 2010

Property developer City Developments Limited (CDL) is in talks to sell a land site in shopping belt Jalan Bukit Bintang for a price tag of more than RM3,000 ($1,282) per square feet (psf), a fee that could become Malaysia’s most expensive land deal, according to the Malaysian newspaper Business Times.

The sale of the land parcel in downtown Kuala Lumpur could top Malaysian developer Sunrise Berhad’s acquisition of nearby Wisma Angkasa Raya in Jalan Ampang at RM2,588 psf.

In May, Malaysian conglomerates FFM Bhd and Kuok Brothers Sdn Bhd sold a piece of land in Jalan Perak, Kuala Lumpur, for RM2,200 psf.

With a size of 32,000 square feet, CDL’s land could be worth about RM96 million.

The prime land is situated between Grand Millennium Kuala Lumpur hotel and the Pavilion Kuala Lumpur shopping centre.

Bidders for the site are said to be the owner of Pavilion Kuala Lumpur and the YTL Group, which own prime assets along Jalan Bukit Bintang, said the newspaper.

When contacted by MediaCorp, a CDL spokesperson declined to comment.

Pavilion Kuala Lumpur is wholly owned by Malaysian developer Urusharta Cemerlang, which in turn is 51 per cent owned by Urusharta Cemerlang Development Sdn Bhd and 49 per cent by the Qatar Investment Authority.

The RM500 million Millennium Residences was planned for the site and was launched in 2007. But development of the 42-storey luxury condominium was apparently aborted after construction started in 2008, the newspaper wrote.

A Hong Leong Singapore spokesperson did not confirm whether the Millennium Residences project was scrapped, the paper added, but a check on the site found that the project sign and temporary fencing for Millennium Residences have been removed.

Still the third most expensive for office rents

Source : Today – 5 Aug 2010

Singapore has held on to its position as the third most expensive office location in the Asia-Pacific region for the second quarter of this year, according to Colliers International’s latest Asia Pacific Office Market Overview.

Singapore commanded annual gross rents of about US$58 ($77) per square foot (psf) in the second quarter, while Tokyo and Hong Kong took top and second spot with rents of around US$101 psf and US$89 psf, respectively.

Sydney and Mumbai completed the top five most expensive office locations in the report.

“The overall office leasing demand in the region showed no signs of abating in 2Q2010, despite the imminent threat of a sovereign debt crisis in Europe,” Colliers said in its report.

Occupiers engaged in the financial services sector dominated leasing demand, particularly in financial hubs like Hong Kong and Singapore.

Mr Donald Han, managing director (Singapore) at real estate consultancy Cushman and Wakefield, believes a combination of consolidation and upgrading among tenants will be the key trends driving the second half.

Apart from the financial sector, growth will be broadened by other industries such as professional services and shipping companies, he said.

Landlords of Grade A properties in Singapore have less to worry about considering the three-consecutive-quarter increase in the absorption rate, observed Mr Han.

He cautioned that the flight to quality among tenants will likely put pressure on landlords of older buildings to refurbish and re-position themselves.

Analysts said Singapore’s office rents are expected to strengthen further by 10 per cent in the second half this year. This is because, despite the rise in the second quarter, office rental rates are still 60 per cent below the peak in late 2007.

Higher Green Mark standards for new buildings from December

Source : Channel NewsAsia – 5 Aug 2010

Higher Green Mark standards will apply to new buildings in Singapore from December.

The Building and Construction Authority (BCA) said the move will guide the industry towards more sustainable and energy efficient practices in building design, construction and maintenance.

An award made of recycled glass was conferred to BCA by international think tank Aspen Institute for its efforts in promoting “green” practices in Singapore’s buildings.

And the use of recycled materials is one area of sustainable construction practices that’s encouraged under the revised Green Mark criteria.

Other revisions include requiring air-conditioning systems that are more energy efficient, and incorporating natural ventilation into the design.

To meet the minimum certification level, new buildings or those undergoing major retrofitting will need an energy efficiency standard that is 28 per cent higher than 2005 levels. This is also a 10 per cent point jump over the current standard.

BCA had consulted the industry over the last year in its review, and concerns about high costs and the lack of expertise were raised.

“We’ve been having quite a lot of training programmes, even those at the Masters level, to build up this green collar professional capability in the industry,” said Dr John Keung, CEO of BCA.

Buy within your means

IN THE rush to secure a home amid escalating property prices, first-time homebuyers, especially young adults, may inadvertently commit themselves to properties beyond their means.

Since mortgage payments and other home bills take priority over other basic necessities, rising mortgage rates may push some homebuyers to suffer a housing-induced fall in their standards of living. It is important, thus, to take a long-term perspective on housing affordability.

Affordability is usually measured by the ratio of monthly mortgage payment to current monthly household income. In the United States, if this ratio is less than 30 per cent it is assumed that the property is affordable. In Singapore, a cut-off ratio of 40 per cent is one of the criteria banks use to decide on home loans.

However, this is not a good measure of affordability for two reasons. First, by extending the amortisation period, monthly mortgage payment can be reduced. This can give the impression that affordability has improved, although the total interest burden has gone up. Second, the measure essentially focuses on short-run housing affordability by using current income instead of an estimate of permanent income. Undue reliance on short-run housing affordability measurements was one of the triggers in the US sub-prime mortgage crisis.

A much better indicator of housing affordability is the ratio of house price to lifetime income – house price being the discounted present value of future mortgage payments. Lifetime income can also be worked out as a discounted present value of the future income stream, using the same mortgage rate.

(For example, if the annual interest rate is 5 per cent, the discounted present value of $105 one will receive next year is $100. Alternatively, if one saves $100 today at the 5 per cent interest rate, one will receive $105 next year.)

Under some conditions, the two ratios – mortgage payment to permanent income, and house price to lifetime income – are the same. We can thus use a cut-off ratio like 30 per cent to define an affordability limit. We have not worked out an optimal cut-off value for Singapore yet.

Homebuyers know the prices of the houses they want and the transaction costs involved. What they need is an estimate of their lifetime income – that is, their accumulated savings plus the discounted present value (DPV) of their earnings, over their remaining working life.

Using survey data collected by the Department of Statistics, we can decipher predicted income profiles by birth cohorts for different income groups over the working ages of 20-64. We now have data only for three income levels: lower (25th), middle (50th) and upper (75th ) percentiles.

Since our focus is on young homebuyers, the accompanying table presents estimates of the DPV of household income for households headed by 30-year-olds. By adding their own accumulated savings to the income figures, young homebuyers can obtain an estimate of their lifetime income. They can then divide the price (including the transaction cost) of the home they are buying by their estimated lifetime income to see what percentage of their lifetime income will be consumed by the property.

The rest of the table provides illustrative computations of housing affordability for the three income group references. Accumulated savings (including interest earnings) were estimated from household expenditure survey data, and transaction costs were estimated using current rates on stamp duties and other fees and charges. Property taxes and costs of home insurance and maintenance were not included.

Some general observations that emerge from this table are worth highlighting:

· First, when the mortgage rate goes up, homebuyers have to spend a higher percentage of their lifetime income on housing, and affordability goes down.

· Second, given that current mortgage rates are above 5 per cent, and if we use the 30 per cent cut-off rule, HDB resale flats of four rooms and above are not that affordable for low-income groups.

· Third, at current mortgage rates, HDB resale flats are well within the affordable range for middle- and upper-income groups.

· Fourth, private properties are obviously for high-income groups. Still, even for those in the 75th income percentile, private residential properties at median prices are not within the affordable range at current mortgage rates.

By: Tilak Abeysinghe, deputy director of the Singapore Centre for Applied and Policy Economics, National University of Singapore, and Gu Jiaying, pursuing a PhD at the University of Illinois at Urbana-Champaign.

80 units sold at preview of The Greenwich

Source : Straits Times – 4 Aug 2010

THE Greenwich condominium caused a rare traffic jam in the quiet Seletar Hills estate on Monday when potential buyers flocked to its showflat to get the first bite of the cherry in a special preview.

Developer Far East Organization said yesterday that it has sold 80 out of 96 units released at the 319-unit The Greenwich on Monday. The showflat closed at 2am the following morning, in order to cope with the demand.

Prices ranged from $650,000 to $1.25 million, with the price per sq ft (psf) at $980 on average. The psf price is a record for the area, said Ngee Ann Polytechnic real estate lecturer Nicholas Mak.

‘The buyers are those who really like this corner of Singapore,’ he said.

Singaporeans accounted for almost all of the buyers at the preview, Far East said in a statement yesterday. Most are from the Seletar estate area, it added.

More than 80 per cent of the one- and two-bedroom units released were snapped up, and all 10 of the three-bedroom units released were sold, it said.

The Greenwich, at the junction of Seletar and Yio Chu Kang roads, has residential units and retail shops. Of the 319 residential units, 160 are one-bedroom units that Far East describes as Soho-type (small office, home office) units.

Ranging in size from 603 sq ft to 721 sq ft, they offer users the flexibility to combine an efficient work environment with the comfort and privacy of a home, Far East said. It has since sold 32 out of 40 such units released in the preview. The two- to three-bedroom units go up to 1,485 sq ft in size.

The retail shops will be in a 45,000 sq ft two-storey mall called Greenwich V, which is close to 60 per cent committed.

Far East’s executive director and chief operating officer of property sales, Mr Chia Boon Kuah, said The Greenwich is ‘quite unlike the typical suburban condominium’.

‘It differentiates itself as a new ‘trans-urban’ development, set to transform the suburban enclave into a vibrant live-work-and-play urban environment,’ he said.

Recently, another new 99-year leasehold project, The Scala near Lorong Chuan MRT station, also attracted hordes of eager buyers.

It has since sold 90 per cent of the 468 units, said developer Hong Leong Holdings yesterday. The Scala was priced at $1,150 psf on average.

HDB to put up 3 residential sites for sale on Thursday

Source : Channel NewsAsia – 4 Aug 2010

The Housing and Development Board (HDB) is launching three residential sites at Hougang, Punggol and Pasir Ris for sale on Thursday.

The three sites at Hougang Avenue 7, Punggol Drive/Punggol East and Pasir Ris Drive 3/Pasir Ris Drive 4 can potentially yield about 1,260 dwelling units, of which about 485 are Executive Condominium (EC) units.

HDB said these sites will provide home buyers with more housing choices.

The Hougang site, which is near Hougang Plaza and Hougang Mall, has an area of 15,630 square metres and is proposed for condominium housing. The maximum permissible gross floor area is 42,000 square metres that can potentially yield about 395 units.

The Punggol land parcel, situated near the Kadaloor LRT Station, Punggol Plaza and Compass Point, is meant for EC development.

It has an area of 15,700 square metres, with a maximum allowable gross floor area of 53,380 square metres.

The land parcel at Pasir Ris town is located a short distance from NTUC Downtown East.

It has a site area of 20,000 square metres, with a maximum permissible gross floor area of 42,000 square metres which can potentially yield 380 condominium units.

All the developments will be on a 99-year lease term.

The tenders will close on September 17 for the Hougang site, September 23 for the Punggol land parcel and September 30 for the Pasir Ris site.

In addition to the three sites, the Urban Redevelopment Authority plans to launch a residential site at Petir Road under the Confirmed List later this month.

Another four new residential sites at Elias Road/Pasir Ris Drive 3, West Coast Link/West Coast Crescent, Tanah Merah Kechil Road/Tanah Merah Kechil Link and Alexandra Road will also be made available for application by URA and HDB under the Reserve List this month.

In May, the government announced it was ramping up the supply of private housing via the Government Land Sales (GLS) Programme for the second half of this year to meet the strong demand for private housing and land for residential developments.

This comprises 18 sites that can potentially yield 8,135 private residential units on the Confirmed List, and 13 sites that can potential yield another 5,770 private residential units on the Reserve List.

Fine art of mortgage refinancing

Source : Tue, Aug 03, 2010 - my paper

By Reico Wong

A PROPERTY is, perhaps, one of the most expensive items a person will purchase in his lifetime, and the mortgage debt is often a big concern for many.

However, there are various means through which one can significantly manage such debt and gain financial freedom quickly.

Besides cultivating sharp financial habits to spend less and save more to pay off the loan early, financial experts recommend that one should also look closely into mortgage-refinancing options.

After all, as Mr Dennis Ng - founder of mortgage-consultancy portal HousingLoan.sg - highlighted, there are over 100 housing-loan packages available on the market at any time, and each has its pros and cons.

Admittedly, replacing one mortgage loan with another may be a complex process, but the potential financial advantages are worth the effort.

The key reason why individuals may choose to refinance their loans is to capitalise on lower interest rates, which allow them to pay less in the long run.

Even a small difference in the monthly interest payable for the loan taken out can result in savings of thousands of dollars.

Similarly, refinancing options can lead to one having more cash in hand on a monthly basis for exigencies.

Another reason one might be interested in refinancing a loan is to either shorten or extend the amortisation period on the mortgage, because of lifestyle changes.

Choices aplenty

A couple entering their retirement years, for example, might find it more suitable to extend the loan-repayment period but make smaller payments each month, in view of their reduced income.

In a case where an individual has increased means to repay the mortgage with, he may want to restructure his loan such that the monthly payments are higher but interest rates lower.

By decreasing the repayment period of the loan, he will be able to become debt-free earlier and also enjoy substantial savings in the long run.

Refinancing a loan with a floating interest rate to get a fixed rate might prove beneficial, too.

Interest rates for the housing market tend to fluctuate quite a bit, so the switch to a fixed rate might make it easier to plan more accurately for one's expenses.

This also translates to more financial stability and security.

Additionally, there will be savings once again if one manages to lock in a low fixed interest rate for the loan, while floating rates climb.

When not to refinance

Having said that, experts also caution that there are certain times when loan refinancing could be a bad decision.

An example is if the individual has only a few years left on a current loan or plans to sell his property in the short term.

This is because most refinancing loans come with a lock-in period of two to three years, and there are penalties for breaking this clause, pointed out Mr Greg Zeeman, head of personal financial services at HSBC Bank.

The penalty is applicable even after the property is sold and the individual no longer needs the loan. Refinancing would, hence, pull one only deeper into debt.

Therefore, strict attention must be paid to both the penalty period and fees stated for a mortgage package.

One should also check to see if there are advanced or accelerated payment options at the very beginning. Flexibility to make repayments at times would come in useful, too.

Likewise, it is critical that one considers the total expense of refinancing.

Mr Ng said: "If you plan to sell your property within the next 12 months, it probably does not make sense to refinance as, typically, you need to give three months' notice to your bank before moving your home loan to another bank.

"If you sell your property in nine months' time, it means you enjoy interest savings for only six months, and these interest savings might not be much higher than the cost of refinancing."

Costs such as application processing, property valuation and credit- reporting fees apply.

There are also legal costs involved, which can be huge.

"Customers should check if the new loan comes with any legal- fee subsidy and whether it is sufficient to cover the cost," said Mr Zeeman.

One also needs to check that there is sufficient equity in the property before taking up a refinancing option - ensure that its value has not dropped significantly.

Refinancing is not advisable if the home-equity value of the property is low - say, less than 20 per cent - and the loan amount is huge. The new loan, at the lower appraised value, might not be sufficient to pay down the original mortgage.

For the same reasons, it is best not to refinance if one's home equity has already been reduced by a second mortgage or home-equity loan.

Experts said that in such cases, the individual probably will also not qualify for loans with the best interest rates, no matter how good his credit score is.

Don't rush into it

Note that one does not necessarily have to switch financiers when refinancing a loan.

Certain lenders offer customers loyalty discounts in the form of a year-on-year decrease in the interest-rate spread charged, or even no lock-in period for staying on with them.

There are also loan-portability features for loyal customers.

HSBC, for instance, has a programme under which customers can continue where they left off on a sliding interest rate if they take a new mortgage with the bank after selling their property and redeeming the original loan.

Ultimately, refinancing must be done for the right reasons and at the right time.

Shop around for the best refinancing deal suited to your needs. Don't be rushed into signing on the dotted line without fully understand all the terms and conditions.

Taking the mickey out of home buyers

Source : Sunday Times – 1 Aug 2010

Prices of small projects and tiny apartments unlikely to hold up well, say experts

Property prices may be strong and on the uptrend.

But not all private homes will appreciate equally in value or be able to maintain their value in bad times.

For example, small projects and tiny ‘mickey mouse’ units of less than 500 sq ft may be the first to be hit should the market suffer a reversal, experts said.

A lot of risk also hinges on entry price levels, which can be high in boom times, they added.

A property expert, who declined to be named, said smallish developments – some having just 15 to 30 units – have limited appeal.

‘These developments do not have full facilities and the road outside is usually very narrow,’ he said.

‘In the Telok Kurau area, you can sell a unit in a small development for maybe $900 per sq ft (psf) if you are lucky. But nearby, big condominiums such as One Amber or The Seaview can go for $1,200 psf.’

The lorongs in Telok Kurau are often narrow two-lane roads, whereas One Amber and The Seaview are on main traffic ways.

Investors should also do their homework before rushing to invest in ‘mickey mouse’ apartments of less than 500 sq ft.

These apartments, sometimes called ‘bikini units’, can work out well if they are located in the city or near an MRT station as single expatriates may be drawn to them, the expert said.

‘It becomes a question mark when people start building them in the suburban areas,’ he said. ‘If investors want to sell or rent them out, there may be some resistance.’

Mr Colin Tan, research and consultancy director of Chesterton Suntec International, said the small apartments are like penny stocks. They have much speculative potential but have little worth otherwise, he said.

Ms Tay Huey Ying, director of research and advisory at Colliers International, said that generally, properties that have comprehensive recreational facilities and sufficient green areas will fare better in terms of rentals and values than apartments that do not.

Investors should also be wary of ageing 99-year leasehold developments, said the expert.

The price gap between a freehold and a leasehold property – which can be marginal in boom times – may widen as the leasehold property ages and its lease shortens.

Ms Tay said it all depends on what investors are looking for.

If they are looking for pure rental income, they can go for 99-year leasehold properties as these can generate more attractive yields than freehold properties, she said.

A freehold property may generate a rental yield of 3 per cent to 3.5 per cent while a leasehold property may offer a slightly higher yield of 4 per cent to 5 per cent.

But if they are looking for capital appreciation, ageing leasehold properties of 40 years and above may see weaker price appreciation compared with their freehold counterparts.

A second expert, who also declined to be named, said: ‘There is the danger of facing limited capital appreciation or even losses if you chase new leasehold projects at sky-high prices.’

These high-risk investments are 99-year leasehold projects priced above $1,000 psf, he said.

‘In five years’ time, you may not be hit if the market is good. But in 20 years’ time, the risks rise as the lease would have run down and the condo design will likely become outdated.’

Property experts also point to walk-up apartments, and cluster homes with basements located in flood-prone areas, as potential high-risk investments.

‘The design of a walk-up is quite outdated. Many people, especially families with elderly members, do not want to climb three or four flights of stairs to their apartments. But investors buy these for their collective sale potential,’ said one.

‘Lower-priced properties – but not necessarily cheap properties – in red-light districts or in very inaccessible places’ are also high-risk investments, said Mr Tan.

‘Don’t buy something just because it is cheap or cheaper. Get your priorities right. Buy for the right reasons,’ he advised.