Property bubble bursting, sell b4 it's too late

[PropertyWatcher]

This is from Credit Suisse, which has no vested interest unlike local banks with domestic mortgages on their books.



Singapore Property Sector: Credit Suisse

We believe the Singapore residential property sector could see a bursting of a bubble that has been created from exuberant expectations and liquidity over the past two years. With a potential economic slowdown that
may last through 2009, and historically high supply looming, we turn more negative on this cyclical sector, which has seen price declines of 40% and stocks trading at up to 70% discounts to RNAVs in previous down-cycles.

■ Housing prices have started falling. Secondary transactions already show prices of like-for-like units down 5-25% from peak levels. Our previous zero growth assumption seems to be too optimistic.

■ Prices could come off 40%. We believe further consolidation will be triggered by: 1) withdrawal of the liquidity; 2) dumping by marginal speculators; 3) potential price cuts by small developers; 4) rising vacancies with rising supply; 5) a deterioration of the local employment situation.

In addition, low rental yields and slowing capital inflows offer little buffer, and the strong S$ erodes the attractiveness of Singapore properties. Our housing supply-demand model suggests that vacancy rates may rise from the current 5-6% to 9.8-19% in our base and worst cases, prompting rent and price declines of more than 40%, based on historical trends, in our opinion.

■ Bad news not fully in yet; downgrade sector to UNDERWEIGHT. We have revised all RNAVs on base-case assumptions of average selling price (ASP) declines of 30%, 20% and 10% in the high-end, mid-end and massmarket segments from end-2007 levels, respectively. With the recent 20-30% rebound in stock prices, developers are now trading close to or above RNAVs.

 

[PropertyWatcher]

Financial News
Sunday August 17, 04:40 PM

Singapore property set for a fall
By John Burton in Singapore

Singapore has taken on the appearance of a vast building site. Old apartment blocks are being torn down to make way for futuristic condominiums, including one in the shape of a huge sail. A new financial district in central Singapore is rising next (Advertisement)

to the city-state's first casino resort complex, to be operated by Las Vegas Sands (NYSE: LVS - news) .

The boom in construction, which rose 17 per cent between April and June, reflects a recent surge in property prices, including a 70 per cent increase in homes since 2005. Residential and office rents also jumped nearly 70 per cent last year. Prime office (Copenhagen: PRIMOF.CO - news) rentals are now the highest in Asia, beating traditional leaders Tokyo and Hong Kong, according to Colliers International.

But, having reached stratospheric heights, the property market looks set to hit some turbulence that could produce an equally significant fall.

There are increasing signs that property prices have peaked. New home sales have slowed significantly, with residential prices rising only 0.17 per cent in the second quarter. Increases in office rents are tapering off at a similar rate.

Developers are reporting lower profits for the second quarter as the property market cools. City Developments (C09.SI - news) , Singapore's biggest private property group, last Thursday reported a 15 per cent drop in earnings. CapitaLand (C31.SI - news) and Keppel Land (K17.SI - news) , the two big state-owned developers, have announced profit falls of 43.5 per cent and 16 per cent respectively. Meanwhile, Singapore's FTSE property share index has fallen 35.2 per cent from its peak last October.

Liew Mun Leong, CapitaLand's chief executive, partly blamed the earnings fall on "the moderation in the price increase for the Singapore property market," adding that the outlook for the high-end market would "probably be very flat".

Singapore has suffered similar boom-bust property cycles before owing to the peculiarities of the market. With nearly 90 per cent of Singaporeans living in state-subsidised apartments, the fate of the private residential sector has rested on a rather small customer base of well-off local and foreign investors.

Just a few years ago, Singapore had one of the most anaemic property markets in the world. In an effort to boost the sluggish construction sector, the government in 2005 eased lending rules to encourage developers to replace old apartment blocks with new ones. The resulting destruction of housing stock created an artificial shortage that drove up rents and triggered a wave of property speculation.

Office rents also climbed owing to a shortage of space as Singapore's ambitions to attract private banks and asset management firms proved successful. Predictions that more foreigners would move to Singapore added to the optimism about the market's future.

But the global credit crunch and rising construction costs are now taking their toll, with a slowing economy and falling share prices undermining confidence.

But demand is drying up. Many are struggling to meet mortgage payments as rents begin to fall as a result of the increased supply of new apartments. Citigroup (ASFZ.PK - news) estimates luxury property prices could fall 20-30 per cent from their peak as speculators unload properties. Office rents are also due for a correction. Companies are relocating from the expensive central business district to more affordable areas.

Chua Yang Liang, Singapore research head for Jones Lang LaSalle (NYSE: JLL - news) , the property consultancy, believes the city-state will probably avoid the property market collapse that occurred in 1997 with the Asian financial crisis. He expects Singapore will suffer a moderate downturn similar to that in 2003 when the outbreak of the Sars disease depressed demand.

"Developers are better able to stabilise the market than previously, since the big ones now have the financial capacity to delay new [residential] launches to prevent supply excess while low interest rates are expected to support demand," he says, predicting a recovery from 2010.

 

[PropertyWatcher]

Liew Mun Leong sold 800,000 shares of his own company for $5.5 million in May. If you had followed him then, now you BEE TANG!

He sold at $6.88, now it is $4.48.

The property market will stagnate for a few more years at least.

 

[PropertyWatcher]

Panic fire sales -- the DPS aftermath: More from CS

There is no official data on how many speculators bought units under the Deferred Payment Scheme (DPS) and will potentially have to sell some, if not all, of them when they require financing upon completion over the next six to 18 months. It was reported recently that up to 4,200 homes bought and sold under the DPS may be dumped. 4,200 units, if not staggered over the next few years and instead sold within a year due to worries of even more supply coming up in 2009 and 2010, make up 56% of 7,500 units average annual new take-up. Industry experts (Knight Frank, Savills, HSR and PropNex) estimate that of the 23,490 units approved under the scheme and sold, and due for completion from 2008-13, 50-60% are likely to have been sold under the DPS. Of these, about 20-30% may have been sold to short-term investors or speculators (who are still holding on to them). This means these investors may be forced to sell the units as they are completed, as they will need to take up financing for 80-90% of the purchase price come completion. This would add to the pool of sellers and trigger significant price-cutting, especially if economic conditions worsen. Already, we have seen some transactions done at projects which have received their Temporary Occupation Permit (TOP) recently, e.g. Park Infinia, with a price decline of 13% from its peak, and projects which are completing soon.

 

[PropertyWatcher]

Top Print Edition Stories
Published August 22, 2008

Cooling property market takes a seat at SLA auction

Only four of eight in-fill sites launched for residential use were eventually sold


By EMILYN YAP

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(SINGAPORE) The wait-and-see attitude that buyers have adopted in the cooling property market was evident at a Singapore Land Authority (SLA) auction yesterday.

Some 200 individuals and small developers packed a room at M Hotel, but there were only a handful of bidders. Only four of eight in-fill sites launched for residential use were eventually sold, for a total of $13.81 million.

In-fill sites are pockets of state land in established landed housing estates that have been left untouched by nearby development or were once used for public purposes. All eight sites came with fresh 99-year leases.

'The response today was very cautious,' said auctioneer and executive director (auctions) at Knight Frank, Mary Sai. SLA conducted a similar auction for six sites last November but sold all the plots then.

Those at yesterday's auction told BT that opening prices were higher than expected. 'I think a lot of people were surprised - that's why there was not much bidding,' said retiree Anthony Tan Ho Peng.

Mr Tan won the bidding for a 4,720 sq ft three-storey bungalow plot in Glasgow Road for $710,000 or $150.40 per sq ft. Bidding started at $680,000, whereas Mr Tan had expected an opening price of $550,000.

According to SLA, the Chief Valuer decides reserve prices for sites, which cannot be awarded if bids are too low.

The timing of the auction - coinciding with the Hungry Ghost Festival or the seventh month of the lunar calendar - could have affected interest. But Ms Sai reckons this was not the main reason. 'Market sentiment is still weak,' she said. And high construction costs could be another concern.

While the auction did not generate heated competition throughout, one parcel received considerable attention. A 15,461 sq ft good class bungalow plot in Ridout Road attracted 34 bids, which drove the opening price of $7.31 million up steadily.

BreadTalk chairman George Quek eventually won the site for $8.96 million or $579.50 psf - the highest psf price of the four sites sold. Mr Quek told reporters that the land will be for his own use.

A three-storey bungalow parcel in Namly Avenue went for $2.63 million or $338.40 psf to Martha Lim. The 31-year-old CEO of Lim Seng Kok Contractor may also keep the 7,771 sq ft site for her own use.

A plot in Tanah Merah Kechil Road was sold for $1.51 million or $346.60 psf.

As for the unsold sites, SLA will work with the Chief Valuer to re-assess their prices. 'If we lower the reserve price, we could release (the site) subsequently,' said SLA's deputy director of land sales, Teo Jing Kok. Alternatively, 'if the feedback is that maybe the site is not popular and there are other in-fill sites, then we will release other sites'.

According to Mr Teo, SLA could hold one or two land auctions a year if market conditions remain steady.

 

[BlueCat]

this is private property,HDB should be still strong,a lot of PR buying.

 

[hughgrant]

property market cooling but lots of sellers still want high price... a stalemate at the moment i would say

 

[jw5]

propertywatcher
Did the analysts forecast when the prices would be low enough such that we can buy at a reasonable level? Not necessarily at the bottom.

 

[tonychat]

If you wanna sell, there must be willing people to buy, they will buy when the price goes bottom.

 

[KheongKarn]

So sell now and rent ?

Buy back the same when it reach rock bottom. The extra cash can use to go geylang

 

[sage]

How often the analysts get it right ? Hardly. Owners holding and buyers holding. For money lenders and real estate agents, the worst is no transaction - no income no commission no nothing. Then try talking down market to frighten owners into selling. They have been doing this for past few months. Reversely, until the sub-prime outbreak, these analysts had kept painting a rising market to frighten potential buyers. The analysts and housing agents just do not wish to switch to driving taxis.

 

[PropertyWatcher]

Property market can invest now if long term view of more than ten years. But why bother when the chances of getting your real estate much cheaper in the next two years is so high. Imagine you can save $200,000 on a $1 mio property if you just wait for a year or two.

Look at all the downgrades.

Look at Liew Mun Leong, the chief exec of Capitaland selling 800,000 of his own company shares and that should tell you what to do.

When Liew Mun Leong starts buying Capitaland shares then story is different.

 

[PropertyWatcher]

CapitaLand SELL
Sept 5 close: $4.11
Citigroup

ERODING Margins and Risk of Provisions. Reiterate 'sell', cutting RNAV and target price: We are cutting our RNAV by 10 per cent to S$4.90 to reflect:


10-20 per cent decline in prices for its residential projects in China;


lower selling prices and higher construction costs in Singapore and potential provisions; and


lower P/E multiple of 10 times for its assets under management (AUM) business. Given the fast-deteriorating environment and its low ROE, we have based our target price of S$3.90 on a 20 per cent discount to RNAV.

Cut selling prices for residential projects in China: Tony and Oscar, our HK/China property analysts, believe that the 'easy money' era has ended. The next 12 months will be a differentiating period for the China property market. In terms of regions, we believe that Bohai, Yangtze River Delta, and Chongqing would outperform, while areas like Guangdong, Beijing, Wuhan and Fujian would see further corrections. We expect a 20 per cent decline in Guangzhou in the next 12 months, 10-15 per cent in Chengdu, flat for central Shanghai.

Potential provisions of almost S$150 million for Singapore residential sites: CapitaLand bought several large sites costing almost S$1 billion (attributable) in 2007 near the peak of the cycle. We are particularly concerned about Farrer Court and Char Yong Garden, which we believe could potentially require provisions with break-even prices of S$1,350 per square foot (psf) and S$2,500 psf vs selling prices of S$1,200 psf and S$2,200 psf, based on our estimates.

Recent sale of investment properties in China: We reflect a total gain of S$346 million (12cents per share) from both the injection of the four Raffles City projects and the sale of Capital Tower Beijing.


Compiled by CHOW PENN NEE, Business Times

 

[dysentry]

Recently found out that someone is bringing in boathouses to sell, cool idea and it only costs 40 grand. Nonetheless, gotta pay berthing charges of a few hundred monthly.

clamn.com

 

[zack123]

So Mr PW,

Any good bargains you can recommend for a novice?

 

[banova888]

this is private property,HDB should be still strong,a lot of PR buying.

True. Demand in HDB keeps the property price high. But HDB is now building on order.You now have to wait for 3 years or more to buy a flat from HDB. Is land really that scarce in Singapore?

 

[chinkangkor]

True. Demand in HDB keeps the property price high. But HDB is now building on order.You now have to wait for 3 years or more to buy a flat from HDB. Is land really that scarce in Singapore?

If mass retrenchments took place end of the year and many PRs lost their jobs, then many PRs who bought resale HDB flats at their peak would have their HDB pigeon holes foreclosed by the banks. After that, the prices of HDB flats would fall when demand dropped and suppy increased.

 

[SammyHulk]

If do 'flip' in property market especially in private sector, thats something to ponder about. For long term, it's another story...

 

[borom]

Now it's a good time to accept/ask for overseas posting. Sell house,get out (for say 3 to 6 years) and buy when the time is right.If oveseas tour not over,can rent out house first-earn triple income from salary/overseas allowance /rental.

 

[makapaaa]

If mass retrenchments took place end of the year and many PRs lost their jobs, then many PRs who bought resale HDB flats at their peak would have their HDB pigeon holes foreclosed by the banks. After that, the prices of HDB flats would fall when demand dropped and suppy increased.

Heard that PRs have even filled middle and upper management in the GLSees. Expect Sporns to be retrenched first!