TODAY: New kid on the block is good news

New kid on the block is good news

by Png Poh Soon of Knight Frank | Aug 20

When the show flat of a new residential project is ready, the new kid on the block often creates a buzz among the residents living nearby. People are generally curious about what the project looks like, its launch and completion date, and most importantly, the launch price.

Homes in these new projects are often priced higher than the average transacted value of resale units in the neighbourhood because of several factors, such as newer designs and longer tenures.

Many homeowners have asked how these new launches affect the value of their homes. Does the pricing of these new properties affect the prices of nearby resale units and, if so, to what extent?

Knight Frank has carried out a study to examine the pricing effects of new projects on resale properties in their vicinity. Our study is adjusted against the benchmark Urban Redevelopment Authority (URA) price index in the respective regions to take into account the effects of broad general market movements.

The price effect is based on the change in transacted prices per square foot over time of selected new and resale properties over the period from 2004 to last year in the Core Central Region (CCR), the Rest of Central Region (RCR) and the Outside Central Region (OCR), according to the URA's geographical classification.

The average transacted prices of similar-sized units in developments adjacent to the new project were studied and compared over a three-month period before and after the new launch. Sizes were controlled to reduce price distortion where smaller units command higher prices on a psf basis and vice-versa.

Anecdotal comparisons showed that new projects were generally priced 20 to 40 per cent higher than the average transacted prices of nearby developments of similar sizes. This was especially so in the CCR and the RCR region and during property market upturns.

The new developments were found to have a positive effect on the transacted values of resale units after adjusting for broad market movements.

Resale prices moved up in tandem following the launch of higher-priced developments. The average resale unit price appreciation was 12.98 per cent in the CCR, 19.14 per cent in the RCR and 4.23 per cent in the OCR over and above the benchmark price index.

Prima facie, new launches do seem to have a positive effect on resale prices.

For example, when Marina Bay Residences was launched in December 2006 at a premium of 38 per cent to the average price of similar-sized units in the neighbouring development, transacted prices of the already-launched The Sail went up by some 21 per cent after adjusting for broad market movement. Likewise, the transacted prices of The Metropolitan went up by 12.2 per cent after The Ascentia Sky was launched at a premium of 36.3 per cent in July last year.

Arguably, the positive effect arises because resale units take reference from the transacted prices in the vicinity, including the higher priced new projects.

Higher priced launches raise the selling price expectations of the owners of resale units, particularly if they are located near the new project.

From the buyers' perspective, resale units may also appear to offer value for money if they cost lower than their new neighbours. Inadvertently, this results in price appreciation for these resale units.

The real estate adage of "location, location, location" also applies in this instance, where the price effects of new launches have greater impact in the CCR and the RCR rather than the OCR.

Apparently, older properties in better locations benefited more where buyers have deeper pockets vis-a-vis buyers in the suburban regions.

But before you decide to jump on the property bandwagon, we would like to add a caveat. We noticed in our study instances where new launches did not result in a positive effect on the prices of nearby resale units.

Broadly, these instances occur during periods where home buyers' sentiment was weak, such as when the broad market was awash with negative news or in the doldrums. There were also periods when buyers' sentiment turned cautious after the announcement of public policies aimed at cooling the property market.

For example, in September last year, the Government announced the withdrawal of the interest absorption scheme and interest-only loan as an attempt to pre-empt a speculative bubble from forming.

The property market turned quiet for a while as buyers adopted a cautious stance. Resale units near new launches during this period did not exhibit much price movement compared to the market before the announcement.

To sum up, while new projects are still popular with potential home buyers, resale properties may be worth a second look, whether it is for owner-occupation or for investment.

Gems can be uncovered, especially for properties near sites with potential for new developments.

Perhaps it may help to look at yet-to-be launched sites that had been tendered between last year and this year.

If your sums, market conditions and timing are right, a pot of gold may be waiting at the end of the rainbow.

The writer is senior manager at Knight Frank's consultancy and research department.

NODX exports register slowest growth for year

Not surprise by this piece of news, the economy can't grow at the rate like the first half of this year, simply not sustainable.

Other notable nugget of news includes a pick up on en bloc deals, a surge in property sales for last month, a huge supply of homes by the way of government land sales and of course the Seventh-month.

My guess is there might be a moderation in the buying mood, this month and probably the next. The market here comes in fits & starts. So you won't know when it will suddenly pick up again.

from TODAY: NODX exports register slowest growth for year

by Ephraim Seow | Aug 18

SINGAPORE - Singapore's non-oil domestic exports (Nodx) registered their slowest growth so far this year, dragged by a lagging pharmaceutical sector.

Data released yesterday by the trade promotion agency, International Enterprise (IE) Singapore, showed that Nodx grew18 per cent last month from July last year, lower than the 28 per cent growth in June.

On a month-on-month seasonally adjusted basis, Nodx fell 3.9 per cent, compared to the 0.1 per cent contraction in June.

Action Economics director David Cohen said: "The pharmaceutical sector is a big factor contributing to the smaller growth ... Besides, Singapore's economy is moderating after getting ahead of itself."

The volatile pharmaceutical sector contracted 23.5 per cent last month compared to July last year, retreating from the 29.7 per cent gain in June. Industry experts say this year is appearing to be a year of two halves. After the stellar performance in the first six months, last month's Nodx presages a slower second half. They say Nodx growth will likely plateau at the lower end or even slightly under IE Singapore's forecast of 17 per cent to 19 per cent.

"With concerns of the sustainability of the global recovery in the coming months, unemployment remaining stubbornly high in G3 markets and lingering Europe sovereign debt concerns, we could yet see more significant moderation in Nodx growth in the second half this year," said Mr Alvin Liew, economist at Southeast Asia, Global Research, Standard Chartered.

Uncertain external conditions will impact demand for electronics in the next few months. However, this is buffered by demand arising from the recent launches of smartphones and Apple's iPad, the experts said.

Last month, electronic Nodx rose 26 per cent, after the 44 per cent increase in June and non-electronic Nodx grew by 14 per cent, after the previous month's 21 per cent rise.

London’s Rich Use New Breed of Broker in House Hunt

An interesting development in the UK market but it's quite a common practice here in Singapore. Visit Bloomberg.com for more useful and balanced articles.

Aug. 17 (Bloomberg) -- Beverley Kirby gave up trying to buy a house on her own in London's Chelsea neighborhood after twice getting burned by owners reneging on agreements to sell to her.

The night before Kirby was due to sign for one 4.5 million- pound ($7 million) house a year ago, she was trumped by an offer that was 500,000 pounds higher. The aborted deal cost her 4,000 pounds in fees and left her with a few months to vacate the apartment she had sold.

"I was getting desperate," said Kirby, who bought and sold seven other homes previously with her former husband. "There was madness in the market. People had no ethics at all."

That experience, along with the surge in prices for a dwindling number of top-end properties for sale, led Kirby to hire Robert Bailey, a type of broker known as a buying agent. Bailey is one of several hundred operators in a field that barely existed in the U.K. 15 years ago. He found her a home that wasn't advertised. Kirby moved into it in early April after Bailey helped her carry out refurbishments and get planning consent to use the top of the garage as a roof terrace.

The brokers are a response to a flaw in Britain that favors sellers, said Phil Spencer, who hosts property-search shows on U.K. television with fellow agent Kirstie Allsopp.

Typically, potential U.K. homebuyers register with "estate agents," who show them properties but are ultimately paid by the sellers. In the U.S., both buyers and sellers usually hire brokers, though only the sellers pay commission. These fees are shared by both sets of brokers.

'No Help'

"A buyer has nobody to help them with the biggest financial decision of their life," said Spencer, 40.

The new breed of advisers charge the potential purchaser a retainer plus commissions of as much as 2.75 percent of the sale price. It's a cottage industry largely used by the wealthy because it's too expensive for most people with budgets of less than about 500,000 pounds.

Buying agents have proliferated in the luxury markets of London and southern England as a weaker pound has lured overseas investors. They do everything from locating the home and negotiating the price, to arranging legal and survey work and researching potential pitfalls such as noisy neighbors.

They are prized largely for speeding up the process to reduce the chance of getting "gazumped," a British term for being trumped by a higher bid before signing contracts.

Agents Quadruple

"Over the past five years especially, there has been a quadrupling in the number of buying agents in the prime central London market and their numbers increase all the time," said Noel de Keyzer, head of house sales at broker Savills Plc's Sloane Street branch.

There are fewer luxury properties for sale in prime London neighborhoods even as demand is rising. Residential purchases in the Westminster and Kensington & Chelsea boroughs, where average house prices exceed 1.3 million pounds, are down 23 percent from the average since 1996, according to London Central Portfolio Ltd., which buys and manages prime rental property investments.

About 100 properties worth at least 20 million pounds have been purchased since 2006 -- a category that's less than 10 percent of the prime central London market. Most deals of that size are now handled by buying agents, de Keyzer said.

The scarcity of prime homes for sale lifted prices in central London by 23 percent since a yearlong slump, triggered by the worst recession since World War II, ended in March 2009, Knight Frank LLP estimates. Property values in the U.K. as a whole rose about 12 percent, according to the Nationwide Building Society.

Jackpot Deals

Agents have to court private banks or wealth managers to generate new leads to sustain the deal flow. Dozens of individuals, many former brokers, have set up on their own as overseas buyers flocked to London.

"All you have to do is two or three deals a year and you earn as much as you did before," said Johnny Turnbull, who has worked independently since 2006 after heading the London arm of Prime Purchase, Savills's buying-agent arm.

Competitors include Property Vision, a unit of HSBC Private Bank since 1991 -- and the biggest with a staff of 60 -- and Knight Frank's The Buying Solution.

Some independent buying agents say rivals owned by brokers have a conflict of interest because their companies represent both the buyer and the seller.

"They're trying to milk the fees at both ends," said Francis Long, who set up buying agency Hanslips 12 years ago covering London and southeast England.

'Chinese Walls'

Savills and Knight Frank say there are "Chinese walls" and enough transparency to avoid conflicts, and that few customers have problems with the arrangement.

Buying agents rely on relationships with brokers, developers and owners to get their clients first in line for a home. Providing a superior service is vital if they want steady business, said Bailey, who helped Madonna buy a home in Mayfair in 1999 and also works with hedge-fund managers and bankers.

Agents research an area and prepare reports that may reveal whether a rock-star neighbor has loud soirees or whether planning authorities are hostile to tennis-court floodlighting.

"What worries me is that people don't deliver and start to give the rest of us a bad name," said Bailey, who has covered the prime London market for 25 years.

One morning in early July, Camilla Dell and Grant Aitken, of Black Brick Property Solutions LLP, dodged workmen refurbishing a three-bedroom apartment in the Knightsbridge district to see whether to make an early offer.

Feng Shui

Dell, 32, set up the London-based company in 2007 and has generated business through regular trips to visit potential buyers in countries including India and Nigeria.

"It helps us to understand them, to see them in their home and their culture," said Dell, whose requests from clients have included properties with feng shui compliance.

Competition for high-end homes within commuting distance of London is also fierce. Here the agent's research has to be even more exhaustive, said Mark Parkinson, who helped set up Middleton Advisors LLP in 2008 covering country homes in southern England.

The efforts aren't always appreciated.

"You prepare a detailed report -- down to reminding the buyer of an old rectory that the church bells chime every 15 minutes -- and they probably don't even read it," said Parkinson, 37, as he drove a sport-utility vehicle that allows his customers to see properties over hedgerows.

Spencer and Allsopp

Spencer and Allsopp have encouraged buyers with smaller budgets to use agents, said Jo Eccles, who set up Sourcing Property four years ago and has handled about 70 purchases or rentals in London worth about 40 million pounds combined.

Not all the agents will survive, according to Andrew Giller, who heads London searches for The Buying Solution. Competition and the slump in deals since the financial crisis mean individual operators, in particular, may struggle.

Spencer's own London search company filed for insolvency in February 2009 after a four-month deal drought left it unable to cover the costs of running an office, marketing and staff.

He's no longer involved in the business, parts of which were bought by Garrington Country, a company created from its former regional arm. Garrington has since expanded in northern England, said Managing Director Jonathan Hopper.

"The market is an emerging one," Hopper said. "Who you are dealing with is key -- there's a mixture of very capable, experienced agents out there and then there are those who are just going out to spend other people's money."

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net .

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