Tuesday, September 28, 2010

ST: The housing bubble trouble

A very good article and balanced views from Professor Joseph Gyourko, although I wouldn't agree with some of the points he raised. Much to learn from him.

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ST: The housing bubble trouble
By Tan Hui Yee, Correspondent

In most parts of the world, a government that intervened in the property market three times in one year would heighten uncertainty.

But not so in Singapore, observes Professor Joseph Gyourko, a housing economist from the University of Pennsylvania who was in town recently to speak at a forum conducted by the National University of Singapore's (NUS) Institute of Real Estate Studies.

He says: 'If the government gets into a habit of intervening all the time, it will harm market development. Investors won't want to invest because they can't be sure what the government is going to do Monday versus Friday.'

But the picture is clearly different in Singapore, he notes. The Government tried to temper speculation by abolishing developers' interest absorption schemes in September last year, and followed that with two additional rounds of measures in February and August this year that made it increasingly expensive for speculators to flip properties.

'You are sending a clear signal to investors that you are going to stop the price boom. The fact that you're doing the third round is a signal that you are going to do whatever it takes,' he says.

'And that actually may be providing clarity. You are telling everyone, 'Okay, we're just not stopping, we'll come up with something else down the road.''

This show of political will may just be what it takes to deflate Singapore's property bubble, he says.

Prof Gyourko, 54, knows bubbles intimately, having studied the sizzling property market in China and being privy to local developments as a board member of NUS' real-estate institute.

He believes home prices in Hong Kong, Singapore and China are being driven up by a mixture of real economic growth and short-term capital flows.

'Singapore's inflation rate is above the rate banks pay on deposits. When that happens, people want to put their money elsewhere. And one of the few alternative investments you can make is in housing.

'That's shifting a lot of money into homes. And that's not permanent or sustainable,' he says.

When the economy grows rapidly again, companies will ramp up production, the competition for capital will heat up, interest rates will rise - leaving over-leveraged property buyers in danger of defaulting on their loans. That could send property prices into a tailspin.

That said, he concedes that housing bubbles are by nature unpredictable, and the fact the Government here had to intervene three times indicates it had difficulty calibrating the measures required to tame the beast.

'Clearly, if the Singapore Government had known, it would have introduced Round Three right up front,' he says.

He rejects claims that rising property prices widen inequality, based on his experience in the United States market.

'The housing market is cyclical, so the claim is not true in the long run. In the US, when we had the boom...people were worried about wealth gains along coastal California and the East Coast of the US, which had the highest price rises. But prices cycle, and guess what?

They fell - by a lot. What generates long-run inequality are skill differences, not home ownership,' says Prof Gyourko.

He predicts property prices in Hong Kong, China and Singapore will take a hit in the next one to three years, effectively canceling out the gains owner-occupiers have made in the recent run-up.

'I don't worry about the fact that people got a bunch of capital gains because I think they are going to lose those capital gains,' he says, pointing out that these are paper gains.

But although property gains and losses even out over a lifetime, the resulting short-term frustrations may be hard to handle. 'It's easy for an academic to go, 'Don't worry, this stuff cycles.' If you are a politician, you've got to worry about that person being angry now because he has the vote, and you've got an election coming up.'

He acknowledges that while land in Singapore is scarce and property prices can be chased up without adequate control, the Government here has tried its best to make housing affordable through its public housing program.

'You guys do public housing about as good as it's done anywhere in the world,' he says. 'For such a small place, it's well-planned. It's affordable to people with modest incomes,' says Prof Gyourko.

But one suggestion he has is that Singapore could be more flexible about the housing grants or similar subsidies it gives households, to give them more freedom over what homes they can buy and where they can live.

Currently, subsidized households can use their housing grant of $30,000 to $40,000 to buy only HDB resale flats. With a voucher system, they would not be limited to government housing.

He also questions Singapore's system of allowing Central Provident Fund savings to be used to pay for homes. This encourages people to base a huge chunk of their retirement savings on the fortunes of the property market in a tiny country. In investment speak, this is considered 'undiversified'.

'That's a really risky thing to do. What happens if there is a housing market collapse?' he asks.

The Singapore property market has had its hairy moments: Housing prices plunged after the 1997 Asian financial crisis, although they have since bounced back and even surpassed 1996 levels.

Singaporeans, he says, have to understand that the CPF housing scheme amounts to an 'implicit subsidy' as it lowers the interest payable on bank loans by reducing a home buyer's loan amount.

'I view housing as a consumption good. I view it literally as 'I'm eating my house.'' That means retirement savings should be kept separate from housing expenditure, he says.

In his view, owner-occupied homes especially are not investments that can yield returns, so people should not devote their retirement savings to their homes in the hope of growing their money.

Asked about the attributes of an ideal housing system, he offers a verbal sketch of its key planks: It should be equitable, responsive and flexible.

This means society would have to determine some minimum quality of housing that everyone should be entitled to. Households that cannot afford to pay for this minimum standard would get subsidies. Poor households with children would get more subsidies because 'kids do not get to pick their parents, and thus, are not responsible in any way for their poverty'.

Ideally, housing supply should be plentiful, in the sense that the rules should allow developers to easily ramp up home building to meet increased demand.

This moderates housing prices, he says, as it will allow prices to be close to or at the level required to cover land costs, construction costs and a builder's usual profit.

Finally, an ideal system would offer different kinds of housing - including rental housing - to meet the needs of the population over its life cycle. It is also one where the population is 'educated on the true benefits and costs of the different types of housing'.

He accuses governments worldwide of a bias 'towards encouraging owning' homes instead of being upfront on the opportunity cost of doing that.

As a result, most people underestimate the costs of owning a property, he says. They forget the transaction costs of buying and selling a home are 'quite high', and it does not occur to them to set aside money for long-term maintenance.

Buyers also risk getting stuck with their homes if a sharp drop in prices pulls the value of their homes below the mortgage amount.

Unless a home owner in such a predicament has enough cash to make up the shortfall, he cannot move house. Some academics have fingered such 'underwater' mortgages as a possible explanation for stubbornly high unemployment figures in the US, as it means people living in declining cities cannot move to places where jobs are more plentiful.

In Singapore, which takes just about an hour to cross by car, the problems posed by such immobility are less serious. Still, he thinks being stuck in such 'underwater' homes could result in longer commutes to workplaces and stop families from moving close to the school they want their children to attend.

Prof Gyourko - a home owner himself in Philadelphia - is careful to declare he has nothing against home ownership, especially as it makes someone a stakeholder in his community. In the case of Singapore, it makes one a stakeholder in the nation.

But the goal of the Government should be to get people to 'make the right choice about owning versus renting, not that owning always is better'.

In sum, housing choices should follow people's needs over their lifetime, instead of determining how they have to live their lives.

Young people, he says, make 'natural renters' instead of home buyers because this arrangement allows them to respond quickly to changing circumstances.

'You can move to opportunity. You can get married. You can do all types of different things instead of being stuck in a house,' he says.

Monday, September 27, 2010

Bloomberg: H.K. Builders May Offer Financing to Counter Curbs

Sept. 28 (Bloomberg) -- Hong Kong developers may offer property buyers secondary financing to counter government market-cooling efforts that have cut transactions by about a third, the city's two biggest real-estate brokers said.

Cheung Kong Holdings Ltd., the builder controlled by billionaire Li Ka-shing, is providing buyers at its Oceanaire project in the Ma On Shan district in the city's north with as much as 10 percent additional financing on top of their bank mortgages, the company said in a Sept. 21 statement.

Home transactions in the city have contracted about 33 percent since Aug. 13 when the government raised down-payment ratios and pledged to increase land supply to rein in home prices, according to Centaline Property Agency Ltd. The government has said it may introduce more measures to curb home values that have surged about 47 percent in 21 months to the highest since the last peak in 1997.

For the full article, please visit www.Bloomberg.com

CNA - China announces rules to curb land hoarding

China on Monday unveiled new rules to curb land hoarding by developers, its latest efforts to pop a feared speculative bubble in the nation's soaring real estate sector.

Developers will be banned from bidding for more properties if they have lands idle for more than a year, illegally transferred lands, or developed land in breach of agreements, two Chinese ministries said.

Read more at http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/1083641/1/.html

Tuesday, September 21, 2010

BT: Stage set for up market property launches

BT: Stage set for up market property launches
By UMA SHANKARI

Developers here plan to launch another 34 residential developments with more than 8,800 units by June 2011, data compiled by Knight Frank shows.

Most of the new projects rolled out will be mid-tier and high-end developments. Knight Frank's list shows that 21 out of the 34 possible launches are located in the up market districts of 1, 2, 4, 9, 10 and 11.

Developers BT spoke to trust that the latest round of government measures to dampen demand for private homes and HDB flats announced on Aug 30 will impact mostly mass market home buyers.

They are hopeful that new launches, which are mostly for homes in the mid-tier, high-end and luxury segments, will see healthy take-ups.

'I believe that the hardest hit projects will be the mass market ones,' said EL Development managing director Lim Yew Soon. 'For the mid to high-end projects, the impact will be somewhat lesser.'

The large number of upcoming mid-tier and high-end developments is not a reaction to the latest round of property measures, developers and analysts said. Rather, having pushed out numerous projects targeted at upgraders, many property groups are left with pending mid-tier and high-end project launches. 

CB Richard Ellis executive director Joseph Tan said that many developers who bought mass market sites launched them within nine-12 months, with some even pushing out their projects in six-seven months to ride on the exuberant upgrader market.

'The fourth quarter will see more of the mid to high-end launches,' Mr Tan said.

Added one developer: 'Most developers rushed to launch mass market projects last year when that segment of the market was very hot, so there are mostly mid-tier and high-end projects that are waiting to be launched now anyway.'

But, many developers did not want to commit to a firm launch date - even though in some cases, show flats are ready and brochures have been printed.

CapitaLand recently said that it will go ahead with the launch of its new 1,715-unit condominium on the former Farrer Court site in Farrer Road by the end of this year.

The chief executive of the group's Singapore residential arm, Wong Heang Fine, said that while the new government measures have created some 'flux' in the market, things should 'settle in a couple of months'.

The launch of the Farrer Road project will be closely watched as it is the largest single residential development likely to be offered to home buyers in the near future.

CapitaLand is likely to hedge its bets by rolling out the development in phases, similar to what City Developments and the Hong Leong Group did with their 642-unit NV Residences in Pasir Ris.

EL Development's Mr Lim also said that he intends to launch his 115-unit freehold project on the site of the former Diamond Tower in Jalan Rajah, in the Balestier area, in Q1 2011. But, despite the more bullish outlook for the mid-tier and high-end segments, several large suburban projects will be launched soon.

Esparina Residences, a 573-unit executive condominium (EC) project at Sengkang by Frasers Centrepoint and Lum Chang Building Contractors, will be launched next month.

Major private suburban launches in Q4 2010 include Hoi Hup Sunway Property's 473-unit Vacanza @ East at Lengkong Tujoh; Far East Organization's 214-unit The Lanai at Hillview Avenue; and Keppel Land's yet-unnamed residential development at Lakeside Drive, which will have more than 600 units.

On Aug 30, the government said that it will now disallow concurrent ownership of HDB flats and private residential properties within the specified minimum occupation period.

Other measures were aimed at potential buyers of second homes. Those with an existing mortgage can now borrow only up to 70 per cent of a property's value for a second home, down from 80 per cent previously. They must also pay 10 per cent in cash, up from 5 per cent.

Developers and analysts said then that the measures will hit prices and sales of private homes, but mostly in the mass market segment.

Friday, September 17, 2010

TODAY: August NODX up 31%

August NODX up 31%
by Ephraim Seow Siew Lee | Sep 18

SINGAPORE - Singapore's non-oil domestic exports (NODX) surged last month by the most in nearly five years, driven by shipments of pharmaceuticals and electronics.

International Enterprise (IE) Singapore, said NODX grew 31.2 per cent last month compared to August last year, up from the revised 18.3 per cent increase in July. The stellar performance was the best since Dec 2005. On a month-on-month seasonally adjusted basis, August NODX rose 10 per cent, reversing the negative trend of the past three months. In July, NODX fell 3.9 per cent from the previous month.

To read the complete article, please visit http://www.todayonline.com

Thursday, September 16, 2010

TODAY: Property expert says prices may collapse by up to 50 per cent in the next year or two

30, 40, 50% drop?! That sounds a little preposterous and plucked from the sky...but who am I to argue with an expert.
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Property expert says prices may collapse by up to 50 per cent in the next year or two

by Ephraim Seow Siew Lee | Sep 17

The dizzying rise in property prices here is not sustainable and the market may be heading for a hard landing in one to two years' time.

When that happens, property values may fall by as much as 50 per cent, according to an expert at a real estate forum yesterday.

Property experts speaking at the National University of Singapore's Institute of Real Estate Studies Forum said that excess liquidity in the market is the main factor that has been driving up property prices recently.

This liquidity may originate from prudent savings during the financial crisis, gains from the stock market run-up last year and foreign funds flowing here in search of better returns in Asian and emerging markets.

Mr Beat Lenherr, global chief strategist of LGT Capital Management, said: "I think that the money is finding a way around specific pointed measures and the money is just going to all the segments, micro-markets or micro-sectors."

Mr Lenherr also reckoned that the recent rally is not well supported and has been too fast, paving for a harder fall.

"If you look at the developments over the last four years, you clearly see elements of exaggerations where it doesn't make sense to buy in terms of rental yields or expected capital gains," Mr Lenherr added.

As such, he said property prices may "collapse by 30, 40 or 50 per cent" in the next one to two years.

Other speakers at the forum also said that the Singapore Government is still holding back on several other drastic measures such as the capital gains tax, which could dampen the property market abruptly if introduced.

They said the Government has so far been successful in building good neighbourhoods and community in its housing policies beyond controlling prices.

"I think the local market has been kept quite steady. I think the Government can indeed take pride in being able to making available affordable housing to more than 70 or 85 per cent of the masses," said Professor Bernard Yeung, Dean of NUS Business School.

TODAY: Improved economy, one of the factors for property prices?

So, we can expect higher psf, smaller units and smaller quantum going forward...

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Improved economy, one of the factors for property prices?

by Rachel Adrienne Kelly | Sep 17

SINGAPORE - The recent property-cooling measures are not likely to have a significant long-term impact on the overall real estate market in Singapore, with global economic issues playing a larger role, property experts speaking at an industry seminar said yesterday.

"Generally, the property price is affected by external factors or the growth of the Singapore property prices is because of the improved economy. People's incomes increase, people's wealth increase, that's why they are buying," said Mr Alfred Chia, chief executive of SingCapital, at a forum organized by Propertyguru.com.

However, the Aug 30 property cooling measures are expected to reduce the cash-over-valuation (COV) of HDB resale flats and they will put a damper on demand for the rest of the year.

Market-watchers at the event expect COVs to decline by 10-per-cent this year from current levels, with a further 10 per cent drop next year.

Meanwhile, smaller properties are expected to be at a relative advantage.

"For people with a housing loan and on a tighter budget, they will have to lower their budget to buy another property," said Ms Chua Chor Hoon, head of Research, South East Asia at DTZ.

"That means if originally they were looking at a $1 million house, now they will have to look at something between $500,000 and $750,000 so you will see a shift in demand to smaller units," she added.

While the market adjusts to the new measures, the volume of mass market property sold is expected to decline by 10 per cent from now until the end of the year, according to some analysts' estimates.

No impact is expected in the high-end property market.