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Sustaining an upturn

Posted on 25 Mar 2010 | Comments Off

THE property market has made a dramatic recovery over the past year. In the residential sector, prices of mass-market homes have even surpassed their 2007 peak. Expectations are running high that some time this year too the luxury segment will touch 2007 record highs.

Things are also picking up in the office market, which has seen a flurry of leasing activity since Q4 last year. Demand has already turned positive and there are even predictions in some quarters of a 30 per cent increase in Grade A office rentals this year.

However, one should not get carried away. The authorities in many parts of Asia are already keeping a watchful eye on asset bubbles building from hot money flowing into real estate. Liquidity and low interest rates remain the key fuel of the property upturn.

The question on everyone’s mind is whether this recovery can be sustained. A lot depends on how well Singapore and the rest of the world perform. Sovereign debt default concerns in several European countries continue to stoke worries about a double-dip recession. Closer to home, the drive towards higher labour productivity could give rise to job insecurity and dampen demand from house hunters.

2010 sees the completion of several major landmark projects here – including the Marina Bay Financial Centre and the Marina Bay Sands and Resorts World Sentosa integrated resorts.

The two IRs are expected to boost Singapore’s tourism numbers, which should generate multipliers for the broader economy. That will be positive for the Singapore property market.

Many property industry players have long been pinning their hopes on the IRs drawing high-rollers into town who will be impressed with Singapore and want to invest in property here. Singapore will also be on the radar screens of overseas investors if the IRs are successful.

Domestically, though, affordability remains a key concern, especially in the mass-market housing segment. A substantial interest rate increase could also hit price-sensitive buyers.

The Singapore government for its part has come up with a few measures to weed out speculators from the housing market. It also has the option of increasing land supply.

The following posts will hopefully guide you through the Singapore property market. I leave you with the timeless advice of property market doyen Kwek Leng Beng: Always buy within your means and remember that property is a mid to long-term investment.

Source : Business Times – 25 Mar 2010

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Posted in Property Market / Real Estate

Tagged Singapore Property, Singapore Property Market

A better picture of the private property market

Posted on 25 Mar 2010 | Comments Off

New, monthly price index will also help in development of property derivatives

Singapore now has a second price index to provide information on the state of the private housing market here.

The new Singapore Residential Price Index, or SRPI, aims to provide a resource for the development of property derivatives. It tracks month-on-month price movements in the private non-landed residential property market.

Right now, property investors have just one price index to work with: the Urban Redevelopment Authority’s (URA) private residential property price index. That index is released on a quarterly basis and has sometimes been criticised for lagging a fast-moving market.

The National University of Singapore’s Institute of Real Estate Studies developed the SRPI after a dialogue with industry players as well as help from the Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX).

The institute hopes that, as real estate grows in importance as an asset class in the region, the SRPI will serve as a benchmark index and a reference for structuring property derivative products.

‘As the index gains in acceptance, it can potentially be used for risk management through the development of products such a property derivatives,’ said Senior Minister of State for National Development Grace Fu, who officially launched the SRPI yesterday. ‘Such derivatives may be one way for real estate developers, asset managers, banks and investors to hedge their property exposure.’

The new index differs from URA’s in several significant ways. For one thing, it will be updated every month, instead of once a quarter.

The SRPI is also computed using the market values of a basket of only completed properties. Right now, the basket has 364 private residential projects located across the island that were completed between October 1998 and September 2009.

Uncompleted projects were not included in the basket as price movements in such projects can be vastly different from those seen for the rest of the market. But the impact of new launches on the prices of completed properties in the vicinity will be factored in.

The URA index, on the other hand, includes transactions at new launches and sub-sales.

The SRPI also considers the address, completion date, tenure, leasehold maturity, floor level and strata area of all units in the projects in its basket.

The differences mean that the two indices can throw up very different numbers.

According to the SRPI, prices of non-landed private homes rose 22.2 per cent from December 2008 to December 2009. But URA’s private residential property price index showed that prices of non-landed properties increased just 0.5 per cent for the whole of 2009.

And as for Singapore’s central areas, the SRPI showed a 27.3 per cent jump in prices from December 2008 to December 2009 for the ‘central region’ (postal districts 1-4 and 9-11). The URA price index, by contrast, showed that prices of non-landed properties in the ‘core central region’ fell 1.8 per cent over 2009.

Knight Frank chairman Tan Tiong Cheng pointed out that the methodology used to develop the SRPI is ‘clearly spelled out’ while that used by URA for its price index is ‘less known’.

‘This can lead to some misunderstanding of the URA price index, especially in a volatile market,’ Mr Tan said. ‘What it means is there will be a lag effect when price movements in a fast-moving market do not get reflected immediately in the price index. This became quite obvious when the market corrected itself significantly post-Lehman, and the URA index clearly did not reflect that.’

A developer BT spoke to also said that it might be easier to ‘bet’ on the property market using the SRPI, instead of the URA price index, as more information is available about how the SRPI is calculated.

But he warned that there will still be some lag effect in the new index as it still uses transaction data from URA. This is derived from caveats lodged by buyers, who can sometimes take months to lodge a caveat – or even choose not to lodge one at all.

URA said the SRPI is compiled for the purpose of trading property derivatives. It lets market participants refer to an index that tracks the price movements of a specific basket of properties, or the specific sector of the property market which they wish to gain exposure to or hedge against.

On the other hand, URA’s property price index is designed to provide the general public and industry players with a ‘broad indication of price trends in the private residential market’.

URA’s index captures ‘all transactions and so may present a different picture from specific parts of the market’, a spokesman said.

Source : Business Times – 25 Mar 2010