Property News 22 July 2013

Residential market poised on a knife-edge

Record number of new homes nearing completion clouds outlook

DEPENDING on which set of data you are looking at, you will get a very different picture of the effectiveness of government measures to rein in property prices.

Urban Redevelopment Authority figures show that an astounding 1,806 new private homes were sold last month.

This was a 23.8 per cent jump over May's 1,459 units, which was, in turn, a 5.4 per cent improvement over the 1,384 homes sold in April.

However, flash data from the Singapore Real Estate Exchange (SRX) showed that only 605 resale condos were sold last month, a 21 per cent drop from May's 762 and a 10 per cent drop below the April tally of 671.

Some will argue that the June new home sales data was a fluke, as demand had been bolstered by blockbuster sell-outs at projects such as the 738-unit J Gateway in Jurong East and the Jewel@ Buangkok condo with 616 homes.

But the half-yearly data shows a similar divergent trend.

There were 10,061 new private homes sold in the first half - a drop of 16 per cent over the corresponding period last year.

But resale volume for the first six months was down a striking 30 per cent to 3,954 units from 5,675 transactions a year earlier.

Judging from the data, it would be safe to infer that the Government's January cooling measures, including imposing a 7 per cent additional buyer's stamp duty on Singaporeans for buying a second property and 10 per cent for a third or subsequent property, have been effective in dampening demand for resale homes.

However, the curbs are having a smaller impact on the new home sales market, perhaps due to developers' aggressive tactics such as giving cash rebates on stamp duties.

That leads to the next question: Will the tougher rules on home loans announced at the end of last month have an impact on the new home sales market?

Essentially, the rules cap how much a property buyer can borrow by ensuring that his monthly repayments, combined with all other debt obligations, do not exceed 60 per cent of his gross monthly income.

To plug the loophole whereby some parents use their children's names to buy a second property, loan guarantors will also be considered as co-borrowers.

Daiwa Capital Markets analyst David Lum believes that linking the loan to the debt will remove some demand from the market.

"Anecdotally, some buyers (near retirement age) have circumvented the additional buyer's stamp duty and loan-to-valuation restrictions by buying their second and third homes in their children's names," he wrote in a recent note.

But Mr Colin Tan, research head of property consultancy Chesterton Suntec International, believes that many property buyers have sufficient spare cash to overcome whatever measures are thrown at them.

"Most of us think all existing buyers are stretching themselves to the hilt. Personally, I don't think so. Investors borrow to the hilt because it is silly not to do so. Likewise, they use their children's names because it is silly not to."

Certainly, there are plenty of people with spare cash to buy a property or two, even after tightening the rules on home loans.

The Monetary Authority of Singapore data shows that there is plenty of liquidity sloshing around here, with Singdollar deposits jumping to $534.3 billion in May from $487.9 billion a year earlier.

Many home buyers also find the progress payment scheme in buying a new flat attractive. To them, this is like getting a long-dated option to buy a stock which magnifies any gains they may make, if property prices go up.

However, one challenge the market faces is the record number of new homes that will be completed in the next two years.

Using a stock market analogy, this is equivalent to a large number of stock options expiring simultaneously - an event that can trigger wild swings in stock prices.

There are about 290,000 completed private housing units and executive condos in Singapore but analysts estimate that a further 100,000 units will be completed in the next four years.

This means that the supply of private housing units will jack up by one-third - a huge increase by any measure, even after taking into account the recent increase in population.

Macquarie Equities Research analyst Soong Tuck Yin wrote: "As most of these (private home) completions may affect buyers seeking tenants, there will be pressures on rental yields. If this happens, yield spreads will be narrowed and weaker holders may be tempted to sell."

Throw in a couple more uncertainties such as an interest rate hike and a hard landing in big economies such as China, and you will understand the headwinds facing the residential market.

That is why it does not take a rocket scientist to explain why property counters seem stuck in the basement, unloved and neglected, even though new home sales stay buoyant.

Property developer Ying Li to explore new frontiers

Mr Ko became CEO and executive director of Ying Li in March. The Chinese property developer's next phase of growth aims to go beyond developing mixed-use property and into "thematic" real estate

CHINESE property developer Ying Li International Real Estate has kept a low profile since its listing on the mainboard in 2008 but the firm now wants investors to know that it has aggressive expansion plans.

Ying Li's transformation will involve raising capital, entering new markets, developing more ambitious real estate projects and spinning off a real estate investment trust (Reit).

The success of this wide-ranging strategy falls on the shoulders of Mr Ko Kheng Hwa, 58, who came on board as Ying Li's chief executive and executive director in March.

He was formerly the CEO of Singbridge International Singapore, a wholly owned unit of Temasek Holdings, which primarily develops and invests in large-scale integrated townships in China.

"We will expand our core business in Chongqing while entering new markets and investing in new real estate products," Mr Ko said in an interview with The Straits Times.

He has had 34 years of experience in the government service and government-linked companies, holding top positions at Keppel Corp, the Economic Development Board and JTC Corp.

Earlier this month, Ying Li also roped in Mr Tan Kiang Hwee, 50, the former chief executive of Temasek-owned urban planner Surbana, as its chief operating officer.

Since it started in 1993, Ying Li has focused on developing mixed-use commercial and office buildings in Chongqing's core central business district and selling them off, a business that has helped it to amass a market capitalisation of about $965 million.

But Ying Li has now set itself new targets. Its next phase of growth aims to go beyond developing mixed-use property and into "thematic" real estate.

Its buildings will house companies in the same industry class together for that additional competitive edge, akin to a media, health-care or education hub.

Mr Ko said Ying Li will also look at building residential townships which will offer social and commercial amenities.

Moreover, Ying Li will widen its focus beyond Chongqing's business district and suss out opportunities in the suburbs, and even possibly to other second- and third-tier cities in China.

"We want to build critical mass, presence and grow our reputation in these selected cities," said Mr Ko.

He noted that Chongqing has been selected by the Chinese government as one of the non-coastal regions to be developed under the "Go West" policy. Businesses there can therefore expect better incentives, infrastructure and policy implementation to drive economic growth, he said.

To fund these expansion plans, Ying Li will be placing out new shares to targeted investors who can contribute capital as well as add value to the business through their networks.

It will also issue bonds and consider entering joint ventures for certain developments. Finding a partner will allow Ying Li to be involved in more projects than when it was self-financing all its developments.

In the medium term, Ying Li is looking to list a real estate investment trust for its malls. Ying Li already owns and runs two retail malls and a third one, the size of VivoCity, is slated to open by the end of the year. Its malls, land banks and some office units which it retains are valued at about seven billion yuan (S$1.4 billion).

Plans are also in motion to make operations at Ying Li and its projects more eco-friendly and green by Chinese and international standards.