Singapore Property News Summary 01

Why Sub-Prime crisis will remain a crisis till somebody owns up
US homeowner Christopher Aultman stopped writing mortgage cheques. And Charles Prince of Citigroup paid. Some of the US$16.6 billion that Mr Prince's bank estimates it lost on wrong-way sub-prime bets flowed to investors who for the first time were able to wager that US mortgages would collapse. The sub-prime derivatives market created in 2005 by a group of Wall Street bankers made that payday possible.

The derivatives were based on sub-prime mortgages, given to borrowers with bad or incomplete credit. Securities firms packaged and sold that debt in structured financial products where the risk was hidden by investment-grade ratings and the values proved impossible to calculate.

'These structured products were crazy profitable for Wall Street until they blew up,' says Randall Dodd, senior financial sector analyst for the International Monetary Fund in Washington. 'Ultimately it's about excessive risk-taking and greed.' The risks were amplified by the derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed investors to bet against particular pools of mortgages.

The magnified losses caused by derivatives made it possible for a small number of defaulting sub-prime borrowers to freeze world credit markets. That's what happened in July after payments in the first quarter stopped on 13.8 per cent of sub-prime mortgages representing 4.8 per cent of total US borrowers. The defaults caused demand for sub-prime securities to dry up. Uncertainty over the value of the financial products spread to investment funds globally. Corporate lending stopped because no one knew what collateral was worth. By Aug 10, the Federal Reserve and the European Central Bank were forced to inject a combined US$275 billion into the banking system to keep money flowing.

The hedging offered by derivatives made investors feel invulnerable, says Paul Kasriel, chief economist at Northern Trust Co in Chicago. 'Derivatives don't reduce risk, they shift risk,' Mr Kasriel says. 'The development of the derivatives market enabled investors to shift risk at a lower cost, and that encouraged them to take on more risk.' From 2001 to 2006, as US home prices rose 50 per cent nationally, owning the debt and guessing that borrowers would keep current paid off. Since July 2006, however, when housing supply began to outstrip demand and the number of late payments started to rise, the short position, or wagering against the performance of mortgages, has prevailed.

Many of those responsible for the economic upheaval caused by sub-prime derivatives have also been its victims.
Mortgage salesmen peddled loans 'based on the borrowers' ability to refinance rather than the borrowers' ability to repay,' said David Einhorn, co-founder of Greenlight Capital LLC in New York and a former director of New Century Financial Corp, the second-biggest sub-prime lender in 2006, at an investors conference in October. If the borrowers defaulted, the mortgage salesmen still got their commissions. Now many of them are jobless and broke. Daniel Sadek, who says his Costa Mesa, California, sub-prime lender Quick Loan Funding catered to borrowers with credit scores as low as 420 out of 850, had to close shop in August when Citigroup cut the company's US$400 million credit line. 'I'm surprised they went under,' says borrower Kathy Cleeves of Tenino, Washington. 'They made a fortune off us.'

Borrowers bought houses and took out equity loans they couldn't afford. That didn't matter. As home prices kept rising they could always refinance. Now many of them face foreclosure. Mr Aultman, a Union Pacific Railroad mechanic with an average credit score of 465, took US$21,000 in cash out of a 2005 refinance with Quick Loan Funding. The payments on his house in Victorville, California, adjusted to US$2,650 this month, almost double what he was paying for the fixed-rate mortgage he had before the refinance. He was planning to refinance again before he discovered that he couldn't qualify.

Bankers bought loans to turn into securities that gave them the highest yield. If the borrowers defaulted, the bankers still got their fees. Now the losses are piling up. The biggest securities firms worldwide are collectively expected to write down about US$89 billion in subprime-related losses in the second half of 2007.

Citigroup, the biggest US bank, said that it will write down as much as US$11 billion in assets on top of US$5.6 billion already announced. It was one of a 'group of five' Wall Street firms that created the sub-prime derivatives market. Morgan Stanley, the second-biggest US securities firm, wrote down US$9.4 billion in mortgage-related investments this week. 'Our assumptions included what at the time was deemed to be a worst-case scenario,' chief financial officer Colm Kelleher said on Dec 19. 'History has proven that that worst- case scenario was not the worst case.' Bear Stearns Cos announced a US$1.9 billion writedown on mortgage losses on Dec 20, sending the New York-based firm to its first quarterly loss since it went public in 1985.

Merrill Lynch & Co, the world's largest brokerage, and UBS AG, Europe's biggest bank by assets, dismissed their chief executives after they reported a combined US$11.4 billion in sub-prime-related losses in the third quarter. Merrill may post an additional US$8.6 billion in losses for the fourth quarter, David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller, said. 'Derivatives led a lot of people to believe that risk was being dispersed in a way that made things safer, but the risk remained after people thought they'd moved it off their balance sheets,' says Bose George, a mortgage industry analyst at Keefe, Bruyette & Woods Inc in New York.

Investors didn't know what they were buying, says Sylvain Raynes, a principal in New York-based R&R Consulting Inc and co-author of the book The Analysis of Structured Securities. It didn't matter if a certain number of borrowers defaulted because the returns on some parts of the financial instruments were as much as 3 percentage points higher than 10- year Treasury yields. Now the losses are spreading. Florida schools and cities pulled almost half their deposits from a US$27 billion state investment pool linked to sub-prime mortgages.

A hospital management company in suburban Melbourne, Australia, lost a quarter of its portfolio in July on sub-prime-linked investments. Japan's 36 banks booked combined losses of 244 billion yen (S$3.12 billion) in the fiscal first half on sub-prime-related assets, according to the Financial Services Agency. Sumitomo Trust & Banking Co, Japan's fifth-largest bank by market value, says that fiscal first-half profit fell 41 per cent on higher provisions for bad loans. Eight towns in northern Norway, including Hattfjelldal, a village where reindeer outnumber the 1,500 residents, lost a combined 350 million kroner (S$91.3 million) on securities containing sub-prime mortgages. 'We are a stoic people, used to fighting against the forces of nature, so we'll manage,' says Hattfjelldal mayor Asgeir Almaas. 'We won't let this break us.'

Information about investments in derivatives, such as so-called synthetic collateralised debt obligations, was voluminous and available. A lot of it was also unread. 'These documents are not bedtime reading,' Gerald Corrigan, managing director in charge of risk management at Goldman Sachs, told a UK parliament committee. 'You have to work at it.' The three biggest ratings companies - Moody's Investors Service, Standard & Poor's and Fitch Ratings - were forced to lower ratings on a record number of CDOs last month, according to a Morgan Stanley report, as sub-prime-backed securities deteriorated.

S&P says that it downgraded 16 per cent of sub-prime vehicles issued in 2005 and 29 percent of the 2006 vintage. By comparison, the company says it upgraded 0.07 per cent of its 2005 securities and 0.08 per cent of 2006.
Those who bet against the mortgage industry fared better. J Kyle Bass of Hayman Capital Partners in Dallas hired private investigators to help him sniff out the worst lenders. He says that he turned a US$110 million stake into about US$600 million. Deutsche Bank AG's writedowns on sub-prime losses were 2.16 billion euros (S$4.52 billion) - less than they would have been if not for the offsetting short trades of Greg Lippmann, the bank's global head of asset-backed securities trading.

Goldman Sachs avoided the losses other banks suffered by betting that US homeowners would walk away from their debts. John Paulson of New York-based Paulson & Co made similar bets. One of his hedge funds returned 436 per cent in the first nine months of 2007, based on data compiled by Bloomberg. 'The people who dug deep and analysed the underlying collateral of the securities made a lot of money betting against them,' says Girish Reddy, former co-head of equity derivatives at Goldman Sachs and managing partner of Prisma Capital Partners LP in Jersey City, New Jersey.

Nobody paid more dearly than Savannah Nesbit. The six-year-old and her family lost their house in Boston's Dorchester neighbourhood last month after failing to pay a sub-prime mortgage that adjusts higher every six months.
Savannah got her first bicycle for her birthday in August, pink with streamers dangling from the handlebars. She decorated the present from her grandmother with stickers of Dora the Explorer, her favourite animated character. When sheriff's deputies emptied the house and changed the locks, they left Savannah's bike behind. 'She cries about that bike every night, and she wants me to buy her another one, but I can't afford it right now because I have my own financial problems,' says Savannah's grandmother, Anne Marie Wynter, whose home is also in foreclosure.

Sadek's Quick Loan Funding had 700 employees at its 2005 peak. Now Sadek is making payments on three residential properties he mortgaged in a failed attempt to keep his firm afloat. He also owns a restaurant in Newport Beach, California. 'I'm under water,' he says, puffing on a Marlboro Light. 'I'm trying to sell everything, and nothing is being sold.' His attempts to bankroll a film career for his former fiancee, soap opera actress Nadia Bjorlin, came to naught. Last month, Bjorlin returned to her role as Chloe Lane on Days of Our Lives. Mr Aultman, the railroad mechanic, teeters on the brink of foreclosure. He has been trying to modify his loan terms with Countrywide Financial Corp, which now owns his mortgage. 'It's scary, very scary,' Mr Aultman says. 'Sometimes I'll walk through the house and touch the walls and say to myself, 'This is mine.' Moody's, S&P and Fitch continue to be arbiters of the quality of securities, though their reputations have suffered.

The Connecticut attorney general is investigating the three companies, including whether they rank debt against issuers' wishes and then demand payment, whether they threaten to downgrade debt unless they win a contract to rate all of an issuer's securities, and the practice of offering ratings discounts in return for exclusive contracts.
The Securities and Exchange Commission and two other states, New York and Ohio, have launched separate investigations of the ratings companies. Moody's also faces a shareholder lawsuit.

Deutsche Bank recently began meetings to create a new index on another security, Alt-A mortgage bonds. It will allow hedging against defaults by Alt-A borrowers, who have prime credit and get mortgages without verifying their incomes. Investors will also be able to wager that Alt-A homeowners will quit making payments, potentially turning losses into more and bigger paydays.

Foreign Worker's Dorm is no longer a low-down asset
Morgan Stanley has expanded its Singapore real estate investment portfolio to include an unusual asset class - foreign workers' dormitories. An entity understood to be linked to the US bank recently bought three dormitories from JTC Corp for $153 million and is said to have teamed up with a local party to purchase more such properties from the private sector, sources say. 'It may seem an unglamorous property type but the yields can be very attractive and Morgan Stanley has clearly sensed a business opportunity in an area that other foreign funds and property investment groups may not have spotted yet,' a source says. Morgan Stanley is said to be targeting dormitories whose tenants include blue-chip companies that lease space in these facilities for their foreign workers.

Traditionally, most institutional investors go for income-generating commercial properties like offices and retail, as well as industrial (specifically logistics and warehousing). And then serviced apartments started featuring in their portfolios. In Asia, these investors have started to look at non-traditional assets that offer higher yields as well as (residential) property development, because of yield compression for the traditional asset classes they used to focus on. 'Yields on these segments have fallen as more and more investments chase limited assets. You now have superannuation funds from Australia, Reits, and sovereign wealth funds, private equity...,' Mrs Ong says. She suggests that student housing is another sector that foreign funds may target. 'Studies have shown this to be quite a stable source of income. In places like the US and Europe, anything with P&L (income flow) can be Reited or be attractive to institutional investors - like senior housing, nursing homes, self-storage facilities, even prisons,' Mrs Ong notes.

The three dormitories that Morgan Stanley has purchased from JTC are Kian Teck Dormitory in Jurong, Tampines Dormitory and Woodlands Dormitory. Kian Teck Dormitory has 411 units with two types of units - one that can house six to 12 persons per unit, and another for seven to 14 persons per unit. Morgan Stanley unit Avery Strategic Investments bagged the properties following a public tender that closed earlier this year. It was the highest of eight bidders for the dormitories. The sale was completed in the fourth quarter. There are currently over 20 other major dormitories for housing foreign workers in Singapore. Dormitory rentals have been on the rise, especially in the past 12 months. 'There's a shortage of dorms islandwide mainly because of the construction boom. That's why some property investors are starting to look at these facilities,' an industry observer says.

Some industry watchers suggest that property yields for dormitory investors could be around 20 per cent or even higher. 'It depends to a large extent on the length of the balance lease term on the land - the shorter the remaining lease, the higher the return a potential investor will seek. There's a whole range of land leases for dormitories in the market - freehold, 60 years, 30 years and some even as short as 3 + 3 years,' an industry observer explains.

Boom Boom attracts new players
The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer. Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.

In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites. 'When the market is good, it draws in players who may not have been active before,' said CBRE executive director Jeremy Lake. He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened. 'If you get your timing right in property, the profits can be substantial,' Mr Lake said.

Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996. Companies that did not look at property development in the past are now beginning to do so because of the fatter margins. One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million. SuperBowl's managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.

Similarly, KSH Holdings sees good opportunities in property development. The company's chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time. 'Going forward, we will buy more sites if the right opportunities arise,' Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year. The first site, which KSH acquired in June with three other partners, was the construction company's first purchase of a land parcel.

Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International. However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007. CBRE's data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan's GuocoLand and property giant CapitaLand.

New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year. In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent. However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins. 'For the high-end residential segment, there is now risk of a potential correction,' said OCBC Investment Research analyst Winston Liew.

New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said. Next year, established developers who have carved out niches are likely to do best, analysts said. 'Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,' said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008. OCBC's Mr Liew advocated being defensive when choosing property developer stocks. 'We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,' he said.

$2500psf for United House office? You bet!
The strata office market is still running hot. A first-storey freehold office unit at United House, behind Le Meridien Singapore Hotel in Orchard Road, went for $2,497 per square foot of strata area at a Colliers International auction last week. The last transacted price in the development was $1,601 psf for a 710 sq ft unit on the fifth level in April this year.

However, the highest unit price for a strata office unit here appears to be $3,050 psf, at The Central, a 99-year leasehold development above Clarke Quay MRT Station. Developer Far East Organization is said to have sold the entire 21st level of one wing of its V-shape, 25-storey office tower for $40.7 million several months ago. The space comprises units #21-89 to #21-99, adding up to a total strata area of 13,337 sq ft. BT understands the buyer is a shipping company.

The $3,050 psf surpassed the previous record, set in the same building, when Far East sold the entire 24th level in the same wing for $2,850 psf, also this year. While The Central's mall has already opened, its office tower, and small office, home office (Soho) block are expected to be ready in the first half of next year.

In the Orchard Road area, unit #01-01 of United House was auctioned by Colliers on Dec 19 for $7.5 million. The road-fronting unit - with a strata area of 3,003 sq ft - is subdivided into two smaller units that have been leased out at a total monthly rent of $13,260, with the last lease expiring in October 2008. This presents an opportunity for the property's new owner - understood to be a low-profile Singapore investment company - to enjoy a higher yield when the lease is renewed or a new tenant found. Grace Ng, Colliers deputy managing director (agency and business services) and auctioneer, attributes the unit's appeal not just to current demand for offices but to United House's potential for a collective sale.

The strata office market in other parts of Singapore also continues to buzz. At Suntec City, units on the 23rd and 27th floors have changed hands at prices ranging from $2,250 psf to $2,313 psf lately, according to caveats captured by SISV Services' Realink system. At International Plaza in Anson Road - another favourite for strata office investors - a unit on the 30th floor was sold for $1,586 psf in October. Nearby, at Shenton House, a couple of adjoining units on the 15th storey changed hands last month at about $1,500 psf. A 10th floor unit at High Street Plaza was sold for $1,714 psf a few weeks ago.

Good Class Bungalow is better class by 40%
The demand for gracious bungalow living is chugging along quite nicely. In fact, average prices of Good Class Bungalows (GCBs) are expected to appreciate by about 10 to 15 per cent next year. This appears even more impressive if you consider that this year, they have already climbed by nearly 40 per cent to $710 per square foot of land area.

The expected appreciation could propel the total value of GCB transactions to increase slightly in 2008, although the number of transactions may be slightly lower, Savills Singapore director (Prestige Homes) Steven Ming predicts.
The first 11 months of this year saw a total of 96 GCB transactions adding up to $1.28 billion. The value is an all-time record and has surpassed slightly the $1.24 billion achieved for the whole of last year. However, the number of GCB transactions from January to November this year is still shy of the 118 for the whole of 2006, according to an analysis by Savills Singapore based on caveats data from Urban Redevelopment Authority's Realis system. 'I don't expect the number of GCB transactions to increase next year, because prices have gone up quite rapidly in the past 12 to 15 months. The GCB market is generally restricted to Singaporeans and Permanents Residents with special approval to buy landed homes.

'Some of these potential buyers may have bought GCBs at much lower prices in the past and may take time to adjust to higher prevailing prices now. But having said that, there's been a lot of wealth creation over the past few years as seen in the reasonable number of record prices being set,' Mr Ming said. Credo Real Estate managing director Karamjit Singh, too, predicts moderate price upside for GCBs for next year, despite forecasting overall flat property prices. 'GCB values will benefit from the enormous wealth created from the economic boom, and the influx of high networth individuals who become permanent residents (PRs), while supply remains scarce,' he adds.

While demand-supply fundamentals remain sound next year for Singapore's real estate sector as a whole, including GCBs, the crucial factor is how the currently-shaky sentiment pans out, Mr Singh said. Record prices were set for two adjacent bungalows at Nassim Road in the past few months - 32G Nassim Road, which was sold for just under $20 million or $1,504 psf of land in September, followed by 32H Nassim Road in October at an even higher $1,899 psf.

Raffles Education founder and chairman Chew Hua Seng is believed to have picked up 32H Nassim Road, for which he paid $25.5 million. Mr Chew is said to own a few other bungalows nearby. The prices achieved for 32G and 32H Nassim Road surpassed the previous record for GCBs, of $1,308 psf set only in August this year, when Hong Kong group Wharf (Holdings) sold Glencaird, a conservation bungalow at 15 White House Park, for $28.8 million.

However, market watchers highlight that for the 32G and 32H Nassim Road transactions, each property's land area is just slightly over 1,200 sq metres - lower than the minimum 1,400 sq metres (or 15,070 sq ft) plot size stipulated under Urban Redevelopment Authority guidelines for GCBs. Savills' Mr Ming argues nonetheless that these two properties will be bound by GCB regulations if they were to be redeveloped. This means that they cannot be more than two storeys high, their built-up area is limited to 35 per cent of the total land area, and the plots cannot be subdivided further.

The year has also seen quite a few GCBs being flipped. 21 Cluny Hill was bought for $15 million in January and changed hands again for $20.2 million in June. 46 Mount Echo Park was sold for $10 million in January and again for $12.8 million in March. 'Some savvy bungalow investors with deep pockets, saw value in investing in freehold GCBs earlier this year, when their prices were lagging quite a bit behind those of 99-year bungalows on Sentosa Cove. The gap has since narrowed and these investors have been able to offload their GCB investment for a handsome profit,' Mr Ming said.

Over at Sentosa Cove, seafronting bungalow sites have fetched as much as $1,696 psf this year. These are vacant sites sold by the precinct's master developer, Sentosa Cove Pte Ltd, to buyers to build their dream homes on them.
The supply of completed bungalows for sale in the upscale waterfront housing locale is still limited, but Savills' director of business development and marketing Ku Swee Yong says that owners are asking for $1,800 psf to $2,400 psf depending on the direction they face. 'The main reason for higher bungalow values on Sentosa Cove than in mainland Singapore is because of expedited approval for foreign buyers of landed property on Sentosa Cove. This has been a great draw for those who want to be PRs in Singapore and park a fraction of their wealth here,' Mr Ku said.

Stars of 2008 - the mid-tier & Mass Market will shine
Next year could be the year of the mid-tier and mass market sectors with prices expected to rise between 8 and 15 per cent. Whether this will happen depends largely on en bloc millionaires, the return of HDB upgraders, the resilience of the Singapore economy, and the possibility of more developers stemming supply and landbanking their redevelopment sites. CBRE Research executive director Li Hiaw Ho expects 10,000-13,000 new homes to be sold, 'with more activity seen in the mid-tier and mass market'.

The number falls short of the estimated total number of 15,000 units sold in 2007. But Mr Li said that, in the event of a downturn, developers who can hold will push back their launches until the market turns around. 'This is possible because most of the collective sale sites are on freehold tenure,' he added. Mr Li also noted that while about 67 per cent of the development sites sold in 2006 were in the prime districts of District 9, 10 and 11, this fell to 49 per cent in 2007. 'More sites outside the prime districts were acquired via the collective sale route in 2007, compared to 2006 when there was more supply in prime areas, and when prices were more affordable,' he added.

Based on total sites sold, CBRE estimates that there could be about 14,000 units ready for launch outside the prime districts next year. This includes a potential 1,600-unit 99-year leasehold condo built by Frasers Centrepoint and Far East Organization in Tampines, and a 630-unit 99-year leasehold condo by Sim Lian Land in Bishan. Savills Singapore director of marketing and business development Ku Swee Yong reckons that of the new launches, the majority would be mid-tier. 'There are not enough launch-ready mass market sites of significant size,' said Mr Ku.
He believes that there could be more mass market sites in the Government Land Sales (GLS) Programme, with prices for the mass market gaining 30-50 per cent, and mid-tier prices rising 20-40 per cent.

Apart from a rising number of new citizens and PRs (permanent residents), Mr Ku expects an influx of integrated resorts-related foreign manpower in the second half of 2008. 'The high-end will be replenished with the re-construction of en bloc sites but the mass market housing for junior level expats and foreign talent will have to come from GLS sites,' he added. Colliers International director of research and consultancy Tay Huey Ying also expects buyers hoping to reap rental returns to make up a significant portion of the mass market.

However, Ms Tay believes that the mass market and mid-tier sectors will no longer be quite as easy to define.
With many developers improving their product to try and price their projects at benchmark levels, Ms Tay says, there is a noticeable blurring of tiers as the higher-end of each tier encroaches into the lower-end of the next tier. 'As such, it would be more appropriate to segmentise the residential property market into seven tiers, namely, mass, upper-mass, mid-tier, upper mid-tier, high-end, luxury and super luxury,' she explained. Colliers' target prices for the mass and upper-mass market developments are below $750 psf, and between $750 and $1,100 psf respectively.
Projected prices for the mid-tier market are from $900 to $1,800 psf, and upper mid-tier market, from $1,800 to $2,500 psf. At these prices, HDB upgraders could be priced out of the private market.

Resale HDB prices are rising with cash-over-valuation now as high as $150,000. Although this is for very select units, sellers are nevertheless holding out for higher resale prices. ERA Singapore assistant vice-president Eugene Lim, for one, does not expect resale volume in 2008 to top the estimated 30,000 units sold in 2007. PropNex CEO Mohamed Ismail reckons that resale prices will rise 10-15 per cent in 2008. In spite of this, he believes interest on mortgages, stamp duty and legal fees will still leave about 10 per cent of HDB sellers in negative equity if they sell now.

Highlighting a recent trend, Mr Mohamed notes that 5-room flats in areas such as Bishan, Bukit Merah, Bukit Timah, Central, Clementi, Kallang, Marina Parade, Queenstown and Toa Payoh commanded cash-over-valuation of $50,000 and above in Q307. He added that buyers were mainly private property downgraders or en bloc millionaires who are also finding private property too expensive.

Sales likely to flatten over last quarter
The number of private homes sold by developers inched up 4.7 per cent to 593 units in November, up from 566 units in October. The Urban Redevelopment Authority (URA) also revealed monthly property market data of transacted benchmark prices as well as median prices. During the month, a significant number of transactions were seen at Amber Residences, which sold 85 units at the median price of $1,392 psf, and Casa Fortuna which sold 103 units at $1,009 psf. CBRE Research executive director Li Hiaw Ho also noted that 20 units at 8 Napier were sold at a median price of $3,557 psf and pointed out that these were likely to have been made by a single buyer.

On the performance in November, Mr Li said: 'Overall, prices are firming. Sales volume and prices in December should remain at the same levels as October and November.' Indeed, developers told BT that launch prices are being maintained even though buyers are now a bit more 'cautious'. UIC Ltd's 192-unit Park Natura, across from Bukit Batok Nature Park, saw 56 units sold in the month at a median price of $945 psf. The price was slightly lower than the October median price of $1,022 but UIC group general manager Vito Koh explained that this was because units sold in November included those with private enclosed spaces like roof terraces. Mr Koh said that the withdrawal of the Deferred Payment Scheme (DPS) have made buyers more cautious but added that he believes developers are not lowering prices to move units. 'Prices are not coming down, but they are not going up either,' he said.

A comparison of the median price of Amber Residence ($1,392 psf) and the reported average selling price ($1,650 psf) does appear to show that prices may have softened a little. According to the URA data, 68 units were sold in the $1,000-$1,500 psf bracket with 16 units sold in the $1,500-$2,000 psf bracket. One unit was sold at between $2,000-$2,500 psf. Jones Lang LaSalle head of research and consultancy Chua Yang Liang noted that launches declined significantly in the Core Central Region (CCR) by 43 per cent from the 166 in October to only 95 in November. 'The take-up or demand further reflects this softer market with 130 units absorbed - a marginal drop of 4 per cent month-on-month (MoM),' he said.

Similarly, demand in the Outside Central Region (OCR) also weakened with a 33 per cent MoM decline or only 173 units absorbed compared to 259 in October. Dr Chua pointed out that this was on the back of a larger supply of 221 units or a 28 per cent increase in the number of units launched. 'The decline in demand in OCR is a likely result of the removal of the DPS,' he explained.

In contrast, the demand in Rest of Central Region (RCR) remained strong. In November, the take-up increased by 57 per cent MoM. Most of the transactions in the RCR were in District 15. 'Take-up in this segment is largely driven by foreign occupiers that has spilled over from the CCR,' Dr Chua added. According to the URA data, there are over 4,000 units in 70 developments with pre-requisites for sale as at end-November. This includes mass-market offerings at Bedok Resevoir as well as high-end developments at Cairnhill.

While developers are not 'panicking' at the possibility of a slowdown in the economy, Cushman & Wakefield managing director Donald Han believes more will be 'repositioning' their launches and going directly to foreign buyers in the Middle East and North Asia. Mr Han, who expects the total volume of transactions in Q4 2007 to be below 2,000 units, added: 'Some developers were already marketing their high-end products at the recent Mipim exhibition in Hong Kong to reach an international market.'

It is a strategy that appears to be working. Savills Singapore director of marketing and business development Ku Swee Yong said he was pleasantly surprised at some of the benchmark prices reached in the high-end sector, with the highest price for the 40-unit Sui Generis at Balmoral Crescent increasing from $2,578 in October to $2,713 psf in November. Six units were transacted in November and the median price rose from $2,406 to $2,474 psf. Saying that he believes that this end of the market would continue to be driven by international high net worth individuals, he revealed: 'We had a client who insisted on being first in queue for The Ritz Carlton Residence.' The client later set a new benchmark price of $4,515 psf for the Cairnhill area.