HDB resale flat prices ease up in 2nd quarter Price index records slowest growth in four years, but private market up Source: Straits Times By Rachel Chang RESALE flat prices in public housing ticked upwards by 0.5 per cent in the second quarter of this year, as measures to cool the property market took effect, recording the most sluggish pace since 2009. For the period from April to June, the Housing Board's resale price index rose at less than half the 1.3 per cent that was seen in the first three months of the year. This slowdown came despite the fact that the second and third quarters are traditionally "hotter" periods for the housing market than the start and the end of the year, when buying and selling slow during festive seasons. In contrast, the private property market followed traditional trends, with residential unit prices rising faster in the second quarter than in the first. The Urban Redevelopment Authority's private residential property index showed a quarter-on-quarter rise of 0.8 per cent, up from 0.6 per cent in the first three months of the year. Analysts noted that the continued momentum in the private market in the face of rounds of cooling measures was partly due to the way developers have countered the curbs by dangling sweeteners and discounts to buyers. But there were no such carrots in public housing. Second-hand flat buyers have been cowed by the January tightening of the mortgage servicing ratio (MSR), said analysts. Then, the Monetary Authority of Singapore said that HDB buyers could take on mortgages only where the monthly payments did not exceed 30 per cent of their income, if the loan is from a private bank, and 35 per cent, if the loan is from HDB itself. Previously, the cap for an HDB loan was 40 per cent, while banks accepted as high as 60 per cent. This change was in reaction to a reacceleration of the resale market after a seeming normalisation during the first half of last year. After slowing to just 0.6 per cent in the first quarter of 2012, it picked up speed again in the second half of the year, spiking some 4.5 per cent in six months and prompting the January curbs. The new MSR policy, said R'ST Research director Ong Kah Seng, makes buyers pay a bigger portion of their purchases in cash. It makes them less able to fork out high cash-over-valuation (COV) payments. In May, the median COV was $26,000, according to data from the Singapore Real Estate Exchange. This was down 13 per cent from April's $30,000. The HDB has also been working to halt the resale market in its tracks. It has rolled out more than 20,000 Build-To-Order (BTO) flats every year since 2011, and National Development Minister Khaw Boon Wan made it clear that he has de-linked BTO flat prices from the resale market. "As a result, the resale market is effectively serving only the upgraders and permanent residents now," said PropNex Realty chief executive Mohamed Ismail. Yesterday, the HDB said it will release 3,800 flats at its next BTO launch this month - the first where singles aged 35 years and older with monthly pay not over $5,000 will be allowed to join the BTO queue for two-room flats. This policy change, first announced in March, has also siphoned demand from the resale market as some singles chose to wait for the new flats. rchang@sph.com.sg SEE MONEY Ageing malls face hurdles to upgrading Many poorly patronised, in disrepair as unit owners disagree on plans Source: Straits Times By Melissa Lin And Kash Cheong SINGAPORE'S ageing malls, most of which are strata-titled properties, are in urgent need of retail therapy. Built in the 1970s and 1980s, when the country took its first steps to becoming a shopping paradise, many of them are now plagued by empty shop units, failed en bloc bids, sleaze and aging facilities. The problem lies in the nature of the malls, where shop units are owned by individuals. Refurbishment works can be carried out only if the majority of owners, some of whom sit on the management council, say yes. But not everyone can agree on how to use the funds, which tend to be a small pool of money collected through monthly maintenance fees paid by tenants. A case in point is Peninsula Shopping Centre, which had an air-conditioning meltdown two weeks ago caused by a leaking chiller unit. Tenants at the mall pay service fees of just 83 cents per sq ft a month, said Mr Kelvin Khubchand, a member of the mall's management corporation strata title council. "We want to paint the mall and renovate the toilets, but we have to use the funds wisely and compare quotations," he said. "This can take quite long. Everyone has a different idea on what to do." At Ming Arcade in Orchard Road, for instance, shop units are left empty and parts of the external wall are covered with algae. At Parklane and Orchard Plaza, karaoke joints and pubs with foreign women are a common sight. The tenant mix is also uneven - night clubs, florists, jewellers, tuition centres and even back-end offices co-exist. When The Straits Times visited some of these malls last week, there were few walk-in customers. Mr Ong Kah Seng, director of property consultancy R'ST Research, estimates that there are at least 75 strata malls in Singapore. The undesirable tenant mix at these malls is a result of shop owners being given free rein to rent out their units to the highest bidder, he said. In developer-owned malls such as Northpoint and Junction 8, which sprang up in the 1990s, the developer has the final say on the tenant mix and can attract well-known brands. Selling the building en bloc is the obvious way out for the older malls, but again, reaching a consensus is a problem. At least 80 per cent of the owners need to agree to a collective sale before further action can be taken. This can be difficult as shop owners tend to ask for prices above the market price, said Orchard Road Business Association executive director Steven Goh. Tanglin Shopping Centre, for instance, has failed twice in its bid to be sold en bloc. It is one of 11 strata malls in Orchard Road. Malls which were successfully sold en bloc include Paramount Shopping Centre and Paramount Hotel, which sold for $214 million to Far East Organization in 2010. Another solution is to engage professional mall management teams, said Dr Lynda Wee, an adjunct associate professor in retailing at Nanyang Technological University's Nanyang Business School. Or, they can take their cue from Sim Lim Square - known as the go-to place for affordable electronics - and establish niche selling points. Most of its funds come from carpark charges and advertising fees it collects from its tenants, said one of the mall's managers, who wanted to be known only as Mr Chia. Despite their long-running problems, new strata-titled malls are emerging said R'ST Research's Mr Ong. This trend started about four years ago, when investors began turning to such properties as cooling measures for residential properties set in, he added. At least six major mixed-development projects, consisting of at least 550 strata shops, are coming up, he said. This includes East Village in Bedok and The Promenade @ Pelikat in Upper Serangoon. "The general challenge for new strata malls persists - the lack of a central owner to control the tenant mix to achieve compatibility in retail offerings," said Mr Ong. "Ten years down the road, the new malls may face the same problems, but whether the problems reach the same intensity as today's ageing malls remains to be seen." mellinjm@sph.com.sg kashc@sph.com.sg MORE REPORTS: STRATA MALLS Loan curbs target rising rates, but other dangers lurk Source: Straits Times | Money By Fiona Chan Senior Economics Correspondent ANOTHER carefully targeted missile to expunge certain buyers from the property market was launched last Friday. The Monetary Authority of Singapore (MAS) trained its latest measure on one specific class of real estate investors: those spending too much of their monthly pay packet paying off their debts. The weapon was a new lending framework that capped how much property buyers can borrow to finance their purchases if they are already significantly in debt. They will be restricted to loans where monthly repayments, combined with all their other debt obligations, do not exceed 60 per cent of their gross monthly income. But the MAS was quick to stress that this move was not yet another cooling measure - there have been seven rounds since 2009 - to deflate housing prices. The strategy this time is a bit different from the previous curbs. For one thing, it is meant as a permanent framework to standardise lending practices, in contrast to recent steps that were highlighted as temporary actions to tame runaway prices. Unlike earlier measures, Friday's manoeuvre also included no tactics to directly check demand such as raising or extending additional taxes on home buyers and sellers. What this shows is that the MAS is becoming more concerned about affordability - not so much for first-time buyers deterred by soaring prices as for investors piling on debt to buy rental property. Indeed, in contrast to the doleful reactions of market watchers to previous curbs, analysts say the new rules will have a limited impact on home sales and prices. Instead, the MAS appears to be simply preparing the ground for more realistic interest rates, which are expected to rise from their ultra-low levels as soon as next year. As a start, the MAS says monthly instalments for any new mortgage must be calculated based on minimum "medium-term" interest rates: 3.5 per cent for housing loans and 4.5 per cent for loans for other properties. For now, analysts estimate that most mortgage applicants are not in danger of busting the debt limit and will not be deterred by it. Maybank analysts say the total debt servicing ratio of borrowers from domestic banks is a "comfortable" 40 to 50 per cent, assuming an interest rate of just above 3 per cent. "While some cooling off of property loan approvals cannot be ruled out, we expect the impact to be limited," they add. But it is worth noting that the MAS has left the door open to reducing the 60 per cent ratio over time, "with a view to further encouraging financial prudence". To drive the point home, the central bank could also raise the minimum interest rate to be used in computing monthly repayments for new loans. The current 3.5 per cent floor is conservative: Mortgage rates are about 1.5 per cent now, but were above 5 per cent in 2006. In its latest financial stability report, the MAS noted that a 4 percentage point rise in mortgage rates would lift the mortgage-servicing ratio of the average household by 13 percentage points. This means that if home loan rates rise from 1.5 per cent to 5.5 per cent, a household now paying $6,000 of its monthly $10,000 income in repayments will have to fork out $7,300. There were hints by United States Federal Reserve chairman Ben Bernanke last month that the bond-buying programme that has kept interest rates in the basement will be wound down. This sparked fears that higher interest rates would not be far behind and, in turn, sent US home loan rates spiking to 4.56 per cent last week, from 3.74 per cent a month ago, the Wall Street Journal reported. There is every indication that rising rates could be painful for Singapore, where households have been on a borrowing spree in recent years, fuelled by record prices for homes and cars. Economists have long flagged worries over debt levels here, noting that compared with other countries in Asia, they are higher as a share of the overall economy and rising more quickly. Mortgages, in particular, have hit record levels as a proportion of both the economy and of total deposits. But rising interest rates are not the only worry for Singapore property investors. The more fundamental concern is a potential mismatch between demand for property by investors and demand for homes by tenants. Even if investors are forced to do their sums more conservatively, they are still likely to be keen on buying property, given a lack of suitable alternatives that can be heavily leveraged, provide monthly income and still offer the opportunity for sizeable capital gains. So the tighter loan rules, while taking out some would-be investors, might push the rest to cheaper homes further from the city or more cramped, which are less attractive to tenants. These cheaper units are being furiously built now to meet demand from investors but they will compete for tenants with the HDB flats, which are also being ramped up in supply. That means this housing segment faces the biggest risk of vacancy in any oversupply situation, leaving investors short of rental income to repay their loans. Hence, even as the MAS zeroes in on interest rates, it should be aware of the other threats to property market stability - especially in the suburban battlegrounds. fiochan@sph.com.sg Ageing malls face hurdles to upgrading Many poorly patronised, in disrepair as unit owners disagree on plans Source: Straits Times By Melissa Lin And Kash Cheong SINGAPORE'S ageing malls, most of which are strata-titled properties, are in urgent need of retail therapy. Built in the 1970s and 1980s, when the country took its first steps to becoming a shopping paradise, many of them are now plagued by empty shop units, failed en bloc bids, sleaze and aging facilities. The problem lies in the nature of the malls, where shop units are owned by individuals. Refurbishment works can be carried out only if the majority of owners, some of whom sit on the management council, say yes. But not everyone can agree on how to use the funds, which tend to be a small pool of money collected through monthly maintenance fees paid by tenants. A case in point is Peninsula Shopping Centre, which had an air-conditioning meltdown two weeks ago caused by a leaking chiller unit. Tenants at the mall pay service fees of just 83 cents per sq ft a month, said Mr Kelvin Khubchand, a member of the mall's management corporation strata title council. "We want to paint the mall and renovate the toilets, but we have to use the funds wisely and compare quotations," he said. "This can take quite long. Everyone has a different idea on what to do." At Ming Arcade in Orchard Road, for instance, shop units are left empty and parts of the external wall are covered with algae. At Parklane and Orchard Plaza, karaoke joints and pubs with foreign women are a common sight. The tenant mix is also uneven - night clubs, florists, jewellers, tuition centres and even back-end offices co-exist. When The Straits Times visited some of these malls last week, there were few walk-in customers. Mr Ong Kah Seng, director of property consultancy R'ST Research, estimates that there are at least 75 strata malls in Singapore. The undesirable tenant mix at these malls is a result of shop owners being given free rein to rent out their units to the highest bidder, he said. In developer-owned malls such as Northpoint and Junction 8, which sprang up in the 1990s, the developer has the final say on the tenant mix and can attract well-known brands. Selling the building en bloc is the obvious way out for the older malls, but again, reaching a consensus is a problem. At least 80 per cent of the owners need to agree to a collective sale before further action can be taken. This can be difficult as shop owners tend to ask for prices above the market price, said Orchard Road Business Association executive director Steven Goh. Tanglin Shopping Centre, for instance, has failed twice in its bid to be sold en bloc. It is one of 11 strata malls in Orchard Road. Malls which were successfully sold en bloc include Paramount Shopping Centre and Paramount Hotel, which sold for $214 million to Far East Organization in 2010. Another solution is to engage professional mall management teams, said Dr Lynda Wee, an adjunct associate professor in retailing at Nanyang Technological University's Nanyang Business School. Or, they can take their cue from Sim Lim Square - known as the go-to place for affordable electronics - and establish niche selling points. Most of its funds come from carpark charges and advertising fees it collects from its tenants, said one of the mall's managers, who wanted to be known only as Mr Chia. Despite their long-running problems, new strata-titled malls are emerging said R'ST Research's Mr Ong. This trend started about four years ago, when investors began turning to such properties as cooling measures for residential properties set in, he added. At least six major mixed-development projects, consisting of at least 550 strata shops, are coming up, he said. This includes East Village in Bedok and The Promenade @ Pelikat in Upper Serangoon. "The general challenge for new strata malls persists - the lack of a central owner to control the tenant mix to achieve compatibility in retail offerings," said Mr Ong. "Ten years down the road, the new malls may face the same problems, but whether the problems reach the same intensity as today's ageing malls remains to be seen." mellinjm@sph.com.sg kashc@sph.com.sg MORE REPORTS: STRATA MALLS HOLDING ITS OWN: Roxy Square relies on regular customer base Source: Straits Times WITH Parkway Parade and 112 Katong as its neighbours, most people expected Roxy Square Shopping Centre to fade away. But despite occasional maintenance issues such as water leaking from the ceiling and malfunctioning lights, shop owners there, who rely on a regular customer base built up over the years, say they prefer the laid-back atmosphere. Tenant Johnny Gn, 50, who runs a nail salon and an adjoining shop selling beauty products, said the mall comes with less restrictions than developer-owned ones. "There are no fixed opening hours. I can open the shop two or three days a week, go on a holiday with my family, and still break even," he said. "It's not so stressful." Mr Lim Ngee Gim, 65, who owns a 22-year-old furniture store there, estimates that at least 80 per cent of his customers are regulars. His only gripe is the lack of security cameras in the mall. Cameras are placed only at the entrances, he said. The 29-year-old mall's relatively good condition can be put down to the fact that its developer, Roxy-Pacific, has a 60 per cent stake in the mall. Mr Teo Hong Lim, Roxy-Pacific's executive chairman and chief executive officer, said: "Being in the same building, the developer is more responsive to issues and is available for urgent meetings every day." MELISSA LIN Impact of home loans on banks likely limited Analysts say most mortgages already meet criteria of newly tightened rules Source: Straits Times | Money By Melissa Tan BANK analysts yesterday said banks here are likely to be somewhat cushioned against the impact of the latest move by the Monetary Authority of Singapore (MAS) to tighten home loans. The MAS on Friday said it will impose a standardised total debt servicing ratio (TDSR) framework for banks to assess home buyers' ability to borrow. A buyer's TDSR - broadly, the level of debt as a proportion of assets - should not be higher than 60 per cent. Banks also have to use a medium-term interest rate of 3.5 per cent for housing loans. The MAS said the move was to strengthen banks' credit underwriting practices and encourage financial prudence among borrowers. Analysts said yesterday that the debt servicing ratios of banks here are generally likely to be lower than the 60 per cent level. "Based on our channel checks, the TDSR of the domestic banks currently averages a comfortable 40 per cent to 50 per cent while the interest rate assumed is just above 3 per cent," said analysts from Maybank Kim Eng in a note yesterday. "It is unclear whether other computation matrixes are as stringent as that prescribed by the MAS but the lower average TDSR against the cap of 60 per cent provides some buffer. "As such, we do not think that there will be a significant impact to mortgage approvals at this stage." CIMB analysts also wrote in a note on Sunday that they believed the new mortgage restrictions were unlikely to trigger a housing collapse. They said that banks here have generally kept to a mortgage servicing ratio (MSR) limit of 30 per cent to 40 per cent and the average MSR across the industry is around 28 per cent to 30 per cent. CIMB added that it believed the banking sector was in better financial health than it was in 2007 and 2008. "While average TDSR will be higher, we believe this ratio is still substantially lower than 60 per cent," CIMB said, noting that its ground checks suggested that the usage of guarantors for home loans in order to dodge tighter loan-to-value limits was not a prevalent trend. An OCBC Investment Research report yesterday estimated that the mortgage restrictions "could affect, off the bat, 5 per cent to 20 per cent of the current cross-section of buyer profiles". The MAS wrote in a paper last month that an inspection of banks here found that some banks, when computing their internal debt servicing ratios, only looked at the loan being applied for and did not take into account a borrower's other existing debt obligations. "Such lapses would lead to an incomplete determination of the borrower's total debt obligations and consequently inaccurate assessment of the borrower's repayment ability," MAS said. "It is important that banks maintain sound credit underwriting standards and prudent lending practices to avoid the kind of excesses that had led to financial crises in other countries," it added. melissat@sph.com.sg China home prices surge 7.4% Source: Straits Times | Asia By AGENCE FRANCE-PRESSE, BLOOMBERG SHANGHAI - Home prices in China's major cities jumped 7.4 per cent year-on-year last month, despite government moves to cool the property market. The average cost of new homes in 100 major cities reached 10,258 yuan (S$2,100) per sq m last month, the China Index Academy reported yesterday. That marked the seventh consecutive month of rises, although the monthly increase of 0.77 per cent narrowed slightly from May's 0.81 per cent, as banks tightened credit to the property sector due to a liquidity squeeze. For more than three weeks, funds have been in short supply on China's interbank market, and the interest rates banks charge to lend to one another have surged to record highs. The academy, which is owned by SouFun Holdings, China's largest real estate website operator, said banks had tightened mortgage lending as a result of the credit crunch. However, it added: "Looking into the second half, the upward pressure on home prices remains high, driven by multiple factors, including demand and the 'heat' in the land market." Property prices are a sensitive issue in China, and the authorities have sought for more than three years to control their rise. Measures to contain prices include restrictions on purchases of second and third homes, higher minimum down payments, and taxes in some cities on multiple and non-locally owned homes. The Chinese government is facing a dilemma to cool the property market while sustaining growth in the world's second-largest economy, according to Nomura Holdings. China stepped up a three-year campaign to cool home prices in March, while only the capital city of Beijing among 35 provincial-level cities issued the toughest measures, according to Centaline Property Agency, China's biggest real estate agency. Beijing raised the minimum down payment on second homes from 60 per cent to 70 per cent in April and enforced a 20 per cent capital-gains tax on existing homes. "Both new- and existing-home transactions gradually stabilised recently in many cities, indicating that home-buying demand remains strong," SouFun said. China's economy grew 7.7 per cent in the first quarter, less than the 8 per cent median forecast in a survey of 41 economists. The city of Changshu in eastern Jiangsu province had the biggest gain last month from May, with prices increasing 3.6 per cent. Home values in the capital Beijing jumped 1.6 per cent from the previous month, while those in Shanghai, the country's financial centre, added 0.6 per cent. Sentiment also improved in the land market. Land sales in Beijing as of June 27 hit 66 billion yuan, exceeding last year's total value, China Securities Journal reported. Q2 property prices up on suburban condo sales Cooling measures seemed to have hit luxury segment instead, say analysts Source: Straits Times | Money By Melissa Tan RED-HOT demand for suburban homes helped drive up overall property prices in the second quarter. Values across the market were up 0.8 per cent in the three months to June 30, following a 0.6 per cent rise in the previous quarter. The unexpectedly strong increase may have been behind Friday's measures to rein in mortgage lending. Analysts said the flash estimates from the Urban Redevelopment Authority (URA) released yesterday suggest that January's tough cooling measures have hit the luxury segment rather than the suburban market. Prices for mass-market suburban apartments jumped 3 per cent from the preceding quarter - more than twice the 1.4 per cent increase recorded in the three months to March 31 compared with the final three months of last year. "Pricing for suburban homes has continued to be optimistic with demand remaining firm in spite of an array of cooling measures being in place," said Jones Lang LaSalle national director Ong Teck Hui. CBRE executive director for residential Joseph Tan said suburban homes accounted for 60 per cent of total transactions in the second quarter. This was largely a "function of the number of projects with good connectivity that were released by developers in recent months", such as Jade Residences, Midtown Residences and Jewel@Buangkok, Mr Tan said. City-centre home prices went in the opposite direction, sliding 0.2 per cent in the second quarter after growing 0.6 per cent in the first. Prices in the city fringe rose 0.2 per cent in the second quarter, the same increase recorded in the first three months of the year. Analysts said suburban homes likely appealed to buyers because they were cheaper. "With affordability being a key consideration, especially after the imposition of the additional measures in January, buyers continued to be drawn to the relatively more affordable mass-market homes," said PropNex chief executive Mohamed Ismail. Colliers International research director Chia Siew Chuin said demand was also boosted by buyers who had been acquiring their second or subsequent property in their child's name to avoid paying the additional buyer's stamp duty (ABSD). However, this practice looks likely to end after the Monetary Authority of Singapore moved on Friday to plug the loophole. A standardised total debt servicing ratio (TDSR) framework for banks to assess a person's ability to borrow has also been established. Mr Ong said the rise in overall private property prices suggested that "the risk of further intervention in the residential market remains high". "The effect of the TDSR will be closely monitored and if the market does not moderate sufficiently, further cooling measures may be expected. It also sends the signal that notwithstanding tapering of liquidity and eventual interest rate increase, the residential property market will still be tightly managed," he added. melissat@sph.com.sg OPPOSITE DIRECTIONS Prices for mass-market suburban apartments Up 3 per cent from the preceding quarter - more than twice the 1.4 per cent increase recorded in the three months to March 31 Prices for city-centre homes Down 0.2 per cent in the second quarter |