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06 July 2013

COVs for resale flats fall to two-year low

Source: Straits Times 
By Daryl Chin Property Correspondent

CASH premiums for resale flats have hit their lowest level in more than two years, as the cooling measures introduced at the start of the year continue to make their impact felt.

According to data released yesterday by the Singapore Real Estate Exchange (SRX), premiums fell to $24,000 last month, a new low since February 2011 when they were just shy of $22,000.

And it is not just the overall median cash-over-valuation (COV) for Housing Board units - which was at $35,000 in January - that has been falling steadily.

Median resale prices dipped to $450,000 last month, from $457,000 in May.

The number of resale flats changing hands has also fallen. Just 1,210 were sold last month, compared with 1,790 a year ago. Larger units such as executive flats and five-roomers saw the biggest dip.

ERA Realty key executive officer Eugene Lim believes the cooling measures, which include a cap on the size of bank housing loans, have been effective in slowing the rate at which prices of resale flats were climbing.

"What has happened is that some buyers are no longer able to afford to upgrade to larger flats, because of the smaller loans."

Households can now use only 30 per cent of their monthly pay to service a bank mortgage. Before this year, there was no cap.

Figures from HDB earlier this week also showed resale flat prices grew by just 0.5 per cent in the second quarter of this year, the lowest level since 2009.

Just 7,555 resale flats were sold in the first half of this year according to SRX, compared with 10,890 over the same period last year - a 31 per cent drop.

R'ST Research director Ong Kah Seng said: "Overall, cautiousness has effectively set in for buyers of resale flats. They are rethinking their purchases, and not many buyers are impulsively trading off location for a far-flung home which fits within their budget."

SLP International's head of research Nicholas Mak said the slowdown suggests that the Government's attempts at engineering a soft landing in the housing market were working.

"Limiting the purchasing power of buyers and pushing out more flats seems to be doing the trick in reining in prices."

HDB has been launching new flats, including 25,000 this year, in record numbers in the past few years to satisfy demand.

Mr Lim added that while falling premiums and prices may entice affluent second-timers back into the market, he expects prices to go down even further with more new flats in the pipeline.

A step towards more financial prudence

Source: Straits Times | Opinion

WHATEVER the immediate effect of the new borrowing rules for property buyers introduced last week, their implications go far deeper than the need to cool soaring prices. The Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions to individuals, introduced by the Monetary Authority of Singapore, requires the institutions to consider borrowers' other outstanding debt obligations when granting them property loans. Banks will not be able to approve a loan if the monthly repayments of a buyer's total debt obligations exceed 60 per cent of his gross monthly income.

The TDSR framework is a reasonable one in an economic environment in which low interest rates might have lulled many property buyers into a false sense of security, especially in their desire for second homes. This could prove calamitous if interest rates rose or if an economic downturn upset a family's overall financial calculations. By encouraging borrowers to be prudent - and by ensuring that financial institutions adopt strong credit underwriting practices consistently across the sector - the new rules will contribute to financial stability in the long run.

While property investments are a sign of confidence in the economy, excessive zeal in them displayed over time could create a real-estate bubble. Advanced economies from Japan in the last century to the United States in the past decade demonstrate the dangers of property bubbles convincingly. Even in land-scarce Singapore, property prices have not always moved only upwards. There have been painful instances too, which are all too easily forgotten, or brushed aside, when the market is in a buoyant frenzy.

The new rules are structural in the sense that they invite buyers to keep their property investments in perspective. Stories of parents who buy up property, in case their children are priced out of it when they grow up, are a sign of property market fervour gone into overdrive. Not only does their mindset contribute to rising prices today, it might inadvertently give rise to a culture of entitlement in the young, many of whom would expect to begin their working lives with a parental gift in the form of a home. That would be an astonishing situation by international standards. Expectations among the young are not wrong in themselves, of course, but they must be earned, with every generation picking up where the earlier one left off. Expectations - and, worse, entitlement - financed on easy credit will undermine the ethic of hard work and thrift that Singapore is built on. They are also unsustainable over time. Every step that contributes to prudence is a welcome safeguard.

New two-room flats: Few singles likely to bite
Size, location and waiting time not attractive, say analysts

Source: Straits Times 
By Daryl Chin Property Correspondent

SINGLES can apply for two-room Build-To-Order (BTO) flats for the first time starting this month, but property analysts predict that not many will take advantage of the policy change.

This is because the units are small, in non-mature estates and could take three years before they are ready to be occupied.

Analysts point to the fact that singles have been picking up resale units since March, when the policy tweak was announced.

Latest figures from the Housing Board show 22 per cent of resale flat buyers applied under the Singles scheme from March to June, up from 20 per cent in the same period last year.

This indicates that many singles may not be holding out for new two-room units, which reportedly come in just two sizes - 375 sq ft and 485 sq ft. They would also be limited to non- mature estates such as Sengkang in the upcoming launch.

These flats, which may cost $100,000 without grants, would be first made available to singles at the HDB's next launch at the end of the month.

ERA Realty's key executive officer Eugene Lim said singles seem to prefer three-room flats, which are about 700 sq ft.

"This group typically buy three-roomers to fit their lifestyle, if they can afford it. They are also conscious of the location, which needs to be attractive enough," he said.

Singles who want to buy a new HDB flat need to be at least 35 years old, and earn no more than $5,000 a month. Eight in 10 working singles, or 150,000 Singaporeans, are expected to qualify.

PropNex chief executive Mohamed Ismail said that a person earning close to $5,000 could get a mortgage of around $350,000 and be able to afford three-room resale flats in most estates.

OrangeTee's head of research and consultancy Christine Li also said that while resale flats are available immediately, BTO flats take a while to be completed. "Applicants would be close to 40 by the time they get their keys."

But there are reasons why some singles will opt for a new unit. "In terms of value, it still beats a shoebox condo unit," said Ms Li.

Mr Ismail added: "Singles who will go for the new two-room flats are likely those who are earning about $2,000 or so. They will not have to pay any cash premium, and the monthly payments are small."

Cash premiums are what buyers pay above a resale flat's valuation to help seal the deal.

Previously, singles could only buy in the resale market, and had to contend with possibly more affluent permanent residents and citizens who had already enjoyed a government housing subsidy.

Marketing executive Michael Chan, 36, is in two minds whether to apply for a BTO two-room flat at the end of this month, when the HDB has its next launch.

"It seems like a good deal for us singles to start owning property at subsidised prices at the outset, but the better flats are still reserved for young families. I'm hoping there might still be room for further policy changes in the coming months," he said.

Typically, two-room flats are reserved for lower-income households. According to the Housing Board, it has launched 4,418 two- roomers since 2006. A spokesman added that the agency would consider building more two-room flats if there is strong demand.


22 per cent of resale flat buyers applied under the Singles scheme from March to June this year, up from 20 per cent in the same period last year.

This indicates that many singles may not be holding out for new two-room units, which reportedly come in just two sizes - 375 sq ft and 485 sq ft.

Loan curbs hit variable income earners
New mortgage lending rules restrict those reliant on commission, bonus

Source: Straits Times | Money
By Cheryl Ong

THE new rules on mortgage lending could leave good earners like remisier Alan Goh out in the cold if they try to take on a bigger home loan.

Mr Goh relies entirely on commissions for his monthly income and, although he earns a comfortable living from stock market trading, he will face tighter restrictions on lending.

The new rules imposed by the Monetary Authority of Singapore (MAS) last Friday require banks to apply a 30 per cent discount to the annual variable income that borrowers earn. This includes bonuses, allowances, rents from investment properties - and commissions, which means Mr Goh is caught in the net.

A new total debt servicing ratio (TDSR) framework also states a borrower's monthly repayments on all loans, including any new mortgage, cannot exceed 60 per cent of his gross monthly income.

"(The new rules) mean I wouldn't be able to afford a bigger property like I would have been able to before, because it would require a bigger loan. It will be a lot harder for people like me to switch now," said Mr Goh, who bought a five-room Housing Board flat last December.

Property agent Max Wong is in similar straits, noting that he is now further from his goal of buying his first investment property.

"I am definitely concerned because less of my income will be considered by the banks. I'll just have to save up much more to buy my second property," he added.

Commission-earners like Mr Goh are just one of a number of groups of people likely to be hit by the new curbs, which were imposed to stop borrowers taking on too much debt, especially with interest rate rises on the horizon.

Bank officers told The Straits Times that property agents, insurance agents and the self-employed are all variable income earners and so would be hardest hit by the new regulations.

Borrowers relying on rental income to finance more property purchases will also find it tough.

The common element is that these people do not have the security of a monthly payslip from an employer proving that they are gainfully employed. Instead, these borrowers will have to furnish documents such as their Income Tax Notice of Assessment going back two years or tenancy agreements to the banks - and then have the 30 per cent discount applied.

That can, in a click of a mouse, turn a healthy annual income of $100,000 into a less-impressive $70,000.

The new rules could also affect a group not normally associated with having difficulty borrowing - high-earning executives in listed firms. Variable income like bonuses could comprise as much as 80 per cent of a top executive's pay, as annual reports show.

A discount of 30 per cent on such income could amount to a substantial sum, and so substantially reduce the size of a loan.

Banks said variable income earners can make up a reasonable proportion of their borrowers.

Ms Phang Lah Hwa, OCBC Bank's head of consumer secured lending, said about 30 per cent of its home loan borrowers are on variable income.

The Straits Times understands from sources that variable income earners make up about 5 per cent of United Overseas Bank's home loan borrowers.

Both banks said that they were already applying a discount of 30 per cent to variable income before the new TDSR framework.

Buyers of Housing Board flats have less risk of being hit by the rules, says a Knight Frank report.

Research head Alice Tan noted that HDB buyers already face tough restrictions that were implemented in cooling measures in January. "HDB buyers have to meet a mortgage servicing ratio of 35 per cent for HDB loans and 30 per cent for private loans."

The ratio refers to the proportion repayments take up of the borrower's gross monthly income.

Public housing buyers are also likely to have only one mortgage as they cannot own more than one property and so are less likely to bust the 60 per cent limit in the new TDSR framework, she added.

A step towards more financial prudence

Who will be affected

People likely to be hit by the new curbs:

Variable income earners like property agents, insurance agents and the self-employed
Borrowers relying on rental income to finance more property purchases
High-earning executives in listed firms with variable income like bonuses that could comprise up to 80 per cent of their pay

Private resale home prices up slightly
Rise driven by 5.5% climb in city centre; suburbs record marginal dip

Source: Straits Times | Money 
By Melissa Tan

RESALES of city centre homes lifted overall resale prices last month, as buyer sentiment recovered slightly after January's round of property market cooling measures, analysts said.

Resale prices of non-landed private homes rose 1.8 per centislandwide last month from May, the Singapore Real Estate Exchange (SRX) said yesterday.

The overall uptick likely "reflected some laggard recovery in buyers' sentiments for secondary market homes," said R'ST Research director Ong Kah Seng.

Savills Singapore research head Alan Cheong said another probable reason for the increase could be a smaller number of transactions, skewed towards a higher price per sq ft (psf) range.

"We cannot conclusively say that the resale market has seen a turnaround," Mr Cheong said.

The overall rise was mainly driven by resale prices in the city centre, which climbed 5.5 per cent from May to last month.

This outweighed a marginal 0.2 per cent dip in resale prices in suburban regions.

On the city fringe, resale prices inched up 0.5 per cent month-on-month.

Mr Ong said the improvement in resale prices of city centre homes last month largely came from strong buyer interest in smaller units.

As for the dip in suburban resale home prices last month, analysts said this was largely because of the red-hot demand for new sales in those regions.

"Buyers are more interested in such sales as they are newer and they are buying for investment and capital appreciation," said ERA Realty key executive officer Eugene Lim.

Mr Lim added that as a result of the Monetary Authority of Singapore's latest move to tighten home loan financing, which took effect on June 29, he expects resale transaction volumes to fall in coming months.

Non-landed resale transactions reached an estimated 605 units last month, 21 per cent less than May's volume of 762 units. The figure for last month was 38 per cent lower year-on-year.

Rentals of non-landed private homes also slipped 0.2 per cent last month from May, marking a fifth consecutive monthly drop in overall rents.

This decrease was led by rents in the city centre, which fell 1.6 per cent.

Rents grew 0.4 per cent in the city fringe and 0.5 per cent in suburban regions.

A step towards more financial prudence

Eastern paradise for foodies, beach lovers
Checking out the page views on the STProperty website gives an instant snapshot of what projects buyers are keen on. This week, we look at developments in districts 15 and 16 that have drawn the most attention.

Source: Straits Times | Money 
By Rachel Scully

THOSE who live in the eastern side of Singapore are spoiled for choice when it comes to the sheer variety of good food which can be found in their backyard. In addition, they can travel easily to the popular East Coast beach.

Districts 15 and 16 are famous for the long rows of eateries offering a mix of traditional and fusion food. More recently, a new breed of cafes have sprung up in the area to cater to the younger crowd.

Covering the Katong, Joo Chiat and Amber Road areas, District 15 is a choice neighbourhood for those who want to savour the rich mix of cultures there.

Some of the old homes there had seaside views before land was reclaimed all the way to East Coast Park.

Parts of the district are served by the East-West MRT line.

The page views on STProperty's website from June 24 to 30 showed that the 99-year leasehold Silversea topped the list for private homes in the district.

The 383-unit project also commanded the highest average asking price over the one-week period at $2,100 per sq ft (psf) for its two- and three- or more bedder units.

Coming in second by page views was the 562-unit One Amber project, which is the only freehold development among the top five projects in District 15.

It offers buyers a range of one-, two- and three- or more bedder units with an average asking price of $1,702 psf.

Rounding off the list were three 99-year leasehold projects Costa Rhu, Cote D'Azur and Sanctuary Green.

Farther east, District 16 is a residential area encompassing areas such as Bayshore, Siglap, Bedok and Upper East Coast.

It also has a wide selection of food establishments just like in District 15, with commuting made easy by the East-West MRT line as well as the Bedok Bus Interchange.

Topping the list of five private homes that received the most number of page views on STProperty between June 24 and 30 was Urban Vista, which was launched in March.

The 582-unit project offers one-, two- and three- or more bedder units and is located next to the Tanah Merah MRT station.

At $1,585 psf, the 99-year leasehold had the highest average asking price among the group.

The other four projects in the list were 99-year leaseholds which do not offer studio apartments or one-bedder units.

They are Aquarius By The Park, The Bayshore, Bayshore Park and Casa Merah.