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Published November 22, 2006

Home supply in prime areas may fall 15%
Redevelopment of en bloc sites set to squeeze supply, but there could be mitigating factors

(SINGAPORE) The redevelopment of collective sale sites sold in the past two years could shrink the supply of apartments in 10 sub-locations in the prime districts about 15 per cent, says CB Richard Ellis.

The areas that face the greatest percentage reductions in existing supply are Leonie Hill (43 per cent), St Martin's/Nassim (29 per cent), Cairnhill (24 per cent) and Angullia (23 per cent).

The demolition of older apartments sold en bloc in 2005 and 2006 is expected to create a shortage of accommodation that should further boost rents and capital values in these locations.

But the effect may be offset if developers phase redevelopment or those who have sold their homes en bloc seek replacement units elsewhere, industry players told BT.

Hong Leong Group executive chairman Kwek Leng Beng said: 'Some (developers) will read the market better than others. If you delay launching new projects on the en bloc sites, you may make more profit if you take the position that the market is improving. Just look at the record after record being set for land prices.

'But, of course, developers who are listed may need to develop sites quickly and move on, in order to show growth. In the end it is a money game, because you sell at current prices and then you continue to replenish your land at higher prices.'

UOL Group chief operating officer Liam Wee Sin said: 'It's a bit of risk management. If you sell out a project early, you will have the opportunity to reinvest in the market by buying a new site for development - even if the market keeps going up.'

Mr Liam reckons most of the sites that have changed hands in en bloc sales in the past two years will be torn down as soon as possible - over the next 12 to 18 months - because of the high land cost involved.

However, CBRE executive director Jeremy Lake predicts that the reduction in supply of prime district apartments arising from redevelopment of 2005 and 2006 collective sale sites is likely to be phased out over the next two to five years, as developers launch their projects according to market demand.

Mr Lake reckons the impact will be more significant on the rental market. Tenants of apartments that have been sold en bloc may choose to move out and search for new rental apartments sooner, rather than wait and endure the uncertainty of not knowing when they will have to move while the deal goes through the Strata Titles Board or the developer decides just when to pull down the development.

'As a result, potential expat tenants will face an immediate shortage of apartments for rent in their desired locations, and landlords will seize the opportunity to raise rents,' he said.

Mr Lake predicts the shortage of rental apartments will ease by 2008 as new developments such as The Arc at Draycott, The Grange, The Cosmopolitan, The Metz and Paterson Residences will be completed.

Mr Kwek points out that prime district residential rents have started moving up anyway because of the influx of foreign professionals, including private bankers.

As for capital values in prime districts, CBRE's Mr Lake says they too may increase as home owners involved in en bloc sales look for replacement properties in the same locations because of the potential for high rentals and price appreciation. 'Nevertheless, some home owners may source for properties outside these locations,' he said.

UOL's Mr Liam agrees. 'Those selling their District 9 or 10 apartments through en bloc sales, if they had occupied the units, chances are they will want to look for a new apartment in the same location,' he said.

'But if they held it as investment for rental income, they may be more willing to consider finding a replacement unit in other locations. Or they could even be prepared to consider other investment options - like a real estate investment trust or an overseas property.'
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Leonie Hill, St MArtin, Cairnhill, Anguillia- tightest supply!

I just had a look at the article. 14.7% of apartments in the prime sub locations of districts 9 10 and 11 have been sold for redevelopment. This is quite a substantial figure and i'm certain this shortage will boost the rental and resale markets before the new apartments on these sites are ready for occupation.

A thought just crossed my mind. Which of these locations/street do you reckon will be the most expensive on psf basis/prime of them all after factoring in the surroundings, the perceived quality of the projects by the various developers, the site itself, etc?

Everyone knows that Ardmore Park is the number street for condos and I believe so too however i wonder if it will be able to retain this title once the new projects are developed.

IMO, this is very poor justification for prices to rise further than they are today.....if you buy a 'newly completed' condo in SGP, you can probably earn a gross annual rental yield of 3-3.5% (4% if u are lucky). deduct mortgage costs, property tax, maintenance, etc. and you are lucky if you break even on holding costs for the next 3 years.

if you are buying a 'newly launched' condo at today's prices, u are betting that u can get this same yield when this condo is finished in 2-3 yrs.

so, what happens in 2009/2010 when the rental market gains new supply of 15% in the span of 1-2 yrs?? what the article fails to point out is what will happen when all these 'en blocs' finish development around the same time...

do we really think that immigration is going to be so strong by then that this new supply will not push rents down to more 'stable levels' then?

The reality is, island-wide condo vacancy is around 7% right now....maybe it dips down to 4-5% in the next 1-2 yrs, but after that i am almost certain we will hit 7-10% again (very quickly).

So, buying a condo for rental investment at today's prices is definitely not a sure thing, and not for the faint of heart!!

IMO, this is very poor justification for prices to rise further than they are today.....if you buy a 'newly completed' condo in SGP, you can probably earn a gross annual rental yield of 3-3.5% (4% if u are lucky). deduct mortgage costs, property tax, maintenance, etc. and you are lucky if you break even on holding costs for the next 3 years.

if you are buying a 'newly launched' condo at today's prices, u are betting that u can get this same yield when this condo is finished in 2-3 yrs.

so, what happens in 2009/2010 when the rental market gains new supply of 15% in the span of 1-2 yrs?? what the article fails to point out is what will happen when all these 'en blocs' finish development around the same time...

do we really think that immigration is going to be so strong by then that this new supply will not push rents down to more 'stable levels' then?

The reality is, island-wide condo vacancy is around 7% right now....maybe it dips down to 4-5% in the next 1-2 yrs, but after that i am almost certain we will hit 7-10% again (very quickly).

So, buying a condo for rental investment at today's prices is definitely not a sure thing, and not for the faint of heart!!

Hi Freelance,

The interest rate for Singapore has been predicted to fall next year and rentals are expected to increase due to 1. economic growth, 2. supply shortage, and 3. influx of professional migrants.

I agree with you that a 3.5 % annual gross rental yield is average for properties across the board these days. However, I believe it should climb upwards soon especially for luxury properties in those prime sub locations mentioned in the article. Moreover people who buy such properties, generally freehold at those considered yields, are mainly long term investors after capital gains.

If you have followed the enbloc thread, you would have noticed that the developers bought mainly freehold land in very selected areas. Super luxury properties will be build on most of these pieces of prime land. To date, there are only a handful of super luxury properties and most existing stock do not match world class standards yet. As mentioned, these pieces of land are for a new segment infant in Singapore's market. The supply for these projects will be soaked up by demand from overseas investors, wealthy locals and expatriates who are investment savvy and less affected by expected interest rate changes.

I believe the vacancy figures are much lower for apartments in those sub locations.

The interest rate for Singapore has been predicted to fall next year and rentals are expected to increase due to 1. economic growth, 2. supply shortage, and 3. influx of professional migrants.


Hi SmallInvestor,
I have been having this debate a lot with some friends lately so it's great to discuss this w/you. In fact, I tend to agree w/most of what you say, but in the last month or so I have been starting to have some doubts (have seen quite a few cycles in other countries so am wondering how Singapore might be the same/different).

Yes, interest rates should fall slightly, but at current levels this does not really impact an investor as it is already possible to take a longer mortgage term to ensure that rental income can cover mortgage payments. Re: economic growth, we are still quite export dependent here, therefore it remains to be seen whether govt. efforts to diversify the economy will insulate s'pore from a possible US recession. Should be OK for the next 12 months but after that it is anyone's guess. 2. supply shortage is temporary phenomemon that, again, will not be a factor after 2008. 3. influx of professional migrants is true, but uncertain. in a recession, for example, will there be a similar retrenchment? how much of this immigration is 'permanent' (particularly in the luxury rental category)? Another factor is currency...if SGD is expected to increase this should have a small negative impact on future inflows as property will be ever so slightly more expensive for foreign buyers (particularly USD and Euro buyers).


I agree with you that a 3.5 % annual gross rental yield is average for properties across the board these days. However, I believe it should climb upwards soon especially for luxury properties in those prime sub locations mentioned in the article. Moreover people who buy such properties, generally freehold at those considered yields, are mainly long term investors after capital gains.


Two issues here....First, while gross rental yields might climb in the short term, how sustainable is this? Most developers are already pricing future yield increases into new launch pricing as if they are going to last forever, so the average investor does not have a lot of leeway should rents dip back down again in 2-3 yrs. Second, I disagree that there are not a lot of 'short term investors' in the property market today. There are more than you think....where I see a problem is that developers of mid-range and mass market projects are now starting to capitalize on all of the luxury market's positive performance this year....IMO, this is going to come back and bite a lot of local s'porean buyers (shorter term investors) who feel like they have to rush in to buy in the next 12 months....a lot of these people are going to buy things in the $750-1200 price range that are probably fundamentally 10-15% overvalued by the developers at launch.


If you have followed the enbloc thread, you would have noticed that the developers bought mainly freehold land in very selected areas. Super luxury properties will be build on most of these pieces of prime land. To date, there are only a handful of super luxury properties and most existing stock do not match world class standards yet. As mentioned, these pieces of land are for a new segment infant in Singapore's market. The supply for these projects will be soaked up by demand from overseas investors, wealthy locals and expatriates who are investment savvy and less affected by expected interest rate changes. I believe the vacancy figures are much lower for apartments in those sub locations.


If the presence of more super wealthy people is supposed to "smooth" out Singapore's future property market cycles then we are ignoring the example of places like Hong Kong, San Francisco, Sydney, Vancouver, etc. In each of these places, the performance of real estate is usually more (not less) volatile than other markets. Singapore offers great opportunities, and I also believe that the long-term growth of the country will definitely support higher average values in the long term......What I am saying, though, is that the next 12 months is probably a very risky time to be buying in, as I believe that there will always be "market cycles" and think we are about 6 months away from being at the top of one here...from what I know, a lot of other 'super luxury' buyers are starting to believe that too (this is why it takes projects such as St. Regis SO long to sell out <100 units and it is something you will notice when even more of these expensive projects launch next year)

Hi SmallInvestor,
I have been having this debate a lot with some friends lately so it's great to discuss this w/you. In fact, I tend to agree w/most of what you say, but in the last month or so I have been starting to have some doubts (have seen quite a few cycles in other countries so am wondering how Singapore might be the same/different).

Yes, interest rates should fall slightly, but at current levels this does not really impact an investor as it is already possible to take a longer mortgage term to ensure that rental income can cover mortgage payments. Re: economic growth, we are still quite export dependent here, therefore it remains to be seen whether govt. efforts to diversify the economy will insulate s'pore from a possible US recession. Should be OK for the next 12 months but after that it is anyone's guess. 2. supply shortage is temporary phenomemon that, again, will not be a factor after 2008. 3. influx of professional migrants is true, but uncertain. in a recession, for example, will there be a similar retrenchment? how much of this immigration is 'permanent' (particularly in the luxury rental category)? Another factor is currency...if SGD is expected to increase this should have a small negative impact on future inflows as property will be ever so slightly more expensive for foreign buyers (particularly USD and Euro buyers).



Two issues here....First, while gross rental yields might climb in the short term, how sustainable is this? Most developers are already pricing future yield increases into new launch pricing as if they are going to last forever, so the average investor does not have a lot of leeway should rents dip back down again in 2-3 yrs. Second, I disagree that there are not a lot of 'short term investors' in the property market today. There are more than you think....where I see a problem is that developers of mid-range and mass market projects are now starting to capitalize on all of the luxury market's positive performance this year....IMO, this is going to come back and bite a lot of local s'porean buyers (shorter term investors) who feel like they have to rush in to buy in the next 12 months....a lot of these people are going to buy things in the $750-1200 price range that are probably fundamentally 10-15% overvalued by the developers at launch.



If the presence of more super wealthy people is supposed to "smooth" out Singapore's future property market cycles then we are ignoring the example of places like Hong Kong, San Francisco, Sydney, Vancouver, etc. In each of these places, the performance of real estate is usually more (not less) volatile than other markets. Singapore offers great opportunities, and I also believe that the long-term growth of the country will definitely support higher average values in the long term......What I am saying, though, is that the next 12 months is probably a very risky time to be buying in, as I believe that there will always be "market cycles" and think we are about 6 months away from being at the top of one here...from what I know, a lot of other 'super luxury' buyers are starting to believe that too (this is why it takes projects such as St. Regis SO long to sell out <100 units and it is something you will notice when even more of these expensive projects launch next year)

Hi Freelance,

Thanks for sharing your thoughts and I hope you won't mind me adding to some of things you said in your last posting.

We have different market segments, each catering to different types of investors, buyers, sellers, etc. Having said that, I agree with you that the units approximately between the price psf range as indicated by you, in particular those in the no prime sub locations of district 9 10 and 11 carry the highest financial risk/reward ratio. However, if we open our eyes wide, study the markets well and take the necessary precautions, I am sure we will be able to find investment opportunities in this market.

US is not heading into a recession. It's economy is strong however measures have been put in place to reduce inflation. Thus, world economic growth is expected to slow down however this correction is expected.

The S$ is gaining against the US$. I'm not sure how it is performing against the Euro but as far as i know, the Euro is gaining against the US$ too. There was an article in Business Times recently stating where our foreign investors are coming from. If I remember correctly, they are mainly from Asia and Europe.

I'm optimistic about the property market for the next 12 months. Like you, i see a correction soon. The % annual gains for prime properties will fall however i don't see it creeping into negative territory.

Wow!!!

Hmm... so many condos being en bloc-ed lately... :eek:

Number of completed unsold homes halves in a year

13 Nov


All is well for developers in general. In fact, this year saw the highest clearance rate for unsold new homes as more buyers are buying up new but unsold units in completed projects.

The stock of unsold completed homes has halved in just one year, despite more launches of brand-new homes that are still under construction in the same period.

With the influx of more expatriates on the back of a strong economy, new and move-in homes are back in demand.

As it takes time to build homes to meet increasing demand, buyers who are going for immediate occupancy will turn to existing stock in already completed projects.

Urban Redevelopment Authority's (URA) latest statistics show that only 849 completed homes remain unsold in the July to September period this year, down from 1,813 in the same time last year.

And this is the strongest sign so far to show that demand for homes may be overshadowing current supply in some areas.

With the current upsurge in demand, this number of unsold units is likely to have dropped even further, with major completed projects like The Nexus in Bukit Timah Road, The Pier at Robertson in Mohamed Sultan Road and The Shaughnessy in Yishun Ave 1 having offloaded at least half their remaining unsold units in the six weeks since September.

It’s quite a feat considering that for about five years, unsold new homes figures were always above the 1,000-unit mark.

Independently, the stock of unsold completed homes is often seen as a yardstick to measure demand for homes.

If things remain constant or even improve, demand is likely to 'spill over to newly-completed units, or to the resale market.

Comparing this year’s figure with 2005, the improvement is obvious. About 7,400 new homes were launched for sale in the first three quarters of 2006, compared with 6,300 units in the same period last year, with the vacancy rate of condominiums and apartments dropping to 7.2% in the third quarter this year. This is the lowest point in at least eight years and it augurs well for the future.

One main reason underlying the strength in the demand is the record number of en bloc sales since 2005, which have compelled many home owners to look for replacement units ready for immediate occupation.

In Orchard alone, more than 1,000 homes will be taken out from the market this year due to redevelopment after the owners had sold them collectively. This withdrawal will peak next year, with 3,489 units scheduled to be taken off the market.

However, a supply crunch for complete homes is not about to happen next year as there will be more new launches correspondingly.

URA figures state that there will be about 7,000 units to be completed next year. This is about 20% increase over last year’s figure of 5,700 new homes completed for the whole year.

Singapore interest rates peaking in line with US

11 Nov


Global interest rates for deposits look to have plateaued, for now at least, though it would take some time for lending rates to follow.

However, as there is a lead time between lending rate and deposit rate, home loan borrowers are still expected to chase after higher mortgage rates for the next few quarters next year.

Fixed deposit rates coming down
In fact, the fixed deposit rate has come down for some banks. For example, an investor who renewed a three-month fixed deposit last month with Standard Chartered Bank had a rude awakening that the interest rate was down to 2.95% from 3.3%. Likewise at Citibank, customers using the 'unfixed deposit' product - a fixed deposit that offers flexibility on early withdrawal - have also been denied the earlier higher rates when they renew their deposit.

However, other banks insist that their deposit rate remain attractive, like the eSaver of Standard Chartered Bank and iSAVvy of Maybank. In fact, Maybank insists that it still offers one of the highest fixed deposit rates through its online accounts. The iSAVvy deposit for 12 months pays 3.15% and requires a minimum placement of $25,000.

Going by the three-month Singapore interbank rates (Sibor) which has eased from 3.5625% in July-early August 2006 to around 3.50%, Singapore interest rates may be peaking in line with US rates.

Mortgage rates still going up
But despite the clamouring, one fact remains unchanged, that is, mortgage rates are expected to increase in the months ahead. This is because mortgage rates tend to lag deposit rates and Sibor by a few months, and given that deposit rates and Sibor have already risen significantly in 2006, the general view is that the upside for mortgage rates is imminent, before they stabilise over the next few quarters. That said, bankers do not rule out the possibility of continued rate increases due to market buoyancy these few months.

Banks such as DBS Bank and StanChart have in the past two months increased their mortgage rates.

Looking over the horizon, Sibor rates should ease slightly, but with limited downside given the relatively robust domestic economy and the ongoing improvement in bank loans growth.

Elsewhere in the region, HSBC reduced its prime rate in Hong Kong for the first time in two years by 25 basis points to 7.75%. Bank of East Asia also announced a 25 basis point cut in rates recently.

Hong Kong interbank rates have actually come down from their peaks in June this year and they are now some 50 basis points below their peak. Despite the HK dollar peg to the US dollar, capital inflows and an appreciating yuan are pushing down interest rate.

As for Singapore, it is likely that lending rates will be reduced sometime early next year as the US Fed may cut rates again.