Sky Vue

The project that made the ex CEO of Capitaland eat his words is launched today. He had once said "it is almost inhumane" to build and stay in such small units but today, we see Capitaland trying to lure investors (not families) to Sky Vue, much to the anguish of people who had bought units in the nearby "iconic" Sky Habitat. 

Sample of the price list of Sky Vue received today. As you can see, most of the units are 1 and 2 bedrooms. 

Nowadays I can no longer be sure when agents tell me it's a 3 bedroom unit. They have cut a typical unit so small that a 3 bedroom can sometimes be less than 1,000 square foot. It is unfortunate but we are definitely heading towards the Hong Kong style of apartments.  "Expensive and small". Now a one bed room is less than 500 square foot and a 2 bed room is less than 800 square foot. I am not sure if that is live-able for a typical family of 2 adults and 2

children. 

Now back to Sky Vue, the location is undeniably better than some of the sub urban condos that were being launched but unless you are looking to stay alone or with a partner, it is really hard to imagine a family of four squeezing into a 2 bedroom unit of 679 square foot costing more than $1m. 

If you really need to buy a unit today, go look for a ready one that is not brand new and more "value for money". Believe me. You will prefer space over "newness" over time. 

If you have no urgency to buy a property, just hang on. What you need is a FED tightening and a squeeze in liquidity. It may be just round the corner and hit when no one is expecting it. 

Be patient. 

Property Price Index

Private Property prices show no signs of coming down.

My views remain the same: while the policies are in place to prevent speculation, sellers are not lowering their expectation. This causes the current stalemate in the market where the volume transacted is low.

You will need to have a major crisis to bring down the prices.

Round 8 - TDSR framework

My last post on Round 7 was on 13 Jan 2013. The post is here.

Frankly i am not sure if the recently introduced total debt servicing ratio ("TDSR") can be considered as Round 8. It sounds more like making sure all the banks are operating from the same set of guidelines to rein in both the "cowboy" bankers and the "cowboy" speculators. 

The initial TDSR ratio is set at 60%. In other words, the ratio of total monthly debt obligations divided by gross monthly income must be less than 0.6.

One interesting TDSR calculation is that the "medium term interest rate" assumption of 3.5% for housing loans and 4.5% for non-housing loan. This is way above the current SIBOR and perhaps it is a signal to property buyers that the low interest rate environment is not going to last forever. 

In addition, the computation also includes a 30% haircut for variable income such as bonus and rental. 

Currently the views from the analysts are mixed with respect to the impact from Round 8. Daiwa is one of the more bearish, forecasting a decline of 18-20% from end of 2012 to end of 2015.

I have shared with you my property journey. The post is here. Let's take a quick look at the current market and see where we are as of Q1. (Q2 chart will be out later part of July)

The property market here continues to be resilient despite Rounds 1 to 7 cooling measures. haha.. It will be tough to "douse" the fire with Round 8. You can see it in J Gateway sold out in one day. I am thinking Round 8 will probably not be the last round but other than an outright ban on Singaporeans buying their 2nd or 3rd properties, can you think of any more cooling measure that will be effective ? Perhaps forcing multiple home owners to sell their 2nd or 3rd properties will bring down the prices but Hong Lim Park will probably be full of people protesting everyday till the next election. :-P

You need a few things to happen to bring down the prices sharply:

1. A significant stock market crash

2. Another financial crisis (where fear strikes) as in 2008-2009.

3. A rise in interest rate 

4. A big retrenchment in Singapore companies and expats leaving Singapore in droves

Do you foresee any of the above coming soon? 

Hedges Park Condominium

Today I visited the above condo show flat. It will be torn down next month and is almost fully sold with a few units left.

The remaining units are those on the lower floor. I picked #03-27 of about 1,076 square foot.

The developer is offering a 10% discount and the price is $957,060. The condo will TOP in about 2 years.

While I like the various themes and the many pools, I personally don't like the location.

This is a 99 year leasehold property. Most likely I believe the developer wants the plot back after 99 years. Most of the older development around that area such as Ballota is freehold.

In case you are not aware, the stroy goes like this. Hong Leong bought a very big piece of land here many many years ago and started dividing the area into smaller plots. It started to launch condos in this area using names of the flowers, starting with Azalea, then Ballota, then Carissa, Dahlia, Elderwise, Ferreria, G (can't remember the name) followed by Hedges... Some of the earlier launches are freehold condos.

Happy show flat visiting. :P

Sennett Residence

We visited the Sennette Residence this morning. Sennett Residence is right beside the Potong Pasir MRT station and in my view, the location is pretty good. I think it is an area with "potential".

It is two stops away from the City Square residences which i bought in 2005. My post documenting my property investing journey in City Square was here. There will be an upcoming shopping mall right opposite Sennett Residence and i thought this location will be perfect in the sense that it will be near a big shopping mall, just like City Square and should have no issues attracting tenants to the project.

I have to tell you that this is only the second day of the launch and there are many pair of shoes outside the show flat. I have to say the cooling measures are not apparent at all and I believe many of them are investors (definitely don't look like first time buyers to me).

As of this morning, more than 200 units are sold (out of 332 units) and that is pretty impressive for day 2 of the launch and it is by Tuan Sing (not exactly a big boy developer but listed on the SGX).

Here comes the best part. Most of the good units that meet my criteria which I "will consider" are sold out. The next best 3 bed room apartment on level 12 (#12-11) of 1,077 square foot facing the landed properties is selling for $1,729,000. That works out to be $1,605 psf! Frankly, i might as well go back to District 10 and buy D Leedon whose prices have since dropped below $1,300 psf for certain units but a last check with D Leedon agent indicate that those "value for money" units on the lower floors are now sold out. They are left with the higher floor units. (#33-21 of 1216 sf at D Leedon is now asking for $2.022m and #29-36 of 635 sq ft is asking for $1.253m)

Anyway, i guess Senett Residence was "hot" with investors because they belong to the "shoe box" categories where many units are actually quite small and the actual quantum is more "palatable" since a 50% down-payment is required for 2nd time buyers. 

I enquired the price of a one bed room "in red box below". 

As you can see, that works out to be $1,582 psf. Based on the $921,000 net purchase price, i have to fork out about 3% in stamp duties and another 7% ABSD which means another $92,100 to the price. That will push the small one bedroom apartment to $1.013 million, which to me, is crazy prices to pay.

Second time buyers will also need to set aside a minimum $69,500 in your CPF account before you can utilize the "excess" money in the CPF.

Anyway, i decided to wait since i don't have a "naked position" in the market and perhaps the price will fall to a support zone which i am more comfortable with in 2015.

The Car bubble has burst?

The government must have read my blog post on 13 Jan 2013 where i spoke about the foaming car market and that car loan should not be extended against the COEs. :oP

The new measures are truly more drastic than the previous car curbs from Feb 1995 to Jan 2003 and took the market by "surprise" where the loans are now limited to 50%-60% of the car's purchase price and the loan can only be limited to a maximum tenure of 5 years.

"Singapore's central bank said the tenures of motor vehicle loans will be capped at five years, with the maximum motor vehicle loan amount pegged to 50 or 60 per cent of the vehicle's purchase price, depending on the Open Market Value. These financing restrictions, however, do not apply to commercial vehicles and motorcycles."

 I once spoke to a second hand car dealer and there are basically "two" types of car buyers. They either take little loan or max out the loan and MAS is probably trying to "protect" the second type of buyers to prevent them from over-extending themselves.

I think this new measure is timely and will probably be one that will "burst" the car bubble. Perhaps we can see some sanity returning to the car prices soon? ... let see how the COE prices will react in March and in the coming months. The COE price chart is below :) Will COE prices finally head back to the $50k mark?

Don't have a naked position in the property market!

After Round 7 was introduced, i received even better offers from the agent of D'Leedon. The developer is offering up to 10% and 15% "Chinese New Year" discount on the units. No more funny "tiered" discounts which i first mentioned in my blog post on 3 Jan 2013.

A 3 bedroom unit on #22-17 (1227 square foot) is now going for $1,786,190. The developer has definitely become very 'sincere' overnight in cutting prices to move units.

I had a blog post in September where i mentioned not to sell your flat if you can and that a close relative of mine has sold his flat in anticipation of a drop in price. Well, as an update, this relative of mine couldn't take it any more as he see the prices moving away and finally bought a studio unit (635 square foot) for $1.288m at D'Leedon on 29 December 2012 only to see developer cutting prices two weeks later when Round 7 was enforced. 

I think the simple takeaway is this: Don't have a naked position in the property market.

There is a Chinese saying "衣食住行", meaning that a roof over your head (a place to stay) besides clothing and food is a basic necessity. I guess once you loses your roof, you probably will lose your head as well and start thinking and behaving irrationally. 

I had a reunion dinner with my ex-colleagues two Fridays ago where one of them thanked me for advising her not to sell her executive condo in 2010. She had wanted to cash out because she thought the prices was high and wanted to rent a place near a good primary school for her eldest son. She is also expecting a price correction. I remembered telling her back then, "don't do it because you only have one property and you can never catch the top and the bottom". With the benefit of hindsight, if she has sold in 2010, she will probably be paying rental for 2 years and suffer the heartache of seeing the prices of her executive condo setting new records in 2012.  

After thanking me, she went on to say, "well, i have just sold my condo at record price in December, what would you advise me to do next?" She has just sold her executive condo in Chua Chu Kang area where she has stayed for the last 13 years. I think she will probably get back around $1.2m in proceeds and that it has been fully paid for. 

She then asked me "Should i....

(1) Rent a place and wait for prices to drop or

(2) Buy 2 new properties with the cash received or 

(3) Buy one property now and buy another one a few years later.

What would you advise her? I will leave that for your thoughts. Feel free to comment, especially if you are thinking of taking a "naked" positing in the property market as well.  :) 

Round 7 - Finally its here and the car is foaming as well.

When i first wrote about the Round 6 in Oct last year, i mentioned that more government measures is likely if price spiral out of control.

In Nov 12, when i was analyzing Q3 prices, i mentioned a bubble forming in the industrial zone and that cooling measures round 7,8,9 and 10 are on its way.

On my blog post on D Leedon on Jan 3rd, i said the government will probably need to step in again. 

Well, here you go. On Jan 11, the government introduced one of its most "comprehensive" property cooling measures, covering HDB, ECs, Industrial units and Condominiums with effect from 12th Jan.

Deputy Prime Minister and Minister for Finance Mr Tharman Shanmugaratnam said: "The reality we face is that interest rates are extraordinarily low, globally and in Singapore, and continue to add fuel to our property market. We have to take this further round of measures now, to check recent market trends and avoid a more serious correction in prices further down the road."

Will it work this time? Frankly your guess is as good as mine. 

In my post on 24 Nov 2012, i mentioned that you need another global financial crisis for prices to retreat. My view remained the same. The prices will not fall unless we see a sharp drop in the stock market due to company failures. Only a drastic fall in investors sentiments will we see a meaningful correction. Alternatively, you need a dramatic increase in borrowing costs (i.e. interest rates) but I don't see that happening soon either.

Will Round 7 will be effective in killing off the investors' demand, especially those who already owned one property? My gut feel is "Don't Count on it". The government has not plugged one loophole in preventing current one home owners from getting more "loan" out of their first property to pay the down payment for the second property but it may dampen sentiments in a "knee-jerk" reaction.

The Car is foaming as well!

Not only are we seeing bubbling record prices in property, we can witness that in COE prices where Cat A prices hit a record high of $92,100.With BMW and Mercedes trying to game the "CAT A" category and a falling quota, it is no wonder that Cat A prices are where they are right now! In my view, the government should not allowed loans to be "borrowed" against the COEs. It just doesn't make sense and a car bubble is foaming right now....if the government don't stop that, the prices will cross the $100k soon and that will exceed the value of my entire SRS portfolio as of 31 Dec 2012? It's pretty crazy.

D' Leedon

I went to view the D'Leedon showflat at Farrer road on Sunday. It was the site of the previous HUDC enbloc. As you know, Singapore property prices ended 2012 with a big bang and at record prices. The news article is here.

I thought this was one of the few condo that are still exhibiting "good value" under current market conditions. If you ask me to buy ECO (district 16) at $1,300 to $1,400 psf or the Sky Habitat (district 20) at $1,500 to $1,600 psf or Foreseque Residence at $1,100 to $1,200 psf (district 23), i would rather buy a unit of D Leedon at around $1,400 psf (after 8% discount), which is in District 10 and within 1km of good primary school like Nanyang Primary.

However, to get to $1,398 psf, the units on sale are typically bigger (around 1,400 square foot) and on the lower floors (below 12th floors) out of a height of 36 floors. And you will need to check off the criteria that will allow you to receive around 6%-8% discount off the listing price. Personally i don't like the gimmicks of "tiered discounts". If you ask me to buy something now, I would probably get an investment unit at D'Leedon if the smaller ones (around 1,000-1,200 square foot) are selling below $1,400 psf on the higher floors. hahaha.... A small unit on level 25 with a size of 635 square foot was sold for $1.3m that weekend. That translate into a psf of more than $2,000. 

If you are wondering why SC Global wants to privatize itself, that is because its still has many high end condos not sold yet and it is going to run foul of its deadline and have to pay for extension charges. The news is here. As such, many developers will want to avoid this predicament and try to move units by lowering its prices and that is probably one reason why the developer of D'Leedon is giving out discounts now to 'move the units' as it is a huge development with more than 1,600 units and as of Nov, still 60% unsold based on www.squarefoot.com.sg (see graph below). 

I will probably give it a miss and play the waiting game with developers who are facing the pressure to slash prices. If the prices continue to edge upwards, the government will probably need to step in again.  

Happy investing.