Tuesday, July 22, 2014

London property market: Prices fall in July for second month running

Asking prices for London property fell for a second month in July as an increase in the number of homes for sale softened the market for sellers, Rightmove plc said.

Prices sought in the UK capital fell 0.4% from June to an average GBP587,174 (S$1.25 million), the property website operator said in a statement yesterday.

Across England and Wales, prices fell 0.8%, their first decline since December.

The UK property market is losing steam, after the Bank of England said it posed the greatest risk to the economic recovery.

Financial stability officials set a cap on loan-to-income ratios last month to prevent surging prices leading to an excessive build-up of debt.

The declines are "a sign of some sellers asking beyond what buyers and lenders judge to be affordable or fair value",  Miles Shipside, director at Rightmove, said in a statement.

"Market conditions still compare favourably with this time last year, with growth in both the economy and employment, plus a comparative thaw in mortgage availability."

The number of properties offered for sale in London is 15% higher this year than the same period in 2013, according to Rightmove. New sellers rose 28% from a year earlier.

The decline in the capital was led by three districts, Islington, Wandsworth and Kingston, each of which fell 3.8% on the month.

Nationally, of the 10 regions tracked by Rightmove, seven posted declines. These were led by 1.9% falls in the East Midlands and the North.

Rightmove yesterday refined its forecast for 2014 house price growth to 8% from a previous prediction of 6 - 8%.

A stronger pound may also be deterring foreign buyers by making UK assets more expensive, Rightmove said.

The UK currency reached US$1.7192 on July 15, the highest since October 2008.

That point was echoed last week by Deutsche Bank economist George Buckley, who said the gains in Sterling along with global economic weakness and the withdrawal of BOE stimulus may sap demand for homes in the capital.

"There seem to be more downside than upside risks to London housing going forward," Mr Buckley said.

"While we do not expect a crash in London property prices, we do expect price pressures to ease going forward and would not be surprised to see outright falls in asking prices."- Bloomberg.

Info source: BT

The wife and I were kinda glad that we decided to exit the London market during the early part of this year, immediately upon the TOP of our property. It is still very much the norm that UK home buyers prefer to buy properties that are ready for occupation. Our original intention was to "hold and rent" but after seeing the deluge of private homes that were coming onto the market over the past year, we reckon that it may take a longer than expected time to rent the place out, especially if we insist on a certain level of rental yield.

Although investment in London properties may not seem to be as attractive now, it may not be a reflection on the state of affairs for the whole UK.  If one bothers to look north of the border (i.e. Scotland), there are still some decent opportunities to be found. As one prominent Scottish property consultant commented on their latest price report for June 2014,  "The improvement in market activity (in East Central Scotland, which include Edinburgh) in 2013 has continued into 2014 with a notable rise in the number of homes being bought and sold. Conditions are more favorable for sellers, with more homes achieving Home Report valuation and selling times shortening. We’ve also seen a continued rise in the popularity of the Offers Over approach to selling a home, with roughly two-thirds of homes coming onto the market being advertised in this way.

"Whilst the market has improved it’s worth putting the growth we’ve seen in perspective. The number of sales we’re seeing is still around 25% lower than at the peak of the market and the rate of house price inflation in most areas in moderate, especially when compared to the rapid rises being observed in some areas south of the border."


Monday, July 21, 2014

Spring Grove: Beginning of the end for freehold developments..?

A canny purchase of a block of freehold land in Grange Road by the US government 64 years ago is turning into the proverbial goose that lays the golden egg.

The first windfall came in 1991 when it reaped $80 million from selling a 99-year lease on the 24,481sqm (263,600sqft) site, which at one time housed the ambassador's residence.

City Developments developed the plot into the 325-unit Spring Grove condo.

Now the US government stands to get another big bite of the cherry as the Spring Grove owners have launched a collective sale at the eye-popping price tag of $1.39 billion.

As the land owner, the US government would enjoy a windfall of $245 million just to top up the lease by a further 27 years - to 103 years - if the collective sale attracts a buyer.

This is three times what it was paid for the original 99-year lease which it sold on the land 23 years ago.

For home owners who bought leasehold property on freehold land not owned by the Government, the Spring Grove collective sale will hopefully provide some clarity on how they can realise the potential of their estate through such a sale as the duration of the lease runs down.

Thus, the yardstick by which the US government arrived at its asking price for the top-up premium is likely to attract considerable scrutiny, especially since it may set the benchmark for any subsequent collective sale on a leasehold estate whose freehold rights are not held by the Government or the home owners.

Currently, when a lease runs down for 99-year projects on land owned by the Government, firms that redevelop the site after a collective sale pay the Government a top-up premium to get the lease rewound to 99 years.

In the Farrer Court collective sale in 2007 - the priciest collective sale ever at $1.34 billion - a sum of between $175 million and $225 million was reported to have been paid for topping up the lease from the remaining 69 years to 99 years.

But while the top-up premium paid for the Farrer Court collective sale was similar in quantum to what is being demanded by the US government for Spring Grove, the site had a shorter remaining tenure and a land area three times the size of Spring Grove.

For real estate developers sitting on a cache of freehold property, the Spring Grove collective sale also bears watching.

As a rule, most of them do not retain any reversionary interest on the freehold land. Their connection ends once all the condos have been sold.

Yet, the handsome gain the US government may reap from the Spring Grove collective sale may cause developers to have a change of heart.

Leasehold units typically sell at a 10 - 15% discount to similar freehold homes so the full value of the land cannot be realised.

But even if developers have to take a discount to sell leasehold condos on freehold land, this may still be worthwhile as some developments may turn out to be gold mines like Spring Grove and offer them a second bite of the cherry, like what the Americans are attempting.

The battle for Spring Grove once again casts the spotlight on how valuable freehold land has become in Singapore. It will only reinforce the view that such land can only get pricier as time passes.
Info source: ST

When news of the Spring Grove en bloc sale was first reported on 16 July, the wife and I had decided not to feature this on our blog. We reckoned that every other property-related blog and web sites will be talking about it, since it is slated as the largest ever collective sale in Singapore in terms of value. 
But today's article in the ST has reignited our interests - not because of the collective sale per se but the discussion about developers choosing to develop leasehold projects on freehold land while retaining reversionary interest in the land.
Not many developers to date are keen on the strategy for the simple reason that 99 years is a long wait and they may not be around to enjoy the fruits of their effort. And for listed companies, the management may not have the luxury of time to see profit only in 20 to 30 years.  But the wife and I are aware of at least one developer that has subscribed to the strategy - Far East Organization.
So what do projects like Cabana (Yio Chu Kang), The Greenwood (Bukit Timah) and The Shore (Katong) have in common other than all were developed by Far East? No prize for guessing that all three are leasehold (103 years) residential projects developed on freehold land. 
In all fairness, these are all fairly new developments so any en bloc talks are probably way too premature. But when the time comes for owners to want to do a collective sale, they will have to refer to the holder of the freehold title - which is Far East, instead of the Government. Far East will then have the options of either granting a lease top-up, buy back the land, sell the freehold tenure or simply do nothing. And they will continue to profit from any  top-up premium as long as they hold on to the land title - provided that the Company continues to exist, of course.

So will we see more of such strategy being deployed by Far East or maybe even by other developers? Only time will tell but the wife and I reckon that there will likely be more 103-year projects on freehold land from Far East at least.
And for the record, the $1.39 billion that Spring Grove is asking translates to $2,512psf ppr, based on the maximum gross floor area of about 553,377sqft. The breakeven cost is expected to be around $3,400 - $3,500psf.

New project sales update: City Gate

City Gate, a 99-year leasehold mixed-development in Beach Road, has pulled in solid sales over the weekend. This is after its developers launched it at lower-than-expected prices and enlisted as many as six real state agencies to market it.

It has sold around 78 residential units and 62 commercial units as of 4pm yesterday. This is about half the 150 residential units and two-fifths of the 155 commercial units released.

The residential units were sold at a median price of more than $1,800psf. This is lower than the $1,900 to $2,000psf that the homes had earlier been expected to sell at, going by previously released marketing materials.

Located at 371 Beach Road, City Gate has 311 apartments and 188 commercial units.

Units at the project range from 431sqft one-bedders to 1,819sqft four-bedroom penthouses. It also has two- and three-bedroom dual-key units.

Dual-key homes have two separate entrances for privacy and appeal to investors who want to rent out part of their home.

The 30-storey project will have a three-storey shopping and dining podium with over 155,000sqft of gross floor area.

It will be connected by a sheltered bridge to the Nicoll Highway MRT station along the Circle Line.

The project is jointly developed by World Class Land and Fragrance Group and will be built on the site of Keypoint, bought for $360 million in 2012 from Frasers Commercial Trust.

The estimated TOP of City Gate is end-October 2019.

Info source: BT/ST 

Sunday, July 20, 2014

Overdue mortgage payments on the rise!

A report in the ST said that more private home owners are not making their mortgage payments on times. This is according to figures from the Credit Bureau of Singapore. 

·         The number of borrowers with delinquent mortgages hit 4,186 in May, up 20% from the 3,340 a year earlier.

·         Delinquent borrowers comprised 0.82% of private home loans in May, up from 0.7% in the same month last year.

·         Banks wrote off six mortgages in the first five months of the year, a touch up from the five bad loans in the same period last year. 

Banks typically consider accounts with payments that have been overdue for 90 days or more as a defaulted loan.
Although the percentage rise in the number of delinquent accounts was more than the increase in total private home loans, experts note that the figures are not yet alarming.
The increase on the number of  overdue payments may be due to highly leveraged individuals who took out large loans before the TDSR was introduced. Another possible reason could be the slight rise in the overall jobless rate, which increased from 1.8% in December last year to 2% in March.
Mr Song Seng Wun, regional economist at CIMB, pointed out that it could be a reflection of the correction in the property market.
The number of private condominium homes completing this year is expected to hit 17,000, up from 13,150 last year.
As tenants have more options amid a softening market, owners who bought units expecting to finance them with rental income could find themselves burdened instead, Mr Song said.
Moreover, mortgages are almost fully drawn down upon the completion of a new property, bumping up the monthly payments, he noted.
This underlines the increasing number of properties that were put up for auction by banks.
Earlier reports showed that 42 mortgagee sale properties went to auction in the second quarter, the highest since the third quarter of 2009, when 63 homes were up for a fire sale.

On a related note, the wife and I have noticed that the interest rate have been creeping up over the past 9 months. We have a mortgage that is currently pegged to the 3-month SIBOR. It was at 1.1513% in December last year, then went up to 1.1520% in March 2014 and the last revision in June 2014 saw the rate inched up further to 1.1537%. It will be interesting to see what the September rate is gonna be.

We also realised that the bank notification for interest rate revisions these days only provide you with the new rate. So unless you bother to keep track, you may only realised it when your mortgage repayment starts showing significant increase.

Maybe our local banks can start issuing advice that says "Your interest rate will change from  xxxx to yyyy from ..." for better transparency and clearer information?

And finally, we are keeping our fingers crossed that this post will not get spammed by all them "loan companies" promising to give out all kind of loans at 3% interest rate (no mention of whether it's per year or month) without stress and can supposedly dispense the loan to you within 2 days!

Saturday, July 19, 2014

Condo in Vancouver, perhaps?

A condominium being developed in Vancouver is being launched in Singapore today.

The 57-storey Vancouver House will be the third tallest building in the city when it is completed in 2018, said its Canadian developer Westbank.

The top 10 storeys of 55 units are categorised as "estate floors" while the remaining 333 homes are part of the "architect series".

Units range from studios of 431sqft to four-bedders of 3,928sqft.

Prices start from about C$300,000 (S$347,000) to C$6 million, translating to an average price of C$800 to C$2,000psf.

Westbank marketing director Michael Btaun said that 40% of the project has been reserved for foreign buyers while 30 units have been set aside for the Singapore market.

"The nice thing about the Canadian market is that it doesn't have large swings like those in Hong Kong or the United States.

"There is more demand than supply in the market, and it appreciates year after year," added Mr Braun.

Rental yields are expected to fall between 5 and 6%, he noted.

The tower, distinct for its twisting silhouette, was designed by Danish architect Bjarke Ingels, who was also behind the West 57th Street development in New York.

The freehold property is being marketed by Christie's Singapore, a unit of local firm SQFT Group, which specialises in marketing overseas properties.
Info source: ST
The wife and I wonder if the market poly of setting aside only 30 of the 155 units reserved for foreign buyers will generate the necessary hype for this project. And typical for developments being marketed out to Asian countries with primarily Chinese buyers, i.e. Singapore and more importantly Hong Kong, which is a primary market for new developments in Vancouver and Toronto, you may already have noticed that the total number of units in Vancouver House is 388!

The indicative prices for this project is rather steep, probably because of the targeted buyers (Singaporeans, Hong Kongers and especially mainland Chinese are rich mah!). But buyers can supposedly borrow up to 65% to finance their purchases. 

The half page advert in ST today said that the mixed-waterfront project (retail, office, restaurants and residential) is located in Vancouver's downtown CBD. It is a 6-minute walk to Yaletown-Roundhouse station and a 2 minutes train ride to city centre. Amenities include concierge service, wellness centre and heated rooftop swimming pool. There is also a fleet of BMW vehicles available for residents' use.

The Singapore road-show this weekend is supposedly a review ahead of the official launch in Vancouver on 20 September 2014. Developer is offering 2 years of free rental management (leasing and management fees absorbed).

So for those who are interested and have some free time this weekend, the road-show is being held at Four Seasons Hotel (Temasek Room @Level 3). The wife and I have never ventured into Canada (yet) and this project looks rather interesting. So who knows, you might just see us at the exhibition!

Click on link below to go to the marketing website of Vancouver House: