Week in Review – 10 July 2014

Property prices will fall, but not crash

Following last week’s URA flash estimates that private residential prices dropped 1.1 per cent in 2Q 2014, Deputy Prime Minister Tharman Shanmugaratnam stated property prices may continue to fall, but a crash is unlikely. “I don’t think we’ll see a crash, because we moved early enough. And we moved each step of the game, knowing full well that what we do may not be enough, but if too much we might engineer a crash,” said Mr Tharman.
The high-end property market has been hit hardest by the cooling property market, highlighted by the Hiap Hoe-developed 48-unit Treasure on Balmoral, which managed to log only one sale since launching in January, which was subsequently returned. Hiap Hoe is now moving to sell the condo in a bulk sale, at S$191.4 million, or S$1,850 psf, according to its marketing agent Savills. 
Mr Nicholas Mak, Executive Director of SLP International, told TODAY “for this developer, (a bulk sale) is one way for them to exit this particular investment and move on.” Mr Desmond Sim, Head of Research at CBRE, agreed that if the sale gets through, Hiap Hoe can be relieved of the risks and financial burden of holding on to so many unsold units. He added that “the location of the project is not bad and S$1,850 psf is quite a bargain, so if someone has the appetite for this, it’s good for the developer’s cash flow.” Mr Steven Ming, Managing Director at Savills, is optimistic about the prospects, noting “We believe this opportunity will attract wide-ranging investors, as many will see mid-to-long (term) value at this guide pricing.”

HDB blocks built in early 1990s may be upgraded; 12,700 more BTO units to be launched 2H 2014
National Development Minister Khaw Boon Wan announced in Parliament on Monday that the government is considering upgrades for HDB blocks built in the early 1990s, under the Neighbourhood Renewal Programme (NRP). Currently, NRP applies only to blocks built before 1989. If approved, the newly eligible blocks can look forward to improvements such as precinct pavilions and drop-off porches. Priority will be given to estates that have not undergone main or interim upgrading programmes, such as Pasir Ris-Punggol GRC. 
Mr Khaw also announced in a parliamentary written response on Tuesday, that the remaining 12,700 flats of the 22,400 BTO flats targeted for this year will be launched in H2 2014. HDB will also carry out a second sale of balance flats exercise later this year to supplement the incoming BTO units. Mr Khaw added that the supply in 2015 is expected to be lower than this year.
Silver Housing Bonus and Enhanced Lease Buyback Scheme (LBS) beneficial for elderly
Mr Khaw revealed in Parliament on Monday that 120 seniors in 80 elderly households have benefited from the Silver Housing Bonus since it was introduced in February last year, receiving up to S$20,000 in cash per household when they sold their existing flats and moved into a smaller unit. Meanwhile, the Enhanced LBS scheme has benefited 312 households since February last year. Under this scheme, seniors sold part of their flat leases to HDB and used the net proceeds to top up their CPF Retirement Accounts, resulting in more than 90 per cent of the elderly in these households meeting their CPF minimum sum thresholds. 

Land Acquisition Bill to undergo potential revisions
Potential changes to the Land Acquisition Bill could result in better compensation for landowners when part of their land is acquired by the authorities for development. These include the removal of the Betterment Levy, which currently reduces the compensation received by landowners based on the potential capital appreciation of their property, once the portion of land has been acquired and developed. In addition, the government is also proposing changes in the Bill to enable Management Corporation Strata Title developments to go through acquisition processes on behalf of individual unit owners when common property is acquired by the authorities. This eliminates inconvenience to owners, as currently every owner is required to go through the process.

Chinese developers zoom in on Iskandar as China’s property market weakens
Iskandar’s special economic zone has been attracting plenty of attention from Chinese developers looking abroad for better opportunities. Mr Colin Tan, Director of Research and Consultancy at Suntec Real Estate, told TODAY that developers “have started to venture out of China because financing is being tightened. Developers usually go for ‘safer’ markets such as Hong Kong or Singapore, which are developed and more transparent. But Iskandar is in a unique position even though it’s not a mature market. It’s next to a First World country, with tremendous purchasing power for developers to tap, and land cost is low compared with developed markets.” Another factor is the availability of large plots of land in Iskandar, compared to land-starved Singapore. Mr Ku Swee Yong, CEO of Century 21, noted that “payment terms for such plots are probably more favourable to developers than in Singapore.” 
Yet, analysts remain conservative in terms of Iskandar’s potential. Mr Colin Tan considers the upcoming oversupply in Iskandar a potential challenge. “The common argument against this is that Iskandar has the backing of the government and that the high-speed rail project (will) improve connectivity, so its potential will eventually be realised. But the next question is, how long will that take? It could well be many years,” said Mr Tan. 
Meanwhile, two projects in Iskandar are under scrutiny by both the Singapore and Malaysia governments, as both projects involve massive reclamation activities. The projects are Forest City, a 2,000ha man-made island developed by China’s Country Garden Holdings and Malaysia’s Kumpulan Prasarana Rakyat Johor, and Princess Cove, a 47ha development by China’s Guangzhou R&F Properties. A press release from the Ministry of Foreign Affairs notes that Singapore is very concerned about the potential trans-boundary impact from the reclamation works, and has requested Malaysia to suspend activities until an Environmental Impact Assessment, as well as other information on the reclamation works has been studied and considered by Singapore. Malaysia has responded with some preliminary general information, stating that no reclamation works are currently being carried out, and has promised to share all information. 
On a separate note, the Malaysian government will be taxing developers reclaiming land from the sea in Iskandar, to provide aid for fishermen affected by reclamation works. According to Johor’s Chief Minister Mohamed Khaled Nordin, developers will be taxed at RM0.30 (S$0.12) for every square foot reclaimed, and based on a total expected acreage of 3,237.48ha, RM104 million could be collected. Mr Mohamed Khaled also mentioned to Malaysian media that Johor will set up an international zone for foreigners interested in residing in Johor, enabling the state government to limit property purchases by foreigners, as well as special taxes collected and channelled towards developing other areas outside Johor Bahru.