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Issue 92

Copyright 2011-2012 All Rights Reserved.

Ask Mr. Propwise#9 What is the Impact of Income, Interest Rates and Deposits on Property Prices?



Welcome to the 92th edition of the Singapore Property Weekly.

p7 p9 p12

Property Buying Tip #6: Option Fees Singapore Property News This Week Resale Property Transactions

Im glad to announce that the 2012Q4 URA data has been updated for members. >> Click here to find out more <<
Hope you like it! Mr. Propwise

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Ask Mr. Propwise#9 What is the Impact of Income, Interest Rates and Deposits on Property Prices?
By Mr. Propwise I recently received the following email from a reader of Dear Mr. Propwise, Thank you for your weekly report. Youve done a very sound analysis in putting housing growth and property growth together in your article 6.9m Population by 2030 Good or Bad for Property? If most people agree with your report, property price in Singapore is likely to soften within the next two years. And I think it will.

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SINGAPORE PROPERTY WEEKLY Issue 92 The Straits Times recently reported that the top 10% of earners have an average monthly income of $11,552 per family member for year 2012. The annualized change, adjusted for inflation, was 5.5% per annum (from 2002 - 2007), 2.7% per annum (from 2007-2011) and 5.6% from 2011 to 2012. This works out to be 4% per annum increase over the last ten years for these top income earners. This means the salary has increased by 41.7% over the last ten years from 2003 to 2012. If we look at property price increases, the URA Private Residential Property Price Index in 2002Q1 was about 115 points and in 2012Q4 was 211.9 points. Translated to annual growth, it is 7% per annum over the last ten years... a whopping 84% increase. So, over the last ten years, salary increased close to 42% while private property rose 84%.
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The growth of salary has lagged property price by two times. I have the comments: following questions and

1. Going forward, does this mean property market prices are going to stabilize or decline? 2. Is the property price upside potential becoming less than the downside risk? 3. It probably needs a trigger mechanism to cause property price to decline substantially. Will it be interest rate rise? If so, it probably has to be a steep rise to 2.5% or more within a year.So far, there has been no major economic recession or crisis since end 2008, but I wouldn't rule it out within the next three years....

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SINGAPORE PROPERTY WEEKLY Issue 92 4. On the positive side, I understand Singapore still has a lot of cash deposits thatcould help support the property price growth.I do not have the number at hand, but it will be good to find out if it is still increasing. Thank you very much for your weekly advice. Your reports are definitely worth reading and studying. Best Regards R. Tan Hi R., Thanks for your well-researched comments. I went back to take a look at the original report from the Department of Statistics Singapore, and the number that I thought was relevant was the Total Household Income from Work, which grew by 41.1% from 2007 to 2012, or 7.1% annualized.
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Over this time period, the URA Property Price Index grew by a cumulative 62.7% or 10.2% annualized. So I think we can say that over this time period property price growth exceeded that of Total Household Income from Work, which means that affordability has deteriorated. But do note that this only measures income from work (i.e. employment and business earnings). As the home ownership rate in Singapore was 90.1% in 2012 (according to Singstat), that means that the net worth of 90% of the households here was growing at a much quicker rate (itll be that 10.2% magnified by the impact of leverage). I believe that the combined impact of growing income and wealth was very supportive of the property market over this period (even taking into account the glitch during the Global
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SINGAPORE PROPERTY WEEKLY Issue 92 Financial Crisis). 1. Looking at these growth rates doesnt give us too much insight into the future of the market. While nobody can forecast the future with any accuracy, I believe taking stock of where we currently are in the cycle and looking at factors thatll affect future demand and supply is the best way to guide our property decisions. 2. Based on the Property Market Cycle Model that I developed for, as of 2012Q4 we are in the Late Bull stage of the market, which certainly suggests that the risk-reward for buying property is not great, i.e. the downside is greater than the upside. 3. As Ive written before, for Singapore property prices to fall, I believe well need to see some sort of external shock (what I call a black swan, using NassimTalebs terminology) that will lead to an increase in interest rates and/or unemployment rates. The cause could be anything from rising inflation rates, to a recession, to an epidemic. Only then will see forced sellers and blood on the street. 4. I went to the MAS website to download some information on deposits in Singapore. They are still growing as of 2012, but at a slower pace. Certainly theres still a lot of cash sitting in the bank waiting to be deployed into some opportunities, so this could cushion any fall in the property market.

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SINGAPORE PROPERTY WEEKLY Issue 92 Total Bank Deposits ($ million) Mr. Propwise By Mr. Propwise, founder of, a Chartered Financial Analyst and resident real estate analyst at, a site to help property owners and investors make profitable decisions in uncertain times.Click here to learn more

(Source: MAS) Thanks for the great questions hope the above has been helpful! To Wisdom and Beyond,

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Property Buying Tip #6: Option Fees

When buying from the Open or Resale market, a 1% Booking or Option Fee is required upfront and you are given a period of time, usually 14 days, to pay the balance 4% to exercise the Option to Purchase (OTP). In other words, you will need a minimum of 5% cash to pay the option fees, with the remaining 15% to be paid in cash and/or CPF (Ordinary Account) to complete the Option.
In the event you decide not to proceed with the purchase and do not exercise the Option, your 1% Option Fee will be forfeited by the Seller. The Seller is free to sell the property to another party when the Option expires.

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SINGAPORE PROPERTY WEEKLY Issue 92 When buying direct from the Developer, typically for a New Launch or UnderConstruction Property, the booking fee to issue the Option to Purchase (OTP) is 5% to 10% (typically 5%). Upon signing the Sales and Purchase (S&P) Agreement, the payment would be 20% less the Booking Fee paid, typically within 8 weeks. Thereafter, the payment would be subject to the progress of the construction. In the event you decide not to proceed with the purchase and do not endorse on the Sales and Purchase Agreement, 25% of the Option Fee will be forfeited by the Developer. For example, if you have paid the 5% Option Fee, then 25% of 5% = 1.25% of the Purchase Price will be forfeited. By Eileen Tan and Ui Wei Teck, property investors and authors of Enjoying Mid-Life Without Crisis. This tip and dozens more are from their book.
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Singapore Property This Week

Developers not property market optimistic about the while future net balance fell from +6% in Q3 to -28% in Q4. Suburban retail and hotel/serviced apartments, on the other hand, had current and future net balances of +14% and +9% respectively. 48% of the survey respondents also expect to see moderately lower prices in the primary residential market, with another 25% expecting stable prices and another 28% expecting a moderate price increase. 10% of the respondents (compared to an earlier 23%) intended to launch substantially more units. 43% (compared to 48% earlier) expect moderately more launches, 28% (unchanged) expect the launches to be at the same level while 20% (4% earlier) expect lesser units at new launches.
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With the latest round of cooling measures, developers are now less optimistic about the property market, as reflected in the RedasNUS Real Estate Sentiment Index (RESI) Current Sentiment Index, which fell from 5.1 in Q3 2012 to 4.6 in Q4 2012. The Future Sentiment Index also fell from 4.7 in Q3 to 4.0 in Q4 while the Composite Sentiment Index fell from 4.9 to 4.3. Specifically, the prime residential sector fell to a current net balance of -27% and a future net balance of -49% from -8% and +2%, the suburban residential sector has a current net balance was +10%

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SINGAPORE PROPERTY WEEKLY Issue 92 In addition, the level of interest in land sales also fell, with 10% expressing moderately greater interest in GLS (compared to an earlier 32%) and another 38% expressing moderately lesser interest (compared to 7% earlier). Similarly, level of interest in en-bloc sales also fell, with 35% (compared to 61% before) expressing the same level of interest and 45% (compared to 15% earlier) expressing less interest. (Source: Business Times) Commercial Six Samsung Hub units up for sale by tender block with 299,753 sq ft strata area and a sixstorey podium with 178 carpark lots. Church Street Holdings, the owner, will only sell if the all or most of the units can be sold at $3,3003,500 psf.The tender will close on March 15. (Source: Business Times) San Centre at Chin Swee Road up inthe collective sale market The 12-storey San Centre, an office building at Chin Swee Road, is asking for $115-125 million or $872-948 per sq ft. It consists of 107 strata-titled office units and 80 carpark lots sitting on 28,719 sq ft of land. The plot ratio and total GFA are 4.59 and 131,895 sq ft respectively.Having a good location (near CBD, Chinatown and Robertson Quay and Chinatown and Outram Park MRT stations), it can be potentially redeveloped into a hotel, a serviced apartments for expatriates and medical tourists or an office building.
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These six strata unitswhich strata areas range from 883 sq ft to 3,595 sq ft (a total of 13,132 sq ft) are located on the17th floor of Samsung Hub, a 999-year Grade A office development on Church Street near Raffles Place. The development consists of a 30-storey office
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SINGAPORE PROPERTY WEEKLY Issue 92 The authorities would support the redevelopment into a 20-storey hotel development or a mixed residential and commercial development, with at least 60% for commercial use.The tender closes at 2.30pm on March 25. (Source: Business Times) JTC change rules on land rentals Under Sale-and-Leaseback Scheme, JTC allows third-party facility providers to be its lessees by allowing an industrialist to sell its completed facility to a third-party facility provider such as a Reit, which would in turn leases it back to the industrialist. These would allow industrialists to offload assets and lighten their balance sheets. However, under the new rules, these third-party facility providers have to pay an upfront land premium (prevailing posted land price on JTCs website,adjusted for the remaining
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tenure of the current lease term) for the remaining of the lease term; only buyers who are industrialists can pay a monthly land rental. Should there be a second term of lease, the upfront premium will be determined at the end of the first term. This new rulecould mean a higher cost and a lower yield for Reits, which may lead to less competition for SMEs interested in buying their own premises. Another similar scheme is the Third Party Build-and-Lease Scheme, where a property fund or developer builds a customised facility for an end-user industrialist, to whom it leases the building. While the developer can choose between an upfront land premium or a monthly land rental, a new buyer (if a thirdparty facility provider) can only pay an upfront land premium for the balance of the current lease term.

(Source: Business Times)

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Non-Landed Residential Resale Property Transactions for the Week of Feb 6 Feb 8
Postal District 3 5 9 9 10 11 12 15 15 15 15 19 20 20 20 Project Name ALESSANDREA ISLAND VIEW THE LIGHT @ CAIRNHILL LUMA GLENTREES ZEDGE PRESTIGE HEIGHTS THE SEAFRONT ON MEYER WATER PLACE DUNMAN VIEW MANDARIN GARDEN CONDOMINIUM THE QUARTZ GOLDENHILL PARK CONDOMINIUM BOONVIEW THE WINDSOR Area (sqft) 1,001 3,595 1,518 743 1,345 861 431 1,604 1,216 1,249 1,528 1,066 1,335 1,292 1,572 Transacted Price ($) 1,390,000 3,750,000 3,570,000 1,605,000 1,820,888 1,350,000 770,000 2,300,000 1,510,000 1,325,000 1,535,000 1,150,000 1,850,000 1,560,000 1,500,000 Price Tenure ($ psf) 1,389 FH 1,043 FH 2,352 FH 2,161 FH 1,353 999 1,568 FH 1,788 FH 1,434 FH 1,241 99 1,061 99 1,004 99 1,079 99 1,386 FH 1,208 FH 954 FH

NOTE: This data only covers non-landed residential resale property transactions with caveats lodged with the Singapore Land Authority. Typically, caveats are lodged at least 2-3 weeks after a purchaser signs an OTP, hence the lagged nature of the data.

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