In this issue:
- Understanding, Measuring and Comparing Rates of Return in Property Investing
- Singapore Property News This Week
- Resale Property Transactions (August 6 – August 12)
In this issue:
- Understanding, Measuring and Comparing Rates of Return in Property Investing
- Singapore Property News This Week
- Resale Property Transactions (August 6 – August 12)
In this issue:
- Understanding, Measuring and Comparing Rates of Return in Property Investing
- Singapore Property News This Week
- Resale Property Transactions (August 6 – August 12)
Copyright 2011-2014 www.Propwise.sg. All Rights Reserved.
Contribute Do you have articles and insights and articles that youd like to share with thousands of readers interested in the Singapore property market? Send them to us at info@propwise.sg, and if theyre good enough, well publish them here, on our blog and even on Yahoo! News. Advertise Want to get your brand, product, service or property listing out to thousands of Singapore property investors at a very reasonable cost? Head over to www.propwise.sg/advertise/ to find out more. CONTENTS p2 Understanding, Measuring and Comparing Rates of Return in Property Investing p9 Singapore Property News This Week p14 Resale Property Transactions (August 6 August 12 ) Welcome to the 170 th edition of the Singapore Property Weekly. Hope you like it! Mr. Propwise FROM THE EDITOR SINGAPORE PROPERTY WEEKLY Issue 170 Page | 2 Back to Contents Understanding Measuring and Comparing Rates of Return in Property Investing By Gerald Tay (guest contributor) Ive received feedback, both positive as well as negative, on my previous article Property Valuation Money Not Math. In that article I explained how many investors are playing guess work with their investments because they fail to understand how to get their yields right. I heavily criticised the current models of property valuation, which are what experts sell as wisdom to average investors these models are outdated, highly controversial and inaccurate. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 3 Back to Contents Putting my Net Worth on the Line I dare put my money where my mouth is my net worth backs my investment strategy. For 13 years, Ive never lost money in any real estate investments and am financially wealthy because of it. Heres the difference between Successful Investors and the Gurus: Authentic Successful Investors (a.k.a The Master Investor): Investments contribute a major part of our net worth - We put our money where our mouth is and its what we love to do. Self-styled Gurus/Experts/Millionaires (a.k.a The Losing Investor): Investments contribute little to his net worth his investment activities are often hazardous to his wealth (playing guessing games in Investment Guru Land). He funds his investments and makes up for his losses using other sources such as business profits (running investment seminars), salary (real estate professionals), company bonus plans, etc. In view of the above, it is in fact possible for you to build your financial wealth through investments investments that are sustainable, smart and logical. I do not possess any special forecasting skills and neither do I consider myself lucky. All I did was to value my investments using science, logic and common sense, rather than play guessing games in Investment Guru Land. If you agree with what Im saying, read on. What do rates of returns measure? Why are they important? Shares, bonds and real estate are the main asset types available in the capital market. Volatility exists with all three asset types. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 4 Back to Contents One difference between these asset types is that property is unique and the data on transactions is not computed on a daily basis. Shares and bonds have constantly updated prices, therefore making it easy for investors to accurately assess their performance. In the real estate market, the situation is not so simple. Investors are never sure of the value of a certain property until the point at which they are about to sell or rent it. Property valuation methods are needed for estimating the most probable value of a property on the market. Yields are important in a number of contexts: Property valuations can be made by analysing price and yields The returns from property should be compared with other forms of investment, and with other properties To evaluate whether property is overvalued and if a price bubble might be forming Return on investment or property yield is one of the most critical components of the entire property investment process, and thankfully, working it out involves a fairly straightforward calculation. Armed with these, your chances of success are significantly improved. There is, however, one key principle associated with the process of investing in property that needs to be thoroughly understood, namely property yield, or return on investment (ROI) / Rate of Return. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 5 Back to Contents Tip: We dont predict the future, but we do know that the next five years will not look like the last five years. That just doesnt happen. Markets change. And our results over the next five will not replicate the last five. They never do. Gerald Tay 'Rate of Return' - This is the metric most used to compare different investments. It is expressed as a percentage because investment opportunities come in all sizes. Absolute dollars of profit do not allow for comparison, but a percentage is 'relative'. The period of time measured is presumed to be one year. The profits from an investment can come from income received during the holding period, and also capital gains from the eventual sale. Together, these are called the "Total Return". Always use the Total Return to compare investments. For example: Property buyers too often look only at the Net Rental Yield (NRY) and ignore the potential for capital loss/gain, Net Cash Flow after mortgage payments and interest, as well as the Time Value of Money. Total Return is based on initial cash outlay or total capital invested, not purchase price. A 4% Net Rental Yield (NRY) property is not equal to 4% Total Return on Investment. What do these terms mean? The 'true' Rate of Return is what most people's understanding of it would be. People refer to it as the Compound Annual Growth rate (CAGR), Return on Investment (ROI), Return on Equity (ROE), SINGAPORE PROPERTY WEEKLY Issue 170 Page | 6 Back to Contents Effective Annual rate, Internal Rate of Return (IRR), discount rate, or Annualized Compound rate. Essentially, these refer to the same concept. Different terms are used in different contexts. Tip: ROI Different people use different words to refer to the same thing, and use the same words to mean different things. Always clarify in your mind what is being meant, without preconceptions. There are many different words used to describe the type of yield measurement being used in different situations. Tip: When evaluating Property Value, Location is Mantra, and ROI is Key. Critical Financial Ratios that Matter It is risky to invest in stocks without having any prior knowledge of the financial health of the companies the same applies for real estate. Knowing the financial health and profitability of your target is essential before you start on any property investment. Financials such as profitability ratios, leverage ratios and the cash flow statements can be used to gauge the financial performance of a property. With the analysis of these ratios, you will be able to make informed and correct decisions for your investments. Understanding how to read these ratios is the key difference between success and failure. Tip: Remember that the ratios are not mutually exclusive. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 7 Back to Contents Critical Financial Ratios to Value Property (Intrinsic Value) By considering all of the above ratios, we derive the Intrinsic Value of the Property. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 8 Back to Contents The Business of Real Estate Tip: Property investing is a business and should be run like a business And if business is war, war is a business. Gerald Tay All successful entrepreneurs understand the importance of managing their business by metrics. Metrics is simply a measurement of the day-to-day results of the business. The measurements are in the form of cash flow (raw numbers) and ratios. They are often used as comparisons, either to a previous period, to targets, industry averages or other investment asset classes. For example, Net Rental Yield (NRY) is used to compare the performance of property A versus property B versus property C. Return on Investment (ROI) is used to compare the performance of Stock A versus Property B versus Bond B versus Gold. Internal Rate of Return (IRR) is used to compare the Risk/Rewards of different types of investment classes versus targeted returns. We shall cover these in greater detail in the subsequent articles. By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today. SINGAPORE PROPERTY WEEKLY Issue 170 Singapore Property This Week Page | 9 Back to Contents Residential Revised URA guidelines limits cluster housing development In recent years, residents have raised concerns about overcrowding in areas such as Toh Estate and Telok Kurau Estate. With more developers building homes in these areas, problems such as traffic and parking congestions were brought up. To ease overcrowding concerns in some of these landed estates, the Urban Redevelopment Authority (URA) has revised its guidelines for cluster housing. Under the new ruling, fewer strata-landed houses will be developed in upcoming projects as the maximum number of units for cluster housing has been lowered. Besides that, developers have to use at least 45 per cent of the land space for the development of greenery and communal facilities. This was 15 per cent higher than the current 30 per cent that developers currently have set aside for such development. According to URA, these new guidelines have taken effect since August 23. Nicholas Mak from SLP International expects the new guidelines to impact strata-landed housing developments. However, he believes that only a small number of good class bungalows will be affected. Lee Lay Keng from DTZ also said that developers interest in strata-landed housing development will be reduced, and housing prices may be pushed downwards. Also, under the new rule, only 15 terrace units may be built per developer said Galven Tan from CBRE. SINGAPORE PROPERTY WEEKLY Issue 170 Page | 10 Back to Contents However, Tan believes that as the problem of overcrowding is eased, the living quality of the private home units may improve and thus benefit sales. (Source: Business Times) Sin Ming and Sebawang residential sites released for tender A residential site at Lorong Puntong, near Sin Ming Avenue and another at Sembawang Road were released for tender. Both sites are on the confirmed list for Government Land Sale. The site at Sin Ming Avenue has a land area of 10,503 square metres and has a maximum gross floor area of 22,056 square meters. This could yield about 280 homes. The Sembawang site for Executive Condominiums has a maximum gross floor area of 60,366 square meters and can yield about 605 homes. Nicholas Mak from SLP International predicts that there will be 12 to 18 bids for the site at Sin Ming Avenue due to a limited supply of private residential-zoned land in Sin Ming. However, Ong Kah Seng from RST Research predicts that there will only be 5 bids for that site following low interest and low winning margins in previous land tenders that are in the estate. For the Sembawang site, market analyst predict that it will attract three to seven bids with a winning offer of about $300 to $330 per square feet per plot ratio. Experts believe that the Sembawang site will face competition from the many unsold new private homes and ECs nearby. Hence developers may be less willing to take this risk and will bid lower. (Source: Business Times) SINGAPORE PROPERTY WEEKLY Issue 170 Page | 11 Back to Contents Commercial Developers interest in J urong grows Developers interest in Jurong Lake area is growing as the government is expected to develop more leisure elements in the area. Not only so, market experts believe that the area will attract more interest if the Kuala Lumpur-Singapore high-speed rail terminus is developed in Jurong Gateway. Christine Li from OrangeTee believes that the governments plans to realign Ayer Rajah Expressway and to develop the old industrial estate to waterfront housing will boost the image of the area and increase its appeal. Desmond Sim from CBRE said that he believes with this image overhaul, the stigma that Jurong is merely just an industrial township will be removed. Jurong Lake Gardens which is over 70 hectares large will include a park by 2017. The existing Chinese and Japanese Gardens will be revitalised. Also, the new Science Centre which is located next to Chinese Garden MRT Station will be completed by 2020. Besides that, interest in the upcoming sale of residential sites at Jurong Lake is expected to be high. However, Sim believes that current cooling measures may still push bid prices down. (Source: Business Times) Majority of Farrer Square project will be occupied At least 85 per cent of Farrer Squares medical tower has been committed in two bulk deals. Located at Little India and developed by RB Capital, the tower has 27,500 square feet and will consist of eight levels of medical suites, which comprises of 42 strata units. According to Business Times, Level 5 to 7 was bought over by HSC SINGAPORE PROPERTY WEEKLY Issue 170 Page | 12 Back to Contents Healthcare for over $44 million, or $3,800 per square foot of the total strata area of 11,674 square feet. Mary Sai from Knight Frank said that this price reflects current market value. Sai said that bulk transactions are preferred for such medical suites because selling to individual investors may results in pockets of vacancies if those investors are unable to lease out all units. Furthermore, developers will have less control over the mix of tenants if units were sold to individual investors. JLL, the marketing consultant for Farrer Square said that it will launch the remaining six strata medical suites on the top floors soon. (Source: Business Times) Zouks tenancy extended Zouk will continue to occupy its current premise at Jiak Kim Street, after it was granted a final tenancy extension. The duration of the extension depends on Zouks ability to secure alternative premises. To provide the popular nightspot sufficient time to relocate, it will have till December 31, 2017 to move out if it is able to find a location by June 30, 2015. However, if Zouk does not secure a new location by then, its lease will expire on Dec 31, 2015. According to a joint statement by Singapore Land Authority and Urban Redevelopment Authority, this decision was made to allow Zouk ample time to relocate and to provide residents certainty on the plans for the area. Zouk said it will continue to look for central locations for its relocation. Previously, Zouk had turned down an offer to relocate to Old Kallang Airport as it was considered to be an inaccessible location. (Source: Business Times) SINGAPORE PROPERTY WEEKLY Issue 170 Page | 13 Back to Contents En bloc market at a standstill Despite the current standstill in the en block market, Colliers International believes that property owners and developers should still participate in collective sales. According to Chia Siew Chuin from Colliers, property owners should be more realistic about en bloc sales as the market for it has been shrinking. Chia said that developers were more willing to offer high prices for en bloc sales in the past because of higher development potential and because of the change in land use zoning for many sites. However, current cooling measures have dampened developers interest and hence year-to-date, there have been no successful en bloc deals. Nonetheless, according to Business Times, Tanglin Shopping Centre is in the midst of getting a requisite consent level to launch a collective sale. Chia also added that owners can still consider engaging in an en bloc sale to dispose of older assets, as they are more likely to reap a decent profit margin through such en bloc sales. (Souce: Business Times) SINGAPORE PROPERTY WEEKLY Issue 170 Page | 14 Back to Contents Non-Landed Residential Resale Property Transactions for the Week of Aug 6 Aug 12 Postal District Project Name Area (sqft) Transacted Price ($) Price ($ psf) Tenure 1 MARINA BAY RESIDENCES 732 1,450,000 1,981 99 1 MARINA BAY RESIDENCES 1,130 2,200,000 1,947 99 3 LANDMARK TOWER 1,033 980,000 948 99 4 THE COAST AT SENTOSA COVE 2,024 3,845,600 1,900 99 4 THE OCEANFRONT @ SENTOSA COVE 1,711 2,700,000 1,578 99 4 REFLECTIONS AT KEPPEL BAY 840 1,230,000 1,465 99 5 THE PARC CONDOMINIUM 1,421 1,880,000 1,323 FH 5 THE PARC CONDOMINIUM 980 1,270,000 1,297 FH 5 BOTANNIA 2,637 2,400,000 910 956 5 CLEMENTIWOODS CONDOMINIUM 1,658 1,500,000 905 99 8 OXFORD SUITES 893 1,200,000 1,343 FH 9 ESPADA 689 1,606,000 2,331 FH 9 MARTIN PLACE RESIDENCES 1,044 2,300,000 2,203 FH 9 VIDA 861 1,700,000 1,974 FH 9 RIVERSHIRE 1,227 2,030,000 1,654 FH 10 ONE TREE HILL RESIDENCE 1,001 1,900,000 1,898 FH 10 VERDURE 1,421 2,680,000 1,886 FH 10 DUCHESS CREST 1,711 2,200,000 1,285 99 11 PARK INFINIA AT WEE NAM 850 1,700,000 1,999 FH 11 NEWTON ONE 1,808 3,250,000 1,797 FH 12 AIRSTREAM 409 615,000 1,504 FH 12 DE PARADISO 904 1,150,000 1,272 FH Postal District Project Name Area (sqft) Transacted Price ($) Price ($ psf) Tenure 12 THE RICHMOND 1,238 1,355,000 1,095 FH 12 SUNVILLE 1,163 1,215,000 1,045 FH 12 THE MORNINGTON 1,216 1,250,000 1,028 FH 14 CENTRAL GROVE 1,023 1,050,000 1,027 99 15 THE SEA VIEW 1,410 2,200,000 1,560 FH 15 WATER PLACE 1,453 1,800,000 1,239 99 15 THE MAKENA 1,636 1,910,000 1,167 FH 15 HOMEY GARDENS 1,033 1,120,000 1,084 FH 15 CRESCENDO PARK 1,345 1,450,000 1,078 FH 15 EAST VIEW 18 1,173 1,080,000 920 FH 15 EAST BAY GARDENS 1,711 1,400,000 818 99 16 EAST MEADOWS 1,195 1,180,000 988 99 16 EASTWOOD GREEN 1,302 1,030,000 791 99 18 NV RESIDENCES 904 970,000 1,073 99 18 CHANGI RISE CONDOMINIUM 1,130 965,000 854 99 18 MELVILLE PARK 958 780,000 814 99 18 MELVILLE PARK 1,044 758,000 726 99 19 KOVAN RESIDENCES 947 1,260,000 1,330 99 19 GRAND REGALIA 1,206 1,000,000 829 FH 19 SIMON PLAZA 1,679 1,371,000 816 FH 19 RIO VISTA 1,604 1,250,000 779 99 20 GRANDEUR 8 1,453 1,394,880 960 99 SINGAPORE PROPERTY WEEKLY Issue 170 Page | 15 Back to Contents 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. Postal District Project Name Area (sqft) Transacted Price ($) Price ($ psf) Tenure 23 PARK NATURA 1,378 1,510,000 1,096 FH 23 MI CASA 1,324 1,280,000 967 99 23 HAZEL PARK CONDOMINIUM 1,378 1,328,000 964 999 23 HILLVIEW PARK 904 830,000 918 FH 23 MAYSPRINGS 915 748,000 818 99 26 MEADOWS @ PEIRCE 2,583 2,460,000 952 FH 27 YISHUN SAPPHIRE 1,539 1,070,000 695 99 28 SELETAR SPRINGS CONDOMINIUM 1,335 950,000 712 99