Sleepless in Singapore

The property market in Singapore, described by a developer “to be in a (state) of slumber” and by a Singaporean analyst that it “could get worse”, may pose a challenge to some Malaysian developers who have gone over there in search of greener pastures.

Malaysian developers with projects there include the IOI Properties Group Bhd, YTL group, Selangor Dredging Properties Bhd (SDB), Sunway group and S P Setia Bhd.

Those who have more than half of their units sold are relieved they have escaped the sliding property prices - particularly in the high-end segment in certain locations - but those who have a lot of unsold units may be impacted, says property consultants.

Selangor Dredging Properties Bhd has five projects there and is “in the midst of identifying land for future projects,” says SDB’s communications and corporate affairs head Lina Othman.

The company spaced out its projects before entering into another. Its five projects have a total gross development value of about S$700mil.

Lina says its first two projects - Jia and Gilstead Two - are fully sold and the last three are more than 90% sold. These are Okio (98%), Hijauan on Cavanagh (95%) and The Village (99%).

S P Setia Bhd has 18 Woodsville, in Upper Seranggon, of which only five units remain unsold, and Eco Sanctuary. The final of its three blocks are 80% sold, a staff said.

Another pioneer there is YTL group, says SLP International Property Consultants Pte Ltd executive director David Neubronner. YTL group offered exclusive and limited units landed villas in its two earlier projects, Sandy Island and Kasara, - 18 and 13 units respectively on Sentosa Cove - which were fully sold some years ago.

Its current project in Orchard Boulevard which it bought at the end of 2007 for S$435mil, or S$2,498 psf on per plot ratio, is a casualty of the current weak market conditions.

It bought the former Westwood apartments en bloc at a new record price, a property consultant said. Per plot ratio means the value of the land based on the unit size of permissible gross floor area.

The plan was to develop and launch a new ultra luxury condominium, 3 Orchard by the Park in the first quarter of 2015, comprising 78 units of residences. It was speculated that the price would be on the side of S$4,000 psf but a source related to the company said the 2015 launching has been deferred indefinitely.

The IOI group which went there early still has a number of projects that have yet to be marketed fully. It may face some challenges there. Relisted in January this year, IOI Properties Group Bhd has several projects there on a joint venture basis.

Although it is not a late entrant there, it had a different strategy from other Malaysian developers because it wanted to use Singapore as a platform for its overseas ventures. Also, unlike other Malaysian developers who concentrated on one project at a time, it has several on going simultaneously. Checks with several sources provide some indication of IOI Properties’ exposure. IOI Corp Bhd group public relations department did not answer questions emailed to them.

Says a source: “On Jan 16 2012, Singapore’s Housing Development Board (HDB) released a 262,828 sq ft plot in Jalan Lempeng. IOI Corp secured the site with the highest bid of S$408mil, winning against eight bids, with a second placed bid of S$360.97mil and third placed bid of S$333.78mil.

“That worked out to a cost of S$554.4 per sq ft per plot ratio (psf ppr). Analysts had estimated a break-even cost of S$854 to S$974 psf ppr.”

While there was good response in the earlier marketing of that project - The Trilinq - interest wanned. Developer Clementi Development Pte Ltd, an entity held under IOI Properties, marketed the 755-unit project between S$1,190 and S$1,850 psf. The project is under construction and is expected to be completed in 2017. It is less than 30% sold.

The group also partnered with Ho Bee Investments Limited on a 50:50 basis to develop Seascape, comprising 151 exclusive waterfront homes with seaviews to the Southern Islands and the South China Sea. Ho Bee, established in 1987, has built a portfolio of residential, commercial, industrial and mixed-use properties. It is also a key player in the Singapore property industry and has been listed on the Stock Exchange of Singapore since 1999.

That site was purchased in March 2007 for S$459mil, or at about S$1,360 psf on per plot ratio.

Completed in 2010, it is estimated about a third of the 151 units have been sold since its launch in 2011 at an average price of S$2,600 psf, a source says.

In January 2008, IOI group also purchased a site - known as The Pinnacle Collection in Sentosa Cove, where the current Cape Royale is located - for S$1.097 bil, or S$1,822 psf per plot ratio. IOI has a 65% stake and Ho Bee, 35%.

Sentosa is currently selling at between S$2,000 and S$2,200 psf, which may not be attractive for a developer like IOI Property.

A property consultant estimates that IOI Properties may be looking to sell at about S$3,000 per sq ft. Breakeven will be around S$2,500 psf. So IOI should target to sell near S$3,000 psf. However, Sentosa, at the moment, cannot command this type of price level.

“Recent transactions for similar luxury condominiums in Sentosa are trading at S$2,000 to S$2,200 psf. Cape Royale was completed last year and is currently in the market for rent only,” says the consultant.

IOI Properties also had a joint venture mixed development with City Developments Ltd on Beach Road known as South Beach, a RM4bil mixed development designed by renowned architect Sir Norman Foster which includes commercial, hotel and residential components.

Its venture with Kim Seng Heng Realty Pte Ltd to develop Cityscape @ Farrer Park, a freehold 30-storey development comprising 250 units in District 8, with close proximity to Orchard Road and the Central Business District, had a happier ending.

In a statement to Bursa in 2008 when it purchased the Cape Royale site, IOI Properties Bhd (the entity that was delisted a year later), had in mind to diversify its existing land-bank, which was then all located in Malaysia (save for the joint venture with Ho Bee for Seaview) in 2007.

In a 2008 filing, IOI Properties said they had chosen Singapore as a platform for the Group’s regional diversification as Singapore properties are presently one of the most sought after in the region.

“In particular, IOI Properties has chosen to focus on development lands within the renowned Sentosa Cove area as IOI Properties’ association with luxury landmark developments ... will enhance the company’s brand name and reputation as a luxury quality homes developer not only in Malaysia and Singapore, but also in the larger South-East Asia region, which in turn can be used to the Group’s advantage in its regional diversification plans,” the filing said.

That acqusition would also enable the property group to diversify its property development earnings - which were mainly derived from the group’s township developments in Puchong and Johor - to include a myriad of smaller-sized niche developments in choice locations, the filing said.

The group rationalised that these smaller-sized developments would also typically have a faster development timeframe or ‘turn-around cycle’.

IOI group’s property division, with assets totalling about RM15bil, was relisted on Bursa in January 2014. According to its prospectus, IOI Properties as at June 30, 2013, had foreign projects estimated to generate a total gross development value of S$2.9bil in Singapore and Renmimbi 6.7bil in China.

IOI Properties acknowleged its overseas ventures were subject “to foreign exchange fluctuations ... and market conditions.”

“Although we have continued and are able to hold unsold properties post-completion, there is no assurance that these unsold properties may not have a material impact on our financial performance,” it stated in the prospectus.

Earlier this week, IOI Properties proposed to undertake a rights issue of new shares to raise about RM1.03bil for capital expenditure, investment opportunities and working capital purposes.

Malaysian developers’ foray across the causeway has not been trouble-free. The presence of mainland Chinese developers in Singapore and their willingness to pay for high land prices miffed some of them around 2011 and 2012.

A report by Maybank Kim Eng forecasts “up to a 15% decline in home prices from mid-2014 to end of 2015” while property consultants say prices in some locations have already dropped by as much as 30% from their launching price.

A Bloomberg report on Nov 7 says home prices on Sentosa had fallen by about 40% since 2012, compared with a 28% drop in 2008, the year when Lehman Brothers fell, precipitating the global financial crisis.

Analyst Ng Wee Siang from Maybank Kim Eng says in an Oct 27 report that the “property market is not a pretty sight” and the situation “could get worse”.

His prognosis is based on three factors - vacancy rates for non-landed private homes, excluding executive condominiums, have risen to 8.3%, their highest in eight years.

“Secondly, current seemingly high rental yield spreads could reverse when interest rates start to rise in 2015.”

A massive supply of new homes - 63,000, of which 6,038 are unsold - could tip the balance in 2015 as household formation tapers off. “To absorb the supply, property prices and rentals will have to weaken, a consensus view,” he says.

Foreign investors have been snapping up Singapore properties, accounting for 13.8% of all purchases from 2005 to 2011 with mainland Chinese and Malaysian buyers being the two largest groups, behind 28% and 26% of last year’s purchases respectively, he says in his report.

CJ moots e-bidding for auctions

The Chief Justice wants to protect genuine buyers from cartels in court auctions of immovable property and may implement e-bidding to do so.

Tun Arifin Zakaria has asked the Chief Registrar’s Office to conduct a study on e-bidding.

Federal Court Chief Registrar Roslan Abu Bakar told The Star that in the present scenario, it was common for a syndicate member to register for the auction of a “hot property” and pay off genuine buyers to withdraw.

This way, there would be fewer bidders to contend with at the auction and if all of them withdrew, the syndicate would get the property at a low price, he said.

“Say the reserve price is RM150,000 and there are bids of RM155,000 and RM157,000 and the property is bought for RM160,000 by a syndicate member,” he said.

“Since it’s a hot property, the syndicate member can sell it for between RM200,000 and RM250,000 and keep the profit for himself or share it with other syndicate members.”

Roslan said if a syndicate member knew a bidder was desperate to buy an auction property, for example the one next door, he would go to the individual and say, “give me something and I will get the others to withdraw from the auction.”

“He will also trick the buyer into thinking he has connections which will enable him to get the property at the auction.

“The money the syndicate member gets from the desperate buyer is then used to pay the registered buyers at the auction to withdraw,” he said.

If e-bidding is implemented, there will be greater protection for genuine buyers and less opportunity for syndicates to profit from judicial auctions of titled property.

According to Mohd Hirman Ab Raub, senior assistant registrar (administration and implementation) at the Kuala Lumpur courts, who was roped in for the auction of immovable property, these could be land, residential and commercial real estate valued at between RM7,000 (for dilapidated residential property) and RM10mil.

In addition to protecting buyers, Arifin said he wanted more people to bid for immovable property.

“As long as there is Internet access, buyers can bid from anywhere. It is not necessary to be in court,” he said.

He said the idea for e-bidding was also part of introducing innovations to the delivery of justice.

Roslan said a committee had been set up to look into implementing e-bidding.

“Sometimes when a piece of property is to be auctioned off in Kuala Lumpur, an unscrupulous auctioneer would place the advertisement for the auction in the regional edition of a newspaper so that fewer buyers turn up,” he said.

The rules stipulate that the auctioneer only needs to advertise the auction.

“If e-bidding is implemented, it can prevent cartels from taking advantage of such loopholes and protect the interest of genuine buyers,” he said.

The study would cover the legal implications of implementing e-bidding and other factors, he added.

The dark side of property auctions

Mr A, who has a “hot property” worth RM1mil, can suffer twice over when he cannot service his bank loan anymore.

While the bank has taken steps to auction his property, Mr A also has to worry about syndicates keeping the sale price down, causing him to pay the bank back more.

A property valuer may recommend a reserve price of RM700,000 but the owner is often deprived of getting the best value (anything above the forced sale value) because cartels pay off genuine buyers in a bid to keep the sale price low.

This scenario is played out at many auctions, said real estate agents.

They said syndicates monopolise the auction of titled properties.

“They form a cartel. They pay off genuine bidders depending on the value of the property,” said an agent who declined to be named.

Another agent claimed that the syndicates were willing to pay between RM1,000 and RM15,000 to genuine buyers to get the property at the reserve price, which is almost always below the market value.

They said registered bidders do take “under the table money” to withdraw from the auction and it is a “common practice”.

They said that those manipulating the auction process could be the lawyers, auctioneers, bank staff and court staff, adding: “The lawyer can also be in cahoots with the auctioneer and the bank.”

The National Consumers Complaints Centre (NCCC) received 128 complaints from property owners with regard to court auctions in 2012 and 149 last year.

NCCC legal and dispute resolution manager Santhosh Kannan said they claimed they did not receive any notice from the banks when they failed to service their loans.

“When we queried the bank, they (bank officials) claimed they had done their part (in sending the auction notice to the property owners) and the problem could be with the post,” he said.

As a result, Santhosh said many did not turn up for the auction of their property and lost them at way below market prices.

This hurts them further because they will have to pay the bank more to cover their loan, he said.

“They should get some money after the sale of their property and not lose everything,” he said.

“Ironically, after the house is auctioned off, only then do the complainants receive the notice (on the sale of the property).”

Santhosh called for better guidelines in running auctions, saying it was difficult for complainants to take legal action when they are “cheated”.

“How can they hire a lawyer when they do not have enough money to do so? It is a losing battle for them,” he said, adding that such cases occurred mostly among the lower and middle income groups.

The agents and NCCC urged the judiciary to check for weaknesses before implementing e-bidding.

Technical trainer Raja (not his real name), who claimed to have been victimised during the auction of his shoplot in Bahau by the Seremban High Court in 2008, said there was room for abuse in e-bidding.

He asked how a bidder registering with 10 different identities would be double-checked and how the court would verify bidders’ payment of the 10% of the reserve price.

But he agreed that e-bidding had advantages, as it could help avoid ugly scenes at the court premises by dissatisfied bidders.

“It is also good because bidders will not need to travel to the court for the auction,” he said and asked the court to ensure only up-to-date valuation reports were used.

Judiciary doing its best to limit presence of cartels at auctions

The judiciary is doing its best to limit the presence of cartels at court auctions.

“We have had many complaints from the public about syndicates (tricking and intimidating them),” said Federal Court corporate communications and international relations division head Mohd Aizuddin Zolkeply.

“We want to help the genuine buyers because the syndicates are interfering with the system.

“Steps must be taken to improve the auction process because this involves millions of ringgit,” he said.

Kuala Lumpur Court senior assistant registrar (administration and implementation) Mohd Hirman Ab Raub said the court followed the practice of Thailand’s Legal Execution Department and had a room for bidders to wait in before an auction.

“After a bidder has registered, he or she waits in the room before the auction so they will not be disturbed by any syndicate members,” he said.

Two real estate agents interviewed, however, said that too was open to manipulation.

“Cartels get leaked information such as the contact numbers of registered auction bidders and can still pay them to withdraw,” they said.

Mohd Hirman said other steps taken to reduce interference by syndicates included limiting the participation of real estate agents as bidders and the presence of family members.

The auction room can only hold 30 people comfortably.

Mohd Hirman said there were 1,240 court auctions in 2012, 1,136 in 2013 and 527 from January to August this year.

“Most of them involved houses,” he said, adding that the bank or plaintiff who applied to auction the property must pay 5% for the first RM10,000 and 2.5% on the remaining auction price as commission to the court.

“This commission will go to the Government as revenue,” he said.

Johor home prices dipped 1.6% in Q2

Residential prices in Johor fell in Q2 2014, marking its first decline in over two years, according to a report from Maybank IB Research, which cited the state’s House Price Index (HPI).

Although the overall index was 4.6 percent higher on an annual basis, it dipped by 1.6 percent compared to the previous quarter. Specifically, prices of high-rise condos fell by 13.5 percent from Q1 2014, after the state was inundated by such properties in recent years.

Maybank IB Research Analyst Wong Wei Sum explained that the price drop is attributed to property curbs imposed by the Malaysian government starting from January 2014.

One example is the RM1 million minimum price for foreign property buyers that was introduced in May from RM500,000 previously.

In addition, the demand for newly launched properties softened in Q3 2014.

For instance, he noted that only 46 percent of the 1,488 apartments under the first phase of Princess Cove by Guangzhou R&F were reserved as of 30 September after it launched in July, while the take-up rate at Almas condominium by UEM Sunrise was merely 25 to 30 percent.

Given the huge amount of upcoming supply by end-2015, residential prices are expected to remain weak or flat in the medium term, especially for mixed-use and high-rise developments, said Wong.

In terms of supply, 18,718 units of high-rise apartments are expected to enter the market by end-2015, with an additional 40,374 units by end-2017, revealed a study by Landserve.

Furthermore, Iskandar Waterfront Holdings reportedly plans to sell some of its land in Permas Jaya or Danga Bay to several foreign developers. If this is true, the supply of residential properties in Iskandar could increase further, Wong added.

Big response to I-Berhad’s Liberty Tower

I-BERHAD, master developer of the 29.2ha i-City, here, received overwhelming response to its Liberty Tower@i-City project, with 80 per cent of the units taken up during a special sales preview over the weekend.

Its director Monica Ong said the project’s location, affordability and style attracted a crowd of more than 1,000 to the i-Gallery@i-City, where the preview was held.

“We received overwhelming response to the Liberty Tower project. The queue started from 4am.

“Just from the attendance and response, I think it would be sold out,” she told Business Times on the sidelines of the sales preview, here, on Saturday.

Seventy per cent of the New York-themed project had been booked at a recent property fair.
Designed to appeal to young urban individuals, Ong said each unit, with built-up areas of 466 sq ft to 769 sq ft, will be fully furnished.

Priced from RM360,000 each, the Liberty Tower@i-City was poised to revolutionise living and shopping in Shah Alam, she added.

Ong said the encouraging response to the project was due to its proximity to the 1.5 million sq ft CentralPlaza@i-City retail mall, a joint development with Thailand’s Central Pattana Pcl.

“Liberty Tower@i-City residents will get direct access, via a dedicated pedestrian walk, to the CentralPlaza@i-City’s retail, dining and entertainment outlets,” she said.

Ong said the proposed light rail transit (LRT) Line 3 through i-City and the construction of a station nearby had made the property more attractive.

This is in addition to the project’s connectivity to the Federal Highway via a direct flyover into i-City, North Klang Expressway, Guthrie Corridor Expressway and the proposed West Coast Highway.

Liberty Tower@i-City, which is slated for completion in 2018, is an integrated, self-sustaining ultrapolis comprising real estate, leisure, business and education facilities.

“We are proud that Liberty Tower@i-City has directly enabled us to complement the youth housing scheme mooted by the government in the 2015 Budget.

“A major portion of our purchasers are aged 40 and below,” she added.

The state of property sector

TWO common questions on the local property market... Will house prices ever come down? Is it better to buy now before GST?

While speakers at the 24th National Real Estate Convention, comprising an economist and a few property consultants, try to provide some form of answers, new questions have cropped up, due to interest in the residential sub-segment of the property sector.

Housing transactions comprised a big chunk of total property transactions in terms of both volume and value between 2008 and 2013, with prices taking an upward path at the end of 2009.

During this five-year period, residential sub-segment formed an average of 48% and 63% of total value and volume of the total property market. This has led to house mortgages taking up a major part of the total lending. Hence, the increase in household debt.

Yeah Kim Leng, the dean of the School of Business at Malaysia University of Science and Technology says the property market is “shaped by so many forces” and must be view against the national and internationl global economy.

While Malaysia has been enjoying five years of growth of between 5% and 6%, the country has to focus on the long-term prospect against the ever-changing national and international backdrop.

He says Malaysia’s issues with regards the property sector are not unique – other countries are also dealing with their respective challenges in the property sector.

“The current global economic conditions are important to the Malaysian economy, which, like other countries, has been impacted by ‘cheap money’ and low cost of financing,” he says.

He says just as growth is uneven in different countries, so are the property markets in the developed and developing countries. Prices are rising in UK and Australia, stable in Germany, easing off in the US and falling at a slower pace in Spain and Greece. In China, prices are falling while Singapore property prices are in a state of flux, rising and falling.

The question today is: How long does it take for property markets (in the world) to recover)?

On the home front, Yeah says, the local property prices are not sustainable. Prices are rising faster than income.

“We are over-leveraged and any increase in debt should be in relation with our income level,” he says. Financial institutions’ exposure to the property and construction industry in 2013 were massive.

Loans-to-deposit ratio hovered at 80% at the end of 2013, with almost 45% going into propety sector, says Yeah. Banks are flush with cash, but our household debt is no longer sustainable (for us to borrow anymore). Our property loans suggest that we have reached a stage where we need to rebalance credit growth, says Yeah.

 “Property prices are also no longer sustainable. The questions to ask are: How fast are property prices cooling? How sustainable are price increases?

“The challenges for next year are how will we adjust to the new price environment, with the imposition of GST and the continuing subsidy rationalisation?”

The conclusion is that there may be some form of soft landing in the property sector.

Despite this rather sombre introduction, Real Estate and Housing Developers’ Association Malaysia (Rehda) president Datuk Seri Fateh Iskandar Mohamed Mansor is adamant that prices will not come down because land prices and cost of construction are not coming down.

Fateh Iskandar says there are five components that make up the cost and price of a house, namely:

> land cost/price;

> construction cost;

> compliances;

> capital contribution charges; and

> financing and profit margin.

“All five are subject to cost pressures and are on an upward trajectory,” Fateh Iskandar, who heads the Glomac group says.

The daily wages of construction workers have risen by 81%-200% between 2007 and 2013. Building materials like cement, steel bars and bricks have gone up 15%-50% between 2009 and 2013, he says.

Corporatised utility companies like Tenaga Nasional Bhd (TNB), the water concessionaires, Indah Water, Telekom and the Construction Industry Development Board are frontloadiing capital expenditure to consumers by imposing it on private developers, who then pass the costs to house buyers, says Fateh Iskandar.

Compliance costs relate to local authorities’ planning requirements which involves issues like density vs plot ratio, development charges and other planning specifications. These are also passed on to buyers.

“Construction cost makes up 46%. If a developer’s background is agriculture, his land cost may be as little as 10% but for others, this may be 20%. Lenders are imposing stricter requirements when it comes to end-financing and bridging finance issues,” he says.

Since last year, and increasingly this year, the inability to get a mortgage loan has resulted in many walking away from a purchase.

“People want to buy but they are unable to get a loan,” says Fateh Iskandar.

About 80% of households earn less than RM6,900 monthly, and of this, 40% earn less than RM2,000, which explains why many are forced to walk way from a purchase, he says.

Assuming a RM500,000 loan for 30 years, with a 10% downpayment and 90% financing (base lending rate of 6.85% less 2.40%), the monthly repayment is about RM2,519, says Fateh Iskandar.

He says the loan rejection rate is 35%, 30% and 26% in Selangor, Kuala Lumpur and Penang the last two years compared to 20%, 20% and 13% respectively.

Foo Gee Jen, managing director of CH Williams Talhar and Wong Sdn Bhd offers no silver lining. He sums up the state of the housing situation in the Klang Valley with several observations.

Among the most obvious is that speculative activities of the last several years have resulted in high sales but this is accompanied with rising vacancies (see table).

Foo says investors and speculators are buying, or have bought, residential properties that genuine homemakers do not want (because they are either poorly located or are too small.) Foo draws attention to the small office, home office market and its variances.

Other concerns include the high house prices in non-prime locations. New launches in Semenyih and Rawang now cost almost 65% to 75% of those in Petaling Jaya and Bandar Utama, he says.

In Iskandar Malaysia, Johor, Chinese developers have flooded the high-rise market. Development trend has switched from high-rise to landed.

The key trend in Klang Valley’s housing market today has more developments near infrastructure projects, rail and highways.

Does the above observations help to enhance value?