1) Many houses complete with private yacht berths and swimming pools sit empty in Sentosa Cove.  Nearby, the apartment blocks that overlook the marina show few signs of life.

2) The last profitable transaction was made last year in Nov when a 9,225 sq ft landed property at Treasure Island was flipped for a $7.3 million profit after it was sold at $24.1 million. It had been purchased just 3 years ago.

3) Since then, as far as we could check, all transactions in this “Monte Carlo” island have been transacted at a loss.  The biggest loss chalked up in 2014 was $3.2 million for 14, Treasure Island.

4) Why not just hold on to the properties, instead of off-loading at a loss, you may ask.  The truth is that in Sentosa Cove, the rentals you can get is usually not enough to cover your mortgage. If every month you have to top up with cash, it’s not such a pretty situation. Some Sentosa Cove owners have reached their limits.  That is why we are seeing more Sentosa Cove properties put up on the auction block by lenders. In July, a four-bedroom apartment in Sentosa’s Turquoise condo sold at auction for S$3.88 million in a mortgagee sale, or about S$1,400 psf. In 2007, a flat in the same block could fetch up to S$2,800 psf.

5) To further support the observation that high net worth individuals are feeling the heat, United Overseas Bank, in July, reported a doubling in its bad debt charges, saying a group of investors was struggling to service high-end property loans.

6) The Financial Investor Scheme (FIS) that allowed foreigners with a global net worth of S$20 million to become permanent residents if they parked S$5 to $10 million in Singapore, S$2 million of which could be put into property, has been scrapped. This scheme ran for 8 years, from 2004 and was a catalyst in foreign high net worth individuals snapping up properties here and take up permanent residence in Singapore.

7) The FIS has not been revived and we conclude that the profitable flipping party at Sentosa Cove is over for now.  It’s anyone’s guess when the music will re-start but it’s safe to assume the DJ is going to be away for an extended break.

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In July, condominium developer, Macly Assets lost a bid for damages of about $760,000 from a couple whom it claimed had built two unauthorised lofts in their 60 sq m penthouse apartment at Thomson V Two, a smallish mixed development where mickey mouse apartment were sold with a high ceiling.

The developer had blamed the couple for its delay in obtaining the certificate of statutory completion from the Building and Construction Authority (BCA). The $760,000 damages was for lost opportunity cost, as the delay meant that a sum of $5 million, paid by the flat buyers and held in a stakeholding account, was tied up longer than it should have been.

However, the High Court, found that Macly Assets had given written permission for the timber lofts to be built.  The couple however had to spend money to modify their loft to adhere to building regulations.

Do you know exactly what you can build as lofts in a high floor to ceiling height unit?

Loft concepts are how some developers and agents try to sell you projects, swaying you with the argument that you can build extra living space at a minimal cost and lower your overall PSF. Yet sometimes, details are not given in earnest.

Lofts designed as furniture decks are generally regarded as “fixtures” if they are light-weight and do not form part of the structural elements of a building. They should be small and about the size of a normal bed (less than 5m2). When designed this way, they will not require planning permission from URA. Building Plan and Structural Plan approvals by the Commissioner of Building Control are also not required. However, the developer/owner is to check to ensure that the addition and usage of the loft or intermediate floor deck would not exceed the designed load capacity of the unit.

Bigger lofts (more than 5m2) that form part of the structural element of the building, such as mezzanine floors, are considered part of the GFA of the development and will require planning permission from the URA, including Building Plan and Structural Plan approvals by the Commissioner of Building Control. Some of you might have seen huge loft in showrooms used as study areas

If the site has already fully maximized its allowable gross plot ratio (GPR) as stipulated in the masterplan, the additional loft structure will NOT be allowed by the authorities.

So be wary when you see a showroom with a loft concept where the loft is a large space that can accommodate more than just a normal bed. It is not a given that that approvals will be granted by the authorities when you want to build one.

Developers and agents, please be fair to buyers. It may just be a hit and run transaction for you, but buyers will have to regretfully live with a misled purchase.

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On 17 July 2014, Spring Grove condominium, located in Grange Road was put up for enbloc sale at $1.39bn, translating to $2,512 psf per plot ratio.

This is despite a unit in the development fetching only a maximum of $1,800 psf in Oct 2012.

You cannot build anything shabby on that plot.  It has got to be a high end condo to justify the high price tag that a typical buyer has to pay.

Now that would mean construction cost of about $600 psf and a breakeven price for the developer of about $3,100 psf. Perhaps, instead of demolishing the existing condominium, the developer may try to cut cost by simply refurbishing it so it looks brand new.

Appetite for high end-condos in the Core Central Region (“CCR”) where Spring Grove condominium is located has weakened, as shown in the latest quarterly drop of 0.5% in price index for non-landed properties in the CCR.

Why then did the marketing agent for the en-bloc not advise the owners to cool their expectations and be more realistic about the asking price?  One can only guess that if the marketing agent had done so, it would not have been engaged to market the enbloc sale.

The billion dollar question then is, will the enbloc transact successfully at the asking price.

A quick scan of 14 nearby comparable condos (comprising complete and uncompleted developments) registered only a maximum of $2,292 psf (transacted selling price) in the most recent 6 months, a 26% discount to our estimated breakeven price of $3,100 psf.  And we were using the highest transacted price.  If we had used the median transacted price, it would have been a whopping 34% discount to the estimated breakeven price.

We don’t think the deal will go through at $1.39 bn. We deem it overly ambitious in today’s climate.  Who wanna wager against us?

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1) It’s tough being a brick and mortar retailer these days.  Just ask FJ Benjamin, struggling with aggressive industry-wide discounting, rising rentals and manpower shortages.  Most recently, FJ Benjamin registered  a quarterly loss of $5m on the back of a $90m sales turnover.  F J Benjamin retails and distributes exclusively brands such as Banana Republic, GAP, GUESS?, RAOUL, BELL & ROSS and GIRARD-PERREGAUX among many other upmarket brands.  You must have seen many of their stores in shopping malls and here lies a big headache for FJ Benjamin (considered a small retail tenant).  Rising rentals.

2) REITs retail landlords charge their tenants a base rent and a percentage of gross turnover. Small tenants are typically charged a higher base rent than the larger tenants.  A small tenant may be paying up to $40 per square foot per month (psf pm) on Orchard Road compared to up to $20 psf pm paid by a large tenant.  Like in most things, size matters.

3) Smaller tenants are also typically locked into short lease agreements with landlords – meaning that their rents are up for renegotiation (usually upwards) every 1 to 3 years, while anchor tenants typically have their leases renewed every 10-20 years.

4) Why are we highlighting such practice by REITs landlords? Before you get carried away and decide that you also want to be a retail space landlord and squeeze the life out of your tenant, think again.  These REITs landlords are able to do so because they control entire retail complexes which are located in areas of heavy footfall, traffic and supporting amenities.

5) If you are a standalone (strata titled) individual retail unit landlord, you are not a REIT and will not have such a draconian hold over your tenant. Remember that. That landlord next to you can just lower the rent to swing your potential tenant over.

6) With more than 600 new strata shops in mixed development projects coming up in a couple of years, we think you should be cautious.  Already at our outreach, we have highlighted completed retail space projects that are ghost towns where landlords are struggling to find tenants and pay their mortgages. Some of these units are of mickey mouse sizes that no tenant in his right mind will pay good money for. For many of such strata retail units, their location and customer catchment area is a problem. It’s no surprise then that some of these units were recently sold off at a loss. There is only so much bleeding some ill-advised investors can stomach.

7) Be careful when considering to buy strata-titled retail spaces.  If in doubt, you can contact us at Empower Advisory for a second opinion.

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One might think that the well-off are immune to poor investment decisions.  Really?  Interesting enough, about 2 out of every 5 Sentosa condominium units resold within the past year had been transacted at a loss.

HSR Research revealed that resale prices in Sentosa had fallen from about $2,400 psf over the Jan-May 2013 period to about $1,800 psf in the first five months of this year.

Two units in particular made pretty hefty losses.  A 2,982 sq ft unit at The Oceanfront sold for $5.65 million ($1,895 psf) on 26 Nov last year, after it was purchased in Apr 2008 for $7.2 million ($2,415 psf) – a $1.55 million loss. Ouch.

Another one at The Coast sold for $4.8 million ($1,702 psf) in 6 Dec 2013, after it was purchased at $6 million ($2,128 psf), registering a $1.2 million loss over 2 years.

More recently, a unit at The Berth was sold at a loss of $315,000 on 10 Apr 2014.  Nobody likes to sell his property at a loss.  The owner must have been driven to a tight corner before having to resort to selling in a weak market.

More Sentosa properties are also being put on the mortgagee auction block.  Recently, a 2,777-sq-ft unit at Turquoise condo, put up as a mortgagee sale by a lender at a Colliers’ auction received no interest despite shaving $1 million off its previous opening price of $5 million.

It’s important to get your timing, financing and strategies right in property investment.  Losing money is very real.

When Douglas gets his RES license in a couple of weeks, he will be able to represent folks in property transactions.  This was not the intention when he founded Empower Advisory.  But witnessing people get hurt and misled into less than ideal property investments and decisions made him decide that it’s the right thing to do, so less folks will make bad property decisions.

Very soon, as a seller or buyer of property, you can engage Douglas to represent you in property transactions and provide you with the advice you deserve.

Stay tuned!

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Prices of property projects in general are on their way down.  The question on everyone’s mind now, is how much more?

Wheelock Properties managed to offload another 95 units of The Panorama, a 99 yrs LH mid-tier condo in Ang Mo Kio after slashing prices by about 12%.  The project is not even half sold since its launch 6 months ago, so the developer is not exactly celebrating yet.

City Developments fared better, managing to move 63% of 944 units at Coco Palms in Pasir Ris since its launch on 17^th May 2014. Three-bedders start from $880,000 and four-bedders start from $1.21 million, at an average $980 psf, below the “magical” $1000 psf floor.  The lower quantum, made securing a loan easier.  No prize for guessing that all one bedroom apartments have been sold.

Developers are adjusting to the new reality and pricing their projects to sell.  We sense that the cooling measures will not be lifted for some time yet.  This is even though Monetary Authority of Singapore managing director Ravi Menon had recently said that property measures may not be permanent and will only be used from time to time,

Runaway property prices was a huge grouse in the 2011 election and nearing the next coming election in late 2015 or 2016, it is unlikely that the authorities would want 3 years of cooling measures come undone so soon.  The aim is to gradually bring property prices to a more sensible level the government has done a great job in this respect.

More affordable property will also be beneficial to businesses who have complained about the squeeze they face from unreasonable rental and property prices. This further reinforces, in our view, the authorities’ reluctance to remove cooling measures so soon.

So will you celebrate Christmas early? Or wait a while more?

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It’s time to take out your toughest mask and ask for a discount.  Not that developers are not expecting it.  They are already cutting prices to pry open your wallet.  Savvy readers who have been following our property postings already know.  So here’s a quick update.

Remember Sky Habitat, which has been mentioned in Empower Advisory’s bimonthly outreach and case studies?  This morning, you would have seen a full page ad pricing smaller units (1 bedroom + study) at $1,372 psf and 3 bedroom units from $1,267.  Just when early buyers of Sky Habitat thought it won’t get any worse when Capitaland launched adjacent Sky Vue at lower psf prices, the price cut is now at Sky Habitat itself. On paper, early buyers of Sky Habitat might already be staring at a loss.  There is no need to wait for official figures to be released by URA to confirm that property prices are coming down.  Sharp observers like Empower Advisory with its nose on the ground has sussed that out long before.

Why the price cut, you may ask.  Sky Habitat launched in Apr 2012 still has 64% of units unsold to date.  That is a compelling reason enough in light of the stagnant buying sentiment in the residential property market.

Patience with knowledge is a virtue and we hope like us, your patience is paying off.  Before this ad was placed today, transacted prices at Sky Habitat were between $1,428 psf (larger unit) to $1,749 psf (smaller unit).  Someone even paid $1,893 psf in May 2012 for a 635-sqft Sky Habit unit.  A case of exuberant optimism, excess cash or just not being very savvy?  Like in our posting title, there are definately tears being shed.

Happy Shopping

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In its recent foray into the heartlands, Wheelock Properties (“Wheelock”), a luxury property developer which has relatively little experience in building condos in the heartlands, shelled out $550m to outbid a field of 11 other competitors and won the rights in Jan 2013 to build The Panorama, pretty much a quality mid-range condo in Ang Mo Kio Ave 2.
 
CapitaLand, the 2^nd highest bidder at $14m less, must be heaving a huge sigh of relief.  It definitely would not want a repeat scenario of stuck inventory at Sky Habitat in heartland Bishan.
 
Why? Just a few days ago, Wheelock made an accounting provision of $110 million loss for The Panorama.  Not surprising, given that it had been able to move only 58 out of 698 units so far (less than 9%) as at end Jan 14.
 
Our Finance Minister’s recent stand in Budget 2014 that it is too early to start relaxing property cooling measures means that our government is far from relenting, despite strong appeals from developers to loosen things up a bit.  Many are reporting tighter margins and in some cases preparing for losses for some projects.
 
Just like property investors who have to be careful with timing entry in property investments, the same goes for deep pocket property developers.  No one is spared from this simple yet profound logic.
 
Will the bargains start rolling in the next few months?  Stay tuned!
 

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By now, you would have read about the latest cooling measures for Executive Condos (ECs).  What we’ve read in the news so far are topline comments from analysts that HDB flat upgraders are likely to be the hardest hit by the changes.  Is it that true? First the 2 main changes.

A)      Resale Levy for Second-Timer Applicants

The levy will range from S$15,000 to S$50,000 depending on the flat type of their first HDB property.

B)      Revision of Mortgage Loan Terms

The Monetary Authority of Singapore (MAS) will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions for EC units bought directly from property developers at 30% of a borrower’s gross monthly income.

Let’s go through some numbers and draw some implications

Going by the maximum cap of $12,000 household income for ECs, a 30% cap will mean $3600 used for loan servicing.  Just for illustration purpose, assuming an average 25 years loan, (more realistic) for a typical couple in their early to mid 30s, they can take a maximum loan of about $720,000 (MAS require banks to use 3.5% interest rate to compute mortgage servicing).  Since banks can only loan up to 80%, this means that the purchase price will be at max, $900,000.

As our example uses pretty much a scenario for a couple that is at the extreme upper end of the EC buyer profile, it is reasonable to say that the sticker price of $900,000 calculated is near the maximum price that new EC units (where the Option to Purchase is granted on or after 10 Dec 2013) will sell for.   If we stretch our parameters a bit, using a 30 years loan tenure, a sticker price of $1 million can be achieved.

But developers know their sums.  To avoid stuck inventory, we expect that going forward, developers will try not to launch any EC unit for $1 million and more unlike previous EC launches in 2013 where many of the larger EC units were priced more than $1 million.

Should developers sensibly bid more cautiously for the latest 2 EC sites at Choa Chu Kang Grove, launched for sale yesterday, you could be looking at ECs in 2014 launched at 690 to 750 psf instead of the 800+psf we have seen in 2013.

We’re quite sure the government is watching closely.  Very, very closely.  Would the government start to regulate the minimum size for different EC unit configuration to re-align ECs more closely to pubic housing? Already they have capped the maximum size of an EC unit to 160 sqm.  Watch this space!

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1) It happened again.  Just like how Sky Vue was priced lower than an earlier launched next door neighbor, Sky Habitat in Bishan, over at Redhill, a similar phenomenon took place.

2) Alex Residences reported that it had sold 150 units yesterday, out of 429-units at an average price of $1,650 psf.  Just about a year ago, next door condo, Echelon sold at a higher average of S1,767 psf with an exuberant price of $2,474 PSF paid for a 452 sq ft unit in Jun 2013.

3) And guess what?  The land cost for Alex Residences at $970 psf per plot ratio is actually about 29% more expensive than the $754 psf per plot ratio that CDL paid for the Echelon site. More costly land site, yet cheaper psf sale price.  You do the interpretation.

4) Anyway, back to the Echelon condo.  Jeez, surely the buyer of that 452 sq ft unit would be better off purchasing a unit in Duo Residences that was going for about $2,300 psf for its 1 bedder unit, with a lot more upside.

5) Prices are indeed on the slide down.  Those who have exercised some patience have been rewarded.   Watch out for more good deals in the horizon.

Our Best, Always!