Sustainable BTO Flat Supply? Really, HDB?

I wonder if anyone is celebrating or cursing after reading that HDB will scale back its Built-to-Order (BTO) flats in 2014.

I hate to spoil the party for those celebrating but the headline by HDB is misleading.

HDB is scaling back by only a mere 3% or 800 less BTO flats from 2013 (read point 4). But they are reducing the number of 3- to 5-room BTO flats by 18% or 4,000 units and increasing the number of studio and 2-room BTO flats. The supply of 2-room BTO flats will almost double from 2,600 in 2013 to 5,000 in 2014.

Source: HDB

What is the likely impact?

1) HDB resale flat prices have fallen especially the bigger flats. Cash-over-valuation (COV) has been declining with more resale HDB flats sold at or below valuation. This applies especially to buyers of Executive Condominium (EC) units as they are required to dispose off their HDB flat. If HDB does nothing to arrest the fall, it can be a potential political time bomb for the next General Election in 2016. By pushing some of these demand back to the HDB resale market, it might arrest the slide.

2) There is still a sizeable number of singles in their 40s and 50s who want a place of their own. Since they do not own any flat at the moment, price movements in the HDB resale market will not affect them. Giving them this chance to own a HDB BTO flat might work in the favour of the Government.

3) HDB could be looking at opening up the 2-room BTO flats to divorcees with child(ren) in the later part of 2014. Hence there is a need to increase the supply.

4) Construction costs are going to stay elevated. With the Government cutting down on foreign workers, the huge number of homes to be constructed and MRT lines in the pipeline, resources are getting stretched. Even if a recession comes, construction prices will not come down immediately.

So I would say it is not a sustainable BTO flat supply. It is just the HDB trying to balance the HDB resale market.


Note:
HDB BTO flats is a form of wealth distribution by the State. The HDB market is divided into two segments: current owners and would-be owners. Current owners want prices to stay elevated. Would-be owners want prices to come down. It is difficult to satisfy both at the same time. Now that the HDB has satisfied the would-be owners, it is time to take care of current owners.

I did not comment on the impact on the private property market because the buyers (coming from the HDB market) would have already secured a loan. I would speculate half will rent out their HDB flats to pay for the private condominium monthly loan installments and the other half will stay in their HDB flats and rent out the studio or 2-bedder condominium/apartment unit to cover the monthly loan installments.

How Will the HDB Categorise DBSS Flats in the Resale Market?

The Design, Build and Sell Scheme (DBSS) was a concept introduced by the Housing and Development Board (HDB) in 2005. According to the HDB, the DBSS was introduced to the public housing market to offer greater choice and wider variety to meet the housing aspirations of higher income flat buyers for better design and finishes. Flats sold under the DBSS come with a 99-year lease and will be offered to buyers under similar HDB eligibility conditions like flats developed by the HDB. 

My stand from the day the HDB launched the concept of DBSS is that it is not worth buying simply because they are still HDB flats at the end of the day and they are priced much higher than any HDB flat in the same area.

The counter argument is that it is designed by a developer that builds private housing and it comes with supposedly "premium" finishes and design. Some DBSS projects even come with planter boxes, a concept found in condominiums. But please bear in mind that every unit in the DBSS project has the same design and finishes which is no different from a HDB premium flat unless the buyer re-designs the interior of the DBSS flat.

Will the HDB categorise a resale DBSS flat differently from a "normal" resale HDB flat then?

My answer is no. On a valuation basis and all things being equal, a 4-room resale DBSS flat will be valued on a similar basis as a 4-room resale HDB flat perhaps adjusting a bit for minor differences like the planter box or finishes or age or location. The HDB is not likely to create a separate category in their resale flat transactions search (http://services2.hdb.gov.sg/webapp/BB33RTIS/BB33PReslTrans.jsp) to identify a DBSS flat from a resale HDB flat. A DBSS flat is still a public flat afterall. 

But if the HDB does creates a separate category, it may go down the path for HUDC flats, with a possibility of privatising in the future. That will be an icing on the cake for such "premium" HDB flats should it happens. Buyers can pop the champagne when it happens (many years down the road).

The Premiere @ Tampines will be the litmus test being the first DBSS project to reach the minimum occupation period (MOP) end 2013.

Project Name	Location	Estimated Price Range at Launch	Estimated TOP Date	Estimated MOP Date
Pasir Ris One	Pasir Ris Central / Pasir Ris Drive 1	$389,000 to $760,000 ($556 to $672 psf)	May 2015	May 2020
Trivelis	Clementi Avenue 4	$375,000 to $770,000 ($580 to $728 psf)	March 2015	March 2020
Parkland Residences	Upper Serangoon Road	$359,000 to $738,000 ($498 to $612 psf)	February 2015	February 2020
Lake Vista @ Yuan Ching	Yuan Ching Road	$360,500 to $680,400 ($500 to $585 psf)	January 2015	January 2020
Belvia	Bedok Reservoir Crescent	$395,000 to $670,000 ($549 to $593 psf)	November 2014	November 2019
Centrale 8 @ Tampines	Tampines Avenue 5 / Tampines Central 8	$389,000 to $778,000 ($592 to $667 psf)	October 2014	October 2019
Adora Green	Yishun Avenue 11 / Yishun Central	$310,000 to $650,000 ($430 to $541 psf)	August 2014	August 2019
The Peak @ Toa Payoh	Lorong 1A Toa Payoh	$355,000 to $722,000 ($471 to $573 psf)	August 2012	August 2017
Parc Lumiere @ Simei	Simei Road	$378,000 to $575,000 ($374 to $482 psf)	May 2012	May 2017
Natura Loft @ Bishan	Bishan Street 24	$490,000 to $739,000 ($479 to $572 psf)	September 2011	September 2016
Park Central @ AMK	Ang Mo Kio Street 52	$433,000 to $689,000 ($447 to $534 psf)	August 2011	August 2016
City View @ Boon Keng	Boon Keng Road	$349,000 to $727,000 ($477 to $568 psf)	January 2011	January 2016
The Premiere @ Tampines	Tampines Avenue 6	$138,000 to $450,000 ($256 to $367 psf)	December 2008	December 2013

Source: Real Property Advisory Singapore

High Time URA Curb the Use of SOHO

Finally the Urban Redevelopment Authority (URA) has decided to curb the use of SOHO by developers. This has to come sooner or later after the URA clamped down on developers and real estate salespersons selling loft space in industrial strata units.

Why is this important?

First of all, in Singapore, SOHO is never classified as a type of land use by URA. Our broad categories of land use are residential, commercial, industrial, hotel and institutional use. It is a pure marketing term.

Second, the term has been abused by developers and real estate salespersons that a lot of buyers think that the residential home can be used as an office. But that is not true. You have to apply to the authorities to use your home as an office. And you might not get approval.

Third, such units are always marketed at a higher price than residential units. Why is that so? The rationale used is that SOHO is a mix of residential and commercial so it can be priced higher than residential. But if it cannot be used as an office, the price paid is not justified.


But why now, you may ask.

My guess is that the URA is trying to "clean up" its residential price index. It has been "polluted" by some developers marketing their residential homes as "SOHO-styled" units and at higher prices than normal.


Overall this is a good step forward for the real estate industry. With the Council of Estate Agents (CEA) set up to regulate the "cowboy" industry, URA has also to get its act right. In fact, when I was training the real estate salespersons, many of them do not understand what is SOHO. With this, I hope the market will be less confused over such marketing terms.

But then again, developers are creative. Soon new marketing terms will appear. Like for example, the developer who introduced dual key concept now calls it TRIO to differentiate its products from the competitors.

Retirement Village - Will We See NIMBY?

I read with interest an article on Sunday Times, 10 November 2013 - Ageing Singapore to Get First Retirement Village.

Before I touch on the social aspects, let's look at the economics part first.

This site at Jalan Jurong Kechil was put up for sale on 19 September 2012 and sold to World Class Developments for $482 psf ppr on a 60-year lease. 23 developers submitted bids for the site. (Source: http://www.ura.gov.sg/uol/media-room/news/2012/nov/pr12-129.aspx)

The site is significant for two reasons:

• It is offered on 30, 45 or 60-year lease
• Developers can choose to build either condominiums or retirement homes

Now if the successful bidder chooses to build condominiums, it will be the first time residential homes are sold on 60-year lease. If the homes sell well, it means that buyers are accepting a shorter lease for homes and the Government can offer 60-year lease for residential homes in the future.

If the developer builds retirement homes, it will be the first such project in Singapore. It will be an untested segment but still the developer stands to reap the benefits of being a first-mover. My comments to The Straits Times on 16 November 2012 was such - see text in red below.

Why did the developer choose to build a retirement village?

Several reasons can be put forth.

• The current property market sentiment is not favourable for 60-year lease residential homes.

If you go to www.onemap.sg and search for The Hillford or google for The Hillford, you will find property agents marketing it as a condominium and not as retirement homes. It could be that there is little interest from prospective buyers.

• The indicative price may be a tad high

At $482 psf ppr, a condominium is likely to have a breakeven price of $800 psf and a selling price of $1,000 psf or higher. 

• Minimum size of 70 sqm for residential homes imposed by URA

The minimum size requirement for residential homes might not be extended to retirement housing. Hence by minting shoebox units in a retirement village, the developer might get better returns.

• Limited support from banks

Banks might not be willing to lend up to 30 years or 80% of the selling price for a 60-year lease project.

• Increasing numbers of retirees 

These retirees might be looking to widen their social circle and find similar minded friends to participate in activities together.

So these reasons (especially the market sentiment) might have convinced the developer to go for retirement homes. But to make this project successful, it is not enough to design the units and surroundings to be elderly friendly. It has to be a holistic environment suitable for ageing like medical care in the development, activities corners/places for the active agers. I went to a retirement village in Johor. There is a hospital outside the village and lush greenery and spaces and activities for the residents in the village. To maintain the serene environment, they even have a rule that residents who get complained about three times will be asked to leave the retirement village.

Well, a place for some of our ageing baby boomers to enjoy life is always welcomed. But will we get letters to the forum page complaining about a retirement village in their neighbourhood - the "Not in My Backyard" syndrome? It remains to be seen.

Developers keen on shorter lease site

Top bid of $73.8 million received for 60-year lease

By Cheryl Lim

A RESIDENTIAL site that comes with a shorter-than-normal lease has attracted a surprising 23 bids.

It was the best response for a site in recent years but fell short of the 32 offers received for a Westwood Avenue residential plot in December 2009.

The 1.02ha site in a private estate in Upper Bukit Timah's Jalan Jurong Kechil neighbourhood was offered for sale with a variable lease option of 30, 45 or 60 years.

It can be developed into a condominium, flats or retirement housing.

The top bid of $73.8 million for a 60-year lease came from the Aspial Corporation subsidiary World Class Developments. This translates to a price of $482 per sq ft per plot ratio (psf ppr).

Bigger developers were noticeably absent from the tender exercise while smaller players like Chip Eng Seng and Roxy Pacific Holdings were in the fray.

The lowest bid came from Kwan House with $23.3 million. It was also the only developer to tender for a 45-year lease. No bids were received for a 30-year lease.

Despite the shorter-than-usual lease, analysts expect that completed units could go for a selling price of $900 to $1,100 psf.

These prices are still lower than 99-year leasehold properties in the vicinity.

ERA Realty key executive officer Eugene Lim noted that one-bedroom apartments at the nearby Suites at Bukit Timah are going for $1,600 psf.

Mr Ong Teck Hui, national director for research and consultancy for Jones Lang LaSalle, said most buyers are less keen on properties with shorter leases because of concerns over long-term value depreciation.

But many analysts agreed that the strong interest from developers indicates market confidence that homes with shorter leases will still sell.

This site has been on the market for a couple of years. It was released in 2006 with a 30-year lease, and earmarked by the Government for retirement homes.

But the site failed to find any takers because developers said the lease was too short for a viable project.

The Jalan Jurong Kechil site was then made available for tender through the reserve list system earlier this year. It was put up for public tender after a developer committed to bid at least $24 million. This is the first time the Government had made land available with the development option of retirement homes.

In the event the site is developed for retirement housing, analysts say it will be an an untested segment of the real estate market.

DWG's senior manager of training, research and consultancy, Mr Lee Sze Teck, said a firm taking the risk on retirement homes now might reap benefits later.

"They could have a first-mover advantage in this retirement home property segment," he said.

Mr Nicholas Mak, SLP International's head of research, noted that the developer could face problems if buyers cannot find banks prepared to finance shorter leases of up to 60 years.

New Rules for Foreigners Buying Properties in Malaysia

Malaysia has implemented a slew of measures targeted at cooling the heated property market in the recent months. Below is a summary of the measures for your easy reference.

1. Higher Processing Fees in Johor

Foreigners used to pay a flat RM10,000 processing fee when they buy a property in Johor. But not anymore. Starting 1 January 2014, foreigners buying properties in Johor will have to pay a processing fee of between 4% and 5%. This applies to both the primary and secondary market.

Example, a RM1 million property will attract a processing fee of RM50,000 in 2014 instead of RM10,000.

Expect a rush by foreigners especially Singaporeans to buy before the new fee kicks in.

2. Minimum Price of Property Purchased by Foreigner

Foreigners can only buy properties priced RM1 million and above. The previous minimum was RM500,000.

In Malaysia, not many properties are priced RM1 million and above (exceptions include Kuala Lumpur and Penang). It is possible that developers raise prices to RM1 million. Something similar along that line happen when the minimum RM500,000 was imposed years back.

If prices are artificially raised, it defeats the purpose of curbing speculation and keeping prices of properties affordable to locals.

For foreigners looking to sell, it gets tougher now unless they adjust their price expectations and sell to locals. If they are looking to sell to foreigners, there are just so many property launches especially in Iskandar that buyers are spoilt for choice.

A good guess is that foreign buyers flock over to Medini to buy properties since Medini is exempted from this minimum price.

3. Real Property Gains Tax Raised to 30%

Previously property buyers pay a real property gains tax (RPGT) of up to 10% depending on their holding period. See table below.

Holding Period	Real Property Gains Tax (RPGT)
	Companies	Citizen & PR	Non-Citizen
Up to 2 years	10%	10%	10%
Between 2 to 5 years	5%	5%	5%
Exceed 5 years	0%	0%	0%

Source: Malaysian Investment Development Authority

But in the Malaysia Budget 2014, this RPGT is raised to 30% across the board with slight variations for citizens/PRs, foreigners and companies. See table below.

Holding Period	Real Property Gains Tax (RPGT)
	Companies	Citizen & PR	Non-Citizen
Up to 3 years	30%	30%	30%
Up to 4 years	20%	20%	30%
Up to 5 years	15%	15%	30%
Exceed 6 years	5%	0%	5%

This would not deter investors as it is not an upfront tax. It only means that investors must keep their money in Malaysia longer. This is similar to Singapore’s Seller Stamp Duty except it is taxed on the real property gains and not the selling price.

4. Developer Interest Bearing Scheme (DIBS) Removed

Developers are no longer allowed to offer DIBS to buyers of properties under construction. It means buyers will have to start paying interest on their loan immediately.

For a RM1 million property and a property loan of RM800,000, a buyer have to pay interest of 4.5% or RM36,000 every year or RM3,000 a month.

5. Maximum Loan Tenure Cut to 35 Years

Property buyers can no longer take up to 45 years to repay their loan. The maximum loan tenure is now 35 years.

Taken as a whole, it will be good for the Malaysia property market as it ensures more sustainability. For buyers, it means that you are expected to pay more to the Government and keep your money in Malaysia for a longer period.