Payment to Ecohouse Casa Nova CNC Phase Delayed

I heard news from one of the property investment groups recommending Ecohouse that payment to buyers of Ecohouse Casa Nova CNC phase is delayed by around two months. 

Payments to the other phases are as normal.


Is this the start of the crack? Stay tuned to find out more.

Further Tightening of the HDB Market - MSR and Loan Tenure

Apparently someone up there thinks that the screws are not tight enough and they have to tighten it more to screw HDB owners up.

After achieving some initial success with the Mortgage Service Ratio (MSR) and shorter loan tenure which resulted in HDB resale transactions and cash-over-valuation (COV) falling, the Ministry for National Development (MND) decided to cut the MSR (35% to 30%) and loan tenure (30 years to 25 years).

What will happen next? Your guess is as good as mine.

Resale transactions and COV will continue to ease thereby making it more affordable for first time home buyers. The latest median transacted COV is $20,000.

With a shorter loan tenure and MSR, buyers have to fork out more cash if they buy a more expensive or big HDB flat. There will be lower demand for 5-room and bigger flats.

Sellers will curse their luck. As it is, I have seen advertisements for the same HDB flats for more than a month without success. The seller was only asking $20,000 COV. Two weeks ago, the advertisement changed to View To Offer (VTO) with no mention of COV. It is going to get more chilly for HDB resale flat sellers. There are going to be more transactions where COV is zero or even negative depending on how desperate the seller is.

Those borderline HDB upgraders who committed to a private condominium or executive condominium in 2010 will be the first to get hit HARD, real hard! When I say borderline, I mean those who need to sell off the HDB flat as they do not want to rent out their HDB flat and have no ability to service two loans. Their condominium or EC is going to obtain its TOP in 2014.

But as it is, our Government always try to balance out the market. To maintain a steady rental market for those wanting to hold on to their HDB flats, the Government has directed that the new Permanent Residents (PR) ie. those who get PR status for less than three years rent them. If I am a PR, I will be mad.

Already with the Additional Buyer's Stamp Duty (ABSD), a PR have to pay additional 5% for their first property purchase. Many are putting off the purchase of a property. Now they have to wait even longer. Who knows if the ABSD rate might go up?

Despite the Government trying to keep the HDB rental market steady, we doubt it will help much. First, approvals for PR status have been falling year after year since the Government tightened the criteria. We don't see it easing soon. Second the number of HDB upgraders who are holding on to their flats and renting them out is increasing. The 2Q 2013 subletting cases rose 6% from 1Q 2013. While HDB flat rentals have been holding steady, it is near the tipping point.

The mass market condominium will experience a knee jerk reaction but the fall in transactions will not be glaring. MND chose a nice month to announce new measures. It is the Lunar Seventh Month afterall and transaction volumes are expected to be low anyway.

Hopefully investors will be more sane after absorbing the new cooling measures and not pay ridiculous prices for a mass market condominium unit.

First EC Site at Jurong Breaks Price Record

Land prices for Executive Condominium (EC) sites went through the roof in July 2013 when the tender for the first EC site in Jurong closed.

The site saw enthusiastic participation from developers and attracted a top bid of $418.53 psf ppr. The breakeven price is estimated to be between $700 and $750 psf. This means that to maintain their profit margin, the developer has to launch the project at around $840 psf.

This estimated selling price is another record for EC. No EC launches has ever crossed the $800 psf mark. Sea Horizon at Pasir Ris will test that when it opens for e-apps in August 2013.

At this selling price, is EC still affordable to the first timer families earning up to $12,000 a month?

Assuming an average unit size of a 3-bedder to be 1,100 sq ft and a unit price of $850 psf, the price will be $935,000. The couple will need cash and CPF amounting to $187,000 for the 20% downpayment. This is not a small amount.

We further assume that the loan amount is 80% of $935,000, an interest rate of 1.5% and a loan tenure of 30 years. The monthly mortgage payment works out to be $2,582.

If the couple earns a combined income of $12,000 a month, they will contribute $2,100 to their CPF Ordinary Account (OA). This means they have to come up with cash of $482 every month. If the interest rate goes up, they have to cough up more cash monthly.

Another point of concern is the CPF monies for retirement. As all their CPF monies have been used to service the loan, their OA is likely to stay near zero until they repay their loan or they cash out and buy another property.

Germany Government Listed Buildings

Just recently, two companies in the overseas real estate business - Dolphin Capital Asia and Shenton Wealth Holdings - have been put on the Monetary Authority of Singapore's Investor Alert List. Both companies are related.

In doing due diligence for a client on the investments proposed by the above, a financial adviser noted that "the Beneficiaries' Representative is someone whose registered address is in a place called Seychelle - Never heard of."

Yes, he noted, there is a well-known island called Seychelles with an "s" at the end. "How can a legal document written by a law firm got the spelling of a country wrong or is there another explanation? Or is there really such an address '306, Victoria House, Mahe, Seychelle'?"

The financial adviser searched the address using Google Earth assuming it's Seychelles. "Very puzzling to find the closest match is a Hilton Resort. Further digging uncovers a disturbing info that it may be a popular identical address used by some get-rich-quick schemes (as reported at http://info.hyip-expert.com/stoic-capital-review-and-information/)," he said.

I attended these seminars more than a year ago. Then they were touting 12% over 12 months (2% per month from the 7th to 12th month).  But now if you go to the website of the company selling this, the holding period has increased to 24 months. It is now 24% over 24 months. Why has the holding period increased? Does borrowing from a bank in Germany cost the developer more than 12% a year which is why they must look for equity investors?

Remember to do your due diligence. Also, if it is too good to be true, it usually is.

New Cooling Measure on the Property Market

Although that the new Total Debt Servicing Ratio (TDSR) have been done and dusted and even well covered by the media, we feel that the analysis in the media have missed out certain pertinent points even to the extent of dismissing the new measure as mild. Some analysts even say it is not a cooling measure. How can we say it is not a cooling measure when it will affect demand?

• As an analyst, I have brought up the issue of financial institutions granting loans where the debt servicing ratio (DSR) was as high as 60% and different financial institutions have different ways of assessing the ability of borrowers to repay the loan to the media.

• The Monetary Authority of Singapore imposed a mortgage servicing ratio (similar to DSR) of 30%/35% on the HDB market on 12 January 2013. It is a matter of time this is extended to the private residential market. 

• This measure has bite in our opinion. The TDSR takes into account all the outstanding debts a borrower has. These debts can include car loans, credit card installments, study loans and all kinds of debts the borrower is repaying at the moment.

• Unlike previous cooling measures where the Government has hinted that it will be temporary, Minister Khaw has said that this measure will be permanent because the financial institutions did not have a structured way of assessing the ability of borrowers to repay loans. And the ratio can be lowered too!

• The interest rate used to compute TDSR is not the current low rate of 1% but the medium term rate of 3.5% for housing loans. This means to comply with the TDSR of 60%, the borrower has to cough up more cash, borrowing less from the financial institutions.

• Guarantors have to be the co-owner of the property. This effectively closes the loophole where cash rich parents used their child’s name to buy a property to qualify for a 80% loan and avoid paying the Additional Buyer’s Stamp Duty.

• Demand will come down for sure be it near term or long term.

• Interest rate will go up. Why? Imagine a financial institution has $1 million to lend. When the borrower can borrow up to 80%, the bank need only to find one or two borrowers to take up the $1 million. The tighter loan to value ratio implemented previously means the financial institution means the financial institution has to source for two to three borrowers to take up the $1 million. Now with the TDSR, the financial institution needs more than three borrowers to take up the $1 million. But the number of borrowers will decline with the new TDSR as well. This means to maintain the profit margin (which is already razor thin now), interest rates have to go up.

• Developers will build smaller units to keep them affordable to buyers. Currently the average unit size in new launches is around 81 sq m in the first six months of 2013. This is expected to go down to 70 sq m which is the minimum set by the Urban Redevelopment Authority.

• Resale market will see dip in demand as their unit sizes are bigger than the new launches.

What will be the impact on the property market?

The Government still has a few more tricks up their sleeves. If I may guess, they might require buyers to have the full cash in their bank account before they can buy from new launches. Some buyers do not have 50% cash in their banks when they take a second property loan. They may have 40% cash and because payment to the developer is on a progressive mode, the remaining 10% will be saved up over a period of one to two years.

The thing to note is this measure is not the last and it will stay even if the market corrects!

Buying Iskandar Properties - The Risks

With all the news on numerous Singaporeans buying homes in Iskandar, one would have thought that the past reputation of uncompleted homes, abandoned projects or delays in completion haunting Malaysia is gone.

But it appears not to be.

Just recently, a mixed development project consisting of hotel, shopping mall and residential units, minutes away from the Causeway found itself in the limelight after irate buyers complained of delays to the press.

Buyers say that they were given conflicting information on the completion dates of the project.

Here's what the developer said – the 80 per cent completion rate cited in 2011 referred to the lower floors and that "every floor has a different completion date". Just like in Singapore, projects are given a five-year grace period for completion.

"But projects first get three years unless you apply for an extension, which we did not plan for. If we had applied for the extension to five years, this year would have been the fifth year, and we'd be in time to complete the project."

The firm said the sales and purchase agreement begins only on the date of purchase, not the day which construction started. That means every buyer's three-year duration started at a different date. It also means if the project is completed within three years of the sales and purchase agreement, there is little disgruntled buyers can do.

Ouch! So the completion date of the project is a moving target. Hope the buyers get their keys soon. And one thing to note – this developer is listed on the Malaysia stock exchange.

We hope that buyers of projects in Iskandar check the fine print before signing.

Eco Housing from Brazil

In March, The Straits Times reported that Brazilian developer EcoHouse Group had netted $70 million from Singapore investors for three of its housing projects in Brazil, the latest one being the 2,176-unit Bosque Residencial project in Natal, in the north-east of the country.

The promised return is 20 per cent within a year, when the units are resold to Brazilian buyers later at a higher price.

One forumer noted: "How come these people can afford to spend so much money in super expensive marketing, hire the priciest office in Singapore and Dubai, buy football clubs in Brazil and Italy, pay 20 per cent returns in just one year and still make a profit?

"I would believe it if they were developing luxury properties for the highest segment . . . but for goodness sake, it is social housing in an emerging economy!"

A forumer at Valuebuddies.com highlighted that EcoHouse on its website said: "Across its global companies, EcoHouse employs more than 1,000 people in eight countries and 2013 revenues are expected to top £250 million ($400 million)."

He asked: "If revenue is 250 million pounds, and at 23,000 pounds per house, they would have to sell and complete 10,869 houses."

Think of it this way - why is the Government allowing foreigners to profit from social housing? And why would they fly half the world to sell you the project? Why aren't they selling it straight to the poor?