Real Estate and Property Market Update – Week 2

$750m Collective Sale of Pearlbank Condos – 10th January

The38 year old Pearlbank Condos development has been put up for collectivesale at $750 million, and is being marketed by Knight Frank. The 280apartments in the development at Pearl’s Hill was the first all-housingproject constructed on a URA site.

Unit rates work out at $1,456per square foot per plot ratio. This follows an estimated $143 millionlease upgrade, and assumes the buyer is able to develop the land to agross floor area of 56,999 square metres. It is estimated that 500 newapartments could be built on the site, assuming an average 1,200 squarefoot per flat.

Withinterbank lending rates dropping to the lowest in three years, andfurther drops expected in 2008, homebuyers will probably see lowermortgage rates. The Singapore interbank rate hit its lowest level,1.7625 per cent, yesterday which was a reduction of 0.8 percent overthe fortnight.

As a result of this drop, Banks have access tocheaper money, which in turn should lead to cheaper mortgages… as wellof course to lower bank saving rates. For consumers, it will become agood time to borrow, and reduces the incentive to keep money in thebank. For the banks, it is likely to lead to reduced earnings.

Analystsexpect the interbank rate to fall a further 30 to 50 pointsparticularly if the US Federal Bank cuts its rates by 75 basis pointswithin the next 4-5 months.

Withthe Singapore economy booming, and consumers increasingly looking formore luxurious interiors, the household renovations market grew 30 percent last year. This in turn has led to interior designers andcontractors increasing their prices by as much as 50 per cent.

Somehouseholds are paying up to $1 million per renovation project, with bigbrands such as Giorgetti or Minotti playing a bigger role.

HoBee Investment and Malaysia’s IOI Properties partnered to put a winningbid of $1.1 billion for the Pinnacle Collection site on Sentosa. Thejoint venture beat 2 other bidders based on price and design concept tosecure the largest and last Sentosa Cove condo site for an equivalent$1,822 per square foot per plot ratio.

Ho Bee will have 35 percent of the new project, and its share price increased 3 per centyesterday on the news of the successful bid.

The break even pointfor the 280 units luxury development is expected to be $2,600 persquare foot. The 232,000 square foot site has a 2.6 plot ratio andgross floor area of 602,000 spare feet. Launch is planned for the firstquarter in 2009.

Latest Turquoise and Marina Collections launchesin Sentosa Cove were priced at an average of $2,600 to $3,000 persquare foot. The Pinnacle Collection is expected to sell atapproximately $3,000 per square foot.

The21st storey executive flat in Mei Ling Street was bought in 1992 for$300,000, and sold recently for a record-breaking $890k. The previousrecord was $780,000 last November, in the same street. The apartmenthas great views over Mount Faber and towards Sentosa and facesQueenstown stadium and is a few minutes walk from Queenstown MRT.

HDBresale prices grew 17.4 per cent last year, skewed especially bysimilar executive flats in sought-after central Queenstown and BukitMerah locations. Despite this, analysts don’t expect to see a $1million HDB apartment within the next two years, but this latest salewas more of a representation of the buyer’s eagerness.

Singapore’sUnited Overseas Bank (UOB) launched a new home loan with overdraftfeature. With inflation running higher than interest rates, theoverdraft facility gives the customer the ability to invest forpotentially higher returns. The three-month interbank interest rate was1.81 per cent yesterday. This compares with the Consumer Price Index(CPI) of 4.2 in November last year.

With UOB’s FlexiMortgage,customers are able to decide on how much to pay towards the home loanand how much the overdraft will be. For the home loan element, thecustomer pays a normal monthly installment, whereas for the overdraftonly the interest is serviced. Although the interest rate is higher forthe FlexiMortgage, the customer has more flexibility than a normalmortgage where the wealth is locked into the property.

Pricesare expected to be less than market value for 2 landed sites that go onsale via auction at the end of the month. The reason? The 23 housesthat currently sit on the land are owned by different owners, meaningthe buyers of the plots will need to negotiate with, and compensate,the owner-tenants individually. Thereafter, the buyer can buildthree-storey landed homes.

Colliers International are handlingthe auction of the 999-year leasehold sites at Meng Suan Road on 30thJanuary. The plots are unusually large at 21,000 square feet and 31,000square feet respectively, and prices are expected to be about $5.3m, or$250 per square foot. Negotiating with the owners may of course takesome time, which will no doubt be reflected in the sale price.

Theongoing construction boom in Singapore is driving building materialcosts higher and is set to continue throughout 2008. Analysts estimatethat Singapore’s building costs are double that in Beijing and only 30percent below New York.

In a report published by the constructionconsultancy Rider Levett Bucknall (RLB), Singapore’s global tenderprice (TPI) increased from 12 per cent to 15 percent in 2007, and isexpected to add a further 15 per cent in 2008. With construction demanddoubling in two years from $11 billion, this will put ever higherdemands on construction resources.

In a buoyant market, propertydevelopers are more likely to pass on the higher increased buildingcosts to buyers. This might partially explain the big difference inrental yields with 6.8 per cent achievable in Beijing compared to 2.6per cent in Singapore for luxury residential properties.