singapore property weekly issue 172

8/11/2019 Singapore Property Weekly Issue 172

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CONTENTS

p2 Property Valuation: Common Misconceptions

about Rental Yield

p9 Singapore Property News This Week

p16 Resale Property Transactions

(August 20 August 26 )

Welcome to the 172th edition of the

Singapore Property Weekly.

Hope you like it!

Mr. Propwise

FROM THE

EDITOR
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3/17

SINGAPORE PROPERTY WEEKLY Issue 172

Page | 2Back to Contents

By Gerald Tay (guest contributor)

Net Rental Yield (NRY) is a fundamental

concept in the real estate industry. Yet, it is

often misunderstood and sometimes

incorrectly used. This post will take a deep

dive into the concept of NRY, and also clearup some common misconceptions:

1. Price versus Value

2. Definition of Net Rental Yield (NRY)

3. The difference between Cap rates and

Required Return

4. Yields and Bubbles

5. Realised Profits vs. Paper Profits

Property Valuation: Common Misconceptions about Rental Yield


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Real Estate Price versus Value

Before moving into Property Valuation, I need

you to first understand one key investment

fundamental, price is not always equal tovalue.

Never do yourself a disservice by asking

novice questions on price becauseyoullonly

get novice answers.

For example:

You: Do you think paying $1,300 per square

foot is a good deal for this property?

Property

Agent/Friend/Neighbour/Relative/Expert: I

think so because its already at a discount

and other surrounding units are transacted at

$1,400per square foot.

The Losing Investor will always speculate on

price, because itseasy. The Master Investor

always invests based on value, because its

right. This is the thrust of this series of

articles: well learn how to derive Property

ValueorInvestment Valuefrom the price we

pay, and become a Master Investor.

Tip 1: Priceis what you pay, Value is what

youget Warren Buffet.

Remember: PriceValue.

Defining Net Rental Yield

What is Net Rental Yield (NRY)? I prefer the

term Capitalisation Rate (CapRate), since

NRY is so misused and misunderstood by

many investors.

The Cap Rate measures the efficiency of the

propertysNet Operating Income to property

price, where:

Net Operating Income (NOI)=Annual Rent -

Annual Expenses


5/17



For example, if a propertys price is

$1,000,000 and generated a NOI of $10,000,

then the Cap Rate would be

$10,000/$1,000,000, or 1%.

Tip 2: Property prices are inversely related to

Cap Rates.

Difference between Cap Rates and

Required Returns

Every investor is entitled to his/her own

Required Return, but not their own Cap rate!

This is akin to saying to your car dealer, I

want to buy a new 1,600cc car and I wont

pay anything more than a $30,000 COE

Premium. However, COE premiums are

$61,900 (for cars up to 1,600cc) at thisposts

time of writing.

Often, while putting together large

commercial property deals with my co-investors, I will inevitably hear many of them

declare that they will buy nothing for less than

such a Capitalization (Cap) rate.

Me: The Cap Rate of the property is 8%.

Co-investors: Thats too low. Im expecting

12% and above.

Me: Are you referring to a 12% ROI or Cap

Rate?

Co-investors:Whatsthe difference?

Me: A 12%Cap property has inevitably higherrisks than an 8% Cap property, such as

complicated management issues which will

arise. With leverage on this deal, an 8% Cap

property may meet our ROI of 12% or more


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during the entire holding periodand we get

a stable tenant for a great price.

Cap rates are set by the market and tell us

how much investors are paying for a given

stream of income, measuring the Net

Operating Income (NOI) of the property as a

proportion of the purchase price.

However, the Required Return is set by you

and the job of the investor is to find deals that

meet or exceed his/her minimum RequiredReturn. This can only be evaluated over a

realistic holding period.

Tip 3: When calculating Cap rates, mortgage

and interest should not be factored in.

Beware: Property ROI Net Yield minusInterest e.g. Net Yield: 3%, Borrowing Costs:

1%, therefore ROI =2% - this is incorrect.

Yields and Bubbles

To interpret whether bubbles exist in the

property market, one should look at income

and price -bubble indicators.

Tip 4: The analysis of yield figures provides

an insight into the property market as a

whole.

A bubble is then defined as a situation where

the price of an asset does not reflect

fundamentals of the market e.g. over-

optimistic beliefs of investors who expect

higher future prices or rentals to justify

todayshigh price.

At the peak of the real estate cycle in 2006

and 2007, some deals were done at very lowrates. For instance, residential projects in the

CCR (Core Central Regions) were sold at a


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Cap Rate of 1.5% based on exuberant

assumptions.

Most deals at these low rates used a great

deal of leverage in an attempt to lift equity

returns, generating negative cashflows and

refinancing difficulties.

Today, most deals are done at CapRates of

2% and lower in the OCR (Outside Central

Region) residential segment. Simply put, if

current property prices yield a CapRate of 2%and the appreciation return is 8%, you could

be overpaying, with a potential property

bubble forming.

And thatsprimarily why itsonly sensible for

the government to have implemented many

drastic property measures in recent years.

Realised Profits Versus Paper Profits

Realized profits are Profits that have been

proven by a transaction

Paper profits or paper assumptions have no

transactions to prove their value, but are

based onexuberant assumptions of future

rental income and property value, or

calculating increases in property market value

even though the property has not been sold.

For example, buying off-plan

(uncompleted/new launch) properties for

investment are part of the gambling period there are no proven transactions, with highly

optimistic future assumptions.

To measure your Effective Capitalisation Rate

or Net Rental Yield, you need to input todays

figures, not future figures.

Most marketing agents cannot tell the

difference between the different rates of

investment returns. But as an investor, its

your responsibility to know!

SINGAPORE PROPERTY WEEKLY I 172


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Tip 5: Did you remember to factor Vacancy

Losses into your yield?

If you hear someone say a property has a 4%

yield, you need to question:

4% meaning? - Is it ROI, Internal Rate of

Return (IRR), Cap Rate, Return on Equity

(ROE)?

Todaysyield or Future yield?

Gross yield or Net yield?

If Net yield, what expenses are involved?

Real rental or Nominal rental?

How did you derive 4%? Ask him/her to

show you on paper. Again, most of them

get this wrong or try to pull wool over your

eyes.

The illiterate of the twenty-first century will

not be those who cannot read and write, but

those who cannot learn, unlearn and relearn.

Alvin Toffler

Conclusion

Using only Net Rental Yield (NRY), or Cap

Rate, is a convenient way to measure your

investment, but it is not everything. Take

some advice and use it as a way to measure

how expensive a property is in relation to

similar properties in the present, not whether

itsa good long-term investment.

SINGAPORE PROPERTY WEEKLY I 172


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The Capitalisation rate is a fundamental and

popular concept used in real estate projects.

It can be an extremely powerful analysis tool

when used mutually with other yield

calculations for retail investors to make surerinvestment decisions if you know how to

calculate it correctly.

By guest contributor Gerald Tay, who is the

founder and coach atCREI Academy Group

Pte Ltd, an organization dedicated toempowering retail property investors with

smarter investing philosophy and strategies.

He is a full-time investor with over 13 years of

solid experience in building his wealth

through Property Investment and is financially

wealthy today.

http://www.crei-academy.com/http://www.crei-academy.com/http://www.moneymatters.sg/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/http://www.crei-academy.com/


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Singapore Property This Week


Residential

M o r e s e n i o r s e l i g i b l e f o r L e a s e B u y b a c k

According to Minister for National

Development Khaw Boon Wan, the

government is looking into making the Lease

Buyback scheme more flexible. Previously, 35

per cent of elderly HDB households benefitfrom the Lease Buyback scheme, but with

recent revisions, an expected 75 per cent of

elderly HDB households will be eligible for the

scheme. The revised scheme will take effect

from April next year and aims to increase the

flexibility on the length of lease to retain andthe amount of proceeds to be used to top up

the Central Provident Fund. Minister Khaw

expects more households to take-up the

scheme with the revisions implemented.

However, Minister Khaw said that someresidents he spoke to said they will not join

the scheme now as they are still being

supported by their children or have other

forms of passive income. According to the

Business Times, only 800 households have

joined the scheme so far and out of the 800,340 households have joined after some

revisions were made in 2013. In the new

scheme will be extended to four-room flats

and the government will raise the household

income ceiling to $10,000. Joint HDB flat

owners may also receive more cash upfrontas they are only required to top up to just half

of the Minimum Sum.

(Source: Business Times)



11/17



Aug H D B resale price dow n 1. 1%

Data from the Singapore Real Estate

Exchange (SRX) showed that HDB resale

prices in August has once again fell by 1.1

per cent from the previous month.

Nonetheless, market experts have expected

this gradual fall in prices following the

implementation of the governments cooling

measures. They have expected that HDB

resale prices would fall by five to eight per

cent by the end of the year. Based on data

from SRX, resale prices have slipped 7.1 per

cent from August last year and 8.6 per cent

from April 2013. This month, three room and

four room flats were the main contributor to

the fall in overall resale prices. Resale pricesfor three-bedders have fallen by 2 per cent

while resale prices of four-bedders were

down 0.9 per cent in August from July.

Nonetheless, resale prices of executive flats

and five-bedroom units have crept up 1.5 per

cent and 0.8 per cent respectively. Ong Kah

Seng fromRSTsaid that as it becomes more

difficult to finance loans, fewer buyers are

willing to purchase HDB flats. However,Eugene Lim from ERA Realty believes that

the drop in demand for HDB flats could be

due to the Hungry Ghost Festival.


Developers m a r g i n s f o r c o n d o f a l l s

A study by Knight Frank said that developers

profit margins for new condominium launches

are half of that in 2013. According to the

study, profits from new launches under the

government land sales (GLS) programme

have slipped 5 to 10.3 per cent. Market

experts believe that the fall in prices and profit

margins may be due to the implementation of

cooling measures.



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Prior to their implementation, developers had

reaped 15.6 to 22.5 per cent profit margins

for new launches. The study which looked at

twenty four 99-year leasehold condominium

projects showed that the average take-up ratein condominium launches have fallen from

96.9 per cent in 2012, to 67.2 per cent in

2013, and 32.3 per cent in 2014. Alice Tan

from Knight Frank said that profit yields may

be further reduced if housing prices fall lower,

as construction and financing costs haveincreased. Tan recommends developers to

offer competitive prices and unique housing

design innovations to capture the interest of

buyers. Alan Cheong from Savills expects

profit margins to shrink further for the

upcoming launches this year. However, Ong

Teck Hui from JLL said that developers may

moderate land bids to reap higher profit

margins.


H ig h l i n e R es i d en c e s t o s e ll f r o m $ 1,8 00 p s f

Highline Residences condominium, which

consists of two 36-storey towers, a 22-storey

tower and four low-rise blocks, is located near

TiongBahru MRT Station and TiongBahru

Plaza mall. The condominium has 500 units

ranging from 506 square feet for single

bedroom units to 1,227 square feet for a four-

bedroom dual key unit. Also, the

condominium has six penthouses that are

from 2,174 square feet to 2,260 square feet.

The condominium is expected to be launched

for sale on September 13.



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According to Keppel Land, the condominium

is expected to be priced at an average of

$2,000 per square foot based on responses

from launch preview sessions that were held

previously. However, market experts predict

that the units would be priced between

$1,800 per square foot to $1,900 per square

foot as sales at other condominium projects

such as The Crest have been slow. According

to data from the developer sales, only 39 out

of the 469 units at The Crest have been sold.

Nonetheless, Highline Residences is located

at a prime location and hence may be

expected to generate better response than

The Crest, said market experts.


Commercial

Singapores ret ur n s f or o ff ic e b u il di ng

i n v e s t m e n t s a m o n g h i g h e s t

Singapore trails behind Shanghai to clinchfourth place in a report by Arcadis that

measured the attractiveness of investments in

office refurbishment projects across 15 cities.

According to the report, the rate of returns for

minor office building refurbishment

investments in Singapore is at 7.53 per cent.

The report ranks 15 cities according to the

best expected net rental income return. The

report accounts for both major and minor

refurbishment projects. Major refurbishment

projects are defined as projects that extend

the life of an office asset by fifteen to twenty



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years; while minor refurbishment projects

extend the life of an office asset by up to five

years. William Taam from Arcadis, a global

asset design and consultancy firm, said that

older office assets, that have not beenadequately refurbished, are less likely to reap

in higher rental yields. Nonetheless, Taam

warns investors about investing highly in

refurbishment projects in Singapore, as the

office building market is competitive and

businesses are moving to areas outside ofthe central business district. Thus, Taam

recommends investors to revamp buildings in

line with brand strategies of the buildings

occupants. He also encourages minor

revamps to attract new tenants and to retain

existing tenants.


S a m s u n g H u b s o l d f o r r e c o r d p r i c e

The eighteenth floor of Samsung Hub has

been sold for a record-high price of $3,225

per square foot or $42.35 million. Its price

was higher than the price of the fourteenth

floor, which was sold for $3,030 per square

foot earlier this year. The building which

consists of 30 storeys has a 999-year

leasehold. The eighteenth floor, which

comprises of six strata units, was bought over

by an Asia-based oil and gas company. The

total area of the six strata units amounts to

13,132 square feet. Last year, Buxani Group,

which is the seller of the building, divested six

strata units on the seventeenth floor for an

average price of $3,210 per square foot.

Previously, the sixteenth floor was sold for

$3,000 per square foot in 2012 and the

twentieth floor was sold for $2,800 per square

foot in 2011.



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Market analysts believe that the minimum

asking price of $2,800 per square foot for

Samsung Hubsneighbour, Prudential Tower

could have raised prices for the transaction of

SamsungHubseighteenth floor.


Ta nj o n g K at o n g c o n s er v at io n s h o p h o u s e

f or sale

A freehold plot at 370 and 370A

TanjongKatong Road is opened for

expression-of-interest exercise until October

7. The 1,484 square feet shophouse has a

gross floor area of 2,478 square feet. It has

been valued at $5 million or $2,017 per

square foot. CBRE associate director of

investment properties, Sammi Lim said that

the conservation shophouse may attract the

interest of buyers who are looking to create

an iconic building after some refurbishment.

Lim predicts that there will be a substantial

pool of buyers as the property has been

zoned for residential use with commercial

land use on the first storey. Lim believes that

there is limited supply for such buildings. Notonly so, its freehold status would appeal to

investors, Lim said. Besides that, interest may

be further bolstered with an upcoming MRT

station within five minutes walking distance

from the shophouse.


S i n g a p o r e : t o p s o u r c e o f A s i a n r e al e s t a t e

capit al

According to CBRE, Asian investments in

global real estates have risen by 40 per cent

year-on-year in H1. Singapore has accounted

for 29 per cent of the active sources of Asian

capital, thus triumphing Hong Kong, which

stood at 25 per cent; China,



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S G O O ssue


which came in third with 23 per cent; and

Malaysia who accounted for 5 per cent of the

sources of Asian capital. Market experts

believe that the weak domestic market in

Singapore could have spurred Singaporeaninvestors interest in overseas real estate.

Ada Choi from CBRE Research Asia predicts

that the full-year 2014 investments will

surpass that in 2013. Data from CBRE

showed that 63 per cent of Asian dollars were

spent on office assets in H1 this year; 7 percent was spent on retail assets and 3 per cent

was spent in the industrial market.

(Souce: Business Times)

http://propertymarketinsights.com/


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Non-Landed Residential Resale Property Transactions for the Week of Aug 20 Aug 26

NOTE: This data only covers non-landed residential resale propertytransactions with caveats lodged with the Singapore Land Authority.Typically, caveats are lodged at least 2-3 weeks after a purchasersigns an OTP, hence the lagged nature of the data.

Postal

DistrictProject Name

Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

4 REFLECTIONS AT KEPPEL BAY 1,755 3,900,000 2,223 99

4 CARIBBEAN AT KEPPEL BAY 2,583 3,380,000 1,308 99

8 KENTISH GREEN 1,076 920,000 855 99

9 THE METZ 581 1,500,000 2,581 FH

9 VISIONCREST 947 1,750,000 1,847 FH

9 TRIBECA 1,905 3,200,000 1,680 FH

9 CLAREMONT 1,453 2,288,000 1,575 FH

9 EURO-ASIA COURT 1,453 2,160,000 1,486 FH

10 BOTANIC GARDENS MANSION 1,755 2,700,000 1,539 FH

10 SOMMERVILLE PARK 1,927 2,800,000 1,453 FH

10 VIZ AT HOLLAND 1,109 1,600,000 1,443 FH

11 CITY EDGE 829 1,580,000 1,906 FH

11 SUITES @ SHREWSBURY 344 652,000 1,893 FH

11 THE LINCOLN RESIDENCES 1,841 2,798,320 1,520 FH

11 HILLCREST ARCADIA 958 930,000 971 99

12 GLOBAL VILLE 904 1,050,000 1,161 FH

12 THE ELYSIA 850 918,000 1,080 999

13 BLOSSOMS @ WOODLEIGH 1,410 1,690,000 1,199 FH

14 THE SUNNY SPRING 1,109 1,150,000 1,037 FH

15 THE BELVEDERE 1,367 2,115,000 1,547 FH

15 HAWAII TOWER 2,239 3,000,000 1,340 FH15 PARKSHORE 1,367 1,750,000 1,280 FH

15 WATER PLACE 1,356 1,635,000 1,206 99

15 FRUITION 1,023 1,115,000 1,090 FH

15 FERNWOOD TOWERS 1,636 1,620,000 990 FH

15 STILL 123 1,281 1,180,000 921 FH

15 LAGUNA PARK 1,453 1,240,000 853 99

Postal

DistrictProject Name

Area

(sqft)

Transacted

Price ($)

Price

($ psf)Tenure

15 LAGUNA PARK 1,453 1,150,000 791 99

15 LAGOON VIEW 1,647 1,230,000 747 101

15 TAIPAN JADE 2,659 1,680,000 632 FH

16 CASA MERAH 1,238 1,370,000 1,107 99

16 STRATFORD COURT 1,163 938,000 807 99

16 AQUARIUS BY THE PARK 1,873 1,510,000 806 99

16 BAYSHORE PARK 3,477 2,500,000 719 99

19 SUITES @ PAYA LEBAR 377 610,000 1,619 FH

19 THE SPRINGBLOOM 1,130 1,230,000 1,088 99

19 THE SUNNYDALE 1,345 1,300,000 966 99

19 CHUAN PARK 1,851 1,620,000 875 99

20 THE GARDENS AT BISHAN 1,227 1 ,210,000 986 99

21 BINJAI PARK 1,033 1,250,000 1,210 999

21 SPRINGDALE CONDOMINIUM 1,119 1,318,888 1,178 999

21 PARC PALAIS 1,550 1,520,000 981 FH

21 SHERWOOD TOWER 1,830 1,240,000 678 99

22 THE MAYFAIR 635 700,000 1,102 99

22 THE LAKESHORE 1,141 1,218,000 1,067 99

22 PARC VISTA 1,270 1,100,000 866 99

22 LAKEPOINT CONDOMINIUM 2,217 1,200,888 542 99

23 HAZEL PARK CONDOMINIUM 1,012 1,075,000 1,062 999

singapore property weekly issue 172

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