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30-11-2010, 06:29 AM
Business Times - 30 Nov 2010
New rule may weigh on prices of luxury condos
Developers lose flexibility to time their construction as delays could spell big payouts on their part
By KALPANA RASHIWALA
(SINGAPORE) The prices of luxury condos have continued to rise this year but a new rule may soon tie the hands of the developers.
Till now, many have picked their time to launch developments when sentiments are good and decent prices can be charged. But under the rule changes which are expected to kick in early next year, they may lose this luxury.
If they bust the project completion period on sites bought from private sector sources, they stand to lose not just the 10 per cent bankers' guarantee for land cost, but could also end up making huge payments for time extension.
All this could force them to launch earlier than they might like and affect prices, market watchers said.
The median price of new luxury condo transactions stood at $3,265 per square foot in Q3 this year, an increase of 18.7 per cent year to date, according to CB Richard Ellis' analysis. However, the figure is still about 13 per cent shy of the peak achieved in Q4 2007.
A question mark now hangs over whether the previous peak median price of $3,750 psf can be scaled next year.
CBRE's compilation shows about 1,500-odd luxury non-landed homes could be generated on projects that have received planning approval from Urban Redevelopment Authority and which have yet to be launched. These include five projects in the Ardmore Park area alone, the Westwood site at Orchard Boulevard, the former Parisian plot at Angullia Park and Ho Bee's and IOI's 302-unit condo on the Pinnacle Collection plot at Sentosa Cove.
CBRE executive director (residential) Joseph Tan says: 'Developers' strategy in the first instance, would be to hold off launching these projects as long as they can until sentiment improves further in this segment.'
Agreeing, Wheelock Properties (Singapore) CEO David Lawrence says: 'Traditionally, developers know that for really high-end projects on very good sites like Ardmore Park, if you just keep them in your pockets, eventually prices will come up and they make money. But developers can't do that anymore.'
The catch is the amendment to the Residential Property Act that will apply to private residential projects undertaken by foreign housing developers with Qualifying Certificates (QCs), a category which effectively covers all listed developers.
Such projects, built on residential sites bought from private-sector sources, will in future have to be completed within the stipulated project completion period (PCP). Otherwise, the developers may not only lose their bankers' guarantees as is the case currently but also have to pay the state for any time extension.
This is similar to the scheme for sites sold through the Government Land Sales Programme. Developers have to pay 8 per cent of the tendered land price for the first year of PCP extension. They must pay 16 per cent for the second year's extension and 24 per cent per annum for the third and subsequent years.
CBRE's Mr Tan estimates that since it takes 30-36 months to complete a typical high-rise condo, and assuming developers need to attain Temporary Occupation Permit (TOP) by 2014-2015, construction would have to begin around 2011-2012.
That still leaves some room to avoid a bunching of project launches given that on average, developers have been able to sell an average of about 650 non-landed homes per year at above $2,000 psf over the past five years.
One way that deep-pocketed developers may get out of the bind is to build their projects first - and meet PCP deadlines - but launch them for sale only when the sentiment is good.
For this reason, most property consultants don't expect developers to drop prices. 'But there's a good chance they may have to reduce their profit expectations if they wish to clear the units,' says Knight Frank managing director (residential services) Peter Ow. While he's betting there's a fair chance that the market could revisit the 2007-high in luxury condo prices next year, others are less sanguine.
As Mr Lawrence puts it: 'Prime property in the long term will still do very well in Singapore, but it's a difficult period at the moment. There's plenty of demand. I think prices won't come down much, but they won't go up to the level that developers are expecting; perhaps (they'll have to) make much finer profit margins.'
There have been 'one-off' cases of high-priced transactions lately - such as a high-floor apartment at Boulevard Vue that Far East Organization sold last month for $4,800 psf reportedly to a foreign buyer. 'However, we'll need to see more foreign money flowing into Singapore. Right now, Singapore luxury condo prices are still below those in other major cities including London, where prime apartments are going for about £pounds;2,500-4,000 psf' (S$5,205-8,329) says CBRE's Mr Tan.
DTZ South-east Asia research head Chua Chor Hoon said: 'With the major economies still weak, foreign buyers have not come back to Singapore in a big way yet.'
Knight Frank's Mr Ow is hopeful that 'property curbs in China and Hong Kong could divert some moneys to Singapore and boost our high-end market'.
New rule may weigh on prices of luxury condos
Developers lose flexibility to time their construction as delays could spell big payouts on their part
By KALPANA RASHIWALA
(SINGAPORE) The prices of luxury condos have continued to rise this year but a new rule may soon tie the hands of the developers.
Till now, many have picked their time to launch developments when sentiments are good and decent prices can be charged. But under the rule changes which are expected to kick in early next year, they may lose this luxury.
If they bust the project completion period on sites bought from private sector sources, they stand to lose not just the 10 per cent bankers' guarantee for land cost, but could also end up making huge payments for time extension.
All this could force them to launch earlier than they might like and affect prices, market watchers said.
The median price of new luxury condo transactions stood at $3,265 per square foot in Q3 this year, an increase of 18.7 per cent year to date, according to CB Richard Ellis' analysis. However, the figure is still about 13 per cent shy of the peak achieved in Q4 2007.
A question mark now hangs over whether the previous peak median price of $3,750 psf can be scaled next year.
CBRE's compilation shows about 1,500-odd luxury non-landed homes could be generated on projects that have received planning approval from Urban Redevelopment Authority and which have yet to be launched. These include five projects in the Ardmore Park area alone, the Westwood site at Orchard Boulevard, the former Parisian plot at Angullia Park and Ho Bee's and IOI's 302-unit condo on the Pinnacle Collection plot at Sentosa Cove.
CBRE executive director (residential) Joseph Tan says: 'Developers' strategy in the first instance, would be to hold off launching these projects as long as they can until sentiment improves further in this segment.'
Agreeing, Wheelock Properties (Singapore) CEO David Lawrence says: 'Traditionally, developers know that for really high-end projects on very good sites like Ardmore Park, if you just keep them in your pockets, eventually prices will come up and they make money. But developers can't do that anymore.'
The catch is the amendment to the Residential Property Act that will apply to private residential projects undertaken by foreign housing developers with Qualifying Certificates (QCs), a category which effectively covers all listed developers.
Such projects, built on residential sites bought from private-sector sources, will in future have to be completed within the stipulated project completion period (PCP). Otherwise, the developers may not only lose their bankers' guarantees as is the case currently but also have to pay the state for any time extension.
This is similar to the scheme for sites sold through the Government Land Sales Programme. Developers have to pay 8 per cent of the tendered land price for the first year of PCP extension. They must pay 16 per cent for the second year's extension and 24 per cent per annum for the third and subsequent years.
CBRE's Mr Tan estimates that since it takes 30-36 months to complete a typical high-rise condo, and assuming developers need to attain Temporary Occupation Permit (TOP) by 2014-2015, construction would have to begin around 2011-2012.
That still leaves some room to avoid a bunching of project launches given that on average, developers have been able to sell an average of about 650 non-landed homes per year at above $2,000 psf over the past five years.
One way that deep-pocketed developers may get out of the bind is to build their projects first - and meet PCP deadlines - but launch them for sale only when the sentiment is good.
For this reason, most property consultants don't expect developers to drop prices. 'But there's a good chance they may have to reduce their profit expectations if they wish to clear the units,' says Knight Frank managing director (residential services) Peter Ow. While he's betting there's a fair chance that the market could revisit the 2007-high in luxury condo prices next year, others are less sanguine.
As Mr Lawrence puts it: 'Prime property in the long term will still do very well in Singapore, but it's a difficult period at the moment. There's plenty of demand. I think prices won't come down much, but they won't go up to the level that developers are expecting; perhaps (they'll have to) make much finer profit margins.'
There have been 'one-off' cases of high-priced transactions lately - such as a high-floor apartment at Boulevard Vue that Far East Organization sold last month for $4,800 psf reportedly to a foreign buyer. 'However, we'll need to see more foreign money flowing into Singapore. Right now, Singapore luxury condo prices are still below those in other major cities including London, where prime apartments are going for about £pounds;2,500-4,000 psf' (S$5,205-8,329) says CBRE's Mr Tan.
DTZ South-east Asia research head Chua Chor Hoon said: 'With the major economies still weak, foreign buyers have not come back to Singapore in a big way yet.'
Knight Frank's Mr Ow is hopeful that 'property curbs in China and Hong Kong could divert some moneys to Singapore and boost our high-end market'.
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