Every once in a while, someone would write an article making a comparison between leasehold and freehold properties. Of course, when we are referring to leasehold, very often, it is referring to the 99 year leasehold, the 999 year which is as good as it gets, though still leasehold is taken to be equivalent to freehold in our local market context.

An article was published in the Today newspaper discussing this issue, which I feel is a over discussed issue. But since they have raised some points and so lets look at it for the purpose of pure discussion. Read the article here – http://bit.ly/clhu3F

My view is that why discuss it when objectives for own stay or investment differs, and each property is unique, each estate has different value/positive attributes, there is no apple to apple comparison, hence why compare at all? But still people like to compare to make themselves feel good that their purchase decision was right.

The writers of the article stated that:  ”We studied resale prices of freehold versus leasehold properties and found that the difference was between 10 and 15 per cent. ” This situation of the price gap narrowing has only occurred since 2009, since our latest bull run, prior to this, the price gap has been higher. With new property launches at higher prices, leasehold properties in the vicinity enjoy (on paper) value appreciation, owners wanting to sell naturally use new launch prices as a benchmark for their property as well, and they sell at marginally cheaper than new launched projects.

But I believe these studies done may not have taken into account that the comparison is going to be difficult as all properties are unique and the informed buyer of today takes this view to the fullest. Leasehold properties with very good amenities and connectivity to MRT has always maintained not only good rental yields, but consistent price value. In good times, its price appreciation will not fall behind freehold properties, in bad times, its depreciation will not be by too much, as compared to freehold properties in far flung locales.

The only point I strongly agree with the writer of the article is that:

“for leasehold properties – age is a factor. Once the tenure of a leasehold property goes below 30 years, its value declines sharply as prospective buyers will not be able to withdraw funds from their Central Provident Fund account or secure a loan for the property purchase. ”

When leasehold properties age, and as it is at the end of its life like a really old car without available spare parts, it doesn’t become and antique car, but something more suitable for the scrap heap, its intrinsic “scrap” value is quite low. But in all property investments, if you had gone in right at the beginning, you would have reaped the full benefit from the entire life of the property, even if it went for a song at the end of its life.

If you had a choice of a freehold property far away from MRT and a leasehold property walking distance to the MRT station, which would you choose if the price is similar, do share your views with us.

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This is the normal progrression for many former HUDC estates. Its happened to Amberville – that’s now Silversea, the more recent  Former Minton Rise (also HUDC) launched as The Minton.

The estates are on Hougang North Avenue 7  from Block 344 to 350, Hougang North Avenue 2 from Block 713 to 720 and Potong Pasir Avenue 1 from Block 110 to 112.

Although privatized, not all of these go for successful en bloc attempts. Take Laguna Park for example, privatized in July 2007, its 2 failed en bloc attempts and its most recent 3rd attempt did not get a successful buyer.

Upon privatization, the chances for these estates to go en bloc is higher and hence any owner wishing to sell out their unit, would be able to get a higher price for their unit after this. Those who are buying into the property are also hoping to gain a win fall from the en bloc attempt.  Its a gamble some might say, but if you’re buying into an estate with a good location, it is still worth it.

Many are keeping their attention on remaining HUDC estates like in Braddel View, Neptune Court, Tampines Court, which have yet to be privatized. One of the main downside to privatization is the increased cost of estate maintenance.

There are many fortune tellers out there that tell me that the end of the property bull run is nigh. But my view is that it is too quick to determine as yet.

Do you think its going to go BUST soon? If yes – why do you think so?

We all know that property prices move in cycles – that is, prices can and will eventually correct. I know of no mature economy which has seen an uninterrupted and sustained upward cycle. Cycles are part and parcel of the function of the modern economy.

Previous cycles have been in the range of about six to seven years, but now the cycles have been shortened, and the fluctuations are closer to the conditions and situation akin to the stock market. It is however to the relief of property investors (as well as property agents) to know that Singapore’s property boom & bust cycles follows an upward sloping long-term trend line – that is, each boom and bust is higher than the previous high and low points. But with each cycle, the rebound comes with alacrity that shocks market experts (and seasoned investors alike). Some experts attribute this to the rapid opening of our market and acceptance of Singapore as a safe haven for investment, and its tax structure has created that popularity amongst foreign investors.

The influx of foreign investors into Singapore is none that we have seen before. Investors are buying properties not by 1 unit at a time, but by bulk buying (and frequently negotiating for a better price).

Many are asking me – when is it going to go bust. Why are they hoping for it to bust? Because they are keen to snap up mortgagee sale. Yes many property investment vultures around, waiting for the party to end. We can’t be certain either, like I said, it is too soon to tell that the music has ended, those that are caught without a seat will be out of the game.

Is it because we’re doing something right? Or is the current path that we are taking to promote Singapore as a global investment hub with excellent lifestyle ammenities (new boating marinas and 2 Casinos & a Universal Studio theme park to boot), a path to pain and misery? This is the cry of Doom Sayers that I’ve met that have cried afoul at their inability to afford properties in the current market. To those that are already in it – I bet they’re adopting a wait and see attitude. Aren’t you? Let us know what you think

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Over the past 2 months, heavy downpour has caused havoc for many people living and operating businesses in low lying districts in Singapore. Never have we encountered flooding like we have in the past 2 months. Many of the current generation have not seen such a sight as water pouring into their living room, and retail shops, carrying away goods and furniture.

Luxurious landed property districts of Bukit Timah, Crescent Road, Upper Thomson Road and Telok Kurau found flood waters coming up to their doorstep. Some underground carparks of prestigious condominiums at Bukit Timah like the Tesserina were flooded, submerging vehicles parked in the basement.

How does such a freak of nature affect the value of the property?

One buyer who was considering buying a new condo in the Holland area, said that she will think twice about buying a condo with an underground carpark. She certainly does not want her car to be soaked and damaged should such an incident occur again.

Remember my earlier post about the new en bloc regulations – http://www.hot-property.sg/new-restrictions-expected-to-cool-en-bloc-sale-fever/

It will come into effect tomorrow – 15th July 2010. One of those that would be affected by this new law would have to be Laguna Park which despite its 2nd try, is still unsuccessful, I wonder how it would affect them right now?

Need a quick review of the changes? Well here it is for you again:

The key provisions of the new Act include:

Yes they are at it again. It was reported that over the weekend, the residents at Laguna Park held an EOGM to discuss this, and a new Collective Sale committee was selected and much of it are new members. Why the sudden rush? Of course its in response to the government’s new measures on collective sale which will come into effect in June. In a flurry of activity, Laguna Park hopes to get all this settled before then. A little ambitious though, but that means they are motivated sellers. And everyone knows a motivated seller is a good seller (but not a desperate one).

Even with the new laws, its not really going to seriously affect them if everyone is of the same mind. But because we are dealing with people (not machines), they think emotionally not logically. And many of us can empathize why some people are adamant against the collective sale.

As you may recall the prankster former Sale committee chairman Mr Lee, who went around putting superglue into neighbour’s car key holes and scratching their cars etc in a high profile court case on vandalism when several owners were dead set against the collective sale.

I just hope their collective sale goes through this round. I’m not so sure if all of them will profit from it, especially those that had bought in the last year.

Proposed changes are included in the new bill which will be introduced in Parliament today.  The proposed changes will make it harder for owners to keep re-trying for a collective sale.

Since the Horizon Towers case and several other famous cases involving collective sales going to court, changes to the law seems inevitable. In the current bullish property market these changes would mean failed collective sales would need to wait 2 years before launching another attempt at it. Should they wish to go ahead with such an attempt during that 2 years further restrictions on the minimum number of owners required to call a EGM. The first re-try to convene an EGM will need 50 per cent of share value or number of owners. And for the second and subsequent re-tries, 80 per cent will be needed. A significant change from the current 20 percent share value or 25 percent of total number of owners.

‘The objective of this change is to discourage numerous attempts at en bloc sales where there is insufficient level of interest and support from owners,’ said the Ministry of Law in a statement.

Specific details of the amendments to the Land Titles (Strata) Act may be found on the Ministry of Law’s website.

http://app2.mlaw.gov.sg/News/tabid/204/Default.aspx?ItemId=472

We have included the specific link to the website above.

What does all this news mean to you?

Well we think that this will not impact home owners who are living in HDB very much, so hence if the majority of us are going to sleep soundly. And for private property owners, especially those that have en bloc sale potential, will mean that further diligence is required by the sale committee, by the management committee and residents that are in favour of the collective sale. They will need to be certain that they have some a majority consensus for the going ahead of the collective sale before embarking on it.

What this means to private property owners in developments that have failed in their sale, and during the 2 year restriction, will mean that they will have to be realistic and discuss with their representative property agency on the sale price. This will mean less “let us try to see if we can get this high price” type of collective sales. Overpricing is an ailment that plagues property sales, as owners have inflated ideas of the value of their property. Hence it is important to have an unbiased valuation or appraisal of the property to determine a reasonable price to market it at.

For property developers – there isn’t much impact. Fewer en bloc sales, just means that they will be buying more land from the government land sales scheme. Property developers may not necessarily favour en bloc sales due to the lengthy time taken to take over the land, and potentially costly legal issues with discontented minority groups.

What do you think – please share your thoughts with us….visit our facebook page and leave a comment

Chua Mui Hoong from reported from SPH in her article – Do something drastic or do nothing?

In the article wrote about there being 2 camps – One wanting something drastic to be done to curb the runaway prices. The other championed by REDAS chairman – Simon Cheong want Nothing To Be Done.

In the article it was said “The majority would be better off if the Government judiciously steps in to ‘Do Something Selectively’ now and then to keep the market on a relatively even keel.”

Which I beg to differ. The buyers want the government to step in. The sellers on the other hand want status quo. Why, because if there were controls put in place, they won’t be able to get inflated prices on their property.

Humans by nature are greedy, and hence although we gripe about high COVs, and high launch prices of property, many are drawn like moths to the flame to buy at prices determined by the developers.

If the demand is not there, do you think developers would be able to price at that level?

Developers understand the market and what are the demands. Do you think that Siglap V if priced at $1400psf would be outpricing itself, and setting a benchmark in that area, but it still sold many units despite the premium price.

Market demand is not just local demand, but foreign demand and interest in investment in Singapore. Our country welcomes foreign investment with open arms. Which as a result have seen some astronomic prices paid by PRs for a HDB at Bain Street (Bras Basah Complex), which nationalistic individuals would rally to the clarion call to drive out foreigners and foreign direct investment(FDI).

Such activities would do the country no good.
Because FDI boosts the economy. The recent activities in revaluing the S$ was an indication that our government is trying to control some of this inflows, by making it less attractive to FDI.

Our dear ST reporter says “True, there is currently a mismatch between supply and demand, with queues for new HDB flats and at popular condo launches. This is likely to be a short-term glitch.”

I do not think that it is a short term glitch. Our MND Minister, the esteemed Mr Mah, had stated that he will not be in eager hurry to build new HDBs, and will continue on the BTO path. Many new first timers, will have to contend with what HDB rolls out under BTO. However, they refuse to accept this, and hence look to purchasing from the secondary market. Hence until there is acceptance that this will be the trend of the future – this “short term glitch” will remain, and people will still have to settle for high COVs in popular mature estates.

Perhaps by a stroke of luck or it is the bullish fever getting to everyone, but Culford Gardens successfully sold en bloc. The 25 year old boutique development of 24 units at Siglap successfully sold for $39 million to Fragrance Properties.

So each owner pockets about $1.625 Million dollars from this deal.

Tougher rules and taxes could possibly frighten some property speculators, especially those that truly do not have the appetite for such a risky business. Truth be told, a 3 % isn’t truly going to turn away true blue property investors and those that have been investing and flipping for a long time. Any investor would tell you that if the profits that have deducted the cost of funds, any legal expenses, GST and now Stamp Duty, some of them will tell you it is worth the while when the profits are right.

Of course in such risky business, there are times when bad decisions are made, sums calculated wrongly and losses are part of the territory. Such costly mistakes do not only hurt the individuals or groups that go into such business, but the economy and society as a whole. Artificially inflating the market to achieve personal gains are what speculators do, and that is why for the general health of the real estate market and the economy as a whole the government has to step in to cool the buoyant property market, which started to move again in January this year.

The tightened rules on the mortgage loans only allowing 80% of the purchase price doesn’t have such a great impact on the speculators, but rather hitting some marginalised (and genuine) buyers. I truly disagree with this move. As it really hurts those that are not trying to artificially inflate the market, but buyers who are looking to buy for their own, especially those that are wanting to start a family. The impact won’t be that great on sales figures though. Buyers will just have to stick to buying property which they can truly afford, and not try to over-stretch themselves.

The global economy is recovering, US economic data shows improvement, and hence our Singapore government is concerned that the global economic recovery will cause an overheating of the property market, and the risky global economic factors may hurt many should the market correct itself. I seriously doubt so. Its a little far fetched, but as usual, in Singapore, we’re all Kiasu, so its better to be prepared then not to be.