London Property Prices Near Peak Like Singapore, US Properties May Be Near Bottom

I realised that I wrote an earlier article about how superior London properties are compared to Singapore's. I was referring to the livable space provided by UK developers which is what's actually sold to you unlike in Singapore. I was also referring to the cheaper PSF and quantum for London properties vs Singapore's. However, like Singapore, London's residential property is near the peak. Evidence can be seen in the gross yields of London properties falling to record levels, from 5.5% in 2005 to 3.5% in 2012. The gross yield of 3.5% is just slightly higher than the borrowing cost of 3.2%. With such figures, London properties may fall even more than Singapore's.

However, if the UK does enter into a recession, London properties are definitely more attractive than Singapore's, from a lifestyle perspective, because you get to live in one of the most sought after cities in the world, where you are just minutes away from West End Theatres, famous Michelin restaurants, the majestic historical buildings, and the lovely River Thames. What's more, London's retail prices, restaurant prices are now equal if not cheaper than Singapore's. The power of the SGD has made us more internationally mobile now.

The most attractive properties right now is in the US. It is still falling and is near the bottom of the cycle, unlike in Singapore and UK. The fall in prices vary widely, from New York and the north eastern states which fell less than 35% from the peak in 2006/07, to more than 70% in Las Vegas and Florida. Marc Faber, Donald Trump and Warren Buffett have said recently that US properties is worth buying now, so I will be looking at them soon. The tax laws are complex. There are capital gains taxes and property taxes, unlike in Singapore.

Published February 23, 2012

Sparkle in prime London homes Top notch residential property defies recession and rises in 2011, reports NEIL BEHRMANN (LONDON) Prime residential property in London defied the gloomy British economy and achieved sharp gains in 2011. Classy locale: Money flowed from Italy, Greece and Egypt, according to agents, while Russian and other billionaires and multi-millionaires continued to favour the city. Such money tended to head for Knightsbridge, Kensington (left), Mayfair, Chelsea, Regents Park, St John's Wood, Hampstead and other prime London boroughs The price jump and mild rental increases caused yields to slide to such low levels that top notch London residential real estate may well have entered bubble territory. The eurozone crisis and Middle Eastern revolutions turned out to be bullish for prime properties priced anywhere between £pounds;500,000 (S$1 million) and £pounds;20 million (S$40 million) or more. Money flowed from Italy, Greece and Egypt, according to agents, while Russian and other billionaires and multi-millionaires continued to favour the city. Such money tended to head for Knightsbridge, Kensington, Mayfair, Chelsea, Regents Park, St John's Wood, Hampstead and other prime London boroughs. Price changes of other London boroughs, on the other hand, were mainly mixed with small increases and declines. The index is below the August 2011 peak, which was a new record, but it fell back and in December was 4.6 per cent below the 2008 pre-recession peak. The performance of large prime area flats over 1,500 sq ft has been staggering. In 2011, the apartment price index jumped by 24.9 per cent and was up by 64.5 per cent from the 2009 nadir. Indeed, the appreciation matched the revival of the FTSE 100 from its 2009 depths. The difference, however, was that the real estate rise took place on very low volumes. Following such a run, gross yields on rentals have tumbled to around 3.3 per cent on apartments and 2.9 per cent for houses. James Wyatt, head of valuation at John D Wood, estimates that after deducting agent and management fees, maintenance, other charges and tenant voids, net rental yields can be estimated at only 2.3 per cent for flats and 2 per cent for houses. The low returns indicate that the prime market has become over-blown for investors, although foreign super-rich buyers and others sought London homes for a variety of other reasons. Some of the money reportedly entered the market to evade taxation, though this could not be confirmed. Regardless of the reasons for purchase, London prime real estate has become far more pricey than depressed US city properties. 'The cardinal rule is to be highly selective,' says Michael Ross, head of Stockton Estates, a London-based commercial and residential property company. He is wary of ultra low rental yields, but notes that since property is a non-homogeneous market, careful buyers can find opportunities to refurbish units and boost valuations. The UK Land Registry's sales data to end November 2011 shows the wide price differential between London areas. Average prices in Kensington and Chelsea of around £pounds;950,000 compare with outer areas, such as Sutton and Croydon of around £pounds;240,000. Gross yields on properties of lower priced London boroughs range between 4 per cent and 6 per cent, but high maintenance and wide tenant voids can slash the net yield below 3 per cent, caution agents. The London property market faces a year of considerable uncertainty in a nation which is experiencing recession and high unemployment. Despite a stock market rally late December, January and February, trading, initial public offering and merger and acquisition volumes have shrunk. Widespread layoffs are occurring in the City of London and bonus payments have fallen. 'The raft of City job losses announced in recent weeks is a reminder that London will not escape the recession unscathed,' says Ed Stansfield, head of property research at Capital Economics. On the face of it both prices and rentals could slip although demand from overseas buyers could support prices in the short run. London, however, is likely to underperform on a medium-term view because valuations are stretched, he maintains. Drivers Jonas Deloitte's latest London Residential Crane Survey found, however, that large numbers of developments will be completed this year. The more buoyant market raised construction levels to 39,300 units within 247 development schemes. Drivers Jonas Deloitte's unconventional research, which counts the number of cranes on residential schemes with 50 units or more, concludes that new build real estate in the pipeline is heavily dominated by flats, which account for 95 per cent of all units. Liam Bailey, head of residential research at Knight Frank, forecasts that London prices will fall by 3.7 per cent in 2012, but that prime area prices will still manage to increase by 5 per cent. The firm believes there is a 75 per cent chance that conditions in the UK mainstream market over the next few years 'will resemble a slow correction under which the market will experience an extended period of low transaction numbers and price falls in real terms'. It contends that there is a 20 per cent chance of a sharp fall, similar to the 2008/2009 property bear market, if there is a severe sovereign debt crisis, a collapse of the euro or an unexpected rise in interest rates.

Singapore Residential Properties: Balconies, Air Con Ledges, Planter Boxes, Bay Windows Considered Livable Space??

http://sg.news.yahoo.com/blogs/property-blog/denied-banks-cut-lending-shoe-box-buyers-092714057.html

I have been warning against buying studio apartments that are more than 10 minutes by train ride to major office sites like Jurong East, Tampines, MBFC and Raffles Place. The developers just ripped off the buyers by charging up to 50% higher on a PSF basis. The payback time will come very soon. In London, buyers look at financials like gross rental yield, cashflow after paying for mortgages, net rental yield (after paying property tax, maintenance charges etc). When you buy a 700 SF home for S$990k, for S$1,400 PSF, you think you have a one or two bedder but think again, 15% of the space is used for balconies, bay windows and air con ledges. You are actually buying 608 SF of livable space and paying S$1,610 PSF not S$1,400 PSF. So you should not fancy buying a studio or a unit less than 1000 SF in areas like Punggol!!

In London, you can buy a nice apartment of around 500 SF for only GBP220k, that's S$440k!! In areas like Woolwich Arsenal, you can get an apartment by the River Thames for the type of price. Just 20 minutes by train or boat you can reach Canary Wharf, which is equivalent to our MBFC! Rental yield is around 5 - 7% for that area and it's freehold.

Nearer the Canary Wharf, you can get a Greenwich apartment over looking Thames for around GBP300 - 400k. You can even take a cable car across to work! In the US and UK, they throw in the balcony for free. There are no bay windows, no air con ledges factored into the price!

http://sg.news.yahoo.com/blogs/property-blog/buy-home-6-300-092448675.html

I am not telling you to rush out to buy properties in the UK or the US. There are a lot of con jobs out there, where the agent buys a row of houses for US$25,000 and comes here to mark them up to US$50,000. Read the hyperlink above. There are issues such as taxes (capital gains tax in the US and dividend tax in the UK), property maintenance etc. I would suggest that Singaporeans just go for apartments overseas, because there's no hassle of doing major repairs where you have to oversee the building. Still you will need trustworthy property management companies who will probably take 8 - 10% of the monthly rental as a service charge.

You also have to fly to that country at least once or twice to survey the area, whether it's near a slum, whether it's safe, the kind of tenants you will be attracting.

With the ABSD in Singapore, foreign investors will no doubt be flocking to the UK and US to buy properties. There's obviously better value for money. Singapore is near the peak of the cycle now, after enjoying a run of 3 years. The US is right at the bottom and London's property cycle is on the down trend still. If you have excess cash, other than buying more stocks, you should explore an escape route out of Singapore. Buy a house in Melbourne, London, San Francisco, New York and Hong Kong. You get to enjoy living overseas and diversify your risk of investing all into one Singapore basket.

Here are more adverts of what you can buy by River Thames, not what Singapore's developers often try to sell you, a "long kang" view or "swimming pool" view which can only be seen when you look down from your balcony.

Straits Times Index: Heading Towards a Pull Back in Feb and Then Onward to 3300 by May?

I believe in early 2012, most fund managers and analysts were so bearish that cash levels were very high. When the rally that began on 4 Oct began, only people who short lost money by short covering. This occurred between 4 Oct to 21 Oct. Corporate insiders also started to buy around late Oct and early Nov. In Nov, most short term chartists began to spot a short term trend change and started to long. The more conservative technicians only started to long when the monthly stochastics turned positive, which was in Nov, or the S&P500 breached the 200 day EMA in Dec.

The fundamentalists are always the latest to follow market trends. They wait for economic data to turn, which is always at least a month to 6 months late. They began to turn bullish in Jan 2012. Retail investors unfortunately began to turn NEUTRAL only now. Take note, they still have not turned bullish.

Now those who went long from Nov 2011 onward would have made 20% by now, entering when S&P500 was 1100, which is now 1350. Those who went long when the STI was 2650 would have made around 13%. They would have started to take some profits now. Hence I expect to see the first dip of around 5 - 10% starting around now until end of Feb.

I would take any dip as an opportunity to re enter. I am looking at STI level of around 2800; around a 7% dip. There will be one more leg up at least, with around 15 - 20% for the STI before we face another peak by May 2012.  What happens after that is unclear. I believe Marc Faber said that stocks may not do so well after May. I believe it won't crash either in 2012, at least until late 2012 or early 2013. That is when the music stops.

Nov 2012 is the US Presidential re-election. The Fed will pump as much liquidity as possible to prop up the economy and stock markets. The fact that the US TIPS breakeven dropped to around 2.1% from 2.5% is testament that inflation expectation is falling, and that the Fed is right that the 2 bouts of QE is not stoking inflation. More importantly, the Fed has room to launch the third QE.

The OECD CLI showed that the world's biggest economy (STILL!) is turning around after a scare in May 2011! However, China, the EU's indicators are still heading south. The CLI indicator is not always the lead indicator as it failed to lead the stock markets this time, but it confirms our suspicion that we may have averted yet another global recession.

Among the countries that have turned around are Japan, Russia and India! Perhaps it is time to buy these countries' ETFs and funds!

I met a friend from Turkey, who told me that the Greeks may riot with greater ferocity in the warmer seasons of spring and autumn. In the dead of winter, we already have 45,000 on the streets, attacking the parliament and theatres. If youth unemployment continues to climb and wages fall, we could see a full scale revolution in May. The Greek opposition leader said something that scared me a lot. He said that if the current Prime Minister concedes too much to the EU, he may lose the coming elections. When the opposition takes over and there's a good chance they will considering how the economy is in freefall, they will renegotiate all the agreements with EU. "When you owe the bank EUR500, you cannot sleep. But if you owe the bank EUR5 billion, the bank cannot sleep". They will use this lever to threaten the world. The world will tolerate Greece's uncontrolled spending until Germany eventually pulls the trigger and says, "enough is enough", and gives the lazy Greeks the red card out of Eurozone. This is the most probable scenario that will unravel in 2012 / 13.

Contrary to popular belief, I actually feel rather bullish about 2012 and don't think it will be as volatile as in 2012. Stock markets may just bob along until the end of 2012 before we see huge price actions... Hang on tight!

First Signs of Turning Point of Residential Property in Singapore

This is the first sign that residential properties are finally falling. Core Central Region properties fell by 10.2% in Han from 4Q11. But even more compelling is the rental yields of Outer Central Region properties have started to fall. When rental yields fall, usually prices will follow. The reason is many buyers rely on rental income to offset mortgage payments and when income is insufficient, some buyers may be willing to sell at lower prices. It may not be the majority of owners, but the peripheral groups.

I am also of the opinion that contrary to popular belief, prices of outside central regions and non central regions may fall greater than the CCR. This is because of the deluge of supply from government land sales that come from the OCR and NCR. The abundance of studio units in OCR and NCR was senseless because only expats and young professionals are willing to live in studios that are near their work places. For OCR and NCR areas, it's best that buyers go for one to two-bedroom homes. That's where rental yields are the best because developers sold the one to two-bedroom homes at lower PSF. But the unsophisticated buyers, mainly HDB upgraders, bought studio units at sky high PSF prices, sometimes at a 50% premium to larger units. For example, a leasehold studio unit of 500 sf in a project in Sengkang could fetch S$1,400 psf, which is ridiculous considering old condos in central areas just next to Raffles Place are sold for less than that. Within the same project in Sengkang, a 3-bedroom unit at 1,200 sf could fetch only S$1,000 psf. Of course, the HDB upgrader who's eager to own that dream piece of private property will opt for the studio unit because the quantum is much lower at only S$700,000. If it's the upgrader's first private property or first loan, he needs to pay only S$35,000 of cash and S$105,000 in CPF. However, the rental is likely to be only S$2,000 in such a far flung area because the rental market only caters for singles, not families nor couples. Sometimes, even single expats may choose to live in a bigger apartment and share with a friend due to the lonliness. I lived in a large apartment for 4 years and I felt so lonely that I sublet a room for 2 of the 4 years. The gross rental yield will therefore be 3.4%.

A 3-bedroom apartment may cost S$1.2 million. A buyer would have to fork out S$60,000 of cash and S$180,000 of CPF. Not many buyers have S$180,000 in CPF. But the rental could be S$4,500 because the two common rooms are worth S$1,250 per month while the master bedroom S$2,000 per month. If a tenant takes the whole house, S$4,500 per month is reasonable. This translates into a gross yield of 4.5%.

When interest rates finally rise in 2014, perhaps things get worse for the studio unit owner. A loan of S$560,000 over a 30-year tenor will require around 1,400 of principle per month. Interest if at 1% will only be $467 per month. The total debt burden will only be $1,867 per month. The rental income of $2,000 has to be net of maintenance of around $200, which works out to $1,800. This is barely enough to cover the mortgage and the buyer needs to cough out $67 per month to pay for the property. What if interest rates rises to 4% as they did in 2007, 1999, 1997? Let's not talk about the worst case scenario, but assume that interest gradually trend up to 2.5% by end 2014. The interest burden will rise to $1,167. Including principle payments, the mortgage will be $2,567. Perhaps you can argue that when interest rates rise, the economy is usually over heating and hence rental income will increase. Let's assume a 10% increase in rental in 2014. $2,200 of gross rental or $2,000 of net rental leaves a $567 gap on the pockets of the owner. You will lose $567 every month just to earn that "air space".

Consider the 3-bedder. A $960,000 loan will incur interest cost of $2,000 per month at 2.5%. Principle payment is $2,400. Total mortgage is $4,400. Let's assume rental also rose by 10%. $4,950 is the gross rental. After deducting for a bigger maintenance fee of $300, the net rental is $4,650. The owner is still generating positive cashflow of $250.

Another point to note is this: isn't it ridiculous that a condo in Jurong or Punggol can fetch $1,400 psf?? I know it's new, but it's leasehold and say what you like, it is at least 30 - 45 minutes away from the city. If you work in Tampines, Changi or Jurong, travelling time may be only 15 - 20 minutes by MRT. But then the rental market is only the IT white collar workers, nurses or HR managers who work in the non CBD areas. Condos in the central region, which are also leasehold but older, are fetching around $1,400 psf and have en bloc potential what more!

The reason that OCR and NCR properties have surpassed CCR properties is that most of the recent completions (in fact around 50 - 60%) are in the CCR. there is a temporary overhang of CCR properties. The ABSD further dampened demand. However, from 2010, most of the GLS were in the OCR and NCR regions. The flood of supply will be completed from 2012/13 onwards. It may be time for OCR and NCR properties to correct sharply and for CCR to rise again. CCR properties should fetch a 20 - 40% premium to OCR properties due to proximity to the city.

Another point is that HDB completions will hit 20,000 - 25,000 from 2013 onwards, peaking in 2014/15. HDB prices, which experienced unprecedented rise from 2003, will finally correct 10 - 30%. The reason HDB prices kept going up in the last 9 years was due to no magic; it was the under supply. But the overhand will finally come and we will see the return of the downtrend like in 1997 and 2000. falling HDB prices will definitely affect mass market condos. 2013/14 is the year to watch.

I believe that there will be a gradual fall in property prices here in 2012, starting from CCR residential, then followed by NCR and OCR at a greater magnitute in 2013. Then industrial, followed by office and lastly retail prices will follow suit. Prices may hit a trough in 2014 / 15... it's very hazy to foresee so far ahead, but it's likely that the slide is a long but gradual one.

CCR home prices fall very harshly

Feb 10, 2012 - PropertyGuru.com.sg

Prices of private condos and apartments in the Core Central Region (CCR) have dropped by up to 10.2 percent from Q4 2011, as buyers became more cautious over the property cooling measures, particularly the additional buyer's stamp duty (ABSD) introduced in early December last year.

According to data by the Singapore Real Estate Exchange (SRX), the average selling price of private units fell from S$1,781 psf in Q4 to S$1,600 psf.

Rental prices were also affected, with units in the non-central area being the hardest hit. Since Q4, rental rates for units in the Outside the Central Region (OCR) slid 2.3 percent to S$2.92 psf, from S$2.99 psf.

Still, rental rates for CCR homes are maturing, with a 1.3 percent growth from Q4 (S$4.68 psf) to S$4.74 psf.

Property agency heads said this is only the start of a downtrend. However, a price crash is not a possibility, they noted.

Prices of private property are likely to fall from 10 percent to 15 percent this year, according to agencies.

Singapore Luxury Condo Dragged into Malaysian Scandal

This is an interesting article. It's one of the factors that others suspect is propping up ALL forms of properties in Singapore. Whether it is commercial, industrial, office or residential properties, Singapore is an attractive destination for the rich and "connected" to park their money. Developers in Singapore are apparently not required to conduct stringent checks on the "source of funds" according to this article. Give me your opinions.

S'pore luxury condo dragged into M'sian scandal

Feb 9, 2012 - PropertyGuru.com.sg

A report has surfaced that a Malaysian female official, accused of squandering government loans totalling RM250 million (S$100 million), acquired two high-end condo units for more than S$7 million each at Marina Bay Suites (pictured) in Singapore. In addition, Datuk Seri Shahrizat Abdul Jalil, a cabinet minister, is said to own a number of other properties in Singapore and Kuala Lumpur.

Developed by a consortium comprising Keppel Land, Hongkong Land and Cheung Kong Holdings, the 66-storey Marina Bay Suites is a 221-unit luxury development comprising three- to four-bedroom units ranging from 1,572 sq ft to 2,691 sq ft as well as three penthouses. According to Keppel Land’s website, a typical floor has only four apartments with private lift lobbies in every unit, while the penthouses each have their own swimming pool.

The report said that the two units at Marina Bay Suites were bought on 27 May 2010 for a total of S$14.29 million.

The suites were allegedly purchased under the names of her husband and son, and the loans for the units were obtained from United Overseas Bank and Maybank.

“We believe the loans were approved because they control funds of RM250 million (S$103.4 million), which is lucrative for any bank. Any bank would want RM250 million (S$103.4 million),” said PKR (People’s Justice Party), a political organisation in Malaysia.

“The bigger question is how does the family pay back the monthly repayments? Assuming a 25 year-loan... they must pay RM173,000 (S$71,557) each month for these two condos.”

When contacted on whether any background checks are done on its buyers, Keppel Land declined to comment. However, property expert Getty Goh, Director of Ascendant Assets Pte Ltd, said there is no requirement right now for Singapore developers to get background information on their clients.

“At the moment, buyers only have to declare whether they receive discounts or if they are in some way affiliated with the developer.”

“If clients have the cash to pay then developers will accept. They are a business so naturally they are concerned about profits. Even if checks are done in future, prospective buyers can register under a company name and make the purchase which would be harder to expose,” added Goh.

It's An Extended Bull But It WIll End In Tears Soon

John Mauldin is a highly respected investment adviser. This is his prognosis of the Euro crisis.

http://seekingalpha.com/article/321072-europe-staring-into-the-abyss

It is inevitable that Greece will eventually default and leave the Eurozone. The Euro currency is too expensive for Greece. The debt is too huge and its economy contracting. There is no way to avoid a default. The question is whether it will be disorderly.

France and Italy may increasingly reach the Abyss as their labour cost is increasing without a corresponding increase in productivity.

Mauldin believes that the can will not be kicked down to 2013. I presume it will reach the end of the road by the later half of 2012.

Looking at the charts. I think the rally has legs for a few more months, maybe up to April / May 2012. After that, stocks could drift slowly downwards, with occasional spikes that never reach a new high. Nov 2012 is the US Presidential election and Mr Obama has a fighting chance of getting re-elected. Unemployment rate is dipping to 8.3% and at the rate the US economy is recovering, it could be 7.5% by Nov 2012. After the election, the President will address US$1 trillion fiscal deficit that the world's biggest economy is wallowing in. It will be almost game over for the US economy if they do. The economy could stall in 2013.

Then there's the problem of inflation due to rampant money printing. Can inflation stay below 4% in the face of QE 3, 4, 5 and so on? What will rate hikes in 2014 do to the economy?

I am not very optimistic for the world economy until 2014.

WTI crude looks like it is going through several months on dips, from a technical perspective. I will be very wary. Inventory of oil in the US is rising and oil tends to dip after the winter month. 1Q and 2Q could see WTI falling to USD90 bbl before picking up.

Conclusion

Make use of March, April and May to de-risk your portfolio. Go for safety. Go for alternatives like Amundi Volatility World, DB Systematic Alpha. Bond funds like Templeton Total Return.