Issue 124

Copyright 2011-2013 www.Propwise.sg. All Rights Reserved.

CONTENTS
p2
p9 p14
How to Spot Overseas Property Scams
Singapore Property News This Week Resale Property Transactions (September 18 September 24)

FROM THE

EDITOR

Welcome to the 124th edition of the Singapore Property Weekly. Hope you like it!

Mr. Propwise

Contribute
Do you have articles and insights and articles that youd like to share with thousands of readers interested in the Singapore property market? Send them to us at info@propwise.sg, and if theyre good enough, well publish them here, on our blog and even on Yahoo! News.

Advertise
Want to get your brand, product, service or property listing out to thousands of Singapore property investors at a very reasonable cost? Head over to www.propwise.sg/advertise/ to find out more.

SINGAPORE PROPERTY WEEKLY Issue 124

How to Spot Overseas Property Scams

By Getty Goh (guest contributor) Recently, a mainstream newspaper wrote about how some dodgy foreign property investment schemes were recently sold in Singapore. Being a co-founder of CoAssets, Singapore and South East Asias first real estate bulk purchase and crowdsourcing portal, I have come across my fair share of dodgy investments. Hence, I thought it would be useful for me to share some of the tools I use to help me discern whether a deal is genuine or a scam. Looking through the news article, the deal was eerily similar to something that I came across just a few weeks ago.

Back to Contents

Page | 2

SINGAPORE PROPERTY WEEKLY Issue 124 Some of the similarities are (1) the project is located south of Batam and (2) more than 1,300 units were sold for $70 million. The business model of CoAssets has been likened to that of SouFun, a Chinese listed company that provides targeted ad solutions for property developers by aggregating demand (i.e. bulk purchase). Hence, we were approached to get aggregate bulk buyers for this Indonesian project. After careful consideration, we turned the collaboration down and we found two key red flags that made us cautious. Red Flag #1: The numbers did not add up One of the main things that made my team wary was that the projected numbers did not add up. In another news article, it was reported that the developer was planning to sell 900 units at US$90,000 (about
Back to Contents

S$117,000). There were different units and the smallest unit was about 60 square meters (about 646 square feet). Of the 900 units, 200 were already sold at a special pre-launch price of about US$30,000 (about S$39,000), which meant that a deep discount of about 66% had been given to the group of early buyers. Developers are after all in the business of making money through the selling of properties; hence the question we wanted to answer was whether a discount of 66% was reasonable. When it comes to development, one key component is construction cost. To find out how much it costs to build a residential property in Indonesia, construction cost estimates for 2013Q3 from Rider Levett Bucknall (RLB), an internationally renowned quantity-surveying firm, were used.
Page | 3

SINGAPORE PROPERTY WEEKLY Issue 124 Based on the report, the estimated construction cost for Jakarta was between RP6,161,000 per sq m (about S$62.36psf) and RP9,839,000 (about S$99.62psf). Due to the lack of more precise data for the Batam region, construction cost for Jakarta was used as an indication. Based on the estimated cost, purely for construction, it would cost between S$40,000 and S$64,000 to build the smallest 60 square meter villa. Hence, at the special price of US$30,000, the developer may not be breaking even. Compounding to the risk, the number of people who received the special 66% discount was also unclear. The project could still be viable if the developer gave the special 66% discount to just a handful of close business associates. However, if it gave it to all 200 buyers, the total amount collected would unlikely be enough to cover the
Back to Contents

construction cost for the 200 units. Red Flag #2: The developer did not seem to have the financial strength

Developments are generally hefty financial undertakings and many developers do it with some form of construction loans from banks. While developers may not reveal the true financial situation to the retail property buyers, they will have to show their financial reports to banks in order to secure construction loans. Hence, developers that can secure bank financing at the construction stage tend to be in a good financial position and are more secure. Conversely, developers who do not have some form of bank financing during the construction stage are not viewed to be as attractive.
The 900 units in the Batam development falls under the latter category.
Page | 4

SINGAPORE PROPERTY WEEKLY Issue 124 That is not to say that all projects that do not have bank financing during the construction stage are doomed to fail. However, for this specific case, the amount needed to build all 900 hundred units is at least S$36 million (assuming all 900 units are 60 square meter units that cost S$40,000 each to construct). When we did an ACRA check on the Singapore company, we found that the company had only a paid up capital of S$300,000 and the key appointment holders of the company stayed in public flats. What is your financial recourse? When it comes to overseas property deals, a key aspect that investors should look at is financial recourse if things go awry, who will be financially responsible to make the investors whole. Based on HDBs website, it states that Under the Housing & Development Act, so long as one of the flat
Back to Contents

owners of the HDB flat is a Singapore Citizen, the HDB flat (of any type) will not vest in the Official Assignee ("OA") in the event of bankruptcy of any or all of the flat owners and the flat owners would not be compelled to dispose of their flat. This means that investors would have limited recourse should the development fail to materialise, as the directors assets could not be sold to repay the debtors. More troubling is that the amount raised from the presale is about S$7.8 million. It is still significantly less than the S$36 million needed for the project, bearing in mind that this is just a low end estimate as things like land cost, developer profits and other miscellaneous charges have not been factored in. A S$300,000 company is unlikely to have the type of financial muscle to deliver on a S$36 million project.
Page | 5

SINGAPORE PROPERTY WEEKLY Issue 124 And without bank financing, it is hard to fathom how they will be able to deliver on their promise. Based on the two factors highlighted above, the CoAssets team concluded that the deal was too risky and we were not prepared to endorse it. At this juncture, I must emphasize that not all projects that fail are scams. Even good developments with solid management behind them have some risks of failing, as real estate development is, by nature, a risky endeavour. To us, genuine business failures are realistic plans that go awry due to a sudden change of market conditions. On the other hand, scams are fantastic promises made by those who do not intend to keep them this means that the plan is unrealistic at the onset. Conclusion To conclude, the Indonesian case study that I have cited in this article could be a genuine deal. The developer could also have the financial muscle to take on a multi-million project and be profitable selling their villa units at S$39,000. However, I think that it is always more prudent to err on the side of caution. Even if I am wrong and this turns out to be the next big financial deal, the market is not short of genuine good deals, all we have to do is look and do our due diligence. I also must qualify that this article just provides a brief analysis on two of the more important red flags. There are many other considerations that have not been listed and a more detailed write-up will be beyond the scope of this article.

Back to Contents

Page | 6

SINGAPORE PROPERTY WEEKLY Issue 124 However, if you are currently looking at a deal that seems too good to be true and would like to get a second opinion, you can drop me an email at SecondOpinion@CoAssets.com. While it is not part of CoAssets core business, we hope to add more value to you by highlighting some of the blind spots that you might have missed. Ultimately, let me end off with this adage, if it seems too good to be true, it often is. This statement is pretty much applicable to everything in life, overseas property scams included. Mr Getty Goh is the co-founder of CoAssets, a spinoff company from Ascendant Assets Pte Ltd, and Singapore and South East Asias first real estate bulk purchase and crowd funding site. For any queries, please drop him an email at Enquiries@CoAssets.com.
Page | 7

Back to Contents

SINGAPORE PROPERTY WEEKLY Issue 124

Back to Contents

Page | 8

SINGAPORE PROPERTY WEEKLY Issue 124

Singapore Property This Week

Residential
CapitaLands Sky Vue sells 85% of units Following CapitaLands reversal of its former CEO Liew Mun Leongs stand against shoebox units, the company succeeded in its sales launch of Sky Vue at Bishan Central with 430 units sold out of 505 units last weekend. On the first day of sales, the company sold 410 units for an average price of $1,500 psf, with another 20 units more the next day. One-bedroom and two-bedroom units were the most popular. The optimistic reception of the units gave more hopes of a pick-up market sentiment after recent property cooling measures. Savills Singapore
Back to Contents

research head Alan Cheong said Sky Vue might revive the market by showing that people could get around the TDSR if the price is right. CapitaLand is now led by CEO Lim Ming Yan.

(Source: Business Times)

Thousands of HDB homeowners turn to new DBS loan A new DBS loan has proven to be a hit as thousands of HDB homeowners turned to it for a mortgage product that guarantees savings. Calculations from DBS showed people taking up the April POSB HDB loan could save as much as $1,600 by October.

Page | 9

SINGAPORE PROPERTY WEEKLY Issue 124 According to DBS, the POSB HDB loan has attracted five times more new customers than that of 2012, making up for some of the slack in the private-home loan market. DBS has received a few thousand applications for the past five months and the loan now makes up 25 percent of all new bookings. (Source: Business Times) HDB resale prices declines predicted decreases, more cooling measures and new government regulations such as a tighter Mortgage Servicing Ratio (MSR) on HDB housing loans and the TDSR introduced in June. According to data from ERA Realty, the overall median cash-over-valuation (COV) fell 33.3 percent to $18,000 quarter-on-quarter, with executive flats having the biggest fall. PropNex Realtys data showed the $18,000 figure a 40 percent drop from $32,000 median COV in early 2013. The number of transactions also fell 36.7 percent quarter-on-quarter to only 3,193 units in Q3, with the largest decline of 41.9 per cent from the executive flat segment.

Flash estimates from HDB showed the resale price index (RPI) at 205.1 in Q3, dropping 0.7 percent from Q2, the first decrease in more than four years, since the first quarter of 2009 at the outset of the global financial crisis with a 0.8 percent drop. Some analysts have predicted further price declines for resale HDB flats. However, consultants were not surprised by the decline caused by recent
Back to Contents

(Source: Business Times)

TDSR framework volumes to dip causes prices and

According to the Urban Redevelopment Authoritys (URA) flash estimate,

Page | 10

SINGAPORE PROPERTY WEEKLY Issue 124 prices of private homes rose 0.4 percent while certain segments showed a decline due to the TDSR framework. Prices of non-landed homes in the Core Central Region (CCR) decreased 0.5 percent in Q3, following the 0.2 percent decrease in the previous quarter. Prices of city-fringe homes decreased 1.1 percent, compared to the 0.2 percent rise in Q2. Mr. Ong Teck Hui, national director at Jones Lang LaSalle said Q3s price declines are significant in the CCR and Rest of Central Region (RCR) market segments as these two segments rely more on investor demand and these buyers are affected by cooling measures including the TDSR framework. City-fringe home prices are expected to see a larger drop when the finalized index is released. CBRE expects that the final Q3 2013 island-wide price index would be at the same level as the Q2 2013 index, with recent launches such as Thomson Three and Sky
Back to Contents

Vue included. Transaction volumes have dropped in all market segments. Total volume in the CCR and RCR decreased 61 per cent and 72 per cent quarter-on-quarter. The Outside Central Region (OCR)s transaction volumes fell 50 per cent quarter-on-quarter. Average prices of new sale private nonlanded homes in the OCR were around $1,332 psf in Q3, compared with $1,096 in Q2. (Source: Business Times) CEA studies courts findings in failed Thomson View en bloc sale The Council for Estate Agencies (CEA), the regulator of estate agents, is studying the High Courts findings of HSR International Realtors role in the failed Thomson View en bloc sale before deciding on necessary follow-up.
Page | 11

SINGAPORE PROPERTY WEEKLY Issue 124 The High Court has found HSR, the marketing agent for the proposed $590 million condo en bloc sale, acted in bad faith and breached its duty to avoid conflicts of interest by not disclosing the incentive payments to the condos collective sale committee (CSC) and other owners. HSRs incentive payments were also found to taint the method of distribution of the sale proceeds. According to CEA, in an en bloc sale transaction, the estate agent is expected to work closely with the CSC, taking instructions from their clients, and acting ethically during the process in compliance with the laws and requirements governing en bloc sale transactions (Source: Business Times) Sentosa Cove sees more activity after July deep-freeze In July, after the authorities plugged loopholes that property investors used to avoid paying higher additional buyers stamp duty (ABSD), the 99-year leasehold bungalow market on Sentosa Cove saw a slump in its activities. These investors had made proxy purchases in the names of family members who dont own properties here. Activity, however, has now come back to Sentosa Cove: a year-end pick-up in deals led by Singapore PRs will take place. In addition, the TDSR framework introduced in June has filtered down to some buyers in the upscale waterfront housing district. Even high-net-worth buyers seek the maximum

Back to Contents

Page | 12

SINGAPORE PROPERTY WEEKLY Issue 124 loan to take advantage of current low interest rates. (Source: Business Times) Commercial Perennial drops TripleOne Somerset deal It is reported that Perennial Real Estate Holdings has aborted its proposed deal of buying TripleOne Somerset for $980 million, after its owner raised the asking price to $1 billion. Other potential buyers such as Australias Lend Lease and US-based private equity giant Blackstone Group have been approached. TripleOne Somerset is a 17storey office-and-retail building owned by Asia Real Estate Income Fund (AREIF) with funds from Germany, local institutions and Qatar, and is managed by Singapore-based Pacific Star.

(Source: Business Times)

Back to Contents
Page | 13

SINGAPORE PROPERTY WEEKLY Issue 124

Non-Landed Residential Resale Property Transactions for the Week of Sep 18 Sep 24
Postal District 1 3 3 9 9 10 10 10 10 10 10 10 10 11 11 11 11 14 15 15 16 16 17 Area (sqft) 1,033 1,033 1,130 1,776 549 2,756 549 829 1,141 1,830 1,755 1,238 1,399 1,959 958 1,281 1,313 958 1,399 1,787 2,605 1,841 1,023 Transacted Price ($) 2,000,000 1,570,000 1,200,000 3,540,000 1,040,000 6,800,000 1,235,620 1,550,000 2,128,700 3,250,000 2,980,000 1,850,000 1,600,000 3,908,400 1,600,000 2,050,000 2,100,000 828,000 2,200,000 1,620,000 2,700,000 1,430,000 990,000 Price Tenure ($ psf) 1,935 999 1,519 99 1,062 99 1,993 FH 1,894 FH 2,468 999 2,251 FH 1,870 999 1,866 FH 1,776 FH 1,698 FH 1,495 FH 1,143 999 1,995 FH 1,670 FH 1,600 FH 1,599 FH 864 FH 1,572 FH 907 99 1,037 FH 777 FH 968 FH

Project Name EMERALD GARDEN DOMAIN 21 EMERALD PARK RIVERGATE PARC EMILY ST REGIS RESIDENCES SINGAPORE THE MONTANA DUCHESS MANOR THE MONTANA SOMMERVILLE GRANDEUR GALLOP GABLES JERVOIS LODGE RIDGEWOOD MIRO PAVILION 11 THE LINC SHELFORD 23 WING FONG COURT THE ESTA MANDARIN GARDEN CONDOMINIUM RICH EAST GARDEN APOLLO GARDENS EDELWEISS PARK CONDOMINIUM

Postal District 17 18 19 20 20 21 21 22 22 22 23 23 23 26 27

Project Name SANDY PALM MELVILLE PARK EVERGREEN PARK CLOVER BY THE PARK FLAME TREE PARK SPRINGDALE CONDOMINIUM THE HILLSIDE THE LAKESHORE PARC OASIS LAKEHOLMZ PARKVIEW APARTMENTS NORTHVALE REGENT GROVE SEASONS PARK ORCHID PARK CONDOMINIUM

Area (sqft) 1,249 1,561 1,173 1,733 1,593 1,119 1,776 1,184 1,378 1,238 980 1,259 1,195 1,249 958

Transacted Price ($) 998,000 1,050,000 920,000 2,100,000 1,673,000 1,338,000 1,860,000 1,418,000 1,418,000 1,250,000 820,000 1,043,000 900,000 1,188,000 810,000

Price Tenure ($ psf) 799 99 673 99 784 99 1,212 99 1,050 FH 1,195 999 1,047 FH 1,198 99 1,029 99 1,010 99 837 99 828 99 753 99 951 99 846 99

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

Back to Contents

Page | 14