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CoffeeTalk: Property Stocks, Good Meh?

CoffeeTalk

Lately, I have witnessed quite a number of people walking with a swagger near the few kopitiams at Hougang area, and I started searching for the cause of this newfound confidence.

You know ah, these people were previously complaining about prices of things, MRT breakdowns and how our stock market is still so quiet despite global markets hitting new highs. And suddenly, things became not expensive, MRT breakdowns also nevermind, and who cares about the stock market!

After playing Sherlock Holmes for some time, I found the answer – ENBLOC!

Too Many In One Area?

Since the swaggers were spotted in Hougang, Let’s talk about District 19 in this article. For a start, the first to go enbloc was Rio Casa in May this year, located at Hougang Avenue 7, sold to an Oxley Holdings-led (Oxley) consortium for $575 million or $706 per square foot per plot ratio (psf ppr). Each unit stands to gain about $2 million! Huat ah! This property, which has 286 units, could easily yield a thousand or slightly more units.

Nearby at Serangoon North, which is near to Hougang Ave 2, the Oxley-led consortium once again snared Serangoon Ville for $499 million or $835 psf ppr. Each unit is expected to pocket $2 million on average! Huat ah! This property has 244 units and can be developed into a project consisting of 1,200 new units.

Along came Florence Regency, which was sold for $629m or $842 psf ppr. Each unit will receive around $1.85 million on the average! Huat ah! This property was sold to Chinese developer Logan Property, which will demolish the 336 units at the site and to be developed into a new project comprising another 1,000 units.

So, within a two kilometre radius, Hougang will, in a few years’ time, be flooded with almost 3,200 new residential units. This is not including the unsold condominium and executive condominium units in nearby Sengkang and Punggol.

Why Mostly HUDC?

HUDC and privatised former HDB flats command a lower quantum, a lower investment outlay compared to freehold sites. These sites in Hougang or nearby will be developed into mass market condominium, which also means that buyers will find these properties more affordable even though the projects are all 99-year leasehold projects (after developer tops up the lease).

If we were to assume a development cost of $400 to $500 psf ppr, the breakeven prices for these Hougang projects range from $1,100 to $1,300 psf ppr. The price per new unit will then be about $1,500 to $1,600 on the average.

At nearby How Sun Road, Sun Rosier was acquired by SingHaiyi for $1,325 psf ppr. Add another $400 to $500 to the land cost and total breakeven could come near $1,800! How much would this new project cost to potential buyers? Will SingHaiyi be looking at selling the freehold property in pockets of 99 years? This essentially means that buyers will own the land for 99 years but SingHaiyi retaining “ownership” of the land parcel.

Residential Collective Sales

Sentiment Or Real Demand?

What sparked the sudden turnaround in sentiment?

In March this year, the government made some tweaks to the residential property cooling measures relating to the seller’s stamp duty (SSD) as well as the total debt servicing ratio framework (TDSR). This was aimed at helping owners refinance their properties, but it had the effect of sparking off a wave of enbloc activities.

http://www.straitstimes.com/business/property/govt-eases-property-cooling-measures-sellers-stamp-duty-cut-tdsr-relaxed

It seems that the market is expecting the government to unwind some of the cooling measures after the March tweak, but much effort has been put in to stop property prices from skyrocketing hence expectations could be dampened.

For the property market to really turn upwards, we need the job market to improve significantly and real income has to grow in order to meet rising property prices. We have yet to see any of the two taking place in Singapore as retrenchments continue to hog the headlines.

Short Term Positive, Long Term Risky

The positive sentiment will definitely have the effect of lifting property prices, in spite of the headwind, and the share prices of property stocks have started to climb (already happening! Yeah!). While land prices have gone up for developers, investors need to see the higher land prices spilling over to actual transacted prices and real demand has to materialize. The acid test will come when the recently-acquired properties launch for sale.

Selective Purchasing Of Stocks Or Properties

There is a saying, “Early bird gets the worm; wake up early gets coffee to drink”. We should get excited about certain companies, especially companies that wake up from the property slumber and jumps in early.

From the looks of it, Oxley looks good because it has managed to grab two former HUDC sites at prices that may attract the HDB upgraders despite HDB prices still falling and buyers may be concerned about job safety.

Still, Oxley and gang will probably build around 2,000 units in Hougang and price the units to sell as their investment outlay is low and the return of investment will be high. I remember reading somewhere that Lian Beng Group (Lian Beng) is involved in Rio Casa hence do take note of these two companies whereby the project can ride on Lian Beng’s expertise in construction.

On paper, the property sector looks like it will rebound but anything can happen these days. We can only make educated guesses, if you believe someone who hangs around the kopitiam on most days.