Yes. A bubble already began to form in Core Central Region. As long as prices of real estate grew faster than real economic growth, a bubble is present. For example, when a 2207 sq ft apartment at The Sail @ Marina Bay was sub-sold for $5,055,000 or $2,290 psf in July 2007, it represents a price appreciation of 254% over a 2½ -year period. When the combined GDP growth over the same period was at best 15% to 18%, a bubble is deemed to have existed.

In fact, one can also argue that even in the heartlands, there is evidence of a bubble. For example, from July 06 to July 07 HDB resale prices in specific locations have appreciated faster than the GDP growth rate.

From the above figures, it is easy to tell that price appreciation in central areas is faster than the GDP growth and there is evidence of an early real estate bubble.

Another gauge of real estate bubble is the percentage of real estate transactions towards the GDP size – which suggests Singapore is in an early stage of a bubble.

Yes. In fact, it already does and the following are recent measures that seek to check the temperature of the market which include:

(1) Recent measures to cool the red-hot property market

1. Compelling full disclosure of sale figures by developers
2. Regular broadcast of such sales figures to ensure transparency that will help the public make informed decision while buying
3. Ending the deferred payment mode for Stamp Duty – which resulted in record yield in tax collected from property transactions
4. Regular reminder by URA to the public to treat information by private property analysts with caution
5. Releasing more land parcels in government land sale programme.

There is ample evidence to show that the government are monitoring the situation closely. The next thing that may get the chop may be deferred payment scheme.

(2) Development charge for new buildings up to 70%
Development Charge rate has been raised to 70% of market value, up from the previous 50%. The change takes effect immediately. The revised 70% rate represents a 40% increase from the previous rate. For example, a DC rate of $1,000 per square metre previously would now be $1,400 psm.

What are the implications?

En bloc sale frenzies will be cooled down due to the following reasons:

1. En bloc projects that have not been legally completed may go through re-negotiation.
2. En bloc projects with high ‘unused plot’ that have not been accounted for will be adversely affected due to a low development baseline and therefore a higher DC payable.
3. Sellers’ profit will be reduced as a result.

The following groups of people will be hit by the change:

1. Speculators who flip old apartments with ‘en-bloc potential’ will get severely burned.
2. Sellers in general will be more realistic - hopefully. The government’s hands may be forced again if prices continue to increase unabated.

However, the recent hike has no effect on the following:

1. Speculators will concentrate on new projects to flip. This may lead to the projects like The Sail, Marina Bay Residences, Sentosa Cove to be even hotter.
2. Old apartments with high development baseline (and therefore no DC is payable) will not be affected by the move. For example, Tulip Garden on Holland Road was closed after the announcement of the hike.
3. Old apartments with good rental value will not be affected as the fundamentals for capital appreciation remain unchanged.

The recent increase in DC rate will not affect the market due to short supply of private homes.

(1) Private homes still in short supply
Even though there will be close to 60,000 private homes coming on stream in the next couple of years, Singapore could still face a serious shortage of supply in private housing in the short term.

Demand has far outstripped supply by more than two-to-one and the 4,400 units that were added to the housing stock in the first quarter of this year had done little to quench the thirst of the insatiable market.

Much of it will only materialise in mid-2009 or early 2010. Even when that comes to fruition, we are talking about only 16,800 private residential properties due in 2009.

Moreover, the government is unlikely to impose drastic measures on the demand side at this moment as situation in the rest of Singapore (besides the traditional prime districts) is still manageable. Prices have increased in general but so are job growths, income improvement and the continued arrivals of foreign funds and expatriates. The net result – home prices will still rise.

(2) Residential rents will still go up
Rental has so far gone up by 35% compared to last year. Core area rents are now $3.5 psf; while outlaying areas rents are now $2.5 psf.

However, due to the short supply of private homes, positive outlook of the economy, and more expatriates will continue to head our way, there will be no reprieve for residential rents in the next six months.

(3) Fundamentals that don’t change

• two-track economy
• sub-sale – will continue and concentrate in new projects (esp. those about to TOP)
• En bloc sale become ‘End’ block sale
• the return of the mass market new homes (caution need for those thinking of flipping)
• Look out for stock market correction
• Customer’s psychology

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