News

21 May 2016

Phnom Penh: Asia’s next top city

Cambodia’s real estate market is heating up, especially in its capital Phnom Penh, with foreign developers from China, Singapore, Taiwan and Korea looking to expand their footprint in the fast-growing city.

For Singaporean developers, restrictive cooling measures in the city-state, as well as the passing of legislation some years back allowing foreigners to own Cambodian property, have been the main pull factors for companies such as Oxley Holdings, Teho International and TA Corporation to develop large-scale commercial and residential projects in Phnom Penh.

Under the Foreign Ownership Property Law, foreigners can own upper-floor units, but not ground floor units, and up to 70 percent of a condominium project.

According to property consultancy CBRE, this restriction has little impact on foreign buyers, considering that apartments are usually not built on the ground floor.

Outperforming the neighbours

In its inaugural Cambodia Real Estate Highlights report, Knight Frank said it expects the country’s economy to grow at an average of seven percent year-on-year until 2018, outperforming other economies in the region. Much of the growth will come from the manufacturing, agriculture, tourism and construction sectors, with the latter helping to boost the fledgling property market.

Today the city of Phnom Penh is a hive of building activity, “dotted with mid- to high-rise projects under construction”, says Sofia Perez, Research and Consultancy Manager at Knight Frank Cambodia.

She notes that “11 condominium developments were launched in H2 2015, which will add 1,768 units to the existing stock”, in contrast to the 2009 and 2010 period, when only 732 condo units were put up for sale.

Over the next four years, Knight Frank expects the supply of new residential apartments in the city to surge by a whopping 641 percent. Meanwhile, CBRE believes that Cambodia’s condominium market offers great potential, and expects over 9,000 units to enter the market between 2015 and 2018.

However, with thousands of units expected to be ready in the next few years, some analysts are warning of a possible oversupply.

“There are growing concerns about a potential oversupply in the near future, with many anticipating supply to quickly outpace demand. This can be attributed mainly to limited local market demand coming from high-net-worth individuals and expatriates living in Cambodia, which has forced many developers to target the overseas market,” said Perez.

“Taiwanese, Chinese, Singaporeans, Japanese and Malaysians are some of the main overseas investors buying the majority of the residential units.”

In addition, Knight Frank revealed that many developers are looking to increase sales by offering incentives such as upfront discounts, furniture packages and guaranteed rental returns.

Condo prices up; still much cheaper than in S’pore

The recent launches of a few major projects have pushed prices of condo units upwards, noted Perez. But prices are still significantly lower compared to Singapore. For instance, high-end units in central locations are going for more than US$279 psf (S$386 psf), with some penthouses priced at US$465 psf (S$643 psf), said the consultancy.

As for rentals, high-end condominiums in the city centre can command anywhere between US$1,345 (S$1,859) to US$4,500 (S$6,219) for one- to four-bedroom units, according to figures from the fourth quarter of 2015, added the consultancy.

Meanwhile, property investors have been recording rental returns of between five and seven percent, and capital growth of between five and 7.5 percent per annum.

Foreign property firms move in

As confidence in the property market continues to grow, more real estate agencies are expanding into Cambodia to support marketing efforts. US-based Century 21 opened a representative office in Phnom Penh in 2014, while global firm Savills joined forces with Cambodia’s Keystone Property Consultants last year.

Property developers from Singapore are also recognising Cambodia’s great potential for growth.

“We are of the view that Cambodia’s property market exhibits the right fundamentals for growth: a robust GDP supported by foreign investments, translating into rising demand for office space; and the rising affluence of Cambodia’s young middle class, translating into demand for quality residences,” said TA Corporation’s Executive Director and CEO Neo Tiam Boon.

The group just launched The Gateway, a mixed-use development located in Phnom Penh’s central business district that comprises 299 strata-titled office units and 572 one- to three-bedroom apartments. It also comes with guaranteed rental returns of 12 percent over two years for the residential units, and 16 percent for the office units.

Currently, about 30 percent of the residential apartments and 40 percent of the office units have been sold or reserved. Aside from Singapore, the project will also be marketed elsewhere in Asia, including Taiwan and China.

Oxley Holdings is also seeing strong interest for its two mixed-use developments in Phnom Penh, The Bridge and The Peak.

So far, almost 100 percent of the residential units and more than 70 percent of the Soho apartments at The Bridge have been sold, said Oxley.

The developer also revealed that phase one of The Peak, comprising 507 residential units in Tower 1, is close to 50 percent sold. The 55-storey freehold project features two residential towers with a total of 1,014 units, a 15-floor office tower and a 300-room hotel, all above a five-storey retail podium.

Property buyers of residential units at The Peak are guaranteed a 12 percent net rental return for two years, subject to conditions.

“We have a good mix of local and foreign buyers for both The Bridge and The Peak. Cambodian buyers contribute close to 50 percent of the total sales. Other than Singaporeans, Taiwanese and Malaysians also form part of the foreigners who buy at these two projects,” a spokesperson for Oxley told PropertyGuru.

CITY FAST FACTS
(PHNOM PENH)

Population: Approximately 2.2 million

Total area: 678.5 sq km

Currency: Cambodian Riel

GDP per capita (Cambodia): US$1,220 (2015)

GDP growth: 7.5 percent (2016)

Future transport: Public train service by 2020

Home prices: S$255 psf to S$319 psf

Distance from Singapore: Approximately 1,140 km

Summary of major property related issues and taxes associated with real estate investment in Cambodia: http://bit.ly/1XgLTCh

INTERNATIONAL HIGHLIGHTS

Take a peek at these two Cambodian mixed-use developments bound to entice Singaporean buyers.

NEW PROJECTS

The Gateway
Russian Boulevard, Phnom Penh

Type: Mixed-use development
Developer: TA Corporation
Tenure: Freehold
Facilities: Swimming pool, gymnasium, function room, barbecue pavilions
Nearby Key Amenities: Universities, foreign embassies, medical facilities, shopping and dining outlets
Nearest Transport: Major roads linking the Phnom Penh International Airport and the city centre
Starting Price: US$152,300 (S$210,927)

The Gateway by TA Corp is the developer’s first large-scale project in Phnom Penh. It consists of a 36-storey tower with 299 strata-titled office units, and a 39-storey apartment block with 572 residences, which sits on top of a retail podium.

The residential component features one- to three-bedroom apartments, with unit sizes ranging from 560 sq ft to 1,184 sq ft.

The Gateway also promises 12 percent returns on apartment rentals and 16 percent returns for offices. Slated for completion in 2019, the development is located adjacent to the Cambodian Prime Minister’s Office in the central business district.

The Peak
Samdech Hun Sen Road, Phnom Penh

Type: Mixed-use development
Developer: Oxley Holdings
Tenure: Freehold
Facilities: Infinity pool, yoga room, games room, sunset viewing deck
Nearby Key Amenities: AEON Mall, Naga World Hotel, convention centre, foreign embassies
Nearest Transport: Royal Railway Station, Phnom Penh International Airport
Starting Price: US$175,000 (S$242,377)

The Peak is the second development by Oxley Holdings in Phnom Penh. The 55-storey mixed-use project features two residential towers with a total of 1,014 units, a 15-floor office tower and a 300-room hotel, all above a five-storey retail podium.

The residential unit types range from studio apartments to one, two, and three-bedroom units and penthouses, each measuring between 463 sq ft and 1,970 sq ft. It faces the Mekong River and is close to Naga World Hotel and Aeon Mall.

The developer has guaranteed a 12 percent net rental return over two years for buyers of The Peak, subject to conditions. The development is expected to be completed in 2020.

Picture Source: View of central Phnom Penh./Knight Frank Research
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119476/asias-next-top-city

Budgeting tips for aspiring homeowners

1. Determine your type

First and foremost, there are two things to establish: the type of house you want, and your buyer status. Are you looking at a HDB flat, a condominium or a landed home? Are you single, or buying together with your spouse or spouse-to-be? Are you a Singapore citizen, permanent resident (PR), or foreigner? Regardless of your marital status or nationality, you can buy a condo or landed home if you are at least 21 years old. If you are single, you are eligible to purchase a HDB flat only if you are at least 35 years old; married or engaged couples can buy HDB flats as long as they are at least 21 years old. However, do note that foreigners cannot buy HDB flats, and PRs can buy HDB flats only if they are resale units.

2. A buyer’s duty

As a home buyer, you will be subject to a Buyer’s Stamp Duty (BSD), which is tax payable on the house’s selling price or market value, whichever is higher. The system of payment is as follows: one percent on the first $180,000 of the price agreed upon by both buyer and seller, two percent on the next $180,000 and three percent on the rest of the price. This applies to all buyers, regardless of nationality and marital status.

If you are a PR, you will be subject to five percent Additional Buyer’s Stamp Duty (ABSD), whether you want to buy public or private housing. Foreigners buying private property will be subject to 15 percent ABSD.

3. Doing up your living space

Most new homes come with standard fittings, such as bathroom and kitchen fixtures. Many condos even come with wardrobes, cooker hoods, washers and more. However, you would still have to set aside a budget for furniture and décor. Your budget will depend on where you want to shop and whether or not you are planning to hire an interior designer. The former will likely cost less, but requires more time and effort on your part. The latter will cost more due to the design firm’s services, but you will spend less time shopping.

If you are buying a house from its current owner, you may wish to renovate it. This is the costliest, most time-consuming option; be sure to hire a reputable contractor and, if you so choose, a reliable interior design firm as well.

Picture Source & Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119429/budgeting-tips-for-aspiring-homeowners

Rental woes in our residential market

When we go out and speak to real estate agents, many of them tell us they need to work harder now, because of sluggish transactions in the real estate market. Many of them were used to earning a month’s income from one or two transactions, but had to turn to the rental market and work a lot harder, since commissions were smaller.

From afar, Singapore’s residential rental market looks like a bright spot in a lacklustre real estate industry. For both the HDB and private rental market, transactions actually moved upwards, even as sluggish sales led to many agents exiting the industry. Early indications this year also point towards the rental market doing brisk transactions as well.

Volume however, is only one part of the equation. The other is price.

Figure 1 shows the volume and median rental transactions per month over the course of 2014 and 2015 for the non-landed private residential market. Between 2014 and 2015, the number of transactions actually increased 10.4 percent, with the two year high taking place in Aug 2015.

However, prices are on a clear downward trajectory, with the year ending on a two year low of a median $3.29 psf per month across the island. While January this year did see upward movement, this is likely to be seasonal, as transactions pick up after the year-end holidays. January 2016’s overall median rental price is a 6.3 percent year-on-year decline from January 2015’s, an early indication that doesn’t bode well for rental prices this year either.

For landlords, this is a worrying trend. Singapore’s private residential property market traditionally has low yields due to our high prices. With rental rates heading south, net yields are likely to compress further, or even become

negative. For landlords dependent on rental income to pay for their mortgages, cash flow issues might force their hand and they might need to offload their assets at a time when property sales are soft.

The HDB rental market tells a similar story. Rental volumes started seeing increases in 2014, and stayed consistently high in 2015, hovering around the 10K mark per quarter, while rental prices slipped 5.6 percent over the past eight quarters (see Figure 2). 2016’s first quarter numbers will only be published this April, but what we hear from the ground is that rents remain soft, and tenants are driving hard bargains.

HDB landlords, in general, face less pressure compared to their private counterparts. Many HDB landlords are upgraders who chose to hold on to their units for rental income instead of selling them to get capital for their private property purchases. These landlords are often in a more stable financial position, especially for those who purchased their second properties after the implementation of the Total Debt Servicing Ratio (TDSR). This is because their bank loans were calculated with more stringent criteria, and they are unlikely to default on their loans, even if their HDB units remain untenanted.

Explaining the numbers

The HDB and private non-landed residential market are seeing similar transaction and price trends, because the underlying macroeconomic causes are the same.

On the one hand, we are seeing an exuberant supply of housing units hitting the market. In 2015, over 48,000 residential units were completed and entered the market. This year, that number is expected to rise to over 51,000.

This is because in 2011 and 2012, the government set about increasing the supply of Build to Order (BTO) flats to meet the demands of couples and young families, who were unable to get a unit during the ballot. At the same time, they were priced out of the resale market, with HDB sellers generating tons of froth by chasing ever higher cash-over-valuations (COV). This has alleviated somewhat, with the authorities ceasing to measure COV.

In the private market, overly optimistic land bids by developers and record high enbloc sales also led to a huge supply of private units being launched for sale. We are now seeing the fruits of those efforts today, with construction completing and keys being handed over.

The entry of all these units into the market has led to an embarrassment of riches for tenants when it comes to unit choices. This gives tenants plenty of clout when it comes to tenancy renegotiations, with rental prices being pushed downwards. Landlords must learn to budge quickly, or risk having untenanted units. Private condo landlords, especially those who are highly leveraged and need rental income to stay afloat, would quickly find themselves stuck between the proverbial rock and hard place.

While the supply of housing stock is seeing sharp increases, the supply of tenants is taking a hit.

Figure 3 shows the number of Employment Passes (EP) and S Passes (SP) approved over the past four years, as well as their rate of growth. EPs are for foreign professionals, managers and executives, and require a minimum income of $3,300 per month, while SPs are for mid-level skilled staff, with a minimum of $2,200 a month. Over the past three years, the rate of growth has remained low, due to widespread angst among locals against foreign labour coming in to Singapore.

For landlords dealing with increased competition from the increased housing supply, the reduction in foreign workers entering the country is a double whammy, making it harder for rental stock to be absorbed. The problem is also compounded by a less than optimistic global economic outlook, with several firms in the finance and oil and gas sectors announcing layoffs.

For expatriate workers who remain employed, many see compensation packages being localised, and are seeing housing allowances being reduced or even removed altogether. With lower budgets to be spent on housing, many expatriates need to seek cheaper rental alternatives, i.e., moving from private condos to HDB rentals, or negotiate for lower monthly rents.

While this explains the falls in rents we are seeing, it doesn’t necessarily explain why rental transaction volumes are on the rise. The reason, however, is a lot more depressing for landlords than the numbers might otherwise tell us. What the numbers indicate are actually the number of contracts signed by tenants, which landlords are required to declare for tax purposes. The number of contracts signed, therefore, have increased, because contracts are being signed more frequently, with tenants signing shorter-term contracts of one year or even less.

Traditionally, tenants sign two-year contracts, locking in rental rates for the period, allowing landlords to have some surety in their cashflow expectations. With one-year contracts, tenants have more leeway to negotiate their rental contracts downwards, or move to a cheaper alternative if their landlords refuse to budge. At the same time, with job security somewhat in flux, shorter contracts offer more wiggle room if they need to break their leases.

What can landlords do?

It is a tenants’ market, and landlords need to recognise that. For landlords that have holding power and who are able to absorb the reduced yields, they should be open to negotiating and reducing their rents. The key is to keep the units tenanted, even if they need to make concessions, in order to minimise what they need to fork out.

With most market watchers predicting that the property market will see the start of a recovery this year (provided the global economy doesn’t drag it down), landlords might want to relook their portfolios. Landlords who are overleveraged might need to bite the bullet and offload some properties, even if the capital appreciation is not yet where they would like it to be.

Alternatively, if a long term tenant is hard to come by, investors may choose to switch tack by using services like AirBnb to rent their units to tourists. In general, yields are better than long term tenancy, but there is a lot more hassle in managing the unit due to the turnover frequency. AirBnb, is also frowned upon by the authorities, and landlords should be aware that they are operating in a legal grey area. At the same time, the factors that would make a unit popular with tenants are the factors that would make them popular with tourists. If one’s unit has less cachet with tenants, it might be hard to attract tourists as well.

Quick tips for investors

No salesperson would ever tell you that the unit or project they are selling has no or low investment potential. It is therefore up to the individual investor to make their own assessment about the rental potential of their property. In general, investors are advised to look out for potential cachets of tenants within the vicinity, and should have a unit that is within walking distance to an MRT station. Walking distance is generally defined as 500 metres, or a five- to 10-minute walk.

In general, when looking out for areas with a larger potential tenant pool, it is also advised that landlords look for diverse industries and sources. For instance, investors like the Changi Business Park area, because of the technology, finance, and retail businesses in the area, as well as the faculty, students and staff of the Singapore University of Design and Technology (SUTD).

In Singapore, the government also publishes the Masterplan online. Investors should always refer to it and be familiar with what the government has planned for the future, to determine their potential capital appreciation, and what the tenant pool will look like in the future.

When looking at an investment unit’s price, it is also important to keep in mind what kind of rental pricing levels one would need to set. Most investors would want to set at a level that would be able to minimally cover their monthly mortgage payments. They should factor in their maintenance charges and other ownership fees as well. After doing the maths, if the desired rental sum looks far too outlandish when compared to the current rental prices, it might be better to walk away from the project, especially if holding power is an issue.

Picture Source: URA,PropertyGuru Analytics
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119316/rental-woes-in-our-residential-market

S’pore still the world’s most expensive city

Singapore has retained its status as the world’s most expensive city for a third consecutive year. However, its lead over the next two cities, Zurich and Hong Kong, has narrowed, according to the latest Worldwide Cost of Living Survey by the Economist Intelligence Unit (EIU).

Geneva and Paris round out the top five cities, followed by London, New York and Los Angeles. The rankings list tracked 133 cities.

Despite Singapore topping the list, the report revealed that prices in the city-state were lower in some categories, such as basic groceries. Prices are 33 percent higher in Seoul, followed by Hong Kong (28 percent) and Tokyo (26 percent).

However, Singapore is considered more expensive in other categories.

“It is the most expensive place in the world to buy and run a car, thanks to Singapore’s complex Certificate of Entitlement (COE) system. Transport costs in Singapore are 2.7 times higher than in New York. Alongside Seoul, Singapore is also a very expensive city in which to buy clothes and pay for utilities,” stated the report.

The EIU survey compares more than 400 individual prices across 160 products and services. These include food, drink, clothing, household supplies and personal care items, home rents, transport, utility bills, private schools, domestic help and recreational costs.

New York was used as a base for city-to-city comparisons; it has an index set at 100.

The purpose of the survey is to help human resources and finance managers calculate cost-of-living allowances in order to put together compensation packages for expatriates and business travellers, said the EIU.

Read the full report here. http://worldwidecostofliving.com/asp/wcol_WCOLHome.asp

Picture Source: Source: The Economist Intelligence Unit
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119410/spore-still-the-worlds-most-expensive-city

URA revises rules for property developers

In a bid to promote accountability and protect the interests of home buyers, the Urban Redevelopment Authority (URA) recently revised the criteria for issuing sales licences for home builders, reported The Straits Times.

First, the minimum paid-up capital or deposit for those applying for a licence, has been raised from $1 million to between $1 million and $4 million, depending on the project’s size.

Those intending to build and sell a housing project with up to 50 units must have a paid-up capital of $1 million, $2 million for developments with 51 to 200 units, $3 million for projects with 201 to 400 units, and $4 million for larger developments.

Second, developers can no longer cite non-residential projects in the track record, to be submitted as part of their sales licence application, as commercial and industrial projects differ from residential developments.

According to Nicholas Mak, Head of Research and Consultancy at SLP International, this would prevent some smaller players in the industrial sector from venturing into the housing market.

Third, the number of units that a developer can be allowed to build will depend on the size of the completed developments specified in the track record.

If a company has completed fewer than 10 units, it can only obtain a sales licence for a new housing project with less than 50 units. Those who have constructed 11 to 50 units are permitted to build fewer than 200 units. Those with 51 to 100 units under their portfolio are eligible for developments with less than 400 units, while firms that have built over 100 units have no restrictions.

This new rule will safeguard buyers from developers who want to launch many units, but don’t necessarily have the experience, said Augustine Tan, President of the Real Estate Developers’ Association of Singapore (REDAS).

Finally, for developers applying for a sales licence based on the track record of their companies, at least one of its directors involved in the previous project must remain in his or her position.

“Developers can always disappear from Singapore after taking profit… But if they have a couple of people who are qualified directors, these people would hopefully behave more responsibly and can be held accountable,” noted Ku Swee Yong, Chief Executive, Century 21.

The changes will apply to all new licence applications received from 1 April 2016 onwards.

Picture Source: Construction in Singapore.
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119360/ura-revises-rules-for-property-developers

More Singaporeans now living in condos: survey

More Singaporeans now own their own homes, according to results of the latest General Household Survey released by the Department of Statistics (Singstat) on Wednesday (9 March).

In 2015, homeownership among resident households reached 90.8 percent, up from 87.2 percent in 2010. Chinese households recorded the highest rate of homeownership at 93.1 percent, followed by Malay (86.9 percent) and Indian (84.1 percent) households.

Around 80.1 percent of households in Singapore lived in HDB flats last year, down from 82.4 percent in 2010. Four-room flats remain the most common property type, with 32 percent of households residing in them, followed by five-room and executive flats (24.1 percent), and three-room flats (18.2 percent).

The proportion of households who live in condominiums and other apartments also rose to 13.9 percent last year from 11.5 percent in 2010, while the percentage of those who stay in landed properties dipped from 5.7 percent to 5.6 percent.

Meanwhile, there were more singles among younger age groups. Between 2010 and 2015, the proportion of singles among residents aged 25 to 29 increased from 54 percent to 63 percent for females, and from 74.6 percent to 80.2 percent for males. For those aged 30 and above, the figures remain unchanged.

There were also more households with elderly members. The proportion of households with at least one resident aged 65 and above rose from 24.1 percent in 2010 to 29.1 percent last year.

Meanwhile, Singapore’s resident population reached 3.9 million in June 2015, comprising 3.38 million citizens and 0.53 million permanent residents (PRs).

The survey was conducted from May to July 2015. Of the 33,000 housing units selected for the initial sample, 27,804 households responded, translating to an overall response rate of 87.4 percent.

Read the full report here. http://www.singstat.gov.sg/publications/publications-and-papers/GHS/ghs2015

Picture Source: Apartment blocks in Singapore.
Source copied: http://www.propertyguru.com.sg/property-management-news/2016/3/119296/more-singaporeans-now-living-in-condos-survey