ERA Daily Research - 23 August

Ponder housing affordability, land cost issues in future S’pore plans

The Straits Times, 23 Aug 2021, Mon

By Christopher Tan

Last month, the Urban Redevelopment Authority, which builds this city, embarked on a year-long public consultation on how Singapore’s built environment should evolve to take into account new normals. 

Feedback will help shape the country’s long-term land use plans, with the aim of exploring a number of developing options instead of formulating a single concept plan, which has been the product of each of four such reviews since 1971.

At the launch of the consultation process, National Development Minister Desmond Lee said: “The existential threat of climate change, economic and technological disruptions and change, and the Covid-19 pandemic and future pandemics, are just some examples of significant developments that will change how we plan for our future city.” 

This step to engage the citizenry is significant, and could pave the way for profound changes in how Singaporeans live, work and play in the future. 

Hopefully, people will think deeply about what transformations they would like to see – not so much for themselves, but for their children and their children’s children.

The usual clarion call for a smart, connected city, for transport-oriented developments (where the use of public transport, walking and cycling are optimised), or for a low-carbon economy are still to be heeded. They are no doubt necessary for a city to be liveable. 

But for a deeper change, Singapore needs to ponder more fundamental and urgent issues, such as land cost, population density and the affordability of homes. These intertwined issues have a huge impact on quality of life, and affects everything from wages to the country’s attractiveness to investors to how self-reliant people can be post-retirement. 

These issues would be relevant in normal times, but they are even more crucial when crises such as pandemics occur. Covid-19 is not the first pandemic, nor will it be the last. 

Last October, the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services released a report which said future pandemics will occur more frequently, and be increasingly more devastating.

Since the Covid-19 scourge entered Singapore just under two years ago, it has become quite clear that working or learning from home is not sustainable for many households. And safe distancing in activity hubs such as hawker centres, coffee shops, markets, places of worship, bus stops and train stations is almost impracticable. At least, not without unsightly plastic barriers in place.

There is just not enough space. 

Building bigger homes and bigger amenities would not only put us in a better position to prevent disease transmission, it will make telecommuting more palatable. 

But most importantly, it would make it more conducive to grow a bigger Singapore core. We may not need much space to procreate, but we do need decent square-footage to bring up a family. And we certainly do not want to go the way of cities where shoebox apartments are the norm.

The question then is, how do we go about doing this with the current cost structure? Building up is one way. Not just flats which go up 70, 80 or 100 storeys, but several floors of common areas which connect the vertical blocks. These can be parks, playgrounds, shops, food centres and play schools. Townships in the clouds – much more desirable than going underground, a costlier and sun-deprived alternative.

Such infrastructure will no doubt require high-tech support apparatus such as an intelligent high-speed lift system (a vertical MRT, if you like) and an efficient waste disposal system. 

Hopefully, by building up, we can build bigger homes.

Still, will this make a dent in housing prices, which have breached $500 per sq ft for BTO flats, $1,000 psf for resale HDB flats and exceeding $4,000 psf for new condos in prime districts? 

In 1971, a three-room HDB flat in a new town cost $7,800, when the average household income was around $900. Today, a three-room BTO in Woodlands costs around $340,000, when the average household income is around $7,744 as at 2020.

Hence, the cost of a flat has gone up by nearly 44 times, while the average household income has risen by around nine times. 

This means families today devote more of their income to a roof over their head. It is worrying to think of what the situation will be if the cost of homes and incomes continue on this trajectory.

Even if we adjust for the halving of household members over the last 50 years, the illustration is still relevant. 

More affordable flats are usually in estates which are farther from the city. This means households of lesser means will populate these estates. This means longer and costlier commutes for such residents. If time is money, these folks will have even less at their disposal. 

It is thus heartening to read Second Minister for National Development Indranee Rajah’s piece in The Straits Times in June on the Government’s intent to build HDB flats in prime locations, and that it was looking at new ways to make such flats affordable.

My colleague Chua Mui Hoong followed up with a piece calling for policies which encourage people to treat HDB flats as homes rather than appreciating assets. She suggested levying a tax on “windfalls” people make from selling their flats.

Last month, at an Institute of Policy Studies lecture, Monetary Authority of Singapore managing director Ravi Menon said a property gains tax or an inheritance tax may be necessary to address the stark wealth inequality here. 

Barring rare exceptions, Singapore does not apply such wealth taxes. 

Beyond taxes, another way would be to completely disallow those who own private properties from owning Housing Board flats. No ifs or buts.

Although not immediately obvious, these issues have a strong bearing on how our city is shaped. For instance, if we sell land only to the highest bidders, we could one day end up with a ghost town in the central business district (where swathes of apartments bought by foreign speculators are left vacant) and ghettos in far-flung precincts. 

Diversity is key to a vibrant, inclusive city. 

Yes, Singapore is already geographically segregated by wealth, but we should strive to lessen, not intensify, that segregation. 

To be sure, more can be done to keep a lid on home prices – tightening restrictions on foreign ownership, for one. Because we are a tiny city-state, even a small influx of foreign transactions from far bigger countries will have a discernible impact on supply, and thus prices. 

Even if most of such transactions are in the higher end of the market, this added demand will have a trickle-down effect on prices of other properties. 

High housing prices have a negative impact on retirement adequacy. 

In its latest report, the CPF Board said that out of the 40,000 active members who turned 55 in 2020, 63.6 per cent were able to set aside the Full Retirement Sum required of their cohort, or set aside at least the Basic Retirement Sum while owning at least one property. 

That means nearly 40 per cent were unable to meet the basic sum, with which monthly payments are made to members to meet their sustenance. 

Although HDB has its Lease Buyback Scheme, which allows home owners to monetise part of their flat’s remaining lease, is this option ideal? Would it better if homes were not so costly in the first place?

Should we consider returning the CPF scheme to its original intent of setting aside funds for one’s retirement? Has the availability of CPF monies for housing unintentionally driven up home prices? After all, sellers often price their goods at the highest level which the market will bear, don’t they?

Again, while these questions may not be within the ambit of the URA’s long-term land use planning, they are questions worth asking if we want a holistic review that goes beyond brick, mortar and planning zones.


Property prices, delays on the rise amid construction headwinds

The Straits Times, 23 Aug 2021, Mon

By Kang Wan Chern

Construction industry veteran Ong Pang Aik cannot remember a time when the sector faced as many headwinds as it does now.

Soaring material costs, severe staff shortages and rocketing wage bills are putting the industry under unprecedented pressure.

Mr Ong, chairman and managing director of Singapore-listed Lian Beng Group, notes that despite more building firms opening for business and help from the Government, building costs and property prices are likely to keep rising for the next six to 12 months.

A shortage of manpower has resulted in a doubling of wages and delays in project timelines. Since the end of 2019, the number of work permit holders in the construction, marine and process sectors has declined by more than 60,000, or about 15 per cent, noted the Singapore Contractors Association (SCAL).

Salaries at Lian Beng have gone up by "at least 50 per cent", Mr Ong said.

By his estimates, Lian Beng is now short of up to 2,000 workers, which is not just disrupting the company's 13 ongoing projects. "It is difficult to bid for new projects because there is a limited number of construction workers in Singapore to do the work," he said.

Big players like City Developments (CDL) have also been hit.

Chief executive Sherman Kwek told a results briefing on Aug 12 that wages have risen by 10 per cent to 15 per cent because of "very severe labour shortages". All of CDL's development projects are behind schedule by four to six months, he added.

Building material costs have risen too. Steel bar prices increased by more than 36 per cent between December last year and June this year, according to the Building and Construction Authority.

Mr Ian Teo, president of the Micro Builders Association, Singapore, said the price of sand, cement, bricks and ready-mixed concrete has also gone up. "These costs are killing us," he added.

Mr Mick Aw, senior adviser at consultancy Moore Stephens, said higher shipping costs are partly to blame. The cost of sending a 40-foot container from Shanghai to the United States' east coast rose 233 per cent between January last year and July this year.

  • 54.75%

Proportion of slow payments to total transactions in the first two quarters of this year in the construction sector, according to Credit Bureau Asia.

  • > 50%

Salary increment at Lian Beng Group, according to chairman Ong Pang Aik, as the number of work permit holders in the construction, marine and process sectors has declined by more than 60,000, or about 15 per cent. At City Developments, wages have risen by 10 per cent to 15 per cent, said chief executive Sherman Kwek.

Rising freight demand and Covid-19 disruptions have also caused congestion at key ports and delayed important shipments.

The number of late or delinquent payments in the construction industry has risen over the past two years.

Last year, the average number of slow payments rose to almost 55 per cent of total payments, representing a 7 percentage point jump from 2019, said Ms Audrey Chia, chief operating officer of Credit Bureau Asia.

The number of slow payments in the first two quarters of this year remained at around 54.75 per cent of total transactions.

The Payment Services Act gives parties up to 21 days to respond to a claim and a further 35 days to make payment.

"If one party defaults or pays another party late, the entire construction supply chain is affected," said Ms Chia.

That supply chain for a landed residential building could easily comprise between 10 and 20 suppliers and sub-contractors performing work ranging from demolition to mechanical and electrical jobs, Mr Teo said.

Workers and suppliers are also affected.

Mr Lee Kay Chai, first vice-president of SCAL, said many construction firms are stuck in loss-making projects locked in before the pandemic, when costs were much lower. "Those who do not have enough cash reserves to pay their sub-contractors and suppliers are likely in trouble," he noted.

Data from the Accounting and Corporate Regulatory Authority (Acra) notes that 1,114 firms in the sector closed down in the first six months of this year. This came on top of 2,027 closures last year.

"Sub-contractors are winding up because they cannot complete existing projects without losing more money," Mr Lee said.

But the Acra data also revealed a growing number of new openings in the sector.

In the first half of this year, 1,532 construction companies opened for business, while 2,399 did so last year. Many of the new firms are smaller ones started by former employees of those forced to shut down.

"Some of these employees reorganise with new strategies, directors and less overheads to form companies providing various construction services. They are then able to bid for new projects with more favourable terms," said Professor Sing Tien Foo, head of the Department of Real Estate at the National University of Singapore Business School.

Despite their lack of a track record, the new firms are still able to find jobs in the market due to strong demand from developers of new projects, he added.

But quality standards in the industry have deteriorated amid the challenges posed by the pandemic.

"Some of the smaller sub-contractors do not have the skills and experience to perform certain jobs, resulting in sub-standard work. Higher costs and the manpower shortage are also having an impact on quality," Mr Teo said.

The Consumers Association of Singapore (Case) received 621 complaints against renovation contractors in the first half of the year, almost double the number of complaints received over the same period last year.

Case president Melvin Yong said consumers complained about repeated delays in the completion of renovation work and the time taken to rectify defects, which has "increased substantially".

They are also unhappy about inferior workmanship, the quality of materials used and contractors asking for a larger percentage of the project cost to be paid upfront or in the early stages of the work, before the job is completed.

This is all "likely attributable to a prolonged shortage in manpower and raw materials arising from the Covid-19 border restrictions", Mr Yong said.

He warned that as renovation companies resume work after the latest Covid-19 restrictions were eased, "they face a backlog of projects to complete and a shortage of manpower".

"They also face cash-flow issues as projects take longer to complete, leading to consumers taking longer to make full payment."


Shophouse sales hit $1b, surpassing 2019 and 2020 levels

The Straits Times, 21 Aug 2021, Sat 5:00am

By Grace Leong

Shophouse transactions are hitting new highs, fuelled by the limited stock of conservation properties, low interest rates and strong demand from local and foreign investors.

Investors, including family offices, high net-worth individuals and boutique real estate funds, are drawn to commercial shophouses, as they offer capital preservation during economic uncertainty due to their strong heritage value and limited supply.

Cushman & Wakefield noted that sales hit $1 billion by Aug 5, surpassing the $900 million level reached in 2019 and again in 2020.

"The transaction levels for the year to date are the highest in almost three years, with the last peak at nearly $1.5 billion in 2018," said Mr Wong Xian Yang, head of research for Singapore at Cushman & Wakefield.

Last month, two 999-year leasehold shophouses - 44 and 46 Club Street, owned by Arcc Holdings and its chief executive, Mr Tony Chen - sold for a total of $25.5 million, or $3,935 per square foot (psf) of gross floor area (GFA).

The buyer is believed to be a foreign-based family office, the company told The Straits Times.

Mr Chen, a long-term investor in conservation shophouses, said: "Even though the yields are low for conservation shophouses, they fulfil the objective of capital preservation."

Mr Wong noted that Urban Redevelopment Authority (URA) Realis data showed that the prices for the two Club Street shophouses more than trebled over 12 years.

But in terms of price quantum, the record is still held by 8M Real Estate, which bought four shophouses - 265, 267, 269 and 271 South Bridge Road - from a subsidiary of Eu Yan Sang International for $54 million in 2019.

Shophouse transactions hit 118 in the first half of the year, up from 90 in the second half of last year and the last recent high of 99 in the first six months of 2018, noted Knight Frank Singapore.

A pair of shophouses at 59 and 60 Duxton Road that had been owned by Mr Alan Choe were sold last month at $14.8 million.

The deal was brokered by PropNex Realty marketing agent Loyalle Chin, who is also marketing a shophouse at 93 Club Street for $9.9 million.

Mr Choe, the first general manager of the Urban Renewal Unit in 1964, a forerunner of URA, told ST that he had bought two other leasehold shophouses, at 40 and 41 Duxton Hill, for $24.8 million in 2018.

While freehold shophouses still accounted for around 80 per cent of transactions in the first half of this year, leasehold sales volumes more than doubled to 25 units from the second half of 2020.

Buyers who were drawn by hopes of capital appreciation showed interest in better located leasehold shophouses, with over half of the leasehold transactions located in the prime District 2 (Anson, Tanjong Pagar), Knight Frank Singapore said.

Nearly 57 per cent of shophouses sold in the first half of this year went for above $5 million, compared with 42.2 per cent in the second half of last year.

The top five deals by price quantum were in Districts 1 and 2. A tenanted three-storey conservation shophouse at 91 Tanjong Pagar Road sold for more than five times the previous sale price after being held for about 15 years.

Knight Frank Singapore said shophouse sales values in 2021 could exceed the $1.46 billion high recorded in 2018, and transactions could exceed 200, if demand continues to gain momentum.

Shophouse sales in the second half of this year could set new benchmark prices, it added.

"Shophouses in prime CBD (Central Business District) locations such as Stanley Street, Amoy Street and Telok Ayer are already transacting at over $4,000 psf on GFA. In the past eight months, prices have jumped to $3,800 to $4,000 psf from $3,000 in Districts 1 and 2," said Ms Mary Sai, executive director of capital markets at Knight Frank Singapore.

Commercial shophouses are generally exempt from additional buyer's stamp duty (ABSD), but those zoned both commercial and residential are subject to ABSD for the residential component.

Mr Wong noted: "CBD conservation shophouses offer bite-sized exposure to the CBD commercial market. Given the looming risk of cooling measures, some investors are considering commercial shophouses as an alternative investment."


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