TODAY Online : Focus on investor buyers

Focus on investor buyers

05:55 AM Jan 30, 2010

by Colin Tan

¢ point of view

A frenzied wave of buying sent sales of new private homes soaring in 2009, almost matching 2007's scintillating record.

Just as in a real tsunami, the first wave to reach the shore does not usually have the highest run up.

Starting in February last year, the over-enthusiastic home buying built itself up to a crescendo in July.

But for government measures announced in September to "temper the exuberance in the market and pre-empt any speculative bubble from forming", the market would have easily shattered its previous benchmark.

A key measure, a ban on the interest absorption scheme and the like, appears to have dealt a severe blow to a "fragile" market.

However, the impact was more psychological than real.

Today, developers are shrugging off the effects of the ban. No interest absorption scheme ? No problem.

With little fanfare, some developers are chalking up vigorous sales under the normal progress payment schemes.

The difference? A foundation stage and a completion date which stretches as long as two years and four years respectively.

Why has it worked? This is because in today's market, investor buyers predominate.

Far outnumbering owner-occupier buyers, this group favours projects which offered a sufficiently lengthy "minimum holding cost" period in which to turn their investments over.

On the other hand, owner-occupiers are more than eager to live in their new dream homes.

Most developers have been quick to recognise this crucial change in the profile of buyers. Which is why there have been more offerings of small apartments, with some units as small as 300 to 400 sq ft.

How many ordinary households are actually attracted to such units?

In land tenders towards the end of last year, bids from developers ranged widely.

Most times, the winning bids were more than double compared to the lowest bids.

Bidders looking at the investor market were tendering prices which were much higher than those looking to sell to owner-occupiers.

Also making the news recently are projects where sales previews are limited to those buying multiple units.

It is also of little significance if show flats are not located on the actual site. Investors are not the least bothered so long as they are convinced there is upside potential.

Those most upset are owner-occupier buyers.

One such buyer interviewed said he would henceforth avoid such launches.

It is just too bad. Developers today are not looking at buyers falling intothis category.

Increasingly, more of such investor buyers are coming from the China.

The top executive of a leading developer recently alluded to this in an interview. He also pronounced that 2010 will be the year of the luxury market. Many industry players share similar views.

The answer is both yes and no. Given the change in buyer profile, new launches of luxury projects with lengthy completion periods will be preferred over similar projects which have been completed or are completing soon.

These new launches meet the criteria of current buyers and such projects will sell well.

For completed prime properties including those ready for occupation within the next few months, it will be difficult to secure buyers if the asking prices are not substantially lower than those quoted for new launches. So, the year of the luxury market is not quite what it appears to be.

Finally, while I do not disagree with the view that 2010 will bring good times, I am less confident that it will last throughout the year.

The Chinese authorities are already giving out signals that they will keep a close watch on property prices and will implement measures to cool the market if necessary.

Investors hold assets in several countries these days. A domino effect across the region is likely to occur if bubbles in other markets burst. ¢

The writer is Head, Research and Consultancy at Chesterton Suntec International.

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