How to know if a real estate investment is worth investing?

Kicking off the evaluation process is the toughest for us. Question after question kept popping up

• “Is the property market low enough?”,
• “Is this property worth considering?”,
• “Are the numbers the only criteria for investment?”

What are we really looking for in real estate investing?? Quick bucks $$ or Regular income….

Bottom-line = Money!!!

Property Agents have tons of recommendations for YOU! How will you know whether they are good investment for you?

There are many factors that need to be considered in evaluating a real estate investment. For example, location, environment/neighborhood, facilities, financing options, rental income, etc. If all above works, it is time calling your agents and set up appointments. Happy Viewings!!!!

Actually it is not difficult and it does not need much of your time to know if a real estate investment is worth investing in the first place. All you need is crunching some numbers with your calculator, and Bingo! You can decide whether the property is worth investing.

Later in this article, we will show you how these numbers work in your prospective real estate investment by two real life cases in Johor Bahru.

Numbering GAME
Numbers, numbers and numbers.. How do you get them?

You may try calling a few property agents, check with banks on properties valuations and of course there is plenty of information on the Internet. Once you have these numbers you can determine if a real estate investment is worth spending your time for a viewing. “Seeing is Believing.” Check out the property to see the actual condition and the environment, whether it is to your liking once you get your numbers RIGHT! Once you get your numbers, you will see:

Incomes
One-time income - selling price
Regular income – rental price

Costs
One-time expenses (startup costs) – down payment, agent’s brokerage, legal fees, stamp duty, furnishing cost, etc.
Regular expenses (monthly costs) – monthly loan repayment, monthly maintenance fee, quit rent, property tax, etc.

See how they (Numbers) work..
The basic requirement for a good real estate investment is that the income it generates must be more than its costs.

If the selling price of a real estate investment is more than its purchase price and startup costs, this investment generates capital gain.

If the rental income of a real estate investment is more than its monthly expenses, this investment generates cash flow. To find out more about the importance of cash flow and how it will lead your way to the road to riches you can visit KCLau’s Money Tips or read KCLau’s new book Top Money Tips for Malaysian.

If you are looking for capital gain, the gain or loss depends very much on the real estate market. Hoping to make money from capital gain on real estate is like buying a product and hoping the value of the product will go up with time. On a long term basis, real estate will be appreciating in value because of inflation, but the gain is not guaranteed.

On the other hand, a real estate investment that generates cash flow effectively put money into your pocket every month, while your equity in the real estate investment increases over time. This is the real estate investment that we are looking for – an investment worth investing.

Too good to be true?
With this economic crisis, you will ask yourself, “Is it the RIGHT time for me to start investing in real estate? Everything is so uncertain NOW.”

In Johor Bahru, you can find plenty of real estate investments worth investing at this juncture. We discovered most of these investments that generate substantial cash flow are mainly apartments or condominiums. You can read from our upcoming article to know why apartments or condominiums are better real estate investments in Johor Bahru. Here are two recent real life cases of real estate investments worth investing in Johor Bahru.

Case 1: We found a condominium in Larkin area of Johor Bahru in Octorber 2008 selling at RM160,000 with existing tenant. Monthly rental income is RM1400 while monthly maintenance cost is around RM300 (maintenance fee plus sinking fund plus quit rent).
If we finance 90% of the purchase price to buy this condominium with interest rate 4.85% with a tenure of 30 years, monthly loan repayment is estimated to be RM760. Thus, this condominium is generating a net cash flow of RM340 every month, RM4080 every year.
Total capital outlay for this investment is RM24,000 for down payment including other startup costs like legal fee and brokerage. Effectively this investment gives us a yearly cash-on-cash return of 18.5%. In other words, within 6 years we would be able to take back our capital RM24,000! The best thing is we still own the condominium. It will keep putting money into our pocket every month. We also have the option to sell it away when the market is good.

Case 2: There is a 3-rooms apartment in Tampoi sold at RM125,000 in October 2008. Monthly maintenance cost is about RM150. If we finance 90% of the purchase price with interest rate 4.85% with a tenure of 30 years, monthly loan repayment is estimated to be RM600. Expected rental income for a fully furnished apartment in the area is about RM1200. With furnishing cost of RM10,000, total capital required for this investment is around RM27,000, while total monthly cost is RM750. The apartment is expected to generate a net cash flow of RM450 every month, RM5400 every year.
Cash-on-cash return on this investment is 20% which we can expect to take back all the capital within 5 years.

Sound interesting right?
Of course, so far we are only talking about numbers. A good real estate investment does not rely on purely numbers. You still have to go and have a look at the building structures, study the location and neighborhood, and perform other checks before you make your decision. What we have discussed, however, can save you time and give you more ideas on the potential returns of a real estate investment before you tell your agent which real estate you want to view in the coming weekend.

You may notice that in the real cases that we mentioned above, when come to financing we chose the loan amount of 90% on the purchase prices, interest rate at 4.85% and a tenure 30 years. You may wonder on what basis we use these numbers to get the monthly loan repayment for a real estate investment. Monthly loan repayment is the major cost of your real estate investment and investing in real estate is all about financing.

In our upcoming article ”How to finance your real estate investment for maximum return?” we will discuss about how to finance your real estate investment in order to get the maximum return. SO STAY TUNED! (If you’re not already a subscriber to Real Estate Investment in Johor Bahru, enter your email address in the box beside this article and subscribe to receive our FREE latest update via email.)

Related posts:

1. Real estate investment Q&A #1
2. Why apartment can be the best real estate investment?
3. Why you want to take up a loan for your real estate investment?

Monday, April 6, 2009
Demand and Supply for Singapore Housing Market
Demand and Supply, are the first principle in economic. So to understand the home price (especially private housing), you need to know the demand. Some one has done a very good analysis, and let me share with you here.
Demand by population growth:
Household size = 3.7 (Source: Census 2000)
Population growth = +99,700/yr (20-year average)
New homes required = 96,7900/3.7 = 26,159 per year
Demand for private homes = 20% of 26,159 = 5,232 units/yr
Demand from HDB upgraders:
Resident population in HDB flats dropped from 86% in 2000 to 81% in 2007; but flattish in 2008 (82%).
Lets assume 0.5 ppt shift = 18,215 people;
Demand from population shift = 18,215/3.7 = 4,923 units/yr
Total demand = 5,232 + 4,923 = 10,155 units
Supply estimates by URA
2009E: 10,448 units
2010E: 5,582 units (under const.) + 1,430 units (planned) = 7,012 units
2011E: 9,492 units (under const.) + 4,194 units (planned) = 13,686 units
2012E: 6,066 units (under const.) + 8,046 units (planned) = 14,112 units
Of course, those supply are "planned", and they are not confirmed. So we may not see any over supply. And many external factors will affect these. So those data are just some information for you when you make your decision.

REAL Estate Developers’ Association of Singapore (Redas)

The REAL Estate Developers’ Association of Singapore (Redas) will be marking its 50th anniversary this year with a series of monthly celebrations leading up to a gala dinner at the end of 2009. The first of the series, a 16-team dragon boat race, will kick off the festivities at Bedok Reservoir today. Foreign Affairs Minister George Yeo is the guest-of-honour for the event.

Redas was formed in March 1959 by a small group of developers under the leadership of Lee Kim Tah. Then known as the Singapore Land and Housing Developers’ Association, the organisation worked closely with the government in the property market, supporting the Housing & Development Board’s (HDB) campaign to provide homes for every Singaporean.

Besides this, Redas is actively consulted by the government in housing-related legislation, the first of such being the landmark Housing Developers (Control & Licensing) Act of 1965. With its extensive network, Redas provides regular feedback on conditions within the industry.

Redas has come a long way. Its members have advanced into other areas of property development over the years, developing and owning major commercial, industrial, hotel and service apartment properties in Singapore and overseas. In some cases, certain world-class residential projects have won international awards, giving the Redas brand global acclaim.

Redas members have also progressed with the times to provide investors with alternative investments such as Real Estate Investments Trusts (Reits).

There are currently about 300 developers and others in supporting industries who are Redas members, benefiting from a wide range of activities that cater to the property and building industry.

‘Redas has over the last fifty years played a positive contributory role to the real estate industry,’ said current president Simon Cheong, chairman and CEO of SC Global Developments.

‘We are confident our members have the drive and enterprise to meet the challenges ahead. Notwithstanding the current financial crisis, Redas members will continue to actively participate in Singapore’s aspiration to be a leading global city.’

Source : Business Times - 4 Apr 2009

Sniffing out buys in the mass market

Sniffing out buys in the mass market

Posted by luxuryasiahome on March 26, 2009

CHUA CHOR HOON and LIM HUI LING compare the current situation with past downturns to gauge where we stand today in terms of oversupply and time to recovery

WITH the economic downturn, the residential market landscape has changed as developers shrink the size of units and offer steeper discounts to lure cautious buyers while banks tighten credit. So how will this downturn play out?

We compare the current situation, particularly in the mass market segment, with past downturns to gauge how prices are likely to perform and when recovery will be in sight.

The mass market segment has proved to be less volatile than homes located in the prime districts of 9, 10 and 11 - on the way up as well as on the way down. While average prices of luxury homes rose 66 per cent during the property bull run in 2007, average prices of three-bedroom leasehold homes outside the prime districts only rose 27 per cent.

Gentler declines

Similarly, on the way down, mass market homes have seen gentler declines compared with higher-end condos. Last year, prices of luxury homes fell 30 per cent while average prices of non-landed three-bedroom leasehold homes outside the prime districts fell just 8 per cent to $560 per square foot as at end-2008.

The average prices of homes outside prime districts as at end-2008 are 33 per cent higher than the trough prices in 1998 and 27 per cent higher than the trough prices in 2003. However, they are 25 per cent lower than the peak in 1996 and 11 per cent lower than the peak in 2000.

The extent of price fall, while dependent on economic performance, also depends on supply in the private residential market. Based on Urban Redevelopment Authority (URA) numbers as at end-2008, an average of 11,626 private housing units a year are scheduled for completion in the five years from 2009 to 2013. This is 34 per cent more than the annual average of 8,671 units in the last 10 years (1999 to 2008).

However, the overall housing supply is much less compared with the level in 1998 which saw a supply glut in the public housing market. Around 31,600 public housing flats were completed each year between 1996 and 2000 compared with about 5,000 units completed annually in the last five years. To avoid over-building of flats, the Housing Development Board (HDB) had put in place the build-to-order (BTO) system in 2001 to provide the main supply of new flats.

Under the BTO system, construction will only start when a majority of the units have been booked and buyers would have to wait three to four years for the flats to be completed. HDB’s stock of unsold inventory is now estimated to be at a record low of under 1,000 units. Hence, the limited supply of new HDB flats will provide some support for the public housing resale market. This, in turn, should help hold up prices of mass market private homes.

The strong demand in the HDB resale market is closing the price gap between HDB flats and non-landed private homes, especially those in the suburban areas. However, there is room for the price gap to narrow further based on historical trends.

The price premium of private homes over HDB flats rose sharply in 2007 to unsustainable levels and will narrow as the private property market declines more steeply than the public housing market. Prices of HDB resale flats are likely to decline as the economy contracts further. The moderating rate of increase in the HDB resale price index and declining demand in Q4 2008 are signs of a weakening HDB resale market. Some HDB resale flats have already transacted below valuation this year. In this bearish scenario, private property prices would be further depressed. In Q1 2009, developers have already cut prices of new leasehold projects by 5-10 per cent.

So how long will this downturn last? The previous downturns lasted 2.5 to five years. While the property market saw a quick recovery after the 1998 Asian financial crisis, the recovery was slow after the 2001 Internet bubble burst, being compounded by a spate of adversities - the Sept 11, 2001 terrorist attacks, the Iraq war in 2003 and the Sars epidemic in 2003. The current downturn in the private residential market started only four quarters ago and is unlikely to bottom this year as the economic outlook is deteriorating. As to the timing and speed of the market’s recovery, that will hinge on the economic recovery of the major developed nations.

Going forward, developers are expected to resize the units of developments that have yet to be launched to make them more affordable. This would be aided by declining construction costs which would lower total development costs.

Purchases under IAS

Developers continue to offer an interest absorption scheme (IAS) which is similar to the deferred payment scheme (DPS). Under the IAS, buyers sign up for a loan with a bank but won’t have to fork out any cash other than the 20 per cent downpayment until the project gets its Temporary Occupation Permit (TOP). Although buyers may find it attractive not to have to make any progressive payment or service a loan before TOP, they should be aware that they may have to pay a premium of around 3 per cent under the IAS.

In addition, they would usually be locked into the loan for two years under the scheme. So complications could arise should they need to sell their property within the lock-in period.

Meanwhile, those shopping around for a property now should keep this checklist in mind:

~ Purpose (whether it is for own stay or investment)
~ Holding period
~ Budget
~ Preferred location
~ Surrounding environment
~ Proximity to workplace, school and amenities
~ Accessibility to expressways and public transport nodes
~ Rental yield/resale value (especially for investment)
~ Reputation of the developer
~ Design of building and unit layout.

While one naturally prefers to buy at the bottom of the cycle, this is harder to do with property than with stocks as each unit and project is different. The unit you want may not be up for sale when prices are at their lowest.

And there are a range of personal decisions that cannot be perfectly timed with the market cycle. For instance, newly married couples setting up home, parents moving closer to their children’s schools, foreigners buying for their children who are studying in Singapore, etc. In addition, a home buyer with a longer holding period is more prepared to ride out the down cycle.

A home buyer should work out his budget to ascertain if he can afford to service the mortgage even in the worst-case scenario. A general guide is that the monthly mortgage payment should not be more than 40 per cent of monthly household income. But in these uncertain times, it would be more prudent to consider a lower monthly mortgage service ratio. The key at this point is to buy within one’s means.

Chua Chor Hoon is senior research director, DTZ; Lim Hui Ling is senior research analyst, DTZ

Source : Business Times - 26 Mar 2009

UOL sells unit to CEO’s niece

UOL sells unit to CEO’s niece

Posted by luxuryasiahome on March 21, 2009

UOL Group said yesterday it sold a unit in its new project Double Bay Residences to Anna Gwee Lay Peng, niece of UOL director and chief executive Gwee Lian Kheng, for $878,820.

Except for a 3 per cent ‘early bird’ discount also available to public purchasers, Ms Gwee received no other discount, UOL said. Ms Gwee’s 1,927 sq ft second-floor apartment cost her $456 per sq ft.

UOL and partner Kheng Leong launched the 646-unit, 99-year leasehold Simei condominium Double Bay Residences early this month. On Monday, they had sold more than 210 units, out of 250 released so far. UOL said the apartments were sold at an average of $600-650 psf. The project is expected to receive its temporary occupation permit in 2013.

UOL said yesterday its audit committee reviewed and approved the sale of the unit to Ms Gwee and is satisfied the sale terms are fair and reasonable. The audit committee and the board of directors, with Mr Gwee abstaining, are also satisfied that the terms of the sale are not prejudicial to the interests of the company or its minority shareholders, UOL’s statement added.

UOL shares lost one cent to close at $1.69 yesterday.

Source : Business Times - 21 Mar 2009

GLOBALPROPERTY.COM

http://www.globalpropertyguide.com/real-estate-school/Mortgage-markets GLOBAL PROPERTY GUIDE MORTGAGE MARKET INDICATORS
COUNTRY	MORTGAGE MARKET STRUCTURE1	LTV OF NEW LOANS (%)2	TYPICAL LOAN TERM (YEARS)3	MORTGAGE DEBT (% OF GDP)4	HOME OWNERSHIP RATE (YEAR OF CENSUS)5
Algeria	..	90	30 (max)	1.5	63 (1985)
Argentina	Variable	80 - 90 (avg.)	12 - 20; 20 (max)	1.7	68 (1990)
Australia	Variable	90 - 100	25	71.0	69 (2004)
Austria	Fixed	60 (avg.)	25	26.1	57 (2001)
Bangladesh	..	50-70 (avg.)	<15	2.5	86(2001)
Belgium	Fixed	100	20	28.3	68 (2001)
Bolivia	..	70 (avg.)	15 - 20	9.5	60 (1997)
Brazil	Variable	75 - 100	20 (max)	5.0	75 (2000)
Bulgaria	..	90	30	4.7	97 (2002)
Canada	Fixed	75 or 95	25	43.0	66 (2004)
Chile	Variable	75	8 - 20	16.0	73 (2002)
China	Variable	80	10 - 15; 30 (max)	12.0	80 (2006)
Colombia	Variable	70	30 (max)	12.0	61 (1997)
Croatia	Fixed/ Variable	50	20 or 30	10.0	61 (1999)
Czech Rep	Fixed (Mixed)	100	20	5.5	47 (2001)
Denmark	Fixed	80	30	87.9	53 (2004)
Egypt	Variable	60	10 - 15	3.0	69 (1996)
Estonia	Variable	90	30	22.0	85 (2002)
Finland	Variable	75 - 80 (avg.)	15 - 20	35.7	64 (2005)
France	Fixed	100	15 - 20	29.0	56 (2002)
Germany	Fixed	80	20 - 30	54.0	43 (2002)
Ghana	..	80	20 - 25 (max)	0.5	57 (2000)
Greece	Variable	55 (avg.)	15	17.6	74 (2004
Honduras	Variable	70	20; 30 (max)	..	72 (2001)
Hong Kong	Variable	90	15	44.0	57 (2004)
Hungary	Variable (Mixed)	70	5 - 35	11.0	92(2003)
India	Mixed	85	20 (max)	2.0	87 (2001)
Indonesia	Variable	90	8, 10, or 15; 20 (max)	5.8	96 (2001)
Iran		70 - 80	18 (max)	3.0	73(1996)
Ireland	Variable	100	20	59.2	77 (2004)
Israel	Variable	70 - 95; 80 (avg.)	15, 30 (max)	22.0	74 (2002)
Italy	Variable (Mixed)	80	5 - 20	15.0	80 (2002)
Japan	Fixed (Mixed)	70 - 80 (avg.)	20 - 30	36.4	61 (2003)
Jordan	Variable	80 - 90 (avg.)	20 (max)	11	66 (2004)
Korea	Variable	70	3; 20 (max)	2.1	54 (2000)
Latvia	Variable	100	30	14.0	60 (2000)
Lithuania	..	100	25	12.6	87 (2002)
Luxembourg	Variable	80 (avg.)	20 - 25	33.5	67 (2002)
Malaysia	Variable	80	30 (max)	31.5	85 (1998)
Mexico	Variable	100	10 - 15	11.0	79 (2000)
Morocco	..	70-100	25 (max)	7.0	69 (1985)
Netherlands	Fixed	125	30	100	55 (2005)
New Zealand	Variable	60 - 80	30	78.2	68 (2001)
Norway	Variable	70	15 - 20	45.0	77 (2001)
Pakistan		80	20 (max)	0.7	81 (1998)
Peru	Variable	90	25	2.5	79 (2001)
Philippines	Variable	70 - 80 (avg.)	20 - 30 (max)	12	71 (2000)
Poland	Variable	100	5 - 32.5	5.2	75 (2004)
Portugal	Variable	90	25 - 30	50.7	75 (2001)
Romania	Variable	75	10 - 20	1.8	97 (2002)
Russia	Fixed/ Variable	90; 64 (avg.)	15 - 20	0.6	64 (2003)
Saudi Arabia	..	..	..	1.0	45 (2000)
Singapore	Variable	80	30 - 35	61.3	92 (2005)
Slovakia	Variable	75	5 - 15	5.9	76 (2001)
Slovenia	Variable	50 (avg.)	10	3.5	82(2002
South Africa	Variable	80	10 - 20	26.1	56 (2001)
Spain	Variable	100	15 - 20	40.2	83 (2004)
Sweden	Variable	80 - 95 (avg.)	30 - 45	50.3	49 (2003)
Switzerland	Fixed	80	15 - 20	130	31 (2003)
Taiwan	Variable	70	25	26.0	87 (2004)
Thailand	Variable	80; 90 - 100	10 - 20; 30 (max)	16.0	82 (2000)
Tunisia	Variable	80	..	6.0	80 (1989)
Turkey	Variable	75 - 80	10	2.5	64 (2000)
UAE (Dubai)	Variable	90; 60 (avg.)	15 - 25	..	..
UK	Variable	110	25	64.0	71 (2004)
Uruguay	Variable	70	25 (max)	9.8	81 (2004)
US	Fixed	76 (avg.)	30	69.4	69 (2004)
Venezuela	Fixed	70 - 75	25 (max)	0.7	76 (1990)
1 Mortgage Market Structure shows the predominant type of mortgage loans. Mortgages with interest rates fixed for more than five years are regarded as Fixed rate mortgages. Variable rate mortgages are mortgages with interest rates fixed for less than five years. In several countries, mortgages interest rates are fixed for 1 to 3 years before adjusted (these mortgages are still considered variable rate mortgage). In Chile, Colombia and Mexico, most mortgages are indexed to inflation (i.e. nominal interest rate plus inflation). Since the actual amount of amortization is subject to fluctuations due to inflation, these mortgages are also considered variable rate mortgages. 2 Loan to Value (LTV) Ratio is the amount of the loan that can be taken as a percent of property value. A higher LTV ratio implies a lower down payment or equity to be produced by the borrower. 3 Loan Term is the number of years before the loan is paid. A longer loan term implies a smaller amount of periodic amortization. 4 Mortgage Debt as percent of GDP is a measure of the depth of the housing market. Higher ratios are correlated with 1) faster and deeper financial innovations in the mortgage market; and 2) more liberal financial markets. Latest data available. 5 Home Ownership Rate shows the number of households which own their dwelling units as a percent of total number of households. In some cases, the figure represents the number of owner occupied housing units as a percentage of total occupied units. Sources: EMF, BIS, OECD, UNECE, ECLAC, IADB, IUHF, IUT, national statistics, and central bank statistics

London's property market risky investment for now

London's property market risky investment for now

London property market has begun to sag in tandem with the stock market slide, the pricking of the private equity and hedge fund bubble and an end of the mergers and acquisitions boom.
Neil Behrmann (in London)

Thu, Mar 27, 2008
Property 2008, The Business Times

THE London and UK residential property boom is well and truly over. In the past few months prices have begun to slip in what has become a buyer's market.

The slide has been especially evident in north England and the Midlands as a sizeable increase in new apartments on the market have failed to attract new buyers and tenants. In cities such as Manchester and Leeds, estate agents and residents have reported that a sizeable proportion of new buildings, with one and two-bedroom apartments, is empty. Aspirant landlords who were hoping to let the flats have been trying to sell the apartments as the mortgages on some of these properties are in many cases 90 to 100 per cent of the value.

Hometrack, a property information group, has reported that house prices in England and Wales fell for a fifth month in a row in February. Other surveys also report a fall. The only difference in opinion is the extent of decline.

The London property market has also begun to sag in tandem with the stock market slide, the pricking of the private equity and hedge fund bubble and an end of the mergers and acquisitions boom.

Adding to the problem, changes in non-domicile taxation for wealthy foreigners and international employees in London have led to a decline in demand for prime property in popular areas such as Chelsea, Kensington and St Johns Wood. Previously 'non-doms' were not taxed on income and capital gains on assets held outside the UK. Now the latest Budget rules that if a taxpayer wishes to remain 'non-dom' they must pay an annual levy of £30,000 (S$82,750). The levy has also created uncertainty that non-dom levies and taxation may increase in the future. Thus, some of these foreigners have begun to sell houses and apartments.

'The global credit crisis and consequent financial market volatility have taken their toll on prime central London property,' notes estate agent Savills in a report. 'Compared with the third quarter of 2007, values in the final three months of 2007 fell by 2 per cent. This was the first fall in three years.'

Savills estimates that gross average rental yields are only 4 per cent, about 1.5 to 2 per cent below the level of current mortgage rates. Now that capital values are either stagnating or declining, landlords are losing money. If the trend continues as several economists predict, owners of these so-called 'buy to let' properties will be forced to sell, adding to the supply and pressure on prices.

Prospects for the city sector and the wider global economy are currently uncertain, notes Savills. This uncertainty is likely to deplete rental demand from corporate tenants and suppress rental levels going forward. In 2007, half of London's tenants worked in the finance sector and as many as 70 per cent in central London. With the extreme volatility in financial markets, weak investment bank results and possible redundancies, it seems likely that corporate tenant demand will be reduced, adds Savills. On the other hand, rental demand could increase as families delay buying houses and apartments. Overall rental increases are expected to be subdued in 2008.

Mortgage approvals and asking prices are both key indicators of future market conditions. Asking prices have been falling in London and wider UK regions for several months. This illustrates the change in market sentiment and contrasts with heady buying in the first half of 2007, when buyers were recklessly overpaying for properties in what had become a real estate bubble.

The failure and nationalisation of Northern Rock has precipitated much more conservative lending on the part of banks. Mortgage lenders have become more selective about their customers and turnover in the property market has fallen sharply. In December, gross lending declined to its lowest monthly figure since May 2005. The Bank of England says that mortgage approvals fell from 81,000 in November to 73,000 in December, the weakest lending rate since the middle of 1995. Shrinking lending has continued in the first few months of the year.


'The housing market faces its greatest period of uncertainty since the early 1990s,' notes Richard Donnell, director of research at Hometrack. But he doubts whether there will be significant price falls as owners are reluctant to cut prices. Much depends on the levels of employment in the City and the extent of owners' debt burdens. The super rich, who have been purchasing homes of £5 million (S$13.8 million) or more, are virtually unaffected by these trends. But the changes in non-domicile tax may hinder their desire for property in London.

While estate agents and property market businesses and consultants are cautious, they are relatively sanguine compared to City economists who are experiencing the dangerous and broadening credit crunch. Goldman Sachs, ABN Amro and Dresdner Kleinwort are all predicting UK property price declines in 2008 and 2009. This is hardly surprising. London property prices have almost doubled in the past two to three years and are exceedingly expensive for both local and international buyers. According to the Land Registry index of houses and apartments traded, average prices in Kensington and Chelsea are £856,000, City of Westminister (£612,000); Tower Hamlets, near the financial centre of Canary Wharf (£376,000); and favoured areas such as Richmond ( £455,000); Islington (£450,000); Barnet (£355,000); and Camden, including Hampstead for £538,000. But these are averages of properties ranging from small apartments to semi and detached houses. In practice, house prices in Chelsea and Kensington tend to trade above £2.5 million with prices of £2 - 4 million in areas surrounding Hampstead, St Johns Wood, Islington, Richmond and Wimbledon. Two-bedroom purpose built apartments in these areas can fetch between £400,000 and £800,000.

London real estate, at current prices, is thus a risky investment for Asian investors, especially since the British pound is at historically high levels and is vulnerable to a decline. Far better to wait for better value in two to three years' time.