Extensive Trainings, Technology Innovations and New Market Initiatives Drive All-time Record Results – Despite Great Challenges in the Real Estate Industry
March 9, 2016 — Years 2014 and 2015 were muted years for real estate in Singapore, impacted by the various property measures. PropNex Realty took the opportunity to re-sharpen our focus on building real value to both our salespersons and clients so that we are well-positioned to ride the wave when the market picks up momentum again.
Singapore's real estate market is facing multiple challenges, including a slowing economy, rising interest rates, dropping prices and transaction volumes, and potential oversupply in some segments and an increase in vacancy rates. Developers must also pay 'extension charges' if they fail to sell homes within certain timeframes as well as face additional stamp duties on unsold homes. This led to the Real Estate Developers’ Association of Singapore (REDAS) repeatedly calling on the government to ease property-cooling measures to prevent prices from sliding more.
In addition, more casualties in Singapore's real estate agency business have emerged during the latest licence-renewal period with the Council for Estate Agencies (CEA). Year 2016 saw an 8% and 4% drop in the number of registered salesperson and real estate agencies from 2014. In addition, just 1,299 new salespersons joined the industry in 2015 as opposed to 3,006 in 2014. In view of the poor property market sentiments and stringent licensing requirements, many left the industry in search of greener pastures such as other full-time professions and even Uber drivers.
Despite these challenges, PropNex Realty today announced record gross commissions collected of more than $200 million in 2015. Transaction volume also reached a major milestone - crossing the 40,000 mark. The exceptional result reflects the positive operating environment and the ongoing performance improvements which was implemented at the start of 2015; and the company is expected to do well in 2016.
Commenting on the results, Chief Executive Officer Mr Ismail Gafoor said, “Our people delivered PropNex’s biggest year ever, thanks to our most innovative technology products and relentless pursuit of skills enhancement. Revenue growth of the company accelerated to produce record results, and our transaction volume was up 22% from 2014 - despite the challenging market conditions. The company is committed to continuously earn the trust of our customers, employees and associates. I'm proud of what we accomplished together, running a reliable real estate agency and making the right moves to deliver greater value.”
In addition, we have compiled some recommendations for the calibration of some cooling measures. PropNex Realty have concluded more than 200,000 transactions or sales/leasing since year 2009 when the cooling measures were implemented, and more than 40,000 transactions with more than 6,000 salespersons in 2015. As such, we do come into contact with many people, with a good feel of the ground sentiments, concerns and feedbacks. We believe that it is the right time to calibrate some of the measures, given that from 2014 to 2015:
• Speculative activity has fallen with quarterly sub-sales at just 3-4% of total volume
• Foreign demand (of non-landed residential properties excluding ECs) has been curbed significantly with overall foreigner buying at about 8% of total volume, compared to about 18% in 2011.
• Housing affordability has improved with the falling prices
• Looming over supply with weak demand
• Non-performing loans are at just 0.4% (as at 3Q2015)
Evidently, the Government’s plan to lower demand is working; and property prices are now on a downtrend. In addition, there is also a huge amount of supply 60,000 units in the pipeline and a record 26,500 vacant units that is entering the market and to make matters worse, interest rate is set to increase further.
Against such a backdrop, we think a pre-emptive calibration of the measures rather than post-corrective actions would be a better way to go in achieving a stable and sustainable property market; this is especially so as we have a home ownership rate of 90%. As such, we are of the view that a large correction in property prices is not a desirable outcome for most people.
In coming up with these recommendations, we have been mindful of the macroeconomic concerns and the overall objectives of the Government’s aim to achieve a stable and sustainable property market. We also took reference from the recently published ‘Financial Stability Review’ (November 2015), by the Monetary Authority of Singapore.
In our recommendations, we proposed for some to be retained with no changes, and some calibrations to certain measures to better address concerns which we have heard from the ground. The full proposal was submitted to the relevant Ministries this week.
Below are some of the cooling measures which we identified:
• Total Debt Servicing Ratio (TDSR)
• Additional Buyer’s Stamp Duty (ABSD)
• Loan-To-Value (LTV)
• Mortgage Servicing Ratio (MSR)
With the right calibrations; whilst retaining the key fundamentals of the objectives of the cooling measures, we believe that there will not be a sudden rebound in both transactions and prices.
TDSR to stay - what could possibly be adjusted?
We affirm our support for the TDSR to stay for the long term as it was put in place to encourage financial prudence among borrowers and strengthen credit underwriting practices by financial institutions. TDSR places restrictions on household debt and stipulates the debt-to-equity ratio, meaning how much cash you need to put down to qualify for a mortgage. This reduces the risk of households overextending themselves financially by taking on a home they cannot afford, especially if interest rates increase.
• Bringing down the ABSD for all groups of buyers
We propose for the ABSD rate to be reduced for all groups of buyers, depending on the number of homes purchased. For foreigners, we propose a ‘tiered approach’ with a higher ABSD rate for home purchases that are $3 million and below, and a lower rate for home purchases that are above $3 million. A table of our proposed ABSD rates is as follows:
Properties in OCR/RCR (usually priced below $3 million) are largely supported by Singaporeans who are buying for their own stay or upgrading; the higher ABSD for foreigners for lower priced properties is to reduce competition and maintain a stable market for Singaporeans as it is a deterrent factor for foreigners who wants to pick up properties there. The converse is true; whereby higher priced properties in the CCR ($3 million and above) are usually supported by foreign high-net worth individuals (HNWI). For such affluent buyers, we think that the current ABSD should be adjusted to ensure sustainable growth for high end properties in the CCR.
The ABSD was introduced in 2011 to discourage foreign investors from buying residential properties in Singapore and inflating prices, as well as to discourage Singaporeans from buying multiple properties. We believe that it worked and continues to significantly reduce the volume of property transactions.
One of the immediate effects of implementing the ABSD was seeing a sharp drop in property transactions. Buyers from overseas who may have previously been interested in investing in Singapore property following the sharply escalating prices between 2008 and 2013, are now put off by the high ABSD. The thought of paying more than $500,000 in Buyer’s Stamp Duty and ABSD for a $3 million property is enough to make even the richest property investors think twice.
Coupled with the other property cooling measures like the TDSR and the SSD, it has caused the volume of property transactions to drop significantly over the past 2 years. At the same time, property prices and rental yield have also been dropping.
We are of the view that the ABSD needs to be reduced for foreigners as well as for PRs and Singaporeans buying at least their first/second property, as long as their TDSR meets the guidelines. This can also enable Singapore to remain an attractive investment location not only for foreigners, but also for Singaporeans investing in their 2nd property onwards to prevent large capital outflows to other countries.
• Loosening LTV limits
The LTV limit is the loan amount that Singapore mortgage banks and lenders will offer you based on your property value. We propose for the LTV limits to be adjusted to:
As this measure was introduced before the TDSR (12th Jan 2013, TDSR was introduced in June 2013), the tighter LTV is less effective as the TDSR framework does not allow any borrower from taking a loan which is more than 60% of his/her monthly income. Moreover, those who currently holds more than 1 property may not be able to get another loan as his/her TDSR threshold may have already been exceeded.
When looking at this in totality, not only must a buyer meet the TDSR, there is also a MSR limit for HDB buyers. In addition, a buyer’s personal financial commitments are also taken into consideration while determining the LTV. So even if the buyer has a high income, but have large outstanding car, education and/or personal loans, he/she may end up with a low LTV limit, reduced loan amount and a larger down payment. Thus, we are of the view that LTV needs to be loosened as the TDSR is the final ‘gate-keeper’.
Also, due to the current low LTV limits, many Singaporeans are pushed to invest in properties in countries where they are able to secure even up to 80% LTV for their 3rd property investment.
With the existence of TDSR and non-performing loans at just 0.4%, our recommendation of LTV limits for the 2nd and subsequent properties to be at 60% for standard loans and 50% for loans exceeding 30 years are reasonable with sufficient safety net to protect our Financial Institutions.
• Higher MSR limit of 45% for EC buyers
The MSR was implemented to prevent buyers of HDB flats and Executive Condominiums (EC) from purchasing units that were beyond their financial means. It does this by limiting their monthly mortgage repayment to 30% of their monthly income.
The new policies have created a buying decision paradox for home buyers who can both afford public and private housing. Under the new ruling, a genuine buyer with a monthly income of $10,000 could only be eligible for $600,000 loan if he buys a HDB flat/EC (due to the restrictive MSR of 30%), but eligible for $1,200,000 loan if he decides to buy private property (due to the relatively more relaxed TDSR of 60%). (Assuming interest rate of 3.5% and a 25 years loan tenure)
The nature of ECs are such that they are designed to meet the needs of the “sandwich class”, and are a form of public-private hybrid housing which caters to home buyers who aspire to live in private homes but cannot afford such houses. However, due to their higher-than-average income, those earning more than $12,000 monthly do not qualify to buy a BTO flat. ECs bridge this gap by granting the prospect of luxury living made affordable through financial assistance from government schemes.
Setting a 30% MSR that is similar to a BTO flat is not realistic for someone who wants the lifestyle similar to that of a private property – knowing that he/she can get a 60% loan for a private property due to the TDSR. Also, the side effect of 30% loan cap is that developers construct smaller sized ECs to meet the MSR restrictions, which again run contrary to the Government’s repeated calls for Singaporeans to procreate as the constraint of smaller living space would likely discourage couples from having more children.
As such, we propose the MSR to be set at 45% for ECs. This figure will create a distinction between BTO flats (30%), and private properties (60%).
We maintain the view that the various Government measures have been effective in achieving its intended objectives. However, it is timely to calibrate some of the measures to continue to steer towards achieving a more stable and sustainable property market in Singapore for the long term. We sincerely hope that this compiled feedback from the ground can help shape the landscape of Singapore’s property market positively.
2015 Agency Highlights
• Creating a right balance of skills and motivation
PropNex firmly believes that having the knowledge and skills alone are insufficient to keep the company moving forward; having a positive attitude and mind set are crucial. Therefore, a series of activities was introduced to imbue strong willpower, motivation and belief.
A monthly Star Performers Ceremony began from January 2015 to recognise the top performing salespersons of the month. In addition, a motivation bell was rung whenever any salesperson submits a transaction that is more than $10,000 in commission. These galvanised the people and inspired them to continuously perform at a peak level.
• Relentless knowledge upgrade
Other than providing a $1.5 million training subsidy, PropNex continues to hold 4 conventions annually; to offer constant and up-to-date industry updates. In addition, boot camps for leaders, managers and salespersons were held, with more than 500 being trained – this is double that of 2014.
Objectives of the boot camps include:
1. Instilling a winning mind-set
2. Overcoming obstacles and difficulties in growing
3. Creating a more cohesive and dynamic bond
With an upgraded skillset and motivation, PropNex associates were able to improve their efficiency and productivity – which contributed to the company’s performance. The company also targets to train another 1,000 salespersons through boot camps.
• Gaining competitive edge through technological advancements
Changing attitudes have fuelled the growth of mobile technology. Mobile devices such as tablets and smartphones empower people by increasing control and choice over the way they work. The reality is that being in the real estate industry demands our salespersons to be highly nimble, productive, and able to communicate in real-time. It has become clear that consumers are using mobile devices to search properties and get more information. In response to this, PropNex delved deep into the tech world and made significant financial investment in tools and technology to support our salespersons.
“Since many consumers start their search for real estate online, we have to leverage technology for maximum exposure of our brand and listings to the market”, commented Mr Ismail Gafoor.
PropNex thus created specific mobile apps for different end users:
1. Property Net: A consumer focused app filled with information on current property news, new launch and upcoming projects. Consumers are also able to view existing listings from all of our 5,500 salespersons.
2. Virtual Office Mobile: A salesperson focused app that allows them to work off-site, as well as do exclusive submissions and view important company news. An in-built messaging system also ensures a constant communications line between the company and the salesperson.
3. PropNex ePropTrack: This app contains all information on PropNex’s current projects for easy reference to project information (both PropNex projects and external). In addition, the app includes data on live unit availability and pricing, detailed information on projects such as virtual tours, interactive diagrammatic charts, floor plans etc. It contains basic information on all other local projects in Singapore for easier co-broking.
4. Cobroker app: This app is targeted at PropNex extensive database of co-broke salespersons. This app gives the user a systematic approach to manage transaction statuses and tracking of commission.
This expansion into mobile technology is the latest in PropNex’s ever-growing real estate toolbox.
• SG50 prompted PropNex to give more
Through the commission sharing programme, PropNex salespersons raised $200,000 in 2015; which was matched dollar-to-dollar by the company; the amount was further bumped up with an additional donation from the company - resulting in a total donation of $500,000 to Community Chest - a significant increase from previous years. PropNex started a new pledge card donation programme as well as a fund-raising campaign in which we donated $50 for every #heartbeatsSG50 video posted on social media platforms. We also continued the workplace giving programme which any salesperson can pledge an amount to be donated periodically from their earned commission.
“PropNex is proud to once again be doing what we can to raise awareness and support for the underprivileged throughout Singapore. Through this continued partnership with Community Chest, we’ve been able to encourage even more PropNexians to be the difference in improving the lives of others and we hope that the awareness and goodwill will continue even after its conclusion”, said Mr Ismail Gafoor.
• PropNex appointed marketing agency for most projects in 2015
PropNex was appointed as the marketing agency for more than 40 new local projects over the past years. These new projects spread across different market segments including – Private condominiums, Executive condominiums, Landed properties and Commercial/industrial properties. PropNex will be focusing on helping these developers to clear their unsold stock in 2016 – which amounted to about 7,500 units that are still available.
PropNex International (PI) makes key additions to project marketing team
We are pleased to announce that we have beefed up our project marketing team with the additions of Mr Alvin Tan, as the Executive Director and Head of Local Projects and Mr Richard Nah as the Associate Director, Residential Project Marketing.
Alvin has near 18 years of working experience in the real estate industry. Prior to joining PI, he was a Senior Director with Savills (Singapore) Pte Ltd. He will be responsible for the overall business development for local residential, commercial and industrial projects, as well as oversee the luxury market segment - to achieve the sales targets of the company.
Mr Alvin Tan, Executive Director and Head of Local Projects
Richard has 20 years of working experience in the real estate / construction industry. Prior to joining PI, he was a Senior Sales & Marketing Manager with MCC Land (Singapore) Pte Ltd. He will be responsible for the development of marketing strategies on project sales and marketing of residential and commercial developments.
Mr Richard Nah, Associate Director (Residential Project Marketing)
They assumed their new positions on 1st March and will both work hand-in-hand to expand PropNex’s client base - with the aim of further establishing PropNex as one of the leading project marketing agencies.
Commenting on the new appointments, Mr Ismail said: "Alvin and Richard bring with them a great depth of experience, diversity of skills and the proven ability to expand our real estate work across a range of new sectors. Their appointments mark another milestone in our strategic plan to grow PropNex Realty and I am delighted to welcome them to their new roles."
• Entering new market segments
With the increasing unsold units – especially in the luxury segment, PropNex formed the Luxury Real Estate group (in partnership with JLL) to bring targeted assistance to developers.
Both PropNex and JLL went through a rigorous process of carefully selecting over 200 salespersons who met strict criteria around track record, communication skills, ethics, and product and market knowledge. Shortlisted candidates then underwent compulsory trainings in “Understanding Investor Mind Set” and a grooming and communications skills workshop which is a Workforce Development Agency (WDA) certified programme. In addition, they were required to pass an interview before they can be certified under the ‘Luxury Real Estate’ brand.
Despite the small size of the market, PropNex see a strong need for a specialised approach to help our luxury developer clients, befitting the high value and quality of their real estate as well as the profile of the high new worth purchasers.
The disciplined selection process and distinct identity of the Luxury Real Estate brand will also provide developers with the assurance that only the best and most highly-skilled sales persons would be deployed to represent their quality and valuable homes.
Updates for 2016
PropNex announced the appointment of Mr Kelvin Fong, the leader of Powerful Negotiators - PropNex’s largest team of salespersons, to the position of Executive Director. Mr Kelvin Fong will focus on areas of business development, training and recruitment; and will bring his undoubted talents to advance PropNex’s leadership position in the industry and add greater value to clients and salespersons.
Mr Kelvin Fong, Executive Director
PropNex will also be continuing the Consumer Empowerment Seminar (CES), with the first to be held on 9th April 2016 at HDB Hub auditorium. Through this, we hope to empower consumers to make sound property investment decisions. The CES attracted more than 30,000 attendees in the last 3 years - who benefited with a deeper understanding of real estate in Singapore.
“CESs are a key part of how we connect with consumers in order to help them make informed decisions on real estate investments. We seek to present the latest insights from our research with salespersons, landlords, buyers and tenants, and discuss wider economic and political housing issues that can further reinforce their knowledge. As Singapore’s leading real estate agency, it is up to us to pass on our extensive research knowledge and property know-hows to empower consumers so that they can realize their property aspirations,” concluded Mr Ismail.