August new-home sales tumble to 7-year low

Report shows US economy has lost momentum, as housing slump worsens

WASHINGTON – NEW home sales in the United States tumbled last month to their lowest level in seven years, a stark sign that the credit crunch is aggravating an already painful housing slump.

Sales of new homes dropped by 8.3 per cent last month from July, the Commerce Department reported yesterday, driving down sales to a seasonally adjusted annual rate of 795,000 units.

That was the lowest level since June 2000, when sales clocked in at a pace of 793,000 units.

The home sales report came on the same day that the government reported a relatively brisk business growth rate in revised figures for the second quarter.

The 3.8 per cent gross domestic product figure, however, was less than first estimated, and it occurred before the credit crisis and its repercussions across the broad spectrum of the US economy had taken hold.

The median sales price last month fell by 7.5 per cent from a year earlier to US$225,700 (S$337,737) . That was the biggest drop in percentage terms in nearly 37 years.

The median price is the middle point at which half sell for more and half for less. The average sales price dropped by 8 per cent last month from a year earlier to US$292,000. That was the biggest decline in 17 years.

The new-homes sales report, combined with other recent economic data showing a sharp drop in demand for big-ticket manufactured goods last month, suggests that the US economy has lost momentum as it headed into the autumn.

Another report issued by the Commerce Department showed that the US economy staged a rebound in the spring before a credit crisis raised new fears about longer-term business health.

The economy grew at a 3.8 per cent annual rate in the April-June quarter, the strongest showing in just over a year.

Although the new reading for the second quarter was slightly less robust than a previous estimate of a 4 per cent growth rate, it nonetheless marked a substantial improvement over the feeble 0.6 per cent growth rate registered in the first quarter.

The increase in the rate of growth, though, is likely to be fleeting.

A deepening housing slump and a painful credit crunch since the spring has darkened the mood of individuals and businesses alike. That has led analysts to predict that economic growth has slowed considerably in the quarter that ends on Sunday.

The National Association for Business Economics says it believes growth in the third quarter slowed to a pace of around 2.4 percent.

Source: ASSOCIATED PRESS (The Straits Times 28 Sept 07)

Sub-prime woes: rating agencies face SEC probe

Regulator checking whether they inflated ratings of mortgage- backed securities

(WASHINGTON) The Securities and Exchange Commission (SEC) has opened an investigation into whether the credit-rating agencies improperly inflated their ratings of mortgage-backed securities because of possible conflicts of interest, the head of the commission told Congress on Wednesday.

At a hearing before the Senate Banking Committee, the chairman, Christopher Cox, said the commission was examining whether the credit agencies had ‘compromised their impartiality’ when they simultaneously rated various mortgage- backed securities and provided advice to Wall Street investment firms about how to package them so as to gain higher credit ratings.

The credit agencies also receive fees from the investment firms. Mr Cox said President George W Bush had instructed an inter-agency committee headed by Treasury Secretary Henry Paulson to examine the role of the rating agencies in lending practices by the mortgage industry.

Mr Cox was the first witness in two days of congressional hearings over the roles of the two major credit-rating agencies, Moody’s Investors Service and Standard & Poor’s, in the growing problems plaguing the sub-prime mortgage lending markets. In recent months, the agencies have quickly, though critics say belatedly, downgraded hundreds of mortgage bond ratings.

With the explosive growth in the market for mortgage-backed securities, the rating agencies have come to play a central role in the housing market.

After a homeowner gets a mortgage, the lending institution usually sells the loan to a Wall Street firm, known as an underwriter, where it is repackaged with other loans and sold to investors as a mortgage- backed security. Rating agencies grade those securities to let investors know the chances of default.

As the sub-prime market has been rocked by a wave of mortgage defaults and worthless mortgage- backed securities, the rating agencies have come under renewed scrutiny by regulators and lawmakers.

After criticism of the credit agencies for their role in the corporate accounting scandals earlier in the decade, Congress adopted a law last year that gave the SEC new authority to inspect and punish the agencies.

But the new law also prevents the commission from regulating the procedures and methods the agencies use to determine ratings.

Although there is no expectation that Congress will rewrite the new law soon, executives from the rating agencies tried to defend themselves from an onslaught of criticism from Democrats and Republicans on the Banking Committee. ‘It seems to me that credit-rating agencies are playing both coach and referee,’ said Senator Robert Menendez.

Senator Charles Schumer dismissed the observation of one of the heads of a rating agency who had told him in a private meeting that the agencies had done nothing wrong. ‘To say nothing went wrong, that ain’t going to fly,’ he said. ‘We need to find ways to prevent this crisis from happening again.’

He proposed that the system be changed so that investors, rather than underwriters, pay the credit agencies’ fees.

Senator Richard Shelby, the senior Republican on the committee, joined other lawmakers in complaining that the credit agencies were being paid by the underwriters instead of investors. ‘It seems to me that money’s trumping ethics,’ Mr Shelby said.

 

Source: NYT (Business Times 28 Sept 07)

SHP’s $265.3m bid wins Race Course site

A CONSORTIUM that includes several prominent doctors has put in the highest bid for a hospital cum hotel site in Race Course Road – $265.3 million or $431 per square foot per plot ratio (psf ppr).

The consortium, called Singapore HealthPartners Pte Ltd (SHP), includes doctors Charles Chan, Leslie Lam and Maurice Choo. A major shareholder in Singapore HealthPartners (SHP) is Berjaya Leisure (Cayman) Ltd, which is thought to be linked to Berjaya Leisure Capital led by Malaysian businessman Vincent Tan. There are 38 shareholders in total.

Directors of SHP contacted by BT declined to comment on the company’s plans for the 13,625 sq m site but a medical centre cum hotel seems likely.

The site has a maximum permissible gross floor area of 57,225 sq m and at least 40 per cent of this must be used as a hotel.

CBRE Research executive director Li Hiaw Ho believes that a hotel with 550 rooms could be built.

‘Accompanying family members of patients can also patronise the hotel,’ he said.

Mr Li also highlighted that it was recently announced that $2 billion would be needed to expand Singapore’s health care infrastructure.

‘The development of this site as a hospital cum medical centre targeting medical visitors would contribute to Singapore’s efforts at becoming a medical hub for the region,’ he said, adding that according to the Singapore Tourism Board, more than 150,000 international patients come to Singapore each year for a whole range of medical care.

Average occupancy of hotels was also at a high of 89.4 per cent in August, Mr Li noted.

Whether more government land sale sites could go to the medical sector is not known.

Interestingly, the Race Course Road site was initially not expected to be for hospital use.

The site was first made available for sale in August 2006 as a white site for possible commercial, office, residential and/or hotel use. Then in April this year, the Urban Redevelopment Authority (URA) said in a statement: ‘In line with increased interest in hospital development, URA has been working with the Ministry of Health and EDB (Economic Development Board) to review new sites for hospital development.’

 

Source: Business Times 28 Sept 07

S’pore property seen as top buy in Asia-Pac

Sentiment strongest in rental apartment, office, hotel/resort, retail sectors: survey

SHANGHAI, Singapore and Tokyo have emerged as the top three most promising Asia-Pacific cities for real estate investment prospects, according to a report from the US-based Urban Land Institute (ULI) and the accountancy firm PricewaterhouseCoopers (PwC).

‘Sentiment was strong among survey participants to either buy or hold all types of properties in Shanghai, Singapore and Tokyo, rather than sell properties, illustrating the cities’ strong popularity with the investment community,’ a news release by PwC and ULI said.

For Singapore, the strongest sentiment for buying property was in the rental apartment sector, followed by the office, hotel/ resort, retail and indus- trial/distribution property.

The report, Emerging Trends in Real Estate Asia Pacific 2008, is the second annual investor survey from ULI and PwC. It shows that Singapore has jumped from fourth to second placing for investment prospect rankings, and from ninth to third spot for development rankings. Singapore is ranked first for city risk ratings.

One respondent in the survey said Singapore was ‘certainly one of the markets in the area that provides a very stable legal and tax environment, and property rights that are beyond question. And it therefore is certainly one of the markets where many, especially Westerners, are very comfortable.’

The report was based on interviews and surveys with more than 190 professionals, including investors, developers, property company representatives, lenders, brokers and consultants.

The survey covered 20 cities. Shanghai was in the top position in the latest 2008 investment prospect ranking, up from second spot in the earlier ranking. Tokyo maintained its third position, while Osaka, which was first in the 2007 ranking, moved down to fourth position. Hong Kong was ranked fifth in the latest survey, moving up six positions.

While Singapore moved from fourth to second spot in investment prospect, sell recommendations increased for office, retail, and hotel/resort from 0 per cent in the 2007 report issued last year to 19 per cent, 13 per cent and 13 per cent respectively in the latest 2008 report.

Buy recommendations for industrial/distribution property increased from 35 per cent to 44 per cent.

The 2008 survey also shows that the growing Asia-Pacific real estate market still offers opportunities for investors and developers next year. Asia-Pac real estate executives’ response remains strong on overall economic and market fundamentals, regardless of interest rate increases.

High levels of equity capital continue to pour into the Asia-Pacific property pool. For 2008, the hotels sector tops the list of real estate performance prospects, followed by the office sector.

PwC’s tax partner in Singapore, David Sandison, said: ‘It’s expected that even greater amounts of capital will be flooding Asia Pacific real estate markets in 2008. The real challenge for investors will lie in finding the right assets against the backdrop of yield compression and scrutiny by regional governments and tax authorities.’

The strongest sentiment for buying in Singapore was for rental apartments, with about 53 per cent of respondents recommending a buy, 34 per cent hold and 13 per cent sell.

For office space, 52 per cent advised buying, 29 per cent hold and 19 per cent sell.

The survey also showed that 48.5 per cent recommended buying hotel & resort property, 38 per cent advised holding, and 13 per cent, selling. For retail property, 45 per cent advised buying, 41 per cent holding and 13 per cent selling.

In the industrial/distri- bution sector, about 44 per cent of respondents recommended buying, 42 per cent holding and 14 per cent, selling.

ULI is a global education and research institute championing responsible leadership in land use to enhance the total environment.

 

Source: Business Times 28 Sept 07

Singapore out-Bostons even Boston itself

Republic honoured for harnessing intellectual capital

(SINGAPORE) Singapore has been named Most Admired Knowledge City in a new study to identify urban communities that best harness intellectual capital for competitive advantage, pipping among others, the Athens of America, Boston.

The other finalists in the inaugural Most Admired Knowledge City (MAKCi) awards – a joint effort by the World Capital Institute and Teleos – are Ottawa and two Spanish cities, Barcelona and Bilbao. Barcelona emerged third behind Boston.

Rory Chase, managing director of Teleos – which produces the annual Most Admired Knowledge Enterprise rankings – says the MAKCi awards have been established to create benchmarks to identify cities and regions that are leaders in bringing together intellectual capital and knowledge workers, supported by an advanced ICT infrastructure, to create knowledge-driven global competitive advantage.

The project drew 38 nominees, from Copenhagen and London to Kyoto and Austria’s Wien. Of these, a panel of experts in the knowledge management and related fields considered 24 cities, and eventually narrowed the field to the final five.

The assessment uses eight criteria. Singapore comes up tops on three indicators: identity capital, intelligence capital and financial capital.

It is second (behind Ottawa) in relational capital and collective human capital, and third on two measures of tangible and intangible ‘instrumental’ capital. And on ‘individual’ human capital, Singapore is down to fourth, ‘although the city’s policy has clearly embraced a combination of education and human resource development as its national flag’, the MAKCi report says.

The various dimensions of knowledge capital basically take into account things like urban integration, wealth and knowledge distribution, cultural diversity and tolerance.

The report says Singapore’s ‘capacity to retain its native citizens and attract new talented ones, along with its comparative positioning (rankings, awards, recognitions, benchmarks) in its region’ played a key role in its high ranking.

According to the MAKCi report, the top-ranked cities have been able to transform both traditional and knowledge based wealth into innovative solutions to their development challenges, and are ’social capital engines for their regions’.

 

Source: Business Times 29 Sept 07

Marina rising – and its prices follow suit

SUTL’s One°15 banks on rising affluence and the IR effect to keep afloat

(SINGAPORE) Asia’s most luxurious and modern marina will officially open tomorrow and, in keeping with the sudden rush of demand for the high life, it will raise its membership prices for the eighth time.

Nestled within the Sentosa Cove enclave with a range of private members club facilities, One°15 Marina has been steadily attracting the well-heeled not just from Singapore, but around the world to join up as members.

Currently, some 60 per cent of its 2,800 members are Singaporeans or residents, while the rest are expatriates and other foreigners, some coming from as far as Spain and the US.

And with demand picking up steadily since its launch in April 2005, One°15 Marina will be raising its membership price to $43,888 from tomorrow – compared to $38,888 now. This is a far cry from the initial launch price of $23,888 for an individual transferable membership.

And with membership capped at 4,000, Arthur Tay, the 50-year-old businessman and founder of One°15 Marina Club, expects to gradually hike up the joining fee to $60,888 by the time the integrated resorts are fully operational. Meanwhile, the club is also looking at term memberships to accommodate ocean-lovers who may be here only for a few years.

‘This will become one of the world’s most well-integrated waterfront lifestyle communities,’ said Mr Tay, who has invested about $75 million into the facility which sits on a 30-year leased site.

‘We already have 204 completed berths, and will have 270 berths when fully completed, including 10 berths for mega yachts of up to 220 feet in length.’

Mega yachts are fully fitted luxury super vessels of over 80 feet in length which cruise the world’s oceans with their high net worth owners. There are some 7,000 of these around the world worth some US$107 billion, mostly in Europe and the United States.

Asian are said at present to own less than 100, with about 10 owned by Singaporeans and Singapore residents. But this is expected to grow rapidly in tandem with the changing wealth demographics. The club also has several boats for rent, including four houseboats which provide accommodation.

Mr Tay feels that Singaporeans should get off their bottoms and move on to see how their little island is rapidly transforming into the Monaco of the east.

Sitting in the luxurious living room of his $22 million, 116-foot mega yacht Hye Seas II (named partly after his father), Mr Tay feels that, with growing affluence, Singaporeans are increasingly demanding better cars, more expensive watches, bigger homes – and classier marinas.

Spread over some 14.2 hectares of water and 1.7 hectares of land, One°15 – built by Mr Tay’s SUTL Group of companies and named after its strategic location of one degree, 15 minutes north of the Equator in nautical terms – seems to fit the bill.

Cash is not a problem. The club is already raking in some $1 million in revenue each month from its services, including not only food and beverage but other services being provided to yacht owners like bunkering. And when it reaches its targeted membership of 4,000, it would have taken in more than $140 million from entrance fees alone.

Mr Tay is unfazed by the fact that the only two other major privately-owned marinas in Singapore have not enjoyed much success. Almost two years ago, NATSTEEL-owned Raffles Marina revealed that it was not in a position to redeem $27.7 million worth of unsecured notes it owed 1,701 members. With a loss of $32 million in 2004, and liabilities exceeding assets by $30.4 million, it was forced to restructure by getting members to swap their debentures for equity and a second membership. This came on the heels of the collapse of Ponggol Marina under debt of some $18 million, leaving its members losing millions of dollars more.

So why should One°15 Marina work?

‘Marinas are not new in this part of the world, but it is a shame they’ve gone to sleep in Singapore,’ Mr Tay said.

‘Today, Singapore is a medical hub, financial hub and a tourism hotspot. As its people become more affluent, their lifestyle demands and expectations will also rise,’ he added.

Mr Tay also does not discount taking the holding company public one of these days. ‘We need to do this only when we need capital for expansion, whether here or elsewhere.’

The company is already talking to the government about opening up marinas on some of the other islands around Singapore.

At the same time it is looking overseas, especially Vietnam. ‘There are also some other marinas in the region asking us to manage their properties, or look at some other form of collaboration,’ said Mr Tay.

 

Source: Business Times 28 Sept 07

Istithmar plans Asian real estate vehicle

The joint venture with a global financial partner will be based in S’pore

FRESH from its recent $1.69 billion purchase of the prime development site at Beach Road, Dubai World Group’s (DWG) investment arm, Istithmar, said that it is planning to set up a major joint venture Asian real estate operation to be based in Singapore.

The group’s chief investment officer, Yu Lai Boon, said that the joint venture would be undertaken in partnership with a Singapore-based global financial company.

DWG has recently diversified its portfolio with several high-profile investments worldwide, including stakes in European aerospace giant EADS, the Barneys New York retail chain, and the MGM Mirage entertainment company and half of its CityCenter development.

Asked if the company’s one-third stake in the Beach Road site had to do with the softening of the real estate market in the Middle East, Dr Yu said that it had been invited to participate by its joint venture (JV) partner, City Developments Ltd (CDL). Dr Yu added: ‘Asia is the most important area of focus for us.’

Istithmar’s new real estate vehicle will be its second after the announcement in June of a US$50 million hotel joint venture with CDL, called Tune Hospitality Investments.

Istithmar also has a stake in the CDL Hospitality Trusts, and in the past year has made seven real estate investments in the region.

DWG’s real estate portfolio is currently worth US$60 billion in terms of asset and development value. In Asia, it is committing US$30 billion in India alone and expects to expend the same amount in China, Dr Yu said.

And apart from Singapore, it also has investments in Vietnam and Thailand.

The third partner in the South Beach development is the El Ad Group (EAG), run by Israeli billionaire Yitzhak Tshuva.

EAG may be an as-yet unfamiliar name here, but it is no stranger to CDL. Apart from buying The Plaza Hotel inNew York from CDL executive chairman Kwek Leng Beng and his partner in 2004, EAG is also a joint venture partner with CDL on its upcoming Leonie Hill luxury condo development.

With the global economy still in the throes of a credit crunch, real estate investments here had been expected to slow down. Yet, EAG president and CEO Miki Naftali said: ‘The quality and range of our properties have tended to insulate us from pressures associated with the so-called global credit crisis.’

He added that ‘credit remains available to us’.

EAG has a real estate portfolio worth over US$7 billion, and it expects to invest in Asia ‘as part of our worldwide strategy of adding value’.

Mr Naftali also said that it is seeking opportunities to introduce the iconic Plaza brand here, as well as in Tokyo, Shanghai and Beijing.

Other investors from the Middle East that have made an impression here this year include Emirates Investment Group, which has a stake in the upcoming Ritz-Carlton Residences in Cairnhill, and Kuwait Finance House, which bought two blocks at Reflections @ Keppel Bay.

 

Source: Business Times 28 Sept 07

Ho Bee sells 20 units of Sentosa Cove condo

Turquoise goes on sale with prices ranging from $2,400 to $2,700 psf

HO BEE Investment has begun selling units at its Turquoise condo at Sentosa Cove at prices ranging from around $2,400 to $2,700 psf.

Apartments cost around $5.3 million for a typical three-bedroom unit and about $6.4 million for a typical fourbedroom unit.

The listed developer sold about 20 of the 30 units that it released yesterday in the project, which comprises only 91 units in total.

Ho Bee seems to be in no hurry to sell out the 99-year leasehold project, given the increasing scarcity of new project launches on Sentosa Cove, market watchers say.

Three bedders in the development have an average size of about 2,100 sq ft, and four-bedders about 2,500 sq ft.

Turquoise also has a variety of penthouse sizes – three bedders, four bedders (both of these come with their own jacuzzis), and three sky villas ranging from 6,900 to 7,900 sq ft and each with its own swimming pool.

Ho Bee is developing the six-and-a-half storey project on Sentosa Cove’s Waterfront Collection site, which is flanked by Tanjong Golf Course and waterways.

Over at King’s Road in the Bukit Timah area, DTZ Debenham Tie Leung is marketing this weekend King’s 8, comprising eight freehold strata bungalows. The strata areas of the units range from 4,898 sq ft to 5,414 sq ft, and are priced between $4.67 million and $4.98 million. The bungalows have two storeys plus an attic, basement, a private pool and two private carpark lots. King’s 8 is being developed by Longitude Central.

Over at Jansen Road, Fragrance Land is holding a soft launch for 12 strata terrace houses. Prices of the 999-year leasehold development range from $830 to $850 psf of strata area.

And at the prime Scotts Road, Wheelock Properties (Singapore) begins today the official launch of Scotts Square, releasing a limited number of units. During a preview of the project in July, it sold about half of the 338 apartments, at an average price of $3,983 psf.

 

Source: Business Times 28 Sept 07

Collective sale site flipped for 100% profit

Bought for $73m one year back, Emerald Mansion site sold for $148m

(SINGAPORE) The Cheong family, which bought Emerald Mansion through a collective sale last year for $73 million or $931 psf per plot ratio, recently sold the District 9 freehold property for double that amount, or around $148 million or $1,888 psf ppr, sources say.

The unit land price of $1,888 psf ppr is a new high for residential land in the Cairnhill area, surpassing the $1,788 psf ppr that Char Yong Gardens fetched in June this year.

BT understands that the new buyer of Emerald Mansion is a joint venture comprising a property fund managed by LaSalle Investment Management, and a local contractor – with the latter taking a minority stake.

No development charge is payable for the 29,810 sq ft site, which can be redeveloped up to its current gross floor area of 78,401 sq ft, which reflects a plot ratio of about 2.63. This is higher than the 2.1 plot ratio indicated for the site under Master Plan 2003.

BT understands that the original collective sale to the Cheong family – which has a substantial stake in International Plaza at Anson Road and is related to SC Global chairman and CEO Simon Cheong – was completed just a few months ago.

DTZ Debenham Tie Leung is believed to have brokered the latest sale of Emerald Mansion to the LaSalle Investment Management fund. DTZ declined to comment on the deal.

Based on LaSalle Investment Management’s $1,888 psf ppr acquisition cost of Emerald Mansion, the breakeven cost for a new apartment development on the site could be about $2,400 psf, according to market watchers. The site can be developed into around 55 apartments averaging 1,500 sq ft.

The developer of a project on the Emerald Lodge site next door is said to be eyeing an average price of about $3,000 psf in an upcoming launch.

Last month, LaSalle Investment Management clinched a 99-year leasehold commercial plot next to International Plaza at a state tender. Its winning bid of $237.2 million reflects a unit land price of $941 psf ppr.

The real estate money management firm, which is part of the Jones Lang LaSalle group, bid on behalf of its LaSalle Asia Opportunity III Fund, and is planning a 20-storey office development with about 200,000 sq ft net lettable area.

 

Source: Business Times 28 Sept 07

Sentosa Cove puts last site up for sale

Bids of up to $144m are expected for Pearl Island, which can host up to 19 waterfront villas

DEVELOPERS who want a slice of the Sentosa Cove pie will have to act fast – the enclave’s final development site was put on sale yesterday.

Up for grabs is Pearl Island, the last of five islands zoned for landed homes. The 159,740 sq ft site can host up to 19 waterfront villas with private berths.

Property consultancy CB Richard Ellis expects offers of $127 million to $144 million for the plot, which works out to $800 to $900 per sq ft (psf).

Pearl Island was originally packaged with another parcel, Sandy Island, which has since been sold at $617 psf.

The most recent bungalow sale at Sentosa Cove saw seven offers for three individual plots. A new benchmark price was set at $1,527 psf.

Pearl Island is located near the Tanjong Beach and Tanjong Golf Course and has a maximum gross floor area of 127,792 sq ft. The plot is being marketed through an expressions of interest exercise that will close on Oct 25.

Sentosa Cove’s last condominium site, The Pinnacle, was also recently launched for sale in a tender that will close in December. The only land still unsold in the enclave are four seafront bungalow plots for individual buyers.

Pearl Island was not the only plot put on the market yesterday. Four sites were put up for collective sales, ahead of new rules on such sales which are expected to kick in next month.

One estate, Chateau Eliza at Mount Elizabeth, has an indicative price of $115 million to $120 million, said marketing agent Credo Real Estate.

This works out to $2,130 to $2,222 psf per plot ratio (psf ppr) – just shy of the record $2,338 psf ppr paid for The Ardmore in June.

Chateau Eliza sits on a 17,997 sq ft plot with a possible gross floor area of close to 54,000 sq ft. No development charge is payable for the site.

A 36-storey condominium with 20 units of about 2,500 sq ft each can be built on the plot, said Credo.

Meanwhile, property firm Newman & Goh put up two estates for sale: Toho Garden in Yio Chu Kang and Vista Park in South Buona Vista Road.

The owners of freehold Toho Garden are asking $60.8 million, or $580 psf ppr. The 86,881 sq ft site has a 1.4 plot ratio and can host 80 new units.

Vista Park, a 99-year leasehold site, is priced at around $300 million, or $680 psf ppr, including an estimated upgrading premium of $37.3 million. About 300 new units can be built on the 319,248 sq ft plot.

The fourth site put on sale yesterday was a vacant plot in River Valley Road, between River Valley Grove and St Thomas Walk. It is 28,798 sq ft in size, can be built up to 36 storeys and has 80,634 sq ft of gross floor area, said marketing agent Jones Lang LaSalle.

 Sentosa Cove Plot 

Source: The Straits Times 27 Sept 07

Will the en bloc fever start cooling?

Activity may slow down with tighter regulation, higher costs and longer sales periods

THE past two years have been stellar for en bloc sales which saw some 160 redevelopment sites being sold across the island. From 2006 till 2008, more than 11,000 units would have been withdrawn, to be redeveloped into 16,000 to 19,000 new units. The final number could be lower if developers opt to build larger and more luxurious units.

The bulk of these redevelopment sites (about 95 in all) are located in the highly sought after Districts 9, 10 and 11.

This has resulted in a possible shortage of high-end residential homes in the short to medium term as units are being torn down and redeveloped into new luxury condominiums.

For the first seven months of this year alone, we estimate that 61 en bloc sites have been sold for a total value of almost $11 billion. This surpasses last year’s record of $7.75 billion. For the rest of the year, we can expect a new record, both in terms of total value and number of sites sold. (See Table 1)

Going forward, we believe that en bloc activity will continue well into the next year, albeit at a much slower pace than in the past 12 months. There are several reasons for this.

Firstly, we will see larger en bloc sites in terms of size, number of units and value coming to the market. These large sites would require a little more time to obtain consensus among the sellers, as well as to find buyers with the financial muscle to acquire them.

Secondly, developers who needed to replenish their land bank have already done so and will be more selective going forward. The en bloc market could become a buyers’ market with developers possibly looking to acquire only prime redevelopment sites – sites which already have 100 per cent owner consensus or even those with negligible development charges (DC) rates.

Additionally, the recent proposed amendments relating to en bloc sales under the Land Titles (Strata) Act, which could come into force in October, will reset the collective sales process for those developments yet to garner the 80 per cent consensus.

A higher level of regulation and transparency is being introduced with stricter guidelines on the setting up of an en bloc sales committee. This will slow the pace in getting the whole process started.

Besides the changes to the Land Titles (Strata) Act, the latest revision in DC rates, which were announced on Aug 31, could potentially dampen the en bloc market further.

Going forward, whilst the location of the redevelopment sites remains paramount, we could expect developers’ interests to be channelled towards sites with minimal or no DC.

Whether the en bloc sale fever will actually cool is anyone’s guess at this point. The rising cost of land acquisition, higher DC rates, rising construction costs and the global economic climate all have a part to play in order for the market to thrive.

What’s the impact?

The wave of over 60 en bloc transactions between January to July this year could give rise to several thousand millionaires. Just taking the three months of April, May and June, we tabulated that there were some 34 sites with a total of 2,796 units sold, where the owners are expected to receive an average $3 million a unit.

Taking into account the need to apply to the Strata Titles Board for approval to proceed with the sale, all 2,796 displaced families could receive 95 per cent of their money by H1 2008. Assuming at least 2,000 of these owners are looking to buy another home, this would inadvertently create a surge in demand for homes both in the primary and more so in the secondary market, especially for those who need a place to stay.

Going forward, we expect a lull as the number of en bloc sites sold could slow down in the second half due to uncertainty, the possible introduction of new en bloc laws and rising DC rates. This would remove the additional demand from owners displaced by an en bloc sale.

 

Source: Business Times 27 Sept 07

Vietnam – the new hotspot

While its cost competitiveness in manufacturing is drawing in foreign investment, look at how Vietnam can boost its attractiveness to move up the value chain

VIETNAM, on the back of strong economic growth in recent years, has been attracting record levels of foreign direct investment (FDI) through 2006 and 2007.

Its entry into the World Trade Organisation and continued government commitment to deregulation has encouraged more foreign firms to invest and operate there. The effect of the accession has resulted in robust demand for office, retail and industrial space.

The question remains, however, whether this is part of an overall strategy by multinational firms to diversify out of existing markets or simply a labour arbitrage, with firms looking for the next low-cost location? Also, why are international firms choosing Vietnam over other low-cost locations in Asia?

There has been much discussion about the ‘China Plus 1′ scenario. At first glance, the logic seems clear. A firm operating in China becomes over-dependent on a single country and looks to diversify. This seems to be the case with Japanese garment manufacturer Uniqlo Co. Previously, the firm was producing 90 per cent of its garments in China. Now, this has been reduced to some 70 per cent. There is an intention to have 30 per cent of production in South-east Asia by 2009. However, although there is an advantage in the resulting diversification, this is often not a key driver.

Anecdotal evidence suggests that this need to expand to cheaper locations is one of the main drivers behind Vietnam’s FDI flows. Taiwanese investment into China, for example, has been trending down for some time, as has Singaporean investment. Firms, therefore, are not exactly pulling out of China. Instead, they are expanding elsewhere. The Taiwanese motorcycle firm Kymco, for example, owns assembly lines in China and Indonesia and is turning next to Vietnam; its rival, San Yang, decided on Indonesia.

Seoul-based Kookmin Bank, which during the 1990s assisted many Korean firms in establishing operations in the Pearl River Delta, is now seeing third- and fourth-generation operational expansions focusing on Vietnam.

The driving factor appears to be cost. It is well-known that the operational costs in China’s east coast cities have increased significantly in recent years. Producers there, many of whom have eagerly invested in China through the 1990s and 2000s, are looking to expand. However, the super profits that were previously readily available in China’s special economic zones no longer exist, with rising wages and rising land prices eating into margins.

When margins are eroded, producers are largely faced with two choices: move to China’s hinterland to access lower wages but place a logistical hurdle between them and their traditional port-based distribution channels. Or set up the next stage of their operations in another low-cost location.

When we look at FDI into Vietnam by sector type, we can see that much of it has been invested to take advantage of the cost arbitrage opportunity that is offered by Vietnam’s low-cost base.

As at end 2006, 68.7 per cent of all investment in Vietnam was in the industrial sector. This is typically the sector where investment decisions are most sensitive to labour rates and set-up costs. Of that industrial investment, only 17.1 per cent found its way into the light industrial sector, which is typically where the most tangible value-add can come from.

FDI into other key value-creating sectors, such as banking and finance, hotel and tourism, and transport and telecom, has remained in single digits in terms of portions of total FDI.

Vietnam clearly has a role to play in the roll-out strategies of MNCs investing in the Asia-Pacific region.

We need to ask, however, for what functions and business processes is Vietnam a favoured location, and for which activity is it still likely to take some time before Vietnam becomes a suitable choice?

Analysis undertaken around this topic shows that Vietnam is ideally suited to low-cost manufacturing where the key components are labour costs and availability.

When MNCs look to move up the value chain by undertaking more complex activities, especially ones that rely on high-quality human capital, Vietnam falls behind its competitors in the region.

That is not to say that MNCs have not been able to establish value add production facilities in the country. In fact, there are several case studies of firms that have taken highly complex processes to Vietnam. However, we note that in doing so, there has been considerable work involved in training local workers and bringing suppliers and real estate providers up to speed so that they deliver at the service level required.

In addition to the evolution of a skilled workforce, education of suppliers and development of supply chains in Vietnam, there are other areas that will need improvement. Significant work remains before there is an improvement in English penetration, tertiary qualification levels, the rule of law, security of private real estate ownership and deregulation of Vietnam’s commerce – especially in the areas of banking and finance.

Some progress has, of course, already been made. However, more needs to be done. As our experience in China proved, eventually wage rates will rise and MNCs will look to relocate. In China, however, as low-cost manufacturers have looked elsewhere to produce, constant investment in both hard and soft infrastructure has meant the country continues to be an attractive location.

Research and development, high-technology manufacturing and pharmaceuticals continue to see significant inflows of investment, even as foreign interests look elsewhere to make a quick dollar. That’s a lesson Vietnam seems ready to learn.

 

Source: Business Times 27 Sept 07

Vegas prices will indicate US home values

Sin City acts as a barometer because it shows investor movement

(BOSTON) What happens in Las Vegas doesn’t stay in Vegas when it comes to the city’s housing market.

Tumbling home prices in the city will show how far and how fast US property values will fall in 2008 as the housing decline enters its third year, said William Wheaton, an economics professor at the Massachusetts Institute of Technology (MIT) in Cambridge, outside of Boston.

‘Las Vegas is an important barometer for where the rest of the nation’s home prices are going because it’s going to show us how quickly the investors head for the doors,’ he said. ‘It will put the floor under the housing correction.’

Futures contracts on the housing market that trade at Chicago-based CME Group Inc, the world’s largest exchange by market capitalisation, indicate Las Vegas will have the largest decline in the nation. Investors expect a 5.6 per cent drop by next May, said Justin Walters, co-founder of Harrison, New York-based money management and research firm Bespoke Investment Group LLC. New York prices may fall 2.6 per cent, the least of the 10 US cities on the exchange.

Home values in Nevada fell 1.6 per cent in the second quarter from a year earlier, the biggest drop in the US, according to the Office of Federal Housing Enterprise Oversight (OFHEO) in Washington. Michigan, hard-hit by car industry layoffs, was second, with a 1.42 per cent decline; followed by California, with a 1.38 per cent drop, the government agency said in an Aug 30 report.

‘They had the biggest price bubble, so they’re going to have the biggest price drops,’ said Patrick Newport, chief US economist at Lexington, Massachusetts-based Global Insight Inc.

The slump in Las Vegas could last until 2010, even if gamblers and vacationers continue to boost the city’s economy, Mr Newport said. Prices have already dropped 5 per cent from last year’s peak and may fall another 15 per cent over the next three years, he said.

Property values in Las Vegas rose 44 per cent in the third quarter of 2004, driven by speculators and the lowest borrowing costs in four decades. It was the biggest US gain recorded by OFHEO in 22 years.

As homebuyers descended on the desert city, it changed the way Americans look at real estate, said Diane Swonk, chief economist at Mesirow Financial Inc in Chicago. After Las Vegas, the investment boom spread across the country from Florida to Arizona and California, she said.

‘The city that gave us gambling gave us house gamblers,’ she explained. ‘Buying a home became like buying a stock on margin, with no money down.’

Almost half of Las Vegas home sales in 2005 and 2006 were to people who intended to resell quickly for a profit, according to data compiled by Fannie Mae, the world’s largest mortgage buyer. Nationally, investment purchases accounted for 28 per cent of sales in 2005, the peak of the housing boom, according to the National Association of Realtors.

Las Vegas had 24,341 single-family houses on the market in August, up 19 per cent from a year earlier, and 6,221 condominiums, a gain of 23 per cent, according to the Greater Las Vegas Association of Realtors. Both were records.

 

Source: Bloomberg (Business Times 27 Sept 07)

Time for some retail-tainment

Today’s malls – a careful mix of the right tenants, themes and well-planned layout to draw people in and keep them occupied longer

RETAILING these days is more than just about the shopping, it’s a total experience. That means both ‘hardware’ and ’software’ have to work together to give shoppers that feel-good factor.

This is a far cry from shopping malls of old, which were just clusters of shops and food outlets. There was little thought given to tenant mix, themes or architectural designs. But with the growing sophistication of shoppers, malls had to improve their offerings. Efforts were made to cluster shops (tenant-mixing) to enhance synergy among different retailers and generate the best traffic flow within the complex to derive optimal rental returns.

Mall owners went into retail positioning, tenant-mix planning and theming to draw more shoppers and increase sales opportunity for retailers, which translates to better rental value per retail space.

Junction 8 was among the pioneers that introduced cineplexes and games arcades in shopping centres. Gradually, other services such as fitness, medical and educational centres found their way into malls.

All this was aimed at making shoppers stay longer at the malls. This is evident in the incorporation of libraries in malls, found at Compass Point, Hougang Mall, Lot 1 and Jurong Point. As these malls are located within the heartlands, the presence of libraries enhances their attractiveness to families and students, boosting traffic flow.

Parkway Parade incorporated medical centres. The upmarket Paragon in Orchard Road has spas in its tenant mix that meld with its affluent shoppers’ lifestyles.

Apart from attracting more shoppers, these service trades help mall owners fill the less prime locations.

Other malls such as United Square and Velocity@Novena managed by UOL Group have resorted to theming as their selling point. United Square, which was relaunched in 2002, themed itself as a ‘kids’ learning mall’ since the mall owner saw an unmet demand for children’s education/enrichment facilities. About 55 per cent of its tenant mix caters to kids with another 15 per cent for F&B. This proved to be a great success as rentals increased by 38 per cent after the revamp and shopper count rose considerably.

Velocity@Novena Square is Singapore’s first sports and active lifestyle mall. Its anchor tenant is California Fitness Jacky Chan Sports, occupying three floors of about 27,000 sq ft. Sports mix takes up close to 40 per cent of the 170,000 sq ft mall, with F&B taking up another 30 per cent.

More than just a place for sports goods shopping, Velocity is becoming a favourite venue for sports events. The 2005 Sea Games flag-off, skating performances curling demonstration and the recent NBA Madness Asian Tour 2007 were just some of the events held at the mall. Since the revamp, rentals have jumped by more than 30 per cent.

Funan DigitaLife Mall started as a general shopping centre but it gradually attracted a critical mass of electronic and IT retailers as tenants. It has since established its niche as an IT mall, and was refurbished twice – in 1992 and 2005 – to meet shoppers’ demand.

Themed malls came to Orchard Road in 1996 with the opening of The Heeren Shops. Tenanted by lifestyle shops with unique product offerings, it has HMV as its anchor tenant. In 1997, the movie-themed Cathay Cineleisure Orchard opened. Aside from movie halls, its tenants offer entertainment and leisure activities, social clubs and dining.

Of late, as consumers pay more attention to health and wellness, we saw fitness and wellness centres setting up at malls, such as True Yoga at Pacific Plaza, California Fitness Centre at Bugis Junction, and Planet Fitness at VivoCity.

Retail has evolved from its traditional role of buying and selling to a lifestyle event. As lifestyle is an experience, it is dynamic and ever-evolving. Mall owners not only update a mall’s tenant mix, they likewise organise activities to enhance the shoppers’ experience.

The latest trend seen is the integration of a retail mall with other land uses to enhance the entertainment and lifestyle portion of shopping. The Singapore Flyer is one such development. It comprises a retail building, a 400-seat theatre and the Giant Observation Wheel. The soon-to-be-developed Sports Hub is another project that incorporates multiple uses, namely, sports, entertainment and lifestyle. Aside from the sporting facilities, leisure and commercial developments will be incorporated to drive mall traffic on event and non-event days alike.

As its name suggests, Marina Bay Sands Integrated Resort integrates all types of uses, namely, hotel, convention centre, casino and theatre. They complement each other to derive optimal benefits, targetting mainly the conventions business.

In this highly competitive environment, change is a certainty. We may not have the world’s largest nor tallest malls, but we can challenge ourselves to create the most innovative retail-lifestyle malls.

Why not have a retail-lifestyle mall amid nature? For instance, the Kranji countryside offers art galleries, pottery and woodwork. It also retails organically grown vegetables and plants. This amalgamation can be a new retaillifestyle mall, except that all the tenants are not housed under one roof but linearly located amid nature. This venue is ideal for families and nature-lovers as it offers a different shopping ambience.

Instead of just having souvenir shops within zoos, bird parks and botanical gardens, why not turn them into retaillifestyle malls? It is important, however, that such malls be aptly sized, with a critical mass of at least 50,000 sq ft to attract shoppers.

These malls will then become a destination for shopping, entertainment and interaction, with each ‘retail-tainment’ destination having its own distinct identity and selling point.

 

Source: Business Times 27 Sept 07

The price of luxury

Flush with cash, the high-end residential market is flourishing. Look at what $5 million gets you

STRONG corporate profits and a global commodities boom in 2006 helped grow fortunes and sparked a surge in demand for trophy homes.

A survey by Cap Gemini and Merrill Lynch shows the number of high net worth individuals (HNWI) worldwide increased 8.3 per cent in 2006 to 9.5 million, with Singapore reported to have the fastest-growing number – up 21.2 per cent to 67,000. With this rising affluence, it is not surprising that high-end homes are being snapped up as soon as they go on the market, as they are just another example of luxury goods in hot demand.

Prices of high-end apartments continue to rise steadily, with new launches commanding increasingly higher rates in the prime districts of 9, 10 and 11. The average price of high-end residential property rose 9.1 per cent to $1,960 per sq ft from the last quarter, while the average price for super-luxury residential homes was even higher at $2,990 psf. The number of homes costing more than $5 million increased almost 54 per cent last year to 650. Foreign purchases at the top end of the market are also increasing.

‘Singapore is increasingly acknowledged as a safe haven for investments, backed by a strong Singapore dollar and an attractive tax regime,’ says Galen Tan, a managing director of EFG Private Bank. ‘An increasing number of high net worth clients have included Singapore as a part of their multi-generation wealth succession planning and are attracted to the conducive environment for retirement.’

Foreign purchases stand at 60 per cent of transactions above $5 million, compared with 39 per cent in 2006 and 14 per cent in 2005 ( See Table 1). Looking at the top 10 transactions over the last five or six years in terms of price, the past two years have seen significant increases – from about $2,050 psf in 2000 to $3,090 in 2006 and $4,078 in first-half 2007. The number of units sold above $4,000 psf in July this year soared more than 350 per cent to a record 72, compared with just 16 in June. (See Table 2)

Escalating prices of super-luxury apartments have not put buyers off. In fact, most such developments – like The Marq at Paterson Hill, Parkview eclat, Scotts Square and The Boulevard Residences – have reported good sales, with foreigners buying off the plan without even viewing showflats. At the high end of the market, we are dealing with excess wealth, not merely income. Hence, some of the factors that influence the rest of the market do not come into play in this segment.

High-end apartments indisputably cost more nowadays, but what do you get for your $5 million? Is there really much difference between, say, a $1 million apartment, a $5 million and a $10 million model? Besides the current property boom which has pushed up land prices, there is another reason for the soaring prices of top-notch apartments. Developers are loading them with more luxurious features to justify higher pricing. We note that apartments above the $5 million mark boast dramatic additions, such as top-of-the-line fixtures and finishes, sophisticated amenities and sprawling living areas that normal apartments do not have. Parkview eclat, for example, offers superior finishes and state-of-the-art appliances such as mirror televisions, spas and custom showers to create a hideaway for hard-working owners to take a break from their hectic lifestyles.

Hayden Properties’ latest development at 37 Scotts Road has taken opulence to an even higher level. It features a glass car elevator so owners can park their exotic wheels near their entrance. Assuming the development costs $3,000 per sq ft, it will cost as much as $600,000 for the parking space. Aside from providing additional functionality, such features imply a certain social status for owners. Large living areas and bedrooms are other common characteristics of luxury apartments. Hence, units that come with separate guest suites, spacious home entertainment rooms, wine cellars and open spaces, which were rare in the past for high-end apartments, are offered more commonly now.

The Marq at Paterson Hill and Cliveden at Grange offer the spaciousness of a bungalow in a luxury condominium setting. The love of space is reflected in the increasing number of large units sold. From January to July 2007, 1,250 units bigger than 2,500 sq ft were sold – 75 per cent more than in the same period last year. (See Table 3)

In terms of amenities, we have also seen vast improvements. Developers are increasingly aware that people are not buying a mere home but a lifestyle. In the past year, some developers have come up with creative ideas to provide a more attractive living experience for purchasers.

St Regis Residences and Beaufort on Nassim are tying up with hotel operators to provide hotel-style services. And Hilltops by SC Global promises a resort-style environment. We expect this trend of joint ventures between developers and prestigious hotel brands to continue.

Another distinguishing feature of luxury apartment buildings is the level of security. Developers are expected to place more emphasis on this as personal privacy and safety are big concerns. High-tech equipment such as fingerprint recognition and even eye scanners are being installed to identify residents and visitors. Cameras are mounted in every corner, panic buttons are wired to the bedside and a security guard placed outside each apartment to provide 24-hour surveillance.

The list continues, with buildings designed with infrared sensors that will sound alarms to warn security guards if moving objects are detected. Other security measures such as bullet-proof windows, a separate route and lifts for evacuation, a safe room that is bullet-resistant and wired with a phone line, back-up generators and keyless entry systems could be seen in future projects.

Compared with prices of high-end property elsewhere, Singapore has room for growth. In London, the average price for top-end apartments stands around $8,900 psf. In Monaco, the price of a luxury condominium averages $5,000 psf, while in New York it is about $4,500 psf. Apartments at Roppongi Hills, Tokyo, average around $3,400 psf, while in Hong Kong, prices of luxurious apartments average $3,100 psf, though those in the superluxury category have now topped $7,800 psf.

Despite recent turmoil in global financial markets, the mid to long-term outlook for the Singapore economy remains positive, with the government upgrading GDP growth from 5-7 per cent to 7-8 per cent this year. The narrowing of the revised forecast to just a single percentage point range – from the usual two-point range – shows the government’s confidence. Furthermore, Prime Minister Lee Hsien Loong has increased the long-term GDP growth target by one percentage point to 4-6 per cent per annum.

Going forward, we expect the property market to remain optimistic, with high-end prices likely to increase another 20-30 per cent a year until 2010, mainly due to the quality of projects and increasing land prices.

Land prices are likely to rise at a slower pace after strong growth in 2006. The increase in apartment prices is likely to be attributed to the fancy items and amenities that developers include. Furniture from the exclusive Lamborghini or Armani/Casa lines, Hasten Vividus beds that cost almost $120,000 apiece and high-end entertainment systems are just a few of the new frills that will allow developers to market the project as unique, so as to command a premium.

 

Source: Business Times 27 Sept 07

Talking dollars and sense

Effective deployment of funds can boost the capital appreciation and rental yield of an estate

IT IS an important mandate of the management council to keep watch over the expenditure of their estate, ensuring that funds are sensibly ploughed into areas which best meet the estate’s needs.

For example, should the money in your sinking fund for the year be used for lobby upgrading, or should it be used to build a state-of-the-art swimming pool? When the council is clear about long-term plans and its objectives (ie, functional over aesthetic), as well as the impact of certain major works on the estate’s value, decision-making becomes much more painless and effective. The situation whereby too much money is spent on some areas with not enough left over for others can then be avoided.

Clearly-defined plan

The council, with help from the managing agent (MA), also has the responsibility of devising a well-planned budget for the year, phasing various works by importance and collecting appropriate amounts for the maintenance and sinking funds to carry out these works.

Defects management is one area where council members must learn how to discern appropriate professional advice, knowing their likely orientation. An inexperienced council serving their first term often feels pressured to go all out. Over time, such actions can often do more harm than good. From our experience, the hefty amounts spent on futile lawsuits could have been better used to enhance the estate’s ambience and facilities.

Having said that, council members must be careful not to save money at the expense of the well-being of the estate.

It is unwise to keep appointing different MAs in favour of the cheapest one, sacrificing the familiarity of the estate gained by the previous MA. Saving a few hundred dollars each month might look like a lot, but it is a negligible savings in the context of a budget for larger estates.

Similarly, experience tells us that it is often a short-sighted move to be stingy about the condominium manager’s salary, when he has the right skills to contribute to the estate. The returns of managing your estate effectively can outweigh the few hundred dollars saved per year many times over.

Council members would also do well by working with better established MAs who, by virtue of their portfolio size, are in the position to negotiate for better value through initiatives such as contractor accreditation, bulk purchase and so on. For example, Knight Frank Estate Management (KFEM) has in place panels of carefully selected and accredited contractors, subject to reassessment every year. Such value-added support for the council could help prevent instances where certain contractors are awarded jobs by certain council members ‘by default’, even if their pricing and workmanship are not necessarily above par.

Sinking fund for en bloc estates

We would caution owners not to stop maintaining their sinking fund unless they are certain that their collective sales is likely to go through and that there are sufficient funds for essential works before vacating the estate.

Even for estates which have just secured a collective sale, money from the sinking fund should still be spent on repair works pertaining to the safety, health and convenience of the residents, where necessary.

As there are usually one to two more years to go before the estate would be vacated, it would be unwise to ignore issues such as loose window grilles, faulty water tanks etc, in the hope that nothing major will happen before the developer takes over. On the other hand, it would certainly be pointless to spend money on further enhancing the estate aesthetically.

Under current rules, owners should not expect to collect back the sinking fund, though there have been some instances of developers redistributing the remaining sinking fund to subsidiary proprietors according to their share value. However, that would depend on the agreement between the buyers and the sellers before the closure of the deal. However, amendments to the law, which have yet to come into effect, would have money from the sinking fund returned to owners.

 

Source: Business Times 27 Sept 07

Sentosa Cove turns sea to gold with $3b land sales

Relaunched Pearl Island could see luxury villas going at hefty prices, market watchers say

(SINGAPORE) The combination of sand, sea and location have worked wonders for Sentosa Cove Pte Ltd (SCPL).

It has raised more than $3 billion selling land parcels in its namesake upscale waterfront housing district since late 2003, market watchers have calculated. And by the time SCPL finishes selling the last few land parcels that remain, the total takings are expected to go way over $4 billion.

By the time it is completed, Sentosa Cove will have about 2,500 homes.

The remaining 99-year leasehold plots that the master planner and developer of Sentosa Cove is now left with include four seafronting bungalow plots; the man-made Pearl Island which can be developed into 19 bungalows (this site is being relaunched today) and a plum condo site, dubbed The Pinnacle Collection at the entrance of Sentosa Cove’s marina basin.

The tender for The Pinnacle Collection was launched earlier this month and closes on Dec 12, with a reserve price set at $963.8 million or $1,600 per square foot per plot ratio. But most market watchers expect the winning bid to be much higher.

As for the 159,742.1 sq ft Pearl Island, CB Richard Ellis executive director Li Hiaw Ho expects it to draw bids of $800 to $900 psf of land area. This is about 30 to 46 per cent above the $617 psf that the next-door Sandy Island fetched during an expression of interest that closed in November last year.

Pearl Island was offered for sale during the same exercise but the site was not awarded by SCPL although it received offers above the reserve price.

Pearl Island, which can accommodate up to 19 luxury waterfront villas with private berths in their backyards, will not be sold to individual buyers seeking a plot. Instead, the entire land parcel must be bought at one go, presumably by developers. ‘This is an opportune time for developers to develop and offer luxury waterway villas in Sentosa Cove to satisfy the pent-up demand,’ said Ms Kemmy Tan, general manager of Sentosa Cove.

CBRE said that assuming land bids of $800-900 psf for Pearl Island, prices for the completed individual bungalow units will likely start from $8 million upwards.

Taking a more bullish view, Savills Singapore director of marketing and business development Ku Swee Yong predicts winning bids for Pearl Island will come in at $1,200 to $1,300 psf, reflecting absolute quantums of $191.7 million to $207.7 million.

The breakeven cost works out to about $13 million per bungalow. ‘This still leaves a profit margin for the developer. After all, the owner of a seafronting completed bungalow at Sentosa Cove with a 9,000 sq ft land area is said to be asking for close to $20 million,’ Mr Ku said.

The expression of interest for Pearl Island closes on October 25. Its award will be based solely on price.

SCPL yesterday also revealed that new benchmarks have been achieved for individual bungalow sites during an expression of interest that closed on Sept 4. A waterway plot fetched $1,247 psf of land area – a new high for such a site – while a fairway facing site achieved $1,527 psf, surpassing even the $1,473 psf that a seafronting bungalow site achieved during an expression of interest that closed in May this year.

 

Source: Business Times 27 Sept 07

Rush to launch collective sale sites

Chateau Eliza, Toho Garden, Vista Park among those offered for en bloc

DESPITE the cooling off in the property market, there seems to be something of a rush to launch collective sale sites this week.

The latest offerings are Chateau Eliza at Mount Elizabeth, Toho Garden in Yio Chu Kang, Vista Park at South Buona Vista Road, and a stretch of 15 houses at Jalan Bunga Raya near Balestier Road.

Property consultants said there are a string of other collective sale cases where agents have either recently secured the minimum consent levels or are rushing to do so before new en bloc sale legislation kicks in early next month.

In some cases, agents have had to raise minimum reserve prices a little in the collective sales agreements to entice the last few owners to sign up.

However, in other instances, they have also managed to persuade owners to set more realistic expectations, pointing to the perils of not achieving the minimum consent levels before the new rules are in force. The various processes and safeguards entailed in the new rules are expected to lengthen the time taken to get collective sale sites ready for launch, market watchers said.

CB Richard Ellis executive director Jeremy Lake said the US sub-prime mortgage woes in the past four to six weeks have also served to add a dose of realism to owners’ price expectations, helping to expedite securing minimum consent levels in some instances.

‘Prior to that, it seemed like a never-ending party,’ he said.

DTZ Debenham Tie Leung director (investment advisory services) Shaun Poh said: ‘I would say that in 50 per cent of our cases, we’ve had to up the reserve prices a bit to get the last few owners to sign up. But we’re also trying to ensure owners’ pricing expectations are realistic.’

In the remaining cases, Mr Poh did not have to raise minimum prices but persuaded owners to be more realistic and sign up.

‘Our advice to clients is: Let’s lock in the 80 per cent consent level first, before the new laws take effect. We can then watch the market and see how new residential property launches in the location fare before deciding whether to launch the tender for our en bloc sites,’ Mr Poh said.

Chateau Eliza at Mount Elizabeth has an indicative price of about $115 million to $120 million, which works out to $2,130 to $2,222 psf per plot ratio (psf ppr). No development charge (DC) is payable.

In July, the site was launched through an expression of interest before the minimum consent level had been secured, with an indicative price of $120 million.

Marketing agent Credo Real Estate is now launching a tender for Chateau Eliza as it has secured consent for a collective sale from owners controlling more than 80 per cent of share values. The freehold site has a land area of 17,997 sq ft and can have a maximum gross floor area of nearly 54,000 sq ft, based on preliminary checks.

Over in South Buona Vista, Newman & Goh is launching the tender for Vista Park, which stands on a site with a remaining lease of about 71 years. Owners are looking at about $265.7 million, which reflects a unit land price of about $680 psf ppr, inclusive of an estimated $37.3 million payable for upgrading the site’s lease to 99 years. No DC is payable.

Newman & Goh is also offering the freehold Toho Garden at Yio Chu Kang Road with an 86,881 sq ft site area through a tender. Its owners are seeking $60.8 million, which works out to $580 psf ppr including an estimated $9.7 million DC. Both Vista Park and Toho Garden have a 1.4 plot ratio (ratio of maximum gross floor area to land area).

DTZ has also launched the tender for Nos 1-15 Jalan Bunga Raya, with a freehold land area of 24,058 sq ft. Access to the terrace houses is by a road which can be alienated by the state for about $7 million, boosting the total land area to about 32,978 sq ft, according to DTZ.

A DC of $263,000 is also payable. The $66 million to $67 million price expected by owners reflects an all-in unit land price of about $800 psf ppr. The site is designated for 2.8 plot ratio.

Meanwhile, Jones Lang LaSalle yesterday launched the tender for a 28,798 sq ft freehold residential site with a 2.8 plot ratio at River Valley Road for sale by tender. It did not indicate price expectations in its release.

 

Source: Business Times 27 Sept 07

Real estate derivatives next for Singapore?

Despite their complexity, ONG CHOON FAH points out the distinct advantages this financial product can offer

THE management of risks is central to all investments, including real estate.

The financial markets have, since the 1970s, managed risks in the form of derivatives – financial instruments where the return is based on the return of another underlying asset eg, equity or bond. Often used by sophisticated investors such as investment banks and hedge funds, derivatives have a chequered history.

While some view them as a form of speculation, others view them as a way of hedging risk exposure.

With increasing sophistication and integration of the financial and real estate markets, underpinned by the globalisation of real estate investments, property derivatives are now available in many markets, including the UK, US, Germany, France, Australia, Japan and Hong Kong. Real estate derivatives usually have tenures of between one and five years and operate similarly as trades on the stock exchange.

Typically, one party bets that the total returns from the real estate, which includes rental income and capital appreciation, will exceed a stipulated figure while the other bets it will not. Like all derivatives, real estate derivatives serve some very important functions:

• They provide valuable information on the underlying real estate assets on which futures contracts are based and in so doing, facilitate price discovery which is currently lacking due to the absence of a central exchange for real estate. Pricing of real estate derivatives also indicates prospects of the real estate market

• They facilitate risk management through hedging, especially given the illiquid nature of real estate. Portfolio managers will then have the flexibility in terms of asset allocation and moving from one real estate market to another

• They lower transaction costs, reduce lead time and hence increase market efficiency.

  In addition, investors can get market exposure without issues relating to owning the physical real estate eg, management.

  In the case of a Property Total Return Swap (PTRS), it enables real estate owners to sell their exposure in the real estate market without disposing the physical assets.

  Unlike in the sale of real estate, where the vendor will need to build up his portfolio of assets all over again, in the case of PTRS, the vendor returns to his original market position upon maturity. Another advantage of PTRS is that it is liquid and can be traded in the secondary market before maturity.

There are many other forms of real estate derivatives. In a cash-backed contract, a single payment at the commencement of the contract is swapped for future payments in line with the performance of the underlying real estate asset. In other arrangements, cash flows are swapped periodically with payments, either pre-determined or dependent on the performance of the underlying real estate.

In the case of Property Index Forwards, it allows investors to gain exposure to the real estate market, without investing in the physical assets, where the return is equivalent to the capital performance of the real estate asset with consideration paid either at the start or upon maturity.

Yet another form is the Property Index Certificate (PIC), a total return instrument where payment is pegged to the rental income and capital return equivalent to the capital performance of an agreed real estate index. As the index reflects the appraisal of the underlying real estate asset, consideration payable for a PIC is equivalent to the level of the index at the time.

Being a financial instrument, there is no real estate agency fees payable with significantly lower legal costs and stamp duty compared with real estate transactions. The purchase price is also established at the onset, removing price uncertainty which is often clouded in a physical real estate transaction. With a fixed term contract, parties involved can establish an exit strategy based on the real estate index upon maturity.

In the UK, where real estate derivatives debut, derivatives for commercial properties are based on the All Property Annual Index by Investment Property Databank Ltd (IPD) which is widely accepted as an independent and good measure of real estate performance. The IPD represents over 40 per cent of the commercial market in the UK.

Derivatives remain highly controversial as they are complicated and potentially less transparent.

Being complex financial instruments, there is a need to understand them well in order to use them effectively and responsibly, to manage risks. They allow investors exposure to a particular real estate market without acquiring the underlying physical asset. They can also be traded in smaller denominations and allows retail investors an additional investment instrument.

Growth of the real estate derivative markets in the UK and US have been driven mainly by institutional investors as they increase their asset allocation to real estate. Real estate swaps are also being established for sub-sectors of the market, together with capital-only and income-only swaps.

In Asia, the first real estate derivative was created in early 2007 between ABN Amro and Sun Hung Kai Financial based on a residential index – The University of Hong Kong’s Hong Kong Island Residential Price Index Series (HKU-HRPI). In the arrangement, ABN Amro gets exposure to the Hong Kong residential property market through receiving the change in the residential price index from Sung Hung Kai Financial. In turn, Sung Hung Kai Financial receives a payment based on an interest spread fixed on HIBOR. In so doing, ABN Amro is effectively buying an exposure in the Hong Kong residential market with Sun Hug Kai Financial virtually (as opposed to directly) selling the property.

The Reit market in Singapore has developed successfully since its debut in 2001. Today, there are 17 Reits listed on the Singapore Exchange, comprising both real estate assets in Singapore and the region.

For the next lap, it is timely that Singapore develops a real estate derivative market. This will further grow and enhance its role as a financial hub.

However, infrastructure must be developed in terms of industry standards for appraising the real estate assets, regulations and trading platforms.

Critical to this is the need for a robust and widely accepted real estate index/sub-indices on which to base the trade.

These indices will need to be published as regular as on a monthly basis to underpin secondary market trades.

There is also a need for real estate forecasting capabilities to facilitate the market. As it is, various market participants are exploring the development of a real estate derivative market in Singapore and it is a matter of time before these instruments make their way to main street.

 

Source: Business Times 27 Sept 07

Property investors thrive in Malaysia

CHRISTOPHER BOYD sees more upside potential in the high-end residential market as demand pushes prices to ever-higher levels

THE residential market in Malaysia can best be described as well taken care of at the lower end, and, at long last, in a state of broad equilibrium at the middle levels. The excitement, such as it is, can mainly be found at the top end, which is the main focus of this article.

The Klang Valley these days covers an enormous area from Ampang in the northeast through Kuala Lumpur and on westwards towards Klang and Port Klang. It includes a great many suburbs within reasonable access of this eastwest axis and since the whole valley lacks a formal definition, it is reasonably susceptible to hijack by those suburbs on the fringes. By our calculation it contains about 1.4 million dwelling units, of which half are landed, and half high-rise.

Last year, turnover was (in KL and Selangor, pretty much the whole Klang Valley) 57,151 units (Malaysia in comparison: 144,224 units) and the year before 50,715 units (Malaysia:153,315.) About 7 per cent of this turnover was new dwellings. Across the board, as at Q1 2007, the Klang Valley (KL and Selangor) had some 236,998 new housing units under construction and another 186,572 approved but not started yet; an indication of the fast growth rate since an ‘overhang’ of unsold units is barely an issue.

The number of completed condos in the best residential areas and priced at over RM500 per square foot amounts to 4,479 units, with a further 9,872 under construction.

There has been some concern that these top-end projects may be in oversupply, but the majority have met with a ready market, spurred early this year by the suspension of decades-old real property gains tax.

Global draw

The luxury condominium market has international appeal and buyers include the Irish and Middle Easterners, as well as expatriates in Hong Kong. Meanwhile, the Koreans have recently come into the market quite strongly and, who knows, it may soon be the turn of the mainland Chinese. There are no restrictions on the purchase (or resale) of most Malaysian residential property; you get a clear title and loans are freely available locally.

The market has moved up quite strongly over the past two years. Buyers of One KL facing the Petronas Twin Towers who were lucky enough to pay RM1,000 psf last year can now resell their units at twice that value – and the building is still under construction! The project is a development carried out by Malaysian tycoon Chua Ma Yu.

Purchasers of the nearby Marc Residences, a development by Singapore’s CapitaLand, who paid RM600 psf three years ago, are now taking possession of their completed units and getting offers of RM1,200 psf. The developers of the luxury Troika, within the vicinity of the Kuala Lumpur City Centre area, sold for an average of RM1,000 psf at its launch in 2005. The balance of unsold stock was re-priced early this year with a price tag of up to RM2,000 psf to keep pace with the market.

Is there any more upside potential? Will the madness continue? We don’t see why not. Interest rates are low, demand is high and supply, although increasing, is limited. Yields may fall as values rise, but we do not see this as dragging values down. Our experience in the region has shown that yield expectations from top-end residential property are not high. A rental of RM25,000 (S$11,000) a month from a condominium worth RM6 million is still 5 per cent, better than the deposit rate and offering the possibility of growth.

A far greater threat to long-term value is the quality of the proposed management and investors should check this carefully.

In Penang, the mood is bullish and upbeat with the announcement of the Northern Corridor Economic Region and with it, the Second Bridge, Outer Ring Road and monorail. These government initiatives have shaken the cobwebs off a moribund market and given it a new lease of life.

Luxury developments such as The Sanctuary in Batu Uban, Moonlight Bay in Batu Ferringhi, and Seri Tanjung Penang, a reclamation project in Tanjung Tokong have all reported over 70 per cent sales. The proposed Penang Global City Centre, launched on Sept 12, will bring new focus to Penang Island and will inevitably benchmark residential values which, at the moment, are stuck at around RM400 psf for top-end condos.

Johor, much like Penang, was a stable, well-supplied market with no discernable trends until the recent unveiling of the Iskandar Development Region turned it on its ear. The recent announcement of a RM4.1 billion investment by a Middle East group in the region has created excitement and done much to convince the sceptics.

Property prices are reacting accordingly. A three-bedroom apartment in Danga Bay, facing Singapore, which would have sold for RM250,000 in 2005 is now worth RM300,000. Newly-launched detached houses in Casa Almyra overlooking the proposed Integrated Leisure Resort were recently snapped up at prices from RM900,000 to RM1.6 million.

The main growth areas are seen to be within the vicinity of the Second Link to Singapore and the area around Aeon Tebrau City known as the Tebrau Corridor.

Johor Bahru residents can look forward to the creation of a new class of residential accommodation in response to the international attention now focused on their city.

 

Source: Business Times 27 Sept 07

Property investing – doing the math

ROY A VARGHESE examines two real-life scenarios to show investors the importance of timing in calculating risks and returns

MOST individual investors of real estate have a gut feel about whether they made, lost or broke even after holding their property for a certain period. In reality, few attempt to do the math to measure how well the investment truly performed and whether they were rewarded for the risks they took.

The only ones who are fairly confident of quantifying their profit or loss are the ‘flippers’ who speculate and deal in the sub-sale market without involving bank loans, rental income and outgoings.

This article takes the reader through two real-life case studies of investing in private residential properties in Singapore over two different time periods. The focus is on getting a sense of timing, time horizon, interest rates, rental yields and rate of returns. The outcome is to help an individual investor assess if real estate investing is worth the risks involved.

Case 1: 1982 to 1991

Not many of us will recall that there was a red-hot residential property market in Singapore in the early 1980s.

Condominiums were making a splash and the Central Provident Fund was made available for investment in properties. It’s hard to believe but mortgage rates were in the low teens in Singapore at that time. The particular property in this case was in the Pandan Valley area. It was a brand new 1,000 sq ft studio apartment that was launched at $300 per sq ft. The initial tenancy was at $2,500 a month. This translated to a gross rental yield of 10 per cent, bearing in mind that mortgage rates were around 13 per cent a year.

Everything was fine until the recession of 1984. The monthly rent dropped to $900. The value of the condo unit languished at the $200,000 level for the next two years. The gross rental yield fell to a more realistic 5.4 per cent (annual rental of $10,800 divided by prevailing market value of $200,000), almost in line with mortgage rates prevailing through the brief recession.

If the owner had sold the property after holding it for five years, the capital loss would have been massive.

However, the property market recovered and by 1991, this studio apartment was sold for $400,000. The owner was not prepared to hold on because of the uncertainties connected with the first Gulf War.

More importantly, the investor decided to use the proceeds to upgrade his primary residence. Intuitively, he was satisfied that he had broken even in terms of cash flow. But he did not know (or care) that his actual internal rate of return (IRR) was only 6 per cent a year for the 10-year holding period.

Incidentally, an opportunistic investor who bought an identical unit in 1987 would have realised an IRR of 34 per cent a year in 1991. (see sidebar).

The question is: Was the investor who held the property from 1982 to 1991- while suffering the throes of economic upheavals – fairly rewarded for the risks he took?

Case 2: 1996 to 2007

This period in time will be more familiar to most of us. The climax of the bull market of the 1990s came about unexpectedly when the government intervened in May 1996 with anti-speculation measures. Our second investor bought a brand-new condo in District 9, a few months prior to the drastic new housing rules. The 1,300 sq ft threebedroom unit was acquired at $1,200 psf, or $1.56 million. The first tenant paid $4,500 a month for a gross rental yield of 3.6 per cent. The interest rate was 5 per cent a year in the initial period, but steadily dropped to 1.5 per cent in 2001.

Till today, this condo is very marketable and the maximum period of vacancy between tenants was six weeks. The rent fell to $3,000 a month in 2000 for a gross yield of 4 per cent (annual rental of $36,000 divided by the market value of $900,000 in the downturn years).

Other property owners who did not have the holding power were forced to sell at a loss at around the turn of the millennium. Our investor took the lumps and hung on. By the end of 2006, with strong interest for second tier properties, the investment broke even compared to the original purchase price in 1996.

If this unit is sold today, the investor can pocket $1 million after settling with the bank (sales price of $1.8 million less outstanding mortgage of $800,000). The internal rate of return from the date of acquisition now stands at 3 per cent a year over 11 long years.

The question is: Should the owner sell now or wait for a more respectable return? What is the appropriate benchmark to gauge if this investment has met the threshold for an acceptable return?

The two real-life cases were selected to demonstrate that timing in property investment is critical. Peak to peak time horizon within a property cycle may result in a lower than optimal rate of return. Investors cannot anticipate external forces that may derail the best laid plans. Speculators know this too well and they have no intention of holding property longer than necessary. It’s simply capital gain they chase.

Exposure to real estate is part of a sound overall investment strategy. This exposure may not necessarily be in bricks and mortar (which has no liquidity) and should be beyond Singapore (for diversification). One alternative for liquidity and diversification is to invest in a portfolio of global property shares, funds and Reits. Due to higher risks, the expected rate of return from a well-timed property investment will be higher than a globally diversified portfolio of property securities.

If we assume an average inflation rate of 3 per cent a year in Singapore, then any investment should exceed this minimum return in the medium to long term. Then, there is the risk premium for property: an average net rental yield of 3 per cent and capital gain of 5 per cent add up to 8 per cent a year total return, or 5 per cent a year above inflation.

A useful proxy for the local landscape is the All Singapore Equities Property Index (left). The total return for the period August 1997 to August 2007 was 4 per cent a year. That’s a dreadful performance indeed for the long-term investor in Singapore property stocks during this eventful decade. Maybe our Case 2 investor should not feel too badly after all.

In conclusion, investing in residential property provides pride of ownership and a hedge against inflation. Whether it delivers adequate income or capital gains to an investor depends on many factors. In a nutshell, the property investor should acquire a quality product, pay a reasonable price and have the ability to hold for a long enough time horizon to earn the appropriate return.

The property agent, conveyancing lawyer and banker play their part in the buying and selling of the asset. These roles are necessary to ensure a smooth transaction. An experienced financial adviser can offer advice on the required return on investment, asset allocation and risks connected with the property as part of an overall investment portfolio.

 

Source: Business Times 27 Sept 07

Penang – the next luxury destination

An overview of the island’s hottest developments and what’s in store for the future

THE island of Penang continues to have its own fascination – the food, its laid-back quality reminiscent of a Singapore 30 years ago, its frenetic night life. Whatever the reason, property continues to fly off the shelf as soon as it comes on to the market.

Even high-rise, low and medium-cost properties are fast selling. Standout example: Most of the newly launched schemes around the island’s north-east district were fully sold within a few months of their launch.

Meanwhile, high-rise apartments and condominiums are selling well as prices have shot up to record levels. That is also due to the fact that high-end properties around Gurney Drive, Tanjung Bungah and Batu Ferringhi (north-east district) are influenced by foreign buying into the market.

For all that, however, landed property is doing better than high-rise projects, with tremendous price escalations.

Consider the following examples. In Sungai Nibong, standard two-storey terrace houses have been transacted at around RM560,000 (S$244,730) for a plot size of 1,550 square feet. That is RM95,000 higher than in the first quarter of 2007.

Meanwhile, at Bukit Gambier – around the corner from Sungei Nibong – newly launched two-storey terrace houses are going for around RM700,000 for a 2,400 sq ft plot area with a built-up area of 1,400 sq ft. That is easily the price of a single storey semi-detached unit with a 7,600 sq ft plot area in the more established neighbourhood of Tanjung Bungah.

And prices will only go up once the Northern Corridor Economic Region (NCER) project, recently announced by Prime Minister Abdullah Ahmad Badawi, gets underway. So far, the announced projects under the NCER to promote Penang as a manufacturing, tourism, logistics and transportation hub are the Penang Outer Ring Road, the second bridge to the mainland and a monorail that will run around the island.

The NCER encompasses the four northern states of Kedah, Perlis, Penang and northern Perak, along the lines of the Iskandar Development Region that was launched earlier this year in southern Johor. Its aim is to transform and expand the agricultural, manufacturing, tourism and logistics’ sectors in the region.

Penang is poised to leverage on those developments by promoting new industries such as biotechnology and downstream agricultural activities amid the expansion of its existing electronics and electrical sector investments in Bayan Lepas.

Simultaneously, the island is being marketed as an international tourist attraction. The redevelopment of Pulau Jerejak, a former penal colony that is being rehabilitated, is expected to make Penang a destination for exhibitions and international conferences, as well as positioning it as a medical tourism destination. These strategies incorporating the ‘Malaysia My Second Home’ programme are expected to attract long-staying tourists to Penang’s property sector.

With all these things coming up, we estimate more development around the island’s south-west district, especially Batu Maung, Bayan Lepas and Sungai Nibong, to slake demand.

Coastal Towers, for example, offers renovated 803 sq ft apartments that are being transacted at RM235,000 a unit compared with RM180,000 previously.

The Curve Beach Condos (average unit: 5,820 sq ft), are selling for around RM1.45 to RM2.2 million. That’s already higher than 11 Gurney which was transacted at around RM1.75 million for similar sized units.

But perhaps the most ambitious development to date is the Penang Global City Centre, which is expected to be a top draw for investors to the island state. With an estimated gross development value of RM8 billion, the iconic development on 104 hectares on the existing Penang Turf Club is expected to be worth RM25 billion when it is completed in 18 years, its promoters say.

They also assure the ambitious ‘carbon zero development’ will see a significant jump in job opportunities and tourism upon the completion of the project. The Global City Centre will boast two iconic towers, a metropolitan park, the Penang Performing Arts Centre, high-end retail outlets, a convention centre and condominiums.

In summary, the island’s property development market is in a state of euphoria and is trending towards catering for the wealthy. Many projects in the pipeline are firmly upmarket and should position Penang as the luxury property and lifestyle destination in Malaysia.

Where should the canny investor put his money? Among the suggested places:

• Gurney Drive with yields of 5.5-9.1 per cent

• Tanjung Tokong, 6.8-8.1 per cent

• Batu Ferringhi, 8.6 per cent and above

• Gurney Park apartments – currently renting for around RM2,700 a month mainly by the Japanese

 

Source: Business Times 27 Sept 07

Mass market on the rebound

The outlook for this sector is bright, riding on strong demand fundamentals

PRICES of mass market residential property are finally seeing a clear uptrend, as reflected in the latest Urban Redevelopment Authority’s (URA) statistics. Non-landed residential properties sited outside the central region (OCR) – where most suburban mass market properties are located – enjoyed a price rise of 7.2 per cent in Q2 2007.

This trumped the 2 per cent rise in Q1 2007. It was the highest quarterly gain since the market bottomed in Q2 2004, and indicates that confidence in the high-end residential property market has filtered down to the mass market.

Upswing seen across all locations and projects

Based on caveats lodged, the upswing in prices of mass market developments occurred across most suburban locations, although to different degrees. (See Table 1) The steepest price rise was seen in District 5. Median prices in this district rose by some 46 per cent from the low point in Q3 2005 to Q2 this year. This was followed closely by District 22, with a 42 per cent price rise. District 21 saw a 41 per cent gain in median prices. District 18 had a slower recovery. As of Q2 2007, median prices of mass market projects in the east picked up by 13 per cent from its trough in Q4 2006. A similar trend was observed in district 27, where the median price of private homes registered an increase of 16 per cent between Q1 2007 (the district’s record low) and Q2 2007.

The upswing is also more pronounced in larger and newer projects, which boast comprehensive facilities, as well as in those close to MRT stations and amenities.

One example is Kovan Melody, located next to the Kovan MRT station in District 19. Median prices there rose by 16 per cent, from $520 per sq ft when it was launched in 2004 to $605 psf in Q2 2007. At the other end of the spectrum, smaller and older developments located further from amenities, saw slower or flat price recovery. For instance, Central View in district 19 recorded a price gain of about 6 per cent between Q4 2006, when median prices were at the lowest for the development and Q2 2007.

Buyers of mass market homes are genuine purchasers

URA figures show that new projects sold by developers and resale deals make up the bulk of transactions in mass market districts located in OCR. Such sales made up more than 95 per cent of all deals since the general market bottomed out in 2004. On the other hand, sub-sales – which refer to secondary market transactions in uncompleted projects and often seen as a proxy for speculative activity – remained low at under 5 per cent.

Although sub-sales as a percentage of total transactions in OCR have been rising since Q3 2006, they are still relatively low at 3.1 per cent as of Q2 2007. This compares to 19.4 per cent for high-end properties in the core central region (CCR) and 10.4 per cent for private homes located in the rest of central region (RCR).

When taken as a percentage of total new sales within the respective regions, the proportion of sub-sales was just 7 per cent for the OCR, compared to 53 per cent for the CCR and 27 per cent for the RCR.

Supply crunch driving the mass market recovery

The rapid pace at which residential developments in the central area have been collectively sold in the last two years created an acute supply crunch, stemming from the massive withdrawal of homes from the existing stock.

This became one of the main drivers of the recovery in the mass market, which enjoyed a filtering down of demand, both in the sale and rental markets. Evidence of this can be seen in the much higher proportion of mass market property buyers with private residential addresses – from a low of 12 per cent in Q2 2002 to 61 per cent in Q2 2007.

However, the supply crunch is expected to be short term. The estimated 6,200 homes already withdrawn or about to be withdrawn from the stock in the central area – due to collective sales between 2005 and June 2007 – will be replaced by some 13,000 spanking new, modern and more luxurious homes in the next two years.

Moreover, the recent injection of private residential sites into the government land sale programme for H2 2007 could add another 5,580 new mass market homes.

Upswing in the mass market sustainable

Unlike the mid-1990s upturn that was propelled largely by speculative buying and weak demand fundamentals, the current upswing is supported by strong demand fundamentals on the back of bright economic prospects.

Historically, Singapore’s property cycles, measured from trough to trough, last between 10 and 13 years. Taking that as a guide, the current upswing in the mass market, which commenced in mid-2004 and picked up momentum this year, is likely to continue and peak in 2010. This coincides with the expected completion for many of the infrastructure programmes (such as the integrated resorts and Marina Bay Financial Centre) which support Singapore’s economic restructuring.

However, downside risks remain and they stem from the recent turbulence in world financial markets and uncertainty over the impact of the US sub-prime mortgage woes. Nevertheless, while the US and Europe may suffer a hit over the next few months, the economic fundamentals of Singapore and Asia remain strong.

Mass market prices could hit the 1990s peak

Launch prices of new mass market residential projects during the 1990s property boom ranged between $550 psf and $1,050 psf. One of these projects was Bishan 8, which was launched at a median $1,050 psf in 1997. The highest unit price achieved for a mass market project during the mid-1990s peak was a unit in Heritage View, which sold for $1,127 psf in September 1997.

In comparison, in the first eight months of this year, new mass market housing was launched at prices ranging from $500 psf to $880 psf, just some 9 to 16 per cent lower than the levels achieved at the last peak. The highest price achieved for mass market property in the current market was for a unit in The Parc, which sold for $1,040 psf in August this year.

Meanwhile, in the secondary market, the median resale price of mass market properties as of Q2 2007 was $516 psf, just some 14 per cent below the peak in Q3 1996. However, for those projects that were launched at the height of the boom in the mid-1990s, their median resale prices as of Q2 2007 are still some 11 to 45 per cent off from their highs. (See Table 2)

With the upswing expected to be sustained until 2010 at least, and assuming a conservative price growth of 5 per cent per quarter, prices of new mass market projects are likely to attain the 1990s peak level by H1 2008, barring unforeseen circumstances. For mass market properties in the secondary market, resale prices should match the last high by the end of 2008.

 

 

Source: Business Times 27 Sept 07

Marriott to double Beijing hotels

(NEW YORK) Marriott International Inc, the world’s largest hotel operator, said it plans to more than double the number of properties it has in Beijing by the 2008 Olympics.

It will open another 20 hotels in China through 2010, Marriott said on Tuesday in a statement. The expansion in China, which has about 12,000 hotels, is part of a push by Marriott and rivals such as Wyndham Worldwide Corp to double their rooms in Asia and take advantage of rising affluence and more travel. Two million people are expected to travel to Beijing for the Olympic games.

The JW Marriott Hotel Beijing, with 23 stories and 588 rooms, will be the company’s 3,000th property worldwide and is slated to open in November. The same month, Marriott’s 305-room Ritz-Carlton Beijing will also debut.

Marriott fell US$1.46, or 3.3 per cent, to US$43.25 at 4.01 pm in New York Stock Exchange trading.

 

Source: Bloomberg (Business Times 27 Sept 07)

Industrial space gets snapped up

Vacancy rates are the lowest in eight years, as Reit players push up demand for warehouse and factory space

IN TANDEM with the growth in residential and office space, average rents for the less glamorous but nonetheless expanding industrial space sector increased by 7.7 per cent in the second quarter this year.

This is all the more significant considering that the industrial space sector is still trying to clear the supply glut that has been stagnating in the market. In spite of this, vacancy rates are at the lowest in the past eight years. Besides a promising 8.3 per cent growth in the manufacturing industry, higher demand for business parks also accounts for the expansion in this property sector. Industrial space is made up of warehouse and factory space. The latter itself contains three sub-categories – single-user factories, multi-user factories and business parks.

In the first half of this year, factory and warehouse space saw an increase of 3.7 million and 1.6 million square feet in stock respectively. This has brought the total stock to 299 million sq ft for the former category and 65.7 million sq ft for the latter.

As at end Q2 this year, supply in the pipeline will channel a further 45.2 million sq ft into the market over the next five years.

Additionally, nine industrial sites have been released for the second half of 2007 under the government’s industrial land sales programme, which will provide an additional 3.74 million sq ft of space once completed.

On the demand side, the past half year recorded a healthy take-up of about 330.5 million sq ft of industrial space, contributed by 271.9 million sq ft of factory space and 58.6 million sq ft of warehouse space respectively. This resulted in a decline of vacancy rates to 9.1 per cent for factories and 10.9 per cent for warehouses.

The biggest demand in the industrial space market came from aggressive acquisitions by major Reits players like Mapletree, A-Reit, Cambridge and the recently listed MacarthurCook Industrial Reit.

In the first half of this year, more than 15 acquisitions have taken place, bringing the total value of transactions to almost $900 million, upping last year’s tally during the same period by 1.6 per cent.

Steadily increasing rents no doubt account for the active acquisition rates. According to URA statistics, rental and price indices for warehouses increased by 20.4 and 13.9 per cent in the first half of 2007 compared to the same period last year, while those of factories rose by 14.2 and 18.1 per cent year-on-year respectively.

During the first half of the year, average monthly rents for factory space increased by 3.8 per cent quarter-onquarter, standing at $1.60-$1.80 psf for ground floor units and $1.20- $1.40 psf for upper floor units. Average capital values for freehold factory space appreciated by about 5 per cent to $366 psf and $298 psf for ground floor units and upper floor units respectively. UE Print Media Hub, located at Tai Seng Drive, a project by United Engineers, catering mainly for the print and media industry, saw occupancy rates hit 88 per cent in one month.

High-tech space posted the largest rental growth of almost 12 per cent quarter-on-quarter, benefiting from the spillover of high demand for office space. With rents substantially lower than that of office space, yet providing similar functionality, it is no wonder that developments like The Comtech and Alexandra Technopark are enjoying near 100 per cent occupancy.

The Comtech, especially, has seen a rapid dwindling in its vacancy rate even as asking rentals surge to $4 psf for upper floors. Currently, average rents for high-tech space stand at $2.80 psf, up from $2.10 psf in the first quarter of the year. With a limited stock of high-quality warehouse space in the island, demand is fast catching up with supply, with an occupancy rate of 90 per cent. This is especially so in the east where a high concentration of logistics companies are located due to its close proximity to Changi Airport.

In addition to building specifications such as high floor loads, large floor plates and good cargo lift facilities, location remains important, with developments located near major transportation nodes seeing higher take-up rates than those in the outskirts. Warehouse space is now asking an average rental of $1.45 psf per month with higher floors asking $1.15 psf, a rise of 11.5 per cent quarter-on-quarter. Average capital values for freehold warehouses factories are also on the uptrend, coming in at $450 psf for ground floor units and $352 psf for higher floor units.

In light of the growing manufacturing sector, strong demand for industrial space will continue to support rents and capital values, despite a substantial amount of new stock entering the market during the second half of the year.

Rents of factories and warehouses are likely to rise another 10 per cent by the end of the year. Also, as industrial Reits continue to expand their portfolio, the sector may well see an overhaul for much of the existing stock, especially older sites that are centrally located.

 

Source: Business Times 27 Sept 07

Guide to Major Project Islandwide

How to choose a housing loan?

DENNIS NG lists some criteria to look out for to ensure your package makes the most financial sense for you

Most consumers want to know which housing loan is the best in town. Unfortunately, that is the wrong question to ask.

There are more than 100 housing loan packages in the market and what is best for one person might not necessarily be the best for you. Each package has different features that are suitable for different needs.

Thus, a more appropriate question to ask is what are the factors that you should consider in choosing a housing loan? Here are some things you should note before signing on the dotted line for a home loan.

Pre-approval: Before you close a deal to buy a property, it is advisable for you to first get pre-approved for a bank loan.

With the setting up of the Credit Bureau in 2002, banks can now check your repayment history of loans and credit cards taken up with other banks. Were you late in paying instalments? Have you ever been sued? If the answer is yes, banks may not approve your loan application or they might approve a lower loan quantum. This could jeopardise your purchase of a property, and you might even have to forfeit the option money you paid.

Loan duration: A minimum loan duration is five years and the maximum 30 or 35 years, or till you are 65 or 70 years old, whichever is lower.

One way to decide on loan duration is to time the loan duration to match your intended retirement age. So, if you plan to retire by age 60, you should ensure the loan is fully paid up before you reach 60, rather than stretch it till you’re 65.

Floating or fixed: If you think interest rates have peaked and are likely to go down, you might want a floating rather than a fixed rate package.

However, if you’re worried about the possibility of banks revising interest rates upwards, you might want a package which fixes the interest rate for the next one to three years instead. It might not make sense to fix rates for more than three years since the lock-in period for most packages ends after three years. You can always shop around for a better package after that.

Flexibility of repayments: If you intend to make a lump sum repayment within the next one to three years, you should look for a package that offers you the flexibility to make such repayments without penalty. Some packages impose a penalty fee of up to 1.5 per cent of any lump sum repayment you make.

Transparency of rates: If you want to know the exact basis for the interest rates charged on the housing loan, you can consider loans pegged to interest rates that are publicly available, such as the three-month Singapore Inter-bank Offer rate (Sibor) or Swap Offer Rate (SOR) which move according to market conditions.

Basically, a home buyer pays an agreed percentage above the variable SOR for a specified period.

You might want to consider such a package if transparency is a key issue for you and you are of the view that Sibor or SOR rates are falling rather than rising.

Penalties: Ask if any penalty will be imposed if you make a full redemption of your loan and how long the penalty period is. Currently, there are some housing loan packages with zero penalty period, while most loans typically have a penalty period of one to three years.

Interest-only: If you are a high income earner and in high tax bracket, choosing an interest-only mortgage might make sense. You benefit through savings in income tax as the interest portion of loan instalments for investment properties is tax-deductible.

This package also works well for short-term investors. By paying back only the interest, investors would benefit from lower cash outflow until they sell the property. As a result, they may be able to invest in two properties instead of one.

Interest-offset: If you have substantial cash you might want to consider an interest-offset mortgage instead. This basically links your current account to your home loan. The interest earned in your current account is the same rate as that charged on your home loan. By offsetting the interest earned on your current account against your home loan interest, you can enjoy big savings – in time and money.

Every dollar you put into this current account would have same effect as making a partial repayment of your loan, but give you the added flexibility of drawing down the cash in the current account if you need to. Whereas if you do a lump sum prepayment, the cash is ‘locked’ in the property and you lose liquidity. Thus, an interest offset package enables you to pay a lower effective rate of interest on your housing loan so that a bigger portion of your monthly instalment goes toward reducing the principal. This allows you to pay off your loan sooner and pay less in interest.

Promotions: Sometimes, banks might offer special promotional packages. If you engage the services of a mortgage broker, he would be able to provide you updated information on such promotions which could translate to additional interest savings for you.

In the past, when consumers shopped for home loans, they had to contact each bank individually to gather information. This a tedious process that takes up a lot of time. In the last few years, with the emergence of independent mortgage brokers in Singapore, home loan shopping and comparison have been made easier.

Basically, an independent mortgage broker who knows your requirements can help you zoom in on the most attractive home loan packages. You typically do not have to pay for the service of a mortgage broker as banks pay them a fee as they also help banks save on staff costs and resources.

In more advanced countries such as the US and Australia, people usually apply for home loans through a mortgage broker rather than go to the bank directly. In Singapore, many people are still unaware of the services and benefits of engaging a mortgage broker, but things are likely to change with public education and increasing awareness.

 

Source: Business Times 27 Sept 07

HDB resale market rides high

It’s certainly a seller’s market as prices trend upwards and demand for larger units rise

HDB resale prices have been recovering slowly but surely since a dip in late 2005 when anti-cashback measures were introduced to stamp out the illegal over-declaration of resale prices.

The recovery was based purely on the market fundamentals of an improving economy and employment market; as well as the actual play of supply and demand.

From Q4 2006’s 103.6 points on the HDB Resale Price Index, resale prices for HDB flats jumped 4.2 per cent in the first half of this year to reach 108 points in Q2 2007. Besides demand being fuelled by improving sentiment, the spate of collective sales in the private property market has unleashed a group of cash-rich house hunters, many of whom are opting for high-end resale HDB units. These buyers are willing to pay top dollar for flats that fit their criteria.

In June, wide media coverage of two five-room HDB flats that changed hands in the resale market at recordbreaking prices of $675,000 in Jalan Mebina (off Tiong Bahru) and $720,000 in nearby Kim Tian Place spun the HDB resale market into euphoria. It led hopeful sellers all across Singapore to hike asking prices overnight, some by up to $200,000 above valuation.

This led to a mismatch of price expectations between sellers and buyers as these high-priced deals are limited to fairly new, well-renovated, high-floor resale flats in coveted estates such as Tiong Bahru and Queenstown.

The HDB was quick to respond to concern among home buyers about runaway prices and released additional data on median resale prices and median cash-over-valuation in all the housing estates. Median prices give a more accurate picture of the market and minimise the distorting impact of headline-grabbing prices.

With these additional statistics, to be provided by HDB on a quarterly basis from the second quarter, home buyers have better information on which to base their decisions. Sellers are also able to use these statistics to price their flats realistically and competitively.

Going forward, HDB resale prices are expected to continue trending upwards. HDB’s Resale Price Index rose by 3 per cent in Q2 2007 over the previous quarter, with price increases across most flat types and towns. Seventy per cent of the resale transactions in Q2 2007 were transacted at an average of $7,000 cash-over-valuation. As at the end of the first half, HDB resale prices have increased by 4.2 per cent. With such positive market sentiment, prices are likely to continue to rise in the subsequent quarters and we may possibly see an overall price increase of 6-9 per cent for the full year.

Resale volume

With improving sentiment, the volume of resale transactions jumped 39 per cent in Q2 2007 to 8,708 units from an all-time market low of 6,258 units recorded in Q1 2007.

HDB’s data also indicates a strong preference among buyers for larger flats. Between Q1 2007 and Q2 2007, executive flats saw the largest increase in resale transactions of 67 per cent (343 units); followed by five-room flats at 64 per cent (903 units); four-room flats at 31 per cent (726 units) and three-room flats at 25 per cent (482 units).

The resale mix for H1 2007 showed three-rooms making up 29 per cent (down from 2006’s 32 per cent; four-rooms at 37 per cent (about the same level as 2006); five-rooms at 25 per cent (up from 2006’s 22 per cent); and executive flats at 9 per cent (up from 2006’s 7.5 per cent).

This preference for larger flats is likely to continue for the rest of the year as the demand is fuelled by those upgrading from smaller flats as well as buyers who have been priced out of the booming private residential market.

By year-end, we may possibly see three-room flats accounting for 25 per cent of resale transactions, four-rooms at 37 per cent, five-rooms at 28 per cent and executive flats at 10 per cent.

Assuming the current momentum holds, we are likely to see this year’s total resale volume surpassing last year’s 29,723 units, which was an all-time low. Some 30,000 to 32,000 are estimated to be transacted for the whole year.

Changes in housing policy

At last month’s National Day Rally, Prime Minister Lee Hsien Loong announced a slew of housing policy changes.

These include:

Revised additional CPF housing grant: The Additional CPF Housing Grant (AHG) Scheme will be enhanced to provide more subsidy to lower-income families to help them buy their first HDB flat. The income ceiling for AHG will be raised from $3,000 to $4,000, while the maximum grant will be raised from $20,000 to $30,000.

The enhanced scheme can be used to subsidise the cost of buying a new or resale flat. It is expected to benefit an additional 1,300 first-timer households annually. In total, some 4,000 households are expected to benefit from this programme every year; and this may boost the demand for three-room flats which has been lessened in view of the current upgrading trend.

New HDB buy-back scheme: This scheme helps unlock the value of flats for elderly Singaporeans aged 62 and above, providing them with an income stream. HDB will buy back the tail-end of the lease on their two- or three-room flats, leaving them with a shorter lease of 30 years on the same flat.

The flat owner will then receive a payout from HDB in two parts – a lump sum upfront and monthly payments for the rest of his or her life which will serve as a form of annuity. This scheme is not expected to have a significant impact on the resale market as it focuses on the elderly.

Two new upgrading programmes: HDB will be introducing two new upgrading programmes, namely, the Home Improvement Programme (HIP) and the Neighbourhood Renewal Programme (NRP).

The HIP aims to address common maintenance problems in ageing flats, such as spalling concrete and ceiling leaks; while the NRP focuses on precinct- and block-level improvements.

These upgrading schemes are designed to improve the internal and external environment of affected flats. While the flats’ condition and aesthetics are improved, the possibility of fetching higher prices is basically dependent on supply and demand rather than upgrading per se.

With strong market fundamentals, supported now by added transparency in transaction information, the HDB resale market is expected to continue its uptrend for the rest of the year.

 

Source: Business Times 27 Sept 07

A glowing report card for the hotel industry

Business is brisk as visitor arrivals climb steadily, pushing up room rates and triggering a flurry of new hotel construction

SINGAPORE is all set to spur tourism in the next few years with high-impact projects like the two integrated resorts, the Singapore Flyer, the Formula One (F1) Grand Prix and a rejuvenated Orchard Road.

Last year, a new record was set with 9.7 million foreign visitors coming to Singapore. This year’s visitor arrivals are expected to hit a blistering 10.2 million with Singapore Tourism Board (STB) numbers showing a glowing midterm report card. From January to July this year, visitor figures reached 5.9 million, a 5 per cent rise over the same period last year. July alone saw hotels raking in $168 million in room revenue, a 28 per cent increase from a year ago. This puts it right on target for another record-breaking year.

STB has set a target of 17 million visitor arrivals by 2015 with $30 billion in tourism receipts. Based on the impressive year-on-year growth over the past 12 months, we should be on track to achieve the 2015 target.

To meet the growing number of visitor arrivals, more hotel rooms have to be built. Presently, there are about 37,000 rooms in Singapore. Based on new supply under construction, some 11,000 rooms will come on-stream by 2010. This includes 4,300 rooms from the two integrated resorts at Marina Bay and Sentosa. It is estimated that in 2010, a total of 14 million foreign visitors will visit Singapore. Based on a conservative average stay of 3.4 days, the city-state will experience an acute shortage of at least 35,000 rooms from now till 2010. Come next September, the F1 event alone will bring an estimated 50,000 visitors. In short, our existing hotel stock needs to be doubled in the next three years to meet surging demand.

To meet this need, the government has since 2006 offered 25 hotel sites for sale. Of this, 10 sites valued at $2.4 billion million have been acquired by developers. In addition, 11 hotels have effectively changed hands. Total private hotel investments soared to over $1.3 billion. Another two hotels, Paramount Hotel and Mitre Hotel, are either under negotiation or waiting for a finalised offer.

About 53 per cent or nine out of the total 17 hotel properties (including government sites), were sold to international investment funds, foreign hoteliers and investors since 2006. In the recent Beach Road tender, USbased Elad Group and Dubai-based Istithmar are joining forces to develop a $2.7 billion integrated hotel, office and retail project. The strong interest from foreign investors shows their astute reading of the opportunities arising from the shortage of Singapore hotel rooms, as well as the potential of reaping higher yields from room-rate increases. It is this overwhelmingly positive outlook that is driving investors’ appetite.

In the first half of this year, the average occupancy rate (AOR) hit a high of 86 per cent with average room rates (ARR) reaching $189. STB recently announced that ARR had increased to $210 in June, the highest rate ever achieved. AOR in July hit 91 per cent, a whisker shy away of November 2006’s 13-month peak of 92 per cent.

With the third and fourth quarters typically being the busy period for hoteliers, room charges and occupancy rates are likely to be maintained or surge further.

For 2008, we are projecting that AOR will test the 90 per cent level with ARR expected to grow by at least 15 per cent from current levels.

With higher occupancy and rising room rates, the burning question is: Can Singapore hotels maintain their competitiveness to continue attracting foreign visitors? The answer is a resounding yes, based on the following reasons.

Singapore ranks sixth out of 15 key Asian cities in terms of ARR, according to a recent Cushman & Wakefield survey. Tokyo has the distinction of having the highest room rates in Asia followed by Hong Kong.

The government has been releasing more three-star hotel sites as part of its strategy to have enough affordable class hotels. These hotels cater to budget-conscious tourists, predominantly from South-east Asia, China and India.

The hotel sites on the government sale list tend to be located at the city fringe such as Alexandra Road and Bencoolen Street. The latter is where Accor’s Ibis three-star 538-room hotel will be built.

The opening of Changi Airport’s Terminal 3 in January next year is set to bring in a steady stream of foreign visitors. The new terminal is capable of handling up to 22 million passengers a year and some of the world’s largest aircraft.

Despite the US sub-prime lending setback, Singapore’s hospitality sector is experiencing one of its strongest recoveries in over a decade. The market is at the initial stages of takeoff as the high-impact tourism projects start to unveil from 2008. This is when the world’s tallest observatory, the Singapore Flyer and the F1 Grand Prix take centrestage in thrilling visitors from around the world.

A year later, all eyes will be on the opening of Marina Bay Sands, which will be the most expensive casino-cumintegrated resort ever built. In 2010, Universal Studios and Resorts World will open their doors to charm a global audience.

Some cities looking to break onto the world stage have looked to hosting mega catalytic events like the Olympic Games, which would instantly give them global city status. Singapore has its own booster in the high-impact tourism projects that will be ready between 2008 and 2010. These should collectively propel Singapore to a different league in the global travel and hospitality industry.

 

Source: Business Times 27 Sept 07

Getting the right look

Looking to dress up that brand new home? Here’s a peek at some of the latest trends in furniture design

THE humble sofa is set to get all touchy-feely, judging by the emerging trends from the design capitals of the world.

Furniture designers often take their cue from what is put on show at cutting-edge exhibitions like the International Furniture Fair in Milan. And this year, whether the designs were whimsical or staid, much attention appears to have been put into getting the textures just right.

Mod Living’s director of sales and marketing Kim Foo said: ‘There was a lot of research and development done on manufacturing techniques and combinations of different and new materials for production.’ Putting your finger on the right trend is not just about being avant garde. It is also about good business, as Ms Foo well knows.

For Mod Living, Ms Foo estimates that their customers generally spend about $40,000 to furnish a living and dining room. This may sound like a lot but a good sofa can easily cost upwards of $10,000.

If you are looking to buy your next armchair, you might want to invest in exotic timbers too. Ms Foo expects a return to natural timbers with accentuated wood grains, ‘especially wood species from South Africa’.

A trend that has endured for several seasons now is classical styling with a modern twist, notes Ms Foo. For Mod Living, the Nube Sir armchairs epitomise this fascination. A combination of a traditional Chesterfield-inspired club chair with its typical deep, quilted-leather upholstery and state-of-the-art moulded teak-wood panels, the Nube Sir armchair consists of materials and technology that are as disparate as two ideas can possibly be, yet it somehow makes sense.

Retro designs still maintain their hold on the market as re-launched fabrics and designs from the 1950s and 1960s still prove popular. Examples of this are Moroso’s Print sofa by Marcel Wanders and Pierre Paulin’s Le Chat chair for Artifort, both brought in by Mod Living. Le Chat, designed in 1967, has been re-issued in a vintage fabric designed by Jack Lenor Larsen.

And this mood for visual experimentation is already catching on here. Nanyang Academy of Fine Arts’ (Nafa) head of the school of visual arts, Sabrina Long, who also makes a point of visiting fair shows around the world predicts more cutting edge designs too. ‘There was a lot of exploration into materials and technology,’ she noted of her recent jaunts.

These trends are, of course, nothing if they do not filter down and get accepted by the mainstream. It remains as art otherwise.

But already, touchy-feely designs by local designers are emerging, most recently by Sarafina Han Sisi, also a Nafa alumni whose hand-made ottomans or mini sofas made of PVC balls and covered in yarn take experimentation to an extreme. On Ms Han’s design, it is, ‘the willingness to explore a new material and execution’, that makes it very ‘current’, says Ms Long.

The truly creative, however, do not wait until something appears in a catalogue before recognising it as good taste.

Rather, they go in search of it themselves. And architect Andrew Tan of Seeds Architecture is finding inspiration in casinos. But it is not the obvious ‘casino style’ that appeals but rather the concept of ‘excess’ and the materials and textures that this implies.

Mr Tan also believes rich textures like leather will remain a mainstay in fashionable homes in the form of large sofas, preferably by Fendi. But these could be layered with bold foral prints, not unlike those that appeared on wallpapers not too long ago. ‘But wallpaper is out now,’ he says.

There are limits, though, to excessive excess. Chandeliers made a huge comeback several years ago for its outre glamour. Cheap imitation ones have since flooded the market – the scourge of most trends – and they hardly have the same appeal anymore.

Instead, stick to quality materials, suggests Mr Tan. ‘Swarovski makes chandeliers that are both modern and classic,’ he says. Any designer who can manage that will have a sure hit on their hands.

 

Source: Business Times 27 Sept 07

Enjoying the sponsorship edge in acquisitions

Strong developer sponsorship allows Reits to trade at lower yield levels while boosting the former’s risk management portfolio, says LESLIE YEE

SINGAPORE commercial Reits have been enjoying rising office rents in 2007 but are facing fierce competition to acquire prime office assets amid competition from private equity funds and yield compression.

Three events stand out:

(i) CapitaLand sold its 90 per cent-owned Temasek Towers to a private fund and not to CapitaCommercial Trust (CCT);

(ii) CapitaLand sold its mixed development project Wilkie Edge to CCT; and

(iii) Keppel Land and Cheung Kong announced plans to sell their respective stakes in One Raffles Quay to K-Reit and Suntec Reit.

Questions from investors we spoke to include:

Why is CapitaLand exiting a development project instead of waiting to reap maximum benefit from completing the project and selling out post income stabilisation?

Why are Keppel Land and Cheung Kong entering interested person transactions involving payment of income support when perhaps better deals could be struck by selling to third parties?

Does CapitaLand’s sale of Temasek Towers to a bidder who could pay more than CCT set the standard for good governance and maximise value for CapitaLand’s shareholders?

Singapore’s five-year-old Reit market has been driven by developers divesting assets into Reits where they continue to hold a substantial stake and also own the fund management entity.

We believe investors prefer such sponsored Reits for their strong acquisition pipelines and trade them at lower yields. Still, conflict issues can arise when Reits buy assets from developer sponsors. Although regulations adequately protect Reits from over-paying for acquisitions, in the current Singapore market where asset prices are rising, the converse of developers under-pricing when selling to Reits may become more of a concern.

Over time, we spot a silver lining for Reits amid the global credit crunch in that private equity funds may become relatively less competitive than Reits in asset acquisitions due to possible increase in debt cost and pricing of risk.

In the medium to longer term, we look for reversal in yield compression for physical property in Singapore and a narrowing in distribution yield spread for Reits, which will help Reits grow via accretive acquisitions.

In selling an asset to its sponsored Reit, a developer can realise proceeds, yet ride any upside should it have a stake in the Reit. We see this model as providing a middle ground between being asset light and asset heavy as per the traditional Asian developer who holds investment properties for capital gains. Also, a developer who owns the Reit’s manager can earn management fees. The fund management business itself is potentially valuable given the recurrent stream of fee income.

Our analysis on the sale of a completed asset shows the net benefit to a developer is roughly the same from selling to a Reit or from selling to a third party at a price that is nearly 20 per cent more. Here, we ignore the potential for recycling the additional proceeds realised from a third-party sale into new development projects and the relative difficulty of selling a minority stake in a building compared with selling an entire building.

Looking at the Singapore Reit universe, we note that Reits which we think have strong sponsorship from developers, trade at current yields of around 100 basis points lower than other Reits in a similar asset class (See Table 2). We attribute this premium to the inside track the developer sponsor provides to the Reit in asset acquisitions.

Best practice

Essentially, a Reit’s chances of acquiring an asset from its sponsor are higher than that of a third party. Should a developer sponsor fail to help its Reit acquire assets, we expect the market will stop ascribing the developer premium to the said Reit, which in turn results in a loss in market capitalisation and higher cost of capital for future acquisitions.

We believe that the best practice for a developer sponsoring a Reit involves using its resources and expertise to help grow the Reit and not leave it static. We see value from a risk management perspective for a developer to build up a Reit platform, as having a Reit that is able to buy a development project on completion which allows a developer to be more confident and aggressive in taking on large-scale developments.

We think this matters as periodic bouts of financial market turbulence could lead to times when there may be a dearth of buyers for chunky real estate assets.

The writer is executive director, Asia-Pacific investment research, Goldman Sachs

 

Source: Business Times 27 Sept 2007

Dispelling some auction myths

Acquiring properties through an auction is not a taboo, says MARY SAI

WHEN one flips through the property classifieds these days, it not uncommon to see properties advertised for auction. It is also not uncommon for a prospective buyer to immediately get the impression that the property to be auctioned, or the owner, must have some problems, otherwise why auction?

This misconception stems mainly from the days when auctions were the main mode of sale for banks when they repossessed property from owners who defaulted in their loans. In the 1980s and 1990s, most of the property auctions were mortgagees’ auctions. So many people saw them as forced sales.

But today, in a bullish property market, auctioneers are seeing more owners choosing to auction their property. In this article, we try and dispel some of the misconceptions about auctioned property.

Myth No 1: Auctions are fire sales

Contrary to widespread belief, an auction can secure the best price through open competitive bidding. Even the courts recognise an auction sale as an appropriate way to sell a property under dispute. It is deemed that through competitive bidding, a fair open market value can be realised for the seller. An auction sale is not tantamount to a desperate sale. Although the auction sale can be organised within a fortnight, it does not mean that the vendor has to sell in a hurry at bargain basement prices! Similarly, in mortgagee auction sales the bank exercises due diligence and is guided by valuations when they sell repossessed properties. They are genuine sellers, not desperate sellers.

In a recent forced sale of a dilapidated two-storey building at 27 Onan Road, two auctions conducted failed to secure a buyer. However, instead of an expected fire sale in the third round of auction, the property went under the hammer for $610,000 – a whopping 36 per cent increase from the opening price of $450,000.

Another good example was a auction of a bungalow plot at 59 Goodman Road in January this year. Vigorous bidding from more than eight parties saw the property knocked down at a record price of $626 per sq ft while comparable sales then were transacted around $350-$400 psf. Similarly, the recent auction sale of bungalow plots at Sentosa Cove also saw benchmark prices established way above $1,000 psf for their 99-year leasehold titles.

Myth No 2: ‘Challenging’ properties are auctioned

Many people consider the auction route as the last resort for the sale of properties. It would be the mode of sale for ‘challenging’ properties – those with inauspicious numbers like 4, 14 or 44 or with irregularly-shaped sites.

Going through past auction data, we see no anecdotal evidence to show that auction properties carry more inauspicious house numbers or are of inferior quality. In the past year and a half, several investors have picked up gems like good class bungalows in Bukit Timah/Holland; heritage properties at Emerald Hill Road and shophouses fronting main roads like Serangoon Road, Geylang Road, South and North Bridge Roads. These properties have appreciated substantially, with some doubling from the time they were bought at auction.

Recently, there has been a trend of luxury properties put on the auction block, as well as those in developments with en bloc potential. Some of these include apartments in The Beaumont, Stevens Loft and Watten Estate Condo.

Hence, there is no lack of quality properties to buy in the auction market.

Myth No 3: Auctioned properties bring bad luck

This superstitious belief can be traced to the days when auctions were mainly for banks’ foreclosed properties.

People refrained from buying such properties as they feared they would suffer the same fate as the previous owners.

Today, this superstitious view is slowly disappearing with a younger generation of property buyers.

Again, not all auctioned properties are forced sales by banks as more owners are now choosing the auction route on their own accord. They see the many advantages of auction sale and want to leverage it in a bullish property market.

As a matter of fact, buyers who successfully bid for apartments at Leedon Heights, Tulip Gardens and Silver Towers are now laughing all the way to the bank as these developments have just been collectively sold. Good fortune was theirs as a result of their smart purchases at auctions.

Myth No 4: Hungry ghosts

The seventh lunar month has been traditionally the ‘Hungry Ghost Festival’ – an inauspicious period when buyers refrain from buying property. All the more so at auctions.

Generally, businessmen and property buyers who observe Chinese religious rituals during this period, would rather bid for goods that have been ceremoniously blessed by their gods which they believe will bring them good luck – items such as ‘black charcoal’, symbolic sculptures, etc.

However, in the past few years, many property buyers are breaking away from this trend and are buying properties during the Hungry Ghost month, even at auctions. In the latest auction on Aug 16, which fell on the third day of the Hungry Ghost month, a dilapidated two-storey conservation terrace house at Spottiswoode Park was aggressively bid for by six parties from an opening price of $680,00 to an eventual $1.36 million. That’s a 100 per cent increase!

Two other properties were also sold at the same auction and these transactions defy the myth that property auctions are a ‘no-no’ during the Hungry Ghost Festival.

Conclusion

Auctions will go on, be it bullish or bearish markets. With technological advances, improvements such as electronic biddings may complement conventional auctions. At the same time, myths and misconceptions relating to property auctions will be erased over time as people become more familiar with this mode of sale. Having cleared the suspicions and doubts concerning auctions, buyers can safely head to the weekly property auctions and pick up some good buys.

The writer is Knight Frank’s auctions director

 

Source: Business Times 27 Sept 07

China set to hike home rate

Expected mortgage rate rise to 8.613% aimed at reining in property prices

(BEIJING) China’s central bank is expected to increase the interest rate of mortgage loans to 1.1 times the benchmark one-year lending rate this week to curb the property market, state media reported yesterday.

If the rise goes ahead, the interest rate for five-year mortgage loans could be as high as 8.613 per cent, China Daily reported, quoting unnamed sources. The current five-year lending rate reached 7.83 per cent after the People’s Bank of China raised the interest rate for the fifth time this year on Sept 13.

The expected move is aimed at clamping down further on property speculation in a bid to curb soaring real estate prices, the report said.

‘With the expansion of mortgage loans, and as the central bank continuously raises interest rates, mortgage loans are beginning to face a high risk of default,’ said China Construction Bank, the lender with the highest mortgage loans in China, in its latest report.

Total non-performing mortgage loans in three major commercial banks – China Construction Bank, the Industrial and Commercial Bank of China, and Bank of China – rose to 19.2 billion yuan (S$3.82 billion) at the end of 2006, from 18.4 billion yuan in 2005, it said.

The central bank is also likely to announce a new policy raising mortgage downpayments to 40 per cent for secondtime home buyers before next week, the Shanghai Securities News reported, citing commercial bank sources.

Downpayments on commercial mortgages will also be raised, the report said, without elaborating. The minimum deposit for an apartment less than 90 sq m (970 sq ft) is currently 20 per cent, rising to 30 per cent for bigger apartments.

 

Source: AFP (Business Times 27 Sept 07)

The changing face of office space

CALVIN YEO looks at how the development of New Downtown at Marina Bay will shape new offerings in the current CBD

WITH demand for office space in Singapore outpacing supply in the last three and a half years on the back of healthy economic growth, rents have been surging, with prime space seeing a rise of over 200 per cent since the lows of 2004.

Monthly gross rents of Grade A space in Raffles Place grew by a phenomenal 222 per cent from an average $3.95 per sq ft at the trough in Q1 2004 to a record $12.69 psf as at end Q2 this year. Occupancy of office space islandwide hit 92 per cent as of Q2 2007 – the highest level since Q3 1996, with most prime office buildings enjoying near full occupancy.

Against this backdrop of soaring rents and a dearth of supply, office tenants are eagerly awaiting new office stock coming to the market. This will largely comprise prime office developments in the New Downtown at Marina Bay.

Assuming the two new white sites at Marina View currently on tender are developed by 2011, the New Downtown would yield some 5.4 million sq ft of prime office space. This is equivalent to 47 per cent of the current Grade A stock in Raffles Place and Shenton Way/Tanjong Pagar.

The New Downtown at Marina Bay will not only give the Central Business District (CBD) a new skyline, but could also spur higher building standards in the existing CBD. When landlords of existing Grade A buildings in Raffles Place and Shenton Way/Tanjong Pagar redevelop or retrofit their properties in the coming years, they will have to raise their specifications to match those of offices in the New Downtown to stay competitive.

Among other things, this new office space will offer specifications and services catering to the evolving needs of multinationals and match the top standards found in other regional markets such as Hong Kong and Shanghai.

Examples of such specifications include:

• Larger floor plates in excess of 20,000 sq ft, against the current average of 13,000 sq ft

• Enhanced efficiencies with column-free regular floor plates

• Floor-to-ceiling heights in excess of 2.7m

• More robust technical infrastructure, such as dual-feed power supply to overcome power failure, and dedicated emergency power feed.

• New-generation prime office stock in the existing CBD can also be expected to offer services such as regular tenant feedback meetings.

  An increasing number of companies are also looking to raise the quality of the work space, as an attractive office environment becomes key in recruiting and retaining the best talents, comprising largely the Generation X and Y workforce who drive change. Such an enviroment will also boost overall productivity. As such, we can expect future Grade A office supply in the existing CBD to feature the following:

• Maximum work space adjacent to natural light and views

• Good ventilation

• Minimal noise intrusion from building mechanical services

• Use of non-health hazardous building materials

• Dedicated higher capacity IT fibre connectivity

• Uninterrupted power supply.

  With companies becoming more environmentally aware, tenants would also prefer to locate in an environmentally friendly office building. This would include features such as efficient energy and water consumption and conservation systems, as well as measures on indoor pollutants against the corresponding green building maintenance and operational guidelines.

  Hence, many redeveloped or retrofitted Grade A office buildings in the CBD can be expected to seek a Green Mark certification from the Building and Construction Authority.

  In fact, the gentrification of the current CBD had already begun with the redevelopment of buildings such as Crosby House, Ocean Building and Overseas Union House. By 2011, some 3.5 million sq ft of redeveloped Grade A office space in the current CBD is expected to be completed.

  Landlords of other older buildings in Raffles Place could choose to retrofit instead. For example, the landlords of 6 Battery Road, Singapore Land Tower and UOB Plaza II have opted for retrofitting. This includes re-cladding the building façade, creating space for cafes, installing multi-media screens, and upgrading lifts, lobbies, toilets and carparks. With this, they can command top rents and occupancy rates.

  Second-tier buildings, such as those built on smaller footprints, could find a niche catering to tenants who do not require the most prime office locations or large floor plates. The answer is the boutique office, typically a high quality office building with a smaller footprint. These developments have small floor plates and target smaller space users such as fund managers, private banks, re-insurance firms, professional services firms and regional offices. They offer tenants the prestige and exclusivity of being a full-floor tenant.

  The live, work and play concept is taking root here so tenants would appreciate features such as shower and fitness facilities and common break-out areas with wireless computer access and flexible after-office hours airconditioning arrangements.

In this context, the clustering of eateries, convenience stores, laundries, mobile devices support centres, and covered walkways could just make buildings along a street collectively more attractive.

Some might say the current CBD lacks character. But with the New Downtown as catalyst, the older part of the business district could see an innovative repositioning that would help Singapore’s office market gain depth and breadth, catering to a broad range of tenants, from MNCs to boutique operations.

The writer is director of commercial leasing, Colliers International

Source: Business Times 27 Sept 07

Carlyle eyeing deals in India, Japan, China

It plans to focus on strategic partnerships as it expands in Asia

(HONG KONG) The Carlyle Group hopes to seal its first property deal in India this year and is buying homes for the elderly in Japan, as the private equity firm’s real estate arm looks to make inroads in Asia.

In an interview, Jason Lee, Carlyle’s head of Asia property investment, also said he would consider buying out underperforming real estate investment trusts (Reits) in Japan and taking stakes in Chinese and Indian developers.

With about US$410 million of equity already in Chinese and Japanese property, Carlyle is turning to India’s thriving economy – first partnering with developers on projects, with second-tier cities such as Chennai, Pune and Hyderabad favoured.

‘We’re working on a number of investments we hope will close,’ Mr Lee said. ‘Our strategy is really to focus on strategic partnerships, firstly and foremost.’ Like most foreign investors, Mr Lee is keen to help fill India’s estimated shortfall of 20 million homes. Internal rates of return on development are typically 20-30 per cent, and cash is easily regenerated through home sales.

Owning office blocks or malls is riskier in the immature property market because they can be difficult to sell.

India’s property industry has been buzzing since rules on inbound investment in the construction industry were eased in early 2005, prompting an influx of private equity funds such as those run by Morgan Stanley and Citigroup.

Property prices in major cities have doubled in the last two years, but have cooled in the last couple of months because the soaring market and rising interest rates started to pinch even the most upwardly mobile of India’s growing middle class.

‘In Mumbai, New Delhi and Bangalore, sure, there’s a general concern about pricing,’ Mr Lee said. ‘But when you move out to places like Pune, Hyderabad, Chennai … all these cities have great potential.’

In Japan, Carlyle is eschewing expensive Tokyo but hopes to tap growing demand for ’senior housing’ among a fastageing population by partnering with a unit of Tokio Marine & Nichido Fire Insurance Co in a joint venture that will buy and refurbish buildings for senior housing.

Mr Lee said the first deal in a 18- to 24-month acquisition programme would come ‘within the next several weeks’, with the portfolio likely to be finally worth US$500 million.

‘We’re looking at the demographics and trying to get into emerging sectors, where we think there’s tremendous growth,’ Mr Lee said.

Some estimates show Japan will have one person over 65 to every two of working age by 2025, a higher dependency ratio than any other major industrialised country. Now pensioners make up nearly a quarter of the 127 million population, and over-50s hold 75 per cent of Japan’s individual wealth.

Carlyle, which has spent US$170 million to build up a portfolio of shopping centres in Japan with asset management firm SOW Inc, would also consider buying Japanese Reits and taking them private.

Japan’s US$40 billion property trust market has ended a five-year bull run with a steep fall. Several Reits are down more than 20 per cent in the last month, and around half of the 41 trusts now trade at a discount to net asset value – with residential portfolios doing particularly badly.

‘We believe this is one area of opportunity in the near future,’ Mr Lee said. He added that non-recourse loans were easily available and only ‘marginally’ more expensive in Japan after the US sub-prime crisis sparked a credit crunch in many global markets.

In a strategy also employed by Morgan Stanley’s property arm, Carlyle is looking to take equity stakes in ambitious developers in China and India, once it develops a good partnership on individual projects.

In China, the company has five investments and is looking to partner developers in building more housing in secondary cities. For example, Carlyle recently partnered a local developer called Capland Property Development Group in Qingdao.

 

Source: Reuters (Business 27 Sept 07)