Businesses cash in on dorm demand

Source : Today - 2 Oct 2008

Averic sets out to challenge biggest player in the foreign worker segment

TRUST a few good businessmen to sniff out money-spinning opportunities.

On the one hand there is Singapore’s heavy reliance on foreign workers, and then there is the reluctance of part of the population to share their living environment, as seen with the recent furore in Serangoon Garden estate.

But for some this is not so much a problem as an opportunity, with a whole new multi-million-dollar industry created, which already has investors swooping in.

Many of the dormitories involved were previously operated by JTC Corporation. Within the past year, since JTC decided to divest its non-core assets, four dormitories have been snapped up for more than $210 million. These include the Westlite Dormitory, which was bought by Centurion Properties.

“We believe there will be a continuing demand for good quality, purpose-built foreign workers’ dormitory accommodation in the medium term,” Centurion chief executive Tony Bin told Today.

The other three dormitories were bought by Averic Strategic Investments, a Morgan Stanley-controlled venture which is also investing a further $100 million to develop what it calls an “up-market” dormitory, fronting Jurong River. The new property will bring the total bed count in the group’s Singapore dormitories to about 21,500.

In one fell swoop, Averic announced its ambitions by challenging Mini Environment Service’s (MES) position as the biggest private sector player in this segment.

MES, which has been around since 1976, does not specialise in foreign workers’ accommodation. It provides an array of services including recruitment, transportation and food provision.

“You don’t have an established developer in this dormitory sector, so we thought there is a window of opportunity,” said Mr Vernon Chua, managing director of Averic Capital Management, which is the asset manager for the venture and which holds a 3 per cent stake in Avery Strategic Investments.

It is not hard to see why these investors are bullish about the segment’s prospects: Last year, the foreign worker population here shot up by 102,000, twice the jump of 55,000 in 2006. As at the end of last year, there were 577,000 foreign workers here, excluding maids.

According to the authorities, an estimated 80,000 to 100,000 of them are housed in poor conditions, often in illegal accommodation.

Averic hopes to stake its claim as a market leader. This is where its “up-market” plans come in. Avery Lodge, which will be completed in March next year, will house up to 8,000 workers.

The 1.9-hectare site will be developed into five blocks of 486 self-contained apartments with their own living, dining and kitchen areas in addition to sleeping quarters. Each unit will have 16 to 18 beds.

All common areas will be tiled. Security features include access through vascular scanners and 24-hour guard patrols. The facility will also have a mini-mart and canteen.

Other proposed amenities include a gymnasium, a clinic and a barber shop. At $180 per worker monthly, Avery Lodge’s monthly rental would be between $10 to $30 more than the other dormitories under Averic’s management.

Under Averic’s business model,Mr Chua said its dormitories are targeted primarily at the marine, processing and manufacturing industries.

And he was confident of the demand for the new, costlier brand, dismissing suggestions that employers are out to house their foreign workers as cheaply as possible.

Pointing out that his company hasalready received numerous inquiries about Avery Lodge before it opens for bookings next week, Mr Chua said: “From our experience with managing the existing dormitories, many of our tenants, particularly the blue-chip ones, appreciate and value quality housing for their employees.”

But Chesterton International research director Colin Tan was sceptical, saying that the current sluggish economy and high business costs mean that many employers will be trying to cut housing costs for their workers.

The yields would be more attractive if developers targeted foreign workers in the more lucrative services industry, Mr Tan added.

Given a shortage of such facilities and buoyant economic conditions last year, foreign worker dormitory rents, on average, rose more than 30 per cent to about $130 to $180 per worker monthly. Net yields on such properties are understood to be in the double-digit range.

Mr Tan said: “If developers can find the right formula, so be it. It’s much better for the Government, which has been cracking its head over possible solutions.”

With the recent row at Serangoon Garden estate, Mr Chua said his company was open to the idea of building self-contained communities for the foreign workers.

But in land scarce Singapore, it would be a challenge to find an ideal site for such a project.

Said Mr Chua: “If you build it somewhere too close to residents, you affect Singaporeans. If you build it somewhere too close to industrial areas, there are health and safety issues. You can’t put them in cemeteries. So where do we go?”