Saturday, July 19, 2008

CMT still keen to acquire; DPU beats forecast


THE current economic landscape could provide rich pickings for some.

Chief executive of CapitaMall Trust (CMT) management Pua Sek Guan noted that when the market is ‘very good’, it is difficult for acquisitions to be made. ‘Today, there are deals to be done,’ he said.

While Mr Pua would not say if CMT was looking at any ‘deal’ in particular, he did say that single asset owners of retail properties may want to ask themselves: ‘Is this your long-term business?’

He said: ‘This business is a skill-set business. You need a platform to innovate.’

Mr Pua was referring to the CMT’s programme of proposed asset enhancement initiatives (AEI) for assets including the Atrium and Plaza Singapura, Lot One Shoppers’ Mall and Bugis Junction.

CMT expects its AEI capital expenditure outlay for 2008 to be about $174 million, up from $168.6 million in 2007. But CMT expects incremental net property income of about $25 million from AEI completed by end-2009.

Mr Pua was speaking at a press conference to announce CMT’s Q2 2008 financial results which saw net property income of $83.6 million, up 24.7 per cent on a year-on-year basis.

Distributable income for the quarter was $58.6 million. This represents an annualised distribution per unit of 14.16 cents, up 13.2 per cent from the previous corresponding quarter.

Distribution per unit (DPU) for the quarter is 3.52 cents, 1.7 per cent higher than CMT’s forecast.

Gross revenue for Q2 was $125.6 million, an increase of $21.7 million or 20.9 per cent. This was attributed to an increase in revenue of $11.1 million from the three malls under CapitaRetail Singapore (CRS), which contributed three months of revenue in Q2 2008, against one month in Q2 2007.

CMT’s other malls accounted for another $7.6 million increase in revenue mainly due to new and renewal leases as well as higher revenue from IMM Building, Plaza Singapura and Bugis Junction. Its interest in Raffles City accounted for another $3.0 million.

CMT, which tracks gross turnover of tenants, said that tenants’ sales growth outpaced the increases in gross rent. Citing Plaza Singapura as an example, it said that sales increased by 5.1 per cent in 2008 over 2007 to hit $97 million, based on a sample size of 143 tenants. Gross rent increased by 2 per cent in the same period.

Still, one casualty appears to be John Little at Plaza Singapura. A spokesman for John Little confirmed that it will close its Plaza Singapura outlet. However, it is understood that the company will take up a smaller space there for a possible new brand.


Reliving the kampung spirit in Seletar Hills

SELETAR Hills Estate today is that residential pocket comprising rows of bungalows, terraced or semi-detached houses with gardens, interspersed with newer condominiums.

The residents’ committee there, the Seletar Hills Estate Residents’ Association (Shera), celebrates its 40th anniversary tomorrow.

With anniversaries tending to make people wistful, some of the estate’s old-timers are looking back on the past, hoping to recapture the old spirit of neighbourliness.

Retired engineer George Pasqual, 79, who sits on the Shera committee, said: ‘We thought nothing of going to each other’s houses and standing by the gates to chat, but now relationships have become more distant.’

He added that those of the newer generation ‘no longer need to depend on one another’.

But Shera is trying to rebuild that kampung spirit.

It already organises gatherings and excursions and puts out a quarterly newsletter, Shera-News, which keeps everyone informed of estate activities, gives news of estate improvements and publishes snippets of history.

In 2005, Ms Yippy Chew, a retired physiotherapist and residents’ committee member, started a ‘greening’ movement by going door-to-door to urge residents to transform the pavement outside their homes into garden plots.

More then 170 households responded. Today, these plots have not only brought more nature to the estate, they have also set new friendships blooming.

Another resident has set up a heritage blog for the estate.

Back in the TV-less, computer-less days, when the rudimentary bus system made travelling elsewhere inconvenient, and there was no Central Expressway to the city, neighbours got together more.

For their children, the rubber plantations that used to cover Seletar Hills for a good 50 years from 1910 were a playground.

As a child, Mr Pasqual visited the area with his friends to net fighting fish in the ponds in the rubber plantations, play in the stream along Yio Chu Kang Road or shoot down mangoes and guavas with home-made catapults.

The rubber plantations, all 3,200ha of them, belonged to the Bukit Sembawang Rubber Company and stretched from Seletar South to Ang Mo Kio, and from Serangoon Gardens to Ponggol.

During the Japanese occupation, some plantation houses were used as barracks; some housed imprisoned British prisoners-of-war.

From 1949, Bukit Sembawang started developing houses in the area, so the rubber plantations and farms slowly disappeared.

When people started moving into the area, their friends were incredulous at their choice of these boondocks.

It did not help that the stench from the pig farms across the road - where Sengkang now is - were a constant.

Around the time when Mr Pasqual moved in, some 40 years ago, the parish priest of the Catholic Church of St Vincent De Paul in the area thought it was time to foster neighbourliness.

Under the leadership of Father J. Troquier, Shera was born and its first committee set up in 1968.

It had its work cut out for it: Safety was a concern, as were better street lighting, pest control, better roads and a transport system.

Long-time resident and retired principal Eugene Wijeysingha, 74, said he was nearly a victim of a robbery along the estate’s dark streets in 1959.

Two men pointed a sharp object at his back, but he just swung his bag at them and they fled.

He signed up as a member of the first Shera committee to do his bit to improve the estate.

The association has been helmed by ordinary folk and more well-known persons - including the late Mr Ong Teng Cheong in 1972, the same year he entered politics. He eventually became Singapore’s fifth president and first popularly elected one.

Among the residents in the estate’s estimated 3,000 households, retired teacher Maureen Lim, 61, lays claim to having lived there the longest - 48 years.

She remembers the days when the estate was served only by Yio Chu Kang Road, and one bus service.

Four generations of her family, including her own parents, are ‘Seletarians’. In 1960, they were one of three Chinese families along her street, with the other 40 houses occupied by Britons working at the nearby Seletar Airbase.

Most of the pioneering batch of residents have either moved away or died.

But some shopkeepers are still around after 30 or more years, like the neighbourhood’s grocers, food-stall holders and hairdresser.

Mr Loong Heng Goon, 58, runs a 36-year-old traditional laundry shop, which he took over from his father. He still uses an old-style 10-pound iron to make those perfect, knife-like pleats on clothes.

Some of his customers go way back, including those who have moved away but still go to him.

The ‘bread man’ is also still around. Known to residents only as Mr Foo, the now 69-year-old has progressed from selling bread on a bicycle to doing it in a van. He also peddles snacks, eggs and drinks.

But even as the residents in Seletar Hills estate go about reawakening the kampung spirit of old, the outside world is encroaching.

Neighbouring Sengkang West has been earmarked for a recreation hub, and an aerospace park looms at the Seletar Airbase.

‘I think it may be an uphill task building that kind of close kampung-like feeling now,’ said Mr Wijeysingha.

The anniversary will be marked with a dinner and dance at the Seletar Country Club for 280 past and current residents tomorrow.


Prime residential rents could fall 4.5% by year end

RESIDENTIAL rents in Singapore’s prime districts could drop by 4.5 per cent by year end, amid fears of a longer-than-expected downturn in the United States.

Property consultant Jones Lang LaSalle (JLL) said the high rentals seen in the Republic’s prime districts last year are now facing downward pressure.

Prime properties are typically located in districts 9 to 11 with units ranging in size from 500 to 2,000 sq ft.

JLL South-east Asia and Singapore managing director Chris Fossick said in a press conference yesterday: ‘Expatriates with lower housing budgets are moving out to the non-prime market, causing typical prime rentals to ease marginally in the first half of this year.’

According to JLL, luxury prime property rentals softened by 1 per cent in the year-to-date while typical prime rents weakened by 2 per cent.

Said JLL: ‘With the US economy facing the potential of a longer downturn than expected due to the sub-prime woes, credit crunch and rising inflation, market sentiments continue to weaken in Singapore.

‘The level of residential collective sales has dropped to only two transactions worth $55.3 million in the first half of the year compared with51 transactions worth some $9.33 billion over the same period last year.’

JLL forecasts that average resale prices in the central district are expected to ease about 1 per cent year-on-year by next year while mass-market resale prices will most likely maintain current levels.

Meanwhile, prices in the luxury prime market are expected to contract the most, falling some 11 to 13 per cent year-on-year next year.

However, Mr Fossick believes that once the US housing crisis passes, a recovery in this region will be swift given the sentiment-driven nature of the industry.

‘The uncertainty in the US is unlikely to clear up in the next six months, but if things begin to look up after that, we could see a rapid turnaround here as soon as early next year.’


JLL predicts up to 4.5% dip in typical prime district rents

RENTS and resale prices of housing in the central and prime districts could be hit this year and next depending on the crunch in the US market, says Jones Lang LaSalle (JLL).

In the worst case scenario, the real estate consultancy firm projects a 3.5 to 4.5 per cent drop in rents in the typical prime districts by year-end. ‘Compared to recent rental rises, this remains a relatively small decline,’ said JLL’s managing director in South-east Asia and Singapore, Chris Fossick. The central districts could experience a bigger 5 to 7 per cent drop in rents in 2009.

The anticipated completion of some 15,000 units between 2008 and 2009 is likely to cause rents to ease, as new islandwide supply is likely to surpass the average 10-year take up of 6,600-6,800 units, JLL said in a statement yesterday. Most completed supply could appear in the central districts.

Average resale prices in the central districts could ease about one per cent by 2009, while prices in the luxury prime districts could dive 11-13 per cent.

Mr Fossick referred to the forecasts as ‘more of a worst-case scenario’ should the US market not pick up soon. He said that sentiment will improve once US housing shows signs of recovery. Singapore’s fundamentals are attractive to investors and demand will return when uncertainty clears, he added.

Investors might then realise that ‘there is less supply now than we thought there was’ - and prices may rise again.

Taking a medium to longer-term view, Mr Fossick said: ‘We are seeing a dramatic fall in potential future supply in Singapore due to a stall in collective sales.’

JLL said that there were only two transactions worth $55.3 million in the first half of this year, compared with 51 deals worth $9.33 billion in the same period last year.

Mr Fossick said that there is also less supply from the confirmed list of the Government Land Sales Programme for the second half of the year.

Prime districts are already seeing slightly weaker rents as expatriates with lower housing budgets move to non-prime areas. JLL data showed that in the first half of the year, luxury prime rents fell one per cent and typical prime rents dropped 2 per cent.

Properties in the central districts in turn became more popular for leasing. Average rents there rose 11 per cent and surpassed those of typical prime properties for the first time in H1 this year.

JLL data also showed average resale prices softening in some areas. Luxury prime property prices eased 4.9 per cent to $2,595 per square foot (psf) in the first half of the year, while central district prices eased 0.5 per cent to $1,020 psf.

The shift of rental demand from the prime to central districts has sustained investor interest in central district property, according to JLL.

The mass market stood out with 3 per cent growth in resale prices to around $690 psf in H1, and JLL projected that prices could stay at this level in 2009.


Landmark en bloc ruling

Judge sets out role of Strata Titles Board and which of its findings can be challenged

IT IS a situation that may apply to some en bloc deals: The selling price could have been higher if the sales committee or its agent had tried harder to secure a better deal.

In the case of Horizon Towers, a potential buyer was even standing by with a higher price than the one that was eventually chosen.

But that cannot be reason enough to disallow an en bloc sale, according to Justice Choo Han Teck as he brought a protracted saga to an end.

In a landmark decision, the judge set out the role of the Strata Titles Board as well as which of its findings can be challenged, and which ones cannot.

When it comes to price, as long as the STB finds that a purchase price is fair, which would make it a “finding of fact” in legal parlance, it would have fulfilled its duty and is entitled to approve an en bloc sale.

Minority residents at Horizon Towers who argued that the $500-million sale to Horizon Partners Private Limited (HPPL) was done in bad faith - as evidenced by Vineyard Holdings’ higher offer of $510 million :- had failed to prove their case.

Justice Choo found “no error of law” and said the High Court “cannot and will not” interfere in findings of fact made by the STB.

“Whether it was the right time to sell, or that the sales committee ought to have made a little more effort to persuade the purchaser to offer more, are not crucial matters that oblige the STB to withhold approval.

“Nor would it be the concern of the STB that some, or all, of the appellants might have consented had the Vineyard offer been made known to all of them,” he said.

If the STB were to make such enquiries, it “would never get its job done within the time limited”.

The minority owners had appealed to reverse a Dec 7 decision by STB to approve the sale. But if residents believe that the sales committee had “deliberately or negligently” not pursued a higher offer, resulting in a financial loss to them, the recourse is through litigation in the courts, said Justice Choo.

“It is necessary for this point to be made, not to encourage further litigation, but to emphasise that a subsidiary proprietor who does not wish to sell his unit can only object to the en bloc sale on such grounds as the relevant statutes allow,” he said.

And, the statutes do not allow the STB to deal with “allegations and counter-allegations against parties” as its tribunal hearing does not give such parties “the full recourse of trial to defend themselves”.

He concluded that all sides were treated fairly in this deal as “fairness requires only that the rules and regulations of each en bloc deal to be properly and duly administered”.


The Wharf Residence

The Wharf Residence


Location: Tong Watt Road, off Mohd Sultan Road
Tenure: 999 years leasehold
Expected Completion: March 2013
Site Area: 76, 956 sq ft
Plot Ratio: 3.8
Description: 4 tower blocks of 10/14/15/23 storey and 13 retrofitted houses
Total Units: 186

Unit Types:

2 bedroom ~ 1012 to 1130 sqft, 110 units
3 bedroom ~ 1313 to 1733 sqft, 54 units
4 bedroom ~ 2196 sqft, 4 units
Penthouse ~ 2745 to 5565 sqft, 5 units
Houses ~ 4478 to 4930 sqft, 13 units

Price: Estimated $1500+ psf

Special Feature: Situated on high ground, there are 13 Vintage Houses conserved in their entirety, providing a pleasant contrast to the contemporary structure of the apartment blocks sitting behind.Apartments are furnished with branded kitchen & appliances

Facilities: sky terrace on the 24th floor, with outdoor cooking pavilion, overlooking the breathtaking city skyline.

Interest absorption & stamp duty reimbursement


Retailers at Changi’s T3 say business bad, 6 months after opening

With more than 100 retail establishments, Singapore Changi Airport’s Terminal 3 is touted as the latest shopping destination for ‘mall-crazy’ Singaporeans. But six months since its opening, retailers said business is suffering.

Changi Airport’s T3 public area has 31 outlets. Retailers said they are barely making ends, though takings over the weekends may be slightly better.

Channel NewsAsia checked on some 15 stores. Most did not want to speak on camera but all said they have been struggling to meet overhead costs.

Some shops said takings have dropped by up to 70 per cent, compared to when T3 first opened early this year. If this continues, some said they may not renew their lease, which lasts for three years.

Mohd Fadly Mohd Nor, Retail Supervisor, Outdoor Lifestyle, said: “After the first two months of Terminal 3 opening, the crowd has died down a bit. Maybe because the novelty is not there anymore.”

Karen Seow, Retail Supervisor, Helen Accessories, said: “Some of the things like clothing or shoes, we don’t have it here. Actually, there’s not much… shopping (variety) here.”

Some Singaporeans agreed that T3 is not a retail haven. One shopper said: “I guess there’s a lot more improvement to be made. You can’t get much variety here.”

Retailers said another problem is the mall’s layout and that is the reason why many people are unaware of several shopping clusters at T3.

The authorities put the slowdown to several factors, including retailers setting too high an expectation when they tendered for their lease and the fact that pegging an airport as a shopping destination is a new concept in Singapore.

Foo Sek Min, Senior Director, Airport Management Group, Civil Aviation Authority of Singapore, said: “This is something new to us and the tenants. It’s not exactly like a typical shopping mall.

“So we really need to understand what people are buying and what they are not buying. We will work with the tenants and we want to help them.”

So far, the authority has extended rental assistance for half a year, starting this month, and it is hoping that things will perk up for both retailers and shoppers. - CNA/vm


Ascendas Reit Q1 income up 16%

Source : Business Times - 18 Jul 2008

Ascendas Real Estate Investment Trust (A-Reit) on Friday posted a 16 per cent rise in quarterly distributable income, boosted by higher rentals at its business park properties.

A-Reit, Singapore’s second-biggest property trust by market value, earned distributable net income of $51.8 million (US$38.3 million) or 3.89 Singapore cents per unit, for its fiscal first quarter ending June 30.
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This compares with $44.7 million in distributable income in the same period a year ago.

A-Reit competes against commercial and industrial property-based trusts Mapletree Logistics, CapitaCommercial, and Cambridge Industrial among Singapore-listed Reits.

A-Reit is managed by Ascendas Funds Management Ltd, a wholly-owned unit of Singapore government-owned industrial park developer Ascendas. — REUTERS


A-Reit: Q1 distributable income of $52m

ASCENDAS Real Estate Investment Trust (A-Reit) yesterday reported net distributable income of $51.8 million for the first quarter ended June 30, 2008 - 15.9 per cent higher than for the corresponding period last year.

This follows a 19.6 per cent growth in gross revenue from the year-ago period to $92.5 million. The increase was due mainly to additional rental income from completed acquisitions and a development project.

The distribution per unit (DPU) for the quarter is 3.89 cents, up 15.4 per cent from the year-ago period. The DPU, to be paid out on Aug 27, represents an annualised yield of 7 per cent based on the closing price of $2.21 per A-Reit unit on June 30.

A-Reit had 86 properties with a total book value of around $4.5 billion as at June 30. Acquisitions in Q1 comprised 8 Loyang Way 1 for $25 million and 31 International Business Park for $246.8 million.

The portfolio’s overall occupancy rate stood at 98.6 per cent, against 97.2 per cent a year ago. For the business and science park and hi-tech industrial properties, renewal rates rose 63.9 per cent and 44.4 per cent respectively versus preceding contract rates.

This is due to ‘the continued healthy demand for quality suburban industrial and business space as well as the active leasing and investment activities conducted by the manager and its property management team’, said A-Reit manager Ascendas Funds Management (S)’s CEO and executive director Tan Ser Ping.

A-Reit’s weighted average borrowing cost for the portfolio was 3.16 per cent. To diversify funding sources, it recently took on a three-year committed revolving credit facility for $200 million, and is also incorporating a medium-term notes issuance facility.

Citing a CB Richard Ellis study, A-Reit said yesterday that rents and occupancy rates for hi-tech and business park space could continue to increase, but at a slower pace.

A-Reit also mentioned that it is difficult to gauge how much the Asian economy could be hit by the possible US recession and global inflationary pressure.

‘Despite the cautious outlook for the economy and barring any unforeseen events, the manager expects to be able to deliver, for the coming year, a DPU that is in line with its recent performance,’ A-Reit’s release stated.

The release also said that the A-Reit manager remains committed to pursuing quality and sustainable yield accretive investments, and expects results from asset management and investment strategies to underpin steady performance.

A-Reit’s units closed trading yesterday at $2.10, down one cent.


HBD living with condo frills

A YOGA plaza, roof-top garden and spacious balconies with planter boxes for alfresco relaxation and dining - not the normal features you’d expect on an :Housing and Development Board (HDB) estate.

United Engineers will be launching its first public housing project for sale next Wednesday, offering a variety of condo-style frills. The development in Ang Mo Kio Street 52 is ground-breaking in a variety of ways.

It is aptly called Park Central @ AMK and will comprise four 30-storey towers, making it one of the tallest developments in Ang Mo Kio New Town.

The development falls under the HDB’s design, build and sell scheme which allows private developers more flexibility in designing and pricing flats, even though they will be maintained by HDB when constructed. This is only the third such development so far.

Park Central @ AMK with 578 four- and five-room units, which will be sold via HDB balloting. The average selling price will range between $490 and $500 per square foot, which translates into around $400,000 for four-room units or around $600,000 for the large five-room ones.

Each unit comes with condominium-style fixtures and fittings including built-in wardrobes, kitchen cabinets andair-conditioning.


Condo-like flats for less than $700,000

Four 30-storey blocks under the design, build and sell scheme for Ang Mo Kio

SINGAPORE’S third condo-style public housing project is about to go on sale, this time in the heart of bustling Ang Mo Kio.

The project is located at Ang Mo Kio Street 52, which is flanked by Ang Mo Kio Avenue 3 and Avenue 5 and within walking distance of the Ang Mo Kio MRT station.

LIVING IN STYLE: The Park Central development will boast amenities like barbecue pits and jogging path on the roof-top garden above the carpark. — ARTIST’S IMPRESSION: COURTESY OF UNITED ENGINEERS

The prices for Park Central @AMK are about 10 per cent below the last such project, City View@Boon Keng, launched early this year. Sales there were slow amid some concerns that prices were too high.

Developer United Engineers (UE), through its unit Greatearth Developments, is launching the 578-unit Park Central project for sale on Wednesday.

It aims to take advantage of the small window before the Hungry Ghost month starts in early August when some home hunters are wary of buying.

The project, comprising four 30-storey towers, will feature only four- and five-room flats. The average price will be about $490 to $500 per sq ft, with the four-room units going for about $400,000 to $500,000. The five-room units will cost about $600,000 to $670,000.

Park Central also has 20 ‘loft units’, which have higher ceilings of 3.6m, compared with the typical flat height of 2.6m. They will cost $580,000 to just below $700,000.

These high-end HDB flats will boast condo-style fittings such as built-in wardrobes, kitchen cabinets, air-conditioning systems, timber flooring and planter boxes.

The developer will also put in barbecue pits and a 400m jogging path on the roof-top garden above the carpark, allowing for more privacy, though these are public areas.

PropNex chief executive Mohamed Ismail expects strong demand as the prices are very fair, particularly considering the significant run-up in construction costs, he said.

UE chief executive Jackson Yap said he priced the units slightly above resale flat prices. He is optimistic as resale prices are still rising.

UE won the Park Central site in a tender last November at $212 per sq ft of potential gross floor area. It is the third project under under the Housing Board’s Design, Build and Sell Scheme (DBSS).

In such projects, private developers set the price of the flats but are bound by general public housing rules. For instance, they can sell their flats only to households earning not more than $8,000 a month.

Because of this restriction, the project’s price seems a little high, said Chesterton International’s head of research and consultancy, Mr Colin Tan. ‘But the interest will be strong as Ang Mo Kio is one of Singapore’s largest housing estates.

‘People tend to buy in areas they know or have lived in. With a little clever marketing, enough people may be persuaded to really stretch themselves and part with their hard-earned money.’

The first DBSS project, The Premiere@Tampines, met with an overwhelming response when it was launched at the end of 2006. But demand at City View@Boon Keng, which was priced over 50 per cent more than The Premiere, was slower. Some buyers felt the prices - the five-room units cost $536,000 to $727,000 - were too high.

The fourth DBSS project, in Bishan, could come to market at the end of the year.


UE’s Park Central @ AMK to sell for $490-500 psf

It has ‘condo-style’ fittings and finishes, & expects a sell-out

UNITED Engineers (UE) has priced its Design, Build and Sell Scheme (DBSS) project Park Central @ AMK at an appealing $490-$500 psf - in an apparent bid to move units fast.

UE acquired the Housing and Development Board site in November 2007 and based on the $212.40 per sq ft per plot ratio (psf ppr) it paid, property consultants estimated the launch price could be around $580 psf.

The actual price, revealed yesterday by UE, is lower than the reported average price of $520 psf for another DBSS project, City View @ Boon Keng, launched earlier this year.

UE did not comment on its pricing strategy but said Park Central @ AMK will comprise four 30-storey towers with a total of 578 four and five-room units.

With ‘condominium-style’ fittings and finishes, four-room units are not expected to cost more than $400,000, while five-room units will be under $600,000.

PropNex CEO Mohamed Ismail said the project is, ‘competitively priced’. ‘I am glad the developer has priced it sensitively.’

Mr Ismail said that when City View @ Boon Keng was launched there was, ’some resistance’ to the pricing.

Savills Singapore director (marketing and business development) Ku Swee Yong agrees that Central Park @ AMK is attractively priced. He believes UE could be looking at a slim profit margin, given a breakeven price of around $400 psf.

Increasing construction costs, which he estimates at between $200-$250 psf, could also weigh in.

Still, a sell-out development would be good for overall market sentiment, he said.

Comparing the pricing of Central Park @ AMK with the prices of HDB resale flats in the area, ERA Asia-Pacific assistant vice-president Eugene Lim said UE’s project looks like good value.

Mr Lim said that five-room flats in the area, which are at least five years old, are going for around $400,000.

That UE aims to sell Central Park @ AMK seems clear.

Still, the response from buyers is unlikely to reach the fever pitch experienced at the launch of the first DBSS development in late 2006. Then, almost 6,000 people applied for 616 units at Premiere @ Tampines. But those units were going for around $300 psf.


Time to relook en bloc rules?

I REFER to “Landmark ruling” (July 18).

The judge has ruled that the fact that a higher offer was received for the en bloc sale of Horizon Towers is not within the purview of the Strata Title Board (STB); neither are any allegations of less-than-stellar conduct among the parties.

And that if the STB has to hear such matters, it would never get its job done.

So, if I get an offer for my home of say, $7 million and the en bloc sales committee of my condo gets an offer of $5 million, would my recourse be to sue in the courts while the STB can rule in favour of the $5-million sale and proceed? This defies logic and good business sense.

Moreover, if the STB is not equipped to handle matters pertinent to good faith, the highest sale price, the conduct of sales committee, et cetera, it is time that the approval of en bloc sales be given to a specialised legal tribunal which is equipped to do so.

Further, if the Land Titles (Strata) Act does not provide sufficient coverage to protect the rights of a subsidiaryproprietor who expects a fair and holistic hearing of their grievances, it is time for all en bloc sales to be held inabatement until such matters can be seriously addressed.

Horizon Towers is a mega test case for en bloc sales and it is time to take stock of our laws.

Ong Cher Meng


July 21 hearing for Tampines Court case

THE Tampines Court en-bloc sale was handed a lifeline by the High Court yesterday when it ordered the Strata Titles Board (STB) to bring forward a crucial hearing date.

Just a week ago, the sale had seemed as good as dead when the STB refused to change an Aug 7 hearing date. This meant the hearing would take place after the July 25 expiry date of the sales deal.

And the buyers - Far East Organization and Frasers Centrepoint - had already said they were unlikely to extend the deadline.

But the court yesterday granted an appeal by the majority owners. This means the STB must now hear remaining objections to the sale on Monday, four days before the deal expires.

Even with the new hearing date, STB registrar Bryan Chew said there was no guarantee a decision will be made by July 25.

‘(It) depends on how long the witnesses take on the stand,’ he said.

Thereafter, lawyers have to make their submissions and the board has to deliberate.

Senior counsel Michael Hwang, who was acting for the majority owners, told The Straits Times that the High Court application was made on two grounds.

First, that the hearing was set for a date beyond the six- month life of the specific board constituted to hear the estate’s sale.

The owners also contended that it was wrong for STB to fix that date when it knew the sales agreement would expire on July 25.

Lawyer N. Sreenivasan argued for the minority owners and said that the STB was not obliged to complete a sale by a date set by the sellers and buyers.

The estate’s deadline squeeze stemmed from a sales committee decision to delay seeking STB approval for the deal until the board had ruled on the Gillman Heights sale.

The decision on Gillman Heights could have had a bearing on the fate of the Tampines Court deal as both were former HUDC estates.

The Tampines Court committee eventually applied for sale approval on Jan 7, although all the necessary conditions had been met as early as July 25 last year.

Meanwhile, the sale has caused much tension and division in the estate.

‘The whole en-bloc process has been dragging for too long and is upsetting residents,’ said owner Mansur Husain.

Majority owners feel the sale price - about $700,000 for each unit - is above what the homes could get on the open market. But minority owners believe the amount is too low, given that private home prices in Tampines have shot up in the last year.

An independent analyst, Savills’ director of marketing and business development Ku Swee Yong, said fair value is likely from $500,000 to $700,000.

Some homes can command premiums based on individual attributes, he said. Comparing prices of Tampines Court to those of new condos in the area is ‘not too accurate’ as the estate does not have comparable facilities, he pointed out.


Sentosa Cove bungalows

Sentosa Cove bungalows

Nestled away at the southern Cove of Sentosa, Singapore’s new playground for society’s elite, are the 3 latest luxury water front bungalows.

Designed to encompass a lifestyle by the sea, award winning architecture firm, aKTa has crafted the Sentosa bungalows with infinity edge swimming pools overlooking the waterway and your private mooring dock. The water from the pools infinity edge cascades down gently to the basement which houses the more private family areas and gaming rooms.

The internal private lift serves 4 ensuite bedrooms and the expansive Master Bedroom, all with individually unique features; be it seaviews or internal water courtyards. With its own attached seating area and walk-in wardrobe, the Master of the house can relax and rejuvenate in the extensive bathroom with its open to sky spa pool, masterfully designed and located at a private roof deck over looking the Southern sea.

The Sentosa Cove bungalows by the waterfront truly redefines seaside living for society’s elite.

Jones Lang LaSalle says S’pore’s prime property market to ease further

Rents in Singapore’s prime residential sector are expected to ease further. According to consultants Jones Lang LaSalle, it’s expecting to see a 4.5 per cent contraction for the whole year. It has already weakened by two per cent year to date.

In its mid-year review on the Singapore property market, Jones Lang LaSalle also notes an easing in the resale prices of luxury projects in the prime districts.

But it said that mass market homes saw healthy growth of some three per cent.

High rentals are forcing expatriates on lower housing budgets to move out of the prime market in Singapore and this is behind softening rents this year. This is expected to persist into 2009 when more units will likely entering the market.

An anticipated 15,000 units are expected to be completed by the end of 2009. This compares to an average take up of 6,800 units per annum.

According to Jones Lang LaSalle, what may help prop up rentals is demand.

It notes that companies in Singapore are still expanding, going by the take-up in office space.

Christopher Fossick, Managing Director, Singapore & Southeast Asia, Jones Lang LaSelle, said: “There is still an influx of people coming here to work and there is a strong expatriate demand in all business sectors.”

Meanwhile, in the resale market, the average prices of units in the prime districts eased by some 4.9 per cent in the first half this year.

However, this may change.

Collective sales have been a key source of land for new projects in the prime areas and with these drying up, home prices may be pushed upwards.

Mr Fossick continued: “There’s been almost no residential collective sales this year. Volume has gone down 97 per cent by our records in the first half versus the first half in 2007. In 12 to 24 months’ time, we’re going to see that impacting the market. There’s also far less supply from luxury collective sales sources.”

Over in the mass market, prices have been holding up, climbing by some three per cent in the first half of 2008, due to demand from dislodged collective sale owners and those upgrading from government flats. -CNA/vm


The Hamilton Scotts

The Hamilton Scotts

The Hamilton Scotts is a luxury high-rise residential project that will allow residents to park their cars right next to their own units – even 30 stories up. The first of its kind in Asia, the concept is made possible by elevators that ferry residents’ cars up to their units.

Located at 37 Scotts Road, this development is the tallest in the world incorporating “car porches.”

The condominium consists of 56 units, including 52 three-bedroom units of 2,700 sq ft and two 3,200 sq ft junior penthouse units. Each of these has parking space for two cars.

The remaining two units are 7,100 sq ft triplex penthouses with interior customised to buyer specifications, serviced by an internal lift and come with a rooftop garden and swimming pool. They can accommodate four cars each.

In all cases, the porch is a bonus space not included in the specifications.

The project will be completed by 2011.

The US economy in perspective

THE past week has been pretty rough for those in charge of the US economy. For the second time this year, US Treasury and Federal Reserve officials had to work overtime last weekend to prevent another financial meltdown.

Between them, the two troubled entities in question - Fannie Mae and Freddie Mac - control just under half of US mortgages, worth a monumental US$5.2 trillion, or more than a third of US GDP. A serious situation, no doubt, but it’s also important to take a step back and look at things in perspective.

In nervous trading last Friday, Fannie and Freddie saw their share prices halve in the course of a few hours. Elsewhere in the financial sector, trading this week has seen troubled banking giant Citigroup’s share price tumble to 10-year lows, and insurance giant AIG’s fell to levels not seen since 1995.

But despite all the bad news from the US financial sector, and a growing fear that we could well see more US bank failures, Wall Street’s key indices still ended Wednesday trading as much as 3 per cent stronger, thanks to good news elsewhere - such as a great Q2 number from chip giant Intel.

True, Wall Street’s key stock indices have fallen 14 to 15 per cent year to date. On the other hand, we’ve witnessed losses of more than 20 per cent each in Germany, the Antipodes, Malaysia, Thailand and Hong Kong. The decline in Singapore’s STI and Japan’s Nikkei was somewhere in between.

And yes, on top of having to finance expensive military operations abroad, and a hefty US$100 billion fiscal stimulus package more recently, the US government now faces the prospect of having to inject taxpayer funds into both Fannie and Freddie. UK-based research firm IDEAglobal estimated yesterday that based on the US Savings and Loans crisis in the early ’90s, the final bill for US financial sector bailouts could possibly hit something like US$400 billion, or roughly 3 per cent of US GDP.

But here’s a bit more perspective. The US budget deficit currently stands at a manageable 2.4 per cent of GDP. Japan - which doesn’t have to finance any expensive wars abroad - has a larger deficit of 2.7 per cent of GDP.

What about US public debt? Yes, we are talking about a huge number of about US$14.5 trillion. But try to think about it this way: Would you be worried if your friendly next-door neighbour had bank borrowings equivalent to one year’s income? Well, that US public debt number is only slightly larger than the US economy’s annual GDP.

It remains true that, all things considered, the US economy is likely to get much worse before its get better, especially if the US dollar continues to slide from its near-record lows, and oil prices continue to rise. But even the doomsday scenario should be viewed in perspective - and the fact is that for all its troubles, the US economy still has strong foundations.


Fall in GCB land prices is bad sign

Source : Business Times - 18 Jul 2008

I AGREE with Michael French’s letter (BT, July 17) that your original article ‘Prices of Good Class Bungalows still going up, but volume falls’ (BT, July 14) is misleading and flawed. The opening line of the article reads: ‘The volume of transactions of good class bungalows (GCBs) may have fallen along with other property sectors but values have not.’ As Mr French correctly points out, the GCB market peaked in the summer of 2007, along with prime condominium prices in districts 9 and 10.

The fact that GCB land prices have fallen is not a good omen for the overall market for two reasons:

1. House prices are no more than a proxy for land prices. When land prices fall, house prices follow in short order, and

2. The turning of prices in the GCB market has proved to be the top of the property market cycle in each of the last two cycles. The fundamentals this time around are no different than in the past.

Gerry Ball, Singapore


Another door closes on Horizon minorities

High Court dismisses appeal, says there’s no proof that sale was in bad faith

Minority owners seeking to stop the en bloc sale of Horizon Towers have been defeated yet again. Singapore’s High Court yesterday dismissed their appeal, on the grounds that they failed to prove the sale was done in bad faith and prejudiced their rights.

This decision, coming on the heels of the High Court’s dismissal of an appeal against the sale of Gillman Heights Condominium, marks the second major defeat for minorities here.

The minority owners of Horizon Towers whom BT spoke to said they were still considering their options at this time. But they will soon be meeting to decide if they will take the matter to the Court of Appeal, or start a civil suit to claim for any financial loss - which will be their final recourse.

If they decide not to appeal further, the $500 million sale of the Leonie Hill development to a consortium led by Hotel Properties Ltd (HPL) will go through. It will also mean that the closely watched saga - which has been playing out in the public eye for more than a year - will finally come to a close.

HPL group executive director Chris Lim told BT: ‘We are pleased with the High Court judgment and hope to move forward with the deal as it’s been one-and-a-half years since the sale agreement was inked.’

Justice Choo Han Teck, who presided over the minorities’ appeal, said in his judgment yesterday that the minorities had failed to show that the Strata Titles Board (STB) erred in law in its decision to approve the en bloc sale in December.

The High Court only has powers to consider questions of law on appeal.

The minorities had argued that the sale had been conducted in bad faith. They claimed a better sale price might have been achieved if the sales committee had pursued a second offer from a party called Vineyard, which had reportedly offered $510 million. The minorities claimed the sales committee did not pursue the offer - and even concealed it - because the development’s sales agent, First Tree, was getting a higher sales commission from the HPL consortium.

But Justice Choo said the minorities failed to prove bad faith, as their argument was essentially concerned with whether the eventual sale price was fair - which is ‘a question of fact’ for the STB to decide, and not a question of law for the court to deliberate on.

Justice Choo said, if the minorities feel the sales committee had deliberately or negligently not pursued the Vineyard offer, they can pursue a civil claim for the purported financial loss.

He also ruled that the minorities had failed to prove there was a lack of good faith in the way the sales proceeds were to be distributed amongst the various owners. The minorities argued the apportionment method used was unfair because it resulted in penthouse owners getting about 16 per cent less on a per- square-metre basis, compared to non-penthouse owners.

Justice Choo said there can’t be a lack of good faith in the selection of the apportionment method just because it was the only one considered or it led to some owners getting more than others. He noted that the STB had considered the evidence of several experts and it seemed no one method would satisfy everyone.

He added that, even if the STB had deemed the chosen method inappropriate, it would be an error of fact and not an error of law.

He also dismissed the minorities’ arguments that the en bloc sale was unconstitutional, and that the sale agreement had lapsed by the time the STB approved the sale.

Justice Choo also noted the ‘intrigue’ that has surrounded the en bloc sale of Horizon Towers. There have been numerous accusations on the conduct of the various parties involved - ranging from whether the sales committee should have worked harder to get a better sale price, to whether the minorities were only against the sale because the price was too low.

‘The STB was not bound to examine the rights and preferences of each individual subsidiary proprietor and it was not the forum to inquire into the conduct of individual members of the SC (sales committee), or even the SC as a whole,’ Justice Choo said. ‘If the STB were to embark on the kind of inquiry and make the findings the appellants say it ought to have done, the STB would never get its job done within the time limited.’


Appeal against Horizon Towers sale dismissed

High Court ruling clears the way for $500m collective sale that was inked 1-1/2 years ago

THE drawn-out battle over the $500 million collective sale of Horizon Towers has moved one step closer to a conclusion after the High Court threw out an appeal by objecting owners.

Yesterday’s ruling means the sale of the Leonie Hill estate, first inked in January last year, can proceed - unless the objectors pursue one final possible avenue of appeal to the Court of Appeal. Some are considering this option.

The case marks a win for Mr K. Shanmugam in his final appearance as a litigator on April 30 before becoming Law Minister. He appeared before High Court Justice Choo Han Teck on behalf of the buyers, Hotel Properties (HPL) and its two partners.

HPL executive director Christopher Lim said: ‘We hope to move forward with it after 1-1/2 years of signing the agreement.’

They had inked a deal to buy the 99-year leasehold estate for less than $850 per sq ft of gross floor area, before prices shot up dramatically in last year’s bull market.

Some sellers were unhappy with what they regarded as a low price, particularly after a neighbouring development sold for more than double that price. Others, including the objectors, never wanted to sell from day one.

The objectors had argued, for example, that the sales committee had acted in bad faith in the way it handled an alternative offer of $510 million from another firm as well as the way it distributed the sale proceeds.

Justice Choo, in his judgment, dismissed the appeal saying there was no error of law to justify overturning a decision of the Strata Titles Board (STB) to allow the sale to go ahead. The STB had found that the sales committee had made a ‘judgment call’ to proceed with the offer.

The objectors did not prove the committee had acted in bad faith, he said. This was an issue of fact, not law, so it was within the purview of the STB, he said.

‘From the submissions and supporting documents, it appears that there may have been intrigue in the course of the en bloc sale from the day the SC (sales committee) was created to the proceedings before the STB,’ said Justice Choo.

‘It is questionable, however, whether the STB was the forum to resolve all questions arising from secret manoeuvres of the different factions among the subsidiary proprietors.’

The STB is not a court but a statutory tribunal, he added.

The Horizon Towers case was the first collective sale where the majority owners were slapped with a lawsuit for alleged breach of contract.

In late June, Justice Choo also dismissed an appeal by objecting owners of another large collective sale site - Gillman Heights. CapitaLand is the lead buyer of the $548 million site in Alexandra Road.


Tanglin Road site goes at 124% above guide rent

THE former Ministry of Home Affairs complex at Phoenix Park, off Tanglin Road, has been awarded to LHN Group for $368,888 a month - a huge 124 per cent more than the guide rent of $165,000 a month.

The site, with a gross floor area of 143,195.4 sq ft, is managed by the Singapore Land Authority (SLA). The tender attracted 11 bids - 10 of them at or above the guide rent.

Bidders included United Engineers Developments (UE) which put in the second-highest offer of $315,033 per month.

Teo Cher Hian, director of land lease (private) with SLA’s land operations group, said LHN offered the ‘best value for the state’ based on allowable uses, business concept, track record and corporate financial health.

LHN plans to configure the site into separate tenant clusters, he said. The adjacent former Education Ministry headquarters now houses the Youth Olympic Games headquarters. And with more office set-ups pending, Phoenix Park ‘completes the area as an office hub’, said Mr Teo.

LHN is the master tenant for other state properties, including the former Gan Eng Seng School and CID Training Centre.

LHN managing director Kelvin Lim said the investment cost at Phoenix Park is expected to be about $4 million. He estimates that rents could be around $6 psf per month when it opens at the year-end.

Rising office rents are forcing more businesses to consider alternative office space like Phoenix Park. UE, for instance, had intended to use most of the space to house its own engineering operations, and to lease the rest to other tenants. ‘The existing structures and layout would also allow rather quick occupation with minimal works,’ a UE spokesman said.

Marine engineering firm Allbest Equipments, which was awarded the former Monk’s Hill Secondary School site by SLA, also expects to relocate its corporate offices there.

Allbest put in the highest bid of $211,328 per month for the site, which has a GFA of 83,889.5 sq ft.

Seven bids were received, with Allbest’s 43 per cent higher than the guide rent of $147,300.

Allbest general manager Chan Cheong Hoy said it will lease the remaining space at $7.50-$10 psf a month and expects to complete the first phase of renovations within four months.

Cushman and Wakefield managing director Donald Han said that as well as getting such properties ready to let as quickly as possible, developers have to keep construction costs under tight control to ensure their projects are feasible.

Mr Han says that in the Newton area transitional office space is going for $7.50-$8 psf a month, while the former Gan Eng Seng School could achieve $4.50-$5 psf a month.


Only HDB flats required to have bomb shelters?

Source : Straits Times - 18 Jul 2008

I GOT my new HDB flat recently and am busy doing renovation.

Like many other home owners, I intend to build a feature wall to hide the unsightly bomb shelter door in my living room. This is a burden as:

  • I will have to open two doors to access the storeroom (bomb shelter);
  • I will have to spend money to build the feature wall; and
  • The feature wall will occupy space due to the protruding bomb shelter door handle.Recently, I went to a condominium showflat and was surprised to discover bomb shelters are no longer required in future buildings.

    I was glad as the rule change would allow me to dismantle the bomb shelter door and not face the burdens mentioned.

    However, on clarification from the HDB, I cannot dismantle the bomb shelter door as the bomb shelter is still required in future HDB flats under Singapore Civil Defence Force (SCDF) rules.

    The other reason given was that the door is a structural item.

    I would like the authorities to clarify:

  • Why is the bomb shelter no longer required in private housing? Is it a case of double standards? Does the SCDF have a plan for condo residents in an emergency?
  • The bomb shelter door is not a structural item. It is a door on metal hinges that can be opened. In no way does the door support the bomb shelter stucture.Terence Puey


  • HDB explains purpose of resale levy

    Source : Straits Times - 18 Jul 2008

    I REFER to the letter from Mr Michael Chua, ‘Fix resale levy as percentage of cash proceeds from sale’ (July 7).

    The resale levy is imposed to reduce the subsidy on the second subsidised flat. It is payable only if a household chooses to buy another subsidised flat from HDB.

    This is to ensure fair allocation of limited housing subsidies so more can be given to first-timers who have yet to enjoy any housing subsidy. It is not a capital gains tax, as those who sell their first subsidised flat and buy a resale HDB flat (or private property) do not need to pay the levy. Therefore, the resale levy is not linked to proceeds received from the sale of the first subsidised flat in the open market.

    We thank Mr Chua for his feedback.

    Lily Chan-Wong Jee Choo (Mrs)
    Acting Deputy Director (Policy & Property)
    for Director (Estate Administration & Property)
    Housing & Development Board


    Office space slump? 2 state-owned sites pull in strong bids


    Source : Straits Times - 18 Jul 2008

    THE former Ministry of Home Affairs complex at Phoenix Park is set to be transformed into an ‘iconic integrated office complex’ with restaurants and other facilities.

    The plans were unveiled by LHN Facilities Management, which was awarded the right to lease the Tanglin Road site by the Singapore Land Authority (SLA) yesterday.

    LHN’s managing director, Mr Kelvin Lim, added that perks like a shuttle service to the nearby Redhill MRT station would help to attract government agencies and private companies which need space outside the Central Business District. The property comprises 24 low-rise blocks.

    LHN, which specialises in converting old properties for new uses, offered $368,888 a month - more than double the $165,000 guide rent. A total of 11 bids were received for the site.

    Another state-owned site awarded for lease by the SLA, the former Monk’s Hill Secondary School at Winstedt Road, is also set for a makeover.

    The top bid came in from marine engineering firm Allbest Equipments at $211,328 a month - 40 per cent more than the guide rent of $147,300.

    Allbest is retaining only 5 to 10 per cent of the built-up space for its own office needs and will rent out the rest.

    The company will spend about $4 million doing up the building and expects to lease space to medium-sized businesses at $8 to $10 per sq ft, said Mr Chan Cheong Hoy, general manager of Allbest.

    The strong interest in the two state-owned sites shows that despite the torpor in the property market, demand for office space in the prime area appears to be going strong.

    The two buildings pulled in offers that were well above their guide rents, SLA said.

    Both companies plan to sub-lease most of the space in these buildings, believing that office demand will remain healthy.

    These two properties are the first that SLA has leased out this year. The agency will put up another two sites, also for office use, in the coming months.

    One is a former police post at 11 Kelantan Road, which has a gross floor area of 1,905 sq ft. The other is the former Pacific Can Building at Cecil Street, a vacant two-storey property with a total floor area of 19,482 sq ft.


    $1.99b loan for Farrer Rd condo

    It’s S’pore’s biggest syndicated loan for a residential project, says CapitaLand

    THE en-bloc purchase of Farrer Court site - which has made many of the sellers millionaires - has achieved many superlatives, the latest being the $1.996 billion loan raised by the CapitaLand-led consortium that is re-developing the land into a high-rise condominium.

    The loan involving 10 local and international banks to fund the acquisition of the Farrer Court site and its redevelopment is the largest syndicated residential project loan ever arranged in Singapore, said CapitaLand’s president and CEO Liew Mun Leong yesterday. He was speaking at the loan-signing ceremony at the Four Seasons Hotel.

    This loan comprises a $1.362 billion term loan and a $500 million revolving credit facility with a tenor of five years, and $133.93 million bank guarantee facilities with a six-year tenor. A joint statement by the consortium partners said the loan will be used to partially refinance the acquisition costs and to part-finance the construction and development.

    The consortium, Morganite Pte Ltd - whose partners are CapitaLand Residential (with a 35 per cent stake), Ong Beng Seng-controlled Hotel Properties Ltd (22.5 per cent), Morgan Stanley Real Estate Special Situations Fund III LP (22.5 per cent) and US-based Wachovia Development Corporation (20 per cent) - bought the site in June last year for $1.3388 billion, making it the largest collective sale transaction in Singapore. The transaction was completed in March this year.

    The privatised HUDC estate of area 77,898 sq m (838,488 sq ft) will be re-developed into 36-storey condominium consisting of 1,500 homes.

    This is the only private residential site in the Farrer Road and Holland Road area to be accorded a high plot ratio of 2.8 and a maximum height of 36 storeys.

    ‘The project will cost us about $3 billion, including land price,’ said Mr Liew. This $3 billion tag makes it the largest value residential project in Singapore.

    ‘It’s during such difficult times that developers, businesses and partners can pool together and seek partnership strengths with healthy financial standing to exploit opportunities,’ Mr Liew added. Despite the weakness seen in new home purchases this year, Mr Liew believes that the demand here remains strong.

    He is hence confident of attracting the right buyers for this project given its design by renowned architect Zaha Hadid and its good District 10 location, as well as support from the ‘blue chip’ partners.

    ‘The demand is still holding (up) and there are still people buying,’ Mr Liew said. ‘If you look at people buying Nassim Park for over $3,000…and that’s exceeding pre-Asian crisis (levels).’

    Speaking on the sidelines, Hotel Properties executive director Christopher Lim concurred that current market weakness points to the issue of timing rather than a fall in demand.

    ‘The demand is there but people are just waiting,’ Mr Lim said. ‘If they believe that price is not going to drop, they will come back to the market again.’

    The 99-year leasehold project is slated to be launched in the first half of 2009 and its pricing will be determined at that time. Its breakeven pricing is in the region of $1,350 to $1,450 per square foot.

    Mr Liew added that the group is ready to hold back the launch to achieve a desirable pricing as profitability remains the key focus for all its projects. ‘We are a company that can hold on,’ he said. ‘Our balance sheet is not under pressure.’

    The mandated lead arrangers and bookrunners of the loan are DBS Bank, UOB Asia, Standard Chartered Bank, OCBC and Royal Bank of Scotland plc.


    $1.99b loan for Farrer Rd condo

    It’s S’pore’s biggest syndicated loan for a residential project, says CapitaLand

    THE en-bloc purchase of Farrer Court site - which has made many of the sellers millionaires - has achieved many superlatives, the latest being the $1.996 billion loan raised by the CapitaLand-led consortium that is re-developing the land into a high-rise condominium.

    The loan involving 10 local and international banks to fund the acquisition of the Farrer Court site and its redevelopment is the largest syndicated residential project loan ever arranged in Singapore, said CapitaLand’s president and CEO Liew Mun Leong yesterday. He was speaking at the loan-signing ceremony at the Four Seasons Hotel.

    This loan comprises a $1.362 billion term loan and a $500 million revolving credit facility with a tenor of five years, and $133.93 million bank guarantee facilities with a six-year tenor. A joint statement by the consortium partners said the loan will be used to partially refinance the acquisition costs and to part-finance the construction and development.

    The consortium, Morganite Pte Ltd - whose partners are CapitaLand Residential (with a 35 per cent stake), Ong Beng Seng-controlled Hotel Properties Ltd (22.5 per cent), Morgan Stanley Real Estate Special Situations Fund III LP (22.5 per cent) and US-based Wachovia Development Corporation (20 per cent) - bought the site in June last year for $1.3388 billion, making it the largest collective sale transaction in Singapore. The transaction was completed in March this year.

    The privatised HUDC estate of area 77,898 sq m (838,488 sq ft) will be re-developed into 36-storey condominium consisting of 1,500 homes.

    This is the only private residential site in the Farrer Road and Holland Road area to be accorded a high plot ratio of 2.8 and a maximum height of 36 storeys.

    ‘The project will cost us about $3 billion, including land price,’ said Mr Liew. This $3 billion tag makes it the largest value residential project in Singapore.

    ‘It’s during such difficult times that developers, businesses and partners can pool together and seek partnership strengths with healthy financial standing to exploit opportunities,’ Mr Liew added. Despite the weakness seen in new home purchases this year, Mr Liew believes that the demand here remains strong.

    He is hence confident of attracting the right buyers for this project given its design by renowned architect Zaha Hadid and its good District 10 location, as well as support from the ‘blue chip’ partners.

    ‘The demand is still holding (up) and there are still people buying,’ Mr Liew said. ‘If you look at people buying Nassim Park for over $3,000…and that’s exceeding pre-Asian crisis (levels).’

    Speaking on the sidelines, Hotel Properties executive director Christopher Lim concurred that current market weakness points to the issue of timing rather than a fall in demand.

    ‘The demand is there but people are just waiting,’ Mr Lim said. ‘If they believe that price is not going to drop, they will come back to the market again.’

    The 99-year leasehold project is slated to be launched in the first half of 2009 and its pricing will be determined at that time. Its breakeven pricing is in the region of $1,350 to $1,450 per square foot.

    Mr Liew added that the group is ready to hold back the launch to achieve a desirable pricing as profitability remains the key focus for all its projects. ‘We are a company that can hold on,’ he said. ‘Our balance sheet is not under pressure.’

    The mandated lead arrangers and bookrunners of the loan are DBS Bank, UOB Asia, Standard Chartered Bank, OCBC and Royal Bank of Scotland plc.


    New face in Farrer

    Pritzker Prize-winning architect to design new $3-billion development

    WHEN 31-year-old Farrer Court is demolished over the coming months, its replacement will be a “curvaceous” condominium that is set to dominate the skyline of District 10 and clock several firsts.

    Giving the media a sneak peek yesterday, a CapitaLand-led consortium gave hints of how it planned to transform the site of Singapore’s biggest-ever en bloc sale.

    In a precinct made up largely of landed homes and low- to mid-rise buildings, the upcoming 99-year leasehold project will comprise seven towers, which will each reach a height of 36 storeys. There will be a total of 1,500 homes, including 32 penthouses and 12 garden villas.

    The condominium, yet to be named, will be launched in the first half of next year and is estimated to cost $3 billion to build, said CapitaLand Group chief executive Liew Mun Leong. The breakeven price ranges from $1,350 to $1,450 per square foot.

    Unite pricing will be set closer to the launch, “but it will be affordable and we can make money”, said Mr Liew. He was confident that the project would find takers as en bloc sellers still need homes.

    He said: “I am not worried about the economic downturn in the United States. Business must still go on.”

    Behind the Farrer design is Pritzker Architecture Prize-winner Zaha Hadid, the first woman to clinch the architecture world’s equivalent of the Nobel Prize and the one who drafted the masterplan for the Buona Vista science hub, one-north. This will be her first condominium contract here.

    “Zaha is very famous for her ‘sensuous architectural silhouettes’, whatever that means,” straight-talking Mr Liew said to laughter all round. “It just means curves to me.”

    Later at the briefing, Mr Liew again had the audience in stitches when he replied to a question on how the consortium persuaded Ms Zaha to take up the job.

    “It started with Mr Ong Beng Seng having a relationship - I mean …” Mr Liew paused abruptly as the room erupted with laughter. “… Having a good working relationship with Ms Zaha, because all these require personal relationships.”

    Mr Ong heads Hotel Properties Limited (HPL), which is the number-two shareholder of the consortium after CapitaLand.

    Mr Liew was addressing business partners, lawyers and senior executives from the 10 banks that have sewn up a loan of $1.996 billion, the largest ever syndicated residential property development loan arranged here.

    The funds will be used to cover some of the construction costs - which are estimated to total $3 billion - and to partly finance the cost of the site, which has a maximum gross floor area of 2.35 million square feet.

    Last year, CapitaLand and its three partners - HPL, Morgan Stanley Real Estate Special Situations Fund III and Wachovia Development Corporation - agreed to pay$1.34 billion to buy Farrer Court.

    It was the biggest collective sale in local history and made 618 homeowners instant millionaires, as each unit fetched an average of $2.15 million.

    The en bloc sellers of Farrer Court will be invited to a preview of the new condominium. “But there will be no special price for them,” said CapitaLand Residential Singapore chief Patricia Chia.


    $3b Farrer condo boasts sensuous, curvy towers

    Renowned architect Zaha Hadid behind their design; project to be launched in 2009

    PROPERTY giant CapitaLand has unveiled the ‘branded’ upmarket designs for a $3 billion residential project in Farrer Road that it aims to launch next year.

    UNIQUE DESIGN: The as-yet-unnamed condo’s 36-storey towers will feature a series of sensuous lines not commonly seen in residential developments in Singapore. The penthouse units (left) in the project offer good views. The project will be launched in the first half of next year. — PHOTOS: CAPITALAND

    The as-yet-unnamed condominium boasts a series of sensuous lines that are not commonly seen in residential projects in Singapore, while the curving towers give an ultra-modern feel without the harsh edges present on many blocks.

    It is all very much in the recognised style of architect Zaha Hadid, the first female recipient of the coveted Pritzker Architecture Prize.

    This is her first condo project in Singapore but she has designed two bungalows for niche developer Elevation Developments.

    Past Pritzker Architecture Prize winners include Mr Frank Gehry, Sir Norman Foster and Mr Rem Koolhaas.

    The seven 36-storey blocks on the sprawling 838,488 sq ft site will hold about 1,500 homes. There will also be six pairs of unique semi-detached houses.

    CapitaLand is developing the 99-year leasehold plot with three partners. Hotel Properties and a Morgan Stanley Real Estate fund will each hold 22.5 per cent, while Wachovia Development will take 20 per cent.

    These parties, which borrowed a whopping $1.996 billion for the ambitious project, yesterday held a signing ceremony for the loan with their bankers at the Four Seasons Hotel.

    It is the largest syndicated residential property development loan ever arranged in Singapore and comes amid a slow housing scene and tight credit markets.

    CapitaLand said the deal comprises a $1.362 billion term loan, $500 million of revolving credit and $133.9 million in bank guarantees.

    The collective sale deal for the former Farrer Court condo site was inked in June last year at $1.338 billion, or up to $783 per sq ft (psf) of potential gross floor area.

    Ms Patricia Chia, chief executive of CapitaLand Residential Singapore, said the project’s break- even cost is around $1,350 psf to $1,450 psf.

    The condo will be launched in the first half of next year.

    Developers generally see no need to hurry given the slow property sector, falling share markets and continuing bad news from the United States.

    CapitaLand chief executive Liew Mun Leong said at the signing ceremony that the past few months have been challenging, but the business world must go on, notwithstanding the current economic turbulence in the US.

    He said bankers, developers, businesses and potential partners could come together to exploit opportunities that increase during bad times.

    Mr Liew added later: ‘Sentiment has been affected in the US, but I think the fundamentals in Asia - in terms of economic growth, the demand, urbanisation - are still very strong.’


    CapitaMall Trust to offer bumper payout

    UNITHOLDERS of CapitaMall Trust (CMT) will receive a bumper payout for the second quarter, with distributable income up 20 per cent to $58.6 million from last year.

    The trust will pay out 3.52 cents per unit for the three months ended June 30, compared with 3.12 cents per unit last year.

    CMT said its portfolio performed better than forecast, mainly due to stronger rentals achieved on new and renewed leases.

    Consultant Jones Lang LaSalle and CapitaLand Research also project CMT’s rental rates to increase between 16.1 and 17.5 per cent by 2012.

    This is despite record inflation threatening a further decline in retail spending and rising operating costs for retailers.

    CMT, listed in 2002, is the first real estate investment trust (Reit) to report its second-quarter results. With a current asset value of $7.2 billion, it is the largest Reit in both asset size and market capitalisation in Singapore.

    It is also on track to reach its target asset value of $9 billion by 2010 through new acquisitions and enhancements to its current pool of shopping malls.

    ‘Asset enhancement has grown to become a key contributor to CMT’s distribution per unit and net asset value growth,’ Mr Pua Seck Guan, the chief executive of the Reit’s manager, said yesterday.

    Upgrades to enhance its retail malls are expected to continue into 2010.

    In May, CMT said it would pay the Government $840 million for The Atrium@Orchard. It said the integration with the adjacent Plaza Singapura would require an additional $150.1 million in capital expenditure.

    CMT units rose 3 cents to $3.07 yesterday.


    LaSalle fund says Aussie Reits are good buy now

    Trusts hit by fears of rising financing costs arising from global credit crisis

    (SYDNEY) Now is the time to pick up cheap Australian property trusts because the country’s economic fundamentals are strong, according to a securities fund manager at property specialist LaSalle Investment Management.

    Uncertainty: Office buildings and commercial towers stand in the CBD of Sydney. Australian Reit investors are bracing for earnings reports due to be delivered next month

    Concerns are mounting about the future prospects for Australian real estate investment trusts (Reits) ahead of their earnings reports, as the global credit crisis hits financing costs for the highly leveraged industry.

    Australia’s property sector has dropped 45 per cent this year and Australian Reits are traded at an average 24 per cent discount to net asset value, compared to an average of an 8 per cent premium in the past.

    That implies a rise in capitalisation rates - annual rent as a proportion of a building’s value - of more than 150 basis points for commercial property.

    ‘The market is concluding that there’s (a cap-rate) expansion, which is far greater than what we believe or see in the market place,’ said Todd Canter, chief executive for LaSalle Investment Management Securities Asia-Pacific. ‘Here, we have a unique opportunity to buy some of the world’s best real estate companies at an incredible discount to NAV,’ said Mr Canter, noting that US Reits are trading at a narrower, 19 per cent, discount to NAV.

    Capitalisation rates for Australian Grade A office buildings may widen by 50 to 75 basis points, but no more, Mr Canter said.

    ‘We think that there is great value to be found globally, specifically places like Britain and Australia,’ he added during a media briefing here.

    Australian Reit investors are bracing for earnings reports due to be delivered next month. Last week, GPT Group saw its shares tumble as it slashed its 2008 earnings and dividend forecasts by more than a quarter. Other Reit prices also fell as the likes of Mirvac Group followed suit with grim forecasts.

    Debt spreads for the best borrowers have widened to 110 basis points from 50 basis points six months ago, according to JPMorgan analyst Rob Stanton.

    He says higher borrowing costs would cut compound annual growth rate for Reit distributions per share to 1.5 per cent from a previously forecast 2.8 per cent over five years. — Reuters


    Malaysian real estate sector may face rocky road ahead

    Developers currently relying on more resilient higher-end segment

    SINCE real estate is a natural hedge against inflation, buying property in Malaysia would seem a capital idea, with inflation running at its highest level in more than 20 years. But in these uncertain times, other variables have to be considered.

    Property players say the sector was quieter in the first half of 2008, with significantly fewer launches. But the real test will be seen in the coming months when US economic problems hit home - America is one of Malaysia’s biggest trading partners - and the recent huge jump in fuel and energy prices starts to bites.

    Building contractors are under stress, with many turning down government jobs that they say they will lose money on because of the soaring cost of materials.

    The Master Builders Association of Malaysia has warned that more projects could be abandoned. So buyers will have to exercise care. As of January this year, Selangor, which sees the most launches, had 100 abandoned residential projects involving almost 34,500 units and 29 commercial projects involving some 4,500 units, the Selangor chief minister revealed recently. Many of these projects are poorly located or were started by parties with suspect track records.

    Developers not confident of passing on higher construction costs to buyers are opting not to launch new projects for the time being. Those confident they have a niche market are willing to proceed, even if take-up rates are slower - which may well be the case given asking prices have doubled in the past two or three years in popular areas such as the KL City Centre (KLCC).

    For the past five or six years the property market has enjoyed brisk sales. But with plenty of supply in the pipeline, investors are wary of a mismatch in future supply and demand.

    Most players think properties costing up to RM300,000 (S$125,288 ) are likely to be hit hardest, as lower to middle income earners find it harder to cope with the soaring cost of living.

    Developers are relying on the higher-end segment, which appears more resilient. iProperty.com Group says there are some indications of fewer transactions even at the high end, but that this is not significant - unlike in Singapore.

    ‘There are still buyers at the same prices as before and nobody is desperate to sell,’ says iProperty.com executive chairman Patrick Grove. Foreigners continue to look in the elite areas of KLCC, Bangsar and Mont Kiara.

    Indeed, The Star newspaper recently quoted developers as saying properties priced at more than RM1 million are snapped up fastest, usually in a week, whereas those priced below RM300,000 take more than nine months and those costing RM300,000 to RM800,000 take six to 12 months.

    Mr Grove believes prices will have to rise because costs have gone up, but says developers can only pass on cost increases bit by bit and will have to absorb as much as they can for the time being.

    Prices will ultimately be determined by demand, rising costs notwithstanding, says PPC International executive director Thiruselvam Arumugam. ‘Developers can increase the prices, but demand will just not be there,’ he reckons. ‘This will result in an overhang, and eventually prices will have to come down.’

    The commercial sector in the Klang Valley remains a bright spot, with particularly strong interest among Korean and West Asian investors, according to property consultants, who point to new benchmarks being set, especially in the city centre.

    Mr Grove pinpoints Johor’s Iskandar Malaysia zone as an area to keep an eye on ‘as we start to see more progress with what is being built there and the take-up in general’.

    In Penang, however, there is a reported 2.8 million sq ft glut of office space, with the occupancy rate only 74 per cent.

    Niche retail projects appear to be attracting strong investor interest. SP Setia recently announced plans for a joint venture with the Singapore-based Lend Lease Asian Retail Investment Fund 2 for a RM750 million retail mall in Shah Alam, Selangor, where the Malaysian developer has a township.

    Besides the relatively weak ringgit, Malaysian real estate is still some of the region’s cheapest and entry points are good, say Lend Lease executives, who are on the lookout for other retail projects in the Klang Valley where they can add value and differentiate from those that already exist. Another international mall operator is expected to announce a tie-up later this year with iBhd on its RM2 billion iCity mall, also in Shah Alam.

    Analysts expect the going to be tough over the next 12 months and are underweight on property counters, saying most developers are already posting lower profits. According to UBS, the sector has fallen by an average of 45 per cent. Government-linked MRCB has posted the sharpest decline in share price of about 60 per cent.

    KLCC Properties, which has most of its assets in the city centre, where occupancy remains high, registered the lowest loss of about 20 per cent. Sime Darby Property was quick to move last month before times get rougher, selling more than double its target over a 10-day home fair involving real estate in its nine townships.


    CapitaMall Trust Q2 income up 20% on retail rents

    CapitaMall Trust, Singapore’s largest property trust by market value, reported on Thursday a 20 per cent rise in quarterly distributable income, and projected continued growth in retail rents.

    The property trust said in a presentation that it projects retail rentals to rise 17.5 per cent by 2012 in Singapore’s main Orchard Road shopping district, and for for rents to go up 16.1 per cent in suburban areas over the same period.

    CapitaMall, 27-per cent owned by Southeast Asia’s largest developer CapitaLand , said it will continue to grow its assets in Singapore through acquisitions, and boost income by enhancing its malls.

    It announced in May that it will pay S$850 million to parent CapitaLand for office-and-mall complex AtriumzOrchard.

    CapitaMall will pay S$58.6 million (US$43 million) in distributable income for the April to June period, or 3.52 cents per unit. That compares with S$48.8 million a year ago.

    CapitaMall competes with other Singapore-listed real estate investment trusts that own offices and retail malls, including Suntec Reit , Macquarie Prime and Frasers Centrepoint Trust. — REUTERS


    CapitaMall Trust Q2 income up 20% on retail rents

    CapitaMall Trust, Singapore’s largest property trust by market value, reported on Thursday a 20 per cent rise in quarterly distributable income, and projected continued growth in retail rents.

    The property trust said in a presentation that it projects retail rentals to rise 17.5 per cent by 2012 in Singapore’s main Orchard Road shopping district, and for for rents to go up 16.1 per cent in suburban areas over the same period.

    CapitaMall, 27-per cent owned by Southeast Asia’s largest developer CapitaLand , said it will continue to grow its assets in Singapore through acquisitions, and boost income by enhancing its malls.

    It announced in May that it will pay S$850 million to parent CapitaLand for office-and-mall complex AtriumzOrchard.

    CapitaMall will pay S$58.6 million (US$43 million) in distributable income for the April to June period, or 3.52 cents per unit. That compares with S$48.8 million a year ago.

    CapitaMall competes with other Singapore-listed real estate investment trusts that own offices and retail malls, including Suntec Reit , Macquarie Prime and Frasers Centrepoint Trust. — REUTERS



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    SLA awards office properties, offers two more sites for lease


    Source : Channel NewsAsia - 17 Jul 2008

    The Singapore Land Authority (SLA) has awarded the first two sites for transitional office space this year.

    One of the most keenly-watched sites was the former Home Affairs Ministry complex at Phoenix Park.

    The parcel was awarded to LHN Facilities Management, which will pay S$368,888 in rent per month.

    11 bids were received for the Phoenix Park site, 10 of which were above the guide rent of S$165,000 per month.

    The second site is the former Monk’s Hill Secondary School at No. 10, Winsteadt Road in the Newton area.

    It was awarded to Allbest Equipments for a rental of S$211,328 per month.

    The plot received seven bids in total, all above the guide rent of S$147,300 per month.

    The SLA is preparing to lease out two more sites for office use.

    The first is a former police post at No. 1, Kelantan Road. It has a gross floor area of 177 square metres and is suitable for small start-ups.

    The second site is the former Pacific Can Building at Cecil Street, which has a gross floor area of 1,810 square metres.

    Leases for the two properties will end in June 2011.


    CapitaLand to build 1,500 high-end homes on site off Farrer Road


    Source : Channel NewsAsia - 17 Jul 2008

    CapitaLand intends to build an estimated 1,500 mid to high-end homes in prime District 10 on a site that currently houses the Farrer Court estate.

    The developer and its partners bought the site off Farrer Road in a collective sale last June for some S$1.34 billion.

    Revealing plans for the project on Thursday, CapitaLand said the new development will have seven blocks of 36-storeys each, with mainly two, three and four bedroom units. The development will also include 12 garden villas.

    The unnamed project is expected to be launched in the first half of 2009.

    CapitaLand expects the breakeven cost to range between S$1,350 and S$1,450 per square foot.

    Industry watchers said, depending on the market conditions at the time of the launch, the new units could fetch between S$1,500 and S$1,800 per square foot on average.

    The entire project will cost S$3 billion in total.

    CapitaLand and its partners have signed an agreement for a loan of S$2 billion to fund the development costs.

    Farrer Court currently has 618 private apartment units.

    The 99-year leasehold site spans 838,488 square feet and has a maximum gross plot ratio of 2.8.

    It is within walking distance of the future Farrer MRT station. - CNA/vm


    CapitaLand, others get US$1.5b loan for condo project

    Source : Business Times - 17 Jul 2008

    CapitaLand, Southeast Asia’s top developer, said on Thursday it and Morgan Stanley, Wachovia and Hotel Properties would borrow S$1.99 billion (US$1.5 billion) for a residential property project in Singapore.

    The company said the deal was made up of a S$1.362 billion term loan, a S$500 million revolving credit and S$133.9 million in bank guarantees.

    CapitaLand in June 2007 agreed to pay S$1.34 billion for a site on Singapore’s Farrer Road, in a joint venture with Hotel Properties, Wachovia’s wholly-owned subsidiary Wachovia Development Corp, and a Morgan Stanley real estate fund. — REUTERS


    High Court dismisses Horizon Towers en bloc appeals

    Source : Business Times - 17 Jul 2008

    Hotel Properties Limited on Thursday said Singapore’s High Court has dismissed the appeals by the minority sellers in Horizon Towers’ en bloc sale.

    The minority sellers had made the appeal in January 2008 against the Strata Titles Board’s decision delivered on December 7, 2007 which would allow the en bloc sale of the condominium to proceed.

    HPL, Morgan Stanley Real Estate and Qatar Investment Authority agreed to pay $500 million for the condo located in the prime district. The deal was inked in January last year, before the property prices shot up.

    But the closure of the collective sale was delayed after a group of minority owners put up an appeal saying the sale was carried out in bad faith. — BT Newsroom


    Reits get downgrade on financing fears

    REAL estate investment trusts (Reits), once an investors’ darling, are feeling the heat of the credit crunch and the expected rise in bond yields.

    A number of analysts have downgraded the sector on concern over the funds’ ability to secure future financing, whether through the structured debt or equity markets or through asset sales.

    A rise in bond yields, widely expected thanks to rising inflation, will raise the risk free rate which is used to value the securities, pulling the fair value prices lower.

    Yields of about 20 Reits have risen to an average of nearly 8 per cent on forecasted 2008 distributions, based on consensus estimates captured by Bloomberg. That offers a spread of about 4.6 percentage points over the 10-year Singapore government bond yield, which currently stands at about 3.379 per cent.

    While that sounds very attractive, yields do not tell the full story. A source who declines to be named points to ‘macro’ risks, including that of valuation.

    ‘There is a risk of slowing demand for office and industrial space, so there is a possibility of (more) downgrades over the next few months. It’s all very fluid and we need to be very conscious of the macro risks.’

    He adds: ‘There has been a rapid decline in the amount of (property) transactions in the physical market . . . If the asset price drops, you are dealing with a portfolio whose value is at risk.’

    In a July report, Merrill Lynch said that it was cutting its price targets for Reits by about 16 per cent. It also reduced distribution per unit estimates by 5.3 per cent for fiscal year 2009 and 6.4 per cent for FY2010. ‘While valuations are undemanding by historical standards we believe the availability and cost of debt and equity continue to present challenges for the S-Reit sector. We remain cautious on the medium-term outlook for the sector which is highly reliant on capital markets for growth and is sensitive to interest rate movements.’

    In Merrill’s analysis, the average debt expiry profiles for the Reits is about 2.6 years, which is half that of developed markets. This suggests earnings would suffer a hit as early as 2009, as expiring debt is rolled over at higher rates. It expects the average cost of debt to rise from 3.6 per cent currently to 4.9 per cent in 2010.

    In its valuation assumptions, Merrill has raised its cost of debt and risk free rates by more than 100 basis points to 5.5 and 5.4 per cent, respectively. It has, however, a ‘buy’ rating on a number of Reits, including Macquarie Prime, Capitamall, Capitacommercial Trust and Ascott Residential.

    Rating agency Moody’s sounded a warning bell on Reits in May when it gave a negative rating outlook for Reits over the next 12 to 18 months, due to concern over ’short-term refinancing risks’, among other factors. The sector, it said, retains little cash and tends to use a relatively high proportion of short-dated bank facilities instead of committed long-term funds. They often do not have committed facilities in place for capital expenditure or acquisitions, said Moody’s.

    This type of funding structure ‘can introduce elements of instability and uncertainty into the capital structure of those S-Reits with a lot of short- term debt, which is unusual for investment grade issuers’.

    Moody’s pointed out that in the past, S-Reits did not spend enough time cultivating strong bank relationships as they had easy access to equity and CMBS (collateralised mortgage-backed securities) funding.

    Moody’s senior analyst Kathleen Lee and her team wrote that they had talked to banks on their appetite for lending to the S-Reit sector. ‘Our impression from these discussions is that funding remains available, but that the banks have become more selective about borrowers, the maturity of such lending and the price charged.’ In the first quarter, the team reckons that banks raised their pricing by 50 to 100 basis points for short term loans and refinancing.

    On a more positive note, a Deutsche Bank July 1 report by strategist Gregory Lui and analyst Elaine Khoo points out that valuations look attractive at a 6.8 per cent forecast 2008 yield and 18 per cent discount to net tangible assets.

    The report said that Reits have retreated by about 35 per cent from mid-2007 despite a less volatile business model. At the time of writing the sector was traded at a 321 basis point spread over the nominal 10-year government bond yield, which then stood at 3.9 per cent. On a real yield basis, the spread was even more attractive at more than 11 per cent. Three-quarters of the funds were trading below book NTA, and up to 50 per cent discount.

    Inflation, in any case, is expected to feed through to rental costs, say the analysts. ‘Current supply/demand pricing dynamics . . . suggest that the industrial and retail sectors are better positioned to pass on inflation. Industrial rents are only starting to recover from a low base and are still 26 per cent below peak levels, while both the manufacturing and services sectors have continued to expand over the past 10 years.’

    Industrial rents trended upwards at a 15-16 per cent annualised rent this year. Retail rents could also benefit from inflation as a larger proportion of leases now include a step-up component, said the report.

    Mr Lui and Ms Khoo wrote that borrowing rates are set to rise, based on the swap offer rate which has risen by 30-143 basis points. ‘The Reits by and large have exercised prudent interest rate risk management and have more than 75 per cent of total debt fixed or hedged, which also means that the impact of higher rates will be moderated.’ They added that for most Reits, balance sheets are generally robust with gearing ‘below or at optimal levels’.