Uncovering gems amid property gloom

RB Capital boss zeroes in on residential developers in need of funding next year

KISHIN Hiranandani, son of Royal Brothers co-founder Raj Kumar Hiranandani, sees opportunities in the Singapore residential sector post-June 2009. Through his property investment outfit RB Capital, he is targeting joint ventures with mid-sized developers, both listed and privately held.

‘Developers will want partners coming in 2009 because it’s going to be a year that’s not going to be the most comfortable. There’s a lot of refinancing of loans coming up, and it’s an opportunity that we are well positioned (for),’ he tells BT.

‘I think 2009, second half, is going to be an attractive time to go in. I do see refinancing terms changing in 2009: Valuations will have to be lower and also the cost of financing may go up.’

There are two ways that RB Capital could potentially form joint ventures with such residential developers. One is to take a passive stake in prime freehold sites including those picked up through en bloc sales in the past few years.

‘There’ll be developers who would look at some capital injection, fresh equity coming in to the deals. For the lands they have bought and not developed, I think they have to have a hold model. If you have not built, I don’t think it’s sensible to start building in ‘09. And they have some pretty interesting plots that don’t come every day,’ says Kishin, as he prefers to be called.

The other way to invest in the Singapore residential market is to buy units in projects under development, again through ventures with the developers. ‘I would like to partner the developer. It’s not going to be easy. . . There are not going to be many (home) buyers out there, so we’re structuring it for the long term, sitting in with residential developers, keeping them in the game.’

Teaming up with a developer to buy units in its project rather than making solo purchases should also serve as a check against the developer chopping prices later for unsold units.

Kishin is looking at a three to five-year holding model for any residential investment that RB Capital makes.

The residential property market is pretty new to both RB Capital and Royal Brothers and ‘there is minimum income from residential’, Kishin acknowledges, but points out that RB Capital plans to enter this sector to diversify the two-year-old group, which currently owns office and retail properties.

RB Capital is developing EFG Bank Building at the High Street/North Bridge Road corner on the former Satnam House and Amaraj House sites. Shankar’s Emporium group has a stake in this project. The building, with 78,000 square feet of net lettable area, will be anchored by Swiss private banking group EFG, which has leased two thirds of the property. RB Capital will occupy the penthouse floor of the nine-storey building, which is expected to be ready by mid-2009.

In Kuala Lumpur, the group bought the former Menara Genesis office tower at 33 Jalan Sultan Ismail for RM55 million (S$23.1 million) in 2006 and is currently refurbishing it for about RM10 million to meet the requirements of anchor tenant HSBC. The bank, which had already been a tenant at the building when RB Capital bought it, recently inked a fresh long-term lease, Kishin says. ‘They have taken more space, we have given them signage rights.’

In the retail property sector, the group this year bought the former Shell petrol station on the ground floor of Coronation Plaza in Bukit Timah for about $6.3 million and is investing a further $1.5 million repositioning the space into three retail outlets. RB Capital also owns 6,000 sq ft of net lettable area at the retail podium of Malacca Centre in the Raffles Place area. Its current tenants include Spa Esprit’s browhaus and Beyond Beauty.

Kishin says that RB Capital is eyeing more investments in the Singapore commercial property sector, especially underperforming assets that could benefit from repositioning works undertaken to meet tenants’ needs under a ‘built to suit’ model.

With significant office supply in the pipeline, the Singapore office sector will be split into a two-tier market. Older, less prime office blocks which are not the best managed but capitalised on the upswing in the past few years risk losing tenants to better-located properties.

‘CBD fringe, fairly old office blocks, with potential for repositioning work - that’s where I see an opportunity because it’s going to be difficult to fill up those spaces in the coming year,’ Kishin says.

The plan is to buy such properties after the first quarter next year, a time frame that Kishin does not think is too early despite the fact that significant new office completions will start flowing in from 2010/2011.

RB Capital has already lined up a few potential tenants keen on being anchor tenants in such properties. ‘They have given us orders: ‘40,000, 50,000, 70,000 sq ft. These are my areas. This is how much I’m
willing to pay’.’

Kishin is also targeting acquisitions of boutique suburban malls of around 40,000 to 70,000 sq ft that could be potentially repositioned. Foreign property funds that bought real estate in Singapore in 2007 and early 2008 with a short-term investment horizon are starting to look at exiting, he observes. ‘In 2009, they are going to look at the market and say: ‘Is it going to improve in 2010?’ The answer is pretty clear.’

That will provide a buying opportunity for RB Capital.

Kishin says that he has the ‘best teachers’ in learning about real estate in his father and uncle, Asok Kumar (the other co-founder of Royal Brothers). ‘They have taught me everything. I’ve had the front-row seats to some of the most interesting deals they have done.’

But RB Capital is ’solely my baby, my vehicle . . . and I do the kind of deals that I like to do’, he stresses.

His father and uncle ‘have been amazing at repositioning assets’.

‘They’ve taught me everything: how to structure a deal, how to increase cash flow, how to buy.’

That aspect of the business Kishin has brought to RB Capital. ‘The only thing I am doing a little differently is that I am starting to develop. Something they don’t really do. And I’m (hoping to) add residential.’

‘Ever since I was five, I was running around in the office. I’ve learnt by asking all the questions I can ask from everyone around me, from a very young age,’ says the 25-year-old bachelor, who is a former Anglo-Chinese School boy. He keeps fit by playing squash at the American Club. Visiting properties or sites he hopes to acquire - ‘that’s my hobby; pretty depressing for a lot of people, but I enjoy it’.

Looking ahead, he says: ‘2009 is going to be challenging for some and a host of opportunities for others. We’re definitely going to see softening of the real estate market in all sectors. I believe there will be a shift of players. I think it’s going to be a year you see a lot of companies changing hands, in terms of the players changing hands.

‘There will be new names coming up. There will be some names that have been very aggressive, some names that have been affected, who will slow down. There will be a shift.’

Source : Business Times - 13 Dec 2008

Wacky idea to move the property market

Desperate times call for desperate measures. How about using property raffles to boost home sales in Singapore?

THE Emerging Trends in Real Estate Asia Pacific 2009 report, released last week by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP (PwC), painted a near- doomsday scenario of the property market in this part of the world.

The day of reckoning is just around the corner, says the press release. Industry experts are anticipating falling asset prices, rising capital rates, deteriorating debt markets, increasing foreclosures and bankruptcies, and plummeting transaction volumes as the financial crisis travels the globe.

According to the press release, the report - which is into its third Asian edition - is based on surveys and interviews with hundreds of the ‘industry’s leading authorities, including investors, developers, property company representatives, lenders, brokers and consultants’.

The investing landscape has undergone a substantive and possibly permanent change, according to the report. Asian banks have re-rated real estate for risk, and with the re-pricing of debt, investors will demand higher yields. The days of financing property via highly leveraged borrowing appear to be gone.

‘Asia shares the same liquidity crisis that the rest of the world is facing,’ said Stephen Blank, ULI senior resident fellow for finance. ‘Financial institutions - whether international or national, regional or local - are reluctant to extend credit as deleveraging reduces balance sheet lending capacity. While fundamentals in most markets and property sectors will be impacted by the prospects for a global recession, financing will be the single biggest issue facing the industry in 2009.’

The report noted that the ‘credit squeeze became a chokehold . . . culminating in the near-paralysis of regional debt markets’. The ‘moment of truth’ has yet to arrive in the Asia-Pacific (except for China and Japan, where the credit squeeze began earlier).

‘Refinancing may be the catalyst that brings the crisis home to regional real estate markets . . . during 2009 and into 2010 as short-term and construction loans mature,’ states the report. However, one fund manager noted in the report that ‘banks are being very accommodating because they know that if they start foreclosing on these rollovers, it’s just going to force values to fall further’.

Asian property sales have plunged 68 per cent in the third quarter of 2008, according to Real Capital Analytics.

However, the market softness will attract more traditional players to shop for quality assets in major locations. There will be more realistic pricing expectations, KK So, PwC real estate tax leader in Asia-Pacific, was quoted as saying in the press release.

The report ranks Singapore No 2, after Tokyo, in terms of investment prospects. However, ‘the biggest threat to Singapore, other than the squeeze on credit, is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign business investors’, David Sandison, PwC tax partner, was quoted as saying in the press release. ‘Apart from this, local players in the retail and office space are also seeking to cut costs by downsizing and relocating to more affordable parts of the island.’

However, acceleration of government infrastructure projects and other measures aimed at buoying the economy should be sufficient to stabilise the market and see it relatively safely through these troubled times, he said.

The strongest buy and hold recommendations for Singapore were in the hotel sector. Some 65 per cent of respondents advised holding, and 24 per cent recommended buying. Only 9 per cent suggested selling. The residential sector appeared to be the weakest. Some 65 per cent recommended holding, but a relatively high 23 per cent recommended selling. Only 11 per cent advised buying. For the office sector, 23 per cent recommended buying and 21 per cent said sell. The corresponding numbers for the industrial sector were 34 per cent and 13 per cent.

All in all, a rather gloomy picture especially for the residential property market where thousands of units sold under the deferred payment scheme will be due for completion in the next two years. Coupling that with the fact that there could possibly be more retrenchments, we could see massive supply but minuscule demand. We could be in for desperate times; hence, desperate measures may be required if the worst comes to pass.

A friend recently returned from the US mentioned about property raffles conducted there. This is how it works: Say a property owner wants to sell his apartment and there are no buyers or the price offered is significantly below his asking price. So he decides to sell tickets of, say, $10 each. Each ticket buyer has a chance to win his apartment. The condition is that the draw will take place only if he manages to sell enough tickets and raise the amount which meets his asking price.

So, for a $500,000 apartment, 50,000 tickets would have to be sold. I thought the idea was interesting, for several reasons. One, at a time when few people are willing to commit a big sum of money for a big-ticket item, most probably wouldn’t mind and could easily afford to fork out $10 for a chance to win an apartment.

Two, the odds of landing the apartment are far better in a property raffle than winning the top prize in a Toto draw, the prize money of which sometimes amounts to only $600,000. Assuming 50,000 tickets were sold, the chance per ticket is one in 50,000. To win the top prize of Toto with an ordinary ticket, your chance is one in 8.145 million!

Three, the property owner may potentially end up getting more than his or her asking price.

Common practice in US

House raffles are common in the US, with charities often joining forces with property developers to raffle new homes. In the UK they remain rare, according to a report in the Telegraph in October 2005. But with figures from the UK Nationwide Building Society showing that house prices fell for the second consecutive month in September - the first time in five years that prices have fallen for two months running - more sellers may be considering similar action in future, the report said.

The newspaper featured a certain Daniel Bloy, who had up till October 2005, put his Nottingham flat up for sale for five months. He received only one realistic offer, and even that fell through. Refusing to slash his price any further, he offered his two-bedroom flat as the first prize in an online spot-the-ball competition, giving one lucky winner the opportunity to own a home, mortgage-free, for just £25, or S$56. (A spot-the-ball competition is a game where the player has to guess the position of a ball which has been removed from a photograph of a ball sport.)

The Telegraph quoted Mr Bloy as saying that the competition had been fully approved and was run by solicitors. Photographs are available online and entrants who got in touch with his solicitors could view the lease details and title deeds. He added that he had spent several weeks researching both the gaming laws in the UK and the possible tax implications of such a scheme before seeking legal advice.

Under Mr Bloy’s rules for his spot-the-ball competition, a minimum of 6,000 tickets had to be sold for the flat sale to go ahead; the maximum was 8,000 tickets. If fewer than 6,000 tickets were sold, the winner of the spot-the-ball competitions would walk away with 65 per cent of the value of the ticket sales.

Apart from the first prize, there were also 11 smaller cash prizes.

At £25 a ticket, if the maximum number was sold, £200,000 would be raked in. If just 6,000 were sold, the flat would effectively be sold for £150,000. His earlier asking price for the apartment was £130,000. Even if far fewer tickets were sold, Mr Bloy would keep 35 per cent of the proceeds, which would be sufficient to cover the additional legal fees and costs of promoting the scheme.

The legal costs, said Mr Bloy, were obviously significantly higher than what one would pay for a normal house sale. He had to pay all the usual conveyancing costs and associated legal fees, and estimated that he spent more than £2,000 drafting the competition rules.

Mr Bloy’s competition was based on the popular ’spot the ball’ format. Other house ‘raffles’ in the past have required ticket buyers to answer a number of simple trivia questions.

Under competition law in the UK, if a name is simply drawn from a hat, the arrangement is classified as a lottery, and the organisers need to apply for a special permit to run it. The winner, however, would have to pay stamp duty plus his own legal fees. Mr Bloy’s competition was to have opened on Sept 26, 2005 and close on Dec 16, 2005. No subsequent reports were found. I wonder if he managed to sell his flat.

In Asian markets, if things do deteriorate to an extent where almost all transactions seized up, then perhaps property raffles could be an interesting option to get the money flowing again. To make it easier, perhaps a company with a special licence from the regulator could be set up to conduct such raffles. Checks would have to be done to ensure that the ‘owner’ is the rightful one, and that the property will come unencumbered.

As they say, desperate times call for desperate measures. So, even if this scheme is not implementable, it’s at least an interesting one to mull over.

Source : Business Times - 13 Dec 2008

Lower Sibor attracts more home buyers

0.9% rate sees more interest but analysts warn of risks

INSTALMENTS for many home loan borrowers are set to fall after the all-important interest rate at which banks lend funds to one another nosedived to about 0.9 per cent this month.

Many home loan packages are pegged to this rate - known as the three-month Singapore Interbank Offered Rate (Sibor) - so when it goes down, so do Sibor- linked home loan instalments.

According to economists, the three-month Sibor should remain at these depressed levels into the new year.

OCBC Bank economist Selena Ling said the three-month Sibor is reacting to a couple of factors.

One is the widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting on Tuesday.

The Sibor closely tracks this rate.

Another factor: continued measures by the Singapore authorities to pump liquidity into the system, against a backdrop of global and domestic recession.

In September, the three- month Sibor spiked to 2 per cent as the global credit crunch hit home here. Banks were afraid to lend to one another for fear of not getting repaid.

With the rate coming down sharply, more and more home buyers are looking at Sibor-linked loan packages.

Mr Geoffrey Ying, head of the mortgage division at financial advisory firm New Independent, estimates that six out of every 10 customers he is seeing are enquiring about Sibor-linked packages not only for high-end units, but also for HDB flats.

A year ago, when Sibor was significantly above 1 per cent, only three or four customers out of 10 would show interest.

It is easy to see why Sibor- linked packages have become the talk of the town, given the potential savings.

Suppose you want to buy an HDB flat. The best rate in the market is the 2.6 per cent annual rate for those qualifying for an HDB concessionary loan. This rate is pegged at a level 0.1 percentage point above the prevailing CPF ordinary account interest rate.

By comparison, at Standard Chartered Bank, for example, if you choose a two-year lock-in, its Sibor-linked package works out to Sibor plus a spread of - in this case - 0.95 per cent.

So if three-month Sibor stands at 0.9 per cent, you pay an annual rate of 1.85 per cent - lower than the HDB concessionary rate.

Still, financial experts say homebuyers must be careful. When Sibor falls, borrowers with a loan pegged to it gain as they will be paying a lower interest rate. But conversely, if the benchmark rate heads up, mortgage instalments also rise.

‘We think though, that Sibor still has the potential to spike up, given that risks still remain out there,’ a United Overseas Bank spokesman said.

Borrowers need to think carefully about choosing between two loan options, experts say.

Since January 2003, when banks were first allowed to provide loans for HDB flats, many homebuyers have opted for Sibor-linked packages as Sibor was very low, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

In June 2003, the three-month Sibor bottomed out at 0.5625 per cent, but then surged to as high as 3.56 per cent three years later.

Mr Leong said that historically, the HDB rate of 2.6 per cent has been lower than rates for Sibor-linked packages.

More importantly, homebuyers with an HDB concessionary loan who switch to a bank loan cannot go back to the HDB if bank rates suddenly rise above the board’s 2.6 per cent concessionary rate.

Experts think that banks are far more inclined than the HDB to repossess properties in the case of loan default.

‘During the economic slowdown, there’ll be people who’ll struggle to meet monthly payments. Sure, Sibor-linked rates are low now, but if you want certainty, you’ll choose HDB’s,’ said Mr Patrick Lim, associate director of financial advisory firm PromiseLand.

Take Mr David Lee, for instance. The 35-year-old engineer said that even though he is paying more now because he chose an HDB concessionary loan, he is not going to switch to a Sibor- linked package any time soon.

‘I don’t mind the slightly higher rate for peace of mind,’ he said.

Mrs Ong-Ang Ai Boon, director of the Association of Banks in Singapore, is on record as saying that ‘repossession would be a last resort, after all other measures have failed’.

Why Sibor is down

~ There is widespread market expectation that the US Federal Reserve will cut its Fed funds target rate to 0.25 per cent from 1 per cent at its meeting next Tuesday. Sibor closely tracks this rate.
~ Continued measures by the Singapore authorities to pump liquidity into the system.

Source : Straits Times - 13 Dec 2008

$25m Punggol makeover

Winning design to revive its heritage by capitalising on maritime setting

THINK water and you will have a good idea of the main theme running through the winning design for an ambitious $25 million makeover for Punggol.

The blueprint revealed yesterday aims to revive the coastal town’s heritage as a fishing village by capitalising on its maritime setting.

The makeover will include a 10km cycling trail along the 4.2km waterway, a ‘heartwave’ wall with a mini waterfall, and a pedestrian ‘kelong-like’ bridge. — PHOTOS: COURTESY OF HDB

There will be a 10km cycling trail in a rustic setting along the 4.2km waterway and a pedestrian ‘kelong-like’ bridge to recapture the old fishing days.

The waterway will also boast a coastal promenade and a host of water activities.

At the heart of the waterway in Punggol’s town park will be a ‘heartwave’ wall boasting a mini waterfall.

Visuals on the wall will depict the history and development of Punggol from its early days to a 21st century town.

All this and more was unveiled yesterday by National Development Minister Mah Bow Tan at the HDB Hub, where he announced the winner of the Punggol Waterway Landscape design contest launched in May.

Local firm Surbana International Consultants and its partner, Japanese firm Sen Inc, beat 10 local firms. Merit prizes were awarded to Arc Studio Architecture + Urbanism and Co-Design Architects.

Mr Johnny Wong, HDB’s deputy director of building research, said the Housing Board was won over by Surbana’s concept of incorporating Punggol’s unique identity into the waterway’s landscape.

Construction will be completed by 2010.

Mr Mah said the Punggol project is on schedule ‘and has been progressing steadily even during this economic downturn’.

Since August last year, the HDB has launched more than 5,000 flats under its build-to-order (BTO) projects in Punggol. BTO developments are built only when a certain demand is met.

The HDB plans to offer about 3,000 flats for sale annually in Punggol, subject to demand. And by the end of 2011, there will be about 23,000 flats completed.

Mr Mah said that even with the slowdown, he expects ’sufficient take-up for these flats’ as people are still getting married and young families are being formed.

The HDB is targeting the sale of the first site - a mixed commercial and residential development - to the private sector in mid-2010.

Mr Mah said there will be a demand for such sites by private developers in new towns if there is a critical mass of people living there.

‘The main thing is to make sure the town itself is well populated…then the commercial developers will find it worthwhile,’ he said.

Mr Mah also said that Punggol flats will remain affordable for all income groups.

About 500 rental units are being built, and about 550 of the 5,000 Punggol flats launched recently were two- and three- room flats, which cater to lower-income families. The rest will be four- and five-room flats.

Mr Mah also launched a separate design competition for Punggol’s Waterfront public housing yesterday.

Architects can design a masterplan for a 26.6ha housing district west of Punggol’s town centre. Shortlisted firms will go on to design in more detail a 4.9ha site along the Punggol Waterway.

The HDB plans to offer these waterfront homes by mid-2010.

Source : Straits Times - 13 Dec 2008

HDB loan defaults expected to rise

THE number of defaults on HDB home loans is expected to increase if the economy ‘goes down even further’, said National Development Minister Mah Bow Tan yesterday.

‘As we all expect, if there are further job losses, then inevitably there will be more arrears cases coming up,’ he said at HDB Hub.

Measures to help struggling home owners have been in place since the last downturn. These include deferring payments, downsizing flats or extending loans.

Parliament was told recently that there are about 33,000 flat owners owing the HDB arrears of three months or more. They comprise less than 8 per cent of the 420,000 households with HDB loans.

Mr Mah was responding to a question by The Straits Times about plans to help such home owners in the downturn.

‘We have to look at individual cases to see what is the situation for each particular case. The main criteria is to help them to tide over…to make sure there is a sustainable solution,’ he said.

He said deferring mortgage payments does not help in the longer term as home owners still have to pay and interest builds up.

Owners are encouraged to downgrade if they cannot afford a large flat, and if they have financial difficulties, HDB could extend another loan, he added.

This is an example of a sustainable solution, ‘making sure that their loans are smaller… and they are able to survive this crisis and build up their finances from then on’, said Mr Mah.

Source : Straits Times - 13 Dec 2008

HDB brings forward some projects to help smaller contractors

THE government could bring forward some of the $4.7 billion worth of public sector projects put on hold earlier, as well as push forward some other projects by the various ministries, Minister for National Development Mah Bow Tan said yesterday. A list of projects to be brought forward as well as their total value will be released by early next year, and could be unveiled during the Budget, he said.

‘We’re in the process of looking at these projects and seeing how we can bring forward some of these deferred projects. This is an exercise that is ongoing at the moment,’ said Mr Mah yesterday during an HDB event.

The various ministries are also looking at bringing forward some of their projects, he said.

For HDB and the Ministry of National Development (MND), programmes such as lift upgrading, Home Improvement and Neighbourhood Renewal programmes will also be considered, Mr Mah said.

Source : Business Times - 13 Dec 2008

4-room flat sold for record $495,000

Buyers drawn by sea view

NEWSPAPER vendor Goh Wee Kiat, 48, refused to budge on his price when he put his four-room Housing Board (HDB) flat up for sale six months ago despite the softening property market.

His persistence reaped dividends when the flat, in Marine Parade, was sold for a staggering $495,000 in late October.

That is $65,000 above valuation.

It was a record price paid for such a four-room flat in the area, and it came as a surprise to industry watchers, considering the quiet property market and bleak economic climate.

In September, another four-room flat in that same ‘lucky’ block located at Marine Terrace was sold for a then-high of $490,000.

Both flats are about 33 years old.

Transacted prices for four-room flats in the area have never been more than $445,000 in the last six years, property agent Samuel Lew of ERA, who brokered the deal, said.

Costlier than bigger flats

At such prices, the two flats are more expensive than some of the newer executive flats in the market.

For example, a 1,571-sq-ft executive flat in Yishun was sold for $375,000 last month, information from HDB’s website showed. That unit was about 20 years old.

In Mr Goh’s case, he bought the Marine Parade 947-sq-ft flat in 1999 for about $328,000.

He is married with two children, a daughter, 16, and a son, 13. His wife, 50, is a homemaker.

He is pocketing at least a cool $167,000 gross profit from the sale of his flat. It is not the first time he has profited from the sale of his flats. (See report, above right).

In about two months’ time, he will be saying goodbye to the superb sea view from his unit. The view was why the buyer paid such a premium for the place.

Mr Goh said in Mandarin: ‘We will be sad to leave this flat because we really love the sea view here. During the National Day celebrations, we could even see the fireworks from our unit.

‘I know that flat prices here are good because of the view and location. That was why I was quite stubborn about my price. And I dared to ask for a high price because my unit is also on a high floor.’

From his living room, you get a stunning unblocked 180-degree-view of East Coast Park, the upcoming Marina Bay Sands integrated resort and even parts of the Central Business District.

And the city centre is just a quick drive away.

Mr Goh said that the buyers, a couple in their 40s, spent most of their time looking at the seaview instead of the condition of the flat.

He said: ‘Most of the potential buyers who came to see the unit asked many questions about the place and the condition. But this couple spent more time looking at the sea than the unit.

‘The sea view was also what attracted me to this place nine years ago. I paid a premium too for the flat, about $20,000 above valuation then.’

His agent, Mr Lew, said that it was quite a quick deal.

Deal within 30 minutes

The buyers saw the place, liked the view and offered an irresistible price - all within 30 minutes, he said.

The New Paper was not able to get in touch with the buyers.

Mr Goh and his family will be moving to Melville Park, a condominium in Simei. They paid about $610,000 for the 1,160-sq-ft unit.

He said: ‘We were not in a hurry to sell the flat. But I wanted to move so that my son would be closer to his secondary school in Tampines.

‘It takes him about an hour to get to school, and I’ve received complaints from his teacher about his being late. So I thought we should move closer to his school instead.’

The executive director of HSR Property Group, Mr Eric Cheng, said that such record prices are uncommon in today’s market.

‘We usually see record prices in good markets, where buyers try to outbid each other and are willing to pay higher for some units,’ he added.

But Mr Cheng explained that Marine Parade is a niche and popular estate because some people appreciate the value and potential of that area.

He added: ‘Some of these flats have that strong X-factor because of the location, potential MRT station coming up and the sea view.

‘These buyers are willing to pay a forward price, where they pay a premium, because they think the price of the flat will appreciate in the future.’

Mr Goh’s upgrading profits

Bought three-room flat in Marine Parade in 1979

Price then: $45,000

Sold in 1999: $215,000

Gross profit: $170,000

Bought four-room flat in Marine Parade in 1999

Price then: $328,000

Sold this year: $495,000

Gross profit: $167,000

Source : The New Paper - 12 Dec 2008

Property investment sales slow to a trickle

Players wary of big bang deals amid weaker sentiment, tighter financing

THE weak property market sentiment and tight financing have combined to compress the total investment sales of Singapore real estate to just $17.8 billion, year-to-date. This is a third of the record $54 billion achieved for the whole of last year, according to CB Richard Ellis data.

Just $290 million of investment sales have taken place in Q4 this year (up to Dec 9).

Investment sales are a gauge of developers’ and investors’ medium- to long-term confidence in the property sector.

CBRE defines such deals as transactions with a value of at least $5 million, comprising government and private sales of land and buildings (both strata and en bloc). It also includes change of ownership of real estate via share sales.

Market watchers are not upbeat about the investment sales climate in the near future. CBRE forecasts the tally for next year could come in at a modest $5-10 billion, a level last seen in 2004.

CBRE executive director Jeremy Lake says: ‘With market uncertainty and economic risks appearing to be on the downside, many investors will remain on the sidelines of the property market, waiting for signs of price stabilisation before investing. With the global economy likely to enter a protracted downturn on the back of the deepening financial crisis, transaction volumes in property are expected to remain low over the next few quarters.’

Agreeing, DTZ senior director Shaun Poh says: ‘I would not be surprised if we don’t see any major transactions for the next three to six months. Potential investors are waiting for property prices to come down. Even property funds that have raised money can’t make acquisitions because of the difficulty of raising the debt component to pay for the purchase - despite trying to source for financing in overseas markets like Hong Kong and London in some instances.’

CBRE’s Mr Lake too notes that ‘as credit market conditions worsen and lenders further reduce their risk appetite, capital available for property investment would become even scarcer’.

‘In addition, cheap investment opportunities may arise in other asset classes, diverting capital away from property,’ he added.

The property consultancy group’s quarterly breakdown of investment sales shows that they have been sliding since Q3 last year, when a whopping $16.5 billion of deals were sealed. The performance in each quarter of this year has been lower than the corresponding periods of 2007, sliding to $290 million this quarter.

While the residential sector still accounted for the lion’s share or 35 per cent of total investment sales deals so far this year, this was lower than the 61 per cent share last year. Also, the $6.25 billion transacted value of residential investment sales year-to-date (as of Dec 9) was 81 per cent below the full-year 2007 figure.

The collective sales market was dormant as developers remained mindful of the lukewarm response to new residential launches, rising construction costs and tighter credit measures, CBRE observed. Only seven collective sales worth a total $371 million have been sealed so far this year, against the record $12.4 billion from 111 transactions in 2007.

The Good Class Bungalow (GCB) market has also slowed considerably in 2008. A total of 48 GCB transactions worth $763.7 million have been done this year, down from $1.2 billion from 90 deals in 2007.

Office investment sales of $5.4 billion so far this year are 62 per cent below the $14.3 billion for full-year 2007. Ongoing turmoil in the global economy contributed to further deterioration in business sentiment, which subsequently had an impact on the office leasing market and capital flows in the local office sector.

‘This resulted in no major en bloc office transactions in the second half of 2008. Hence, the office investment market is expected to remain quiet in the next few months,’ CBRE said.

Sizeable office investment deals in the first half of this year included One George Street ($1.7 billion or $2,600 per square foot of net lettable area), Singapore Power Building ($1.01 billion or $1,836 psf), The Atrium @ Orchard ($839.8 million or $2,249 psf), Hitachi Tower ($811 million or $2,901 psf) and 71 Robinson Road ($743.75 million or $3,125 psf).

Bucking the trend was the industrial property sector which contributed $3.32 billion of investment sales deals this year, 66 per cent higher than last year and also the best showing since 2002. About half of the tally for this year was accounted for by JTC Corporation’s $1.7 billion divestment of its industrial portfolio to a joint venture involving Mapletree Investments, Arcapita and Mapletree Industrial Fund.

Source : Business Times - 12 Dec 2008

Condo-style HDB flats losing allure

Falling prices in private home market chipping away at demand for DBSS flats

PRICEY condo-style HDB flats have not been spared in the property downturn, going by what has been left for sale at Park Central @ AMK.

While over 70 per cent of the project’s 578 units have been sold, the larger five-room units costing $600,000 to $670,000 each are still available.

These levels put the flats in the same price bracket as older condominiums, which might prompt some potential HDB buyers to turn to the private home market, where prices are falling.

Developer United Engineers announced the figures yesterday, and also said foundation works had begun at the Ang Mo Kio estate, which is being developed under the HDB’s design, build and sell scheme (DBSS). Under the scheme, public flats are designed, built and sold by private developers.

Sales at Park Central have been favourable in view of the challenging economic climate, said Mr David Liew, the managing director of the group’s integrated facility management and property development business.

Buyers include young couples, retirees and those with proceeds from collective sales, the group said.

The DBSS concept has been quite popular, but some experts fear the fall in private condo prices could leave buyers spoilt for choice.

Price is the key factor in DBSS projects as they are targeted at HDB buyers whose household income must not exceed $8,000 a month.

‘It’s a price-sensitive sector. These buyers can choose between HDB flats and lower-end condos,’ said Associate Professor Sing Tien Foo, the deputy head of the National University of Singapore’s real estate department.

‘During a downturn, the price gap between these segments will narrow, so demand (at DBSS projects) may be affected,’ he noted.

Most DBSS flats are priced at $500,000 to $700,000 each, roughly the level for executive condos, said ERA Asia Pacific associate director Eugene Lim. ‘There is already an overlap.’

For a $600,000 unit, the monthly instalment on a 30-year, 80 per cent loan is about $2,000, assuming an interest rate of 2.6 per cent.

When the property market was rising in 2006, DBSS products met the needs of buyers who could not afford private homes.

The first such project, Premiere @ Tampines, was an instant hit, drawing 5,700 applications for 616 homes in late 2006. Although it sold only 500 flats initially, long queues formed when the remaining units were released for sale.

City View @ Boon Keng received 3,500 applications for 714 flats early this year, but only 460 were sold. Nearly 90 per cent of the flats have since been taken up, including all the three-roomers.

Park Central, Singapore’s third DBSS project, garnered more than 2,300 applications. Prices average $490 to $500 per sq ft, putting the four-roomers at between $400,000 and $500,000 each.

The fourth DBSS project - Natura Loft in Bishan - saw about 680 applications for 480 flats last month. Its four-room units go for $465,000 to $586,000 each, while its five-roomers cost $600,000 to $739,000.

Once prices go above $600,000, the flats will be competing with old leasehold condos, executive condos and bigger executive flats, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

Unlike exec condos, which are initially subject to sale restrictions similar to those on public housing units, but become fully private after 10 years, a DBSS unit is just a value-added HDB flat, he said.

Indeed, demand for DBSS flats might be more severely affected than that for other segments as potential buyers have more choices, said Dr Sing.

Nevertheless, Mr Mak feels the DBSS concept is sustainable if the Government accepts lower land prices.

The problem is that most developers of DBSS sites bought them in good times.

There are two DBSS projects slated for launch in the first half of next year: one in Simei and a huge project of nearly 1,200 units in Toa Payoh.

Source : Straits Times - 12 Dec 2008

Freight Links sues Reit over failed property deal

FREIGHT Links Express Holdings announced yesterday that it has commenced legal action against a private real estate investment trust, AMP Capital Business Space Reit, for not going through with the proposed purchase of an investment property at 30/32 Tuas Avenue 8.

The property is owned by Freight Links’ subsidiary Freight Links Fabpark (FLF). Freight Links said yesterday that the put and call option agreement for the proposed transaction was made in December 2007 between FLF and DB International Trust (Singapore), acting as the trustee of AMP.

‘The company wishes to announce that it has received a notice from the purchaser to rescind the agreement. The company rejects the steps taken by the purchaser and has commenced legal action in the High Court of Singapore to pursue its legal remedies in this matter,’ Freight Links said, adding: ‘The company will update shareholders on the developments of this matter.’

When Freight Links announced the proposed transaction last year, it said the sale price was $20.8 million, against book value of about $13 million.

Separately, Freight Links said that the acquisition of a 60 per cent stake in Hong Kong-based Citic Logistics (International) Company through its wholly owned subsidiary, Freight Links Capital has yet to take place, pending registration of the transfer of equity interest and changes to the operating licence.

If the transfer of share equity is not completed, Freight Links has the right to rescind the agreement, it said.

This comes shortly after Freight Links announced in early December that its Australian subsidiary had decided not to go through with the acquisition of DB2 Realty due to the ‘weak property market and tightening of credit facilities by the banks’.

Freight Links yesterday announced a 25.3 per cent year-on-year increase in net profit to $1.17 million for the second quarter ended Oct 31, 2008, while revenue inched 2.7 per cent up to $36.93 million.

Earnings per share for the quarter rose from 0.049 cents in the previous corresponding quarter to 0.055 cents in Q209.

Revenue from freight forwarding as well as other logistics fell by 4 per cent and 21.1 per cent respectively, as a result of the global economic slowdown.

However, its warehousing and logistics business registered a growth of 17.5 per cent while chemical storage and logistics was up by 20 per cent.

Foreign exchange gains on a stronger yuan contributed to a 6.5 per cent increase in other income to $1.2 million.

Half-year profit came in 24.5 per cent higher at $3.7 million. Revenue rose 7.9 per cent to $74.69 million.

Commenting on the outlook for the next 12 months, the group said that freight and warehouse rates are likely to soften and occupancy rates are expected to decline.

Source : Business Times - 12 Dec 2008

Construction industry in better shape now

THE Singapore Contractors Association refers to the article, ‘Construction firms face ‘collapse risk” (Nov 28).

The association does not agree with the interpretation of data provided by DP Information Group and the statement by DP managing director Chen Yew Nah. The banks enjoy a good working relationship with construction firms, and have supported construction firms with credit facilities for their projects.

The data provided by DP cannot independently conclude the financial health of construction firms or be used to summarily predict that these are warning signs.

Historically, the firms, especially smaller ones, are mostly self-financing and use short-term credit sparingly. Where required, banks usually provide credit facilities such as overdrafts, bonds, letters of credit and project financing to construction firms. Typically, project financing is at only 60 to 80 per cent, against contractor claims or certification, as developers are required to pay contractors on a maximum 56-day term. If the developer pays the contractor on a shorter payment term, there may not be any financing requirements.

In this global financial downturn, no one is spared. It is only the degree that varies. The construction industry has gone through many cycles and has come out stronger each time. Construction firms that survived the last downturn in the industry are in better shape moving forward.

The industry has improved and has put in place measures like the Security of Payment Act which helps stakeholders secure progressive payment for work done. Public-sector agencies use financial ratings to evaluate the financial health of the contractors participating in their projects.

The whole system is reinforced by the fact that developers are cautious in their award of projects to construction firms, and award criteria, besides tender price, include performance record in past completed projects, workplace safety and health and environmental record, manpower and financial records.

Simon Lee
Executive Director
Singapore Contractors Association

Source : Straits Times - 12 Dec 2008

Shelf life of Pasir Panjang Wholesale Centre in question

FOR 25 years, it has been Singapore’s main wholesale distribution centre for vegetables, fruits and dried food products. In recent years, it also made the headlines as a chikungunya fever cluster, the crime scene of the murder of Huang Na in 2004 and a quarantine area during the Sars outbreak in 2003.

Now, the days of the Pasir Panjang Wholesale Centre (PPWC) may be numbered.

The Housing and Development Board (HDB), which owns and manages the centre, wants to carry out a study on the viability of the centre. Among the areas the HDB wants studied are: Business trends within the next five to 10 years for the centre, the impact of direct imports and whether there is still a need to have a centralised wholesale market.

From the analysis of the information gathered, the HDB hopes to better assess the requirements of the centre’s tenants in planning and redevelopment proposals, either for the existing or a new alternative site.

Wholesalers told Today that the relocation had been discussed recently. In March, the Pasir Panjang Market Vegetable and Fruits Dealers Association held preliminary discussions with the HDB as the lease of the centre was coming to an end. As plans were still being finalised, most of the stalls’ leases were renewed for a further three years.

“We occupy a large area which could be redeveloped for other uses,” said vegetable seller Law Song Nam, who has been at PPWC since 1983.

PPWC, sitting next to the Pasir Panjang Port Terminal and occupying an area equivalent to 20 football fields, is home to about 1,400 units of stalls, shops, cold rooms and offices.

According to HDB’s tender document, the centre “faces the threat of being bypassed as a wholesale centre as there is an increasing trend for businesses to import directly from overseas suppliers”.

“This challenge, together with the ageing building conditions and other dynamic business changes, poses uncertainty to the future for PPWC,” it added.

Despite these challenges, wholesalers feel that they still have a role to play at PPWC. Thygrace Marketing’s owner Philip Seow who has been in the wholesale trade for 23 years said that besides market stalls, PPWC wholesalers also supply fruits and vegetables to food manufacturing companies, hotels and restaurants.

“Having more players at a common market means greater variety and more competitive pricing for customers,” he added.

Also, wholesalers pointed out that only large retailers such as supermarket chains could reap economies of scale by directly importing produce.

“Small retailers cannot buy 50 boxes at one go for perishables,” said Zenxin Agri-Organic Food’s Mr Tai Seng Yee.

PPWC also caters to retail shoppers. At the centre yesterday, Today spotted a few shoppers looking for bargains.

Source : Today - 12 Dec 2008

Laguna Park condo looking to get majority vote to push through en bloc sale

Laguna Park condominium along Marine Parade Road could be up for collective sale. It’s not yet a done deal but about 77 per cent of tenants there have agreed to it.

The sales committee could expect a few more signatures in the coming days to cross the 80 per cent trigger which will move the en bloc process forward.

Laguna Park has already engaged an agent to market the 99-year leasehold property, which has 528 units.

Channel NewsAsia understands the asking price is about S$1.2 billion.

Each owner stands to pocket between S$1.8 million and S$2.1 million if the deal goes through.

It works to about S$633 per square foot of gross floor area.

Nicholas Mak, director, Consultancy and Research, Knight Frank, said: “I think the figure of S$1.2 billion was derived somewhere in 2007 when the en bloc sale market was still very buoyant. In today’s market, the owners will probably have to lower their expectation, easily by 20 per cent or so.”

The en bloc market has slowed significantly.

Last year, there were 104 successful collective sales transactions. This year, it’s just seven and the trend will likely continue next year.

Given the sheer size of the development, the bidder for Laguna Park will likely need several partners to join in as well.

Laguna Park condominium sits on 667,000 square feet of land with a plot ratio of 2.8.

Analysts said that based on the plot ratio and land area of Laguna Park, a developer will be able to build between 1,200 and 1,500 units of new homes there. That could pose a challenge as the developer may have to phase out its marketing efforts over a year incurring a fair amount of cost in the process.

Mr Mak added: “Another challenge facing the en bloc market is actually difficulty in raising financing from the banks because the banks are in a tight situation and they would also be looking at any sort of massive borrowing very conservatively.”

Observers said given the quiet market, developers could have little appetite for collective sales.

But some may still grab a good bargain if the price is right.

Source : Channel NewsAsia - 11 Dec 2008

More than 70% of Park Central @ AMK sold

Mainboard-listed United Engineers has sold more than 70 per cent of its first public housing project, Park Central @ AMK, which is being developed by its subsidiary Greatearth Developments.

All four-bedroom and penthouse units are sold out.

The developer received more than 2,300 applications or four times the number of units available for sale when submissions closed in August.

The 578-unit estate is the third Design, Build and Sell Scheme (DBSS) project in Singapore.

Each unit will come with condominium-style fittings and finishes, including built-in wardrobes, kitchen cabinets and air-conditioning systems.

Construction is expected to begin in the first quarter of next year.

Source : Channel NewsAsia - 11 Dec 2008

S’pore expected to be first Southeast Asian country to recover from crisis

Singapore may be the worse-hit Southeast Asian country in the current economic crisis, but it could well be the first economy in the region to rebound, according to economic forecaster Thierry Apoteker.

A jump in US consumer confidence in November is just one of the indicators that could signal signs of a global recovery next year. Consumer confidence index rose in November to 44.9, up from 38.8 in October which was the lowest on record.

Coupled with signs of liquidity tensions loosening up, it is suggested that banks may start lending to corporations soon which could put the US on a recovery path.

“We have the initial tentative signs that this is taking place. The spreads between money market rates and the fed rates have declined substantially. Not yet to the normal zone but substantial, compared to the rates of 300 basis points that we have seen after the Lehman collapse,” said Dr Apoteker.

Increased spending in the US and Eurozone would translate to an increase in demand for exports from Asia.

And while global trade numbers may pick up, Dr Apoteker expects a slower growth rate of between 4 and 5 per cent, as opposed to the almost 10 per cent growth in 2006.

He added that he expects the US and Eurozone to see signs of recovery in the second quarter of 2009, with Asia following suit in the third quarter.

And although Singapore will be hit by slowing trade, its strong asset base and robust financial sector will boost its economic recovery.

The managing director of TAC said: “Clearly, trade transmission is incredibly strong for Singapore because you are a trading nation by construction, so in that sense there is nothing you can do. There is no policy management that can avoid when the whole demand in the world is collapsing. As a major exporting nation, you are very bluntly, brutally affected, but symmetrically, you will be the first one to come out of it.

“What’s very interesting is that the other transmission mechanism – both on the asset market and the financing mechanism in Singapore – is pretty strong, much stronger than most.

“We’ve done an exercise of mapping the banking systems of all the Asian countries to look at where the strengths and the weaknesses are, and you might be interested to know it is rated 1 to 64 in binary ranking.

“Singapore is the only country, apart from Japan and Korea, to have a number one ranking. The financial background is very strong, so as a trading outpost you will be very badly affected, but you will be the first to recover after that.”

But a recovery in Asia could also depend on what happens in China.

“The very critical question to what happens in Asia is what happens in China because even if we have a mild recovery in the West, a catastrophe in China will impact the rest of Asia very negatively due to the growing integration of Asia and China,” said Dr Apoteker.

He warned that if Chinese companies are unable to export surplus stocks financed on credit, the losses they chalk up could impact their trade with other Asian economies.

But for the moment, the decline in Chinese exports is expected to be short-lived, with the country’s growth rate still expected to come in at 7.5 per cent next year.

Source : Channel NewsAsia - 11 Dec 2008

Make hay while rivals are debt ridden, investors urged

Swift global price slide creates slew of opportunities

Equity-rich investors have enough firepower to revive the world’s catatonic property market but only if they stop hiding behind forecasts and make the most of their temporary advantage over debt-driven peers, experts said.

Delegates at Thomson Reuters’ annual Global Property Outlook event on Tuesday were urged to grab the slew of opportunities already created by a swift worldwide property price correction and in doing so, take more control over the length and depth of the downturn.

‘The best way to predict the future is to reinvent it,’ said Joe Valente, head of portfolio management and strategy at Allianz Real Estate, using an expression first used by technology mogul Alan Kay.

‘The old adage that investors are just a bunch of sheep is not too far wrong… but there are also a whole series of people who take what’s out there in the landscape and refuse to believe it…to them the future is something you actually create.’ Mr Valente said property prices would continue to fall for at least another year but long-term investors like pension funds and insurers should consider buying now if they want to fully exploit a repricing that has so far slashed around a third off commercial real estate values in Britain, the market broadly seen as most advanced in its correction.

He said global real estate markets were always prone to swings in sentiment which led to irrational pricing and that the current bout would continue to unwind over 2009 and 2010.

‘At each point in a market cycle, there’s a new emotion and with each new emotion, pricing moves. London is somewhere between despondency and depression…and should be the first out of the recession,’ Mr Valente said, adding he felt Paris and Germany were still in denial.

Tim Bellman, global head of research and strategy at ING Real Estate, told delegates he felt the global property markets should touch bottom in 2009 and there was potential for positive growth in 2011 and 2012. ‘By 2010, the capital value decline by and large should be behind us.’

‘Around the world, we would expect retail and industrial property to perform slightly better and recover slightly sooner,’ he added. He flagged continental Europe and parts of central and Eastern Europe as the more defensive places for investors to park cash in the near term, largely because of a tight supply pipeline that would promote strong rental growth when economies bounced back.

He advised ‘a mild, tactical underweight to the Americas’ and said Asian markets had greater downside risks because real estate prices in parts of the continent tended to ‘double and halve at the drop of a hat, particularly in Hong Kong and Singapore.’

Mr Bellman encouraged investors hunting for buy signals to remember traditional methods of pricing real estate and choose assets offering a healthy risk premium of between 250-400 basis points over the local risk free rate. By 2010, Mr Bellman said Britain, France and Japan - followed slightly later by Germany, Canada and the Netherlands - would have experienced corrections sharp enough to create an appealing risk premium between property yields and government bonds.

But Mr Bellman said equity investors had little time to waste in snapping up the highest quality distressed assets before a recovery gathered momentum.

Source : Business Times - 11 Dec 2008

Property investments seen lagging others in 2009

Real estate professionals think that the performance of property investments will lag behind other asset classes next year, a survey conducted at the Thomson Reuters’ Global Property Outlook conference showed on Tuesday.

In a poll of around 150 market observers, analysts and investors, just 12 per cent of respondents said that they felt property would perform more strongly than stocks, bonds and alternative investments next year.

Just over a third of those surveyed said that bonds would be the wisest investment in 2009, while 39 per cent indicated a preference for stocks.

The findings show how confidence in commercial property investment has plunged since the credit crunch and the climax of a global real estate boom collided last year.

An acute shortage of debt has sidelined all but a select few property buyers, and has helped to cut average commercial real estate values by up to a third in the hardest-hit markets of Britain, Ireland and Spain.

Despite the speed of the correction, which some market observers claim has already surpassed that seen in the early 1990s, around two-thirds of those surveyed said that they believed it would be more than a year before market conditions showed any signs of improvement.

More than half said that they expected to see total property returns - a combination of rental income and capital value growth - of minus 10 per cent and worse in the UK, eurozone and the US next year.

Respondents were only slightly more optimistic about Asia, where 48 per cent predicted that total returns of minus 10 per cent or worse in mature markets such as Japan and Hong Kong versus 41 per cent for emerging markets such as China and India.

Taking an average from across all four geographies, less than 16 per cent of those polled believed that real estate would generate a total return of zero or better in 2009.

Source : Business Times - 11 Dec 2008

High-end projects take a knock, suburban condos edge higher

High-end prices fall 12-28%, while mass market projects climb 1-7%: study

Fresh data on home transactions compiled by Credo Real Estate confirms that prices of high-end housing projects have fared far worse than suburban condo prices between second-half 2007 and second-half 2008.

Credo’s study shows that average prices of high-end projects generally posted declines, ranging from 12 to 28 per cent during the period. In contrast, the average prices of units in selected projects in the mass market generally rose 1 to 7 per cent.

Market watchers note that high-end residential property prices climbed much earlier during the bull-cycle and the price gains recorded were also much steeper. In contrast, mass-market home prices have lagged. ‘So what goes up faster during the bull-run also tends to fall faster during the downturn; its physics,’ as one seasoned residential property consultant put it.

Credo Real Estate managing director Karamjit Singh feels that high-end condo prices tend to be more elastic in relation to property cycles compared with mass-market projects.

This is partly due to differing buyer profiles in the two segments. ‘Suburban condo buyers usually make their purchases for their own use and less as a tool for investment or speculation, unlike buyers in the high-end segment,’ Mr Singh says.

‘Prices are not a perfect science at the high-end due to the profile of the rich and foreign buyers who make up a good proportion of demand. They’re less price sensitive and the products are less homogeneous; if there’s something they like, even if it is priced at a premium, they’re quite happy to buy it,’ Mr Singh says.

Agreeing, another property consultant says that during the downward slide, ‘investors, if they need to keep themselves liquid, will exit. In many cases, they may still make a profit even if price drops, as they entered the market early. But even if they need to cut losses, they will. Suburban home buyers, however, are likely to have purchased for their own occupation or upgrading, so they can’t sell so readily.’

Credo’s Mr Singh points out that the dramatic volatility in high-end prices over the past three years has also been shaped by the large number of prime district en bloc sales in 2006-07. This led to a chunk of the physical stock being withdrawn and driving high-end prices up astronomically. On the flip side, this global crisis in 2007-08 has actually impacted the rich much more than the man in the street, thereby dampening demand for high-end homes.

Credo’s sample looked at Four Seasons Park condo, Ardmore Park and Cairnhill Crest in the Orchard Road belt, which showed average transacted prices fell 27, 12 and 17 per cent respectively in H2 2008 over H2 2007.

At Sentosa Cove, Credo’s sample basket comprised The Azure, The Berth and The Oceanfront condos. The declines were 22 per cent for The Azure and 28 per cent for The Oceanfront. The sole unit transacted this half for The Berth was at $1,590 psf, down 5 per cent from the $1,679 psf average price achieved for 20 deals in H2 last year.

In the city centre, the average price at Marina Bay Residences fell 17 per cent to $1,985 psf in H2 2008 with five deals done. At The Sail @ Marina Bay, the average price slipped 14 per cent to $1,811 psf, with 42 deals in H2 2008.

In the mid-priced segment - defined as the low-$1,000 psf price range - One Amber, Sky@Eleven and The Tessarina - saw average transacted prices fall 19, 21 and 17 per cent respectively.

However, suburban Singapore demonstrated greater price resilience. Average transacted prices of eight of nine projects studied in the west, east and north posted 1 to 7 per cent gains in H2 2008 over H2 2007.

Credo’s analysed caveats captured by Urban Redevelopment Authority’s Realis system up to early November. ‘We selected projects we felt symbolise their respective location-based categories, are large enough with sufficient transactions relative to the project size to reflect a clear trend, and were ideally not affected by en bloc sales initiatives last year as that could distort price patterns,’ Mr Singh explains.

Property analysts generally expect the trend of high-end home prices being less resilient than mass-market prices to continue in 2009.

However, DTZ executive director Ong Choon Fah argues that the decline in the high-end segment has to slow down at some stage. ‘There has to be a price gap between the mass-market and high-end; otherwise, we’ll start seeing a trade-off and demand may shift to the upper segments under market dynamics,’ Mrs Ong says.

Overall current thin private residential transaction volume is being caused by a ‘price mismatch between unwilling sellers and unwilling buyers’ and the stalemate is expected to last ‘until repricing takes place’, Mrs Ong says.

‘The uncertainty has to go away first. Companies will make a lot of decisions after the Singapore Budget in January.’

‘Hopefully after that, some of the dust will settle and things will get clearer.’

Agreeing, the seasoned property agent said: ‘It’s easier to match buyers and sellers when things are more stable and we should start to see volumes improving from mid-next year.’

Source : Business Times - 11 Dec 2008

Prime office rentals coming down to earth

Q4 sees them crash by up to 20% in some cases as tenants call the shots

Landlords may be frowning but those looking for office space have reason to cheer. After climbing steadily for nearly four years, average Grade A and prime office rental values in Singapore are estimated to have slipped about 20 per cent in the fourth quarter of this year over the preceding quarter, according to latest figures by CB Richard Ellis.

Grade A covers the best office space within CBRE’s prime office space basket.

The Q4 decline means that for the whole of this year, the estimated fall in rentals is around 13 per cent for Grade A space and 14 per cent for prime space. ‘Modest rental growth featured in the early part of 2008, but the market had peaked by Q3 2008. It was only in Q4 that the sheer depth of the financial crisis pitched the office market into decline,’ CBRE executive director Moray Armstrong said.

‘We expect further downward pressure on rents through 2009,’ he added without elaborating.

The firm estimates the average monthly Grade A office rental value at the end of this year at about $15 per square foot, down from $18.80 psf in Q3. The average prime office rental value in Q4 is estimated to have eased to $12.90 psf from $16.10 psf in Q3. The Q3 figures were unchanged from the preceding three months.

The latest figures confirm that the office upcycle which had seen rents galloping over the past two years has ended.

Office rents nearly doubled last year, rising 96 per cent for Grade A category and 92 per cent for prime space. That was on top of respective gains of 53 and 50 per cent posted in 2006.

Putting the latest rental slide in perspective, Mr Armstrong said: ‘The extraordinary pace of rental growth experienced through the past three years was clearly not sustainable and would have been arrested by the increased volume of new supply in the pipeline. We had already anticipated a supply-led softening in the market from 2010 onwards.

‘The rapid deterioration in the economy and loss of business confidence have accelerated the process as office demand has dried up.’

Tenant retention is the top priority for existing landlords. Next year is likely to be a market where lease renewals outnumber relocations, Mr Armstrong says.

Cushman & Wakefield Singapore managing director Donald Han predicts Grade A office rents will weaken a further 10-15 per cent in first-half 2009 from current levels. ‘Landlords are more keen to provide existing tenants with an incentive to retain them, in terms of rental discounts during lease renewal negotiations; because if they leave, the landlord will suffer downtime until it finds a replacement tenant that will also have to be given fitting-out time. This means loss of rental income.’

The office rental slide reflects a reversal of the market dynamics to a more demand-led rather than a supply-led model, Mr Han argues. ‘Office rents had surged because of a shortage of existing office stock; now rents are softening because of weakening demand,’ he explains.

Another seasoned market watcher said while a 20 per cent drop in Q4 rentals seems alarming, the absolute drop of about $3.20 to $3.80 psf in monthly rents is not so, given that ‘rents were at artificially high levels’ on the back of shortage of existing Grade A and prime space.

Grade A vacancy rates had been sub-1 per cent for almost two years before rising to 1.2 per cent in Q3. Some analysts estimate this will rise further to over 2 per cent by end-2008.

CBRE does not expect to see significant changes in vacancy levels until sizeable new office developments start to be completed from 2010.

Tenants, meanwhile, are looking to contain costs during the economic downturn, Cushman’s Mr Han observes.

CBRE’s Mr Armstrong says: ‘Corporates will be under severe pressure to contain and indeed reduce costs. (But) the reality in the Singapore office market is that many tenants with renewals and rent reviews next year under leases committed three to four years ago will still be faced with rents that could potentially increase by 75 per cent to 150 per cent. We expect some fairly robust negotiations.’

He also predicts an increase in subletting and surrenders of space by tenants if job attrition in the key financial services sector spirals.

‘Take-up in new developments will inevitably be sluggish until demand improves and tenants are able to secure capital expenditure approvals to relocate. It will be highly competitive,’ Mr Armstrong says.

Source : Business Times - 11 Dec 2008

Whiff of Hollywood to touch Buona Vista

Singapore aims big with billion-dollar media hub at one-north

Locals could be rubbing shoulders with movie stars and Hollywood bigwigs at the one-north cluster in the near future.

And films like box-office hit 300, part of a new wave of films that rely extensively on state-of-the-art digital movie studios, could be spawned from studios coming up in a new 19 hectare Buona Vista enclave, called Mediapolis@one-north.

Singapore’s new media hub is a billion-dollar mega project that could see more than a dozen buildings sprawled across a lush landscape by 2020.

Announcing Mediapolis at the Asia Television Forum trade show yesterday, Minister for Information, Communications and the Arts Lee Boon Yang said the hub will be a ‘crucible’ for creating and distributing content from Singapore to the world.

Mediapolis will sit on land roughly the size of 19 football fields adjacent to Portsdown Avenue, a plot now partly occupied by the Ayer Rajah military camp.

It will ‘have facilities not found elsewhere in Singapore and become the ideal home for international and local media companies, media schools and R&D (research and development) firms’, the minister said.

At yesterday’s media briefing, Chan Yeng Kit, chairman of the Mediapolis steering committee, said that Mediapolis is proceeding despite the financial downturn because demand for co-production expertise and facilities remains robust.

Mr Chan, who is also the permanent secretary of the Ministry of Information, Communications and the Arts (Mica), added: ‘In some ways, the downturn does provide a window of opportunity for us, with construction costs coming down. By prepping the ground now and strengthening the whole ecosystem for media with scaled-up infrastructure and greater depth, we will be ready to catch the tide and gear up for the next stage of growth when recovery comes.’

The media industry is ‘fairly recession-proof’, he noted, because consumers will still continue to spend on entertainment in a downturn.

Four government agencies will jointly steer Mediapolis. They are the Media Development Authority (MDA), JTC Corporation, the Infocomm Development Authority of Singapore (IDA) and the Economic Development Board (EDB).

Commercial developers are expected to undertake most of the development at the park, alongside JTC. The total gross floor area will come to around 400,000 square metres, according to a JTC spokesman.

Construction will kick off in the first quarter of next year on a 1.2 hectare plot of land. Local media production firm Infinite Frameworks will be Mediapolis’ first developer.

The firm yesterday announced that it will be investing between $80 million and $120 million to build Singapore’s first purpose-built soundstage complexes. These are hanger- like studios that can be fitted with movie sets and so-called green screens, which are used by studios to create the illusion of on-location shooting.

When completed by 2020, Mediapolis will have movie studios, digital production and broadcast facilities, research labs, games and animation studios, offices, service apartments and high-tech hotels.

There will also be a sprawling park that can host outdoor movie screenings and provide location settings for film companies.

According to JTC assistant chief executive Philip Su, Mediapolis could swell by another 18 hectares in a future second-phase development after 2020. This will likely be sited south of the current 19 hectare plot.

Mediapolis is expected to stoke an already bullish Singapore media industry. According to a joint statement, between 2000 and 2005, this industry reported an annual turnover of US$13.4 billion in revenue, contributing 4.5 per cent, or US$3.6 billion, to Singapore’s gross domestic product and employing 53,500 people.

There has also been an influx of overseas projects, with the upcoming shoot of Jan de Bont’s Point Break 2 here next year an eye-catching example. A number of global media giants such as Lucasfilm, Linden Lab, EA, Ubisoft and Rainbow SpA have also set up facilities in Singapore.

Source : Business Times - 11 Dec 2008

Govt suspends industrial sites on Confirmed List

For H1 next year, Reserve List will have 8 sites with a total of 15 hectares

THE Ministry of Trade and Industry (MTI) yesterday said that it would be suspending the Confirmed List for its industrial government land sales (GLS) programme for the first half of 2009.

To continue to meet potential demand for industrial land, sites will be made available on the Reserve List under the industrial GLS programme, MTI said.

For the first half of 2009, there is a total of eight sites under the Reserve List with a total site area of about 15 hectares.

Under the reserve list system, a site is only offered for public tender if the government receives an application from a developer who commits to bid for the site at a price which is deemed acceptable.

MTI’s announcement follows an October one by the Ministry of National Development (MND), which also said that it will suspend the sale of commercial, residential and hotel sites from the Confirmed List for the first half of next year.

In the light of this, MTI’s announcement yesterday was ‘not unexpected’, said Nicholas Mak, director of research and consultancy at Knight Frank.

‘Looking at some of the recent government land sales, the bids that have been received have been quite low,’ said Mr Mak. ‘So there might have been feedback that the Reserve List system would be better.’

Under the second half of 2008 industrial GLS programme, MTI placed a site on Tampines Industrial Avenue 4 on the Confirmed List. But in view of the current uncertainties, MTI will now transfer the site to the Reserve List, it said.

MTI also said that in October 2008, two Reserve List sites at Kallang Pudding Road and Ubi Avenue 4 were sold.

To continue to meet potential demand for industrial land, MTI would introduce two new sites - at Kaki Bukit Road 2 and at Woodlands Industrial Park E5/Woodlands Avenue 4 - to the Reserve List.

In addition to three sites mentioned above, another five sites are being carried over from the second half of 2008 Reserve List - making up a total of eight sites in all.

Source : Business Times - 11 Dec 2008

Bigger slice of a smaller pie?

Proportion of buyers with an HDB address looks set to increase

WITH foreign buyers pulling out of Singapore’s property market on the back of deteriorating global economic conditions, Housing Development Board upgraders are forming an increasingly important group of buyers here.

According to a recent DTZ analysis of private property caveats lodged in the third quarter, purchasers with HDB addresses make up 1,718 - or 41 per cent - of the total number of transactions. This was the highest proportion for HDB upgraders since the third quarter of 2004. In the second quarter of this year, they made up 34 per cent of the market.

In absolute terms, the number of HDB upgraders also increased about 34 per cent from the previous quarter. Based on past experience, the proportion of HDB upgraders buying private property looks set to rise.

DTZ data show that their share of purchases was as high as 81 per cent in the second quarter of 2002, in the aftermath of Sept 11, 2001, terrorist attacks on New York. In the fourth quarter of 1998 after the Asian Financial Crisis, they made up 68 per cent of the market.

Most analysts attribute the trend to two factors: One is the narrowing gap between public and private housing prices with the HDB resale market still buoyant even as prices for private property soften.

The second is that the waning interest from foreign buyers leaves local buyers making up the bulk of remaining transactions.

“It is more affordable for HDB flat owners to upgrade to private housing. Singles who are getting married would also find the falling private home prices more affordable and may decide to buy a private home instead of HDB flat first,” said DTZ senior director (research) Ms Chua Chor Hoon.

For Jones Lang LaSalle head of research (South-east Asia) Chua Yang Liang, any further increase in the share of HDB upgraders will be due more to the drop in the number of foreign buyers, rather than an absolute increase in the number of HDB upgraders.

“This current economic downturn is led more by external forces, so foreigners are more likely to delay their spending,” he said, adding that there are now other countries with attractive property values, such as Australia and Japan, competing with Singapore.

Ms Chua believes developers would take into account pricing and location in upcoming launches to cater to this group of “price sensitive” buyers. “Developers are more likely to launch projects in suburban areas or projects with smaller units so that the absolute amount is affordable,” she said.

However, others believe there are likely to be better bargains in the secondary market, where individuals may be under pressure to offload their properties in a downturn.

Noting that prices for mass-market condos now average between $650 to $750 per square foot in suburban locations, ERA Asia-Pacific’s assistant vice-president Eugene Lim said that developers, especially those with the financial strength, will probably not cut prices until after the 2009 Budget at the end of January next year.

Source : Today - 11 Dec 2008

Govt slams brakes on industrial land supply

THE Government has moved to apply the brakes on the industrial land sales programme.

Following the move to curb supply of land for private homes and commercial space, the Ministry of Trade and Industry (MTI) said it would move the remaining site - at Tampines Industrial Ave 4 - on the confirmed list for this year to the reserve list, and suspend its confirmed list of sites for sale in the first half of next year.

“It’s facing reality and addressing the issues that are bound to surface,” said Credo Real Estate managing director Karamjit Singh.

“It’s the right thing to do, demand for investments like this has waned because of uncertainties in the market.”

Sites on the reserve list are triggered for tender only when a buyer applies to submit a minimum bid that is deemed acceptable to the Government. Sites on the confirmed list are sold at set times, without need for any trigger.

Analysts said that the latest move was expected, even as the industrial property sector has weathered the current economic and financial unrest better than its residential and commercial cousins.

“The industrial sector, especially in the high-tech industrial space, has been least affected by the turmoil,” Cushman and Wakefield managing director Donald Han. But it’s still tied to economic growth, “and companies are feeling the stress”.

While certain business parks have seen some interest in recent months as companies moved parts of their operations from the central business district to cheaper locations, there is a limit to this buffer.

“Developers usually take 14 to 18 months to construct an industrial building, and though it is quite a long period, they’re unwilling to take up the sites because of difficulties in pricing,” said Mr Han.

Although the softening demand for industrial land is expected to continue, MTI is adding two new sites at Kaki Bukit Road 2 and Woodlands Industrial Park E5 to the six on the reserve list, including Tampines Industrial site. The eight sites, with a total site area of 15 hectares, will be carried forward to the first half of next year.

In October, two sites from the reserve list, one in Kallang Pudding and another in Ubi Avenue 4, were sold. But the low price the Kallang site fetched indicates the weakening demand for industrial space, said analysts.

When asked if these reserve sites are likely to be triggered for tender, Mr Han added that a clearer picture is likely to emerge in the second half of next year.

“Now, it’s not about whether the site is attractive or not. Construction costs are still high and bank finance is still tight. The development of these sites will play second fiddle on companies’ to-do lists,” he said.

Source : Today - 11 Dec 2008

Australia’s home loan approvals are up

Australian home-loan approvals increased in October for the first time in nine months after the central bank slashed borrowing costs to encourage property buyers back into the market.

The number of loans granted to build or buy homes and apartments rose 1.3 per cent to 48,299 from September, when they slid a revised 2.4 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 21 economists surveyed by Bloomberg News was for a one per cent gain.

Households are being aided by the biggest round of interest rate cuts since the economy was last in a recession in 1991, and by expanded government grants for first-home buyers. House prices fell in the third quarter by the most since 1978 and the building industry shrank in November for a ninth month.

‘The number of first-home buyers should increase, in part owing to the expanded first-home owners’ grant,’ Stephen Walters, chief economist at JPMorgan Chase & Co in Sydney, said ahead of the report yesterday.

To restore consumer and business confidence battered by tumbling stock markets, central bank governor Glenn Stevens cut the overnight cash rate target by three percentage points since early September to a six-year low of 4.25 per cent.

Consumer sentiment gained 7.5 per cent in December, the second straight increase, Westpac Banking Corp reported yesterday.

The reduction in borrowing costs will provide ’significant’ support for the economy in 2009 amid the global slowdown, Mr Stevens said on Tuesday. ‘There is scope to do more with macroeconomic policy settings if needed,’ he added.

The Reserve Bank of Australia will reduce the rate by a further half-point when the board next meets on Feb 3, according to 16 of 21 economists surveyed by Bloomberg News.

Prime Minister Kevin Rudd, trying to stop Australia’s economy from slipping into its first recession in 17 years, tripled in October the government’s A$21,000 (S$20,829) grant to first-home buyers of newly built dwellings.

Prior to yesterday’s report, most indicators of Australia’s housing market showed that demand for homes and finance have slowed. Home-building approvals dropped in October to the lowest level since 2001, a report showed on Dec 4.

The total value of lending rose 1.9 per cent to A$17.4 billion in October, yesterday’s report showed.

Source : Business Times - 11 Dec 2008

Property derivatives market seen growing

The global property derivatives market is likely to keep growing despite the financial crisis, as fund managers and property firms seek to better manage their real estate risks, observers said on Tuesday.

The fledgling market, which offers over-the-counter trading mainly in swaps based on property indexes, could grow by about 7 per cent year-on-year to £7.5 billion (S$16.7 billion) by end-2008, said Rawle Parris, head of property derivatives at ING Wholesale Banking.

‘It’s modest growth, but still quite good considering what’s happening in other real estate markets,’ he said.

Plans to set up exchanges as clearing houses for property derivatives could help to promote the market as investors hunt for cheaper and more efficient ways to adjust their real estate exposure, he added.

Use of derivatives is holding up even as the volume of direct commercial real estate investment falls, with UK direct investments down 45 per cent year-on-year to £21 billion by end-2008, estimates broker Jones Lang LaSalle.

The property derivatives market is yet to capture significant interest outside Britain however, with France, Germany, the United States, Spain and Japan seeing just a small number of trades, industry executives said.

‘It’s the wrong time to promote derivatives in the US,’ said Aviva Investors’s head of client relations for real estate Steve Felix. ‘When I talk to pension, endowment funds in the US, these guys don’t get compensated for risk and anything new to them is risk.’

But Ian Cullen, co-founding director of Investment Property Databank argued that investors will put themselves at a disadvantage without a derivatives market. ‘Real estate investors managing their positions without a deep and liquid derivatives market, when every other asset class investors are managing theirs with derivatives markets, is like fighting with one arm tied behind their backs.’

Source : Business Times - 11 Dec 2008

300 Chinese in US foray to buy houses

Three hundred cashed-up Chinese will visit the United States next month to seek bargains in the plunging American real estate market, a tour organiser said yesterday.

The itinerary will include major US cities such as New York, Los Angeles and San Francisco, said Liu Jian, chief operating officer of Soufun.com, a popular Chinese real estate portal that has arranged the trip.

‘We think that there is a need for people in China to buy houses in the United States,’ he told AFP.

‘Some people believe that there’s an opportunity for them because of the economic decline in the United States, which has made real estate prices drop.’

The state-run China Daily newspaper said that 40 per cent of those who had registered for the 10-day, 15,000 yuan (S$3,292) trip were investors seeking opportunities in the US market.

‘(They) have been following the increase in mortgage foreclosures in the US, and the decline in the real estate market,’ Mr Liu told the paper.

The other 60 per cent are looking for homes for their children, who plan to go to the United States to study, according to the report.

Local regulations limit Chinese visiting the US to taking US$50,000 a year, but some potential property buyers have gone on enough trips to accumulate sufficient funds, the paper said.

Source : Business Times - 11 Dec 2008