Luxury market to fly in 2 yrs: Wheelock CEO

Source : Business Times – 4 Jul 2009

David Lawrence is, however, bearish on Singapore office market

WHEELOCK Properties (Singapore) CEO David Lawrence is sanguine about the island’s residential market and predicts the luxury segment will be ‘doing very well within two years’.

But he is bearish on the office sector. ‘I don’t know what the policy is, but if I were running the Urban Redevelopment Authority, I would make sure I kept releasing land so that office rents are reasonable and more financial companies relocate to Singapore,’ Mr Lawrence said in a recent interview with BT. ‘So you’re not going to make money buying office buildings now,’ he quipped.

Mr Lawrence, who has a track record of astute property investments, is a chartered surveyor by training. He formerly headed Richard Ellis International in Singapore and Indonesia, and was a founding director of the company’s Thai office.

On Singapore’s residential sector, he said: ‘The mass and mid segments are doing well at the moment. Quality property is the best long-term hedge against inflation. And inflation is definitely going to come in a few years, whether you like it or not, whether governments like it or not.’

Low interest rates are also spurring home sales in the mass and mid-market segments, Mr Lawrence said. ‘The banks have woken up and started lending. They’re not being so ridiculously unrealistic about valuations. They are quite keen to lend to the lower to mid-end of the market at the moment.’

The luxury market is starting to move, but not in such a big way. ‘Sub-sale prices are going up,’ he said. ‘Although there is a bit of over-supply, actually buyers are very focused on certain developers and certain projects. A lot of the supply, people aren’t interested in really because it isn’t good investment-quality product.

‘New entrants into the market who are not developers, like the contractors, for example’, will just have to reduce their prices, he pronounced. BT understands that luxury residential developers are starting to see a trickle of sales above $3,000 per sq ft – after a hiatus of more than six months.

Another factor that is helping to draw home buyers again is ‘a lack of trust in international banks and the financial instruments they are trying to sell’, Mr Lawrence said. As well, the weaker Singapore dollar is making direct property investment attractive for overseas buyers. And there’s a shortage of investment-grade stock in all sectors.

Mr Lawrence notes there haven’t been any large distressed asset sales, due to the generally low gearing of major property companies.

Singapore’s reputation as a well-governed and safe place to live is also a strong pull for foreign buyers. It emerged as the 18th most liveable city in a recent ranking of the 25 most liveable cities by the magazine Monocle. It was the only tropical financial centre in the list, Mr Lawrence said.

On his bearish take on the office market, he said: ‘(Minister for National Development) Mah Bow Tan has managed supply and demand for the office market well in the past 10 years, but everything went up a bit crazy in the past two years and office rents got too high for the long-term development of Singapore as a financial centre.

‘The current crisis has brought rents down to a more reasonable level. My guess is the best way forward for Singapore is to have a reasonably low-cost office sector to attract financial businesses. The government has prepared a lot of infrastructure, land, ready to expand the office market, particularly in the Marina Bay area. The land should be released on a regular basis so we don’t get any more spikes in office rents.’

Grade A office rents here doubled in 2007, but have fallen about 45 per cent since peaking in Q3 last year.

A policy of keeping office rents competitive will create spin-offs for the residential sector ‘because you get more companies coming in to lease or buy’ homes, Mr Lawrence said.

As well, the opening of new offices in Singapore, with an increase in the population, will help generate more sales for retailers and ameliorate the effects of over-supply in the retail property market arising from the completion of new malls.