Development charges, which are paid to enhance or intensify the use of some sites, are headed north for residential use at the upcoming DC rate revision effective March 1, say property consultants.
They cite the increase in private home values since last year as well as aggressive land bids for residential sites at state tenders in the past six months.
On average, DC rates for landed and non-landed residential use could rise about 5 to 10 per cent. However, consultants are predicting that rates for commercial, industrial and hotel use could remain flat.
The upcoming DC rate revision will also be monitored by those trying to embark on collective sales, especially for sites whose redevelopment would involve sizeable DC payment. DC is part of total land cost to a developer. If the DC rate increases significantly and the value of the site remains constant, the developer will offer owners less for the site, explains CB Richard Ellis executive director Jeremy Lake.
‘The problem today is that there’s already a price gap between owners’ and developers’ expectations. This will be compounded if there’s a significant hike in DC rates, in the case of sites with a significant DC component. The current environment (of rising private residential price expectations) is not conducive to owners reducing asking prices,’ he adds.
‘Hence for en bloc sites with significant DC component, the exposure to DC volatility can be very unhelpful in a rising market, whereas sites with zero or low DC component are fairly immune to DC volatility and those are good sites to work on.’ Mr Lake reckons that the next DC rate revision on Sept 1 may be more keenly watched – than the March 1 update – as a higher number of en bloc sale efforts are likely to be at a more advanced stage then.
DC rates – which are revised on March 1 and Sept 1 each year – are specified by use groups (such as landed and non-landed residential, commercial and hotels) across 118 geographical sectors throughout Singapore. The review is conducted by the Ministry of National Development in consultation with Chief Valuer, who takes into account current market values.
Colliers International is projecting 8 to 10 per cent rise in average DC rates for non-landed residential use from March 1. The biggest hikes of up to 20 per cent are likely to be in places like Serangoon Avenue 3, Upper Thomson Road and Sengkang West Avenue where winning land bids at state tenders have been at substantial premiums of 48-86 per cent to land values imputed from the Sept 1, 2009 DC rates for these geographical sectors, says the firm’s director Tay Huey Ying.
Suburban locations could see a bigger rise in DC rates than upmarket locations as last year’s rebound in home sales and prices was led by the mass market segment, she argues.
Private-sector land deals too point to higher DC rates. For instance, the Parisian site at Angullia Park was sold in October at $2,058 psf per plot ratio – about 70 per cent above the DC-rate implied land value for the area.
DTZ’s SE Asia research head Chua Chor Hoon reckons that non-landed DC rates will go up 15 to 25 per cent from March 1. Jones Lang LaSalle’s associate director (research and consultancy) Desmond Sim predicts 10-15 per cent hikes in non-landed residential DC rates in mass-market suburban locations, outpacing a 5-8 per cent rise in prime districts.
As for landed residential DC rates, he forecasts a 10-15 per cent increase across all geographical sectors, with a bigger increase likely for Sentosa Cove and Good Class Bungalow Areas.
CB Richard Ellis executive director Li Hiaw Ho notes that the official price indices for detached, semi-detached and terrace houses rose 20-odd per cent from July to December 2009. In addition, 2009 saw the highest total value of GCB sales at $1.64 billion. He forecasts an average 5-10 per cent rise this round for landed rates.
Mr Li forecasts DC rates for commercial and industrial use will remain unchanged or even fall very marginally.
Colliers’s Ms Tay, who is projecting an up to 5 per cent climb in average DC rate for industrial use, says: ‘The government is unlikely to make significant upward adjustments to DC rates for industrial use group in general in the upcoming review given the nascent recovery of the manufacturing sector and the industrial property market. Also, JTC Corp industrial land rents have not been adjusted since they were revised downward in January 2009, says Ms Tay.
She reckons commercial DC rates will remain largely unchanged as office rents have remained weak. 2010 February 24 BUSINESS TIMES
Sentosa has seen a big jump in development charge (DC) rates, reflecting higher land values on the island following this month's opening of Resorts World Sentosa (RWS).
On average, the government is raising DC rates (payable for intensifying or enhancing the use of some sites) about 12 per cent for landed residential use from March 1; but in Sentosa, they will climb 17.3 per cent. For non-landed residential use, Sentosa saw a 10 per cent hike in DC rates compared to the average rise of about 8 per cent. And while DC rates for commercial use will be cut roughly 2 per cent on average against the backdrop of weak office rentals, Sentosa is the only location where they will be raised - to the tune of 12.5 per cent.
It is also the only location where the government increased the hotel-use DC rate; the hike was 12.2 per cent. In all other locations, the DC rate for hotel use (which also covers hospitals) was left untouched.
DC rates - which are revised on March 1 and Sept 1 each year - are specified by use groups across 118 geographical sectors throughout Singapore. The review is conducted by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market values.
Some analysts pointed to an interesting trend emerging in the Central Business District. DC rates for commercial use in the CBD fell further while non-landed residential rates rose and actually surpassed the commercial rates. This could mean paying a higher DC for those who redevelop old CBD office blocks into apartments and could impact such conversions, especially in the case of 99- year leasehold sites as their owners would also want a lease top- up, says DTZ's South- east Asia research head Chua Chor Hoon.
Jones Lang LaSalle's SE Asia research head Chua Yang Liang goes a step further, predicting that the new trend could have an 'unexpected effect of encouraging the redevelopment of existing older office stock into the same office use and discouraging conversions to residential'. Jones Lang LaSalle's (JLL) analysis showed that DC rates for non-landed residential use were raised for 116 geographical sectors and left unchanged for the remaining two areas.
The biggest hike of 15.4 per cent was seen in three sectors: 91 (which covers the Mountbatten, Meyer and Broadrick areas); 98 (Tampines, Bedok Reservoir, Bedok North, Kembangan); and 101 (Paya Lebar Way/Eunos/Sims Avenue).
This was followed by Sector 76 (Everton/Spottiswoode Park) with a 14.5 per cent increase. Market watchers attribute this to last October's en bloc sale of Dragon Mansion at a land price about 68 per cent above the land value implied by the prevailing Sept 1, 2009 DC rate for the location.
Also, the geographical sectors covering Serangoon Ave 3, Upper Thomson Rd and Sengkang West Avenue - where residential sites have been sold at bullish prices at state tenders in the past six months - were raised 12.5 per cent, 10.5 per cent and 9.1 per cent respectively.
Colliers International executive director (investment sales) Ho Eng Joo said that overall, the growth in non-landed residential DC rates may hamper developers' landbanking plans, especially for collective sales sites that require DC payment.
Credo Real Estate managing director Karamjit Singh, however, said yesterday: 'Three quarters of the en bloc projects our company is working on don't involve any DC payment. As for the rest, DC as a component of the entire land cost is not very high and hence the increase in DC rates will have minimal impact on the en bloc sale exercise.'
For landed residential use too, charges were raised in 116 sectors and left unchanged in the other two.
Besides Sentosa, other areas with the biggest hikes include Holland/Dunearn Rd/Sixth Avenue (up 17.1 per cent) as well as the Good Class Bungalow areas of Botanic Gardens/Gallop Rd/Tyersall and Ridout/Peirce Hill/Swettenham Road (each up 16.9 per cent), JLL's analysis shows.
Commercial DC rates were trimmed between 3.2 and 13.3 per cent in 23 sectors. The biggest chop was in the Cecil St/Robinson Road area. There were also cuts in other parts of the financial district, such as Marina Bay, Raffles Place and Fullerton Road, as well as in the Thomson/Moulmein, Newton Circus, Bugis and Tanglin/Cuscaden areas. - 2010 February 27 BUSINESS TIMES
Enbloc sales modified
A new amendment bill introduced in Parliament yesterday will make it harder for property owners to keep re-trying for a collective sale.
But analysts said other changes - such as allowing contested sales to bypass Strata Titles Board (STB) hearings and reducing the number of extraordinary general meetings (EGMs) that must be held - could help to speed up the en bloc sale process.
A key revision that has been tabled will make it harder for motivated owners to re-start an en bloc process once it fails as there will be a two-year restriction period.
Within this restriction period, the first re-try to convene an EGM will need 50 per cent of share value or number of owners. And for the second and subsequent re-tries, 80 per cent will be needed.
Right now, the support of either 20 per cent of owners by share value or 25 per cent of the total number of owners is needed to call an EGM to start the process.
'The objective of this change is to discourage numerous attempts at en bloc sales where there is insufficient level of interest and support from owners,' said the Ministry of Law in a statement. It also added that this move prevents management committee funds from depleting.
The amendment bill to the Land Titles (Strata) Act also looks to streamline the role of the STB and balance the interests of minority and majority owners. The changes are expected to take effect in June.
'In recent years, a number of en bloc sale applications have become highly contentious, with objectors raising questions on points of law ranging from fiduciary to constitutional law,' said the Ministry of Law. 'Many of these cases have ended up in the High Court and even the Court of Appeal. This has resulted in lengthy and costly proceedings.'
In addition, once a sales committee (SC) is formed it will have one year to obtain the first signature for the collective sale agreement (CSA) or it will be automatically dissolved. This is to ensure that the sales process is not dragged out.
Analysts were not too worried about the two-year restriction period.
Credo Real Estate managing director Karamjit Singh said en bloc transaction volumes are driven more by market forces and owners' expected gains.
'But having said that, the two-year restriction period following a failed attempt may be disadvantageous to some projects that may want to capitalise on improved market sentiments, should that happen after the failed attempt,' said Mr Singh.
But Chua Chor Hoon, head of DTZ's South-east Asia research team, said that the two-year restriction period could have a large impact as the definition of a failed attempt covers a whole host of situations - including right at the beginning, when the quorum required for an EGM to discuss a collective sale is not met within an hour and the EGM is dissolved.
The new amendments could also speed up the process 'in theory'.
'It helps to eliminate some of the ambiguities in the current legislation and will help to expedite the process,' said Ho Eng Joo, executive director for investment sales at Colliers International.
The Ministry of Law last amended the Act in 2007, introducing changes to make the en bloc sale process more transparent.
Then, it was decided that SCs will have to be properly formed and elected. It was also decided that CSAs will have to be witnessed by lawyers who can clarify doubts and explain terms and liabilities. And even after they signed, potential sellers were given a five-day 'cooling-off period' during which they can change their minds.
This latest round of changes comes as activity in the collective sales market appears to be picking up after falling off sharply in 2008 and 2009.
According to data from CBRE Research, there were 110 collective sale transactions worth a total of $11.9 billion in 2007. This fell to eight deals worth $381 million in 2008 and just one deal worth $101 million in 2009 as the property market took a downturn.
But since the start of this year, five collective sales worth $275 million in all have gone through - signalling that the en bloc market could be picking up again.
'There has been more interest on the ground from Q3 and Q4 last year,' said Jeremy Lake, executive director of investment properties at CBRE.
Most analysts were also disappointed that two measures, in particular, were not axed.
'I am disappointed that they have not removed the cooling off period of five working days, notwithstanding the requirement that a solicitor must witness the signatures of the owners executing in Singapore,' said law firm Rodyk & Davidson partner Norman Ho. CBRE's Mr Lake likewise pointed out that the requirement for the CSA to be witnessed by lawyers is the 'biggest hindrance' to a collective sale going through.
'The main problem that SCs face at the moment is securing the 80 per cent or 90 per cent agreement needed and that is principally due to the need to have the signing witnessed by lawyers,' he said. Sometimes it was difficult to get a lawyer and owner together at the same time to get the CSA signed, he said. - 2010 April 27 BUSINESS TIMES
While the market mulls over the impact that rule changes will have on collective sales, the spotlight has fallen on developers sitting on prime sites acquired during the previous en bloc boom in 2006-2007.
 |
| Hot asset: Developers of prime sites like Farrer Court (above) will time their project launches more carefully |
If the proposed changes make it tougher for prime freehold residential sites to make their way to the market, that will be good news to developers who are already holding such sites acquired earlier.
A compilation by property consultant CB Richard Ellis shows that developers currently have 26 sites in prime districts 9, 10 and 11 snapped up in collective sales in 2006 and 2007 where new projects are still to be launched.
These sites are planned for redevelopment into nearly 4,300 new homes. Outside the prime districts, developers could build a further 4,700 homes on 16 sites purchased through collective sales in 2006-2007
CapitaLand, City Developments Ltd (CDL), Wing Tai, GuocoLand and Overseas Union Enterprise are among the developers who bought prime district en bloc sale plots earlier. For instance, CapitaLand, together with its partners, acquired the Farrer Court plot and is planning a 1,715-unit redevelopment project. Hong Leong Group (including CDL) has exposure to six sites slated for development into over 600 units in locations like Leonie Hill, Anderson and Thomson roads.
These sites and projects will become more precious to developers and they will want to time their launch more judiciously if it gets tougher to replenish landbank in this segment through en bloc sales, say industry observers.
CB Richard Ellis executive director Jeremy Lake says: 'The proposed amendments are unlikely to facilitate the en bloc process significantly and as such, the number of collective sales coming to the market is likely to remain relatively limited.
'From a developer's point of view, it will be more difficult to replace landbank in prime areas so those who have such sites may think more carefully about the timing of launch of new projects on these sites as it will not be easy to find replacement land.'
Giving a more pessimistic take, a developer said: 'I don't think anyone would be too far wrong to say that en bloc sales are just about the only source of supply for prime district freehold sites. The proposed amendments to the Land Titles (Strata) Act will put the 'last nail in the coffin' for en bloc sales in the near future, and the market will be completely dried up for freehold District 9, 10, 11 land supply.'
This will create upward pressure on land prices, he added.
Putting things in perspective, DTZ senior director (investment sales) Shaun Poh says: 'En bloc sales in many developments have already been activated and these are unlikely to be affected by the proposed amendments. The supply from this source should be enough for the market for the time being.
'However, the future pipeline of en bloc sales will be affected.'
On Monday, the Ministry of Law released proposed amendments that will among other things make it harder to restart a collective sale within two years of a failed attempt. Any attempts to convene EGMs to appoint a sales committee during this period will require higher requisition levels from owners - 50 per cent by share value or total number of owners for the first re-try and 80 per cent for any subsequent attempts.
'Already it's not easy to secure requisitions for EGMs based on existing thresholds of 20 per cent by share value or 25 per cent of number of owners,' says DTZ's Mr Poh.
'Now that they're proposing to raise the threshold for restarting previously failed en bloc attempts, it's going to be more difficult for those who want to have another shot when, say, the market suddenly turns hot.'
On a more positive note, Credo Real Estate managing director Karamjit Singh notes that the instances of failed attempts that will be affected by the two-year restriction do not cover cases where owners' 80 or 90 per cent majority consent was secured but the Collective Sales Agreement (CSA) expired because a buyer could not be found in time.
'The projects that may be affected are likely to be those that had attempted an en bloc sale when they should not have, either owing to the project not being fundamentally 'enblocable' or the market was not on their side to an extent that the majority owners rejected the proposal,' he said.
MinLaw hopes its proposal will discourage repeated attempts at en bloc sales where there isn't enough support from owners.
Industry players lauded MinLaw's proposal to streamline the number of EGMs, which should speed up the process. 'We expect to see further en-bloc activity this year,' said Chris Fossick, managing director Singapore and South East Asia for Jones Lang LaSalle.
Others, however, complain that the the ministry is not doing anything to mitigate bottlenecks caused by the need to have lawyers witness signing of the CSA.
This has also jacked up legal costs. Some have suggested doing away with this requirement since those who sign are given a five-day cooling-off period. - 2010 April 29 BUSINESS TIMES
Property Groups find Asset-Divestiture trying
of aborted divestments by Singapore property groups lately highlights the challenges of relying on asset sales in the current environment.
Last weekend's edition of BT featured two stories on the same page, on Singapore's two biggest listed property groups - CapitaLand and City Developments Ltd (CDL). Both are in the same boat, with their respective planned divestments of overseas assets not completed.
CDL's London-listed hotel subsidiary Millennium & Copthorne Hotels announced that the agreement for the disposal of Millennium Seoul Hilton hotel to Korean group Kangho AMC Co had been terminated as the buyer was unable to finalise its financing arrangements amid the global financial turmoil.
CapitaLand's 30 per cent-owned associate Inverfin Sdn Bhd, which owns Menara Citibank tower in KL, reported that the sale-and-purchase agreement for the sale of the office tower had been terminated as the buyer, IOI Corporation Bhd, did not pay the balance purchase price on the completion date.
There have also been instances of transactions of Singapore buildings not being completed. Ho Bee announced last month that its proposed $30 million sale of Frontech Centre, an industrial building in Bukit Merah, had fallen through. The buyer is understood to have been US fund group Angelo Gordon. BT also reported last month that Australian property fund manager Blaxland did not go ahead with completing its planned acquisitions of eSys Technologies' building in Changi North and SH Cogent Logistics' warehouse building in Penjuru Close in Jurong.
The pullouts reflect the difficult conditions for property investment sales, caused by several factors. Firstly, funding is tight. But even potential buyers with financial muscle may get cold feet or decide it simply makes more sense to walk away from their purchase now and forfeit the deposit, as sliding property values will present more attractive investment propositions in due time. There may also be other issues at play, such as exchange rate fluctuations. For instance, from a potential buyer's perspective, the Aussie dollar's 21 per cent depreciation against the Singapore dollar in the past three months would make purchasing Singapore properties less attractive.
Putting things in perspective, a seasoned property consultant said: 'The current climate makes asset sales difficult, whether you're selling an apartment or a shopping centre.'
Property groups will have difficulty selling assets even to their sponsored real estate investment trusts (Reits). With the stockmarket slide, Reits are trading at very high yields, which makes it difficult for them to make yield-accretive acquisitions. And the current tight funding environment affects Reits as well; their priority these days is refinancing existing debt instead of sourcing new debt for further acquisitions.
The situation is likely to continue for at least the new few quarters; that will have implications for Singapore's property groups. Heavyweight CapitaLand has booked handsome profits from divesting assets in the past few years. In the past two years, the group has divested some $9 billion of assets - an exercise that has generated well over $1 billion in profits.
The group still has other assets that it could potentially divest, such as its industrial property portfolio here and even some of the office blocks held by its sponsored Reit CapitaCommercial Trust.
Prior to the global financial crash, CapitaLand would have had a high chance of success if it had continued on its path of asset disposals. Now, buyers are scarce and even those that are around would demand distressed sale prices (as cushion against further declines in property values after their purchase).
The trying financial climate will affect asset divestment strategies of even a heavyweight like CapitaLand. But at least it has stronger financial muscle to weather this storm even if it can't make major divestments in the near future.
Smaller players are not in the same boat. Some companies burdened with heavy debt and which had been hoping to unload some of their properties to improve their balance sheets will be caught if they can't sell their assets.
Hopefully, the malaise in the property investment sales market will not drag on too long. - 2008 December 2 BUSINESS TIMESProperty market now shows classic signs of downturn
Analysis of Q3 caveats by DTZ points to new trends relating to subsales, foreign buying, HDB upgraders
Three classic signs of a Singapore property downturn have emerged in the third quarter - a slide in subsales and foreign buying, but a bigger share of HDB upgraders in the private home buying pie.
Property consultancy DTZ's analysis of caveats for private home purchases shows that total subsales of non-landed private homes fell 8 per cent to 473 units in Q3 from the previous quarter. Subsales also accounted for a smaller 13 per cent share of purchases of non-landed private homes in Q3, compared with 16 per cent in Q2.
Subsales of high-end condos/apartments slowed down even more in Q3 2008. The number of subsale purchases involving units priced at least $1,000 psf fell 24.2 per cent quarter-on-quarter to only 213 transactions, accounting for 45 per cent of overall subsales of non-landed private homes in Q3, against 54 per cent in Q2 2008.
The number of foreign buyers (including permanent residents) of private homes (both landed and non-landed) slid 6 per cent quarter-on-quarter to 903 in Q3. Also, these buyers made up 22 per cent of total private home deals in the quarter, down from 25 per cent in Q2.
DTZ senior director (research) Chua Chor Hoon said: 'A large proportion of foreigners buy for investment. Hence when prices are falling, there is less interest. Furthermore, with economies and property markets slowing down all over the world, many of the foreigners have been affected back home and they may pull out their overseas investments.'
DTZ executive director Ong Choon Fah also points out that attractive property values are emerging in other cities which Singapore will be competing with. 'Foreign investors have lots more opportunities to consider where to invest,' she added.
The dip in subsales may be due to the fact that it has become more difficult for 'specuvestors' and speculators to offload their properties in the current quiet market.
'For investors who take a long-term view, especially for better assets, the tendency would be to ride out the market,' says Mrs Ong.
HDB dwellers tend to make up a bigger proportion of private home buyers during a property downturn. 'Many of them are buying for owner occupation. Some may be sitting pretty on gains on their existing HDB flats which they bought directly from the HDB some years ago. Together with CPF savings, it may be easier for them to cross over to private homes,' notes Mrs Ong.
Buyers with HDB addresses picked up 1,718 private homes in Q3, up 34 per cent from the previous quarter.
Their share of caveats lodged for private home purchases rose to 41 per cent in Q3, from shares of 34 per cent in Q2 and 28 per cent in Q1 this year. HDB upgraders' 41 per cent share of private home purchases in the July-Sept quarter was the highest quarterly share in four years.
'The trend was supported by the narrowing gap between HDB resale flat prices and private home prices in Q3, as HDB resale prices continued to increase while private home prices fell,'
Ms Chua said the latest Q3 jump in private homes bought by HDB dwellers was mainly in the primary market. The number of units these HDB dwellers picked up from developers leapt 89 per cent from Q2.
Livia in Pasir Ris and Clover by the Park in Bishan were the two most popular projects among HDB buyers in Q3, with 192 units and 142 units respectively sold to HDB upgraders.
Analysts say HDB upgraders' share of total private home purchases may rise further. In Q2 2002, their share surged to 81 per cent and at the trough of the Asian Financial Crisis property slump in Q4 1998, the figure was 68 per cent.
Subsales refer to secondary market deals in projects that have yet to receive their Certificates of Statutory Completion. This may be anywhere from three to 12 months after the project gets its Temporary Occupation Permit (TOP).
DTZ said that for total subsale deals of non-landed private homes, the median price continued to fall in Q3, easing 11 per cent quarter-on-quarter to $941 psf - the lowest since Q3 2006, according to DTZ. 'In view of softening market demand, owners are more realistic in asking prices,' it said.
The Sail @ Marina Bay got the strongest subsale interest in Q3, with 30 deals (compared with 34 in Q2). The median subsale price for the project slid 6 per cent quarter-on-quarter to $1,719 psf, following a 14 per cent slide in Q2.
Median subsale prices also fell 3 per cent for Park Infinia at Wee Nam to $1,380 psf, The Esta (slipping 5 per cent to $910 psf) and City Square Residences (down 6 per cent to $960 psf).
Mrs Ong expects subsales to continue trending downwards although there will be spikes as major projects get their TOP. That's when there's usually more sales activity as the finished product can be viewed by potential buyers and the prospects of renting the units would increase the appeal of such homes to potential investors. - 2008 December 2 BUSINESS TIMES
Singapore firms top wealth-creation chart
They occupy 33 of leading 100 positions in Asean in a Wealth-Added Index; SingTel heads the pack
Singapore companies have done a stellar job of creating wealth for shareholders, despite market volatility and a higher cost of capital.
The first-ever ranking of the top 100 South-east Asian companies in terms of US-based consulting firm Stern Stewart & Co's 'Wealth Added Index' (WAI) finds a total of 33 Singapore companies on the list, the largest number among Asean markets.
In pole position is Singapore Telecommunications, as at June 30. Keppel Corp is ranked seventh, and CapitaLand ninth.
Stern Stewart has also come up with the top 100 WAI ranking for Singapore alone, as well as industry specific rankings. In the regional real estate sector, for example, Singapore companies accounted for eight of the top 10, led by CapitaLand and City Developments.
WAI is a metric developed by Stern Stewart in 2000, based on the idea that companies create value for shareholders only if their total returns - share price plus dividends - exceed an imputed 'cost of equity'. The latter is the minimum return investors should earn for taking on the risk of investing in shares.
The strongest testimonial to the use of the wealth added metric is Temasek Holdings, which on Monday released its latest annual report. Temasek uses wealth added as an internal benchmark, and that extends even to its staff compensation structure.
As Temasek explains: Wealth added (also called economic profit) factors in the capital employed to produce the returns and the risks associated with each investment. 'To achieve positive wealth added, we need to deliver more than the capital charge, which is the risk-adjusted hurdle applied to the capital employed.' In the year ended in March, the group's wealth added was minus $6.3 billion. The group's five-year cumulative wealth added was a 'healthy' $60 billion above its risk adjusted cost of capital hurdle.
Erik Stern, president international of Stern Stewart & Co, said the firm set up an office here in 1997 mainly to work with the Temasek group. The firm maintained its office here for about five years. It has since closed it, but is looking to re-establish itself in the region.
'To people who want to know more about economic value added (EVA) and the value mindset, I tell them to read the Temasek annual report. There is nothing better. So many companies want to look like they care about shareholder value. Read any annual report, then read Temasek's. There is a very big difference.
'(Temasek) acts and lives it. We're thrilled to be associated with them; they make us look good. They know what this is all about.'
Stern Stewart first developed two metrics in the 1980s, one of which is economic value added (EVA), focusing attention on the cost of capital. EVA is a performance metric, to indicate whether a company has produced value for investors. Its calculation takes after tax operating profit and subtracts an annual charge - a sort of rental charge - on debt and equity.
It is unclear how widely used EVA or wealth added is among Singapore companies. SingTel uses a different metric internally. CapitaLand, however, includes an EVA calculation in its annual report, and tots up the group EVA attributable to equity shareholders.
Mr Stern said the metrics were developed in an effort to overcome the limitations of other metrics, such as total shareholder return, which simply measures the change in a company's price plus dividends between two points in time.
Accounting measures like net profits and sales also do not provide any benchmark for performance, or help in investor decision making. 'The concept of EVA is like meritocracy; there is no cutting corners. The objective is to get employees to think and act like owners, so that they act like the money they're given is their own. That concept is very similar to the Singapore mindset.
'I believe there is no accident that Singapore companies' performance is good. People here are very modest. They say, let's see what happens in the future, and there will be a lot of competition..
'It pays to remember that capital has a cost and shareholders deserve to earn a return on that. If Singapore companies forget that they may find that the paradise they created will be owned by others. As great as they've done, what matters is going forward.'
One point of contention may be the calculation for the cost of equity, which is based on a market's government bond adjusted by a company and market risk premium. Some of Stern's input data are taken from Bloomberg.
Managers, he said, should focus on EVA as an internal measure, and not the share price. 'Companies that consistently make good decisions will see strong performance. The marketplace is showing some fear of the future. The question is what can companies do about it.
'Companies that are well managed usually do well in a downturn and take market share from those that are not well managed.'
There are four drivers of wealth added, which are quantified in the rankings. These are operations; strategy or growth expectations; external financing and governance. The proxy for the latter is a company's cost of equity.
'Our view of governance is that managers must earn the required rate of return as the minimum. But if they don't earn that, they have not been a good steward of capital.' - 2008 August 28 BUSINESS TIMES
Property firms report weak set of Q2 numbers
Most developers see their business hit in 3rd and 4th quarters
Hit by fewer home sales, lower revaluation gains from investment properties, drops in divestment gains - and even the stronger Singapore dollar - property companies largely reported weak results for the second quarter.
And the future doesn't look rosy either.
Most listed developers have warned that the global slowdown and weakening market could hit their business in the third and fourth quarters. Even the most upbeat are only 'cautiously optimistic'.
The big three developers - CapitaLand, City Developments and Keppel Land - all posted lower profits for Q2.
CapitaLand, Singapore's and South-east Asia's largest developer, said its Q2 profit fell 43.5 per cent to $515.2 million, partly due to lower revaluation gains from investment properties, lower portfolio gains and development profits, and the absence of previous write-back provisions. Analysts called the results disappointing.
City Developments saw Q2 net profit drop 15.1 per cent to $165.2 million. Among other factors, CityDev was hurt by the translation of its overseas hotels earnings at weakening exchange rates due to the strengthening Singapore dollar.
Keppel Land reported that Q2 profit fell 16.4 per cent to $52.7 million as it sold fewer homes in Singapore and abroad.
'I think the mood is generally very cautious, and this has hurt the developers,' said an analyst. 'The trend is likely to continue for the rest of the year.'
Right now, the fear is that sectors that are currently contributing strongly to top lines, such as hospitality, may soon start to weaken.
The Ministry of Trade and Industry's latest quarterly economic survey showed there are increasing signs that segments within services - including the retail trade and hotels - are showing slower growth.
Property stocks with exposure to those sectors - such as CapitaLand, CityDev and UOL Group, to name just a few - could see contributions from those divisions drop.
For UOL, for example, a 4 per cent increase in Q2 in revenue was due largely to hotel operations, with its hotels in Singapore, Australia and Vietnam performing better.
As for the residential market here, Citigroup has said prices of luxury homes could correct sharply, which could have a negative impact on some developers.
'Scrapping of the deferred payment scheme and tighter bank financing for investment properties may have also hurt property transactions, which are off some 70 per cent from recent highs,' Citi noted in a recent report. 'Some developers may have also over-committed in terms of land purchases during the boom periods.'
Citi analyst Wendy Koh expects a 20-30 per cent price correction for high-end properties from their recent peak, and reckons the mid-tier is likely to decline 10-20 per cent. - 2008 August 15 BUSINESS TIMES
Optimistic outlook for Asia-Pac market, says DTZ report
Institutional investors are seeing some property yield spreads over 10-year bond rates widen globally but DTZ Research believes the correction in real estate markets has some way to go.
According to a recent DTZ Research report, Money Into Property, the yield spread over the local 10-year bond rate in Singapore increased by about one percentage point in the first quarter of this year on a year-on-year (yoy) basis to just under 4 per cent, and is higher than that in China and Japan, which both have yield spreads of under 3 per cent.
While the high yield spread implies growth potential and profitability in the real estate investment market, DTZ Research did add, however, that Singapore is not immune from the weakening global financial market outlook, with investors becoming increasingly cautious.
DTZ executive director and regional head for consulting and research Ong Choon Fah said: 'With prospects for capital growth limited, investor focus has returned to occupier fundamentals.'
In Singapore, DTZ says that rentals for prime office space in Raffles Place grew 1.1 per cent quarter-on- quarter (qoq) to $19 per square foot per month in the second quarter of this year.
In the Shenton Way/ Robinson Road/Cecil Street area, average rentals in Q2 increased 2.6 per cent (qoq) to $11.80 psf per month. In the HarbourFront area it's up 5.3 per cent (qoq) to $10 psf per month.
Rentals in Marina Centre and Orchard Road were flat at $15.50 and $13.50 psf per month respectively.
DTZ said that the supply crunch in the Central Business District will ease from 2010 with potential supply of new office space from the second half of this year to 2013 estimated to be 12.1 million sq ft.
Already, the average islandwide occupancy in the second quarter of this year has dipped slightly by 0.2 percentage point (qoq) to 96.9 per cent.
Average occupancy of office buildings in Raffles Place and Marina Centre dropped 0.3 and 1.2 percentage points to 97.4 and 98.6 per cent respectively.
Still, DTZ believes that the outlook for Asia Pacific is relatively optimistic, supported by the occupier market and improving investment access.
'Globally, we expect investment transactions to be around US$500 billion in 2008, down 30 per cent on 2007. This shift reflects weakness over the first half of 2008 and a relatively modest pick-up thereafter, which is likely to be driven principally by the Asia Pacific market,' added Mrs Ong.
Increases in yield spreads were greatest in Europe with the UK seeing the biggest year-on-year rise of almost 2 percentage points in Q1 2008 to just under one per cent.
DTZ notes that the rate of fall in capital values has been slowing in recent months in the UK, so that while investment returns remain in negative territory, some improvement has been evident.
According to DTZ estimates, investment transactions in the UK appeared to stabilise in Q1, with the market's relatively sharp repricing beginning to attract foreign-equity-based investors, notably German funds.
At the same time, DTZ said an increasing number of new opportunity (or 'vulture') funds have been set up to pick up distressed assets in the UK market at bargain prices, while sovereign wealth funds are also waiting in the wings. - 2008 July 7 THE BUSINESS TIMES
Singapore property market approaching peak: report
Singapore is still a safe haven for property investments but a market peak is approaching, Pacific Star says in a recent report.
The Singapore-based property group is most bullish on the retail sector here, recommending that investors add to investments in that segment. The residential and office sectors, on the other hand, are rated 'neutral'.
In the same vein, OCBC Investment Research reiterated its 'neutral' view on the residential sector here in a June 12 report.
According to Pacific Star, the retail market here is tightening. Vacancy rates have fallen to levels not seen since 1993 and rents continue to climb slowly, with an increase of one per cent in Q1 this year, after a 0.6 per cent rise in Q4 2007.
Retail spending is expected to increase in line with growing tourism and rising incomes.
'Marketing agents report that Orchard Central and Ion Orchard, two prime (upcoming) shopping centres in Orchard Road, are attracting strong rental enquiries from retailers that currently do not operate in Singapore,' Pacific Star's report said. 'Rents at Ion are expected to significantly surpass current prime retail rents.'
For the office sector, the current demand-supply imbalance is expected to support rents till 2009, said Pacific Star. 'Office demand is still firm with leasing agents lamenting the lack of available space rather than a lack of enquiries, although the number of enquiries would have fallen somewhat.'
But an above-normal supply of office space will put pressure on rents from 2010, even if growing demand from the services sector prevents any excessive correction, it said.
In the residential segment, Pacific Star expects the current stupor to continue, as there are few catalysts for the rest of 2008. It believes prices and transaction volumes will continue to soften for the rest of the year.
However, the initial catalysts for recovery are expected in 2009, when Singapore's economic growth is expected to exceed that of 2008, according to Pacific Star.
The recovery will be fuelled by immigration and higher incomes that will make it more affordable for Singaporeans to buy mid and high-end private homes, it said.
In a report on the residential market here, OCBC sounded a warning, saying past trends point towards another price correction over the next few quarters.
On the other hand, interest in mass market properties should come back, said OCBC.
'Given that only five projects with total of 1,139 units are expected to be launched in the outside central region between Q2 2008 and Q3 2008, this should ease concerns of oversupply and drive the take-up rate higher over the next few quarters,' analyst Foo Sze Ming noted. - 2008 June 24 BUSINESS TIMES
Investment sales could hit $25b this year
Despite the current subdued mood, property investment sales this year could be substantial - about half of the record $54.48 billion clocked last year, CB Richard Ellis estimates.
It bases the estimate on a tally of $5.91 billion of investment sales deals struck in the first two-and-a-half months of this year.
'Assuming Q1 2008 ends with $6 billion, the full-year figure could be around $24-25 billion. That would still be the third most active year on record, after $54.48 billion in 2007 and $30.59 billion in 2006,' says CB Richard Ellis executive director (investment properties) Jeremy Lake.
Investment sales are seen as a gauge of major players' confidence in the sector's mid- to long-term prospects.
CBRE's definition of investment sales includes those with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.
It bases the estimate on a tally of $5.91 billion of investment sales deals struck in the first two-and-a-half months of this year.
'Assuming Q1 2008 ends with $6 billion, the full-year figure could be around $24-25 billion. That would still be the third most active year on record, after $54.48 billion in 2007 and $30.59 billion in 2006,' says CB Richard Ellis executive director (investment properties) Jeremy Lake.
Investment sales are seen as a gauge of major players' confidence in the sector's mid- to long-term prospects.
CBRE's definition of investment sales includes those with a value of at least $5 million, comprising government and private sales, buildings and land, strata and en bloc. It also includes change of ownership of real estate via share sales.
Mr Lake reckons momentum this year will be generated by the sale of income-producing completed properties like malls, office blocks and industrial buildings, as well as the sale of sites through the Government Land Sales Programme, while the collective sales market has stalled.
'Continued strong growth in Asia, coupled with Singapore's position as a financial services hub and popular business destination for MNCs, will help maintain a healthy level of investment activity in the Singapore property market,' CBRE said in a report issued yesterday.
CBRE's analysis shows the private sector made up 55 per cent or $3.27 billion of the $5.91 billion investment sales deals sealed in the first two-and-a-half months of 2008.
Land sales by the public sector contributed the remaining 45 per cent or $2.64 billion.
The biggest land deal so far this year was the award of a hospital site at Novena Terrace/Irrawaddy Road to Parkway Holdings for $1.25 billion ($1,600 per square foot per plot ratio).
Splitting deal value by sectors, CBRE said the residential sector accounted for $2.23 billion or 38 per cent of total investment sales.
'Compared with the heightened investors' interest in en bloc acquisition witnessed in 2007, investors' demand for private residential land continued to be lukewarm in the first quarter of 2008,' it said.
'Developers are no longer as keen to acquire more sites compared to last year as most of them have built a relatively strong inventory of freehold residential sites from the robust collective sales market in 2007.
'Developers have already taken the cue to act cautiously. The buying of sites has been so far limited to specific choice sites since the response to recent new launches has been subdued.
'In addition, the release of more affordable 99-year leasehold residential sites by the government for sale in the first half of 2008 may sway some buying interest away from prime freehold residential sites in the private sector.
'The only successful collective sale deal in Q1 08 was Ban Guan Park, which was acquired by Link THM Holdings for $31.10 million ($870 psf per plot ratio).'
The office sector accounted for 34 per cent or $2.01 billion of investment sales so far in 2008, on the back of big transactions like Hitachi Tower for $811 million or $2,901 psf, Singapore Power Building ($1.01 billion or $1,820 psf) and One Phillip Street ($99.02 million or $2,749 psf).
'Going forward, strong office demand and potential for further rental escalation would lead to more acquisitions of office properties in 2008.' CBRE said. 'The sustained influx of foreign investors should continue to lead to steady activity in the office investment market.' - 2008 March 18 BUSINESS TIMES
New entrants flock in as property sector booms
The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer.
Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.
In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites.
'When the market is good, it draws in players who may not have been active before,' said CBRE executive director Jeremy Lake.
He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened.
'If you get your timing right in property, the profits can be substantial,' Mr Lake said.
Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996.
Companies that did not look at property development in the past are now beginning to do so because of the fatter margins.
One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million.
SuperBowl's managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.
Similarly, KSH Holdings sees good opportunities in property development. The company's chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time.
'Going forward, we will buy more sites if the right opportunities arise,' Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year.
The first site, which KSH acquired in June with three other partners, was the construction company's first purchase of a land parcel.
Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International.
However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007.
CBRE's data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan's GuocoLand and property giant CapitaLand.
New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year.
In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent.
However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins.
'For the high-end residential segment, there is now risk of a potential correction,' said OCBC Investment Research analyst Winston Liew.
New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said.
Next year, established developers who have carved out niches are likely to do best, analysts said.
'Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,' said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008.
OCBC's Mr Liew advocated being defensive when choosing property developer stocks. 'We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,' he said. - 2007 December 24 SINGAPORE BUSINESS TIMES
Kuwait outfit snaps up 97 apartments in $818m deal
Purchase of units in GuocoLand's condo under development in Bukit Timah is biggest of its kind
Money spinner: GuocoLand's pre-tax profit from the sale of the 97 units alone works out to around $500 million. The company bought the former Casa Rosita site in April 2006 for $280 million or $706 psf per plot ratio
Foreign institutional investors continue to bulk buy apartments in new residential developments in Singapore.
The latest deal - and biggest such transaction to date - is Kuwait Finance House's $818.4 million purchase of 97 four-bedroom apartments in GuocoLand's freehold condo, Goodwood Residence. The property is being developed on the former Casa Rosita site.
The average unit price is understood to be slightly over $3,000 per square foot. This is a new high for the prime Bukit Timah area; it is about 25-30 per cent above the $2,500 psf average price that Sui Generis is fetching at nearby Balmoral Crescent.
At over $800 million, the deal is the 'single largest purchase of units in a Singapore residential project under construction', says GuocoLand group president and CEO Quek Chee Hoon.
Industry observers' back-of-the-envelope calculations show that GuocoLand's pre-tax profit from the sale of this first batch of 97 units alone works out to around $500 million.
The four-bedders bought by a fund managed by Kuwait Finance House (Malaysia) Berhad range from 2,500 sq ft to 3,900 sq ft, GuocoLand said.
The Singapore property arm of Malaysian tycoon Quek Leng Chan is likely to release the remaining 113 units in the 210-unit freehold condo for sale in the first quarter next year, depending on market conditions. The development includes apartments with two and three bedrooms, as well as penthouses.
The largest penthouse, a duplex unit of about 12,000 sq ft with a rooftop pool, is expected to go for nearly $40 million. The WOHA Architects-designed project also includes 15 cabana-styled apartments.
This is not KFH's first such investment in the Singapore property market. A few months ago, an Islamic real estate fund set up by KFH and the Malaysian government-owned Amanah Raya Berhad, picked up two blocks (with a total of 56 apartments) at Reflections at Keppel Bay for about $286 million.
Other recent foreign bulk purchases of apartments in new projects here include Macquarie Global Property Advisors's $136 million acquisition of 19 units at 8 Napier, at an average price of $3,550 psf.
A Spanish private-equity fund is believed to have bought 20 apartments at The Cascadia, further down Bukit Timah Road, at about $1,600 psf.
While Singapore developers and property consultants are cautious about prospects for high-end residential prices next year - most are expecting modest gains of up to 10 per cent, after a nearly 50 per cent spike this year - the outlook appears rosier to foreign investors, market watchers say.
'From the perspective of these foreign funds, they must place out monies they have raised. If they look at US, there are sub-prime and credit squeeze problems. Growth in Europe is slow. Frankly, they may not have a lot of options but to look to Asia,' the research head of a property fund management outfit said.
Also, Singapore appears an island of calm in a sea of turbulence, he said. 'It's relatively stable, will soon have the integrated resorts and F1 attractions, and the island has positioned itself as a wealth management hub - these are still important factors drawing foreign institutional money to Singapore property.'
Goodwood Residence, which will comprise two 12-storey blocks, is slated for completion in 2010.
The development has received the Building and Construction Authority's Green Mark Award (Platinum). Goodwood Residence will have more than 500 trees (including 58 preserved trees) planted in the estate. In addition, the development site shares a 150-metre-long boundary with the lush Goodwood Hill.
GuocoLand bought the former Casa Rosita site in April 2006 for $280 million or $706 psf per plot ratio.
Other upcoming Singapore condo projects by GuocoLand include Sophia Residence, with about 270 units, which the group plans to release around Q3 next year, and an upscale development on the Leedon Heights site that is slated for launch in 2009.
KFH is also co-sponsor - together with Singapore's Pacific Star Group - of the Baitak Asian Real Estate Fund, whose major investments include a stake in KL Pavilion, a mega development with luxury residential, mall, office and hotel components in the prime Bukit Bintang area of Kuala Lumpur. - 2007 December 19 SINGAPORE BUSINESS TIMES
S'pore builders seen lagging Asian peers
Policy risks, fallout from sub-prime crisis may hurt property developers in 2008
Singapore's property companies may lag behind Asian real estate developers for a second straight year in 2008 as government limits on speculation cool the housing market.
CapitaLand Ltd, South-east Asia's largest developer, is suffering its biggest quarterly decline in more than six years after the government raised development charges by as much as 58 per cent. The Singapore Property Equities Index has dropped 19 per cent so far this quarter, the most since a 35 per cent plunge in the third quarter of 2001.
International buyers, who accounted for more than 40 per cent of real estate purchases in 2006, bought 38 per cent fewer properties last quarter as capital-market gridlock caused by rising US sub-prime mortgage defaults curbed borrowing worldwide. The supply of new homes for sale next year may almost double by value compared with 2006, weighing on prices, according to CLSA Ltd.
'We can find better propositions elsewhere in the region, where there's more growth and value to be found,' said Leslie Phang, who helps manage US$1 billion at Commonwealth Private Bank in the city. He does not own local builders and prefers Hong Kong developer Sun Hung Kai Properties Ltd.
The decline in Singapore's property gauge compares with a 10 per cent drop in the Bloomberg Asia Pacific Real Estate Index, which tracks 164 companies. The Bloomberg World Real Estate Index has slipped 8.9 per cent this quarter. Singapore's property index climbed 1.3 per cent yesterday, the biggest rise since Nov 29.
Singapore's home price index increased 8.3 per cent in the three months ended September from the second quarter. That matched the June quarter's pace, the first time the growth rate failed to rise since mid-2005.
Demand for apartments grew this year as banks hired more expatriates. New York-based Morgan Stanley, the No 2 securities firm by market value, said in February that it would open a local prime brokerage office servicing hedge funds. Citigroup Inc, the biggest US bank by assets, followed with its own prime brokerage office in March.
About 19,200 jobs were created in financial services through September this year, government data showed. Foreigners accounted for about 43 per cent of total purchases in 2006, up from 14 per cent in 2005, according to CLSA, the Asian investment-banking arm of Paris-based Credit Agricole SA. Singapore home prices rose 13 per cent last year, beating all other Asian markets, according to Global Property Guide, a Manila-based researcher.
The number of foreign purchases fell 38 per cent to 2,073 last quarter, from a record high of 3,332 in the three months ended June 30, according to DTZ Singapore, the local unit of DTZ Holdings plc, a London real-estate brokerage.
The government scrapped a program on Oct 26 that allowed buyers of planned apartments to pay 10 per cent of the asking price and defer the remainder until completion. Builders face higher fees on new developments after the government raised charges by 58 per cent for apartment projects and by 42 per cent for commercial properties, starting Sept 1.
'There are still a lot of policy risks in this segment,' said Daphne Roth, vice-president of equity research at ABN Amro Private Banking in Singapore. 'The government doesn't want home prices to go up too much, too quickly and the policy changes introduced so far have already impacted the market.' CapitaLand has slumped 25 per cent in Singapore stock exchange trading during the fourth quarter, set for its biggest quarterly drop since a 47 per cent plunge in the three months ended September 2001. It has lost 29 per cent after reaching a record high on Apr 26, even though third-quarter profit more than doubled from a year earlier.
City Developments Ltd, controlled by billionaire Kwek Leng Beng, declined 18 per cent since the start of this quarter and plunged 23 per cent from its all-time high on June 19.
The selloff has left local property shares cheaper than their regional peers. The Singapore Property Index is valued at 11 times earnings, less than a third of its high of 38 times in March 2006. The Bloomberg measure of Asian real-estate stocks is valued at 19 times, while the global index is at 17 times.
Thue Isen, who helps oversee US$1 billion at Bankinvest Group in Singapore, including shares of CapitaLand and City Developments, said that the decline is a chance to buy local developers, which he finds more attractive than those in Hong Kong and China.
'People's expectations for the property market here have definitely dampened, which justifies some of those declines,' he said. 'If you look at economic and income growth and new offices starting up, the fundamentals haven't changed that much, so the pullback looks a bit excessive.'
CIMB-GK Research, based in Singapore, cut its price forecasts in a Dec 10 note. Properties costing at least S$1,200 a square foot may climb 8 per cent in 2008, compared with an earlier forecast of 15 per cent. Overall home prices will rise 15 per cent from a previous estimate of a 25 per cent increase, said Donald Chua, a Singapore-based analyst.
The brokerage, a unit of CIMB Bank Bhd, Malaysia's largest investment bank, also cut its rating on the industry to 'underweight' from 'overweight', citing slowing growth. The firm lowered its recommendation on CapitaLand to 'neutral' from 'outperform'.
CLSA forecasts that as many as 12,000 new homes under construction could be up for sale in the next year to 18 months in the most expensive residential districts, driving up supply and hurting prices. The 'unprecedented' inventory is worth S$21 billion, almost twice the S$11 billion invested in real estate in 2006, according to Yew Kiang Wong, a CLSA analyst in Singapore.
'There's just too much negative news out there right now, with the government regulations and concerns over sub-prime,' said Nicole Sze, Singapore-based investment analyst at Bank Julius Baer, which manages US$350 billion. 'We're unlikely to see the same kind of broad-based rally that we've had.' - 2007 December 20 BLOOMBERG
Circle Line key to higher plot ratios
Study looks at how Master Plan 2008 could change landscape, usher in new initiatives
When Master Plan 2008 is unveiled sometime this year, certain areas are likely to see an increase in plot ratios. A study by Jones Lang LaSalle has tried to zero in on which areas could be allowed more intensive use of land.
Its conclusion: Look out for undeveloped state sites within walking distance of Circle Line MRT stations, particularly those that intersect with existing MRT lines. They are the top candidates for higher plot ratios.
The property consulting group specifically highlighted the areas near Paya Lebar MRT Station, Buona Vista MRT Station (which will see the Circle Line intersecting with the existing East-West Line) and HarbourFront MRT Station (Circle Line crosses North-East Line). Also, while Buona Vista is shaping into an R&D/commercial hub, the HarbourFront district's redevelopment potential is increasing because of projects in Sentosa and Keppel Bay nearby.
Another promising area is in the vicinity of the Circle Line Station at Telok Blangah. Although it does not intersect with an existing MRT line, it will benefit from a spillover from the ongoing redevelopment in Sentosa and HarbourFront.
JLL does not see major, across-the-board increases in plot ratios in MP 2008. But it argues that intensifying land use for undeveloped state plots along these stations will spread social benefits from the government's investment in the Circle Line to more people and also improve accessibility.
Raising plot ratios (ratio of maximum potential gross floor area to land area) will also address the issue of rising demand for Singapore's properties and prevent overcrowding in specific areas such as the central and CBD regions.
Although the Circle Line also touches locations near Dhoby Ghaut and Bishan MRT stations, JLL excludes them as these areas already have high plot ratios.
The study also suggests that white sites - with a range of uses and change in use mix allowed - will be more readily available islandwide instead of being confined largely to the CBD. 'It further promotes creativity in future projects,' says JLL's head of research (South-east Asia) Chua Yang Liang.
He also sees the Urban Redevelopment Authority introducing more mixed use, rather than traditional single-use zones, to 'further provide the flexibility needed to accommodate changing demand patterns as a result of shifting demographics'. MP 2008 could also be more tolerant of non-traditional types of residences. For instance, obsolete industrial buildings could be re-modelled along the lines of New York's Manhattan lofts. 'This will accommodate shifting market forces and tastes,' Dr Chua argues.
JLL also suggests that URA may realign traditional industrial estates to support demand needs of the knowledge-based economy or rezone them for other uses. 'For example, industrial areas within housing estates such as those found in Jalan Pemimpin could potentially be rezoned to residential or possibly an education hub,' it said. After all, the area is near Raffles Institution and Raffles Junior College.
MP 2008 could also extend the 'work, live and play' concept beyond Marina Bay into the suburbs as Singapore cannot live by its business image alone, JLL predicts. 'We can expect to see more areas designed for cultural developments, for example, the civic, cultural and retail complex in Buona Vista, and new conservation areas that serve to retain the fabric of the collective memory,' Dr Chua said.
JLL also expects to see many more recreational zones across Singapore. 'The likes of the recent Punggol announcement will be more common,' the study said.
On the back of Sentosa Cove's success, JLL expects other islets around Singapore like Southern Islands and Pulau Ubin to be put for waterfront residential use.
In the existing CBD, JLL suggests that Shenton Way will see a further shift towards a mixed-use (including residential) district, once the current office supply crunch eases. In May last year, URA announced a temporary ban on conversion of office use in the central area, including the CBD, to other uses until end-2009.
Last year, the government identified Jurong East and Paya Lebar for development into business hubs. Dr Chua says land around Paya Lebar MRT Station will be intensified in line with government plans to transform it into a sub-regional centre and that the location will be ideal for cost-conscious office tenants.
However, Dr Chua suggests that the area around Jurong East MRT Station is more suited for research and development because of its proximity to universities, the Science Park and one-north rather than as an alternative backoffice hub along the lines of Tampines.
National Development Minister Mah Bow Tan last year also ruled out massive, across-the-board islandwide increases in plot ratios for MP 2008 to cope with a higher population target of 6.5 million. The Master Plan, a detailed land use plan that guides Singapore's medium-term physical development, is reviewed every five years. - 2008 January 4 SINGAPORE BUSINESS TIMES
RESIDENTIAL
Property boom expected to continue
Robust economy, jobs growth, strong housing demand and en bloc sales proceeds are key drivers
The bullish sentiment in Singapore's residential market continued into 2007 from where it left off in 2006. In the first nine months of this year, the market recorded a total of 29,331 sales transactions worth some $52 billion. This represents a year-on-year increase of 89 and 116 per cent respectively.
The demand for high-end residential housing has been growing at a feverish pace over the past two years and although the stock market plunge may have affected investor sentiment, new benchmark prices continued to make headlines over the past two quarters. Rising fast to support the high-end residential sector are the mid-tier and mass market segments, which have picked up significantly since early 2007 with record prices set at several project launches. Strong economic outlook, coupled with higher salaries and bigger bonuses and rapid jobs growth have brought new impetus for investors, home owners and speculators to upgrade and/or to purchase.
Comparing average prices with those at the end of 2006, the average price for homes in the super luxury market segment (luxury developments which crossed the $2,500 psf mark in Q4/2006) jumped 42 per cent to $3,700, while the high-end market segment (luxury developments in Districts 1, 4, 9, 10 & 11) rose by 36 per cent to $2,076 per sq ft. The average prices for both mid-tier and mass market developments have also risen by more than 50 per cent, albeit from a lower base, to $1,250 per sq ft and $700 per sq ft respectively.
One major market driver is en bloc sales, which have been very active since early 2005. However, with the prolonged US sub-prime credit woes, hikes in development charge rates and the tightening of en bloc sales legislation, the en bloc sizzle has taken a breather from the end of the third quarter of this year.
This has been a phenomenal year for en bloc sales. Since January, some 95 en bloc sales with a total value of $11.3 billion were transacted, compared to 65 transactions totalling $7.5 billion for the whole of 2006. The displaced tenants and owner-occupiers from these properties have contributed to the overall increase in rentals and capital values of homes in the mid-tier, mass and public market segments.
Notwithstanding the stock market shock in the third quarter, the buying momentum is expected to resume between next month and early 2008 given the wave of purchases from displaced en bloc-owners who are expected to collect their money and buy a replacement home around this time. This time round, the mid-tier and mass market segments will lead the way with a strong growth, lending solid fundamentals to prices in the high-end and luxury sectors.
For next year, the residential market in Singapore is expected to remain strong with all segments looking set to continue growing supported by robust domestic economy, jobs growth, wage growth in both the public and private sectors, strong housing demand from expatriates relocating to Singapore and reinvestment of proceeds from en bloc sales.
The general market consensus is that supply will tighten due to a short- term supply crunch in 2008, as the expected demolitions from en bloc sales outstrip the completion of new projects. The tightness in supply will be exacerbated by the need to fill job vacancies which stood at close to 40,000 by mid-2007 with unemployment standing at 1.7 per cent in September 2007.
An estimated 10,000 units from en bloc sales are also expected to be demolished in 2008 while TOPs from new projects are expected to re-supply only 8,000 units. (This is largely due to the few construction starts back in 2003 and 2004 when economic confidence was low, which resulted in low completion numbers in 2007 and 2008.)
Furthermore, there is also the potential risk for a slower pace of construction of residential properties arising from the strong competition for resources in the construction sector. This is largely due to the fact that several of these mega projects are also scheduled for completion within the next three to four years. Some of these mega projects include the two integrated resorts, BFC, petrochemicals plants in Jurong Island, public infrastructure such as the Circle Line and Circle Line Extension, common services tunnel in Marina Bay, sports hub at Kallang, and Gardens by The Bay.
On the demand side, there are several significant events that could spur investments into Singapore. The first is next September's Formula 1 night race, which will bring international attention to Singapore starting from February, when the F1 season begins.
The weakening US dollar, strengthening Sing dollar, reduced confidence in US markets and political uncertainties as several key regional countries will be holding their general elections soon, could encourage more high-net-worth individuals (HNWIs) from around the region to park some of their wealth here.
The strong Singapore property market has also caught the eye of fund managers from Europe, the Middle East and Japan who have been investing in Asian real estate; and Singapore will benefit from that allocation in 2008 and beyond.
The high-end market is expected to remain steady with average prices likely to rise by another 15 to 20 per cent to hit an average of $3,000 per sq ft. With such strong demand, it would not be to far-fetched to expect some units in super luxury residential projects to cross the $6,000 per sq ft mark.
Developers will continue to raise prices for luxury high-end apartments with superior product quality, such as more spacious surrounding, and designer fixtures and fittings. At the same time, the replacement cost of land, whether from en bloc sales or government land sales, will continue to go up.
Meanwhile, Singapore's status as a global financial centre, tax-friendly environment, strong currency and liquidity in the local market will keep attracting investment interest from the fast-growing private banking sector which, in turn, are attracting HNWIs to the region as well as expatriates entering Singapore's job market.
While the high-end market takes a slower growth next year over an increased baseline, the mid-tier and mass markets will surge in 2008 due to strong demand and spill-over effects from the high-end market. Twelve months ago, we proclaimed that 2007 will be the year of resurgence for the mass market. We were spot on. We now know that the resurgence is backed by solid fundamentals and we expect this sector to soar in 2008.
Assuming two-thirds of home owners, who sold their properties en bloc in the first nine months of 2007, will buy replacement homes, we could expect to see some 4,300 buyers with a budget of approximately $7.5 billion looking for homes in the first half of 2008.
Soaring high-end prices and supply crunch in prime districts have forced some buyers to turn their attention to mid-tier projects. In addition, public and private sector wage rise backed by robust domestic economy, tighter job market will also drive up demands from HDB upgraders or families exceeding the HDB income ceiling, particularly in the mass market segment.
Strong demand could also push mid-tier prices up by another 20 to 40 per cent to between $1,500 and $2,000 per sq ft for the whole of 2008. Areas that will benefit from the rise in the mid-tier market include Balestier, Bukit Timah, Novena, Thomson and Upper East Coast. As many of the mass market areas are still relatively undervalued, it is expected that prices will grow strongly, up by between 30 and 50 per cent from a low base, with average prices reaching around $1,000 per sq ft. Areas likely to see the most significant price gains include Upper Paya Lebar, Hougang, Ang Mo Kio, Upper Thomson to Mandai, Clementi, West Coast, Jurong East, Upper Bukit Timah and Bedok.
There are several projects in the high-end and super luxury markets to keep an eye on in 2008, such as the Ritz-Carlton Residences at Cairnhill, Hilltops at Cairnhill, Paterson Suites at Paterson Road, and The Marina Collection and The Quayside Isle in Sentosa Cove. We would also be monitoring The Cascadia and Floridian at Bukit Timah, and the development by CDL in Thomson Road for signals of strength in the mid-tier market. For the mass market segment, it will be the developments at Simon Road and Bedok Reservoir and Park Natura at Bukit Batok. In the landed property sector, international attention-grabbers in Sentosa Cove could be launched in 2008.
The rental market is also expected to strengthen. Based on robust demand and limited supply being completed, coupled with the withdrawal of properties in the prime districts through en bloc sales, rentals are likely to hit new highs.
Rents in prime districts will increase by 20 to 30 per cent next year, to an average of $6 to $8 per sq ft per month. The trend of existing tenants in prime districts moving out to fringe or suburban areas will continue, and this will support the annual 50 to 80 per cent growth of the suburban rental markets, at average rents of $4 to $5 per sq ft per month.
Though the property market continues to exhibit strong performance, there are several factors which could affect the residential sales market. Factors such as prolonged uncertainties in the global equity markets, further property measures imposed by the government to cool the market, rising oil prices and high inflation rate could possibly dampen investors' sentiment and confidence. Increased operating costs due to rising residential and office rents have also sparked concerns about the erosion of Singapore's attractiveness for MNCs.
The Singapore government targets a long-term economic growth of 4 to 6 per cent per annum. We have been making basic changes to diversify our economy, through the IRs (conventions/exhibitions, Universal Studios theme parks), through investments in R&D and intellectual property, through continued liberalisation of funds management, private banking and insurance industries. This re-positioning of Singapore as a vibrant, global city will continue to support the residential market.
Singapore is undergoing a structural upwards re-rating of the property market. Barring unexpected shocks, property prices will continue to rise for at least three years, and if the IRs deliver their performance, another five to seven years. And even if there were a downturn in the property sector beyond 2012, the authors believe that bottom prices then will still be higher than the prices of 2007.
Given the factors outlined above, what might be the opportunity cost of doubting the continued growth in this market and staying on the sidelines and waiting for it to drop? - 2007 November 14 SINGAPORE BUSINESS TIMES
A broadbased recovery in the housing market now looks imminent with some developers feeling confident enough to put in new benchmark bids for 99-year suburban leasehold sites.
But HDB upgraders are finally making a comeback, bolstered no doubt by salary revisions in the civil service and mid-year bonuses.
Even the much-anticipated fallout from the United States sub-prime crisis and subsequent global credit crunch appears to have left the Singapore property market relatively unscathed. Not only have foreign institutional investors continued to pump money into the property sector, a new base of investors, most notably from the Middle East, are making their presence felt.
Of course, there is still a level of volatility in some segments. The high-end and luxury residential sector may see both foreign and local investors make more cautious decisions about buying into a segment that is already a little peakish.
Speculators, who have been driving up prices in the high-end and luxury segments, also appear to be beating a retreat, after considering the upsides in flipping properties no longer worth the risks.
Emerging markets are also looking like pretty safe bets though.
Few will have failed to notice that when the US sub-prime situation started to unravel in July and August, the China and India markets seemed impervious to its effects.
The growth story of both these powerhouses is well known, so much so that industrialists and developers alike are looking for new frontiers.
Vietnam is certainly a hot favourite now but closer home, Malaysia too holds many opportunities.
And if the Singapore market is anything to go by, the increasingly buoyant high-end sector in its capital city certainly bodes well for the rest of the real estate market.
Risk aversion may yet be the catch phrase of choice for the months ahead.
Not surprising then, financial analysts have come out in support of the mass market and the mid-cap developers most exposed to this segment.
Also looking relatively safe is the growing Singapore real estate investment trust (S-Reit) sector. The first Reit was listed in 2002 and, to date, there are 17 S-Reits with more expected to be listed. 2007 September 27 SINGAPORE BUSINESS TIMES
The million-dollar club in Singapore continues to grow. The IRAS annual report shows that 2,121 taxpayers earned more than $1 million in Year of Assessment 2006, which assesses income earned in 2005. That was 22 per cent up from 1,738 million-dollar earners in 2004.
The bulk of these wealthy people were Singapore residents, with only 31 non-residents. For tax purposes, residents are defined as those physically present in Singapore for at least 183 days in a year.
The total income of this exclusive club has also grown. Their total assessable income earned in 2005 was $4.2 billion, up from $3.4 billion the year before. And the total tax assessed on their income was $682 million - about 17 per cent of total income tax collected from all individuals that year. - SINGAPORE BUSINESS TIMES 2007 September 8
Sizzling real estate sector
Bullish investors may drive 2007 sales to a record high, while home prices and rents continue to surge
After years of being in the doldrums, the Singapore property market has been staging a spectacular recovery in the past couple of years. The rally is being fuelled by a surge in confidence from foreign investors as well as local buyers. The real estate sector is firing on all cylinders, including investment sales, residential and office.
A whopping $24.81 billion worth of investment sale deals were sealed in the first six months of this year, according to CB Richard Ellis (CBRE). Investment sale deals - a gauge of major property players' confidence level in the mid-to-long-term prospects for the real estate sector - include collective sales, other land deals, transactions of entire office and other buildings, as well as strata-titled units above $5 million. The first half of 2007's sparkling investment sale numbers include some 75 collective sales worth $9.3 billion, higher than $8.2 billion for the whole of last year.
CBRE expects the full-year investment sale figure to surpass the record $30.51 billion set in 2006, hitting as high as $35 billion.
Major deals in H1 this year include the $1.04 billion sale of Temasek Tower, the collective sale of Leedon Heights ($835 million) and Novotel Clarke Quay Hotel ($201 million).
In the residential sector, the Urban Redevelopment Authority's (URA) Q2 price index for private homes was up 8.3 per cent from the preceding quarter and 21 per cent higher year on year. And latest Q2 official figures show that the residential price recovery that began some two years ago in the high-end segment fuelled by foreign buyers has started filtering down to other segments of the market, based on URA's sub-indices.
Prices of non-landed private homes in the Core Central Region (CCR) - which includes prime districts 9, 10, 11, Downtown Core (including Marina Bay) and Sentosa - were up 7.9 per cent in Q2 over Q1, while prices of non-landed homes in Rest of Central Region (RCR) - which includes areas like Bukit Merah, Queenstown, Geylang, Toa Payoh and Katong - rose 8.1 per cent over the same period. The Outside Central Region (OCR), covering suburban mass-market locations like Woodlands, Clementi, Jurong, Hougang, Tampines and Bedok, posted a 7.2 per cent quarter-on-quarter rise in Q2.
The rental market has also been sizzling, with residential rental indices of non-landed private homes rising 12 per cent in Q2 over Q1 for the CCR, and by 10 per cent and 9.4 per cent respectively for RCR and OCR in the same period. The Q2 rental indices were up around 35 per cent from a year ago for each of the CCR and RCR, and by 28.3 per cent for OCR.
In the public housing segment, the Housing & Development Board's (HDB) resale flat price index rose 3 per cent quarter-on-quarter in Q2, compared with a 1.3 per cent gain in Q1.
The outlook for the residential sector is bright. Most property consultants predict that URA's overall private home price index may surge a further 8 to 15 per cent in the second half, chalking a full-year increase of 23 to 30 per cent. Analysts generally expect HDB resale flat prices to post an 8 to 10 per cent full-year increase.
Interestingly, collective sales have caused a ripple effect. For instance, those who sell their homes through en bloc sales are looking for replacement homes, in many cases outside the prime districts where they sold their en bloc properties because of rapidly rising prices in the prime locations.
This has helped to spur a recovery in the other market segments, even HDB resale flats, where a few units have been purchased at record prices by those who sold their private homes through en bloc sales.
At the same time, as developers pull down en bloc sale sites to redevelop them, the resulting shortage of prime district apartments has helped fuel rental hikes for such homes. In the industrial property market, average rents for all categories of space increased in Q2 this year. High-tech space posted the biggest quarter-on-quarter gain of 11.9 per cent to $2.35 psf per month, as the office space shortage and rising office rentals led many qualifying occupiers to move to high-tech properties, according to CBRE. The average monthly prime retail rent along Orchard Road posted a 1.8 per cent quarter-on quarter gain in Q2 to $34.40 psf - close to the $35.10 psf achieved in 1996.
As for the office sector, a shortage of space in the near term, coupled with strong demand from occupiers including big-wig international financial institutions have been the key factors driving a whopping 80 per cent year-on-year rise in CBRE's average prime rental in Q2 to $10.80 psf a month. This surpassed the 1996 peak of $9.90 psf a month, and is fast closing in on the 1990 historic peak of $11.50 psf a month. The Q2 office rental figure is also more than double the $4 psf during the current cycle trough in Q1 2004.
Market watchers expect office rents to head further north in the next few years because of the supply crunch. However, the government has been releasing more office sites, including the maiden 'transitional office' plot which can be built into a low-rise office building in about a year.
In addition, it has made available more 99-year condo sites, mostly in suburban locations. Besides tackling the supply side, the authorities have also begun releasing more property market data so that participants can make more informed decisions. So far, the indication from government is that it is not inclined to intervene to cool demand.
Fundamentals for the Singapore real estate sector remain strong for the next couple of years, at least - barring unforeseen circumstances.
Of course, a sustained rout in the local stock market because of the selldown on Wall Street is likely dent sentiment in the Singapore property market. But there could also be a more direct hit if the US sub-prime mortgage default fiasco dries up some of the liquidity that has been powering the local real estate sector's sparkling recovery. - SINGAPORE BUSINESS TIMES 9 August 2007 By Kalpana Rashiwala
UOB tightens up on home loans in face of dizzy market
Bank imposes caps on valuations and puts 80% ceiling on loans
Wee Cho Yaw has done it again, though only time will tell if he was ahead of the curve.
At a time when property prices have started to touch giddy heights, the chairman of United Overseas Bank (UOB) has reportedly asked his institution to tighten lending criteria.
Since late last month, UOB has been lending only 80 per cent of a home's valuation, even though most banks are willing to stump up 90 per cent of the selling price.
UOB has also decided to put its own cap on valuations, which appear more conservative than the current market prices.
Mr Wee, arguably Singapore's sharpest banker, stepped down as chief executive of UOB in April this year and was succeeded by his oldest son, Ee Cheong.
UOB's stricter lending criteria mean that some potential borrowers have been turned away. A UOB mobile sales banker complained that she has been losing sales but has told prospective customers that she can try to appeal on their behalf. UOB is believed to be the first bank to make its lending norms more stringent.
At UOB's second-quarter results on Tuesday, Eddie Khoo, executive vice-president, personal financial services, said that less than 10 per cent of the bank's new home loans this year provided more than 80 per cent financing.
'We require a higher cash portion,' said Mr Khoo.
He said that more than 80 per cent of UOB's home loans were for owner occupation and that foreigners accounted for 20 per cent of home loan customers.
For certain hot projects in the prime districts such as Orchard Residences, Scotts Square or St Regis Residences, UOB has put a valuation cap of $3,600 per square foot (psf), even though sales and sub-sales have been reported at much higher prices.
Scotts Square, launched last week, saw 169 units sold at an average price of $3,983 psf. The highest price paid was $4,430 psf for a one-bedroom apartment on the 41st floor, of the 338-unit project, said Wheelock Properties, the developer.
The median price for St Regis Residences on Cuscaden Road, developed by City Developments, is $3,713 psf, according to Urban Redevelopment Authority data. In June, it was reported that a unit went for $4,635 psf at the 173-unit St Regis Residences which has only 15 units unsold.
At selected projects in the upmarket districts 9, 10, 11 and in Marina Bay, UOB is said to have set the valuation cap at not more than $2,600 psf.
Sub-sales of The Sail @ Marina Bay are being advertised at prices ranging from $1,900 psf to over $3,500 psf. Caveats lodged show that units were sold from prices as low as $1,249 psf for The Sail which was first launched in 2004.
Even for the recently launched Fontaine Parry near Serangoon, UOB is said to have a valuation cap of $834 psf. According to sole agent Knight Frank, the first phase of Fontaine Parry, which was sold out, saw prices starting at $850 psf and some sub-sales are now going for $900 psf.
For the first half of 2007, UOB grew its total home loans book 18 per cent, outpacing the industry average, to $20.7 billion. DBS's group home loans rose 8.75 per cent to $26.1 billion. UOB said Singapore mortgages were up 15 per cent while DBS reported an almost similar growth of 14 per cent.
In August 1995, Mr Wee said famously: 'I don't think the property market will collapse but prices have reached a high and the upside is limited.'
Although still sympathetic to first-time property buyers or HDB upgraders, he said the bank had more stringent criteria for speculative buyers and those investing in second properties.
The strategy meant that UOB lost some market share in property loans.
UOB that year reduced financing to only 65-70 per cent of the purchase price of a property, compared to about 90 per cent in 1992, just before the height of the property frenzy which peaked in 1996 before crashing.
Singapore's property market subsequently went into a long depression, which lasted for the most part of the decade until 2003 and sent many borrowers into negative equity - where the size of their loan was larger than the value of their property.
The bank is opting for caution again.
Said a spokesman: 'UOB has always taken a prudent approach in its credit assessment process. A loan application is assessed on the creditworthiness of the borrower as well as the merits of the property. We would consider the loan application favourably if the borrower meets our criteria. From time to time, the bank reviews its home mortgage policies, and if necessary, adjustments may be made to align with market conditions.' - by Siow Li Sen SINGAPORE BUSINESS TIMES 9 August 2007
COMMENTARY
2007 promises to be an interesting year for Singapore with the euphoric success at Marina Bay and a number of regional property players collaborating on the orderly playing field. We have assembled a few key bits of research and news so one can interpolate as one wishes.
Singapore is experiencing 'flavour' of the season for even some Western-based real estate investors and hedge funds to get their feet wet in Asia. This trend started last year with Colony Capital of New York's purchase of Raffles Hotel with the Fairmont Hotel group.
No better place than Singapore as a test market but German and Australian funds have been playing in this market for a number of years and Hong Kong players are demonstrating that they know how to cooperate for mutual profit. This hasn't always been the case as often the cities were competing.
In any event, the developments taking place at Orchard Turn and Marina Bay is igniting the property market in Singapore. And Sentosa is finally taking off like wild-fire after many years of dedicated effort. Purchasers of luxury condominiums are being asked to turn over blank cheques for the premium units and luxury residential condos have hit the $2,500 per sq ft price mark. >> MORE
Much of Singapore property market's success is as a result of the expectation that more expatat's will be moving to the city fuelling growth in the luxury sector of the residential market and increased deman for office space. Still, as typical of Asian investors, many are still treating Real Estate as yet another commodity - some of which is to be traded for profit . - ANDREA ENG
There's upside yet in Singapore property
Investing in property requires capital and time but the rewards can be substantial
Singapore's property market is booming, with activity centred in districts 4, 9, 10, 11and 15. And I believe there is a lot more upside yet. Why? For each key event listed below, I expect an above average movement of $200 per square foot for the districts mentioned in the years ahead:
Year 2008: Singapore will host the world's first Formula One night racing. The world will be invited to Singapore, interact with and invest in Singapore.
Year 2009: The first integrated resort (IR) at Marina Bay will be completed with US$5 billion flowing into Singapore from the first wave of tourists. They will come from the business travel, meetings, conventions and dexhibitions segment.
Year 2010: The second IR on Sentosa will be completed with another US$5 billion flowing in from the second wave of tourists. These tourists will come from destinations beyond a nine-hour flight radius.
Year 2011: My guess is that there will be a general election in Singapore which could see some election year goodies.
Year 2015: Singapore celebrates her 50th birthday and hopefully fulfils Prime Minister Lee Hsien Loong's vision of Singapore as the jewel of the region.
Can we really profit from investing in the property market?
While many wealth creation fads come and go, property investment has consistently created more permanent millionaires than any other investing strategy in history. Here are what some of the wealthiest Americans have said:
'Real estate is the basis for all wealth.' - Theodore Roosevelt
'Eighty per cent of all millionaires made it through real estate.' - Andrew Carnegie
'Buying real estate is the best, safest way to become wealthy.' - Marshall Fields
The truth is that property investment is not just for the rich. If done correctly, anyone who has the desire to succeed can create enough passive income or a lump sum of cash to become financially free.
According to an annual World Wealth Report compiled recently by Merrill Lynch and research firm Capgemini, Singapore has 66,660 millionaires (in US$ terms). They account for about 1.5 per cent of the population, that is, three out of every 200 people here are millionaires.
Where are the areas to invest? I highly recommend Sentosa Cove and District 10.
Sentosa Cove offers one of the most exciting propositions - a residential enclave that shares the island with an integrated resort. The wealthiest individuals in the world will be looking to buy your property which will be situated right next to their favourite entertainment spot.
In district 10, the Duchess area is the place where you can invest in your child's future. Within a one-km radius, it offers several premier schools: the Nanyang and Raffles Girls' primary schools, St Margaret's Secondary School, Nanyang Girls' High, Chinese High School, Hwa Chong Institution, National Junior College and Hwa Chong Junior College. - by Clement Chiang SINGAPORE BUSINESS TIMES commentary 4 July 2007
Hot picks in real estate
2007 March 22: It has been quite a year for the Singapore property market, emerging from the gloom and heading into uncharted territory. The spark that started the uptrend can be traced back to late 2004 when foreigners, flush with liquidity, began showing interest in Singapore's high-end property.
This was boosted by the country's plans for the Sentosa and Marina Bay integrated resorts as well as government efforts to make property more appealing by easing the approval process for foreigners to own land (in the case of Sentosa). Moreover, Singapore's property market had been lagging behind Asian cities like Shanghai, Hong Kong and Mumbai.
Capitalising on the government's effort to revitalise the property market, developers started acquiring prime land in the core central region (downtown core, Sentosa and districts 9, 10 and 11) in anticipation of rising property prices. It led to a series of en bloc deals in 2005 and 2006 as developers outbid each other to secure prime land.
This in turn prompted the government to hike the development charge (DC), with the rates for commercial use and office space rising by an average 12 per cent, landed residential use by 6 per cent and non-landed residential use by 14 per cent.
Reaping rewards
Savvy investors who saw the glimmer of light in late 2005 as a buy signal are reaping the rewards of their investments. In 2006, the Singapore property equities index rose 67 per cent while the URA property price index for residential and commercial property increased by 10.2 per cent and 17 per cent respectively. Singapore Reits (S-Reits) have also done well, appreciating by more than 40 per cent on average in 2006.
Given the buoyant outlook, where should investors look for the best returns in 2007?
Home prices increased by 10 per cent in 2006, with the bulk of the price increase concentrated in the core central region. Prices are expected to rise by a further 12 per cent this year. Residential rents have also risen 14 per cent in 2006.
While the focus has been on the central region, the mass market could see the filter- down effects this year, for several reasons. First, the strong economy has led to greater job security and rising wages. Coupled with a partial restoration of CPF, demand for mass market projects is expected to rise as middle-income earners, who were most affected by structural changes, will have greater confidence to upgrade their properties.
Second, following the wave of en bloc deals, people who have sold their homes to developers would be shopping for replacement units. As some of them may be priced out of units in the original area, they would look for homes in outlying areas.
Third, the government's strategy of attracting foreign professionals into the country is paying dividends. Anecdotal evidence suggests many have decided to call Singapore home, driving up demand for private property. Many Singaporeans are also snapping up projects close to where the foreigners are working, in hopes of fetching rich rentals.
This can be seen in the recent launch of One North Residences at One North Research Hub in Buona Vista, which sold close to 80 per cent of the units in three days.
On the commercial side, the sharp 30 per cent spike in office rentals in 2006 was attributed to the shortage of prime office space. Although the government has released the Business and Financial Centre for development, no new office supply is expected to hit the market till late 2009. This has caused office rentals in the CBD to surge past $10 per sq ft with occupancy hitting 98.4 per cent for Grade A properties.
With more multinationals from the finance, IT and marine industries relocating to Singapore, demand has risen considerably, while downtown supply has dipped as old commercial buildings are being redeveloped into apartments. As such, the commercial sector will continue to do well for the next couple of years, and new records are expected to be set for Grade A properties. Sub-prime areas will also benefit from spillover demand.
Pockets of opportunities
As property recovers, property stocks have seen one of the best runs in recorded history, far outpacing the rise in real estate. While fundamentals are strong and profits should be very healthy, much of the prospects of property developers may already be in the stock price. However, there are pockets of opportunities, particularly in stocks exposed to the commercial sector as well as Reits.
With the crunch in office supply, commercial real estate landlords will see another stellar year. Given the discrepancy between rental yields of commercial property and the required returns of commercial Reits, value can be unlocked by landlords by selling these properties to existing players or floating a Reit themselves.
S-Reits outperformed their global peers in 2006 and are likely to see slower growth ahead. Given that it is increasingly difficult for Reit managers to make yield accretive acquisitions, it is likely that there will be some merger and acquisition (M&A) activity among listed players. Smaller Reits like Cambridge Industrial Trust, which typically have more attractive valuations and higher yields, are likely targets for takeover.
Property is riding high and will continue to see strong interest in 2007. For investors, this should be a good time to invest in well-located mass market projects, particularly those close to the city or MRT stations. Commercial landlords are also expected to enjoy a good run for at least the next two years. Grade A office buildings have already seen record rentals, and this is expected to spill over to the lower tiers. While prospects for property remain bright, property counters may have already priced in much of the good news. As such, investors should not expect the same gains as before and be more selective. - Terence Wong is chief executive officer, and Alvin Yong, research associate, at SIAS Research Pte Ltd SINGAPORE BUSINESS TIMES 22 March 2007
Overview
These are heady times to be a developer or an estate agent in Singapore. The city-state is in the grip of a property boom powered by economic growth, strong employment and a buoyant stockmarket. Rents, both residential and commercial, are rising fast. And new blocks of flats are selling even faster, sometimes within hours.
January 5th saw the launch of One Shenton, an apartment block near Marina Bay, just south of the central business district. Thousands turned up and virtually all of the 330 apartments on offer were sold within one-and-a-half days. The developer, City Developments (CDL), said it had sold the block for between S$1,500 and S$2,200 ($972 and $1,426) per square foot. The smaller, one-bedroom flats sold for about S$1m each; the biggest flats went for four times as much.
CDL has delayed selling the 11 penthouse units at One Shenton in the hope of attracting even higher prices. A few weeks ago the penthouses at the nearby Marina Bay Residences were sold for a new Singaporean record of S$3,400 per square foot. The rush has all the hallmarks of a speculative bubble, but few believe it is anywhere close to bursting just yet. - 22 January 2007 THE ECONOMIST
'Property Prices to Rise on Consistent Demand'
Singapore's high-end property prices may rise by as much as 10 per cent this year amid consistent investments by overseas funds and expatriate workers, the chief executive of Southeast Asia's biggest property company said on Monday.
'2007 will be good year,' CapitaLand Ltd chief executive Liew Mun Leong told Dow Jones Newswires during a visit to Kuala Lumpur.
Still, that's a slower growth rate than last year. Analysts estimate prices of Singapore's high-end property market, which traditionally attracts rich buyers from Asia and funds looking to invest in the real estate sector, rose between 20 per cent and 30 per cent in 2006.
Mr Liew said CapitaLand expects medium-end property prices in Singapore to rise by 5 per cent compared to 2006, while high-end developments could see an increase of between 5 per cent and 10 per cent on year.
Mr Liew said the trend of prices rising is 'cascading down' to the other price segments also, driven by rising demand from expatriate workers in the city-state as well as investment funds that buy property.
However, the rise isn't creating a speculative bubble, he said.
'I would say that a bubble develops if there is no demand. And when I say demand I'm talking about real demand,' he said.
'I think in Singapore the demand is still there,' Mr Liew said. 'Because there is a lot of growth in expat housing. There are a lot of companies moving to Singapore and the reality is we need housing, whether it's (the) financial industry or manufacturing or other industry.' -- AP 8 January 2007
2006 The Year in Review
Far East Organization the biggest property investment buyer in 2006
Property tycoon Ng Teng Fong's Far East Organization was the biggest buyer in the property investment market in Singapore last year with about $1.6 billion worth of deals under its belt, according to the latest analysis by CB Richard Ellis (CBRE).
CapitaCommercial Trust was the next biggest buyer with its purchases valued at $1.3 billion. The Singapore-listed real estate investment trust (Reit) was catapulted to the top buyers' list with its acquisition of a 60 per cent stake in Raffles City.
Las Vegas Sands was in third spot, with its $1.2 billion purchase of the Marina Bay integrated resort (IR) site.
City Developments, controlled by Kwek Leng Beng and his family, was in fourth position, with $1.127 billion, according to CBRE.
Following closely behind was the Riady family's Lippo Group (inclusive of Auric Pacific and Overseas Union Enterprise), with $1.067 billion. Other local players making it to the list of top buyers last year include Ho Bee (about $820 million), Frasers Centrepoint (also above $800 million), SC Global (about $720 million), GuocoLand ($510 million), MCL Land (about $420 million) and Wing Tai (about $380 million).
UOL Group bought about $340 million worth of properties, while United Industrial Corp and its subsidiary Singapore Land were involved in deals totalling around $240 million.
Also noteworthy was the strong inflow of foreign investment in the local real estate market last year. Besides Las Vegas Sands and Genting Group which bagged the Marina Bay and Sentosa IRplots respectively, other big foreign buyers were Australia's Lend Lease (over $650 million), CLSA-linked entities (which purchased SIA Building and HB Robinson), Lehman Brothers, Hong Kong's Park Hotel Group and Macquarie Global Property Advisors.
Latest updated figures from CBRE show the total investment sales of property in the Singapore market hit $28.19 billion last year, more than double the previous historical high of $13.5 billion in 2005.
Investment sales of property - seen as a barometer of developers' and big investors' mid-to-long-term confidence in the real estate market - refer to large investment transactions like office buildings and shopping centres, as well as sites bought for development, including collective sale deals. CBRE's figures also include sales of strata residential and commercial units costing $5 million or more.
For Far East's Mr Ng, the property buying spree last year began right from the word go, when the group placed, on the same day (Jan 18), top bids for two properties - the former Glutton's Square site on Orchard Road ($421.1 million) and Amberville ($183 million) in Katong. The latter marked the group's first private residential land purchase in Singapore for almost 10 years. Far East followed that up with a string of other residential site purchases throughout the year - Angullia Mansion, Skyline Angullia, Rose Garden, Pacific Court and a group of properties at Keng Chin Road in Bukit Timah. Mr Ng's Hong Kong arm, Sino Land, also clinched the coveted Collyer Quay site at a state land tender in December.
Properties sold by the private sector accounted for $23.6 billion, or 84 per cent of the total investment sales deals last year. The remaining $4.6 billion originated from public sector sales, including the land parcels for the two integrated resorts at Marina Bay and Sentosa.
By sector, the residential market accounted for the lion's share of $14.5 billion (roughly 51 per cent of 2006's total investment sales), up 91 per cent from the preceding year. Last year's $14.5 billion figure included a whopping $8 billion worth of collective sales deals - four times the $2 billion for the preceding year and the highest in the past decade.
It was also an active year for Good Class Bungalow sales, with nearly $1 billion worth of deals struck, up 33 per cent from 2005. The commercial property sector saw $9.9 billion of deals last year, up 49 per cent from 2005.
The hotel sector also recorded an unprecedented level of investment sales at $1.5 billion, reflecting the buoyant mood in the industry on the back of record visitor arrivals.
In terms of buyer profile, developers were tops with a total of about $11 billion worth of acquisitions, either done solo or jointly with other parties. Next were Singapore-listed Reits, accounting for $6.12 billion or almost 22 per cent of 2006's total investment sales. - SINGAPORE BUSINESS TIMES Jan 15, 2007
Broad-based recovery in property seen
Property players polled by Business Times believe the market - which collapsed 10 years ago - is set for a broad-based recovery following recent signs that stability has returned.
Ten years after boom turned to bust in 1996, they believe that a sensible - as opposed to an unrealistic - mindset has taken hold, with sellers focusing on fair prices and buyers looking for fair value.
Property cycles, by definition, come and go. And many owners, still hurting from the 1990s, are not sure whether they are coming or going. So BT polled 13 major players on how things stand. The reactions were mixed - but mostly optimistic, although three abstained.
Seven of the remaining 10 believe that signs of a broad-based recovery will emerge this year. Their view also applies to the all-important residential mass market, which has traditionally been driven by Housing and Development Board upgraders.
For the high-end market, six of the 10 reckon prices will eventually hit 1996 levels - while four think otherwise.
BT also asked if speculation will make a comeback this year, and apart from those who said it 'never went away', five said no.
Jones Lang LaSalle's regional director and head of investments Lui Seng Fatt says property cycles are based on 'historical patterns', and using a seven-year cycle, 'we may peak in mid-2007'.
Property segments have also become increasingly inter-linked, and Mr Lui notes that the broad-based recovery is being led by the retail and office market. 'The retail market in particular has not been affected as much.'
If the mass market has been slow to pick up, it could be because buyers realise the investment potential of real estate is not what it used to be - not yet anyway.
Tay Huey Ying, associate director of research and consultancy at Colliers International, is sanguine. 'Properties are regarded more as consumption goods now, and there are more investment alternatives offering higher returns than direct property investments, like Reits and unit trusts,' he says. 'The number of upgraders has dwindled, as most home-owners are saddled with properties bought at high prices. Some are still in a negative-equity situation. Hence, the ability to upgrade is lower compared with 1996.'
But if buyers are wiser, what about developers? They too learned lessons from the last boom, according to City Developments group general manager Chia Ngiang Hong. 'Generally speaking, a property bubble with unsustainable prices is detrimental to the economy,' he says. 'Developers now pace their launches so as not to flood the market, mindful of the appetite of different-tier buyers.'
Of course, with prices still considered low, the only way is up. And that's where United Overseas Land's group general manager Liam Wee Sin expects them to head. 'With prices of homes, especially for the low to mid-end, still more than 30 per cent from peak levels, the up cycle is expected to be sustainable,' he says.
Some of those polled have vastly different ideas on what constitutes 'peak prices' and 'recovery'. Assistant Professor Lum Sau Kim, of the Department of Real Estate, School of Design and Environment, National University of Singapore, says: 'Recovery may not be an appropriate term because we are not far off the market equilibrium path. If you track the property price index over the past three decades, it would appear that the price peak in 1996 was an anomaly. The boom in property prices then was out of sync with the long-term trend in income. Today's price levels appear to be more in line with long-term income growth.'
The property boom in the mid-1990s was also very much driven by HDB upgraders, who benefited from new HDB and Central Provident Fund policies related to housing. According to DTZ Debenham Tie Leung executive director Ong Choon Fah, 'the boom in the mid-90s was very much a bottom-up phenomenon. Today's upswing is the first time we have seen the top-end of the market take off first - but it is happening across the region.'
Foreigners are now a key element of the Singapore property scene - as recognised by such developers as Far East Organization. Chia Boon Kuah, its chief operating officer of property sales, says: 'We have begun in recent years to actively market our projects outside of Singapore. For our newest project, Orchard Scotts, we expect foreign investors to make up about 50 per cent of the total buyers.'
Globalisation and the free flow of capital have changed local economies everywhere, making property highly volatile. So could the pick-up in the high-end market be an isolated phenomenon - another aspect of globalisation that the market will have to come to terms with.
Colin Tan, head of research at Chesterton International, for one, believes that the market has become more segmented and that one prediction cannot apply to all. Expatriates, for instance, 'prop up prices in certain areas only'.
Mr Tan notes: 'The level of demand from expatriates from housing does support prices in the prime locations. When the expats leave en-masse, there is also a problem. Our economy is also to a certain extent held hostage to major global economic events, unlike Malaysia or our other neighbours, where the economy is closed and the impact is less.'
Not surprisingly then, some property experts are taking a more global macro-economic perspective when it comes to reading property cycles. Knight Frank's director of consultancy and research Nicholas Mak, who watches US federal interests rates closely, says: 'US interest rates reflect liquidity in the market. And this is important because foreign buyers make a big part of the market here.'
Indeed, global capital follows the actions - so it is worth noting where this is going. Merrill Lynch analyst Sean Monaghan says: 'Our property stocks are not Singapore stocks any more. They are increasingly China stocks, or at least Asia regional property stocks, so the question is not what the outlook for the Singapore property cycle is, but what is the outlook for the region.' - by Arthur Sim SINGAPORE BUSINESS TIMES 28 January 2006
Latest property figures add weight to recovery storyFor the private residential market, the supply glut is abating and is at its lowest level in nine years. The stock of yet-to-be-sold private homes in uncompleted projects with the necessary approvals for sale stood at 10,277 units at end-2005, down 9.6 per cent from the preceding quarter and 35 per cent lower than at end-2004. The last time the figure came close to this level was in Q4 1996, near the market peak.
On the demand side, developers sold 8,955 private homes last year in the primary market, or a 55 per cent increase from 2004. The secondary market - in which properties are bought from home owners, not developers - was also busy, with 7,582 private homes changing hands, up 38 per cent from 2004.
'With the lack of suburban mass-market residential launches throughout the year, home buyers turned to the secondary market for better buys,' says CB Richard Ellis executive director Soon Su Lin.
Another important component of a market recovery - speculation - is also in play, albeit on a modest scale. The number of sub-sale deals, often taken as a proxy of speculative activity since they involve sales by home buyers before project completion, rose 54 per cent, from 261 in 2004 to 402 last year. The bulk of the increase came in Q4 last year, when there were 167 sub-sale transactions. When speculative fever was at its height in 1995 and the first half of 1996, sub-sales averaged 1,200 per quarter.
The total 402 sub-sale deals for the whole of last year accounted for only 2.4 per cent of total private housing transactions in the primary and secondary markets combined, up only slightly from a 2.3 per cent share in 2004. In Q4 2005, when the sub-sale level was at its peak last year, the figure was 3.5 per cent.
Some agents say the speculation was largely confined to a handful of projects, including The Sail @ Marina Bay and The Azure at Sentosa Cove.
'It's very project specific - iconic, waterfront condos. Speculation is not rampant now, unlike in the 1990s,' says a seasoned property agent. 'In any market, whether money market, stocks or property, you need some speculation. It prices the market...otherwise things will be down.'
In the figures released yesterday, the Urban Redevelopment Authority's private home price index rose 1.4 per cent in Q4 from Q3 and posted a 3.9 per cent increase for the whole of 2005.
In the public housing segment, too, the Housing & Development Board's resale flat price index rose 0.4 per cent in Q4 from Q3, although the full-year figure was down 4.7 per cent, reflecting the declines in Q2 and Q3 last year that resulted from anti-cashback measures introduced by the government.
The recovery theme was also very much apparent in URA's data for the other sectors of the private property market - office, industrial retail.
The office rental index gained 6.7 per cent in Q4 and 12.7 per cent for the whole of 2005, higher than the 3.5 per cent full-year increase in 2004. The all-industrial rental index was up 2.5 per cent in Q4 and 5.2 per cent for the whole year.
URA's shop rental index rose 0.6 per cent in Q4 and 3.6 per cent for 2005 as a whole.
The residential rental index rose 0.7 per cent in Q4 and and 3 per cent for the whole of last year.
Knight Frank managing director Tan Tiong Cheng points out that the property market recovery was from a low base.
'Sentiment has been lifted by a few niche projects like The Sail and Azure which led the wave of foreign buying. The hikes in interest rates and oil prices didn't prove to be as severe as some had feared,' he says. 'And the government's decision to go ahead with the two integrated resort projects also boosted sentiment in the property market.'
Consultants are generally optimistic about the various segments of the Singapore property market this year, thanks to improving demand on the back of economic recovery and wage increases. CBRE predicts a 5 per cent increase in the overall URA private home price index this year and reckons luxury home prices could go up 20 per cent, after rising 15 per cent last year.
Agreeing that the outlook is brighter, DTZ Debenham Tie Leung executive director Ong Choon Fah says that while Singapore has a high rate of home ownership because of a successful public housing policy, demand for private homes continues to be an aspiration. 'A private home is a status symbol of sorts,' she says. - by Kalpana Rashiwala SINGAPORE BUSINESS TIMES 28 January 2006
Singapore's home prices rise 1.5% in Q1
Singapore home prices saw their biggest increase in five and a half years, rising 1.5 per cent between January and March, the Government's real estate planning agency said on Monday.
The Urban Redevelopment Authority (URA) said its initial estimate of the price index for private residential homes rose to 120.0 points in the first quarter from 118.2 points in the fourth quarter of 2005.
The first-quarter gain is higher than the 1.4 per cent rise seen in the last three months last year.
The URA will release the official price index on April 28. -- REUTERS 3 April 2006
HKG developers making a comeback in SNG
They are again set to play a major part in rejuvenating the skyline, but this time as partners of big S'pore listed developers
More than a decade after they launched Suntec City, Hong Kong parties are again making waves in the Singapore property scene.
 |
| Courtesy of SINGAPORE BUSINESS TIMES |
Property heavyweights from Hong Kong - jointly or with local partners - accounted for about 90 per cent of the estimated $2.7 billion generated from land sales by the Urban Redevelopment Authority so far this year, according to a compilation by The Business Times. Hong Kong parties have been involved in the winning bids for three of eight vacant sites awarded by the URA in 2005.
Property analysts say Hong Kong developers are bullish on Singapore, where the real estate market, despite its recovery, has lagged Hong Kong and other Asian cities.
'Hong Kong parties believe that with improving regional economic prospects and government efforts to make Singapore a great place to live, work and play, property prices here will head up,' says Colliers International managing director Dennis Yeo.
In the recent past, Hong Kong developers have participated in residential and office developments such as One Raffles Quay. But the projects they are now going to undertake are seen to be as significant as Suntec City.
Some of Hong Kong's richest tycoons bought land from URA in 1988 and developed the iconic Suntec City for around $2 billion. Li Ka-shing, who is Hong Kong's richest man, shipping tycoon Frank Tsao, entertainment mogul Run Run Shaw and property tycoons Lee Shau Kee and Cheng Yu-tung were among the investors in Suntec City.
Hong Kong players are again set to play a major part in the rejuvenation of Singapore - but this time the charge is led by big listed property developers.
Winning consortiums for the Orchard Turn and the Business & Financial Centre (BFC) development sites were Temasek-linked companies partnering Hong Kong developers, leaving local heavyweights like Kwek Leng Beng of City Developments and Ng Teng Fong of Far East Organization on the sidelines.
Earlier this month, Hong Kong's Sun Hung Kai Properties (SHKP) made a major foray into Singapore property. In that deal, it is a 50 per cent stakeholder in the winning consortium alongside CapitaLand for the Orchard Turn site. The partners clinched the site for $1.38 billion.
SHKP's controlling shareholders - Walter Kwok and family - are ranked number three in Asia on Forbes' 2005 billionaires' list, with wealth estimated at US$10.9 billion. The Kwok family partnered CapitaLand and others in an unsuccessful bid for the BFC site.
Hongkong Land, with Li Ka-shing's Cheung Kong Holdings and Hutchison Whampoa, partnered Keppel Land to win the tender for the BFC site. The land cost alone for phase one of the BFC project works out to around $1 billion.
'Hong Kong developers recognise a prime site when they see it and are willing to pay prime prices,' says Chesterton International's head of research Colin Tan.
Colliers' Mr Yeo says that with the emergence of real estate investment trusts in Hong Kong, developers there can monetise investment properties and use the money for development opportunities. Also, with a Reit market developing in Singapore, Hong Kong developers have a ready exit option for their projects, Mr Yeo notes.
Market players say the resources and aggressiveness of the big Hong Kong developers have driven their bullish bids for sites. Analysts expect further interest from them and Hong Kong investors in Singapore next year.
An SHKP spokesperson says the Orchard Turn project will be a relatively minor part of SHKP's investment property portfolio, and does not change the company's strategy of concentrating on Hong Kong and mainland China.
Hong Kong property heavyweights SHKP and Cheung Kong have market capitalisations of about $40 billion each, against CapitaLand's $9.4 billion and CDL's $7.5 billion.
Chesterton's Mr Tan thinks that with Orchard Turn, SHKP can bring new retailers to Singapore, while with the BFC, Cheung Kong and HK Land will have little to worry over cannibalising demand from other office properties.
Hong Kong parties have a good track record in commercial property in Singapore. Suntec City proves highly profitable. And HK Land and Cheung Kong are partners with KepLand in developing One Raffles Quay, which sits on a site fronting Marina Bay bought from URA in 2001.
Besides mega projects, Hong Kong parties have also been active in other parts of the market. Li Dak Sum's Carlton group won a URA tender for a Bras Basah hotel site with a bid of $55.6 million in January. And the Park Hotel Group paid $300 million for the Crown Hotel on Orchard Road in June.
Other Hong Kong developers, like HKR International, are reported to be scouting for opportunities. Other foreigners also appear upbeat on Singapore's property. Malaysia's IOI group was the second highest bidder for the Orchard Turn site.
Indonesia's Lippo Group, which has a strong presence in Hong Kong, has also emerged as a major player. Lippo bought a residential site at Alexandra Road/Tiong Bahru Road with CapitaLand for $180 million in November. Lippo also bought 78 Shenton Way and Newton Heights. - by Leslie Yee SINGAPORE BUSINESS TIMES 23 Dec 2005
HISTORICAL
Property Synopsis
Stock prices are now almost double what they were in second-quarter 2003 - but property prices are up a mere 2.8 per cent, the Urban Redevelopment Authority's property price index shows.
Many pundits are predicting that the property market is at the beginning of a multi-year reflation cycle. So let's look at some of the statistics to see for ourselves how strong their case is.
Just like stock prices, real estate prices are determined by the cost of capital (that is, interest rates), demand and supply. But more so than stocks, the property market is affected by government policies. We'll look at these issues, starting with interest rates, to see whether the reflation story stands up.
Most people borrow to buy property, so interest costs and the affordability of monthly mortgage payments are major considerations. Chart 1 shows the relationship between interest rates and property prices. From the late 1980s up to 1990, interest rates were going up. Despite that, property prices were also climbing, albeit very gradually. Then in 1991 and 1992, when interest rates steadily declined, property prices took a steep hike. By the mid-1990s, the property fever was running so hot that the government moved to cool things down.
It introduced anti-speculative measures, including a requirement for 20 per cent cash downpayments and capital gains tax on property sold soon after it was bought. The new rules coincided with a surge in interest rates, as liquidity tightened following the Asian financial crisis. Combined, these factors caused a perfect storm for the property market.
From their peak in Q2 1996, property prices have plunged some 45 per cent, taking them back to 1993 levels. (Compared with the low in 1998, prices today are only about 17 per cent higher.)
There was a quick rebound after 1998. But despite falling interest rates, home prices resumed their slide. Whatever the level of interest rates, buyers were concerned about their future financial security. Major restructuring was taking place in the employment market in early 2000.
Guaranteed annual increments were a thing of the past. Job security itself was a big worry. The iron rice was smashed to smithereens. Retrenchments were the order of the day.
But for the past two years, things have been turning around. Economic restructuring is bearing fruit - the job market is expanding again and so are pay packets. The increased confidence of Singaporeans and foreigners in the nation's economic prospects has led to a mild recovery in property prices.
But here's the catch: interest rates are on the rise. And the rapidity of their climb has taken analysts by surprise. In the past few weeks, the interbank rate has shot up by one percentage point - a 50 per cent jump - to 3 per cent. That's the highest level in five years.
Some analysts expect the rate to peak at 3.5 per cent by Q1 next year. If that happens, then interest rates are not likely to pose too big a threat to property price recovery. But if rates head beyond 4 per cent, all bets are off.
Demand for any item depends on its affordability, how much it is needed and how buyers expect the price to move, among other things. I took the average monthly earnings of Singapore residents divided by the median price of condominiums as a rough gauge of affordability. On this basis, Chart 2 shows that private property has become much more affordable.
As for rental yield, this has stayed pretty constant for the past three years. Charts 4, 5 and 6 show the supply of properties on the market. Chart 5 presents a rather nice inverse relationship between the vacancy rates of condominiums and the property price index. A spike in vacancy rate to above 14 per cent at end-1997 was followed by a severe downturn in the property prices. In the past two years, vacancy rates were relatively high at above 10 per cent. But in recent quarters, the rates have come off. If this continues, it would be a good sign for landlords.
The market appears to be slowly digesting unsold private residential units. Meanwhile, moves to build integrated resorts, rejuvenate the Orchard area and reduce the cash requirement for property purchase to 10 per cent have combined to unleash a wave of demand from locals and foreigners.
So all things considered, it would appear that the outlook for the property market is not bad. And when compared with stocks which have almost doubled in price in the past two years, property might seem to be a more attractive asset class right now. - 19 Nov 2005 SINGAPORE BUSINESS TIMES
Residential property prices have risen two quarters in a row, the first indication that the local market is on the mend since Asia's 1997-98 economic crisis. That has prompted a rally, of sorts, of Singapore property stocks. - Oct 2004
After the Asian financial crisis, it staged a rapid recovery which peaked in mid-2000. Since then, prices slid due to the global economic slowdown.
They have remained flat in the last two years and are now about 20 per cent below the mid-2000 peak. However, home prices made a modest turnaround in June this year.
What this means is that there is still good upside potential. For example, the current average price of completed luxury properties is S$1,300 per sq ft compared to about S$1,600 psf in 2000 and more than S$2,000 psf in 1997.
Still, investors need to be selective in their property choices in Singapore's more mature market. Projects considered better buys are those that are well-differentiated, with a good location, top-notch design and finishes, that are attractive to foreign buyers and occupiers.
Rental yields have been fairly stable in the past few years, hovering just above 3 per cent, while better quality developments can expect higher yields of 4-5 per cent. While expatriates have traditionally favoured the prime districts 9 and 10, one other factor that will influence future rental choices is emerging large-scale business locations such as the New Downtown at Marina Bay and the high-tech hub of One-North in Buona Vista, where the 'work-live-play' concept is being promoted.
The recovery of the residential market should be sustainable on the back of Singapore's economic growth. Home prices have mostly kept pace with or outperformed the economy in the 1990s.
As home prices have been underperforming compared with the economy in the last three years, there is a strong case for a significant and steady price rebound. - 2004 Oct SINGAPORE BUSINESS TIMES
S'pore's rich forecast to grow by over 100 000
SYDNEY- A new report from independent market analyst Datamonitor has shown that the number of wealthy individuals in Singapore has grown by over a quarter over the last five years.
Singapore is now home to over 415,000 individuals with more than S$86,000 in onshore liquid assets.
Their investible wealth grew from $150b in 1998 to $193b in 2003.
'Growth in Singaporean affluent wealth has not been as marked as in some of the other Asia-Pacific countries. However, the country continues on its way to a full economic recovery after the global economic slowdown and the Asian economic crisis and future growth for affluent wealth looks strong,' comments Alan Shields, Financial Analyst at Datamonitor and author of the report.
Singapore's wealthy population is forecast to grow by a further 29 per cent to just fewer 538,000 in 2008, and their liquid assets are forecast to increase at a faster rate, registering a total rise of 39 per cent over the period.
Singapore's affluents who have seen their wealth increase in the last five years have not been immune to the global economic slowdown.
While the amount of liquid wealth owned by the high net worth population increased in total over the 1998-2003 period, it fluctuated significantly during this period.
In 1998, affluent individuals owned 77.5 per cent of total assets, and then peaked in 2000, when they accounted for 81.1 per cent of total retail liquid assets.
During 2003, affluent individual's wealth increased as a proportion of total liquid wealth to 78.8 per cent as the stock market performed better, indicating the level of affluent investors' exposure to direct equity investment.
The fastest level of asset growth throughout the 2003-2008 period will be amongst the richest individuals; those with 510,307.42 or more.
These high net worth individuals are set to get richer, with average assets increasing from $1.6m in 2003 to just over $1.7m in 2008.
The wealth of these high net worth individuals is set to grow at a rate of 7.7 per cent compounded annually over the 2003-2008 period, versus 5.3 per cent for the mass affluent segment; those with between $86,000 and $516,000. - reported 10 Sept 2004 SINGAPORE BUSINESS TIMES
HK, S'pore property market gap explained
Official policies behind more stable prices Singapore
Many a property player in Singapore has been left scratching his head in the past year wondering why the sector here is still playing catch-up to Hong Kong's, especially when real estate prices in both economies historically are deemed to follow a similar trend.
Knight Frank, for one, believes the explanation lies in government policies.
In a report, the real estate consultancy noted that after the outbreak of Sars in Q2 2003, the Hong Kong government implemented a series of initiatives to help lift sentiment and boost the economy, such as the signing of the Closer Economic Partnership Arrangement with the mainland and the investor residency scheme.
'But it was the relaxation of travel restrictions for mainland tourists that had the most initial impact,' Knight Frank executive director Tay Kah Poh said. Essentially, fundamentals - which reflect the improving global economic environment and are similar in both markets - have not moulded the real estate sectors in the two cities as much as government policies relating to home ownership.
Whereas the total number of homes sold in Hong Kong has been rising gradually since the Sars epidemic in Q2 2003, the situation in Singapore couldn't be more different, with the number of private homes sold declining 13 per cent in Q3 last year from Q2.
Subsequently, home prices in the Lion City declined to a five-year low in the first quarter of this year when the Urban Redevelopment Authority's private home price index fell a further 0.4 per cent from the last quarter of 2003.
In comparison, housing prices in Hong Kong are up by about 20 per cent since August last year, with the luxury segment up 30 per cent. As a developer noted: 'It's like the Singapore property scene in late 1980s to 1990s, when Indonesian buyers were big in the market.
'Such buyers went into purchases without negotiating much, and some paid above valuation, which inflated the entire market,' he said.
In Singapore, however, a more cautious take has evolved, due partly to its having attained a 'world-beating' 98.2 per cent home-ownership rate. This, said Knight Frank, has partially prompted the government, among other moves, to curb the use of Central Provident Fund savings for property purchase.
The total CPF withdrawal for housing loans has been gradually reduced, by 6 per cent each year, from a valuation limit - the value of the property at time of purchase - of 150 per cent in 2003 to 120 per cent by 2008.
Meanwhile, the Hong Kong government has announced a target home-ownership rate of 70 per cent by 2007, which is a big leap from the current 56 per cent mark, Mr Tay noted. 'The Home Loan Assistance scheme is available for those who are eligible and eligible households are provided either with a lump sum interest-free loan, or monthly loan subsidy for two years,' he said, even though the annual quota of 10,000 households has already been filled for the 2003/04 fiscal year.
In addition, the private housing market in Hong Kong continues to have a wider scope for growth because only over 30 per cent of the population there live in public housing. On the other hand, 86 per cent in Singapore live in government units, Knight Frank noted.
'All these factors considered, Singapore residential property prices will accelerate at a lower pace than those in Hong Kong,' Mr Tay said, adding that leading indicators point to a 5 to 10 per cent growth by the end of the year.
Consequently, homes here offer a different risk-return profile that shows less volatility than those in Hong Kong, Knight Frank said, though interestingly, there was more fluctuation of Singapore's private home prices in the early 1990s till 1996.
'Arguably, this can be attributed to the counter-cyclical policies that the government has consistently pursued, such as cutting back land supply when prices have fallen, and introducing various anti-speculation measures in 1996 when the market was over-heating,' it said.
For now at least, while Singapore private home prices are likely to be less exciting, its market will be more stable compared with that in Hong Kong, Mr Tay concluded. 'In either case, the worse is probably behind us, and investors can look forward to an improvement in the market's performance,' he said. - by Vince Chong SINGAPORE BUSINESS TIMES 27 May 2004
Strait Shooting
Half the world's oil and one quarter of its trade pass through the Strait of Malacca, which threads between the Malaysian peninsula and the Indonesian island of Sumatra. More than 50,000 vessels pass down the strait in a year, giving Singapore, which sits at its southern tip, the world's busiest trans-shipment port.
Pirates have operated in the strait for years. Now local governments are increasingly concerned about terrorists hijacking boats and using them as floating bombs, or sinking them to block the vital shipping route, 1.5 miles (2.4km) wide at its narrowest point (the Phillips Channel in the Singapore Strait). Teo Chee Hean, Singapore's defence minister, said bluntly that security on the strait “is not adequate”. The American navy offered to patrol the strait; Mr Teo approved the plan, but Indonesia and Malaysia have rejected it, saying it would infringe on their sovereignty. -ECONOMIST.COM 25 May 2004
Above Board
Malaysia, Singapore's northern neighbour, is well known for its crony capitalism. A nexus of political patronage and commercial power drive the country's economy and line the pockets of a select few. Singapore, by contrast, is relatively clean, and Goh Chok Tong, who will resign as prime minister later this year, wants to keep it that way.On April 27th, Mr Goh ordered MPs in his People's Action Party (PAP) to submit an annual list of their directorships, plus total fees and stock options to party leaders. PAP MPs—some of whom sit on as many as 11 boards and receive up to S$70,000 from each appointment—are now banned from sitting on boards of companies run by political colleagues. While there is still no official cap on how many boards legislators can sit on, the added scrutiny has already prompted Wang Kai Yuen, an MP, to resign his directorship of Accord, an electronics-servicing company. Accord's chairman is one of Mr Wang's advisors - ECONOMIST.COM 25 May 2004
| NEWS ARTICLES |
|
COMMNOTABLE TRANSACTIONS - Raffles Square Office buildings sold Hitachi Tower and Caltex House in Singapore transacted in December 99 from HPL & Kowa Real Estate (Japan) and Citibank in Caltex House only for $733 million representing $1,400 and $1250 respectively for the 99 year leasehold buildings in Raffles Square.
|
ERCIAL |
|
| NEWS STORIES |
|
| RESIDENTIAL |
|
| SOME OF ASIA'S LARGEST |
|
China's juggernaut has region on edge
Singapore nervously tries to reshape its business profile
All around this orderly, law-abiding country, people are being urged to do what until now has seemed totally unnatural: Take risks! Be spontaneous! Be creative!
On billboard ads, young models with devil-may-care looks jump ecstatically in midair to hawk clothing, sodas and real-estate developments. Banks sponsor blogger competitions and art festivals. Television shows lavishly praise tech geeks, musicians and fashion designers.
Last month, Singapore's government even sponsored a graffiti contest, allowing schoolchildren to decorate city buses -- a far cry from the days when such activity would be punished by a painful caning.
It's all part of a wave of nervousness across Southeast Asia as leading industries face aggressive competition from Chinese firms. As China emerges as an economic giant, its southern neighbors are taking a less-adversarial stance than the United States, where Chinese business deals are viewed with suspicion.
Instead, the so-called Southeast Asian tigers, which have boomed in recent decades under the umbrella of the U.S. security alliance, are planning for a humbling task: finding a profitable, sustainable niche within the new Chinese economic empire.
Singapore officials say that Shanghai is likely to overtake the island nation within a decade as a corporate headquarters city for East Asia and is likely to draw away major companies and banks. Anticipating this change, they say, Singapore must morph further into a knowledge-based economy, with increased emphasis on high-tech research and development, as well as design, media, advertising and the arts.
Creativity, Singapore authorities have decided, is the missing link -- any kind of creativity, but especially the patentable kinds.
For Singapore, long known for its authoritarian approach to economic development, this change requires a change in mind-set.
"We must reinvent ourselves," said Education Minister Tharman Shanmugaratnam, who also is an economic adviser to Prime Minister Lee Hsien Loong. "China is advancing very fast along the same value-added path we traveled in recent decades, so we must find new niches. We have been excellent engineers and managers, but we have not done enough as inventors and entrepreneurs. We are not producing enough patents."
Until now, the region has benefited from China's rising prosperity, as most nations have large trade surpluses with their northern neighbor, spurred by Chinese demand for raw materials and manufacturing inputs. Southeast Asia's economies are growing at a healthy pace, ranging from 5 to 8 percent of gross domestic product per year. But analysts and government officials say the writing is on the wall.
"In Southeast Asia, we do not see China as a military threat but an economic challenge, and a large one," said Noordin Sopiee, chairman of the Institute of Strategic and International Studies, a think tank in Kuala Lumpur, Malaysia. "Our margins are being shaved. China is doing to us what we did to Taiwan and South Korea in previous years. In time, our margins will become too small. So we need to act ahead of time."
Chinese competition affects Southeast Asia in varied ways because the nations have wildly different economies, ranging from the European-level prosperity of Singapore to the African-level poverty of Laos.
In Cambodia, the issue is apparel. In Malaysia, it is semiconductors. In Thailand, home electronics. All are facing fast-growing competition from China.
"Globalization has helped us, but it is now hurting us," said Loo Took Gee, an economic adviser to Malaysian Prime Minister Abdullah Ahmad Badawi. "From China, there are a lot of products coming in at 30 percent to 40 percent below cost here. How in the world can one compete against that? I don't have an answer."
In the past few years, Malaysia has spent billions of dollars on an attempt to leapfrog into Silicon Valley status. It has built Putrajaya, an ultramodern capital city on former rubber and palm-oil plantations outside Kuala Lumpur, and Cyberjaya, a high-tech corridor next door to Putrajaya. So far, at least, Putrajaya has been a white elephant, with large, mostly empty buildings adorned with logos of global technology firms that have been lured to Malaysia by lucrative tax breaks, yet have avoided making major investments.
"I believe Cyberjaya will fail, but we need to try it anyway," said Sopiee. "We need 30 years for that, and in the meantime we will have to shop around the world for talent. We will have to hire 10,000 electronics engineers, software developers, violinists, chefs, furniture designers, fashion designers. That is what the Chinese won't be doing, so these are the niches we need to fill."
For their part, apparel-producing nations fear that the expiration of international apparel quotas on Jan. 1, 2005, has spelled doom for their own industries as China gobbles up the world market.
After the quota system -- known as the Multifiber Agreement -- expired, Chinese apparel exports to the United States soared by 158 percent during the first five months of the year, far above growth rates in Indonesia of 23 percent; Thailand, 12 percent; Cambodia, 9 percent; and Vietnam, a 6 percent loss. Many observers say China would have grabbed even more market share if the Bush administration had not applied so-called safeguard limits against Chinese imports -- a capacity that is set to expire in 2008.
"We have very good relations with China, but it is true that they are very tough competitors," said Hidayat Nur Wahid, chairman of Indonesia's upper legislative chamber, the People's Consultative Assembly. He noted that Indonesia's dilemma has been worsened by declining oil production and diminishing petroleum reserves, turning the country into a net oil importer for the first time in decades.
"We no longer are the rich country we were, because of oil," Wahid said. "We must find an alternative, but this is difficult. ... Chinese products are too cheap."
In the United States, suspicion of Chinese motives is widespread, and congressional opposition to the attempt by CNOOC Ltd. to purchase Unocal Corp. of El Segundo (Los Angeles County) prompted the Chinese firm to abandon its bid last week. In Indonesia, however, Chinese investment is considered crucial to help rescue the oil and natural-gas industry from its slump.
CNOOC is Indonesia's largest offshore oil and gas producer, and it is scheduled to begin large-scale shipments of liquefied natural gas to southern China next year. Most industry analysts believe that CNOOC wanted to buy Unocal in large part because of the American firm's gas production assets in Indonesia, which CNOOC would have been able to divert toward Chinese markets.
In Southeast Asia, most eyes are on Singapore, the hub of the region's economy, where creativity has become the new buzzword.
Education has long been a linchpin of Singapore's economic success, and the country has ranked No. 1 in some international surveys of school math and science skills. But Shanmugaratnam, the education minister, says this achievement may have come at a cost of excessive conformity. Now, he says, increased attention to the arts is needed to unleash Singapore's economic potential.
"We are redesigning our concept of meritocracy to include a broader range of merits, not just results in standardized exams, to help stimulate creativity and innovation. The arts are a big factor in this," he said.
Shanmugaratnam said Singapore has adopted arts education methods from around the world, including San Francisco's School of the Arts, a high school in the Upper Market area that he visited in 2002. "That school had high standards and a broad curriculum," he said. "It was very interesting." Yet he remained confident that Singapore would win any comparison, adding: "It also had poor facilities, like the rest of your public school system. Our facilities are much better."
Despite the region's worries about Chinese business inroads, attitudes are markedly friendly toward Chinese diplomatic initiatives, and political leaders vie to be seen as friendly to Beijing.
Part of this sympathy is driven by ethnic loyalty. In most Southeast Asian nations, local business elites are composed largely of ethnic Chinese who maintain close ties to their ancestral homeland and support Beijing's role in the region.
China's diplomatic success may be coming at the expense of the United States. Washington officials are concerned by the emergence of a new 16-nation regional trade group, to be called the East Asian Summit, which will hold its first annual meeting in Malaysia in December. The members rejected a U.S. request to be admitted as an observer -- the first time that a regional Asian group has excluded the United States, and a startling setback for the Bush administration.
"In Southeast Asia, we do not share the opinion of some Americans that China is a strategic threat," said Chin Kin Wah, deputy director of the Institute of Southeast Asian Studies, a government-backed think tank in Singapore. "We view the Chinese role as very natural. There are certain economic frictions that can be difficult for us, but it is our neighbor." - by Robert Collier SAN FRANCISCO CHRONICLE 7 August 2005
From father to son
Photo & article: ECONOMIST
Lee Hsien Loong, the son of Singapore’s elder statesman, Lee Kuan Yew, became the city-state’s prime minister on Thursday. Singapore’s economic success, based on an odd mixture of free markets and state meddling, looks set to continue. But will its new leader allow a bit more social and political freedom?
It is only the second time Singapore has changed its leader since independence in the 1960s; and there will be more continuity than change. On Thursday August 12th, Lee Hsien Loong was sworn in as prime minister of the South-East Asian city-state, a job which his father, Lee Kuan Yew, held for 31 years until 1990—since when he has continued to exert power from behind the scenes. Under the stern, fatherly guidance of the elder Mr Lee, Singapore won independence from Britain (via a brief and unhappy period as part of Malaysia) and was transformed from a third-world colony into a rich, high-technology export success. Under Goh Chok Tong, who has bridged the gap as prime minister between the two Lees, Singapore weathered the late1990s Asian crisis and, a couple of years later, the bursting of the high-tech bubble. Since then its economy has bounced back.
Even with his 52-year-old son finally in the top job for which he has long been groomed, the 80-year-old Mr Lee senior will continue to sit beside him at the cabinet table, enjoying the title of “minister mentor”. Nor will Mr Goh go: he will stay in government as head of Singapore’s central bank. Several other senior figures from Mr Goh’s cabinet will remain, though swapping jobs.
Like Hong Kong, another formerly British-run city-state, Singapore has built its modern prosperity on free enterprise and openness to trade. But in Singapore’s case these have been combined with enthusiastic government backing for favoured industrial sectors. The government’s main industrial-holding company, Temasek run by the new prime minister’s wife, Ho Ching, owns stakes in everything from airlines to banks to the country’s main telecoms firm. (The latter is, in turn, run by Mr Lee’s brother, Lee Hsien Yang, adding to the impression that Singapore is essentially a big family firm.) The promotion of industrial “national champions”, in other countries an expensive disaster, seems to have served Singapore well—and it seems likely to continue under the next generation of the Lee family.
While Singapore regularly comes near the top of surveys of the freest places to do business, its people have to put up with restrictions on their social and political liberties. Though it is fair to call Singapore a democracy, the Lee family’s ruling People’s Action Party (PAP) has long used its unshakeable grip on power to harass its opponents. And the country’s 4.4m citizens have had to endure constant haranguing from their government, which only recently relaxed—slightly—its infamous ban on chewing gum (purchasers must first register with a pharmacist).
The elder Mr Lee always brushed aside foreign criticism of his authoritarian style: “If this is a ‘nanny state’, I am proud to have fostered one,” he wrote. Singaporeans have always seemed prepared to accept nannying as the price of their prosperity. In the last election, in 2001, the PAP won yet another landslide, even though this coincided with the country’s worst recession since independence. The younger Mr Lee shares his father’s didactic, hectoring style. His speeches are full of stern injunctions to Singaporeans to tighten their belts against the hard times ahead.
The economy does indeed face a number of potential challenges—from the demographic effects of a low birth rate to the risk of losing jobs to low-cost China. But right now it is booming: in the second quarter of this year it grew at an annual rate of almost 12%, having bounced back smartly from last year’s outbreak of the SARS virus across Asia, which hit various sectors, from manufacturing to tourism.
Much of the vigorous growth is the result of government-directed diversification into electronic components and, more recently, pharmaceuticals. Multinational drug firms such as Pfizer and Schering-Plough are expanding their capacity in Singapore, attracted by its economic freedoms, reliable legal system, relative absence of corruption and well-educated workforce. During his stint as finance minister—a post he held from November 2001 until this week—the younger Mr Lee cut taxes, reformed pensions and liberalised the financial sector.
Singapore’s pro-government media have lavished praise on the new prime minister for his courage and strength of character: he stoically endured the death of his first wife and later survived a bout of cancer. But while he has demonstrated his credentials as an economic liberal, he also seems to share his father’s old-fashioned attitude to social and political freedoms: for instance, he fiercely defends the PAP’s more underhand tactics, such as threatening to put districts that vote for the opposition at the bottom of the list for public spending.
Sex and the city-stateUnder his predecessor, Mr Goh, some of Singapore’s strict social controls were eased. Bans on everything from bungee-jumping to street-busking were relaxed. Singaporean television was even allowed to broadcast the salacious American sitcom “Sex and the City”. This cautious liberalisation partly reflects the government’s realisation that Singapore must now move beyond manufacturing into “knowledge-based” industries that depend more on individual creativity. The government recently announced a review of Singapore’s strict sex laws, under which homosexuality is a criminal offence (though increasingly tolerated), after official researchers noted that cities with lots of gay residents tend also to be centres of innovation. Last weekend, the authorities allowed Singapore’s biggest-ever gay street carnival to take place, attended by an estimated 6,000 people.
Other signs of gradual social liberalisation include a reduction in the period of compulsory military service and an official review of poverty, which may even lead to a reconsideration of one of Singapore’s strongest taboos: welfare benefits. The elder Mr Lee abhorred the very idea of state handouts (except to industry, that is) and his strait-laced son is likely to share this attitude. Thus, as in other social matters, any changes will be gradual. Still, the younger Mr Lee is likely to have plenty of time to carry them out. - ECONOMIST 12 August 2004
Singapore Corporate Structure
Under the new one-tier tax, an operating holding company has an advantage over a pure investment holding company. Ernst & Young explains
The one-tier tax system was introduced on Jan 1, 2003. It will not take full effect until the five-year transition period expires on Dec 31, 2007. What major issues should companies be concerned about as they approach 2008? Or is 2008 still too far away?
Every CEO and CFO should know something about the one-tier system and its immediate effects. Most will remember three of these:
All corporate dividends will be tax-exempt once the one-tier system comes into full force by Jan 1, 2008
- Any Section 44 tax credits that could not be used for dividend franking by Dec 31, 2007 will be forfeited
- Interest costs attributable to equity investments, including investments in subsidiaries and associated companies, will not be deductible for tax purposes, or if deductible, will not give a deduction value.
Many may not realise the deeper and continuing effects of the one-tier system on many aspects of corporate decisions in the years to come. I see these effects as emerging trends. I share my observations here and urge you to think about what needs to be done over the next three years.
But first, a bit of history. The previous system (called the imputation system) allows the franking of dividend payment with tax credits. This has been with us since the Income Tax Act was introduced on Jan 1, 1948.
When it comes to tax planning, our corporate structures and many transactional processes were based on that system. Structures and processes that produced the desired tax results under the imputation system do not produce the same results under the one-tier system. In fact, companies could be worse off taxwise if they operate as if things had remained the same. Companies need to abandon the familiar and embrace the new.
The first emerging trend
After 2007, under a one-tier system, an operating holding company is likely to be preferred over a pure investment holding company. If your group holding company is a pure investment holding company, and it is the main entity responsible for funding the rest of the entities in the group, then you may have good cause for some concern.
As a pure investment holding company, its investments in subsidiaries will form a very large percentage of the total assets on its balance sheet. Let's assume this is 65 per cent of the total assets. All things being equal, it means up to 65 per cent of the group holding company's interest cost may not qualify for tax deduction. This is because the interest cost attributed to equity investments can only be claimed against the dividend income received.
If no dividend is received, the interest cost is denied deduction. If dividends are received, the interest cost can only be deducted against dividend income that is tax exempt. But there cannot be a value creation if the deduction is against an income that is not taxable in the first place. The result? The interest expense, while deductible, has no deduction value!
What if your group holding company also conducts an active business with its own assets base? The investments in subsidiaries will be proportionately smaller. Mathematically, the amount of the interest disallowance also should be proportionately smaller.
This is the clear advantage of an operating holding company over that of a pure investment holding company.
What if your group holding company provides management services to the entities in the group? Will this overcome the concern? I am afraid it does not. The assets in a management service business are largely intangible in nature. These are not featured as assets in the balance sheet. So very little help comes from there.
Even if your group holding company has an active business with a large asset base of its own, your future decisions may have consequences. Decisions such as those on mergers and acquisitions, spin-offs, risks management, lease versus buy and the like are good examples.
Over time, these can change the composition of the assets in your balance sheet. Therefore, they can change the relative proportion of the equity investment assets you have in any given year. It is the composition of the balance sheet assets that gives a good indication of what might be in store for you.
You may not have a concern with your group holding company now because you hardly have any external borrowings. I agree. But you must be quite certain that the company is never ever likely to go into debt in the future.
In the face of this emerging trend, what should you do? My suggestion: gather the facts and evaluate your options. Answers to at least some of these questions should help:
- Based on your current position, what is your theoretical exposure to interest disallowance from Jan 1, 2008 if you do nothing?
- What is the likely impact if you should gear up in the near future?
- Is this issue confined to the group holding company only or are some of your subsidiaries affected also?
- What are the options you have as you approach 2008?
- What aspects of your corporate decisions might impact on the future composition of your assets mix, and therefore the level of the interest expense disallowance?
- by Pok Soy Yoong SINGAPORE BUSINESS TIMES 1 Sept 2004
The Economist apologizes to Lee Kuan Yew
(AP) - The Economist magazine has published an apology andagreed to pay $229,420 US in damages to Singapore's founding father Lee Kuan Yew and his son, Prime Minister Lee Hsien Loong, over a reference in an article to the younger Lee's wife, who heads a government investment group.The apology, published in its latest issue, says allegations in a recent article were "false and completely without merit." The article appeared in the magazine last month and was titled, "Temasek, First Singapore, Next the World."
Temasek, the Singapore government's investment arm, is headed by the prime minister's wife, Ho Ching. The Economist said in its apology that the article meant or was understood to mean that Ho's appointment was based not on merit but on "corrupt, nepotist motives for the advancement of the Lee family's interests."
"We admit and acknowledge that these allegations are false and completely without foundation. We unreservedly apologize to Prime Minister Lee Hsien Loong and Minister Mentor Lee Kuan Yew for the distress and embarrassment caused to them by these allegations," the apology said.
Economist editor Bill Emmott said Thursday that $123,530 will be paid to Prime Minister Lee and an additional $105,890 to the elder Lee. Emmott said the magazine received a complaint from the Lees on Aug. 21 and agreed to pay the damages and issue the apology on Sept. 1.
The Economist also agreed to pay the expenses incurred by the Lees, said Hri Kumar, director of Drew & Napier, the law firm representing the Lees in their complaint.
The elder Lee was Singapore's prime minister from its independence in 1965 until 1990. He still wields considerable influence under the title of minister mentor.
Emmott said the incident would not affect the magazine's Singapore operations.
Many foreign publications have run into trouble in Singapore. Two years ago, the financial news service Bloomberg apologized to the two Lees and then-Prime Minister Goh Chok Tong over an article and paid a settlement of $350,000.
Several foreign news publications have had their distribution limited in Singapore after they refused to print the government's full response to critical reports. - Cnews 2 Sept 2004
Singapore's real estate transparency ranking dips
JLL cites enhanced survey questions for slide from 9th to 11th position
Singapore and Hong Kong now rank side by side in 11th position on Jones Lang LaSalle's (JLL) Global Real Estate Transparency Index 2008, down from joint ninth position when the index was last revealed in 2006.
However, JLL said the reason is not a change in market practices but enhancement of the survey questions.
The company's head of research (South East Asia) Chua Yang Liang said: 'Singapore remains one of the most transparent markets in Asia alongside Hong Kong. Among the five key attributes assessed in the survey - performance measurement, market fundamentals, listed vehicles, legal and regulatory environment, transaction process - both countries scored very well for their legal and regulatory environment. Together with Finland, they topped the global ranking for this sub-index.'
JLL said that in keeping with historical results, the Australian and US real estate markets remain among the most transparent in the world and now are joint-ranked second. But with the addition of new variables relating to the quality and frequency of valuations, service charge transparency and financing transparency, Canada now ranks as the world's most transparent commercial real estate market.
The index, which provides a framework for comparing the level of real estate transparency in 82 markets around the world, revealed that eight countries moved up a full transparency tier since the last index in 2006.
Dubai, Romania, Ukraine and Russia showed the biggest improvements in transparency over the past two years.
A number of countries in the frontier markets are included in the index for the first time, with Belarus, Sudan, Algeria, Cambodia and Syria all scored as 'opaque'.
Other new entrants to the index, Bahrain, Bulgaria, Estonia, Latvia, Croatia, Abu Dhabi and Lithuania, scored in the 'semi-transparent' range, while Oman, Qatar, Morocco, Kuwait, Pakistan and Kazakhstan all scored in the 'low transparency' range.
The biggest improvers in Asia-Pacific were India, China and Vietnam. China (Tier-1 cities) showed the greatest improvement, moving up to the 'semi-transparent' tier to rank in 49th position.
Not all investors, however, target markets that are highly transparent.
LaSalle Investment Management global strategist Jacques Gordon said: 'Many cross-border investors focus on more mature, open and transparent real estate markets such as the UK, Canada, Netherlands and Hong Kong. However, opportunistic investors will consider the emerging, less mature, less open and semi-transparent markets, but will require higher returns to compensate for the higher risks associated with lower transparency.' - 2008 July 1 THE BUSINESS TIMES
