Hong Kong property giant Cheung Kong is launching a luxury condominium at West Coast.

It is hoping to ride on the bright outlook for the high-end residential property segment, with an expected pickup in the leasing market and demand from expatriates.

This latest project by Cheung Kong promises to stand out from neighbouring developments.

When completed, the waterfront condominium will be the only luxury residence in the area. And it will comprise an unusual mix of strata terrace homes and apartment units.

Cheung Kong is optimistic the project will attract interest.

Cannas Ho, sales manager, Cheung Kong, said: “We see this need and demand for high-end residences in this area. And also, there are new developments coming up, just like Sentosa Resorts World, which is just 10 minutes drive from our site, and also there will be a new commercial hub called One North nearby, and there are lot of international companies, IT companies.

“The leasing market is very strong in this area. There will also be the new Circle Line station just around, and this also further enhances the leasing value of this property.”

While small-sized units are popular among investors, they will not be found at the Vision. Cheung Kong has opted for relatively larger units with three to five bedrooms.

Some analysts said this may make it less attractive to investors.

Colin Tan, Head of Research and Consultancy, Chesterton Suntec International, said: “The market now is dominated by investors, so if your project is tailored towards investors, you will do well. In this market, I wouldn’t say the price is too much of a hurdle, but maybe the unit sizes.

“Normally for developers who are aiming at the investors market, they tend to make the unit smaller. In this case, these units are a bit larger than the usual sizes, so that may pose a problem for some investors. Investors generally tend to prefer smaller projects, because they feel that it is easier to flip over.”

The Vision is sold on a 99-year leasehold and will be initially priced at about S$1,000 to S$1,200 per square foot.

The strata terraces will be sold on a “best offer” basis from interested parties.

The first phase of some 100 units will be launched this Friday, and completion is scheduled for 2015.

Source: Channel News Asia, 10 Mar 2010

The tenuous alliance between Indonesia’s Riady family and Malaysian tycoon Ananda Krishnan in Overseas Union Enterprise (OUE) has come to an end – at a price of almost $1 billion.

Yesterday, the Riadys’ Lippo Group paid some $957 million to acquire all of Mr Krishnan’s stake – and greater control – in the mainboard-listed property group.

With the deal, Lippo’s direct and indirect interests in OUE rose to 88.52 per cent from 64.67 per cent.

OUE’s free float after the deal will only slightly exceed 10 per cent, putting it at risk of delisting. Nevertheless, Lippo said that it intends to keep the firm listed.

The buyout is the latest display of differences between two of the region’s richest business groups, which have been in legal battle over a failed satellite TV venture in Indonesia. Just last month, Mr Krishnan’s subscription TV group Astro won an award of some US$230 million against Lippo.

The bad blood seemed to have spilled over to the partnership in OUE. Reports noted how the two parties had disagreements over the management of the firm.

Yesterday morning, OUE called for a trading halt in its shares before news of the ownership changes broke. Lippo’s investment unit Golden Concord Asia bought direct and indirect stakes in OUE from Barinal, a unit of Usaha Tegas. Usaha Tegas is Mr Krishnan’s private investment holding firm.

Lippo paid $11 per share for the additional interest. The price represents a premium of 21.7 per cent to OUE’s last closing price of $9.04 last Friday. After trading in OUE resumed later in the afternoon, the counter shot up and closed at $11.98, up $2.94 or 32.5 per cent from Friday.

OUE’s board underwent a reshuffle to reflect the ownership changes. Lippo president Stephen Riady became executive chairman of OUE, a step up from his original role as executive director.

Christopher James Williams, who was OUE’s non-executive chairman, became deputy chairman. At the same time, Barinal’s four nominees to the board resigned, and a new non-independent and non-executive director joined the team.

Lippo, meanwhile, expressed confidence in the growth potential of Singapore’s property market, and said that the deal allowed it to strengthen its asset base here.

‘This transaction is testament to our commitment to Singapore and to being a key player in the vibrant property and hospitality sector here,’ Mr Riady said. ‘OUE will continue to focus on its core business in hospitality, as well as to strengthen its position in the premier retail and commercial space.’

OUE’s portfolio cuts across the hospitality, retail, commercial and residential sectors. It is widely known as the owner of Mandarin Orchard Singapore, the recently revamped Mandarin Gallery and The Grangeford. It is also developing 50 Collyer Quay.

As at December last year, it had some $2.77 billion worth of assets. It posted a net loss of $92.2 million for the full year ended Dec 31, mainly due to fair-value and impairment losses.

OUE was controlled by United Overseas Bank up until 2006, when the latter had to dispose of non-core assets to comply with the Monetary Authority of Singapore’s guidelines. Lippo and Usaha Tegas then joined hands to acquire the property firm for $1.8 billion.

With relationships between the two major shareholders souring, market watchers felt that the latest development could be in OUE’s interests.

According to NUS Business School’s professor of accounting Mak Yuen Teen, having several major shareholders in a company can sometimes be a good thing because they can ‘monitor each other’.

But he also pointed out that the company would not be able to move forward if the major shareholders are not on good terms. In such a case, it would be better to ‘get past hostilities’ and have just one major shareholder.

Another industry insider agreed that the deal could be better for OUE’s development. But he also tried to play down the significance of the buyout. ‘Quite often, people pull out of a company if they don’t share the same vision. . . It’s just about business.’

Source: Business Times, 10 Mar 2010

LIAN Beng Group has bagged a $144 million building contract for a condominium development at Dakota Crescent.

The design-and-build contract was awarded by UOL Development (Dakota) Pte Ltd. The development comprises 616 apartment units in three 19-storey blocks and four 20-storey blocks, and a six-storey carpark building with a roof garden, a swimming pool and other ancillary facilities.

The project is due to commence next month and expected to be completed in March 2013.

Commenting on the contract win, Lian Beng managing director Ong Pang Aik said: ‘This is an encouraging sign of sustained demand for construction services from the private residential sector. Backed by the group’s strong track record and capabilities, we are looking forward to secure more projects.’

The contract is not expected to have a material financial impact on the net tangible assets per share and earnings per share of the group for the financial year ending May 31, 2010. This new contract raised Lian Beng’s order book to about $740 million.

Established in 1973, Lian Beng Group is mainly engaged in building construction, integrated civil engineering works and construction support services.

Lian Beng’s portfolio of residential projects includes Waterfront Key, The Gale, Kovan Residences, and The Ritz-Carlton Residences, Cairnhill Singapore. The group is also in the midst of constructing public projects such as camp facilities at Kranji.

In January, the group reported a 29 per cent growth in after-tax profit to $11.3 million for the first half of its 2010 financial year, compared with $8.8 million a year ago. Revenue rose 4 per cent to $157.6 million

Lian Beng’s share price dropped 3.5 per cent to 28 cents yesterday.

Source: Business Times, 10 Mar 2010

THE debate in Parliament on state housing saw a number of popular assumptions disproved by National Development Minister Mah Bow Tan. He showed, with figures, that purchases of resale flats by private property owners and immigrants were too few to have contributed to a price spike in the past year. As for the charge that ‘too many’ owners were living off the Housing Board by subletting while they camped in with relatives, the fact was that only 3 per cent of eligible owners did so. On persistent complaints that even first-time bidders were unsuccessful after the ‘umpteenth’ try, the truth was that there were umpteen rejections by finicky applicants who were also selective with the facts.

The minister’s responses should eliminate the unproductive aspects of the debate. Energy should properly be focused on refining stability of supply so as to avoid famine-and-feast situations that exacerbate impressions of flawed planning. Buyers are certain supply has been short. How else to explain the price spurt? Mr Mah explained that 25,000 flats would have been made available between last year and the end of this year. High application rates and multiple rejections by applicants, as he has often noted, mask the truth. Such back-and-forth can lead to a dead end. A practical approach might be to shorten the waiting period by making supply less time-inelastic. The build-to-order (BTO) scheme adjudged as the most efficient in meeting demand typically takes four years to complete, from the taking of bookings to occupation. Shaving off a year, or two if feasible, will remove much buyer angst. The Government campaign to steer the construction industry towards less labour-intensive methods, by using pre-cast components and modern processes, is a nice fit in this regard.

There was an overhang of 31,000 unsold flats following the 1997-98 Asian currency collapse. It took a decade to clear that. Pent-up demand after the Sars period and the 2008 banking meltdown created what now appears to be a supply shortfall. The experience of the dead-weight surplus should not discourage the HDB from holding an adequate buffer stock of flats to meet unforeseen demand spikes. Last year, there were about 2,000 surplus flats left over from various schemes like buy-backs and unallocated BTO units. That was unplanned. A variable buffer stock could be considered, in addition to shortened building time. Holding costs will have to be taken into account when considering the feasibility of this approach, but it may be a price worth paying.

Source: Straits Times, 10 Mar 2010

INDONESIA’S Lippo Group, controlled by the Riady family, is buying Malaysian tycoon Ananda Krishnan’s key stake in Singapore-listed Overseas Union Enterprise (OUE) in a deal worth $957 million.

Since 2006, the two parties have jointly controlled OUE, whose prized assets include the Mandarin Orchard hotel.

However, Lippo and Mr Ananda are said to have suffered strained relations in recent times in various business tie-ups between the two around Asia.

The OUE deal is seen as a signal that they may be going their separate ways.

OUE’s other key properties include Overseas Union House, which is being redeveloped as office building 50 Collyer Quay.

Lippo’s controlling stake in OUE will increase to 88.52 per cent after the deal. Lippo will now be easily the largest shareholder of the mainboard-listed firm.

The level of OUE shares held publicly – 11.48 per cent – does not change. Stock exchange rules say the minimum is 10 per cent. OUE said it plans to stay listed.

Lippo and Mr Ananda acquired their stakes in OUE after United Overseas Bank and its affiliates sold their stake to a joint-venture company controlled by the two parties for $10.20 a share.

Since then, OUE has embarked on a $200 million revamp of the Mandarin Gallery. In addition to 50 Collyer Quay, a 38-storey extension to OUB Centre is being built with the combined development called One Raffles Place.

Yesterday, Lippo was keen to stress that it ’strongly believes in the resilience and growth potential of the Singapore real estate and hospitality market’.

It has decided to lift its OUE stake to ‘further strengthen its asset base in Singapore’, given the opening of the integrated resorts and Orchard Road’s rejuvenation.

Lippo said in a statement that OUE will continue to focus on its core hospitality business, and strengthen its position in the premier retail and commercial space.

Market watchers say having a single controlling owner will enable OUE to be more nimble in responding to conditions.

The deal comes amid market talk that the alliance between the two partners has been under stress for some time.

In 2005, Lippo and Mr Ananda had agreed to set up a joint venture to operate a pay-TV business in Indonesia.

The two also partnered on a cellular operation in Indonesia and later on OUE.

But last month, The Straits Times reported that Mr Ananda’s satellite television operator Astro had won an award after arbitration against Lippo Group over the failed pay-TV business, said to be US$230 million (S$322 million).

While Lippo no longer has any role in the cellular operation, the OUE joint venture has apparently been dogged by disputes over how the property firm should be managed, market players said. Sources said staff morale had been affected.

The two parties had been looking to resolve the issue for some time, market talk suggested. Yesterday’s announcement ended some of this underlying uncertainty.

Lippo has a significant presence in Singapore. Other than OUE, it is behind Singapore’s first health-care real estate investment trust, First Reit.

There is also the Lippo-Mapletree Indonesia Retail Trust, which owns shopping malls in Indonesia.

Lippo is also developing several residential properties, including The Trillium and Centennia Suites in the River Valley Road area.

Yesterday, questions were raised about the funding of the deal, given the large price tag and the fact that most or all will be paid in cash. It is believed that it will come from a combination of internal resources and borrowings.

The price of $11 per share was a mutually agreed price, sources close to the deal said. The net asset value of OUE shares is $10.37 based on the Dec 31 financial statements although some market players say the shares could be worth close to $14.

Yesterday, the thinly traded counter jumped $2.94 to close at $11.98 with only 146,000 shares traded.

Mr Stephen Riady, Lippo’s president, will be OUE executive chairman, after the deal closes. He is now also OUE’s executive director.

Source: Straits Times, 10 Mar 2010

THE phrase ‘Catch-22′, taken from the title of Joseph Heller’s seminal work, has come to describe a double-bind scenario where one feels caught between the devil and the deep blue sea. It may also soon come to describe the situation for developers here with the recent announcement of new government measures aimed at cooling property market sentiment and avoiding a housing bubble, barely half a year after the introduction of initial measures.

While the impact on physical demand is widely expected to be minimal, the timing of this second move has increased caution within the property sector.

New demand-side measures

To recap, the measures announced were:

• The levying of a seller’s stamp duty (SSD) on those who acquire residential units from Feb 20 onwards and sell them within a year, and
• The lowering of the Loan-To-Value (LTV) limit to 80 per cent from 90 per cent for housing loans provided by regulated financial institutions in Singapore.

These are demand-side measures undertaken by the government to ensure that property market activity is driven by genuine rather than speculative demand, even as current subsale activity remains far below the peak levels in previous cycles.

These measures are in addition to those introduced in September last year, when the government increased the supply of land for private residential developments and removed the Interest Absorption Scheme. The latter was widely regarded as having been put in place to deter speculation in a buoyant property market.

Are they pre-emptive?

The two rounds of measures introduced were pitched as pre-emptive, and this has largely been the case. While primary market demand fell off slightly in the months following the September measures, prices still continued on their upward trend (albeit more moderately). Then in January this year, sales trebled over the previous month as prices continued to appreciate. This triggered the second round of measures.

Both times, the government acted when speculative activity was comparatively lower than at the height of the previous property market booms and overall prices were trending below previous peaks. It seems apparent that the measures are not intended to kill off genuine demand, but to forestall the exuberant behaviour that rode on positive sentiment associated with an improving economy and a still-low interest rate environment.

The focus here appears to be on encouraging greater financial prudence among prospective buyers and on ensuring that housing prices are motivated by economic fundamentals rather than ‘quick-buck’ expectations.

Limited impact is expected

In lowering the LTV limit, the government took care to state that less than 10 per cent of housing loans would be affected and that the cap would not apply to Housing and Development Board (HDB) loans. First-time buyers or second-timers upgrading would also be exempt from the new limit.

This measure effectively sets a minimum downpayment of 20 per cent for buyers. It is expected to reduce the demand for resale HDB flats from private property owners and permanent residents not eligible for HDB loans, though we do not expect the impact to be significant.

Trying to ascertain the impact of the SSD is a little more challenging. In our attempt to add more colour on this impact, we combed through the subsales since October 2009, matching them to their date of purchase to see the number of recent subsales that took place within a year of purchase. We chose October 2009 as it represents the first full month following the first round of measures introduced on Sept 14, 2009. As such, we believe the subsale data since October would have played a role in the government’s decision to introduce fresh measures.

We found that just around 10 per cent of subsales since October were for units ‘flipped’ within a year. Furthermore, more than half of these units were purchased in the first few months of 2009 when overall sentiment was still weak.

Such buyers could have had a view that the market would recover, or could have been genuine buyers who were subsequently tempted by the capital gains when the property market rebounded strongly in the second half of last year.

In other words, these buyers in a downmarket are unlikely to have been speculative buyers chasing rising prices. In any case, the headline percentage of 10 per cent itself is marginal, leading us to conclude that the impact of the SSD is not likely to be significant. Judging by the continued buoyancy of the market in the weekends following the latest measures, our analysis looks to be correct.

So where’s the Catch-22?

The latest measures signal that the government is prepared to act early and swiftly to prevent an asset bubble forming. If these measures prove to have minimal impact, policy risk is heightened and future measures are likely to be more severe. As such, strong sales may be not-so-good news for now, which effectively undermines the developer’s profit or asset-turn motive.

On the flipside, if stricter measures come our way, the risk of the property market turning becomes more real, leading to another potentially grave scenario for developers.

Demand still looks genuine

For now, buyers remain undeterred and much of the demand appears genuine. Buyers range from owner- occupiers to investors looking to property as long-term investments, with a rental yield and potential capital appreciation, to those who wish to hedge against inflation.

What next?

Supply-side strategies continue to dominate, with the expectation that the government will increase the supply of both public and private housing, such as its announcement this Monday to make available a larger supply and wider variety of sites in its land sale programme in the second half of this year.

The government also announced last Friday certain rule changes for the HDB market, largely aimed at reducing speculation and to sharpen the differences in housing benefits between citizens and permanent residents.

The re-introduction of the capital gains tax seems unlikely for now, given that speculative levels are still low in comparison to previous cycles – and simply because there is so much more that the government can do before pulling out this card. For one, it could increase the cash portion in the initial 20 per cent downpayment.

With the rise in policy risk, investors should look at developers with a lower number of unsold units within their landbank. These include Wheelock Properties and Ho Bee, as well as diversified players like CapitaLand and UOL Group. These developers are likely to be less affected by new demand-side policies.

Reits have an edge over developers as the former offers more defensiveness in an uncertain policy environment. Hospitality plays, such as CDL Hospitality Trust and Ascott Residence Trust, as well as retail landlords like CapitaMall Trust are good options.

As the government has made clear, the measures are intended to promote a stable and sustainable property market, not to kill it. A second set of measures in a short time has certainly kept developers and speculators on their toes. The blade has certainly been sharpened, but for now, it still looks far away enough to not be threatening.

The writer is an equity analyst for the property sector at DBS Vickers Securities

Source: Business Times, 10 Mar 2010

As developers released more upmarket projects, the average transaction value of private homes sold in the primary market in the first two months of this year rose to $1.78 million per unit, a study by CB Richard Ellis shows.

This is 37 per cent higher than the $1.3 million average price of homes sold by developers for the whole of last year.

But the figure for January and February 2010 is still shy of the $1.97 million average price in the bull year of 2007, according to CBRE’s analysis of URA Realis caveats data on March 5.

Reflecting the pattern of developers migrating to releasing higher-end projects towards the end of last year – after kicking off the year with mass-market launches – the priciest home in absolute dollar terms sold in the primary market since January 2007 was transacted in November last year – a $33.41 million junior penthouse at Far East Organization’s Boulevard Vue project. The price of the 8,051 sq ft unit works out to $4,150 psf. The unit, which occupies the 30th and 31st levels of the 33-storey block, is believed to have been bought by Nippecraft non-executive chairwoman Linda Wijaya Limantara and her family. Nippecraft is part of the Asia Pulp & Paper group.

The unit’s absolute price surpassed that of the most expensive unit transacted in the primary market in 2007, when a 19th floor unit at The Marq on Paterson Hill sold for $31.4 million in July that year. That price equated to $5,100 psf.

As for last year, another high-priced primary market deal was a bungalow at Kasara The Lake, located at Ocean Drive in Sentosa Cove, which fetched almost $14.43 million.

In January this year, the most expensive unit transacted in the primary market was a fourth-floor condo unit at Marina Collection on Sentosa Cove, at $10.3 million (or about $2,200 psf). February’s priciest sale was a 16th floor unit at Urban Suites in the Cairnhill area – $10.43 million or $2,213 psf.

CBRE executive director Li Hiaw Ho reckons it is likely that the average dollar value of primary market transactions for the whole of this year will generally be above last year’s figure as more high-end projects are slated for launch this year.

Agreeing, Knight Frank chairman Tan Tiong Cheng reckons bigger units may gain appeal again as developers roll out high-end projects this year, a trend seen during the 2007 bull market.

‘However, a lot will depend on how rentals fare for large units,’ he said.

High-end projects primed for release this year include Seascape and The Residences at W, both at Sentosa Cove, phase 2 of Marina Bay Suites and a project at 76 Shenton Way in the downtown area, says CBRE. In the Orchard Road area, Ardmore III and projects on the sites of the former Anderson 18, Parisian, Grangeford and Beverly Mai are among expected launches.

Mr Tan also points to ‘the other end of the spectrum – shoebox units could be launched, which could drag down slightly the average absolute price per unit’ this year. However, their impact will not be significant as the number of such units, compared with total units launched by developers, is likely to be relatively small, he believes.

The lowest absolute price for a unit sold by a developer in the first two months of this year was $437,880 for a fourth-floor apartment at Suites @ Kovan in Upper Serangoon Road. The price for the 366 sq ft unit works out to $1,196 psf.

For the whole of last year, the smallest primary market deal was $305,860, involving a 441 sq ft unit on the second storey of Ventura View at Rambutan Road, off Still Road. It was sold in August last year.

Mr Li offers another reason that the average value of homes sold by developers this year is likely to surpass last year’s figure – more 99-year leasehold projects on recently sold Government Land Sale sites will be launched at higher prices because of their higher land costs and location attributes such as proximity to MRT stations.

CBRE’s study also shows that on a monthly basis, the highest average price in dollar terms achieved by developers since January 2007 was in March 2008, at $3.87 million. The lowest monthly figure was $761,082, in February last year. That was around the time that developers began testing the market with mass-market launches at attractive prices, after emerging from the darkest days of the global financial crisis.

By December last year, the average transaction price had risen to $2.16 million. It eased to $1.65 million in January this year before rising again to $2.08 million last month. However, the latest numbers may change as more caveats are lodged, analysts say.

Source: Business Times, 10 Mar 2010

Economists have upped their growth outlook for Singapore as the city-state’s key industries continue to rebound from last year’s recession, according to a central bank poll.

The Monetary Authority of Singapore’s survey of 20 private-sector economists showed they see average growth of 6.5 per cent this year, higher than the previous forecast of 5.5 per cent in December.

They also raised their outlook for the island-state’s major industries including manufacturing, which is now predicted to expand an annual 9.7 per cent from the previous forecast of 6.3 per cent.

Wholesale and retail trade is seen growing 8.4 per cent instead of 7.0 per cent while construction is tipped to expand 8.9 per cent, from a previous projection of 7.1 per cent.

The government in February upgraded its 2010 economic growth outlook to 4.5-6.5 per cent from 3.0-5.0 per cent. Singapore’s economy contracted 2.0 per cent last year due to the global economic downturn.

Source: Channel News Asia, 10 Mar 2010