With yuan’s value set to rise, affluent Chinese are turning to foreign markets like S’pore and London

LONDON: China’s notorious property bubble could become its next big export, with a stronger yuan giving the newly rich the buying power to splash out in the world’s most sought-after property markets.

Buoyed by hopes of gains in the yuan after its peg to the United States dollar was shed on June 19, Chinese investors are chasing discounted apartments from London to Singapore with a view to reducing their exposure to an overheated domestic market.

A report by property broker DTZ in late May showed that Chinese buyers made up 17 per cent of foreign property purchases in Singapore in the first quarter, making them the third most prolific overseas buyers in the city-state.

‘They want their capital to be global… It’s a kind of diversification of risk,’ said DTZ’s head of consulting for North Asia Alva To.

Despite its vast state wealth and status as one of the world’s strongest economies, China has so far been eclipsed by Middle Eastern investors, private equity funds and other sovereign buyers from South Korea or Singapore in terms of influence on overseas real estate markets.

Chinese property investors have so far mostly confined their acquisitions to domestic markets, pushing average prices up by 77 per cent in five years and forcing the government to enact tough measures to keep homes affordable.

With property tightening measures at home and the yuan’s value set to firm, analysts see more buyers branching out into overseas markets that promise attractive gains with fewer restrictions.

‘The whole economic situation (in China) is prone to change, and so people are looking for a safe haven for their money,’ said Mr James Moss, managing director of upmarket British real estate services company Curzon Investment Property.

He disclosed that his client base was now 75 per cent Chinese, from 95 per cent expatriate British investors five years ago.

China abandoned a 23-month-old peg to the US dollar earlier last month and, even though analysts do not expect the currency to be fully convertible any time soon, further appreciation is likely, boosting the overseas purchasing power of Chinese investors.

Data from real estate broker Knight Frank showed more than one in 10 new residential properties in London were sold to Chinese or Hong Kong buyers in the year to March, the highest share of the market by any offshore investors.

In Hong Kong, a fifth of luxury apartments are purchased by mainland Chinese, said DTZ’s Mr To.

A relentless rise in domestic property prices since house ownership was legalised in 1998 has fostered a strong preference for bricks and mortar over volatile equities among the Chinese, already known as strong savers and investors.

‘I’m looking for investment opportunities outside China to save enough money for my daughter when she grows up,’ said Ms Tracy Ma, 38, a Chinese executive who owns an apartment in Shenzhen in China’s south, neighbouring Hong Kong.

China’s gross aggregate savings rate now tops 50 per cent of gross domestic product, by far the highest of any big economy, with disposable income among the urban population rising 10 per cent last year, official data showed.

More than 90 per cent of China’s households own the home they live in, while more than a quarter own a second property, a report from Asian brokerage CLSA said.

REUTERS

Source: Straits Times, 2 Jul 2010

SLA to look for new developer, gives Yess’ sub-tenants until early next year to move out

ADMIRAL Hill was to have been the Dempsey Hill of northern Singapore, a lifestyle hub with a country club, rock-climbing facilities, a golf driving range and beauty and health businesses, among other attractions.

But the future of the project is in doubt: The landlord of the site, the Singapore Land Authority (SLA), has terminated the contract of developer Yess Resorts & Country Club (Yess) for failing to pay the rent.

The SLA will shop for a new developer, and Yess’ sub-tenants have until early next year to clear out.

The jury is out, however, on whether there will be new takers for this 4ha site in far-flung Sembawang. Admiral Hill was to have come up around Old Admiralty House, which was built in 1939 to accommodate Royal Navy officers and declared a national monument in 2002.

The project was dogged by problems from the get-go.

Yess clinched the SLA tender to develop the place in 2007 by offering to pay $40,000 a month in rent and on the strength of its proposed plans.

But instead of a ‘lifestyle hub’, an illegal school and a workers’ dormitory came up. Both were ordered shut last year.

When The Straits Times visited the site this week, it was in a state of neglect. Units sat empty and weeds had overrun the place.

Sub-tenants there now were apparently given the impression that Yess was forging ahead with the lifestyle hub.

Mr Al Lim, 39, who owns Chinese restaurant House Kitchen, said Yess claimed it had the SLA’s clearance to take on more sub-tenants, so he signed a two-year lease in March and poured more than $100,000 into renovations.

He was thus shocked when the SLA told him two months later that he had to move out this month. He appealed and was given a reprieve until early next year.

He said that when he met Yess last month, it claimed to have been in the dark about the SLA’s plans to terminate its contract.

Mr Alan Poh, who opened steamboat restaurant Fat Fish there a year ago on a two-year lease, has a similar tale – and some regrets to go with it, since his business is just starting to take off following an advertising campaign, he said.

A third sub-tenant, Sembawang Family Enrichment Network, signed up for a three-year lease in April last year and put $200,000 into renovations. Its manager Daniel Sum, 56, is now looking for another site. ‘It has happened and there’s nothing we can do about it,’ he said.

The Straits Times understands Yess signed agreements with these new sub-tenants without first asking the SLA for consent, which is illegal.

They are only the latest ones to feel short-changed. Two former sub-tenants who signed contracts with Yess in 2007 have sought legal advice.

Yess refused to comment yesterday.

The Accounting & Corporate Regulatory Authority (Acra) lists it as a ‘live company’ and names a Mr Lee Kiang Hong as its director. The company is fully owned by the Yess Group.

An SLA spokesman said the Government was not party to sub-tenancy agreements between Yess and its sub-tenants, and that the parties would have to sort out the disputes among themselves.

She urged prospective sub-tenants of state properties to run checks on the tenant. They should also ask the tenant to produce the SLA’s written consent for sub-tenancy agreements and seek legal advice before signing a contract.

The spokesman said this is to avoid the scenario in which sub-tenants commit themselves, only to find that their intended business activity is not an approved one for the property, or that the tenure falls outside that of the main tenancy.

With Yess out, the future of Admiral Hill looks none too certain, going by the assessment of Country City Investment, which successfully developed Dempsey Hill in Tanglin Village.

Admiral Hill’s problem is its lack of drawing power, said Country City’s general manager Nicholas Ng.

Still, how successful it can be will depend on the uses for the plot and the rental, he said; its rundown state, short tenancy agreement and its inaccessibility are factors against it. He said: ‘It’s not impossible, but it would take a lot of work and capital to make it successful.’

City Country, which lost the 2007 bid to Yess, has no plans to put in a bid again, he added.

Source: Straits Times, 2 Jul 2010

Preliminary figures show a 3.8 per cent Q2 rise; analysts revising full-year estimates

THE rise in Housing Board resale flat prices is accelerating again – after taking a slight breather early this year.

Preliminary estimates released by the HDB yesterday show resale HDB flat prices rose 3.8 per cent to a fresh record in the second quarter compared to the first quarter.

This is the eighth straight quarter that resale flat prices have broken records since 2008 when they surpassed the levels of the 1996 property peak.

Property analysts are now dramatically revising their full-year estimates for resale flat price rises – from 5 to 8 per cent previously, to 12 to 15 per cent.

Earlier this year, analysts had expected resale flat price increases to moderate when HDB figures showed prices rising 2.8 per cent in the first quarter over the previous quarter.

This rate of increase was slower than the 3.9 per cent in the fourth quarter of last year, and led industry observers to predict a moderation in price growth.

But the economic environment has changed. ERA Asia-Pacific associate director Eugene Lim said the outlook for the local economy ‘is strong and the jobs market has picked up significantly’.

This has sustained the high level of demand for resale flats, and as supply is still tight for resale flats, prices have continued to grow, said Mr Lim.

Even though HDB has aggressively ramped up the supply of new flats – it launched 2,696 flats on Wednesday, the largest ever single launch – these cater to first-time buyers and those who are able to wait three years for the flats to be built, he said.

‘For upgraders, permanent residents and those with immediate housing needs, the resale market is the only source.’

Associate Professor Sing Tien Foo of the National University of Singapore’s real estate department says rising prices will hit new home-buyers hardest. ‘For existing HDB homeowners, however, there is a ‘wealth’ effect, which may induce them to upgrade to bigger or private flats,’ he said.

Analysts said yesterday the price increase was also likely due to higher cash-over-valuation (COV) premiums. COV refers to the cash paid upfront by buyers above the valuation of a flat.

While HDB will release full figures – including COV numbers – only in a few weeks, two top property agencies ERA and PropNex said the median COV for second quarter sales shot up to $30,000.

This is up from the median COV of $25,000 seen in the first quarter, according to HDB’s figures.

HDB said yesterday it would continue to release adequate supply to meet housing demand. It has so far offered 8,828 new flats in the first half of the year – equivalent to the supply for all of last year.

But Prof Sing noted that the new supply would take even longer to enter the resale market, due to the five-year minimum occupation requirement before an owner can sell.

He added, however, that the 3.8 per cent rise in resale prices is still relatively small compared to private property prices, which shot up 5.2 per cent this quarter, and 5.6 per cent in the first quarter.

‘In the public market, where supply is regulated, prices will respond more slowly than the private markets. The price increases in HDB resale will lag private market price increases.’

Source: Straits Times, 2 Jul 2010

Surge in manufacturing drives optimism, but some see headwinds

ECONOMISTS are yet again hiking their forecasts for Singapore’s economic growth, with most significantly above the Government’s forecast.

A huge surge in manufacturing in recent months has prompted some economists to upgrade their full-year forecasts above 10 per cent, even as high as 13 per cent.

The latest official forecast as of May is for growth to hit between 7 and 9 per cent. But that now looks to be behind the curve.

‘Growth has exceeded expectations, and the Government will have to come around to revising that upwards soon,’ said Action Economics’ David Cohen.

Despite the prospect of an uncertain second half, Singapore’s economy grew so strongly in the first half that several economists are upping their full-year gross domestic product (GDP) predictions, with others expected to follow.

Among the most optimistic is JP Morgan’s Matt Hildebrandt, who suggests full-year growth could hit 14 per cent – a ‘monster number’ and a Singapore record eclipsing the 13.8 per cent set in 1970.

‘In the best case scenario, growth could exceed 14 per cent… Even if we just flatline for the rest of the year, the economy will likely grow at least 13 per cent. The first half really carried us through.’

The Singapore economy grew a record 15.5 per cent in the first quarter and is tipped to hit a new record of 16.5 per cent in the second, economists say.

Still, CIMB-GK economist Song Seng Wun points out that double-digit GDP growth in the first quarter only puts Singapore’s economy slightly above its pre-crisis levels. ‘We’ve regained two years of GDP. But the number exaggerates the extent of what we’ve gained.’

Also, some economists say double-digit growth this year is far from certain. They are expecting overall economic growth to be dented in the second half by slowing pharma and electronics sectors.

OCBC economist Selena Ling sees ‘formidable twin headwinds… brewing in the form of the euro zone debt crisis and renewed worries about a China-led global slowdown’.

A Straits Times poll of 10 economists yesterday showed a median forecast of 10.5 per cent for full-year GDP growth, ahead of the 9 per cent median from a Monetary Authority of Singapore survey of economists conducted in late May.

On Wednesday, DBS changed its growth forecast from 10.3 per cent to 13 per cent, following Citigroup lifting its estimate a whole three percentage points from 9.5 per cent to 12.5 per cent.

While manufacturing has been firing on all cylinders – it grew a record 58.6 per cent in May after a 49.7 per cent surge in April – other sectors such as tourism and the services sector are also being fuelled by a region-wide recovery, said Mr Cohen.

If such impressive bounce forecasts prove accurate, they will easily put into the shade previous recoveries.

Singapore grew 6 per cent in 1999 after contracting 2.1 per cent in 1998 during the Asian financial crisis. And, in 2001, the Singapore economy contracted 1.2 per cent, and then rebounded 4.2 per cent the following year.

Source: Straits Times, 2 Jul 2010

A couple checking out artists’ impressions of new build-to-order (BTO) flats at HDB Hub in Toa Payoh yesterday. The Housing Board received a deluge of applications just one day after the launch of BTO project Waterway Terraces in Punggol, which will feature waterfront units.

As of yesterday, five-room flats had been almost six times oversubscribed, with 1,755 applications received for the 306 flats available. Demand was also high for four-roomers, with 2,461 applications received – more than four times the 588 available units.

Source: Straits Times, 2 Jul 2010

Experts expect more rises this year but at a slower rate

PRIVATE home prices in Singapore are now at their highest level ever, eclipsing even the previous 1996 peak.

Official estimates show prices rose a higher-than-expected 5.2 per cent in the second quarter after a 5.6 per cent jump in the first. That means private home prices have risen 11.1 per cent so far this year.

Prices, now 1.5 per cent above the 1996 high, are expected to continue to edge up this year given the positive economic outlook, property experts forecast.

But the rises should moderate as the market is no longer feverish, having slowed to a more sustainable level with many more sites on the way, they said.

CB Richard Ellis’ executive director, residential, Mr Joseph Tan, said the ample supply of residential land to be released by the Government will ensure a more stable supply in the longer term. ‘As sales momentum becomes less frenzied, home prices will stabilise,’ he said.

The Government has lined up a record amount of land for sale in the second half of the year and yesterday released three sites for sale.

One is an executive condominium site in Jurong West which can yield about 460 units. The other two sites are in Miltonia Close and Bedok Town Centre. Together, they can yield about 1,300 homes.

Other data out yesterday showed that Housing Board resale prices rose 3.8 per cent to a new record high in the same period, giving strong support to ‘mass market’ private homes – generally the less expensive private homes. This came after HDB this week offered 2,696 build-to-order flats in its largest ever single launch.

In the private mass market, buyers such as HDB upgraders are increasingly reluctant to pay sky-high prices, noted Colliers International’s director of research and advisory, Ms Tay Huey Ying.

Preliminary estimates released yesterday by the Urban Redevelopment Authority (URA) showed that mass market non- landed private homes rose at a faster clip of 5.7 per cent to a new high, compared with 4.3 per cent in the first quarter.

These prices are now a hefty 14.2 per cent above the previous 2008 peak.

Mr Tan said this could be attributed to higher price levels set at new launches such as Tree House and The Minton, as well as rising prices of resale deals in areas where several government sites had been sold in the past six to nine months.

In central Singapore, non-landed home prices moved up 5.1 per cent, from 4.4 per cent in the first quarter. It was only in city fringe areas that prices of non-landed homes rose at a slower 4.5 per cent, compared with a furious 7.9 per cent first-quarter jump.

‘Individual sellers on the resale front, especially those who had bought their properties before the 2007 boom, are now making capital gains in the region of 80-90 per cent,’ noted ERA Asia Pacific associate director Eugene Lim.

Since late May, there has been a sales slowdown owing to the euro zone crisis, a lacklustre stock market and high asking prices, but home prices have generally remained firm. Sales of new, private homes halved to 1,078 units in May, from April.

Mr Lim said developers are unlikely to cut prices for new launches to sell more units as most have strong balance sheets.

Still, the slower sales will affect sentiment, said Cushman and Wakefield managing director Donald Han. The pace of price rises will slow down with the resale market first to be hit. The full effects will be felt from this quarter, he said.

For the whole year, property experts are mostly looking at price increases of about 15 per cent. Estimates range from 12 per cent to as much as 20 per cent.

‘After the football World Cup season, people will look at whether the West is coping well and Singapore’s economic growth and policies. Economists revising higher their growth estimates means that prices are likely to rise,’ said Knight Frank chairman Tan Tiong Cheng.

‘On the other hand, ample supply has translated to developers being more selective in bidding for sites. Land costs would come off and that would mitigate price rises six months down the road.’

Looking further ahead, Ngee Ann Polytechnic real estate lecturer Nicholas Mak said the risk of a price correction could grow if uncertainties in global financial markets hurt market sentiment, and if the large impending supply of government land leads to a private home glut.

URA will update its second quarter price data in four weeks.

Source: Straits Times, 2 Jul 2010

(TOKYO) Average land prices in Japan fell 8 per cent in the year to Jan 1, the biggest drop in more than a decade, a government agency said, in a sign the country’s real estate market is still reeling from the global financial crisis.

The 2008 financial crisis and the recession that followed in Japan have battered demand for housing, while tight credit has made it hard for developers to raise money and overseas investors have withdrawn their funds.

It was the second straight year of decline in nationwide land prices, which averaged 126,000 yen ($1,993) per square metre, after a 5.5 per cent drop the year before, according to the survey by the National Tax Agency, which covered about 380,000 building lots.

That marked the biggest decline since an 8.3 per cent fall in the year to Jan 1, 1997, with land prices down in all Japan’s 47 prefectures last year.

Tokyo suffered the biggest drop of 11.3 per cent, which was its fastest rate of decline in 14 years.

The cost of a land plot in Tokyo’s upscale Ginza shopping district plunged 25.6 per cent, its biggest slide in 16 years, though it is still the most expensive place in Japan at 23.2 million yen per square metre.

Japanese land prices had dropped for years following the collapse of the real estate bubble in the early 1990s, leaving huge piles of bad loans in the banking sector and crippling the economy for a decade.

They finally began picking up in the mid-2000s, helped in part as foreign investors poured money into urban developments.

But the upturn was short-lived as the global financial crisis shook the market in 2008.

Property prices in Tokyo and its neighbouring prefectures fell 9.7 per cent. In the vicinity of Osaka in western Japan, land prices dropped 8.3 per cent, while those in the central Japanese city of Nagoya and its neighbouring areas tumbled 7.6 per cent.

Average land prices in rural areas also fell 5.9 per cent.

The tax agency assesses land prices as of Jan 1 every year to calculate inheritance and gift taxes on properties that are acquired that year.

Land prices calculated by the tax agency are roughly at 80 per cent of those published by the land ministry in March.

Analysts say the prices tend to lag behind actual land price movements. — Reuters

Source: Business Times, 2 Jul 2010

Guthrie GTS has sold its properties at 112 to 116 Amoy Street to Sun Venture Invesco for S$24.5 million.

The sale price was negotiated on a willing-buyer and willing-seller basis after taking into account current market conditions.

Guthrie expects to record a net surplus of S$1.85 million from the sale of the properties.

Guthrie said the Amoy Properties are not its core assets and the transaction will allow the Company to realise and unlock the value of the Amoy Properties.

Guthrie added that it intends to use the sale proceeds for working capital purposes and to fund any future capital investment that the Group may require.

Source: Channel News Asia, 2 Jul 2010

Observers say Korean pension funds have been aggressively investing in commercial real estate in Asia.

According to Woori Investment & Securities, the Korean National Pension fund has put nearly US$3 billion into real estate in the past six to nine months alone.

And it appears investors are favouring commercial properties over residential ones to get better returns.

Private home prices have enjoyed a good run-up in recent months in Asia.

For example, cost of private residential properties hit a record high in Singapore in the second quarter, rising by an estimated 5.2 per cent.

But investors and asset managers are expecting home prices to moderate across the region.

So, they are turing their attention to commercial properties instead.

Woori Investment & Securities, part of South Korea’s Woori Financial Group, has seen a growing outflow of Korean money seeking such opportunities.

Derek Wong, director, Real Estate Investment & Finance, Woori Investment & Securities, says: “We’re looking favourably at the commercial sector, mainly the office building and retail sector. As a whole maybe we are looking at a range of six to eight per cent minimum for a very safe country but if it’s a high risk country then we need to add in that spread.”

Despite concerns of a supply glut in the office segment in Singapore, Henderson Global Investors says the new buildings under construction in the city have already received 80-90 per cent commitment from tenants.

Hong Kong’s supply picture is also tightening as businesses add to their headcount.

Frankie Lee, head of Property Equities, Asia, Henderson Global Investors, says: “We only conservatively assume a 25 per cent increase in rents in both Singapore and HK this year and given the type of rent increase in the first half this will prove to be quite conservative. I think now we can safely say that 25 per cent this year in these two places for 2010 and perhaps another 15 per cent for 2011 is quite achievable.”

In view of this, Henderson recommends stocks such as Hong Kong Land and Keppel Land to take advantage of the uptick in rents.

It also looks on Industrial Real Estate Investment Trusts favourably, given Singapore’s strong economic growth.

Source: Channel News Asia, 2 Jul 2010

99-year-lease sites located at Bedok, Yishun, Jurong West

(SINGAPORE) The government yesterday rolled out for sale three plots of land across the island, potentially adding some 1,300 units to the residential supply pipeline.

The blitz of sites followed the release of new data showing public and private home prices continuing their ascent in the second quarter.

The three sites at Bedok, Yishun and Jurong West are from the confirmed list under the government land sales (GLS) programme in the second half of the year. The Housing & Development Board (HDB) is handling the tenders.

Of these sites, the 99-year-lease one at New Upper Changi Road/Bedok North Drive attracted the most attention because it can house a commercial-residential development which will be integrated with a bus interchange.

The 2.49 hectare site is at Bedok Town Centre, next to Bedok MRT Station, and is surrounded by amenities such as supermarkets and a library. It has a maximum permissible gross floor area (GFA) of 938,157 square feet and can yield an estimated 475 dwelling units.

DTZ South-east Asia research head Chua Chor Hoon believes this plot is the most attractive of the three because it is centrally located in a well populated town. Also, ‘there are only a few mixed sites available at the heart of HDB estates in the GLS programme’, she said.

Cushman & Wakefield managing director Donald Han added that Bedok still lacks a major retail centre, so there could be fairly fierce bidding for the site, in the range of $500-580 per sq ft per plot ratio (psf ppr).

Colliers International investment sales executive director Ho Eng Joo expects to see bids coming in at $500-550 psf ppr. The tender for the site will close on Aug 17.

Another 99-year-lease land parcel at Miltonia Close can be developed into a strata housing community, or a condominium project with 345 units and a maximum permissible GFA of 406,875 sq ft. It lies at the fringe of Yishun Town Centre and is next to The Shaughnessy terrace house project.

While the plot may not be near an MRT station, its views of Lower Seletar Reservoir and Orchid Country Club’s golf course may be a selling point, Mr Ho said. He projects bids of $300-350 psf ppr, while Mr Han is anticipating $270-320 psf ppr. The tender for this land parcel closes on Aug 24.

There was little hype over the third site at Jurong West Street 42, which is for an executive condominium project and is some distance from Lakeside MRT Station. It has a 99-year lease and can yield an estimated 460 units with a maximum permissible GFA of 542,988 sq ft.

Mr Ho and Mr Han expect to see bids of $230-280 and $250-300 psf ppr respectively. The tender for this site closes on Aug 12.

With more land parcels to be released, Mr Ho believes developers will be less aggressive in their bids. This month, the Urban Redevelopment Authority (URA) will be launching another two sites from the confirmed list, and making one from the reserve list available for application.

Mr Han added that the Miltonia Close and Jurong West sites just released by HDB are right next to other plots which can be launched for sale in future. The presence of such potential competition may make developers more price-sensitive when submitting their bids, he said.

The government has been ramping up land supply in the last few months to temper sentiment in the property market. Flash estimates yesterday showed private home prices rising 5.2 per cent in Q2 from Q1, and HDB resale flat prices increasing 3.8 per cent.

Source: Business Times, 2 Jul 2010