Boom year for market driven by Govt’s bumper release of land

THE investment market for property has enjoyed a boom year with the amount pumped into the sector almost four times that of last year.

Investment in this context is defined as any deal worth more than $5 million in the public and private markets and so includes government land sales (GLS), en bloc deals and commercial building purchases.

Property consultancy Knight Frank said more than $21.4 billion was invested in these markets, putting last year’s $5.8 billion well in the shade.

But it is still below the 2007 total of $40 billion, when collective sales alone amounted to a record $12 billion.

Knight Frank said the figures this year were driven by the Government’s bumper release of state land and kept buoyant by the economy’s strong rebound, healthy investor sentiment and a robust residential market.

Residential sector transactions – including GLS sites snapped up by developers replenishing depleted land banks – dominated investment deals, accounting for 40 per cent of total transactions.

The commercial sector was also relatively active, accounting for 25 per cent – or $5.3 billion – of total investment sales.

Although there were fewer commercial transactions this year, there were some deals in excess of $1 billion, which boosted the tally over last year’s $3.3 billion.

These include the sale of Chevron House in Raffles Place to German fund Deka Immobilien for $547 million and Suntec Real Estate Investment Trust’s purchase of about 580,000 sq ft of office space in Marina Bay Financial Centre at $1.5 billion, including rental support.

The second half of the year also saw more non-residential GLS sites introduced into the market as the economy gained momentum and foreigners began looking for real estate opportunities, Knight Frank said.

The firm added that strategically located mixed-use, hotel and industrial sites were released and received healthy interest. These included the white site at the corner of Peck Seah Street and Choon Guan Street in Tanjong Pagar which was sold for $1.71 billion to GuocoLand last month.

In all, a total of $10.2 billion worth of GLS sites were sold this year.

Mr Png Poh Soon, head of research and consultancy at Knight Frank, said the outlook for investment sales in the first half of next year is generally optimistic in all sectors.

‘Strong economic fundamentals and good governance place Singapore as a healthy and attractive country for foreign investors looking for investment opportunities and local property players to expand further,’ added Mr Png.

Tourism is poised to build on this year’s rebound, lifting the retail and hotel sectors, thanks in part to the opening of Marina Bay Sands and Resorts World Sentosa.

On the commercial front, Central Business District rents have also bottomed out and appear to have entered the early stages of recovery.

‘The near completion of Marina Bay Financial Centre and Ocean Financial Centre will leave older office buildings in the traditional Raffles Place area with refurbishment or upgrading potential open for investors who are keen to participate in the up cycle,’ Mr Png added.

Low interest rates and high liquidity should ensure that foreign funds continue to show interest, said Knight Frank.

Strong economic growth and rising wages will also fuel demand for mass-market homes, with larger collective sales providing another source of development land in the coming year.

Source: Straits Times, 29 Dec 2010

50 per cent stake in retail portion of Malacca Centre in Raffles Place also transacted

INVESTMENT sales of property have been gathering momentum in the private sector, with several deals inked recently.

They include the Park Regis hotel at New Market Street/Merchant Road near the Singapore River, which is said to have been sold for $218 million to Indonesian mining magnate Yusuf Merukh.

Separately, a 50 per cent stake each in the retail portion of Malacca Centre in the Raffles Place area and three shop units at Coronation Plaza have been sold to a single buyer in a deal valuing the assets at about $40 million. BT understands that the deal involves a yield guarantee.

Over at Robinson Road, Chow House is believed to have been sold for slightly over $100 million. The price for the six-storey freehold office block, which has redevelopment potential, is said to work out to about $1,200 per square foot per plot ratio (psf ppr) assuming it is redeveloped into a new office block.

If redeveloped into apartments, the unit land price is closer to $1,300 psf ppr. The site has a land area of 9,084 sq ft and is currently zoned for commercial use with an 11.2+ plot ratio under Master Plan 2008.

Outline planning permission has also been granted to redevelop the property into residential use with commercial use on the first storey.

Chow House is understood to have been bought by a group whose shareholders include entrepreneur YY Wong, founder of the WyWy Group. It is one of nine properties put up for sale by liquidator Tam Chee Chong of Deloitte & Touche, as part of the resolution of a family dispute. The other properties are mostly shophouses. DTZ marketed the properties.

Over in the Singapore River area, Park Regis hotel is being sold just ahead of its scheduled opening next month. The $218 million deal involves the 203-room, four-star hotel and a seven-storey office block comprising about 42,000 sq ft of net lettable space.

A market watcher suggested that the hotel component alone could be valued at about $730,000 per room or $148 million. The asset is being sold by an entity controlled by Asok Kumar Hiranandani of Royal Brothers Group who developed the property on a 99-year leasehold site clinched at a state tender in October 2007.

While Mr Hiranandani is selling his stake in the hotel, Australian-based StayWell Hospitality Group, in which he also has an interest, will continue to manage it, as originally planned.

In an interview with BT in June, Mr Hiranandandi put the total investment in the property at about $175 million.

Separately, RB Capital, controlled by Mr Hiranandani’s nephew Kishin, is said to have sold a half stake in two retail assets for a total of about $40 million recently.

They are: the retail podium of Malacca Centre comprising close to 5,300 sq ft spread over basement 1, ground and mezzanine levels; and three shop units with a total strata area of about 6,300 sq ft at Coronation Plaza in Bukit Timah. The buyer is a Singapore private investor who has been given a three-year rental guarantee. Malacca Centre has 999-year leasehold tenure while Coronation Plaza is freehold.

Source: Business Times, 3 Aug 2010

Property consultant DTZ Research said Singapore’s investment sales market is seeing an increase in larger deals sealed.

For the second quarter this year, there were 15 deals worth over S$100 million totalling some S$3.5 billion.

Such deals make up nearly three-quarters of the total investment value of S$4.71 billion in the second quarter.

The figure is much higher than the nine transactions of over S$100 million each that made up just 55.5 per cent of transactions in the first quarter this year.

DTZ said the bulk of investments were noticeably geared towards government sale of sites.

11 of the 15 deals above S$100 million were for sites released under the Government Land Sales programme.

The highest was for a white site in Jurong Gateway which was sold for S$748.9 million.

Overall investment sales for the second quarter posted a 64.1 per cent increase on-quarter to S$4.71 billion.

Of that amount, S$2.75 billion or 58.3 per cent were from residential transactions.

Investments in industrial properties, meanwhile, shrank over the same period, making up just 9.3 per cent or S$438.5 million of total transactions.

This was in contrast to the first quarter when transactions in industrial properties stole the limelight.

DTZ said the absence of any large scale acquisitions by Real Estate Investment Trusts over the period was the major factor contributing to a 59.4 per cent on-quarter drop in transacted values in the sector.

Also down were transactions in office properties as investment value fell 39.5 per cent from the preceding quarter to S$266.1 million.

Source: Channel News Asia, 5 Jul 2010

THE global financial crisis made CapitaLand rethink its strategy for funding expansion, the property group’s chief investment officer Wen Khai Meng said yesterday.

CapitaLand learned that it cannot count on just the capital markets for finance after those markets froze during the crisis, Mr Wen said.

So the developer is now looking at alternative forms of funds – especially private equity – for its growth needs, he said.

Speaking during a panel discussion at the Real Estate Investment World Asia conference on the lessons that real estate developers picked up from the crisis, he also said that it brought home the need to diversify – geographically and among its various business units.

CapitaLand will continue to maintain a good balance among its various income streams – income from property trading, which involves building and selling homes, as well as recurring income from its investment assets and fund management activities, he said.

Other developers echoed the view that the crisis made them re-evaluate their financing needs.

‘The lesson we took out of that (the crisis) is to make sure we have sufficient liquidity and sufficient reserves,’ said Thio Gim Hock, chief executive of Overseas Union Enterprise (OUE). When the crisis hit, OUE often had to go back to the table to negotiate bank loans as it delayed property launches and construction work. Banks were eventually willing to offer fresh loans after considering the new time frame – but at much higher interest rates.

And so like CapitaLand, OUE is looking to diversify its sources of funding. Mr Thio said that the company is now looking beyond bank loans, to instruments such as convertible bonds. OUE this month scrapped plans to issue up to $200 million dollars of convertible bonds, citing market conditions.

The local hotel and property group is also looking to diversify its income base. Mr Thio said that it would like to get as much as 60 per cent of its income from investment assets eventually.

Most representatives on the panel also admitted that they missed opportunities during the financial crisis. ‘We were hoping to pick up some bargains, but before we knew it, it (the crisis) was all over,’ said Mr Wen.

Mr Thio said he identified some good opportunities during the crunch but could not secure finance to take advantage of them.

Donald Choi, managing director of Hong Kong’s Nan Fung Development, who was also a panellist, similarly said that his company should have been more aggressive, as the window of opportunity was very short.

Source: Business Times, 23 Jun 2010

A SURVEY of organisations active in the Asian non-listed real estate funds market has found that 63 per cent of investors plan to increase allocations to Asian non-listed real estate funds.

The proportion is still lower than the 88 per cent that were planning to increase allocations in a similar survey done in 2008, but shows a sharp uptrend from 2009′s figures. Last year, just 24 per cent of respondents were planning to increase their allocations.

Findings from the survey, which was by Asian Association for Investors in Non-listed Real Estate Vehicles or Anrev, were released yesterday at the Real Estate Investment World Asia conference. The 75 respondents were either investors, fund managers or fund of funds managers.

Anrev’s numbers show that as at end-2009, Asian real estate allocations accounted for 4.1 per cent of investors’ global portfolio on average, with a further 9 per cent allocated to non-Asian real estate investments. The survey also found that the lack of transparency and market information continues to be the single biggest challenge faced by 74 per cent of investors surveyed when investing in Asian non-listed property funds – a view also shared by 63 per cent of fund managers surveyed.

China’s retail and residential sectors were selected by the highest proportion of investors (47 per cent) as markets that offer the most appealing performance prospects. Around 21 per cent of investors also picked Australia’s retail market and Vietnam’s residential market, making them the second most preferred markets in Asia.

Around 37 per cent of investors are of the view that there are not enough non-listed property vehicles suitable for investment in their favoured Asian markets. However, only 13 per cent of fund managers and fund of funds managers share the same opinion.

Source: Business Times, 23 Jun 2010

China players add buzz; more en bloc deals expected in coming months

Investment sales of property so far this year have already reached $11.26 billion – surpassing the $10.62 billion totted up for the whole of last year, according to latest figures from CB Richard Ellis.

The property consulting group is now forecasting that the full-year 2010 number is likely to surpass its initial projection of $15 billion and perhaps reach the $17.9 billion mark achieved in 2008.

The momentum comes from continued strong interest among residential developers for development sites as well as more buyers for commercial investment properties, says CBRE executive director (investment properties) Jeremy Lake.

Investment sales of property are often seen as a gauge of the confidence of major players in the sector’s mid- to long-term prospects. CBRE defines investment sales as transactions with a value of at least $5 million, inclusive of apartments and landed residential property, government and private sales of land and buildings, both strata and en bloc. It also includes change of ownership of real estate via share sales.

The $11.26 billion year-to-date number (up to June 21) includes YTD Q2 figure of $5.5 billion, but CBRE expects the Q2 number to reach $6.4 billion to $6.7 billion when the tender for a plum site next to Jurong East MRT Station closes tomorrow and as more caveats for property transactions (of at least $5 million) are lodged for June.

The residential sector has been the star performer of the investment sales market, accounting for nearly $7.7 billion or about 68 per cent of the YTD H1 total tally.

A chunk of this or $2.64 billion was contributed by residential sites sold under the Government Land Sales (GLS) Programme as developers continued to hunger for suburban condo sites.

From April to June alone, 10 such plots were sold for a total $1.7 billion, making up 30.9 per cent of the YTD Q2 tally.

The collective sales market was also more active in Q2, with six properties sold for residential redevelopment for a total $278.9 million. The most prominent deal was the $95 million sale of Pender Court, which worked out to $1,007 per square foot per plot ratio.

‘In the months ahead, there should be a steady flow of collective sales projects and private land sites being transacted, typically of land parcel sizes less than 100,000 sq ft,’ says Mr Lake.

Credo Real Estate managing director Karamjit Singh too predicts more successful en bloc sales in the second half. ‘While the government will continue to release 99-year leasehold land in the suburbs, there’s a shortage of sites in the mid-prime and prime locations, especially large freehold sites. This can be met by en bloc sales – as long as owners’ expectations are set realistically,’ he said.

Mr Lake points out that ‘a significant new entrant to real estate in Singapore are developers from China who have been active in acquiring sites’.

It started with China Sonangol Land’s purchase of the freehold former Parisian site at Angulia Park from OUE last October for $283 million, followed by a unit of Chinese state-owned enterprise Metallurgical Corporation of China (MCC Group), which bought two 99-year leasehold private residential sites at state tenders this year and Qingdao Construction, which this month clinched a 99-year leasehold condo plot next to Potong Pasir MRT Station for $607 per square foot per plot ratio, a record for the area.

The Good Class Bungalow market also posted robust sales, with 26 properties transacted at $571 million from April to June based on caveats so far.

This means the figure for the first half has crossed the $1 billion mark. Notable deals in the second quarter include 14 Bishopsgate, which was sold for $36.3 million or $1,120 psf on land area, 4 Ewart Park ($39.8 million or $1,045 psf) and 20B Nassim Road ($43.53 million or $1,800 psf) – all in April. 1 Brizay Park was sold at $35 million or $941 psf in May.

Source: Business Times, 23 Jun 2010

(DUBAI) Wealth funds of gas-rich Qatar are likely to make further global real estate investments as prices in countries such as Germany decline, Jones Lang LaSalle said in a report on Sunday.

The funds ‘are likely to be emerging as the new powerhouse in terms of global real estate capital flows in 2010′, Fadi Moussalli, regional director at Jones Lang LaSalle MENA, said in the report.

‘Cash-rich and with a strong appetite for splashy overseas assets, Qatari vehicles have lately outshined their counterparts from the region and are projected to carry on with their rapid expansion across the real estate world,’ Mr Moussalli said.

The International Monetary Fund expects the Qatari economy to grow 18.5 per cent this year, far above estimates for the rest of the Gulf Arab region. Harrods Ltd, owner of the London luxury department store, was sold to Qatar Holding by Mohamed Al-Fayed last month. The price was £1.5 billion (S$3 billion), said two people familiar with the transaction.

Qatar is the largest shareholder in Songbird Estates plc, which controls more than half the buildings in the Canary Wharf estate in London, J Sainsbury plc, the UK’s third-biggest supermarket owner, and Barclays plc, the UK’s third-largest bank by assets. It’s also the second- largest shareholder in London Stock Exchange Group plc and has a stake in Volkswagen AG, the German carmaker.

‘Their ability to compete in this market will be increased by the decline in investment from German open-ended funds, which were among the major global investors in 2009,’ Mr Moussalli said.

The German funds are likely to make fewer acquisitions government relations tighter, he added. — Bloomberg

Source: Business Times, 15 Jun 2010

IPO could raise up to US$1b even though the timing of the listing is fluid

(SINGAPORE) The Government of Singapore Investment Corp (GIC) is exploring a listing in Singapore of some of its property assets through an initial public offer of shares that could raise up to US$1 billion, Reuters reported yesterday, citing sources with knowledge of the deal.

A source told BT that the timetable for the IPO is ‘very fluid’ due to the current volatility in financial markets, but ‘the intention to list the assets is quite clear’.

When contacted, GIC declined to comment. But the fund – which manages Singapore’s foreign reserves, including pension savings, and invests only outside Singapore – has been in talks with major banks for several weeks now about its plans to list some of its assets, the source said.

No mandate has been awarded to any of the banks yet, but Citigroup and JP Morgan appeared to be the frontrunners to manage the IPO, according to the source. Both Citi and JP Morgan declined to comment.

‘The proposal was to list their logistics business,’ said a source that’s aware of GIC’s plan, according to Reuters. ‘They could do an industrial Reit (real estate investment trust).’

The IPO would include assets in China and Japan that GIC bought for US$1.3 billion in 2008 from ProLogis, a New York-listed developer of warehouse facilities worldwide, Reuters reported, citing its own source.

Real estate accounted for 12 per cent of GIC’s investment portfolio at the end of March 2009, up from 10 per cent a year earlier. GIC Real Estate, GIC’s property investment arm, manages over 200 property investments across more than 30 countries, according to GIC’s website.

Its property investments include brick-and-mortar assets, stocks of listed property companies, real estate investment trusts, as well as debt securities issued by real estate firms.

The investments span most property sectors, including office, retail, residential, industrial, and hotel, as well as niche sectors such as senior and student housing, and sports and medical facilities.

Not all the investments have been successful. Late last year, GIC wrote down most of its US$675 million investment in Stuyvesant Town and Peter Cooper Village, a large apartment complex in New York that was bought at the height of the property boom in the United States, but which then suffered from the collapse of the housing market there.

The vehicle that GIC chooses to list would need to disclose detailed information about its portfolio holdings, marking a departure from the secrecy that GIC usually applies to its investments.

But GIC could be seeking to list some of its assets to cash in on investments it made during the financial crisis that have since risen in value, without giving up control of the assets entirely.

‘If you’ve held the assets for a reasonable period of time, then it makes sense to get some of your money back,’ said one investment banker, who declined to be named. ‘But maybe you still want to own a stake in the business.’

‘Also the deal size may be quite large, and there may not be appetite from any single investor to buy an asset. That’s another reason to do an IPO rather than a trade sale,’ the banker said.

Source: Business Times, 27 May 2010

Private equity property group MGPA is understood to have sold its stake in the 162 apartments it bought at The Cascadia in 2007 to a fund managed by Keppel Land’s Alpha Investment Partners.

BT understands the latest sale priced the freehold apartments on Bukit Timah Road at about $1,280- 1,300 per square foot on average. This is about 10-12 per cent below the $1,450 psf average price or $280.36 million that MGPA paid for the units more than three years ago.

The latest pricing of $1,280-1,300 psf reflects a deal size of $247.5-251.4 million. However, the transaction does not involve a direct sale; instead, the Alpha fund is believed to have bought the companies that MGPA used to make the acquisition in 2007.

BT understands that under a deferred payment scheme offered by the project’s developer Allgreen Properties, MGPA has so far paid 30 per cent of its 2007 acquisition price.

The rest of the payments will begin to kick in when the project receives its TOP (temporary occupation permit) towards year-end.

Allgreen, the Singapore- listed property vehicle of Malaysian tycoon Robert Kuok, did another bulk sale in late 2007, involving about 20 units, to a Spanish fund for about $1,600 psf.

According to latest government data, at end- April, 349 units were still available for sale in the 536-unit condo. Allgreen began a preview of the project this week.

The development, which will have 13 blocks, comprises one, two, three and four-bedroom apartments as well as penthouses.

Unit sizes range from 570 sq ft for a one-bedder to 1,506 sq ft for a four-bedroom apartment with a study room. Penthouses are 3,700-5,200 sq ft. Knight Frank is marketing the 10-storey project, which is beside Tan Chong Motor Centre.

MGPA also owns 19 apartments at 8 Napier, which it is also said to be looking to sell.

In addition, it owns 8 Shenton Way and is developing the Asia Square project at Marina View comprising offices, shops and a hotel.

MGPA, headquartered in Bermuda and with offices in Europe and Asia, manages over US$10 billion in assets in these two regions.

Alpha Investment Partners has been stepping up its investments in Singapore. One of its funds has taken a majority stake in the consortium which bought Katong Mall late last year for $247.6 million. Another of its funds controls at least 90 per cent of a company that owns The Spazio on Cecil Street.

Source: Business Times, 21 May 2010

It’s attractive for investment as long as interest rates stay low, rentals hold firm and capital value is maintained

PROPERTY has always been a hot topic in Singapore, and it has gained even more limelight of late given the continued strength in the prices. Some government measures introduced to cool the market have not overly dampened investors’ sentiment.

Yesterday, the Urban Redevelopment Authority released some detailed data for the property market in the first quarter. I’ve decided to update some of the charts and analysis that I’ve done before with the latest set of data.

The first chart plots the growth of Singapore’s gross domestic product (GDP), the URA private property price index and the Straits Times Index since 1975. In that 35 years, the stock market and the property market more or less tracked the growth of the economy. But there were bouts of over exuberance and excessive depression for the property and the stock markets. In that short history, the property market has shown itself to be more prone to over exuberance or the formation of so-called bubbles, though the stock market too has had its fair share of both irrational exuberance and pessimism.

The Singapore property market started to race ahead of the underlying economy in 1994 and 1995, and peaked in 1996. That huge deviation proved to be a bubble. The bubble was pricked by the government’s anti-speculative measures, and later by the Asian financial crisis. Property prices then corrected severely and closed the gap with the domestic economy. In 2007, property prices started to climb again. The correction came soon after in 2008, but it now appears that could just have been a blip. Prices have again resumed their north-ward march, and properties are now at their highest level relative to the GDP since 1999. The years of 1994, 1995, 1996 and 1997 of course saw significantly higher property prices relative to the GDP.

But a few things are different this time round, primarily the low interest rates that we all enjoy today.

Chart 2 plots the one-year interbank rate against the rental yield. Here, you can see that there remains a relatively big buffer between the interest rate and the rental yield of a private non-landed property. The rental yield is calculated based on the median rental of a non-landed private property over its median price.

And as a result of the very low interest rates today, an investor who takes up an 80 per cent loan to be paid off over 30 years can entirely service his or her monthly mortgage payment from the rental income. Here, the mortgage rate is calculated based on the one-year interbank rate plus 1.5 percentage points.

Based on URA’s numbers, the median price of an apartment in the first quarter of 2010 was $9,952 per sq metre (psm), and for condominiums, $10,490 psm. Let’s take the average of the two to represent the median price of a non-landed property. That works out to $10,221 psm. A 100 sq metre unit would cost some $1.02 million. Assume that an 80 per cent loan is taken and that the housing loan rate is 1.5 percentage points above the interbank rate, which was at 0.625 per cent. For a $818,000 loan on a 2.125 per cent interest over 30 years, the monthly mortgage payment is $3,074.

On the rental side, the median for a non-landed private property is $34.06 psm per month. So the rental income from a 100 sq metre unit would be $3,406. That more than covers the mortgage payment. However, additional expenses relating to owning a property like property tax or property maintenance are not taken into consideration.

There was negative cash flow for property investors between Q2 2005 and Q1 2008. Since Q2 2008, however, there has been a positive cash flow. Indeed the positive cash flow could have been bigger for those who had opted for floating rate housing loans. They are in fact paying much lower rates than 2.125 per cent.

Such a situation would last for only as long as rentals stay firm and interest rates remain low. But rates are at their lowest in the last 20 years. The median level of interbank rate in the last 20 years was 2.7 per cent. Based on current rentals, the interbank rate has to go up only by less than one percentage point to 1.5 per cent for cash flow to turn negative for property investors. Unless one is of the view that the low interest rates today is the ‘new normal’, it is logical to assume that interest rates will rise to more ‘normal’ levels sooner or later. For perspective, the median interbank rate in the last 10 years is 1.375 per cent.

The current low bank rates also means that the rental return on equity (ROE) for a property investor is high, at 9.5 per cent. Here, the rental is reduced by 10 per cent to factor in property tax and some of the other expenses. It however does not take into consideration potential capital appreciation. Again, the assumption is 80 per cent loan at a rate of 1.5 percentage points above the interbank rate. A rise in interbank rate to 1.5 per cent would reduce the ROE to 6 per cent, while an interbank rate of 2 per cent would slash the return to 4 per cent.

On the affordability front, the numbers continue to look reasonable. I take the average income of the 71st to 80th percentile households in Singapore. According to the Department of Statistics, the average monthly income for this group was $8,010 in 2006, $8,730 in 2007, $9,720 in 2008 and $9,559 in 2009. I then compare these to the median price of condominiums in those four years.

Again, assume the condo is 100 sq m, the loan is 80 per cent over 30 years, and the rate is 1.5 percentage points above the one-year interbank rate. In the above scenario, the mortgage payments these households need to fork out has fallen to 29 per cent, well within the recommended range of how much each household should set aside for mortgage payments.

So, the above analysis shows that one, the top 30 per cent of Singapore households can still comfortably afford a non-landed private property. Two, from an investment point of view, property remains attractive for as long as interest rates remain low, rentals holding firm, and capital value being maintained.

There is only a small buffer for interest rates to go up before properties become unattractive as a rental yielding asset. Meanwhile, rentals are not expected to chalk up significant gains. Not helping matters are the substantial number of new stock coming onto the market in the next few years.

But what is unknown is the demand. Singapore’s status as a happening and safe hub city in Asia is gaining traction. Given the small size of the city, a small increase in demand can translate into big price movements. No one can tell how the market will look like in the future. But for as long as one can afford to own a property with an ample margin of safety, it remains one of the best places to park one’s money in, over the long term.

Source: Business Times, 24 Apr 2010