Quick Flip Success

Source : TODAY, Wednesday, December 26, 2007

More investors pump money into office property as reselling them could reap huge gains

IT WAS probably the most profitable "flip" in the property market.

In a deal announced last week, GE Real Estate made a whopping 73 per cent profit on its initial $75-million investment, when it sold Anson House for $129.5 million, a year after purchasing it.

The 13-storey building, located at Anson Road, is now owned by a private property fund managed by Australia's Macquarie Bank.

Analysts told Today the sale is a sign that in the booming local property market, price flipping — the practice of buying assets and quickly reselling them for a tidy profit — is expected to be the norm.

Mr Donald Han of property consultants Cushman and Wakefield said he is seeing scores of investors putting their money in prime spaces in the Shenton Way area because the potential gain from a sale could be huge.

"Many investors we know have the intention of keeping their assets for a minimum of two to five years because the Singapore office property market has climbed 90 per cent rental-wise and capital values have almost doubled," said the managing director.

Foreign financiers eyeing office space in the financial district have no qualms paying anywhere between $1,800 and $3,000 per sq ft in rentals, he added.

The new owners of Anson House, for instance, are paying about $1,701 per sq ft for a net lettable area of 76,127 sq ft.

As Singapore's economy grows, so will property prices, said Ms Ong Choon Fah, executive director of global estate advisers Debenham Tie Leung.

And these escalating prices could be a godsend to developers, she added. "As these new owners take over, these older sites may also be given a chance to rejuvenate through renovations and the like," said Ms Ong.

Even though a supply glut is expected by 2010, it is unlikely to affect "high-grade buildings" in the financial district.

"Investors are buying into quality and location, so, if there is going to be an oversupply, they can still rent them out without much of an issue," said Mr Han.

But one analyst disagreed.

"That really depends on how fast the economy is growing, but when the oversupply cover comes, we believe rents could face downward pressures," said Mr Nicholas Mak, the director of research and consultancy at Knight Frank.

It may look like a quick way to make a profit, but Mr Colin Tan of Chesterton International argued that these big investors usually come into a market armed with an exit plan.

"These include things such as the number of years they've been holding the property, and once their targets have been realised, they would seriously consider selling their properties."

Such was the case with the Anson House sale, said Savills Singapore's director of marketing and business development, Mr Ku Swee Yong.

"But, we can't use the word 'flipping' for the Anson sale because funds like GE Real Estate are in for the long haul. They had only one asset here, so, they couldn't say no when the right price was offered to them," he explained.

Flipping prices or not, will this constant buying and selling ultimately affect rents in the long run?

"In the next 30 months, right up to mid-2010, you can be sure that rentals would continue to go up at a higher rate," said Mr Ku.