Monday, March 31, 2008

K-Reit May Raise More Funds After Its Rights Issue

Source : The Business Times, March 31, 2008

K-REIT Asia will look at more forms of financing once its $551.7 million rights issue is completed, Tan Swee Yiow, chief executive of the trust’s manager, told BT.

The real estate investment trust (Reit) is holding an extraordinary general meeting today to get shareholder approval for a rights issue to raise $551.7 million in gross proceeds - partly to repay the $942 million bridging loan it took from Keppel Corp when it purchased its one-third stake in One Raffles Quay (ORQ) last year.

K-Reit is expected to get the mandate for the rights issue easily enough. But shareholders will want to know what plans the trust has to raise the balance needed to repay the loan.

Mr Tan said that the management is well aware of the need to raise more funds, and will address the issue with ‘appropriate debt instruments’ after the rights issue.

‘The $942 million is a bridging loan and we will have to resolve it somehow,’ said Mr Tan. ‘We will have to address that, but we are not addressing it at the same time as the rights issue because we want to do the rights issue first,’ Mr Tan said.

The rights issue, which will significantly reduce the Reit’s gearing, will put the trust in a better place to negotiate with banks, he said.

Upon completion of the rights issue, K-Reit’s gearing will be cut to 27.7 per cent, from 53.9 per cent at present, which is approaching the maximum allowable limit of 60 per cent.

To raise more funds, K-Reit will look at a variety of options, including convertible bonds, commercial mortgage-backed securities and straight debt, Mr Tan said.

Right now, the rights issue means that Keppel Corp and Keppel Land, which have both given irrevocable undertakings to take up their respective allocations of the rights units, could increase their stakes in the Reit. As at end-February, KepCorp and KepLand together owned 72.7 per cent of the Reit.

Mr Tan said that this ‘can’t be helped’. K-Reit had initially decided to go with a convertible bond and unit issue to finance its ORQ purchase. But the plan had to be called off because of weak equity and credit markets. If the issue had gone through, both KepCorp and KepLand would have reduced their stakes, Mr Tan said.

‘Moving forward, if the situation is appropriate, there is nothing to stop them (KepCorp and KepLand) from reducing their stakes, which is the long-term plan,’ Mr Tan said. He is also Keppel Land’s chief executive for Singapore Commercial.

End Of Property Boom In Sight?

Source : The Straits Times, Mar 31, 2008

WHAT IT IS

FLASH estimates of the property market’s showing in the first three months of the year will be released by the Government tomorrow.

The figures, released quarterly, track prices and rents of HDB flats and private property. They are based on caveats lodged in the first 10 weeks of each three-month period.

Fuller figures and more detailed information will be given out on April 25.

WHY IT MATTERS

This round of figures is expected to shed light on the million-dollar question: Is it the beginning of the end for the housing boom?

The last set of numbers showed that a stellar rise in home prices over the last two years was starting to slow.

Since then, the market has reached a virtual standstill.

Property developers have delayed launches as buyers, spooked by the worsening global credit crunch stemming from the US, are holding off buying.

Individual home sellers convinced of Singapore’s economic fundamentals, meanwhile, are refusing to lower their prices.

If tomorrow’s data shows prices have plateaued or even dipped, it will be welcome news for homebuyers.

Will Retiree Be Better Off With Annuity Or Rental Income?

Source : The Sunday Times, Mar 30, 2008

Q I AM wondering if I should continue to rent out my property or dispose of it and use the proceeds to buy an annuity that will provide a retirement income.

Rentals will rise with inflation while an annuity is more or less fixed and will not keep up with inflation.

Being a landlord, however, also has its minuses. As the property gets older, repairs and maintenance will get more costly. Also, in a recession or if supply exceeds demand, rentals will fall.

What would you advise?

A IN RECENT months, property investments and annuities have generated much debate among Singaporeans.

Improper management of these financial vehicles could have an adverse impact on your retirement plans, so let us look at the key characteristics of these two asset classes.

Property investments are popular because of their potential capital gains. In a boom cycle, they offer attractive capital appreciation. In contrast, annuity products have no potential for capital gains.

On the income side, rentals fluctuate as demand and supply conditions change. Thus, property investments may not be able to provide the constant and predictable cash flow that annuities can.

This uncertainty could be painful for retirees who rely solely on rentals for their retirement income. Furthermore, repairs and maintenance are unavoidable and potentially troublesome.

The most attractive benefit of an annuity is that you have a guaranteed stream of regular income throughout your lifetime. You need not worry about outliving your savings. This makes annuities an apt choice for many retirees.

Also, the introduction of the National Lifelong Income Scheme, or CPF Life, which is essentially an annuity scheme, allows you to explore more ways of generating a retirement income, as you can pledge your property towards the Minimum Sum.

If you sell a property that has been pledged, the money from the sale of the property would be returned to your Minimum Sum. This could then be used for an additional stream of income for life.

In your case, this certainly sounds like good news. You can keep your pledged property for rental income and enjoy any market upside, while the monthly payout from the Lifelong Income scheme covers your basic living needs.

When planning for retirement, you must first ensure that your minimum cost of living over your lifetime is provided for - in this case, with an annuity product. Indeed, the CPF Board has effectively addressed the basic retirement needs of many Singaporeans with the Lifelong Income scheme.

You can supplement your income by investing in other asset classes, such as pension endowments, real estate investment trusts or dividend-paying stocks. You can even take up an additional private annuity.

A well-diversified retirement portfolio will provide a staggered stream of income from various sources as you get older. As it is becoming increasingly common for people to have more than one source of retirement income, it is important to manage all these financial instruments properly.

I would advise you to engage a professional financial planner to work out your retirement expense cash flow and assess how your annuity or rental income can complement your current retirement portfolio as a whole. Do this before you decide to sell your property , buy a private annuity or choose a CPF Life option.

Xanne Leo Sen Yun
Associate Manager, New Independent

Advice provided in this column is not meant as a substitute for comprehensive professional advice.

How To Deny My Father A Share Of My Assets After I Die?

Source : The Sunday Times, Mar 30, 2008

Q I AM a 29-year-old executive with no assets except for some small savings, several insurance plans that will pay out on my death and an HDB flat that I will eventually co-own with my older sister.

I am estranged from my father, who divorced my mother more than 10 years ago and has not supported us since. I do not wish to leave a cent to him, my step-siblings or my step-mother.

I have nominated beneficiaries for the payouts from my insurance plans, and I have excluded my father.

If I do not make a will, is this enough to ensure that my father cannot get a share of my money when I die?

A IF YOU die intestate, that is, without a will, your estate will be distributed to your parents in equal shares if you are single at that point. If you are married without children, half will go to your parents and the other half to your spouse.

Thus, you should make a will if you do not wish to leave anything to your father.

The death proceeds from your life insurance policies will go to the beneficiaries you have named. In the unlikely event that your named beneficiaries do not file a claim with the insurance companies, your executor (if you die with a will) or administrator (if you die without one), or any legitimate claimant under insurance laws (such as your father), can seek to have the proceeds paid to them.

The recipient would then be legally obligated to distribute the proceeds in accordance with the law, that is, as specified under your will, in accordance with intestacy laws or to your named beneficiaries, as the case might be.

If your co-owned HDB flat is held under a joint tenancy, your share would go to the surviving joint tenants. If it is held under a tenancy in common, your share would be distributed in accordance with your will, or intestacy laws if you die without a will.

Leong Sze Hian
President, Society of Financial Service Professionals

Advice provided in this column is not meant as a substitute for comprehensive professional advice.

HDB Resale Market Healthy But Prices Rising At Slower Pace

Source : The Sunday Times, Mar 30, 2008

Total sale prices likely to be steady or higher while upfront cash demands may continue to slide

WHILE quiet may prevail in the private homes market, the resale market for HDB flats offers another picture - one filled with steady activities.

Still, a number of potential HDB resale flat buyers are kept out of the market by the high upfront cash sums that some sellers demand.

These cash sums are on top of the valuation price of a flat and can be paid only in cash.

Last year, when HDB resale prices rose 17.5 per cent in line with the private property boom, many sellers rode on the buying wave and started asking for cash- over-valuation sums ranging from $50,000 to more than $100,000.

For those who are holding off their HDB purchases for a lower price, property agents say cash- over-valuation amounts could continue to slide. But HDB resale flat prices are unlikely to tumble in the foreseeable future, they say.

'The HDB market is still very healthy,' said Mr Chris Koh, director of Dennis Wee Properties.

Resale prices are still rising - albeit at a slower rate than last year - as valuations have generally risen, property agents say.

Even if the cash-over-valuations are slightly lower than late last year, the total resale price will still be steady or higher.

ERA Realty Network's assistant vice-president, Mr Eugene Lim, said his firm expects the first-quarter HDB resale price index to show a marginal rise of 3 per cent or less.

The resale price index increased by 5.7 per cent in the fourth quarter of last year.

Cash-rich en-bloc sellers

'WE ARE still seeing en-bloc sellers downgrading to the bigger HDB flats such as the executive flats,' said Mr Koh.

With their $2 million or so sales proceeds, some en-bloc sellers, especially the retired ones, prefer to buy an HDB flat to live in and a small private property for investment, he said.

Meanwhile, some of the HDB resale flat buyers are downgrading to smaller flats.

As a result, there is more sales activity among three- or five-room flats and executive flats, said Mr Koh.

He said some collective sale sellers are of the view that the private property market will fall some time down the road.

This group would buy an HDB resale flat to live in while they wait for a good time to enter the private property market, he said.

They need to live in their resale flats for only one year before they can sell them, if they are taking a bank loan for the purchase.

Those who take an HDB loan for a resale flat purchase have to live in it for 21/2 years before they can sell it.

While this group may not be big, they do help to prop up the HDB market to a certain extent.

Lower upfront demands

THE Government has increased the supply of HDB flats as its stock depletes, and has assured the public that it will boost supply when needed.

As buyers now have more choices, some agents are taking double the time to sell resale flats, compared with around one month on average late last year, said Mr Eric Cheng, executive director of HSR Property Group.

Because of the weak sentiment in the private homes market this year, HDB flat sellers have also become more realistic in asking for lower sums of cash, property agents say.

Today, sellers in prime areas like Holland and Tiong Bahru may ask for $35,000 to $60,000 cash, compared with maybe $80,000 to $100,000 last year, said Mr Cheng.

Mr Koh said cash-poor buyers need not consider only far-out areas like Marsiling. They can also look at towns such as Yishun, Tampines, or Pasir Ris, where sellers are now asking for less cash.

The HDB recently said its records for last month showed that about a quarter of the resale flats were transacted at prices not exceeding $10,000 above market valuation. These included those in more established towns such as Ang Mo Kio, Bedok, Tampines and Yishun.

Such cash-over-valuation levels of below $10,000 for flats in established towns are attractive in today's market, said Mr Cheng.

Those who do not have an urgent need for a place to live in can wait a little longer to see if they can buy a resale flat with a smaller cash sum, say some property agents. But do not expect the valuation price to fall just yet.

Numerous options

Cash-poor buyers need not consider only far-out areas like Marsiling, says Mr Chris Koh, director of Dennis Wee Properties . They can also look at more established towns such as Yishun, Tampines, or Pasir Ris, where sellers are asking for less cash.

Saturday, March 29, 2008

Putting On The Ritz

Source : The Business Times, March 29, 2008

Luxury living goes up a notch with personal housekeeping and sommelier services at the first Ritz-Carlton Residences in Singapore.

THE first Ritz-Carlton Residences in Singapore - and Asia - is sparing no expense to make its residents feel right at home.

The 36-storey luxury residence in Cairnhill Road, which has 58 residential units, will feature three recreation sky terraces. Spanning over 5,000 sq ft each, the one on the fourth level will have a 34m-long lap pool, hydro pool, gym, yoga space and spa facilities.

There will also be a reading room and a cafe with billiard tables on the 14th floor. With a gourmet kitchen and a wine cellar on the 24th floor, a team of service staff can also help residents organise private parties for up to 20 people.

The project is a partnership between The Ritz-Carlton and Hayden Properties , which is a joint venture between real estate firm KOP Capital and Emirates Tarian Capital.

Prices for each 2,800 sq ft three-bedroom unit start from $11.5 million, while the 3,057 sq ft four-bedroom ones go from $15.5 million, says Hayden’s managing director Ong Chih Ching.

The junior penthouses, which are more than 3,500 sq ft, cost from $18 million. The project is expected to be completed in 2010.

At the launch last December, the development achieved a record price of $5,146 per sq ft (psf) or over $15 million for a four-bedroom unit. That month, it also sold four other units from $5,053 psf upwards.

But sales have slowed down since. Last month, only a three-bedroom unit was sold at $4,140 psf, which is about $11.6 million, and none in January.

The market is expected to remain lacklustre given the snowballing global financial crisis originating from the United States, say property experts.

Property developers in Singapore say they sold only 185 new units in February, down from the 328 sold in January.

So far, 30 per cent of the The Ritz-Carlton Residences’ apartments have been snapped up. Currently, more than 50 per cent of the buyers are from Russia, Indonesia, Japan, Korea and the Middle East. A few also intend to lease out their units, says Ms Ong.

Monthly rentals at The Ritz-Carlton Residences could fetch more than $25,000 for the four-bedroom units. Already, a 2,885 sq ft four-bedroom unit at the nearby Ardmore Park, which is located off Draycott Drive, is going for $22,000 a month.

However, all this luxury does come at a price. At The Ritz-Carlton Residences, residents have to pay a $2,500 monthly fee, which will include a 24-hour concierge service, housekeeping and sommelier service.

LTA Awards Site At Serangoon Ffor Transport Hub Development

Source : The Business Times, March 29, 2008

SINGAPORE will have 10 integrated public transport hubs in about 10 years.

The Land Transport Authority (LTA) yesterday awarded a ‘white’ site at Serangoon Central for an integrated development to a unit of Pramerica RealEstate Investors (Asia) and reiterated that four more integrated public transport hubs will be built - at Marina South, Jurong, Joo Koon and Bedok - over the next 10 years.

Typically, these developments comprise air-conditioned bus interchanges, MRT stations and retail/other developments.

So far, three such hubs have been completed - at Ang Mo Kio, Toa Payoh and Sengkang. Another two are being built - at Boon Lay and Clementi - slated for completion by 2009 and 2011 respectively, LTA announced.

‘Integrated public transport hubs will enhance connectivity by making our bus interchanges and MRT stations more accessible,’ LTA chief executive Yam Ah Mee said in a statement yesterday.

‘Residents have told us they enjoy the comfort and convenience of our air-conditioned bus interchanges at Ang Mo Kio, Toa Payoh and Sengkang. Public transport ridership at these areas has gone up steadily.’

Pramerica Asia will develop a mall on the Serangoon Central site, which it clinched for $800.9 million or $850 psf per plot ratio.

LTA said in its statement: ‘Under this tender, the developer will design and construct a development with a bus interchange, to be integrated with the Serangoon North-East Line MRT Station and the Serangoon Circle Line MRT Station.’

In its release yesterday, LTA did not give the locations of the four new integrated public transport hubs.

But market watchers reckon the ones in Jurong and Bedok are likely to be around the existing Jurong East and Bedok MRT stations.

The Marina South hub could be in the vicinity of a new station planned to serve the new cruise terminal at Marina South as part of an extension to the current North-South Line, which now ends at Marina Bay Station.

Parking Squeeze May Take Shine Off New Buildings

Source : The Business Times, March 29, 2008

Rules vastly reducing carpark lots in new office buildings and malls are poised to bite.

New office buildings and shopping malls coming up in the central areas of Singapore - especially in new downtown Marina Bay - are likely to feel the full force of existing rules limiting the number of parking spots allowed for each building.

And with a whole slew of commercial buildings nearing completion over the next few years, a severe shortage of carpark lots is imminent. New ‘white’ sites, such as the Marina View land parcels, get just one carpark spot for every 425 sq m - or 4,575 sq ft - of commercial space. White sites can be developed into a combination of uses.

Developers are allowed to provide more spots, but at the expense of giving up office or retail space. As yields for commercial space are significantly higher than those for carpark lots, most will not do so.

What this translates to is quite startling - a company that takes up one entire floor in Marina Bay Financial Centre (MBFC) with a large floor plate of 25,000 sq ft could be entitled to just six carpark lots.

Similarly, in a medium- sized building, a company occupying an entire floor - or some 10,000 sq ft of space - will get just two parking spots.

And for the upcoming mega office building on the Marina View site, this means that the 1.7 million sq ft of office space the owner is required to provide would entitle the development to around just 380 parking spots.

While the rules have been in place for all new buildings since May 2002, the impact has not really been felt so far because in the old central business district (CBD), an excess of carpark lots in older buildings make up for the shortfall in newer ones.

Golden Shoe Car Park and Market Street Car Park also provide some much-needed supply.

But for new downtown Marina Bay, there will be no such buffers. Buildings in the area will mostly all be new - which means that they will not have excess carpark spaces.

‘The ruling is a bit harsh, especially if you look at all the big projects coming up in Marina Bay,’ said one local developer. ‘Those buildings will have thousands of workers, and only a few hundred carpark lots each.’

Singapore is trying to attract more financial institutions, which means that more professionals from the banking and financial services sectors are expected to relocate from abroad. But some of them may find that they cannot drive to work, the developer added.

Macquarie Global Property Advisors’ Marina View development - which combines two sites won in government land tenders - is one building that will likely be hit by the shortage, industry players said. The project is required to provide some 1.7 million sq ft of office space.

MBFC, on the other hand, is expected to fare slightly better. Although the building is a white site and therefore subject to the ‘one carpark lot for 425 sq m of commercial space’ rule, it also has ‘hub status’, which means that it is allowed to have slightly more carpark lots without having to sacrifice its commercial gross floor area (GFA). But while Marina Bay will likely be the first to be hit, the existing CBD is also going to face the same problem in the future, market watchers said.

‘Right now, the CBD is managing,’ said Nicholas Mak, director of research and consultancy at Knight Frank. ‘But if developers continue tearing down and then building new buildings, then we will have a problem.’ This is because new projects on the sites of old buildings are also subject to the newer guidelines.

For some of these buildings, the number of parking spots will be reduced from one for every 400 sq m (4,306 sq ft) of office space to one for every 425 sq m (4,575 sq ft). Parking space was a lot more liberal in some older buildings.

Adding to the woes of drivers is also the impending loss of Market Street Car Park. CapitaCommercial Trust (CCT) recently said that it has been granted planning permission to redevelop the building into an office tower.

Other than office buildings, any upcoming new shopping malls, hotels, cinemas, theatres, restaurants and bars will also be affected. The impact will be greatest in the central areas, but are also being felt elsewhere - especially for white sites.

A retail development slated for a plum white site above Serangoon MRT Station will have only slightly over 200 carpark spots - which Danny Yeo, Knight Frank’s deputy managing director, said would be a ‘tricky situation’. The mall has a maximum permissible GFA of 942,132 sq ft.

By contrast, Singapore’s now-largest suburban mall Causeway Point has a GFA of 629,160 sq ft of GFA and 915 carpark lots. Even then, it gets ‘pretty crowded’ during the weekends as the mall is the only shopping centre in Woodlands, a spokeswoman for Frasers Centrepoint said.

Industry players believe the squeeze is part of the government’s move to push more people to use public transport. But developers point out that the shortage of parking spaces will come at a time when the car population is climbing.

BT understands that for the Serangoon site, analysts recommended that the authorities provide close to 1,000 parking spots. But despite this, only over 200 units were allowed. ‘Shopping centres without enough carpark lots will suffer,’ said one property analyst. ‘There will be a complete change in shopping patterns.’

When contacted, the Land Transport Authority (LTA) said it currently regulates parking by stipulating the minimum number of car parking lots to be provided based on the given floor area of a development. ‘Developers may build more carpark lots but they have to balance them with the opportunity cost of the additional space.’

Prudential And SingPost Launch Property Fund

Source : The Business Times, March 29, 2008

SINGAPORE Post and Prudential Singapore Asset Management (Singapore) have launched an International Opportunities Fund (IOF) - Asian Property Securities, exclusive to SingPost customers.

The fund, offered from yesterday, will invest mainly in closed-end real estate investment trusts (Reits) and property -related securities of companies incorporated, listed in or focused on the Asia-Pacific region.

‘Asia’s concrete long-term growth, large population and growing middle-class fuel demand for commercial and residential properties ,’ said Jene Lua, general manager of Prudential Singapore.

SingPost and Prudential Singapore said the fund may also invest in depository receipts including American Depository Receipts and Global Depository Receipts, as well as debt securities convertible into common shares, preference shares and warrants.

A minimum investment of $1,000 is required for Class F shares, while $5,000 is the minimum for Class Fd shares. The fund aims to make one per cent payout every quarter for Fd shares.

The initiative is the result of the growing partnership between SingPost and Prudential Singapore since 2006. For SingPost, the fund increases the range of investment products under its Care for Life Portfolio.

‘The synergy between the two companies can create value to customers,’ Prudential’s Ms Lua said. ‘The partnership allows SingPost customers direct access to Prudential’s range of funds. The investment products we offer via the branches are funds with established track records, spread across a spectrum of asset classes.’

CCT’s Ratings May Be Downgraded

Source : The Straits Times, Mar 29, 2008

CAPITACOMMERCIAL Trust (CCT) faces a possible ratings downgrade after it said on Thursday that it would buy the prime office building at 1 George Street for $1.17 billion.

Ratings agency Moody’s Investors Service yesterday placed the trust’s ratings ‘on review for possible downgrade’, it said in an e-mail.

The move stems from concerns that the proposed acquisition, which is to be fully funded through debt that CCT has already secured, will ‘weaken CCT’s financial metrics’, said Moody’s vice-president and senior analyst Kathleen Lee.

CCT’s corporate family rating is now A3, or upper- medium grade. Its senior unsecured debt rating is Baa1, meaning it is subject to moderate credit risks.

Ms Lee, however, was quick to add that CCT’s ability to line up enough debt funding for the deal in the first place ’speaks of its ability to maintain funding access amid a weak credit environment’. She also said buying 1 George Street would enhance the ‘asset quality and income diversity’ of the $5.1 billion trust.

She said, though, that CCT’s weaker credit metrics were unlikely to improve soon without an equity injection, which was unlikely given the state of the equity markets.

CCT is not the only Singapore-listed property trust to deal with ratings issues. Allco Reit hit headlines last week for going to court to fend off a downgrade.

FCT To Buy $480m Malls From Parent

Source : The Business Times, March 28, 2008

FRASERS Centrepoint Trust (FCT) , which owns suburban malls, said yesterday that it would buy three properties worth $480 million in two years, funded mostly through loans as investor appetite for new equity dries up. 'Right now, the capital market is not there unfortunately, but the banks are still lending and I've got the debt headroom to go much higher,' Christopher Tang, CEO of Fraser Centrepoint Asset Management, told Reuters.

FCT is acquiring the three suburban malls from parent Frasers Centrepoint, the property arm of conglomerate Fraser and Neave, and is prepared to raise its debt gearing from 29 per cent to 45 per cent to do so, he said. 'Our long-term target is always about 30-35 per cent but we're now prepared for short periods of time to go as high as 40-45 per cent, until the capital market works through its issues.'

FCT's share price rose up to 3.3 per cent in late session trading before ending 0.9 per cent up in line with the broader market. Rival retail Reits CapitaMall Trust was up 1.2 per cent, while Suntec Reit lost 0.7 per cent.

Poor market conditions have caused Reits such as MacarthurCook Industrial and Allco Commercial to scrap plans for fund-raising by issuing new shares. With the Reits' ability to fund their growth and repay existing debts squeezed, analysts such as Goldman Sachs and UBS are predicting that smaller Reits such as MacarthurCook will become acquisition targets.

Mr Tang said that FCT's balance sheet remained strong with most debts due in 2011, and FCT had an A3 corporate rating from Moody's. He declined to say if he was planning to acquire another Reit, but did not rule it out. 'I think, as a strategy, it's something that most people would not rule out. It's obviously another way of growing. M&A will probably be an area that will have more activity in the Singapore Reit market in the future. Like in the United States and Australia, it's an inevitable phase for the market that there will be consolidation from time to time.'

Mr Tang remains bullish about the outlook for suburban malls, despite concerns that consumers would cut expenses amidst fears of a slowing global economy and surging inflation. 'Even in the worst of times, during the Sars period in 2003, our occupancy never dropped because suburban malls are non-discretionary spending and it rides economic cycles very well,' he said. -- Reuters

Friday, March 28, 2008

Singapore Shophouses Star At Auctions

Source : The Business Times, March 27, 2008

IT was a stellar year for the Singapore property market in 2007, and auction activity, a barometer of market confidence, did well in tandem by Grace Ng.

Auction sales hit a record $407.43 million in 2007, the highest in eight years and a shade below the figure achieved in 1999 when the market was recovering from the Asian financial crisis.

The record figure was mostly due to a vibrant residential market in the first half of 2007 where sales were dominated by high-end condominiums and old apartments with en bloc potential. The other sectors which had contributed to this remarkable result were shops/shop houses and development sites.

Owners are increasingly turning to auctions to sell their property. In fact, their numbers have been doubling every year since 2005. Last year, the number of properties put up by owners hit a 10-year high, with 810 properties auctioned with a value of $264.7 million. This compares with $129.54 million for 2006.

The transparency of the auction method is the chief reason for its popularity. This assures sellers that they are getting a good price for their properties. Its popularity extends beyond individual owners to companies that are looking to divest or restructure their property portfolio.

The auction market this year is likely to see a 25 per cent drop in value transacted to $300 million, as we expect fewer high-end homes and old apartments with en bloc potential to be put under the hammer.

However, those sectors that have yet to experience sharp price increases are likely to see more activity this year. One such sector would be commercial properties like shophouses. According to Urban Redevelopment Authority numbers, residential prices climbed 31.2 per cent in 2007, while the retail sector only gained 13.2 per cent.

Spotlight on shophouses

Last year, a total of 527 shops/ shophouse units were put up for sale via auction by both individual owners and companies. A total of $78.1 million worth of such units were sold under the hammer, against just $28.75 million in 2006. That’s a jump of 172 per cent!

The sale value of shops/shop houses is expected to moderate to $50 million this year due to the cautious mood in the market.

With the US sub-prime debacle crimping sentiment in the property market this year, particularly the lacklustre residential sector, savvy investors could consider turning their attention to strata titled shops, private shophouses or HDB shops.

Shophouses, like other types of property, are assets that can hedge against inflation, enabling investors to benefit when the capital value appreciates in times of rising prices. Additionally, for owner occupiers, the shop/shophouse acts as a hedge against rental increases. By purchasing a unit, owner occupiers are typically converting their monthly rent to mortgage payments, which could turn out to be much lower.

Auctions are a good avenue to source for shops/shophouses that are affordable, strategically located, limited in supply and have attractive yield or en bloc potential.

Many strata titled shops were successfully transacted at auctions at affordable prices, many of them below $500,000. Such a price range is considered a bargain, particularly when some of them are located in the heart of town or next to future MRT stations.

For instance, two strata titled shops at Excelsior Hotel and Shopping Centre located at Coleman Street, near the City Hall MRT station, were sold for $318,000 and $340,000, respectively. Additionally, several shop units at Grandlink Square, near the future Paya Lebar MRT interchange, were sold at prices ranging from $51,000 to $226,000.

There are also many attractive picks among HDB shophouses put up for sale by mortgagees at auctions and such properties are usually attractively priced. These shophouses consist of shop space on the ground level and living quarters, often a three-room flat, on the upper level. Considering the high cash over valuation done on some HDB flats, HDB shophouses priced between $600,000 and $700,000 are some of the attractive options appearing at auctions. Some successful transactions include HDB shophouses located in Chai Chee and Bedok North Avenue 1, which were sold for $640,000 and $700,000, respectively.

Investors and business owners see shops and shophouses as alternative office space, which is facing a current supply crunch. Shophouse units located near or within the CBD are in high demand and they are usually near MRT stations. For instance, a three-storey shophouse unit with dual frontage at Stanley Street was sold for $4.21 million last year. Similar properties include shophouse units located at Outram Park and South Bridge Road, which were successfully auctioned off at $2.73 million and $2.6 million, respectively.

HDB shops/shophouses located in high pedestrian traffic areas like the town centre, MRT station or bus interchange are in demand and can fetch record prices at auctions. For example, a shop unit at Heartland Mall in Hougang was sold for $8.5 million, while another shophouse at Upper Changi Road, which is situated beside an upcoming mall and near the Bedok bus interchange and MRT, was sold for $7 million at an auction last year.

Similarly, an HDB shop at North Bridge Road was sold for $528,000 last year, while a shop at Crawford Lane located opposite a future hotel at Victoria Street, was sold for $495,000 this year.

Limited supply

There are a limited number of strata titled shop units available in the market as the majority of shopping centres in Singapore are owned by Reits like CapitaMall Trust, Frasers Centrepoint Trust and Macquarie MEAG Prime Reit.

For new developments like the Icon at Tanjong Pagar, the developer would usually hold on to the commercial component for lease instead of selling the individual units.

Conservation shophouses are popular with investors due to their limited supply and architectural characteristics. Last year, a three-storey conservation shophouse located in the Kampong Glam conservation area and near the MRT station was sold for $2 million. Another shophouse at Prinsep Street, opposite the future Singapore Art School, was sold at an auction for $3.78 million.

Attractive yield

One compelling reason why investors are keen on shops/shophouse units is because such properties can generate a yield of 4-6 per cent. The yield attained from such investment exceeds the paltry interest rate of fixed deposits which is currently under 2 per cent.

En bloc potential

Shop/shophouse units that are located within old developments usually attract keen bidding at auctions. Investors would have explored the possibility of such old developments being sold collectively in future. Last year, two shop units in Katong Plaza, which had en bloc potential, were successfully auctioned for $225,000 and $325,000, respectively.

Grace Ng is deputy managing director and auctioneer at Colliers International

S-Reits Alright For Long-Term Gains

Source : The Business Times, March 27, 2008

Investors with capital to deploy should take advantage of the high yields on offer, and get paid by waiting, says MARK EBBINGHAUS

OVER the past few years one of the greatest drivers behind the positive performances of the region’s market was liquidity. Now, following a change in the financial environment, which began around August 2007, the negative market performance that the markets are experiencing is being driven, in part, by illiquidity. As a result there has been an increase in volatility in Asia’s equity markets, with the S-Reit market being one of the sub-sectors significantly affected by these changes. And despite the volatility lasting for over seven months, there is still a lack of clarity as to when this is likely to abate.

In the first seven months of 2007 there were net capital inflows in excess of US$20 billion into Asia’s equity markets but this abruptly ended towards the end of July, with a significant reversal of market liquidity. Since then we have seen over US$40 billion of net outflows from Asia’s markets, after a period of near record equity issuance. As a result, liquidity has been sucked out of the system and markets have become extremely volatile.

We are now in an environment where volatility, as measured by the volatility index (VIX), is at record highs. In addition, risk aversion is also running at high levels, as measured by the emerging markets bond index (EMBI) plus sovereign spread.

From the data, it’s clear that the market is firmly in bearish territory, having moved rapidly from the previous years’ bullish sentiment. Much of what has occurred has been out of the region’s control, being driven instead by global capital markets and the significant re-pricing of risk. However, the knock-on effect has been that those markets perceived as being riskier, including the S-Reit market, have suffered a lot over the past seven months.

Not since the early days in the development of the S-Reit market, which was established in July 2002, have we seen distribution per share (DPS) yield spreads widen to over 350 basis points, which compares to the market’s peak in July last year where the spread was closer to 100 basis points. For some individual S-Reits we have seen the spread blow out far wider, with many S-Reits trading at a high single digit/low double digit DPS yield compared to the long bond in the mid two per cent range. That’s among the widest spreads in the world.

‘Institutional investors are sitting on near-record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs, we are likely to see a run of funds flow into the region and with it a significant rally in the markets.’

The perplexing issue for many is that we have not seen a deterioration in earnings quality of the mainstream S-Reit sector. What we have seen, however, is significant price volatility. It’s probably fair to say that the sector is not currently being driven by fundamentals but more by momentum. It’s probably also fair to say that momentum was largely what led the sector to all-time highs last year and that the sector probably ran too hard too fast. Today, to some extent, the S-Reit sector is paying the price for the excess in-flow of money in prior periods, combined with more discriminating investor appetite that is looking for value in many places, but wary of the illiquidity induced volatility.

Looking at the global Reit marketplace it really depends on what your reference point is in assessing value opportunities and justifying activity or inactivity alike. If your benchmark reference point is discount to net asset value (NAV) or absolute earnings yield then the S-Reits do not look particularly cheap. However, if you look at the distribution yield spread to the long bond or notional risk free rate, then the S-Reits look like some of the best value opportunities in the world, particularly when you combine this with base earnings stability and strong earnings growth prospects. When the market was attracting a lot of attention last year, investors were willing to factor in yield, organic growth and, importantly, acquisitive growth into their required rate of total return from an S-Reit investment. S-Reits were required to have an identified asset pipeline, if you didn’t you would not get credit for acquisitive growth. For those with a pipeline the market drove down the DPS yield in part due to the high earnings accretive effects of acquisitions. This resulted in an increase in the accretion of the growth.

Today’s pipeline is not viewed as positively by investors, mainly because it’s all about funding and if you have a pipeline the first thing an investor will ask is how you are going to fund your acquisitions. So, to some extent, S-Reit investors’ total return expectations have not changed significantly in the last year, but today the requirement is to deliver it through yield and organic growth only, excluding acquisitive growth. As such, the yield has had to effectively compensate for this, which has driven this metric up to near all-time highs, despite the risk-free and debt rates actually moving in the other direction, widening spreads on both counts.

This brings us to debt. Many investors feel - and there is sympathy with this line of thought - that in some instances capital management practices in the sector have been behind the pace in a rapidly changing global credit market environment. We have seen gearing levels gradually rise from the low 20 per cent range to over 30 per cent and we have seen debt providers become a lot more cautious in terms of refinancing and extending debt facilities.

Reit investors have witnessed real estate in the western world, notably the US, UK and Europe, revalued downwards, in some cases significantly, resulting in gearing levels increasing beyond what could be considered prudent and in some situations this has been deadly.

In a market where investors often shoot first and ask questions later capital management has been a major focus and another trigger issue significantly influencing investors’ trading activity. In short, illiquidity and capital management have combined to be major influences on the performance of the S-Reit sector, currently being driven - at least in trading activity - by generally non-traditional Reit investors, exacerbating volatility levels.

In the main, the fundamentals of the S-Reit sector are in reasonably good shape. There is very limited earnings risk and there are promising organic earnings growth prospects. The demand and supply metrics in the physical asset market remain generally sound and there are unlikely to be any significant shocks to the system from that quarter. It’s generally not so much about earnings but the pricing is being driven by illiquidity and increased global risk premia.

Having said that, there are a number of messages that institutional investors are sending to S-Reits, with the bottom line being: ‘If you do not listen to us we will not buy!’

Institutional investors are sitting on near record cash weighting and at some point we will see a tipping point where the global financial malaise washes through the system and investors regain confidence to deploy capital. When this occurs we are likely to see a run of funds flow into the region and with it a significant rally in the markets.

In the meantime, for those with something longer than a monthly investment horizon and wishing to deploy capital, buy S-Reits, take the high yields on offer and effectively get paid to wait for the rally.

At the end of the day, quality investments are likely to yield the right results over the longer term. However, in the case of S-Reits, both asset and management quality are paramount and getting this right from an investor’s point of view is critical.

Mark Ebbinghaus is managing director, head of real estate, lodging and leisure, Asia, UBS Investment Banking Department

Rising Demand For Built-To-Suit Space

Source : The Business Times, March 27, 2008

With CBD office rentals continuing to increase, companies are looking for cheaper alternatives, write CHRIS ARCHIBOLD and TAHLIL KHAN

WHILE demand for central business district (CBD) office space remains very strong, some significant trends have emerged in the way a number of multinational companies view options in terms of location and type of premises for future occupation.

The two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process.

This has come about from Singapore’s drive towards a knowledge economy as well as current market dynamics. Historically, the Singapore economy was largely based on trading and labour-intensive manufacturing industries. In the 1990s, there was a significant drive towards the information technology (IT) sector which grew as a result of the dotcom era. During the late 1990s and early 2000s, there was a concerted effort to encourage R&D activity and more recently, the government has been encouraging various sectors. That notably includes positioning Singapore as a regional financial hub.

The growth of the financial services sector in Singapore has had a marked effect on the economy and on the accommodation demanded by global financial players. Many of these large financial houses have now reached a critical mass whereby they are looking to split their operations into both front and back offices.

The Singapore office market bottomed out in the second half of 2004 and saw a rental rise of 23 per cent in 2005 followed by 63 per cent in 2006 and a further 67 per cent in 2007 with fourth quarter Grade A CBD rents at $16 per sq ft a month. This dramatic increase in rents has been fuelled by lack of supply and unprecedented levels of demand from many MNCs, most notably from the financial sector.

The high-tech sector has also seen increases in rents of 12.5 per cent, 11 per cent and 97 per cent in 2005, 2006 and 2007 respectively. While 2007 saw a virtual doubling of high-tech rents, the increases from the bottom of the market till today have been nowhere near as dramatic as the office market which has trebled. We have a scenario today where there is a significant gap between office and high-tech rents.

The gap between average CBD core office rent and rents for high-tech space has widened from 140 per cent in the second half of 2004 to about 200 per cent in the fourth quarter of 2007. This is because of the higher increase in CBD core office rentals as compared to high-tech rents during this period.

With CBD core office rentals continuing to increase, companies began looking for cheaper alternatives. Some major financial institutions have chosen to relocate their backroom operations to high-tech space, thus pushing up high-tech rentals. The strong demand for such space at the tail end of 2007 and beginning of 2008 has resulted in high-tech rentals increasing at a faster rate than CBD core and decentralised area office rentals, narrowing the rental gap between office and high-tech space.

Nevertheless, compared to office rents, high-tech rents are more compelling than ever before from an occupational cost perspective. Given that all MNCs are looking to lower occupational costs, and with a disparity of around $11 - $13 psf per month between core CBD rents and high-tech rents, there is an opportunity to make substantial savings which makes a compelling case for corporate real estate managers (CRE) and chief financial officers (CFOs).

Given the above, we are witnessing unprecedented growth in the demand for high-tech business park space from both traditional occupiers and financial institutions. There are a number of reasons for this recent phenomena, including the following:-

# Cost savings,
# Consolidation of operations,
# Critical mass,
# Diversification of locations (business continuity).

The current supply of high-tech space is extremely limited and hence the emerging trend for forward thinking MNCs is to enter into built-to-suit (BTS) projects. This can be either owner-occupied by the MNC or leased from a BTS developer on a long-term basis. It is worth noting that for a BTS project to be financially viable (for both occupiers and the developers) they generally have to be of a certain scale, approximately 100,000 sq ft and above.

The major considerations for MNCs looking at BTS projects in decentralised locations are as follows:

# Good corporate image with modern office-like facade and landscaping,
# Strong supporting amenities such as food courts and ancillary retail,
# Competitive rentals,

# Efficient transportation systems including access to MRT, buses and taxis,
# Greenmark certification as a minimum - many MNCs now have corporate mandates that dictate Corporate Social Responsibility (CSR),
# Ability to create a quality working environment. Our surveys on the workplace environment have demonstrated that a quality working environment increases productivity. Lower rents per sq ft enable MNCs to dedicate more area for staff facilities and welfare. In the main, the areas that are considered by MNCs for BTS projects fall into four preferred locations: Changi Business Park (CBP), Jurong East including International Business Park (IBP), One-north and Science Park.

Market talk indicates there are likely to be other locations which may be designated as high-tech locations such as Paya Lebar. The reason the above locations are favoured is the current availability of quality sites that meet MNCs’ requirements. Recently, the 15-year leasehold transitional office sites (such as those in Newton, Mountbatten and Tampines) have provided occupiers with attractive propositions in terms of affordable rents in good locations which will facilitate BTS developments. The BTS trend has been borne out in a number of recent well-publicised acquisitions. In terms of the financial sector, these include acquisitions of substantial back office BTS facilities by DBS, Citibank and Standard Chartered Bank. OCBC is also rumoured to be in discussions on a BTS scheme in Changi Business Park. Recent BTS acquisitions by non-financial services companies include Tolaram Group in IBP and IMC Shipping in Changi Business Park.

There are numerous other corporates that are in discussions for BTS projects that will go live in 2008. Jones Lang LaSalle (JLL) is currently advising a number of large occupiers in various industries on their long-term strategies for Singapore. Table 2 details the industry profile of the occupiers that we are currently advising with regards to the potential acquisition of BTS facilities.

An interesting point to note is that based on JLL’s current instructions, the two most active industries looking at BTS schemes are financial institutions and IT companies. A lot of the interest has centred on Changi Business Park as one of the key advantages, besides the availability of greenfield sites, is the direct land allocation process which provides corporates with line of sight in terms of costs and certainty in terms of timing.

Given the current and increasing future importance of CSR, BTS facilities are giving major corporates an opportunity to reduce their environmental impact and impress shareholders with their drive to be good corporate citizens. Almost every recent commitment to a BTS project has incorporated at least the minimum level of greenmark certification. Some of the occupiers are aiming to achieve Gold Plus or even Platinum levels of certification.

Our house view is that Singapore will see a continuing trend of BTS facilities over the next couple of years, with the likely takers of BTS projects being full relocations (including front office operations) for the IT, consumer products and manufacturing industries and back office operations for financial institutions.

This will continue to be driven by current influencing factors, ie, rents and the lack of supply. In the case of financial institutions, this will also be driven by the fact that many now have the critical mass in Singapore required for a split front and back office location.

The impact of these BTS schemes on the office market and high-tech market remains to be seen and is very much dependent on the scale of BTS commitments over the next 12-24 months. Equally, this is also dependent on the percentage of space that is taken up as expansion requirements compared to take-up that is pure relocation from current buildings.

Chris Archibold is regional director, head of markets, Jones Lang LaSalle; and Tahlil Khan is associate director, head of industrial, Jones Lang LaSalle

Singapore Office Rents Could Peak This Year

Source : The Business Times, March 27, 2008

Tenant resistance will ease pace of rental growth, and office take-up may slow over 5 years, writes MORAY ARMSTRONG

IT WAS a year of new records for the Singapore office market in 2007. Rents were driven to new highs in terms of growth rates - prime rents surged a staggering 92 per cent year on year - and in terms of rent levels that far exceeded previous market cycle peaks. Vacancy rates dropped to unprecedented lows. Meanwhile, the sheer size of many leasing transactions was also on an unparalleled scale.

Shortage of space: Office leasing deals are still happening in spite of worries over the state of the US economy and the financial markets

All in all, a performance that made landlords, developers and property funds fairly content. In contrast, there was growing anxiety in the occupier community over fiercely rising office costs and a critical shortage of available space to accommodate business expansion. This was a consistent theme heard most vocally among various chambers of commerce.

The cries for help had, in fact, already been picked up early in the proceedings and government policy reaction was in full swing. Office development parcels and vacant state buildings were quickly offered to the private sector and 11 government land sale sites were awarded in 2007 (no office sites were awarded the previous year).

The concept of transitional office sites offered on short 15-year ground leases was tested successfully. The lower land premium levels (versus more traditional 99-year leases) reduce the developer’s cost and allow space to be leased out at lower rents. Furthermore, the government identified a number of departments located in the CBD that could potentially relocate to decentralised areas, thereby releasing available office space for the private sector to lease.

So where does the office market go from here? Will Singapore’s office market pitch from critical shortage of space to a glut? What should tenants budget for when leases are due for renewal (and just how do you explain to the head office a fourfold increase in your rent in Singapore when there is financial carnage at home base?) We have set out below a few observations and our thoughts on the market outlook.

Supply

From our tracking we can identify a total confirmed five-year (2008-2012) office supply of 10.18 million sq ft (of which almost two-thirds is attributable to government land sales), the bulk of which will be delivered only after 2010. This supply figure grew dramatically through 2007.

The volume of supply does not in our view appear excessive. An average 2.03 million sq ft per annum is lower than the average 2.21 million sq ft per annum delivered to the market through the 1990s. Bear in mind that the total office stock in Singapore today (70.33 million sq ft) is 186 per cent greater than the total office stock in 1990. Also note that there is a healthy level of occupier pre-commitment in many of the new developments.

Notwithstanding the above, a factor that should be taken into account is the prospect of secondary office stock (availability in existing office buildings) increasing, particularly after 2011 when some major occupiers will move to new CBD developments and some support functions are relocated out of town. Keep an eye out also for potential sub-lease space increasing if there is a greater economic downturn.

As matters currently stand, our sense is that secondary stock is not likely to impact significantly. Bear in mind that most corporates in Singapore right now are desperately short on space and are not holding much ‘fat’ in either their headcount or real estate.

Demand and take-up

Deals are still happening in spite of worries over the state of the US economy and the financial markets. It is noteworthy that the strong tenant interest in decentralisation (Tampines, Changi Business Park, Harbourfront and Mapletree Business City are favoured destinations) has carried forward from last year.

As these commitments are usually financially compelling, it is perhaps unsurprising. Pre-lease momentum for prime buildings may slow in the short term as financial institutions grapple with other issues. We are, however, still actively seeking immediate expansion space for many of our banking clients.

Over the past two years office take-up averaged 2.23 million sq ft. Going forward, we anticipate that take-up may fall back to 1.6 million sq ft on average over the next five years. It is notoriously difficult to accurately call the level of office demand, but in order to build some office occupancy modelling, we have adopted this take-up figure and our assumptions here suggest that overall islandwide occupancy could remain above 90 per cent over the next five years. Hardly over-supply conditions.

Rents

The tightness of availability and excess of unsatisfied occupier demand is likely to drive (selectively) further rental growth. Early last year, we suggested that the pace of rental growth would modify going into 2008. Our preliminary Q1 2008 figures seem to bear this out: Grade A rents advanced 8.7 per cent quarter on quarter to $18.65 per sq ft a month and average prime rents rose 6.7 per cent to $16 psf a month.

While market fundamentals remain highly favourable to landlords, we expect sentiment and a healthy dose of tenant resistance to higher rents will further ease the pace of growth and rents could well peak this year and then stabilise. Greater competition from 2010 onwards suggests that rents could ease downwards. Expect certain landlords with older buildings to moderate rent expectations through this period. Tenant retention will be higher on the agenda.

Policy and land sales

The planners appear to have made a telling contribution over the past couple of years and a welcome increase in supply is now visible. Hard-pressed occupiers already have relief in sight. It may be a timely moment to ease back on priming supply and monitor how the demand side holds up in the light of more cautious times ahead.

Moray Armstrong is executive director (office services), CB Richard Ellis

Singapore Retail Rents Unlikely To Soften

Source : The Business Times, March 27, 2008

But Singapore’s retail operators finding it tough to sustain their businesses, writes SHERENE SNG

SHOPPING seems to be in the psyche of every Singaporean but how will the dynamics in the retail sector - rising rents in particular - reshape our favourite pastime? First, let’s look at the current situation, where retail space has inched up by less than 2 per cent between 2003 and 2007 - from 34.07 million sq ft to 34.64 million sq ft at end-2007.

That has been followed by retail rents around Singapore rising 33.9 per cent in the same period. The island-wide shop space rental index grew from 86.9 in 4Q 2003 to 116.4 in 4Q 2007.

All segments of the retail market saw rental increases. For example, in Orchard Road (central), average monthly gross rental at end-2007 was $45.45 per sq ft per month (psf pm), up from $36.88 psf pm at the beginning of 2005. Average monthly gross rental for suburban areas rose to $28.98 psf pm, up from $26.35 psf pm three years ago.

At these levels, they are still some way behind prime retail rents in Hong Kong ($86.40 psf pm), London ($126.61 psf pm) and New York ($142.77 psf pm).

But prime rents in Kuala Lumpur and Bangkok are lower than in Singapore. The comparisons are made with rents of typical shops in prime retail locations, that is, situated on the ground floor and with good frontage.

What is the impact of rising rentals in shopping malls and how does it impact the shopper?

Retail business cost is largely made up of rent, salaries, training, advertising and promotion (A & P) and for some retailers, backroom support. When rent goes up, and revenue does not rise to a similar extent, retailers will spend less in other areas. Over time, they will cut spending on A & P or training as a way to rein in costs.

For some retailers, especially small and medium-sized companies, profits are reduced to the point that they maintain business for the sake of keeping it going, that is, their shops stay open only as long they can cover costs.

Do retailers feel that they are being squeezed out of the market?

One retailer told me that rents have become too high and many of them are feeling the pinch. If it were not for the fact that he had bought his own shop, things would be hard for him. He felt that many tenants are facing tough times and finding it difficult to sustain their businesses.

It does not help that retailers find it difficult to control other operating costs, including staff salaries and, in the case of food and beverage operators, food costs. In the case of a fashion retailer, staff costs typically make up 10-12 per cent of his sales. This is higher than, say, Hong Kong, where staff costs may range from 8-10 per cent of sales.

By and large, retailers want to be in business for the long term. However, in order to justify investment in business, they need security of tenure. If they are uncertain how long they will be in a particular mall, they would be reluctant to put in a lot of investment. It wouldn’t make sense to train staff and build up a customer base, only to close after three years because of high rents.

All this impacts the consumer. When shopping centres are mainly tenanted to retailers with deep pockets, shopping centres will see a duplication of such tenants and this will result in less variety for shoppers. For retailers that operate on lower margins, for example, electronics, electrical and technology shops, bookshops and large format supermarkets, there is concern that one day they may no longer be found in shopping centres.

To differentiate themselves from the competition, landlords look for new shopping concepts for their malls. Fresh concepts will be a draw, but retailers may be reluctant to bring in new brand names because of the high setup costs involved. Licensees and franchisees have to pay a lot of money for rights to set up new brands in Singapore. High rental costs make retailers think twice about testing new concepts because of the risks involved. One way to get around this would be for landlords to charge such operators lower rent to help them get a foothold in the market. Consumer behaviour is another bugbear of retailers. Singaporeans are viewed as thrifty and with less disposable income. A large number of them enjoy taking budget flights overseas to shop and eat. However, figures from the Singapore Department of Statistics and Knight Frank Research show that retail sales value (excluding motor vehicles) has risen over the last five years to $22.53 billion in 2007. This is an increase of 9.02 per cent from the previous year.

Similar increases for retail sales per square foot of retail space and retail sales per capita have been observed. In 2007, retail sales of $650.50 psf of total retail stock was captured, an increase of 9.57 per cent year-on-year. On a per capita basis, retail sales were $4,814. This means that each square foot of retail space is churning out more sales every year. And each person in Singapore is also generating more sales each year. Along with the yearly increase in tourist arrivals, retails sales will certainly be boosted.

Last year, Singapore successfully secured the rights to host the Formula One race for five years, starting with the inaugural 2008 Formula One SingTel Singapore Grand Prix. This, together with upcoming projects like the two integrated resorts, the rejuvenation of Orchard Road, development of Gardens By The Bay and the Sports Hub will put Singapore on track to achieve the Singapore Tourism Board’s 2015 goal of $30 million in tourism receipts and 17 million visitor arrivals. In 2007, the figures were $13.8 billion and 10.3 visitor arrivals respectively.

Finally, will there be a slowdown in rental increases as retailers hope? Will we face a supply overhang in the next few years?

Between now and 2010, about 6.8 million sq ft of retail space is expected to come on stream. That actually works out to fewer feet of retail space per person than currently: There will be an estimated 6.89 sq ft of retail space per capita of population, down from 7.4 sq ft in 2007.

It appears that the hoped-for softening of rents may not materialise. So what can consumers look forward to? Will they bear the brunt of retailers’ high operating costs should these be passed on to them? That’s the last thing they want.

What shoppers want is to visit malls where the landlord and tenants act together to produce a fresh and vibrant retail mix. Where they can find familiar brands and know that when they come back, these names will still be there. Where shops are well-stocked and sales staff are knowledgeable about the merchandise.

However, retail operators take their lead from their customers. To a certain extent, our shopping habits shape the retail environment. No doubt, Singapore’s market is relatively small but if shoppers send a clear message about the goods and services that they really want and spend their money accordingly, then the spectre of rising rents will not be as disheartening as it appears.

Sherene Sng is head, retail, Knight Frank Pte Ltd.

20k Grant For Singles Who Live With Parents

Source : TODAY, Friday, March 28, 2008

Impact minimal as increase is small: Housing agents

Starting next month, single Singaporeans aged 35 and above looking to buy Housing and Development Board (HDB) resale flats to live with their parents may apply for a higher Central Provident Fund (CPF) housing grant of $20,000.

While this is up from the current $11,000 for singles who live alone, property agents TODAY spoke to said the impact would be minimal as it is not a big amount compared to the grant given to married couples — $30,000 to $40,000.

Sales planner Michelle Yee, 50, who is single, felt that any increment was good. “I understand that the Government doesn’t encourage Singaporeans to be single, which is probably why the grant is lower than that given to married couples,” she said.

Property director James Lee, 39, said an additional $9,000 is not a lot considering the appreciation of housing values these days. Added Mr Lee: “Many singles would rather apply for the current $11,000 grant as they need not be tied down with the additional condition of living with their parents.”

Mr Lim Boon Heng, Minister in the Prime Minister’s Office, announced the new scheme in Parliament on March 5 as a pro-family initiative to encourage children to look after their elderly parents.

Under the scheme, the parents cannot buy or take over the ownership of another HDB flat, or invest in private property for at least five years.

Said Mr Lee: “This means that parents who are currently staying in their own flats must sell them, and most elderly Singaporeans do not like to move house.”

Property agent Magdalene Lim, 43, said that if she was to buy a flat, it would be out of filial piety, as the extra $9,000 would not make much difference because sellers were already demanding a premium above the market value of their flats, and buyers needed help most with this cash component.

Sales executive Fang Mei Mei, 41, welcomed the initiative, saying it was better than nothing: “I am appreciative that it has been upped for the singles.”

To qualify, singles must commit to living together with their parents in the resale flat for at least five years. All other prevailing conditions, such as the maximum income ceiling, minimum occupation period for resale flats and resale levy liability apply.

Oh, That Elusive HDB Flat

Source : TODAY, Friday, March 28, 2008

Board should do more to weed out insincere applicants

Letter from Samuel Lee

My fiancee and I are young executives who are looking for a place to live after we get married.

We have applied for a Housing and Development Board (HDB) flat under the Design, Build and Sell Scheme (DBSS) and the Build-To-Order (BTO) schemes several times, but have repeatedly drawn very high queue numbers.

The application fee of $10 should be raised to help filter out people who apply “just for fun”, as well as fence-sitters whose final decision on purchasing a flat depends on a favourable queue number.

Even though they were over-subscribed, the take-up rates for recent BTO projects in Sengkang and DBSS projects - Premiere@Tampines and City View@Boon Keng - were eventually low.

Some applicants were also turned down because their combined monthly family income exceeded the $8,000 limit.

This is precisely the point: Discounting the cash-rich, affordable public housing should be just that - affordable.

DBSS flats are far from affordable - many 4-room flats at City View@Boon Keng were priced between $500,000 to $700,000.

The HDB should step in with pricing guidelines for future DBSS and Executive Condominium (EC) projects. There also seems to be little differentiation between EC and DBSS units.

I also understand that there are plans to privatise both Premiere and City View in 10 years. Why the need to wait so long?

My fiancee and I have been eagerly anticipating the launch of the DBSS site in Simei since it was announced late last year.

The tender of land for this site was slated for last month, and from past trends for the earlier two projects, it should have taken place at the end of February. But there is still no sign of of the tender being called.

Is the HDB delaying it in view of cooling property prices?

There has been no official statement on this, but a simple explanation on the HDB website explaining the delay would be a nice gesture.

The HDB should bear in mind their objective of providing affordable, subsidised public housing and not ride on market trends like a corporate entity.

Back to the issue of the $10 application fee: Many Singaporeans are kiasu - when they read of developments being over-subscribed, they perpetuate the vicious cycle of over-subscription by “applying for fun” for every project, since the application fee is low.

It does not take a rocket scientist to figure out how much money is then collected from these fees, given the number of applications for each project.

How does the HDB justify this?

The Board should consider alternatives such as charging a $100 application fee that is fully or partially refundable upon successful booking of a unit in the development.

Another option could be an upfront application deposit of 1 per cent of the average selling price of a unit in the project.

This amount could later be converted to part of the option fee.

Such steps would help weed out non-genuine “buyers”, especially for developments in attractive locations.

New HDB Grant For Filial Singles

Source : The Straits Times, Mar 28, 2008

$20,000 subsidy for singles who buy resale flat to live with parents

SINGLE Singaporeans who opt to buy an HDB resale flat in order to live with their parents can now get a housing subsidy of $20,000.

The subsidy aims to encourage children to look after their parents while helping them get a bit further up the property ladder.

It is a variation of an existing programme - the Single Singapore Citizen Scheme, which allows single people aged 35 and above to apply for a $11,000 CPF housing grant to buy a resale flat to live on their own.

The $20,000 subsidy - called the higher-tier Singles Grant - starts on Tuesday and comes with a number of conditions.

Applicants must be aged 35 and above, be first-time HDB buyers and must not earn more than $3,000 a month if they are buying alone.

They must also commit to living with their parents in the flat for at least five years.

Parents have obligations as well. They cannot buy or own another HDB flat or invest in private property within this period.

This means they will have to dispose of any property they own before they can qualify as co-occupiers in the subsidy application.

The $20,000 grant is also subject to other HDB policies such as resale levy liability, but it can be used by singles buying flats under the Design, Build and Sell Scheme.

The subsidy, which was announced in Parliament on March 5, is not a cash grant and can be used only for initial payment on the flat or to reduce the mortgage.

Singles buying resale flats under the joint singles scheme can also apply for the new grant.

‘It’s not something that will make all singles jump for joy as most want an opportunity to buy a flat to live on their own,’ said MP Charles Chong, chairman of the Government Parliamentary Committee for National Development and Environment.

But it will benefit a small group who prefer to live with their parents.

The HDB said about 270 people applied each year, between 2003 and 2007, for a singles grant to buy a resale flat with their parents.

Mr Chong felt the new subsidy does not go far enough.

He said feedback he has received suggests that singles want to be treated the same as married people, including the right to buy a new flat direct from the HDB.

He added: ‘If the purpose (of the higher grant) is to encourage children to look after their parents, then the grant should also be given to married children living with their parents.’

CapitaLand To Build Viet Condo

Source : The Business Times, March 28, 2008

It’ll hold 60% stake in US$500m project in Ho Chi Minh City

CAPITALAND said yesterday that it will build a US$500 million project in Ho Chi Minh City with a Vietnamese partner.

CapitaLand will take a 60 per cent stake in the proposed joint venture. Thien Duc, one of CapitaLand’s strategic partners in Vietnam, will hold the other 40 per cent.

Thien Duc is a shareholder of CapitaLand’s The Vista condominium in Ho Chi Minh City.

For the latest project, CapitaLand, as lead development manager, will build a 28-storey condo with about 1,400 apartments and commercial and retail space on a 6.7 hectare site.

Most of the apartments will enjoy sweeping views of the Saigon River and skyline, CapitaLand said. It aims to launch the first phase of the project by the second quarter of 2009.

‘Ho Chi Minh City continues to be a key focus for our residential and other investments in Vietnam,’ said Lui Chong Chee, chief executive of CapitaLand Residential.

‘For residential, given the rapid growth in population, increased affordability and tight supply, we are confident of strong sales, especially for well-designed homes.’

CapitaLand will continue to look for prime development sites in Ho Chi Minh City and Hanoi to build quality homes, he said.

Including the newest project, CapitaLand will be building more than 4,200 homes in Ho Chi Minh City.

Vietnam’s residential property market is booming, with queues of buyers in 2007 for CapitaLand’s The Vista and Keppel Land and Tien Phuoc’s The Estella, property firm CB Richard Ellis (CBRE) said in a recent report.

But buyers are becoming more discriminating. CBRE said: ‘Increased development in some sectors will relieve the supply crunch in the future. (But) well-priced quality developments are, and will remain, the top sellers.’

CapitaLand’s shares closed 14 cents higher at $6.40 yesterday. The stock has climbed 2.1 per cent this year.

$484m Gain In Value Of A-Reit Properties

Source : The Business Times, March 28, 2008

The trust attributes the 14.2% surge to improving industrial property market

ASCENDAS Real Estate Investment Trust (A-Reit) said yesterday the book value of its investment properties rose $483.6 million - about 14.2 per cent - during the latest annual valuation exercise.

A-Reit attributed the increase - from the previous book value at Feb 29, 2008 - to an improving industrial property market, which has led to higher occupancy and higher rents across its portfolio.

The latest valuations will be reflected in A-Reit’s financial statements for the year ending March 31, 2008, the trust said.

Valuations were revised upwards across all sectors, with the business & science parks sector registering the largest appreciation of $244.4 million.

Properties in the high-tech industrial sector appreciated $116.5 million, while those in the light industrial sector (including flatted factories) and logistics & distribution centres registered gains of $60.2 million and $63.2 million respectively.

A-Reit’s third development property - HansaPoint@CBP, which was completed in January 2008 - appreciated by $43.2 million, or 166 per cent, from its development cost. Post-revaluation, the annualised net property income yield of the property portfolio is about 6.4 per cent, which is in line with the prevailing market, A-Reit said.

The adjusted net asset value, based on the Dec 31, 2007 balance sheet, will be $1.85 per unit.

The valuations were done by DTZ Debenham Tie Leung, CB Richard Ellis, Chesterton and Jones Lang LaSalle, A-Reit said.

The trust said the increases in valuation are testament to the ‘manager’s proactive asset management strategies in maintaining high occupancy rates and the manager’s ability to deliver value to unit-holders by pursuing attractive acquisitions and development opportunities while maintaining a disciplined approach to ensure risks are mitigated’.

A-Reit’s shares closed nine cents higher at $2.29 yesterday. The stock price has shed 6.9 per cent since the start of the year.

Wait-And-See Stand In Property Plays

Source : The Business Times, March 27, 2008

The impact of the US economy would play a big part in deciding the course of the property market here this year, says CHUA CHOR HOON

PROPERTY markets in Asia-Pacific were largely insulated from the US sub-prime fallout last year, basking in strong economic growth and sustained demand.

Going into 2008, market conditions appear stable and the region's economies are holding up well. Still, much will depend on how the problems in the United States play out.

With the attraction of lower prices and growth opportunities, investor interest in regional property was high last year. This translated into investments worth US$118 billion for Asia-Pacific. Singapore attracted the highest quantum of investments, followed by Australia.

Singapore's investment sales last year stood at a record $41.5 billion, 68 per cent more than in 2006. In the first nine months alone, sales had already surpassed that of 2006 by 38 per cent. This was due mainly to the robust economy, good property market performance and active collective sales in the first half of 2007. Although there was a 30 per cent quarter-on-quarter decline in investment activity in the fourth quarter of 2007, local factors seemed to hold more sway in investment decisions than the US sub-prime crisis.

For example, in the office sector, prices of prime space in Raffles Place have more than doubled, leading to yield compression. In the residential sector, prices in prime districts have also risen more than 50 per cent. The withdrawal of the deferred payment scheme added to the cautious mood.

Collective sales, which drove the investment market in the first half of 2007, also slowed due to a tightening of regulations which lengthened the process of putting a development up for tender.

Among Asian countries, Singapore's office rental grew the most due to strong demand, mainly from the financial sector, coupled with limited supply. Hong Kong and Shanghai were the next strongest markets. Prime residential rentals in Singapore saw the biggest jumps too, due to high expatriate demand amid a reduction in supply as many developments in the prime districts underwent collective sales. In contrast, prices of luxury units in Kuala Lumpur and Shanghai fell due to oversupply. Retail rentals were stable for most Asian countries, except for Shanghai which saw tremendous growth of almost 120 per cent. Singapore's prime retail rents rose moderately by 6.6 per cent.

2008 outlook

For now, market conditions seem stable and most of the Asia-Pacific economies are holding up well. However, if the sub-prime fallout persists and the US and European Union economies continue to slow, both export-driven economies and tertiary economies will be affected. The GDP growth rates for the Asian countries are forecast to fall slightly, with the exception of Thailand which is likely to see better GDP growth now that the elections are over. In the Asia-Pacific region, China and India are expected to be most immune to the sub-prime crisis as they have strong domestic demand to buffer the fall in export demand.

There is evidence that European and US funds are directing their attention to this region where they see growth opportunities in countries such as China, Vietnam, India, Thailand, Hong Kong and Singapore. With rising affluence and a wealthier middle class, there is strong domestic demand for housing in China, India and Vietnam. Vietnam's official accession to the World Trade Organization (WTO) in 2007 will pave the way for a more open market economy and attract more foreign investments. Thailand's property market has not risen as much as other Asian markets in the last two years due to its political situation and prices are relatively attractive.

Hong Kong and Singapore are still attractive despite higher prices and rentals because of their more developed infrastructure and connectivity. On the other hand, some Asian funds are also looking at Europe and US now that their prices have become more competitive.

On the whole, there is increasing investor interest from Japan, Korea, China and the Middle East. The Japanese are reviewing options to lift restrictions for Japan real estate investment trusts (J-Reits) to invest in overseas real estate. The rise of sovereign wealth funds from Asia and the Middle East will also contribute to the investment market.

The fundamentals supporting the Singapore property market are strong, with low interest rates and many exciting events and economic investments coming on stream. These would bring in more tourists and jobs. However, for the moment, many property investors and developers are adopting a wait-and-see stance. Developers in Singapore are holding back launches and some funds are holding off making investments at least for the first half of 2008, before the extent of the slowdown in the US economy and its impact globally are clearer.

The impact of the US economy would therefore play a big part in deciding the course of the property market this year. Although fundamentals are strong, sentiment plays a big part.

Nevertheless, there is a silver lining to the caution brought about by the sub-prime problem. Many property markets around the world are in bubble territory on the back of strong economic performance and many investors are getting carried away with the notion that prices will keep rising. If the sub-prime woes had happened later, prices and rentals would have continued to rise. And any fall, happening much later in the property cycle, would have been more painful.

Chua Chor Hoon is senior director at DTZ Research, Singapore

URA Launches Tender For Residential Site At Choa Chu Kang

Source : Channel NewsAsia, 27 March 2008

A land parcel at Choa Chu Kang has been launched for sale by tender for residential development.

The Urban Redevelopment Authority (URA) said it is one of four new residential sites to be released as a confirmed site under the Government Land Sales Programme for the first half of 2008.

At 1.9 hectares, the plot will have a maximum permissible gross floor area of 53,200 square metres.

A condominium up to 36 storeys can be built on the 99-year leasehold site.

Located within a mature residential district, it is near the Choa Chu Kang MRT station.

The tender will close at noon on 26 May and URA said the selection of successful bidders will be based on price.

US Recession May Cause Singapore's GDP Growth To Drop To 3%

Source : Channel NewsAsia, 27 March 2008

The market generally expects Singapore's economy to grow by 5.5 percent this year.

But economists at Nanyang Technological University (NTU) said if the United States goes into a recession, there is a 50 percent chance that Singapore's GDP growth may drop to as low as 3 percent.

Generally, consumer demand is expected to slow down this year, whether or not the US goes into a recession.

Choy Keen Meng, Assistant Professor, Economics Division, Humanities & Social Sciences School, NTU, said: "Consumer spending would definitely be cut back because consumers in Singapore and all around the world are realising that the US economy is slowing, the world economy is slowing, and psychological reaction to that is to be more cautious in spending."

If US goes into a recession, the electronics sector which tends to be driven by US demand is likely to suffer the hardest hit. NTU economists expect a 1.3 percent dip in chip sales then, versus a 6.9 percent recovery if the US holds up.

Experts said the construction sector will likely be Singapore's main pillar of support in those difficult times. And while the services sector is more insulated from external pressures, they will not escape the ripple effects of the US recession on regional economies.

A bright spot, however, will be tourism-related services, which will benefit from upcoming projects like the Formula One night race and the integrated resorts.

Financial services are forecast to see a heavy slowdown from a 12.5 percent growth in 2007 to just 6.5 percent this year.

Overall, inflation is expected to stay high.

"Unfortunately, inflation will remain very high this year. We are forecasting about 7 percent inflation in the first quarter and about 6 percent inflation in the second quarter," said Prof Choy.

Inflation is then expected to ease in the second half of this year to 3 to 4 percent. For the whole year, NTU expects inflation to come in at 4.5 to 5 percent. - CNA/so

A-REIT's Value Of Industrial Properties Gains 14% To S$484m

Source : Channel NewsAsia, 27 March 2008

Ascendas Real Estate Investment Trust (A-REIT) said the value of its industrial properties gained 14 percent to about S$484 million as at 29 February 2008.

The numbers are likely to boost its performance for the financial year ending in March.

A-REIT said the gains were booked after independent annual valuations for 80 properties in its portfolio by consultants DTZ Debenham Tie Leung, CB Richard Ellis, Chesterton International and Jones Lang LaSalle.

The trust is citing a significantly improved industrial property market, which led to higher occupancy and good rental rates.

Valuations were raised across all sectors, with the business and science parks sector posting the largest appreciation of S$244 million.

The hi-tech industrial sector saw values appreciate by S$116.5 million.

The light industrial segment gained S$60.2 million, while its logistics & distribution centres saw values rise by S$63.2 million.

HDB Introduces Higher CPF Grant For Singles Who Live With Parents

Source : Channel NewsAsia, 27 March 2008

Starting next month, single Singaporeans aged 35 and above who buy HDB resale flats to live together with their parents may apply for a higher CPF housing grant of S$20,000 if they meet the eligibility conditions.

The Housing and Development Board said this higher-tier singles grant will also apply to eligible singles buying the Design, Build and Sell Scheme (DBSS) flats with their parents.

Under the existing Single Singapore Citizen Scheme, single Singaporeans aged 35 and above can get a CPF housing grant of S$11,000 to buy a HDB resale flat.

Minister in the Prime Minister's Office Lim Boon Heng announced the above higher-tier singles grant in Parliament on 5 March.

It is a pro-family initiative to encourage children to look after their parents.

To qualify for the higher-tier singles grant, the eligible single must commit to living together with his/her parents in the resale flat for at least five years.

Within this minimum occupation period of five years, the parents cannot buy or take over the ownership of another HDB flat separately from this same single child, or invest in a private property.

All other prevailing policies such as the income ceiling, minimum occupation period for resale, resale levy liability, will apply.

Property agents said this new scheme is unlikely to have any impact on the market given the small segment it serves. - CNA/ac