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.


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.


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

Hotel Room Rates Set To Hit Record High During F1 Race

Source : Channel NewsAsia, 28 March 2008

Hotel room rates are set to hit an all-time high when the Formula One Grand Prix comes roaring into Singapore this September.

Visitors can expect to pay nearly 100 percent more, even if they are staying at a mid-range hotel.

Over 90,000 die-hard fans are expected to catch Singapore's first Formula One Grand Prix from the race ground.

But as the speed demons burn up the asphalt, the accommodation may burn a hole in their pocket.

Some mid-range hotels which Channel NewsAsia approached declined to be interviewed, but a check showed that room rates during the tail-end of September are set to double.

And they will be the highest ever seen in Singapore, according to the National Association of Travel Agents.

However, some hotels said it is hard to price rooms because the race organiser has not released figures for its ticket sales so far.

Robert Khoo, CEO, NATAS, said, "It's hard for them to gauge at this moment what is the actual price that the public will pay, so in order not to lose out, they are currently pegging their price at quite an unrealistic level to make sure that they don't lose out, in the event that demand is really high. So I think along the way, I hope they can do some adjustment to react to the actual booking situation."

For instance, a standard room at Furama City Centre hotel in Chinatown costs S$350 (plus taxes) during peak period.

But come end September, it will shoot up to S$488 a night (excluding taxes) from September 22 to 26; and S$888 a night (excluding taxes) from September 26 to 29 - with a clause of a minimum three nights' stay.

At Bayview Hotel near Bencoolen Street, a standard room which goes for S$300 (plus taxes) per night will cost S$800 (excluding taxes) from September 24 to 29. And guests will have to stay for at least five nights.

It will also be more expensive to put up at Hotel 81 branches in Chinatown, Bugis and Bencoolen.

Prices will jump from between S$149 and S$189 a night to about S$450 - from September 26 to 29 - with a minimum stay of three nights.

Meanwhile, rooms at Allson Hotel along Victoria Street will go up from S$300 a night (excluding taxes) to S$700 (excluding taxes), from September 24 to 29.

On top of that, guests will have to stay for at least five nights, and pay an extra 20 percent for CESS tax which will be imposed on hotels near the racing ground.

NATAS acknowledged the acute shortage of rooms in Singapore, but said that on the whole, hotels should raise their rates gradually.

Mr Khoo said, "Hoteliers have the tendency to keep rates high and at the last moment, when they can't sell the rooms, they will lower the rates and throw all these rooms out for the travel agents, but sometimes these happen too late and agents are not able to utilise these rooms, so it's a waste actually."

NATAS expects many hotels to hire more staff to cope with the increase in occupancy rate, from the current average of over 70 percent to about 90 percent. And it said many of these workers are likely to be foreigners.

Therein lies another concern that service standards may be affected.

In the long run, as room rates trend up, the other worry is that this might deter travellers from visiting Singapore altogether. - CNA/ms

CapitaLand To Develop 1,400 Homes In Ho Chi Minh City

Source : Channel NewsAsia, 27 March 2008

CapitaLand has signed a deal with its Vietnamese partner Thien Duc to build about 1,400 homes in the prime District 2 of Ho Chi Minh City.

The contract for the 6.7 hectare site includes commercial and retail space.

The development, which is within a popular residential area, will have an estimated total project value of S$690 million.

CapitaLand will take a 60 percent stake in the proposed joint venture, while Thien Duc will hold the remaining 40 percent.

The joint venture is the result of a recent strategic alliance between CapitaLand and Nam Thang Long Investment Joint-Stock Company – a Vietnamese firm specialising in real estate, transportation and chemical manufacturing.

It is also part of CapitaLand's goal to double the number of homes it is building in Vietnam to about 6,000.

CapitaLand is currently building over 4,200 homes in Ho Chi Minh City.

CapitaLand In US$500m Vietnam Venture

Source : The Business Times, March 27, 2008

CapitaLand, Southeast Asia's biggest developer by market value, said on Thursday it has entered a joint venture to develop a US$500 million mixed-use project in Vietnam's Ho Chi Minh City.

The development, which comprises 1,400 apartments, and space for shops and offices, will be launched for sale starting from the second quarter of 2009, CapitaLand said in a statement.

CapitaLand will take up 60 per cent of the venture, while Vietnamese developer Thien Duc will hold the remainder, it said. -- REUTERS

满35岁 购转售组屋与父母住 单身者津贴两万元

《联合早报》Mar 28, 2008









Low Point Of Crisis May Be Over, Feels Temasek Unit

Source : The Business Times, March 28, 2008

Investors have reached the point of maximum fear, says Fullerton CEO

Temasek Holdings' fund management unit says investors have passed 'the point of maximum fear' amid the global credit squeeze. Fullerton Fund Management sees the US Federal Reserve's decision to rescue Bear Stearns as a turning point in the crisis.

'The Fed coming in to facilitate JPMorgan Chase & Co's purchase of Bear Stearns is a watershed event, and most bottoms are found during watershed events,' Fullerton CEO Gerard Lee said in an interview here yesterday. 'From that perspective, we could have already crossed the point of maximum fear.'

The Fed stepped in with JPMorgan on March 14 to provide emergency funding to Bear Stearns in the biggest government bailout of a US securities firm. The move is now being probed by the Senate.

Before the announcement, Bear Stearns' clients withdrew US$17 billion in two days amid speculation that the firm was running short of cash.

Templeton Asset Management's Mark Mobius said he 'generally' agrees with Temasek's assessment that the markets have reached a bottom.

'If we haven't achieved it, we're damn close,' Mr Mobius, who oversees US$47 billion in emerging- market equities, said in a phone interview from Hong Kong yesterday.

'With the kind of liquidity that's pouring into the system, with the Fed, and now the European Central Bank and others putting more money into the system, we think stock prices are not going to remain down. We think there's a good chance of growth going forward.'

Some funds are already planning to buy shares in Asia, where stocks have tumbled this year even as economies in China and India continue to grow. The MSCI Asia Pacific Index trades at 14 times estimated earnings, after slumping 13 per cent the past six months as fallout from the US sub-prime crisis spread through Asia, making stocks in the benchmark 36 per cent cheaper than the five-year average.

Value Partners Group, Asia's second-largest hedge fund manager, is buying stocks in the region that were battered by the collapse of the US sub-prime mortgage market, chief investment officer Cheah Cheng Hye said this week. The Hong Kong-based asset manager aims to start a new fund in the second quarter to invest in Greater China property stocks, Mr Cheah said.

Funds such as Clariden Leu AG, which manages US$300 million, said the recovery from the US housing crisis may take 1-2 years.

'What we have seen in the last couple of weeks culminating in the rescue of Bear Stearns by the Fed and a further pump of liquidity in the market may somewhat signal an inflexion point in the crisis - but this bottoming-out phase, we reckon, will take a long time,' Michael Foo, head of Asian portfolio management at Clariden, said in an interview yesterday.

Fullerton, which oversees US$2.5 billion of third- party money, is still bullish on prospects in Asia, where it has most of its assets. It said the goal to manage US$3 billion excluding Temasek's funds by mid-year is achievable. Temasek manages a portfolio worth more than US$100 billion.

'The fundamental reasons for this secular growth are all in place,' Mr Lee said. 'The few of the big economies are found in Asia. I'm talking about China, India, Vietnam and South Korea. So Asia, being a destination for investment money from the developed world, will continue to grow.'

Fullerton's main customers are wealthy individuals in Japan, South Korea, Taiwan, Hong Kong and institutions in Singapore, where it became a separate unit of Temasek in 2003. It aims to expand in the US, Europe, Australia and the Middle East. -- Bloomberg

Property Trust To Acquire Office Building For $1.17b

Source : The Straits Times, Mar 28, 2008

Sale of 1 George Street to CCT comes with arrangement guaranteeing yields

CAPITACOMMERCIAL Trust (CCT) plans to buy a three-year-old office block - the building was completed in 2004 - in the Central Business District (CBD) for $1.17 billion from its biggest shareholder, CapitaLand.

The purchase of the 1 George Street building will augment the property trust's other prime blocks at a time of tight office supply and rising rents.

CCT's portfolio includes Capital Tower in Robinson Road, 6 Battery Road, the HSBC Building in Raffles Place and a majority stake in Raffles City.

The 1 George Street transaction works out to $2,600 per sq ft (psf) of net lettable area.

The deal comes with a form of yield protection. CapitaLand will ensure a minimum net property income of $49.5 million a year for five years from the day the sale is completed.

This translates into a net yield of 4.25 per cent a year on the purchase price, CCT said in a statement, and implies a rental rate of about $10.50 psf.

The yield protection arrangement makes the acquisition compelling, as CCT's current Grade A office assets have an average yield of 3.2 per cent per annum, said CCT's chief executive, Ms Lynette Leong.

Ms Leong said buying 1 George Street would increase CCT's net property income contribution from such assets from 43 per cent to about 55 per cent.

'The 4.25 per cent yield is reflective of the current office market,' said Cushman & Wakefield managing director Donald Han.

'Prime office acquisitions last year were done at average yields of between 3 per cent and 3.5 per cent.'

The yield protection arrangement will also shield the trust from any potential oversupply situation in the office market from 2010 and beyond, he said.

CCT's Grade A office buildings have done well. Asking rents at 6 Battery Road in Raffles Place, for example, have risen to $22.50 psf, with rent deals done above $20 psf.

The 23-storey 1 George Street is well sited to benefit from high CBD rents, being near the Raffles Place and Clarke Quay MRT stations, said CCT.

There is good upside for rents, as it was completed in 2004, when the office leasing market was sluggish.

The building is fully occupied, but about half the rental leases will be up for revision over the next two years, said Ms Leong.

Tenants at 1 George Street include The Royal Bank of Scotland, WongPartnership and the Canadian High Commission.

CapitaLand said it expected a gain of about $47 million from the sale. This is after taking into account the yield protection and its 30.5 per cent interest in CCT.

It said the divestment was in line with its strategy of unlocking value from commercial properties at the appropriate time to recycle capital.

CapitaLand gained full ownership of 1 George Street last year, when it bought German insurer Ergo's 50 per cent stake in the building at $2,700 psf of net lettable area.

CCT will seek unitholder approval for the deal at an extraordinary general meeting before June 30, so the deal can be completed before July 31.

As CCT has secured committed funding for the entire purchase price, it does not need to do a placement of CCT units or a rights issue to raise cash.

Its gearing, however, will rise to 40 per cent from 27 per cent.


CapitaLand will ensure a minimum property income of $49.5m a year, making the acquisition compelling, says CCT chief executive Lynette Leong.


CapitaLand expects a gain of about $47m from the sale.

CCT Gets Option To Buy 1 George Street For $1.17b

Source : The Business Times, March 28, 2008

Deal comes with income support from seller CapitaLand till 2013

Big office investment sales deals have not ground to a complete halt. CapitaCommercial Trust announced yesterday that it has an option from sponsor CapitaLand to buy 1 George Street for $1.165 billion or $2,600 psf of net lettable area, showing that income support may be the way to make acquisitions palatable to Reits.

This is especially so when it comes to office blocks with a substantial portion of leases signed a few years ago when rentals were weak. Never mind that income support for such deals may once have been frowned upon.

The deal for 1 George Street involves a five-year rental guarantee, with seller CapitaLand ensuring a minimum net property income of $49.5 million per annum, translating to a net property yield of 4.25 per cent per annum on the purchase price till 2013.

This means that CapitaLand will top up any shortfall in net property income to ensure that the $49.5 million floor is achieved every year for the period. The acquisition will be funded entirely through debt; there will be no equity raising.

1 George Street is a 23-storey Grade A commercial building that was completed three years ago. It is fully leased and its tenants include The Royal Bank of Scotland, WongPartnership and Lloyd's of London (Asia).)

Most of the leases were signed around 2004/2005, when office rents were weak, which is why CapitaLand is providing yield protection for the asset's acquisition by CCT. The $49.5 million annual minimum net property income implies gross monthly rentals of $10.50 psf. Given that the current average market rental in the Raffles Place area is about $16.30 psf, this spells upside for 1 George St as leases are renewed, CapitaCommercial Trust Management CEO Lynette Leong said.

Leases for about 50 per cent of the net lettable area in the property will come up for renewal in 2008 and 2009. Recently, a new lease for a small space in the building was signed for $19 psf, Ms Leong revealed.

'With the yield-protection given by CapitaLand, CCT will be able to attain minimum returns from this asset. The five-year yield protection eliminates all the downside risk and whatever upside there is from the asset, it will all flow through to CCT. That's a pretty compelling offer,' Ms Leong said.

The deal drew an inevitable comparison with K-Reit Asia's acquisition of a one-third stake in One Raffles Quay from its parent, Keppel Land. The two deals have similarities - they involve income support and are at prices seen as lower than market.

However, Ms Leong, at a media and analyst briefing yesterday, argued that there were important differences between the two deals.

For one, CCT will get 100 per cent direct ownership of 1 George Street, and the asset will enjoy full tax transparency as a result of being owned by a Reit. This means that CCT would not have to pay tax on income from this asset, unlike K-Reit Asia's acquisition of a one-third stake in ORQ which is being effected through the purchase of shares in the company that owns ORQ. Hence, the income that K-Reit will receive from the asset would be net of 18 per cent corporate tax.

Another difference is that KepLand will provide income support only till 2011 whereas CapitaLand is doing so till 2013, beyond the 2011/2012 timeframe when a spike in Grade A office space is expected.

CapitaLand Commercial CEO Wen Khai Meng explained that the reason for 'providing the floor for five years is to address the view that there will be a huge supply in 2011/2012'.

Another difference: CCT has secured 100 per cent committed debt funding for its proposed acquisition of 1 George Street and will not have any equity raising exercise. K-Reit, on the other hand, is seeking unitholders' approval for a rights issue to help partly refinance a bridging loan taken from Keppel Corp to complete the acquisition of the one-third stake in ORQ.

The $2,600 psf of net lettable area at which CapitaLand is proposing to sell 1 George St to CCT is lower than the $2,700 psf at which the asset was valued at in a deal last August when CapitaLand bought the remaining half share in the asset to gain full ownership of the award-winning property.

CapitaLand expects to book a gain of about $47.1 million after taking into account the yield protection and the company's 30.5 per cent interest in CCT.

Mr Wen said that the group had to pay $2,700 psf in last August's deal for control premium. 'We feel $2,600 psf, plus income support, is a good deal given that CapitaLand still has about 30 per cent stake in CCT and given that we are the manager of the Reit and have a certain responsibility to help our sponsored-Reit to grow.

'I personally dislike income support, because it conjures up all sorts of wrong impressions. But it would be challenging for a Reit to justify non-yield accretion for the first few years in an acquisition. Based on current rental rates at 1 George Street, the yield would be below 4.25 per cent, but we are seeing very strong rental reversion,' he said

'The yield-protection arrangement of 4.25 per cent pa for five years makes the acquisition compelling, given the current blended yield of CCT's Grade A office assets is 3.2 per cent,' Ms Leong said.

Even with 100 per cent debt funding for the acquisition, CCT's gearing will rise to only about 40 per cent from the current 27 per cent, the trust's manager highlighted.

The deal will be subject to CCT unitholders' approval at an extraordinary general meeting to be held by June 30, as it is deemed an interested party transaction. CapitaLand is not allowed to vote. The acquisition is slated for completion by end-July.

Choa Chu Kang Residential Parcel Up For Sale

Source : The Business Times, March 28, 2008

Analysts think the 99-year leasehold site may fetch $230-$270 psf ppr

THE Urban Redevelopment Authority yesterday launched a 1.9-hectare residential site in Choa Chu Kang Drive for sale by public tender.

Analysts reckon the 99-year leasehold site could fetch $230-$270 per square foot per plot ratio (psf ppr), or $131.7 million to $154.6 million in all.

The site has a maximum gross floor area of 572,600 sq ft.

It is within walking distance of Choa Chu Kang MRT station and should prove attractive to developers, analysts say.

'Judging by the healthy response to recent government residential land sale tenders in West Coast Drive and Yishun, this site should attract a fair number of bidders - possibly two to three genuine bids and two to three other opportunistic bids,' said Tay Huey Ying, director of research and consultancy at Colliers International.

'Bidders may include Far East Organization, Allgreen and Centrepoint,' she said.

Going by the response to nearby Yew Tee Residences when it was launched last year, a project on the latest site should be popular with mass-market buyers, she feels.

Ku Swee Yong, director of marketing and business development at Savills Singapore, agrees that the project will be popular: 'Mass market private homes are still in good demand because of the strong HDB market, where many sellers are getting large amounts of cash-over-valuations (COVs) for their flats. There is also a ready pool of HDB upgraders in Choa Chu Kang.'

Colliers' Ms Tay says that at a bid price of $230-$250 psf ppr, the breakeven price will come to about $560 to $580 psf. According to her, 'Developers would be looking to sell the new units at prices ranging between $620 and $650 psf'.

Units in The Warren condominium have transacted at an average of $570 psf between July 2007 and now, while units in Yew Tee Residences are changing hands at an average of $535 psf, she said.

Mr Ku, on the other hand, believes units on the upcoming site could go for about $700 psf. Some 500-550 homes can be built on the land, he said.

The plot is one of four new residential sites to be launched for sale as confirmed sites under the government land sales programme for the first-half of 2008.

Worst Case: 3% Growth, Best Case: 5.5% - NTU

Source : The Business Times, March 28, 2008

Its economists say that S'pore will feel the pain if US goes into a recession

GDP growth in Singapore could be as little as 3 per cent this year if the US economy tanks, economists from the Nanyang Technological University (NTU) said yesterday.

The Economic Growth Centre at NTU based its forecast on the US suffering a mild period of minus-0.5 per cent month-on-month growth in the first half of 2008, before recovering in the third and fourth quarters. This would result in US GDP growing just 1.3 per cent for the year.

Choy Keen Meng, assistant professor at NTU, noted that industry forecasters were predicting a close to 50 per cent chance of a US recession in the first half of the year.

Earlier this month, Martin Feldstein, president of the US National Bureau of Economic Research, a body which determines business cycles, said that the US economy was already in recession. Last year, the US economy grew 2.2 per cent, the slowest pace since 2002.

If the anticipated downturn does occur, electronics demand is expected to plummet and is likely to be negative for the year, said Prof Choy. This would drag down Singapore's GDP growth for Q1 to 3.8 per cent.

Growth for Q2 and Q3 could be as low as 2.2 per cent, before it recovers to 3.8 per cent in Q4. Singapore's GDP would then grow just 3 per cent, the slowest rate since 2003 and a marked drop from over 7 per cent last year.

In the optimistic scenario where the US economy escapes a full-blown recession and manages 1.9 per cent growth for the year, Singapore's GDP could grow a 'very decent' 5.5 per cent, Prof Choy said. This is in line with the median forecast of 5.6 per cent from an MAS survey of private sector economists conducted in February.

However, if the US does go into a recession, the negative wealth effects in Singapore could be large, hurting consumer confidence and spending, Prof Choy said. But investment is likely to stay strong due to construction projects in the pipeline. 'If there is need, the government could even bring forward its investment projects,' he said, adding that the coming integrated resorts would also boost investment.

On the bright side, Prof Choy said, inflation is likely to moderate once the pass-through of last year's Goods and Services Tax hike tapers off in Q3 for a projected full-year rate of 3.9 per cent. But inflation may remain above 5 per cent for H1.

'I expect that MAS will again tighten its inflation policy come April' by allowing the Singapore currency to appreciate at a quicker pace, he said.

Randolph Tan, also from NTU, said that employment might grow just 4.3 per cent or 110,000 jobs this year if recession hits the US, more than 50 per cent down from 2007's record of 235,000. Unemployment would rise slightly to 2.3 per cent in that scenario, he said.

Slowing employment growth may benefit labour productivity, he added. 'I think 4.5 per cent is enough to meet the needs of economic growth,' Prof Tan said. He noted that real GDP growth per capita was just 0.08 per cent last year.

The Ministry of Manpower said this month that productivity fell 0.9 per cent, the first drop since 2001. Prof Tan noted, however, that productivity was difficult to measure over short periods.

Separately, the UN Economic and Social Commission for Asia and the Pacific said that Singapore may grow 4.9 per cent in 2008 as a slowdown in the US hurts export demand.

It said that the inflation rate here might rise to 3 per cent this year. Overall, growth in the Asia-Pacific region is forecast to moderate slightly to 7.8 per cent, down from 8.2 per cent in 2007.

Property Transactions With Contract Dates Between March 3th - 8th, 2008