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.