News Update for October

Weakening Property Market squeezes Rental
The leasing market has become the latest casualty of Singapore’s weakening property market, with both residential and office rents posting their first declines since 2004 in the third quarter of this year. According to Urban Redevelopment Authority figures released yesterday, rentals of private residential properties fell 0.9 per cent in the third quarter, compared to a 2.5 per cent rise in the second quarter. Office rents declined 0.8 per cent, swinging from a 6.3 per cent rise in the previous quarter.

Most analysts attributed falling residential rents to the double whammy of increased supply and weakening demand as the financial sector deals with the severe crisis. “Instead of increasing headcount, most multinationals are holding back and waiting, so fewer expatriates are coming in,” said ERA Asia Pacific’s assistant vice-president, Mr Eugene Lim. At the same time, developers are holding off developments of their enbloc sites due to the credit crunch and rising construction costs. They are instead renting out these units, resulting in a sudden surge in supply, added Mr Lim.

Additional supply from completed projects will accelerate rental declines in the coming quarters, said Mr Colin Tan, Chesterton Suntec International’s research head. But this may not necessarily be a bad thing for Singapore. “On a country level, Singapore will now be more competitive, since rentals had started off on the high side,” he said.

Meanwhile, HDB prices continued to show resilience amid the downturn, posting a 4.2-per-cent rise. That was a slight moderation from the 4.5-per-cent increase in the previous quarter, which PropNex chief Mohamed Ismail attributed to the overall drop in median cash-over-valuation (COV) to $19,000.

“It’s interesting to note that the bigger drops in median COV were for five-room flats and executive flats. This is evidence of buyers resisting paying out larger COV for larger properties in this bleak economy,” he said. Still, Chesterton’s Mr Tan finds the 4.2-per-cent hike “extremely disturbing” as it bucks the trend amid deteriorating fundamentals. “It must mean that there is a real shortage of resale flats. This can happen when there are more downgraders than anticipated and secondly, few sellers are upgrading to the private market, because of its affordability.”

Prices in the private residential property market fell 2.4 per cent, worse than the earlier flash estimates of 1.8 per cent. ERA’s Mr Lim noted that some investors hit by the recent stock market plunge have started to offload their properties in “fire sales” to raise cash, although any major price declines going forward depends on the extent of such scenarios and whether developers also start to lower prices. Overall, Knight Frank’s research head Nicholas Mak expects private residential prices this year to contract up to 3 per cent.
Source : Today - 25 Apr 2008


Capitaland holds back investment during Global Credit crisis
Capitaland, Singapore’s largest real-estate developer by assets, will hold back on investments until the global credit crisis shows signs of bottoming, said chief executive officer Liew Mun Leong. CapitaLand is evaluating opportunities to invest about $4 billion of cash and will wait for signs that the rout in financial markets is nearing an end, Mr Liew said. The developer has invested about half of the $9 billion it earned from asset sales over the last two years, he said.
“There are plenty of opportunities floating in front of us,” Mr Liew said. “As I see it now, it’s still not bottoming. You may think it’s cheap but tomorrow, it’ll be cheaper.”

The slowdown has weighed on Singapore housing prices, which fell in the third quarter for the first time in more than four years. “If the current financial crisis is prolonged, smaller companies may actually run into cash flow problems and it may make sense for them to form partnerships or be bought over by companies with stronger balance sheets,” said Mr Wilson Liew, an analyst at Kim Eng Securities, which has a “hold” rating on CapitaLand. “That could present some opportunities and CapitaLand has made some savvy investments in the past.”
Source : Today - 25 Apr 2008

Private properties price index drop 2.4% compared to Q2
The official private home price index slipped 2.4 per cent cent in the third quarter compared with the preceding quarter, according to latest data by Urban Redevelopment Authority (URA) on Friday. ‘Prices of private residential, office, and shop properties decreased by 2.4 per cent, 3.9 per cent and 0.3 per cent respectively in the Q3 2008 while the prices of industrial properties increased slightly by 0.9 per cent in the same period,’ URA said.

‘Rentals of private residential, office and shop properties decreased by 0.9 per cent, 0.8 per cent, and 0.6 per cent respectively in the 3rd Quarter 2008, while the rentals for industrial properties increased slightly by 0.1 per cent in the same period,’ URA said.

In the public housing segment, Housing & Development Board’s resale flat price index rose 4.2 per cent in Q3 over the preceding quarter, lower than the 4.5 per cent quarter-on-quarter gain seen in Q2. The total number of HDB resale applications registered rose by 4.5 per cent, from 7,763 cases in Q2 to 8,112 cases in Q3. The median Cash-Over-Valuation (COV) amount of all resale transactions in Q3 was $19,000 (US$12,646) - slightly lower than the $20,000 COV in Q2. Cases requiring COV constituted 89 per cent of all resale transactions in Q3, with 11 per cent of resale transactions conducted at or below valuation.

Overall median sublet rents for HDB flats rose slightly in Q3. However, subletting transactions fell about 4 per cent from about 4,120 cases in Q2 to about 3,960 cases in Q3. The total number of HDB flats approved for subletting rose to about 21,400 units, compared to about 20,200 units in Q2.
Source : Business Times - 24 Oct 2008

HDB price increases 4.2% as compared to Q2
Singapore’s Housing and Development Board (HDB) released data on Friday that showed prices of resale flats rising by 4.2 per cent in the third quarter, as compared to the previous quarter.
This was in line with estimates released earlier this month.

Sales volume also went up by about four per cent from 7,760 to 8,110 transactions.
HDB said the median Cash-Over-Valuation (COV) amount for all resale transactions for the quarter was S$19,000. This was S$1,000 lower than the median COV in the second quarter.
COV refers to the sum of cash that needs to be paid by a buyer over and above the market valuation of a flat.

HDB said 89 per cent of sales in the open market required COV, while 11 per cent of transactions were conducted at or below valuation.
Source : Channel NewsAsia - 24 Oct 2008

UN awarded Singapore top marks amongst World's cities!
The United Nations (UN) gave Singapore top marks in its latest report on the state of the world’s cities, and has said it is keen to deepen its collaboration with Singapore as a knowledge hub. The UN also called on cities to take on pro-growth policies that support the poor and strengthen infrastructure. It said all these can make a difference when it comes to sustainable living.

The UN said people’s consumption and lifestyle patterns, and not urbanization, are to blame for climate change. To solve the problem, cities need to use less fossil fuel, maximise recycling and have a well-planned transport network. Singapore, which set up an inter-ministerial committee on sustainable development in February, has been highlighted for its low per capita car ownership.

With its greening policy, Singapore has also been singled out as a country that absorbs more carbon dioxide than it emits. Another achievement is that Singapore is the only country with no slums. Director of Monitoring and Research at UN-HABITAT, Banji Oyelaran-Oyeyinka, said: “Obviously, (the) government has taken pro-active steps over a long period of time because it has to be sustained. “One of the problems you find in most countries is they actually start well, but you need constant investment, sustained effort (and) visionary leadership to sustain those kinds of actions.”

The latest UN report by UN-HABITAT, the agency working to boost the liveability of cities, studied 245 cities. The report is a lead-up to the UN World Urban Forum in Nanjing, China in November. It noted another worrying concern of rising sea levels, and Southeast Asia in particular is at the highest risk due to its low elevation.

Singapore has said in parliament in September that it has taken measures in terms of building requirements on reclaimed land and drainage infrastructure. A two-year study to understand the specific implications of climate change, including rising sea levels, is also expected to be ready in 2009.

Director of Centre for Liveable Cities, Andrew Tan, said: “Moving forward, I would say that having achieved the level of environmental quality we have in Singapore, there is still a need for us to maintain these efforts. “It’s necessary for Singaporeans to be proud of what they have achieved, but at the same time, to know that sustained efforts is required.”

The UN has lauded the 43-year-old city state as a model city. However, experts cautioned that as all cities progress, they will no longer be measured just by their level of economic, social and environmental progress. Cities like Singapore will also have to look at its inclusiveness and its quality of life. Related to this, the report said cultural assets too should be protected to nurture the soul of the city.
Source : Channel NewsAsia - 24 Oct 2008

Prime Retail rental prices dropping!
Retail landlords are headed for a rough patch as consumer spending weakens amid the economic downturn and with 3.4 million sq ft of new retail space scheduled for completion next year, property consultants say. Knight Frank’s head of retail Sherene Sng predicts that average rents for prime retail space in Orchard Road and at suburban malls could slip 5-15 per cent in 2009. ‘For super-prime retail space on Orchard Road, the decline, if any, will be capped at around 5-10 per cent at most, because there’s not that much super-prime space around and most of it is in malls that are very well managed,’ she said.

For full-year 2008, Ms Sng expects retail rents island-wide to be pretty much flat, increasing no more than 5 per cent. CB Richard Ellis said yesterday retail rents stagnated in the third quarter of this year, and trimmed its full-year 2008 forecast for prime Orchard Road rents.

It now expects Orchard Road rents to edge up 2-3 per cent in 2008, lower than a 3-5 per cent increase it predicted earlier this year. However, CBRE is maintaining its 3-5 per cent increase forecast for prime suburban mall rents in 2008, due to the captive market of HDB heartland shoppers these malls can count on, as well as limited new supply of retail space in the suburbs.
Some 41 per cent of the 3.4 million sq ft of new retail space slated for completion next year will be in the Orchard Road belt - coming from developments like ION Orchard, Orchard Central, 313@Somerset and Mandarin Gallery.

‘This will bump up total private Orchard Road retail stock some 36 per cent in just 2009 alone and undoubtedly raise concerns about space absorption, despite the fact that retail take-up tended to be somewhat supply-led in the past,’ CBRE said. The biggest contributor to new retail space on the island next year will be The Marina Bay Shoppes at Marina Bay Sands, with 800,000 sq ft of net lettable space, according to CB Richard Ellis. The Downtown Core region, where the development is located, will account for 24 per cent of new retail space being completed here next year.

Knight Frank’s Ms Sng says the big factor affecting retail rents next year will be not so much the completion of 3 million-plus sq ft of new space but a slowdown in sales as people tighten their belts and cut spending due to the economic downturn. ‘This will cause retailers to become more cautious and adopt a watch-and-wait attitude and hold back business plans,’ she said. ‘Some smaller retailers operating as sole proprietorships or partnerships may also be affected by the stockmarket crash. Of course, there will be some retailers that are still doing well - but they too will use the weaker economic climate to secure more attractive rents from landlords when they renew leases or open new stores.’

CBRE’s data shows that in Q3 2008, the average monthly prime retail rent in Orchard Road was $36.80 per sq ft, while the average super-prime rent there was $54.40 psf. The average prime retail rent in the suburbs was $29.30 psf. All three numbers were unchanged from Q2. CBRE’s director (retail services) Letty Lee declined to forecast retail rents going ahead. ‘A number of factors will determine the rate of rental change for the rest of this year and the next,’ she said.
‘The full impact of the financial meltdown on the job market is still unknown. In the meantime, consumers will remain cautious and may cut spending as a result.

‘The financial turmoil will also affect tourism, which will in turn affect consumer spending. Landlords may be pressured to reduce rents as a result. We are still assessing the situation and it is difficult to make a projection at this stage.’ Colliers International said in a report yesterday that while year-end festivities may provide some relief for retailers, consumer spending is likely to remain subdued given the poor economic outlook and the drop in foreign visitors.

Any retail rental growth is therefore expected to be minimal in the last quarter of the year. ‘As such, rents are projected to increase by up to 5 per cent for the whole of 2008,’ Colliers said.
Source : Business Times - 24 Oct 2008

Singapore GIC to invest in Australian GPT Group
The Government of Singapore Investment Corporation (GIC), through its real estate arm, will invest up to A$700 million (S$705 million) in Australian property trust GPT Group. While GPT Group is one of Australia’s largest and most established diversified listed property groups, it has been been hit hard by the current global financial crisis due to foreign currency exposure and the recent decline of the Australian dollar.

Reuters earlier reported that the group had been trying to sell almost a third of its A$14 billion in assets. It added that GPT Group struggled to sell off its Voyages Lodges chain of eco resorts and its US seniors housing business to shore up its balance sheet. In a statement released yesterday, GIC Real Estate president Seek Ngee Huat said: ‘We have always believed in the fundamentals of the Australian economy and its property sector. We see this partnership with GPT as a good fit, and an important part of our investment strategy in Australia.’

GIC RE already has a 2.2 per cent shareholding in GPT Group. GPT Group, which has seen its share price fall over 70 per cent this year, also released a statement yesterday saying that it is making an entitlement offer to raise a minimum of A$1.3 billion. It added that GIC RE would take up its pro rata entitlement as well as be issued with A$250 million in perpetual, exchangeable securities.

GIC RE also agreed to sub-underwrite 504 million securities of the retail entitlement offer. GPT Group will place additional securities to GIC RE such that GIC RE receives a minimum of 250 million securities through its sub-underwriting of the retail entitlement offer. In all, GIC RE is expected to invest between A$450 million and A$700 million in GPT Group and have a shareholding of between 12 and 18 per cent. GPT Group has said that the net proceeds from the entitlement offer will be used to repay debts and deleverage its balance sheet, with its business plan and debt maturities fully funded through January 2010.

The Sydney Morning Herald also reported yesterday that shareholders of the company were intending to launch a class action suit, alleging that GPT Group’s board provided misleading and deceptive earnings guidance - centring around statements made by GPT Group in July, when it released a statement to the Australian Stock Exchange, in which its forecast earnings for the 2008 calendar year were cut by 27 per cent.

Asked if GIC RE was concerned that GPT Group will require more recapitalisation, a spokeswoman for GIC RE said: ‘We believe that GPT has made a realistic assessment and its move for a recapitalisation will be able to strengthen its balance sheet.’ She added: ‘Moreover, our structure of convertible perpetual preferred securities and rights issue participation will provide sufficient downside protection and opportunities for upside in capital appreciation. There is also a reset provision should there be further dilution.’
Source : Business Times - 24 Oct 2008

Chief Justice: Lawyers shouldn't hold on to Client's money
Everyone should join Chief Justice Chan Sek Keong in applauding the Law Society’s agreeing that lawyers should discontinue the practice of holding clients’ money. In a speech made at a recent Law Society event, CJ Chan pointed to the overriding public interest that needed protecting. As ethical standards decline amid financial temptation, questions will persist and, if unanswered, will hasten erosion of public confidence in an essential class of professionals. Client losses, the majority relating to property transactions, have been scandalous enough for the society’s council, in CJ Chan’s words, to ‘have seen the light’. Six lawyers have fled with some $29 million in the last five years. Clients have found it difficult if not impossible to recover their money. Grants from the society’s compensation fund are an inadequate consolation.

The society has since 2004 inspected clients’ accounts and told small firms to submit accountants’ reports. Since July last year, the Legal Profession (Solicitors’ Accounts) Rules have required a second signatory for any withdrawal from a client’s account exceeding $30,000. The case of a lawyer who went missing with $6 million last November made a mockery of those safeguards. Neither has threat of punitive action against those caught stealing clients’ money, nor difficulty for those so disbarred to gain professional reinstatement, proved to be adequate deterrence. Similarly, fraud insurance presents problems, not least of which is the question of premiums. Who should pay: lawyers or clients and, anyway, wouldn’t that imply how untrustworthy lawyers are? So, eliminating the temptation has become a last resort, unfairly pejorative though the implications still may be for the vast majority who uphold professional ethics. It is as watertight a prophylactic measure as there can be, and promises to be much more effective than the piecemeal self-policing the profession has adopted.

As they take shape, details of the arrangement should ensure that clients incur neither more inconvenience nor higher service fees. Indeed, third-party fund custody should make it unequivocally justifiable for them to recover interest accrued on what is held. Small firms should stop citing practicality as an excuse for wanting to hang on to current practice. A secure Internet bank transfer from any account takes only a couple of days and mouse clicks to complete. Instead of increasing book-keeping costs, they should fall, if not disappear, if a third party takes over not only custodial but accounting responsibility. Lawyers will take a big step in reinforcing confidence as they embrace not only the principle but the mechanics of the new measure.
Source : Straits Times - 24 Oct 2008

Property stocks are cheap now!
Wheelock Properties (Singapore) CEO David Lawrence, in his private capacity, is currently investing in Singapore property counters. Although Wheelock is in the business of selling apartments, Mr Lawrence reckons that next year may be a better time to buy condos. Instead, his advice to investors looking for value is to buy property counters at the moment ‘because they are so cheap and can give you great returns over the next couple of years’, he said in a recent interview with BT.

‘The indirect market - which is property counters - is completely out of line with the physical market. So the real value at the moment - and it won’t be there for long - is the indirect market. Some of these shares have come down so much. They’re good companies. ‘It’s an arbitrage opportunity, because they’ve come down so much they bear no relationship to property prices. What’s probably going to happen is that stock prices will go up, property prices will come down a little. They will meet eventually but at the moment there is a big arbitrage opportunity for people,’ he added.

He acknowledged that it will be a tough couple of years for the local property market. ‘But then Singapore is going to be the big beneficiary of this crash, crisis, credit crunch, whatever you call it. Because there aren’t many places like this left to go. I have a lot of international friends - from Europe, India, China, USA - with lots of money who will be retiring or moving to Singapore.
‘When you look around, where else can you get good security, drug-free culture, government investing heavily in new businesses, a reasonable balance between financial services and manufacturing?’

Most importantly, Singapore has integrity in government and the banking and corporate sectors, as well as security. ‘If ever Singapore loses that integrity and security, then it’s finished. But I don’t think it will. It’s ingrained,’ says the 62-year-old, who became a Singapore citizen two years ago.

Singapore will also stand out in the race among global property investment destinations because of the strength of its judicial system, he argues. ‘For me, property investment is all about judiciary. There’s no point going into countries where they are very happy for you to lose money. As soon as you start making money, they want to cut it up. You get sued. It goes to a corrupt judiciary. You don’t make money. I am not interested. Now I think there’s lot of opportunity to invest in financial centres with good judiciaries.’

He takes issue with investment guru Marc Faber who suggests buying property in the countryside, not financial centres. ‘I totally disagree with that. If you buy in financial centres and you buy good-quality products from good developers, you will always be able to let the property. When markets get really bad, and property starts emptying out, people upgrade to the best, and Ardmore Park is a perfect example. . . And long-term, quality property is a good hedge against inflation.’ Ardmore Park is a condo Wheelock launched in 1996, around the height of the property bull run.

Given the current global financial crash, Mr Lawrence acknowledges that Singapore home prices will see a correction, without specifying the quantum of price declines. He does not think the slump will be as bad as the one during the 1997/98 Asian crisis. ‘I don’t think things will be that bad, particularly for good products, because fortunately we have a strong banking system here,’ says Mr Lawrence. ‘We have the Monetary Authority of Singapore and strong banks. They never allowed this crazy lending like they did in other countries. Most people can service their loans.’

Other plus points this time round are low interest rates and huge liquidity in the system, he adds. ‘There will be job losses. Some people might not be able to make their mortgage payments. I think most will, if they have not been speculating in too many properties.’ Wheelock recently collected 25 per cent of sales proceeds for The Cosmopolitan, its fully sold condo at River Valley/Kim Seng roads, when the project received Temporary Occupation Permit. ‘We had a 100 per cent payment on time. No problems,’ he reveals.

Mr Lawrence acknowledges that in the short term, some developers - new players and underfunded ones - will have to cut prices. ‘But the strong boys like (Kwek) Leng Beng and Ng Teng Fong (chairmen of Hong Leong Group and Far East Organization, respectively), these people are not going to cut prices. They’ve been here before. They’ll hold it through to the next cycle, which will come.’ For the Singapore office market, prime Grade A rents may ease about 10 per cent in the next 12 months, Mr Lawrence predicts. But this is ‘OK and reasonable’ given that rents had been getting out of hand previously. ‘But long term, the government has plenty of land to expand. I think as government policy, it’s very important to have reasonably priced office accommodation to expand the Singapore economy in the same way as the government always had reasonably priced industrial land and space to expand the industrial economy.’
Source : Business Times - 23 Oct 2008

Third-quarter showing of Sub-sales still strong but market will soften soon: Experts
Private home prices may have slid in the third quarter but the sub-sale market was still going strong. 96% of owners who resold an uncompleted home between July and last month pocketed profits from the deals, according to new data by property consultancy Savills Singapore. These transactions, officially known as sub-sales, occur when you buy a home and resell it before it is built. They are used as a proxy for property speculation because the owner resells the home without ever living in it.

Only 12 sub-sale transactions out of the 306 that Savills analysed in the quarter incurred a loss, amounting to just under $1 million of red ink. The rest made a total of $95.1 million in gains, Savills said. This continues the trend in the first half of the year, when 97 per cent of such deals turned in profits. But the profits seen in the third quarter were considerably narrower as home prices started softening more quickly.

Profitable sub-sellers made an average of $323,420 in the third quarter, but this was skewed upwards by a single large deal: a whopping $6.7 million profit from the sale of a 63rd-storey penthouse at The Sail @ Marina Bay. Excluding this sale, the average gain was $301,784 - almost 40 per cent lower than the average gain in the first half of the year. It works out to an average profit for each seller of about 30 per cent over the purchase price.

Still, ‘to be able to achieve such gains in a year when the property market has gone into a standstill is highly commendable’, said Mr Ku Swee Yong, director of business development and marketing at Savills Singapore. But in case would-be speculators become tempted by these gains, other consultants noted that the bulk of these deals probably occurred before the Sept 14 collapse of United States investment bank Lehman Brothers, which caused the financial crisis to take a sudden turn for the worse.

‘The real estate market typically lags behind the stock market by six months or more, so we will probably start to see the real effect early next year,’ said Mr Nicholas Mak, director of research and consultancy at Knight Frank. ‘These profitable sub-sale transactions took place before the market hit the skids. It is extremely risky to go and speculate in the market right now.’

Most sellers who made a profit in the third quarter had originally bought their units in the last two years and benefited from the sharp run-up in prices in the period, said Mr Ku. While values have weakened somewhat this year, they are still generally higher than in 2006. Sellers who held on to their units for a longer time before reselling them in the third quarter made more gains, Savills’ data showed. Even those who had bought a unit as late as this year and offloaded it in the third quarter made an average gain of $98,600.

If they had sold the unit in the first half of the year, however, they would probably have doubled their gain. The biggest profits of more than $1 million each were for units at The Sail @ Marina Bay, St Regis Residences and Cairnhill Residences. On the flip side, sub-sale losses for the quarter averaged $76,820 for each loss-making deal. A unit at Watermark Robertson Quay chalked up the biggest loss of $207,552, while units at Soleil @ Sinaran, 8 @ Mt Sophia and One Amber were also sold at losses of more than $100,000 each.

All the losses were for units that had been bought last year or this year, according to Savills’ data. Sub-sellers who had bought their units at the peak of property fever, between June and September last year, bled the most. ‘In any case, there are always desperate sale cases even during good times,’ Mr Ku noted. The Sail @ Marina Bay had the largest number of sub-sales in the quarter - 19 - with each deal netting its seller an average profit of $1.1 million. There was one loss, of $62,890, for a second-floor unit.

Other projects with more than 10 sub-sales included Parc Emily in Dhoby Ghaut, Park Infinia at Wee Nam, Riveredge in Tanjong Rhu and The Esta in Marine Parade. But the profits were not just confined to developments in the prime districts. At Casa Merah in Tanah Merah, 10 sub-sales yielded an average profit of $100,351, while Atrium Residences in Geylang saw four sub-sales with an average gain of $54,556.
Source : Straits Times - 22 Oct 2008

Developers may have to write down their assets and make provisions
Hurt by slowing sales, increasing difficulty in obtaining credit and under pressure to cut home prices, most developers here are expected to announce lower earnings during the current reporting season. Analysts do not have high hopes for the property sector. ‘We can expect to see some drop-off (in earnings) as the rate of launches has fallen off compared to 12 months ago,’ said Kim Eng Research analyst Wilson Liew. Keppel Land will report its earnings today.

On Friday last week, GuocoLand, which has been dogged by negative news all year, reported a net loss of $2.8 million for its first quarter ended Sept 30, compared with a net profit of $27.7 million a year earlier. It attributed the poor result mainly to an unrealised mark-to-market foreign exchange loss. The chief concern now is that tighter credit and declining capital values in all sectors may force companies to write down their assets and make provisions for land acquired at high prices. This happened during the crises of 1998 and 2001.

DBS Vickers analyst Adrian Chua, who recently downgraded six property stocks including CapitaLand, City Developments and Ho Bee Investment, said asset devaluation is a concern.
Deutsche Bank analysts Gregory Lui and Elaine Khoo similarly expect continued earnings downgrades on weak sales and average selling prices (ASPs) and the risk of provisions. ‘We believe CapitaLand and Allgreen face greater risk of land bank provisions this time around, followed by Wing Tai and City Developments,’ the analysts said. ‘Keppel Land has not bought anything in Singapore over the past two years, but offshore investments might be riskier.’
All developers except City Developments, which reflects investment properties at cost, also face the risk of revaluation losses against investment properties, analysts have said.

Another area of concern is overseas exposure, which could affect top lines. At GuocoLand, for example, group revenue fell 20 per cent to $153.1 million from a year ago due mainly to lower revenue recognised from development projects in China. Analysts are split on the effect of weak property markets abroad. Some say this will lead to falls in revenue, while others believe fundamentally sound developers are now being punished by investors for going overseas.
In an Oct 16 report, Goldman Sachs acknowledged that the real estate market outlook is deteriorating at home and overseas - in markets such as China and Vietnam - for Singapore developers. ‘However, we think the market has been too punitive on well-capitalised players with strong overseas operational track records such as CapitaLand and Keppel Land,’ said analysts Leslie Yee and Paul Lian.
Source : Business Times - 22 Oct 2008

FOR sale: Luxurious multi-million-dollar apartments with as much as 20 per cent discount.
Stock market losses have forced some property owners to resort to ‘fire sales’ for a quick return to liquidity. Units for The Sail which were going for $2,000 psf are now offered for $1,450 psf. And because the property market is almost flat, they have had to let go of their property at huge discounts. Property agent Henry Neo receives one SMS a day from different clients asking him to sell their homes. Mr Neo, who has been a property agent for close to 20 years, said: ‘The Asian financial crisis of 1997 and this crisis are real challenges. ‘It’s a tsunami of the stock market.’ Two or three of the 50 clients he is servicing now are what he calls ‘desperados’ - people who had their fingers burnt so badly in the stock market they need to sell their houses.

The situation is worse for those who opted for deferred payment schemes, said Mr Neo, because some are no longer eligible for loans, and cannot meet payments once the developers issue the Temporary Occupation Permit (TOP). ‘They have to get rid of their properties before TOP, so they would be giving even more discounts.’ Noting that the high-end property market seems to be hit the hardest, Mr Neo said: ‘My colleagues who specialise in high-end properties are not doing well. They do not have any transactions at all.’

Mr David Cheang, senior vice-president of the Resale Division at HSR Property Group, noted that two out of every 10 clients are affected by the stock market crash, and are selling their property investments to ‘get more liquidity’. A property agent who declined to give his full name said one of his clients had made such losses on the stock market that he was selling his 27th floor freehold apartment at the Twin Regency for a mere $1.05 million, though its market price is $1.3 million.

Last year, he had sold another unit, on the 29th floor of the same condominium, for $1.4 million.
It is the same story for Mr Felix Young, 35, a property agent specialising in high-end condominiums. Some of his clients are prepared to go as low as 20 per cent below their offer price. He had taken out an advertisement for five properties, all high-end condominium units in the city. Apartments at The Sail at Marina Bay, which were going for $2,000 psf are now being offered for sale at $1,450 psf, said Mr Young.

But even such a huge discount is failing to entice buyers, who are asking for $1,100 psf. That is because even with such discounts, the two-room apartment costs about $1.3 million. In the current climate, not many people would be able to shell out that kind of money because they could be sitting on huge paper losses in the stock market. Mr Young said: ‘Buyers have the sentiment that the property market will cool even more, and prices will drop further.’

And because of this, said Mr Young, there has been a significant drop in transactions - up to 70 per cent for high-end properties that people buy for investments. Most buyers also know developers’ launch price for the condominiums and are holding out until they can get a unit at that price. He said: ‘These days, when buyers call me, they ask me if I have any owners who are ‘bleeding’.’ Bleeding is a term that is used to describe owners who over-committed themselves financially and need to sell their properties in a hurry. Mr Young said: ‘Many of my clients’ bank loans are kicking in soon, so they need to release the properties quickly, before TOP. ‘They are stuck because they can neither sell their property, nor rent it out to cover their mortgages, as the rental market has slowed down a lot.’
Source : New Paper - 19 Oct 2008

Property News Weekly #2

Credit Crisis over?
That's what Warren Buffet said in the Annual Meeting of his company but sees more pain for people with individual mortgages. The CEO of Berkshire Hathaway said the global credit crunch has eased for bankers, and the Federal Reserve probably averted more failures by helping to rescue Bear Stearns.

The worst of the crisis in Wall Street is over,’ he said last Saturday on Bloomberg Television. The billionaire was interviewed before the annual meeting of the company, which is based in Omaha, Nebraska. Listed as the world’s richest man by Forbes magazine, Warren said the Fed acted properly when it arranged a US$2.4 billion (S$3.3 billion) buyout in March of New York-based Bear Stearns by JPMorgan Chase.

He said he turned down the opportunity to buy the troubled investment bank because he lacked enough capital and time to craft a solution. More failures and wider panic may have resulted if the regulators had not halted the run on Bear Stearns, he added. ‘The worry was that there would be contagion; it was a very real worry,’ he said. ‘If Bear Stearns had gone, the next day, somebody else would have gone. It could’ve been a very, very, very chaotic situation.’

Mr Buffett said he was contacted in March before JPMorgan, the third-biggest United States bank by assets, agreed to buy Bear Stearns. The person calling him, whom he would not identify, was ’someone responsible’ and was not from the Fed or the Treasury. ‘As I understand it, Bear Stearns had US$65 billion due on Monday and I didn’t have US$65 billion,’ Mr Buffett said. ‘I couldn’t get my mind around that situation in the required time.’ New York-based JPMorgan was the right buyer for Bear Stearns, he added.

JPMorgan agreed in mid-March to acquire Bear Stearns, once the fifth-biggest US securities firm, after customers grew concerned about the company’s health and pulled out their money, leaving Bear Stearns short on cash. JPMorgan, which received financial support from the Fed, raised the purchase price a week later to US$10 a share from US$2 to mollify Bear Stearns shareholders who said they were not getting enough.In a question-and-answer session at the shareholder meeting, Mr Buffett said that from a risk perspective, some banks got ‘too big to manage’. Berkshire’s own investment in derivative contracts has recovered US$500 million to US$600 million of lost value since end-March.

Middle Eastern investors still "strong" on South-East Asia real estate market?
That's what Standard Chartered (Stanchart) Bank’s group head for origination and client coverage, Mr V. Shankar thinks so. Stanchart is well-positioned to become a leading player in this area. In the past year, it has advised on more than 40 per cent of the deal flow from Middle East to this region, which totalled US$8 billion (S$10.9 billion).
The figure was up from the US$987 million in the 12 months preceding, and Mr Shankar believes it will continue to rise in the years ahead.

‘The financial ties between the Middle East and Asia are strengthening by the day and we are seeing more East-East relationships being formed,’ he said in a recent interview. Oil and natural gas from the Middle East are vital for China, Japan and all the fast-growing markets in the Asia-Pacific region, which are fast ramping up their infrastructure. And the oil-generated capital and liquidity in the Middle East are fuelling a search for investments with high returns.’

Mr Shankar added that a recent report by McKinsey estimated that Gulf countries would have US$9 trillion to invest by 2020. Stanchart began boosting its presence in the Middle East three years ago and now has a team of 50 corporate advisers there. Mr Shankar, who is also a member of Stanchart’s group management committee, said this put the bank in an enviable position as Singapore’s business with the Gulf looks set to soar. ‘Between 2004 and 2006, total trade between Singapore and the Middle East shot up from US$20.9 billion to US$30.8 billion, an increase of 47 per cent. Currently, Singapore companies are working on more than $6 billion worth of projects in the Middle East.’

Looking ahead, Mr Shankar said the bank would leverage on its experience and capabilities in the region to shore up its position as a major player. ‘Stanchart is well-placed to seize future opportunities, thanks to our growing geographical reach and the scale and breadth of our products and capabilities. We have an established history in Singapore, having been in the market for 150 years, and we have been operating in the Middle East for more than 50 years. We feel we can act as a strong local bank in all the different markets for our clients.’

Small developers may feel the impact of the Credit Crunch
Given the current turmoil in the financial market, some of these small developers might face financing problems as they move to finalise deals, reports BNP Paribas. In fact, some may be forced to cancel the deals and walk away, it warned. The report by the French bank said that most of the collective sales done in the second half of last year were by small private developers, contractor- cum-developers and non-core developers.

They included Soilbuild, Hiap Hoe, Lian Beng, KSH Holdings, Koh Brothers, Popular Holdings, Aspial Corporation and Eastern Holdings. ‘In the near future, we are concerned that some smaller players that have secured big and expensive en bloc sites may walk away from the deals as securing financing is not easy at this time, especially for non-core developers,’ said the recent report.

Already, a small private firm, Bravo Building Construction, said to be backed by a one-time big property player, has bailed out of three collective sale deals. In all three deals, it has had to give up its deposit, which ranged from 1 per cent to 10 per cent of the sale price. The biggest of the three deals was the $516 million purchase of Tulip Garden, for which Bravo had to forfeit its $25.8 million deposit.

Is Government doing enough for Enbloc regulations?
Regardless of regulations and structured conditions, the current laws under the Building Maintenance and Strata Management Act and the Land Titles (Strata) Act (Amendment) are insufficient to patch all loopholes. How can anyone stop creativity in the name of monetary returns?

On April 27, Bayshore Park and Mandarin Gardens both held annual general meetings. These two estates, with more than 1,000 units each, sit on 1 million sq ft of land next to the sea. Both have got a collective sale initiative off the ground, with sale committees elected. With the support of pro-sale residents, voting powers are then used to control the rest of the estate, even though the votes represent only a minority of residents.

In Bayshore Park, the pro-sale group outvoted other residents on crucial issues and in selection of council members. Averaging 60 per cent of votes cast at the AGM, this roughly 20 per cent of residents (as only 30 per cent of owners were represented at the AGM) voted down a proposed increase in maintenance charges in line with current inflation, voted for a lower increase in the sinking fund, voted down crucial replacement of copper pipes in the common corridors and voted down any exploration of corridor upgrading. In addition, they voted for a reduction in council seats to nine, making sure four sale committee members were voted into the council, and ensured that four of the five previous council members retained had exhibited pro-sale inclinations. They made sure two previous council members who did not favour sale were not re-elected. I was one of the two.

At Mandarin Gardens, in a similar vein, the pro-sale camp mustered enough proxy forms to control 65 per cent of the votes in the AGM. They defeated a motion to reduce water ponding of walkways and lift lobbies to improve safety, and passed a resolution to reduce management council (MC) expenditure limits from $300,000 to $50,000 making it almost impossible for the MC to function. Consequently, the incumbent council refused to stand for re-election. Even more devastating, the pro-sale camp fielded no candidates for council. Hence, no council was elected. The law was not broken at either AGM. Just a creative twist to the ending.

Mapletree - Singapore's Temasek property asset management sets to grow even bigger
Mapletree Investments’ total asset size, comprising assets under management as well as on its own balance sheet, has nearly doubled to around $10.5 billion - inclusive of the recently announced acquisition of a $1.7 billion portfolio from JTC Corp - from $5.6 billion a year ago. In a year’s time, it could grow further to $15 billion-$20 billion, Mapletree Investments CEO Hiew Yoon Khong told BT in a recent interview.

The increase will come largely from new private funds the fully-owned unit of Temasek Holdings is starting, including the US$1.5 billion-US$2.0 billion Mapletree India-China Fund (MICF) focusing on development and opportunistic redevelopment of real estate in the two mega markets. ‘This fund will invest in office, retail and residential property,’ Mr Hiew said. The first closing, which has just been completed, has raised US$600 million, contributed equally by Mapletree and an international institutional investor that has declined to be named.

The fund’s second closing, slated for July, will also see Mapletree and the investor putting in US$200 million each, with another US$500 million to US$1 billion to be subscribed by third-party investors. MICF has secured two seed investments in China. One is a residential and retail development named Future City in Xi’an’s Beilin District. The project has a total development value of $196 million and will span almost 1.56 million sq ft in gross floor area. Future City will have four residential towers and a nearly 400,000 sq ft mall to be named VivoCity Xi’an. Construction began in March last year and the development is slated for completion by July 2010. The targeted opening date for the mall is October 2010.

The second seed investment for MICF is an existing office block in Beijing’s Central Business District with a gross floor area of around 400,000 sq ft and an investment value of about $165 million. Upon completion of the acquisition in June 2008, an anchor tenant will lease 35 per cent of net lettable area. ‘We expect to seal a third investment in China soon for MICF - a retail and serviced apartment development in Guangzhou,’ said the 46-year-old former investment banker. As for India, the fund has identified two investments in Bangalore - an office and residential project, and a pure office development.

Over the next 12 months, Mapletree also expects to start sequel funds to the Malaysia-focused CIMB Mapletree Real Estate Fund (CMREF) and the Mapletree Industrial Fund (MIF). The latter has so far bought some $300 million of non-warehouse industrial properties in Singapore, Malaysia and China. ‘For CMREF 2, we are targeting to raise about RM1 billion (S$430 million); CMREF 1’s RM500 million is almost fully invested,’ Mr Hiew said. The group has held back plans to float more real estate investment trusts or Reits in Singapore because of unfavourable financial market conditions. One of these is the Mapletree Commercial Trust, which will hold about $3 billion of Mapletree’s Singapore assets in the HarbourFront and Alexandra Road areas. ‘With the deferment, we’ve been focusing on growing the net income of the initial assets planned for the commercial trust and working on building a strong pipeline of assets for possible acquisition by the trust,’ Mr Hiew said. ‘We’ll launch the trust when the market stabilises, hopefully before the end of the year,’ he added.

The centrepiece of the trust will be VivoCity, valued at about $2 billion. Other assets are likely to include nightspot St James Power Station, HarbourFront Centre, PSA Building and Merrill Lynch HarbourFront, which is slated for completion in the third quarter of this year. The future acquisition pipeline for the trust includes two projects currently under construction - Mapletree Anson, a 19-storey Grade A building at Anson Road/Enggor Street slated for completion in Q3 2009, and Mapletree Business City, which which is expected to be ready in the second half of 2010.
The latter project is being built on the site of the former Alexandra Distripark (Blocks 1-3) and on an adjacent plot at Alexandra Terrace. ‘This will be a modern business campus with about 1.7 million sq ft net lettable area (NLA) comprising an office block and three business park blocks with amenities like a 350-seat auditorium, big function rooms. We’ll have a foyer for cocktails, gym with lap pool, even a childcare centre and convenience store, plus roughly 1,100 carpark lots,’ Mr Hiew said. The development will also have a foodcourt and al fresco-style restaurants.
So far, two tenants, including a financial institution, have leased a total of about 200,000 sq ft. Mapletree Business City will be integrated with Mapletree’s adjacent properties - The Comtech and PSA Building - to form the group’s Alexandra Precinct assets. PSA Building will be directly connected to Labrador MRT Station under the Circle Line opening in 2010.

As for Mapletree Anson, with about 325,000 sq ft NLA, about 40,000 sq ft has been leased so far. ‘The building’s completion in Q3 2009 will be ahead of the completion of the first phase of Marina Bay Financial Centre,’ Mr Hiew noted. Plans to float Embassy Reit here - in partnership with India’s Embassy Group - have also been put on the backburner as structuring issues relating to changes in Indian laws on foreign funding and consequential tax issues are being ironed out first. The proposed Reit will hold business parks in Bangalore.

Property News Weekly #1

Developers holding back some launches? Why?

Buyers are scarce, investors have vanished. Developers have no confidence of selling at the prices they would love to. Conclusion? Just delay some projects that are ready for market. That's not a problem for most developers as they are extremely well positioned, financially.

The number of homes that could be launched for sale immediately, but have been held back, has increased to 10,239 in the first quarter of 2008, an increase of 44.2 per cent over the 7,099 units in the fourth quarter of last year. This, perhaps, is a reflection of the standoff between developers and buyers.

The Urban Redevelopment Authority’s (URA) indicated that there were 2,526 homes launched, but unsold at the end of the Q1 of 2008, an increase of 22.4% over the previous quarter. PropertyBingo Data Consultant Danny Lim commented; ‘The peak in June 2007 will never be repeated in a long while. There were more than 4700 private transactions, excluding option tradings. In March 2008, we only had less than 800. That's a huge drop in activities and sentiment. It's impossible for the developers to maintain their optimism in setting high margins. However, the mass market will still see some demand for any projects marketing below the $1000psf psychological barrier.’ The 405-unit Waterfront Waves is a good example. Selling at $800 psf, they sold more than 100 units.

According to URA, prices of private residential property increased by 3.7% in Q1 2008 compared to 6.8% in the previous quarter. A few units from existing projects were known to have been sold at above $3,300 psf in Q1 2008, with several units in Marina Collection sold at above $2,600 psf. However, price increases do not mean high demand. As noted by Danny, there were many properties still asking for higher prices as compared to 2007. The Sail, for example, recorded an average of 250-300 sellers but only 5 sold in March.

URA said that the last time the flash estimate of the change in private residential property price index (PPI) was revised downwards by more than 0.5% points was in Q4 2001, when it was pegged downwards by 1.4 percentage points. Take-up rate for Outside Central Region was only 38% whereas the Core Central Region and Rest of Central Region reported healthier take-up rate of 89% and 71% respectively.

The disappearance of speculators from the market may have also dampened sales, as reflected by the lower number of subsales at just 346 transactions, down from 649 in the previous quarter. Subsale prices, however, remained stable, suggesting that panic selling for the time being at least is unlikely. But agents handling projects commented that sellers are less resilent on their asking prices.

URA projects that 56,501 units are expected to be completed between Q2 2008 and 2011, of which 29,685 units are already under construction. The fact remains that developers are able to control their "releases" of units and projects to the market, thus preventing an avalanche of panic selling. Developers can easily cut down supplies during a period of low buying sentiment and maintain their asking prices for a long time.

"This, effectively, helps resellers to maintain reasonable asking prices and not a huge discount. However, for properties fully sold by developers, the players are the resellers." said Danny. At least for now, we don't expect panic selling.

Singapore Property News Summary 02

US sub-par growth in US will slow down Singapore
Standard Chartered Bank sees challenges for the Singapore economy this year. It says growth may be weighed down by the sub-par growth in the US economy, as well as a sharp slowdown in other developed economies. The British lender has cut its growth projections for Singapore's economy from 5.7 percent to 4.5 percent. This is at the low end of the government's official 4.5 to 6.5 percent range. Cargo ships will still chug along this year, taking Singapore products overseas. But Standard Chartered says easing global demand will see exports slow down further, with spillover effects on sectors linked to trade, such as logistics.

The last time the US economy stagnated in 2001, Singapore went into a recession. However, things may not be as bad this time. Tai Hui, Regional Economic Research Head, Southeast Asia, Standard Chartered, says: "Compared to 2001 when the Singapore economy did go into a recession, the factors are much more positive now. "You have consumption pattern positive, investment sentiment remaining strong. The domestic demand side of the story this time is much more favourable for the Singapore economy, and that's one reason why we expect the growth to moderate and not plunge." Singapore's key growth drivers include the services and construction sectors.

StanChart also expects inflation to hit around 4 percent for the full year, most of it to come in the first half. Tai Hui says: "I think food prices and energy prices will be some of the external factors pushing inflation higher in Singapore. Domestic demand is again very robust. That could give retailers more room to price themselves for profit. Property prices again will be a positive factor driving inflation higher." Also expected to be higher is the Singapore dollar when compared to its US counterpart, which may temper imported inflation. However, StanChart sees other domestic prices pressures like rentals and wages. But it believes there may be some government measures to moderate the increases.

Marina Bay Suites - invulnerable to slow market?
Marina Bay Suites is seeing strong demand despite uncertainty in the market, according to its marketing agents. Both CB Richard Ellis and DTZ Debenham Tie Leung say they've received significant numbers of enquiries from both local and foreign buyers. What goes up may not necessarily come down, even in these uncertain times.

Demand for these luxury apartment units overlooking Marina Bay seems almost immune to external shocks. Ong Choon Fah, Executive Director and Regional Head, Consulting and Research, DTZ Debenham Tie Leung (SEA), said: "The top end of the market is like your blue chip stocks. When the market recovers they're the ones that run first, the price recovery is the fastest. But when the market comes down, a lot of them don't need to sell, so activity may come down but we find there's very good price support." Joseph Tan, Executive Director - Residential, CB Richard Ellis, said: "This is likely to be probably one of the last sites that has views of the Bay so in any property purchase situation, it's still location, location, location."

According to Raffles Quay Asset Management, the prevailing market rate for the Marina area is between S$3,000 and S$4,000 per square foot. And it remains bullish about the capital appreciation from residential units there. Kan Kum Wah, Marketing Head - Residential, Raffles Quay Asset Management, said: "You can see from the first phase of Marina Bay Residences, the price has moved between 25 percent and 75 percent as of today, and we believe that based on the current strong economy, we'll be growing in tandem or even outperform." Each unit in Marina Bay Suites comes with its own private lift lobby and there are just four units per floor. The apartments range from 1,600 to 2,700 square feet in area each. The development also includes three penthouse units, ranging from 4,700 to over 8,100 square feet each. Selected buyer previews for all 221 units will be held later this month.

For more resale value around Marina Bay, check out asking prices of units at www.PropertyBingo.com

Leedon Heights owners may get a breather for extended stay
Property developer GuocoLand is considering allowing former owners of Leedon Heights condominium in District 10 to continue staying on in their units for a limited period of time. This is a goodwill gesture at the request of some residents of the development who want more time to find replacement units. The 23-year-old Leedon Heights, off Farrer Road, was sold to GuocoLand in a collective sale last year for S$835 million.

Together with a S$40 million development charge, the price works out to S$1,062 per square foot per plot ratio. Some owners said they had asked for more time to vacate their units while they looked for replacement units. Karamjit Singh, Credo's managing director, said: "Well, most developers prefer to get on with their demolition construction so as to be able to market their projects. Usually, contractually, owners are allowed up to six months (to vacate their units). "Recently, what some developers with large projects have done is to build showflats within the large land areas at an obscure corner that allows existing occupants to stay on in the units while the new projects are being marketed." This appears to be what GuocoLand may do as well.

Responding to queries from Channel NewsAsia, GuocoLand said it believes that the land parcel is large enough for it to undertake its marketing initiatives for the new development, without inconveniencing the residents. As such, it is considering the request to allow Leedon Heights residents to remain in their homes for a limited period. Leedon Heights sits on a land area of about 48,500 square metres with a plot ratio of 1.6, which can accommodate buildings of up to 12 storeys. Nicholas Mak, director of Knight Frank, said: "It's very unusual for developers to lease back to their owners, after the collective sale.

The reason is because the developers are buying the site only for redevelopment. "For developers to do that - I think that has happened before, during the Asian financial crises - it would usually mean that the developer feels that the market, the primary sales market, is rather weak and is not ready to support the kind of selling price that they have in mind." According to the Urban Redevelopment Authority (URA), there were almost 65,400 private residential units in the pipeline last September. Of these, 41,600 are slated to be completed between this year and 2010.

S$929.5m payout to Ascott owners
CapitaLand Ltd. offered at least S$929.5 million ($648 million) to buy out minority owners of Ascott Group Ltd., after shares in Asia's biggest operator of serviced apartments fell 40 percent over the past eight months. CapitaLand, which owns 67 percent of Ascott, will pay S$1.73 a share to take the company private, the Singapore-based developer said in a statement to the stock exchange.

That values the unit at S$2.78 billion, 43 percent higher than its market worth Jan. 4 before the stock was suspended yesterday. ``Ascott was a severely undervalued stock,'' said Wilson Liew, an analyst with Kim Eng Securities Pte in Singapore. ``Going by the business model of CapitaLand, it does make sense as it allows them greater ease to carry out transactions such as sales of assets.''

CapitaLand, Southeast Asia's largest developer, more than tripled profit in the first nine months of last year as Singapore property values rose and the company built more houses in China. Ascott, Singapore's second-worst performing property stock in 2007, suffered a drop in net income as development costs rose.

Buying Ascott, the biggest operator of serviced apartments in Asia and Europe, will let CapitaLand strengthen ties between the companies' fund and property trust businesses, the developer said in the statement. Ascott, which was suspended yesterday, climbed 3.4 percent to S$1.21 in Singapore on Jan. 4. The shares dropped 18 percent in 2007, a year when the Singapore Property Equities Index advanced 9.3 percent.

CapitaLand, which was also halted from trading, gained 1.1 percent last year and last closed at S$6.25, valuing the developer at S$17.5 billion. ``There's an underlying tone that suggests CapitaLand is very bullish on the hospitality sector,'' Liew said. ``Going into 2008 and 2009, tourism figures in Singapore as well as internationally are expected to remain strong.'' DBS Bank Ltd. is advising CapitaLand on its bid, which also includes an offer to buy stock options for 17.1 million new shares in Ascott. CapitaLand will pay for the purchase through bank borrowings and internal funds, the developer said.

CapitaLand had S$2 billion of cash as of Dec. 31 and will be able to fund the takeover, brokerage DBS Vickers said in a research note today. The developer also agreed to borrow S$600 million for the deal, DBS Vickers said. ``If privatized, cost efficiency would result from greater sharing of services and resources with CapitaLand's other unlisted strategic business units,'' the company said. ``CapitaLand and Ascott will be able to fully integrate their fund and REIT management businesses to increase operational benefits and cost savings.''

Ascott has more than 19,500 rooms in serviced-residence units in 23 countries, including fast-growing economies China, India and Russia. The apartment manager posted a S$34.1 million profit in the third quarter of last year. CapitaLand, which is also one of Singapore's biggest landlords of retail and office space, reported 2007 third-quarter net income of S$563.9 million. Ascott Group sold shares in its first property trust, Ascott Residence Trust, in 2006. CapitaLand will not be making an offer for Ascott Residence.

Are China Property Bonds attractive?
Bonds of China's Agile Property Holdings Ltd. yield 7.17 percentage points more than U.S. Treasuries, double the premium in July and 1.79 percentage points more than the debt of Los Angeles-based KB Home, which has the same credit ratings. Agile, a housing developer in the southern province of Guangdong, and Country Garden Holdings Co., China's most-profitable builder, canceled debt sales in November when borrowing costs climbed. As China's government attempts to cool property prices with limits on lending, developers are in a land grab. Li, who made his fortune in Hong Kong real estate, Chinese billionaire Xu Rongmao, who owns Shimao Property Holdings Ltd., and hundreds of local developers boosted investment 29 percent in the first eight months of 2007, the National Bureau of Statistics said.

``If the government decides to impose further restrictions, most if not all of the developers will go bankrupt, depending on the severity of the restrictions,'' said Eugene Kim, chief investment officer of Hong Kong-based Tribridge Investment Partners Ltd., a $200 million hedge fund. ``That makes us very selective in terms of which bonds we buy and the spreads we require to compensate for risk.'' Kim said he has trades set up that would profit from a decline in prices. New York-based Merrill Lynch & Co., the world's biggest brokerage, rates China property companies ``underweight,'' meaning investors should own a smaller percentage of the debt than contained in benchmark indexes.
Home prices in Shenzhen, a city north of Hong Kong, were 18.6 percent higher in November than a year earlier, according to a National Development and Reform Commission survey. They rose 14.9 percent in the capital city of Beijing and 16.4 percent in Beihai, in Guangxi province. The People's Bank of China last month raised its benchmark one-year lending rate to a nine-year high and increased reserve requirements to the most since at least 1998. The government increased the minimum down payments on apartments to 40 percent from 30 percent in September.
Signs of a shift are already emerging. The nation's largest publicly traded developer, Shenzhen-based China Vanke Co., sold property worth 4.23 billion yuan ($582 million) in November, 18 percent less than in October.

Chinese developers are among the most vulnerable of any group in Asia to downgrades because a slowdown in home sales would deplete cash, said Clara Lau, an analyst at Moody's Investors Service in Hong Kong. ``They have been growing aggressively, with the view that if they don't buy now, it will be more expensive for them later'' to acquire land, Lau said. Standard & Poor's cut the credit ratings of Greentown China Holdings Ltd., the largest builder in Zhejiang province, one level to BB- on Dec. 3 due to ``increasingly aggressive land acquisitions.'' Its $400 million of 9 percent bonds yield 11.2 percent, up from 9.6 percent in November.

The risk of Shimao and Agile defaulting on their debt rose to a record today, credit-default swaps show. The cost of protecting the bonds of Shimao and Agile against default increased by as much as 80 basis points, the contracts' biggest rise, to 560 basis points and 650 basis points, respectively, at 5:13 p.m. in Hong Kong, according to BNP Paribas SA. Each basis point, or 0.01 percentage point, on a contract protecting $10 million of debt from default for five years adds $1,000 to the annual cost.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Bond sales by developers rated at least BB, or one to three levels below investment grade, may rise 10-fold to more than $15 billion, Todd Schubert, a Singapore-based credit analyst at Deutsche Bank AG, said in a Dec. 7 report. Developers issued $1.4 billion of dollar-denominated debt in 2007, compared with about $5.5 billion from their U.S. counterparts, according to data compiled by Bloomberg.

``Each company knows that the window of opportunity is small and they want to be the one to fit through the window,'' Schubert said in the report. Agile pulled a $400 million debt sale in November after its borrowing costs surged to a record. The spread on the company's $400 million of 9 percent debentures due September 2013 widened to 7.17 percentage points from 3.23 percentage points on July 2. That caused the value of the bonds to fall 10 percent.

The premium on $250 million of 5.75 percent notes maturing February 2014 by KB Home, the fifth-largest U.S. homebuilder, rose to 5.38 percentage points from 2.41 percentage points, representing a loss of 5.9 percent. Agile and KB are rated BB by S&P. After reaching a peak of 1.389 million in July 2005, sales of new homes in the U.S. fell to an annual pace of 647,000 in November, a 12-year low, as discounts failed to lure buyers and mounting foreclosures swelled the glut of unsold properties, according to the Commerce Department.

Higher borrowing costs haven't stopped developers betting China's economy, which expanded 11.5 percent in the quarter ended September from a year earlier, will continue to support the housing market. ``Demand in China is huge,'' said Met Luk, a deputy general manager of Agile. ``Together with improvement in the economy, a lot of people are looking for a better living environment.'' Agile said it will add at least 2 million square meters (21.5 million square feet) of land this year. Country Garden Holdings Co., based in Foshan, Guangdong, tripled its land for development to 51.9 million square meters between April and August, according to an Oct. 29 Moody's report.

Cheung Kong Holdings Ltd., the property company controlled by Li, added at least 3 million square meters in the first half of last year, more than triple the acquisitions in all of 2006, its annual report shows. Li hasn't relied on debt to fund purchases in China. ``2008 will be a good year for investing in the property market in China,'' Justin Chiu, executive director of Cheung Kong, Hong Kong's second-biggest developer by market value, said in an e-mail.
China real estate investments by Cheung Kong and Hutchison Whampoa Ltd., Li's largest company, were at a ``historic high'' of more than HK$10 billion ($1.3 billion), and ``would rise,'' Li said in 2006. His net worth is estimated at $23 billion by Forbes magazine. The 79-year-old has a history of overcoming long odds to succeed. Li closed an unprofitable U.K. mobile phone operator called Rabbit in 1993. He returned a year later to start Orange Plc, which he sold in 1999 at a $15 billion profit.

Developers such as Cheung Kong and Sun Hung Kai Properties Ltd., Hong Kong's biggest, ``have been relatively prudent,'' said Hugh Young, a managing director at Aberdeen Asset Management Asia Ltd. in Singapore who oversees $50 billion. ``I don't think they just close their eyes and plunge all their money in China.'' Bondholders, wary that developers are too optimistic, say what happened in the U.S. last year and Japan in the 1990s may be repeated in China.

More than 100 U.S. mortgage lenders were shuttered, scaled back or sold in 2007 as the rate of foreclosures rose to the highest on record and home sales tumbled, according to data compiled by Bloomberg. In 1998, the Japanese government had to put 13.4 trillion yen ($122 billion) into public works as the fallout from a real estate slump lingered. In China, a housing slump may trigger more defaults because banking laws are still being written and a consumer credit rating system doesn't exist, said Yi Xianrong, a finance specialist at the government-backed Chinese Academy of Social Sciences research institute in Beijing. China's National Audit Office said in June it uncovered irregularities involving 15.6 billion yuan of loans in the 2005 results of three of the nation's largest banks. ``We will not know how big this problem is as long as property prices continue to rise,'' Yi said.

What's up for Vietnam's real estate market?
Singaporean businesses are showing their interest in the real estate market in Viet Nam, considering this to be a promising market. “As the political situation is stable and the economy has experienced growth for many consecutive years, the Vietnamese people are getting richer and their demand for housing is high. I suppose this is a potential market,” said Edwin Yu Kwok Kam, Director of the IMC Industrial and Property Investment Company. Edwin said at the Investment Opportunities in Viet Nam forum, which opened in Ha Noi on January 9, that the demand for housing will continue rising in Viet Nam where the property market is in short of supply.

Statistics released at the forum indicated an imbalance between the demand and the supply of apartment and office for rent. In the Ha Noi capital city, almost all apartment and office building projects report an occupancy rate of more than 95 percent. According to the real estate service provider, CB Richard Ellis (CBRE), Ha Noi has 4,924 hotel rooms rated at 3 - 5 stars and the figure remains modest as compared with 20,000 hotels in Bangkok .

Ho Jiann Ching, business development manager from the Ayala International Holdings Ltd. said he has seen a big opportunity in Viet Nam and believed that once entering the market, foreign businesses would be successful. Singapore now ranks second among foreign investors in Viet Nam , with 500 projects, capitalised at 9.7 billion USD.
Dang Dung – Vice President of the Ha Noi Association of Young Entrepreneurs (HAYE)– said almost all Singaporean projects are invested by multi-national groups. Small Singaporean firms, which have capital ranging between 1 and 10 million USD, are yet to come to Viet Nam.

UK property market predicted to continue falling
The UK commercial property market, battered throughout 2007 by falling values, is set to suffer more bad news this week with the publication of the UK annual property index from consultants IPD. Experts who follow the much-anticipated index are confidently predicting that it will show a slump of 15pc in the capital value of UK property from June, when values peaked, including a 4pc to 5pc fall in December alone, revealing that the second half of 2007 was one of the worst in recent memory.

Taking 2007 as a whole, capital values are thought to have slumped 10pc. The pain being felt by property investors has been reflected in the falling share prices of leading UK property companies such as British Land and Land Securities, which have dropped 45pc and 36pc respectively over the past 12 months. The only relief has come from a 5pc uplift in rental income over the 12-month period, which will mean the total return from property in 2007 - capital value plus rental income - will see a fall of 5pc.

However, although last year proved bad news for investors, this year is set to be worse. Paul Bacon, the chief executive of Cushman & Wakefield, the leading property advisers, said: "The big story is that since June capital values have fallen 15pc but for how long is that going to continue? We will see another 10pc fall in the first three to six months of this year. "We had a very, very significant sell-off in the last quarter. At the moment a lot of people are saying, 'This is a buying opportunity, this is the moment to start seriously looking.' " The sell-off in the property sector was highlighted last week when it emerged that the Government of Singapore Investment Corporation had amassed a 3pc stake in British Land.

URA releases flash 4th Quarter 2007 Private Residential Property Price Index
The Urban Redevelopment Authority (URA) released today the flash estimate of the price index of private residential property for 4th Quarter 2007. Based on the estimated price index of private residential property, prices rose from 160.0 points in the 3rd Quarter 2007 to 170.5 points in the 4th Quarter 2007. This represents an increase of 6.6%, compared with the 8.3% increase in the previous quarter (see Annex A)1. For the year 2007 as a whole, the price index rose 31.0%.

URA also released today the flash estimates of the price changes in the three geographical regions for 4th Quarter 2007. Prices of non-landed private residential properties increased by 7.0% in Core Central Region, 7.3% in Rest of Central Region and 7.5% in Outside Central Region in the quarter (see Annex B). In comparison, for 3rd Quarter 2007, prices of non-landed private residential properties increased by 8.3% in Core Central Region, 7.9% in Rest of Central Region and 7.9% in Outside Central Region.

The flash estimates are compiled based on transaction prices given in caveats lodged during the first ten weeks of the quarter supplemented by information on the number of new units sold. The statistics will be updated four weeks later when URA releases the full 4th Quarter 2007 real estate statistics, when more data on the caveats lodged and the take-up of new projects are captured. Past data have shown that the difference between the quarterly price changes indicated by the flash estimate and the actual price changes could be significant when the change is small. The public is advised to interpret the flash estimates with caution.

The Government will continue to monitor prices closely and release relevant price sensitive information in a timely manner. On the supply side, as at 3rd Quarter 2007, there are about 65,400 private residential units in the pipeline, of which about 41,600 new private housing units are expected to be completed between 2008 and 2010. About 38,000 units of the supply in the pipeline (or 58%) have not been sold by developers yet. This does not take into account new sites that will be made available for development through the Government Land Sales (GLS) programme. Prospective home-buyers are advised to take into consideration the ample pipeline supply of private housing, as well as the potential supply from GLS sites, when making decisions on property purchase.

Just a reminder on 2007 3rd Qtr release
Supply in the Pipeline
As at the end of 3rd Quarter 2007, there was a total supply of 65,406 uncompleted units of private housing from projects in the pipeline5 , about 16.4% higher than the 56,182 units as at the end of the previous quarter (see Annex F). Of these 65,406 units, 38,013 units were still unsold. These comprised 1,897 units that had been launched for sale by developers and 6,546 units which had the pre-requisite conditions for sale and could be launched for sale immediately. The remaining 29,570 units with planning approvals did not have the pre-requisite conditions for sale.

However, the pre-requisite approvals for sale, ie sale license from the Controller of Housing and Building Plan approval from the Building and Construction Authority (BCA) could be obtained quite quickly and these units could be made available for sale quite soon, if the developers choose to do so6 (see Annex C-1).

Of the 65,406 units, about 44,484 units are expected to be completed between the 4th Quarter of 2007 and 20107 . Construction has commenced for almost all the units scheduled for completion up to 2008. About 48% of the units that are expected to be completed in 2009 and 2010 are already under construction, while the remaining units not under construction yet can be completed as scheduled8. Details of the supply in the pipeline in the 3 locations are given in Annex C-2.

In addition, more supply will also come from the sites made available by the Government in the 2H2007 Government Land Sales (GLS) Programme, which can yield about 8,000 new units. When sold, the supply from these sites can be made available for sale within the next one year or so. The Government will also make additional supply available in the 1H2008 GLS Programme if necessary.

Apart from the additional supply from GLS sites, there will also be additional supply from new private residential developments on private land which will be coming in for planning approval, including those on sites where the existing developments have been sold en-bloc. This will further increase the number of units that can be made available for sale in the next few years.

Singapore Property News Summary 01

Why Sub-Prime crisis will remain a crisis till somebody owns up
US homeowner Christopher Aultman stopped writing mortgage cheques. And Charles Prince of Citigroup paid. Some of the US$16.6 billion that Mr Prince's bank estimates it lost on wrong-way sub-prime bets flowed to investors who for the first time were able to wager that US mortgages would collapse. The sub-prime derivatives market created in 2005 by a group of Wall Street bankers made that payday possible.

The derivatives were based on sub-prime mortgages, given to borrowers with bad or incomplete credit. Securities firms packaged and sold that debt in structured financial products where the risk was hidden by investment-grade ratings and the values proved impossible to calculate.

'These structured products were crazy profitable for Wall Street until they blew up,' says Randall Dodd, senior financial sector analyst for the International Monetary Fund in Washington. 'Ultimately it's about excessive risk-taking and greed.' The risks were amplified by the derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed investors to bet against particular pools of mortgages.

The magnified losses caused by derivatives made it possible for a small number of defaulting sub-prime borrowers to freeze world credit markets. That's what happened in July after payments in the first quarter stopped on 13.8 per cent of sub-prime mortgages representing 4.8 per cent of total US borrowers. The defaults caused demand for sub-prime securities to dry up. Uncertainty over the value of the financial products spread to investment funds globally. Corporate lending stopped because no one knew what collateral was worth. By Aug 10, the Federal Reserve and the European Central Bank were forced to inject a combined US$275 billion into the banking system to keep money flowing.

The hedging offered by derivatives made investors feel invulnerable, says Paul Kasriel, chief economist at Northern Trust Co in Chicago. 'Derivatives don't reduce risk, they shift risk,' Mr Kasriel says. 'The development of the derivatives market enabled investors to shift risk at a lower cost, and that encouraged them to take on more risk.' From 2001 to 2006, as US home prices rose 50 per cent nationally, owning the debt and guessing that borrowers would keep current paid off. Since July 2006, however, when housing supply began to outstrip demand and the number of late payments started to rise, the short position, or wagering against the performance of mortgages, has prevailed.

Many of those responsible for the economic upheaval caused by sub-prime derivatives have also been its victims.
Mortgage salesmen peddled loans 'based on the borrowers' ability to refinance rather than the borrowers' ability to repay,' said David Einhorn, co-founder of Greenlight Capital LLC in New York and a former director of New Century Financial Corp, the second-biggest sub-prime lender in 2006, at an investors conference in October. If the borrowers defaulted, the mortgage salesmen still got their commissions. Now many of them are jobless and broke. Daniel Sadek, who says his Costa Mesa, California, sub-prime lender Quick Loan Funding catered to borrowers with credit scores as low as 420 out of 850, had to close shop in August when Citigroup cut the company's US$400 million credit line. 'I'm surprised they went under,' says borrower Kathy Cleeves of Tenino, Washington. 'They made a fortune off us.'

Borrowers bought houses and took out equity loans they couldn't afford. That didn't matter. As home prices kept rising they could always refinance. Now many of them face foreclosure. Mr Aultman, a Union Pacific Railroad mechanic with an average credit score of 465, took US$21,000 in cash out of a 2005 refinance with Quick Loan Funding. The payments on his house in Victorville, California, adjusted to US$2,650 this month, almost double what he was paying for the fixed-rate mortgage he had before the refinance. He was planning to refinance again before he discovered that he couldn't qualify.

Bankers bought loans to turn into securities that gave them the highest yield. If the borrowers defaulted, the bankers still got their fees. Now the losses are piling up. The biggest securities firms worldwide are collectively expected to write down about US$89 billion in subprime-related losses in the second half of 2007.

Citigroup, the biggest US bank, said that it will write down as much as US$11 billion in assets on top of US$5.6 billion already announced. It was one of a 'group of five' Wall Street firms that created the sub-prime derivatives market. Morgan Stanley, the second-biggest US securities firm, wrote down US$9.4 billion in mortgage-related investments this week. 'Our assumptions included what at the time was deemed to be a worst-case scenario,' chief financial officer Colm Kelleher said on Dec 19. 'History has proven that that worst- case scenario was not the worst case.' Bear Stearns Cos announced a US$1.9 billion writedown on mortgage losses on Dec 20, sending the New York-based firm to its first quarterly loss since it went public in 1985.

Merrill Lynch & Co, the world's largest brokerage, and UBS AG, Europe's biggest bank by assets, dismissed their chief executives after they reported a combined US$11.4 billion in sub-prime-related losses in the third quarter. Merrill may post an additional US$8.6 billion in losses for the fourth quarter, David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller, said. 'Derivatives led a lot of people to believe that risk was being dispersed in a way that made things safer, but the risk remained after people thought they'd moved it off their balance sheets,' says Bose George, a mortgage industry analyst at Keefe, Bruyette & Woods Inc in New York.

Investors didn't know what they were buying, says Sylvain Raynes, a principal in New York-based R&R Consulting Inc and co-author of the book The Analysis of Structured Securities. It didn't matter if a certain number of borrowers defaulted because the returns on some parts of the financial instruments were as much as 3 percentage points higher than 10- year Treasury yields. Now the losses are spreading. Florida schools and cities pulled almost half their deposits from a US$27 billion state investment pool linked to sub-prime mortgages.

A hospital management company in suburban Melbourne, Australia, lost a quarter of its portfolio in July on sub-prime-linked investments. Japan's 36 banks booked combined losses of 244 billion yen (S$3.12 billion) in the fiscal first half on sub-prime-related assets, according to the Financial Services Agency. Sumitomo Trust & Banking Co, Japan's fifth-largest bank by market value, says that fiscal first-half profit fell 41 per cent on higher provisions for bad loans. Eight towns in northern Norway, including Hattfjelldal, a village where reindeer outnumber the 1,500 residents, lost a combined 350 million kroner (S$91.3 million) on securities containing sub-prime mortgages. 'We are a stoic people, used to fighting against the forces of nature, so we'll manage,' says Hattfjelldal mayor Asgeir Almaas. 'We won't let this break us.'

Information about investments in derivatives, such as so-called synthetic collateralised debt obligations, was voluminous and available. A lot of it was also unread. 'These documents are not bedtime reading,' Gerald Corrigan, managing director in charge of risk management at Goldman Sachs, told a UK parliament committee. 'You have to work at it.' The three biggest ratings companies - Moody's Investors Service, Standard & Poor's and Fitch Ratings - were forced to lower ratings on a record number of CDOs last month, according to a Morgan Stanley report, as sub-prime-backed securities deteriorated.

S&P says that it downgraded 16 per cent of sub-prime vehicles issued in 2005 and 29 percent of the 2006 vintage. By comparison, the company says it upgraded 0.07 per cent of its 2005 securities and 0.08 per cent of 2006.
Those who bet against the mortgage industry fared better. J Kyle Bass of Hayman Capital Partners in Dallas hired private investigators to help him sniff out the worst lenders. He says that he turned a US$110 million stake into about US$600 million. Deutsche Bank AG's writedowns on sub-prime losses were 2.16 billion euros (S$4.52 billion) - less than they would have been if not for the offsetting short trades of Greg Lippmann, the bank's global head of asset-backed securities trading.

Goldman Sachs avoided the losses other banks suffered by betting that US homeowners would walk away from their debts. John Paulson of New York-based Paulson & Co made similar bets. One of his hedge funds returned 436 per cent in the first nine months of 2007, based on data compiled by Bloomberg. 'The people who dug deep and analysed the underlying collateral of the securities made a lot of money betting against them,' says Girish Reddy, former co-head of equity derivatives at Goldman Sachs and managing partner of Prisma Capital Partners LP in Jersey City, New Jersey.

Nobody paid more dearly than Savannah Nesbit. The six-year-old and her family lost their house in Boston's Dorchester neighbourhood last month after failing to pay a sub-prime mortgage that adjusts higher every six months.
Savannah got her first bicycle for her birthday in August, pink with streamers dangling from the handlebars. She decorated the present from her grandmother with stickers of Dora the Explorer, her favourite animated character. When sheriff's deputies emptied the house and changed the locks, they left Savannah's bike behind. 'She cries about that bike every night, and she wants me to buy her another one, but I can't afford it right now because I have my own financial problems,' says Savannah's grandmother, Anne Marie Wynter, whose home is also in foreclosure.

Sadek's Quick Loan Funding had 700 employees at its 2005 peak. Now Sadek is making payments on three residential properties he mortgaged in a failed attempt to keep his firm afloat. He also owns a restaurant in Newport Beach, California. 'I'm under water,' he says, puffing on a Marlboro Light. 'I'm trying to sell everything, and nothing is being sold.' His attempts to bankroll a film career for his former fiancee, soap opera actress Nadia Bjorlin, came to naught. Last month, Bjorlin returned to her role as Chloe Lane on Days of Our Lives. Mr Aultman, the railroad mechanic, teeters on the brink of foreclosure. He has been trying to modify his loan terms with Countrywide Financial Corp, which now owns his mortgage. 'It's scary, very scary,' Mr Aultman says. 'Sometimes I'll walk through the house and touch the walls and say to myself, 'This is mine.' Moody's, S&P and Fitch continue to be arbiters of the quality of securities, though their reputations have suffered.

The Connecticut attorney general is investigating the three companies, including whether they rank debt against issuers' wishes and then demand payment, whether they threaten to downgrade debt unless they win a contract to rate all of an issuer's securities, and the practice of offering ratings discounts in return for exclusive contracts.
The Securities and Exchange Commission and two other states, New York and Ohio, have launched separate investigations of the ratings companies. Moody's also faces a shareholder lawsuit.

Deutsche Bank recently began meetings to create a new index on another security, Alt-A mortgage bonds. It will allow hedging against defaults by Alt-A borrowers, who have prime credit and get mortgages without verifying their incomes. Investors will also be able to wager that Alt-A homeowners will quit making payments, potentially turning losses into more and bigger paydays.

Foreign Worker's Dorm is no longer a low-down asset
Morgan Stanley has expanded its Singapore real estate investment portfolio to include an unusual asset class - foreign workers' dormitories. An entity understood to be linked to the US bank recently bought three dormitories from JTC Corp for $153 million and is said to have teamed up with a local party to purchase more such properties from the private sector, sources say. 'It may seem an unglamorous property type but the yields can be very attractive and Morgan Stanley has clearly sensed a business opportunity in an area that other foreign funds and property investment groups may not have spotted yet,' a source says. Morgan Stanley is said to be targeting dormitories whose tenants include blue-chip companies that lease space in these facilities for their foreign workers.

Traditionally, most institutional investors go for income-generating commercial properties like offices and retail, as well as industrial (specifically logistics and warehousing). And then serviced apartments started featuring in their portfolios. In Asia, these investors have started to look at non-traditional assets that offer higher yields as well as (residential) property development, because of yield compression for the traditional asset classes they used to focus on. 'Yields on these segments have fallen as more and more investments chase limited assets. You now have superannuation funds from Australia, Reits, and sovereign wealth funds, private equity...,' Mrs Ong says. She suggests that student housing is another sector that foreign funds may target. 'Studies have shown this to be quite a stable source of income. In places like the US and Europe, anything with P&L (income flow) can be Reited or be attractive to institutional investors - like senior housing, nursing homes, self-storage facilities, even prisons,' Mrs Ong notes.

The three dormitories that Morgan Stanley has purchased from JTC are Kian Teck Dormitory in Jurong, Tampines Dormitory and Woodlands Dormitory. Kian Teck Dormitory has 411 units with two types of units - one that can house six to 12 persons per unit, and another for seven to 14 persons per unit. Morgan Stanley unit Avery Strategic Investments bagged the properties following a public tender that closed earlier this year. It was the highest of eight bidders for the dormitories. The sale was completed in the fourth quarter. There are currently over 20 other major dormitories for housing foreign workers in Singapore. Dormitory rentals have been on the rise, especially in the past 12 months. 'There's a shortage of dorms islandwide mainly because of the construction boom. That's why some property investors are starting to look at these facilities,' an industry observer says.

Some industry watchers suggest that property yields for dormitory investors could be around 20 per cent or even higher. 'It depends to a large extent on the length of the balance lease term on the land - the shorter the remaining lease, the higher the return a potential investor will seek. There's a whole range of land leases for dormitories in the market - freehold, 60 years, 30 years and some even as short as 3 + 3 years,' an industry observer explains.

Boom Boom attracts new players
The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer. Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.

In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites. 'When the market is good, it draws in players who may not have been active before,' said CBRE executive director Jeremy Lake. He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened. 'If you get your timing right in property, the profits can be substantial,' Mr Lake said.

Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996. Companies that did not look at property development in the past are now beginning to do so because of the fatter margins. One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million. SuperBowl's managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.

Similarly, KSH Holdings sees good opportunities in property development. The company's chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time. 'Going forward, we will buy more sites if the right opportunities arise,' Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year. The first site, which KSH acquired in June with three other partners, was the construction company's first purchase of a land parcel.

Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International. However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007. CBRE's data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan's GuocoLand and property giant CapitaLand.

New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year. In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent. However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins. 'For the high-end residential segment, there is now risk of a potential correction,' said OCBC Investment Research analyst Winston Liew.

New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said. Next year, established developers who have carved out niches are likely to do best, analysts said. 'Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,' said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008. OCBC's Mr Liew advocated being defensive when choosing property developer stocks. 'We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,' he said.

$2500psf for United House office? You bet!
The strata office market is still running hot. A first-storey freehold office unit at United House, behind Le Meridien Singapore Hotel in Orchard Road, went for $2,497 per square foot of strata area at a Colliers International auction last week. The last transacted price in the development was $1,601 psf for a 710 sq ft unit on the fifth level in April this year.

However, the highest unit price for a strata office unit here appears to be $3,050 psf, at The Central, a 99-year leasehold development above Clarke Quay MRT Station. Developer Far East Organization is said to have sold the entire 21st level of one wing of its V-shape, 25-storey office tower for $40.7 million several months ago. The space comprises units #21-89 to #21-99, adding up to a total strata area of 13,337 sq ft. BT understands the buyer is a shipping company.

The $3,050 psf surpassed the previous record, set in the same building, when Far East sold the entire 24th level in the same wing for $2,850 psf, also this year. While The Central's mall has already opened, its office tower, and small office, home office (Soho) block are expected to be ready in the first half of next year.

In the Orchard Road area, unit #01-01 of United House was auctioned by Colliers on Dec 19 for $7.5 million. The road-fronting unit - with a strata area of 3,003 sq ft - is subdivided into two smaller units that have been leased out at a total monthly rent of $13,260, with the last lease expiring in October 2008. This presents an opportunity for the property's new owner - understood to be a low-profile Singapore investment company - to enjoy a higher yield when the lease is renewed or a new tenant found. Grace Ng, Colliers deputy managing director (agency and business services) and auctioneer, attributes the unit's appeal not just to current demand for offices but to United House's potential for a collective sale.

The strata office market in other parts of Singapore also continues to buzz. At Suntec City, units on the 23rd and 27th floors have changed hands at prices ranging from $2,250 psf to $2,313 psf lately, according to caveats captured by SISV Services' Realink system. At International Plaza in Anson Road - another favourite for strata office investors - a unit on the 30th floor was sold for $1,586 psf in October. Nearby, at Shenton House, a couple of adjoining units on the 15th storey changed hands last month at about $1,500 psf. A 10th floor unit at High Street Plaza was sold for $1,714 psf a few weeks ago.

Good Class Bungalow is better class by 40%
The demand for gracious bungalow living is chugging along quite nicely. In fact, average prices of Good Class Bungalows (GCBs) are expected to appreciate by about 10 to 15 per cent next year. This appears even more impressive if you consider that this year, they have already climbed by nearly 40 per cent to $710 per square foot of land area.

The expected appreciation could propel the total value of GCB transactions to increase slightly in 2008, although the number of transactions may be slightly lower, Savills Singapore director (Prestige Homes) Steven Ming predicts.
The first 11 months of this year saw a total of 96 GCB transactions adding up to $1.28 billion. The value is an all-time record and has surpassed slightly the $1.24 billion achieved for the whole of last year. However, the number of GCB transactions from January to November this year is still shy of the 118 for the whole of 2006, according to an analysis by Savills Singapore based on caveats data from Urban Redevelopment Authority's Realis system. 'I don't expect the number of GCB transactions to increase next year, because prices have gone up quite rapidly in the past 12 to 15 months. The GCB market is generally restricted to Singaporeans and Permanents Residents with special approval to buy landed homes.

'Some of these potential buyers may have bought GCBs at much lower prices in the past and may take time to adjust to higher prevailing prices now. But having said that, there's been a lot of wealth creation over the past few years as seen in the reasonable number of record prices being set,' Mr Ming said. Credo Real Estate managing director Karamjit Singh, too, predicts moderate price upside for GCBs for next year, despite forecasting overall flat property prices. 'GCB values will benefit from the enormous wealth created from the economic boom, and the influx of high networth individuals who become permanent residents (PRs), while supply remains scarce,' he adds.

While demand-supply fundamentals remain sound next year for Singapore's real estate sector as a whole, including GCBs, the crucial factor is how the currently-shaky sentiment pans out, Mr Singh said. Record prices were set for two adjacent bungalows at Nassim Road in the past few months - 32G Nassim Road, which was sold for just under $20 million or $1,504 psf of land in September, followed by 32H Nassim Road in October at an even higher $1,899 psf.

Raffles Education founder and chairman Chew Hua Seng is believed to have picked up 32H Nassim Road, for which he paid $25.5 million. Mr Chew is said to own a few other bungalows nearby. The prices achieved for 32G and 32H Nassim Road surpassed the previous record for GCBs, of $1,308 psf set only in August this year, when Hong Kong group Wharf (Holdings) sold Glencaird, a conservation bungalow at 15 White House Park, for $28.8 million.

However, market watchers highlight that for the 32G and 32H Nassim Road transactions, each property's land area is just slightly over 1,200 sq metres - lower than the minimum 1,400 sq metres (or 15,070 sq ft) plot size stipulated under Urban Redevelopment Authority guidelines for GCBs. Savills' Mr Ming argues nonetheless that these two properties will be bound by GCB regulations if they were to be redeveloped. This means that they cannot be more than two storeys high, their built-up area is limited to 35 per cent of the total land area, and the plots cannot be subdivided further.

The year has also seen quite a few GCBs being flipped. 21 Cluny Hill was bought for $15 million in January and changed hands again for $20.2 million in June. 46 Mount Echo Park was sold for $10 million in January and again for $12.8 million in March. 'Some savvy bungalow investors with deep pockets, saw value in investing in freehold GCBs earlier this year, when their prices were lagging quite a bit behind those of 99-year bungalows on Sentosa Cove. The gap has since narrowed and these investors have been able to offload their GCB investment for a handsome profit,' Mr Ming said.

Over at Sentosa Cove, seafronting bungalow sites have fetched as much as $1,696 psf this year. These are vacant sites sold by the precinct's master developer, Sentosa Cove Pte Ltd, to buyers to build their dream homes on them.
The supply of completed bungalows for sale in the upscale waterfront housing locale is still limited, but Savills' director of business development and marketing Ku Swee Yong says that owners are asking for $1,800 psf to $2,400 psf depending on the direction they face. 'The main reason for higher bungalow values on Sentosa Cove than in mainland Singapore is because of expedited approval for foreign buyers of landed property on Sentosa Cove. This has been a great draw for those who want to be PRs in Singapore and park a fraction of their wealth here,' Mr Ku said.

Stars of 2008 - the mid-tier & Mass Market will shine
Next year could be the year of the mid-tier and mass market sectors with prices expected to rise between 8 and 15 per cent. Whether this will happen depends largely on en bloc millionaires, the return of HDB upgraders, the resilience of the Singapore economy, and the possibility of more developers stemming supply and landbanking their redevelopment sites. CBRE Research executive director Li Hiaw Ho expects 10,000-13,000 new homes to be sold, 'with more activity seen in the mid-tier and mass market'.

The number falls short of the estimated total number of 15,000 units sold in 2007. But Mr Li said that, in the event of a downturn, developers who can hold will push back their launches until the market turns around. 'This is possible because most of the collective sale sites are on freehold tenure,' he added. Mr Li also noted that while about 67 per cent of the development sites sold in 2006 were in the prime districts of District 9, 10 and 11, this fell to 49 per cent in 2007. 'More sites outside the prime districts were acquired via the collective sale route in 2007, compared to 2006 when there was more supply in prime areas, and when prices were more affordable,' he added.

Based on total sites sold, CBRE estimates that there could be about 14,000 units ready for launch outside the prime districts next year. This includes a potential 1,600-unit 99-year leasehold condo built by Frasers Centrepoint and Far East Organization in Tampines, and a 630-unit 99-year leasehold condo by Sim Lian Land in Bishan. Savills Singapore director of marketing and business development Ku Swee Yong reckons that of the new launches, the majority would be mid-tier. 'There are not enough launch-ready mass market sites of significant size,' said Mr Ku.
He believes that there could be more mass market sites in the Government Land Sales (GLS) Programme, with prices for the mass market gaining 30-50 per cent, and mid-tier prices rising 20-40 per cent.

Apart from a rising number of new citizens and PRs (permanent residents), Mr Ku expects an influx of integrated resorts-related foreign manpower in the second half of 2008. 'The high-end will be replenished with the re-construction of en bloc sites but the mass market housing for junior level expats and foreign talent will have to come from GLS sites,' he added. Colliers International director of research and consultancy Tay Huey Ying also expects buyers hoping to reap rental returns to make up a significant portion of the mass market.

However, Ms Tay believes that the mass market and mid-tier sectors will no longer be quite as easy to define.
With many developers improving their product to try and price their projects at benchmark levels, Ms Tay says, there is a noticeable blurring of tiers as the higher-end of each tier encroaches into the lower-end of the next tier. 'As such, it would be more appropriate to segmentise the residential property market into seven tiers, namely, mass, upper-mass, mid-tier, upper mid-tier, high-end, luxury and super luxury,' she explained. Colliers' target prices for the mass and upper-mass market developments are below $750 psf, and between $750 and $1,100 psf respectively.
Projected prices for the mid-tier market are from $900 to $1,800 psf, and upper mid-tier market, from $1,800 to $2,500 psf. At these prices, HDB upgraders could be priced out of the private market.

Resale HDB prices are rising with cash-over-valuation now as high as $150,000. Although this is for very select units, sellers are nevertheless holding out for higher resale prices. ERA Singapore assistant vice-president Eugene Lim, for one, does not expect resale volume in 2008 to top the estimated 30,000 units sold in 2007. PropNex CEO Mohamed Ismail reckons that resale prices will rise 10-15 per cent in 2008. In spite of this, he believes interest on mortgages, stamp duty and legal fees will still leave about 10 per cent of HDB sellers in negative equity if they sell now.

Highlighting a recent trend, Mr Mohamed notes that 5-room flats in areas such as Bishan, Bukit Merah, Bukit Timah, Central, Clementi, Kallang, Marina Parade, Queenstown and Toa Payoh commanded cash-over-valuation of $50,000 and above in Q307. He added that buyers were mainly private property downgraders or en bloc millionaires who are also finding private property too expensive.

Sales likely to flatten over last quarter
The number of private homes sold by developers inched up 4.7 per cent to 593 units in November, up from 566 units in October. The Urban Redevelopment Authority (URA) also revealed monthly property market data of transacted benchmark prices as well as median prices. During the month, a significant number of transactions were seen at Amber Residences, which sold 85 units at the median price of $1,392 psf, and Casa Fortuna which sold 103 units at $1,009 psf. CBRE Research executive director Li Hiaw Ho also noted that 20 units at 8 Napier were sold at a median price of $3,557 psf and pointed out that these were likely to have been made by a single buyer.

On the performance in November, Mr Li said: 'Overall, prices are firming. Sales volume and prices in December should remain at the same levels as October and November.' Indeed, developers told BT that launch prices are being maintained even though buyers are now a bit more 'cautious'. UIC Ltd's 192-unit Park Natura, across from Bukit Batok Nature Park, saw 56 units sold in the month at a median price of $945 psf. The price was slightly lower than the October median price of $1,022 but UIC group general manager Vito Koh explained that this was because units sold in November included those with private enclosed spaces like roof terraces. Mr Koh said that the withdrawal of the Deferred Payment Scheme (DPS) have made buyers more cautious but added that he believes developers are not lowering prices to move units. 'Prices are not coming down, but they are not going up either,' he said.

A comparison of the median price of Amber Residence ($1,392 psf) and the reported average selling price ($1,650 psf) does appear to show that prices may have softened a little. According to the URA data, 68 units were sold in the $1,000-$1,500 psf bracket with 16 units sold in the $1,500-$2,000 psf bracket. One unit was sold at between $2,000-$2,500 psf. Jones Lang LaSalle head of research and consultancy Chua Yang Liang noted that launches declined significantly in the Core Central Region (CCR) by 43 per cent from the 166 in October to only 95 in November. 'The take-up or demand further reflects this softer market with 130 units absorbed - a marginal drop of 4 per cent month-on-month (MoM),' he said.

Similarly, demand in the Outside Central Region (OCR) also weakened with a 33 per cent MoM decline or only 173 units absorbed compared to 259 in October. Dr Chua pointed out that this was on the back of a larger supply of 221 units or a 28 per cent increase in the number of units launched. 'The decline in demand in OCR is a likely result of the removal of the DPS,' he explained.

In contrast, the demand in Rest of Central Region (RCR) remained strong. In November, the take-up increased by 57 per cent MoM. Most of the transactions in the RCR were in District 15. 'Take-up in this segment is largely driven by foreign occupiers that has spilled over from the CCR,' Dr Chua added. According to the URA data, there are over 4,000 units in 70 developments with pre-requisites for sale as at end-November. This includes mass-market offerings at Bedok Resevoir as well as high-end developments at Cairnhill.

While developers are not 'panicking' at the possibility of a slowdown in the economy, Cushman & Wakefield managing director Donald Han believes more will be 'repositioning' their launches and going directly to foreign buyers in the Middle East and North Asia. Mr Han, who expects the total volume of transactions in Q4 2007 to be below 2,000 units, added: 'Some developers were already marketing their high-end products at the recent Mipim exhibition in Hong Kong to reach an international market.'

It is a strategy that appears to be working. Savills Singapore director of marketing and business development Ku Swee Yong said he was pleasantly surprised at some of the benchmark prices reached in the high-end sector, with the highest price for the 40-unit Sui Generis at Balmoral Crescent increasing from $2,578 in October to $2,713 psf in November. Six units were transacted in November and the median price rose from $2,406 to $2,474 psf. Saying that he believes that this end of the market would continue to be driven by international high net worth individuals, he revealed: 'We had a client who insisted on being first in queue for The Ritz Carlton Residence.' The client later set a new benchmark price of $4,515 psf for the Cairnhill area.