OFFICE MARKET Singapore office landlords have that empty feeling Singapore’s office landlords are among the world's most luckless right now, and they have builders to blame. The market already has an empty feel to it, and as developers add more space in a slowing economy, property owners' misery could keep compounding.
Over the past year, the city's three big office real estate investment trusts - CapitaLand Commercial, Suntec and Keppel Reit - have lost investors between 24 and 30 per cent. Exclude them, and the average return on Reits that have at least US$1 billion in market value and garner 40 per cent or more of their revenue from owning office properties has been minus 10 per cent globally, according to data compiled by Bloomberg. Keppel Reit and CapitaLand Commercial, which reported earnings this week, are offering dividend yields of between 6.5 and 7.6 per cent, a hefty premium on the 2.4 per cent yield on 10-year Singapore government bonds. Yet investors don't want to catch a falling knife.
The residential property market is also suffering, with prices down 8.4 per cent in a little more than two years. That decline has been largely a result of government policies aimed at curbing speculation and protecting Singaporean households from sinking deeper into debt. There's hope that authorities may do away with some of the restrictions to prevent a rout in home values.
The office market, however, is victim of a more fundamental miscalculation. Singapore developers got carried away by misplaced optimism in China's ability to keep growing its economy by 9 per cent every year. All that talk about the dawn of the Asian century made builders woolly-headed. They didn't fully understand that Reits' seemingly endless appetite for yet another glass-and-chrome tower was less a result of actual demand and more a desperate search for yield by investors.
If developers and Reit managers had paused for a minute and wondered just who, outside of a shrinking global banking industry, would really need to put lots of warm bodies in the central business district, the frenzied construction would have stopped long ago.
But as things stand, the city's tallest office tower is going to open for business this year. That's 38 stories of prime office space from just one project. But where are the tenants? Banking is still in the doldrums, with Barclays expected to cut jobs most deeply in Asia. Already, the top 20 major foreign banks in Singapore's CBD are sitting on more than 550,000 square feet of excess space. Some 7.4 million square feet of new supply is in the pipeline, a big chunk of which will hit the market in 2016. Prime office rents, which fell 15 per cent in 2015, are expected to slump by another 10 to 20 per cent this year.
Meanwhile, the search for yield in Singapore's office market is well and truly over. Borrowing costs are rising, and the central bank is looking askance at highly leveraged purchases. Now that Singapore Reits will also be required to limit their borrowings to 45 per cent of assets, it doesn't leave them much room to buy things on the cheap from developers.
With about 90 per cent of the population in Singapore owning their homes, there's a strong incentive for the government to step in and prevent a collapse. But when it comes to offices, the more empty spaces there are, the lower the cost of doing business. That's a net gain for the city-state's competitiveness, and would presumably give it a leg-up in its perennial rivalry with Hong Kong. The cost, though, is considerable pain for office landlords. And an empty feeling that won't go away soon. Adapted from: The Business Times, 22 January 2016
PRIVATE RESIDENTIAL MARKET
Lendlease-ADIA to include 429 apartments in Paya Lebar project The consortium comprising Lendlease and Abu Dhabi Investment Authority (ADIA) that last year bagged a plum site in Paya Lebar Central, has obtained provisional permission from Singapore's planning authority to build a project that will comprise offices, retail space as well as 429 apartments. Going by market talk, the apartments are expected to be launched for sale probably next year. This will mark the first time the Australian group will be developing homes in Singapore. It has been operating here for more than four decades. The Urban Redevelopment Authority (URA) granted provisional permission last month for the developers to build a project that will have 91,340 square metres (983,175 sq ft) gross floor area (GFA) of office space and 43,740 sq m (470,813 sq ft ) of retail space in addition to the 429 apartments. The project is expected to be completed, that is, receive Temporary Occupation Permit in 2018, according to fourth quarter 2015 property market data released by the URA recently. When contacted, a spokesman for Lendlease said that the apartments will be in three towers. " . . . Lendlease is confident that the . . . project will rejuvenate the precinct when it is completed," he added. Given its experience in the Singapore retail market, Lendlease will probably market the retail space itself. The Lendlease-ADIA consortium was the highest bidder for the 99-year leasehold site at a state tender that closed on March 31, 2015. Its winning bid of S$1.67 billion worked out to S$942.56 per square foot of potential gross floor area. The site comprises four plots - two land parcels, an underground area and an airspace. The site can be developed to a maximum GFA of 164,794 sq m (about 1.77 million sq ft). Of this, at least 90,000 sq m (968,751 sq ft), amounting to nearly 55 per cent of total GFA, has to be for office use. The project will boast direct connection to both the Paya Lebar East-West Line and Circle Line MRT stations . Lendlease has a 30 per cent stake in the consortium developing the project, while ADIA holds the majority 70 per cent. According to a previous article, the Abu Dhabi sovereign wealth fund (SWF) is said to be an investor in the Asian Retail Investment Fund (ARIF) managed by Lendlease. ARIF I has a 75 per cent stake in the 313@Somerset mall in Orchard Road, while ARIF III owns 75 per cent of the Jem office and retail development in Jurong East. ADIA is also understood to have invested in BlackRock-managed funds that developed the Asia Square project in the CBD. The SWF also previously held a 49 per cent direct stake in AXA Tower along Shenton Way in addition to being one of the investors in a BlackRock-managed fund that had owned the other 51 per cent in the circular office building opposite Tanjong Pagar MRT Station. They sold AXA Tower to a consortium led by Perennial Real Estate Holdings last year for S$1.17 billion. Lendlease is an integrated property and infrastructure group that has operated in Singapore since 1973; its capabilities span the entire property spectrum - development, investment management, project management and construction, and asset and property management. The URA's Q4 2015 data also showed that MCL Land, a unit of Hongkong Land, obtained provisional permission in October for a 710-unit condo along Jurong West Street 41. The project's name is Lake Grande. Chinese developer MCC Land received the URA's provisional nod in December for a condo project of 626 units along Tampines Street 86. Meanwhile Gem Homes, the shareholders of which are Malaysia-listed group Gamuda, Evia Real Estate (7) and Maxdin, received provisional permission in November to develop a 578-unit condo in Lorong 5 Toa Payoh. When contacted, Evia Real Estate managing director Vincent Ong said that the project is slated for release in late April or early May; the average price will be S$1,480 psf. The development will have two 38-storey towers. The project was slated for launch in late March, but this has been delayed after the authorities turned down an earlier proposed name; the developers are now awaiting approval for a new name that they have proposed for the 99-year leasehold project. Adapted from: The Business Times, 26 January 2016
Five beacons of hope for S’pore property in 2016 Singapore’s property market was a victim of its own success as prices continued to fall in 2015, with the cooling measures imposed by the Government still weighing on the industry. With the start of 2016, we look at some potential beacons of hope for housing, including: Investors looking for alternatives amid stock volatility; manageable rate hikes; Downtown Line 2 completion; and improved affordability after price declines over more than two years.
1. Volatility in the stock market will send investors scurrying for alternatives Global stock markets have been volatile in the opening weeks of this year. A second crash in China’s stock markets since last summer caused the Straits Times Index to fall 4.6 per cent in the first week of trading, and the loss in the local benchmark has piled up to 12.1 per cent this year as of yesterday’s close.
The main causes of the Chinese crash are a retail-investor-driven market, China’s poor economic data, as well as its heavy-handed interventionist policies. There is no immediate reprieve in sight — demand for Chinese goods remains stubbornly sluggish, with the Purchasing Managers’ Index for the manufacturing sector falling below 50, indicating contraction in factory activity. This may send investors here scurrying out of the equities market and into alternatives. While some may turn to traditional safe havens, such as gold, others may eye the property sector, where prices have declined for nine straight quarters.
2. The Fed rate hike impact has not been as bad as most people expected The United States Federal Reserve raised its benchmark rate by a gradual 0.25 per cent last month, which has led to small and manageable rises in the Singapore Interbank Offered Rate. The much-prophesied doom-and-gloom scenarios in which thousands of homeowners would find their mortgages unaffordable, never came to pass.
There is no denying that interest rates will continue to rise — the US economy has mostly recovered, and the Fed will not risk runaway inflation by keeping rates low for too long. While mortgages will be more expensive in the coming years, a lot of the fear has been taken out of the rate hikes because interest rates have proven to be more than manageable. In 2016, investors may latch on to the fact that, even with higher property loan rates, rental income and capital appreciation in land-scarce Singapore more than make up for it.
3. The Downtown Line 2 (DTL2) looks promising for the Bukit Timah area. DTL 2 opened last month, way ahead of schedule. This consists of 12 new stations: • Bukit Panjang • Cashew • Hillview • Beauty World • King Albert Park • Sixth Avenue • Tan Kah Kee • Botanic Gardens • Stevens • Newton • Little India • Rochor The line goes from the heart of Bukit Panjang through the school district in Bukit Timah. Property in places such as Sixth Avenue had hitherto been considered to have accessibility issues if you do not drive. With this problem now out of the way, properties in the area may see a boost in value. The moribund property market could mean some good deals lurk in the area. That will attract some investors or profit-minded homebuyers.
4. The lifting or tweaking of cooling measures just might happen this year This is pure speculation, but many analysts believe the Government will modify or lift some cooling measures this year. BNP Paribas predicts a 7 to 10 per cent housing price drop in the next two years, and prices have already fallen for nine straight quarters. The signs suggest that cooling measures are the only thing holding property prices down, and those low prices are artificial. Fundamental demand for Singapore property remains strong.
5. People formerly priced out of the market may now find housing affordable If you could not afford a condominium back in 2012, the price slide in recent years is fantastic news for you. The prices are still falling and the only thing you need to guess is how low they will go. This is, of course, what the cooling measures were intended to do in the first place: Make homes more affordable to Singaporeans. Meanwhile, current property investors do not have to fret if they take the long-term view. Once prices are low enough, the buyers will come back, because again, fundamental demand remains strong. It is not impossible for that to start happening in late 2016, as prices are already looking attractive to some upgraders.
Adapted from: TODAY, 22 January 2016
S'pore property: foreign buying hits a low as Chinese sales plunge Foreigners including the Chinese have cut their purchases of Singapore private homes to the lowest since the global financial crisis, leaving the market to depend on local buyers at a time when domestic interest rates are on the rise. Foreigners, including permanent residents, bought 499 homes in the fourth quarter of 2015, according to data compiled by a consultancy. That accounted for about 16 per cent of total transactions versus more than 30 per cent in the third quarter of 2011 just before an additional stamp duty was imposed to cool the market.
While property in Singapore, along with markets like London and Sydney, is considered a safe haven, foreigners are discouraged by the high taxes imposed on their purchases. The Chinese, among the biggest foreign purchasers of Singapore private homes, bought 151 units in October-December, plunging nearly 40 per cent from a year earlier. That was also down 80 per cent from a peak in the third quarter of 2011. The figures were based on caveats lodged as of Jan 15 with an online database maintained by the land planning authority.
Chinese money is being attracted by Australia and the UK, said an analyst, adding that stamp duties need to be tweaked to a level at which Singapore could capitalise on Chinese funds without attracting too much hot money. If we continue to sit by with all these measures, we are just going to miss the boat, he added. Local buyers may also turn cautious, with the benchmark three-month Singapore interbank offered rate (Sibor) - used to set interest rates on mortgages - on a persistent uptrend. It rose up to 1.254 per cent so far this week, the highest since October 2008. Adapted from: The Business Times, 22 January 2016
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