Business Times: Thu, Nov 17
However, going ahead, what could underpin its earnings could be an office development in the one-north precinct in Buona Vista.
Ho Bee is developing The Metropolis on a site clinched at a state tender last year for $410.99 million (or about $342 per square foot per plot ratio). Its breakeven cost is estimated at $750 psf. That's considered relatively low, given that a brand-new office development next to an MRT station in the suburbs could be valued at $1,300-1,500 psf today, according to property consultants.
This low entry pricing for The Metropolis project will help cushion Ho Bee against a slowdown in the office market predicted for next year by many analysts on the back of a slowdown in the global economy.
The Metropolis' showsuite opened recently and a monthly average rental rate of about $7.50 psf is being quoted. 'Even if the rent comes down to $5 or $4 psf, the yield is still fantastic on our breakeven cost,' said Ho Bee Group chairman and CEO Chua Thian Poh. A gross monthly rent of $5 psf would work out to a net yield of 6 per cent based on $750 psf breakeven cost.
The group is funding The Metropolis project through borrowings and internal funds - part of which will come out of the $342.5 million from the sales of three industrial buildings and Ho Bee's space at Samsung Hub at Church Street.
Once The Metropolis is completed and its rental income stabilises, Ho Bee's rental income from investment property could quadruple to about $80-100 million per year from about $25 million last year, said Mr Chua.
What prompted Ho Bee to embark on a large office development in one-north? 'Ho Bee has grown to a stage where recurring income is quite important to help the group generate cashflow and surplus funds - and take Ho Bee's development to the next stage,' said Mr Chua. This will also enable Ho Bee to avoid lumpy earnings and generate steady dividend payout to shareholders.
Next year, two of the group's condo projects, Trilight at Newton Road and Parvis in Holland Hill, are expected to receive Temporary Occupation Permit (TOP) around September and June/July respectively, allowing the group to book a chunk of profits on units sold.
Also expected to receive TOP in mid-2012 will be One Pemimpin, a strata industrial project. The 115-unit project was 94 per cent sold as of Nov 9. Revenue and profit on units sold in this project will be recognised only upon TOP.
In China, the group is jointly developing two residential projects with Yanlord Land - a 1,257-unit project in Qingpu, Shanghai, and a 1,898-unit development at Nanhu Eco-City, Tangshan. The projects are slated for completion in 2014 and 2015 respectively. The plan is to launch the Tangshan project, near the scenic Nanhu Lake, next year and the Shanghai project in 2013.
Ho Bee has come a long way since Mr Chua set up the group in 1987 as a small developer focusing on industrial property. In the 1990s, it became a mid-sized developer when it developed Southaven 1 and II condos at the foot of Bukit Timah hill. Even before the Singapore residential property market peaked in 1996, Ho Bee turned its attention to London. It developed Parliament View apartments opposite the Houses of Parliament. 'So we escaped the Asian Financial Crisis,' recounts Mr Chua. Instead, Ho Bee rode on the rise in London property prices as well as the appreciation of the pound. Then in 2001-2002, the group turned its attention back to Singapore. It got a big break in Sentosa Cove in 2003. It has developed more residential projects in the high-end waterfront housing district than any other developer - providing Ho Bee with fat bottomlines in financial years 2007, 2009 and 2010.
However, with slow sales in the high-end market these days, Ho Bee has been left with unsold units in two completed condo projects in Sentosa Cove - Turquoise and Seascape. It has started to lease out some units at Turquoise.
Work on the group's final project in Sentosa Cove - a 302-unit condo on the Pinnacle Collection site - has begun. 'When the timing is right, we will try to launch it,' said Mr Chua.
Ho Bee still has its sights set on overseas projects, especially in the residential sector. 'We might relook at London, and also enter Australia. We hope that overseas (markets) can give us about 30-35 per cent of income in future,' Mr Chua said. Today, virtually all of Ho Bee's income is from Singapore.
Mr Chua left school at 16 to work for his father, who ran a lighterage and built tongkangs (light boats for transporting goods). But he soon ventured on his own, involved in various businesses including manufacturing and import-export, through ups and downs, before entering the property business in 1987. Ho Bee Investment was listed on the Singapore Exchange in 1999.
The 63-year-old's wife Doris is an executive director of Ho Bee Holdings, a privately held vehicle of Mr Chua and the majority shareholder of listed Ho Bee Investment. The couple have two sons and two daughters. Two are in the family business. Mr Chua, who relaxes by listening to all genre of music and attending concerts and operas, is active in community work. Among other appointments, he is president of the Singapore Federation of Chinese Clan Associations and board chairman of Business China.
Summing up Ho Bee's journey thus far, Mr Chua says: 'We were lucky at times, but we think we are also visionary and opportunistic.'
HO BEE Investment is looking for opportunities to pick up sites in the Singapore residential property market in six to nine months' time. The last time it bought such a site was in early 2008.
'Right now, there is a lot of uncertainty; nobody can fathom what will happen in Europe or the US. Hopefully, things will become clearer in six to nine months and by then, land prices will be more stabilised...more realistic, more reasonable and we can pick up some good residential sites in Singapore,' said Chua Thian Poh, chairman & CEO of Ho Bee Group, in a recent interview with BT.
Mass-market condo prices look like they are headed down due to a moderation in land bids for 99-year leasehold sites at state tenders in recent months, said Mr Chua. The extent of price decline will depend on how external factors pan out but the outlook is bleak, he added.
As for the high-end residential sector, its performance will depend more on the world economy and not just the local economy. But even in times of trouble, Singapore's high-end residential sector could shine if the rich seeking a safe haven in this part of the world decide to park their money in the Singapore market, reasons Ho Bee executive director Ong Chong Hua.
He cites the case of London. 'When there is trouble in Europe, in the Middle East, money will just flow into London and its high-end property market. Even though prices are very high, there's no yield, the rich will just park their money. They don't even stay there.
'So potentially Singapore will still have these (high net-worth) people coming in, although in a good market they will be coming in droves rather than in drips and drabs, which is what we are seeing now.'
The last time the group bought a residential site in Singapore was in early 2008 when it picked up the Pinnacle Collection plot on Sentosa Cove in partnership with Malaysia's IOI Properties.
Explaining why Ho Bee has been less enthusiastic about chasing private housing sites in Singapore after the property market began to recover in 2009 post-global financial crisis, Mr Chua explains that back then, the group had 'quite a bit on our plate and we did not want to get more land when we had not fully sold our Singapore residential projects on existing sites'.
'We didn't get residential sites but for investment property we got a commercial site in Buona Vista where we are developing The Metropolis at a good entry price and this will also bring value to the company.'
The Metropolis is a Grade A office project that will have two office towers (21 and 23 storeys high) and retail space, directly linked to the Buona Vista MRT Station on the Circle Line.
The project will have a total net lettable area of about 1.08 million sq ft (including 22,000 sq ft of retail space). It is slated for completion in the second half of 2013.
Source: Business Times