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BT 28-09-2012: Time to buy?

(2012-11-14 05:50:35) 下一個
Published September 28, 2012
Time to buy?
BT 20120927 PROPCOVER27 181715
 

WITH the third round of quantitative easing (QE3) by the US Federal Reserve, it is broadly expected that a fresh flood of liquidity will spill into the real estate market.

Already, some developers here are pre-empting the effects of QE3 and are bidding more aggressively for land in a bid to stock up for new residential project launches next year.

This has inevitably raised the question of what impact this measure will have on the property market, and the attendant question – is now the time to buy? Investors have also started moving into the strata industrial and strata commercial sectors.

Part of the allure of investing in uncompleted units in these sectors lies in the low up-front cash payment required, which gives investors an opportunity to flip the unit should there be an offer.

That said, potential buyers, especially those new to the commercial and industrial sectors, should do their research to understand the nuanced differences particular to each sector.

In the following pages, property market professionals share their views on a variety of sectors, covering residential market trends and niche markets such as shoebox units, the industrial property sector, hotels, and even resort opportunities.

There are also tips on housing loans, and advice on the type of loan package an individual looking to invest in property might take up. Also check out upcoming residential launches and their locations in the centrespread of this issue.

For those looking to invest overseas, we look at the potential of overseas residential markets including Australia, China, Malaysia and London.


Supplement coordinator: Mindy Tan Copy editor: George Joseph Sub-editor: Yvonne Poh Cover design and graphics: Hyrie Rahmat Artists: Jennifer Chua, Ludwig Ilio, Noordin Ayob, Sarah Loyola, Business Times

Finding value in prime districts

The centralised location presents better connectivity and convenience for residents, a superior attribute for any property investment decision, say WENDY TENG and ALICE TAN
BT 20120927 MTSKNIGHTP27 168898

Aspirational homes: Condominiums in the Scotts Road and Cairnhill area. - PHOTO: FILE PHOTO 

BEING centrally located, prime non-landed homes in Districts 9, 10 and 11 are highly sought after by both local and foreign investors, given the area's close proximity to Orchard Road, prominent embassies and the Central Business District. These homes are generally considered as the topmost segment in terms of prestige, price and place.

Over the recent years, demand for such homes saw an increase in the proportion of foreign homebuyers. In some developments, one out of every two units were bought by a non-Singapore resident.

The Additional Buyer's Stamp Duty, which was introduced last December, has affected the demand from foreign homebuyers as they are now required to pay an additional 10 per cent on the purchase price or market value of the property in addition to the existing buyer's stamp duty.

With an expected fall in foreign demand, some had predicted that prices of prime non-landed homes would fall. The URA Private Residential Price Index for the Core Central Region (CCR) fell for the first time in Q1 2012 after experiencing eight consecutive quarters of price appreciation since Q3 2009.

Interestingly, recent statistics in Q2 2012 by the same index registered a rebound of 0.6 per cent quarter-on-quarter (q-o-q), compared with 0.5 per cent increase for Outside Central Region (OCR) and 0.4 per cent rise for Rest of Central Region (RCR). What could be the reasons for the upturn of sale prices?

Buying shift

The price recovery in the CCR stemmed from the marked increase in prices of completed residential units, with the URA price index for completed non-landed properties in the CCR having risen by 2.2 per cent q-o-q in Q2 2012, the highest magnitude of increase compared to other regions.

In contrast, the price index for uncompleted non-landed properties in the CCR fell by 0.6 per cent in the same period.

This could reflect a preliminary trend of a shift in buying demand from uncompleted new sale and sub-sale projects to completed new sale and resale units in the CCR, as homebuyers hunt for value-for-money investments in older residential properties located in the coveted prime district locale.

Focusing on Districts 9, 10 and 11, Knight Frank studied the transacted prices of completed and uncompleted non-landed residential units according to the age of the property.

Notably, prices of uncompleted units in Districts 9, 10 and 11 averaged $2,756, $1,957 and $1,949 psf respectively in Q2 2012. The average prices of resale properties generally trend lower as the age of the property increases.

For instance, transacted prices of resale units within developments that are between four and six years old averaged $1,828, $1,736 and $1,672 per sq ft respectively for the same quarter, which are 34 per cent, 11 per cent and 14 per cent lower correspondingly when compared to uncompleted homes.

Notably, the prices of resale properties that are seven years and older located in Districts 9 and 10 hovered at similar levels as some new mid-tier developments launched in the past year, while properties of the same age group at District 11 have been sold at average prices below $1,300 psf.

In contrast, mass market residential prices moved higher and averaged beyond $1,000 psf in Q2 2012, with a few newly launched projects at the suburbs selling at above $1,300 psf.

Older properties

The price trends affirm the proposition that older properties in prime Districts 9, 10 and 11 could be perceived as value investments, on the basis of location and price psf.

The centralised location presents better connectivity and convenience for residents, a superior attribute for any property investment decision. Furthermore, the freehold tenure status for most of the residential properties in these prime districts is an attractive consideration for long-term investment and multi-generational wealth preservation.

With a generally lower price quantum for older residential properties, rental yields are expected to be higher than uncompleted new sale properties. Yield conscious investors prefer completed residential projects with its immediate occupation status and inflow of rental income.

The state of building quality and standard of upkeep is another key consideration before deciding on the investment. Residential estates that are well maintained with lush landscaping and full condominium facilities are positive attributes for owner-occupiers and tenants.

Additionally, older residential estates are usually more generous with the size of the units and open spaces between blocks, providing spatial comfort for residents.

District 9

A traditionally coveted prime district in Singapore, District 9 comprises mainly Orchard, Cairnhill and River Valley areas. Paterson Hill, Cairnhill Circle, Anguilla Park and Scotts Road areas are typical areas where many senior executives, high net worth locals and foreign investors buy and lease.

Recently, more homebuyers were seen investing in other areas such as Mount Sophia, Mount Emily and River Valley areas as prices hover attractively at $1,500-$1,800 psf for residential properties that are four to six years old.

District 10

District 10, which consists of Bukit Timah, Holland Road, Tanglin and Farrer Road areas, has a variety of non-landed and landed properties. Expatriates generally favour homes in this district for its close proximity to embassies, established schools and the Botanic Gardens.

For the past year, most of the sales transactions of uncompleted new sale units in District 10 came from D'Leedon, a mega residential development comprising about 1,700 units. For completed properties that are approximately three years old, prices for some that are located within close proximity to District 9 area have been higher compared to certain uncompleted properties in District 9, such as the Latitude (above $2,000 psf), 8 Napier, Parkview Eclat and Nassim Park Residences (above $3,000 psf).

District 11

Comprising the Watten Estate, Newton, Novena and Thomson areas; District 11 appeals to both locals and foreigners due to its central location and connectivity to other parts of Singapore. Various lifestyle amenities and recreational enclaves also cater to residents in the area.

One of the new projects that have seen healthy buying interest for the past quarter is 8 Bassein; a "Soho" concept that has been well received by aspiring professionals as the development is located near Novena MRT station and shopping/medical hubs.

Investing in resale properties

As home prices of new projects remain high on the back of stable developer sales over the first half of this year, homebuyers are turning to older resale properties as an attractive alternative. While new design features and a suite of innovative facilities in upcoming non-landed developments remained as an appealing consideration for many prospective buyers, the main considerations of price and location would generally take precedence.

Some market watchers see that the upcoming supply of over 4,000 units to be completed within the next six months (with many of them in the city centre and fringe regions) could put pressure on high-end rentals.

However, with a medium to long-term perspective in mind, the limited supply of available land for future development in the prime districts, particularly those with freehold tenures, creates potential for capital appreciation in new and old residential developments in Districts 9, 10 and 11. Owning a home in the coveted prime area remains a goal for many aspiring local and foreign homebuyers.

Wendy Teng is executive director, residential services, and Alice Tan is senior manager, consultancy & research, at Knight Frank

Up and coming vs established

Punggol, in the north-eastern part of Singapore, is gaining popularity among home dwellers for its scenic environment, says LEE SZE TECK
BT 20120927 MTSDWG27C 171043
 

Work-live-play-learn:  artist impression of Palm Isles in Pasir Ris - PHOTO: FILE PHOTO

THE East has always been a favourite among home dwellers for its scenic environment and the lifestyle it has to offer. Think Pasir Ris and East Coast and images of the sea and beach come to mind.

But recently a new kid on the block is threatening to steal the thunder from the incumbents. And that is Punggol.

Billed as the Waterfront Town of the 21st century, Punggol will be transformed into a lifestyle destination with waterfront housing, commercial and leisure attractions under the Punggol 21 Plus plan.

The 4.2 kilometre man-made Punggol Waterway which was completed in October 2011 connects Punggol Reservoir and Serangoon Reservoir, allowing one to walk/cycle from one end of Hougang to the other end of Punggol. The majority of developments including the Punggol Town Centre and Waterway Point will take place around the waterway. There are plans for a Rustic Park at Coney Island.

The Punggol 21 Plus plan has certainly got developers, home owners and investors excited. Since 2010, developers have launched eight private residential non-landed projects with more than 5,500 units for sale. As at July 2012, homeowners and investors have bought close to 5,000 units or nearly 90 per cent of the total units available. There are another estimated 1,000 units in the pipeline.

When all these are completed within the next five years, the number of private residential homes in Punggol is set to explode exponentially by around 57 times to 6,618 units from the current 114 homes. The number of HDB flats will also double from 18,000 to 35,000 by 2015 according to the Housing and Development Board (HDB).

New projects launched in Punggol in 2012 to date include Watertown, Twin Waterfalls, Flo Residence, River Isles and Parc Centros. The estimated average launch prices range from $850-$1,200 psf for condominiums and $700 psf for executive condominiums. The most active developer in Punggol is Qingjian Realty with more than 1,500 units available for sale.

With all the government plans and developments in progress and in the pipeline, Punggol is shaping up nicely to be a great place to live in. Waterway Point, a retail mall beside the Punggol MRT station will be completed by 2015, providing much needed relief to the shortage of retail amenities now.

Job opportunities

But the lack of employment opportunities within Punggol means that residents will have to travel for work. Also the estimated number of residential homes from the Government Land Sales programme tends to be understated by around 10 per cent as innovative designs by the developers allow them to build more on a parcel of land.

This lack of employment opportunities and higher than estimated amount of residential homes means added stress on the transportation network. The Tampines Expressway and Kallang-Paya Lebar Expressway and Northeast Line are already pushing the maximum capacity during peak hours.

But if the Seletar Aerospace Park, Defu and Lorong Halus areas can become a critical mass of employment for the residents in the Northeastern part of Singapore, then residents in Punggol and even Sengkang or Pasir Ris would not have to travel far for work. This will relieve congestion on the transportation network. However, the plans for these areas will take some years to come to fruition.

Unlike Punggol, Pasir Ris and Bedok offer natural scenic environments such as Pasir Ris Beach, Bedok Reservoir and East Coast Park. Together with a wide range of amenities and job opportunities, Pasir Ris and Bedok can be said to be self-contained townships.

For example, a family staying in Bedok can look for suitable job opportunities in Kaki Bukit/Chai Chee/Bedok South; enrol the children in schools within Bedok; and go to the East Coast Park or Bedok Reservoir for leisure and adventure activities. Similarly, a family can also do the same in Pasir Ris with job opportunities in the Pasir Ris Industrial Drive/Loyang areas and leisure activities at Downtown East and Pasir Ris Beach. It fulfills the Government's idea of work-live-play-learn in one location (think one-north) and lessen the burden on the transportation network.

Popularity stakes

The popularity of established townships such as Bedok and Pasir Ris was witnessed in the number of project launches and take-up of units. According to the Urban Redevelopment Authority (URA), there are 36 uncompleted private residential non-landed projects with pre-requisites for sale in Bedok making up 6,283 units, of which an estimated 5,659 units or 90.1 per cent have been sold as of July 2012.

Over in Pasir Ris, an estimated 4,228 units out of 5,052 units or 83.7 per cent from 10 private residential projects launched for sale have been sold as at July 2012. Interestingly, there is no executive condominium project in Bedok.

The latest project launches in Bedok and Pasir Ris this year as at August include eCO, Palm Isles, Parc Olympia, Ripple Bay, Sea Esta and Watercolours. The estimated launch prices for these projects are between $820 and $1,300 psf for condominiums and $700 psf for executive condominiums. Hong Realty and Tripartite Developers are among the largest developers in Pasir Ris because of their huge landbank in the area while Frasers Centrepoint and Far East Organization have the lion's share of project launches in Bedok.

Bedok and Pasir Ris are also undergoing improvement works to better serve their residents. The Bedok Town Centre will be re-developed into an integrated transport, retail and residential development. The retail component, Bedok Mall is estimated to be completed by H1 2014 according to the developer. There are also plans for a commercial development opposite Tanah Merah MRT station. The completion of Bedok North and Bedok Reservoir Downtown Line MRT stations in 2017 and the Eastern Region Line in 2020 will further add to the attractiveness of Bedok.

In Pasir Ris, residents will also witness the $200 million five-year makeover plan for Downtown East. When completed, Downtown East will host an expanded water theme park, a new Costa Sands Resort and meeting and convention facility in addition to its current offerings.

So whether it is a taste for the fresh or going for the tried and tested, residents in Punggol, Pasir Ris and Bedok stand to benefit from the variety of exciting developments that will take shape over the next few years.

The writer is senior manager, training, research and consultancy, at Dennis Wee Group

Published September 28, 2012

HDB properties at its peak

Since capital appreciation is a by-product of demand and supply, HDB flats are certainly headed for some price stabilisation, says MOHAMED ISMAIL
BT 20120927 MTSPROP27A 170887

Showing foresight? Since 2011, HDB has increased the release of Built-To-Order (BTO) flats and Sale of Balance Flats (SBF) - PHOTO:  FILE PHOTO

WITH 82 per cent of Singaporeans living in an HDB flat today, these flats are no longer considered low-cost housing. Instead, it is an asset that every Singaporean can own with the HDB tailoring different housing schemes to satisfy the aspirations of the people.

Public housing in the earlier days

The Housing and Development Board (HDB) was set up in 1960 by the government to tackle the challenge of insufficient homes. The board increased the number of buildings at such a rapid pace that it built enough houses to solve the housing problem within 10 years. These houses were rented to families, and not sold to them.

To create a nation of home owners, as envisioned by former prime minister Lee Kuan Yew, families needed a way to afford to pay for the flats. The Home Ownership programme was thus created in 1964 to give citizens an immovable asset in the country, a means of financial security and a hedge against growing inflation. This initiative for home ownership helped the economic, social and political stability in those days.

In 1968, the government allowed the use of Central Provident Fund savings to aid housing payments. Later in 1971, flat owners were allowed to sell their flats in the open market. This changed the real estate landscape of Singapore.

Public housing now

Since 2011, HDB has increased the release of Built-To-Order (BTO) flats and Sale of Balance Flats (SBF) with 28,000 units in 2011, 25,000 units in 2012 and another 20,000 new public-housing apartments coming in 2013. This was done with the aim of shortening the waiting time for first-timers, and to increase the likelikehood of them getting their preffered home.

The HDB resale market took a beating with moderating prices in the previous quarters. However, prices of HDB resale homes rebounded in the second quarter of 2012. HDB resale prices inched up 1.3 per cent in Q2 2012 to a new high, rising more quickly than the 0.6 per cent gain in Q1 2012.

As can be seen in Table A, the HDB Resale Price Index (RPI) has reached historical highs at 194, up by 90.5 per cent compared to 2006. A resale flat is no longer cheap since a five-room flat in a central location can well exceed $800,000!

The rebound in HDB resale flat prices can be attributed to buyers being increasingly attracted to the resale market with cash over valuation (COV) prices easing, as well as the lack of supply in the HDB resale market.

Resale prices have remained resilient due to real and sustained demand. Despite the increase in BTO supply to meet the demand from first timers, there is still demand from other groups who do not qualify, such as Permanent Residents, singles, private property downgraders and existing HDB lateral downgraders or upgraders.

We have also witnessed a tight supply in the resale flat market as many potential sellers decide against selling their current HDB property as prices have reached its peak in the HDB resale market as well as the private property secondary market (all time high 0.4 per cent rise in the URA Private Property Index in Q2 2012).

The stronger price growth exhibited in Q2 2012 could be a result of decreasing COVs. Buyers may also have turned to resale flats after failing to get their preferred choice at the more than 12,000 HDB flats launched so far this year, leading to both resale activity and prices heading back up.

Overall median COVs, however, are expected to hold steady. COVs hovered at about $26,000 in the first two quarters, well down from $35,000 in the fourth quarter of last year.

According to PropNex data, the median COV for three-room flats now stands at about $20,250. This is good news for potential homebuyers of smaller HDB resale flats, especially lower-income families and younger couples.

The overall median resale prices are still inching marginally upwards, according to PropNex compilation of Q1 2012 results - the median resale prices of three-room, four-room, five-room, and ECs respectively are $333,000, $424,000, $500,000 and $604,888; compared to Q2 2012 median resale prices of $338,000, $435,000, $508,000 and $609,500 respectively.

From the overall analysis of the demand and supply of HDB resale homes, in the short-term, it is unlikely that prices will change drastically. With the 25,000 flats to be released this year, this may reduce the demand for resale flats. This more gradual growth for the RPI looks set to continue in the next two quarters with a price change of between 3 and 4 per cent in the HDB resale market in 2012.

What the future holds for HDB flats in the mid-term

Based on the fact that public housing has appreciated by close to 90 per cent in the past six years, one can be certain that in the next few years, the increment will not be as high as it was in the past.

Today, median prices for public housing in locations such as Tiong Bahru, Redhill, Bishan, Toa Payoh or Strathmore, can reach as high as $800,000. Just a mere 20 per cent increase in the next five years will trigger the $1-million mark for thousands of these properties in the central location.

If property prices had increased by 90 per cent in the past six years, factoring in half the growth at 45 per cent would mean many more public housing properties will cross the $1-million mark, making it difficult for new entrants to own a unit.

But with the increased supply in the pipeline, we expect muted growth in the next few years and won't be surprised if public housing prices remain the same, or undergo marginal increases only. Such price stabilisation, coupled with increasing income, will help bridge the affordability gap for the future generation. As capital appreciation is a by-product of demand and supply, HDB properties are certainly heading for some price stabilisation.

The writer is chief executive officer of PropNex Realty

Shoebox units: A fitting choice?

The question of how profitable investing in a shoebox unit can be depends on market conditions, says OOI YI TUNG

Given the limited amount of living space in a shoebox unit for a household, many have conjectured that the demand is driven by investment rather than owner-occupation.

IN as recent as 2007, the first quartile unit size of new private condos sold in the Outside of Central Region (OCR) was 1,087 square feet (sq ft), unchanged compared to 1997, a decade ago. The figure has shrunk to 624 sq ft this year, raising eyebrows in the industry.

The trend is in part due to shoebox units gaining popularity in the OCR. Although in general the shoebox population is still largely confined within the Central Region,the rate at which demand for such units is shifting to the OCR is rapid and hard to ignore. From just 4 per cent in 2007 to 66 per cent in 2012, the OCR now dominates the shoebox market in terms of number of units sold.

A similar story can be told if one looks at the number of projects offering shoebox units. In 2007, two out of 14 such projects were located in the OCR. This year, half of the 50 such projects are located in the OCR.

Given the limited amount of living space in a shoebox unit for a household, many have conjectured that the demand is driven by investment rather than owner-occupation.

Data supports this conjecture. Based on units disposed of in the secondary market for the period January 2011 - July 2012, the average holding period for a shoebox unit is 934 days, less than the average construction period of a project, suggesting that for new projects, many had bought their units during launch and sold before or right after TOP.

Intention to rent

In contrast, the average holding period for units sized above 50 sq m for the same period is 2,597 days, nearly three times as long.

Another example is Parc Imperial, where we estimate that about 85 per cent of the units are shoebox units. The number of rental contracts signed in 2011 was 87, or nearly two-thirds of the projects, about twice as many as the nearby The Peak@Balmeg, which has no shoebox units, suggesting that many shoebox units were bought primarily with the intention to rent.

The increasing popularity of shoebox units is mainly due to its affordability. To some degree, this may also be due to the side effects of recent government policies.

In the past, private property owners who had a budget of $500,000 could have scooped up HDB flats (if they do not already own one) in the resale market for their attractive yields. Since August 2010 however, buyers have to first dispose of existing private property, resulting in shoebox units possibly becoming the alternative.

If this were true, we expect the impact to be small, given that purchasers with private property addresses make up only about a third of the total purchases.

Another factor could be the lower financing for second and subsequent properties, which would bring down the price range that one could afford if one already owns a property, driving some demand down the chain to the shoebox market range. In fact, a shoebox unit can easily be a no-money down purchase if one could cash out from existing properties that have profited on paper. The median price of a shoebox unit in OCR was about $600,000 in Q2 2012.

Interestingly, the industry does not have a common definition for shoebox units. Some have assumed that the term refers to anything smaller than 500 sq ft, while others have assumed 50 sq m (approximately 538.2 sq ft).

While the difference may seem trivial, sizes from 500 sq ft to 50 sq m form the single largest segment in the shoebox market in the OCR should one use the latter to define it.

The notion that purchasers with HDB addresses make up a large proportion of buyers in the shoebox market should be a concern is unjustified. As at end August, in the OCR, purchasers with HDB addresses made up 63.8 per cent of new sales, excluding shoebox units.

In the shoebox segment in the OCR, purchasers with HDB addresses constitute 63.7 per cent in the same period, consistent with the non-shoebox segment.

If there was a cause for concern, the concern should be targeted at the increasing amount of money being invested into the property market by purchasers with HDB addresses as a whole rather than just the shoebox market alone. This percentage was about 50 per cent in 2008 for OCR. Presumably, the buoyant HDB market over the last five years has helped many upgrade.

Shoebox bandwagon

The question of how profitable investing in a shoebox unit can be depends on market conditions. The current cycle has treated buyers who jumped on the shoebox bandwagon early well.

Out of the 177 shoebox units disposed of in the secondary market in the OCR from 2011-2012 (as at end August) only four transactions were unprofitable, after taking into account an estimated 7 per cent round-trip transaction cost. Even the smallest shoebox units ever sold (located in RCR) have been flipped profitably.

The latest intervention by the authority to limit the number of units allowed in new developments will drive developers to build more average-sized units. The move will impact land prices in the OCR given that shoebox units generally command a premium.

It will bring down per-square-foot prices of new launches, of the overall market, and any statistics such as price indices that are derived based on per-square-foot prices.

Developers are highly adaptive. When land prices surged, shoebox made its way to the OCR to balance the equation. With the latest intervention from the authorities, the market eagerly anticipates the next "paradigm shift" for the OCR.

For more information, visit www.squarefoot.com.sg.

The writer is director at Square Foot Research

Fringe benefits

Deals outside prime districts dominate residential collective sales market, says KARAMJIT SINGH
BT 20120927 MTSCREDO27B 177171

Of significance: Tai Keng Court (above); Green Lodge; Jade Towers; with more collective sales deals expected to be closed in the RCR and OCR for the rest of the year, it is possible that the deal value for these two sub-markets will reach close to the $2 billion done in 2011 - PHOTO: FILE PHOTO

IN 2007, the record year for residential collective sales, $8.1 billion or 71 per cent of the total deal value of $11.44 billion was attributable to sites in prime districts (Core Central Region or CCR).

Mega collective sale deals that hit the headlines that year included Farrer Court ($1.339 billion), Leedon Heights ($835 million), UIC Building ($600 million), Grangeford ($592 million), and Westwood Apartments ($435 million).

After the slump in 2008 and 2009, residential collective sales picked up steadily in 2010 and 2011. By then, most of the collective sale activities had shifted to the city fringe and suburban markets (rest of central region and outside central region respectively). In 2010, the RCR and OCR accounted for 69 per cent of collective sales value, while 65 per cent was attributable to these two sub-markets in 2011.

The momentum of collective sales this year has slowed with about $1.82 billion worth of deals recorded year to date (YTD), compared to nearly $3.09 billion transacted last year.

Collective sales deals in the CCR plunged from $1.09 billion to $267 million in 2012 YTD, accounting for only 15 per cent of market share. Deals in the RCR and OCR have registered $1.55 billion so far, this year raising their market share to 85 per cent.

Outside prime districts, the more significant collective sale deals are Thomson View ($590 million), Green Lodge ($191.89 million), Tai Keng Court ($161.1 million), Jade Towers ($106.3 million) and Seletar Garden ($96.19 million).

With more collective sales deals expected to be closed in the RCR and OCR for the rest of the year, it is possible that the deal value for these two sub-markets will reach close to the $2 billion done in 2011.

The dominance of collective sales in the RCR and OCR is due to the change in pattern of end-user demand. In 2007, 14,811 private residential units were sold by developers, with the CCR, RCR and OCR accounting for 33 per cent, 30 per cent and 37 per cent respectively.

By 2010, 75 per cent of the 16,292 units sold by developers were attributable to the RCR and OCR while the proportion due to the CCR had declined to 25 per cent.

The momentum of demand for homes outside prime districts strengthened in 2011 when nearly 90 per cent of the 15,904 units sold by developers were in the RCR and OCR. First half 2012 saw similar robust demand in the RCR and OCR which accounted for 95 per cent of developer sales with the CCR taking up a small balance.

The market cooling measures imposed in the last few years have been skewed against short-term investors and speculators. Owner-occupier buyers including HDB upgraders, who are less affected by the measures, tend to buy homes outside of prime districts, which are relatively more affordable.

The Additional Buyer's Stamp Duty (ABSD) which penalised foreigners more heavily in buying private homes has deterred this group of buyers significantly.

As foreigners account for a sizeable proportion of demand in the CCR, demand in this sub-market is expected to remain tepid. Consequently, developers are more cautious about purchasing CCR sites, resulting in many zooming in on sites offered outside prime districts.

Owners as well as those involved in collective sales should note the following trends in order to manage expectations and make the best of their endeavours:

  • Developers are generally more cautious about CCR sites while sites outside prime districts are in greater demand. Sites with high absolute values, especially in the CCR are difficult to market due to the higher risks involved in developing and marketing big projects within five years, which is required for the developer to avoid incurring ABSD.

It is still possible to market smaller CCR sites where the absolute price is manageable, say below $200 million, provided price expectations are realistic.

  • Under current market conditions, RCR and OCR sites are likely to receive more interest from developers, especially those worth about $300 million or less.
  • With the announcement of the Thomson MRT line and its positive impact on the collective sale of Thomson View Condominium recently, developers have enquired about other potential collective sale sites along that corridor.

Similarly, interest is also expected when the locations of the stations of the future Eastern Region Line are announced.

  • Many property buyers like the mixed use concept where residents enjoy the convenience of shops, eateries and other facilities in close proximity to their homes.

Therefore, new commercial cum residential projects launched for sale in recent times have seen strong interest and successful sales. This trend has also led to keener interest in commercial cum residential collective sale sites by developers, so such sites tend to be marketable under present market conditions.

  • QE3 seems to have raised optimism in the market resulting in a pick-up in interest in collective sale sites by developers.

The chart shows how collective sales value has increased from $306 million in Q1 2012 to $996 million in Q3 2012. Our assessment is that 2012 will end with total collective sales value between $2.3 and $2.5 billion with the RCR and OCR having the majority share of $2 billion or more.

The writer is head of investments and residential, at Jones Lang LaSalle.

He was formerly managing director of  Credo Real Estate which merged with Jones Lang LaSalle on Sept 1, 2012

Getting a piece of the development pie

Not just property developers, construction companies have also made their foray into the market. By JASON LEE and CHUA YANG LIANG

In perspective: The involvement in public land sales by construction companies between 2009 and 2011 could be due to the favourable operating environment brought about by a readily available pool of low cost labour led by the government's favourable foreign worker policy, global and domestic economic recovery, low interest rates, and increased public land supply - PHOTO: YEN MENG JIIN

SINCE the first recorded release of a Government Land Sale (GLS) site in 1992, developers have been a prominent and consistent feature at public land sales, given the importance of such sales to the companies' core functions of property development.

In recent years, construction-related companies are increasingly participating in the GLS programmes as well. Analysis of the data between 2009 and H1 2012 by Jones Lang LaSalle Research confirms that the participation by construction companies was especially evident between 2009 and 2011.

Construction companies' foray into the market has led to a peak in the average number of bidders per GLS site in 2009. The lean economy in late 2008 following the Lehman Collapse, which saw the temporary suspension of the sale of government sites, also resulted in a build-up of demand.

Consequently by 2009, on the back of a recovering economy coupled with no additional public land available except for the reinstatement of sites on the Confirmed list from the year before, a record number of 12 bidders per site were registered. On the back of an increased supply of government land, the average number of bidders per site subsequently fell to seven and eight in 2010 and 2012 respectively, slightly lower than the three-year average of 8.5.

The rise of the non-developer developers

An increasing number of GLS sites released in the years following 2009 saw a resurgence of bidders in the public land sales programme. This revival of interest grew particularly strong among the non-developers' group.

The share of the development pie taken by these non-developers, as measured by the ratio of developers to construction companies, that is, developer activity ratio for each bidding exercise is on the rise (Figure 1).

Across our analysis period (2009 to H1 2012), the activity ratio fell sharply in 2010, but has since picked up to 2.1, that is, there are 2.1 developers for every construction company that bid for sites in H1 2012.

The involvement in public land sales by construction companies between 2009 and 2011 could be due to the favourable operating environment brought about by a readily available pool of low cost labour led by the government's favourable foreign worker policy, global and domestic economic recovery, low interest rates, and increased public land supply.

With a favourable operating environment, construction companies sought to "ride the wave", aggressively expanding their business by vertical expansion, that is, taking on property development while still retaining their expertise in construction.

However, recent changes early this year to the foreign worker policy have impacted these construction companies. They now face a dwindling supply of low cost labour.

Smaller and less experienced construction companies lacking the expertise to undertake development and construction risks retreated to focus only on their core expertise of construction, leaving those that have the financial strength and stamina to balance both functions in the public land sales market. The activity ratio bears out this phenomenon, rising from 1.7 in 2011 to 2.1 in H1 2012 (Figure 2).

So who are they?

Over the period of analysis, a total of 1,130 bids were submitted for 133 GLS sites, with Frasers Centerpoint Limited and its related subsidiaries submitting 67 bids (about 6 per cent of the total number of bids) and Sim Lian Group submitting 53 bids (about 5 per cent of the total number of bids). Other large property developers/construction companies making their presence felt at GLS programmes include Far East Organization Ltd (48 bids or about 4 per cent of the total number of bids) and Qingjian Group Co Ltd (38 bids or about 3 per cent of the total number of bids).

These four players account for only about 18 per cent of the collective participation rate while the rest are distributed among other players, suggesting a very competitive bidding environment. To be successful, bidders have to understand their competitors, pre-empt with high certainty their likely strategy, and further take into account the contingent response of competitors.

While the above is all very much theoretical and business-speak in nature, one cannot deny the fact that the chances of winning becomes much slimmer after taking into account the many small and mid-size players who might, in the study of game theory, exhibit "exceptional behaviour" and submit high bids to win at GLS programmes.

An example of such an unexpected bid in the GLS programme would be the sale of a site at Bishan Street 14 in February 2011 to a subsidiary of CapitaLand, Bishan Residential Development Pte Ltd.

CapitaLand put in a bid of $550 million that was a whole 27 per cent higher than the next bid of $432 million by Keppel Land. They subsequently developed the condominium Sky Habitat that received widespread acclaim for its award winning design. No humour is lost on the fact that the development also set record breaking condominium prices in the Rest of Central Region (RCR).

In terms of activity of listed companies, it is no surprise that more than half (76 sites) of the total 133 GLS sites were awarded to either a listed company (local and/or foreign listed) or a joint venture with the presence of a listed company.

Notwithstanding the effect of "exceptional behaviour" and the differences between a listed and non-listed entity, the ease of obtaining funds through the capital markets do make it easier for listed companies to come out tops in GLS programmes.

The beginning of the end?

The ratio of developers to construction companies bidding at GLS sites has taken a slight turn upwards to 1.7 in 2011 to 2.1 in H1 2012, indicating that construction companies are scaling back their bid activity, possibly in light of rising operation costs.

Man-Year Entitlement (MYE) reductions, increased foreign worker levies and the general shortage of foreign labour have led to increased labour costs and belt tightening among construction companies. Company cessation and formation figures from Department of Statistics Singapore (DOS) also show that the number of construction companies ceasing operation has been on an uptrend, with four cessations in 2010 rising to six per 10 companies formed in 2011 (Figure 3).

Cessation and formation figures for companies involved in Real Estate Activities, a proxy category for developers, has remained stable in the last two years at about six companies ceasing operation for 10 companies formed. DOS figures therefore bear out a trend of a stable developer, but falling construction company stock.

Based on these figures, it is therefore anticipated that the activity ratio will fall, with a higher number of developers per construction company participating at GLS programmes. A higher attrition rate could also be explained by construction companies focusing on their core operations of contracting in light of changing government policies, rising operation costs and tighter labour supply. Only the largest construction firms with the expertise to simultaneously manage development, financial and interest rate risk while capitalising on their core building proficiency will be profitable at Greenfield projects.

Foreign firms, where are thou?

Foreign companies' share of bidding at GLS has fallen from a peak of about 29 per cent in Q2 2010 to 15 per cent in Q2 2012. This fall could be attributed to less profitability for developers caused by the reduced demand from end users (investors and owner occupiers), indirectly caused by the introduction of the punitive cooling measures.

Additionally, the growing strength of the Singapore dollar has also affected the participation by foreign developers.

Data from the Monetary Authority of Singapore (MAS) shows that the government has put the Singapore dollar on a modest and gradual path of appreciation against major currencies, mainly to anchor inflation expectations, ensure medium-term price stability, and keep growth on a sustainable path.

The knock-on effect of this stronger Sing dollar has made the local property development market a less attractive investment destination for foreign funds and property developers.

Even though the risks of a rising Singapore dollar could be minimised by appropriate hedging and treasury strategies by foreign developers, domestic companies will nevertheless have an edge in the currency market, and even more so in an environment as uncertain as the current one.

The falling proportion of foreign companies at GLS bears out this actuality (Figure 4). Until we see a shift in monetary stance, the foreign firms' foray into the local development scene could get increasingly thin.

Jason Lee is research analyst, and Chua Yang Liang is head of research and consultancy, South-east Asia, at Jones Lang LaSalle

Eye on conservation shophouses

There are investment opportunities in this unique segment of the property market, says ALAN CHEONG

WITH the imposition of ABSD (Additional Buyer's Stamp Duty) on residential developments, investment money flows have been routed to the strata industrial, office and retail space. Those have been analysed till death. However, what has been slipping through the investment radar is conservation shophouses.

Conservation shophouses are those located in areas gazetted by the Urban Redevelopment Authority (URA) as such. To date, conservation status has been accorded to over 7,000 buildings in more than 100 areas, including the entire historic districts of Chinatown, Kampong Glam and Little India. This brief hopes to shed light on this segment of the market that is unique in the sense that the data available is not as fully refined as what has been developed for other segments of the real estate market.

District 1

Conservation shophouses located in District 1 have shown reliance in terms of prices and rentals. Transactions have been relatively active in District 1 with prices trending upwards since 2007. The average quantum per transaction has been relatively stable, being mostly in the $5 million to $10 million range over the same period of time.

It should be noted that the average price on the land is only a very rough guide because data from the URA does not show whether each shophouse is two- or three-storey high.

When compared to CBD office rentals, conservation shophouses in District 1 have outperformed the former since Q1 2007. Shophouse rents are also more volatile than those of offices. That is because shophouses are more location and orientation sensitive to tenants than a general purpose built office. Hence, it is important that investors know how to position their unit to maximise rental values.

On a dollar per square foot ($psf) per month basis, average gross rents are about $5.75 for conservation shophouses located in District 1.

Using Amoy and Telok Ayer streets as a case study, the average transacted prices for conservation shophouses there have been clearly trending up since 2007. For Q2 2012 average transaction prices were at an estimated $1,700 psf of gross floor area (GFA). At this rate of increase, it should surpass $2,000 psf in due course.

Uses

Conservation shophouses can have a variety of uses. These can be:

1. Offices

Compared with CBD office spaces which are going northwards of $7.50 psf per month, conservation shophouses cater to a niche segment of users who prefer the quaint and easy going atmosphere of operating in such spaces.

Unlike CBD office developments which cater to larger space users, conservation shophouses offer floor plate sizes that meet tenants that require smaller space.

2. F&B establishments

Offices with F&B uses on the ground and second floors have already been applied in the area, for example Killiney Kopitiam located at 21 Amoy Street. F&B outlets can command a gross rental of between $6 and $8 psf per month. Offices in bare state are currently asking about gross $6 psf per month for the Telok Ayer Street area.

There exists potential for more up-market F&B establishments in such units. In District 1, the next phase of evolution for F&B comes when more CBD apartments are completed over the next few years; by 2015, the population of private residential city dwellers could swell by 1,420 per cent over 2007 numbers. This will create additional spin-offs as the new, higher income residents would exact a change in the F&B landscape from the mid-tier to up-market.

Back in the early 2000s, the popular locations for the most trendy restaurants and bars were Club Street, Far East Square and Capital Square. Raffles Place or Shenton Way on the CBD were widely seen as 5.5-day lunch time business and hence less viable locations for F&B operators who preferred to stay in the Orchard Road, Dempsey or Holland Village areas which attracted dinner and drinks crowds seven days a week

When Marina Bay started to transform into the new CBD and the place to live, work and play, lifestyle operators began to see the potential of Marina Bay and Shenton Way not just as an after-work place to chill out or entertain. Marina Bay became a lifestyle destination that thrived even on weekends, catering to the increasingly sophisticated and discerning CBD crowd.

Take Amoy and Telok Ayer Streets as examples. These two thoroughfares are sandwiched between Club Street and the Marina Bay area, with the latter two areas fast sprouting discerning F&B concepts. The former two streets are expected to be transformed as well, thereby spurring greater rental demand.

Another area which is already thriving, but will see even greater activity is the Kampong Glam district. Once the site (the Malaysia-Singapore joint venture development) slated for office, residential and hotel use that is sandwiched between Ophir/Rochor Road is completed in 2016, traffic flow to conservation shophouses there should increase significantly. In fact, the conservation district in the vicinity acts in symbiosis with this M&S development, enhancing its residential and hotel uses and as an F&B destination for office workers after work.

3. Hotel

Hotel use is also an attractive proposition. Conservation shophouses are suitable for boutique hotels. Recent transactions for such hotels have been healthy with prices moving up on each sale.

For the latest boutique hotel sale at Jalan Sultan in December 2011, the price per room for the leasehold property worked out to $518,000.

Investment alternative

The investment quantum of a clutch of conservation shophouses puts it in the range of a Good Class Bungalow (GCB). Conservation shophouses present an attractive investment opportunity for those who want an alternative to buying a GCB. Not only are conservation shophouses priced like GCBs, their yields are also very similar, which lead one to imply that these two investments are alternatives.

Similar to GCBs, conservation shophouses are limited in supply. In the future, as the intensity of use and investment into real estate in Singapore can only become greater, the restricted supply of conservation shophouses would increasingly turn this type of real estate into a prized asset, much like prized art and antiques. This means that in the long-run, the weight of money should naturally lift all conserved shophouses.

The writer is head of research, at Savills Singapore

A whole new retail world

As the retail market continues to grow and evolve physically and virtually, retailers and mall owners are exploring and venturing into new concepts, say PETER SEE-TOH, GLEN KOH, and DEBBIE LAM

Buying the idea: Louis Vuitton opened an iconic retail experience in Singapore with Louis Vuitton Island Maison at Marina Bay Sands - PHOTO: FILE PHOTO

THE global retail landscape is seeing a new wave of change. The emergence of Asia as the new economic powerhouse and rapid technological advances are two significant forces transforming the retail industry.

As the retail market continues to grow and evolve, both physically and virtually, many retailers and mall owners are exploring and venturing into new concepts and trends to engage consumers and cater to their changing preferences.

We discuss two major trends in the market today, and consider their implications on staying relevant amid a dynamic global retail environment.

China/Asian wave

The Chinese have emerged as one of the greatest consumers of personal luxury goods globally in recent years.

International retailers, airlines, and even hoteliers have taken notice, and many have gone out of their way to woo the Chinese customer with tailored services and attention. To cater to this growing market, businesses are launching new products and brands to meet the Chinese consumers' needs and wants.

French luxury brand, Hermes, launched ShangXia in 2008, featuring ready-to-wear and decorative art inspired by Chinese culture. In 2010, Christian Dior introduced Dior Blue, a limited edition collection of iconic pieces ranging from bags to a mobile phone available only in Shanghai.

Around the world, retailers have also seen a surge in the number of Chinese tourists spending in their stores. In New York, fashion events are organised in the hope of reaching out to mainland Chinese consumers.

Earlier this year, Affinity China, a private membership-based network hosted "Dragon Week New York", which consists of a series of events with luxury brands. During the event, Montblanc invited internationally renowned pianist Lang Lang for a private performance. New York mayor Michael Bloomberg also made an appearance at the event's gala and lighting ceremony.

In London, Harrods employs Mandarin-speaking staff and has installed dedicated China Unionpay points to enhance the shopping experience for their visitors.

This phenomenon is also beginning to take root in Singapore. For example, a China Unionpay lounge occupies a space at Level 1 of Ion Orchard. Use of the lounge is exclusive to China Unionpay Platinum card holders, and offers refreshments, Internet access, a rest area, a dedicated information counter, and other visitor services.

Last year, China formed Singapore's second largest tourist market in terms of visitor arrivals, comprising approximately 12 per cent (some 1.6 million) of the total 13 million visitors received. The top market remains Indonesia, comprising 20 per cent (about 2.6 million) of total visitors.

In terms of retail expenditure, however, Chinese expenditure comprised the largest proportion of total retail tourism receipts, at a significant 24 per cent. By retail expenditure per visitor, the Chinese spend $682 per visitor, more than double that of the Indonesian visitors at $330.

Between 2008 and 2011, total Chinese arrivals grew at a three-year Compounded Annual Growth Rate of approximately 14 per cent. Even with the Chinese economy experiencing a slow down, the Chinese tourists and shoppers are still going strong and are definitely a presence which retailers should heed.

Malls on Orchard Road and Marina Bay continue to have a strong standing among Chinese and Indonesian tourists, and would have a positive impact on retailers and mall operators in terms of profitability. Hence, it is important to continue refreshing and re-inventing themselves, paying particular attention to the Chinese consumers.

Apart from adding little touches such as providing Mandarin-speaking staff and Mandarin signages that enhance the shopping experience, retailers and mall operators can also consider bringing in brands that will be able to attract both Singaporeans and Asian tourists.

Clicks and bricks

In recent years, electronic-commerce (e-commerce) and mobile-commerce (m-commerce) have gained much traction among tech-savvy Singaporeans. Paypal research revealed that e-commerce transactions totalled $1.1 billion in 2010, and estimated it to reach approximately $1.2 billion in 2011. Another study by the Nielsen Company, commissioned by Paypal, showed that m-commerce totalled $328 million in 2011, an almost eight times increase from 2010.

Online shopping portals and blogshops have sprung up furiously in recent years. Livejournal, which hosts more than 50,000 blogshops online, reported that its transactions reached $100 million last year. Famous online stores which have gained popularity among Singaporeans are the UK-based Asos, Singapore-based Reebonz, and Zalora Singapore.

Due to the lower startup and operating costs, online stores can afford to sell products at more affordable prices. However, product returns and exchanges are common issues that add to cost which is often borne by retailers. In addition, getting your store noticed in the flurry of information online could be an uphill task. Further, competition for sales is stiff and prices need to be extremely competitive.

Livejournal, a blogging and social media platform, reports that only 10 per cent of blogshops earn more than $2,000 per month, while 80 per cent earn $500 or less.

Outlet.com.sg, a site which sells discount coupons for a range of products and services, has recently undergone liquidation.

Hence, while online shopping is hugely popular among Singaporeans, particularly the youth, many still enjoy the visual and tactile experience of shopping at physical stores as well. Having a standalone store or counter that allows customers to try on products also mitigates the issue of product returns or exchanges, while at the same time helping to establish the brand image and presence.

In fact, some blog shops have made a physical presence in Singapore's dynamic retail scene while maintaining their online stores. Some of the notable blog shops that have a retail store within shopping malls include Love & Bravery, Tracyeinny and MDS Collections. According to Sharanjit Kaur, assistant manager of PR & special projects of online store, Reebonz, having an additional shopping outlet does help to boost sales.

*Scape has recently launched an entrepreneurship programme targeted at youth-run businesses. With 38 small scale stores available, there has been keen interest from many youth who currently operate online businesses. They will be converting 7,000 square feet of first floor space into permanent retail stores. Within this programme, youths will be allowed to test their retail concepts in physical spaces.

M-commerce concept

An extension of this trend that has been slowly drawing attention is the m-commerce concept. To capitalise on our easy accessibility of Wifi and 3G networks, many businesses such as Reebonz, Qoo10 (previously known as Gmarket Singapore), Deals.com and Groupon have created dedicated iPhone, iPad, and Android applications to cater to mobile device users.

Earlier this year, Paypal also launched "Shop and Pay On The Go" in 15 MRT stations islandwide where Singapore commuters can quickly and easily choose an exclusive deal by scanning a QR code on the billboard using their smart phones. Payment for these items can be easily made via Paypal.

This trend is not only picking up in Singapore. In South Korea, Tesco's Homeplus introduced a series of vivid images of food items displayed along the walls of train platforms. Commuters can purchase the items using the QR barcodes and have them delivered to their homes. This strategy has proven successful with Tesco seeing a significant increase in sales within its first few months.

Although e-commerce and m-commerce have been hugely popular in Singapore, it is unlikely that online shopping will ever replace shopping in malls and other physical spaces. Ms Kaur of Reebonz puts matters in perspective: "(Online shopping) certainly is a growing shopping habit. Consumers are more comfortable with online transactions and the convenience of shopping anytime, anywhere and accessing brands and merchandise across borders are key advantages."

However, she adds that unless online shopping is able to resemble physical shopping activities, it will not be able to replace traditional shopping. Both online and physical shopping activities have benefits that suit consumers' unique shopping habits. The online retailing of music, books and groceries have been popular due to its ease of purchase. However, the buying of fashion and lifestyle products will need more than convenience to do as well.

Shopping at physical stores continues to meet consumers' need for instant gratification. At the same time, shopping in retail stores has become a sensory experience these days. The touch of the fabric, smell, mood and ambience of such shops are hard to replicate within an online portal. Landlords and retailers are also constantly looking to improve the shopping experience for their customers.

Buying environment

Given that 80 per cent of buying decisions are made in the changing room, mass-market fashion retailer Topshop launched a Personal Shopping Suite in June 2011 at their London flagship store. The aim was to make the buying environment highly comfortable and convenient. With five personal shoppers catering to a range of style, the retailer also provided Xbox and bar areas, positively encouraging shoppers to spend as much time as possible at the changing room.

In Singapore, experiential retailing can be found in malls and retail stores. Ion Orchard introduced customised scents that were subtly diffused throughout the mall to improve shopping experience. Leading French luxury brand, Louis Vuitton recently opened an iconic retail experience in Singapore with Louis Vuitton Island Maison at Marina Bay Sands.

Unlike your typical Louis Vuitton store, visiting the store is more than just shopping, as it includes arts and culture elements to make it a unique and sophisticated retail experience. Abercrombie and Fitch, which opened in Singapore last year, also offers a multi-sensory retail experience. With its energetic music, stimulating scents, dark wood panels and good looking service staffs. Topshop Singapore also introduced their famous personal shopping service, where style advisors give valuable fashion tips, or just somebody to help out with shopping. Buying items at such stores is not only about its products and service. With experiential retailing, customers are also buying into the overall experience of the retail store.

Online shopping and shopping at physical spaces are complementary. It is unlikely that the popularity of online shopping will have a negative impact on retail real estate. As retail rentals are dependent on supply of retail spaces, good locations are hard to come by. Also, retail rentals are mainly dependent on the fixed based rentals which retailers pay. While retail has almost grown 24/7 with physical stores, an online presence and m-commerce, we think that e-commerce and m-commerce are still very insignificant contributors of overall sales for most retailers.

The fast-changing social landscape and technological advances present various opportunities and threats to the retail industry. Landlords and retailers need to constantly reinvent themselves and stay current and relevant, in order to meet the ever-changing demands of consumers.

Peter See-Toh is managing director, retail services, Glen Koh is senior marketing executive, retail services and Debbie Lam is senior analyst, consultancy & research, at Knight Frank Singapore

All abuzz with activity

In addition to robust demand from industrialists, strata-titled industrial properties have also become a popular choice among investors, say TAN BOON LEONG and DOREEN GOH
BT 20120927 MTSCOL27C 174889

Industrious lot: artist impression of Oxley BizHub - PHOTO: FILE PHOTO

THE Singapore strata-titled industrial market has been abuzz with activities in the last six to 10months, on the back of positive economic growth.

Not only is there robust demand from industrialists, strata-titled industrial properties have also become a popular choice among investors, who have reacted to the rounds of government cooling measures introduced for the residential market and channelled their attention to non-residential properties.

Compared to other non-residential property types, strata-titled industrial properties typically have a lower absolute price quantum and a more attractive yield.

Currently, the average rental yields for strata-titled industrial properties range from 4-7 per cent while those for office space and residential apartments are about 3-4 per cent and 2-4 per cent, respectively.

Such keen interest resulting in an increased demand provided the impetus for prices to appreciate. The latest numbers from the Urban Redevelopment Authority (URA) as at Q2 2012 revealed that prices of multi-user factory space had risen 85.3 per cent since the market bottomed out in Q3 2009.

Despite such robust figures, industrialists looking to purchase their own premises for the security of space occupation, as well as the ability to have greater control and certainty in real estate cost, can take heart and be encouraged that there are still plenty of choices for their consideration - given the ample supply of existing and upcoming strata-titled industrial properties, as part of the government's plan to ramp up supply to stabilise prices and rents.

It is, in fact, an opportune time now for industrialists to do due diligence in their search for suitable industrial premises - particularly, when there is heightened competition among developers to up their ante and differentiate their product offerings in a bid to attract genuine buyers.

So, what are some of the available options for industrialists in the market?

Current availability in the market

While there are no official numbers on the existing stock of strata-titled industrial units in Singapore, statistics on new strata-titled industrial units released for sales have shown that - on the back of strong demand - the number has surged since 2010.

Colliers International's research shows that some 2,100 strata-titled industrial units were launched for sale in 2010. This more than doubled to about 4,500 units in 2011. Coupled with the estimated 1,200 units released by developers in the first six months of this year, the total number of new strata-titled industrial units launched for sale over the 2.5-year period is some 7,800 units as at end June this year.

These developments, which are meant for either Business 1 ("B1") or Business 2 ("B2") uses, have widened the choices available for industrialists in terms of location, tenure and space offerings.

1. Location

Depending on the operational needs of an individual's business, industrialists seeking strata-titled industrial premises can choose to purchase and locate in various parts of Singapore. Geographically, the estimated 7,800 units are well spread out across the 18 planning areas in Singapore.

The largest concentration of units (24.6 per cent) is in the Geylang planning area, with projects such as Oxley BizHub, Oxley BizHub 2 and UB. One in the Ubi locality contributed 19.4 per cent to the total number of units launched from January 2010 to June 2012.

Other major clusters of new strata-titled industrial units are found in the Woodlands (16.8 per cent), Jurong West (13 per cent), Yishun (12.2 per cent) and Bedok (10.7 per cent) planning areas, while smaller pockets of units (accounting for less than 5 per cent) are sporadically located in other planning areas.

2. Tenure

The recent change in government policy to shorten industrial land tenure to a maximum of 30 years for those sites made available for sale via the Industrial Government Land Sales Programme (IGLS) for H2 2012, have instantly limited the supply of new 60-year leasehold units.

Nonetheless, industrialists with a preference for 60-year leasehold units could still consider some of the completed or recently-launched developments that are already available in the market.

In fact, 63.2 per cent of the 7,800 units launched from January 2010 to June 2012 are on 60-year leasehold industrial sites which were mostly acquired via the IGLS.

This is followed by units with 30-year leasehold (18.1 per cent) and freehold/999-year leasehold (15 per cent) tenures. Only a small 3.7 per cent of the estimated 7,800 units launched are with 99-year leasehold tenures.

3. Space offerings

Developers are increasingly striving for differentiation through innovative project concepts and designs. Consequently, industrialists are spoilt for choice with a wide variety of strata-titled industrial developments that come in state-of-the-art designs and unit configurations.

Industrialists who require clean and light industrial space could consider high-tech/modern light industrial projects such as E-Centre@Redhill or Oxley BizHub in the Ubi area.

For industrialists who require the convenience of direct vehicular access to their units, there are ramp-up developments which effectively transform every upper-floor level to a ground-floor level - facilitating occupants' operational efficiency and effectiveness. Ramp-up developments, such as North Spring BizHub in Yishun, can even accommodate a 40-foot container truck.

There are also projects that offer industrialists the capacity to house several different functions that require different types of space within the same development or premises.

Midview City on Sin Ming Road, which is a high-tech/modern light industrial development with more than 900 units, has an eight-storey block with partial vehicular ramp-up access up to the fifth level, as well as six exclusive three-storey terrace units with private lift access in a separate block within the same premises.

Other forms of hybrid developments, such as the 10-storey First Centre in Serangoon North with partial ramp-up access up to the sixth level, offer industrialists the choice of ramp-up and cargo-lift access type of units in the same building.

Additionally, there are various building specifications that cater to the different requirements of industrialists.

For example, E-Centre@Redhill offers units with typical floor-to-floor heights of 3.8m to 5m and a floor loading capacity of 7.5 kilonewton per sq m (kN psm), while units in North Spring Bizhub have higher floor-to-floor heights ranging from 6.5 to 7m and higher floor loading capacities of 12.5 to 20 kN psm.

Over at First Centre and Midview City, units come with typical floor loading capacities in the range of 5 to 15.0 kN per metre square, and typical floor-to-floor heights of 3.8 to 5.6m and 3.8 to 6m, respectively.

To stand out from the competition, some developers, where allowed by the authorities, have even incorporated into their projects, non-traditional industrial elements, including modern building facades and retail/lifestyle features, among others.

Oxley BizHub is one such example of a modern industrial development that incorporates lifestyle/recreation elements including a gymnasium and swimming pool. Such developments would appeal to industrialists who place emphasis on corporate image and accessibility to amenities.

Projects in the pipeline

For industrialists with less urgency to purchase a unit for immediate occupation or who are sourcing for more suitable space beyond what is currently available in the market as of Q2 2012, they can look out for new projects from Q3 2012 onwards.

An example is CT Hub 2 at Kallang Avenue, a mixed development offering 310 industrial units, 41 shop units on the first storey, 77 office units and one staff canteen. CT Hub 2 started soft marketing this July, and is expected to be completed in 2014/2015. The site, which has a lease term of 99 years from 1976, is zoned for B1-White use.

Over in the Sembawang planning area, the 60-year leasehold Ark@Gambas, which commenced soft marketing last month, is a hybrid development with B1 zoning offering 293 industrial units. Expected to be completed in 2015, the project has 830 car parking lots and ramp-up access for the first seven levels, followed by two floors of flatted factory space.

Industrialists who prefer freehold projects and a central location can consider Apex@Henderson, which is expected to be completed in 2017. Launched last month, the nine-storey high-tech/modern light industrial building with 114 units also has an array of lifestyle/recreation facilities such as a swimming pool, gymnasium, spa and a futsal soccer court.

Apart from these three projects, there will be another five potential projects for B1 and B2 uses located in the Ang Mo Kio, Woodlands, Jurong West, Serangoon and Bedok planning areas.

Sim Lian Group's 60-year leasehold development in Ang Mo Kio with a B1 zoning - Link@AMK - is expected to offer a total of 304 units. While project details for the remaining four sites are currently unavailable, these projects have total GFAs ranging from about 197,000 sq ft to 506,000 sq ft, with one on a 60-year leasehold site.

Looking ahead, the market is expected to be cautiously optimistic due to the lingering global economic uncertainties and Singapore's expected slower economic growth of 1.5-2.5 per cent in 2012.

However, Singapore's economic fundamentals remain largely healthy. The low interest rate and high liquidity environment, and continued spill-over interest from the residential market, will continue to favour the strata-titled industrial sales market.

There may also be a short-term boost in demand for 60-year leasehold properties - in response to the government's continued release of shorter 22- and 30-year leasehold sites through its industrial land sales programme for the second half of this year to make industrial property more affordable to industrialists.

Nonetheless, what bodes well for industrialists seeking their own premises is that developers - amid increasing supply and stiffening competition, as well as more stringent development control regulations for industrial space - are expected to continue to enhance their product offerings that best cater to their varying requirements.

Ultimately, the purchase decision will still depend on the unique business needs of individual industrialists.

The current stock and the new projects line up will ensure the continued growth of the strata-titled industrial market - meeting the demand of industrialists and creating more opportunities for them to purchase their choice units.

Tan Boon Leong is executive director, industrial services, and Doreen Goh is associate director, research and advisory, at Colliers International

Upping the hospitality stakes

Singapore joins the ranks of the costliest hotels in the world's top cities. By DONALD HAN and ELSIE DOONG

The relatively high acquisition prices in Singapore have led many Singapore-based investors to look beyond the shores for 'cheaper' and more compelling buys.

A RECENT hospitality report conducted globally by HSR Hospitality covering upscale and four-star business class hotel transactions in the last 12 months, shows that Singapore is now among the most expensive hotel investment markets. The study looked into hotel investment transactions concluded in the first eight months of 2012, covering more than 60 transactions in more than 25 countries, focusing on main gateway cities.

The most expensive hotel investment market in terms of capital values (US dollar per key) is Central London. Investors paid top prices averaging US$1,078,000 per key in view of the 2012 Olympic Games, which pushed room rates and occupancy levels to new highs in August this year. There has been a slew of hotel sales including Singapore based Ascott's purchase of The Cavendish Hotel London at US$248 million and a portfolio of hotels committed by Principal Hayley Group.

Hong Kong is ranked a distant second at US$785,000 per key having witnessed the sale and purchase of Novotel Nathan Road, sold by LaSalle Investment to Gaw Capital consortium at a record price of US$305.5 million representing a new high for a four-star hotel at over US$700,000 per key. The deal was the largest hotel transaction in Hong Kong in over a decade.

Third on the list is New York at US$736,000. The Big Apple also took the title for 2012's single largest asset transaction of US$570 million represented by the sale of The Plaza Hotel to the Sahara Group of India. The historic hotel located next to Central Park changed hands for the third time in the last eight years - a true testimony of highly liquid assets in an equally liquid market.

A stellar performance

Ranked fourth is the Singapore hotel market which currently enjoys one of the highest occupancy rates in the world at 89 per cent, outperforming London at 87 per cent. The Republic has seen average room rates climbing steadily by a whopping 52.7 per cent at the start of 2010. Land values for hotel development have risen by more than 300 per cent in the last three years.

In June 2009, a smallish hotel site at Short Street (now Parc Sovereign Hotel) was sold at US$3,043 per square metre per plot ratio (psm ppr). Fast forward three years to April 2012, a site at Farrer Park Station Road was transacted at US$11,612 psm. Hotel land values are now 32 per cent higher than the previous peak in 2007.

With the recent opening of the Cruise Centre, Gardens at the Bay and more high impact tourist attractions such as Mandai Safari Park (end-2012) to come on-stream, Singapore's hospitality sector will continue to enjoy steady growth.

While growth may not mirror strong double digit year-on-year (y-o-y) rates, growth will nonetheless moderate to a respectable single high digit y-o-y in the next 12 months due to slowing Asian economies such as China and India and the continued European crisis affecting international travel.

Yields

All four markets will continue to attract the global investment dollar as well as benefit from the huge demand from domestic markets. Both London and New York and cities in Australia are the most liquid markets, full of ready sellers and buyers. On the opposite end of the scale lies Hong Kong and Singapore with limited transaction activity for completed hotels.

Despite strong demand, there are very few willing sellers with majority seeking excessive market prices. Vendors' asking prices often represent net yields of below 4 per cent per annum while buyers are expecting yields in excess of 6 per cent - depicting an insurmountable yield gap of over 200 basis points.

Some of the best yields are derived from the highly liquid markets in the United Kingdom and Australia with net initial yields hovering between 7 and 8 per cent per annum. Japanese hotels offer high yield arbitrage of between 5 and 7 per cent per annum. Yields are typically between 6 and 8 per cent with cost of funds just about one per cent per annum.

Out of the top 10 largest hotel transactions this year (January to August), Singapore based companies are prominently featured in five of these. Four transactions involve the purchase of single assets and the other comprises a portfolio purchase by Ascendas and Accor Groups. Another involves GIC in the sale of Shangri-La Sydney.

The relatively high acquisition prices in Singapore have led many Singapore-based investors to look beyond the shores for "cheaper" and more compelling buys. To illustrate the point - to buy a four-star hotel in the Republic, the Singapore-based investor will have to fork out US$684,000 per key. The same amount would enable this investor to buy two hotels in Tokyo and three hotels in Perth.

Buoyed by the improved optimism in the hospitality sector and coupled with high liquidity and ready cross border funding from Singapore banks, investors such as home-grown Ascendas and Ascott have capitalised on the region's weakening currencies, relatively cheaper asset values and high yields to start a series of hotel acquisitions to source revenue growth.

Others, such as Grandline Group, led by father and daughter team of Michael and Jocelyn Kum have acquired hotels in Singapore, Australia, New Zealand and Japan and are contemplating a hospitality Reit. Across the Causeway, Malaysia's Starhill Reit recently purchased three Marriot hotels from Colonial First State Global Asset Management located in Sydney, Brisbane and Melbourne for US$411 million.

Until recently there was only one Singapore-based Asian hospitality Reit (CDL Hospitality Trust) on the acquisition trail. That lone trail is now being joined by potential Reits in the making. These include newly listed Global Premium Hotels, Ascendas Hospitality Trust & Far East Hospitality Trust, all listed on the Singapore Stock Exchange this year.

More are mulling to join the foray including the M&L Reit by the Kum family. They provide a fertile ground fuelling further acquisition of hotels not only in Singapore but in the region, putting Singapore on the "predator radar" for more regional and global hotel acquisitions.

Other Singaporean investor groups including various high net worth investors, institutional funds (for example GIC) and hotel operators (Rendezvous, Amara, Pan Pacific/ParkRoyal, OUE/Meritus) have joined the foray and are on the look-out for more hotel acquisitions in 2013.

As more Singapore-based hotel investors emerge scouting for limited and scarce assets locally, the competition for regional trophy assets has just begun right at our door-step.

Donald Han is special adviser, and Elsie Doong is research analyst, at HSR Property Group

London calling

Large-scale apartments are coming on-stream in the city, reports NEIL BEHRMANN

Journey begins: Most of the new property are in South East London near the Olympic Park; the most keenly awaited development will be the conversion of some 2,800 units which were temporary residences for thousands of competing athletes. - PHOTO: BLOOMBERG

'London remains a two-tier market with developers continuing to focus on the Inner London boroughs. There appears to be a resurgence in West and South West London as a number of larger schemes have broken ground.'
- Mathew Evans-Pollard, head of London development, Drivers Jonas Deloitte

[LONDON] Large scale developments of new London apartments will be coming on-stream in the coming year.

The reason for the surge in completions is that developers boosted construction between 2009 and 2011 on expectations that there would be a boomlet in property demand because of the Olympic Games.

According to Drivers Jonas Deloitte's summer "Crane Survey" which monitors developments, some 239 development schemes with more than 38,000 units are currently under construction. Most of the new property are in South East London near the Olympic Park, but there are a few in central and north London.

The most keenly awaited development will be the conversion of some 2,800 units which were temporary residences for thousands of competing athletes. These units will be developed into apartments in a new neighbourhood, to be known as East Village.

This development is only the first phase of the Olympic legacy as the aim is to eventually provide some 15,000 homes in Stratford surrounding the Olympic Park.

The homes in East Village will include a variety of apartments and houses for private buyers and other units that will be available for rent at affordable prices for lower income groups.

A total of 1,439 homes are owned by the consortium Qatari Diar and UK developer Delancey that purchased the Olympic Village development last year for £557 million (S$1.1 billion).

The remaining 1,379 homes are owned by Triathlon Homes, which is a partnership between First Base, East Thames Group and Southern Housing Group. Some 348 homes will be available as deals that involve part purchase and part rent. Others will be at discount rentals. Berkeley Group (including subsidiaries) remains the most active residential developer in Greater London, according to agents.

Drivers Jonas Deloitte's data show that the volume of completions is not only up on last year, but is currently at its highest level since 2009.

These are the schemes which began in 2010 and 2011 and are now progressing through to delivery. The largest proportion of developments are in the South East of London, not far from the once derelict land which has become a magnificent Olympic Park alongside Westfield Park, a huge modern shopping centre. It is only six minutes by train from Kings Cross and St Pancras - the embarkation spot for the Eurostar.

After a jump in residential real estate prices, most notably in London's prime areas in 2010 and 2011, local and foreign buyers have become cautious, estate agents and analysts say.

Apartments and houses are relatively cheaper in South East London, but developers are now delaying the building of new projects, say Drivers Jonas Deloitte.

Mathew Evans-Pollard, head of London development, Drivers Jonas Deloitte, said: "London remains a two-tier market with developers continuing to focus on the Inner London boroughs. There appears to be a resurgence in West and South West London as a number of larger schemes have broken ground.

"Sales values seem to be holding up in Central London and although there remains strong demand from international buyers, there are signs that parts of the Asian investment market is starting to slow."

According to James Wyatt, head of valuation at estate agent John D Wood, gross yields on rentals continue to be at 3.3 per cent on apartments and 2.9 per cent for houses.

Net rental yields

After deducting agent and management fees, maintenance, other charges and tenant voids, net rental yields can be estimated at 2.3 per cent for flats and 2 per cent for houses.

John D Wood will be updating its price and yield index in September, but anecdotal evidence from agents is that the net flow of foreign money, that is, purchases less sales has begun to taper off this year.

Although there has been some buying from Italians, Greeks and Middle Eastern investors, Asians have been wary of hefty prices following the jump in values in the past two years and low returns.

"Overseas buyers remain committed to central locations because of global economic uncertainty," notes Savills. "London's prime residential values rose by an average of 0.9 per cent in the second quarter of 2012, but annual price growth slowed to 6 per cent, as some of the heat came out of the market in the summer."

Ed Stansfield, head of property research at Capital Economics notes that prime and other areas in London have outperformed the northern UK and midlands by a wide margin in the past two years. But if property prices continue to fall in the UK because of the weak economic climate the chances are that London will follow suit at some point, he notes.

"One potential trigger for this could be recent signs that London's labour market is witnessing the shedding of jobs," he says. "Indeed, our forecasts assume that employment in London will suffer above-average falls over the next year or two. if we are right and the eurozone begins to break apart over the next 12 to 18 months, London's reliance on financial services could be a major handicap."

"In the short term, however, the supply and demand balance remains far tighter in London than elsewhere," adds Mr Stansfield. "That suggests that even if the labour market does weaken,the effects on prices may take time to come through."

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