Real News‎ > ‎2014‎ > ‎August 2014‎ > ‎

4th August 2014

Singapore Real Estate

S'pore developers make waves abroad

They go for sought-after real estate in key cities as prices fall at home

Source: Straits Times / Money

MORE Singapore developers are vying for some of the world's most sought-after real estate in cities such as New York and Sydney, as cooling measures here continue to bring down home prices.

These firms are making waves in these pricey, mature cities where land and development opportunities are scarce.

In its first foray into the United States, Keppel Land announced last Tuesday that it had ploughed $70 million into a residential project in Manhattan's upscale Upper East Side neighbourhood.

The freehold building, at the corner of 59th Street and Third Avenue, will be developed by Macklowe Properties, a New York real estate developer that has built other luxury projects such as the Metropolitan Tower.

"We are opportunistically venturing into selected key global cities for sites at good value and with strong attributes, and where we will partner established operating partners," Mr Ang Wee Gee, chief executive of Keppel Land, told The Straits Times.

However, he was unable to share more details on the project.

The investment comes amid sluggish growth back home.

Mr Toby Dodd, managing director of Cushman & Wakefield, said that Singapore developers continue to invest overseas where there is room for gains in rental and capital values and limited government intervention.

Keppel Land follows in the footsteps of other Singapore players that have made their mark in the Big Apple.

The Kwee family's Pontiac Land Group, for instance, injected US$200 million (S$249 million) into a 72-storey condo in Midtown Manhattan last October in its first overseas venture. It is partnering the Goldman Sachs Group and Houston-based property firm Hines to develop the project.

A Pontiac Land spokesman said that the firm expects to have the ground-breaking ceremony on Aug 27 at the site of the 1,050 ft skyscraper, at 53 West 53rd Street in Midtown Manhattan.

Ms Doris Tan, regional director of international property services at Jones Lang LaSalle, noted that a tight supply of homes and the healthy rental market in Manhattan present attractive investment opportunities.

But the chance to develop homes in one of the most coveted districts in the world is also hard to ignore, said both developers. Pontiac Land said of its Manhattan investment: "We were drawn to its extremely desirable residential address - its privileged proximity to the Museum of Modern Art and the property is within walking distance to Central Park."

Singapore architect Chan Soo Khian, the founder of SCDA Architects, will also be adding his touch to the Manhattan skyline with his Soori High Line boutique residential development in the Chelsea district. This is his first project in the United States, which will be developed by Blackhouse Oriel Development, a real estate firm based in New York and Singapore, of which Mr Chan is a part.

On the other side of the globe, property bigwigs are also heading to Australia, investing hefty sums into Sydney, Melbourne and Perth.

In the past year alone, Far East Organization has shelled out A$753.4 million (S$876 million) for eight developments spanning 1.79 million sq ft. These include the Clocktower square complex mixed development in Sydney's Central Business District, bought for A$72 million last October.

Separately, local real estate billionaire Koh Wee Meng, who controls the Fragrance Group, has invested US$156 million in four projects in Australia, earlier reports noted. One of his latest, located in 70 Southbank Boulevard, is expected to be the tallest building in Melbourne at 319m when completed in 2019.

Mr Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors, said that the end of Australia's mining boom has brought on lower interest rates and a weaker Australian dollar, which in turn is beneficial for the economy.

With an undersupply of homes in the past 10 years, with just 20,000 to 30,000 units added yearly, Australia presents an attractive investment proposition to developers, he said. Also, mortgage rates are about 5 per cent, low by Australian standards, compared with a high of 9.6 per cent in 2008.

"The end of the mining boom has helped to rebalance the economy, which in turn has helped construction rebound - which is why some developers like the Australian market."

-By Cheryl Ong

From sleepy suburb... high-traffic hub

Woodlands Central to have its own retail and food complex

Source: Straits Times / Singapore

WOODLANDS Central, one of four regional centres that will serve as business hubs outside the city, will have its own retail and food complex by 2017.

The $31.1 million project has been earmarked to be built in the open space next to Woodlands Sports Hall and bounded by Woodlands Street 12, The Straits Times understands.

Facilities planned for the hub, which is a joint development by the National Environment Agency (NEA) and Housing Board, include a hawker centre with 80 cooked food stalls, 60 retail shops, five commercial schools, a supermarket and some 200 parking spaces.

To support future traffic to the area, Woodlands Street 12 will be widened and a new slip road added from the street to Woodlands Avenue 3.

Plans to develop the new hub in Woodlands Central comes after a relocation exercise announced by HDB in 2012, which will affect many households, businesses and hawker stalls at Woodlands Centre Road.

The Housing Board said then that six blocks in the area will have to be relocated under the Selective En Bloc Redevelopment Scheme to replacement flats in Woodlands Drive 70 by 2016.

The move, said HDB at the time, would affect some 147 households, 200 businesses in rental shops and 78 hawker stalls.

The new hub is partly meant to ensure that there are enough cooked food stalls in the area, NEA told The Straits Times last week.

Currently, there is only one NEA-managed hawker centre in Woodlands, located at Block 20 Marsiling Lane.

There will be an urgent need for more food options once the crowd comes in with the upcoming development of the Woodlands Regional Centre, said residents The Straits Times spoke to.

There are plans for one part of the regional centre to be a retail hub called Woodlands Central, occupying a 30ha area around Woodlands MRT and Causeway Point.

The Woodlands MRT station is also likely to be busier when it becomes an interchange linking the North-South Line with the new Thomson Line in 2019.

"Woodlands is getting very crowded, so the new facility would help the sports users who frequent the stadium, swimming complex or sports hall to have hawker stalls on the doorstep," said Woodlands resident Elle Lim, 26, a freelance music teacher.

Ms Rachel Ong, 54, who works at the nearby Woodlands Civic Centre, agreed.

"The new hub will ease some pressure from the potentially crowded central area by directing footfall to its food stalls and shops," said the administrator.

"I just hope that the new road created will ease the traffic congestion that arises whenever there are events like night markets or bazaars in the area."

-By Janice Tan

Real Estate Companies' Brief

ARA eyes investments in Australia and Korea

It plans more fund products as it further diversifies from the saturated China market

Source: Business Times / Top Stories

[SINGAPORE] ARA Asset Management, the manager of listed property trusts and private equity funds, is looking to deploy some of its dry powder in development projects in Australia and raise its firepower in South Korea by creating more fund products.

This marks further diversification from the saturated Chinese market, although China remains a key market for the pan-Asian fund manager, backed by Asia's richest man Li Ka-shing.

Investing into Australia and South Korea has become feasible given ARA's physical presence in these markets through recent acquisitions, ARA Private Funds chief executive Ng Beng Tiong told The Business Times.

The private equity arm's interest in Australia follows Suntec Reit's entry last November, when the ARA-managed Reit acquired land and property in North Sydney for A$413.19 million (S$480 million) to be developed into a Grade-A commercial tower. In South Korea, ARA acquired Macquarie Real Estate Korea Limited in April, which manages two privately held Korean Reits comprising office properties worth a combined 588.4 billion won (S$708.6 million).

ARA Asia Dragon Fund (ADF) III, an opportunistic fund that hopes to raise up to US$1 billion in the fourth quarter, could put some of its money to work in South Korea - beyond the primary markets of Singapore, Hong Kong, China and Malaysia under the preceding ADF I and ADF II. These opportunistic funds target an internal rate of return of above 20 per cent over a holding period of three to five years.

Mr Ng said that ARA could buy into development assets in Australia through its Summit Development Fund (SDF), which has a committed capital of US$80 million and a mandate for projects in South-east Asia and Australia.

"We are looking at riding on development profits, which is a build-and-sell strategy," he added. Mr Ng noted that development risks in Australia are relatively lower as construction usually starts only after a certain level of pre-commitments is achieved.

The investor-cum-operator model of having local teams to run the funds and manage the properties has gained traction, going by ARA's success in attracting top US funds, including California Public Employees' Retirement System (CalPERS) and Teacher Retirement System of Texas.

Arguably, it was ARA's experience in China - where it had earlier outsourced the management of its properties to an international property manager only to end up managing the properties itself during difficult times - that expedited its move to bring property management in-house. Today, more than 80 per cent of its over 1,000-strong team are involved in managing the properties.

The 2008-2009 global financial crisis (GFC) ironically sweetened the ground for Asian fund managers, Mr Ng said. "While many Western fund managers were strong in deal origination and structuring, they would typically maintain a small team and outsource property management to third-party service providers. When times are bad and challenging, such outsourcing arrangements may not be effective and their asset strategy may not be executed as originally planned.

"After the GFC, quite a number of LPs (limited partners) saw the advantages of putting their money with Asian managers with strong local teams and track record. That gave us the chance to double our AUM (assets under management) from the GFC," said the former investment banker. As at end-March, ARA's AUM stood at S$25.4 billion.

In its key market China, ARA is still on the lookout for investment-grade offices and retail malls. It hopes to tap local Chinese capital through renminbi funds to invest either within or outside China. The fund will likely target institutional money and plough into Grade-A assets, with a possible exit through a Reit IPO.

In the future, ARA could launch an onshore Reit when the framework for Reit listing in mainland China is in place, Mr Ng said. Currently, China's first exchange-traded Reit that started trading in Shenzhen in May works more like an asset-backed security than the Reit that investors are familiar with in developed markets.

ARA had earlier sought to list Dynasty Reit in Singapore, an offshore renminbi Reit comprising Chinese commercial properties, but the plan was botched when the stock market went down in late 2012. ARA has since reverted to its original strategy of selling the assets piecemeal.

"If the opportunity arises to do an offshore RMB Reit, we will do so, but again, it is partly driven by the market demand," Mr Ng said. "The onshore RMB Reit may come along, bearing in mind there is such a pent-up demand for investment products in China."

Mr Ng opined, however, that in many Chinese cities, the local governments' predisposition towards mixed developments - which help to generate recurring tax revenues - and developers' shift towards commercial properties have contributed to an over-supply of retail properties and a fragmented retail market in China.

But investment-grade properties are still under-supplied, Mr Ng said. "A number of developers, whether they are mainland Chinese or Hong Kong developers with a large portfolio, are looking at de-risking their balance sheets and letting go of some of their properties, which previously would not have been available."

"Experiential malls" with their good locations, right tenant mix, and a strong residential and office catchment will draw in the crowds, Mr Ng added, pointing to ARA's Dalian Roosevelt Plaza, a 184,980-sq-m shopping mall that draws in close to a million footfalls a week.

ARA has so far invested in offices and malls in first and second-tier cities such as Shanghai, Nanjing and Dalian, and is slated to open another mall next month in Beijing's Tong-zhou district.

-By Lynette Khoo

Skill and luck playing out in ARA's private funds

Most properties ADF I bought into have done well, except residential ones

Source: Business Times / Top Stories

[SINGAPORE] The interplay of skill and luck often plays out in private equity investing - and this could well be seen in some of the most notable investments by ARA Private Funds.

A club deal sealed just over a weekend with a few other investors in 2009 to take over the Suntec convention centre reaped a sterling 65 per cent internal rate of return (IRR) for the initial investors of the fund, who exited in 2011.

But elsewhere, it was a less rosy picture for ARA's bulk purchase of condo units at upscale project Grange Infinite in 2008, which was met with a legal tiff with the developers and tepid resales since the introduction of the total debt servicing ratio (TDSR).

"There are some lessons to be learnt for us," said ARA Private Funds' chief executive Ng Beng Tiong, referring to the purchase of the units at Grange Infinite.

-By Lynette Khoo

New Turf City operator got into property accidentally

Its successful bid for used car site came with extras - two Grandstand buildings

Source: Business Times / Top Stories

[SINGAPORE] Cogent Holdings' deputy CEO Benson Tan would tell you the logistics management company stumbled into property management purely by accident - with no experience. It had only built warehouses for its own use.

The two Grandstand buildings - the former Turf City - were extras that came with the deal when it bid for a nearby used car centre with 150 car showrooms that it had hoped would augment its automotive logistics business.

"There was potential to synergise business with the three over thousand vehicles stored and displayed there, to cross-sell the car dealers our logistics services such as towing, vehicle storage and transportation, on top of just leasing them retail space," Mr Tan said.

What it did not expect was that the former mall operator, Singapore Agro Agricultural, whom it had outbid, would complicate the handover by, it alleges, leaving the area in a state of disrepair, carrying out unrequired removal and rectification works such as removing a metal deck floor, and attempting to evict existing sub-tenants and licensees from the mall. The case is now being settled in court.

"The ongoing trial does affect our property management business and take up unnecessary management time, company resources and costs," Mr Tan said.

But it has not been all bleak for Cogent. In its fiscal year 2013, revenue from its property management segment more than doubled to S$22.3 million, thanks to more tenancies secured at The Grandstand.

Not only that, its logistics segment also indirectly benefited - generating a 7 per cent increase in turnover to S$40.6 million - partly because it has successfully converted many tenants at its newly acquired car centre into its vehicle storage customers. About 35 to 40 per cent of its revenue from The Grandstand reportedly comes from the used car business.

It was no mean feat too, to turn a dilapidated building with few tenants into what The Grandstand is today: a sprawling family lifestyle mall with one million square feet of retail shops, diners, service outlets and kids' activities clusters (such as tuition centres), on top of Singapore's biggest pre-owned car mall.

The facelift cost about S$20 million, which included not just beautifying the facade but engaging engineers to overhaul the old and disused escalators and elevators.

Mr Tan admits S$20 million is rather pricey given that the mall's lease from the Singapore Land Authority is for three-plus-three years only, meaning its lease will end in 2018 at the latest. But he insists the substantial investment was necessary.

"Given the dilapidated state (of the mall) we took over from, we had to do something to turn it around. Business would have been much worse had we kept it in its original state."

It was also something the company had to do as "a proper, professional listed company".

"When we undertake a project, we have our reputation to maintain as well," he added.

Yet, it is not passing on its higher capital spending to tenants in the form of higher rents. Rental rates at the Grandstand, which range from $6 to $12 psf, are notably less than at other suburban malls, where rents can go as high as $30 psf. There are also no turnover-based rents.

The mall's competitive rentals are partly due to its relative inaccessibility - a problem that the mall has tried to mitigate by providing shuttle services from various pickup points. The King Albert Park and Sixth Avenue stations on Downtown Line 2, which will be completed by around mid-2016 may also ease the situation.

But Mr Tan said he also believed in building good relationships with his tenants, many of which are start-ups that could easily be crushed under the pressure of high operating costs before they have built up a good customer base.

"I would ensure my tenants' businesses are sustainable and growing before I can consider any rental adjustment," he said.

In this manner, he has managed to amass a good mix of popular tenants, such as gourmet burger joint Omakase Burger, several upmarket restaurant brands such as TungLok and PasarBella, a farmers' market which is popular with residents of the affluent Bukit Timah neighbourhood.

Looking for new tenants was tough, however, said Mr Tan. "We had a plan, but we learnt very fast that it was going to be very challenging for us because we had no track record. We had to share our plans for this mall with potential tenants who were sceptical what this place could offer."

His strategy was also to pick unique brands not commonly available in other malls, so that patrons would visit The Grandstand, especially for that flagship store or outlet.

Now that Cogent has acquired the expertise to manage properties, it will not be stopping at just one mall but will hunt for suitable "neglected or disused" properties which it can lease at lower prices to turn around.

"We are interested to grow our property management business with properties that are not doing very well, a bit run down, that we can revamp to something that yields more income," Mr Tan said.

-By Lee Meixian

Views, Reviews & Forum

Relaxing the curbs - a question of timing (Views from the Top)

What's been the overall impact of the property cooling measures? Should the curbs be relaxed soon?

Source: Business Times / Views From The Top

Tan Chong Huat

Managing Partner

RHTLaw Taylor Wessing LLP

THE property cooling measures have helped to curb the excesses of an active property market, both in terms of price and volume. The consequences could have been unthinkable if the Monetary Authority of Singapore had not intervened. These measures should be viewed from a long-term perspective, as it is now less likely that Singaporeans will experience the bursting of a property bubble.

Global Economy & Global Real Estate

London Renters Win in Billionaire Backyard as Prices Soar

Source: Bloomberg / Luxury

College student Phil Morris and his three roommates split a monthly rent of 2,600 pounds ($4,400) for a four-bedroom row house in London’s Fulham district. A new homebuyer would pay about three times that much for a mortgage on a similar property in their postcode.

“We were surprised that we could live in Fulham, in such a wealthy neighborhood,” said Morris, 21, a chemistry major at Imperial College London. “It’s a nice, family-sized property in a pricey area.”

Home prices in London’s best districts have risen three times faster than rents over the last five years, according to broker Knight Frank LLP, making it much cheaper to lease a home than to own one in neighborhoods like Knightsbridge, Mayfair and Kensington, home to billionaires including Lakshmi Mittal and Len Blavatnik. While the gap probably will narrow in the coming months as leasing demand rises, constraints on raising rents mean change will be slow in coming.

“People are thinking, ‘Let’s stay put and wait for six to 12 months and see what happens to the sales market,’” said Gary Hall, a partner at broker Knight Frank LLP. “There’s so much press at the moment about the sales market overheating that people are just not prepared to pay the prices.”

While it’s generally cheaper to buy a home in the U.K. than to rent, the opposite is true in London’s prime neighborhoods, according to Lloyds Banking Group Plc. Rents in central London’s best districts fell 3.4 percent in the three years through June, according to the Knight Frank report.

Values Rocket

Central London property values have vastly outpaced U.K. economic growth as foreign investors flooded into the market and buyers took advantage of the Bank of England’s record-low benchmark interest rates to borrow ever greater multiples of their income.

On average, London buyers take out mortgages worth about 3.1 times their annual income, equal to the peak before the financial crisis and higher than any other U.K. region, according to a study by EY Item Club, the London-based group sponsored by EY, formerly Ernst & Young. Prices have surged 65 percent in prime areas since June 2009, according to Knight Frank.

“The factors that were driving capital growth weren’t applicable to rental growth,” said Liam Bailey, head of residential research at Knight Frank. London price increases will slow “a lot” in 2015 and rise by 4 percent to 5 percent in the longer term if the economy remains robust, he estimated.

Long-Term Gap

Rents will climb 3 percent to 4 percent this year and next and as much as 4.5 percent in the long term, meaning the gap between rent and price growth “won’t narrow significantly,” Bailey said. Rents rose in line with inflation over the last five years, Knight Frank estimates.

The average house price in Fulham, known for its tree-lined roads, restaurants and art galleries, is now more than 1.9 million pounds, according to broker Foxtons Group Plc. That’s more than 10 times the national average of 172,011 pounds, according to Land Registry data.

A person buying the average home where Morris lives would pay more than 7,100 pounds a month for a 25-year mortgage with a 20 percent down payment and an interest rate of 3 percent. That’s 4,500 pounds more than the student and his roommates pay.


The average home in Kensington & Chelsea costs more than 31 times the median income of a full-time worker in the borough, according to a February report by the Greater London Authority. In Westminster, which includes the Mayfair district, it’s almost 20 times earnings and in Hammersmith & Fulham homes cost 16 times salary. The average for England is 6.8 times a full-time wage, the report said.

Christophe Choquart, a 46-year-old banker in the equity sales unit of Lisbon-based Banco Espirito Santo SA, has been leasing a two-bedroom apartment near Gloucester Road in west London’s Kensington neighborhood since April for 2,100 pounds a month. He is considering buying a home next year in Chiswick or Wembley, outside prime central London.

“I’m pretty open to renting for a while,” he said in an interview, citing the pound’s strength. “Where I rent now is probably too expensive for a family of four.”

Increased corporate budgets are driving up rents as the economy grows, Savills said last month. London will add 368,000 workers over the next five years, a quarter of them in technology industries, the broker said.

Lower Yields

“We expect to see the downward trend of yields over the last four years begin to be reversed,” broker Douglas & Gordon said in its July market report. The yield is rental income as a proportion of the property’s value.

Landlords, who face the possibility of falling prices and higher borrowing costs, may now be able to raise rents as the supply of homes fails to keep up with the growing demand, the broker said.

For the first time in more than 40 years the number of households equals the number of homes in London, according to Christine Whitehead, a professor at the London School of Economics who researches housing. “There is nothing left for vacancy or mobility or anything else,” she said.

Christian Scheuring, a 32-year-old project manager at Internet marketing company Bazaarvoice Inc., said he wants to buy a home even though he gets a good deal on his rent in Wapping, between the City of London and Canary Wharf financial districts. His rent of 230 pounds a week is helping him save for a deposit.

Exploding Prices

“Property prices have exploded around me,” he said. “My landlord probably knows he can get more for it, but he hates finding new tenants and dealing with letting agents.”

Scheuring said he’s concerned he will be priced out of the city center.

Prices “will consistently rise faster than income” in London due to long-term supply factors, according to a July forecast by the U.K. government’s Office for Budget Responsibility.

Morris recently renewed the lease on his shared Fulham home after agreeing to a 3 percent hike from the current 160 pounds a week. If the increase had been a little bigger, he said he would have considered leaving Fulham. He may not need to worry.

“Rents tend to stay within the bounds of income growth,” said Johnny Morris, head of research at broker Hamptons. “The underlying income growth just isn’t strong enough to support growth equivalent to the sales market.”

-By Tom Beardsworth