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1st December 2014

Singapore Real Estate

Further cut of private housing land expected

Property consultants expect at least one office site on confirmed list of H1 2015 GLS Programme

Source: Business Times / Real Estate

Property consultants expect the government to continue scaling back the supply of private housing land on the confirmed list for the first half of next year, given weak housing sales and the ongoing ramp-up in completions that is pushing up vacancies.

-By Kalpana Rashiwala

S'pore buyers close 16 M'sia property deals at expo

Source: Business Times / Real Estate

Singapore investors closed 16 Malaysian property transactions worth more than RM8.6 million (S$3.31 million) at the STProperty Seminar and Expo 2014 over the weekend at Suntec City, event organisers said. That was the highest number of deals out of the four events that STProperty, Singapore Press Holdings' (SPH) online property portal, has run in 2014.

-By Kenneth Lim

16 Malaysian property deals inked

Source: Straits Times / Money

A RECORD total of 16 property transactions exceeding RM8.6 million (S$3.3 million) were signed at an exhibition organised by STProperty yesterday, its fourth such event.

Malaysian developers who signed deals included IJM Land and Horizon Hills.

"There was a quality crowd at STProperty's event. We are very happy to have closed two deals during the expo, with one of them a unit from The Robertson's North Tower," said Ms Ivy Sim, assistant marketing and sales manager of Horizon Hills.

A strong Singapore dollar against the ringgit and upcoming infrastructure projects such as the high-speed rail and Kuala Lumpur's MRT line extensions are among the factors that draw investors to Malaysian property, STProperty said.

Furthermore, savvy Singapore investors want to lock in their prices before next April, when the implementation of a 6 per cent goods and services tax in Malaysia would lead to higher construction costs.

"For many Singaporeans, their first choice of property investment would still be Malaysia due to its proximity to Singapore, as well as other similarities such as food, culture and languages," noted Mr Siva Shanker, president of the Malaysian Institute of Estate Agents. "Despite the current slowdown, the property market is expected to rise in 2016 and 2017, so this promises good returns even for short- term investors."

The expo also featured other property developers such as R&F Development, One Medini, Putra Perdana Development and KIP Group.

Govt unveils plans to better protect Pulau Ubin

Source: Today Online / Singapore

SINGAPORE — Plans are afoot to better protect and restore Pulau Ubin’s nature and heritage spaces, with the Government announcing its first phase of initiatives yesterday.

These plans, culled from over 2,000 ideas and suggestions gathered through the Ubin Project launched in March, include enhancing natural habitats to support recovering species of plants and animals — which will provide opportunities for volunteers and the community to be involved in research and the establishment of habitats — and setting up a centre for field studies.

Guidelines will also be developed to restore existing buildings and structures on Pulau Ubin. Given the loss of coastal habitats and vegetation due to the erosion of the island’s shoreline, the National Parks Board (NParks) will also be calling for studies to identify long-term measures to protect and restore the shoreline.

The plans were announced by Prime Minister Lee Hsien Loong at Pulau Ubin during Ubin Day, which was organised by about 20 community groups including Team Seagrass, Nature Society (Singapore) and the Butterfly Circle to showcase the different facets of the island to the public.

The Pekan Quarry on the island is among the areas that are set to be enhanced. Floating wetlands and nesting platforms will be installed to encourage the nesting and roosting of birds such as herons. Amenities such as boardwalks will also be built for visitors, to be ready by the third quarter of next year.

NParks has also identified certain species for recovery programmes. They include an endangered mangrove tree, a terrestrial orchid and rare seagrasses. Certain bird species such as the Baya Weaver and the Red-Wattled Lapwing, as well as bats and otters have also been selected.

To encourage research and education, a new centre for field studies, education and outreach will also be built on the site of the former Celestial Resort. Mooted by a group of educators, the centre will be equipped with field study labs, classrooms and accommodation.

On the heritage front, the authorities will be partnering tertiary institutions and non-governmental organisations to identify and map the island’s past and heritage elements in a cultural mapping project, on top of the restoration guidelines.

To encourage environmentally and socially responsible behaviour while on the island, a code of conduct — the Ubin Way — will be developed by some of the Friends of Ubin Network (FUN) members. FUN, formed earlier this year, comprises naturalists, heritage experts, sports enthusiasts, researchers, residents and students, and has been active in the Ubin Project.

Speaking at Ubin Day yesterday, Mr Lee commended the collective effort involved in developing a vision for the 10.2 sq km island — about the size of Changi Airport — that would honour the past, treasure the present and shape its future.

Pointing to the Sustainable Singapore Blueprint that was launched last month, he said the initiatives for Pulau Ubin were a prime example of how every Singaporean has an important role in making the country more liveable and sustainable.

Minister of State (National Development) Desmond Lee, speaking to reporters, assured that the authorities would manage the number of visitors, as numbers are set to rise. About 2,000 to 3,000 people visit the island each weekend.

For areas of biodiversity that are more sensitive, the number of visitors may be restricted by limiting access only to researchers or those on guided tours. While no cap has been set on the number of visitors, Mr Desmond Lee pointed out that the area is naturally restricted by the number of boats that can ferry people to the island.

Most residents TODAY spoke to welcomed these initiatives, which they said would improve their business. Mr Tan Chee Kiang, 67, felt the new initiatives would preserve the kampung spirit of the island. Pulau Ubin is unique and should be kept the way it is instead of turning it into another Sentosa, said Mr Tan, who is the owner of a provision shop and seafood restaurant on the island.

Last year, residents of the island were alarmed to receive a notice from the authorities that led many to believe they were facing eviction to make way for development. The authorities later apologised, saying the notice could have been better worded.

While these are positive initiatives, Nature Society (Singapore) conservation committee vice-chairman Ho Hua Chew felt that to ensure these efforts do not go to waste, the island needs a “stronger protection status”.

Last month, TODAY reported that the nature group has called for Pulau Ubin to be given the same level of protection as a nature reserve. The island is currently designated a nature area, but can be developed if the need arises.

-By Siau Ming En

Views, Reviews & Forum

Extending lease for older HDB flats not the solution

Source: Today Online / Voices

The key point in the letter “Top up lease for HDB flats with less than 60 years left” (Nov 29) is that if banks are reluctant to provide loans for Housing and Development (HDB) flats with less than 60 years remaining on the lease, the prices of these flats will fall. And if the flat is the sole asset of the owner-retiree, he or she will face financial difficulties in retirement. These are valid points.

The writer suggested the Government “top up” the lease of the flat so that buyers of these flats would be eligible for bank loans, and this would keep prices buoyant, which would be good for the owner-retiree.

Is this feasible? I believe the solution to this problem is not limited to extending the lease. If the lease extension is granted for free, and this increases the market value of the flat, the buyer will effectively be financing the retirement of the current owner. It is very likely the buyer will be a young couple who will be mortgaging their future to finance the retirement of the previous generation.

The resale prices of HDB flats is a controversial issue. Buyers (usually young couples) want prices to be affordable. Sellers (often retirees), want to cash in their “asset” to finance their retirement. It would be better if we stopped looking at our flats as investments. If home owners happen to want to sell their flats during an economic downturn, or while tightening measures are putting the brakes on the market (as is the case now), it would seriously affect their retirement nest egg.

The enhanced Lease Buyback Scheme was applicable only to three-room flats or smaller. It has been extended to include four-room flats.

Perhaps it should be extended to all flats with less than 60 years left on their lease?

This letter first appeared as a comment on TODAYonline

-By Gabriel Goh

Owners just need to have patience

Source: Today Online / Voices

I refer to the letter “Top up lease for HDB flats with less than 60 years left” (Nov 29). There is no need to top up the lease now. The Housing and Development Board (HDB) can extend the lease on a year-to-year basis after the 99th year, if the building owner is able to outlive the lease.

At the same time, it is unfair to others who have fully paid for the flat if they have to take a fresh loan to pay for the lease top-up.

If many of the lessees/owners are already in their 50s to 60s, how are they going to pay for it?

Lastly, the HDB will rejuvenate a neighbourhood from time to time. Older HDB flats with less than 50 years left on their lease are likely to be repurchased by the HDB for the Selective En bloc Redevelopment Scheme. Owners just have to be patient.

This letter first appeared as a comment on TODAYonline

-By Felix Ng

Govt property measures still necessary

Source: Straits Times / Forum Letters

THE Real Estate Developers' Association of Singapore (Redas) warned that without "supportive measures" from the Government, the country would face unintended outcomes from a worsening economy ("Property sector 'needs govt support'"; last Thursday).

What Redas is essentially asking is that the Government cut the land supply for residential programmes to boost home prices in this period of weak housing demand.

However, this would create a situation where property developers can always rely on the Government to make a profit.

They could keep pricing their houses higher, whether or not demand exceeds supply.

The Government's property cooling measures aim to ensure affordability of homes so that buyers do not overstretch themselves.

Scaling back these cooling measures may encourage reckless property speculation among the public.

Would it be prudent for the Government to reverse its policies so that property developers continue to profit, at a time when property prices are still high and the general population has sunk a large part of their finances into their properties?

-By Lim Kay Soon

Where was Redas when home prices were rising?

Source: Straits Times / Forum Letters

LAST Thursday's report ("Property sector 'needs govt support'") reads like a case of the Real Estate Developers' Association of Singapore (Redas) wanting to have its cake and eat it, too.

Redas president Chia Boon Kuah warned of grave consequences for the country, noting how property prices have declined amid falling sales in the last four consecutive quarters.

Did Redas make any such warning when property prices ran ahead of the growth in household incomes, and did it ask the Government to take action then?

It was only last year that we saw the second-quarter private residential property price index hitting an all-time high despite a few rounds of cooling measures.

Did Redas not realise that rising property prices caused the public to fear that homes would be beyond their reach, and that many have bought property even though they may not be able to service the housing loans?

The supply of 68,000 completed residential units over the next few years will be built by the association's members.

More properties may have been put on the block due to mortgage defaults ("More homes go under the hammer in weak market"; Nov 21), if not for the cooling measures and the total debt servicing ratio framework.

-By Khong Kiong Seng

Understanding Property Indices (Pg 16)

Companies' Brief

S-Reits' performance recovers on expected rate hike delay

Analysts say DPU risks are contained, but unit prices and property valuations may fall if interest rates rise

Source: Business Times / Stocks

THE performance of real estate investment trusts (Reits) in Singapore has recovered this year, reflecting what analysts say is market confidence that rate hikes will probably happen much later than previously thought.

When the US Federal Reserve first hinted that it may curtail its bond-buying stimulus programme in May 2013, the 10-year Singapore government bond benchmark surged from 1.4 per cent to 2.8 per cent over the subsequent six weeks, while the FTSE ST Reit Index slumped 19 per cent.

But since February this year, the FTSE ST Reit Index appears to have bottomed out and even outdone the Straits Times Index (STI). It rose by 9 per cent year to date, outperforming the STI which is up 5.8 per cent for the same period.

For now, economists seem to be expecting a 25 basis-point increase in interest rates starting from mid-2015, and some analysts think that Reit prices have started to partially price in this expectation.

There are broadly two major ways that higher interest rates affect Reits. First, it raises borrowing costs, thus heightening their re-financing risks. Secondly, it leads to greater discount rates employed in asset valuations, thus lowering the valuations of physical properties.

Fortunately, most Reits in Singapore have had ample time to react since the first hint of an oncoming taper surfaced. They have taken advantage of low interest rates to put most of their debt on fixed rates, as well as extended their loan tenures while spreading out their maturities, so that no more than a certain amount - and DMG & Partners Research puts the figure at S$7.4 billion for the collective sector - needs to be refinanced each year.

Reits have also conducted early financing by issuing fixed-rate medium-term notes, as well as hedged using derivatives such as interest rate swaps and interest rate caps.

Eli Lee, an investment analyst at OCBC Investment Research, estimates that about three-quarters of the sector's debt exposure has been hedged into fixed rates.

"According to our sensitivity analysis, for every percentage point increase in interest rates, the DPU (distribution per unit) impact among the Singapore Reits (S-Reits) is contained within a 10 per cent decline," he said.

The Monetary Authority of Singapore surfaced similar findings in its financial stability review released last week. It showed the weighted-average debt maturity of the S-Reit sector at 3.2 years, an improvement from just 2.1 years during the 2008 global financial crisis.

"Stress test results indicate that S-Reits are currently well placed to weather interest rate hikes. Under a stress scenario of a three percentage point increase in interest rates and 10 per cent fall in Ebitda (earnings before interest, taxes, depreciation and amortisation), the sector's median interest coverage ratio would still be relatively healthy at 3.6 times."

This means that the sector's profit is enough to cover 3.6 times of total interest on its outstanding debt. Currently, the sector's average interest coverage is at a fairly healthy 5.9 times, according to OCBC's Mr Lee.

Two other factors further enable Reits to lock in low rates for longer periods of time. The first is greater competition among banks for corporate loans, especially amid slower growth for residential loans; the second is a growing demand for long-dated stable yield instruments from insurers, pension funds and sovereign wealth funds, UOB Kay Hian said in a recent report.

But while DPUs are likely to be shielded, the bigger risk is that from a valuation perspective, higher interest rates would lead valuers to adjust the risk premium for real estate and employ greater discount rates in their property valuations.

This will impact the capital values of the Reits' underlying real estate assets and thus the book values on their balance sheets.

Explaining the link between higher interest rates and lower valuations, Ivan Looi, a DMG & Partners Research analyst, said: "Property play is very much a leveraged play. Generally, when interest rates go up, some buyers - especially those with high loans-to-value who cannot meet interest payments or are already breaking covenants - may be forced to sell. The selling pressure thus causes cap rates (capitalisation rates) to go up, and prices to come down."

At the same time, the market may also price Reits lower as well, which means their unit prices may fall. This is because when interest rate risks go up, the Reits' yields will have to adjust and go down or they will become too expensive for yield investors to buy.

Reits tend to be benchmarked to longer-term rates, yet the latter do not always move in lockstep with the central banks' actions on shorter-term rates.

For instance, in the previous rate hike cycle from mid-2004 to mid-2006, when the Federal funds rate was increased by 430 basis points from one per cent to 5.3 per cent, yields on 10-year Treasuries barely rose 50 basis points from 4.7 per cent to 5.2 per cent, and US Reit prices actually doubled.

In Singapore, the three-month Singapore Interbank Offered Rate (Sibor) went from 0.75 per cent to 3.44 per cent, but 10-year Singapore Government Securities yields didn't move, and the FTSE ST Reit Index surged 83 per cent, according to UOB Kay Hian.

-By Lee Meixian

Let prudence reign in changing Reit rules

Risk in proposals such as letting Reits borrow more

Source: Straits Times / Money

THE debate over the raft of possible changes to strengthen the Reit market in Singapore has rolled on unabated, even though the consultation formally closed three weeks ago.

Yield-hungry investors have been making a beeline for real estate investment trusts (Reits) as they offer a much higher return than the near-zero interest paid on bank deposits. In doing so, they have lured 39 property trusts worth a total of $68 billion to be listed here, turning Singapore into the second-biggest Reit market in Asia after Japan.

Reits are "closed end" funds that operate in a similar manner to unit trusts. But unlike unit trusts that invest in shares, Reits specialise in income-generating real estate assets such as shopping malls, offices, industrial buildings and even hospitals.

And like unit trusts, a Reit's assets are held by an independent trust, with a separate management firm appointed to manage the property assets.

What makes Reits so alluring is their tax-efficient structure. If they pay out at least 90 per cent of their income as dividends, they are exempt from paying any income tax, while individual investors are exempt from paying tax on the dividend they receive. This makes it attractive for local firms to establish Reits to divest themselves of real estate assets which generate steady income but lack a sexy growth story.

But 12 years on, there is a concern that the very structure that makes Reits so attractive may prove to be their Achilles' heel.

After all, if a Reit gets hit by corporate wrongdoing, the only possible recourse for an investor is to seek redress from the management firm. This is a highly unsatisfactory arrangement because Reit management firms often have a paid-up capital of $1 million, even though they may be managing properties worth $1 billion or more.

Because of the earlier Reits' popularity, there is a growing number of foreign issuers keen to launch Reits here which hold the bulk of their assets outside Singapore. Blinded by the earlier successes, investors may be underestimating the risks involved.

To ensure greater accountability, the Monetary Authority of Singapore (MAS) is proposing changes to introduce a greater element of independence to the board in a Reit management firm. It also wants to allow Reit unitholders to vote on the reappointment of the Reit manager at regular intervals - say, once every five years.

On paper, this proposal looks fine. But one corporate lawyer told me that, in practice, one of the difficulties of removing a Reit manager - even if it fails to measure up - is to find a replacement. She said: "A Reit manager needs a special licence from the MAS in order to manage the Reit and this can take several months to approve... Reits have not become takeover targets, and Reit managers have not been the targets of removal, because of the uncertainty in being able to replace the Reit manager in a timely fashion."

Market pundits believe that the only way to solve this dilemma is to explicitly encourage Reits to be internally managed by their own team of experts, which takes away the need to set up a separate management firm with a special licence from the MAS.

Anecdotal evidence also suggests that internally managed Reits enjoy higher valuations from investors because they like the fact that people managing such assets will be directly answerable for any missteps that may occur. The Hong Kong-listed Link Reit is one example - it enjoys a strong following even though it trades at 3.6 per cent yield, compared with 5 per cent plus yields offered by Reits here.

Another big concern voiced by some investors is the proposal to allow Reits to borrow up to 45 per cent of their asset value. This is higher than the current leverage limit of 35 per cent, which can be increased to 60 per cent if they obtain a credit rating and disclose it to the public. Many Reits have assets worth $1 billion. This proposal will give them leeway to borrow $450 million.

But with Singapore attracting a growing number of Reits with sponsors of diverse backgrounds, the questions being asked are whether it is prudent to allow Reits to borrow so much money, and whether this will spawn systemic risk in our banking system if one of them fails.

As one pundit observes: "It takes only one failed Reit to have a significant adverse impact on the entire Reit market. Even the MAS consultation paper acknowledges that most Reits have kept their borrowings within the prescribed 35 per cent limit. If that is the case, there should be no need to raise it to 45 per cent."

Because Reits are structured to pay out the bulk of their income to qualify for tax breaks, it may also not be prudent for them to borrow so heavily, as they will have no cash to fall back on if they run into financial difficulties.

It was not so long ago that such a scenario surfaced when many Reits had to turn to their unitholders to raise funds because they were unable to roll over their debts as the global banking system froze up, following the collapse of US investment bank Lehman Brothers.

With this in mind, prudence is the better part of valour where Reit regulations are concerned.

-By Goh Eng Yeow, Senior Correspondent

Cameron's help for first-time UK homebuyers fizzles on demand

Number of people using expanded Help to Buy plan falls to almost 3,400 in Sept from over 4,000 in May

Source: Business Times / Real Estate

Cameron’s Help for First-Time U.K. Homebuyers Fizzles on Demand

Source: Bloomberg / Personal Finance

U.K. Prime Minister David Cameron introduced an expanded version of the Help to Buy home-loan program a year ago, saying it would boost ownership among young Britons. It isn’t working.

First-time home purchases made with a mortgage rose 1 percent in October from a year earlier as property values increased faster than earnings, LSL Property Services Ltd. said in a statement today. Prices in the U.K.’s 20 largest cities climbed 9.2 percent during that period.

“It’s the wrong policy for the problems that are present in the housing market,” Rob Wood, chief U.K. economist at Berenberg Bank in London, said in an interview yesterday. “The main problem is a shortage of supply, yet Help to Buy is intended to boost demand.”

Purchases by first-time buyers have fallen since August after price increases made homes less affordable and banks tightened lending criteria to avert a repeat of Britain’s 2008 housing crash. Homebuyers are now paying five times their annual earnings for a first home, up from 4.6 times when the mortgage guarantees were introduced in the fourth quarter of 2013.

Help to Buy, one of several housing-market initiatives introduced by Cameron’s coalition government, provides guarantees that allow people to buy a home costing as much as 600,000 pounds ($941,000) with a down payment of as little as 5 percent.

The first phase, interest-free loans for buyers of newly built homes, began in April. It was extended in October to include existing homes and a mortgage guarantee for lenders.

Cameron’s Plan

“There are thousands of people in our country who work hard, who want to own their own home, but because of the problems in the banking system, they haven’t been able to get a mortgage,” Cameron said in a speech in November 2013.

The government has persisted with Help to Buy, even though the lending plan has been criticized since its introduction. The International Monetary Fund, for example, said that it could stoke house-price inflation.

“There’s still very strong demand for Help to Buy, and we don’t see that tailing off,” Terrie Alafat, director of housing at the Department of Communities and Local Government, said on Nov. 27. “It is still an important product to have on the market.”

The lending plan appears to have had more success at achieving its other goal of boosting construction to help the U.K. emerge from a recession. Almost 14,000 new homes were registered with the National House Building Council in October, the most since June 2011, the insurance and warranty provider said in a report today.

Falling Demand

More than 30,000 people used the mortgage guarantee from October through September at a median property value of 138,000 pounds, according to government statistics published today. Demand for the program may be running out of steam, though. The number of people who used it fell to almost 3,400 in September from more than 4,000 in May.

“That effect hasn’t lasted perhaps as long as we thought,” Philip Lachowycz, a U.K. economist at consulting firm Fathom Financial in London, said by phone on Oct. 29. “It was said a rise in interest rates and an end to Help to Buy would moderate house price inflation. We haven’t seen that, but it looks like we’re seeing people factoring that into expectations.”

The number of first-time-buyer home purchases has fallen 12.3 percent in the three months through October, LSL Property said today. U.K. house prices were up 8.5 percent in November from a year earlier, down from 9 percent in October, Nationwide Building Society said today. That’s the smallest annual increase in 11 months.

Hesitant Buyers

Help to Buy brought back confidence among buyers at the bottom end of the market, David Newnes, a director of LSL units Your Move and Reeds Rains, said today in a statement. Now, people looking for a first home are hesitating because of uncertainty over the Bank of England’s benchmark interest rate, global political instability, falling home prices and a shortage of affordable homes, he said.

Property prices in England fell 0.2 percent in September to an average of almost 177,300 pounds and declined 0.7 percent in London, according to the Land Registry. Home prices in Aberdeen, Oxford and Cambridge all dropped in the last quarter, according to property researcher Hometrack Ltd.

Fewer Approvals

First-time buyers aren’t alone in wondering if the U.K. home-price boom is over. Mortgage approvals for all residential purchases fell 16 percent in October from a year earlier, the British Banker’s Association said on Nov. 25. The cooling of the property market has continued in recent weeks, it said.

“Approvals have confounded both the Office for Budget Responsibility and Bank of England forecasts in recent quarters, slowing faster than anticipated,” Bloomberg economists Jamie Murray and Niraj Shah wrote on Nov. 25. The U.K. housing market will continue slowing next year and “the risk is of a faster slowdown denting sentiment in the broader economy,” the said.

-By Neil Callanan and Patrick Gower

Australia still working through macroprudential policy options: official

Source: Business Times / Real Estate

Tokyo tower sale surpasses 2007 peak prices: Credit Suisse

Source: Business Times / Real Estate

China home prices fall in November despite rate cut

Source: Business Times / Real Estate

US property firms jump into Tel Aviv debt issues boom

They are lured by attractive borrowing costs, high demand

Source: Business Times / Real Estate