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17th March 2014

Singapore Real Estate

Medical suites looking good to investors

Growth of medical industry and fewer restrictions drive demand, say consultants

Source: Business Times / Companies

[SINGAPORE] Medical suites, a sub-segment of the commercial property market, are coming onto the radar screens of investors, who are seeing the niche field as an alternative asset class.

These commercial properties, meant for medical usage and traditionally sold mainly to doctors, have seen rising interest from investors, according to consultants that BT spoke to.

Although there are no official statistics on the proportion of buyers who are non-doctors, anecdotal statements by some developers suggest that around 30 per cent of new suites currently being developed are going to investors.

"Medical suites are commercial properties, they are untouched by cooling measures," said Mary Sai, executive director at Knight Frank. "Long term, they are also good investment assets."

There are around 1,400 medical suites in Singapore currently, according to estimates by Knight Frank and Jones Lang LaSalle (JLL).

Some of these units, such as those in Camden and Paragon medical centres, are only for lease. A few others, which are part of hospitals such as Gleneagles and Mount Elizabeth, are open for sale only to doctors to curb speculative investment, said Parkway Pantai, which operates both hospitals.

Prices of these suites, usually sub-1,000 square feet in size, have been trending upwards over the years. According to URA caveats, the average price of medical suites at Mount Elizabeth Hospital last year was around $7,100 per square foot, over 40 per cent higher than the $5,000 psf average in 2010.

"The growth in the overall medical industry has been driving prices up," said Karamjit Singh, head of investments and residential at JLL. "The fact that there are established centres means there's always going to be a premium for being housed in an established centre."

Traditional property developers have started taking interest in the industry as well, with at least five new mixed developments - housing around 500 medical suites or over 35 per cent of current supply - to be ready by 2018.

These new units, which were going for around $4,000 to $4,500 psf in the past year, can be bought by doctors and investors, but end usage must be for medical purposes.

The first of these to open is Connexion located above Farrer Park MRT station. The mixed development - comprising a hotel, hospital and 189 medical suites - will open in stages from the second quarter of this year. The take-up rate has been strong, with some 98 per cent of its medical suites sold, said developer and manager Farrer Park Company.

Far East Organization, which is developing the upcoming SBF Center, has seen similar success, with just one of its 48 medical suites left for sale. SBF Center, located in the central business district, also has office space.

In the pipeline is Royal Square, a joint venture between developers Hoi Hup Realty and Malaysian Sunway Developments. The medical suites were launched late last year, with 60 per cent of the 171 units sold. The building - located at the junction of Thomson and Irrawaddy roads near the upcoming Novena Health City - is also home to Singapore's first Courtyard by Marriott hotel.

Two other developments have yet to open for sale.

One is RB Capital's Farrer Square, across the road from Connexion. A spokesman there said that the company has registered healthy interest for its 42 units. The medical suites are accompanied by a ground floor retail strip and a 300-room hotel by Park Hotel Group.

The other is Vision Exchange by Sim Lian group in Jurong East, down the road from the upcoming Ng Teng Fong General Hospital. All 53 medical suites there will be for sale and Sim Lian is open to both doctors and investors.

Said JLL's Mr Singh: "The investor community will take notice of these as an alternative investment, which was never available to start with, and now it's available."

He added that factors important to investors include how leasable medical suites are - such as proximity to a hospital, as well as the type of specialist mix in the development.

Proximity to a hospital would help boost the value of medical suites as certain treatments need to be referred to hospitals, said Ms Sai. She added that doctors were generally "good, secure tenants" for investors who wanted to rent units out.

"Over the years, people appreciate that this is a kind of asset that they can own," she said. "Some of them do make money, as subsequent asking price enable them to easily make 20-30 per cent in 2-3 years."

Prices of such medical suites, however, have not always defied gravity. They have followed general market trends, encountering falls during financial crises, and can also be affected by policies such as the Total Debt Servicing Ratio, which affect the property market in general. Ms Sai noted that the movements however appear less drastic, possibly due to medical suites being a more specialised type of property investment with fewer transactions.

Going forward, consultants believe that prices of such suites will continue to see steady growth. They cited factors, including fewer restrictions in the commercial property market compared to residential, as well as overall growth in the medical industry, driving demand.

The increase in the number of medical suites is part of a bigger expansion of the entire healthcare industry in Singapore. Over the next six years, some seven new hospitals are expected to open here. These include Farrer Park Hospital at Connexion, Sengkang General Hospital and Jurong Community Hospital.

Both local and foreign demand have driven the need for more medical facilities.

A study by business consultancy RNCOS estimates the medical tourism industry in Singapore to be worth around $1.74 billion last year, with growth expected to continue at a compounded annual rate of about 30 per cent until 2017. Domestic demand for medical needs have also been rising, experts say, citing a growing and ageing population, as well as the rising popularity of aesthetic procedures.

Mr Singh said: "I think the general appreciation is that the medical industry as a whole will continue to rise - it's recession-proof to a certain extent."

-By Raphael Lim

Global Economy & Global Real Estate

China to Spend More Than $162 Billion on Shantytowns

Source: Bloomberg / News

China said it will invest more than 1 trillion yuan ($162 billion) redeveloping shantytowns this year as the government detailed how it will boost its urban population to support growth.

More than 4.75 million households will be involved, state broadcaster China Central Television reported yesterday, citing the housing ministry. China will build more transportation links, ease some residence-registration rules and let local governments directly issue bonds, according to the urbanization plan for 2014 to 2020, issued by the ruling Communist Party and State Council.

The plans add details on how China will seek to achieve a 7.5 percent target this year for expansion while sustaining growth through the rest of the decade. Leaders have pledged to speed up urbanization as they try to rely more on domestic consumption for growth and give markets a bigger role in the world’s second-largest economy.

Urbanization is a “strong engine” for sustainable and healthy economic development, according to the text of the plan released yesterday by the official Xinhua News Agency. Premier Li Keqiang said March 13 that tens of millions of people still live in shantytowns, which Xinhua says are areas of dilapidated housing where poor factory workers often live.

China completed 1.12 trillion yuan of investments in subsidized housing last year, according to housing ministry data. The government “basically completed work” on 5.44 million subsidized housing units in urban areas and started construction on another 6.66 million, the National Development and Reform Commission said in an annual work report this month.

Urban Population

The nation is targeting having 60 percent of the population in urban areas by 2020, according to the plan. That compares with 53.7 percent in 2013 and about 50 percent in 2010. The U.S. proportion was 82 percent in 2011 and Japan’s was 91 percent, according to a joint report in 2012 by the World Bank and Development Research Center of the State Council.

The CCTV report didn’t state the source of the redevelopment funds.

China will speed up the construction of railways, expressways and airports to support the rapid urbanization, Xinhua said in a separate report on the plan.

The government will remove restrictions on obtaining household registration permits in small cities and towns, while it will strictly control the populations of cities with more than 5 million urban residents, according to the plan. China will help 100 million people, including migrant workers, get status as urban residents by 2020.

Municipal Bonds

China plans to set up a transparent financing mechanism for urban construction, allowing local governments to issue municipal bonds, according to the plan. The central government will also establish a management and rating system to increase the use of direct financing and consider establishing policy-financial institutions for both infrastructure and home construction, it said.

The urbanization plan will help promote regional development, upgrade industries and increase domestic demand, according to the text released by Xinhua. Urbanization is important for accelerating the development of the service sector, which will create many jobs, it said.

Chinese leaders vowed in December to map out city clusters across the country’s central, western and northeastern regions and develop them into engines for growth as part of the nation’s urbanization strategy.

“Diverse and sustainable” funding mechanisms will be developed to finance policies, they said at an urbanization conference, according to a report on the meeting by Xinhua. Attention must also be paid to the environmental impact of such development, leaders said.

-By Bloomberg News

Bouygues, Lend Lease Join Transurban in A$3 Billion Road Project

Source: Bloomberg / News

Bouygues SA (EN), the construction and media conglomerate led by Martin Bouygues, and Lend Lease Group, Australia’s biggest listed developer, are set to design and build a A$3 billion ($2.7 billion) Sydney road project.

The two companies won the contract to build the nine kilometer (5.6-mile) NorthConnex tunnel link between two motorways in the city’s northwest, Melbourne-based toll-road operator Transurban Group, which is managing the project, said in a statement to the Australian Securities Exchange today. The Australian and New South Wales governments will each invest as much as A$405 million, with toll charges funding the rest, a statement from the state government said.

Australian Prime Minister Tony Abbott is pushing to advance more than A$80 billion of planned infrastructure projects, including the upgrade of Sydney’s highways, to spur growth in an economy suffering from a cooling mining investment boom. The federal government has committed about A$11.5 billion to projects to help shrink an infrastructure funding gap of about A$300 billion.

“NorthConnex represents a renewed partnership between government and the private sector that balances the risk of these types of tunneling infrastructure projects,” Patricia Forsythe, executive director of the Sydney Business Chamber, said in a statement. “Finishing Sydney’s road network will be a boon to business and a driver of efficiency for the city.”

NorthConnex Impact

The construction budget for NorthConnex, which will link the M1 and M2 motorways, will be A$2.65 billion, and the rest will fund land acquisition and project delivery, according to Transurban. NorthConnex will take about 5,000 trucks off Pennant Hills Road, which runs roughly parallel to the planned tunnel, and cut peak hour travel times by as much as 15 minutes, the company said.

Transurban approached the state government in 2012 to design, build, operate and fund the link, it said in the statement. The appointment of a builder moves the project into the planning approval stage with public display of the environmental impact assessment, it said.

Construction will begin next year and the tunnel is expected to open in 2019, according to Transurban. The project is also subject to finalization of the contract, it said.

Transurban shares have risen 5.6 percent this year, compared with a 0.5 percent drop in the benchmark S&P/ASX 200 index. (AS51) Lend Lease securities have gained 1.6 percent and Bouygues’s have surged 11.3 percent.

-By Nichola Saminather

Osborne Signals U.K. Homebuilding Measures for Budget This Week

Source: Bloomberg / Luxury

Chancellor of the Exchequer George Osborne plans to spur construction in his budget by extending the Help-to-Buy program for new homes to 2020 and fostering the expansion of a commuter town southeast of London.

The U.K. will invest a further 6 billion pounds ($10 billion) in Help-to-Buy, which allows people to purchase a newly built home worth as much as 600,000 pounds with a 5 percent deposit, according to an e-mailed statement from the Treasury yesterday. The additional funding will help support the construction of 120,000 properties, the Treasury said. The initial plan for a so- called garden city in Ebbsfleet, Kent, includes 15,000 homes.

“Britain has got to get building,” Osborne said in an interview on the BBC’s “Andrew Marr Show” yesterday. “A key part of economic security is the security of being able to afford your own home.”

Two days until his budget statement on March 19 and 14 months before a general election, Osborne is hitting back at opposition Labour claims that his Conservative-led government is benefiting only the richest in society. He also acknowledged that while he sees the recovery as a sign of success, Britain’s economy needs to rebalance to address its weakesses.

Economic Security

Bank of England Governor Mark Carney told lawmakers last week that while a recovery is under way in the U.K., investment and exports need to keep growing for it to be sustained. Osborne said that Britain can build resilience by addressing long-term weaknesses and by boosting ties with emerging markets.

“We don’t export enough, we don’t invest enough, we don’t build enough, we don’t make enough,” Osborne said. “We’ve got to go a lot further and we’ve got to make sure we’re really getting to the bottom of what it is that provides economic security for the people of this country.”

Osborne’s announcement on Help-to-Buy fights back at Labour criticism that the government has failed to build enough homes and the Help-to-Buy plan’s cap was too high, helping fuel a surge in prices in London and the southeast.

Writing in the Sunday Mirror newspaper yesterday, Labour treasury spokesman Ed Balls pledged a Labour government would get 200,000 homes built a year by 2020. He also reiterated his party’s pledges to freeze energy bills until 2017, introduce a lower 10 percent starting rate of income tax, reverse the tax cut for top earners, and implement a one-time levy on bank bonuses to raise money to help young unemployed people get back into work.

Almost three-quarters of 33 analysts in a monthly survey by Bloomberg said the British property market is at risk of overheating, and report from Acadata last week showed house prices soared the most in almost two years in February, powered by the capital.

‘Ambition to Build’

The government will provide as much as 200 million pounds to develop infrastructure and community facilities in the new city near the high-speed rail station on former industrial land at Ebbsfleet, 19 minutes from central London with direct trains to Paris, the Treasury said. It will be the first development of its kind in almost 100 years.

“Our predecessors had the ambition to build for Britain,” Osborne said. “Britain has to up its game. Britain has to earn its way in the world. Yes, the economy is recovering, but that is not enough. We’ve got to finish the job.”

Osborne also indicated he may not yield to demands from lawmakers in his Tory party to use the budget to increase the threshold at which people start paying a 40 percent tax rate. Restrictions to the threshold at which people start paying tax at 40 percent instead of the basic 20 percent rate -- currently about 41,500 pounds a year -- mean more people are being dragged into a tax band originally aimed at the well off.

Middle Incomes

“My priority has been to increase the personal allowance,” Osborne said on the Marr show. “What that means is, yes, you’re taking the low-paid out of tax -- which, by the way, has always been a Conservative ambition -- but we’re also helping those on middle incomes.”

Deputy Prime Minister Nick Clegg, whose Liberal Democrat party first proposed the policy, has urged him to add at least 500 pounds to the minimum threshold as a “workers’ bonus” in the budget. Osborne has used every one of his budgets to raise the income-tax allowance, from 6,475 pounds when the coalition took office in 2010 to 10,000 pounds as of next month.

“It helps people watching this program whether they’re earning 20,000 pounds or 50,000 pounds,” he said. “It is a very effective instrument for making sure that hardworking people keep more of their money.”

Osborne also indicated he will use the budget to announce the cap he will impose on overall welfare spending. Earlier this year, he said that more benefit cuts will be needed after the 2015 election.

-By Svenja O’Donnell

London Home Prices Rise to Record Amid Focus on Stimulus

Source: Bloomberg / Luxury

Asking prices for homes in London surged to a record this month, as the buoyant outlook spread to other parts of the country, according to Rightmove Plc.

Prices climbed 2.1 percent from February to 552,530 pounds ($919,000), taking the annual appreciation to more than 11 percent, the website operator said today. Nationally, values rose 1.6 percent to 255,962 pounds, also an all-time high.

Britain’s property-market revival has been encouraged by a strengthening recovery and a government stimulus plan known as Help to Buy, which allows people to buy a home with a down payment of as little as 5 percent. Chancellor of the Exchequer George Osborne said yesterday he will extend the program for new homes to 2020 to spur construction.

“Spring is in the air and the country is finally on the move,” said Miles Shipside, a director at Rightmove. “The mass property market is starting to unlock after years of being handcuffed by fragile consumer confidence and a lack of low-deposit mortgages.”

Price growth in London last month was led by the outer boroughs, including Haringey and Barnet in the north, Rightmove said. The most expensive district, Kensington & Chelsea, saw values drop 2.4 percent, while Westminster recorded a 2.3 percent decline.

The report also showed a 10 percent annual increase in the number of properties coming onto realtors’ books this month. While that will ease some price pressure, “structural shortages remain” in London’s housing supply, Shipside said.

Stimulus Expansion

The Treasury said the U.K. will invest a further 6 billion pounds ($10 billion) in Help to Buy and that the additional funding will help support the construction of 120,000 properties.

With house prices rising, more than 80 percent of economists in a Bloomberg survey published on March 14 said Osborne should curtail Help to Buy in the budget this week. The plan was first introduced in April 2013 and a second version began in October.

Morgan Stanley analysts including Huw Van Steenis have argued the opposite, saying in a March 10 note that the U.K. is building too few homes and HTB is a “key catalyst” for construction.

“We think the market still underestimates how critical HTB 1 and 2 are proving for construction, credit and broader recovery,” they said. “Side effects are less than critics feared.”

Nationally, asking prices for residential property rose 6.8 percent in March from a year earlier, Rightmove said. Values are now above the 250,000-pound threshold that increases the stamp-duty tax on property sales to 3 percent from 1 percent, and Rightmove said a more incremental scale may be “opportune and fair.” Osborne is due to make his budget speech in Parliament in London at 12:30 p.m. on March 19.

“Depending on the chancellor’s need to balance the books versus the desire to please target voters, he may be tempted to make some further tax changes,” Shipside said. “Stamp duty has unfair thresholds, and a buoyant market could withstand some tinkering.”

-By Fergal O’Brien