Property boom sustainable, says Leng Beng
Published May 8, 2007
Property boom sustainable, says Leng Beng
He points to 7-year cycle, so current phase could run till 2012 or beyond
By KALPANA RASHIWALA
(SINGAPORE) The property bull may keep on running until 2012 or even beyond, says Hong Leong Group executive chairman Kwek Leng Beng. Foreigners will keep pumping money into high-end housing. And businesses looking to get in on Singapore's fast-developing hub status will send office rents 'through the roof'.
'I believe that at least for the next few years, barring unforeseen circumstances, the boom is sustainable,' Mr Kwek told BT in a recent interview.
'If you believe in the seven-year property cycle, we will have a boom until 2012. Our economy, having been restructured, is strong and poised for growth even beyond that,' he said. 'I won't be surprised that we may be witnessing the biggest real estate boom in the history of Singapore.'
He added: 'If you follow the seven-year property cycle, there's still a lot of steam left, because we are only in the second year (of the high-end residential recovery). Mid-tier private home prices will move in sympathy, but the percentage rise is unlikely to be as high as in the luxury tier.
'If you are a strong believer of seven years, then I think it can go on from 2005 to 2012. But I personally believe it will extend longer. The US (property recovery) has gone on for 14, 15 years. Australia, also 14 to 15 years, 16 years, UK has gone on more than 10 years.'
The residential sector will be underpinned by a continuing influx of high net worth investors, says Mr Kwek, who is also executive chairman of listed City Developments.
And the office sector will be fuelled by limited supply in the short term and by strong demand as the various government efforts to promote Singapore as a hub for financial services and wealth management, healthcare, education and hi-tech research, bear fruit.
'A lot of analysts think we'll have enough supply of offices by 2010, but I don't think so,' he said. 'Just look at the rate at which we are going and able to attract businesses, especially in the financial industry and wealth management. They want a piece of the action in this part of the world. How can you have enough offices? It takes four to five years from planning to completion of a high-rise office building. I see that this is a place where office rents will go through the roof.'
Office rents did not go up for the most part between late-1996 and mid-2004. 'This must not be overlooked when we talk about rising rentals now,' he said.
But Mr Kwek does point out some caveats in his bullish predictions - an unexpected Sars-type disaster, a terrorist attack, the reintroduction of trade barriers and government intervention in the real estate market.
'In general, governments may introduce measures that are designed for a soft landing but which actually can turn out to be a hard landing,' he said. 'In Singapore I think the authorities will only intervene to prevent excessive speculation, and in so doing they will bear in mind that Singapore has become a global city.'
Mr Kwek believes the current property cycle is unlike any Singapore has seen previously because the economy has been restructured and has emerged leaner and stronger.
Also, a vast amount of money is being invested, such as at Marina Bay with its huge integrated resort, botanic gardens and other infrastructure. 'I can visualise the potential of this place,' he said. 'Singapore will be a bustling global city, a place to live, work, play.'
According to Mr Kwek, Singapore is starting to attract 'cosmocrats' - an emerging group of globe-trotting super-rich people who are flush with cash and are buying the best properties from London and Paris to New York and Hong Kong. 'We are just beginning to see them in Singapore,' he pointed out. 'To them, if you talk about yield, they'll laugh at you. Yield is of no concern to them.'
Mr Kwek reckons luxury home prices here are not over the top, pointing to historical data as well as international comparisons. The average highest-done residential price in Singapore recently is about $3,300 per sq ft, which is still about 40-50 per cent below the equivalent figures in London, New York and Hong Kong, he said.
This means there is room for growth in Singapore luxury home prices, and by 2012 the gap could narrow to about 10-12 per cent. During the previous bull run, the highest price achieved was about $2,200 psf, Mr Kwek noted. 'At 6 per cent interest rate (and this includes inflation, which is not big in Singapore), after 10 years, you know what should be your selling price? $3,400 psf. At 7 per cent, we should be selling $3,900 psf today.'
Re: Property boom sustainable, says Leng Beng
Re: Property boom sustainable, says Leng Beng
Quote:
Originally Posted by BULL
MY HERO! :D
I still remember he reminded Singaporeans not to repeat the past mistake of entrering the market late in Q3 last year. Luckily I took his advice.
Plenty Of Potential In Residential
CityDev chairman plans to keep some units in new residentialprojects
Kalpana Rashiwala
Business Times
10 May 2007
Kwek Leng Beng is so confident about the ongoing property bull market that he's considering retaining a portion in some new residential developments for rental income and capital appreciation.
'We'll do this selectively and it will help us even out earnings fluctuations from our core property development/ trading business,' says Mr Kwek, who is executive chairman of Hong Leong Group and its listed property unit City Developments.
This new business model is no different from keeping office buildings for rental income, he explains in a recent interview with BT.
'Residential also has a lot of potential. Let's say, I had two towers in a residential project. I could sell one, and keep the other - and maybe sell later when prices are higher, keep for rental income, or even go for an en bloc sale one day, when I will be entitled to a windfall,' he said.
The issue in today's hot property market is that 'the selling price of your current project becomes the break-even cost for your next project' because of the ever-increasing cost of buying replacement land. 'You might as well not sell your residential development, ' Mr Kwek argues.
He says that retaining a portion of units in residential developments makes sense also because residential rentals are set to appreciate further on the back of leasing demand created by the influx of foreign talent into Singapore.
He also points out that the number of new homes built on sites sold through collective sales may be smaller than the existing stock that is being pulled down because of the trend of building bigger homes.
Mr Kwek also says that with the Singapore real estate sector booming, he would rather use his resources in a place where he has the best local knowledge and experience.
'I've always believed our strength is here. We are the proxy to the Singapore real estate sector. Why should we go overseas when we can make a lot more money here?'
'Also, for our group's property activities, we want to be a pure real estate company. We don't want to be a half-breed - half real estate, half financial. But things may change one day. Many institutional investors love the model of a financial, real estate company. But I tell investors: if they're looking for yield, they can buy into a Reit. There are people who like my model and are today enjoying a lot of capital gains.'
Mr Kwek also addressed recent concerns about the risks posed to banks that lend to developers which sell homes on deferred payment schemes. As most banks lend developers only up to 70% of land and construction costs for residential projects, developers have to put in at least 30% equity. And assuming they collect around 20% payment from home buyers under the deferred payment scheme, these developers will have a cushion of about 50% that will serve as a buffer to banks' exposure to them in the event of a housing price slide.
Mr Kwek also says that based on his model, if a developer sells half its high-end residential project and assuming that of the units sold, half are sold with normal progress payments and the rest on deferred payment, the sales proceeds collected by the developer should be able to pay for construction and related costs, depending on profit margins.
He also doles out advice for individual property investors, saying those who have sold their homes through en bloc sales should quickly re-invest their windfall in another property, to continue riding on the current buoyant property market.
On the common complaint among owners that sales proceeds from en bloc sales are insufficient to buy a replacement property, he suggests: 'Why don't you use the sales proceeds to fund half of your purchase and borrow the other half? This makes sense because the purchasing power of money becomes smaller over time.'
Another common complaint: 'If I sell, I can only afford a replacement property in an inferior location.'
Mr Kwek's answer: 'This is faulty thinking, because you are exchanging an old property of, say, 20 or 30 years, for a new one. If you want to be in the same location, you have to pay the new price. But do you need the larger older unit or a similarly large new unit where the cost is much higher? A new and smaller unit could be the answer.'
En bloc sellers should make the most of their windfall to re-invest for another windfall that will come about in the years to come, he says.
Another compelling reason to include real estate as part of one's investment portfolio: 'If you look at Forbes' list of the world's richest persons, many of them have their wealth backed by real estate.'
Re: Plenty Of Potential In Residential
Quote:
Originally Posted by Business Times
CityDev chairman plans to keep some units in new residentialprojects
Kalpana Rashiwala
Business Times
10 May 2007
Kwek Leng Beng is so confident about the ongoing property bull market that he's considering retaining a portion in some new residential developments for rental income and capital appreciation.
'We'll do this selectively and it will help us even out earnings fluctuations from our core property development/ trading business,' says Mr Kwek, who is executive chairman of Hong Leong Group and its listed property unit City Developments.
This new business model is no different from keeping office buildings for rental income, he explains in a recent interview with BT.
'Residential also has a lot of potential. Let's say, I had two towers in a residential project. I could sell one, and keep the other - and maybe sell later when prices are higher, keep for rental income, or even go for an en bloc sale one day, when I will be entitled to a windfall,' he said.
The issue in today's hot property market is that 'the selling price of your current project becomes the break-even cost for your next project' because of the ever-increasing cost of buying replacement land. 'You might as well not sell your residential development, ' Mr Kwek argues.
He says that retaining a portion of units in residential developments makes sense also because residential rentals are set to appreciate further on the back of leasing demand created by the influx of foreign talent into Singapore.
....................
Another compelling reason to include real estate as part of one's investment portfolio: 'If you look at Forbes' list of the world's richest persons, many of them have their wealth backed by real estate.'
The foreigners fight with us to grab properties. The funds also fight us. Now Mr Kwek also fight with us. Like that how to .....?
