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Published March 16, 2006

Going abroad pays off for S'pore property developers
CapitaLand, CityDev, F&N, GuocoLand, Ho Bee, Pontiac see strong returns from overseas forays


(SINGAPORE) Singapore property developers are reaping solid returns from their overseas ventures, with some having done particularly well in the past few years.

"We have to compete both in and outside Singapore in order to be world-class.'
- CapitaLand's group CEO and president Liew Mun Leong

The likes of CapitaLand, City Developments, Fraser & Neave, GuocoLand, Ho Bee and Pontiac Land have invested selectively in various overseas segments for commercial reasons, such as diversifying out of the small domestic market to broaden their income base.

Keppel Land started even earlier. It has been a regional player for more than two decades. And its overseas income accounted for 59 per cent of FY2005 total earnings, versus just 3 per cent in FY02.

'We remain confident about our overseas strategy and its success,' says a spokeswoman. 'Keppel Land will continue with its strategy of direct acquisition of trading development projects and strategic acquisition of property development companies. It has identified local housing development as a promising area as it is supported by strong aspirations of home ownership, especially among people in the middle-income group.'

CapitaLand group CEO and president Liew Mun Leong is a firm believer in venturing beyond Singapore's shores: 'My late father used to say that a good dog should learn to bark beyond its own doorstep. We have to compete both in and outside Singapore in order to be world class.'

No surprise then, that overseas operations accounted for 79 per cent of CapitaLand's earnings before interest and tax (Ebit) and 74 per cent of revenue in FY05.

As of end-2005, China was contributing 24 per cent, Australia 29 per cent, other parts of Asia 15 per cent and Europe 11 per cent. In 2000, overseas contributions made up 50 per cent of revenue but were negative in Ebit terms.

CapitaLand looks set to expand its overseas footprint further, with new deals in Vietnam and India, and the recent purchase of a 20 per cent stake in Hong Kong-listed developer Lai Fung Holdings.

Malaysian tycoon Quek Leng Chan's GuocoLand first ventured into China in 1994, focusing on the commercial sector, which it has since divested.

GuocoLand launched a residential development in Shanghai in 2003 and started recognising profits from it in 2004, says company secretary Dawn Lum.

For the half-year ended Dec 31, 2005, 48 per cent of GuocoLand's revenue, or $107.76 million, was from China. 'We felt we could export our property expertise, skills and knowledge to China, an emerging market that offers vast real estate opportunities in view of its large population base, huge economic growth potential and rapid urbanisation,' says Ms Lum.

The hazy outlook in Singapore and the region caused mid-size developer Ho Bee to look much farther afield - to England. 'Most of us in the region were in the same property cycle and hence, offered not much visible upside,' says general manager of business development and market Chong Hock Chang.

'London looked attractive then, and a decision was taken to invest there. We started in a small way by acquiring properties from other developers, and subsequently undertook development ourselves.'

There are other compelling reasons for going overseas. Land prices in Singapore are relatively high. And in some segments of the market they are not commensurate with return on investment.

Stephanie Kwee, vice-president at Pontiac Land, feels that based on land prices in Singapore, the hotel industry faces tough challenges. Pontiac already has four hotels, including The Ritz-Carlton, with close to 1,800 rooms. But Ms Kwee says: 'With current room rates, the land prices here are not sustainable. If room rates fail to rise we will see more hotels converted to other uses.

'Such conversions will result in higher room rates for the remaining hotels, but may have a negative long-term impact on the economy, specifically the tourism industry.'

Pontiac is developing a new luxury hotel on Sentosa called the Knolls. But Ms Kwee says the group is also looking at developing hotels in the region, 'particularly in areas where room rates are attractive and costs are reasonable'.

CityDev's overseas foray is mainly through its hospitality arm Millennium & Copthorne. The Millennium Hongqiao Shanghai hotel is due to open this year, as other possible ventures are negotiated with various parties. CityDev has started developments in Bangkok, Seoul and Kuala Lumpur. And new markets include Qatar and Egypt.

Diversification of income stream is often cited as a factor in going overseas. Fraser and Neave (F&N), which started its property development arm in 1987, now has 30 per cent of its business overseas, in such countries as Australia, the UK, New Zealand, China and Thailand.

F&N spokesman Hui Choon Kit says the group expects to increase its overseas business to 50 per cent in the next five years. 'It is better to be exposed to different property cycles,' he notes.

For F&N, now is the right time to be in Thailand. It recently bought a 33 per cent stake in Thai developer Krungthep Land and will soon launch its first Thai development, The Pano in Bangkok.