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Published October 27, 2006

Foreign investors snap up prized properties

Over $2.5b spent so far this year on development sites and investment properties; upcoming IRs said to be one factor for renewed investor interest


(SINGAPORE) Foreign investors - many of them new faces - have ploughed more than $2.5 billion into Singapore's property market this year, says consultancy CB Richard Ellis (CBRE). And the feeling is that they are happy to continue paying top dollar for plum prospects.

Foreign parties have bought development sites and investment properties, with new players including Chicago-based Citadel Equity Fund, CLSA Merchant Bankers and Pacific Coast Assets.

And yesterday CBRE chalked up another sale to a foreign investor. Royce Properties, which is linked to Emirates Investment Group, outbid local developers to clinch the Horizon View condo in Cairnhill for $113 million.

'In my 15 years here, I have never seen so much foreign capital,' says CBRE's executive director of investment sales Jeremy Lake. Prices here are lower than in Hong Kong and Japan, but according to Mr Lake: 'Investors are not bottom-fishing. We have passed that point.'

Singapore's property yields of 3-4 per cent surpass Hong Kong's 2-3 per cent. And although the potential for capital appreciation is higher in Hong Kong, Mr Lake believes investors now prefer a 'blend' of income and capital gains.

Interestingly, more than half the recent purchases were by property funds or private equity firms.

There are now more 'investment-grade property ownership opportunities', says Henderson Global Investors' director of property (Asia) Chris Reilly. 'This hasn't been the case for a long time.' Citing a Jones Lang LaSalle report, Mr Reilly said net global funds flowing into Asia are still modest at US$1 billion, compared with US$13.3 billion for the US. So there is 'scope to see a greater allocation to property in Asia among institutional investors', he says. 'Over the long term, we will see more pension funds.'

On the size of returns, Daisuke Tanaka, vice-general manager of Kajima Overseas Asia - which with Lehman Brothers recently bought SingTel's Crosby House for $163.4 million - says foreign investors 'like the political situation here'. 'But if the risk is there, we will expect a higher return.'

Kajima has a US$1 billion portfolio in South-east Asia, with Singapore accounting for the biggest slice, followed by Indonesia and Hong Kong. Mr Tanaka says the integrated resorts (IRs) have been a catalyst for much of the new investor interest, pointing out: 'Relatively low returns could translate into high returns in the future.'

Property values in Singapore have been slow to pick up compared with those in Hong Kong, but this has also contributed to the pull factor. Allen Law, a director of Hong Kong's Park Hotel Group, a bidder for the Collyer Quay site, is unequivocal about his reasons for investing here: 'In Hong Kong, the market condition is not viable - prices are a bit on the high side now. Singapore presents many opportunities.'

Lehman Brothers has been particularly aggressive. With construction firm and developer Chip Eng Seng, it will develop two residential sites - one in Cairnhill and the other on the West Coast.

Foreign investors have been knocking on other doors too. Sim Lian Group, which is also involved in construction and development, has been approached several times in the past year, says managing director Kuik Sing Beng.

The most recent meeting was just two weeks ago, but Sim Lian will not be rushing to sign deals, Mr Kuik says. For a start, funds and private equity firms must account for their investments and provide a suitable return. 'Funds will want to sell their developments quickly to recoup their investments,' he explains. 'Local developers prefer to keep a certain proportion of units to sell at a higher price later.'

CBRE's Mr Lake says it is no longer unusual for foreign investors to make up half of the bidders for choice commercial sites, as with the Collyer Quay tender, which attracted not one but three Hong Kong-based hotel developers.

The Collyer Quay tender was also significant because another foreign investor, Dubai Properties, put in a solo bid without a local partner, following Lend Lease's lead at Somerset Central.

The executive director for Middle East and Islamic finance at Chesterton International, Fazlur Rahman Bin Kamsani, says the Orchard Turn, Somerset Central and Sentosa Cove sites could have seen even more competition if Middle Eastern investors were more familiar with the public tender process.

About four Middle East investors have approached Chesterton so far about development sites here, he says. 'They are prepared to pay the price but they don't want to go through the tender process. All they want to know is how much.'