Some capital ideas for profit-sharing

May 26, 2023

Michelle Low

IN THE shophouse market last week, a S$37 million sale of a Boat Quay property turned a tidy S$16 million profit for its owner in just five years. The deal didnít set any benchmarks. But it points to how potential for capital appreciation fuels continuing activity in the market, where high-net-worth investors eye trophy assets.

Shophouse sales dipped in 2022 from a banner 2021, and caveats data shows that year-to-date sales are also down. However, a good number of shophouses change hands without the lodging of a caveat - that is, without the filing of a claim of interest in the property such as a mortgage, so volume may be higher than caveat records show.

February data on the private resale market shows volume returning to the condominium market, with prices also rising in all regions except for the prime Core Central Region. The data also put the overall median capital gain for resale condos at S$300,000 in February 2023, or S$26,000 more than the January median gain.

Resales in the Clementi/Upper Bukit Timah area of District 21 saw the highest median capital gain at S$620,000, while sales in District 4 (Harbourfront/Telok Blangah) made the least, with a median capital gain of S$126,000.

Hereís a thought. What if average citizens were able to share ownership and partake in the gains accruing to holding real estate in Singapore? As talk gathers steam on private property prices rising out of reach of the average Singaporean, could joint investment plans or joint ownership give more people a shot at sharing in some of the wealth that goes with owning high-value assets?

Leslie Yee has a few possibilities in mind. Reits are a known vehicle. He also suggests that government funds could undertake mega redevelopments with participation open to retail investors so that the project can be better built to serve todayís needs and the assets owned by many Singaporeans rather than being held in the hands of a few tycoons. And how about allowing funds to buy homes (without incurring additional stamp duties) to hold for rental income so that gains can go to more investors?

Fractionalisation or tokenisation is another route for wider retail access to private equity investments. One firm doing that is RealVantage, a fractional real estate investment platform, which has turned the rising interest rate scenario to its favour by offering debt financing deals.

Interest costs and declining valuations continue to plague Reits. At the year-end, Manulife US Reit disclosed that its gearing had risen to just a shade shy of regulatory limits, and recently confirmed reports that its Reit manager could be sold to Korean asset manager Mirae Asset Global Investments. The potential deal is a reminder of the governance minefields that unitholders tread with externally managed Reits, writes Jude Chan in his Hock Lock Siew column.

Malaysian casino giant Genting has hit the jackpot with its 2011 bet in a massive waterfront plot in Miami. It acquired the 6 hectare site for US$236 million, at the time a record for land sales in the US county. Blocked in its bid for a casino licence for the project, Genting made plans to build a giant mixed project on the land but eventually put it up for sale at the end of 2022. Bids have come in at over US$1 billion.

New commercial projects in Singapore are attracting attention. A recent deal at Solitaire on Cecil fetched a record S$52.3 million or S$4,196 per square foot (psf) in a sale of eight strata units all on one floor to a foreign buyer. The freehold Solitaire on Cecil is being built on the former PIL Building site and is due to complete in 2026.

A Knight Frank report noted that prime office rents for grade A CBD buildings continued to rise in the first quarter. Demand was driven by flight to quality, while supply tightened with several buildings displaced from stock as they are torn down for redevelopment or removed from the market due to asset enhancement initiatives.

In Hong Kong, Sino Land opened two office towers amid record vacancies in the city. Itís banking on demand for cheaper office space outside the financial hubís core business district, from private wealth management firms. On the mainland however, there are still signs of distress, with Chinese developers reporting losses, offloading assets and some pivoting to construction.

It does look like Hong Kong is well and truly back on the high-net-worth radar. Art Basel Hong Kong saw sizzling sales figures as art buyers flocked to the city. The week-long fair was expected to rack up sales topping US$1 billion. A recently published survey by UBS and Art Basel on the global art market found that Hong Kong scored a jump in market share in both imports and exports of artworks. It now has the second-largest share in the art market after the US, with exports up by 95 per cent in 2022.

In Hong Kongís residential market, a buyer from mainland China offered HK$1.2 billion (S$202.8 million) for a 4,700 sq ft house in the coveted Peak area. The deal, if completed, would set a new Asia-wide benchmark for price per square foot at HK$255,000 - roughly S$43,000 psf, busting a previous record of HK$140,800 set in 2021.

Will some of that wealth stream back into Singapore in a significant way? Analysts will be watching new launches here to get a pulse on both local and foreign demand.