Affirming affordability of homes, resilience of Reits

Tue, Feb 07, 2023

UPDATED Tue, May 30, 2023

Leslie Yee

SINGAPORE is a global city that attracts the wealthy. Some private homes here can cost millions. An old house on a freehold site of 25,680 square feet along Wilkinson Road in District 15 is being sold for S$55.5 million.

Perhaps demand for luxury condominiums here will pick up, with greater participation by Chinese buyers on the back of China relaxing travel restrictions. Despite a dip in luxury property transactions over Q4 2022, real estate agency Huttons sees there could be more high-profile deals in the luxury market here this year with the return of super-wealthy Chinese buyers.

If developers are bullish on the luxury segment, they may want to buy Orchard Bel Air, which has been relaunched for collective sale. The guide price for this residential development, which is located next to the newly-opened Orchard Boulevard MRT station and sits on a site with over 56 years of land lease outstanding, is S$587.5 million.

While certain homes in Singapore are super pricey, there are many affordably priced homes. In Parliament, the government affirmed its commitment to keep Housing and Development Board (HDB) flats affordable and accessible for Singaporeans.

According to National Development Minister Desmond Lee, nearly 70 per cent of HDB’s build–to-order flats launched in 2022 across all estates can be affordably purchased with the median Singaporean monthly household income of S$8,400. Households use a quarter or less of their household income to pay for the mortgage instalment.

Singapore’s public housing is the envy of many countries. The HDB builds high-quality homes that are well served by public transport and amenities.

HDB homes are popular with home buyers and resale prices have risen. Resale prices jumped 10.4 per cent in 2022, after rising 12.7 per cent in 2021. Certain HDB resale flats can even fetch over a million Singapore dollars each.

I argue in The Level Ground that it makes sense for some buyers to splurge on the purchase of a sought-after HDB resale flat. Such a flat may cost 45 per cent less than a slightly smaller-sized private home nearby. Also, the affordability of a million-dollar HDB home may be good for some people who cannot buy a new 4-room or 5-room HDB flat from the HDB.

In the housing market here, spare a thought not just for potential buyers, but for those leasing homes too. Rental rates of both private and HDB homes had a strong run in 2022. Residential leasing volumes rebounded and rents continued to climb in December. Perhaps, tightness in the residential leasing market can only be alleviated with the completion of the building of more new homes.

In a global context, the resilience of the Singapore housing market may be an outlier. Shaky property markets across much of the world pose a risk to the global economy, as higher interest rates erode household finances and threaten to exacerbate falling prices.

For example, house prices in the United Kingdom are in their longest slump since 2008. Still, buying a home in the capital London may be challenging for many people. It could take a first-time homebuyer with a typical wage 15 years to save for a 20 per cent deposit on a home purchase.

Even in Singapore, higher interest rates may take a toll on some property owners. More Singapore properties could go under the hammer in 2023, by up to 40 to 50 per cent. Bankruptcy petitions are on the rise amid interest rate hikes, growing inflationary pressures and the expiry of pandemic support measures for borrowers, noted consultancy Knight Frank in its latest report on the auctions market.

I think investing in real estate can help hedge against inflation. One can get recurrent income as well as possible capital gains from buying property. However, transaction costs for buying a home in Singapore can be high, and a physical property is fairly illiquid. Hence, I think investors should consider buying Singapore-listed real estate investment trusts (Reits) and business trusts. These are well regulated and fairly liquid instruments. And some trusts have a good track record of growing distributable income.

Among trusts that reported results recently, heavyweight CapitaLand Integrated Commercial Trust (CICT) saw distribution per unit (DPU) for the half-year ended December 2022 rise 2.7 per cent year-on-year to S$0.0536. CICT’s retail segment posted a fourth straight quarter of positive rent reversion amid improved occupancy rates. Tenants’ sales also remained above pre-Covid levels.

Helped by stronger operating performance, another heavyweight CapitaLand Ascendas Reit posted year-on-year growth in DPU of 4.3 per cent for the second half ended December 2022.

Stand-out performances came from the hospitality trusts. CDL Hospitality Trusts’ distribution per stapled security (DPS) rose 17.3 per cent for the second half ended December 2022, due to continued global travel recovery. CapitaLand Ascott Trust posted a 47 per cent rise in DPS for the six months ended December 2022. Contributing to the strong performance were higher portfolio revenue per available unit and new acquisitions.

Last Sunday (Feb 5) marked the 15th day of Chinese New Year 2023. With business and social gatherings back in full swing, the first 15 days of the Rabbit Year were hectic. I enjoyed meeting up in-person with family and friends, as well as with business contacts among real estate developers and consultants.

After all the tossing to prosperity to usher in the Rabbit Year, focus will turn to the unveiling of Budget 2023 on Feb 14, to see what the Budget has in store for Singapore property.

https://www.businesstimes.com.sg/pro...silience-reits