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Thread: BT Property 2009 September 24, 2009

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    Published September 24, 2009

    Bull charge


    IS THE seeming recovery in the property market for real? It's the million-dollar question that no-one - neither developers, analysts nor homebuyers - can answer with any certainty.

    The residential market in Singapore took off in February this year, after subdued sales through all of 2008. The bull run culminated in a record 2,772 new private homes sold by developers in July this year.

    A question mark now hangs over how the cooling measures announced in Parliament last week by National Development Minister Mah Bow Tan - to "temper the exuberance in the market and pre-empt any speculative bubble from forming" - will affect the market. Analysts say the measures, which include banning the interest absorption scheme, are not likely to keep away genuine buyers.

    Speculators, on the other hand, might think twice.

    The first major launch since the measures were announced - CapitaLand's The Interlace - still saw healthy take-up. Of the 360 units released for sale, 233 units or 65 per cent were sold as of Sunday.

    Over the next few pages, we examine the key aspects of Singapore's property market, taking an in-depth look at the residential market and upcoming launches and the commercial sector as well as key overseas markets.

    We ask experts for their views on how real and lasting the current rebound is. One factor that everyone agrees could influence the property market is the state of the economy next year and beyond.

    There is no denying the importance of Singapore's property sector. How the market does impacts not only developers, investors and "regular Joe" homebuyers, but also a whole lot of other sectors due to the knock-on effects - banks which have been enjoying brisk business dishing out housing loans this year; the construction sector which is the only sector of the Singapore economy to report growth in 2009; and other related trades.

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    Published September 24, 2009

    Sustainable home sales

    Strong sales volume has been the cause for the government's concern that a bubble was building up, says HAN HUAN MEI

    DEFYING all expectations, Singapore's residential property market has rebounded in the thick of the worst recession the country has seen. Buyers turned up in droves at recent project launches, sending the home sales figures in July to its highest level since the peak in June 2007. New home sales between January and August were just 21 per cent below the total number of homes sold for the whole of 2007.

    But going forward, prices of mass market and mid-tier projects are expected to face some resistance. The number of launches is also expected to be limited for the rest of the year. Even as the market was debating the outlook, the government announced anti-speculative measures mid-month which makes it almost certain that sales volume and prices will moderate.

    The robust residential market of the past few months seemed to mirror the peak in 2007, notwithstanding the recession. Market sentiment ran high as the stockmarket rally continued for four months starting in March. The strong take-up of new homes, led by mass-market projects back in February, filtered up to the mid-tier segment by April and to the prime segment by May.

    Buyers have been prowling showflats, concerned that home prices may be rising again after having corrected from peak levels. It appears that what started out as pent- up demand progressed into investment demand, and to some extent, speculative demand. Developers launched 10,496 new homes for sale from January to August, compared to 6,107 units in 2008. The total number of new homes sold up to end-August was 11,721 units, far exceeding the 4,264 new homes that were sold in all of 2008.

    Buoyed by the stockmarket rally, developers seized the opportunity to launch several mass market projects and found ready buyers. Mainly HDB upgraders, they made up 51 per cent of buyers of new homes in the first eight months of 2009. The number of new homes sold in August was a decent 1,699 units as strong sentiment continued to support the residential market. Including the 2,772 units sold in July, a total of 4,471 units were sold in the two months, which will probably add up to 5,200 units by the end of the third quarter. This would likely exceed the 5,129 units sold in Q2 of 2007, the highest recorded number of new homes sold in a quarter.

    The projects that performed well in Q3 were Trevista with 461 units sold at a median price of $943 per sq ft (psf), Optima @ Tanah Merah with 294 units sold at $830 psf, The Gale with 293 units sold at $710 psf and Oasis @ Elias with 150 units sold at $640 psf. In the mid-tier segment, Meadows @ Peirce sold 329 units at $900 psf, Ascentia Sky with 148 units sold at $1,230 psf and Airstream in St Michael's Road, with all 70 units sold at $1,085 psf. Within the prime districts, Sophia Residences sold 210 units at $1,550 psf, Viva sold 203 units at $1,537 psf and Volari sold 82 units at $2,058 psf.

    There was continued interest in high-end investment grade properties as evidenced by the sale of seven units each in The Orchard Residences ($2,720 psf-$4,099 psf) and Nassim Park Residences ($2,782 psf-$3,453 psf) and 11 units in The Hamilton Scotts ($2,300 psf-$3,313 psf). Property prices have been stable in Q2 and Q3, with some upside seen in projects with brisk sales.

    The strong sales volume has been the cause for the government's concern that a bubble was building up in the residential property market. Hence, the implementation of the measures on Sept 14 to ensure the stability of the property market. The measures include the immediate removal of the interest absorption scheme (IAS) and interest-only housing loans (IOL) scheme for projects yet to be launched. This will dampen speculation and put a check on rising prices from the escalating sales volume.

    The re-introduction of the confirmed list in the government land sales programme for the first half of 2010 will ease fears of a supply shortage. The non-extension of Budget assistance measures also signalled the government's confidence that the residential market is sufficiently resilient to weather the current financial crisis.

    Prices of mass market and mid-tier projects could face some resistance in the last three months of the year. Based on the caveats lodged in Q3, the median price of new non-landed leasehold homes was $916,000 ($769 psf), 11 per cent higher than the $825,000 ($660 psf) registered in Q2.

    This could be attributed to projects like Double Bay Residences, Livia, Optima @ Tanah Merah, Trevista and Waterfront Keys. As for new freehold homes, the price jump was 32.2 per cent from $1.06 million ($949 psf) to $1.4 million ($1,241 psf) because more of the projects launched were located in the prime districts. Examples include Sophia Residences, Viva and Volari.

    The number of launches is expected to remain limited for the rest of the year. Median prices of new luxury homes in districts 9 and 10 may have risen 18 per cent to $2,700 psf in Q3 from the previous quarter. But they remain about 28 per cent below the 2007 peak of $3,750 psf. Developers appear to be in a good position to hold off luxury launches for the time being, considering the high price they have paid for the land and current construction costs.

    They will continue to launch mass market and mid-tier projects, which are more affordable, now that the IAS and IOL schemes have been removed. Home buyers who only have sufficient funds for the upfront 20 per cent downpayment will probably hold back on buying any newly launched projects and look instead to projects close to completion so that they can sell their existing home to finance the new purchase.

    Home prices and sales volume will be moderated to more sustainable levels with less volatility. New home sales for the full year should exceed 14,000 units with a possibility of surpassing the market peak of 14,811 units in 2007. Certainly, further price increases for the rest of the year will be held in check.

    The writer is associate director, CBRE Research

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    Published September 24, 2009

    Recession, what recession?

    Increased sales strongly suggest that buyers are convinced property prices have bottomed, or are low enough for them to re-enter the market, writes EMILY ENG

    GIVEN the recent euphoria in the residential market, it is no surprise that it has become a hot topic of discussion. Isn't Singapore still in recession, people wonder. Unemployment is still high, with an estimated 116,600 jobless residents as at June this year.

    And while gross domestic product (GDP) forecasts have been revised upwards from an initial minus 9 per cent to the current minus 4 per cent, the 'improvement' is still a negative figure. But none of this has dampened the buoyant mood of buyers and the flurry of launches.

    So what's driving this burst of buying, and is speculation rampant? We take a look at the situation, with our focus on the upper-mid to high-end segment where prices average $1,500 per sq ft.

    First, we compare the recent bullish market to the boom of 2007. Two years ago, the activity had started in the high-end segment, driven by foreigners eager to buy into Singapore due to the good job done promoting the city.

    The buzz surrounding the two planned integrated resorts (IRs) helped boost Singapore's appeal, leading to a record number of foreigners buying private property here.

    This, coupled with pent-up demand, led the market to experience one of its most active years, with 14,811 new units sold during the year. Speculation quickly came into the picture, and the government abolished the deferred payment scheme to rein it in. But it was the global financial crisis that eventually brought the market to a standstill.

    The current bull run started in the mass market where pent-up demand pushed up sales after a dry spell of almost six months following the collapse of Lehman Brothers. The successful launch of Caspian in Jurong West and Double Bay Residences in Simei gave rise to renewed confidence in the property market, and the optimism filtered up to the higher-end segment.

    Verdure at Holland Road was among the first upmarket projects to launch amid some uncertainty. When it achieved strong sales, other developers began to push out their projects. In all, developers sold over 10,000 units between January and July this year.

    There are two key differences between now and 2007 - what drove the sales, and the price levels set. The earlier boom was driven by foreigners, and the buying helped set new record prices. It was also a bull run that was long overdue. After the Sars crisis in 2003, the market had taken three long years to recover and eventually saw its peak in Q1 2008.

    Today, prices are closer to the levels of Q4 2006. When prices are at this level, the number of buyers begins to rise. The increased sales strongly suggest that buyers are convinced property prices have bottomed, or are low enough for them to re-enter the market.

    Have prices peaked?

    Now that prices have been rising for some months, the question is: Have they reached the peak of 2007/2008?

    The table shows a basket of projects sold from 2007 to 2009, comprising a mix of completed and uncompleted projects in districts 9, 10 and 11.

    It shows that the highest prices were achieved in 2008, with a handful of projects hitting their highs in 2007. This analysis shows that prices today have yet to reach the previous peak, nor are they anywhere close. This coincides with the Core Central Region (CCR) price index of Q2 2009, which shows we are still 28 per cent off the peak of Q1 2008.

    To reinforce the point, we compare prices of recent launches to other projects in the vicinity. Some examples are:

    # One Devonshire (launched in June) averaged $1,800 per sq ft (psf); whereas The Metz along the same road averaged $2,222 psf and St Thomas Suites nearby averaged $1,848 in 2008.

    # The Lincoln Residences (launched in March) averaged $1,173, compared to Park Infinia which averaged $1,400 psf in 2008.

    # Verdure (launched in April) averaged $1,400 psf, compared to Waterfall Gardens at Farrer Road which launched in 2007 at $1,500 psf.

    So it is the recent spike in property launches and the stunning take-up that has given rise to the perception that speculators are back in full force. But are they?

    Speculation is best measured by the number of sub-sales in the market, as speculators are unlikely to hold on to their properties beyond three months. Speculative activity prompted the government to abolish the deferred payment scheme in 2007. Today, it is the interest absorption scheme (IAS) that has been withdrawn.

    However, the impact is expected to be minimal as recent projects that did well - among them, Madison Residences, Viva, Volari, Sophia Residences, One Devonshire, Ascentia Sky, The Wharf Residences and Martin Place Residences - saw only an estimated 10-30 per cent of buyers taking up the scheme.

    In fact, projects such as Ferrell Residences, The Trizon and Nathan Residences do not offer IAS and their sales have not been affected.

    But we notice that some short- term investors have made their appearance at mid-tier launches, especially for units priced around $800,000 and below.

    However, the majority of these buyers bought their units under the progressive payment scheme. This shows that they are prepared to take on a bank loan and service instalments. This is certainly not the pattern of a typical speculator.

    Is the recovery sustainable?

    The current market has outperformed expectations, to the surprise of observers who could not have envisaged such a recovery six months ago. While some wonder if a bubble is forming, we feel reassured by the fact that most buyers in this upturn are upgraders and genuine home owners, going by the reception to mass-market launches.

    The rental market has softened over the past year and has dropped 20 per cent from its peak in Q2 2008. The rental yield had ranged from 4-7 per cent in the last three years. We expect yields to drop to 2-4 per cent from here. Is this bad? Not necessarily, as the market has traditionally offered these lower ranges.

    In the primary market, mass-market projects have been pushed out so quickly that there are few remaining parcels left in the pipeline. The confirmed land sales, which will resume next year, is timely, and if carried out in a measured manner, will provide a steady supply of launches and corresponding take-up.

    The stock market, after a turbulent year, has finally stabilised. Employment is also expected to improve as firms start hiring again.

    We expect prices to stabilise from here after recovering from the under- valuation at the start of the year. Prices are expected to start rising again in mid-2010 when the two integrated resorts are due to be completed.

    The market had benefited from the 'IR effect' when it was announced in 2006 and the excitement continued to boost the market into 2007.

    Now, with the impending completion of the two mega projects, we believe the market will once again be able to capitalise on the buzz, leading property prices higher by 10-15 per cent.

    The writer is associate director, residential project marketing & consultancy, Knight Frank

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    Published September 24, 2009

    Can a mass market recovery be sustained?

    Due to lower interest rates, affordability for mass market resale condominiums has improved compared with the peak in Q4 2007


    MASS market projects, which were laggards in the 2007 boom, are leading the recovery this time round. In 2005 and 2006, only 36 per cent of the private residential transactions were for private homes outside the central region (OCR). In comparison, 48 per cent of transactions in H1 2009 were for homes in OCR (Chart 1).

    In 2007, demand for homes in OCR rose to 40 per cent of total private residential transactions. However, as the average price of mass market resale condominiums shot up by 26 per cent that year, buyers with HDB addresses accounted for a historical low of 22 per cent of transactions (Chart 1).

    This resulted in pent-up demand among this group of buyers who saw their chance when developers started to launch mass market projects at competitive prices in Q1 2009. Buyers with HDB addresses accounted for 56 per cent of transactions in Q1 2009.

    The projected completion of private homes from 2009-2013 is estimated to be 11,313 units per annum, 31 per cent higher than the past 10- year average of 8,671 units. However, this has to be seen in the context of less overall housing supply since the Housing and Development Board (HDB) switched to the build-to-order (BTO) system in 2001.

    Compared to 1996-2000, which saw 43,000 homes (both private and public) completed per annum, the number of homes completed in the past five years plummeted 70 per cent to around 13,500 units per annum as the HDB cut back on the building of public homes.

    On the demand side, the resident population grew steadily at a compounded annual rate of 1.4 per cent over 1996-2008. In 2008, the net increase in resident population was 59,600. Assuming an average household size of 3.5 persons, this could translate to a housing demand of 17,000 units.

    Demand for subsidised flats was evident when the half-yearly sale exercise of HDB three-room premium, four-room and bigger flats in April was over-subscribed by 23 times. The four- and five-room flats in Punggol and Sengkang in the June-August BTOs saw four to seven applications for every unit offered. Unsuccessful applicants could switch to buying resale HDB flats or mass market private homes. The demand for resale HDB flats would also spill over to the private property segment as existing owners of HDB flats upgrade to private homes.

    With increased demand, prices started to rise from the lows early this year. The average price of a three-bedroom mass market resale unit rose 7.1 per cent to $605 per sq ft (psf) in Q3 2009, just 0.8 per cent below the previous peak in Q4 2007.

    Nevertheless, due to lower interest rates, affordability for mass market resale condominiums has improved compared with the peak in Q4 2007. Based on the average price of $605 psf for a three-bedroom unit today, a household in the 71st to 80th decile would need to spend 26-29 per cent of its gross monthly household income on instalments should it take up an 80 per cent loan.

    This is below the recommended 30 per cent threshold for comfortable repayments. Since 80 per cent of Singaporeans live in public housing, the average household income in the 71st to 80th decile serves as a benchmark for affordability of first-time buyers as well as HDB upgraders.

    However, compared with Q2 2003, mass market resale condominiums in Q3 2009 are less affordable (Chart 2). This is mainly due to the lower property prices in 2003. The average price of a three-bedroom unit was $440 psf in Q2 2003. Prices of new mass market units in Q2-Q3 2009 have risen faster than those in the secondary market. In Q1 2009 when Caspian was launched, it was priced at a median $603 psf, just 8 per cent higher than the four-year old Lakeholmz beside it.

    However, recent launches were priced 15-65 per cent higher than comparable developments in the vicinity that were less than five years old. The current average price of $900-$1,000 psf for new mass market units was only seen in 1996 and 2007 during the height of the property boom.

    Based on an average price of $900 psf for a new three-bedroom mass market unit, a household in the 71st to 80th decile would need to spend 38-43 per cent of its monthly income on instalments for an 80 per cent loan.

    As a result of price increases, caveats lodged in July and August showed a lower proportion of buyers with HDB addresses, from 67 per cent of new home sales in OCR in H1 2009 to 52 per cent in July and August.

    Singapore has a more convincing growth story today than in the past. With its growing stature as a global city and significant structural changes, the city is attracting investors who believe it has further upside in the long term. However, there will be cycles tied to economic performance and external shocks. Private home prices here will not rise indefinitely due to land scarcity, as some panic-stricken house hunters are led to believe.

    Most of those who bought new mass market condominiums during the 1996 peak are still sitting on paper losses. An analysis of condominiums launched in OCR in 1996 showed that the median prices of 90 per cent of the developments were below their launch prices even during the 2007 peak.

    The Singapore economy has performed better than expected this year but it could be largely due to the stimulus spending by governments around the world. More private consumption, especially in the US, would have to underpin economic growth in 2010 and beyond, for the residential market recovery to be sustainable.

    With the recent cooling measures in place to curb speculation, the buying frenzy is expected to moderate, leading to more stable prices.

    The writer is DTZ's head of South-east Asia research

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    Published September 24, 2009

    Local projects garner global accolades

    Singaporean developments put up a respectable showing this year picking up regional and international awards, reports UMA SHANKARI

    REAL estate companies in Singapore and the rest of Asia are now placing greater emphasis on winning awards that give their projects - as well as the developer the award-winning properties are associated with - an international stamp of quality.

    Top quality: (From above onwards) The Quayside Isle Collection at Sentosa Cove, Mapletree Business City and Far East Organization's Orchard Scotts are just some of the projects that have done Singapore proud

    One of the most prestigious international awards a developer can win for his property is the FIABCI Prix d'Excellence. FIABCI is the French acronym for the International Real Estate Federation, which organises the annual Prix d'Excellence to recognise excellence in property development.

    Singaporean projects put up a respectable showing this year. Orchard Scotts, by Far East Organization, came up tops in the residential category, while Newton Suites, by UOL Group, took second spot. The St Regis Singapore, by City Developments, Hong Leong Holdings and TID Pte Ltd, won in the hotel category.

    Entrants are evaluated on five criteria: global concept, architecture and design, development and construction, community benefit and environmental impact, and financials and marketing. The FIABCI award is especially prized as a project has to do well in all five categories to win acclaim.

    Singapore developments have performed well in the FIABCI competition over the past few years, ever since City Developments' Republic Plaza became the first project to bag the FIABCI Prix d'Excellence overall winner prize in 1997. Other top winners over the years include Suntec City, Prudential Tower, Caribbean at Keppel Bay, the Esplanade Theatres on the Bay, 1 Moulmein Rise and One Raffles Quay.

    The win by Orchard Scotts is the fifth FIABCI award for Far East Organization. The company is the only developer in the world to have five FIABCI wins, it said. 'We're constantly challenging ourselves to deliver better homes and lifestyle experiences for our customers, who are increasingly well-travelled and cosmopolitan,' said Chia Boon Kuah, executive director and chief operating officer of property sales at Far East Organization.

    Being conferred prestigious international awards such as the FIABCI Prix d'Excellence serves as an encouragement and is a testament to the company's track record in building top quality award-winning developments, with internationally recognised environment, health and safety standards in mind, said CityDev's managing director Kwek Leng Joo. 'Beyond enhancing our brand positioning, winning such awards helps us to internationally benchmark our business practices and serves as a motivation and challenge for the company to scale greater heights in the future,' he said.

    Like the FIABCI Prix d'Excellence, the MIPIM Asia Awards - designed to pay tribute to the most innovative real estate projects in the Asia-Pacific region - also drew a lot of interest. During the last round of the awards in late 2008, projects from China, Japan, Singapore and South Korea won trophies.

    Singapore's Changi Airport Terminal 3, designed by CPG Consultants Singapore and developed by the Civil Aviation Authority Of Singapore, won in the Mixed-use Buildings category. Other awards included one for City Developments' The Sail @ Marina Bay in the residential developments category.

    Local developers also picked up kudos at the Cityscape Asia Real Estate awards earlier this year. CityDev's The Sail @ Marina Bay was named the best built waterfront development, while Far East's The Central emerged as the best built mixed-use development. Keppel Land's Ocean Financial Centre won the prize for best future green development. Fusionopolis 2A came up tops in the best urban design and master planning category, while CapitaLand's Muchuan Green Hope School was honoured in the best corporate social responsibility development category.

    Donald Han, managing director of Cushman & Wakefield in Singapore, says that investors tend to be willing to pay a premium for high-end and luxury iconic projects, such as The Sail @ Marina Bay. 'There is a sense that the global market already knows of (such projects),' said Mr Han. 'Developers build such projects at a premium (cost) and they pass on some of this premium to buyers.' And buyers, he added, are willing to pay the extra amount as the project is likely to gain in value and could be resold again for a profit.

    Another accolade developers are increasingly keen to pick up - although it is not technically an award - is the Building and Construction Authority's (BCA) Green Mark certification. The scheme, which was launched in 2005, attracted more interest this year.

    Some 103 buildings were certified 'green' at the award ceremony earlier this year, up from 69 last year. BCA this year also expanded the Green Mark scheme to offer certification in three more categories: infrastructure, office interior, and landed houses. Previously, the Green Mark scheme was only offered to buildings.

    Developers whose projects received Green Mark certification said that the award was an indication of their company's quality. 'These (BCA) awards not only serve as recognition of our commitment to embrace eco-friendly initiatives, they also serve to distinguish Mapletree as a developer of high quality sustainable developments, offering not only the highest standard in functional efficiency but also conducive environments that our tenants' staff will be proud to work in,' said Tan Boon Leong, Mapletree chief operating officer and CEO for Singapore investments.

    'We believe that the creation of green buildings make good business sense as they are investments that will translate to user benefits and cost savings, not just for us as landlord, but also for our tenants.'

    Mapletree received BCA awards for all the four projects that it submitted for evaluation this year - including the highest Platinum certification for upcoming projects Mapletree Anson and Mapletree Business City. City Developments also received several BCA Green Mark awards this year, including a Platinum one for its residential project Quayside Isle Collection at Sentosa Cove. The BCA Green Mark Platinum is awarded to exemplary green projects that effectively demonstrate 30 per cent energy and water savings, as well as environmentally sustainable building practices and innovative green features.

    Interest in building 'green' developments is growing as tenants are also showing an increased willingness to pay more for green space. A survey conducted by CoreNet Global and Jones Lang LaSalle late last year showed that 60 per cent of Asia-Pacific companies are willing to pay a premium rent to occupy sustainable space - despite the tighter economic environment.

    'The bottom line is still about rental, any green features or great design has to translate to competitive rents,' said Cushman & Wakefield's Mr Han. However, if all things are the same, tenants - especially US companies with a stated goal of going green - will choose green buildings, he said. The increased emphasis being placed on international awards and greening is also changing Singapore's landscape, market observers point out. More developers here now hire internationally renowned architects to design their projects, and also allot more space within a development to greenery.

    CapitaLand's 1,040-unit The Interlace (on the site of the former Gillman Heights) was designed by Ole Scheeren, a partner at the Office for Metropolitan Architecture - the firm behind the design of the distinct 54-storey China Central Television Station headquarters in Beijing. The Interlace will also have extensive greenery.

    CapitaLand said that using the Office for Metropolitan Architecture cost a few times more than just going with a 'normal' architect, but the developer is convinced that the end results will be worth it.

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    Published September 24, 2009

    Landed homes the way to go

    Buyers took advantage of lower prices, which have corrected by some 20 to 30% from the peak, and low interest rates to buy their dream landed homes


    A HOME these days has become more of a lifestyle statement and status symbol than just a roof over one's head. And what could answer both aspirations better than a plot of freehold land where the owner can dictate every last detail in a custom built house?

    So is it too late to go shopping for a landed property today? Let's look at how the market has been performing this year.

    The landed market has seen a recovery in transactions, with the turning point in March this year. After hitting a low in February, when only 73 units changed hands, March saw 123 units done. This figure then increased by leaps and bounds, from 247 units in May to 331 units in June and 320 in July.

    Buyers took advantage of lower prices, which have corrected by some 20 to 30 per cent from the peak, and low interest rates to buy their dream landed homes. With the recovery in volumes, is a price recovery in sight?

    Landed home prices had peaked between late 2007 and the first part of 2008 before trending down as the sub-prime debacle hit.

    It saw a low between January and March this year but with the recovery of the stock market, sentiment improved and landed home prices began to pick up in April.

    Despite the upward trend, prices as at July were still some 11 per cent below the previous peak. The only exception is detached houses, whose prices are close to the 2007 peak. We look at some of the reasons behind the demand for landed homes.

    # Landed properties are seen as value for money compared to non- landed units: A landed property, when compared to a condominium in the primary market, appears better value for money. The former has a bigger built-up area, in addition to a car porch and a garden.

    If one buys a typical landed terrace house for, say, $1.28 million and spends $300,000 on renovation, the total cost is about $1.6 million. This works out to about $640 per sq ft, assuming a built-up area of 2,500 sq ft. The terrace house is likely to be freehold or with a 999-year tenure, and have four to five bedrooms.

    For the same price, a buyer may be able to get just a 1,300 sq ft three-bedroom leasehold condominium in the primary market. This can be seen from the recent launch of Centro, a condominium in Ang Mo Kio, with prices averaging around $1,200 per sq ft (psf).

    # No maintenance charges: The owner of a landed property does not need to pay maintenance charges as opposed to someone living in a condominium. To make up for the lack of facilities in a landed property, there has been a growing trend of owners incorporating a lap pool within their homes.

    # Lower construction cost: Reconstructing a property is more economical today than at the peak in 2007, as construction costs have dropped by 10 to 15 per cent over the past year.

    # Custom built: Many home buyers today do not not hesitate to buy an old property, tear it down and build their dream house on the site.

    In fact, some owners so enjoy dictating the design and materials for their house that they get very involved in liaising with the architect, contractor and interior designer. The completed project gives the owner an added sense of pride and satisfaction.

    # Improved convenience: Landed properties had tended to cluster in estates lacking amenities or public transport. However, with the opening of MRT lines - the East-West, North-South, North-East and the Circle lines - it has become more convenient to commute from many landed housing estates.

    Most are just a five- to 15-minute walk to the train station. One can also find food and retail outlets integrated with the MRT station or transportation hub. An example is the upcoming shopping mall 'nex', located above Serangoon MRT station and next to a bus interchange.

    The accessibility has made landed properties more desirable and has changed the perception that they are not as conveniently located as apartments.

    Is the demand sustainable?

    Landed properties are likely to retain their popularity among Singaporeans. However, whether the transaction volume can be sustained will depend on the price expectations set by the sellers.

    Despite the recovery in April, transacted volumes and prices are still below the peak. The 320 units transacted in July were about half of the 605 units done during the peak in May 2007.

    Prices in the current market are still some 11 per cent (excluding detached houses) off those seen during the peak. For instance, in June this year, the average price of a landed terrace house below 2,500 sq ft was about $697 psf, compared to $796 psf seen during the peak in March 2008.

    With the continued economic recovery and improved market sentiment, prices could continue to rise. However, as the economy is not yet out of the woods and wage increases are not expected to be strong, there is a cap on how much buyers can or will pay.

    Price increments may slow from the 12-31 per cent registered in the earlier months of the year to a more gradual pace of 5-8 per cent in the next 12 months.

    The writer is deputy managing director (agency and business services), Colliers International

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    Published September 24, 2009

    Some choice locations for landed homes

    West Coast/Pasir Panjang

    NOT only is this area close to institutions of higher learning, such as The National University of Singapore, it is just 15 to 20 minutes' drive to the CBD.

    The opening of shopping malls such as VivoCity and West Coast Plaza has added much vibrancy to this area. The impending new Circle Line, with stations extending to Telok Blangah, Labrador Park, Pasir Panjang, Haw Par Villa, Kent Ridge and one-north, will make the area highly accessible.

    Bukit Timah

    BUKIT Timah is a popular choice, being close to quite a number of elite schools - Nanyang, Hwa Chong Institution, Methodist Girls' School, Singapore Chinese Girls' School, Anglo-Chinese School (Barker Road) and St Joseph's Institution.

    The area is currently not served by an MRT line but come 2015, the Downtown Line will have stations at Stevens, Botanic Gardens, Tan Kah Kee, Sixth Avenue, King Albert Park, Beauty World, Hillview and Cashew.

    East Coast

    THIS area covers Mountbatten, East Coast Road, Tanjong Katong, Siglap and Bedok. Its proximity to the beach and access to town via the East Coast Parkway has made this area popular.

    Access to this area will be enhanced by the new Circle Line MRT stations such as Mountbatten and Dakota. In addition, the future Eastern Region Line will run through Tanjong Rhu to Marine Parade estates.

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    Published September 24, 2009

    The growing GCB market

    Prices have more than doubled over the last decade


    PRICES of good class bungalows (GCBs) have picked up strongly since early this year, topping prices fetched in the last property peak in 2007. GCBs are owned by a select group of wealthy individuals, who may well own more than one such bungalow. There are an estimated 2,500 GCBs in Singapore today. By definition, GCBs need to have a plot size of at least 1,400 sq m (15,070 sq ft) and be located in one of the areas zoned for GCBs.

    Sought after: With the strong demand for GCBs, we are beginning to see a shortage of such properties for sale, especially in the prime areas

    Their prices have more than doubled over the last decade, with the average price today being about $1,000 per sq ft (psf) to $1,200 psf of land in prime areas such as Tanglin. For example, a GCB in Ladyhill Road with a land area of 16,340 sq ft was sold at $8.23 million in September 2000. This works out to $504 psf. In the current market, the same bungalow would easily fetch more than $18 million, or about $1,100 psf.

    Similarly, a GCB in Bishopsgate with a land area of 19,300 sq ft was sold for $11 million or about $570 psf in November 2000. A similar unit today would fetch $20-22 million.

    The rising number of high net worth foreigners who become Singapore permanent residents (PR) and citizens form the bulk of prospective buyers for GCBs. Apart from this group, we are also starting to see investment companies acquiring GCBs for their portfolios.

    It is generally perceived that with the pricing of premier condominiums ranging between $2,500 psf and $3,500 psf, there is a lot of upside growth for GCBs whose average price is about $1,000 psf.

    With the strong demand for GCBs, we are beginning to see a shortage of such properties for sale, especially in the prime areas. GCB prices have risen steadily since the start of this year, and have climbed by nearly 25 per cent in less than a year.

    Lately, we are seeing more GCB buying from new PRs and citizens. In addition, we are seeing situations where Singaporeans are prepared to buy GCBs with existing tenancies although the rental yield is generally low at about 2 per cent. GCBs can be found in popular locations ranging from districts 10 and 11 to districts 21 and 23. Of these, the most sought after GCBs are in the prime district 10.

    The most expensive GCBs are located in the Nassim and Ladyhill area, followed by those in Tanglin, such as Bishopsgate, Chatsworth and Rochalie, and those in the Tanglin-Holland vicinity, such as Swettenham and Peirce roads. Bungalows around the Botanic Gardens, such as Cluny and Dalvey, are also in demand.

    There is no special preference for old or new properties among GCB buyers. Generally, key deciding factors for GCB buyers are the site's location and land specification, ie, regular shape, above or below road level, gradient, etc. This is because most buyers often rebuild the house, whether the existing one is old or new.

    Tips on purchasing GCBs

    The first thing a buyer needs to know is if the property is in an area designated for GCBs by the Urban Redevelopment Authority (URA). Not all properties with a land size of more than 1,400 sq m qualify as GCBs.

    Prospective buyers should also be aware of the property conservation scheme in Singapore. Those earmarked for conservation cannot be torn down and rebuilt. This is especially true for older properties with colonial architecture.

    Lastly, prospective buyers who are PRs should be aware that under Singapore property law, they are not allowed to buy a GCB that has more than one year of tenancy remaining.

    In addition, Singapore PRs who want to buy a GCB have to get permission from the Land Dealing Unit of the Singapore Land Authority. The maximum size of GCBs open to PRs for purchase is capped at 1,400 sq m, although there could be waivers in some cases.

    The outlook for the GCB market for the rest of the year and 2010 is good, with the buying momentum expected to continue.

    The writer is managing director, RealStar Premier Property Consultant Pte Ltd

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    Published September 24, 2009

    Residential market needs a rework

    Changing policies as market conditions change reflects pragmatic and adaptive policymaking which should be applauded


    THE big picture driver of real estate wherever is the economy. A residential property buyer pays a certain amount for a particular location because he likes to work, live and play there. Should Singapore execute successfully on mega projects like the integrated resorts, improve her infrastructure, grow her economy and become an increasingly important global city, the trend for property prices is up.

    But how fast should prices rise? Is there excessive speculation in the Singapore private residential property market? These are tricky questions and governments everywhere, through their policies, play a major role in impacting the property market. Recently, the Singapore government, acting to pre-empt any speculative bubble from forming, unveiled both supply measures such as reinstating the confirmed list of land sales in the first half of 2010 and demand measures such as disallowing the interest-absorption plan and interest-only loans being offered to buyers of uncompleted private homes.

    Changing policies as market conditions change reflects pragmatic and adaptive policymaking which should be applauded. Moreover, well-timed pre-emptive moves deserve the most kudos. However, perhaps there is a case for adopting a framework where only supply measures change while demand measures remain unchanged. This is not just about letting free market forces reign as adopting such a stand creates more certainty for developers and property buyers, both of whom are committing to sizeable investments. Whenever large sums of investment are being made, consistent regulations are called for and the residential property market should be no exception. For example, let's be clear whether we want schemes like deferred payment or interest absorption all the time, not at all, or some of the time.

    Perhaps what we really need to focus on is putting in place the set of demand measures that works best for Singapore taking into account various factors. These can range from affordability of homes, wealth creation through real estate acting as a store of value, promoting home ownership, and making Singapore an attractive investment destination. It may be timely to launch an extensive consultation process and have an informed debate that addresses a spectrum of questions, several of which are highlighted below.

    How do we want to treat pre-sales of uncompleted residential projects? At one extreme, allow developers to sell projects only after obtaining a temporary occupation permit (TOP). At the other extreme, let the free market rule and allow developers to sell projects well ahead of completion, accept however a low initial payment and offer, whether on their own or in partnership with financial institutions, whatever financing scheme. My take is that, for uncompleted developments, it may be better to allow developers to start selling units at a fairly advanced stage of a project's construction.

    After setting an appropriate level of initial payment, let developers and banks have flexibility on payment and financing schemes but give purchasers a maximum window of say 6-12 months between making initial payment and full payment upon completion. This should better ensure that buyers committing to a unit have the financial means to complete and are not just banking on having a 2-3 year time period in which to flip their properties.

    What is our stand on investors? Residential properties after all provide accommodation needs as well as act as investment instruments. The issue here touches on how much of residential property should be in the hands of owner occupiers versus investors, and whether the rich can potentially own too large a chunk of private residential property. My take is to have no capital gains tax on all sales of residential properties but perhaps impose much higher property taxes for owners of luxury properties or serial property owners possibly defined to mean persons owning five or more residential properties.

    What about foreigners buying property and do we differentiate here between foreigners and permanent residents? At its core, this question drives at what sort of priority, if any, citizens should enjoy in the private residential property market. The issue here is that of Singapore Inc versus Singapore Home and what role we want private residential property to play in getting this balance right. I think the answer may be to give flexibility to foreigners residing in Singapore to buy property as these people contribute to our economy while being more restrictive on other foreigners buying residential properties here. Perhaps we can restrict the number of residential properties a non-permanent resident can own and bar such persons from buying properties that are below a certain absolute dollar value.

    A most critical and tricky question is what is the right role of public housing? A bold rethink here of current policy could be timely. In the early years of nationhood, the building of HDB flats helped in giving Singaporeans a stake in this fledging island state and modernising the cityscape. But amid progress and a more demanding population, should HDB flats get fancier so as to be equivalent to private condominiums? What is the right income ceiling to apply to first-time buyers of HDB flats? What exactly should the government subsidise in the HDB segment?

    Perhaps instead of housing 70-80 per cent of the population in HDB flats, let's move as rapidly as practicable to having 20-30 per cent of the population housed in HDB flats. With the modern metropolis that we are and the first world living standards that we enjoy, let public housing serve the needs of those who really need help. For young citizens of Singapore, consider giving a housing grant instead. Helping young people get a foothold in the private residential property market could be a precious advantage that the value of citizenships confers.

    Certainly, there is plenty to debate about whether the combination of liquidity, forthcoming opening of integrated resorts, and green shoots appearing in the global and Singapore economy are good reasons for the Singapore private residential market to stage an unexpectedly strong recovery given the hit the economy here, and globally, has taken. There is also much for investors to grapple with on the residential market's prospects and whether to play that through property stocks of physical property. But amid all this discussion, let's think about the long term, about whether supply-only measures work and about the right framework for Singapore's residential property market.

    Leslie Yee is a Hong Kong-based real estate executive with extensive experience in the Singapore property market

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    Published September 24, 2009

    Rental market here on road to recovery

    Homes in districts 9, 10 and 11 are seeing more rental enquiries now that prime rents have fallen


    BUFFETED by so much negative economic data, the residential rental market inevitably succumbed, with rents falling sharply by 8.5 per cent in the first quarter, and another 5.3 per cent in Q2. While the decline may be showing the first signs of easing, the leasing market remains depressed given the lingering concerns about the large number of new homes coming on stream.

    Housing supply is perhaps the biggest influence on rentals. New home completions this year are expected to exceed 11,000 units, going by data from the Urban Redevelopment Authority (URA). On the other hand, the average long-term take-up stands at about 7,200 units a year. While this demand-supply imbalance will weigh on rents, the relatively smaller number of completed units expected next year (just over 5,000 units) may provide some reprieve, allowing the market to digest the excesses and rents to stabilise.

    Also, the estimated number of completed units in 2011 and 2012 may be lower than stated given that some projects have yet to begin construction. Nevertheless, the supply pipeline is strong enough to keep the rental market in check, with any significant rise in asking rents by landlords likely to be faced with tenant resistance.

    However, leasing demand in the past few quarters continued to be robust, underpinned by falling rentals. Leasing volume in July hit a record high of 4,252, about 11 per cent more than the previous record of 3,846 set in August last year.

    This comes after a strong Q2 of more than 10,300 leasing transactions, just below the all-time high of 10,900 done in Q3 2008. What is even more encouraging is that the islandwide vacancy rate remained unchanged at 5.9 per cent as of Q2 2009, despite the large number of units completed so far this year (over 6,000 units). This is a testament to the depth of housing demand.

    We note that there are more rental inquiries for homes in districts 9, 10 and 11 now that prime rents have fallen to more affordable levels. After a double-digit correction of 12 per cent in Q1, average monthly rents of high-end non-landed residential properties tracked by Savills have since eased to $4.60 per sq ft in Q3 (preliminary estimates) from the previous quarter's $4.70 per sq ft. This is a smaller decline of 2.1 per cent compared to the 2.7 per cent drop in Q2. Still, prime rents are some 22 per cent lower than a year ago.

    The expatriate population, the backbone of the rental market, was widely expected to shrink as a result of heavy job losses in the nation's worst recession. The fear of an exodus of expatriates has so far proved unfounded. According to a recent HSBC survey, 91 per cent of expatriates living in Singapore have not considered returning home amid the downturn, higher than the global average of 85 per cent. This is despite reductions in expatriate benefits and the relatively high cost of living here.

    One plausible reason may be that Asia is in relatively better economic health than Europe and the US and expatriates in Singapore may not feel compelled to return home.

    Furthermore, as lower expatriate remuneration packages are not unique to Singapore, but have been implemented regionally, the city has not lost its competitive edge to its regional peers. In addition, expatriates from the non-financial sectors such as the pharmaceutical, biomedical and petrochemical manufacturing sectors are coming in to support the rental market. These expatriates, however, usually have lower housing budgets than their counterparts in the financial sector.

    An effective measure of the size of the expatriate population in Singapore is the enrolment of students in international schools. Demand for private education in top international schools has been reportedly strong despite the economic slump. Most international schools like United World College of South East Asia (UWCSEA), Tanglin Trust School, Singapore American School and Australia International School have reported that they are close to capacity with long waiting lists for student places.

    Furthermore, the local job market is showing some signs of stabilisation. The latest available job data showed that unemployment remained unchanged at 3.3 per cent in June, with most of the retrenchments concentrated in the manufacturing sector. Some sectors, which have been shedding jobs in the last two years, are slowly showing signs of a turnaround. For example, the wealth management sector is back in hiring mode, albeit not on the large scale seen in 2006/2007. Foreign private banks are reported to be seeking up to 900 experienced private bankers after laying off some 300 staff previously.

    The rental decline is likely to ease, going by recent leasing data. With stability back in the job market and robust leasing demand, we expect the rental market to stabilise in the near- to mid-term.

    The writer is director, residential leasing, Savills Singapore

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    Published September 24, 2009

    HDB resale market still buzzing

    In contrast with 2006 and 2007, the current run is not supported by a buoyant economy and buyers will resist paying too much cash


    WITH 80 per cent of Singapore's population staying in HDB flats, one would expect the HDB market to be affected by the current recession and unemployment situation. But both the primary and secondary HDB markets appear unscathed by the current crisis. Can we expect this to continue?

    Resale prices

    From a modest 2 per cent increase in 2006, HDB resale prices rose 17.5 per cent in 2007, and 14.5 per cent in 2008. According to HDB's numbers, even though HDB resale prices saw a slight dip of 0.8 per cent in the first quarter of 2009, they quickly rebounded by 1.4 per cent in Q2 to a new peak of 140.2 points. Over the past three-and-a-half years, resale prices have increased by some 38 per cent.

    Current resale prices are some 2.4 per cent higher than the Q4 1996 peak. This means HDB homeowners who had bought their flats during those times can now get more than they paid if they resell their flats. Quarter-on-quarter, Q2 data show that the price increase has tapered off to just 1.4 per cent compared to the average quarterly increase of 4 per cent for 2007 and 2008.

    However, the surge in resale HDB transactions that started in Q2 carried through into Q3. Transactions done by ERA's agents, who collectively have a 45 per cent share of the HDB resale market, show that resale prices have gained some 3 per cent in Q3 over Q2.

    With the momentum likely to continue to year-end, we are likely to see a similar price increase of 2-3 per cent in the final quarter. For the whole year, HDB resale prices would probably have increased by 7-8 per cent.

    Cash-Over-Valuation (COV) is the amount that a buyer pays over and above the valuation of a flat and this amount cannot come from a home loan or from the Central Provident Fund (CPF). The higher the COV demanded by sellers, the more cash the buyer has to fork out.

    From the market peak in Q4 2007, the median COV for all flat types has slid along with the waning economic conditions. HDB statistics show that the median COV for 3-room, 4-room, 5-room and executive flats slid from the Q4 2007 high of $18,900, $22,000, $26,000 and $33,500 respectively to $5,000 for 3- and 4-room flats; and $0 COV for 5-room and executive flats in Q2 2009.

    However, a surge in resale transactions in Q2 and Q3 brought median COV for all flat types to five-digits again in July and August. ERA's resale transactions show that median COV in August reached $19,000 for 3-room flats and $20,000 for the bigger flat-types.

    Eighty-six per cent of the company's HDB resale transactions were concluded with COV; while 9 per cent were done at valuation; and only 5 per cent below valuation.

    With strong resale demand, COV is likely to continue trending up for the rest of the year and perhaps into 2010. But as Singapore's economy is just starting to recover, current COV increases are largely driven by pent- up demand and are likely to taper off once they reach the resistance level. In contrast with 2006 and 2007, the current run is not supported by a buoyant economy and buyers will resist paying too much cash for HDB resale flats. HDB has been monitoring the situation closely and it tries to balance the market with affordable housing options like more new flats that target predominantly the first-timers.

    Resale volume and popular locations

    Over the past three years (2006- 2008), the HDB resale volume has stabilised around an average of 29,000 units a year. However, in Q2 this year, transactions surged by some 3,700 units or 58 per cent; and this brought the H1 total to 16,630 units.

    This is some 2,500 units or 18 per cent more than H1 2008. As the current pace is likely to continue till year- end, we may see total resale transactions in the region of 33,000 units for 2009. This would mean that HDB resale flat volumes may increase by some 16 per cent over last year's all- time low of 28,419 units.

    Currently, 3-room flats make up 29 per cent of resale transactions; 4-room 38 per cent; 5-room 26 per cent and executive 7 per cent. This is in contrast with 2002 when the HDB resale market was at its trough. Then, 3-room flats accounted for 36 per cent of resale transactions; 4-room 42 per cent; 5-room 17 per cent; and executive only 5 per cent.

    Based on resale transactions thus far, the popular locations and the respective resale prices for the various flat-types can be seen in Chart 2.

    Who are the buyers?

    The surge in demand for HDB resale flats has been fuelled by a mix of upgraders, downgraders and the increasing population of permanent residents (PRs).

    Those who are financially stable upgrade to larger flats while those facing financial constraints have been downgrading. The government's target population of 6.5 million is steadily increasing the pool of PRs; and they have to buy their HDB homes from the resale market as they do not qualify to buy new flats directly from HDB.

    ERA's resale transactions show that PR buyers make up some 40 per cent compared to 20 per cent three years ago. They typically buy 3- or 4-room flats and may upgrade to 5-room flats once they obtain their citizenships.

    New HDB flats

    So far this year, HDB has launched some 3,900 new flats under its Build- To-Order (BTO) programme. Of the 3,900 units launched this year, some 2,400 units or 62 per cent are in Punggol. Work on the Punggol Promenade has just commenced to transform it into an attractive waterfront precinct with an array of leisure activities.

    Targeting first-time home buyers, 90 per cent of the flats in each BTO launch are reserved for their application and selection. Only 10 per cent of the flats are allocated to second-timers.

    BTO flats are usually priced a shade lower than similar resale flats in the same locality. First-time buyers are attracted to these flats as they can be fully funded by CPF funds and loans from HDB or banks.

    Responding to demand, HDB has been stepping up its BTO launches with some 4,000 units in 2007 and 7,800 units in 2008. With the aim of keeping housing affordable especially for first-timers, HDB has indicated that it may launch up to 8,000 units this year.

    The take-up for BTO launches has been good as first-timers prefer to buy direct from HDB rather than in the resale market where a majority of the deals are done with COV.

    Under the Design, Build and Sell Scheme (DBSS), private developers have launched and sold six projects since 2006. Their sales status is in Chart 3.

    Priced at about $450,000 to $750,000, DBSS flats are more likely to attract buyers who intend to buy another new flat after they have become eligible to sell the first one that they had bought from HDB. This is because they need not pay any resale levy on their first flat when they buy DBSS flats.

    Except for the first project, Premiere @ Tampines, that has been fully sold, the other five projects have sold out their 4-room flats, while some of their 5-room types have yet to find buyers. These are likely to take slightly longer to sell due to higher prices or the Ethnic Integration Policy (EIP).

    Due to their different price ranges, both BTO and DBSS flats target predominantly first-timers and second- timers respectively; and are unlikely to cannibalise each other.

    Going forward, HDB monitors new flat demand closely and will accordingly launch more BTO flats or put more DBSS sites on sale when necessary. As demand is strong for both types, we are likely to see more releases this year.


    As Singapore's economic and employment numbers improve, we are likely to see the current buzz in the HDB market continue well into next year. Resale prices are expected to increase further.

    Unlike the private residential property market, the movement of HDB flat prices is more gradual. We are likely to see overall price increases of 7-8 per cent this year and next year, supported by increasing valuations.

    COV transactions will probably stabilise, with the bulk of resale transactions closing at $15,000-$30,000 above valuation as buyers resist paying too much in cash.

    With more new flats coming onstream, some demand is likely to be taken away from the resale market. Resale volume is likely to stabilise around 30,000-33,000 units for 2009 and 2010.

    The writer is associate director, ERA Asia-Pacific

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    Published September 24, 2009

    HDB rental market stabilises for now

    OVER one year, HDB-approved sub-letting cases surged by some 20 per cent from 12,808 units in 2007 to 15,344 cases in 2008. In the same period, the increased demand pushed HDB rentals across the board upwards by 23 per cent.

    The main tenants for HDB flats are typically Asian professionals, service-industry staff, foreign students and permanent residents (PRs).

    Typically, 3-room flats account for about 35 per cent of rental transactions; 4-room - 34 per cent; 5-room - 23 per cent; and executive flats - 8 per cent.

    The market hit its peak in Q2 2008 with an all-time high of over 4,100 rental transactions. However, with the slowdown in the economy and overall employment, rental transactions slowed to an average of 3,700 units a quarter for the next one year (Q3 2008 to Q2 2009).

    This has helped to stabilise median monthly rents at $1,500 for 3-room flats; $1,900 for 4- and 5-room flats; and $2,000 for executive flats; for now.

    However, as the two integrated resorts step up their hiring of foreign staff, we could see the rental demand for HDB flats increase in the months ahead.

    Also, as the economy recovers, new demand from inbound foreign professionals and students may further increase demand.

    We may see quarterly demand nearing 4,000 units per quarter next year and this would probably push rentals up again, possibly by another 5-10 per cent.

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    Househunt 2009 24/09/09
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    Published September 24, 2009

    The new design ascetic

    Pared down, simplified and minimal, architects are all reassessing what is really essential in life, reports ARTHUR SIM

    WHETHER it is because of the constant talk about the economy, wealth destruction or the periodic stockmarket jitters, homeowners appear to have lost the desire to build ever bigger and flashier homes. Instead, the prevailing design aesthetic seems to be more about ascetism, as more people decide that living in excess is just so last century.

    One of a kind: A house by Daniel Libeskind - Libeskind presents the world with a new way of living with his prefabricated villa (above) and a house by Mink Tan - who searches for the Asian soul in his architecture (next)

    Pared down, simplified and minimal, architects are all reassessing what is really essential in life. Daniel Libeskind, who designed Reflections at Keppel Bay, has perhaps gone a step further by designing a prototype of a house that is prefabricated and can be shipped anywhere in the world. He describes the house as 'a limited artistic edition of a new space, of a new way of living, a total work of art'.

    Called the Libeskind Villa, the four-bedroom house is a composition of three simple interlocking volumes that generate a myriad of geometric spaces. And in keeping with volatile oil prices, it offers maximum insulation and durability, cutting-edge technologies and compliance with some of the toughest energy-saving standards across the world. In designing Libeskind Villa, Mr Libeskind reduces the essence of a home to only the most critical elements and the design just stops short of being austere.

    And there is no shame in austerity, especially today. Architect Gwen Tan of Formwerkz has even chosen to celebrate it. Describing a house she is designing for a client, she said that one of the biggest constraints was that the site was so tight it could only accommodate a very small house. Fortunately, her client's needs were simple and Ms Tan decided that this should be 'celebrated'.

    Eventually, the design of the house evolved such that the architectural forms were reduced to a simple building block or as described by Ms Tan: 'A very basic house form that any three-year-old child could draw.' But the size (and shape) of the house is not a reflection of the spatial quality which is 'very intimate'.

    To ensure there is no excess, Ms Tan needs to understand her client very well. 'Architecture is livable art. The client's lifestyle becomes a medium that you paint with and because it's something that the client can associate with, there's added meaning and dimension to the product,' she says.

    When the design was finished, the client was instinctively drawn to it. 'I think sometimes the most simple idea can be the most powerful and effective,' says Ms Tan. Simple ideas can also be cheaper, which helps, because for whatever reason, fewer people will be wanting to pay for gold taps and Italian marble these days.

    Mink Tan of Mink Architects says that he has noticed that some of his clients have asked for less expensive materials, simpler details and cheaper construction methods.

    Of course, it would be false economy to spend millions of dollars on the land and then penny-pinch when it comes to building the house. So one strategy is to use expensive materials where they matter. Mr Tan describes his approach to design simply as having an 'Asian soul wrapped in a modern skin'.

    One of the houses he is currently working on is essentially a series of glass pavilions wrapped by continuous folding walls and floors to form one contiguous volume. The glass box is about as simple as you can get if you want to create a space but Mr Tan wraps his in a layer of titanium, 'to signify what I feel is quintessentially Singaporean - an Asian soul clothed in something modern and contemporary'.

    It is this pragmatic approach to architecture that is also fast emerging as a 'Singapore style'. Mr Tan describes this style as centred around the modernist 'glass box' but with a more highly developed sense of 'tactility'. Perhaps a concern some homeowners will have is that if design is reduced to too simplistic forms, everything might start looking the same, or worse, quickly go out of style.

    To this, Aamer Taher of Aamer Architects says: 'I think cutting edge designs may get dated but never go out of style - if by dated, one means old.' For example, he notes that while the architecture of 1960s Brazilian architect Oscar Niemeyer belongs to the now defunct futurist school of architecture, it 'still looks beautiful today'.

    It is nevertheless difficult to say, without hindsight, what is good or bad architecture. But recalling the 1970s and 1980s, it is probably quite safe to say that architecture of excess is never a good thing. Many will know of at least one example of the 'wedding cake' houses of that era - 'Those poor copies of western classical architecture that symbolised wealth' - and beloved by business tycoons, muses Mr Taher. Today, as he wryly points out, these have very much fallen out of fashion. So it's probably a good thing that clients are a bit more budget conscious these days.

    It should, however, be said that while the budget may affect the look of a house, the approach to design does not change. 'Since I like to incorporate some sculptural forms in my work and treat each as a work of art, it wouldn't necessarily be any different if I had designed it 10 years ago,' he says.

    Timeless architecture of today may lack some of the cultural cues that reflect wealth and prosperity but it is no less rich in symbolism.

    Claudio Silvestrin, who has designed 18 villas for developer YTL Corp at Sentosa Cove, believes that architecture is akin to 'composing poetry on earth in partnership with the earth . . .'.

    Mr Silvestrin is known for designing Giorgio Armani stores and his designs are not cheap. Yet the Sentosa Cove villas look almost uncompleted in their simplicity. 'The project is about a vision and about architecture to be appreciated as architecture in its purest form,' says Kemmy Tan, director of international real estate, YTL Singapore.

    Ms Tan explains that Mr Silvestrin's architecture 'explores the innate nature of place rather than the visual excitement of superficial building form'. So, are home buyers sold on this new age architecture? Well, at Sentosa Cove anyway, more than half of Mr Silvestrin's 18 villas have been sold so some people certainly are.

    What is clear, though, is that the best architecture of today is transcending the physical realm of nuts and bolts. And if there is one thing the global recession has taught us, it is that just as money cannot buy happiness (ahem . . . Mr Madoff?), a house needs only to define the space in which you live. How you choose to live your life is another matter.

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    Published September 24, 2009

    Everything but the kitchen sink

    More and more home appliance manufacturers are now melding functionality with aesthetically pleasing looks, says WINSTON CHAI

    WITH function the lowest common denominator among audio-visual (AV) equipment and home appliances, manufacturers are increasingly leaning towards aesthetics in the battle for precious consumer dollars. The end-result is a dizzying array of gadgets that are capable of melding seamlessly into your home's concrete or wooden facade.

    Gizmos galore: (From above onwards) The Loewe Art-47SL high-definition television, Bose Lifestyle 48 home entertainment system, LG GR-P2272CB fridge with engraved flower patterns and affixed Swarovski crystals and Samsung's full HD B7000 LED television set

    'We've found that Singaporeans have become increasingly selective about their choice of audio-visual solutions. Naturally, performance is the foremost consideration, but design and aesthetic appeal is a close second,' says Michael Tien, managing director of premium AV product re-seller Atlas Sound & Vision.

    Arthur Huang, corporate marketing director of LG Electronics Asia, shares this view. 'Consumers are demanding more products that merge style and function,' he says. 'We understand that good design is one of the most important aspects for consumers when choosing home appliances.'

    This mantra is literally being incorporated into everything but the kitchen sink. Samsung, for example, has extended its tie-up with Giorgio Armani beyond mobile phones to LCD (liquid crystal display) TVs. 'We believe a well-loved product needs to be holistic - it must look good and work well,' says Irene Ng, director of strategic marketing at Samsung Asia

    At the higher end of the price spectrum, brands such as Bose and Loewe continue to tempt shoppers with premium products that incorporate state-of-the-art functionality. Besides the promise of audio nirvana, these gizmos blend with the decor of their fussy owners - and can at times even be showcased as a decorative work of art. For example, the Bose Lifestyle 48 home entertainment system boasts speakers that are 'virtually invisible', says Atlas Sound & Vision's Mr Tien. 'Only their noteworthy performance will remind you they are there,' he adds.

    Loewe's Art SL high-definition television, on the other hand, is so slim it can be mistaken for a picture frame. It promises to be more eco-friendly, and acts the part by allowing users to control its power consumption.

    While these products come at a price, the good news for consumers who want more bling for their buck is that more mainstream brands are tuning in to the design revolution. LG's LH70, for instance, backs up its claim to be a top notch LCD television with a combination of ***y curves, scarlet accents and the ability to deliver video content in full high-definition (HD) glory. Also throwing its hat in the beauty pageant ring is Samsung's full HD B7000 LED televisions.

    LCD TVs typically rely on fluorescent backlight for illumination, but this inhibits their colour depth so audio visual buffs cannot see the deep black achieved by plasma screens. The incorporation of LED technology not only fixes this problem but it has given birth to a new line of Samsung televisions claimed to be among the slimmest and ***iest available.

    While the designer's touch used to be confined to gadgets in the living room, the make-over is slowly being extended to home appliances such as washing machines and refrigerators.

    LG, for example, has engraved flower patterns and affixed Swarovski crystals to its GR-P227ZCB fridge line, an appliance typically associated with function but never form. 'This year, the combination of flower-patterns and Swarovski crystals will be expanded to our built-in appliances for a more modern and vibrant kitchen area,' says LG's Mr Huang.

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    Published September 24, 2009

    Faux furniture fad or fab?

    Interior designers and shops alike are seeing a trend where clients choose to mix and match high- and low-end pieces, reports FELDA CHAY

    THE economic downturn has hit home - with high-end furniture shops and interior designers saying that demand for upmarket furniture pieces has taken a dive. 'Under the present economic circumstances, it would be disingenuous to state that for the current year our sales have not been affected,' says Eileen Tan, senior marketing executive at SPACE. Revenue has dipped by a 'low double-digit figure' so far this year, she says.

    Luxurious: This belt-tightening, however, does not mean that furniture buyers are willing to furnish their homes with less stylish-looking pieces. Instead, they have sought to acquire replicas of the originals, which industry insiders say can be two to five times cheaper than the original

    Her views are echoed by Samuel Leong, director of interior design firm Free Space Intent Pte Ltd. 'Demand has definitely dropped for these high value products as people get more cautious about buying designer furniture,' says Mr Leong. This belt-tightening, however, does not mean that furniture buyers are willing to furnish their homes with less stylish-looking pieces.

    Instead, they have sought to acquire replicas of the originals, which industry insiders say can cost just half or even a fifth of the original. Some of these come from licensed manufacturers such as Vitra, Carl Hansen and Herman Miller. Others are fakes that come from unlicensed manufacturers trying to make a quick buck from home owners who love the design of a piece of furniture, but are unwilling to pay for the original and deem the licensed products too heavy for the pocket. Most of these are made in China.

    Given the costs involved in purchasing an original, such a situation is inevitable, says Ms Tan. 'Including design development royalties and the use of better quality eco-friendly materials, it ends up costing more than replicas, which saves substantially on all these aspects,' she says.

    She separates customers who buy replicas into two groups, one of which she calls the 'aspirationals', and the other the group that purchases replicas for the 'look-alike' aspect. The 'aspirationals', Ms Tan says, are a group that appreciates the design of the piece they buy, and the purchase decision for copies is merely an interim solution for them to own the design before they can purchase the original.

    'However, there will always be a group of people who are tempted to purchase replicas for the 'look-alike' aspect. Often-times, after the purchase decisions are made and they do not experience the 'work-alike' aspect of the real McCoy, they are persuaded to buy the authentic product.'

    SPACE offers licensed replicas for sale, such as the Arco Lamp from Flos designed by Achille Castiglioni, the Panton chair from Vitra designed by Verner Panton, and the Wishbone chair from Carl Hansen designed by Hans J Wegener. The aim of offering these replicas, says Ms Tan, is to encourage design appreciation.

    There are also those who are unwilling to splurge on a huge furniture budget, but are reluctant to go without designer pieces. The end-result? A compromise. With the economic crisis, interior designers and furniture shops alike are seeing a trend where clients choose to mix and match high-end and low-end pieces. While it's not a new trend, industry insiders say that there is certainly an increase in the number of people seeking to mix and match - an approach that can help to keep expenditures lower while maintaining a distinctively designer look for the home.

    'It's all about prioritising. If you want to spend on a designer sofa set, it'll be because it'll last longer,' says Glynnis Ng, an interior designer consultant at ZYNC (studio+ workshop). She adds that increasingly, clients have also taken to negotiating for better pricing. 'Some don't even mind buying the display set so long as it's in a good condition, if they can get it cheaper,' says Ms Ng.

    Contributing to the problem of a dip in sales is sentiment. While there is a lot of talk that Asia will see a speedy, V-shaped recovery, people are generally still uncertain about the near-term economic outlook.

    Finance Minister Tharman Shanmugaratnam said earlier this month at an event to mark the 10th anniversary of the Singapore Exchange that 'we have to be prepared for the possibility of a sluggish world economy or even a 'double-dip' in 2010'. This gives a mixed view of the economic situation, resulting in more prudent spending.

    'In the case of our target demographic group which would otherwise be termed as high net worth individuals, the deferment in purchases are driven more by sentiment rather than the lack of spending power,' says Ms Tan. 'Our clients are more careful about what they spend on for now, often choosing to defer decisions for less important areas in the home.'

    Nonetheless, there are still segments of the market that continue to buy upmarket pieces. These come from a group which, because of their high disposable income, are not overly affected by the general economic situation. Mr Leong says that the largest budget he has seen so far this year for furniture is a whopping $250,000 for a four- room St Regis apartment. 'It's not the highest I've seen but it's the highest this year for now,' says Mr Leong.

    And with private home sales - in particular premium- priced homes - hitting record highs in the last few months, the drop in sales of such furniture could well be just a short pause for breath in the high-end furniture market. According to data from property consultancy DTZ released late last month, more people are buying premium- priced homes, with the firm's analysis of caveats lodged showing that 22 per cent of total private home sales in the second quarter were for homes priced above $1.5 million. This is more than the 10 per cent lodged in Q1.

    'The somewhat negative sentiment felt in the early part of the crisis is now receding as we see signs of a more robust interest from both existing and new clients,' says Ms Tan. After all, save from splurging on designer furniture, what better way to style that million-dollar home?

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    Published September 24, 2009

    Main St rents feeling the blues

    But slowdown shows signs of abating in Asia-Pacific, reports UMA SHANKARI

    MORE than half the world's most expensive shopping streets have seen prime retail rents slump in 2009 - marking the biggest fall in retail rents in 24 years - a recent report from real estate adviser Cushman & Wakefield showed. Some 54 per cent of the 274 main streets across 60 countries monitored by Cushman & Wakefield saw prime rents fall in 2009.

    New York's Fifth Avenue remained the world's most expensive street, though prime rents dropped 8.1 per cent to US$1,700 per square foot per year, Cushman & Wakefield said. Fifth Avenue has been the world's most expensive street for the last eight years. It was followed by Hong Kong's Causeway Bay, which showed a 15.1 per cent fall in rents to US$1,525 per square foot per year, while rents in Paris' Avenue des Champs Elysees were static at US$1,009.

    Cushman & Wakefield's global head of retail, John Strachan, said the past year was one of the most difficult for the sector, with consumer spending and retail sales down in many markets.

    'The good news, however, is that the worst is almost certainly now behind us,' Mr Strachan said in a statement, adding the annual survey's findings represented the biggest global fall in retail rents in its 24-year history. 'There will undoubtedly be some markets which will continue to be affected over the next year but we expect to see a greater number move back into positive territory,' he said.

    By region, the average rent across Europe was US$235 per square foot per year, followed by Asia-Pacific at US$234 and the Americas at US$193. On average, rents fell 15.1 per cent in Asia-Pacific and 5.8 per cent across Europe, but rose 0.3 per cent in the Americas.

    The biggest increase in rents was in Sao Paulo, Brazil, with rents at Alameda Lorena and Iguatemi Shopping rising 111 per cent and 79.3 per cent respectively. In Asia-Pacific, Ho Chi Minh City's CBD in Vietnam had the biggest increase at 50 per cent while in Europe, Rue St Catherine in Bordeaux, France had the biggest increase at 17.6 per cent.

    At the other end of the spectrum, the biggest fall in rents was in Mumbai with Colaba Causeway falling 63.5 per cent. In the Americas, Rio de Janeiro's Sao Conrado Fashion Mall fell 53.4 per cent while in Europe, Bucharest's Calea Victoriei fell 48.1 per cent. The average rent across the 274 main street locations was US$213 per square foot.

    Asia-Pacific subdued

    Rental values across the Asia-Pacific region declined by 17.3 per cent. In light of the weak retail trading environment, it is not surprising that activity in the sector has been subdued in the past year, said Cushman & Wakefield in its report.

    Weak economic fundamentals have severely affected the retail sector in a number of traditionally stable markets in the region, with headline rents declining and many retailers scaling back or postponing their expansion plans. Indeed, sentiment in the occupational market became increasingly cautious in 2009, which has led to negative rental growth - notably in India (-41.5 per cent), Malaysia (-17.6 per cent), Taiwan (-13.3 per cent), South Korea (-8.7 per cent), Japan (-8.3 per cent), Indonesia (-6 per cent), China (-5.1 per cent) and the Philippines (-4.2 per cent).

    In Singapore, the emphasis for retailers has shifted from store openings to streamlining operations, which prompted a 14.4 per cent fall in rents over the year to June. Moreover, rents in the Orchard Road area are set to remain under pressure due to the large volume of new supply scheduled to come onto the market in the next 12-18 months, Cushman & Wakefield's report said.

    In Hong Kong, June rents were down 17.7 per cent from a year earlier. The upper-middle market, Central, is feeling the effects of the slowdown in the luxury sector, while the middle-market Causeway Bay has remained reasonably healthy, on the back of the recent or imminent arrival of a number of international retailers. After this correction, in the short term at least, retail rents in Hong Kong are expected to remain stable until there is a marked improvement in consumer confidence.

    Across the region, Vietnam was the only country to buck the general negative trend, with rents up 21.4 per cent nationally on the back of limited supply, particularly in Ho Chi Minh City. Current retail supply in Hanoi also remains limited, leading to low vacancy rates and helping to drive up rents in the prime areas.

    Looking ahead, for the Asia-Pacific region as a whole, the slowdown showed signs of abating in the second quarter of 2009, with evidence of improved market sentiment beginning to emerge as financial stimulus packages began to show results, the report added.

    'As a result, the outlook has become less negative and a period of stabilisation in values and activity appears to be underway,' it said.

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    Published September 24, 2009

    Room for improvement in en bloc laws

    The 80 per cent en bloc law made it possible for the private sector to take the lead in maximising the value of scarce land


    COME October, it will be 10 years since en bloc sales became a practical reality with the law that allowed an 80 per cent majority to decide the sale of a development, (90 per cent for those less than 10 years old). Before this, there had to be unanimous consent by owners for the sale of a development. To mitigate the effects of 'majority rule', safeguards were put in place to protect the rights of the non-consenting minority owners. The key tenet was that any deal must be entered in good faith.

    Chip off the old block: The 1970s saw the introduction of larger scale high-rise condominium housing, with pioneering developments such as Pandan Valley (above). It was also during this period that HUDC started building affordable flats on a large scale for the then 'sandwiched' group of middle-income families. Among them were Farrer Court, Pine Grove, Gillman Heights and Laguna Park (next)

    The new regulations were welcomed by many sellers, in particular those who felt held to ransom by a single dissenter in previous attempts, or who saw the entire exercise scuttled because one owner in the estate was uncontactable.

    Since the change in the law, over 270 en bloc developments have been successfully sold. The average value of the deals was close to $100 million per development. This compares starkly to the average of $50 million for the 140 deals that took place from 1994 to 1999, before the law came into effect. While the increase in property prices did contribute to the increase, the ability to maximise development potential and extract value was the major factor. The projects sold under the old 100 per cent rule were typically no larger than 50-80 units.

    Without the 80 per cent rule in place, embarking on the exercise for large developments with over 100 units was simply unthinkable. Just the thought of one owner being able to scuttle the deal was enough to deter the owners from slogging through the process.

    Apartments, as the mainstay of private housing, began to be popular in the 1960s, shortly after Singapore's independence. They were typically low rise, with the total number of flats in a development below 100 units. The 1970s saw the introduction of larger scale high-rise condominium housing, with pioneering developments such as Pandan Valley (over 600 units) and Ridgewood (over 400 units). It was also during this period that the Housing and Urban Development Corporation (HUDC), a unit of the government, started building affordable flats on a large scale for the then 'sandwiched' group of middle-income families. Among them were Farrer Court, Pine Grove, Gillman Heights and Laguna Park.

    These projects are now close to 40 years old. Soon, they will start looking old and tired. In many countries, old and dilapidated buildings become breeding grounds for crime and vice. While this is not likely in Singapore, the real danger is that these developments may become enclaves of older Singaporeans. This is clearly not the way to go for a dynamic and vibrant Singapore.

    In Europe, buildings built centuries ago still remain habitable, besides being rich in character, history and beauty. The city centres of London, Paris and Prague have buildings that are hundreds of years old. Sadly, this is not the case in Singapore. In the immediate post-independence period, the real estate and construction industry was not inspired to build legacies of lasting beauty, but instead put up affordable, practical homes. As such, not many buildings of the 1960-70s are serious contenders for preservation on architectural grounds; and they have little if no historical significance. It is mainly the colonial era buildings that the planners feel should be conserved.

    If Singapore did not have the law that allowed for the majority of the owners to push through an en bloc sale, probably the only other way to rejuvenate these ageing developments would be for the government to acquire them compulsorily. However, the owners would at best be paid market value of the individual apartments, without any benefit of the redevelopment potential factored in. It would also bring the government into a sector where there is no immediate public interest at stake.

    The 80 per cent en bloc law made it possible for the private sector to take the lead in maximising the value of scarce land, rejuvenating old developments and allowing owners, rather than the government or developers, to benefit from increasing property prices.

    It must be conceded that the manner in which the 80 per cent legislation was drafted in 1999 was not highly elaborate nor perfect. But it was principle-driven and worked well for a good eight years. It got the job done in facilitating urban renewal. Maryland Point at Amber Road is now The Esta, a spanking new condominium. Eastern Mansion, which was probably one of the oldest apartment developments, is now Aalto, an almost completed luxurious condominium with unobstructed sea views. There are many more examples of how the urban environment was quietly transformed within years.

    However, in 2007, the complexion of the en bloc sale process changed as the market heated up. There were mounting complaints that some majority owners were not entirely fair or transparent in their conduct. Minority sellers cried out for greater protection. Owners and developers got embroiled in litigation. Non-consenting owners challenged consenting owners in court. Developers threatened to sue owners who were attempting to back out of deals. The irony is that it was often the consenting owners who were fighting to back out of the very deal that they inked and were earlier championing.

    Fights grew more intense with cases going all the way to the Court of Appeal. About 10 cases went to the courts, with half of them making headlines for the bitter feuding. All of a sudden, en bloc sales became synonymous with trouble, disharmony and disorder. The principle behind the 80 per cent rule began to be questioned.

    The cases that went to court did not reflect the reality of the matter. During the property bull run in 2006 and 2007, as many as 162 en bloc projects were sold successfully; but it was largely the five to 10 troubled cases that dominated the headlines. This created the perception that the en bloc laws were flawed. Many watchers also attribute the intensity of the litigation to the large sums at stake in the contested cases, which were mainly developments which were sold when the market was rapidly rising.

    The laws that had worked well for eight years suddenly seemed to need fixing. In October 2007, the government reacted by tightening the laws to raise the bar on transparency and accountability on the part of the majority owners handling the sale process, and further safeguards were put in place. While most of the changes were positive in that they ensured a greater level of disclosure, many felt that some provisions went a bit too far. The changes were in reaction to owners who protested about lack of transparency and accountability, complaints that, to a certain extent, masked the root cause of the contested cases - the lost profits and dissatisfaction when the market surged after the sale was struck.

    As a result, owners who would have otherwise happily volunteered to serve in the collective sale committee, today fight shy of getting involved. The fear of being sued by minorities or purchasers and exposure to liability keeps them on the sidelines.

    We believe the law makers should look towards moderating some of the new provisions. There is no way that any rule can please everyone. Democracy goes by majority rule. For minority owners who genuinely do not wish to be forced to sell their homes, perhaps the authorities could consider raising the threshold age of a development for which the 80 per cent rule would apply, from the current 10 years to 15 years.

    That is, developments older than 15 years would require the consent of 80 per cent of the owners, while developments under 15 years would need 90 per cent or even 100 per cent consent. That way, these owners will have the certainty of not being approached by their neighbours for the next 15 years, when they buy a brand new development. It would also help to cut down the wasteful demolition of fairly new developments.

    There are bound to be other approaches to renewal and maximisation of land use, but making en bloc sales difficult will take us back to the situation 10 years ago. Until a new solution is found, we need to ensure that en-bloc sales remain workable.

    The writers are managing director and manager at Credo Real Estate respectively

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    Published September 24, 2009

    Green shoots, firm roots

    As buyer interest returns to the market, we can expect to see increased activity from institutional investors drive up transactions next year


    INVESTMENT sales have been rising steadily throughout the year. From $304 million in the first quarter, transactions have jumped more than tenfold to $3.1 billion by Q3 of 2009. While we expect total transactions this year to be far below the 2008 total of $17.9 billion, coming in the wake of the global financial crisis, it will still be a credible result. Nearly half of the transactions have come from the residential sector while the commercial real estate sector makes up the remainder.

    Unlike the red hot residential segment, transaction volume in the commercial segment has occurred at a more measured pace. There was a 10-month lull in the office market before it stirred with the sale of Parakou Building and Anson House in April this year. Parakou was sold for $81.38 million, or $1,287 per square foot (psf) while Anson House transacted at $85 million with a psf price of $1,100.

    VTB Building, Cecil House and Aviva Building were later sold for between $710 and $1,061 psf at transaction sizes between $36 million and $71 million, all to the same buyer. The buyer, a joint venture between Yi Kai Group and Fission Group, plans to redevelop the offices into a residential project, subject to approval. In the hospitality sector, the 50-room Hotel Nostalgia was sold for $22 million, or $440,000 per room - which represents a new high for boutique hotels.

    These transactions, which led the resumption of the commercial investment market, had several common threads. The buyers were all private money, willing to put up higher levels of equity, and transaction sizes were below $100 million. In other words, they were nimble investors able to tap opportunities when others could not.

    After this group of initial buyers, public companies and Reits subsequently stepped up to the plate. Fraser Commercial Trust acquired Alexandra Technopark for $342.5 million. In August, ARA's newly set up Harmony Fund acquired the Suntec Singapore International Convention and Exhibition Centre for $235 million. A late August transaction saw Bursa-listed TA Enterprise buy the Swissotel Merchant Court Hotel for $260 million or $546,200 per room.

    In early September, K-Reit Asia announced the acquisition of six floors of Prudential Tower for $106 million, or $1,579 psf, representing a yield of 5.2 per cent. The Prudential Tower acquisition provides a useful benchmark for prime office space transactions. Moving forward, we would expect near term office deals to reflect a stabilised yield of 5.2-5.5 per cent.

    With the equity market rebound driving down distribution yields and the improved sentiment creating generally looser credit conditions, we expect to see Reits become more active in the investment market. They will want to take advantage of opportunities for structuring yield accretive acquisitions that will increasingly become more accessible with the recovering markets. The recovery extended to land sales as more developers replenished their land banks. They were apparently unfazed by measures the government took this month to cool the residential market.

    A government land sale of a mixed residential/commercial site late last week saw a bid by Far East Organization at $376 psf of potential gross floor area. This was significantly higher than what the market expected. As buyer interest returns to the market, we expect to see in 2010, increased activity from institutional investors, both local and foreign, driving up transaction volumes.

    The expectation early this year that pressured sellers would flood the market with assets did not materialise. With a significant amount of debt refinancing coming due this year, the expectation was that owners facing refinancing difficulties would have to sell. But property owners were able to manage those pressures through a mixture of renewed bank lending and cash calls from the equity market.

    As the Monetary Authority of Singapore's monthly banking survey shows, lending to businesses in the building and construction industry has remained stable with $50 billion in lending in January dropping slightly to $48 billion in July. With sellers gaining confidence, we have anecdotal evidence of asking prices being raised in the past couple of months.

    An analysis of strata titled office transactions in Suntec City and The Central gives some indication that prime office capital values may have bottomed out and have started to rise. Transactions which clustered around the $1,400 psf mark in June/July have now risen to $1,600-$1,700 psf. This corroborates well with K-Reit's $1,579 psf acquisition price for Prudential Towers in September.

    While a dearth of transactions makes definitive analysis difficult for some segments of the commercial real estate market, the evidence does suggest that capital values for prime retail and hotel assets may have also bottomed out.

    Transactions in the diverse industrial sector show an uneven trend but support the idea that valuations may remain soft. A vibrant commercial real estate investment market will emerge when the fundamentals of tenant demand and supply (and hence vacancy and rents) support the investment case.

    On the supply side, the pipeline of new space over the next three to five years is transparent and generally predictable. Demand has historically been shown to correlate with various macroeconomic indicators of the Singapore economy. Singapore's growth potential over the medium term is therefore important to the outlook of the commercial real estate investment market.

    The good news is that consensus opinion believes global economic growth coming out of this slowdown would be centred in Asia. Singapore is well-positioned to ride this geographical advantage, as evidenced by our ranking as the third most competitive economy in the recently released World Economic Forum survey. Hence, there are grounds to believe that demand for commercial space will grow robustly over the next few years.

    With this in mind, we think it is important to point out that as severe as the oversupply in some segments of the commercial market are, our simulations show that had Singapore not tipped into a recession, the new space would have been well absorbed. This suggests that the current challenges in the market are temporal rather than structural.

    As the Singapore real estate market moves past these challenges, we see the continued strengthening of Singapore as a wealth management hub and the introduction of the integrated resorts as potential demand drivers across a broad spectrum of real estate assets. Myriad investment opportunities in the office, retail and hospitality segments will emerge as a result. Before long, we expect to see the return of a healthy investment market.

    The writer is director, head of research services, Asia-Pacific, Cushman & Wakefield

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    Published September 24, 2009

    Retail market looking good

    Some 1.1m sq ft of retail space will be added to Orchard Rd this year, bumping up supply in the prime shopping belt by 24%


    THE retail scene appears to be regaining some momentum after a quiet first quarter, thanks in part to the Great Singapore Sale, the opening of Ion Orchard and Orchard Central, and news about the high pre-commitment levels in upcoming malls. With the opening of Orchard Central and Ion Orchard, some 613,548 sq ft of space has been added to private stock along Orchard Road.

    This represents a 15.7 per cent increase to private Orchard Road stock in Q2 this year. As a result, the occupancy rate for Orchard Road dropped 11.5 percentage points from 95.3 per cent in Q1 2009 to 83.8 per cent in Q2. Average rents in the Orchard Road basket of prime retail space that CBRE tracks saw a 2.9 per cent dip quarter-on-quarter. As at H1 2009, prime Orchard Road rents have fallen 6 per cent.

    There is no doubt that retailers are increasingly being challenged by the economic downturn that is driving down tourist numbers and local spending. Coupled with high overhead costs, retailers face the prospect of not being able to achieve their projected turnover. But this is probably a short term view of the situation. Fundamentally, there are factors working in favour of retailers.

    Market talk has also been rife with concerns about supply looming in the two new integrated resorts (IRs) and how it would impact rents in Orchard Road and the rest of Singapore. Again, the concern of over-supply may be premature.

    Some 1.1 million sq ft of retail space will be added to Orchard Road this year, an increase of 24 per cent to the current 4.5 million sq ft of Orchard Road retail space. Rents will inevitably come under some pressure as a result. But overall, new shopping space in Orchard Road will add a new dimension to the landscape. Shoppers can expect new store formats and fresh labels, giving retail a new look.

    Let's not forget that Orchard Road is a must-visit tourist spot. Its recent makeover testifies to the government's commitment to keep it a premier shopping belt. And as a top tourist destination, prime Orchard Road shops will continue to command a premium in terms of rentals. Malls in Resorts World in Sentosa and the Marina Bay Sands will carve out a different niche.

    The Marina Bay Shoppes, the retail section of Marina Bay Sands, is made up of 300 shops spread over 800,000 sq ft of retail space. Resorts World, which caters mainly to families and tourists, has about 330,000 sq ft of retail space. Combined, the two IRs would contribute about 42 per cent (1.13 million sq ft) to the 2010 supply pipeline to complement the many conferences and exhibitions that are expected to take place in Singapore.

    What is encouraging is that many of the new malls already have high pre-commitment levels; Mandarin Gallery at 93 per cent ahead of completion, [email protected] is 90 per cent pre-committed and Knightsbridge 50 per cent pre-committed. This means that the vacancy rates in Orchard Road should move back to the 90 per cent level (from 84 per cent in Q2 2009) within a year, once tenants have moved in and started operations. Recently, Marina Bay Sands announced that 75 per cent of its shops have been leased ahead of completion.

    Historically, the take-up for retail space in Singapore has been supply-led. Retailers are typically attracted to take up space at new malls and the market usually finds its equilibrium a year after each peak in supply. Occupancy levels should hover between 80 per cent and the high 70s by 2011.

    With local retailers (established as well as new-to-market labels) and foreign brands opening at the new IRs, the market should find its footing around H2 2012. Islandwide occupancy would likely return to a healthy 90 per cent by 2012.

    What's more important is that the new supply pipeline essentially pushes developers and landlords to be innovative, to provide some form of differentiation in mall formats in this highly competitive market. Now, more than ever, landlords are able to allot more space to shops to carry new-to-market brands, niche products and services. Start-ups have a chance to grow while local retailers can expand given the ample supply coming on stream.

    Mandarin Gallery carries more than 30 new-to-market labels. The Ramp at Orchard Central has 30 shops which can be used as a launch pad for start-ups; some 6,000 sq ft of space at the new [email protected] store will be set aside to showcase works of aspiring home-grown designers. Ngee Ann City is also revamping the former Sparks space into a chic lifestyle cluster that caters to young adults. TripleOne Somerset, the new kid on the block in the Somerset cluster, also promises to be a haven for new-to-market labels.

    So far, the new Orchard Road malls have been able to command an average of $20-plus per sq ft per month, which is fairly healthy under the current economic conditions.

    We earlier predicted that rents would fall by 15-20 per cent this year. However, we have since revised our forecast to a decline of 10 to 12 per cent for the year. Rental declines should be smaller at 6-8 per cent in 2010.

    Several other positive signs point to a recovery in the long term:

    # The government remains focused on achieving a target of 17 million visitors by 2015. Unless the retail landscape transforms to match retail hot spots like Hong Kong and Tokyo, Singapore will be hard pressed to meet the tourist arrival targets. Luxury brands are expanding their presence here in a big way, working towards a high concentration of luxury brands along Orchard Road. Spurred by the slew of budget airlines coming on the market, tourists will continue to find Singapore an attractive destination.

    # Singapore is on track to attract foreign investment, which means expatriates will continue to take up residence here. International schools will see increased enrolments to achieve the target of 150,000 foreign students by 2012.

    # The unemployment rate has stabilised at 3.3 per cent in June, unchanged from a quarter ago, despite the economy contracting 6.5 per cent in the first half of this year. Labour officials are confident that layoffs in Singapore can be kept from the highs of the Asian financial crisis and during the Sars crisis in 2003.

    # A recent MasterCard survey on shopping habits during the Great Singapore Sale showed a one per cent increase in spending compared to 2008; a total of US$37.5 million was spent by MasterCard cardholders in the first weekend of the Great Singapore Sale. It is encouraging that most of the growth came from Singaporean cardholders - a sign that there is sufficient domestic demand to drive sales.

    # Singaporean cardholders spent US$26.3 million in the first weekend, a jump of 7 per cent of receipts compared to last year, while tourists spent US$11.2 million, a dip of 12 per cent. Food and beverage (F&B) remains the top expense item. Retailers have long caught on to F&B as an area of growth. It remains a key segment, with Japanese food halls, quick service food kiosks and eateries proliferating at MRT stations. Informal eateries serving quality cuisine have cropped up in private residential estates. And many new and upcoming malls are tailoring their tenant mix to cater for more F&B outlets. For example, Ion Orchard will house 125 F&B outlets while about 35 per cent of Orchard Central's tenants are F&B outlets.

    The writer is director, retail services, CB Richard Ellis

  28. #28
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    Join Date
    May 2006


    Published September 24, 2009

    Office market here is still active

    The vacancy rate in prime Grade A buildings rose from 1.8% in Q3 2008 to 6.1% in Q2 this year


    THE office market here, like many around the world, has seen a fundamental shift in dynamics over the last nine months, with a marked drop in demand since the collapse of Lehman Brothers a year ago leading to a drop in rents. While all markets are cyclical, Singapore's commercial property market has seen rental fluctuations that are typical of a more volatile market such as Hong Kong.

    The reason for this is that many new developments were cancelled or delayed during the Asian financial crisis/Sars period in 2002-2004. The typical four-year construction period for a Grade A office building means that there is a lag in the supply pipeline, which was adversely affected from 2006-2008.

    These were the years which saw a substantial increase in demand for office space. Much of it came from the financial services sector, partly as a result of the global growth of this sector and partly as a result of Singapore's successful repositioning as a global financial services centre.

    Jones Lang LaSalle's research shows that from the bottoming out of the market in 2004 to the peak in Q3 2008, Grade A core CBD vacancy shrank from 11.6 per cent to 1.8 per cent and rents surged by 303 per cent. Post credit crisis, the negative take-up and concerns of over-supply have led to rents dropping by 48 per cent between Q3 2008 and Q2 2009.

    Market sentiment tailed off rapidly between Q4 2008 and Q1 this year as occupiers began to give up space at the same time that some of the new developments were completed. The result is that the vacancy rate in prime Grade A buildings rose from 1.8 per cent in Q3 2008 to 6.1 per cent in Q2 this year.

    A number of occupiers tried to mitigate part of their outgoings by either subletting or finding replacement tenants for their space. By June, 'shadow space' - currently leased space that occupiers are looking to dispose of, including space not available until 2010 - stood at 800,000 sq ft. If shadow space is included, the vacancy rises by about 30 basis points.

    Part of the decline in sentiment has been caused by concern over future supply. Singapore has a larger than normal supply pipeline, especially in the core CBD. That said, there is an argument that in order to attract inward investment, Singapore has to constantly upgrade its office space offering and the new buildings coming to the market are, in the main, well specified and offer a significant upgrade to occupiers.

    In the short term, net take-up is expected to remain low as there has not been any uplift in new office demand despite a less pessimistic economic outlook. Interestingly, the first two months of Q3 have seen significantly higher activity in the office market. There are two main reasons behind this increased activity.

    Firstly, activity that is lease expiry driven. Given that the first wave of the long awaited new supply has now started to hit the market, there is some vacancy in the market and tenants now have real options. On the back of this we are seeing a discernible flight to quality in favour of the new developments ready this year.

    The biggest roadblock to relocating today is a lack of budget for capital expenditure (capex). On the back of this, a number of active inquiries are focused on fully fitted 'shadow space' that negates the need for capex spend for fit-out.

    Secondly, there are quite a number of large occupiers (50,000 sq ft plus) in the market who have been sitting on the sidelines for the last nine months for various reasons. They might not have been able to accurately predict their future headcount, lacked a capex budget, or else anticipated a weaker market ahead.

    These occupiers are now coming to market as it has fallen significantly. Also, occupiers of this size would need to plan a move 12-18 months in advance, and this is close to the completion periods of new supply.

    A significant number of these occupiers, especially those in the financial services industry, are also looking for enhanced specifications such as trading floors, enhanced power and air-conditioning provision and space for their dedicated equipment - back-up generators and air-conditioning, etc. The ability to supply such needs is limited and hence the first movers into a building have more chance of securing the specifications they need.

    The increased activity is also being generated by the desire among some occupiers to secure branding rights (naming or signage rights) to the building they plan to occupy. The availability of this in the market is even more limited and hence occupiers will commit early in order to secure them.

    Given the drop in rents and uplift in market sentiment on the back of both the global stock markets and local residential market, in the short term we expect to see the office market continue to be active. However, given the supply scenario, we expect rents to still face some downward pressure, albeit at a more muted pace, and much of the activity to be from consolidation or a flight to quality as occupiers upgrade.

    The writer is regional director and head of markets, Jones Lang LaSalle

  29. #29
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    Join Date
    May 2006


    Published September 24, 2009

    Not all Reits are created equal

    Volatile as the year might have been, the consensus on the inclusion of Reits in investment portfolios is favourable, reports JOYCE HOOI

    AT FIRST glance, real estate investment trusts (Reits) watchers will be frustrated by the hung jury that has been the outcome for the first half of 2009. As of the end of August, of the 18 Reits with results in, half have reported distribution per unit (DPU) growth while the other half have reported an erosion of DPU.

    Upon closer analysis, however, Phillip Securities analyst Lee Kok Joo noted that there are some sectors within the Reits area that have fared better than the rest. 'The hospitality sector fared the worst with both Ascott Reit and CDL Hospitality Reit recording decrease in gross revenue as well as lower DPU,' said Mr Lee in his report late last month.

    Despite the blow dealt to the hospitality sector this year, a pickup in tourist arrivals is expected to help turn things around next year. DMG estimates that the weighted average yield for the hospitality Reit sector will pick up in FY2010 to 7.3 per cent, up from a forecast 6 per cent this year.

    The industrial Reit sector also provided a reminder this year that DPUs and turnover could go in opposite directions. 'For industrial sector, all four industrial Reits recorded lower DPU although only MacarthurCook Industrial Reit recorded lower gross revenue,' Mr Lee added.

    The office and retail sectors, however, have seen both revenue and DPU growing in tandem, benefiting from faster rent escalation and positive rental reversion from expiring leases, respectively.

    Disparity where yields are concerned might be a good thing, however. OCBC Investment Research's Meenal Kumar noted earlier this year in a report that 'Suntec Reit is trading at a 300-point yield premium to CapitaCommercial Trust despite support from its retail portfolio and fairly similar gearing', giving rise to arbitrage opportunities as soon as the smoke clears. 'We do expect opportunities for yield arbitrage as the divergence corrects, especially as clarity increases on the office outlook,' said Ms Kumar.

    Volatile as the year might have been for Reits as an asset class, the consensus on its inclusion in investment portfolios is favourable.

    A survey published by the Trust Company Ltd, a Sydney firm, found that real estate investment trusts in Singapore and Australia are expected to be the first in the region to regain ground lost during the economic downturn.

    Singapore fared well in the survey because of optimistic prospects for growth of the property market, and great regulatory involvement on the part of the Monetary Authority of Singapore. However, Anthony Ryan, JPMorgan head of Asia real estate investment banking, cautioned investors against over-relying on the conventional wisdom of Reits being defensive plays.

    At the CapitaLand International Forum earlier this month, he pointed out that in three separate periods - pre-crisis, during the crisis and post-crisis, Singapore Reits (S-Reits) have demonstrated an outstanding propensity to be high-beta investment vehicles.

    During the 'growth period' of November 2005 to July 2007, S-Reits posted a compounded annual growth rate (CAGR) of 35 per cent, closely mimicking the Straits Times Index's (STI) CAGR of 34 per cent. In the same period, Singapore property stocks posted a CAGR of 53 per cent.

    During the sub-prime crisis, from July 2007 to December 2008, S-Reits promptly took the lead of Singapore property stocks, posting a CAGR of -43 per cent, against the latter's -49 per cent. Debunking the expectations of Reits' defensive play, the STI had a smaller negative return of 39 per cent during the same period.

    Something that most analysts were able to agree on going forward was that Reits will have an easier ride on the credit front. 'Indications from the various Reit managers indicate that borrowing margins continued to ease between 50 and 100 basis points,' said CIMB-GK Research's Janice Ding. The easing flow of credit will lay the groundwork for more acquisitions, most analysts reckon.

    Ms Ding is favouring Parkway Life Reit and Frasers Centrepoint Trust as among the Reits making acquisitions within a 12-month period. OCBC's Ms Kumar, who is neutral on the sector, has pegged Suntec, Mapletree Logistics Trust and Frasers Centrepoint Trust as 'likely candidates for an equity/acquisition two-for-one in the next six months'.

    All said, the remainder of the year promises to be a quiet one by CB Richard Ellis estimates. 'Most S-Reits are unlikely to make many new acquisitions in 2009 as dividend yields have increased significantly and it would be extremely challenging to make purchases that are yield-enhancing,' it said.

  30. #30
    mr funny is offline Any complaints please PM me
    Join Date
    May 2006


    Published September 24, 2009

    Land of buying opportunity Down Under?

    While Australian hotels may have been slow to transact in recent times, a pick-up in activity is expected in the coming months


    SOUTH-EAST Asian investors are starting to scour Australia's hotel market in the hopes of finding similar value to the hotel investments they made in the mid-1990s. It can be said that Asian investors were net real estate buyers between 1994 and 2003 before turning into net sellers between 2003 and 2006. That sell period was correlated to an improvement in hotel performances, lifting asset values, together with an appreciation of the Australian currency. This resulted in investors realising handsome capital gains when repatriating the funds back to their homeland.

    Fast forward to September 2009 and a repeat cyclical trend may possibly be emerging. Indeed, as identified in the table above, all of the major hotel transactions that took place over the last 12 months are attributable to South-east Asian investors including Singapore's Hotel Grand Central, Thailand's TCC Land and Malaysia's TA Enterprises Berhad. Notwithstanding the sale of the Westin Melbourne, hotels have transacted between A$190,000 and A$320,000 (S$234,717 and S$395,313) per room. Based on anecdotal evidence, this would appear to represent an, at times, steep discount by reference to full replacement value (after factoring land cost).

    Cushman & Wakefield is aware of a number of hotel properties available to investors, both on and off-market, at the 'right' price. While Australian hotels may have been slow to transact in recent times, a pick-up in activity is expected in the coming months. But let us first ask the obvious questions - why hospitality and why Australia?

    Australian hotel investment - land of opportunity?

    The hospitality industry holds a very distinct space in the real estate sector. Indeed, while hotels are located within a physical structure, much in the same way offices are, the similarity ends there. Hotels are businesses with income levels varying on a daily basis for a number of reasons: some in - and some out of - the manager's control. Such potential unpredictability in the income pattern can cause nervousness among investors. However, following careful analysis, investors in the hospitality industry can reap significant rewards in terms of total returns as well as diversification within an asset portfolio.

    As with most industries, the hospitality sector overall suffered some setback in recent times, although the extent of the impact has differed depending on the type of market. However, in line with the overall economy, some 'green shoots' are starting to appear, which may open the doors for astute investors to enter the sector. The following paragraphs will concentrate on the Australian hospitality industry overall and that of its four main cities - Sydney, Melbourne, Brisbane and Perth - in particular.

    Firstly, let us take ourselves back a few short years to a time when credit and capital was relatively readily available and investors' sentiments were sky-high.

    The 'old' paradigm

    The 'old' paradigm is a combination of circumstances that resulted in most hotel assets increasing in value:

    # Strong performance levels in the form of rising occupancy and achieved average room rates (ARR), which led to increasing revenue and Ebitda;

    # Competitive lending conditions whereby banks and financial institutions relaxed some of their investment parameters in the form of higher loan-to-value ratios (LVR); and

    # Positive investment sentiment towards the hospitality sector illustrated by a number of Australian institutions taking a position in the sector. As a consequence, a number of assets transacted, culminating in December 2007 with the sale of Australia's most valuable hotel (on a per-room basis), the 158-room Park Hyatt Sydney, for nearly A$1.3 million a room.

    The 'new' paradigm

    The 'new' paradigm is a volatile environment where uncertainties in terms of availability of capital and business conditions dominate. By reference to the old paradigm, the new paradigm exhibits the following characteristics:

    # Declining performance levels driven primarily by a softening in demand for transient accommodation, which has a downward impact on revenue and Ebitda;

    # A return to stringent lending conditions whereby lenders, compelled to deleverage, are tightening their criteria, forcing investors to reduce their LVR and placing a renewed emphasis on interest coverage ratio; and

    # Subdued sentiment towards the sector as investors shy away from the perceived risks associated with the industry.

    This has a significant impact, not only on asset values, but also on hotel transactions. From the 'dizzying' heights of 2006 and 2007 when well in excess of A$1 billion worth of hotel assets was transacted each year, only A$750 million worth of major hotel assets was transacted in 2008. And 20 per cent of that total was derived from the A$160 million sale of the Westin Hotel in December 2008.

    Even so, the new paradigm is also opportunistic for those investors holding a long-term investment strategy. Indeed, investors, financiers and operators are all getting back to basics. And in terms of market fundamentals, Australia's star is shining that little bit brighter.

    Firstly, from an economic standpoint, after weeks of uncertainty, the news came out in June that Australia had avoided the dreaded 'R' word after growing by a stronger-than-expected 0.4 per cent in the March quarter. That was followed by a further 0.6 per cent increase in GDP in the June quarter.

    Is Australia out of the woods completely? Maybe not, but it is certainly regarded positively among the developed economies. In addition, from a political standpoint, Australia is perceived as safe, with transparent commercial guidelines conducive to foreign investment, as exemplified by the recent acquisition of well-known hotel assets by South-east Asian investors such as Hotel Grand Central Ltd and TA Enterprises.

    Other aspects to consider when investing in Australian real estate are movements in the Australian currency, yield levels and the interest rate environment.

    Secondly, Australia's hotel industry is in far better shape than that of its neighbours'. While it is indisputable that performances have weakened over the last 18 months and are likely to continue doing so over the short to medium term, the extent of revenue per available room (RevPAR - which is a measure of occupancy and ARR, and therefore also of value) decline for Australia's major cities is significantly less to that reported in China and India.

    Thirdly, compared to the downturn of the early 1990s, banks are working with current asset owners to navigate potentially treacherous times and avoid a repeat of the dreaded fire-sale period that sent values into a downward spiral. Contrary to America, where distressed asset sales have been skyrocketing in recent quarters, lenders have so far been prone to work with their existing clients and trade through those difficult times.

    However, the underlying message remains one of deleveraging and repricing of risks. Anyone with a refinancing deadline is aware that the combination of declining hotel value and lower debt levels is unsustainable. Hence, we believe that the Australian hospitality market is on the cusp of a new wave in the transaction cycle.

    Lastly, the South-east Asian banks have escaped largely unscathed from the global financial crisis and may have some surplus cash to support their compatriots' investments in the Australian property sector.

    The 'future' paradigm

    From a trading perspective, some may say that Australia has come back to more 'normalised' conditions with occupancy levels in the major CBD markets reverting back to a long-term average of around 75 per cent; a level superior to the performances achieved in the majority of Asia's commercial hubs. And at the very least, while most Australian cities experienced a softening in demand, there is limited new supply over the short-term horizon, which is likely to limit any decline in occupancy levels.

    The only exception is Melbourne, which is currently experiencing a boom in supply with over 2,500 rooms coming onstream by mid-2011. Looking ahead, the current lack of credit is also limiting the potential for new hotel construction, delaying the onset of a new supply cycle and providing some opportunities for hotel performances to recover.

    From an investment perspective, the limited number of transactions in the last 12 months prove that a gap remains between buyers and sellers. However, while some investors speculated early this year that passing yields in the capital cities would increase to 10 per cent, a few recapitalisations later, it seems that sellers in the market were at least able to fend off the more opportunistic offers. And the market took note.

    To say that investors are eyeing one another to see who will make the first move is an understatement. How long is that cat-and-mouse game going to last? The number of hotels for sale, both on and off-market, demonstrates that some hotel owners, and primarily hotel funds, remain under some sort of financial pressure that may only be alleviated either by an outright sale, or by the injection of fresh capital.

    In summary, investors are looking for reassurance. As such, prime assets in CBD locations will continue to dominate their wish list. Australia, as a safe destination with relatively sound economic prospects and lower hotel asset values than in South-east Asian capital cities, may therefore still be regarded as a land of buying opportunity.

    The writers are senior manager; executive director, Cushman & Wakefield Hospitality; and regional managing director, Capital Markets respectively

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