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Thread: BT Property 2009 September 24, 2009

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    http://www.businesstimes.com.sg/sub/...51572,00.html?

    Published September 24, 2009

    Making sense of home loans

    We survey what's on offer by major banks and discuss key features of the packages. By FELDA CHAY and SIOW LI SEN


    WITH the recent home buying spree, one pertinent issue is how to pick the best home loan from among the dozens on the market. What with all the different plans and reams of fine print to go through, the search for the right home loan can often be a headache. Here, online websites can be a boon by making comparison of features easier. Check out smartloans.sg which has details of home loan packages from eight banks - HSBC, Standard Chartered, Rashid Hussein Bank (RHB), Maybank, UOB, OCBC, POSB and DBS.

    The fixed rate package from Stanchart and floating rate package from HSBC are currently the most popular among users of the website. And it is constantly trying to add new banks to the list, with talks now ongoing with Citibank Singapore. Smartloans.sg's chief executive Vinod Nair says he expects the bank's packages to be listed on the website soon.

    While the large variety of loan schemes available may leave many house buyers confused, Mr Nair says that there are a few things to keep in mind. 'It depends on why you are buying the property. If you are buying it for investment purposes, you should take the floating packages because there are usually no lock-ins for floating rate packages. Also, they are usually pegged to rates like Singapore Interbank Offered Rate (Sibor), which should remain fairly low in the next one to two years,' he says.

    'If you are planning on taking on a long-term tenure for your own occupation, it might be better to take up fixed rate packages, which offer greater comfort to borrowers because of the certainty it provides. Also, most people usually refinance their mortgages, so as long as you refinance your loan every three years to ensure that you get the best rates, it should be worth it.'

    BT asked some of the banks about their most popular home loan packages and their features.

    Citibank: Sherry Leong, Citibank Singapore business head for home financial services, says its Citibank Home Saver has always been a popular choice with clients. Home Saver is an index-linked home loan that offers borrowers the widest selection of index tenors in the market - from one-month to three years. The indexes linked to its loans include the one-month and 12-month Sibor.

    Clients also have the flexibility to switch from one tenor to another on the maturity date, enabling them to decide on fixed or floating rates, depending on their view of interest rate trends, she says.

    For instance, clients can take advantage of the low one-month Sibor now and then change to a 12-month Sibor later if they feel that interest rates are likely to rise, thereby fixing the rate on their instalments for that period. In addition, Home Saver comes with an interest-offset feature that helps borrowers pay down their home loans faster. Clients can put deposits into the offset account to earn an adjustment currently at up to 70 per cent of their home loan rate. This adjustment reduces the interest payable on the home loan, thereby helping clients reduce their principal outstanding faster. The offset account is an all-in-one home loan, checking and deposit account with a debit card.

    'Our clients also tend to use this as their main salary and transaction account to maximise their benefits from this feature. This feature will also appeal to customers who may have cash in hand but don't want to commit all of it to a property in case funds are needed for other investments,' says Ms Leong.

    For owner occupied property, the maximum financing is 90 per cent though Citibank customers usually borrow up to 80 per cent, she said. Investment buyers, depending on their profiles, need to pay between 20 and 30 per cent cash downpayment, she said.

    On valuations, Ms Leong says the bank noted that new launches command a slight premium above older properties and this is particularly telling when the property is leasehold.

    HSBC: At HSBC, the leading home loan which is available till Sept 30 is its relationship-based package with an attractive interest rate of Sibor plus one per cent throughout the loan tenor. It is on offer to all existing HSBC customers as well as new customers who start banking with them. There is no lock-in period for the package.

    This package comes with deals and discounts in recognition of customers' relationship with the bank, said Sebastian Arcuri, HSBC's head of personal financial services. 'We are the only bank in the market to adopt a relationship-based approach that rewards customers for maintaining their relationship with the bank,' he says.

    Their Sibor-pegged loyalty and relationship-based Sibor packages are the most popular, with 90 per cent of home loan customers choosing these packages. Its Sibor- pegged loyalty package rewards customers for keeping their home loan with HSBC, by offering them a year-on- year decrease in the interest rate spread charged in the first three years.

    Maybank: While the current economic climate seems to favour floating rate packages, Maybank Singapore says that its three-year fixed rate package is still preferred by its clients as it offers them peace of mind.

    For its three-year fixed rate promotional package, the bank offers a fixed rate from as low as 1.6 per cent, after which the rates will be pegged to the Singapore residential financing rate (SRFR), which is currently 3.75 per cent. This applies to both completed and uncompleted properties, and HDB and private residential properties. There is no minimum loan quantum. Maybank offers free one-time repricing to its prevailing home loan packages, normally not found in fixed-rate loan packages in the market.

    'As property purchase is a long-term commitment, we would advise customers to take a long-term view and go for regular instalment payment comprising principal and interest payment. This is also in view of the relatively low interest rate environment currently,' says Maybank's head of consumer banking Helen Neo.

    OCBC: Packages offered by banks come in two forms: fixed rate and floating rate. For fixed rate packages, the interest rates are fixed for the first few years of the loan. The interest rates generally tend to be higher than those of variable rate packages, says OCBC's head of consumer secured lending Gregory Chan. The benefit is the protection it can offer against future interest rate hikes.

    Floating rate packages are pegged to the bank's respective reference rate - typically influenced by the prevailing market conditions - and banks can change the rates at their sole discretion. 'Such packages generally lag behind interbank rate movements and are relatively less volatile compared to market pegged packages such as Sibor or Swap Offer Rate (SOR) pegged packages,' says Mr Chan.

    'For investors who do not intend to keep the home loan for an extended period, they may prefer floating rate home loans as compared to fixed rate home loans, which come with pre-payment penalties for early settlement and partial pre-payments,' says Mr Chan. 'Hence, the final decision lies with the preference and interest rate outlook of home buyers.'

    Currently, the floating rate packages such as the SOR- pegged home loans are preferred over the fixed rate packages at OCBC given the low interbank rates currently, and the depressed outlook for the rates in the medium term. The bank offers up to 90 per cent for financing of property purchases - though at higher rates compared with financing 80 per cent of a home.

    Stanchart: The bank has a variety of Sibor-linked, fixed rate and floating rate packages, including MortgageOne Sibor and MortgageOne Optimizer that provide an offset feature where customers can use the interest earned on their deposits to reduce the interest payable on their home loans.

    In the last two months, more than 50 per cent of their customers took up the fixed rate packages, including the 1.5 per cent one-year fixed rate package introduced in conjunction with the bank's 150th anniversary, says Dennis Khoo, general manager, retail banking, Standard Chartered Bank, Singapore.

    'We also see strong interest in the three-month Sibor- based packages as customers prefer interest rate transparency and enjoy the flexibility of making repayment anytime without any lock-in period,' he says.

    He advises home owners to look at mortgage insurance as well. 'A mortgage is the single largest financial commitment for many Singaporeans and it is important that we accord the same value, if not more, in protecting our homes, as much as in purchasing and building them,' says Mr Khoo. 'Customers should consider signing up for a mortgage reducing term assurance (MRTA) plan as it provides protection and gives them peace of mind when planning for a home purchase and the future.'

    The bank offers both single-premium and regular premium MRTA plans. MortgageCover, a single-premium MRTA plan, offers a convenient and affordable solution as customers can choose to finance the single premium together with their mortgage loan, without the need to maintain a separate insurance plan or payment plan.

    The insurance plan provides customers coverage for the entire loan amount from the onset and will help to alleviate the financial and emotional burden of the home owner and his family in the event of an unforeseen event. Customers also have the option of a regular-premium MRTA plan, Mortgage Protect, if they prefer flexibility in payment to match their cash flow.

    UOB: SOR packages are popular at UOB currently, says the head of its loans division, Chia Siew Cheng. Its promotional one-month SOR with one-year constant monthly instalment plan, for instance, allows customers to fix their monthly instalment for a year, regardless of interest rate movements.

    Customers can continue to fix their monthly instalment for a one-year period for subsequent years as the constant monthly instalment will be re-computed based on the remaining tenor and interest rates. 'If interest rates move up, customers can be assured that their monthly cash flow will not be disrupted. If interest rates decline, customers can pay off more of the principal amount,' says Ms Chia.

    Another popular package is UOB HomePlus, which allows customers to earn the same interest rates on their deposits in a UOB i-Account of up to 75 per cent of the amount the bank loans to the customer. This gives its customers the option to use the deposit interest earned to offset the interest they have to pay for their loans.

    UOB currently has a promotional HomePlus package, which offers rates with deposit interest matching of up to 33 per cent of the amount on loan to a client. 'Depending on the deposit amount maintained in the UOB i-Account, the implied interest rate payable for a customer's loan can be as low as one per cent per annum in the first year and up to 3 per cent per annum in the third year,' says Ms Chia. UOB finances up to 90 per cent of the purchase price or valuation price of the property - whichever is lower - for owner occupation purposes.

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    http://www.businesstimes.com.sg/sub/...51574,00.html?

    Published September 24, 2009

    US commercial real estate prices resume slide in July


    (NEW YORK) US commercial property prices renewed their steep decline in July as sector prices were down nearly 39 per cent from peak levels two years ago, said Moody's Investors Service in a report. Moody's/REAL Commercial Property Price Index (CPPI), released on Monday, showed its 10th consecutive decline in the index with a sharp 5.1 per cent drop in July.

    Prices in office, retail and apartment properties had eased to 0.1 per cent in June, but reversed course in July to remain more in line with earlier slides of 7.6 per cent in May and 8.6 per cent in April.

    After its latest decline, the CPPI index now stands 30.8 per cent below its year-ago levels and 37.5 per cent below the level seen two years ago. Overall, commercial property prices have now declined nearly 39 per cent since the peak of October 2007, Moody's said.

    The US$6 billion US commercial real estate market is a key focal point for the Federal Reserve and US lawmakers who have pegged it as a particular danger to the nascent economic recovery. Programmes aimed at reviving lending are just getting underway, but the efforts are complicated as falling revenue and prices are reducing value of the properties and causing defaults.

    Improved access to credit via the Fed's Term Asset- Backed Securities Loan Facility, or TALF, should help the commercial real estate sector at a time when billions of dollars in loans are facing refinancing needs.

    Moody's said its index that measures monthly sales transactions remained low and was down 66 per cent so far in 2009. 'The market has averaged about 375 sales per month for the seven months in 2009. Over the same time period in 2008, sales were averaging nearly 1,100 a month,' said Nick Levidy, managing director at Moody's.

    In addition, its Regional Property Type Index showed prices for apartments in the Eastern region of the United States performing significantly better than in other regions. Apartments in the East region have declined 6 per cent in the past year and 10.5 per cent in the past two years, which is a smaller decline than any other regional property type for just one year.

    Nationally, apartment sector prices have declined 24.4 per cent in the past year. Southern region apartments posted the steepest drop over the past year, at 44.2 per cent, significantly more than the 6 per cent decline in the East and the 24.4 per cent decline for the country as a whole, said Moody's.

    Florida apartments have also seen dramatic declines in the past four quarters, declining 39.8 per cent. Florida apartment prices are now 49.8 per cent below their peak prices.

    Other notably weak markets the indexes point to are the office and industrial markets in Southern California. In that area, office values have declined 25.8 per cent and industrial values 24.2 per cent since a year ago, the ratings agency said. -- Reuters

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    http://www.businesstimes.com.sg/sub/...51577,00.html?

    Published September 24, 2009

    Malaysian market picking up

    To some, the fact that the wealthy are once again putting their money in real estate is a sign the market is on its way up, reports PAULINE NG


    WHETHER it was the triple 8 that did it, I&P's launch of 80 link houses on August 8 in Bandar Kinrara Puchong in the Klang Valley was a sell-out - in three short hours. Of course, the value-for-money proposition for its link houses proved irresistible to house buyers, some of whom, according to reports, had started queuing on July 29, more than 10 days earlier. Many jumped at the pricing for the units with built-up areas of 2,151-2,551 sq ft. Priced at around RM460,000 (S$187,081) - by some estimates a discount of nearly 20 per cent - house buyers obviously thought it was too good a deal to miss.

    Price revisions appear to have done the trick for a number of developers in Klang Valley and Penang which have recently seen good take-up rates for new and older launches. Inquiries have picked up noticeably, property consultants say, with attractive financing packages and discounts initially stemming the slide, but now providing some momentum.

    One developer launching service apartments in the trendy area of Sri Hartamas next to Mont Kiara recently advertised its terms: RM15,000 downpayment on signing, zero interest during construction, no legal fees for the loan or agreement, and guaranteed returns of 6 per cent for two years.

    But all the incentives would mean little if consumer sentiment had not improved. Locals and foreigners are more upbeat, an analyst said, citing her Indonesian clients as an example. Flush with earnings from commodities, a number are contemplating residential units in Malaysia.

    Going by the inquiries on Zerin Properties' websites, the Mont Kiara area is popular with Singaporeans, its chief executive Previndran Singhe said, while the Kuala Lumpur City Centre (KLCC) area attracts more of a mixed bag.

    The number of daily viewings in the KLCC area has picked up, Terence Yap, the company's head of private wealth confirmed, as has The Binjai On The Park. Located right smack in the KLCC park, the development is considered a trophy asset and although some find its design somewhat dated, few can knock its location.

    Caught out by the global financial crisis, the developer had cut prices in June which reduced the average cost to RM2,400 per sq ft (psf) from about RM3,000 psf in August last year. Last month, the developer clinched sales of over RM100 million and although its cheapest units are upwards of RM3.75 million, interest remains encouraging. To some, the fact that the wealthy are once again putting their money in real estate is a sign the market has bottomed out and is on its way up.

    Property players are quick to point to SP Setia's Sky Residences and Eastern & Oriental's (E&O) St Mary's Residences as examples. The first tower of Sky Residences was sold at an average of RM680 psf in December; in July the second tower sold at RM730-RM740 psf.

    Similarly, St Mary's first block averaged RM1,000 psf in June but its second block is now priced at about RM1,250 psf, its premium owing to its more favourable views facing the KLCC.

    E&O executive director Eric Chan says the company has sold about 40 per cent of St Mary's Residences, describing its soft launch of the first block in Singapore as 'very positive and in line with expectations'. Buyers comprised mainly Singaporean professionals and businessmen.

    Admittedly, there have not been many primary market launches. Most developers have gone back to the drawing board to revise their original plans to cater to current market sentiments. Those that have priced themselves too high will likely need to re-price their products or put up with sluggish sales.

    Ho Chin Soon of Ho Chin Soon Research says that not all developers are positive, and that many are waiting for year-end or next year to launch their projects. Two high- end developments yet to see any significant progress in the KLCC area include Ong Beng Seng's Four Seasons Place (hotel & service residences) and Kwek Leng Beng's Millennium Residences. Property consultants expect the projects to only take off next year. Mr Ho believes the sustainability of the property market will hinge largely on the stockmarket performance given the correlation between the two.

    As always, location is crucial, but savvy buyers are increasingly demanding differentiated products, good management and after sales marketing to maintain their investments. For example, one of the more pro-active developers, Bukit Kiara Properties, has plans to air commercials in the cinemas on Verve Suites to promote the development, even as it prepares to hand over the keys to buyers of its first tower block. Two other places where the property buzz is stronger, according to real estate players, are Penang and Kota Kinabalu.

    Supply on Penang island being more finite, prices have shown greater resilience - some claim they were hardly dented during the financial crisis - and clean-up efforts by the new Pakatan Rakyat state government have earned it some praise among Penang watchers.

    Indeed, landed property on the island in certain locations has seen robust demand. E&O's Mr Chan said a July launch of 33 sea-fronting terraces at Seri Tanjung Pinang saw all snapped up in three hours. The RM1.1 million tag was also a new record for an intermediate terrace unit in the country. Moreover, 150 ballots were received for the four direct sea-fronting units which went for RM1.52 million each.

    CIMB Research believes Klang Valley developers promoting new products that appeal to the locals, as well as Kuala Lumpur and international buyers keen on Penang, are sustaining the market.

    Kota Kinabalu holds a different attraction. 'KK is rocking,' Mr Singhe declared. The growing numbers of Koreans and Japanese - particularly avid golfers - who flock to the East Malaysian city during weekends for much cheaper rounds of golf have brought a new vibrancy to the place. The rising number of budget flights into the city has made it very accessible and Mr Singhe says more Koreans have been investing in condominiums as a holiday home.

    A bull on property, Hwang-DBS Vickers recently told its clients: 'We have seen continued warm response for recent launches in KL and Penang. Developers are now resuming launches (including high-end) compared to their earlier focus on clearing inventories. Selling prices may be raised soon and incentives gradually pulled back, resulting in margin expansion. We expect continued positive news flow, ample liquidity and under-investment in the sector to drive valuations higher.'

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    http://www.businesstimes.com.sg/sub/...51576,00.html?

    Published September 24, 2009

    Hong Kong office rentals arrest decline

    Despite the slower pace of rental falls and increased leasing activity, vacancy rates are climbing, says UMA SHANKARI


    THE Hong Kong office market is mirroring the trend seen lately in the Singapore market - rents are still falling, but at a slower rate. Data from property firm Savills showed that overall Grade A office rents fell by 5.8 per cent in the second quarter of 2009. This is a slowdown from the decline of 11.1 per cent seen in Q4 2008 and 10.2 per cent in Q1 2009.

    'The results indicate that the rate of decline of office rents has slowed, suggesting that we are approaching the bottom of the current down cycle,' said Savills in a report.

    Savills Research now expects the rate of decline of Grade A office rents to slow over the second half of 2009 and record another 10 per cent slide for the remainder of 2009 before stabilising.

    Knight Frank, which does monthly rental updates, noted that the month-on-month decline in the average Grade A office rent slowed to 1.9 per cent in July, after falling 3 per cent in June. Knight Frank expects that Grade A office rents will bottom out by Q4 of this year.

    The trend is similar to what is happening in Singapore. Office rents in Singapore fell for the fourth consecutive quarter in Q3 2009, but the pace of decline has eased on the back of returning business confidence, said CB Richard Ellis (CBRE).

    As the stock market has rebounded since early 2009, and mainland IPOs begin to make a comeback, we expect to see more demand from financial services in the coming months.

    Data from the firm said that prime office rents in Singapore averaged $7.50 per square foot (psf) per month in Q3. This reflected a 12.8 per cent quarter-on-quarter decrease, compared with the 18.1 per cent decline in Q2 2009 and 18.6 per cent contraction in Q1 2009.

    In all, prime rents have fallen 53.4 per cent in Singapore since their peak in Q3 last year.

    As in Singapore, the slower decline in office rents in Hong Kong is partly attributed to the improving stock market.

    'As the stock market has rebounded since early 2009, and mainland IPOs (initial public offerings) begin to make a comeback, we expect to see more demand from financial services in the coming months,' said Savills. 'Some international banks have already unfrozen headcount and are hiring selectively.'

    But despite the slower pace of rental falls and increased leasing activity, vacancy rates are climbing. Hong Kong's Central area was the worst-hit district in Q2 2009 in terms of rents as well as vacancy.

    Data from CBRE showed that the overall vacancy rate for Grade A offices in Hong Kong averaged 9.7 per cent in Q2, down 7 basis points compared to Q1. In Q2 2008, the vacancy rate was 4 per cent.

    The Central district fared worse. The vacancy rate for Grade A offices in Central averaged 5.2 per cent in Q2, down 24 basis points from Q1. Vacancy fell slightly over the quarter as there were some instances of positive take-up in the district over the quarter.

    The decline in Central rents was also the most pronounced of all the districts, falling some 10.4 per cent over the quarter to average HK$75.30 psf. Rents in Central have on average fallen 43 per cent compared to the same period last year.

    Landlords in the Central district have continued to adjust rents downwards in light of weaker demand for office space, as well as taking into account the rental disparity with other districts, CBRE said.

    For the whole of Hong Kong island, negative take-up was seen in Q2. 'Negative take-up of 345,000 sq ft was recorded over the second quarter on Hong Kong island, largely as a result of companies reducing space requirements, handing back space to landlords, or relocating to lower cost buildings in Kowloon,' noted CBRE.

    'However, some occupiers were noted to be upgrading from industrial or Grade B buildings over the quarter, attracted by low rents for newly completed buildings in Kowloon.'

    Echoed Savills: 'Hong Kong's weak export performance is also affecting trading companies and prompting some to relocate to non- core areas to save costs.'

    Among them are Sanyo Electronics which leased 47,300 sq ft in Kowloon Commerce Centre in Kwai Chung and Toshiba International Procurement which took up 14,000 sq ft in Manhattan Place, Kowloon Bay.

    No new supply was completed in Q2, CBRE said. Pipeline supply for the remainder of the year will remain focused in areas such as Kowloon Bay and Kwun Tong, with several new buildings to provide about 700,000 sq ft upon completion before year-end.

    Knight Frank also noted that while a rebound in rents had yet to be seen, the average office price had risen for five months running.

    Knight Frank's data showed that month-on-month, Hong Kong's average Grade A office price climbed 1.4 per cent in July, following an 8.9 per cent growth in June.

    Causeway Bay led the market, with prices rising 1.8 per cent, followed by Wan Chai and Tsim Sha Tsui, where prices went up by 1.7 per cent and 1.6 per cent respectively. The prices of some buildings reached new highs since the onset of the financial crisis. For example, a high-floor unit in Concordia Plaza in Tsim Sha Tsui was sold for HK$12,000 per sq ft - the highest level since September last year.

    However, this means that the sales activity in the prime office market has slowed down, with the gap widening between asking and bidding prices. Around 270 sales transactions were recorded in July, down about 5 per cent from the previous month.


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    Published September 24, 2009

    Bargain hunting Down Under

    Investment activity in both the retail and industrial sectors has declined over the past 12 months

    By MARTIN PEPPER


    COMMERCIAL property values across Australia have dropped in the past 18 months in line with the global economy. Although the timing has varied, the decline has been observed across all capital cities and commercial asset types.

    Melbourne and Sydney have fallen less than Brisbane and Perth, with the dichotomy in economic performance over the past three years amplifying the performance of commercial property.

    As commercial property yields are affected by current rents and future rental growth, tenant demand and the volume of vacant supply are the major considerations when determining value. The availability and cost of debt and its relationship to the safe return of a 10-year government bond, provide the investment market an indication of the expected returns for a long-term commercial property investment.

    Office markets have been among the hardest hit with values falling by 15 per cent to 25 per cent nationally. This has resulted in yields (rent/value) for prime quality assets increasing by around 100 basis points in most capitals from about 6 per cent to more than 7.5 per cent.

    Melbourne and Sydney enjoyed relatively solid economic performance in the years leading up to the global financial crisis, which limited speculative activity and kept a lid on office floor space in the development pipeline. As a result, yields compressed to 5.5-6.5 per cent for prime assets as debt became increasingly accessible.

    Sydney has been the traditional centre for Australian business and been the home of the majority of offshore head offices, which are likely to re-commence business activity when the global economy improves. Melbourne has fewer international head offices and accordingly has a higher proportion of local companies occupying the office market.

    Brisbane and Perth have seen massive increases in demand for office space in recent years as a result of the resource boom. This has resulted in huge rental growth, and when compounded by easy access to credit, has also seen construction activity booming.

    Many of these projects were constructed on a speculative basis and are now nearing completion, aggressively competing for the few tenants available. Unfortunately, the global crisis has stifled demand resulting in plummeting rents and soaring vacancy rates.

    Investment activity in both the retail and industrial sectors has declined over the past 12 months with the tightened access to debt and decreased demand for facilities.

    Retail investor activity has continued albeit at reduced levels, with access to debt being the limiting factor. Values for retail assets have declined even with solid retail sales supporting limited rental growth. The impact of the government's stimulus package, A$52 billion (S$64 billion) in total, has enabled households to continue spending, which has supported sales, employment and many parts of the economy.

    While many retail assets are currently for sale around the country, the ability of investors to pick up a bargain in this sector is in most cases (apart from distressed sales) minimal.

    Industrial yields have in many cases increased by 25 per cent to 30 per cent as demand for facilities declines and an oversupply is reflected in sliding capital values.

    The majority of prime industrial assets are held by Reits or institutions, with few private individuals or companies able to access credit at the levels required to purchase such assets. Yields for secondary properties have increased to more than 10 per cent in most instances. However, few transactions have taken place with most owners not prepared to sell property at prices well below purchase levels several years earlier.

    Are prices attractive?

    The fall in values has naturally affected the willingness or urgency with which owners have put property on the market. Vendors with high gearing have in some cases had to sell at any price in order to reduce debt. This has resulted in several sales with yields above 10 per cent. However, in some cases, assets have been sold with poor tenancy profiles, very short leases and significant building works required.

    Furthermore, several of the major Reits have undergone large capital raisings which they have used to pay down debt, hence reducing the requirement for the sale of prime assets.

    So the question of whether prices are attractive is fundamentally a function of the risk a purchaser is prepared to take on a property. In Melbourne and Sydney, limited future office supply along with ongoing demand is likely to result in considerable value in long-term investments.

    The high costs and long time frames involved in developing office buildings may see rents increasing and in turn, yields improving as demand returns from both investors and occupiers.

    Conversely, Brisbane and Perth are likely to experience an oversupply of office space for several years. Reduced occupier demand will see rents fall further, and values decrease or remain at low levels for several years to come. However, several significant mining and oil related deals are likely to result in improving demand being pulled forward, potentially reducing the length of the yield drought.

    Deals that are occurring

    Across the board, while yields are above long-term levels, there are, as always, risks associated with purchases in the current environment.

    Sydney has had very few large office transactions this year, with only four sales over A$50 million. Many properties have been put on the market then later withdrawn with buyer interest well below expectations. Melbourne has had a greater number of sales with several over A$100 million, a sign of the overall confidence in the local economy and its potential to come out of the economic storm earlier.

    Perth and Brisbane have had very few large transactions in 2009 with the huge drop in demand for office space and the massive new supply under construction resulting in little upside in the current environment. With few transactions taking place in either city, there is limited ability to derive a real indication of current yields.

    Australia's capital, Canberra, has had a disproportionate number of large transactions with buyers keen to acquire assets with the certainty of long-term leases to government bodies.

    Longer term, asset value growth may be less than in other regions with high levels of supply and changing government requirements with respect to energy efficient buildings, making ongoing use without significant refurbishment, unattractive. Several of these purchases have been made by German institutions seeking consistent long-term returns.

    Outlook

    The future for commercial property values across Australia remains as varied as at any point in recent history.

    From an office market perspective, the limited pipeline of new supply in Melbourne and Sydney is likely to result in both cities returning to positive rental growth in 2011, which at a time of increasing economic prosperity and demand for assets, may well result in yields compressing and growth in asset values.

    However, Melbourne's significantly lower rents, compared with most capital cities (60 per cent of both Sydney and Perth) combined with its larger population and limited development pipeline, makes it well-placed to realise strong rental growth post- 2011.

    Perth and Brisbane have seen both demand and rents spike in recent years due to massive demand and minimal new floorspace. But going forward, even with new demand created from the Gorgon gas project, Perth will be over-supplied for many years. This may provide investors with the opportunity to purchase at high yields (9-plus per cent). However, it may be many years before capital growth returns.

    Industrial markets nationally are likely to see yields remain high while GDP remains low and occupier demand is reduced. Little improvement is seen in the short or medium term. The high availability of potential industrial supply (land) nationally places considerable pressure on all non- prime assets, and considerably affects their ability to see capital growth.

    Yields for retail centres are expected to come under pressure in 2010 as retail spending declines in the aftermath of the crisis and effects from the government's stimulus package wear off. Rising unemployment, which is forecast to peak in mid-2010, is likely to see discretionary sales decline and values for retail assets decrease further.

    While the idea of securing a bargain in the current market is appealing, realistically they are few and far between with buyers' appetite for risk being the deciding factor.

    The writer is associate director, research, DTZ Australia

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    http://www.businesstimes.com.sg/sub/...51578,00.html?

    Published September 24, 2009

    London still the place to be

    Singapore and Asian investors now see the City as a safe long-term investment, and as long as the sterling is low they will be buying

    By ED LEWIS AND JULIAN SEDGWICK


    THE UK property market is waking up, prices are rising and the British pound is regaining its strength. The good news is that there are still bargains to be had for astute overseas investors.

    The first recommendation for buyers is to get an opinion, via a friend or relative in the UK, to check if the location really is where it should be - that is, '24 minutes from Bond Street', or 'within easy reach of London's top schools'.

    Many buyers may be tempted into a purchase that, while looking like great value on paper, would offer little opportunity for capital growth and is probably not attractive to tenants. Having said that, there are still opportunities to be had, especially in the established locations, to make the Singapore dollar sweat against the pound sterling.

    According to the latest quarterly index from Savills Research, prime central London prices rose by 4.3 per cent in the three months to June, effectively wiping out the falls seen in the first quarter. By any measure, this is a significant quarterly growth.

    However, we will wait to see if the recent market rises are indeed the start of a more sustained recovery or the housing market equivalent of the pre-Christmas buying frenzy for a must-have toy.

    In the early part of this year, buyers were waiting for signs that the market was sufficiently close to the bottom before they committed to buying. This meant that prices had to fall by as much as 25 per cent before deals were struck. There were, without doubt, a few who picked up good bargains which they can now be proud of.

    As things stand, going into autumn, the market continues to gather momentum and a shortage of good prime stock, rising buyer interest and increased stability in central London residential rents is likely to add further to market confidence. The fortunes of the London residential market, in particular, are heavily reliant on City buyers walking into London estate agents offering cash.

    An improvement in the economic outlook and city employment projections in particular would ensure that this momentum is carried though to 2010, allowing the current level of pricing to be sustained.

    Irrespective of short-term price movements, we consider that improved underlying purchaser activity means we are into the first stages of recovery in the prime central London market and this sector will eventually lead the rest of the UK residential market into recovery. Thus, international investors considering purchasing in the UK would do well to start looking in earnest now before prices inch up further.

    International buyers have been very much in evidence in the prime central London market since the end of 2008, recognising that the fall in capital values, combined with the softer sterling, makes prime residential property an attractive investment proposition.

    Based on prime central London capital values at end-June, the discount from the peak for foreign currency buyers is currently around 35 per cent for US dollar buyers, and 37 per cent for Singapore dollar buyers. Since the sterling's drop earlier this year, the number of buyers from Singapore has increased. Many investors from Singapore have bought sterling at its low point and are ready to get into the market.

    It is the first time in many years that a residential property in central London has looked this affordable. Singapore and Asian investors now see London as a safe long-term investment, and as long as the sterling is low they will be buying.

    While this represents a significant saving from the peak, international buyers seeking to catch the bottom of the market will need to watch market movements carefully. There is a sense among buyers who are active in the market that prices for the best properties will not fall any further, and that bricks and mortar once again represent a sound investment opportunity.

    These investors are savvy, knowing where and what they want to buy. It has to be prime central London with good rental investment or long-term returns. They could also be buying for their children in key areas close to London's main universities. Prices in and around Central London vary from £800 to £1,200 per sq ft depending on area and location.

    Savills numbers show that international buyers have accounted for 51 per cent of all buyers since the beginning of the year, up from 44 per cent in 2008.

    The indices are quarterly, and the latest statistics cover April to June when prime central London values rose by 4.3 per cent, bringing the year-on-year price falls to just -12.2 per cent, or -19.8 per cent from the peak. Apartments were up 3.8 per cent in the quarter and houses up 4.8 per cent, which illustrates how the market is coming back.

    The super prime bracket, an average of £5 million (S$11.6 million), was up 4.8 per cent. According to our indices, some of the greatest quarterly growth was seen in Mayfair, Belgravia, Knightsbridge and Chelsea at 5.9 per cent. However, the biggest rise has been seen in southwest London (Putney, Barnes, Wandsworth, Fulham, Richmond) at 7.3 per cent in the quarter.

    Savills Knightsbridge office was one of the first London agents to report international buyer interest at the end of 2008. Reports from the sales team noted 'seeing a lot of international buyers in the market, particularly from Europe, with transaction levels in the summer roughly double the levels seen in April/May'.

    International buyers account for around 70 per cent of the inquiries received for the best addresses (Knightsbridge, Kensington, Chelsea), but around 50 per cent of actual sales. There is an increasing number of British buyers who clearly hold foreign currency and so benefit from the falls in sterling.

    So is it a sustained growth or a pre-Christmas buying spree? Only time will tell. It was investors from Singapore and South-east Asia that had the foresight to see the opportunity in the early 1990s and one would be brave to dismiss their ability to get it right this time around as well.

    The writers are head of new homes, Savills plc and senior associate director, international marketing, Savills Singapore respectively


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