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New record predicted after $13b was chalked up in first half

Property consultancies CB Richard Ellis and Knight Frank yesterday separately predicted that total investment sales of property in Singapore for the whole of this year will hit a record $20 billion after the market clocked up about $13 billion in the first six months.

CBRE observed that the $12.9 billion first-half tally is just $600 million shy of the $13.5 billion reported for the whole of last year, which was a record figure that surpassed the previous peak of $12.72 billion in 1996 at the height of the property market boom.

Knight Frank, which released similar figures, cited JTC Corp’s upcoming divestment of its industrial properties, the sale of the Sentosa integrated resort land parcel as well as new real estate investment trust (Reit) listings as among the factors that will continue to create investment sales momentum in the second half.

CBRE also expects developers to continue selective buying of residential development sites. ‘Appetite for income-producing office and retail assets will remain strong, although the number of commercial transactions will be limited by the lack of properties for sale,’ said CBRE executive director Jeremy Lake.

Investment sales of property - seen as a barometer of developers’ and big investors’ mid-to-long-term confidence in the real estate market - refer to large investment transactions like office buildings and shopping centres, as well as sites bought for development including collective sale deals. They do not cover purchases of single property units by individuals.

Giving a breakdown of the first-half performance, CBRE said that investment sales of property in Q2 reached $7.2 billion, up 25.1 per cent from the first quarter level of $5.7 billion.

The two latest deals this quarter were both handled by CBRE. One was the $348.88 million sale of SIA Building in Robinson Road to a fund managed by CLSA Capital Partners.

The other was LC Development’s and Singapore Pools’s $138 million sale of Paradiz Centre in Selegie Road to Lend Lease Real Estate Investments, Lehman Brothers Real Estate Partners II, and Eden Property Mauritius Investments.

Another major investment sales transaction for this quarter is the government’s award of the Marina Bay integrated resort site to Las Vegas Sands for a pre-fixed land premium of $1.2 billion.

Collective sales were a major source of investment sales deals in the first-half, with a total of 30 transactions involving nearly $4 billion - double the $2 billion for the whole of last year.

Knight Frank observed that the prices developers are willing to pay for collective sales sites are often based on future home prices.

‘Assuming unchanged costs and profit margins, mid-to-high-end home prices and overall developers’ sales will need to exceed at least 10 per cent growth and 8,000 homes respectively per year to sustain the collective sale fever,’ Knight Frank director Nicholas Mak said.

However, several factors could cool the fever, including sellers’ ever-rising price expectations, developers’ diminishing hunger for land, plus rising development charge rates and interest rates, he added.

Knight Frank also said that total residential investment sales (which includes private-sector originated deals like collective sales as well as sales of housing sites by the state) swelled to about $6 billion for the first half, accounting for 46 per cent of total investment sales in the period.

The first-half figure was also 62.6 per cent higher than that for the whole of 2005, Knight Frank observed.

While the $20 billion projection for investment sales property deals for full-year 2006 is significantly higher than levels seen during the previous market peak, the emergence of Reits since 2002 and their sizeable contribution to investment sales in recent years means comparisons with historical figures may not be entirely accurate, argued Mr Lake.

Reits often buy properties from their sponsors or related parties either at the time that the trusts are floated or post-listing.

For example, K-Reit Asia acquired $630.7 million in four office buildings from its sponsor Keppel Land at the time of its listing in April.

Source : Business Times - 30 Jun 2006

Master developer in the money to tune of over $500m, moves to release sites in southern precinct

The master developer of the upscale waterfront housing district emerging on Sentosa Cove has sold over $1 billion worth of sites for development in the district’s Northern Precinct or North Cove since late 2003.

Because of the strong demand the developer, Sentosa Cove Pte Ltd (SCPL), is now moving on to sell land in its Southern Precinct or South Cove.

Rough estimates by BT show that SCPL is clearly in the money with its land sales on Sentosa Cove - to the tune of more than half a billion dollars for North Cove.

SCPL’s general manager Margaret Goh said, without commenting on the profit estimate: ‘It’s not just about money. What we’re doing here is creating a unique lifestyle of prime waterfront living in an exclusive enclave which is yet so close to the CBD. This is probably unmatched in Asia.’

‘The strong demand for land parcels for development on Sentosa Cove has led us to expedite our launch plans for South Cove, and we now envisage that the various developments on Sentosa Cove will be substantially completed by 2010, two years ahead of schedule.

‘In fact, the timeline for realising the entire Master Plan for Sentosa Island, including the integrated resort, has also been brought forward from 2012 to 2010.’

South Cove is generally regarded as more prime as it faces the Southern Islands, compared with North Cove, part of which overlooks the Tanjong Pagar and Pulau Brani container terminals.

To date, SCPL has sold land parcels that can be developed into 88 per cent of the total 1,528 homes planned for North Cove.

It plans to finish selling the remaining land in North Cove by the end of Q3 this year.

These sites involve:

Three remaining bungalow plots in the Hillside Collection at the foot of Serapong Hill to be sold by private treaty;

Lakefront Collection, a batch of 15 bungalow sites facing Serapong Pond and Serapong Golf Course, to be offered en bloc to developers through a three-week-long expressions of interest exercise to be launched soon; and

Marina Collection, comprising two condo plots totalling 239,200 square feet of land area, which can be developed into a four-storey condo with about 170 units. The condo parcel is likely to be launched for tender in about a month.

The Lakefront Collection bungalow plots, because they face a pond, will not have berths for boats unlike the waterway facing bungalow lots sold earlier.

Nonetheless, developers and owners can extend structures over the pond, which could be used for pavilions, gardens, jacuzzis or infinity pools.

Sentosa Cove is being developed on 118 ha of mostly reclaimed land on the eastern edge of Sentosa Island.

SCPL, through its parent Sentosa Development Corporation (SDC), bought the land from the Singapore Land Authority (SLA) for a reported sum of close to $800 million, in two stages.

It paid for 83 ha of land on 103-year lease in North Cove in 2003 and at the same time inked an option to buy the remaining land - South Cove - within three years in exchange for paying an option fee.

SLA confirmed yesterday that SDC exercised the option on April 12 this year for South Cove (about 35.35 ha) with a new 103-year lease from that date, but it declined to confirm the size of the land premium and option fee.

Besides the land premium paid to SLA, SCPL has also spent about $250 million in infrastructure works and subdividing the land into smaller parcels for sale, primarily on 99-year leases, according to earlier reports.

Sentosa Cove will eventually have 2,500 homes, about 60 per cent of which will be in North Cove.

The other 40 per cent or 972 homes on South Cove will comprise 156 bungalows and 816 condo units.

SCPL will kick off land sales for South Cove with the auction of 12 bungalow parcels on Aug 25.

It will be conducted jointly by Christie’s Great Estates and Colliers International. This will be Christie’s Great Estates’ first auction in Singapore.

And like North Cove, which featured three man-made islands with bungalow plots set, South Cove will feature two such islands, named Sandy and Pearl, with a total of 39 bungalow plots.

These islands may be sold en bloc through an expressions of interest exercise, or the bungalow lots on the islands could be sold individually by private treaty or auction.

The rest of the bungalows plots on South Cove are likely to be sold individually. South Cove will also have four condo plots totalling 816 units.

‘We hope to finish selling all the sites on South Cove in three years,’ Ms Goh said.

Source : Business Times - 29 Jun 2006

Dozen parcels will be auctioned by Christie’s and Colliers on Aug 25

THE 12 plots for bungalow development on Sentosa Cove’s Southern Residential Precinct, or South Cove, going under the hammer on Aug 25 are expected to surpass the top prices fetched by similar-facing parcels sold in North Cove over the past year.

The South Cove plots are expected to be about 20-25 per cent higher than North Cove’s. Based on these estimates, the prices for the new bungalow parcels at the coming auction could top $6 million per plot.

The 99-year leasehold plots have land areas ranging from 6,927-11,123 square feet.

Market watchers are expecting their prices to range from $550 to $650 per square foot (psf) of land area.

‘The fury of competitive bidding may drive prices even higher, especially for the seafronting plots,’ suggests a property consultant.

This is especially so given the waiting list of over 500 interested buyers since 2004 keen on bungalow lots in Sentosa Cove’s Southern Precinct, which is generally regarded as choicer than the earlier Northern Precinct.

Sentosa Cove Pte Ltd (SCPL), the master developer of the upscale waterfront housing district, has appointed Christie’s Great Estates and Colliers International to conduct the auction at 3pm on Aug 25 at Sentosa Cove’s Sales & Information Centre.

The auction parcels comprise two waterway bungalow plots, one site facing the fairways of Tanjong Golf Course and nine seafronting parcels. Berths can be built only for the waterway bungalows.

The seafronting plots - which face the Southern Islands - are generally considered the choicest plots. SCPL, Christie’s and Colliers declined to comment on pricing expectations for the coming auction, but some market watchers forecast the seafronting plots may fetch $600-$650 psf, compared with the highest of $500 psf for a seafront bungalow plot earlier this year at North Cove.

The sole fairway-facing plot at the auction is expected to sell for more than $600 psf, while the two waterway fronting plots could go for $550-$600 psf, suggest observers, again higher than the $455 psf top price for a waterway plot in North Cove this year.

‘The auction will help to benchmark prices at South Cove,’ said SCPL general manager Margaret Goh.

In addition, the auction will help SCPL clear some of its backlog of demand for South Cove. ‘But more than that, it will help us unlock the value of South Cove by staging an event that will put Sentosa Cove on the global platform through Christie’s Great Estates, which markets only the choicest properties around the world,’ Ms Goh added.

Christie’s and Colliers will market the properties for two months. It will be Christie’s Great Estates’ first auction in Singapore.

Bidders must pre-register with Colliers.

As with earlier landed property sales on Sentosa Cove, foreigners, including permanent residents, will be given fast-track approval within 48 hours from the Land Dealings (Approval) Unit of the Singapore Land Authority (SLA) to buy landed property. This clearance has to be given before the auction.

The auction will be conducted by Colliers’ veteran auctioneer Grace Ng and Graeme Hennessy, an award-winning auctioneer appointed by Christie’s Great Estates affiliate Ken Jacobs. Both Mr Hennessy and Mr Jacobs are Australians, and Mr Hennessy has auctioned land parcels at Sanctuary Cove on Australia’s Gold Coast.

SCPL will have access to Christie’s Great Estates’ international network to market the property.

Colliers’s Ms Ng expects ‘overwhelming response from both local and foreign buyers for this prestigious launch’. Mr Jacobs says Singapore’s commercial hub status in the Asia-Pacific will boost Sentosa Cove’s appeal to international investors.

Source : Business Times - 29 Jun 2006

Sale price about 7% more than market’s expected price

SINGAPORE Airlines (SIA) has finally sold its building at 77 Robinson Road - for a higher-than-expected $343.88 million - to TSO Investment, a fully owned subsidiary of a property fund managed by CLSA Capital Partners. The price works out to about $1,165 per square foot (psf).

The 35-storey SIA Building was carried in SIA’s books at $118.77 million, which means the company realised a gain of $225.11 million before commissions. The sale price is about 7 per cent higher than the market’s expected price of $325 million.

‘The decision to sell the building was made as part of a regular review of the airline’s non-core assets, and following a successful private tender exercise, conducted by CB Richard Ellis,’ SIA said in a statement.

Analysts said while the transaction was material and would provide a one-off boost to SIA’s earnings, the numbers involved were small relative to the $12.5 billion worth of assets SIA carried in its books.

‘Of course, we will see a non-recurrent boost to quarterly earnings,’ said Vincent Ng of S&P Equities Research. ‘But the gain represents barely more than 2 per cent of the assets carried. I don’t think it will have a significant impact on the valuation of the company or recommendations on the stock.’

SIA plans to use proceeds from the sale, expected to be completed in eight weeks, for investment and growth of the company and its subsidiaries.

In recent years, the airline group has been seeking to divest its non-core non-airline businesses, including property, ground services (Singapore Airport Terminal Services) and SIA Engineering Co.

SIA redeveloped the building in 1997. It has a net floor area of nearly 295,000 sq ft, plus 180 carparking spaces, and is almost fully let. SIA occupies about 10 per cent of the property’s net lettable area (NLA), and has committed itself to a two-year leaseback on this space.

According to market insiders, the $1,165 psf of NLA price works out to a net property yield of around 3.8 per cent, based on prevailing rent levels.

CLSA was one of several contenders for the building, together with the real estate arm of Deutsche Bank, DB Real Estate, and a Goldman Sachs fund.

SIA also has several dozen smaller properties in Singapore and around the world. The next biggest, after the SIA Building, would be its Singapore Airlines House in Sydney. An SIA spokesman told BT that the company was ’still considering its options’ as to what do with that building.

Source : Business Times - 29 Jun 2006

INVESTORS are spooked by the damage that rising interest rates can do to the prices of real estate investment trusts (Reits). Reits are a hybrid between equities and bonds, providing investors with a stable stream of distribution income.

Investors price Reits at a premium to the risk-free rate, being the 5-year or 10-year government bond yield. Everything being equal, an increase in the risk-free rate should lead Reit prices to fall by an amount which enables the yield to the investors to be preserved.

For a Reit trading at a yield of 6 per cent - which is where some Singapore Reits are trading at - this means that the price will fall by 4 per cent when interest rates increase by 0.25 of a percentage point.

Investors are right to be concerned about the damage that rising interest rates can do to Reits. But in a climate of volatility and uncertainty in global equity markets where there is a danger of a sudden double-digit plunge in equity prices to reflect an increased risk premium in the market, Reits, relative to other equities, stack up well.

Interest rates may go up but the US Federal Reserve will, in all likelihood, hike rates at a measured pace. Meanwhile, a Reit trading at a yield of around 6 per cent gives investors a significant pick-up in yield compared with promotional fixed-deposit rates that are just north of 3 per cent.

While interest rates may go up, so can Reit distributions. Historically, Reits here have posted growth in distribution per unit year-on-year in the high single digits or even in the double digits.

Singapore-sourced and Singapore dollar-denominated cash flows are highly valued by global investors because of the low-risk environment here and the strength of the Singapore dollar. These factors are also providing support for Singapore real estate as are the plans being implemented to make Singapore a better place to live, work and play.

There is little doubt that there are good times to come for owners of prime office and retail property in Singapore. On this basis, investors could do well to look closely at Reits that own such assets, an example being Suntec Reit.

With more new Reits coming on the Singapore market, investors have choice. New asset classes, new geographies and new structures will add to the depth of Singapore’s Reit market. But amid choice, investors can stick to the property asset classes like office and retail, which are popular with Reits globally.

There is no need to consider hotels, as earnngs streams of such assets can be highly volatile.

There is no need to consider trusts that focus on sale and leaseback of facilities, as such Reits could be hard-hit should tenants fail as these properties are often purpose-built facilities where rents may have been propped up to achieve certain capital values.

As for Reits with overseas assets, Singapore investors can consider them only if they are adequately compensated for the currency risks and if the assets are appropriately priced vis-a-vis risk free rates in the respective countries, which almost invariably exceed that in Singapore.

There may be an ever increasing array of choices, but investors can do well by going for Reits with properties that are leased to independent third parties, located in Singapore and in the sectors that benefit from Singapore going up the ladder in the league of global cities.

Not surprisingly, Reits first emerged in the Singapore market a few years ago amid an environment of extremely low interest rates. With sufficient investor education, Reit prices then trended upwards substantially as investors appreciated the good yields they could get from Reits.

Today, more sponsors see the value of launching Reits and Singapore continues to gain in popularity as a listing venue for Reits. But the spectre of rising interest rates looms as a major challenge to investors.

Let us not be unduly worried by rising interest rates but instead remember that Reits can be an excellent proxy for income streams from quality assets and focus on those Reits that offer such exposure.

Source : Business Times - 28 Jun 2006