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Indonesia’s Lippo Group yesterday launched the initial public offering (IPO) for its first real estate investment trust (Reit).

Lippo is offering 140.4 million units of the aptly-named First Reit, priced at 71 cents each, in the hopes of raising $99.7 million.

About 133.4 million units will be offered to institutional investors, while the remaining seven million units will be set aside for the public, Lippo said in a statement yesterday.

The IPO is subject to an overallotment option of up to 20 million units at the same offer price.

The trust, which comprises three private hospitals and a five-star hotel, all in Indonesia, is said to have already attracted strong institutional interest.

Lippo’s order book for the Reit was five times covered, according to a report by wire agency Reuters last month that quoted a source close to the deal.

First Reit will give out 100 per cent of its tax-exempt income and capital receipts from the time it is listed until Dec 31 next year, Lippo said.

After that, it will distribute at least 90 per cent of income and receipts.

Based on an anticipated distribution per unit of 6.51 cents for the whole of next year, those who purchase First Reit units at the IPO price are expected to enjoy an annualised yield of 9.17 per cent.

Lippo has previously said that the trust intends to acquire more health-care properties in Singapore, China, Malaysia, Thailand and Hong Kong.

First Reit’s IPO is being jointly managed and underwritten by Merrill Lynch and OCBC Bank.

Source : Straits Times - 5 Dec 2006

Such investment properties are becoming harder to find with prices in general going up faster than rents 

It is every property investor’s dream: buying a second home to rent out and having your rental income cover - or even exceed - the monthly mortgage payment.

However, with home prices in general now rising faster than rents, it is difficult to find investment homes that pay for themselves.

But it is still possible to locate such homes, say property experts.

In general, such investment homes are more easily found outside the prime districts, said Mr Eric Cheng, senior division director of property agency PropNex.

This is because home prices in districts 9, 10 and 11 have increased alongside rising rentals.

In contrast, some projects in city-fringe and suburban areas are commanding higher rentals without a corresponding increase in capital values.

In Tampines, for instance, a four-bedroom unit at 99-year leasehold The Tropica is now going for $640,000, down from its initial price of $800,000 about a decade ago.

However, the unit’s monthly rental has stayed the same at $2,800, due in part to the schools in the area, said Mr Cheng. This means the property’s rental yield is now about 4.3 per cent, compared with its initial yield of only 3 per cent.

He estimates that based on a 30-year loan, the monthly instalment needed for such an apartment would be $1,600 to $1,800.

‘After property tax and maintenance fees, you would still have $500 to $600 in excess,’ he said.

Right now, most projects on the market have rental yields of about 3 per cent to 3.5 per cent, added Mr Cheng.

But for monthly rental income to exceed the mortgage payment, you ‘need rental yield to be in the range of at least 4 per cent roughly’, said Mr Leong Sze Hian, president of the Society of Financial Service Professionals.

This kind of yield is more likely to be found in smaller homes, such as studios or two-bedders, which can usually fetch about 4 per cent to 4.5 per cent, said Mr Cheng.

One such example is an 840 sq ft apartment at the freehold Strata in Novena, which was bought for $700,000 and is now being rented out for $3,500 a month - an annual rental yield of 6 per cent.

But larger units may also command better rentals as they are scarce and in demand, said Ms Jacqueline Wong, national director of residential property at Jones Lang LaSalle.

‘There will be an acute shortage of supply of large apartments above 2,500 sq ft to 3,000 sq ft when collective sale properties such as Lucky Tower come down, so these rentals would appreciate,’ she said.

Older properties that can be bought more cheaply and then renovated to fetch higher rentals are also a good option, added Ms Wong.

But Mr Leong sounded a note of caution to such property investors, saying that ‘in a property investment, rental yield is only one consideration’.

Investors should consider the overall rate of return - including capital gains and cash flows - of any property purchase, he said.

He added: ‘If you rely on cash flows from rental income to service your mortgage, that is very dangerous because if the market goes south you’re facing foreclosure and possibly bankruptcy also.’

Source : Sunday Times - 3 Dec 2006

CityDev in 2nd spot, followed by SC Global; CBRE the No 1 broker 

Far East Organization has been the biggest buyer in the collective sales market so far this year, spending a total of $838 million.

It has bought six sites - Amberville, Rose Garden, Angullia Mansion, Pacific Court, Century Ville/Le Marque/Villa Margaux and Waterfront View. The last site was bought jointly with Frasers Centrepoint.

City Developments is the second-biggest buyer. It has spent $827 million on three sites - Lucky Tower in Grange Road, Futura in Leonie Hill Road, and Lock Cho Apartments/Comfort Mansions and a walk-up apartment in Jalan Datoh in the Thomson/Balestier area.

The third-biggest buyer is SC Global and the family of its chairman, Simon Cheong, with a total of $721 million spent on collective sale sites. SC Global bought Hilltop Apartments and some surrounding terrace houses, as well as Paterson Tower, while Mr Cheong’s family is said to have picked up Emerald Mansion.

Companies controlled by banking tycoon Wee Cho Yaw - United Overseas Land, Kheng Leong and United Industrial Corporation - have been involved in four collective sale deals this year totalling $615 million.

Other big buyers include Frasers Centrepoint, which bought Far East Mansion in the River Valley area for $256 million and teamed up with Far East Organization to buy Waterfront View.

Chip Eng has teamed up with big-name overseas players Lehman Brothers and Citadel for three collective sale deals this year totalling $510 million.

The wave of collective sales has also drawn out parties that have not bought land in Singapore for a long time, such as the Kwee family’s Pontiac Land which acquired Pin Tjoe Court in Ardmore Park.

Among property consultants, CB Richard Ellis has brokered the lion’s share of collective sales - more than $1.9 billion of them. They include Pin Tjoe Court, Ardmore Point, Eng Lok Mansion, Beverly Mai and Grange Tower.

Next comes DTZ Debenham Tie Leung, with about $1.5 billion of transactions. Its deals include Waterfront View in Bedok, Hilltop Apartments and Holland Hill Mansions.

Savills is in third spot with about $800 million of deals, including Nassim Park. Jones Lang LaSalle brokered about $700 million in collective sales.

The biggest collective sale transaction in dollar terms so far this year is the $385 million sale of Waterfront View, a privatised HUDC estate that faces Bedok Reservoir. The leasehold site has a land area of 809,037 square feet.

The priciest deal in unit land price terms is Ardmore Point, bought by Wing Tai for $1,369 psf of potential gross floor area.

Source : Business Times - 1 Dec 2006

Private home prices rising at their fastest in 6 years 

Thanks to the recent rise in property prices, the negative housing equity situation in Singapore - where the mortgage loan exceeds the underlying property’s market value - has substantially eased.

A Monetary Authority of Singapore (MAS) survey of six banks that account for almost the entire housing loan market found that negative equity for private residential properties fell to 4.7 per cent of the total value of outstanding mortgage loans in September 2006 from 7.1 per cent a year ago, the central bank said yesterday in its latest Financial Stability Review.

In terms of the number of mortgage accounts, 5.1 per cent were in negative equity in September 2006, compared with 7.6 per cent a year earlier, said MAS.

Prices for private housing have been rising at their fastest in six years. According to statistics from the Urban Redevelopment Authority, prices of private residential properties were 2.7 per cent higher in the third quarter of 2006 than in the previous quarter, the highest quarter-on-quarter increase since 2000.

Related article: Click here for MAS’ Financial Stability Review report

Performing an ‘adverse scenario’ analysis, MAS said that lower GDP and wage growth may lead to a slight increase in households’ mortgage servicing burden. If GDP and wage growth in 2007 were reduced by about three percentage points and one point, respectively, from the baseline forecast, the mortgage servicing ratio for all income groups would rise by 0.2-point to 14 per cent of total household income.

‘However, the lowest 20 per cent income households may be relatively more affected given that their base mortgage servicing burden is higher than that of the other income groups,’ MAS said. For this group, the mortgage servicing ratio may rise to 32.1 per cent from 31.7 per cent.

Households’ repayment ability is a key element of financial stability as they account for about three-fifths of non-bank loans. ‘Indeed, a deterioration of households’ repayment capacity, which could materialise if indebtedness rises rapidly without a corresponding increase in wealth and income, can create stress in the banking system and undermine financial stability,’ MAS said.

Overall, households’ total borrowing remained flat in the first half of 2006 as the growth in mortgage loans extended by banks was offset by the fall in mortgage loans extended by the Housing Development Board and personal loans. Reflecting the faster pace of economic growth, household liabilities as a percentage of nominal GDP fell to 77 per cent in Q2 2006 from 96 per cent in Q4 2003. ‘This level of household indebtedness is now lower than that in developed countries such as the US and the UK and the five-year average growth of household debt in Singapore has been slow compared to that in many countries,’ the central bank noted.

Looking ahead, MAS said that the operating environment could present some challenges for the banking industry. In particular, a sharper-than-expected slowdown in economic activity could depress loan demand and cause some deterioration in borrowers’ debt servicing ability.

MAS expects Singapore’s economic growth to moderate to 4-6 per cent in 2007 from as much as 8 per cent this year along with a slowdown in the US economy and global technology market.

However, ‘local banks’ strong capital positions and diversified income streams should contribute to their capacity to absorb shocks’, it said.

MAS noted that the local banks’ operating profit for the first nine months was higher than that in the past three years, driven by contributions from net interest income given strong economic activity, favourable loan demand and interest margins, coupled with greater non-interest income especially from commissions and wealth management.

Source : Business Times - 1 Dec 2006

The outlook for the industrial property sector remains positive, in line with the improved economic climate, Savills Singapore said in a research note yesterday.

While the industrial property market seemed quieter with fewer leasing and sales transactions in the third quarter, the improved rental rates and the demand for larger floor areas brought the value of leasing transactions to $4.4 million, about 10 per cent higher than in the second quarter, the property consultancy said.

Transacted values rose by about 90 per cent over the previous quarter as a result of aggressive acquisitions by institutional investors.

Acquisitions of industrial properties by real estate investment trusts (Reits) came to $838.4 million over first three quarters of this year, Savills Singapore said.

Savills also said that more industrialists have been leasing JTC industrial land to build their own facilities as an alternative to buying ready-built industrial property.

Vacancy rates for industrial space continued to fall over the third quarter, it said.

‘Healthy demand for industrial space coupled with stable supply brought vacancy rates for factories and warehouses down to 9.3 per cent and 12.2 per cent respectively in the third quarter of 2006,’ the report said.

In line with this, rents for industrial space continued to climb for a tenth consecutive quarter, said the report.

‘The overall price index for industrial space inched up by 1.1 per cent in the third quarter of 2006, insignificant compared with the office sector, but the highest in the last five years.’

Looking ahead, it said demand for industrial space will continue to increase as the manufacturing sector is expected to grow over the next three months. ‘Demand may well absorb the additional 1.36 million sq ft of new space which is anticipated for completion in the fourth quarter,’ said the report. ‘Both rental and capital values are therefore expected to increase marginally by another 1 to 2 per cent over the quarter.’

However, 2007 may be a tougher year for both landlords and sellers, Savills added. Projected slower economic growth coupled with the substantial amount of new stock which is expected to come on stream from the government land sales sites awarded since 2005, are expected to put some pressure on rents and capital values.

Source : Business Times - 1 Dec 2006