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How has the spike in office and housing rents affected business costs and competitiveness in your organisation and your industry? What can be done to moderate the impact on those adversely affected?

SINGAPORE’S strategic location as a regional hub and the government’s pro-business stance have attracted global attention to the island as a place to do business. One such success is the recent focus on wealth management, which has led to expansion of the rapidly growing private banking industry. It is a feather in the cap for the government to have several heads of private banking relocate to Singapore.

The present market imbalance between demand and supply has caused rents to shoot up, forcing many firms, especially SMEs, to relocate out of the CBD. Knight Frank’s own lease is due for renewal at the end of the year and we already have indications that the new rent is going to be 300 per cent more than the existing rent. We have to carefully evaluate and consider our needs for the next few years. I am sure many other SMEs are going through or have gone through the same process and are feeling the same pain.

Looking at the big picture, Singapore must be careful not to become a victim of its own success. If business cost here is driven too high compared with, say, Hong Kong and Shanghai, we may find global businesses relocating out of Singapore. This has happened before - for example, in our disk drive manufacturing industry.

It will take three to four years for space in new buildings to enter the market. In the meantime, perhaps several immediate steps can be taken to moderate the impact of high office rents. For example, rules on using industrial space for office purposes could be relaxed. To ensure that we do not unwittingly affect our competitiveness in the industrial sector, such relaxation can be location or zone specific.

Tan Tiong Cheng Managing Director Knight Frank Pte Ltd

THE rise in office and housing rentals has sparked some concern among AmCham Singapore’s 2,500 members. Because US citizens who work abroad are double-taxed, and because of recent cuts in housing allowances for Americans overseas, the rise in rents in Singapore could make it much more difficult for Americans to live and work here.

Left unmanaged, the rise in rents for business and personal needs could potentially have an impact on Singapore’s attractiveness as a site for American businesses interested in using the country as a base for regional operations.

AmCham Singapore hopes that closer monitoring by the Singapore government to try to mitigate the effects of speculation in the real estate market, combined with changes in US tax policies, will moderate the impact of the current rent rises on businesses and individuals, and allow more Americans to continue living and working in Singapore.

Douglas H Miller Chairman The American Chamber of Commerce in Singapore

AS a medical and security assistance services company, salaries and office rent make up a significant proportion of our operating expenses. Singapore is International SOS’s global headquarters and our key corporate functions are here. Hence a large number of our staff are expatriates. Escalating commercial and private rents are of concern to us as well and the services industry as a whole.

During the economic downturn in Singapore in 2001, we were very encouraged by the government’s determination to reduce business costs to keep the country competitive. With the economy improving, we are increasingly concerned that business cost-competitiveness in Singapore is becoming unsustainable.

For a mid-size and growing company like International SOS, the lack of cost-effective commercial rental options is a real business challenge. We hope the government can review and free up land to cater to business services companies like ours, while implementing measures to maintain salary and rental costs at a competitive and manageable level.

Tan Mui Huat Regional Managing Director International SOS

HIGHER rents are a necessary evil in a strong and growing economy. And I believe the increase in business as a result of a growing economy is more than enough to offset higher rents. HG Metal is not located in the Central Business District, where I believe the rental increase has been the most significant. Any rent increase in industrial areas has so far been manageable. In fact, we recently leased additional land of about 300,000 sq ft from JTC to cater to increasing business.

I think the free market is best left alone to set rental rates, especially in the CBD area. Businesses that do not have to be in the CBD would do best to relocate to fringe or regional centres like Tampines. This will free more space in the CBD area and mitigate further rent increases there.

Wee Piew CEO HG Metal Manufacturing Ltd

THE spike in office rents inevitably means higher costs for Cherie Hearts and the childcare industry in general. Of particular concern is that the cost of operating from Singapore could eventually become prohibitively high, so businesses are discouraged from setting up base here.

The government should free up more land for commercial use by reviewing the current plot ratios, especially for low-rise housing estates. Relaxing the height control would allow for more homes to be built on a smaller land area. The government could also release more land for office and residential use to cater for the projected rise in demand for these purposes.

Sam Yap S G Executive Chairman Cherie Hearts Group

WE were fortunate to secure our lease before the recent spike in office rents. But, we are also managing the cost of premises by locating some of our support services, like IT and operations, at Haw Par Techno Centre. We ensure connectivity by utilising technology like video-conferencing and Tandberg stations etc, so ‘face-to-face’ meetings can take place regardless of locality.

In addition, we are supportive of mobile offices, which means employees who are on the road constantly or who choose to work from home can book a workstation when needed. These initiatives help optimise our work space utilisation and contain cost.

David Wong Managing Director & Chief Executive ABN AMRO

A RISE in office rents may indicate a growing economy but it inevitably increases business costs and makes Singapore less attractive to businesses. Some may think of relocating operations to out-of-town locations, shophouses or other countries where business costs are less.

The competitiveness of business here could be eroded. Entrepreneurs may look at setting up online business and working from home to cut costs. Perhaps loans could be made more available for firms which are adversely affected by the record high rents, so as to help them tide over difficult times.

Dora Hoan Group CEO Best World International Ltd

COMPANIES can take the easy way out by moving to new premises - and they may not realise the inconvenience this may case to staff and customers. But competition is tough, and we are not a company that wants to give customers the wrong impression by doing such a thing. To maintain profitability and remain at our current premises, we may have to consider adjusting fixed costs, such as by reducing increments, minimising bonuses or even reducing marketing and advertising expenses.

Alternatively we can negotiate rent based on a longer lease. For a company to function efficiently, it should not be troubled by rental and labour force issues. But the reality is that there are many unpredictable influences we must be prepared for at all times.

Thomas Ting Managing Director TJ Systems (S) Pte Ltd

OPERATING budgets are affected when organisations face higher office and housing rents. We have felt this more so, because most of our previous leases were drawn post-9/11 when real estate costs hit rock bottom. The sudden spike now when we have to renew them was expected but is still a shock.

The recent reduction in corporate tax should help compensate in some way. Organisations should think of creative means to soften the impact of higher rents by cutting other costs that are more within their control.

That said, rather than focusing on the negative, we choose to view rising rents as the sign of a robust economy. Overhead costs are up - but so are the opportunities for incremental revenue generation and overall business growth. Smart organisations will take this in as a cost of doing business and get on with accelerating their growth within a buoyant economy.

Deb Dutta Vice-President of Asia Pacific/Japan Brocade

IT is inevitable that office and housing rents reach today’s dizzy heights. This is a consequence of our country’s strong economic growth. Given that land is a scarce resource, I expect rents to rise even more as Singapore progresses. It is only a matter of time before the gap closes between Singapore and Hong Kong, Tokyo and perhaps even Mumbai. This is obviously bad news for many businesses, especially SMEs.

Going forward, companies will be forced to make some tough decisions. For businesses that are adversely affected, an obvious way to reduce the impact is to relocate to a less-expensive non-prime location or cheaper country in the region. The other option, which will appeal to more companies, is to embrace telecommuting and encourage employees to work from home.

In the longer term, at the strategic level, Singapore companies will be compelled to change their business model or diversify into a higher-margin business to stay viable and to grow. The last thing businesses should do is to expect the government to intervene and regulate the market. I believe market forces will weaken the hand of the government in this area, going forward.

Lim Soon Hock Managing Director Plan-B ICAG Pte Ltd

I BELIEVE the increases have been driven by market fundamentals, so there is little the government can or should do. Action taken now would be liable to distort the market. What may help to ameliorate the current office space crunch is to revisit the rules for HDB home offices and see if these can be relaxed further.

For Freight Links Group, office rent is not a main concern because we own most of our office space. In fact, our property division, which specialises in commercial solutions for warehouse and office space, helps us manage our exposure to market movements.

Eric Khua CEO Freight Links Group

TANDBERG has recently moved to a new and bigger office in the prime business district. While it has definitely become more expensive to rent office space, this is a clear reflection of the improving and growing economy. When a lease expires, there is plenty of forward notice. Organisations should take full advantage of this lead-time to achieve the best possible financial and operational outcome so as not to be severely affected by these increased costs.

Lars Ronning President, North & South East Asia, Australia & New Zealand, Tandberg

IT is definitely a matter of concern that the cost of doing business goes up, as this could erode Singapore’s competitiveness. Businesses that could be adversely affected will probably migrate to lower-cost environments, particularly for their non-core activities. For the moment, bullish market forces are in full play and businesses and companies are paying up. Lack of availability of quality office space in the downtown area, particularly large office spaces, is an issue for firms looking to bring some operations into Singapore.

On the positive side, Singapore is still only the 17th most expensive office location, not higher up the list. Farther away from the business districts, rents still seem reasonable. As part of the natural evolution there will be a trade-off. Operations that can afford to be in Singapore will remain, mainly due to other considerations such as quality of infrastructure and quality of life and family considerations. Others will move out if rents and property prices remain high.

For us, rent constitutes about 7 to 8 per cent of our overall expenses, and at the moment the spike is not really an issue. But it could assume more importance in the case of an economic downturn. What can be done? The government will have to let the cycle run without drastic steps but can temper it by releasing more land and, if possible, helping to make more downtown office space available. But all this may not have too much of an immediate impact, as there are global forces at play.

Vijay Iyengar CEO Agrocorp International

THE current property boom is a world phenomenon. It is the net effect of Asian investors who are flush with cash due to export earnings from manufacturing and back-office services and the Western counterparts and institutional investment funds which are demanding riskier but higher yield returns.

Singapore is additionally, due to prospects of the IRs, a world and global city in the making. The property boom is still in its early stages. To moderate the spike in office and housing rents, early thought on cutting space, moving away from the CBD area, split operations, working from home and selling and leasing back space may help.

Tan Kok Leong Principal TKL Consulting

THE recent property boom poses a problem - not just for SMEs, who need to keep fixed costs low, but also for Singapore, as rising prices start to erode its cost-competitiveness.

Emerio had been thinking of acquiring more office space to cater to its expansion plans this year. But costs are getting prohibitive, so moving additional headcount to Malaysia is becoming a more attractive option. The alternative is to go for a mobile workforce. Either way, it will complicate our lives.

Harish Nim Chief Executive Emerio Corporation Pte Ltd

Source : Business Times - 30 Apr 2007

4,000 to 11,000 sq ft

Cost: Up to $9.5m

Equipped with private lift lobbies, gardens, own lap pool, guest quarters, maid areas, walk-in wardrobes, cloakrooms for coats and shoes

KUALA LUMPUR - WITH sizeable gardens, outdoor dining areas and even swimming pools, condominium living in Kuala Lumpur is no longer about shoeboxes in the sky.

Supersize condos are the hot new trend for the affluent, who want units as big as bungalows, or even two or three of these put together.

Compared to the size of an average condo unit at 1,500 sq ft, these super condos range from 4,000 sq ft to 11,000 sq ft. An average bungalow in Kuala Lumpur would sit on about 7,000 sq ft to 8,000 sq ft of land.

Each of these mega-condos would be about nine times the size of an average five-room HDB flat.

Mr K.K. Yap, manager of the prestige homes division of property firm Rahim & Co, said there is a trend towards building big because rich Malaysians are used to spacious homes.

‘I would say that more than three-quarters of the developers are building bigger units because KL is a place where people are used to space. In most developments, you will see many units of 3,000 to 5,000 sq ft,’ he said.

Some developers are so gung-ho about this trend that they are building only big units.

The recently launched Matahari condo in the upscale Desa Seri Hartamas only has units 4,000 sq ft and above. Some 20 units will be a massive 8,000 sq ft to 10,800 sq ft each.

‘We are catering to a segment of the market that wants the best of bungalow living and a condominium lifestyle,’ said Mr Gerard Pereira, director of the developer, Maymont Development.

The same trend is seen in the nearby upscale neighbourhoods of Mont Kiara and Bangsar, as well as the even more expensive Kuala Lumpur City Centre (KLCC), all areas favoured by expatriates and the well-heeled.

Developers said demand for these mega-condos have been quite good, with some saying that up to 80 per cent were sold within the first month of their launch.

Prices range from RM500 (S$227) to RM2,000 per sq ft. Taking the lower figure of RM500 per sq ft, an 8,000 sq ft apartment will cost at least RM4 million.

Service charges range from 23 sen to 42 sen per sq ft, making it over RM3,000 a month for an 8,000 sq ft apartment.

The main attraction of these units is the meshing of condo and bungalow living. Buyers get the space and convenience of a maintained residence with security.

There are no hassles of upkeeping a garden, swimming pool or security, and the price is affordable for a large living space in the desirable neighbourhoods.

An investment banker who only wanted to be known as Mrs Maria said she loved the idea of just being able to lock up and go off on a holiday.

She recently bought an 8,000 sq ft unit as a retirement home. Her husband is retired, and she is planning to do so in two years. Their two children are working and may soon decide to live on their own.

‘We do not want hassles, but we want space because we are used to living in a bungalow,’ she said.

According to the industry, most of the buyers tend to be above 40 or retired. They are from the upper-middle class to the affluent segment.

Expatriates also favour condos because they want security and facilities.

What do supersize condos contain? The usual, plus a lot more, such as private lift lobbies, gardens, swimming pools, guest quarters, maid areas, walk-in wardrobes and cloakrooms.

Mrs Maria’s unit has seven rooms over two floors, with the master bedroom taking up half the upper floor. The living and dining rooms sprawl over more than 2,000 sq ft, larger than an average apartment.

There are two gardens, the larger one at 400 sq ft, which is big enough for outdoor dining. The other garden is off the master bedroom.

There is also a separate guest area with a pantry, and also independent access, making it ideal for aged parents or adult children who want some privacy. The lift stops on both floors of the unit.

According Mr Pereira, lap pools are also being built in certain units at the buyer’s request.

In the KLCC neighbourhood, the iconic One KL development boasts a swimming pool in every apartment, many of which overlook the Petronas Twin Towers.

Such bungalows in the sky have definitely caught on in Kuala Lumpur.

‘It is ideal for retired people like us,’ said Mrs Maria.

Source : Straits Times - 30 Apr 2007

While expats are finding it costlier to rent homes, landlords are benefiting from the supply crunch

The collective sale fever is taking so many prime properties off the market that rents are soaring and expatriates are being caught in the squeeze.

Rents in the coveted districts 9, 10 and 11 have rocketed in recent months, but the demand from expats has not slackened, partly because the booming economy is attracting more highly paid foreigners to Singapore.

Some expats have complained of the rising rents and difficulties in finding accommodation, but the trend shows no sign of easing, much to the delight of landlords.

‘It’s a supply crunch,’ said CB Richard Ellis director (residential) Joseph Tan.

Apart from the supply squeeze from collective sale activity, increasing numbers of young, single expatriates are coming to Singapore and they are largely leasing one- and two-bedders.

‘This aggravates the already limited supply of such apartments and may eventually lead to a shortage in the next few quarters,’ said property consultancy Knight Frank in a report recently.

Monthly rents for non-landed residential properties in districts 9, 10 and 11 are around $2.95 per sq ft (psf) on average.

Rents for high-end homes in the same areas are at $5.12 psf a month on average, said property consultancy Savills Singapore.

The firm believes that collective sales and robust demand will keep the pressure on, driving up rents in districts 9, 10, 11, 15 and 16 by 4 per cent to 8 per cent in the next quarter.

Savills Singapore’s Mr Ku Swee Yong said demand will also come from tenants displaced by collective sales and thrown back into the rental market.

Since the beginning of last year, more than $36 billion worth of collective sale deals have been done.

Just on Friday, the largest sale done en bloc - Leedon Heights in Holland Road was sold to GuocoLand for $835 million - was concluded, taking 314 units in district 10 off the market.

More than 45 properties in prime areas have been sold en bloc, with more to come.

Once these old developments are torn down, it will take up to four years for a new project to be up and ready for occupation.

One Asian expat living in a condominium that is undergoing a collective sale said he will have to move out before his lease is up, though he has not been offered compensation.

The situation bodes well for landlords of new prime apartments and existing homes in prime districts that are not earmarked for collective sale.

While it may take more than a year for tenants to vacate a building that is eventually sold en bloc, they do not want to move within the tenancy period, agents said. A typical lease is for two years.

Neither do they want to live with the burden of possibly having to do so, said Mr Tan.

‘Because of the shortage, landlords are raising their rents,’ he said.

A landlord with a two-bedder at Spring Grove in Grange Road signed a two-year lease with an expatriate last June for a monthly rent of $3,200.

However, rents in the 99-year leasehold block have soared by about 25 per cent to $4,000 since, he said.

Generally, as prime capital values are also rising fast, the average residential rental yields here are largely unchanged at 3 per cent to 4 per cent, said Mr Tan.

However, new properties typically enjoy a higher yield of about 10 per cent above the market norm, he added.

Meanwhile, higher rents for prime apartments have driven some tenants to rent flats further away from town, market watchers said, resulting in rents in the suburbs getting costlier as well.

Rents for apartments in districts 5, 21 and 23 in the west, for example, have risen by an average of 10 per cent quarter on quarter.

This means that a two- to three-bedroom apartment will cost at least $2,000 to $3,000 a month, said Savills Singapore.

Source : Sunday Times - 29 Apr 2007

Property values near Downtown Line’s 33 stations may rise once project is ready

The new Downtown Line will be just the ticket for student Joan Ang, who has to chop and change on three different trains to get from Bukit Panjang to Bugis.

It will be a direct route on the new track - and probably cheaper as the distance is less - but not for another eight years.

‘It’s a pity the new line can’t be up sooner,’ said Ms Ang, 16, who often travels to the east for fencing training.

The $12 billion line and its 33 stations will be built in three stages and finished by 2018, it was announced on Friday.

It will run from Bukit Panjang to Bugis, loop around the Marina Bay area, pass through Chinatown, head east to Tampines and end at the Singapore Expo.

Travel time from Bukit Panjang or Tampines to the city will be cut by 10 minutes.

Residents who would benefit from the line welcomed the decision to go ahead with the network, which was first mentioned in 2001.

Bukit Timah housewife Jennifer Woodford, 48, said she would save money if she could take the MRT to town instead of a taxi.

Others felt the new line would benefit the environment, as it would reduce road traffic.

Bedok Reservoir resident Brenda Lee, 49, a dental nurse, said: ‘I’m pro-environment. I would give up my car and take the train if the MRT station is next to where I stay.’

Madam Lee will have even more to cheer about if the station is near her home.

PropNex chief executive Mohamed Ismail said properties near MRT stations usually sell for 10 per cent more than similar ones in the area that are further from the stations.

But ERA president Jack Chua added that property prices would not rise until the exact location of the stations is determined.

MP for Tanjong Pagar GRC Baey Yam Keng said the line would attract people to regional centres.

‘It’s a two-way flow of people. It’s also good for tourists to get around Singapore,’ he said.

Bukit Panjang MP Teo Ho Pin felt Bukit Panjang would become a hub.

He said: ‘Recent renovations at Bukit Panjang Plaza have increased traffic 50 per cent. Hopefully the MRT will give it another boost.’

Source : Sunday Times - 29 Apr 2007

Human beings are funny creatures. If there’s a new type of funky shoes in the market and nobody wears them, you probably won’t either. But if enough people wear them so that they attain ‘cool’ status, then their popularity will explode. This phenomenon follows the theory set out by Malcolm Gladwell in his book The Tipping Point.

Similarly for a book, if it makes it to the bestsellers list, more people will be enticed into reading it and that in turn will boost sales. So apparently one trick employed by publishers is to buy the books they want to promote from the retail outlets themselves. They have a rough idea of how many books they need to buy in order for the book to make it to the list of the week’s top 10. Once on the list, sales will have their own momentum.

The same mechanics work for stocks and shares, as well as the property market. Some people know that certain stocks are trading below their intrinsic value. But they are unwilling to put money there, until and unless they see that the share price is stirring.

The thinking, of course, is they want their money to get to work almost immediately. This is the trader mentality.

And once a stock starts moving, many more buyers will jump in. And if there is more demand than there is supply, the price will be pushed up even further.

It’s the same story in the property market. Up till two years ago, many people had reservations about committing to a property investment. Now that prices have moved up sharply, and at an accelerating pace, more people are coming into the market to buy.

Now let’s examine the effect of price changes on people’s decisions.

Price changes will attract more supply or demand. On the supply side, it is easily understandable. When a producer sees that he can get more money by selling more products, the logical decision might be to produce more. But that decision cannot be carried to its logical conclusion, which is to keep increasing production capacity. At some point, demand will taper off, and if the producer is not careful, he will be stuck with a lot of excess capacity.

Different tactic

But some suppliers might employ a different tactic. When they see prices moving up fast, and if they cannot increase their supply, they may well hoard their products. In other words, they will hold back their supply to the market, in the hope of subsequently getting a much higher price.

On the demand side, the effect of price change is more intriguing. According to economics theory, for elastic demand, the higher the price, the lower the demand. This would apply to discretionary spending and goods with close substitutes.

So if prices get too high, and assuming income does not increase as fast, people will have to cut down on consumption or shift to cheaper goods with similar functions.

A change in price has less of an impact on the demand for necessities. For example, if someone is sick and needs a doctor and medicine, that person will have to pay whatever is asked.

Then there’s another type of product, where the higher the price, the bigger the demand. Perhaps two types of products would exhibit this kind of characteristics. The first are luxury goods, or goods that signal to the world one’s elevated wealth or taste status. Another would be products whose value is difficult to ascertain. This would include stocks and shares. In this group of products, the element of fear and greed will come into play.

One of the oldest tricks in the con-man’s bag is this: Approach a stranger and offer to sell something totally worthless, like a bag of stones or obsolete semiconductor chips. Quote a price, say, $100, and the stranger will say: ‘You are mad.’

Then the con-man’s accomplice will act as a passer-by who has overheard the conversation. The accomplice will say: ‘Wow, you mean there are still these products around? I thought there is a shortage now. I know this person who’s willing to buy this at $150 per bag. OK, I will pay you $100 for this bag.’

After the first con-man has left, the accomplice will say to the victim: ‘Oh, I just remembered that I have to bring my mum to see the doctor. I’m supposed to meet this buyer in half hour. Do you want to make some quick money? I’ll sell these two bags to you for $120 and you sell to him at $150.’

Some people actually fall for the trick. In this instance, the promise of being able to sell at a higher price is the motivation for the purchase. Of course, there is no guarantee that the promise will be fulfilled.

Jack Treynor, author of the article ‘What does it take to win the trading game?’ identified three key trading motives: value, news/information, and cash flow.

Value buyers act when they see things they consider cheap, and are willing to wait for the market to recognise the value. They can take their time to accumulate a stock, and hence reduce the cost of trading.

Information traders, meanwhile, act on new information and changing expectations of the market. So if one has new information not widely known in the market, one can reap the benefits.

Therefore information traders are always under pressure to complete trades before the information spreads across the market. They are time-sensitive: their goal is to get the trades done quickly, even if this means paying up for liquidity.

As for traders with cash flow motivations, buying or selling is dependent on their desire to increase or decrease equity exposure, independent or even ignorant of the prospects for the stocks. Those getting into the market believing they can make a quick profit belong to this group.

Ultimately, a successful investor and trader is someone who can adapt quickly to a changing market.

A value investor may have identified a stock early and have held on for two to three years before the market starts to recognise it. And when the market starts to bid up the share price, the value investor may be tempted to sell once his target price is met. However, if he noticed continued strong buying interest - as every completed trade provides feedback to the trader - then he may want to hold out a bit longer.

Objective

In the final analysis, the objective of any investor or trader is: To avoid being the first to sell and the last to buy.

Everyone wants to be the last person to trade with a big contraparty - not the first.

This is evident in the numerous property en-bloc sales taking place now. When the wave was just taking off, many owners who missed their last opportunity to sell their properties in the last bull run grabbed the first offer that came along. And the offer was generally not great, on hindsight. But after the developer has accumulated a big enough plot of land, the last project to hold out - generally the smallest piece of land - will be paid the most.

But of course holding out for more entails the risk of missing the last buy order.

But what’s true is: being savvy in reading the market, and timing and implementing one’s sales and purchases, is as important as picking a good investment in maximising one’s overall returns.

Source : Business Times - 28 Apr 2007