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Government puts faith in market forces but will keep an eye on prices

The government does not seem inclined to roll out measures to cool the property market - at least in the near future.

‘We prefer to let market forces work,’ Minister of National Development (MND) Mah Bow Tan said yesterday.

It was the government’s clearest response yet to recent market talk that cooling measures could be in the works.

On the sidelines of MND’s inaugural Joint Scholarship Presentation Ceremony yesterday, Mr Mah was asked if the government was likely to announce measures to cool the property market. He said: ‘We will try to avoid interfering in the market if we can.’

While the government is mindful of maintaining Singapore’s price competitiveness, it prefers to do this by keeping supply ready and by keeping the market better informed.

To this end, the Urban Redevelopment Authority (URA) recently released median rentals for residential, office and retail sectors.

Along with the new monthly data on developers’ sales numbers and prices, the median rental data is expected to alleviate fears that property prices are spiralling out of control. Mr Mah added: ‘The data shows that property is still affordable and not as high as the headline numbers in media reports.’

In the data that was released by URA last week, sub-sale numbers had also increased considerably from 749 in Q1 to 1,254 in Q2. But this is still sustainable. ‘If you look at the numbers, it’s a long distance from (the previous peak of) 1996,’ Mr Mah pointed out.

It will not, however, be entirely laissez-faire as far as prices go.

One of the government’s chief concerns now is maintaining price competitiveness with other Asian capitals like Hong Kong and Tokyo. Mr Mah said that the government was confident of ‘moderating prices’. He added: ‘We will push out supply (of land) if there is a need.’

‘The government will keep a close eye,’ he stressed.

But again, Mr Mah tempered this comment by saying that the number of sites on the current Government Land Sales programme was adequate.

There will be a supply crunch in the residential sector in the short term, Mr Mah said, and reiterated that the government would look at interim measures to alleviate this.

The Housing and Development Board (HDB) already said last week that it would offer about 120 flats selected for Selective En-bloc Redevelopment Scheme (Sers), but not redeveloped yet, to the public in the short term. If these prove popular, Mr Mah said that, ‘there are a few thousand units under the Sers programme that are not ready for redevelopment yet’.

DBS Vickers analyst Wallace Chu said he was ‘comforted somewhat’ by Mr Mah’s comments. ‘At least a direction is set,’ he added.

Source : Business Times - 31 Jul 2007

Bids for 99-year leasehold plot likely to be 65% higher than minimum offer

A PLUM 99-year leasehold condo site opposite Ang Mo Kio MRT Station could fetch bids of over $500 per square foot (psf) of potential gross floor area, say market watchers. This is at least 65 per cent higher than the minimum offer price of $302 psf of potential gross floor area received by Housing & Development Board for the reserve list site.

The plot, right next to the AMK Hub, can be developed into a new condo with 337,408 sq ft maximum gross floor area, enough for a condo with about 280 to 300 apartments averaging 1,200 sq ft, according to Knight Frank director Nicholas Mak.

He expects the site to fetch top bids of about $480 to $530 psf per plot ratio in the current bullish market, but given its prime suburban location, is not discounting bids of $550 psf ppr or even higher.

‘This is one of the best residential sites in the second half 2007 Government Land Sales Programme. On a scale of 1 to 10, I would rate it 8 or 9,’ Mr Mak says.

Assuming the site sells for $510 psf ppr, the breakeven cost for a new condo works out to around $800 to $820 psf. If the developer wants a minimum 10 per cent profit margin, he would be eyeing an average selling price of around $900 psf.

The developer can count on a huge pool of upgraders given that Ang Mo Kio is a mature HDB estate, Mr Mak reckons.

CB Richard Ellis executive director Li Hiaw Ho, who is predicting the winning bid to be above $400 psf ppr, and a selling price of around $800-900 psf for the new condo units that will be built on the site. ‘This should be achievable if the residential market continues its current performance, by the time the project is ready for launch in mid-2008,’ he added.

CBRE said that in the June/July period, units at Grandeur 8 condo a short distance away changed hands at $570 to $620 psf in the secondary market, while over at Bishan 8 condo, apartments have changed hands at around $800 psf.

Source : Business Times - 31 Jul 2007

Provisional permission also granted for several hotel projects

A Slew of projects were granted provisional permission in Q2, according to latest Urban Redevelopment Authority statistics.

Afro Asia Building

These include a business park development of 215,000 square foot gross floor area (GFA) for Eurochem Corporation at International Business Park (IBP) in Jurong East, and several new office projects in the CBD - including redevelopment of Afro-Asia Building on Robinson Road (which was once the headquarters of Nanyang Siang Pau), Asia Chambers at McCallum Street, and Marina House at Shenton Way.

Asia Chambers

Residential projects that received provisional permission in the April to June quarter of this year include a 316-unit condo by Tripartite Developers on Flora Road, off Old Tampines Road, and a 329-unit condo by Frasers Centrepoint unit FCL Land Pte Ltd on the freehold Far East Mansion site on Kim Yam Road. Another condo, with 300 units, on River Valley Road, by EC Investment Holding Pte Ltd, was also granted provisional permission in April.

And as reported in June, Hong Fok has obtained provisional permission to develop 369 apartments on Beach Road under a redevelopment of part of The Concourse.

Eurochem’s business park project at IBP is expected to have about 180,000 sq ft net lettable area. Eurochem is expected to occupy part of the space, while the rest could be leased out. Allowed uses include data processing and backroom offices of banks.

The company will be developing this on a site that it bought from JTC Corp on an initial 30-year lease term with an option to renew for a further 22 years, BT understands.

The three CBD office projects granted provisional permission by URA in Q2 can generate about 480,000 sq ft GFA of offices. Hong Leong Group obtained provisional permission to redevelop Marina House at Shenton Way into a new office project with about 199,455 sq ft GFA of offices. Afro-Asia Shipping Co Pte Ltd received URA’s nod to tear down its Afro-Asia Building on Robinson Road (with an MPH store at street level) and redevelop the site into a new project with about 121,100 sq ft GFA offices and 1,399 sq ft of shop space.

Assuming redevelopment work begins early next year, the redeveloped building could be ready around early 2010. The current owner bought it in the late 1960s. The site has a land area of about 16,000 sq ft and has a remaining lease of about 45 to 46 years.

Work on redeveloping Asia Chambers at McCallum Street is expected to begin in August. Owner TM Asia Insurance Singapore Ltd - part of the Tokio Marine & Nichido Fire Insurance Co group - will build a new 19-storey office project with about 161,000 sq ft GFA offices. The net lettable office space could be about 110,000 sq ft, of which around half or so is expected to be occupied by the group, which currently operates out of leased premises at Fuji Xerox Towers on Anson Road. Tokio Marine’s project, which is slated for completion in late 2009, will see a chunk of the building’s street level space devoted to public spaces with trees, other greenery and sitting areas to serve as a meeting point in the location.

URA also granted provisional permission for several hotel projects in Q2, such as a 355-room hotel on Clemenceau Avenue/Unity Street to be developed by Hong Kong’s Park Hotel Group); and a 90-room facility at Fullerton Square granted to Sino Land subsidiary Precious Quay Pte Ltd. The latter project also includes about 26,700 sq ft GFA of retail space.

In May this year, URA temporarily banned conversion of office use in the Central Area to other uses until December 2009 to curb further depletion of the existing office stock on the island. Even prior to that announcement, though, the trend had changed, with some owners of ageing CBD office blocks considering redeveloping their premises into office blocks, instead of the earlier trend of going for apartments, on the back of rising CBD office values.

Nonetheless, the redevelopment of these properties into bigger new office projects will worsen the office crunch in the short term while they are being redeveloped, say market watchers.

Source : Business Times - 31 Jul 2007

IT MAY be a champagne economy, but blistering growth is creating ’supply bottlenecks’ that are pushing up costs and putting competitiveness at risk.

These words of caution come from a Citigroup study centring on a shortage of office and residential space and tighter labour supply in Singapore.

Citigroup economist Chua Hak Bin said that if the Government’s moves to ease supply do not address these ‘bottlenecks’ quickly enough, tighter fiscal and monetary policies may be needed.

‘The concern is that escalating costs and limited slack could also hurt competitiveness and constrain growth, particularly against Hong Kong,’ said Dr Chua, who noted that the Hong Kong dollar has fallen by about 13 per cent against the Singapore dollar over the last two years.

The report cited Mercer’s latest cost of living index, which placed Singapore as the 14th most expensive city for expatriates, up from 46th in 2004.

The private residential rental index here has soared by 31 per cent year-on-year, while the office rental index has rocketed by 46 per cent.

Private residential occupancy, meanwhile, is at 95.1 per cent, higher than the previous peak of 94.3 per cent in December 1995, the report noted.

Policies to ease real estate supply by releasing land may need time to materialise, Dr Chua said, as he raised the issue of whether the authorities will need to ‘tame excessively strong demand conditions either through tighter monetary or fiscal policies, in the interim’.

Source : Straits Times - 31 Jul 2007

Both trusts will pay $941.5m for one-third share each

K-Reit Asia and Suntec Reit have each agreed to buy a one-third stake in downtown office complex One Raffles Quay (ORQ).

Both the real estate investment trusts (Reits) will pay $941.5 million each.

K-Reit will acquire its stake from its parent company Keppel Land. In a separate statement, KepLand said it will see a net gain of $221.6 million from the sale.

Suntec Reit’s one-third stake will come from Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings.

The remaining one-third stake in ORQ will continue to be owned by Hongkong Land, BT understands.

The three partners - KepLand, Cheung Kong and Hongkong Land - paid $462 million in total, or $290 per square foot (psf) of gross floor area, in 2001 to take equal stakes in the 99-year leasehold project.

With the sales of their respective stakes, both KepLand and Cheung Kong will be exiting the ORQ investment.

On the other hand, the acquisition is expected to boost the portfolio sizes of both K-Reit and Suntec Reit substantially.

For K-Reit, the purchase will more than double its portfolio size to $1.62 billion, from $677 million at end-2006, the trust said.

Suntec Reit’s total assets under management would also increase to $4.8 billion, from $3.9 billion at present.

K-Reit said that its purchase will come with an income support of up to $103.4 million till 2011. Suntec will also receive rental top-up payments of $103.5 million (inclusive of GST) over 54 months, it said.

The two Reits also said they are looking at ways to finance their acquisitions.

K-Reit plans to issue new units as well as look into debt financing, it said.

In line with this, KepLand, which held 40.7 per cent of K-Reit as at July 27, said that it will subscribe for new units in the Reit to maintain its proportionate stake.

Suntec Reit is also now reviewing financing options for its ORQ stake, including issuing new units, loans, convertible bonds and/or other debt securities.

On its part, KepLand managing director Kevin Wong said that the developer will continue to ‘unlock value in our investment buildings to re-deploy resources to grow our property development business and fund management activities in Singapore and the region’.

Located in the Marina Bay area, ORQ comprises two office towers with a net lettable area of about 1.3million square feet. The complex is fully let, and major tenants include ABN Amro, Barclays, Credit Suisse, Deutsche Bank, Ernst & Young and UBS.

Suntec Reit’s shares closed one cent up at $1.86, while K-Reit’s stock climbed four cents to close at $2.84. KepLand’s shares rose 10 cents to end the day at $8.40.

Source : Business Times - 31 Jul 2007