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Mid-market may not shine and high-end is unlikely to collapse, he says.

City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday turned a popular market view of the Singapore residential sector on its head.

Many have whispered that the high-end residential segment is in danger of being hardest hit by the sub-prime crisis while the mid-tier and mass-market segments will be better shielded. Not true, says Mr Kwek.

‘The high-end is not going to collapse like what some (in the market) are saying. The mid-end is not going to be fantastic, like what is commonly believed, because of the subprime situation and Singaporeans’ wait-and-see attitude.

‘The mass market will do well, but selectively. It’s not going to be what you’ve seen before…people queuing up,’ Mr Kwek said.

The Housing & Development Board also provides a credible alternative to mass-market private housing, Mr Kwek said at a media and analysts’ briefing to announce CDL’s results for the year ended Dec 31, 2007. The group’s full-year net profit doubled to $725 million - a record.

Mr Kwek also acknowledged that the current market environment was not conducive to setting up real estate investment trusts (Reits). He would look into opportunities to buy into existing Reits, but only if they were being offered for sale together with their respective Reit management companies, which earn handsome fees.

On the high-end residential sector, Mr Kwek noted that it is supported not only by wealthy local investors with holding power, but also by well-heeled foreigners. ‘Super-rich investors from Russia, Middle East and even hedge-fund managers have yet to come into Singapore in a big way.

‘With Singapore developing into a global city and placed into the limelight, it can be a very attractive place to invest for these well-heeled clienteles, as seen in London,’ CDL said in its results statement.

The next big wave for the Singapore property market will come when the two integrated resorts are operating successfully. ‘It will be a different Singapore altogether. Singapore is a hub. I’ve been harping on this. Nobody believed me until last year,’ said Mr Kwek.

He also sought to debunk another popular view, that the deferred payment scheme which was removed by the authorities in October last year, had only served to fuel property speculation. ‘Deferred payment is not only an instrument for speculation. It is an instrument to enable buyers of new (residential) units to dispose of their existing units at a gradual pace, instead of being forced to sell their existing homes,’ he said.

Noting that sentiment in the local property market has become subdued because of the sub-prime issue, Mr Kwek said: ‘Sentiment is more important than supply and demand. The higher the prices, the more people buy.’

He also recommended buying real estate as a hedge against inflation, especially given the current low housing loan rate environment, adding in the same breath that he was not trying to talk up the market - drawing laughter from the audience.

But Mr Kwek also had some advice on affordability. ‘You must be able to pay your instalment, that is most important. If you can’t pay the instalment, and you hope (the property value) will go up tomorrow, then you are speculating.’

Referring to the squabbles among owners in estates with en bloc sales, Mr Kwek said: ‘People are fighting, because they are jealous somebody sold higher. Who can say this is the peak? You should be happy if you have a good gain, don’t fight. That’s my advice.’

He estimates that about 50 per cent of those who’ve sold their homes through en bloc sales have not yet bought replacement homes, even if they may want to downgrade.

Source : Business Times - 29 Feb 2008

It posts full-year profit of $725m; bottom line would be $2.8b if fair value gains included.

THE top brass at City Developments Ltd (CDL) yesterday said the property group has ‘the financial muscle to weather the current period of uncertainty even for the next three years’, after announcing a record full-year net profit of $725 million.

The group sold about $6.2 billion of residential projects in 2006 and 2007, which means it has locked in, to a very large extent, handsome profits which have yet to be booked.

These substantial and better-than-expected profits will continue to be recognised progressively based on construction progress. ‘Some will come in 2008, 2009, perhaps also into 2010,’ CDL managing director Kwek Leng Joo said at the group’s results briefing yesterday.

‘Even if the market recovery should take place a little bit later than expected, I think we’ll be OK,’ he added.

In short, the group can afford to delay launches of new residential projects if necessary to ride out the current weak sentiment.

As a major office landlord, CDL will also benefit from the office crunch as many of its key tenant leases are up for renewal between now and 2011 - a period when office supply is expected to be limited.

In the hospitality sector, CDL’s hotel arm Millennium & Copthorne Hotels has a string of hotels with a wide geographical spread - which should act as ‘an insurance against a downturn in any particular geographical area’, CDL executive chairman Kwek Leng Beng said.

The group also has many other attractive assets such as City Square Mall and St Regis Hotel in Singapore which it could potentially sell, boosting its bottom line.

As well, CDL has a healthy balance sheet, with relatively low net gearing of 48 per cent.

CDL posted a 106 per cent jump in group net profit for the year ended Dec 31, to a record $725 million. However, had it adopted the revaluation policy of its peers, its bottom line would have surged to $2.84 billion after factoring in about $2.1 billion of fair value gains on investment properties.

The $2.84 billion net earnings for the year ended Dec 31 would pip the $2.76 billion net profit posted by fellow property giant CapitaLand for the same period.

CDL’s fourth-quarter net profit rose about 71 per cent year-on-year to $235 million, with revenue inching up 3.7 per cent to $765.7 million.

The group has also yet to recognise any profits for One Shenton, The Solitaire, Cliveden at Grange and Wilkie Studio, as these residential projects are still in the initial stage of construction. These projects alone account for $1.7 billion in sales value.

Even if the group defers or paces its launches, it will proceed with the construction of its projects where construction cost had been favourably secured earlier, CDL said.

It may also consider building selected projects when the construction cost stabilises at a reasonable level. It expects that when sentiment improves and the market begins to recover, there will be pent-up demand which the group will be in a position to meet.

The group is planning to launch in the first half of this year some 427 private homes in four Singapore projects - Shelford Suites, a condo on the former Lock Cho Apartments site at Thomson Road, The Quayside Isle @ Sentosa Cove and a condo at Pasir Ris.

In its results statement, CDL also said that it has an investment commitment in the private fund Real Estate Capital Asia Partners, which acquired Jungceylon complex at Phuket’s Patong Beach. This is a 1.5 million sq ft mall which opened for business recently and is next to the Millennium Resort Patong Phuket.

CDL also reckons it has ‘ample time’ to review its strategy for its office portfolio, given improving office rental yields.

Its options include retaining its office properties at a low cost base, monetising the portfolio and/or extracting maximum value by selling its assets wholesale or individually. Another option would be to spin off an office real estate investment trust.

The group has all along been following its conservative policy of stating investment properties at cost less accumulated depreciation and impairment losses. On adoption of Financial Reporting Standard FRS 40, the group continues to state these assets at cost less accumulated depreciation and impairment losses.

Most other Singapore- listed property groups state investment properties at fair value, as permitted by FRS 40.

CDL’s full-year revenue for the year ended Dec 31, 2007, rose 22 per cent to $3.1 billion, also a record for the group.

The group also gave a segmental breakdown of profit before tax, including share of after-tax profit of associates and jointly controlled entities, which showed that pre-tax from property development more than doubled from $225.8 million in 2006 to $506.3 million in 2007.

Pre-tax profit from hotel operations fell from $396.6 million in 2006 to $285.4 million in 2007, mainly because the 2006 figure had included a $150.9 million one-off gain from the sale of long leasehold interests in four Singapore hotels to CDL Hospitality Trusts.

Profit before tax from rental properties more than quadrupled from $30 million in 2006 to $133.6 million in 2007.

CDL is proposing a final dividend of 7.5 cents per share as well as a special final dividend of 12.5 cents per share. Both payouts are tax exempt.

Source : Business Times - 29 Feb 2008

It will become a seamless extension of Raffles Place, says Mah.

THE upcoming financial district at Marina Bay will be twice the size of London’s Canary Wharf and will provide as much Grade A office space as Hong Kong’s Central.

Revealing more plans for Singapore’s new financial hub, National Development Minister Mah Bow Tan told Parliament yesterday that Marina Bay remains the centrepiece of the government’s efforts to provide more office space.

‘URA (the Urban Redevelopment Authority) will make available more sites for development in this area over the next five to six years, in line with market demand,’ he said. ‘When completed, these new developments will provide more than 1.1 million sq m of office space, to match the total amount of office space at Raffles Place today.’

The area will become a seamless extension of Raffles Place, Mr Mah said. It is expected to take more than 15 years to materialise, depending on market demand.

The existing central business district will not be neglected, he said. URA will release land around the Tanjong Pagar precinct as well as redevelop the Ophir/Rochor corridor into an office cluster.

Mr Mah also touched on plans for Orchard Road, saying that URA plans to work with the private sector to build a pedestrian network with underground links, walkways at street level and second-storey links between buildings.

The Ministry of National Development will set out its land use plans for the next 10-15 years in the next few months in its Master Plan 2008. The plans have been developed with three key objectives in mind - to ensure that Singapore has sufficient land to support economic growth; to reduce commuting by bringing jobs closer to home; and to provide greater greenery and leisure options.

Addressing a now-hot topic, Mr Mah said that sustainable development will continue to be a priority.

To encourage environmentally friendly practices, the government will look at a range of measures including public education, research and development, and possibly legislation, he said.

Source : Business Times - 29 Feb 2008

NEWTON is shaping up as a centre for hybrid offices, with another company, The Ascott Group, moving to the neighbourhood.

The Urban Redevelopment Authority (URA) also said yesterday that it would release not one, but two, transitional office sites between Scotts Road and Anthony Road for sale.

Ascott, which is officed at the former Temasek Tower, could not say how much space has been decanted in the move but did say that its new offices in Newton will accommodate some 50 to 80 employees, including trainers, trainees and staff who will support the training activities at its Ascott Centre for Excellence there.

A spokesman for Ascott said that it leased the former Anthony Road Girls’ School in mid-2007 on a 3+3+3 year lease from the Singapore Land Authority, and started moving in from the end of last year after refurbishing it.

URA offered its first transitional office site in Newton in August 2007 too. This was sold to Hwa Hong Corporation and KOP Capital for $37 million - $219 per square foot per plot ratio (psf ppr).

While the two new sites now being offered are equally well located, Knight Frank director (research and consultancy) Nicholas Mak believes bidding ‘will be more cautious this time’.

Both parcels are to be sold on short-term leases of 15 years, and Knight Frank estimates the first of the new sites, Parcel A, which can yield a maximum gross floor area (GFA) of 140,189 sq ft, could see bids of between $14 million and $18.2 million, or a unit land price of $100-$130 psf ppr.

Parcel B, which can yield a maximum GFA of 145,915.4 sq ft, could see bids of between $14.6 million and $19 million, representing the same unit price range of $100-$130 psf ppr.

Mr Mak noted that current monthly gross rents for the Scotts Road area are comparatively low at between $6 and $8 psf.

He also highlighted that the proposed transitional office developments are expected to be completed by the middle of next year - and about 2.6 million sq ft of new office space is expected to be supplied to the market in 2009.

Savills Singapore director of commercial services June Chua believes that there could still be an attractive profit margin for any developer, but adds that the developer, or possibly even contractor, would have to secure a tenant first, so that there is a minimal ‘void period’, during which the landlord has to secure a tenant.

She also said that the target rental would have to be around $7 psf per month.

Source : Business Times - 29 Feb 2008

ALLGREEN Properties’ 2007 net profit surged more than sixfold to $493.5 million on the back of a fair value gain of $348.5 million on its investment properties. In contrast, the developer recorded net profit of $75.9 million for 2006.

Excluding revaluation gains, Allgreen’s 2007 net profit came to a more modest $145.0 million but was still 91 per cent higher compared to the previous year. Revenue for the year ended Dec 31, 2007, rose 19.4 per cent to $568.8 million - from $476.5 million a year ago - as the developer sold more homes amidst new launches and saw increased revenue from its investment properties and hotel.

Last year, Allgreen officially launched Cairnhill Residences at Cairnhill Circle, Blossoms@Woodleigh and phase 1c of Pavilion Park at Bukit Batok. Cairnhill Residences is fully sold while Blossoms and Pavilion Park phase 1c are almost fully sold. The company also sold 186 units of its 536-unit Cascadia at Bukit Timah Road.

For investment properties, Allgreen’s Great World City office, retail and service apartment complex and Tanglin Place enjoyed higher occupancies and rents. At Tanglin Mall, however, renovations to increase lettable area meant that the occupancy was lower although rental rates were slightly higher.

At Traders Hotel, room rates and occupancy were higher in 2007 than the previous year, the company said. Allgreen’s earnings per share rose to 31.4 cents in 2007, up from 7.2 cents in 2006. The company declared a dividend of five cents a share.

Going forward, Allgreen said that it expects a property market slowdown in the early part of 2008 but is hopeful that the second half of the year will bring a recovery - in line with what other developers in Singapore have said.

‘The market in the early months of 2008 is expected to be fairly quiet, given the financial and economic uncertainties in the United States,’ the company said. ‘We are optimistic of a pick-up in activities in the second half of 2008.’

Allgreen shares closed two cents up at $1.28 yesterday.

Source : Business Times - 29 Feb 2008