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The pace of cost increases has been rapid and unsettling for businesses so the government is implementing key measures to address office space constraints and spike in construction costs.

Construction demand will continue to build up this year, with projected value of contracts to hit up to S$27 billion. At the same time, construction costs are climbing as well.

Finance Minister Tharman Shanmugaratnam said this is due to expensive raw materials and work on major projects like the integrated resorts and petrochemical plants.

To ease the pressure, the government had previously rescheduled S$2 billion worth of developments to 2010 and beyond.

“We have now decided to defer another close to S$1 billion of projects. This deferment will only affect projects which are less urgent. Key investments such as the expressways, the Downtown Line and the NUS University Town will not be affected,” said Mr Tharman.

There will also be measures to tackle another short-term problem - the crunch in office space. This is caused by a surge in business growth, especially in the business and financial sector.

As office rental costs have risen sharply, Mr Tharman said Singapore must keep its business costs competitive relative to other major cities. On average, office space in Singapore costs 30 to 50 percent less, compared to Hong Kong and Tokyo.

The government expects the supply crunch to ease over the medium term as an extra 1.4 million square metres will be available by 2012 in the Marina Bay area.

Companies are also moving to transitional sites and new regional centres outside the city.

Soon, government agencies will follow suit and relocate - up to 20,000 sqm of office space in the city will be freed up for the private sector by the first quarter of 2009.

Mr Tharman also noted the good showing in what he called “an exceptionally buoyant property market” last year. Transaction volume rose by 60 percent, hence gains from stamp duties and other revenues were S$3.4 billion above what was expected.

Source : ChannelNewsAsia - 15 Feb 2008

Sim Lian unit’s offer is whopping 63% above second highest bid.

A 60-YEAR leasehold industrial site at Playfair Road has attracted a top bid of $142 per square foot per plot ratio (psf ppr) from Sim Lian Development unit Trio Link Development - a record price for such a site in the Ubi/Paya Lebar/Eunos area.

The tender for the 92,870 sq ft reserve-list plot attracted 12 bids, reflecting growing interest in industrial property as it comes into play amid the breather in residential and office values, says Colliers International director (industrial) Tan Boon Leong.

Sim Lian’s top bid of $33 million, or $142.13 psf ppr, was a huge 63 per cent above the next highest bid of $20.23 million, or $87.13 psf ppr, by Orion-Three Development.

Orion group, which is linked to Indonesian interests, has also been active in state tenders for industrial sites. It clinched plots at Serangoon North Ave 4 and Changi North St 1 in 2006.

Asked about Sim Lian’s aggressive bidding in yesterday’s tender, executive director Ken Kuik said the company had been encouraged by recent demand for strata-titled flatted and ramp-up factories at its Vertex project at Ubi Ave 4/Ubi Link.

‘We’ve sold about 160 of the 200 units released since September last year, achieving an average price of about $330 psf,’ he said.

The eight-storey property has 552 strata-titled units. Sim Lian is developing it on a 60-year leasehold site it won at a state tender in 2006.

Like the Playfair Road site contested yesterday, the Ubi plot is zoned for Business 1, allowing clean and light industrial and warehouse uses.

Mr Kuik said Sim Lian plans to develop the Playfair Road plot into a 13-storey project with strata-titled units for sale.

He noted that the site is just a few minutes’ walk from Upper Paya Lebar MRT Station on the Circle Line.

Colliers’ Mr Tan estimates Sim Lian’s breakeven cost could be around $260 psf, considering the saleable area for such industrial developments can exceed the maximum permitted gross floor area by 15-20 per cent after factoring in features like terraced areas and air-con ledges.

‘This is the first time a 60-year leasehold industrial site is being sold in the area, which traditionally has freehold industrial properties . That may have added to the plot’s attraction,’ he suggested.

Property consultants say the $142 psf ppr that Sim Lian offered for the Playfair plot surpasses the last high achieved in the Ubi/Paya Lebar/Eunos area - $85.50 psf ppr for a 60-year plot at Eunos Link/Kaki Bukit Avenue 1 in 1996.

However, yesterday’s top bid is still shy of the island-wide high of $170 psf ppr achieved late last year for a 30-year leasehold site near Commonwealth MRT Station.

The other bidders in yesterday’s tender were KNG Development, Soilbuild Group, Prosperity Realty (linked to Hotel Royal’s Lee family), HLH Development & Brothers (Holdings), Superbowl Land, See Young Investments, Lian Beng Group unit LB Property , Boustead Projects, Boon Keng Development and Lim Huay Ren, which placed the lowest bid of $12 million or $51.68 psf ppr.

Source : Business Times - 15 Feb 2008

Family pitches revised bid at $6.55 a share.

The tussle for The Straits Trading Company looks set to intensify as the Lee family yesterday raised its offer price to $6.55 per share.

The revised offer, made by Lee Latex’s wholly-owned subsidiary Knowledge Two Investment Pte Ltd, is marginally higher than the last offer of $6.50 made by The Cairns, a subsidiary of the Tan family’s holding company Tecity. But it is 65.4 per cent higher than the audited net asset value per share of Straits Trading and 13.7 per cent higher than the Lees’ own last offer of $5.76 a share.

In an announcement to the Singapore Exchange last night, Knowledge Two also spelt out its intentions for the offer, which included continued development and growth of Straits Trading’s existing businesses and representation on the company’s board.

In addition, if the Lee family continues to control the largest single block of shares after the close of the offer, it intends to ‘propose to STC (Straits Trading Co) to engage a financial adviser to conduct a study on the financial performance of STC and to recommend possible steps to take to further unlock value in STC for the benefit of shareholders’.

Apart from that, the Lee family has no immediate plans for any major changes relating to Straits Trading, including redeployment of fixed assets or the employment of existing employees.

The bidding war for Straits Trading - whose core businesses include interests in tin mining and smelting, hotel operations, property , and investment holdings - was triggered early last month after The Cairns, a privately-held investment firm controlled by family members of the late Tan Chin Tuan, made a conditional cash offer for the firm at $5.70 per share. About two weeks later, the Lee family counterbid with an offer price of $5.76 a piece. This was followed by a revision of offer by the Tan family on Jan 28 to $6.50 per share.

The Lee family, who are descendents of the late philanthropist Lee Kong Chian, own 33.42 per cent of Straits Trading including holdings through concert parties OCBC and Great Eastern Holdings. On the other hand, the Tans own more than a fifth of Straits Trading through Tecity.

Apart from owning stakes in one of the world’s largest tin smelters, Straits Trading also runs 14 hotels, mostly in Australia and New Zealand, and China. In addition, the group owns commercial and residential properties in Singapore and Malaysia.

The bidding war for Straits Trading has since driven the share price of the company to record highs in the past month. The counter last traded at $6.55.

Source : Business Times - 15 Feb 2008

Consultants project smaller DC rate rise for residential and commercial use

THE coming March 1 revision of development charge (DC) rates - payable to enhance the use of sites or build bigger projects on them - is generally expected to be more moderate than the past couple of revisions, which imposed steep rises.

That’s because on the whole, land price increases have slowed considerably in the the past few months. And collective sales, which traditionally account for the lion’s share of private-sector land sales, have virtually ground to a halt, property consultants have told BT.

‘We believe collective sale brokers are unlikely to feel inspired by the upcoming DC rate revisions,’ says Jones Lang LaSalle’s regional director and head of investments Lui Seng Fatt.

Most consultants project smaller average DC rate increases for residential and commercial use this time. However, JLL is predicting bigger hikes for industrial and hotel use, as hotel and industrial sites sold at government land sale (GLS) tenders in recent months have fetched top bids significantly higher than the land values implied by current DC rates.

This can be attributed to the shortage of hotel rooms and strong demand for industrial space by office tenants looking for cheaper backroom space, says JLL’s head of research (South-east Asia) Chua Yang Liang.

For non-landed residential use, JLL reckons the average DC rate will go up just about 5 per cent come March 1, compared with the 58 per cent hike that took effect on Sept 1, 2007.

CB Richard Ellis executive director (investment sales) Jeremy Lake also reckons that on the whole, non-landed residential DC rates are unlikely to rise significantly, although there may be hikes in locations where land sales have taken place at prices significantly above values implied by the prevailing Sept 1, 2007 DC rates.

Market watchers point to examples such as Westwood Apartments in Orchard Boulevard, Toho Garden in Yio Chu Kang Road and 15 terrace houses at Jalan Bunga Raya in the Balestier/Novena area.

Agreeing, Credo Real Estate executive director Yong Choon Fah says the increases for such locations could be in the order of 30-40 per cent, while the average islandwide hike will be much smaller at 5-20 per cent.

DC rates - revised every six months, on March 1 and Sept 1 - are listed according to use (for example, non-landed residential, commercial, and industrial) and 118 locations across Singapore.

Savills Singapore director Steven Ming, who predicts a 0-10 per cent rise in the average non-landed residential DC rate, reckons both prime and suburban/mass-market areas will see only moderate increases.

However, bigger rises may be seen in mid-tier locations like Pasir Panjang, Balestier, Upper Bukit Timah, Hillview and Upper Thomson, where condo prices have risen 20-40 per cent in the past six months.

For landed residential use, JLL projects the average increase this time could be 8-15 per cent - again lower than the 11.3 per cent rise in Sept 2007.

Jones Lang LaSalle expects the rates for places like Dunsfold Drive and Binchang Rise in the Bishan/Ang Mo Kio area, Sentosa and Chestnut Drive to increase about 20-25 per cent, as market values of landed properties in these locations are significantly above the values implied by prevailing DC rates.

JLL reckons that after a 42 per cent spike in the average commercial-use DC rate on Sept 1 last year, the rate could still rise a further 30-35 per cent come March 1. However, it believes rates may generally stay put in the central business district (CBD), and expects increases mostly in suburban locations, particularly in the Jalan Sultan and Toa Payoh areas. In the past few months in these areas, commercial GLS sites have been sold at prices more than double the land values implied by prevailing DC rates.

Agreeing, Credo’s Ms Yong sees the islandwide increase in commercial DC rates around 5-15 per cent, with increases mostly outside the CBD.

Market watchers highlight the sharply different top bids for two white sites - with stipulated minimum office components - at Marina View in the CBD sold just three months apart late last year, reflecting how swiftly investor sentiment in the office market turned cautious.

JLL estimates industrial DC rates will appreciate around 30 per cent on average, compared with a 2.2 per cent increase last round. It also expects the average hotel DC rate to go up 30-35 per cent, after a 23 per cent hike last round, pointing out that hotel sites offered under the GLS programme at Upper Pickering Street and New Market Road/Merchant Road have been sold at premiums of 80 and 64 per cent respectively above prevailing DC rate-based land values.

The coming round of DC rate revisions will have ‘minimum impact on the already slowing collective sales market’, according to Savills’ Mr Ming.

But for en bloc sites with a significant DC component, and where the reserve price has been fixed by owners, a substantial DC increase will make it even harder to find takers, says Credo’s Ms Yong.

JLL’s Dr Chua reckons owners of properties in fast-changing neighbourhoods like Buona Vista and Telok Blangah - and possibly Paya Lebar and Jurong East, which are earmarked by the government for development into business hubs - will be watching the coming DC rate changes as they may set the tone for potential change-of-use applications.

Potential bidders for reserve list sites under the GLS programme will also be watching the revisions to get a sense of the Chief Valuer’s sentiment before making any applications for these sites to be released, says Dr Chua.

Source : Business Times - 14 Feb 2008

Deal worth 131.6m euros; partner Citycon Oyj to manage project

GIC Real Estate, the property investment arm of the Government of Singapore Investment Corporation, has partnered Finnish retail property investment company Citycon Oyj to acquire a 40 per cent stake in a Helsinki mall called Iso Omena for 131.6 million euros (S$271.7 million).

In a statement yesterday, GIC RE said Citycon will hold 60 per cent of Iso Omena upon completion of the deal.

Citycon - which owns 22 shopping centres in Finland, eight in Sweden and three in other Nordic Countries - will be responsible for the business and management of Iso Omena.

The centre is Finland’s fifth largest and has a wealthy catchment area, GIC RE said. Its total net lettable area is 61,300 sq m, of which 49,000 sq m is retail space.

Citycon acquired Iso Omena from funds managed by private equity firm Doughty Hanson for 329 million euros in September 2007.

According to a statement released by Citycon then, the shopping centre’s net yield on the purchase price was 4.5 per cent. Citycon said that after redevelopment and other improvements, it estimated the net yield would increase. Iso Omena has planning permission for an extension of some 7,000 sq m.

Citycon CEO Petri Olkinuora said of the GIC RE deal: ‘With this agreement we will release capital for the redevelopment of our property portfolio in accordance with our strategy. This business concept may also become part of our strategy and source of capital.’

This is the third property deal that GIC RE has announced this year. Last week it entered into a joint venture to take a S$416.1 million stake in Roma Est Shopping Centre in Italy with with ING Real Estate. It also said it will develop a township on a site in Russia with a market value of US$1.33 billion.

Also last week, it was reported that GIC plans to acquire The Westin Tokyo for about S$1.02 billion.

Source : Business Times - 14 Feb 2008