Why Frasers Property is raising prices at Seaside Residences

Just two weeks ago, I blogged about why Seaside Residences may sell like hotcakes this year.

Today, I heard that Seaside Residences has just raised its selling prices by 1% on average. Coincidentally, it was also reported today that the nearby Fernwood Towers is close to launching an enbloc sale.

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Is it a coincident or a premeditated move by Frasers Property to raise prices at Seaside Residences?

Firstly, let us try to understand how the Fernwood Towers enbloc will affect the neighbouring projects.

The freehold Fernwood Towers is asking for S$688 million or S$1,572 psf PPR. Assuming that the sale goes through at the reserve price, the estimated breakeven for the new development should be around S$2,100 psf to S$2,200 psf and the eventual selling price may be as high as S$2,500 psf!

No doubt that Fernwood Tower is a freehold development, but it does not have the direct seaview frontage that Seaside Residences offers. So if we compare a S$2,500 psf freehold project with Seaside Residences’ S$1,700 psf average selling price, the price gap looks too wide to be justifiable.

Moreover, Seaside Residences has been selling well since the property market picked up last year. Phase 1 of the launch is close to selling out.

It seems like a well-timed move for Frasers Property to raise its selling price for Seaside Residences to take advantage of the upcoming enbloc at Fernwood Towers, and also to set the stage for its Phase 2 launch, which may be at an even higher price if Fernwood Towers manage to sell at its reserve price!

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This is not an online get-rich-quick scam to invest in commercial property

It seems like the commercial property segment in Singapore is heating up.

Last week, GAW capital snapped up PoMo, a nine-storey office and retail development in Selegie Road with remaining leasehold of 64 years, for S$342 mil or S$1,900 psf NLA from Enviro-Hub and BS Capital. Oxley also confirmed its interest in buying Chevron House at a reported price of S$660 mil or S$2,526 psf NLA from Deka Immobilien and Oxley is currently doing due diligence on the property.

Today, it was reported that Nadathur Group, one of the co-founders of Infosys, is buying New Cape Inn, a 76-room freehold hotel in Tiong Bahru, for S$67 mil or S$881,579 per key. The price reflects about 2% gross yield.

Is the commercial property sector entering a new upcycle? How can I gain exposure to the multi-million commercial property sector? This are some questions that you might be thinking right now.

SPK is going to sell you an online get-rich-quick scam?

What if SPK tells you that there is an opportunity to:

  • Invest in a 929-year leasehold mixed-use development in River Valley at below S$1,500 psf?
  • Invest in a leasehold serviced apartment in River Valley at below S$1,200 psf?
  • Invest in a freehold office building in Tanjong Pagar at below S$2,200 psf?
  • Have some of the shrewdest businessmen in the property sector to take care of your investments?

Don’t worry. SPK is not running an online get-rich-quick scam.

If you think that the above opportunities are good enough to get you excited over, then you should look at investing in United Engineers Ltd.

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Diversified exposure to commercial, retail and hospitality segments

United Engineers owns a diversified portfolio of prime commercial properties in Singapore. Most of its assets are either freehold or have long leasehold tenures, and they are strategically located either in prime districts or near transportation hubs or major thoroughfare. The flagship property of the group – UE Square is a familiar name among Singaporeans and you might be surprised to know that this property is valued at just S$1,482 psf NLA! Where can you find a commercial property at such price today?

UE also owns the freehold office building at 79 Anson Road, and the freehold office/industrial building at 450/452 Alexandra Road. It also operates the Park Avenue Rochester, a 351-room hotel and Rochester Mall in the One-North. Other smaller assets include Park Avenue Robertson (a 36-room serviced apartment in River Valley) and UE Bizhub Central at Ang Mo Kio (corporate HQ).

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Valuation of these other assets is also undemanding. Just look at Park Avenue Robertson. It is valued at S$1,198 psf, almost half the price of what nearby new launch – Martin Modern is selling. Even though Park Avenue is an older property, such a big price gap might still be difficult to justify. The valuation of Park Avenue Robertson is probably the transaction price of a resale OCR condominium in today’s market.

Leave your investments in the good hands of Mr Zhong Sheng Jian and Mr Pua Seck Guan

With the recent change in controlling ownership at UE, the company is now being led by a consortium of experienced property developers – Yanlord and Perennial Real Estate. Yanlord is a very successful developer in China led by Mr Zhong Sheng Jian and Perennial Real Estate was established by Mr Pua Seck Guan and backed by Wilmar International.

With a strong team of businessmen behind UE, it will probably give you more confidence that your investments is being well-taken of!

So what do you get when you invest in United Engineers?

These are probably what you will get when you invest in United Engineers:

  • Diversified portfolio of commercial and hospitality assets in Singapore
  • Attractive property valuations that are probably below market transaction prices today
  • A hospitality business under Park Avenue Brand
  • A strong management team to manage your investments

Sounds like a good deal, isn’t it?

But readers should take note that investing in shares can be very different from investing in properties. Share price fluctuates daily and price movement could be a function of the general market sentiments or broad-based market movements that may not have anything to do with the fundamentals of the company, and it may take time for a company to realise its full value. Readers should consider their risk appetite, investment horizon, overall portfolio exposure before making an investment.

Happy investing!   

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!

 

 

Chevron House Acquisition – Another shrewd move by Oxley?

The Business Times reported today that Oxley is close to acquiring Chevron House in Raffles Place for S$660 mil, or S$2,526 psf on its net lettable area of 261,280 sq ft. Is this another shrewd move by Oxley? Or is Oxley overpaying for an old asset?

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Chevron House is a 32-storey building with 215,667 sq ft of offices (from level 6 to 32) and 45,613 sq ft of retail space (from basement 1 to level 4). The building has a remaining leasehold of 71 years. Chevron is the anchor tenant of the building, occupying 83,000 sq ft of office space over 10 floors and it will be moving to Duo Tower by 2020. The building is currently 98% occupied. There is an asset enhancement potential of 14,950 sq ft of unused GFA that the Oxley could tap on.

Buy in Year 2017, Pay Year 2011 Price

Chevron House was put for sale in the market in Year 2011 at a price tag of S$656.6 mil or S$2,500 psf. There were no takers for the property back then. Looks like Oxley is now paying the asking price in Year 2011 (though it is a property that is 6 years older now) without any price inflation!

Is the seller leaving money on the table for the new buyer?

For readers who work in CBD and familiar with Chevron House, you might be wondering if there is any space on the retail podium that can be used to create new GFA. The area looks built-up and any usable open spaces are already utilised for kiosks and promotion space. Whilst these spaces can be utilised to create new GFA for shops, it is uncertain whether the incremental return on existing revenue can justify the AEI costs for the creating of such shops. Slabbing over existing voids to create new spaces? It will probably be an expensive effort and once again the question is whether the returns can justify the costs. Probably, we would need some expert advice here who can suggest how to tap on this unutilised GFA.

The seller – Deka Immobilien had brought up this unutilised GFA when it was marketing the property in Year 2011. After a long period of 6 years, it has not done anything to tap on this unutilised GFA. Is the seller kind enough to leave money on the table for the new buyer? Or is it that this hanging fruit is too high up on the tree for anyone to pick?

Multiple strategic options for Oxley

In SPK’s view, Chevron House offers a lot of strategic options for Oxley. There is no immediate pressure to do anything to the property as the anchor tenant lease expires only in 2020. Oxley can enjoy net property income of around S$25 mil per year, which translate to a yield of 3.8% on its reported purchase price. Not a bad yield, considering residential are trading at around 3% yield today?

Oxley can also concurrently plan its asset enhancement initiatives for Chevron House over the next 2 to 3 years to revamp the common areas of the office and try to tap on the unutilised GFA.

The big payday will probably come at a time that is closer to the lease expiry of Chevron. Subject to the market conditions in 2019/2020, Oxley can opt to keep Chevron House as an investment property, subdivide and lease out the Chevron floors and higher rental rates. Alternatively, Oxley can strata-divide the building and sell the individual strata units. Or if Oxley has built up a substantial portfolio of income-producing assets, it can try to spin off all these properties into a REIT.

Does strata-selling the office units make sense? SPK does agree that based on Oxley’s acquisition price, the returns might not be fantastic. Oxley is unlikely to make the kind of 30% to 40% returns that Perennial made from selling AXA Tower and TripleOne Somerset. But nonetheless, considering the 3.8% yield that Oxley will be getting every year, this would have made the overall returns more palatable. And time is on Oxley’s side. Over the next 3 years, it can continue to enjoy the rental income while waiting for an upswing in office property prices.

Looks like time is on Oxley’s side for this acquisition.

Oxley has been a shrewd player in the Singapore property market.  May its legacy continues with the acquisition of Chevron House!

 

Bloomberg says Singapore’s Property Market is set to sizzle! Are you excited?

Singapore’s Property Market Is Set to Sizzle

What an attention-grabbing headline from Bloomberg. How do you feel after reading the headline? As a homeowner, you may be feeling good that you are sitting on a property that looks set to increase in value the next year. As a home seeker, you may be rushing to hunt down your dream home before prices are set to increase.

Yes, that is the power of media and herd instincts.

Putting the psychological impact of the article aside, let’s take a look at some of the salient points in the article:

  1. Singapore’s residential and office market has passed its inflexion point, embarking on an exciting recovery journey
  2. With brighter economic prospects and improved market sentiment in the next two to three years, developers are increasingly sourcing land sites to ride the wave of growth for the rest of the decade
  3. Home prices could rise as much as 10 percent next year, according to analysts from Morgan Stanley, BNP Paribas SA and UOB Kay Hian
  4. With housing-affordability much better in Singapore, there may be a surge in demand next year
  5. Singapore’s property market has largely turned the corner, underpinned by a brightening economic outlook

Read full article here.

 

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Source: Bloomberg

 

Do you agree?

Well, at this point in time, SPK agrees with the article that there are a lot of positive signals in the market that are pointing towards a rising property market for at least the next year. Improvement in economy and job market, wealth creation through collective sales, positive sentiments driven by stock market highs and news headlines, herd instincts, family formation/upgrading and an extended period of low and competitive mortgage rates are probably to stir buying interests in property. But nonetheless, it is important to watch out for red flags in the economy and the market.

Property cycles are getting shorter these days and it is important to ride the cycle at the early stage and not ending up being the one without a seat in a game of musical chair.

The Curious Case of Sing Holdings: A classic case of “Buy the Rumor, Sell the News”?

Sunday evening – Sing Holdings and Wee Hur announced that Parc Botannia sold 230 units on the first weekend of launch

Monday evening – Sing Holdings’ share price surprisingly fell by 4% whilst Wee Hur’s share price rose almost 2%

The Curious Case of Sing Holdings?

Well, probably not. It seems more likely to be a classic case of “Buy the Rumor, Sell the News”. Let’s take a look at Sing Holdings’ share price movement. Prior to the recent run-up in Sing Holding’s share price since July, its share price was hovering around S$0.35 and for the past 4 months, its share price shot up by over 40% to close at S$0.495 last Friday.

 

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Sing Holdings 1-year share price chart

 

It is likely that investors had already priced in a strong sales performance at Parc Botannia prior to the actual launch. The eventual announcement on Sunday probably brings little surprises to the investors and was probably just to validate the guided sales price given by Sing Holdings and the confirming the strong buying interests at Parc Botannia (which was probably expected). Without many positive surprises to push the share price further up, investors might have taken this opportunity to take profit, in particular for those investors who bought the shares in July at S$0.35 per share.

Then why did Wee Hur’s share price increase?

Let us take a look at Wee Hur’s share price chart below.

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Wee Hur 1-year share price chart

Wee Hur’s share price had remained pretty stagnant at around S$0.24 for most of the year and it was only recently, in October, that Wee Hur’s share price started to trend higher. As at last Friday, Wee Hur’s share price closed at S$0.28, gaining around 17% since the run-up in October. In comparison to Sing Holding’s share price performance, Wee Hur’s shares would not be as overbought as Sing Holdings and it probably means that investors might not have priced in the full impact of Parc Botannia’s launch as optimistically as they had done so on Sing Holdings’ shares. This is probably why Wee Hur’s shares manage to see some gains today.

As a value investor, SPK tends to ignore the short-term noise in the market and focus on the long-term value of a company. From this perspective, SPK still believes in the long-term value of Sing Holdings base on his earlier analysis of the company. There might be a possibility of profit taking to continue for the next few days, but for those believers in Sing Holdings’ value, this might be a good chance to accumulate! But, DYODD please! (DO YOUR OWN DUE DILIGENCE)

Keep Calm and Carry On Investing!

 

Strong take-up at Parc Botannia over the weekend. Sing Holdings on track to hit jackpot?

What a weekend!

 

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Parc Botannia Showflat (Source: EdgeProp)

 

Parc Botannia saw a total of 230 units sold on its first weekend launch. That works out to be around 92% of the 250 units released for Phase 1 launch and 31% of the total units in the project. The average price of the units sold was around S$1,270 psf. It was reported that the buyers were mostly locals and popular units included 1-bedroom, 2-bedroom and 4-bedroom units. According to the EdgeProp, over 500 cheques were received as expressions of interest prior to the launch weekend and units had to be sold by balloting due to overwhelming demand.

Construction costs fully funded. Financial risks of developers reduced significantly.

SPK estimates that the 230 units sold would translate to a total sales revenue of approximately S$225 mil. The progressive payment from buyers of these 230 units would probably be sufficient to cover the construction costs, marketing costs and professional fees of around S$200 mil to S$230 mil.

What would Sing Holdings do next?

With the construction costs and fees fully funded, Sing Holdings is now in a very comfortable position to hold on to the remaining inventories at Parc Botannia. There is little pressure for Sing Holdings to launch the remaining units in the near future. A typical strategy would be to hold back the inventories in view of rising prices going forward and launch the phase 2 at a later stage with higher prices. SPK would expect Sing Holdings to do so to maximize its profit from Parc Botannia and there might probably be more upside to SPK’s RNAV estimate of S$0.885 to $0.935 per share if Sing Holdings gets the timing right.

Congratulations to Sing Holdings and its shareholders!

Is CapitaLand ready to jump on the enbloc bandwagon?

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Singapore property giant – CapitaLand announced its earnings for the quarter ended 30th September 2017 yesterday. From reading the announcements and presentation by CapitaLand, one question came to SPK’s mind – “Is Capitaland ready to jump on the enbloc bandwagon?”

Let SPK share some of his personal insights and key takeaways from CapitaLand’s results below:

1. CapitaLand is running out of landbank and sales inventory in Singapore

Take a look at the CapitaLand’s Singapore property sales performance this year in the table below:

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Amidst the improvement in market sentiments, CapitaLand has performed credibly in the past few quarters, selling more than a hundred units of its existing property inventory every quarter.

Despite the improvement in sentiments and better sales, CapitaLand has continued to come out with marketing strategies, such as deferred payment scheme, rental rebate scheme and discounts from list price. This was probably because a significant number of units in its inventory are big size units with high price quantum. These units are still difficult to sell under current market conditions. CapitaLand might be using this window of opportunity to clear its inventory of ‘difficult-to-sell’ stocks and avoid further ABSD.

So, what is left for CapitaLand to sell in Singapore?

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As at October 2017, CapitaLand has only a remaining 141 residential units in its Singapore sales inventory. Majority of them could probably be sold out within a quarter or two if we use its past sales performance as a gauge, although some of the units may remain difficult to sell.

In its sales inventory, the majority of the unsold units (38%) are the remnant units in Sky Habitat and CapitaLand has recently introduced a 5% rental rebate, on top of the 15% discount off list price to buyers, which makes the pricing looks attractive at around S$1,400 psf. Hence, it is expected that sales of Sky Habitat will continue to remain strong and this project should sell out rather sooner than later.

You might be wondering what is the big issue even if CapitaLand does not have anything to sell. In an ideal scenario, CapitaLand would probably be better to just sit patiently on its cash hoard, bid for land at realistic prices and wait for one day when the market cools and it can then buy land at a reasonable price and start selling again.
But in reality, considerations are always different. Without new project sales, CapitaLand’s earnings will drop, at a time when other developers are going report strong earnings from new launches. This might result in a drop in Its share price and shareholders may also lose confidence in its management. Hence, replenishing its landbank might seem more urgent than before with its earnings at stake.

2. A Change in the tone of management’s forward-looking outlook guidance

Let us take a look at the written outlook guidance from CapitaLand’s management:
Feb 2017

“CapitaLand expects the impact of property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to selectively source for new sites to stock its residential pipeline.”

Apr 2017

“CapitaLand expects the property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to selectively source for new sites to stock its residential pipeline.”

Aug 2017

“CapitaLand expects the property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to source for well-located sites to build its residential pipeline.”

Nov 2017

“The Group expects residential property market sentiment to improve, underpinned by increased buying volume and a rise in home prices. The Group will continue to adopt a disciplined approach and source for well-located sites to build its residential pipeline.”

 

Yes, after many quarters of concerns on the impact of government’s cooling measures, the dark cloud has finally dispersed and management is now more optimistic on the Singapore residential market!

Time for CapitaLand to act?

During the last enbloc cycle, CapitaLand (under former CEO, Mr Liew Mun Leong) was one of the big players in the market, snatching up 2 big plots of HUDC sites (Farrer Court and Gillman Heights) with its joint venture partners. Will CapitaLand under Mr Lim Ming Yan adopt the same strategy to build up its landbank, and creating wealth for enbloc owners?

Maybe SPK is reading too much into it. But let’s watch this space closely.