Weekly Kopi Talk (13/1/18 – 19/1/18)

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15th Jan 2018 – Home loan gets pricier as banks hike interest rates again

SPK: A 30 basis points increase for a S$1 mil loan would translate to an extra S$144 every month in mortgage repayment. For a household that earns S$12,000 a month, the increase is only 1.2% of their combine income. When interest rate approaches 3.5%, it is time to be cautious as banks may start to increase their stress-testing interest rate for loan approvals.

16th Jan 2018 – 2017 developers’ sales hit 4-year high; momentum expected to continue

SPK: Barring unforeseen government policy changes or economic/interest rate shock, developers’ sales likely to remain strong in 2018. You can read more on SPK’s market outlook here.


16th Jan 2018 – Paya Lebar Quarter signs up tenants for over half of office space

SPK: The numbers look impressive, but considering that 15% of office space is used for Lendlease’s own co-working facilities and that some of the advance negotiations are also included in the numbers, it seems as though the actual pre-commitment might not be that impressive after all.

18th Jan 2018 – Further upside for developers that can deliver on strong sales, higher selling prices

SPK: Small-mid cap Singapore developers looks good for investors to ride on the upturn in Singapore property market. These companies tend to have higher balance sheet exposure to Singapore property market in comparison to big-cap developers, which are more geographically diversified. The relatively low equity base of small-mid cap developers also works to their advantage. One single profitable development project in Singapore can result in significant accretion to the NAV of a small-mid cap developer.


Happy weekend!

MAS puts more scrutiny on bank loans for property development. Is the party ending soon?

Just a week ago, SPK mentioned 2 possible ‘Black Swan’ events that might hinder or derail the property market recovery – 1) Tightening measures from the government and 2) More stringent loan approval criteria from banks.

Extract from blog post – “Thumbs up or down for property market in 2018?

Black Swan

Coincidentally, it was reported in The Business Times this week that the Monetary Authority of Singapore is putting more scrutiny on bank loans for property development. According to the article, MAS is collecting more data from banks through a new survey to monitor their lending practices because of the steep loan-to-value ratios on development loans in some cases.


Is the party ending soon?

The current property recovery cycle has been driven by the developers (supply side) through their optimistic land tender prices and wealth creation to enbloc sellers. Hence, the government has paid more attention to what is happening on the supply side, particularly in the enbloc market that the government has limited control over. In October, it was reported that URA was seeking detailed information on the tender results of enbloc sales from marketing agents. Now, MAS is stepping in to ensure prudent lending by banks to developers when they acquire land.

Will the current property market recovery come to a halt if MAS decides to curb lending to developers?

Let’s consider a few things first:

  • Developers are flushed with liquidity and strong balance sheet after selling out most of their inventories over the past few years;
  • Foreign developers are deploying their funds into Singapore;
  • The current enbloc market is dominated by big developers with strong financial backing;
  • We have not seen speculative lending to small or unproven developers yet;

For now, MAS is probably still in a monitoring stage and not in the stage of curbing loans to developer yet. Now that developers are aware of MAS’ concerns and possible curbs in future, it might not be surprising that developers will try to replenish their landbank and secure loans as soon as possible before MAS implements any loan curb in the future.

And what may happen after MAS curb loans to developers? Developers will have less room to leverage and their returns on equity (ROE) will shrink. This leaves developers with couple of options:

  • Continue to bid at high prices, at the expense of their ROE – Cash-rich developers may do so since they have surplus cash to deploy anyway. Foreign developers who want a strategic presence here may also do so at the expense of their ROE. Moreover, lower bank loan would translate to lower interest expense and developers can earn a higher profit margin and have more room to adjust their selling price
  • Bidding as a consortium – More developers (particularly mid-size ones) will group together to form a consortium to bid for the land. This helps to fill in the funding gap and mitigate risks
  • Reduce their land tender price – This option will bring developers nowhere. Having considered the earlier bullish prices and new launches in the market, enbloc sellers are unlikely to accept a low tender offer for their ‘superior’ properties. Enbloc market will turn quiet again
  • Alternative funding instruments – Preferred convertible notes to fund developments?

For now, SPK sees little risk that such a move by MAS will derail the property market recover. If such a move is targeted towards buyers, then it will be time to ring the alarm bell.


P.S. For readers who do not have access to The Business Times, you may email SPK at sgpropertykaki@gmail.com to request for a pdf of the news report – “MAS puts more scrutiny on bank loans for property development”

Fourth time unlucky for Pearl Bank owners?

Looks like it’s a fourth time unlucky for Pearl Bank owners.


EdgeProp reported that public tender for Pearl Bank Apartments closed on 19th December and the collective sale committee had instructed marketing agent – Colliers International to enter into private treaty negotiations with interested parties. Owners were asking for S$728 mil, translating to around S$S$1,505 psf ppr after adding in a lease upgrading premium of S$195 mil.

According to the article, there were ‘keen interest’ from developers, but there was no mention of whether any offers had been received.

Some of the concerns developers raised include the requirement for pre-application feasibility study (PAFS) and whether there is a need to conserve the development in future.

The pre-application feasibility study might be a valid concern but it is unlikely to be the deal-breaker as we have seen buyers for other collective sale sites after the implementation of the PAFS.

And regarding the other concern relating to conservation, this is not something new. URA had publicly stated its position in an official release, saying that any conservation of the property will depend on the council of the management corporation’s interest in having the property conserved and it requires the support from individual owners. Wouldn’t the management council be in a good position to answer any question from developers relating to conservation?

As mentioned in SPK’s earlier blog post, SPK already highlighted that the high asking price of the owners and the large investment quantum are major hurdles for a collective sale to happen at Pearl Bank and risk-reward is not optimal for the developer.

It might not be surprising if the ‘concerns raised by developers’ are attempts to persuade the owners to reduce their asking price for a developer to bite. 10 more weeks to conclude a private treaty. Let’s wait and see!

Jackpot day for Vista Park owners

Yes, Vista Park owners have hit their jackpot this time round.

Vista Park

Enbloc-King Oxley Group announced last night that owners of Vista Park had accepted its tender offer of S$418 mil to acquire all the units for redevelopment. Its tender price is almost 20% above the reserve price of the owners. After factoring in the S$72 mil lease upgrade premium, the offer price from Oxley translates to a rate of S$1,096 psf per plot ratio and approximately S$1,056 psf per plot ratio after factoring in the bonus balcony GFA.

In the earlier blog post titled “Are Vista Park owners hitting their jackpot this time round?”, SPK had pointed out the challenges in the redevelopment and positioning of this site. And that was probably why the site was not as hotly contested as other sites, with just 5 bids and a few expression of interest.

Nonetheless, the final outcome is a good one for all Vista Park owners and within SPK’s thumbs up expectation for the collective sale at Vista Park to succeed.

Pricing in a 9% increment in future prices

Oxley’s tender price of S$418 mil translates to an estimated breakeven price of around S$1,500 psf and SPK expects the launch price of the new project at Vista Park site to be around S$1,800 psf on average. In comparison to the S$1,650 psf that nearby new launches were fetching in today’s market, Oxley could be pricing in a 9% future price increase in its tender offer price.

Jackpot day for Vista Park owners

Vista Park owners are expected to receive 20% that what they had asked for. Each owner could now take back $1.39 mil to $4.2 mil.

Congratulations to the 209 owners at Vista Park!

Why the 1H18 Government Land Sales announcement can be good for the market

This morning, the Ministry of National Development released the Government Land Sales (GLS) Programme for the first half of 2018. There were just 6 confirmed list sites and 9 reserve list sites announced for 1H 2018. These sites could yield about 8,045 new units and 63,960 sqm of commercial space.



Despite the strong demand for development sites by developers, the government decided to keep the total supply of units for 1H2018 at about the same level as the supply of units from the 2H2017 GLS Programme. This is also in contrary to what many analysts had earlier expected.

In SPK’s opinion, there are 2 different possible approaches that the government could have taken in handling the current demand for sites in the property market. One approach is to for the government to be more pro-active and interfere in the market. The government can release more development sites via GLS to developers to meet their demand for land and cool down the collective sales market. Another approach is to be reactive, keep to the existing GLS policy and let the property market and developers to find an equilibrium on their own. Looks like the government has chosen the latter approach to deal with the current collective sales fever.

Could the lack of interference by the government send further positive signals to the property market that it is still not the time for the government to interfere yet?

Who’s who at GLS Tender?

Two Government Land Sale tenders for sites at Jiak Kim Street and Fourth Avenue were concluded yesterday. Without surprise, the sites saw keen interests from developers, with the site at Jiak Kim Street setting a new benchmark.


Jiak Kim Street_Aerial view with boundary_0
Site at Jiak Kim Street


Let us look at the different groups of bidders who were present at this round of GLS tender.

1. The Aggressor – Allgreen Properties

After snatching up Royalville and Crystal Tower last week for S$478 mil and S$181 mil, Allgreen Properties is back on the headlines again with the highest tender price of S$553 mil or S$1,540 psf ppr for the site at Fourth Avenue. What a shopping spree! Within 2 weeks, Allgreen Properties has invested S$1.2 billion in 3 development sites!

This is probably not going to be the end of Allgreen Properties’ acquisition spree yet. Allgreen Properties also put in a bid of S$926 mil for the site at Jiak Kim Street, but it lost out to Frasers Centrepoint’s top bid of S$955 mil. Seems like Allgreen Properties still has appetite for more acquisitions and having lost out in the bid for Jiak Kim site, it will now have another S$1 bil to spare for other sites.

2. The Aggressor 2 – CDL/Hong Leong

Hong Leong came close to winning the tender for the site at Jiak Kim Street. Its tender price was only S$5 mil short of the winning tender price from Frasers Centrepoint. Its sister company, City Developments also joined the bidding with Logan Property. For the site at Fourth Avenue, Hong Leong and CDL went in together with a bid that was just 4% short of the winning tender price from Allgreen Properties.

So far, Hong Leong and CDL have only managed to clinch one site this year – Amber Park through collective sales. In these 2 GLS land tender, Hong Leong and CDL were not too far off from the winning tender prices and they appear to have good appetite for further land acquisitions. We might see more actions from Hong Leong and CDL in upcoming GLS and collective sales, particularly in the prime districts.

3. The Conservative Aggressors – Frasers Centrepoint, Bukit Sembawang, UOL/UIC

Frasers Centrepoint, Bukit Sembawang, UOL and UIC seem to have exercised some form of risk management in their aggressive pursuit of land. Frasers Centrepoint came in with the highest tender price for the Jiak Kim site, whilst UOL/UIC was not too far behind Frasers Centrepoint in its tender price. Bukit Sembawang came in second in the tender for the Fourth Avenue sites. All 3 developers were selective in their bidding and only participated in one out of the two available site tenders.

4. The Dreamer – Wheelock Properties

With a tender offer that is 23% below the winning bidder and 13% below Guocoland, the second lowest bidder for the Jiak Kim site, maybe it is time for Wheelock Properties to revisit its bidding strategy and plans?

5. The Absentees – Foreign Developers

Only 3 foreign developers – China Overseas Holdings/CSC Land, Logan Property and Cheung Kong Properties, participated in the tenders for the 2 sites.

Where were the other foreign developers?

What are property developers’ actions telling us?

“Don’t ask barbers if we need a haircut.” – Famous quote by A Singaporean Stock Investor (AK)

This simple quote by popular investment blogger – A Singaporean Stock Investor, makes a lot of sense. Most of us have this kind of skepticism, especially when we deal with the salespeople. When a property developer or agent tells you that new launches are selling fast and property market is going to move higher, you will probably take their words with a pinch of salt. You might be thinking that they are just trying to sell you a property and make money out of it.

Nothing wrong with this thinking. There is always a possible conflict of interest between the seller and the buyer when the seller is trying to get sales for his own benefit without considering the interests of the buyer.

What if the actions of the seller are aligned with his words? Or when the seller is putting his money where his mouth is?

Last week, Lian Beng Group announced that it was awarded a contract to construct a condominium at Potong Pasir Avenue 1. This project is the former Raintree Gardens site that was acquired by UOL Group and UIC for S$334.2 mil in October last year.


Raintree Gardens
Former Raintree Gardens Site


So, what is so interesting about this contract award? In most situations, the construction contracts are awarded around the time when the project is launching for sale. This is when there is greater visibility on the demand and pricing for the project and developers can then lock in their cost with a better confidence of protecting their profit margin.

In contrary to the norm, UOL and UIC are now locking in their construction costs months before the project is expected to be launched. Why are they doing so? There are a couple of reasons that SPK can think of. Firstly, UOL and UIC are confident that they can the pricing and demand for this new project will be strong and hence they are willing to take the risk to lock in their construction costs early. By doing so, UOL and UIC can deliver the project earlier to buyers, receive the sales proceeds faster and hence, shorten their project cashflow cycle and improve capital efficiency.

The second possible reason could be that they are expecting construction costs to go up and hence they are locking in their costs early. If this really happens in future, other developers might sell their projects higher to cover the higher construction costs, and for UOL and UIC, they will have more flexibility in their pricing.

Is UOL and UIC’s action an indication of their outlook of the property market going forward? Looks like the developers are putting their money where their mouth is.


Going once…going twice…Crystal Tower sold!

Yes, it is a 3rd time lucky for Crystal Tower owners. It was reported on the Business Times that Allgreen Properties had emerged as the winning bidder to acquire Crystal Tower, in a fiercely contested tender that attracted a total of 12 bids. Allgreen Properties offered S$180.65 mil for the freehold site, reflecting a land rate of S$1,840 psf ppr. Allgreen’s offer price is a huge premium of 31% above the asking price of the owners!


An aggressive bid by Allgreen? What was the developer thinking?

Few months back, the nearby Sloane Court Hotel site was snapped up by Tiong Seng and Ocean Sky at a land rate of S$1,616 psf ppr (including Development Charges). Allgreen’s offer price for Crystal Tower would be 14% higher than what Tiong Seng and Ocean Sky paid for their site.

SPK estimates that based on Allgreen’s offer price, the breakeven selling price for the new project will be around S$2,300 psf to S$2,400 psf. To make a decent profit margin of 10% to 15%, Allgreen will probably have to sell this project at S$2,600 psf to S$2,750 psf.

Was Allgreen overly-aggressive in its bid? Did it overpay for the site?

These are difficult questions to answer at this point in time.

But what we can be sure is that developers are returning to the prime districts and this is probably a hint of their optimism on the prime residential property segment. Allgreen’s price might look high at this point in time, but if the property prices in CCR move in line with the optimism of the developers, then what Allgreen is pricing in right now might not be too far away from the prices in future.

Any brave soul out there who bought the penthouse at S$9.8 mil?

The penthouse unit was listed for sale at S$9.8 mil in October 2017. If you were brave enough to buy the unit a month ago, then congratulations to you!

Base on Allgreen’s offer price, the penthouse owner will receive about S$12.3 mil while the rest of the owners will pocket around S$6 mil to S$6.6 mil each. If you had bought the penthouse at S$9.8 mil, you could have easily pocketed a tidy profit of close to S$700k, after deducting stamp duty and additional seller stamp duty!

Congratulations to the 28 multi-millionaires at Crystal Tower!