Weekly Kopi Talk (27/1/18 – 2/2/18)

SPK Banner

1st Feb 2018 – Singapore an emerging hot market for private equity real estate funds

SPK: Good and bad piece of news for Singapore office REITs. If CBRE’s projection turns out to be correct, more funds will flow into Singapore, resulting in more transactions in Singapore office market. This is likely to push up office property prices and resulting in further yield compression. It is good for raising the capital value of the office assets that Singapore office REITs are already holding. However, as it is today, yield compression of office assets has made it more challenging for S-REITs to acquire yield accretive office buildings in Singapore without income support and many office REITs have already turned to overseas like Australia to acquire assets that more yield accretive. The influx of funds into Singapore office properties will make it even harder for Singapore office REITs to acquire office properties in future, resulting in slower AUM growth.

 

1st Feb 2018 – Singapore property rebound has Frasers’ CEO chasing more land

SPK: Frasers Property managed to replenish its Singapore landbank last year by acquiring the site at Jiak Kim Street for close to S$1 bil, a record psf price at a government land sale. According to the report, Frasers is still in a land acquisition mode but on the contrary, Frasers did not participate in the recent Government Land Sale tenders. I believe that Frasers’ land acquisition strategy is to acquire sizeable plots of land at selective districts for development. Land acquisition will be a key driver of property developer’s share price in the near future.

 

31st Jan 2018 – Multiple tender closings, but bids still bullish

SPK: Intention of batch tender exercise is to give developers more options in site selection and to balance the supply and demand. But it appears that developers still remain very hungry for land. CDL and its parent company – Hong Leong Group, put in separate bids for the sites at Handy Road and West Coast Vale. Kheng Leong, the real estate arm of UOB’s Wee family, also participated in 2 tenders – Handy Road and Chong Kuo Road sites. There were several big developers also took part in the tender for Handy Road site, including an unidentified group from Hong Kong, Cheung Kong, and Wing Tai. This is a reaffirmation of the consensus outlook on the recovery in the high-end property segment. Read my earlier blog post on the GLS tender here!

 

30th Jan 2018 – Bullish Investors look past failed bid by CDL to privatise M&C Hotels

 

SPK: City Developments failed in its attempt to buy out Millenium & Copthorne Hotels, but its share price rose 1.97% to S$13.45 on Monday. CDL has always been a proxy to Singapore property market due to high concentration of assets in Singapore. CDL’s share price performance had been driven primarily by the recovery in Singapore property market. This is evident when we compare the share price performance of Capitaland and CDL. Capitaland has a more diversified geographical exposure and for the year-to-date, its share price is up by 14%. On the other hand, developers with significant Singapore exposure, such as CDL and Bukit Sembawang have experienced a greater jump in share price of 45% and 38% respectively.

Advertisements

5 important takeaways from yesterday’s GLS tender closure that you need to know

The Government Land Sale tender for 3 residential sites closed yesterday evening. Without much surprises, the demand for land remains strong and developers are still willing to pay good prices for land. CDL turns out to be the biggest winner in yesterday’s land tender, submitting the highest bids for 2 out the 3 sites.

 

handyrd-aerialview
Handy Road Site

 

Below are 5 important takeaways from yesterday’s GLS tender closure that you need to know:

  • CDL/Hong Leong and Kheng Leong are hungry for land – Among the developers, CDL and Hong Leong are the most aggressive bidders in this round of GLS tender. Not just in terms of pricing, but also in terms of the number of bids that they put in. For the Handy Road site, CDL and Hong Leong both participated in the tender and submitted separate bids. It was the same for the West Coast Vale site. Kheng Leong also participated in the tenders for 2 sites – Handy Road and Chong Kuo Road sites. But for Kheng Leong, they are more measured in their tender offer price. In both of the tenders, Kheng Leong’s tender prices are among the lowest
  • Sophia Hills look like a good buy now – With an expected selling price of S$2,650 psf for CDL’s new project at Handy Road, Sophia Hills now look like a bargain buy. Personally, I would prefer Sophia Hills over CDL’s site because of its larger land area and space for residents, as well as the exclusivity and quieter environment. On the other hand, CDL’s site has an irregular shape and is sandwiched between Suites @ Orchard and Nomu. The blocks are likely to be close to each other due to the land constraint. With the announcement of the Handy Road site tender, Hoi Hup is likely to sell out the remaining 5% balance units of Sophia Hills sooner than later
  • Keen interests from big developers in prime district – Several other big developers took part in the tender for Handy Road site, including an unknown group of Hong Kong parties, Cheung Kong, Wing Tai, Hong Leong Group and Kheng Leong. This is a reaffirmation of the consensus outlook on the recovery in the high-end property segment
  • Developers are bullish on the West Coast area – CDL’s winning bid for the West Coast Vale site is 35% higher than what China Construction paid for the adjacent site in Feb 2017, an impressive inflation in land price in less than a year. China Construction also participated in the tender and offered S$794 psf ppr, which is less than 1% below the winning tender. EL Development, developer of the adjacent Parc Riviera, is also prepared to pay S$726 psf ppr or 32% than what it paid for the Parc Riveira land. Many other big developers such as UOL/UIC, CNQC, Hong Leong Group, also participated in the tender
  • Timing of West Coast Vale tender will benefit the launch of Twin View – According to Colliers, CDL’s breakeven price for the West Coast Vale site is around S$1,250 psf and selling price will be around S$1,400 psf to S$1,500 psf. With an expected launch price of S$1,200 psf to S$1,300 psf, Twin View should sell well as buyers will be attracted by the perception of “capital gain”, anticipating that prices of surrounding properties will rise when CDL launches the new site in a year’s time

Looks like it is going to take a while longer before the developers can satisfy their insatiable appetite for land.

Weekly Kopi Talk (20/1/18 – 26/1/18)

SPK Banner

26th Jan 2018 – Private home prices recovered in 2017, occupancies improved, says URA

SPK: Recovery in property market had been evident, but an important takeaway from the URA data is the improvement in residential occupancy rate and tapering of new supply completion over the next 2 years. This is what the property market really needs to sustain the recovery momentum. As long as owners are able to rent out their properties, they will at least have some cashflow to cover part of their mortgage repayment and this will ease the cashflow pressure on them. The tapering of new supply completion will also ease competition for tenants and further improve occupancy rates.

 

 26th Jan 2018 – More projects hopping on collective sale train

SPK: More developments are going for collective sales but as mentioned in SPK’s earlier post on market outlook, the collective sale market may start to cool for a while, before picking up again in 2H 2018. A total of 27 residential sites and 3 commercial/industrial sites worth S$8.7 bil were sold in collective sales last year. Developers may focus on preparation works for new project launches, instead of acquiring more sites. Other developers that have not acquired any sites may take a wait-and-see attitude. By 2H 2018, if the recovery is sustainable and take-up remains firm, the collective sale market is likely to pick up again as developers start to build up their landbank for launch in 2020.

22nd Jan 2018 – 18 New Futura units sold at S$3,200 psf at launch

SPK: It is interesting to note that high net worth foreigners are returning to the high-end market (despite the cooling measures still in place). Two-thirds of the buyers are Singapore permanent residents and foreigners. And according to List Sotheby’s, the number of luxury apartments (above $5 million) bought by foreigners and permanent residents in Singapore’s CCR last year more than doubled to 202 units. Looks like the high-end segment of the property market will drive the recovery this year?

22nd Jan 2018 – Foreign interest seen returning to Singapore residential market

SPK: Bank of Singapore expects foreign demand to return to Singapore residential property market. Residential rents are expected to bottom out and begin to recover due to a lower rate of physical unit completion. Home prices are expected to increase 3% to 8% in 2018, supported by a 5% to 10% recovery in rentals.

Happy weekend!

Weekly Kopi Talk (13/1/18 – 19/1/18)

SPK Banner

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.

MAS

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”