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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5 things to expect with the legalization of short-term home sharing in Singapore

The wait is finally over (soon)! Yesterday’s Sunday Times reported that the proposed home-sharing rules will be released before April for feedback.

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Looks like short-term home sharing is here to stay. Despite the recent clampdown by authorities, the number of listings for homes as well as single rooms and shared rooms has risen from 7,781 in May 2017 to 8,601 in December the same year, an 11 per cent increase in eight months. In the same period, a total of 8,046 homes, single rooms and shared rooms were rented out for up to three months (which is technically against the current law). Airbnb’s total available room nights for single and shared rooms in Singapore from January to November 2017 was 1,186,887, a jump of almost 25 per cent compared to the same period in 2016.

Impressive statistics, isn’t it? With the weak residential rental market, property investors had little choice but to take the risk of running afoul of the law and list their properties on Airbnb to seek for an alternative source of income for their vacant properties. But with the impending home-sharing rules, it may be good to have clarity on how homeowners can officially do short-term leases in Singapore.

But wait. Is it really good for Airbnb landlords and the property market? Sunday Times reported that a new category of housing, which allows home sharing on a short-term basis, is believed to be one of the ideas in the consultation paper. Home-sharing platform operators like Airbnb may also be regulated. Mr Lawrence Wong also commented that “Singapore’s situation is complex due to its high density, and the majority of private homeowners live in strata-titled properties.”

So what can we possibly expect when the home-sharing rules come out?

  • A new category of housing? How does this work? Could it be like Private HireCar Driver’s Vocational Licence (PVDL), i.e. homeowners need to apply for a short-term leasing licence and subject to a very stringent set of rules to follow? Quite possible. The hurdle to getting the licence may be high, as the government need to protect the interests of the hoteliers.
  • There is no free lunch. Short term leasing can potentially generate better profits for owners compare to a typical residential lease. For owners who are allowed to lease short term, they might also have to prepare to pay an even higher property tax.
  • It is important to keep the neighbours happy. Government is paying attention to how the short-term leasing will affect neighbours in the development. So it is likely that once this home sharing rule is implemented, any complaint from a neighbour may result in a great deal of trouble for the short term leasing owner. So, be nice to your neighbours.
  • Another round of disruption to the hotel/residential leasing industry? Once the rules are clear, we may see hospitality operators and start-ups entering the short-term leasing market to be an operator for property owners in managing their short-term leases on their behalf. There are already some operators doing this (which is technically illegal).
  • Property market may get a boost from the home-sharing rules. One of the biggest concern of the property market now is the poor rental market at the moment. Whilst leasing outlook is expected to improve, the introduction of the home-sharing rules could provide an additional source of potential rental income and access to a bigger pool of tenants LEGALLY. This should help to improve buying sentiments.

This home sharing rule is probably one of the major change in Singapore property market in recent years. It is definitely an important development to look out for over the next few months. Stay tuned!

Weekly Kopi Talk (27/1/18 – 2/2/18)

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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.

Weekly Kopi Talk (20/1/18 – 26/1/18)

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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!

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.

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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”