Weekly Kopi Talk (17/2/18 – 23/2/18)

SPK Banner

21st Feb 2018 – Implicit message in buyer’s stamp duty hike

SPK: As mentioned in my earlier blog post, this increase in BSD rates is not going to hurt most of us unless you are going for a high-end property. In fact, prior to the Budget, the market was expecting the government to introduce more drastic measures to cool the heated enbloc market. This mild measure seems to be a good news for the market.

20th Feb 2018 – Reit ETFs to enjoy tax transparency

SPK: The transparency for REIT ETFs is definitely a good news for the SREITs and fund management industry. Currently, there are 3 REIT ETFs in Singapore, with a total AUM of S$250 mil and their dividend yield ranges from 4.12% to 4.75%. The tax concession should result in some uplift in their dividend yield and make the ETFs more attractive to investors.

Short-term impact of the tax concession on the SREIT sector may be limited due to the small AUM size of the REIT ETFs in Singapore. It will require some time before the REIT ETF sector grows to a substantial scale that is enough for it to exert greater influence on the SREIT sector. Nonetheless, the tax transparency will be a good start to grow the REIT ETF sector.

20th Feb 2018 – Singapore property stocks fall on higher tax for home purchases

SPK: Singapore property stocks fell unexpectedly the day after the announcement of the hike in buyer’s stamp duty, despite the consensus view that the increase will not derail the housing recovery in Singapore. This was probably a knee-jerk reaction to the news and share price of developers managed to recover most of the losses the following day.

19th Feb 2018 – Singapore property stocks show ‘fatigue’ with surge in en-blocs

SPK: The collective sales market might be entering a cooling-off phase, as seen from the recent spate of collective sales attempt that ended without a sale being concluded during the public tenders. Developers were more aggressive in buying land last year. For most of the tenders, there were multiple bids and the majority of these tenders were concluded at a premium to the reserve prices.

 

Some of the recently sold sites like Brookvale Park and Pearl Bank Apartments did not manage to find a buyer during the public tender process. Nonetheless, they were able to secure a buyer via private treaty. This probably means that developers are still hungry for land. But developers might be more selective and cautious in buying land these days.

 

Advertisements

So I was wrong

I have to admit that I am wrong this time round.

This morning, property giant Capitaland announced that it has acquired the iconic Pearl Bank Apartments in Outram Park area for S$728 mil, at the reserve price of the sellers. The site has a land area of 82,376 sq ft and plot ratio of 7.45, translating to a permissible GFA of approximately 613,701 sq ft. Capitaland will pay an additional S$201.4 mil to the government to top-up the land lease to a fresh 99-year. The total cost of the site will be S$929.4 mil or S$1,515 psf PPR. Capitaland plans to build around 800 units in the new development.

ST_20171031_GLENBLOC31_3524007

When I was writing my earlier post on Pearl Bank , I felt 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. Based on my estimate, such a project would probably breakeven at S$1,900 psf to S$2,000 psf and developer will need to sell at S$2,200 psf for a decent margin. Assuming an average unit size of 750 sq ft at S$2,200 psf, an average unit at the redeveloped site will cost a whopping S$1.65 mil! Mind blowing numbers for a district 3 property! For this amount, you could actually get a prime district property instead.

But it looks like this is turning into reality with CapitaLand’s bid and the aggressive land acquisition strategy by developers seem to have even exceeded my expectations. With this new development possibly setting a new record price in District 3, it is likely that the nearby District 9/10/11 properties will get to enjoy the spillover effect. A rising tide lift all boats!

Probably one thing that I got it right is that Capitaland is finally jumping on the enbloc bandwagon, which I mentioned in an earlier blog post. With CEO Lim Ming Yan expecting property prices to rise up to 10% this year, it is unlikely that Capitaland’s acquisition spree will end here.

Let’s also not forget that some of the big boys have not started playing this enbloc game yet! Wanna make a guess who they are?

 

Weekly Kopi Talk (3/2/18 – 9/2/18)

SPK Banner

8th Feb 2018 – Singapore budget not expected to target property upswing

SPKI agree. As of now, there is already a very stringent set of rules and penalties (Qualifying Certificate extension charge and Additional Buyer Stamp Duty remission clawback) if developers cannot sell all their units within 5 years from the date that they acquire the site. Even though the Singapore government is getting concern on the activities in the collective sale market, it is still too early to take actions as the activities are happening on the supply side of the property market. On the demand side, things are improving but not at a heated level yet.

7th Feb 2018 – For China’s Wealthy, Singapore is the New Hong Kong

SPKThe return of foreign buyers could be a potential wildcard to fuel additional property demand and price increase in the property market. Property purchase by foreigners is recovering but it is still below the long-term average level. Chinese buyers will be an important group to watch out for. Based on 2017 statistics, the three most popular locations with Chinese buyers were districts 19 (Serangoon Garden, Hougang, Punggol), 23 (Hillview, Bukit Panjang, Choa Chu Kang) and 5 (Pasir Panjang, Clementi New Town). Oxley might have a good chance to sell its upcoming developments in District 19 – a 1,450-unit development at former Rio Casa site and 1,050-unit development at former Serangoon Ville site to Chinese buyers!

6th Feb 2018 – Oxley beats over 80 parties to buy Huang Clan Association site

SPKOxley, my favourite developer, is in the news once again! I would say that this is a very shrewd transaction by Oxley. The landowner is carving out a 99-year leasehold of the land and selling it to Oxley in return for a cash consideration of S$13 mil and the 2nd and 3rd floor of the completed development. Oxley will retain 4th to 8th floor of the development for sale. As the upfront cash payment is low, the return on investment for this project should be much higher. I’m impressed by Oxley’s strong business acumen, evident in its ability to beat over 80 parties to buy the site!

6th Feb 2018 – Developers paid S$380m in ABSD, QC extension charges

SPK: What a difference a year makes! Just a year ago, everyone was waiting for developers to give ‘special discounts’ to sell their old inventories in order to avoid paying QC extension and ABSD remission. Sad to say, that didn’t really happen unless you happen to be a member of the Wee family (who bought up all the remaining units at The Nassim from Capitaland) or some big funds who managed to bulk purchase remnant units during Feb/March last year.

Today, there are only around 80 developments (with a total of about 750 unsold units) that could be subjected to these fees and charges in 2018. This has come down significantly if we compare to last year when a total of 4,230 units were affected by the rules last year. With the recovery in the property market, concerns on the penalties due to QC extension and ABSD remission claw-back has since abated. In fact, developers may be more than happy to hold the units if they expect prices to increase further during the year!

4th Feb 2018 – Proposed home-sharing rules to be released for feedback by Q1

SPKYou can read my earlier analysis on this topic here!

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.

airbnb

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)

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.

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!