Weekly Kopi Talk (3/2/18 – 9/2/18)

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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!


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.


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!

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.


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.

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.


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)

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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!

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”