Property Market Sentiments

[CY09]

Office space- This area is of greater concern to me. With 1.1B sq metre of office space coming out by 2018, similar demand has to be met. Current demand for office space is 6.8B sq m. This means a 16% increase in demand has to be achieved in 3 yrs time. Is this possible? I seriously doubt EDB's capability to do so. Do note in Straits Time today, the money section mentioned the increase is 3.2B sq m by 2018. I do not which figure is true so I stuck to the URA's statistics.

Therefore with this scenario, it is likely office rentals will plummet in 2018. My own estimation is office rentals will be 10% lower than current. If there is a recession, it will be a lot worse. Secondly, some office complexes are held by REITs. Therefore, expect lower yields and possibility of share placements since valuations will fall. There are no "job credit schemes" to save office owners unless the government is creative; maybe pay 20% of their interest payments to banks?

Hi cy09, I'm a bit confused by this. If demand will far outstrip supply by 2018, why will office rentals drop?

I understood that the government is releasing very little land to mitigate any oversupply, heard from the grapevine that even non cbd mapletree biz city is fully leased out (including the new in construction mbc2).

If there is any trigger, probably would be due to financially poor companies shutting down. I remember singapore companies have one of the highest debt in the region currently, surely some will be hit badly by eventual interest hikes.



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Hi Thor, my statement is that supply will outstrip demand in 2018.

By 2018 on the supply side, 1.1B sq m of office space will be definitely created (URA's statstics).

On the demand side, my personal view is that it is unlikely to be an increase of demand by 1.1B sq m. Using past data at the end of 2010, 6,130 sq m of office space was occupied, at present 6,786 sq m is occupied. There was only a 656M sq m increase in demand for office space. I believe we will not see the pace of demand growth we had seen in 2010 to 2014 as it was a recovery period then. Furthermore from 2010 to 2014, we rarely saw an increase of CBD office spaces. However from 2014 to 2018, it will be different as 2 new major office complexes (Guoco & Capitalgreen) and a few smaller ones (income at Raffles, V on Shenton, SBF centre). Another major development, Marina Towers may be completed in 2018. This may be the third major office complex in the CBD.

[3rd Q 2014] http://www.ura.gov.sg/uol/media-room/new...-64e1.ashx

[ 3rd Q 2010 ] http://www.ura.gov.sg/uol/media-room/new...123e1.ashx

[thor666]

Thanks, this clarifies clearly. You are probably quite right to say that rents will have to come down. Even in non-cbd areas, the costs are escalating too fast imo.

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[cfa]

Singapore November Home Sales Fall to Lowest This Year on Curbs
By Klaus Wille and Pooja Thakur Dec 15, 2014 1:25 PM GMT+0800
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Singapore home sales fell to the lowest this year in November as the government’s lending curbs stemmed purchases.

Developers sold 412 units last month compared with a revised 785 units in October, according to data released today by the Urban Redevelopment Authority. That’s the lowest since December, when 259 units were sold.

The government began introducing residential property curbs in 2009 with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real estate taxes. Home prices declined for a fourth consecutive quarter in the three months to Sept. 30, a separate government report showed in October.

“The softening effect of the measures introduced last year had a wide and deepening effect on buyers’ sentiment,” said Donald Han, managing director at Chestertons, a real estate broker in the city-state. “They are more reluctant now to take positions.”

Mortgage loan growth at 6.4 percent in October was the slowest pace since May 2007, data compiled by Bloomberg based on Monetary Authority of Singapore figures showed.

Singapore’s housing market may face “fire sales” with mortgage defaults as the government’s property curbs hurt home sales and prices, City Developments Ltd., the city-state’s second-biggest developer, said on Nov. 12.

Singapore home prices need to decline further, Tharman Shanmugaratnam, Singapore’s finance minister said on Oct. 28.

To contact the reporters on this story: Klaus Wille in Singapore at kwille@bloomberg.net; Pooja Thakur in Singapore at pthakur@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net Marcus Wright

[CityFarmer]

Blackstone is saying 5 years from now, what your take? It should credible, with the lowest probably in 2015...

Blackstone ready to wait 5 years for Singapore property recovery

SINGAPORE (Dec 19): Blackstone Group LP, which is taking part in the refinancing of luxury Singapore properties, is prepared to wait as long as five years for a turnaround in residential prices to see higher returns on the transaction.

Blackstone and Malaysia’s CIMB Bank Bhd. agreed this week to take part in a financing for a luxury hotel, retail and residential development, owned by City Developments ( Financial Dashboard), Singapore’s second-largest developer, on Sentosa island.

In exchange for $469 million in funding, the New York-based private-equity company and CIMB will receive a fixed 5% coupon for five years and other cash flows from the Sentosa project. They also have rights to any proceeds from the sale of the luxury residential units on Sentosa.
...
http://www.theedgemarkets.com/sg/article...y-recovery

[opmi]

5 x 5% interest income = 25% will cover up to 25% drop.


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[CityFarmer]

5 x 5% interest income = 25% will cover up to 25% drop.


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Compensation for inflation, with a small MOS?

[Vseeker]

5 x 5% interest income = 25% will cover up to 25% drop.


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Compensation for inflation, with a small MOS?

a bet on renew interests in luxury resi ppties, post removal of ABSD/SSD maybe sometime after GE2015/6
today there are NO investment interests for luxurious resi ppties coz 1st year breakeven is 3+15%ABSD+16%SSD = 34% !!

SouthBeach residential component not subjected to QC penalties (NO sell by deadlines), so quite suited for the new PPS too.

[specuvestor]

5 x 5% interest income = 25% will cover up to 25% drop.


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Compensation for inflation, with a small MOS?

I don't think the Blackstone deal participates in downside. Even if property market down 50%, they will still clip their 5% coupon for next 5 years and redeem at par, and I think if returns from structure cross a certain hurdle (min S$2400 psf?) they will get additional upside to the profit.

No downside for "Profit Participation Security". So question is why Kwek willing to give up some upside to Blackstone in return of the repayment of the CDL loan? CDL needs money or Kwek is telling us something

http://www.businessweek.com/news/2014-12...y-recovery
City Developments will receive about S$1.2 billion from the transaction. That will allow the company to reduce debt and gives it a freer hand for overseas acquisitions, Chief Executive Officer Grant Kelley said.

The developer is looking for purchases in China and Australia, after spending $1 billion on overseas investments this year, he said. The company will also focus on Japan, the U.S. and the U.K.

Kelley said it will take time for Sentosa residential property prices to recover, though he expressed confidence that prices will rise well above the mimimum S$2,400 per square foot within five years.

“Now is not the time to be selling,” Kelley said. “The base case assumption of S$2,400, there is an ultra high probability, almost a certainty, of achieving that. We expect it to be significantly beyond that by the time 2018-2019 comes around.”

[Porkbelly]

No downside for "Profit Participation Security". So question is why Kwek willing to give up some upside to Blackstone in return of the repayment of the CDL loan? CDL needs money or Kwek is telling us something

Indeed

[cfa]

More cooling measures required ?

Rennie Whang
The Straits Times
Friday, Dec 26, 2014

Homes have become only marginally more affordable following the many cooling measures introduced over recent years, according to a CBRE report.

Prices have dropped only slightly and the declines for new homes are likely due in part to the median size for a new apartment shrinking, said Ms Han Huan Mei, associate director of research at CBRE Singapore.

She noted that cooling measures have not caused prices to plummet as economic fundamentals are still sound, adding: "As long as home buyers are able to service their loans and developers have the power to hold, home prices are less likely to slide."

The Urban Redevelopment Authority (URA) private residential price index shows that prices peaked in the third quarter of last year, having risen 62 per cent from the second quarter of 2009 when the market began recovering from the global financial crisis.

A range of cooling measures since those heady days have seemingly had only a minor effect on values, with the index down just 3.9 per cent in the 12 months from Oct 1 last year to Sept 30 this year.

On closer look, the median price of new homes rose by 12 per cent to $1.08 million from the start of 2009 to the end of last year but has fallen 9 per cent to $1.02 million over this full year, Ms Han said.

Resale prices have suffered less.

The median price of a home rose by 65 per cent to $1.4 million from the start of 2009 to the end of last year before easing 4 per cent to $1.34 million over this year.

The threshold for new homes has held steady at about $1 million while that for resale homes has been at about $1.3 million for the past five years, Ms Han said.

But the median size of a new home has fallen steadily, from 1,195 sq ft in 2009 to 753 sq ft this year.

Developers have opted to build compact units for new projects to keep the lump sum price affordable, Ms Han said.

But the median size of a resale home has remained constant at above 1,200 sq ft through the years.

Ms Han said the $1 million threshold for new homes is likely to stay as long as wages remain stable and in line with inflation but the squeeze on space will continue if costs increase.

Overall, the URA residential price index - which factors in a weighted "moving average" of transactions over 12 quarters - for all residential homes showed a decline in prices of 3 per cent over the first nine months of this year.

But the fall for new homes was likely around 6 per cent, which is "more likely a function of shrinking size", said Ms Han, while resale home prices fell by about 4 per cent over the same period.

The sharper fall in new home values may also be due to price cuts in some projects nearing completion, as developers focus on clearing unsold units.

The Vermont At Cairnhill sold 37 units in August after prices were trimmed by 12 per cent while about 130 homes at Sky Habitat were sold in April after a price cut of 10 to 15 per cent.

Home sale volumes have dropped by about half one year after the Total Debt Servicing Ratio was introduced and have "continued at a lukewarm pace", Ms Han noted.

She tipped next year's home sales volume to be similar to this year's.

Home prices are likely to "see modest corrections until they reach an equilibrium", she added.