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Retailers become creative in face of competitive retail environment

Singapore: Demand for retail spaces stayed strong in Q4 2014, with occupancy rates for malls in Orchard/Scotts Road, other city areas and suburban areas staying above 90%. As at 2014, net absorption recorded a 7.1% increase to 1.67 million sq ft from 2013 indicating a healthy demand.

In 2015, some 1.2 million sq ft of NLA will be injected into the market. Of the 1.2 million sq ft of NLA to be injected, 99% will be concentrated in the other city areas and suburban areas. In Orchard/Scotts Road, approximately 8,000 sq ft of NLA will be released in 2015 as compared to 407,000 sq ft in 2014. Projected supply of retail spaces within Orchard/Scotts Road is expected to be limited at 24,000 sq ft of NLA over the next five years.

The market dynamics is reflected in the rents observed in this quarter. Islandwide, average rents largely remained the same q-o-q at $25.39 per sq ft in Q1 2015. Rents in the other city and suburban areas remained flat q-o-q at $17.98 per sq ft and $28.05 per sq ft respectively. The rents in the above areas are expected to stabilise due to the large proportion (99%) of retail supply in the coming year as well as the maturing e-commerce sector. Reflecting the limited supply of retail spaces in the Orchard/Scotts Road area, average rents inched up marginally by 0.3% q-o-q to $30.13 per sq ft in Q1 2015, which further contributed to the strong resilience in rents.

According to CapitaMall Trust’s latest financial results for 2014, portfolio shopper traffic decreased by 0.9% y-o-y, while overall tenants’ sales per sq ft declined by 1.9% y-o-y. The findings further noted that the brick-and-mortar Fashion retailers’ y-o-y sales declined by 1.3% and the Shoes and Bags retailers’ sales declined by 0.8% y-o-y in 2014. Declines in both sectors’ sales are a reversal from the 1.3% and 9.4% increase reported in CapitaMall Trust’s 2013 financial results.

The fall in their tenants’ sales has largely been attributed to the maturing e-commerce sector. Joint ventures between the e-commerce companies and logistics companies are likely to further lower the shipping and delivery costs, boosting the attractiveness of online shopping. In 2014, Alibaba Group took a stake in SingPost to increase its penetration for its Consumer-to-Consumer business. As a result, e-commerce giant Taobao Marketplace South East Asia entered into a partnership with Singpost’s POPStation in October last year. With more than 70 POPStations islandwide, shoppers are able to conveniently pick up their parcels at their own preferred time and location with no extra costs.

Dr Lee Nai Jia, DTZ’s Associate Director of Research, noted, “The e-retailers are able to offer goods at prices lower than what the traditional retailers can offer by circumventing the high labour costs, payments to middle-men and rent for retail space. As consumers become comfortable transacting online, more shoppers will be drawn to the virtual shops to make their purchases.”

With growing competition, online fashion retailers are coming up with creative ideas to differentiate themselves. Zalora and Love Bonito for instance, experimented with physical pop-up stores on short term leases to close the gap between online and offline retailing. The aim was to increase brand awareness and to acquire new customers by “filling the trust gap” some consumers have towards online shopping. The digital platform had been incorporated into the pop-up stores, allowing shoppers to browse and make the purchases online. The differentiating factor is that the shoppers are now able to experience the products in the physical stores before committing to a purchase.

On a broader scale, online and offline fashion retailers are reinventing their business models to counter the competitive operating environment. Retailers are launching mobile apps to tap on the high smartphone penetration rate. In the most recent research paper released by Maybank Kim Eng, Singapore’s smartphone penetration rate is at 90%, with 45% of smartphone users making online purchases with their mobile devices. H&M launched its first mobile app in 2010, with Zara following suit in 2012 and subsequently Zalora in 2013. More recently, Myntra, a major Indian clothing e-store, announced the closure of its online store from May to focus on its mobile app.

Ms Anna Lee, DTZ’s Director of Retail, noted, “As the talk about the threat of e-commerce and reduction in foreign labour dependency ratio start to dwindle, retailers are reinventing their business models to differentiate themselves from their competitors. These issues have pushed them to come up with creative solutions such as the exploration of shorter term leases and tapping on the advantages of the mobile market to increase their market share. In the longer-term, we expect to see a positive transformation of how retailers conduct their businesses.”

 

Source: DTZ

Capital values and rents on the rise as office vacancies in the CBD tighten

Sentiment for the office sector remains positive as capital values and rents continue to rise amidst a backdrop of limited supply and higher occupancy rates, according to DTZ. Based on data from URA REALIS, 151 strata-titled offices changed hands in Q2 2014. For the first half of this year, a total of 257 strata-titled offices were transacted. This was 51.6% lower than the 531 units transacted in the same period last year.

Lee Lay Keng, DTZ’s Regional Head (SEA), Research commented: “Notwithstanding, the continued interest in strata-titled office units and enbloc office deals, amidst expectations of further rental increases, helped lift average capital values of office space in Q2. Based on a range basket of existing buildings tracked by DTZ Research, capital values of office space within the Raffles Place and Shenton Way/Robinson Road/Cecil Street areas inched up 0.5% and 0.2% quarter-on-quarter (q-o-q) respectively in Q2.”

Average office rents also rose in Q2, and by a faster pace compared to the growth in capital values, as islandwide occupancy rate increased 0.4 percentage-point q-o-q to 95.0%. This was in spite of a lower net absorption figure of 290,000 sq ft, compared to 322,000 sq ft in Q1 2014, as only orchard gateway was completed in this quarter. This brought the cumulative net absorption for H1 2014 to 612,000 sq ft, still higher than the 545,000 sq ft reported in H1 2013.

Demand in Q2 stemmed mainly from tenants consolidating their operations from various locations or expanding within their existing buildings. These demand sources remained diversified across industries such as social media, pharmaceuticals and technology, as well as secondary financial institutions. For instance, Aon will be re-grouping its operations to SGX Centre in H2, while Jardine Lloyd Thompson will consolidate its operations at CapitaGreen after its completion at the end of the year. Social media firm LinkedIn is moving out of AXA Tower (30,000 sq ft) to take on a larger space at Marina Bay Financial Centre Tower 2 (50,000 sq ft) while Twitter, currently operating out of a serviced office in Samsung Hub, is reportedly looking for a larger and permanent office space.   Within the CBD, occupancy rates and rents increased the most in Marina Bay in Q2. The occupancy rate of Marina Bay rose 3.3 percentage-points q-o-q to 91.4%, while average gross rents increased 6.5% q-o-q to $12.25 per sq ft per month. With no new supply in the CBD until the completion of CapitaGreen at the end of this year, leasing interest for Asia Square Tower 2 remains strong. For instance, Vodafone recently signed a lease for 30,000 sq ft at Asia Square Tower 2.

Elsewhere in the CBD, the occupancy rate at Shenton Way/Robinson Rd/Cecil Street declined the most from 97.9% to 94.7%, with average gross rents stagnant q-o-q at $8.00 per sq ft per month. The fall in occupancy was due largely to the significant space vacated by the Singapore Exchange (SGX) from their flagship building. The average occupancy rate in the area, however, is expected to strengthen in H2 as Aon will absorb part of SGX’s vacated space when they relocate. Insurance broker, Willis, will also take up 20,000 sq ft in the same building.

Going forward, an estimated 2.7 million sq ft of office space will be completed between H2 and 2015. This works out to an annual average supply of 1.8 million sq ft, which is in line with the past three-year (2011-2013) annual average demand of about 1.7 million sq ft. Activity in the office market is therefore expected to remain healthy in the near term. In addition, office space at developments due to be completed in H2 has been filling up, with some pre-commitments announced. For instance, CapitaGreen is now 21% pre-committed, while a fund management group and City Serviced Offices were also understood to have signed on for space at South Beach Tower.

Beyond 2015, however, the pipeline supply of office space will reach a new peak of about 3.9 million sq ft in 2016, with about 60% located in the CBD. Major iconic and premium office buildings expected to be completed in 2016 include Marina One, Guoco Tower and Duo Tower. This could exert some downward pressure on office rents going forward until this additional space can be absorbed.

Cheng Siow Ying, Executive Director of Business Space commented: “Notwithstanding, the large supply in 2016 presents an opportunity for occupiers to review and formulate their long-term accommodation strategies. Occupiers exploring relocation and consolidation options could enjoy first-mover advantage should they decide to take up space in the upcoming developments.”

 

Source: DTZ

REITs do not drive retail rents up: study

A recent study by the Ministry of Trade and Industry revealed that Real Estate Investment Trusts (REITs) are not driving up retail rents, contrary to the growing perception that the main cause of rising retail rents are retail malls being acquired by REITS.

Covering a total of 35 REIT-owned malls and 76 malls owned by single-owners over the period of year 2000 to 2013, the study indicated that not taking into consideration the observable characteristics of malls such as location and asset enhancement initiatives (AEI), “rents in REIT owned malls are not statistically different from rents in single-owner malls.”

Aside from mall ownership, the study also used key dataset comprising anonymised retail rental transaction data from the Inland Revenue Authority of Singapore (IRAS) or information on the monthly rent, rental commencement date and physical characteristic – including total floor area, type of retail outlet and floor level – of individual retail units, as well as the postal code of the mall in which the unit is located.

“A casual observation of rental trends indicates that REIT-owned malls generally have higher rents than single-owner malls,” it said. “Such casual observations of rental data could have led to the perception that REITs are driving up retail rents.”

“Yet, the observed differences in the rental levels and growth rates of REIT-owned malls and single-owner malls may have been due to systematic differences in the characteristics of the malls, rather than because of the nature of mall ownership,” the MTI report added.

According to the study, these systematic differences include how the two types of mall owners make choices in physical characteristics such as location, and non-physical characteristics like mall profitability, among others.

The study also noted that “among the malls which were acquired by REITs, there is no evidence to suggest that rents increased as a result of the REIT acquisition. In particular, after acquisition, the rents in REIT-owned malls were not statistically different from the rents in malls yet to be acquired by a REIT.” It also added that a future analysis on whether the acquisition of malls by REITS improve the performance of retailers resulting to higher rents.

 

Source: YAHOO!

UOL bulk leases: a good or bad strategy?

A RECENT long-lease agreement between UOL Group and the Central Provident Fund (CPF) Board has raised an interesting question: Is it better, from a shareholder point of view, for an office landlord to lease out a large chunk of office space on a long lease to one single tenant or to have the space divided and leased to a number of smaller tenants on shorter leases and thus achieving higher per-square-foot (psf) rents?

The lease agreement between UOL Group and the CPF Board involves the renting of nearly 210,000 sq ft that will be vacated at Novena Square’s two office towers by Procter & Gamble (P&G) when its leases expire in two tranches: in mid-2015 and 2016.

At first glance, having smaller tenants is the better option, as it appears to maximise revenues. But on closer examination, this is not necessarily the case.

The CPF Board will start renting the space at Novena Square from the fourth quarter of next year. The initial lease term is understood to be 10 years with options for renewal. Talk in the market is that rental rates are likely to be staggered, but the average monthly rent over the duration of the lease term is believed to be in the low $7 psf range.

This is the second major bulk office leasing deal UOL has announced in the past three years. In October 2011, its hotel arm Pan Pacific Hotels Group revealed it had inked a 30-year-lease agreement with the Attorney General’s Chambers (AGC) for the whole of One Upper Pickering, a 15-storey office block with 87,067 sq ft net lettable area (NLA). That building was completed in late 2012 and the AGC began operating from the new premises in March 2013.

Lump-sum payment

Instead of paying a monthly rental, the AGC paid an upfront lease premium of $127.2 million in one lump sum. Based on a straight-line calculation, that sum translates to a monthly rent of just over $4 psf. When service charge is included, net present value calculations reflect an average gross effective monthly rental of about $7 psf – below the $9-$10 psf that comparable buildings in the vicinity are said to be commanding. Likewise at Novena Square, rents are said to be around $8-$8.50 psf a month. Both figures apply to smaller areas of under 5,000 sq ft.

So it is that UOL’s bulk leasing deals at One Upper Pickering and Novena Square Towers beg the question whether the property group could have fetched higher rental income by sourcing for a string of smaller tenants – instead of jumping into a deal with a large tenant, and that too ahead of the space being available. Moreover, the timing of the deal with the CPF Board is interesting given that UOL, in its recent first-quarter results statement, said: “Rentals of office space are expected to move upwards amidst rising market confidence.” So why the rush if the Singapore office market has seen improved conditions since the second half of last year?

Confidence in the sector is being boosted by reports of improved demand from occupiers in sectors such as oil and gas, pharmaceutical, social media, information technology and insurance. Moreover, CBD (central business district) office supply is expected to be tight in the short term, with no major completions expected next year. Given this positive short-term outlook for the Singapore office market, landlords are able to push for higher rents. However, supply is expected to pick up again starting from 2016 – with major completions such as Guoco Tower in Tanjong Pagar, 5 Shenton Way, Marina One, Duo in Ophir Road and Frasers Centrepoint’s project in Telok Ayer Street. While there are new office demand drivers, there hasn’t been much visibility on new demand from banks, the major occupiers of CBD offices.

UOL may have had this in mind in deciding to lock in the CPF Board as an anchor tenant at Novena Square for the space to be vacated by P&G. Clinching the CPF Board at Novena Square is no small feat either. While Novena Square is a good class development, it is 14 years old and in recent times, large occupiers typically have preferred to move into new developments.

Strong plus point

Moreover, the strong tenant covenant that comes from blue-chip government occupiers such as the CPF Board and AGC is a strong plus point as far as security and stability of leases go. There are other plus points in UOL’s strategy. In the case of Novena Square, the near dovetailing of the expiry of the first tranche of P&G’s lease with the start of the CPF Board’s lease allows UOL to minimise vacancy. And by leasing a chunk of space to a single tenant, it extracts higher NLA – compared with carving out smaller rental units, which entails setting aside more corridor space and other common areas. In other words, while UOL may have been able to achieve higher $ psf rents from renting the space to many small occupiers, the overall rental collection may not be higher.

Moreover, having a large number of small tenants on short leases typically of three years means that there’re likely to be more changes of tenants, implying higher incidence of void space and vacancies. And commissions/marketing costs will likewise go up for a landlord that has to find replacement tenants more frequently – compared with taking a blue-chip tenant on a longer lease.

In the case of a deal like One Upper Pickering, the substantial sum of $127.2 million from the upfront 30-year-lease sale would come in handy to a landlord: to repay borrowings or even fund the development itself, for instance.

Some industry watchers expect more government agencies to seek long-term leases for large office space as they decentralise. They can negotiate for lower rents, and by locking in a lease for a longer period, are assured of continuity of operating from the same location.

Given the plus points for landlords, such leases may not be a bad idea.

 

Source: STPROPERTY

Over 80% of Kallang Wave’s space taken

[SINGAPORE] Kallang Wave, the new retail mall in the Singapore Sports Hub, named its anchor dining, retail and lifestyle tenants yesterday. Besides hypermarket FairPrice Xtra, food court chain Foodfare and climbing-wall operator Climb Central, Kallang Wave’s confirmed tenants include Uniqlo, H&M, Forever 21 and Harvey Norman.

More than 80 per cent of the 41,000-sq-m mall, whose official opening is planned for July, is occupied, said Kallang Wave’s manager, SMRT Alpha.

“We are appealing to a broad spectrum of Singaporeans, from seniors, lifestylers, sports enthusiasts families (to) youths,” said SMRT Alpha director Dawn Low. “The tenant mix has been engineered and curated to address basically a broad spectrum of needs.”

That said, the mall is decidedly sports-themed. With their 1,000 sq m of climbing surface, the climbing towers in the mall’s atrium will be the largest air-conditioned climbing wall – and the tallest indoor one – in Singapore, said operator Climb Central.

Even familiar tenants have been given a sporting update. FairPrice Xtra will offer not just groceries, electronics or casual wear, but bicycles, sporting equipment and sportswear. Foodfare plans to be as accommodating to sports enthusiasts, offering a bicycle parking corner and an emphasis on healthy food options.

Some tenants will also be launching new business lines with Kallang Wave’s soft opening starting progressively in June.

SportsLink, for example, will open its first running-centric concept store, Runnur, in the mall. Likewise, Power Up Express’s retail unit in the mall will also offer podiatric consultation, sports taping and sports massage services, a combination that the firm says will be a first for Singapore.

“We are creating a diverse, inspiring and inclusive experience that encourages people to make sports part of their daily lives,” said Sports Hub chief operating officer Oon Jin Teik. “With its innovative layout and tenant selection, we are confident the Kallang Wave will attract a strong interest even among the less active to participate in sports.”

SMRT Alpha, a joint venture between SMRT Investments and NTUC FairPrice subsidiary Alphaplus Investments, also announced that Citibank and OCBC Bank will be Kallang Wave’s bank partners.

Both banks are planning year-long sponsorship deals, during which Citibank SMRT Platinum Visa cardmembers will enjoy shopping and dining deals at the mall. By spending money at Kallang Wave, Citibank SMRT cardmembers can redeem vouchers to offset SMRT taxi fares or free bus and train rides there.

Meanwhile, OCBC cardholders will enjoy year-round parking privileges at the mall, as well as benefits at the Women’s Tennis Association Championships that will be held at the Sports Hub in October when they shop at Kallang Wave.

Citibank will provide ATM facilities in the mall, while OCBC will have a branch there open six days a week.

 

Source: STPROPERTY

Property auctions market sees positive start to the year

More property owners are turning to the auction market as an alternative mode to increase their chances of selling off their properties amid a slowdown in resale activity, revealed a Knight Frank report.

In Q1 2014, the number of properties put up for auction increased by 13.4 percent on a quarterly basis and 21 percent year-on-year.

The residential sector formed the bulk of properties put up for auction, reporting a 51.2 percent share. This was followed by shops and shophouses which accounted for 21.3 percent, while industrial properties made up 18.9 percent. Offices and HDB shops took the remaining 3.9 percent and 4.7 percent share respectively.

Of the 65 residential properties put up for auction in Q1 2014, approximately 79 percent were non-landed properties whilst the remaining 21 percent comprised a variety of detached, semi-detached and terrace houses. Three residential properties were sold last quarter, a rebound from just one in the third quarter of last year, while no residential properties were sold via auction in Q4 2013.

In terms of transaction values, total auction sales value jumped more than four folds from $3.9 million in Q4 2013 to $17.9 million in Q1 2014. The residential sector, although behind the office market, made up 42 percent or about $7.5 million in sales value.

Going forward, with the property market still reeling from the TDSR framework and the property cooling measures, sales volume of properties in the open market is expected to remain low this quarter.

“Some buyers and sellers increasingly perceive auctions as an attractive channel to transact properties within their price expectations. This will likely lead to more properties being put up for auction, especially with the current property cooling measures in place,” said Knight Frank.

 

Source: PROPERTYGURU

Industrial properties getting fancier

WITH their tennis courts, swimming pools and barbecue pits, the new wave of industrial developments opening their doors in 2015 and 2017 almost resemble residential properties in terms of the facilities they offer.

One example is Tagore Lane’s Business 1-zoned Tag.A. Instead of projecting the utilitarian image associated with industrial properties, Tag.A has a glossy facade and houses a rooftop pavilion, swimming pool, basketball court, gym and barbecue pits, among various facilities.

New strata-titled industrial developments touting amenities such as those offered by Tag.A have been selling well and target ambitious young businesses, noted Oxley Holdings chief executive officer Ching Chiat Kwong.

Oxley is behind four such properties, three of which have sold all their units, said Mr Ching. He added that 65 per cent of units have been sold at Oxley’s most recently launched development with similar features, Eco-Tech @ Sunview, which comes equipped with a basketball court.

“Developers (want) to differentiate their products with these facilities,” said CBRE head of research Desmond Sim. “It’s the ‘Milo dinosaur’ effect. If you don’t put a heap of Milo powder on it, it’s ‘iced Milo’ – you can sell it for only half the price. (If) you can term it something special, then people will choose the product and pay more.”

The people choosing these products are a younger generation looking for alternatives to the “cold, clean kind of look” typical of industrial properties, he added.

Colliers International executive director Tan Boon-Leong agrees: “Nowadays . . . buyers are more sophisticated. Gone are the days when you’re selling a factory with smoke coming out of the chimney.

“You’re going to hire the degree holders. (With these facilities) your value-added quantum is higher. So the professionals are the ones you’re trying to attract,” he added.

In an increasingly competitive talent market, these facilities contribute “to companies being able to secure and retain the best talent”, said Cushman and Wakefield managing director Toby Dodd.

Another practical consideration is the boost in sales these facilities could offer upper floors. These are typically the hardest floors to sell in an industrial property, said Mr Tan, but a view overlooking a swimming pool could change that.

“It will add value to the upper floors. (Otherwise) who would want to ramp up all the way to the 10th storey?”

Sales are not the only side to these properties’ value coin; the developments should also command higher rentals because of the increased maintenance fee burden that the recreational facilities place on owners.

However, once these projects are granted their Temporary Occupation Permit, they do not seem to command a premium rental compared to traditional offerings, said OrangeTee head of research and consultancy Christine Li.

One example cited by SLP Research is UB.One, a basic industrial project whose $2.88 per square foot per month average asking rent tops that of the two recreation-ready projects located nearby: Oxley Bizhub and Oxley Bizhub 2. The three projects were completed within two years of each other, said SLP.

There are several possible reasons why these facilities may not be as well received. “Some SME bosses are concerned that their workers might get distracted by these facilities and hence become less productive at work,” Ms Li said.

Mr Tan wonders how many employees would be comfortable swimming in a pool where their colleagues and bosses can see them from their cubicles. A possible explanation for the way sales have outperformed rentals is that these developments appeal to some investors, said SLP research head Nicholas Mak.

“While the lifestyle facilities may appear appealing . . . the most important factors to end-users are the accessibility, the usability (in terms of suitable specifications) and the business synergy with other companies in the vicinity,” said Mr Mak, adding that this explains why these projects tend to attract more investors than end-users.

Investors who are used to buying residential property but are new to the industrial market are the ones attracted to these properties, he said.

He believes that after the government implemented property- cooling measures such as the additional buyer’s stamp duty (ABSD) and the total debt servicing ratio (TDSR), these investors may have moved to the industrial market, drawn to industrial properties with familiar, premium residential features.

Recreational facilities remain deal sweeteners, said CBRE’s Mr Sim. “Learned investors will still look at the basics . . . price, location and the potential of the product being launched.”

 

Source: BTINVEST

Growing demand for office space results in better-than-expected rental growth

Continuing from the healthy leasing activity in the second half of 2013, the office market recorded another quarter of strong take-up in Q1 2014. Occupancy rates continued to climb in the CBD, supporting further increases in rents. This rental growth momentum is expected to continue until 2015 in view of the limited supply, according to DTZ.

Net absorption for Q1 2014 was about 572,000 sq ft, indicating consistent quarter-on-quarter (q-o-q) improvement in take-up since Q2 2013. Demand in Q1 stemmed mainly from occupiers expanding within existing buildings or taking larger space within new premises. Google, for example, took additional space in Asia Square Tower 1 while Shell leased a larger amount of space when they relocated to Metropolis.

While demand from the non-financial sectors continued to hold up, sentiment in the banking and finance sector is fairly mixed. According to the Hudson Report on Employment Trends Q1 2014, the banking and financial services sector in Singapore has seen an increase in hiring intentions across three consecutive quarters, up 7.4 percentage-points to 50% in Q1, which should translate to an increase in demand for office space. However, this has not been seen across the board as many banks still remained cautious and instead sought to optimise resources and reduce costs.

Shadow space was estimated to be around 270,000 sq ft in Q1, with the largest proportion in the decentralised areas due to the Ministry of National Development (MND) putting up several floors in Jem for sublease. While the amount of shadow space is the highest since Q2 2012, it is expected to be quickly absorbed as there has been significant interest for the available space. For example, General Motors is reported to have selected OUE Bayfront for the relocation of its international headquarters from Shanghai and could possibly absorb the shadow space put up by Bank of America Merrill Lynch within the building. At Marina Bay Financial Centre Tower 2, Barclay’s surplus space which has been on the market for almost a year is also expected to be taken up very soon. Likewise, several firms have indicated keen interest in sub-leasing MND’s space at Jem.

Cheng Siow Ying, Executive Director of Business Space commented: “The first quarter of 2014 was characterised by waves of location shuffling, as movements into recently completed buildings like The Metropolis, Nexus @ one-north and Asia Square Tower 2 took place. At the same time, landlords of buildings with vacated spaces have been proactively securing new tenants. For instance, most of the floors vacated by Shell at UE Square had already been signed up with new tenants before Shell relocated to The Metropolis, while Pontiac Land has backfilled some of Allianz’s former space in Centennial Tower after the group relocated to Asia Square Tower 2 late last year. Occupancy rates have therefore remained high in the different sub-zones, sustaining a landlord-favourable market.”

In Q1, the islandwide occupancy rate increased by 0.4 percentage-points q-o-q to 95.1%. In Raffles Place and Shenton Way/Robinson Road/Cecil Street where occupancy rates are higher respectively at 96.1% and 97.9%, average gross rents increased by 4.2% and 3.9% respectively q-o-q to S$9.95 and S$8.00 per sq ft per month. On a year-on-year (y-o-y) basis, rents in these areas have increased by an average of 8.8%.

In Marina Bay, which holds only premium grade buildings, average gross rents have increased by a slightly higher 4.5% q-o-q or 9.5% y-o-y to $11.50 per sq ft per month. Within the newer developments such as Asia Square Tower 2, there have been several outlier deals on smaller-sized units where rents have hit the mid-teens.

In the near-term, the only major new completion within the CBD is CapitaGreen (700,000 sq ft) in Q4 2014. Almost half of the new office supply between Q2 2014 and 2015 will be in decentralised areas, with completions of major developments such as Paya Lebar Square (431,000 sq ft), Westgate Tower (305,000 sq ft), Futuris/Synthesis/Kinesis (93,000 sq ft) and Galaxis (41,000 sq ft).

Rents in the CBD are expected to grow at a healthy rate of between 10 to 15% in 2014. This is higher than DTZ Research’s previous forecast, as robust demand amid an environment of high occupancy rates will reinforce landlords’ bargaining power. Based on historical trends, office rents can rise quite quickly as the market is extremely reactive to demand and supply pressures.

Lee Lay Keng, DTZ’s Regional Head (SEA), Research, commented “Strong rental growth however may not be sustainable for long due to supply-side pressures in 2016. The three heavyweight developments, Guoco Tower by GuocoLand, and the two M+S sites MarinaOne and DUO are all scheduled to be completed in 2016 and will collectively yield around 3.3 million sq ft of premium grade office space. Together with other smaller developments, the estimated amount of new office supply in 2016 will set a record high of close to 4 million sq ft. While MarinaOne and Guoco Tower are likely to compete for the same tenants, there will also be increased competition for tenants from strata-titled developments such as Eon Shenton and Oxley Tower. This is likely to exert downward pressure on office rents until the market can effectively absorb the large supply.”

 

Source: DTZ

Asia Pacific Q213 office market overview

Economic Overview

Various factors impacted the Asian economies during 2Q 2013, such as further confirmation of slower than expected growth in China and increasing worries on the next interest hike in Asia as the US Federal Reserve signaled they may start scaling back its quantitative easing policy later this year. Against a backdrop of weakening economic conditions across the region, individual Asian countries have seen a drop in inflation and are still subject to various challenges ahead such as the potential risk of liquidity outflow from Asia. With the economic performance yet to show any sign of acceleration, the region is entering an era of slower growth.

 

Leasing Market

Office rents in most key cities in Asia Pacific saw no significant growth in 2Q 2013. Although Jakarta and Manila continued to be the key performers, with strong rental growth in the order of 4-6% quarter-on-quarter (QoQ), there was a significant slowdown in terms of space absorption during 2Q 2013 despite low vacancy rates. Perth saw average rents decrease the most among cities in the region, in the order of 5% QoQ, as demand softened due to the adoption of more conservative business attitudes in the current global environment.

 

Sales Market

Due to various property curbs in the investment market, more investment capital originating from Hong Kong and Singapore turned to offshore markets such as China and especially Japan, where inbound purchases doubled in the past six months. In Beijing and Shanghai the en bloc sales market witnessed a rebound in transaction activity in 2Q 2013, demonstrated by a number of significant deals done by both domestic and foreign institutions. However, in Hong Kong investment demand was dampened by government cooling measures with speculators exiting the market. Meanwhile, in Australasia, investment demand from institutional buyers chasing scarce prime assets remained strong, resulting in a slight tightening of yields.

 

Market Outlook

The economic environment in Asia is expected to remain uncertain as the region continues to be reactive to the overall global economic conditions. Individual governments are expected to focus on economic issues and introduce additional stimulus measures to help their countries emerge from prolonged bouts of deflation. Nevertheless, based on the findings of Colliers Asia Office Leasing Survey for 2Q 2013, it is anticipated that rents will increase in the next 12 months but the pace of rental growth will taper off. Investment transaction volume is likely to consolidate further in the second half of 2013, as risk-averse investors continue to be cautious, due to concerns that rising interest rates will lead to higher property yields and reduced property values.

 

Source: BTINVEST

S’pore 2nd-most expensive Asia city for expatriates

[SINGAPORE] The Republic has moved up two spots to become the fifth-most expensive city in the world for expatriates, and the second-most pricey location in Asia.

The city-state’s high cost of living is due to its strong currency and expensive rental market, according to findings from Mercer’s 2013 Cost of Living Survey.

Using New York as the base city, the research ranks 214 cities around the world based on the comparative cost of over 200 items – including housing, transportation, food, clothing, and entertainment.

Mercer has only shared the rankings for the 10 costliest cities.

Because the cost of expatriate housing is typically the biggest expense for employers, Mercer said it “plays an important part” in determining the rankings, accounting for almost a quarter of the overall cost of living basket.

“To maintain the cost- competitiveness, the government of Singapore has been proactively making efforts to increase the supply to ease price inflation in the housing market,” Phil Stanley, Mercer Asia Pacific global mobility leader, told BT.

While Mercer said these measures “have been effective as evidenced by stable rental rates”, Singapore’s pricey rental market nonetheless contributed to the city-state’s high ranking.

Renting a three-bedroom unfurnished house in Singapore – one that meets the standards of expatriates – costs US$7,266.91 per month, while a two-bedroom unfurnished apartment costs US$3,794.94 per month.

Despite Singapore’s high cost of living for expatriates, Mr Stanley told BT that the country “continues to attract expatriate talent for the quality of life the city-state offers”.

Tokyo slipped two places and is now the third- most expensive city in the world for expatriates, but remains the costliest city in Asia. Hong Kong ranks as the sixth-most expensive city internationally, one place below Singapore.

Luanda in Angola now stands as the priciest city worldwide, due to the high cost of imported goods, and the challenge in finding secure housing there.

“Given the increasing numbers of business travellers, global commuters, and longer-term expatriates, companies are keeping a close eye on the cost of living for international assignees in different cities around the world,” said Barb Marder, senior partner and Mercer’s global mobility practice Leader.

“Organisations need to evaluate the impact of currency fluctuations, inflation, and political instability when sending employees on overseas assignments, while ensuring they can facilitate the moves they need to drive the business results by offering fair and competitive compensation packages.”

Source: STPROPERTY

CapitaLand posts strong first-half income

Property giant CapitaLand reported a 10.1 percent year-on-year gain in its Profit After Tax and Minority Interests (PATMI) to S$571.3 million in 1H2013, supported by higher operating profits.

The first-half PATMI could have increased 15.4 percent to S$599 million, if the one-time losses of S$27.7 million incurred during its repurchase of convertible bonds in June were excluded.

Meanwhile, the company’s Q2 PATMI dipped 0.7 percent to S$383.1 million due to lower portfolio gains. Excluding this, Q2 PATMI would have moved up 8.6 percent to S$322.1 million.

CapitaLand’s overall group revenue was up 22.7 percent to S$1,844.6 million, whereby 63.5 percent came from the core markets of Singapore and China. Operating PATMI in 1H2013 was also up 43.1 percent year-on-year to S$241.3 million.

Home sales in Singapore reached 683 units valued at S$1.6 billion, while in China a total of 1,691 homes were sold at a sales value of around S$640 million.

“We delivered a healthy set of results for the first half of 2013 amidst a challenging global economic environment. With a healthy balance sheet and a strong cash position, the Group is well-positioned to seek out growth opportunities,” said Ng Kee Choe, Chairman of CapitaLand.

Going forward, CapitaLand is looking to expand its business further, focusing on the core markets of Singapore and China, said Lim Ming Yan, President and Group CEO of CapitaLand.

Source: PROPERTYGURU

Review: Many restrictions for foreign property buyers across Asia Pacific

singapore flag
While Japan, South Korea and New Zealand have zero restrictions against foreign ownership of residential property, other countries across Asia Pacific have a full spectrum of restrictions for both resident and non-resident foreigners.

Here is a regional snapshot.

Thailand

  • Foreign buyers can buy freehold for up to 49% of a single development, if exceeded, the tenure will be leasehold.
  • Foreigners can buy land as a leasehold, whereas the improvements (residence) can be freehold.

Cambodia

  • Foreigners are allowed to own apartments and condominium units above the ground floor.
  • Land can be held by foreigners on long (renewable) leases.

India

  • A foreign national of non-Indian origin, resident outside India cannot purchase any immovable property in India unless such property is acquired by way of inheritance from a person who was a resident in India.

Vietnam

  • Non-resident purchasers who do not meet other criteria set out in Decree 51 are unable to purchase apartments or condominiums.
  • Foreigners are not allowed to own land (red book).
Hong Kong
  • Foreigners can buy property without restriction but must pay a 15% additional buyer’s stamp duty.

Malaysia

  • No restrictions but subject to a general pricing threshold of RM500,000 and above per unit.

Singapore

  • Foreigners can buy private condominiums freely although they are subject to 15% additional buyer’s stamp duty.
  • Sentosa Cove is the only place in Singapore where non-PR foreigners may buy a landed home.

Indonesia

  • A foreign national who is not resident or considered to benefit national development is unable to buy residential property in Indonesia.

China

  • Non-resident foreigners are not permitted to buy property in mainland China.

Australia

  • Foreigners can purchase dwellings that add to the housing stock. This includes ‘new dwellings’: off-the-plan properties under construction or yet to be built, or vacant land for development. Foreigners cannot buy established dwellings as investment properties or as homes.

Japan, South Korea and New Zealand

  • No restrictions.

 

Source: BTINVEST

S’pore banks raise fixed-rate loans

In an effort to hedge against rising mortgage rates in the US, Singaporeans are expected to switch to fixed-rate loans. However, some local banks have already raised the interest rates on their products.

For instance, Maybank increased the interest rate of its three-year fixed loan by 0.1 percentage point on Monday, while ANZ raised its two-year fixed mortgage by 0.17 percentage point.

On the other hand, some lenders have put an end to fixed-rate packages. Standard Chartered stopped offering fixed-rates, while Citi discontinued this product last month.

Moreover, ANZ’s two-year fixed loan rose from 1.48 percent to 1.65 percent, while Maybank’s interest rates now start at 1.25 percent for the first year and average out to about 1.4 percent in the next three years.

Despite the increase, the rates are still relatively easy on the pocket, as a rise from 1.15 to 1.25 percent works out to an additional monthly payment of around S$50 for a S$1 million 30-year mortgage.

However, some fixed rates are 0.1 to 0.2 percentage points higher than the floating rates, so “do not assume refinancing in the future will have lower spreads”, noted FindaHomeLoan.sg Founder Sean Lim.

 

Source: PROPERTYGURU

Why property is still investors’ pick

Singaporeans are often said to have a love affair with property. But the issue may be wider than that. The search for yield and a fear of the alternatives is what drives many to keep faith with property.

THE regulator’s recent move on bank lending is not meant to be another property market cooling measure but it will certainly have a bearing on anyone contemplating a real estate investment.

It’s not that buyers haven’t already been softened up somewhat, given there have been seven rounds of cooling measures since 2009 in a bid to slow rising home prices.

The Urban Redevelopment Authority (URA) index for private properties is up about 60 per cent from 2009.

But even as prices remain at an all-time high and even as buyers appear to take every new cooling measure in their stride, there is little doubt that the market has started to cool its heels.

Data shows that flash estimates of prices for the second quarter increased just 0.8 per cent. For the first quarter, they inched up 0.6 per cent.

Measures to date

THE first round of measures in 2009 included scrapping an interest absorption scheme which allowed buyers to avoid interest for a certain period. The confirmed list of government land sites for sale was reinstated.

In February 2010, a seller’s stamp duty was imposed on residential property and land bought and sold within a year.

Loan-to-valuation (LTV) limits – the proportion of a home’s value that a buyer can borrow – were tightened. They were reduced to 80 per cent, meaning a 20 per cent downpayment was required.

In August 2010, the holding period for the seller’s stamp duty was increased to three years.

The LTV limit was cut to 70 per cent for those with other home loans, meaning a downpayment of 30 per cent would now be required.

In January 2011, the seller’s stamp duty was extended to homes sold within four years of acquisition and the rates were increased.

The benefit of these moves was to help remove the speculative froth from the market. People had been turning up at new launches and then flipping properties within a few months for a quick buck.

In December of that year, the additional buyer’s stamp duty (ABSD) was introduced. Foreigners now had to pay a 10 per cent duty on their first purchase while Singapore citizens were hit once they bought a third and subsequent properties.

These measures were aimed at curbing foreigner demand, one of the factors seen as responsible for surging prices.

The measures changed tack last year and focused less on speculation. This time there was more of a focus on curbing investor demand while tackling more comprehensively the risk of borrowers taking on too much debt.

First-time buyers remained untouched.

Last September’s measures included capping new home loan tenures at 35 years.

The seventh set of cooling measures unveiled in January this year included raising the ABSD by between 5 and 7 percentage points. The proportion of a home’s value that a buyer can borrow was slashed to as low as 20 per cent for certain buyers, while minimum cash down payments for those with at least one housing loan were raised.

Chief operating officer at DTZ Southeast Asia Ong Choon Fah noted that the measures “have resulted in a sharp decline in foreign demand from about 20 per cent in the last quarter of 2011 to the current 7 per cent.”

Total debt servicing ratio

WHILE not regarded as a cooling measure as such, the latest policy move – called total debt servicing ratio – took effect on June 29 and imposes a new lending framework on banks.

A person’s total monthly debt repayments cannot now exceed 60 per cent of his gross monthly income so anyone applying for a new mortgage will have to consider how their entire debt load stacks up. That means any car or personal loan will now be factored into the debt equation as well.

These measures are timely as the cheap flow of money stemming from the United States Federal Reserve that has depressed interest rates here and elsewhere looks like it is going to be eased.

It is also clear that there is a group of borrowers in Singapore who are potentially at risk from rising interest rates. First-quarter numbers from the Credit Bureau show that about 12 per cent of borrowers held multiple loans.

Deputy Prime Minister Tharman Shanmugaratnam noted over the weekend that with interest rates set to rise, between 5 and 10 per cent of borrowers may be over-leveraged.

Unintended consequences

EVERY policy has side effects. One of them here is that banks may end up having their hands tied too much.

Take the 30 per cent discount that has to be imposed on the variable element of a borrower’s pay. While that is a prudent move, banks need to appreciate that in the ever-changing workplace, there are fewer jobs where a fixed pay is the norm.

In efforts to be more responsive to changes in market conditions, more jobs may offer pay with a higher variable element. Banks should be given some leeway to ensure that while prudence remains the priority, they are also sensitive to the growing number of people whose pay fluctuates from month to month and indeed year to year.

Rethinking property investing

THE question is often asked if all these measures will sound the death-knell for the Singaporean’s undying love affair with property, one that is shared by those in Malaysia, Hong Kong and China.

Yet the issue may be wider than that. To encourage people to invest in other asset classes may require a review of the alternatives out there.

What drives many investors is the search for yield in a market where it is increasingly difficult to find good returns.

But many are loath to view stocks as the new Prince Charming in waiting. One reason could be investors’ painful experience of the global financial crisis.

Another could be how the Central Provident Fund (CPF) rules skew investors towards property.

If I have $5,000 in my account that is allowed to be invested in equities or unit trusts, I can buy only $5,000 worth of SingTel shares. However, I can start paying for a $1 million residential property in Singapore with regular monthly CPF payments.

And while investing in blue chips on the Straits Times Index should be a safe bet from a corporate governance point of view, investors have to be conscious of market risk as these big boys expand overseas.

What it means is that putting $100,000 in CapitaLand requires an understanding of the risks the firm faces in the China market, for example, while buying DBS Group Holdings shares means understanding policy risks in Hong Kong and Indonesia.

Indeed, the daily gyrations of shares may engender a sense of insecurity and the challenge of deciphering financial statements makes stocks appear riskier and more complex.

While the price of some S-chips has plunged practically to zero, the perception is that property in Singapore will at least retain some of its value and offer a regular income stream.

That is why many investors feel comfortable buying a property here. Simply put, a property investor living in Pasir Ris and buying an investment property in the same area feels more comfortable with the risks and growth potential. He knows if new amenities are coming up nearby. He can see the condo taking shape. He knows there are laws to protect him should a developer go bust.

Meanwhile other suitors stand waiting in the wings.

Anecdotally, many investors have made a beeline for property in Iskandar, Kuala Lumpur, London and Australia.

DTZ’s Ms Ong notes that since January, there has been a sharp increase in demand for properties in Iskandar. Others have ventured into more speculative investments such as land in the United States, she adds.

A few hundred thousand dollars can get you a property in Thailand. Around $200,000 offers a chance to own a serviced apartment in Dubai.

The irony is that Singaporeans are starting to put their funds in markets overseas, which are harder to track and where the investor protection framework is sometimes less established.

There are risks to owning property such as not being able to rent out the place or not being able to meet loan repayments.

But for most people, a property still speaks to a fundamental need for a source of retirement income and a sense of security. A change in that mindset will require a review of our investing framework.

 

Source: STPROPERTY

Moody’s downgrades Singapore banking system to ‘negative’

The outlook for Singapore’s banking system has plunged from stable to negative due to the recent period of soaring loan growth, as well as rising property prices locally and in countries where Singapore banks operate.

According to Moody’s Investors Service, these factors increase the chance that credit quality would deteriorate under potential adverse conditions in future.

“The operating environment for Singapore’s banking system has been favourable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region,” said Moody’s Vice President and Senior Analyst Gene Fang.

“With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base.”

Fang was commenting on the recently released Moody’s report called Singapore Banking System Outlook, which details Moody’s forecasts on how bank creditworthiness will evolve in this system for the next 12 to 18 months.

Singapore banks have enhanced their non-performing loans (NPLs) in the past few years. However, asset quality may have peaked both in the city-state and in many regional markets in which these banks are active. A reversal in the credit cycle could likely lead to higher credit costs and a worsening of NPL ratios.

While it is difficult to accurately predict turning points in banking credit cycles, Moody’s believes the slowing of the US Federal Reserve’s bond-buying programme could be a potential trigger.

Nevertheless, Singapore banks continue to have robust financial metrics, which supports their high average ratings compared to other banking systems globally, both on standalone and supported bases.

Source: PROPERTYGURU

MAS clamps down on bank-developer tie-ups

The Monetary Authority of Singapore (MAS) has introduced a new rule which prohibits financial institutions (FIs) from tying up with property developers and agents to sell property, according to local media reports.

FIs were informed of this new rule the same day the latest property loan curbs were announced that will, among others, prevent banks from providing preferential interest rates to clients acquiring certain properties.

“MAS is of the view that, except for the granting of property loans, FIs should not be offering any property-related services to customers in general. FIs should therefore not engage in property advertisements or tie-ups with property developers/agents,” an MAS spokesman said.

“This is regardless of the location of the property (in Singapore or overseas) or the type of the property (residential, commercial or industrial). MAS will take into account an FI’s compliance on this issue, in its supervisory assessment of the FI,” he noted, adding that the central bank expects full compliance from FIs.

Tie-ups and property advertisements referred to in the new regulation include but are not limited to sending notifications (via phone text, mail or email) to customers on properties for sale or purchase or property launches; advertisement of properties for sale or property launches on mobile applications, websites and premises of FIs; organising special previews of property launches for customers; inviting customers to property launches; and arranging with property developers/agents to offer customers preferential rates for loans to acquire designated properties.

 

Source: PROPERTYGURU

New measures won’t be expanded to non-property loans

The 60 percent cap on the Total Debt Servicing Ratio (TDSR) will not be expanded to include non-property loans anytime soon, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam, who is also Chairman of the Monetary Authority of Singapore (MAS).

“We don’t intend to, any time soon, extend the TDSR to other types of loans, but it’s really for the banks to factor it into their own internal assessments,” said Mr Tharman on the sidelines of a community event in Jurong yesterday.

“Supervision is more useful when it comes to the broad range of loans, not just more and more rules.”

Implemented at the end of last month for all property loans, the new ruling takes into account the borrower’s total debt obligation including mortgages as well as car, student and personal loans.

The latest loan-to-ratio cap is expected to be a long term measure.

“There’s no hard data on this but our rough assessment is that five to ten percent (of borrowers) are at risk of having over-leveraged, bearing in mind that interest rates are going to rise, and you can’t say for sure what the economy will be like, what unemployment will be like, a few years down the road,” he added.

Source: YAHOO! NEWS

Work starts on Jurong Lake District hotel

THE company behind Resorts World Sentosa (RWS) has started building the first hotel in one of Singapore’s newly-emerging business and leisure hubs, Jurong Lake District.

Genting Singapore broke ground yesterday for the new hotel on Jurong Town Hall Road which is slated to open in the first half of 2015.

The Jurong Lake District has been earmarked by the Urban Redevelopment Authority as a new growth area with commercial, business and leisure facilities.

The 550-room hotel, five minutes away from the Jurong East MRT station, is on a 9,027 sq m site and has a 99-year lease.

Tan Sri Lim Kok Thay, chairman of the Genting Group and executive chairman of Genting Singapore, said the new hotel “signifies our commitment to reinvesting in Singapore”.

“With our hotel being the first to open in this growing precinct, we hope to create another unique hospitality product that will crank up the buzz meter in this already vibrant area to even higher levels,” he added.

Mr Tan Hee Teck, president and chief operating officer of Genting Singapore, said: “We will deliver a product that will bring incremental business to neighbouring merchants, accommodation convenience to companies in the vicinity, and amenities to Jurong West residents.”

The new hotel will be the seventh hospitality development for Genting Singapore, which owns six hotel properties at RWS – Crockfords Tower, Hotel Michael, Festive Hotel, Hard Rock Hotel Singapore, Equarius Hotel and the Beach Villas.

 

Source: STPROPERTY

Stable year for industrial rents: Colliers

INDUSTRIAL rents are expected to stabilise for the rest of the year amid a fragile economic outlook and ample supply for tenants, Colliers International said.

The property consultancy yesterday reported that rents were flat across all segments in the second quarter over the previous quarter. Colliers divides industrial property into prime conventional factory and warehouse space, high-specifications space and business park space.

Average gross rents for prime conventional factory space in Q2 was $2.49 per square foot (psf) for ground floors and $2.18 psf for upper levels. For warehouse premises, rents were at $2.62 psf for ground floor space and $2.15 psf for upper floor space.

Rents for high-specifications space was $3.30 psf for ground floors and $2.98 psf for upper floors.

Business park space also held steady at $4.04 psf.

“The stability in the rental movement across all segments in Q2 2013 was a reflection of landlords generally holding onto their rental expectations and a relatively tepid leasing demand,” said Tan Boon Leong, executive director of industrial services at Colliers International.

He specifically thinks that rents for prime conventional factory and warehouse space may have peaked.

The overall take-up rate was slow in the second quarter as tenants took more time to evaluate their real estate needs amid lingering economic uncertainties, Mr Tan said.

“Additionally, in some cases, the leasing process was also prolonged by more detailed checks conducted to qualify users and to ensure compliance with the government’s guidelines.”

Industrial properties generally can only devote up to 40 per cent of floor area for non-industrial use such as offices and canteens. At least two developers were rapped by the authorities for illicit usage earlier in the year.

With cost-conscious tenants, as well as sufficient supply of industrial real estate, any increase in rents will be limited for the rest of the year, said Chia Siew Chuin, director of research and advisory at Colliers International.

Ms Chia expects rents to remain unchanged for prime conventional industrial space, with some upside for high-specifications and business park space.

In the sales market, average prices rose in Q2 over the previous quarter.

Mr Tan said healthy demand from genuine end users and long-term investors for freehold industrial properties with good locations and specifications held up prices, even as speculative activity waned with the introduction of a Sellers’ Stamp Duty in January on all industrial properties sold within three years of purchase.

Average capital values for ground floor space at prime freehold conventional factory space gained 0.7 per cent to $718 psf; those for upper floor space rose 1.5 per cent to $658 psf.

For prime freehold conventional warehouse space, prices grew by 1.1 per cent to $656 psf for ground-floor premises and 0.9 per cent to $581 psf for upper-floor space.

Ms Chia expects prices to gain 3 per cent for the full year for these two property types, significantly lower than the 10 to 22 per cent growth last year.

 

Source: STPROPERTY

Another Cooling Measure?

MAS Introduces Debt Servicing Framework for Property Loans

Singapore, 28 June 2013 … The Monetary Authority of Singapore (MAS) will introduce a Total Debt Servicing Ratio (TDSR) framework for all property loans granted by financial institutions (FIs) to individuals1.  This will require FIs to take into consideration borrowers’ other outstanding debt obligations when granting property loans. They will help strengthen credit underwriting practices by FIs and encourage financial prudence among borrowers.

2   MAS will also refine rules related to the application of the existing Loan-to-Value (LTV) limits on housing loans.  These refinements seek to ensure the effectiveness of the LTV limits that were put in place to cool investment demand in the housing market.  In particular, they aim to prevent circumvention of the tighter LTV limits on second and subsequent housing loans.

Introduction of TDSR framework

3   MAS conducted a thematic inspection of banks’ residential property loan portfolios in 2012.  While banks generally had in place sound policies to assess the credit worthiness of borrowers, the inspection and subsequent surveys revealed uneven practices with respect to the application of debt servicing ratios and highlighted areas for improvement in credit underwriting practices.

4   The TDSR framework will provide FIs a robust basis for assessing the debt servicing ability of borrowers applying for property loans, taking into consideration their other outstanding debt obligations.  FIs will be required to compute the TDSR, or the percentage of total monthly debt obligations to gross monthly income, on a consistent basis.2

5   The coverage of the TDSR framework will be more comprehensive than FIs’ current practice.  The TDSR will apply to loans for the purchase of all types of property, loans secured on property,3 and the re-financing of all such loans.4   6   The methodology for computing the TDSR will be standardised.  FIs will be required to:

  • take into account the monthly repayment for the property loan that the borrower is applying for plus the monthly repayments on all other outstanding property and non-property debt obligations of the borrower;
  • apply a specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR;5
  • apply a haircut of at least 30% to all variable income (e.g. bonuses) and rental income; and
  • apply haircuts6 to and amortise the value of any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability, in order to convert them into ‘income streams’ in computing the TDSR.

7   FIs will be required to verify and obtain relevant documentation on a borrower’s debt obligations and income used in the computation of the TDSR.

8   MAS expects any property loan extended by the FI to not exceed a TDSR threshold of 60% and will regard any property loan in excess of a 60% TDSR to be imprudent.7 The threshold is set at 60% for a start to allow both the FIs and borrowers to familiarise themselves with the TDSR framework and its computation methodology.  MAS will monitor and review the 60% threshold over time, with a view to further encouraging financial prudence.

Refinement of rules related to application of LTV limits

9   MAS will refine certain rules related to the application of the existing LTV limits on housing loans granted by FIs.  In particular, MAS will require:

  • borrowers named on a property loan to be the mortgagors of the residential property for which the loan is taken;
  • “guarantors” who are standing guarantee for borrowers otherwise assessed by the FI at the point of application for the housing loan not to meet the TDSR threshold for a property loan to be brought in as co-borrowers; and
  • in the case of joint borrowers, that FIs use the income-weighted average age of borrowers8 when applying the rules on loan tenure.9

Measures for the long term

10   The new rules will take effect from 29 June 2013.

11   The TDSR framework and refinements to the rules relating to the application of LTV limits are structural in nature, and will be in place for the long term. They aim to encourage prudent borrowing by households and strengthen credit underwriting standards by FIs.

12   They do not involve changes to the LTV limits on housing loans themselves, which were last tightened in January 2013 as part of the government’s package of measures to promote stable and sustainable conditions in the housing market.10 The current LTV limits are not permanent, and will be reviewed depending on the state of the property market.

 

Source: MAS

 

Rental increases in CBD fringe, while rents in CBD bottom

Although net absorption in Q2 2013 was 55% quarter-on quarter (q-o-q) lower than Q1, at only 170,000 sq ft, islandwide office occupancy rates increased notably q-o-q by 0.9 percentage-points from 95.4% to 96.3% in Q2. The increase in occupancy rates were in part contributed by substantial office building terminations in Q2.

Occupancy improved the most across all areas in Shenton Way/Robinson Road/Cecil Street by 3.3 percentage-points q-o-q to 94.8% while in Raffles Place, occupancy increased by about 1.0 percentage-point to 94.3%. Average gross office rents in both Shenton Way/Robinson Road/Cecil St and Raffles Place held firm q-o-q at $7.25 per sq ft per month and $9.30 per sq ft per month, but fell year-on-year (y-o-y) by 4% and 2% respectively.

Occupancy rates for Q2 improved because of the fairly large office stock removals in the quarter. These buildings, located mainly in Shenton Way/Robinson Road/Cecil St, have a cumulative net lettable area (NLA) of approximately 430,000 sq ft which are no longer available for occupation. The entire Robinson Towers and its Annex Building, International Factors Building, The Corporate Office, Cecil House and some floors in DBS Tower 1 were vacated in Q2 in view of future redevelopment plans. Some of the displaced tenants from these older buildings due for redevelopment moved either into nearby buildings in the CBD or the CBD fringe, where rents can be about 10% to 20% lower. Rental increases were seen in some areas in the CBD fringe due to sustained demand from a diversified tenant profile, additional demand from displaced tenants and the recent lack of new supply. Average gross rents in Orchard Rd, Bras Basah/Selegie Road and River Valley edged up by 2.3%, 2.4% and 3.3% respectively in Q2. Elsewhere, in Marina Centre, Anson Rd/Tanjong Pagar and Beach Road/North Bridge Road, average gross rents held firm in Q2.

Cheng Siow Ying, DTZ’s Executive Director of Business Space commented, “Rents in decentralised offices have also held up well. Last quarter saw some movement of occupiers from industrial space to decentralised offices as the government authorities continue to reinforce eligibility criteria on users in hi-tech buildings. In addition, tenants from older buildings and those displaced from buildings due for redevelopment are propping up demand for decentralised office space as well, such as in the soon-to-be completed Metropolis. Although 1.5 million sq ft of decentralised office space will be completed in H2 2013, only 14% lower than islandwide supply last year, there will still be room for decentralised office rents to grow. Nexus@One-North, Jem and Metropolis have all secured strong pre-commitments before its completion date. Jem is currently fully committed, while Metropolis and Nexus@One North have a known pre-commitment rate of 89% and 83% respectively.”

Meanwhile, in Marina Bay, occupancy rates also increased by 1.6 percentage-points q-o-q to 95.2% in Q2 as average gross rents in Marina Bay held firm at $10.50 per sq ft per month. New occupiers continued to move into Asia Square Tower 1 and Marina Bay Financial Centre Tower 3. In Asia Square Tower 1, new leases over Q2 were signed from companies in the advertising, legal, energy and trading fields, bringing its total occupancy to above 90%. With occupancy rates in Marina Bay improving consistently since the start of 2012, some landlords are now less flexible with settling rents. This is an indication that rents in Marina Bay are firming and could start moving slightly upwards in H2 2013. A similar uptrend in rents is expected in Raffles Place and Shenton Way, supported by healthy occupancy rates and continued demand from non-financial sectors.

Lee Lay Keng, DTZ’s Head of Singapore Research, commented, “If economic growth improves as expected in H2, we expect CBD office rents to start rising in H2. This increase in rents however will be calibrated as demand for office space from banks and financial services firms, which tend to pay higher rents, will remain modest. Office demand will continue to be supported by the non-financial sectors such as the IT, energy and infocomm and professional sectors which have recorded more positive sentiment.”

Source: DTZ Singapore

Growth of industrial capital values continue to decelerate as rents hold firm

Despite increasing activity in the manufacturing sector, price growth of first and upper-storey conventional industrial space continued to decelerate q-o-q in Q2 2013 while rents held steady, according to DTZ, a UGL company.

The capital value growth of industrial properties is losing momentum with resale prices of first and upper-storey space rising marginally by 0.3% and 0.6% q-o-q respectively in Q2. This brought price growth of first and upper-storey space to 0.8% and 2.6% for H1 2013 respectively, slower than the 7.8% and 6.5% growth in H2 2012.

Transaction activity for strata-titled industrial units also continued to fall in Q2. Based on caveats from URA REALIS, only 266 resale strata factory units were transacted in Q2, 17% less than that recorded for Q1. As a whole, the total number of strata-titled factory transactions for H1 2013 was 53% lower than H2 2012 and also 46% lower than H1 2012.

Lee Lay Keng, DTZ’s Head of Singapore Research said, “Besides the dampening effect of the seller’s stamp duty (SSD) implemented in January, the fall in transaction volume was also due to a mismatch in expectations between buyers and sellers. Sellers are holding on to their asking prices while buyers are becoming increasingly cautious due to the SSD and the possibility of an increase in interest rates.”

Meanwhile, based on a basket of existing buildings tracked by DTZ Research, rents for industrial space held firm q-o-q. Average gross rents for first and upper-storey conventional industrial space were unchanged at $2.15 per sq ft per month and $1.75 per sq ft per month respectively. Similarly, hi-tech rents held steady q-o-q at $3.10 per sq ft per month after a 3.3% increase in Q1.

According to Angela Tan, DTZ’s Regional Head, Occupier Services, “In the business park segment, rents held steady at $4.70 per sq ft per month as this quarter saw continued interest from companies in the pharmaceutical, infocomm, media and technology sectors which favour the newer, better quality and more self-sufficient environment offered by business parks. Although the business park segment will see a surge in supply of about 2.5 million sq ft over the next two years, rents are still projected to increase alongside the expected economic recovery in H2 2013. Moreover, about 60% of this upcoming supply is owner-occupied or has been pre-leased, thus the impact of this new supply on business park rents will be somewhat limited.”

Between Q2 2013 and 2014, approximately 32 million sq ft NLA of industrial space will be completed. Of this amount, 32% will encompass warehouse space while another 24% will be single-user factory developments, both predominantly located in the western region of Singapore. On the other hand, the majority of multiple-user factory developments are more evenly spread across the island and constitute about 27% of the oncoming supply from Q2 2013 till 2014. Some of the major multiple-user factory developments anticipated to be completed in the next two years include North Spring Bizhub (2013), Premier@ Kaki Bukit (2014) and Synergy @ KB (2014). –

Source: DTZ Singapore

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