ERA Daily Research - 22 April

Landed property deals reap tidy profits in Q1 2021

The Business Times, 22 Apr 2021, Thu

By Nisha Ramchandani

TRANSACTIONS for landed properties dominated the top profit-making deals in the first quarter of this year, with their sellers handsomely rewarded as they walked away with huge profits.

Among the blockbuster deals was the sale of a freehold Good Class Bungalow (GCB) at Nassim Road, setting a record price of S$4,005 per square foot (psf) based on land area. The 32,160 sq ft site in District 10 was sold for S$128.8 million, more than four times the S$30.3 million (S$942 psf) it was purchased for in November 2006.

This is according to data from Edmund Tie Research, which studied caveats for private homes with a prior purchase history that were transacted in Q1 2021. These were then ranked as the top five profit- and loss-making deals, both by percentage and by quantum.

The data for Q1 2021 included both landed and non-landed deals as the landed housing market proved firm that quarter with a number of GCBs changing hands. Given the larger price tag of landed properties, all five transactions for the top five deals by quantum were landed sites.

Lam Chern Woon, senior director for research and consulting at Edmund Tie & Company, said: "Most of the more profitable transactions were for the sale of landed properties, attesting to the buoyant demand for this segment. On the other hand, non-landed properties did not fare as well in Q1 2021 and units were generally purchased during the 2007 property market peak or could have been sold due to unfavourable circumstances."

Edmund Tie also looked at the proportion of loss-making transactions for the overall private home market (landed and non-landed) in Q1 2021, which edged up from 15 per cent in December 2020 to 15.3 per cent in January 2021, before retreating to 14.4 per cent in February and 14 per cent in March.

For the quarter, the proportion of loss-making deals worked out to 14.6 per cent, notably lower from 16.8 per cent in 2020.

A similar trend emerged when narrowing in solely on non-landed deals, with the proportion of loss-making transactions picking up pace from 16.1 per cent in December to 16.5 per cent in January before falling to land at 15.2 per cent in March.

Mr Lam said: "As economic growth picks up for the non-travel sectors of the economy and as the labour market exhibits signs of stabilisation - particularly with the slew of job creation or conversion schemes in place - we are fairly sanguine that the state of distress in secondary property market could be in check for now."

Of the five most profitable transactions by percentage, all were freehold while four were located in the Core Central Region (CCR). The sellers held on to the properties for at least 15 years, which allowed them to reap capital gains ranging from nearly 400 per cent to 650 per cent.

The leading deal by percentage was the sale of a 1,481 sq ft shophouse on Everitt Road in District 15 in March for S$4.2 million (S$2,836 psf) - making it the only one of the five transactions that was located outside the CCR. The seller scooped it up in December 2004 for S$560,000 (S$378 psf) after the Sars outbreak, which works out to a profit of 650 per cent or S$3.64 million.

The most profitable transaction by quantum in Q1 2021 - and one which made the headlines - was the sale of the GCB at Nassim Road for S$128.8 million. The 32,160 sq ft site was purchased in March by Jin Xiao Qun, the wife of Nanofilm Technologies International founder Shi Xu. Both are Singapore citizens and the couple were made billionaires after Nanofilm was listed on the Singapore Exchange last October.

The property was sold by the controlling shareholder of Top Global, Oei Siu Hoa (also known as Sukmawati Widjaja) who bought the GCB for S$30.3 million (S$942 psf) in November 2006. The S$98.5 million gain translates to an annualised profit of 10.6 per cent, based on the holding period of nearly 14-and-a-half years.

Meanwhile, the leading loss-making transaction by percentage was a 3,165 sq ft unit at 99-year leasehold The Azure on Sentosa in District 4. It was sold for S$3.6 million (S$1,137 psf) in March, half the S$7.2 million (S$2,275 psf) the seller paid for it in October 2007. Held for over 13 years, this worked out to an annualised loss of five per cent per year.

The top five-loss making deals incurred losses ranging from 36 per cent to 50 per cent, while three of the transactions had losses surpassing S$3 million.

Mr Lam said: "Two of the transactions were purchased unfavourably from a timing point of view in 2007 at a property cycle peak, but the same could not be said for the remaining three properties, originally acquired at various points from 2010 to 2013. The latter three properties could possibly be offloaded in less than willing circumstances."

The data also showed that the biggest loss making transaction by quantum was a villa at Kasara on Sentosa. The villa on the 9,042 sq ft site was sold at about S$14.68 million (S$1,624 psf) in March, or for a loss of over S$5 million. It was purchased for S$20 million (S$2,212 psf) in November 2012, working out to an annualised loss of 3.7 per cent based on the holding period of a little over eight years.


Pot of gold at end of Singapore property rainbow? Not a sure thing anymore

The Business Times, 22 Apr 2021, Thu

By Kalpana Rashiwala

MANY here like to invest in No 1, physical properties (typically private homes) and No 2, real estate investment trusts (Reits). Either way, it reflects a predilection for property.

This strategy seems to have worked so far. But going ahead, would it be wise to park so much money in property?

Some observers caution that the attractive long-term capital appreciation in the past from owning Singapore private residential properties is unlikely to be repeated given the maturity of the market and cooling measures in place.

The outlook also appears uncertain for some categories of Reits. As Teh Hooi Ling, CEO of Inclusif Capital, which manages the Inclusif Value Fund, says: "The pandemic has hastened consumers' move to online shopping. It has also created a new norm for office workers to work from home some of the time. Only time will tell the impact of these trends on the demand for commercial and retail real estate."

It may be difficult for Singaporeans to let go of investing in real estate given the positive experience.

An analysis by OCBC Investment Research shows that prices of private homes and Reits have outperformed the general stock market here over five periods - ranging from one to 15 years and all of which ended on Dec 31, 2020.

Between Q4 2019 and Q4 2020, the Urban Redevelopment Authority's benchmark overall private home price index rose 2.2 per cent.

In contrast, declines were posted to the tune of 7.7 per cent for the FTSE ST All-Share Reits Index (FSTREI), 11.8 per cent for the Straits Times Index and 19.3 per cent for the FTSE ST All-Share Real Estate Investment and Services Index (FSTREH) over the one-year period to Dec 31, 2020.

Over a 15-year span, the URA's private home price index appreciated 85.8 per cent, exceeding the increases of 34.0 per cent in the FSTREH, 31.8 per cent in the FSTREI and 24.7 per cent in the STI.

Over two, five and 10-year periods, the FSTREI posted the highest capital appreciation, followed by the private home price index. (See table.)

Said Carmen Lee, head of OCBC Investment Research: "... for the medium term, from 2-10 years, the Singapore Reit sector clearly outperformed, partly supported by decent distribution as well as the good growth and acquisitions in the last decade as Reits widened their portfolio of assets."

She notes that residential properties are typically long-term holdings, due to the high capital outlay; liquidity is also not as high as for equities trading, and property cooling measures do not permit for a quick exit.

In comparison, investing in the shares of listed real estate companies or units in a Reit can be done with as little as S$100 and, because they are traded on the SGX, it's far easier to enter and exit the market.

"In addition, most stocks/Reits pay a decent amount of dividend per year," says Ms Lee.

"Based on our computations, the average long-term dividend yield (for a 10-year period ended Dec 31, 2020) for the STI 30 stocks works out to 3.6 per cent per year. On average, stocks within the FSTREH pay a slightly lower dividend yield of 2.6 per cent per year, while those in the FSTREI enjoy a higher distribution payout of 5.5 per cent."

Private residential properties typically offer lower rental yields.

According to JLL, the average net yield for its basket of typical prime apartments and condos for a 10-year period that ended in Q4 2020 is 2.3 per cent.

OCBC's Ms Lee says those investing in residential properties also need to look for tenants, maintain the property, pay for monthly maintenance fees as well as undertake sporadic repairs and renovations, among other things. "These additional expenses reduce the net annual returns from these assets."

"However, as seen from the data, for very long-term investors, residential properties do tend to perform and are a good hedge against inflation."

JLL Singapore's senior director of research and consultancy, Ong Teck Hui, notes that those who buy a physical property such as a private home can also leverage on debt for its purchase - which is especially advantageous when borrowing cost is low. "Therefore many investors favour including residential assets in their investment portfolio."

He attributes the resilience in private home prices last year despite the pandemic and recession, partly to the cumulative effect of the median household income in Singapore strengthening 45 per cent between 2010 and 2020 - outstripping the 12.8 per cent rise in the URA's price index over the same period.

Another factor was the decisive measures by the government that boosted public confidence - such as the Jobs Support Scheme and loan relief for homeowners. Moreover, bright spots in the economy such as healthcare, biomedical, e-commerce, tech and manufacturing - continued to provide stable employment in many businesses, contributing to positive sentiment among property buyers.

Low interest rates have also sustained demand for homes.

Providing some context to the 85.8 per cent gain in private home prices in the 15 years leading up to Q4 2020, Mr Ong said the bulk of the increase was between Q4 2005 (when the market was in nascent recovery, following a series of adverse events before 2005 such as the dotcom bust in 2001 and the Sars outbreak and Gulf War in 2003) and Q4 2010.

"History is unlikely to repeat itself. Over the past 10 years between Q4 2010 and Q4 2020, private home prices rose only 12.8 per cent as cooling measures were rolled out during that period.

"With continuous market intervention by policymakers, the days of strong capital appreciation are probably over."

In similar vein, Ku Swee Yong, CEO of International Property Advisor, said: "The Singapore economy has matured and the pace of population growth has been struggling to stay positive for the past few years (as job creation slowed due to technology, the gig economy, etc). The large jump in population growth during 2006-2012 due to the opening of the financial services market and two integrated resorts with casinos, cannot be repeated. We have opened up almost all segments of the economy. In fact, with work-from-home, professional services expats do not need to be based here even if they are employed by Singapore-based companies.

Ms Teh of Inclusif Capital, predicts that private home prices are likely to grow more or less in tandem with nominal GDP, citing tight immigration policies, falling birth rates and a government that is very vigilant against any asset bubbles.

In the Reits segment, Ms Teh says there should be more certainty in the outlook of logistics and industrial trusts as the economy is chugging along. "We still need food and other goods; it's just that the way we get them may be slightly different from before."

That said, she notes that Reits in general have benefitted from a benign and low interest rate environment in the past so many years. "Things may not be so rosy should we see a sustained rise in interest rates."


Stable rents expected for single- and multiple-user factory space this year

The Business Times, 22 Apr 2021, Thu

By Nisha Ramchandani

DESPITE a more sanguine economic outlook, factory space rents are expected to remain stable this year, tempered by new supply, says the National University of Singapore's Institute of Real Estate and Urban Studies (IREUS).

After the pandemic hampered construction activity last year, there will likely be a bump in supply this year: 885,000 square metres (sq m) (in gross floor area) and 1.14 million sq m of multiple- and single-user factory space respectively are poised to be added to the market.

IREUS deputy director Lee Nai Jia said: "While the manufacturing sector has been improving and the economic outlook appears more optimistic, we do not expect rental growth or yields of multiple-user and single-user factory space to go up significantly. Rather, we expect rents to stay largely stable."

As growth remains uneven in the manufacturing sector, Dr Lee reckons that the net new supply of single- and multiple-user spaces this year will take longer to be absorbed in the market than in previous years.

The government could also tweak supply to keep industrial rents stable, he went on to say.

In the past, the government has regulated the injection of fresh supply when the situation called for it, such as by scaling back the introduction of new supply via the Industrial Government Land Sales programme.

This was done in 2019, when the government moderated the net supply of multiple-user factory space amid lower output in the electronics, chemicals and transport engineering clusters, Dr Lee noted. With trade tensions running high between US and China, wary manufacturers were taking a more cautious stance at the time.

"The government uses (the) control of supply to keep industrial rents stable," he said. "Separately, the government will increase supply if there are signs that the manufacturing sector is expanding."

At the same time, manufacturing companies which are flourishing could seize this opportunity to expand their footprint in anticipation of the recovery ahead, Dr Lee added.

JTC's most recent quarterly report shows that about 0.5 million sq m in GFA of projects did not come onstream as planned last year because of the pandemic.

The new net supply of multiple-user and single-user factory space fell to 60,022 sq m and 208,966 sq m respectively in 2020, the data shows. This is sharply below the annual average net supply for 2010-2020 of 276,234 sq m and 425,833 sq m for multiple-user and single-user factory space respectively.

As net supply eased, occupancy rates went up in Q4 2020 to 88.5 per cent and 91 per cent for multiple-user and single-user factory space respectively. Net absorption outpaced net new supply, the data shows. But it is worth noting that the net absorption for both subsectors was below the 10-year annual average.

The occupancy rate stood at 87.5 per cent and 90.8 per cent for multiple-user and single-user factory space respectively in Q4 2019. For Q3 2020, the occupancy rate was 87.8 per cent and 91 per cent respectively.


Blackstone eyes more Singapore property after buying Sandcrawler building for $176m

The Straits Times, 21 Apr 2021, Wed 

Blackstone Group is seeking to invest in more properties in Singapore to capitalise on rising demand for office space among technology firms expanding in the city-state.

The plans come after the US private equity firm announced on Wednesday (April 21) that it is purchasing Lucasfilm's state-of-the art facility, The Sandcrawler, for $176 million, confirming a Bloomberg report in January.

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