It’s biggest fall in Asia-Pac, widening S’pore’s rental gap with HK, Tokyo

TOKYO, Hong Kong and Singapore remained the three most expensive office locations in the Asia-Pacific in the fourth quarter of 2009, according to a report from Colliers International.

But Grade A office rents in Singapore suffered the biggest fall in 2009 across all Asia-Pacific markets tracked. Rents here slid 46.2 per cent from Q4 2008, Colliers says in its latest Asia-Pacific office market overview.

Rents fell 24.2 per cent year on year in Hong Kong and 19.5 per cent in Tokyo.

‘Because of the steeper fall in Singapore, the gap in rents between Singapore and Tokyo and Hong Kong widened to 88.5 per cent and 46.7 per cent respectively in Q4 2009,’ said Colliers’ director of research and advisory Tay Huey Ying.

In Q4 2008, rents in Singapore were 32.1 per cent lower than those in Tokyo and just 7 per cent shy of Hong Kong.

On the other hand, the cost of occupying Grade A office space in Singapore versus cities such as Sydney, Ho Chi Minh City, Perth, Mumbai and Delhi has narrowed. Occupancy costs in Singapore were 30.3 to 115.1 per cent higher than those in these cities in Q4 2008, but the difference has fallen to 3.1 to 29.1 per cent in the past year.

‘This has greatly increased the competitiveness of Singapore vis-a-vis the rest of the region,’ said Ms Tay. ‘With the Asia-Pacific leading the world out of recession, the competitive office rents in Singapore are now a compelling reason to invest or locate operations here.’

In general, office leasing markets across Asia-Pacific are bottoming out. The pace of rental decline narrowed to less than one per cent quarter on quarter in Q4 2009.

Colliers attributed this to strong rents in cities such as Hong Kong and Chengdu, where the supply of new space remained tight and demand increased.

In Singapore, office leasing activity increased in Q4 2009 as businesses started to prepare for the upturn. Rents declined just 0.4 per cent from Q3.

Looking ahead, average office rents in the region are expected to grow again towards the end of 2010, Colliers said.

Source : Business Times – 11 Feb 2010

Q4 profit falls 12% on lower revaluation gains on investment properties

SOILBUILD Group Holdings should put up a strong showing this year as it looks to sell more units in its residential and industrial projects, says executive director Low Soon Sim.

‘After a challenging start to FY2009, the group has harnessed the recovery in the property sector with sales of 388 units worth $248 million, including all the residential units at The Mezzo as well as Woodlands BizHub, which was fully sold,’ Mr Low said.

Residential development contributed 84 per cent of FY2009 revenue of $320.1 million, while business space development accounted for 11 per cent. Soilbuild also derived 5 per cent of its revenue from rental properties.

This year, the group again expects residential development activity to bring in the bulk of revenue.

It will launch another 11 units at Meier Suites. Eleven homes in the 55-unit project were sold during the first phase of the launch. Soilbuild will also try to sell the remaining units at Leonie Parc View and Heritage 9.

Besides these, Soilbuild will start to market West Point Bizhub, its project with CSC Holdings, in FY2010. The project comprises 70 terraced factories. The group also said that recurrent rental income is poised to grow this year with the expected completion of Solaris at one-north.

For Q4 2009, Soilbuild reported a 12 per cent decline in net profit to $26.9 million, from $30.5 million a year back, due to lower revaluation gains on investment properties. Gross profit for the three months ended Dec 31, 2009 rose 66 per cent to $30.9 million, from $18.6 million previously.

Revenue rose 27 per cent to $63.5 million, from $50 million a year earlier.

Soilbuild has declared a dividend of six cents a share and proposed a one-for-one share split to improve the liquidity of its shares, subject to approval of the Singapore Exchange and shareholders at an extraordinary general meeting. The company’s stock closed one cent higher at $1.05 yesterday.

Source : Business Times – 11 Feb 2010

SINGAPORE saw the steepest decline in office rents across 25 Asia-Pacific cities, but remains the third most costly office site after Tokyo and Hong Kong.

Grade A office occupancy costs in Singapore fell to US$53.78 (S$76) per sq ft per year in the fourth quarter of last year, down about 46 per cent from US$97.30 psf in the same period in 2008, said Colliers International’s latest Asia-Pacific office market overview.Costs are projected to stabilise at US$53.19 psf this year.

Hong Kong, which saw yearly Grade A occupancy costs fall 24.2 per cent from US$104.14 psf to US$78.92 psf, registered the next highest fall in office rents. The same costs in Tokyo slipped to US$101.39 psf, down from US$128.50 psf a year ago.

‘We are now much cheaper than Hong Kong,’ said Colliers International’s director of research and advisory Tay Huey Ying. ‘A year ago, though we were also ranked third, we were not that far off from Hong Kong and Tokyo.’

The gap in rents between Singapore and the top two most expensive cities – Tokyo and Hong Kong – has since widened to 88.5 per cent and 46.7 per cent respectively, from 32.1 per cent and 7 per cent previously, said the report.

‘With Asia-Pacific leading the world out of recession, the competitive office rent in Singapore now offers businesses a compelling reason to invest in or locate their operations here,’ said Ms Tay.

Average monthly Grade A office rent in Singapore’s central business district was $6.29 psf in the fourth quarter of last year, according to Colliers.

Oncoming supply of close to three million sq ft continues to weigh on the office market in the near term, so there may be some mild price erosion of up to 5 per cent, she said. But barring any external shocks, the local office downcycle is expected to bottom out in the second half of this year, she added.

Source : Straits Times – 11 Feb 2010

SOILBUILD Group Holdings, which develops homes and industrial properties, said its full-year net profit rose 10 per cent to a record $84.3 million.

Revenue was up 34 per cent to $320.1 million while gross profit climbed 28 per cent to $116.4 million.

The results were boosted in part by higher contributions from ongoing residential and business space sales and a 49 per cent rise in recurrent rental income base, Soilbuild said.

It completed three residential developments – Espa, The Centrio and Leonie Parc View last year.

Fourth-quarter net profit rose 11 per cent to $27.2 million, on the back of a 27 per cent rise in revenue to $63.5 million.

Given its higher net operating cash flow from development sales and recurrent rental income, the firm said it has proposed a dividend payout of $13 million, or six cents a share, up from four cents a share a year ago.

This comprises a first and final dividend of 2.5 cents and a special dividend of 3.5 cents.

Also, the firm has proposed a one-for-one share split, which would increase its number of shares to 435.2 million. Including the conversion of warrants, this may rise to as many as 538.7 million shares.

Its executive director Low Soon Sim said the firm sold 388 units worth $248 million in its financial year, including all the housing units of The Mezzo.

Soilbuild will launch this year the second phase of Meier Suites and market additional units of the recently completed Leonie Parc View and Heritage 9. It launched these projects last year.

It will also start selling and marketing West Point Bizhub.

Earnings per share reached 38 cents, up 12 per cent from a year earlier. Net asset value per share rose to $1.25, up 38 per cent from a year ago.

Yesterday, Soilbuild shares closed one cent higher at $1.05.

Source : Straits Times – 11 Feb 2010

THE Housing Board is reviewing rules on flat ownership, to see if any encourages speculation in HDB resale flats. The review will be completed in a few months’ time, according to National Development Minister Mah Bow Tan.

The background: Resale flat prices rose by 3.9 per cent in the last quarter of last year, or by 8.2 per cent in the year. From 2007 to 2009, prices have gone up nearly 40 per cent.

Young couples complain that prices are rising beyond their reach. All manner of folk are being blamed for the rise in prices: foreigners, permanent residents, rich private-property owners who buy HDB flats for rental income, or people who ‘flip’ HDB resale flats within a year. The HDB will have its work cut out coming to grips with this issue.

But actually, what exactly is the issue? Are rising HDB resale prices an issue?

Surely not to the majority of 880,000 or so households who already own an HDB flat, to whom rising flat prices means rising asset values.

Rising prices are an issue to new households and those with no roofs over their heads. Who are they? The 25,000 couples who marry each year. Also, over 7,000 couples in a year file for divorce, which means some 7,000 ex-spouses may be searching for a new home. In 2008, nearly 80,000 people were granted PRs and another 20,000 were conferred citizenship. Presumably, many among them will want to buy a home.

All in, that’s about 132,000 people a year who may be looking for a home. Of these, about 10,000 may get a subsidised new HDB flat. About 20 per cent may go for private property. That still leaves about 95,600 people who may be eyeing an HDB resale flat.

But only a fraction of them will actually buy a resale flat, since some would already own homes, or may decide to rent or live with others. The total number of resale transactions last year was 37,205, an increase of 31 per cent over 2008.

The overall picture suggests rising demand for HDB resale flats spurred in part by immigration. PRs own less than 5 per cent of HDB flats, but last year 20 per cent of resale transactions involved them.

But if one looked at the issue rationally, high resale prices is not a Singaporeans versus non-citizens issue. In fact, old citizens should cheer PRs for boosting demand, and other PRs and new citizens should rue them for the same reason.

Is it speculation that is driving HDB resale flat prices up? HDB rules now allow a buyer of a resale flat to sell it after one year, if he did not take advantage of any government grant in buying it. The flat can be rented out after three years.

The public discussion on the ’speculative’ element in resale flats throws up two possibilities: one, some people are buying and selling HDB flats for profit, or ‘flipping’ as it is called; or that some people are buying HDB flats with the sole purpose of renting them out.

Is there evidence of ‘flipping’? Property agents have said there is hardly any. In its review, HDB should track and make public the number of people who churn resale flats for a profit from say, above 12 months to 18 months. If there is evidence of such a trend, and there are grounds to think such transactions are causing a bubble in resale flat prices, then HDB should indeed tighten the rules to weed out such short-term profit-driven demand.

(Declaration: I own an HDB resale flat I hope to sell one day at a price higher than what I paid for it – like the other 879,999 HDB flat owners.)

What of the charge that some people are buying HDB flats for rental income?

Actually, this is patently the case – and rightly so. HDB’s 2008/09 annual report states there were 22,754 flats that were sublet. No one knows how many more flats are being sublet illegally. A number of HDB flat owners will also be renting out some bedrooms for income.

HDB flats may be built for owner-occupation – hence, the eligibility criteria on citizenship, formation of family, income limits, and the five-year time bar before they can be sold.

But HDB flats after five years are bought and sold like any other commodity, with buyers concerned about investment value, resale potential, potential rental income and financing costs.

The HDB resale market has been gradually freed up over the years. Right now, an HDB flat makes for a decent investment. A four-room flat in Clementi has a median price now of $415,000 and can fetch $2,000 a month in rent – a gross yield of 5.78 per cent, much higher than bank deposits.

Rather than frown on such returns, we should acknowledge that good rental yields speak well of the health of the resale market. An HDB resale flat buyer who does not get a government grant or take up a subsidised HDB loan, gets no subsidy for his purchase. If he is prepared to abide by HDB rules and lives in the flat for three years before letting it out, there is little justification to deny him the income.

The way I see it, rising resale flat prices reflect genuine pent-up demand spurred by high levels of immigration. They do not seem to be driven by speculative frenzy. Those priced out of the market may find it emotionally satisfying to finger PRs or speculators as scapegoats than to acknowledge that the market is moving faster than one’s income and savings can keep up with.

It is important for HDB to respond appropriately to what appears to be a short-term spike in demand, which should resolve itself, since the flow of foreigners will slow. It should not over-react by tightening the rules.

Spooking the HDB resale market will dampen the private property market and cause a fall in asset values of HDB households, affecting their sense of wealth and their sense of retirement security.

Source : Straits Times – 11 Feb 2010

With savings earning paltry returns and inflation rising, property is seen as best bet

FAN Wenbao swears he is not in the business of speculating on property. Already the owner of one home in Xinyang, a grimy city in the poor central province of Henan, he bought two more there last year.

‘It’s an investment not to make money but to save money. Interest rates in the bank are too low,’ said Mr Fan, a real estate agent in a shiny silver suit.

‘If I buy now, the property will steadily increase in value. And at least there’s no way it can fall.’

This might sound like the talk of a speculator in most places, but Mr Fan’s is a relatively long-term view when it comes to the Chinese housing market.

He is not engaged in the kind of rapid buying and selling known as chaofang, or stir-frying of homes, that has driven prices up by 50 per cent in just a few weeks on the tropical island of Hainan, home to the country’s hottest real estate.

In Mr Fan’s hometown of Xinyang, many of whose one million people migrate to prosperous coastal areas for work, property prices rose a mere 10 per cent last year.

But that is already enough to worry the central bank nearly 1,000 km north in Beijing.

Property beckons homeowners and speculators as the one asset in China that is performing well, and authorities are stepping up efforts to prevent a potentially destabilising housing bubble from forming in the world’s third-largest economy.

Even the comparatively modest price appreciation seen in Xinyang clearly outstrips the country’s benchmark deposit rate of 2.25 per cent.

With inflation picking up and expected to flirt with 5 per cent this year, people like Mr Fan are waking up to the fact that their savings are at risk sitting in bank accounts.

Investment alternatives are few and far between in China. The stock market has been sluggish for nearly half a year and foreign investments are all but closed to ordinary people.

Property, of course, has additional appeal. ‘The old parts of the city are in bad shape. These developments are modern, spacious and full of greenery,’ said local travel agent Ma Zhong, 25, strolling through Xinyang’s new district of government buildings, shopping centres and apartment complexes, vast swathes of which are still under construction.

The big question hanging over the Chinese property sector is the extent to which demand has come from owner-occupiers as opposed to investors hoping to quickly flip homes for a profit.

Rampant price rises in recent months persuaded Beijing to begin clamping down on speculators, fearing the fallout if any bubble were left to grow to monstrous proportions.

When real interest rates fell in 2007 as inflation rose, households shifted vast amounts of savings into the stock market, fuelling a steep rally. Its sudden collapse contributed to a loss of confidence that slowed the economy over the next year.

The obvious answer now would be to raise interest rates. But doing so could draw hot money from abroad into an economy already awash in cash and make it difficult for local governments to service the piles of debt that they racked up last year.

‘Beijing’s strategy instead is to set up an ugliness contest: bank deposits are becoming unattractive, so administrative measures are used to make asset markets more unattractive still,’ said economist Paul Cavey with Macquarie Securities in Hong Kong.

He concluded in a recent client note that the government was winning the battle, for now.

A succession of pledges to crack down on reckless investment and steps to make second mortgages and transactions more costly have dampened sentiment. Programmes to build more affordable housing are also weighing on prices, even as they shape up as an engine of real estate investment in the coming years.

Sales of new apartments and existing homes in Beijing fell some 70 per cent in the first three weeks of January from a month earlier, local media reported recently. The central bank’s moves in recent weeks to curb excessive loan growth have also hastened the slide in Chinese share prices and roiled markets worldwide.

But policymakers would be premature in assuming that they have seen off a housing bubble.

Last Sunday in Xinyang was damp and chilly. The streets and shops were quiet.

Yet a steady flow of people visited the showroom of Bolin Harmonious Home, a 26-building complex that started selling its first block of apartments last year. The homes are surrounded by muddy fields, a 10-minute drive from the nearest office or mall.

‘On the first day, almost all of the 400 units sold out. We’ve got the next phase coming on sale soon and we expect strong demand over Spring Festival,’ said Zhang Jing, 28, a saleswoman, referring to the Chinese New Year holiday next week.

‘Things are developing a little bit quickly but these are great homes. They are convenient and have great potential,’ she said.

Source : Business Times – 11 Feb 2010

Focus on capital gains intention test, loss from rental

New Zealand’s government may tighten existing rules around capital gains as part of a review of the taxation of property investment, according to Finance Minister Bill English.

Part of the government’s focus will be on the test used to assess whether a purchaser intends to be a long-term owner, Mr English said in Wellington yesterday. The government will also review whether losses from rental properties be ‘ring fenced’ so they can’t be used to offset other income for tax purposes.

Prime Minister John Key on Tuesday said that the government will announce a package of tax reforms in the May 20 budget that will buoy investment, savings and economic growth. He said that the government will make changes to the way property is taxed while ruling out recommendations for a tax on land and returns from investment property, and a ‘comprehensive’ capital gains tax.

‘What’s on the table is a discussion about the detail of the existing taxation of capital gains and whether there is more clarity and enforceability around that,’ Mr English told the finance and expenditure select committee in Wellington yesterday. ‘A good example is the intention test around the purchase of residential property.’

Mr English refused to provide further details on what form new property taxes may take.

‘We’ll have to be fairly sure about how much revenue will come from changing the taxation of property,’ he said. ‘That will take some pinning down because it’s a sector if, where you shift the rules, the behaviour shifts and you could end up not getting the revenue you expected.’

Mr Key on Tuesday said that the government’s tax reforms may include cuts to personal tax rates, and will pay for them by raising the rate of sales tax to 15 per cent from 12.5 per cent.

Mr English yesterday said that the intent of the tax changes is to encourage people to work harder and buoy economic growth.

‘The package is designed in the longer term to lift our economic performance by giving people the incentive to do the things we think are important for the economy,’ he told reporters after his testimony.

‘When you’ve got an economy where we generally do spend more than we earn, where we need more investment and savings, then we want to reduce the tax on those things that are going to help us develop better balance in the economy, and that’ll be paid for by taxes on things like consumption where we’ve had a bit of a binge,’ he said.

Source : Business Times – 11 Feb 2010

The number of commercial property sales in Europe climbed by more than a third in the fourth quarter, the fastest pace in three years, as cash-rich buyers returned to the market, according to CB Richard Ellis Group.

More than 1,100 transactions were completed throughout Europe, 36 per cent more than in the third quarter and 52 per cent more than a year earlier, the Los Angeles-based property broker said yesterday.

That’s about 75 per cent of the number at the market’s 2007 peak.

The sizes of transactions have also grown as investors that raised cash, including German property funds and sovereign wealth funds, compete for properties.

There were 24 purchases for more than 200 million euros (S$390.4 million) in the second half of last year, triple the number in the first half, CB Richard Ellis said.

‘There has been a significant increase in the average lot size,’ CB Richard Ellis said in the statement. ‘The combination of the recovery in values and ability of investors to complete larger transactions has driven this average up.’

Buyers’ access to debt was a crucial factor in the success of deals, the company said.

The average European sale was 23 million euros in the fourth quarter, according to the report. That compares with 49 million euros at the market’s peak in the third quarter of 2007, when there were 62 purchases for more than 200 million euros.

The total value of commercial property transactions was 25.7 billion euros in the final three months of last year, a 42 per cent increase from the previous quarter, the broker said on Jan 18.

That included one billion euros spent by German funds in December, in 13 acquisitions across seven countries.

Source : Business Times – 11 Feb 2010