Singapore Property – Key Datapoints for the Singapore market

  • Singapore property market remains in correction mode
  • Clean cut in holding structure for Keppel Bay Tower and Harbourfront Tower 1 and 2 positive for Keppel REIT and Mapletree Commercial Trust
  • Ascendas REIT: More inclusive sponsor representation in latest board reshuffle

  We would like to highlight our thoughts on a few pieces of property sector news that were published last week that you might miss during the festive holidays.   1.             Singapore Property – “Too early to relax measures” says Lawrence Wong, National Development Minister (Straits Times, Dec 31, 2015)   The property market is “on track for a soft landing”, but it is still not time to unwind cooling measures, National Development Minister Lawrence Wong said yesterday.   In a blog post, Mr Wong mentioned that “Resale prices have softened gradually to 2011 levels, and more than half of resale flats are now transacting close to their market value”. Mr Wong added, however, that the Government would continue to monitor factors such as interest rates and economic growth, and make adjustments when necessary   DBS’ thoughts:  In a calibrated correction in the property market where average prices (measured by the Property Price index) have only dropped by c.9% from the peak in 3Q13 (and c. 5% in 2015), we believe that it is still too early for any unwinding of any policy measures, especially if the liquidity environment remains strong in Asia. An early unwinding could lead to unintended hikes in prices.   With uncertainties stemming from the momentum of FED rate hikes and its impact on interest rates, mortgages and prices, we believe that price declines of 15%-20% could warrant the government to review certain anti-speculation measures like the additional buyer stamp duties (ABSD) or review mortgage funding ratios. 2.   Singapore Property – More supply as 18,000 built-to-order (BTO) flats to be launched in 2016 (Business Times, Dec 30, 2015)   The Housing Development Board (HDB) will launch 18,000 new built-to-order flats, a 20% increase from 15,000 units launched in 2015. The new launches are expected to be a range of locations across the island to cater to different home buyers.   DBS’ thoughts:  The additional units will cater to growing demand of Singaporeans, especially on the back of enhanced grants and a revised higher household monthly income cap of S$12,000, which makes 70% of the resident population eligible to purchase a HDB flat.   While this is expected to shift some of the demand away from the resale market which could soften prices further, albeit more modestly after a close to 10% decline in prices from the peak.   3.   Singapore Property – High Vacancy rates and oversupply in the Executive Condominiums (Business Times, Jan 2, 2016)   High vacancy rates (10.5% as of 3Q15) and high supply in the Executive Condominiums (ECs) space have revived the debate about the relevance of public-private housing in current times. This is especially so since the recently increased income ceiling to S$14,000 from S$12,000 seems to have failed to boost demand for ECs, despite 6% more Singaporean households being added to the eligible buyer pool.   Property consultants hold differing views with one believing that the high vacancy rates are due to Singaporeans buying properties for investment while continuing to stay with their parents post marriage and waiting out the 5-year holding period before selling. Another consultant believes that the high holding cost (3-year construction plus 5-year selling restriction) could deter investment demand, and the high vacancy rate is caused by HDB upgraders being unable to dispose of their existing flats given the lacklustre market.   DBS’ thoughts:  We believe that the high vacancy rates (10.5%) for completed ECs, lackluster sales in recent EC project launches and a high number of unsold ECs units under construction could mean that the available target pool of buyers could be diminishing. With another 3,780 units to be launched in 2016, we believe that prices are likely to remain soft in 2016. 4.   A clean cut as Keppel Bay Tower, Harbourfront Towers 1 and 2 change hands between Keppel Corp and Mapletree Investments (Business Times, Dec 31, 2015)   In a share swap arrangement involving Mapletree and Keppel Corp, the ownership of Keppel Bay Tower and Harbourfront Towers 1 and 2, which were jointly developed by Keppel and Mapletree in 2002 as part of the Keppel Bay and Harbourfront development, will change hands.   Mapletree Investments will pay S$225.7m to Keppel Corp for its 39% stake in Harbourfront Towers 1 and 2 while Keppel Corp will gain 100% ownership of Keppel Bay Tower for S$180.9m (30% stake in the property).   DBS’ thoughts:  This is positive for the future redevelopment of the precinct as the shared-ownership structure has in some way hindered potential AEIs.   This is positive for Mapletree Commercial Trust (MCT) in our view, which could see a further integration of Harbourfront Towers 1 and 2 and VivoCity going forward. This could mean the next stage of growth for VivoCity, which is approaching its 10th year of operations, and where the impact of potential enhancements (AEI) may see diminishing returns.   Neutral for K-REIT; Keppel Corp could eventually divest Keppel Bay Tower to the REIT, which would provide an added avenue of growth for the REIT (given the lack of a pipeline in Singapore currently). However, the REIT’s high gearing of c.41%, coupled with a potential “dilution” of K-REIT’s core marina Bay CBD exposure could mean that investors may have a more neutral stance on the deal, if it happens.   5.   Ascendas REIT (AREIT SP) : More inclusive sponsor representation in a board reshuffle (Business Times, Dec 30, 2015)   A Board reshuffle at Ascendas Real Estate Investment Trust (A-Reit) will see Mr. Miguel Ko, CEO of sponsor Ascendas-Singbridge coming onboard as Vice-Chairman of the Board.   Mr. Ko will take over three roles from Mr. Manohar Khiatani as Chairman of the Investment Committee and a member of the Nominating, Human Resources and Remuneration committee. Mr. Khiatani will remain as a member of the Investment Committee and sit on the Operational Risk Management Committee.   DBS’ thoughts: The appointment of Mr. Ko as Vice-Chairman of A-REIT’s Board could mean improved links between the Sponsor and the REIT and is a further testament of the important role that A-REIT plays in the group, either as a vehicle to re-cycle capital from divesting stabilised industrial properties in Singapore (c. S$1m in size) or in the region.   We note that the investment mandates for both Sponsor and the REIT are complementary with potential collaborations in development projects or deal sourcing going forward.

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