Examine all angles to pinpoint opportunities
By Lin Zhiqin
/ The Edge Property |
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At the inaugural The Edge Property 360° event held on April 2, a panel of speakers gave pointers on how to examine all angles of the property market to uncover opportunities. The event was held in partnership with CapitaLand, Far East Organization, MCC Land, JForte Holdings and Team build Land.
Knight Frank's director and head of consultancy and research, Alice Tan is presenting on Singapore's commercial scene during The Edge Property 360°
CIMB Private Banking director and economist Song Seng Wun kicked off the session with a snapshot of the global economy, which showed that “global trade volume has fallen below the long-term trend line, reflecting the soft consumer sentiment”. The Markit’s Global PMI, which is based on a survey of businesses in the services and manufacturing sectors, shows that these sectors are slowing down.
“The US economy is still in a lukewarm state and whether people want to spend depends on whether they feel that they have money in their pocket and food on the table. Then, they will look at whether they need to change their TV or buy a new phone,” said Song.
“The US labour market is recovering, but there is still plenty of slack. This leads to central banks around the world keeping the cost of funding low to try to get people to spend.
“There is uneven wage growth across job sectors, including those in the resources sector, such as oil and gas, where employees have been laid off. So, it is not a broad-based recovery.
“In China, there is fiscal boost from government spending, which is what countries should do — complement monetary policy with spending. If they cut rates, whether businesses will want to spend will be helped if the government steps in.”
‘Cooling measures have created opportunities to buy’
On the property cooling measures, Song said the finance minister does not have to wait for the next budget to tweak the measures if there is a need to do so, based on the underlying market conditions.
Chart 1: Singapore policy planners watching the property market
Source: Department of Statistics, CIMB Private Banking
“The debt servicing ratio or the leveraging level of the household sector has gone up and not come down yet. The chances of the government relaxing measures anytime soon in an orderly market correction is unlikely. As the cost of funding is still very cheap, the risk of relaxing is that leveraging will rise. This is one of the considerations,” Song said. “In terms of price, analysts are predicting a 15% decline from the peak of the index.”
Ooi Yi Tung, director of The Edge Property, said, “The cooling measures have not had the same impact on all the segments of the property market. It makes sense to look at segments that have been affected more.
“Prices of some sites sold post-total debt servicing ratio were 10% to 20% lower than those sold pre-TDSR, meaning the developer has the option to sell at a lower price. These developments could be comparable, such as being next to each other or with similar characteristics and proximity to MRT.”
Based on his study, there are only two such new developments in the Central Region — Principal Garden and The Poiz Residences, which is a mixed use development.
Principal Garden is located between the Redhill and Tiong Bahru MRT stations. There are four other new launches in the area with prices above $1,700 psf for two-bedroom units, while similar units are priced below $1,700 psf at Principal Garden. According to Ooi, this is good for investors as “you have room to price your rent lower and not be hurt that much”.
The Poiz Residences is located beside the Potong Pasir MRT station. It has a retail component that will be managed by the developer, which is advantageous. “Developers can get the tenant mix right from day one, compared with some strata malls that don’t work and are empty because they are not well managed,” Ooi explained.
Other plus points for The Poiz Residences include rental resilience, owing to proximity to retail and the MRT station. “For the same budget, tenants will move towards convenience, closer to the mall and MRT. In difficult times, rent might come down, but at least it will be occupied,” he said.
One- and two-bedroom units at The Poiz Residences are priced at $1,400 to $1,500 psf. In comparison, completed mixed-use developments in the Outside Central Region, such as Watertown in Punggol, have asking prices of $1,300 to $1,400 psf for such units.
Resale opportunities
Ooi cited Vida in the Cairnhill area and Jardin along Bukit Timah Road as examples of developments that have seen rock-bottom prices in recent transactions.
Based on past resale transactions, a buyer who pays $2,020 psf for a one- or two-bedroom unit at Vida today would be paying a price that is lower than that paid by 80% of his neighbours. “If you can negotiate the price down to $1,900 psf, you will enjoy a price that is lower than that paid by 85% of your neighbours,” said Ooi.
At Jardin, a price of $1,675 psf for a two-bedroom unit is the target to negotiate for. “At $1,650 psf, the price is cheaper than what 95% of your neighbours paid,” he added. A unit was recently transacted at $1,400 psf.
In identifying resale opportunities for rental investors, Ooi said the rental yield should be above 3.5%. “Yield is very important. If you have good cash flow, you have nothing to worry about.”
His list of freehold developments in the Central Region include Alexis in Queenstown, Parc Imperial in Pasir Panjang, Prestige Heights in Balestier, and La Fleur, Melosa and Treasures @ G20 in Geylang. These developments were selected based on their rental yield of between 3.5% and 4.2% for one-bedroom units.
Leasehold developments that meet the criterion are Icon, One Shenton, Skysuites @ Anson and The Sail @ Marina Bay, all of which are located in the CBD. Other developments in the Central Region with rental yield of above 3.5% are Waterbank at Dakota and Citylights in Lavender.
“If you are buying for rental, the best is to buy it tenanted. Ideally, the lease only expires in 2018, so you won’t have to worry about finding tenants for two years,” Ooi said.
Upcoming developments worth waiting for
In addition to the opportunities that are already in the market, Ooi also identified some upcoming launches that investors might want to consider. They include a residential site in East Coast with superb seaview owing to the location, and a mixed-use development beside the Redhill MRT station that will have a supermarket that is integrated with the station. The white site in Paya Lebar that is slated to have office, retail and residential components is another development that investors can anticipate.
Lastly, there is an upcoming Government Land Sale in April for a site at Martin Place, which is in the Core Central Region. According to Ooi, it is rare for sites in the CCR to be put up for sale. “If the developer can buy at a good price, this will potentially be a good bargain.”
Should you buy, sell or hold?
For those looking to buy, ERA key executive officer Eugene Lim said, “Now is the best time. Sellers are more realistic and you would probably be able to get a good deal with some market research. With the loan curbs here to stay, it would be a good idea to get the necessary financing approvals before going house-hunting.
“If your house serves your needs and you are not pressured to sell, then hold. Don’t be pressured into thinking that the price will drop. The measures are not designed to crash the market but to stabilise prices that have risen too fast for too long. Prices will be flat.” He added, “Over the longer term, the growth in population towards 2030 is expected to increase the demand for housing and would therefore provide the headroom for a measured capital appreciation.
“Prices have basically stabilised and the trend is flat now. Today’s market price is very realistic. In order to sell your house, the pricing will have to be very realistic.”
According to Lim, ERA projects a total price decline of less than 1% in 2016 for HDB resale. HDB resale transactions rebounded 11.5% from the historical low of 17,318 in 2014 to 19,306 in 2015. “ERA expects transactions in 2016 to cross 20,000, probably closer to 21,000.”
To those who are committed to sell, Lim said, “Realistic pricing is the way to go. Buyers are very price-sensitive and if you go to the market with a high asking price, no buyer would be interested to make an offer for your flat. This will increase the length of time your unit stays on the market and this would probably work against you in the end. Remember, based on today’s resale prices, which have gained 75% over the past 10 years, nobody is really making a loss if you sell at market value”.
Lim’s advice to potential upgraders was: “If you are buying today, you are buying at 2011 prices, as prices have come down. Prices will go down further, but it is very difficult to catch the bottom. If you look at the tail end of the curve, it is quite stable.”
‘Invest in smaller commercial units’
Knight Frank director and head of consultancy and research Alice Tan said, “Office prices came down in the global financial crisis and it took over three years to recover. Last year, we started to see prices coming down, mainly owing to the moderation in rentals. We are seeing a softening in rentals because of the economic outlook. Banks are consolidating their office spaces, with some of them moving their back office to the city fringe or even suburbs.”
Chart 2: Office prices have generally held firm
Source: Realis, Knight Frank Research
Chart 3: Rentals softening because of the economic outlook
Source: Realis, Knight Frank Research
“The retail picture doesn’t look so rosy. Rentals are coming down steeply because the occupancy rates are coming off quickly. In 1H2015, rentals were still fine, but in 2H2015, we started to see steeper decline owing to the weakening consumer sentiment and lower tourist receipts,” she added.
Tan also pointed out that more Singaporeans are doing online shopping, which negatively impact retailers. The labour crunch is another factor impacting retailers. “This is not an easy time for retailers,” she said.
“[Despite the challenges in the office and retail sectors, there are still opportunities.] Many investors think commercial property is out of reach, but you can either invest in smaller commercial units or commercial real estate investment trusts.”
Strata offices may have niche appeal
According to Tan, sale prices for new freehold strata offices have held firm at about $3,500 psf mainly owing to transactions at Crown at Robinson in the Tanjong Pagar area. “All the transactions in 1Q2016 were for resale freehold offices and prices are still holding up, although they have come off from a high of $2,500 psf in the heyday.”
Chart 4: Demand still consistent for resale freehold offices
Source: Realis (as at Mach 30), Knight Frank Research
For new leasehold strata offices, sale prices have trended up. According to Tan, this was due to two new sale caveats in 1Q2016, namely a large-ticket transaction at SBF Center for 27,000 sq ft of space at $85 million and another transaction for a smaller unit at GSH Plaza.
“In terms of resale, prices have started falling, but are still quite stable. The transactions that contributed to this were at developments such as The Central, where prices are stable at $2,400 to $2,500 psf, and Suntec City, which is a very resilient development,” noted Tan.
She also emphasised the importance of the balance lease tenure for commercial property as “prices can come off quite a fair bit to below $2,000 psf if the balance lease is very low, such as below 70 years”. In terms of price quantum, “$1 million to $2 million is the sweet spot price range for entry-level investors. The size range can be as small as 300 to 400 sq ft or up to 1,000 sq ft, depending on the location”, she said.
Retail is about people coming to shop
The sale prices of new freehold strata retail have declined along with the prices for resale units. According to Tan, this is a reflection of the challenging retail market. “Prices for freehold resale transactions remained fairly stable, such as those for old units at Coronation Plaza and Queensway Shopping Centre,” she said.
Tan identified F&B and education and enrichment as retail trades that are resilient against the online shopping threat. “One potential source of tenants is trendy start-up cafés that are very budget-conscious. You might be able to negotiate better with them, to compete with big landlords for these retailers.”
A possible source of opportunities is the Downtown Line, which cuts down the travelling time to the city. “The MRT effect is very powerful, not just on commercial but also on residential property. The Downtown Line activates a lot of shops that are near the exit points of the stations,” she added.
Tan said that one of the key findings of the Knight Frank Wealth Report released last month was that many ultra-high-net-worth clients were deterred from investing in commercial property. These clients cited lack of knowledge about the sector and insufficient market research.
According to her, it is important for investors to gather more knowledge about retail, which is “a very challenging sector”. She said that some strata-titled retail malls are not very well-run compared with developer-run malls. Naming Bukit Timah Plaza and Thomson Plaza as two strata retail malls that are well-managed, she suggested for investors to observe the trade mix and “observe the crowd and traffic, and talk to people and retailers to get a better feel before investing. Retail is all about people coming to shop”.
Shophouses, a very specialised sector
Tan revealed that shophouses in District 2, on Anson Road and in Tanjong Pagar, enjoy high demand from companies. “Tanjong Pagar shophouses are very highly priced because it is an established watering hole. The typical buyers are companies and family offices. Shophouses are like collectibles because there is no upcoming supply. The downside to shophouses is the difficulty in maintenance and conservation requirements,” she said.
“The number of shophouse transactions are quite low compared with the past and prices are at a more affordable level. In the active years, a lot of foreign investors came to invest in shophouses and it is not good for the market when prices go too high,” she added. “Companies continue to comprise a significant proportion of buyers as the hefty price quantum deters individual borrowing with TDSR.”
For investors interested in shophouses, Tan suggested looking into those in the Downtown Core, Marine Parade and Rochor planning areas.
From left: CapitaLand senior manager, marketing (residential), Ng Jing Tian; Far East Organization director, property sales, Quek Ai Ling; Far East Organization chief operating officer, property sales, Shaw Lay See; The Edge Property managing director Bernard Tong; The Edge Singapore director Anne Tong; MCC Land deputy marketing director Eunice Lau; JForte Holdings group CFO Darren Wang; and The Edge Property director, advertising and sales, Cowie Tan
This article appeared in The Edge Property Pullout, Issue 723 (April 11, 2016) of The Edge Singapore.
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