Complete Property Market Updates of Singapore

Morgan Stanley has expanded its Singapore real estate investment portfolio to include an unusual asset class - foreign workers’ dormitories.

An entity understood to be linked to the US bank recently bought three dormitories from JTC Corp for $153 million and is said to have teamed up with a local party to purchase more such properties from the private sector, sources say.

‘It may seem an unglamorous property type but the yields can be very attractive and Morgan Stanley has clearly sensed a business opportunity in an area that other foreign funds and property investment groups may not have spotted yet,’ a source says.

Morgan Stanley is said to be targeting dormitories whose tenants include blue-chip companies that lease space in these facilities for their foreign workers.

DTZ Debenham Tie Leung executive director Ong Choon Fah notes that foreign institutional investors have been diversifying their property investments in Asia, including Singapore, over the years.

‘Traditionally, most institutional investors go for income-generating commercial properties like offices and retail, as well as industrial (specifically logistics and warehousing). And then serviced apartments started featuring in their portfolios. In Asia, these investors have started to look at non-traditional assets that offer higher yields as well as (residential) property development, because of yield compression for the traditional asset classes they used to focus on.

‘Yields on these segments have fallen as more and more investments chase limited assets. You now have superannuation funds from Australia, Reits, and sovereign wealth funds, private equity…,’ Mrs Ong says.

She suggests that student housing is another sector that foreign funds may target. ‘Studies have shown this to be quite a stable source of income. In places like the US and Europe, anything with P&L (income flow) can be Reited or be attractive to institutional investors - like senior housing, nursing homes, self-storage facilities, even prisons,’ Mrs Ong notes.

The three dormitories that Morgan Stanley has purchased from JTC are Kian Teck Dormitory in Jurong, Tampines Dormitory and Woodlands Dormitory. Kian Teck Dormitory has 411 units with two types of units - one that can house six to 12 persons per unit, and another for seven to 14 persons per unit. Morgan Stanley unit Avery Strategic Investments bagged the properties following a public tender that closed earlier this year. It was the highest of eight bidders for the dormitories. The sale was completed in the fourth quarter.

There are currently over 20 other major dormitories for housing foreign workers in Singapore. Dormitory rentals have been on the rise, especially in the past 12 months. ‘There’s a shortage of dorms islandwide mainly because of the construction boom. That’s why some property investors are starting to look at these facilities,’ an industry observer says.

Some industry watchers suggest that property yields for dormitory investors could be around 20 per cent or even higher. ‘It depends to a large extent on the length of the balance lease term on the land - the shorter the remaining lease, the higher the return a potential investor will seek. There’s a whole range of land leases for dormitories in the market - freehold, 60 years, 30 years and some even as short as 3 + 3 years,’ an industry observer explains.

Source : Business Times - 27 Dec 2007

Six companies, some better known in other businesses, make maiden real estate buys

The property boom over the past two years has drawn many new players who are looking to reap the high returns that property development has to offer.

Six companies made their maiden property purchases this year, data compiled by property firm CB Richard Ellis (CBRE) show. Among them are companies that have made a name for themselves in other businesses, such as construction company KSH Holdings and brokerage firm Kim Eng Holdings. Others are lesser known, like Duchess Development which was formed by two stockbrokers.

In addition, three other companies - BBR Holdings, Popular Holdings and Eastern Holdings - first made their appearance in 2006 with land purchases. This year, they have gone on to snap up more sites.

‘When the market is good, it draws in players who may not have been active before,’ said CBRE executive director Jeremy Lake.

He noted that many of the new entrants are construction companies that might have decided to take on development risks, after watching their developer clients reap big profits. During a property boom, such risks are lessened.

‘If you get your timing right in property, the profits can be substantial,’ Mr Lake said.

Experts said that the same trend was seen during the last property boom, which lasted from 1993 to 1996.

Companies that did not look at property development in the past are now beginning to do so because of the fatter margins.

One example is SuperBowl, which teamed up with its parent company Hiap Hoe to buy two sites for a total of $211.3 million.

SuperBowl’s managing director Teo Ho Beng told BT that while the company will continue to focus on its core leisure and entertainment business, it will also increase its exposure to property development where the margins are better.

Similarly, KSH Holdings sees good opportunities in property development. The company’s chairman and managing director Choo Chee Onn said that his company invested in residential sites this year because the opportunities opened up at the right time.

‘Going forward, we will buy more sites if the right opportunities arise,’ Mr Choo said in an interview. The company spent $180.8 million on two residential sites this year.

The first site, which KSH acquired in June with three other partners, was the construction company’s first purchase of a land parcel.

Other companies branching out from their traditional core businesses for the first time this year include electrical and mechanical engineering firm Tee International.

However, new developers and developers looking at boutique projects still account for only a small chunk of total purchases in 2007.

CBRE’s data shows that the bulk of sites sold this year went to big players such as companies linked to banker Wee Cho Yaw (UOL Group, Kheng Leong, United Industrial Corp and Singapore Land), Malaysian tycoon Quek Leng Chan’s GuocoLand and property giant CapitaLand.

New and boutique developers together bought some $2.4 billion worth of land sites in 2007, which account for about 5 per cent of total investment sales so far this year.

In 2006, such developers accounted for about 4 per cent of all investment sales, while in 2005, the figure was about 3 per cent.

However, property analysts warned that these new entrants are by no means guaranteed success. For starters, most bought sites in the more central areas of Singapore, where the price gain is expected to moderate this year even as construction costs are set to keep climbing, leading to a drop in margins.

‘For the high-end residential segment, there is now risk of a potential correction,’ said OCBC Investment Research analyst Winston Liew.

New developers might not have the resources to keep construction costs down unless they are contractors themselves, experts said.

Next year, established developers who have carved out niches are likely to do best, analysts said.

‘Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole,’ said CIMB property analyst Donald Chua. The research firm believed that listed smaller-cap developers are likely to trade at a discount to target valuations in 2008.

OCBC’s Mr Liew advocated being defensive when choosing property developer stocks. ‘We prefer developers that are domestic focused with substantial pre-sold projects, opportunities to unlock value from investment properties and finally offering valuation upside,’ he said.

Source : Business Times - 24 Dec 2007