Monday, February 28, 2011

Improve governance of Reits

ARE the interests of real estate investment trust (Reit) unitholders well protected? The answer from CFA Institute's review of Asia-Pacific Reit markets is not assuring.

More can be done to improve the governance of Reits in Singapore, Australia, Hong Kong and Japan, the institute says in a 75-page report. In particular, Reit managers should have boards that are mostly independent.

'Reits provide many benefits to investors, including a high yield, pass-through taxation and diversification. However, despite these, Reit governance remains far from adequate,' says CFA Institute's head of standards and financial market integrity (Asia Pacific), Lee Kha Loon.

'Better Reit governance structures and regulations will increase trust and confidence and facilitate growth in new and prospective markets.'

The report calls strongly for Reit managers to be independent. In a common scenario, the Reit sponsor wholly owns the Reit manager, and also holds a large stake in the Reit.

'This interrelatedness increases the risk that the manager or sponsor will act in its own interest at the expense of minority unitholders, thereby exacerbating the principal-agent conflict,' the report explains.

Cases of sponsors selling properties to Reits have triggered concerns about conflicts of interest, and unitholders have asked if there is a real need to buy the assets, says Moody's Investors Service associate analyst Alvin Tan.

According to CFA Institute, one way to better protect unitholders is to make sure that most directors on the boards of Reit managers are independent. This means that they should not be related to management, sponsors and substantial unitholders.

This is an area which Singapore should work on, Mr Lee tells BT. There is the non-binding Code of Corporate Governance, which recommends that independent directors form at least a third of the board, but that may not be stringent enough, he says.

Mr Lee believes that licensing requirements should mandate that most directors on a Reit manager's board be independent. In particular, the chairman should be independent, and there should not be any cross-directorships which could cause conflicts of interest.

Moody's Mr Tan sees merit in this proposal. Having a more independent board will to some extent reduce the impression that conflicts of interest exist, he says.

CFA Institute also suggests that Reits make annual general meetings (AGMs) compulsory, so that unitholders can meet the people managing their investments and question decisions.

In this area, Singapore's system matches up. From January last year, all Reits have to hold AGMs once a year, not more than 15 months from the last AGM.

Another recommendation involves the creation of a fee structure that rewards managers for growing unitholder value, and penalises them for a poor showing. One way is to link the performance fee to growth in distributions per unit, the report says.

Assuming that proper governance practices are in place and that unitholders' rights are not compromised, there would actually be no need to regulate the amount of leverage Reits can have, the report says. Debt funding should remain a business decision.

In Singapore, a Reit's aggregate leverage is capped at 35 per cent of its deposited property, or 60 per cent if it has a credit rating and publicises it.

DC rates set to go up

(SINGAPORE) Development charges (DC), payable for enhancing a site's use or for building a bigger project on it, are headed north come March 1, say property consultants. They cite as reasons higher land and property prices over the past six months.

DC rates are revised on March 1 and Sept 1 each year across 118 geographical sectors in Singapore. The review is conducted by the Ministry of National Development in consultation with the Chief Valuer, who takes into account current market values.

The rates are tracked in property circles as they reflect land values, and can impact redevelopment sites with a sizeable DC component.

During the last revision that took effect on Sept 1, 2010, the average DC rates for landed and non-landed residential uses were raised by about 13 per cent each. This time around property consultants are predicting a bigger increase in DC rates for landed residential use than non-landed residential use, citing the more buoyant performance for landed home prices last year.

The average DC rate for industrial use, which was raised 10 per cent from Sept 1, 2010, could climb a further 5 per cent from March 1 in view of JTC Corp's recent upward adjustment of about 10 per cent to its posted land prices, says Colliers International executive director of investment services Tang Wei Leng.

The average DC rate for hotel use, which was left unchanged in the previous revision, could also see a 10 per cent increase this round. This will be on the back of strong growth in visitor arrivals last year, which has boosted hotel earnings and interest in new hotel developments.

'The prices of all the hotel sites awarded recently by the Urban Redevelopment Authority reflect premiums of 98-214 per cent to the land values implied by the prevailing DC rates for hotel use for the respective locations or geographical sectors,' says Ms Tang.

Jones Lang LaSalle's South-east Asia research head Chua Yang Liang says a key challenge for the Chief Valuer would be the strong performance of the Singapore economy and surge in prices of property transactions, reflecting significant premiums to the implied land values based on current Sept 1, 2010, DC rates for the use group and geographical sector.

'The Chief Valuer has the unenviable task of reconciling this huge gap and not shocking market sentiment,' he added.

JLL expects the average DC rate for non-landed residential use to rise by up to 30 per cent from March 1, whereas the firm's projected hike for the average landed residential DC rate is in the range of 25-35 per cent.

Colliers International projects a 5-8 per cent rise on average for landed residential rates, again higher than a 5 per cent hike in the average rate for non-landed residential use.

For non-landed residential DC rates, JLL's Dr Chua reckons Bishan and Paya Lebar areas may post bigger increases than other locations. CapitaLand's record bid last week for a 99-year leasehold condo site in Bishan at $869 per square foot per plot ratio is 117 per cent above the implied land value based on the current Sept 1, 2010, DC rate for non-landed residential use for the location.

Impetus for DC rate hikes in the Paya Lebar region could come from government plans to transform the area into a major commercial hub outside the city as well as evidence of market transactions in the region, says Dr Chua.

Colliers' Ms Tang sees the biggest gains in non-landed residential rates of about 15-20 per cent in the Novena, Tanglin, Geylang and Marine Parade locations, where some collective sale deals have been sealed at prices above their respective DC rate-imputed land values.

Karamjit Singh, managing director of Credo Real Estate, says that one or two out of every 10 en bloc sales currently in the market may have a significant DC component of at least 5 per cent of total land value. 'These may see a significant erosion in value if DC rates in their locations go up by 15 per cent or more,' he says.

CB Richard Ellis executive director Jeremy Lake predicts there could be a handful of en bloc sales sealed by private treaty negotiation in the next few weeks.

'Some collective sales tenders have closed in the past six to eight weeks without a deal being done. If these sites have DC component, developers may be waiting for the latest DC rates prior to firming up bids before the expiry of the 10-week deadline for a private treaty deal following the tender close,' he said.

For landed residential use, CBRE predicts the largest percentage increase in Sectors 68 (which includes the Gallop and Cluny Hill areas), 69 (Holland Park/ Tanglin Hill), 105 (Seletar Hills) and 106 (Mugliston Hill).

Colliers' Ms Tang reckons the biggest gains in landed rates of up to 20 per cent may be in sector 115 (which covers Sembawang), pointing to the sale of small landed housing plots at Sembawang Greenvale Phase 3 in October at about 145 per cent on average above the current DC rate-implied land value.

JLL's Dr Chua expects stronger upside pressure on landed residential DC rates in Good Class Bungalow Areas, noting strong interest and increase in land values in this segment in the past half year or so.

He also sees 10-20 per cent growth in the average commercial DC rate, with a higher increase for the CBD areas on the back of appreciation in office rental values over the past six months.

Analysts say the sale of the white site at Tanjong Pagar with a minimum stipulated office component last year will also create impetus for growth in commercial use DC rates in that part of the CBD.

Colliers' Ms Tang anticipates an average gain of 5-8 per cent in the average commercial DC rate, with bigger increases for some suburban locations like Bedok and Punggol, where sites at state land tenders have fetched top bids at 96 per cent and 181 per cent premiums to their respective DC rate-implied land values.

Sunday, February 27, 2011

If you're loaded, consider private equity

IF YOU have deep pockets and want to diversify your portfolio into other asset classes, you may want to consider private equity funds.

These funds typically make their money by owning equity in the companies that they invest in.

Often, the money collected from investors will go into new companies believed to have good growth possibilities, for example, health care, biotechnology, telecommunications and software.

Private equity funds generally concentrate on a specific style of investing defined by the stage of development of the companies into which they invest.

This could range from start-ups to large, mature companies.

Start-up companies are seeded by what are known as angel investors or venture capital firms.

More mature and larger companies become the playground of private equity giants like KKR, Blackstone Group and The Carlyle Group, which could leverage their acquisitions of private companies with debt.

Private equity firms try to add value to the companies they buy, with the goal of making them even more profitable.

They might channel the money raised to strengthen a company's balance sheet. They might also bring in a new management team for the company, aggressively cutting costs and then selling the company for big profits.

Another way to generate a return is through an initial public offering of the company that it has invested in.

Private equity investing is not easily accessible to the average investor.

Most private equity firms look for investors who are willing to commit as much as US$25 million (S$32 million) and a gestation period of about five to 10 years.

Although some firms have dropped their minimum amount to US$500,000,?this is still out of reach for most people.

If you do not want to invest in private equity firms directly, you could approach your private bank for help.

Some private banks help their clients invest broadly in a number of private equity funds, giving them exposure to hundreds of companies representing many different phases of venture capital and industry sectors.

Because of the diversification benefits, there is less risk than you might experience with an individual private equity investment.

Credit Agricole, for example, helps its private banking clients invest in a broad spectrum of private equity funds including AXA Private Equity, CLSA Capital and L Capital.

UBS currently has a platform of 28 private equity funds and they are 'normally accessible only to investors with minimum commitment of US$5 million to US$10 million'.

Mr Douglas Abrams, founder of private equity firm Expara, said there are pros and cons to getting the bank to invest in private equity funds on your behalf.

'If the manager is skilled in his selection of funds, then investors will benefit from his selection. Of course the corollary of this is also true - if he is not skilled then investors will not benefit or might suffer,' he said.

While going to private equity investment funds directly may require investors to commit more cash, the bank may charge additional fees that could make it slightly more expensive to invest via the bank than going to funds directly.

'There could be placement fees or administration fees for some bank products whereas in the direct investment case, usually no placement or participation fees are levied,' said Mr Stanley Cheong, partner of Transpac Capital, another private equity firm.

Some studies point to the long-term historical outperformance of private equity over public equities. This has been the case in the United States for more than 20 years and in Europe for more than 10 years.

Mr David Tung, managing director of The Carlyle Group, said: 'Because of the consistently good performance of private equity, private banking clients and family offices continue to increase interest in this asset class.'

Hedging against inflation

Inflation is a growing concern for many of us: It doesn't just make our day-to-day lives increasingly expensive but also quietly and relentlessly erodes our life savings.

It is vital to hedge against the dwindling value of our savings and fortunately there are asset classes that potentially do well under inflationary conditions.

Inflation hit a 26-month high of 5.5 per cent last month on the back of rising transport, housing and food prices, easily exceeding the 4.6 per cent rate in December and 3.8 per cent in November last year.

The Government has revised the inflation forecast for the year to 3 to 4 per cent from 2 to 3 per cent.

Mr Victor Wong, director of wealth management at Financial Alliance, expects inflationary pressures to remain high in the short term.

The outlook is not rosy, particularly with oil prices soaring because of the political unrest in the Arab region and rising food prices.

'We are likely to see increasing inflationary pressures in the quarters and years to come,' said Mr Brent Smith, chief investment officer and portfolio manager at Franklin Templeton Multi-Asset Strategies.

Asset allocation

Against an inflationary backdrop, financial advisers have an important role to play when working out the optimal mix of assets in customers' portfolios with their financial goals in mind.

Spreading your investments across different asset classes helps to reduce the overall risk to your portfolio, said Allianz Global Investors.

With portfolio diversification, gains from asset classes that are performing well will help to offset potential downside from those that are underperforming.

Mr Christopher Tan, chief executive at wealth management firm Providend, said: 'Asset allocation is important because by combining different asset classes with different risk and return characteristics that correlate to each other differently, we can create different portfolios that are suitable for different investors' risk appetites.

'By doing so, investors have a better chance of riding through the volatilities of the markets and getting the returns they need.'

Investors are typically advised to review their investment portfolios at least once a year.

One reason is that returns from assets tend to be unstable through time. This means that what does best in one year is not often the best performer in the following year.

This is because they perform very differently in various phases of the business cycle and inflationary environments.

For example, Mr Smith pointed out that US equities have performed 15per cent better in low inflationary environments than in times of high inflation from 1980 on.

So careful consideration and identification of such cycles is important if you are to manage allocations of your assets.

'If one can identify changing regimes and tilt portfolio allocations accordingly, there is an opportunity to increase overall portfolio returns or reduce portfolio risk (or both),' said Mr Smith.

Inflation hedgers

Financial experts say commodity-related investments, inflation-linked bonds and real estate can all help hedge against inflation.

Mr Tan notes that inflation makes commodities and real estate more expensive, so these are assets that will do well.

Inflation-linked bonds are indexed to inflation in order to protect investors from the negative effects of rising prices but there are few available in Asia.

Allianz says such bonds are usually issued by developed countries such as Canada, Japan, the US and a wide range of European nations and where there are specific funds to invest in them.

Commodities and equities generally tend to outperform bonds and cash under moderate and rising inflationary conditions, notes Mr Smith.

In higher inflationary periods, commodities and commodity-related equities such as gold, metals, mining and agricultural investments perform best, as do emerging market equities after taking the effect of inflation into account.

Gold rose 29 per cent last year, surpassing US$1,400 an ounce.

In recent months, interest in acquiring physical gold has risen as inflation concerns grip many South- east Asian economies.

A recent Friends Provident International survey indicated that gold is the most popular asset among Singaporean, Hong Kong and Middle Eastern investors.

Allianz says there are two types of commodity-related strategies to consider. The first involves investing in stocks of commodity companies as these have a close correlation to movements in commodity markets.

One approach could be to search out firms in the agricultural sector.

These would include those in production, processing and distribution, spanning the entire food supply chain, from farm to dinner table.

Another approach would be to invest in companies active in the mining and production of hard commodities like copper, zinc and gold. Such stocks tend to also benefit from rising metal prices.

The second strategy involves investing in derivatives linked to the commodity markets such as swaps and futures. Some investors like such funds because they offer the most direct exposure to commodity prices while equities may not offer pure exposure to certain products like cotton and cocoa.

Here are three commodity-related funds that might meet your investment strategy.

The Castlestone gold and precious metal funds are available only to accredited investors except if bought as part of an investment-linked insurance product at certain distributors.

The Barclays agricultural fund is available to retail investors here.

There is a one-time sales charge of up to 5 per cent for the three funds.

Saturday, February 19, 2011

Housing grant for low-income first-timers

FIRST-TIME home hunters on low incomes struggling to get a foothold in the market will soon be given a helping hand to put a permanent roof over their heads.

The Government will bring in a special housing grant designed for this group, earning up to $2,250 a month in household income.

A total of $175 million a year in grants will be rolled out under the new Special Central Provident Fund (CPF) Housing Grant (SHG) unveiled in the Budget.

First-time home buyers purchasing build-to-order (BTO) flats from the Housing Board will be eligible for the grant. BTO homes are built in line with demand. The specific grant sum was not disclosed yesterday.

However, it will come on top of the subsidised loan and the existing Additional CPF Housing Grant of up to $40,000 for those earning not more than $5,000.

'Even among the lowest 20 per cent of our households, the home ownership rate is about 85 per cent. No other society comes close. But we will do even more,' Finance Minister Tharman Shanmugaratnam said in his Budget speech.

He added that the SHG, together with the other subsidies, will allow more low-income families to own their homes so that 'they too can see their assets grow as Singapore progresses'.

The grant was just one of the many measures to lessen the sting of the rising cost of living for poorer Singaporeans.

Mr Tharman emphasised that the Government's approach must remain centred on opportunities, not entitlements. 'This is why we are focusing on helping the low-income group through education, employment and home ownership.'

Experts say BTO prices have risen in tandem with HDB resale prices and the special grant - regardless of the amount - would enhance the ability of poorer Singaporeans to own their own place.

PropNex chief executive Mohamed Ismail said BTO prices have risen about 20 per cent in the past two years. He added the $2,250 income cap was also fair as the subsidy was public money and needed to be distributed in a targeted manner.

HDB resale prices skyrocketed 14.1 per cent last year although price gains moderated after cooling measures were introduced. This follows an 8.2 per cent rise in 2009 as the economy reeled from the financial crisis, a 14.5 per cent jump in 2008 and a 17.5 per cent surge in 2007.

Mr David Kan, executive director and co-founder of the Family Life Centre, said the grant was welcome and would definitely provide some financial relief for poorer families. 'Everyone needs a roof over his head and the special grant may even spur some lower-income families to work towards buying a home so they can qualify for the grant,' he said.

Mr Muhammad Siddiq Mohd Eunos, 22, may benefit from the grant. He and his wife live in his parents' home in Yishun and recently applied for a BTO flat at the Orchard Spring project in Yishun.

The couple, married in December 2009, earn less than $2,000 combined. Mr Muhammad is a full-time soccer player and his wife works as a shipping clerk.

'We're happy with these new rules. We're not sure how much it is but the money we save with the grant can be used for renovation,' he added.

Property consultancy Jones Lang LaSalle said households with an income of up to $2,250 can typically qualify for flat sizes of up to three rooms.

More details of the grant will be announced soon by the Minister for National Development.

SingLand, UIC make turnaround

OFFICE landlord Singapore Land yesterday posted group net earnings of $661.7 million for the year ended Dec 31, 2010, on the back of a $538.5 million fair-value gain on investment properties.

This is a reversal from the preceding year, when the group reported a net loss of nearly $266 million due to a $608.6 million fair-value loss on investment properties as a result of the plunge in office values in the aftermath of the global financial crisis.

Parent United Industrial Corporation (UIC) posted a net profit of $703 million for FY 2010, against a $142.8 million net loss in FY 2009. UIC booked a $691 million fair-value gain on investment properties in FY 2010, against a fair-value loss on investment properties of $658.5 million for the preceding year.

Both companies did not provide a breakdown of fourth-quarter results.

SingLand and UIC said that the Singapore office market is likely to remain favourable with growth expected in the Republic's economy.

Retail rents are expected to remain stable due to the increased supply of retail space last year, notwithstanding rising employment and continued growth in visitor arrivals.

SingLand's notice of valuation of investment properties as at Dec 31, 2010 showed that Singapore Land Tower in Raffles Place was valued at $1.345 billion, up 22.3 per cent from $1.1 billion at end-2009.

Clifford Centre at Raffles Place too saw its valuation go up from $428 million at end-2009 to $482 million at end-2010. The valuation for another office development, The Gateway at Beach Road, increased about 14.5 per cent from $873 million to $1 billion over the same period.

SingLand's revenue rose 33 per cent to $527.2 million last year on the back of higher sales of trading properties and higher revenue at the Pan Pacific Singapore hotel, partially offset by a 4 per cent or $9.4 million drop in gross rental income from investment properties as renewal rental rates were still lower than the expiry rates contracted 'several years ago', SingLand said in its results statement.

Net profit from operations slid by $10.5 million or 5 per cent to $192.7 million. The asset revaluation gain, net of deferred income tax and minority interests, of $469 million, resulted in an overall net profit of $661.7 million.

SingLand is recommending a first-and-final dividend of 20 cents per share, unchanged from the preceding year. Net asset value (NAV) per share rose from $8.60 at end-2009 to $10 at end-2010.

The group posted earnings per share (EPS) for FY 2010 of about $1.60 including the fair-value gain on investment properties and 46.7 cents excluding that gain. In FY 2009, SingLand had posted loss per share of 64.5 cents including the fair-value loss on investment properties and EPS of 49.3 cents excluding that loss.

On the stock market yesterday, SingLand closed four cents lower at $7.29, while UIC ended one cent higher at $2.78.

UIC's group NAV per share rose from $2.22 at end-2009 to $2.71 at end-2010. Its EPS for FY 2010 was 51.0 cents including fair-value gain on investment properties and 17.2 cents excluding that gain.

In FY 2009, UIC had posted loss per share of 10.4 cents including fair-value loss on investment properties and EPS of 17.5 cents excluding that loss.

UIC Building at Shenton Way was valued at $659 million at end-December 2010, up 62.7 per cent from $405 million at end-December 2009. In August last year, the group paid a $160.1 million development charge to the Urban Redevelopment Authority for the proposed redevelopment of the building to a 60:40 residential:commercial scheme with a gross floor area of about 926,589 sq ft.

UIC's group revenue eased 4 per cent or $38.6 million to $972 million due mainly to lower sale of trading properties following the completion of several residential property projects and lower rental income, partly offset by higher revenue from hotel operations.

Net profit from operations dipped 2 per cent or $3.8 million to $237 million. The asset revaluation gain, net of deferred income tax and minority interests, of $466 million led to an overall net profit of $703 million.

UIC shareholders will receive an unchanged first-and-final dividend of three cents per share.

Friday, February 18, 2011

CapitaMalls Asia to standardise new malls

CAPITAMALLS Asia (CMA) will start standardising various aspects of its new malls so it can cut costs and quickly add new outlets in fast-growing markets like China.

The 'cookie-cutter malls' will share common design, development and models of leasing and management but have their own tenant mix.

Chief executive Lim Beng Chee told a results briefing yesterday that the strategy will allow CMA to cut construction time by a third to two years, which in turn means cost savings and higher returns sooner.

This will help CMA to stay ahead of the competition and reach its goal of doubling its portfolio of malls in China to 100 over the next three to five years, he said.

He added that the malls - he terms them third-generation or 3G malls - will have enough on offer to give customers a proper day out.

'They will be very much like IMM (shopping mall in Jurong) with a cinema, in terms of the scale, size and tenant mix. A family will probably spend six hours there and still have lots to do,' he said.

CMA hopes to begin work on such a mall in the south of China by the first half of this year. India is also on the cards if the country opens up more to foreign investors.

'We still see a lot of opportunity for us to grow the business. The question is if we can run fast enough to capture the opportunity and if we can do it at a lower risk and exert the capital to run it,' Mr Lim said.

Chief financial officer Ng Kok Siong said CMA expects to have between $1 billion and $2 billion of deals on the table at any one point, so it needs to be proactive in tapping capital and look at deals such as the recently tendered Punggol site which achieved a top bid of $1 billion.

Mr Lim noted that Ion Orchard might be divested and placed in a real estate investment trust only if CMA needs the money and when the mall achieves stabilised returns.

Ion contributes significantly to CMA's bottom line and divesting it will hit the results next year, he said.

'But for argument's sake, today if a project is so good that I need the money, then I may want to sacrifice next year's income, divest then recycle, so it depends on opportunities.'

CMA said it will complete five malls in China and one in India this year. It will also take about 30 Singapore retailers on a business mission to explore opportunities in Chengdu and Shanghai.

Mr Lim also said the residential units at the recently acquired mixed development site in Bedok Town Centre - a joint venture between CMA and CapitaLand Residential - is targeted for launch by the end of this year.

The firm reported a 15.2 per cent drop in fourth-quarter net profit to $144 million, even with a re-evaluation gain of $110 million, due to lower sales of The Orchard Residences. Full-year profits were up 8.7 per cent to $422 million.

Revenue for the three months ended Dec 31 fell 16.5 per cent to $55.2 million, but was up 7.2 per cent to $245 million for the year. CMA's profit was buoyed by gains from associates and jointly controlled entities. A dividend of two cents per share was also proposed, double that a year ago.

Quarterly earnings per share fell to 3.7 cents from 6.2 cents in the same period last year, while net asset value per share was $1.50 as of Dec 31, up from $1.41 cents as in the previous year. CMA shares closed down four cents at $1.92 yesterday.

Thursday, February 17, 2011

$6.4b scheme to boost Temasek's funding flexibility

TEMASEK Holdings has pulled off another trailblazing fund-raising exercise, bringing more depth to the local debt market and broadening its stakeholder base.

The state investment company announced yesterday that it is setting up a US$5 billion (S$6.4 billion) euro commercial paper programme to add flexibility to its funding options.

Commercial paper, one of the most common short-term borrowing instruments in global money markets, is generally sold to provide seasonal and working capital for corporations. It has a maturity period of one to nine months, compared with a longer-term bond that can have a tenor of 10 years or more.

As commercial paper is mostly issued by blue-chip firms, a degree of prestige is associated with it. It is also a low-cost alternative to bank loans.

While Western companies have an established and growing appetite for such instruments, the market in Asia is still very much in its infancy.

Temasek said this commercial paper programme, which is open to institutional investors, would complement its existing US$10 billion medium-term note programme launched in 2005.

To date, it has issued 11 bonds with tenors ranging from 10 years to 40 years, amounting to more than $10 billion - or just over 70 per cent of its medium-term note programme.

'This new Temasek euro commercial paper programme covers the short end of our yield curve, and complements our medium-term note programme for longer-dated Temasek bonds,' said chief financial officer Leong Wai Leng.

'It completes the key building blocks of our funding structure, and fulfils our funding strategy for a cost-effective, flexible and efficient balance of both long-term and short-term funding options.'

Investment bankers said the euro commercial paper market will give Temasek maximum flexibility to match its financing objectives.

'The euro commercial paper market is deep, and offers highly rated issuers the opportunity to fund across 16 currencies, in maturities of up to one year and in issue sizes to suit,' said Mr Keith Magnus, head of investment banking for Singapore and Malaysia at UBS.

'Temasek's outstanding AAA rating places it in an ideal position to tap the ratings-sensitive but cost-effective euro commercial paper market.'

Mr Jason Rogers, director of credit research at Barclays Capital in Singapore, noted that investor demand for such high-quality paper could come from banks trying to put their excess liquidity to better use.

The new commercial paper will be sold to only non-US persons outside the United States, Temasek said.

It remains to be seen how soon Temasek will offer debt instruments to small investors. Ms Leong said last year that it had 'been exploring measures to make it practical to offer corporate bonds to retail investors in Singapore'.

'If and when these measures materialise, we will certainly consider inviting Singapore retail investors to participate directly in our future bond offerings.'

CapitaMall Trust to issue retail bonds

ANOTHER major firm - this time property giant CapitaMall Trust (CMT) - is tapping the bond market and targeting retail investors.

CMT's move will be the third corporate bond offering with a retail tranche in just six months. Its move comes as firms tap into the huge amounts of cash in the local economy looking for better returns.

The owner of Plaza Singapura, Junction 8 and other malls is offering $200 million of two-year bonds to public and institutional investors at a fixed interest rate of 2 per cent per year.

The minimum investment for retail investors is set at $2,000 to give them a chance to participate - and reap a better return than fixed deposit rates of less than 1 per cent on offer at the banks.

CMT set the minimum amount 'very low' as the firm wanted to give the man in the street a chance to participate in the bond issuance, said Mr Simon Ho, chief executive of CapitaMall Trust Management, CMT's manager.

The public will be offered $50 million while $150 million will be set aside for institutional and other investors. But CMT's manager is prepared to raise the issue as high as $300 million with a flexible allocation if there is a strong response.

The bond offering will allow CMT to diversify its sources of funding for future projects, such as the revamping of JCube and The Atrium@Orchard, which are expected to be completed next year.

Some of the cash raised will also be used for refinancing purposes and general working capital, Mr Ho said.

He added that the two-year timeframe was chosen as it hit the 'sweet spot' - not too short, not too long. It also fits in nicely with CMT's debt maturity profile, which currently has no loans due in 2013.

CMT has an asset size of about $8.1 billion. The public offer opens today and closes on Feb 23.

In September, Singapore Airlines sold $150 million in bonds to small investors. CapitaMalls Asia (CMA) was next, launching bonds last month that raised $200 million and also with a $2,000 minimum investment for retail investors.

Mr Christopher Tan, chief executive of financial advisory firm Providend, said retail bonds are a good alternative to bank deposits when interest rates are low but are less attractive for investment purposes. 'Bond prices are inversely proportional to interest rates... There could be a chance that interest rates might go up and I wouldn't want to buy a 10-year bond and be locked in,' he added.

However, he expects the CMT bond to be well-received as it has a two-year timeframe and will attract those looking to park their money outside of banks.

S'pore building up its financial hub

SINGAPORE will work towards strengthening its position as a financial hub by boosting its capabilities in a range of areas, said Minister for Trade and Industry Lim Hng Kiang yesterday.

He noted that while Asia is not immune to risk from external shocks, especially from the developed world, its growth and potential over the next decade are attracting global interest.

Singapore's opportunity is that it can serve as the ideal platform for investors to tap on a fast-rising Asia, he told a Citigroup investor forum yesterday at the Ritz-Carlton, Millenia Singapore.

To do that, Mr Lim said Singapore will continue to build on its traditional strength in trading and financing.

'We will also continue to emphasise the importance of strengthening risk management, enhancing transparency, as well as build depth and diversity in the offering of financial products and services,' he said.

Mr Lim said risk management has become increasingly important in the wake of the financial crisis and, in response, Singapore has been building the infrastructure to help market players better manage risks.

For instance, the country has become a key risk management hub for commodities trading and accounts for more than half of Asia's over-the-counter commodity derivatives trading.

Singapore is also working hard to raise the level of corporate governance, he said. He noted that the Monetary Authority of Singapore has been promoting improvements in the disclosure and quality of information available to investors, such as making real estate investment trusts (Reits) hold annual general meetings (AGMs).

'These mandatory AGMs provide an important channel for communication between Reit managers and investors. This will also increase transparency and raise the accountability of Reit managers to investors,' he said.

Increasing the diversity of products offered is another area being addressed.

Last year, the Singapore Commodity Exchange launched a coffee futures contract product while the recently launched Singapore Mercantile Exchange provides an avenue for commodity trading.

'Singapore plays a key role as a gateway to Asia, facilitating capital and investment flows,' Mr Lim said.

'As a regional financial hub, the developments in Singapore's capital markets reflect the growing vibrancy, diversity and sophistication of Asia's capital markets.'

Havelock Rd office block up for sale

MORE office blocks continue to be put on the market for sale. 2 Havelock Road (formerly Apollo Centre) is being marketed by Jones Lang LaSalle through a private treaty process. JLL's pricing expectation is about $1,700 per square foot on net lettable area (NLA) or around $302 million.

And the expressions of interest exercise for Capital Square at Church Street in the Raffles Place micro-market, being handled by Cushman & Wakefield, closes tomorrow.

The marketing appointments for both properties are exclusive.

2 Havelock Road is being sold by US property fund manager AEW. It paid $205 million for the former Apollo Centre in 2007 and completed an extensive refurbishment of the property in 2009, increasing its net lettable area by about 20 per cent to 177,833 sq ft. The current NLA comprises 141,547 sq ft of office space and 36,286 sq ft of shop space.

The eight-storey building is on a 54,560 sq ft site with a remaining lease of about 71 years. It has 95 car park lots in two basement levels. The building is 92 per cent committed to tenants, the biggest of which is Estee Lauder, occupying close to 50,000 sq ft.

Other major office tenants include Mitsui-Orient Lines Shipping and Willis Insurance. The most recent office lease in the building was done recently at $7 per square foot a month.

AEW also owns Robinson Point, which it picked up from CapitaCommercial Trust early last year for $203.25 million or about $1,527 psf.

Analysts say Capital Square, a 12-year-old Grade A office development, could fetch about $2,300-2,400 per square foot of NLA, or about $889-928 million.

However, some sources suggest a higher price could be eyed, closer to the $2,500 psf level, citing stronger appetite these days among institutional investors especially from Europe for the office sector in the Asia-Pacific, including Singapore.

Last year, K-Reit Asia and Suntec Reit each purchased a one-third stake in Marina Bay Financial Centre's first phase. Excluding income support, both deals worked out to $2,400 psf. Last month, NTUC Income acquired a 49 per cent equity stake in the company that holds 16 Collyer Quay, formerly known as Hitachi Tower, in a deal which valued the 999-year leasehold office tower at $2,250 psf.

Capital Square is owned by Munich Re and Ergo and managed by MEAG Pacific Star Asset Management, a joint venture between MEAG (the asset manager of Munich Re and Ergo from Germany) and Pacific Star.

The building was developed by Keppel Land and Rodamco. The duo sold the property to Ergo around late 2002 in a deal that valued the asset at $490 million. That transaction was structured as an asset securitisation which raised $505 million through the issue of seven-year bonds.

Market watchers recall that ahead of the bonds' maturity, Ergo had mulled a sale of the asset in 2009, but eventually opted for a $549 million refinancing deal which involved the issuance of notes arranged by Australia and New Zealand Banking Group.

Capital Square, which was completed in 1998, is on a site with a remaining lease of about 84 years. It has a total net lettable area of 386,525 sq ft comprising a 16-storey office tower (about 339,000 sq ft) with floor plates averaging about 30,000 sq ft) and two rows of conservation shophouses (around 38,000 sq ft of boutique offices and 9,600 sq ft shop space). The development has 362 carpark lots.

Tenants include Morgan Stanley, Bloomberg, Aberdeen Asset Management and Citibank.

In the Tanjong Pagar area, Singapore Technologies Building has been sold for about $150 million or $1,500 psf to Resorts World at Sentosa Pte Ltd.

Other office buildings in the market include 182 Clemenceau Avenue and Finexis Building at 108 Robinson Road (formerly known as GMG Building) - being marketed by JLL and DTZ respectively.

The office sector accounted for about a quarter or $8.7 billion of a total of $25.4 billion of property investment sales transactions in Singapore last year, according to CB Richard Ellis' figures.

Wednesday, February 16, 2011

Private home sales feeling the chill of cooling measures

PRIVATE home sales stayed buoyant last month, but experts believe the cooling measures imposed in the middle of the month will likely take some of the heat out of the market.

That will not be apparent until this month's numbers are released next month, but figures out yesterday have given the industry plenty to digest.

They showed that 1,189 new units were sold last month, 11 per cent down on December and nearly 40 per cent lower than November, but higher than expected by market watchers.

If sales at executive condominium estates such as Prive and Austville Residences were included, last month's sales would be 1,534 units.

But early signs have emerged that the tougher new rules, which include a sellers' stamp duty of up to 16 per cent, might have dampened sales activity and prompted some buyers to rethink their purchases.

Mr Li Hiaw Ho, executive director of CB Richard Ellis (CBRE) Research, can point to about 30 cancellations for units at new launches at The Tennery, Robinson Suites and the Prive last month.

Last month's lower sales could also be due to the measures weeding out purchases by short-term investors. Genuine buyers who bought either for occupation or long-term investment were likely to have made up January's figures, said Mr Li.

Jones Lang LaSalle's (JLL) head of research for South-east Asia, Dr Chua Yang Liang, added that new projects launched last month generally saw a take-up rate of under 50 per cent.

But Spottiswoode 18 and Loft@Holland, which have a large number of so-called shoebox apartments of less than 500 sq ft, were some of the exceptions, with more than 80 per cent of units launched last month snapped up.

These small-sized flats saw robust sales as their lower overall price attracts both owner-occupiers and investors, said Mr Png Poh Soon, Knight Frank's head of research and consultancy.

Most homes sold last month were in the suburban and city fringe areas. The city fringe was especially popular, with sales up 42 per cent to 401 units compared with December's numbers.

'The provides our view that prime properties are likely to see better performances this year as savvy investors return to pick up bargains in this segment of the market,' said JLL's Dr Chua.

The luxury market also enjoyed a fair level of interest, particularly projects that were newly completed or approaching completion, said CBRE's Mr Li.

The most expensive properties sold last month were three units of Scotts Square, which went for a median price of $4,621 per sq ft (psf), and a unit of The Orchard Residences at $4,258 psf.

OrangeTee Research, however, found that islandwide median prices inched up 1.8 per cent to $1,573 psf from the previous month. This could be due to the large number of shoebox apartments being sold, which generally have a relatively higher psf price.

Experts say that current market sentiment may not be easily subdued in the short term as the vibrant buying has been driven largely by record low interest rates and an economy flush with cash.

The brakes might be applied when interest rates start to rise and an increase in supply enters the market in the next few quarters from the recent government land sales, said Ms Christine Sun, senior manager at Savills Research & Consultancy.

'As it stands, the cumulative units launched but unsold have been increasing over the past few months, indicating that supply has already started to outstrip demand...Therefore, some downward pressure on mass-market home prices could be expected in the months ahead,' she said.

Knight Frank's Mr Poh estimates that between 800 and 900 homes will be bought this month. Propnex chief executive Mohamed Ismail expects close to 1,000, as almost 500 units have already been sold, he said.

Last month's top-selling projects included Spottiswoode 18, with 204 units sold at a median price of $1,992 psf, and Canberra Residences, where 155 flats went at a median price of $831 psf.

S'pore is fifth most expensive in expat rentals

SINGAPORE is now the fifth most expensive location in the world for expatriate accommodation, based on rents for two-bedroom apartments that are commonly preferred by expats.

After sinking 17 per cent in 2009 as the recession and fresh supply hit prices, monthly rentals for unfurnished two-bedroom properties here have rebounded by 15 per cent to US$2,810 in 2010, says ECA International's latest report.

The firm, which provides data and solutions to global human resources departments, said yesterday that this pushed Singapore one spot higher to rank as the fifth most expensive on the global rankings, and two spots higher to rank third in Asia.

'The rebound in Singapore has been driven by a general recovery in house prices along with increased demand,' said Lee Quane, regional director of ECA Asia. 'Assignee numbers are up again in Singapore following falls during the economic downturn. This has placed pressure on rental accommodation, particularly in areas popular with expatriates,' he added.

Tokyo ranked the most expensive globally. In Asia, it was followed by Hong Kong - frequently seen as Singapore's key competitor for expatriate talent - which shot up six spots to become the third most expensive place for this form of accommodation globally.

Two-bedroom accommodation rentals there soared 22 per cent - reversing from a 25 per cent plunge in 2009 - to hit an average monthly rent of US$2,830.

'Land in Hong Kong is already expensive due to the lack of space,' said Mr Quane, adding that low interest rates, high liquidity in the market and a shortage of residential supply have pushed rents up further.

ECA, which compiles global rental costs to help managers decide on housing arrangements or allowances for employees sent abroad, said that rentals in Asia rose a sharp 7 per cent, in contrast to the one per cent drop globally.

Apart from the region's robust economic growth, currency appreciation played a role too, said Mr Quane, citing the Singapore dollar's strengthening against the greenback.

'When Singapore rents are quoted in local currency they increased at the lower, albeit significant, rate of 9 per cent year on year,' he said.

Punggol site surprises with $1.02b top bid

A PRIME Punggol waterfront site has attracted a surprisingly high tender of $1.02 billion, amid a fierce bidding battle between seven development groups.

Analysts had predicted that the 30ha plot at Punggol Central and Punggol Walk would attract plenty of interest but even they were surprised by the response.

The top bid - it was lodged by a joint venture comprising Frasers Centrepoint, Far East Organization and Sekisui House - works out to $753 per square foot, well above the $450 psf predicted.

The bid was also more than four times as high as the lowest at $250 million, which was submitted by Mezzo Development.

It was 20 per cent ahead of the $850 million second-place bid submitted by a joint venture between Mr Pua Seck Guan, Osim International founder Ron Sim and QingDao Construction.

Keppel Group was next with a $786 million bid, CapitaLand and CapitaMalls Asia bid $764 million, while Singapore Press Holdings teamed up with United Engineers with an offer of $693 million. Two GuocoLand units jointly tendered $681 million.

The winning group said yesterday that it wanted to build a waterfront development with about 680 flats with water views and a shopping mall with an estimated 365,000 sq ft of lettable space.

The development would be integrated with the upcoming town square and riverside promenade.

The developer will have to complete the project within seven years.

Credo Real Estate executive director Ong Teck Hui said the top bid was an optimistic one that leveraged on the long-term prospects of the blossoming new town.

Mr Nicholas Mak, executive director of research and consultancy at SLP International, said the bids reflected the fact that developers are still hungry for attractive sites, especially those with unique selling points.

Mr Mak said the healthy interest from developers could also be attributed to a number of different factors.

He said the winner of the tender would be able to lay claim to the first mixed-use site to be built by private developers. The commercial element would allow the site to be developed into the first retail mall in Punggol, giving a first-mover advantage in the up-and-coming residential area.

'Punggol has an expanding young middle-class population. Some of the HDB flats are more than five years old. Therefore, there could be a healthy upgraders demand for private homes in this housing estate,' said Mr Mak.

Mr Ong agreed: 'Pricing for residential and retail rentals can be expected to be optimistic given the site's prime location next to the Punggol MRT station, proximity to the bus interchange, schools and other amenities.'

Tuesday, February 15, 2011

HDB scraps scheme for siblings to buy flats

THE Government has moved quickly to scrap a scheme that allows siblings whose parents live overseas to buy HDB flats, after unhappiness surfaced online recently over how it seemed to favour permanent residents over citizens.

Senior Minister of State for National Development Grace Fu yesterday told Parliament that the Housing Board would discontinue the scheme with immediate effect as it "is no longer necessary".

It was introduced in 1990 to enable unmarried Singaporean and PR siblings to buy an HDB flat. To qualify, their parents cannot own another HDB flat and must reside overseas.

"This was necessary then because the sublet market for HDB flats and rooms was limited, and there were few viable housing options for these siblings," Ms Fu said in response to Marine Parade GRC MP Lim Biow Chuan's question.

Under the scheme, Singaporean siblings could buy a new or resale flat while PR siblings could buy only a resale flat.

Ms Fu also revealed that only about 300 such cases got the go-ahead each year. That is less than 1 per cent of total flat transactions.

But there was no longer a need for the scheme, she said, because "with the liberalisation of the subletting market for HDB flats over the years, unmarried Singaporean or PR siblings whose parents are residing overseas can now rent a room or a small flat from the open market".

The HDB first announced a review of the scheme last month, after The Straits Times sent in questions about netizens' perception that the scheme enabled unmarried PR siblings above the age of 21 to buy HDB resale flats, whereas Singapore citizen siblings could not.

The HDB later clarified that citizen siblings whose parents live abroad can also apply to buy resale flats and that all such applications will be considered on a case-by-case basis.

But now, the Government has decided to do away with that scheme altogether.

Citizens who are single and aged 35 or older can buy a resale flat under the Single Singapore Citizen Scheme. Unmarried siblings whose parents are dead can also buy flats under the Orphans Scheme.

When contacted, Forum letter writer Tony Tan Keng Hong, 33, who raised this issue previously, said he was glad that the scheme has been discontinued.

"I think it's a fair policy. HDB flats are meant for families primarily," he said.

During yesterday's Parliament sitting, National Development Minister Mah Bow Tan also fielded questions on the property cooling measures introduced last month. He said they were "pre-emptive in nature" as the Government wanted to act before a property bubble formed.

It was too early to say how effective the measures have been. The Government "will continue to monitor the property market closely", he added.

Mr Mah revealed last Sunday that the median cash-over-valuation for HDB resale transactions in January has dipped to $20,000, from $23,000 in the fourth quarter of last year.