Thursday, January 31, 2013

Office rents set for recovery: CCT

New supply shrinking, demand expected to rise

The Business Times
January 31, 2013

SINGAPORE'S office rents are set to rebound from their first annual decline in three years as new supply shrinks and more businesses expand, according to the biggest office property trust in Asia outside of Japan.

Rents in the city are reaching a trough and demand may rise as the country positions itself as a regional business hub, said Lynette Leong, chief executive officer of CapitaCommercial Trust (CCT).

Supply for the next three years will be about 0.8 million square feet a year, down from 1.3 million sq ft over the past two decades, she said.

"Rents are poised for a recovery," Ms Leong said in Singapore on Jan 24. It's "a no-brainer that rents are not going to go down very much further so it's more when the rents will turn and to what extent", she said.

Ranked by the World Bank as the easiest place to do business for a seventh year, the country that's smaller than New York City is also emerging as Asia's wealth management centre, driving demand for banking services with an increase of millionaires.

Singapore office rents are the 19th-highest globally, according to CBRE Group Inc, and are cheaper than Hong Kong, Tokyo, Beijing and New Delhi.

CapitaCommercial estimates new demand accounted for 1.5 million sq ft to 1.8 million sq ft annually in the past three years, Ms Leong said, without giving a forecast for 2013.

Singapore's office rents fell 0.3 per cent in the fourth quarter, extending the decline in 2012 to 1.3 per cent, the government said on Jan 25. They climbed 8.4 per cent in 2011 and 13 per cent in the previous year, government data showed.

The country's millionaire households expanded 14 per cent in 2011, according to a Boston Consulting study. The proportion of millionaire homes in the city of 5.3 million people was 17 per cent, the highest in the world, followed by Qatar and Kuwait.

Additional office space in the past two years came mainly from the downtown Marina Bay area, with banks including Standard Chartered plc and Barclays plc taking bigger offices. Standard Chartered relocated from 11 buildings across the city to one tower in the new office area, while Barclays moved from six to two in the district.

Average gross rents of prime office space declined 11 per cent in 2012 and could fall 5 per cent to 10 per cent this year, Colliers International said in a Jan 25 report. Leasing rates climbed 14.6 per cent in 2011, the property brokerage said.

New tenants took up 1.9 million sq ft of space last year, a 17 per cent drop from the five-year high of 2.3 million sq ft in 2011, Colliers said.

"It's still too early to pinpoint a time for a recovery," Chia Siew Chuin, director of research & advisory at Colliers, said yesterday. "Global economic headwinds are a concern and there is also a risk of secondary space that can be returned to the market should occupiers or tenants relocate to new buildings."

Singapore's economy expanded 1.2 per cent last year, less than a quarter of the pace in 2011. Growth is expected to range between one per cent and 3 per cent this year, based on official estimates.

The city also became the first in Asia to introduce curbs on industrial properties. The government on Jan 11 imposed as much as 15 per cent in stamp duties on sellers of warehouses and logistics buildings to curb speculation after prices doubled in the past three years and outpaced the increases in rents. – Bloomberg

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
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DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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Coping with a rise in numbers: S'poreans' fears

Home prices, competition for jobs, overcrowding among top worries

The Straits Times
January 31, 2013

MANY Singaporeans reacted with surprise - or alarm - at the 6.9 million population projected for 2030, with several wondering whether the country can cope with the 30 per cent increase.

Although the swell is 17 years away, they are worried about several issues that they say they are already facing now.

These include competition for jobs, cost of living, home prices and congestion, according to street interviews by The Straits Times yesterday, one day after the Government released its Population White Paper.

Of the 100 people aged 15 to 73, exactly half rejected the idea of Singapore having 6.9 million people, while another 35 were unsure. Only 15 said it was a good idea.

To help boost the population, more foreigners will be let in and their numbers are expected to grow from 1.49 million - as of June last year - to around 2.3 million to 2.5 million by 2030, according to the White Paper.

This raised concerns about whether homes will be affordable.

Even though enough land has been set aside to build 700,000 new Housing Board homes by 2030, one-third of those interviewed worry that prices will be high as a result of the influx of foreigners.

They wanted the Government to keep a lid on home prices and raise the income ceiling to qualify for subsidies. Some wondered if new HDB flats would further shrink in size.

"The Government says it will build more homes. But what is the point if they are all much smaller, like the homes in Hong Kong? Our quality of living will go down," said Mr Ganeesan Packrisamy, a 50-year-old driver.

Others, especially those who expect to retire by 2030, expressed concern about health-care costs, and asked if more could be done to further cut their medical bills.

Overcrowding was another major concern, with many expressing doubt that the country's infrastructure could cope with 6.9 million people, despite the Government's pledge to plan ahead.

They feel the congestion will worsen the already crowded roads and public transport.

Said analyst Chun Hui, 23: "It is already a tight squeeze when we board trains. Will we end up having to be pushed into the train by staff, like they do in Tokyo?"

The biggest concern, however, was competition for jobs, with 41 of the 100 interviewed having misgivings on whether Singaporeans would be able to land good jobs.

Despite government assurances of maintaining a Singaporean core, some like bank consultant Ben Tan, 43, want laws to ensure employers hire Singaporeans first.

Others called for more skills upgrading, reserving jobs for the less-educated, and measures to raise wages to match inflation.

They also wonder whether foreigners would be able to integrate with Singaporeans, given their different cultural behaviours and ability to communicate in English.

Housing agent Hamidah Gaffar, 59, suggested giving foreigners more help in integration, such as free English lessons and handbooks on the Singaporean way of life.

But people like cook Goh Him Boo feel the idea of having 6.9 million people is realistic and necessary.

Said the 58-year-old: "It's better to have more people, otherwise our shopping centres will become all quiet."

Added housekeeper Shanti Dorasamy, 41: "We'll have more people to support our population and have more babies."

The White Paper on a Sustainable Population for a Dynamic Singapore is available online at

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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MAS on Asia govts' moves to cool property markets

Targeted interventions have met with some success, investor conference told

The Business Times
January 31, 2013

TARGETED interventions by governments to cool heated property markets across emerging Asia have achieved some degree of success, said Monetary Authority of Singapore (MAS) managing director Ravi Menon yesterday.

They allowed policymakers some freedom to experiment without relying too much on possibly counterproductive interest rate or exchange rate policies.

But these interventions - such as tightening loan-to-value ratios and stamp duties - need to be put in a more structured context, he said at Citibank's 10th annual Asia-Pacific Investor Conference.

"While these targeted interventions have achieved a measure of success, macroprudential policies in emerging Asia have been deployed in a relatively eclectic and even ad-hoc manner.

"As these countries return to more normal times, there is a need to formalise and institutionalise the modus operandi of these policies, for greater transparency and policy effectiveness."

Mr Menon was giving an overview of the global economy and what can be done to ensure its return to normalcy. While economic prospects this year look brighter, the global economy and financial markets are still fragile and vulnerable to shocks, he said.

Easy global liquidity conditions caused by money-printing central banks in advanced economies have caused asset prices to surge in some Asian countries, Mr Menon noted.

Residential property prices in Korea, Taiwan, Hong Kong, and Singapore, for example, have increased by 35 per cent on average since 2009, while nominal wages have risen by only 13 per cent.

"As long as monetary conditions in the advanced economies remain easy, emerging market economies face the risk of misallocated resources and disruptive capital flows, which in turn can affect both price stability and financial stability," he said.

One policy response is to allow exchange rates to rise. Since mid-2009, most regional currencies in Asia have appreciated by 3 to 10 per cent in nominal effective terms. But allowing exchange rates to appreciate rapidly to contain inflation might attract even more capital inflows, and runs the risk of driving down exports and stalling the economy, he said.

Likewise, interest rates are too blunt a tool to deal with "sector-specific excesses" like in real estate. Hike rates too aggressively to affect credit conditions and asset prices, and there will be a high cost on the rest of the economy, he said.

Here, the MAS does not use interest rates as a tool to combat inflation. It is currently allowing the Singdollar to appreciate gradually.

Asian governments have been trying other ways. Earlier this month, Singapore announced its seventh attempt to cool property prices in the last three years, with higher stamp duties and tougher loan eligibilities. Hong Kong, too, has tightened mortgage lending, imposed a buyer's stamp duty and is boosting land supply.

Meanwhile, Mr Menon also said that other key reforms needed by emerging Asia governments include boosting domestic demand, deepening and broadening its financial markets, and raising efficiency and productivity.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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Mortgage takers beware the twin risks of 2015

There will be higher interest rates, large supply of homes

The Business Times
January 31, 2013

WATCH out for 2015. That's when home-loan borrowers face higher interest rates just as an abundant supply of newly completed units comes on the market.

The Singapore economy's exposure to the property market is now at a record high level, posing greater risks to the financial system, said DBS Bank economist Irvin Seah.

"Total mortgage loans as a percentage of SGD banking sector deposits has reached a new high at 30 per cent," he revealed.

The previous peak was hit in 2004, when mortgages made up 28-29 per cent of deposits.

"In addition, outstanding mortgage loans as a percentage of GDP rose to 44 per cent as of end-2012," he said.

Estimated total home loans and gross domestic product (GDP) at end-2012 were $151 billion and $348 billion, respectively.

Mortgages are an important driver of loan growth and account for about 31.2 per cent of the total amount of outstanding loans in the economy, he noted.

While the level of exposure here may not be as high as other economies, Mr Seah said the threshold any country can tolerate varies from place to place.

In Hong Kong, the property sector accounts for half of outstanding loans, with additional risks coming from the use of real estate as collateral.

Commenting on Singapore's 44 per cent mortgage exposure to GDP, Mr Seah conceded that while he did not know what the government's "comfort" level of exposure was, he felt a ratio of about 30-40 per cent was more sustainable in the longer term.

The latest round of property-cooling measures announced earlier this month indicates that exposure levels have started to cross the comfortable zone, he said.

"The latest move marks a deliberate shift to de-risk home-buyers, the financial system as well as the overall economy from the potential risk of a property bubble.

"As the recent US experience with housing shows, the best way to address a crisis is to prevent one from occurring.

"Lowering consumer leverage and financial system risk will remain the focus in this aspect. And that implies moderate loan growth numbers going forward," said Mr Seah.

It's not clear if the latest measures are enough to remove 2015's two main risks - higher interest rates and the supply of plentiful housing.

Low real mortgage rates have been a key driver of the property market here. "Our interest rate strategist has recently pointed out that steepening pressures are building up on the USD yield curve. This could drive longer-term interest rates higher across Asia, including Singapore, in the coming quarters," he said.

Markets have already priced in the first US fed rate hike, which is expected in mid-2015.

Mr Seah said it was important for borrowers to do the necessary "stress-testing" to take into account potentially higher interest rates and determine whether their properties will remain affordable under higher-rate scenarios.

Secondly, there is a large supply of new housing, which will hit the market in the next three years.

"Some 128,100 new housing units that will hit the market in the coming three years, with a peak likely in 2015," he said.

"The combination of rising interest rates and abundant supply by 2015 argue for more than the usual amount of caution and the latest round of property cooling measures should be viewed against this backdrop. Whether more is required remains to be seen."

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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