Seeing gold in California housing bust

 

California’s tortured real estate market has brought heartbreak and ruin, but some investors, speculators and first-time home buyers are also dreaming big and finding opportunities – a silver lining in the Golden State’s epic housing crash.

For many young couples, plummeting prices and near record-low interest rates make it possible to own a home in California for the first time.

Investors and real estate speculators, meanwhile, will be able to snap up foreclosed properties on the cheap to sell during the next boom in California’s boom-and-bust real estate cycle, a boom they believe is inevitable and possibly not far off.

‘This is the buying opportunity of our lifetime,’ said Bruce Norris, who heads an investment group that expects to purchase some 100 homes this year in Southern California’s Inland Empire region.

California – which would be the world’s eighth largest economy if it were a country – saw a near-doubling in home sales in the fourth quarter, a pace surpassed only by Nevada’s 133.7 per cent growth.

But experts warn that it’s a dangerous game to play when nobody is really sure how low home prices will go or when they will rebound as the recession lingers, jobs dry up and residents pour out of the state in search of better prospects.

Mr Norris concentrates on the Inland Empire of Southern California, made up mostly of Riverside and San Bernardino counties, one of the fastest-growing areas of the country during the housing boom, driven partly by immigrant families who couldn’t afford pricier coastal cities.

It’s now one of the hardest-hit. In the past 18 months, the median home price in Riverside and San Bernardino, pummelled by the sub-prime meltdown and now recording some of the highest foreclosure rates in the state, has plummeted 55 per cent.

Norris Investment Group looks for homes built between 1980 and 1990, typically under 2,000 square feet.

Older houses come with too many maintenance ’surprises’, Mr Norris says, and larger places can be tough to sell or rent in hard times.

Last month the group paid US$55,000 for a foreclosed home that was worth US$360,000 at the top of the market. Mr Norris expects to spend US$30,000 on repairs and rent it for US$1,200 a month until the market turns around.

The group also hopes to minimise risk by owning the homes free and clear, thus accruing little debt.

‘You cannot have this (low) level of pricing be permanent because it costs too much to build a home here,’ Mr Norris said. ‘That’s how you know you’re making a logical decision when everything is falling around you. When you can buy a finished product someone will want to live in for US$55,000, that just has to make somebody pretty wealthy someday.’

Experts agree that California home prices will ultimately rebound but caution that real estate investing in this economy – the worst contraction since 1982 – should not be undertaken by amateurs or the faint of heart.

‘You have to have a pretty strong feeling about where this is all going,’ Stuart Gabriel, director of the Ziman Center for Real Estate at the University of California, Los Angeles, told Reuters. ‘This cycle is so different from prior cycles that it’s very difficult to extrapolate.’

‘Most would argue that California is not going into the sea,’ he said. ‘On the other hand it’s not totally out of the question that this particular period of weakness could extend for a while, and that means multiple years.’

California’s roller-coaster real estate cycles can be traced to the 1970s, when home prices tripled, ignited in part by foreign investment and the end of the gold standard following decades of explosive population growth.

Home prices plunged in the early 1980s, turned around and doubled within 10 years, slumped in the mid-1990s and then blasted off again at the end of the decade. The sub-prime meltdown and recession pushed them back off the cliff.

‘It’s a great time to buy for people who are willing to risk a little more and be optimistic when everybody else is doom and gloom,’ said Daren Blomquist, marketing and communications manager for RealtyTrac, an online foreclosure data service. But he warned: ‘They will probably have to wait it out, possibly for several years.’

Chris Twoomey and his wife Jennifer illustrate the risk underlying the perceived opportunities. They moved to California from the Midwest in 2004 to pursue acting careers and had just begun to think the dream of home ownership was out of reach when the crash came and they saw their chance.

The couple pounced in January, right after Jennifer, 39, learned she was pregnant with their first child, making an offer on a small, bank-owned home in suburban Los Angeles.

But the day after the Twoomeys’ offer was accepted, Chris was called into the cafeteria at his job in a cosmetics company warehouse and laid off.

‘Sometimes in our dark moments we sit around and say to ourselves, ‘Look, forget the acting, forget everything, this is the time to bail’ (from California). We can be doing this someplace else that’s still warm but doesn’t cost as much,’ Chris told Reuters in an interview.

‘But we’re sticking it out,’ he said. ‘It’s perverse, but something inside of us does want to stay here. It’s sort of a belief that because it is Southern California and because it is the kind of place where everybody wants to be, it will come back eventually.’

Source : Business Times – Feb 2009

HK developer ups luxury home prices

 

After selling 150 units in 10 days, they plan a 5% raise

Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer by market value, is raising prices for a new luxury residential project by 5 per cent after selling 150 units in 10 days.

‘The response has been so good, we are raising the prices gradually,’ Victor Lui, executive director of Sun Hung Kai Real Estate Agency, said in a phone interview yesterday.

The builder, which released 200 apartments at its Kowloon project in the first launch, sold the 150 units for HK$14,000 to HK$20,000 a square foot, generating HK$3.5 billion (S$689.2 million) revenue, Mr Lui said. It’s now selling three-bedroom units at the project, called The Cullinan, for HK$14,700 to HK$21,000 a square foot, based on Bloomberg calculations using his figures.

The sale may indicate investment in Hong Kong’s luxury homes is picking up, Centaline Property Agency Ltd, one of the city’s biggest real-estate agencies, said. Prices of luxury homes, defined as those worth at least HK$10 million, fell 19.2 per cent in the fourth quarter from a year earlier, CB Richard Ellis Group Inc said last week.

‘There’s a bunch of cash-rich people out there who prefer holding real assets such as property, gold as they become more wary of other financial investments,’ said Wong Leung-sing, an associate director at Centaline. ‘Under the current environment, The Cullinan sale has exceeded expectations and it’d be a harbinger of an increasingly active investment luxury market.’

Sun Hung Kai’s shares rose as much as 4.2 per cent on the news, the most since Feb 9. They traded 0.8 per cent higher at HK$60.65 at 3.05pm Hong Kong time, while the Hang Seng Property Index, which tracks the shares of six developers, advanced 2.7 per cent.

The number of units sold and the revenue generated were earlier reported by the South China Morning Post.

Prices fetched at The Cullinan may entice Hang Lung Properties Ltd, Hong Kong’s fourth-biggest developer by value, to sell units at its nearby Harbourside project, analyst Manfred Ho said. Shares of Hang Lung rose as much as 6.9 per cent yesterday, snapping a nine-day losing streak. They traded 4.7 per cent higher at HK$14.30.

Hang Lung has ‘quite a big number of unsold units at The Harbourside, so if The Cullinan is selling well, definitely they will be one of the direct beneficiaries’, said Mr Ho, a Hong Kong-based analyst at BOC International Group.

Hang Lung has about 2,000 homes unsold at its Harbourside and Long Beach developments in Hong Kong, as it held back apartment sales last year after prices fell as much as 25 per cent from last year’s peak.

Sun Hung Kai may start selling the second batch of units next week, Mr Lui said, adding that the developer will decide on the number after wrapping up the first launch. Buyers in the first launch included investors from China, he said.

Sun Hung Kai is also in the final stages of negotiating the sale of four penthouse units, Mr Lui said. One of them, a 4,000 square-foot duplex, is priced at HK$50,000 a square foot while the other three smaller ones at more than HK$30,000, he said.

Standing at 270 metres, The Cullinan will be Hong Kong’s tallest residential project and includes 825 units.

Still, some analysts said prices for The Cullinan are not enough to lift the entire Hong Kong property market, which is weighed down by a recession and rising unemployment.

‘Hong Kong’s economy is really dependent on the financial sector, which is volatile, and trade, where we don’t see any sign of improvement,’ Cusson Leung, an analyst at Credit Suisse Group AG, said yesterday.

Hong Kong’s economy slid into a recession in the third quarter, its first since 2003, as the global slowdown hurt domestic spending and demand for exports.

Unemployment rose to 4.6 per cent in the three months ended Jan 31, the highest rate since September 2006, the government said on Feb 17.

Home prices on the Peak, Hong Kong’s most-expensive residential area, slumped 30.5 per cent in the fourth quarter of 2008 from a year earlier, the steepest decline since the Asian financial crisis in 1998, CB Richard Ellis said last week. The average price was HK$16,678 a square foot, it said.

Hong Kong’s record price for a luxury home was for a house in Sun Hung Kai’s Severn 8 project on the Peak that sold in the first half of last year for almost HK$56,000 a square foot.

Source : Business Times – Feb 2009

Developers’ home sales top 1,000 units in Feb

 

Developers have achieved an 18-month high in private homes sold in a month, with the 1,000-unit mark having already been breached so far in February.

Most of the developers who are prepared to pare their price expectations to more affordable levels continue to be rewarded. A near 10 per cent price chop was all it took for GuocoLand to sell off almost 90 per cent of the 182 units at The Quartz condo in Buangkok relaunched last week.

The Singapore-listed property arm of Malaysian tycoon Quek Leng Chan has found buyers for about 160 units since last Tuesday’s price cut. This means the 625-unit project is now left with only around 20 units, compared with 182 units prior to the relaunch.

GuocoLand trimmed the 99-year-leasehold project’s average price to $595 per square foot (psf), compared with $650 psf during the height of the market in 2007.

Besides the more competitive pricing, market watchers attributed the successful outcome to the fact that The Quartz will be ready for occupation soon. Temporary Occupation Permit (TOP) for the condo is expected in a couple of months.

The bulk of buyers are believed to have bought for their own occupation. About 98 per cent of buyers are Singaporeans, 80 per cent of whom live in the vicinity, mainly with HDB addresses, a GuocoLand spokeswoman said.

‘They like the design, layout and location of the development, which is near Buangkok MRT Station and also accessible by Kallang-Paya Lebar Expressway,’ she added.

The bulk of the 182 units were three-bedroom apartments. On average, a typical three-bedder of slightly under 1,100 sq ft costs around $650,000, BT understands.

Over at Jurong Lake District, Frasers Centrepoint found buyers for another 35 units for its Caspian condo over the weekend, raising total sales in the 99-year-leasehold project to 515 units.

The overall average price achieved is just over $600 psf, reflecting the sale of better-facing units in the past week. About 32 per cent of Caspian’s buyers have opted for an interest absorption scheme; they will pay 3 per cent more in exchange for not having to foot beyond the 20 per cent initial payment until the project receives TOP. On average, three-bedroom units at Caspian cost $700,000 to $750,000.

At River Valley Road, Fortune Development found buyers for another six units at RV Suites over the weekend. Half the 96 units in the freehold project have been sold. The project comprises mostly units of 500-550 sq ft, and the average price is about $1,300 psf. East Coast Properties sold another four units over the weekend for its D’Chateau @ Shelford, which is priced at $1,000-$1,100 psf on average.

Market watchers note that over at Livia in Pasir Ris, some of the 30 units released at $620 psf on average on Valentine’s Day weekend are still available. Units are relatively large (a typical three-bedder is about 1,259 sq ft), resulting in a bigger unit price quantum of at least $750,000 for a three-bedroom unit. Potential buyers may also be waiting for new projects to be launched in the area before deciding on their purchase.

Seasoned property consultants say that for mass-market projects to move today, they should be priced at around $600 psf at most, and the unit price should not exceed $700,000, in order for them to be affordable to HDB upgraders.

Source : Business Times -  Feb 2009

China moves to help housing market

 

Beijing may scrap curbs on purchases of second homes, official media say

China is considering a package of measures to provide long-term support for its residential housing market, including the scrapping of curbs on purchases of second homes, official media reported yesterday.

The China Securities Journal quoted an unnamed, authoritative source as saying that the National Development and Reform Commission, the top economic planning agency, was now reviewing proposals submitted by the construction ministry.

The package would aim to increase demand for owners to improve their homes, cut tax costs for people buying and selling homes, and help low-income people buy homes, the source said.

There are also proposals for the government to buy a small amount of housing stock to help it prevent excessive price fluctuations, and for steps to ensure that home buyers and developers receive ample long-term financing, the newspaper added.

Developers would be allowed to create real estate investment trusts (Reits) as soon as possible to bolster their funding, while rules restricting the amount of institutions’ investment in property would be abolished or relaxed.

The newspaper did not say when the package might be introduced.

The Shanghai Securities News quoted Cheng Siwei, an influential former lawmaker, as saying that the government had placed residential housing on its list of 10 major industries, which would receive policy assistance.

But it remains unclear what specific policies will result from this, partly because the authorities are still debating whether a policy package should focus on the property market’s current slump or its long-term development, the newspaper added.

Two government sources told Reuters yesterday that the State Council, or cabinet, did not plan to include the property sector in its list of industries to receive formal assistance packages.

Since last year, the government has announced a range of steps to aid the real estate market. In December, it cut business and transaction taxes for real estate sales, and said it would let people buy second homes on the same preferential terms normally reserved for those buying first homes, if floor space per person were lower than the average for the city where the homeowner lived.

Source : Business Times – Feb 2009

Property developers’ earnings sink

 

EARNINGS at property developers here have sunk like a tonne of bricks as confidence in the residential property market continues to take a beating.

Wheelock Properties yesterday reported a 63 per cent drop in full-year net profit for last year, while MCL Land sank deep into the red, reversing a healthy bottom line a year earlier.

In view of the poor market, Wheelock Properties says it is ‘currently reviewing the building plans’ for its proposed luxury project Ardmore 3, while MCL Land is reviewing ‘the carrying value of development properties for sale in Singapore’.

For the year ended Dec 31 last year, Wheelock Properties posted a net profit of $100.9 million, down from $273.5 million, even though revenue rose 19.4 per cent to $454.6 million. The previous period was nine months due to a change in the company’s year-end.

The company attributed the higher revenues to the sale of units at Scotts Square as well as higher rental rates accrued by Wheelock Place, the group’s office and retail property in Orchard Road.

Although the depressed residential market here meant prices of freehold non-landed private prime homes fell 14 per cent in the last quarter, the group sold 13 units in Scotts Square last year for a revenue of $54 million, or $4,028 per sq ft, it said.

Total sales for the project have now reached $903 million, and ‘this revenue will be recognised progressively in the accounts until Scotts Square is completed’ next year.

Wheelock Place was also revalued – from $700 million to $790 million – last year.

Earnings per share were 8.44 cents, down from 22.86 cents the previous year.

Net asset value per share stood at $1.72, down from $1.82 a year earlier.

The board has proposed a final dividend of six cents a share.

MCL Land reported a net loss of US$107.3 million (S$165 million) for the year ended Dec 31 last year, after posting a net profit of US$61.9 million in 2007.

The group recorded full-year revenue of US$343.1 million, a 12 per cent drop. This was mainly attributable to the completion of Mera Springs and The Esta.

The group acknowledged that the residential property markets in Singapore and Malaysia ‘were difficult due to the damaging effects of the global financial crisis’.

It noted that the prices of high-end condominiums in the prime district fell by 20 per cent to 30 per cent last year, while prices of mid-tier homes in the central areas fell by 10 per cent to 15 per cent.

Still, the group believes it is ‘well-placed to weather the difficult economic and market conditions’, with ’strong cash flow’ generated from the sale of three projects – The Fernhill, Tierra Vue and Hillcrest Villa.

Loss per share was 29 US cents, down from earnings per share of 16.73 US cents the previous year.

Net asset value per share stood at US$1.06 as at Dec 31, down from US$1.42 a year earlier.

The board has recommended a final dividend of 10 Singapore cents per share.

Source : Straits Times – Feb 2009

Capella Singapore: WOW factor

 

CAPELLA Singapore finally opens its doors to its first paying customers on March 30. This marks the start of what the hotel and its owners hope will be a new chapter in the top end of the local hospitality industry – an establishment that successfully and seamlessly combines Singapore’s colonial past with the latest in resort-style accommodation and ‘a new standard of luxury’. Developed at a cost of $400 million by an associate company of the Pontiac Land group and managed by the US-based West Paces Hotel Group, the 111-room Capella Singapore is opening at a difficult time, thanks to the current global economic meltdown. Viewed from a different perspective, however, the hotel – the first in the region for the Capella group – is positioned to take advantage when the market for ultra-luxe hotel properties regains its lustre.

Given its spectacular 30-acre site on a hillside in Sentosa and the fact that every aspect of the hotel’s development has been gone over with a fine toothcomb, there is little doubt that Capella Singapore will create a positive buzz when it opens for business at the end of next month. Just to make sure, though, it gave the media an advance look at the property earlier this week.

The design line-up, led by brand name architect Norman Foster, is certainly impressive enough. The British architect’s ability to blend traditional design with futuristic elements has earned him a worldwide reputation, although he has yet to produce an iconic, impact-making building in Singapore along the lines of, say, the HSBC headquarters in Hong Kong or the German Parliament Building in Berlin.

There is a definite sense of The Grand Arrival at Capella Singapore. A long driveway leads up a hill and follows its natural contours before ending in front of Tanah Merah, two 19th-century colonial buildings that served as function halls for official British Government events have been meticulously restored to form the reception area of the hotel.

Rather than a conventional hotel lobby, guests will be made to feel as if they have arrived at a large private home. The rooms in Tanah Merah, which means ‘Red Earth’, are built on an intimate scale and decorated in a neo-colonial style with white-stained ceiling beams, wooden furnishing, grey-veined white marble floors and patterned rugs – somewhat clubby and evoking an unmistakable sense of plush privacy.

A flight of stairs leads from the reception room to a wood-panelled lounge called The Library, for obvious reasons. The overall setting is not as grand as, say, Carcosa Seri Negara – the former British High Commissioner’s residence in Kuala Lumpur that was built in the late-19th century and also turned into a luxury hotel – but there are many more layers to Capella Singapore.

For openers, Tanah Merah marks just the start of the Capella experience. Traditional architecture then gives way to the Foster treatment – guests emerge from the colonial-era buildings to find a long, curvilinear roof, linking the existing buildings with an entirely new, low-rise main block that houses the guest rooms. The contemporary shape, reminiscent of the futuristic curves found in several of Foster’s projects, looks from above like a large figure eight. The continuous aluminium roof is finished in a dark earth tone, in keeping with the traditional roof tiles on Tanah Merah.

Simultaneously, guests will not fail to notice a panoramic view of tropical greenery, comprising a tree canopy that follows the contours of the site down to the sea, where ships lie at anchor in the distance. The natural topography adds prominence to the main building, which sits atop the site, with rooms, restaurants and other facilities spread over several levels. Top-notch designers hired to decorate individual spaces include Jaya Ibrahim for the guest rooms, Andre Fu for Cassia, the hotel’s Chinese restaurant and Koichi Yasuhiro of SPIN for The Knolls, its all-day restaurant.

A three-tiered swimming pool complex (there are another 50 pools throughout) and 38 garden villas are sprinkled over the sloping land, together with a further 82 suites and duplexes intended for long-term guests who will be able to enjoy the benefit of the hotel services along with the main hotel guests. Apart from some villas that appear to be clustered together a little too closely, the Capella evokes a sense of true resort-style luxury – a definite rarity in an urban environment.

A concerted effort has been made to keep the grounds natural, so the landscaping is organic rather than ornamental, with planting intended to affect a paddy-field look in certain sections. Meanwhile, the overall design look is contemporary, with local touches – materials used in the guest rooms include Burmese teak, dark granite and limestone, while the curved themed extends to the villa roofs and ceilings as well.

A collection of artworks adorn other parts of the site – notable works include a steel installation on the lawn fronting Tanah Merah, an installation by Japanese artist Tomoko Sawada and a glass sculpture hanging from the ceiling of the uniquely circular, glass-domed ballroom.

Hotel rack rates start at $660 while villas are priced between $1,800 and $7,500. Rooms are uniformly spacious, ranging from 77 square metres for a deluxe room with a large picture window. The presidential suite, known as the Capella Manor, comprises three bedrooms and 4,000 square feet of space.

Rates for the long-stay accommodation will be individually priced, depending on the view, says Capella Singapore’s general manager Michael Luible. ‘Among affluent travellers who have houses and yachts around the world, the problem is who looks after them?’ says Mr Luible. ‘We take all these problems away and market the homes under the Capella umbrella.’

He adds, ‘It’s all about privacy and space and creating a certain word of mouth. We are offering a resort lifestyle and hopefully, we will deliver a ‘wow’ experience.’

Source : Business Times – Feb 2009

Sentosa’s seventh wonder

 

Sentosa’s latest hotel – the ultra-luxurious Capella Singapore – opens next month, bringing to seven the number of hotels on the small, 500ha island.

The $400-million hotel designed by renowned British architect Norman Foster is set to be the jewel in Sentosa’s crown, with its distinctive figure-eight shape wrapped around two grand colonial buildings restored to their former glory.

It will have 111 rooms from a selection of suites, villas and what the Capella people call ‘manor’ houses.

Given that the resort island already has 1,200 hotel rooms, and with at least 1,650 more to come within the next three years, it begs the question: Is Sentosa in danger of being ‘hoteled’-out?

No, say industry experts who point out that the various hotels cater to different markets.

For example, Capella Singapore’s luxury rooms with villas and manors are the first of their kind on Sentosa, says Mr Philip Lim, director of hospitality and tourism training academy, The Tourism Academy@Sentosa.

‘It will be clearly differentiated from what is already available,’ he says. His training institute is a collaboration between Temasek Polytechnic and Sentosa operator Sentosa Leisure Group and offers diplomas in hospitality and tourism business.

Capella Singapore’s market is very high-end: Room rates start from $750 and go up to $7,500 – the priciest on the island.

Sentosa’s other hotels cater to either those on a budget, making them popular with families, or the upmarket crowd who can splash out but not to the level of Capella’s luxe lot.

Hotels in the first category are the Costa Sands Resort (Sentosa), Siloso Beach Resort and Treasure Resort. Prices start from $80, $260 and $288 for a night respectively.

Those belonging to the latter category are the five-star Rasa Sentosa Resort and The Sentosa Resort & Spa, and the boutique resort, Amara Sanctuary Resort Sentosa. Prices start from $375 at Rasa Sentosa, $380 at The Sentosa Resort and $500 at Amara Sanctuary.

Mr Goh Lye Whatt, Sentosa’s director of property and planning, points out that the island’s hotels and resorts are popular among a diverse group, from families on getaway vacations to business travellers and holiday-makers on extended stays.

He adds that as part of Sentosa’s master plan, these hotels were planned for the long haul in line with more tourism initiatives and to bring a wider range of offerings to meet the needs of travellers.

Singapore Tourism Board’s director of hospitality division Caroline Leong says ‘the wider range of offerings will better position Singapore to meet the accommodation needs of travellers’.

Indeed, Mr Albert Teo, chief executive officer of Amara Holdings which owns Amara Sanctuary, is unfazed by the opening of Capella Singapore. He says that with Capella’s additional 111 rooms, ‘it’s not that many to Sentosa’s total room count’.

Capella Singapore also offers extended stays that can be as long as 20 years. ‘It is catering to a niche market that is different from ours,’ says MrTeo of his 121-room hotel. He says Amara Sanctuary is meeting its targeted occupancy rate but declines to elaborate.

As well as the lavish Capella Singapore, built over nearly six years, Sentosa will have several more hotels opening over the next few years.

Singapore’s first of two integrated resorts, Resorts World at Sentosa, is expected to open in March next year. Four of its six hotels will be open by then, offering 1,400 rooms.

Property giant City Developments is also developing a 250-room hotel at Sentosa Cove, which it says will be ready in ‘two, three years’. It was originally reported to be a W hotel (part of the hip W hotel brand), but a spokesman says it will unveil the name at a later stage.

But that is a long way off. Right now, the buzz is all about Capella Singapore, the flagship property for Capella Hotels and Resorts in Asia.

General manager Michael Luible says it has been receiving bookings since January and ‘now has a healthy number of advance bookings’. These include room bookings by corporate travellers, individuals and families.

Mr Lim says whether Sentosa can take more hotels will depend on the demand ‘when the economy is back in its healthy state and when all hotels including those in Resorts World are ready’.

Mr Luible says consumers benefit from more options on Sentosa as the island provides a wide range of lifestyle and hospitality choices for various budgets and needs. But other than those already planned for, he prefers ‘to see no further hotel developments on the island, to preserve its natural beauty’.

Source : Straits Times -  Feb 2009

Office rents may slide until 2012

 

AFTER two years of being squeezed by soaring rents, office tenants are finally seeing the market turn in their favour.

Up to four years of falling or flat rents are in store for them as a wave of upcoming office space outstrips lacklustre demand, according to a new report by property consultancy Savills.

Its Asia-Pacific regional commercial head Chris Marriott expects top-grade office values here to halve from last year’s peak by the end of next year, and not start to recover until 2012. Top-tier buildings downtown such as One Raffles Quay and Republic Plaza offer Grade A space.

Rents of such offices are predicted to drop 30 per cent to 40 per cent this year, and a further 20 per cent to 25 per cent next year, he said at a briefing yesterday.

The expected falls are due to the huge volume of new office space to be completed by 2011: 5.5 million sq ft, or about 30 per cent of all existing Grade A space.

At the same time, demand for new offices – which far exceeded supply recently when firms were still expanding – has become anaemic, due to the global economic slowdown, said Mr Marriott.

‘Office rents have generally come off by 10 per cent from the peak last year, although for new lettings we’ve seen more like a 25 per cent drop,’ he said.

Average Grade A rents peaked at $15.10 per sq ft (psf) last year and fell to $13.70 psf by the year end. Savills believes they will drop to $6 to $7 psf next year, leaving prime office space here some 20 per cent cheaper than in Hong Kong. Singapore’s office market will see a more severe adjustment, partly because the proportion of new space in relation to existing space is bigger, Mr Marriott said.

Other property experts agree that office landlords are in for a tough time.

Cushman & Wakefield managing director Donald Han is tipping a 20 per cent decline in rents this year and another 20 per cent fall next year, although he said the drops may be bigger if Singapore’s economic outlook continues to worsen.

In the past three months, most Grade A office landlords have cut rents by up to 10 per cent to 15 per cent, he said. ‘Landlords…are becoming more aggressive in trying to keep their tenants happy.’

Still, he notes that even if rents bottom at $7.50 psf – his own forecast – they will remain higher than during the last downturn, when they touched $5 psf.

CB Richard Ellis executive director Moray Armstrong is not expecting rents to correct by so much. ‘We have seen in previous cycles that when demand picks up, the available office supply is often very swiftly absorbed,’ he said. ‘Cycles here have been very short in the past, quite often in the order of two to three years.’

But now, landlords are ‘very much prepared to negotiate’, said DTZ Debenham Tie Leung’s senior director Shaun Poh. ‘Some of the landlords have stopped quoting actual prices; now they just ask tenants to make them an offer,’ he said.

Existing tenants are also trying to cash in on the recession, Mr Poh said. ‘Some tenants who have already settled on a price are asking to renegotiate or to get longer rental holidays.’

But not all landlords are worried. CapitaCommercial Trust, which owns 11 prime properties here, said it is ‘not true’ overall rents are down sharply, compared to trends in previous downturns. A spokesman said the trust charges $15 to $17 psf for Grade A space, while its overall average rent is ‘only $7.44 psf’.

‘We…expect to see positive rental reversions for leases renewed in 2009.’

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Tenants rethink pre-booked space

THE credit crunch is forcing major tenants in Hong Kong to scale down ambitious plans to take up more office space there.

Property consultant Savills said yesterday at a press conference at SGX Centre1 that these tenants are unlikely to proceed with all the space they have booked.

The global credit crunch has battered many major financial institutions in the past year.

The firms mentioned by Savills included big names such as Credit Suisse, Deutsche Bank and Morgan Stanley. They had been due to move into the Hong Kong International Commerce Centre upon its completion next year.

Consultants say this hesitancy to take up pre-committed space has yet to occur in Singapore but it may happen in the months ahead.

Mr Moray Armstrong, executive director at property consultancy CB Richard Ellis, said: ‘It’s not a stretch to expect that to happen here, given that many of the pre-commitments were made by financial institutions.’ He also said these institutions may choose to sublet space they cannot occupy.

This might be seen at the new Marina Bay Financial Centre, set to be ready in 2012. All three towers of prime GradeA office space have been at least partially pre-leased. Tenants include American Express, BHP Billiton, DBS Group Holdings, and the Macquarie Group.

Source : Straits Times – Feb 2009

Sentosa, Marina IRs get pricier

 

Both are revising costs upwards for 2nd time

SINGAPORE’S two integrated resorts (IRs) are getting increasingly expensive, with both developers revising their cost estimates upwards for a second time.

Construction in progress at Marina Bay Sands, certain section of which are expected to open by year’s end. It was announced last week that the IR project is now estimated to cost US$5.4 billion, up from previous estimates of US$3.6 billion and US$4.5 billion. — ST PHOTO: ALPHONSUS CHERN

An additional $590 million will need to be pumped into the kitty for the Sentosa project, while the price tag for the Marina Bay Sands development has gone up by US$900 million.

Resorts World at Sentosa yesterday revised the cost for the 49ha resort in its earnings call, bringing it up to $6.59 billion. This is the second time the budget has been revised: It was bumped up from $5.2 billion to $6 billion in November 2007.

Marina Bay Sands will cost more as well. At last week’s earnings call, Las Vegas Sands Corp announced its Singapore IR is estimated to cost US$5.4 billion, an upward revision from previous estimates of US$3.6 billion and US$4.5 billion.

No explanations were given by Sands for the increase in cost, but it raised US$2.1 billion last November in a rights issue to cover its projects, including the one in Singapore.

Resorts World at Sentosa chief executive officer Tan Hee Teck said yesterday that additional funding would come from operating cash flows when the casino resort opens next year.

The extra money was needed for improvements to the design of the casino project, he said. Areas which were tweaked included pedestrian flow, the monorail stop at the resort and adjustments to the 24 attractions.

He said: ‘We want to make sure each and every attraction is up to standard. We found we needed more money to bring the attractions up to a superlative level.’ Moreover, construction costs had risen sharply in the last few years, he added. Steel, for example, rose from $800 per tonne in 2007 to $1,800 last year.

CIMB-GK Song Seng Wun said it was simply bad timing that the IR projects were awarded at the peak of the construction boom, which led to costs spiralling upwards.

Construction projects awarded earlier do not benefit from prices softening since the global financial meltdown, as they had locked in materials at a higher rate, Resorts World’s Mr Tan said.

Despite the revision in budget and the ongoing global recession, Mr Justin Tan, managing director of parent company Genting International, said he is ’still as confident’ in the success of the project.

As travellers trim their budget to take in short-haul travel, visitors from China and India who may have splurged on trips to Las Vegas or Europe would head to Singapore instead, he added.

Resorts World at Sentosa is slated to open on schedule by March next year.

One section of the resort is due for completion next week when its first 11-storey hotel, the Maxims Tower, is topped off. It will be the first development to be completed at either of the IRs.

Marina Bay Sands is expected to open in the fourth quarter of this year. However, it is uncertain which parts of the resort will be ready as Las Vegas Corp said only ‘certain features’ are targeted to be ready by December.

The resort has applied to the Government for a staggered opening, but has yet to receive official approval.

Source : Straits Times – Feb 2009

Some Alexis buyers offer units in subsale market

 

Other developers try to ride buying wave by relaunching units at lower prices

The Alexis condo sold like hot cakes last week and now a few buyers at the fully sold project are trying to flip their units in the subsale market, notwithstanding the fact that Singapore is in the throes of its worst recession.

A better deal: Several developers are trimming prices to give buyers an incentive to commit to a purchase. This weekend, GuocoLand will relaunch The Quartz condo near Buangkok MRT Station with a price cut of nearly 10%

These buyers are seeking prices about $100 per square foot above what they had paid, translating to a net gain of around 10 per cent, property agents estimate.

Ripples from the strong sales momentum generated for the 293-unit freehold condo, comprising mostly smallish units costing between $420,000 and $800,000, spread to showflats of several other small and mid-sized developers. Some of them trimmed prices to give buyers an incentive to commit to a purchase.

The mini home-buying wave sparked earlier this month by Frasers Centrepoint’s launch of its Caspian condo in the Jurong Lake District, has led other developers to speed up launch plans for new projects, or to relaunch existing ones, with a price cut.

This weekend, GuocoLand will relaunch The Quartz condo near Buangkok MRT Station with a price cut of nearly 10 per cent.

The 625-unit, 99-year leasehold project is slated to receive Temporary Occupation Permit in a few months and is left with 182 units. For a start, GuocoLand is likely to push out about 60-odd units, all three-bedders and most of which will cost below $650,000. The average price of the units to be relaunched will be about $595 psf, compared with an average price of $650 psf that GuocoLand was selling the project at during the height of the market in 2007.

The project is being marketed by CB Richard Ellis and ERA.

In the River Valley area, Fortune Development has sold 12 units at RV Suites since Saturday. The 96-unit freehold project’s average price is $1,300 psf and most of the units are smallish, at about 500 to 550 sq ft and cost about $630,000 to $730,000. This brings total sales in the seven-storey project to 42 units, according to Fortune general manager Victor Soh.

Over in the Shelford Road area, East Coast Properties sold 14 units at D’Chateau @ Shelford during the weekend at an average price of about $1,000-1,100 psf. Units cost between $900,000 (for a three-bedroom apartment) and $1.7 million (for a penthouse). About half or 16 of the total 31 apartments in five-storey freehold project are now sold, said the company’s managing director Alvin Ng.

Macly Capital is also said to have sold about 10 units over the weekend at Newton Edge.

Property market watchers say specuvestors may have been drawn to Alexis, near Queenstown MRT station, by developer EC Prime’s decision to offer buyers an interest absorption scheme without charging any premium (usually buyers have to pay about 3 per cent more for such schemes), as well as the relatively affordable investment sums for the mostly smallish units.

However, EC Prime’s director Melvin Poh refuted talk in some quarters that the company generated demand from agents who bought units, and that a substantial number of buyers picked up multiple units.

‘We have checked our sales records; there were only two families that bought multiple units – one family bought five units, and the other, three units. The rest of the buyers all picked up one unit each.

‘If agents from Huttons (Alexis’s marketing agent) or their close relatives bought, they would have to declare to us, and so far there have been none,’ Mr Poh said.

Alexis’s buyers were mostly Singaporeans and EC Prime, a joint venture between Yi Kai Group and Fission Group, has given them up to three weeks to decide whether they would like to opt for the interest absorption scheme (IAS).

Buyers had to pay 5 per cent of the purchase price when they booked a unit, that is, when they were issued an option by the developer. Eight weeks later, they will have to pay up another 15 per cent, with no further payment (under IAS) until the project receives Temporary Occupation Permit in about three years.

Those who do not exercise their options will forfeit a quarter of their 5 per cent deposit. For a $500,000 unit, that will amount to $6,250.

Those who buy on IAS will have to immediately sign up for a home mortgage with United Overseas Bank, and the credit assessment is expected to sift out financially weak buyers.

‘Alexis has drawn investors. Based on our sale prices, they could earn about 5-6 per cent yield from renting their units, given the location near an MRT station close to town,’ Mr Poh said.

Source : Business Times – Feb 2009