Property valuers feel the buzz

Recent strong home sales, refinancings help boost demand.

Away from the glare of the market, valuations departments of property consultancy groups here have been quietly doing brisk business despite the property slump.

Valuers attribute this in part to a pick-up in sales at private residential property launches since February. Also contributing to demand are buyers who are getting loans for units bought earlier on Deferred Payment Schemes (DPS), and borrowers who are seeking better refinancing packages and switching banks.

Some property consultants say banks are requesting more frequent valuations of properties in their loans portfolio, given declining property values. ‘It’s not just for housing loans, but offices, factories, etc. I suppose banks have to monitor if the properties are in negative equity,’ says DTZ Southeast Asia’s CEO Ho Tian Lam.

Said Joseph Wong, OCBC Bank’s group chief credit officer (consumer credit risk), group risk management: ‘We conduct regular reviews on our loan portfolio which cover various factors including update of valuation of properties.’

Mr Ho said the volume of valuations at DTZ has risen more than 10 per cent in the past one or two months compared with the same year- ago period. The firm has redeployed two senior marketing executives from its investment sales department to its valuations department.

Knight Frank managing director Tan Tiong Cheng told BT the number of valuation instructions for private residential properties clinched by his firm has increased 36 per cent in Q1 this year compared with the preceding quarter. For March alone, the figure has gone up 59 per cent from the preceding month. These instructions, which are requested either by lending banks or borrowers, refer to paid valuations and not indicative ones, which are often provided to banks for free or for a token sum.

Jones Lang LaSalle’s head of valuation advisory services Tan Keng Chiam said his firm has seen a 10-20 per cent rise in the number of weekly valuation enquiries since late March compared with the January-February period. ‘But this has not translated to huge volumes of business,’ he added.

Mr Tan said there have been ‘more enquiries for refinancing purposes as well as a noticeable, though slight, increase related to home purchases’.

Despite higher business volumes, none of the firms, citing competition, has any plans to raise its valuation fees, which can be as little as $300 to $500 for valuing small apartments. Commercial buildings cost several thousands to tens of thousands of dollars to value, depending on the size and complexity of the valuation required, which also depends on the lender’s profile. Package fees for valuing an entire portfolio of buildings for a property group or real estate investment trust (Reit) can run into hundreds of thousands of dollars.

‘For Reits, in particular, valuations are a lot more meticulous. We have to go through individual tenancies and do more checks in general. And we don’t just use the comparables method but also discounted cashflow to arrive at the property valuations,’ Knight Frank’s Mr Tan said.

Most valuers BT spoke to say a key reason they have been kept busier lately is the gush of private residential property launches of affordably priced mass- market and small-sized apartments. With fewer launches these days offering DPS, buyers have to sign up for a housing loan soon after their purchase – whether they are opting for interest absorption or taking a normal progress payment scheme.

For projects sold earlier on DPS that are nearing completion (when DPS expires), buyers need to get their home loans in place, and this has also led to more valuations required, explains Mr Tan of Knight Frank.

In addition, the increase in primary market home sales by developers has spilled over into the secondary market, and this has been another source of higher demand for valuations.

The head of another property consulting group told BT that some real estate funds have been asking for monthly valuations of their property portfolio to ‘track the market more closely instead of relying just on annual valuations’.

DTZ’s Mr Ho says Reits seeking refinancing have also contributed to an increase in valuation requests at the firm.

Valuers note that besides Reits, other property owners who have opted to refinance mortgages – for their homes, for instance – because of more attractive packages offered by rival banks have also raised demand for valuation services.

DTZ’s Mr Ho said that the firm’s professional services – which besides valuation include research and consultancy, property management and project/ facilities management – account for about 30-40 per cent of revenue in normal times, with agency activities like property sales, leasing and investment sales taking the lead.

The Business Times , April  2009

Rents in prime areas head south

Rentals of apartments falling by 15% as new units become available and expats move out

Tenants looking for apartments in prime districts are having it good as rents there head south.

Right now, rentals of these units are falling faster than those in the mass market.

Luxury condos like St Regis and Grange Residences now have units available for rent from as low as $5 psf a month. — PHOTOS: ALAN LIM, BT

Among the reasons: New supplies have entered the market. A number of new condominiums have sprung up in prime districts – many of which have been bought by investors planning to rent out their units – in the past year.

Also given the economic downturn, some expatriates are leaving while others have their housing budgets cut. So landlords in prime districts 9, 10 and 11 face the need to bring down their rents come renewal time so as to keep their tenants.

Prime rents are now halfway through heading south, said Cushman & Wakefield Singapore managing director Donald Han.

‘We expect the rents in districts 9, 10 and 11 to come down by close to 15 per cent this year,’ he said.

‘From the middle of last year till now, they would have fallen by 15 per cent to 20 per cent. We are seeing an outflow (of expat tenants), not an inflow. It’s a net exodus.’

Rents in non-prime and suburban areas have also fallen by 15 per cent to 20 per cent and are set to slip by another 10 per cent this year, said Mr Han.

It will be a comparatively smaller fall because there are not as many units available for rent in these areas compared with prime areas, he said.

Another property consultancy, Jones Lang LaSalle, said residential rents have fallen by about 10 per cent to 30 per cent across the island so far this quarter, compared with last year’s fourth quarter.

Rents of prime properties have dipped by an average of 15 per cent quarter-on-quarter, it said.

There was additional pressure on rents at The Sail, a huge 1,111-unit condominium in downtown Marina Bay, as more and more units entered the leasing market, said Jones Lang LaSalle’s head of residential, Singapore, Ms Jacqueline Wong.

Unit owners started collecting their keys from the middle of last year.

For instance, the transacted rents for one-bedroom units of 690sq ft in size now stand at $3,200 a month, down from $4,500 in June last year, said MsWong.

Other recently completed condos include Domain 21 in Delta Road, The Beacon in Cantonment Road, The Azure in Sentosa Cove and St Regis Residences in Tanglin.

Condos like Rivergate in Robertson Quay have just joined the list, offering plenty of new units for lease.

There is increasing rental pressure on the still vacant units in recently completed prime projects, such as the super-luxurious, 173-unit St Regis, where a lot of units, including large penthouses, are up for rent.

Anecdotal evidence suggests the St Regis rents start at $7,500 for the smallest three-bedroom, 1,507 sq ft unit and $20,000 for the 3,757 sq ft, four-bedroom unit, which will put the starting rents for such sizes at just between $5 per sq ft (psf) and $5.30 psf a month.

Jones Lang LaSalle Research’s average rent record for Grange Residences, a prime but slightly older condo, is at $6.20 psf per month at the end of last year.

‘There are now too many apartments chasing too few tenants,’ said Chesterton Suntec International’s head of research and consultancy, Mr Colin Tan.

In particular, the older prime condos that developers bought collectively and are now keeping for lease are suffering more, as their conditions may not warrant market rents, experts say.

The rental market for private homes is in ‘a state of flux’ at the moment, said Mr Tan.

‘The rental you are quoted this month can and does change, so much so that some tenants whose leases are expiring soon are seeking temporary extensions – three to six months – to their current lease before settling on something more permanent. The savings can be substantial,’ Mr Tan said.

Given this situation, Mr Han advised landlords to be flexible.

‘Sometimes, it is better to find a tenant who is willing to take up the property early at a slightly reduced rental than to keep it empty.’

Property consultants say that, for now, high-end homes are still able to secure tenants as falling rents have attracted new tenants.

‘We are seeing some movements of tenants from outside the central area coming in,’ said Mr Han.

But the falling rents of such flats may result in more owners dipping into their own pockets to help foot their monthly mortgage payments instead of relying on just the rent.

Currently, with mortgage rates still reasonably attractive, landlords should still be able to cover much of their instalment payment at today’s rentals, said Mr Han.

‘However, for the high-end properties completing in the second half of this year, the potential rental income may not be sufficient to cover mortgage payments,’ he said.

Source : Sunday Times – Mar 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