Good investment deals in Thai market

THAILAND offers some of Asia’s best real estate investments. High-quality contemporary properties in prime locations continue to drive prices and build the country’s position regionally, but players say government barriers for overseas buyers are crimping growth.

Royal Phuket Marina: The resort towns of Phuket and Pattaya are the most popular locations outside Bangkok for foreign investors. Thais show less interest buying there

Bangkok’s luxury condominium market achieved record prices six months ago when a penthouse suite at The Sukhothai Residences sold for 408 million baht (S$17 million) or 342,000 baht per square metre (psm). But while more than double the average cost of luxury accommodation in Bangkok, this was about half the cost of a similar apartment in Singapore or Hong Kong, where prices range from 655,000 to 667,000 baht psm, according to Jones Lang Lasalle.

The research also shows Bangkok properties generate more profit. Average rental yields are 4.8 to 5.1 per cent of the initial purchase price per year, compared with 3.1 per cent in Hong Kong and 2.7 per cent in Singapore.

More than 10,600 units will be completed in downtown Bangkok this year, of which 34 per cent will be high end, says CB Richard Ellis (CBRE).

Investing in quality properties close to Bangkok’s underground and skytrain routes is the safest bet, says Songkran Issara, managing director of Charn Issara property developers.

‘There is strong demand if a project is in the right location and of the right quality,’ says Aliwassa Pathnadabutr, managing director of CBRE (Thailand). ‘People are prepared to pay a high price for such products.’

She says Thai buyers at the top end of the market will typically pay up to 150,000 baht psm. And they will pay even more for top-end projects like The Sukhothai Residences, where 30 per cent of buyers are paying an average of 200,000 baht psm.

Developer Raimon Land says sales at The River, an 842-unit twin-tower development being built on the banks of Bangkok’s Chaopraya River, demonstrate Thailand’s investment potential. Prices there have risen from 145,000 to 250,000 baht psm since the sales launch in March 2007.

And some players reckon there is plenty of upside yet. ‘The market is still undervalued and I expect significant growth over the next five years, especially at the high end,’ says Darren White, president of real estate consultancy Binswanger (Thailand). ‘Prices would rise again if young expats living here were able to borrow locally.’

Thai law prevents foreigners owning land, but non-Thais can buy 49 per cent of available freehold space in any condominium. Leases are a maximum 30 years, compared to a minimum 99 years in Singapore and other regional markets.

Bank of Thailand guidance advises financial institutions against loaning money to foreigners wanting to buy property locally. ‘We’d like the government to drop restrictions on foreign ownership of condominiums,’ says Raimon Land chief executive Nigel Cornick. ‘Failing that, then a percentage increase or zones where there could be 100 per cent foreign ownership.’

The resort towns of Phuket and Pattaya are the most popular locations outside Bangkok for foreign investors, with Thais showing less interest in buying there. Mr Cornick says Raimon’s Northpoint beachfront development in Pattaya has already hit the 49 per cent quota after its launch last November. ‘If 100 per cent could be owned by overseas investors, we would have sold the whole project by now,’ he said.

Source : Business Times – 10 Jun 2008

Viet market seen hurting S’pore firms

Analysts say they may end up with unsold homes given slowing sales of late

SINGAPORE developers in Vietnam are likely to be affected by a cooling residential property market and tighter government regulations, research houses say.

Keppel Land, CapitaLand, Guocoland, Fraser & Neave, Allgreen and Chip Eng Seng are six developers with residential projects in Vietnam, said BNP Paribas, and Keppel Land has the largest exposure with about US$7 billion of project value.

Safe as houses? Keppel Land’s new Dong Nai township project; the company has the largest exposure, about US$7 billion of project value, among Singapore players

While margins may exceed 30 per cent, development risks are high as well.

‘Sales have slowed down in the past few months. Selling prices have also become more realistic and some speculators are leaving their deposits forfeited,’ BNP Paribas said in a report.

According to BNP Paribas, the first phase of Keppel Land’s The Estella fetched an average selling price of about US$2,200 per square metre (psm) early this year. This is around 30 per cent lower than the highest price of US$3,200 psm at end-2007 by CapitaLand’s The Vista, which is across the road.

In the same vein, Morgan Stanley said last week that developers may end up with unsold inventory, should speculators forgo their options to purchase units.

‘While developers have been announcing strong buying interest for their projects for some time, most buyers have only paid the respective deposits for registered papers – that is, the options to purchase units,’ Morgan Stanley said in a report. At The Estella, for instance, sale-and-purchase agreements have been signed for only 200 of the 650 units launched.

Morgan Stanley also projected a 38 per cent devaluation of the Vietnamese dong against the US dollar from current spot levels over the next 12 months. A weaker dong would make residential property less affordable, since rents and prices are pegged to the US dollar.

Morgan Stanley said that it foresees developers delaying launches amid poor sentiment. And it is bearish on prospects for Keppel Land – ‘the most vulnerable, with NAV (net asset value) potentially declining by seven cents a share to $7.18 a share’. For CapitaLand and Allgreen, however, Morgan Stanley analysts believed that the impact on NAV would be negligible.

BNP Paribas remained neutral overall on Singapore developers in Vietnam. ‘Long-term fundamentals remain favourable with a high urbanisation rate, rising incomes and affluence, returning overseas Vietnamese and an influx of expatriates,’ it said.

Both research houses also highlighted regulatory risks in Vietnam. Morgan Stanley, for instance, said that the residential property market could cool further when a 25 per cent capital gains tax on property transactions takes effect in January 2009.

‘The Vietnamese government is taking pro-active measures to address economic challenges facing the country,’ Keppel Land was quoted as saying in a Bloomberg report last week. ‘Foreign investors are still confident of the long-term growth potential of Vietnam. Fundamentals in the property market remain strong.’

Source : Business Times – 10 Jun 2008

Interest in Nusajaya industrial park warms

Initial response may have been cool, but companies in Singapore are showing more interest in Nusajaya’s Southern Industrial and Logistics Clusters (SiLC), where land prices are on a climb.

And according to a diplomat, Malaysia’s political developments should not cloud prospects for the Iskandar Malaysia economic zone.

Nusajaya’s master developer UEM Land said yesterday that SiLC’s Phase 1 has sold over 52.5ha of land, valued at around RM145 million (S$61 million). Some 95 per cent of the buyers, or around 22 companies, are based in Singapore.

Buyers include engineering and construction services provider Yong Nam Holdings and container handling firm Stinis Singapore.

UEM Land was in town to market another 40.4ha of freehold land in SiLC. Prices are likely to be around RM26 psf, a 30 per cent jump from RM20 psf when the land was first sold early last year.

SiLC is a 525.3ha park for advanced technologies, nutrition and health and integrated logistics industries in Nusajaya, a township in South Johor’s Iskandar Malaysia zone. Phase 1 of the park spans 121.2ha and UEM Land expects the remaining land in this phase to be taken up by the year-end.

The roadshow also showcased various developments in Iskandar Malaysia, but a Reuters report on Monday cast doubts over the future of the economic zone. Some investors may be ‘worried that the plans will be shelved if Mr Abdullah loses power’, the report said.

Calling the Reuters report ‘frivolous’, Malaysian High Commissioner to Singapore N Parameswaran said that the claims were ’something that investors need not be concerned about, because this is a project … which enjoys the support of the entire Cabinet’. Referring to political developments in the country, he said: ‘I don’t see that this will affect the project at all.’

The Reuters story also noted ‘lukewarm response from big investors in nearby Singapore’ to the Iskandar Malaysia project. Sharing his experience marketing the SiLC, UEM Land managing director Wan Abdullah said that it was because investors ‘want to see delivery’.

He pointed out that developments in SiLC are taking shape, and that ‘we will continue to further enhance and improve’.

He also said that SiLC’s Phase 2 is under construction and may offer ‘a new value proposition that would make the buyers happy and our shareholders happy’.

Source : Business Times – 6 Jun 2008

UBS chief says worst of crisis is over

The head of embattled Swiss bank UBS said yesterday that the worst was behind it after it was recently forced to write down about US$37 billion (S$50.7 billion) of assets hit by the United States sub-prime crisis.

‘I definitely think that the worst is behind us,’ UBS chief executive Marcel Rohner told Swiss newspaper Le Temps. ‘There will certainly be plenty of things for banks to clear up over the next two years, but as far as systemic risks are concerned, we’ve got over the hardest part.’

He added that UBS’ investment banking arm had ‘developed some questionable economic activities’ in the run-up to the sub-prime crisis. ‘We made the mistake of adopting an imitation strategy to try and catch up with our competitors in fixed income operations.’

Earlier this month, it posted first-quarter losses of 11.5 billion Swiss francs (S$15.1 billion). The bank faces fresh problems after a former member of its private banking team was detained in the US as part of a tax evasion probe.

The bank decided to shut down its cross-border private banking business for US customers in November last year, but recently, Bradley Birkenfeld, a former senior banker, was indicted for helping wealthy Americans to evade paying income tax on their investments.

Source : Straits Times – 30 May 2008

Metro grows in China as property play

Q4 net profit rises 34% to $25.6m, helped by fair-value gains

THE property development and investment division of Metro Holdings, which is better known here as a retailer, is providing a bigger share of its earnings as retail revenue dips.

For the financial year ended March 31, Metro Holdings reported revenue of $224.4 million, up 4.8 per cent from the preceding year.

On a business segment basis, its property arm accounted for $49.2 million, up from $35.9 million previously.

For FY 2008, the property division contributed $75.6 million or 87.4 per cent to group pre-tax profit, up from 84 per cent previously. But revenue from retail business eased to $176.4 million, from $179.5 million.

Net profit for the year was $65.97 million, a 3.95 per cent drop. Earnings per share dipped to 10.46 cents from 10.89.

Net earnings were up 34.4 per cent at $25.6 million for the fourth quarter, helped by $14.9 million in fair-value gains from investment properties, while revenue was down 2.69 per cent at $53.2 million.

Metro Holdings, which has office and retail properties in China, said that for the quarter, its property division revenue was $17.2 million, up from $8.9 million in the previous corresponding quarter, due to initial income from Metro City Beijing, higher income from Metro City Shanghai and a one-time recognition of service charges of $4 million.

But Metro is not neglecting its retail business. It confirmed an earlier BT report that it will open a new outlet at City Square Mall near Little India. It will also open a new retail outlet in Jakarta’s Grandaria City.

Metro Holdings occupies more than 821,000 square feet of retail space here, but its group general manager Jopi Ong said that the costs of doing retail business in Singapore is prohibitive.

‘The prices here are definitely too high.’ he said. ‘To operate a department store, you need a lot of real estate.’

Metro Holdings chairman Winston Choo, who joined the company in July 2007, added: ‘In terms of property development and investment, we have no plans for Singapore because I think the opportunities are better in China.’

And Metro’s Chinese property portfolio is set to grow as it increasingly becomes a China play.

It now has 200,000 square metres of net lettable area in China, including Metro Tower Shanghai and GIE Tower Guangzhou.

Also in China, it has 127,500 properties under development including 1 Financial Street, Metropolis Tower and EC Mall, all in Beijing.

Occupancy rates in Metro City Shanghai and Beijing, in which Metro Holdings holds 60 and 50 per cent stakes, were 99.4 and 81.1 per cent respectively.

At Metro Tower Shanghai and GIE Tower Guangzhou, in which it holds 60 and 100 per cent stakes, occupancy was 97.9 and 68.1 per cent respectively.

Metro Holdings said that the lower occupancy at GIE Tower was due to not being able to provide existing tenant KPMG with the extra floor space that it required in the building.

A final dividend of one cent per ordinary share has been proposed.

Metro Holding’s share price closed half a cent down at 78 cents yesterday.

Source : Business Times – 29 May 2008

Parkway Life to acquire nursing homes in Japan

A MONTH after making its maiden foray in Japan, Parkway Life Reit has agreed to buy another two properties there for a total of 2.62 billion yen (S$34.3 million).

The target acquisitions are a nursing home in Yokohama City and another in Osaka’s Ibaraki City. Both are owned by vendor ZECS Community Co, which has agreed to lease them back for 15 years with an option for a further five years. Its parent company Zecs Co will guarantee the leases.

At a price of 1.44 billion yen, the Yokohama facility has a net operating income yield of 6.1 per cent. The freehold, five-storey building is next to a scenic canal. It has 74 lettable units spread over a gross floor area of 3,273 sq m.

The Ibaraki nursing home is in a four-storey, 50-year leasehold property beside the University of Osaka and Ibaraki Country Club. It has a lettable area of 3,706 sq m and 94 units. At 1.18 billion yen, its net operating income yield is 6.7 per cent.

Explaining the acquisitions, Justine Wingrove, CEO of the Reit’s manager Parkway Trust Management, said demand for quality nursing homes in Japan will grow with the ageing population. ‘By 2050, it is estimated that one in three Japanese will be over 65,’ she noted.

Rents at both properties are index-linked to Japan’s inflation rate on an upward-only basis. Rents may also be revised by mutual agreement at five-year intervals.

Expected to be completed this month, the investments will be made through special purpose vehicle Parkway Life Japan2, a wholly owned subsidiary of Parkway Life Reit. They will be funded by debt, raising the Reit’s gearing to 11 per cent from 8 per cent.

ZECS Community operates 30 nursing homes in Japan under the Bon Sejour brand. The leases are also protected by a back-up agreement with Japan Care Service Co, another operator of nursing homes.

Parkway Trust Management did not say how much the acquisitions will add to the Reit’s distribution per unit (DPU). ‘As the deal size is only $35 million, the increase to DPU is not significant,’ said Ms Wingrove.

Last month, the Reit made its first investment in Japan – a pharmaceutical warehousing and distribution facility in Chiba that cost 2.59 billion yen.

Following yesterday’s announcement, Parkway Life Reit ended one cent higher at $1.23.

Source : Business Times – 28 May 2008

US new home sales rise by unexpected 3.3%

SALES of new homes in the United States rose an unexpected 3.3 per cent last month from March, to a seasonally adjusted annual pace of 526,000, a Commerce Department report showed yesterday.

The spike in sales was unexpected, as most analysts had predicted that sales declined last month.

However, prices of single-family homes in the US plunged by a record 14.1 per cent in the first quarter from a year earlier, according to the Standard & Poor’s/Case Shiller national home price index.

The fall in quarterly prices marks a pace five times faster than during the last housing recession.

The S&P/Case Shiller composite index of 20 metropolitan areas fell 2.2 per cent in March from February and plummeted a record 14.4 per cent from March last year.

‘There are very few silver linings that one can see in the data,’ said Mr David Blitzer, chairman of S&P’s index committee.

Falling home prices have become the scourge of the housing market, which is suffering its worst downturn since the 1930s. Since last year, home values have been dropping below balances owed on many mortgages, leaving borrowers with no equity and more likely to succumb to foreclosure.

Elsewhere, US consumer confidence plunged unexpectedly to its lowest point in 16 years this month, as rising fuel costs and falling home prices made Americans nervous about the future.

The Conference Board, an industry group, said its monthly measure of consumers’ mood fell to 57.2 from 62.8 in April, well below Wall Street’s median estimate of 60.

The Dow Jones Industrial Average edged up 2.28 points to 12,481.91 in early trade.

Source : Straits Times – 28 May 2008

HK home owners brace for interest rate hikes

HONG KONG home owners are expecting interest rate hikes as banks in the city attempt to bolster earnings, ending a long run of cheap mortgage costs. But some market factors may militate against such a move.

Banks have been sounding the alarm bells as their margins feel the squeeze amid a succession of interest rate cuts. Last month, lenders failed to match a Hong Kong Monetary Authority (HKMA) interest rate cut, the first time since September that banks did not follow the de facto central bank.

Last week, senior bankers warned that an interest rate rise could be imminent. With competition for home financing fierce, no lender has yet to take the lead and raise interest rates.

Raymond Or, chief executive of Hang Seng Bank, spoke of the pressure facing lenders regarding raising interest rates.

Other bankers have cited an unfeasibly low interest rate for bankers to turn a profit, with home owners being loaned cash at between 2.5 and 2.8 per cent with cash rebates often thrown in. The Hong Kong interbank offered rate is, meanwhile, 1.7 per cent.

Meanwhile, record-high oil prices are unlikely to lead to a further cut in Federal Reserve key rates, from which the HKMA takes its cue as Hong Kong’s currency remains pegged to the greenback.

Banks have also not seen a huge uptake in mortgage financing as external factors bite into potential home owners’ appetites.

Despite low interest rates, property sales in the mass market have remained sluggish. This is partly because of a wait-and-see attitude buyers are taking amid global economic uncertainty.

According to the latest Land Registry figures, the total number of sale and purchase agreements in April was down 0.4 per cent from the previous month to 10,945. The total consideration for these deals was down 23.9 per cent from March, to HK$33.5 billion (S$5.8 billion).

Chief economist at Bank of East Asia Paul Tang, however, remains optimistic that home owners will not face a massive uptick in their financing costs in the next 12 months.

‘I think it really depends on the United States interest rate movements – and that’s a big uncertainty,’ he said.

‘There’s still a lot of room for it (interest rates) to go up and right now it’s at a very low level. The US economy will take one to two years before it recovers to a more healthy stage. Interest rates (in Hong Kong) should remain low despite inflationary pressure,’ he explained.

Developers likewise sounded a more bullish note, perhaps unsurprisingly as jitters about mortgage rate increases took a toll on their stocks last week.

On Thursday, shares in the main developers took a tumble as speculation that Hong Kong lenders would no longer slash interest rates began to spread.

Shares in Sun Hung Kai Properties, Cheung Kong (Holdings) and Hang Lung Properties all fell slightly on the rumours.

Tycoon Li Ka-shing, chairman of Cheung Kong (Holdings), said last week he expects the property market to remain steady amid low interest rates and relatively tight supply in the market.

Source  : Business Times – 26 May 2008

Mega project slated for Johor

A multi-billion ringgit mixed-development project will be launched in Iskandar Malaysia this year, says a report in The StarBiz.

The project, to be called Airport City or Aeropolis, comes under an associate company of Senai Airport Terminal Services, which is linked to billionaire Syed Mokhtar Al-Bukhary.

The project, on 1,133.11 ha near Senai Airport, will comprise three main components – residential-commercial-hospitality amenities, an air cargo logistic centre and a high-tech park.

The first component will cover 323.74 ha while the other two will occupy 404.68 ha each.

‘The investment in infrastructure – power, water, roads and telecommunications – is estimated at about RM1 billion (S$422 million),’ a source told StarBiz.

The source said that utility providers must be committed in providing uninterrupted supply and services to users in the development area.

The area will be equipped with high-speed broadband for residents and companies to communicate with clients or business associates from all over the globe.

Other facilities will include private medical centres, international schools, hotels and retail malls.

It will be vital to have world-class and uninterrupted utilities and services as the development wants to attract investors from Europe, Japan, Taiwan and the US.

The source said that the company was engaging a consultant from Australia to undertake the master plan study.

The consultant is looking at several well-known high-tech parks in Australia and Taiwan in its study.

‘The high-tech park will be better than the Kulim Hi-Tech Park,’ the source said, adding that unlike the Kedah park, Senai would only engage in research and development activities.

When the master plan study is completed, probably next month, it will be presented to the Johor government and a ground-breaking ceremony should take place towards year-end.

Source : Business Times – 23 May 2008

Singapore luxury homes ninth most expensive globally

Market supported by jet-setting high net-worth individuals: report

LUXURY homes in Singapore are the second most expensive in Asia and the ninth most expensive in the world.

According to a report by Citi and Knight Frank, luxury home prices here are now US$2,423 per sq ft.

The only place in Asia where they are more expensive is Hong Kong, where they cost US$4,507 psf. Even Tokyo is cheaper than Singapore, coming in third most expensive at US$2,334.

Worldwide, London is the most expensive, followed by Monaco and St Jean Cap Ferrat (France) at US$6,191, US$5,888 and US$5,853 psf respectively.

The global luxury home market is supported by jet-setting high net-worth individuals who think nothing of owning homes on every continent.

As an example, the report describes a Brazilian/Russian family that owns apartments in New York, Geneva, Ibiza and, until recently, Singapore.

The family reportedly spends equal periods at each property, with business and social ties meaning they find it possible to change location for long or short periods with ease.

‘In many ways, none of their properties is regarded as either a primary or secondary residence,’ the report says. ‘In fact, they feel equally at home in all of them.’

The report ranks high net-worth individuals in four categories – those with US$1 million to US$10 million; US$10 million to US$100 million; US$100 million to US$1 billion; and more than US$1 billion.

It found that 15.7 per cent of entry-level high net-worth individuals own four or more homes. In the second, third and fourth (the richest) categories, the respective percentages increased to 23.3, 31.5 and 60 per cent.

Importantly, the report found that in both developed and emerging economies, uncertain economic and political conditions did not affect the growth in numbers of high net-worth individuals, with the growth of their wealth, ’similarly undimmed throughout 2007′.

Citing data from Scorpio Partnership, the report says the most significant growth in 2007 was in the US, where the number grew almost 120,000 to 3.1 million. China had the second-largest increase, with the figure rising almost 46,000 to 373,000 – almost as many as Germany.

‘Despite the credit crunch, extraordinary wealth creation has continued across the global oil and commodity sectors,’ the report says.

An example of the strength of the global luxury home market is that in London the number of £10 million-plus sales in Chelsea, Knightsbridge and Belgravia rose 190 per cent in the six months to January 2008 from the same period a year earlier.

In the US, where prices fell 4.5 per cent over the past year and 4.2 per cent in New York generally, prices for prime Manhattan properties rose 25 per cent.

Knight Frank’s head of residential research Liam Bailey said: ‘Prime locations have held their own. London, New York, Shanghai and others are proving that almost any residential market tied to the global economy maintains confidence among purchasers.’

Source : Business Times – 22 May 2008