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Business Times – 07 Dec 2007

Land sales programme for 1H08 draws good reviews

Large supply of mass market homes but govt holds back on office sites

By UMA SHANKARI

THE government will release a batch of suburban residential land parcels in
the first half of next year but property analysts are divided as to whether
there will be enough takers for the homes coming up on the sites.

And on the back of reports that Singapore could see an oversupply of office
space come 2010, the government is releasing just one site for office use in
its confirmed list in its land sales programme for the first half of next
year.

The 21 residential sites on the list will yield 8,250 private homes,
including executive condos. This compares to a supply of 8,000 private homes
for the second half of 2007.

Eight of these sites – with the capacity for 2,840 homes – are on the
confirmed list. The other 13 sites are on the reserve list.

Market watchers said that the large number of suburban residential sites
seems to imply that the government is aware that housing prices in popular
non-prime locations have risen substantially, which has in turn priced out
HDB upgraders.

‘By providing sites in suburban locations that are within or near HDB
estates, the completed units are likely to be less pricey as their land
costs would be lower,’ said Li Hiaw Ho, executive director for research at
CB Richard Ellis (CBRE).

The homes could also be suitable for expats, who are increasingly coming to
Singapore on local terms, said Ku Swee Yong, director of marketing and
business development at Savills Singapore.

‘As Singapore looks to grow its population, more expats earning in the
mid-income range will be coming in,’ Mr Ku said. ‘These expats might not be
able to afford homes in the prime districts and so could look at mass market
homes.’

Among the sites offered, those at Lorong 2 Toa Payoh, Woodleigh Close, Tanah
Merah Kechil and Bishan Street 14 are perceived as the best of the crop.
These sites could fetch between $400 and $600 per square foot per plot ratio
(psf ppr), CBRE’s Mr Li said.

However, others said that it might have been more prudent of the government
to put more sites on the reserve list instead of the confirmed list.

‘The market can be very fickle,’ said Nicholas Mak, director of research and
consultancy at Knight Frank. There is good demand for mass market homes at
the moment, but this might not be the case in a few months, he said.

On the other hand, the government’s decision to hold off releasing more
office sites was well received. In recent weeks, experts have said that
Singapore could see a glut of office space after 2010 when several big
projects – such as the Marina Bay Financial Centre and the redeveloped Ocean
Building – come up.

Yesterday, the government said that it is only releasing one new white site
on the confirmed list – bound by Rochor, North Bridge, Ophir and Beach roads
and next to Parkview Square – for office and hotel use.

The white site can yield about 1.5 million sq ft of commercial space.
Experts said that the site could go for $750-$1,000 psf ppr.

The only other new commercial site, located at North Buona Vista Drive, will
be released on the reserve list. An estimated 1.3 million sq ft of
commercial space can be developed on the land parcel.

The proximity of the site to one-north will likely see space there being
sought after by the research institutes in one-north, said Mr Li of CBRE.

Business Times – 07 Dec 2007

Govt’s slate of land sales seen as prudent

List for H1 next year is roughly similar in scale to that for H2 this year

By KALPANA RASHIWALA

(SINGAPORE) The Ministry of National Development is adopting a measured
strategy in its Government Land Sales (GLS) Programme, offering up a slate
for the first-half of next year that’s roughly similar in scale to the
offerings for H2 2007. Noting that the government is taking a “prudent
approach”, some market watchers said the ministry is factoring in the recent
caution in the property market triggered by the subprime crisis, but is not
dumping land to ease a short-term supply crunch in, for instance, the office
market.

“It’s not so bad, just 11 sites in all on the confirmed list. And of these,
the eight private residential sites are in suburban locations like Choa Chu
Kang, Tampines and Yishun, to cater to upgrader demand,” said a developer of
yesterday’s GLS announcement.

For the first half of next year, the government is offering a total of 37
sites in H1 2008 – 11 in the confirmed list (down from 14 for the current H2
2007 programme) and 26 in the reserve list (one site fewer than in the
current list).

The latest sites will yield about 8,250 private homes including executive
condos (ECs), 4.4 million sq ft in gross floor area of commercial space and
5,850 hotel rooms. This is similar to the 8,000 private homes, 3.8 million
sq ft commercial GFA and 6,500 hotel rooms supply for H2 2007.

And reflecting a market-led approach, the bulk of the supply for H1 2008
will continue to come from the reserve list, where sites are launched for
tender only upon application by developers.

The latest confirmed list – where sites are released according to a stated
schedule regardless of demand – will yield about 3,000 private homes, 1.6
million sq ft of commercial GFA and 1,670 hotel rooms – again close to the
3,000 private homes, 1.78 million sq ft commercial GFA and 1,810 hotel rooms
in the current slate.

In all, MND has introduced 17 new sites, six in the confirmed list and 11
through the reserve list.

None of the two new sites with substantial office components are in the
financial district, including the sizzling Marina Bay area.

Instead, one site – in the confirmed list – engulfs the Parkview Square
development and is bound by Rochor, North Bridge, Ophir and Beach roads, and
the other, a reserve-list site, is at one north, next to Buona Vista MRT
Station.

“The authorities are adopting a more cautious approach on CBD office supply,
despite an immediate supply crunch, because the sub-prime crisis is expected
to lead international banks to downsize and scale down their office space
requirements,” the developer suggested.

CB Richard Ellis executive director Li Hiaw Ho also described the
government’s tack as prudent.

“The current office crunch is a short-term problem. There’s over 10 million
sq ft of supply on the horizon, most of which will be completed in 2010 and
beyond; so in the mid-term there will be sufficient supply. There’s no point
for the government to dump 99-year office sites now as the supply will only
be completed in the mid-term because of construction time.

“That’s why government is pushing for conversion of state properties and
transitional, 15-year lease sites to address the office shortage in the
short- term.”

A seasoned market watcher observed a similarly measured strategy for the
residential market, where the high-end segment is now taking a breather
after runaway prices fuelled by speculators and specu-vestors earlier.

“MND’s focus is on ensuring there’s sufficient supply in the mid-tier and
mass-market private housing segments. It’s offering a spread of suburban
sites for upgrader private condos as well as four EC sites (through the
reserve list), to make sure such homes are within the reach of genuine home
buyers,” he added.

Three of the four EC sites are new additions – in Yishun, Jurong West and
Sengkang East Avenue.

A developer welcomed the government’s decision to include, among its slate
of eight residential sites on the latest confirmed list, two landed housing
plots – at Westwood Avenue in Jurong West, and Sembawang Greenvale (Phase
2). “There’s really a shortage of landed housing sites,” he added.

He also viewed positively the fact that both hotel sites on the confirmed
list – at Race Course Road in the Little India area and Balestier/Ah Hood
roads – are in locations suitable for three- and four-star hotels, which are
witnessing strong demand from the India and China markets in particular.

MND also highlighted additional sources of space the government will make
available in H1 2008 – including about 1.3 million sq ft of commercial GFA
from sources like interim use of vacant state buildings and transitional
office sites; about 110 private homes including 90 serviced apartments at
one north; and 780 hotel rooms.

MND said that 9.5 million sq ft GFA of offices, 4 million sq ft of business
park space, 5.6 million sq ft of shops and 8,850 hotel rooms are expected to
be completed by 2010.

For the private housing sector, about 44,500 new private homes are slated
for completion by 2010, of which 40 per cent or 17,800 units will be in the
Core Central Region, which includes all the high-end locations.

On the Singapore Exchange yesterday, the All Singapore Equities (Property)
Index ended 12.09 points higher at 1,391.57.

“They are not releasing that many sites. They are calibrating supply very
carefully in response to the economy,” the developer said.

Business Times – 07 Dec 2007

Investing to beat inflation

INVESTING with a view to beating inflation sounds like an almost common
sense objective, but it is by no means simple. In the last decade or so, it
had seemed as if inflation had been tamed; indeed, disinflation was the
order of the day. Now with rising oil, food, resource and asset prices,
concern over inflation has resurfaced.

For Singaporeans used to sitting on cash, this poses a significant
challenge. In the past, risk aversion and the preference for ’safe’
investments may not have hurt as much as assets in fixed income instruments
still earned a positive – if modest – real rate of return. But today, based
on recent inflation statistics as well as official projections for 2008,
that no longer holds true.

As at October, Singapore experienced an inflation rate of 3.6 per cent,
against the three month interbank rate of 2.6 per cent, a negative gap of
one percentage point. The official projection by the Monetary Authority of
Singapore is for inflation to rise to 3.5 to 4.5 per cent next year. Whether
this will become a long-term trend is debatable, but in the short to medium
term, upticks in inflation are not an unreasonable expectation, given the
demand and supply imbalance in the resource markets.

Professionals who advise individuals on their investments should drive home
the relative merits of saving versus investing. The former simply keeps
money in a low-risk instrument, be it a deposit or money market fund. The
latter takes on an element of risk in the hope of a long-term gain. The long
history of returns is not reassuring in terms of both inflation and cash.
Between 1900 and 2006, as academics at the London Business School have
chronicled, inflation was a major force globally. In the UK, inflation
averaged 4 per cent and in the US, 3 per cent. Over the period, US and UK
investors earned annualised real returns of just one per cent in Treasury
bills, the equivalent of cash. And there were negative real returns in five
countries. Returns from bonds were not reassuring either. The annualised
real return on government bonds across all countries was just one per cent.
What is clear from the recent history of Singaporeans’ investment habits is
their preference for capital preservation, and for investments to be neatly
packaged into an insurance bundle of an investment fund with life protection
or a traditional life product with smoothed returns.

More recently, the preference has also been for a plethora of structured
products. The big gap in the marketplace, however, has been in inflation
protected instruments, whether a fund, a bond or insurance-linked product
with inflation indexation. These surely are not difficult for product
providers to structure. The products need not be capital protected, but they
should have an inflation-plus return objective. This suggests an absolute
return orientation.

Meanwhile, the risk of staying in cash is serious. Just as the magic of
compounding can work over time to build a nest egg into a tidy sum, it can
work in reverse during inflationary periods to erode the value of savings.

December 6, 2007
Simpler rules for deciding DC payment from Jan
URA will use only 2003 Master Plan to cap development baseline values
By ARTHUR SIM

RULES on whether proposed building works will have to pay a
Development Charge are to be simplified.

The DC, which can be payable when land is redeveloped more
intensively, is at present calculated using baselines set in the
2003 Master Plan, or sometimes with the earlier MPs of 1958 or 1980.
From January 1, the Urban Redevelopment Authority (URA) intends to
use only the 2003 MP to cap development baseline values.

However, some existing developments will have their higher baseline
values safeguarded, and will be exempt from paying a DC even if the
site is redeveloped to a baseline value higher than MP 2003.

After the recent increase in DC rates, the charge can in some cases
amount to more than $100 million, which is a hefty amount compared
to the average of $250 million that the URA has collected annually
in DCs for the last five years.

The URA said yesterday that only about 2 per cent of all existing
private land lots (or about about 1,700 plots mostly in the Central
Region) have high historical baselines and even fewer approved
developments are built over the plot ratios stipulated in MP 2003.

One such development, which is currently up for collective sale, is
Pacific Mansion in River Valley.

Marketed by Savills Singapore, its director of investment, Steven
Ming, estimates that the 45-year-old Pacific Mansion is currently
built up to a 3.84 plot ratio.

Under the MP 2003, the plot ratio for the area is only 2.8, but Mr
Ming says that the URA will permit any new development built on the
site to be built up to the present plot ratio of 3.84, making the
site particularly attractive as no development charge will be
payable.

Mr Ming says that if the URA had not honoured the existing built up
plot ratio and not given a development charge exemption, and instead
levied development charges based on the existing gross floor area,
the development charge for a new development built up to a plot
ratio of 3.84 would amount to around $112.8 million, based on the
current DC rate of $9,100 psm for the area. This, incidentally is
almost three times the DC rate at the end of 2003 when it was about
$2,300 psm.

The savings from not having to pay a DC is ‘hypothetical’, as most
developers would have factored this into the land value. But as DC
rates rise, so does this hypothetical development charge. Mr Ming
adds: ‘This is definitely a figure that a developer will consider
when looking for a collective sale site.’

Another attractive site on the market is Elizabeth Towers at Mount
Elizabeth which has an indicative price of $673 million or about
$2,666 per square foot per plot ratio (psf ppr).

Marketed by Newman & Goh, its head of investment sales Jeffrey Goh
estimates that the existing building is currently built up to a plot
ratio of 4.65 while the plot ratio based on the MP 2003 is also 2.8.

And Mr Goh added: ‘With Westwood Apartments (off Orchard Boulevard)
setting a new benchmark price, I expect DC rates to be revised
upwards again.’

As with Pacific Mansion, a redeveloped Elizabeth Towers can be built
up to the existing built up plot ratio. And the charge of about $110
million, based on the current DC rate of $11,900 psm for the area,
is not payable.

But there are not many of such sites around.

Also up for sale with no DC payable is Grange Heights on Grange
Road. It is marketed by Jones Lang LaSalle, whose regional director,
Lui Seng Fatt, says that not all old developments see such huge
figures in the exempted DC amount. ‘For many developments, it may be
around $10 million,’ he said.

Indeed, for most developments on the collective sales market, there
will be no DC payable because the existing development has not been
built up to the current MP 2003 plot ratio.

Willyn Ville at Holland Village is currently built up to an
estimated 1.3 plot ratio, even though the plot ratio based on
earlier MPs was higher than the 1.4 stipulated in MP 2003.

The difference of course is that Willyn Ville was never built up to
the old plot ratios. It is marketed by Chesterton International,
whose associate director, Mark Yuen, said: ‘A development that has
been built up over the existing MP 2003 is different because the
government can’t take back what has already been paid for.’

The revised baseline definition was first announced in 2003. Before
the change, development baselines were determined by the highest
baseline in MP 1958 or 1980 or that of the approved development.