Week in Review – 10 June 2016

Local Property News
Asia Square Tower 1 sale drives local commercial market optimism

Asia Square Tower 1, with more than 1.2 million square feet of premium Grade A office area and approximately 40,000 square feet of retail space, was acquired from Blackrock by Qatar Investment Authority (QIA) at a record S$3.4 billion. This translates to approximately S$2,700 per square foot for the 43-storey office tower, Asia Pacific’s largest single-tower real estate transaction and the second-largest in the world, according to real estate consultancy JLL. The deal comes after the acquisition of the Straits Trading Building for S$560 million by Indonesian tycoon Dr Tahir, sparking optimism that the local commercial property market is recovering. 
Desmond Sim, Head of CBRE Research in Singapore and Southeast-Asia, told TODAY that within the next one and a half years the Asia Square Tower 1 deal can act as a “catalyst” for other deals undergoing negotiations. Greg Hyland, Head of Capital Markets of JLL Singapore, also expects a surge in investor interest in prime office spaces in the near future following the deal. He believes there will be rising demand from foreign investors for similar transactions in Asia Pacific. However, some remain cautious as Singapore’s office vacancy rates are nearing a 10-year peak and a supply of four million square feet of office area is set to join the office property market by this year, a five per cent increase compared to the current supply. Christine Li, Director of Research at Cushman & Wakefield, projects a double digit vacancy rate for Grade A offices in the CBD by the end of 2016, based on current oversupply as well as reduction of headcount and office spaces in many sectors due to digitisation.

MND launches land for 2,170 private homes for sale

The Ministry of National Development (MND) announced the launch of four Confirmed List plots and 11 Reserve List sites under the Government Land Sales (GLS) Programme in the second half of this year. Analysts interviewed by TODAY believe that the increase in the land supply for residential development for the first time since 2013 is due to developer demand and increased home sales volume in previous months. Minister Lawrence Wong of MND wrote in a blog post on 8 June that several factors, including the increase of an average of 600 private home transactions a month for the past year, was considered in the decision to launch the supply of land. The confirmed list is made up of three private sites at Fernvale Road, Perumal Road, and West Coast Vale, together with a mixed-use plot along Upper Serangoon Road. In his blog post, Mr Wong also stressed that the government focused on suburban locations for released sites that were preferred by first-time home owners and existing home owners who are looking to upgrade.
These sites will contribute 15,500 square metres (sq m) of gross commercial space and yield 2,170 private residences in total, compared to 1,560 homes in the Confirmed List in the first half of 2016. Out of the four launched sites, analysts have highlighted the mixed-use development at Upper Serangoon Road that can potentially yield 825 private residences and 15,000 sq m of gross floor area for commercial purposes. Colin Tan, Director of Research and Consultancy at Suntec Real Estate Consultants, told TODAY that the mixed-use plot will be able to provide amenities to serve residents in the upcoming Bidadari housing estate and will be popular as it is in a mature town and conveniently located. The 2,170 released units are close to the total supply of 2,130 units under the H1 2016 GLS Programme after a Reserve List site was triggered in February 2016. The Reserve List is only available for public tender if the opening offer made by a developer is acceptable. The current reserve list has seven residential plots that include an Executive Condominium site and can yield 5,380 private residential units (including 780 EC units). The reserve list also includes three mixed-use development sites at Beach Road, Woodlands Square, and Central Boulevard with an estimated 261,600 sq m of gross commercial area to be used mostly for office rental.  

Rents set to drop across all property sectors in 2016

A survey conducted by the Royal Institution of Chartered Surveyors (RICS) in May showed that surveyors believe rent prices will drop 5.8 per cent over the year across all property sectors. According to the report, both local and foreign investor enquiries fell for the third consecutive quarter, with the lack of demand attributed to the slowing economy. Rents for secondary offices are expected to decline the most, falling by an estimated 7.65 per cent, followed closely by rents for secondary industrial spaces, expected to fall by an estimation of 6.4 per cent. 

Global Property News

UK property deals remain stagnant among Gulf investors as Brexit looms

One of the largest drivers behind the UK property market – Gulf Arab investors from Qatar, Saudi Arabia, Kuwait, and the United Arab Emirates (UAE) – are refraining engaging in new property deals amid fears of a property slump should Britain exit the European Union (EU). Legal experts who deal with Gulf funds believe that the situation will worsen in the event of Britain’s exit from the EU. According to Knight Frank, aside from London, property in areas conventionally popular among these investors, including Chelsea, South Kensington, and Knightsbridge, saw their value decline between 3.5 and 7.5 per cent year-on-year in May. Amit Seth, the Middle East and North Africa Head of International Residential Developments at Chestertons, told Reuters that 20 per cent of buy-to-let transactions in 2015 were contributed by UAE investors. An April report by Britain’s Treasury forecasts global investments in UK will reduce by 10 to 26 per cent by 2030 with a Brexit outcome, compared to if the UK stays in the EU. 
In response to the slowing commercial property market, new transactions are including contract clauses allowing dealers a range of privileges and rights entitling them to a partial refund or the option to walk away from the deal in the event of a Brexit. According to Paul Firth, Head of Real Estate at Irwin Mitchell LLP, a significant proportion of investments at the firm worth between £10 million and £80 million included such clauses. The firm also received requests from purchasers for the clauses to be in place. The clauses are especially popular among foreign investors who worry about the pound weakening and reduced investments in UK that would lead to lower demand for commercial leasing space. 
Slowing of US rent hikes unevenly distributed
Rental hikes slowed for more than 90 per cent of luxury areas in Los Angeles, New York, Boston, and San Francisco in the past year, according to Aaron Terrazas, a Senior Economist at Zillow, in an interview with Bloomberg. Conversely, rent growth for the cheaper districts of these areas did not slow. 
Rent increases in the past few years can be attributed to a shift in housing payment. The Census Bureau shows that the number of US households renting has increased by 31 per cent since Q1 2005, with 36 per cent of US families living in rented residences in Q1 2016. In that same period, median monthly rents across the US hiked from US$600 to US$870. Rents are seen to be softening in pricier districts in cities such as New York because of a recent increase in developments targeting wealthy renters. The increased supply of higher-end property restricts landlords from raising rents. 
Highly-paid renters in upmarket neighbourhoods located in metro areas such as Houston and San Francisco are possibly looking at lower rents due to a slowdown in their industries. Therefore there may be higher demand in more affordable housing markets in future as these high earners shift away from homes in luxury areas, said Mr Terrazas. 

Indonesian tax amnesty fuelling real estate market

The Indonesian tax amnesty combined with relaxed mortgage rules and more attractive loan rates is likely to boost the property market. Bank Indonesia expects a total of 560 trillion rupiah of undeclared income to be repatriated. A two to six per cent tax rate is applied to all declared assets, but at a reduced rate of one to three per cent if the capital is returned from offshore accounts. This reprieve will last six months and is expected to be in place from July onwards. The amnesty is designed to boost the government’s budget for infrastructure development and upgrading, and Bank Indonesia approximates that the move will improve the projected economic growth for 2016 by 0.3 per cent to 5.4 per cent, compared to a six-year low of 4.79 per cent last year. While 27 million Indonesians are certified taxpayers, under a million paid their dues in 2014. According to PT Manulife Aset Manajemen Indonesia, a sizeable portion of the repatriated amount will be diverted into real estate investments. The central bank announced on 24 May that under the amnesty program, existing homeowners can take up loans to purchase a second property. 
Compared to April 2016, the Jakarta Construction Property and Real Estate Index has seen a 6.6 per cent hike in May, trimming its loss over the last year to 2.6 per cent from the initial four per cent downturn in the Jakarta Composite Index. Indonesians consider property investments to be conservative long-term investments, said Rainier Gunawan, a Principal for Ray White Indonesia in Jakarta. Anthony Yunus, a Property Analyst at Nomura Holdings Inc, also told Bloomberg he expects residential transactions to increase by about 10 per cent this year. 

Frasers Centrepoint to develop mixed-use Ho Chi Minh property

Frasers Centrepoint Limited (FCL) is collaborating with G Homes House Development Joint Stock Company for a US$85 million mixed-use property development on a one-hectare plot in Ho Chi Minh City. Lim Ee Seng, CEO of FCL, cited the country’s “growing middle class, rising urbanisation and increasing income… improving financial environment and relaxation of foreign investment rules” as reasons to venture into its real estate market. The development site is situated among international schools and is a district popular with expats. The city’s upcoming first metro line will also be running in 2020 to serve the residents of the residential site. FCL will acquire a 70 per cent foothold in G Homes with 35 million shares at US$28.8 million. The remaining 30 per cent stake is owned by Vietnam-listed boutique developer An Duong Thao Dien Real Estate Trading Investment Joint Stock Company and other investors.

Home prices in the UK hike in May but likely to stall in late 2016
UK’s biggest mortgage lender Halifax reported that UK home prices in May have increased faster than expected. Halifax figures show that home prices increased by 0.6 per cent compared to the projected 0.3 per cent by Reuters economists. The rise comes after the 0.8 per cent drop in April triggered by the newly implemented buy-to-let tax. Demand from home buyers in May fell to the lowest level since 2008, according to the Royal Institution of Chartered Surveyors. Martin Ellis, Housing Economist at Halifax, told Reuters he expects prices to grow at a slower pace in the later parts of this year. He cited an increase in affordability issues brought about by price hikes outpacing income growth that will likely dampen housing demand and eventually lead to the cooling of housing prices.