Singapore - Housing 01 (May 08 - Oct 08)

[HengHeng]

Worried? i'm not ? .. people will be making a loss just like those who have bought their properties at the high the last round of bull run years back ..... i forsee it coming again when asset bubbles gonna burst soon.


Then what can we do ? Wait for these people to sell those housing at a discount lor.. LOL

Tanjong pagar so i need to pay 600k for a hdb which i have no rights to the land? Dream on. LOL

[-dol-]

it's been the same all the years...to be a monopoly landlord and master lessor and profit from the mass population's need for housing.

Seems like we know the suckers & patsies in this case.

[mojo_]

I learn 2 words recently..... mark-to-market and asset bubble.

my vocab has increased too:

"shadow banking system"

"too big to fail"

"backstop"

"otiose"

[financecaptain]

Credit Suisse ("CS") just released research on Singapore property sector today. It is severely downgrading the office sector to underweight.

CS expects office rentals to fall by 50% :-

"Back in November last year, we forecast Grade A rents to peak at S$18.32/sq ft pm in 2009E (refer to our last office sector report “Prime numbers” dated 15 November 2007 for previous rental forecasts), after which it should fall 30% to mid-cycle rents of S$12.98/sq ft pm in 2012E. We now expect rentals to peak earlier in 2008E given: 1) office landlords are already experiencing greater resistance from tenants to further rents increases, 2) capital values of office buildings already plateaued three quarters ago (refer to the next section on “40% drop in cap values could be more detrimental”), and 3) vacancies have already risen for two quarters. While we believe the market has already priced in our previous assumption of a 30% decline in rentals from 2008-11E, we now believe rentals could fall 50% from the S$18.35/sq ft pm peak in 2008E, and the share price could undershoot our assumptions further. In the past two cycles, rentals have fallen more than 40% over athree-year span as vacancies increase to levels of 13-19%."

Its Impact on REITs ?

"While rental declines affect REITs earnings, given their reliance on rental income cash flows, contracting asset values could lead to a further de-rating of the sector, as it has the impact of raising REITs’ gearing, triggering risks of breaching gearing limits. This leads to a deterioration of credit profile, which will result in an increased risk premium and higher required yields. Once the gearing limit (60% for REITs with credit rating, and 35% otherwise) is breached, further borrowings are prohibited, and an equity-raising may be unavoidable for any acquisitive growth.

We believe this is untimely as it exacerbates the already high funding costs, given the prolonged and deteriorated credit crunch situation, a double whammy in our view. Over the past two weeks, credit almost froze and spreads have gone vertical, while 3M SIBOR has risen 38 bp to 1.6%. A gearing sensitivity to a decline in asset values conducted for SREITs suggests that ALLC is the most sensitive to declining asset values, given highest gearing amongst S-REITs."

These are their ratings on each REIT covered :-

CapitaCommercial Trust (CCT SP, UNDERPERFORM, TP S$1.26)

We are downgrading CCT to UNDERPERFORM from Outperform, given its highest exposure to the prime office sector. We believe CCT is highly vulnerable to an economic slowdown, and will be most susceptible to declines in prime rents. In addition, CCT has also enjoyed one of the highest revaluation gains (+57%) since IPO, and we believe the reverse could happen if asset prices fall. Our target price is revised down to S$1.26 from S$2.79 (-54.8%), as we cut our 2009-10E DPU by 5.8-17.0% and increase our cost of equity from 6.7% to 10.9%.

Suntec REIT (SUN SP, UNDERPERFORM, TP S$0.98)

We are downgrading SUNT to UNDERPERFORM from Neutral, with a revised target price[/b]of S$0.98 from S$1.76 (-44.3%), as we cut our 2009-10E DPU by 3.8-9.8% and increase our cost of equity from 7.0% to 9.4%. SUNT has enjoyed the highest revaluation gains (+61%) since IPO, and the reverse could happen if asset prices fall, in our opinion. In addition, we believe room for rents improvements for Suntec City Mall and Tower is limited, and yield potential for ORQ is likely to be truncated, given that significant lease expiries will only surface beyond 2010E (4.3% 2008-10E).

CapitaMall Trust (CT SP, NEUTRAL, TP S$2.58)

We are downgrading CMT to NEUTRAL from Outperform in view of its increasing exposure to office risks with the injection of Atrium and potential office developments to Tampines Mall and Funan DigitaMall, as well as the potential early injection of ION Orchard, which could strain its gearing and also result in equity raisings amidst a bear market. In addition, its CEO, Mr Pua Seck Guan, who is a key contributor to CMT’s success, has recently announcement his retirement from the post with effect from 1 November 2008. We believe this could be untimely given a difficult time for the REITs market. Nevertheless, CMT’s large portfolio of retail malls and mainly suburban regional malls are also more defensive in our view, while active involvement in AEIs also provides an alternative avenue to enhance yields, apart from acquisitions. We have revised our target price to S$2.58 from S$3.50 (-26.3%), as our 2009-10E DPU is cut by 0.7-1.8% and cost of equity is revised up from 6.9% to 8.9%.

Allco Commercial REIT (ALLC SP, NEUTRAL, TP S$0.60)

ALLC has an Asia Pacific office exposure – Australia (AU), Singapore (SG) and Japan (JP), where we see greater risks of revaluation losses to the AU and JP properties as capital values are already falling, apart from in SG. In addition, we believe there are challenges for the new management to address: 1) asset portfolio management, including streamlining its portfolio (sale of the AU assets and AWPF at competitive prices) and
revisiting the feasibility of AEIs (Keypoint and China Square Central), 2) capital management improvements and directives, and 3) strategy for yield compression for acquisitions to be yield accretive. We have cut our 2009-10E DPU by 5.5-7.9%, and revised the cost of equity assumptions up to 14.1% from 10.8%. Post adjusting for changes in exchange rates, we have revised down our target price to S$0.60 from S$0.88
(-31.8%). Maintain NEUTRAL.

Macquarie Prime REIT (MMP SP, UNDERPERFORM, TP S$0.76)

We are downgrading MPREIT to UNDERPERFORM from Neutral, as we cut our 2009- 10E DPU by 0.5-2.1% and adjusted the cost of equity from 6.9% to 11.3%, and revise down our target price to S$0.76 from S$1.31 (-42.0%), post adjustments to exchange rates assumptions. Apart from its office risks exposure (domestic and overseas), we believe the M&A premium that the market has factored in is unjustified given that the 26.2% stake in the REIT will not trigger a general offer, and benefits from the transfer of ownership of the manager to a potentially stronger sponsor should be viewed as a longerterm impact and not an immediate catalyst for the stock. In addition, we see potential selling pressure from its troubled stakeholder, AIG, who holds a 10.9% stake on MPREIT.

Above Source :-
Credit Suisse Asia Pacific/Singaopore Equity Research
29 September 2008
"Singapore Office Sector" - "REITs/Underweight"

[ishak]

Grade A office rents in CBD slide for first time in years
Average monthly rent at Raffles Place slips 1.4% to $17.64 psf in Q3
BT, 29 Sep 2008

Grade A office rents in Singapore's Central Business District (CBD) have declined for the first time since the office market troughed in 2004.

The average gross monthly Grade A rental value for the Raffles Place area slipped 1.4 per cent to $17.64 per square foot (psf) in the third quarter, from $17.89 psf in the preceding quarter, according to the latest data from Knight Frank.

The Suntec/Marina Centre/City Hall area led the declines in Grade A office rentals in Q3, with a 6.2 per cent quarter-on-quarter fall to $15.13 psf. In the Shenton Way/ Robinson Rd/Tanjong Pagar area, the drop was 2.8 per cent, followed by a 2.7 per cent decline along Orchard Road.

Knight Frank director (research and consultancy) Nicholas Mak said that he expects office rentals to continue declining by 14-19 per cent islandwide in the next 12 months (from current levels) as the global financial turmoil and possible mergers and acquisitions contribute to consolidation and reduction in office demand.

Giving her take on weakening office demand, DTZ executive director Ong Choon Fah said: 'Most companies are in cost containment mode and would be looking for ways to manage the increase in their accommodation costs. There has also been quite a lot of leakage of CBD office demand to business parks and vacant state properties converted to offices.'

Mrs Ong reckoned that headline office rents may not come down much but noted that leasing incentives like rent-free periods have started to reappear. Agreeing, an analyst said: 'Major landlords will try to maintain headline rents, because once rents come down, it affects their whole portfolio.'

Besides weaker demand for office space amid the financial turmoil, Knight Frank's Mr Mak attributed the softening rentals in Q3 to the government's efforts to increase office supply (including transitional office sites). 'In addition, landlords are more cognisant of the substantial supply of office space that will be completed from 2010 and have become more realistic and flexible in their rental expectation when it comes to lease negotiations; they want to hold on to their tenants and maintain their buildings' occupancy rates,' Mr Mak said.

The fall in the average Grade A Raffles Place rental value in Q3 marks the first quarterly decline since Q2 2004. This incipient weakening follows a rapid escalation in office rentals over the past two years on the back of tightening supply and strong demand from occupiers, including global financial institutions expanding their operations in Singapore. Average Grade A Raffles Place rents surged 82 per cent last year and that was on top of the 67 per cent gain posted in 2006, according to Knight Frank.

But it's a different story now. 'Since Q1 2008, there appears to be a crack in the growth momentum for office demand in the Downtown Core area due to external factors such as the US sub-prime crisis that began in the second half of last year,' said Mr Mak.

The slowdown in demand in the Downtown Core area - which includes the key office districts like Raffles Place/Marina Bay, Shenton Way and Marina Centre - and tapering off in rentals in Q3 does not come as a surprise, he adds. 'The tenants in this area are primarily financial institutions, many of which had already completed their expansion or consolidation plans over the last 24 months and some are adopting a more cautious approach by putting any further expansion plans on hold,' Mr Mak observed.

Knight Frank's data showed that Grade B offices in Singapore also experienced downward pressure on rentals in Q3. The biggest fall was in the Orchard Road location, where the average rent decreased 7.8 per cent quarter-on-quarter to $10.70 psf a month in Q3. Raffles Place and Shenton Way/ Robinson Rd/Tanjong Pagar Grade B offices were less impacted by easing office rentals and dipped by 1.8 per cent and 2 per cent quarter-on-quarter respectively.

As a whole, offices in non-CBD locations also mirrored the general slowdown in rental in Q3. Rentals continued to weaken for the Beach Road/Middle Road area, with a 3.4 per cent quarter-on-quarter drop. Suburban areas too met a similar fate with quarter-on-quarter rental decreases ranging from 1-8 per cent.

Looking ahead, Knight Frank said that in the short term, the beleaguered financial markets are expected to lead to many firms either postponing their expansion plans or consolidating their space usage. Restructuring at some organisations could lead to sub-letting of excess space to ease cashflow problems.

Rental leads the property market.

[iam802]

Report from Citigroup

Singapore Property Bracing for a Hard Landing

Technical recession on the cards — Our economist, Kit Wei Zheng, has cut his Singapore GDP forecasts to 2.8% (from 4.1%) and 2.5% (from 3.6%) for 2008 and 2009, respectively. He expects headwinds from the global financial markets to hit the local labour market, and forecasts a net loss of 1k jobs (vs. 8k new jobs previously) in the financial sector in 2009, with risks to the downside.

Confidence badly shaken by collapse of major financial institutions — The collapse of Lehman, Merrill Lynch’s sale to BOA and the AIG bailout in a short span of a week are likely to result in job losses in the financial industry, which could see further consolidation. This would dent the already fragile sentiment toward the Singapore property sentiment.

Residential: Job losses to add to woes — The volatile stock market and potential job losses in the financial industries could result in a further 25% decline in the high-end residential segment. Prices in the mid-market could fall another 15%, while the mass market could start to see a decline of 5-10%.

Office: Rentals to halve, and cap values down almost 40% — Apart from supply, we are now concerned about rapidly falling demand and potential withdrawal of office space amid the banking crisis. We expect office rentals to halve by end-2010 and capital values to fall some 38% from current levels.

Cutting targets 20-45% —
1) Downgrading CityDev to Hold, but is still preferred over
2) Sell-rated Capitaland.
3) Maintain Hold on Keppel Land.
4) Buy-rated Wing Tai looks oversold at a 45% discount to book value despite a very strong balance sheet.

[kennynah]

wah...like dat, i think rental fees should come down as well? but i duno if there is a positive correlation between housing prices and rental fees...but logically it seems to have.

as long as we continue to have foreign workers/students, many will need accommodation and rental demand should maintain....right?

[iam802]

rental will hold a bit for the next 1-2 years.

Last year, with all the property craze, I remembered that the newspaper were saying how the rental increased hurt a lot and most were renewing for 2 years.

Having said that, I do know of a friend who has a good tenant and only increase a little bit.

So, be a good tenant, you never know if you will meet a good landlord.

And for the 'landlord', if you have a good tenant, appreciate them.

[kennynah]

what's a good tenant? one who pays rental promptly and dont wrack your house....no illegal squatting, no turning house into a gambling den, a prostitute den, etc...

[winston]

Singapore home prices post first drop in 4 years

Singapore's private home prices fell for the first time in more than four years in the third quarter, signaling an end to a real estate boom that began in 2004.

Prices declined 1.8 percent in the three months ended September 30, after rising 0.2 percent in the second quarter, the Urban Redevelopment Authority said.

That's the first drop since the three months ended March 31, 2004, when prices retreated 0.4 percent, according to the agency.

The 17-quarter rally in home prices stalled amid concern soaring inflation and the global credit crisis will hurt the city's economic growth.

BLOOMBERG