Singapore's property market poses challenges for Malaysian developers

The property market in Singapore, described by a developer "to be in a (state) of slumber" and by a Singaporean analyst that it "could get worse", may pose a challenge to some Malaysian developers who have gone over there in search of greener pastures.

Malaysian developers with projects there include the IOI Properties Group Bhd, YTL group, Selangor Dredging Properties Bhd (SDB), Sunway group and S P Setia Bhd.

Those who have more than half of their units sold are relieved they have escaped the sliding property prices - particularly in the high-end segment in certain locations - but those who have a lot of unsold units may be impacted, says property consultants.

Selangor Dredging Properties Bhd has five projects there and is "in the midst of identifying land for future projects," says SDB's communications and corporate affairs head Lina Othman.

The company spaced out its projects before entering into another. Its five projects have a total gross development value of about S$700 million.

Lina says its first two projects - Jia and Gilstead Two - are fully sold and the last three are more than 90 per cent sold. These are Okio (98 per cent), Hijauan on Cavanagh (95 per cent) and The Village (99 per cent).

S P Setia Bhd has 18 Woodsville, in Upper Seranggon, of which only five units remain unsold, and Eco Sanctuary. The final of its three blocks are 80 per cent sold, a staff said.

Another pioneer there is YTL group, says SLP International Property Consultants Pte Ltd executive director David Neubronner. YTL group offered exclusive and limited units landed villas in its two earlier projects, Sandy Island and Kasara, - 18 and 13 units respectively on Sentosa Cove - which were fully sold some years ago.

Its current project in Orchard Boulevard which it bought at the end of 2007 for S$435 million, or S$2,498 psf on per plot ratio, is a casualty of the current weak market conditions.

It bought the former Westwood apartments en bloc at a new record price, a property consultant said. Per plot ratio means the value of the land based on the unit size of permissible gross floor area.

The plan was to develop and launch a new ultra luxury condominium, 3 Orchard by the Park in the first quarter of 2015, comprising 78 units of residences. It was speculated that the price would be on the side of S$4,000 psf but a source related to the company said the 2015 launching has been deferred indefinitely.

The IOI group which went there early still has a number of projects that have yet to be marketed fully. It may face some challenges there. Relisted in January this year, IOI Properties Group Bhd has several projects there on a joint venture basis.

Although it is not a late entrant there, it had a different strategy from other Malaysian developers because it wanted to use Singapore as a platform for its overseas ventures.

Also, unlike other Malaysian developers who concentrated on one project at a time, it has several on going simultaneously. Checks with several sources provide some indication of IOI Properties' exposure. IOI Corp Bhd group public relations department did not answer questions emailed to them.

Says a source: "On Jan 16 2012, Singapore's Housing Development Board (HDB) released a 262,828 sq ft plot in Jalan Lempeng. IOI Corp secured the site with the highest bid of S$408 million, winning against eight bids, with a second placed bid of S$360.97 million and third placed bid of S$333.78 million.

"That worked out to a cost of S$554.4 per sq ft per plot ratio (psf ppr). Analysts had estimated a break-even cost of S$854 to S$974 psf ppr."

While there was good response in the earlier marketing of that project - The Trilinq - interest wanned. Developer Clementi Development Pte Ltd, an entity held under IOI Properties, marketed the 755-unit project between S$1,190 and S$1,850 psf. The project is under construction and is expected to be completed in 2017. It is less than 30 per cent sold.

The group also partnered with Ho Bee Investments Limited on a 50:50 basis to develop Seascape, comprising 151 exclusive waterfront homes with seaviews to the Southern Islands and the South China Sea. Ho Bee, established in 1987, has built a portfolio of residential, commercial, industrial and mixed-use properties. It is also a key player in the Singapore property industry and has been listed on the Stock Exchange of Singapore since 1999.

That site was purchased in March 2007 for S$459mil, or at about S$1,360 psf on per plot ratio.

Completed in 2010, it is estimated about a third of the 151 units have been sold since its launch in 2011 at an average price of S$2,600 psf, a source says.

In January 2008, IOI group also purchased a site - known as The Pinnacle Collection in Sentosa Cove, where the current Cape Royale is located - for S$1.097 bil, or S$1,822 psf per plot ratio. IOI has a 65 per cent stake and Ho Bee, 35 per cent.

Sentosa is currently selling at between S$2,000 and S$2,200 psf, which may not be attractive for a developer like IOI Property.

A property consultant estimates that IOI Properties may be looking to sell at about S$3,000 per sq ft. Breakeven will be around S$2,500 psf. So IOI should target to sell near S$3,000 psf. However, Sentosa, at the moment, cannot command this type of price level.

"Recent transactions for similar luxury condominiums in Sentosa are trading at S$2,000 to S$2,200 psf. Cape Royale was completed last year and is currently in the market for rent only," says the consultant.

IOI Properties also had a joint venture mixed development with City Developments Ltd on Beach Road known as South Beach, a 4 billion ringgit mixed development designed by renowned architect Sir Norman Foster which includes commercial, hotel and residential components.

Its venture with Kim Seng Heng Realty Pte Ltd to develop Cityscape @ Farrer Park, a freehold 30-storey development comprising 250 units in District 8, with close proximity to Orchard Road and the Central Business District, had a happier ending.

In a statement to Bursa in 2008 when it purchased the Cape Royale site, IOI Properties Bhd (the entity that was delisted a year later), had in mind to diversify its existing land-bank, which was then all located in Malaysia (save for the joint venture with Ho Bee for Seaview) in 2007.

In a 2008 filing, IOI Properties said they had chosen Singapore as a platform for the Group's regional diversification as Singapore properties are presently one of the most sought after in the region.

"In particular, IOI Properties has chosen to focus on development lands within the renowned Sentosa Cove area as IOI Properties' association with luxury landmark developments ... will enhance the company's brand name and reputation as a luxury quality homes developer not only in Malaysia and Singapore, but also in the larger Southeast Asia region, which in turn can be used to the Group's advantage in its regional diversification plans," the filing said.

That acqusition would also enable the property group to diversify its property development earnings - which were mainly derived from the group's township developments in Puchong and Johor - to include a myriad of smaller-sized niche developments in choice locations, the filing said.

The group rationalised that these smaller-sized developments would also typically have a faster development timeframe or 'turn-around cycle'.

IOI group's property division, with assets totalling about 15 billion ringgit, was relisted on Bursa in January 2014. According to its prospectus, IOI Properties as at June 30, 2013, had foreign projects estimated to generate a total gross development value of S$2.9 billion in Singapore and 6.7 billion yuan (US$1.09 billion) in China.

IOI Properties acknowleged its overseas ventures were subject "to foreign exchange fluctuations ... and market conditions."

"Although we have continued and are able to hold unsold properties post-completion, there is no assurance that these unsold properties may not have a material impact on our financial performance," it stated in the prospectus.

Earlier this week, IOI Properties proposed to undertake a rights issue of new shares to raise about 1.03 billion ringgit for capital expenditure, investment opportunities and working capital purposes.

Malaysian developers' foray across the causeway has not been trouble-free. The presence of mainland Chinese developers in Singapore and their willingness to pay for high land prices miffed some of them around 2011 and 2012.

A report by Maybank Kim Eng forecasts "up to a 15 per cent decline in home prices from mid-2014 to end of 2015" while property consultants say prices in some locations have already dropped by as much as 30 per cent from their launching price.

A Bloomberg report on Nov 7 says home prices on Sentosa had fallen by about 40 per cent since 2012, compared with a 28 per cent drop in 2008, the year when Lehman Brothers fell, precipitating the global financial crisis.

Analyst Ng Wee Siang from Maybank Kim Eng says in an Oct 27 report that the "property market is not a pretty sight" and the situation "could get worse".

His prognosis is based on three factors - vacancy rates for non-landed private homes, excluding executive condominiums, have risen to 8.3 per cent, their highest in eight years.

"Secondly, current seemingly high rental yield spreads could reverse when interest rates start to rise in 2015."

A massive supply of new homes - 63,000, of which 6,038 are unsold - could tip the balance in 2015 as household formation tapers off. "To absorb the supply, property prices and rentals will have to weaken, a consensus view," he says.

Foreign investors have been snapping up Singapore properties, accounting for 13.8 per cent of all purchases from 2005 to 2011 with mainland Chinese and Malaysian buyers being the two largest groups, behind 28 per cent and 26 per cent of last year's purchases respectively, he says in his report.

Source: AsiaOne 17th November 2014

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Singapore's property market poses challenges for Malaysian developers

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