8 May 2019

Some commercial buildings finding it hard to sell en bloc

Some commercial buildings are facing an uphill task trying to achieve collective sales, with buyers deterred by high retail vacancy rates and prohibitive selling prices.

One of the more recent candidates for such a sale is Queensway Shopping Centre, a 45-year-old freehold site known for its sporting goods, but it has been far from smooth sailing.

An April 20 meeting to obtain consent for the move found that many owners were opposed to selling.

One is tailor Simon Chong, who is unimpressed by the $480,000 being offered for his 106 sq ft store.

He said in Mandarin: “It’s a freehold space and we have our regular customers. Why would I want to sell it?”

The Straits Times understands that shop owners, who collectively account for more than 20 per cent of the property’s share value, have joined forces to oppose the deal.

Rising numbers of commercial and mixed-use developments have hopped on the bandwagon since 2017, including landmarks such as People’s Park Centre, Golden Mile Complex and Sim Lim Square.

However, such projects usually see a lower success rate than their residential counterparts.

The high vacancy rates for strata-titled commercial property are a major deterrent to developers, said Mr Terence Lian, head of investment sales for Huttons Asia.

The islandwide retail vacancy rate hit 8.7 per cent as of March 31, up from 8.5 per cent as of Dec 31.

“If you are able to convert (the development) to hotel use – looking at the pipeline, (there is) quite a rosy outlook in the near future,” he added.

“But, of course, the location and the price have to be considered.”

Mr Lian also noted the relatively high reserve prices of recent tenders for collective sales.

Real estate academic Sing Tien Foo said the upcoming supply of commercial space in prime retail belts such as Orchard Road and the Marina area adds to the competition, increasing risks for developers already facing high development costs.

He added that the cooling measures announced in July last year still have to be considered for commercial buildings if they are redeveloped into mixed-use projects.

“The residential components will still be subject to ABSD (additional buyer’s stamp duty) rules and the developers will have to be careful in assessing the market risks,” he said.

There is a growing number of commercial buildings with closed collective sale tenders that remain unsold, including Jalan Besar Plaza and Verdun House. Golden Mile Complex closed its second tender last month without news of a buyer.

Some developments have raised their prices to get owners on board so they can achieve the 80 per cent mandate to sell.

Sim Lim Square increased its asking price from $1.1 billion to $1.3 billion, while People’s Park Centre lifted its reserve from $1.3 billion to $1.35 billion.

Nonetheless, there has still been the occasional sale. The Realty Centre office building in Tanjong Pagar was sold last month for $148 million – some way short of the $165 million reserve price.

In March, the freehold Selegie Centre in prime District 7 went for its reserve price of $120 million on its third attempt. Golden Wall Centre in Rochor, also freehold, was sold for $276.2 million, 6 per cent above the $260 million reserve price, in November last year.

Despite the challenges, Ms Suzie Mok, senior director of investment at marketing agent Savills Singapore, which is handling the Queensway sale, hopes to get a public tender out within the next six months.

She added that there is potential to build a freehold residential project on the site, which is “rare in the vicinity”.

Source: https://www.straitstimes.com/business/property/some-commercial-buildings-finding-it-hard-to-sell-en-bloc

Adapted from: The Straits Times, 8 May 2019

Why investors love Singapore’s struggling malls

Singaporeans aren’t spending like they used to, at least not in shopping malls. There are too many already and more are being built. But investors still have good reasons to back mall owners.

The city state has 6.1 million sq m of retail space, of which 8.7 per cent is vacant. Yet companies are forecast to add a further 364,000 sq m, with the biggest chunk hitting the market this year.

This is when online shopping is catching on, retailers such as Crabtree & Evelyn are closing physical stores, and rents are scraping the bottom.

Two years ago, the median tenant was shelling out $9.76 per sq m in the main shopping district of Orchard Road, when the going rate for Category 1 offices was $8.65. Now, office rentals have zoomed to $10.18 – 30 cents more than top-grade retail space – while prospects for a spending recovery aren’t great.

CapitaLand Mall Trust, the island’s biggest shopping mall landlord, classifies its tenants in 17 categories, of which 11 – including supermarkets and department stores – saw sales fall for the first quarter from a year earlier. Telecommunications, home furnishings, and music and video led with big double-digit declines.

Paradoxically, real estate investment trusts (Reits) that own malls are outperforming the benchmark Straits Times Index. Interest rates may be part of the story. With global rates expected to stay lower for longer, a 5 per cent dividend yield on CapitaLand Mall’s shares implies a near 3 percentage point spread on 10-year Singapore government bond yields.

Singaporean savers got burned after being lured by the 6 per cent perpetual bonds sold by water purification company Hyflux.

To them, the fact that Reits are cautious about their balance sheets is a big attraction. CapitaLand Mall sold a 2029 US dollar bond last month, swapped the 3.609 per cent coupon to an attractive 3.223 per cent Singapore dollar 10-year liability, and used the $407 million proceeds to reduce debt coming due between now and 2022. Of the $2.3 billion increase in the trust’s assets in the past five years, $1.4 billion has come as new capital from shareholders.

Over the same period, Frasers Centrepoint Trust, the city’s third-biggest retail Reit landlord, has financed a $700 million expansion of its assets with almost $500 million of equity.

But then, Singapore is Asia’s Reit capital, which means there’s no dearth of well-managed investment vehicles. Almost every other kind of Singapore Reit – office, industrial, hospitality, residential and healthcare – is forecast to offer a somewhat better dividend yield next year than retail, according to Maybank Kim Eng Research.

Look beyond the short term, though, and there are sweeping changes coming to the city. DBS Bank analysts are excited about Starhill Global Reit, which may be a key beneficiary when its marquee Orchard Road malls are allowed a 29 per cent increase in their plot ratio, a measure of how much floor space landlords can squeeze out of a parcel of land.

The other idea in the Urban Redevelopment Authority’s new draft master plan is to encourage more of the older office buildings in the Central Business District (CBD) to be converted into homes and hotels. Singapore’s CBD, rather deserted during the weekends, will see a more steady flow of retail traffic.

I wrote last year that online shopping is upending the economics of malls in Singapore. That challenge still holds, and last month’s opening of Jewel Changi Airport, a five-storey glass dome boasting the world’s tallest indoor waterfall as well as 280 stores, has aggravated the oversupply of physical retail.

Still, a combination of low interest rates and a government push to remake the city’s landscape could be powerful mitigating forces. Or at least that’s what investors seem to be betting on.

Source: https://www.straitstimes.com/opinion/why-investors-love-singapores-struggling-malls

Adapted from: The Straits Times, 8 May 2019

Resale of older HDB flats continues upswing in face of policy tweaks: OrangeTee

Despite lingering concerns about their depreciating value and the adverse impact of the latest cooling measures, older HDB flats in Singapore are still in demand, says the latest quarterly report on HDB trends published by OrangeTee & Tie.

For the first quarter this year, 628 older flats – those more than 40 years old – were sold. They made up 13.9 per cent of total resale transactions – the highest percentage of older flats sold on record, the property consultancy noted.

Older flats “defied prevailing headwinds”, with a record 2,537 units sold last year, OrangeTee & Tie said.

In the report released on Tuesday, the firm added that demand for older flats has been rising over the years. Last year, older flats sold in the second, third and fourth quarters were all at their highest levels for the respective quarters.

Such flats are being sold across many towns, indicating their appeal island-wide, said researchers at OrangeTee & Tie.

Furthermore, the market share of older flats has been rising, the report stated.

Sales of older flats as a percentage of total resale transactions jumped from 1.9 per cent to 13.9 per cent between Q1 2009 and Q1 2019.

The analysts suggested that one reason behind the higher sales of older flats could be a narrowing price expectation gap between buyers and sellers, as the prices of older flats have been moderating over the years.

“In Q1 2019, the average price of older flats declined about 6 per cent when compared to Q1 2017, and around 7 per cent when compared to Q1 2018.”

Secondly, with more flats growing older, there are more transactions in general, the analysts said.

Older flats that are currently transacted tend to be smaller than flats that are more than 20 but under 40 years old, the report stated.

For instance, older four-room standard flats sold in Q1 averaged around 90 square metres (sq m), smaller than newer flats that averaged around 99 sq m.

Similarly, older five-room standard flats were around 119 sq m, smaller than the average 124 sq m for flats more than 20 but under 40 years old.

The smaller, older flats are lower priced and more affordable, and with their lower price tags, some buyers may now view these flats to be good value for money, the analysts said.

Another factor behind the higher sales of older flats is rooted in policy changes: the announcement of the Voluntary Early Redevelopment Scheme (Vers) and Home Improvement Programme II, and possibly some policy tweaks to allow buyers to use more Central Provident Funds to purchase older flats, may have started to instil some market confidence in these flats, the report highlighted.

(Under Vers, for example, owners in flats aged 70 years and older can vote for the government to buy back their homes before their leases run out, if their precinct is selected for the programme.)

Overall, researchers at OrangeTee & Tie anticipate that HDB resale volume may rise in tandem with more flats reaching their five-year minimum occupation period this year.

They expect resale prices to continue stabilising as the HDB price index declined marginally by 0.3 per cent in the first quarter this year.

Source: https://www.businesstimes.com.sg/real-estate/resale-of-older-hdb-flats-continues-upswing-in-face-of-policy-tweaks-orangetee

Adapted from: The Business Times, 8 May 2019