Archive for the ‘Property’ Category
Reits have a new tool to juice up returns: perpetual securitiesor perps. Could “leverage up” without “debt”. Shld not technically use the word “bonds” even though they are effectively bonds.
Could be burps if shumething goes wrong.
The central bank is worried that retail investors may not understand perps*. I’m worried reit managers may be seduced by investment bankers to use perps indiscrimately. Us investors get shafted. So invest in reits where the sponsor is big, stodgy and conservative (like F&N, or AMP), and has a big stake in reit. If sponsor doesn’t meet the first criteria, think long and hard. I did in case of LMRT, and bot in.
Update: Comments on ST article abt central babk’s stance.
*Bankers said MAS officials had voiced their concerns over retail holdings of perpetual bonds during at least two informal meetings in recent weeks.
The central bank’s scrutiny is preliminary and there is no suggestion of any wrongdoing on the part of the banks or companies involved in the recent flurry of perpetual bond issues. But the discussions show that the regulator is worried individual investors may be taking on too much risk without a full understanding of the product.
Never summed up the courage to buy MIIF because although it is a China infrastructure play, yirld is super, and MIIF is net cash, its underlying investments are up to their eyebrows in debt: could affect MIIF’s payouts, NAV and price. But chk out for yrself http://www.investmentmoats.com/money-management/dividend-investing/amfraser-have-some-seriously-optimistic-cash-flow-projections-for-miif/
For the working stiffs who got cashflow from day jobs. Not for retiree who gambled his cashflow.
CIMB likes Frasers Commercial Trust I own shume.
Update: DBSV likes FCT too http://sreit.reitdata.com/2012/05/18/fcot-dbsv-3/
http://sreit.reitdata.com/2012/05/02/a-itrust-dbsv/ (Ya I know technically it’s not a Reit, but it looks like one.)
So am I. )))). BTW, the Indian rupee has strengthened after the government said on Monday that it would delay proposed laws targeting tax avoidance by one year.
So am I. But Indonesia’s economy grew at its slowest pace in 18 months amid a slowdown in exports as demand from key markets such as the US, Europe, China and India weakened.
Worse, the Indonesian rupiah has fallen 8% against the US dollar in the last twelve months: a weak currency may hurt the purchasing power of domestic consumers and dent demand. Remember domestic consumption accounts for nearly 60% of its economy. http://www.bbc.co.uk/news/business-17980123
Other analysis, info on LMIRT:
They want to make sure that they do not break God’s order Love Thy Neighbour http://front.moveon.org/three-words-in-the-bible-that-some-people-totally-ignore/?rc=daily.share&id=40399-20042274-0D2I6Wx
After all, being wealth shows that God favours them.
More wealthy Indonesians are looking to buy a second home in London, while interest in Singapore has waned, according to Property Report, a real estate magazine, citing a study by global property consultancy Knight Frank, earlier this month.
“Interest from Indonesian-based purchasers in London property increased by over 100 per cent last year … Indonesia moved up two places last year in Knight Frank’s rankings of Asian buyers in London, from 11th in 2010 to ninth position… weakening of the British pound against the rupiah has made the idea of buying property in London more attractive to wealthy Indonesians”.
Even though Singapore remains the No 1 destination for Indonesian property investors, the Republic’s recently-introduced additional buyer’s stamp duty was having a “cooling effect”, the report said.
BTW, lots more Muslims and rich people there. The Arabs love London, so do the Russian rich.
Knight Frank also said Singapore remains the favourite for the Indonesians, “Indonesians are among the top-three property buyers in Singapore after China and Malaysia. Last year, Indonesians bought 1,714 properties in Singapore. In the first quarter of this year, the number was 137”.
“We estimate that Indonesians spent 1.5 trillion rupiah (S$204.5 million) on property in Singapore (last year)”.
(Or “S-Reits: Is an amber light flashing?”)
Regular readers will know that I’m up to my eyeballs in Reits (AMP, Fraser, Lippo and Ascendas India, ya I know AI is a biz trust, but it’s a Reit except in form). Greedy for the yield, what with inflation at above 5%. And no high salary to fall back on. In fact no salary at all. (((
Generally Reits are up 10% in 1Q, and taz without taking into account the payouts! So I’m not complaining.
But I’m getting concerned abt future total returns (price + payouts) when the expected appreciation of the S$* is given as a reason to buy Reits. “If they [investors] expect the dollar to appreciate … there will be more interest in Singapore-dollar-denominated assets … Reits that are listed in Singapore and traded in Singapore dollars will benefit as well,” someone senior from SIAS Research was quoted by MediaCorp as saying recently. And remember that SIAS is the self-proclaimed watch dog for retail investors!
WTF, ever heard that quite a number of Reits are diversified geographically, or are exposed to a specific country like India, China or Indonesia? If a Reit has oversea income, that income would be “reduced” when translated into an appreciating Singapore dollar.
Anyway, as of last week, DBS Vickers liked Mapletree Logistics Trust, Ascendas India Trust and Frasers Commercial Trust. These were Reits to accumulate ahead of payout declarations because it expected the payouts to exceed mkt expectations.
CIMB favoured CapitaMall Trust and Frasers Centrepoint Trust for their retail exposure and strong growth potential. And OCBC prefered industrial REITS, which offer yields in excess of 8% to outperform.
But do remember that unlike companies, Reits have by law to payout out 90% of their income. There is no such thing as keeping something for “a rainy day”. Something that “dividend stocks” like Haw Par, SPH or F&N do. With a Reit, if income drops, the payout drops and the share price will drop to reflect the reduced payout.
As a Reit investor, you got to sell when the going gets good, or be prepared to hold it through down-cycles and be prepared to cough up monies then for rights issues to shore up the financials. Net-net, could use up the payouts you got in gd times.
*Following the recent announcement by the central bank to allow the Singapore dollar to appreciate at a faster pace.
As the shares closed at 6.74 today, I tot readers might be interested in DBS’s continued call to buy F&N.
My problem with this stock is that there doesn’t seem to be any plans to reshuffle the portfolio of assets (Asia Pacific Breweries, F&N Berhad, Times Publishing, properties and a few other things) to extract more shareholder value. It’s more of the same. But dividend is sustainable, yielding abt 2.7% (trailing). Better than leaving money in the bank.
DBS Group Research | Mar 30
… announced that its wholly owned subsidiary, FCL (China) Pte Ltd, is proposing to privatise its 56.17 per cent-owned, Hong Kong-listed entity, Frasers Property (China) Ltd (FPC). The proposed privatisation will be undertaken jointly with Riverbook Group Ltd, a wholly owned subsidiary of Ascendas Land International Pte Ltd. Riverbook is also the second largest shareholder of FPC with a 17.16 per cent stake. The main assets of FPC include the 157,610 sq m Vision Shenzhen Business Park and Shanshui Four Seasons in Shanghai with 737,000 sqm earmarked for residential/commercial uses.
We believe that the rationale for this exercise is that the current traded price does not reflect its value as FPC is trading at a 43 per cent discount to its NAV.
Furthermore, FPC’s trading value is relatively low at less than HK$1 million a day. The privatisation is likely to provide more flexibility for the major shareholders to extract value, in our view.
We continue to see value in F&N, as it is trading at a 24 per cent discount to our RNAV ($9.02), with the potential to progressively unlock value over the longer term – Asia Pacific Breweries, F&N Berhad, Times Publishing, properties, etc. In the meantime, the group’s earnings will benefit from the strong performance of its brewery unit, stable investment property earnings, coupled with about S$1.7 billion in unrecognised property development sales in Singapore. We believe its low landbank and partnership strategy for land tenders will better insulate it from policy risks in this uncertain market.
The move to scrap one avenue for rich foreigners to fast-track their permanent residency applications by parking large sums of money here will have little impact on the Republic’s economy, analysts noted.
In fact, an analyst went as far as to describe the Financial Investor Scheme (FIS) – started in 2004 – as having “outlived its usefulness. http://www.todayonline.com/Singapore/EDC120405-0000087/Scheme-for-rich-foreigners-outlived-usefulness
The devil whispered in my ear, “What this means is that there will be less people applying for leave to buy houses in District 10, and less demand for places in Sentosa Cove, and super high end luxury apartments. Remember there is a group of S’poreans who have had their salaries cut by about half. Less competition for them now when it comes to buying luxury-end properties?”
“Perish the tot,” the angel of the Lord said. “These are the people who introduced GRCs.”
“My point exactly,” said the MU supporter.
Angel of the Lord, “Since 2010, these businessmen, have not been allowed to include the cost of buying a private home as part of their required investment.”
MU supporter, “The pigs knew they were going to have to cut their salaries. Pre-emptive move to ensure they are not affected by the cut in salaries.”
Angel, “OMG! What can I say? You may have a point!”
Even Bangkok punters play the yield game.
Minister K Shanmugam has said that the Government does not want younger Singaporeans to be saddled with tax burdens, even as it ensures that the elderly are taken care of and no one is left behind.
When I read the above, I could only chuckle and then sigh. I had juz posted my very mixed tots about Mohammad Charlie Jasni who is earning $850 a month, buying a $99,200 HDB 2-room flat, noting that after the $40,000 grant the HDB loan is $59,220. On a 30-year mortgage at the HDB Concessionary Loan rate of 2.6%, the monthly repayment is $237. Mohammad is only able to pay $83 a month because the mortgage was reduced to slightly more than $20,000 because he and his wife have used up their CPF monies of $40,000. If they default, they have lost serious money.
About 15 years ago, in 1997 or 1998, I had an interesting conversation with some expat couples in their early 30s at my club . What surprised them most about S’pore was the financial commitements that their S’porean contemporaries had: 20 to 25 year loans to buy public housing apartments, and 10–year car loans. They said that back home (Canada, OZ or the UK), they would never have dared to make such long-term financial commitements. But it was par for the course here. And they would have not needed to, I added. They agreed. Well, now HDB mortgages are an “affordble” 30 years.
Of course, the PAP doesn’t want to burden the young with more taxes. The young can’t afford to pay higher taxes: they are juz managing a decent, comfortable life after meeting the interest and principal payments on their 25 to 30-year HDB mortgages. More will vote Opposition if taxes are increased. And I don’t mean the bluish near-clones of the men in white. They will vote for the people in red. Or they will riot.
The minister also said, “[W]e also have to send another message, which is that, only about 50 per cent of Singaporeans pay taxes”. This surely is wrong? If only 50% of S’poreans pay taxes, then why is the government giving a permanent rebate for the poor so that GST becomes a lot less regressive*?
We all (rich, poor and so-so) pay GST. That is why economists consider this tax to be the most efficient and effective way of taxing people. Tax is paid when one consumes. We all consume.
(It also has the added advantage of taxing consumption, not savings or investments. In traditional economics savings and investments are good, consumption is bad. Bit like how the PAP thinks? Investing in a 30-year mortgage is good, but spending more on consumables is bad.)
What he means by “taxes” is “income tax”. The minister when he was in legal practice was one of the top litigation lawyers around. He was very, very good. Err I hope that now he is a minister he doesn’t join the likes of PritamS, Vikram Nair and Hri Kumar Nair. Their use of words reminds me of::
“I don’t know what you mean by ‘glory,’ ” Alice said.
Humpty Dumpty smiled contemptuously. “Of course you don’t—till I tell you. I meant ‘there’s a nice knock-down argument for you!’ ”
“But ‘glory’ doesn’t mean ‘a nice knock-down argument’,” Alice objected.
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master
Alice was too much puzzled to say anything, so after a minute Humpty Dumpty began again. “They’ve a temper, some of them—particularly verbs, they’re the proudest—adjectives you can do anything with, but not verbs—however, I can manage the whole lot! Impenetrability! That’s what I say!”
(Lewis Carroll’s Through the Looking-Glass, and What Alice Found There )
*But TOC’s Uncle Leong has described the problem with the government’s “solution”, “A new GST voucher will be given to help particularly lower-income and elderly Singaporeans, comprising three components – cash, Medisave top-up and U-Save.
‘So, you pay for your GST increase in cash, but you get the bulk of it back not in cash, but as Medisave top-ups which you can only use for medical purposes, and U-Save which helps you to pay for what has historically been generally increasing utility bills.”
A wicked, mean tot. Could one of the reasons for putting the money into CPF accounts rather than pay cash be to lessen the cost to the government? The real value of the cash in the CPF accounts are steadily and steathily eroded by inflation. With the Medisave account paying 4%, and the ordinary account 2.5%, and inflation at juz below 5%, could the government be hoping that inflation reduces its headline cost by the time the money is withdrawn? Even if inflation returns to the 2% range, the real cost to the government is reduced. As I said, a wicked, mean tot that would never occur to a PAP supporter or a journalist in our constructive, nation-building local media.
(Or “Mixed thoughts about the poor having to take out a HDB mortgage” or “What the HELL? PAP misses the plot!”)
In, I suppose, an attempt to show that ministers were not talking rubbish about someone earning less than a $1000 being able to afford a HDB flat (thanks be to a government subsidy, and forced savings via the CPF system), the constructive, nation-building ST had an article on how Mohammad Charlie Jasni who is earning $850 a month is able to afford a two-room HDB flat.
The analytical, compassionate, risk-adverse part of me agreed
– With the view articulated by TOC’s Uncle Leong that it would be better if Mohammad was allowed to lease, and not have pay a mortgage ($44 versus $83 a month)
— It’s cheaper.
— There is a possibility of him defaulting and losing all that he and his his wife have put in ($40,000 in CPF savings), “the probability of job loss, pay cut, sickness or accident, may be relatively higher than others … the likelihood of him defaulting on his mortgage over the next 30 years may be high”.
— He and his wife would have some savings for the couple’s old age. He is only able to pay only $83 a month because his and his wif’e’s CPF savings of $40,000 have been used up, reducing the amount owed to slightly more than $20,000.
– And with this comment on this TOC article thread, “I find it very CHILDISH for the government to glamorise a policy that enables a low income earner to own a HDB flat, and yet ignoring the fact that the same low income earner will face the bigger problems of making ends meet on the daily basic necessities like food and transport.
‘These low income earns may own a HDB flat but cannot survive paying the basic expenses in our daily life, and then end up dying of hunger… good policy meh? …”
On the other hand, the analytical, risk-taking side of me thinks that here is a couple who because of the CPF grant and forced savings have been given the chance to better themselves.
The couple can sell off the property after five years and make a good profit (at least $100,000) on the flat, even assuming a slightly weaker market. They can move to Johor, rent a place there, and he can commute. Alternatively in five years time, assuming he is allowed to rent the place out, he can use the rent money to rent a place in Johor, and commute. He could even go into business, while living in Johor.
The couple has options that leasing does not give them, albeit at greater risk. Many of the comments I read on this issue on the internet portray people like Mr Mohammad Charlie Jasni as passive and helpless. The one good thing the ST article shows is that this is not true. They are just as keen to better themselves as better-off, more fortunate S’poreans. In its Alice-in-wonderland way, the government is trying to help them out of a surreal place that is largely the creation of the government.
The issue is why is public housing so expensive: a two-room flat costs $99,200?, Note after $40,000 grant, the HDB loan is $59,220. On a 30-year mortgage at the HDB Concessionary Loan rate of 2.6%, the monthly repayment is $237. Mohammad is only able to pay $83 a month because the mortgage was reduced to slightly more than $20,000 because he and his wife have used up their CPF monies of $40,000. If they default …
But let’s celebrate Mr and Mrs Mohammad Charlie Jasni. They give the lie to the Hard Truth that only immigrants work harder and aspire to have a better life. They also give the lie to the casual assumption of many do-gooders that the poor are passive and helpless.
I’ve kept an eye on Roxy-Pacific since at least last March. It trades at a huge discount to RNAV, presumably because of its massive debts. I’ve concerns that it may not be able to refinance its debts if we have a repeat of the 2008 crisis.
Well, the executive chairman and an executive director were buying recently according to this BT report on Monday: Executive chairman of the board and CEO Teo Hong Lim and executive director Koh Seng Geok acquired shares of residential property developer Roxy-Pacific Holdings in the second half of February with a combined 1.849 million shares purchased from Feb 20 to 29 at an average of 45.5 cents each. The acquisitions, which accounted for 21 per cent of the stock’s trading volume, were made after the stock rose by 17 per cent from 39 cents on Jan 20.
The purchases were also made after Roxy-Pacific Holdings announced on Feb 16 a 5 per cent drop in Q4 profit after tax to $11.40 million for the three months to Dec 31, 2011. Earnings for the full year, however, rose by 16 per cent to $49.65 million. Chairman Teo Hong Lim picked up 1.399 million shares from Feb 20 to 22 and a further 380,000 shares on Feb 29 at an average of 45.5 cents each, which increased his holdings (direct and deemed) to 366.512 million shares or 57.57 per cent. He previously acquired 2.5 million shares on Jan 12 via a married deal at 40 cents each and 1.528 million shares from May 9 to Aug 22, 2011, at an average of 46 cents each.
Executive director Koh Seng Geok, on the other hand, bought 70,000 shares on Feb 21 at 45 cents each, which boosted his direct holdings to 4.398 million shares or 0.69 per cent. He previously acquired 40,000 shares from September to October 2011 at an average of 39.3 cents each and 100,000 shares in February 2011 at an average of 44.5 cents each. The counter closed at 47.5 cents on Friday
I invest in Reits for the yields and the brokers and local media have discovered Reits as a great defensive play. But SMEs claim that Reits have caused their rentals to escalate unreasonably. JTC has been asked to review its current policy of divesting industrial space to private entities (like its Ascendas).
Business Times – 02 Feb 2012
SMEs blame Reits for growing rental pains
JTC asked to review its current policy of divesting industrial space to private entities
By MINDY TAN
(SINGAPORE) Rising rentals for commercial and industrial space have emerged as a pressing issue for small and medium enterprises (SMEs), and the fingers are pointed squarely at the dominance of real estate investment trusts or Reits as landlords.
The Reits’ drive to enhance yields and returns for unit holders – which usually translates into rental hikes – have left many SME owners, who feel they have limited alternatives here, fuming.
It has also led to calls – including a recommendation by the newly formed SME Committee – for JTC Corp to review its current policy of divesting industrial space to private entities like Reits and return to its previous role of an industrial landlord, so that it can provide ready and affordable industrial space to SMEs.
‘Rentals and capital values of properties are going up, impacting business costs for SME owners and eating into their bottomline,’ said Lawrence Leow, chairman of the SME Committee.
(Or “PM’s salary in 1970 and today using a terrace hse’s price as a reference point” or “Fooling around with numbers: Can prove anything with numbers”)
According to this, LKY’s annual salary in 1970 was $42,000 a year. The value of my parents’ home was then $35,000 based on a neighbour’s transaction if I recollect correctly). So LKY could have bot the house and have $7,000 spare cash left over (17% of his annual salary).
His son now gets under the revised salary scheme a yearly salarly of $2.2m (assuming he gets his bonuses). My parents’ house now is valued at $1.5m (based on a neighbour’s 2010 transaction). The PM can buy the house and still have $700,000 in his pocket (32% of his salary). And this after a 36% pay cut. At his 2010 salary, he could have bot the house and have $1.5m (50% of salary) spare change.
Bottom line: LKY had a bad deal relative to that his son gave himself, and the one he has now accepted. Even taking into account inflation, our PM is earning much more than his dad. In fact, the PM’s pay rose a lot more than the sum of the inflation rate, and rate of the appreciation of the terrace house’s value.
And unlike dad, who allowed ministers to earn more than he did, our PM is the top earner in the cabinet.
On how much David Marshall was earning (see this), I’ve been told that he could be wrong to claim he was getting $8,000 a month when he was Chief Minister in the late 1950s. When he gave the interview that mentioned that figure, he made several mistakes that were corrected before publication. This could have been one mistake that went uncorrected.
Will keep readers informed as this $8,000 figure had been widely (and unthinkingly) used to beat up the PAP: bunch of greedy pigs. As I’ve tried to show, it “proves”, if anything, PAP ministers are grossly underpaid using Marshall’s numbers. Juz as today’s example ‘proves” that our PM is overpaid.
My wider point is that numbers can be manipulated to support any view. There is no “truth” in numbers per se.
Finally, maybe Marshall was not mistaken over his $8,000 monthly salary because LKY was earning $3,500 in 1970. When he came into power in 1959, he slashed civil servants’ and ministers’ salaries by about half. And given the economic and political problems of the 1960s, he might not have dared to give himself a raise.
For that thank the Communists and their fellow leftists. They kept LKY on the straight and narrow,’cause he knew their power to cause trouble. If they were unhappy, they got protestors onto the streets, not mobilise anonymous grumblers on the Internet.
Finally on the performance bonuses. The way the bonus scheme is drawn up, esp how easy it is to achieve the targets (see here somewhere), reminds me of the Caucus-race in Alice in Wonderland (a favourite book). This was a race where the runners all started in different positions, ran for as long as they liked and stopped in different places. Then everyone got a prize.
DMG & Partners Securities on 27 December 2011, issued a “Buy” call on Metro Holdings. As the price remains unchanged at 0.695 (despite a strong market); and given that less the net cash, the stock is only trading at 0.335; and a yield of almost 3% (historical), it’s something worth exploring despite it being a China play, and a property one at that.
(Background: Metro was founded in 1957 as a department store operator and became a household name. It diversified into property development in the 1990s and was one of the early investors in China’s real estate market, thereby missing the bullet of being a retailer here.)
It has since built up a portfolio of prime commercial properties in Tier-1 cities in Shanghai, Beijing and Guangzhou, as well as several property projects and joint ventures in Tier-2 and Tier-3 cities. Key properties that the group owns include Metro City and EC Mall in Beijing, Metro City and Metro Tower in Shanghai and GIE Tower in Guangzhou.
Leveraging on the group’s retail experience, Metro has chalked up an impressive track record as a mall operator and investor in China. To date, all its property ventures have been profitable, with past divestments making gains of 5-25 per cent premium over book value.
Over the past five years, shareholders’ equity compounded at a CAGR of 9 per cent. This was achieved without the use of excessive leverage given management’s conservative style. Its strong balance sheet (net cash of 36 cents) allows it to deploy capital opportunistically. The ability to recycle capital and profits into new projects has been a hallmark of Metro’s management.
The company is in the midst of selling its 50 per cent stake in Metro City Beijing for 1.25 billion yuan (S$247.5 million), a 50 per cent premium over its latest valuation. Should the deal go through, Metro will be able to book a pretax profit of $87.4 million. We estimate this will lift book NAV by nine cents/share.
On our estimates, the stock has an RNAV of $1.02 billion, or $1.23/share, after netting out liabilities. At current price, the stock is trading at a steep discount of 45 per cent to RNAV. Our target price for the stock is $0.86, based on a 30 per cent discount to RNAV.
Mortgage rates make the difference
So what contributed to the recent decoupling of Singapore and Hong Kong home prices?
The simple answer is mortgage rates.
Driven by strong loan growth and rising loan-to-deposit ratios, Hong Kong banks have raised their mortgage rate spreads since early this year . This has resulted in higher mortgage rates and reduced demand for residential properties, which in turn led to the slide in private home prices since September.
On the other hand, the Government’s property cooling efforts have so far been thwarted by very low mortgage rates. With base interest rates remaining near record lows and Singapore banks charging very low mortgage spreads, affordability remains high.
However, there is a risk that Singapore mortgage rates would rise next year from their current low levels. Like their Hong Kong peers, Singapore banks have also experienced strong loan growth over the past year, which in turn has pushed up their loan-to-deposit ratios – although it must be said that ratios in Singapore dollars are generally still low.
Moreover, with the debt crisis that is plaguing the European Union, there has been anecdotal evidence that some European banks are pulling back their credit lines in Singapore to help boost capital ratios as required by the EU debt plan. If these banks continue to deleverage, it could result in less competition in the lending market for Singapore banks, which may then feel comfortable enough to raise their lending spreads, including mortgage spreads.
In fact, during the 2008/2009 global financial crisis, local banks such as UOB and OCBC were able to increase their net interest margins as foreign banks reduced their lending activities in Singapore.
Thus, while the recent decoupling in Singapore and Hong Kong residential property prices may make for an interesting read, we do not expect it to last for long, especially with the latest round of cooling measures introduced in Singapore.
Should happen as this UBS analyst postulated in late Dec 2011. But if the government thinks property prices will tank, not juz fall a little, the local banks will “do the right thing” by home owners, but not investors. It has happened before. In the crisis in the mid 80s, when many home owners had negative equity, the banks “did the right thing” and did not ask for more equity. Home owners had gd reason to vote PAP.
No not PAP propoganda but a sober analysis by Deutsche Bank that looked at the relationship between demographics and house prices in Western economies.
An analysis by Ajay Kapur of Deutsche Bank shows this relationship is pretty robust. He finds a positive relationship between changes in the working age population ratio (15-64 year olds relative to the rest of the population) and residential property prices, real prices almost always rise when the working age ratio is improving. In contrast, real property prices fell in one in three years when the working age proportion was falling. This ratio is declining in many countries; indeed in some the absolute number of workers is set to fall.
(or “Why PAP Ministers feel underpaid”)
So Grace Fu for one is unhappy about her salary cut. At least , for only a few hours sadly, she had the courage to voice her unhappiness. Then she repented her outburst or rather blamed us for “misunderstanding” her? Like we “misunderstood” Han or Han “misunderstood” SMRT’s SVP? At least Han had the excuse of his use of Singlish (his spoken English, let’s face it, is rubbish) for the former.
Well she should be very upset when she compares herself to S’pore’s last Chief Minister. Last March I wrote, Someone in TR wrote that David Marshall in an interview said he was paid $8000 a month in the 1950s as Chief Minister and went on like Marshall to rant against the PAP.
Based on $8000 a month, Marshall was paid $96,000 a year. From what I understand that could buy 3 bungalow properties in a then non-fashionable area in the East, say Frankel or Opera estate. He could have some change leftover. Today, a minister earning $3m a yr, may juz be able to buy a bungalow in these areas with his annual salary.
Well, assuming Grace Fu is earning say $935,000 (her new pay grade according to Gerald Ee and his maths-challenged committee), a 25% drop, she can’t buy nothing in the area on her salary. She can’t even buy a terrace house in a nearby estate. They are going for around $1.5m.
(Now if this piece cannot find its way into “Petir” or “Fabrications about the PAP”, then Zaqy and friends on PAP’s new media team are sleeping. As the efforts of Zaqy and gang based on the support the PAP is getting on the Internet, is so bad I’ll end as follows)
Ah well, she can still buy one 5-room and one 4-room HDB flat or a nice private condo apartment. But taz beneath her, I’m sure she thinks.
(Note Tan Jee say has a house in Frankel)
(I waited eight days after the data on PRs owning HDB flats came out because I wanted to see if the local MSM would give a favourable- to the government- spin on the data, which the MSM could reasonably do. The MSM was silent.)
Last Tueday, BT reported that S’pore permanent residents (PRs) owned some 48,700 HDB flats as at September 2011 , according to the Ministry of National Development. It was answering a PAP MP’s question. According to this, there were approximately 1,038,473 flats as of May 201o.
This means that 4.7% of HDB flats are owned by PRs. So those lurid figures (over 20%, if I remember correctly) claimed by TR are not true.
It was also reported that 39,100 units in the 3rd Quarter 2011, are rented out. Assuming that the rentees are all FTs (PRs and other foreigners), a not unfair assumption, this means only 8.5% of the flats are occupied by FTs. Again, nothing near what TR claimed (over 30% from memory).
Now as PRs are 13.9% of the resident population or 10.2% of the total population*, and PRs and other FTs 37.1% of the total population, these HDB numbers indicate that PRs and other FTs cannot be a major cause of HDB price rises. If the 8.5% of the flats are occupied by FTs were 30- 40% (in line with their share of the population), then they would be a major cause of price rises. So Mah was right to he said that PRs and other FTs had no or little effect on public housing prices?
The way to look at this piece of data in relation to all the data made available is that FTs have an effect (disproportionate perhaps?) because the supply was not keeping pace with demand given the influx of FTs. Khaw’s programme of building a surplus buffer is an admission that there was insufficient supply when the FTs were flooding in, courtesy of the government that we voted in in 2006.
No surprise then that the government and PAP spin doctors, and ST and MediaCorp staff missed telling us shumething important. This piece of info shows that Minister Mah did not know the numbers, or was fibbing when he said that PRs and FTs had no or little effect on public housing prices. They had an effect because he goofed, and then was in denial. Hence the silence when the local MSM or spin doctors could have rubbished TR’s assertions, and the belief that FTs are the the major cause for HDB price rises?
This piece of information helps give some perspective to the ongoing (often heated and irrational on both sides) debate on public housing and immigration. Yet it only appeared in BT, which is behind a pay wall most of the day. Later Yahoo! reported it. This reminds me of what David Boey in a letter to Voices wrote, ” [R]elevant information is sometimes unavailable to the public or is not presented in a consistent format to facilitate analysis.”
How true and sad. Can fix this lack of info or not, PM? Will be a test of your promise of more openness, and change.
*”Singapore’s total population stood at 5.18 million as at end-June 2011. There were 3.79 million Singapore residents, comprising 3.26 million Singapore citizens and 0.53 million permanent residents, and 1.39 million non-resident foreigners, ” Department of Statistics report released on September 28th 2011.
“Singapore’s total population stood at 5.18 million as at end-June 2011. There were 3.79 million Singapore residents, comprising 3.26 million Singapore citizens and 0.53 million permanent residents, and 1.39 million non-resident foreigners.”
Our constructive, nation- building media are promoting Reits as “safe” investments, so maybe it’s time to read or reread “Initially, I wanted to title this post “The Disastrous Singapore REITs Model” but decided otherwise”, written late last year?
It analyses what went wrong in the S-Reit sector in the period up to massive rights issues in 2009.
In a report issued last Thurday, CIMB identified K-Reit Asia, Frasers Commercial Trust (FCOT), Ascott Residence Trust (ART) and Suntec Reit as those likely to engage in equity fundraising in the near future. “The first signs of more cash calls to come have surface.”
The Reit industry is stronger than it was three years ago, CIMB said. Across the sector, the proportion of short-term debt to total debt stood at 8% in September, much lower than the 38% in June 2008. With reduced pressure from short term liabilities, Reits are less likely to make cash calls, even if the industry’s average gearing did climb to 36% (from 34% in 2008). But some Reits -(especially those in the office sector) could be vulnerable to asset devaluation as a downturn looms. Lower property values push up gearing ratios.
According to CIMB K-Reit, ART and Suntec Reit had gearings of 42%, 41% and% respectively at end-Sept, higher than the average of 36%.
The risk of a cash call is greatest for K-Reit. Its aggregate leverage remains high despite a massive rights issue (17 for 20) now underway to fund the purchase of Ocean Financial Centre from parent Keppel Land, and 20% of its debt is due for refinancing next year.
ART not only has high leverage but its European assets could see a devaluation, raising its leverage- a vicious cycle. But if it divests Somerset Grand Cairnhill, which has provisional approval for redevelopment into a residential and hotel project, a near-term cash call could be avoided.
Suntec Reit may not need a cash call until it is ready to acquire Phase 2 of Marina Bay Financial Centre and its capital expenditure needs could be partly met by proceeds from selling Chijmes.
FCOT is a potential candidate for a rights issue because of its relatively high leverage of 37% and low interest coverage ratio. Also, all of its debt is maturing next year. But it could divest KeyPoint. Given F&N as its “big brother”, it could refinance its debt at lower interest rates.
But CIMB believes that Reits are still safe, maintaining its ‘overweight’ call on the sector.
The housing market in Singapore is heading for a prolonged downturn and overall private home prices are forecast to fall between 22 and 26% in the next three years, Daiwa Research said. “We believe the residential property market could remain depressed for several years, triggered initially by a likely forthcoming gross domestic product slowdown (in 2012) and lingering global economic uncertainty.” (If you think this is bad, Barclays predicts a 45% decline in HK.)
Daiwa downgraded its view of Singapore’s property sector to “Negative” from “Neutral”, adding that “it is hard for us to see the developer shares outperforming the Straits Times Index over the next six months” despite their underperformance in the year to date.
From late next year, Daiwa said, structural issues such as the rapid build-up in unsold inventory in the primary market and vacant rental units will take centre stage and keep home prices and rents in check for several years. The mass-market segment will hold up slightly better than high-end properties, supported by better affordability and the resilience in the resale prices of HDB flats.
Err what happens if because of
— less FTS,
— slower economic growth or even a recession, and
— Khaw’s promise to build, build,
kiasu young S’poreans decide not to take up the HDB flats that are being built because they think prices will tank?
Remember that Mah overbuilt by more than 150,000 units in 2003, and was beaten up by the Opposition and netizens. For housing, the simple answer was the electorate demanded it, if you could recall the daily outcry in 2001 – 2003 by the opposition as well as members of publc on wastage of public funds on the more than 150,000 units left empty: ajohor, a poster, on my blog pointed out recently.
(BTW can you blame him for then being super cautious and getting a reputation as the man who made public housing prices go up in a recession? No can win. But he got millions in the bank to console him, so no need to cry for him.)
Final tots. If there is an overhang of HDB flats, what will the Opposition and netizens then say? And how will the voters vote? For or against PAP? Hmm maybe PM deserves his global benchmark breaking salary? Salary review committee pls note.
“Mr Khaw said that a typical two-room Build-To-Order flat, which has an income ceiling of S$2,000, would cost less than three years of income, factoring in the grants available. Meanwhile, larger four or five-room flats – with an income ceiling of S$10,000 – cost less than five years of income,” it was reported last Friday. (Translated into $. 2-room flats: $72,000, 5-room flats up to $600,000. All before subsidies.)
Err who can devote 100% of monthly salary for 3- 5 years to pay for flats? More likely kanna strech payments for 30 years (Comrade Mah’s assumption). So talking of the cost of flats in terms of salaries for 3- 5 years sounds like another variation of Minister Mah’s, “No cash outlay” where he forgot to mention the more and for a longer duration money is deducted from CPF accounts, the less home owners have to retire on.
Remember Minister’s Mah rants about “reserves being raided” if the land on which HDB flats were built were not valued at “market-based land costs”? Well Minister Khaw may have redefined “market-based land costs”, without the “reserves being raided”.
The possibility that there is a new definition of “market-based land costs” was spotted and commented on by a ST journalist, Li Xueying (Good for her).In a piece on 20 October 2011, “Chance lost on clearing hows and whys of flat pricing”, she wrote, Mr Khaw spoke of how, since May, the Government had stabilised the prices of 13,000 flats in three [Build-to-Order] launches. This, even as prices in the private and resale market rose, albeit at a slowing pace … ‘We have moderated price changes such that after adjusting for differences in location, amenities and other physical attributes, the May, July and September BTO prices were roughly comparable to the prices of similar units in the April BTO launch.’
The BTO launch next month will repeat this pattern, he promised … ‘As long as construction costs do not rise dramatically, the BTO prices will stabilise.’
As long as construction costs do not rise dramatically. This raises a question.
What about the second component that the Housing Board factors in in pricing its new flats, that is, land costs?
More specifically, market-based land costs – a formula that has drawn so much angst in the past, given that it is pegged to the gyrations of the private market.
(Market-based pricing of land is done based on prices of state land located within HDB estates sold to the private sector.) …
But it is telling that Mr Khaw also spoke of how his ministry had moderated the prices of the BTO projects such that the prices of those launched last month were comparable with the prices of those launched in April, even though prices in the private market rose over the same period.
Has the market-based pricing formula been quietly tweaked behind closed doors? Or did the Government just decide to deploy an interim measure of pegging new prices to April’s levels, given the unhappiness over spiralling flat prices? …
But the speed with which the minister has done so – never mind the market – does raise questions on how exactly the Government prices its flats.
… MP Zainudin Nordin also queried this, calling for the pricing formula to be as transparent as possible.
Doing so will assure Singaporeans that ‘the Government is not out to make a profit through the sale of public housing’, he said.
Unfortunately, Mr Zainudin and his colleagues did not manage to seize the opportunity to seek this clarification from Mr Khaw yesterday.
She ends with remarks that the prime minister especially should take heed of, Going ahead, the need to be more open and transparent with information will continue to be an imperative that the Government has to struggle with, given a more questioning electorate.
Voters no longer want to be told just the answer – the what. They also want to understand the hows and the whys.
Two fridays ago, ST has a whole page devoted to an interview with CapitaLand’s CEO. He was trying to explain to CapitaLand was not a China play, and that it was not a financial engineer pretending to be a property developer. It had been until recently playing up that it was a China play, and that it was asset light, using financial egineering, rather than owning assets.
I tot, “Wow, co must be worried abt share price.” Still I was that surprised when late last week, it announced a year-on-yearn 83% drop in its third quarter net profit to S$80.2 million.
Moral of story: Whenever a usually publicity-shy CEO “opens up”, be wary, very wary.
A few days ago, I blogged that were three scenarios for the developed world. Growth — buy equities; inflation — buy property and commodities; and recession — buy government bonds.
Thinking about it again, there is a fourth scenario: stagnation. There will be shallow recoveries and recessions in quick succession.
In that scenario, one should be looking at buying equities for their dividend yields, and the corporate bonds of super blue chips.
Last week, Credit Suisse issued a report on industrial Reits. Excerpts from report’s Executive Summary.
Not as defensive as perceived: We assume coverage of the Singapore industrial Reits sector with a slightly negative stance as we believe that the perception of its defensiveness (due to longer lease tenures) is misplaced.
… we have done thorough analyses on the factory, business parks and warehouses sub-segments, and conclude that we are most positive on the warehouse sector fundamentals.
… flat to low single-digit growth for factory rents driven by high occupancy, and business park rents to moderate due to the oncoming supply pressure (including new supply of decentralised office space).
Potential weak demand may slow rental growth: Singapore industrial rents have surpassed pre-sub-prime crisis peaks and are at 10-year highs.
… upside is limited from here on, given the moderating economic growth outlook, Singapore’s high exposure to the US and European economies and the appreciating currency which will reduce Singapore’s competitiveness as an industrial location of choice.
However … the few less labour-intensive, higher value-add fields, and sectors/ players with better pricing power, like biotechnology, water technology, environmental/energy sciences will likely be less impacted by cost inflation.
This should underpin rental growth for the class of industrial assets exposed to these sectors.
… expect rents in (logistics) warehouse – our preferred industrial sub-segment – to continue to remain strong on the back of fairly strong 90-91 per cent occupancies based on limited supply completion over the next three years. While supply for all factories over the next five years looks manageable, at 9-10 per cent of existing supply of 332 million sq ft NLA for factories and business parks … rents for older-specs factories could come under pressure especially given current economic uncertainties, which will likely impact SMEs and less cost-efficient companies (those at the lower end of the value chain).
… hi-tech and business park rents to moderate, due to the oncoming supply of business parks over the next four years amounting to 29 per cent of existing supply, coupled with existing high vacancies.
M&A increasingly challenging: Despite the supportive capital-raising environment, in our view, with cap rates continuing to compress on the back of rising competition for land (as industrial assets have the highest yields), … becoming increasingly challenging for a Reit to make an accretive acquisition, particularly in Singapore, where capital values today are at 10-year highs.
Based on our analyses of Ascendas Reit (A-Reit), Mapletree Logistics Trust (MLT) and Mapletree Industrial Trust (MINT), we conclude that (1) A-Reit has the most debt headroom with $1 billion available for future acquisitions; (2) A-Reit and MLT both have the strongest acquisition pipeline, with $1 billion each of injection pipeline from their sponsors; and (3) MINT and MLT have the highest risk of placement, depending on the size of transaction given their gearing levels of 39.3 per cent and 40.6 per cent, respectively.
Three investable names, at this stage: After screening for market cap of over $1 billion and liquidity of US$1.5 million/day, only three of the seven industrial S-Reits are deemed investable: A-Reit, MLT, MINT.
Depending on where the developed world heads, equities, commodities and property, or government bonds could be the investment.
There are three scenarios for the developed world (remember the BRIC and Indonesia etc still are dependent on the developed world to drive their economies). It can
— grow out of its debt burden,
— inflate the debt away, or
— fall back into recession, marked by the occasional default.
Each of those outcomes leads to a different portfolio.
Renewed growth would favour equities, but at the moment, this looks too hard to achieve. An attempt to inflate would be good for commodities and property but would be disastrous for government bonds. Selected equities might do well: those that can pass on the cost rises to customers. Those bonds would do best if the developed world goes into a recession.
Hope this explains the extreme volatility of markets.
Looks like MAS is right to focus on weakening S$ Double dip here we come.
So morgagors may face rising interest rates (interbank rates rise to attract S$ deposits) and a recession (no jobs). True rate rises may be moderate but it all depends on how prudent “homeowners” have been in their budgeting.
I hear that advertising and marketing people are being axed as of this morning.
Commentators like Tan Kin Lian have been saying for ages that interest rates cannot remain at so low levels here and that they must rise one day. Then those homeowners who overleveraged by not anticipating having more in interest would face problems servicing their loans.
Well it seems that higher interest rates are occurring finally because the central bank no longer wants an appreciating S$. It now seems to want the S$ to weaken.
The central bank is forcing the value of the S$ down, making it unattractive to hold S$ deposits. It has reversed its policy of allowing the S$ to strengthen against the US$ because it is afraid that a stronger S$ will lead to weaker exports, slower growth and a recession. It allowed the S$ to strengthen because it wanted to fight inflation, a fight that has yet to be won.
If the central bank continues to allow the S$ to depreciate, then S$ interbank rates will have to rise to attract S$ funds. However analysts are divided on how much further the central bank will force down the S$. Those with property mortgages may hope that MAS reverts to a stronger S$ policy. But then the problem is whether they then still have the jobs to service the loans. A stronger S$ could hasten the recession.
Update on 29 September 2011 at 2.05am
Maybe as part of a campaign to make us “feel good”, the constructive, nation-building local media are highlighting that stockbrokers are telling their clients that property stocks are trading at a discount to their net asset valuation (where once they traded at premiums) or way below their usual discount net asset valuation.
Hence there are gd buys around.
But there is the fine print that the MSM don’t report or don’t highlight. The brokers point out that they are assuming a slowdown in the economy, not a global recession. Neither they nor MSM highlight that investors are assuming the worst, a global recession, and hence are pricing the stocks at recession values i.e. investors do not believe the values brokers are pricing the assets at because they think the brokers are optimistic.
So if you believe that the world economy is only experiencing a slow-down, go ahead and buy the recommended property stocks. But if you are afraid of a recession, sit tight. The discounts will bet bigger
We believe stocks are currently priced for a slowdown but not a recession. Our strategy would be to adopt a stock picking strategy in the property sector. Within the office segment, office landlords are trading in excess of -1 standard deviation to historical RNAV discount while S-Reits are trading at less than 1 SD to the long-term yield.
We believe office stocks have more than priced in the muted outlook and valuations appear attractive currently. While we have widened target price (TP) discounts and lowered TP for landlords given the higher risks going forward, upside to our TP remains significant.
Our top picks remains Keppel Land and UOL. Keppel Land is currently trading at 46 per cent discount to RNAV of $5.57 and offers 40 per cent upside to our lowered TP of $4.18.
We remain positive on UOL, thanks to its multiple growth engines that spans commercial, residential as well as hospitality. Our TP of $4.96, based on a wider 20 per cent discount, offers 9 per cent upside. We have lowered our call on Singland to Hold due to its large 75 to 80 per cent exposure to the office sector.
In the recent equity market sell off, the FSTREI (S-Reit index) while corrected by some 5 per cent versus the 12 per cent and 25 per cent fall in the STI and FSTREH (property developers index) respectively. S-Reits now offer a prospective FY11-12F distribution yield of 6.5-6.7 per cent, which represent a 500 basis points spread above the long-term government bond. It is now closer to -1 standard deviation of the sector historical yield trading range. We believe that S-Reits continue to offer a compelling investment proposition.
We reiterate our preference for retail Reits. Even in the event of an economic downturn, retail Reits’ exposure in necessity shopping (eg supermarkets, F&B outlets) have kept earnings fairly stable. Industrial S-Reits also offer strong stability and visibility given a larger proportion of their income deriving from master-lease structures. While we continue to see hospitality Reits delivering good numbers going into a seasonally busier 2H11, we believe that growth momentum should be slowing down.
We see value emerging in CapitaMall Trust (Buy, TP $2.05) which is our big cap pick with attractive FY11-12F yields of about 5.3-5.9 per cent. Mapletree Commercial Trust (Buy, TP $1.09) is attractive for its strong organic growth coming off from a first renewal cycle at its VivoCity retail mall. Among the industrial Reits, Mapletree Logistics Trust MLT (Buy, TP $1.07) stands out post an active H1 FY11 and is poised to deliver strong earnings growth into H2 FY11. We continue to see relative value amongst the smaller cap S-Reits – Cache (Buy, TP S$1.07) and Frasers Commercial Trust (Buy, TP $1.05), which offer higher than average yields with limited earnings downside.
S-Reits are the flavour of the moment. Witness this gushing report.
“The current yield gap between S-Reits and the 10-year government bond is attractive to us at 5.1 percentage points versus 0.8 percentage point during the 2007 boom, and an average of 3.4 percentage points over the past seven years,” said Royal Bank of Scotland analysts in a report last week.
The report put S-Reits yields for 2011 and 2012 at 6.7 per cent and 7.1 per cent respectively. The high yields now being provided by S-Reits are well supported by a stable rental outlook, low interest costs and acquisitive growth potential, the RBS analysts said.
RBS has an ‘overweight’ call on the S-Reit sector.
As reported earlier https://atans1.wordpress.com/2011/08/21/cimb-on-reits/, CIMB is “neutral” on developers as a whole but “overweight” on S-Reits.
So what can go wrong? Nomura Singapore said that one of the current concerns of investors in the Reits space is the potential risk of recapitalisation if asset values were to fall significantly. In simple English, investors are afraid of rights issues if the gearing of Reits goes sky high if property values supporting the loans collapse. This happened in late 2008.
Even if property values don’t collapse, Reits could face banks refusing to renew their credit facilities, and asking for their money back if the banks face a liquidity crunch. This too happened in late 2008.
I am amazed that any broker can call the Singapore real estate sector “Overweight”. But RBS did it on 16 August 2011
The valuation gap between developer stocks and physical properties widened over the past eight months. We expect it to narrow as home sales remain robust. Strong household and developer balance sheets should support prices and cooling measures may prove ineffective in quelling real demand. We upgrade our view on the sector to ‘overweight’ from ‘neutral’.
Developer stocks’ premium to NAV narrowed to just 4 per cent from 33 per cent in January, despite robust primary home sales of 11,197 units (up 13 per cent year on year) in the first seven months of 2011 and a 4.3 per cent half-on-half increase in home prices in H1 2011. The sector also underperformed the STI by 11 percentage points in the last eight months. Policy risks seem as low now in view of heightened global uncertainty. We think any policies to cool the market would prove ineffective as we believe there is virtually no speculation now. We expect mass-market homes to continue to be undersupplied in 2012 to 2013.
Growth in total stock averages 2.3 per cent a year from 2011-12, below the long-term average of 3 per cent, while occupancy rate is at 98 per cent. Hence, we expect the healthy churn of mass properties to persist. We stress-tested the household balance sheet and found that a 30 per cent drop in home prices would bring the debt-to-asset ratio to 18.6 per cent, slightly higher than the long-term average of 18 per cent but below the high of 21 per cent in the 1997 and 2001 booms.
Gearing of larger developers is low at 34 per cent vs 41 per cent during the pre-crisis level of 2008 while that of smaller players halved to 103 per cent. Given their low land bank, developers will not cut prices even if there is a recession, in our view.
RBS expects the economy to grow 6 per cent in 2010 and 5 per cent in 2012. We expect an equilibrium in the office sector, in the light of higher visibility of supply and likely slower demand. Hence, we moderate our office rental growth assumptions to 5 per cent in both 2011 and 2012.
Overall, retail rents may soften in view of an oversupply but quality malls owned by seasoned operators should continue to do well. We like hotels on a structural growth story in Singapore tourism. Capital values of commercial assets should also hold up in view of persistently low rates.
We are most positive on City Developments, which we believe could benefit from a lifting of policy risks and continued strength in the residential market. Hence, we upgrade the stock from a ‘hold’ to ‘buy’, for its large exposure to the residential sector which accounts for 39 per cent of its RNAV.
We maintain our ‘buy’ ratings on Keppel Land, OUE and UOL as these commercial stocks look undervalued, trading at 30 to 50 per cent discount to RNAV. We maintain our ‘hold’ rating on CapitaLand as we believe that the stock may lag in stock price performance in view of its complex shareholding structure.
CIMB loves them based on a research note dated Aug 18 2011 where it called for an “Overweight” on the Reit sector.
CIMB recently hosted nine Singapore and Malaysia real estate investment trusts (Reits) at our inaugural Asean Reit conference. While investors were generally not pricing in a double dip, most appeared increasingly cautious.
Coupled with value emerging from the recent selldown, we sensed increased interest in Reits, with a particular preference for those in more resilient segments like industrial, retail and healthcare.
Our top picks are Ascendas Reit, Frasers Commercial Trust, Starhill Global Reit and Cache Logistics Trust. We also like CapitaMall Trust and CDL Hospitality Trust at current valuations.
During the conference, we sensed increased caution among investors after the recent market selldown, with more turning to S-Reits given increased risk aversion. Most Reits also gave the feedback that they had been receiving more investor interest and enquiries. While turning cautious, investors were not yet pricing in a double dip.
Questions centred on rental growth and expansion via acquisitions or development. Most agreed with us that S-Reits have emerged with stronger balance sheets and portfolios from the last crisis.
Recent market volatilities and developments in advanced economies have not affected Reits yet.
Notwithstanding slowing growth in advanced economies, industry participants remained positive on growth in the region. However, most would be monitoring developments closely.
Industrial Reits continued to expect positive rental reversions on the back of rising spot rentals and rental step-ups. Investors liked the stability from industrial leases but were slightly wary of a seeming slowdown in manufacturing in Singapore.
Industrial S-Reits, however, noted that manufacturing remains a core component of Singapore’s economy and continued to see bright spots as local manufacturing transitions to higher-value-added products and services.
While spot rents for most office S-Reits remained healthy, more investors were starting to question rental growth next year. We noted a moderation in tone among the office S-Reits, on the back of a slowing leasing momentum, significant physical completions in 2012 and potential growth concerns. Most expected rental growth to be more moderate in 1H12, before picking up again in 2H12 as supply tightens in 2013.
Most Reits are still keen to grow through acquisitions. Opportunities are, however, limited with the system still flush with liquidity.
Industrial Reits noted a difficult acquisition environment, given increased competition from new entrants such as private funds, smaller players and other industrial Reits. Most were thus gravitating towards development (mainly build-to-suit) and redevelopment, given their enhanced yields, the small capital outlays, short gestation periods and Reits’ ability to mitigate leasing risks by building to suit.
Similar concerns on compressed yields and a lack of quality assets for acquisition were expressed by the office S-Reits.
Citi continues to prefer Singapore Reits over developers, because of the current uncertain economic environment. “Despite attractive valuations, continued policy risk implies that it remains difficult to suggest picks within the real estate developer space”.
Citi prefers Reits that are operationally more defensive, including retail Reits such as Mapletree Commercial Trust and Fraser Centrepoint Trust, where passing rental rates are below market ones.
Given the downgrade of US debt with the fear of higher global interest rates and weaker equity markets, property developers must be more worried today than they were this time last week. Maybe they should petition the PM to bring back Mah Bow Tan as housing minister? It is a well known fact that he can e3nsure that residential property prices rise in a recession.
That they were already very worried last Monday is evidenced by the meeting that day that Redas (the property developers trade union) held for 17 analysts from 14 stockbrokers and five consultants. Developers don’t call for such meetings when they are bullish. They are then too busy counting their potential profits.
They discussed issues such as “possible ways to facilitate sharing of information among industry stakeholders, the need to better understand and analyse new market dynamics and the changing nature of the demand for Singapore residential properties”, Redas said in response to queries from BT.
According to BT, Redas had suggested sharing in-house data to help analysts better study the property market. The supply of private homes in the pipeline was also discussed. The meeting took place days after Redas shared results from the latest Redas-NUS Real Estate Sentiment Index survey, which polled developers, consultants and other Redas members.
The findings reflected a softening in sentiments about the property market in the second quarter.
In recent months, several equity research houses also released reports about a potential glut in private homes. One of the most recent is a July 28 report from Bank of America Merrill Lynch, predicting ‘an inflection point in 2012, driven by excess supply, demand moderation and slowing economic growth’.
Its analysts expect around 12,500 new units to enter the market every year between 2011 and 2015 – 60 per cent higher than the 15-year historic average annual supply delivered to the market. At the same time, they expect demand for private homes to weaken due to factors such as tighter immigration policies and an influx of HDB flats.
Citi’s property analysts are among some who do not see an over-supply of private homes coming, as their June report shows.
Adding to reports from property analysts are views from National Development Minister Khaw Boon Wan, who blogs often. In a June entry, he had advised investors and upgraders to consider various factors, such as volatile global conditions, before buying a property.
According to Redas, its president Wong Heang Fine said that he would like to have such sessions on a regular basis, say, every six months.
On I August 2011 when FCOT was at $0.88 (note I own some shares), CIMB came out with report where it maintains ‘outperform’. Q3 2011 distribution per unit (DPU) of 1.38 cents meets our forecast and Street expectation at 24 per cent of our FY2011 figure. 9M 2011 DPU forms 74 per cent of our estimate. DPU was up 10 per cent y-o-y on stronger net property income (NPI) contributions from almost all its self-managed assets mainly on better occupancy. Occupancy at KeyPoint had improved for the ninth consecutive quarter.
An improving underlying portfolio at China Square Central meanwhile should position Frasers Commercial Trust (FCOT) for upside when it takes over direct management in March 2012. No change to our DPU estimates or dividend discount model-based target price of $0.99 (discount rate: 9.4 per cent).
With an improving portfolio, stable capital structure and a strong sponsor in F&N, we see no reason for its 35 per cent discount to book amid forward yields of 7 per cent. We see catalysts from early refinancing, the unlocking of value from AEI at China Square Central and improvements in occupancy and rentals.
NPI was up 10 per cent y-o-y on stronger contributions from Central Park, Caroline Chisholm Centre and Keypoint. Q-o-q, NPI was up 4 per cent as there were improvements at its Australian assets. Occupancy at KeyPoint also continued to improve for the ninth consecutive quarter to 86 per cent since the in-house team took over property leasing in Q2 2009.
Passing rents were stable at about $5 per square foot with limited exposure to higher rollover rents locked in at the 2008 peak.
China Square Central’s underlying occupancy improved 20 basis points, with recent leases renewed at $6.30-8.00 psf versus expiring rents of $6.30 psf and passing rents of below $6 psf. Continued improvements in occupancy and rentals on the back of more proactive management by FCOT and an upcoming Telok Ayer MRT station could position FCOT for upside when it takes over direct management following the expiry of the master lease in March 2012.
Asset leverage had been pared down to about 37 per cent after the divestments of AWPF and Cosmo Plaza. This entire amount ($745 million) will mature in 2012. With a high cost of debt of 4.3 per cent and prolonged low interest rates, FCOT could save in terms of interest following the refinancing of this debt. We estimate that a 50-basis point interest rate reduction could lift its DPU by 11 per cent.
We remain ‘neutral’ on the sector, remaining negative on residential and positive on the commercial/hospitality segments.
Our top picks are Keppel Land (‘overweight’, TP: $4.73); Fraser and Neave (‘overweight’, TP: $7.34); and CapitaLand (‘overweight’, TP: $3.62).
Hard to argue with the bearish stance on residential and bullish on retail and commercial.
Retail Reits are expected to see positive rental reversions going forward, supported by the current positive consumer sentiment.
Frasers Centrepoint Trust (‘buy’, TP: $1.73) is expected to deliver a good set of numbers in the coming quarters, as reconstruction works at Causeway Point have passed the most crucial stage, with committed occupancy at over 99 per cent. In addition, the impending purchase of Bedok mall will act as a re-rating catalyst for the stock.
Mapletree Commercial Trust (‘buy’, TP: $1.05) should also see strong reversions in rental growth of about 10 per cent in the coming quarters, coming off from a first renewal cycle at its VivoCity retail mall.
S-Reits have collectively acquired about $1.9 billion of assets year-to-date, which should start contributing to earnings in the coming quarters.
After two months of relatively flattish distribution per unit, we believe Mapletree Logistics Trust (‘buy’, TP: $1.07) is poised to deliver a strong uptick in earnings momentum, boosted by recently completed acquisitions
FYI, yields for the above trusts are very decent and all three trusts have strong Tai Kors. F&N for Frasers and Temasek for the other two.
Frasers Centrepoint — 6.8%
Mapletree Commercial — 5.7%
Mapletree Log — 6.7%
We see relative value among certain smaller-cap S-Reits. Cache Logistics Trust (‘buy’, TP: $1.11), which currently offers a yield of over 8.0 per cent, is attractive, backed by transparent earnings structure and armed with a low leverage of 26 per cent, having the headroom to acquire further.
Frasers Commercial Trust (‘buy’, TP: $1.05), at a P/B of 0.6 times, is unjustified in our view, given that the yield-enhancing steps taken by management and plans to re-finance its expiring loans should result in future interest savings.
I’m glad someone sess value in FCT where I have a holding. Yields 6.77%.
Citigroup thinks that the increase in the supply of new HDB flats and private apartments over the next few years will not lead to a housing glut in 2013 and 2014. A stand contrary to that held by most other brokers e.g. Morgan Stanley and CIMB.
The current “severe shortage”‘ of HDB flats is also likely to provide support for mass-market prices and demand. Most other brokers argue that a step-up in HDB supply will dampen demand for mass-market private homes and hit prices
“We estimate that the deficit in housing units is in excess of 50,000 currently and this undersupply situation will likely take several years to clear, just like the oversupply situation in the early 2000s. With a severe shortage, we are not overly concerned about the rise in supply in both HDB and private residential units.”
The coming HDB supply and the potential increase in the income ceiling for new HDB flats will reduce HDB resale transactions by 7-15% at most. The impact on the private property market would be even smaller. The shortfall in the HDB market will support demand for and prices of mass-market homes.
“rate for mass-market properties are at an all-time high of 97.5 per cent. With yields averaging at around 4.2 per cent versus mortgage rates of just between 1.2-1.6 per cent, investment demand for small units and mass-market units could remain strong.”
However any further price increase or spike in volume in the mass-market segment risks more property measures as the government is monitoring the market closely.
In 2009, S’poreans expected property prices to weaken. There was a recession. They were wrong, prices went up. Lots of reasons were given in hindsight for example low interest rates, high liquidity, enblocers needed homes. All true but another factor was the flood of FTs coming in from M’sia. Why did they come? In 2008 GE, the ruling BN lost its two-thirds majority in the federal parliament and lost control of five states.
Many Chinese and Indian professionals were fearful of racial riots breaking out. They came here.
On July 9 2011, Perkasa (a Malay supremacist organisation) is threatening to counter demonstrate if Bersih 2.o goes ahead a with demonstration.
The July 9 “Walk for Democracy” Kuala Lumpur protest will be attended by several civil societies, including a few opposition parties. Bersih and its coalition partners have six demands in mind, including an end to the misuse of government machinery and funds during elections. With an expected attendance of more than 100,000, the march is expected to the biggest of its kind since the group’s 2007 demonstrations.
If blood flows on KL streets, Malsysians will be rushing here. And they need places to live in.
This Temasek-related Reit invests in logistics facilities in the region. Its latest investment is in S Korea.
Its yield is 6.8%. While its last traded price is $0.92 and its last reported NAV is $0.85, OCBC recently came out to say that OCBC calculated that its revised NAV is $1.01 (also OCBC’s target price for the stock). Not a rich discount to the share price but pretty decent, given its Temasek credentials.
I might add it to my portfolio.
Ratings agency Moody’s Investors Service reiterated its ‘stable’ outlook on Singapore-listed Reits (S-Reits) for the next 12-18 months.
“We expect S-Reits to use their well-capitalised balance sheets to continue acquisitive strategies and assume they will fund potential acquisitions with a mix of debt and equity while maintaining leverage within targeted limits of 40-45 per cent”.
Given all the recent bad news about property (e.g. this, and this), I was surprised to read that a developer (listco Sim Lian) had priced some HDB flats in Tampines at S$750 per sq foot (5-room flats at S$880,000 and more (4 and 3-room flats).
Prices are higher than the resale HDB flats in the Tampines private housing in surrounding areas. Article
The developer paid only S$261 per sq ft, so it can’t claim that its cost of land was high.
But it will, in my view, end up like greedy en-blocers, cutting prices to get sales.
My sources tell me that million-dollar units in a development in a gd district that is within walking distance of an MRT station are going a-begging. It seems only about half the units on offer have been bought.
Market has moved from “Buy before prices go higher” to “Wait and see”. But Sim Lian seems to think that there are daft buyers out there.
Starhill Global Reit should interest you.
DBS is retaining our ‘buy’ call for Starhill Global Reit following updates from management and the Hong Kong non-deal roadshow.
Starhill Global Reit’s unique value proposition lies in its prime retail offering and niche office exposure along the Orchard Road belt. FY11-12 yields of 6.9-7.3 per cent imply attractive 280 basis points spread over the risk-free rate, backed by the top class commercial assets in town and a reputable sponsor.
There is good earnings visibility going forward, led by organic growth potential and proactive asset enhancements. At current valuations of 0.7 times P/B NAV versus its commercial peers’ 0.8-1.3 times, valuations are attractive. At $0.73 target price, the stock offers 23 per cent total return.
Note I don’t own shares in this Reit yet. Nothing wrong with the numbers (the 6.9% is attractive and sustainable) but in times like this I would prefer its “big brother” to be an international name, not a M’sian cotporate, albeit a respectable name.
Well the analysts got it right at the beginning of the yr telling us to sell or avoid property stocks because of possible govmin actions.
But I bet no-one tot a minister would use a blog posting as part of his plan.
Pine Grove, I’ve been reminded by irate Laguna Park residents is the most expensive en bloc propery up for sale, costing about S$1.7 bn. They were upset by my comments that they were greedy. https://atans1.wordpress.com/2011/05/28/too-greedy-again/
Despite the absence of a sea view, and its odd shape, Pine Grove will cost developers S$2.17bn or S$1,152 per sq ft per plot ratio in total, inclusive of the S$460mn development charge.
Funnily, Laguna Park’s larger plot ratio allows the winning developer to build up to 36 storeys. Although it is a smaller plot compared to Pine Grove, the intensity to build is there. The buildable areas for both sites are about the same.
For instance, with a land area of 677,493 sq ft and plot ratio of 2.8, the redeveloped Laguna Park is able to yield about 1,600 units at 1,200 sq ft each.
With a plot ratio of 2.8 Pine Grove is able to yield about 1,500 units at the same size per unit.
Analysts have said that a reserve price with a discount of 20 to 25% is more “realistic” for Pine Grove.
This translates to about S$1.3 bn to S$1.4 billion, or about S$924 to S$970 per sq ft per plot ratio.
Laguna Park residents say their reserve price of S$1.33bn is reasonable.
I say that the residents of both estates are greedy, Pine Grove being worse. Pine Grove should be worth about S$1bn.
In today’s ST, Perennial China Retail Trust took out a full-page ad in colour in ST to extol the IPO’s merits.
Two pages away, ST carried a story headlined ” CapitaLand’s share dip linked to China”. In juz slightly smaller type face, the headline went on, “Poor showing due to concerns over firm’s greater exposure, vulnerability to policy changes”.
If I were Perennial, I’d ask ST for a refund. This headline sums up the thesis why this is an IPO to avoid.
I hope S’poreans realise that the HDB building spree means that in all probability their properties will lose value in the coming few yrs as HDB flats are available for occupancy. Remember also that there is a lot of private housing coming on-stream. How much values fall depends on the complex interplay of housing demand and supply and the growth of the economy. Immigration policies play a part in this interplay.
Those who will be worst affected by a fall in values will be those who bot HDB flats, and lower end private condos in the last few yrs (say from 2006).
These property owners should demand that more FTs be let in to keep property prices buoyant. They should also demand that the PAP focus on GDP growth.
They will also be fans of Mah Bow Tan who even in a recession kept property prices going up. Every dog has its day and Mah will be popular soon. Khaw will be reviled.
Laguna Park, a residential redevelopment site in District 15, is up for en bloc sale at an expected price of S$1.33bn.
This is the second time the 33-year-old development has been put up for sale, with a previous attempt in October 2009 that failed. No-one was interested at bidding at the S$1.2bn minimum price. A local developer offered between S$950m and 1bn, but nothing happened.
Well the present tender is likely to fail given that the
— price is extremely rich given that the developer will have to pay to top the lease to 99 yrs,
— coming torrent of private flats coming onstream, and
— annc that the HDB is returning to the policy of building in anticipation of demand, with the twist of putting up flats quicker, and building more of them this year.
Why so greedy leh? Should have tried S$1.2bn again. My guess-estimate is S$1.1bn would be the highest any developer will bid.
Seems CIMB thinks that the “old” policies on HDB flats, FTs and tpt (that cost the PAP votes because the policies made voters suffer) are better for listcos than any changes.
In our post-elections note, we highlighted that a raised HDB income eligibility cap and slower immigration and slower population growth will be detrimental for property stocks. We reiterate our negative view on property. The upcoming hike in the HDB eligibility ceiling will move the sandwich class from over-priced mass-market private properties back to HDB flats. We think that that will be bad for developers with large mass-market exposure (Allgreen Properties, City Developments).
A marked slowdown in foreign immigration will reduce rental demand, more telling when new completed supply comes onstream in 2013. Capped foreign immigration would have negative implications for some industries that depend on foreign workers, namely, construction and shipyards. Lastly, the need to keep public-transport fares low suggests that ComfortDelGro Corp and SMRT Corp may not be able to get the fare hikes that they have applied for this year. Overall, a changed government trying to portray receptivity to the people is unfortunately, bad for corporate profitability.
We downgraded the Singapore market from ‘overweight’ to ‘neutral’ on May 18 on three points: 1) a worsening outlook for corporate profitability; 2) signs of some stalling in US GDP growth and a revival of old EU debt concerns; and 3) new policies after the Singapore General Election which could be further drags on corporate profitability. We retain this view and our bottom-up target of 3,560 for the Straits Times Index.
Our top picks are still DBS Group, Fraser and Neave, Noble Group, Singapore Airlines, Overseas Union Enterprise, Sembcorp Industries and Wilmar International. Our ‘ideas’ are still CWT Limited, Ezion Holdings, Frasers Commercial Trust, Midas Holdings, STX OSV Holdings, OKP Holdings, UMS Holdings and Foreland Fabrictech Holdings.
Singapore Market – NEUTRAL
“And I guess to the extent that in the last couple of years, housing prices went up very sharply, coinciding with the very dramatic turnaround in the economy, I guess that resulted in quite a lot of unhappiness on the ground. And I accept responsibility for that,” Mah Bow Tan said,
This showed that there was a massive inbalance between supply and demand, so much so that despite a recession there was a demand for housing.
In 2009, prices moved up despite a recession. One reason we now know is that the M;sians were migrating here after the 2008 election results.
In that election the ruling BN lost its two-thirds majority and the MCA (the main Chinese party in the BN) lost badly in the seats it contested. There was concern abt the political situation (in particular about racial riots breaking out). So the Chinese left for S’pore.
Well the M’sian PM has just told the Chinese that they had better support the MCA. Otherwise that party would not be able to represent Chinese interests within the BN.
Expect more Chinese to migrate here. And expect property prices to remain strong.
MM was quoted in late 2009 as saying, “If the country is going to go down, then economy will go down, people’s incomes will be down, unemployment will be up, then property values will go down.”
Mah Bow Tan should boast of what must be first for public housing in any country, “We ensure public housing prices go up even in a recession.”
And adding, “So when economy does 15%, of course, HDB rices will fly. Only the daft will expect HDB prices to stabilise or go down.”
“Vote PAP. Public housing values will always go up,” he should say.
Healthy financials: Gearing remains healthy at 30.2 per cent, well below the optimum level of 45 per cent. With no major refinancing needs till 2013, the group is in good financial position to make further acquisitions.
We maintain our ‘buy’ call, TP of $0.73. The improving office outlook and stabilised retail market should lead to further improvement in its Singapore portfolio that represents 60 per cent of its total revenue. We see relative value in SGReit with the stock trading at 0.7x P/BV and offering forward FY2011-2012 yields of about 6.9-7.3 per cent.
If you are living in a PAP constituency and you are just a street or two away from Hougang and Potong Pasir, I hope you realise that the value of yr property is adversely affected by the non-redevelopment of Hougang and Potong Pasir.
Property is all about location and that includes the neighbourhood. So even though you dutifully vote PAP, made sure yr family and neighbours did the same, and your area gets redeveloped, the fact that Hougang and Potong Pasir are juz accross the street, or round the corner, affects adversely the value of yr property.
Don’t believe me, go ask any property agent from a reputable firm.
Based on the sale price of S$161.6 million of Amber Towers “and at the equivalent plot ratio of 3.55, the sale reflects a land rate of $1,118 psf ppr,” said Ms Suzie Mok, director of investment sales at Savills Singapore.
Note Amber Glades and Marine Point were recently sold to Far East Organisation and CapitaLand for $1,066 psf ppr and $1,056 psf ppr respectively, So despite all the govmin measures, and the supply coming onstream in the next few years, developers remain bullish.
And they don’t think Goh Meng Seng and friends will get a chance to implement their plans to destroy the property markry by selling HDB flats at cost of construction prices.
CapitaLand is trading below its FY2010 NAV per share of S$3.32. This has not been seen since September 2009 to May 2010. CapitaLand is currently in a position of balance sheet strength (FY2010: S$7.2 billion cash, 0.18 net gearing), and has balanced exposure to diversified property segments across different geographical regions. DBS Sec
Moreover, the market has assigned no value to any accretion from an expected S$6 billion in capital deployment this year. We update assumptions and maintain a ‘buy’ rating with a fair value of S$4.05 at parity to RNAV.
Me: Nothing to do with balance sheet strength or profitability. Investors are concerned with its large China exposure. And I hear hedgies are shorting it as a proxy bet against Chinese property.
Well if oil goes to and remains at US$120, we could have a recession in the West and a recession here will follow.
We are told that there is plenty of private property coming on stream in the next few years, and that Mah Bow Tan is building HDB flats like crazy to compensate for his goof-up in not ramping up supply when the government was allowing FTs in.
We could be in for some sharp falls if there isn’t unrest in Malaysia and we see another influx of M’sian Chinese into S’pore as we saw in 2008.
Someone in TR wrote that David Marshall in an interview said he was paid $8000 a month in the 1950s as Chief Minister and went on like Marshall to rant against the PAP.
Based on $8000 a month, Marshall was paid $96,000 a year. From what I understand that could buy 3 bungalow properties in a then non-fashionable area in the East, say Frankel or Opera estate. He could have some change leftover.
Today, a minister earning $3m a yr, may juz be able to buy a bungalow in these areas with his annual salary.
Want to beat up PAP, join in the bashing, But don’t talk rubbish. Only helps PAP.
But company is leveraged over its eyeballs — 128%. I’ll give it a miss but OCBC’s analysis is worth a read in giving one the facts on which it bases its call.
OCBC Investment Research, March 9
ROXY-PACIFIC Holdings is a specialty property and hospitality group in Singapore. It primarily develops domestic residential projects, and also owns two investment properties and a hotel, Grand Mercure Roxy Hotel (GMRH). In FY10, 77 per cent of revenues and 59 per cent of earnings were derived from the property development segment. The investment properties segment and GMRH constituted 1.5 per cent and 20.5 per cent of revenues respectively. We expect future earnings in FY11 and FY12 to be underpinned by recognition of revenue at 12 projects that are mostly sold out.
We believe Roxy enjoys a strong reputation for quality small to mid-sized projects in the East; and in recent years, it has expanded successfully to other regions and larger projects, ie, Spottiswoode 18 at Tanjong Pagar. Management has indicated a soft target of $300 million in acquisitions this year and would also look closely at commercial and retail deals. The current balance sheet shows a high net gearing of 128 per cent. If we revalue GMRH to $188 million (currently held at $71 million book value), net gearing falls to 61 per cent..
We have valued Roxy at $0.55 per share – a 25 per cent discount to its RNAV sum-of-the-parts value of $0.73. Read the rest of this entry »
Don’t focus on rising NAVs.
Focus on their ability to service their debts and the options they have to refinance. The improvement in NAVs is a subset of these issues.
OCBC Investment Research, late last week wrote, We found a few common themes in the guidance given by office Reit managers. Firstly, most office Reits with Grade-A office assets expect negative rental reversions to bottom out by end-2011.
In FY2010, negative rental reversions were still prevalent in some Grade-A properties such as Six Battery Road and One George Street. One Raffles Quay and Suntec City also saw y-o-y declines in gross revenue contributions, but this is expected to turn around in 2011-12.
According to CB Richard Ellis (CBRE), Grade-A rents averaged $9.90 psf a month in Q4 2010, reflecting an increase of 10 per cent q-o-q and 22.2 per cent y-o-y. Read the rest of this entry »
The govmin is stepping hard on the brakes to prevent property prices from being a one way bet, and to appease those S’poreans who missed the boat.
Some of those who missed the boat are daft enough to expect a property collapse. Why shld it?
FTs are still flooding in; interest rates are low; credit is easily available (bit harder than the recent past, but still easy); people are more optimistic despite the efforts of ToC, TR, WP, SDP, Tan Kin Lian and Goh Meng Seng*; and the economy is expected to do 5% this yr.
The US is printing money, some of which will find its way here,
Then there is the Budget which shld more money in our pockets, so that we can afford to take out bigger mortgages.
And best of all. It is difficult for any government to stop the momentum of rising property prices. Despite the attempts of the Chinese authorities over the past year or so, property prices continue to rise. Juz more slowly.
If you believe property prices will ease-off significantly, keep on whistling in the night, or pray that there will be a global recession. The data shows that 2008 excepted (when M’sians flooded in and bot because of fears of instability in M’sia), property prices fall 20% when there is a recession.
*If they are believed, most S’poreans are poor and unhappy. S’poreans are unhappy but they are not poor. They can afford the interest payments on mortgages on S$500,00 HDB flats. They are unhappy because they are envious of richer S’poreans.
Yield of 6.2% is decent, even though one can find reits with higher yields, even within its sub-sector,.
But it trades at 64.5cents, a large discount to its lasyed reported RNAV of 89 cents. There is room to gear up further given its gearing is 31%. In other words it doesn’t need to calls a rights issue to fund run-of-the mill acquisitions.
Better still rents along Orchard Rd are likely to go up further by another 3-5% yearly (no new supply) likely, analysts say. Remember Starhill generates two-thirds of its revenue from Ngee Ann City and Wisma Atria.
Kim Eng is bullish on Starhill noting that about 20% of its retail leases in Singapore are expiring this year and that so far, the rates of those leases are about 30 per cent below rentals in the fourth quarter of last year. Kim Eng sees a positive rental revision in the next two years.
Might buy some for myself. Better than keeping money with CPF.
As you will be aware, UMNO in Malaysia has, since the mid 1990s, been losing the support of younger Malay voters. In an attempt to correct this, UMNO in the early and mid noughties conducted dialogues between the senior politicians and Malay voters in their 20s. An intellectual who attended a few of these sessions told me how they went: comically tragic.
The politicians reminded the young Malays of what UMNO had done for the Malays and told them that they shld be grateful for the affirmative policies and vote UMNO.
The young responded by saying, “Why should we be grateful? We were born after the implementation of these policies. If you remove these policies, you are the bigger losers, not us. What concerns us is the future and not history.” They then went on to list their grievances: lack of job opportunities, inflation, corruption and so on.
My friend says the politicians couldn’t accept this answer and called the young, ungrateful and rude. Something he said that did the UMNO no good. UMNO did not get their votes. But he says post-2008, UMNO is learning to accept that young Malays don’t do gratitude, and has begun addressing their concerns, rather than lecturing them, telling them that they should be grateful.
Translating this into our context, reading the ST articles on their collaboration with MM on his latest book, I get the sense that MM is not happy with younger S’poreans because he thinks that they do not appreciate (and are not grateful) for what he and the PAP have done for them.
Nearer to home, I knew someone in SPH who opted for a fixed rate loan, 20 yrs ago. Others there said he was “daft”. He reminded them of their comments when in 1994 the Fed tightened rates and they found their interest payments doubling or tripling.
There are times when paying a premium in return for certainty is a better option. Taz how S’pore prospered. You know what you get from the PAP. Can’t say the same for UMNO or an Indonesian government. There you pay and take yr chances. E.G. it is a lot cheaper to build storage tankers in Johor or Batam, than here. Yet S’pore is the preferred site oil farms. Oil traders even rent tamkers and park them off S’pore when the oil farms are full.
BT published a long piece that could serve as a primer on how to invest in Reits. Reit Primer.
Two complaints abt piece.
One is that it doesn’t talk abt buying Reits that trade at big discounts to latest reported RNAV. True there may be gd reasons why some Reits trade way below RNAV. But savvy investors can make $ buying Reits that they think shld not trade way below RNAV and holding them until they trade above or juz below RNAV, while getting good payouts while waiting. Useful Reit table for yields and RNAVs.
Those who bot Ascendas India Trust (trumpets pls) when it was trading way below its RNAV have made gd capital gains. I should have sold out but the yield is pretty decent. And India is now hot and RNAV could rise.
The other complaint abt the piece is that Reits can use the low interest environment to refinance their debts at lower rates and for longer tenures. Analysts from DBS and OCBC are saying this is happening.
BTW, high-yielding Reits courtesy of ST scan0004. Declaration of interest: I own units in three of them. (Update on ^ January 2010: Now own four of them.)
Update on 4 January 2010
Must read — a summary of Soro’s piece (many yrs ago) on the danger of buying a Reit trading above RNAV (and attraction).
Or why PAP ministers deserve our compassion in this season of gdwill. Another Christmas macabre tale. Who would think they deserve our compassion? But they do.
David Marshall said he was paid $8000 a month in the 1950s as CM. Taz $96,000. From what I hear* that could buy 3 bungalow properties in a then non-fashionable area in the East, say Frankel or Opera estates. He could have some change leftover.
Today, a minister earning $2m a yr, can’t buy even one bungalow in these areas with his annual salary. He could possibly get a two-storey terrace house for $1.5m. He has to borrow money from the bank to buy a bungalow.
Other macabre Christmas tales
*too young and can’t find written records. Have to depend on old people’s memories. You know what can go wrong, I mean if MM can forget that the Malays are the second biggest group ….
Brokers’ analysts are like lemmings, they move in herds. So it is nice to see Credit Suisse is bullish on Singapore’s residential property market when other brokers e.g. Nomura and CIMB are telling investors to give the sector a miss; and DBS and OCBC barely mention the sector. Sadly it is unconvincing though the call to buy CityDev makes sense in itself.
In a report last week Credit Suisse said that it expects home prices here to increase by 15% this year, and by another 5% in 2011 and 2012 each. Not much to peg bullish hopes on, I must say.
“The low interest rate environment, historical high rate of GDP growth as well as continued population growth should propel growth in the Singapore residential property market”. Err what abt less FTs being allowed in?
There were risks such as capital inflow controls (Huh? What are they smoking or drinking at the X’mas party?) or more anti-speculation measures from the government.
But the average valuation of Singapore property stocks is still below the historical average, and the residential sector is “reaching the peak with decelerating growth momentum”. Now isn’t the latter a gd reason to avoid the sector?
Credit Suisse has an “outperform” on CityDev, target price of t $17.16.
“While … 37 per cent of its RNAV … is in residential, the landbank had been mostly acquired at low costs, and we estimate 56 per cent is in the luxury sector, which has lagged the mass market segments,” Credit Suisse said. Sounds a gd reason.
It also has “outperform” on OUE, target price of $4.20.
BTW CIMB has “underperform” on CityDev, but likes OUE and KepLand.
Time to see waz OUE all abt?
Like other brokers, OCBC is bullish for next yr. But there are some picks that are unique to OCBC.
Our picks for 2011 are Ascott Residence Trust, Biosensors International Group, CapitaLand, DBS Group Holdings, Ezra Holdings, Genting Singapore, Hyflux, Pacific Andes Resources Development, Keppel Corporation, Mapletree Logistics Trust, Noble Group, Olam International, Sembcorp Marine, StarHub, United Overseas Bank, United Overseas Land and Venture Corp.
In a research report dated 10 December 2010, OCBC Research writes most of the Singapore real estate investment trusts (S-Reits) emerging stronger from the financial crisis, with healthier balance sheets, forthcoming acquisition proposals and more asset enhancement works.
Three Reits listed on (SGX) this year, Cache Logistics Trust, Mapletree Industrial Trust (MIT) and Sabana Reit. This was in stark contrast to a year ago when most of the S-Reits were burdened with deleveraging plans, decompressing cap rates and asset sales.
The FTSE Reit sub-index is up 15.9 per cent year-to-date. It has since recovered 145.1 per cent from its trough during the financial crisis in March 2009 and is 38.2 per cent shy of its peak in June 2007.
If we use 2006 levels as a benchmark, the FTSE Reit sub-index still has 25 per cent of headroom before reaching the 2006 summit, and it is only 9.2 per cent above of its 2006 nadir.
Stepping into 2011, we think there is still upside potential for the index to reach 2006 levels, and this recovery momentum is already playing out nicely among some of the S-Reits.
Despite being touted largely as defensive yield plays, we have witnessed some S-Reits (such as CapitaCommercial Trust, K-Reit Asia, Fortune Reit and ParkwayLife Reit) appreciating more than 25 per cent year-to-date.
Going into 2011, we upgrade our rating for the S-Reits from ‘neutral’ to ‘overweight’.
The persistently low interest rate environment is expected to stimulate the property market and continue to drive prices higher.
Together with ‘hot capital inflows’ pouring into Asia, it is likely that spot rental rates and asset prices will continue to be inflated.
At the same time, many Reit managers are capitalising on the recovery cycle for further asset enhancements initiatives and acquisitions.
Being an inflation hedge, we think investors’ interest in S-Reits is likely to remain piqued in 2011.
However, we noted that different sectors may experience different rates of recovery.
In our opinion, the recovery is likely to be more pronounced for the office sector, followed by the industrial sector as the catch-up potential is greatest for these two sectors.
The retail sector is likely to remain subdued with moderate rental escalation, new retail supply with additional 612,000 square feet of leaseable retail space in 2011, and lessened spending power from foreign visitors affected by the appreciating Singapore dollar.
Within our coverage universe, our preferred picks for large-caps are Mapletree Logistics Trust (‘buy’, fair value: $1.00), Ascott Residence Trust (‘buy’, fair value: $1.38) and for small-caps, Frasers Commercial Trust (‘buy’, fair value: $0.18), Starhill Global ( ‘buy’, fair value: $0.66).
Sabana Reit needs yr help.
This is the first Shariah-compliant reit listed on the Singapore exchange (SGX), and the world’s largest listed Shariah-compliant reit by total assets. Looks like analysts were wrong to expect Sabana to attract Middle Eastern investors saying there are not many such Shariah-compliant REITs in Asia ( M’sia has three, and this is all it seems). Either they got no money, or there are more attractive investments elsewhere or in more lucrative products.
At yesterday’s closing price of 0.97 its first yr projected yield is now slightly more than the 8.22% at the IPO price of price of 1.05.
But it trades only at a “peanuts” 2 cents above NAV of 0.99 in cash. But the properties to be injected in will only give an NAV of the 0.99.
For the time, being this infidel prefers AIMSAMP industrial reit which trades at a yield of 9.5% and an 18% discount to last published NAV. True gearing is at 35% versus Sabana’s 25%,: but the former has big Aussie insurer AMP as big brother, and the latter can only “borrow” from a limited number of “lenders” and via complicated structures. And I don’t have enough info to make judgements on its big brothers.
BTW looks like Temasek’s Mapletree industrial reit has beaten this Shariah-compliant industrial reit performance-wise in IPO terms. They IPOed within weeks of each other recently.
Moral of the tale for pious folk of any religion: God may rule in heaven but on SGX, investors prefer to invest in a Temasek-linked reit, rather than a religious-compliant reit. The blasphemous (not I) may want to shout, “Harry rules OK” or “In S’pore, God takes advice from MightyMind”.
Reits’ attraction are dividend yields of 5 — 9% when compared with the paltry 0.125% offered on bank deposits.
So what can go wrong? Plenty as a recent ST article reminds (extracts below). My value-add to the extracts is to suggest that one should add a margin of safety by buying those Reits that trade at a substantial discount to their lasted reported NAVs. This is not possible if one focuses on TLC/ GLC-related Reits, though there is an exception but there are reasons for the exception. BTW, this might be useful http://reitdata.com/ when thinking of investing in Reits.
… the best way to enhance returns is to resort to bank borrowings to finance their property purchases. That is why they look their best in a low-interest rate environment.
To give an example, let us suppose a Read the rest of this entry »
Did you know that when the government sells state land to property developers, the money flows into the reserves (which are managed by our SWFs) and not into the Consolidated Fund like other government income? This is uniquely S’porean. Other countries credit land sales to income. The government’s rationale is that as state land is an asset, sale proceeds should not be credited to income but to capital (reserves). Makes sense, but that’s not how other governments account for land sales: even HK, and no-one can say that HK is badly run or profligate.
So when HDB “buys” land from the government it is adding to the reserves. As it and government claim that the price an apartment is sold does not reflect this price, they claim HDB makes a loss. But whatever it is (I leave it to others to dispute this claim), the reserves are increased.
So in addition to the surpluses (generated by thriftiness or meanness according to who is talking) and (indirectly via a circuitous route) our CPF monies https://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/, sales of state land also contribute to the reserves that GIC, Temasek and the central bank manage.
There was one financial year ending March 2008 ( I think), where the government injected abt S$10 billion into Temasek. This sum was more or less equal to the amount that the government took in property sales for that year. Easy come, easy go as in the following yr Temasek could have lost as much as US$4.6bn (in 2009 March this would have been S$7bn) on Merrill Lynch. And there was the much smaller loss on Barclays (800m sterling?, then worth abt 1.7bn S$). Err not much change left over from injection: only S$1.3bn, “peanuts” as Mrs GCT might have put it, except she didn’t.
So this combination of surpluses, CPF money (indirectly via a circuitous route), and state land sale proceeds, have resulted in our SWFs having 179.5% more in assets than S’pore’s 2009 estimated GDP.
The Norwegian’s much larger fund (US$471bn) is only 23% more than Norway’s GDP. Abu Dhabi’s fund (at US$627bn) is 627% of its GDP. For those interested, I used FT’s US$248bn for GIC and US$133bn for Temasek. As to GDP numbers, I used CIA Fact Book as reference. (BTW, I’ve not taken into account the amt of foreign reserves that MAS manages because I could be double counting if I do. For the record, MAS says its reserves as at end 2009 are US$188bn).
So we got plenty of $ to make housing more affordable*. And there is no need to change constitution, or cut other expenditure. Juz change the accounting rules on land sales.
BTW, I am working with an illustrator so that it is easier to visualise the connections between CPF, surpluses, Consolidated Fund etc https://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/ . Hope to post something one of these days. [Update on 4 December, the cartoon]
*Even after taking away our public debts; 8th in the world at 113.10% of GDP. [Update at 10.30 am]
This could have implications here if they start buying into new condominium launches here.
It seems they buy new properties, and then leave them unoccupied, eschewing rental income. Why?
The explanation, according to a Tsinghua University economist, Patrick Chovanec – corroborated by locals – is that Chinese people regard apartments as they would cars: brand new is good and top price; used is bad and lower price.
Apparently, the moment someone moves into a property, its price falls, because it’s no longer pristine.
So property investors have little desire or incentive to rent out their properties, because to do so would be to cut the re-sale value. Better to keep them empty in the hope that a rising market will deliver capital gains.
Which means there’s nowhere to live for those who have only the means to rent rather than buy – and large (but unquantified) numbers of homes are empty. The BBC’s Robert Preston
If they buy into new condo launches and leave the apartments empty, there will be a shortage of rental apartments. Mah Bow Tan will have to write more articles.
In 2008, I attended a seminar where a very senior Shell analyst dismissed the possibility of nuclear energy as an option for S’pore. He said that if a nuclear plant was sited on the NE side of S’pore, the safety or protection zone would stretch somewhere to the SW side of S’pore, in Jurong.
So with all the recent talk of building a nuclear power plant, I was surprised that there doesn’t seem to be anything said or written on safety issues.
For example what are safety zones and their extent?
Googling brought me to the website of the US Dept of Homeland Security: Local and state governments, federal agencies, and the electric utilities have emergency response plans in the event of a nuclear power plant incident. The plans define two “emergency planning zones.” One zone covers an area within a 10-mile radius of the plant, where it is possible that people could be harmed by direct radiation exposure. The second zone covers a broader area, usually up to a 50-mile radius from the plant, where radioactive materials could contaminate water supplies, food crops, and livestock.
So a 10-mile (16-km) zone is needed to prevent us from being exposed to direct radiation. To give you an idea of the distances involved, Changi Airport is 20 km from Orchard Rd. So if the plant were at Changi Airport, the zone would include Toa Payoh, AMK, Bishan, Marine Parade and some pretty posh places along Dunearn Rd and Bukit Timah Rd. And although the Istana is not within the 16 km radius, radioactive particles don’t know where the 16-km mark is. It all depends on weather conditions how far they will travel. Hence the wider zone given by the analyst from Shell: he added a margin just to be cautious. Read the rest of this entry »
Well property counters are off, HDB prices softening. Forget abt market finding their own level. It’s all abt govmin policies.
So waz this talk of market forces?
As Siew Kum Hong blogged a moon ago: By mixing up the public policy goals of providing affordable accommodation and helping citizens plan for their retirement, the Government has ended up achieving neither, with public housing becoming increasing unaffordable and many retirees being asset-rich and cash-poor.
The point that I ultimately want to make, is that the “leave it to the market” message is deceptive when the bearer of the message is able to manipulate the market. Markets do not exist in vacuums, but are instead influenced by government regulations and policies. So when the Government declines to intervene or to change the underlying rules, it is really a conscious political decision to maintain the status quo.
His totful rant in full http://siewkumhong.blogspot.com/2010/04/market-as-deus-ex-machina-or-scapegoat.html
In 2009, banks were ordered to increase their loan books by a third. The result has been a sharp rise in real estate prices and the pace of construction.
A recent National Bureau of Economic Research paper, “Evaluating Conditions in Major Chinese Housing Markets”, notes that Beijing land prices have nearly tripled since early 2008. Land sales have become the main source of income for local governments.
Some Rmb10,000bn (£946bn, €1,129bn, $1,475bn) of bank loans have been made local government infrastructure projects. Meanwhile, Chinese banks are repackaging their loans and selling them on to investors, says Fitch.
Sounds a bit too close to what was happening in US, where everything depended on rising house prices.
We shall see if the results are the same.
Courtesy of this blog. And look at the money supply charts too.
No wonder China’s banking regulator told lenders last month to conduct a new round of stress tests to gauge the impact of residential property prices falling as much as 6o% in the hardest-hit markets. Banks were instructed to include worst-case scenarios of prices dropping 50- 60% in cities where they have risen excessively. Previous stress tests carried out in the past year assumed home-price declines of as much as 30%.
Expectations seem to be for a sharp decline in Chinese property prices over the next two years, with some, and perhaps significant, impact on Chinese banks.
Some time back it was reported that Temasek had emerged as one of the top 10 acquirers in the Greater China region,
after doing six deals worth US$1.47 billion since 2005. According to a market M&A report commissioned by Deloitte, Temasek is ranked No 9 – after Morgan Stanley and Goldman Sachs, which are No 7 and No 8 respectively. The report Read the rest of this entry »
Plenty of ranting and raving on socio-political blogs blaming everything on the PAP for the rise in HDB flats. I’m sure the slowdown in the building of flats, coupled with the faster flow of FTs had something to do with the present price rises.
But a more important factor must be the willingness of the banks to lend. As BT reported last Saturday
BANK lending rose in March for the fifth straight month, as the economic outlook and business sentiment continued to improve, encouraging businesses and consumers to borrow and banks to lend.
Total Singapore-dollar bank lending here rose 0.5 per cent, or $1.54 billion, in March to $286.3 billion at the end of the month, driven by improvements in both business and consumer lending, the latest estimates from the Monetary Authority of Singapore show.
Compared to a year ago, bank lending was up 5.8 per cent, the fastest expansion since April last year.
The latest business expectations surveys published yesterday showed that firms in both the services and manufacturing sectors expect the business environment to improve further in the six months to end-September, compared to the previous half year. Within financial services, banks and finance companies were the most positive on the business outlook …
Consumer loans, which have grown steadily throughout the financial crisis and economic downturn, mainly due to housing loans, expanded another 0.8 per cent, or some $1 billion, in March to $131.2 billion.
Housing and bridging loans, were again the driving force for the growth, rising 1.4 per cent, or $1.3 billion, over the month to $95 billion at the end of March…
Overall, for the first three months of the year, bank lending grew 1.8 per cent, or $5 billion. Though smaller than the 2 per cent expansion in the fourth quarter of last year, the slower pace of growth in overall loans masks a recovery in loans to businesses, which expanded one per cent over the quarter, even as the growth in consumer loans slowed…
With renewed competition among the banks, particularly in the Singapore home loans segment, the banks’ net interest margins – which measure how profitable their lending activities are after deducting funding costs – are likely to have been squeezed in the first few months of the year, analysts said this week. That means the banks would need to increase the volume of loans they make, to keep their net interest income from falling.
So banks will continue to lend for housing and the rants will continue. And when the banks stop lending, and prices fall, the rants will be abt govmin allowing the value of HDB flats to fall, conveniently forgetting that flats are now easier for young couples to buy. Just like now the ranters conveniently do not mention that the escalating prices means older S’poreans can cash out and downgrade, or move on to other countries.
But don’t spare yr tears for the PAP: by making property prices the benchmark on how well they are doing for S’poreans, they are riding a mad beast that they cannot control. Either way they lose. Dr Goh Keng Swee and his dream team would have told them not to be sold stupid
As the loan officers for a regional branch of a major Chinese bank were preparing to issue more loans their computer screens froze. It was not a system failure due to Vista problems, rather the bank’s intranet network had been deliberately shut down to stop new loans being made. Full article
The purpose of the above is to illustrate that if the authorities feel the need to control the property market, they can be ruthless.
China must tackle its property bubble for the sake of economic health and social stability, even if the market feels some short-term pain in the process, an official financial newspaper said on Thursday.
Monetary tightening, along with steps to control housing demand and expand supply, are the right policy choices for the government, the China Securities Journal said.
The front-page commentary adds to the impression that officials are determined to make a success of their latest crackdown on property speculation. Previous attempts to cool prices have been tempered by a fear of over-tightening because the property sector is a pillar of the economy. Reuters/ NYT report
So investors in S’pore property counters with big exposures in China, be warned.
I’m sure Temasek and its group cos are aware of how brutal the Chinese authorities can be.
But based on the Merrill Lynch/ BoA fiascos, who knows?
For the residential market, we see news flow and activity this year dominated by the highend segment. Unlike the mass- to mid-segments, where prices have rebounded to peak levels, high-end prices are still around 5-150% below peak and demand should be supported by the improving economic outlook, low interest rates and rising foreigner participation. We expect modest growth for the low-end segment (+3%), with government policy more restrictive and pent-up demand largely consumed, and a larger 6-12% upside for high-end prices. With declining inventory levels, most developers are actively looking to restock,resulting in fairly aggressive bids for recent GLS land tenders. With more sites to be made available for the 2H10 GLS, we expect bidding to be more rational and potentially more NAV accretive.
Its pick in the residential sector: Allgreen for its exposure to the upper- and mid–residential segment.
A professor has to climb Oz’s highest mountain because he bet Oz residential property prices would fall 40%: it went up 20%. Could have worse. He could have sold his hse. Economists are divided whether Oz residential property is a bubble
With escalating prices in a recession and prices expected to fly because economic recovery is strong, S’poreans should remember what he said, When people can no longer handle the debt, or when the debt stops growing, prices will come down, and we will face the same deleveraging crisis as in America.
Morgan Stanley doesn’t seem to think so. In a recent report it wrote:
Speculative activity seems low compared with previous cycles, with sub-sales at only 13% of total sales vs. 18% in previous up-cycles. Foreign demand has so far been dominated by Indonesian,Malaysian, mainland Chinese and Indian buyers, and a return of more broad-based foreign demand could see prices spike higher. Most important, the en bloc market could return by 2011, as developers’ landbanks start to run down.
JC: Well, always with these things, we’re often early and it appears we’re early here too. But the good news for office building bubbles is that they’re pretty tangible. So when you see the apartments stop selling, when you stop seeing foundations being laid, and holes in the ground, when you see the cranes not going up anymore, buildings being half-complete – that’ll tell you you’re at the end.
Robert Schiller (the man who called the dotcom bust and the recent US housing crisis spot on) argues in the US context that homeownership is not as beneficial to a country as it many thinks it is — the American belief that homeownership encourages pride and good citizenship and, ultimately, preservation of liberty. These attitudes are enduring.
He cites Switzerland: Switzerland, for example, is a country with strong patriotism, a fighting spirit of national defense, a commitment to freedom and tolerance, and a low crime rate. Yet its homeownership rate is just 34.6 percent, versus 66.2 percent for the United States, according to the two countries’ 2000 censuses.
Time for the government to rethink its homeownership policy?
Swiss national identity doesn’t depend on homeownership. Instead, Riccarda Torriani, a historian at the Swiss Federal Department of Foreign Affairs, links the country’s sense of identity to such things as its system of direct democracy, which enforces popular participation in government; the idea that its citizens are frontier people (living in or near the rugged Alps); and a history of collective courage in defense of freedom, even when outnumbered.
Update on 27th March 2010
Been asked what has this post to be with value investing or being cynical.
Answer: Question periodically the underlying assumptions of any piece of “conventional wisdom”. Juz because a genius like MM thinks that something is correct,doesn’t mean that the underlying circumstances may have changed since he made the initial decision. Take the “Stop at two policy”. Circumstances changed, and the policy shld have reversed earlier.
Reading this, I think I can understand the thinking of CapitaLand and other China property bulls. “Everyone agrees China is in the middle of a spectacular real estate boom. The question is whether it is in the middle of a rapidly growing real estate bubble.”
There’s serious money to be made in the short-term.
And a very reputable economist and China watcher, Nicholas R. Lardy at the Peterson Institute for International Economics in Washington, say the housing boom is being propelled by a huge urbanization push that is creating premium-priced houses. He is not the only economist to say this. And CapLand said this yesterday.
So if China is a core market, you really don’t have a choice. You got to double, triple yr bets, and pray hard that you get out in time.
I read in the media yesterday that Credit Suisse analysts are saying that China’s property stocks, trading at the cheapest level among Asian peers, may be “worth another look”. Today reports that they “have underperformed the MSCI China Index by almost 30 per cent since July and are trading at a 7-per-cent discount relative to the region based on a model that values companies’ net assets and return on equity,” quoting Credit Suisse.
As CapitaLand’s 11% fall from its January highs can be attributed to its mega China deal coming just before China tightened its credit policies; since the US$2.2bn deal giving it seven sites located in Shanghai, Kunshan and Tianjin, takes the group’s Chinese portfolio to 36% of assets from 28%; and since it wants to increase its China exposure to 45% of assets: Shouldn’t CapitaLand be on the buy list of China- property bulls?
“The property investment arm of Morgan Stanley is in final talks to sell a Chinese apartment complex to a unit of Singapore’s Keppel Land … The overall value of the luxury apartment property is estimated at about 900 million yuan (S$186 million) and Morgan Stanley has owned it for about five years,” from a BT report last week.
So KepLand are super bullish on China, just like fellow-TLC CapitaLand.
And DBS is ranked among the top three foreign banks, in terms of assets (2009 KPMG Research China Banking Industry), said DBS CEO Piyush Gupta. The bank expects to open 12 more branches over the next five years in China, he added. It currently has eight branches and seven sub-branches in eight cities across China.
One wonders if groupthink is at work in the Temasek group. In addition to the investments of these two property companies, and DBS, Temasek are big in China. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank.
Talk of a mega bet on China if all these are aggregated.
Or could there be a mastermind directing that investments be made in China? Temasek and the government have consistently denied that the government direct Temasek’s actions and that Temasek direct the actions of the companies where they have controlling interests.
Still the many S’poreans (I’m not one of them) who are conspiracy theorists or who practice the art of guessing what is going on behind the scenes — dietrologia in Italian, literally “behindologypoint” –would say, “They would say that, wouldn’t they?
And point to three pieces of “evidence” that there is a controlling brain that wants to bet big in China.
One is that in the late 1990s, when the government exhorted Singapore cos to go abroad, SingTel and DBS made very expensive acquisitions in Ozland and HK respectively.
Then there is MM Lee’s remark when asked why he intervened in an SIA dispute between its mgt and pilots. He is reported to have said,”We own it,” or words to that effect.
Finally, PM, SM, MM and other cabinet ministers are bullish on China.
The ace, veteran journalist from MediaCorp’s freesheet praises CapitaLand for the US$2.2 billion ($3.09 billion) purchase of Orient Overseas Development Ltd’s (OODL’s) assets comprising seven sites totalling 1.48 million square metres in Shanghai, Kunshan and Tianjin. OODL is the Chinese property arm of HK-listed OOIL, controlled by the family of former Hong Kong chief executive Tung Chee Hwa.
We are told of why it is a gd deal despite the subsequent curbs on property speculation by Chinese authorities (“a blessing in disguise”) and how CapLand’s CEO won a high stakes poker game by refusing to bid higher.
Gee wiz, the CEO sounds like some super hero in action.
The problem with this analysis is the share price of CapLand, down 13% from its high when the deal was announced and close to its October lows in last year. Meanwhile OODL’s parent is trading a lot higher than its October 2009 price, and the fall in HK, has affected it slightly.
Conclusion: mkt thinks CapLand got its timing wrong https://atans1.wordpress.com/2010/01/21/capland-but-is-he-lucky/
On a more serious note, the ace journalist had to concede that ” despite CapitaLand’s connections in China, it doesn’t wield the same clout as the Tung family in that country … The Orient land bank was acquired over some time, noted a China property source. He pointed out that on its own, CapitaLand wouldn’t probably have been able to accumulate this prime parcel on its own.”
Waz this? I tot we had MM Lee, the adviser to Chinese leaders? And didn’t S’pore Inc pay a treasure in Suzchou etc to be an “old friend of China”? Or is all these nothing but spin from our MSM? Or the fantasy of the S’pore government?
“The Government of Singapore Investment Corporation, which made a $575 million secondary loan, and invested as much as $200 million in equity [note ST etc report this as US$100m: 100% less], stands to lose all of that.”
But to be fair to GIC, in the immortal words of the character Chuck (played by Steve McQueen) in the Magnificent 7, “It seemed a good idea at the time”, when the seven cowboys realised they were up against an army of Mexican bandits.
“At the time, it looked like a sound investment,” said Clark McKinley, a spokesman for Calpers, the giant California public employees’ pension fund, which bought a $500 million stake in the property. “When the market tanked, we got caught.”
‘”Many of the other companies, banks, countries and pension funds — including the government of Singapore, the Church of England, the Manhattan real estate concern SL Green, and Fortress Investment Groups — that invested billions of dollars in the 2006 deal stand to lose their entire stake.”
‘This month, several of the secondary lenders sent letters to Tishman Speyer and BlackRock threatening foreclosure because of the default. The partners tried unsuccessfully to craft a new deal that would have involved them putting up “several hundred million dollars,” in return for restructuring the loans, according to one real estate executive briefed on the negotiations.”
Note GIC is one of the secondary lenders but it is not yet known if it was one the u/m poker players.
“The secondary lenders, he said, had “overplayed their hand” in the hope that they would get back some of their investment. Instead of being forced into bankruptcy, Tishman Speyer and BlackRock will walk away sometime after a new manager is in place.
‘This month, several of the secondary lenders sent letters to Tishman Speyer and BlackRock threatening foreclosure because of the default. The partners tried unsuccessfully to craft a new deal that would have involved them putting up “several hundred million dollars,” in return for restructuring the loans, according to one real estate executive briefed on the negotiations.”
Full article. Click graphic to see where exactly GIC put its $.
Napoleon had many good officers. So when he was appointing generals, he asked, “But is he lucky?”. He knew the importance of chance in his success and at his last battle, Waterloo, his luck ran out. But as one of the generals who defeated him said, “It was a near-run thing”.
The question buyers of CapLand on Tuesday should be asking is whether the mgt of CapitaLand are lucky? Two days after anncing a US$2.2bn China property deal, https://atans1.wordpress.com/2010/01/19/capland-getting-it-very-right-or-very-wrong/the Chinese authorities ordered a serious of credit tightening measures including ordering some commercial banks to stop lending for the rest of January. Global equity markets fell.
CapLand mgt could be lucky. Markets have a habit of shrugging off China fears. Remember the recent falls and recoveries?
But for the moment the seller’s mgt must be considered “lucky”.
CapitaLand is obviously not a bear on China.
CapitaLand has done a deal in China spending more than the S$2.7bn (US$1.9bn) it raised in November through an IPO of CapitaMalls Asia, its shopping centres subsidiary. (I had tot then lowering China exposure was the unstatedreason for the IPO.)
It bought for US$2.2bn seven sites located in Shanghai, Kunshan and Tianjin, taking the group’s Chinese portfolio to 36% of assets from 28%. It wants to increase its China exposure from 28% of assets to 45%. Hong Kong’s Orient Overseas International shipping group was the seller.
Funnily, this at a time when even the Chinese government is talking of a property bubble in China what with residential prices in the 70 main cities accelerated in November to the fastest pace in 18 months.
“Qi Ji, China’s vice-minister of housing and urban-rural development, has told the Financial Times that house prices have reached levels that were “obviously too high”, particularly in large coastal cities,” reports the FT.
Yes, yes: I know CapitaLand is into commercial space, offices and malls (Apartments are tagged on on the top). But recent US experience shows that the damage in the residential sector can affect the commercial sector.
Note that China super bull, Jim Rogers, is avoiding recommending property to investors: in 2008 he was negative about Chinese property.
Hedgies, make a bet that CapitaLand is wrong?