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THE sleepy western end of the Orchard Road retail district has plenty of untapped redevelopment potential, and investors should keep an eye on firms that own these choice sites, OCBC Investment Research said yesterday.
The area stretching from Far East Shopping Centre to Tanglin Mall stands to gain from possible redevelopment plus the upcoming Orchard Boulevard MRT station, said analyst Eli Lee in a report.
Its value could also get a boost from an expected shortage of retail space in the main Orchard Road shopping district over the next few years.
The winners in all this could be the listed landlords whose “crown jewels” are in the area – Hotel Properties Limited (HPL), Wheelock Properties, Hong Fok and Bonvests, Mr Lee said.
With a dearth of upcoming projects in the Orchard retail space pipeline over 2015-17, we believe there could be a greater impetus for strategic redevelopments along the western end of Orchard Road – a neglected area with relatively dated assets. In particular, Hotel Properties Ltd (HPL), which owns a large combined site in that area, has been long reported in the media to be considering a mega-development and recently saw a general offer made by a consortium comprising strategic partners, Mr. Ong Beng Seng and Wheelock Properties Ltd. (Wheelock). Our research reveals the meaningful confluence of fundamental drivers supporting the revitalization of West Orchard ahead, and we identify four developers with key assets in the area. We initiate coverage on HPL with a BUY and fair value of S$5.32 (35% RNAV disc.), and on Wheelock with a BUY and fair value of S$2.38 (30% RNAV disc.). Other potential beneficiaries in West Orchard include Hong Fok (unrated) and Bonvests (unrated), which are trading at 35%-47% discounts to RNAV.
Dry retail space supply in Orchard pipeline over 2015-17 could set up a crunch ahead
A dearth of upcoming projects in the Orchard retail space pipeline over 2015-17 would likely set up a crunch for space over that period, in our view. From 2013-17, our base case is that occupancy rates will rise from 95.8% to 97.2%, and Orchard prime retail rents will grow at a CAGR of 2.0% p.a. to S$36.9 psf pm.
Turning our eyes to quiet western end of Orchard Rd for deep value
Given this, we believe forward-looking investors should turn their eyes to the western end of Orchard Road – from Far East Shopping Center to Tanglin Mall – a neglected area of relatively dated assets that holds significant potential for redevelopment and expansion. In particular, Hotel Properties Ltd (HPL), which owns a large combined site in that area, has been long reported in the media to be considering a mega-development and recently saw a general offer made by a consortium comprising strategic partners, Mr. Ong Beng Seng and Wheelock Properties Ltd. (Wheelock).
A meaningful confluence of drivers for West Orchard revitalization ahead
From our research, we believe there is a meaningful confluence of fundamental drivers supporting the revitalization of West Orchard ahead. For instance, authorities have planned comprehensive underground links from the key Orchard MRT station to the area, and also a new MRT station near Tanglin Mall, in addition to various incentives for redevelopments through the Master Plan.
Initiate with BUY ratings on HPL and Wheelock
In this piece, we identify four developers with key assets in the West Orchard area. In addition, our estimates indicate that a potential HPL mega-development could yield as much as S$1.25bn in surplus net present value for the company. We initiate coverage on HPL with a BUY and fair value of S$5.32 (35% RNAV disc.), and also on Wheelock with a BUY and S$2.38 fair value (30% RNAV disc.). Other potential beneficiaries in West Orchard include Hong Fok and Bonvests, which are trading at 35%-47% discounts to RNAV.
The Total Debt Servicing Ratio (TDSR) was introduced in June 2013 to ensure financial prudence among borrowers and strengthen credit underwriting practices among banks. The ratio determines how much an individual can borrow from the banks.
Under it, total monthly debt payments including home and car loans cannot exceed 60 per cent of the property buyers’ income. These debt payments are wide-ranging and can include home and car loans, study loan, and even credit card debts.
In the private residential market, the impact of the TDSR on sales volume quickly became apparent. There were 482 new units bought in July 2013, a drop of 73.3% compared to 1,806 unit) in June 2013.
In total, 9,115 new homes were bought since the TDSR was implemented – that’s half the amount bought in a year-on-year comparison from Jul 2012 to May 2013.
Analysts we spoke to say the suburban homes were the hardest hit. Numbers compiled by Knight Frank Singapore showed that 63 per cent fewer new homes in the suburbs were bought in the second half of 2013, compared to the first half of the year.
As for prices, the effect of TDSR was seen later that year. The Urban Redevelopment Authority’s residential property price index slipped 0.9% in the fourth quarter of 2013, the first decline in almost two years.
Prices dipped again in the next quarter – this time by 1.3 per cent. making it the largest drop since the second quarter of 2009, when prices fell by 4.7 per cent.
In boosting sales, some developers have turned to cutting prices. One of the latest to join the fray is the Panorama condominium in Ang Mo Kio, which relaunched in May at a median price of about $1,241 per square foot.
That is about 8 per cent lower than the median price when it was first launched in January this year. But property watchers we spoke to say the discounts are typically for bigger or “less prime” units, and developers are unlikely to lower prices across their projects.
Developers may also be creating smaller units, to balance between offering palatable prices for buyers, and maintaining their profit margins. According to figures from CBRE, the median size of units in the suburbs declined from 753 square feet in the third quarter of 2013, to 732 square feet in the first quarter of this year.
The impact of the TDSR was also felt in the private residential resale market. CBRE’s numbers showed that sales volume in the secondary market dropped by 50 per cent in the first half of this year, compared to the same period last year.
But it may be increasingly difficult to find tenants, as the Government tightens its foreign labour controls and more new homes enter the market in the coming months.
The Urban Redevelopment Authority estimates that a total of 18,350 units will be completed this year, while another 21,738 units, excluding executive condominiums, are expected to be completed in 2015.
According to an article in BT this month, property developers have collectively paid up to $55.1 million in extension fees for unsold units in their private condo projects since 2012. They could potentially fork out another $80.7 million to extend the sales period for another year if they do not sell their inventory by year-end,
24 condo projects, consisting primarily high-end ones, are still not fully sold two years after receiving their temporary occupation permits (TOPs) between 2010 and 2012, the study showed.
“Foreign developers” under the Residential Property Act (RPA) — developers with non-Singaporean shareholders or directors — need to obtain QCs to buy private land for new projects. Thus the QC rules apply to all listed developers. Few developers exempted from the rules include privately owned Far East Organization and Hoi Hup.
As QCs allow developers up to five years to finish building a project and two more years to sell all the units, the heat is on developers to clear their stock by the deadline.
To extend the sales period, developers pay 8 per cent of the land purchase price for the first year of extension, 16 per cent for the second year and 24 per cent from the third year onwards. The charges are pro-rated based on unsold units over the total units in the project.
Such fees drove luxury residential player SC Global to delist from the Singapore Exchange last year after sales slowed significantly due to the government’s property cooling measures.
Analysts warn that more extension charges will kick in. The charges paid up so far are just the tip of the iceberg as projects built from land acquired during the 2006-2007 en bloc fever have just crossed a seven-year mark, they say.
“More developers are caught between a rock and a hard place” as they have to decide whether to pay the extension charges or cut prices to move the units, said SLP International executive director Nicholas Mak.
If they pay for extension charges, there is also the question of whether they can recover these costs later on, he said. This is why some developers of luxury projects are resorting to selling the units in bulk to mega investors.
OrangeTee’s study of the 24 projects excluded three projects whose land costs could not be determined. It tracked sales of projects through caveats lodged, which it conceded could be lower than actual sales.
At the end of the first quarter of this year, there were 10,295 unsold units in the Core Central Region (CCR), 8,089 in the Rest of Central Region (RCR) and 12,433 in the Outside Central Region (OCR).
Based on URA caveats, there are 71 unsold units in Wheelock Properties’ Scotts Square that TOP-ed in 2011 and 16 unsold units in Wing Tai’s Helios Residences, which also TOP-ed in the same year.
“As unsold inventory builds up, there will likely be more bargains in the market if developers want to avoid paying penalties to extend the sales period, especially high-end developers who have already paid premium prices for their lands,” Ms Li said.
The study excluded the fees that developers need to pay to extend the completion of projects beyond five years, as they can typically extend without paying the charges “based on technicalities”.
Even in a more optimistic scenario where developers manage to sell 20 per cent of the remaining units for the rest of this year, further extension charges to be paid by developers by end-2014 will amount to around $68.3 million.
Some market watchers noted that the QC rules should mark a distinction between larger and smaller projects, given that it takes a longer time to move all the units in large projects in a difficult market as the current one.
Century21 chief executive officer Ku Swee Yong said that demand for high-end projects had been hit hardest by higher additional buyers’ stamp duty (ABSD) since January 2013 and a borrowing cap under the total debt servicing ratio (TDSR) since June last year.
Even if a developer decides to set up an investment company to buy the units and rent them out, the company could be hit by a 15 per cent ABSD and is restricted by a loan-to-value limit of 20 per cent.
While there is good reason for having QC rules to regulate foreign participation in the housing market, these rules were in place before the ABSD and TDSR. “It is about time we review these measures,” Mr Ku said.
In today’s local media of BT, it was reported that the sales for private condos in the month of May doubled from the preceding month. Many new launches with heavy marketing and near transport nodes were sold well. Projects like Coco Palms, Commonwealth Towers, Panaroma and Kallang Riverside were well received in May. However another group of properties like Loft 33, Singa Hills and Sunnyvale Residences were fairly quiet in the sales volume. These properties though freehold, were launched with little fanfare and hence were out of buyers’ radar. However based on most Singaporeans’ preference for affordable freehold properties, it remains to be seen if such properties remain quiet for long.
From Business Times (17 June2014)
Developers’ sales of private homes nearly doubled in May from a month ago as new launches were priced to target buyers who have become more price-sensitive as a result of loan curbs.
But such robust sales are unlikely to be repeated this month, a seasonally slow period because of the school holidays. Even the World Cup soccer competition could become a distraction for potential buyers in this tepid market, analysts say.
“It is premature to conclude that the market has revived from its slump,” said Ong Teck Hui, national director of Research and Consultancy at JLL, pointing to the mixed showing at new launches last month.
Latest data from the Urban Redevelopment Authority showed that developers sold 1,470 private condos last month, the highest level since June 2013 and a 96 per cent jump from the 749 units sold in April. The top five projects made up 78 per cent of total sales in May.
The strong showing is driven by new launches, with 1,790 condo units launched last month compared with only 600 units in April. There were no new launches for executive condos (ECs) last month; 58 ECs were sold, up from 48 in April.
“The increase in the number of new projects launched in May and the strong launch figures do show that developers are more confident in resuming launches as there still many buyers in the market but who are now more price-sensitive,” Mr Ong said.
The two top sellers were Coco Palms and Commonwealth Towers – both located near MRT stations and deemed attractively priced. Together, they made up more than half the month’s unit launches and sales. Some 590 units at Coco Palms were sold at a median price of $1,018 per square foot (psf), and 275 at Commonwealth Towers were sold at a median price of $1,626 psf.
The Panorama in Ang Mo Kio became a top seller last month, with some 100 units sold at a median $1,241 psf after developer Wheelock Properties slashed prices by around 10 per cent in its re-launch last month. The project moved only 56 units in the initial launch in January at a median $1,343 psf.
Not all new launches fared well, however. Oxley’s The Rise@Oxley Residences – the only new launch in the Core Central Region (CCR) – sold eight units out of 120 at a median price of $2,452 psf.
Ecco Development’ Singa Hills and Macly Equity’s Loft 33 managed to move only two units and 12 units respectively. These projects were apparently launched with little or no fanfare.
“Projects that lack visibility will see greater difficulty in attracting buyers, especially if they are not near transport nodes and the price point is not attractive,” said Alice Tan, Knight Frank’s head of research and consultancy.
Colliers International director of research and advisory Chia Siew Chuin noted that Commonwealth Towers in Queenstown and Kallang Riverside in Kampong Bugis have benefited from pent-up demand, given the lack of new launches in the two locations.
But developers’ sales volume is expected to ease to 600-900 units in the traditional lull period of June, before developers resume their launches ahead of August, which is the lunar seventh month and regarded by the Chinese as an inauspicious period to commit to home purchases, Mr Chia said.
Potential launches in the pipeline include Roxy-Pacific’s Trilive, a freehold project in Tampines Road of which 70-80 per cent of the 222 units are dual-key units, which are essentially a 2-in-1 apartments.
Wing Tai opened the showflat last Saturday for its 469-unit The Crest at Prince Charles Crescent, while China Sonangol Land and OKP Land are slated to launch their 109-unit freehold project Amber Skye on Amber Road soon.
Nicholas Mak, executive director at SLP International, expects mass-market condos in suburban areas to continue leading sales islandwide.
Last month, mass-market suburban condos accounted for 64 per cent of sales and slightly over half of total units launched.
This is followed by city-fringe condos in the Rest of Central Region (RCR) that made up about 34 per cent of sales and 39 per cent of units launched. There were only 32 units sold in the CCR or 2 per cent of total islandwide sales.
Mr Mak noted that some developers hurried to launch mass-market condos last month ahead of new EC launches this year. From August to December, five EC projects with a total of 3,100 units could potentially be launched for sale.
With the increased competition, some developers may adopt “a more flexible pricing strategy” to boost their sales, he added. For the whole of 2014, sales volumes in the primary market could total 9,500-12,500 units, Mr Mak predicted. This compares with some 15,301 units sold by developers for the whole of last year.
According to today’s CNA’s report, the primary condo sales market in Singapore rebound to life from increased sales. The improved sales volume came as developers launched 1,790 new units in May, nearly three times more than the 600 homes in the previous month. Is this trend sustainable?
SINGAPORE: The private residential property market sprang to life in May after months of remaining in the doldrums, with developers’ sales surging 96 per cent as buyers snapped up units at the slew of new launches last month.
Developers sold 1,470 new private homes last month, nearly doubling the 749 units that they moved in April, latest data by the Urban Redevelopment Authority (URA) showed on Monday (June 16). Including executive condominiums (ECs), new developer sales rose to 1,528 units in May from 797 units in April.
The improved sales volume came as developers launched 1,790 new units into the market in May, nearly three times more than the 600 homes recorded in the previous month.
Two projects by City Developments topped the best-selling list for the month. Coco Palms at Pasir Ris Grove moved 590 of the 600 condominium units launched at a median price of S$1,018 per square foot (psf), while Commonwealth Towers at Commonwealth Avenue sold 275 of 400 homes at S$1,626 psf.
Besides the successes of new launches, May also saw another re-launch that did well: Wheelock Properties’ The Panorama at Ang Mo Kio sold 100 of the 126 units offered last month at a median of S$1,241 psf.