When asked if Singapore had the “X-factor” of a top-class, world city, many of its urban planners, architects and developers said “no”. They believed that it was nothing more than a “wannabe” in global terms.
Nevertheless, as southeast Asia’s most liquid real estate market and the current hub for the region’s developing REITs market, Singapore is subject to a number of positive influences that will drive real estate values and rents upwards into 2006 and beyond.
The brisk level of activity seen in the investment sales market is a clear indication of developers’ confidence in the country’s mid- to long-term prospects. Among the notable investment transactions in the last quarter was Raffles Holdings’ sale of its entire hotel business of 41 properties, including the world-famous 118-year-old Raffles Hotel, for US$1.45bn cash to a US private equity investor, Colony Capital, retaining only its interest in the multi-use Raffles City complex.
The office market had a better than expected run in the third quarter. Strong economic numbers and a bullish price achieved for the Business & Finance Centre site, bought by a consortium of Hongkong Land, Keppel Land and Cheung Kong, helped drive the sentiment. A supply shortfall will boost rents across the micro markets and Colliers is expecting rentals for grade-A office space in Raffles Place to rise by 3% in the fourth quarter. Rents in grade-B buildings in the same area and grade-A properties in Shenton Way/Tanjong Pagar, Marina Bay/City Hall and Orchard are expected to rise by up to 5% by year’s end.

Jones Lang La Salle expects a gradual shift of focus from the existing central business
district (CBD) to the New Downtown in the next 10 to 15 years. The company’s head of research, Feng Zhi Wei, said: “In order to remain relevant, the current CBD core will need to
rejuvenate itself to plug in as an extension of the Marina Bay area. Landlords in the current core CBD area are therefore expected to upgrade or seek change of use for their functionally ageing buildings.”
UBS global strategist Scott Crowe is bullish about the office market on a two-year view, in light of the limited supply. He said: “We only expect around two million square feet of prime office supply over the next three years. Historical demand has been one million square feet per annum. The earliest supply coming into the market is the Business Financial Centre and that is unlikely to be completed until around 2009. The best exposure to this segment of the market in our view is CapitaCommercial Trust and City Developments.”
The big news in the retail sector in recent times has been the successful triggering of the Orchard Turn site. In September, the Urban Redevelopment Authority (URA) released the site from its reserve list for tender after a boutique developer, SC Global, triggered it with an offer price of $600m, or $443 per ft2 per gross plot ratio. This 1.8-hectare site is designated for a 40-storey commercial development with at least 40% of the maximum permissible gross floor area of 1.35m ft2 dedicated to retail, food, beverage or entertainment uses. In mid-October, the Somerset site, also along Orchard Road and on the reserve list, was triggered for $200m.
Demand for industrial properties is likely to remain high, linked to the government’s commitment to double manufacturing output to $300bn by 2018.
Colliers believes supply will take considerable time to be reduced to a moderate level. Rents and prices of factories and warehouses are likely to remain stable. And as supply of high-spec spaces is being taken up at a faster rate, their rents may still see a moderate upside in the medium term.
The government has announced a series of policy changes affecting the residential property market. National development minister Mah Bow Tan announced the lowering of the cash portion of the down-payment from 10% to 5% and an increase in the loan-to-value ratio from 80% to 90%. The offer of permanent resident status for foreigners who invest more than $2m in Singapore, of which $1m can be used for property purchases, and the easing of ownership restrictions, should certainly draw more cash-rich foreigners into the market. They will be attracted by some prime luxury developments about to come to the market, including the St Regis Residences, the second tower of The Sail @ Marina, as well as the third condominium on Sentosa Cove, all by City Developments.

In the short term, though, there has been a slowdown in new sales, with developers opting to re-market existing projects. Singapore’s residential market is plagued by oversupply. Currently, there are an estimated 20,000 apartment units completed but vacant. And there are another 15,000 units being developed over the next two years. These figures are five times the average annual take-up.
The completion of the integrated resorts and casino project is expected to boost visitor numbers significantly. UBS estimates that this and the new measures from the government will boost tourist and business visitors and could bump up the numbers by 50% or more to around 12 million by 2009.

The two integrated resorts with casino projects at Marina Bayfront and Sentosa are expected to be awarded to the successful bidders by the end of the year. According to Scott Crowe, Keppel Land and City Developments have a reasonable chance of being involved in the Marina site, while CapitaLand has the best chance for the Sentosa site.
Property funds, along with existing and potential REITs, have been actively acquiring investment properties to increase their portfolio income and asset size. Singapore is positioning itself as the natural base for China REIT listings and, until Hong Kong gets its act together, it is really the only option. It will be fascinating to watch the two centres slug it out. It is notable that Cheung Kong’s
Li Ka Shing, who was responsible for the first
S-REIT, the Fortune REIT, is planning to list the first Hong Kong REIT, getting in ahead of the long-delayed Link REIT.
Singapore will still have a thriving REIT market even with Hong Kong actively competing for listings. Tax exemption for dividends on S-REITs makes them an attractive option for investors, and private investors can access the S-REIT market very easily. So the local market expects a steady stream of listings for the foreseeable future.

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