Living with high interest rates
STOCK prices of property developers and real estate investment trusts (Reits) have struggled this year, notes Uma Devi.
Higher interest rates are to blame for the plummeting stock prices of developers and Reits, according to analysts.
They see better prospects for Reits as the sector trades at an attractive valuation. The spread of the yield of Reits to the 10-year Singapore government bond exceeds 400 basis points.
Still, despite higher interest rates and heightened economic uncertainty, massive redevelopment works could be taking place soon at Orchard Road’s western end.
Assets that may be headed for redevelopment include Forum The Shopping Mall, the Voco Orchard Singapore hotel, HPL House, Far East Shopping Centre and Tanglin Shopping Centre.
However, rejuvenating Orchard Road will require creativity on the part of the various developers undertaking mega mixed-used developments there.
Market watchers tell Ry-Anne Lim they hope to see the area turn into a lifestyle destination incorporating not just the usual retail offerings but also luxury homes and hotels, offices, as well as healthcare and lifestyle facilities.
Meanwhile, developers can join the Orchard Road party by bidding for a 99-year leasehold site that could yield around 280 private homes, which the Urban Redevelopment Authority (URA) has put up for tender.
While the site is a plum one, analysts expect developers to be cautious in their bids.
Traditionally, foreigners are active buyers of Orchard Road apartments. However, foreign buying of homes here has fallen sharply since the hiking of Additional Buyer’s Stamp Duty for foreign home buyers from 30 per cent to 60 per cent in late April.
The fact that massive redevelopments in the prime Orchard Road belt are being contemplated testifies to the resilience of Singapore’s various property asset classes post-pandemic.
Nonetheless, property markets have cycles. In The Level Ground, I ponder whether Singapore property groups should sell their Singapore assets now, and build up a war chest to pounce on possible distressed opportunities in markets such as Australia, China, United Kingdom and United States.
Indeed, for some property owners, selling an investment property here to sit on cash for the near term may yield better returns.
Even in stable safe-haven Singapore, there may be growing caution in making big-ticket property purchases.
Despite a doubling of Singapore’s real estate investment sales value in Q3, Savills Singapore has cut its full-year projections in view of a dimmer macroeconomic outlook.
The real estate services provider now forecasts total investment sales in Singapore at S$19 billion to S$21 billion for 2023, down from the previous S$24 billion to S$25 billion range.
Also, there has been a slight quarter-on-quarter increase in loss-making resale transactions of private homes here in Q3. However, some executive condominium homeowners continued to score solid gains, with homes changing hands for nearly double their original prices.
Living in Singapore, I feel change is a constant. Many parts of the island are undergoing rejuvenation to meet today’s live, work and play needs.
The Housing and Development Board (HDB) is redeveloping Tanglin Halt, one of Singapore’s oldest public housing estates in Queenstown, to offer up to 5,500 new flats.
The HDB plans to launch additional new flats as part of a Tanglin Halt integrated development in 2024. The integrated project will be situated on the site of the former Tanglin Halt Neighbourhood Centre, which comprises Commonwealth Drive Food Centre and the existing Tanglin Halt Market.
Companies are also refreshing their strategies. Ahead of turning 40 next year, The Ascott Limited is looking to diversify its revenue streams beyond rooms, reports Jessie Lim who interviewed the hospitality group’s chief executive Kevin Goh.
Abroad, China’s property market continues to struggle. New home prices fell for the third straight month in September, according to official data, dashing hopes of a turnaround in demand during a traditionally peak month for home buying despite efforts to revive China’s crisis-hit property sector.
In Hong Kong, data from Centaline showed that 20,483 new homes were vacant in Q3 – the highest in almost two decades. Bloomberg reports that Hong Kong developers are cutting new home prices, pummelled by a weak economy and rising interest rates.
In the United States, a joint venture tied to a Pacific Investment Management (Pimco) fund surrendered a portfolio of 20 hotels with a US$240 million mortgage.
While property groups grapple with higher interest rates and in some cases weaker demand, hopefully businesses continue to focus on going green as the built-sector plays a vital role in efforts to combat climate change.
Kudos to Hongkong Land Holdings and Lendlease Global Reit for excelling at the Global Real Estate Sustainability Benchmark rankings.
In the Reit space, Keppel Reit posted a marginal rise year-on-year (yoy) in net property income for the first nine months. However, distributable income slipped due to higher borrowing costs, higher property tax and utility costs.
Keppel Pacific US Reit saw a double-digit yoy fall in Q3 distributable income, mainly due to higher financing costs as a result of rising interest rates.
Suntec Reit reported a 14 per cent yoy decline in distribution per unit for Q3 amid higher financing costs and the weaker Australian dollar.
The trust is looking to divest more strata units in its Suntec office towers as it aims for S$100 million in such sales, which will strengthen the balance sheet. Target selling prices of the strata units are at over S$3,000 per square foot.
Perhaps, now is a good time for cash-rich buyers to go property shopping. With home prices falling in prime central London, cash-rich buyers may be getting busy hunting for bargains in the British capital.
On the home front, eyes will be glued to the URA’s release of Q3 data on the Singapore property market this Friday.
