Farewell Wee Cho Yaw; property prospects in the Dragon Year

MANY tributes have been paid to tycoon Wee Cho Yaw, who passed away recently. Wee, who helmed UOB for decades, has been widely lauded for being a banking titan.

However, Wee’s accomplishments stretch far beyond banking. He achieved much success in property, too. 

At the time of his demise, Wee was chairman of listed UOL Group - a member of the benchmark Straits Times Index. He was also chairman emeritus and honorary adviser to UOL’s listed subsidiary Singapore Land Group (SingLand).

Additionally, Wee’s private family company Kheng Leong is active in property development.

It’s probably unsurprising that Wee succeeded in banking and property. Lending to homebuyers, property developers and property owners is a big part of a bank’s loan book. Hence, understanding the property market matters to any lender.

On the flip side, gaining insights on consumers and businesses from their buying and leasing of property can help a banker stay on top of what is happening in various segments of the economy.

State tenders

Speaking of UOL and SingLand, a joint venture between the two parties topped bids for a prime Orchard Boulevard plot at a state tender that closed on Feb 1. The bid of S$428.3 million valued the private housing parcel, located next to Orchard Boulevard MRT station, at about S$1,617 per square foot per plot ratio (psf ppr).

Still, the UOL-Sing Land bid came in at below analysts’ expectations. And the psf ppr price is 32 per cent below that of a nearby Cuscaden Road housing plot that fetched S$2,377 psf ppr at a state tender in 2018.

Probably the high Additional Buyer’s Stamp Duty (ABSD) for foreigners buying homes here is causing developers to be cautious on housing demand in the Orchard area, which is traditionally popular with foreigners.

Another state tender that closed on Feb 1 drew four bids and a top bid of S$423.4 million or S$701 psf ppr for an executive condominium (EC) development site at Plantation Close in Tengah from Hoi Hup Realty and Sunway Developments. This top bid was largely in line with analysts’ expectations.

Recent launches of new ECs, which are a hybrid of private and public housing, have generally done well.

A cost-effective way for locals to get into private homeownership is to buy an EC. New EC units are way cheaper than comparable new condo units – by possibly over a third.

However, I argue in The Level Ground that new EC homes with prices of around S$1,460 per square foot (psf) may be stretching the affordability of home buyers who meet the monthly income ceiling of S$16,000 for buying new ECs.

To ensure better affordability of new EC homes, I suggest raising the income ceiling for buyers of new ECs as well as capping the size of new EC units.

Property seminar

Are you trying to figure out whether buying an EC, a resale Housing and Development Board (HDB) flat or a private condo unit makes sense? Do you want to learn more about the pros and cons of choosing Standard, Plus or Prime units at HDB Build-To-Order exercises? What about the prospects for landed homes?

To get fresh insights on Singapore’s property market in the Dragon Year, join me on the 15th day of the Chinese New Year at the annual BT Property Outlook Seminar, which will be held on Feb 24. My guests are PropNex’s Ismail Gafoor and Savills’ Alan Cheong. Sign-up details can be found at the end of the newsletter.

At the seminar, we will also analyse whether now is a good time to buy or to sell a home. In addition, we will explore opportunities in Singapore office, retail and industrial properties as well as overseas homes.

For example, one can buy a strata office unit here without incurring ABSD. According to a report by Knight Frank, the transaction value of strata office space sales inched up 1.8 per cent year on year (yoy) to S$1.2 billion in 2023. Average price rose 14.7 per cent to S$2,929 psf.

Certainly, a key factor that will impact the property market is what happens with interest rates. 

My colleague Samuel Oh noted that several Singapore-listed property companies have issued profit warnings ahead of their results reporting.

Analysts whom Samuel spoke to said elevated borrowing costs, high interest rates and rising inflationary cost pressure continue to exert an impact on property development and investment activities.

Reits

The adverse impact of high interest rates is showing up in the latest results reported by several real estate investment trusts (Reits).

Rising interest rates weighed on CapitaLand Ascendas Reit, as the business and industrial property player saw distribution per unit (DPU) fall 6.1 per cent yoy for the six months ended Dec 31, 2023. DPU fell despite rises in revenue and net property income.

However, fellow heavyweight CapitaLand Integrated Commercial Trust (CICT) posted a 1.7 per cent rise in DPU for the second half ended Dec 31, 2023, versus the corresponding period a year ago.

Managers of Reits are assiduous and creative in finding ways to grow DPU. One strategy is to rejig portfolios by switching from lower yielding assets to higher yielding ones.

Recently, my colleague Kalpana Rashiwala wrote that CICT should press on with its divestments. She noted that possible sales of Bukit Panjang Plaza, 21 Collyer Quay and Citadines Raffles Place present opportunities for the trust to unlock value and redeploy proceeds to better use.

Besides Reits, property groups should also work hard on their assets. 

In the case of Hotel Properties Limited (HPL), the group can potentially redevelop Voco Orchard Singapore hotel, Forum The Shopping Mall and HPL House into a mega mixed-use development comprising retail, office, hotel and residential components.

Do the above redevelopment well and financial rewards may be lucrative. However, I wonder if tycoon Ong Beng Seng’s links to the corruption case involving former transport minister S Iswaran will undermine Ong’s ability to effectively lead HPL.

Looking beyond Singapore, is the vital Chinese housing market turning around? 

China’s new home prices rose in January at the fastest monthly pace in nearly two and a half years, according to a survey by Chinese real estate research firm China Index Academy.

Average prices across 100 cities grew for a fifth consecutive month, with January’s monthly gain of 0.15 per cent outpacing the 0.1 per cent increase in December,

Over the past year, China has been introducing policies to help revive the housing sector and restore buying sentiment.

Wishing you a prosperous Chinese New Year.