(C) Rents should sustain in the first half of 2008

(C.1) Rents of private homes beginning to go down

Data from the Urban Redevelopment Authority released on 25 Jan 2008 showed that rental rises were not as sharp as before for condos in key areas.

Rentals for non-landed property in the coveted core central region, which covers Tanglin and Bukit Timah, for instance, grew only 5.3%, less than half the rate of 12.2% achieved in the third quarter.

In the Rest of the Central Region (RCR), rental growth slid from 11.9% to 8.8%, and Outside the Central Region (OCR) rental growth also slid from 11.8% to 8.5%.

Overall rents of private homes grew 6.8% in the fourth quarter, slowing from an 11.4% rise in the previous period. However, for the whole of 2007, private home rentals still registered a strong surge of 41.2%.

Looking six months ahead, rents of private homes should hold firm or even rise by a shade due to a sustained growth of the domestic economy.

(C.2) Short supply of private homes in first half of 2008 may sustain rents

Despite the above figures, there is a sole factor that could prop up rents for private homes, i.e. the small stock of newly completed homes in the first half of 2008.

In 2007, the stock of completed private homes increased by just 1,448 units - the smallest rise in at least 12 years. The stock had increased by 4,008 units in 2006, 7,453 units in 2005, and 10,969 units in 2004.

The situation is more severe in the prime areas where expats are moving out in droves from the prime districts to Rest of Central Region (RCR) to take up residence there. This has caused a steeper rise in non-landed rents in RCR compared to the CCR.

With many private residential projects likely to be completed only in late 2008 and 2009, rentals for non-landed properties should increase further in the first half of the year.

(C.3) Singapore occupancy costs up 106% in 2007

A recent survey by an international property consultancy firm showed that occupancy costs in Singapore have jumped 106.4% to US$16,220 per workstation per year over 2007.  The island city is now the 13th most expensive city to work globally. Last year, it occupied a lowly 55th place.

Occupancy costs include the average total cost of leasing net usable space of 10,000 square feet within a prime CBD location. The costs include rent and outgoings, such as maintenance costs and any charges normally payable by the occupier. Each city is then ranked on a 'per workstation' basis.

The trend is expected to continue in Singapore with the depletion of office stock in the CBD as several office buildings undergo redevelopment and/or upgrading and no significant new supply of office space till 2010. However the economic slowdown in Europe and the US may bring down the occupancy costs in Singapore.

(C.4) Increase in Retail space in Orchard Road to thwart rent rise by end 2009

Almost two million square feet of new retail gross floor area is set to open in the area between now and 2011. The addition of such space in Orchard Road will definitely soften retail rents along the shopping belt.

Most of it will come from brand new malls, with two - Ion Orchard and Orchard Central - to be ready this year. It has been a decade since any new shopping mall is built at Orchard Road.

With more new malls coming on stream, landlords of older properties will bear the brunt. In fact, monthly rents along Orchard Road have slowed to 2.6% to hit an average of $45.50 per sq ft at the end of last year.

As such, prime retail rentals will rise by a much smaller percentage this year, unlike last year's whopping 22.1% increase.

For this year, 930,000 sq ft of new shops will be made available for rent in Orchard and Scotts Roads. Besides the new malls, additional space such as extensions to Paragon Shopping Centre, Specialists' Shopping Centre and the adjacent Hotel Phoenix will also add to the supply. The table below shows the upcoming new space:

(C.5) Demand for industrial space expected to stay strong

Continued presence of multi-national companies (MNCs) will hold up demand for industrial space this year. As of now, there are no signs yet to show any withdrawal of MNC facilities in Singapore. The persistent shortage of office space across the island will help to keep up demand for light industrial space.

As such, overall occupancy rate for industrial space is expected to maintain at last year’s high level or may even rise slightly this year.

However, demands for warehousing space may ease after the supply of 702,000 sq m of logistics and distribution space is available in the next two years.

(D) News on En bloc Sale

(D.1) Fourth quarter 2007 en bloc sale dipped

In the final quarter of 2007, only $1.28 billion of residential collective sale sites changed hands, nowhere near the $11.2 billion in the first nine months. The transactions included the following:

December 2007 Collective Sale Transactions

November 2007 Collective Sale Transactions

October 2007 Collective Sale Transactions

(D.2) Pearlbank Apartments up for $750 million

One of the oldest condominium, Pearlbank Apartments at Pearl's Hill has been put up for collective sale for $750 million or $1,456 psf ppr, inclusive of $143.3 million in development charge for realising the allowable plot ratio of 7.2 in the Master Plan 2003 and in differential premium for extension of state lease to its full 99-year tenure.

The 38-year-old project is sitting on a site of 7,653 sq m and it comprises 280 apartments and eight commercial units and more than 80% of the owners have already consented to the collective sale. Most of them are expected to enjoy 60% in collective sale premium. Based on an average unit size of 1,200 sq ft, 500 new apartments can be built on the site.

(D.3) Collective sale of Regent Garden rejected by STB

The Strata Titles Board (STB) has ordered the collective sale of Regent Garden to be cancelled as the Board ruled that the $34 million sale had not been done in good faith.

The majority owners of the 31-unit West Coast Road condominium site will contest the ruling at the High Court. Likewise, the buyer Allgreen Properties would contest the ruling.

The Board might have also taken into consideration the wrong calculation of the Development Charge (DC) to be payable by the developer. Besides, there was an allegation that the buyer paid some minority owners more money as a means to entice them to join the collective sale.

The STB also found that the valuation for the collective sale was way below the true market value. And therefore, the final sale price of $34 million, which was based on the valuation report, was too low.

(D.4) Minority owners at Horizon Towers challenging STB

Nine minority owners, who have vehemently objected the collective sale of Horizon Towers from the onset, have banded together to appeal against a Strata Titles Board’s ruling made last month.

The action will further delay the legal completion of the much-maligned collective sale, which was inked on 12 February last year, as all the rest including the developer, will have to wait for the outcome of the appeal which will only be heard on 1 February 2008.

The minority owners are appealing against STB's decision on the grounds that the board erred in law by approving the sale and ordering minority owners to be bound by a sale and purchase agreement they did not endorse.

(D.5) Finland Gardens en bloc deal rejected by STB

The Strata Titles Board (STB) had ruled against the collective sale application of Finland Gardens in Siglap last November citing failure to meet statutory requirements.

The Board said that the consent obtained had fallen short of the statutory 80% majority and that there was no good faith in the way the sale price was finally secured.

At the request of the buyer, the majority owners filed an appeal with the Supreme Court in December against the STB's ruling.  On 17 January this year, the buyers Sing Holdings and a joint venture partner applied to the Supreme Court to be included as a party to the appeal.

The eight owners who objected to the sale had complaint about the way the sale price was negotiated. They felt the Sale Committee could have asked for a higher price from the eventual buyer, Sing Holding, instead of asking it to match a competing offer from another bidder.

If the collective sale comes to fruition, each owner would stand to gain about $1 million to $1.27 million, depending on square footage.

(E) Foreign interest in commercial buildings in Singapore

(E.1) German SEB Asset bought stake in 12 floors of 79 Anson Road

SEB Asset Management from Germany had paid $215 million for a stake in 12 floors of 79 Anson Road office building. The unit price for the 117,423 sq ft of freehold office space works out to be $1,831 per sq ft (psf) of strata area.

The remaining 45 per cent of 79 Anson Road is owned by the Central Provident Fund Board.

The seller, Ferrell Asset Management, had earlier bought the stake for $90 million in January 2006 and the sale price is a 139% gain in just two years.

The buyer, SEB Asset Management from Germany also bought 12 floors of office space in Springleaf Tower at Anson Road for $2,088 psf of net lettable area in October 2007. And in April 2007, the group acquired SIA Building for about $526 million or $1,783 psf.

(E.2) Singapore Power Building sold for $1b to overseas property fund

Singapore Power Building at Somerset Road has been sold for $1 billion to an overseas property fund managed by Singapore’s Pacific Star group. The sale price works out to be around $1,820 psf of the total net lettable area (NLA) of about 550,000 sq ft.

Previously known as PUB Building, the 17-storey building is sitting on a leasehold land with a remaining lease of about 66 years.

The current gross floor area (GFA) of the building exceeds the allowable plot ratio under the 2003 Master Plan and as such it will not be possible for the new owner to redevelop the building. The investment potential of the building is lease renewals or partial change-of-use to include retail areas on the ground floor.

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