(C ) Rents should sustain in the first half of 2008
Since January 2008, there have been signs showing a slower and smaller growth in residential rents. Whether or not home rents will sustain its upward momentum or slide depends on a number of economic factors. Below shows the ‘push-pull’ factors affecting rents in general:
(C.1) Singapore is world's 7th most expensive office location
Office rent at Singapore’ Central Business District (CBD) leapfrogged four places to become the seventh most expensive prime office location in the world for the first time.
Singapore’s occupancy costs hit an average of about US$130 per square foot, according to a global market rent survey which compares office occupancy costs in 203 locations in 58 countries across the globe. Rents for prime office space soared 78% for the whole of 2007.
Office rents, the largest component of occupancy costs, rose 40% on average in the world's top 10 office locations. On the worldwide scale, rents climbed by 14% on average.
West London is the most expensive office location in the world, followed by Hong Kong, Bumbai, Moscow, Tokyo, Paris and then Singapore. None of the US cities have made the top 5 list this time round.
(C.2) Will office rents in Singapore surpass Hong Kong’s
Two rivalry reports show that the total occupancy cost in Singapore has hit US$10.42 and US$10.80 psf per month at the end of 2007.
The two differing reports put the total occupancy cost for Hong Kong at US$9.74 and US$19.90 psf pm during the same period. When one report said that the occupancy cost for office space in Singapore is higher than that of Hong Kong, the other said the exact opposite.
The Urban Redevelopment Authority (URA) commented that the discrepancy between the two sets of data arises from the different methods of comparison. However, the undisputable fact was that the median Grade A office rents in Singapore rose 96.5% last year to hit $17.15 psf a month.
In the final analysis, with the advent of more foreign firms taking refuge from the troubled US and EU markets and parking their money in Singapore, rents for prime office space will continue to climb. Office rents in Hong Kong, on the other hand, are expected to rise by a slower 5% in 2008.
It is therefore widely expected that rents in Singapore will overtake rents in Hong Kong sometime this year.
(C.3) Competition for prime office space at Marina Bay
Almost everyone is trying to take a slice of action at Marina Bay Financial Centre (MBFC) which will be fully completed by 2012.
American Express International (Amex) has been the latest new tenant at MBFC, which means that slightly more than half of the total 2.9 million square feet of offices in the entire development has been taken up.
Barclays will lease about 100,000 sq ft or four floors in the tower, Icap is taking 35,000 sq ft and Pictet around 25,000 sq ft. Standard Chartered is taking 24 floors or 508,298 sq ft out of its 600,000 sq ft of net lettable area at the first phase 33-storey Tower One.
DBS has leased about 700,000 sq ft in MBFC's Tower 3 - which will be in the project's second phase and slated for completion by early 2012.
(C.4) Record take up for ready-built industrial facilities
Likewise, industrial landlords are also enjoying the fruits of other’s labour.
The net take-up for JTC’s ready-built facilities reached a new record high of 214,700 sq m in 2007. This beat the previous height of 179,600 sq m set in 2005. Similarly, the net take-up rate for JTC’s prepared land was also the highest at 341 ha in 2007.
The demand and overall occupancy rate of flatted, stack-up and standard factory space rose to 92.7% in 2007, up from 87.8% in 2006.
In 2007, the gross allocation of ready-built facilities was higher by 42% to 399,900 sq m. A year ago, it was 281,000 sq m. However, as the termination level increased by 14% year-on-year to 185,200 sq m in 2007, the net allocation of facilities stood at 214,700 sq m last year.
The areas of growth are specialised parks (which accounted for 250 ha or 73% of the total net allocation of 342 ha), Jurong Island (156 ha) and Wafer Fab Park (42 ha).
The chemical sector made up half of the total gross allocation of prepared industrial land for 2007. Manufacturing related and supporting sectors (such as logistics and services) accounted for 13% and 12% respectively of total gross allocation.
Rents and occupancy rates for all industrial space are expected to hold firm this year.
(C.5) The Number of TOP issued will decide the fate of the rental market
As for residential rents, the key factor affecting the movement of rents will be the supply of ready-built private condo units in the next couple of years. Experts reckon that with delays in new home launches and construction bottlenecks, the quantity of new home to be completed in these two years might be lower than earlier projected.
For the next three years, there will be about 8,300-plus private homes to be completed in 2008, about 13,400-plus units in 2009, and around 18,500 units in 2010.
However, the actual number of private home completions in 2009 and 2010 may be much lower because of the current delay and capacity bottlenecks due to the competition between private sector and public infrastructure projects.
With actual demolitions of en bloc developments still impending in the next nine to 12 months, net supply will remain low. These may cause the escalation of rents for private homes in these one to two years.
From the tight schedule, it appears that only around 9,000 to 11,000 new private homes will receive their TOP in 2010, way below the 18,509 units earlier estimated by URA.
(D) News on En bloc Sale
Ever since the passing of the new Collective Sale law on 4 Oct 2007, not a single en bloc sale project has been sold. This is because these deals are now getting more costly and time-consuming.
What used to be rather easy and inexpensive to initiate has become more expensive, complicated, tedious and requiring a lot of synchronisation. Among other things, the new rules now require a qualified lawyer to be present whenever a consenting resident signs the Collective Sale Agreement (the agreement that binds the whole estate to the sale) and to explain the details of the CSA at the same time.
After the Horizon Tower saga and the recent spate of disputes between minority owners and buyers, sellers nowadays are more careful with documents, such as the minutes of sale committee meetings, draft motions for the general meetings etc, which may later become a ground for contestation. They would require their lawyer to go through all the documents and help to keep them water-tight.
The significant increase in lawyer’s workload consequently results in much higher legal costs.
Property consultants are now charging about 15% to 20% more to make up for the extra effort and longer time resulting from the requirements to explain the terms and conditions of the CSA, arranging for lawyers to witness the execution of the CSA etc.
(D.1) En bloc sale news - 16 terrace houses up for collective sale
A row of 16 terrace houses at Fort Road in the East Coast has been put up for collective sale with an indicative price of $95 million. The site has an area of 47,886 sq ft and a 2.1 plot ratio which ordinarily allows up to 24 storeys in height.
There will be an estimated development charge of $23 million, as well as the cost to buy over an adjoining state land of 10,964 sq ft, which could cost about $6.4 million. The plottage increment will increase the cost to $1,238 per sq ft based on potential gross floor area.
Collective sales of landed properties are rare as it requires 100% consent from all the house owners, unlike strata-titled apartments and condominiums where an 80% majority by share value and floor area will suffice.
The collective sale of landed properties is not subject to the approval of the Strata Title Board.
(D.2) En bloc sale news – Merchant Square
Merchant Square, a four-storey office building off Merchant Road, is up for sale with a guide price of $73 million, which will work out to be $1,450 psf of net lettable area of about 50,262 sq ft.
The property, which was developed by carpet manufacturer Jackson Carpet and completed in 1996, sits on a land area of approximately 28,083 sq ft and has two levels of basement car park for 76 vehicles.
(D.3) En bloc sale news – Waldorf Mansions
Waldorf Mansions at Balestier Road has been put up for sale. The asking price is $21 million, or $659 per sq ft per plot ratio (psf ppr).
The freehold 11-storey block is sitting on a site area of 11,384 sq ft with a plot ratio of 2.8, which allows up to 36 storeys. Currently, it houses 16 apartments.
Based on the asking price, the en bloc sellers will make a premium of about 33% over the current market price for Waldorf Mansions.
(D.4) Eight owners of Gillman Heights sued
Eight en bloc sale sellers of Gillman Heights Condominium are being sued by the buyer, the CapitaLand-led consortium, for alleged breach of contract.
The eight owners, who had earlier agreed to the collective deal, had applied to the High Court last Monday to contest the validity of a supplementary deal to the original collective sale agreement.
The developers who are clearly not amused by the action deemed it a detriment amounting to a breach of the owners' contractual obligations.
The group of eight claimed that some of the signatures on the supplementary agreement came in after the deadline and, if excluded, may reduce the mandatory 80% majority consent required in a collective sale. This by itself was seen as derogatory to the legitimacy of the collective sale which the eight had earlier endorsed.
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