Thursday, October 12, 2006
[RealEdge] BT Property Supplements : Commercial concerns
| Published October 12, 2006  | ||||||||||
| Commercial concerns LIM SONG HAI and DESMOND SIM trace the evolution of Singapore's investment property market ECHOING Singapore's economic sentiments and growth, the investment market has been reporting bullish results since the last trough in 2002. Tracked by Jones Lang LaSalle, the investment sales market is determined as the transfer of real estate worth more than $5 million between two entities. This excludes asset-backed and real estate investment trust (Reit) securitisation deals. Since 2002, the total investment property transactions recorded per annum has surpassed each preceding year. In the first half of this year alone, the total volume of transacted investment properties was $12.6 billion. This is only 5.7 per cent below the total transactions for the whole of 2005, which was coincidentally the previous peak. With the strong showing in the first half and the current positive investment sentiment, total investment sales for 2006 could be more than double that of last year. If investment sales volume can be considered as a yardstick for investor confidence, the market sentiment appears strong. As reported, collective sales deals stood out as a driving force in the first six months of 2006, accounting for 34 per cent of the total investment sales quantum. A majority of the investment sales quantum from the private sector also came from transactions of investment properties for income purposes. Transactions for investment properties accounted for another 34 per cent of investment sales in 1H06. In fact, the largest investment transaction for the decade was concluded in March through the sale of Raffles City from Tincel Properties to CapitaCommercial Trust and CapitaMall Trust. Will the profile of investors eventually change? Given that, will it signify that the commercial property market is peaking? Traditionally perceived as an illiquid asset on the balance sheet, transactions of similar real estate assets often involve lavish capital expenditure. These acquisition parties include conglomerates as well as joint ventures between small-scale to medium-scale investors. Investors without the financial muscle will have to constantly seek other affordable avenues to reap in the possible rewards from an upswing in the property market. Thus, the securitisation of real estate provides such an avenue by offering tradable securities such as bonds and shares. Following the first mortgage-backed bonds involving the Hong Leong Building in 1986, the first asset-backed securitisation deal was done in December 1998 with the Neptune Orient Lines (NOL) Building taken off the balance sheet to a mortgage-backed bond with a 10-year fixed rate via a special purpose vehicle (SPV), Chenab Investments. This transaction was valued at $185 million. Through asset securitisation, property owners are offered a release of liquidity back to their parent companies which may indirectly lessen a company's gearing. This is more evident in a bear market as these property owners would want to free up the capital of a low-yielding property for reinvestment. Transacted during the Asian crisis, the NOL Building deal sparked off five other asset-backed securitisations the following year. The year 1999 saw the ownership of Century Square Shopping Mall, Robinson Point, 268 Orchard Road, Tampines Centre and 6 Battery Road transferred into SPVs with buy-back or lease-back options. In addition, the first set of Property Funds Guidelines was issued on May 14, 1999 by the Monetary Authority of Singapore. In 2000, both the retail and office markets saw an uptick, signalling signs of a property market recovery. The expectancy of improving property returns quelled the need for asset securitisation to liberate capital. There were no major asset securitisation deals recorded in 2000. In fact, there was an increase in acquisitions during this period by some unlisted property funds. In 2000, GRA (a fund managed by the current Pramerica Real Estate Investors) acquired properties involving all three sectors of the market - office (part of 79 Anson Road), residential (one block of The Avalon) and retail (154 units of Sim Lim Square) for their diversified portfolio. At the start of 2001, the euphoria of the property market ended when office rentals took a dip that signalled another property market crisis. Coincidentally, it also saw the resurgence of the asset-backed securitisation market. They included the securitisation of the mixed development of Raffles City as well as the Eureka Office Fund by Ergo and CapitaLand, which consisted of The Adelphi and One George Street. Despite the office market experiencing a slump in 2002, a high level of asset-backed securitisation deals was completed. The major deals transacted in this period include the securitisation of retail malls such as Wisma Atria, Compass Point and Capital Square. Despite the poor showing of transacted investment properties in 2002, it was still a landmark year for the investment market. The first Singapore-listed Reit, CapitaMall Trust, was successfully launched that year. The subsequent raising of the gearing cap from 25 per cent to 35 per cent was another factor that paved the way for a burgeoning S-Reit market. With the office market at its lowest point, S-Reit acquisitions gained momentum in 2003 with a strong growth expectancy, showing the promise of an improving market. As a result, S-Reits have been making yield accretive acquisitions as part of their external growth strategy. Some examples include the IMM Building purchased by CapitaMall Trust and the OSIM HQ purchased by A-Reit. Accordingly, the succeeding years witnessed the growth of the S-Reit market with several new listings. Presently, there are 13 S-Reits listed on the Singapore Exchange. So it is not surprising that Reit acquisitions dominated the investment market. This was further boosted by policy changes in 2005 that favoured S-Reit acquisitions. It included the exemption of stamp duty for S-Reit purchases, the allowance of co-ownership of assets and a higher gearing level. The year 2005 witnessed 38 yield-accretive acquisitions of industrial and logistics properties by Ascendas Reit and Mapletree Logistics Trust. Other major Reit acquisitions included HSBC Building by CapitaCommercial Trust; Hougang Plaza, Sembawang Shopping Centre, Parco Bugis Junction and Jurong Entertainment Centre by CapitaMall; and Chijmes and Park Mall by Suntec Reit. While S-Reits continued to be one of the main purchasers of investment properties, the Singapore property market started its recovery in early 2005. However, in the past nine months, acquisitions by property funds have been making a comeback through the purchase of the DBS Building by Goldman Sachs; SIA Building and HB Robinson by CLSA; and Paradiz Centre by Lend Lease, Lehman Brothers Real Estate Partners II and Eden Property Mauritius Investments. In fact, property funds would be the dominant buyers in similar commercial building acquisitions, taking into consideration the omission of the S$2.17 billion deal of Raffles City. Looking back at the investment environment in the past nine years, we observe that the profile of investors tends to differ through the market cycle as they have different investment/divestme Lim Song Hai is national director, investments and Desmond Sim is manager, research at Jones Lang LaSalle | ||||||||||
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