RESIDENTIAL PROPERTY | Staff Reporter, Singapore

Is Singapore's property market still haunted by liquidity nightmares?

Analysts are still unimpressed.

Office rents were flat, retail REITs' cap rates are unlikely to compress, and home affordability is lingering. Could 2014 get any worse for Singapore property market at this early point in time?

Min Chow Sai, analyst, Nomura:

While we expect headline office reversion rents to be overall flat in 2014F, we expect rent reviews at 6BR and Marina Bay Financial Centre Tower 1 (MBFC 1) to drive most of the reversion upside for CCT, SUN and KREIT in FY14F. 

In addition, the refurbished Suntec City Mall and convention centre performed better than our expectation in FY13. Our numbers now suggest SUN could generate a DPU of 9.6Scts in FY14F from its operations alone (vs. 8.7Scts previously), compared to 8.5Scts in FY13 (distribution top-up of 0.8Scts brought total FY13 DPU to 9.3Scts). As such, we now assume no distribution top-up in FY14F. A potential positive surprise could therefore be additional top-up to SUN’s core DPU in FY14F (our estimates suggest the manager could pay c.SGD10mn in addition, or 0.4Scts/unit, as distribution top-up to unit-holders based on Chijmes’ divestment gain in FY12). 

On the other hand, we see potential dilution to CCT’s base case DPU forecasts from the conversion of the SGD190.3mn CB due 2015 (conversion price of SGD1.23/unit vs. the current share price SGD1.42/unit). Our base case FY14-15F DPU forecasts are 8.3Scts and 8.9Scts respectively and a full conversion of the CB would dilute our numbers by 3% and 3.2% respectively.

Pang Ti Wee, Donald Chua, Tan Xuan, analysts, CIMB:

In 4QCY13, the all-in interest costs for all four retail REITs under our coverage (CMT, FCT, MCT and SGREIT) remained unchanged qoq. Although interest cost has risen yoy, the short-term interest rates remained the same qoq, allowing the retail REITs to continue enjoying low borrowing costs.

The reported cap rates for all the REITs were unchanged in 4QCY13, with the exception of SGREIT that reported a 25bp drop to 5.0% for
Ngee Ann City.

On the back of a potential further tightening of liquidity coupled with a rising interest rate environment, we believe cap rates are unlikely to see further substantial compression, though capital value of the respective properties may continue to rise, reflecting stronger rents. Labour costs continue to be the key grouse among Retail REITs, particularly the tenants who are thinking of expanding and/or those in the service sector (for example, F&B). These tenant groups are increasingly relying on technology and innovative methods, such as taking orders on PDAs, to save on labour costs.

In 3QCY13, the Singaporean retail REITs continued to achieve stable rental reversions (on the back of growing tenant’s sales ranging 2.5% -20%) in the range of 6.1-7.5% yoy – which translates to an average of 2.0-2.5% per annum (with the exception of VivoCity that achieved an impressive 38.7% yoy). This level, which is consistent with the historical average are deemed to be sustainable (management of MCT has guided rental growth to slow down). Going forward, prime retail malls, which act as a proxy to tourism growth in Singapore, may post positive surprises if visitor arrivals number surpass the forecasted CAGR of 4.7% over the next two years; on the back of global economy recovery and rising number of MICE. 


Since the property boom in 2012, there have been widespread questions raised about the affordability of housing as fervent buying activity drove prices across all property types. Moving into 2014, lingering concerns surrounding overpriced properties continued to weigh down public sentiments.

We can see that public opinion deteriorated sharply at the height of the property cycle from Q2 2012 to Q1 2013, with the index dipping from 112 to 80. A reading below 100, the baseline index, indicates a less affordable outlook for property.

Government intervention was thus inevitable with successive rounds of cooling measures being implemented in an attempt to mitigate the sustained increase in transaction numbers. Singaporeans were, and still are, generally supportive of the government’s actions in influencing real estate demand and supply.

This is indicated by the upswing in the index for the first time in nine months, from mid-2013 onwards. By the end of Q4 2013, property seekers were becoming more optimistic about affordability in the property market, with the index hitting a record high of 120 - a stark contrast to a year ago, when sentiments were at their lowest ebb.

Further indicative of the public being bullish about the property market is the expectation that prices will not experience a rise in the next six months. Data from the survey suggests that there is a strong inverse correlation between affordability and price increases; perceptions of property affordability will dip as more people anticipate prices to continue to climb and vice versa.

A precursor for more measures to temper the active market, ABSD set the stage for a reversal in expectations of price increase trends. More respondents slowly began to feel that little or no further price rise would occur from Q2 2013 onwards.

What is most startling is the significant jump of 17 percent between Q3 and Q4 2013. This highlighted stronger public confidence that prices would not continue to increase in the months ahead and into the start of 2014.

A casual explanation for this occurrence points towards the strength of the TDSR framework. After coming into effect late-June 2013, it slashed the quantum of private property units sold - particularly in the CCR and RCR.

On the HDB resale front, TDSR, together with the contraction of the MSR on HDB loans to 30 percent, also helped to control this market segment by softening and shifting demand from larger to smaller flats. As price estimates for both non-landed private property and HDB resale units began to trend downwards, so too did overall perceptions on price stability.

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