Weak demand forces a switch from Thailand

TCC Capital Land is focusing on Vietnam, which it sees as a very promising market, while scaling back launches in Thailand from four to two a year.
The joint venture between Singaporebased CapitaLand and liquor billionaire Charoen Sirivadhanabhakdi’s TCC Land might further reduce launches in Thailand next year depending on the overall situation, says CEO and managing director Chen Lian Pang.

‘‘So our emphasis is market demand. If there is a demand, we will go ahead. If there is no demand, we will pull back,’’ Mr Chen said. ‘‘We are very flexible because ours is not a listed company so there is no pressure to produce certain amount of revenue.’’

Aside from Vietnam, TCC Capital Land is also keen on India because it considers other key regional countries such as China, Australia and Singapore to have matured.

Among Vietnam’s attractions is its population of 85 million, 60% of whom are under 30 years of age.

‘‘There is a lot of potential and a big mismatch between supply and demand. For instance, over the next three years Ho Chi Minh City requires about six million square metres of housing supply but the supply is only about 1.9 million — a big gap.

‘‘Hanoi is the same. Over the next three years they need about three million square metres but the supply is only about 1.3 million. So the fundamentals there are right.’’

This clearly means that TCC Capital Land will be focusing on the local Vietnamese market, not expatriates, who might be keen on buying villas there. Foreigners are permitted 50-year leaseholds and not freehold in Vietnam.

Mr Chen drew attention to cultural differences, noting that only 15% of property buyers in Hanoi obtain mortgages. The rest pay in cash either by borrowing from relatives or pooling their resources together in order to make the purchase. The trend indicates there is a lot of hidden wealth in the country.

Both China and Vietnam appeal to foreigners. Unlike Thailand, where foreign developers cannot own more than 40% in a company in order to buy land, these two countries do not impose such a restriction. China only requires local participation but not stating the level. Even Malaysia allows foreign developers to own up to 49% in a company.

‘‘In this sense, they [Thais] are losing out to neighbouring countries.’’

Also whether Singaporean investment in Thailand increases or not depends on the return they would obtain. Mr Chen pointed out that most of them sought a yield of 8% to 10%, with 6% seen to be on the low side.

In any case, Mr Chen believes that the region is expected to continue to feel the impact of the US sub-prime crisis for some time, perhaps one to two more years. Personally, he feels the worst is not over.

The slowdown has affected demand in Thailand, as witnessed by the company over the last two years. Even so, prices are unlikely to drop.

In this environment, it is possible that financially weak or heavily leveraged companies might run into trouble and TCC Capital Land is actively looking for opportunities both within Thailand and across the region.

Mr Chen believes many people might be better off to hold cash for now, but if they do want to commit to property, they may see more clarity in the market later this year.

‘‘But of course the price of good property doesn’t go down. For instance, for TCC Capital Land I don’t think we will drop the prices even if we are not able to push sales. We will wait. Property is basically about timing. If you wait, the price will recover.’’

After perching at the high end for some time by launching a string of posh projects such as Athe´ne´e Residence and Emporio Place, TCC Capital Land dramatically moved to the middle segment recently with its new brand S&S, which stands for sufficiency and sustainability. Its first mid-range project is S&S Sukhumvit located on soi 101/1. This project covers more than six rai of land and consists of two condominium towers, 18 and 22 stories, with a total of 810 units. These range from 29.5-squaremetre studios to 68-square-metre twobedroom apartments with prices starting at 1.279 million baht.

TCC Capital has carefully planned its entry into the middle market. Aside from the eco-friendly focus, it plans to be within one to two kilometres of a BTS station, something that is very appealing to this group of buyers.

Mr Chen finds investing in Thailand to be very different from in his native Singapore. Thais are more pricesensitive than Singaporeans. Also, tastes differ with people here preferring more traditional and classical styles while Singaporeans tend to closely follow international trends.

While studios, one- and twobedroom units near the BTS stations are currently popular among Thais, the trend in Singapore before the recent slowdown kicked in was for bigger apartments.

Financial institutions raise cash in Asia Pacific

Buyers’ market for property
Financial institutions with sub-prime problems are looking to raise cash in Asia Pacific, reports Nina Suebsukcharoen
Financial institutions hurt by the credit squeeze in the US and are unable to get fresh funds as refinancing deadlines approach are selling assets across the region, turning it from a sellers’ to a buyers’ market in just six months, says Robert McKeller, the CEO for Asia Pacific of the property firm Savills.

Aside from Australian funds selling their real estate, those in Japan, Hong Kong and Singapore are also doing so, he said in a recent interview in Bangkok. ‘‘Savills has never had so many instructions to sell.’’

Wealthy individuals are benefiting from this trend, some re-entering the market after having obtained handsome profits from selling properties to these funds two to three years earlier.

Savills recently sold the Trade Square building in Hong Kong to a private buyer for HK$1.518 billion, or approximately US$200 million, the biggest deal in the territory this year.

‘‘They (private buyers) are making a big, fat profit and what you are seeing in Japan, Australia and other parts of Asia where some of the American funds that are highly leveraged . . . may be forced to sell and sell at a price that maybe they otherwise would not have wanted to sell at, say, six months or a year ago,’’ said Mr McKeller.

The discount in a forced sale was typically around 20%, he added.

Real estate prices in the US have also come down by more than 10%, and the country is unlikely to work its way out of its problems in six to 12 months as some optimistic commentators have said.

‘‘There was a study done saying that it may take up to 2017 before prices come back to anywhere what they were like in the last year,’’ he said.

There is also a major difference, he says, between previous recessions and the one the US is now entering. ‘‘The previous recessions . . . have been corporate-led recessions that have been quick, short and sharp. You clean out some of the defaulters, the companies that have gone bust, that haven’t performed, fine.

‘‘But this is a consumer-led recession based on the fact that the value of their homes and equity has come down and that . . . won’t won’t go away in six to 12 months.’’

The UK is also looking very difficult with real estate prices down.

Mr McKeller mentioned a recent article in The Times which said that 40,000 jobs would go in the City of London financial markets this year.

Asia cannot escape because the theory about Asia ‘‘decoupling’’ with the US is questionable when one realises that 60% of the region’s exports go to G8 countries.

‘‘Having said that, there is still so much money in Asia — the sovereign wealth funds, the Chinese, the Singaporean, the Taiwanese and Middle Eastern money coming, those who have cash and don’t rely on debt are still looking to buy real estate,’’ said Mr McKeller.

‘‘It’s a very interesting situation because you have a lot people who are being forced to sell because of financing, the cost of debt, they can’t get financing or interest is getting more expensive, and those who are waiting with cash are waiting for prices to fall even further before they buy, so this is a little bit of a stalemate. Hopefully that will soon pass and we will see more transactions in the marketplace.’’

While the outlook is for the region to turn into a buyers’ market, there are pockets that buck the trend, Taipei among them.

The Taiwanese government’s warmer stance toward China, which has led to direct flights being started, has boosted property transactions. Tokyo too is looking robust despite the fact that the Japanese economy has been stagnant for years. Savills is not seeing a major shift in prices there except for sales by heavily leveraged Americans.

‘‘Most of the Japanese real estate is held by Japanese funds and Japanese companies and they don’t trade assets, they keep them for generations.’’

Another pocket is Thailand which has not seen overall prices increase at the pace they did in Hong Kong and Singapore in the past two to three years.

Robert Collins, Savills’ chief in Thailand, said Thai banks did not have significant exposure to the sub-prime crisis and therefore local lending had not had a direct impact and this was one of the reasons prices are not softening here.

‘‘Also, on the back of tourism, the overall residential market is still holding up very well,’’ said Mr Collins. ‘‘Private investment is still very good generally speaking, there is a lack of stock and supply that is investment grade but overall the sentiment still remains quite positive.’’

While real estate developments are still taking place in China, financing is getting difficult there too with the government placing some curbs on lending to cool the market.

‘‘We have been advising some sovereign wealth funds, Middle East buyers about . . . co-investing with Chinese developers who need money, otherwise the developments they are working on will not happen,’’ says Mr McKeller.

Hong Kong residents are among those eagerly waiting for lower prices because they can borrow at 2.5% a year.

Meanwhile, Singapore, where property prices soared over the past few years, is going through very testing times.

Mr McKeller cited research showing that luxury property prices will fall by 18% this year followed by 10% and 15% respectively in the following years.

‘‘In Singapore we advise them that for those blocks with luxury residential, you’re going to have to look at 10, 15, or 20 percent reductions in the sales price if you want to get that stock away. If you want the sales, forget about last year’s prices. It’s a different market and you are going to have to drop your prices.’’

Markets in review.

ANNUAL HOUSE PRICE CHANGE (%), IN LOCAL CURRENCY TERMS
	2007* (LATEST)	END-2006
Bulgaria	30.59	--
China (Shanghai)	27.85	-0.61
Singapore	27.59	10.15
Estonia (Tallinn)	23.38	28.64
Lithuania	13.64	30.95
Philippines	13.04	9.63
Colombia	12.82	6.77
South Africa	12.52	15.12
Norway	11.56	16.67
Hong Kong	11.25	4.11
Australia	10.63	9.71
Latvia	10.22	68.99
Sweden	9.86	10.50
UK	9.68	10.49
South Korea	9.01	11.60
Poland	8.38	9.67
France (Paris)	8.27	9.70
Japan (6 cities)	7.75	4.12
New Zealand	6.67	11.86
Canada	6.13	10.74
Finland	5.88	6.56
Italy	5.60	6.30
Spain	5.31	9.14
Indonesia	5.24	6.60
Greece	4.18	10.54
Denmark	3.95	14.94
Netherlands	3.77	4.73
Malaysia	3.20	4.80
Switzerland	2.56	3.24
Germany	2.04	3.06
Portugal	0.49	0.65
Israel	-0.51	-3.16
Thailand	-0.78	1.87
Japan	-1.48	-2.78
Ireland (monthly)	-4.68	11.8
US (NAR)	-5.07	-0.18
US (FHFB)	-3.49	-1.9
US (OFHEO)	1.79	6.03
* latest available Source: various series, list of house prices, data and sources here

In 2007, the US housing market crashed, and Europe’s housing markets slowed. But house prices in Asia-Pacific gained momentum.

Shanghai’s red hot housing market continued to rebound, despite efforts by the government to cool the market. House prices rose by 27.85% to end-Oct 2007 from a year earlier; a significant turnaround from 0.6% drop in 2006.

Singapore registered an annual house price increase of 27.6% (24% in real terms) to end-Q3 2007, significantly higher than the 7.6% price increase over the same period in 2006. In real terms, Singapore was the world’s best-performing housing market, given inflation of only 2.66%.

House prices rose by more than 10% year on year (y-o-y) in nominal terms in several developing countries - the Philippines, Colombia, South Africa, and Hong Kong. However, when adjusted for inflation, price increases were generally substantially lower

Urban land prices in Japan’s six largest cities rose by 7.75% during the first half of 2007. Although Japan’s national urban land price index fell by 1.48% during 1H 2007, this is an improvement from the 2.8% price fall in 2006. The Japanese urban land price index is generally believed to lag reality, so significant recovery is taking place in the Japanese housing market.

ANNUAL HOUSE PRICE CHANGE 2007* (%), ADJUSTED FOR INFLATION
	INFLATION-ADJUSTED	NOMINAL
Singapore	24.29	27.59
China (Shanghai)	20.04	27.85
Bulgaria	15.42	30.59
Estonia (Tallinn)	15.08	23.38
Norway	11.93	11.56
Lithuania	11.43	13.64
Philippines	9.88	13.04
Hong Kong	9.44	11.25
Australia	8.60	10.63
Sweden	7.86	9.86
Japan (6 cities)	7.86	7.75
UK	7.49	9.68
France (Paris)	7.01	8.27
South Korea	6.53	9.01
Colombia	6.40	12.82
Poland	5.81	8.38
New Zealand	4.59	6.67
South Africa	3.77	12.52
Canada	3.66	6.13
Finland	3.29	5.88
Spain	2.88	5.31
Netherlands	2.44	3.77
Denmark	2.29	3.95
Italy	2.08	5.6
Switzerland	1.91	2.56
Malaysia	1.73	3.2
Greece	1.54	4.18
Germany	-0.40	2.04
Latvia	-1.02	10.22
Indonesia	-1.18	5.24
Japan	-1.38	-1.48
Portugal	-1.68	0.49
Israel	-1.86	-0.51
Thailand	-2.81	-0.78
Ireland	-9.08	-4.68
US (NAR)	-8.46	-5.07
US (FHFB)	-6.79	-3.49
US (OFHEO)	-0.56	1.79
* latest available Source: various series, list of house prices, data and sources here

The US housing market continues to weaken.

Asia

Housing markets in several Asian countries gained momentum during the first three quarters of 2007, reflecting to some extent continued recovery from the 1997 Asian Crisis.

The strong house price increases in Singapore, South Korea, and Japan have been mainly due to strong economic growth. Mortgage markets in Asia are generally underdeveloped. Hence the effect of interest rate movements on the housing market is indirect, channeled through over-all economic performance. With electronic goods as the main export of these countries, economic growth is expected to drop if the global economic recession occurs in 2008.

In the Philippines, demand for houses and condominiums has come mainly from families of Overseas Filipinos.

Price increases in China are subject to strong government intervention. Left unhampered, property prices would be expected to rise due to continued economic expansion and rapid urbanization. Adding fuel to the price boom are the Beijing Olympics in 2008 and World Expo in 2010 in Shanghai.

In Thailand, political problems have led to weak economic growth and falling property prices. Property price changes in Indonesia and Malaysia remain unimpressive. Although the national house price index in Indonesia was up 5.2% in nominal terms to end Q-3 2007, the index actually dipped by 1.2% in when adjusted to inflation. In Malaysia, the house price index rose 3.2% (1.7% in real terms) to Q2-2007 from a year earlier.

THE GLOBAL PROPERTY GUIDE’S FORECASTS FOR 2008:

Asia-Pacific

Property prices in much of Asia are still undervalued compared to pre-Asian crisis levels, despite strong increases in 2007.

China is unfortunately not open to investment, and non-resident foreign buyers of dwellings are no longer welcome (though developers still are). While Beijing’s property prices will probably peak in 2008 after the Olympics, Shanghai is still preparing for the World Expo in 2010. With yields at 8% Shanghai’s prices have nowhere to go but up, unless the government intensifies its intervention.

Cambodia could be a proxy for China. Strongly tied to the Chinese economy, Cambodia is open, has high yields, relatively low transaction costs and low taxes, though investors must be prepared for only an indirect acquisition of land due to constitutional limitations on foreign purchases.

The resolution of Thailand’s political crisis in 2008 could open opportunities, after two dismal years. Gross rental yields are good at 7%-8%, income taxes are relatively high but acceptable (compared to the Philippines), the market is pro-landlord. Under better management Thailand could do very well. Indonesia is attractive, but has problems as an investment destination - there are high yields in Jakarta, but very high transaction costs and high rental income taxes. The Philippines too has high yields, but similarly discouragingly high transaction costs and high rental income taxes.

Japan’s housing market is recovering strongly. While Tokyo’s gross rental yields are unattractive at around 4.7%, the price momentum is positive, the law is strongly pro-landlord, there are low-ish transaction costs, and low rental income tax. The recently announced tighter regulation of new dwellings could lead to faster property price appreciation.

In Singapore we believe gross rental yields are now too low, at 2% to 3%. Nevertheless, Singapore is attracting (and admitting) more foreign-born workers – which is positive for prices. Hong Kong’s yields are somewhat higher (around 3% to 5%), and the US$ peg will mean Hong Kong will follow lower US$ interest rates, which should boost the housing market. << Read More... >>

Luxury-home prices in Singapore

Luxury-home prices in Singapore could fall by up to 20% in 2008, assuming sub-prime woes don’t end this year. But the mass market may hold its own or ease by 5-10% at most. This was the worst-case scenario according to an informal survey of local property executives.

In a best-case scenario with US subprime woes clearing by mid-year, highend prices could rise up to 10% and mass-market homes as much as 15-20%, the majority of respondents said.

The most optimistic is Jones Lang LaSalle Research, which forecasts an 18-22% increase in luxury/prime prices and a 20-25% gain in mass-market prices in a best-case scenario.

Sales activity is generally expected to be quiet in the first half, before picking up in the second half.

‘‘Interest is still very much there, but investors see no strong push factor to get into the market just yet,’’ says Ong Choon Fah, executive director of the real estate consultancy and agency DTZ.

Most developers and property consultants are hoping the sub-prime-related gloom will vanish in the second half. Voicing a common view in the industry, City Developments group general manager Chia Ngiang Hong said: ‘‘We expect the situation to improve after mid-year. Most of the high-profile sub-primerelated write-downs by major international financial institutions are already out. Hopefully, the rest of the writedowns, if any, should be out by March or April. This current period is good for consolidation.’’

UOL Group chief operating officer Liam Wee Sin said: ‘‘If the sub-prime episode is short-lived, it can be seen as a welcome breather for the Singapore property market. Both home and land prices in the high-end segment escalated too quickly, especially in the second and third quarters last year.’’

But Edmund Cheng, deputy chairman of the developer Wing Tai, feels it may not be realistic to expect sub-prime problems to fade away by mid-year. ‘‘They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,’’ he said.

But on a more positive note, he believes mid- to upper-midmarket projects near Orchard Road will be more resilient ‘‘as they should benefit from demand

KALPANA RASHIWALA for replacement properties by those who have sold prime district homes through en-bloc sales, as well as demand from expats who find prime district housing too expensive’’.

Credo Real Estate managing director Karamjit Singh thinks mid-tier home prices will appreciate 10-15% in a bestcase scenario, outpacing his estimate of gains of 10% for the suburban/mass market and 5-10% for upmarket homes.

In the high-end category, many property analysts with stockbroking firms see an oversupply of potential launches as sites sold through en-bloc sales are redeveloped.

In a worst-case scenario, a major factor that could hurt high-end prices is a fall in demand and ‘‘specu-vestors’’ who bought luxury homes to offload below current prices, as they still stand to reap huge gains given their low entry cost, said Peter Ow, executive director of the Knight Frank agency.

In the primary market too, some smaller developers may drop prices to generate sales. But Mr Ow acknowledges that the bulk of the unlaunched highend housing stock is in the hands of a few major players who have the financial capacity to delay launching projects. Instead, they could focus on selling their mid-tier and mass-market homes this year to generate cash flow.

Giving his take, a major developer said: ‘‘High-end depends on the appetite of foreign buyers and their perception of liquidity and value in the Singapore market. The strong Singapore dollar will help persuade these investors that the property market here will be a good store of value.’’

Observers also believe overseas funds are likely to turn increasingly to parking money in Asia, instead of the US and Europe. Other demand drivers for the Singapore residential sector, especially in the mid and mass segments, include falling mortgage rates, the continued influx of expats from China and India setting up home here, and wage growth arising from the tight labour market.

Most market watchers say the upside for high-end residential prices will be limited even if the sub-prime problem clears around mid-2008.

‘‘Price increases would not so much apply to luxury-class homes as these have already increased significantly since 2005,’’ CB Richard Ellis managing director Pauline Goh argues.

But mid-tier homes could appreciate 5-10% and mass-market prices 10-15% this year, assuming things become more positive after June, Ms Goh added.s

Frasers Centrepoint CEO Lim Ee Seng said: ‘‘Even in a worst-case scenario, I don’t really see mass-market home prices coming down much because construction costs are still going up and that raises the break-even cost of such projects.’’

Knight Frank’s Mr Ow says the massmarket would benefit from strong demand from people upgrading from Housing Development Board (HDB) properties, given the shortage of HDB homes.

Property players sketch the best- and worst-case scenarios this year

SINGAPORE, BUSINESS TIMES

Luxury-home prices in Singapore could fall by up to 20% in 2008, assuming sub-prime woes don’t end this year. But the mass market may hold its own or ease by 5-10% at most. This was the worst-case scenario according to an informal survey of local property executives.

In a best-case scenario with US subprime woes clearing by mid-year, highend prices could rise up to 10% and mass-market homes as much as 15-20%, the majority of respondents said.

The most optimistic is Jones Lang LaSalle Research, which forecasts an 18-22% increase in luxury/prime prices and a 20-25% gain in mass-market prices in a best-case scenario.

Sales activity is generally expected to be quiet in the first half, before picking up in the second half.

‘‘Interest is still very much there, but investors see no strong push factor to get into the market just yet,’’ says Ong Choon Fah, executive director of the real estate consultancy and agency DTZ.

Most developers and property consultants are hoping the sub-prime-related gloom will vanish in the second half. Voicing a common view in the industry, City Developments group general manager Chia Ngiang Hong said: ‘‘We expect the situation to improve after mid-year. Most of the high-profile sub-primerelated write-downs by major international financial institutions are already out. Hopefully, the rest of the writedowns, if any, should be out by March or April. This current period is good for consolidation.’’

UOL Group chief operating officer Liam Wee Sin said: ‘‘If the sub-prime episode is short-lived, it can be seen as a welcome breather for the Singapore property market. Both home and land prices in the high-end segment escalated too quickly, especially in the second and third quarters last year.’’

But Edmund Cheng, deputy chairman of the developer Wing Tai, feels it may not be realistic to expect sub-prime problems to fade away by mid-year. ‘‘They are likely to linger beyond this year, as the exposure has extended to many other areas, and it may still take some time for the full extent of exposure to be discovered,’’ he said.

But on a more positive note, he believes mid- to upper-midmarket projects near Orchard Road will be more resilient ‘‘as they should benefit from demand

KALPANA RASHIWALA for replacement properties by those who have sold prime district homes through en-bloc sales, as well as demand from expats who find prime district housing too expensive’’.

Credo Real Estate managing director Karamjit Singh thinks mid-tier home prices will appreciate 10-15% in a bestcase scenario, outpacing his estimate of gains of 10% for the suburban/mass market and 5-10% for upmarket homes.

In the high-end category, many property analysts with stockbroking firms see an oversupply of potential launches as sites sold through en-bloc sales are redeveloped.

In a worst-case scenario, a major factor that could hurt high-end prices is a fall in demand and ‘‘specu-vestors’’ who bought luxury homes to offload below current prices, as they still stand to reap huge gains given their low entry cost, said Peter Ow, executive director of the Knight Frank agency.

In the primary market too, some smaller developers may drop prices to generate sales. But Mr Ow acknowledges that the bulk of the unlaunched highend housing stock is in the hands of a few major players who have the financial capacity to delay launching projects. Instead, they could focus on selling their mid-tier and mass-market homes this year to generate cash flow.

Giving his take, a major developer said: ‘‘High-end depends on the appetite of foreign buyers and their perception of liquidity and value in the Singapore market. The strong Singapore dollar will help persuade these investors that the property market here will be a good store of value.’’

Observers also believe overseas funds are likely to turn increasingly to parking money in Asia, instead of the US and Europe. Other demand drivers for the Singapore residential sector, especially in the mid and mass segments, include falling mortgage rates, the continued influx of expats from China and India setting up home here, and wage growth arising from the tight labour market.

Most market watchers say the upside for high-end residential prices will be limited even if the sub-prime problem clears around mid-2008.

‘‘Price increases would not so much apply to luxury-class homes as these have already increased significantly since 2005,’’ CB Richard Ellis managing director Pauline Goh argues.

But mid-tier homes could appreciate 5-10% and mass-market prices 10-15% this year, assuming things become more positive after June, Ms Goh added.s

Frasers Centrepoint CEO Lim Ee Seng said: ‘‘Even in a worst-case scenario, I don’t really see mass-market home prices coming down much because construction costs are still going up and that raises the break-even cost of such projects.’’

Knight Frank’s Mr Ow says the massmarket would benefit from strong demand from people upgrading from Housing Development Board (HDB) properties, given the shortage of HDB homes.

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