A developer's tale of two cities
Far East Consortium's Dennis Chiu is as intimately familiar with the Singapore property market as he is with Hong Kong's.
NOV 13, 2017
KALPANA RASHIWALA
DENNIS Chiu has been straddling Hong Kong and Singapore for almost three decades, both in his personal life and for his work. The 59-year-old executive director of Far East Consortium International (FEC) came to Singapore in 1988 to help his family's real estate business diversify out of Hong Kong, and has since become a naturalised citizen.
That uniquely cross-market experience has given him an intimate vantage point of the property development business in both cities. From where he stands, the Singapore government's heavier involvement in the property market and its stringent anti-speculation measures are making it harder for developers to gain scale and survive unexpected downturns.
It should come as no surprise that the property markets in Singapore and Hong Kong are often compared to each other. "Both are very urban, land-scarce, and high-density," Mr Chiu says. "Both cities are also very cosmopolitan, open economies, with a fantastic legal system - which means (overseas) investors would like to come and invest here."
But the differences quickly become apparent. From a residential developer's viewpoint, the dominant role of the Housing & Development Board in Singapore is hard to ignore.
Mr Chiu, who became a Singapore citizen in 1997, the year that Hong Kong was returned from British to Chinese rule, acknowledges the important role that HDB plays in Singapore's nation-building, ensuring that the vast majority of citizens own a roof over their heads.
"I wished the Hong Kong government could open up more land, so developers can build more homes" to ease the housing shortage, says Mr Chiu.
But with 80 to 85 per cent of Singapore's resident population living in HDB flats, private developers are left with a relatively small share of the pie, he says.
"Whereas in Hong Kong, it is the other way around. So in Hong Kong, you can have the scale - which is more difficult in Singapore. So that's why you see among a lot of the developers here, once they grow to a certain size, they have to move out. It's just not enough."
Singapore's policymaking philosophy also differs from Hong Kong's.
"While both Hong Kong and Singapore are open markets, in Hong Kong, once the policies are committed, they essentially leave it very much to the market," he says, observing that Singapore tends to have more "planning" and micro-management.
The way the two cities approach property cooling measures is a case in point. While Hong Kong, too, has cooling measures, things are slightly different there, he argues. "For instance in Hong Kong today, being a developer we can provide a second mortgage (to give additional funding to the buyer). So let's say if the bank lends only 60 per cent, we can top up with another 10 or 20 per cent."
This makes it easier for a developer to achieve property sales, he argues. Furthermore, Hong Kong does not have the same rules that in Singapore impose a penalty on developers that fail to finish selling their residential units within a certain period.
Hefty penalties
In Singapore, a foreign developer, one with even a single non-Singapore citizen shareholder or director, needs to obtain a "qualifying certificate" from the government before it may buy a private residential site. The QC comes with a stipulation for the foreign developer to complete the residential project within five years; after which it is given a further two years to finish selling all the units. Otherwise, hefty penalties have to be paid.
Singapore also imposes Additional Buyer's Stamp Duty (ABSD) rules - which are seen as even tougher - on all developers that buy residential land in Singapore. To qualify for upfront remission of the 15 per cent ABSD on a site's purchase price, a developer has to undertake to complete the project and sell all its units within five years.
Those rules make the operating environment here "very challenging" in terms of riding the ups and downs of the property cycle, Mr Chiu says.
"There are times that when I buy something, I may be caught in a (down) cycle and I may need to hold it. But with this five-year restriction, it is very hard for us," he explains.
Singapore's cooling measures also deter foreigners from entering Singapore's high-end residential market, even if prices are relatively attractive compared to other gateway cities, Mr Chiu says. Policies like an additional 15 per cent buyer's stamp duty and the total debt servicing ratio framework make it costlier for foreigners to buy in Singapore and harder to obtain mortgage loans.
"So property investors are looking elsewhere," Mr Chiu says. "They go to Australia, London." That can have broader implications on society. "For a cosmopolitan city like Singapore, we ought to have more mix of people," he says.
Diversity is something that Mr Chiu and FEC are familiar with.
FEC was set up by Mr Chiu's late father Deacon Chiu. Mr Dennis Chiu's elder brother, David, is the group's chairman and chief executive.
Today the group is involved in property development, hotels, and car park operations. Its businesses span mainland China, Hong Kong, Malaysia, Singapore, Australia, New Zealand, the United Kingdom and Hungary.
Mr Chiu recalls that the most challenging period of operating in Singapore over the past 30 years was during the 1997 Asian Financial Crisis.
At the time, FEC had already diversified out of Hong Kong into Singapore and Malaysia. "That was the first time we learnt this thing called 'contagion'; everything collapsed at the same time. It was the first time we thought that diversification was not a very good thing..."
"We learnt a very hard lesson during that period" and subsequently built in more safety nets.
"We built up more recurring income, for example, from developing our hotel business. Cashflow management is very, very important - and also to plan things that are not only for the short term but also things for the medium and the long term."
For the year ended March 31, 2017, FEC posted net profit of HK$1.12 billion (S$195 million), up from HK$734 million in the preceding year. Revenue rose to HK$5 billion from HK$4 billion. Its current market capitalisation is about HK$10.5 billion.
Based on its 2017 annual report, the group has 24 active residential property development projects with expected attributable saleable floor area of about 8.7 million sq ft and expected attributable gross development value of HK$47.2 billion, at various stages of development. These projects are in Melbourne, Perth, Brisbane, Shanghai, Guangzhou, Hong Kong, Kuala Lumpur, Singapore, London and Manchester.
FEC has a stake in an integrated resort project in Queen's Wharf in Brisbane that will include residential towers, hotels, food and commercial outlets, and a casino. In the hospitality segment, the group owns hotels in Hong Kong, mainland China, Malaysia, Singapore, Australia and the UK. Its sole hotel here is the Dorsett Singapore near Outram Park MRT Station.
Private companies
Next to Redhill MRT Station, FEC is developing Artra, a 99-year leasehold private condo project, in a 70:30 partnership with another Hong Kong-listed group, New World Development.
Besides the listed FEC group, the Chiu family has privately held businesses through its Tang Group of companies.
Tang Group takes its name from the Tang Dynasty Village theme park and movietown that the family developed in Jurong. It opened in early 1992 and enjoyed mild success before the novelty wore off. Its closure in 1999 has been attributed in media reports to the Asian Financial Crisis, high admission fees and lack of new exhibits in the park.
Tang Group has bought land in the Medini area of Iskandar, Malaysia, where it plans to build a mixed development that will include residences, a hotel, some retail space and shophouses. Tang Group is likely to rope in a couple of partners for this project.
In one of Singapore's most posh residential locales, another company of Mr Dennis Chiu's family members owns a stack of 23 units at the Draycott Eight condo. He is also among a group of Singaporean investors that in July this year bought over the company that developed The Lumos at 9 Leonie Hill; at the time, the 53-unit project had 36 unsold units.
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