Singapore property's next 'Sail' moment not on the horizon
August 23, 2017
Andy Mukherjee
ALMOST exactly 13 years ago, Kwek Leng Beng, the billionaire chairman of City Developments Ltd, then Singapore's biggest builder by market value, did something outlandish.
Together with partner AIG Global Real Estate, he launched Sail @ Marina Bay, an ambitious, 245-metre-tall waterfront skyscraper, in a market that was down 45 per cent from its 1996 peak. The city-state's home prices, ravaged first by the Asian financial crisis and then by the Sars epidemic, would rise between 5 per cent and 10 per cent annually for seven years, he predicted.
In the end, prices increased at a compound annual growth rate of 7.5 per cent for the next nine years.
The reason for that history lesson isn't to give Mr Kwek a medal for accuracy, but to ask, "Where's Singapore's next Sail?".
From analysts to homeowners and developers, there's growing optimism that Singapore's property market is about to emerge from its four-year slump. City Developments shares are up 41 per cent this year; CapitaLand's have risen 24 per cent.
But talk is cheap. The end of one property cycle, and beginning of another, needs a defining shift in animal spirits, marked by someone like Mr Kwek committing to iconic, long-gestation projects that take years to fully complete and sell.
Such a breakthrough isn't in sight. CapitaLand, now Singapore's biggest developer by market value, just closed a US$300 million fund to invest in Grade A commercial real estate in - yes - Vietnam, where it sold 656 units in the first half versus 185 in its home market. City Developments is collaborating with Abacus Property Group and KPG Capital to push into Australia.
The big display of muscle this year has come from Shenzhen-based Logan Property Holdings Co and Chinese conglomerate Nanshan Group Co, which have offered to pay S$1 billion for a site to build 1,110 apartments, the highest price ever paid for a residential land parcel in the city. Why aren't more builders making bolder bets, especially when too-hot-to-touch Hong Kong is boosting the investment appeal of Singapore's condos?
Maybe the government is keeping a lid on land supply to ensure builders don't get carried away before the market has bottomed. New-home supply peaked in 2016, and will probably drop "drastically" over the next few years, according to Patrick Wong at Bloomberg Intelligence; the glut of unsold homes eased by 21 per cent in the first six months of 2017.
There would be more developer interest in land parcels if harsh penalties on foreign-owned firms hoarding unsold units were eased, as Mr Kwek has been arguing for.
The government has its reasons for being cautious. If capital inflows reverse and the currently depressed Singapore interbank offered rate surges, mortgage demand will stumble. Singapore could still unwind the many restrictions on home buyers, but before any such thumbs up, the authorities will likely wait for global monetary policies to normalise.
Singapore's "Sail" moment is still a ways off. BLOOMBERG GADFLY
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