Chinese offshore investment

Singapore developers turn to overseas as curbs bite

Developers warn of mortgage defaults and 'fire sales' as local prices and sales fall

PUBLISHED : Wednesday, 03 December, 2014, 7:34am
UPDATED : Saturday, 18 April, 2015, 5:28pm

Singapore developers struggling to sell apartments in their home market are buying property overseas, turning the island state into the largest foreign investor from the region this year.

Companies including City Developments and Keppel Land pumped US$2.32 billion into overseas markets in the nine months to September, a threefold increase from the same period last year and the most in at least eight years, according to data from Real Capital Analytics.

The developers are looking abroad as government measures to rein in property values have caused residential prices to fall for four consecutive quarters, the longest period of declines since 2009.

"Many Asian countries such as Singapore are facing property cooling measures at home, so they are venturing to Western markets where they can find returns and are seeing a strong recovery," said Terence Tang, the managing director of capital markets and investment services for Asia at Colliers International.

City Developments, Singapore's second-largest developer by market value, said in September it invested in a plot of land in Tokyo valued at S$356 million (HK$2.11 billion).

Keppel Land, Singapore's third-biggest developer, said in July it made its maiden investment in the United States with a prime residential development in New York.

The project, which it said at the time was valued at about US$70 million, is on Manhattan's Upper East Side and will be developed by Macklowe Properties.

At the same time, the developers have become increasingly vocal about the difficulties they face in Singapore, where their margins have been squeezed by falling property prices.

Government measures to stem growth in the market and prevent a speculative bubble have brought residential prices down about 4 per cent from the peak in September last year.

"In Singapore, the residential market is virtually dead," said Desmond Woon, an executive director at luxury home developer Ho Bee Land. "With the government measures in place, it has become very hard to do development of residential properties."

The government's curbs have included a cap on debt at 60 per cent of a borrower's income and higher stamp duties on home purchases. Additional taxes for foreigners buying residential property were raised to 15 per cent from 10 per cent, on top of the basic buyer's stamp duty rate of about 3 per cent. All home sellers need to pay 16 per cent in levies if they sell within the first year.

City Developments warned last month that Singapore's housing market might face "fire sales" and mortgage defaults as sales and prices fell.

The overseas investments by developers have helped catapult Singapore into the top place among Asian countries investing in overseas real estate so far this year, according to figures from New York-based RCA.

The country's sovereign wealth fund, GIC, has been a major buyer of overseas real estate, although its 20-year investment horizon gives it a different profile from the listed Singapore developers. In total, Singapore entities invested US$9.8 billion in overseas commercial property in the nine months to September, overtaking China with US$8.4 billion of overseas investments and Hong Kong with US$7.3 billion, RCA said.

Ho Bee, which has invested in office towers in London and is developing homes in Melbourne and the Gold Coast in Australia, was scouting for more buying opportunities in Sydney and London, Woon said.

The flipside of the developers' growing interest in overseas real estate has been a drop in bidding at Singapore land auctions as the market cooled.

Results of a land auction announced in August showed only three bids were submitted, the fewest in 18 months, and well below 2009 when there were about 16 bids at the auctions, according to Nicholas Mak, an executive director at SLP International Property Consultants.

Developers were willing to take on the additional risks associated with overseas investments, Tang said.

"Mainland Chinese and Singapore developers are going to New York, Australia and [Britain]," he said. "They are ready to take a development risk, which is the highest point of the risk curve, as they need higher returns and because they are seeing these markets showing signs of a recovery."

They are also finding higher yields. Profit margins for developing homes in Singapore were 5 to 10 per cent while margins in Australia were 10 to 20 per cent, Woon said. Office properties in London could yield 4 to 6 per cent while Singapore office yields were about 4 per cent.

"The Singapore residential real estate market will need to battle headwinds as sentiments remain subdued with little signs of property curbs being tweaked or removed in the near term," City Developments said. "[The company is] actively pursuing opportunities in the US, [Britain], Australia, China and Japan."

The government said in October home prices needed to fall further.