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Archive for November 8th, 2008

Completed products may be the way to go for developers

Posted by luxuryasiahome on November 8, 2008

Wheelock Properties CEO says the new trend will raise the stakes for developers to deliver good-quality projects

WHEELOCK Properties (Singapore) CEO David Lawrence sees developers having to sell residential projects as completed products – and not off-plan, before construction is finished – in view of near-term weak market sentiment. And on a positive note, this trend will raise the stakes for developers to deliver good-quality projects, Mr Lawrence said in a recent interview with BT.

He described last week’s move by Ministry of National Development to suspend state land sales through the Confirmed List until June next year as ‘very sensible and expected’. ‘What people may not realise is that it has an effect on the Singapore banking system, which is exposed to the property market here – and it’s important at the moment to continue to have a stable banking system,’ he explained.

Mr Lawrence disagrees with parties who have called on the government to ‘just sell land at any price and let property fall to whatever price’. ‘What we have to understand is that over 90 per cent of Singaporeans already own a home and it’s their main asset,’ he said. ‘So the one thing we don’t want is everyone’s asset price depreciating. We’re not running the economy for a few people who don’t already own property. Let them work for a few years and buy one later,’ he quipped.

Mr Lawrence has earned a reputation as an astute property investor in Singapore. Ardmore Park, the luxury condo the group developed between 1996 and 2001, earned him the nickname ‘the $1 billion Man’, after the estimated pre-tax profit the group earned from the project, which it developed on a prime freehold site bought at an attractive price in 1993.

Wheelock also picked up plum residential sites in Singapore’s prime districts during the early stages of the recent residential upcycle, which has now ended. Mr Lawrence stopped the site buying spree at least a year before the market peaked in 2007.

He is confident about the prospects for Singapore and its real estate market in the mid-term, although the next couple of years will be difficult. In light of this, he pruned Wheelock’s headcount by 12.6 per cent, or 11 employees, from 87 to 76 a week ago, he told BT.

‘It’s not a nice thing to have to do, but I think for the next two or three years, companies have to firm up more efficiently until the next cycle starts. Something we had to do reluctantly,’ he said.

Giving his take on the bigger picture on the Singapore residential sector, he reckons the island probably has the best quality total stock of housing in the world, including Housing & Development Board estates and private housing.

‘Over the past few years, the government has been successful in achieving gentle capital price appreciation for HDB housing stock, which is very important,’ he said.

In contrast, those who dabble in high-end residential sector should not expect to receive too much sympathy, he reckons. ‘I don’t think the government cares about the top-end market. If people want to speculate, buy too many apartments, go broke or make a lot of money, they can’t be expected to be supported by the government.’

New HDB estates as well as upgraded ones are sometimes not much different from private housing, according to Mr Lawrence. ‘Actually, if I was allowed to, I would like to buy an HDB apartment in Ghim Moh Estate, for instance,’ he said. ‘I like the area for the food. It’s well maintained. There’s an MRT Station. Actually, some of these HDB estates are, I think, better than some of the private condos – they are very well-managed now. And good places to live. So maybe one day, I can buy an HDB flat in Ghim Moh and retire there.

‘My in-laws live in an HDB flat in Toa Payoh. I am always trying to buy them a private condo but they refuse to move. They like it there. They have friends there, food, it’s a well-managed estate. They’re happy. So they keep telling me: ‘Keep out of our business. We don’t want you to buy us a flat.’

Source : Business Times – 8 Nov 2008

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Iras told to relook property tax rules

Posted by luxuryasiahome on November 8, 2008

Court ruling on sinking funds could affect strata-titled property

A DISPUTE over one man’s property tax which went all the way to the Court of Appeal has resulted in the tax authorities being asked to relook the rules – a move which could affect thousands of strata-titled private properties such as condominiums and malls.

The Court has ruled that sinking fund contributions should form part of the calculation of how much tax is due on a property – but only if the fund has been used that year for repairs or maintenance on the estate.

For now, sinking fund contributions have been factored every year into the overall value of a property.

Mr Tan Hee Liang, who owns a shop in City Plaza in Tanjong Katong, had challenged the Inland Revenue Authority of Singapore (Iras) on why that should be so.

His lawyer Tan Hee Joek, from Drew & Napier, asked why sinking funds meant for maintenance and repair were included in the tax assessment, while contributions to the management fund, which can be tapped for the same purposes, were not.

The Court of Appeal, Singapore’s highest court, has now dealt with the discrepancy.

It decided that monies in the sinking fund need not be included in the tax calculation if they were not used in the year of assessment.

But if they were tapped for maintenance and repairs which would have a positive impact on the property’s overall value, then they should be included in the calculation.

The three-judge court also held that, unlike most other types of tax declarations, the onus on showing that the sinking funds were used for maintenance and repair should lie with the taxman.

The court sent Mr Tan’s case back to Iras’ Chief Assessor to recalculate the tax owed, following its decision.

It also asked Iras to come up with clear guidelines on the exclusions.

But it remains to be seen if the judgment would have more impact on strata-title holders like building or unit owners in their contributions to the management fund, often several times larger than the sinking fund.

The current practice is to exclude contributions to the management fund when assessing property tax, as the fund is meant for general purposes not necessarily related to improvements.

But the three-judge Court of Appeal termed the taxman’s blanket exclusions as ‘curious’.

Judge of Appeal Andrew Phang said they were due to a ‘mistaken belief’ that management funds have nothing to do with maintenance and repair works. Taxpayers have benefited from the taxman’s ‘erroneous practice to date’, he noted.

In Mr Tan’s case, his unit had an annual rental value of $48,000.

He was allowed to deduct his management fund payment of $2,400 from that amount, but not his sinking fund contribution of about $600. The final annual value of the unit, with the deduction, was $45,600.

But management funds are also used for maintenance and repair works which enhance the value of the property and, therefore, should be included in the tax assessment of the property’s annual value, reasoned Justice Phang.

This exclusion so far, the judge went on to say, could be a form of concession to taxpayers, which the Chief Assessor is entitled to grant.

Iras told The Straits Times it would follow up on the court’s recommendation to draw up guidelines after it receives feedback from industry players.

The change, if and when implemented, could affect unit-owners under the 3,000-odd management corporations that run strata-titled properties, including condominiums.

But any changes would not affect previous property tax payments, Iras’ lawyer Julia Mohamed told the court.

Professional valuer Chua Beng Ee said the bulk of management funds is typically used to provide services like security and to upkeep facilities and utilities such as swimming pools, air-conditioning and lighting for common areas. Iras was thus right to exclude the management fund under current practice, he said.

‘Monies used for maintenance and repair from the management funds are incidental in any case and expected to be small,’ said Mr Chua.

‘For practical reasons, the Iras should probably just extend the concession they have always had for management funds to the sinking fund, instead of having to laboriously study the accounts of each MCST (management corporation) to find out exactly which portions are meant for maintenance and repair.’

Source : Straits Times – 8 Nov 2008

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MI-Reit’s DPU jumps 26% to 2.35 cents in Q2

Posted by luxuryasiahome on November 8, 2008

MACARTHURCOOK Industrial Reit (MI-Reit) yesterday posted net property income of $9.3 million for its second quarter ended Sept 30, 2008 – up 58 per cent from a year earlier. The improvement was largely due to rental income from nine properties MI-Reit acquired in the past financial year.

Distribution to unitholders rose 27 per cent quarter on quarter to $6.1 million in Q2. This translates to a 26 per cent increase in distribution per unit (DPU) to 2.35 cents.

Taking DPU in Q1 and Q2 into account, MI-Reit’s annualised yield is 19.2 per cent, based on its closing unit price of 49 cents on Sept 30.

‘Given the rising worries over a global recession and fears in credit markets that have intensified, our immediate priority is to actively manage MI-Reit’s assets to maintain our high tenant retention and occupancy levels,’ said Craig Dunstan, CEO and executive director of MI-Reit manager MacarthurCook Investment Managers (Asia).

All 21 properties in MI-Reit’s portfolio were fully leased at Sept 30. Only 2.7 per cent of its rental income will be subject to lease expiry in FY2009 and FY2010.

Tenant diversification improved. At Sept 30, no single tenant accounted for more than 20.3 per cent of rental income.

Deteriorating market conditions and refinancing risks facing MI-Reit led Moody’s Investors Service to place its Baa3 corporate family rating on review for a possible downgrade last month.

At Sept 30, MI-Reit had an aggregate leverage ratio of 39.6 per cent. Its medium-term target gearing is in the range of 40-45 per cent.

‘The manager is currently advanced in negotiations in relation to a new facility that will refinance an existing facility of $220.8 million due in April 2009 and also to provide funding for the settlement of Plot 4A, International Business Park in December 2009,’ said MI-Reit.

MI-Reit signed a deal for the business park in August last year. The Reit did not announce any acquisitions in Q2.

‘In the near term, organic growth in the portfolio will drive returns,’ said Mr Dunstan. ‘However, we expect to resume our active acquisition growth strategy once capital market conditions improve.’

For the rest of the financial year, the MI-Reit manager expects returns to be in line with recent performance.

Units of MI-Reit closed 0.5 cents higher at 39 cents yesterday.

Source : Business Times – 8 Nov 2008

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Marina Bay Sands – too big to let fail?

Posted by luxuryasiahome on November 8, 2008

IN RECENT weeks, its top executives have been going around the region to raise funds – to stave off defaulting on its loans, a risk it admitted on Thursday amid doubt about the casino giant’s viability.

As Las Vegas Sands’ (LVS) troubles fed whispers about the fate of its US$4.2-billion($6.3 billion) Marina Bay project here, chairman and chief executive Sheldon Adelson this week met with the Singapore Government, some presumed to discuss financing issues.

On Friday night, LVS clarified that the meetings covered a range of subjects, from the “rapid pace of construction” of the integrated resort, to strong response to marketing efforts – and its pledge to see the project through.

Said Mr Adelson: “In light of recent turmoil in the global markets, I felt the need to personally reaffirm our commitmentto the success of Marina Bay Sands. I am pleased to say that the Singapore Government’s support of our project remains strong.”

The last, it would appear, could be an understatement. Commentators seem to think this is an undertaking the Republic would not, could not allow to fail.

“There is no doubt in my mind the Singapore Government will come in to ensure the project is completed,” said Mr Daniel Renshaw, a gaming analyst with Merrill Lynch, according to Time magazine.

The price of failure could be too high, politically and economically in the long term, some argue.

Marina Bay Sands is – in the words of Westcomb analyst Ng Wee Siang – a “showcase project” for the city-state, which is seeking to reinvent itself as a premium lifestyle destination choice. The IR, and its counterpart on Sentosa, are also vital to the country’s economic diversification strategy.

With both IRs primed to create 60,000 jobs and generate $5.4 billion in revenue when fully operational, they are major pieces of the jigsaw in the country’s future, said economist Song Seng Wun.

“In the context of a small economy like ours, a failure of the development could lead to significant and far-reaching losses in many areas, such as job creation, growth, tourism receipts and investment opportunities,” he said.

“Solutions will be found to ensure the success of the project.”

Member of Parliament Ho Geok Choo noted: “The Government has placed a huge stake of its reputation on this project because we went loud and clear when the decision to have casinos here was made.”

This announcement was momentous given the leadership’s unequivocal stance against having casinos in the past. Citing how leaders must have thought hard and long before deciding it was necessary, for the country’s future, to reverse this stance – a decision which roused a storm of domestic controversy – she said: “We obviously attach a lot of importance to seeing it through.”

So, how might the State step in?

Some observers expect it to apply an infusion of cash or to assume a chunk of the casino operator’s debt, possibly through its investment arms.

That’s what the market is guessing – on Friday, the cost of default protection on Temasek Holdings bonds rose slightly, in what Bloomberg described as “concern” the Government might guarantee completion of the Sands resort.

Another scenario is that other players could step in, though the perceived slowdown in the global gaming industry could limit the options.

Economist Vishnu Varathan did not think such an investor would come from the big players in Macau or the United States, as they appear “overstretched” with their own issues. He, as did several others, thought CapitaLand could be a suitable candidate, since it was one of the shortlisted bidders for the IR projects.

Economist Mr Colin Tan of Chesterton Suntec International said: “The IR is of strategic importance to Singapore, we can’t afford to KIV this for a very long time. If I am the authority, I’ll say, ‘OK, this guy is in trouble, let’s try to get it going. Let’s offer it to others, but on reduced terms’.”

When approached, CapitaLand did not say whether it was interested in the project, only that it was “strategically watching the distressed markets, very carefully seeking out opportunities to make the right acquisitions at the right price”.

What seems likely, for now, is that the IR’s launch will be pushed back. As to whether this would be a good or a bad thing, analysts are divided.

Some feel the global slowdown means punters and shoppers will stay away from spending for the next few years. But Mr Vishnu believes a delay in opening would handicap the economy’s pick-up.

“One more buffer that the Government is wishing for will be deflated quickly, and the cushion for the recovery of the economy might disappear,” he said, citing the lost tourist dollars for instance.

Source : Today – 8 Nov 2008

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