Desperate times call for desperate measures. How about using property raffles to boost home sales in Singapore?
THE Emerging Trends in Real Estate Asia Pacific 2009 report, released last week by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP (PwC), painted a near- doomsday scenario of the property market in this part of the world.
The day of reckoning is just around the corner, says the press release. Industry experts are anticipating falling asset prices, rising capital rates, deteriorating debt markets, increasing foreclosures and bankruptcies, and plummeting transaction volumes as the financial crisis travels the globe.
According to the press release, the report – which is into its third Asian edition – is based on surveys and interviews with hundreds of the ‘industry’s leading authorities, including investors, developers, property company representatives, lenders, brokers and consultants’.
The investing landscape has undergone a substantive and possibly permanent change, according to the report. Asian banks have re-rated real estate for risk, and with the re-pricing of debt, investors will demand higher yields. The days of financing property via highly leveraged borrowing appear to be gone.
‘Asia shares the same liquidity crisis that the rest of the world is facing,’ said Stephen Blank, ULI senior resident fellow for finance. ‘Financial institutions – whether international or national, regional or local – are reluctant to extend credit as deleveraging reduces balance sheet lending capacity. While fundamentals in most markets and property sectors will be impacted by the prospects for a global recession, financing will be the single biggest issue facing the industry in 2009.’
The report noted that the ‘credit squeeze became a chokehold . . . culminating in the near-paralysis of regional debt markets’. The ‘moment of truth’ has yet to arrive in the Asia-Pacific (except for China and Japan, where the credit squeeze began earlier).
‘Refinancing may be the catalyst that brings the crisis home to regional real estate markets . . . during 2009 and into 2010 as short-term and construction loans mature,’ states the report. However, one fund manager noted in the report that ‘banks are being very accommodating because they know that if they start foreclosing on these rollovers, it’s just going to force values to fall further’.
Asian property sales have plunged 68 per cent in the third quarter of 2008, according to Real Capital Analytics.
However, the market softness will attract more traditional players to shop for quality assets in major locations. There will be more realistic pricing expectations, KK So, PwC real estate tax leader in Asia-Pacific, was quoted as saying in the press release.
The report ranks Singapore No 2, after Tokyo, in terms of investment prospects. However, ‘the biggest threat to Singapore, other than the squeeze on credit, is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign business investors’, David Sandison, PwC tax partner, was quoted as saying in the press release. ‘Apart from this, local players in the retail and office space are also seeking to cut costs by downsizing and relocating to more affordable parts of the island.’
However, acceleration of government infrastructure projects and other measures aimed at buoying the economy should be sufficient to stabilise the market and see it relatively safely through these troubled times, he said.
The strongest buy and hold recommendations for Singapore were in the hotel sector. Some 65 per cent of respondents advised holding, and 24 per cent recommended buying. Only 9 per cent suggested selling. The residential sector appeared to be the weakest. Some 65 per cent recommended holding, but a relatively high 23 per cent recommended selling. Only 11 per cent advised buying. For the office sector, 23 per cent recommended buying and 21 per cent said sell. The corresponding numbers for the industrial sector were 34 per cent and 13 per cent.
All in all, a rather gloomy picture especially for the residential property market where thousands of units sold under the deferred payment scheme will be due for completion in the next two years. Coupling that with the fact that there could possibly be more retrenchments, we could see massive supply but minuscule demand. We could be in for desperate times; hence, desperate measures may be required if the worst comes to pass.
A friend recently returned from the US mentioned about property raffles conducted there. This is how it works: Say a property owner wants to sell his apartment and there are no buyers or the price offered is significantly below his asking price. So he decides to sell tickets of, say, $10 each. Each ticket buyer has a chance to win his apartment. The condition is that the draw will take place only if he manages to sell enough tickets and raise the amount which meets his asking price.
So, for a $500,000 apartment, 50,000 tickets would have to be sold. I thought the idea was interesting, for several reasons. One, at a time when few people are willing to commit a big sum of money for a big-ticket item, most probably wouldn’t mind and could easily afford to fork out $10 for a chance to win an apartment.
Two, the odds of landing the apartment are far better in a property raffle than winning the top prize in a Toto draw, the prize money of which sometimes amounts to only $600,000. Assuming 50,000 tickets were sold, the chance per ticket is one in 50,000. To win the top prize of Toto with an ordinary ticket, your chance is one in 8.145 million!
Three, the property owner may potentially end up getting more than his or her asking price.
Common practice in US
House raffles are common in the US, with charities often joining forces with property developers to raffle new homes. In the UK they remain rare, according to a report in the Telegraph in October 2005. But with figures from the UK Nationwide Building Society showing that house prices fell for the second consecutive month in September – the first time in five years that prices have fallen for two months running – more sellers may be considering similar action in future, the report said.
The newspaper featured a certain Daniel Bloy, who had up till October 2005, put his Nottingham flat up for sale for five months. He received only one realistic offer, and even that fell through. Refusing to slash his price any further, he offered his two-bedroom flat as the first prize in an online spot-the-ball competition, giving one lucky winner the opportunity to own a home, mortgage-free, for just £25, or S$56. (A spot-the-ball competition is a game where the player has to guess the position of a ball which has been removed from a photograph of a ball sport.)
The Telegraph quoted Mr Bloy as saying that the competition had been fully approved and was run by solicitors. Photographs are available online and entrants who got in touch with his solicitors could view the lease details and title deeds. He added that he had spent several weeks researching both the gaming laws in the UK and the possible tax implications of such a scheme before seeking legal advice.
Under Mr Bloy’s rules for his spot-the-ball competition, a minimum of 6,000 tickets had to be sold for the flat sale to go ahead; the maximum was 8,000 tickets. If fewer than 6,000 tickets were sold, the winner of the spot-the-ball competitions would walk away with 65 per cent of the value of the ticket sales.
Apart from the first prize, there were also 11 smaller cash prizes.
At £25 a ticket, if the maximum number was sold, £200,000 would be raked in. If just 6,000 were sold, the flat would effectively be sold for £150,000. His earlier asking price for the apartment was £130,000. Even if far fewer tickets were sold, Mr Bloy would keep 35 per cent of the proceeds, which would be sufficient to cover the additional legal fees and costs of promoting the scheme.
The legal costs, said Mr Bloy, were obviously significantly higher than what one would pay for a normal house sale. He had to pay all the usual conveyancing costs and associated legal fees, and estimated that he spent more than £2,000 drafting the competition rules.
Mr Bloy’s competition was based on the popular ’spot the ball’ format. Other house ‘raffles’ in the past have required ticket buyers to answer a number of simple trivia questions.
Under competition law in the UK, if a name is simply drawn from a hat, the arrangement is classified as a lottery, and the organisers need to apply for a special permit to run it. The winner, however, would have to pay stamp duty plus his own legal fees. Mr Bloy’s competition was to have opened on Sept 26, 2005 and close on Dec 16, 2005. No subsequent reports were found. I wonder if he managed to sell his flat.
In Asian markets, if things do deteriorate to an extent where almost all transactions seized up, then perhaps property raffles could be an interesting option to get the money flowing again. To make it easier, perhaps a company with a special licence from the regulator could be set up to conduct such raffles. Checks would have to be done to ensure that the ‘owner’ is the rightful one, and that the property will come unencumbered.
As they say, desperate times call for desperate measures. So, even if this scheme is not implementable, it’s at least an interesting one to mull over.
Source : Business Times – 13 Dec 2008
Local firm Surbana International Consultants and its partner, Japanese firm Sen Inc, beat 10 local firms. Merit prizes were awarded to Arc Studio Architecture + Urbanism and Co-Design Architects.
Mr Mah said that even with the slowdown, he expects ’sufficient take-up for these flats’ as people are still getting married and young families are being formed.
Uncovering gems amid property gloom
Posted by luxuryasiahome on December 13, 2008
RB Capital boss zeroes in on residential developers in need of funding next year
KISHIN Hiranandani, son of Royal Brothers co-founder Raj Kumar Hiranandani, sees opportunities in the Singapore residential sector post-June 2009. Through his property investment outfit RB Capital, he is targeting joint ventures with mid-sized developers, both listed and privately held.
‘Developers will want partners coming in 2009 because it’s going to be a year that’s not going to be the most comfortable. There’s a lot of refinancing of loans coming up, and it’s an opportunity that we are well positioned (for),’ he tells BT.
‘I think 2009, second half, is going to be an attractive time to go in. I do see refinancing terms changing in 2009: Valuations will have to be lower and also the cost of financing may go up.’
There are two ways that RB Capital could potentially form joint ventures with such residential developers. One is to take a passive stake in prime freehold sites including those picked up through en bloc sales in the past few years.
‘There’ll be developers who would look at some capital injection, fresh equity coming in to the deals. For the lands they have bought and not developed, I think they have to have a hold model. If you have not built, I don’t think it’s sensible to start building in ‘09. And they have some pretty interesting plots that don’t come every day,’ says Kishin, as he prefers to be called.
The other way to invest in the Singapore residential market is to buy units in projects under development, again through ventures with the developers. ‘I would like to partner the developer. It’s not going to be easy. . . There are not going to be many (home) buyers out there, so we’re structuring it for the long term, sitting in with residential developers, keeping them in the game.’
Teaming up with a developer to buy units in its project rather than making solo purchases should also serve as a check against the developer chopping prices later for unsold units.
Kishin is looking at a three to five-year holding model for any residential investment that RB Capital makes.
The residential property market is pretty new to both RB Capital and Royal Brothers and ‘there is minimum income from residential’, Kishin acknowledges, but points out that RB Capital plans to enter this sector to diversify the two-year-old group, which currently owns office and retail properties.
RB Capital is developing EFG Bank Building at the High Street/North Bridge Road corner on the former Satnam House and Amaraj House sites. Shankar’s Emporium group has a stake in this project. The building, with 78,000 square feet of net lettable area, will be anchored by Swiss private banking group EFG, which has leased two thirds of the property. RB Capital will occupy the penthouse floor of the nine-storey building, which is expected to be ready by mid-2009.
In Kuala Lumpur, the group bought the former Menara Genesis office tower at 33 Jalan Sultan Ismail for RM55 million (S$23.1 million) in 2006 and is currently refurbishing it for about RM10 million to meet the requirements of anchor tenant HSBC. The bank, which had already been a tenant at the building when RB Capital bought it, recently inked a fresh long-term lease, Kishin says. ‘They have taken more space, we have given them signage rights.’
In the retail property sector, the group this year bought the former Shell petrol station on the ground floor of Coronation Plaza in Bukit Timah for about $6.3 million and is investing a further $1.5 million repositioning the space into three retail outlets. RB Capital also owns 6,000 sq ft of net lettable area at the retail podium of Malacca Centre in the Raffles Place area. Its current tenants include Spa Esprit’s browhaus and Beyond Beauty.
Kishin says that RB Capital is eyeing more investments in the Singapore commercial property sector, especially underperforming assets that could benefit from repositioning works undertaken to meet tenants’ needs under a ‘built to suit’ model.
With significant office supply in the pipeline, the Singapore office sector will be split into a two-tier market. Older, less prime office blocks which are not the best managed but capitalised on the upswing in the past few years risk losing tenants to better-located properties.
‘CBD fringe, fairly old office blocks, with potential for repositioning work – that’s where I see an opportunity because it’s going to be difficult to fill up those spaces in the coming year,’ Kishin says.
The plan is to buy such properties after the first quarter next year, a time frame that Kishin does not think is too early despite the fact that significant new office completions will start flowing in from 2010/2011.
RB Capital has already lined up a few potential tenants keen on being anchor tenants in such properties. ‘They have given us orders: ‘40,000, 50,000, 70,000 sq ft. These are my areas. This is how much I’m
willing to pay’.’
Kishin is also targeting acquisitions of boutique suburban malls of around 40,000 to 70,000 sq ft that could be potentially repositioned. Foreign property funds that bought real estate in Singapore in 2007 and early 2008 with a short-term investment horizon are starting to look at exiting, he observes. ‘In 2009, they are going to look at the market and say: ‘Is it going to improve in 2010?’ The answer is pretty clear.’
That will provide a buying opportunity for RB Capital.
Kishin says that he has the ‘best teachers’ in learning about real estate in his father and uncle, Asok Kumar (the other co-founder of Royal Brothers). ‘They have taught me everything. I’ve had the front-row seats to some of the most interesting deals they have done.’
But RB Capital is ’solely my baby, my vehicle . . . and I do the kind of deals that I like to do’, he stresses.
His father and uncle ‘have been amazing at repositioning assets’.
‘They’ve taught me everything: how to structure a deal, how to increase cash flow, how to buy.’
That aspect of the business Kishin has brought to RB Capital. ‘The only thing I am doing a little differently is that I am starting to develop. Something they don’t really do. And I’m (hoping to) add residential.’
‘Ever since I was five, I was running around in the office. I’ve learnt by asking all the questions I can ask from everyone around me, from a very young age,’ says the 25-year-old bachelor, who is a former Anglo-Chinese School boy. He keeps fit by playing squash at the American Club. Visiting properties or sites he hopes to acquire – ‘that’s my hobby; pretty depressing for a lot of people, but I enjoy it’.
Looking ahead, he says: ‘2009 is going to be challenging for some and a host of opportunities for others. We’re definitely going to see softening of the real estate market in all sectors. I believe there will be a shift of players. I think it’s going to be a year you see a lot of companies changing hands, in terms of the players changing hands.
‘There will be new names coming up. There will be some names that have been very aggressive, some names that have been affected, who will slow down. There will be a shift.’
Source : Business Times – 13 Dec 2008
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