| Pooja Thakur |
SINGAPORE (WP-BLOOM) – Singapore de-velopers 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 $2.32 billion into overseas markets in the nine months through 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, a research firm that specialises in investments in commercial property.
The Singapore developers are looking abroad as government measures to rein in property values have caused residential prices to fall for four straight 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, managing director of capital markets and investment services for Asia at Colliers International, a real estate broker.
City Developments, Singapore’s second-largest developer by market value, said in September that it invested in a plot of land in Tokyo valued at $279 million.
Keppel Land, Singapore’s third-biggest developer, in July said it made its maiden investment in the US with a prime resi-dential development in New York City. The project, which it said at the time was valued at about $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 mea-sures 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 2013.
“In Singapore, the residential market is virtually dead,” said Desmond Woon, exe-cutive director at luxury-home developer Ho Bee Land. “With the government mea-sures 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 in 2013 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 may face “fire sales” and mortgage defaults as sales and prices fall.
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, ac-cording to figures from New York-based RCA.
The country’s sovereign wealth fund, GIC, isn’t allowed to invest in Singapore property and has instead been a major buyer of overseas real estate. GIC’s 20-year investment horizon gives it a different profile from the listed Singapore develo-pers.
In total, Singapore entities invested $9.8 billion in overseas commercial property in the nine months to September, overtaking China with $8.4 billion of overseas invest-ments and Hong Kong with $7.3 billion, RCA said.
Ho Bee, which has invested in office towers in London and is developing homes in Melbourne and Gold Coast in Australia, is 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, accor-ding to Nicholas Mak, executive director at SLP International Property Consultants.
Developers are willing to take on the additional risks associated with overseas investments, Tang at Colliers said.
“Mainland Chinese and Singapore deve-lopers are going to New York, Australia and the UK,” Tang 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 are between 5 per cent and 10 per cent while margins in Australia are between 10 per cent and 20 per cent, Ho Bee’s Woon said. Office properties in London can yield between 4 per cent and 6 per cent while Singapore office yields are about 4 per cent, he said.