Getting bullish on Singapore realty

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Getting bullish on Singapore realty
Singapore's property sales have surged 45 per cent since December 2016.

Dubai - There is, however, certain risks to look out for

By Matein Khalid
 Macro Ideas

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Published: Sun 4 Mar 2018, 5:24 PM

Last updated: Sun 4 Mar 2018, 7:26 PM

If there is one global hub where property prices will rise in 2018, it is Singapore. All the metrics I track to guesstimate a bullish property cycle "inflection point" are now in place. Property sales have surged 45 per cent since December 2016. The Lion City's biggest developers have begun to bid aggressively to expand their land banks. Local end-users, not offshore hot money, has driven sales volumes higher. Wealthy Indian, Chinese and Southeast Asian buyers have begun to accumulate homes in the Core Central region. Singapore bank credit growth is robust and the Straits Times index rose up 20 per cent in 2017. Unsold homes inventories have fallen to 16-year lows at a mere 29,000 points. The presales pipeline is white-hot.
In Singapore, property developers do not exploit their clients and are content with 10 per cent profit margins, not the 50-60 per cent margins developers in the GCC routinely extract via offplan pieces of paper. This is one reason I expect the property bear market in the GCC to dip while the prices of homes, land, office and industrial property in Singapore moves sharply higher in 2018. Retail? No way, la! Amazon kills even in the Strait of Malacca!
There is no doubt in my mind that a supply squeeze, cheap financing and stellar economic growth make Grade A office buildings (ownable via listed Reits on the SGX) makes strategic sense at this point in the property and credit cycle.
The cap rates in the private market have compressed on an epic scale and are nowhere near reflected in the office Reits trading at 80 per cent of NAV, meaning I can invest in Grade A Singapore office buildings at a higher yield and below replacement cost in the stock market. My obvious twin crown jewels in the Singapore office Reit market are Capital Commercial Trust and Keppel, since both benefit from access to razor-thin bank finance spreads, a credible acquisition pipeline, the wildly bullish outlook for the limited commercial government land sales and rising rents, institutional investor flows and valuation rerating potential. To paraphrase the Singapore Airlines tagline, from my youth, Singapore Reits, what a great way to fly!
Singapore grants high income/executive expats permanent residence and a path to citizenship. Uncle Sam gave me a Green Card but also the IRS but Uncle Lee requires me to send my boy to the Singapore Army. So I follow the old axiom. East is east and west is west, but Dubai is best! Yet these features of the Singapore job market means long term demand for property is not dependent on speculators but correlated to employment growth, the rise of new sunrise industries, jabs, wages and income growth. All the macro/micro-market indicators here flash buy signal, including positive leverage in the cost of home finance.
Singapore's "nanny state" DNA means government policy is mission critical to grasp the opportunities and risks in the property market. So the relaxation of property measures in early 2017 led to the surge in sales volumes. I doubt the Singapore government will increase land tender in 2018 to dampen price rises.
Risks to the Singapore property market in 2018? Indian buyers rose 88 per cent in 2016. However, Modi's crackdown on "black money" means less Indian capital flight abroad - no Singapore black money yatra for oligarchs of South Mumbai and Chennai! Federal Reserve interest rates could become more aggressive and the Sing dollar could fall to 1.38. Historically, this is the level where I have turned cartwheels to own listed Singapore real estate proxies. Remember the fabulous performance of Cambridge Industrial Reit. The mathematics of yield compression, NAV growth and currency gains were magical and investors who heeded my call made a 60 per cent total return as I did. Xi Jinping's Politburo's stance on capital outflows are a wild card, as are stamp duty rises in Vancouver and Sydney, a de facto margin call on Chinese hot money.
The Year of the Dog will not be pretty for Hong Kong. Four Fed rate hikes, a US-China trade war, President Xi's anti-corruption crack down and stratospheric office property values make me bearish on the Hang Seng index. I can easily envisage a 2,000-point hit on the Hang Seng index to 28,000. The value sector in China is banking, energy and telecom megacaps.
The writer is a global equities strategist and fund manager. He can be contacted at mateinkhalid09@gmail.com.


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