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CBRE : Foreign property launches edge down this year

05/02/2015 | 10:04pm US/Eastern

Rule changes in some markets erode appeal

There have been fewer launches of overseas property from traditionally popular markets such as London and Australia so far this year, although there is a surge of interest in new frontiers like Cambodia.

There were 78 overseas project launches in the first quarter, well down on the 103 in the same period last year, said CBRE consultants.

Australia accounted for 26 of those - down from 40 a year earlier - while there were 24 from Britain, down from 30.

The rest included 11 from Japan, six from Malaysia, and four from Cambodia, up from none in the first quarter of last year.

Mr Gavin Sung, head of international residential sales, Savills Asia Pacific, says investors are shifting their focus to the region. "There has been an increase in regional countries being marketed as lower value and more emerging markets look to explore inward investment," he notes.

Tokyo and Cambodian developments have done particularly well.

JLL sold all the units of Parkhouse Nishi-Shinjuku Tower 60 in Tokyo that were allocated to Singapore.

CBRE's best-received launch was also in Tokyo - the Global Front Tower - and again, it sold all the units it had available.

CBRE says demand is high for property in the Japanese capital, given the limited supply, favourable exchange rate - the yen is down 34 per cent against the Singdollar since Jan 5 in 2012 - easy funding options and the city's favourable reputation among Singaporeans as a global centre with a reputable legal system.

Cambodia is also becoming a hot favourite, due partly to a law passed in 2010 that permits foreigners to own units.

Mr Darren Yap, director and chief executive officer of Singapore-based Yuen Development, attributes the strong demand to the low purchasing power needed to enter the market compared with more mature centres such as London. The favourable exchange rate also helps.

"Our buyers purchase solely for the purpose of rental yield and, possibly five years down the road, hope to reap good gains," he says.

CBRE Cambodia also notes that many investors recorded "capital gains in excess of 5 per cent per annum and in excess of 6 per cent per annum on rental returns" last year.

The phase one launch of La Vie Residences in the capital Phnom Penh is the first project undertaken by Yuen Development.

Of the 180 units released to Singapore, 108 units or 60 per cent have been taken up by Singapore buyers.

While interest is rising in some places, it is falling in the once hot spots of Britain and Australia, possibly due to the total debt servicing ratio that has crimped borrowing here since June 2013.

The Monetary Authority of Singapore's Financial Stability Review last year noted that the value of overseas property purchases transacted here rose from $1.9 billion in 2012 to $3 billion in 2013 before moderating to $1.1 billion in the first six months of 2014.

Moreover, the strong Singapore property market has encouraged more investors here to buy local developments. Says Ms Sarah Nicholson, director of international project marketing Asia at CBRE, overseas developers are becoming "more selective about what they bring out here, and their sales rates when they get here".

Recent trends in overseas markets also account for the declining numbers of launches in Singapore.

British developers are enjoying strong demand at home so they have less need to "to spend the additional money to expand their marketing strategies overseas", Savills' Mr Sung says.

Uncertainty over the British general election on Thursday has also dampened demand, particularly as proposed changes to non-domicile rules and a possible mansion tax are seen as creating an unfriendly environment for foreign investors.

Ms Linda Chern, director of international project marketing, Knight Frank Singapore, notes that while Singaporean investors are more cautious, they are still willing to buy if they see good investment potential.

Projects in fringe areas of London such as Shoreditch, Croydon and Wembley are enjoying a revival in demand due to regeneration schemes in place.

Mr Sung notes that such developments "continue to be heavy in appetite".

In the first quarter of last year, 53 per cent of British properties featured in Singapore launches were in prime areas of London but this fell to 33 per cent in the same period this year.

In contrast, the percentage of featured London properties outside the centre has risen from 37 per cent last year to 42 per cent this year.

This trend looks set to continue, with an increasing number of Singaporean investors targeting areas outside central London because of their greater capital growth potential, higher yields and lower prices - especially important, given the tightened lending criteria at home.

Ms Nicholson also notes that British investors tend to target property outside the central area, which is important to foreign investors as "the local market is the likely exit strategy when it comes to identifying resale buyers". London residents will probably constitute the tenant market as well.

Conversely, Central London has "traditionally been sustained by international money", she adds.

Australia is another popular investment destination going through changes.

Mr Shane Oliver, head of investment strategy and chief economist of AMP Capital, says: "The residential property outlook for the next five to 10 years... is messy."

"Housing is expensive... and offers very low rental yields compared to all other assets except bank deposits and government bonds."

The gross rental yield on housing is around 2.9 per cent and after costs this is around 1 per cent, he adds.

This compares with yields of 6 per cent on commercial property and 5.7 per cent for Australian shares, with franking credits.

As part of its stricter laws on foreign ownership of real estate, the Australian government is also proposing to charge foreign buyers an application fee of A$5,000 (S$5,200) for properties valued under A$1 million and A$10,000 for every additional A$1 million. The fee applies even if the deal falls through.

Nevertheless, Mr Sung says that "in the grand scale of investment, with the size of investments that we normally place, it is an additional, but nominal amount".

Demand in key locations such as Sydney is still strong. There are limited sites and a strong tenant market with vacancy rates below 7 per cent.

But, like London, there is increasing interest in less central areas. Ms Nicholson identifies this growing interest from buyers "desperate to invest in Sydney" but who cannot afford the central city.

Mr Peter Thng, executive director of Reapfield Property Consultants, says there is an increasing interest in suburban homes in the western and south-eastern regions of Sydney.

"With good infrastructure planning, transportation connectivity and employment creation, they are fuelling property growth in these areas," he adds.

Agencies are responding to this shifting interest. CBRE is expected to soon launch Arlington Grove in the inner west Sydney suburb of Dulwich Hill.

hsteph@sph.com.sg

(c) 2015 Singapore Press Holdings Ltd. Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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