Mid-sized Singapore developers jump on London bandwagon

ATTRACTIVE: London's (from left) 20 Fenchurch Street, also known as the "Walkie-Talkie", Leadenhall building, also known as the "Cheesegrater", and 30 St Mary Axe, also known as "the Gherkin". Commercial properties in the city command a 5 per cent yield.
Mid-sized Singapore developers jump on London bandwagon

CHALLENGING: Property developers here see "intense competition and sluggishness in the market", says OCBC's Mr Lee.


    Apr 22, 2014

    Mid-sized Singapore developers jump on London bandwagon

    MID-SIZED property developers in Singapore have joined the big boys in expanding overseas - particularly in London and Australia - and are expected to continue in pursuit of better margins amid stiff competition at home, said a senior executive from OCBC Bank.

    Last year, 20 per cent of construction loans that OCBC extended to Singapore developers were allocated to overseas projects, said Mr George Lee, head of OCBC's global corporate banking.

    The developers are driven by the promise of better yield, he said. OCBC's loan book in London has fattened about five times since 2010, given the interest in residential and commercial properties from Singapore developers.

    Commercial properties in London command a 5 per cent yield. "In the context of Singapore, it's very attractive," Mr Lee said, noting that commercial properties here have a yield of about 3 per cent.

    Also, commercial leases in London can stretch up to 15 years, compared to a typical three-year rental agreement in Singapore - a source of comfort for developers, he added.

    Interest is strong in Australia, too, where commercial yield is even higher, at about 6 per cent, he said.

    Listed property developers in Singapore have announced plans to expand into these two markets, given pressures on home ground.

    Hiap Hoe said in February that it would continue its expansion into Australia, having bought an investment property in Perth. In the same month, Heeton Holdings said that it plans to refurbish its recent London purchase, the Enterprise Hotel.

    Mr Lee expects more construction loans from these two markets - seeing the same growth in absolute-number terms this year - though he noted that these loans are a fraction of the bank's overall loan book.

    OCBC has the second-largest construction loan book in Singapore, after DBS. It booked about $25 billion in building loans last year, up 11 per cent over the year before.

    Property developers in Singapore see "intense competition and sluggishness in the market", said Mr Lee. Besides fending off competition from Chinese and Malaysian developers, property firms here have had their margins squeezed by the Government's cooling measures.

    "Given these dynamics, there is an impetus to go overseas," he said.

    While navigating unfamiliar territory, smaller property firms from Singapore and the region hold an ace in hand when negotiating joint-venture deals with foreign developers.

    By adding a Singapore bank such as OCBC to the equation, these developers offer a valuable credit line from Asian lenders when Western banks, particularly those from London, are shying away from construction loans as they repair their balance sheets, Mr Lee said.

    Hotel Properties sealed one such partnership with London developer Native Land and Malaysia's Amcorp Properties in 2012 to acquire an office building in London for £85 million (S$179 million) for redevelopment.

    Malaysian developers have played the same hand. A consortium made up of the Employees' Pension Fund of Malaysia, SP Setia and Sime Darby snagged a £400 million bid for London's Battersea Power Station in 2012, beating Chelsea Football Club, which had planned to build a new stadium there.

    Much attention has been drawn to the project, since the site of the idle building - which was featured on a Pink Floyd album cover - will be designed by famed architect Frank Gehry.

    The site will become a residential area, with the redevelopment plans backed by funding from Asian banks such as CIMB Group, OCBC and Maybank.