Sales volume are expected to fall as investors are cautious, but residential- property prices overall are forecast to climb. -myp
Mon, Feb 07, 2011
my paper
By Reico Wong
THE latest round of residential- property cooling measures by the Government - particularly the steep ramp-up of stamp duty applicable to property sellers to a hefty maximum of 16 per cent of the selling price - may be considered to be the strongest thus far, but property analysts say these steps are still insufficient to bring about a significant drop in property prices.
Sales volume are expected to fall in the short term as investors adopt a more cautious approach, but residential- property prices overall are forecast to climb another 5 to 8 per cent this year.
Already, prices of Housing Board resale flats rose 14.1 per cent and private-property home prices jumped a sharp 17.6 per cent last year, according to data from the Urban Redevelopment Authority released last Friday.
With residential-property prices rising so steeply, investors should consider putting their money into other real-estate segments, such as offices, shops, hospitality, health care, warehouses and factories - areas which have been generating attractive yields as well.
This can be easily done through Real Estate Investment Trusts (Reits), without investors having to raise large sums of money to purchase the physical buildings themselves.
"The recent cooling measures have driven some residential-property investors to other segments but the 'investable' universe - particularly strata-titled units - in the non-residential segment is rather small," said Dr Chua Yang Liang, head of research for South-east Asia at Jones Lang LaSalle.
"The large size and bulkiness of the non-residential sectors and high capital outlay typically hinder direct investment by small-time investors who are, therefore, likely to seek a friendlier real-estate investment channel, that is, through Reits."
Essentially, Reits are collective investment-trust schemes, typically listed on the stock exchange, which allow investors to buy into a portfolio of professionally managed properties.
Investors gain dividends from rental incomes as well as capital gains from the profitable sale of real-estate assets.
Many of the 21 Singapore-listed Reits have proved their financial mettle in recent years, and in line with the strong market recovery last year, are often becoming oversubscribed.
The FTSE ST Reit index, which measures the overall Reit market in Singapore, has increased by a robust 19.8 per cent since a year ago.
Commercial Reits, led by CapitaCommercial Trust, K-Reit Asia and P-Life, saw the strongest growth last year, rising 26.4 per cent. The service sector has also outperformed the rest of the market over the last year.
The growth momentum is expected to extend into this year, with office and other commercial assets Reits attracting buyers - due to expectations of higher rents of about 10 per cent in prime areas, and further growth in the capital values of office, retail and hotel properties, as Singapore remains highly attractive for business set-ups and expansions.
"Reits allow investors to gain access to assets that they would otherwise not be able to acquire," said Mr Roger Tan, vice-president of Sias Research.
"Even if it is possible to acquire a Reit asset such as a warehouse, it is not easy to manage the asset, in terms of maintenance and rental, as an individual investor."
Although Reits investment are also highly liquid and allow for easy diversification, because many of them own multi-property portfolios with a range of tenant pools, experts urge investors to exercise caution when assessing each Reit investment.
Investors should not assume that all Reits are low-risk and meant for long-term investing. Reading the prospectus is thus critical, particularly for information on dividend payments as well as brokerage commission, management and trustees' fees, and expense ratio.
Dr Chua pointed out that investors should look into the Reits' underlying asset qualities, rental-income stability, and other demand and supply drivers within the property sector before making the investment decision.
"Potential asset acquisitions, yields, and price trend of the individual counters are also some of the key factors that a Reit investor must pay strong attention to," he said.
Mr Tan said: "When high yields are offered, investors need to question whether the yields reflect the risk of the Reit or there is inefficiency in its pricing, which gives them opportunity to earn higher returns.
"Overall, the financial standing of the Reit's backers must be assessed to ensure the survival of the Reit in challenging times, along with whether management has displayed competence in their strategic plans to maximise returns of the assets."
With increasingly heavy subscription rates to Singapore Reits (S-Reits) since they first made their debut nearly nine years ago, the market seems poised for strong growth.
Said CB Richard Ellis: "The simplicity of S-Reits as an investment instrument, combined with their strong underlying fundamentals and relatively risk-averse nature, will continue to make Reits here an attractive option for investors."
reicow@sph.com.sg
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