Calling it quits!

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Global economic uncertainty casts pall on industrial property
S'pore also expected to face competition from Iskandar soon, says Knight Frank
BY KALPANA RASHIWALA [email protected]

KNIGHT Frank has presented a cautious picture for Singapore's industrial property market, citing policies that could restrain its growth. At the same time, the Republic is expected to face competition from Iskandar Malaysia in retaining and attracting industrial space users in the near future.

Although Singapore government initiatives such as the ratification of various free trade agreements have helped to boost the Republic's market access and competitiveness, overseas manufacturers are not setting up shop here in large numbers.

"This has more to do with the global economic platform," notes Lim Kien Kim, executive director (industrial) at Knight Frank.

"Due to uncertainty in major global economies, big overseas manufacturers are not readily making investments outside their own borders. As for industrialists already in Singapore, some are moving from one building to another without expansion, while others have been downsizing their operations in Singapore in favour of lower-cost alternatives. When this happens, our local SMEs, which are mostly in supporting industries that depend on big companies coming in to Singapore, also suffer," said Mr Lim. This in turn will dampen demand all round for factory space in Singapore vis-a-vis abundant stock of completed industrial space.

Mr Lim's views refer to the large-space occupiers in premises zoned Business 2 (which typically allows heavily industrial use).

Also crimping demand for Business 1 space - where typically light industrial and warehouse use is allowed - is the fact that a lot of SMEs are importers and distributors.

"The amount of actual manufacturing or technical work is very low," notes Mr Lim.

Likewise, the operations of supporting companies such as those involved in mechanical and electrical engineering are seen as more desk-bound using IT, and hence deemed to be "administrative".

Mr Lim cites these as examples of occupiers that find it too expensive to lease pure office space but face restrictions if they were to look at industrial premises. This is due to Urban Redevelopment Authority (URA) rules stipulating minimum 60 per cent predominant warehouse/industrial activities and 40 per cent ancillary supporting uses (including office space) for industrial/warehouse premises.

Knight Frank also warned that the upcoming completion of supply on sites sold by the state since 2011 - in places such as Kaki Bukit, Ubi and Yishun - will further add pressure to high vacancies. Based on URA statistics, as at end-Q2 2013, the islandwide vacancy for total private-sector factory space stood at 8.5 per cent, up from 7.6 per cent a year earlier. A more detailed breakdown shows that business park space posted the highest vacancy rate of 21.7 per cent at end-Q2 2013, followed by 10.9 per cent for multiple-user and 6.5 per cent for single-user factories.

Also weighing on prospects for Singapore's industrial property market is competition from across the Causeway, given that higher operating costs in Singapore could dampen business viability for specific industrial clusters.

"Amid growing investment interest in the Iskandar region, Malaysia is seen as the 'next best' alternative to industrialists, due to its proximity to Singapore and lower cost.

"As Iskandar Malaysia fosters ease of doing business and resolves outstanding issues such as cross-border taxation, there could be an outflow of industrial establishments to this region.

"Singapore could face competition retaining and attracting industrial space users in the near future," Knight Frank said.

URA statistics show that as at end-June 2013, there was pipeline supply of 46.1 million square feet of private-sector factory space in Singapore due for completion by end-2016 - 15.6 per cent of the completed stock of 296.1 million square feet at the same date.

Based on Colliers International data, the average monthly gross rents of ground and upper floor high-specification industrial space dipped 0.3 per cent and one per cent quarter on quarter to $3.29 per square foot (psf) and $2.95 psf respectively in Q3 this year.

Colliers' executive director Tan Boon Leong said the government's stricter enforcement on legitimate use of industrial premises and weaker sentiment in view of softer economic indicators have led to sluggish take-up of high-tech space.

However, for prime conventional industrial space, the average gross monthly rent increased 1.2 per cent quarter on quarter to $2.52 psf for ground-floor space and 0.9 per cent to $2.20 psf on upper floors. This was supported by lease renewals and higher rents sought by landlords who have paid high prices for their properties in recent years. The average rent for prime conventional warehouse space too inched up 0.8 per cent quarter on quarter to $2.64 psf for ground-floor space and 0.5 per cent to $2.16 psf on upper floors.

The only segment where rents were unchanged was business park space. For the second consecutive quarter, the average rent stayed put at $4.04 psf.

"While landlords of newer buildings sought higher rents, owners of some older business park buildings faced downward rent pressure due to an increase in vacant space following the relocation of tenants to new premises," said Mr Tan.

As well, the quarter saw the completion of new buildings such as Sandcrawler and the neighbouring Nexus@one-north - in Fusionopolis. As a result, there was an overall increase in supply, which kept rent growth for business parks on the whole in check.

CBRE executive director Michael Tay noted competition from new projects is driving a number of landlords of older business park buildings to refurbish their properties.

Major leasing deals in Q3 include those of Fox International (brokered by CBRE) and Fujitsu (handled by Jones Lang LaSalle) for 24,000 sq ft and 35,000 sq ft respectively at Nexus. At Sandcrawler, talks are going on to lease out three floors totalling 70,000 sq ft.

[whizzard]

Singapore's Multimillionaires: New Wealth Report Busts The Myths
Forbes Asia

Who is the archetypical Singaporean multimillionaire? Is he the big spender who pays $4.23 million in the blink of an eye for a Koenigsegg Agera or one who parks his hyper car at his penthouse in Hamilton Scotts? Is he the party thrower who routinely chalks up six-digit bills at nightclub Pangaea or the high roller putting $400,000 in a single bet at Marina Bay Sands, Singapore’s new casino?

Ever since Singapore embarked on its official mission to follow money, money has followed it with equal ardor. And along with that comes the stories of excess, over-the-edge wealth and stupendously rich indulgences. “ $26,000 cocktails. Traffic jams freckled with Ferraris. A380 jet converted to include a pool and basketball court. The world’s sternest city is now the richest,” declared a recent report by the Wall Street Journal.

No untruth in that. Singapore is now the world’s fastest growing wealth hub with $1.3 trillion assets under management, and is slated to overtake Switzerland as the world’s largest offshore wealth center by 2020. Roughly one in every 30 Singaporeans was a dollar millionaire in 2012. It is estimated that by 2017, one in every 20 Singaporeans will be a millionaire. This segment that currently holds $857 billion, or 85.7% of the total individual wealth, will grow by 63% and hold $1.39 trillion by 2017. Among these millionaires, there are 3,870 multimillionaires (individuals with net worth of over $30 million) in 2012 with average wealth of $86 million per person and they will grow by 59% in the next five years. Singapore’s Gross Domestic Product per person is the world’s highest at $ 61,567, and the IMF expects this to rise to an astounding $77,000 in five years!

So, who is the man at the center of this success story? What is the profile of a typical Singapore multimillionaire? A new report by WealthInsight Intelligence Center –it tracks 60,000 millionaires around the world–puts the spotlight on the average Singapore multimillionaire. It breaks many a stereotype of the swash-buckling, cash-burning lifestyle of the rich in this island state.

The average Singapore multimillionaire is male, 66 years old, married and has 3 children. This makes him the oldest in the world in terms of average age, only a notch below those in Argentina or Austria. In fact, the global average age is 60 years.

Compared to his counterparts in the U.S. and U.K, where the average age is 60 and 57, the Singaporean fares low in the ranking for many reasons. The country has not had a long history of entrepreneurship that spans the globe like the young Americans or British. Neither has it had an education system or culture that was particularly high on innovation, creativity and enterprise. There is no Mark Zuckerberg of Facebook FB -1.01% or Nick D’Aloisio of Summly here to bring down the average age of the multimillionaire as in the U.S. or U.K. Despite the high penetration of technology, Singaporeans have generally not seized on their potential to create wealth by taking their companies global.

The Singapore multimillionaire, in fact, is a reluctant entrepreneur. Only 35.7% have made their money from a business or company. And when they have chosen to do so, they opted to go through traditional businesses, like real estate, construction, hospitality, retail and food, that typically require longer periods for accumulating substantial amounts of wealth. The average age of a Singapore millionaire is 49, one of the lowest in the world, but that of a multimillionaire is the highest at 66.

The paradox can also be explained by the fact that a second avenue that mints a lot of the new and young rich in the West, like a Justin Bieber in the U.S. or Adele in the U.K., has not been available to the Singaporeans. There is no thriving film industry or music and mega sports industry to churn out millionaires.

So, how has the average Singaporean multimillionaire acquired his status? Surprisingly, from being the CEO or COO of a bank, hedge fund, private equity, venture capital, insurance or wealth advisory. An average Singapore multimillionaire has a day job and he makes wealth, off the millions and billions of dollars parked in Singapore or the nearby region by the ultra-rich. According to the WealthInsight report, the financial services industry grew 163%, between 2008 and 2012, accounting for 22% of multimillionaires and 35.3% of millionaires in Singapore.

As emerging Asia faces economic uncertainty, muddy politics, unpredictable policies and divided society, the allure of Singapore to the newly rich families of China, India, Malaysia, Philippines and Indonesia will be immense, says the report. They will keep flocking to Singapore.

So, that Ferrari which whizzed past you on Orchard Road was probably that of an Indonesian. And that high roller on the Baccarat table in the casino is probably a China “whale.” The average Singapore multimillionaire, in his pinstripe suit and horn-rimmed glasses, is at work on spreadsheets. He will then, most likely, go home to a quiet dinner with his wife and three kids.

I'm a multi millionaire but I don't live in a bungalow. I live in a nice condo. I spend most of my time watching my wealth grow.

Hello, new to the forum here. I was reading about the investment advice some of you gave. If I have 250k spare cash right now, what would be a good investment vehicle? I'm pretty risk-averse, although I have the capacity to take on more risk, just need a bit of convincing. Anything beats leaving money in the bank.... I don't need the 250k, so I don't have a fixed time horizon for this investment.

What do you guys think of perpetual bonds? Its a pretty hot thing in Singapore right now?

As you "don't need" the money anytime soon, I would recommend putting them into stocks of companies with sound foundamentals where the dividends beat bond coupons anytime. Coupled with the dividend yield is the potential for capital appreciation. Yes stocks are more volatile but you have holding power. Bonds on the other gave a fixed coupon rate which at current inflation rates possibly give zero net gain. When interest rates rise, bond prices are the first to dive.

So what stocks to acquire? There are many good sites that provide "advices" if you like. Eg. Investment Moat, Motley Fools, even AK71. Check them out.

Actually, any economic student will tell you. In a climate of low interest rate, and high inflation rate, the thing to do is take up loan to invest! Over time, the loan you take will shrink in value purely due to inflation, while your investment will grow in that period. The borrower wins!

Perhaps you understand why properties are still a popular choice.

Originally Posted by teatree

Hello, new to the forum here. I was reading about the investment advice some of you gave. If I have 250k spare cash right now, what would be a good investment vehicle? I'm pretty risk-averse, although I have the capacity to take on more risk, just need a bit of convincing. Anything beats leaving money in the bank.... I don't need the 250k, so I don't have a fixed time horizon for this investment.

What do you guys think of perpetual bonds? Its a pretty hot thing in Singapore right now?

[whizzard]

Originally Posted by teatree

Hello, new to the forum here. I was reading about the investment advice some of you gave. If I have 250k spare cash right now, what would be a good investment vehicle? I'm pretty risk-averse, although I have the capacity to take on more risk, just need a bit of convincing. Anything beats leaving money in the bank.... I don't need the 250k, so I don't have a fixed time horizon for this investment.

What do you guys think of perpetual bonds? Its a pretty hot thing in Singapore right now?

Let's have a peek at the macro picture and your investment objectives.

You said you are "pretty risk averse" and you "don't have a fixed time horizon" for the money. Let's therefore use a 3 year time horizon. Before I go further, I would like to snuff out the idea on buying perpetual bonds first because this is the most vulnerable asset class in any interest rate hikes.

The US economy is showing tentative signs of improvement. The policy makers in the USA will look at a whole load of economic indicators but I would say unemployment rate, GDP growth rate and inflation rate would carry greater weightage. At this stage, it does seem that Yellen will get to be appointed as the next Federal Reserve Chairman. Based on the various reports and articles, I would rate her as "pro growth" and not "anti inflation". Her bias would be to err on policies and decisions that would stimulate growth and not snuff it out prematurely. Based on recent reports, the Fed is now considering buying short term treasuries in order to keep short term policy rates low whilst it weans off its current USD85 billion a month bond buying programme, namely on the the long end of the curve i.e. the policy makers are attempting to ensure short term rates stay low in order to spur economic activities even as the Fed begins to taper its bond buying programme. Therefore, what they are saying is that they are willing to tolerate inflationary pressures in order to spur economic growth and lower the unemployment rate. When will the so called "tapering" happen - whilst it's anybody's guess, market consensus now seems to be 2Q14 rather than 1Q14. The US equity market accounts for roughly 50% of total global equity market.

EU has stabilised but it is still a long way off from resolving its structural issues. Unemployment is expected to stay high in EU and any growth is expected to be tepid at best. The EU equity market account for roughly 25% of total global equity market. The balance 25% comprise the equity markets of the rest of the world (Japan, China, Asia, etc). Yes, our part of the world is that small.

Japan has tried hard to stimulate its economy. It had some initial success under what the market has termed "Abenomics". The policy makers will continue to try to stimulate growth but their structural problems are not easy to resolve e.g. rapidly ageing society, high costs of labour, losing out in innovation to the Koreans, etc. China is attempting to restructure its economy to be less driven by export growth but domestic consumption led based on press release after its latest plenary session.

If you buy the above scenario, then it would appear that economic growth from the US would lead global demand growth. That is one reason why US equity valuations are so lofty now despite the fact that economic indicators out of the US have been rather subdued albeit positive thus far. As the Asian economies are relatively sound (India, Indonesia and perhaps Malaysia to a smaller degree being the exceptions), I would expect the Asian economies to ride on this resurgent growth out of the US, chiefly Korea and China.

As I am focused on the Singapore market and I believe in only investing in what I understand, I would wait with my cash and buy only when the market pulls back from current high levels. It's OK even to allow your money to sit in the bank for months whilst you wait for this moment because any correction will allow you to gain entry at a few percent to low deca percent below current levels. Since you are risk averse, buy blue chips (to prevent getting scammed by the Blumonts of this world) which are growth oriented e.g. the local banks, consumer goods, etc. Start doing your research now and monitor a list of stocks for a good entry point. Only buy bonds after the initial market reaction to the Fed tapering programme. Many local bond issues have been taken up by Private Banks in the last year or so ..... for their clients who went in search of yields i.e. the professionals are concerned about potential rate hikes and therefore drop on bond prices and therefore did not bid aggressively on the recent local bond issues. Longer dated investment grade bonds are assessed to be the most vulnerable to the Fed tapering programme as opposed to shorter dated, non-investment grade issues.

Start doing your homework now to shortlist some stocks. I don't have a list of stocks to recommend you because your investment objectives and risk appetite may be dissimilar to mine. I am holding on to my stocks and selling short dated call options on them to earn additional income whilst I wait for the Fed tapering. In fact, everyone in the market is waiting for the Fed tapering which is regarded as the most significant event for the market. In the meantime, my own view is that the market will be range bound until the Fed tapering happens. I just don't see any other catalysts or good news in the horizon that will drive the market up. However, there could be unexpected tail risks or the so-called black swans that could occur out of the blue to cause the market to plunge.

My own philosophy is to stay on the sidelines if I don't have a firm conviction ..... I am not a fund manager. I don't need to stay invested at all times and I have no index to beat. I am merely here to earn (not lose) passive investment income to grow my portfolio which will fund my retirement lifestyle.

Hope this helps and good luck!

Hi guys, thanks for your replies. Whizzard, when you mention buying options, where/who do you buy them from?

[whizzard]

Originally Posted by teatree

Hi guys, thanks for your replies. Whizzard, when you mention buying options, where/who do you buy them from?

I don't really buy options because I will have to pay premium for them ..... I sell options which means I get paid for the options I sell.

In Singapore, options are mainly traded over-the-counter ("OTC") i.e. they are customised and with specific counter-parties. I sell them to my private bank. These are usually backed by shares I already own so that the bank knows it is not taking undue risk when they are buy options from me.

To Whizzard:
Oh ok, that's interesting. So basically if stock prices increase and people exercise their options, you essentially lose the difference between the actual stock price and the strike price?


Also, I don't understand how people beat a 5% return in the Singapore stock market, or make it sound so easy. It seems like a tall order to me. Any ideas?

What whizzard is doing is called a covered call. Useful in sideways market like sg but not for bullish growth stock. I have some sg stocks, so I will check the yield on such calls. I would have thought it will be very low....

The other yield enhancer I do is to sell puts. Essentially it is an eln or FCN. Pls just search it and read to learn what it is. I have done about >10% last 2 years on it using about 600k usd. Purely speculative. Got striked about 5 times but since us market is bullish... Make more.

Whizzard, u may want to option your own accounts to trade options if usd market. The pb I use option trade comms are very high. I get 1% more yield doing my own trades.

For 250k, don't buy bonds. Buy funds so that you diversify. Eg 100k bond funds, 150k equity funds with various themes u believe in like china, Europe, tech etc.

Buying 1 bond is too much risk.