Singapore developers build overseas as foreign firms splash out on land

Sun Dec 22, 2013 4:00pm EST

* At least four mid-tier developers venture abroad this year

* Home sales drop after government price-curbing action

* Official home-building plan exacerbates oversupply concern

* Foreign developers win most land auctions in five years, drawn by economic stability

By Rujun Shen and Anshuman Daga

SINGAPORE, Dec 23 (Reuters) - Singapore's mid-tier property developers are laying the first stones of their overseas business as domestic sales plunge, land prices climb, and foreign rivals bet high stakes on the city-state's long-term prosperity.

Hiap Hoe Ltd and Oxley Holdings Ltd followed sector leader CapitaLand Ltd this year by going abroad. At home, government action to slow the rise of record-high prices led to a 50 percent drop in third-quarter private home sales.

Official plans for a significant supply of new homes over the next decade make the price outlook even dimmer. Yet land prices have rallied, pushed up by foreign developers drawn by political and economic stability.

"The Singapore market is now very tough," said Teo Ho Beng, Hiap Hoe's chief executive officer. "Getting new land is a challenge, because there is so much competition."

Hiap Hoe made its first foray abroad by buying three properties in Australia in the past four months. In coming years, most of its revenue will likely come from outside the island-state, Teo said.

Oxley Holdings bought property and invested in developers in Britain, Cambodia, China and Malaysia. Sim Lian Group Ltd added to its overseas portfolio by buying property in Australia.

SingHaiyi Group Ltd, which earns 98 percent of revenue in Singapore, bought two properties in the United States this year and appointed Neil Bush, brother of former U.S. President George W. Bush, as non-executive chairman. The company shifted focus to Singapore two years ago in response to property-price cooling measures in its native Hong Kong.

CHALLENGED ON HOME TURF

Seventy-two developers participated in this year's nine private residential-use land auctions, including at least eight from abroad. That made 2013 the most competitive year since at least 2008 in terms of average number of bidders per auction, showed data from the Urban Redevelopment Authority of Singapore.

Local developers outbid foreign rivals and their partners in five of the nine auctions, their lowest win ratio in at least five years.

Kingsford Development Pte Ltd, from China, bid at four of the auctions and won two. In one of the auctions it offered as much as 16 percent above the bid of the closest competitor, despite soft home sales at its maiden Singapore project on a site purchased last year.

"We have confidence in the Singapore market," said Victor Yao, Kingsford's senior business development manager and architect. "Singapore's government is very good at maintaining property market stability."

Strong rule of law, a steady economic outlook and cultural similarity made Singapore ideal for Kingsford's first sally abroad, Yao said.

China's property market has been shaken in recent years by government measures to curb runaway prices, leaving developers wary of further intervention.

"The profit margins here aren't as good as in China, but the market is more stable," Yao said.

The other two foreign winners were subsidiaries of Metallurgical Corporation of China Ltd and Malaysia's Sunway Bhd.

GROWING LAND MASS

The URA's Private Residential Property Price Index has climbed over 30 percent since the end of 2009, rising 3.9 percent in July-September from a year earlier.

Sales, however, nearly halved to 2,430 units after the government in June curbed personal housing loans. That compared with 4,538 in April-June and 5,916 a year earlier, URA data showed.

"Developers are beginning to cut their prices in existing and new projects," City Developments Ltd said in its quarterly results.

Yet land prices have risen on an island smaller than New York City. Singapore has grown over 20 percent in the past 50 years and the government projects an extra 8 percent growth by 2030 to accommodate economic activity.

OVERSUPPLY

Every five years, the URA issues a land-use plan for the next 10 to 15 years. A draft last month showed land reserved for up to half a million mostly public homes, enough to house 2 million people. Public homes can be sold in the open market after varying years of occupancy.

This has exacerbated concern of oversupply as the government projects population growth of up to 1.6 million people, or 30 percent, to 6.9 million by 2030 from 2013.

The government regards current supply as "adequate" while the Real Estate Developers' Association of Singapore said it supported the government's "calibrated approach".

"For the next five years, everyone is feeling concern whether our residential supply will be too much," said Alice Tan, head of consultancy and research at Frank Knight. (Editing by Christopher Cushing)