Singapore Property Developers Seek Fortunes Abroad

property In the past few years, Singapore has seen sky-rocketing property prices amidst a low interest rate environment. With possible interest rate hikes in the future and growing leverage, the government has put in place several rounds of property cooling measures. This includes the compelling Total Debt Servicing Ratio (“TDSR”) which took effect from 29 June 2013. The TDSR framework is to ensure borrowers aren’t overleveraged by limiting their housing loan repayments, including other repayment obligations (student loans, credit card debts, car loans, personal loans, etc.), to a maximum 60% of income.

Slowing Demand in Singapore

With the clamp-down on high property prices in Singapore, demand for residential units in Singapore have taken a toll. The latest data published on 25 October 2013 by the Urban Redevelopment Authority (URA) also indicated that developers sold fewer private residential units, while prices of private residential properties increased at a slower pace in 3rd Quarter 2013 compared to 2nd Quarter 2013. In the meantime, land prices continue to escalate, evident in recent tender offers for state land as published in the local newspapers.

Venturing overseas to diversify income

In view of the cooling measures and high land prices in Singapore, many listed property developers and REITs are turning their sights to other countries in search of better prospects.

One rather distinctive purchase is the acquisition of yield-accretive 5-star resort in the Maldives by CDL Hospitality Trust (SGX: J85). CDL acquired the property after taking into account Maldives’ 7.1% annual growth in tourist numbers and the increase in flight routes to the islands.

Similarly, local developers have made a move to London to take advantage of the low GBP-SGD currency rate and improving market conditions. City Developments’ (SGX: C09) first U.K. purchase is a site in the upmarket Knightsbridge area, United Kingdom for a consideration of GBP 80 million, or approximately S$159.6 million. The latest to the party is local construction group Lum Chang Holdings (SGX: L19). Its subsidiary, Pembridge Palace Propco, has agreed to buy a freehold London hotel in the heart of the tourist precinct for about S$53 million (£26 million). The hotel is next to tourist attractions such as Hyde Park and Kensington Gardens. According to Lum Chang, the 30,099 sq ft property was acquired as an investment and will be operated by a tenant.

Foolish Bottom-line

With more listed property firms heading overseas, retail investors who are vested in their stocks will need to factor in the risks and rewards of the overseas acquisitions too. Understanding how the deals will make a difference to the company’s bottom-line can be a good starting point.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.