ERA Daily Research - 8 September

Shophouse at 93 Club Street on the market for $9.9 mil

Edge Prop, 7 Sep 2021, Tue 10:38 AM

By Timothy Tay

A 999-year leasehold shophouse at 93 Club Street is on the market for $9.9 million. The three-storey property has a total built-up area of 2,787 sq ft and the guide price translates to $3,552 psf on the built-up area. PropNex Realty is the sole marketing agent for the transaction.

The shophouse is prominently located at the junction of Ann Siang Hill and Club Street in District 1. The property is close to the upcoming Maxwell MRT station on the Thomson-East Coast Line, as well as the existing Telok Ayer and Chinatown stations on the Downtown Line.

The shophouse sits on a site that is zoned ‘Commercial’ under the 2019 Master Plan. However, the ground floor of the shophouse is approved for restaurant use while the second floor has approval to operate as a shop serving take-away food.

“This property presents a rare long-term investment opportunity in this coveted area where F&B shophouses are tightly-held,” says Loyalle Chin, senior associate division director, PropNex Realty.

Recent shophouse transactions in the area include 44 Club Street which was sold for $12.35 million on July 12 this year, and 46 Club Street which changed hands for $13.15 million on the same day.

The sale of 93 Club Street is “probably the lowest quantum for a 999-year F&B shophouse in the Telok Ayer Conservation Area under S$ 10 million,” says Chin. He expects keen interest from investors and end-users who are looking to locate their business or family office.




Freehold's premium may provide clue on valuing infrastructure spend

The Business Times, 8 Sep 2021, Wed 5:50 AM

By Nisha Ramchandani

PROPERTY buyers in Singapore value freehold tenures enough to dish out a premium of 15-20 per cent over a 99-year leasehold condominium, going by findings from a study by the National University of Singapore (NUS).

From studying condominium transactions in Singapore over 1995 to 2015, the researchers found low and declining long-run discount rates, with market discount rates declining to levels below previous estimates. Likening property to infrastructure, the NUS researchers believe their findings could guide policymakers in using cost-benefit analysis in other areas, such as valuing expensive infrastructure projects or policies seeking to mitigate climate change.

This could include projects such as high speed rail links and electric buses for public transportation or policies aimed at the decarbonisation of the shipping industry.

Such investments may be costly upfront, but like housing, can ultimately deliver benefits to society over the long-term. The researchers used statistical models that compared the prices paid for properties with varying lease lengths - 99-year and 999-year leasehold, as well as freehold properties - to ascertain the discount rate.

Based on non-linear panel regression analysis, discount rates are estimated at about 2.5-4 per cent per year for the first 100 years, but ease to 0.5-1.5 per cent per year by the fourth century. Less discounting of the future suggests buyers attach greater value to the property.

Hence, buyers are willing to pay a premium for freehold property since the lifespan goes beyond just 99-years or 999-years.

The data showed that freehold property generally goes for a premium of 15-20 per cent above a 99-year leasehold property and around 3-5 per cent more than a 999-year leasehold property.

It also suggests that buyers still place a clear distinction between freehold and 999-year leasehold - which could span several lifetimes - albeit at a smaller premium of 3 to 5 per cent.

Associate Professor Eric Fesselmeyer, who is among the team of researchers, said: "Singapore's residential property buyers show us through their actual choices that they are surprisingly patient, that they value the future, and are willing to pay a premium for very long-run assets.

"It is like paying a premium out of today's consumption to safeguard the environment in the future - and in this case, it is their housing in a safe, clean, and liveable Singapore."

He was formerly with NUS and is currently with Monmouth University in the United States.

The discount rates in the study were also found to be "significantly lower" than the rates typically used to evaluate public policy.

NUS' Assoc Prof Alberto Salvo added: "Our finding of discount rates declining to 0.5-1.5 per cent per year implies greater value for public investments made today that provide returns to society many years in the future."

He added: "This is important because using a constant discount rate of say, four per cent yearly means that benefits realised in just a few decades from now are rendered worthless in today's dollars in a cost-benefit calculation, incorrectly undervaluing the benefits of slowing climate change or investing in long-term




Buildings in S'pore have to meet higher standards to be certified green under refreshed scheme

The Straits Times, 7 Sep 2021, Tue 2:18 PM

By Michelle Ng

SINGAPORE - New and existing buildings will now have to hit higher sustainability standards to be certified green, with the reduction of embodied carbon in developments as one of the criteria emphasised.

The changes to the Building and Construction Authority (BCA) Green Mark scheme come as Singapore pushes towards its target to become a low-carbon built environment.

The refreshed scheme places greater emphasis, among other criteria, on the integration of smart technologies, the creation of healthier environments for building users and the reduction of embodied carbon in developments, said National Development Minister Desmond Lee on Tuesday (Sept 7).

Embodied carbon refers to the carbon or energy consumed through the production of materials used for construction and during the construction process itself.

The refreshed scheme was launched at the virtual International Built Environment Week 2021 event, which runs till Sept 10.

In his opening address, Mr Lee said there is a need to continually review and raise standards for sustainability in buildings, in order to hit key targets set in the Singapore Green Plan 2030.

"Over the years, we have reviewed and refined the scheme to ensure that we consistently raise the bar for our best-in-class standards, and to broaden the scope for sustainability in our built environment," he said.

"(In the refreshed Green Mark scheme) we will raise our standards in energy performance, and place greater emphasis on other important sustainability outcomes."

Under the BCA Green Mark 2021, new and existing buildings will need to meet higher minimum energy efficiency levels and score sufficient points in the sustainability sections to be certified green.

It will also be applicable to buildings that have already been certified Green Mark in the past.

In Singapore's push for more super-low energy developments, residential buildings that achieve at least 60 per cent improvement in energy efficiency compared with 2005 levels will also be recognised, said Mr Lee.

The Green Mark 2021 scheme is aligned with the United Nations' Sustainable Development Goals.

Launched in 2005, the BCA Green Mark certification scheme is a rating system that evaluates a building's environmental impact and performance.

In his speech, Mr Lee said that a one-stop digital platform to streamline the submission process to relevant government agencies is also in the works.

It currently involves more than 20 approval processes, but will be consolidated into just a few across the design, piling, construction, occupation and completion phases.

The digital platform roll-out is part of wider efforts to accelerate the transformation of the built environment sector which has been badly hit by the pandemic.

Called Corenet X, it is slated to be launched in the second half of 2023.

"The end goal is an efficient, faster and an easier-to-navigate regulatory approval process that will benefit both industry practitioners and our regulatory agencies," said Mr Lee.

On Tuesday, Mr Lee highlighted two projects by the National University of Singapore - the four-storey Engineering Design and Innovation Centre and the Frontier, a two-storey building which houses two canteens.

Both have attained the Green Mark Platinum (Zero Energy) certification under the Green Mark 2021 scheme.

Mr Lee noted that both projects harness renewable energy through solar panels and are designed to maximise natural ventilation and daylight while using sun-shading devices and extensive greenery to bring temperature down.

Frontier, in particular, has demonstrated exemplary performance in climate resilience by putting in place food waste processes to generate reusable resources, such as using biodiesel from recycled cooking oil to power vehicles in the campus, said Mr Lee.

In a discussion at the event hosted by Ms Jessica Cheam, founder and managing director of Eco-Business, Mr Lee said the pandemic, while harsh, has pushed many stakeholders to adopt and advocate for the digital transformation of the built environment sector.

However, for the sector to weather "black swan" events like the Covid-19 pandemic and future crises to come, it will take more than just government legislation and contractual commitments, he added.

"It's the collaborative mindset that allows developers, main contractors and the rest of the ecosystem to have that relationship to support each other beyond what is written in black and white," he said.

"To get a project completed involves many players and if it's an arms length relationship, it only takes you so far.

"But if there's trust and open conversation with each other, it can take you to the finish line in better shape than most."

When asked what he imagined Singapore's built environment to look like in the future, Mr Lee said: "I'll push to be a City in Nature."

"This requires the built environment stakeholders to not just build more sustainably, but also be stewards of the environment, people, biodiversity, heritage, enterprises and communities in and around the projects we work on.

"This ensures that Singapore can be both an urban hub - which is very exciting, but also very homely in how we take care of our most vulnerable, our environment and nature - and being guardians of our memories for future generations."

The revised BCA Green Mark 2021 certification scheme will raise energy efficiency requirements and environmental sustainability standards for new and existing buildings.

Buildings will be assessed on the following criteria:

1. Intelligence

This refers to the use of integrated digital technologies and data management, and whether these systems enable fully automated, intelligent and responsive buildings.

2. Health and well-being

This covers the way buildings are designed, retrofitted, constructed and operated to facilitate the mental, physical and social well-being of their occupants.

3. Whole life carbon

This takes into account embodied carbon emissions, use of sustainable construction methods, and the fitting out of the building. The plans, and delivery of those plans, to have the building transition towards zero carbon emissions are also evaluated.

4. Maintainability

The strategies and smart facilities management technologies that are used to optimise labour efficiency and cost-effectiveness of the building's downstream maintenance regimes.

5. Resilience

This refers to the building's resilience and adaptability to climate change, and the use of nature-based or natural climate solutions to protect, manage or restore ecosystems.




Lessons from Greatearth's bust: Integrated players best placed to tackle construction woes

The Business Times, 8 Sep 2021, Wed 5:50 AM

By Nisha Ramchandani

THE plight of defunct contractor Greatearth underscores the severity of the headwinds that have been plaguing the construction sector.

Since the pandemic first broke, construction companies have seen work disrupted by the circuit breaker as well as stringent safe-distancing measures at worksites. Arguably the biggest challenge, however, is tighter border controls which have restricted the flow of foreign workers and resulted in a manpower shortage.

Companies have had to hike salaries to retain their existing workers, who also have to be tested regularly for Covid-19. All this has driven up costs and put pressure on margins. Supply chains have also been disrupted, which has impacted the supply and cost of construction materials. In short, it's created the perfect storm for the construction industry.

Analysts say that construction costs have gone up anywhere from 10 to 30 per cent as a result. RHB analyst Vijay Natarajan reckons there is some sharing of the burden between contractors and developers for existing projects, although developers are likely factoring in the spike in construction costs when undertaking new projects and passing costs on to buyers.

Property developers have also had to contend with delays with respect to the completion timelines of their ongoing projects.

But the challenging operating environment has started to take its toll. Notably, affiliated companies Greatearth Corporation and Greatearth Construction are being wound up. As a result, there will be further delays in the construction of five build-to-order housing projects and two public projects as HDB sources for new contractors to complete the remaining works. Several subcontractors are reportedly staring at sizeable losses due to unpaid fees owed by Greatearth, while over 2,900 home buyers are expected to be affected by the disruption.

Already, existing delays for public and private housing projects have resulted in some prospective buyers turning to the rental market as well as the HDB resale and private resale markets as some may be unable or unwilling to wait for their new home.

Analysts expect that construction players with exposure to property development should be better placed to ride out the storm, given the fairly buoyant state of the property market.

"Construction players will have to grapple with low margins for some time, but if they are a developer, they may be able to pass on some of these increased costs (to buyers)," Mr Natarajan said.

Diversified revenue streams

Being able to fall back on diversified revenue streams also helps.

Construction and property group Tiong Seng Holdings posted an operating loss of S$683,000 for H1 2021 at its construction business, albeit narrowing from S$6.3 million a year ago. Operating profits from its property development and engineering solutions segments, however, helped mitigate some of the fallout, keeping it in the black with a net profit of S$1.4 million.

Meanwhile, Wee Hur Holdings posted its first loss in over 40 years for H1 FY2021 - to the tune of S$25 million - weighed down by its construction and purpose-built student accomodation (PBSA) businesses. These losses were partially offset by gains from the property development business and workers' dormitory business.

But even as the pandemic continues to present challenges for its other businesses, Wee Hur appears fairly sanguine where property development is concerned as it ramps up to launch its 115-unit condominium Bartley Vue for sale this month.

An integrated player such as Chip Eng Seng Corp or Lian Beng Group may also be better placed to meet construction timelines versus a pure play developer. Integrated players will be able to plan better, according to DBS analyst Derek Tan. "Developers are passing on the increased construction costs to consumers but if there are limitations to how much they can pass on, they would need to look at which avenues to cut. An integrated player would have more leeway - there's more flexibility and, possibly, more control over raw materials and inventory."

The eventual relaxing of curbs to allow the inflow of foreign workers should help alleviate some of the pressure on the construction sector. But even as the pandemic is contained, analysts say that construction costs may not return to pre-pandemic level since some of these increased costs are due to structural changes - such as the shift towards ensuring a better living environment for workers.

As Singapore works towards reducing its reliance on foreign labour, automation will be a key part of helping the construction industry adapt to the new normal.



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