Asian Insights Conference 2015 - DBS Bank Asia Insights Conference 2015- Asian...

Disclaimer: The information contained in this document is intended only for use during the presentation and should

not be disseminated or distributed to parties outside the presentation. DBS Bank accepts no iability whatsoever

with respect to the use of this document or its contents.

Asian Insights Conference 2015

Asia Property Outlook

Moderator: Mr. Chew Chong Lim Managing Director, Institutional Banking Group, DBS Bank

Panel Speakers: Mr. Marc Giuffrida

Executive Director, Capital Market, CBRE

Ms. Carol Wu

Head of Research, DBS Vickers (Hong Kong)

Mr. Derek Tan

Head of Property Research, DBS Bank

3 CBRE | DBS ASIA INSIGHTS CONFERENCE 2015

Source: CBRE Research

Increase to $125 billion in 2014, up 39% y-on-y

Cross-Regional Capital Flows into Global Real Estate


ASIAN OUTBOUND INVESTMENT INCREASED 23% Y-O-Y TO US$40 BILLION

14

9

5

12

0

5

10

15

20

25

30

35

40

45

2007 2008 2009 2010 2011 2012 2013 2014

US

$ b

illio

n

Asia intra-region

Pacific

America

EMEA

Cross-border investment by Asian investors

Note: all the figures are based on transactions over US$10 million on standing investments which include, but not limited to office, retail, industrial hotel and mixed-use properties Source: Real Capital Analytics, CBRE Research


Top five destination as a % of total Asian cross-border investment

EXPERIENCED ASIAN INVESTORS ARE MOVING BEYOND TRADITIONAL MARKETS

Note: all the figures are based on transactions over US$10 million on standing investments with include, but not limited to office, retail, industrial hotel and mixed-use properties Source: Real Capital Analytics, CBRE Research


Asian cross border investment by asset class obvious

LIKEWISE ASSET CLASSES

Note: all the figures are based on transactions over US$10 million on standing investments with include, but not limited to office, retail, industrial hotel and mixed-use properties Source: Real Capital Analytics, CBRE Research


INTEREST RATES MAY MOVE BUT YIELDS SPREADS WILL CUSHION ANY SPIKES

Spread of prime office yields over 10 year government bonds

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

New

Delh

i

Taip

ei

Shanghai

Hong K

ong

Beiji

ng

Sin

gapore

New

York

Mum

bai

Seoul

London W

E

San F

rancis

co

Bosto

n

Chic

ago

London C

ity

Los A

ngele

s

Zurich

Sydney

Oslo

Paris

Tokyo

Madrid

Sto

ckholm

Mila

n

Lis

bon

Barc

elo

na

Melb

ourn

e

Hels

inki

Vie

nna

Dublin

Edin

burg

h

Munic

h

Ham

burg

Rom

e

Birm

ingham

Berlin

Dalla

s

Fra

nkfu

rt

Brisbane

Copenhagen

Bru

ssels

Am

ste

rdam

Perc

enta

ge

Asia Pacific Americas EMEA


AND NOW WE ARE SEEING RENTAL GROWTH 5 Years to end 2019, annual average % change

Money flow out of China is still insignificant

11

Company Stock code Overseas expansion

Vanke 000002.CH Has another platform (1036.HK) to grow HK portfolio

2202.HK Has exposure in Singapore and US

Also eyes opportunities in London

COLI 688.HK Owns three office buildings in London (injected from parentco)

Also eyes opportunities in greater New York area

Wanda 3699.HK Has projects in London, Madrid, Chicago, Los Angeles, Golden Coast,

Sydney

Fosun 656.HK Has projects in HK, Japan, US, UK and Australia

Sino-Ocean 3377.HK Invested in Australia and US through Gemini (174.HK)

Greenland n.a. Invested in 14 cities in 9 countries including Korea, Thailand,

Malasia, Australia, UK, France, Spain, US and Canada

Targets 2015 overseas sales of Rmb30bn

Fantasia 1777.HK Has a project in Singapore and owns a hotel in US

Eyes opportunities in Southeast Asia

GZ R&F 2777.HK Has projects in Malasia and Australia

Country Garden 2007.HK Has projects in Malasia and Australia

Agile 3383.HK Has projects in Malasia

BJ Cap Land 2868.HK Has projects in Australia

But developers are diversifying into different asset

classes

12

0

1

2

3

4

5

6

7

8

Industrial Office Shopping Center

Residential

Beijing Shanghai

%

Beijing and Shanghai Property Market Yields (Q1 2009-Q4 2013)*

*Yields for the residential sector are from Q1 2009 to Q2 2013.

Source: CBRE Research, Q4 2013.

There are also new business adventures

Property management

– Fantasia

– Vanke

– COLI,

– Country Garden and more

New business lines

– P2P lending: Greenland HK

– Others: water/culture/plastic surgery; health care: Evergrande

13

Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated

or distributed to parties outside the presentation. DBS Vickers Securities accepts no liability whatsoever with respect to the use of this

document or its contents.

16

Residential market outlook

17

Source: DBS Bank

Singapore Residential Market

DBS Forecast a 12-15% drop in property prices over 2015-2016

But Luxury Market is finding a bottom

Falling Market

Bottoming Market

Rising Market

Peaking Market

Singapore (Mass Market)

Singapore (Luxury)

Mass Market: Weakening affordabilityMass Market: Weakening affordability

Upgrader Demand is curbed Housing Market in a “net surplus “ situation

180.0 40,000 Surplus/Deficit230.0Index (x)

140.0

160.0

20,000

30,000

(units) Surplus

170.0

190.0

210.0

230.0Index (x)

HDB Resale Index

PPI (Non-Landed)

80.0

100.0

120.0

(10,000)

-

10,000

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

110.0

130.0

150.0

170.0

20.0

40.0

60.0

(40,000)

(30,000)

(20,000)

50 0

70.0

90.0

110.0

-

20.0

(50,000)

(40,000)Change in Dwellings URA PPI (RHS)

50.0

Mar-0

6

Sep

-06

Mar-0

7

Sep

-07

Mar-0

8

Sep

-08

Mar-0

9

Sep

-09

Mar-1

0

Sep

-10

Mar-1

1

Sep

-11

Mar-1

2

Sep

-12

Mar-1

3

Sep

-13

Mar-1

4

Sep

-14

Mar-1

5

Widening Gap between HDB resale and Private Housing Net Surplus in housing units to mean vacancy rates reaching 9-10% and rentals to drop

18

Source: Manager , Colliers, JLL, DBS Bank

19


Luxury: Signs of bottoming

Price Discounts to Homes in Core Central Region at near/at 10-year lows Premium for new homes (CCR) at near 10-year lows

Improved Relative Value vs RCR and OCR Relative attractiveness of new uncompleted homes in CCR

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

(%) S$ psf

Median Price of Homes (Core Central Region)

Pricing Spread for existing and new Homes (Core Central region)

41%

28%

59%

34%

0%

10%

20%

30%

40%

50%

60%

70%

Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

(%) Discount

Price Discounts for homes in Rest of Central (RCR) Region

Price Discounts for homes in Oucside of Central (OCR) Region

20

Office market outlook

21

Source: JLL, DBS Bank

Singapore Office Market

Market Rents / Capital Values approaching a peak

Falling Market

Bottoming Market

Rising Market

Peaking Market

Seoul

Boston

Los Angeles

United States

New York

Singapore

Sydney

Delhi

Tokyo

Hong Kong

Beijing

Shanghai

Kuala Lumpur

Jakarta/Guangzhou

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

-2

-1

0

1

2

3

4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F >2018F

S$ psf pm 'm sqft Net Demand Net Supply Rentals (S$psf/mth)

22

Source: JLL,CCT, DBS Bank

Singapore Office Market Looming supply completions (CBD) in 2016/2017 a key uncertainty

Period

Average Net Supply (m sqft)

Average Net Demand (m sqft)

2004-2013 (10 year through market cycle) 0.8 m sqft 1.1 m sqft

2009-2013 (5 years during post Global Financial Crisis) 1.2m sqft 1.0m sqft

2014- beyond (Forward) 1.0m sqft -

Annual Supply 1.0 sqft Post Asian Financial Crisis, SARS, demand picked up only in 2005 onwards (mainly Financial institutions)

Post Global Financial Crisis, demand mainly other sources

23


Office Transactions (2011 – YTD)

REITs / Insurance / Non-traditional investors have been buyers

Insurance 12%

REITs 43%

Funds 8%

Foreign buyers 5%

Non traditional investors

18%

Companies 14%

But will this continue?

24

Source: Bloomberg Finance LLP, REITs, DBS Bank

REITs: Harder to make new accretive acquisitions

Rising cost of capital to impact returns from acquiring

7 11

15 15 19

23

29 30 33

35 36

30%

29%

34%

31%

32%

34% 34%

33% 32%

34% 34%

26%

27%

28%

29%

30%

31%

32%

33%

34%

35%

-

5

10

15

20

25

30

35

40

2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F

(%) S$'bn Total Debt (S$'m) Gearing Level (%)

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

(%)

3Mth Swap Offer Rate

Debt fueled

Acquisitions

25

Interest Rates : Where it hurts?

26

Source: CapitaLand, Keppel Land, DBS Bank

Negative Impact of Rising Rates

Home-Buyers

• Reduced affordability

• Refinancing to hurt

Property Developers

• Softening demand for new homes

• Eroding profit margins

REITs

• Higher interests costs to hit distributions

• Cost of capital to rise as yields rise

27

Source: NUS, DBS Bank

Home Buyers : A 1% hike will result in ..

Affordability weakens when interest rates rise and lower residual income for other expenses

Debt Servicing Ratios for (HDB) to rise by 1.9%-2.4% Debt Servicing Ratios for Condos and Landed to rise by 2.9% and 5.3%

10%

12%

14%

16%

18%

20%

22% Debt Servicing Ratio (%)

3 room flat 4 room flat 5 room flat

10%

15%

20%

25%

30%

35%

40%

45%

50%

55% Debt Servicing Ratio (%)

Condo and Apartment Landed (excl detached)

28


Property Developers : Forced to diversify

Moderating Revenues; Higher gearing levels

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

8.0

10.0

12.0

14.0

16.0

18.0

2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F

(%) S$'bn

Developers Revenue Trends Gearing (%) RHS

Developers have been running down existing inventories, land bank selectively and focus on deploying more capital overseas (UK / Australia / Japan) to diversify

29

REITs : Refinancing Costs to rise over time

Rolling over interest hedges over 2016-2017 to hit distributions

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Years (%) Cost of Debt (%) LHS Debt Maturity (Years) RHS

77%

73%

75% 75%

78%

80%

78% 77%

78%

80%

68%

70%

72%

74%

76%

78%

80%

82%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(%)

% Fixed Rates

Shorter Tenure

Longer Tenure

Source: Bloomberg Finance LLP, DBS Bank

30

Source: Bloomberg Finance LLP, DBS Bank

Higher cost of Equity as yields increase

REITs : Higher Cost of Capital

3.9%

6.5%

14.0%

7.2%

5.0%

6.8%

6.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Yield Spread S-REIT Yield Mean - 1 SD +1 SD




Q&A

32

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