Property developers are in the business of making the best money possible. If they can make more money by developing homes in Australia compared to Singapore, does that mean that property prices in Singapore has reached a level that buyers should start to take a look again?
To sum up this news in 3 pointers:
- Who are the developers that have ventured into Australia? – A mix of established big local developers such as City Developments and Frasers Centrepoint, and smaller players such as Heeton Holdings, have entered the Australia property market.
- What is the profit margin in Australia compared to Singapore ? – Analyst noted that if local developer team up with a good builder or joint-venture with a good developer and control their costs well,they can achieve a 20 per cent return on investment on an annual basis in Australia. In Singapore, a 15 per cent return on investment may not be achievable.
- What other perks attracted developers to Australia? – A weak Australian Dollar makes it attractive for foreigners to purchase property there. Hence, developers will feel more confident about their products. Other pull factors include a stable economic outlook and transparent real estate market.
For the full article from ChannelNewsAsia here
As market conditions in the Republic become more challenging for property developers, analysts say many of them, even the smaller players, are seeking greener pastures in Australia.
According to a CIMB report, many have headed for Australia in the past 12 months to enjoy better margins and yield spreads. One industry player, Century 21 Singapore CEO Ku Swee Yong, added Australia presents an opportunity for developers to redeploy capital into a market offering higher returns.
“If you could team up with a good builder, or joint-venture with a good developer and control your cost well, Australia still has better margins than Singapore,” said Mr Ku. “You would perhaps be able to achieve a 20 per cent return on investment on an annual basis going into Australian property development. In Singapore and today’s market condition, I don’t think you can achieve even a 15 per cent return per annum.”
Big property players like City Developments recently said it was looking at diversifying into Australia and Japan. Australia is also a core market for Frasers Centrepoint (FCL), which has secured a 98.4 per cent stake in Australand.
Mr Lim Ee Seng, Group Chief Executive Officer of FCL, said: “This acquisition will be the catalyst that will help FCL to deepen our roots and accelerate our growth in a market that we believe will continue to offer long-term growth prospects.”
SMALLER DEVELOPERS JOIN THE FRAY
It’s not just the bigger developers getting in on the act though. Smaller developers are also joining the fray, and boutique developer Heeton Holdings is one of them.
Heeton, the developer of prime residential projects in Singapore such as the Onze @ Tanjong Pagar, is leading a consortium to develop properties in Australia. The consortium,comprising SGX-listed companies Lian Beng Group and KSH Holdings and Australian partners Twin Ocean Property and Sunfire Asset, is developing a mixed-use project in Fortitude Valley in Brisbane.
The A$150 million (S$170 million) residential and hotel development at Wickham Street should be completed in 2017, and will comprise 324 residential apartments and 198 hotel rooms.
Such ventures allow Singapore developers to diversify their business and is seen as a win-win partnership by their Australian counterparts.
Mr Ralph Nunis, a director at Sunfire Asset, said: “In Australia, the finance sector can be quite restrictive at times, depending on the type of development you are undertaking. So we had the view that if we were to engage a long-term partner and go into a joint-venture with a Singapore consortium or public company, they would give us less restrictions with regards to construction finance and pre-sales.”
WEAKER AUSTRALIAN DOLLAR A BOON
In addition, CIMB said a weaker Australian dollar increased the country’s attraction as an investment destination, and properties there remain popular with overseas buyers. In its September report, CIMB said a key competitive edge for Australia is its ability to access a greater overseas clientèle pool in the housing sector, in addition to local demand.
This view was echoed by Mr Ku, who said: “They can also decide to launch it in Singapore, instead of just selling it into the domestic market. For an Australian product, you can bring it out of Singapore, to Hong Kong, Taiwan, China and there will be buyers. So your market reach in terms of distribution and sales would be much wider.”
Other pull factors include a stable economic outlook and transparent real estate market. According to consultancy firm JLL, Australia was ranked third on its Global Real Estate Transparency Index 2014 after the United Kingdom and the United States.
It is not just Singapore developers tapping opportunities in Australia. Developers from China and Malaysia have also entered the market and are focusing primarily on residential projects.
However, analysts did state that investing in Australia is not without risks. Some of the risks foreign developers in Australia would face include foreign exchange exposure and interest rate hikes, they said.