Real estate has made a lot of Singaporeans millionaires

Kwek Leng Beng: ‘I would allot 50 per cent of my portfolio to property’
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Real estate has made a lot of Singaporeans millionaires, property never goes down to zero value, unlike stocks and shares, says CDL executive chairman Kwek Leng Beng

KWEK Leng Beng, 69, is the executive chairman of the Singapore wing of the Hong Leong Group of Companies, a global conglomerate worth over $30 billion employing 50,000 staff. Mr Kwek is also the executive chairman of leading property developer City Developments Limited, and chairman and managing director of Hong Leong Finance, Singapore’s largest finance company. He is also chairman of London-listed Millennium and Copthorne, the hotel arm of Hong Leong Group.

Mr Kwek, who holds a law degree from London, ranks No 9 on the Forbes 2010 Singapore rich list with a net worth of US$1.4 billion ($1.9 billion). He is married with two sons.

In an exclusive interview with Today’s editor-at-large Conrad Raj and senior writer Ansley Ng, Mr Kwek speaks about the property market.

Today: What do you think of the state of the residential market in Singapore now?

Mr Kwek: I think the market is not so bad. In fact it is pretty good, it is healthy. If you analyse the private sector, in the middle section of the property market, we are only 1.4 per cent above the 1996 peak. Compared to the 2008 peak, we are 3.7 per cent higher.

But everybody talks about property prices going very, very high, which is not correct if you look at the statistics. With inflation, after the worldwide stimulus package, the strengthening of our currency, and our gross domestic product now forecast to grow 13 to 15 per cent this year, the 3.7 per cent increase over two years is actually very small.

If you look at the volume of new home sales, volume has increased by quite a bit. For the first half of this year, it was about 8,000 units, while in 2008 it was about 4,200 units.

If you want to say that this is the beginning of a bubble, in that narrow sense, it is correct because we have never seen that kind of volume before. The volume will build up and the price will increase. But that also means there is stronger demand for property.

I think the take-up rate for property is healthy because of the low interest rates, and the big jump in the GDP in the last two quarters.

But we are very fortunate. The price increase is minimal. As long as GDP increases, I don’t think the Government will be unduly concerned if prices continue to increase.

So, is owning property a good thing?

Real estate, as studies show, has made a lot of Singaporeans millionaires. Why? 80-odd per cent own real estate. Many own condominium units. Property never goes down to zero value in most cases, unlike stocks and shares.

Property prices go in cycles. But if you study the charts, after every five to seven years, prices return to the next high. Why? Because we have a good government, we are forward looking, we are a small island, and interest rates are low.

If you put money in a bank, you get about 0.25 per cent per annum. So, why put all your money in a bank? You should diversify your portfolio and put some in real estate.

Your money in the bank, say, one year at 0.25 per cent. After four years, it is 1 per cent. If within four years, Singapore properties cannot increase by more than 1 per cent, then Singapore is not the right place for you to invest in anything at all.

But I would say the current sentiment is not as hot as before because of the recent measures introduced by the Government to prevent the start of a bubble.

In terms of prices, we have not really seen them escalating. For example, at the high end, prices range from $1,800 to $2,200 per square foot. I believe we are still 15 to 20 per cent below the peak. Do you remember, at the peak, prices were done at $5,000 psf? Today, how many properties are done at $4,500 psf? It doesn’t mean it won’t go up to $4,500 psf or beyond. We just don’t know when.

How are the problems in Greece and Hungary affecting us?

Yes, this could be a problem, but to me, if the world can deal with a global financial meltdown, this is only regional and it can be dealt with.

Is bidding at Government Land Sales still as fierce?

You notice that during the bidding at Government land sales, the local developers don’t bid as fiercely as before. It’s only the foreign companies, mainly the Chinese, whose developers and construction companies are coming to Singapore because the Chinese market hasn’t been doing as well. They think there is a lot of money to be made in this part of the world. They bid higher because they’ve got their target audience in China. They think they can get a lot of Chinese to buy here.

How long do you think the present upturn will last?

Provided you have the right pricing and location. If priced wrongly, especially if the location is not so good, I don’t think the properties can move. Or the response may not be so quick.

This buoyancy will last if the global economy recovers quickly. Every fund manager is looking at this part of the world – the Asia-Pacific region. They think the West is going to take a longer time to recover. Many wealth management and private banking operations are coming to Singapore.

A lot of funds, including private equity funds, raise plenty of money but have nothing to invest in. They only want to sell. With this kind of scenario and with inflation starting to be a concern, what better hedge is there other than property?

How do properties in Hong Kong and Shanghai compare with those in Singapore?

You look at Hong Kong. In the worst of times, the largest fall in property prices was about 60 per cent, compared with about 38 per cent in Singapore. But today, Hong Kong has surpassed Singapore in terms of prices.

Even in Shanghai, where I was last week, at the very high end, a developer was proposing to sell at 200,000 yuan per square metre or about $4,000 psf. It had 36 units and there were more than 300 people wanting to buy.

Do you see a lot of foreign money coming in?

They are coming but I think not as much as before the recent financial meltdown. Malaysians are here and the Chinese are coming, but not as many as before. Maybe this is the beginning. When markets crash in your hometown, you realise, maybe the overseas markets are better. We have other foreigners – Indonesians, Australians and British, but not as many as I have seen during the boom of 2008.

How long do you think the low interest rate regime will last? We used to pay 10 to 12 per cent on our mortgages, and now it is only about 2 per cent.

Governments know that you cannot allow interest rates to go up too high because you will kill the economic recovery. You cannot have double-digit interest rates on a sustained basis. It is not possible. Singapore is one of the cheapest in quality housing and there is no shortage of housing loans. Here in Asia, we think we must have a roof over our heads no matter what. Many are millionaires not because their wealth is from stocks and shares, but because they are backed by property.

What have developers been doing to ensure there is no bubble?

What they are trying to do is to price it right to let their inventory move, and at the same time they have to prevent their prices escalating. What they want is to continue to sell, so that they can have good quarterly results, in line with forecasts.

They also know what the Government’s intentions are. The Government will continue to offer land for sale. The developers may not be able to succeed in all their bids, but as long as there are land plots for sale in the pipeline, it’s okay. But you must remember, it will take about three to four years to complete projects. What you want is to lock in your cash flow.

This time round, developers are not over-geared, so they are not burdened by high interest payments. Of course, if they can, they will raise selling prices. But they’ve also got to be frightened because there is a lot of competition.

With foreign developers coming here, will local developers lose out in having an adequate land supply?

Foreign developers who come here, like those from China, haven’t got the experience yet. The local developer may have better quality, better design and better understanding of the market.

But if these foreign developers are targeting Chinese customers, they might have an advantage over the local developer. But I don’t think they will continue to keep bidding high prices for land. They can try in a couple of sites, but if they don’t make money, they will be very reluctant to put in bids for, say, 10 sites at one go. But when they make money and become more confident, they might tender higher in future bids.

Land supply, which depends on the Government, is always adequate. The Government can also always increase plot ratios of land parcels.

You say property is a good hedge and a good investment. What sort of yields are people getting?

The yield for residential properties can be as low as 2.5 to 3.5 per cent. But rentals are starting to go up. In the best of times, you can get 5-per-cent yield; in the worst of times, you get 2 per cent. Even then, it’s better than bank rates.

One of the things I am trying to do is to convince private bankers to sell real estate. They are always trying to sell bonds, equities and the like, but they never sell real estate. For example, in places like London – in the Belgravia area, Knightsbridge, Chelsea and Kensington, you have the Chinese, Hong Kongers, Singaporeans and Arabs who are investors. Prices in these areas have not come down in the recent recession.

Likewise, foreigners will want to come to Singapore. We are the hub of everything.

When it comes to portfolio investments, what sort of balance are you looking at? How much would you allot to property?

I would allot 50 per cent to property. Everybody says property is not liquid. Yes, it’s true. Shares are more liquid. But it’s more a question of pricing. Suppose your condo is worth $1 million and you need money urgently. You can sell it at $800,000. Do you not think anyone will buy? There will be buyers, especially when there is no shortage of housing loans in Singapore.

And if you can borrow from the bank, why shouldn’t the bank lend to you? The highest decline in property prices was 38 per cent. If the bank lends you 35 to 40 per cent, how can the bank lose? They know the value of property here will not collapse like a pack of cards.

On the other hand, if a bank lends money for shares in a company that goes bust, the shares become worthless. For property, as long as the bank holds on, restructures the loan, allows the customer to repay, it is almost always certain that property prices will recover.

How do you define affordability? How much of your income should be used to pay off the mortgage?

Maybe about 30 per cent of your disposable monthly income will be very comfortable. If you have a problem, go to your banker to restructure your loan. They will restructure. After all, they want to be stay in the business. The bank will be frightened if you don’t pay them a single cent.

Compared to Bombay, Delhi, Shanghai and Hong Kong, are prices here cheaper?

I think relatively cheap, in view of the infrastructure on our small island.

For example, in Sentosa (below), at the peak, properties were selling at $3,300 psf. Now oceanfront properties are going for $3,000 to $3,100 psf, and some are even selling at $2,500 psf. But there is no more land on Sentosa to be developed for sale. So, if you add in construction costs, I think developers will soon be selling at more than $3,000 psf.

A Chinese national recently bought a Sentosa bungalow for $36 million from the seller who bought it only one year ago for $20 million. In Sentosa, there are only about 2,000 residential units. With the integrated resorts, demand will continue to be strong there.

The integrated resorts have brought in many types of people. Some find Singapore a pleasant place to live in and may decide to buy a property here, to invest as a second home. Some who come here regularly might not want to stay in a hotel at the casino; or they may have other restrictions. Some bankers, for instance, are not allowed to stay in casino hotels.

For the broader market, there is a possibility of some of those waiting for HDB upgrading to decide to buy private condominiums instead. Some of them will think: “I cannot wait. Why don’t I just upgrade myself, since housing loan rates are so low?”