Most foreign real estate interests of Singapore property companies are concentrated in the Asia-Pacific region, particularly in Malaysia and China, followed by the Australasian region (Australia and New Zealand).

Following the implementation of anti-speculation measures in 1996 and the Asia financial crisis in 1997, the local property market started its downtrend and, apart from a brief recovery in 2001, has stayed lacklustre ever since.

Total annual returns (capital appreciation plus rental yield returns) of investments in Singapore property averaged only 6.7 per cent for prime retail space in the five years between 2000 and 2004, and was negative for both office and residential properties.

On the other hand, most other countries in the Asia-Pacific region recovered strongly from the Asian financial crisis and their property markets have been buoyant in recent years.

For example, over the 2000-04 period, the average annual compounded total returns for the residential markets of Shanghai and Beijing, the two largest cities in China, was between 15 per cent and 20 per cent, while the average total returns for investments in the Seoul office market reached as high as 30 per cent over the same period.

Not surprisingly, many Singapore property development and investment companies started to look for growth opportunities beyond the domestic market over the past few years. Most of the major listed property development companies in Singapore now derive a substantial part of their revenue from overseas operations.

Many of these companies have reduced their reliance on the local property market for growth. As a result of this outbound investment, most of the big players in the property sector featured prominently in IE Singapore's inaugural Singapore International 100 Ranking - a ranking of Singapore companies by their revenue generated from operations overseas over the June 1, 2003, to May 31, 2004, financial period.

Most notably, CapitaLand came in a respectable fifth in the overall ranking of Singapore companies and was the highest placed among local property firms, generating 64 per cent ($2.45 billion) of its turnover from overseas operations.

In the breakdown of foreign revenue by sub-region, CapitaLand was among the Top 10 companies in China (ranked 5th), Europe (ranked 6th) and North Asia (ranked 8th). In addition, its serviced apartment arm, The Ascott Group, was placed 73rd in the Top 100 list.

City Developments (CDL) was ranked second among the property companies with $1.42 billion (61 per cent) of its revenue contributed by its operations abroad, taking it to the 11th position in the overall Top 100 list. The company came in strong in the Americas (ranked 2nd), Europe (ranked 3rd) and North Asia (ranked 4th), mainly through the Millennium & Copthorne subsidiary.

Keppel Land and United Overseas Land (UOL) were the other property companies that made it to the Top 100 list - at the 40th and 78th positions respectively. Both companies saw up to half of their revenue generated from overseas operations.

We also noted that Fraser and Neave (F&N) was ranked the seventh largest foreign revenue generator in the Top 100 list. Part of this would have come from its property arm, Centrepoint Properties.

Recent overseas investments

According to reported overseas transactions, major Singapore developers purchased about $4 billion worth of overseas property assets in 2004. This is a significant leap from the previous year's estimated investment value of $506 million. Some of the major transactions in 2004 included GIC Real Estate's acquisition of the Shinagawa Seaside East and West Towers in Tokyo for 42.5 billion yen and the Star Tower in Seoul for an estimated 900 billion won, according to a Business Times report on Feb 18, 2005.

In recent years, CapitaLand has also increased its portfolio of overseas investments in China, Japan, Thailand and Malaysia.

By investment destination, Jones Lang LaSalle estimates show that China and Australia accounted for about 64 per cent of total overseas investments in 2003 by Singapore property companies. In 2004, while China remained one of the hot spots in the region, there was increased investment interest in North Asia (South Korea and Japan) and Malaysia, which together accounted for over 70 per cent of the total transaction value that year.

In terms of sectoral (i.e. property type) preferences, investments in office and mixed use projects made up 67 per cent of the total known invested sum by major Singapore property companies in 2004.

On the other hand, the combined share of the residential and hotel sectors shrank from 92 per cent in 2003 to 9 per cent in 2004. This could be attributed to increasing capital values and shrinking returns of these two sectors across most of the cities in the region.

Most foreign real estate interests of Singapore property companies are concentrated in the Asia-Pacific region, particularly in Malaysia and China, followed by the Australasian region (Australia and New Zealand).

Local developers like CapitaLand, CDL, Centrepoint Properties, Keppel Land, Wing Tai, UOL and MCL Land already have a presence in neighbouring Malaysia, making it the most preferred country for property investments from Singapore.

Keppel Land stands out for its wide reach in South Asia, having interests in India, Vietnam, Myanmar, Philippines, Thailand, Malaysia and Indonesia.

China, being one of the largest economies in this region, is the next most preferred investment destination for local developers. China property and development land feature in the overseas portfolio of major property companies like CapitaLand, Centrepoint Properties, Keppel Land, UOL, GuocoLand and Ascendas.

Other than in Australasia, a popular holiday and study destination among Singaporeans, the presence of local developers diminishes sharply outside of Asia. Only the UK appears to attract significant interest from Singapore developers. With the exception of CDL's Millennium & Copthorne, the developers have little presence in the Americas. The Middle-Eastern region also does not appear on the investment radar of most of these companies.

What's ahead

Looking ahead, the success of Reits has given a new dimension to investor expectations. Reits now offer a viable alternative to investors interested in the real estate sector and are looking for steady dividend payout and a chance to reap capital gains.

Therefore, more acutely than before, Singapore property companies, especially the listed ones, will have to prove to investors that there is real differentiation in investing in their companies instead of Reits. This differentiation will have to come in the form of higher growth opportunities (via green field development opportunities, new growth markets, etc.), the ability to be more agile in capturing investment opportunities, and having a more diversified geographical and sectoral spread.

As yields in the North Asian and Greater China markets compress over time, attention will increasingly turn towards the emerging markets in South Asia, with India now attracting the most interest from foreign investors. Ascendas has already made its presence felt with five IT facilities in Hyderabad, Chennai, Bangalore and Haryana. Other markets that may receive more foreign capital inflows include Indonesia, as its political situation stabilises, and Vietnam and Cambodia, which remain largely untapped.

Singapore property companies have no choice but to continue to regionalise to enhance their portfolio and returns. This trend has already started and is expected to accelerate in the years ahead. - by Yu Lai Boon    SINGAPORE BUSINESS TIMES      24 March 2005