Where to invest beyond Singapore's residential sector?

By Feily Sofian

/ The Edge Property |

July 27, 2017 9:00 AM SGT

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Vietnam, Australia, or S-REITs? Where should yield-hungry investors put their money to get the most bang for their buck? About 60,000 dwellings will be completed in Ho Chi Minh City in 2017 and 2018, according to estimates by Savills. Despite a potential supply onslaught, the long-term prospect for Vietnam’s housing market remains favourable, says Troy Griffiths, deputy managing director for Savills Vietnam. “There are limited alternative investment vehicles in Vietnam and apartments offer attractive gross rental yields of 6% to 8%.”

Meanwhile, villas and townhouses are severely undersupplied, making them a highly attractive asset class. “Ho Chi Minh City has a population of more than eight million and there are only around 2,000 of villas and townhouses in the market,” Griffiths notes. Foreign nationals who are keen on villas and townhouses can hold a 50- year leasehold title but are subject to a foreign ownership cap. This is based on the number of foreign owners within a masterplan, generally 10%, or 250 houses within a “ward”, says Griffiths.

Griffiths was speaking on Vietnam’s property market outlook and opportunities at The Edge Property 360º seminar on July 15. The seminar examines alternative investment destinations and asset classes beyond Singapore’s residential sector. Boaz Boon, founder and principal of THRED and director at VestAsia Group, led the panel discussion.

In Ho Chi Minh City, apartments in districts 2 and 9 offer promising opportunities, says Griffiths. “This area will benefit the most from infrastructure developments such as the metro, shopping facilities and the future Sports City,” he explains. Griffiths also favours units in the US$1,000 to US$2,500 psm range.

The relaxation of foreign property ownership in July 2015 has made Vietnam a sought-after investment destination. Locally, demand for Vietnam’s residential market is also driven by rapid urbanisation and evolving living arrangements from three-generation to smaller and single households, says Griffiths. While rental yields will be under pressure in the short term, there remains a large unmet demand for affordable dwellings, either for rental or owner-occupation, he adds.

Australia: Is the party over?

Talk of a housing bubble in Australia has surfaced since at least 2015. Yet residential property prices have continued to defy gravity, says Tan Kok Keong, CEO of REMS Advisor and co-founder of FundPlaces. Sydney has been the choice destination among investors looking to acquire trophy properties, while Melbourne has been ranked as the world’s most liveable city for several years.

Based on socioeconomic trends, however, Perth offers favourable investment prospects in the long term, according to Tan. “Disposable income in Western Australia, where Perth is located, is among the highest in the country [see Charts 2 and 3]. Its population is expected to grow 2.5% annually over the next 20 years, surpassing the forecasts for Sydney and Melbourne at 1.4% and 1.7% respectively. Meanwhile, residential property prices in Perth have been on a downtrend amid the slowdown in the mining boom, which makes them a value proposition,” he notes.

Separately, Greater Perth will benefit from a pipeline of development projects with an estimated investment value of A$17 billion ($18.4 billion), including Perth City Link, Elizabeth Quay and Perth Stadium.

Whether in Perth or other Australian cities, Tan urges potential investors to select properties that cater to local demand. “In Australia, foreign homeowners can resell their properties only to locals or residents, so they have to pay attention to local needs and preferences,” he explains.

Australians, particularly the older population, are now more open to downsizing from landed homes to apartments, says Tan. They favour big units, however, which offer the comparable luxury of space they are so accustomed to. In many Australian cities, there are apartment projects that are well received and these are usually those that cater to the top end of the market, Tan notes.

Iskandar Malaysia: Challenges and opportunities

Amid oversupply concerns in Iskandar Malaysia, consider safe assets such as apartments in mixed developments that are close to amenities and transit nodes, suggests Ryan Khoo, co-founder of Alpha Marketing. For capital appreciation, his top choice would be industrial and residential land parcels.

Khoo notes that Johor has been the top investment destination for manufacturing for several years and total investment value has spiked since 2013 (see Chart 4). Meanwhile, major developments such as Legoland, Gleneagles Medini Hospital, Nusajaya Tech Park and Pinewood Studios have also sparked growth in tourist arrivals, employment and population.

The most anticipated projects are the Kuala Lumpur-Singapore HighSpeed Rail, which is due to be completed in 2026, and the Johor Bahru-Singapore Rapid Transit System. The enhanced connectivity presents opportunities for Iskandar residents to enjoy Malaysia’s affordable healthcare and living costs, with proximity to Singapore, Khoo says. As a result, Iskandar has strong potential to become a choice retirement destination for Singapore’s ageing population.

Prices of high-end and luxury residential properties in Iskandar have fallen between 5% and 15% since 2013’s peak, according to data compiled by Khoo from the National Property Information Centre. Khoo expects supply to peak next year and taper thereafter.

Positive outlook for industrial and hospitality REITs

Singapore real estate investment trusts offer the highest yield relative to its global peers, says Vijay Natarajan, property and REITs analyst at RHB. The yield for S-REITs topped the charts at 6.1%, followed by Canada REITs at 5.7%, according to data compiled by RHB as at July 5 (see Chart 5).

Separately, there is plenty of liquidity in the market chasing yield-accretive instruments, which bodes well for REIT prices. Interest from international investors is picking up, underpinned by the stability of the Singapore dollar and strong regulatory framework governing S-REITs, notes Natarajan.

In terms of sectoral performance, Natarajan is positive on business parks because of their limited potential supply (see Chart 6) and healthy demand. The outlook for hospitality properties is also positive, with the opening of a new airport terminal and the pickup in MNC profits expected to fuel demand. Hotel supply is expected to ease by year-end and RHB projects revenue per available room to bottom out and rebound by 3% to 5% in 2018/19.

Natarajan’s top picks include Ascendas REIT and Viva Industrial Trust, given their strong business park exposure, as well as CDL Hospitality Trusts and OUE Hospitality Trust.

S-REITs are currently trading at price-to-book value of 1.03 times, based on data compiled by RHB. “From a valuation perspective, the P/B is slightly above the 10-year average but inexpensive,” says Natarajan.