Ho Bee Investment's headquarters at HB Centre 1 on Tannery Road seem an unlikely place from which to oversee a decade of swashbuckling investment in Singapore's luxury property sector. Located in the Macpherson industrial estate, it is a world away from the swish residential neighbourhood of Sentosa Cove that has made the company famous.
Yet, Chua Thian Poh, chairman of Ho Bee, has made himself at home in his suite on the penthouse floor by decorating it with dark panelled wood, plush carpeting, choice Asian artwork and Chinese antiques that wouldn't be out of place in Singapore's top-end homes. But why did he choose to locate Ho Bee's offices in such an insalubrious place? HB Centre 1 and the adjacent HB Centre 2 are among several high-tech industrial properties that Ho Bee has built over the years. In fact, Ho Bee's first development, back in 1987, was another industrial property located in Macpherson, called Soon Wing Industrial Building, Chua points out, during a recent interview with The Edge Singapore.
Chua was in the property business long before Sentosa Cove existed. When he first began developing property there in 2003, Singapore hadn't yet mooted the idea of building its integrated resorts and its plan to turn itself into a haven for the world's super-rich was still in its infancy. Chua effectively got in on the ground floor before a massive run-up in prices in the area helped make Singapore a destination for international property investors. Today, property values in Sentosa Cove top Singapore's most prestigious neighbourhoods, and Ho Bee is by far the largest player there.
Now, Chua is demonstrating that he is more than just a luxury property developer. Over the last two years, as sales of luxury homes wilted in the face of several rounds of punitive administrative measures and mortgage lending curbs, he has been steering Ho Bee towards different sectors of the local property market. On top of that, the shrewd developer, who has deftly profited from global property market cycles over the last three decades, is planning to make a string of investments overseas.
To prepare Ho Bee for these new challenges, Chua is repositioning its portfolio to ensure its balance sheet is strong enough. Ho Bee acquired at least eight development sites in Sentosa over the years. Its largest and most expensive purchase was a condominium land parcel called The Pinnacle Collection, for which the company and its joint-venture partner, Malaysia's IOI Properties, paid $1.1 billion in January 2008.
The Pinnacle Collection site is currently being developed into the 302-unit Cape Royale, which will have the tallest residential towers in Sentosa Cove. The project is scheduled to be completed in the middle of this year. Sentosa Cove properties of similar calibre have been fetching as much as $2,950 psf in recent transactions. Wilson Liew, an analyst at Maybank Kim Eng Research, values Cape Royale at $1.8 billion, and estimates Ho Bee's 35% stake in the project at $633 million.
Chua has no intention of launching the project for sale anytime soon, though. "Sentosa Cove is considered an upmarket residential area," he says. "This is not a favourable time for the high-end market. We will find the right time to launch it." Instead, he plans to lease out the units upon completion. Unsold units at Ho Bee's two recent projects in Sentosa Cove — the 91-unit Turquoise and the 151-unit Seascape (where Ho Bee and IOI Properties have a 50% stake each) — are also being leased.
Turquoise is 47% sold and almost all the unsold units have been leased. Seascape is only 28% sold, with over 60% of the unsold units having been rented out. Previews for Turquoise were held in 4Q2007, with prices reaching a high of $2,772 psf, or $6.74 million, for a 2,433 sq ft unit. The most recent transaction at Turquoise was last October, when a 2,400 sq ft unit changed hands for $5.87 million, or $2,446 psf. Meanwhile, Seascape which features three- and four-bedroom sea-facing apartments, has seen transactions ranging from $2,551 psf for a 2,164 sq ft, three-bedroom apartment to a high of $3,146 psf, or $12.8 million, for a 4,069 sq ft, four-bedroom unit.
The rents achieved at Turquoise are said to be about $4 psf per month, and somewhat higher for Seascape, which is on a par with luxury condos in Singapore's other prime districts. Meanwhile, Maybank Kim Eng's Liew pegs Ho Bee's 50% stake in the unsold Seascape units at around $328 million, and its 90% stake in the unsold units in Turquoise at $245 million.
Sentosa Cove was exempt from the Qualifying Certificate requirements under the Residential Property Act that would have forced foreign or public listed developers like Ho Bee to sell all the units in a development project within two years of completion. The Pinnacle Collection site was the last available piece of land on Sentosa for condo development.
Hunt for recurring income
Knowing that there was no more property in Sentosa Cove to develop, Chua began looking elsewhere in the Singapore market for opportunity soon after buying The Pinnacle Collection site. As it happened, Ho Bee's earnings had hit a record $272.2 million in the previous financial year in 2007 and prices of luxury residential properties had climbed to the stratosphere. Chua felt that it was time to change his strategy.
"Property development, as you know, produces very lumpy earnings," he says. "We were looking at ways to create more steady income flow for our shareholders, and we thought we should look at investing in a property that would give us recurring income to smoothen out our earnings performance." In July 2010, Ho Bee purchased a 99-year leasehold commercial site at one-north, located next to the Buona Vista MRT station, for $410.99 million, on which it is now building The Metropolis. The only other bidder for the site was Mapletree Investments, which submitted a lower bid of about $384 million.
With a development cost estimated at $800 million and 1.2 million sq ft in gross floor area, The Metropolis is now the largest investment property in Ho Bee's portfolio. It is scheduled to be completed in 3Q2013 and will have more than a million sq ft of office space in two towers, namely the 23-storey Metropolis Tower 1 with floor plates of 30,000 sq ft, and 21-storey Metropolis Tower 2, with floor plates of 28,000 sq ft. The Metropolis is equivalent in size to the likes of Asia Square Tower 1 and just a tad smaller in terms of square footage than Marina Bay Financial Centre Tower 3, both landmark towers in Marina Bay.
Already, blue-chip tenants such as Procter & Gamble, Shell, Neptune Orient Lines and Singapore Exchange have signed up for over 100,000 sq ft of space each. The largest commitment is from Procter & Gamble, which is taking up 210,000 sq ft. Ho Bee itself plans to relocate its offices to Metropolis Tower 1, where it will occupy about 14,000 sq ft on the 11th floor. To date, The Metropolis is about 65% leased, with rental rates hovering around $6.50 psf per month. "It will jump to 85% quite quickly," says Chris Archibold, head of markets at Jones Lang LaSalle (JLL), which is joint leasing agent with CBRE.
While the plan for now is to hold The Metropolis on its books for income, Ho Bee has the option of eventually divesting the property into a commercial real estate investment trust in order to leverage its value and still benefit from the property income stream and asset management fees. "We don't rule that out," says Chua. "But the top priority is to get The Metropolis fully leased, and look at what is the best possible return for our shareholders. The most important thing is to lease out the place, maintain it well and take care of our tenants."
Chua's decision to wind down his luxury property development projects and refocus on building commercial property for income couldn't have been better timed. Since September 2009, the government began introducing measures to curb speculation in the property sector. It has since followed that up with six more rounds of increasingly punitive measures, including additional buyer's stamp duties of as much as 15% on the purchase of homes by foreigners.
The worst-hit segment of the market was top-end luxury homes. According to Singapore Real Estate Exchange (SRX) statistics, condo prices in the Core Central Region (which includes Marina Bay, Sentosa Cove, the core CBD and the traditional prime districts of 9, 10 and 11) declined 4.7% month-on-month in February to reach an average price of $1,788 psf.
This is because of price discounting by some developers to move unsold units, says Alan Cheong, head of research at Savills Singapore. According to Cheong's analysis of the high-end and luxury condo segment, average prices for the first three months of 2013 hovered around $2,429 psf. Prices are relatively flat compared with the previous year, he points out, and are still 7% below the peak of 4Q2007.
By contrast, demand for mass-market homes has continued unabated, fuelled by low domestic interest rates and a lack of viable alternative investment assets. According to data from Knight Frank Research, in 1Q2013, mass-market prices still saw a 2.2% q-o-q increase, and averaged $1,027 psf. Meanwhile, prices of private condos in the mid-tier segment saw an increase of only 0.5% q-o-q, to $1,595 psf.Will the boom in mass-market property continue? Or have the repeated rounds of cooling measures finally begun to bite? Will Ho Bee get into the mass-market segment of the market next? Where does Chua see opportunity now?
Divesting non-core assets
Chua is betting that 2013 will be a challenging year for the property market, not just in Singapore but around the world. "If you look at Europe, the economy is still very uncertain, and we really don't see a smooth business, especially in the property sector," he observes. "In the meantime, we will just focus on the markets that we're in."
Since winning the site at one-north over two years ago, Ho Bee has been conspicuous in its absence at government land tenders. The group has been busy rationalising its portfolio and divesting its non-core assets. Notably, in 2010, shortly after the purchase of the site at one-north, Ho Bee sold two assets.
One was TG Building on Tagore Lane, a four-storey warehouse development that fetched $33 million. The other was four whole strata-titled floors at Samsung Hub, a 30-storey Grade-A office building on Church Street in the CBD, that transacted for $111.4 million ($2,125 psf). Ho Bee has also fully sold the 115 strata-titled industrial units at its One Pemimpin high-tech industrial building, which was launched in 2011 and completed last year.
Last October, Ho Bee also sold its sole hotel property, the 225-room Hotel Windsor, which includes 45,000 sq ft of commercial space, on Macpherson Road for $163 million. "We had thought of redeveloping the site into a residential project," Chua says. "But the market value of Windsor Hotel last year was such that it gave us a good price for the property, and we thought it was a good time to divest since we had only one hotel."
Ho Bee still owns two other industrial buildings. One is an eight-storey high-tech building called Forte, located on New Industrial Road, which was completed four years ago. The other is HB Centre 1 & 2 on Tannery Road. When Ho Bee moves out of its current headquarters at HB Centre 1, it will lease out the space, says Chua.
Playing the cycles
Chua, 64, is the seventh child in a family of 14 children. He was an entrepreneur from an early age, initially selling logging tools to timber merchants in Indonesia. By the age of 21, he had made his first million, which he immediately ploughed into the development of four terraced houses on Simon Road in Kovan in Singapore with some friends. The project succeeded, and Chua went on to reinvest his profits into yet more land that he intended to develop.
However, the property market tanked shortly after. "It was the oil crisis of the early 1970s," he says ruefully. The capital that he had accumulated evaporated in a short span of time. Undeterred, Chua got back into the trading business in Indonesia to rebuild his financial resources. Within 13 years, his business was generating $100 million in annual revenues. In 1986, the Indonesian rupiah crashed, which Chua took as his cue to move back to Singapore and hunt for new opportunities.
About a year later, he founded Ho Bee Investment and embarked on his second foray into the property business. The way Chua tells it, there wasn't a better time to get into the market as prices were in a trough. He started by developing industrial properties, before venturing into the commercial and residential sectors.
According to Chua, the residential project that established Ho Bee as a developer to be reckoned with was Southaven I and II, located at the foot of Bukit Timah Hill and Bukit Timah Nature Reserve, which were completed in 1997 and 1999, respectively. Indeed, buoyed by these projects, the company sought a listing on the SGX Mainboard in 1999.
Fortunately for Chua, he wasn't exposed to the Singapore property market alone when the Asian financial crisis struck in the late 1990s. In 1996, Ho Bee began developing properties in London. "We made quite a good return for shareholders in London," recalls Chua, adding that it helped the company sidestep the worst of the fallout in Asia that sank many other developers.
Now, Chua figures it's the right time to venture overseas again. This time around, he is betting on Australia's Gold Coast, where he has purchased three residential sites in the space of six months. "We feel that prices there have hit rock bottom," he says.
Two of the sites were acquired last July. One is located just across the road from the famous Surfers Paradise beach, and the other is at Broadbeach, another famous Gold Coast beachfront. The site at Broadbeach is next to a new light rail and bus terminal that is coming up. The third plot, purchased in January this year, is also a residential site in Surfers Paradise. Ho Bee is planning to redevelop the sites into mid-range high-rise apartment blocks, which are targeted to be launched by year-end or early next year.
Chua is also looking beyond Gold Coast, and has formed a company in Australia, HB Oracle, to look at other development opportunities. Among the cities he is scoping out are Sydney, Melbourne and Perth.
Ho Bee also has three residential projects in China. It has a 40% stake in Tangshan Nanhu Eco-City, which it plans to launch in the second half of this year. Separately, in 2010, Ho Bee and Yanlord Land Group acquired a 13.69ha prime residential site in Qingpu District in Shanghai for $784 million. The following year, the joint-venture partners purchased two adjacent prime residential development sites in Zhuhai, with a total gross floor area of 5.4 million sq ft for RMB3 billion at a public land auction. The Shanghai project is targeted for launch in 2014, while the Zhuhai project is expected to be launched in 2015.
There are risks in these markets, of course. In early April, major cities, including Beijing, Shanghai and Chongqing, said they would be implementing stringent property cooling measures. In Beijing, among other things, single residents are prohibited from buying a second home. In Shanghai, a 20% capital gains tax will be levied, and a higher down payment will be required for second-home buyers. Beijing home prices have reportedly jumped 21.8% in February from a year ago, and Shanghai home prices have gained 14.6% over the same period.
"Definitely, these rules and regulations are having an impact on the market," says Chua. "You will face this in almost every country, not just in China. But as long as you're in the market for the long term, these are the things that you have to ride through."
In February, Ho Bee sold its 9.024% stake in a Chinese company known as Chongbang Holdings (International) Ltd for a consideration of US$38.8 million ($48.1 million), and will recognise a gain of $32.8 million in FY2013. Chongbang owns a retail property. "We divested it because it's not a substantial stake, and we're more interested in concentrating on having a more sizeable project," says Chua.
Strength in diversity
Chua figures that Ho Bee has sufficient heft to withstand some market volatility. For FY2012, the company reported a 39.4% rise in revenue to $461.6 million and a 7.6% decline in earnings to $187.1 million. As at end-2012, it had some $2.44 billion in assets, $299.4 million in net debt and $1.8 billion in shareholders' funds. Its market capitalisation is about $1.37 billion currently.
Given the size of Ho Bee's balance sheet, Chua says it's probably in its interest to begin diversifying its exposure across different markets in order to mitigate its risk. "We hope all these countries will have property cycles that are different from Singapore's." Besides Australia and China, another overseas market that Chua finds interesting now is the UK, specifically the London property market. In the immediate term, Ho Bee plans to look at commercial property in London. But it might consider residential developments later, according to Chua.
Ho Bee hasn't abandoned the Singapore market, though. Chua says he is on the hunt for suitable development sites, especially for the mass-market residential segment. "At the moment, demand is in the HDB upgraders' market, especially in Districts 16 and 17 [Tanah Merah, Upper Changi and Pasir Ris]. The prime residential market is hardly moving. But we will only go in when the price is right."
Isn't there a risk of more measures if the latest round of cooling measures imposed on Jan 12 fails to rein in sentiment? "The government is not trying to kill the property market," Chua says. "They just want a more stable property market, which is what we developers want as well."
This story first appeared in The Edge Singapore weekly edition of Apr 15 - 21, 2013.
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