Saturday, April 9, 2011

Corporate buyers shun residential properties

RESIDENTIAL properties are fast losing their lustre among corporate buyers.

Figures compiled by property consultancy Cushman and Wakefield show that in the first three months of this year, non-landed private home sales involving this group fell by 62 per cent to 133.

This compares with the previous quarter's robust 350 transactions.

Some analysts say the figures are a sign that the Government's tough property cooling measures unveiled in January are taking effect.

Under that round of curbs, buyers who are not individuals - that includes companies, trusts and collective investment schemes - can borrow just 50 per cent of the property's value.

Previously they were able to borrow up to 70 per cent.

Mr Tan Kok Keong, head of research and consultancy at OrangeTee, said that while these early estimates were telling, some deals may not have been recorded yet.

He said reviewing these first-quarter numbers again in June would give a more holistic snapshot of this investor market.

It is likely this group of investors consists mainly of foreign companies, said Mr Tan. 'Previously some local buyers would form companies to purchase property, possibly so that they could work around the seller's stamp duty.'

'After the latest measures, there's no compelling reason to do that. It doesn't make sense because you have to come up with more cash if you want to close property deals that way,' he said.

Smaller companies, with their limited budgets, may feel more restricted with the higher amount of cash they will have to fork out upfront, said Mr Ong Kah Seng, senior manager of Asia-Pacific research at Cushman and Wakefield.

But he added that larger companies may be equally prudent as their property buying appetites tend to be larger.

Chasing bigger deals could undermine these investors' business cash flow and liquidity, said Mr Ong. 'But they have to seriously consider the investments and proceed with worthy deals which match their capital outlay capacity.'

Mr Joseph Tan, executive director of residential services at CB Richard Ellis, said it could be a case of a 'shift in focus' for corporate buyers rather than a disappearance from the residential property market.

'The price gap between residential and commercial properties is closing and that makes commercial look like a more viable alternative now.'

Cushman and Wakefield's Mr Ong also highlighted the point that commercial properties tend to appeal to such investors who are usually more market-savvy.

Some buyers, however, may also be dissuaded by the higher maintenance fees that come with older strata office and retail properties, he said.

'(In commercial property), the functionality of the space for specific businesses and operations will mean that the tenant profile can be fairly niche compared to residential properties.'

Looking ahead, Mr Ong said the number of non-individual buyers is likely to see a marginal increase if regulations are adjusted incrementally.

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