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City Developments to step up overseas expansion

As the Singapore property market remains challenging, CDL says its growth will be focused on new markets and products. It will step up its overseas expansion and it is actively looking into Japan and Australia.

SINGAPORE: City Developments Limited's (CDL) executive chairman, Kwek Leng Beng, on Thursday (Aug 14) said there is still upside in the Singapore office and hotel segments. Looking ahead however, the developer will accelerate its push for overseas expansion and tap new product opportunities.

SINGAPORE OFFICE AND HOTEL SEGMENTS

The limited number of new prime office buildings in Singapore has helped to boost office rentals. CDL is looking to ride this wave of growth, and is in no hurry to lease out office space in its 34-storey South Beach Tower. The building will be completed by the end of the year, and CDL said 20 per cent lease commitment has been secured.

Speaking at the company's earnings briefing, Mr Kwek detailed CDL's strategy: "Rental is prevailing at the beginning from about S$8 (per square foot), and we believe it will go up to 10, 11, 12 dollars. Our strategy is not to lease out quickly and make. Our strategy is to lease out from lower, to higher and higher, so that your average yield eventually will be a decent yield. Until the second half of 2013, nobody said anything good about office buildings. Now the hottest item is office buildings and hotels."

As for hotels, Mr Kwek said that high-end and 5-star hotels should not be too affected by the recent drop in tourist arrivals. Instead, he thinks the biggest challenge for the sector is in rising labour costs. 

WEAKENED DEMAND FOR HOMES

On its residential business, CDL said that including projects like Coco Palms and Commonwealth Towers, it has sold 1,115 private homes valued at just over S$1 billion in the first half of this year. This is half of what was achieved in the same period in 2013, with a S$2.2 billion sales value and 2,114 number of units sold. This is because demand for homes has weakened considerably in the wake of property cooling measures.

To this end, Mr Kwek hopes the Additional Buyer's Stamp Duty could be reviewed. He said: "One size does not fit the high-end, the mid-end and the low-end segments. My assessment of the mid-end and low-end segments is that they actually have gone up 60 per cent since 2008. But the high-end has not moved. For the high-end, you want to attract rich people to come here to invest, so this is something that is worth considering."

CDL said it is looking at opening its unsold luxury homes for corporate leasing, and potentially converting them to serviced apartments. Mr Kwek said: "This will perhaps create a chain of serviced apartments that will complement our hotels. More or less the operation is the same and the personnel are the same, except you use fewer people."

OVERSEAS PROJECTS

As the Singapore property market remains challenging, CDL said its growth will be focused on new markets and products. It will step up its overseas expansion and it is actively looking into Japan and Australia.

CDL said its overseas projects have also made good progress. They include six freehold properties in Greater London area which it bought for £157 million (S$326 million). Among them, two properties are located in Knightsbridge, and one each in Croydon, Belgravia, Chelsea and Reading.

In China, CDL has three projects in the pipeline. They are Eling Residences and mixed-use development Huang Huayuan in Chongqing as well as Hong Leong City Centre in Suzhou. CDL is also looking at developing fund management products.

Grant Kelley, CEO of City Developments Limited, said: "If you look at our competitors, many of those have multi-billion dollar fund management businesses, subject to market conditions. I do not see a reason why at some point in the five- to 10-year horizon we would not be targeting that type of business."

Other suggestions raised at the briefing included the potential divestment of its hotel assets into the CDL Hospitality Trust, or setting up a REIT comprising a portfolio of its provincial hotels in the US and UK.

Mr Kwek elaborated: "Our first attack would be to develop properties overseas, the fund management will come later. We also have another vehicle, the REIT. One day, if it is prudent, if it is viable, why don't we throw all our hotels into the REIT and make this the biggest REIT ever in Singapore. As another example, why don't we get all the provincial hotels in US, plus UK, put it in a REIT, that is another model, or have a fund management. Grant (Kelley) will then design a system that takes into account all these extra properties we have here and there." 

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