Friday, October 21, 2016

Book Review: Singapore's Real Estate - 50 Years of Transformation

In my previous post, I alluded to my interest in developing competency in REITs analysis. However, there is quite a limited selection of reading materials that delve into the topic. For this reason, I broadened my scope and began sourcing for real estate materials in the local bookstores.

Today, I will be highlighting some of the points which I have gleaned from reading "Singapore's Real Estate - 50 Years of Transformation."

- The Real Estate Development Life cycle illustrates how an empty plot of land is converted into a building: (1) Land Assembly and Preparation, (2) Planning and Approval, (3) Construction and Project Management, (4) Marketing and Leasing, (5) Occupation and Use, (6) Upgrading, Renewal, Redevelopment. From there, the authors expanded what is done at each stage and by which players (e.g. government organizations, developers, etc.)

- Back then, when capital was scarce, developers recycled their capital by subdividing their properties into strata-titled units and selling these individual units to buyers.

- Some land parcels are designated as "white sites." Developers are given the freedom to choose what the land is used for. This allows the developers to be responsive to changing market conditions. In return, developers have to pay a premium for such flexibility.

- The government uses the Sales of Sites Programme (SOSP) to regulate housing prices by controlling the supply of land. URA and HDB is responsible for administering the SOSP.

- Real Estate Service Providers grew with the industry. In the early years, they provided mainly valuation services. Today, they serve as consultants providing a wide range of services ranging from fund management, capital advisory, project management, facilities management, etc. They might be undergoing digital disruption as data pertaining to the industry is freely available on government websites and websites.

- Interestingly, the authors cited a paper stating that real estate assets are usually priced at significant discounts to NAV while held in the developers' book. Guess we shouldn't really consider developers (and their respective real estate assets) trading below their book value as a plus point for investment? I have yet to read the actual paper though. *mental note to self to read it*

- It does not mean that REITs with healthy levels of occupancy rates are immune to bankruptcy. Even though New City Residence Investment, a residential J-REIT, had healthy occupancy rates, they were not able to refinance maturing loans and were forced to declare bankruptcy. Therefore, we should not conflate occupancy rates with debt servicing.

- UK Real Estate education focused on valuation, law, economics, construction, and planning. In contrast, US Real Estate education focused more on the business aspects: management, administration, finance, etc. Singapore adopts an eclectic approach by combining aspects from both models.

Prior to reading this book, my understanding of the Real Estate industry is just limited to the REITs I invest in. Reading this book provided me with a better understanding of where Singapore's Real Estate has come from to where it is today. As an investor, I think that the information provided in the book is good to know, but may not be directly used to improve my REITs investing acumen. Still, it makes me more appreciative of the Real Estate aspect of Singapore which I used to not have any knowledge of.

Meanwhile, I have to look elsewhere to further my REIT education. Maybe the references within the book is a good starting place?

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