Knight Frank Asia Pacific research wrap up: June 2019

Indonesia relaxes luxury residential purchase policies

1. 20% luxury purchase levy applied to homes worth IDR30bn, was IDR20bn for houses and IDR10bn for condos previously.

2. Income tax on luxury sales for homes worth IDR30bn or more reduced to 1%, was 5% previously.

Our thoughts: While the luxury sector accounts for 10% of the residential market in Indonesia, the government is hopeful that the relaxation on taxes for both buyers and sellers would stimulate the property sector which will have multiplier effects on the construction, cement and consumer sectors. Going forward, expect a short-term boost for the luxury sector which has been sluggish over the past 5 years, mainly due to said tax policies.

China’s May new home prices accelerates, slightly

China’s new home prices for its 70 major cities rose 0.7% month-on-month in May, up from the 0.6% rise seen in April, and the highest month-on-month rise seen year-to-date; year-on-year prices were up 10.7%. Of the 70 cities, 67 recorded price increases which is unchanged from April.

Our thoughts: Despite the positive headline, looking closer at the details paints a slightly different picture as the market diverges into two speeds. For May, Tier 1 city prices rose of 0.3% compared to 0.6% previously, Tier 2 rose 0.6% which was equal to April, and Tier 3 was up 0.8% compared to 0.5% previously. While the government has stayed firm on general housing policy controls, especially those over the T1 markets, our expectations are for the government to allow localized adaptation of those controls, in particular for those cities who are facing slowing economies and rising housing inventories

CapitaLand divests three Tier 2 malls to subsidiary

CapitaLand sold its stakes in three Tier 2 shopping malls for RMB2.96bn to its subsidiary CapitaLand Retail China Trust (CRCT). The malls sold were: CapitaMall Xuefu (Harbin), CapitaMall Aidemengdu (Harbin) and CapitaMall Yuhuating (Changsha).

Our thoughts: The transaction price translates to a fair 6% NPI yield for an almost fully let portfolio which has seen an average tenant sales growth CAGR of 7% over the past 3 years; a healthy report card in our opinion. With retail malls trading at sub 5% yields in China’s Tier 1 cities, well-managed malls outside the major Chinse cities do present an interesting opportunity set for investors with a core-plus strategy.

More office transactions expected in Singapore

71 Robinson Road, next to 77 Robinson Road which was sold for US$520m in February, is currently being stealth marketed with an asking price of c.US$500m; 71 is being priced at c.US$2110 psf compared to 77’s US$1,710 psf transacted.

Our thoughts: 71 Robinson is a newer building compared to 77 Robinson with better specifications such as larger floor plates and higher floor to ceiling heights both of which tends to attract larger blue-chip tenants. Performance wise, 71 is currently fully occupied with an average rent of US$7.4 psf compared to 77 which is at 90% and US$5.2 psf; 71’s transaction would translated to a gross NPI yield of 4.2% which is roughly in-line with the market.