Q&A: ARA Asset Management's John Lim on property investing

Watching the property market is a past time for many Singaporeans, most of whom own their own home. With China's recent devaluation of the yuan, we asked ARA Asset Management group CEO John Lim, who is also one of Singapore's 50 richest based on Forbes' 2014 list, in an email interview Thursday how he sees the property market faring.

1.  What's your outlook for the Singapore residential property market?

The residential property market should see prices continuing to move downwards in 2016. The government has not made any move to ease its property cooling measures and according to URA data, 2015 and 2016 will see over 20,000 units of private residential properties completed per year, nearly twice the yearly average between 1996 and 2012. Together with the number of public housing units, and slowing demand due to tighter foreign immigrant policy and increase in interest rates, there would be short to medium term demand and supply imbalance.

2.  China has just effectively devalued its currency, how do you think that will affect property prices, REITs in Singapore?

In the last few years, property cooling measures by the government has done well to curb speculation, especially from foreign investors so I don’t think that the devaluation of China’s currency will have much impact on the property prices in Singapore.

S-REITs with significant geographical exposure in China will most likely be impacted in terms of forex translation in asset valuations and earnings. Thus far, the PBoC’s surprise lowering of the Rmb reference rate is negative for property stocks with China exposure, as the majority of them do not hedge their incomes and balance sheets.  However, falling interest rates that are likely to follow in China might compress cap rates and support asset valuations over time.

3.  What would you say are the biggest challenges for property investors in today's environment?

In Singapore, the government’s property cooling measures like the Total Debt Servicing Ratio (TDSR), stamp duties and resale levies amidst a whole slew of other measures implemented since 2009 have been generally effective in curbing property speculation in Singapore. The government does not look like it will ease these measures in the near future, so while prices have gone down slightly, it is still not a good time for investors to put their money in the residential properties sector in Singapore

One of the challenges would be the more onerous mortgage servicing payments by property investors in an environment of rising interest rates going forward. Property investors should factor in higher key rates for their own sensitivity analysis.

4.  What are the brightest property investment opportunities both in Singapore and the region? Why?

Property investment usually requires a huge capital outlay which may not be accessible to most. Properties are also typically mid- to long-term investments. There are other financial instruments like equities which require much less capital and investors can choose to invest within their means comfortably. 

Real estate funds such as REITs are a good blend of the two, as they allow investors to own a share of properties of different types and classes. The key benefits of REITs are that they enable investors to participate in the ownership of real estate with a small capital outlay and flexibility, as REITs can be traded easily in equity capital market.  REITs are also professionally managed with assets under safe custody of the Trustee.  Typically, REITs in Singapore, known as S-REITs hold a portfolio of properties, so investors benefit from diversification as REITs can own a number of properties in various locations.  Currently, S-REITs enjoy tax transparency as long as more than 90% of the taxable income is distributed.  In addition, REITs provide a good hedge against inflation. Those looking to invest in properties can consider putting their investments in REITs.

Mr Lim, who has more than 30 years of experience in the real estate industry, will be speaking at INVEST FAIR 2015, which will run from 15th to 16th August, 10am-7pm, at level 4 Exhibition Hall 403 and 404 of Suntec Singapore Convention and Exhibition Centre.