Singapore, with its insatiable appetite for sand and gravel, two of the key raw materials it needs to fuel a seemingly unstoppable property boom, was last month facing a starvation diet as its main source cut off supplies. Neighbouring Indonesia banned exports of sand and placed swingeing controls on building aggregates, threatening the pace of development in the city state, forcing it to find alternative suppliers and to dig deep into its own reserves.

The threat of a continuing embargo sent prices of sand rocketing from S$6.50 to S$50 a cubic metre ($5.30-$33) in the aftermath of the ban in February. Moreover, Singapore is still reeling from Indonesia’s ban in 2003 of marine gravel exports. The hiatus in supplies threatens the progress of an ambitious 30-year land reclamation programme, requiring 1.5 billion cubic metres a year, to establish an extra 100 square kilometres of land for development.

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Mah Bow Tan, minister for national development, moved quickly to quell developers’ fears, telling a supply committee in March that alternative supplies of sand had been secured and were “no longer a major issue”. More ominous, perhaps, was his warning that granite supplies had come under threat as the Indonesian navy intercepted and detained barges bound for Singapore. “We do not know how long these actions will continue,” said Mr Mah.

Granite was being released from government-held stockpiles and aggregates bought from alternative sources, said Mr Mah. “If the situation continues, I expect that the price of granite aggregates will rise due to the higher transportation costs in bringing in the material from the alternative sources that are further away,” he said. He added that the government would work out co-sharing arrangements with the contractors and concrete suppliers for existing public sector projects to mitigate rising costs.

Speaking at Orchard Hotel in February, Mr Mah mapped out the government’s plans for future land use by industry, tourism and other sectors. In the area of manufacturing, most of the land demand will come from high-value-added industries, such as petrochemicals, computer wafer fabrication and pharmaceuticals – industries that consume disproportionately vast tracts of land due to the nature of their production processes and plant layouts.

New growth is under way

Mr Mah pointed to new growth sectors, including Singapore’s burgeoning aerospace industry, which has grown by more than 12% annually for the past 15 years. A new aerospace hub near the Seletar Airport is being planned for the future. The medical travel industry has also been expanding rapidly. The number of foreign patients visiting Singapore to seek medical treatment rose from about 200,000 in 2002 to 374,000 in 2005, and the industry hopes to attract a million foreign patients a year by 2012. As a consequence, more land will have to be set aside for the development of private hospitals and medical suites.

Tourism continues to be a valuable source of income, and Singapore aims to double the number of visitors to 17 million and triple tourism receipts by 2015. To achieve this, Mr Mah said, it would be necessary to set aside land for large tourism projects and hotels. Two vibrant tourism zones, including the Orchard Road belt and the southern waterfront, feature shopping and retail, and lifestyle attractions, respectively.

A number of initiatives were outlined in the 2007 budget aimed at boosting business. They included a corporate tax rate cut from the current 20% to 18%. But the goods and service tax (GST), first introduced in Singapore in 1994 at a rate of 3% and increased to 5% in 2004, will now rise to 7% from July this year. The rate hike will eventually add S$1.5bn ($982m) to government coffers each year.

Picture is bullish

In February’s budget speech, which focused on the country’s future growth, second minister for finance Tharman Shanmugaratnam painted a bullish picture, pointing to economic growth of 7.9% in 2006 and a resurgent construction industry. In a cheering message to investors, he said the government’s focus was on further growth and globalisation, which was “playing to Singapore’s strengths”.

To this end, Singapore’s planners have been working with economic and social agencies to review the Concept Plan, last visited in 2001. Singapore’s population has grown dramatically since independence from Malaysia in 1965, from 1.9 million to 4.5 million in 2006. It is now projected to grow to 6.5 million, based on current demographic trends, the minister said, and preliminary findings showed that there was enough land to cater to such a population, “if we take certain steps to make better use of land”.

Strategic areas, such as the Marina Bay district, are being earmarked for the most impressive development. It is just one of the investment opportunities being promoted by the Urban Redevelopment Authority (URA). Others in the city centre include sites at Beach Road and Outram Park.

The Marina Bay development is “well on track”, according to Mr Mah, with significant buildings being developed and infrastructure put in place. These include the Marina Bay Sands Integrated Resort, the Marina Bay Business and Financial Centre, the new double helix bridge and the waterfront promenade. These key developments are expected to transform the district into a distinctive business, residential and recreational hub in the next five years.

Plans are already afoot for the next phase of development at Marina Bay. This will focus on three new areas: the central sub-zone adjacent to Shenton Way, a development along the Marina Bay waterfront, and an extension to frame the Garden at Marina South.

Outside the city centre, new areas are due to be opened up to bring more jobs and amenities to people living in suburban estates. One of the immediate plans is to build up the Jurong regional centre and the Paya Lebar sub-regional centre over the next 10 to 20 years. Another potential area for development is in Woodlands.

Commercial property is similarly buoyant, fuelled by a continuous demand for quality space to let, but several real estate investment trusts (REITs) are competing to purchase space as well. Without doubt, the Singapore REITs market is on a roll. There are now 15 with a combined market capitalisation of S$22.9bn. As a result, the Singapore stock exchange is the largest REIT market in Asia outside Australia and Japan.

The Singaporean government has recently made changes to the REITs rules that may result in more of these trusts being established. This, in turn, is expected to result in more demand for commercial property to buy and an investor who buys ahead of any predicted surge in REIT interest will potentially be able to resell at a handsome profit.

Space in demand

There is growing demand also for world-class office space in Singapore. Mr Tharman opened the 120,000 square metre (m2) ‘gateway’ to Singapore’s new business and financial centre, One Raffles Quay, in early March. The development of two office towers of 50 and 29 storeys reflects an increasing interest from global institutions, particularly in the banking and financial sector. It is fully let to tenants such as ABN AMRO, Barclays Capital, Credit Suisse, Deutsche Bank AG, Ernst & Young, Reuters and UBS, and will house up to 12,000 city workers.

The development forms part of a broader vision to create an integrated financial community incorporating the Marina Bay financial centre, which will provide a further 150,000m2 of grade A commercial space under phase one.

In February, Cheung Kong (Holdings), Hongkong Land and Keppel Land announced they would jointly exercise an option for 194,000m2 gross floor area in phase two development at Marina Bay. The consortium developing phase one of the Marina Bay financial centre site in the new city centre has purchased phase two of the site from the government for a total of S$883.8m, exclusive of GST.

Phase two will add a further 194,000m2 of gross floor area to the 244,000 m2 already under development in phase one. The consortium indicated that it would develop both grade-A office and high-end residential units in the new phase, details of which will be revealed after discussions with the URA.

Waterfront residential properties continue to attract both Singaporeans and foreign investors alike. Strong interest has been streaming in for Reflections at Keppel Bay, thanks in no small part to the design by Daniel Libeskind, the architect commissioned to rebuild New York’s World Trade Center site.

CB Richard Ellis (CBRE) and DTZ Debenham Tie Leung (DTZ), the appointed agents spearheading the local and international marketing effort for Reflections, are already receiving offers from local and overseas buyers.

Willy Shee, CB Richard Ellis chairman for Asia, says prime waterfront properties have emerged the star performers in Singapore’s core central region, having outperformed districts 9, 10 and 11 in the past two years. “By comparison, prices in the whole core central region comprising Sentosa Cove, the downtown core and districts 9, 10 and 11 have risen 24% in the last two years.” Compared with other gateway cities, such as London, New York, Tokyo and Hong Kong, it has more room to grow, says Mr Shee.

Attractive prices

A number of new developments on Sentosa are proving particularly attractive for overseas property investors, who are buying at pre-construction prices and then finding strong demand for the resale or the rental of the properties when they are completed.

There is also immediate appeal in the Singapore retail real estate market because the Singaporean government recently announced that the Orchard Road shopping belt is to receive S$40m over the next three years for rejuvenation and infrastructure improvement, and that this will help to boost tourism numbers in Singapore by 7%. Furthermore, the increase in attraction of this part of Singapore will create more visitor walk-through activity and push up profits for the retailers operating in the area.

Expansion of the Orchard Road area is expected to take place on two sites and will increase retail space by up to 158,000m2. The higher tourist traffic that these measures are expected to attract will boost retailers’ profits, and so enhance yields for investors.