Singapore's plan to create its own estate for hedge funds in the Nepal Hill area seems to have proved trickier to implement than the government had hoped. The main reason appears to be the relatively inconvenient location, but the asking price is also an issue for some.

Jurong Town Corporation (JTC), the government agency developing the project -- which is viewed as a kind of alternative to the central business district, rather like Greenwich is to Manhattan -- is also looking to attract business schools under a project known as Link (leadership initiatives, networks, knowledge) launched in September last year.

JTC had originally felt the buildings would appeal to venture-capital firms, say sources, but following a bad period for such firms, it shifted focus. The thinking is that the area is a non-traditional, somewhat "maverick" place to work, says one hedgie who asked not to be named.

JTC took over the master tenancy of Nepal Hill in Apr 2008 and completed the refurbishment of the properties in October last year. The Monetary Authority of Singapore (MAS) and JTC first invited hedge-fund managers to visit the area in late 2007/early 2008.

"We had a look at it then, but that obviously turned out to be a bad time," says the anonymous hedge-fund manager, referring to the global crisis, which struck in September 2008.

MAS declined to comment by press time, while JTC says it is in talks with investment managers about the project.

Nepal Hill was formerly a sleepy area in southwest Singapore that used to house a British army barracks and army housing. JTC signed a 30-year lease and started to develop the area. First business school Insead came in, then Biopolis, a life sciences cluster, set up there, and the transport links have improved, says the unnamed hedgie.

The specific properties under discussion are nine listed black-and-white timber colonial houses, each of which has around 2,000 square feet spread over two floors and its own garden. They are surrounded by a cluster of office buildings, so were not thought to be suitable for residential property.

There are several restaurants nearby and walk-up houses that have been turned into a kind of arts enclave. "It's quite a cosmopolitan, interesting set-up," says one fund manager. There are also a couple of international schools there, and the AYE expressway is very close.

Peter Douglas, Singapore-based founding principal of hedge-fund research firm GFIA, says he looked at the project at the end of last year. He too liked what he saw, but feels it's not sufficiently convenient for hedge funds to want to set up there.

"[The complex is] very nice, very green, very quiet, and the renovation is simple but well done," he tells AsianInvestor. "It's about 15-20 minutes' drive from the CBD [central business district] and a 10-minute walk to the nearest MRT station, which, by Singapore standards, makes it relatively inaccessible. No sensible hedgie would set up shop so far from the centre of town, because few allocators would bother to visit."

Given the location, whatever business or activity sets up in Nepal Hill will need to be something that doesn't require physical connectivity, footfall and access to be successful, Douglas adds.

That said, the unnamed fund manager suggests potential tenants could be funds that are established enough that clients will visit them wherever they're based.

Aside from clients, there is also the issue of employee access. While the out-of-the-way location would be fine for car-driving principals, it would be a handicap in recruiting qualified support staff who depend on public transport, says Douglas.

The price being sought by JTC has also been a sticking point for some. The anonymous fund manager says the properties were being offered at S$10 per square foot, which Douglas says is "way too high for an out-of-town location", although he expects the figure might be negotiable. "JTC would eventually charge market rent rather than hang on to an unrealistic number out of pride," he says.

He points out that a good-quality renovated shophouse in Chinatown at the edge of the CBD -- where a lot of hedge funds are based -- is about S$4-5/square foot, and would be walking distance from, for example, the MAS building. Moreover, prime office rents in Singapore collapsed in 2008/2009, in some cases from S$20/sq ft to S$6/sq ft.

Having said that, strengthening office demand in Singapore is now leading to asking rents going up, with some estimating that average monthly asking rents in new grade-A buildings are around S$8-$9/sq ft, up from S$7-7.50/sq ft at the start of the year, according to a May 20 report in Singapore newspaper Business Times. Moreover, grade-A office rents are expected to pick up 5-10% this year, some agents say.

In any case, Singapore already has its own 'Greenwich' in the form of Chinatown, says Douglas. "There's probably a couple of dozen hedge funds, and a similar number of service providers, that prefer not to be in the glass and steel of the CBD, that have decamped to Chinatown already," he adds. "There's no need for an alternative location."  

JTC's initial expectation seems to have been: If you build it, they will come. Perhaps, but only if you give them enough incentive.