Real News‎ > ‎2014‎ > ‎April 2014‎ > ‎

12th April 2014

Singapore Real Estate

Bleak outlook for private home sales, estimates see Q1 figures plummeting

Source: Straits Times / Business

Anyone trying to sell a private home in the first quarter would not need reminding that an air of gloom has settled over the market.

The number of new and resale homes changing hands plunged in the first quarter, according to latest estimates.

This is as stark a signal as any that the caution that enveloped the market after the introduction of tough home loan curbs last year has now morphed into pessimism, consultants said.

They added that the outlook for this quarter appears bleak as well.

-By Melissa Tan

Jan-Feb hotel room rates up slightly, occupancy steadies

Early STB figures show ARR rising 2.5%; upmarket names doing well but budget sector drops 4.7%

Source: Business Times / Singapore

THE local hotel industry started the year on the right footing as average room rates (ARR) edged up slightly in January and February while the average occupancy rate held firm, according to preliminary estimates.

Initial figures from the Singapore Tourism Board (STB) showed that ARR climbed 2.5 per cent year-on-year to $260.10 for the two months, while industry-wide occupancy inched up 0.8 per cent to 86 per cent. As a result, revenue per available room (RevPAR) - a performance indicator which hinges on ARR and average occupancy - rose 3.5 per cent to $223.60. However, economy hotels appear to be having a harder time so far compared with other segments in the industry as budget hotels lost 4.7 per cent in ARR to $95.80 in the first two months of this year, while RevPAR dropped some 8 per cent to $76.20.

In contrast, the other hotel categories - namely luxury, upscale and mid-tier - all reported slight increases in ARR and RevPAR.

Luxury hotels had the strongest pick-up in RevPAR - up 4.7 per cent to $390.70 - while ARR for the segment increased at the slowest pace, up 1.6 per cent to $434.40.

-By Nisha Ramchandani

Bukit Timah a hit with its primary school belt

Source: Straits Times

A home around Bukit Timah can run into the millions but that's a small price to pay for some parents if it means getting their kids into one of the area's popular primary schools. With this year's Primary 1 registration exercise just around the corner, homes in parts of District 10 and 11 are back in the limelight.

Buyers queue for luxury Iskandar condo built by Singapore developers

Source: Straits Times / Business

A luxury condominium in Malaysia's Iskandar region being built by Singaporean developers has met with strong demand.

Puteri Cove Residences, by local developers Pacific Star and DB2, has sold 83 per cent of 450 units released to the public within a week of its launch.

The buyers were of over 20 nationalities, but 60 per cent were Singaporean. Other buyers included Malaysians and Indonesians.

Crowds and queues had formed at the marketing agent ERA's headquarters in Toa Payoh more than two hours before the condo's launch on April 5 to ballot for units.

-By Tee Zhou

Real Estate Companies' Brief

TEE International Q3 profit slumps 58.9%

Non-controlling interests take big chunk of attributable earnings

Source: Business Times / Companies

TEE International registered a 58.9 per cent slump in third-quarter net profit as non-controlling interests took a bite out of the bottom line.

Profit attributable to shareholders was $567,000 for the three months ended Feb 28 after taking out $587,000 for minority interests. A year ago, when subsidiary TEE Land had yet to be listed, a $52,000 loss was attributed to minority interests.

Although cost of sales shrank 33.8 per cent to help turn a 29.5 per cent fall in revenue to $37.4 million into a 6.1 per cent gross profit increase, operating and administrative expenses surged 39 per cent to $6.1 million, which sent operating pre-tax profit back into a 5.1 per cent decline.

-By Lynette Khoo

Lian Beng unit wins tender for Leng Kee Rd property

Source: Business Times / Companies

Developer Lian Beng Group announced yesterday that its 80 per cent owned subsidiary, Wealth Assets, has been awarded the tender for the purchase of a property along Leng Kee Road and Alexandra Road for $46.2 million. This is subject to the HDB's approval. The group will finance its share of the acquisition cost by internal funds and/or bank borrowings.

CapitaCommercial Trust

Source: Business Times

Capitacommercial Trust's (CCT) CapitaGreen office building, which is under construction and due for completion at end-2014, has completed its first tenant signing. According to The Business Times, Cargill is said to have signed a lease for circa 50,000 sq ft (square feet) over about two floors at slightly over $9 psf pm (per square foot per month). Cargill will exit its current premises at The Concourse along Beach Road, as its lease is set to expire in Q3 2015.

Global Economy & Global Real Estate

London's luxury home owners busy buying out neighbours

Residents creating super-sized homes to increase their value

Source: Business Times / World

MERGERS and acquisitions are making London's rich richer. This time, it involves their homes. Some of the city's wealthiest residents are buying out their neighbours to create super-sized apartments that can double the value per square foot compared with the separate properties.

"If you can create a big lateral apartment, as opposed to one with stairs, you can create the beautiful drawing rooms and entrance halls that the wealthy are looking for," Mark Harris, chief executive of Savills plc's private finance unit, said in an interview.

Many homes in London's best neighbourhoods are more than a century old and lack the space and amenities that the rich expect. That's prompted owners to expand upward, outward and downward with backyard extensions and multiple subterranean floors.

-From London, UK

Business potential in East Malaysia

Source: Straits Times

Norway's property price rebound triggers warning from regulator

Source: Business Times / Wealth

THE head of Norway's financial regulator said a rebound in property prices is unwelcome as Scandinavia's richest nation struggles to contain its record household debt burden.

"The recent development in house prices might give some reason for renewed concern as there are some signs that house prices might be picking up again," Morten Baltzersen, director general of the Financial Supervisory Authority, said in an interview.

Pressure is building in Norway's housing market as banks fight to attract customers. DNB ASA, Norway's biggest lender, and Nordea Bank AB cut mortgage rates last week, following moves by Skandiabanken, Storebrand ASA and SpareBank 1 SMN.

-From Oslo, Norway

French ambassador's NY home on sale for US$48m

Source: Business Times / Wealth

THE French ambassador to the United Nations lives in a sumptuous, 18-room apartment at one of New York's most exclusive addresses - but not for much longer.

Belts are tightening, and the French government has put the stunning Park Avenue duplex on the market for a whopping US$48 million, hoping to reap a profit from New York's property boom.

The decision to sell up was announced last year by the Quai d'Orsay - France's Ministry of Foreign Affairs - looking to save taxpayers millions of dollars by selling properties deemed too opulent or dispensable.

-From New York, US

Family of Asia's richest man Li Ka Shing sells $1.1 billion Beijing property

Source: Straits Times / Business

BEIJING (AFP) - A company controlled by the family of Asia's richest man Li Ka Shing has sold a landmark Beijing property for more than US$900 million (S$1.1 billion), it said, adding to speculation he is cashing out of Chinese property.

Pacific Century Premium Developments - a company chaired by Mr Richard Li, the tycoon's younger son - signed an agreement Tuesday to sell Pacific Century Place for US$928 million, the company said in a statement filed with the Hong Kong stock exchange.

The deal is nearly 30 per cent lower than the asking price reported last year for the well-located Beijing property, made up of two office towers, two serviced apartment blocks and a shopping mall, China's Dongfang Daily newspaper said Thursday.

The deal is the fourth Chinese property disposal by Mr Li's family since August, it said, adding that the sales have fetched a total of nearly 18 billion yuan (S$3.6 billion).

Vornado to Spin Off Strip Shopping Centers Into New REIT

Source: Bloomberg / News

Vornado Realty Trust (VNO) will spin off its U.S. strip shopping centers into a new publicly traded real estate investment trust as part of an effort to focus primarily on properties in New York and the Washington area.

The 81 centers along with four malls are located primarily in the Northeast U.S. and include Bergen Town Center in Paramus, New Jersey; Monmouth Mall in Eatontown, New Jersey; and two malls in the suburbs of San Juan,Puerto Rico. Jeffrey S. Olson, currently chief executive officer of shopping-center landlord Equity One Inc. (EQY), will be chairman and CEO of the new REIT, New York-based Vornado said yesterday in a statement.

“Our objective is to de-conglomerate two very different businesses, by separating a great Northeastern strip shopping center business with great potential, leaving a unique, world class Manhattan and Washington business,” Vornado Chairman and CEO Steven Roth wrote in his annual letter to shareholders, included in a regulatory filing yesterday. “These businesses have been together for legacy reasons, but have no real operating synergies.”

Vornado has sold about $3.5 billion of assets in the past two years to address investor complaints that the company was too complicated and produced uneven earnings. Its stock, whose return was about half that of the Standard & Poor’s 500 in the last three years, has narrowed the gap in the past 12 months.

The properties being spun off have about 16.1 million square feet (1.5 million square meters) and average occupancy of 95.5 percent as of Dec. 31, Vornado said. The new REIT’s net operating income will be about $200 million this year.

Company Focus

“It’s clearly a positive,” Alex Goldfarb, an analyst at Sandler O’Neill & Partners LP, said of the planned spinoff. He has a buy rating on Vornado. “It gets the company focused on pure office and street retail as the mainstay for Vornado.”

Roth will be on the board of the new REIT, which hasn’t been given a name yet. Goldman Sachs Group Inc. and Morgan Stanley are Vornado’s financial advisers on the spinoff.

Roth first laid out a strategy to pare down Vornado six years ago. In an April 2008 letter to investors, he said his goal was to “simplify and prune” the company’s holdings, starting with the sale of a group of cold-storage buildings.

“The financial crisis put the kibosh on that, but the intent was there,” Robert Gadsden, portfolio manager at Alpine Woods Capital Investors LLC of Purchase, New York, said in an interview before the spinoff announcement. His firm had about 54,000 Vornado shares at the end of 2013, according to data compiled by Bloomberg.

‘Remarkable Progress’

In yesterday’s letter, Roth said Vornado has “made remarkable progress” in its goal of simplifying the company.

Roth said in April 2012 he wanted to focus Vornado primarily on New York and Washington office buildings and Manhattan storefront retail, which are its strongest operations. “Everything is on the table,” he wrote then.

Yesterday he wrote that “we have accomplished each of the objectives set forth in my April 2012 Chairman’s Letter; we have exited business lines and sold 48 assets for $3.5 billion (with a gain of $928 million).”

Two years ago, he said Vornado would, at least temporarily, hold on to its 23.4 million J.C. Penney Co. shares “to reap the benefits of the company’s transformation” under former Apple Inc. retail chief Ron Johnson. Instead, Vornado sold those shares, resulting in $256 million of losses. Johnson was ousted as the retailer’s CEO, and Roth quit J.C. Penney’s board.

Mistake Admitted

“With respect to J.C. Penney, we obviously sold to cut losses and admit a mistake,” he wrote in yesterday’s letter.

The company still holds about a one-third interest in Toys “R” Us Inc., the closely held children’s retail chain. Roth said its interest in the company has been written down to about $80 million, and Vornado is planning on “zeroing out” its investment by the end of the year.

Since April 2012, Vornado has sold most of its Merchandise Mart showroom operations, with the 3.6 million-square-foot complex in Chicago the only property left, according to Roth’s letter. The company also sold Brooklyn’s Kings Plaza mall and Green Acres Mall in Valley Stream, New York, and has a contracts to sell the Beverly Connection near Beverly Hills, California, for $260 million and Springfield Town Center in the Washington suburbs for $465 million.

Roth said Vornado bought six properties in 2013 for an aggregate price of $813 million, all but one of which include Manhattan retail space. The exception was the land and air rights to 220 Central Park South, where the company plans to build a luxury condominium high-rise.

Investors have rewarded Vornado for its moves. The shares have returned 16 percent with dividends since last April, in line with the Standard & Poor’s 500 total return, while the Bloomberg REIT Index is little changed.

“We consider stock price to be the most important report card of our performance,” Roth wrote. “Our stock price has done better of late.”

-By David M. Levitt and Hui-yong Yu

Salesforce Tower Rents Said to Set San Francisco Record

Source: Bloomberg / Tech

San Francisco’s tallest building will be named for Inc. (CRM) after the company said it would occupy more than half of the tower’s office space in a deal that sets a record for the city’s commercial rents.

The biggest maker of customer-management software will occupy 714,000 square feet (66,000 square meters) in the newly named Salesforce Tower, the company said yesterday in a filing. Base rent of $560 million plus operating costs and improvements to Salesforce’s portion of the high-rise brings the total value of the deal to almost $1 billion, according to the filing.

The lease is San Francisco’s largest in records going back to 2000, brokerage CBRE Group Inc. (CBG) said. Over a term lasting 15 years and 6 months, the average rent works out to more than $83 a square foot, assuming a year of free rent that’s often granted to tenants in new buildings. San Francisco’s previous peak office rate citywide was $80 a square foot in 2000.

“We’re moving to an urban-campus strategy that we’re very excited about,” Chief Operating Officer George Hu said in an April 10 phone interview before Salesforce Chief Executive Officer Marc Benioff announced the lease and naming deal in an event yesterday attended by San Francisco Mayor Ed Lee. “I can’t think of a more energetic and fun location.”

Salesforce will occupy the lower 30 floors and the penthouse of a development at 415 Mission St. that had been known until now as the Transbay Tower. Boston Properties Inc. (BXP) owns 95 percent, with the balance held by Houston-based real estate investor Hines. Arista Joyner, a spokeswoman for the Boston-based landlord, didn’t return calls seeking comment on the lease.

Most Leases

Salesforce, founded in San Francisco in 1999, has completed more office leases than any other company during the city’s four-year technology boom, taking space in several downtown locations, according to CBRE. The firm claims to be the largest technology employer in town with 4,000 workers.

The tower deal completes a shift to downtown buildings after the company decided in 2010 to cancel previously announced plans for a low-rise campus at Mission Bay, south of the financial district. By 2017, all employees will be consolidated at the new tower, or nearby 350 Mission St. and 50 Fremont St., in a high-rise cluster encompassing about 2 million square feet, Hu said.

Rising to 1,070 feet (326 meters), Salesforce Tower will have a slender cylindrical profile, glass facade and tapered crown that reaches 217 feet higher than the 499,000-square-foot Transamerica Pyramid in the north financial district. Thirteen-foot ceilings limit the number of office floors to 61. The tower is on the site of a demolished 1930s bus station whose replacement transit terminal will be topped by a 5.4-acre (2.2-hectare) park.

Pelli Clarke Pelli Architects, based in New Haven, Connecticut, won a 2007 competition to design the entire complex.

-By Dan Levy

Wells Fargo, JPMorgan Vexed by Low Demand for Mortgages

Source: Bloomberg / Personal Finance

Slack demand for home loans continued to drag on earnings at Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) as the two largest U.S. mortgage lenders grappled for pieces of a shrunken market.

Even as interest rates hovered near historically low levels, new home loans tumbled 67 percent to $36 billion in the first quarter at San Francisco-based Wells Fargo, the biggest originator. JPMorgan posted a 68 percent drop to $17 billion, and the bank predicted it would lose money on mortgage production for the full year.

Both lenders are paring staff to keep expenses in line with demand for loans, which has waned as investors and cash buyers dominate some sales. New York-based JPMorgan said jobs at its mortgage business declined 14,000, or 30 percent, since the start of last year. Wells Fargo set plans to cut 1,100 positions in the most recent three months, which ranked as its worst first quarter for mortgage revenue since 2008.

“The market got off to a slow start,” JPMorgan Chief Financial Officer Marianne Lake said yesterday on a conference call with analysts to discuss quarterly results. “We’re seeing tight housing inventory in some markets, and the purchase market was affected adversely by the severe weather.”

JPMorgan’s first-quarter net income dropped 19 percent to $5.27 billion, or $1.28 a share, the bank said in a statement. Mortgage revenue plunged 42 percent to $1.57 billion as higher interest rates curtailed refinancing.

Mortgage banking income, which includes originations and servicing, fell 46 percent to $1.51 billion at Wells Fargo. The bank still posted a 14 percent increase in first-quarter earnings, to $5.89 billion, as fewer customers missed payments.

‘Down Materially’

“We view JPM and WFC’s mortgage banking results as lower than expected,” Keefe, Bruyette & Woods analysts led by Frederick Cannon said yesterday in a research note, referring to the banks’ stock symbols. “Mortgage volumes and applications were down materially.”

Wells Fargo ceded market share in 2013 to rivals, dropping to 19 percent of residential mortgage originations from 25 percent, according to data from Bloomberg Industries. JPMorgan rose to 9.5 percent from 9 percent, while Bank of America Corp. advanced to 4.8 percent from 3.7 percent.

Potential customers are finding they’re sometimes bidding for homes against buyers who don’t need debt. All-cash sales made up 35 percent of sales in February and 33 percent in January, according to data from the National Association of Realtors.

Market Shift

“There’s frankly a lot more cash buyers today,” Wells Fargo Chief Executive Officer John Stumpf, 60, said during a conference call with analysts to discuss results. Wells Fargo is optimistic about prospects for the rest of this year because rates are still low, homes are affordable, consumer debt is dropping and employment is rising, the bank told analysts.

Wells Fargo’s results show the shift in the housing market away from refinancings as interest rates rose from last year’s trough. Just 34 percent of its originations went to customers refinancing loans, compared with 69 percent in the same period of 2013. The average interest rate for a 30-year fixed mortgage was 4.34 percent this week, up from 3.54 percent a year ago, according to a statement from Freddie Mac.

JPMorgan fell 3.7 percent to $55.30 yesterday in New York trading, the worst performance in the Dow Jones Industrial Average. (INDU) Wells Fargo gained 0.8 percent to $48.08.

-By Zachary Tracer

Property Trust Sales Drop 49% as Vicious Loop Seen: China Credit

Source: Bloomberg / News

Chinese developers raised 49 percent less through trusts in the first quarter as the collapse of Zhejiang Xingrun Real Estate Co. highlighted default risks.

Issuance of property-related trusts, which target wealthy investors, slid to 50.7 billion yuan ($8.16 billion) from 99.7 billion yuan in the fourth quarter, data compiled by Use Trust show. The yield on AA rated five-year bonds has climbed 175 basis points in the past year to 7.23 percent, according to Chinabond. That compares with 2.74 percent on corporate securities globally, Bank of America Merrill Lynch indexes show.

“The banking system and the shadow banking system are becoming concerned about exposure,” David Cui, China strategist at Bank of America said in an interview yesterday. “Once people refuse to provide credit to developers, their balance sheets will be under pressure, forcing them to cut prices. Once enough of them cut prices, fewer people would buy because most people buy property only when they think the price is going up. If this persists, it will turn into a vicious loop.”

The collapse of Xingrun, a builder in a city south of Shanghai, with 3.5 billion yuan in liabilities last month is adding to concerns as developers grapple with trust repayments equivalent to the size of Puerto Rico’s economy this year. Agricultural Bank of China Ltd., the nation’s third-largest lender, last week alerted its branches about risks from property lending, according to two people familiar with the matter.

Value Falls

New property trust offerings accounted for 30 percent of total trust sales in the first quarter, down from 33 percent in the last three months last year, according to data compiled by Use Trust. Figures from the research firm are for collective products only, which are sold to more than one investor.

The value of homes in China sold in January and February fell 5 percent to 598.5 billion yuan from the same two months a year earlier, the statistics bureau said last month. It will become more difficult for builders to obtain financing in 2014, according to 26 economists and analysts surveyed by Bloomberg from March 24 to 31.

This year will probably be the most challenging for Chinese property companies since the short-term shock between 2008 and 2009 after the global financial crisis, according to Bank of America’s Cui. “There is high probability that some property trust products will default this year.”

More Failures

After Xingrun’s failure, China’s economic planning body expanded an annual property survey that helps shape policies to more than 300 cities. The National Development and Reform Commission ordered the survey be expanded to cities at the prefecture level and above, two government officials who asked not to be identified because they weren’t authorized to speak publicly said last month.

Companies with other kinds of building projects are also facing repayment concerns. A unit of China Sports Industry Group Co. (600158) failed to repay 144 million yuan of principal on a 600 million yuan trust loan for a sports center development, according to a statement from the company to Shanghai’s stock exchange dated April 4.

Speculation has increased that defaults may spread as the world’s second-largest economy cools. Policy makers have set a 7.5 percent growth target for 2014, which would be the slowest since 1990. Credit-default swap contracts insuring the nation’s debt against non-payment have climbed 5 basis points this year to 85 basis points, prices from data provider CMA show.

Bubble Risk

Premier Li Keqiang said the government will regulate the housing market “differently in different cities” to take into account local conditions. Jia Kang, director of the Ministry of Finance’s fiscal-science research institute, said on April 9 that China’s property bubble is “not big.”

While the decline in credit to the property sector will intensify the industry’s negative trend, only a few smaller developers may default on borrowings this year, according to Yao Wei, Hong Kong-based China economist at Societe Generale SA.

“Bubbles in some areas may be squeezed out,” Yao said yesterday. “There is low probability that it will lead to panic or systematic risks.”

Benchmark borrowing costs have risen with the yield on China’s 10-year sovereign note up 100 basis points over the past year to 4.46 percent. The premium investors demand to hold AA-rated similar-maturity corporate securities has climbed 7 basis points over the same period to 390 basis points.

Shadow Banking

“While the government is trying to curb shadow banking and investors are worried about credit risks of property companies, shadow-banking credit to the property sector will continue to shrink,” said Li Ning, a bond analyst in Shanghai at Haitong Securities Co., the nation’s second-biggest brokerage. “Property companies’ demand for capital is still strong even as borrowing costs rise.”

Mining and property trusts are among the products with the highest default risks, Li added.

Outstanding property trust products, including collective and single, totaled 1.03 trillion yuan as of the end of last year, accounting for 10 percent of all types of trusts, according to data posted on the website of China Trustee Association.

China is cracking down on its shadow-banking industry, where finance companies lend with less transparency, as inefficient allocation of capital slows economic growth and threatens social unrest.

Unless the government intervenes, both shadow banks and official lenders will provide less financial support to property companies, according to Bank of America’s Cui. At the moment, there is no strong sign that the central government will come out to support the real estate industry, he said.

“Both the economy and the financial system are relying too much on the property sector,” he said. “This is a systematic problem.”

-By Bloomberg News

U.K. House Prices Record Biggest Annual Increase Since 2010

Source: Bloomberg / Luxury

U.K. house prices had their biggest annual gain in 3 1/2 years last month as a shortage of property for sale supported values, Acadata said.

Prices in England and Wales rose 7.2 percent from a year earlier to 262,291 pounds ($440,000), the real-estate researcher and LSL Property Services Plc said in a report in London today. That’s the fastest increase since Sept. 2010. From the previous month, prices jumped 1 percent, led by London.

While growth in home sales was slower than usual for a March, that was probably partly due to heavy rain and flooding the previous month, and Acadata said Britain is now in a period of “sustained house-price acceleration.” Bank of England officials kept their key interest rate at a record low yesterday and have said they’re monitoring the property market for signs of unsustainable growth.

“A rejuvenated economy, a more accessible mortgage market and better employment prospects are underpinning greater confidence among aspiring buyers,” said David Brown, commercial director of LSL. “The relentless property market in the capital continues to surge ahead. The heat is radiating outwards through the regions.”

Sales probably rose 1.5 percent last month from February, less than the typical 24 percent increase, as the wettest winter for almost 250 years deterred buyers, Acadametrics said.

London was the best performer out of 10 regions tracked in the report, with a 13.3 percent increase in the past quarter compared with a year earlier. That was followed by a 6 percent gain in the commuter area in the south east of England.

In a separate report, e.surv chartered surveyors said the pickup in home loans may cool as new mortgage rules come into effect later this month. Approvals fell 7 percent in March from February, a second consecutive decline, it said.

Home-price inflation may also come under pressure as high values lock more Britons out of the market, Acadata said.

“Without more properties coming to the market we could see a halt to this progress,” Brown said. “We need more homes, not just to satisfy the growing demand, but also to prevent prices from rising out of reach, particularly in London.”

-By Jennifer Ryan