Real News‎ > ‎2014‎ > ‎April 2014‎ > ‎

17th April 2014

Singapore Economy

Singapore is most attractive destination for FDI in region

NZ, HK take 2nd, 3rd spots in Asia Pacific Investment Climate Index for 2014

Source: Business Times / Top Stories

[SINGAPORE] The Republic is still the most attractive destination for foreign direct investment (FDI) in the region despite the tightening of its foreign manpower policy.

Singapore ranked first in the Asia Pacific Investment Climate Index for 2014, repeating its feat for the past two years.

This was despite the Singapore government tightening "immigration controls in recent years, (and) raising financial barriers to entry for foreign labour", the report stated.

Said Hans Vriens, managing partner of Vriens & Partners (V&P), which published the study: "They (investors) understand that this is what Singaporeans want and the government doing so will lead to a more stable political environment."

-By Malminderjit Singh

Look further afield for productivity ideas

Source: Business Times / Singapore

COMPANIES looking to raise their productivity may do well to copy ideas from outside their industry, Senior Minister of State for Trade and Industry Lee Yi Shyan said yesterday.

He made this point at the "Getting Real with Productivity" forum, and elaborated on it when he spoke to reporters later.

Noting that companies in the service industry usually set their new hires to work immediately, he suggested that these firms learn from manufacturing companies, which typically train their workers for a few weeks before putting them on the production line. If service industry companies did this, their workers would be able to provide more consistent service, he said.

"You don't leave your business to run by chance; instead, you structure it properly," he said.

-By Sheena Tan

Singapore Real Estate

Cooling measures hit Prince Charles Cres tender

Bids for 99-year residential site much lower than those for its neighbour

Source: Business Times / Singapore

YESTERDAY's tender close was a story of two plots side by side, sold two years apart - one in the 2012 property boom and the other after the government had imposed its seventh round of cooling measures and total debt servicing ratio (TDSR) framework.

The latter, a 99-year leasehold residential site at Prince Charles Crescent (Parcel B), got a highest bid of $463.1 million or $820.65 per square foot per plot ratio (psf ppr), a sharp drop from the $516.3 million or $960.28 psf ppr that its adjacent Parcel A site received two years ago.

The Parcel A site was awarded to Wing Tai's Wingstar Investment, Metro Australia Holdings and UE E&C's unit Maxdin, which are developing it into The Crest, to be launched possibly next quarter.

Yesterday, the highest bidder for the Parcel B site was a partnership between UOL Venture Investments and Kheng Leong, which plans to develop a 24-storey project with about 750 units.

-By Lee Meixian

'KOP in due diligence on Prudential Tower'

Pricing tipped to be in the region of $2,340 psf of net lettable area

Source: Business Times / Property

A CONSORTIUM that includes private equity group KOP is believed to be doing exclusive due diligence on a potential purchase of Keppel Reit's majority stake in Prudential Tower.

Sources say the pricing could be in the region of $2,340 per square foot (psf) of net lettable area (NLA). Based on the 221,241 sq ft net lettable area or 92.8 per cent share of the building 

that Keppel Reit owns, the deal size would work out to nearly $520 million.

Keppel Reit was earlier said to have had an asking price of $2,400 psf of NLA. The top floor of the 30-storey office tower is owned by Prudential and half of the 16th floor is held by a private investor. The building is on a site with a balance lease term of about 81 years.

Major tenants in the building include Prudential Assurance Singapore, UniCredit Bank and Compass Office. Prudential Tower was among the properties that helped contribute a 14.7 per cent year-on- year increase in Keppel Reit's net property income for the first quarter of this year. The asset was valued at $490 million at the end of last year.

-By Kalpana Rashiwala

HPL land redevelopment 'can revive Orchard belt's sleepy end'

Source: Straits Times 

The plots of prime land in Orchard Road owned by Hotel Properties (HPL) could be redeveloped and turned into an integrated development or serviced residences, said property analysts yesterday. They said the land that now accommodates the Hilton Singapore and Four Seasons hotels, Forum the Shopping Mall, Ming Arcade shopping centre and HPL House could be amalgamated to revive the sleepier end of the shopping belt.

Clermont Residence world class on price

Source: Straits Times

Guocoland's Clermont Residence in Tanjong Pagar has been ranked in the world's top 10 plushest high-rise apartment blocks by a website that caters to the world's rich. used a block's price per square foot and the price of its most expensive unit to come up with its premier league table.

Natural Cool selling property for $26.5m

Source: Business Times / Companies

Natural Cool Holdings Limited is selling its property at 20 Benoi Crescent for about $26.5 million through its wholly owned unit, Natural Cool Investments Pte Ltd. The group is expected to make a net gain of about $6.15 million on the proposed sale. On a pro forma basis, assuming the sale had taken place on Dec 31, 2013, net tangible asset per share would have increased from 16.09 cents to 19.21 cents.

$20m makeover for Sentosa hotel

Source: Straits Times

A hotel on Sentosa, formerly known as the Beaufort, will be rebranded under a multimillion- dollar makeover. It will be refurbished and unveiled next year as the Sofitel Singapore Sentosa Resort and Spa, its owner Royal Group told a briefing at the premises yesterday. It has temporarily renamed the hotel the "Singapore Resort and Spa Sentosa, Managed by Accor".

Real Estate Companies' Brief

CapitaLand acquiring another 80% stake in CBKH

The stake is currently held by a China development fund managed by the developer

Source: Business Times / Companies

CAPITALAND is acquiring another 80 per cent interest in CapitaLand (Beijing) Kai Heng Holdings Pte Ltd (CBKH) that it does not already own from a group-managed China fund for 220.2 million yuan (S$45 million).

CBKH, which will become a fully owned subsidiary of CapitaLand post-transaction, has 100 per cent economic interest in Beaufort, a residential development site in Chaoyang District in Beijing.

CapitaLand's latest move, announced after market close yesterday, came hot on the heels of its $3.06 billion delisting offer for CapitaMalls Asia (CMA) on Monday.

The 80 per cent stake in CBKH is currently held by CapitaLand China Development Fund (CCDF), a Singapore-incorporated private equity real estate fund sponsored and managed by CapitaLand.

-By Lynette Khoo

Cambridge trust's Q1 DPU rises to 1.251¢

Gain achieved amid drop in turnover, net property income

Source: Business Times / Companies

CAMBRIDGE Industrial Trust (CIT) has posted a distribution per unit of 1.251 cents for its first quarter ended March 31, 2014, a 1.4 per cent increase from 1.234 cents a year ago.

This came on the back of a 3.3 per cent increase in distributable income to $15.6 million for the quarter.

Both the trust's turnover and net property income fell, however.

Gross revenue fell 5.1 per cent to $23.5 million due to property divestments (net of property acquisitions) as well as a different accounting treatment, or straight line rent adjustments of $0.9 million, in the prior period.

-By Lee Meixian

Sabana Reit's DPU falls 22% to 1.88¢ in Q1

Source: Business Times / Companies

SABANA Shari'ah Compliant Industrial Real Estate Investment Trust's (Sabana Reit's) distribution per unit (DPU) fell 22 per cent to 1.88 cents per unit for the first quarter ended March 31, 2014, from 2.41 cents a year ago.

This was on the back of net property income slipping 9.2 per cent to $18.4 million from $20.3 million.

The decline in DPU reflects more challenging market conditions, said Kevin Xayaraj, chief executive officer and executive director of Sabana Real Estate Investment Management, the Reit's manager.

The results were dragged down by the conversion of four master-tenanted properties into multi-tenanted properties in Q4, which led to a significantly lower overall occupancy rate for its multi-tenanted properties.

-By Mindy Tan

Keppel Land

Source: Business Times / Singapore Markets

There were no surprises in KepLand's results - Q1 14 core EPS was 24 per cent of our full-year forecast and consensus. Development sales in China and Singapore were soft in the quarter. Given the weak outlook for the physical market in China and Singapore, we think the slow development sales will persist for KepLand in FY14.

Lian Beng

Source: Business Times / Singapore Markets

Q3 FY14 Patmi (profit after tax and minority interests) came in at S$33.6 million - up 178 per cent y-o-y - mostly due to a boost from the TOP (temporary occupation permit) of M-space, a 55 per cent-owned industrial development. This is within expectations, and 9MFY14 PATMI now makes up 78 per cent of our FY14 forecast. Topline for the quarter is S$257.5 million, up 122 per cent similarly from M-Space's impact.

Ezion raising $194m from share placement

Source: Business Times / Companies

TWO companies linked to Malaysian tycoon Quek Leng Chan are pumping a total of $194 million into Ezion Holdings through share subscriptions for a combined 7.7 per cent stake in the enlarged capital of the liftboat developer and offshore logistics support service provider.

Ezion said yesterday that Asia Fountain Investment Company Limited and GuoLine Capital Limited are each subscribing for half of 100 million shares at $1.94 apiece.

The price represents an 8.9 per cent discount to the closing price of $2.13 for trades done on April 15, said Ezion.

Asia Fountain Investment is an indirect wholly owned subsidiary of Hong Kong-listed Guoco Group, which is in turn an indirect subsidiary of Hong Leong Company (Malaysia) Berhad (HLCM), a company controlled by Mr Quek.

-By Vivien Shiao

Quek Leng Chan boost for Ezion

Source: Business Times / Companies

THIS would be a chest-thumping moment for Ezion Holdings, a listed offshore marine services firm, which will soon count veteran businessman Quek Leng Chan as its second top shareholder.

Who would doubt having a seasoned corporate bigwig among big shareholders of a company to inspire more confidence in it?

The Malaysian tycoon brings to Ezion's table - thanks to Credit Suisse, which brought the parties together - corporate stealth built over decades and the single most crucial element in the oil and gas space: connections.

What more when the country Mr Quek hails from boasts a national oil giant, Petronas, which dishes out hefty contracts that can move the needle big time for industry players, small and big.

-By Anita Gabriel

Global Economy & Global Real Estate

GLP leases more space to smartphone maker

Source: Business Times / Companies

Global Logistic Properties Limited (GLP) has leased 34,000 square metres of space to a "leading smartphone manufacturer" at GLP parks in six cities across China. "The customer is an existing GLP customer and is leasing more space to service rising domestic demand for its mobile handsets and other products sold online," the group said.

European property-loan sales seen rising 65%

Record 2014 sales of 50b euros: Cushman & Wakefield

Source: Business Times / Property

[LONDON] European property-loan sales will rise 65 per cent to a record 50 billion euros (S$86.5 billion) this year as improving economies in the region prompt investors to set aside more money for deals, Cushman & Wakefield Inc said.

The broker raised its forecast by 25 per cent after transactions so far this year reached 29.8 billion euros, almost equal to all of 2013, according to a report yesterday. The 2014 total was boosted by the liquidation of the Irish Bank Resolution Corp, formerly Anglo Irish Bank Corp.

This year may mark a peak for loan sales after deals soared in the first several months, Federico Montero, corporate finance partner at Cushman & Wakefield, said in a statement.

"We won't see a quarter like this for quite some time," Mr Montero said. "Investor appetite is at an all-time high, with plenty of capital still to deploy."

-From London, UK

Accor to manage Royal's hotel on Sentosa

Hotel undergoing renovation; to be unveiled as Sofitel brand next year

Source: Business Times / Property

ROYAL Group has appointed hotel operator Accor to manage its newly purchased hotel on Sentosa under the Sofitel brand, the group's second Sofitel in its portfolio.

The hotel, formerly known as The Sentosa, A Beaufort Hotel, has been temporarily renamed The Singapore Resort & Spa Sentosa, managed by Accor while it undergoes a renovation costing more than $20 million.

When refurbishments are complete in Q3 next year, the hotel will be unveiled as Sofitel Singapore Sentosa Resort & Spa.

"Our challenge is going to be that of taking the Sofitel brand, which is all about French elegance and luxury, and taking the hotel to a new level," said Michael Issenberg, chairman of Accor Asia Pacific.

-By Raphael Lim

China Q1 home sales down on tight credit

New property construction plunges 25%

Source: Business Times / Property

[SHANGHAI] China's home sales fell and new property construction declined 25 per cent in the first quarter, as credit remained tight, adding to signs of a slowdown in the world's second largest economy.

The value of homes sold fell 7.7 per cent to 1.1 trillion yuan (S$221 billion) in the three months to March from the same period a year ago, the National Bureau of Statistics said on Tuesday. The last time home value sales dropped in the first quarter was in 2012. New property construction declined to 291 million square metres in the quarter.

China's broadest measure of new credit in March fell 19 per cent from a year earlier and money supply grew at the slowest pace on record, according to People's Bank of China.

China's expansion slowed to the weakest pace in six quarters in the January-to-March period, a separate government report showed yesterday, adding to risks of missing an annual growth target of about 7.5 per cent.

-From Shanghai, China

Luxurious living for NY horses

City police's mounted unit is set to move its HQ to upscale Mercedes House, where 1,000 people already live, reports MATT A V CHABAN

Source: Business Times / Property

[NEW YORK] THE newest residences at Mercedes House, a ziggurat of luxury rentals on Manhattan's Far West Side, provide tenants with creature comforts found nowhere else in the city. 

Special flooring soothes legs weary from a long day's work. Ten-foot-high doors offer easy passage between spacious rooms. A high-tech ventilation system eliminates even the worst odours. Most crucially, there's a state-of-the-art hayloft.

"It's definitely high-end accommodations," said Barry Gelbman, deputy inspector and commander of the New York Police Department's mounted unit. "They're some of the nicest stables I've ever seen." This summer, Mr Gelbman will move the unit's headquarters and a dozen of its horses and 20 officers into their new home on the ground floor of Mercedes House, which since 2011 has been home to about 1,000 humans.

After a decade, the mounted unit is leaving behind its stables at Pier 76, now a part of Hudson River Park. While there are a handful of stable-centric subdivisions in places such as Colorado, Montana and Florida, Mercedes House appears to be the only corral in the United States inside an apartment building. Even in crowded Manhattan, it is an unusual arrangement. 

Officers on horseback may seem quaint, but they play an important crowd-control function in Times Square, during parades and at other major events. But the community has been eager for some time to have the police department vacate Pier 76. As part of the Hudson River Park Act of 1998, the horses, along with a police impound lot, were to relocate so the pier behind the Jacob K. Javits Convention Center could become public open space.

In 2007, Jed Walentas rode to the rescue. Mercedes House was to be his first large project independent of his father, David Walentas, who almost single-handedly developed Dumbo, Brooklyn in the 1990s. Their firm, Two Trees Management, had purchased an 8,100-square-metre Verizon parking lot with plans to replace it with a mix of luxury and affordable apartments. 

When Mr Walentas had his initial meeting with the community board, he was going to offer to build a school within the 1.1-million-square-foot project, a common salve for large luxury developments.

-From New York, US

Builders in U.S. Begin Work on Fewer Homes Than Forecast

Source: Bloomberg / Personal Finance

The pace of U.S. home construction rebounded less than forecast in March, held back by declines in warmer parts of the country that indicate the recovery in residential building will be slow to develop.

Housing starts climbed 2.8 percent to a 946,000 annualized rate following February’s 920,000 pace, which was higher than previously reported, Commerce Department data showed today in Washington. The median estimate of 78 economists surveyed by Bloomberg called for an increase to 970,000. Permits for future projects declined.

While warm weather and the onset of the spring selling season boosted housing activity in the Northeast and Midwest, the industry’s recovery has been challenged by higher interest rates, slow wage growth and tight credit, which have put homeownership out of reach for some would-be buyers. Bigger gains in employment are necessary to overcome declining affordability.

“Housing will contribute positively to GDP this year, but not by nearly as much as in 2012 and 2013,” said Dana Saporta, director of U.S. economics research at Credit Suisse in New York, who projected a 945,000 pace and the second-most accurate forecaster for starts over the past two years, according to data compiled by Bloomberg. “We are seeing continued improvement in housing starts, but at a slower pace.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June climbed 0.4 percent to 1,846.8 at 8:41 a.m. in New York as Yahoo! Inc. led gains by technology companies after reporting earnings that beat estimates.

Estimates for starts in the Bloomberg survey ranged from 909,000 to 1.05 million.

Fewer Permits

Building permits (NHSPATOT) declined 2.4 percent to a 990,000 annualized pace, a sign that construction still has room to expand this month. They were projected to be little changed at 1.01 million, according to the Bloomberg survey median.

Work on single-family properties climbed 6 percent to a 635,000 rate in March from 599,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings fell 3.1 percent to an annual rate of 311,000.

Improving weather probably played a role in the gain in starts as construction surged 65.5 percent in the Midwest and 30.7 percent in the Northeast. Starts dropped 9.1 percent in the South, to the slowest pace since October, and 4.5 percent in the West to a six-month low.

Weather’s Impact

Weather dealt a setback to builders and other businesses at the beginning of the year as snow blanketed streets and bitter cold kept consumers at home in parts of the country.

The National Association of Home Builders/Wells Fargo builder sentiment gauge improved slightly this month, to 47 from a revised 46 in March that was weaker than initially reported, the Washington-based group reported yesterday. Readings greater than 50 mean more respondents report good market conditions.

Mortgage costs remain historically low. The average 30-year, fixed-rate mortgage was 4.34 percent for the week ended April 10, compared with 3.43 percent a year ago, according to Freddie Mac (FMCC) in McLean, Virginia.

While the market is slowly returning to health, builders have yet to catch up with demand. The U.S. requires between 1.6 million and 1.9 million new units a year just to accommodate population growth and household formation, according to the Harvard Joint Center for Housing.

Mortgage Applications

Slow progress in housing has challenged lenders, who have seen a drop in mortgage applications as rates inch up. At JPMorgan Chase & Co., production of new mortgages in the first quarter was down 68 percent from a year ago, Chief Financial Officer Marianne Lake said. Head count for the division is down about 14,000 since the beginning of last year.

“Despite a relatively favorable rate environment, the market got off to a slow start in 2014,” Lake said on an April 11 earnings call. “We’re seeing tight housing inventory in some markets and the purchase market was affected adversely by the severe weather. This led to a challenging quarter for the mortgage business.”

-By Lorraine Woellert and Jeanna Smialek

China Seen Cracking on Property Controls

Source: Bloomberg / News

China’s slump in property sales and construction is spurring speculation that the government’s four-year-old campaign of real-estate controls will start to crack.

Citigroup Inc. sees “targeted easing” including on home purchase restrictions, while Bank of America Corp. says smaller cities may see looser rules. Centaline Group, parent of China’s biggest real-estate brokerage, says some cities are inclined to adjust policies such as the level of scrutiny of buyers.

A 25 percent plunge in new-building construction helped drag economic growth in the first three months of this year to the slowest in six quarters, adding pressure on Premier Li Keqiang to avert a deeper slowdown. While the government last night announced more support measures including lower reserve requirements for rural banks, Li reiterated that the nation isn’t considering stronger stimulus.

“The housing sector now poses the biggest downside risk to the Chinese economy,” said Yao Wei, China economist at Societe Generale SA in Hong Kong. “The next batch of policy announcements is likely to be housing policy relaxation at the local government level.”

The National Bureau of Statistics said yesterday that growth in gross domestic product slowed to 7.4 percent in the first quarter from 7.7 percent in the previous period, compared with a 7.5 percent annual target. Industrial production in March and fixed-asset investment for the first three months of the year trailed estimates.

Rural Banks

The State Council, or cabinet, said last night that it would lower reserve requirements at “qualified” rural banks to provide more funds to agriculture-related industries, building on plans announced earlier this month for railway and housing spending and tax breaks to support expansion. First-quarter growth was within a reasonable range, the cabinet said.

China’s interest-rate swaps fell by the most since June after last night’s announcement. The cost of the one-year rate swap, the fixed payment needed to receive the floating seven-day repurchase rate, dropped 18 basis points to 3.86 percent as of 10:58 a.m. in Shanghai. It reached 3.81 percent earlier, the lowest since July 9, according to data compiled by Bloomberg.

Last night’s measures “are small in magnitude in terms of their macro impact, but send a clear signal of loosening intention,” Goldman Sachs Group Inc. analysts said in a note. Bank of America Corp. estimated that a cut of 1 percentage point in rural lenders’ reserve ratios may release as much as 78 billion yuan ($13 billion) in liquidity.

Reasonable Range

Li said yesterday that growth a bit higher or lower than 7.5 percent can be deemed to be in a reasonable range, according to a government statement after a State Council meeting. China will maintain a “prudent” monetary policy and a “proactive” fiscal stance and will ensure the 2014 growth target can be reached through reform and changes to the structure of the economy, Li said.

The value of property sales in the first quarter fell 5.2 percent from a year earlier and unsold completed properties jumped 23 percent from a year earlier to 521.6 million square meters, the bureau said.

Sheng Laiyun, a spokesman for the statistics bureau, said yesterday that “relevant departments will closely follow the changes in the property market and improve property macro-control policies accordingly,” responding to a question at a briefing on whether housing-market policies would be relaxed.

The property market has had new developments including falling prices in third- and fourth-tier cities, Sheng said.

Shadow Banking

The nation’s slowdown is partly being engineered by the government, which has been trying to curb a $6 trillion shadow-banking industry and reduce overcapacity and pollution. Nationwide measures to cool property-price gains since 2010 have included higher interest rates for second-home mortgages, and restrictions on purchases in about 40 cities.

UBS AG estimates the real-estate industry accounts for more than a quarter of final demand in the economy when including property-generated needs for goods including electric machinery and instruments, chemicals and metals.

“For now, I think the government will hold its breath, but if the sector were to continue to weaken -- and I think most forward-looking indicators suggest it will -- I’d expect the government’s nerve not to hold,” George Magnus, an independent senior economic adviser in London to UBS, said in an e-mail.

Measures may include “monetary easing, including possibly further yuan depreciation, and a relaxation of some past restraints on property purchases and transactions,” Magnus said.

Some Easing

JPMorgan Chase & Co. said yesterday that there may be “some degree of easing in property tightening measures” such as restrictions on purchases and mortgages in markets where housing is under pressure. It’s “unlikely to evolve” into a national policy shift, Grace Ng, senior China economist in Hong Kong, said in a note.

Any loosening measures may only be minor, said Andy Mantel, founder and chief executive officer of Pacific Sun Advisors in Hong Kong. Xu Gao, chief economist at Everbright Securities Co. in Beijing, said the government should focus on loosening monetary policy to help the property market.

Some of the cities that have imposed home purchase restrictions, such as Wenzhou, Xuzhou and Zhoushan, have been loosening such curbs starting in the second half of 2013 to boost sales, according to Centaline.

Beijing Prices

In the capital city of Beijing, one of the four “first-tier” major cities, existing-home prices fell 3.8 percent from the March average to 31,265 yuan a square meter in the first 10 days of April, according to Bacic & 5i5j Group, the city’s second-biggest property broker.

Ding Shuang, senior China economist at Citigroup in Hong Kong, said it’s possible the government could buy housing inventory to use as low-income apartments.

“Property developers, especially smaller ones, are very vulnerable,” he said. “If they cannot sell their inventory, they may default and the non-performing loan ratio could increase and bond defaults could also increase.”

-By Bloomberg News

Stockland’s A$2.5 Billion Retail Growth to Come From Development

Source: Bloomberg / News

Stockland, Australia’s biggest diversified property trust, will focus on developments, rather than acquisitions, to grow its retail property assets by as much as A$2.5 billion ($2.3 billion) in five years.

The company will refurbish and expand its existing malls and build new centers on land it already owns to accomplish its expansion plans, said John Schroder, chief executive officer for commercial real estate at Sydney-based Stockland. It also expects to sell about A$300 million of offices by the end of 2015 as it moves away from the asset class, he said.

Retail property transactions reached a record A$7.1 billion in 2013, driven by domestic property trusts selling assets to local pension funds and foreign investors, broker Jones Lang LaSalle Inc. said in a report last month.Stockland (SGP) plans to increase retail property to between 50 percent and 70 percent of assets by 2019 from 49 percent as of Dec. 31, with total commercial assets accounting for no more than 80 percent.

“There’s a lot of equity, superannuation funds and whole-of-life insurance companies, and sovereigns chasing” Australian property, Schroder said in an April 15 interview in Sydney. “Right now, we create better value for our shareholders by investing in what we own and control today, rather than, in many cases, trying to compete in the outside market.”

Industrial assets may rise to as much as 15 percent from 8 percent, while offices may decline to as low as 5 percent from 13 percent, according to the company’s Dec. 31 earnings statement. Residential and retirement will make up between 20 percent and 30 percent by 2019.

Australand Stake

Stockland managed A$5.5 billion of retail properties, A$1.5 billion of offices and A$900 million of industrial assets as of Dec. 31, and has about A$457 million of shopping center developments in progress, the filings show.

Stockland shares closed 0.5 percent higher at A$3.78 in Sydney, extending gains this year to 4.7 percent. The benchmark S&P/ASX 200 index has climbed 1.9 percent this year.

Since February, when Stockland released its Dec. 31 weightings, the company has progressed on its office reduction with the sale of a 50 percent stake in the Piccadilly Centre in Sydney’s center to Investa Office Fund for A$194.25 million.

Stockland last month took a 19.9 percent stake in smaller rival Australand Property Group, to explore “strategic opportunities” with the company, which develops and manages both commercial and residential property.

Given Stockland’s plans to expand its industrial and residential business, a full takeover of Australand offers “strong strategic merits,” John Kim, head of real estate research at CLSA Asia Pacific Markets, wrote in a client note on March 20.

“However, it is essential for Stockland to find a buyer for Australand’s A$1.2 billion office portfolio,” he said.

-By Nichola Saminather

Citigroup Said to Lend $1.5 Billion to Its NYC Landlord

Source: Bloomberg / News

Citigroup Inc. (C) is lending $1.45 billion to its landlord in downtown Manhattan as the property owner buys out a partner, according to people with knowledge of the deal.

The loan to SL Green Realty Corp. (SLG), which acquired the two-building complex in the city’s Tribeca neighborhood from Citigroup at the start of the financial crisis in 2007, will be packaged into bonds and marketed to investors next month, said the people, who asked not to be identified because the negotiations aren’t public. The New York-based bank plans to share 50 percent of the transaction with Barclays Plc, Wells Fargo & Co. and Bank of China, the people said.

Representatives for Citigroup, Barclays, Wells Fargo and SL Green declined to comment. Telephone calls to a press officer at Bank of China in Beijing weren’t immediately answered.

The biggest banks are vying for large commercial mortgages that can be packaged into securities as investors snap up new offerings. Billion-dollar deals such as Citigroup’s are too big for most insurance companies and regional banks to hold on their balance sheets, leaving the field open for Wall Street firms hunting for property loans to be sold off as bonds.

Citigroup, which sold the complex at 388 and 390 Greenwich St. to SL Green for $1.58 billion to raise cash as losses mounted amid the housing-market collapse, renewed its lease on about 2.6 million square feet at the property in December. The lease agreement gives the bank the option to buy back the buildings in 2017 for $2 billion.

Full Ownership

SL Green said in March that it was assuming full ownership of the complex, acquiring a stake owned by the real estate arm of Canadian pension fund Caisse de Depot et Placement du Quebec. The buildings, which include a 39-story tower, house Citigroup’s investment-banking offices and trading floors.

Deutsche Bank AG beat at least three other banks including Citigroup to lend $1.9 billion to the operator of a group of Hawaiian resorts, people with knowledge of that deal said yesterday. The loan to Kyo-ya Hotels & Resorts LP is also slated for sale to investors as securities, the people said.

-By Sarah Mulholland

Europe Property-Loan Sales Seen Up 65% as Lone Star Buys

Source: Bloomberg / News

European property-loan sales will rise 65 percent to a record 50 billion euros ($69 billion) this year as improving economies in the region prompt investors to set aside more money for deals, Cushman & Wakefield Inc. said.

The broker raised its forecast by 25 percent after transactions so far this year reached 29.8 billion euros, almost equal to all of 2013, according to a report today. The 2014 total was boosted by the liquidation of the Irish Bank Resolution Corp., formerly Anglo Irish Bank Corp.

This year may mark a peak for loan sales after deals soared in the first several months, Federico Montero, corporate finance partner at Cushman & Wakefield said in a statement.

“We won’t see a quarter like this for quite some time,” Montero said. “Investor appetite is at an all-time high, with plenty of capital still to deploy.”

Holders of real estate loans including Ireland’s National Asset Management Agency are accelerating sales as economies of countries that use the euro show signs of emerging from the worst of the sovereign-debt crisis. Investors have set aside as much as 125 billion euros to invest in European real estate and credit linked to property, Cushman & Wakefield estimates.

Royal Bank of Scotland Group Plc, the lender 80 percent owned by the U.K. government after a bailout, may sell as much as 11 billion pounds ($18.4 billion) of loans in the next three years, according to the report. Permanent TSB, a Dublin-based lender, plans to sell almost 10 billion euros of assets “in the near future,” the broker said.

Lone Star Funds and its partners are the biggest buyers of real estate loans in Europe so far this year, spending 12.9 billion euros, Cushman & Wakefield said. Cerberus Capital Management LP is second with 5.63 billion euros of loan acquisitions.

There are 23.4 billion euros of real estate loans currently for sale in Europe, according to Cushman & Wakefield.

-By Patrick Gower and Neil Callanan

Australian Buyers’ Dreams Deferred as Housing Prices Rise

Source: Bloomberg / Luxury

Alexandra Kerr said she and her husband Shaun Taylor made eight unsuccessful offers over 18 months in Brisbane’s rising market before finally buying their first home in April.

They’re borrowing 95 percent of the A$559,000 ($524,733) cost with a 5.05 percent adjustable-rate loan, she said. The high price the couple paid means they’ll have to postpone remodeling the kitchen in the 1940s three-bedroom detached home, which was marketed as a “renovator’s delight.”

“It was such a long road and got crazy for a bit, but we now have a house that we both love,” Kerr, 26, said.

Mortgage rates at their lowest in four-and-a-half years are helping drive household debt to record levels in Australia. The average home-loan size jumped to an all-time high of A$322,900 in January, according to Australian Bureau of Statistics data. As cheap money and a shortage of housing in Australia’s biggest cities spurs home values to new heights, first-time buyers face a choice of taking on more debt or dropping out of the market.

“Higher levels of affordability have been purely based on the fact that interest rates are so low,” said Cameron Kusher, senior research analyst at property information provider RP Data in Brisbane. “And first-home buyers purchasing now need to be accounting for the fact that they’re going to start rising.”

Low Rates

The average variable home loan rate was 5.95 percent as of March 31, the lowest since September 2009. The Reserve Bank of Australia’s record-low 2.5 percent benchmark interest rate has driven down the cost of mortgages.

Almost 85 percent of owner-occupants buy with adjustable-rate loans, according to statistics bureau data, which are vulnerable to increases in interest rates. Even when buyers opt to fix their mortgage rate for a fee, the loans revert back to variable rates after a specified number of years.

Interest rates are poised to rise after unemployment dropped to 5.8 percent in March from a decade-high 6.1 percent in February. That, combined with soaring home prices, will compel the central bank to start raising rates from the first quarter of 2015, according to the majority of economists in a Bloomberg survey.

Home prices across Australian cities reached a record in September and continued climbing to an average of about A$636,000 in March, a 10.6 percent jump from a year earlier, according to the RP Data-Rismark Home Value index. In Brisbane, where Kerr and Taylor bought their home, prices have risen 4.8 percent in the past year, according to the index.

Australian Dream

That’s making it harder for many first-time buyers to fulfill their dreams of owning a suburban home, with a grassy backyard, swimming pool and barbecue. Their share of mortgage approvals slipped to a record-low 12.3 percent in November, according to government figures. It has since hovered near 13 percent, compared with a peak of 31.4 percent in May 2009.

The Housing Industry Association-Commonwealth Bank of Australia housing affordability index worsened to 74.7 in the last three months of 2013 from 75.1 the previous quarter. Houses in Australian capital cities will this year be the least affordable after the U.K. among nine markets, Fitch Ratings said in a January report.

“Fitch expects the affordability metric to slightly deteriorate over the next few years as home prices are likely to grow more than income,” according to the report, which based the measure on the ratio of average values to income.

Record Debt

Home prices are almost seven times the average disposable income of new buyers in New South Wales state, where almost two-thirds of the population lives in the capital Sydney, according to Sydney-based data firm Digital Finance Analytics. In Victoria state, whose capital is the nation’s second-biggest city Melbourne, prices are slightly more than six times income. In Queensland, they’re just below that multiple, the data shows.

Australia’s housing debt equaled a record 134.6 percent of disposable income at the end of 2013, up from 130.9 percent a year earlier, according to the central bank. The ratio was 119.9 percent in the U.K., 104.5 percent in Canada, and 78.5 percent in the U.S. at the end of 2012, the most recent data from the Organization for Economic Cooperation and Development showed.

“Spiraling house prices will probably lead to trouble later, either because they in turn fall, or households will extend themselves too far,” Martin North, principal at Digital Finance Analytics, wrote on the firm’s website this month.

In December, the Australian Senate started an inquiry into the causes of declining affordability and ways to make home ownership easier. A Senate report is expected in June.

Construction Boost

A shift in state grants for first-time buyers to those purchasing only new properties partly explains their decline in the market, according to Matthew Hassan, senior economist in Sydney at Westpac Banking Corp. The change removed financial assistance of as much as A$7,000 for first-time buyers of existing homes over the past two years in New South Wales, Queensland, Victoria and the Australian Capital Territory. The move pushed new buyers, who might otherwise have waited to purchase, into the market before the grants ended, he said.

The grants’ focus on new homes was aimed at stimulating construction to alleviate a shortage in some areas that contributed to surging prices. The RBA, in its submission to the Senate’s inquiry, cited the concentration of Australia’s population in two cities as a major reason for the supply constraints. About 40 percent of the population of the country the size of continental U.S. lives in Sydney and Melbourne.

City Populations

“Unlike many other comparable countries, Australia lacks the medium-sized cities that could provide alternatives to households seeking to avoid high housing costs in the largest cities,” the central bank said in the statement in February.

The shortage may be easing with building approvals and mortgages for construction on the rise. Building approvals for houses and apartments rose a seasonally adjusted 23.2 percent in February from a year earlier, statistics bureau data show. Loans for new construction for investors surged 135 percent from a year earlier, and those for owner-occupants jumped 25 percent in the year ended on Feb. 28, according to the figures.

The increase, particularly in construction of apartments and higher-density homes, will improve affordability, the RBA said in its submission. This “allows households to choose to economize on the amount of land they consume, rather than being restricted to larger and more expensive blocks,” it said.

Negative Gearing

Bank of America Merrill Lynch’s Saul Eslake, in his submission to the Senate inquiry, blamed Australia’s tax rules, which favor investors over owner-occupants, for the drop in affordability. “Negative gearing” allows landlords to claim losses on their investment properties and offset them against other income.

It’s “quite difficult to think of anything that would do more to improve affordability conditions for would-be homebuyers than the abolition of negative gearing,” said Eslake, the bank’s Melbourne-based chief Australia economist. He is urging a cap on the proportion of expenses that can be offset, or removal of the policy for future buyers.

Young Australians who are still buying homes tend to earn incomes of more than A$50,000, according to Sydney-based research firm Retail Finance Intelligence. In February, Jennifer Eagle and her partner Chris Grant, both 24, bought their first property for A$299,000. They plan to rent out the three-bedroom townhouse about 20 kilometers (12 miles) southwest of Brisbane’s center.

First-Time Investors

Eagle, a Melbourne-based public relations coordinator at property investment advisory Positive Real Estate Pty, and Grant earn a combined yearly income of A$80,000. They bought the townhouse with a 5 percent down payment after failing to find a property they could afford near central Melbourne. The interest-only payments are slightly higher than the A$1,470 a month they make in rent.

The couple is gambling that their incomes will increase enough to make the higher payments once mortgage rates climb.

“We wanted to build up a property portfolio that’s going to rise much faster than our salaries, and buy our own house with that,” Eagle said. “By the time interest rates get higher, I’m hoping that both my partner and I are on higher salaries and that our property will have gained enough.”

Kerr, who expects to get a job after graduating from university with a communications degree, and Taylor, who works in marketing at a bank, are also concerned about paying the mortgage on their Brisbane home if rates rise.

“Two incomes isn’t a forever thing if we stop to have kids,” Kerr said.

-By Nichola Saminather

Basel Spurs Big-Bank Borrowing From U.S. Home Loan Banks

Source: Bloomberg / Luxury

Four of the nation’s largest banks, led by JPMorgan Chase & Co. (JPM), are driving a surge in borrowing from the Federal Home Loan Bank system as they raise funds to buy assets that meet new liquidity requirements.

Lending at the 12 regional Home Loan Banks rose 30 percent to $492 billion between March of 2013 and December 2013, largely the result of advances made to JPMorgan, Bank of America Corp., Wells Fargo & Co. (WFC) and Citigroup Inc., according to a report released today by the Federal Housing Finance Agency Office of the Inspector General.

The concentration of Home Loan Bank lending in four large institutions could present safety and soundness risks, the report said. In addition, auditors questioned whether lenders created to support housing finance should be providing funds so banks can meet standards set under the international Basel III accord.

“The increasing use of advances by members to meet Basel III’s liquidity requirements could raise public concerns about the system’s commitment to its housing obligations,” the report said.

The Federal Home Loan Banks, established by the government in 1932 to support mortgage credit, have an implicit government guarantee, meaning that investors expect they won’t be allowed to fail. They make advances to their 7,500 member financial institutions that can be used to originate home loans or for other purposes.

Citigroup (CITI), JPMorgan, Bank of America and Wells Fargo accounted for 27 percent of total advances from the Home Loan Banks at the end of 2013, up from 14 percent the year before, the report said. Lending to JPMorgan increased the most, to $61.8 billion in December 2013 from $13.3 billion in March 2012.

Basel Requirements

Basel III, approved by U.S. regulators in July, included standards for how much capital banks must have against investments in specific financial products. A related effort still under way in the U.S. would require banks to hold easy-to-sell assets and get a minimum amount of funding from sources unlikely to dry up in a crisis.

The FHFA, which regulates the Home Loan Banks, should publicly release more information on advances to big banks, the report said.

-By Clea Benson