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30th April 2014

Singapore Real Estate

Sims Drive housing plot draws just four bids

GuocoLand leads with $530.89m offer; nearby site draws 16 bidders

Source: Business Times / Singapore

MALAYSIAN tycoon Quek Leng Chan has trumped his Singapore cousin, Kwek Leng Beng, at a state tender for a 99-year private housing site in Sims Drive.

His Singapore-listed GuocoLand bid $530.89 million or $687.88 per square foot of potential gross floor area for the nearly 2.4-hectare site fronting Sims Drive, Aljunied Road and Pan Island Expressway (PIE).

This was nearly 5.8 per cent higher than the No 2 bid - $502 million or $650.45 per square foot per plot ratio (psf ppr) - from a consortium comprising the Kwek family's listed City Developments and unlisted Hong Leong Holdings, and TID.

In all, the tender drew just four bids, compared with 16 for a site in the vicinity fronting Geylang East Avenue 1 and next to Aljunied MRT Station.

-By Kalpana Rashiwala

Developers show caution in bids for Sims Drive site

Source: Today Online / Business

SINGAPORE — In yet another sign that developers are taking a more cautious stance when vying for land amid challenging property market conditions, a residential site at Sims Drive attracted only four bidders, who put in relatively conservative offers.

The 99-year leasehold site, which is spread across 257,251sqf and has a maximum gross floor area of 771,775sqf, is the largest condominium site to be released under the Government Land Sales programme since early 2012, analysts noted.

But the sheer size of the development has also probably deterred developers, especially small-to-mid-sized ones, from participating in the tender. The site can potentially yield 900 homes.

Said Mr Nicholas Mak, executive director of research and consultancy at SLP International: “This is a very big development and not many developers have the financial muscle to see the project through. That’s why we see mainly the big boys bidding.

“However, the current conditions play a part as well, because during good times, the medium-sized developers would form consortiums or joint ventures to take part.”

Ms Christine Li, head of research and consultancy at OrangeTee, agreed: “Bigger projects would invariably carry bigger risks, and this applies especially so during challenging market conditions.”

The top bid of S$530.9 million was placed by First Changi Development, a unit of GuocoLand.

This translates into about S$687.90 per square foot per plot ratio (psfppr), edging out the second-highest bid of S$650.45 psfppr by a City Developments-led consortium.

“Comparing the tender result of the subject site with that of the Geylang East tender, developers have exercised greater caution when bidding for the Sims Drive parcel,” said Ms Li.

The January tender for a Geylang East Avenue 1 site only 400m from the Sims Drive plot was hotly contested with 16 bidders. It was eventually sold to S L (Serangoon) for about S$776.00 psfppr.

“The growing caution among developers is not surprising, given that the private residential market has weakened for the second consecutive quarter,” said Mr Mak. He estimated the breakeven price to range from S$1,090 to S$1,130 per square foot and the selling price to start from S$1,220 to S$1,300 per square foot.

-By Lee Yen Nee

Three industrial sites put up for sale

Tuas and Woodlands plots released under IGLS scheme for H1

Source: Business Times / Singapore

TO provide more options for industrialists, the government has put up two sites at Tuas and one site at Woodlands for sale under the first half of its Industrial Government Land Sales (IGLS) programme.

The 3.9-ha site at Woodlands Ave 12 released by the Urban Redevelopment Authority has a 30-year tenure and a maximum permissible gross plot ratio of 2.5. It is zoned for industrial (Business 1) with an integrated Heavy Vehicle Park (HPV. The uses allowed under "Business 1" zoning include clean and light industries.

Separately, JTC launched two Tuas sites for B2 industrial uses, which include clean and light industries as well as general industrial use.

The 8,922-sq-m site at Tuas Avenue 11 has a lease of 30 years and a maximum permissible gross plot ratio of 1.4. The other plot at Tuas South Street 11 (Plot 39) - triggered from the Reserve List with a $6 million bid - has a 20-year and 10-month tenure and a maximum permissible gross plot ratio of 1.0.

-By Lynette Khoo

S'pore hotels draw investors with Asia's best room rates

Source: Straits Times 

Mamoru Kohda, who scouts the globe for properties for Japan's Daisho, began looking for a hotel in Singapore early last year. Within a year, the property investor and developer had acquired the newly opened Westin in the city for a record price.

S’pore hotel assets prove big draw for investors

Republic accounted for 16% of the S$16.8b worth of deals done in Asia-Pacific last year

Source: Today Online / Business

SINGAPORE — Investors are snapping up hotel assets in Singapore, where the average daily room rate is the highest in Asia, driven by a record number of leisure and corporate visitors.

Eleven hotels valued at S$2.45 billion were sold in Singapore last year, four times the total in 2012, said property broker Savills.

“We are seeing some pretty aggressive bidding just to get into Singapore,” said Mr Robert McIntosh, executive director at broker CBRE Group’s Asia-Pacific hotel business here. “Some of the landmark iconic properties, which are extremely well sought-after, aren’t driven just by income but by long-term capital gains.”

Among properties bought by foreign investors were the 308-room Grand Park Orchard hotel and its retail podium Knightsbridge. It was acquired for S$1.5 million per room by Chinese steel tycoon Du Shuang-hua through his Singapore-based company Bright Ruby Resources, Knight Frank said in its third-quarter 2013 report.

And in December, Tokyo-based Daisho bought the newly-opened Westin hotel from a fund owned by BlackRock for about S$468 million, or S$1.5 million per room, said CBRE.

Tourist arrivals in South-east Asia’s biggest financial centre is forecast to grow as much as 8 per cent to a record 16.8 million this year from last year, while tourism revenue may climb by as much as 5 per cent to S$24.6 billion, the Singapore Tourism Board has said.

“Singapore is a very strong market and one of our top markets in Asia,” said Mr Michael Issenberg, Accor chairman for the Asia-Pacific region. “Demand is high, as Singapore does a great job with the conferences, leisure and corporate sectors, and a lot of airline business. It’s got a good mix.”

Accor will open its Sofitel So brand in the business district next month and its first ibis Styles brand in Singapore in 2016, while InterContinental opened its Holiday Inn Express in the city’s nightlife hub of Clarke Quay last month.

Demand is also being supported by local investors chasing the assets. Ascendas Hospitality Real Estate Investment Trust bought the Park Hotel Clarke Quay for S$300 million from Parksing Property, a member of the Park Hotel Group, said a joint statement from the companies in June.

“This is a small little island, so there is a scarcity of assets and land,” Mr Tan Juay Hiang, chief executive of Ascendas Hospitality Trust, said in a phone interview. “There is more certainty in investing here than in other parts of Asia.”

Singapore accounted for 16 per cent of a record 143 hotel deals valued at US$13.4 billion (S$16.8 billion) in the Asia-Pacific region last year, said CBRE. This is an increase from a 6.8 per cent share of deals in Asia in 2012, CBRE data showed.

But in a sign of caution, there were no hotel transactions reported in the quarter ended in March, because of the gap between buyers’ and sellers’ expectations on price, said CBRE.

While the total number of deals in Singapore should come in higher this year than last year, the price paid per room may decline slightly and the number of high-value transactions could drop as it becomes increasingly challenging for investors to find prime hotel assets, said Mr Akshay Kulkarni, regional director of hospitality for South and South-east Asia at Cushman & Wakefield in Singapore.

Revenue per available room, or revpar — an industry measure of occupancy and rate — in Singapore also declined 1.4 per cent last year amid an increase in supply, said Mr Kulkarni.

Singapore added 3,900 rooms last year — the most in three years — and is forecast to add 2,037 rooms this year, said CBRE. Another 3,000 are expected to be added next year, which could lead to a decline of as much as 5 per cent in revenue per available room, said CBRE’s Mr McIntosh.

Still, demand for hospitality assets will remain intact, with investors unlikely to be concerned by lower returns.

“Singapore hotel investments remain on the radar of many core investors,” Mr Kulkarni said. “While yields may look low, one must not forget that this is a long-term play with capital appreciation as the bigger game.” Hotel yields ranged from 3 per cent to 4.5 per cent last year, Mr Kulkarni said.

Mr McIntosh concurred. “The sheer weight of capital trying to find a home” is driving hotel acquisition, he said. “Investors are ready to accept yields of sub-4.5 per cent even for three-star properties.” 

-By Bloomberg

S’pore buyers call for more property curbs

74 per cent of respondents in survey say home prices have yet to become more affordable

Source: Today Online / Business

SINGAPORE — Repeated rounds of cooling measures and loan restrictions may have put a squeeze on home prices here, but potential buyers continue to view affordability as a major concern and are calling for additional curbs to bring prices down even further.

A biannual survey by real estate portal showed yesterday that 51 per cent of the 2,853 Singapore respondents intend to buy a property in the next two years, with condominiums topping the wish list of many. However, 74 per cent said prices have yet to become more affordable.

General manager at Singapore, Mr Sean Tan, said: “The cooling measures have begun to lower prices, which respondents recognise and support … The question now is, when will buyers feel comfortable with adjusted prices and jump back in?”

Latest data from the Housing and Development Board and the Urban Redevelopment Authority show that current curbs such as the Additional Buyer’s Stamp Duty have started to take effect, with prices of public resale and private homes dipping in the first three months of the year compared with the previous quarter.

However, while acknowledging the effectiveness of the cooling measures, 52 per cent are calling for more restrictions.

To address the affordability concerns of buyers, developers have started to price units more competitively, Mr Tan said.

“Although respondents are concerned with financing options, more than half, or 51 per cent of them, have a budget above S$800,000 … Some developers are already pricing their projects or lowering prices of previously-launched projects to within this range,” he said.

The survey also showed buyers taking an interest in overseas properties, with 43 per cent of the respondents saying they intend to purchase a property outside Singapore in the next two years, and 26 per cent in the next 12 months.

Malaysia emerged as a top choice despite recent cooling measures introduced by the government, edging out Australia, the United Kingdom and Thailand.

“The survey shows consumers retain great confidence in the property sector,” said Mr Getty Goh, director of real estate research and investment firm Ascendant Assets.

“Prices are declining and, while buyers are currently hesitating, the appetite for property remains very strong at both the national and international level. The property market will certainly see a revival in demand; the big question is when. Timing the market is always tough.”

-By Lee Yen Nee

SMEs want rules to ensure fair rents

Source: Straits Times 

Bosses of small and medium-sized enterprises (SMEs) want better rules in place to ensure fairer rents and occupancy terms to help them battle soaring leasing costs. A Singapore Business Federation (SBF) forum held last week found that 72 per cent of 180 attending business owners and leaders said they would either like to see legislation or a "fair consideration" lease framework enacted to reduce rent pressures and protect growing firms.

Real Estate Companies' Brief

Far East H-Trust posts lower Q1 DPS of 1.3¢

Source: Business Times / Companies

FAR East Hospitality Trust (H-Trust) posted a distribution per stapled security (DPS) of 1.3 cents for the first quarter ended March 31, a 5.8 per cent decline from 1.38 cents a year ago.

The decrease was due mainly to "softer performance of the hotels" and an enlarged stapled security base arising from the issuance of 148.3 million new stapled securities to Hotel Rendezvous and Golden Development, as part of the acquisition cost of Rendezvous Hotel Singapore (RHS) last August.

Income available for distribution rose 4.5 per cent to $23.1 million, while gross revenue rose 9.1 per cent to $30.7 million, attributable to the contribution from RHS.

In line with higher gross revenue, net property income grew 6.3 per cent year on year to $27.6 million.

-By Jacquelyn Cheok

Starhill Global Reit posts Q1 DPU of 1.24 cents

Source: Business Times / Companies

STARHILL Global Reit posted a distribution per unit (DPU) of 1.24 cents for its first quarter ended March 31, payable on May 30.

The latest distribution was a 9.5 per cent decline from 1.37 cents paid out per unit in Q1 last year. On an annualised basis, the latest distribution represents a yield of 6.37 per cent.

First-quarter net property income (NPI) fell 6.7 per cent to $39.1 million, on the back of an 8.3 per cent decline in revenue to $49.2 million.

The declines were largely due to an absence of a one-time receipt of accumulated rental arrears it received from Toshin Development Singapore in Q1 last year.

-By Lee Meixian

Soilbuild Reit Q1 DPU at 1.562 cents

Source: Business Times / Companies

SOILBUILD Business Space Reit posted a distribution per unit (DPU) of 1.562 cents for its first quarter ended March 31, 2014, 6.1 per cent higher than forecast in its prospectus.

This translates to an adjusted annualised distribution yield of 7.7 per cent.

The Reit, which listed in August last year, recorded a gross revenue of $16.8 million (3.9 per cent above forecast). This included $400,000 received from a tenant in Westpark Biz Central that had requested to pre-terminate its lease. The vacated space was taken over by an existing tenant to fulfil its expansion plans.

Net property income was $14.2 million (5.3 per cent above forecast) on lower-than-expected maintenance costs incurred for both Eightrium@Changi Business Park and Tuas Connection.

-By Lee Meixian

Tuan Sing's property arm holds up Q1 profit

Source: Straits Times

Reduced commodity trading hit the numbers at Tuan Sing Group in the first quarter but its real estate arm saved the day. Net profit rose 33 per cent from $5.8 million to $7.7 million in the three months to March 31, compared with the same period last year. Revenue fell 6 per cent to $61.3 million mainly due to lower sales at its industrial services unit, stemming from lower commodity-trading activities.

Views, Reviews & Forum

Studios for seniors are too restrictive

Source: Today Online / Voices

Studios for seniors are too restrictive

The report “Woodlands ‘modern kampung’ to foster greater community bonding” (April 26, online) stated that the project includes 100 studio apartments for seniors.

While the authorities have made an effort to ensure that our housing programme recognises our seniors’ needs, I feel that the studio apartment concept falls short.

The lease is 30 years, a housing loan is not allowed and the units cannot be sold in the open market.

When a unit is returned to the Housing and Development Board, it would be for a pro-rated sum based on the remaining lease, such as in the case of a buyer who dies some years later and whose spouse is under the age of 55.

A studio unit costing S$100,000 is tantamount to 30 years of S$278 in monthly rental being payable in full on the first day of the lease.

The current take-up of studio apartment projects attests to my argument and reflects an urgency to re-examine some of these rules.

To date, the take-up rates of January’s Build-to-Order selection exercises are 12.8 per cent in Bukit Batok, 15.3 per cent in Serangoon and 9.4 per cent in Jurong West (see table).

These numbers are poor, compared with the average take-up of two-room (57.5 per cent), three-room (17 per cent) and four-room flats (39.7 per cent).

A 60-year lease and resale to the HDB at market rates would be fairer to our seniors, unless there are strong grounds for such restrictive rules.

-By Jack Koh Chin Guan

Co-broking property transactions: Council replies

Source: Straits Times 

Salespersons play an important role in helping their clients get the best value for their property transactions ("Property deals: Conflict of interest is the issue" by Ms Koh Wee Leng, April 11; and "Tenants also benefit in rental transactions" by Ms Fong Hang Yin, Forum Online, April 11).

Global Economy & Global Real Estate

Sime Darby buying 30% stake in US firm Verdezyne

Source: Business TImes / Malaysia

PETALING JAYA] Malaysian conglomerate Sime Darby is acquiring a 30 per cent stake in United States-based industrial biotechnology company Verdezyne to pursue strategic growth areas for its plantation business, The Star reported yesterday.

The Star citing a Bernama news agency report said that Sime Darby had signed a memorandum of understanding on Monday for the US$30 million stake in Verdezyne.

Sime Darby president and group chief executive officer Mohd Bakke Salleh said that "Sime Darby is taking strategically measured steps to build and nurture a sustainable portfolio of palm-related industrial biotechnology companies".

"There are exciting opportunities, which can leverage on our substantial plantation assets, and we are keen to capitalise these for future growth," he said in a statement.

-From Petaling Jaya, Malaysia

Khazanah to take stake in Philippine developer

RM215m investment is its first in the region's fastest expanding economy

Source: Business Times / Malaysia

MALAYSIAN sovereign wealth fund Khazanah Nasional will invest RM215 million (S$82.5 million) in 8990 Holdings, a mass housing developer in the Philippines. This would be the agency's first foray into the South-east Asian country.

In a statement yesterday, the wealth fund said that its special-purpose vehicle, Pasir Salak Investments, had entered into a cornerstone investment agreement for 8990's upcoming share offering.

Under the agreement, Khazanah would take up an 8 per cent interest in the company, allowing it to gain exposure to the country's ''growth story''.

The deal underlines Khazanah's ambitions to diversify out of the Malaysian market, where most of its investments are located, onto a more global stage.

-By S Jayasankaran in Kuala Lumpur

U.S. Homeownership Rate Falls to the Lowest Since 1995

Source: Bloomberg / Luxury

The homeownership rate in the U.S. declined to the lowest in almost 19 years as rising property prices and mortgage rates held back demand.

The share of Americans who own their homes was 64.8 percent in the first quarter, down from 65.2 percent in the previous three months, the Census Bureau said in a report today. The rate is the lowest since the second quarter of 1995, when it was 64.7 percent.

Recovering home prices and mortgage rates that have climbed from near-record lows last May have put real estate out of reach for some would-be buyers. The S&P/Case-Shiller (SPCS20) index of values in 20 cities increased 12.9 percent in February from a year earlier after rising 13.2 percent in the 12 months through January, the group said today.

“The homeownership rate is held back by slow job growth, tight mortgage credit and declining affordability,” Jed Kolko, chief economist of San Francisco-based property-listing service Trulia Inc., said in an interview before the report was released. “We’ll see it stay around this level for some time.”

Sam Zell, chairman of apartment landlord Equity Residential (EQR), said yesterday that the rate will fall to as low as 55 percent because more Americans are choosing to rent as they postpone getting married and having children. As of 2010, about 54 percent of adults were married, down from 57 percent a decade earlier, according to Census Bureau data.

‘Staggering Impact’

“The deferral of marriage has such a staggering impact on real estate and I just don’t think people focus on it,” Zell, 72, said at the Milken Institute Global Conference in Beverly Hills, California. “I don’t think the multifamily market has ever had a better set of future demographics.”

The U.S. homeownership rate for all Americans peaked at 69.2 percent in June 2004, according to the Census Bureau.

In the first quarter, blacks had the lowest homeownership rate at 43.3 percent, up from 43.2 percent in the previous three months. The rate for whites decreased to 72.9 percent from 73.4 percent in the fourth quarter.

-By Prashant Gopal

Zell Says Homeownership Rate to Fall as Marriages Delayed

Source: Bloomberg / Luxury

The U.S. homeownership rate may fall to as low as 55 percent because more Americans are choosing to rent as they postpone getting married and having children, said Sam Zell, chairman of landlord Equity Residential.

Demographic and lifestyle changes, more than economic factors, are driving down the ownership rate over the long term, Zell said yesterday at the Milken Institute Global Conference in Beverly Hills, California. As of 2010, about 54 percent of adults were married, down from 57 percent a decade earlier, according to the U.S. Census Bureau.

“The deferral of marriage has such a staggering impact on real estate and I just don’t think people focus on it,” said Zell, 72, whose Chicago-based Equity Residential is the largest U.S. apartment landlord. “I don’t think the multifamily market has ever had a better set of future demographics.”

The homeownership rate fell to the lowest in almost 19 years, declining to 64.8 percent in the first quarter from 65.2 percent in the previous three months, the Census Bureau said today. Recovering home prices and rising mortgage rates have put real estate out of reach for some would-be buyers. Homeownership peaked at 69.2 percent in 2004.

The median age of marriage rose to 28.2 for men and 26.1 for women in 2010, up 1.4 years for men and 1 year for women from a decade earlier, continuing a trend of later wedlock that dates back to 1950, Census Bureau data show.

Postponing Children

Zell also cited reports of a growing number of women freezing their eggs to postpone having children while they pursue their careers. That delay will further reduce demand for single-family homes, he said.

Equity Residential (EQR) owns or has investments in about 110,000 multifamily units. Of the 18,000 rental apartments the company has in New York, 45 percent are occupied by single people, Zell said.

“It’s happening all over the country,” he said.

-By John Gittelsohn

Growing Job-Opening Concerns Dent U.S. Confidence: Economy

Source: Bloomberg / Luxury

Americans grew concerned in April that jobs have become more difficult to land, prompting an unexpected drop in confidence from a six-year high.

The Conference Board’s sentiment index decreased to 82.3 from 83.9 a month earlier, a reading that was stronger than initially estimated and the highest since January 2008, the New York-based private research group said today. Another report showed home prices in 20 cities rose at a slower pace.

Smaller gains in housing and stocks and higher prices at the gas pump help explain why households’ assessments of the economy aren’t improving. Nonetheless, consumers held out hope that the employment outlook will brighten enough later this year to generate the wages needed to spark spending.

“Consumer attitudes are improved, but still quite muted relative to where you’d hope they’d be in a healthy recovery,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, whose projection of an 82 reading was among the closest in the Bloomberg survey. “The issues in the job market aren’t really on the layoff side, they’re on the hiring side.”

Stocks rose as Internet shares rallied for the first time in five days and results from Merck & Co. to Sprint Corp. topped estimates. (CONCCONF) The Standard & Poor’s 500 Index advanced 0.5 percent to 1,878.33 at the close in New York. The gauge is up 1.6 percent this year.

The Conference Board’s gauge of present conditions dropped to a three-month low in March, while the barometer of consumer expectations for the next six months was little changed.

Consumer Expectations

“Consumers assessed current business and labor-market conditions less favorably than in March,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “However, their expectations regarding the short-term outlook for the economy and labor market held steady.”

The median forecast in a Bloomberg survey of 78 economists called for a consumer confidence reading of 83.2. Estimates ranged from 80.8 to 87.8 after a previously reported March reading of 82.3. The Conference Board’s measure averaged 53.7 in the recession that ended in June 2009. It’s averaged 63.2 during the current expansion.

The fewest respondents in three months said jobs were currently plentiful, while more said jobs were hard to get. The spread between those who said work opportunities are easier to come by and those who said they’re currently scarce worsened in April.

Labor Outlook

Americans were still optimistic the labor market will see better days. The proportion of consumers who said jobs would become more plentiful in the next six months climbed to the highest since January. In addition, the share expecting their incomes to rise increased to an eight-month high in April.

Payrolls climbed by 192,000 workers in March after a 197,000 increase the previous month that was larger than first estimated, the Labor Department said earlier this month. Private payrolls, which exclude those at government agencies, exceeded the pre-recession peak for the first time.

Employers added 215,000 workers in April, according to the Bloomberg survey median before a May 2 report. The unemployment rate is projected to fall to 6.6 percent from 6.7 percent, according to the survey.

The figures on sentiment also showed fewer people plan to buy automobiles in the next six months as prices at the pump climbed. Gasoline prices averaged $3.69 a gallon yesterday, close to the highest level since March of last year, according to figures from AAA, the largest U.S. motoring organization.

Home Prices

Slower home-price appreciation may be starting to stabilize a housing market that’s been weakening since the middle of last year. The Conference Board’s report showed more Americans said they planned to purchase previously owned homes in the next six months.

Today’s report from S&P/Case-Shiller in New York showed an index of property prices in 20 U.S. cities increased 12.9 percent from February 2013, the smallest advance since August, after a 13.2 percent gain in the year ended in January.

Growth in property values eased as rising mortgage rates and severe winter weather restrained demand for homes in the first few months of the year.

“The days of very robust home-price gains are over,” said Thomas Costerg, a New York-based economist at Standard Chartered Plc, who projected the index would rise 12.8 percent. “Elevated price gains are a headwind, especially for first-time buyers. Prices will slow going forward, and the housing market needs that to recalibrate supply and demand.”

Summer Vacation

A pickup in confidence about the economy may encourage more Americans to travel this summer, providing a spark for companies such as Choice Hotels International Inc., whose brands include Comfort Inn and Econo Lodge.

“We’re off to a very strong start for 2014,” Stephen Joyce, president and chief executive officer, said on an earnings call yesterday. “Consumers are more upbeat about future job growth in the overall economy. Reports show that consumers are expecting the economy to continue improving and rising expectations suggest the economy may pick up some more momentum over the next few months.”

The Silver Spring, Maryland-based company said revenue per available room rose 5.6 percent in the first quarter as occupancy rates increased.

The pickup in occupancy was due in part to an “improving U.S. economy as well as declining unemployment rates,” David White, the company’s chief financial officer, said on the call.

Signs the economy is emerging from a slowdown in first-quarter demand indicate Fed policy makers will stick to plans for a gradual reduction in the asset purchases.

At the same time, the central bankers have pledged to keep interest rates near zero until the jobless rate falls further and inflation rises toward a 2 percent goal.

-By Michelle Jamrisko

Home-Price Gains in U.S. Cities Cooled in February

Source: Bloomberg / Luxury

Home prices in 20 U.S. cities rose at a slower pace in the year ended February as the residential real-estate market cooled.

The S&P/Case-Shiller index of property values increased 12.9 percent from February 2013, the smallest 12-month gain since August, after rising 13.2 percent in the year ended in January, a report from the group showed today in New York. The median projection of 33 economists surveyed by Bloomberg called for a 13 percent advance.

Growth in property values eased as rising mortgage rates and severe winter weather restrained demand for dwellings in the first few months of the year. Cooling price appreciation combined with an improving job market will probably help home sales regain momentum later in the year.

“The days of very robust home-price gains are over,” said Thomas Costerg, a New York-based economist at Standard Chartered Plc, who projected the index would rise 12.8 percent. “Elevated price gains are a headwind, especially for first-time buyers. Prices will slow going forward, and the housing market needs that to recalibrate supply and demand.”

Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.3 percent to 1,871 at 9:22 a.m. in New York after results from Merck & Co. to Sprint Corp. topped estimates.

Survey Results

Economists’ estimates in the Bloomberg survey ranged from gains of 11.6 percent to 14 percent. The S&P/Case-Shiller index is based on a three-month average, which means the February figure was also influenced by transactions in January and December.

Home prices adjusted for seasonal variations increased 0.8 percent in February from the prior month, matching the Bloomberg survey median. Unadjusted prices were unchanged.

The year-over-year gauge, based on records dating back to 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

All of the 20 cities in the index showed a year-over-year gain, led by a 23.1 percent jump in Las Vegas and a 22.7 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 3 percent.

Just five cities showed larger year-to-year gains in February.

“Despite continued price gains, most other housing statistics are weak,” David Blitzer, chairman of the S&P index committee, said in a statement. “Five years into the recovery from the recession, the economy will need to look to gains in consumer spending and business investment more than housing.”

Home Sales

Rising home values, climbing borrowing costs and bad weather took a toll on demand early in the year. The average rate on a 30-year home loan was 4.33 percent in the week ended April 24, up from 3.40 percent a year earlier, according to data from McLean, Virginia-based Freddie Mac.

Sales of previously owned properties fell in March for a third consecutive month, to a 4.59 million annual rate that was the lowest level since July 2012, the National Association of Realtors reported last week. At the current sales pace, it would take 5.2 months to sell houses, a reading that constitutes a tight market favoring sellers over buyers, the group said.

New-home sales in March plunged 14.5 percent to a 384,000 annualized pace, the slowest in eight months, according to Commerce Department figures issued last week. The median price climbed 12.6 percent from March 2013 to a record $290,000.

Some Stabilization

More recent reports signal residential real estate was starting to stabilize entering the spring selling season. The pending home sales index, which tallies contracts to purchase previously owned houses, climbed in March by the most in almost three years, the Realtors group reported yesterday.

Companies benefiting from higher house values and improving demand include D.R. Horton Inc. (DHI), whose average sales price in the fiscal second quarter ended March 31 was $278,900, up 10 percent from a year earlier. The largest U.S. homebuilder by revenue said orders rose 9 percent in volume and 20 percent in value.

“We are experiencing solid demand and profitability in the heart of our business,” D.R. Horton Chief Executive Officer Donald Tomnitz said on a conference call on April 24.

The same day, PulteGroup Inc. (PHM), the second-largest U.S. builder by market value, reported an increase in its first-quarter pretax income.

“The industry is still in the early stages of what will be a sustained, multiyear recovery, but one that will develop at a more measured pace than past housing recoveries,” PulteGroup CEO Richard Dugas said on an April 24 conference call.

-By Shobhana Chandra

U.K. Lenders Face 35% House Price Fall in BOE Stress Test

Source: Bloomberg / Luxury

The Bank of England, in its first public set of stress tests, will assess the country’s eight biggest lenders on how they would cope with 4 percent interest rates coupled with a 35 percent fall in house prices.

Banks such as HSBC Holdings Plc (HSBA), Barclays Plc (BARC) and Royal Bank of Scotland Group Plc, will also be examined on their resilience to shocks including unemployment rising to 12 percent, the BOE’s Prudential Regulation Authority said in a statement today. Lenders must maintain a core tier one capital buffer of 4.5 percent of risk-weighted assets.

“Much has been achieved in recent years to put the U.K. banking system on a sounder footing so that it can support the U.K. economy,” Mark Carney, governor of the BOE, said in the statement. “The Bank’s annual stress test will help ensure our banks support that expansion by remaining resilient.”

The U.K. stress tests will take place during an unprecedented series of financial-stability exams in the European Union as the bloc prepares to hand supervisory powers over around 130 banks to the Frankfurt-based European Central Bank in November. The European Banking Authority announced separate scenarios for its stress tests earlier today.

The BOE tests also contemplate commercial property prices falling by 30 percent and 10-year U.K. gilt yields hitting 6 percent.

The EBA scenario doesn’t include interest rate rises. The BOE, because it is a central bank, can test for sudden increases in base rates and related house price drops.

EU Tests

EU banks will be tested on how well they can weather an average 21.2 percent housing collapse, a 19.2 percent slump in stock prices over three years, as well as a 14.7 percent fall in commercial real estate prices across the 28-nation EU, the EBA said in a statement today.

Europe’s leaders entrusted the Frankfurt-based ECB to oversee the financial system to restore confidence in the region’s banks after the credit crisis of 2008 and Europe’s sovereign-debt debacle triggered the continent’s worst recession since World War II.

The PRA took over U.K. banking regulation last year from the Financial Services Authority, which was blamed by lawmakers for failing to prevent the financial crisis in 2008 and subsequent bailouts of Lloyds Banking Group Plc (LLOY) and RBS.

-By Ben Moshinsky

Grosvenor Cuts Luxury-Home Investment on London Bubble Risk

Source: Bloomberg / Luxury

Grosvenor Group Ltd., one of the biggest central London property owners, reduced investment in luxury-housing development by 240 million pounds ($404 million) last year on concern that values are too high.

“We have been concerned about the level of property values in some markets, particularly in prime central London,” Chief Executive Officer Mark Preston said in a statement today. The company, owned by Duke of Westminster Gerald Grosvenor’s family trusts, is instead “exploring the mid-market, where there is unsatisfied demand for good-quality rental housing.”

Property values in London’s best areas have jumped more than 60 percent since 2009 as political and economic turmoil overseas attracted cash-rich buyers and foreign investors seeking a haven, according to Knight Frank LLP. Price growth is slowing as buyers resist rising asking prices, Tom Bill, an associate at the London-based broker, said by phone.

Grosvenor Finance Director Nicholas Scarles said there’s a risk that “a bubble is developing.”

“We do not know when a correction will occur, but our own analysis indicates the prospect of a correction is becoming more likely,” Scarles said in the company’s e-mailed statement.

Profit Doubles

Grosvenor, whose assets include 300 acres (121 hectares) in London’s Mayfair and Belgravia neighborhoods, said pretax profit excluding changes in investment property values and one-time items more than doubled last year to 175.1 million pounds, largely on sales in London, according to the statement. This year’s figure will probably be less than 100 million pounds, Preston said in the statement.

The total return on real estate, which combines changes in property values and rental income, increased to 9.7 percent for 2013 from 7.2 percent a year earlier, the company said.

Gerald Grosvenor, the wealthiest U.K. citizen, has a net worth of $13.2 billion and is the world’s 81st richest person, according to the Bloomberg Billionaires Index.

-By Patrick Gower