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8th April 2014

Singapore Economy

S'pore joint-third with Paris in X-factor: Savills

Source: Business Times / Singapore

SINGAPORE has been ranked joint third with Paris in a new report on leading international cities, which classifies them by their "X-factor".

The paper, by real estate adviser Savills, ranked 12 cities based on a combination of global competitiveness, together with measures such as connectivity, international visitors and Web search data, the company said.

New York and London were ranked joint first in the "12 Cities" research paper released today. Other Asian cities in the study, such as Hong Kong, Tokyo and Shanghai, were ranked fifth, sixth and seventh, respectively.

Said director of Savills World Research Yolande Barnes: "Our definition of a world city is not just based on size or economic prosperity, but other less tangible factors."

-By Raphael Lim

Singapore emerges joint 3rd in world cities ranking

Source: Channel News Asia / Singapore

SINGAPORE: Singapore has come in joint third with Paris in a global ranking of international cities, based on indicators such as economic prosperity as well as less tangible factors like connectivity, international visitors and web search data.

London and New York were ranked joint first in the report by UK-based property consultancy Savills, which sought to identify cities with that "X factor" for real estate investors.

Asian rivals Hong Kong, Tokyo and Shanghai came in fifth, sixth and seventh respectively.

"Our definition of a world city is not just based on size or economic prosperity, but other less tangible factors," Savills World Research director Yolande Barnes said in a statement.

"These include fame, prominence, international reach and investability - all factors that are not revealed by population and GDP figures alone," she added.

Savills said it is often the cosmopolitan nature and international outlook that make cities prosperous and attractive to global investors.

By buying real estate in these cities, investors are looking to own a piece of the world rather than just a piece of a particular country, it added.

- CNA/ir

Tourism industry told to stay competitive

S'poreans urged to acquire new skills, raise productivity to support industry

Source: Business Times / Singapore

SINGAPORE'S tourism industry is working on raising the bar as competition for the tourist dollar heats up in the region.

In the works is the meetings, incentives, conferences and exhibitions (MICE) 2020 Roadmap, a medium-term plan for the MICE sector, while a hotel industry expert panel was set up in February to advise the government and hoteliers on productivity-boosting strategies amid a tight labour market.

In addition, Minister in the Prime Minister's Office S Iswaran yesterday announced a $15 million Association Development Fund - aimed at helping industry and precinct associations introduce initiatives to develop capabilities and engage visitors - at the Tourism Industry Conference 2014. The $15 million, which will be spread over three years, taps the $905 million Tourism Development Fund unveiled back in 2012.

In his speech, Mr Iswaran, who is also Second Minister for Trade & Industry, said: "We must focus on concepts, and creating distinctive software that can maximise the value we derive from the infrastructure we already have and continue to build, and also in order to differentiate Singapore from regional competition."

-By Nisha Ramchandani

S’pore tourism to get S$15m boost to enhance visitor experience

Source: Channel News Asia / Singapore

SINGAPORE: Singapore's tourism sector is set to get a boost in enhancing visitor experience and capture growth opportunities.

The Singapore Tourism Board (STB) is setting aside S$15 million under a new fund to support associations representing tourist hotspots like Orchard Road, Chinatown and Little India.

The increased support comes amid challenges from domestic labour constraints and growing regional competition.

To help boost the numbers and support the drive for quality tourism, and increase spending from each tourist, the new Association Development Fund was launched by Second Minister for Home Affairs and Trade & Industry S Iswaran at the Tourism Conference 2014 on Monday.

"STB is setting aside S$15 million under a new Association Development Fund to build capabilities in the tourism-facing industry and precinct associations," announced Mr Iswaran.

“Our vision is for them to become key nodes -- in the network of collaboration across the tourism industry -- that can catalyse quality growth in their respective spheres of influence."

The initiative aims to help industry associations improve productivity and capabilities so that businesses can enhance visitor experiences and differentiate Singapore amid growing regional competition.

Groups that can benefit from the scheme include those which represent popular tourist hotspots, such as the Orchard Road Business Association, Chinatown Business Association, and the Little India Shopkeepers and Heritage Association, among others. 

"We have been supporting them through the events that they organise,” said Oliver Chong, executive director of communications and industry marketing at Singapore Tourism Board.

“We are going one step further by building a fund that also caters to what they need to do in terms of infrastructure, capabilities and business process development; ensuring that they will be able to do a better job in terms of raising the capabilities of the industry as they are in a better position to identify the gaps and ensuring those gaps are plugged with the right programmes and initiatives."

Industry associations said the funding can help them improve the quality of their services.

Howard Lim, chairman of the Society of Tourist Guides (Singapore), said: "With this fund, we can bring in a trainer from overseas to come to Singapore. In the past, we can only travel out, and that's a lot of money concerned, and not so many people can benefit.

"This time round, with the fund, we can have more people, more tourist guides involved, so it's better for our tourism industry."

The Little India Shopkeepers and Heritage Association said that with the fund, it can hire people to initiate new projects and ideas to raise the attractiveness of Little India, among greater competition from new developments like Marina Bay Sands, Resorts World Sentosa and Gardens by the Bay.

Singapore welcomed more than 15 million visitors in 2013, up from some 14.5 million in 2012.

Yet, tourism receipts remained fairly stable at S$23.5 billion last year, growing slightly from S$23 billion the year before.

Slower growth in tourist spending comes amid challenges from domestic labour market tightness and rising external competition.

The government emphasises the need to work with industry entities to jointly develop ideas and differentiate Singapore from regional competition.

- CNA/nd/ec

Iskandar strategic to Singapore and Malaysia, says PM Lee

Source: Straits Times

The giant Iskandar Malaysia project in Johor state is a "strategic play" that can lift Malaysia above its global competitors and help Singapore maintain its competitive edge, Prime Minister Lee Hsien Loong said yesterday. But to do so, investments in the fast-growing Iskandar region need to be channelled into manufacturing as well, not just residential properties and services.

Tuas or Jurong likely site for S'pore-KL rail station

The city centre will also be considered but it is a less likely option, says PM Lee

Source: Business Times / Top Stories

TUAS West or Jurong East is likely to be one end of the Singapore-Kuala Lumpur high-speed rail that is due to roll out in 2020, Prime Minister Lee Hsien Loong said yesterday.

The city centre will also be considered as an alternative terminal station for the $15.6 billion project that is tipped to cut land travel time between Singapore and Malaysia to just 90 minutes, though it is a less likely option.

"The city would be ideal, but it is very difficult to do," Mr Lee disclosed during a joint press conference with his Malaysian counterpart Najib Razak at the end of an annual "retreat" meeting between the two leaders. "The expense would be very high. You have to tunnel a long way - and to find a sufficiently big plot (of land) in the city in order to build the railway station is not easy."

Tuas West makes sense because it is close to the Singapore-Malaysia border, and so is Jurong East which will become a major transportation, economic and financial zone for Singapore, Mr Lee said.

"Because it is (in) the Jurong Lake district and many things are happening at Jurong East," he said. "We will decide within the next year or so."

The idea of a Singapore-Kuala Lumpur rail was hatched between Mr Lee and Mr Najib at last year's retreat meeting. It is due to have seven stations, including a terminal station in Singapore and another in the Malaysian capital. There will be three stations in Johor Bahru and one each in Negri Sembilan and Malacca.

Property consultants The Business Times spoke to also point to Tuas West and Jurong East as likely locations to site the terminal. Of the three, Jurong East offers a compromise in terms of cost and connectivity. Building costs fall between the other two locations, and though not matching up to the city area, Jurong East is better connected to the rest of Singapore than Tuas West, they said.

It would make sense for the terminal to be located near the MRT station, said Christine Li, OrangeTee's head of research and consultancy. But finding the right location will be challenging considering the multiple developments in the area, she added.

Even so, siting the terminal in Jurong East will improve its position as a regional centre. Chesterton Singapore's managing director, Donald Han, said that the terminal would be a magnet for businesses and people to locate there. CBRE research head Desmond Sim reckoned that developments there would likely "synergise and benefit most".

Besides being close to the border, Tuas West, which is under developed with more available land, would offer the cheapest construction costs with minimal disruptions, said industry players. Ms Li said that Tuas West was considered possibly because of the port shift.

But the mostly industrial area is far from other parts of Singapore.

Nicholas Mak, SLP International's executive director said that this can be overcome by ensuring good access to public transport systems. But Jones Lang LaSalle's national director for research and consultancy, Ong Teck Hui, said that for travellers into Singapore, another 30 minutes to the city would be a "significant add-on to the 90-minute journey".

A terminal in the city would no doubt have the best connectivity for both travellers and locals. But land is prime with higher opportunity costs. Besides, construction work would cause more inconvenience. Mr Han of Chesterton Singapore pointed to the existing Tanjong Pagar railway station at Keppel Road and the KTM rail corridor as a more cost-effective way of locating the terminal in the city. Land acquisition costs would be reduced, said Mr Han.

While he said that Jurong East would be a likely candidate, having the terminal in Marina South, especially near the cruise centre, would create a "multi-nodal transport hub". Mr Han added it could push the expansion of the Central Business District into the Southern waterfront corridor.

Mr Najib said yesterday that the terminal station in Kuala Lumpur will be located in Bandar Malaysia, at the current Air Force base in Sungai Besi, which has been earmarked for redevelopment into a mixed use community and commercial district.

Mr Lee said that the high-speed rail is a "very major cooperation project which will preoccupy us for several years to come".

He added: "Officials have been working hard and there are many items here to discuss and settle: the design, the financing, the governance, the operations, the security and immigration requirements, the legal arrangements."

Despite the challenges, both Singapore and Malaysia leaders are sticking to the 2020 deadline for now. "That's quite an ambitious target," Mr Najib conceded. "(But) we wanted it to be an ambitious target so that we become very, very focused and the entire weight of both governments will be directed at this."

Mr Lee added: "I think 2020 is a good target to work for. It will be very challenging to achieve, but we don't think we should relax the constraint yet."

Meanwhile, Malaysia is keen to push two new initiatives raised at the latest retreat, the fifth since it kicked off in May 2007 in Langkawi by Mr Lee and former Malaysian Prime Minister Abdullah Badawi. The two new initiatives are "a joint border control at a single checkpoint" and a long-term "Friendship Bridge" to provide a third road link between the two countries.

The Friendship Bridge is another variation which has been raised by Malaysian leaders since 2003. Mr Lee said that Singapore's current preoccupation is to improve the flow of traffic at its Custom and Immigration Quarantine (CIQ) checkpoint, but it recognises a need to widen the links across the Straits of Johor in the long term. This is already being looked into by the Singapore and Malaysian ministers studying cross-border road linkage.

Mr Lee is agreeable to co-location of the CIQ, especially for the new links such as the Rapid Transit System linking Johor and Singapore and the high-speed rail. But he said that it is harder to do for the existing links, because the CIQ is already built.

-By Chuang Peck Ming in Putrajaya

Singapore Real Estate

Prime office rents in Singapore up 5.5% in Q1

Source: Straits Times

Singapore's office market saw firm demand in the first quarter this year, as a dearth of fresh supply and healthy demand boosted landlords' asking rentals. The average rent for Grade A office space in the first three months this year came in at $9.90 per square foot (psf) per month, up 5.5 per cent from the previous quarter, said property consultancy Cushman & Wakefield in a report released on Monday.

HDB resale prices edge up, strong rebound in volume

Gains by smaller units offset falls in prices of larger flats in March

Source: Business Times / Property

RESALE prices of Housing and Development Board (HDB) flats crawled slightly higher last month as price increases in smaller units offset the declines in larger ones, going by the latest data from the Singapore Real Estate Exchange (SRX).

But transaction volumes staged a strong rebound as buyers returned to the resale market after the Chinese New Year lull.

Flash estimates by SRX showed HDB resale prices edged up 0.3 per cent in March from a month ago. Prices for three- and four-room units rose by 0.5 per cent and 0.8 per cent, respectively as more buyers sought units with smaller quantums, given the loan cap under the Mortgage Servicing Ratio (MSR).

Prices of larger flats, however, softened by 0.2 per cent for five-room units and 0.7 per cent for executive flats from a month ago.

-By Lynette Khoo

HDB resale prices up 0.3% in March

Source: Channel News Asia / Singapore

SINGAPORE: HDB resale prices rose slightly by 0.3 per cent in March compared to February, according to a flash report by the Singapore Real Estate Exchange (SRX).

The price increase was led by smaller flats -- 3-room flats rose 0.5 per cent and 4-room flats increased by 0.8 per cent.

But prices of bigger flats -- both 5-room and executive flats -- continued to soften, dropping by 0.2 per cent and 0.7 per cent respectively.

On a year-on-year basis, prices in March 2014 were down 4.9 per cent from the same period last year.

Jeremy Lee, co-founder of SRX, said: "Bigger units face more challenges in today's market. Buyers can only use up to 30 per cent of their monthly income to service an HDB loan, which significantly reduces their ability to afford bigger flats.

“Consequently, reduced demand drives prices down for bigger HDB flats compared to smaller flats with a smaller price quantum."

However, resale volume saw some recovery.

According to the Housing and Development Board (HDB) resale data compiled by SRX, 1,319 HDB flats were sold in March's resale market, a close to 40 per cent month-on-month increase from February's 951 units.

It was also the highest monthly volume observed since last October's 1,393 resale units.

Some property watchers said that the jump in March could be due partly to seasonal factors.

Colin Tan, director and head of research and consultancy at Suntec Real Estates Consultants, said: "It partly could be due to the fact that Christmas and Chinese New Year are quite close this time around. And because of the holiday mood and festive occasions, there could be (fewer) viewings.

"So what could possibly be transacted in December, January or February may actually come up in March." 

On a year-on-year basis, March's resale volume was close to the 1,356 units resold in the same month of last year.

Mr Lee said: "On the demand side, prices have become more affordable after a five per cent drop from last year's peak. The policy change to shift the focus away from COV is likely to result in a more manageable cash outlay for most buyers. These factors can contribute to more buyers coming back to the resale market.

“On the supply side, there will be ample sellers from HDB upgraders that will collect their keys this year to their new BTO flats. These upgraders will need to sell off their old flats within six months from receiving the keys. Therefore, downward pressure on prices will persist until the demand-supply equilibrium is restored.”

Rental volume also rose to its highest in the past eight months.

An estimated 1,627 HDB flats were rented out in March 2014.

Despite an 8.6 per cent drop year-on-year, March's rental volume was the highest in the past eight months.

Overall median rental prices remained flat at S$2,300 for the fourth consecutive month.

SRX said overall HDB prices continue to face downward pressure as many buyers are paying at value below recent transactions, or what is known as the X-Value.

More than 98 per cent of all HDB transactions in 2014 have their valuation prices fall within 10 per cent of the X-Value. 

Going forward, some property analysts said that they expect prices to moderate -- given the new HDB resale negotiation process announced recently.

Under the new rules, buyers and sellers will have to base their negotiations on recent transaction prices, and valuations can only be obtained from the HDB after a transaction price has been agreed upon.

Donald Yeo, head of marketing and training at HSR International Realtors, said: "The market price will be stabilised. Sellers will tend to be more realistic in their prices. The public will be educated to look at transaction prices instead of valuation.

"On the whole, I think (the resale market) will be pretty healthy. But it takes time to transit."

And when the market gets used to the new process, analysts said they expect HDB resale flats to attract more buyers.

- CNA/nd/ac

HDB resale market stirs but analysts say sentiment still weak

Source: Today Online / Singapore

SINGAPORE — The resale market for Housing and Development Board (HDB) flats stirred last month as sales and prices picked up from February, showed preliminary data released yesterday by the Singapore Real Estate Exchange (SRX), but analysts said sentiment would probably be weak for the rest of the year because of loan curbs and higher supply.

A total of 1,319 resale HDB flats changed hands last month, up 40 per cent from February in the highest monthly volume registered since last October. Analysts attributed this to transactions being carried out at close to or below valuation, although the HDB has shifted the focus away from cash-over-valuation (COV) premiums from March 10 by accepting valuation requests from buyers only after they obtained the option to purchase.

Mr Steven Tan, Managing Director of property agency OrangeTee, said: “I don’t think many have started to negotiate prices based on recent transactions yet, as those sellers who have asked for valuation reports could still proceed with the negotiation of COV as long as their valuation reports have not expired. As a typical valuation report is valid up to three months, many transactions are not really affected by the changes yet.”

Mr Alan Cheong of property firm Savills said: “On the ground, we have sensed that there is a decline in COV and there is a possibility that because of that, buyers are rushing back in.”

COVs fell to zero in February for the first time since 2006, but because of the policy change, the numbers are no longer published from March onwards.

The rebound in volume was also due to buyers and sellers returning to the market after the Chinese New Year holidays, said Mr Eugene Lim, Key Executive Officer of ERA Realty.

As volume surged, HDB resale prices rose 0.3 per cent, rebounding from the 1.8 per cent decline in the previous month. Prices of three- and four-room flats rose by 0.5 per cent and 0.8 per cent respectively, while those of five-room and executive flats fell by 0.2 per cent and 0.7 per cent respectively.

However, year-on-year, overall HDB resale prices were still down 4.9 per cent last month, which analysts attributed largely to loan curbs, in particular the tightening of the Mortgage Servicing Ratio last August.

“Bigger units face more challenges in today’s market. Buyers can only use up to 30 per cent of their monthly income to service a HDB loan, which significantly reduces their ability to afford bigger flats,” said Mr Jeremy Lee, co-founder of SRX.

On the supply side, more than 6,000 HDB upgraders are expected to take possession of their Build-to-Order flats this year and will have to sell their existing homes within six months, Mr Lee said.

“This does not include those who upgrade to private property. Overall, the supply of HDB flats will continue to increase and there will be downward pressure on prices,” he said.

-By Tan Weizhen

Hillview House site on the block again

Freehold vacant plot, zoned residential, asking $55m or $875 psf ppr

Source: Business Times / Property

THE former Hillview House site is back on the market. The asking price for the freehold property, which is zoned for residential use, is $55 million. This

works out to $875 per square foot of potential gross floor area inclusive of an $18.2 million estimated development charge payable to the state.

This unit land price is believed to be similar to the last round, when the property was offered for sale through a tender exercise that closed last July.

This time, the tender will close on May 21 and the property's owner, a low-profile Singaporean family, is offering it as a vacant site, having pulled down the old Hillview House industrial building earlier this year. Thus the owner met Urban Redevelopment Authority's Feb 23, 2014 deadline to cease industrial activities and clear the site in order to qualify for 1.92 plot ratio, including a 0.3 additional plot ratio.

-By Kalpana Rashiwala

Real Estate Companies' Brief

UIC extends SingLand offer deadline, keeps offer price the same

Source: Straits Times

United Industrial Corp (UIC) has extended the deadline for its general offer for Singapore Land shares toApril 21. It announced this on Monday, the day the offer was originally supposed to close. UIC, which controlled 81.77 per cent of property developer SingLand by the end of Thursday last week, also announced that it is keeping its offer price at $9.40 per share and does not intend to raise it.

Poll: property pay packages differ in Asia

Different stages of market development cause of discrepancy

Source: Business Times / Property

SALARIES of real estate professionals in Singapore have risen 9 per cent, ahead of China's 7 per cent but still lower than Malaysia's 11 per cent and Hong Kong's 9.2 per cent, according to a survey by the Royal Institution of Chartered Surveyors (RICS) and property recruitment specialist MacDonald & Company.

The findings were from the annual Asia Rewards & Attitudes Survey, which polled 1,525 real estate professionals, of which 208 were from Singapore. The survey, which was conducted online between November last year and January this year, included professionals in the fields of property development and investment, fund management, project management, quantity surveying and agency at all levels, from assistants and trainees to managers and executive directors.

The results from the survey reflect the different stages of development for the property sectors in various Asian markets, said Peter Moore, managing director of MacDonald and Company. Malaysia, with the highest salary growth rate, is struggling to attract more people into the real estate sector as its domestic market continues to do well, and as Malaysian investors and developers take up overseas ventures, he added.

Both Singapore and Hong Kong, representing smaller and more mature markets, still experienced substantial salary growth as both regions' real estate market players invest overseas as well.

-By Goh Kang Shiong

Global Economy & Global Real Estate

Australia home price surge may tighten lending

Prices are rising because of the very low interest rates, says ANZ chief

Source: Business Times / Property

[SYDNEY] Banks may tighten lending standards and buyers turn cautious if a surge in Sydney house prices spreads to other capital cities in Australia, the country head of the nation's third-largest lender by market value said.

"These price rises are there because of the very low level of interest rates and we need to be mindful of what's going to happen as rates rise," Philip Chronican, chief executive officer for Australia & New Zealand Banking Group's Australian operation, said last Thursday.

"We've already put in a buffer over and above current interest rates to allow for the fact that the borrower might have to be repaying in a higher interest-rate environment. So one of the tools is to increase the buffer."

Australian home prices last month had the biggest monthly gain on record, while Sydney prices climbed 15.6 per cent from a year earlier, according to the RP Data-Rismark Home Value Index. Banks are focusing on borrowers' capacity to repay after 2.25 percentage points of interest-rate cuts by the Reserve Bank of Australia over almost two years pushed down home-loan costs to a 41/2 year low. Home lending grew 5.8 per cent in the 12 months to February, the fastest pace since September 2011.

-From Sydney, Australia

Resort development fuelling Macau property bubble

Source: Business Times / Property

[MACAU] As the world's gambling capital Macau races to open more than 17,000 new hotel rooms over the next three years to keep pace with a flood of Chinese visitors, only about 4,000 affordable homes for locals are expected to be built in the same period.

With an average apartment costing more than US$500,000, the Chinese special administrative region has emerged as one of the world's costliest places to buy property, outranking neighbouring Hong Kong, where prices are already among the most expensive in the world.

Prices in Macau are forecast to rise 10-20 per cent this year and the situation looks set to worsen as Macau's new crop of mega resorts open.

For residents such as taxi driver Xian Dengbao, soaring property prices mean the chance of owning a home in the former Portuguese colony looks impossible. "Buying a flat? Not a chance, even if you work for your entire life," the 50 year-old lamented as he drove past the glitzy front of MGM's metallic hued casino tower.

-From Macau, China

NZ home price growth slows in March

Source: Business Times / Property

[WELLINGTON] New Zealand house price growth slowed for a fourth consecutive month in March, as lending restrictions and rising interest rates weighed on the market, the government property valuer said yesterday.

Quotable Value's (QV) residential property index rose 8.8 per cent in the year to March 31, compared with a 9.3 per cent annual rate in February.

The index is now 12.6 per cent above the market's previous peak in late 2007, with signs that activity was slowing in the biggest city Auckland, which had been driving national figures.

"The LVR (loan to value ratio) speed limits and the Reserve Bank signalling further interest rate hikes is likely to be contributing to a levelling off in the growth of property values in Auckland and for the first time in more than two years we are seeing a decrease in some areas of that market," said QV spokeswoman Andrea Rush.

-From Wellington, New Zealand

Seeing China's urbanisation in historical perspective

Source: Business Times / Editorial & Opinion

IN recent years, it has seemed hard at times to pick up a newspaper without reading a story about China's "nightmarish" cities. Although various writers have focused on different problems - horrendous pollution, terrible traffic, inadequate housing, the inequities of the hukou (household registration) system, mounting protests, etc - the central narrative has been pretty consistent: China is failing at urbanisation.

Indeed, Kurtz, the central fictional character in Joseph Conrad's Heart of Darkness, might just as well have been speaking of Zhengzhou or Harbin rather than the Congo when he muttered "the horror, the horror" before dying (perhaps due, in this revised scenario, to poisoning from chronic exposure to nitrogen dioxides or particulate matter!).

Clearly, China is confronting massive problems as it urbanises, as many writers have correctly pointed out. But a little historical perspective might help in contextualising both the magnitude of the demographic shift in China and what the country has accomplished. Bluntly put, China's urbanisation over the past three or four decades is the biggest population shift in human history.

When China began its economic reforms in 1978, the population of the country was roughly 960 million, with the urban proportion constituting about 18 per cent of the total. Today, China's population is about 1.38 billion and 54 per cent lives in urban places. Put differently, about 173 million Chinese lived in cities and towns in 1978, and in 2014 about 745 million do. The latter figure is slightly greater than the entire population of Europe, including Russia, in 2014.

Philippine property firm DoubleDragon soars on market debut

Source: Straits Times

Li Ka Shing puts money into 'egg' venture

Source: Straits Times

Florida County to Sell $190 Million of Bonds for Senior Home

Source: Bloomberg / Luxury

An agency of Palm Beach County, Florida, plans to issue $190 million of revenue bonds for a nonprofit developer to build a retirement community.

The securities, originally scheduled to be issued this week by the county’s Health Facilities Authority, will instead be sold after the county approves a pending building permit, said Robert Gall, senior vice president for bond underwriter Herbert J. Sims & Co, in an interview today. A new sale date hasn’t been set, he said.

The debt will be repaid by revenue generated from Sinai Residences of Boca Raton, according to the offering documents. Senior citizens will pay an average of $594,000 to become tenants, followed by monthly fees. The facility’s business model relies on new tenants paying and replacing tenants who die or leave.

More than 200 of the 237 independent-living units at Sinai Residences have been reserved with 10 percent deposits, according to Federation CCRC Operations Corp., the project’s nonprofit developer, created by the Jewish Federation of South Palm Beach County. Among those reserving units, the average age is 83 and the median net worth is $2.4 million, according to a feasibility study referenced in the offering documents.

The tax-exempt bonds aren’t backed by Palm Beach County and aren’t rated. Yields are expected to range from 6 percent to 8 percent, according to an online description by Herbert J. Sims & Co. Sinai Residences is scheduled to open in November 2015.

-By Toluse Olorunnipa

Beijing Office Shortage Fuels Third-Highest Rents: Real Estate

Source: Bloomberg / News

John Wong, who leases offices in downtown Beijing’s new, 61-story Fortune Financial Center, has filled 60 percent of the space in the tower completed in September. He said he’s confident the rest will be snapped up.

Tenants at the tower include financial companies such as HSBC Holdings Plc (5) and DBS Group Holdings Ltd., according to Wong, head of asset management at HKI China Land Ltd., which built the tower known as FFC.

“It’s such a good time,” Wong said in an interview in his office on the second floor of Fortune Mall, which is connected to the FFC by an underground tunnel. “The companies in Beijing still have the urge to expand, the financial sector that we focus on remains healthy, and we face relatively small competition because supply is limited. We have the conditions to choose the clients we want.”

Rising demand and limited supply have doubled office rents in the Chinese capital since 2008, making its Finance Street the world’s third-most expensive behind Hong Kong’s Central and London’s West End, according to real estate broker CBRE Group Inc. (CBG) The cost of renting offices in Beijing is set to rise further as only half the average annual supply over the past decade is projected to be added in the next three years. Office rents in the city will rise 3 percent to 5 percent in the next two years, CBRE’s Frank Chen estimates.

“Beijing has more upside potential than Shanghai, particularly for the next two to three years,” said Chen, a Shanghai-based executive director at CBRE Research. “The rents are much higher, but they’re just not falling back because supply is so scarce.”

Slow Development

Only one project of 50,000 square meters near Beijing’s central business district is anticipated in the next six months compared with 3 million square meters of new space in Shanghai this year and next, according to CBRE. New office space in Beijing is set to average 270,000 square meters between 2013 and 2015, the broker said.

New supply in the capital, which spreads across six concentric ring roads, hit a peak of 1.25 million square meters (13.45 million square feet) in 2008. The construction boom was due to developers rushing to finish projects ahead of the 2008 Beijing Olympic Games.

Development has been slow to restart while much of the new space has been taken by state-owned enterprises. Between 2009 and 2012, 2.2 million square meters of grade-A offices were completed with only half that amount for lease in the private market, according to an August report by broker Jones Lang LaSalle Inc. Grade A or prime refers to the most stable high-income producing properties.

High Rents

Corporations have rented an average 590,000 square meters a year in Beijing since the Olympics, more than double the 240,000 square meters of new workspace added in the period, according to CBRE. That pushed rents to 413 yuan ($66) a square meter per month in the quarter ended Dec. 31, compared with 250 yuan in Shanghai, according to CBRE.

The restricted supply contrasts with the rest of China, where new office space rose to a record 1.77 million square meters in the last quarter of 2013, CBRE said in a statement Jan. 16. Beijing doesn’t have a lot of spare commercial land in the city center for buildings and many projects were completed in the lead up to the Olympics, CBRE’s Chen said.

“The supply is very tight in the Beijing office market,” Zhang Xin, chief executive officer of Soho China Ltd., the largest developer in central Beijing, told Bloomberg Television March 5.

FFC Project

Closely held HKI China’s FFC project provided the first new office space in Beijing’s CBD in seven quarters, boosting the vacancy rate to 3.9 percent at the end of last year. That was up from a record low 2.3 percent in the second quarter of 2013, according to CBRE.

The vacancy rate for grade-A offices hit a historic high of almost 30 percent in 2009, according to Jones Lang LaSalle.

The capital’s CBD is on the Third Ring Road to the east of the Forbidden City, the 15th-century former imperial palace in the heart of Beijing.

Finance Street, where global investment banks and the nation’s central bank and financial regulators are located, is a 1.2-square-kilometer zone along Beijing’s Second Ring Road to the west of the historic center. It evolved as a competitor to the CBD after the government approved the area’s creation in 1993 as a hub for the national headquarters of financial institutions.

Finance Street

The vacancy rate on Finance Street was just 0.1 percent last quarter with the average rent topping 500 yuan a square meter. That compares to 470 yuan in the CBD, where the FFC is located, according to CBRE. Vacancies stood at 3.4 percent in London’s West End and 4.5 percent in Hong Kong’s Central.

Beijing’s overall grade-A office vacancy rate is expected to remain at around 5 percent due to limited new supply, Zhang Jingjing, associate director and head of research at Knight Frank LLP, said in an e-mailed report. The probability of a significant drop in rents is slim with only slight adjustments likely in the second quarter, he said.

Close proximity to the central government and regulatory agencies makes Beijing a “strategic choice,” with 48 of the 89 Chinese companies on the Global Fortune 500 list basing their headquarters in the city, according to Jones Lang LaSalle. Of 500 Chinese and foreign companies on the list, at least 123 chose Beijing for their China head office, the realtor said.

“Some sectors need to be physically closer to regulators,” said CBRE’s Chen. “Networks, or guanxi, in China play a very important role in doing business.”

Among the new tenants at FFC is DBS (DBS), Southeast Asia’s biggest bank, which will move its private-banking operations to a larger area in the new building from Winland International Finance Center at the north end of Finance Street. The landlord of the Singapore-based bank’s current office has already secured a new tenant.

Rent Doubles

A Chinese fund management company will take half of the 2,400 square meters vacated by DBS, according to Kevin Lam, assistant marketing director at Beijing Winland Real Estate Co.

“The price is more than twice what DBS paid” when it renewed its contract in 2011, he said, declining to name the new tenant or disclose the price.

Winland is among the most expensive office buildings in Beijing and charges an average of about 750 yuan a square meter per month for new clients excluding property management fees. That is about triple the rent of 250 yuan in 2005 when the building started leasing, Lam said.

The 100,000-square-meter Winland is home to more than 50 companies, 46 of which are international financial institutions such as Goldman Sachs Group Inc. and UBS AG, he said. Bloomberg LP’s Beijing news bureau is located in the building, which is across the street from the headquarters of the China Banking Regulatory Commission and the China Insurance Regulatory Commission.

Air Quality

Demand for offices in Beijing has remained resilient despite the soaring rents and the city’s air quality, which frequently surpasses World Health Organization limits. The city’s concentration of PM2.5, small particles that pose the greatest risk to human health, was 95 micrograms per cubic meter as of 4 p.m. yesterday, according to the U.S. Embassy pollution monitor. That compares with the recommended day-long exposure limit of 25 by the WHO.

A “healthier environment” was the number one reason for Beijing residents to relocate, surpassing job promotion, according to a survey in January of 5,000 professionals in Greater China and Singapore by recruitment firm MRIC Group.

Soho China is including air purification systems in all its new buildings in Beijing, Zhang said. “It’s actually not that costly,” she said. “This is what everyone should be doing.”

Investor Favorite

For property investors, Beijing is the most favored location for office acquisitions out of 15 major Chinese cities, topping CBRE’s MarketScore list issued Jan. 13. The city, followed by the financial center of Shanghai, enjoys low risk and stable expected returns, and stands out in indicators including historical rental growth, vacancy and future development pipelines, CBRE said.

While investment demand is strong, supply of properties for sale is limited. In the five years through 2012, only 61 sales of office buildings and business parks worth at least $5 million were recorded in Beijing, compared with 107 transactions in Shanghai, Jones Lang LaSalle said in an August report.

Posco (005490), South Korea’s biggest steelmaker, bought a site in Wangjing, a burgeoning commercial district in the city’s northeast, in 2012, and developed it into a soon-to-be-completed 145,000-square-meter office and commercial complex.

“Many well-known multinational companies have approached us and clearly indicated an intention to lease” space in the building, which is scheduled to be completed by year-end, Sung-Sig Youn, leasing director in Beijing for the Pohang, South Korea-based company, said in an e-mailed statement.

Beijing Appeal

HKI China, a unit of Hong Kong-based HKI Group that develops office buildings and villas in Beijing and other Chinese cities, has capped the proportion of FFC leased to core clients that typically take larger amounts of space at lower rents to about 35 percent of the total and will focus on industry leaders that can add value to the building, Wong said.

HKI China in February signed an agreement for seven floors with a combined 18,000 square meters to be used as the China headquarters of Samsung (China) Investment Co., a unit of South Korea’s Samsung Group.

Beijing, which targets 7.5 percent growth this year, is expected to become the world’s fifth-largest city economy in 2025 after Tokyo, New York, Shanghai and Los Angeles, jumping from the 26th in 2010, according to Jones Lang LaSalle.

“Since the day I joined CBRE, I was asking this question: if rents are this high in Beijing, why not move your office to Shanghai?” said CBRE’s Chen who joined the company in 2012. “I’ve hardly seen that happen during the past two years. Beijing has its appeal.”

-By Bloomberg News