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1st August 2014

Singapore Economy

Singapore should plan for population of 10m

Planning long term gives a better estimate of land needed: Liu Thai Ker

Source: Business Times / Top Stories

[SINGAPORE] The Republic should plan for a population of 10 million in the long term if it is to remain sustainable as a country, says the man known widely as the architect of modern Singapore. According to Liu Thai Ker, Singapore should not stop its population growth projection at the figure of 6.9 million listed in the 2013 White Paper on Population.

"That is an interim figure and projection and obviously Singapore is going to grow beyond that," he said yesterday at a seminar, "Building a Nation: Tomorrow, Challenges and Possibilities for a Liveable Singapore".

As architect-planner and CEO of the Housing Development Board from 1969 to 1989, Mr Liu oversaw the completion of over half a million public housing units, and as CEO and chief planner of the Urban Redevelopment Authority (URA) from 1989 to 1992, he spearheaded the major revision of the Singapore Concept Plan and key direction for heritage conservation.

"The question is: How long do you want Singapore to exist as a sovereign state? Certainly beyond 2030, so we should plan for the longer term and for this 10 million figure as we cannot curb population growth after 2030."

Mr Liu explained that it was necessary for Singapore to plan for the longer term than for the 17 years it had planned for in the White Paper. He suggested that even though Singapore has a lot of land to be reclaimed and there is a lot of land set aside for industrial purposes that can be converted for other use, it is still better to plan for the long term so that there is a better estimate of the amount of land that is required.

"So if we need to reclaim more land from the sea, we can plan for it and do so."

Conversely, Mr Liu argued that shorter-term population planning would result in higher density as each time the population projection is made, the government may increase land density as it does not have a longer-term view of the amount of land that may be needed and that it has available. "Overall, this results in Singapore's land density increasing."

Mr Liu told BT that the 10 million figure was projected on how much Singapore could grow long term for the next 80-150 years at a population growth rate of less than one per cent each year. He said that if the growth rate were based on the upper limit of the projection of the 2013 White Paper, at 6.9 million, then Singapore could reach a population of 10 million by 2090. If however, it is based on the lower limit of 6.5 million then we may reach 10 million by 2200.

The director of RSP Architects & Engineers since 1992 and the founding chairman of the Centre for Liveable Cities said that, over time, Singapore's growth rate could contract with education, technology and productivity gains as is the case of the Scandinavian countries, which are small like Singapore, but still managed to achieve economic growth with a population growth of less than one per cent per year.

But this will take time, he added, as Singapore was not as mature as those economies and therefore still needed immigration to grow its population.

Even though he acknowledged that Singaporeans may be uncomfortable with the thought of the country ever having a population of 10 million, Mr Liu believes that it is better for the country to anticipate this and to plan for it so that the adjustment can be smoother.

"If you look at from 1960 till now, Singapore's land density has tripled but even with that, we have built a good environment through more skills and knowledge. So if we can do it then, Singaporeans should believe that we now have the ability to solve these problems and that we will have a good environment even though population density may increase."

Chew Hock Yong, CEO of the Land Transport Authority (LTA) and a panellist at the seminar, noted that while this projection of 10 million is Mr Liu's personal view, it will guarantee a critical mass for Singapore to thrive economically and in other areas. However, he admitted that there is a consideration of the human dimension and whether Singaporeans would be able to adjust to having twice the number of people and what kind of city-state they would like to live in. The seminar was organised by The Business Times in collaboration with Singapore Institute of Building Limited. It was supported by Hitachi and co-hosted by InterContinental Singapore.

-By MalminderJit Singh

Labour market still tight in Q2, layoffs down

But loss of 2,600 manufacturing jobs highest since Q3 '09

Source: Business Times / Top Stories

[SINGAPORE] The labour market remained tight in the second quarter of 2014 as unemployment rates held firm and the number of retrenchments came down.

According to preliminary estimates released by the Ministry of Manpower (MOM) yesterday, the overall seasonally adjusted unemployment rate stayed at 2 per cent in June.

This is a rate that economists and analysts say is largely in line with their market expectations, and has remained fairly constant for the last four quarters.

The seasonally adjusted unemployment rates for citizens remained at 3 per cent, while the resident unemployment rate improved slightly to 2.8 per cent, compared to 2.9 per cent in March.

The report, released by the ministry's Manpower Research and Statistics Department, also showed that job creation fell in the April-June period.

There were 22,000 jobs created in the second quarter, down 22 per cent from the previous quarter's 28,300. The total employment growth a year ago was 33,700.

Citigroup economist Kit Wei Zheng noted that the second-quarter drop in job creation contrasted with the average increase of 16.5 per cent quarter-on- quarter in the past two years.

This, he added, was a possible reflection of the cyclical slowdown in economic activity seen in the first half of 2014.

Femke Hellemons, country manager of human resource firm Adecco Singapore, felt that the slower job creation was due to the impact of sunset industries and sunset jobs, where certain jobs were made redundant or replaced by technology.

In all, the MOM report found that Singapore's total employment stood at 3.54 million in June, 3.6 per cent higher than a year ago.

Services continued to generate the majority of employment gains with 20,100 jobs, although this was lower than the 24,900 figure in the first quarter.

The news wasn't as good for the manufacturing sector, however. The industry shed some 2,600 workers - a sharp contrast from the growth of 2,300 workers a year ago - and also marks the largest quarterly fall in manufacturing jobs since the third quarter of 2009.

Growth in the construction sector, meanwhile, slowed to 4,300, almost half the 8,500 jobs created in June last year.

"With the exception of manufacturing, the low unemployment rate suggests that it may have been supply constraints that led to lower job creation," said Citigroup's Mr Kit.

As far as layoffs are concerned, MOM found that redundancies declined across all the major sectors.

About 2,300 workers were released in the second quarter, down from the 3,110 who were let go in the previous three months and the 3,080 laid off in June 2013.

Services formed the bulk of the retrenchments with 1,500 people affected, followed by manufacturing (500) and construction (300).

Kelvin Wong, chief technical strategist at City Index Asia, reckons that job creation in the coming months in Singapore should show signs of improvement.

This is provided the key economic data of Singapore's major trading partners - such as the United States employment payrolls and China manufacturing data - continue to stabilise and surprise on the upside.

Commenting on the tight labour market, Ms Hellemons of Adecco said that companies were facing challenges with the ongoing labour crunch here.

While the lower number of layoffs could point towards a continued optimistic economic outlook, she said that it could also mean that companies were being more cautious in releasing employees due to the limited talent pool in some areas.

While the tight labour market was proving to be a strain on companies in terms of hiring, one silver lining is that younger workers could benefit as a result.

"It does provide interesting opportunities for young job seekers who can observe trends in the job market and specifically skill and train for a career in areas where there may not be an abundance of available talent," said Ms Hellemons.

"We have seen this take place in the hospitality sector, which has created an additional number of job openings over the past few years," she added.

The full MOM report is available at The ministry said it would release more comprehensive labour market data for the second quarter on Sept 15.

-By Lee U-Wen

Singapore Real Estate

Bad home loans flow through to UOB NPLs

Bank cites some buyers of high-end properties

Source: Business Times / Top Stories

SINGAPORE] United Overseas Bank's non-performing loans (NPL) surged in the second quarter as payments by some high-end property buyers deteriorated.

Industry observers believe the situation could worsen as they do not expect significant improvement in the sluggish residential market over the next 12 months.

UOB said yesterday that NPL rose 11.2 per cent or S$232 million over the previous quarter to S$2.31 billion, and was up 7.3 per cent over a year ago.

But the NPL ratio was stable at 1.2 per cent in 2Q14, (1.1 per cent in Q1, 2014 and 1.2 per cent in Q2, 2013) as total loans rose to S$193 billion, up 11.7 per cent year-on-year and 2.4 per cent on quarter. The increase in NPLs was due to Singapore housing loans limited to a few accounts, and loans in Thailand and Indonesia, said Wee Ee Cheong, UOB chief executive at the bank's Q2 results briefing.

-By Siow Li Sen

Price drop unlikely to derail longer-term property outlook

Analysts see little chance of a pullback in cooling measures given liquidity

Source: Business Times / Top Stories

[SINGAPORE] Even with a potential 10-15 per cent drop in residential prices over the next two years, the longer-term outlook for the property market remains positive. And with global interest rates set to rise only next year, there is no pressing need for the Singapore government to lift its cooling measures now, according to market watchers at the Real Estate Developers' Association of Singapore (Redas) property market update seminar.

"There is no shortage of liquidity now, which is an issue, because everyone is waiting for that 10-15 per cent decline in property prices," said Song Seng Wun, executive director and regional economist at CIMB Research, noting that a lot of liquidity in Asia is now waiting on the sidelines.

This is keeping the government from lifting its cooling measures on the property market before the US Federal Reserve raises interest rates. The Fed hike, however, may come sooner than expected given the recent positive economic data in the US, Mr Song predicted.

For now, developers will have to contend with the double whammy of falling residential prices and rising land costs as a result of a reduction of residential land supply in the second half of the Government Land Sales programme.

Also speaking at the seminar, Chua Yang Liang, head of research for South-east Asia and Singapore at JLL, noted that the government has historically intervened in periods when the property price movement deviates from economic growth by a certain margin. He is expecting the government to step in when the gap between the change in the property price index and GDP growth is wider than two percentage points and deems a 10-15 per cent price correction by 2016 "an acceptable level".

In the absence of any further government intervention, home sale volumes are likely to stay tepid and this market adjustment could be prolonged, Dr Chua said.

Residential prices started to correct only in the third quarter of 2013 after the total debt servicing ratio was introduced, as earlier cooling measures had short-lived impact on residential sales by developers.

"In this environment," said Mr Song, "unless you see a huge external shock that triggers a crisis of confidence, that triggers cashflow problems for businesses and households, the government is quite happy to keep the total debt servicing ratio in place. I don't think that is going to disappear."

"What will happen is that it may be tweaked. And how much it may be tweaked will depend on whether the economy is still generating jobs. Broadly speaking, we are seeing fundamentals still supporting the property market," he added, referring to rising wages and the full employment situation in Singapore.

Meanwhile, the office sector is holding up well with healthy business formations even though businesses are facing a tight labour market and wage inflation, property consultants at the seminar observed.

Toby Dodd, managing director at Cushman & Wakefield, said at the seminar that he expects office rents to rise in 2014 and 2015 and occupancy rates to improve on the back of tight supply of prime grade space in the next two years. He forecast that net demand would exceed 1.5 million square feet by end-2016, underpinned by economic growth and a positive business outlook. While he expressed optimism on the plan to decentralise commercial activities to regional centres outside the city centre, he stressed that it would require the right price offerings and discounts to draw tenants from the CBD to these new commercial clusters.

-By Lynette Khoo

Industrial space oversupply seen worsening

Colliers cites rules on use of space and mismatch between demand and supply

Source: Business Times / Property

[SINGAPORE] A mismatch between demand and supply of industrial space, especially in the multi-user segment, could exacerbate already rising vacancies due to imminent oversupply.

Such mismatch, according to Colliers International research and advisory director Chia Siew Chuin, stems mainly from regulatory restrictions on the use of industrial space.

"It is time that the government fine-tunes these rules," she said. The current Urban Redevelopment Authority (URA) rules require users of industrial space to devote at least 60 per cent of the total floor area to core industrial activities and remainder for ancillary and secondary uses.

But with increased "servicisation" of the manufacturing sector, many modern industrialists "have already started to lose the physical wardrobe of yesteryears" and are no longer engaged in traditional manufacturing activities, Ms Chia said.

-By Lynette Khoo

More engagement with Dakota Crescent residents affected by redevelopment

Member of Parliament for Mountbatten Lim Biow Chuan said he has been listening to residents' concerns, and a HDB team has been tasked with sharing information about possible housing options. 

Source: Channel News Asia / Singapore

SINGAPORE: There will be more engagement to build awareness and hear residents' concerns over redevelopment plans for Dakota Crescent, says Member of Parliament for Mountbatten Lim Biow Chuan on Thursday (July 31).

Last week, it was announced that 17 blocks at Dakota Crescent, one of Singapore's oldest neighbourhood, have been earmarked for redevelopment. About 400 households will have to vacate their homes by end-2016.

"I met quite a few number of them (residents) during my Meet-the-People Session on Tuesday. Over the next few weeks, I will be coming down as well to this area to engage them and see what are their concerns," said Mr Lim. He has also asked the Housing Development Board (HDB) to send a team here, and to engage the residents and share some of the technicalities of their housing options with them.

"So far I think the residents are happy that they are not going to be dispersed. Because for many of them, they have lived here all their lives, and share a friendship with their neighbours,” said Mr Lim. “Of course there is some degree of nostalgia. But if you weigh the pros and cons, I think there is some excitement in moving to a brand-new block with newer facilities."

Mr Lim was speaking to reporters on the sidelines of a spring-cleaning activity for needy households at Dakota Crescent. Over 50 students from the National University of Singapore and Singapore Management University also took part, and about $120,000 worth of 3M household care products was also distributed to 1,200 low-income households in the South East district. 


Real Estate Companies' Brief

Soilbuild's Q2 earnings down 11%

Source: Business Times / Companies

SOILBUILD Construction Group yesterday reported an 11 per cent drop in net profit to S$5.2 million for its second quarter ended June 30, despite revenue holding steady at S$67.7 million from a year ago. This was largely due to a slight share of losses from joint ventures, compared with a profit of S$2.1 million a year ago. Earnings per share fell to 0.79 Singapore cent for the quarter, from 1.04 Singapore cents a year ago. It declared an interim dividend of 0.5 Singapore cent per share.

Soilbuild Business Space Reit

Source: Business Times / Singapore Markets

July 31 close: S$0.81

DBS Group Research, July 31

Q2 2014 results beat forecasts: Gross revenues and net property income grew 0.9 per cent and 3.4 per cent to S$16.7 million and S$14.0 million, respectively. The stronger performance was driven by additional rental income from Tellus Marine which was acquired in May, rental escalation at master-leased properties (Solaris/Beng Kuang Marine) and higher rents at Eightrium@ Changi Business Trust, West Park Biz Central.

Roxy-Pacific reports 17% jump in Q2 earnings

Source: Business Times / Companies

ROXY-Pacific Holdings' second-quarter net profit attributable to equity holders increased 17 per cent year-on-year to S$22.70 million.

The property and hospitality group said revenue for the three months ended June 30 rose 49 per cent to S$102.64 million as a result of a 59 per cent surge in revenue from its property development segment.

Revenue from its property development segment rose to S$90.7 million from S$57 million, and accounted for 88 per cent of the group's turnover.

Roxy said the leap in property development revenue is largely due to the recognition of higher revenue from Spottiswoode 18, Space@Kovan, The MKZ and Treescape, in addition to the commencement of recognition of revenue from Jade Residences, Whitehaven and LIV on Sophia.

-By Carine Lee

OUE Hospitality Q2 DPS beats forecast

Source: Business Times / Companies

OUE Hospitality Trust yesterday announced a distribution per stapled security (DPS) of 1.64 Singapore cents for its second quarter ended June 30, 2.5 per cent above its forecast. This will be paid on Sept 2.

The Reit has declared total distributions of 6.22 Singapore cents since its inception.

This translates to an annualised yield of 7.6 per cent, and a total return of 9.3 per cent for those who invested at the listing price of S$0.88 per stapled security in July last year.

For the quarter, net property income was also 1.2 per cent above forecast at S$25.2 million, mainly due to lower utilities expenses on the back of lower consumption and tariff rates, as well as less property tax expenses for Mandarin Gallery.

-By Lee Meixian

OUE H-Trust’s Q2 distribution beats forecast

Source: Today Online / Business

SINGAPORE — OUE Hospitality Trust (OUE H-Trust), a stapled group comprising OUE Hospitality Real Estate Investment Trust (OUE H-REIT) and OUE Hospitality Business Trust (OUE H-BT), yesterday reported better-than-forecast distributable income for the second quarter after keeping a tight lid on expenses.

Distribution per stapled security for the April-to-June period was 1.64 cents, or 2.5 per cent above forecast, as distributable income beat expectations by 2.3 per cent at S$21.6 million, said OUE H-Trust, which made its debut on the Singapore Exchange in July last year. While gross revenue was in line with the forecast at S$28.3 million, net property income was 1.2 per cent better than expectations at S$25.2 million.

Mr Christopher Williams, chairman of the trust manager, said: “It has been a year since the listing of OUE H-Trust and we have declared total distributions of 6.22 cents since inception. Based on a unit price of 89.5 cents as of July 24, we are proud to have delivered an annualised yield of 7.6 per cent and a total return of 9.3 per cent to investors who invested at the IPO price of 88 cents per stapled security.”

OUE H-REIT’s initial asset portfolio, comprising the 1,077-room Mandarin Orchard Singapore and the adjoining Mandarin Gallery, has a portfolio value of S$1.76 billion as of Dec 31. OUE H-BT is dormant.

Mr Chong Kee Hiong, chief executive of the trust manager, said: “The ongoing renovation of 430 guest rooms at Mandarin Orchard Singapore was accelerated in the second quarter so as to enable the hotel to optimise business in the second half of the year, which typically enjoys seasonally higher hospitality demand.”

While the retail segment is experiencing some headwinds, Mandarin Gallery is expected to continue to enjoy stable income, as more than 98 per cent of the mall’s rental income comprises of fixed rent, OUE H-Trust said.

Views, Reviews & Forum

Whither property prices?

Source: Straits Times / Opinion

THE once red-hot property market has begun to slow in the wake of a succession of new rules but prices probably need to fall further before policymakers wind back these cooling measures.

That was one of the key messages from experts at a round-table discussion organised by The Straits Times late last month.

They believe that only a sharp drop in property prices within a short period, or a groundswell of unhappiness from a large number of home owners, could prompt the Government to act faster.

Home buyers were advised to wait before taking the plunge as prices are likely to get more competitive.

We take a look at some of the other topics covered in the discussion.


·         Mr Donald Han, managing director of property consultancy Chestertons; (DH)

·         Mr Song Seng Wun, regional economist at CIMB Bank; (SSW)

·         Mr Eric Cheng, group chief executive of real estate agency ECG Holdings; (EC)

·         Mr Li Jun, general manager of property developer Qingjian Realty (LJ)

·         What's the current situation in the property market, and where do you think it's headed?

DH: Looking at the residential market in particular, it's not surprising that we've seen transaction activity halving compared to the first half of last year. We've seen a slow but sure decrease in terms of pricing since the fourth quarter of last year.

At the beginning of the year we expected prices to go down 5 to 8 per cent. We think we're pretty much within the ballpark of within 8 to 10 per cent for the rest of the year.

EC: Especially for high-end luxury properties, asking prices are more realistic today. Sellers out there or even developers are giving more discounts. So we can see a trend - there could be more price dips in the third and fourth quarters of this year.

SSW: This softening was on the back of government measures... Basically the screw has been tightened. With the warning that rates may be inching up sooner or later, there's the general expectation that prices will ease.

What we have seen so far is, once prices are at levels attractive enough, buyers come through. So it's a very healthy environment that we're in.

Obviously there are risks. If there is an external shock, it could accelerate the price decline as buyers retreat. But at this point, these are healthy adjustments. We think prices may fall 10 to 15 per cent by the end of 2015.

LJ: Every market will have its ups and downs. With cooling measures, it is now more stable, more normal. Growth is at a realistic pace. That actually benefits the market because if prices rise too fast we would suffer more when the bubble unexpectedly bursts.

From the viewpoint of a foreign developer, Singapore is continuing to grow and the Government is stable in terms of its policies, so in the long term Singapore is still an attractive place for investment.

·         Should the Government lift some, or even all, cooling measures now?

EC: A lot of buyers are going for overseas properties - reports have shown that it's about $2 billion worth. The Government would want to encourage prudence in finances. But sad to say, a lot of buyers today in Singapore are buying blindly outside of Singapore.

Some of these buyers could have good cash flow, they may have a very positive income that they want to invest but because of the measures they are being caged in.

SSW: Policymakers would want to look at the overall market rather than some who have been marginalised because of the measures. If a few of them are being penalised, that's basically the cost.

If developers can cut prices and they have the flexibility to do so and they're moving properties, then let the market find its own way by itself.

·         How is this property market downturn different from previous ones such as the Asian financial crisis and the global financial crisis?

DH: In the Asian financial crisis, prices dropped about 60 per cent from the second half of 1997 to about 1999.

Then during the global financial crisis, prices dipped just under 30 per cent, which was more resilient compared to the Asian financial crisis.

Both times we had negative growth; in fact, the economy went into recession.

This time around, we don't expect the numbers to reach that kind of double-digit, 30 per cent or even 60 per cent drop as what we saw in the last two crises.

This is mainly because we've got economic growth still positive, very strong employment, very high liquidity - so much so that if the developer were to provide a compelling discount, the crowd will come. It's like bees to honey. We don't expect any rude shocks to the system.

SSW: Even if anything like that (a rude shock) were to happen and for whatever reason, policy response would be a lot faster this time round.

We have seen job schemes, and so on. Policy response would likely be introduced much quicker, to induce employment in an environment where we could have a recession but... (the impact of the) recession would probably be cushioned.

That's a huge difference. Any future downturn or recession will be a lot more compressed mainly because policymakers are on standby... ready to come through.

DH: And (what is) fundamentally different right now is banks are a lot stronger. The most liquid banks in the world are actually Singapore banks.

EC: This time round buyers are more liquid. But everyone is waiting for the herd mentality to change; no one has started buying so everyone is just waiting until someone starts.

In the global financial crisis... at that time, there were distressed sales. Today we don't really see distressed sales. And we could see distressed developers at that time.

·         Why are distressed sales unlikely this time round?

EC: Developers are still strong. They might not be investing locally but they are still investing heavily in other parts of the world. That is one of the signs of how liquid developers are today.

In 2007, 2008, I could see developers selling at a 20, 30 per cent discount, or selling below book value. Today it's a 3, 5, 7 per cent discount.

DH: Singapore is deemed as a safe haven, so there will always be money looking to Singapore - but not because it's one of the best places to earn yield. Our yields are paltry, only about 3 per cent. If you want to put your money in a high-yielding area, you don't put in Singapore.

And if you're talking about capital appreciation, there are better regions where you can make more money.

But it's about preservation of wealth - you know your money is there. When investors come from other parts of the world, their first criterion is, "Can I get my money out?"

·         Do people have deeper pockets now than they did in previous crises?

 EC: Because property prices have increased 60 to 80 per cent in the past few years, a lot of people out there have actually sold one round, or even two rounds, and they've probably cashed out.

We do get some HDB flats in Tampines, which used to sell for $320,000 in 2006 - they probably sold at $500,000 in 2009.

Today the exact HDB flat is probably asking for $800,000. The asset actually increased by easily 100 per cent in value.

DH: Over the last seven to eight years, those who own HDB flats have seen value creation doubled, and that created wealth. Those who made money started to invest in property. So it's very different from the downturns in 2008-2009.

·         If you're a policymaker today, in 12 months' time, what is the threshold where you will come in to relieve some of the pressure?

DH: I think 20 per cent is the psychological number that could trigger... because when you buy a property in the last three or four years, you would get an LTV (loan-to-value) of about 80 per cent.

So that 20 per cent drop in home values would get the banks knocking on your door saying you have to top up a little bit, so that's a trigger point.

But before we even hit the 20 per cent there will be a lot of rumbling on the ground.

Global Economy & Global Real Estate

Mandarin Oriental hit by Thai unrest

Source: Business Times / Companies

MANDARIN Oriental International yesterday posted a 20 per cent drop in net profit to US$45.6 million for its six months ended June 30, in the absence of a writeback of a provision against asset impairment a year ago. Revenue rose 4.2 per cent to US$341 million, with its hotels in Bangkok impacted by the ongoing political uncertainty, and weaker performances in Jakarta and Manila. In Europe, its London and Munich properties also saw softer demand. US too saw lower occupancy in Washington DC compared with a year ago when there was the 2013 Presidential Inauguration. It posted an interim dividend of 2 US cents per share, unchanged from a year ago.

Londoners cashing out, selling houses in city

They are buying suburban, country homes as they expect rates to rise

Source: Business Times / Property

[LONDON] For equity-derivatives broker Andrew Adamson, it was a trade too good to pass up.

In October, he was offered £1,000 (US$2,100) per square foot for his London townhouse. Other homes in the area were going for about 30 per cent less. Mr Adamson accepted it immediately.

London's housing market, having outperformed the rest of the UK with price gains of more than 50 per cent in five years, is cooling as owners such as Mr Adamson cash out. They're leaving the city for less costly suburban and country homes because they expect mortgage rates to rise and new lending rules to damp prices. London estate agents had the largest increase in instructions to sell homes in Britain in June and the biggest drop in people seeking to buy them, according to the Royal Institution of Chartered Surveyors (Rics).

"Now is the time people are cashing in," said Mr Adamson, 46, who used the £2 million he raised from the sale to buy a country manor in Hampshire, southern England, for £400,000 less. "I caught it before everybody else started talking about it. As soon as everybody starts talking about it you've missed the best deal."

-From London, UK

India's Bengaluru posts record home sales

Source: Business Times / Property

[SINGAPORE] Home sales in Bengaluru, India's information technology hub, rose to a record in the June quarter as new projects boosted demand, according to Liases Foras Real Estate Rating & Research Pvt.

Sales in the city, home to the Indian units of Intel Corp and Google Inc, rose 10 per cent to 17.77 million square feet in the three months ended June 30 from the previous quarter, said 

Pankaj Kapoor, the founder of Liases Foras, a Mumbai-based real estate research company. "Sales in Bengaluru have been the highest among the six major cities," Mr Kapoor said, citing others it tracks, which are Mumbai, Chennai, Hyderabad, National Capital Region and Pune.

The pick-up in India's off-shoring business is driving demand for homes in the southern city formerly known as Bangalore. Demand for Grade-A offices will climb 3 per cent to 22.9 million sq ft this year from last year, the first increase in three years and the strongest demand to be seen in Bengaluru, according to broker Cushman & Wakefield Inc. Sales in the city were boosted by projects that were marketed by Godrej Properties Ltd and Puravankara Projects Ltd, Mr Kapoor said.

Home prices in Bengaluru have risen 4 per cent to 5,239 rupees (S$108) a square foot in the quarter ended June from a year ago, the data showed. Most of the sales were in the middle segment where residential prices ranged from five million rupees to 10 million rupees, Mr Kapoor said.

-By Bloomberg

China’s smaller developers take a hit in weak market

Source: Today Online / Business

HONG KONG — Small developers, which by their sheer weight of numbers dominate China’s vast property sector, are set to report big drops in earnings or even losses as the industry grapples with tight credit, sluggish sales and excess supply.

The pressure on smaller developers is significant because they make up the major chunk of a sector that accounts for more than 15 per cent of the country’s gross domestic product and weakness in Asia’s largest economy will hurt its trading partners across the region. The top 10 developers in China account for less than 20 per cent of the market by sales.

The big players have weathered the downturn better, thanks to their greater exposure to top-tier cities, pricing power and easier access to credit, but the smaller ones have been slashing prices to improve sales.

“Big players have good execution, so their profit will be better. Small players offer more price cuts,” said Mr Raymond Ngai, head of Greater China Property Research at Bank of America Merrill Lynch.

Hong Kong-listed China Overseas Grand Oceans (COGO), among the first of the small Chinese developers to report first-half results, yesterday reported a 31 per cent plunge in net profit. It cited a big fall in the market value of its investment properties and said sales in China’s third-tier cities had experienced significant challenges owing to the impact of structural economic adjustments on the mainland, such as the modification of housing monetary policy.

“The expected weakened results of COGO for H1 2014 reflect the challenging operating environment in third-tier cities ... against the backdrop of a tight environment for bank credit,” Moody’s senior analyst Kaven Tsang said in a research note.

Jingrui Holdings, another small developer, has warned it will incur a first-half net loss due to a drop in the number of properties completed and delivered.

The weakness in the sector is expected to continue as margins are squeezed across the board, with developers offering discounts to boost sales. However, many industry watchers expect the market to bottom out in the second half, thanks to further government stimulus and easier credit.

“The second half will be better. Sales should have bottomed (out) in May,” Mr Ngai said.

Some local governments have already started to ease restrictions on home purchases, put in place at Beijing’s behest when housing prices were soaring, while some banks in top-tier cities such as Shanghai and Shenzhen are reportedly offering mortgage rate discounts to first-time home buyers.

Last month, although home sales by volume surged 32.5 per cent from May, sales by value fell 5.4 per cent, reflecting price cuts and other incentives that developers have been offering to entice buyers and offload unsold homes.

“Prices will continue to come down in a gentle and expected manner, unlike the panic we saw in the first half” said BOCOM International analyst Toni Ho. “Now that market expectations have changed, price cuts are no longer seen as negative as long as they can bring in sales.”

China’s newly-appointed Housing Minister, Mr Chen Zhenggao, told developers at a forum earlier this month that clearing inventory would be a priority for the second-half, further fuelling expectations of more “mini-stimulus” by local governments. REUTERS

Australian digital ad firm invests in iProperty

Source: Business Times / Property

[SINGAPORE] REA Group, an Australian digital advertising business and affiliate of News Corp, has come on board to become one of iProperty Group's major shareholders.

It has taken over French property portal's 17.2 per cent stake, worth A$106 million (S$123 million).

With this, it is now iProperty's second largest shareholder, while international online investment firm Catcha Group remains its largest shareholder.

The transaction values the Australia-listed iProperty, which owns Asian property portal, at about A$616 million.

-From Singapore

Mayoral mansion dresses down for new occupant

Source: Business Times / Property

[NEW YORK] Mayor Bill de Blasio never looked comfortable amid the formal interiors and ornate staterooms of Gracie Mansion, the museum-like residence where he and his family moved this week. Century-old chandeliers and antique cabinets are not exactly in keeping with the populist de Blasio image.

So to smooth their transition into grander confines, the de Blasios turned to a decorator that better reflected their unpretentious style: West Elm.

A popular Brooklyn-based purveyor of on-trend home pieces, West Elm said on Wednesday that it had donated US$65,000 worth of furniture so New York's first family could reimagine the mansion's upstairs residential quarters.

Out: an exquisitely hand-carved, Dutch-inspired cupboard, circa 1690. In: Capiz orb pewter pendant lights, circa 2014.

-From New York, US

Twitter’s NYC Headquarters Sells for $335 Million

Source: Bloomberg / Tech

New York REIT Inc., a publicly traded landlord led by Nicholas Schorsch, agreed to pay $335 million for a two-building property in Manhattan’s Chelsea section that’s home to Twitter Inc. (TWTR)’s East Coast headquarters.

The price works out to about $1,188 a square foot for 245-249 West 17th St., which has 282,000 square feet (26,000 square meters) of rentable offices. Purchases for more than $1,000 a square foot were once seen only in Midtown, the largest and most expensive U.S. office district.

The transaction shows how far pricing has come in midtown south, the area roughly from 30th to Canal streets, where leasing demand by technology tenants has surged. The complex, consisting of a 12-story building and an adjacent six-floor, mixed-use property, is midblock between Seventh and Eighth avenues. Values for such buildings traditionally have been lower than those on New York’s broad avenues.

What New York REIT agreed to pay “is most likely the high-water mark for an office property in midtown south that was not overly influenced by the value of the retail,” Dan Fasulo, managing director of research firm Real Capital Analytics Inc., said in an e-mail.

The seller, investment firm Savanna, paid $75.8 million, or $267 a square foot, for the property in November 2012, Real Capital data show. The price was contingent on the buildings being delivered vacant, Real Capital said on its website.

“They successfully executed a redevelopment and lease-up in an improving market -- a recipe for big returns,” Fasulo said.

Wagon House

Savanna spent $29 million on renovations to the buildings, which were completed in 1902 and 1909, the New York-based company said today in a statement. The older portion originally was a warehouse and wagon house for a department store.

The property is 99 percent leased, New York REIT said in a regulatory filing disclosing the purchase. San Francisco-based Twitter in January took 214,765 square feet in a lease that expires in 2025, the real estate investment trust said.

The social-media company’s choice of the complex “demonstrates the importance of this location and further testifies to the institutional quality of the property itself,” Michael Happel, president of New York REIT, said in the statement. “We are confident that these buildings, located in New York City’s epicenter of creativity, technology and style, will add significant value to our growing, first-class Manhattan portfolio.”

Share Listing

Other tenants at the 17th Street property include Flywheel Sports Inc. and Room & Board Inc., which occupies the retail portion, New York REIT said. Schorsch is chairman and chief executive officer of the company, which listed its shares on the New York Stock Exchange in April.

Doug Harmon and Adam Spies of Eastdil Secured LLC and Brian Ezratty of Eastern Consolidated represented Savanna in the transaction.

Asking office rents in midtown south have jumped 65 percent since 2009 to an average of $66.86 a square foot as technology companies such as Facebook Inc., EBay Inc. and International Business Machines Corp. flocked to the market, data from CBRE Group Inc. show.

The 17th Street property is around the corner from Google Inc. (GOOG)’s New York headquarters at 111 Eighth Ave., an almost 3 million-square-foot former warehouse that the Internet company bought for $1.8 billion in 2010. Mountain View, California-based Google plans to expand into as much as 500,000 additional square feet in the building as tenants are either bought out or their leases expire, Crain’s New York Business reported on July 29.

-By David M. Levitt

Cheung Kong’s Profit Rises 59% as Home Sales Rebound

Source: Bloomberg / Luxury

Cheung Kong Holdings Ltd. (1), the property developer controlled by billionaire Li Ka-shing, said first-half profit gained 59 percent on a one-time gain and an increase in Hong Kong home sales.

Net income rose to HK$21.3 billion ($2.7 billion) from HK$13.4 billion a year earlier, the Hong Kong-based company said in a statement today. Excluding property revaluation and one-off gains, profit was HK$12.8 billion, missing the HK$13.6 billion median estimate of five analysts compiled by Bloomberg.

Cheung Kong, the best performer on the Hang Seng Property Index this year, offered discounts to lure buyers after both Hong Kong and mainland China stepped up measures to thwart a property bubble. While home sales in Hong Kong increased, the company’s China property business was below expectations, it said today.

“Policy measures will remain a major factor in determining the direction of the local property market” in Hong Kong, Li, Cheung Kong’s chairman, said in the statement. “We are confident in our growth prospects on the mainland over the longer term despite a modest slowdown.”

Contribution from Hutchison Whampoa Ltd., the unit with businesses such as retail, ports and telecommunications, more than doubled to HK$14.2 billion, which includes a HK$8 billion gain from the listing of Li’s Hong Kong electricity company.

Contracted Sales

Earnings from property sales rose 22 percent to HK$4.7 billion, while total revenue rose 1 percent to HK$14.7 billion.

New home sales in the city may increase 54 percent this year from 2013, according to Centaline Property Agency Ltd.

The developer has the highest contracted sales among Hong Kong peers so far this year after starting four residential projects, including a 1,717-unit estate of which more than 90 percent has been sold, according to BNP Paribas SA. It may start sales of four more projects totaling 3,226 units in the second half, according to JPMorgan Chase & Co.

“Cheung Kong will stay competitive in pricing to clear its projects given its large pipeline and the sell-through rate will continue to be satisfactory,” JPMorgan analysts Cusson Leung and Leo Ng said in a report ahead of the announcement.

Prices of existing homes have risen 3.6 percent this year, after falling as much as 5 percent from a record high in March 2013 following a doubling of the sales tax on properties valued at more than HK$2 million. The tax increase was passed by Hong Kong’s Legislative Council this month.

Infrastructure Investments

Cheung Kong shares have advanced 23 percent this year, outperforming the 6.2 percent in the benchmark Hang Seng Index and the 14 percent in the property subindex. The shares closed 0.2 percent higher at HK$150.70 before the earnings were announced.

Rental profit at the landlord to Goldman Sachs Group Inc. in Hong Kong fell 5 percent to HK$861 million after it sold a shopping mall to Fortune Real Estate Investment Trust, which it controls, in the second half of last year, the developer said.

Outside of its property business, Cheung Kong will increase investments in the infrastructure sector, Li said today. The company earlier this year entered a bid in a consortium for Australian gas distributor Envestra Ltd.

Hutchison Whampoa said today its first-half profit more than doubled after the spin-off of the electricity business. Its profit excluding revaluation and disposal gains rose 13 percent to HK$13.5 billion, beating the HK$12.8 billion median estimate of five analysts.

Li, 86, is Asia’s richest man with a net worth of $33.5 billion, according to Bloomberg Billionaires Index.

-By Michelle Yun

Carmila Agrees to Buy $1.3 Billion Malls From Unibail-Rodamco

Source: Bloomberg / News

Carmila, the shopping mall operator owned by Carrefour SA (CA) and investors including Pacific Investment Management Co., agreed to pay 931 million euros ($1.25 billion) to acquire six shopping malls in France from Unibail-Rodamco SE.

“Carmila is the natural owner of these shopping centers, anchored by large Carrefour hypermarkets,” Unibail-Rodamco Chief Executive Officer Christophe Cuvillier said in a statement late yesterday. “Carmila will be able to generate significant synergies and returns consistent with the requirements of its shareholders.”

Investment in European retail properties rose by 86 percent in the second quarter from a year earlier as supermarkets and malls in cities such as Paris benefit from urbanization, broker Jones Lang LaSalle Inc. said in a July 28 report. The purchase from Unibail includes malls in the Paris and Toulouse regions.

Carmila also plans to acquire three malls in Spain from Carrefour for 182 million euros in a separate transaction, it said in a statement late yesterday.

Both deals will be financed by a capital increase from existing shareholders and by borrowing from three undisclosed French banks, according to Carmila’s statement.

Carrefour owns 42 percent of Carmila and other shareholders include Colony Capital LLC, insurer Axa SA and Credit Agricole Assurances, according to a statement by the retailer in April. Carmila bought 2 billion euros of malls in France, Spain and Italy from Klepierre SA in April.

Unibail-Rodamco sold the malls to Carmila as it plans to focus on larger shopping centers, it said in yesterday’s statement.

-By Neil Callanan

Billionaire Packer Seeking Vegas Return in Oaktree Talks

Source: Bloomberg / Luxury

Australian billionaire James Packer is plotting his return to Las Vegas after losing almost $2 billion during the 2008 credit crisis from ill-timed North America casino investments.

Packer, chairman of Australia’s Crown Resorts Ltd. (CWN), is in talks to develop a Las Vegas Strip resort on land once occupied by the New Frontier Hotel & Casino after buying a piece of a loan backed by the property, according to people with knowledge of the matter. He is negotiating a potential deal with other creditors including Oaktree Capital Group LLC (OAK), said the people, who asked not to be identified because the talks are private.

A deal would mark Packer’s return to Las Vegas after losing money on investments including Fontainebleau Resorts LLC and Cannery Casino Resorts LLC. It would also breathe new life into the 34.5-acre site of the former New Frontier after plans by Israeli businessmen Nochi Dankner and Yitzhak Tshuva to build a casino resort there stalled.

“Crown is a great brand and if it’s going to be a major international player in gaming then it really does need to be in Las Vegas in some way, shape or form,” said Matt Williams, who manages A$22 billion ($20.5 billion) as head of equities at Perpetual Ltd, which owns 5 percent of Crown. The company has enough development experience to make a Las Vegas project work, Williams said by phone today from Sydney.

Packer is the biggest shareholder in Crown, which jointly owns Melco Crown Entertainment Ltd. (MPEL) Melco runs casinos in Macau, China, and Packer could bring a network of Asian gamblers to the proposed venture.

Abandoned Project

No deal between Packer and Oaktree on the New Frontier site has been completed and talks could still fall through. Packer owns less than 10 percent of the debt, according to one of the people.

Alyssa Linn, a spokeswoman for Oaktree, declined to comment, as did Karl Bitar of Crown.

Shares in Crown fell 1.6 percent to A$16.01 at 10:20 a.m. in Sydney, headed for their sharpest fall in three weeks and outstripping the 1.2 percent decline in the S&P/ASX 200 index.

Dankner’s IDB Development Corp. (IDBD) and Tshuva’s Elad Group paid $1.2 billion to buy the property in 2007 from Phil Ruffin and had the New Frontier hotel demolished that November. They planned to spend $6 billion to $8 billion developing a hotel and casino complex on the site across the Strip from Wynn Resorts Ltd. (WYNN)’s Wynn Las Vegas. The project was abandoned as property values plunged.

Oaktree’s Investment

Oaktree, the world’s biggest distressed debt investor, now owns more than half of the abandoned project’s loan after buying the debt at a discount of as much as 50 percent, the people said.Credit Suisse Group AG (CSGN) helped arrange a $625 million loan tied to the property, and sold Oaktree at least a portion of the debt, according to the people.

Credit Suisse spokesman Drew Benson declined to comment.

The Clark County Assessor’s Office, which oversees Las Vegas, lists Elad and IDB as the legal owners of the property. IDB spokesman Tal Rabina said the group ceded control of the land two years ago because it couldn’t service the loans.

Elad spokesman Idan Wallace in Israel said the group no longer owned the property. Elad’s New York office manager Maya Carasso was unable to verify the ownership of the land, saying the project had been “inactive” for some time and that the matter was “complicated.” She said in an e-mail yesterday that Elad didn’t want to comment further about the project.

‘Mistakes’ Made

Packer is the world’s 208th richest person with a net worth of $6.7 billion, according to the Bloomberg Billionaires Index. He has been considering a return to the U.S. casino market after saying in 2012 that his investments there were his worst to date. They preceded the 2008 credit crisis that led to a slump in property values, room rates and gambling revenues in Las Vegas.

“I should have been better than the mistakes we made in the U.S.,” Packer said at an October 2012 event sponsored by AFR and Deutsche Bank AG in Sydney.

The city’s economy has been recovering. The unemployment rate for the area dropped to the lowest since 2008 in April, according to the Bureau of Labor Statistics. Tourism is also up, with 20.7 million visitors this year through June 30, a 4.2 percent increase over the first half of 2013, according to the Las Vegas Convention and Visitors Authority.

Packer, who is also developing casinos in Sydney and Sri Lanka, tried earlier this year to buy the Cosmopolitan of Las Vegas hotel and casino, the Australian Financial Review reported in April.Blackstone Group LP (BX) agreed to buy the property.

-By Nabila Ahmed and Beth Jinks

India Plans to Open $20 Billion REIT Market: Real Estate

Source: Bloomberg / Personal Finance

India is laying the groundwork to make real estate investment trusts tax-exempt and allow them to trade on public exchanges, a move that may help unlock as much as $20 billion of listings.

Regulations on taxation will be amended, Finance Minister Arun Jaitley said on July 10, and the stock-market regulator is preparing to allow REITs to be traded on exchanges, according to Edelweiss Securities Ltd.

The introduction of REITs will provide a new source of cash to Indian developers that have struggled to reduce debt with interest rates among the highest in Asia, while giving investors the ability to buy into the country’s property market. Assets that may qualify to be included in REITs may reach $20 billion by 2020, according to an estimate by property broker Cushman & Wakefield. In the first three to five years, as much as $12 billion could be raised.

“REITs could be the game changer for India’s property sector,” said Priyaranjan Kumar, regional director of capital markets at Cushman & Wakefield in Singapore. “It will force much needed transparency at least in the commercial sector, and lower the reliance on financing from banks and incentivize developers to own and manage assets with a long-term view.”

Modi Win

Prime Minister Narendra Modi, who won with the most decisive mandate for any single party since 1984, has promised changes in India’s property market, which was valued at $66.8 billion in the year ended March 2011, according to the most recent data from India Brand Equity Foundation, a government division that promotes commerce.

REITs, which were pioneered in the U.S. in the 1960s and are publicly traded, pool investor money to buy real estate such as shopping malls, office buildings and rental housing. India’s REIT market has the potential to grow to rank among the top five markets in Asia by market capitalization, according to Cushman & Wakefield.

While the Securities & Exchange Board of India released the first draft of guidelines for REITs in 2008, it never got final approval because of a lack of clarity on taxes and because the global financial crisis hurt the investment climate, according to a report by Knight Frank LLP in June. Since then, the regulator released a new set of guidelines in October, outlining the eligibility criteria for setting up REITs.

Tax Exemption

REITs will have to pay out at least 90 percent of their net distributable income to investors as part of the requirements for tax-exempt status.

The minimum initial offer size should be 2.5 billion rupees ($42 million) and the public float should be at least 25 percent, according to the stock regulator.

Under the proposed framework, only domestic and foreign institutional and high-net-worth individuals will be allowed to invest initially, while retail investors will be able to participate later as the market develops. The minimum investment would be set at 200,000 rupees.

To help develop the trusts, the Bombay Stock Exchange has set up an 11-member advisory group of experts, bankers, legal professionals and consultants in the real estate industry, according to a statement on July 10. No date has been announced yet for the introduction of REITs.

India has plenty of assets ready to be packaged into trusts. Asia’s third-largest economy has been in the top five global office markets for at least seven years, with average annual net demand of more than 30 million square feet (2.8 million square meters), Cushman & Wakefield said.

Available Space

The South Asian country has top quality office space of about 350 million square feet across its six biggest cit0ies, according to Jones Lang LaSalle Inc. Of this, about 100 million square feet are potentially available for REIT listings, which could be valued at as much as $9 billion, the broker estimates.

The combined debt of India’s six largest developers climbed to a record 394 billion rupees in the 12 months through March 31, more than double the 158.8 billion rupees in 2007, according to data compiled by broker IIFL Ltd.

Among developers that have income-producing properties and may introduce REITs are DLF Ltd. (DLFU), India’s largest developer by value, with about 28 million square feet of operational rental assets, according to HDFC Securities Ltd. Others include Prestige Estates Projects Ltd, a Bengaluru-based developer with 8 million square feet, and Phoenix Mills Ltd. (PHNX), a mall operator owning 6 million square feet, HDFC said.

An introduction of REITs in the Indian market will reduce the cost of business for both local and foreign investors, Rajeev Talwar, group executive director at DLF, said in an e-mailed response to queries. DLF shares gained 2.1 percent to 202.5 rupees at 12:23 p.m. in Mumbai trading as the benchmark S&P BSE Sensex lost 0.3 percent. DLF shares have gained 21 percent this year, compared with a 22 percent gain in the Sensex.

Blackstone, Brookfield

“It will help ease liquidity for developers and provide access to retail investors to benefit from regular income and appreciation from real estate,” said Neeraj Bansal, partner and head of real estate and construction at KPMG LLP.

Foreign institutional investors such as Blackstone Group LP and Brookfield Asset Management Inc., have been accumulating rental assets to potentially create REITs in the country, according to a July 10 report from HDFC Securities. Blackstone is the largest private-equity landlord of office assets in India, with about 22 million square feet, while Brookfield has about 15 million square feet across the country.

Not all agree that REITs will be the investors’ choice. The tax break may not be enough, said Adhidev Chattopadhyay, a Mumbai-based property analyst at HDFC Securities.

Rents for assets included in the REIT will need to appreciate by 4 percent to 5 percent annually, followed by an increase in capital values, to become attractive, Chattopadhyay said. Indian REITs would have post-tax yields of 7 percent to 8 percent, lower than the Indian government bonds with yields of between 8 percent and 9 percent, he said.

‘Viable Vehicles’

The government must address the differing stamp duties for purchase and sale of assets in India, which currently range from 5 percent to as high as 14 percent across the country, depending on the city, he said.

“Interest rates in the economy would need to decline meaningfully from here on for a REIT to become a viable financial vehicle,” Bhaskar Chakraborty, an analyst at IIFL, said.

The Reserve Bank of India’s benchmark repurchase rate is at 8 percent, the highest after Pakistan among 11 Asian economies tracked by Bloomberg.

‘Right Time’

The introduction of REITs will help India’s market become more institutionalized, said Shobhit Agarwal, joint managing director of capital markets at Jones Lang LaSalle India.

“The legislation has come at the right time,” Agarwal said. “Markets, business and investors all will benefit.”

The REIT market in the Asia-Pacific region is worth more than $250 billion, according to data compiled by Bloomberg. Australia, Japan and Singapore are the region’s three largest REIT markets, the data showed. REITs and business trusts were the biggest fundraisers in Singapore’s IPO market in the past year, according to data compiled by Bloomberg.

“Many countries have implemented the REIT framework but only a handful have continued to retain investor confidence and grow consistently over time,” said Kumar of Cushman & Wakefield. “India has the right underlying dynamics to fuel the growth of the industry. Only time will tell if the potential is fully realized.”

-By Pooja Thakur

Londoners Cashing in Flee to Suburbs as Home Rally Wanes

Source: Bloomberg / Luxury

For equity-derivatives broker Andrew Adamson, it was a trade too good to pass up.

In October, he was offered 1,000 pounds ($1,700) per square foot for his London townhouse. Other homes in the area were going for about 30 percent less. Adamson accepted it immediately.

London’s housing market, having outperformed the rest of the U.K. with price gains of more than 50 percent in five years, is cooling as owners like Adamson cash out. They’re leaving the city for less costly suburban and country homes because they expect mortgage rates to rise and new lending rules to damp prices. London estate agents had the largest increase in instructions to sell homes in Britain in June and the biggest drop in people seeking to buy them, according to the Royal Institution of Chartered Surveyors.

“Now is the time people are cashing in,” said Adamson, 46, who used the 2 million pounds he raised from the sale to buy a country manor in Hampshire, southern England, for 400,000 pounds less. “I caught it before everybody else started talking about it. As soon as everybody starts talking about it you’ve missed the best deal.”

There’s never been a stronger financial incentive for Londoners to leave the city. The average price gap between homes within the M25 motorway that encircles London and the rest of England was about 265,000 pounds as of June, the widest on record, according to data compiled by broker Hamptons International Ltd.

‘Bull Run’

A growing number of people are exploiting that price difference. Londoners purchased 75 percent more properties outside the capital than a year earlier, bringing the total for the 12 months through May to 44,000 properties with a combined value of 15 billion pounds, Hamptons estimates. Both numbers are the highest since 2007.

“There’s an opportunity to take advantage of a nice bull run” in London prices since 2009, said Adam Challis, head of residential research at Jones Lang LaSalle Inc. in London. “The next real strength in terms of pricing is clearly in suburban locations and into the commuter belt, where there’s still quite a lot of heat in the market.”

London house prices stagnated in July compared with the prior month, the first time there’s been no growth since December 2012, according to a survey of real estate surveyors published by Hometrack Ltd. on July 25. The group expects London values to fall in the months ahead, the results showed.

U.K. prices grew at the slowest pace in more than a year in July, increasing 0.1 percent from June,Nationwide Building Society said today.

‘Crystallize Gains’

“If you want to crystallize your gains, this is no bad point,” said Simon Rubinsohn, chief economist at RICS.

Bank of England Governor Mark Carney last month announced a loan-to-income cap and an affordability test in an effort to rein in runaway prices. Starting in October, no more than 15 percent of mortgages granted by U.K. lenders should amount to 4.5 times the borrowers’ income. Additionally, homebuyers will have to prove they can afford to repay their loans if interest ratesincrease.

The BOE should be ready to further tighten these curbs and may need to consider raising rates if the moves fail to control housing market risks, the International Monetary Fund said on July 28. The size of household debts supports the case for “gradual and limited” rate increases after the housing market turned out weaker than the central bank forecast, BOE Deputy Governor Ben Broadbent said in an interview yesterday.

Thirty-four percent of economists say the BOE will raise the benchmark rate from a record low 0.5 percent by December, up from 12 percent in early June, a Bloomberg survey of 50 economists shows.

‘Up Heftily’

The BOE measures have “made people think, ’Wait a minute, prices have gone up heftily already, perhaps we don’t need to chase them upward further,’” Rubinsohn said.

Asking prices for London properties declined for a second month in July as more homes were offered for sale, according to Rightmove Plc. (RMV) The decline was led by three districts: Islington, Wandsworth and Kingston. Prices in each fell by an average of almost 4 percent in the month.

“It’s as if someone had flicked a light switch,” Johnny Morris, head of research at Hamptons, said. “There are a number of new worries, including higher borrowing costs and mortgage regulations.”

For Adamson, moving from central London to the Hampshire village of Catherington was also a lifestyle choice. His commute by rail to London’s Waterloo station takes about an hour. And within 15 minutes of his new home, he can kite-surf in the English Channel.

Isle View

“It’s about the quality of life,” said Adamson. “I can even see the Isle of Wight.”

Adamson’s 7,000 square-foot (650 square-meter) house has a lake, an orchard -- and a history. The house was built in 1296 and, in 1651, Charles II took shelter there during his escape to France, according to broker Chesterton Humberts.

An increase in demand for luxury country homes in England has caused prices to rise for six straight quarters, according to data compiled by Knight Frank LLP. The market is expected to outperform the capital in the months ahead, said James Grillo, a director at Chesterton Humberts’ Chelsea office.

“It has now become an economic imperative to sell in the capital and move to the country,” Grillo said.

The luxury market in central London was the first to show signs that the city’s residential housing may be cooling. The total value of homes selling for more than 10 million pounds declined by 1.5 percent during the second quarter, Savills Plc said earlier this month. Those valued from 5 million to 10 million pounds dropped 1.8 percent.

Tempting Foreigners

The slowdown in price gains and the prospect of realizing profit tied up in London homes could tempt wealthy foreigners to head elsewhere, economists say. Those who bought homes in the priciest districts of town in dollars, rubles, rupees or riyals during 2009 would double their money if they sold today, Hamptons’ Morris said.

“With the prospect of increasing interest rates, and resultant strengthening of the pounds, the temptation for overseas investors to cash in is getting bigger,” Morris said.

Chancellor of the Exchequer George Osborne is adding a capital-gains tax next year on homes sold by people living abroad after raising a transaction tax to 7 percent from 5 percent for properties priced at more than 2 million pounds in 2012.

“The countryside market is going to go up,” Adamson said. “We bought this for 1.6 million, we’ve done nothing major to it, and we just had it valued at 2.15 million.”

-By Patrick Gower

BOE’s Broadbent Says ‘Edge Is Coming Off’ U.K. Housing

Source: Bloomberg / Luxury

The “edge is coming off” the U.K. housing market and that may start to affect the wider economy by the end of the year, according to Bank of England Deputy Governor Ben Broadbent.

In his first interview since taking over the running monetary policy, Broadbent said near-term growth indicators are quite strong, though officials predict “some softening” in economic expansion. The scale of Britain’s household debts supports the case for “gradual and limited” rate increases -- but not the argument for leaving borrowing costs at a record-low 0.5 percent, he said.

The comments, in an interview yesterday in his office in London, underscore the challenges policy makers face as they balance the risk of stoking inflation by increasing borrowing costs too late, against the need to secure the economic recovery. The housing market, a focus of their thinking in the past month, has turned out weaker than the BOE forecast, Broadbent said.

“It’s clear that we’ve already had something of a dip even relative to the central expectations that we had six months ago at the beginning of the year,” said Broadbent, 49, who began his new job on July 1. “You can see certainly in quantity and some of the near-term price indicators some of the edge is coming off.”

Debt Concern

As deputy governor for monetary policy, Broadbent will sit on the Financial Policy Committee, which is tasked with safeguarding financial stability, as well as the rate-setting Monetary Policy Committee. FPC officials took action last month to prevent people taking on high loan-to-income mortgages they might struggle to afford when interest rates increase.

The BOE steps, along with the introduction of tougher affordability checks in April, may already be having an effect. Lenders approved almost 10 percent fewer mortgages in the second quarter than the first, and Nationwide Building Society said today that house prices grew at the slowest pace since April 2013 this month.

Broadbent suggested that the housing market, together with weaker global growth, may weigh on economic growth.

“Partly because of what’s happening in the housing market, partly because the global economy is arguably a little softer than one might have hoped, to expect some slowdown over the next year, toward the end of the year into next year, isn’t unreasonable,” he said. “You might expect some softening for that reason at least later this year into next year. For the time being, the very near-term indicators of output growth remain quite strong.”

‘More Gingerly’

Broadbent said that household debt, which climbed to a record 1.45 trillion pounds ($2.45 trillion) in June, is a reason for the BOE to tighten policy “more gingerly” than in the past, and there is a case to start doing so earlier to ensure the path of interest-rate increases stays gradual.

“Let’s not forget that in 2007 official interest rates were almost 6 percent and the housing market was not frankly a central part, certainly not mortgage losses for banks, a central part of the story on the financial crisis,” he said. “That can be exaggerated.”

Futures contracts are pricing in the first interest-rate increase since 2007 by February, with the possibility of a move this year. The key rate is projected to reach about 2.5 percent by 2018, compared with about 5 percent before the financial crisis.

Right Outcome

Broadbent said the first move to tighten policy shouldn’t come as “a huge shock,” and “would be a good thing” as it will mean that “the economy is getting onto secure footing and growing and recovering.”

Market expectations of the pace of rate increases are “clearly more gentle than the forwards in previous hiking cycles,” he said. “That delivers roughly the right outcome for us.”

Policy makers have focused their debate about when to raise interest rates on the amount of slack in the economy. While a faster-than-forecast drop in unemployment shows spare capacity has eroded more quickly than projected, Broadbent said weak wage growth indicates that there may have been more slack than officials initially estimated. The BOE will release a new assessment with its forecasts on Aug. 13.

“It’s quite possible that we started off from a lower level but are eating it up more quickly and ended up more or less where we thought we were,” Broadbent said. “I’m not sure the policy implications are immediate unless you believe this is likely to carry on.”

Quicker Growth

The quickened pace of employment gains may be partly explained by output being stronger than reported in official data, the deputy governor said.

“One should recognize these revisions take place over time,” he said. “The current numbers say growth over the past year has been three and a bit percent. It’s possible -- I’m not saying it’s the most likely thing -- it’s closer to 4 percent than 3 percent,” he said.

Broadbent joined the BOE as an external member of the MPC in June 2011 from Goldman Sachs Group Inc., where he was senior European economist for 10 years. He’s also been assistant professor of economics at Columbia University and an economic adviser at the Treasury. A graduate of Trinity Hall at Cambridge University, he earned a PhD in economics from Harvard University.

-By Emma Charlton and Scott Hamilton

U.K. House-Price Growth Hits 15-Month Low as New Rules Take Hold

Source: Bloomberg / Luxury

U.K. house prices grew at the slowest pace in more than a year in July, adding to evidence of a property slowdown as measures to cool the market took effect.

Property values rose 0.1 percent from June to an average 188,949 pounds ($312,000), Nationwide Building Society said today in a statement on its website. That’s the smallest increase since April 2013. From a year earlier, prices climbed 10.6 percent, following June’s annual gainof 11.8 percent, which was the fastest year-on-year gain since 2005.

The data underscores signs of a loss of momentum in Britain’s property market after record-low interest rates and improving confidence propelled prices to all-time highs. Bank of England Deputy Governor Ben Broadbent told Bloomberg News in an interview yesterday that the “edge is coming off” the market and housing has turned out weaker than the central bank forecast.

BOE financial-stability officials introduced measures in June to limit riskier mortgages and new rules came into force in April as part of the Mortgage Market Review, requiring tougher affordability tests. Other indicators have signaled these may be contributing to a deceleration, with lenders approving almost 10 percent fewer mortgages in the second quarter than the first.

“The slowdown was not entirely unexpected, given mounting evidence of a moderation in activity in recent months,” said Robert Gardner, Nationwide’s chief economist. “With the labor market strengthening, mortgage rates expected to remain low and consumer confidence rising, activity is likely to recover in the months ahead.”

-By Emma Charlton