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26th August 2014

Singapore Real Estate

Economists mixed over impact of household debt on private consumption

Some see moderating consumption as a 'healthy correction'

Source: Business Times / Top Stories

[SINGAPORE] Private consumption is losing steam amid rising household debts and waning home equity - something that economists can agree on. But how severe private consumption will be affected and its impact on the broader economy remains the big question.

In a report issued yesterday, Citi economist Kit Wei Zheng said that the rise in household net worth in the second quarter has masked the continued rise in debt.

"Even without tighter regulations, the likely rise in debt servicing burdens may already put the brakes on the consumer," he said. Possibly as many as 25-30 per cent of borrowers are currently having debt service ratios in excess of 40 per cent, Mr Kit estimated.

Private consumption growth, which has slowed since 2012, eased further to 1.3 per cent in the second quarter from 2 per cent in the first quarter, according to the Department of Statistics. This marked the weakest growth in five years since 2009.

Data on household balance sheets released last week also showed household net worth growing 2.7 per cent from a year ago to S$1.46 trillion in the second quarter, led mainly by the rise in financial assets such as shares and securities and life insurance.

But the recent correction in home prices wiped off 1.4 per cent of the total value in housing assets to S$820.6 billion - the first time since 2009 that residential property assets on household balance sheets turned south. Mortgages, however, went up 5.6 per cent year-on-year to S$210.8 billion in the second quarter.

Mr Kit noted that the fall in home equity - which represents the current market value of homes less any remaining mortgage payments - may have further tightened credit for consumption.

Falling home equity may continue to pose a drag on consumer spending in the coming years, he warned, adding that there has been anecdotal evidence of a proliferation of home equity loans in recent years.

But other economists posit that there is no cause for alarm at this point given the backdrop of full employment and wage inflation.

Coining the moderating private consumption as a "healthy correction", CIMB Research regional economist Song Seng Wun noted that the decline in private consumption is, to a large extent, caused by credit tightening through the total debt servicing ratio (TDSR).

"Any reining back of lending is going to affect private consumption," Mr Song said, referring to the TDSR framework that caps the total borrowings of an individual at 60 per cent of gross monthly income.

Stabilising property prices and the muted stock market have also resulted in a more subdued sentiment for private spending, he added.

While property owners may be sitting on paper losses when property prices fall, "it is a question of whether property owners can service the loan or not", Mr Song said. "It all boils down to the speed and quantum of the property price adjustments."

Selena Ling, OCBC Bank head of treasury research and strategy, concurred that a sharp fall in prices coupled with a surge in cost of financing will be painful to property owners.

"If overall unemployment rate remains low and real wage growth is positive and there is no need to liquidate the property due to financing difficulties, then the situation may be more manageable compared to the Asian financial crisis," she said.

UBS argued in a recent report, however, that while the percentage of over-stretched borrowers may appear modest even in a worst-case scenario, this should not lull us into a state of complacency.

According to the UBS analysts, the often cited estimate of 5-10 per cent of borrowers being over-stretched could rise to 10-15 per cent if mortgage rates rise by 3 percentage points.

-By Lynette Khoo

Deal brewing for Straits Trading Building

Price may be slightly over S$2,800 psf, highest for an office block in six years

Source: Business Times / Top Stories

[SINGAPORE] Amid the quiet investment sales market this quarter, a major office deal is brewing. Advanced discussions are believed to be going on for the Straits Trading Building, a landmark 999-year leasehold office tower in Battery Road.

The price is understood to be slightly above S$2,800 per square foot (psf) based on the net lettable area (NLA) of about 159,000-plus sq ft, which would translate to a transaction size of about S$450 million. The buyer is said to be an overseas party, from Asia. The net yield could be around 3 per cent.

Market watchers noted that the slightly over S$2,800 psf pricing based on ongoing negotiations would be the highest for an office block in six years, since the record S$3,125 psf achieved for 71 Robinson Road in April 2008, while it was still under construction. At the time, 71 Robinson Road's site had a balance lease term of about 85 years.

Straits Trading Building is nearly fully let, with law firm Rajah & Tann as its anchor tenant. Completed in 2009, the 28-storey building is a redevelopment of the original 21-storey block on the site that was built in 1972.

-By Kalpana Rashiwala

Seven industrial units in Bukit Merah put up for sale

Source: Business Times / Property

A TENDER exercise has opened for seven industrial units at Kewalram House in the Bukit Merah Industrial Estate, agent JLL announced on Monday.

The tender will close at 2.30 pm on Sept 25. Bidders may tender for any or all of the units.

The offering comprises two units of 3,100 square feet and 4,300 square feet on the ground floor that can be used for warehouse or factory space, and five units on the third floor that range from 2,100 sq ft to 2,400 sq ft. The total floor area of the units is 18,800 sq ft.

There are just over 45 years left on the tenure of the 99-year leasehold properties.

-By Kenneth Lim

2 Jln Besar properties on the market

Source: Business Times / Property

TWO adjoining properties along Sam Leong Road, off Jalan Besar, are up for sale, says Chestertons Singapore, which has been appointed as the sole marketing agent for the deal.

The first building, currently vacant, is a three-storey freehold commercial building with a site area of approximately 2,726 square feet (253.3 square metres) and a gross floor area of approximately 7,887 sqft. It has an internal lift that services all floors, as well as a mechanised carpark for four carpark lots located at its rear.

The second building, currently tenanted, is a four-storey residential with commercial spaces at the first storey. It has a site area of approximately 1,335 sqft and a gross floor area of approximately 4,324 sqft.

The total indicative price for the properties is about S$17.5 million, or around S$1,433 per sqft.

Resale market for Tanglin Halt hotting up

Some flats on sale fetching premium prices after news of redevelopment

Source: Straits Times / Singapore

HOUSING Board flats in Tanglin Halt are hitting the resale market and starting to fetch premiums after June's announcement that the estate will be redeveloped.

At least two units have been sold since then, with more than 30 listed on property websites.

Such flats are attractive because their owners will eventually be offered brand new units at five sites in the nearby Dawson estate in Queenstown under the Selective En bloc Redevelopment Scheme (Sers).

In prime locations such as Queenstown, resale units are pricey and Build-To-Order projects scarce, so the Sers exercise is a good chance to secure a flat there, said agents.

PropNex agent Xavier Ng, who is marketing a three-roomer in the estate, receives a few enquiries each day. "It's mainly younger couples who need to set up a family home," he said.

Most of the 3,480 units across the 31 blocks in Tanglin Halt Road and Commonwealth Drive are two- and three-room flats. The replacements range from two- to five-roomers, with larger units popular with families, said agents.

To give owners time to consider their options, there was a month-long freeze on resale applications. This ended on July 27, and applications can be submitted up till Aug 31 next year.

In anticipation of demand, property agents have been leaving fliers in letter boxes and going door to door in Tanglin Halt.

The attraction of a Sers flat was clear in the case of a Tanglin Halt three-roomer which was sold last week. PropNex agent Andy Azaly Suboh had been marketing it since February, with an asking price of $310,000 to $315,000.

"There were no takers initially," he recalled. But interest rose after the Sers announcement, and the flat went for $355,000, about $35,000 above its valuation.

Some Tanglin Halt owners might want to sell so they can upgrade to private property, said SLP International Property Consultants head of research Nicholas Mak. Another reason is that the replacement units are expensive, said agents and flat owners.

Even though they are subsidised, estimated prices for three-room replacement units at Dawson range from $284,000 to $386,000, according to the HDB.

"Actually, a resale flat somewhere else might even be cheaper," noted a flat owner who wanted to be known only as Mr Teh.

In the second quarter this year, the median price of a three-room flat was $357,000 in Queenstown, and as low as $311,000 in Yishun.

Mr Teh, a 34-year-old who works in sales, is open to the idea of selling his three-roomer in Tanglin Halt. But he has not decided whether to do so yet as the prime location of the replacement flats is still a draw. "You cannot find another place as good as this," he said.

The drawback of selling, of course, is missing out on a prized new flat in Dawson, said R'ST Research director Ong Kah Seng.

This is why transport driver Ngeow Chee Hoe, 41, does not plan to sell his three-roomer: "The new flats will be of high value."

For many older residents, there is a simpler reason for not selling: being able to stay in a familiar, convenient place.

Said retiree Arif Supaat, 74: "This place is easy for me to get around: There are the buses, the MRT, it's near the mosque."

Retiree Helen Lee, 70, agreed, adding: "If you move somewhere else, you won't know the neighbourhood any more."

-By Janice Heng

GIC in bid to buy Tokyo building

Source: Business Times / Property

[TOKYO] Singapore's sovereign wealth fund, GIC, is in final talks to buy a Tokyo office tower for about 170 billion yen (S$2.04 billion), three people with direct knowledge of the deal said, in what would be Japan's biggest property transaction since the global financial crisis.

GIC, which already has a large presence in Japan's property market, outbid the asset management unit of Goldman Sachs Group, which also participated in the final bid for the property which was put up for sale by Secured Capital, part of Asian private equity firm PAG.

GIC is in talks for the 32-storey Pacific Century Place Marunouchi in a prime spot near the Tokyo railway station. The progress in the talks comes after GIC backed out of another deal for a major Tokyo property owned by global buyout firm Lone Star Funds. - Reuters

Real Estate Companies' Brief

S&P upgrades rating of CapitaCommercial Trust

Financial strength, stable performance prompt 'A-' rating

Source: Business Times / Companies

HAVING reassessed CapitaCommercial Trust's (CCT) appetite for expansion and discipline in using debt to fund new investments, and given its stable business performance, Standard & Poor's has raised its long-term rating to 'A-' from 'BBB+' with a stable outlook.

"Our upgrade of CCT reflects the continued stable performance of the company's underlying portfolio and the impending completion of CapitaGreen development by end of 2014," said S&P in a statement issued on Monday.

The rating agency pointed out that CCT has a high-quality portfolio of commercial assets in prime locations in Singapore's central business district and that the properties have stable rents with over 90 per cent occupancies consistently since CCT's listing on the Singapore Exchange.

The agency also lauded CCT's project execution - it is the only real estate investment trust (Reit) in Singapore currently building a sizeable commercial property: the CapitaGreen office project.

-By Anita Gabriel

UE said to be in final stages of Wearnes Auto sale

Property company is itself in play, divesting its non-core assets

Source: Business Times / Companies

AFTER looking for some time for the right buyer, property and engineering conglomerate United Engineers (UE) is reportedly close to selling its automotive business, Wearnes, for as much as S$450 million.

The company has been divesting non-core assets. UE said earlier in August that it is divesting indirect subsidiary MFS Technology for S$124 million.

Wearnes distributes luxury cars in South-east Asia, including brands like Bentley, Bugatti, McLaren, Jaguar, Land Rover, Infiniti, BMW and Volvo.

According to a Bloom-berg report, the buyer is Malaysian conglomerate Samling Group, which distributes Bentleys in Malaysia and is an authorised dealer of Mitsubishi and Honda vehicles there.

-By Cai Haoxiang

Taiwan's KGI buying AmFraser Securities

Source: Business Times / Companies

TAIWAN'S KGI Securities plans to acquire stockbroker AmFraser Securities for S$38 million. The sale and purchase agreement, signed on Monday between KGI's wholly owned KGI Asia (Holdings) and AmFraser International, will enable KGI Securities - a wholly owned securities division of Taiwan Stock Exchange-listed China Development Financial Holding Corporation - to grow its client network to South-east Asia, Greater China, India and the Middle East.

Oxley Holdings

Source: Business Times

The robust overseas projects sales have prompted us to be more optimistic about the company's outlook. The company is likely to launch the phase 2 of Royal Wharf and Naga 2 project in Q4 2014 as Oxley rides on the sales momentum. We continue to expect Oxley to finish selling its remaining projects in Singapore and the hotel development along Steven Road will generate valuation surplus of about S$360 million. Recommend "invest" with an intrinsic value of S$0.885.

Heeton checks into hospitality business

Firm plans to up its 245 rooms to over 600 by year end

Source: Straits Times / Money

HEETON Holdings is ramping up its hospitality business with plans to more than double its 245 rooms to over 600 by year end - and far more down the track.

The move has been prompted by the potential of hospitality to provide recurrent income, chief operating officer Danny Low told The Straits Times yesterday.

"It's to balance out the times that real estate development is impacted,'' he said.

"Also, in property development, profit comes in bits and pieces on a portfolio progress basis; but recurring income is always there and can take care of most of the working capital costs."

Overall, the company is targeting 1,500 room keys by the end of financial year 2016.

By then, hospitality is set to account for 10 to 15 per cent of the company's portfolio, up from a small percentage now.

The company's hospitality push first started in late 2011, when it took an 87 per cent stake in 245-room Mercure Hotel in Pattaya, Thailand.

In February, it snapped up an 80 per cent stake in 100-room Enterprise Hotel in Kensington, London, which it is refurbishing and expanding to 150 rooms by the end of this year.

Last week, it also announced it will be taking a 70 per cent stake in a hotel in Brisbane. The hotel, part of a mixed-use site that Heeton is co-developing, will be ready in 2018.

Given such rapid expansion, is an H-Reit on the cards?

"We are always on the lookout to realise more shareholder value through further unlocking value in our assets," said Mr Low.

One benefit to hospitality assets is exit value - all the land Heeton has purchased is freehold, and in "key destinations", he added.

For example, the value of Mercure Hotel's land site has appreciated by about 20 per cent since the site was acquired by Heeton.

The firm is focusing on destinations in Europe, Australia, Asia and Asean, and acquiring where it believes it can add value and improve yield, Mr Low said.

For the Mercure Hotel, yield was boosted from 7 per cent to more than 10 per cent through cost-cutting measures such as lowering headcount and encouraging higher-yielding guests such as corporates to stay.

Mr Low said he will take similar measures to boost the company's other assets.

Broadly, Heeton is focusing on the three- to four-star market.

"The costs are easier to manage. When there are travel advisories issued, or political unrest, five-star hotels are severely affected and prove expensive to keep."

Still, the company's focus on hospitality does not mean it is withdrawing from the local development scene.

In fact, it acquired two Government Land Sales sites this year, in joint ventures: An executive condominium site in Westwood Avenue in Jurong West, and two parcels in Fernvale Road in Sengkang.

"Development is our core business. We are just looking for new growth areas," said Mr Low.

-By Rennie Whang

Views, Reviews & Forum

Clarification of TDSR rules

Source: Business Times / Editorial & Opinion

HO Swee Huat suggested that borrowers who had purchased their properties before the introduction of the Total Debt Servicing Ratio (TDSR) framework should not be subject to the TDSR threshold of 60 per cent when they refinance their housing loans ("Make rules on refinancing mortgages more flexible", Aug 12, 2014). We thank Mr Ho for the opportunity to clarify our rules.

The TDSR framework applies to the refinancing of existing property loans where the date of the refinancing is on or after June 29, 2013. This is to encourage borrowers to right-size their loans and thereby reduce their vulnerability to adverse economic conditions or changes in interest rates.

We recognise that some borrowers may face challenges in right-sizing their debt obligations in the short term. Therefore, MAS does not require banks to apply the 60 per cent TDSR threshold at refinancing if the borrower bought his residential property before the introduction of TDSR rules and occupies the property.

In addition, banks need not apply the 60 per cent threshold for an investment property bought before the introduction of the TDSR framework if the borrower applies for refinancing before June 30, 2017, and commits to a debt reduction plan.

Global Economy & Global Real Estate

Shangri-La to have 10 hotels under new Jen brand by Q1 2015

First Hotel Jen to open here in Sept, nine Traders hotels to be rebranded

Source: Business Times / Property

SHANGRI-LA Hotels and Resorts, which will launch its first Hotel Jen in Singapore next month, expects to have up to 10 hotels under the new brand name by Q1 2015 as it rebrands existing properties.

Under the first phase, the Traders hotels in Singapore, Hong Kong, Brisbane, Penang, Johor Bahru, Manila, Maldives, Beijing and Shenyang will be rebranded under the Hotel Jen banner between September this year and March next year. The group currently has 14 hotels under the Traders brand, which was established 30 years ago.

Greg Dogan, chief executive of Shangri-La Hotels and Resorts, said: "We are looking to the future and - based on extensive consumer research and insight into the way our target market lives and travels - we are recognising and responding to the global travel trends and particular needs of this new generation traveller. This will keep us relevant and competitive for the next 20 years to come."

The hotel management group is also in talks to introduce new Hotel Jen properties in key gateway cities across Asia, eyeing markets such as China, Korea, Japan, Australia, Indonesia and Malaysia.

-By Nisha Ramchandani

Shangri-La to launch 10 hotels under Jen brand aimed at 'young at heart'

Source: Straits Times / Money

HOSPITALITY group Shangri-La Hotels and Resorts will roll out 10 new properties in the Asia-Pacific region under its new brand Hotel Jen, pitched at "young at heart" travellers, by March next year.

The move is part of the firm's plans to rebrand some of its Traders hotels, said Mr Lothar Nessmann, chief operating officer of Hotel Jen, in an interview with The Straits Times yesterday.

The global launch of the new brand will kick off with a newly built property - Hotel Jen Orchardgateway - which will open for business on Sept 15, the firm said.

Like its Traders hotels, Jen hotels are aimed at travellers in the mid-tier segment, said Mr Nessmann. But their image is trendier, with the target group being the "young at heart". It plans to use social media to promote them.

"We recognise that in order to keep up with the market and react to what the market trends are, and what the customers are saying, we needed to make some changes, and these changes will see us with a very powerful business platform for the next 20-plus years," said Mr Nessmann.

Though Traders "has been a very good brand", the firm's focus will now be on Hotel Jen.

The Traders Hotel Singapore in Cuscaden Road will be up next, with the rebranding exercise slated for the week after Hotel Jen Orchardgateway opens its doors. However, its room rates will not be cut after the exercise, he said.

Mr Nessmann was unable to comment on the cost of the whole rebranding exercise or give estimates of Hotel Jen Orchardgateway's room rates, but said that "we will work the rates well within the market that we are (in)".

Average occupancy levels of mid-tier hotels were 82.9 per cent from January to May, below the average occupancy level of 88.1 per cent for luxury hotels and 86.2 per cent for upscale hotels, according to estimates from the Singapore Tourism Board. But the firm is optimistic because "there is still a very large growing demographic of visitors who use Singapore as a stopover area, either for vacations or business".

In Hong Kong, where the first Jen Hotel was opened, the rebranding exercise will begin for its Traders Hotel on Oct 8.

The remaining properties that will be rebranded are in Brisbane, Penang, Johor Baru, Manila, Maldives, Beijing and Shenyang.

The firm is also in discussions to roll out more Jen hotels outside Asia Pacific, said Mr Nessmann.

-By Cheryl Ong

Vanke Offers Alibaba Shoppers Up to $325,000 in Home Discounts

Source: Bloomberg / Tech

China Vanke Co. (000002), the country’s biggest developer, teamed up with Alibaba Group Holding Ltd. to offer discounts of as much as $325,000 to home buyers who also shopped on the e-commerce company’s Taobao Marketplace.

Vanke will grant discounts of 2 million yuan ($325,000) on select properties if the home buyer spent more than 2 million yuan on Taobao in the last year, according to a statement on Taobao’s website. Spending one yuan makes buyers eligible for a 50,000-yuan rebate.

Vanke and other developers have cut prices since March to lure homebuyers amid a slump in the nation’s property market, according to China Real Estate Information Corp. Last month, new-home prices fell in the most cities tracked by the government since January 2011, as tight mortgage lending deterred buyers.

Alibaba, meanwhile, is preparing for an initial public offering in the U.S. that may raise as much as $20 billion -- possibly making it the largest IPO ever in the U.S.

Twenty-three Vanke projects in cities including Beijing and Hangzhou are covered in the Taobao offer, according to the statement. The offer started yesterday and lasts through Sept. 30.

Within half a day, more than 140 Taobao users had gotten 1 million yuan in discounts, according to an article on the website of China Business News.

Under the offer, people who spent between 50,000 yuan and 2 million yuan on Taobao in the last year get discounts equal to the total cost of their online purchases.

Vanke’s first-half profit climbed 5.6 percent as it sold more small and medium-size homes that are less affected by market downturns, the company said Aug. 17.

-By Bloomberg News

Sales of new homes fall in July to four-month low

Source: Business Times / World

[WASHINGTON] New-home sales in the US fell unexpectedly in July for the second month as the housing recovery takes on a gradual pace.

Sales declined 2.4 per cent to a 412,000 annualised pace, the fewest since March and weaker than the lowest estimate of economists surveyed by Bloomberg, after a 422,000 rate in June, the Commerce Department reported on Monday.

Housing has advanced in fits and starts this year, buffeted by tight credit and slow wage growth. A shortage of skilled labour and supply-chain bottlenecks also have hindered construction even as population growth boosts demand for shelter. Bigger gains in employment and wages would stoke a more-rapid recovery.

"It's a little bit disappointing," said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years. "The new-home sales data have no traction whatsoever and doesn't seem to be gaining at all."

-From Washington, US

Slowing Home Sales Show U.S. Market Lacks Momentum: Economy

Source: Bloomberg / Personal Finance

The pace of new-home sales fell to the slowest in four months in July, signaling U.S. real estate lacks the vigor to propel faster growth in the economy.

Purchases unexpectedly declined 2.4 percent to a 412,000 annualized pace, weaker than the lowest estimate of economists surveyed by Bloomberg, Commerce Department data showed today in Washington. June purchases were revised up to a 422,000 rate after a May gain that was also bigger than previously estimated.

Housing has advanced in fits and starts this year as tight credit and slow wage growth kept some prospective buyers from taking advantage of historically low borrowing costs. Bigger job and income gains, along with a further slowdown in price appreciation, would help make properties more affordable.

“It’s a little bit disappointing,” said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years, according to data compiled by Bloomberg. “The new-home sales data have no traction whatsoever and don’t seem to be gaining at all.”

In contrast, purchases of previously owned properties have climbed for four straight months, reaching an almost one-year high in July, according to data from National Association of Realtors. Combined annualized sales of existing and new homes totaled 5.56 million in July, the fastest since October.

“The housing data when you look at all of it together is still, on net, encouraging,” Simons said. “Everything is moving in the right direction, just a little more slowly.”

New-home sales, which last year accounted for about 5 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Existing Homes

Demand for existing homes picked up last month as low borrowing costs and an increase in inventory drew buyers. The annual pace of purchases climbed to 5.15 million in July, the best showing since September, according to the Realtors group.

Builders and their suppliers see room for growth as the job market improves. As foreclosures and other distressed property sales become a smaller share of the market, housing growth will accelerate, said Robert A. Niblock, chairman and chief executive officer of home-improvement chain Lowe’s Cos., based in Mooresville, North Carolina.

“Signals from the housing market appear mixed,” Niblock said on an Aug. 20 earnings call. “We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth.”

Stocks Rise

Stocks rose, briefly sending the Standard & Poor’s 500 Index above 2,000 for the first time, as corporate dealmaking and prospects for economic stimulus bolstered confidence in the bull market. The S&P 500 advanced 0.5 percent to 1,997.94 at the close in New York. The S&P Supercomposite Homebuilding Index dropped 0.7 percent.

European Central Bank President Mario Draghi’s concern is that if inflation expectations keep falling, they’ll affect actual prices as investors, consumers and companies pull back spending in anticipation. On Aug. 22 at a central-banking conference in Jackson Hole, Wyoming, he said the ECB “will use all the available instruments needed to ensure price stability over the medium term.”

The Commerce Department’s new-home sales figures showed purchases dropped in three U.S. regions, led by a 30.8 percent slump in the Northeast. The West declined 15.2 percent and the Midwest fell 8.8 percent. Sales rose 8.1 percent in the South.

The median forecast of 70 economists surveyed by Bloomberg called for all home sales to accelerate to a 430,000 rate. Estimates ranged from 414,000 to 470,000 after a previously reported 406,000 in June.

This Year

Sales of new properties have averaged 429,000 over the last three months, in line with the 2014 average.

More hiring and income growth may persuade some Americans to sign purchase contracts. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures. At the same time, wages are barely keeping up with inflation.

A decline in borrowing costs this year is providing some support. The average 30-year, fixed-rate mortgage was 4.1 percent in the week ended Aug. 21, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.

Limited progress in the housing market is a risk for the economy, according to Federal Reserve Vice Chairman Stanley Fischer. The real-estate market “continues to weigh on the recovery,” he said at a conference earlier this month.

An increase in supply of available homes is limiting price appreciation, which could spur more buyer interest.

Today’s data showed the supply of homes at the current sales rate rose to 6 months, the highest since October 2011, from 5.6 months in June. There were 205,000 new houses on the market at the end of July, the most in almost four years.

The median sales price of a new house climbed 2.9 percent from July 2013 to $269,800 last month.

-By Lorraine Woellert

S Korea moves to awaken idle property market

Easier mortgage rules are helping people turn to purchase of homes

Source: Business Times / Property 

[SEOUL] After moving six times in 10 years, Choi Youn Ho, a 46-year-old chemical researcher, said he is hopeful easier mortgage rules will finally allow him to buy a home on the outskirts of Seoul for his family of four.

"I'm sick and tired of finding a new home, packing and moving every two years, whenever the lease contract expires," said Mr Choi, who works at a chemical trading firm and had a 24 per cent increase in rent in May when he moved into a new three-bedroom apartment. "I can get a bigger loan now; it may be the time to finally buy a home rather than swallowing this crazy rent rise."

South Korea loosened banks' mortgage restrictions this month as Finance Minister Choi Kyung Hwan, appointed in July, seeks to revive a stagnant property market in Asia's fourth-largest economy, boost growth and stimulate domestic consumption.

A nationwide weekly apartment purchase price index hit a six-year high on Aug 18, according to Kookmin Bank data.

-From Seoul, South Korea

Life Time Fitness Rises on REIT Plan

Source: Bloomberg / News

Life Time Fitness Inc. (LTM), the operator of more than 110 fitness centers in North America, rose the most in more than four years after saying it was exploring converting its land holdings into a real-estate investment trust.

Converting to a REIT could provide “substantial benefits” and aid long-term growth plans, Chanhassen, Minnesota-based Life Time said today in a statement. The company also said it adopted a shareholder rights plan to prohibit anyone from owning more than 9.8 percent of its stock.

Life Time last month posted second-quarter profit that trailed analysts’ estimates and cut its sales forecast for the year as revenue at fitness centers open at least 13 months slid 0.6 percent. REITs generate at least three quarters of their income from rents or interest on mortgages financing real estate. They pay no corporate income tax in exchange for distributing at least 90 percent of taxable income to shareholders through dividends.

Life Time rose 11 percent to $46.32 at 9:36 a.m. in New York and earlier climbed as much as 15 percent for the biggest intraday gain since April 2010. The shares had slid 11 percent this year through Aug. 22, the most recent trading day.

Wells Fargo & Co. (WFC) and Guggenheim Securities are providing financial advice while Skadden, Arps, Slate, Meagher & Flom LLP and Faegre Baker Daniels LLP are serving as legal advisers.

-By Kevin Orland

Homebuyers Back as Korea Aims to Awaken Market: Mortgages

Source: Bloomberg / News

After moving six times in 10 years, Choi Youn Ho, a 46-year-old chemical researcher, said he is hopeful easier mortgage rules will finally allow him to buy a home on the outskirts of Seoul for his family of four.

“I’m sick and tired of finding a new home, packing and moving every two years, whenever the lease contract expires,” said Choi, who works at a chemical trading firm and had a 24 percent increase in rent in May when he moved into a new three-bedroom apartment. “I can get a bigger loan now; it may be the time to finally buy a home rather than swallowing this crazy rent rise.”

South Korea loosened banks’ mortgage restrictions this month as Finance Minister Choi Kyung Hwan, appointed in July, seeks to revive a stagnant property market in Asia’s fourth-largest economy, boost growth and stimulate domestic consumption. A nationwide weekly apartment purchase price index hit a six-year high on Aug. 18, according to Kookmin Bank data.

The new polices are “stronger than people had expected and are thawing the market,” said Shim Gyo Un, a real estate department professor at Konkuk University in Seoul. “People who have been burdened by surging rents now are turning to buying as they have easier access to mortgages and they feel bank loans are cheaper than rents.”

The government increased the loan limit for homebuyers to 70 percent of a property’s value from as low as 50 percent, starting this month. Borrowers will be allowed to use 60 percent of their income for mortgage payments, up from 50 percent for homes in Seoul, which had the most stringent lending rules.

Mortgage loan applications received at Standard Chartered Plc’s Korean unit almost tripled to 927.5 billion won ($910 million) this month through Aug. 22 compared with the total in July, the bank said in an e-mailed statement today. The easing in the loan-to-value and debt-to-income limits as well as the Bank of Korea’s interest rate cut contributed for the rise, the bank said.

Falling Prices

South Korea has avoided the surge in home prices seen in Hong Kong and Singapore in the last five years as the government tackled record household debt levels with measures including capping banks’ lending to households and promoting fixed-rate mortgages.

Apartment prices in the capital Seoul fell for four straight years through 2013 after almost tripling in the previous 11 years, according to an index compiled by Kookmin Bank, the country’s largest mortgage lender. Prices for Seoul and the surrounding metropolitan area, where almost half of the country’s 50 million people reside, have been stagnant since they peaked in 2008 after the previous decade of boom elevated household debt.

Easing mortgage curbs to boost the property market is at the center of Finance Minister Choi’s policies to stimulate growth -- dubbed Choinomics after Japan’s Abenomics, which refers to reflationary monetary and fiscal policies to revive economic expansion.

Gangnam Style

The Bank of Korea cut the benchmark interest rate for the first time in more than a year on Aug. 14, to 2.25 percent.

The average new mortgage loan rate was 3.58 percent in June, the lowest level since the Bank of Korea began tracking the rate in September 2001.

The economy expanded at the weakest pace in more than a year last quarter and the central bank last month reduced its growth forecast for this year to 3.8 percent.

The nationwide apartment purchase price index was 101.9 in the week of Aug. 18, the highest level since April 2008, according to the data from Kookmin Bank.

Prices in Seoul’s affluent Gangnam area -- immortalized in Psy’s hit song Gangnam Style -- rose at the strongest pace in more than five months in the week to Aug. 18, the data show.

Same Fundamentals

Some are skeptical of the measures’ success.

Choi’s determination to “normalize” the housing market and boost sentiment may exacerbate South Korea’s household debt without lifting home prices, said Lim Hyun Mook, head of real estate atShinhan Bank, the third-largest lender by assets.

“Regardless of the mortgage rule changes, the fundamentals of the market haven’t changed,” Lim said. “People don’t buy homes because they aren’t certain about the future price gains and their income flow. It’s not because they can’t borrow enough money. I expect the impact would be short-lived just like the government’s previous measures.”

A 10 percent drop in home prices would more than double the interest-payment burden for those whose mortgages exceed 60 percent of the home value, the Korea Development Institute said in a report published in June, based on 2012 data.

The household debt, including loans and goods purchased on credit, stood at a record 1,024.8 trillion won at the end of March, including 422 trillion won in mortgages extended by banks and other depository institutions, according to the latest data from the Bank of Korea.

Debt Risk

“The loosened mortgage rules should be reversed,” said Jun Sung In, an economics professor at Hongik University, adding that debt risk needs to be contained. “Given that an interest rate cut followed the easing of the rules, loans on credit are likely to increase and add to the household debt risk.”

The Financial Services Commission in February said that it aims to reduce the country’s household debt-to-disposable-income ratio by 5 percentage points by 2017. South Korea’s 163.8 percent ratio is higher than that of the U.S., Canada and the average of member countries of the Organization for Economic Cooperation and Development, the regulator said.

Finance Minister Choi’s measures will boost the housing market in the short term, especially as interest rates fall, said Kim Kyung Soo, an economics professor at Seoul-based Sungkyunkwan University.

“Loosened loan controls mean more than just more transactions; it means more business,” Kim said. That comes at the expense of more household debt, he said.

Buy, Rent

Prices for properties sold at auction are rising. The average auction price was about 87 percent of what properties were valued at in July, the highest since at least 2008, according to Real EstateTaein, an online auction information provider.

“It’s an upbeat sign that demand from potential homebuyers is rising, and that they are starting to take action,” said Jung Dae Hong, an analyst at Seoul-based Taein, adding that auction market prices are often a leading indicator of the housing market.

Choi, the chemical researcher, has his sights set on a three-bedroom apartment of about 84 square meters (904 square feet), overlooking the Han River in Hanam, a satellite city in the southeast of Seoul. The new units, which will start selling in September, cost about 260 million won. His new rent deposit was 210 million won.

The apartment purchase price index for the Seoul metropolitan area fell 5.9 percent over the five years through July in contrast to the 48 percent jump in an index for rents, according to Kookmin Bank data.

“I used to think owning a home on debt is an absurd idea, especially when I don’t believe home prices will rise,” Choi said. “But look at this rental market, I may have to borrow money anyway to pay for the lease rise. I’d rather be a debtor with a house rather than be a tenant on debt.”

-By Seonjin Cha and Cynthia Kim