Real News‎ > ‎2014‎ > ‎August 2014‎ > ‎

29th August 2014

Singapore Real Estate

Private home resale prices drop 0.3%

Source: Straits Times / Money

RESALE prices of private homes continued their slide last month as buyers held back in a market still feeling the chill of property cooling measures.

Flash estimates out yesterday showed the Singapore Residential Price Index (SRPI) declined 0.3 per cent in July compared with June.

Demand for shoebox units was particularly soft with the index for small apartments - defined as those with a floor area up to 506 square feet - dropping 0.8 per cent.

Prices in the central region fell 0.7 per cent, although the non-central region bucked the trend, rising 0.1 per cent. Both indices exclude small units.

SLP International research head Nicholas Mak said the non-central region was able to eke out a price gain due to a slight return in buying demand after the June holidays.

There were also four new launches in July: Bijou at Queenstown, City Gate at Kallang, Robin Residences at Tanglin and Citron Residences at Farrer.

"These launches attracted more buyers' interest towards the areas of these launches, thereby causing a spillover effect of demand on the resale market," Mr Mak said.

The SRPI, which is compiled by the National University of Singapore's Institute of Real Estate Studies, comprises sub-indices covering prices in the central and non-central regions and small units.

July's results continue the slump seen throughout this year except for a surprise expansion in May which analysts see as a blip that is unlikely to be repeated this year.

Property consultants noted the Government has indicated that the cooling measures, including the total debt servicing ratio (TDSR), which restricts debt levels, are unlikely to be reduced or removed any time soon. That in turn will continue to put a dampener on private home sales, particularly resales.

R'ST Research director Ong Kah Seng said: "Resale properties tend to be older in design and, following TDSR, buyers are prioritising their property purchases and prefer to buy a developer sale that is usually newer in design, even if costlier. They are reserving their 'TDSR limits' to wait for developers to cut prices on newer design properties."

Mr Ong added that July's price fall showed the dip witnessed in June was not due just to the school holidays or the World Cup, which are traditionally slow periods for home sales.

In a sign that prices could be stabilising, the revised SRPI for June came in at a dip of 0.5 per cent, better than the initial estimate of a 1 per cent decrease from May.

-By Mok Fei Fei

Resale prices of private homes slip in July: SRPI

Overall prices fell 0.3 per cent on-quarter in July, with prices of small unit homes leading the decline, according to the Singapore Residential Price Index (SRPI) estimates.

Source: Channel News Asia / Business

SINGAPORE: Resale prices of private homes slipped lower in July according to Singapore Residential Price Index (SRPI) estimates, which were released on Thursday (Aug 28).

The SRPI, compiled by the National University of Singapore's Institute of Real Estate Studies, showed overall prices fell 0.3 per cent in July from the previous month. In June, prices fell 0.5 per cent from a month earlier.

Prices of small unit homes led the decline, with a 0.8 per cent fall in July from the previous month. A small unit has a floor area of 506 square feet or below.

Prices of homes in the central region, excluding small units, declined 0.7 per cent on-month. However, home prices in the non-central region edged-up 0.1 per cent in July from June. These figures exclude prices of small units in the non-central region.

- CNA/kk

Still no go for collective sale of Tanglin Shopping Centre

Second attempt fails to meet 80% mark in share value

Source: Straits Times / Money

AN AGEING Orchard Road landmark has failed in its second collective sale attempt, as not enough owners want the property to go on the market.

Owners of the strata-titled Tanglin Shopping Centre did not manage to garner the required consent of 80 per cent of owners before the collective sale agreement expired at midnight on Wednesday.

The owners who signed the collective sale agreement represented a 69.36 per cent stake in the property. The property has 173 owners in total.

For the building to be put on the market, owners of 80 per cent of the property - by both share value and strata area - must sign the agreement before it expires.

The sales committee garnered the 80 per cent level by strata area, but the percentage by share value fell short.

The 44-year-old building comprises a six-storey podium block of shops, eateries and medical suites, and a 12-storey tower block of offices.

The first attempt at a collective sale in 2011 fell through when the reserve price of $1.25 billion was not met.

This would have worked out to about $4,200 per sq ft (psf) of potential gross floor area, assuming the 68,512 sq ft freehold site had been redeveloped.

The reserve price for the second attempt was $1 billion, or about $3,200 psf per plot ratio.

The hotel arm of Singapore-listed property group City Developments, Millennium & Copthorne Hotels, holds the largest stake in the building at 34 per cent. It announced last November that it had signed the collective sale agreement.

Sales committee chairman Len Hoo, the managing director of family firm C.T. Hoo, which owns an office unit and a jewellery shop in the building, suggested that the Government look into bringing down the requisite collective sale consent level for older properties, to facilitate redevelopment.

Mr Hoo pointed to a number of other ageing strata-titled malls in the Orchard Road area, including Ming Arcade, Far East Shopping Centre and Orchard Towers, some of which have also tried and failed to launch collective sales.

It can be tough for owners to hit the 80 per cent consent level, especially as premiums on collective sale prices "are not as high as they used to be", he added.

An owner who did not sign the collective sale agreement - and who holds two office units in the property - said revisions in the reserve price had not been made in favour of office unit owners.

Speaking to The Straits Times on condition of anonymity, the owner said office unit owners were underrepresented in the sales committee, which mainly comprised owners of retail units.

For his part, Mr Hoo is considering joining the ranks of owners who have sold their units and cashed out.

"To stay here would cost a lot of money because of the rising building maintenance costs... Maybe I'll have to think about moving on," he said.

-By Chia Yan Min

HSR's 100% commission scheme raises eyebrows

Been done before, say industry players; bigger agencies not likely to follow suit

Source: Business Times / Property

IN a sign of how property agencies are going all out to stimulate sales activity in the subdued Singapore residential market, HSR International Realtors has come up with a 100 per cent commission scheme for agents and touted it as a "game changer".

But the new scheme, which becomes effective from January next year, already has its detractors.

Industry players noted that such a scheme has been introduced before by other smaller agencies but without success. Hence bigger agencies are unlikely to follow suit.

Currently, the typical commission payout in the industry ranges from 70-90 per cent, depending on the experience and performance of the salesperson.

-By Lynette Khoo

No shortage of space in Singapore

Source: Today Online / Business

Contrary to common perception, Singapore is not short of space. Across the spectrum from residential to commercial and industrial property, the volume of vacant space is turning out to be a blessing for tenants, who now have much better bargaining power than before.

The latest official data show a total of 21,268 private residential units were unoccupied in the second quarter of this year, translating into a vacancy rate of 7.1 per cent. Landlords are under pressure, but as long as interest rates remain very low, they have holding power.

In the retail segment, the overall vacancy rate of 5.9 per cent reflects a mixed situation where space is tight in certain neighbourhoods, such as the Orchard Road shopping belt and most Housing and Development Board town centres, and is in excess in other locations, such as several of the new mixed-development projects. The vacancy rate translates to about 3.7 million sqf of lettable area, which when spread across Singapore, does not cause much downward price pressure.

The 7.7 million sqf of vacant office space is a cause for concern, but the vacancy rate of 9.6 per cent is still well below the 12 to 13 per cent experienced during the last recession.

The most alarming numbers are in the industrial segment. Broken down into business park, factory and warehouse space, the combined vacant lettable area in the industrial segment is a staggering 44 million sqf. On top of that, there is another 81 million sqf of gross floor area (GFA) that will be completed in the next few years.

The construction of industrial buildings is generally faster than building condominium blocks because developers do not need to fit out the interiors of each unit like they do for condominiums. Therefore, we can expect a large portion — about 80 per cent — of the 81 million sqf to be ready in about two years, i.e. by the end of 2016.

As a point of reference, VivoCity has about 1 million sqf of lettable area and about 1.5 million sqf of GFA. For those who find it difficult to imagine what 44 million sqf of vacant lettable area looks like, picture 44 empty buildings, each equivalent in size to VivoCity. As for the 81 million sqf of industrial GFA under construction, we can visualise 81 buildings, each one with floor space equivalent to a VivoCity.

Of particular concern is the proliferation of small strata-titled industrial units since four years ago. Investors constrained by the prices of new residential launches and restrictive cooling measures turned to small-sized industrial units due to the low quantum of investment and the potentially lucrative 5 per cent rental returns. The prices of 60-year leasehold small-sized industrial units crossed S$800 per sqf and freehold ones went above S$1,300 psf.

The thousands of small industrial units that were completed in the past two years have contributed to the increase in vacancy rates. Several projects that sold like hot cakes during their launches in 2010 to 2012 were completed recently, but many of the investors now face difficulty finding tenants. A few lucky ones could have achieved rental yields of about 4 to 5 per cent on their purchase prices, but many investors have held on to their empty units for more than a year, since the projects were completed.

Having no rental income for more than a year after the new industrial unit is handed over is a major negative for investment returns, especially where many of these industrial units have a 30- or 60-year lease. And as we can see from the chart, vacancies are climbing as supply — including competition from the supply in Iskandar — exceeds demand. In addition, the massive new supply will add downward pressure to rentals and prices.

Those who say that Singapore is landlocked and therefore property prices can only go up probably assume that: (1) Economic and population growth are givens; (2) space-users do not optimise and rationalise while demand for space increases, i.e. demand for space grows in direct proportion to economic and population growth; and (3) we are much limited by the height and depth that we can build our buildings.

The above assumptions do not always hold true. Singapore has ample space to grow for many more decades.

ABOUT THE AUTHOR: Ku Swee Yong is a licensed property agent and chief executive of real estate broker Century 21 Singapore. An author of two bestsellers, Real Estate Riches and Building Real Estate Riches, he has just released his third book, Real Estate Realities.

-By Ku Swee Yong

HDB to lead combined tender for solar panels

The Housing & Development Board, the largest installer of such green energy technology in Singpaore, will aggregate demand across Government agencies.

Source: Channel News Asia / Singapore

SINGAPORE: National Development Minister Khaw Boon Wan said an aggregated tender of solar panels across Government agencies in Singapore will be called next year.

The Housing & Development Board (HDB) - as the largest user of solar panels in Singapore - will take the lead in helping other government agencies harness solar energy, and accelerating the deployment of the technology, he wrote in a blogpost on Thursday (Aug 28).

"These agencies ride on HDB’s bulk tenders for solar panels, and enjoy lower costs due to economies of scale. This way, we help to expand the use of solar panels beyond HDB blocks," he added.

Among the interested parties, the Ministry of Defence has expressed interest in installing solar panels on the rooftops of their camps, while the Education Ministry is also looking to do the same in schools.

The HDB will itself nearly double the number of blocks with solar panels installed next year, he said. The figure currently stands at 176, but will increase to 300 in 2015. And by 2020, that figure will hit around 5,500. This will see the total power output generated by HDB's panels increase more than 13-fold, from 16MWp (mega watt-peak) today to 220MWp in 2020.

Such panels are used to to power common services such as lifts and corridor lighting. "It is clean energy and helps Town Councils offset rising energy costs," he said.

"Overall, Singapore plans to raise the adoption of solar energy to 350MWp by 2020. HDB’s contribution will amount to 220MWp, involving solar PV panels at about 5,500 HDB blocks. This could generate enough electricity to provide for common services and households in a town the size of Woodlands!" 

- CNA/es

Make our SUN work harder

Source: Mnd Singapore

In Singapore, HDB has the most experience with solar (photovoltaic, PV) panels and has the largest installation.

There are now 176 HDB blocks with solar panels and the number is growing.  Next year, it will be 300 blocks.  They help to power common services such as lifts and corridor lighting.  It is clean energy and helps Town Councils offset rising energy costs.

Being the largest, HDB is also taking on the role of helping other government agencies harness solar energy.   This way, we help to expand the use of solar panels beyond HDB blocks.

These agencies ride on HDB’s bulk tenders for solar panels, and enjoy lower costs due to economies of scale. This way we accelerate solar deployment in Singapore through aggregating solar demand across government agencies.

The first demand aggregation tender will be called next year. MINDEF has expressed interest to install solar panels on the rooftops of their camps. MOE is also looking into using the rooftops of schools.

Overall, Singapore plans to raise the adoption of solar energy to 350MWp by 2020. HDB’s contribution will amount to 220MWp, involving solar PV panels at some 5,500 HDB blocks. This could generate enough electricity to provide for common services and households in a town the size of Woodlands!

And this would mean a cleaner and greener Singapore — for our children and the generations to come.

Govt looking to take solar power to schools, camps

HDB taking on role of helping other govt organisations harness solar energy: Khaw

Source: Today Online / Singapore

SINGAPORE — The Government is looking to expand the use of solar power on its properties beyond Housing and Development Board (HDB) flats, possibly to schools and military camps, for example.

Announcing this yesterday, National Development Minister Khaw Boon Wan said government organisations, which could include the Ministry of Defence (MINDEF) and the Ministry of Education (MOE), will ride on the HDB’s bulk tenders for solar panels to expand their use here.

Writing on his blog, Mr Khaw noted that the HDB has the most experience with solar panels and also the largest installation.

“(Having) the largest (number), the HDB is also taking on the role of helping other government (organisations) harness solar energy. This way, we help to expand the use of solar panels beyond HDB blocks,” he said. “MINDEF has expressed interest to install solar panels on the rooftops of their camps. The MOE is also looking into using them on the rooftops of schools.” Details of the two ministries’ plans were unavailable.

The first demand aggregation tender, which combines solar panel demands across the various government organisations, will be called next year, Mr Khaw said. Having the different government arms ride on the HDB’s bulk tenders would lead to lower costs due to economies of scale. This way, solar deployment here would also be accelerated, he added.

There are currently 176 HDB blocks with solar panels and the number is set to grow to 300 blocks next year. Energy generated from these panels helps power common services such as lifts and corridor lighting. The clean energy also helps town councils offset rising energy costs.

In May, the HDB called the largest solar leasing tender to date, for 20MWp of solar photovoltaic (PV) panels to be installed at 500 blocks of flats in Jurong, Sembawang, Marine Parade and Tampines.

Other government organisations that have tapped solar panels include national water agency PUB. It has two pilot projects — building rooftop solar panels at Choa Chu Kang Waterworks and installing floating solar systems on Tengeh Reservoir — that harness solar power.

Similarly, the “zero-energy” building, located within the Building and Construction Authority Academy, achieves energy self-sufficiency with the power generated from solar panels installed at multiple locations on the building.

Dr Thomas Reindl, deputy chief executive officer of the Solar Energy Research Institute of Singapore, said an aggregation tender could enjoy some benefits. He said: “There are two effects: Increasing productivity through more experience, more optimised workflows and continuous capacity utilisation; and secondly, the lower cost through volume discounts on the supply side.”

Mr Nilesh Jadhav, programme director at the Energy Research Institute at Nanyang Technological University, said more installers could also enter the market with more activity taking place on the solar energy front. But while aggregating demand across government organisations would help reduce equipment costs, he noted that there would be a limited impact on overall cost savings as installation costs would not change.

“This is due to (installation) happening at different sites,” said Mr Nilesh, all of which requires additional regulatory costs, permit costs, labour costs, costs of moving and installing the panels at different rooftops, for instance.

Under the SolarNova Programme, an initial target of 350MWp of solar energy by 2020 has been set for the public sector.

Of this, the HDB will contribute 220MWp from solar PV panels at about 5,500 HDB blocks — generating enough electricity to provide for common services and households in a town the size of Woodlands.

-By Siau Ming En

New lifestyle hub in CBD

Four nightlife and dining concepts to open at Singapore Land Tower in the next three months

Source: Straits Times / Life!

The hip quotient in the Central Business District (CBD) is set to turn up a notch with the launch of four nightlife and dining concepts over the next three months.

And the Singapore Land Tower may just become the coolest lifestyle address in the financial district as all four establishments are setting up shop in the 47-storey building in Raffles Place.

Upscale bar lounge Empire will be the first to open early next month on the 45th storey, ahead of the Formula One weekend from Sept 19 to 21.

A steakhouse named Sear and Angie's Oyster Bar will follow suit in October and a modern Japanese restaurant that has yet to be named, will open in November. All four concepts, which form a lifestyle hub dubbed 50 Raffles Place, take up 17,000 sq ft on the top two floors.

The office building currently houses tenants such as CIMB Bank and law firm Lee & Lee.

Those who keep up with the nightlife scene may remember the announcement last February that restaurant-bar Vogue Club, linked to the popular fashion magazine, would open at the same location by the middle of last year.

But Life! understands that plans for the club had fallen through and the space is being taken over by the four establishments.

The people behind the ambitious venture are lifestyle group Massive Collective - known for successful nightclubs such as Fenix Room and Dream in Clarke Quay - and hospitality group Hidden Door Concepts, which runs eateries such as PigsFly Kitchen & Bar and Kitchenette in Novena as well as modern European restaurant Boathouse on Fullerton Road.

Hidden Door Concepts' managing director, Mr Christopher Lim, who is in his 30s, says the idea to open several establishments under one roof is inspired by similar concepts seen in cities such as Jakarta, Hong Kong and Tokyo, where office complexes can house three to four floors of restaurants and bars.

He cites Menara BCA in Jakarta, which has a restaurant and bar on the 56th floor rooftop of the office tower, as an example.

The 4,000 sq ft Empire will cater to business-executive types working in the CBD looking for a place to chill out in and enjoy drinks after work or dinner. Mr Lim says the lounge's name is inspired by the 360-degree view that patrons can enjoy from the rooftop.

"The view is second to none... you have to be there to put things into perspective, but part of naming it Empire is that every person can have an empire of his own, like being on top of the world," he explains.

More details on the other three restaurants will be available soon, but Mr Lim says the steakhouse will be similar to modern American steakhouse CUT by Wolfgang Puck at Marina Bay Sands.

As for the Japanese restaurant, it will be traditional in the use of ingredients, "but modern in the way it is presented and how it is consumed".

Other CBD addresses that have become multi-concept lifestyle destinations include 1-Altitude at the former OUB Centre in Raffles Place and Equinox Complex at the Swissotel Stamford in the City Hall area, which houses five restaurants and bars, including French fine dining restaurant Jaan and club lounge New Asia Bar.

-By Melissa Kok

Real Estate Companies' Brief

Wing Tai keeps focus on existing markets

Q4 profit drops 48%; proposed dividends total six cents per share

Source: Business Times / Companies

WHILE more local property groups have been venturing into new overseas markets to counter strong headwinds from cooling measures and a looming housing oversupply, Wing Tai has said it will continue to strengthen its position and explore investment opportunities in the markets it operates in. Its property business spans Singapore, China, Hong Kong and Malaysia.

The property and retail group on Thursday posted a 48 per cent drop in group net profit for the fourth quarter ended June 30, 2014, to S$143.1 million from the same year-ago period.

Revenue for the three months fell 42 per cent to S$179.8 million.

Full-year net earnings too slid 52 per cent to S$254.4 million amid a 40 per cent slump in revenue to S$803.4 million. The group suffered a big slide in revenue from development projects due mainly to lower contribution from the Foresque Residences, Helios Residences and Belle Vue Residences in Singapore and Verticas Residences in Kuala Lumpur.

-By Kalpana Rashiwala

Wing Tai to hold prices steady despite slump

But property earnings slide 49% to $546m

Source: Straits Times / Money

DEVELOPER Wing Tai Holdings will not slash prices to shift its high-end properties, despite poor sales and rules that require firms to sell units within a designated period.

That was the message chairman Cheng Wai Keung delivered after a results briefing yesterday. "Like in retail, you don't see high-end luxury products having a fire sale... you're selling a brand, an image. You're not trying to sell for utility," he added.

The remarks come amid a period of slumping sales and buyer caution, as seen by Wing Tai's numbers yesterday.

Net profit for the fourth quarter to June 30 declined 48 per cent year-on-year to $143 million, with revenue dropping 42 per cent to $180 million over the same period.

Net profit for the 12 months plummeted by 52 per cent to $254 million, on the back of a 40 per cent drop in revenue to $803 million.

Development property, its core business, recorded the biggest slide in revenue, down 49 per cent to $546 million.

The disappointing results will hit investors in the form of a lower total dividend of six cents per share, down from 12 cents per share last year.

Chief financial officer Ng Kim Huat attributed the drop in property development turnover to lower contributions from Foresque Residences, Helios Residences and Belle Vue Residences in Singapore, and Verticas Residences in Malaysia. This was partly offset by higher contribution from L'Viv.

Earnings per share fell from 37.5 cents a year earlier to 16.6 cents, while net asset value was $3.78 at June 30, up from $3.62 a year back.

Mr Cheng said the company will hold prices steady for its luxury condo project, Le Nouvel Ardmore, which has sold three of the 43 units launched.

Under Qualifying Certificate (QC) rules, Wing Tai has until April 2016 to sell all the units in the block.

Mr Cheng said the company will weigh up its strategy closer to the date. "The good part is our gearing ratio is 0.16... Even if we hold on to property, we won't go beyond 0.5."

Mr Cheng was tight-lipped about the 156-unit Nouvel 18 at Anderson Road, a joint venture with City Developments. QC rules dictate that it must obtain its Temporary Occupation Permit by Dec 17, which means all units must be sold by late 2016.

Mr Cheng remains cautious about the market, noting that the Urban Redevelopment Authority residential property price index had a third straight quarter of price decline.

Wing Tai shares closed at $1.87 yesterday, up 0.5 cents.

-By Rennie Whang


Cutting luxury home prices can backfire: Wing Tai chairman

Mr Cheng Wai Keung explains rationale for holding its valuation of its new Ardmore Park project, despite having sold just 3 of 43 units.
Source: Channel News Asia / Business
SINGAPORE: Slashing prices is not the best way to increase sales in the luxury home segment despite the current property climate, as developers risk tarnishing the brand image of their offerings, said Wing Tai Holdings chairman Cheng Wai Keung on Thursday (Aug 28).

This is one of the reasons the company has not taken that option with its freehold Ardmore Park project, Le Nouvel Ardmore. Wing Tai has sold only three of the 43 units on offer but, under the Qualifying Certificate, it has until mid-2016 to sell all the units.

“There is no point in lowering the price … it’s almost like retail — you don’t see the high-end, luxury products on a fire sale. If LVMH does that, it is destroying its brand. In the high-end segment, you’re selling a brand image; not for utility. If it’s for utility, you can never sell at that kind of price,” said Mr Cheng.

“We still have one-and-a-half years for Le Nouvel Ardmore. We will hold our price and wait until that time to make a decision.”

Several developers have in the past months lowered prices of their projects to move units. One of them, MCL Land, cut prices of its Core Central Region project Hallmark Residences by about 10 per cent earlier this year.

With residential property prices here likely to continue trending downwards because of a build-up in supply and an impending rise in interest rates, the company hopes to make further inroads in China and Malaysia — the other markets it has a presence in.

Wing Tai on Thursday announced that its net profit had plunged 48 per cent on-year to S$143.1 million in its fiscal fourth quarter ended June. Revenue was 42 per cent lower at S$179.8 million.

For the entire financial year, revenue declined 40 per cent to S$803.4 million, while net profit fell 52 per cent to S$254.4 million.


Cutting luxury home prices can backfire: Wing Tai chairman

Firm to maintain price of Le Nouvel Ardmore, as it has until mid-2016 to sell all the units

Source: Today Online / Business

SINGAPORE — Slashing prices is not the best way to increase sales in the luxury home segment despite the current property climate, as developers risk tarnishing the brand image of their offerings, said Wing Tai Holdings chairman Cheng Wai Keung yesterday.

This is one of the reasons the company has not taken that option with its freehold Ardmore Park project, Le Nouvel Ardmore. Wing Tai has sold only three of the 43 units on offer but, under the Qualifying Certificate, it has until mid-2016 to sell all the units.

“There is no point in lowering the price … it’s almost like retail — you don’t see the high-end, luxury products on a fire sale. If LVMH does that, it is destroying its brand. In the high-end (segment), you’re selling a brand image; not for utility. If it’s for utility, you can never sell at that kind of price,” said Mr Cheng.

“We still have one-and-a-half years (for Le Nouvel Ardmore). We will hold our price and wait until that time to make a decision.”

Several developers have in the past months lowered prices of their projects to move units. One of them, MCL Land, cut prices of its Core Central Region project Hallmark Residences by about 10 per cent earlier this year.

With residential property prices here likely to continue trending downwards because of a build-up in supply and an impending rise in interest rates, the company hopes to make further inroads in China and Malaysia — the other markets it has a presence in.

Wing Tai announced yesterday that its net profit had plunged 48 per cent on-year to S$143.1 million in its fiscal fourth quarter ended June. Revenue was 42 per cent lower at S$179.8 million.

For the entire financial year, revenue declined 40 per cent to S$803.4 million, while net profit fell 52 per cent to S$254.4 million.

-By Lee Yen Nee

GuocoLand's Q4 profit soars; Sim Lian's full year flat

Source: Business Times

Property companies GuocoLand and Sim Lian Group issued their latest financial report cards on Thursday with a similar prognosis - the slew of property curbs in Singapore has been taxing on the once-upon-a-time booming private residential space here for these builders.  GuocoLand earned a nearly six-fold jump in net profit to S$186.11 million from S$32.22 million a year ago, led mostly by gains from the sale of a subsidiary and fair value gains from investment properties. Earnings from completed developments by joint ventures in Malaysia also contributed its fair share in the better results.

Croesus Q4 beats forecast

Distributable income of 707.4m yen 2.1% better than projected

Source: Business Times / Companies

CROESUS Retail Trust (CRT) posted a distributable income of 707.4 million yen (S$8.51 million) for the fourth quarter, beating its forecast by 2.1 per cent even though its gross revenue was hit by Japan's higher consumption tax rate.

For the three months ended June 30, gross revenue was 1.58 billion yen, short of its forecast of 1.6 billion yen by 0.9 per cent.

Net property income (NPI) for the quarter beat its forecast by 2.6 per cent at 1.02 billion yen. As a result, available distribution per unit (DPU ) was two Singapore cents, 2 per cent higher than its forecast of 1.96 Singapore cents.

Its year-to-date (from listing date May 10, 2013 to June 30, 2014) distributable income came in at 3.18 billion yen, beating its forecast by 6.2 per cent. This translates to available distribution per unit of 8.98 Singapore cents.

-By Mindy Tan

Hotel Reits

Source: Business Times / Singapore Markets


WE expect hotel revenue per available room (RevPAR) to gain ground in H2,14 on the back of i) lower supply of new hotel rooms than previously forecast, ii) the recent opening of the Singapore Sports Hub, and iii) stabilisation of the rupiah.

We think hotel Reits are becoming attractive as fundamentals strengthen. Our top pick is OUE Hospitality Trust (TP: S$0.96).

Views, Reviews & Forum

Commercial clusters to bring jobs closer to homes

Source: Straits Times / Forum Letters

WE THANK Mr Ng Ya Ken for his interest ("Second city for S'pore makes long-term sense"; last Friday).

One of our key planning strategies is indeed to create commercial clusters outside the city centre to provide job opportunities closer to homes, and reduce congestion and travelling times to and from the city centre.

We have progressively developed commercial clusters islandwide such as Tampines Regional Centre, Novena, one-north at Buona Vista and Changi Business Park.

In the west, Jurong Lake District is shaping up well to become the largest regional centre outside the city centre. A mix of office, retail, food and beverage (F&B) and entertainment uses are being added to Jurong Gateway, the district's commercial precinct, to meet the needs of residents, workers and visitors.

At the National Day Rally, Prime Minister Lee Hsien Loong announced that Jurong will be further transformed with the development of a community-centric Jurong Lake Gardens and a new Science Centre. Public transport systems such as road and rail will be enhanced in the coming years to support the development of the area. These new developments will shape the west into a great place to live, work and play.

In the north, we have started developing the Woodlands Regional Centre with the sale of the first office site in April. With more than 100ha of developable land as well as good transport connectivity, and surrounded by greenery and waterfront views, Woodlands Regional Centre is set to be Singapore's Northern Gateway.

When fully developed, Woodlands Regional Centre can provide approximately 100,000 new jobs and a good mix of retail and F&B offerings to residents in the north. It will also house the first business park in the north.

We are also planning for more high-value-added jobs in Punggol and Seletar Aerospace Park, and these will combine with the Woodlands Regional Centre to form the North Coast Innovation Corridor.

We are mindful that these decentralised commercial centres should not inadvertently create localised strains on our transport infrastructure. Jurong Lake District and Woodlands Regional Centre will be served by new MRT lines such as the Jurong Region Line, Cross Island Line and Thomson-East Coast Line. With jobs closer to home, alternative greener modes of mobility such as walking and cycling will in time become viable.

However, as we build up more commercial centres outside the city centre, there will still be demand for core financial and business services activities in our central business district (CBD) due to its prime central location, good connectivity and potential synergies with other businesses. We will continue to provide sufficient high-quality commercial space within our CBD and Marina Bay area.

-By Richard Hoo

Group Director (Strategic Planning)

Urban Redevelopment Authority

Global Economy & Global Real Estate

Paying off mortgage is not a priority in US now

Source: Business Times / Property

[WASHINGTON] Mortgage-burning parties in the US may be going the way of home milk deliveries and polyester leisure suits.

A growing number of homeowners are reaching retirement age still owing money on their houses. The share of Americans 65 and older with mortgage debt rose to 30 per cent in 2011 from 22 per cent in 2001, according to a May analysis by the Consumer Financial Protection Bureau based on the latest available figures. Loan balances also increased, with the median amount owed climbing to US$79,000 from US$43,400 after adjusting for inflation, the data showed.

"There were old-fashioned beliefs probably 30 years ago" that included "you should pay off your house before you retire," said Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School in Philadelphia. "This is no longer the case."

The increase in mortgage debt may influence labour-force dynamics as some older Americans find they're unable to completely retire, needing extra cash to keep up monthly payments. It also diminishes home equity and wealth, making these households more susceptible to swings in the economy and curbing spending on things such as vacations and visits to grandchildren.

-From Washington, US

London Property Market Falters as Buyers Resist Higher Prices

Source: Bloomberg / Luxury

London’s property market stagnated for a second month in August as buyers became reluctant to accept high asking prices amid the prospect of increasing borrowing costs, Hometrack Ltd. said.

The survey of real-estate agents showed values were unchanged in a “stark” change from the sharp increases over the past year that helped propel national prices to a record. Across England and Wales, values grew 0.1 percent, bolstered by gains in commuter towns in the southeast. Nationwide Building Society offered a more upbeat assessment today, with its national index showing prices up 0.8 percent this month.

There’s “evidence of growing resistance to rapid price rises in the London market,” said Richard Donnell, director of research at Hometrack. “Talk of a housing bubble and warning from the Bank of England have impacted sentiment.”

In London, 11 percent of postcode districts registered price increases this month, down from 87 percent in February, Hometrack said. Homes in the capital took an average 4.9 weeks to sell in August, up from 4.3 weeks in July.

While the BOE’s benchmark interest rate has been at a record-low 0.5 percent since March 2009, policy makers Martin Weale and Ian McCafferty voted for an increase this month. Investors are betting the rate will increase to 0.75 percent in May, according to futures contracts.

The Hometrack data add to signs of a cooling market after BOE Deputy Governor Ben Broadbent said in an interview in July that “the edge is coming off” property. The BOE introduced measures in June to limit riskier mortgages, months after new rules came into force requiring tougher affordability tests.

Uncertain Outlook

In its report, Nationwide said U.K. home prices rose 11 percent in August from a year earlier. Nationwide Chief Economist Robert Gardner said the outlook is “highly uncertain.”

While the prospect of interest-rate increases and weak wage growth may temper demand, “the brightening economic outlook is likely to provide ongoing support,” he said.

Hometrack said that, across England and Wales, the number of new buyers registering with estate agents fell 0.9 percent this month. The number of properties listed for sale increased 0.1 percent after a 1.6 percent gain the previous month.

Indicators are “pointing to a loss of momentum,” Donnell said. “We expect a continued shift toward a seller’s market in the face of weaker, more price-sensitive demand.”

In a separate report today, GfK NOP Ltd. said its consumer sentiment index rose 3 points to 1 this month, matching June’s reading, which was the highest since March 2005. Gauges of Britons’ outlook for their personal financial situation over the coming year and their assessment of the outlook for the economy improved also increased.

“It looks as if we might be in a new period of relative stability,” said Nick Moon, managing director of social research at GfK. “There is no guarantee how long this stable position will last –- a rush of good or bad economic news could set off a marked rise or fall, but things could stay like this for a while.”

-By Emma Charlton

China Vanke to Form Commercial Property Venture With Carlyle

Source: Bloomberg / News

China Vanke Co. (2202), the nation’s biggest developer by sales, said it agreed to form a venture with the Carlyle Group LP (CG) that plans to buy nine of the company’s commercial properties.

Carlyle Asia Investment Advisors Ltd. will hold 80 percent of the “asset platform company,” with Vanke holding the balance, according to a Hong Kong stock exchange filing yesterday evening. Vanke said the two companies will also set up a commercial-property management company.

Vanke has said it’s seeking smaller equity stakes in property projects as the company moves to divest assets and focus on operations to bolster shareholder returns and market share while reducing reliance on equity financing. Stake sales in commercial properties contributed to a 238 percent jump in investment gains in the first half from a year earlier, Vanke said in its earnings report on Aug. 17, predicting that such trend will continue going forward.

“It is pretty obvious that Vanke wants to get rid of its burden and cash out because rental yields of China’s commercial properties are so low by international standards,” Edison Bian, a Hong Kong-based property analyst at UOB Kay Hian Ltd., said in a phone interview before the announcement. “Plus by bringing in Carlyle, Vanke could learn a lot from their management style.”

The venture will hold commercial properties “over a long period of time” until eventual asset securitization, Vanke said yesterday. Vanke said the preliminary agreement isn’t legally binding and the plan may or may not proceed. It didn’t give financial details of the proposed venture.

Shopping Malls

Carlyle, a Washington-based private equity firm, is in advanced talks with Vanke to buy stakes in nine of its shopping malls, Reuters reported on Aug. 27, citing two unidentified people with direct knowledge of the matter. One person said the deal was valued between 6 billion yuan ($977 million) and 7 billion yuan, while the other said it could be worth as much as 10 billion yuan, according to the report.

The report was “partly true,” Vanke said in an earlier statement. The company hasn’t disclosed details of the properties that it plans to sell.

Vanke has been diversifying its portfolio since the government started to tighten the residential property market four years ago. Vanke President Yu Liang said in May the “golden era” for China’s property market has passed. The company is interested in investing in industrial property and homes for the elderly, according to Yu.

The company focused on shopping malls and community business streets last year, achieving “initial results in exploring non-residential properties,” according to its 2013 annual report.

-By Bloomberg News

Blackstone Said to Plan NYC Sale for More Than $2 Billion

Source: Bloomberg / News

Blackstone Group LP (BX) is preparing to sell New York’s 1095 Avenue of the Americas, a 42-story office tower that may fetch one of the highest prices ever for a U.S. skyscraper, according to two people familiar with the plans.

Blackstone has hired Eastdil Secured LLC to market the 1.2 million-square-foot (111,500-square-meter) property, said one of the people, who asked not to be identified because the plans are private. The building, soon to be the headquarters of Verizon Communications Inc. (VZ), may sell for about $2.25 billion, the person said.

“If they were to hit this number, it would show the market is still extremely strong for these assets,” said Ben Thypin, director of market analysis at property-research company Real Capital Analytics Inc. “If you want to buy an office building of this size, you only have so many choices.”

Blackstone, the world’s biggest alternative investment manager, has been selling some assets from its 2007 takeover of Sam Zell’s Equity Office Properties Trust as real estate in prime U.S. coastal markets rebounds. The tower, between 41st and 42nd streets and also known as 3 Bryant Park, was purchased as part of the $39 billion acquisition. It houses insurer MetLife Inc. (MET)’s administrative offices in addition to Verizon, which will make the building its headquarters on Sept. 1.

Christine Anderson, a spokeswoman for New York-based Blackstone, declined to comment on plans to sell the building. A telephone call to Martha Wallau, an Eastdil spokeswoman, wasn’t immediately returned.

General Motors

The highest-valued building in the U.S. is New York’s General Motors Building, according to New York-based Real Capital. The families of Chinese real estate developer Zhang Xin and Brazil’s Safra banking empire bought a 40 percent stake in the tower for about $1.4 billion last year, implying a $3.4 billion value for the 50-story property.

A sale of more than $2 billion would be the biggest of a single U.S. property since the GM Building sold to Boston Properties Inc. in 2008, according to Real Capital.

Blackstone has been taking advantage of strong demand for high-quality U.S. real estate from foreign wealth funds and pension plans to sell assets it has improved through leasing gains or renovations. The Bryant Park building has undergone a “successful three-year, $300 million renovation,” according to the building’s website. Its office space is 99 percent leased, according to CoStar Group Inc., a Washington-based research firm that tracks office leasing.

Building Kept

While it sold many of the buildings it bought in the Equity Office deal almost immediately, including seven midtown Manhattan towers, Blackstone kept 1095 Avenue of the Americas, which was being completely rebuilt from its steel frame out. Blackstone paid about $1.47 billion for the building as part of the takeover, according to data compiled by Real Capital.

“The office market has come a very long way” since the acquisition, Thypin said in a telephone interview. “Even if this doesn’t sell for exactly what they’re asking, it’s still going to be a very high price.”

Blackstone has been selling office properties in Boston and other markets where it has increased occupancies to more than 90 percent, and buying other assets where it believes there’s a potential for leasing and value gains. In July, the firm purchased Manhattan’s Park Avenue Tower from Shorenstein Properties LLC for about $750 million.

New York had the lowest office vacancy rate in the U.S. after Washington in the second quarter, at 10 percent, compared with 16.8 percent for the country as a whole, according to research company Reis Inc.

Whole Foods

The reconstruction of the Bryant Park tower, including an expansion of its retail space to 100,000 square feet from 11,900 square feet, is almost complete, said the person familiar with Blackstone’s plans. The company is in the process of completing a deal with Whole Foods Market Inc. (WFM) to take 35,000 square feet of that space, the person said.

Michael Sinatra, a Whole Foods spokesman, didn’t return a telephone call seeking comment.

The retail component is about 75 percent leased, the person said, giving a new owner a chance to improve the property’s cash flow in the middle of one of the world’s strongest shopping districts.

-By David M. Levitt

IPO for Mexico Mortgage REIT Seen as Housing-Rally Signal

Source: Bloomberg / Luxury

Mexico’s capital markets are signaling the nation’s battered housing industry may have finally touched bottom.

Concentradora Hipotecaria SAPI, which is known as FHipo and backed by founders of boutique investment bank Vace Partners, is preparing an initial public offering for the country’s first real-estate investment trust focused on residential mortgages. The REIT is working with the government-sponsored entity that originates 70 percent of Mexico’s home loans.

The IPO adds to evidence of a turnaround after Mexico’s three largest homebuilders collapsed in 2013. Housing helped drive the first expansion in Mexican construction in 19 months, closely held builder Servicios Corporativos Javer SAPI has said it may sell shares and developer Vinte Viviendas Integrales sold 200 million pesos ($15 million) of floating-rate bonds in June.

“If in 2015 we’re expecting there could be a significant recovery in the sector, it may make sense to promote it starting now,” said Ramon Ortiz, a Corporacion Actinver SAB analyst. “There’s a certain confidence once again in new players that the sector could be recovering. It’s a very good sign.”

FHipo is teaming up with the government-backed National Workers’ Housing Fund Institute. The REIT will use IPO proceeds to acquire 55 percent of the rights to mortgages from the lender, known as Infonavit, according to a prospectus on the stock exchange website. Shareholders would receive earnings from loans for which homeowners are charged 9.05 percent interest.

IPO Target

The offering is targeted to raise about 8 billion pesos, with a roadshow as soon as late September, said a person with direct knowledge of the matter who asked not to be identified because the details aren’t public. Chief Executive Officer Alfredo Vara said he couldn’t comment before the IPO process officially begins.

REITs for industrial and commercial property have surged since the asset class debuted in Mexico in 2011. An index of seven such trusts has almost tripled since then, outpacing the 28 percent gain for the benchmark IPC gauge of 35 Mexican stocks. Homebuilders have suffered.

After taking office in December 2012, President Enrique Pena Nieto shifted housing policies to promote construction closer to city centers over sprawling complexes in far-flung commuter towns. The change dried up projects at Desarrolladora Homex SAB (HOMEX*), Urbi (URBI*)Desarrollos Urbanos SAB and Corp. Geo SAB (GEOB), leading them to default on their debt.

Builders’ Woes

Stock trading in Homex was suspended in February, and Urbi and Geo have been halted since July 2013. All three companies hired financial advisers to restructure their obligations.

It may still be too soon to invest in the industry again, because Infonavit lending for new and used homes keeps contracting, according to Javier Gayol, a Corporativo GBM SAB analyst. Loans totaled about 200,000 in 2014 through July, 8 percent fewer than a year earlier, Infonavit’s website shows.

“The housing sector as an industry isn’t at its best moment,” Gayol said in a telephone interview in Mexico City. “It’s a more risky market for a REIT than the industrial market.”

While housing poses challenges for investors, the formation of 650,000 new families a year in Mexico offers opportunities to make money, according to Jose Roberto Solano Perez, an analyst at Monex Casa de Bolsa in Mexico City.

“The future of the housing sector is encouraging,” Solano Perez said in a telephone interview. “Population growth will demand new homes for the coming years.”

Home Demand

About 9.8 million families in Mexico are living without a home or in substandard conditions, according to the FHipo prospectus. The government moved to boost housing subsidies by 50 percent this year and is offering larger subsidies for lower-income homebuyers.

Infonavit projects about 390,000 new mortgages will be sought annually through its programs through 2018, with investment starting at 111 billion pesos this year and growing 6 percent annually, according to the prospectus.

FHipo’s chairman will be Carlos Vara, founding partner of Mexico City-based Vace and a former Citigroup Inc. investment banker. His brother, Alfredo, worked at Deutsche Bank AG’s Latin America global market sales group before co-founding Vace. Ricardo Cervera, another Vace founding partner and former Citigroup banker, is also an FHipo shareholder and board member.

Credit Suisse Group AG, Grupo Financiero BBVA Bancomer SA and Grupo Financiero Banorte SAB are handling the IPO, the prospectus shows.

The partnership with Infonavit means that FHipo’s earnings would come from mortgages intended to damp the risk of default. Infonavit collects payments directly from borrowers’ paychecks.

“The scorecard that Infonavit uses to grant credit gives you more certainty about the client’s capacity to pay,” Actinver’s Ortiz said by phone. The REIT “could be an interesting way to play the housing sector.”

-By Nacha Cattan and Jonathan Levin

Fannie Mae Plans to Sell Washington Headquarters Building

Source: Bloomberg / Luxury

Fannie Mae plans to sell its Washington, D.C., headquarters building within the next three years as it consolidates several office locations, according to an e-mailed statement.

The mortgage-finance company has space in five owned and leased buildings in the area, including its headquarters at 3900 Wisconsin Ave. Fannie Mae would prefer to lease in a single location in downtown Washington, Keosha Burns, a spokeswoman, said in the statement.

“This move comes ahead of the expiration of two leases on buildings that house many of our employees in the district,” Burns said. “We are focused on making responsible real estate decisions to ensure the wise use of resources, the safety and soundness of operations, and flexibility to adapt to changes in our future workplace needs.”

Fannie Mae (FNMA) and Freddie Mac (FMCC), based in McLean, Virginia, provide liquidity to the mortgage market by buying loans and packaging them into guaranteed securities. The two companies, which are under U.S. conservatorship, are required to pay the government all of their earnings and aren’t allowed to hold capital beyond a cushion of $2.4 billion each.

-By Heather Perlberg

Pending Sales of U.S. Existing Homes Increase More Than Forecast

Source: Bloomberg / Luxury

Contracts to purchase previously owned homes rose more than forecast in July, a sign of renewed momentum in residential real estate.

The pending home sales index gained 3.3 percent after a 1.3 percent decrease in June that was larger than initially reported, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for the index to advance 0.5 percent.

A pickup in hiring, rising property values and historically low interest rates are lifting home sales and prompting builders to break more ground. Faster wage growth and easier access to credit would give a bigger boost to the market.

“Housing is on a gradual glide path of improvement,” Gennadiy Goldberg, TD Securities USA LLC, said before the report. “If you had more wage growth people would be more inclined to buy homes.”

Estimates in the Bloomberg survey of 37 economists ranged from a decline of 0.5 percent to an advance of 3 percent.

The recovery is showing signs of gaining momentum, with jobless claims (INJCJC) near their lowest levels since 2007 and the economy expanding more rapidly than previously estimated. Gross domestic product grew at a 4.2 percent pace in the second quarter, the Commerce Department reported today in Washington. Claims for unemployment benefits dipped to 298,000 last week, Labor Department data showed.

For housing, purchase contracts fell 2.7 percent in the 12 months ending in July after a 4.7 percent annual decline in June that was bigger than previously estimated, today’s NAR report showed. July marked the 10th month of year-over-year declines.

Sales Index

The pending sales index was 105.9 on a seasonally-adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

Pending sales rose in three of four regions, up 6.2 percent in the Northeast, 4.2 percent in the South and 4 percent in the West. Purchase contracts fell 0.4 percent in the Midwest.

“Steady job additions to the economy are helping family finances and giving them added confidence to enter the market,” NAR chief economist Lawrence Yun said in a statement.

Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a deal closes, usually a month or two later.

Those re-sales picked up last month, increasing to a 5.15 million pace, the best showing since September, according to data from the National Association of Realtors. Construction also rebounded, with starts climbing 15.7 percent to a 1.09 million annualized rate.

New Homes

At the same time, contracts on new homes fell unexpectedly in July to a 412,000 annualized pace, their weakest level since March, the Commerce Department reported earlier this week.

The slow progress is frustrating builders, lenders and real estate agents, many of whom thought 2014 might be a break-out year for the housing recovery. Agents are hampered by a low inventory of properties for sale and lending restrictions that have held back buyers, said Margaret Kelly, chief executive officer at Re/Max Holdings Inc., a national brokerage based in Denver.

“The biggest difficulty they have right now is obviously low inventory,” Kelly said on an Aug. 13 earnings call. “Despite the fact it’s starting to grow again, what we see within those inventory levels is there’s still a lot of homes that, I hate to say, are undesirable. And so when you take those out, it makes the inventory even tighter.”

The average rate for a 30-year, fixed mortgage was 4.10 percent in the week ended August 21, down from 4.53 percent at the start of the year, according to Freddie Mac in McLean, Virginia.

-By Lorraine Woellert

Sweden’s Home Shortage Sparks Attack on Rent Regulations

Source: Bloomberg / Luxury

Sweden’s rent regulations, which for decades have kept housing affordable, are now fueling a surge in home prices that’s threatening the Swedish economy.

The low rents in attractive areas such as central Stockholm have encouraged many Swedes to stay put in their apartments and discouraged builders from constructing properties for lease. This has exacerbated a housing shortage that has sent prices and private debt to record levels in Sweden.

A growing number of builders, landlords and analysts are calling for the government to scrap rent regulations to alleviate the housing shortfall. Home prices have more than doubled since 2000 and Swedish households with mortgages owe their creditors an average of almost four times their disposable income. The central bank and the International Monetary Fund have warned that soaring debt levels make the economy vulnerable to a severe shock if unemployment rises or prices collapse.

“It should be phased out completely over time,” said Anders Danielsson, executive vice president at Skanska (SKAB) AB, Sweden’s largest builder. “The regulation creates lock-in effects that make mobility too low and reduce demand for new housing.”

Record-low borrowing costs have helped push housing prices higher. The average short-term mortgage rate at Swedbank AB, Sweden’s largest home lender, fell to a four-year low of 2.44 percent in July.

Mortgage Cap

After capping mortgages at 85 percent of property values in 2010, the Swedish Financial Supervisory Authority raised capital requirements for banks and is considering forced amortization, requiring borrowers to make principal repayments, to try to stem debt growth. The regulator said last week it’s also considering lowering the mortgage cap, introducing loan-to-income limits and restricting the use of floating mortgage rates.

“If you want to further address the issue of household indebtedness then you probably have to look at all types of measures that are directly aimed at households,” said Uldis Cerps, executive director for banking at the FSA in Stockholm. “It’s a broad set of issues we’re presently examining.”

While the growth in household borrowing slowed to a 20-year low of 4.5 percent in the middle of 2012 following the mortgage cap, it has since accelerated as housing prices have continued to gain. Credit growth sped up to 5.5 percent in July, driven by a 5.8 percent increase in mortgage borrowing, Statistics Sweden said Aug. 27.

Equal Society

Rent regulation is a part of Folkhemmet, a decades-long quest for equality that uses high taxes to reduce income disparity and build a comprehensive welfare system. Rent rules were designed to protect tenants from losing their homes in times of increased demand and reduce segregation in a country with a population today of 9.7 million. In Sweden, 37 percent of all apartments were owner-occupied in 2012, with renters occupying the rest.

The regulations, which were enacted in the 1960s and cover most rental units, have benefited millions of Swedes who currently pay an average rent of 4,980 kronor ($720) a month for a one-bedroom apartment. The average monthly cost for owner-occupied apartments in the city of Stockholm is 63 percent higher than for rental housing, according to preliminary data from an analysis by the Swedish Union of Tenants. The union, which negotiates rents with landlords, aims to keep payments below 25 percent of its members’ disposable incomes.

Staying Put

The combination of low rents and a lack of vacant units means that Swedes with apartments in attractive areas have little incentive to move. Some have more space than they need, which adds to the housing shortage. This inefficient use of housing has led to a shortage of 40,000 units, the Swedish National Board of Housing, Building and Planning estimates.

Stockholm residents have to hunt for years to find an apartment to rent in a popular area through the publicly administered housing waiting lists. On Aug. 20, only two central Stockholm apartments were available to rent on the list. One of them was a four-room, 86 square-meter (925 square-foot) property in the trendy Hornstull area of Soedermalm for 8,403 kronor a month.

Market Rents

The Housing Crisis Committee, founded by the Swedish Property Federation and the chambers of commerce in the biggest cities, in June called on the government to dismantle rent regulations and reduce capital-gains taxes on residential sales to increase movement in and out of homes and make better use of existing units. The committee wants landlords to be able to gradually increase rents by a maximum of 5 percent a year until they reach market levels.

“The biggest societal and economic costs stem from housing not being used efficiently, poor movement and movement chains that are blocked,” the committee said in a statement on its website.

Abandoning the regulation “would create a more well-functioning rental market that could absorb some of the demand pressure,” said Bo Soederberg, head of analysis at the national housing board. “That should moderate co-op housing and single-home prices to some extent.”

Rule Exceptions

The government has made some tweaks to the rental system. Last year it extended the period developers are allowed to charge a higher price for newly constructed homes to 15 years from 10 years.

Construction of new homes for rent and purchase rose 55 percent last year to 31,400 starts, the most since 2006, according to the Swedish Construction Federation. The government estimates that up to 50,000 homes need to be added annually in coming years to fill demand of Sweden’s growing population. That’s more than double the average amount constructed a year from 2008 to 2012.

While rent regulation slows down housing development, some builders say construction rules play a bigger role.

“The biggest obstacle to new production is not the system for setting rents, but construction regulation and availability of land suitable for rental homes in a certain price category,” said Peter Wagstroem, chief executive officer of Swedish construction company NCC AB.

Other Causes

Marie Linder, head of the tenants union, said gutting rent regulations will not solve Sweden’s housing shortfall.

“We don’t believe changes to the negotiating system like introducing market pricing would increase the number of homes; it would only mean that some people will not be able to stay in their homes,” Linder said. “Other measures need to be taken to increase home construction.”

The shortage has steadily pushed up housing prices, with the cost of apartments and single family homes rising an annual 7 percent in July, according to Svensk Maeklarstatistik AB, which compiles monthly data on housing prices.

The rising prices have prompted Swedes to take on more credit. The average debt load as a percentage of disposable incomes for Swedes, including those with no debt, has soared to a record of 174 percent last year from below 130 percent a decade earlier, according to the central bank.

Go Easy

Sweden’s Finance Minister Anders Borg and Riksbank Governor Stefan Ingves have said that Sweden needs to do more to limit debt, such as forced amortization, and potentially reducing interest-rate deductions on mortgages. Borg has said such changes must be based on broad political agreement and introduced gradually in order not to repeat the experience of the Netherlands, where house prices slumped after the government tightened borrowing criteria and limited interest-rate deductions.

Policy makers in Sweden are treading cautiously on measures that would increase living expenses in the run up to the Sept. 14 national elections.

Prime Minister Fredrik Reinfeldt’s coalition government and the opposition Social Democratic Party led by Stefan Loefven have both promised measures to boost housing construction. Reinfeldt has promised to ease construction rules and build a new Stockholm subway if he’s re-elected, measures he says will result in 150,000 more homes. Loefven said the premier’s proposal isn’t far-reaching enough and promised 250,000 new homes by 2020.

The two politicians have steered clear of any suggestion that rent regulation should be changed or scrapped. Magdalena Andersson, the Social Democrat economic policy spokeswoman who would probably become finance minister if her party wins the election, said today that she supports keeping the system intact.

“There is a broad political consensus in Sweden that we should keep the regulation for rents, and I am happy about that,” Andersson said in an interview on the sidelines of a press conference in Stockholm. “It’s better to focus on supporting construction of new rental homes than sharply increasing rents.”

-By Niclas Rolander and Niklas Magnusson