Real News‎ > ‎2014‎ > ‎August 2014‎ > ‎

5th August 2014

Top Stories

Premature to lift property cooling measures, says Khaw Boon Wan

Source: Business Times / Top Stories

[SINGAPORE] Minister for National Development Khaw Boon Wan reiterated yesterday in parliament that it is premature to relax property cooling measures given the current market conditions.

Lifting the measures now could, in fact, lead to an upswing in demand, hence raising the number of transactions and housing prices.

Mr Khaw was responding to a question from Member of Parliament Foo Mee Har on whether the government will consider relaxing some property cooling measures, such as those relating to the Additional Buyer's Stamp Duty (ABSD), so that Singaporeans who meet the total debt servicing ratio (TDSR) of 60 per cent can upgrade their properties while remaining financially prudent.

The ABSD was introduced in December 2011, with the rates subsequently raised. Since January 2013, Singapore citizens who already own one residential property would have to pay ABSD of 7 per cent when they purchase a second one. Those with two or more existing residential properties would have to pay ABSD of 10 per cent on their next purchase.

-By Lynette Khoo

Too soon to ease property curbs, says Khaw

Source: Straits Times / Top of The News

NATIONAL Development Minister Khaw Boon Wan yesterday turned down an MP's call to relax some of the property cooling measures, saying such a move could raise demand and, in turn, housing prices.

Ms Foo Mee Har (West Coast GRC) wanted the Government to consider easing some rules like the Additional Buyer's Stamp Duty (ABSD) so that Singaporeans can upgrade their properties while staying financially prudent.

But Mr Khaw believes it is too early to loosen the rules.

"Such a move could lead to an upswing in demand, which would increase the number of transactions and raise housing prices," he told Parliament as he restated the Government's position.

"This would not be welcome to Singaporean home buyers, particularly those with aspirations to upgrade."

Singaporeans who buy a second property, without selling their first home, have to pay 7 per cent ABSD on their new purchase and 10 per cent on subsequent ones.

Foreigners pay 15 per cent ABSD on any residential purchase, while permanent residents pay 5 per cent on the first property and 10 per cent on subsequent ones.

But home prices have yet to budge significantly.

As a result, the Government stated twice in the last two months that the cooling measures will stay: the National Development Ministry at the end of June, and the Monetary Authority of Singapore's managing director Ravi Menon last month.

Mr Menon said prices remain high, having risen 60 per cent in the last four years and fallen by just 3.3 per cent in the last three quarters.

Latest figures show that in the second quarter of this year, private property prices fell 1 per cent while public housing resale prices fell 1.4 per cent.

In his reply, Mr Khaw also said the cooling measures are to keep the housing market stable and sustainable. "They aim to encourage financial prudence among home buyers and to moderate property prices."

The measures include lowering the proportion of income that can be used to pay a home loan.

He also said there are concessions to benefit upgraders. For example, Singaporean married couples can get an ABSD refund if they sell their existing home within a stipulated period after buying their second home.

Similarly, an upgrader, who provides documents to his bank to show he will be selling his existing home, will be treated as a borrower with no outstanding home loans. This lets him qualify for the maximum loan-to-value ratio of 80 per cent. In other words, his new loan can cover 80 per cent of the value of the purchase.

"The existing concessions are reasonable and sufficient," concluded Mr Khaw.

"Any move to relax the cooling measures, including by broadening these concessions, is premature under current market conditions."

-By Janice Heng

'Premature' to relax property cooling measures now: Khaw

National Development Minister Khaw Boon Wan said the existing concessions for property upgraders are "reasonable and sufficient", and scrapping the cooling measures would lead to an increase in home prices which would "not be welcome to homebuyers".

Source: Channel News Asia / Singapore

SINGAPORE: Existing concessions are already in place for those looking to upgrade their properties, and these are "reasonable and sufficient", said Minister for National Development Khaw Boon Wan on Monday (Aug 4).

MP Foo Mee Har asked in Parliament on Monday if the Government will consider relaxing some property cooling measure such as those relating to Additional Buyer's Stamp Duty so Singaporeans who meet the total debt obligation cap of 60 per cent can upgrade their properties while remaining financially prudent.

In response, Mr Khaw said: "The property market cooling measures are intended to keep our housing market stable and sustainable. They aim to encourage financial prudence among home-buyers and moderate property prices.

"Various concessions are already in place to benefit upgraders. The existing concessions are reasonable and sufficient. Any move to relax the cooling measures, including broadening these concessions, is premature under market conditions."

The minister said such a move could lead to an upswing in demand, which would increase the number of transactions and raise housing prices. "This would not be welcome to Singaporean home-buyers, particularly those with aspirations to upgrade," Mr Khaw added.

- CNA/kk

Taming Singapore's property market

The Government's measured approach has combined with fortuitous circumstances to produce a moderate slowdown in the formerly red-hot property market.

Source: Straits Times / Opinion

INITIAL reports of the property market's demise appear to have been slightly exaggerated.

After policymakers imposed strict curbs on consumer loans last June under total debt servicing ratio (TDSR) rules, analysts predicted that private home prices would plunge by up to 10 per cent this year.

Some warned that home sales could grind to a near halt, quipping that TDSR actually stood for "total destruction of Singapore real estate".

So far, however, the slowdown in prices has been far milder than expected.

Home values have slipped just 2.3 per cent overall from January to June this year, and the pace of the decline is expected to stay around the same for the rest of the year.

As a result, some market watchers have revised their forecasts to adjust for a slower slide in prices.

Maybank Kim Eng analyst Wilson Liew said in June that a 10 per cent drop this year was now "unlikely".

Analysts agree prices could fall just 5 to 8 per cent this year, with most hewing closer to the lower end of that range.

Barring a rude shock to the economy, the Government appears to have achieved every regulator's dream: a measured slowdown of a red-hot property market. How did it accomplish this? And is the gradual trend likely to continue?

Willing buyers, firm sellers

PART of the reason for the moderate decline is simple market dynamics.

Continuing low interest rates have eased some of the pain of the property market curbs by keeping down the cost of both buying and holding a home.

Individual sellers are in no hurry to offload their units, since their mortgages are still fairly cheap.

Mr Eric Cheng, who runs real estate agency ECG, has noted fewer distressed sales in this period of price decline than in previous downturns.

Indeed, fewer sales of any kind are taking place.

The roughly 6,660 units sold in the first six months of this year were around half that in the same period last year.

But with some potential buyers removed from the pool due to the tighter loan curbs, prices have fallen enough for previously sidelined home seekers to step in.

Buying demand has been further stoked by a prolonged period of undersupply in homes during 2004 to 2012, said OCBC Investment Research analysts.

Even the risks of a possible oversupply of homes or a looming spike in interest rates are proving of little deterrent, especially to investors who have few other suitable channels to park their money.

As many as 65,000 new private homes will be completed over the next three years, adding to rising vacancy rates amid fewer foreigners coming to work in Singapore.

And although interest rates are near zero, they are expected to creep up soon after the United States winds down its massive economic stimulus programme.

But Mr Alfred Chia, chief of financial advisory firm SingCapital, said many Singaporeans still prefer properties over other investments like stocks because of their tangibility and lower volatility.

"You may not be able to tell everyone that you own 10,000 lots of OCBC shares, for example, but you can tell everyone you own a unit at Ardmore Park," he said.

Apart from the brag factor, investors see property as a hedge against inflation, Mr Chia said.

Other economic factors - such as Singapore's steady growth, high employment and rising wages - may also give buyers confidence to make big-ticket purchases such as homes, said CIMB economist Song Seng Wun.

Mr Donald Han, managing director of property consultancy Chestertons, added that many buyers still have cash to spend and are just waiting for a bargain.

"If the developer were to provide a compelling discount, the crowd would come. It's like bees to honey."

Budging just a bit

ONE such perceived sweet deal was Duo Residences in Bugis, where 87 per cent of the 540 units released were sold in just three days in November last year.

The units sold for an average of about $2,000 per sq ft (psf), about 10 per cent lower than the $2,200 psf that had been expected.

Property developers are generally seeing no reason to give steeper discounts than that.

They have built up ample buffers during the boom years and their balance sheets are strong.

"In 2007, 2008, I could see developers selling at a 20 to 30 per cent discount, or below book value. Today it's a 3 to 7 per cent discount," said ECG's Mr Cheng.

Developers have also teamed up to bid for land, thus lowering their individual financial risks - and reducing their need to cut their losses to move units.

Another reason the official property price index has registered only mild falls is because it is based on per sq ft (psf) prices.

Developers have begun building smaller units in order to keep the total price of the units affordable.

However, small units tend to have a higher price per sq ft (psf) than larger ones. This keeps the price index elevated.

Tight hand on the reins

BUT much of the credit for the gentle price slide goes to the Government's measured approach in taming the market.

Departing from previous shock-and-awe tactics such as slapping capital gains taxes on home sales, the authorities decided to start loan curbs in 2009 followed by extra taxes in 2010.

They tightened the screw incrementally over the years, to weed out speculators and prevent home buyers from borrowing beyond their means.

This has given them the flexibility to respond to market movements and tweak the restraints as necessary.

The outcome is a happier one than in the late 1990s, when capital gains taxes coincided with the Asian financial crisis and caused home prices to nosedive 60 per cent in under two years.

Today, analysts expect the Government to step in - with economic cushions or loosened property curbs - if prices so much as threaten to fall 20 per cent in a year.

Such a scenario is possible in the event of war, health scares or an unexpected economic downturn, said Dr Chua Yang Liang, South-east Asia research head at property consultancy JLL.

What is far more likely, though, is for the gradual decline in home prices to continue.

Dr Chua estimated that if prices keep sliding 1 to 2 per cent every quarter, it could take until the end of 2016 for prices to lose 10 to 15 per cent off their 2013 peak.

That may be enough for policymakers to start relaxing some curbs - and the market to ease into a soft landing.

Uncertainties ahead?

THAT said, there is the ever-lurking possibility that government policies may not have their intended effect.

As Dr Chua put it: "The unknown factor is that you're dealing with sentiment, so you must take psychology into consideration."

For instance, when the additional buyer's stamp duty (ABSD) was introduced in 2011 to rein in surging prices, the subsequent dip in demand was short-lived. Fearing more measures to come, which could bump total prices even higher, buyers kept jumping into the market.

Policymakers raised the ABSD again early last year, but this did not stem the relentless price rise. Prices only really started to fall after the TDSR kicked in.

This was ironic, since the debt framework was ostensibly not meant as a property cooling move.

The worry now is whether the TDSR, designed to be a permanent prudential measure, unlike the other short-term property curbs, will continue to weigh on the market after policymakers have decided to loosen the restraints.

Having kept a firm hand on the property market in the last few years, regulators will have to ease their grip slowly - a considerable hurdle in its own right.

-By Melissa Tan

Govt may regulate escalator maintenance: BCA

The Building and Construction Authority (BCA) is currently reviewing regulations for escalator safety, which could include regulations on their maintenance as well as heavier penalties for non-compliance.

Source: Channel News Asia / Singapore

SINGAPORE: There are currently no regulations on the maintenance of escalators, although the Government is looking into this, the Building and Construction Authority (BCA) said on Monday (Aug 4).

“BCA is in the process of reviewing the regulatory framework for escalator safety, which could include regulations on the maintenance of escalators and heavier penalties for non-compliance,” a spokeswoman said in response to queries from Channel NewsAsia.

On Sunday, part of an escalator leading to a children's education centre at Forum The Shopping Mall gave way, leaving a gap large enough for a person’s foot to be trapped in. No one was hurt in the incident and the escalator has since been cordoned off.

Although no regulations on escalator maintenance have been implemented yet, the Singapore Standards CP15 – a code of practice for the installation, operation and maintenance of escalators and passenger conveyors – specifies that escalators must be maintained once a month and undergo testing once a year, BCA said.

Under the Code, escalators are also required to undergo functional testing every year, to ensure that safety devices such as brakes are in good working condition, the BCA spokeswoman said.

“Building owners are responsible for the maintenance of their escalators and are expected to carry out maintenance in accordance with the recommendations in the Code,” she added.

- CNA/cy

Real Estate Companies' Brief

CapitaLand Profit Rises 14% on Investment Property Revaluations

Source: Bloomberg / Luxury

CapitaLand Ltd. (CAPL)Southeast Asia’s biggest developer, said second-quarter profit rose 14 percent as it posted higher earnings from its key businesses and recorded gains from investment properties.

Net income increased to S$438.7 million ($352 million) in the three months ended June 30 from S$383.3 million a year earlier, the Singapore-based developer said in a stock exchange statement today. Excluding the gain from the sale of its stake in Australand Property Group and contributions from the Australian developer last year, earnings would have risen 32 percent, it said. Revenue fell 13 percent to S$875.3 million.

CapitaLand is realigning its business to focus on more profitable opportunities in Singapore and China after buying the rest of its mall unit to consolidate some businesses and boost returns.Singapore and China, the company’s two main markets, accounted for 79 percent of the group’s earnings before interest and tax in the June quarter, it said.

The stable income generating portfolio of investment properties, which make up 75 percent of total assets, and residential assets, which make up the remaining 25 percent, post the CapitaMalls transaction “will help to mitigate residential market headwinds faced in China and Singapore,” Vikrant Pandey, an analyst at UOB Kay Hian Pte in Singapore, said.

Prices Decline

Residential values in Singapore slid for a third quarter in the three months to June to post the longest losing streak in five years after the government introduced loan measures in June 2013, widening a campaign that began in 2009 to curb speculation. The property curbs are working though it’s too early to relax the measures, Monetary Authority of Singapore Managing Director Ravi Menon said on July 24.

CapitaLand’s China home sales declined 46 percent to 2,231 units in the first six months to June, the developer said. Home sales in Singapore fell 71 percent to 195 units, it said.

The company booked a gain of S$427.3 million before interest and taxes from the revaluation of its investment properties, compared with S$407.9 million a year earlier.

The company is on track to achieve its target on return on equity of 8 percent to 12 percent in three to five years, Pandey said.

Home sales in the city-state by volume fell 68 percent in June from May as developers marketed fewer projects, according to figures from the Urban Redevelopment Authority. The government began introducing the housing-market curbs in 2009, with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income.

Shares Rise

CapitaLand’s shares rose 1.2 percent to S$3.44 as of 2:29 p.m. in Singapore trading, while the benchmark Straits Times Index added 0.1 percent.

CapitaMalls Asia, the mall unit that it took private, will focus on opening new shopping malls in China and India in the coming months, the developer said.

“With a simplified organizational structure, CapitaLand is strategically positioned to leverage its strength in development, as well as management of integrated developments, shopping malls and serviced residences to capture the growth in Asia,” Lim Ming Yan, president of CapitaLand, said in the statement.

-By Pooja Thakur

PLife Reit scouring region for new opportunities

DPU rises 10.2% to a record 2.9 S'pore cents for Q2

Source: Business Times / Companies

PARKWAY Life Reit (PLife Reit), which hit a quarterly record high in distribution per unit (DPU) for fiscal second quarter, is actively seeking new opportunities in the region.

It now wants to consolidate its assets in Japan to generate operating synergies and achieve greater cost savings, following its recent acquisitions there.

"The overall growing demand for quality private healthcare facilities and services as well as increased healthcare expenditure in Asia paints a positive outlook for the regional healthcare industry over the next few years," said Yong Yean Chau, chief executive of Parkway Trust Management, the Reit's manager.

The healthcare Reit yesterday reported a 10.2 per cent rise in its DPU for the three months ended June 30 to 2.90 Singapore cents, on the back of acquisitions and rental growth in its properties.

-By Lynette Khoo

Parkway Life Reit's payout jumps 10.2%

Strong performance in Q2 driven by new acquisitions and higher rents

Source: Straits Times / Money

NEW acquisitions and higher rents have delivered a record payout to unit holders of Parkway Life Real Estate Investment Trust (Reit).

Distribution per unit for the three months ended June 30 came in at 2.9 cents for the three months to June 30, up 10.2 per cent from a year ago.

The Reit's income available for distribution likewise gained 10.2 per cent in the second quarter from the previous year to reach $17.5 million, its manager Parkway Trust Management said yesterday.

The Singapore-listed health-care Reit posted a 12.2 per cent rise in revenue to $25.3 million, on the back of rental income from newly acquired hospitals and higher rents from its existing Singapore hospitals.

Net property income climbed 12 per cent over last year to hit $23.6 million for the second quarter.

"Our strong results this quarter were driven mainly by acquisitions and rental growth of existing properties," said Mr Yong Yean Chau, chief executive of Parkway Trust Management.

"Properties we acquired in Japan in the second half of 2013 and first quarter of 2014 have boosted our revenue, contributing to our healthy and steadfast distribution per unit growth that has been on the rise since our IPO (initial public offering) in 2007," he added.

Parkway Life Reit owns 42 nursing home and care facility properties in Japan and three hospitals in Singapore.

It is anticipating a 2.81 per cent rise in its minimum guaranteed rent for its Singapore hospitals during the year starting Aug 23.

Mr Yong also said that he believes the growing demand for private health-care facilities and services and higher health-care spending in Asia "paint a positive outlook for the regional health- care industry over the next few years".

But he added: "While we remain optimistic about the long- term prospects of the health-care industry, we are mindful of macroeconomic headwinds ahead."

As such, the Reit has taken steps to spread out its debt maturity and minimise its near-term financing risks, he said.

The book closure date for Parkway Life Reit's second-quarter distributions is next Tuesday and payments will be made on Sept 2.

-By Fiona Chan

ARA Asset's Q2 earnings up 36% as revenue rises 17%

It plans to launch billion-dollar fund before year's end, says group CEO

Source: Business Times / Companies

ARA Asset Management's net profit for its second quarter ended June 30 rose 36 per cent to S$20.8 million, while its revenue climbed 17 per cent to S$40.4 million.

The Pan-Asian real estate fund manager's net profit was driven by higher revenue from recurrent management fees, acquisition, divestment and performance fees, as well as finance income and other income.

It also enjoyed new contributions from two recently launched Korean private real estate investment trusts (Reits), as well as two funds, Morningside Investment Partners and Straits Investment Partners.

At the same time, fees were also higher from two funds, ARA China Investment Partners and ARA Harmony Fund; the higher fees from ARA Harmony Fund came from the higher valuation of Suntec Singapore following the completion of the spruced-up convention centre.

-By Lee Meixian

ARA's net profit rises 36% in Q2

Source: Straits Times / Money

INCREASED management fees helped real estate firm ARA Asset Management lift its earnings in the second quarter.

Net profit shot up 36 per cent from the previous year to $20.8 million for the three months to June 30, while revenue rose 17 per cent to $40.4 million.

ARA manages several real estate investment trusts (Reits), including Suntec Reit, which owns Suntec City, and Fortune Reit, which holds malls in Hong Kong.

Management fees grew 6 per cent from the preceding year to $31.3 million in the quarter. The firm said in a statement yesterday that it earned higher fees as a result of better performance at newly refurbished malls. Fees arising from acquisitions that the Reits made also contributed.

ARA's finance income shot up 67 per cent to $6.4 million in the second quarter this year from the preceding year. This was mainly due to a net gain on the sale of financial assets, ARA said.

Those outweighed a 55 per cent tumble in acquisition, divestment and performance fees to $603,000 in April through June from the previous year.

Group chief executive John Lim said in a statement yesterday that ARA would "continue to drive the growth in recurrent management fees through our existing Reits and private funds and in the establishment of new products". The firm launched a new fund in May called the ARA Summit Development Fund I, which will invest in real estate development projects in Australia and South-east Asia.

Earnings per share stood at 2.47 cents for the quarter, up from 1.81 cents in the previous year. Net asset value per share was 34.62 cents as at June 30, up from 32.84 cents as at Dec 31 last year. It declared an interim dividend of 2.3 cents per share for the first half yesterday, to be paid on Aug 22. ARA shares fell 1.5 cents to close at $1.705 yesterday.

-By Melissa Tan

GLP takes 15% stake in China state-owned firm

It invests 2b yuan for stake in warehouse logistics provider

Source: Business Times / Companies

GLOBAL Logistic Properties (GLP) has invested two billion yuan (S$403 million) for a 15 per cent stake in China's largest state-owned warehouse logistics provider as part of a strategic tie-up, it said yesterday.

The investment in China Materials Storage and Transportation Development Company (CMSTD) makes GLP the second-largest investor in the company, GLP said in a press release.

CMSTD is controlled by China National Materials Storage and Transportation Corporation which is fully owned by China Chengtong Holdings.

The latter is, in turn, supervised by State-owned Assets Supervision and Administration Commission of the State Council.

-By Jamie Lee

German office Reit with Chinese backer to raise S$369m in IPO

Source: Business Times / Companies

SINGAPORE'S first listed real estate investment trust (Reit) with office assets in Germany is set to make its debut this month with a S$369 million initial public offering that is heavily backed by a Chinese tycoon.

IReit Global Group is selling 167.73 million units at 88 Singapore cents per unit - an offer price that translates to a projected distribution per unit yield of 8 per cent next year, its prospectus yesterday showed.

The offering consists of an international placement of 156.37 million units to investors residing outside of the US, and a public offering of 11.36 million units in Singapore.

Tong Jinquan, a property magnate tycoon ranked by Forbes as China's 36th richest man, will also subscribe for a separate 251.6 million units at the offer price. This means he will taking up 60 per cent of the 419.33 million IPO and subscription units.

-By Jamie Lee

IREIT Global launches IPO to raise $369m

Source: Straits Times / Money

A LOCAL real estate investment trust that will invest in European properties launched its initial public offering (IPO) yesterday with the aim of raising gross proceeds of $369 million.

IREIT Global has an initial portfolio of four freehold properties in Germany, valued at about $478.3 million.

The company has priced the IPO at 88 cents a unit, and 167.7 million units will be available, according to its final prospectus lodged with the Monetary Authority of Singapore yesterday.

International investors have been allocated 156.4 million units, while the public tranche stands at 11.4 million units.

IREIT said in a statement: "This follows a week of successful international roadshows with interest received from investors during the book-building process exceeding the number of units offered under the placement tranche."

The Reit has already caught the attention of Mr Tong Jinquan, a property tycoon ranked as China's 35th richest man by Forbes magazine. Mr Tong will buy 251.6 million units in the IPO, as part of a separate arrangement.

The total gross proceeds also include a separate arrangement for Wealthy Fountain Holdings to subscribe to 251.6 million units.

Mr Lim Chap Huat, co-founder of property group Soilbuild Group, has agreed to subscribe for 79.7 million units in the offering, and will hold 19 per cent of the total units.

The proceeds will go towards paying for properties, payment of IPO transaction costs, reducing debt and working capital.

IREIT's initial portfolio of four office properties are in the cities Bonn, Darmstadt, Munster and Munich.

They have an aggregate net lettable area of 121,506 sq m with 2,945 car park spaces.

Net property income is projected to be €20.1 million (S$33.6 million) next year and IREIT is committed to paying out 100 per cent of its annual distributable income.

Unit holders can look forward to a projected distribution per unit yield of 8 per cent in 2015, based on the IPO offer price of $0.88 per unit, it said.

Mr Itzhak Sella, chief executive of the reit's manager, IREIT Global Group, said: "IREIT will give the investing community a unique opportunity to participate in the growth and strength of Germany's economy, the largest economy in the euro zone."

The public offer opens at 9 am today and closes at noon next Monday. Listing and trading is expected to commence on Aug 13, at 2pm.

-By Rachael Boon

IREIT Global registers prospectus for IPO on SGX

Under the IPO, IREIT Global is offering almost 168 million units at 88 cents each. It will be Singapore's first REIT with a portfolio based in Europe.

Source: Channel News Asia / Business

SINGAPORE: Investors in Singapore will soon have access to the European real estate market. IREIT Global has registered its prospectus for an initial public offering (IPO) on the SGX mainboard.

Under the IPO, IREIT Global is offering almost 168 million units at 88 cents each. It will be Singapore's first REIT with a portfolio based in Europe. The IPO will comprise an international placement of about 156 million units to investors outside of the United States, and an offering of 11.36 million units for the public in Singapore.

Mr Lim Chap Huat, the owner of Soilbuild Group Holdings, has agreed to subscribe for about 80 million units under the international placement. IREIT has also entered into an agreement with Wealthy Fountain Holdings and Mr Tong Jinquan, chairman of Shanghai-based Summit Property Development - under which they would subscribe to a combined 251.603 million units.

It hopes to raise a total of about S$369 million in gross proceeds, the bulk of it to help pay for the properties that will be injected into the trust.

IREIT has an initial portfolio of four freehold office properties in Germany valued at approximately S$478 million dollars. The IPO closes on Aug 11 2014, and the trading is expected to commence two days after that.

"I believe this is one of the (most) successful REIT markets in the world. It's one of the largest capital markets in the world today and there are investors who understand this vehicle and are willing to invest. We are aiming to distribute 7.6 per cent for the year 2014 and 8 per cent in 2015 to 2016," said CEO and Founder of IREIT Global, Itzhak Sella. 

- CNA/by

Global Economy & Global Real Estate

Pritzker plans US$104m hotel project in Seattle

The development in downtown will have two 12-storey towers

Source: Business Times / Property

[SEATTLE] Seattle's rapidly growing downtown is luring billionaire John Pritzker's Commune Hotels & Resorts for a US$104 million lodging and residential project, adding to a surge in development as employment and tourism climb.

Commune and Mr Pritzker's Geolo Capital are working in a joint venture with Seattle developer Touchstone for a two-tower property that will include a luxury Thompson hotel.

The 12-storey buildings, which will have 159 guest rooms and 97 rental apartments, will be adjacent to Pike Place Market, with views of the surrounding Puget Sound and Olympic Mountain Range, the companies said in a statement. Opening is slated for 2016.

Seattle, the fastest-growing among the top 50 US cities, is attracting a wave of development as employers such as Inc expand and lodging occupancies reach records.

-From Seattle, US

Packer makes another try in Las Vegas

New casino to open in 2018 after Crown Resorts buys site on Strip for US$280m

Source: Business Times / Property

[SYDNEY] Crown Resorts Ltd, the gambling company controlled by billionaire James Packer, plans to open a casino on the Las Vegas Strip after paying US$280 million for a site formerly occupied by the New Frontier casino.

Crown will partner Andrew Pascal, former president of Wynn Las Vegas, to open a resort on the 14 hectare site by 2018, the Melbourne-based company said in a regulatory statement yesterday.

Mr Packer had been in talks with companies whose loans backed the property including Oaktree Capital Group, people with knowledge of the matter said on Friday.

The development will be Crown's third try in Las Vegas after Fontainebleau Resorts and Cannery Casino Resorts failed to prosper.

-From Sydney, Australia

Compliance costs boost loan outsourcing

Banks exit mortgage business as new rules push up costs

Source: Business Times / Property

[BOSTON] As banks lose money on mortgages and retreat from the business, PHH Corp, the biggest US outsourcer of home loans, is rushing to cash in.

PHH processes and originates mortgages on behalf of small banks and some of the world's largest financial firms, including Morgan Stanley and HSBC Holdings plc. PHH chief executive officer Glen Messina is so convinced he can make money where others can't that in July he sold the company's cash-producing fleet management unit and plans to plough the proceeds into mortgages.

Lenders are backing away from home loans as an array of new regulations in the aftermath of the housing crash push up compliance costs. Banks lost an average US$194 a mortgage in the first quarter, according to the Mortgage Bankers Association. The losses may spur banks to increase outsourcing of home loans by US$180 billion a year while keeping their brand name on the mortgage, Mr Messina said on a July 8 call with analysts.

"The biggest banks have the resources to implement the new regulations, but if you're a smaller bank or a wealth manager, it may not make sense to invest in all that infrastructure," said Bose George, a mortgage analyst at Keefe, Bruyette and Woods Inc in New York. "The risks are too high for companies to lend without a very high level of compliance expertise."

-From Boston, US

Blackstone Said to Face Higher Costs for Rental-Home Bet

Source: Bloomberg / Luxury

It’s getting more expensive to finance and recoup cash from U.S. rental properties for investment firms led by Blackstone Group LP’s Invitation Homes.

Bond investors demanded some of the highest yields since the market started less than a year ago to buy securities backed by the landlord’s houses in a $684 million deal today. The offering included $59.3 million of junior securities paying a yield of 450 basis points, or 4.5 percentage points, more than a borrowing benchmark, a person with knowledge of the matter said.

The rising costs, which were also seen last month by Silver Bay Realty Trust Corp. (SBY), may combine with higher home prices to reduce the appeal of the rental-home market to the institutional investors that have sought to transform the business from an industry dominated by small, local landlords. Denise Dunckel, a spokeswoman for Dallas-based Invitation Homes, declined to immediately comment.

The junior-ranked portion of its latest deal was sold at 97.7 cents on the dollar, with the spread up from 375 basis points in an issue in May by the firm and 365 basis points in its November transaction that was the first in the market. By comparison, a similar portion of Silver Bay’s deal was sold at a 400 basis-points spread.

Bond investors are backing off the securities as competing investments such as high-yield corporate bonds cheapen. Holders sought bids through dealers on about $80 million of existing rental-home notes in widely marketed auctions Friday, according to data from Empirasign Strategies LLC, which tracks securitization trading.

Silver Bay

The second-most senior portion of the latest Blackstone deal, which brought issuance in the segment to about $4 billion, was sold at a spread of 160 basis points, said the person who asked not to be named, citing a lack of authorization to speak publicly. That was up from 135 basis points for a similar portion of the November offering and 150 in May’s sale.

The top-ranking, AAA rated portion of this week’s deal, which accounts for a smaller portion of the transaction relative to the firm’s earlier offerings, yields 110 basis points more than the one-month London interbank offered rate, compared with 115 basis points in November and 100 in May.

Silver Bay said in a July 31 statement that the $312 million of rental bonds it sold last month carried a “blended effective interest rate” of Libor plus 1.92 percentage points. Moody’s Investors Service said in a presale report its use of external property managers in some markets would mean “less robust oversight and cost controls.”

The latest Blackstone securities, which Moody’s said lack warranties against document defects from underwriter Deutsche Bank AG, pay a weighted average spread of 2.11 percentage points, according to data compiled by Bloomberg. That compares with 1.66 percentage points in its inaugural deal, where the securities priced at par, the data show.

-By Jody Shenn

New York Probes Ocwen Over Home Insurance Deals

Source: Bloomberg / News

New York’s banking regulator asked Ocwen Financial Corp. (OCN) for information about an insurance agreement that it says may be designed to funnel fees to an affiliate for minimal work.

Benjamin Lawsky, the superintendent of the Department of Financial Services, is reviewing the mortgage-servicing firm’s arrangement with Altisource Portfolio Solutions SA (ASPS), which he described as “troubling,” according to a letter dated today that was obtained by Bloomberg News.

Lawsky is probing possible conflicts of interest at Atlanta-based Ocwen, which has grown in recent years by acquiring the mortgage-servicing rights to distressed loans from large banks. His review is focused on force-placed insurance, which protects a lender when the property owner’s insurance has lapsed.

“Altisource will generate significant revenue from Ocwen’s new force-placed arrangement while apparently doing very little work,” Lawsky said in the letter. Documents suggest “Ocwen hired Altisource to design Ocwen’s new force-placed program with the expectation and intent that Altisource would use this opportunity to steer profits to itself.”

Ocwen fell 2.5 percent to $26.98, while Altisource Portfolio dropped 15 percent. Ocwen said in a statement that it would cooperate with the regulator’s request. A phone message left at Alitsource Portfolio wasn’t returned.

Vendor Relationships

In February, Lawsky requested information about Ocwen’s relationships with vendors, saying that William Erbey, the firm’s chairman, was the largest shareholder in several affiliates that provide services to the company. Erbey owns 27 percent of Altisource Portfolio shares, according to data compiled by Bloomberg.

Lawsky said in today’s letter that the department has “serious concerns about the apparently conflicted role” played by Erbey and potentially other officers and directors in channeling profits to Altisource Portfolio.

An investigation by Lawsky’s department found that mortgage servicers were setting up affiliated agencies to collect commissions on force-placed insurance and funneling borrowers’ business through the companies in violation of state insurance law. The agencies had an incentive to purchase insurance with high premiums because they earned higher commissions, according to the department.

Last year, Assurant Inc. (AIZ) was fined $14 million and ordered to cut insurance premiums and make refunds to homeowners after the department found the company overcharged clients and won business through improper deals with banks.

According to Lawsky’s letter, Altisource Portfolio recommended to Ocwen earlier this year that the company use Southwest Business Corp. to manage its force-placed insurance program, including negotiating premiums with insurers.

Under the agreement, Altisource Portfolio earns insurance commissions and certain fees “seemingly for doing very little work,” Lawsky said.

-By David McLaughlin and Greg Farrell

Nigerian Diaspora Turns Mandarin Hotel Into Town Hall Debate

Source: Bloomberg / U.S. Politics

Sandra Dafiaghor made sure that Sunday breakfast at the Mandarin Oriental (MAND) hotel in Washington had a Nigerian feel to it.

She led a group of about 30 Nigerians yesterday who commandeered a dining room at the luxury hotel to make sure that President Goodluck Jonathan heard what they had to say about power shortages, worsening security in the country and the kidnapping of schoolgirls in the northeast by the Islamist militant group Boko Haram. Jonathan, 56, is participating in the three-day U.S.-Africa Summit, an initiative of President Barack Obama that aims to bring about 40 African heads of state together with American investors to spur investment and trade.

“We’re working on being recognized,” Dafiaghor, the 47-year-old acting chairwoman of the Nigerians In Diaspora Organization, said in an interview. “We want to be part of the agenda. It would be better served if we were at the table between Obama and Jonathan.”

Jonathan is facing pressure at home for failing to stem the insurgency by Boko Haram, which Human Rights Watch estimates killed at least 2,053 people in the first half of this year. Criticism intensified after more than 200 schoolgirls were kidnapped by the group in April and still haven’t been found. The abduction sparked a global campaign, called BringBackOurGirls, spurred on by social media platforms such as Twitter.

Jonathan “needs to show more kindness and empathy to the suffering people that he governs,” Victor Ume-Ukeje, a managing director at Piper Jaffray & Co., the Minneapolis-based investment firm, said in an e-mail today. “Sometimes he seems so overwhelmed.”

Impromptu Talks

Dafiaghor and her associates are on the fringes of the first U.S.-Africa Leaders Summit because civil-society groups have been mostly excluded from the conference. They are trying to make sure their voices are heard as they follow policy makers around town.

After a two-hour wait yesterday, Doyin Okupe, a spokesman for Jonathan, walked into the breakfast room that overlooks the Potomac River wearing a white tunic. The Nigerian diaspora group hastily re-fashioned the room into a town hall where the audience fired questions to Okupe about Boko Haram, entrepreneurship and governance. Most of the group wore green T-shirts with “BringBackOurGirls” and “UnitedAgainstBokoHaram.”

“The impression that the government was asleep, that the government didn’t act, isn’t correct,” Okupe said. “We are exploring all possibilities and the priority is to get them back alive. We are in a very tricky situation.”

Expanding Cooperation

Jonathan is scheduled to discuss expanding cooperation between Nigeria and the U.S. in areas “including the war against terrorism” with “key” American political, security and business leaders before he returns home on Aug. 6, presidency spokesman Reuben Abati said in a Aug. 2 statement.

Kenyan President Uhuru Kenyatta also plans to hold talks with U.S. companies in Washington this week to help improve airport security in the country. The government is determined to do whatever it takes to eradicate al-Qaeda-linked militants in Somalia to prevent East Africa’s biggest economy from becoming enmeshed in fighting a Nigeria-type insurgency, Kenyatta said in an Aug. 2 interview in the capital, Nairobi.

Dafiaghor, who lives in Munster, Indiana, and is one of about 1,000 members of the non-profit group, said she hopes these impromptu talks with government officials graduate to an official discussion.

“We would like a more formal meeting,” she said. “This is a good way to start.”

-By Christopher Spillane

U.K. Homebuilding Expands at Fastest Rate Since 2003

Source: Bloomberg / Luxury

U.K. homebuilding expanded at the fastest pace in more than a decade in July as record-low interest rates and government stimulus measures helped construction grow for a 15th month.

Markit Economics said its Purchasing Managers’ Index for the industry declined to 62.4 from 62.6 in June. Economists had predicted a steeper drop to 62. A gauge of residential building rose to 68, the highest level since 2003, and job creation increased at the fastest since the survey began in April 1997.

The data add to evidence that the economy is strengthening in the third quarter and signal a rebound for construction after official data showed a 0.5 percent contraction in the three months through June. A survey of Bank of England agents in July reported “activity had continued to rise strongly.”

“Construction companies have performed impressively so far this summer,” which may counter the weakness seen in the official data, said Tim Moore, an economist at Markit in London. The “sector is enjoying its strongest cyclical upswing since the global financial crisis.”

BOE officials are due to meet this week to discuss the latest economic data and will probably leave their key rate at a record-low 0.5 percent. While Governor Mark Carney has said the time to normalize rates is “edging closer,” he’s also said there’s room for more spare capacity to be eroded before tightening begins.

‘Favorable Conditions’

The strength in homebuilding was attributed to “favorable funding conditions and strong demand for new housing starts,” Markit said. An index of civil engineering also expanded at a sharper pace in July and a gauge of commercial construction weakened.

The government has stimulated homebuilding by offering equity loans and mortgage guarantees to home buyers. The Greater London Authority is offering interest-free credit to affordable home developers as it seeks to increase the number of dwellings being built.

Berkeley Group Holdings Plc, a homebuilder focused on London and southeast England, in June reported a 40 percent increase in annual earnings as the company constructed almost a third more homes than at the market’s 2007 peak.

The Bloomberg EMEA Home Builders Index of 11 stocks has dropped 2.3 percent this year, while the benchmark FTSE 100 Index has lost 1.1 percent.

-By Jennifer Ryan

Danes Break Debt Trap of World’s Most Indebted Households

Source: Bloomberg / News

Denmark’s efforts to stop the world’s most indebted households from building up more debt are starting to pay off as amortization rates improve.

The Danish Mortgage Bankers’ Federation says issuance of interest-only loans -- criticized by the central bank and rating companies for posing a threat to financial stability -- has now peaked. Danske Bank A/S, Denmark’s biggest lender, also estimates the share of non-amortizing loans is set to decline.

“The trend is broken now,” Jan Oestergaard, a senior analyst at Danske in Copenhagen, said in a phone interview. “Depending on how interest rates move going forward, I think we’ll see a lower share of interest-only loans.”

Interest-only mortgage bonds, which give borrowers a grace period of as long as 10 years on principal payments, made up 56 percent of Denmark’s $500 billion mortgage bond market at the end of June. The International Monetary Fund said in January the securities risk destabilizing the country’s home finance market, the world’s largest per capita. The Organization for Economic Cooperation and Development has urged Denmark to design policy to reduce gross household debt, which topped 300 percent of disposable incomes last year -- a rich-world record.

The Danish government is grappling with how to cut issuance of interest-only loans. A new set of rules for the mortgage market could include a limit. The guidelines “will be published in the fall,” Kristian Vie Madsen, deputy director at the FSA, said in an e-mailed reply to questions.

Awaiting Rules

Business Minister Henrik Sass Larsen said in June he’s trying to find a solution that lets mortgage banks continue to offer the loans without threatening financial stability. A central bank proposal to cap interest-only loans at 60 percent of property values, a measure that would require parliament’s approval, has met with resistance from the industry.

Banks have argued that their efforts to encourage households to shift into loans that amortize immediately have already started to show results. Homeowners repaid 2.5 billion kroner ($449 million) in the first half, compared with net borrowing of 8.7 billion kroner a year earlier, the Danish Mortgage Bankers’ Federation estimates. In the second quarter, households borrowed 1.6 billion kroner, adjusting for debt repayments.

Banks began offering the products in 2003. The majority of borrowers who took out the first loans have started to make principal payments over the mortgages’ remaining 20-year period, Anders Aalund, chief analyst in fixed-income sales at Nordea Bank AB, said.

‘Sound Approach’

“Less than 10 percent need to refinance into interest-only loans again, according to numbers from Nordea Kredit,” Aalund said.

Karsten Beltoft, the federation’s head, expects Denmark’s regulator to let banks decide which homeowners can borrow on an interest-only basis up to the legal limit of 80 percent of a property’s value, rather than adopting the central bank’s recommendation for an industrywide limit of 60 percent.

The FSA is likely to set guidelines for “a proportion of the portfolio to be interest-only loans,” Beltoft said by phone. “It would be the only sound approach. We are at the top of the curve, but I am not sure that it will decline very much.”

About one out of two homebuyers still chooses interest-only loans “and if that continues we will end up with a long-run level of around 50 percent,” Beltoft said.

Investor Demand

Part of the challenge in weaning borrowers off the loans is their affordability, according to Danske Bank. Investors are only asking for an extra 0.07 of a percentage point for 30-year callable mortgage bonds on which borrowers can defer principal payments, versus equivalent bonds with continuous amortization, Danske estimates. The difference is even smaller for shorter maturities.

“The market cannot see there is a major risk in the share of interest-only loans,” Oestergaard said. “If it did, it would price all of them with a higher risk premium.”

Oestergaard said the risk remains that borrowers see little point in adding to their monthly payments while the cost of carrying debt is so low.

“Once borrowers have chosen interest-only loans, it is very difficult to convince them to start to pay redemptions,” he said. “It is a major shift in their monthly payments, particularly due to the low rates at the moment.”

-By Frances Schwartzkopff