Real News‎ > ‎2014‎ > ‎December 2014‎ > ‎

11th December 2014

Singapore Economy 

Singapore has room for improvement to stay competitive: Experts

Channel NewsAsia spoke to experts to find out if annual competitiveness surveys are a genuine reflection of Singapore's global ranking for companies to do business.

Source: Channel News Asia / Business

SINGAPORE: With the rise of globalisation, companies have a wider choice of where to do business and locate their production facilities. Several factors weigh on such decisions, including infrastructure, taxation regimes and macro-economic frameworks.

Several organisations publish annual surveys on competitiveness, which can be used to help businesses make such calls.

Channel NewsAsia spoke to experts for some answers on the effectiveness of these surveys.

This year, Singapore ranked number two in the World Economic Forum's competitiveness rankings. In a separate study by IMD Business School, Singapore took the third spot.

While the headline ranking may be important, Professor Arturo Bris from Swiss-based IMD Business School said it is also important to look at the factors behind the rankings. He cited infrastructure as one key area.

Prof Arturo elaborated: "Infrastructure includes the physical infrastructure of the country like roads, ports, access to water and so on, but also the intangible infrastructure like education, health systems, universities and innovation. Singapore has a challenge because even though it is highly ranked, it is still number seven or number six in terms of infrastructure."

“I think the challenge for the future for Singapore is how to ensure the growth of the economy - given the geographical constraints of the country - is well balanced and through infrastructure, allow the economy to develop,” he added.

Meanwhile, there are some factors - such as national debt - that could perhaps be more carefully understood by such surveys.

Mr Rajiv Biswas, chief economist for Asia-Pacific at IHS Global Insight, said: "What normally tends to be seen by global analysts looking at Singapore is that Singapore Government debt does show up as being a little bit on the high side.

“But what often is not understood is that the only reason that Singapore has got any debt at all is that the Government is trying to create liquidity in the Government debt market, so they are creating a market that is tradeable but actually on a net debt basis, Singapore does not have any net debt, so it should rank far higher than what is showing up in the score.”

Overall, Singapore may rank highly in competitiveness, but observers said there is still room for improvement in some areas.

These include getting small- and medium-sized enterprises to become global players and making the market more attractive for local talent. 

- CNA/dl

Singapore Real Estate

Popular posts S$1.25m Q2 profit; warns of property blues

Source: Business Times / Companies & Markets

Popular Holdings managed to eke out a second-quarter net profit despite a fall in turnover. But it warned of difficulties in selling its property units amid the property cooling measures and of the extra expenses it has to incur should it need an extension of time beyond the allowed time frame to sell them.

-By Chan Yi Wen

Rents of private condos and HDB flats soften

Reacting to SRX Property's November flash estimates, consultants say they expect further weakening of rents in 2015 from supply glut and lower demand

Source: Business Times / Real Estate

RENTS of private condos continued to soften in November, largely within the expectations of property consultants who are projecting that the weakness will run into next year, given the looming supply glut.

SRX Property flash estimates put the slide in rents of private non-landed homes at 0.8 per cent, making November the 10th consecutive month of decline. Rents have fallen 5.7 per cent since the start of the year and 5.3 per cent from November 2013.

The rental decline was more severe in the suburbs - 1.2 per cent; the dip was 0.3 per cent for city apartments and 0.7 per cent for city-fringe units.

Leasing volumes also shrank. The estimated total of 2,892 units rented out during the month was down 11 per cent from October, but 9.8 per cent higher than in November 2013.

ERA Realty key executive officer Eugene Lim said that the leasing market for private condos is facing a double whammy - an upcoming supply glut and a slowdown in demand from the continued economic restructuring.

Older units have taken a bigger hit, as tenants prefer newer ones.

This can only get worse next year, with rents likely to fall by as much as 8-10 per cent, said Mr Lim.

However, the strong leasing volumes this year - the number of leases inked hit 46,632 in the first nine months of the year, up 8.7 per cent over the corresponding nine months last year - could be attributed to tenants switching over to newer units because the falling rents work in their favour, said property consultants.

Savills Singapore research head Alan Cheong expects rents to dip 7 per cent this year and 3-5 per cent in the first half of next year.

He noted that the continued trimming of manpower in the finance sector and expatriates' being given smaller housing budgets have put pressure on the demand for condos, especially those in central areas - unless landlords are willing to rent out the rooms piecemeal.

"Those willing to rent out by rooms could find the sum-of-the-parts greater than renting the whole unit to a single tenant," he said.

Meanwhile, the HDB rental market is holding up better, perhaps also because expatriates' housing budgets have shrunk. Another factor is that, newly minted Singapore permanent residents, ineligible to buy HDB flats because of a three-year waiting period, are renting their flats, consultants said.

SRX Property data shows rents of HDB flats dipping 0.1 per cent in November from the month before, smaller than the 0.5 per cent decline in October; rents of public flats are down 2.2 per cent from a year ago.

Executive flats bucked the trend in November, with a 3.5 per cent pick-up from a month ago.

Mr Lim suggested that this could be a blip, given that larger HDB flats are competing with private condo units for the same group of tenants.

Increasingly now, tenants are able to rent a two-bedroom unit for as low as S$2,500 a month in suburban areas; previously, such units would have cost at least S$3,000 a month to rent, he said.

-By Lynette Khoo

Private, HDB rents fall again

Source: Today Online / Business

SINGAPORE — The Republic’s rental market softened further last month, with prices falling and fewer new leases signed in both the private and public segments, signalling that tenants are having the upper hand in negotiations.

In the non-landed private residential segment, rents fell for a 10th consecutive month with a 0.8 per cent month-on-month decline last month, similar to that in October, the Singapore Real Estate Exchange (SRX) said in a report yesterday. Compared with the same period last year, rents were 5.3 per cent lower last month.

All regions in Singapore posted lower rents, with the suburban areas or Outside Central Region (OCR) falling the most at 1.2 per cent. The city fringes or Rest of Central Region (RCR) slipped 0.7 per cent, while the city centre or Core Central Region (CCR) dipped 0.3 per cent.

Property analysts said the persistent weakness is expected as the supply growth of private homes available for rent is outpacing demand.

“We’re seeing greater supply coming on stream and at the same time, tenants don’t have as much housing budget as before so units asking for a larger (rental) quantum are having difficulties getting tenants,” said Mr Alan Cheong, senior director of research and consultancy at real estate agency Savills Singapore.

“The profile of many foreign nationals who come here recently are individuals and not families, so we have also seen demand shifting to rooms instead of a whole unit or to HDB (Housing and Development Board) flats because quantum is smaller,” he added.

The mismatch between supply and demand in the private segment has resulted in an 11 per cent on-month fall in rental volume last month to an estimated 2,892 units, SRX said.

Meanwhile, the HDB leasing market saw rents dipping 0.1 per cent last month from October, following the 0.5 per cent drop previously, to register the third consecutive month of decline. Compared with November last year, rents were down 2.2 per cent.

Three- and five-room flats saw rents falling by 0.2 and 1 per cent, respectively. Rents of four-room flats remained unchanged, while that of executive flats rose 3.5 per cent.

In terms of volume, the number of new leases signed last month was down 1.5 per cent to an estimated 1,596 new leases.

“The HDB rental market is also facing an oversupply issue because HDB owners who collected their keys to their new condominiums are putting their flats up for rent and there will be more of such cases to come as more private projects get TOP (temporary occupation permit),” said Mr Chris Koh, director of property firm Chris International.

“It’s a tenant’s market now for both private and HDB (housing) so landlords will have to be realistic in their asking prices,” he said.

-By Lee Yen Nee

Leasing market continues slide

Private and public landlords face pressure from flood of new apartments

Source: Straits Times / Money

THE weak property market continues to hit the leasing sector for public and private homes, with fewer contracts being signed and rents on the slide.

Rents of private apartments slipped 0.8 per cent in November from October - a losing streak of 10 straight months, according to estimates from the Singapore Real Estate Exchange (SRX) yesterday.

This came on the heels of a revised 0.8 per cent slip in October from September.

The monthly rental index, compiled from data from property agencies, is down 5.3 per cent in November from a year earlier.

There were 2,892 leases signed last month - down 11 per cent from the 3,251 homes rented out in October.

The lacklustre leasing performance was hardly surprising, given the step-up in new home completions this year, said market watchers.

They added that government moves to tighten the inflow of foreign talent are putting pressure on demand while housing allowances for expatriates have been crimped.

"Tenants have more choices and more limited housing budgets... Their mindset towards renting is very practical," said Mr Ong Kah Seng, director of R'ST Research.

"Previously, tenants tended to work around what the landlords asked, because they liked the property. Now, their liking for the property is conditional on the asking rents matching their affordability."

There will be 20,852 private apartments completed this year - well up on the 13,150 units built last year - giving tenants more options and more bargaining power, he added.

Mr Ong also pointed out: "In newly completed developments where many units are put up for rent at the same time, some owners might slash rentals to attract tenants. Some tenants might not renew the leases of their existing units and actually take a newer and cheaper unit in the vicinity."

The languishing rental market was most pronounced in the suburbs, where half the 8,732 apartments that went on the market in the past year were concentrated. Rents there slipped 1.2 per cent from October to November, while those in the city-fringe areas fell 0.7 per cent.

City-centre units fared a little better, with a 0.3 per cent decline in the same period.

Mr Wong Xian Yang, research manager at OrangeTee, said a significant number of newly completed units are owned by Housing Board (HDB) upgraders who are choosing to rent out their public flats after moving into their new private homes.

And with rents of private apartments continuing to fall, demand might shift from HDB flats to the private market as the rental gap closes, he said.

The heightened leasing competition in the public market was evident in the statistics: Only 1,596 HDB  flats found tenants in November - a 1.5 per cent fall compared with the 1,621 units  rented  out the month before.

Overall, HDB rents slipped 0.1 per cent from October to November. Rents for five-room flats fell 1 per cent and three-roomers registered a 0.2 per cent decline. But executive flat rents picked up 3.5 per cent and rents for four-room homes remained unchanged from October.

-By Cheryl Ong

Rental prices for private homes, HDB drop in November: SRX

Rental prices for both non-landed private units and Housing and Development Board (HDB) flats fell 0.8 per cent and 0.1 per cent on-month, respectively, according to flash estimates released by SRX. 

Source: Channel News Asia / Singapore

SINGAPORE: Rental prices for both non-landed private units and Housing and Development Board (HDB) flats fell in the month of November, according to flash estimates released by the Singapore Real Estate Exchange (SRX).

In a report issued on Wednesday (Dec 10), rentals for private homes dipped 0.8 per cent month-on-month in November - representing the 10th consecutive month of falling prices.  Rents in all three sectors - Core Central Region, Rest of Central Region and Outside of Central - saw a drop of 0.3 per cent, 0.7 per cent and 1.2 per cent, respectively.

Rental volume for private units also fell - down 11 per cent to 2,892 units in November, compared to the 3,251 units rented in October.


Rent prices for HDB flats dipped marginally, posting a month-on-month decline of 0.1 per cent in November - the third straight month of decline. Rentals for three-room and five-room fell by 0.2 per cent and 1.0 per cent, respectively.

Rents for four-room flats, however, stayed the same while rents for executive flats rose 3.5 per cent, according to SRX.


Real estate firm HSR says the fall in public and private housing rents is "expected" partly due to an oversupply of rental units, as home owners hold back on selling their properties due to the low offering prices.

"Many of those who are looking to sell their properties realise that they are unable to get the price they want. They may then think, why not rent it out?" said Mr Donald Yeo, HSR International Realtors' Head of Marketing and Training.

However, HSR also says owners of bigger HDB flats may find some respite in the softening rental market.

"The five-room or the executive maisonettes will be more attractive because, due to the adjustment in prices, tenants will feel that these houses are now much more value for money," said Mr Yeo. "When tenants choose a place, they will compare between the private and HDB houses, and they will see that the sizes of the HDB homes are very luxurious. That is why I feel that prices of the bigger HDB flats will be sustained."

- CNA/ac/ek

For sale: Thong Sia Building at S$400-420m

Source: Business Times / Real Estate

Freehold commercial and residential property Thong Sia Building, near the Paragon shopping mall, has been put up for sale for the first time since it was built in 1981 and the vendors are expecting offers of between S$400 million and S$420 million. This translates to S$2,559 to S$2,687 per square foot (psf) over the existing gross floor area (GFA) of about 156,300 square feet.

-By Claire Huang

Thong Sia Building put up for sale

The 26-storey residential and commercial building off Orchard Road is up for sale, and is expected to fetch between S$400 million and S$420 million, says real estate company JLL.

Source: Channel News Asia / Business

SINGAPORE: Thong Sia Building, a 26-storey residential and commercial building off Orchard Road, was put up for sale on Wednesday (Dec 10) with the owners expecting between S$400 million and S$420 million.

The building, located along Bideford Road near the Paragon shopping mall, sits on a freehold site with a land area of around 21,602 square feet. The building currently comprises seven levels of commercial space and a 19-storey residential tower of 37 apartments, according to Jones Lang LaSalle (JLL), which is marketing the property.

JLL said the asking price works out to S$2,559 to S$2,687 per square feet (psf). If the Government allows the sale of an adjoining road that just serves Thong Sia Building, the price goes down to S$2,414 to S$2,532 psf. More than 80 per cent of the owners of Thong Sia Building - measured both by share value as well as strata floor area - have consented to the collective sale, JLL added.

Thong Sia Building has a gross floor area of around 156,300 square feet, which translates to a gross plot ratio (GPR) of about 7.236. This is above the GPR of 4.9 plus under the Urban Redevelopment Authority's 2014 Master Plan.

Mr Karamjit Singh, International Director at JLL, said potential buyers could convert part of the commercial space to medical suites to capitalise on the site's proximity to Mount Elizabeth Hospital. They could also consider converting the residences to serviced apartments.

"With 100 per cent control over the asset, the purchaser is also free to change the name of the building, which is great for branding purposes," he added.

The tender exercise for Thong Sia Building closes on Jan 28, 2015. 

- CNA/ac

Thong Sia Building off Orchard Road up for sale

Owners expect offers of up to S$420m for the 26-storey freehold residential and commercial property

Source: Today Online / Business

SINGAPORE — Thong Sia Building, a 26-storey residential and commercial building off Orchard Road, was put up for sale yesterday, with the owners expecting offers of between S$400 million and S$420 million.

The building, located along Bideford Road near The Paragon shopping mall, sits on a freehold site with a land area of around 21,602 sq ft. It comprises seven levels of commercial space and a 19-storey residential tower of 37 apartments, said Jones Lang LaSalle (JLL), which is marketing the property.

JLL said the asking price works out to S$2,559 to S$2,687 per square foot (psf). If the Government allows the sale of an adjoining road that only serves Thong Sia Building, the price falls to S$2,414 to S$2,532 psf. More than 80 per cent of the owners of Thong Sia Building — measured both by share value as well as strata floor area — have approved the collective sale, JLL added.

The building has a gross floor area of around 156,300 sq ft, which translates to a gross plot ratio (GPR) of about 7.236. This is above the designated GPR of 4.9 plus under the Urban Redevelopment Authority’s 2014 Master Plan.

Mr Karamjit Singh, international director at JLL, said there are not many freehold, non-residential properties in Orchard Road that are potentially available for sale in the market.

He added that in the past 10 years, only three such properties have changed hands — The Grand Park Orchard building, formerly known as Crown Prince Hotel, Pacific Plaza and 268 Orchard Road.

Buyers of Thong Sia Building could convert part of the commercial space to medical suites to capitalise on the site’s proximity to Mount Elizabeth Hospital, Mr Singh said. They could also consider converting the residences to serviced apartments, he added.

“With 100 per cent control over the asset, the purchaser is also free to change the name of the building, which is great for branding purposes,” he said.

The tender exercise closes on Jan 28. 

-By Channel News Asia

New Syscon facility to double prefab output

S$120 million plant in Tuas will enable firm to produce up to 3,000 prefabricated bathroom units a year

Source: Business Times / Real Estate

Precast panels manufacturer Syscon has said that it is expanding its current production facility. This will double its capacity in order to cater to the demands of the Housing Development Board (HDB) as well as private developments, even as the government announced the slowing down of housing supply.

-By Claire Huang

Property tax cut for one in four private home owners

Soft rental market sees annual values of many private homes marked down

Source: Straits Times / Top of The News

ONE in four private home owners will pay less property tax next year after the taxman marked down the annual values of about 73,300 homes.

Letters have been sent to home owners to outline their levies for the coming year.

This comes on the heels of property tax relief for many owners of Housing Board flats, who saw their annual values cut by about 3 per cent earlier this week.

The Inland Revenue Authority of Singapore (Iras) reviews property values every year using a mass appraisal system that bases the annual value on rents paid for similar homes nearby.

The slowing rental market has led it to reduce the annual values for 25.7 per cent of private homes from Jan 1 next year.

This is in contrast to the 2013 review for the 2014 levy when only 2 per cent of private homes had their annual values reduced.

This year's reductions come amid a cooling property market where vacancies - a forward indicator of falling rents - are rising.

This is good news for some but not all private home owners.

Oil trader David Goh, for example, has been sent his property tax bill, which has been unchanged for the last three years. Even if rents move down next year, the property tax he will pay over the next 12 months will not change.

Some feel that the volatility in the property market cannot be captured by annual reviews. Iras, however, pointed out that Hong Kong also reviews the annual values once a year while some countries have longer review cycles of three to five years.

Expediency must be a factor too, noted Rodyk & Davidson partner Lee Liat Yeang: "Maybe Iras could do a review twice a year. But if the administrative cost is high, is there any value in that?"

Some home owners said their annual values were skewed higher by neighbours who renovated their properties, raising the annual values for the rest of the street.

"In the past, there were more owner-occupiers," said Mr Goh, 54, who lives in a terrace unit in Holland Grove. "Now, I have three expat neighbours renting homes with swimming pools in their backyards."

Iras maintains that owners can raise objections if they believe there is an error in the annual value calculations, but a lack of good rental information has impeded some from taking that approach.

"It's not that the process is not transparent, but that both Iras and home owners are handicapped," said KPMG Singapore principal tax consultant Leung Yew Kwong. "It's impossible for Iras to go into every house to assess the condition it is in, and rental information is difficult for individuals to get."

Property taxes are also a sore point for some private home owners at the higher end of the rental market. This group says it has been paying higher levies since the Government introduced a more progressive property tax schedule at the start of this year.

Higher annual values should be a result of higher annual rents, but such properties are also more difficult to rent out in the soft real estate market.

"As you go up the annual value ladder, those in the high end are affected by a double whammy of high taxes and (no one to rent to)," said Mr Lee.

There are about 70,000 landed residential properties and 215,000 private high-rise flats here.

In the 12 months to March 31, property tax contributed $4.2 billion - 10 per cent of total tax revenue. Of that, taxes on private residences contributed $720 million, and Housing Board flats contributed $150 million.

-By Marissa Lee

Developer pins hopes on Shanghai winter resort

Kop touts $2.8b entertainment-packed project as industry game-changer

Source: Straits Times / Money

HOME-GROWN property player KOP believes its upcoming Winterland Shanghai project in China - an 18ha integrated indoor winter resort - is the next industry game-changer regionally.

"Our plan is to enhance the value of the real estate by incorporating a lot of entertainment (components) into it," said chief executive Leny Suparman in a recent interview with The Straits Times.

"Instead of having an anchor tenant such as a hypermarket or a cinema - the traditional way of doing things - we will offer entertainment, which will generate traffic to bring up the value of the entire real estate."

The $2.8 billion mega winter resort will feature retail, office, residential and hotel components, alongside entertainment facilities such as a theme park, a hiking trail and a beach club.

It will include a chalet-style hotel, with rooms that lead out directly to the ski slopes.

Ms Suparman said the project could reap a gross development value of about $6 billion to $7 billion - more than double its cost.

Noting that developers are being forced to look beyond traditional retail projects as more consumers shift from brick-and- mortar stores to online shopping, Ms Suparman said she expects entertainment-related mixed-use projects to draw in the profits for KOP in future.

"Today, people tend to look for things that are more experiential," said Ms Suparman. "It has to be something that offers stimulation, beyond what they can experience at home, and I think entertainment, which could include sports, is the only thing that can offer that.

"Whatever we build now, it cannot be good enough for (just) today's habits. It has to be good enough for the future, because by then, consumer patterns and the real estate landscape would have changed."

Ms Suparman said the company has already signed a framework agreement with the local government in Shanghai, but did not disclose the price of the site.

Construction work for the project - which is in the planning and design stage - is slated to begin around the first quarter of next year. The first phase of the development is expected to be completed by the end of 2018.

KOP will hold a controlling stake in the development, in the entertainment components which would "serve as good recurring income for the longer term".

The Catalist-listed company, which has a market capitalisation of $141.8 million as of yesterday, is in talks with potential partners to fund the project, she said.

Funds will also be raised using financing instruments and through presales in the development.

"We are looking at a few opportunities elsewhere in China, where we can hopefully replicate similar big-scale, mixed-use projects," she said.

In May, KOP completed a $150 million reverse takeover of entertainment company Scorpio East. In April, it acquired a majority stake in United States-based exhibition production and distribution company Victory Hill Exhibitions.

The group's new entertainment business is set to complement its property business, given its intention to "broaden our offerings as a leading property and lifestyle purveyor", she said.

KOP is known for developing upscale condominiums such as Hamilton Scotts in Orchard, where home owners can park their cars next to their living rooms via "sky garages".

Its portfolio also includes the upcoming Singapore Pinacotheque de Paris at Fort Canning, an offshoot of Paris' largest private art museum; the Montigo Resorts, Nongsa in Batam; and the Cranley Hotel in South Kensington, London.

-By Jacqueline Woo

Barclays prefers Reits with strong distribution buffer

Source: Business Times / Companies & Markets

Don't dump the Reits just yet. Those with generous yield spreads can still cushion against higher interest rates, set to come through in the second half of next year, a Barclays equity outlook report this week showed. "With rental growth likely to be anaemic across the Hong Kong and Singapore rental markets, we prefer those landlords and Reits with high absolute dividend yields as the additional dividend buffer should come in handy against potentially higher interest rates," Barclays said.

-By Jamie Lee

Charoen planning to start due diligence on United Engineers: sources

Source: Business Times / Companies & Markets

Thailand's richest man Charoen Sirivadhanabhakdi is poised to start examining the finances of United Engineers Ltd (UEL), people with knowledge of the matter say, laying the groundwork for a potential acquisition of the Singapore property and construction company.

Thai tycoon to move closer to acquiring UE

Source: Straits Times / Money

THAILAND'S richest man Charoen Sirivadhanabhakdi is poised to start examining the finances of United Engineers (UE), sources say, laying the groundwork for a potential acquisition of the property and construction company.

Mr Charoen's TCC Top Enterprise plans to begin due diligence on United Engineers and its WBL unit next week, the sources said, asking not to be named, as the process is private.

Exclusive talks with minority shareholder OCBC Bank and its insurance arm will expire six weeks after due diligence starts, according to an August filing. OCBC, its Great Eastern Holdings unit and the bank's founding Lee family own a combined 34.1 per cent stake in United Engineers, according to a filing in August last year.

Under Singapore rules, buying more than 30 per cent would trigger a mandatory takeover offer for UE, which has a market capitalisation of $1.83 billion. Representatives for TCC, OCBC and United Engineers declined to comment or were not immediately available.

Yesterday was a public holiday in Thailand. Shares in United Engineers have jumped 26 per cent since Aug 21, when news broke about Mr Charoen's talks to buy OCBC's stake in the company. They have traded at an average $2.84 since Aug 22, the day after OCBC disclosed the discussions.

United Engineers has been divesting itself of assets after buying WBL last year for US$725 million (S$954 million), including debt. It reached a deal in October to sell a majority stake in an engineering and construction business, UE E&C, for $230 million.

In August, United Engineers agreed to sell its car-dealership unit to Malaysia's Samling Group for $455 million and its MFS Technology business for $124 million.

-By Bloomberg

Introduce fire safety measures at all shophouses

Source: Straits Times / Forum Letters

IN THE light of the Geylang fire ("4 foreign workers die in Geylang fire; Sunday), the Singapore Civil Defence Force should conduct checks on all shophouses to ensure fire safety measures are in place.

Such buildings are usually two to three storeys high, with most of their interior structures, including the floors and staircases, made of timber. The only access to the upper floors is via a narrow and steep flight of stairs.

Some windows on the upper floors have fixed iron grills, or are permanently sealed if the room is air-conditioned.

Many of these shophouses have restaurants on the ground floor with adjoining cooking areas, while the floors above are rented out as offices or homes.

Sometimes, the access stairway to the upper floors is located inside the restaurant on the ground floor.

In the event of a fire on the ground floor, people could get trapped upstairs or risk injury by running down a smoke-engulfed stairway.

The authorities ought to require the building owners to construct separate exits for the upper floors, install sprinkler systems and place fire extinguishers on such premises.

All windows must also be barrier-free.

-By Jolly Wee

Global Economy & Global Real Estate

Hilton Said in Talks for Four Hotels to Defer Waldorf Tax

Source: Bloomberg / News

Hilton Worldwide Holdings Inc. (HLT) is in talks to buy four properties from Blackstone Group LP (BX) and other owners to defer tax payments from its $1.95 billion sale of New York’s Waldorf Astoria hotel, according to two people with knowledge of the talks.

The assets include San Francisco’s Parc 55 Wyndham, the city’s fourth-biggest hotel, at more than 1,000 rooms, said the people, who asked not to be identified because the negotiations are private. The other properties are two Waldorf Astoria resorts in Key West and one in Orlando, Florida, they said.

Hilton, majority-owned by Blackstone, is looking to buy resorts and high-end urban hotels with proceeds from the sale of the Waldorf on New York’s Park Avenue to China’s Anbang Insurance Group Co., Hilton Chief Executive Officer Christopher Nassetta said on a third-quarter conference call with analysts in October.

“Key West in Florida is one of the markets that is popular with investors,” David Loeb, an analyst at Milwaukee-based Robert W. Baird & Co., said last month of buyer demand for resort hotels. “It’s one of the markets with the highest per-room revenue.”

Aside from Blackstone, the sellers of the Parc 55 include Rockpoint Group, a Boston-based real estate private-equity firm. New York-based Blackstone owns the two Key West resorts, and the sellers of the Orlando property are Blackstone, Chicago-based Gem Realty Capital and Farallon Capital Management, a San Francisco-based hedge fund firm.

Parc 55

Hilton, based in McLean, Virginia, may pay as much as $550 million for the Parc 55, according to one of the people.

Peter Rose, a spokesman for Blackstone, and Aaron Radelet, a Hilton spokesman, said they declined to comment on the possible transactions, reported yesterday by Real Estate Alert. Caroline Luz, a spokeswoman for Rockpoint at Owen Blicksilver Public Relations, and Steve Bruce, a spokesman for Farallon at ASC Advisors, also declined to comment. Representatives for Gem Realty didn’t immediately return a telephone call.

Hilton, the largest publicly traded hotel operator, has said it plans to defer the payment of capital-gains taxes on the Waldorf sale by investing the proceeds into equivalent assets as allowed in what’s known as a 1031 exchange. Purchases must be completed within 180 days of a sale’s closing.

-By Hui-yong Yu and Nadja Brandt

Toll Falls Most Since Early 2013 as Sales Outlook Weakens

Source: Bloomberg / Luxury

Toll Brothers Inc. (TOL), the largest U.S. builder of luxury homes, dropped the most in almost two years after forecasting weaker sales of its City Living condos and saying it’s unable to raise prices in much of the country.

The market “is certainly a bit frustrating and confusing,” Chief Executive Officer Douglas Yearley Jr. said on a conference call today after the company announced fiscal fourth-quarter earnings that missed analysts’ estimates.

Shoppers for new homes are still recovering from last year’s combination of price and interest-rate increases, which made housing less affordable, Yearley said. U.S. new homes sold at an annual pace of 458,000 in October, less than analysts forecast, as the average price soared to a record $401,100, up 19 percent from a year earlier, the Commerce Department reported on Nov. 26.

Toll Brothers dropped 7.9 percent to $32.06 today, the biggest decline since February 2013. It had the largest drop in the 11-company Standard & Poor’s Supercomposite Homebuilding Index, which fell 4.4 percent.

Hovnanian Enterprises Inc. (HOV), a Red Bank, New Jersey-based builder, rose 5.4 percent to $4.11 after reporting fourth-quarter earnings and saying it expects profitability and growth to continue next year.

Toll Brothers lacks the ability to raise prices in most markets outside California, Dallas and New York City, Yearley said. Sales of the company’s City Living condos in the New York City area, which have higher profit margins than other homes, will decline next year because units in the high-rise buildings take longer to deliver to customers, he said.

Estimates Missed

Net income was $131.5 million, or 71 cents a share, in the three months through Oct. 31, compared with $94.9 million, or 54 cents, a year earlier, the Horsham, Pennsylvania-based company said in a statement. The average estimate of 17 analysts was 73 cents, according to data compiled by Bloomberg.

Toll Brothers released its sales, order and revenue results for the quarter on Nov. 10, so the key announcements today related to profit margins and the company’s forecast for the housing market.

The company’s gross margin on sales was 25.5 percent before writedowns and impairments. It was expected to report gross margins of 24 percent, the average of 12 analyst estimates compiled by Bloomberg.

The average price of a Toll Brothers home on order rose to $757,000 last quarter from $721,000 a year earlier, the company said. Orders climbed to 1,282 homes worth $970.2 million, a gain of 10 percent by units and 16 percent by dollar value. Revenue for the quarter increased 29 percent to $1.35 billion, and the number of units sold rose 22 percent to 1,807.

More Visitors

The company said it expects to sell 5,000 to 6,000 homes in fiscal 2015. Orders and visitors to Toll Brothers’ model homes increased in the first six weeks of the fiscal year, which would lead to sales at the high end of the range if the trend continues, Yearley said.

Many buyers are deterred by concerns that home prices will decline again, Chairman Bob Toll said on today’s conference call. A bumpy recovery in the housing market is likely to continue, as happened after previous recessions, he said.

“I’ve seen this movie before,” Toll said.

-By John Gittelsohn

Bank of Canada Says Home Prices Overvalued as Much as 30%

Source: Bloomberg / Luxury

Canada’s housing prices are overvalued by as much as 30 percent, the central bank said in its latest assessment of a financial risk that’s built up over years of rising prices and low interest rates.

Home prices are 10 percent to 30 percent above where the bank’s model suggests they should be, according to the Ottawa-based bank’s Financial System Review. Today’s report is the first time the central bank has published such a direct calculation of housing overvaluation.

Governor Stephen Poloz reiterated near-record consumer debts and high housing prices pose an “elevated” risk to the domestic financial system, adding the bank still believes a housing crash will be avoided. Today’s strains differ from housing downturns in 1982 and 1991, when interest rates were rising and the economy was slowing, Poloz said, adding that consumers now should be supported by low rates and signs of stronger growth.

“The rise in house prices has been much more gradual and, in the context of a broadening recovery, the unwinding of household imbalances should be gradual as well,” Poloz told reporters. “That is why we continue to expect a soft landing in the housing market, but it is conditional on continued strengthening in the economy.”

The “elevated” risk category for housing is the middle of five risk categories in the report. Housing overvaluation reached 10 percent in 2007 and there’s been “only a modest degree of upward creep since 2009,” the bank said in its report.

Rate Pause

The Bank of Canada’s trend-setting overnight lending rate has been at 1 percent since September 2010, on track to be the longest pause since World War II. Asked if the central bank’s policy caused the housing market strains, Poloz said stimulus has been needed around the world to prevent a larger slump.

The bank also cited financial stress emanating from the euro area and China, as well as a sharp increase in global long-term interest rates, as risks.

“While there have been some shifting sands beneath the surface, there is no significant change in the Bank’s view on the severity of these risks,” Bank of Montreal Chief Economist Doug Portersaid in a note to clients. There’s “surprisingly little implication for monetary policy from this report.”

Greater Severity

Toronto-Dominion Bank sees housing prices broadly in the range of 20 percent overvalued, according to David Tulk, chief Canada macro-strategist. “The risk to the housing market is less pronounced in its immediacy, given the decline in interest rates, but the severity is greater the longer rates stay low,” Toronto based Tulk said in an e-mail.

Housing starts and sales have shown strength this year that has surprised economists with buyers encouraged by low mortgage rates. Canada’s ratio of household debt to disposable income rose to 163.6 percent between April and June, close to the record 164.1 percent in the third quarter of last year, Statistics Canada said Sept. 12.

Toronto and Montreal markets are at risk from price gains outstripping increases in disposable income and an excess of new construction, Canada’s housing agency said Nov. 24. The nation’s two most populous cities shared the “moderate risk” designation in a report from Canada Mortgage & Housing Corp., the middle category between “high” and “low” risk. The Ottawa-based agency downplayed the risk of a sharp correction of prices nationwide.

Poloz Estimate

Poloz tried to downplay the central bank’s estimate, telling reporters “I would frankly resist this citing of the 30 percent or 20 percent or any of these.”

“There are a number of methodologies that economists can use to assess this, and they range in that sort of 10 to 30 percent range,” he said.

The central bank’s views on overvaluation in the housing market will probably weigh on financial-sector stocks, CIBC World Markets economist Nick Exarhos said in a research note.

“Our own analysis has suggested that there may be vulnerabilities at the upper end of the housing market, though demographic shifts and the nature of recent supply likely means that any correction will be gradual,” Exarhos said.

Canada’s benchmark S&P/TSX composite index was 1.7 percent lower at 13,930.38 at 12:53 p.m. in Toronto. The financials subindex was 1.6 percent weaker.

-By Greg Quinn

Legoland Developer Plunges on Dubai Debut After IPO

Source: Bloomberg / News

The developer of a Legoland theme park near Dubai dropped by as much as 15 percent in the first day of trading after an initial public offering.

Dubai Parks & Resorts PJSC, which plans build a cluster of three theme parks between Dubai and Abu Dhabi, was down 9 percent at 0.91 dirhams at the close of trading, giving it a market value of 5.75 billion dirhams ($1.6 billion). The company raised 2.53 billion dirhams selling shares to finance the construction of the parks.

Companies without operating assets aren’t attractive to shareholders because they can’t return cash for years to come, Mohammed Ali Yasin, managing director of NBAD Securities LLC in Abu Dhabi, said today by phone. “Obviously it’s speculators who are trading,” he said.

Dubai Parks & Resorts is building Motiongate Dubai, Bollywood Parks Dubai and Legoland Dubai, as well as a 500-room hotel on a stretch of desert half way between Dubai and Abu Dhabi in the United Arab Emirates. They will open by October 2016 and are expected to attract 6.7 million visitors the following year, according to the company.

Prior to the listing, the IPO attracted institutional investors such as sovereign wealth funds from Qatar and Kuwait and wealthy families, who made offers of about 100 billion dirhams, the company said.

Arqaam Capital started coverage of Dubai Parks & Resorts with a “buy” rating and a 1.49-dirham price estimate, analysts Mohammad Kamal and Mohamad Haidar wrote in a note to report yesterday. The shares, equal to 40 percent of the company, opened at 1 dirham each.

Dubai’s stock market was the world’s best performing this year until it was caught up in a regional sell off amid tumbling oil prices. The benchmark Dubai Financial Market General Index (DFMGI) fell 0.2 percent today, bringing the seven-day losing streak to 14 percent.

-By Zainab Fattah

Zambia Ex-Finance Minister Bets the Farm on Property Project

Source: Bloomberg / News

Former Zambian Finance Minister Situmbeko Musokotwane is betting the family farm on a real estate boom as the African country grapples with a housing shortage.

If the plan comes to fruition, the Musokotwane’s 3,100 acre (1,250-hectare) property east of the capital, Lusaka, will be transformed by a $1.5 billion development with 8,800 houses, a university, shopping mall and business park. The venture, called Nkwashi, aims to take advantage of a housing shortage in Zambia that the government estimates at as much as 3 million.

“It’s a big number,” Mwiya Musokotwane, managing partner at Thebe Investment Management, which is running the project, said in an interview in Lusaka, referring to the shortfall in homes. Thebe is controlled by Musokotwane family.

Their former coffee plantation and cattle ranch will be turned into a development similar in size to other large, mixed-used real-estate projects underway in countries including Nigeria, Kenya andSouth Africa, according to Mwiya, who is the former minister’s son.

Nkwashi is intended to be Zambia’s biggest real-estate project. It will include a $650 million not-for-profit university that Thebe plans to fund through an endowment backed by donors in North America, Europe and Asia, said Musokotwane, a former investment analyst.

Thebe is seeking investors for the shopping mall and business park planned for Nkwashi, Musokotwane said in the Dec. 8 interview. Investors from Turkey and South Africa have expressed interest in the shopping mall and business park, he said, without naming any.

Soccer Stadium

Thebe’s own investment in the project won’t exceed $60 million and will mainly be spent on the site’s roads, electricity, water and sewerage, he said.

Buyers of the residential plots will fund construction of their own houses, with Thebe helping them get loans, said Musokotwane, whose father was finance minister from 2008 to 2011 in Zambia.

Louis Karol Architects, designers of the Cape Town stadium that that hosted a semi-final in the 2010 FIFA Soccer World Cup, are the the lead architects for Nkwashi, he said.

Zambia, with a population of about 14.5 million, has a housing deficit of about 3 million units, Emmanuel Chenda, local government and housing minister, said in May. Habitat for Humanity International in October estimated the shortage at about 2.8 million.

-By Matthew Hill

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