Real News‎ > ‎2014‎ > ‎December 2014‎ > ‎

20th December 2014

Singapore Real Estate

'10% fall in home prices, global uncertainties ahead' 

Analyst tips 2015 growth for S'pore to be below 3%

Source: Straits Times / Money

HOME prices here may slide another 10 per cent next year, while Singapore's exports face decidedly mixed prospects, a leading analyst has said.

JP Morgan's head of emerging Asia economic research, Mr Jahangir Aziz, said the key export market of the United States was recovering, but that another important market, Europe, was still looking very shaky.

On the property front at home, Mr Aziz said in an interview with The Straits Times that significant fresh supply will weigh on the market next year. 

"Since 2010, there has been a coordinated massive increase in supply taking place, especially in the private housing market. This has brought down housing and rental prices, a trend that we think will continue into 2015, when the increased supply fully hits the market," he said.

"We're probably looking at another 10 per cent drop through next year. The price value of assets will decline as a result, which is a negative for consumption."

This may partly offset the potential benefits local households enjoy as oil prices continue to slump. JP Morgan expects local petrol prices to drop at a rate of about half the oil price decline rate, with a one- to two-month lag. For instance, a 30 per cent slide in crude oil prices would translate into roughly a 15 per cent fall in pump prices here.

Singapore's outlook also depends on the recovery in the US and Europe, which, as yet, remains a very mixed picture.

"We expect the US to grow by 2.5 to 3 per cent in 2015, up from this year's 1.5 per cent. Investment will improve as the US completes its fiscal consolidation; oil price decline will also encourage consumption and improve corporate margins," Mr Aziz said.

But he added that Europe faces many uncertainties.

"Structural problems in fiscal policies remain, and necessary labour market reforms have been much slower than the economy requires. We will likely see only small pockets of growth for quite some time," said Mr Aziz.

Against this backdrop, Singapore's growth next year should come in below 3 per cent, he believes. This is towards the lower end of the Government's 2 per cent to 4 per cent forecast.

Mr Aziz's pessimism is partly based on persistently weak demand for Singapore's exports, which account for around one-third of the economy.

Non-oil domestic exports to the US and the European Union fell last month, while total shipments gained a slight 1.6 per cent year on year after October's 1.5 per cent drop, data from trade agency IE Singapore showed.

"For our exports to really grow, US corporate spending on high-end equipment needs to really pick up, because that's where the value-add to Singapore is. That has yet to happen despite the slow recovery there," said Mr Aziz, in the interview this week.

But even after accounting for all the uncertainties, Singapore's economy is not in too bad a shape, he stressed.

"What is not being appreciated is that global growth has fallen massively since the global financial crisis, from around 4 per cent previously to hardly reaching 2 per cent now. That is a massive negative shock for an open economy and exporter like Singapore… I don't think the Monetary Authority of Singapore is going to be unhappy about these sorts of growth rates."

-By Wong Wei Han

Sentosa deal: Blackstone ready for 5-year wait

It can wait that long to see higher returns on its investment in CityDev's Sentosa project

Source: Business Times / Real Estate

Blackstone Group, which is taking part in the refinancing of luxury Singapore properties, is prepared to wait as long as five years for a turnaround in residential prices to see higher returns on the transaction.

Blackstone and Malaysia's CIMB Bank agreed this week to take part in a financing for a luxury hotel, retail and residential development, owned by City Developments, Singapore's second- largest developer, on Sentosa.

Blackstone Can Wait 5 Years for Singapore Property Recovery

Source: Bloomberg / Personal Finance

Blackstone Group LP, which is taking part in the refinancing of luxury Singapore properties, is prepared to wait as long as five years for a turnaround in residential prices to see higher returns on the transaction.

Blackstone and Malaysia’s CIMB Bank Bhd. agreed this week to take part in a financing for a luxury hotel, retail and residential development, owned by City Developments Ltd. (CIT), Singapore’s second-largest developer, on Sentosa island.

In exchange for S$469 million ($357 million) in funding, the New York-based private-equity company and CIMB will receive a fixed 5 percent coupon for five years and other cash flows from the Sentosa project. They also have rights to any proceeds from the sale of the luxury residential units on Sentosa.

Blackstone, the world’s biggest private-equity property investor, has accelerated investments in Asia this year, including buying GE Japan Corp.’s residential business and entering the retiree housing market in Australia. The firm is taking advantage of a slowdown in the Singapore housing market following government curbs since 2009.

“We have a positive long term view of Singapore,” said Singapore-based Kishore Moorjani, a managing director who oversees Blackstone’s Tactical Opportunities Group. Blackstone wouldn’t be satisfied with just a 5 percent return on its Sentosa investment and is eyeing the long-term potential of the residential properties, he said. “We will do very well on this in the long term. We will be better off in five years than we are today,” he said.

Both Blackstone and CIMB said they are willing to wait several years before selling to give prices time to recover.

City Developments shares rose 1.2 percent to S$10 at 2:34 p.m. in Singapore trading, extending their gain so far this year to 4.2 percent.

Prices Drop

The Singapore government has been trying to rein in the property market since 2009 to prevent a bubble forming, with the toughest measures, including stricter lending criteria, introduced last year. Residential prices fell 0.7 percent in the three months ended September, the fourth quarter-on-quarter drop, bringing the slide in the past year to 4 percent.

The island-state is unlikely to ease the curbs until “a meaningful correction” takes place, Finance Minister Tharman Shanmugaratnam said Oct. 28, suggesting prices have further to decline.

Condominium prices in Sentosa, an upscale residential enclave with sweeping views across the Singapore Strait, are close to their lowest level since the end of 2006, according to Maybank Kim Eng Securities Pte. Some house prices on the island have halved since 2012, figures from the Urban Redevelopment Authority show.

Blackstone Deals

Since last year, Blackstone’s property acquisitions in Asia have ranged from Chinese shopping malls to Australian office towers. Since making its first deal in the region in 2007, Blackstone has invested about $7 billion, including $3 billion of equity, according to the firm.

Last month, the U.S. firm agreed to invest A$150 million ($123 million) in National Lifestyle Villages Pty, which develops manufactured retirement communities in Australia, and also agreed to buy GE’s residential business in Japan for more than 190 billion yen ($1.6 billion).

Under the terms of the refinancing agreement, City Developments has to achieve a price of at least S$2,400 per square foot before it can sell the residential properties.

City Developments has sold only 25 of the 228 apartments in the Sentosa development and has leased about half of the rest.

The refinancing, announced Dec. 16, involves Blackstone, CIMB and City Developments investing a total S$750 million in a capital instrument called a profit-participation security. Separately, DBS Bank Ltd. and Oversea-Chinese Banking Corp. will provide S$750 million in loans.

Don’t Sell

City Developments will receive about S$1.2 billion from the transaction. That will allow the company to reduce debt and gives it a freer hand for overseas acquisitions, Chief Executive Officer Grant Kelley said.

The developer is looking for purchases in China and Australia, after spending $1 billion on overseas investments this year, he said. The company will also focus on Japan, the U.S. and the U.K.

Kelley said it will take time for Sentosa residential property prices to recover, though he expressed confidence that prices will rise well above the minimum S$2,400 per square foot within five years.

“Now is not the time to be selling,” Kelley said. “The base case assumption of S$2,400, there is an ultra high probability, almost a certainty, of achieving that. We expect it to be significantly beyond that by the time 2018-2019 comes around.”

CIMB also said it expects to wait to realize a return on the residential properties included in the transaction.

“This gives us a fixed income and also an equity kicker at the end of the five years,” Carol Fong, country chief executive officer, investment banking, for Singapore at CIMB Securities (Singapore) Pte said.

-By Pooja Thakur

Deal to monetise Sentosa assets 'just the beginning'

Blackstone fund's head says scheme suits sophisticated investors well

Source: Straits Times / Money

PRIVATE equity giant Blackstone Group's $1.5 billion deal with City Developments and CIMB Bank will not be the last of its kind in Singapore's property market.

The "profit participation security" scheme, an investment instrument linked to CDL's Sentosa Cove properties, "could unveil a new era of sophistication in real estate" here, Mr Kishore Moorjani, head of Blackstone's US$5.5 billion (S$7.2 billion) tactical opportunities fund, told The Straits Times.

Under the club deal inked on Tuesday, Blackstone will invest $367 million, CIMB will fork out $102 million and CDL $281 million, with a further $750 million in the form of bank loans. 

In simple terms, the deal "monetises" the Quayside Collection - W Singapore-Sentosa Cove hotel, retail property Quayside Isle and The Residences at W Singapore-Sentosa Cove condo - and lets CDL take about $1 billion out of the structure. CDL will use the funds for expansion overseas.

CDL, in return, is guaranteeing a fixed payout of 5 per cent for five years for Blackstone and CIMB. The three firms, which could sell the properties in five years, will have a share of the proceeds from any sale. But CDL will maintain full ownership of the Sentosa properties.

Blackstone's right to the cashflow generated by the assets is a "unique" approach to unlocking value in the property sector.

"What we've done is not exactly rocket science; I think we've sort of brought new tools to an existing asset class," said Mr Moorjani. "Typically, in property, we view things as plain vanilla buying and selling. But there are other ways to participate in assets and businesses, and that's all we've done here: We've participated in the profits of an asset.

"I think it will unveil a new option in terms of how people think about extracting value out of assets without having to sell them."

Mr Moorjani likened the structure of the deal to investors buying shares in a listed firm instead of owning the business.

But he acknowledged that such investment structures are more "well-suited" for sophisticated investors like private equity funds than institutional and retail investors at the moment.

In a real estate investment trust, for instance, retail investors know for sure what they will own in the trust's portfolio.

"If you're trying to take this to a wider audience, my sense is maybe it will happen some day... Here, you're really participating in the profits, and for institutional and retail investors, that may be a bit more challenging."

Blackstone is ready for more of such "creative" investments here, added Mr Moorjani, who said he enjoys being "a bit of a maverick" around such deals.

The property market here is well placed for more too, but it is critical for partners in such deals to have an "alignment of what each partner brings to the table".

In the case of CDL, he said the developer is also an investor and has a significant stake in the transaction: "We felt very good about the fact that... they're not just laying risk off their books."

A diversification in asset class, in the case of the Quayside Collection, is "helpful", because the components complement each other and drive income, he added.

"Would I say that, for example, we wouldn't do another transaction like this if it was only a hotel? We would, but we probably would look at it somewhat differently. The answer is, it really depends, it's not a template, every transaction will be somewhat different."

-By Cheryl Ong

City Developments buys upscale Shanghai residential development

The development in Shanghai's Qingpu District consists of 120 residential units built on a 163,837 square metre parcel of land. CDL said 85 of the units remain unsold.

Source: Channel News Asia / Business

SINGAPORE: City Developments Ltd (CDL) has bought an upscale residential development in Shanghai in a deal worth 799 million yuan (S$169 million), continuing its overseas expansion in property segments other than hotels.

The development in Shanghai's Qingpu District consists of 120 residential units built on a 163,837 square metre parcel of land. CDL said 85 of the units remain unsold.

According to CDL, the development will benefit from its proximity to the Hongqiao Economic Development Zone, which is around 9 kilometres away.

"With the gradual transformation of the Greater Hongqiao area, it is anticipated that the project will appreciate along with the surrounding area's growth," CDL said.

CDL, which controls the Millennium & Copthorne hotel group, announced a plan earlier this week to raise about S$1.5 billion from a group of investors and banks, including Blackstone Group, to fund its global expansion.

The firm has embarked on development projects in the Chinese cities of Chongqing and Suzhou, and has announced plans to do the same in London and Tokyo. 

- CNA/dl

Foreign firms not solely to blame for pricey land

Most bullish bids at govt land sales tenders made by local developers

Source: Straits Times / Money

THE growing participation by foreign developers in land tenders here in recent years has sparked worries that they have been crowding out local developers.

But while they are seen to be aggressive in bidding for land, they cannot be solely blamed for pushing up land prices, experts say.

Foreign developers and their joint venture partners won 32.3 per cent of residential Government Land Sales (GLS) tenders from 2011 to November this year, excluding executive condominium (EC) sites, said SLP International executive director Nicholas Mak. 

But while some foreign developers submitted bullish bids - defined as top GLS bids over 10 per cent higher than the second highest bid - they made up only 27.8 per cent of the total number of bullish bids in the same period.

"The majority of bullish bids were still submitted by Singaporean developers," said Mr Mak.

With rising uncertainty in the residential market, foreign developer participation in residential tenders has also fallen, he said.

The average number of foreign bids per private residential land tender fell from 3.1 last year to one this year, the lowest since 2010. At GLS tenders for EC sites, the average number of foreign bids per tender fell from 2.3 last year to 1.6 this year.

But two foreign developers - China's MCC Land and Hong Kong's Asset Legend by Cheung Kong Holdings - submitted bullish top bids for two mixed-use sites this year, said Mr Mak.

While benchmark land prices may sometimes be set by foreign developers, they understand local buyers may not bite if launch prices are high, given their limited track record. Thus, they do not set benchmark project prices for the area, said R'ST Research director Ong Kah Seng.

For example, in 2012, Chinese-owned Kingsford Development raised eyebrows when its bid for a Hillview Avenue site was 18.6 per cent higher than the next.

But this was comparable to the land price of $673 psf ppr for nearby The Hillier offered in 2011.

Kingsford's Hillview Peak has been selling at an average price of $1,359 psf, just a touch higher than $1,326 at The Hillier.

Similarly, MCC Land won a Tampines Avenue 10 site last year with a bid 7.6 per cent higher than the next, and 34 per cent higher than for an adjacent site, Q Bay Residences, sold in 2012.

MCC Land's The Santorini has been selling at an average price of $1,119, marginally higher than $1,041 psf at Q Bay Residences.

The slight price difference could be due to the newer project benchmarking itself against the older launch, said Mr Ong.

In the EC market, foreign developers do not seem to have set benchmark prices, Mr Ong added.

Projects such as Sea Horizon in Pasir Ris by Hao Yuan Investment and Ecopolitan in Punggol by Qingjian Realty have sold at median prices of $811 psf and $795 psf respectively. "The $800 psf price was established in the second half of last year by both local and foreign developers, as the total debt servicing ratio seemingly shifted demand from private condominiums to ECs," said Mr Ong.

-By Rennie Whang

Historic building's revamp completed

Monument will receive visitors next month after extensive work

Source: Straits Times / Singapore

FOR 170 years, as Singapore went from a colony to a nation, trudging through war, riots and disasters, a little-known building stood quietly in Telok Ayer.

A clan of Hokkien Peranakan merchants, who called themselves the Keng Teck Whay association, occupied it and kept it private.

To the outside world, it was often mistaken as part of the adjacent Thian Hock Keng temple, a Unesco award winner.

But after more than two years of revamp work, the building, now a house of worship, is ready to rival its famous neighbour. It even bears a new name: the Singapore Yu Huang Gong, or Temple of the Heavenly Jade Emperor.

Gazetted a national monument in 2009, it will finally open to the public next month.

"We didn't have the experience or the funds, but we've made something out of nothing," said Taoist Mission president Lee Zhiwang, whose group acquired the building for an undisclosed sum in 2010. "Now we have a place we can call home, and we've preserved our heritage."

Visitors will be greeted by a pair of dragons at the entrance and a newly replaced imperial treasure gourd at the top of a three-storey pagoda.

They will also see the restored roof truss, timber columns, balustrade walls, double-leafed doors and encaustic floor tiles.

A team of craftsmen, including sculptors from Quanzhou, in the southern Fujian province of China, were brought in to work on the interiors.

"Timber logs had to be lifted by hand as there wasn't much space to bring in heavy machinery," said Master Lee.

The timber beams and columns were transported log by log from Telok Ayer Street by six workers who hoisted them with just light tools like pulleys.

The work was onerous. Conditions were bad as the roof of the entrance had started to sink inwards. When restoration began in 2012, the site was declared unsafe for occupancy.

As the structures are made of wood, termite infestation was a concern, said Dr Yeo Kang Shua, the project's architectural conservator.

The roof was taken apart to access the timber components below, and these were disassembled to check for damage and repaired before re-assembly.

Said Master Lee: "It was challenging because we are not constructing a new building but restoring an old one."

On Jan 1, a stretch of Telok Ayer Street will be closed to traffic from 1pm to 9pm for the opening celebration. The public can visit the monument from Jan 2. Admission is free.

All, however, is not complete. The cost of the revamp is about $3.8 million and the mission is short of $400,000.

It has raised about $3.4 million, including from Singaporeans of other faiths and tourists from countries such as Indonesia.

Said Master Lee: "When people realised the temple was in need of a facelift, they came forward to help."

-By Calvin Yang

Some luxury homes changing hands for tidy profits

Source: Straits Times / Money

RESALE activity might be slowing for luxury homes, but some owners have managed to make a tidy pile from their Orchard Road homes this quarter.

Two units at the coveted Ardmore Park project by Wheelock Properties each changed hands for over $2 million in profit last month, despite the shrinking pool of foreign buyers who have supported demand in this segment.

One unit bought in October 1999 for $1,543 per sq ft (psf) or $4.45 million was sold on Nov 18 for $2,524 psf - a profit of $2.83 million. A second unit that was bought was bought in August 2006 for $2,115 psf or $6.1 million went for $2,843 psf or $8.2 million - a gain of $2.1 million. 

All 330 units at the project measure 2,885 sq ft.

R'ST Research director Ong Kah Seng, director noted that profits in the high-end residential segment tend to be "specific to the development" in today's sluggish market. "What Ardmore Park has over other properties is that the sizes of the units are the same, and it suggests that the owners are typically wealthier, if they can afford the large units," said Mr Ong. "It's a true-blue, high-end development, because luxury properties developed in the past five years might be in exciting locations, but they tend to have a mixture of unit sizes and a different profile of owners."

A 1,335 sq ft apartment at the 274-unit Tanglin Park in upscale Ridley Park went for $1,924 psf or $2.57 million on Nov 7 after selling in March 2009 for $1.5 million - a profit of $1.07 million.

However, a handful of homes in the coveted residential district have not been spared the waning market sentiment and have been hit by hefty losses. A 2,852 sq ft flat at the 164-unit Grange Residences sold for $2,612 psf or $7.45 million on Nov 12 after being bought for $8.1 million in May 2010 - a loss of $650,000.

And a 3,175 sq ft apartment at Nassim Park Residences in the prestigious Nassim Road residential enclave was bought at $3,464 psf or $11 million in April 2010 and sold for $10.7 million on Oct 9 - a loss of $300,000.

-By Cheryl Ong

HK tycoon and ex-official found guilty of corruption 

Former chief secretary convicted on 5 charges; billionaire's brother cleared

Source: Straits Times / Top of The News

HONG KONG - Thomas Kwok, the billionaire co-chairman of Sun Hung Kai Properties, and Hong Kong's former No. 2 official were found guilty of corruption yesterday in a blockbuster trial.

Kwok's younger brother Raymond was cleared of all charges.

The older brother, 63, was found guilty of conspiring to pay HK$8.5 million (S$1.4 million) to Rafael Hui in exchange for favourable treatment for Sun Hung Kai, the world's second most valuable real estate company. 

Hui, 66, was convicted on five charges, including conspiracy to accept bribes of HK$11.18 million, during the time he was the city's chief secretary and later a member of the Executive Council. Hui, who prosecutors said enjoyed an extravagant standard of living far outstripping his official salary, was also found guilty on charges relating to rent-free use of luxury apartments and acceptance of unsecured loans.

The nine-member jury took five days to reach their verdicts following a trial that began in early June. The two brothers jointly chair Sun Hung Kai Properties and were arrested along with Hui in a major swoop by graft investigators in March 2012.

Prosecutors said fat bribes were made to Hui through a series of complicated transactions involving middlemen. Two of the middlemen, Sun Hung Kai director Thomas Chan and Francis Kwan - the former non-executive director of investment firm New Environmental Energy Holdings - were both found guilty on two counts in the trial.

The usually jovial Hui, friends with the Kwoks since childhood through Macau family connections, sat expressionless as the verdicts were announced.

"I'm feeling very conflicted," Mr Raymond Kwok, 61, told reporters as he left the court building. He said he was happy the verdict proved his innocence but was "very unhappy" that his brother and Chan were found guilty.

On Monday, the judge is expected to sentence the men, who face up to seven years' jail.

Hong Kong's Independent Commission Against Corruption, which brought the charges against the five men, said in a statement that the case "demonstrated the commission's determination to uphold Hong Kong's probity... regardless of the background, status and position of the persons involved".

The case has stunned Hong Kong, which is seen as relatively graft-free. "It's a big black eye for the integrity of Hong Kong," said Mr Francis Lun, a financial analyst and CEO of Hong Kong-based Geo Securities.

The arrests revived discussion on the links between the city's government and its powerful tycoons that have long raised public suspicion.

Former Hong Kong chief executive Donald Tsang ended his term in disgrace in June 2012 after admitting to accepting gifts from tycoons in the form of trips on luxury yachts and private jets.

-By Agence France-Presse, Bloomberg, Reuters

Companies' Brief

Singapore Reits

Source: Business Times / Wealth

2014 has been a relatively solid year for the S-Reits sector in terms of both share price and financial performance. Looking ahead, market expectations point towards a hike in the Fed Funds target rate in Q2 2015. This could result in volatility in the share prices of S-Reits. On a positive note, most Reits have buffered up their balance sheets, while hedging strategies have also been put in place. We have overweight ratings on the office and retail Reit's sub-sectors, and neutral ratings on the industrial, hospitality and healthcare Reits sub-sectors. Overall, we maintain neutral on the S-Reits sector.

Ascott Reit issues fixed rate notes

Source: Business Times / Companies & Markets

Ascott Reit MTN (Euro), in its capacity as trustee of Ascott Reit, on Friday issued 80 million euros (S$129.3 million) in principal amount of 2.75 per cent fixed rate notes due Dec 19, 2024. This is under its US$2 billion Euro-Medium Term Note Programme established in November 2011. Morgan Stanley Asia (Singapore) has been appointed as the dealer.

Chiwayland International

Source: Straits Times / Money

MAINBOARD-LISTED Chinese property developer Chiwayland has purchased a land site in Australia for A$27 million (S$29 million), the company said yesterday.

The land is located in Parramatta, in Sydney's west, and is expected to be redeveloped into residential units. Demand for property in Australia stays strong, backed by a stable economy, low interest rates, demand from foreign investors and interstate migration, the company said.

City Developments

Source: Straits Times / Money

·         Broker:CIMB Research

·         Call: Hold

·         Target Price:$10

We take a positive view of City Developments' (CDL) agreement with Blackstone and CIMB Bank to create a unique $1.5 billion investment platform to invest in the cash flow of its Sentosa Cove properties, as it will enable CDL to unlock and recycle capital value from this project while benefiting from further potential upside through its 37.5 per cent stake in the new platform.

The $1.5 billion valuation is about 17 per cent above our previous estimation of the value of these assets and would add about 20 cents to our revalued net asset valuation forecast.

HPL selling entire Pinedale stake to General Mills Asia

Source: Business Times / Companies & Markets

Hotel Properties Ltd (HPL) is divesting its entire 49 per cent interest in Pinedale Holdings, comprising 245,000 ordinary shares, to General Mills Asia. HPL will also be selling the shareholder's loan made by it to Pinedale Holdings to General Mills Asia. The total consideration is S$15 million, and will result in an increase in earnings per share of the HPL group from 33.19 Singapore cents to 35.79 Singapore cents based on the audited consolidated accounts for the year ended Dec 31, 2013.

Views, Reviews & Forum

North Pole - the next hot real estate buy?

Source: Business Times / Opinion

I RECEIVED an e-mail yesterday telling me why I should invest in a property in the North Pole.

Reason No 1: because it has a historically robust manufacturing industry, set for growth as the global population rises 1.1 per cent annually - equivalent to 75 million new customers per year.

Reason No 2: the local toy-making business is a key pillar of the world's children entertainment industry and has worldwide distribution capabilities.

Reason No 3: the current strength of the US dollar against the Chocolate Coin.

And it went on, with reasons including a buoyant rental market supported by elves, excellent sleigh-based transport infrastructure with high-speed global connections, and its burgeoning thoroughbred reindeer breeding industry.

Of course, this was no serious marketing copy or press release, just a tongue-in-cheek Christmas greeting from a property investment firm self-reflexively making fun of how its own kind often promote their new developments to reporters and investors alike.

This property it was "selling" boasted high-quality reinforced gingerbread construction, with genuine candy cane finishing, private reindeer parking with every unit, and was situated close to - wait for it - the SOHO-HO of the North.

I forwarded it to my colleagues to spread the festive joy, expecting mere "LOL" replies, but received more than that: four reasons why not to invest in the North Pole, from the newsroom's funny man.

Top on the list and most crucially is this: the long-term global warming trend may reduce non-liquid floor area as ice caps melt.

Next: the questionable governance of Santa Claus's group of businesses.

Droning in the lingo of the "Risk Factors" segment of any listing prospectus, he wrote: "Single-shareholder structure without independent overview, opaque financials, and complicated cross-holdings suggest high governance risks."

Further, he asked: "Any balance sheet that relies on the valuation of biological assets needs to be taken with a pinch of salt. Have reindeer numbers been audited? Are there sufficient safeguards against disease wiping out the population?"

Maybe he has a point.

Remember the mystery deaths of millions of abalones at Oceanus Group's farms two years back, said to be due to poor nutrition? The fair value loss of these biological assets dragged the group into the red and triggered an internal probe.

Or the dig Muddy Waters took at Olam's valuations of its biological assets the same year? The US research firm had accused the agri-commodities trader of relying on non-cash accounting gains such as gains in biological valuation to boost its bottom line, though Olam maintained that its accounting was in line with Singapore financial standards, which are based on International Financial Reporting Standards.

Lastly, my colleague pooh-poohed the fact that the Arctic Circle has an allegedly buoyant rental market driven by elves.

Mixing up his genres now after having been subliminally sold by the movie posters at every alternating bus-stop, he said: "They are historically prone to epic bouts of violence against orcs, dwarves, dragons and the occasional all-seeing eye of doom.

"They do not believe in money, instead paying in little trinkets like mithril daggers. But with the fall of Sauron, those thingamabobs no longer fetch the premium that they once did on eBay."

The thing about being a real estate reporter is that every so often, overzealous property developers try to convince you that certain far-flung, sometimes unheard of, places are actually new red-hot destinations investors would be foolish to miss out on.

Not even that. Sometimes the projects are in familiar cities, near the central business district, by the river, near this university and that entertainment hub, and of course the developers would only have good things to say about their baby.

But it's like what they say about bikinis: what they reveal is suggestive, but what they conceal is vital.

So I think I'll pass on that fictitious rare, freehold, high-yield studio apartment in the architecturally significant part of the Santa Claus estate which comes with spectacular views of the Northern Lights, thank you very much, and Merry Christmas!

-By Lee Meixian

Global Economy & Global Real Estate

US rental-home shortage benefits Wall St

Corporate landlords enjoying higher rents amid 7.4% fall in rental vacancy rate in Q3

Source: Business Times / Real Estate

InterContinental rolls out Chinese-focused Hualuxe hotels

Source: Business Times / Real Estate

Starwood Adds to Sweden Expansion With $1.5 Billion Deal

Source: Bloomberg / News

Starwood Capital Group said one of its funds agreed to acquire SveaReal Fastigheter AB, a real estate company with properties in southern and central Sweden.

The value of the transaction, which includes a related acquisition of DNB NOR Eiendomsinvest I ASA in Norway, is 11 billion Norwegian kroner ($1.5 billion), Starwood said in a statement today. That makes the deal the largest property transaction in Scandinavia this year, Starwood said. The deal is due to be completed in January, pending approval by SveaReal’s shareholders and the Swedish Competition Authority.

Starwood, based in Greenwich, Connecticut, bought seven retail parks and shopping malls in Sweden from Kooperativa Foerbundet KF in November 2013. The SveaReal deal will add 79 properties, including offices, logistics and industrial space as well as hotel and retail properties with gross leasable area of 838,000 square meters (9 million square feet).

“Sweden’s economy has been resilient since the recession and continues to be one of the best performers,” said Zsolt Kohalmi, Starwood’s head of European acquisitions. “Top population growth metrics coupled with low vacancy rates provide a strong underpinning for the local real estate market.”

-By Niklas Magnusson

General Growth, Sutton Said to Buy NYC’s Crown Building

Source: Bloomberg / News

General Growth Properties Inc. (GGP) agreed to buy the Crown Building on Manhattan’s Fifth Avenue in partnership with New York landlord Jeffrey Sutton to build its presence in the world’s most-expensive retail district, two people with knowledge of the negotiations said.

The partners agreed to pay about $1.75 billion for the 390,000-square-foot (36,200-square-meter) tower at 730 Fifth Ave., at the southwest corner of 57th Street, one of the people said. Both people asked not to be identified because the negotiations are private.

At about $4,490, the price per square foot sets a world record for an entire office building, according to Ben Thypin, director of market analysis at Real Capital Analytics Inc., a New York-based real estate research firm. Much of the tower’s value is in its roughly 50,000 square feet of retail space.

The property is part of Fifth Avenue’s “golden mile,” from about 49th Street to the edge of Central Park at 59th Street, home of Apple Inc.’s “cube” store, Jacques Gordon, global strategist for LaSalle Investment Management, said in an interview. The building’s retail tenants include jewelers Bulgari SpA and K. Mikimoto & Co.

Urban Expansion

Chicago-based General Growth, the second-biggest U.S. mall owner, has been expanding into urban markets. Chief Executive Officer Sandeep Mathrani in July said urban storefronts “offer very compelling opportunities to create shareholder value.”

Kevin Berry, a General Growth spokesman, said in an e-mail that the company had no comment on the sale, which was reported earlier by the New York Post. Karolin Bissada, a spokeswoman for seller Spitzer Enterprises, said she had no comment.

Spitzer Enterprises, whose director is former New York governor Eliot Spitzer, co-owns the property with the Winter family. A call to the family’s office wasn’t returned. Nor was a call to Wharton Properties, Sutton’s New York-based firm.

Brokers Douglas Harmon and Adam Spies of Eastdil Secured LLC represented the sellers. A call to Eastdil spokeswoman Martha Wallau wasn’t returned.

Upper Fifth Avenue, a magnet for tourists and high-end shoppers, has the highest average retail rents in the world, at $3,500 a square foot, according to a study by Cushman & Wakefield Inc. released last month. The other three corners of the Fifth Avenue and 57th Street intersection are occupied by Tiffany & Co., Louis Vuitton and Bergdorf Goodman.

Rent Growth

Most of the office and retail tenants at the Crown Building are paying well below market rents, the people with knowledge of the sale said. About 90 percent of its leases expire within seven years, offering opportunities to boost the building’s cash flow, they said.

The office tenants include Apollo Global Management LLC, KKR & Co. and Ermenegildo Zegna Group, according to the website, which collects data on New York commercial properties. The 1921 Beaux Arts structure is capped by “an elegant octagonal hat rich in copper roofing and gilded details,” according to the American Institute of Architects Guide to New York City.

The building was once owned by Philippine President Ferdinand Marcos and his wife, Imelda, before they were ousted from power.

-By David M. Levitt

Minecraft Creator Buys Beverly Hills Home for $70 Million

Source: Bloomberg / Luxury

Markus Persson, the Swedish creator of the video game Minecraft, bought an eight-bedroom, 15-bath Beverly Hills, California, mansion for $70 million.

The price is a record for the neighborhood, according to Sally Forster Jones, Persson’s broker and president of Aaroe International Luxury Properties in Beverly Hills. Persson, who sold his company, Mojang AB, to Microsoft Corp. (MSFT) for $2.5 billion in September, looked at the 23,000-square-foot (2,100-square-meter) home for the first time about a month ago, she said.

Persson, 35, paid about $15 million less for what the mansion was listed for earlier this year. The estate, which had also been toured by Rapper Jay Z, was developed by Bruce Makowsky, who made his fortune selling handbags through department stores and the QVC television channel. Makowsky built the property, with views that sweep from downtown Los Angeles to the Pacific Ocean, without having a buyer lined up.

In an interview in September, Makowsky said he was counting on interest from global billionaires, technology magnates and entertainers whose demand for high-end properties has grown.

“The U.S. is a safe area for international buyers to invest in real estate,” Forster Jones said in a telephone interview. “But L.A. is also very, very cheap. The value and price relative to other international metropolitan areas make L.A. a bargain, even though this is a big dollar amount.”

$195 Million

At least 20 U.S. homes have sold for $50 million or more since 2010, according to New York-based appraiser Miller Samuel Inc. The highest current U.S. asking price is $195 million for Palazzo di Amore, a 12-bedroom, 23-bath Beverly Hills estate owned by real estate entrepreneur Jeffrey Greene.

The sale of the Fleur de Lys mansion for $102 million in March was the most expensive in the city of Los Angeles.

The fully furnished home purchased by Persson has $5,600 toilets and an 18-seat screening room. A 24-person dining-room table features place settings by Roberto Cavalli priced at $3,700 each, and the living room has 10 chairs designed by Bentley Motors that cost $56,000 apiece.

Branden Williams, a real estate agent with Hilton & Hyland who represented the seller along with Ben Bacal of Rodeo Realty Inc, confirmed the sale, which closed today.

-By Nadja Brandt and John Gittelsohn

London House Prices Will Stagnate Next Year, RICS Says

Source: Bloomberg / Luxury

London house prices will stagnate next year as potential global shocks keep the shackles on a market that’s been cooling in recent months.

The forecast was made by the Royal Institution of Chartered Surveyors, which expects no growth in London and 3 percent on average across the U.K. While the general election in May means some domestic political uncertainty, the main risks are external, RICS said.

A monthly price index from RICS fell to the lowest in more than a year last month, with the gauge for London at the weakest since 2010. Home prices in the capital are losing ground to cities including Edinburgh and Glasgow, according to a report today by Hometrack Ltd. The property researcher predicted that U.K. real estate values will rise about 2 percent in 2015.

“The downside threats largely stem from the possibility of political paralysis hitting both business and consumer confidence and the risk of a further global financial shock,” RICS said. It cited potential fallout from the euro area’s economic struggles and the possibility of the Chinese property market “unraveling in a more pronounced fashion.”

RICS said there are factors that may result in the market performing better than its forecast, including record-low Bank of England interest rates and signs of a pickup in wage growth. The organization said it’s hard to gauge the potential effect of changes to the U.K.’s stamp-duty transaction tax announced by the government this month.

Affordability Issues

The current weakness in the market, reflected in other housing reports, follows a surge in prices that stretched affordability and measures by the Bank of England to curb risky mortgage lending. Simon Rubinsohn, RICS chief economist, said the affordability issue “is not going to go away” until the supply of new homes is increased.

London property prices climbed by an average of 0.5 percent to 403,200 pounds ($632,000) in the three months through November, Hometrack said in its report. That was less than five other British cities, led by Edinburgh with a 1.8 percent increase and Glasgow’s 0.9 percent gain. Bristol, Southampton and Birmingham also beat London.

U.K. consumer confidence deteriorated this month to the lowest since March, GfK NOP Ltd. said separately today. The research group’s household-sentiment index fell to minus 4 from minus 2 in November. A measure of shoppers’ outlook for the economy in the coming year fell to minus 5 from zero.

-By Fergal O’Brien

London’s Housing Market Loses Ground to Other U.K. Cities

Source: Bloomberg / Luxury

London home prices are losing ground to other U.K. cities as restrictions on mortgage lending deterred buyers in the country’s best-performing market this year.

Properties in the U.K. capital climbed by an average of 0.5 percent to 403,200 pounds ($632,000) in the three months through November, property researcher Hometrack Ltd. said in a report today. That was less than five other British cities, led by Edinburgh with a 1.8 percent increase and Glasgow’s 0.9 percent gain. Bristol, Southampton and Birmingham also beat London.

In London, “we would expect to see further, modest price falls in the months ahead as prices re-align off a high base to what buyers are prepared to pay,” Richard Donnell, director of research at Hometrack, said in the report.

While the average London price increased in the period, more areas are showing declines following measures taken by the Bank of England to reign in borrowing to stem rising household debt. The average home in London costs about 9.1 times the median income of a full-time worker last year compared with 6.7 times for all of England, according to a February report by the Greater London Authority.

The biggest slowdowns in the last 12 months were in London, Cambridge and Oxford, where prices have risen the most since the U.K. market’s previous peak in 2007, Hometrack said.

Home values in the capital have climbed 16.4 percent in the past 12 months, even as wage increases across the country were sluggish. U.K. wages are rising at a rate of about 1 percent a year, according to the Bank of England.

The worst-performing location in Hometrack’s survey of 20 cities in England, Scotland and Wales was Liverpool with an increase of 3 percent to 107,000 pounds.

The company forecast that U.K. property values will rise about 2 percent in 2015, down from 8.9 percent in the 12 months through November.

-By Patrick Gower

Franco-Era Rents Law Expiry Spells Doom for Shopkeepers

Source: Bloomberg / News

Angel Garcia, whose family has sold hand-tailored shirts since 1857, will be shutting his shop on Madrid’s Gran Via in the New Year after his landlord decided to raise the rent almost 10-fold.

At the stroke of midnight on Dec. 31, a rent-control rule introduced under Spanish dictator General Francisco Franco comes to an end, spelling financial turmoil for thousands of small store owners.

“This business has been in my family for four generations,” Garcia, 89, said during an interview in front of his shop window, where “closing down sale” posters are now displayed instead of shirts. “It’s a sign of the times.”

The move, which will force businesses that can’t afford to pay new market-indexed rents to close shop or move to cheaper premises, will also free up prime property that has been inaccessible to retailers for decades, and comes as Spain is poised to post its fastest growth since 2007.

“This is a market economy, and you cannot have a tenant renting space in a prime area paying peanuts with the tenant next to them paying market rates,” said Angeles Perez, director of high street properties for Jones Lang LaSalle Inc. in Madrid. “It’s like we all want to own a Prada handbag but some of us pay 100 euros and others have to pay a thousand.”

About 65,000 businesses in Spain may be affected, with as many as 190,000 people losing jobs, said UPTA, a Spanish union.

Civil War

The 1964 rental law was introduced under Franco to provide social housing and affordable business premises in large cities for the steady stream of rural immigrants heading to urban centers to escape hunger and unemployment since the end of the Spanish civil war in 1939. The law was subsequently modified and extended in 1985 and again in 1994.

The year-end will mark the expiry of a moratorium of the extended rental law that allowed tenants who signed commercial rental contracts before May 5 1985 to remain in the properties for up to 20 years paying rents that could be only raised annually in line with inflation.

“The 1964 law was conceived at a moment when Spain needed to make its economy more dynamic and create businesses that would without doubt stand the test of time,” said Javier Roldan, a senior partner at Garrigues law firm in Madrid. “Long-term rents were positive for the situation and the socio-economic environment at the time.”

Market Rates

Businesses have had enough time to adapt and negotiate, although new rents are at market rates and these are too high for some, he said.

“Many businesses have been adapting over the years in expectation of this and have been able to successfully renegotiate their rents,” said Jones Lang LaSalle’s Perez.

Garcia currently pays 3,000 euros ($3,748) per month for the 250 square meter shop, where shirts and other garments rest in mahogany showcases and black marble counters, the original fittings from the last refurbishment in 1957. He says there is no way he can afford to pay the nearly 30,000 euros that Allianz SE, the building’s owner, is demanding.

“Allianz owns an adjacent property and they want to knock them into one to rent out to a bigger business so they won’t even negotiate with us,” Garcia said.

A spokeswoman for Allianz declined to comment.

While painful for shop owners, the measure is likely to have a positive effect on real estate investment in prime areas in large cities, freeing up retail outlets that are in demand since Spain’s recovery, said Perez.

Export Boom

“Larger stores create employment and attract tourists who spend money in those shops and surrounding bars and restaurants, which is good for the economy in general,” said Perez in a telephone interview.

Spain’s economy is set to outstrip European growth this year after a recovery in domestic demand added to the export boom that enabled the country to emerge from recession.

Louis Vuitton and Hennes & Mauritz AB (HMB) are among retail giants snapping up floor space in Madrid and have contributed to the 330 million euros that’s been spent so far this year on high-street properties in Spain, according to data compiled by JLL. The highest rents for high-street properties are paid in Barcelona’s Portal del Angel, where space costs 250 euros per square meter, according to the broker.

Total investment this year in the asset class is set to reach 450 million euros, the highest since 2007, Perez said.

Jazz Club

The end of rent control is also making 2015 grim for Madrid’s Café Central, a renowned jazz club.

It may be forced to close next year after the owner of the 300 square meter premises hikes the monthly rent to 12,000 euros a month from 5,000 euros.

Ranked by Wire Magazine as one of the world’s top jazz venues, it has staged performances by musicians such as George Adams, Don Pullen and Bob Sands since it opened 32 years ago.

“We’ve been served official notice to leave the place completely empty by midnight on New Year’s eve,” Geraldo Perez, 62, one of the club’s four co-founders said in an interview at the club last week. “We can barely pay the current quota.”

The art deco style jazz club is a three-minute walk from Calle Preciados, Madrid’s most expensive high street with retail rents of 230 euros per square meter.

Perez says he will appeal the notice in court, saying the Spanish family that owns it refuses to negotiate the new rent.

“Perhaps they already have a new tenant lined up and this place will become a fried chicken fast food joint,” he said. “It’s a huge shame not just for us but for the city. We are one of those authentic venues that give character to the place and tourists don’t visit Madrid to eat fried chicken and shop at H&M.”

-By Sharon Smyth

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