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23rd December 2014

Singapore Economy

Risk to S'pore economy 'from within'

Experts cite domestic restructuring efforts as biggest risk factor in 2015

Source: Straits Times / Money

EXTERNAL factors such as the recent oil price slump have grabbed attention of late.

But the biggest risk to Singapore's economy next year could still be its domestic restructuring efforts, experts said at a recent Straits Times roundtable.

Cheaper oil prices could boost consumer spending and lower operating costs for firms in industries such as transport, but the oil and gas sector will be hit, they noted. 

The housing slowdown in Singapore caused by tight loan curbs may also drag down the economy next year unless policymakers relax some of the property market cooling measures, the experts added.

Bank of America Merrill Lynch economist Chua Hak Bin said at the discussion that the biggest risk to the local economy next year was likely to be the manpower crunch sparked by Singapore's move to rely less on foreign labour.

Companies may have to fire some people over the next several months in order to keep below their foreign manpower quotas and avoid paying high levies for employing foreign staff, he said.

"They could also hire, but with the tight labour market, it will be a struggle. So we still have very tight constraints that will limit Singapore's growth potential."

Veteran investor Mano Sabnani agreed, saying that the local economy would be "OK but not something to shout about" next year.

Calling the domestic restructuring a "self-imposed constraint on growth", he said that the productivity boosts which the Government is aiming for have been "slow to come".

The experts also pointed to the ailing property sector as a source of weakness for the local economy next year. A softening real estate market could also hurt the construction industry and other related sectors, they noted.

Phillip Futures investment analyst Howie Lee said the property downturn may also damage the overall stock market. "When the property sector is down, there aren't much funds for investors to put into stocks," he said.

Investors should also watch out for major external risks to Singapore's economy, with the biggest being the eventual interest rate hike by the United States Federal Reserve, he said.

"If you take a look around our region, Indonesia is thinking of cutting interest rates, Thailand is, Malaysia is. Only Singapore will have to raise rates in tandem with the US and that poses a serious risk to growth," he said.

-By Melissa Tan

Singapore Real Estate

HDB should have access to flats for ceiling repairs: Khaw

Source: Straits Times / Top of The News

THE Housing Board should be empowered to enter a flat so that repairs on ceiling leaks can be performed more promptly, National Development Minister Khaw Boon Wan said yesterday.

About 2,800, or a third of ceiling-leak cases each year, take more than three months to resolve because of uncooperative neighbours, Mr Khaw wrote in a blog post.

Some upper-floor residents refuse entry to the HDB to carry out repairs. 

"This delays the repair unnecessarily and, meanwhile, the lower-floor residents suffer the inconveniences," Mr Khaw wrote.

"Minimally, HDB should be given the power to enter the flat for the purpose of carrying out the necessary investigations and repairs. We will need to amend the legislation to empower the HDB to do so."

Ceiling leakages make up about a quarter of the complaints that the HDB currently receives.

Both upper- and lower-floor flat owners are responsible for fixing leaky ceilings.

The HDB said it first tries to persuade upper-floor residents to cooperate and will involvegrassroots leaders in the mediation if necessary.

"After repeated attempts, HDB will have no choice but to initiate legal action as a last resort, to compel the upper-floor owners to allow HDB access into their flats," it said.

The HDB took legal action against an average of 120 flat owners who refused to cooperate each year in the past four years.

Last year alone, 154 flat owners received a lawyer's letter, and in some cases, a court order.

Mr Khaw pointed out that the HDB's Goodwill Repair Assistance scheme, which subsidises repair costs for residents, has benefited 140,000 households since its inception in 2001.

Under the scheme, the HDB bears half of the repair costs of leakages and spalling concrete, with the other half shared equally by upper- and lower-floor flat owners. On average, flat owners pay about $180 for each ceiling-leak repair.

The scheme does not cover the removal and replacement of fixtures and fittings.

Potong Pasir resident Louis Francis, who has had three leaks in his three-room flat since 2010, supported the move to facilitate repair works.

"Somebody has to repair it," said the 64-year-old retiree. "If not, it is not fair to the people living below."

But such repairs can get costly.

Housewife Cheng Caixia, 50, a Woodlands Drive 62 resident, forked out about $800 when her neighbours below had a ceiling leak about a year ago. Her toilet bowl, sink and floor tiles had to be changed, and her cabinet and glass shower door torn down.

"But I was okay with it. At the end of the day, we have to think about others," she said.

-By Yeo Sam Jo

HDB should be empowered to enter flats for repair works: Khaw

Citing cases of ceiling leaks remaining unresolved for months due to uncooperative neighbours, National Development Minister Khaw Boon Wan said laws need to be amended to allow the HDB to enter flats to investigate and carry out repairs.

Source: Channel News Asia / Singapore

SINGAPORE: The Housing and Development Board (HDB) needs to be given more power so it can enter flats to carry out repairs, National Development Minister Khaw Boon Wan said in a blogpost on Monday (Dec 22).

Mr Khaw cited cases of ceiling leaks remaining unresolved for weeks and even months due to uncooperative neighbours.

“We need to do more to help our residents who are inconvenienced by their neighbours who refuse to cooperate. Minimally, HDB should be given the power to enter the flat for the purpose of carrying out the necessary investigations and repairs. We will need to amend the legislation to empower the HDB to do so.”

According to Mr Khaw, 30 per cent of ceiling leak cases - about 2,800 cases - take more than three months to resolve when the upper-floor residents are uncooperative. “In some rare cases, the resolution of the ceiling leak problem could take more than a year. This is just not satisfactory,” he wrote.

“They refuse to allow entry by the HDB to the flat to investigate and carry out repairs. This delays the repair unnecessarily and meanwhile, the lower-floor residents suffer the inconveniences. We need to do more to help our residents who are inconvenienced by their neighbours who refuse to cooperate.”

Currently, HDB takes legal action as a last resort, to compel owners to allow HDB personnel access to flats. Last year, HDB had to take legal action against 154 flat owners for this reason.

About 25 per cent of the complaints that HDB receives concern ceiling leakages in flats, Mr Khaw said. The responsibility for maintaining the flats and addressing such leakages fall on both the upper and lower floor flats.

Mr Marco Chong, a contractor with Hoong Fatt Heng Renovation Works, said residents have various concerns. "If there is a leak in your ceiling, my client staying on the upper storey will say 'it might not be my fault. It might be a sewage pipe issue, a water inlet issue, a rain issue from outside'," he said.

"But for the neighbour downstairs, he will be thinking 'it is my ceiling, if it leaks, it must come from you. The water must be coming from your unit, you have to bear the cost'. With this kind of conflict, they might not be able to come to a consensus soon enough to get the issue resolved, so usually, we have to mediate the situation, to make it reasonable for both parties."

HDB has a Goodwill Repair Assistance scheme to subsidise repair costs for residents. Under the scheme, HDB will engage its term contractors to investigate the leakage and carry out the repairs. HDB will bear 50 per cent of the cost with the other half shared equally by the upper and lower floor flat owners.

On average, flat owners pay about S$180 for each ceiling leak repair, HDB said, with about 140,000 households benefiting from the scheme since it was introduced in 2001.

- CNA/cy/xy

CapitaGreen obtains TOP

Source: Business Times / Companies & Markets

Capitagreen - a 40-storey Grade A office building in the Central Business District - obtained its Temporary Occupation Permit (TOP) on Dec 18. It has also secured leases for 50.4 per cent (352,800 square feet) of its net lettable area as at December, in contrast to the 40 per cent leasing commitment announced in the third quarter of this year.

-By Kelly Tay

CapitaGreen secures leases for half of its net lettable area

Source: Straits Times / Money

CAPITAGREEN, the new 40-storey Grade A office building on the site of the former Market Street Carpark in Raffles Place, has secured leases for 50.4 per cent, or 352,800 sq ft, of its 700,000 sq ft of net lettable area as of this month.

This is more than the 40 per cent leasing commitment announced in the third quarter, the property's joint developers - CapitaLand, CapitaCommercial Trust and Mitsubishi Estate Asia - announced yesterday.

Rental rates for the latest tenants were not disclosed. 

The developers also announced that CapitaGreen obtained its temporary occupation permit last Thursday.

Mr Wen Khai Meng, chief executive of CapitaLand Singapore, said the developers were in advanced negotiations with several prospective tenants, and they expect to complete the talks in the next few weeks.

Catlin Asia Pacific, a member of the Catlin Group, an international speciality property/casualty insurer and reinsurer, is the latest tenant to join the list of multinational tenants at CapitaGreen.

To date, that list includes Cargill, Bordier & Cie (Singapore), Jardine Lloyd Thompson, Jones Day, and Fitness First, which will be launching a wellness facility tailored to executive lifestyles. The committed tenants are from diverse business sectors, including financial services, insurance, commodities, legal, technology, real estate, health and fitness, and food and beverage.

Designed by Pritzker laureate Toyo Ito, CapitaGreen was constructed using the efficient top-down construction method, which allows for the building's basement and superstructure to be built concurrently.

Innovations, such as the ingenious hybrid of steel and precast construction technology, further shortened the construction time to 36 months, from the industry average minimum of 40 months that it would take to complete a building of this scale using conventional construction methods.

Its signature double-skin green facade, the rooftop sky forest and three lush green sky terraces make CapitaGreen one of the greenest buildings in the Central Business District (CBD), its developers said.

One of the first tenants to move into CapitaGreen will be Jardine Lloyd Thompson, another global insurance player, which is scheduled to begin operations in the building in the first quarter of next year.

Said Mr Goh Chye Huat, managing director of Jardine Lloyd Thompson: "CapitaGreen stands out with its distinctive architectural design, and it is probably a first for a major commercial office development within the CBD to incorporate a 'green' facade.

"It meets our requirements of a high-specs Grade A office space with a generous floor plate size exceeding 20,000 sq ft."

-By Ann Williams

Rental demand for small retail units may weaken: DTZ

Source: Business Times / Real Estate

While the limited supply of strata-titled retail units available for sale is likely to help support the potential for capital appreciation in the long term, DTZ advises investors to be mindful that the rental demand for smaller retail units could be weaker amid the current tough operating environment, with competition from e-retailing as well as a labour crunch.

-By Kalpana Rashiwala

Retail rents 'dip amid cautious outlook'

Growing interest in e-commerce also behind falling rents in Q4: Report

Source: Straits Times / Money

RETAIL rents have dipped a little this quarter, given the cautious business outlook and growing interest in e-commerce, property consultancy DTZ said in a report yesterday.

Rents in Orchard Road and Scotts Road fell 0.7 per cent in the fourth quarter from a year earlier, according to a basket of retail space tracked by DTZ.

Suburban rents fell 0.9 per cent, but the largest decline was in other city areas such as Bugis and Marina Centre, where rents were down 1.9 per cent. 

A subdued year for bricks-and-mortar shops, combined with rising vacancies, has made some landlords more flexible with their rental contracts, said Mrs Ong Choon Fah, DTZ's South-east Asia chief operating officer.

Islandwide retail space occupancy rates hit a four-year low of 92.6 per cent last quarter, as the take-up of space fell "far short" of the new supply, noted DTZ.

In the first nine months of the year, about 1.2 million sq ft of retail space was completed, but the net take-up of space was far lower at 153,000 sq ft. This is also lower than the 505,000 sq ft recorded in the same period last year, said the report.

"While some malls had high pre-commitment rates upon completion, such as OneKM, there were others that opened with a substantial amount of vacant units," said DTZ. "The slowdown in take-up of retail space is reflective of the cautious attitude of retailers who have had to grapple with manpower issues since the revised quota on the hiring of foreign workers," said the report.

But while the data indicates an overall decline in rents, many rents have gone up, especially at malls owned by Reits (real estate investment trusts). Mr Tan Poh Lam, chief executive of video rental chain Video Ezy, has not seen rents lowered at any of his outlets. "Whenever a lease is up for renewal, landlords take the position that there's a hundred other retailers lining up to take your space if you can't pay the rent increase," said Mr Tan.

"Landlords would rather have vacancies than lower rents - their pockets are deep enough."

In the strata-titled retail market, sale transactions were low this year, as the total debt servicing ratio (TDSR) framework implemented in June last year weeded out a sizeable portion of speculative activity, said the report.

Capital growth increased a modest 1.3 per cent over the year in both Orchard Road and Scotts Road and the suburban areas.

In the other city areas, capital values of strata-titled retail space were flat, said the report.

A limited supply of strata-titled retail units is likely to help capital appreciation in the long term, but rental demand for smaller units could weaken, as demand from smaller retailers, who form the bulk of demand for such units, weakens with the tough operating environment, said the report.

Mrs Ong expects shop rents to continue to fall next year, except in the Orchard Road prime area where rents could "rise marginally".

"Orchard Road will still be Orchard Road, because most international brands still want to have a flagship store there," said Mrs Ong.

-By Marissa Lee

Rental growth for office space set to moderate in 2015: Analysts

About 3 million square feet of new office space are expected to enter the market in 2016 and 2017, and this new supply could put pressure on rentals, say industry players. 

Source: Channel News Asia / Business

SINGAPORE: Office rentals have been pushing higher in 2014, with tight supply pushing rentals up by more than 10 per cent.

Consultancy Jones Lang LaSalle (JLL) projects that rentals at office buildings in the Central Business District (CBD) - including Marina Bay, Shenton Way and Raffles Place - could grow by some 16 per cent, driven primarily by the tight supply of new office space in Singapore.

Looking into 2015, they said rental growth is expected to moderate in the first half of the year, in anticipation of new office projects. JLL said about 3 million square feet of office space will come on-stream in 2016 and 2017, including Marina One at Marina Bay, Duo in Bugis, V on Shenton, and Tanjong Pagar Centre. This new supply could put pressure on rentals, as it is twice the absorption rate of 1.2 to 1.5 million square feet.

On Dec 4, four sites with commercial components were placed on the Reserve List under the Government Land Sales programme for the first half of next year. They included plots in Holland Road, Beach Road, Woodlands Square and Marina View/Union Street. But some industry players said there is room for the Government to release more sites in the CBD.

Mr Warren Bishop, CEO of Raffles Quay Asset Management, said: "When you are talking about a site being released in 2015, it is unlikely to come to market until 2019-2020. We would probably see there is certainly room for the release of more land within the Marina Bay area. Looking at the longer term beyond 2018-2019, there will be consistent demand, what has been released is probably not going to be enough to meet that demand."

Mr Bishop added that the demand for office space in the years to come will need to be met. Otherwise, "you end up with situations where perhaps you see office rentals rise", he said. "We had a situation in 2007-2008 where there was an imbalance between demand and supply."

Looking to future Government Land Sales programmes, analysts expect the urban planners to roll out more commercial sites in the suburban areas for sale under the Confirmed List. These include locations like Jurong East, Paya Lebar and Woodlands. Meanwhile, to meet demand for office space in the CBD, market watchers suggested that the Government could put some sites for sale on the Reserve List, which can be triggered for sale by developers.

Analysts said they have observed a new trend in the leasing market, with some deals going beyond the typical 'three plus three years' lease terms.

Dr Chua Yang Liang, head of research for Southeast Asia at JLL Singapore, said: "We are hearing some cases where landlords are chasing bigger occupiers and offering them slightly longer leases, such as 'five plus five' or 'six plus six'. They are locking them in for a longer period. Likewise, from the tenants' perspective, a longer lease in such instances helps them in terms of amortising their overhead cost - like their fit-out costs for example."

Overall, analysts said sentiment in the industrial property market remains mixed as Singapore shifts towards higher value-added manufacturing and service-oriented sectors.

Mr Nicholas Mak, executive director of research and consultancy at SLP International Property Consultants, said: "One of the challenges facing Singapore going forward is the changing nature of our economy, as it becomes a more service-oriented one. 

"I think the Government needs to re-define the type of uses and trades and businesses that are allowed to use industrial space. As e-commerce within our economy expands, there will be more demand for storage space. The authorities could also re-look how they could allow more e-commerce companies to use industrial space."

Industrial rents are seen falling by 3 per cent this year and SLP International said they could continue to decline in 2015 - by about three to five per cent - if supply continues to outpace demand.

- CNA/ac

Companies' Brief

OCBC maintains neutral call on S-Reits for 2015

Source: Straits Times / Money

REAL estate investment trusts (Reits) enjoyed a good 12 months, but 2015 could be a tad more volatile, according to OCBC Investment Research.

Its report said an expected hike in interest rates by the US Federal Reserve next year will raise the cost of borrowing in Singapore, including among S-Reits.

This could cause volatility in their share prices, something seen last year when the Fed first mooted a tapering of its quantitative easing measures. 

The Fed's statement in May sent the Singapore Government 10-year bond yield up from 1.6 per cent to 2.56 per cent by the end of the year while the FTSE ST Reit Index fell 15.5 per cent over the same period, noted OCBC.

But the report issued last Friday also suggested that the reaction of S-Reit share prices to the Singapore Government bond yields tends not to be so clear over a longer period.

OCBC analyst Andy Wong wrote that most Reit managers have taken steps to prepare for higher interest rates.

"Hedging strategies have been put in place, and we note that across our S-Reits universe coverage, approximately 46 per cent to 100 per cent of debt is on fixed rates or have been hedged via interest rate swaps," Mr Wong noted.

Many Reits have strengthened their balance sheets, while loan tenures have been extended following refinancing exercises carried out by managers.

OCBC has kept its neutral call on the S-Reit sector as it expects continued growth in overall distribution per unit next year, despite the headwinds.

It noted that the FTSE ST Reits Index is trading above historical levels on a forward price-to-book value of 1.02 times, above the seven-year average of 0.93 times.

The yield spread of the index over the Singapore Government 10-year bond yield, meanwhile, is at 4 per cent, below the seven- year average of 4.7 per cent.

The office and retail Reit sub- sectors are expected to do better, with OCBC giving them "overweight" ratings.

The industrial, hospitality and health-care Reit sub-sectors received "neutral" ratings.

OCBC's top picks are CapitaMall Trust, Frasers Centrepoint Trust and Starhill Global Reit.

-By Mok Fei Fei

Views, Reviews & Forum

Transformational leadership for Singapore's next 50 years 

Source: Straits Times / Forum Letters

I APPLAUD Mr Barry Desker's call for a mindset change to develop a vision for our country's future ("Vision for tomorrow must break out of yesterday's mould"; last Saturday). It is a timely reminder for our nation to seek a new direction as it marks its 50th birthday next year.

Unfortunately, discussions about the future suggest we are unable to move beyond the limitations set by our ageing society, with the influx of foreign labour seen as the only viable solution. Instead of leading change, we allow this issue to frame the discussion.

So I am not sure how we can develop a transformational solution if the discussion starts with immigration and ends with a suggestion for dual citizenship - an idea that has been rejected by the Government and its citizens.

The discussion should not be solution- or platform-centric; it should be about the type of transformational leadership that will take Singapore into the next 50 years.

Singapore was blessed with one such leader in former prime minister Lee Kuan Yew, who shaped our nation's destiny for the past five decades.

For Singapore to continue to prosper, we need another transformational leader like him. This person would need great vision, courage, toughness and diligence, and be willing to take risks and have the ability to connect with people.

This leader must unite different stakeholders to build a productive and compassionate society that produces champions and respects everyone, generating wealth that is distributed fairly to all citizens.

Without transformational leadership to win over hearts and minds, any discussion would be just that - a discussion without change.

-By Chew Cheng Huat

URA index shows broad price trends in private home market

Source: Straits Times / Forum Letters

WE THANK Ms Vina Ip for her letter ("Public deserves reliable, consistent data"; last Thursday).

The Urban Redevelopment Authority's Property Price Index (PPI) provides the public with a broad indication of price trends in the private residential market. The index covers the entire private housing market, including uncompleted and landed properties.

In contrast, the other property price indices tracking the private housing market have different coverage and methodologies. Hence, the resulting price changes may vary.

To compute the PPI, we use data from caveats lodged with the Singapore Land Authority for sub-sales and resales. For new sale transactions, we have complete data on property prices from a regular survey of developers. All discounts and rebates provided by developers are deducted to derive the nett prices.

Besides the PPI, prospective home buyers can view the transaction prices of individual private homes on our website.

We are also working towards releasing the nett prices of individual units sold by developers on our website in the first half of next year.

We assure Ms Ip that we will continue to make improvements to our property market data.

Sin Lye Chong

Group Director, Land Sales and Administration

Urban Redevelopment Authority

Global Economy & Global Real Estate

Short-term jitters in London real estate after tax changes

S'pore investors may incur greater compliance costs but slow, cautious market poses buying opportunity

Source: Business Times / Real Estate

'Just-below' pricing tactic a boon for house sellers

Source: Business Times / Real Estate

Housing in Uneven Recovery as Home Sales Decrease: Economy

Source: Bloomberg / Luxury

Sales of previously owned U.S. homes slumped in November from a one-year high, underscoring the uneven nature of the current recovery in residential real estate that’s been one of its defining characteristics.

Purchases fell 6.1 percent to a 4.93 million annual rate last month, the weakest reading since May, from a 5.25 million pace in October, figures from the National Association of Realtors showed today in Washington. Demand dropped in all regions of the country, suggesting anomalies such as bad weather were not at play, the group said.

Scant inventory and slow return of first-time buyers after the worst recession in the post-World War II era are working to counteract ultra-low mortgage rates, the agents’ group said. A strengthening labor market will be needed to boost growth in the industry as the Federal Reserveconsiders raising benchmark interest rates next year.

“The recovery in housing remains slow,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose forecast for a 4.94 million sales pace was among the closest in the Bloomberg survey. “I don’t think it’s really an indication that there’s a fundamental weakening in the housing market.”

Stocks extended their climb, with the Standard & Poor’s 500 Index rising to a record, as gains in technology shares offset losses among drugmakers. The S&P 500 increased 0.4 percent to 2,078.54 at the close in New York.

Bloomberg Survey

The median forecast of 73 economists surveyed by Bloomberg projected sales would decline to a 5.2 million rate. Estimates ranged from 4.93 million to 5.3 million. October’s reading was the strongest since September 2013, and was revised from a previously reported 5.26 million.

Purchases increased 2.1 percent in November on an adjusted basis compared with a year earlier, when a temporary jump in mortgage rates hurt demand, today’s report showed.

The number of properties on the market dropped 6.7 percent in November from a month earlier to 2.09 million, the fewest since March. At the current pace, it would take 5.1 months to sell those houses, the same as in October.

The size of the decline in sales last month was “somewhat of a puzzle,” Lawrence Yun, NAR chief economist, said in a news conference today as the figures were released. All the things that typically influence demand are constructive, including a strengthening economy, more hiring, rising consumer confidence, higher stock prices and low mortgage rates, he said.

That probably means the decline could be a “one-month aberration,” said Yun.

Little Supply

The drop in inventory may also mean prospective home buyers just don’t have enough of a selection and are staying away until there is more supply, he said.

One longer-term challenge that the real-estate agents’ group is tracking is the possibility that current owners are suffering from “rate-lock,” meaning they don’t want to risk losing their ultra-low mortgage rates by moving, Yun said. He also said that the stock market’s swoon in early October could have scared some prospective buyers the following month, and that bad weather probably didn’t play a role in the slowdown.

All four regions showed a decrease in sales last month, led by a 9.6 percent drop in the West.

Purchases of single-family homes declined 6.3 percent, and sales of condominiums were down 4.8 percent.

Housing has struggled to accelerate this year even amid low mortgage rates as rising property values and strict lending standards cause some young or lower-income buyers to stay out. First-time buyers accounted for 31 percent of all purchases in November, today’s report showed. While that’s the highest share in two years, it remains short of the 40 percent that the group has said is more typical and means those buyers are coming back only “slowly,” Yun said.

Prices Rise

The median price of an existing home increased 5 percent from a year earlier to $205,300 last month, today’s report showed. That exceeded the 1.3 percent increase in consumer prices and the 2.1 percent advance in hourly earnings on average over the same period.

“Unless there is a meaningful pickup in household incomes in 2015, expect continued weakness in sales as the average home buyer is squeezed,” Sophia Kearney-Lederman, an economic analyst at FTN Financial in New York, said in a research note. “The housing market has struggled to find sustained upward momentum this year, even as the broader economy regained strength.”

Commerce Department data last week showed that the pace of U.S. home construction slowed in November, with housing starts declining 1.6 percent to a 1.03 million annualized rate. Building permits also fell, showing construction is also unlikely to surge in the immediate future.

Mortgage Rates

Mortgage rate stability will play an important role in convincing some prospective buyers to take the plunge, especially as Fed officials debate when to raise their benchmark interest rates for the first time since 2006. Conversely, an impending rate rise may encourage some buyers to pre-emptively jump into the market.

The average rate for a 30-year fixed mortgage was 3.80 percent in the week ended Dec. 18, according to Freddie Mac in McLean, Virginia. That’s the lowest level since May 2013, when then-Fed Chair Ben S. Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains.

Homebuilders including PulteGroup Inc. (PHM) remain optimistic about the industry’s prospects. Confidence among U.S. homebuilders hovered close to a nine-year high this month, according to the National Association of Home Builders/Wells Fargo sentiment gauge.

“Our expectation would be we continue to move towards normal,” Robert O’Shaughnessy, chief financial of Bloomfield Hills, Michigan-based PulteGroup, said at a Dec. 9 meeting with investors. The improvement will come at “a measured pace,” he said, with some regions performing better than others.

-By Victoria Stilwell

Kennedy Wilson to Buy U.K. Real Estate for $787 Million

Source: Bloomberg / News

Kennedy Wilson Europe Real Estate Plc (KWE) agreed to buy 180 U.K. properties from receivers appointed by a unit of Aviva Plc (AV/) for 503 million pounds ($787 million).

About 98 percent of the buildings’ space is occupied and the portfolio will give a net initial yield of 6.9 percent, KWE and Aviva said in a statement today. The transaction is due to be completed at the end of January, they said.

U.K. commercial property gave landlords a total return, a combination of rental income and changes in value, of 20 percent in the 12 months through November, according to Investment Property Databank Ltd. More than half of the assets being purchased by KWE are in London and southeast England and the acquisition includes the Travelodge hotel in King’s Cross, according to the statement.

The deal will allow KWE to “access a high-quality mixed-use portfolio with strong tenant covenants generating robust income streams at a material discount to the original loan amounts,” President and Chief Executive Officer Mary Ricks said in a statement.

Jersey, Channel Islands-based KWE will pay for the real estate with a 352.3 million-pound loan from Aviva and with cash.

-By Neil Callanan

Kaisa Posts Record Plunge as Shenzhen Blocks Property Sales

Source: Bloomberg / News

Kaisa Group Holdings Ltd. (1638) posted a record decline, extending its slump this month to 42 percent, after resuming trading as the developer struggles with more bans on selling real estate in Shenzhen.

The company said over the weekend that pre-sales at four more of its projects in the Chinese city had been restricted. Earlier blocked sales prompted the family trust of Chairman Kwok Ying Shing to sell shares equal to 11 percent of issued stock to Sino Life Insurance Co. this month. Kaisa last week asked major investors to reduce stakes and may sell new stock after its public float fell to less than the 25 percent required by Hong Kong’s bourse. Kwok is resigning Dec. 31, with the company citing health reasons.

“If the process of land acquisition is not 100 percent legal, the government may take back the land or impose fines, but these are just speculative guesses,” said Simon Lam, research director at Christfund Securities Ltd. in Hong Kong. “It may be driving some shareholders, including institutional investors, into panic selling. The company still has an attractive discount if you compare its net asset value.”

Trading Resumes

Kaisa slid 17 percent to HK$1.75 at the close in Hong Kong today, compared with a 1.3 percent advance for the benchmark Hang Seng Index. The developer resumed trading after being halted from Dec. 16, the second suspension this month.

Shares of the Chinese developer have plunged 42 percent in December, compared with a 3.3 percent gain for China Vanke Co. in Hong Kong and an 19 percent jump for Poly Real Estate Group Co. in Shanghai. Kaisa is trading at 0.4 times net assets, while Vanke’s multiple is 1.8 and Poly is valued at 1.7.

Haitong Securities Co. on Dec. 5 cut its rating on Kaisa to sell from buy and trimmed its price target to HK$2.01 from HK$3.31, saying there are few answers as to how the government and company will proceed with the blocked projects. Macquarie Research downgraded the shares to neutral from outperform with a 12-month price target of HK$2.11.

The blockage of projects will have an adverse impact on cash flow, the company said in a statement yesterday. Earlier this month, a woman who answered the phone at Shenzhen’s planning commission and declined to give her name said the property sales were blocked because of developer irregularities, refusing to elaborate.

-By Kana Nishizawa

Bilfinger Seals $282 Million Sale to Implenia to Exit Building

Source: Bloomberg / News

Bilfinger SE (GBF), once Germany’s second-biggest builder, agreed to sell its construction division to Switzerland’s Implenia AG (IMPN) in a 230 million-euro ($282 million) deal to exit the industry.

The two companies expect the sale of the unit, whose finished contracts totaled about 600 million euros in 2014, to be completed in the first quarter of 2015, they said in separate statements.

“Parting with what was for a long time our traditional business was not an easy decision,” Bilfinger Chief Executive Officer Herbert Bodner said in a statement.

Bodner, 66, took the reins at the Mannheim, Germany-based company, which has been transforming itself into a services provider, on an interim basis in August after predecessor Roland Koch issued his second profit warning inside five weeks. Former politician Koch had himself replaced Bodner as CEO in 2011, when the Austrian-born executive retired.

Bodner reduced the profit goal again Sept. 4, citing difficult markets for energy and European oil and gas. Since the third warning, Bilfinger has won a contract to manage 125 hydroelectric power plants for Finnish utility Fortum Oyj (FUM1V), and to maintain two production plants for Norwegian fertilizer maker Yara International ASA. (YAR)

Bilfinger shares climbed 1.6 percent to 45.82 euros as of 12:55 p.m. in Frankfurt, paring their decline this year to 44 percent and valuing the company at about 2.1 billion euros.

Implenia, which had revenue of 3.1 billion Swiss francs ($3.2 billion) in 2013, was advised on the deal by Lazard Ltd. (LAZ) Bilfinger worked with Rothschild and law firm Allen & Overy LLP.

Bilfinger expects net proceeds from the sale of the unit, which employs nearly 1,900 people, to be about 230 million euros. The planned sale of civil-engineering assets was announced in May, and Bilfinger is still seeking a buyer for its Polish construction operations.

-By Alex Webb

Investors Chase 14% Yield in Mexican Housing Recovery: Mortgages

Source: Bloomberg / Luxury

To Adrian Parra, the 436,375 peso ($30,000) mortgage he got in Mexico in 2008 is a burden he can’t shake. He says inflation-linked increases to the principal have helped push the amount he owes to more than 500,000 pesos after six years of payments.

To investors, mortgages like Parra’s are an opportunity to seize in Mexico’s rebounding housing market.

This must be “a very profitable business,” said Parra, 37, a financial adviser in Mexico City. “But since I’m a homeowner, it’s really not.”

Foreign investors have poured into Mexico’s first mortgage real-estate investment trust, which is using some of the 8.625 billion pesos raised in a share sale last month to fund purchases of inflation-adjusted mortgages. Investors in the REIT, known as FHipo, benefit from an interest rate of at least 8.5 percent on the mortgages, an inflation adjustment that boosts the principal and exposure to a resurgent market.

“We found mortgages which we believe are more appealing than the mortgages you can buy in the U.S.,” said Carlos Vara, a shareholder and former chairman of Mexico City-based Concentradora Hipotecaria SAPI (FHIPO), which manages FHipo. “Mortgages do not grow by book value typically on a yearly basis. However, in our case, they do.”

Government-backed Infonavit, Mexico’s largest mortgage lender, sought to protect itself from inflation starting in 1987, when the rate soared to more than 159 percent from 64 percent in 1985. Infonavit began issuing mortgages in which the loan principal would increase annually based on the growth of the minimum wage, which the government adjusts with inflation.

9% Rate

FHipo is funding loans under a program called Infonavit Total. The average interest rate is about 9 percent for the 1.6 billion pesos of mortgages that the REIT has purchased so far. About half of them are held by borrowers earning more than $16,800 a year. That’s more than one and a half times the $10,307 per capita gross domestic product the World Bank estimates for the country.

The 372,000 Infonavit Total mortgages outstanding have an average non-performance rate of less than 2 percent, according to the lender. Infonavit, as the National Workers’ Housing Fund Institute is known, collects the payments, mainly by deducting them directly from workers’ paychecks. Bank mortgages had a non-performance rate of 4 percent in October, according to regulator data.

Best Returns

FHipo has an exclusivity agreement with Infonavit and will be the only nonbank buyer of Total mortgages until at least late 2015 -- locking out other REITs. FHipo’s funding will free up money that can be used to finance additional borrowers, said Alejandro Murat, the head of Infonavit.

“These securities only mean that more institutions of another kind can generate more resources for the Institute, that’s basically what FHipo’s doing,” Murat said from the company’s headquarters in Mexico City. “Infonavit Total continues to be the most solid product that the Institute has to offer. It gives the most certainty and the best returns for investors.”

FHipo aims to pay a dividend yield of 14 percent based on the share price in its initial public offering -- partly by using borrowed money to supplement shareholder equity, according to company filings. That’s four times the average dividend for the 168 members of the Bloomberg NA REIT index, which includes U.S. trusts with a market capitalization of at least $15 million.

Low-Risk Opportunity

Rodrigo Nunez, head of credit and alternatives at pension fund Afore XXI Banorte in Mexico City, said he bought FHipo shares because they offered a low-risk opportunity to get relatively high yields.

“In Mexico, since the asset is yielding much more, you can have some kind of a premium,” Nunez said

Global investors bought more than 60 percent of the REIT’s shares in its Nov. 4 IPO. The REIT has outperformed Mexico’s benchmark IPC index since selling 7.5 billion pesos of shares at 25 pesos each. The REIT, which also sold an additional 1.125 billion pesos in shares, has slipped 2 percent to 24.5 pesos a share since the IPO, compared with a 5.3 percent drop for the index.

Credit Suisse Group AG analysts last week gave FHipo an outperform rating and a target price of 30 pesos a share. They called the REIT an attractive vehicle to access Mexico’s underpenetrated mortgage market.

“We expect FHipo to offer very attractive yields with low leverage risk,” analysts led by Vanessa Quiroga wrote in the Dec. 15 report. “This looks very attractive when compared to the U.S. mortgage REITs.”

While FHipo currently has a self-imposed leverage limit of 50 percent of the trust’s assets, it will post a 10 percent dividend yield in 2016 and 12.1 percent by 2018, the bank projects.

Lending Expands

In early 2013, changes in federal housing policy shifted subsidies to encourage city development over commuter towns. That rendered some land holdings belonging to homebuilders useless and pushed Desarrolladora Homex SAB (HOMEX*), Urbi Desarrollos Urbanos SAB and Corp. Geo SAB into default. 

Investors lost billions of dollars on the industry as projects froze and many owners abandoned homes that hadn’t been connected to utility services.

Less than two years later, the mortgage market is recovering as bank and credit union lending rates for all types and maturities of home loans hover at a record low of 10.8 percent.

Bank mortgages, typically available only to Mexicans with a more established credit history, rose by 13 percent in the 12 months through October to 552.6 billion pesos, according to data from the regulator known as the CNBV. Infonavit estimates that the number of mortgages it will originate each year will increase to 394,000 in 2018 from 380,000 in 2014.

Inflation-Linked Mortgages

As more borrowers like Parra face growing balances, Infonavit has started reviewing its inflation-adjusted loan program, Murat said. The lender is planning a pilot program next year that will let workers convert inflation-linked mortgages into loans with fixed amounts, he said.

With annual inflation under 5 percent since August 2009, a policy change may be warranted “in recognition of the macroeconomic stability that Mexico is now enjoying,” Murat said.

Alfredo Vara, chief executive officer of the company that manages FHipo, said while the principal on the loans may increase early on because the amortization is small, the balance doesn’t go up in real terms since the worker’s salary also grows.

“What you have is a credit with a real rate that grows with inflation,” said Vara. “As much as the salary grows with the minimum wage, in reality what this does is create greater buying power.”

Parra’s Payments

Vara said that inflation-linked mortgages are unlikely to dry up because they allow for more borrowing than loans with fixed principals. The REIT could also fund fixed-amount mortgages as long as rates are similar, he said.

Parra, the adviser, said the Infonavit loan hasn’t worked out for him. He secured the mortgage at a rate of 10 percent and planned to pay it off in a decade while earning about 25,000 pesos a month.

He lost his job at a pharmaceutical firm just a month after getting his mortgage and was out of work for a year. During his time out of work, the payments he made out of pocket as well as those from his unemployment insurance policy were sometimes less than the amount that Infonavit would have deducted from his paycheck.

As an adviser paid partly in commissions, Parra now earns about two-thirds of what he used to make even after receiving base salary increases, he said. At the same time, his principal payments have increased along with the minimum wage to keep up with inflation.

“I’m putting a very significant part of my salary toward this,” Parra said. “I haven’t finished paying or even advanced.”

-By Ben Bain

New registration rules for China real estate owners 

Source: Straits Times / World

SHANGHAI - China has issued rules requiring real estate owners to register their holdings with the authorities, a major step in the fight against corruption that should make it harder for property speculators to evade regulations.

Until now, China has had no such registration requirement, an absence that has let some people use property as an opaque vehicle to hide assets from the authorities.

The rules, issued yesterday and taking effect on March 1, are a key step in creating a nationwide property database. They were published by the State Council, China's Cabinet-level political body.

"All real estate assets - land, water areas, houses, forests and the like - will be subject to this set of rules," the announcement said. "The rules apply to the first-time registration, changes of ownership, as well as property transfers, write-offs and asset freezing, among other things," it said.

Anyone found to have abused their powers, or used forged documents to make false declarations during registration will be prosecuted, the statement said.

Officials have said that China needs about three years to fully establish a unified registration system for real estate, and about four years to run a unified registration information management platform, which will support the country's fiscal and financial reforms.

But the publication of the rules came later than expected, the officials said, reflecting heavy resistance from local governments and other insiders.

While information on property ownership is already collected in some form by the authorities, experts said the current record-keeping system for residential property is not consolidated or comprehensive, making it insufficient to effectively monitor the housing market.


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