Singapore Economy S'pore gets its first taste of deflation in five years Cheaper oil and COE premiums see prices dip, but demand still healthy Source: Straits Times / Top of The News THE relatively rare phenomenon of negative inflation hit Singapore last month - its first appearance in five years. The effect - also known as deflation - occurs when prices in one month decline over the same period a year earlier. In this case, consumer prices fell 0.3 per cent last month over November 2013, mainly due to fluctuations in certificate of entitlement (COE) premiums and cheaper crude oil. The last negative inflation recording was in December 2009 amid the global financial crisis. Plunging oil prices may make headline inflation more common. Benchmark Brent crude has dropped from about US$70 a barrel at the end of last month to US$60 now, so even deeper deflation may occur this month. Deflation has become a grave concern for economies around the world. Apart from higher supply, the drop in crude oil prices is a also the product of slowing growth. The gloomy outlook could translate to even less economic momentum as consumers and businesses grow more cautious. While deflation points to deeper structural issues for economies like Japan and Europe, economists say that Singapore has less to worry about as its economy is not suffering from a chronic lack of demand. Singapore's deflationary reading last month was driven by fluctuating COE prices and falling accommodation costs, in addition to cheaper crude. "Lower prices were a result of administrative measures designed to curb excess consumer leverage in the purchase of houses and cars, and not due to a lack of demand," said UOB economist Francis Tan. Private road transport costs fell 7 per cent in November over the same month last year, while accommodation costs declined 1.2 per cent amid a softening rental market. However, food inflation jumped 2.9 per cent, driven by price increases in non-cooked items and prepared meals. Domestic food inflation could remain elevated in the near term, said the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) in a joint statement yesterday. They reiterated that firms, particularly those in the service sector, are likely to continue passing on high wage costs to consumers amid the tight labour market. This was borne out in last month's core inflation figure - seen as a better measure of everyday out-of-pocket costs - which came in at 1.5 per cent. The measure, which excludes the costs of accommodation and private road transport, is expected to average 2 per cent to 2.5 per cent this year. This is higher than the 1 per cent to 1.5 per cent forecast for headline inflation. Dr Tan Khay Boon, senior lecturer at SIM Global Education, said car owners who enjoy a lower petrol bill "are the only beneficiaries of lower oil prices". "In the midst of high labour costs as well as high industrial and commercial rental costs, any cost savings from lower oil prices will likely be used to defray the high unit labour cost and other operating costs, instead of being translated into lower prices for consumer goods and services." The MAS and MTI reiterated their forecasts for headline inflation as coming in at between 0.5 per cent and 1.5 per cent next year, but cautioned yesterday that the reading could come in slightly lower "should global oil prices be sustained at current low levels". Core inflation is likely to "stay firm" and average 2 per cent to 3 per cent next year, according to official forecasts. -By Chia Yan Min Singapore Real Estate Cooling measures not dragging down home prices Source: Straits Times / Money HOMES have become only marginally more affordable following the many cooling measures introduced over recent years, according to a CBRE report. Prices have dropped only slightly and the declines for new homes are likely due in part to the median size for a new apartment shrinking, said Ms Han Huan Mei, associate director of research at CBRE Singapore. She noted that cooling measures have not caused prices to plummet as economic fundamentals are still sound, adding: "As long as home buyers are able to service their loans and developers have the power to hold, home prices are less likely to slide." The Urban Redevelopment Authority (URA) private residential price index shows that prices peaked in the third quarter of last year, having risen 62 per cent from the second quarter of 2009 when the market began recovering from the global financial crisis. A range of cooling measures since those heady days have seemingly had only a minor effect on values, with the index down just 3.9 per cent in the 12 months from Oct 1 last year to Sept 30 this year. On closer look, the median price of new homes rose by 12 per cent to $1.08 million from the start of 2009 to the end of last year but has fallen 9 per cent to $1.02 million over this full year, Ms Han said. Resale prices have suffered less. The median price of a home rose by 65 per cent to $1.4 million from the start of 2009 to the end of last year before easing 4 per cent to $1.34 million over this year. The threshold for new homes has held steady at about $1 million while that for resale homes has been at about $1.3 million for the past five years, Ms Han said. But the median size of a new home has fallen steadily, from 1,195 sq ft in 2009 to 753 sq ft this year. Developers have opted to build compact units for new projects to keep the lump sum price affordable, Ms Han said. But the median size of a resale home has remained constant at above 1,200 sq ft through the years. Ms Han said the $1 million threshold for new homes is likely to stay as long as wages remain stable and in line with inflation but the squeeze on space will continue if costs increase. Overall, the URA residential price index - which factors in a weighted "moving average" of transactions over 12 quarters - for all residential homes showed a decline in prices of 3 per cent over the first nine months of this year. But the fall for new homes was likely around 6 per cent, which is "more likely a function of shrinking size", said Ms Han, while resale home prices fell by about 4 per cent over the same period. The sharper fall in new home values may also be due to price cuts in some projects nearing completion, as developers focus on clearing unsold units. The Vermont At Cairnhill sold 37 units in August after prices were trimmed by 12 per cent while about 130 homes at Sky Habitat were sold in April after a price cut of 10 to 15 per cent. Home sale volumes have dropped by about half one year after the Total Debt Servicing Ratio was introduced and have "continued at a lukewarm pace", Ms Han noted. She tipped next year's home sales volume to be similar to this year's.
Home prices are likely to "see modest corrections until they reach an equilibrium", she added. -By Rennie Whang South Beach Consortium can afford to be patient Source: Business Times / Companies & Markets After labouring for seven years, City Developments Ltd (CDL) is finally starting to see the fruits of its hard work for the South Beach project. The first component to be completed is the 34-storey office tower, with Temporary Occupation Permit slated to be received by year-end. South Beach Tower, as the office block is known, has 500,000 square feet net lettable area, of which 80-90 per cent was already leased as at last week. The first office tenants are scheduled to begin operations in the first quarter of 2015. -By Kalpana Rashiwala http://www.businesstimes.com.sg/companies-markets/south-beach-consortium-can-afford-to-be-patient 20% GFA cap on clinics in commercial space New guidelines aimed at preventing commercial buildings from becoming de facto medical centres Source: Business Times / Real Estate New guidelines have been introduced effective Tuesday to cap the quantum of space for medical clinics in commercial developments to prevent such developments from turning into de facto medical centres. "This would also ensure that commercial buildings have a good mix of other commercial uses such as shops, eateries, offices, etc, within the development to meet different needs," the official circular stated. -By Kalpana Rashiwala http://www.businesstimes.com.sg/real-estate/20-gfa-cap-on-clinics-in-commercial-space New cap on clinic space in commercial buildings Limit is 3,000 sq m or 20% of area set for commercial use, whichever is lower Source: Straits Times / Top of The News THE Urban Redevelopment Authority (URA) and Ministry of Health (MOH) have introduced guidelines limiting the amount of commercial space that can be used by medical clinics. Under the new cap, the total gross floor area (GFA) for medical clinics within a commercial building cannot exceed 3,000 sq m or 20 per cent of the total floor area approved for commercial use, whichever is lower. The changes became effective yesterday. In a circular posted on its site, the URA said it "has received an increasing number of planning applications for new private medical centres within commercial developments". Commercial buildings could therefore run the risk of becoming de facto medical centres, which should be located only on sites zoned for health and medical care use. The MOH's online listing of licensed health-care institutions shows there are more than 500 clinics around the central Orchard Road shopping belt alone, with several in malls such as Para- gon, Pacific Plaza and Wisma Atria. A URA spokesman told The Straits Times that "a trend of applications for larger private medical clinics within commercial developments" has emerged recently, with 10 such in the past two years. He added: "Such proposals could lead to the conversion of more than 20 per cent of commercial space into medical clinics, displacing other important commercial uses such as for shops, eateries and offices, etc, which meet different needs." The cap will help prevent that, and also ensure that commercial buildings have a good mix of other commercial uses, the URA said. The guidelines leave some room for certain exceptions. The 20 per cent GFA cap does not, for instance, apply to medical clinics located in shophouse developments and Housing Board shops, where it may be too restrictive. For these developments, the GFA for medical clinic use should not exceed 3,000 sq m. Existing medical clinics within a commercial development that have already exceeded the cap will also be allowed to remain and not be required to reduce their total floor area. Operators who wish to set up medical clinics in commercial buildings are now required to submit a planning application to the URA for evaluation. There will, however, be measures to help operators setting up clinics in buildings with few existing ones. SLP International Property Consultants' executive director of research and consultancy, Mr Nicholas Mak, said: "Creating medical space is one way for some developers to maximise the real estate value of upper- floor retail space.
"An oversupply of such medical units in office buildings and shopping centres can lead to wastage of space if the units are eventually not used for their intended purposes." -By Hoe Pei Shan $1,088,888 for Bishan flat despite soft resale market It tops the list of seven resale public housing units sold for at least $1m Source: Straits Times / Top of The News THE property market may be on the downtrend, but that did not stop a Housing Board maisonette in Bishan from fetching an auspicious $1,088,888 in October and setting a new record. The 150 sq m flat, with 72 years left on its lease, is not the first of its kind to fetch a sky-high price in the public housing market. Of the seven resale units which sold for at least $1 million, four were maisonettes from Blocks 190 and 194 in Bishan Street 13. These point blocks have four units on each floor, with maisonettes on the two highest storeys. Their airy, two-storey design is one selling point, said a 50-year-old teacher who gave her name only as Madam Chan. "It looks very condo-like," she said of her unit on the 24th floor of Block 194. "It doesn't feel like you're living in an HDB flat." Of the eight maisonettes in the block, at least four - including the record-setter and Madam Chan's flat - changed hands in the last four years. Block 190's maisonettes have also been popular. One of them went for $1 million this month, while another set the previous record price of $1.05 million in November last year. These remarkable deals took place even as overall HDB resale prices have been sliding. Last month, resale prices fell for the 10th month in a row to hit a 40-month low, according to the Singapore Real Estate Exchange. Since the previous peak in April last year, resale prices have fallen 9.8 per cent. But the market may not have cooled evenly islandwide. "Bishan is still a good market," said Dennis Wee Realty agent Thomas Hee, who brokered the previous record-setting deal last year. He added that "very active, interested buyers" still seek him out for premium units in Bishan, as that is his speciality. R'ST Research director Ong Kah Seng said the resale market slowdown has largely been due to government cooling measures such as loan curbs. But these restrictions may not hamper the well-heeled, he said. "Such buyers, who can set record prices, are generally those who have high liquidity and do not need to rely on large loans for flat purchases." Outside Bishan, other million-dollar deals include a Toh Yi Drive maisonette and a rare corner terrace house in Whampoa, one of 285 "landed" public homes built by HDB's predecessor, the Singapore Improvement Trust. -By Janice Heng Pace of property sales at auctions quickens in fourth quarter: JLL Source: Business Times / Real Estate The pace at which properties are sold under the hammer has quickened in the fourth quarter, according to a new analysis on auction sales. More properties are sold at their first listing in auctions this year, as a narrowing expectation gap on prices between sellers and buyers spurred quicker sales, JLL says. -By Lynette Khoo Mortgagee sales surge amid weak leasing market Source: Straits Times / Money THE number of mortgagee sale listings shot up this year in the wake of the lacklustre leasing market. There have been 150 listings of mortgagee sales this year, up from just 32 last year. The increase is being blamed on the weak leasing market, which has made it harder for borrowers to finance their mortgages, said Ms Mok Sze Sze, head of auction and sales at JLL. Century 21 chief executive officer Ku Swee Yong added that investors may also be choosing to walk away from their loans amid poor rental demand. In another sign of the distressed market, mortgagee sales listings comprised an average of 39 per cent of all residential auction listings this year - up from only 6 per cent last year - and is the highest in at least five years, said Ms Mok. The proportion of mortgagee sales listings was at 19 per cent in the first quarter, 53 per cent in the third quarter and 46 per cent in this three-month period. "In 2015, the auction market is likely to see more sales listings put up by mortgagees, with a moderate increase (from this year)," said Ms Mok. Most of the listings are expected to be non-landed homes in prime areas and landed homes in the suburbs. Ms Mok also noted that the value of auction sales has dropped this year. The total value of auctioned properties has hit $72.5 million so far this year, about 27 per cent down from $99.6 million recorded for all of last year. The value of sales recorded in this quarter has been $13.7 million, 251 per cent ahead of the same period last year, but down 57 per cent from the third quarter. The quarterly dip was mainly due to the large quantum in the third quarter, which had been boosted by two big-ticket transactions. One was the sale of a freehold residential site off Brighton Crescent for $9.1 million in September. Homes have been selling faster as well, with 90 per cent of properties going under the hammer this quarter able to find a buyer at the first auction. That is up from 54 per cent in the second quarter and 80 per cent in the third. This is due to compromises from buyers and sellers, said Ms Mok. "Sellers are now more willing to lower price expectations in light of the weaker market conditions, whereas from the buyers' perspective, (factors like) the expected rise in interest rates in the immediate horizon could have encouraged these purchases," she added. The pace of auction sales next year is expected to be similar to this year's, with prices tipped to decline slightly, Ms Mok said. The softer leasing market has not appeared to deter buyers' investment sentiments. Last year, 57 per cent of properties sold were on a vacant possession basis. This year, it was 81 per cent.
"This shows that purchasers have taken the downside risks into account and that the potential gain from the investment outweighs the risks," said Ms Mok. -By Rennie Whang UBTS the top bidder for industrial site in Tanjong Penjuru Source: Business Times / Real Estate UBTS Pte Ltd, a local logistics and warehousing company set up in the 1960s, has emerged as the top bidder for an industrial site in Tanjong Penjuru, less than 1 km from the company's existing business premises. Its bid of S$9.3 million for the 1.6-hectare site, being sold on 20-year tenure, works out to S$21.19 per square foot per plot ratio (psf ppr). -By Kalpana Rashiwala Centurion, Lian Beng to build 7,900-bed workers dorm Source: Business Times / Real Estate Workers accommodation group Centurion Corporation and construction company Lian Beng Group have joined forces again to undertake a development project. The second collaboration involves the designing, building and operating of a 7,900-bed purpose-built workers accommodation in Jalan Papan to cater to workers from the process industry. The integrated development will also house a 3,000 square metre training centre for workers from the process industry who are also residents of the facility. -By Mindy Tan http://www.businesstimes.com.sg/real-estate/centurion-lian-beng-to-build-7900-bed-workers-dorm Centurion and Lian Beng to build worker dorm in Jurong Source: Straits Times / Money A JOINT venture between Centurion Corp and Lian Beng Group has won a tender to build a 7,900-bed foreign worker accommodation and training centre in Jurong East. The facility, in Jalan Papan, will cater to workers in the process, construction and maintenance industry on and around Jurong Island. The tender was awarded by Aspri Dormitory, an entity of the Association of Process Industry. The 1.5ha site will also feature a 3,000 sq m training centre for its residents. Construction will be completed by mid-2016. The project marks the second collaboration between Centurion and Lian Beng. The first joint project was Westlite Mandai, a 6,300-bed site completed last year. Centurion is a mainboard-listed major operator of worker and student dormitories. The company has 23,500 beds in Singapore across three facilities, with a fourth under construction in Woodlands for launch in the third quarter of next year. The company also has five worker accommodation assets in Johor as well as student dormitories in Australia and Britain. Its overall portfolio is expected to jump to more than 55,200 beds by the end of next year, up from 40,362 now. Centurion recorded a 46 per cent increase in revenue in the quarter ended Sept 30, on the back of 61 per cent growth in accommodation business revenue. Gross profit surged 74 per cent to $14.4 million in the quarter. With the latest project, Centurion hopes to tap existing demand for dedicated worker accommodation. In Singapore there are around 200,000 foreign workers living in non-purpose-built accommodation facilities such as factory-converted dormitories and residential homes. "We believe that our Jalan Papan development is well positioned to capture the future growth in the process industry," said Centurion Corp chief executive Kong Chee Min. "We are confident that our track record and capabilities stand out from other dormitory operators through our expertise in providing quality facilities and services." -By Wong Wei Han Privatisations drive deal-making to 7-year high Source: Straits Times / Money DEAL-MAKING activity in Singapore surged to a seven-year high this year, with privatisations taking centre stage, driven by the under-valuation of assets and still- low borrowing costs. The total value of deals involving Singapore firms skyrocketed 123.1 per cent from last year to US$93.2 billion (S$122.9 billion), surpassing the previous annual volume of US$70.4 billion in 2007, according to Thomson Reuters data released yesterday. The Republic saw merger and acquisition (M&A) deals of US$23.9 billion in the fourth quarter, up 91 per cent from last year. Real estate dominates REAL estate took the lead, with deals worth US$35 billion this year, up 219 per cent from a year ago - driven by at least five deals valued at US$1 billion and above, compared with none last year. In particular, the pending acquisition of Chicago-based real estate investment trust IndCor Properties by an investor group comprising GIC and Global Logistic Properties is the biggest real estate deal involving Singapore at US$8.1 billion, Thomson Reuters said. Mr Axel Granger, head of South-east Asia mergers and acquisitions at Bank of America Merrill Lynch, said: "The combined effects of cooling measures in Singapore and interest rate-hike expectations in the short to mid-term have affected the share price performance of listed real estate companies. This has led to a resurgence of take-private of Singapore-listed real estate companies." Mr Tan Kuan Ern, managing director, Credit Suisse's head of Singapore coverage investment banking department, agreed, adding that a huge chunk of M&A deals had been privatisations, driven by the under-valuation of assets and historically low borrowing costs. He noted that there have been more deals worth more than US$1 billion this year than at any other time in the past decade. Among them were CapitaLand's US$2.5 billion privatisation of Capita-Malls Asia, Temasek's US$2.5 billion acquisition of Olam International, Singapore Power's sale of its Australian assets to State Grid, and KKR's acquisition of Goodpack. Private equity-backed M&A activity reached its highest annual level, with US$3.6 billion in deal value, Thomson Reuters said. IBC Capital, an affiliate of KKR, completed an offer to acquire the entire share capital of Goodpack for US$1.11 billion. This deal alone accounted for 31 per cent of private equity-backed M&A activity. More privatizations MR TAN expects the privatization theme to continue next year. "Investors in the public market have become more risk-averse and are sitting on large cash positions, while some private banking clients have been showing a preference for products with more stable returns like bonds, Reits and business trusts. "As a result, we are seeing an equities market that is less buoyant, and this has driven major promoters and sponsors to pursue privatisations to capture value while waiting for a more vibrant market to revisit listing plans in the future," Mr Tan said. Outbound M&A activity also did not disappoint, hitting US$44 billion this year, up 167 per cent from last year, just shy of the seven-year high of US$45.3 billion recorded in 2007, Thomson Reuters said. Most of these were in the real estate, retail and financial sectors. More cross-border deals ANOTHER major theme next year, Mr Tan added, will be cross-border deals. "Asian tycoons will continue to keep a keen eye on quality Singapore assets to purchase, and use them as a springboard to grow regionally," he noted. "Singapore companies that are sitting on cash would also look at expanding abroad. We see Europe as a key target market that will continue to be in favour due to the presence of high-quality brands and family-owned businesses there. China will be of greater interest to Singapore firms in 2015 with the recent pull- back in valuations." Ms Tay Toh Sin, head of corporate finance at OCBC Bank, agreed: "The reasons for the higher quantum of M&A transactions are a few mega deals relating to cross-border strategic acquisitions and business expansions. In addition, we also see an increasing trend of private-equity funds buying into listed companies. "We continue to see inbound interest from China enterprises and private-equity funds looking for investments as the companies there continue to grow in the Asia-Pacific region and elsewhere." Mr Granger saw M&A activity here driven by a rising interest rate environment, which could
fuel "consolidation and reorganisation around yield plays that are under pressure". "The slow recovery in major economies (Europe, Japan) is creating attractive investment opportunities, supporting cross-border M&A," he said. -By Grace Leong Old flats in Tiong Bahru get new lease of life 120 units in five blocks to be rented to couples waiting for their new flats Source: Straits Times / Singapore FIVE old blocks of flats in Tiong Bahru are being given a new lease of life, even though they were earmarked for demolition almost 20 years ago. From next year, Blocks 1, 3, 5, 7 and 9 in Tiong Bahru Road will be rented to couples waiting for their new flats, the Housing Board (HDB) has told The Straits Times. Standing out against a backdrop of taller and newer blocks, these four-storey ones were built by the now-defunct Singapore Improvement Trust (SIT), which provided public housing before the HDB took over in 1960. They were slated for demolition in 1995, but have so far been spared the wrecking ball as HDB continues to find use for them. The latest purpose for the 120 three- and four-room units is rental, under the Parenthood Provisional Housing Scheme. They are part of 800 flats, including others in Bukit Merah and Queenstown, that will be retrofitted and rolled out under the scheme early next year. Under this programme, which began in January last year, such flats can be rented by first-timer married couples with children under the age of 16 who are waiting for new flats. Three months later, the scheme was extended to those without children and, in September last year, to married couples comprising first-timers and second-timers, as well as divorced or widowed parents with children. When The Straits Times visited Tiong Bahru, one of Singapore's oldest housing estates, last week, renovations were being carried out at the five blocks and surrounding areas. The HDB said the works include external repainting, reinstating footpaths, landscaping and installing fixtures such as lights and water heaters in the flats. These blocks are part of 16 in Tiong Bahru Road and adjacent Boon Tiong Road picked for the Selective En bloc Redevelopment Scheme (Sers) in 1995, when it was first introduced. Under the scheme, which aims to rejuvenate ageing HDB blocks, residents have to move out and are offered replacement flats. While the other 11 blocks have been demolished, these five blocks were leased to a private operator from 2007 to this May. They are among 138 SIT blocks still standing. Under the Urban Redevelopment Authority's 2014 master plan, the site has been earmarked for residential use and future widening of Tiong Bahru Road and Zion Road. For Tiong Bahru resident Tee Chai Teck, 70, the five blocks are a symbol of the past. He lived in an SIT flat in Boon Tiong Road more than 20 years ago, but moved to a new block in the same road under Sers. "I hope they don't tear these down too," said the cinema ticket collector, who also runs a market stall in Tiong Bahru. "They bring a sense of familiarity." -By Yeo Sam Jo Ceiling leaks: HDB to plug its case for swift, concrete action Source: Straits Times / Singapore WHEN sales consultant Sim Kwang Yong found a leak in the ceiling of his kitchen toilet in July 2012, he called the Housing Board to fix the problem. Little did he think that it would take until December 2013 for it to be repaired - partly because his neighbours in the unit above were uncooperative. "They kept pushing back the appointment, saying they were overseas or had relatives visiting so it was inconvenient," said the 47-year-old Bukit Batok resident. Such frustrating problems are common, according to HDB residents, contractors and MPs. They told The Straits Times that delays can cause leaks to worsen and start conflicts. On Monday, National Development Minister Khaw Boon Wan called for the HDB to be legally empowered to enter flats so that repairs can be done promptly. About a third of ceiling leak cases each year take more than three months to resolve as some upper-floor neighbours refuse entry to the HDB to carry out repairs, he wrote in a blog post. "Minimally, HDB should be given the power to enter the flat for the purpose of carrying out the necessary investigations and repairs." MP for Nee Soon GRC Lee Bee Wah said she hears of at least one ceiling leak case a week, with upper-floor unit owners often reluctant to share the repair cost. "Some leaks are so bad that people can't even sit on their toilet bowls because water keeps dripping on them," said Ms Lee, who is also chairman of the Government Parliamentary Committee for National Development. She said tempers can get frayed: "A few months ago, I had to mediate a case. The upper- floor residents denied that the water was from their unit. Both sides yelled at each other." The leak was eventually repaired but the dispute delayed the process for months. Each year, the HDB takes legal action against an average of 120 flat owners who refuse to cooperate in such cases. Contractors said leaks can be caused by many factors, including poor workmanship, renovations and ageing of blocks. "Some contractors may not have coated the waterproofing membrane enough times, or did not wait for it to dry," said Mr David Kek, director of Imposed Design. Straits Construction executive director Kenneth Loo said some flat owners renovate their toilet floor but fail to waterproof it. Singapore Contractors Association president Ho Nyok Yong noted: "Most of the time, it's due to wear and tear. The membrane normally has only a 10-year guarantee." Such explanations do not exactly help Mr Sim, who noticed another leak in his kitchen ceiling in August. He has forked out about $300 for repairs, but the leak is still there, and he is vexed at the HDB's response to his case.
"I'm always chasing them for appointments and updates," he said. "But they haven't found the root cause. It's just wasting my time and money." -By Yeo Sam Jo Global Economy & Global Real Estate Wanda chief may top Forbes China Rich List again Source: Business Times / Real Estate http://www.businesstimes.com.sg/real-estate/wanda-chief-may-top-forbes-china-rich-list-again New-Home Sales in U.S. Unexpectedly Fall to Four-Month Low Source: Bloomberg / Luxury Purchases of new U.S. homes unexpectedly declined in November to a four-month low, underscoring a lack of momentum this year in residential real estate. Sales dropped 1.6 percent to a 438,000 annualized pace last month following a 445,000 rate in October that was weaker than previously estimated, Commerce Department figures showed today in Washington. The median estimate of 73 economists surveyed by Bloomberg called for a 460,000 pace in November. Strict bank lending standards and rising property prices have bridled the industry this year following a pickup in 2013. Further growth in employment opportunities and persistently low borrowing costs may help provide a spark for the housing market in 2015. Housing “will get back in tune in 2015 with these continued low mortgage rates and more job growth,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, whose forecast for a sales pace of 440,000 was the closest in the Bloomberg survey. “I don’t see any fundamental weakening going on here, it’s just more of the very slow back-and-forth in housing improvement.” Another report from the Commerce Department showed more income is being generated as the job market improves. In November, personal income climbed 0.4 percent, the most in five months. Household spending accelerated as well. Economists’ estimates ranged from a November sales rate of 425,000 to 480,000 after a previously reported 458,000 pace in October. Stocks ClimbStocks rose, with the Dow Jones Industrial Average climbing above 18,000 for the first time. The Dow advanced 71 points, or 0.4 percent, to 18,030.4 at 10:13 a.m. in New York. The Standard & Poor’s 500 Index gained 0.2 percent to 2,083.43. New-home purchases were down 3.7 percent from November 2013 on an unadjusted basis, today’s report showed. The median price of a new home increased 1.4 percent last month from a year ago to $280,900. Purchases decreased in three of four regions in November, with a 12 percent slump in the Northeast and a 6.4 percent decline in the South. Sales fell 6.3 percent in the Midwest and rose 14.8 percent in the West. The supply of homes at the current sales rate increased to 5.8 months from 5.7 months in October. There were 213,000 new houses on the market at the end of November, the most since May 2010 and up from 210,000 a month earlier. Existing HomesSales of new properties, which are tallied when purchase contracts are signed, are considered a more timely measure of the market than sales of previously owned dwellings, which are counted when a sale is final. Purchases existing homes fell 6.1 percent to a 4.93 million annual rate last month, the weakest since May, from a 5.25 million pace in October, figures from the National Association of Realtors showed yesterday in Washington. Meanwhile prices continued to rise, with the median value increasing 5 percent from a year earlier to $205,300 last month. That may make it harder for low-income and first-time buyers to enter the market, even with mortgage rates at the lowest levels since May 2013. 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 then-Fed Chair Ben Bernanke signaled that the central bank could start to slow its monthly pace of bond purchases if the economy showed sustained gains, setting off an increase in interest rates. Toll Brothers“We all think the combination of the price increases from the builders and that shock of the move in rates so quickly chilled the market,” Douglas Yearley, chief executive officer of Toll Brothers (TOL)Inc., said on a Dec. 10 earnings call. “And so from the summer of 2013 until the late summer of 2014, business was good, but business was flat.” Still, Horsham, Pennsylvania-based Toll Brothers and other homebuilders remain optimistic, with confidence among those companies hovering close to a nine-year high this month, according to the National Association of Home Builders/Wells Fargo sentiment gauge. “We’ve seen some signs of pretty significant improvement since the end of the summer,” Yearley said. “I think the buyers are still a little bit skittish, and we’re working through this recovery, but as we’ve said, it’s going to be a bit bumpy.” Fed policy makers are closely monitoring economic data as they debate when to raise their benchmark interest rates following the worst recession in the post-World War II era. Home ConstructionCommerce 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. Sustained labor-market improvement, pent-up demand and a growing population will also lure buyers into the market in the coming year, Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, wrote in a note to clients yesterday. “2014 was close to a lost year for the housing recovery,” Stanley said. “With the pace of household formation beginning to creep back toward normal, the demand for homes is likely to firm.” -By Victoria Stilwell U.S. Home Prices Rose More Than Expected in October Source: Bloomberg / Luxury U.S. home prices rose more than economists estimated in October as rising employment and falling interest rates boosted buyer demand. Prices climbed 0.6 percent on a seasonally adjusted basis from September, the Federal Housing Finance Agency said today in a report from Washington. The average of 21 estimates was for a 0.3 percent increase, according to data compiled by Bloomberg. Prices rose 4.5 percent from a year earlier, a streak that dates to June 2012, according to the report. The pace of increases slowed last year after higher prices and a spike in interest rates made housing less affordable. “The housing recovery has been a bit weaker than many were hoping for this year,” Paul Ashworth, chief U.S. economist with Capital Economics Ltd., wrote in a note yesterday from Toronto. “With mortgage rates starting from very low levels and credit conditions easing, albeit very gradually, the housing recovery should pick up a little more pace in 2015.” Capital Economics expected prices to rise 0.5 percent in October. Mortgage rates returned this month to their lowest level since May 2013, when borrowing costs began soaring after the Federal Reserve announced plans to slow purchasing of Treasury Bonds and mortgage-backed securities. Regional ChangesAccording to the FHFA report, prices rose the most for the month in the East North Central states of Michigan, Wisconsin, Illinois, Indiana and Ohio, where the increase was 1.1 percent. Prices were up 5.1 percent for the year in the region. The biggest decline from September was in the Pacific area, including California, with a 0.3 percent drop. For the year, the region was the biggest gainer, with prices up 6 percent from October 2013. Prices in the Middle Atlantic region of New York, New Jersey and Pennsylvania fell 0.1 percent for the month and climbed only 0.8 percent for the year, the smallest annual regional increase. The FHFA index measures transactions for single-family properties financed with mortgages owned or securitized by Fannie Mae and Freddie Mac. The measure, which doesn’t include a median price for transactions, is 5.1 percent below its April 2007 peak and about the same as the September 2005 level. The median sale price of an existing single-family home in November was $205,300, up 5 percent from a year earlier and down from this year’s high of $222,000, in June, the National Association of Realtors said in a report yesterday. Homes sold at an annual pace of 4.93 million, down from October’s pace of 5.25 million and up from 4.83 million a year earlier. -By John Gittelsohn http://www.bloomberg.com/news/2014-12-23/u-s-home-prices-rose-more-than-expected-in-october.html Cuba Property Claims, Yielding Pennies, May Spur Talks Source: Bloomberg / News With the U.S. and Cuba (CUBA) moving to normalize relations and perhaps end a half-century trade embargo, the impoverished Caribbean nation can afford to pay Americans whose assets it nationalized after the 1959 revolution maybe 2 percent of the value of the seized property. That’s why Cuban and U.S. negotiators are likely to search for other ways to compensate companies including Coca-Cola Co. (KO), which lost $27 million in machinery and real estate, and individuals such as Carolyn Chester, whose family lost an 80-acre farm on what was then known as the Isle of Pines. “I’d rather be paid a fair settlement over a period of time than pennies on the dollar in one lump sum,” Chester said. “I know the Cuban people are poor, so maybe we can work something out intelligently.” President Barack Obama’s surprise announcement last week that the U.S. will seek to establish diplomatic ties with Cuba and ease economic barriers resurrected an issue that had largely faded from public view in the decades since Fidel Castro grabbed power and nationalized foreign-owned assets. The U.S. recognizes more than 5,900 claims against Cuba stemming from the expropriation of property owned by Americans in the aftermath of the revolution, according to the Foreign Claims Settlement Commission, an arm of the Justice Department. The claims were worth about $1.8 billion at the time; today, they total about $7 billion with interest. Biggest ClaimsMore than 80 percent of the claims are held by individuals, according to a 2007 study by Creighton University School of Law in Omaha, Nebraska. The largest ones are held by companies. They include a $71 million loss suffered by what was then Exxon Corp. (XOM) over the seizure of an oil refinery in Havana Harbor and a $267 million claim by the Cuban Electric Co. That claim now belongs to Office Depot Inc. (ODP) through a series of corporate acquisitions. Under the 1996 Helms-Burton Act, the U.S. can’t lift its decades-old embargo -- triggered in part by Castro’s seizure of property -- until the Cuban and American governments agree to settle the outstanding claims. Under another law, it will fall to the U.S. State Department to negotiate the value of the claims with the Cuban government. The two nations may settle for a fraction of what’s owed in talks that could take months, or years. Congressional DemandsA Republican-controlled Congress, perhaps split between lawmakers eager to settle to encourage broader trade with Cuba and others opposed to wider relations, may also make demands as part of the negotiations, said Michael Kelly, a Creighton law professor who worked on the report. “These things are not going to get resolved before we’ve normalized diplomatic relations,” said Marie Harf, a State Department spokeswoman, declining to estimate the ultimate payout on the claims. “Obviously, they’ll be part of the conversation.” Patrick Borchers, another Creighton law professor and the report’s principal investigator, said “the best estimate” is that Cuba can afford to pay “maybe 2 cents on the dollar in hard currency” to resolve claims. Returning seized assets, like warehouses, factories and farms, may be even harder since many no longer exist. While Cuba acknowledges its debt, it disputes the amount owed and is likely to advance counterclaims against the U.S., he said. And the country may also face claims from Cuban families now living in the U.S. who had property seized; they’re not among the 5,900 claims recognized by the commission. ‘Really Complicated’“People are just going to have to recognize the reality of the current situation,” Borchers said in an interview. “It’s really complicated.” The Creighton team suggests the U.S. and Cuba could create a tribunal to referee compensation demands. Two decades ago, such a tribunal resolved claims of Americans who lost property in Iran’s revolution. Claimants with losses under $250,000 received full payment plus interest, according to the settlement commission. For Cuba, such a tribunal might reward claimants with development rights or distribution licenses instead of cash, Borchers said. “Iran had money because of oil, and Cuba doesn’t really, although it does have some significant natural resources,” Borchers said. For instance, Starwood Hotels & Resorts Worldwide Inc. (HOT), which controls a $50 million claim once belonging to International Telephone & Telegraph Corp., might be satisfied with “attractive undeveloped property and a tax-free zone,” while Coca-Cola might seek distribution rights for its soft drinks, Borchers said. ‘Very Flexible’“The U.S. government has proven to be very flexible and creative in getting done what it needs to get done at the time of normalization of relations,” said Timothy J. Feighery, a partner at Arent Fox LLP and a former chairman of the settlement commission. “The Cuban government has to think too that this will be not a big amount of money in the greater scheme of things once sanctions are lifted and full economic relations are restored,” he said. Trey Sarten, a spokesman for Stamford, Connecticut-based Starwood, didn’t immediately respond to phone and e-mail messages seeking comment on the claims. Ann Moore, a spokeswoman for Atlanta-based Coca-Cola, said the company won’t speculate on its actions if sanctions are lifted. Karen Denning, a spokeswoman for Office Depot, and Exxon Mobil Corp. spokesman Alan Jeffers declined to comment. Licensing ProposalAnother proposal has been floated by Mauricio Tamargo, who was chairman of the settlement commission from 2002 to 2010 and is now in private practice as a lawyer at Poblete Tamargo LLP in Washington. He urges creation of licensing fees on companies doing business in Cuba, with the cash returning to claimants. Chester, who was six months old and living in Florida when her parents lost the Cuban farm into which they had sunk their savings, would welcome that solution. “We never recovered,” said Chester, 57, who inherited the claims and is now represented by Tamargo. “I heard from my mother than once the embargo was ended, that’s when we’d get paid what we’re owed.” Timothy Ashby, a Miami lawyer who has tried to negotiate private settlements for companies, said claimants can opt out of a future settlement and negotiate directly with the Cuban government, though others including Borchers say claim holders have no such right. Collapsed VentureAshby said he reached a tentative deal for one company to enter into a cattle-raising joint venture with the Cuban government, only to see the agreement collapse because the claimant feared running afoul of U.S. trade sanctions. He has also tried to buy claims at a discount until the U.S. government stopped him. In all but two of the 47 groups of claims to come before the settlement commission, property owners have won compensation, Tamargo said. Vietnam paid 100 percent principal plus interest while Romania paid just 38 percent years ago, according to the commission. The U.S. government makes it a priority to recover for seized assets, he said. “Otherwise, U.S. nationals would be further persecuted if people didn’t think there was a day of reckoning with the U.S. government,” Tamargo said. ‘Outright Thievery’David Wallace is the former chairman of Bangor Punta Corp., which lost assets including a sugar mill, and the former chairman and chief executive officer of Lone Star Industries Inc., which lost a cement factory. He has led the Joint Corporate Committee on Cuban Claims, which lobbied Congress on behalf of the largest corporate claimants. A half-century after Castro’s seizures, he remains steadfast in his belief that Cuba broke international law and should pay. He leaves it to the U.S. government to determine how. “That was just outright thievery,” Wallace, 90, said in an interview. “I feel deeply about it because I think it was outrageous that this property was taken without concern for the true owners and nothing was ever done about it.” -By David Glovin and Toluse Olorunnipa Greentown Sells 24.3 Percent Stake to Chinese Construction Firm Source: Bloomberg / News Greentown China Holdings Ltd. (3900), the developer that terminated the sale of a stake to Sunac China Holdings Ltd., said it agreed to sell 24.3 percent to the parent of the nation’s biggest construction firm by market value. China Communications Construction Group will pay HK$6 billion ($773 million) for the stake in the Hangzhou-based property developer, the official Xinhua News Agency quoted Greentown Chief Executive Officer Shou Bainian as saying at a press conference in Hangzhou today. Greentown shares were suspended in Hong Kong yesterday after the developer said on Dec. 19 it canceled a plan to sell the same sized stake to Tianjin-based Sunac. The agreement reached in May ran into trouble after Greentown founder Song Weiping said last month the two companies “don’t blend” and that he was wrong to sell the stake. The group’s unit, China Communications Construction Co., dropped 0.3 percent in Hong Kong today, extending its three-day decline to 2.2 percent. Greentown tumbled 10 percent to the lowest since June 2012 before the stock was suspended ahead of the Sunac termination announcement. After today’s deal, China Communications Construction Group will get seats on Greentown’s board of directors, Bainian said, according to Xinhua. The two companies will explore investing in real estate domestically and overseas, he said. China Communications Construction Co. said earlier this month it will buy the John Holland unit of Leighton Holdings Ltd., Australia’s biggest builder. Last month, the Beijing-based company said it planned to raise as much as 14.5 billion yuan ($2.3 billion) in a preferred sale of shares to as many as 200 investors. -By Bloomberg News Billionaire Wang’s Property Firm Falls in Hong Kong Debut Source: Bloomberg / News Dalian Wanda Commercial Properties Co. (3699) fell from its offering price in the second-worst debut for a billion-dollar initial public sale in three years in Hong Kong. The stock closed at HK$46.75 a share, down 2.6 percent from HK$48 apiece the shares were sold at in Asia-Pacific’s biggest initial public offering this year after Australia’s Medibank Private Ltd. (MPL) The property developer controlled by billionaire Wang Jianlin sold 600 million shares to raise HK$28.8 billion ($3.7 billion) and has attracted key foreign investors including New York-based hedge fund Och-Ziff Capital Management Group LLC (OZM) and Kuwait’s sovereign wealth fund. Wanda Commercial, the world’s second-largest commercial property owner by floor area, sold shares in a year when Chinese developers struggled with increasing debt and a slowing real estate market. The Beijing-based company, founded in 2002, will use most of the proceeds to fund the development of 10 malls across the nation, its prospectus shows. “The biggest risk to Wanda’s ratings is a sharp and sustained property market correction, which will result in tighter liquidity,” Fitch Ratings Ltd. analysts Su Aik Lim and Vanessa Chan said in a report yesterday. The analysts said they expect revenue to expand at around 30 percent annually over the next two to three years. “It has maintained a strong track record of timely delivery of projects, high occupancy rates and continued rental rate growth,” they said. Large IPOsBefore Wanda Commercial’s IPO, the 11 companies that completed initial sales worth at least $1 billion in Hong Kong in the last three years gained on average 5.6 percent on their debut, according to data compiled by Bloomberg. Chow Tai Fook Jewellery Group Ltd. slumped 8 percent on Dec. 15, 2011, when it started trading after a $2.1 billion IPO. Wang, who along with his wife retains about 54 percent of the company, became Asia’s third-richest person this month -- behind Li Ka-shing and Jack Ma. He has a net worth of $24.8 billion, according to the Bloomberg Billionaires Index. CGN Power Co., which was also backed by foreign cornerstone investors, jumped 19 percent on its trading debut in Hong Kong last week. That was the best first-day performance for an IPO of at least $1 billion in the city in a year, data compiled by Bloomberg show. Wanda Commercial had 159 Wanda Plaza malls across 110 cities at the end of June, including 71 fully completed projects, the prospectus shows. It is the flagship of closely held Dalian Wanda Group Co., which also runs a department-store chain, tourism businesses, a Chinese cinema operator and AMC Entertainment Holdings Inc. (AMC) in the U.S. -By Bloomberg News Real Estate Seen Winning as Builders Lose Amid U.S. Surge Source: Bloomberg / Personal Finance Investors who put their money in a fund (VNQ) devoted to real estate investment trusts have racked up gains of 65 percent, while investors in homebuilder stocks still haven’t recovered from the housing crash even after the U.S. economic rebound. The gap will probably endure for years as U.S. job growth spurs demand for office, retail and apartment properties faster than Americans can buy new houses. Almost half of institutional investors expect to increase their stakes in real estate over the next 18 months, according to a survey by BlackRock Inc. of 201 fund managers. Most of that money will be in assets outside the homebuilding sector that are less sensitive to mortgage availability or growing consumer preferences to rent rather than buy property, according to Jack Chandler, global head of real estate at BlackRock. “We’d expect the homebuilders to see their businesses expand, but perhaps not as quickly as the for-rent sectors,” said Chandler, who oversees about $25 billion, mostly in U.S. and international commercial real estate. “I think that’d be for the next couple of years.” The Vanguard REIT Exchange-Traded Fund, which began trading on Sept. 29, 2004, has gained 65 percent through yesterday, not including dividends. The iShares U.S. Home Construction ETF (ITB), which started on May 5, 2006, and includes homebuilders and home-improvement retailers such as Home Depot Inc. (HD), fell 49 percent from its inception through yesterday. ‘More Volatile’The gap in inflows between the Vanguard REIT and iShares home-construction ETFs climbed to $17.8 billion as of yesterday, the greatest since the iShares fund’s inception. The net inflows were about $18.9 billion to the REIT ETF and $1.1 billion to the homebuilder fund in the last eight years. “Real estate development such as homebuilding is a lot more volatile,” Jade Rahmani, an analyst with Keefe Bruyette & Woods Inc. who covers homebuilders and REITs, said in a telephone interview from New York. “Mature REITs generate steadier cash flows.” REITs have performed well since the end of the recession as rents and occupancy rates increased for commercial real estate amid economic growth and limited construction. International and domestic institutional investors are pouring money into higher-returning investments such as office, retail and apartment properties, where rents are rising at a time when Treasury bonds deliver low yields. Worst CrashThe homebuilding industry, which gets revenue from sales rather than rents, has struggled to recover from the worst housing crash since the Great Depression. Annual residential construction starts have totaled less than 1 million since 2007, according to Commerce Department data, compared with an average of 1.45 million in data going back to 1959. New single-family homes sold at an annualized rate of 438,000 in November, the slowest pace in four months and 33 percent below the annual average since 1963, the Commerce Department said today. The 11-member Standard & Poor’s Supercomposite Homebuilding Index is up less than 1 percent this year through yesterday and remains more than 50 percent below its July 2005 peak. Demand for new homes has been sapped by tight mortgage lending standards and an unemployment rate that didn’t drop to its historic average until this year. “Housing had a disappointing 2014. It should be a much more encouraging 2015,” Moody’s Analytics Inc. Chief Economist Mark Zandi said in an e-mail. “It’s not going to be gangbusters for housing, but it should be a lot better.” Toll SharesThe housing ETF’s volatility was evident on Dec. 12, two days after Toll Brothers Inc. (TOL), the largest U.S. builder of luxury homes, forecast weak growth in 2015, sinking the company’s stock by the most in almost two years. Outflows from the ETF topped 84 million shares, the most this year, according to data compiled by Bloomberg. The next trading day saw an influx of almost 78 million shares, also a record for the year. The homebuilding industry’s troubles date back a decade, when loose mortgage underwriting sparked a construction and land-buying spree that decimated the industry when credit dried up. Thirteen of the largest publicly traded homebuilders reported inventory writedowns and impairments exceeding $30 billion from 2006 through the first half of this year, according to an October report by Fitch Ratings Inc. Renting HomesOwners of more than 5 million homes have lost property to foreclosure since 2007, according to CoreLogic Inc. Many are still renting rather than buying houses. The share of homes sold to first-time buyers hit its lowest level since 1987, the National Association of Realtors reported in November, as factors such as soaring student debt and delayed marriages depressed purchases by younger buyers. The U.S. homeownership rate fell to 64.4 percent in the third quarter, the lowest in almost 20 years. Home prices, which plunged 35 percent below their peak from July 2006 to March 2012, have since climbed about 30 percent, putting them out of reach of many first-time buyers. “The consumer has been wary about the housing market,” Jason Yablon, global portfolio manager at New York-based Cohen & Steers Inc. (CNS), which has about $53 billion under management, said in a telephone interview. “Partially it’s credit, partially it’s still some level of uncertainty and partially it’s because home prices already moved quite a bit and maybe got ahead of some people’s affordability.” Apartment rents have been rising to records since mid-2011, reaching $1,117 in the third quarter, according to Reis Inc. (REIS) The vacancy rate fell to 4.2 percent in the third quarter from 8 percent at the start of 2010. Home LandlordsNot all REITs have been successes. Single-family rental landlords, such as Silver Bay Realty Trust Corp. (SBY) and American Residential Properties Inc. (ARPI), are trading below their initial offering prices. That’s partly because they’re a new asset class still trying to demonstrate their ability to make money, according to Anthony Paolone, a REIT analyst with JPMorgan Chase & Co. “One of the challenges now is the conventional apartment business is just so good, it’s hard to get a real estate-dedicated investor to say, ‘I’m going to move away from apartment REITs and buy single-family rental guys,’” Paolone said. “You still have the business model that has to come along with the single-family rental guys, yet these apartment guys are raising rents at a pretty high clip.” Office RentsOffice rents in the third quarter rose to $23.94 a square foot, the highest since March 2009 and 4.5 percent below the June 2008 peak, according to New York-based Reis. “What’s driving commercial real estate is much more just about the supply and demand for commercial space,” Yablon said. “That’s being driven by GDP growth and job growth, and on top of that you’ve had a lot of capital seeking any sort of higher return than Treasuries in this environment.” The Vanguard REIT ETF has an indicated dividend yield of 5.36 percent, compared with the current 2.16 percent yield for the benchmark 10-year Treasury note. The REIT ETF tracks the performance of the MSCI REIT Index and has 144 holdings, including shares of Simon Property Group Inc. (SPG), the biggest U.S. shopping-mall owner; Public Storage (PSA), the largest self-storage company; and Equity Residential, the biggest U.S. apartment landlord. REITs were born in 1960, when President Dwight D. Eisenhower signed legislation creating a vehicle to give small shareholders, not just the wealthy, a chance to invest in income-producing property through real estate companies. Distributing EarningsInvestors like REITs because, by law, they must pay out at least 90 percent of taxable earnings to shareholders as dividends. REITs don’t have to pay federal income taxes on those earnings in exchange. Most REITs distribute all of their earnings to get the full deduction. To qualify as a REIT, a company is required to invest at least 75 percent of its assets in real estate and get 75 percent of its gross income from rents or interest on property mortgages or sales of real estate. “Commercial real estate isn’t very liquid,” Rahmani said. “But REITs you can buy and sell every day.” -By John Gittelsohn and Brian Louis Additional Articles of Interest - Local & Overseas Real Estate |