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4th December 2014

Singapore Real Estate

Closely watched HDB resale price index up for revision

URA is also reviewing the need to revise its private residential property price index

Source: Business Times / Real Estate

THE Housing and Development Board (HDB) will soon reveal more details on a revised methodology to compute the HDB Resale Price Index (RPI).

The board has been working with a consultant from the National University of Singapore's Department of Real Estate to review the index methodology, Minister for National Development Khaw Boon Wan disclosed on Wednesday.

Separately, a spokeswoman from the Urban Redevelopment Authority (URA) told The Business Times that URA was reviewing the need to revise its private residential property price index (PPI).

She added that URA's review would require more time because the PPI was more complex; this index covers both completed and uncompleted units, as well as a greater diversity of properties with huge variations in attributes such as unit size, land tenure and housing types.

In his blog post, Mr Khaw said of the RPI: "To be effective and representative, RPI must reflect the prevailing resale market."

Given how the HDB resale market has evolved in recent years, "the current RPI may not adequately reflect the resale market", he added.

He cited three key reasons for HDB's latest review of this index, which is published quarterly. The RPI was last revised in April 2002.

First, a wider range of flats are now increasingly being transacted in the resale market - varying in design and attributes, including newer flat models and taller blocks. The government also re-introduced three-room flats after 2004, after the RPI was last revised.

"Second, there are now a lot more resale transactions for flats in newer towns such as Punggol, Sengkang and Sembawang, but these towns are not included in the representative basket currently. In other words, the current RPI does not capture movements in resale flat prices in these towns."

Third, there is greater age variance among the resale flats being transacted and this must be taken into account when making price comparisons.

"It is therefore timely to review the RPI methodology to better capture price changes over time, and control for the variations in attributes of the resale flats transacted," Mr Khaw said.

It came as a surprise to many property consultants that the newer towns like Punggol, Sengkang and Sembawang have not been factored into the HDB RPI.

Century 21 Singapore chief executive officer Ku Swee Yong felt that it was "disappointing" to realise that buyers and sellers of projects in newer towns, after all, could not rely on the resale price index as an indication of price trends.

Other consultants suggested that the exclusion could be due to infrequent transactions in the newer towns, which would have made it challenging to account for them without skewing the index.

But DTZ South-east Asia chief operating officer Ong Choon Fah pointed out that, with more condominium projects being completed in the northern region, more HDB upgraders may be letting go of their HDB flats in the resale market, making it timely for the resale price index to factor in the newer towns there.

ERA Realty key executive officer Eugene Lim felt that instead of just having one resale price index to cover the 26 HDB housing estates, HDB could introduce sub-indices for different flat types or regions, in the same way the URA has done so for private residential PPI.

"This gives a clearer picture of the price movements in each sector," he said, adding that HDB could possibly slice out the sub-indices by mature estates, non-mature estates and new towns.

To construct the RPI, HDB currently computes the average resale flat prices for a representative basket across flat types, flat models and regions. Weights are assigned to each region and flat type based on past transacted values in relation to the overall market over the past 12 quarters.

While URA also uses this so-called "mix-adjustment" or stratification approach, it does not track a fixed basket and it stratifies housing units based on various key attributes.

For the third quarter, HDB's RPI dropped 1.7 per cent marking its fifth straight quarter of decline, while URA's PPI showed private residential prices dipping 0.7 per cent, its fourth straight quarter of decline.

JLL's head of South-east Asia research Chua Yang Liang noted that a timely review of the basket for tracking HDB resale flats is important because of changes in the market. Assigning index weights to regions and flat types makes sense because of the uneven spread of transactions arising from the uneven population density across Singapore.

Consultancies like JLL typically track a basket of properties and undertake valuation to determine capital values and rentals for the residential and commercial markets.

-By Lynette Khoo

HDB resale price index to be revised

Figures do not reflect changes in resale scene: Khaw

Source: Straits Times / Top of The News

THE resale price index of public housing will soon be revised to better reflect the market's growing diversity.

This is because the current quarterly figures have failed to capture three changes in the Housing Board resale scene, said National Development Minister Khaw Boon Wan in a blog post yesterday.

First, more flat types and designs are available on the market now. These include taller blocks and three-room flats, which were reintroduced from 2004.

Second, there are more resale transactions in newer towns such as Punggol, Sengkang and Sembawang, but these are not included in the current resale price index (RPI).

Third, flats transacted in the market have a wider age range today, with a growing number of older flats.

"With these significant changes in the HDB resale market, the current RPI may not adequately reflect the resale market," said Mr Khaw. "It is therefore timely to review the RPI methodology to better capture price changes over time, and control for the variations in attributes of the resale flats transacted."

Now, the index is computed by taking the average resale flat prices for a representative basket, across different flat types, models and regions, based on actual transactions.

The average prices for each category are then aggregated to derive the index, which was last revised in 2002.

Mr Khaw said the HDB has been working with a consultant from the National University of Singapore's department of real estate to review the index computation methodology, and more details will be released soon.

Flat owners, buyers and property experts said that the change is a timely update that will provide more accurate information.

"This will help me better gauge the price to expect from my sale," said IT executive Govindaraj Kuppusamy, 45, who is selling his five-room flat in Sengkang.

PropNex Realty chief executive Mohamed Ismail Gafoor said it is important to include new towns like Sengkang and Punggol, as there have been plenty of transactions there.

Analysts suggested that the index could be divided into sub- indexes like mature and non-mature estates, akin to how the Urban Redevelopment Authority's private property index displays figures for three main regions.

"A more granular representation would be more relevant to HDB buyers and sellers," said Mr Mohamed Ismail.

ERA Realty key executive officer Eugene Lim agreed: "The price in a particular area might be trending differently from the island-wide index, which is currently not segmented."

But Century21 chief executive Ku Swee Yong cautioned against relying too heavily on the index.

He said: "(It) is a general aggregate of the whole country's price trend. Buyers and sellers of specific properties should work closely with a trustworthy agent and consult with property valuers before signing their contracts."

-By Yeo Sam Jo

HDB Resale Price Index to be revised: Khaw

National Development Minister Khaw Boon Wan says the existing Resale Price Index may not adequately reflect the prevailing resale market, which was why the methodology was sent for review.

Source: Channel News Asia / Singapore

SINGAPORE: The Housing and Development Board (HDB) will be sharing more details about a revised computation methodology for the Resale Price Index (RPI), as the existing one may not adequately reflect the resale market, said National Development Minister Khaw Boon Wan on Wednesday (Dec 3).

The RPI is supposed to provide a general sense of resale price movements, and serves as a useful reference point for home buyers and sellers when making transactions. HDB publishes the index on a quarterly basis.

Currently, the index is calculated using resale transactions registered across flat types, flat models and region. The average resale flat prices for each segment are then aggregated to derive the final number.

In a blogpost, Mr Khaw said HDB has been working with a consultant from the NUS Department of Real Estate to review the RPI computation methodology, and the review was recently completed.

He cited three reasons why the RPI may no longer by adequate. The first was that in recent years, the HDB resale market has evolved considerably; there are a wider range of flats differing in designs and attributes, he noted.

“For example, newer flat models, including taller blocks, are increasingly being transacted in the resale market.  We have also reintroduced 3-room flats since 2004, after the current RPI was last revised,” he wrote.

Secondly, there are a lot more resale transactions for flats in newer towns, such as Punggol, Sengkang and Sembawang, but these towns are not included in the representative basket currently.

“In other words, the current RPI does not capture movements in resale flat prices in these towns,” he said.

Thirdly, unlike in the past, there is a greater range of variety in the age profile of flats being transacted in the resale market, and such variance must be taken into account in making price comparisons, the minister stated.

“It is therefore timely to review the RPI methodology to better capture price changes over time, and control for variations in attributes of the resale flats transacted,” Mr Khaw wrote. “This will allow the index to continue serving its purpose of providing timely and reliable information on the resale market movements.”

Analysts said that when such factors are taken into account, it may cause the index to spike higher in the initial readings. Mr Eugene Lim, key executive officer for ERA Realty, said: "New flats tend to sell at a marginally higher price than old flats, so if you put in these new flat transactions today, the index may move up. You may think 'Why are prices trending upwards?' And this is due to the injection of transactions which were previously not included in the price index calculation."

Others said that for buyers and sellers to become better informed, having a segmented index, just like in the private property market, will be better than having one index to reflect the overall HDB resale price levels.

Mr Bernard Tong, head of operations at HSR International Realtors, said: "It will be good if HDB can take this opportunity to consider coming up with price indices which are based on market segment - for example, in different towns - Ang Mo Kio, Bishan, etc. This would in turn provide the consumers as well as the policymakers more information to base their decisions on.

"If I am buyer and I am looking at Toa Payoh, now I can look at the price index for Toa Payoh alone as opposed to the price index for the entire country, so then I would have a better sense to where the price is heading for Toa Payoh, instead of where the price is going for the entire country," he said.

- CNA/kk/ac

Computation behind HDB Resale Price Index to be tweaked

Source: Today Online / Singapore

SINGAPORE — To better capture price movements of flats in the newer towns and the varying age profiles of units across the island, the Housing and Development Board (HDB) will revise how the Resale Price Index (RPI) is computed.

The revision is also driven by the fact that there is a wider range of flats on the market, differing in terms of designs and attributes. 

Writing on his blog yesterday, National Development Minister Khaw Boon Wan announced that the HDB had recently completed a review and shared the reasons the authorities had re-examined the methodology, which was last tweaked more than 12 years ago.

“With significant changes in the HDB resale market, the current RPI may not adequately reflect the resale market.  It is therefore timely to review the RPI methodology to better capture price changes over time and control for the variations in attributes of the resale flats transacted,” said Mr Khaw. 

“This will allow the index to continue serving its purpose of providing timely and reliable information on resale market movements.”

He added that the HDB had been working on the review with a consultant from the National University of Singapore’s Department of Real Estate. More details will be announced soon. 

Noting that the RPI must reflect the prevailing HDB resale market in order to be effective and representative, Mr Khaw said the market had evolved considerably. Among other things, the range of flats available on the market has widened. For example, newer flat models, including taller blocks, are increasingly being transacted in the resale market. The Government has also reintroduced three-room flats since 2004, after the current RPI was last revised in April 2002. 

He also pointed out that there are currently many more resale transactions for flats in newer towns such as Punggol, Sengkang and Sembawang. However, these towns are not included in the representative basket.

Unlike the past, the age profile of flats being transacted in the resale market varies to a greater extent. “Such variance must be taken into account in making price comparisons,” noted Mr Khaw.

Under the current methodology, the HDB takes the average resale flat prices for a representative basket, by flat types, models and region, based on actual resale flat transactions. The average resale flat prices for each segment are then aggregated to derive the index. Following the 2002 revision, weights are computed using 12-quarter moving average of transactions to minimise short-term fluctuations.

Property analysts  TODAY spoke to were split on the need to revise the RPI methodology.  Mr Colin Tan, director of research and consultancy at Suntec Real Estate, said the index was fine in its current form in reflecting broad price movements. “There are not many people questioning the RPI so, if you ask me, most people (are) generally okay with (it),” he added. 

However, PropNex Realty CEO Mohamed Ismail agreed that the current methodology does not take into consideration the changing landscape, and hence may not provide an accurate representation. 

ERA key executive officer Eugene Lim suggested having sub-indexes for various flat types and for units in mature and non-mature estates. This would make the index more reflective and clearer, he said. However, Mr Chris Koh, director of Chris International, felt a single index was sufficient, as buyers could get transacted prices of various flat types and in different locations from the HDB’s website. 

Mr Khaw noted that managing the property market was “both an art and a science: Projecting and ensuring a good match of supply and demand, while correctly sensing the mood, takes some skills and good luck”. He added: “The science part of the skills requires a good property price index.”

-By Amanda Lee

HDB Shops Play Important Social Role

Source: mnd Singapore

One great advantage of HDB living is the convenient access to shops within each precinct.  Beyond convenience, one must not underestimate the importance of the close-knit relationships many HDB shopkeepers have built with the residents over the years.  This social glue is hard to measure but we all know it to be important.  A smile and a greeting as you leave for your office early in the morning can brighten your day.  An acknowledgement and an expression of concern when you return home from a busy day can blow away any office blues.

That is why we continue to build HDB precincts with a good range of HDB shops, in order to complete an endearing HDB home experience.  We also conduct annual surveys on HDB shopkeepers as their perceptions and feedback can help us in our planning and management of HDB towns.

The 2013 survey is now ready.  The results of the survey continue to be encouraging.  61% of shopkeepers expressed satisfaction with their current businesses.  This was comparable to 2012 and higher than the years before.

Not surprisingly, established businesses and those located in high human traffic precincts were most satisfied.  These included restaurants, fast food operators, medical and dental clinics, and childcare/education centres.

What was also encouraging was that 35% of shopkeepers expected their businesses to improve within the next six months.  This figure is the highest since HDB began the survey in 2002.

The proportion of shopkeepers who intend to continue with their present business in the next five years also rose 10 percentage points to 84%, the highest level since 2007.

A satisfied HDB shopkeeper often means a satisfied customer base, in an endearing precinct.  HDB will do its best to help ensure that this social glue remains intact and effective.

Private property price tracker under review

Source: Straits Times / Top of The News

A WIDELY watched index used to track prices in the private property sector may be revamped to give a more up-to-date picture of the market.

There has been concern that the property price index (PPI), as it is called, does not give an accurate snapshot because it does not take into account the different type of units available, their size and quality. There are also too few transactions included.

The index, last modified in 2000 by the Urban Redevelopment Authority (URA), is also issued quarterly, which some say hinders its ability to be timely in a fast-changing market.

URA said yesterday that it is reviewing the need to revise it, in line with the revision of the Housing Board's resale price index (RPI). It added that reviews are done "periodically... to understand other ways of computing property price indices and ascertain the robustness of the PPI".

The review will take time as the index is more complex, a spokesman said. "Unlike the RPI, the PPI is computed for both completed and uncompleted units. Additionally, there is greater diversity in private housing."

The Singapore Real Estate Exchange and National University of Singapore (NUS) both produce indexes tracking prices. These are issued monthly.

The PPI is based on transaction prices from caveats lodged and uses a "moving average" method. This means the weights used to compute it are derived by taking the moving average of the values of properties transacted in each market segment over 12 quarters.

But Associate Professor Sing Tien Foo of NUS' department of real estate said it fails to account for changes in the quality of property in different locations.

-By Rennie Whang

Broking houses upbeat on Singapore market, citing cheap valuations

International banks less keen, taking "underweight" stand

Source: Business Times / Companies & Markets

Citing inexpensive valuations, local broking houses are reasonably upbeat about the Singapore market even as international banks are not too enthused. UOB is targeting the Straits Times Index (STI) to close 9 per cent up from current levels of 3,300 points to 3,600 points by the end of 2015.

-By Cai Haoxiang

GuocoLand hopes project will enliven Sims Drive area

Source: Straits Times / Money

DEVELOPER GuocoLand hopes to transform the dull and dusty Sims Drive area with its Sims Urban Oasis project.

The 1,024-unit development will be a major addition to an area marked by industrial buildings and several blocks of Housing Board flats.

"We are interested in projects... of a certain scale, where we believe we can have an impact (on the environment)," Mr Cheng Hsing Yao, managing director of GuocoLand Singapore, said yesterday.

Pricing is not confirmed, but units will be from one to five bedrooms with the project to be "launch ready" by early next year, although market conditions will determine the actual date, Mr Cheng said. The project's estimated date of vacant possession is in June 2020.

GuocoLand, which will announce details of the project today, bought the 2.4ha, 99-year leasehold site for $530.9 million, or $688 per sq ft (psf) per plot ratio, in April.

Experts estimate that break-even prices will be $1,090 psf to $1,130 psf, with sales possibly at $1,220 psf to $1,300 psf.

Mr Cheng said the site's location is a key selling point. It is a five minutes' walk to Aljunied MRT station, a five-minute drive to the Sports Hub and less than 15 minutes' drive to the central business district.

He noted that small cafes and organic restaurants, including Loysel's Toy and Cafe Melba, have set up shop in the area, a harbinger of more vibrancy to come.

"The area is almost like Tiong Bahru in that it was quite sleepy in the early days," Mr Cheng said.

The size of the development also means it can be more generous with amenities, including a "Skypark" on the 19th storey that will be a vantage point for viewing fireworks at Marina Bay.

GuocoLand intends to have four clusters of homes, including more compact "suites" and small home office units, to cater to different types of home owners, from singles to families and upgraders.

This "broader appeal" is a departure from its previous projects - Clermont Residence at Tanjong Pagar Centre, Leedon Residence in Leedon Heights and Goodwood Residence in Newton, which was completed last year.

The firm had sold 15 units at the 181-unit Clermont Residence by the end of October, 145 at the 381-unit Leedon Residence and 158 at the 210-unit Goodwood Residence.

-By Rennie Whang

Singapore Firms Buying New York to Tokyo as Curbs Bite

Source: Bloomberg / Luxury

(Corrects story published Dec. 1 to show Keppel Land’s investment in New York project was valued at $70 million in fifth paragraph.)

Singapore developers struggling to sell apartments in their home market are buying property overseas, turning the island-state into the largest foreign investor from the region this year.

Companies including City Developments Ltd. (CIT) and Keppel Land Ltd. (KPLD) pumped $2.32 billion into overseas markets in the nine months through September, a threefold increase from the same period last year and the most in at least eight years, according to data from Real Capital Analytics Inc., a research firm that specializes in investments in commercial property.

The Singapore developers are looking abroad as government measures to rein in property values have caused residential prices to fall for four straight quarters, the longest period of declines since 2009.

“Many Asian countries such as Singapore are facing property cooling measures at home, so they are venturing to Western markets where they can find returns and are seeing a strong recovery,” said Terence Tang, managing director of capital markets and investment services for Asia at Colliers International, a real estate broker.

City Developments, Singapore’s second-largest developer by market value, said in September that it invested in a plot of land in Tokyo valued at S$356 million ($279 million). Keppel Land, Singapore’s third-biggest developer, in July said it made its maiden investment in the U.S. with a prime residential development in New York City. The project, in which Keppel Land invested about $70 million, is on Manhattan’s Upper East Side and will be developed by Macklowe Properties Inc.

‘Virtually Dead’

At the same time, the developers have become increasingly vocal about the difficulties they face in Singapore, where their margins have been squeezed by falling property prices. Government measures to stem growth in the market and prevent a speculative bubble have brought residential prices down about 4 percent from the peak in September 2013.

“In Singapore, the residential market is virtually dead,” said Desmond Woon, executive director at luxury-home developer Ho Bee Land Ltd. (HOBEE) “With the government measures in place, it has become very hard to do development of residential properties.”

The government’s curbs have included a cap on debt at 60 percent of a borrower’s income and higher stamp duties on home purchases. Additional taxes for foreigners buying residential property were raised to 15 percent in 2013 from 10 percent, on top of the basic buyer’s stamp duty rate of about 3 percent. All home sellers need to pay 16 percent in levies if they sell within the first year.

City Developments warned last month that Singapore’s housing market may face “fire sales” and mortgage defaults as sales and prices fall.

GIC Spree

The overseas investments by developers have helped catapult Singapore into the top place among Asian countries investing in overseas real estate so far this year, according to figures from New York-based RCA.

The country’s sovereign wealth fund, GIC Pte, isn’t allowed to invest in Singapore property and has instead been a major buyer of overseas real estate. GIC’s 20-year investment horizon gives it a different profile from the listed Singapore developers.

In total, Singapore entities invested $9.8 billion in overseas commercial property in the nine months to September, overtaking China with $8.4 billion of overseas investments and Hong Kong with $7.3 billion, RCA said.

Ho Bee, which has invested in office towers in London and is developing homes in Melbourne and Gold Coast in Australia, is scouting for more buying opportunities in Sydney and London, Woon said.

New York, Australia

The flipside of the developers’ growing interest in overseas real estate has been a drop in bidding at Singapore land auctions as the market cooled. Results of a land auction announced in August showed only three bids were submitted, the fewest in 18 months, and well below 2009 when there were about 16 bids at the auctions, according to Nicholas Mak, executive director at SLP International Property Consultants.

Developers are willing to take on the additional risks associated with overseas investments, Tang at Colliers said.

“Mainland Chinese and Singapore developers are going to New York, Australia and the U.K.,” Tang said. “They are ready to take a development risk, which is the highest point of the risk curve, as they need higher returns and because they are seeing these markets showing signs of a recovery.”

They are also finding higher yields. Profit margins for developing homes in Singapore are between 5 percent and 10 percent while margins in Australia are between 10 percent and 20 percent, Ho Bee’s Woon said. Office properties in London can yield between 4 percent and 6 percent while Singapore office yields are about 4 percent, he said.

Shares of City Developments fell 0.9 percent to S$9.97 as of 4:12 p.m. in Singapore, while Keppel Land declined 1.5 percent to S$3.32. Ho Bee lost 0.5 percent to S$1.975.

Overseas Opportunities

“The Singapore residential real estate market will need to battle headwinds as sentiments remain subdued with little signs of property curbs being tweaked or removed in the near-term,” City Developments said in an e-mailed response, citing their earnings statement. The company is “actively pursuing opportunities in the U.S., U.K., Australia, China and Japan,” it said.

The government said in October that home prices need to fall further.

Other developers going overseas include Pontiac Land Group, owner of the Singapore Ritz-Carlton, which invested $200 million in reviving a 72-story residential tower project adjacent to the Museum of Modern Art in midtown Manhattan last year. OUE Ltd., owner of Singapore’s Mandarin Gallery shopping mall, agreed to buy U.S. Bank Tower in Los Angeles, California’s tallest building, for $367.5 million in March 2013.

Yield Search

Singapore developers are acquiring mostly offices in London and hotels and commercial properties in Sydney, Colliers said.

“Developers are searching for higher yields and returns,” said Sigrid Zialcita, managing director for Asia- Pacific research at real estate broker Cushman & Wakefield Inc. “Singapore with its cooling measures is quite restrictive in terms of investments. We don’t see a dramatic reversal of policies over the next year so the trend of developers going overseas will continue.”

The city-state has fallen out of a ranking of the top 20 cities for property investment, according to a report by Cushman & Wakefield. Singapore, along with Toronto, Moscow and Seoul, was knocked out by Beijing, Shanghai, Miami and Stockholm, the report showed.

“The risk appetite is getting larger and larger with the profile of investors and the structure of deals changing,” Tang said. “The real estate market has slowed down a fair bit in Asia so developers need to find other alternatives to generate profit so they are going to markets outside Asia where they can see growth potential and a strong recovery.”

-By Pooja Thakur

Developer's ad offers home-buying tips

Chinese firm gives advice on what to look for in choosing the ideal unit

Source: Straits Times / Money

IF YOU are clueless about what to look for when buying a new home, an advertisement from Chinese developer Qingjian Realty could be the answer.

The firm has taken the unusual step of placing the ad to advise homeowners on how to choose their ideal unit. It offers tips on how much space is ideal, how rooms should be laid out and even where the telly should go.

And while it might seem a statement of the obvious, the company reckons the guidance will be helpful and may even entice buyers back into the slowing market.

The move is just the latest gambit by developers trying to kick-start buying activity.

Qingjian offered 20 one-carat diamonds in a lucky draw to applicants for its Bellewoods executive condominium project last month, while another firm even dangled discounts on sports cars.

The ad, which has run in The Straits Times, marks a whole new approach. Entitled "How to choose an ideal unit layout", it lists seven considerations for buyers to ponder while helpfully pointing out that "every inch of space must be utilised completely to ensure there is no wastage of space, thus giving you more value for money in the process".

The ad, which features the layout of a 1,152 sq ft four-bedder from the Bellewaters executive condominium in Sengkang, suggests the distance from the sofa to a wall-mounted TV set should not be less than 3.6m. That way, there is room for a coffee table and a TV console if needed.

The width of a wall behind a three-seater sofa should not be shorter than 2.4m and the master bedroom must be able to accommodate two bedside tables and a king-size bed, while ledges for air-conditioners should not take up more than 7 per cent of the unit's floor area.

Mr Donald Ng, head of sales and marketing at the Chinese developer, told The Straits Times that "people can use this as a reference to decide if they want to buy and if it will be comfortable enough". While analysing a unit's layout is "not rocket science", said Mr Ng, there is no market standard defining what constitutes an ideal unit layout.

"But to us, it should be able to accommodate standard furniture available on the market without the need for customisation to fit them into the unit. For the buyers, this will also help them utilise as much of the space that they've paid for and cut down on areas that cannot be used meaningfully," he said.

Long corridors leading from the living rooms to bedrooms, for instance, are spaces that cannot be used for purposes other than access to the rooms, Mr Ng added.

-BY Cheryl Ong

Blackstone finds new asset exit - GIC's door

Source: Business Times / Opinion

Blackstone and GIC have struck a new sort of partnership. The Singaporean wealth fund typically invests in the private equity firm's funds and alongside them in acquisitions. Their latest deal suggests GIC also is keen to buy from Blackstone

-By Peter Thal Larsen

First Reit to buy hospital in Indonesia for $39m

Acquisition in Palembang, Sumatra, lifts trust's portfolio to 16 properties

Source: Straits Times / Money

FIRST Real Estate Investment Trust (First Reit) is acquiring a hospital in the Sumatran city of Palembang for $39.16 million.

The Siloam Sriwijaya hospital, which was completed in 2012, has a maximum capacity of 347 beds and a total floor area of about 15,336 sq m.

It operates under the Jakarta-listed Siloam Hospitals brand, the largest private health-care chain in Indonesia, and is part of the Palembang Square Extension, an integrated development that includes a mall.

Palembang is the second largest city in Sumatra and the seventh biggest in Indonesia, noted Dr Ronnie Tan, chief executive of Bowsprit Capital Corporation, the trust's manager.

"With a growing residential area and market, Siloam Sriwijaya represents an attractive and good-quality international standard hospital that is strategically located and well positioned to serve the middle to upper middle-income segment of the health-care market," he said.

The trust's indirect wholly owned subsidiary, PT Sriwijaya Mega Abadi, will carry out the transaction, it announced yesterday.

The price is 10.57 per cent below the higher of two independent valuations for the property. The higher valuation came in at $43.79 million. It will be financed by a combination of First Reit's debt facility and new units.

The acquisition of the seven-storey hospital from PT Bisma Pratama Karya will lift First Reit's portfolio to 16 properties while its asset base, which stood at $1.13 billion as at Oct 31, will rise by 3.54 per cent to $1.17 billion.

The property will offer an "attractive" initial gross rental yield of 9.95 per cent, based on the expected annual base rent of about $3.9 million, First Reit said in a statement yesterday.

Dr Tan said: "The proposed acquisition will provide stability to First Reit's gross rental income and the larger asset base is expected to enhance the trust's overall capital management flexibility."

First Reit was listed among the top performing trusts this year by SGX My Gateway in October.

It reported a record 3.1 per cent rise in distribution per unit (DPU) to 2.02 cents for the third quarter ended Sept 30.

The trust owns properties across Indonesia, Singapore and South Korea, including the Pacific Healthcare Nursing Homes I and II here.

Global credit ratings agency Fitch said on Tuesday that Singapore Reits in the health-care sector are expected to continue benefiting from "robust demand".

This is due to the essential nature of their services, rising income levels and the rapidly ageing populations in key markets such as Japan and Singapore.

These sector dynamics, combined with other factors such as hedging against interest rate rises and strong refinancing flexibility, support the "stable" outlook, it said.

First Reit units closed unchanged yesterday at $1.245.

-By Jacqueline Woo

Perennial Real Estate Holdings

Source: Straits Times / Money

PROPERTY developer Perennial Real Estate Holdings (PREH), which has offered to buy out its sponsored unit, Perennial China Retail Trust (PCRT), is getting closer to its objective.

Including the 28.44 per cent of PCRT it already owned, along with acceptances for its offer, PREH now controls 75.78 per cent of the total issued units, it announced yesterday.

The firm needs to reach at least 90 per cent of the units it does not own before it can delist PCRT from the Singapore Exchange.

PREH has offered to buy all the remaining units of PCRT in exchange for new PREH shares, to be swapped at 70 cents each. The offer closes on Dec 22.

Global Economy & Global Real Estate

Blackstone seen making US$2b profit from IndCor deal

It is selling the warehouse owner to GIC for US$8.1b; transaction is Blackstone's largest-ever private sale of a property holding

Source: Business Times / Real Estate

Tokyo real estate trading picks up

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Richest U.K. Homebuyers See Tax Hike While Rest Get Break

Source: Bloomberg / News

The U.K.’s wealthiest homebuyers face a jump in transaction tax while almost everyone else will pay less after Chancellor of the Exchequer George Osborne revamped a system that he says punishes low- and middle-income families.

The average U.K. homebuyer will save 4,500 pounds ($7,000) on a new home and 98 percent will pay less under a revised system of levies known as stamp duty, the chancellor said. Buyers of homes that cost more than 937,000 pounds will see their tax bill go up, “rising to more substantial sums for the most expensive homes,” he said. The changes go into effect at midnight.

The new system will replace a stamp duty organized in rigid brackets in favor of gradual increases similar to the way income tax is levied. Buyers will pay no tax on the first 125,000 pounds of a home’s price and 2 percent on the portion up to 250,000 pounds. The tax rises incrementally to as much as 12 percent for the portion paid above 1.5 million pounds.

“Today I am announcing a complete reform of a tax that has been described as one of our worst-designed and most damaging of all taxes,” he said. “In recent years, the burden of stamp duty has increased on low- and middle-income families trying to buy a new home, as prices have risen.”

Foxtons Drops

Foxtons Group Plc (FOXT), a property broker focused on London, fell as much as 6.3 percent after Osborne’s announcement. The shares were down 5.1 percent at 150.3 pence at 3:47 p.m.

The higher taxes will affect London particularly because it has the most homes costing more than 1.5 million pounds. The average house is valued at more than 6 million pounds in the neighborhood of Mayfair and 4.6 million pounds in Knightsbridge, according to data compiled by Foxtons. Buyers of a 5 million-pound home will pay almost 164,000 pounds more under the revised tax system.

“There is clearly going to be stagnation in the higher end of the market, especially in London,” Jeremy Steinson, head of trading at Killik & Co., said by e-mail. For a home that sells for 15 million pounds, stamp duty will rise by 63 percent to 1.7 million pounds, Knight Frank LLP spokesman John Williams said on Twitter.

Political Issue

The U.K.’s political parties have placed property tax at the center of their campaigns before May’s general election. Purchases of first homes have fallen since August after price increases made homes less affordable and banks tightened lending criteria to avert a repeat of Britain’s 2008 housing crash.

In March 2012, Osborne raised stamp duty to 7 percent from 5 percent for properties priced at more than 2 million pounds. In March this year he extended a 15 percent stamp duty on empty U.K. homes worth more than 500,000 pounds and owned by companies, reducing the threshold from 2 million pounds.

Stamp duty raised 6.45 billion pounds during the 12 months through March, up 32 percent from a year earlier, according to the Treasury.

The opposition Labour Party plans to raise 1.2 billion pounds from an annual tax on homes valued at more than 2 million pounds if it wins the election.

The number of purchases by first-time buyers has fallen 12.3 percent in the three months through October, LSL Property Services Plc said last week. Prices in the U.K.’s 20 largest cities climbed 9.2 percent in the 12 months through October, according to Hometrack. That compares with 1.3 percent growth in average earnings.

Osborne also said today that the annual charge on homes owned by companies will rise by 50 percent above inflation on properties worth more than 2 million pounds.

-By Patrick Gower and Neil Callanan

Osborne Appeals to U.K. Voters With Tax Moves on Homes, Banks

Source: Bloomberg / Luxury

Chancellor of the Exchequer George Osborne appealed to U.K. voters with a revamp of the tax on buying houses and higher levies on multinational companies and banks, while conceding government borrowing will be more than forecast.

Five months before the general election, Osborne used his end-of-year update to Parliament to try and persuade the electorate his Conservative Party is better placed than the Labour opposition to maintain Britain’s recovery even though he’s missed the deficit target he set in the 2010 election. Addressing lawmakers in London today, he said the government won’t dodge the lingering weakness in the economy.

“The Autumn Statement has been put together with an explicitly political agenda,” Christopher Mahon, director of asset allocation research at Baring Asset Management in London, said in an e-mailed note. “This is about helping the coalition win in May. There is little here that will change the broad direction of the U.K. economy, but there are lots of eye-catching smaller initiatives.”

The system of stamp duty on home purchases will be changed at midnight tonight to benefit 98 percent of buyers, Osborne said. A new 25 percent tax will be imposed on diverted profits of multinational companies generated in Britain, while the amount of bank profits that can be offset by losses during the financial crisis will be cut to 50 percent in a bid to outflank Labour plans to tax the rich.

Britain will borrow 91.3 billion pounds ($143 billion) in the current fiscal year, Osborne said, citing estimates from the Office for Budget Responsibility. The OBR forecast in March that borrowing would be 86.4 billion pounds after accounting changes that took effect three months ago.

‘Disastrous Decisions’

“Today we do not shy away from the problems that remain unresolved in the British economy -- while the deficit is falling, it remains too high,” the chancellor said. “Britain faces a choice. Do we squander the economic security we have gained, go back to the disastrous decisions on spending and borrowing and welfare that got us into this mess, or do we finish the job –- and go on building the secure economy that works for everyone?”

The tax on multinational profits artificially shifted out of the U.K. will raise 1 billion pounds over the next five years, while banks will pay 4 billion pounds more in tax over the next five years, Osborne said.

“Some of the largest companies in the world, including those in the tech sector, use elaborate structures to avoid paying taxes -- that’s not fair to other British firms, it’s not fair to the British people either,” Osborne said. “My message is consistent and clear: low taxes, but taxes that will be paid.”

Marginal Rates

The chancellor announced an overhaul of stamp duty on property purchases, introducing marginal rates that will only apply to the portion of the price above a series of thresholds. That’s in contrast to the previous system under which a single rate is levied on the entire purchase price.

There will be no tax on the first 125,000 pounds paid, 2 percent up to 250,000 pounds, 5 percent up to 925,000 pounds, 10 percent up to 1.5 million pounds and 12 percent on everything paid over 1.5 million. It’s similar to a system just brought in by Scotland’s semi-autonomous government two months ago.

“The system I introduce today replaces a badly designed system that has distorted our housing market for decades; it reduces the stamp taxes for 98 percent of people who pay them in this country,” Osborne said. “It is a fair, workable, lasting reform to the taxation of housing.”


Osborne also increased the charge for some people with non-domiciled tax status in the U.K. who pay tax only on money brought into the country. The rate for people in Britain for less than 12 years will remain at 30,000 pounds a year, while those who have stayed for 12 of the last 14 years will pay 60,000 pounds and there will be a charge of 90,000 pounds a year for those who have been in the U.K. for 17 of the past 20 years.

While Osborne said gross domestic product will expand by 2.4 percent next year, compared with the 2.3 percent predicted by the OBR in March, he said “warning lights are flashing” on the global economy and weighing on U.K. growth. Growth in 2016 will be 2.2 percent, compared with 2.6 percent predicted in March, 2.4 percent in 2017, compared with 2.6 percent, and 2.3 percent in 2018, down from 2.5 percent, he said, citing the OBR.

More than four years after Osborne took office pledging to all but erase the deficit by 2015, the U.K. will borrow 75.9 billion pounds in the fiscal year starting next April, reaching a surplus of 4 billion pounds in 2018-19, Osborne told lawmakers.

Tax Receipts

With low-paid work accounting for many of the 1.8 million jobs created since 2010, and wage growth under pressure, the economic recovery has failed to deliver the boost to tax receipts that officials had predicted.

Unemployment is forecast to fall throughout the period covered by the statement, Osborne said, dismissing opposition accusations that the new jobs are largely part-time and being created only in the southeast of England.

The threshold for paying income tax will rise to 10,600 pounds next year, an increase on the 10,500 announced in the budget in March. The threshold for paying tax at 40 percent will also increase to 42,385 pounds from 41,865 pounds.

Air-Passenger Duty

Taxes will also be cut on air travel, Osborne said, with air-passenger duty abolished for children under the age of 12 from May 2015 and for all passengers under 16 from the following year.

Labour, which trails the Conservatives in polls on trust over the economy, is using the missed target to try to claw back credibility and accused the Conservatives of breaking their election promises.

“People are worse off and he’s failed to balance the books in this parliament,” Labour’s finance spokesman, Ed Balls, told lawmakers. “Every target missed, every test failed, every promise broken.”

-By Thomas Penny

Corporate Travel at Record Lures Investors to Resorts

Source: Bloomberg / Personal Finance

At the Four Seasons resort in Scottsdale, Arizona, corporate customers crowd meeting rooms and bars as vacationers take cowboy for a day classes or relax in TV-equipped pool cabanas. It’s the business travelers that attract Strategic Hotels & Resorts Inc. (BEE)

The hotel owner agreed last month to purchase the Four Seasons Resort Scottsdale at Troon North for $140 million on expectations that a rebound in corporate travel will accelerate, said Chairman and President Raymond “Rip” Gellein. The Chicago-based real estate investment trust, which in June acquired Blackstone Group LP (BX)’s stake in the luxury Hotel del Coronado near San Diego, is seeking to buy additional resorts in areas such as California and southern Florida, he said.

“The resort business at this point in the recovery has really blossomed,” Gellein said. Business spending is “one of the reasons why we would continue to invest in these kinds of markets and properties.”

Luxury resorts -- shunned after the real estate crash in 2008 because they’re expensive to run and hit hard by recessions -- are back in demand as investors aim to take advantage of the economic rebound and record corporate-travel spending. In the past month alone, Strategic Hotels, DiamondRock Hospitality Co. (DRH) and Hyatt Hotels Corp. (H) have announced deals for high-end properties featuring amenities such as golf courses, tennis courts and large conference facilities.

Resort purchases probably will increase next year as buyers are drawn by higher group spending and a lack of new construction, according to David Loeb, an analyst at Milwaukee-based Robert W. Baird & Co.

‘Full Recovery’

“A lot of buyers focused on urban hotels in the last couple of years, but are now looking into resorts,” Loeb said. “Resorts took longer to recover from the downturn and are now in full recovery.”

Strategic Hotels, which currently owns seven resorts, including the Ritz-Carlton Half Moon Bay in California and the Four Seasons in Jackson Hole, Wyoming, has had the biggest growth from that segment, Gellein said. Revenue per available room, including from food and beverage, spa and other spending, rose 9.1 percent for resorts in the third quarter. That compares with a 6.4 percent increase for the company’s nine urban hotels.

The measure of occupancy and rate, known as revpar, is at a record $340.90 this year through October for luxury resort properties across the U.S., according to Hendersonville, Tennessee-based research firm STR Inc.

DiamondRock, Hyatt

DiamondRock, a Bethesda, Maryland-based REIT, on Nov. 19 said it will buy the Westin Beach Resort & Spa in Fort Lauderdale, Florida, for $149 million. Hyatt, which added two resorts in Mexico in 2013, last month acquired its partners’ 92 percent interest in the 491-room Hyatt Regency Lost Pines Resort and Spa in near Austin, Texas, for about $143 million.

Hilton Worldwide Holdings Inc., the largest publicly traded hotel operator, said it is looking at resort destinations as it seeks to spend proceeds from the $1.95 billion sale of Manhattan’s Waldorf Astoria hotel. In California, developer Rick Caruso is planning to invest $185 million to rebuild the Miramar Beach Resort and Bungalows in Montecito, near Santa Barbara.

About $3.6 billion of resort sales in the U.S. were completed this year through October, after $4.8 billion in transactions last year, according to data provided by STR. That’s up from a low of $500 million in 2009, in the aftermath of the collapse of Lehman Brothers Holdings Inc. and the global credit crisis.

Group Demand

“In 2009, groups pulled back on everything,” said Barry Brown, director of sales and marketing at the 757-room Hotel del Coronado. “Not much fun was happening. The bars were pretty empty. Receptions were curtailed or stopped altogether.”

Today, group demand at the beachfront property, which includes 65,000 square feet (6,000 square meters) of function space and six food venues, is back to 2008 peak levels, Brown said. He expects group occupancies in 2015 to climb 3 to 4 percentage points beyond their record 55 percent this year.

Corporate travel spending nationwide is expected to increase 6.8 percent this year to $292.3 billion, a record, according to the Global Business Travel Association Foundation in Alexandria, Virginia.

Blackstone Sale

The resort recovery has also enticed sellers to look for profitable deals, according to Loeb. Blackstone, the world’s largest private-equity real estate investor, is offering two oceanfront Waldorf Astoria resorts in Key West, Florida, that have a combined valuation of more than $500 million, according to a person with knowledge of the matter, who asked not to be named because the listing isn’t public.

Blackstone acquired the properties as part of its $3.2 billion takeover of Wyndham International Inc. in 2005. Peter Rose, a spokesman for New York-based Blackstone, declined to comment on the potential sale.

The enthusiasm for resort properties could quickly diminish if the economic recovery slows or airline travel becomes more expensive, according to Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia.

“Any kind of an economic destructive event tends to affect group demand very quickly,” said Bhalla. “That could be negative headlines similar to those we’ve seen around the lavish expenditures by some corporations.”

He cited a dropoff in corporate spending after American International Group Inc. was criticized in 2008 for hosting a conference at California’s St. Regis Monarch Beach Resort, days after getting a federal bailout.

Ticket Prices

Many resort properties are in harder-to-reach locations, such as Hawaii, and are more dependent on airline connections.

“If ticket pricing goes up, business group travel tends to drop quickly and dramatically,” Bhalla said.

The Scottsdale lodging market was one of the last to recover, according to Vince Parrotta, the general manager at the Four Seasons Resort at Troon North. Now demand from groups in the financial, insurance and automotive industries is back, pushing occupancy at the 15-year-old hotel to a record, he said.

“At the worst I would best phrase it as quiet,” Parrotta said of the feel at the property after the market crash. “Now you see business five to seven days a week. We are at 70-plus percent occupancy. It’s an all-time high at this resort.”

The rebound still has room to expand, said Gellein.

“We’re in the middle of the recovery,” he said. “If you believe there’s no new supply coming soon and the recovery lasts nine to 10 years, and we’re in year five, there’s much more growth coming, particularly in the resort segment.”

-By Nadja Brandt

Luxury Homebuyers Face Significant Stamp Duty Sales Tax Increase

Source: Bloomberg / Luxury

Buyers of the U.K.’s most expensive homes face a jump in costs after Chancellor of the Exchequer George Osborne imposed changes to the stamp duty transaction tax.

Buyers of a 5 million-pound ($7.8-million) home will pay 513,750 pounds in stamp duty, almost 164,000 pounds more than previously under the current system, according to government data.The average house is valued at more than 6 million pounds in the London neighborhood of Mayfair and 4.6 million pounds in Knightsbridge, according to data compiled by Foxtons Group Plc. (FOXT)

U.K. homebuyers will pay 12 percent tax on every pound they spend above 1.5 million pounds when they purchase a home under Osborne’s reforms. Under the old stamp duty system they paid a flat rate of 7 percent on homes that cost 2 million pounds or more.

The changes, which go into effect at midnight, replace a tax organized in “slabs” in favor of gradual increases similar those used for income tax, Osborne said. Buyers will pay no tax on the first 125,000 pounds of a home’s price, then 2 percent on the portion up to 250,000 pounds and 5 percent up to 925,000 pounds. He predicted that 98 percent of homebuyers will pay less under the new system.

“There is a danger that this will slow down residential activity at the higher end of the housing market,” Gary Richards, a partner at law firm Berwin Leighton Paisner LLP, said by e-mail. “London’s status as a real estate capital could be jeopardized.”

-By Neil Callanan and Patrick Gower

Derwent Wins Approval to Turn Headquarters to Apartments

Source: Bloomberg / Luxury

Derwent London Plc (DLN) plans to demolish its own headquarters in the capital’s exclusive Mayfair district and build apartments as residential values in the city center outstrip offices.

The largest real estate investment trust focused on central London won approval late yesterday to raze a building at 25 Savile Row, a street famous for its high-end tailors, and construct 29 apartments on the land. The Westminster borough council voted in favor of the project, subject to a higher affordable-housing payment, at a meeting.

About 5 percent of the office space in Westminster has been turned into homes or received approval for residential construction. Apartments in Mayfair sell for about 3,000 pounds ($4,715) a square foot, compared with 2,300 pounds for office buildings, according to data compiled by broker Jones Lang LaSalle Inc. (JLL)

“This is a prestigious project,” Sue Munden, an analyst at Panmure Gordon U.K. Ltd., said before the vote. “The discrepancy in values between residential and office space in Mayfair means they are set to make good returns from this.”

The development also will include two stores on the ground floor of the new building.

The value of homes in Mayfair was unchanged in November from a month earlier compared with declines of 2.3 percent in Notting Hill and 1.2 percent in South Kensington, according to broker Knight Frank LP.

-By Neil Callanan

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