Real News‎ > ‎2014‎ > ‎February 2014‎ > ‎

13 February 2014

Top Stories

Home ownership still a key social pillar: Boon Wan

HDB's mission remains critical, relevant, he adds, on the 50th anniversary of Home Ownership Scheme

Source: Business Times / Top Stories

Home ownership remains a key social pillar here, and the government will continue to help Singaporeans realise their dreams of owning a home, said Minister for National Development Khaw Boon Wan.

In a posting on his Housing Matters blog yesterday, Mr Khaw wrote that home ownership "gives Singaporeans a tangible stake in our country, financial security, and a critical sense of belonging".

"HDB estates are where Singaporeans build homes, start families and form strong bonds with their neighbours and communities. These are the lasting intangibles."

Yesterday was the 50th anniversary of the Housing & Development Board's Home Ownership for the People Scheme. The programme, introduced in 1964, offers subsidised mortgages to buyers of HDB flats. It has culminated in the Republic's high home ownership rate, where more than nine in 10 Singaporeans own a HDB flat. These apartments are home to more than 80 per cent of Singaporeans.

-By Felda Chay

Home ownership still S’pore’s ‘key social pillar’

Source: Today Online / Singapore

The Housing and Development Board’s (HDB) mission of helping Singaporeans realise their dreams of owning a home remains “critical and relevant”, said National Development Minister Khaw Boon Wan yesterday in a blog post marking the 50th anniversary of the HDB’s Home Ownership for the People Scheme.

Mr Khaw said the nation has come a long way since Feb 12, 1964, when the scheme was introduced.

“Once we were an island of squatters and slums. Today, over 80 per cent of our people live in good quality HDB flats, with 9 in 10 owning their own flats,” he wrote.

Home ownership, the minister said, remains Singapore’s “key social pillar”. “It gives Singaporeans a tangible stake in our country, financial security, and a critical sense of belonging.”

And the HDB has been forward-looking in its designs. For example, all new BTO projects will have eco-features such as energy-saving lighting in common areas, and eco-pedestals in bathrooms, which recycle water for flushing.

But Mr Khaw said what is more important than the hardware is the “heartware”, for HDB estates are where Singaporeans build homes, start families and form strong bonds with their neighbours and communities.

'No easy start' for leaders behind housing scheme

Source: Straits Times

Singapore's home ownership scheme turned 50 years old yesterday - an occasion which National Development Minister Khaw Boon Wan marked by paying tribute to pioneer leaders who got the scheme off the ground. "Former prime minister Lee Kuan Yew envisioned making Singapore a nation of home owners," he wrote on his blog. "Many pioneers such as then National Development Minister Lim Kim San helped turn his vision into reality."

Singapore Real Estate

Rivertrees pricing set to top Riverbank's

Premium of $50-100 psf likely; project open for booking from Feb 22

Source: Business Times / Property

RIVERTREES Residences, a waterfront condominium project in Sengkang jointly developed by Frasers Centrepoint, Far East Orchard and Sekisui House, is expected to be launched at a premium of $50-100 per square foot (psf) over its next-door competing project.

Prices for the units will start from $950 psf when the project is open for booking on Feb 22, Frasers Centrepoint said yesterday. The average price for the initial phase could be in the range of $950-$1,150 psf.

Chief executive Cheang Kok Kheong noted that a slight premium to UOL Development's Riverbank @ Fernvale project would be "considered as fair" for the waterfront view that the project offers.

Competing development Riverbank @ Fernvale, which has also opened its showflats, has an average price indication of slightly more than $1,000 psf.

-By Lynette Khoo

Far East to start marketing Tuas factory complex soon

It boosts presence in industrial sector with launch of The Index

Source: Business Times / Property

PROPERTY giant Far East Organization is revving up its industrial property engine. It is expected to begin sales next week at a 30-year leasehold strata factory project, The Index in Tuas South Avenue 3.

The average price of the factory units is expected to be around $330-350 per square foot (psf), slightly below the $360 psf average the group achieved for its nearby project, The Westcom in Tuas South Avenue 6. So far, it has sold about 92 per cent of the 144 warehouse and factory units in The Westcom, which is coming up on a site with 41 years left on its original 60-year lease term. Far East bought the site in 1995.

As for The Index, the property giant is offering 98 strata factories as well as a staff canteen for sale. There will be three unit types, according to size - Type A (32,754 sq ft to 33,615 sq ft), Type B (10,613-14,574 sq ft) and Type C (2,195-8,697 sq ft).

The Index is likely to attract owner-occupiers such as those in marine engineering or the recycling business in addition to property investors, say market watchers.

-By Kalpana Rashiwala

Real Estate Companies' Brief

CMT retail bond more for savers than investors

Source: Business Times / Companies

THE first retail bond offering of the year by CapitaMalls Trust (CMT), Singapore's first and largest real estate investment trust (Reit), offering a yield of 3.08 per cent for seven years, comes at an interesting time.

Global bond investors are increasingly jittery as the US Federal Reserve continues to reduce its monthly bond purchases. If the US economy performs better than expected, as many analysts have been saying, pressures will build for the Fed to raise rates soon to prevent the economy from overheating. The current forecast is for the first rate rise to hit at the end of next year.

But an emerging market scare in January, along with some profit taking in developed market stocks, has caused money to flow back into bonds, lowering yields. US 10-year Treasury yields were trading at 2.67 per cent earlier in the week, compared with 2.86 per cent a month earlier.

On the surface, the new retail bond appears to be fairly priced. A CapitaMalls Asia step-up 3.8 per cent bond due 2022 is trading at a slight premium to par. Arguably, CMT, a Reit with stable revenue-generating properties, is less risky than its sister company, a developer - and hence its yield should be lower than 3.8 per cent.

-By Cai Haoxiang

FCL's Q1 net profit dips 7% to $121m

Source: Business Times / Companies

PROPERTY conglomerate Fraser Centrepoint Ltd's (FCL) first set of quarterly earnings after its recent split from Fraser and Neave (F&N) is likely to place it in the league of large-cap real estate plays such as Keppel Land and United Overseas Land.

The group's core trading profits for the first quarter ended Dec 31, 2013, surged 75.6 per cent to $165.1 million as revenue jumped 87 per cent to $631.6 million.

Pre-tax profit was up 61.6 per cent at $176 million, although net profit was down 7 per cent at $121 million largely due to the absence of revaluation and exceptional gains seen in the previous year. Excluding the revaluation and exceptional gains, attributable net profit was up 67 per cent at $119 million.

The strong pre-tax profit growth was driven by FCL's development property division, where pre-tax profit more than doubled to $131 million, led by the group's Australian development projects. Development property pre-tax profit accounted for 74 per cent of group pre-tax profit.

-By Lisa Lee

Far East H-Trust posts Q4 DPS of 1.42¢

Source: Business Times / Companies

FAR EAST Hospitality Trust (Far East H-Trust) has posted a distribution per stapled security (DPS) of 1.42 cents for the fourth quarter ended December, 2.1 per cent short of its forecast of 1.45 cents.

Income available for distribution for the quarter was $25.1 million, 2.2 per cent short of its forecast of $25.6 million.

"In spite of the challenges in the macroeconomic and operating environments, the average occupancy of our hotels and serviced residences remained high," said Gerald Lee, chief executive officer of the Reit manager.

"The weaker results of our hotels were balanced by that of our serviced residences and retail and office spaces, which continued to turn in sustainable performances for our portfolio," he added.

-By Mindy Tan

Frasers Centrepoint banking on strong overseas growth

Source: Today Online / Business

Property developer Frasers Centrepoint’s strategy of venturing overseas will put it in a good position for further growth, given the increasingly cautious sentiment in the local property market, Group Chief Executive Lim Ee Seng said yesterday.

“We are cognizant of the overall market sentiment in the Singapore residential market, which has been affected by cooling measures,” he said, noting that in the last quarter of 2013, local private residential prices declined for the first time in two years, by 0.9 per cent.

“Against this backdrop, our strategy of expanding our overseas footprint is standing us in good stead. We continue to enjoy a robust pipeline of activities in our various segments that provide clear earnings visibility,” he added.

Mr Lim’s comments were made as the developer reported a first quarter net profit of S$120.8 million, 7.5 per cent lower than the same period a year ago, when the company recorded some one-off gains that lifted profit.

Revenue surged 87.4 per cent to S$631.6 million, helped mainly by better sales of properties developed by Frasers Centrepoint in Australia, China and United Kingdom.

Overseas revenue in the October-December period jumped from S$29 million in 2012 to S$353 million last year.

However, revenue from Singapore fell by 18 per cent to S$181 million, with lower contribution from its Eight Courtyards and Watertown projects.

The company said it is looking to replenish its landbank in the mass and mid-market segments, as residential projects in good locations can still attract demand from buyers. Its latest residential project, RiverTrees Residences in Sengkang, will be launched at the end of this month.

“We will remain focused on selectively acquiring sites to replenish our landbank while continuing to deliver our pipeline in our core markets of Singapore, Australia and China,” Mr Lim said.

-By Lee Yen Nee

Tanjong Pagar Centre

Source: Straits Times 

This ambitious new vertical city will become the heartbeat of the Tanjong Pagar precinct; a vibrant nucleus of activity in the expanding Central Business District. Tanjong Pagar Centre will touch the sky at 290m, becoming the tallest building in Singapore, and in the process, sweep a historic district into a vibrant era. (Pg 32)

Views, Reviews & Forum

Property Cooling Measures - Rent-seeking culture dampens entrepreneurial spirit

Source: Straits Times

Property developers and agents should refrain from using words and phrases like "unnerving" and "not sustainable" when referring to the current state of the property market ("CDL chief calls for review of property cooling measures"; last Saturday). Did they use the same terms when property prices spiralled out of control and Singaporeans found themselves mired in lifelong mortgage debt?

Property Cooling Measures - Don't relax them

Source: Straits Times

Property prices in Singapore have risen by as much as 70 per cent since 2007, despite several rounds of cooling measures. The developers have had a good run, but a buoyant property market has plenty of downsides. First, rising commercial property valuations cause rents to go up, contributing to higher operating costs for tenants. Many retailers have gone out of business because of this.

Property Cooling Measures - Relook some of them

Source: Straits Times

Going by recent reports of falling home sales, declining HDB resale prices and a slowdown in condominium launches, it seems that the property cooling measures are working. Besides reining in the "irrationally exuberant" property market, measures like the additional buyer's stamp duty (ABSD) and total debt servicing ratio framework tackled speculation and over-borrowing respectively.

Regulations in place to protect foreign workers: MOM

Source: Straits Times

We refer to senior correspondent Radha Basu's commentary ("$1.50 an hour is just too little for anyone"; Sunday). The Ministry of Manpower (MOM) protects foreign workers against employers who unilaterally reduce their salaries from what were declared in the In-Principle Approval letters without first obtaining the workers' express written consent and notifying the ministry of the reduction.

Give one-off housing allocation benefit to pioneers too

Source: Today Online / Voices

I refer to the letters “Pioneer package: Say no to tiers” (Feb 11) and “Criteria for pioneer package too lax?” (Feb 11, online).

The eligibility criterion for the Pioneer Generation Package is good; that is, regardless of race, language or religion.

That it will reach out to 450,000 pioneers is amazing.

Their aims were to build Singapore, as well as a home for themselves and their children.

The less-well-off pioneers would especially want to have their children living nearby, if not beside them.

As a goodwill gesture, there should be a one-off housing allocation benefit for these pioneers, such that they or their children can choose to stay near each other in the same estate, mature or otherwise.

-By Yang Chun Hong

From renting flats to owning one

Source: Straits Times

Born in 1959, Mr Roger Ng grew up in a succession of Housing Board rental flats. But he always believed that one day, he would get a flat of his own. "It is important to own your own home," said the 54-year-old, who got his first flat, a three-room unit in Yishun, in 1985. He has since upgraded to a four-room flat in Woodlands. "You don't need to pay any rent. It is yours."

Global Economy & Global Real Estate

Malaysia's GDP expands 5.1% in Q4 last year

This caps overall growth figure for 2013 at 4.7%

Source: Business Times / Top Stories

BUOYED by private-sector demand and an improved performance in exports, Malaysia's gross domestic product (GDP) expanded 5.1 per cent in Q4 last year, capping the overall growth figure for 2013 at 4.7 per cent.

While there have been concerns that the government's subsidy rationalisation measures could crimp spending, this was not reflected in the Q4 figures, which showed that consumer spending had not eased off yet.

Even so, the pace of expansion of private consumption eased to 7.3 per cent in Q4 from 8.2 per cent in the preceding quarter.

"Household spending continued to be supported by stable employment conditions and sustained wage growth especially in domestic-oriented sectors," Bank Negara, the central bank, said in a statement yesterday.

-By S Jayasankaran,

Li backs total ban on construction of new official buildings

Source: Business Times / China

Chinese Premier Li Keqiang has called for a complete halt to construction of new government buildings, training centres and hotels, throwing his weight behind a standing order that the authorities have had difficulty enforcing in recent months.

Mr Li's call came during a meeting of China's State Council, or cabinet, and was part of broad efforts to curtail government spending, the state-run Xinhua news agency reported on Tuesday.

In July, the government ordered a five-year suspension of the construction of new official buildings. Results have been patchy, however, and in December the central government warned that the ban was not being enforced effectively.

In the face of public anger over graft and extravagance by some officials, China's new leadership over the past year has sought to curtail everything from bribery and gift-giving to lavish banquets and wasteful government expenditure.

-From Shanghai, China

India's luxury hotels in a flux as growth slows

Some players bet on future growth and expand as some quit

Source: Business Times / Property

Less than nine months after opening the first hotel in Mumbai under its brand, Hong Kong luxury chain operator Shangri-La Asia handed the keys back to the owner.

Now, US-based Starwood Hotels & Resorts Worldwide is in talks with the same owner to take over management of the property under its St Regis brand, sources said, part of a shakeout at the luxury segment of India's ailing hotel industry.

Slowing economic growth and an oversupply of new hotels conceived during the boom years of 2006 and 2007 have led to falling room and occupancy rates in India, straining relationships between hotel owners and the global chains brought in to run them.

But while some global operators are leaving, others like InterContinental Hotels Group, Hyatt Hotels Corp and Starwood are jumping in, using the now unbranded hotels to accelerate their expansion in a country they believe has long-term potential.

-From Munbai, India

Blackstone-backed La Quinta files for US IPO

JPMorgan Chase, Morgan Stanley are managing the issue

Source: Business Times / Property

La Quinta Holdings Inc, the Blackstone Group LP-backed midpriced hotel chain, has filed to raise US$100 million in an initial public offering in the US.

The figure is a placeholder used to calculate fees and may change. JPMorgan Chase & Co and Morgan Stanley are managing the offering, according to a regulatory filing on Monday with the US Securities and Exchange Commission. La Quinta didn't specify the number of shares being sold or a price range.

Blackstone has taken hotel companies Hilton Worldwide Holdings Inc and Extended Stay America Inc public, both of which have increased since their debuts late last year. La Quinta, based in Irving, Texas, said in December that it had filed a prospectus confidentially under the Jumpstart Our Business Startups Act.

Blackstone acquired La Quinta in January 2006 for about US$3 billion, according to company statements. The New York-based private-equity firm explored a sale of the company before opting instead for an IPO, people with knowledge of the matter said in November. La Quinta operates and franchises more than 800 hotels in the US, Canada and Mexico, according to its website. Proceeds from the IPO will be used to repay debt, according to the prospectus.

-From New York, US

Sun Hung Kai cuts prices for some Riva project units

Source: Business Times / Property

Sun Hung Kai Properties Ltd, Hong Kong's second-largest developer by market value, has cut prices by 40 per cent on average for some apartments at its Riva project in the city's northwestern Yuen Long district - a move that may spur a price war, The Standard reported earlier this week.

The developer priced 156 flats, of between 466 and 1,424 square feet, at an average of HK$9,268 (S$1,515) per saleable square foot, the newspaper said, citing the company. That compared with the HK$15,500 psf price for the first 50 homes introduced last March, the newspaper said. The Riva has a total of 780 units.

Homebuyers have backed away since the Hong Kong government imposed its toughest property curbs last February to dampen an asset bubble. Transactions slowed to 50,676 last year - the lowest since 1996, according to Land Registry data.

The prices of the Riva homes are about 10 per cent less than that of apartments for sale on the secondary market in the district, according to the newspaper.

-From Hong Kong, China

Big banks resist lure of new offices in NY

Many opting to renew leases after considering moves to new skyscrapers

Source: Business Times / Property

As Manhattan developers plan millions of square feet of office towers featuring the most modern amenities, some of their biggest potential tenants have decided they're better off staying in their current homes.

Five of the six largest New York leases since the end of 2012 have been renewals, according to data from brokerage Newmark Grubb Knight Frank.

Credit Suisse Group AG, Citigroup Inc and UBS AG - the types of large financial companies that traditionally have made up the core of the city's office market - opted to stay put after considering moves to new skyscrapers.

"Major financial institutions are not expanding dramatically," said Joseph Harbert, eastern region president of Colliers International, a commercial-property brokerage with offices in Manhattan. "If you're going to lease up a new building, you're going to have to do it with other tenants."

-From New York, US

2014 a banner year for jumbo mortgages in US

Interest rates now almost on a par with those for conventional loans

Source: Business Times / Property

The view of the Pacific Ocean from the San Joaquin Hills in Newport Coast, California is extraordinary. So, when Mohammad Taghavian started looking for a new home four years ago, he knew exactly where he wanted to be.

The housing market, however, wasn't so cooperative. Mr Taghavian, a 47-year-old engineer, jumped at any property that came on the market, only to find that whatever he bid, he was "edged out by a cash offer", he says.

He did what a keen home buyer would do. Mr Taghavian kept raising his offer, from US$600,000 to over a million. That placed him in jumbo mortgage territory - above US$625,500 in his part of the country, and above US$417,000 in lower-priced areas.

His real estate agent, Michael Salas of Coldwell Banker, homed in on one development and went on a letter-writing spree to about 60 homeowners with ocean views. When a US$1.4 million townhouse finally came on the market last year, Mr Taghavian snagged it.

-From New York, US

Spain home sales hit by price mismatch

Bids are 22% lower than asking prices in Madrid, study shows

Source: Business Times / Property

Offers to buy Spanish homes fell short of the asking prices by 23 per cent on average last year, damping expectations that the nation's residential values have reached bottom, according to

Bids were 22 per cent less for homes in Madrid and 23 per cent lower in Barcelona, according to the study published on Tuesday by Idealista, Spain's largest property website. Home prices rose for the first time since 2010 in the third quarter, official statistics showed.

"There is still a mismatch between asking prices and selling prices, for which there is no official data in Spain," said Fernando Encinar, Idealista's co-founder.

A pickup in foreign investment in Spanish real estate and a recovering economy are prompting sellers to refrain from lowering prices as they hold out for better offers. Home sales fell 16 per cent in November from a year earlier and dropped 4.1 per cent on a monthly basis, according to data released by the National Statistics Institute on Jan 14.

-From Madrid, Spain

Portugal drawing property investors once more

Source: Business Times / Property

Property investors are returning to Portugal, bolstered by signs of an economic recovery and the approaching end of the country's bailout programme, according to broker Cushman & Wakefield Inc.

Spending on commercial real estate tripled to 322 million euros (S$554 million) in 2013 compared with a year earlier, Eric van Leuven, managing partner at Cushman & Wakefield in Portugal, said at a press conference in Lisbon yesterday. Home sales in Lisbon increased 40 per cent in the first nine months of 2013 from the whole of 2012.

"There is more interest and a greater willingness to invest in real estate in Portugal," Mr van Leuven said. "There were a lot of people hiding their money under the mattress, waiting for an opportunity."

Last year's total remains low compared with the boom that preceded the financial crisis. Investment in Portuguese commercial real estate was more than one billion euros in 2007 and has averaged 600 million euros a year over the past decade, according to Cushman.

-From Lisbon, Portugal

Chinese firm plans to build NZ's tallest office building

Source: Business Times / Property

Chinese property company New Development Group (NDG) has announced plans to build New Zealand's tallest office building in the heart of the country's biggest city, Auckland.

Mayor Len Brown yesterday revealed to The New Zealand Herald newspaper the plan for the 52-level, 209-metre-high skyscraper in the heart of Auckland's central business district.

NDG would build the tower, to be known as NDG Auckland Centre, at a cost of NZ$350 million (S$369.4 million) on the site that had been used as a carpark since the 1980s, Mr Brown told the paper.

Auckland Council had granted resource consent for the construction, which will only be dwarfed by the 328-metre Sky Tower sightseeing platform.

-From Wellington, New Zealand

Billionaire Triguboff to Double Debt Amid Apartment Surge

Source: Bloomberg / Luxury

Meriton Pty, Australia’s biggest apartment developer, plans to double its debt this year from about A$300 million ($268 million) to buy land amid record low interest rates and soaring demand for apartments.

“I’ve now a lot more empty land available, and the land goes up; it’s a very good investment,” Harry Triguboff, the billionaire founder and managing director of closely held Meriton, said in an interview in Sydney. “Land values are going up a lot in Sydney, but it’s feasible to build because prices are going up too.”

The billionaire forecasts apartment prices will rise as much as 6 percent this year in Australia’s most populous city. They gained 11.5 percent in December from a year earlier, the fastest annual growth since 2002, according to the RP Data-Rismark Home Value Index. (RPAUMED) Meriton, which had been debt free since 2000, took out a loan in early 2013 to fund new developments as it held on to more of the apartments it built to capitalize on rental demand.

Triguboff, who turns 81 next month, is Australia’s fourth-richest individual with a net worth of $5.3 billion, according to the Bloomberg Billionaires Index.

Serviced Apartments

Meriton, based in Sydney, owns or manages more than 3,000 apartments as long-term accommodation, and rents out 3,200 serviced units, according to the company. Meriton owns enough land to build about 11,000 apartments, up from a traditional pipeline of about 8,000, Triguboff said. About 1,500 of those will be built this year, he added.

Apartments offered rental yields of 4.7 percent in Sydney as of Jan. 31, and 5.4 percent in Brisbane and the Gold Coast, according to figures from RP Data. The weighted median value of residential land rose 2.9 percent in the three months to Sept. 30, according to the latest joint report from the Housing Industry Association and RP Data.

Apartments in suburbs close to city centers will be the most popular type of new developments after houses in the same locations over the next 12 months, a survey of about 290 property professionals by National Australia Bank Ltd. today showed. Apartments valued at less than A$1 million have the best prospects for capital gains this year, the survey showed.

Chinese Demand

Meriton sells between 12 percent and 15 percent of its apartments to overseas buyers, most of them Chinese, according to the company. It doesn’t market the properties in mainland China and has no plans to start, Triguboff, the Chinese-born son of Russian-Jewish immigrants said.

“They come to me,” he said. “Today, we’re part of the Chinese market, more than 10,000 apartments is nothing,” he said, referring to how many units the company can build.

Meriton, which has focused on Sydney in New South Wales state, and Brisbane and the Gold Coast in Queensland, is venturing into Melbourne in Victoria for the first time, seeking existing buildings and development sites in the city’s center for serviced apartments, Triguboff said.

In Sydney, Meriton is open to acquiring commercial properties in “top locations,” such as overlooking Hyde Park in the city center, for conversion to apartments, he said.

Meriton continues to receive interest from global investors to take over the company, Triguboff said. Last year, he said he had been approached by bankers representing pension funds from Canada and the U.K., and Chinese funds.

“We have interest all the time, but they don’t give me enough,” he said, adding the company is worth A$6.1 billion.

If the price is right “I might sell,” he said. “But I now have a grandson who’s started. If he’ll be OK, maybe we’ll keep it.”

Triguboff’s grandson began working at Meriton last month, he said. His first great grandchild, born to granddaughter and Meriton’s Marketing Director Ella Lizor this year, could also be a potential successor, he said.

-By Nichola Saminather

Homebuyers Get Break as Loan Rates Defy Fed Tapering

Source: Bloomberg / Personal Finance

Ashley Underwood is taking advantage of the unexpected drop in mortgage rates by rushing to buy her first home before they go up again.

“I’m ready to cancel plans at a moment’s notice to go look at a house,” said Underwood, 27, who lives in Indianapolis,Indiana. “I didn’t expect to see rates falling again, and I want to lock in something before I lose out.”

The drop in the last month proved forecasters wrong, said Douglas Duncan, chief economist of Fannie Mae in Washington. After the Federal Reserve announced in December that it would begin tapering purchases of mortgage-backed securities, all the major housing forecasters said rates would jump this quarter. Economists didn’t foresee that investors would react to the Fed’s retreat by moving money from emerging markets into U.S. Treasuries, driving down home-loan rates.

“I was surprised by what happened in the bond market,” Duncan said. “Everyone was surprised. It was completely unexpected that mortgage rates would fall after the Fed began tapering.”

The average rate for a 30-year fixed mortgage in the U.S. fell to 4.23 percent last week, an almost three-month low. That’s 0.3 percentage point below the rate at the start of 2014.

The drop in borrowing costs means some buyers will purchase a home sooner than they had planned.

“People are getting a second chance, and that is bound to give a boost to the housing market,” said Sam Khater, deputy chief economist at CoreLogic Inc., an Irvine, California-based mortgage data and software firm. “It’s not a game changer unless the emerging markets situation worsens and rates get even cheaper.”

Second Chance

Government-owned mortgage companies Fannie Mae and Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors all forecast in January that rates would increase by at least 0.3 percentage point in the first quarter. Instead, yields on 10-year Treasuries, which are used as a benchmark for mortgage rates, shrank as investors drove up bond prices.

“The sell-off in emerging markets wasn’t expected because it was hard to measure how much they’ve relied on the Fed’s monetary policy,” said Christopher Sebald, chief investment officer for Advantus Capital Management inSt. Paul, Minnesota, which oversees $28 billion of assets, including about $4.5 billion in mortgage bonds.

The exodus of investors erased almost $6.4 billion from emerging markets equity funds during the week ended on Feb. 5, the largest outflow since August 2010, according to a Citigroup Inc. report. That has spurred a currency crisis in Argentina and Turkey while economic data points to slower economic growth in China and Russia.

Yellen’s Plan

“We’re seeing the results of a herd mentality as investors exited some of the riskier corners of the world and come back to the states,” CoreLogic’s Khater said.

Janet Yellen, who took over as chairman of the central bank on Feb. 3, said in Congressional testimony yesterday that the Fed has been “watching closely” the volatility in global financial markets. She said that “our sense is that at this stage these developments do not pose a substantial risk to the U.S. economic outlook.”

Only a “notable change in the outlook” for the economy would prompt policy makers to slow the pace of tapering, Yellen said. She repeated the Fed’s statement from the conclusion of its meeting last month that asset purchases aren’t on a “pre-set course.”

The impact of the market rout is felt in Indianapolis, where Underwood is hunting for a three-bedroom house costing about $125,000. The drop in mortgage rates could save her about $5,000 if she stays in the house for 10 years.

Temporary Reprieve

“I don’t know what’s behind the fall in rates,” said Underwood, who is now a renter. “I’m looking for something I plan to be in for a long time, so getting a lower rate is going to result in a big savings.”

Cheaper borrowing costs may not be enough to increase U.S. home purchases for the year. The pace of sales probably will slow in 2014, the third year of the real estate recovery, as the 28 percent increase in property prices since January 2012 puts homes out of reach of some Americans.

Sales of new and previously owned homes will gain about 3.1 percent to 5.7 million, a third of the increase seen in 2012 and 2013, Fannie Mae (FNMA)’s Duncan said.

“For someone in the market to buy, it’s an opportunity to turn back the clock on rates, but there’s no indication it’s anything but a temporary reprieve,” he said. “In the long-run, the Fed’s exit means sustained upward pressure on rates.”

5% Rate

By the end of 2014, the average U.S. rate for a 30-year fixed mortgage probably will be 5 percent, Duncan said, compared with 4.3 percent at the end of 2013. The average during the past two decades is 6.27 percent, according to Freddie Mac data compiled by Bloomberg.

Borrowing costs also defied conventional wisdom the last time the Fed pulled back on stimulus. More than three years ago, when the central bank concluded its first round of quantitative easing, housing forecasters said home-loan rates would rise on weaker demand for mortgage-backed securities.

Instead, as investors fled 2010’s European sovereign-debt turmoil, loan rates tumbled to then-record lows in November. That didn’t stem the year’s plunge in home sales, which was caused by the expiration of a federal tax credit that paid buyers $8,000.

The Fed began purchasing mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae (BGNMX) in January 2009 to bolster the economy and the housing market by reducing financing costs. The strategy had never been tried before. In the first round of purchases, which ended in March 2010, the Fed acquired $1.25 trillion of mortgage bonds.

Fed Tapering

The central bank announced a second round of quantitative easing, known as QE2, in Nov. 2010. QE3 began in September 2012, with the Fed buying $40 billion of mortgage bonds and, in December, $45 billion of Treasuries a month. The central bank cut the purchases in December and again in January to $65 billion a month from $85 billion, citing an improving outlook for the labor market.

Khater, the economist, is also a home buyer who’s getting another break on rates. Even though he spends his days tracking the mortgage market, he missed 2013’s low of 3.35 percent in early May, the average rate as measured by Freddie Mac. That was close to the all-time low of 3.31 percent in November 2012.

“I’ve been thinking about buying, and I thought I had missed out on cheap rates,” Khater said.

The economist has intensified his search for a Washington-area single-family home, hoping to make an offer on a property in time to lock-in a mortgage rate near 4 percent.

“With the lower rates, it heightens the urgency,” he said.

-By Kathleen M. Howley

J.C. Penney Texas Land Deal Seen Generating $200 Million

Source: Bloomberg / News

J.C. Penney Co. (JCP)’s plan to develop land around its Texas headquarters could generate $200 million, according to an analysis of property records and a project estimate.

The retailer said Feb. 6 that it hired three firms to develop 240 acres (97 hectares) in Plano acquired in 1987 upon moving its headquarters from New York. The land has been appraised at about $90 million, according to public records. The value could at least double once the property has been developed for commercial use, said Fehmi Karahan, chief executive officer of Karahan Cos., one of the firms.

While the project will take several years to complete, J.C. Penney could begin sharing in the proceeds with developers in as little as three months, Karahan said. The ultimate value of the land will depend on market conditions, he said.

Chief Executive Officer Mike Ullman is developing the land at a time when real estate values in Plano are increasing as businesses move there from more costly Dallas. The project was sidelined in 2011 when Ullman was replaced by Ron Johnson, whose plan to transform the department-store chain into a more upscale retailer failed. Ullman, who returned as CEO in April, has raised cash after sales tumbled, losses mounted and cash dwindled under Johnson.

“We have seen a great deal of business and residential growth around the home office over the last 25 years, and now is the time to capitalize on this attractive asset,” Katheryn Burchett, senior vice president of real estate and property development at J.C. Penney, said in the statement on Feb. 6.

Potential Buyers

Joey Thomas, a spokesman for J.C. Penney, declined to comment on the timing, interested buyers or potential proceeds.

“We’ve chosen to invest the land with a partnership, as there’s a favorable financial upside to realizing the full value of the land over time,” Thomas said in an e-mail.

Possible buyers, including an unnamed hotel chain, are in talks to purchase parcels that should start generating cash in three to six months, Karahan said. He declined to provide details on the partnership’s finances and future gains.

While the chain considered selling the land as is to earn a quicker return, the company instead chose to boost its value by having developers add such infrastructure as roads and get zoning rights before selling it to companies for construction of offices, retail centers and housing, Karahan said.

J.C. Penney declined 0.5 percent to $5.96 at the close in New York. The shares jumped 8.4 percent on Feb. 6 when the partnership was announced for the biggest gain since Nov. 1.

Cash Raising

After Ullman’s return in April, J.C. Penney raised almost $4 billion last year via borrowings and a stock offering. The chain had more than $2 billion in liquidity at the end of January, meeting its forecast.

Ullman has brought back once-jettisoned brands to lure shoppers, helping the retailer last week post its first quarterly same-store sales gain since 2011. Sales at locations open at least a year rose 2 percent in the fiscal fourth quarter, after falling 32 percent a year earlier.

When J.C. Penney moved to Plano it bought land in what was then an underdeveloped area about 20 miles north of downtown Dallas. More than two decades later, Plano’s population has surged as companies including Dr. Pepper Snapple Group Inc. (DPS) relocated there.

FedEx Move

FedEx Office, a unit of FedEx Corp. (FDX), is in talks to build in the J.C. Penney development and move the division’s headquarters there from Dallas, according to Heather Alexander, a FedEx spokeswoman.

The value of J.C. Penney’s property has been increasing, according to the Central Appraisal District for Collin County, Texas. For example, one 97-acre parcel was appraised at a market value of $34 million, up from $18 million in 2011.

The new development, to be called Legacy West, will be built at the southwest corner of the Dallas North Tollway and State Highway 121. The project will also be managed by Columbus Realty and KDC.

Legacy West is an extension of the current Legacy business park that was created by Ross Perot, the former presidential candidate. The development, which spans more than 2,600 acres, is filled with office buildings, shopping centers and housing.

The Dallas Business Journal reported the FedEx talks earlier.

-By Matt Townsend

A Real Estate Surge Revives Goldman’s Doom-Era Bonds

Source: Bloomberg / Personal Finance

As they marketed one of the biggest commercial-mortgage bond deals ever in June 2007, just as credit markets began to crumble, bankers at Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc (RBS) handed out T-shirts depicting a glass it declared “half full.”

Six years later, after the $7.6 billion of securities plunged in the collapse of the U.S. property market that pushed loans included in the deal into default, the glass is filling up. Portions of the deal that have been cut to junk, which fell to as low as 16 cents on the dollar in 2008, have jumped about 5 cents in the past month to as high as 69 cents, according to traders and investors.

The bonds are rising after distressed real estate, including properties in the 2007 deal, sold in an auction for more than their most recent appraisals. The sale provides a glimpse of what to expect in the $550 billion market as loan servicers work through a pipeline of $66.6 billion of defaulted mortgages funding everything from Manhattan skyscrapers to shopping malls in Tennessee.

“In many cases the buildings are in fairly decent areas -- they were just overleveraged,” said Keerthi Raghavan, a debt analyst at Barclays Plc in New York, referring to properties sold in the recent auction. “This is a chance to wipe the slate clean.”

Blackstone, Starwood

Buyers including Blackstone Group LP (BX) and Starwood Capital Group LLC are snapping up real estate in a wager they’ll turn a profit as the economy rebounds, boosting values and recoveries for bondholders.

Starwood Capital (STWD), led by Barry Sternlicht, said in a Jan. 29 statement that it acquired 11 properties from the sale by CWCapital, a Bethesda, Maryland-based unit of Fortress Investment Group LLC that specializes in managing soured commercial mortgages that have been packaged into bonds. The $2.6 billion offering was the largest such sale on record.

The firm paid $191 million for the properties, about 23 percent more than indicated by the most recent appraisals, according to Barclays.

Value Surprises

The acquisition “could be an indicator that valuations for other auctioned assets may surprise to the upside,” Barclays analysts led by Raghavan wrote in a report last month.

Blackstone, the world’s largest private-equity firm, bought Texas’s Four Seasons Resort and Club Dallas at Las Colinas and a loan on New York’s 119 West 40th Street, an office tower overlooking Bryant Park, a person with knowledge of the transactions said.

The firm paid about 86 cents on the dollar for the hotel outside Dallas, while buying the mortgage on the 22-story office building for about 75 percent of the investment by the previous owner, according to people with knowledge of the transactions. The price for the Manhattan tower indicates a higher value than a September appraisal that valued it at $150 million, according to Barclays.

CIM Group, the Los Angeles-based real estate investor with stakes in buildings including the art-deco tower at 11 Madison Ave. in New York, said today it acquired seven assets from the auction. That included 2 California Plaza, an office tower in downtown Los Angeles that was the largest asset up for sale.

Spreading Optimism

The auction has fueled such demand for the 2007 bonds that an investor, rather than waiting for the securities to be offered, sent a request through dealers seeking holders willing to sell $20 million of the junk-rated debt, according to traders with knowledge of the inquiry.

The deal from Goldman Sachs and RBS’s U.S. securities unit was linked to 315 properties across the U.S., of which at least 18 were offered in the auction, according to Morgan Stanley.

As they marketed the transaction that year, the banks distributed the T-shirts as a way of bolstering confidence amid the emerging turmoil, according to three people with knowledge of the situation who asked not to be identified because they aren’t authorized to speak publicly.

In the same week the dealers priced the offering, Bear Stearns Cos. was seeking to shore up two hedge fundsthat were collapsing under the weight of souring subprime home loans. The lender, then the fifth-largest U.S. investment bank, was rescued in a bailout engineered by the Federal Reserve in March 2008.

Price Gains

Michael DuVally, a spokesman for Goldman Sachs, and Sarah Lukashok of RBS, declined to comment on the transaction.

The bonds are recovering amid mounting evidence of an improving real estate market, according to Lisa Pendergast, an analyst at Jefferies Group.

“In more cases than not, we have seen better results,” she said, referencing loss estimates on defaulted debt.

It will be more difficult to determine the prices for smaller properties that don’t attract a lot of bidders, potentially suppressing values, Pendergast said.

Price growth for properties in major markets such as New York and San Francisco has outpaced increases in smaller cities and towns. In the largest markets, values have climbed to 2.5 percent more than pre-crisis peaks, according to the Moody’s/RCA Commercial Property Price Index. Property prices across the U.S. are within 8 percent of the record reached in November 2007, Moody’s Investors Service said in a report yesterday.

It will probably take several months for results of all 67 assets disposed of in CWCapital’s auction to trickle out to bondholders, according to Barclays’s Raghavan.

Transactions such as the Goldman Sachs and RBS deal are showing “better stability than the rest of the market” as the prices become clearer, he said.

-By Sarah Mulholland

Mitsui Fudosan Nine-Month Profit Gains as Leasing Revenue Rises

Source: Bloomberg / News

Mitsui Fudosan Co. (8801), Japan’s largest property developer by sales, said nine-month net income rose 32 percent after new shopping malls and office properties boosted leasing revenue.

Net income gained to 62 billion yen ($605 million) for the period ended Dec. 31 from 47 billion yen a year ago, the Tokyo-based company said in a statement to the stock exchange today. Sales increased 5.3 percent to 995 billion yen.

Mitsui Fudosan has forecast net income will rise 9.3 percent for the fiscal year ending March 31, supported by the new building openings. Operating profit of the company’s leasing business gained 2.4 percent in the nine-month period, while its property management and brokerage business posted a 26 percent increase, reflecting improvement in the nation’s housing market, it said.

The developer reiterated its full-year net income forecast of 65 billion yen on revenue of 1.53 trillion yen.

Mitsui Fudosan’s shares closed unchanged at 3,295 yen in Tokyo. The company reported earnings after the market closed.

-By Kathleen Chu

Commonwealth Bank Profit Climbs on Impairments Drop, Housing

Source: Bloomberg / Luxury

Commonwealth Bank of Australia, the nation’s biggest lender, reported a 14 percent increase in first-half profit to a record on lower bad-debt charges and growth in home lending.

Cash profit, which excludes one-time items, rose to A$4.27 billion ($3.85 billion) in the six months ended Dec. 31 from A$3.75 billion a year earlier, the Sydney-based lender said in a statement. That beat the A$4.17 billion median estimate of nine analysts surveyed by Bloomberg. The bank set aside A$457 million for bad debts, 26 percent less than a year earlier.

CBA, which writes one in every four mortgages in the country, is gaining from a revival in home loans and a drop in funding costs. Outstanding mortgages in Australia climbed 5.4 percent in the year to December, the fastest pace in two years, data from the Reserve Bank of Australia show.

“The housing market is strong and CBA is a relative outperformer, giving it revenue and earnings momentum,” Mark Nathan, managing partner at Sydney-based Arnhem Investment Management, which controls about $3.8 billion, said by phone.

“The benign bad-debts environment means well for the entire banking sector,” Nathan said. “Having said that, a lot of the good news is factored into CBA’s shares (CBA) and the banking sector is overvalued. We are slightly underweight the Australian banks.”

Shares Higher

Shares of CBA, which touched a record A$79.88 on Nov. 8, rose 0.4 percent to A$76.20 at the close of trading in Sydney. They advanced 25 percent last year, outpacing a 15 percent increase in the benchmark S&P/ASX 200 (AS51) index.

Australia’s largest banks are trading at the most expensive levels since before the global financial crisis. The lenders trade at an average of 2.1 times the net value of their assets, the highest since 2007 and a 79 percent premium over the MSCI World Bank Index, data compiled by Bloomberg show.

The bank’s statutory net profit for the first half climbed 16 percent to A$4.21 billion, it said today. It will pay an interim dividend of A$1.83, up 12 percent from a year earlier and higher than a A$1.80 median estimate of analysts surveyed.

“The signs are that profitability in the Australian major bank sector will be strong by international standards during calendar 2014,” Standard & Poor’s credit analyst Gavin Gunning said in a report today.

Home Loans

Retail banking profit grew 10 percent from a year earlier to A$1.67 billion and institutional banking and markets profit climbed 13 percent, the bank said. Wealth management profit rose 19 percent.

Home loans grew 7 percent in Australia to give the bank a market share of 25.3 percent, while loans to businesses expanded only 3 percent from a year earlier, the bank said.

“There is little real evidence of a meaningful increase in investment in the rest of the non-resource sector of the Australian economy, other than in housing,” Chief Executive Officer Ian Narev said in today’s statement.

Bad-debt charges as a percentage of average gross loans dropped 6 basis points to 16 basis points, the lowest since the six months ended June 2007, filings by the bank show.

Net interest margin, a measure of lending profitability, contracted 3 basis points from the previous half to 2.14 percent due to continued funding and liquidity pressure, today’s report showed. Competition for deposits remained strong, eroding margins, the bank said.

Deposits grew A$40 billion and made up 63 percent of CBA’s total funding as of Dec. 31, the same proportion as six months earlier, the bank said. Australian banks are increasing deposits to ensure compliance with global liquidity rules that begin in 2015. The bank raised A$17 billion through bonds, it said.

Capital Ratio

Core Tier 1 capital, a measure of the bank’s ability to absorb losses, increased to 8.5 percent at the end of December from 7.8 percent on Sept. 30, under the Australian Prudential Regulation Authority’s measures.

Australia & New Zealand Banking Group Ltd. reported yesterday first-quarter cash profit climbed 13 percent from a year earlier on lower bad-debt charges. National Australia Bank Ltd. releases its quarterly results on Feb. 21. Westpac Banking Corp. doesn’t update investors on its quarterly performance. At CBA, the fiscal year ends in June, compared with September for its main competitors.

-By Narayanan Somasundaram