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22nd February 2014

Singapore Economy 

Singapore Budget 2014

Singapore Budget 2014: Levies to be raised for low-skilled foreign construction workers

Source: Straits Times / Big Stories

In yet another move to encourage greater productivity in the local construction sector, the Government will again raise levies on foreign construction workers with only basic skills.

The levy will go from $600 per worker to $700 in July 2016, said Finance Minister Tharman Shanmugaratnam in Parliament on Friday.

But the levy for higher-skilled foreign construction workers will remain unchanged to encourage firms to opt for them, he said.

In the longer term, the Government will look into mandating a minimum proportion of such skilled workers in every firm, Mr Tharman warned.

It will help to ease this process by allowing foreign workers with basic skills who have worked here for at least six years, and with a salary of at least $1,600, to upgrade to the higher-skilled work permit.

This would help firms retain experienced workers with job knowledge and experience. Firms have frequently complained about having to give up these workers when their work permits expire.

In addition, the maximum period of employment for higher-skilled foreign workers will be raised from 18 to 22 years. Apart from construction workers, this will apply for workers in the marine and process sectors as well.

For the construction industry specifically, Mr Tharman introduced other measures to help raise productivity.

He said the Government will insist on the use of productive technologies such as pre-fabricated bathroom units for the land sites that it sells to private developers.

The public sector, he added, will do its part by using such advanced technologies as shield tunnelling more aggressively in public housing and transport projects.

-By Rachel Chang

Singapore Budget 2014: Employers' CPF contribution rate to go up by 1 percentage point

Source: Straits Times / Big Stories

Companies will have to contribute more to their employees' Central Provident Fund (CPF) accounts from January next year, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said in his Budget speech on Friday.

The 1 percentage point rise in the employers' CPF contribution rate will apply to all workers, with the entire increase going to workers' Medisave accounts.

The initiative will help Singaporeans with their health-care costs, including expected higher premiums for the upcoming MediShield Life universal health-care scheme.

"It is important for employers to play a role too in this national effort to provide for the future health-care needs of Singaporeans," said Mr Tharman.

With this move, CPF contribution rates for workers up to 50 years old will rise to 37 per cent, of which 17 per cent will come from employers and 20 per cent from workers.

The Government does not expect to make further changes soon to total CPF contribution rates, Mr Tharman added.

He also said the Government will help employers by offsetting half of the increase for the first year.

Companies will receive an offset of 0.5 percentage point of wages, up to the CPF salary ceiling of $5,000. This support will cost the Government $330 million.

-By Jonathan Kwok

Singapore Budget 2014: Medisave top-up, higher CPF rates for older Singaporeans

Source: Straits Times / Big Stories

Older Singaporeans too young to be included in the Pioneer Generation Package will still benefit from Medisave top-ups, and will also enjoy higher CPF contribution rates if they are still working.

The changes will help this group with medical expenses and to build a retirement nest egg.

The Central Provident Fund (CPF) Medisave top-up is for citizens born from 1950 to 1959 - those aged 55 to 64 this year and so just outside the qualifying mark for Pioneer Generation benefits.

Pioneer Generation benefits are for those born in 1949 or before.

The amount of the Medisave top-up will vary, depending on the annual value of an individual's home.

People with homes with an annual value of $13,000 or less will get $200 a year over the next five years in their Medisave accounts. The top-up for those owning homes with an annual value above $13,000 or for those who own more than one property will be $100 a year for five years.

CPF contribution rates for older workers will also go up from January next year. They will rise by 1.5 percentage points for those aged 50 to 55, with 1 percentage point of the increase to come from the company and the remaining 0.5 percentage point from the worker.

The contribution rate paid by companies for workers aged 55 to 65 will also be raised by 0.5 percentage points.

The increased employer contributions will go to the Special Account, while the higher employee levy is for the Ordinary Account.

These changes are on top of the 1 percentage point increase in the Medisave contribution rate, which applies to all workers.

There will be help to offset the rise in older worker contribution rates to help companies adjust. This one-year benefit will cost the Government $30 million.

-By Jonathan Kwok

Singapore Budget 2014: Increased aid for Singapore companies expanding abroad

Source: Straits Times / Big Stories

The Government will introduce "targeted enhancements" to help local companies expand into overseas markets, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam.

First, it will allow companies to borrow more money from the Internationalisation Finance Scheme, which provides loans to companies expanding abroad. The maximum loan quantum under the programme will rise from the current $15 million to $30 million.

The programme is now expected to disburse up to $500 million in loans over the next two years for companies pursuing internationalisation, said Mr Tharman in his Budget speech in Parliament on Friday.

In addition, the Government will enhance the Global Company Partnership Programme. It will raise the support level for pilot and test-bedding projects from 50 per cent to 70 per cent, to help companies to develop new products to break into overseas markets and to establish track records.

The Government will also expand the scope of support for staff attachments overseas.

Mr Tharman said about 200 companies should benefit from these measures over the next two years.

-By Jonathan Kwok

Singapore Budget 2014: $500m plan to help local firms step up use of infocomms technology

Source: Straits Times / Big Stories

The Government will subsidise the information and communications technology (ICT) costs for Singapore businesses over the next three years, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam in his Budget speech in Parliament on Friday.

It is rolling out three initiatives, which will cost a total of $500 million over the next three years, to help local firms step up their use of ICT.

The Government will subsidise 70 per cent of the costs of proven ICT products and services for some small and medium-sized enterprises (SMEs), expanding the reach of existing sector-specific schemes.

"ICT is transforming almost every industry internationally," Mr Tharman said. "While the public sector and our larger corporations have been actively leveraging ICT, we have to help our SMEs step up adoption of ICT solutions."

Secondly, the Government will encourage companies to implement innovative technologies that are new to Singapore, supporting 80 per cent of the qualifying costs for firms over the next three years. This support will be capped at $1 million per participating company.

The Government will also subsidise SMEs' fibre broadband subscription plans of at least 100 Mbps and support them in implementing Wireless@SG services at their premises.

In addition, it will pay building owners for up to 80 per cent of the costs of new in-building infrastructure, in order to ensure that they can provide fibre broadband to their business tenants. This is capped at $200,000 per building.

-By Jonathan Kwok

Singapore Budget 2014: Too early to relax property cooling measures, says DPM Tharman

Source: Straits Times / Big Stories

It is still too early for the Government to relax its property cooling measures, given the increase in home prices in the last four years, said Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam.

The Government will continue to monitor the real estate market and adjust its measures when necessary, he added.

He said that the Government has been concerned about property prices, which have risen strongly in recent years.

The successive rounds of market-cooling measures are working, with both the HDB resale and private residential prices stabilising, he added.

"We are not engineering a hard landing," he said in the annual Budget speech in Parliament on Friday.

"But neither are we able to eliminate cycles in the property market, with upswings in prices in some years followed by corrections."

Addressing complaints by business about rising costs including property rents, Mr Tharman noted that companies have faced rising rental expenses in the last few years, especially in industrial space.

But he said that a very large quantity of industrial and shop space is entering the market, and should have a moderating influence on property prices and rents over the next few years.

-By Jonathan Kwok

Tax benefits to boost productivity and innovation extended to 2018

The government will extend the Productivity and Innovation Credit (PIC) scheme for three years, and will introduce a separate version of the programme for small and medium-sized enterprises (SMEs) which raises the expenditure cap for tax deduction claims.

A 'levelling up' budget

Source: Business Times / Top Stories

FEW Budgets are long remembered. Budget 2014 deserves to be one of them. It will be remembered most of all for its pathbreaking social initiatives, particularly its pioneer generation package which at a stroke provides a raft of healthcare subsidies to some 450,000 Singaporeans for the rest of their lives, with no ifs and buts, no uncertainties - the $8 billion needed to fund this initiative is already in the bag.

Budget 2014 also deserves to be remembered for its "levelling up" approach to dealing with the problem of inequality - or as Finance Minister Tharman Shanmugaratnam put it: "Building a Fair and Equitable Society."

In this context, one of the Budget's notable features is what it did not contain. There was no increase in income taxes (though no tax rebates either), no lowering of the threshold for the top rate as some had expected and no new wealth taxes, not even on property.

Rather than penalising upper income earners, or relying on trickle-down economics, Mr Tharman chose to "pull up" those at the lower end of the scale, through expanded subsidies for education, wages, housing and health care. A remarkable statistic cited in the budget was that the social initiatives of the last five years, plus those in Budget 2014, provide support to lower and middle-income Singaporeans that is about 2.5 times what it was a decade ago.

-By Vikram Khanna

Tharman strikes balance with few trade-offs

Pioneer Generation Package, higher CPF contribution rates for 'fair and equitable society'; PIC extended and other incentives sharpened to gun for 'quality growth'

Source: Business Times / Top Stories

AS Singapore nears the half-way mark of its 10-year restructuring plan, Budget 2014 sought to strike a balance between growing social needs and businesses under stress - and it did so at a lower price than observers had expected.

Faint hopes of a rollback in property cooling measures did not materialise, and the income and wealth tax hikes some had expected to help pay for rising social spending did not come to pass.

But Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam did not need fresh revenue sources to sink a bold $8 billion into a fund that will pay fully for the Pioneer Generation Package, which will assure some 450,000 elderly Singaporeans of affordable healthcare for life.

And though there was no equivalent big-bang package for businesses this year, companies had little reason to complain about a Budget that was "more carrot than stick" - as more than one observer said - especially since the previous four Budgets have sent ever tighter foreign manpower curbs their way.

"The Singapore Business Federation is relieved that no major new manpower measures were announced in Budget 2014 to exacerbate the tight labour situation," said SBF CEO Ho Meng Kit. Most employers were spared the pain of further levy hikes or quota cuts, though Mr Tharman did slap a $100 levy hike on the construction sector, which has been a laggard in productivity growth.

Reiterating that "raising productivity is at the centre of our economic agenda" because it is the only way to raise living standards in coming years, Mr Tharman also extended the Productivity and Innovation Credit (PIC) scheme - meant to lapse in YA2015 - by another three years.

This was something all the major business groups had asked for.

While SMEs did not get the higher cash payout many had hoped for, the government did come up with PIC+ to help smaller enterprises make large investments to transform. PIC+ pushes up the expenditure cap for each qualifying activity by 50 per cent - so that SMEs can claim tax deductions of up to $1.8 million over three years, compared to $1.2 million before.

Together, the government's productivity support schemes will pump more funds back to businesses than the additional foreign worker levies collected in recent years, Mr Tharman said.

"However, we are not recycling monies indiscriminately, or seeking to benefit all firms equally. Our schemes will still favour the more dynamic and efficient players," he added.

Incentives were also sharpened to "enable innovation to pervade the economy", he said. These include ones to encourage investment in innovation and skills, support the piloting and scaling up of infocomm technologies, catalyse financing for companies at various growth stages and help firms go abroad.

The one piece of news that dismayed some businesses was that employer CPF contribution rates will be hiked from January 2015.

"Increases in employers' CPF contributions will not help and will impact small businesses as they employ more older workers, proportionately," said SBF CEO Mr Ho.

But the Singapore National Employers' Federation sought comfort in the $360 million that the government has set aside for one-year employment credits to help employers adjust, as well as the government's assurance that it would not raise the rate beyond 17 per cent any time soon.

DBS economist Irvin Seah said it can be viewed as an attempt to raise productivity - higher CPF contribution rates are more positive than raising foreign worker levies. "The hikes in employers' CPF rate will benefit Singaporeans directly, whereas, previously the hikes in foreign workers' levy benefited only the official coffers," he said.

But funds and measures can only do so much in service of what is a "major, multi-year undertaking". Mr Tharman said: "Transforming our economy is not just about technology and 

productivity is not ultimately about the dollars and cents of upgrading. It also means changing our social norms."

In his view, this ranges from creating a workplace culture that values employees' views, to a culture of job mastery, to changes in consumer habits - becoming at ease with self-service technologies, for instance. In fact, Mr Tharman's 90-minute speech outlined how the government, too, has changed its thinking.

As a country, Singapore has entered into a new phase: incomes are rising less quickly, the disparities between different groups are becoming more of a concern, and the population is ageing rapidly, often with fewer children to support older Singaporeans, he said.

"Our thinking has shifted in this new phase, and our initiatives are helping to level up our society and mitigate inequalities." Hence the raft of measures unveiled on the social front: higher healthcare subsidies, more assistance with pre-school fees for more families, higher bursaries for students in tertiary institutes and higher subsidies for children with special needs.

In addition, the government has set aside $360 million for utilities, rebates on Service and Conservancy Charges and cash grants (GST Voucher) to help older Singaporeans and lower and middle-income families hit by Singapore's rising cost of living.

However, as Singapore strengthens its social support and safety nets, the "whole approach must encourage a compact between personal and collective responsibility", Mr Tharman said.

"What is critical is not just how much we spend and redistribute resources, but how we do so. Our approach to uplifting the poor and levelling up society can only succeed if it supports a culture of personal responsibility - the desire to learn a new skill and work for a better living, and to make the effort to look after our own families. We know this from the evidence of half a century of major social interventions around the world, such as in the US and the European countries."

Including the hefty $8 billion set aside for the Pioneer Generation Fund, and factoring in a contribution from net investment returns on past reserves of $8.1 billion, the government is expecting an overall deficit of $1.2 billion, or 0.3 per cent of GDP. But the deficit - which if it materialises will be the first since the global financial crisis in 2009 - will not draw on past reserves, as there are sufficient surpluses from the last few years to balance this over the current electoral term.

"The relative absence of bad news and willingness to run a deficit invite speculation of early elections in 2015, with the bitter pill of higher taxes only likely thereafter," said Citi economist Kit Wei Zheng.

-By Teh Shi Ning

Singapore Real Estate

Rivertrees drawing strong buyer interest

Source: Business Times / Top Stories

RIVERTREES Residence, a waterfront condominium project in Sengkang, has received close to 600 cheques from interested buyers prior to its official launch today, with interest coming from both owner-occupiers and investors.

Frasers Centrepoint said yesterday that a total of 585 cheques were received for apartments across different sizes. Close to 300 units will be launched in the initial phase for the 495-unit project that is jointly developed by Frasers Centrepoint, Far East Orchard and Sekisui House.

The average pricing for the initial phase is said to be in the range of $950-1,150 per square foot (psf). Frasers Centrepoint had said that the units will be sold at a premium of $50-100 psf to its next-door competing project, Riverbank @ Fernvale by UOL Development.

-By Lynette Khoo

Cooling measures to stay in place for now

Property players won't see a scaleback of seven rounds of cooling measures just yet

Source: Business Times / Top Stories

PROPERTY developers and consultants didn't get the rolling back or tweaking of property cooling measures they were hoping for but took things in their stride, after Finance Minister Tharman Shanmugaratnam declared: "Given the run-up in prices in the last four years, it is too early to start relaxing our measures. The government will continue to monitor the property market in the coming quarters and adjust our measures when necessary.

"We are not engineering a hard landing. But neither are we able to eliminate cycles in the property market, with upswings in prices in some years followed by corrections."

Property industry players had called for a scaleback of the seven rounds of property cooling since 2009, which rolled out measures such as the seller's stamp duty (to discourage short-term trading in property), additional buyer's stamp duty (targeting property investors and foreign buyers) and lower loan-to-value limits for those taking their second or subsequent home mortgages.

Frasers Centrepoint Homes CEO Cheang Kok Kheong said last night: "I guess they will let the measures run for a couple more quarters before deciding what to do. Right now, the market still has depth. People are still investing. The economy's doing well and there's liquidity."

-By Kalpana Rashiwala

Carrots and sticks for construction industry

Levy for basic skilled worker to go up; upgrade to higher skilled level made easier

Source: Business Times / Top Stories

THE construction sector was singled out as the only sector bucking the trend of slowing foreign workforce growth by Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam yesterday, as he unveiled a mixed toolkit of carrots and sticks aimed at the construction sector.

The biggest stick in the toolbox was the increase in levy for basic skilled construction workers that will take effect in July 2016. Specifically, the levy for these workers (R2 work permit holders) employed within Man-Year Entitlement (MYE) will be increased from $600 to $700 while levies for higher-skilled workers will remain unchanged.

Despite the fact that the levy hike will only take effect in two years, construction firms involved in larger projects which take a longer time to complete will still be affected, said Ho Nyok Yong, president of The Singapore Contractors Association Limited (SCAL).

"Now he gives me the warning: 2016 is $700 (for R2 workers); it's 2014 now and before July, I was paying $450. If my project takes three years, I am still hit. Who compensates us? (If your pricing is) too competitive, you lose money; but if you price higher, you don't get the job," said Dr Ho.

-By Mindy Tan

Got a project coming up? Tell nearby residents first

Source: Straits Times

Residents living near housing developments that are on the drawing board will no longer risk being caught by surprise when a project gets the green light for construction. The Urban Redevelopment Authority (URA) now requires developers to inform residents living around new developments about their building plans.

New projects adding buzz to Marine Parade

Source: Straits Times

Upcoming new projects are bringing a new lease of life to Marine Parade, a mature estate in the east with both a cosy beach-town vibe and District 15 cachet. Improved transport links to the area in the near future will also buoy home prices and rents there, consultants said.

Real Estate Companies' Brief

Hiap Hoe, Heeton post Q4 profit falls

Source: Business Times / Companies

TWO listed property companies yesterday signalled caution over the Singapore property market amid weaker fourth-quarter results, and have indicated more expansion opportunities overseas.

In a statement to announce its quarterly earnings, Hiap Hoe said that the group expects Singapore's real estate market to remain soft. It will also continue its expansion into Australia, following its recent acquisition of an investment property in Perth.

The property firm's net profit for the three months ended Dec 31, 2013, fell 48 per cent to $7.17 million from a year ago, dragged by higher expenses. The earnings translated to an earnings per share of 1.52 cents, compared to 2.93 cents a year ago.

-By Jamie Lee

M&C full-year profit up 54% on S'pore condo sales

Source: Business Times / Companies

HOTEL chain operator Millennium & Copthorne's full-year pretax profit jumped 54 per cent due to accrued one-time revenue from condominium sales by its Singapore subsidiary.

The hotel chain operator, which recently acquired Novotel New York and the Chelsea Hotel in London, said that pretax profit rose to £263.6 million (S$500.3 million) in the year ended Dec 31 from £171.3 million a year earlier.

Revenue rose 35 per cent to £1.04 billion.

The company had said in December that the sale of 147 condominiums by its subsidiary Glyndebourne Development in Singapore brought in revenue of £274 million, and it expected pretax profit to rise by £130-140 million.

Full-year earnings at UIC, SingLand fall on lower residential sales

Source: Business Times / Companies

UNITED Industrial Corporation (UIC) and its 80 per cent subsidiary, Singapore Land (SingLand), have posted declines in net profits and revenues for the year ended Dec 31, 2013, as both recorded fewer residential sales.

UIC's net profit for 2013 fell 19 per cent to $316.1 million, while separately listed SingLand reported a 17 per cent decline in net profit to $339.2 million.

Revenues at UIC slipped 14 per cent to $609.6 million while SingLand recorded a 22 per cent slump to $454 million.

-By Lynette Khoo

Ascott Reit to acquire 1st Dalian serviced residence

Source: Business Times / Companies

ASCOTT Residence Trust (Ascott Reit) has entered into a conditional agreement with Winner Sight Investments to acquire its first serviced residence in Dalian for 571 million yuan (S$118.6 million) at an Ebitda yield of 5.5 per cent. On a pro forma basis, the accretive acquisition is expected to increase FY 2013 distribution per unit by 1.5 per cent from 8.40 cents to 8.53 cents.

Global Economy & Global Real Estate

Heritage hotels hark back to storied past

Time-travel to the 1800s to early 1900s when you stay in Colorado

Source: Business Times / BT Living

HOTELS set in historical buildings abound in Colorado. Those who like a bit of heritage with their travels, may want to head back in time at these properties.

The Brown Palace

321 17th Street Denver Colorado 80202

-By Tay Suan Chiang

Cooling U.S. Home Sales Only Partly Due to Weather: Economy

Source: Bloomberg / Personal Finance

Sales of previously owned U.S. homes dropped in January to the lowest level in more than a year as harsh winter weather combined with a lack of supply, strict lending rules and declining affordability to depress demand.

Purchases decreased 5.1 percent to a 4.62 million annual rate last month, the fewest since July 2012, figures from the National Association of Realtors showed today in Washington. Sales fell in all four regions of the country, indicating unusually frigid temperatures were only partly to blame.

“The weather played some role, but just as much of a role was played by lower inventories, higher mortgage rates, slightly higher prices and tighter credit,” said Robert Rosener, an economist at Credit Agricole CIB in New York, who correctly projected the drop in sales. “We’re on a positive trajectory, and when the spring comes we should see a bounce back.”

The degree of rebound this year will hinge on continued gains in hiring and residential construction that will help overcome the hurdles of too-few properties and rising prices. These issues are particularly acute for first-time buyers, who last month made up the smallest share of the market since record-keeping began more than five years ago.

Stocks fell, after the Standard & Poor’s 500 Index climbed to within three points of a record, as Federal Reserve officials indicated the central bank is unlikely to slow the pace of stimulus cuts. The S&P 500 dropped 0.2 percent to 1,836.25 at the close in New York.

Survey Results

The median forecast of 79 economists surveyed by Bloomberg projected sales would drop to a 4.67 million rate. Estimates ranged from a 4.5 million pace to 4.9 million. December’s figure was unrevised at a 4.87 million pace.

Compared with a year earlier, purchases (ETSLTOTL) decreased 5.1 percent in January on an adjusted basis, today’s report showed. The median price of an existing home increased 10.7 percent from a year earlier to $188,900 in January.

The drop in sales was led by a 7.3 percent slump in the West, followed by a 7.1 percent decrease in the Midwest.

First-time buyers accounted for 26 percent of all purchases in January, the lowest in data going back to October 2008.

The number of existing properties on the market rose 7.3 percent from a year earlier to 1.9 million in January. At the current pace, it would take 4.9 months to sell those houses compared with 4.6 months at the end of December.

Tight Supply

Less than a five months’ supply is considered a tight market, Lawrence Yun, NAR’s chief economist, said in a news conference today as the figures were released.

“The lack of supply is greatly hindering the buyer enthusiasm,” Yun said. Buyers “don’t want to see two homes, they want to see 10 homes before deciding” on such a major purchase, he said.

The figures also show some divergence in the market as sales of lower-priced homes are dropping, mainly because of a lack of supply, while demand for higher-priced properties is climbing, reflecting the rebound in wealth generated by rising stock prices, Yun said.

The split is also evident in the composition of properties sold, he said. Purchases of single-family homes decreased 5.8 percent to an annual rate of 4.05 million, the report showed. The sales pace for condominiums was little changed at 570,000.

Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008, three years after a record 7.08 million homes were sold.

Weather’s Impact

Inclement weather in the eastern U.S. risks further restraining the housing market. Last month was the coldest January since 1994 in the contiguous U.S., based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Maryland. The Northeast is also on track for the coldest winter since 1982, measured from December to February, the group said.

St. Louis Fed Bank President James Bullard, who doesn’t vote on the Federal Open Market Committee this year, said the central bank is on target to continue scaling back stimulus, adding that soft economic data so far in 2014 is probably due to bad weather.

Builders have felt the sting of colder conditions. The pace of home construction fell 16 percent to an 880,000 annualized rate last month, the biggest decrease since February 2011, Commerce Department data showed last week.

Builder Confidence

Builder confidence also slumped as the weather slowed both potential buyer traffic and sales. The National Association of Home Builders/Wells Fargo sentiment gauge slumped to 46 this month from 56 in January, the biggest decline since monthly record-keeping began in 1985. Readings less than 50 mean more respondents reported poor market conditions than good.

Beyond weather, purchasing a home has become less affordable. The 30-year fixed mortgage rate averaged 4.33 in the week ended Feb. 20, up from 3.56 percent around the same time a year ago. After reaching a four-month low of 4.10 percent at the end of October, the average rate rose to 4.53 percent at the start of this year.

“If you recall back a couple quarters ago, there was a pretty adverse reaction to the increase in mortgage rates, even though they were slight and they’re still historically low by anybody’s standards,” Donald Tomnitz, chief executive officer of D.R. Horton Inc., said on a Jan. 28 conference call. As spring approaches, rates “will be less and less a factor.”

-By Victoria Stilwell

Wall Street Landlords Buy Bad Loans for Cheaper Homes

Source: Bloomberg / Luxury

Wall Street-backed landlords are showing a greater appetite for bad mortgages as a source for cheap property as the supply of foreclosed homes declines while housing prices continue to climb.

The companies have dominated U.S.foreclosure auctions in the last two years by buying as many as 200,000 single-family homes. Now American Homes 4 Rent, the second-biggest single-family landlord, Barry Sternlicht’s Starwood Waypoint Residential Trust and Altisource Residential Corp. (RESI) are leading acquisitions of non-performing loans, or NPLs, to expand their holdings of rental properties.

The shift to loans comes after foreclosure starts dropped to the lowest level since 2006 and house prices jumped in Atlanta, Phoenix and other markets where investors have made the most purchases. The development is raising concern among housing advocates that private equity firms and hedge funds will be more likely to take possession of the properties rather than offer loan modifications. Residents may be displaced or transformed into renters of their former houses.

Doug Brien, co-chief executive officer of Starwood Waypoint (SWAY), said his firm plans to give delinquent residents a chance to stay put as owners or renters.

“Our intent is to approach some of these folks where it just doesn’t look like they’re going to get caught up on their loans,” Brien said. The firm can “offer them the opportunities to stay in their homes and keep their kids in the same school.”

50% Rentals

Starwood Waypoint invested $219.7 million for 1,736 non-performing loans compared with $707.5 million to own 5,049 rental houses, according to a January presentation to investors. That averages about $127,000 per distressed loan compared with $140,000 per home.

Brien said an estimated 30 percent to 50 percent of the NPLs will end up as rentals for the company. In other cases, the borrowers will resume paying the loans after a modification or the homes will be sold because the location or quality doesn’t match Starwood Waypoint’s criteria.

“We’re always going to take the outcome that’s most economically beneficial,” Brien said.

Hedge funds, private-equity and real-estate investment trusts, which have raised more than $20 billion to buy rental homes, are getting opportunities to buy soured home-loan debt as banks face new regulations that make it more expensive to hold. The Department of Housing and Urban Development is also auctioning loans to stem losses at the financially troubled Federal Housing Administration.

$34.7 Billion

The government, lenders such as Bank of America Corp. and investment firms sold about $34.7 billion in non-performing loans last year, up from $13.1 billion in 2012, according to David Tobin, principal of Mission Capital Advisors, a New York-based real estate loan broker.

JPMorgan Chase & Co. this month offered $390 million of NPLs. HSBC Holdings Plc has hired BlackRock Inc. (BLK) to manage the potential sale of as much as $1 billion in delinquent loans, and Goldman Sachs Group Inc. is handling an auction of about $700 million of modified debt for Regions Financial Corp.

About 5.4 percent of mortgages, or almost 2.2 million loans on U.S. homes, are at least 90 days delinquent or in foreclosure, the Mortgage Bankers Association reported yesterday. That’s down from the fourth quarter 2009 peak of 9.7 percent.

Investors buying NPLs to increase their rental portfolios is a cause for alarm because they stand to profit by pushing people out of their homes, said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based tenant and consumer advocacy group.

More Foreclosures

“They should be modifying those loans to keep the homeowner in there, but it runs counter to their business model,” Stein said. “They shouldn’t be in the business of buying distressed loans for the purpose of foreclosing on people.”

Altisource Residential, which bought 13,500 delinquent loans last year, resolved about 288 in the fourth quarter. One hundred and fifty-one of those were foreclosures or deeds in lieu of foreclosure, where the resident gives up rights to the property. The firm expects more loans it bought in 2013 will be converted into rental properties by the end of this year or early 2015, CEO Ashish Pandey said in a call with investors yesterday. He anticipates NPL sales will reach $40 billion this year.

American Homes

“Our NPL acquisition strategy will continue to give us access to properties and healthy markets nationwide,” Altisource Chairman William Erby said on the call. The company’s shares fell 2.6 percent to close at $27.61 in New York, paring their gain in the past year to 73 percent.

American Homes 4 Rent (AMH), a landlord with more than 21,000 homes founded by billionaire B. Wayne Hughes, announced a joint venture in September to buy distressed mortgages. Jack Corrigan, chief operating officer of the Agoura Hills, California-based real estate investment trust, didn’t reply to a phone message seeking comment.

Hughes, who pioneered warehouses for Americans needing storage space, saw the opportunity to create a rental empire after the housing crash. Hughes brought together a group of executives from his company Public Storage to begin buying homes in early 2012. At around the same time, Blackstone Group LP started Invitation Homes, a single-family landlord that has spent $8 billion on 43,000 homes.

While Blackstone once bought $100 million of homes a week, it has slowed acquisitions after prices climbed almost 24 percent since March 2012, according to the S&P/Case-Shiller index of 20 U.S. cities.

Falling Yields

“The challenge now for us is as the prices go up the yields go down,” Jonathan Gray, Blackstone’s global head of real estate, said this month at the Harbor Investment Conference in New York. “So we have been winding down, not ending, but reducing the amount we are investing.”

American Homes 4 Rent and Tom Barrack Jr.’s Colony Capital LLC also have said they’ve been purchasing fewer homes. Colony, Blackstone and other investors are increasingly lending to smaller landlords as an alternative way to bet on the rental business.

Invitation Homes “has not and will not purchase NPL’s,” Blackstone spokeswoman Christine Anderson said.

Bayview Asset Management, a Coral Gables, Florida-based mortgage investment company backed by Blackstone, has been the largest buyer of NPLs sold at HUD auctions, spending $1.47 billion since 2012, according to data from the sales.

Bayview “always attempts to modify first,” Anderson said.

Discount Prices

Delinquent loans are trading at around 65 percent to almost 80 percent of the current property values, according to Ellington Management Group LLC, which oversees $6 billion in investments, including rental homes and NPLs.

Michael Vranos, CEO of Old Greenwich, Connecticut-based Ellington, said it’s hard to predict how many of the discounted loans will become rentals.

“There are many paths that can be as or more profitable,” said Vranos. They include getting borrowers to start making monthly payments or conducting a short sale, when the house sells for less than the mortgage balance.

Homes acquired through non-performing loans have often gone years without maintenance as the owners struggled to pay their debts, adding to renovation costs. Loans on homes that received foreclosure filings in December were an average 920 days delinquent, up from 255 days late in January 2008, according to data provider Black Knight Financial Services.

Deferred Maintenance

“The longer the borrower is in a house that’s non-performing, the amount of deferred maintenance just grows and grows and grows,” said Jon Daurio, co-founder of Kondaur Capital Corp., which started buying delinquent loans in 2007. “For me, it’s too risky.”

Daurio left Kondaur in 2011 and is raising money to start a mortgage origination firm.

Starwood Waypoint’s Brien said NPLs are a valuable tool to build his company, which began trading on the New York Stock Exchange Feb. 3.

“We’re optimistic about it,” he said. “We think there’s a great opportunity to buy NPLs over the next year to two years and put some capital to work.”

-By Heather Perlberg and John Gittelsohn

Gecina to Sell Beaugrenelle Shopping Mall for About $960 Million

Source: Bloomberg / News

Gecina SA and its partners agreed to sell a Paris shopping center to investors led by Fonciere Apsys for 700 million euros ($960 million euros).

Gecina, which has a 75 percent stake in the company that owns the Beaugrenelle mall, plans to invest the proceeds from the sale during the second half, according to a statement today from the French real estate investment trust. That would lead to stable recurring net income for the year, Gecina said.

“This is the largest unit transaction ever carried out on the French shopping-center market,” Gecina said. Most of the proceeds will be spent on office properties, the company said.

The sale by Gecina, Paris’s largest publicly traded office landlord, will complete the company’s plan to focus on its main business. Gecina previously sold its logistics and hotel assets.

Property developers Apsys and Groupe Madar will each own 40 percent of Beaugrenelle after the transaction, according to a separate statement. The rest will be owned by Financiere Saint-James, the holding company of Michael Benabou, the co-founder of online retailer

-By Francois de Beaupuy

Crown Earnings Miss Estimates as High-Rollers Stay Home

Source: Bloomberg / News

Crown Resorts Ltd. (CWN), the gaming company controlled by billionaire James Packer, slumped after first-half profit missed analyst estimates as a 26 percent decline in bets from high-rolling gamblers weighed on earnings.

Net income was A$382.5 million ($344 million) in the six months ended Dec. 31, the Melbourne-based company said in a regulatory statement today, more than double the A$180.8 million result a year earlier. Crown fell 3.2 percent to A$16.68 at the close in Sydney trading, the biggest decline since Dec. 13.

Australian casino companies are counting on growing demand from high-spending Chinese and other Asian tourists to justify more than A$2 billion in investments in new hotels and gaming rooms. Turnover from the VIP program at the Crown Melbourne casino fell 33 percent in the period amid “competitive challenges,” the company said.

“It’s slightly worrying what’s happening in the VIP market,” Killian Murphy, an analyst at CIMB Group Holdings Bhd. in Sydney, said by phone after the results. “The casinos round the region are all very competitive and it’s a small pool of players.”

Normalized net income, which flattens out the volatility of gambling winnings, was A$315 million, missing the A$328.7 million median of four analyst estimates compiled by Bloomberg News.

Asian Tourism

Packer has quit most of the media investments inherited from his father Kerry in an attempt to capitalize on Asian tourism through casino investments in Australia, Macau, the Philippines and Sri Lanka.

He’s promised to spend about A$1.3 billion on a casino and hotel aimed at VIP gamblers on the shores of Sydney Harbour. The resort will compete with the Star complex on an adjacent stretch of shore, where Echo Entertainment Group Ltd. (EGP) has spent A$870 million on a refurbishment intended to lure the same market.

Crown’s group revenue grew 3.4 percent to A$1.56 billion during the first half and earnings before interest, tax, depreciation and amortization jumped 27 percent to A$479 million, the company said in its statement.

Revenue from Crown’s main gaming floors in Australia fell 0.6 percent to A$757.7 million as poor consumer sentiment reduced people’s appetite for gambling. Turnover from VIP gamblers in Melbourne and Perth slumped 26 percent to A$23 billion, while non-gaming sales increased 6.8 percent to A$333.9 million, the company said in its statement today.

Weak Sentiment

“We have seen weak consumer sentiment,” that’s hurt trading in Melbourne and Perth, Rowen Craigie, chief executive officer, said in the statement. “Their local economies are experiencing structural and cyclical challenges.”

A measure of Australian consumer confidence fell to a nine-month low this month. The Reserve Bank of Australia has cut interest rates to a record-low 2.5 percent to stimulate spending as a mining investment boom fades.

“The domestic side is tracking OK at best, given the weak consumer environment,” Theo Maas, a partner at Arnhem Investment Management in Sydney, said by phone before the results. “The real growth is coming from Macau.”

Packer’s Melco Crown Entertainment Ltd. (6883), which owns Macau’s City of Dreams casino, said Feb. 13 that net income more than doubled from a year earlier to $223.8 million in the three months ended December and promised to pay out 30 percent of its net income as quarterly dividend in future.

Crown has a 34 percent stake in the Hong Kong-based venture, according to Melco Crown’s most recent annual report. The company’s share of Melco’s normalized net profit was A$140.6 million, more than double its result a year earlier.

-By David Fickling