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3rd February 2014

Singapore Real Estate

More firms venturing into overseas property

Australia, UK, US hot spots; US$3.5b invested abroad in first 9 months of last year

Source: Business Times / Top Stories

Firms have ramped up their geographical diversification efforts in recent months in a bid to escape Singapore's prohibitive property cooling measures. In the opening weeks of January alone, Aspial Corporation unveiled two acquisitions in Australia, Keppel Land agreed to purchase land in Indonesia and CapitaLand picked up yet another plot in China.

Australia, the United Kingdom and the United States have been firms' favourite hot spots. Several companies, including Hiap Hoe, AIMS AMP Capital Industrial Reit, Aspial, and Suntec Reit, picked Australia for their first overseas acquisitions.

Hiap Hoe, for instance, bought a 40,489-square-foot site in Melbourne, which it intends to develop into a 425-unit project, and then quickly went on to snap up a commercial building at 380 Lonsdale Street and a retail and office property at 206 Bourke Street. The three acquisitions cost the company about A$177.6 million (S$198.4 million). Aspial bought a freehold commercial building in Melbourne for A$41.5 million, soon followed by a separate commercial building also in Melbourne for $42.3 million. It intends to redevelop the latter site into what will be the tallest building in the city, subject to aviation clearance.

Among Reits, AMP Capital picked up a 49-per cent stake in Optus Centre, a business park in Sydney, for A$184.4 million, while Suntec Reit bought 177-199 Pacific Highway, a freehold land and property with a 31-storey Grade A commercial tower that is targeted for completion in early 2016. These were the first overseas acquisitions for both Reits.

Andrew Bird, chief investment officer (property) at AMP Capital, said he expected investment interest in Australian property to continue to remain high, particularly for the office and residential sector.

"The attraction of Australia (lies in its) high yield relative to other markets globally," said Mr Bird, noting that yields for prime property in Australia are about 6 per cent.

"When global investors look at property markets on a relative basis, they look at Australia and they see the high starting yield. And while the economy has softened a bit - the mining boom has slowed down - we are still looking at GDP growth of about 2.5 to 3 per cent," said Mr Bird.

The above two factors, plus sustained population growth through organic growth and immigration, are reasons why interest in Australia will likely remain high. That developers are looking elsewhere is perhaps not surprising, given plunging sales at home.

"New and adjusted local government policies in recent years that were meant to prevent a real estate asset bubble from forming and bursting, have, somewhat, limited the opportunities here for investors and developers," noted Chia Siew Chuin, director for research and advisory at Colliers International. "In addition, the property playing field in Singapore has matured with many players bringing more diversity into the game, hence increasing the level of competition," she said.

According to data released by DTZ, close to US$3.5 billion was invested overseas by Singapore-based investors in the first nine months of 2013.

Notably, this figure does not take into account GIC's 50 per cent stake in London's Broadgate business district, a retail and commercial estate of 17 office buildings. While the consideration for GIC's purchase was not disclosed, reports placed the price tag at around £1.7 billion (S$3.56 billion) - believed to be a record for a central London property.

London has emerged a popular investment spot thanks to its reputation as a stable financial centre, said CBRE's Chris Brooke, executive managing director for Asia.

"Asian developers buying institutional Grade A office assets in London are driven by the feeling that London is a stable financial centre, offers reasonable yield, and is a long-term core holding. There is also the desire to have a flagship property in London," said Mr Brooke.

"(On the residential front) it is a good market to be building high quality residential homes notwithstanding the capital gains tax. The feeling is that demand will remain, even though it may trail off a little bit," he added.

City Developments Limited (CDL) and Oxley Holdings are among the firms that made forays into the London market in the last 12 months - CDL via a freehold plot near Harrods in Knightsbridge, which it intends to redevelop, and Oxley Holdings via a mixed development site at London's Royal Wharf.

Other firms also entered the fray. Local construction group Lum Chang added a London hotel near the tourist attractions of Hyde Park and Kensington Gardens to its growing list of London properties last year.

Property in the US also received its fair share of interest. SingHaiyi group - previously known as SingXpress Land - snapped up two distressed commercial projects in the US in the last few months, after Neil Bush, the brother of former US president George W Bush, was brought on board as non-executive chairman of SingHaiyi.

The two projects, Tri-County Mall in Ohio and Vietnam Town in California, were picked up for US$45 million and US$33.1 million respectively. Earlier this month, the group said that it is in talks to acquire another two to three assets in America.

Separately, OUE picked up California's tallest building - the US Bank Tower in Los Angeles - for US$367.5 million, while earlier this year GIC sealed a deal to buy office space in New York's Time Warner Centre with two partners, the Abu Dhabi Investment Authority and US real estate firm Related Companies, for US$1.3 billion.

While many local firms have been acquiring plots overseas, one of the most active is local developer Oxley Holdings, which now has ventures in Malaysia, Cambodia and China.

Following its first move abroad in May last year, in which it bought a firm with rights to a mixed-use site in Kuala Lumpur, Oxley Holdings has assembled an impressive portfolio of plots through a combination of joint ventures, development right agreements and acquisitions.

In January, the group said it signed a framework agreement with Sepang Goldcoast and Sepang Bay to develop land. The latter two hold interests in two parcels of 99-year-leasehold land with an aggregate area of about 47.3 hectares in Sepang. The joint-venture agreements entitle Oxley Treasure to 85 per cent of the gross development value of the developments on the land.

As to the future for acquisitions, some experts urge caution as the global economic recovery proceeds.

Speaking on the sidelines of the DTZ Annual Property Outlook Seminar 2014 earlier this month, Dominic Brown, head of South East Asia/Australia and New Zealand Research, said: "From an investment perspective, the main point is that (globally) property is not expected to get any more attractive on a relative value basis in the near term ... This stems from the fact that upside risks are now increasingly likely as the global economic recovery starts to gather momentum. This is a big shift from last year when a lot of focus was on what might happen if the eurozone broke up."

- By Mindy Tan

Real Estate Companies' Brief

Far East Hospitality's unconventional chief executive

Source: Straits Times

In the early 1980s, Mr Arthur Kiong was a familiar voice on the radio, spinning records and reading the news. Fast-forward to the present, and the former disc jockey, 53, is now chief executive of hotel operator Far East Hospitality - a position he has held since July 2012 - with big plans for the home-grown company.

Views, Reviews & Forum

Green efforts: HDB replies

Source: Straits Times

We thank Mr Jason See Kum Weng for his feedback ("Consider safety and security issues in green efforts"; last Monday). We assure Mr See that safety and security are key considerations in our designs and initiatives.

Safety at worksites: Holistic approach needed

Source: Straits Times

THE Manpower Ministry and those in the construction industry should deal with the recent spate of construction accidents in a holistic manner ("Stakeholders must be proactive in boosting work safety" by Mr Goh Yang Miang; last Thursday).

Global Economy And Global Real Estate

Indonesia's 2013 GDP growth likely below 6%

This would be its slowest pace in 4 years as boom in commodities ends

Source: Business Times / Indonesia

Indonesia's economy likely grew less than 6 per cent in 2013, marking its slowest pace of growth in four years, as the end of a commodity boom hit exports and a widening current account deficit undermined investor confidence.

South-east Asia's largest economy has been wrestling with a battered currency, high inflation and a chronic current account gap that has prompted the central bank to raise its benchmark rate by 175 basis points since June.

But in a positive sign, the country is expected to have logged a trade surplus for a third straight month in December, other data is expected to show this week.

Indonesia's gross domestic product probably rose 5.7 per cent in 2013, slowing from 6.23 per cent in the previous year, according to a Reuters poll of 12 analysts.

-From Jakarta, Indonesia

London Housing Market Shows Rising Bubble Risk as Asians Pile In

Source: Bloomberg / Luxury

London’s housing market is beginning to show “bubble-like conditions” as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report today by the EY Item Club.

Homeowners are now borrowing as much relative to their income to purchase real estate in the U.K. capital as they were before the financial crisis, the London-based group sponsored by EY, formerly Ernst & Young, said. The average London home will cost about 600,000 pounds ($980,000) by 2018, it estimates. It’s around 404,000 pounds now, according to the Land Registry.

Prices across most of the U.K. “remain well below their pre-crisis peaks and there seems little danger of a bubble,” Andrew Goodwin, senior economic adviser to the EY Item Club, said in the report. “But London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern.”

Surging London home prices, buoyed by demand from overseas investors and government initiatives to aid buyers, have prompted economists, analysts and politicians to warn of unsustainable gains. Asia has been a particularly strong source of demand for the best London properties, EY Item Club said, citing brokers. Investors from countries such as China and Singapore are taking advantage of the pound’s depreciation since the financial crisis to buy London homes.

Overseas-Buying Surge

People living outside the U.K. bought half of all new homes sold in London’s best neighborhoods in the two years through June, broker Knight Frank LLP said in October.

Reducing the risk of a London property bubble could be difficult because values in prime districts have outperformed the city’s peripheral areas, according to the EY Item Club report. Values in London’s best neighborhoods, such as Mayfair and Knightsbridge, are 27 percent above their 2007 peak, broker Savills Plc said in November. That’s more than double the gains for Greater London, according to Land Registry data.

“Bursting a bubble at the luxury end of the market, which continues to attract interest from international cash buyers with the seemingly irresistible global draw of London’s X-factor, may prove tricky,” Dean Hodcroft, U.K. and Ireland head of real estate, hospitality and construction at EY, said in the statement.

Pound’s Gains

The pound’s recent gains against Asian currencies and an abatement of the euro region’s debt crisis will reduce demand for homes in the U.K. capital’s best areas, the report forecasts. Rising supply will also curb home-value gains in London’s prime districts, it said.

London’s prime housing market “has completely different drivers to the rest of the U.K.,” according to the report. “There is a strong argument for ignoring the excesses of the prime central London market” and “arguably it would be more appropriate to treat it as an investment market, rather than a residential market.”

Home values in the capital rose 0.6 percent last month from December compared with a national gain of 0.3 percent, Hometrack Ltd. said in an e-mailed report today.

Average U.K. house prices will rise 8.4 percent this year, 7.3 percent in 2015 and about 5.5 percent in 2016, EY Item Club estimates.

-By Neil Callanan

London Leads U.K. House Price Increases as Item Club Sees Bubble

Source: Bloomberg / Luxury

London led an increase in U.K. home prices last month, a report showed today, as Ernst & Young LLP’s Item Club said the city’s property market risks overheating.

Home values in the capital rose 0.6 percent from December compared with a national gain of 0.3 percent, Hometrack Ltd. said in an e-mailed report in London today. In a separate release, Item Club said the London housing market was beginning to show signs of “bubble-like conditions.”

Mortgage approvals are at an almost six-year high amid a property revival fueled by an improving economy and government incentives. Increasing values prompted the Bank of England to end its support for home loans last year and BOE Markets Director Paul Fisher said last month that sharply rising prices are a potential source of financial instability.

“Underlying market conditions remain strong with the market starting 2014 in a better position than a year ago,” said Richard Donnell, director of research at Hometrack. “Positive news on the economy and jobs is set to support demand in the coming months.”

Values in the regions of East Anglia and southwest England rose 0.4 percent, the property researcher said.

January’s national increase was the 12th in a row and the result of the largest imbalance between supply and demand since 2009, Hometrack said. From a year earlier, U.K. home values advanced 4.8 percent.

The number of properties for sale dropped 6.6 percent, taking the total decline over the past five months to 17 percent, Hometrack said. London and southern England posted the largest declines in supply.

Strong Demand

While the housing market in the rest of the U.K. has returned to “normality,” price gains in London have pushed both the value-to-income ratio and average-income multiple to the highs seen before the financial crisis, Item Club said. Officials on the BOE’s Financial Policy Committee should be prepared to take more action, such as imposing a limit on income multiples, it said.

“London, which is suffering from a combination of strong demand and a lack of supply, is increasingly giving us cause for concern,” Andrew Goodwin, an economic adviser to the Item Club, said in a statement.

Demand has been partly fueled by a government incentive program known as Help to Buy, which guarantees loans to those who can only afford a small down payment.

London Soars

Home prices will rise 8.4 percent this year and 7.3 percent in 2015, before growing about 5.5 percent a year thereafter as Help to Buy comes to an end and borrowing costs increase, Item Club said. By 2018, the average value of a London home will be almost 600,000 pounds, it said.

The widening gulf between the capital’s housing market and the rest of the country is complicating the government’s policy choices. Prices increased 11.6 percent in London in the 12 months to November, the latest for which official data are available, according to the Office for National Statistics. Excluding the capital and its commuter area in the Southeast of England, prices rose 3.1 percent.

An index of U.K. consumer confidence fell from a six-year high, a report from Nielsen showed today. The share of Britons who believe the country is still in a recession also fell, the consumer research group said in an e-mailed statement.

-By Scott Hamilton

Australian Exchange to Open Singapore Office This Year

Source: Bloomberg / News

ASX Ltd. (ASX) will hire staff for a new office in Singapore this year as Australia’s main exchange operator seeks to do more business with Asian hedge funds and proprietary traders.

“It will be a meaningful presence,” Peter Hiom, Sydney-based deputy chief executive officer at ASX, said in an interview Jan. 31, adding that the Singapore office will focus on derivatives products. “There’s an untapped opportunity for us in Southeast Asia.”

Asia’s third-largest listed exchange by market capitalization is expanding in derivatives, already its biggest source of revenue, as trading volumes for cash equities in its home market stagnate. Inflows into hedge funds are set to jump 25 percent this year to the most since 2007, Barclays Plc said last month, citing a survey of investors. CME Group Inc., the world’s biggest listed exchange, and units of Deutsche Boerse AG, the fourth largest, have offices in Singapore as the firms jostle for a share of the Asian market.

ASX’s expansion into Singapore comes about three years after it had an A$8.3 billion ($7.3 billion) merger with Singapore Exchange Ltd. (SGX), Asia’s fourth-largest listed exchange, vetoed by the government. The firm’s international ambitions were dented when former Treasurer Wayne Swan rejected the tieup, saying the move amounted to a takeover and wasn’t in the national interest.

The exchange will report results for the first half of the 2014 financial year on Feb. 13. Derivatives contributed 32 percent of total revenue in the year through June 30, 2013, data compiled by Bloomberg show.

Client Clearing

ASX shares rose 20 percent in 2013, compared with a 3.6 percent gain for Singapore Exchange Ltd. Hong Kong Exchanges & Clearing Ltd. (388) slid 2 percent and Japan Exchange Group Inc. surged fourfold since it began trading last January through the end of the year. ASX gained 0.1 percent to A$35.66 in Sydney today, after a 3.1 percent monthly decline in January.

The bourse will in April start offering asset managers the ability to lodge collateral for derivatives trades with the exchange rather than their brokers, a product it’s calling client clearing, Hiom said. Australian customers of a unit of MF Global Holdings Ltd., which collapsed in October 2011 after a $6.3 billion bet on bonds of some of Europe’s most indebted nations, faced lengthy battles in foreign courts to get repaid.

“MF Global is just an example of why you have to focus on this,” Hiom said. “But the reason is regulatory change globally.”

Price Moves

Clearinghouses cut risk by collecting collateral to back each transaction, monitoring daily price moves and making traders put up more cash as losses occur. Venues such as LCH.Clearnet Group Ltd., which last year was granted a license to operate in Australia, and those run by U.S. exchanges CME Group and IntercontinentalExchange Group Inc. have become more important to the financial system as regulators globally push more trades through them.

The U.S. Dodd-Frank Act requires clearing for most swap contracts after the Group of 20 agreed in 2009 to promote the use of clearinghouses to improve the stability of the global financial system.

“The client clearing service is an important extension of the OTC clearing service we provide,” said Hiom. “It’s about delivering that as an onshore solution.”

-By Adam Haigh