Real News‎ > ‎2014‎ > ‎February 2014‎ > ‎

5th February 2014

Singapore Real Estate

Government steps in to ease shortage of granite

Source: Business Times / Top Stories

The government will release granite from the national stockpile from today to ease an Indonesian granite supply shortage that has affected private and public construction projects.

The Building and Construction Authority (BCA) said yesterday evening that while the construction industry here has diversified its sources since 2007, the activation of the national stockpile will "further ease the situation and enable construction works to carry on".

The release will be for main contractors with ongoing projects that require granite for building works.

"The release of the national stockpile will tide the industry over while it ramps up supply from other regional sources. BCA urges the industry to continue to diligently look for alternative sources and diversify," the government agency said.

-By Cai HaoXiang

Real Estate Companies' Brief

Lotte gets Singapore nod for mall Reit: report

The IPO could raise up to US$1b; SGX declines comment

Source: Business Times / Companies

THE Singapore initial public offering (IPO) of some shopping malls of South Korea's largest mall owner Lotte Shopping has gained regulatory approval, said The Wall Street Journal late Monday night.

Quoting people with knowledge of the deal, the newspaper added that Lotte is testing investors' appetite for a trust containing some of its shopping malls in the coming fortnight, and will aim to list by the end of the first quarter.

The IPO could raise up to US$1 billion, reports have said. Lawrence Wong, Singapore Exchange (SGX) head of listings, said in a statement yesterday: "We constantly receive interest from international companies with an Asian focus to list on SGX given our positioning as the gateway to the region."

But he declined comment on Lotte. "It is not our practice to publicly comment on our dealings with specific companies," he said.

-By Cai HaoXiang

Lian Beng clinches $117m contract

Source: Business Times / Companies

CONSTRUCTION firm Lian Beng Group said its wholly owned subsidiary, Deenn Engineering, has secured a construction contract worth about $117 million.

Under the deal, Lian Beng will construct a multi-storey building. The contract begins on Feb 12 and will last 32 months. It is expected to have a positive financial impact on the net tangible assets per share and earnings per share of the group for the current financial year ending May 31, 2014. The group's construction order book stands at $1.17 billion.

Wee Hur secures $103.6m HDB project

Source: Business Times / Companies

Construction and development group Wee Hur Holdings said the Housing and Development Board (HDB) has awarded it a $103.6 million building works project in Sengkang comprising 727 dwelling units as well as contingency works.

Logistics Holdings bags $31.7m contract

Construction firm Logistics Holdings has clinched a $31.7 million contract from the HDB to design and build electrical substations and switch rooms, as well as carry out related works, in Potong Pasir, Bishan and Serangoon.

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Views, Reviews & Forums

Build safety culture in construction industry

Source: Straits Times

Construction is one of the largest industries in Singapore. Unfortunately, it is also the most dangerous. More construction workers are killed or seriously injured than in any other industry. Nine fatalities in a month speaks for itself ("Minister issues warning over worksite safety"; last Thursday). We need to take immediate steps to prevent such unnecessary deaths.

How foreign worker levy hits productivity

Source: Business Times / Editor mailbag / Story

I REFER to the article, "Results of productivity push under question" (BT, Feb 4).

Improving the productivity of any economy is a complex issue with many roadblocks along the way. One factor which the government ought to examine is the possible negative impact of Singapore's foreign worker levy on productivity growth.

Each year, the government collects hundreds of millions of dollars from this levy. The original intent of the levy was to regulate the number of foreign workers in Singapore. However, today one is left wondering whether this has become more of a revenue-generating tool. There are many other ways the number of foreign workers can be regulated. Today, an employer can pay up to $750 a month or $9,000 per year to employ a foreign worker. Some levies are set to go up to as much as $1,050 per month or $12,600 annually for each worker by July 2015. Some of the highest levies are for foreign construction workers. Perhaps it is no accident that the Singapore construction industry has often been cited for its low productivity.

For each dollar of foreign worker levy paid, an employer has a dollar less to employ a better qualified worker. Thus the levy may have a deleterious effect on productivity growth as it deprives employers from recruiting better- qualified workers. Granted, this may not be applicable across the entire universe of foreign workers. However, even for domestic helpers, if the levy were available for the employer to pay higher wages, they should be able to engage better-qualified domestic help. Thus a family with elderly and/or infirm members may be able to employ a nurse or nursing aide instead of just an ordinary domestic helper.

Global Economy and Global Real Estate

Ban foreign buyers to solve UK property woes: Report

Source: Straits Times

Britain should ban foreigners from buying homes in order to halt soaring property prices, which are locking "millions" of citizens out of the domestic housing market, a London think-tank said.

Inflation gap between nations to widen further

Devaluations in Asia and Latin America cited as main cause

Source: Business Times / World

THE gap between developed and emerging nation inflation is expected to widen further due to devaluations in Asia and Latin America.

Latest statistics of the Organisation for Economic Co-operation and Development (OECD) yesterday showed that the annual rate of inflation in its 34 developed-country members rose slightly to 1.6 per cent in December 2013 from 1.5 per cent in November, but it is still well below 2012 average levels of 2.2 per cent.

In contrast, inflation of Indonesia has almost doubled to 8.4 per cent from average levels of 4.3 per cent in 2012 while 12-month consumer price rises in December were 10.9 per cent in Argentina, 9.1 per cent in India, 6.5 per cent in Russia, 5.9 per cent in Brazil, 5.5 per cent in South Africa and 2.5 per cent in China. Japan's inflation has accelerated to 1.6 per cent from zero in 2012. Bank of Japan governor Haruhiko Kuroda predicted yesterday that the nation's consumer price index would accelerate to 2 per cent later this year due to the central bank's easy money policy.

The depressed eurozone economy has kept prices down and at 0.9 per cent inflation, which was slightly higher than the 0.8 per cent in November 2013, some economists fear that the region could once again slip into deflation. France and Italy's consumer price inflation, for example, was 0.7 per cent in December compared to an average of 2 per cent and 3 per cent, respectively, in 2012.

-By Neil Behrmann

London Office Drought Sparks Hunt for 1980s Relics: Real Estate

Source: Bloomberg / Personal Finance

Modern office towers with nicknames like the Walkie Talkie and the Cheesegrater are being completed high above the City of London, giving the impression there’s plenty of room for a resurgent financial industry. Closer to the ground, developers are preparing for a shortage of space.

Investors including Blackstone Group LP (BX), the world’s biggest buyout firm, Brookfield Office Properties Inc. (BPO) and Land Securities Group Plc (LAND), the U.K.’s largest real estate investment trust, are looking for well-worn office buildings from the 1980s and early 1990s to buy and refurbish as rising demand and a shortage of prime space in the City lifts prices and rents.

“If the bricks and bones of buildings are of sufficient quality, we reposition the product and benefit from the supply and demand story,” James Lock, a managing director at Blackstone’s real estate unit, said by phone.

The 2008 credit crisis caused development to stall in the City, leaving few options for companies seeking large offices in the center of the financial district. Only six developments have as much as 100,000 square feet (9,300 square meters) available to occupy over the next 12 months, according to Chris Vydra, an executive director at property broker CBRE Group Inc. (CBG) Space sought in the area rose 15 percent in the six months through November, said Knight Frank LLP, another broker.

Towers Taken

Developers that started office towers in 2010 have leased most of the space before the buildings are completed. The 20 Fenchurch Street tower, a Land Securities and Canary Wharf Group (SBD) project nicknamed the Walkie Talkie, is 64 percent leased, with tenants including RSA Insurance Group Plc and units of Liberty Mutual Insurance Co., and deals for another 23 percent awaiting legal approval, according to the companies. British Land Co. and Oxford Properties Group Inc. said they have agreements for more than half of the Leadenhall Building, known as the Cheesegrater, ahead of completion in the middle of this year.

Investors that upgrade existing properties and retain the basic shape can put offices on the market about six months faster than they could by constructing a new building, consulting firm EC Harris LP said, using the example of a 200,000 square-foot project. A property of that size would be large enough for about 1,850 workers, Savills Plc estimated.

Helical Bar Plc (HLCL), a London-based developer, and Crosstree Real Estate Partners LLP bought office properties at 207 Old Street on the fringe of the City two years ago. Refurbishment began in January after the investors determined that they wouldn’t have to demolish the buildings and start from scratch. Helical Bar expects to make a profit of at least 20 million pounds ($33 million) from its 33 percent stake in the 180 million-pound project, development director Gerald Kaye said in an interview.

Faster, Cheaper

Renovating “is generally much cheaper in terms of money and time, and you don’t have to have a huge debate with the planners,” Kaye said. “If you can turn around a refurbishment quickly, then you’re well placed to capitalize.”

At 20 Old Bailey, across the street from the courthouse where writer Oscar Wilde was tried for gross indecency in 1895, Blackstone plans “a complete refurbishment of the space, taking it back to the frame, and the introduction of a best-in-class building,” Lock said.

Leadenhall Court, a seven-floor structure built in 1988 and bought by Brookfield in 2012, will either be renovated or redeveloped -- demolished and replaced by a new structure built on the same site -- by the New York-based company when the lease expires, spokeswoman Carlin Fier said. The property is close to the Lloyd’s of London building, the center of the city’s insurance industry, and is leased to Royal & Sun Alliance Insurance Plc.

Short Term

The “place to hunt for ourselves and others is that shorter-term income bracket where we can asset manage or refurbish and redevelop buildings,” Martin Jepson, president and chief operating officer at Brookfield’s European unit, said in an interview. “That’s the strategy people will naturally look for when there’s low supply.”

Viewings by potential tenants at 99 Bishopsgate, redeveloped in 1995, doubled after Brookfield spent 5 million pounds upgrading the lobby, terraces and common areas in October, Jepson said. The office building near Liverpool Street railway station has 60,000 square feet of vacant space.

“I’ll be disappointed if we don’t see this leased up in the early part of the year,” he said.

Quick Turnaround

Speed is the key. Investors who now start refurbishing or constructing new buildings run the risk of greater competition arriving on the market before the work is finished.

“People have to get in and out and do refurbs before anyone sees the potential for oversupply, which will come,” Tom Elliott, head of City investment at Land Securities, said in an interview. The company, the U.K.’s largest real estate investment trust, is also looking for buildings that can be upgraded, he said.

The amount of new space completed in 2012 was the lowest in more than 25 years, Deloitte Real Estate said in a May report. About 1 million square feet was delivered in 2013, twice the level of a year earlier, according to CBRE.

Occupiers signed leases for 5.4 million square feet of workspace in the City of London in 2013, about 27 percent more than a year earlier, broker DTZ said in a report last month.

Competition Rises

Competition for older buildings to renovate is pushing up selling prices. Blackstone agreed to pay more than 90 million pounds to Mitsui Fudosan Co., Japan’s largest developer, for 20 Old Bailey, according to two people with knowledge of the deal who asked not to be named because the details are private. That’s about 10 million pounds more than the offer price, one of the people said. Blackstone and Mitsui Fudosan declined to comment on the price.

Savills Plc (SVS) today offered the leasehold to Royal Mint Court, an office complex developed in the 1980s on a 5-acre (2-hectare) site opposite the Tower of London, for sale for more than 30 million pounds, the broker said in a statement. The property is linked to the Equinox Eclipse 2006-1 CMBS.

Henderson Group Plc (HGG), another London-based developer and property investor, is becoming more selective in choosing refurbishment opportunities because of the increased competition in the market, director of property Nick Deacon said by e-mail.

Rising demand spurred by an improving U.K. economy will probably lead to rent increases of at least 10 percent a year in the district through 2016, Goldman Sachs Group Inc. real estate analysts including Julian Livingstone-Booth said in a note to clients last month.

‘Relentless’ Demand

The prospect of higher rents is attracting buyers, especially from abroad, for prime office space in the City. Investors spent 12.2 billion pounds on offices in 2013 and 77 percent that came from overseas, according to Savills. That’s pushing up prices and increasing the reward for developers that refurbish buildings and secure tenants. Yields for prime properties in the City fell to 4.75 percent from 5.25 percent in the year through September, indicating an increase in values, Knight Frank said.

“Demand from investors for London stock appears relentless,” Henderson’s Deacon said. “It appears we have a new potential buyer enter the market every week.”

GIC Pte of Singapore in December bought Blackstone’s 50 percent stake in London’s Broadgate office complex, most of which was constructed in the 1980s. The sovereign wealth fund had agreed to pay more than 1.7 billion pounds for the stake, two people with knowledge of the transaction said in August. Some of the older buildings will be refurbished, including 100 Liverpool Street, according to the Singapore wealth fund and British Land Co. Plc (BLND), which owns the other 50 percent of the project.

Companies that can’t get out of their leases until 2017 are already in talks with Blackstone about new space, Lock said. “The underlying business confidence, combined with the fundamental reality that supply is tight and competition is increasing, means occupiers have to be proactive earlier.”

-By Patrick Gower and Neil Callanan

Mizuho Targets Australia Commercial Real Estate to Boost Lending

Source: Bloomberg / News

Mizuho Bank Ltd., part of Japan’s third-largest lender by market value, is considering Australian commercial real estate projects as it seeks to top last year’s $2.5 billion of syndicated loans in the South Pacific nation.

The Tokyo-based bank may grow its commercial property lending in Australia and also plans to increase its debt capital markets business as other rivals hoard local assets, according to Sydney branch general manager Debra Hazelton. While Mizuho was the eighth-biggest lender to the nation’s companies last year, the four largest banks led by Westpac Banking Corp. (WBC) snapped up 55 percent of deals, Bloomberg-compiled data show.

“We would like to be more active in some parts of the property market,” Hazelton said in an interview in Sydney. “Not retail residential, but commercial real estate that is somehow in our already established customers’ portfolios.”

Mizuho wants to broaden its Australian business amid heightened rivalry in local lending, as a cooling mining boom slows the economy. Mizuho’s share of the Australian syndicated loan market dropped to 2.4 percent last year from 3.5 percent in 2012, Bloomberg-compiled data show.

“We have been disappointed that we’ve been scaled back so aggressively,” said Hazelton.

Margins Plunge

Syndicated loan volumes in Australia climbed to $104 billion in 2013 from $83.4 billion a year earlier, Bloomberg-compiled data show. Competition helped force a 52 basis-point drop in average borrowing costs last year, compared with a 21 basis-point fall in the Asia-Pacific region excluding Japan, the data show. Pricing may dip further before costly capital rules come into effect in 2015, said Hazelton.

“There’s an opportunity for corporates at the moment to be borrowing at these lower thinner margins,” she said. “When people start recognizing some of the impact of the Basel III requirements next year, maybe we’ll see it bottoming and even widening.”

The Reserve Bank of Australia signaled the end of a two-year easing cycle yesterday when it kept the overnight cash-rate target at 2.5 percent. After 2.25 percentage points of rate cuts since late 2011, the central bank is switching stance as home prices surge and inflation accelerates.

Origin Energy Ltd. borrowed the biggest syndicated loan in Australia last year, which Mizuho joined, Bloomberg-compiled data show. Sydney-based developer Lend Lease Group was the second-largest borrower, agreeing $4.2 billion of loans from banks that also included Mizuho, the data show.

Property Boom

Commercial property transactions in Australia surged 62 percent in the last three months of 2013 from a year earlier to $6.4 billion, according to data from broker Jones Lang LaSalle Inc. (JLL) Almost $22 billion of properties changed hands in 2013, up 33 percent from the previous year, the figures show.

“We have various sectors that Mizuho favors and doesn’t favor from a more global basis,” said Hazelton. “I’d like to look at some of those areas and rethink whether the Australian market could be a bit of an exception.”

One of the largest real estate projects under way is Lend Lease’s Barangaroo South on Sydney harbor, a A$6 billion ($5.3 billion) redevelopment of a former container port which will include apartments, shops, restaurants and three skyscrapers providing about 320,000 square meters (3.4 million square feet) of office space, according to the developer’s website.

Railways, Ports

Asset sales by local state governments and infrastructure investment in projects such as roads, rail and port facilities will also help boost lending volumes in the next two years, said Hazelton.

Australia faces an infrastructure funding gap of about A$300 billion, according to a June government report. Capital is needed for essential projects to prepare for an expected 50 percent surge in population by 2050 and rising demand from Asia for the nation’s exports, according to Infrastructure Australia. The government unit put the value of proposed priority investments at more than A$80 billion.

“We’re going to be hoping to see the impact of the privatization of the semi-governments coming through, as well as some of that social and economic infrastructure spending,” Hazelton said. “That will help the pipeline, but the spreads will continue to be low, or even lower in some cases, next year.”

The bank’s financial year ends in March.

-By  Paulina Duran

China Savers’ Penchant for Property Magnifies Bust Danger

Source: Bloomberg / News

Chinese households’ concentration of wealth in real estate is magnifying the danger to the world’s second-largest economy of any property bust, as the nation grapples with the consequences of its record credit surge.

Some 66.1 percent of family assets were in housing in 2013, a national survey of about 28,000 households shows. Mortgage debt as a share of disposable income rose to 30 percent from 18 percent in 2008, according to estimates by Nicholas Lardy at the Peterson Institute for International Economics in Washington.

The buildup raises the stakes for any slide in property prices amid China’s efforts to head off defaults by local governments and developers that propelled a run-up in borrowing that now amounts to more than double the size of the economy, according to Goldman Sachs Group Inc. A hit to household wealth could impair consumer spending, rebuffing policy maker efforts to rebalance the economy toward domestic demand.

“A fall in housing prices could have significant knock-on effects on private consumption,” said Eswar Prasad, a former chief of the International Monetary Fund’s China division and now an economics professor at Cornell University in Ithaca, New York. “Such a hit to private consumption could pose significant macroeconomic risks, both to headline growth and the process of rebalancing growth.”

China’s households piled into real estate in recent years as they sought returns beyond the regulated caps on savings deposits. With the nation’s stock market failing to keep pace with economic growth, property offered an alternative, along with trusts that channeled credit to borrowers outside the official banking system.

Values Rose

Among urban households that own apartments, 75.5 percent of their assets are in real estate, according to Gan Li, director of the Survey and Research Center for China Household Finance in Chengdu, a body set up by the Southwestern University of Finance and Economics. The center’s 2013 national survey showed that households’ assets rose by 20 percent from 2011, while the value of their residential property holdings increased 26.8 percent.

A bursting housing bubble would cause a “substantial hit to Chinese household wealth” with long-term consequences for consumption, said Gan.

For now, there may be little sign of danger. Home prices in December had the biggest year-on-year gain in 2013, increasing 12 percent, according to SouFun Holdings Ltd., China’s biggest real-estate website owner. At the same time, some cite concern that developers have built more than the economy needs -- with Centaline Property Agency Ltd., China’s biggest real-estate brokerage, detecting oversupply last year in cities other than the nation’s four biggest.

Looming Risk

Liu Li-Gang, chief Greater China economist at Australia & New Zealand Banking Group Ltd., said today that risks may mount in coming years as China opens its capital account, giving property owners in major cities such as Beijing the opportunity to “rush to the exit,” shifting their money overseas if they think prices aren’t sustainable. He spoke to Bloomberg Television in Hong Kong.

The survey by Gan’s center indicated that about 90 percent of households in the world’s most populous nation already own homes.

A separate survey of 30 developers in second-tier and third-tier cities conducted by Standard Chartered Plc showed that while the group anticipated continued land-price gains in coming months, they are finding it harder to get financing. “A record-high 12 respondents said they had heard of cases of developers having problems paying for land,” the bank, which began the surveys in 2010, said in a Jan. 27 report.

Swelling Debt

China’s policy makers have attempted to rein in the unprecedented credit boom they unleashed in 2008-2009 amid the global financial crisis, as risk mounted that some of the loans would go bad. Goldman Sachs analysts estimated in a July report that the nation’s total debt-to-gross domestic product ratio jumped almost 60 percentage points since the crisis, to almost 210 percent.

Whether triggered by a cut-off in financing or a collapse in demand, any bust in the housing market would have an economic effect that’s difficult to calculate, given China hasn’t been through such a crisis in recent history.

“A decline in home prices will definitely have a negative impact on consumption -- but since we’ve never had a sustained home-price decline in China, any estimate is quite judgmental,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

Cash Buffer

Higher down payments for homes -- typically 30 percent of the purchase price -- and the lack of mortgage securitization reduce risks of the kind of financial panic and recession that the U.S. experienced last decade. About 30 percent of Chinese buyers pay all cash, estimates Liu Yuan, a Shanghai-based researcher at Centaline.

Hong Kong’s experience may be an example for China, said Zhu Haibin, chief China economist at JPMorgan Chase & Co. Mortgage defaults failed to exceed 3 percent even as the city’s home prices dropped 70 percent from 1997 to 2004, Zhu said.

“There is no question that housing is the most important part of Chinese household assets,” said Zhu, who’s based in Hong Kong. Even so, Chinese household debt is still “relatively low” he said.

‘Wealth Effect’

One potential channel for affecting the economy is through the “wealth effect,” where households tighten their budgets after seeing a decline in their net assets due to a slide in the value of property they hold.

“A sharp decline in house prices would have a perceptible negative effect on household private consumption expenditure, even if it did not lead to substantial stress in the financial sector,” said Washington-based Lardy, who has studied China’s economy for more than three decades.

Any hit to consumption would impair efforts by President Xi Jinping and Premier Li Keqiang to step up the role of spending in the domestic economy and reduce reliance on exports. Li said in an October speech that expanding domestic demand is the “most important” key to adjusting the structure of the world’s second-largest economy.

A tradition of borrowing from family and friends could exacerbate strains, according to Gan, with interest rates ranging as high as 36 percent and 40 percent of Chinese households engaged in informal borrowing or loans.

“You can’t sell your house to pay back -- that’s going to create not only economic problems but also social problems as well,” Gan said. “Friends become enemies.”

-By Bloomberg News

Unibail-Rodamco Full-Year Profit Rises as Retail Rents Advance

Source: Bloomberg / News

Unibail-Rodamco SE (UL), Europe’s largest publicly traded property owner, said 2013 recurring profit rose by about 11 percent as the French company generated more rental income by building or expanding shopping centers.

Earnings excluding changes in asset values and disposals, or recurring profit, increased to 986 million euros ($1.3 billion) from 886 million euros a year earlier, the Paris-based company said in a statement today. Recurring profit per share climbed 6.5 percent to 10.22 euros.

A new mall at Paris’s Charles de Gaulle airport and extensions in cities including Prague and Vienna fueled an 8.9 percent increase in rental income from retail properties, Unibail said. The company completed 1.1 billion euros of projects last year, the statement showed.

“We will focus on large shopping centers and continue divestment of small centers,” Chief Financial Officer Jaap Tonckens said on a call with reporters.

Unibail-Rodamco, which trades in Amsterdam, has advanced 5.4 percent in the last 12 months, giving the company a market value of 17.5 billion euros. The group’s property portfolio was valued at 30.5 billion euros as of June 30.

The company plans to increase its dividend for 2013 by 6 percent to 8.90 euros a share, according to the statement.

-By Andrew Blackman