Real News‎ > ‎2014‎ > ‎February 2014‎ > ‎

6th February 2014

Singapore Real Estate

Government charging more for granite from stockpile

Granite supply disruption expected to have little impact on S'pore construction

Source: Channel News Asia / Singapore

The temporary disruption of granite supply from Indonesia is expected to have minimal impact on the building and construction industry in Singapore.

Industry players said that is because contractors are likely to have other regional sources of the material - such as Indochina and China - that they can count on to tide them over.

The Building and Construction Authority (BCA) said the construction industry has been diversifying its granite sources since 2007, when there was a similar disruption to the supply.

Kenneth Loo, first vice-president of the Singapore Contractors Association, said: “BCA had encouraged suppliers to procure from a distant source as part of their policy... it's very easy for us to ramp up supply to ease the shortage."

Mr Loo is also the executive director of Straits Construction Singapore.

Early last month, the Indonesian government imposed a global ban on a range of mineral exports that include forms of granite.

Contractors in Singapore cautioned that turning to alternative sources could lead to higher shipping costs, which could push up the price of granite slightly.

But they do not expect building projects in Singapore to be impeded.

They are also optimistic that supplies of granite from Indonesia will resume soon.

The BCA said the national granite stockpile will be released to main contractors who have ongoing projects requiring granite for concreting works, to mitigate the impact of the disruption.

HDB said on Wednesday that it does not foresee the disruption having a major impact on the progress and completion of its projects.

Mr Loo said: "Even though the situation is not that bad, actually the move by BCA to release the stockpile is actually very good. I would say it's a gesture that will put the confidence level back in place. People won't panic and there won't be any disruptions."

- CNA/xq

Anson House put up for sale for $175-180m

Prudential Tower, Equity Plaza, AXA Tower understood to be on the market too

Source: Business Times / Property

IT seems Anson House finds a new owner every two or three years. Its current owner, CBRE Global Investors, is understood to have put the 13-storey office block up for sale, with an indicative pricing of $175-180 million.

That would translate to $2,292-2,357 per square foot on net lettable area (NLA) of 76,362 sq ft for the building, which is on a site with about 82 years of remaining lease.

About 20 per cent of the building is currently vacant, which allows for a potential occupier seeking to partly occupy the building as well as provision for signage and naming rights.

Based on existing leases, the average passing rent is about $8 per square foot per month. Recently inked leases in the building have been at $8.50-$9.50 psf per month.

-By Kalpana Rashiwala

Westgate Tower put up for lease by new owners

Source: Business Times / Property

WESTGATE Tower, a 20-storey office block next to Jurong East MRT Station that will be completed by year-end, is back on the leasing market after a Sun Venture-Low Keng Huat (LKH) tie-up recently exercised options to buy the property from CapitaLand group.

The consortium has appointed Jones Lang LaSalle (JLL) and CBRE as joint sole leasing agents for the office block.

Previously, JLL was the sole leasing agent appointed for the property by CapitaLand, CapitaMalls Asia and CapitaMall Trust, the developers of the Westgate mixed-development project. 

Early last month, the trio granted options to Sun Venture-LKH to buy the office tower at $579.4 million, which works out to about $1,900 per square foot (psf) of net saleable area. The options were exercised on Jan 23.

The previous owners of Westgate Tower had been indicating office rents of $8 psf a month but potential occupiers baulked at the rate, BT understands.

Yesterday, Sun Venture managing director Alvin Teo told BT that the new owners' asking rent is around $6.50 psf.

At The Metropolis, next to Buona Vista MRT Station, Ho Bee is said to have inked a number of office leases at $7-plus psf. It is now believed to be calling mid-$7 psf rents for the last pockets of space in the development, which has slightly over one million sq ft of net lettable area. The Metropolis' two towers were completed last year.

"Brand new business park space in the suburbs can be leased in the low-$4 psf range," said an industry observer.

Westgate Tower, a Green Mark Platinum building with Grade A office specifications, features efficient column-free space of about 17,000 sq ft per floor. This will allow occupiers to enjoy flexibility and efficiency in their office design, JLL said yesterday.

"There are many other key Grade A features such as a good floor-to-ceiling height of 2.8 metres, raised floor system and excellent quality finishes."

The seven-storey shopping centre in the Westgate project opened its doors in December last year.

At the next-door Jem project, also a retail-and-office project that has been completed, all 314,000 sq ft of office space has been leased to the Ministry of National Development, though the ministry has put up around 70,000 sq ft for subletting, according to an earlier BT report.

Nearby at Venture Avenue, Sim Lian is expected to begin strata sales of office units at its project in the first half of this year. Unit sizes will range from around 500-2,000 sq ft. The average price is expected to be around $2,000 psf.

All three developments are on 99-year sites.

We earlier reported that the previous owners of Jem indicated office rents of $8 psf a month, but this should have been for Westgate Tower. We are sorry for the error.

-By Kalpana Rashiwala

Tuas South long-lease industrial site for sale

Source: Business Times / Property

A LONG-LEASE industrial site in Tuas South has been launched for sale by Expression of Interest for $8.9 million, says exclusive marketing agent Jones Lang LaSalle.

The 34,189 square foot site at 17 Tuas South Street 5 consists of a two-storey building with production and storage space, and a mezzanine office. The gross floor area (GFA) is approximately 39,795 sq ft, and the lease tenure has about 45 years left.

Nicholas Ng, local director of investments at Jones Lang LaSalle, said factories with lease tenures of more than 40 years are rarely available, and that this site would be attractive to industrialists with huge upfront costs or leases which are expiring in the next few years.

"The factory comes with a dual frontage and would be a good fit for logistics and heavy industrialists, such as marine and offshore engineering firms looking to establish a base in Tuas. Supporting businesses that set up in Tuas South will benefit from the long-term consolidation of port activities in Tuas and the upcoming BioMed One and Lube Park," he said.

Upgrader interest expected at Riverbank @ Fernvale

Average price for 555-unit Sengkang private condo just over $1,000 per sq ft

Source: Business Times / Property

THE sale of units at UOL Group's 99-year leasehold development Riverbank @ Fernvale will begin next Friday, while viewing opens today. The average price indication for the 555-unit private condominium in Sengkang is slightly over $1,000 per square foot (psf).

Even amid falling resale prices, Liam Wee Sin, president (property), remains "quietly optimistic" about buyer response.

Mr Liam says the pricing is realistic because of the $489 price per square foot per plot ratio (psf ppr) tender bid last year. The neighbouring parcel of land, on which Rivertrees Residences will be built, has a psf ppr of about $533.

He says that even with the total debt servicing ratio (TDSR), underlying demand to upgrade is still strong. "If you can produce a product that meets their aspirations and they can afford it, people will still buy," he said.

Prices of a one-bedroom unit (495 sq ft) start from $476,000, or around $962 psf. A three-bedroom unit (947 sq ft) starts from $878,000 or $927 psf.

Mr Liam expects buyers to come predominantly from the upgrader market, as well as investors who may express interest in smaller units. He added that the pricing for Riverbank is marginally close to that of executive condominiums (ECs) and should also attract some buyers from that market.

Jones Lang LaSalle head of South-east Asia research Chua Yang Liang says Riverbank is priced quite competitively, given the area and current market situation. While things slow down, he said, "good projects in good locations tend to move well".

CBRE research head Desmond Sim says competitive pricing is key in the area as buyers have various developments to choose from. He says buyers can take their time and make calculated decisions. "If they cannot get the best unit, they can move on to other developments," he said.

Pricing for Riverbank could give some insight into how much interested buyers of nearby Rivertrees Residences will fork out for a unit.

Rivertrees is located just beside Riverbank, and is also a 99-year leasehold development. BT understands that buyers can register their interest from this Saturday. Developers Frasers Centrepoint, Far East Orchard and Sekisui House have not provided firm details on how the project will be priced.

Market watchers had previously said that the site on which Rivertrees will sit is superior to that of its neighbour, given its longer frontage along Sungei Punggol river. It is also set back from major roads.

But Mr Liam does not think demand for Riverbank will be affected, saying that both residences differ in their strengths and product angle. "It's good to have a bigger crowd coming in - they can make their choice," he said.

Rivertrees has 487 apartments and eight strata landed homes. Units are sized between 495 sq ft for a one- bedder and 1,658 sq ft for a four-bedder.

-By Sheena Tan and Felda Chay

Integrated town park plan for Toa Payoh

Source: Straits Times 

Several government agencies are looking at how Toa Payoh's park, library and stadium can be brought together in a new way that will improve residents' quality of life. In the first urban planning exercise of its kind, one of the agencies, the National Parks Board (NParks), has called a tender for a feasibility study to look into bringing together these three landmarks.

HDB study to find right mix of facilities for new estates

Source: Straits Times 

The Housing and Development Board (HDB) wants to update the way it plans shopping and eating facilities in new public housing estates. It has called a tender to develop what it terms a new "HDB commercial planning norm", to guide the provision of commercial facilities in HDB towns, from coffee shops and wet markets to malls.

Gloomier prospects for property sellers

Source: Straits Times 

Some home owners in the upscale Tanglin and Alexandra areas are reducing their expectations of just how much their properties can fetch. They have been forced into this painful reappraisal by lower price tags at nearby launches and weak demand after measures including curbs on mortgages.

Straddling the old and the new

Source: Business Times Online

It is a business district. But alongside its office buildings and hotels are HDB blocks, coffeeshops, temples and rows of conservation shophouses with an eclectic mix of tenants – from chichi restaurants, art galleries to bridal shops, bars and KTV pubs. (Pg 28)

Real Estate Companies' Brief

Centurion Corp

Centurion, formally known as SM Summit, is the only listed dormitory operator in Singapore via an RTO in 2011. By FY16, its portfolio will expand 60 per cent to an estimated 54,000 beds. Last year's riots in Little India highlighted the shortage of dormitories and the dire need for more such purpose-built accommodation. The company, endowed with an ability to generate cash, is actively looking for potential acquisitions.

Lotte Shopping may delay REIT IPO on market fears

Source: Today Online / Business

Lotte Shopping, South Korea’s biggest shopping mall owner, will decide this week whether to start marketing a US$1 billion (S$1.27 billion) real estate investment trust or delay it due to the sell-off in emerging markets, people with knowledge of the matter said yesterday.

If Lotte Shopping decides to launch the mall REIT, the marketing process could start as early as Monday.

The company already has the approval of the Singapore Stock Exchange to list the REIT, the sources said.

“The markets are quite challenging,” said a person with direct knowledge of the deal. “We are waiting for the right window.”

The Lotte REIT would be the biggest initial public offering in Singapore since February last year, when Mapletree Greater China Commercial Trust raised S$1.68 billion through an REIT.

Concerns about economic growth in China and other emerging markets have triggered a sell-off in riskier assets as investor appetite for emerging markets wanes.

The uncertainty over the Lotte IPO launch also follows the poor debuts of other Asian offerings.

HK Electric Investments, a trust spun out of billionaire Li Ka-shing’s business empire, fell 2 per cent on the first day of trading last week as Hong Kong investors spurned a safe-haven utility ahead of juicier growth stocks set to come to market later this year.

Singapore’s latest REIT IPO, OUE Commercial Real Estate Investment Trust, is also trading below its launch price. REUTERS

Views, Reviews & Forum

Build on the lessons — and buzz — from the Hillford

Source: Today Online / Singapore

After the disappointment of what was supposed to be the debut of a retirement resort community at Hillford turning out to be more like an ordinary condominium launch on Jan 17, policymakers have an opportunity to do better.

Admittedly, neither the developer nor the Urban Redevelopment Authority (URA) might call Hillford a failure. Yet, a look at what happened shows how the project strayed from its intended purpose.

When the URA released the tender for the property, it offered benefits including a shorter leasehold, higher land coverage, extra gross floor area and space for supporting services if it became retirement housing.

However, the URA also said it had provided flexibility for developers or operators to decide on the criteria used to screen those buying or renting the retirement housing units. There was nothing to guarantee that the developer actually turned the property into a proper retirement community in return for the benefits.

The developer then went ahead and opened up sales to almost anyone and probably sees it as a tremendous success, since all the units sold out immediately and there is little obligation to provide ongoing support for a retirement community.

The net result is that the Hillford is far from a successful model for new retirement communities in Singapore. There is still a great opportunity, however, to leverage lessons from what happened to create the successful retirement communities that are needed for an ageing population here.

The first step is to analyse the sale and take stock of what went wrong.

As pundits galore have mentioned, buyers were from all age groups rather than only seniors; flats do not include elderly-friendly amenities such as grab bars or wheelchair-friendly access; there is no certainty that the proposed services for the elderly will be put in place; and retiree buyers have few extra protections.


The second step is to learn from successful retirement community projects elsewhere.

Singapore is, of course, set up somewhat differently from other cities — such as the fact that land released by the Government can come with both regulatory as well as statutory requirements. Still, we could pick up tips from practices elsewhere.

For example, regulations in New Zealand, Canada and some other countries help ensure retirement communities are for senior citizens and provide protections for seniors after they buy a unit. The Retirement Villages Act in New Zealand and the companion Code of Practice, for example, provide a multitude of protections.

Resources from the World Health Organisation, which has a long-standing Checklist for Age-friendly Cities, can help in setting minimum standards.

Offering state-of-the-art ideas, the Lenbrook “continuing care retirement community” in Atlanta in the United States has become a magnet for foreign delegations, who come to see how it offers resort-style amenities, activities for residents and a full spectrum of healthcare services.

Sun City in Japan provides services such as shuttle buses and train stations to give residents independence, as well as a spectrum of amenities and organised activities. The Assisted Living Federation of America, advocates for operators of retirement communities, also showcases innovative practices such as mobile technology.

Putting regulatory requirements together with these best practices to tailor a set of requirements for retirement communities in Singapore — and making sure developers follow through — would benefit the growing senior population here.


The third step is to build upon all the lessons, as well as on the buzz, the Hillford has generated.

Other developers that saw the Hillford sell out fast can now understand the benefits of creating retirement communities — and creating them better. To capitalise on the momentum, the URA should act within months to release other properties for similar purposes, but with more specific requirements about who can own the units, the facilities they should have and how they will be managed in the longer term.

As our population ages, we need to provide appropriate living facilities to help senior Singaporeans and make sure they receive what they sign up for. Rather than simply providing broad outlines and allowing private companies to work within or around them, let us put in place policies that ensure retirement communities are truly built and maintained for the benefit of seniors.

-By Richard Hartung

Global Economy & Global Real Estate

London's office space shortage sparks interest in older buildings

Source: Business Times / Property

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, the world's biggest buyout firm, Brookfield Office Properties Inc and Land Securities Group Plc, the UK'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 lift 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.

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

-From London, UK

China's uncertain growth is biggest risk in emerging markets

Ambiguity is adding to investors' unease: Pimco's Bill Gross

Source: Business Times / China

Bill Gross, who oversees the world's biggest bond fund at Pacific Investment Management Co (Pimco), said that the pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets.

"I call China the mystery meat of emerging market countries," Mr Gross said on Tuesday during an interview on Bloomberg Television's Market Makers with Erik Schatzker and Stephanie Ruhle. "Nobody knows what's there and there's a little bit of bologna, so we're just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets."

Global shares have been falling this year as signs of slowing recoveries in the US and China come at the same time that the Federal Reserve is reducing bond purchases and emerging market currencies slump. Bonds beat stocks last month for the first time since August as fixed-income securities worldwide enjoyed their best start to a year since 2008.

Uncertainty about China's growth this year is adding to investors' unease and demand for the safest of assets, Mr Gross said.

-From New York, US

China's growth now more in line with publicly stated data: Eaton CEO

Source: Business Times / China

Eaton Corp chief executive officer Sandy Cutler said China's economy is accelerating, buoyed by increases in consumer spending, bringing growth in line with the country's public pronouncements.

China may have inflated the extent of its expansion by a factor of two in recent years, masking weakness as government infrastructure spending fell and individuals hadn't yet picked up the slack, Mr Cutler said on Tuesday. The rebound means China's indicators are closer to giving an accurate reading, he said.

"The growth is getting back to where it's supporting the publicly stated numbers," Mr Cutler, 62, said. "It feels stronger to us now than it did a year ago. There's no question."

Eaton sells products across consumer and industrial markets, including hydraulics for construction equipment, auto parts, lighting for homes and buildings and electrical goods, giving it a wide snapshot of economic growth. The Dublin-based company does business in China across all those segments.

-From Dallas, US

Chinese wealth in real estate magnifies risks of property market bust

Source: Today Online / Business

The concentration of wealth in real estate by households in China 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.

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

The build-up 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, said Goldman Sachs.

A hit to household wealth could impair consumer spending, rebuffing policy makers’ efforts to rebalance the economy towards domestic demand.

“A fall in housing prices could have significant knock-on effects on private consumption,” said Mr Eswar Prasad, a former chief of the International Monetary Fund’s China division and now 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,” he added.

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 channelled credit to borrowers outside the official banking system.

For now, there may be little sign of danger. Home prices in December had the biggest year-on-year gain in 2013, increasing 12 per cent, said SouFun Holdings, China’s biggest real-estate website owner.

Mr Liu Li-Gang, Chief Economist for Greater China at Australia & New Zealand Banking Group, said 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 are not sustainable.

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 per cent.

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 is difficult to calculate, given China has not 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 Mr Ding Shuang, senior China economist at Citigroup in Hong Kong.

Higher down payments for homes — typically 30 per cent of the purchase price — and the lack of mortgage securitisation reduce risks of the kind of financial panic and recession that the United States experienced in the past decade.

About 30 per cent of Chinese buyers pay cash, estimates Mr Liu Yuan, a Shanghai-based researcher at real estate brokerage Centaline.

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 Mr 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. Last October, Mr Li said expanding domestic demand was the most important key to adjusting the structure of the world’s second-largest economy. 

-From Bloomberg

Canadian parents helping finance kids' homes

Prices up 84% in 10 years, pressing limits of affordability for most buyers

Source: Business Times / Property

Laura Parsons helped her son buy his first home four years ago, and she's ready to help her daughter do the same, making her part of what many say is a growing trend across Canada, where home prices have soared 84 per cent in 10 years.

"I am going to give her the downpayment," said Ms Parsons, 54, a mortgage banker in Calgary, Alberta, where an oil industry boom has pushed home prices to record highs. "We're the baby boom generation, we have more money than we ever thought we would, we have two incomes, we're saving, so I'm going to help."

Neither the government nor the real estate industry has collected data on parental aid to homebuyers. But experts say they are seeing more moms and dads helping their children, especially in the priciest markets. "It is increasingly common in the city of Toronto, where prices are pressing the limits of affordability, for most buyers looking to get a foot into the market," said Steven Fudge, a sales representative at Bosley Real Estate in Toronto. The 25-year industry veteran says that at least 50 per cent of his buyers are bolstered by parental money.

A 2013 survey of 2,000 people for Bank of Montreal found that 27 per cent of first-time buyers in Canada expect their parents or other family members to help them purchase a house.

-From Toronto, Canada

Peruvian bets big with acquisition of iconic Detroit eyesore

Source: Business Times / Property

It was late Friday afternoon before the Labor Day weekend when Fernando Palazuelo reached the head of the line at the tax collection window of the treasurer's office in Wayne County, Michigan.

He had travelled almost 6,000km from Lima, Peru to make a simple request. "I am interested in buying the Packard plant," he said. "And I want to speak to the man in charge."

A few minutes later, he was ushered in to see Raymond Wojtowicz, the 84-year-old county treasurer responsible for tens of thousands of foreclosed properties in the bankrupt city of Detroit. And with that, Mr Palazuelo, a developer of broken-down buildings from Europe to South America, was on his way to buying the biggest, most iconic eyesore in this city - the abandoned Packard Motor Car plant.

There are risky bets in commercial real estate, and then there is the Packard - vacant, vandalised and deteriorating for decades. Yet Mr Palazuelo's acquisition of the sprawling, 16 hectare Packard site on Dec 31 is part of the unlikely land rush occurring in Detroit, where investors from around the world are scrambling to buy vacant properties at the bottom of a historically distressed market.

-From Detroit, US

Swiss property market closer to overheating: UBS

Source: Business Times / Property

Switzerland's property market is at greater risk of overheating, raising the question as to whether the authorities have done enough to curtail the boom. The UBS Swiss Real Estate Bubble Index rose to 1.23 points in the fourth quarter from 1.2 points in the third, according to a statement from UBS AG yesterday. A reading above 2 indicates a bubble.

The Swiss National Bank's policy of zero rates, in place since August 2011, has kept down the cost of taking out a mortgage. Coupled with high immigration from neighbouring European countries, that has fuelled a strong increase in real estate prices in Switzerland.

Growth in mortgages has exceeded that of economic output since 2009, and last year price gains of homes and apartments outstripped advances in incomes, according to the central bank.

"The potential for correction has increased further," Matthias Holzhey and Claudio Saputelli at UBS in Zurich said.

-From Zurich, Switzerland

Mizuho eyeing Australia commercial property

Source: Business Times / Property

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 US$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 snapped up 55 per cent of deals, Bloomberg-compiled data show.

"We would like to be more active in some parts of the property market," Ms Hazelton said. "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 per cent last year from 3.5 per cent in 2012, Bloomberg-compiled data show.

-From Sydney, Australia

Zell Sees REIT Mergers as Smaller Landlords Lack Scale

Source: Bloomberg / Luxury

Billionaire investor Sam Zell, who helped to expand the industry of U.S. real estate investment trusts in the 1990s, said there are too many of the publicly traded property companies in the market.

REITs will consolidate over the next 20 years, Zell said in an interview today on Bloomberg Television’s “In the Loop” with Betty Liu. Those companies with less than a “couple of billion” dollars of value aren’t relevant because they lack scale and don’t provide capital to the property market, he said.

“If you don’t have that size you don’t have liquidity,” Zell said,adding that only about 30 REITs have the “size and scale” to have an impact on the market. Those larger REITs will lead real estate growth in the future, he said.

There are more than 200 publicly traded REITs in the U.S., according to data compiled by Bloomberg. Zell, 72, created companies including Equity Residential (EQR), now the largest publicly traded apartment landlord, and Equity Office Properties Trust, an office owner that was sold to Blackstone Group LP near the peak of the buyout boom in 2007 for about $39 billion.

Zell, who remains chairman of Chicago-based Equity Residential and Equity LifeStyle Properties Inc. (ELS), another REIT he created, said he isn’t concerned that rising interest rates would hurt commercial or residential real estate.

“Interest rates going up will have a slight negative effect, not a catastrophic effect,” he said.

Class Warfare

Zell also said venture capital pioneer Tom Perkins was right in claims made last month that wealthy Americans are being unfairly targeted by critics. Perkins, who drew controversy for comparing treatment of the very rich to the persecution of Jews in Nazi Germany, has apologized for that analogy, though he stood by his message about income inequality.

While Zell said “persecution” isn’t the right way to describe treatment of the top 1 percent of earners, he sees envy of the rich and class warfare as growing problems in America, blaming government regulations for a widening income gap.

“The 1 percent are getting pummeled because it’s politically convenient to do so,” Zell said. People “should not talk about envy of the 1 percent, they should talk about emulating the 1 percent. The 1 percent work harder, the 1 percent are much bigger factors in all forms of our society.”

Market Balance

Zell said that stock markets are rebalancing after a 30 percent gain in the Standard & Poor’s 500 Index (SPX) last year. The benchmark gauge has fallen 5 percent this year through yesterday and about $3 trillion has been erased from the value of equities worldwide as China’s growth slows, the Federal Reserve scales back debt purchases and anti-government protests spread in emerging markets from Thailand to Ukraine.

“I don’t think declines are ever healthy, but balance is what keeps us in place and when we get out of balance,with subprime loans or whatever, it’s pretty disastrous,” Zell said.

-By Craig Giammona

Canada Building Permits Fall in December on Multi-Unit Housing

Source: Bloomberg / Luxury

Canadian building permits fell for a second month in December as multiple-unit housing projects dropped to the lowest level in nine months.

The value of municipal permits fell 4.1 percent to C$6.48 billion ($5.86 billion), following a 6.6 percent decline in November, Statistics Canada said today in Ottawa. Economists forecast a 1.5 percent gain according to the median of eight responses to a Bloomberg survey.

Residential permits fell 9.3 percent to C$3.70 billion as projects such as apartments and condominiums plunged 21.9 percent to C$1.47 billion. Single-family home permits posted a 1.5 percent increase to C$2.23 billion.

Bank of Canada Governor Stephen Poloz has said the housing market is headed for a “soft landing” after years where low interest rates propelled purchases. The central bank and Finance Minister Jim Flaherty have also warned about the dangers posed by record consumer debt levels that have resulted from loose monetary policy.

Permits for non-residential construction rose 3.7 percent to C$2.78 billion in December. Institutional projects such as hospitals more than doubled to C$939 million led by spending in Quebec, while industrial permits rose 34.9 percent to C$576 million. Commercial projects such as offices dropped 33.5 percent to C$1.26 billion.

Building permits for all of 2013 totaled C$80.8 billion, down 0.1 percent from 2012, Statistics Canada said, with both residential and non-residential projects little changed.

-By Greg Quinn

London Jobs Lift Rents for Homes in Priciest Neighborhoods

Source: Bloomberg / Luxury

London luxury-home rents rose for the first time in 21 months in January after companies relocated senior employees to the U.K. capital from overseas, Knight Frank LLP said.

Average rents for houses and apartments in the city’s most expensive neighborhoods climbed 0.2 percent from December, the first monthly increase since April 2012, an index published today by the broker showed. Rents fell 2 percent from a year earlier, the smallest drop since August 2012.

“There are more relocation agents out there catering for a greater influx of executives from overseas,” Tom Bill, a London-based associate at the company, said by phone. “Purse strings are still tighter than they were in the run-up to the credit crisis, so more people are looking in better value-for-money areas outside Knightsbridge and Mayfair.”

Permanent-staff vacancies in London during December rose by the most since January 2001, according to a report by Markit Economics. That contributed to a 19 percent increase in rental contracts during the 12 months to January, Knight Frank said.

Rents will probably start rising on an annual basis by the end of this year, Bill said. Tenants seeking cheaper homes looked in Marylebone, Hyde Park Estate and the fringes of the City of London financial district, he said.

Rental yields dropped to 2.86 percent in January from 2.88 percent in the previous month, according to the report.

The areas covered by Knight Frank’s report include Belgravia, Chelsea, Hyde Park, Islington, Kensington, Knightsbridge, Marylebone, Mayfair, Notting Hill, St. John’s Wood, the City of London and its periphery.

-By Patrick Gower

Swiss Housing Market Bubble Looms Closer, UBS Says

Source: Bloomberg / Luxury

Switzerland’s property market is at greater risk of overheating, raising the question as to whether authorities have done enough to curtail the boom.

The UBS Swiss Real Estate Bubble Index rose to 1.23 points in the fourth quarter from 1.2 points in the third, according to a statement from UBS AG (UBSN) today. A reading above 2 indicates a bubble.

“The potential for correction has increased further,” Matthias Holzhey and Claudio Saputelli at UBS in Zurich said.

The Swiss National Bank (SNBN)’s policy of zero rates, in place since August 2011, has kept down the cost of taking out a mortgage. Coupled with high immigration from neighboring European countries that has fueled a strong increase in real estate prices in Switzerland.

Growth in mortgages has exceeded that of economic output since 2009, and last year price gains of homes and apartments outstripped advances in incomes, according to the central bank.

Concerned Switzerland could fall victim to a real estate crisis similar to that of the 1990s, the government last year forced banks to build up a countercyclical buffer of 1 percent of mortgage-related assets. After that failed to prevent a further deterioration of the mortgage market, it last month doubled the requirement to 2 percent. Even so, it refrained from raising it to the maximum 2.5 percent. Banks have until June 30 to comply.

Risky Regions

According to Holzhey and Saputelli, regulatory steps such as the countercyclical buffer have the shortcoming of not being able to take into account a varying state of affairs across the country.

“On a regional basis, additional regulatory measures could result in an exacerbation of the imbalances,” they said. For example, tougher lending criteria could constrain credit and intensify already falling prices in an area, or they could cause buyers to shift to lower-cost regions, and spur the overheating, the authors of the report said.

According to the UBS index, 17 regions are considered particularly risky, with the Martigny region in western Switzerland being added this quarter.

Tackling property-market imbalances via interest rates is not an option for authorities at the moment. The benchmark interest rate must stay at zero so as not to jeopardize the cap of 1.20 per euro set on the franc in 2011, SNB Vice President Jean-Pierre Danthine said in a newspaper interview this month.

Rules governing whom banks may lend to may also get tightened, the SNB said last month when it announced the increase to the buffer.

Historical Precedent

Most mortgages in Switzerland are with cantonal and regional banks. Globally active banks UBS AG and Credit Suisse Group AG held only 27 percent of mortgages in November, central bank data shows.

Rates for fixed-rated mortgages rose in 2013, according to the barometer published by Comparis for the fourth quarter, with the average price 35 percent higher than in 2012. The rate for a 10-year fixed rate mortgage increased to 2.7 percent from 2 percent, it said.

Two decades ago, an overheating of the real estate market caused bank failures -- including Spar- und Leihkasse Thun and Solothurner Kantonalbank -- and pushed the economy into recession. Since 2008, mortgages outstanding to Swiss private households have increased 25 percent and apartment prices have risen 28 percent, data published by the central bank shows.

Credit Suisse economists calculated that a rise in the average mortgage rate by one percentage point to 3.1 percent would add 6.4 billion francs ($7.1 billion) to the aggregate mortgage burden, a sum equal to 1.1 percent of gross domestic product, according to a report published in September.

The UBS real estate index comprises six sub-indicators tracking the relationships between purchase and rental prices, house prices and household income, house prices and inflation, mortgage debt and income, construction and GDP, and the proportion of credit applications by UBS clients for residential property not intended for owner occupancy.

-By Catherine Bosley

Mitsubishi Estate Profit Gains 73% on Rising Home Sales

Source: Bloomberg / Luxury

Mitsubishi Estate Co., Japan’s biggest developer by market value, said nine-month net income rose 73 percent as profit margins of its residential business improved.

Net income gained to 58.5 billion yen ($577 million) for the nine months ended Dec. 31 from 33.9 billion yen a year ago, the Tokyo-based company said in a statement to the stock exchange today. Sales rose 10 percent to 720.3 billion yen.

Profit for its residential business gained 37 percent to 8.3 billion yen during the period from a year ago ahead of the government’s plan to increase sales tax to 8 percent. Mitsubishi Estate’s commercial development business more than doubled its profit after selling some assets, it said.

Mitsubishi Estate maintained its full-year profit forecast of 58 billion yen on sales of 1.07 trillion yen.

The company halted sales of a residential project in Tokyo because of defects in the building, the developer said in an e-mail statement earlier this week. Mitsubishi Estate is seeking compensation from the builder Kajima Corp. (1812), it said.

The halt will not affect its full-year earnings, Keisuke Tamaki, a deputy general manager of the developer’s corporate communications department, said at a press conference in Tokyo.

Mitsubishi Estate shares rose 2.8 percent to 2,481 yen at the close of trading in Tokyo. The stock has declined 21 percent this year, compared with the 17 percent decline by the 45-member Topix Real Estate Index.

-By Kathleen Chu and Katsuyo Kuwako