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20 January 2014

Real Estate Companies' Brief

Tapering unlikely to dampen IPO flow

Bankers expect Reits, oil and gas, and Chinese listings to be strong themes

Source: Business Times / Top Stories

The wave of liquidity in the markets may have started to ebb, but bankers still expect keen interest in the initial public offering (IPO) scene here this year.

Real estate investment trusts (Reits) and business trusts, which enjoyed a strong run last year, will continue to come onto the market, they said.

Vineet Mishra, head of equity capital markets for South-east Asia at JP Morgan Chase, said that central banks' pullback on quantitative easing (QE) will not make investors abandon new Reits and business trusts, although they will be scrutinising total returns rather than just the yield itself.

"Tapering has started, but investors understand that tapering does not imply an interest rate increase," he said. "Asian markets have digested tapering news."

Reits and business trusts have enjoyed a surge in popularity in the past few years as investors chased after yields amid a low interest rate environment. The prospects of a start in tapering of the US QE in May last year, however, sent their share prices crashing - the FTSE ST Reit Index fell from a high of 890.16 to a year-low of 697.07 in August.

Reits and business trusts are highly geared, and a hike in interest rates would affect their borrowing costs. The US Federal Reserve last month decided to reduce the volume of its monthly bond purchases from US$85 billion to US$75 billion from this year.

Valuations for Reits have settled, said Mr Mishra, hence reducing further downside for the sector.

The reputation that the Singapore Exchange (SGX) has burnished as a listing destination for trusts also means more will head this way.

Matthew Song, head of South-east Asian equity capital markets at HSBC, said: "The Singapore Exchange has established itself as the Asian trust listing jurisdiction, and Reits and business trusts will be a dominant volume contributor for the primary listings this year."

Already, OUE Commercial Reit has kickstarted its IPO last Friday. It aims to raise $346.4 million.

At least two other Reits - a data centre Reit by Keppel T&T and one by South Korean retail giant Lotte Shopping - are said to be mulling IPOs here, and are reported to be planning to raise some US$500 million and US$1 billion respectively.

Last year was a banner one for Reit and business trust IPOs, when seven listings contributed US$4.09 billion, or 79 per cent of the total US$5.2 billion raised in the Singapore IPO market, according to Dealogic data. In comparison, the last time the Republic saw so many trust IPOs in 2007, eight listings raised US$1.8 billion.

Investors, however, will be more discerning this year.

"When it comes to demand for yield driven IPOs, investors are probably going to be more focused on the total returns and underlying equity story. Last year, the headline yield was a big draw in itself," said Mr Mishra.

Concurring, Mr Song said: "Investors will focus on two key investment criteria for primary Reit IPOs, namely, the company's growth prospects, either organically or through acquisitions, and the dividend yield on a one-year forward basis."

Besides trusts, oil and gas-related listings are expected to be another strong theme for the IPO market this year. Offshore oil and gas contractor Kim Heng Offshore is said to be the first of many to come, when it starts trading this Wednesday.

Bankers told BT that there are a number of such companies in the pipeline, drawn in part by the established cluster of offshore marine services already on the exchange, and the push by SGX for more upstream mineral, oil and gas listings through the introduction of new mainboard rules for this sector last year.

There is also strong demand for such listings. "The oil & gas sector and its associated support services industries seem to be a favourite amongst investors currently," noted DBS head of capital markets Tan Jeh Wuan. Another source of listings might come from China, especially in the second half of the year.

SGX had in November announced a direct listing framework for Chinese companies, in collaboration with China's stock market regulator China Securities Regulatory Commission.

While IPOs have resumed in China this year after a freeze since November 2012, the large backlog means that companies which want to raise funds quickly might look at overseas exchanges such as Singapore, said Deloitte chief of operations for clients and markets Ernest Kan.

Excluding 50 that are expected to be approved for listing by end January, some 672 companies remain in the IPO queue in China, according to Deloitte.

Investor confidence in Chinese listings remains weak, but "I am hopeful that the SOEs (state-owned enterprises) will be the first line of targets," said Mr Kan. "Those who had problems in the past are not SOEs, they are private companies. The SOEs are different and (they) will come under the care of China."

The first Chinese listings could come in the second half of this year, or early next, he added.

The IPO market has gotten off to a rousing start, with EuroSports Global, the distributor group behind the Lamborghini and Alfa Romeo brands, first off the starting block. The firm saw its shares finish at 31.5 cents in its trading debut on Friday, 12.5 per cent above its offer price of 28 cents.

In all, four IPOs are expected to take place this month, compared with only one by Logistics Holding in January last year.

Mr Kan sees a good outlook for the IPO market this year, as the bond market would eventually become more expensive for companies to raise funds from as interest rates rise. "That is good news for the equity market," he said.

- By Andrea Soh

Key players of the financial sector

Firms in this diverse sector bring together those with capital and those who want that capital

Source: Business Times / Young Investor

THE financials sector is a big one. Fundamentally, almost every company in this diverse sector seeks to generate income by bringing together, either directly or indirectly, those with capital (often known as "other people's money") and those who want that capital.

It is a lucrative sector because all three parties - those with the capital, those that need it and the financial intermediaries - all get something out of the transaction.

Both standard industrial classifications - the Industry Classification Benchmark (ICB) and the Global Industry Classification Standard (GICS) - include banks, financial services, real estate developers and real estate investment trusts (Reits) within the realm of financials.

Banks are the most readily identifiable company in the financials group. This is particularly the case in Singapore, with the three locally incorporated banks maintaining a combined market capitalisation of $109 billion. This means they represent more than 10 per cent of the capitalisation of Singapore's stock market.

- By Geoff Howie

GIC venture buys space in Time Warner Center

GIC has sealed a deal to buy office space in New York City's Time Warner Center with two partners, the Abu Dhabi Investment Authority (ADIA) and US real estate firm Related Companies, for US$1.3 billion.

The partnership, which is buying the 1.1 million square feet of space from media giant Time Warner Inc, will then lease it back to Time Warner until early 2019.

Leisure, hotel firm profit up 12.3%

Source: Straits Times

Guocoleisure yesterday reported a 12.3 per cent rise in second quarter net profit to US$13.7 million (S$17.4 million). Revenue for the three months to Dec 31 was up 7.3 per cent at US$106.7 million. However, net profit for the first six months fell by 14.9 per cent to US$30.2 million despite revenue rising by 5.2 per cent to US$214.5 million.

Views, Reviews & Forums

Not time yet to relax cooling measures: CEOs

Property market hasn't quite stabilised, say industry leaders

Source: Business Times / Top Stories

Despite a drastic drop in home sales and sliding home prices, cooling measures for the property sector should not be rolled back just yet, say CEOs and industry-group leaders polled by The Business Times. Latest figures show home sales falling to their lowest since January 2009, while URA's overall private housing price index dipped 0.8 per cent over the quarter in Q4, against a 0.4 per cent rise in Q3.

- By Jamie Lee

Not the right time to withdraw property cooling measures, say analysts

Source: Channel News Asia

Sales of new private homes in 2013 fell to levels last seen during the global financial crisis five years ago.

Prices in the private and HDB resale market also saw declines last year.

But some analysts have said it may not be time just yet for the government to scale back on its property cooling measures.

A slew of measures to cool Singapore's property market has been introduced since 2009 - from loan curbs to stamp duties and a Total Debt Servicing Ratio.

The effects are being seen more clearly now.

Private property prices fell 0.8 per cent in the final quarter of last year - the first dip since 2012.

HDB resale flat prices also declined in the last two quarters of 2013.

Some property analysts said this price correction could be healthy after so many quarters of strong growth, though more evidence may be needed that prices have gone back to their fundamentals before the government reviews its cooling measures.

That evidence could possibly be a price dip of two to three per cent over several consecutive quarters.

Associate Professor Sing Tien Foo from the Department of Real Estate at the National University of Singapore, said: "From a policy maker's perspective, they probably do not want to switch the policy that frequently.

"One, there is policy uncertainty, the other is if the market has not fully cooled down or adjusted, there is the rebound effect if you remove some of the stamp duty; maybe those people who are waiting at the sidelines may actually enter the market, and may cause the price to increase again."

Seah Kian Peng, member of the Government Parliamentary Committee for National Development, said: "We need a bit more time. I think all of us can be assured that the government has their eye on this. If the measures are too tough now, they need to recalibrate. I think they will.

"The main thing is to make sure prices remain affordable for home owners. We want to cut down as much on speculative investment, we also want to make sure people do not over leverage beyond their means.

"So all the measures that have been introduced are to address all this. It is certainly not in any one's interest to see prices falling drastically."

For the first time in four years, statistics from the Singapore Real Estate Exchange also show that valuations of HDB resale flats fell in the fourth quarter of last year.

But some said there may be some upside in this.

Mr Seah said: "If the concerns of most had been that prices have gone way above, I think inevitably, it needs a bit of correction. To what extent is the correction a meaningful and reasonable one?

"I think that is where probably some of the debate is. I would say that the bulk of the people would still feel the valuations can come down a bit, and that actually would benefit... the majority of the people and at the end of the day, we are all trying our best that for aspiring home owners, this is within their reach, especially for HDB flats."

In a recent Parliamentary report, it was noted that around five to 10 per cent of borrowers with property-related loans were highly leveraged.

Some property analysts said that if interest rates go up and borrowers are unable to pay, this may have a knock-on effect on the property market.

Associate Professor Sing said: "The borrowers, or even the banks, when they start to withdraw their loan or liquidity from the market, or start to call back some of the loan, this would have a significant impact on the property market as a whole. So I think it would be prudent to monitor this group of buyers."

Property analysts said this group would require close monitoring, to ensure any eventual impact is minimised. 

- CNA/ms

Global Economy & Global Real Estate News 

Iskandar developers may get reprieve from curbs

Source: Straits Times

Developers in Malaysia's bustling Iskandar could soon get some reprieve from one of the new property curbs that kicked in on Jan 1. One new rule raised the minimum price of property that foreigners can buy from RM500,000 (S$193,400) to RM1 million.

China’s 2013 New Home Sales to Exceed $1 Trillion, Record High

Source: Bloomberg News

China’s new home sales last year exceeded $1 trillion for the first time as property prices in cities the government considers first tier surged in the absence of more nationwide property curbs.

The value of new homes sold in 2013 rose 27 percent from 2012 to 6.8 trillion yuan ($1.1 trillion), National Bureau of Statistics said in a statement today. New-home prices in December climbed 20 percent in Guangzhou and Shenzhen from a year earlier, and jumped 18 percent in Shanghai and 16 percent in Beijing, the bureau of statistics said Jan. 18.

“Clearly, the real estate market in China remains hot,” Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole CIB, said in an e-mailed reply today. “Urbanization and investment demand are leading to rising sales volumes, while prices continue to gain. China’s growth remains heavily dependent on the real estate market.”

Premier Li Keqiang hasn’t imposed additional nationwide measures to cool the market since his predecessor Wen Jiabao stepped up a three-year campaign in March, ordering higher down payments and interest rates for second-home loans in cities with “excessive fast” price gains. Instead, Li has left it up to individual cities to impose their own curbs, with at least 10, many of them provincial capitals, tightening local property policies since November.

Shenzhen, Shanghai and Guangzhou have all raised minimum down payments for second homes to 70 percent since November.

“The effect of those measures was limited last year because in first-tier cities demand still outpaced supply,” Ding Shuang, a Hong Kong-based senior China economist with Citigroup Inc. said in a phone interview.

Property Reliance

The value of new housing sales was 5.4 trillion yuan in 2012, an 11 percent gain from the previous year, according to the government data.

China’s economy rose 7.7 percent last year from 2012, the government said today, the same as the median estimate in a Bloomberg News survey of 31 analysts.

Investment in homes, office buildings, malls and other real estate gained 20 percent to 8.6 trillion yuan last year from a year earlier, according to the statistics bureau data. New property construction rose 14 percent to 2 billion square meters (21.5 billion square feet).

The Shanghai Stock Exchange Property Index, which tracks 24 developers traded in the city, was little changed at the close of trading, while the benchmark fell 0.7 percent.

Rising Prices

New-home sales volume rose 18 percent to 1.2 billion square meters, the government data showed.

New and existing home sales in the U.S. were about $1.1 trillion last year, including $149 billion of new homes sold, broker Cushman & Wakefield Inc. estimated, based on U.S. Bureau of Census data.

China’s existing-homes market is about one-third of new homes by sales, according to Centaline Property Agency Ltd., because the nation only allowed private home ownership in 1998. The government doesn’t release data on existing-home sales.

Existing-home prices rose 20 percent in the capital Beijing last month from a year earlier and increased 14 percent in Shanghai, according to the Jan. 18 data.

Private figures also showed no sign of cooling in the property market. Home prices in December had the biggest year-on-year gain in 2013, increasing 12 percent, according to SouFun Holdings Ltd. (SFUN), China’s biggest real estate website owner.

‘Near Despair’

“There has been a misconception that China’s property curbs are aimed at cracking down on the market or squeezing sales,” said David Hong, a Hong Kong-based property analyst at China Real Estate Information Corp., or CRIC, a property data and consulting firm. “The country’s economy, especially that of less affluent cities, is relying on the real estate industry.”

First-tier cities, including Beijing and Shanghai, may impose further curbs if prices rise too fast, Standard & Poor’s Hong Kong-based analyst Bei Fu said Jan. 17. Home prices will increase about 5 percent this year from 2013, while home sales volume will jump about 10 percent, according to S&P.

Almost one-fifth of respondents in a Renmin University of China survey gave a zero score to the government’s property policies, indicating “near despair” with housing prices, the official China News Service reported last month, citing survey results.

New-home prices in the eastern city of Wenzhou in Zhejiang province fell 2.6 percent from a year earlier, declining for a 27th month. It was the only city among the 70 to show a decrease, the government data showed.

Artificial Tightening

“The government should increase land and home supply in major cities because only artificially tightening the market through government orders will not work,” Citigroup’s Ding said.

Beijing, the financial center of Shanghai, and the southern business hubs of Guangzhou and Shenzhen are considered first-tier cities by the statistics bureau. The four have “high levels of international business connectivity, deep corporate bases and well-developed international grade stock, and they are the country’s most liquid and transparent markets,” according to broker Jones Lang LaSalle Inc.

Home sales will continue to rise this year because of economic growth, supportive credit environment and government reforms including the easing of the one-child policy, said Sigrid Zialcita, head of Asia research at Cushman, in an e-mailed reply.

Home sales rose at a rate of about 30 percent each year from 1998 to 2009, according to Centaline, China’s biggest real estate brokerage. The annual rate has slowed to about 10 percent since 2010, according to the brokerage.

They won’t continue growing as fast given their already rapid increase and government curbs, said Liu Yuan, a Shanghai-based researcher at Centaline. Growth in the early 2000s was driven by tax rebates and other incentives to encourage home buying as the nation’s property market was opened to private ownership, he said.

UK home prices raising fears of another bubble

Even humble abodes can become hot property and sell at eye-popping prices

Source: Business Times / World

For decades, the modest two-bedroom apartment off Abbey Road was home to some of London's neediest, a small, leaky outpost in this city's vast constellation of public housing.

Worn down by time and neglect, its kitchen and bathroom were barely functional. But in the blistering real estate market that is London, even humble dwellings can become hot properties. So when the unit was renovated and put on the private market last month, it didn't take long to sell - for a million dollars.

Such eye-popping prices explain why, just six years after the global economy melted down from an overheated housing market fed by cheap credit, concerns are rising that Britain could be blowing another bubble. At stake is a still-fragile recovery - one that appears to be gathering pace but that could easily be thrown off course by another cycle of boom and bust that seeps from one nation to the next.

"Housing prices rising modestly makes people feel better off, and that's good for the economy," said Howard Archer, chief European economist at IHS Global Insight.

-From London, UK