Real News‎ > ‎2014‎ > ‎January 2014‎ > ‎

29 January 2014

Singapore Economy

PM: Three goals S'pore should achieve to show it has progressed

They are: good jobs, higher fertility rate, and capable govt trusted by people

Source: Business Times / Top Stories

Good jobs for the people, more babies and a capable government at the helm are three goals Singapore should achieve if the country is to say it has progressed, said Prime Minister Lee Hsien Loong.

These are all "easy to state, but very hard to achieve", he said at an annual ministerial forum at the Nanyang Technological University (NTU) last night.

That Singaporeans can be in good jobs would mean that the economy is growing and that investments are flowing in, Mr Lee told his 1,000-strong audience during a two-hour dialogue organised by NTU's Student Union.

"It means that we have upgraded what we're doing, and that we've been able to be educated and take up the opportunities. That's the first basic requirement to a happy society. It's already not easy to achieve because we're at a high level (today) and we want to go further," he said.

- By Lee U-Wen

Singapore youth well equipped to face future challenges: PM

No reason to think that we cannot create a brighter future, says Prime Minister

Source: Today Online / Singapore

Young Singaporeans today are much better placed than the previous generations — and their counterparts in many other countries — to overcome worries about job security and cost of living.

Prime Minister Lee Hsien Loong made this point yesterday as he acknowledged concerns among Singapore’s youth that they might have a tougher time than their parents.

Speaking at the Nanyang Technological University (NTU) ministerial forum, he pointed out that young Singaporeans are growing up with higher aspirations and becoming better educated, and urged them to see their concerns in context.

He said he would disagree with youth who felt that they might not do better than their parents in life. “I wish I were born 50 years later,” quipped Mr Lee, who turns 62 next month.

Among other things, Singapore has educated its people well, Mr Lee said. The country has a high international standing and its system works, even though once in a while things go wrong, he added.

The Republic has also built up its resources and reserves to weather storms. “There is no reason to think we cannot overcome our challenges and create a bright future for all,” he said.

During the question-and-answer session, Mr Lee also noted that, unlike their predecessors, who might have experienced war and hardship, the current generation grew up at a time when conditions were stable and there were plenty of opportunities.

He was responding to a question from NTU first-year public policy and global affairs student Sacha Ong Li Wen, who asked whether Singaporeans have become more individualistic and are not working together for the country.

Addressing the youth among the 1,200-strong audience consisting of undergraduates and academics, Mr Lee reiterated that they are the ones who will take the country forward. “What you know, what you have seen and what you are familiar with, in some ways is more relevant to the future than what the older generation know, have seen and are familiar with,” he said.

In his speech, Mr Lee noted that the older generations have already laid the foundations for the country. “It will be a crime not to make it work.”

Mr Lee said in order for the Republic — which is celebrating its 50th birthday next year — to prosper for the next five decades, it has to educate its students better and create more opportunities in a rapidly changing society.

Most importantly, the country needs to be united and cohesive, he said. “Our society must work, our politics must work, we must stay one people feeling like one people, not divided, not fighting with ourselves.”

On the global front, he noted that the social impact of technology and globalisation will grow. For instance, jobs will be replaced by new ones that were previously unheard of and income gaps are likely to widen.

While people will find it easier to organise themselves on social media, the structure of societies and organisations will be disrupted, he said.

And as China and India grow, Asia will play a larger role in world affairs. Nevertheless, he cited the territorial disputes in the South and East China Seas as examples of potential problems. The next five decades will be uncertain, but exciting, he said.

As Singapore approaches its Golden Jubilee, Mr Lee urged young Singaporeans to consider what the next 50 years will bring and how the country can maximise its opportunities.

“It is an exciting time to be young … all the opportunities are ahead of you,” he said. “You have the benefit of all the work and commitment and success which the last generation, your parents, have done and now, not given to you, but entrusted to you to take ... the next step forward”.

- By Ng Jing Yng

Investment commitments robust: EDB

$12.1b fixed-asset investments pulled in last year; investment level expected to stay steady this year

Source: Business Times / Top Stories

Despite rising costs and a tighter labour market, Singapore still pulled in strong foreign investment commitments last year, the Economic Development Board (EDB) said yesterday.

The investment-promotion agency also predicted that this level of investments will hold steady this year.

EDB attracted $12.1 billion in fixed-asset investments last year, a drop from the $16 billion that came in for 2012. The agency added, however, that the 2013 figure was well within its forecast of between $11 billion and $13 billion.

In any case, EDB chairman Leo Yip said at a press conference that the 2012 investment number had been inflated by one-off chunky projects, making the year an aberration from recent years.

"If you look at the trend over the last five to 10 years, you will see that $12 billion is actually well within the range we have secured.

"There were several spikes - including that in 2012 - and those spikes were big investments."

Between 2004 and last year, there were three years when investments shot past that achieved last year: 2007 ($17.2 billion), 2008 ($18 billion) and 2012 ($16 billion). For the rest of the decade, investments were between $9.4 billion and $13.7 billion yearly.

Last year's investments are likely to create value-added of $16.7 billion for the year, which is within the $16 billion to $18 billion projected.

EDB said the investments are tipped to generate 21,400 skilled jobs and a record $7.8 billion yearly in total business expenditure (TBE), up from $6.2 billion in 2012.

A big chunk of the TBE are salaries, said Mr Yip.

EDB said the strong TBE commitment, sitting in the upper bound of its forecast of $6.5 billion to $8 billion, came from the setting up of several significant headquarters with regional and global functions in Singapore.

Mr Yip said: "The investments achieved by EDB in 2013 reflect Singapore's strong position as a global business hub, as multinational corporations and other companies continue to be attracted to the market opportunities in Asia."

He said that EDB has not lost any investment projects as a result of the tightened labour market and changes to the foreign worker policy here. "They have not as a factor swung their business decisions. No company has told us, 'Look, we don't want to come to Singapore because your manpower situation has made you less attractive than before.' "

He maintained that overall, including ease of operation and capability, Singapore has stayed attractive to foreign investors.

This year, EDB is looking to attract investments of between $10 billion and $12 billion with TBE of between $6 billion and $7.5 billion. It also expects the number of new skilled jobs created this year to fall 25 to 35 per cent to between 14,000 and 16,000.

"It's a steady level of investments that's in keeping with where Singapore is today, in its phase of economic development," Mr Yip said. "Our cost structure is approaching that of the advanced economies, so really, the growth we seek has got to be high-value-added, productivity-driven."

The investments projected for 2014 are at a steady level, also in keeping with Singapore's workforce growth rates and land considerations, he added.

Electronics was the top investment sector last year, accounting for 27 per cent of total investments. But commitments in electronics fell to $3.3 billion, down 46.8 per cent from 2012.

Investments in the chemical sector, where the biggest chunk (42 per cent) of total investments went to in 2012, dropped 62.7 per cent to $2.5 billion last year.

EDB's managing director Yeoh Keat Chuan said the sector is now in the down-cycle and companies there are now making smaller and more capital-efficient investments.

Meanwhile, the semiconductor industry has entered a phase in which it was uncertain that the recovery is clearly on a strong track.

He said: "They're holding off from making major greenfield investments. So what they are doing is making incremental expansions in order to be able to tweak and expand their existing capacity."

- By Chuang Peck Ming

Fewer skilled jobs set to be created as EDB eyes sustainable growth

14,000 to 16,000 skilled jobs expected to be created this year, down from the 21,400 that were added last year

Source: Today Online / Business

Fewer skilled jobs are expected to be created in Singapore this year, with the Economic Development Board (EDB) adopting a more selective approach to investment to ensure more sustainable growth against the backdrop of a tightening labour force and other domestic constraints.

The EDB said yesterday that based on its forecast, between 14,000 and 16,000 skilled jobs will be created this year, down from the 21,400 that were added last year. In 2012, 18,600 skilled jobs were created.

There is likely be a decline in Fixed Asset Investments this year to between S$10 billion and S$12 billion, compared with S$12.1 billion last year. The Value Add forecast is also lower at between S$11.5 billion and S$13.5 billion, down from S$16.7 billion last year.

But the expected lower numbers do not mean Singapore is losing its lustre for foreign companies, EDB Chairman Leo Yip stressed.

“The mix of projects we bring in and the value they generate differ every year … The interest to build a presence in Singapore and tap growth in Asia — that has remained strong,” said Mr Yip, who was speaking at a review of the agency’s performance last year.

Economists whom TODAY spoke to said that the decline in the number of skilled jobs to be created was expected. CIMB economist Song Seng Wun described it as “the new reality that Singapore is facing”.

“Unless we perform a U-turn on our labour and population policies, our only choice to have sustainable growth is to move up to higher-value-added and less-manpower-reliant activities,” he said.

Barclays economist Joey Chew reiterated that the decline in the number of skilled jobs is a “by-product” of Singaporeans’ desire to slow down the pace of population growth.

“There’s no other way. The good thing is that we may have higher-wage jobs as the economy becomes more productive,” she said.

Citing the latest job vacancies report released by the Manpower Ministry on Monday — which showed a high number of unfilled openings — Mr Song said that the situation will not be at the expense of Singaporeans, as there will be enough skilled jobs to go around.

“Bear in mind that there are already more skilled jobs than can be filled by locals, even if fewer are created,” he said. “The extra jobs will just go to foreigners anyway. But now that we’re capping foreign labour, it makes sense that we can’t create as many jobs as we used to.”

Mr Yip reiterated that there will be a steady level of investments this year “that will keep pace with Singapore’s manpower growth rates and land planning considerations”.

“The growth that we seek going forward will have to come from high-value-added and productivity-driven activities,” Mr Yip said.

Last year, several global companies bolstered their presence here, with ExxonMobil expanding its chemical plant, while in the biomedical industry, Amgen of the United States chose the Republic to build its first plant in Asia. The EDB has also brought in companies to nurture growth opportunities in new, high-potential fields such as analytics and e-commerce.

One of these companies is Japan’s Rakuten, the world’s third-largest e-commerce operator, which has set up its main Asian headquarters here outside Japan.

Rakuten’s Vice-Chief Marketing Officer, Mr Shin Hasegawa, said the company had also set up its first consumer behaviour laboratory here last year to analyse regional consumer data. “We appreciate the economic and political stability here, as well as EDB’s strong collaboration with us. Having an open access to international and local talent pool is also a draw for us,” he said.

But some companies are finding Singapore too costly to operate in and have closed down facilities. In the chemical industry, Japan’s Ishihara Sangyo Kaisha shut its Singapore plant in August last year, shedding some 200 jobs.

Mr Yip said: “There are some challenges, no doubt. One of them is the high utility costs, and we’re working with companies to put in place energy efficiency technologies, for instance. By and large, the closures reflect very company-specific reasons ... we continue to have (a) steady flow of investments into our chemical industry.”

Singapore Real Estate 

Mixed views on potential MBFC Tower 3 deal

Analysts rate deal as yield accretive, to neutral to negative
Source: Business Times / Companies

THE potential divestment of Prudential Tower - previously flagged by various research houses as a possible sale target for Keppel Reit (K-Reit) - has drawn differing views from analysts.

This follows the Reit management's acknowledging market speculation that Marina Bay Financial Centre (MBFC) Tower 3 is on its radar. At the Reit's results briefing last week, chief executive officer Ng Hsueh Ling, while stressing that it was "too early to comment", added that the Reit might consider the possibility of divesting one of its older assets to partially fund the Tower Three acquisition should there be such a transaction.

Earlier this week, Bloomberg, citing sources, reported that the Reit had put a $531 million price tag ($2,400 psf) on its 30-storey Prudential Tower in Cecil Street. This is 8.3 per cent higher than its valuation of $490 million as at end-2013.

CIMB analyst Pang Ti Wee said: "This deal may be interesting, given that Prudential Tower is already at an optimal stage with 100 per cent occupancy. We believe that without a substantial asset enhancement initiative, K-Reit may have difficulty raising the yield or valuation of this property further."

- By Mindy Tan

Braddell View up for privatisation

MC needs mandate to harmonise leases as estate was built in two phases

Source: Business Times / Singapore

HUDC estate Braddell View has been designated for privatisation, the Ministry for National Development (MND) said yesterday. It is the last of 18 HUDC estates to be designated for privatisation.

Before this can take place, the estate's managing committee will have to get the requisite 75 per cent mandate to privatise, and then harmonise the leases for the estate.

This is because Braddell View, which comprises 918 flats and two shops, was developed in two phases on two separate land leases with different expiry dates.

To harmonise the leases, the land lease of the older land parcel will have to be topped up to be on a par with the newer one. Payment of land premium is required for the top-up, the amount of which will be determined by the Chief Valuer Office.

- By Mindy Tan

HUDC estate Braddell View designated for privatisation

Source: Channel News Asia / Singapore

HUDC estate Braddell View has been designated for privatisation, said the National Development Ministry on Tuesday. 

Braddell View is the last of 18 HUDC estates to be designated for privatisation.

However, there are some issues that need to sorted out before the privatisation works can begin.

Braddell View was developed in two phases on two separate land leases, with different expiry dates.

In order to begin privatisation works, the two leases must expire at the same time.

To harmonise the leases, owners will have to pay for the top up premium, legal fees, survey costs and stamp duty. This will be determined by the residents themselves.

Analysts Channel NewsAsia spoke with say that while the privatisation is likely to go through, it will also likely be a long drawn affair as some owners may not be happy with the amount they have to pay.

Some owners may also choose to sell their units while others may hold on in anticipation of a potential en bloc sale.

Symbolic end to HUDC era

Source: Channel News Asia

Writing in his blog on Tuesday, National Development Minister Khaw Boon Wan described Braddell View's designation for privatisation as the symbolic end of the HUDC era.

Mr Khaw recalled that the first HUDC estates were built in the 1970s to help middle-income families own their homes, and they were well received.

By the 1980s, demand for HUDC flats had dwindled as there were more HDB flats in the resale market by then.

HDB had also introduced the Executive Flats as an alternative housing option, and private properties had also become more affordable after a declining property cycle.

In 1987, HDB stopped building HUDC altogether.

In 1995, HDB started to privatise the HUDC estates, enabling their dwellers to become private property owners.

Mr Khaw noted, "Housing policies are dynamic and evolve with changing circumstances."

"The era of HUDCs has ended. However, HUDC estates will remain a testament to the creative ways in which we have housed our people and help them fulfil their dreams," he added.

- CNA/fa

Punggol flats most popular in 2014's first BTO exercise

Source: Channel News Asia / Singapore

Flats in Punggol proved popular with applicants in HDB's first Build-to-Order (BTO) exercise in 2014 despite their higher prices as compared to the others on offer.

As of 8pm on Tuesday, Punggol BayView, which is located directly across the Punggol Reservoir, had more than 1,400 applicants vying for some 460 four-room units.

That is twice the number of applications for some 400 four-room flats in Woodlands Glen.

The demand from singles for two-room flats in January's BTO exercise remains strong.

The two-room flats are the most highly-subscribed units in this exercise with demand mostly coming from singles.

Nearly 40 applications from singles were received for each two-room unit in Punggol Vue.

For the Woodlands Glen project, the rate was 16.2 for each unit.

The 3,139 BTO flats on offer in January is the first tranche of the 24,300 BTO flats that HDB has planned for 2014.

The exercise closes at midnight on Tuesday.

- CNA/fa

Completed condo prices fell 0.6% last year: NUS

Resale price drop to continue due to loan curbs, say analysts

Source: Business Times / Singapore

FOLLOWING five consecutive month-on-month declines, prices of completed non-landed private homes eased 0.6 per cent for the whole of last year, compared with an increase of 4.2 per cent in 2012, show flash estimates for National University of Singapore's Overall Singapore Residential Price Index (SRPI).

The index had risen 8.7 per cent in 2011, 11.7 per cent in 2010 and 22.7 per cent in 2009.

Last year, the biggest drop of 2.5 per cent was posted by the SRPI for Central Region (excluding small units). Central Region is defined as districts 1-4 (including the financial district and Sentosa Cove) and the traditional prime districts 9, 10 and 11 by the university's Institute of Real Estate Studies (IRES), which minted the SRPI series tracking prices of completed private apartments and condos (excluding executive condos).

In contrast, the subindex for Non-Central Region (again excluding small units) rose 0.9 per cent, while that for small apartments (up to 506 sq ft) islandwide climbed 2.8 per cent in 2013.

- By Kalpana Rashiwala

Non-landed private home resale prices fall 0.7% in December

Source: Channel News Asia / Business

Prices of resale non-landed private homes declined 0.7 per cent in December after falling by 0.5 per cent in November, according to the flash estimate of the NUS Singapore Residential Price Index (SRPI).

The drop was led by resale homes outside the central area where prices dipped 0.9 per cent last month, after a 0.1 percent decline in November.

Resale prices for private homes in the central area fell at a slower pace at 0.3 per cent in December, compared to a 0.9 per cent fall in the previous month.

Meanwhile, resale prices of small units also continued to weaken, falling by 0.6 per cent in December, after a 0.5 per cent decrease in November. 

- CNA/nd

Canberra EC bids reveal a touch of caution

Source: Business Times / Singapore

DEVELOPERS are showing greater caution in bidding for executive condominium (EC) sites, analysts say, after a tender for a 99-year leasehold site at Canberra Drive closed yesterday.

A joint venture between Verwood Holdings, a unit of City Developments, and TID Residential made the highest offer out of six bidders for the 2.86-hectare site, which is near Sembawang Shopping Centre and about 1.2 kilometres from Sembawang MRT station.

Its bid of $226 million, or $350.04 per square foot per plot ratio (psf ppr) was 4.4 per cent higher than the second highest offer of $216.5 million, or $335.33 psf ppr, from MCL Land (Brighton).

The top bid was in line with earlier analyst estimates of between $320 and $380 psf ppr.

- By Ong Chor Hao

Worker falls to death in latest construction fatality

Bangladeshi construction worker fell four storeys to his death yesterday after a structure that he was standing on collapsed at a worksite along Eunos Road. It was the latest of at least five construction site accidents this month. Another Bangladeshi worker suffered leg injuries in the accident and was sent to Tan Tock Seng Hospital for treatment.

Real Estate Companies' Brief

Global Premium Hotels' Q4 earnings up 20.1%

Source: Business Times / Companies

DESPITE a 1.4 per cent dip in revenue to $14.96 million, Global Premium Hotels ended its fourth quarter last year with a 20.1 per cent rise in net profit to $5.2 million.

Among factors contributing to the higher earnings was a 28.7 per cent decrease in income tax after recognising a corporate income tax rebate.

Global Premium Hotels paid $0.77 million in taxes for Q4, down from $1.1 million in the same period last year. A respective $0.2 million decrease in administrative expenses and finance costs also contributed to higher profits.

Partial repayment of loans and lower average interest rate led to a 9.4 per cent cut in the company's finance costs.

- By Sheena Tan

IPC quadruples 2013 net profit to $18.2m

Source: Business Times / Companies

IT services provider turned property developer IPC Corporation almost quadrupled its full-year 2013 net profit to $18.2 million from $4.8 million a year ago as sales from its business hotels and condominium projects in Japan surged.

Earnings per share for the 12 months ended Dec 31, 2013, was at 2.14 cents, compared with 0.66 cent in FY2012. Revenue more than doubled to $46.9 million from $17.1 million a year ago.

It has declared a first and final dividend of 0.25 cent per share, and a special dividend of 0.1 cent per share.

On its prospects, IPC said that it will continue to sell the remaining stock of completed units in its Oppama and Oiso projects in Japan in FY2014.

-By Felda Chay

Wing Tai Holdings

H1 FY2014 operating profit dropped 26 per cent y-o-y, largely because of lower contributions from development properties. We expect the weak earnings to persist given that most of its remaining projects remain unsold, with the exception of The Tembusu. We estimate that the unsold projects account for about 30 per cent of its gross asset value (GAV).

Global Economy and Global Real Estate News

Home Prices in 20 U.S. Cities Rise Most Since February 2006

Source: Bloomberg / Luxury

Home prices in 20 U.S. cities rose in November from a year ago by the most in almost eight years, providing a boost to household wealth.

The S&P/Case-Shiller index of property prices in 20 cities climbed 13.7 percent from November 2012, the biggest 12-month gain since February 2006, after a 13.6 percent increase in the year ended in October, a report from the group showed today in New York. The median projection of 31 economists surveyed by Bloomberg called for a 13.8 percent advance.

A limited number of available properties is helping to sustain home price appreciation even as higher mortgage rates cool demand and leave purchases out of reach for some Americans. Further strides in the housing market this year would be made easier by a pickup in job and income growth.

“One of the reasons consumer spending has looked better is because household balance sheets are appearing to be healthier, and an important part of that is that home values are going up,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York and the most accurate forecaster of home prices over the past two years, according to data compiled by Bloomberg. “If home prices continue to increase, that indicates that there is still a shortfall of supply, and that should lead to more construction.”

Estimates in the Bloomberg survey ranged from year-over-year gains of 12.9 percent to 14.7 percent. The S&P/Case-Shiller index is based on a three-month average, which means the November figure was also influenced by transactions in October and September.

Stock Futures

Stock-index futures pared gains after another report showed durable goods orders unexpectedly declined in December. The contract on the Standard & Poor’s 500 Index expiring in March rose less than 0.1 percent to 1,776.2 at 9:23 a.m. in New York, after rising as much as 0.6 percent.

Bookings (DGNOCHNG) for goods meant to last at least three years dropped 4.3 percent, exceeding the weakest forecast of 82 economists surveyed by Bloomberg, after a 2.6 percent gain in November that was smaller than previously reported, Commerce Department figures showed.

Home prices adjusted for seasonal variations rose 0.9 percent in November from October after a 1.1 percent gain the prior month. That Bloomberg survey median called for a 0.8 percent advance.

The month-over-month price gains were led by Atlanta and Miami, which showed a 1.6 percent increases, followed by 1.3 percent gains in Detroit, Boston and San Francisco. Property values rose in all 20 metropolitan areas, with the smallest advances coming in Phoenix and Seattle.

‘Real Appreciation’

“Home prices continue to rise despite last May’s jump in mortgage interest rates,” David Blitzer, chairman of the S&P index committee, said in a statement. “Combined with low inflation -- 1.5 percent in 2013 -- homeowners are enjoying real appreciation and rising equity values.”

Unadjusted prices fell 0.1 percent in November from the previous month after a 0.2 percent gain in October.

The year-over-year gauge, which uses records dating back to 2001, provides a better indication of price trends, according to Karl Case and Robert Shiller, creators of the index.

All 20 cities in the index showed a year-over-year gain, led by a 27.3 percent advance in Las Vegas. Values climbed 23.2 percent in San Francisco.

Advances in home equity may be harder to come by as Federal Reserve policy makers begin to trim stimulus, causing mortgage rates to climb. Fed officials said on Dec. 18 they would reduce monthly bond purchases intended to spur the expansion to $75 billion from $85 billion.

Fed Meeting

Policy makers conclude a two-day meeting tomorrow in Washington, and the median projection in a Bloomberg survey of economists calls for an additional $10 billion of tapering.

“Home price appreciation has remained strong despite the decline in affordability,” probably because of a lack of inventory, economists at Bank of America Corp. in New York, said in a Jan. 23 research report. “That said, we continue to believe that price appreciation will slow into 2014 as investor demand declines and mortgage ratescontinue to head higher.”

Borrowing costs for prospective buyers have climbed since Fed officials last year signaled they would pare purchases of mortgage-backed securities and other bonds, a process that began this month.

The average rate for a 30-year fixed mortgage was 4.39 percent last week, up from 3.35 percent in early May, according to data from Freddie Mac in McLean, Virginia.

Home Sales

New-home sales dropped 7 percent to a 414,000 annualized pace in December, weaker than any estimate of economists surveyed by Bloomberg, Commerce Department figures showed yesterday.

Sales of previously owned homes climbed in December for the first time since July, according to figures last week from the National Association of Realtors.

KB Home, a Los Angeles-based homebuilder, sees a tempering in home prices as an important step in sustaining America’s housing recovery.

“We feel that less upward pressure on home prices is healthy for a measured, sustainable housing recovery,” Chief Executive Officer Jeffrey T. Mezger said on a Dec. 19 earnings call. Both KB Home and Miami-based Lennar Corp. project further housing market growth this year.

‘Solid Recovery’

“The housing market remains on track for a solid recovery and is likely to continue to improve over an extended period of time,” Lennar’s Chief Executive Officer Stuart A. Miller said on a Dec. 18 earnings call. “We feel that the short supply of available homes and pent-up demand, along with a generally improving economy, will continue to drive the housing recovery forward and we’re anticipating a robust spring selling season, which historically begins just after the Super Bowl.”

Higher home prices bode well for consumer spending, because it helps to boost household net worth. Economists at Bank of America led by Ethan Harris estimate that between 1980 and the third quarter of 2013, every additional earned dollar of housing wealth translated to 9 cents of consumer spending, compared with 5 cents for every additional dollar of financial asset wealth. The housing wealth effect has slowed in the wake of the financial crisis, they found.

“Assuming our asset price forecasts are correct -- with about a 5 percent increase in home prices and with the S&P 500 hitting our year-end target of 2,000 -- the wealth effect on consumption growth increases to 1.5 percentage points in 2014,” from 1.1 percentage points last year, Harris wrote.

- By Jeanna Smialek

Goldman Sachs Said to Lead American Homes 4 Rent Bond Deal

Source: Bloomberg / Personal Finance

American Homes 4 Rent, the second-largest single-family landlord in the U.S., has selected Goldman Sachs Group Inc. to arrange a bond backed by rental home payments, less than three months after Blackstone Group LP (BX) completed the first sale of its type.

The company, founded by B. Wayne Hughes, could sell as much as $500 million of the debt, according to two people with knowledge of the offering, who asked not to be identified as terms aren’t set.American Homes 4 Rent (AMH) has spent $3.5 billion to acquire more than 21,000 rental houses across the U.S., making it the biggest landlord after Blackstone.

Rental bonds are providing a new source of capital to landlords, after private-equity firms, hedge funds and other investors went on a $20 billion buying spree in the last two years to purchase as many as 200,000 homes to lease, according to Jade Rahmani, a housing analyst with Keefe Bruyette & Woods Inc. Demand for rentals has increased after about 8 million homeowners lost their properties to foreclosures or sold at a loss since 2007.

“This could be a $15 billion or $20 billion-plus-a-year kind of an asset class,” Ryan Stark, a director who runs mortgage finance at Deutsche Bank AG, said at a conference in Las Vegas last week. The Frankfurt-based lender led the debut $479 million offering for Blackstone, which was tied to 3,207 homes.

Increasing Regulation

Representative George Takano, a California Democrat whose district was hit hard by the foreclosure crisis, said Congress should hold hearings to weigh regulating the new securities, because they’re helping increase the competitive advantage investors have over ordinary home buyers.

The deals show “a clear pattern for investment groups who are looking to gain from these questionable financial instruments,” Takano said in a statement after Bloomberg News reported the Goldman Sachs-American Homes 4 Rent deal.

Colony American Homes Inc., which has acquired more than 15,000 homes, is also preparing a rental-home bond. The securities are expected to come to market in March, led by JPMorgan Chase & Co. and Credit Suisse Group AG, according to three people with knowledge of that offering, who also asked not to be named because the deal is private.

Peter Nelson, chief financial officer for Agoura Hills, California-based American Homes 4 Rent, didn’t reply to a phone message seeking comment. Spokesmen for Colony American Homes, Goldman Sachs, JPMorgan and Credit Suisse declined to comment.

- By John Gittelsohn and Heather Perlberg

Hedge Funds See Cheap Homes With Soured Loans: Mortgages

Source: Bloomberg / Luxury

After David Sherr left Lehman Brothers Holdings Inc. in 2007 to start a hedge fund, he considered buying delinquent mortgages to profit from the U.S. housing collapse. Following years of passing on the debt, he now sees the loans as one of the best ways to play the recovery.

Sherr’s One William Street Capital Management LP, a $2.7 billion investment firm, is starting a fund to buy non-performing loans, or NPLs, tied to delinquent borrowers who haven’t yet lost their homes to foreclosure, according to a letter to investors obtained by Bloomberg. NPLs are selling at 60 percent to 80 percent of estimated property values, the letter said, offering the “cleanest exposure” to housing.

One William Street joins investors including Ellington Management Group LLC and Starwood Property Trust Inc. (STWD) targeting the soured home loans after property prices jumped 24 percent from the 2012 trough and foreclosures dropped to the lowest level since 2007. Sales of the debt are poised to increase as banks face new regulations that make it more expensive to hold the loans, and the government auctions mortgages to help avert foreclosures and stem losses at the financially troubled Federal Housing Administration.

“The supply of NPLs is going to be very substantial for the next several years,” said Michael Vranos, Chief Executive Officer of Ellington, which oversees $6 billion. “Until last year, with the heavy supply of distressed securities, but only light supply of NPLs, we saw much better value in securities.”

Ellington Prediction

Ellington hired former Credit Suisse Group AG managing director Patrick Dodman in April to trade non-performing loans. The Old Greenwich, Connecticut-based firm forecasts transactions will exceed last year’s $25 billion. The U.S. Department of Housing and Urban Development, which has sold at least 50,000 non-performing single-family loans insured by the FHA since 2010, is planning further auctions this year.

HUD offers the loans at a significant discount to the unpaid principal balance with the expectation that buyers will try to modify the loan terms or take other actions to prevent neighborhoods from being swamped with vacant homes. Homeowners have a better chance of keeping their properties if the loans are sold because FHA’s rules prevent borrower-aid tactics available to private investors, such as reductions to principal balances.

Winners of an auction in December include Bayview Financial LP, backed by Blackstone Group LP (BX) and mortgage-bond pioneer Lewis Ranieri’s Selene Investment Partners, HUD disclosures show. Buyers paid an average of 52 percent of the $2.6 billion loan balances, or 69 percent of the estimated property values.

Citigroup Sales

Other sellers include some of the country’s largest banks. Citigroup Inc. (C) had about $4.6 billion in North American mortgages with late payments at the end of 2013, according to the New York-based lender. The loans, which aren’t guaranteed by the government, are part of a group of unwanted assets the bank plans to sell. Shannon Bell, a bank spokeswoman, declined to comment.

There are about 1.3 million properties in the U.S. tied to loans at least 90 days late and not yet in foreclosure, according to Black Knight Financial Services. Another 4.5 million borrowers are at least 30 days delinquent or in the repossession process, according to a report released today.

Investors are seeking alternative bets on housing after subprime-mortgage bond prices jumped about 17 percent last year and property prices surged by the most since 2006. Home prices in 20 U.S. cities rose 13.7 percent in November from a year ago, according to the S&P/Case-Shiller index.

Home Prices

Values increased as the economy strengthened and firms led by Blackstone bought more than 366,200 single-family homes in cities such as Phoenix and Atlanta since January 2011 to turn into rentals, according to Port Street Realty and RealtyTrac data. That’s made delinquent loans a relatively cheaper way to acquire real estate or profit by working with borrowers who are behind on mortgage payments.

Sherr started One William Street in 2007 after a 21-year career at Lehman, culminating in heading the bank’s securitization group. He named the investment firm after the former address of Lehman’s headquarters in New York with plans to buy mortgages, credit-default swaps and other bonds.

While following and being involved in the NPL market since 2008, One William Street chose to “de-emphasize them,” according to the investor letter. That changed at the end of 2012, when the firm started purchasing packages of loans from HUD. It also financed a block of the delinquent loans through parceling the debt into new bonds, lifting expected returns from the “high single-digits to low double-digits,” the investor letter said.

Mickey Mandelbaum, a spokesman for One William Street at Muirfield Partners, declined to comment.

Rental Properties

Ellington considers delinquent loans as one of the biggest opportunities this year, said Vranos. The firm weighs buying soured debt or foreclosed homes to turn into rentals depending on the location.

“There are certain areas where we may might want to buy a house, where we may not be able to necessarily get the NPL,” said Vranos, who founded Ellington in 1994. The firm expects to see strong home price appreciation continue in several parts of Florida, including Punta Gorda and Miami, as well as Las Vegas.

Ashish Pandey, CEO of Altisource Residential Corp. (RESI), said at a conference in Las Vegas last week that he expects as many as 500,000 non-performing loans to sell in 2014.

“Banks have made a decision internally that a delinquent borrower is not a core customer,” said Pandey, whose firm had 6,300 delinquent loans as of the third quarter of 2013. Altisource rose 0.6 percent to $30.67 today, and has gained 94 percent since 2012.

“There’s also headline risks, so for banks, it makes sense to sell,” Pandey said.

- By Heather Perlberg and Kelly Bit

Chinese Homebuyers Thronging Sydney Create Mini-Bubble Frenzy

Source: Bloomberg / Luxury

Tina Ford, an Australian public servant, said she could hardly believe it when her three-bedroom apartment sold this month for A$1 million ($877,000) at an auction in which all 16 registered bidders were ethnic Chinese.

“I’m over the moon, I’m gobsmacked,” said Ford, 53, adding that she “would have been ecstatic with A$940,000” and didn’t expect to double what she had paid 14 years ago for her third-floor unit with a balcony 11 kilometers (7 miles) from downtown Sydney in the suburb of Chatswood. “I suspect that overseas investment, Chinese or otherwise, is certainly pushing prices up, but from a vendor’s perspective, I’m ecstatic.”

Such buying by locally resident Chinese and those from mainland China is inflating housing bubbles in and around Sydney, where prices in some suburbs have surged as much as 27 percent in the past year. That’s almost three times faster than the overall market.

Many of the neighborhoods with the biggest price gains “are areas that are popular with Chinese buyers,” said Andrew Wilson, senior economist at real estate data firm Australian Property Monitors. “Some of these suburbs are seeing price growth that we haven’t seen in Sydney since the early 2000s.”

The proportion of foreigners purchasing new homes in Australia more than doubled to 12.5 percent in the three months to September, from 5 percent throughout most of 2011, according to a survey of more than 300 property professionals by National Australia Bank Ltd.

Auction Bidding

On visits to several home auctions in Sydney’s sprawling suburbs, a dozen or more registered bidders, all of them Asian, could be seen vying for each property. A second-hand house in northwest suburban Eastwood sold for as much as A$1 million more than the expected price, according to John McGrath, chief executive officer of McGrath Estate Agents in Sydney, which set up a Chinese sales desk in September. McGrath agent Adam Wong, who brokered Ford’s apartment, said 95 percent of the more than 100 people at the auction were locally resident Chinese.

Elsewhere in Chatswood, 90 percent of developer Mirvac Group (MGR)’s ERA high-rise apartment building sold to ethnic Asian buyers, most of them Chinese, according to John Carfi, head of the residential division.

Unlike in the U.S., where auctions are frequently used to dispose of distressed properties, sellers in Australia try them when the market is strengthening and there’s the prospect of higher prices. SQM Research Pty, a Sydney-based data company, forecasts home price gains of as much as 11 percent this year in Australia’s biggest cities.

Overvalued Market

Home prices in major Australian cities rose 9.8 percent in 2013, the fastest calendar-year growth since 2009, according to the RP Data-Rismark Home Value index. The average weekly wage grew at about half that rate, to A$1,105 before taxes as of May 31 from a year earlier, the latest statistics bureau data show.

Australia’s housing market was the fifth-most overvalued among countries in the Organization for Economic Cooperation and Development relative to rents, the International Monetary Fund said in a December report. Canada was first, followed by New Zealand,Norway and Belgium.

Billbergia Pty, a closely held developer in Sydney, reported selling as much as 85 percent of its apartment project in the western suburb of Rhodes last year to Chinese buyers, even before beginning construction. Home prices in Rhodes jumped 27 percent to a median A$1.03 million in 2013, according to Australian Property Monitors.

‘Material Driver’

“Anecdotally, Chinese buying has been a material driver of new-apartment purchasing activity in the last 12 to 18 months,” Scott Ryall, head of Australia research at CLSA Asia-Pacific Markets in Sydney, wrote in a report in September. “This is a significant potential tailwind for Australian property prices.”

By law, non-resident foreigners can only buy new homes, with exceptions to buy existing properties granted on a case-by-case basis.

While many Chinese immigrants buying in Australia pay cash, they take out mortgages for second or third properties to take advantage of tax rules, said Ray Chan, managing director of Sydney-based real estate broker Henson Properties, 95 percent of whose clients are from China. Owners can claim tax deductions if expenses, including mortgage payments, are greater than their investments’ rental income.

Housing Dream

The distinction between purchases by mainland Chinese and by Chinese who have already immigrated to Australia is blurry. Chen Youmea, 42, bought a two-bedroom unit under construction in Sydney in 2011 while she and her family were still living in China’s eastern Zhejiang province, near Shanghai. They moved to Australia in 2012, and within six months bought another three-bedroom apartment in the inner-city suburb of Pyrmont.

“Chinese people, we don’t want to rent,” she said. “We want to fulfill the dream of our own home.”

Chen planned to spend about A$700,000 on a third property, she said while browsing at a November Chinese property expo in Chatswood, where 13.7 percent of residents were China-born as of the 2011 census, up from 9.6 percent five years earlier. Home prices in the suburb increased 12 percent last year, Australian Property Monitors figures show.

“I agree to some extent that Chinese buyers are pushing up prices, but it’s good to have a bit of Asian investment to stimulate the market,” Chen said.

Squeezed Out

Some buyers are finding themselves squeezed out. In a showroom in the nondescript suburb of Macquarie Park in October, architect Warwick Mann and his father didn’t register for the sale of one- and two-bedroom apartments listed for almost A$1 million and found themselves trying to get attention from agents busily catering to scores of Asian buyers.

“They’re not interested in selling to us,” said the younger Mann, 51, who said his retiree father, looking for a new home, lost his temper and left.

The 378 units all sold in four hours, three-quarters of them to Chinese buyers, according to real estate broker CBRE Group Inc., which marketed the development.

“It was an unprecedented level of interest in the development,” with about 870 people paying a A$5,000 refundable deposit to register possible intention to purchase and receive priority, said Ben Stewart, a director at CBRE’s residential projects division, adding that agents do their best to also cater to walk-ins. “It was hard to keep everyone satisfied because we just didn’t have enough stock.”

A further 152 apartments in a separate building within the project site will be offered for sale next month, Stewart said.

Most Unaffordable

Demand from China has also driven prices higher in other parts of the world. In Hong Kong, the most unaffordable housing market among 360 cities in a survey released this month by Belleville, Illinois-based urban development consultancy Demographia, home prices have doubled since 2009, driven in part by an influx of wealthy buyers from the mainland.

In Vancouver, where 15 percent of the population speaks a Chinese dialect as a first language and which is the second-most unaffordable housing market in the survey, ethnic Chinese are the largest group of foreign buyers, according to auction house Sotheby’s. Mainland property hunters were the top overseas buyers of residential property in Singapore as of August, government data showed.

Sydney and Melbourne were also among the 10 most unaffordable cities for housing in the Demographia survey.

More than 20,500 people from China, Hong Kong and Taiwan settled in Australia in the year to June 30, according to immigration department figures. Another 219,000 came to Australia as temporary immigrants and students, the data show.

Online Interest, a website that lists homes around the world in Chinese, saw a 266 percent increase in page views from China of Australian homes between January and August of 2013, according to the latest figures from the company.

“There is strong interest in Australian property because of its stable housing market, regulatory protection and the all-important time zone,” which is two or three hours ahead of Shanghai depending on the time of year, Andrew Taylor, co-CEO of Hong Kong-based Juwai Ltd., said in e-mailed comments.

The U.S., Australia and Canada were the most favored of 15 countries among Chinese home buyers last year, according to a report yesterday from SouFun Holdings Ltd., China’s biggest real estate website owner, which surveyed 15 million members.

For Mann, who gave up helping his father search for a house and now plans to accommodate his extended family in a single residence, his current suburb of Epping and neighboring Eastwood no longer offer value for money, he said. A three-bedroom brick home in these suburbs now sells for more than A$1 million.

Home prices climbed 17 percent last year in Eastwood, some 18 kilometers northwest of Sydney’s center, to a median A$1.1 million, and in neighboring Epping, they rose 15 percent, according to Australian Property Monitors.

Leaving China

About a third of residents in these suburbs claim Chinese ancestry and almost a fifth were born in China or Hong Kong, according to 2011 census data.

Instead, Mann chose to look in Beecroft, a leafier suburb where median household incomes are 50 percent higher than in Epping. Prices there are up a comparative 16 percent, with a median price of A$1.08 million.

“I’d much rather spend that sort of money here,” he said.

Behind the growing demand for homes in Australia is a push by Chinese to leave the mainland in search of better education for their children, a clean environment and higher income, CLSA’s Ryall wrote in the September report.

About 60 percent of high-net-worth Chinese -- those with at least 10 million yuan ($1.7 million) -- have left China or are considering it, according to Bain & Co.’s China Private Wealth report, released in May.

The number of people in this category with investments outside China almost doubled from two years earlier, the report said. More than half of high-net-worth individuals without overseas investments planned to make them, while 60 percent of those who have them planned to increase them, it said.

Instant Messaging

At Billbergia’s Village Quay apartment complex in Rhodes, the company sold a quarter of its units to buyers directly from the mainland and about 60 percent to Australia-resident Chinese, operations manager John Fitzgerald said.

Billbergia began using Chinese microblog Weibo and instant messaging application WeChat in 2012 to reach Chinese buyers, both in Australia and on the mainland, rather than rely only on print advertising, Fitzgerald said.

“Chinese are very hesitant to buy without some form of advice or comfort from someone they know and trust,” Fitzgerald said. “These social networking platforms, where we can post about our projects, allow them to talk about them and share the experiences they’ve had with us.”

Broker McGrath’s China desk received about 250 inquiries from Chinese-speaking potential buyers, about 15 percent of them overseas, from its September start through late December, according to Davey Hong, who runs Chinese sales. The company reported a record A$1.2 billion in transactions in November.

‘More Confident’

Opening the Chinese desk has made buyers “feel more confident when dealing with us, as our job is to assist them in understanding the buying process and property information better,” Hong said. The broker has also been approached by sellers wanting to reach Chinese purchasers, he said.

Mainland buyers seeking newly built investment properties usually travel to Australia in groups, Hong said. Those buying for their children are often referred by friends or family living in the area, and those buying more expensive properties, typically more than A$6 million, use buyers’ agents, he said.

When buying as investments, mainland purchasers prefer new construction with good rental potential, said Grace Yeung, who set up Sydney-based GBE Property Investments as a division of realty marketer Golden Berg Enterprises Pty, in May to match Chinese buyers with Australian sellers. Her clients, more than 80 percent from the mainland and often referrals, have specific locations and requirements in mind, she said.

Feng Shui

The layout of properties can make or break a deal, according to Yeung. Too many sharp or irregular angles and front doors that allow a direct view of the bedroom are a no-no.

Such homes “won’t attract buyers,” she said, because of their feng shui, which translates as “wind and water” and requires harmony in the physical environment according to Chinese beliefs about energy and design.

Those with big budgets, who plan to live in the homes rather than rent them out, seek waterfront properties in exclusive suburbs, such as Bellevue Hill, Point Piper and Vaucluse in Sydney’s east, with harbor and Opera House views, said Yeung. The city’s eastern suburbs are home to the likes of Lachlan Murdoch, son of media tycoon Rupert Murdoch; Frank Lowy, co-founder of Australia’s biggest shopping mall operator, Westfield Group; and Harry Triguboff, founder of Meriton Pty, the nation’s biggest apartment developer.

‘Ego Buying’

This demand is helping luxury property, with the top 25 percent of the market fetching record home prices as of December, according to researcher RP Data Pty. (RPAUMED) Foreign buyers are boosting demand, according to Cameron Kusher, senior research analyst at RP Data.

“There’s a bit of ego buying,” said Chan of Henson Properties, who helped broker the sale of Altona, an eight-bedroom, waterfront mansion in Point Piper, to an undisclosed buyer from China for A$52 million in March. “They buy for name, they buy for prestige, so in a lot of the auctions, a lot of the major sales, they do pay a little bit more.”

Lifestyle Choice

Dominique Corbett, founder of Brisbane-based property agency Corbett & Co., traveled to Shanghai for the annual Top Marques exhibition featuring private planes, vintage cars, and jewelry to exhibit listings in Brisbane and the Gold Coast in Queensland state and introduce China’s wealthy to cities outside Sydney and Melbourne. She plans to return to Shanghai next month to present more Australian properties, she said.

“The lifestyle here, you couldn’t pick a better place,” Corbett said by telephone. “A lot of them are going to Canada for that, but they don’t have the climate we do here. A lot of it is also education-driven, for their children.”

Significant Investors

Chinese demand for luxury properties is also fueled by Australia’s so-called significant-investor visa, also known by its visa classification number 888. The Chinese believe eight is a lucky number because in Mandarin it sounds like the word for prosperity. Introduced in November 2012, the visas offer temporary residency to foreigners investing more than A$5 million. While residential real estate doesn’t qualify as an investment, the rules allow 888 recipients to purchase homes.

Monika Tu, whose Black Diamondz Property Concierge service helps migrants adjust to their new lives, said the visa has doubled her demand. In addition to connecting Chinese buyers to properties, Tu’s offerings range from finding schools to recommending dining and golf facilities to offering a business address for immigrants until they establish themselves.

“Once they move here, and have found a house, found a helper, found a good school, what’s next?” asked Tu, who comes from China’s Guizhou province. “There’s a sense of loss, and the next thing they need is the lifestyle, to feel at home.”

Surging demand and rising prices are frustrating even some Chinese buyers.

“I give up,” Yan Liu, who moved to Sydney from China in 2006, shouted to the auctioneer in the middle of hectic bidding for a two-bedroom unit in Eastwood, which sold for A$575,000. “I’m buying for investment. The rent would be too low.”

- By Nichola Saminather and Iain McDonald

European Banks Trimmed Property Debt to $1.3 Trillion, CBRE Says

Source: Bloomberg / News

Europe’s banks have trimmed commercial real estate debt by 11 percent to 926 billion euros ($1.26 trillion) since the credit crisis roiled financial markets in 2008, broker CBRE Group Inc. (CBG) said in a report today.

Outstanding debt tied to commercial property is down by just 101 billion euros from more than 1.03 trillion euros in 2008 after many banks opted to extend loans rather than seek repayment, the Los Angeles-based company said in a statement today. An estimated 731 billion euros of the total will come due in the next five years, according to CBRE.

“After a prolonged period when European debt strategies were dominated by extensions and forbearance, we are now seeing lenders take a more aggressive stance,” Paul Lewis, head of special servicing at CBRE, said in the statement. “The deleveraging process is now well underway.”

European banks have been trying to reduce exposure to real estate assets since 2008 by selling portfolios of non-performing loans. While lending conditions have “eased considerably” in the past year, there’s still more maturing debt to absorb than there is lending capacity in the near term, according to the statement.

“Many euro zone banks still retain a large debt overhang and until the ‘new lenders’ enter the market in earnest, there is unlikely to be enough debt retired to hit maturity deadlines,” Lewis said.

The unpaid debt includes about 140 billion euros loaned out since 2008, according to the statement. It doesn’t include a “very substantial amount” of loans secured by residential property or development land, the broker said.

- By Patrick Gower

Shanghai Sells Residential Land at Record Amid Competition

Source: Bloomberg / Luxury

Shanghai sold a residential plot of land at a record price amid rising competition among developers for sites in cities with fast price gains as some local governments tighten property curbs.

The 96,429-square-meter (1 million-square-foot) site, north of the city, was sold for 1O.1 billion yuan ($1.7 billion) to Franshion Properties China Ltd. (817) today, the official Xinhua News Agency reported. The total price was a record for a residential plot in the city, according to China Real Estate Information Corp., or CRIC, a property data and consulting firm.

“Developers are optimistic about China’s property market because land in core locations of major cities, such as Shanghai, is limited,” said Li Ying, a Shanghai-based land analyst at CRIC, in a phone interview. “Demand and the purchasing power of buyers in Shanghai are still strong.”

Developers are competing for land in cities defined as first tier by the government as new-home prices jump. Prices in Shanghai jumped by 18 percent in December from a year earlier as local property curbs failed to deter buyers.

At least 10 Chinese cities, many of them provincial capitals, have tightened local property policies since November, with the major cities of Shenzhen, Shanghai and Guangzhou all raising minimum down payments for second homes to 70 percent from 60 percent. New-home prices surged 20 percent in Guangzhou and Shenzhen, in the country’s south, in December.

Shares of Franshion, the property unit of state-owned Sinochem Group, were unchanged at HK$2.57 at the close of trading in Hong Kong today. Franshion owns the Jin Mao Tower in Shanghai.

China’s new-home sales last year exceeded $1 trillion for the first time by rising 27 percent from 2012, the statistics bureau data said on Jan. 20.

The Shanghai Stock Exchange Property Index rose 1.3 percent today, while the benchmark Shanghai Composite Index added 0.3 percent.

- By Bloomberg News