Real News‎ > ‎2014‎ > ‎July 2014‎ > ‎

23rd July 2014

Singapore Real Estate

Developers' pessimism deepens in Q2

Rising construction costs, inflation, interest rates seen roiling market

Source: Business Times / Singapore

DEVELOPERS are more pessimistic about the property market in the coming six months, citing rising cost of construction, inflation, and interest rates as factors that will likely have an adverse impact on market conditions.

The NUS-Redas Real Estate Sentiment Index Survey's Future Sentiment Index - which measures sentiments towards the market outlook over the next six months - fell to 3.4 in Q2 compared with 3.9 in Q1.

A score under five indicates deteriorating market conditions while scores above five indicate improving conditions.

Meanwhile, the Current Sentiment Index slipped marginally, from 3.7 in the last quarter to 3.6.

Taken on a year-on-year basis, the Composite Sentiment Index (which measures overall sentiment) was weaker at 3.5 in Q2 compared to 4.5 previously.

Looking ahead into the next six months, the key potential risks are rising inflation/interest rates as identified by 75.4 per cent of respondents and rising cost of construction (63.1 per cent).

Equally worrying is the excessive supply of new property launches and a slowdown in the global economy, which were identified by 53.8 per cent of respondents.

However, 31.7 per cent of developers surveyed said that they expect moderately more residential launches in the coming six months, while 29.3 per cent said that they expect residential launches to hold at the same level.

In terms of unit price change, 26.8 per cent of them anticipate that residential prices will hold in the next six months, up from 26.3 per cent in the previous quarter. Majority of developers still expect unit prices to be moderately less (63.4 per cent compared with 64.8 per cent previously).

Of the various property sectors, prime and suburban residential sectors were the worst performing segments according to the survey.

The prime residential sector showed a current net balance of -72 per cent and a future net balance of -69 per cent; while the suburban residential sector showed a current net balance of -63 per cent and a future net balance of -65 per cent in Q2.

The current and future net balance percentage is defined as the difference between the proportion of respondents who have selected positive options and the proportion who selected negative options.

On the flipside, office was the best performing sector, with a current net balance of +41 per cent and a future net balance of +32 per cent.

In light of the high transaction cost and high property prices, 77.8 per cent of respondents said there will likely be strong outflows of investments into overseas real state markets in the coming 12 months.

These markets include the United Kingdom, Australia, and Malaysia.

-By Mindy Tan

HDB upgrading places financial burden on PR retirees

Source: Straits Times / Forum Letters

MY PARENTS are both retirees in their 60s. They became Singapore permanent residents in 1994 and bought a resale three-room flat in Ang Mo Kio the following year, where they have lived ever since.

They paid off their housing loan a few years ago and thought they could enjoy their twilight years without any financial burden. Unfortunately, they were wrong.

Three years ago, their block was selected for the Lift Upgrading Programme. As PRs do not enjoy any government subsidy, they had to pay the full cost, which amounted to $13,000.

They had the option to settle the fees only after disposing of the flat later. But if they did so, the HDB would charge an interest of 2 per cent per annum on the upgrading cost.

In order not to incur thousands of dollars in interest payments, my parents paid the upgrading fees in full using their retirement savings.

Then, a few weeks ago, my parents' block was selected for the Home Improvement Programme (HIP).

The most basic package - which includes some painting and replacing a metal pipe with a plastic one - would cost about $9,000. Again, my parents are not entitled to any subsidy and will have to pay the full cost.

This is a great financial burden on them as they do not have any income and cannot opt out of the scheme.

While I understand why they cannot opt out of lift upgrading, why can't they do so for the HIP? And why is the basic package so costly? Can the HDB explain how the cost is derived?

-By Christine Li

HDB resale flat sellers can ask for extension of stay

Sellers of HDB flats will be able to negotiate with their buyers for a temporary extension of stay in their flats by up to three months.

Source: Channel News Asia / Singapore

SINGAPORE: Sellers of Housing and Development Board (HDB) flats will be able to negotiate with their buyers for a temporary extension of stay in their flats, allowing them to stay in their former homes for up to three months, the HDB said on Tuesday (July 22).

The new rule, which takes immediate effect, will facilitate sellers who are transiting to their next homes, including those who may need more time for renovation or those awaiting funds from the sale of their current flats, the HDB said.

"We settled on a three-month period as we think it should be sufficient time for flat sellers to complete the purchase of their next home, or make the necessary arrangements to shift into their next home," said Minister for National Development Khaw Boon Wan in a blogpost.

He added that the HDB estimates that about 15 per cent of total resale transactions, or about 2,700 households a year, will stand to benefit from this policy tweak.

Flat sellers who wish to extend their stay temporarily must have committed to buy another home – whether HDB flat or a private property – in Singapore at the time of the resale application. In other words, they must have exercised an Option to Purchase or signed a Sale and Purchase Agreement, the HDB said.

The request for the extension of stay is to be submitted to HDB at the time of the resale application.

But HDB clarified that buyers must start paying the monthly instalments of their housing loans, property tax as well as service and conservancy (S&CC) charges once the resale transaction is completed and they become legal owners of the flat.

Only the Minimum Occupancy Period will commence on the day the extension (of stay) ends.

Details of the extension, including the duration and monetary compensation, if any, must be mutually agreed upon by both parties.

Real estate company ERA lauded the move, saying it is "great news" for flat sellers.

"Most HDB flat owners are single home owners. When you sell your flat, there may be transitional issues as the completion timing of the flat purchased may be later than the completion time of the flat sold, said Mr Eugene Lim, Key Executive Officer at ERA, in a statement on Tuesday.

"It is something the market has been pushing for some time and it is certainly a relief that we now have an official policy to allow for this temporary extension of stay for the seller after the completion of the sale."

Mr Lim added that the move may help to boost resale HDB volume in the months to come.

- CNA/cy

HDB flat sellers can now ask for right to stay on

Such a mutually agreed upon deal, for up to 3 months, would let seller get cash, finish renovations in new property

Source: Today Online / Singapore

SINGAPORE — Housing and Development Board (HDB) flat sellers can now negotiate with their buyers to remain in their homes for up to three months after the sale has been completed, to help them complete renovations in their new property or get the cash from the sale needed to purchase their new home.

About 2,700 households — or 15 per cent of all resale transactions — stand to benefit from this new rule, which takes immediate effect, the HDB announced yesterday.

However, any such arrangements are subject to the buyers’ agreement, it added. Both parties must also agree to the details of the extension, including the duration and monetary compensation, if any.

Previously, those who sold their HDB flats had to move out as soon as they completed the resale transaction as buyers were required under the lease to immediately occupy their new homes.

“But this may put some sellers in a difficult situation,” noted National Development Minister Khaw Boon Wan in a blog post yesterday. “Some do not have their homes to move into as they may not yet be ready (as) renovation is in progress. Others may first need funds from the sale of their current flat before they can complete the purchase of their next home.

“As a result, they often need to frantically look for some short interim rental arrangement, resulting in some disruption to their daily life,” he said.

Mr Khaw said the three-month period would give sellers “sufficient time” to complete the purchase of their next home.

Flat sellers who wish to extend their stay temporarily must have committed to buy a completed housing unit in Singapore at the time of the resale application, said the HDB. This means they must have exercised an Option to Purchase or signed a Sale and Purchase Agreement. Sellers will also have to submit their request to the HDB for the extension of stay at the time of the resale application.

Real estate company ERA lauded the new rule, noting that most HDB flat owners are single-home owners, reported Channel NewsAsia.

“It is something the market has been pushing for some time, and it is certainly a relief that we now have an official policy to allow for this temporary extension of stay for the seller after the completion of the sale,” said Mr Eugene Lim, ERA’s key executive officer. He added that the move might help boost the volume of resale HDB flats in the months to come.

Contractor, supplier jointly at fault in crane accident

The court ruled that both the crane supplier and the contractor owed a duty of care to quality control manager Lum Hon Ying, who was badly injured in the accident, and structural engineer Lim Boon Tiong, who died.

Source: Channel News Asia / Singapore

SINGAPORE: The fault for a tower crane’s wire rope snapping, sending a 500kg load crashing onto a container site office in a 2009 accident that killed one and severely injured another, lies equally with the crane supplier and the contractor operating it that day, a High Court has ruled.

Buildmart Industries, which leased out the tower crane for the Sui Generis condominium project at Balmoral Crescent, had failed to properly install, as well as maintain, the wire rope, said Justice Tay Yong Kwang.

But the project’s main contractor, Chiu Teng Enterprises, which employed staff to operate the crane, was negligent in the lifting operation, the judge added.

The two firms are being sued by quality control manager Lum Hon Ying, who was badly injured in the accident, and the administrator of the estate of structural engineer Lim Boon Tiong, who died. The two men were having a meeting in the container site office that day.

In his judgment that was made public on Tuesday (July 22), Justice Tay said Chiu Teng and Buildmart owed a duty of care to the two men, who were lawfully at the work site on Sept 29, 2009.

Buildmart had contended that it should not bear any liability, arguing that the wire rope that snapped that day was brand new, and that the cause of the rope’s failure was a mystery.

But the judge ruled that Buildmart’s failure to properly maintain the wire rope of the tower crane could not be disputed, falling “dismally short” of the recommendations made in the manufacturer’s operating manual.

Instead of lubricating the rope at least once every 200 hours of operation, Buildmart had lubricated it only thrice for about 2,000 hours of operation, or about once every 660 hours of operation.

A report commissioned by the Ministry of Manpower before it brought criminal proceedings against the company had included lack of lubrication as a contributing factor to the wire rope’s failure. It also concluded that the wire rope was not properly seized and this was one of the reasons it failed.

Buildmart was fined S$8,000 in the criminal case for breaching workplace safety and health regulations by failing to ensure its wire rope was properly maintained.

As for Chiu Teng, Justice Tay said it was negligent in the lifting operation.

It was the duty of its crane operator to ensure a suspended load was not moved over anyone in the worksite and its lifting supervisor failed to ensure that nobody was inside the site office before beginning the lifting operation.

“All the circumstances showed that the operation that morning was a highly hazardous one and much more care and thought ought to have gone into it,” the judge wrote, ordering Chiu Teng and Buildmart to each bear half the liability.

The damages to be paid by the two companies will be assessed by a High Court Registrar.


Real Estate Companies' Brief

Suntec Reit's Q2 DPU up despite equity dilution

Its shares added two S'pore cents to hit a one-year high of S$1.855 yesterday

Source: Business Times / Companies

SUNTEC Reit yesterday announced a distribution per unit of 2.266 Singapore cents for its second quarter ended June 30, 2014, a slight increase from 2.249 Singapore cents a year ago, to be paid on Aug 22.

The trust saw an 11.3 per cent increase in distributable income to S$56.6 million. But the DPU rise was slight because of an enlarged unit capital following its S$350 million private placement in March this year to raise funds for debt repayment.

"We have been assuring unitholders of stable and sustainable DPUs during the execution of our refurbishments at its Suntec City mall, by using part of our sales proceeds from our divestment of Chijmes (in 2012) to mitigate the temporary dip in our retail revenue," Yeo See Kiat, CEO of the Reit manager, told The Business Times yesterday.

"In Q2 2013, we took out S$7.8 million from capital; in this latest quarter, we took out S$5 million. This is because our distributable income from operations rose 19.8 per cent to S$51.6 million in Q2 2014, so the capital we need is less because our operations have improved. As we move along, we will need less and less contribution," he said.

-By Lee Meixian

Partial upgrading helps lift Suntec Reit's income in Q2

Source: Straits Times / Money

THE completion of the first part of Suntec City's upgrading works boosted the income of Suntec Real Estate Investment Trust (Reit) in the second quarter.

The lift came even though a large part of Suntec City mall was closed for refurbishment during that period.

Suntec Reit owns Suntec City and a 60.8 per cent stake in the Suntec Singapore Convention and Exhibition Centre.

Its distribution per unit (DPU) for the three months to June 30 came in at 2.266 cents, 0.8 per cent higher than in the same period in the preceding year.

The increase in DPU was much lower than the growth in the Reit's income.

Net property income rocketed 64.9 per cent to $46.1 million, and income available for distribution climbed 11.3 per cent to $56.6 million for the period.

The disparity between its DPU growth and income expansion was partly due to the Reit issuing a lot more units in the second quarter, which expanded the unit base by 9.7 per cent.

Suntec Reit said in late March this year that it was issuing 218 million new units in a private placement to institutional and other investors, which some analysts have interpreted as signalling a possible big acquisition in future.

The Reit also holds Park Mall and a third of One Raffles Quay, as well as a third of Marina Bay Financial Centre Towers 1 and 2 and the Marina Bay Link Mall.

Mr Yeo See Kiat, chief executive of the Reit manager, said in a statement yesterday that the jump in income was mainly due to the completion of the first part of Suntec City's upgrading.

The Reit's distributable income from operations grew "despite the closure of a substantial part of Suntec City mall" for upgrading works, he added.

The first phase of Suntec City's upgrading included the convention centre and Suntec City Tower 5.

The second phase, which includes Towers 3 and 4, opened on June 1 this year.

Mr Yeo said the first and second phases achieved 97.6 per cent committed occupancy, as at June 30.

He said the Reit would now focus on marketing the third phase, which includes Towers 1 and 2.

The Reit's overall committed occupancy rate for its retail properties was 97.6 per cent, while that of its office portfolio was 99.7 per cent, as at June 30.

Suntec Reit units rose two cents to close at $1.855 yesterday. 

-By Melissa Tan

Higher rental rates boost MIT's Q1 DPU

Source: Business Times / Companies

MAPLETREE Industrial Trust (MIT) yesterday posted a distribution per unit (DPU) of 2.51 Singapore cents for its first quarter ended June 30, a 3.3 per cent increase from a year ago.

This came on the back of a 6.3 per cent increase in distributable income to S$42.8 million for the quarter.

Tham Kuo Wei, CEO of the Reit manager, said: "The year-on-year growth in distributable income and DPU in Q1 was mainly driven by higher rental rates secured for leases across all property segments except business park buildings."

Its average monthly portfolio passing rent increased to S$1.77 psf from S$1.75 psf in the preceding quarter.

-By Lee Meixian

Rents, new property boost FCT's Q3 earnings

Source: Straits Times / Money

HIGHER rents and a new acquisition helped Frasers Centrepoint Trust (FCT) post healthier third-quarter earnings yesterday.

The trust, which owns six shopping malls, posted a distribution per unit (DPU) of 3.022 cents for the three months to June 30, up 6 per cent from a year earlier.

Of this, 0.626 cents per unit will be paid to unitholders on Aug 29, while 2.396 cents per unit were distributed last Thursday.

Distributable income for the quarter rose 1.3 per cent from the year before to $23.4 million.

Net property income was up 2.4 per cent to $29.1 million and gross revenue increased 3.1 per cent to $41.2 million.

The growth was mainly due to higher rents from renewed leases, which were 7.8 per cent higher than rental agreements inked three years ago, said the trust's manager, Frasers Centrepoint Asset Management.

This was despite a dip in rental reversions at Bedok Point, which were 3 per cent lower than contracts secured three years earlier.

However, the Changi City Point mall, in Changi Business Park, added $1.02 million to the firm's revenue and $660,000 to net property income for the quarter ended June 30, since it was acquired on June 16.

The acquisition also grew the trust's total assets by 14.7 per cent to $2.45 billion.

"The addition of Changi City Point strengthens FCT's presence in the suburban retail market here and it is DPU-accretive," said Dr Chew Tuan Chiong, chief executive of the manager.

Occupancy rate of its properties as at March 31 was 98.5 per cent, up from the 96.8 per cent recorded at the end of the preceding quarter.

Occupancy at Bedok Point, which was undergoing fitting-out works, rose to 99.3 per cent from 77 per cent in the preceding quarter after new tenants such as Harvey Norman opened at the mall.

Overall traffic at all its malls, excluding Changi City Point, improved 2.7 per cent to 20.94 million shoppers in the same period, driven mainly by the Causeway Point mall in Woodlands. It is expected to reach 23.7 million, if Changi City Point is included.

Earnings per unit for the three months to June 30 was 2.62 cents, down from 3.08 cents the same period a year ago, while net asset value per unit as at June 30 was $1.78, inching up from $1.77 as at Sept 30.

Its units rose a cent to close at $1.965 yesterday.

-By Cheryl Ong

Sino Construction's Aussie deal

Source: Business Times / Companies

Sino Construction Limited yesterday signed a conditional sale-and-purchase agreement (SPA) with Bizcap Investments Ltd to acquire a 52 per cent stake in Jems Exploration Pty Ltd for US$20 million. Australia-based Jems is undertaking a coal-development project in Queensland, Australia. The SPA agreement is conditional, among other things, on satisfactory due diligence on Jems and its project, and approval from Sino Construction's shareholders.

GLP signs new lease in China

Source: Business Times

Global Logistic Properties Limited has signed a new lease agreement totalling 15,000 sq m with a leading multi-channel retailer in China. The customer will use the facility to meet increasing demand for products sold through its e-commerce and TV shopping platforms in mid-western China.

Global Economy & Global Real Estate

Goldis' offer for property developer seen undervalued

Source: Business Times / Malaysia

[PETALING JAYA] The Tan family's attempt to tighten their grip on the crown jewel parked under IGB Corp Bhd will likely be met with resistance from minority shareholders, as the takeover offer made through Goldis Bhd has been deemed as unattractive by most market players, Malaysian daily The Star reported.

Goldis' offer of RM2.88 cash per IGB share is said to substantially undervalue the assets of the property development and investment company. At least one research house has described the offer as unfair and unreasonable, while an analyst opined that Goldis' price was not a "serious offer".

"The offer made by Goldis for IGB's shares does not make sense at all," an analyst with a local bank told StarBiz.

"Minority shareholders are unlikely to accept the offer, given the low premium. If they wanted to cash out, then they might as well dispose of their shares on the open market and get cash now, rather than wait for another few weeks when the offer closes to cash out," he explained.

-From Petaling Jaya, Malaysia

Blackstone to Buy Max Property’s Assets for $707 Million

Source: Bloomberg / News

Max Property Group Plc (MAX), the real estate investment company set up by entrepreneur Nick Leslau, plans to wind itself down after Blackstone Group LP (BX) agreed to buy the company’s assets for about 414 million pounds ($707 million) in cash.

The acquisition by Marina Topco Ltd., controlled by Blackstone Real Estate Partners Europe IV, is conditional on shareholders’ approval, Max Property said in a statement today. Max Property, based in St. Helier, Jersey, climbed the most since May 2009.

Max Property, created in 2009, plans to distribute most of the sale proceeds to its shareholders, along with a previously announced 33-million-pound payout that will be made tomorrow, the company said. Before Blackstone’s approach, Max Property had intended to sell its assets separately over two years.

“The interests of all shareholders are best served with an earlier disposal in a single and fast transaction with low execution risk,” Max Property said.

Max Property climbed 8.2 percent to 168 pence in London trading, giving it a market value of 370 million pounds. The company buys U.K. properties and tries to boost their value by making renovations or finding new tenants before reselling the buildings at a profit, according to its website. In 2011, Max Property and a family trust agreed to buy St. Katharine Docks, including central London’s only marina, for about 156 million pounds.

Blackstone, led by Chief Executive Officer Stephen Schwarzman, has been the most successful leveraged-buyout firm to expand beyond takeovers and into real estate, credit and hedge funds. The New York-based company manages about $80.4 billion of real estate assets, including about $10 billion of debt.

-By Dalia Fahmy and Andrew Blackman

U.S. Home Prices Increased More Than Estimated in May

Source: Bloomberg / Luxury

U.S. house prices rose more than economists estimated in May as sales demand improved following a slowdown earlier in the year.

Prices climbed 0.4 percent on a seasonally adjusted basis from April, the Federal Housing Finance Agencysaid today in a report from Washington. The average economist estimate was for a 0.2 percent increase, according to data compiled by Bloomberg.

More homeowners are listing their properties, giving buyers more choices. Purchases of previously owned houses rose to an eight-month high in June, the National Association of Realtors said today. The number of homes on the market climbed 6.5 percent from May.

“The current conditions are more encouraging for buyers,” Stephanie Karol, U.S. economist for IHS Global Insight in Lexington, Massachusetts, said in a telephone interview yesterday. “As price gains moderate and wage growth and employment growth pick up, buyers will be in a better position to make a purchase.”

The FHFA’s report showed prices increased 1.1 percent from April in the Middle Atlantic area, which includes New York and New Jersey, and in the West South Central region, with states such as Texas and Louisiana. Prices fell 0.7 percent in the East South Central area, including Tennessee and Kentucky.

Nationwide, prices rose 5.5 percent in May from a year earlier. The U.S. index is 6.5 percent below its April 2007 peak and is about the same as the July 2005 level.

The FHFA index measures transactions for single-family properties financed with mortgages owned or securitized by Fannie Mae and Freddie Mac. It doesn’t provide a specific price for homes.

The median price of a home sold in June was $223,300, up 4.3 percent from a year earlier, today’s report from the Realtors showed.

-By Prashant Gopal

Canary Wharf Wins Approval for London Wood Wharf Project

Source: Bloomberg / Luxury

Canary Wharf Group Plc won local-government approval to build as many as 3,610 homes and office space adjacent to London’s Canary Wharf business district.

The council for the Tower Hamlets borough voted in favor of the Wood Wharf project at a meeting yesterday. The development includes shops, a hotel and 350,000 square meters (3.8 million square feet) of office space, according to a filing by the council. At 4.9 million square feet, the project is the biggest in the company’s development pipeline and will include at least 1,700 homes.

Canary Wharf Group, controlled by Songbird Estates Plc (SBD), revised the Wood Wharf plan, reducing the size of individual office buildings so they would appeal to a broader range of tenants, the parent company said on March 28. Canary Wharf in August won approval to build a London tower as high as 190 meters (620 feet) that it redesigned after the financial crisis to exclude the large trading floors typically used by banks.

“We expect to be on site in the fourth quarter of 2014, with the first buildings to be occupied as early as the end of 2018,” George Iacobescu, chairman and chief executive officer of Canary Wharf Group, said in a statement. The company will seek technology, media and telecommunications companies as tenants, he said.

Canary Wharf Group agreed to pay 90.4 million pounds ($155 million) to buy outright control of the Wood Wharf site in 2012 by acquiring stakes from Waterways and Ballymore Properties Ltd. The company has completed about 16 million square feet of office and retail space in the business district that bears its name, according to its website.

-By Patrick Gower

Empire State Building Investor Suits Tossed by Judge

Source: Bloomberg / News

The Empire State Building’s managers won dismissal of lawsuits claiming they deprived thousands of early investors of as much as $410 million in profit when the iconic New York skyscraper was taken public.

New York State Supreme Court Justice O. Peter Sherwood threw out the lawsuits, saying the investors agreed not to sue the managers, Peter Malkin and his son Anthony, in settling a related case for $55 million last year. Sherwood issued the ruling July 17 and it was made public yesterday.

The investors argued in their suit, which was filed in December, that the Malkins wrongfully turned down higher offers for the skyscraper by itself in order to drive up the value of 17 other Malkin-owned buildings by making the Empire State Building the centerpiece of a real estate investment trust.

The settlement didn’t release their claims because the offers were made after the pact was effective, according to the complaint. Sherwood said the Malkins’s alleged refusal to consider alternatives was a “core element” of the suit that was settled.

Empire State Realty Trust Inc. (ESRT), whose properties include the skyscraper, sold 71.5 million shares for $13 each on Oct. 1. The sale culminated an almost two-year quest by the Malkins to take the skyscraper and 20 other New York-area properties public, a process marked by battles with longtime investors.

Shares of Empire State Realty Trust rose 15 cents, or 1 percent, to $16.45 at 1:26 p.m. in New York. They had risen 27 percent in the past 12 months.

The case is Postelnek v. Malkin, 654456/2013, Supreme Court of the State of New York (Manhattan).

-By Chris Dolmetsch

Housing Buoyed by 20-Year High for Vet’s Loans: Mortgages

Source: Bloomberg / Personal Finance

During his third deployment in Afghanistan, Air Force Staff Sgt. Claude Hunter was so eager to return to the U.S. and buy a house that he signed a contract for a property that his agent showed him over Skype.

Hunter got back in time to close the deal, paying $219,000 in May for the four-bedroom Waldorf, Maryland, house that he financed with a U.S. Department of Veterans Affairs mortgage. It didn’t require a down payment.

“On Facebook, my friends have started posting: ‘I got my VA loan, I got my house,’” said Hunter, 31. “Everybody is just ready. A lot of them have done their jobs overseas and are coming home.”

America’s fragile housing recovery is getting a boost from military buyers using VA mortgages as the U.S. draws down troops after more than a decade of combat in Iraq and Afghanistan. About 4.7 million full-time troops and reservists served during the wars and many are now able to take advantage of one of the easiest and cheapest paths to homeownership. The program’s share of new mortgages, at a 20-year high, is also increasing as other types of government-backed loans have grown more costly.

“The reduction in uncertainty for the returning vets allows them the freedom to spend more, including buying housing,” said Sam Khater, deputy chief economist at CoreLogic Inc., an Irvine, California-based property-data firm. “VA buyers are coming into the market in higher and higher proportions and tend to be first-time buyers, one of the missing drivers in the recovery in housing demand.”

Homeownership Road

VA loans accounted for 8.1 percent, or $19.5 billion, of mortgages made in the first quarter, up from 6.9 percent in 2013 and less than 2 percent a decade ago, according to newsletter Inside Mortgage Finance. There are more than 2 million VA loans, with balances in excess of $370 billion, after six years of increasing volumes.

The road to homeownership for Michael Malarsie, 26, began on a bridge in Afghanistan’s Kandahar province, less than a month into his deployment. An improvised explosive device threw Malarsie 20 feet (6 meters) into an irrigation canal during an ambush of his patrol team.

When he woke up a week later in Walter Reed Army Medical Hospital in Washington, he learned four friends were killed in the Jan. 3, 2010, attack and that the injuries to his face were so severe that he would never see again.

‘Normal Life’

Two years later, he got a different kind of surprise. A nonprofit veterans group called Operation Finally Home presented Malarsie, and his family with a newly-built house near his Air Force base in San Antonio, Texas. They sold the property because he needed to live closer to public transit and, on July 8, Malarsie purchased a 4,300-square-foot house in South Jordan, Utah, using a VA mortgage.

Now Malarsie, who has a wife and three young children, plans to go to college to study communications, possibly with a minor in computer science, he said. Homeownership is “our step to normal life,” said the retired Air Force staff sergeant.

VA loans came into existence in 1944, when President Franklin D. Roosevelt signed into law the G.I. Bill of Rights, which included college tuition assistance as well as help with mortgages, business loans and unemployment benefits.

Building Boom

As veterans returned from fighting against Germany and Japan, the loans jumped to 28 percent of all mortgages recorded in 1947. That drove up homeownership and helped create a suburban building boom, said Daniel Fetter, assistant professor of economics at Wellesley College in Massachusetts.

“The most important thing in the increase in homeownership after World War II is mortgage finance,” Fetter said.

While about half of today’s 21 million veterans served in World War II, the Korean War and the Vietnam era, many of the 2.8 million veterans who joined since the Sept. 11, 2001, attacks are now prime candidates for homebuying as they shift into civilian life.

For some, the combat deployments helped them build a nest egg. Service members don’t pay taxes during deployments in war zones and receive $225 a month in danger pay for service in Iraq and Afghanistan. Basic salaries range from $18,378 to $64,933 for enlisted personnel and $34,078 to $153,925 for officers with less than 20 years’ experience. In addition, service members receive significant tax-free housing and food allowances.

Remaking Life

Reynaldo Diaz, 35, retired from the Marines a year ago after five deployments to Iraq and one to Afghanistan and dreams of purchasing a three-family brownstone in New York City where he plans to remake his life. He’s working to raise his credit score, damaged during his divorce, complete his degree in business administration, and get a job.

Diaz, who struggles with nightmares caused by post-traumatic stress disorder, said he lost three close friends to combat in Iraq, and one who committed suicide after coming home. Buying a house “is part of the healing process,” he said.

“It’s part of the reason we were fighting and the reason we lost so many people out there,” he said. “We were fighting for the American Dream.”

VA mortgage benefits are available to veterans, their surviving spouses, active members of the armed forces and reservists who’ve served six years or have been called up for 90 days. The government reduces risks for lenders by covering a portion of losses, typically up to 25 percent of the loan amount.

Rising Costs

While the VA program hasn’t always been the best deal, its popularity surged as the Federal Housing Administration boosted the cost of its mortgages over the past few years to bolster its finances, said Jason Pepsnik, a veteran who oversees retail mortgage lending in the U.S. South for JPMorgan Chase & Co. (JPM)

Unlike the FHA, which allows down payments as little as 3.5 percent, the VA doesn’t charge monthly insurance premiums, and the relatively moderate upfront cost can be rolled into loan balances. About 90 percent of VA mortgages don’t have down payments.

Underwriters are required to test how much income VA borrowers have left over to cover other living expenses, an approach that has kept default rates low compared with other loans, Urban Institute researchers Laurie Goodman, Ellen Seidman, and Jun Zhu said in a report this month.

The VA backed a record 629,293 mortgages in its last fiscal year, which ended Sept. 30. That partly reflected booming refinancing as rates reached record lows.

Purchases Increase

At the same time, home purchases financed with the loans jumped 19 percent to 241,190 during the 2013 fiscal year, reaching the highest level since at least 2000, according to VA data. During the same period, all U.S. home purchases with mortgages grew about 9 percent, according to Black Knight Financial Services data. VA borrowers purchased more than 196,000 properties since then, adding demand to the relatively weak entry-level segment of the housing market.

“It’s really the only avenue out there for people who are completely cash-strapped to be able to get into a home,” said Michael Litzner, a real estate broker at Century 21 American Homes in Levittown, New York, the town that symbolized the post-World War II suburbanization of America the loans helped fuel.

Sales of previously owned U.S. homes rose in June to an eight-month high, a sign the housing market is rebounding after a slow start to the year, according to data today from the National Association of Realtors. Sales increased 2.6 percent to a 5.04 million annual rate last month.

The housing market has turned around from the worst crisis since the 1930s after extraordinary Federal Reserve measures to revive the financial system, employment gains and purchases of thousands of houses across the country by institutional landlords. Even so, housing starts unexpectedly declined in June to a nine-month low, underlining the recovery’s fragility.

Fewer Risks

Young service members and veterans are buying now because rents are getting more expensive and the risks of homeownership now seem less formidable, said Tim Lewis, consumer advocate for iFreedom Direct, a Salt Lake City, Utah lender.

As the two wars raged, active duty service members faced the uncertainty of multiple deployments, as the military rotated troops in and out. Adding to the risks of homeownership, property prices were plunging during the worst real estate crash since the Great Depression.

After returning from Afghanistan in November, Army Cavalry Scout Jordan Hensler, 25, paid $106,000 for the two-bedroom house that he shares with his wife, Brittany, and five-year-old son, near the Fort Carson base in Colorado. He requested the move to Colorado, which he fell in love with during a bike ride through the state a few years ago.

‘Less Worry’

“Now that the wars are closing off, you have less worry about being deployed out,” said Hensler, who got a VA loan through iFreedom Direct. “You get more family time and now you get to change your mode of thinking from ‘What are we going to be doing out in the field?’ to ‘What are we going to be having for dinner tonight?’”

The Pentagon is making cuts identified by Congress as the wars come to an end. The Army alone plans to reduce its current force of 520,000 active duty soldiers to about 450,000. It had about 566,000 at the peak in 2010.

With the U.S. pulling back from Afghanistan, the 30,800 troops there will be reduced over the next two years to fewer than 4,900, from a peak of 100,000 as recently as 2011, President Barack Obama said in May. In 2011, the U.S. brought troops back from Iraq, where there were as many as 166,300 in October 2007.

“As the military’s downsizing, we are seeing more people coming out and needing a home,” saidWinston Wilkinson, USAA’s senior vice president of real estate lending. VA loans have climbed to about 70 percent of originations at the San Antonio-based financial-service firms for the military community and their families, from about 40 percent in 2009, and its volumes of the loans and purchase mortgages are at records.

Credit Scores

Changes in the maximum size of the VA’s guarantees have helped expand its worth since the mid-2000s, especially in high-cost states such as California, according to Mike Frueh, director of the Department of Veteran Affairs’ Loan Guaranty Service. VA consumers can get loans of more than $1 million in the most expensive areas of the U.S., higher than other taxpayer-backed loans offer.

While VA underwriting can be cheaper and more flexible than other types of mortgages, most VA lenders require at least a 620 FICO credit score, said Chris Birk, director of VA loan education at Veterans United Home Loans, a national lender based in Missouri. Credit scores go up to 850.

One lender that doesn’t have a minimum credit score for VA loans is Vienna, Virginia-based Navy Federal Credit Union, which has more than 5 million members, and matches its guidelines to what the agency will accept, while making judgments based on an individual borrower’s circumstances, according to Katie Miller, its vice president of mortgage lending.

‘Say Yes’

“There’s no reason we should be saying no if the VA is saying yes,” she said.

The loans now make up about 55 percent of the lender’s originations, up from less than 30 percent five years ago, she said. While the loans require the use of VA appraisers with more rigorous rules, home sellers should want to deal with the buyers because lenders can get the agency to approve exceptions to its stated underwriting guidelines and “my experience with the VA is they want the best for a veteran and they want to work with us.”

A relatively high portion of new veterans can’t purchase because they’re not working. The unemployment rate for veterans between ages 18 and 24 was 21.4 percent last year compared with a 14.3 percent rate for non-veterans. One in five service members who returned from Iraq or Afghanistan had symptoms of post-traumatic stress or depression, according to a 2008 Rand Corp. (RAND) study.

Move-up Buyers

VA loans also are helping former service members and move-up buyers like Brooks Johnson, 34, who was a captain in the Air Force in Ohio working in acquisitions, such as purchases of reconnaissance aircraft. He left the service in 2006 and moved to the Dallas-Forth Worth area, where he bought a house for about $170,000 just as the market was peaking.

Later, after marrying and having a daughter, he used a VA mortgage from USAA to buy a $394,000 home in April in the more affluent Colleyville suburb without a down payment. Saving 20 percent would have taken another 18 months or so, he said, and waiting seemed like a risk.

“Part of the decision was, if we were going to make a move, we wanted to do it before the Fed really lets interest rate rise,” said Johnson, a technology manager for a mutual-fund company.

Final Stop

Now that values are increasing, Hunter, the Air Force man who returned from Afghanistan, said he wanted to purchase before they get any higher. His agent, Leslie Albertson, used a cell phone to give him a real-time tour of a few dozen properties before he settled on a four-bedroom brick house with gleaming hardwood floors, a country kitchen and a large backyard where his six-year-old son, Claude, can play.

Hunter, who is less than six years away from retirement, spent six years in Portugal, Korea and England and 18 months in Afghanistan during the three deployments. Andrews Air Force Base, 10 miles from his new home, will likely be his final stop, he said.

“I went overseas for the love of my country -- I didn’t do it to gain the VA benefit,” Hunter said. “But because the benefit is there, I took advantage of it. I now have a stable place where I can raise my son and know that, at some point, I can leave him this property.”

-By Prashant Gopal and Jody Shenn

Soufun Leads Gain as Chinese Cities Loosen Home Buy Rules

Source: Bloomberg / Luxury

China’s real-estate listing service providers rose in New York, driving the benchmark index to a three-year high, amid signs more cities in Asia’s largest economy are loosening limits on property purchases to halt a slide in home prices.

SouFun Holdings Ltd. (SFUN), the country’s biggest real-estate information website, gained for a third day while E-House China Holdings Ltd. (EJ) climbed 5.3 percent to a three-month high. Commodity stocks also rallied with Aluminum Corp. of China surging the most since April as prices for the metal surged in London. The Bloomberg China-US Equity Index added 1.9 percent to 110.54 yesterday, the highest since August 2011.

Cities such as Hohhot in northern China and Jinan in the east are loosening restrictions on house purchases as government data last week showed new-home prices fell in 55 of the country’s 70 largest cities in June, the highest ratio since January 2011. The central bank in May called on the nation’s biggest lenders to accelerate the granting of mortgages and urged them to give priority to first-home buyers.

“We may be close to near-term bottom of the property sector,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP, said by e-mail from London. The easing measures “obviously help commodities, cement and property stocks. The economy should look OK from a growth perspective, and we should see another sequential acceleration.”

ETF Advances

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., climbed 2.3 percent to $39.07, a seven-month high. The Standard & Poor’s 500 Index (HSCEI)advanced 0.5 percent as data showed U.S. inflation failed to gain a toehold and earnings from Comcast Corp. to Chipotle Mexican Grill Inc. topped estimates.

American depositary receipts of Beijing-based SouFun added 3.2 percent to $10.82, the highest level in six weeks. E-House, based in Shanghai, surged to $10.53. Its unit Leju Holdings Ltd. (LEJU) advanced 3.7 percent to $12.06, extending gains into a third day. Xinyuan Real Estate Co. (XIN), a developer based in Beijing, jumped 5.3 percent to $4.01, the biggest advance since March.

About 40 Chinese cities have eased home-purchase restrictions. Wenzhou City in the eastern Chinese province of Zhejiang removed its curb on housing purchases in June via verbal notice, the National Business Daily reported yesterday, citing an unidentified executive with a property developer. Suzhou City, a tourist town in the east, also relaxed some limits for buying homes, the Xinhua News Agency reported July 21.

Aluminum Shortage

The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, rose 0.8 percent yesterday to the highest level since April 25.

Aluminum rose 1.1 percent to $2,043 a ton on the London Metal Exchange yesterday, after reaching $2,054.75, the highest since February 2013. Stockpiles of the metal declined for a 15th session to 4.94 million tons, the least since September 2012.

Aluminum Corp., the nation’s biggest producer of the metal, known as Chalco, rallied 6.8 percent to $10.71. Yanzhou Coal Mining Co., based in Shandong province, climbed 3.3 percent to $7.59 in New York, rallying the most since May 21.

New Oriental Education & Technology Group Inc., China’s biggest private educational company, tumbled 13 percent in New York to a one-year low of $21.01.

The Beijing-based company said in a statement yesterday that revenue for the June-August quarter will be between $412 million and $427.5 million, falling short of the $463.2 million average of five analyst estimates compiled by Bloomberg.

The Hang Seng China Enterprises Index rallied 2.4 percent to a six-month high of 10,605.22. The Shanghai Composite Index (SHCOMP) climbed 1 percent to 2,075.48, gaining the most in a month.

-By Belinda Cao

Previously Owned U.S. Home Sales Rise to Eight-Month High

Source: Bloomberg / Luxury

Sales (ETSLTOTL) of previously owned U.S. homes climbed in June to an eight-month high as more listings helped prices cool, luring buyers into the market.

Sales increased 2.6 percent to a 5.04 million annual rate last month, led by gains in all four U.S. regions, figures from the National Association of Realtors showed today in Washington. The median forecast of 78 economists surveyed by Bloomberg projected sales would rise to a 4.99 million rate. Prices advanced at the slowest pace since March 2012 and inventories rose to an almost two-year high.

Historically low interest rates and smaller price increases are helping bring homeownership within reach for more Americans. A pickup in employment opportunities that lead to faster wage growth would provide an added spark for a residential real-estate market that began to soften in the middle of 2013.

“We’re recovering from the winter doldrums, more people are working and interest rates are attractive,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a 5.05 million pace of sales for June.

Estimates in the Bloomberg survey of economists ranged from a sales pace of 4.8 million to 5.11 million after May’s previously reported 4.89 million.

Another report today showed the cost of living rose in June, paced by a jump in gasoline that is now reversing. The consumer price index increased 0.3 percent after a 0.4 percent gain the prior month, figures from the Labor Department showed today in Washington. The core measure, which excludes volatile food and fuel costs, rose 0.1 percent, less than projected.

Stocks Climb

Stocks held earlier gains, with benchmark gauges rebounding from yesterday’s slide, as data showed inflation has failed to gain a toehold and investors assessed corporate earnings. The Standard & Poor’s 500 Index advanced 0.5 percent to 1,983.56 at 10:42 a.m. in New York.

Compared with a year earlier, purchases of previously owned properties decreased 2.3 percent in June on an adjusted basis, today’s report showed.

The median price of an existing home increased 4.3 percent to $223,300 in June from $214,000 a year before.

“We are getting sales increases in all price points -- roughly a single-digit pace,” Lawrence Yun, NAR chief economist, said at a news conference today as the figures were released. Demand has picked up “except for the very low end.”

First-time buyers accounted for 28 percent of all purchases in June, matching the average over the past year.

Credit Access

“Access to affordable credit continues to hamper young, prospective first-time buyers,” Steve Brown, co-owner of Irongate Inc., NAR president and a Realtor in Dayton, Ohio, said in a statement.

The number of existing properties on the market rose 6.5 percent to 2.3 million in June from a month earlier, the most since August 2012. At the current pace, it would take 5.5 months to sell those houses, the same as in May. The inventory of unsold homes was up from 2.6 million a year earlier.

The median time a home was on the market decreased in June to 44 days from 47 days in the prior month. Forty-two percent of homes sold in June were on the market for less than a month.

“Things are flying very fast,” Yun said. Sales have seen a “nice jump in the last three months but it is underperforming in my view” compared with the fundamentals, he said.

By Region

The existing home-sales advance was led by a 6.2 percent gain in the Midwest, followed by a 3.2 percent increase in the Northeast. Purchases rose 2.7 percent in the West and 0.5 percent in the South.

Purchases of single-family homes increased 2.5 percent to an annual rate of 4.43 million, the report showed. The sales pace of multifamily properties including condominiums climbed 3.4 percent to 610,000 in June, also the highest since October.

Cash transactions accounted for about 32 percent of all purchases in June, according to the report. Investors made up 16 percent of purchases.

Sales of distressed property, including foreclosures, accounted for 11 percent of the total last month, matching the lowest share since October 2008.

Existing-home sales, which are tabulated when a purchase contract closes, are recovering from a 13-year low of 4.11 million in 2008 after reaching a record 7.08 million in 2005. They climbed to 5.09 million for all of 2013.

The housing market continues to face hurdles to its recovery -- from shortages in construction and labor to mortgage rates that remain elevated compared with early 2013.

The pace of home construction slumped 9.3 percent to an 893,000 annualized rate from a 985,000 pace in May that was weaker than initially estimated, figures from the Commerce Department showed last week.

Mortgage Rates

The average rate for a 30-year fixed mortgage was 4.13 percent in the week ended July 17, according to Freddie Mac in McLean, Virginia. While down from 4.53 percent at the start of the year, it’s higher than the 3.35 percent in May 2013.

At the same time, homebuilders are optimistic the market. A report last week showed confidence among homebuilders rose in July to the highest level in six months. The National Association of Home Builders/Wells Fargo sentiment measure climbed to 53 from 49 in June, the Washington-based group reported. Readings above 50 mean more respondents said conditions were “good.”

More Paint

Sherwin-Williams Co. (SHW), the largest U.S. paint retailer, is among companies seeing a boost as homeowners remodel and redecorate their homes. The Cleveland, Ohio-based company reported sales and income that beat analysts’ projections and raised its earnings estimate for the year as customers bought more paint.

“If you look at the quality of the existing-home transactions that are occurring now versus a year or two years ago, there’s a far lower percentage of those transactions that are distressed or foreclosure type sales,” Robert Wells, senior vice president of corporate communications, said on a July 17 earnings call. “The owner-occupant selling to a new owner-occupant is the transaction that generates the more painting activity. We think we’re benefiting from that shift.”

-By Victoria Stilwell