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24th July 2014

Singapore Economy

New GDP growth formula: 1+2 = 3

1% workforce rise, 2% productivity gain for 3% GDP growth

Source: Business Times / Singapore

SINGAPORE is making a transition towards a new growth formula: "one plus two equals to three" - meaning a one per cent rise in the workforce and a 2 per cent increase in productivity to power a 3 per cent growth in the country's annual gross domestic product (GDP).

Lim Swee Say, Minister in the Prime Minister Office, offered this in the light of a previous formula that has proved to be unsustainable, given mounting population pressures and concern over loss of competitiveness. That formula had been "three plus one equals to four" - 3 per cent growth in workforce and a one per cent growth in productivity creating 4 per cent growth annually. The growth target has thus been lowered, with a view of increasing the quality of growth.

Mr Lim was speaking at the Institute of Service Excellence at the Singapore Management University (ISES), which yesterday hosted the fourth ISES Global Conference on Service Excellence. The two-day event has attracted more than 300 Asian business leaders, policymakers and academics, who will examine the service industry's prospects along the theme "The Future of Service".

Mr Lim said that Singapore's economic transition had implications for the industry, key among which was a tighter labour market. Under such conditions, attracting and retaining talent can be met only by creating higher employee satisfaction.

-By Cai Yong

Inflation set to ease; price rises have hit lower-income more

Source: Straits Times / Top Of The Story

LOWER-INCOME households were hit a little harder by the rising cost of essentials such as food and health care in the first half of the year, data out yesterday showed.

But the overall rate of consumer price rises is set to ease in the second half of this year. Inflation has already begun slowing, falling to a three-month low in June as car prices and accommodation costs both moderated.

The poorest one-fifth of households were subject to an inflation rate of 2 per cent in the first half of the year, the Statistics Department said yesterday.

This was higher than the 1.7 per cent rise affecting both those in the top one-fifth of the income distribution range as well as the middle 60 per cent.

The numbers exclude imputed rentals, which are a gauge of how much a household would spend on rent if its occupants did not own the house they live in - assuming they own not rent.

All income groups faced hikes in food and health-care costs, but those in the lowest one-fifth spend a larger share of their income on these items and so were hit harder, the department said.

School and tuition fees, travel and medical treatment also contributed to rising costs for all.

Consumer prices across the economy rose 1.7 per cent in this year's first half compared with the same period last year. Official forecasts tip full-year inflation to be 1.5 per cent to 2.5 per cent.

Inflation is expected to ease in this half of the year owing to lower imputed rentals and car prices, the Monetary Authority of Singapore (MAS) and Ministry of Trade and Industry (MTI) said yesterday. Full-year inflation is expected to come in at the lower end of the official forecast range, as car prices are likely to "exert a slight drag on overall inflation given the larger-than-expected increase in car COE quotas".

Price increases in transport and housing have been big drivers of inflation in past years.

The latest monthly inflation figures may signal the start of this moderation - consumer prices rose just 1.8 per cent in June over the same month last year, down from 2.7 per cent in May.

This was mainly due to a smaller increase in car prices. Private road transport costs edged up 2.8 per cent last month from May's 8.1 per cent surge, due to a sharp correction in certificate of entitlement premiums. Accommodation costs also went up at a slower pace last month as imputed rentals picked up more modestly.

The latest data has prompted some economists to lower forecasts. Bank of America Merrill Lynch economist Chua Hak Bin expects inflation to come in at 1.8 per cent this year, down from a previous estimate of 2.2 per cent.

"Housing inflation will likely remain subdued with the onset of newly completed housing units. Car financing measures and the total debt servicing framework would also continue to curb excessive spending," he said.

"Rising wages have pushed service prices higher, but the pressure has been manageable and offset by slower transport and housing inflation."

MAS and MTI said core inflation, which excludes costs of private road transport and accommodation, is likely to stay high and is set to be 2 per cent to 3 per cent for the full year.

The core inflation measure is seen as a better gauge of out-of-pocket cash expenses for most households. It inched down slightly to 2.1 per cent last month from May's 2.2 per cent, as steeper food price increases were offset by a slight decline in services inflation.

-By Chia Yan Min

Inflation eases in June, but cost pressures persist

Rate of 1.8% lower than forecast, due mainly to smaller price rise for cars

Source: Today Online / Business

SINGAPORE — Inflation slowed down more than expected last month after a recent high in May to reflect the smaller increases in private road transport and services costs, the latest official Consumer Price Index (CPI) data showed.

But analysts cautioned that last month’s easing does not point to a softer outlook for inflation, which will remain steady for the rest of the year as domestic cost pressure persists.

In June, all-items inflation dropped to 1.8 per cent, below the 2.4 per cent forecast in a Reuters’ poll and down sharply from May’s 2.7 per cent — which was the highest since March last year — due mainly to a smaller jump in car prices, while major categories such as services costs saw more moderate inflation.

“Services inflation eased to 2.2 per cent from 2.5 per cent in the preceding month owing to lower contributions from the cost of holiday travel, telecommunication and medical insurance,” said the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) yesterday.

As a result, core inflation slowed for a second straight month to 2.1 per cent after May’s 2.2 per cent, but a drop to below 2 per cent will be unlikely this year, OCBC economist Selena Ling told TODAY.

“Holiday travel is hardly a good indicator to suggest that domestic cost pressure has eased. The labour crunch and the pass-through of higher wage costs will remain in the picture in the coming months, even though asset prices will likely moderate due to macro-prudential policies and greater supply ahead,” said Ms Ling, adding that a nominal wage growth of 4 to 5 per cent can be expected this year.

CIMB economist Song Seng Wun agreed: “The domestic pressure on core inflation hasn’t disappeared. In fact, the pass-through of wage costs to consumer prices has so far been slower than expected, but may become more visible as the economy further recovers.”

Core inflation, which excludes accommodation and private road transport costs, is commonly regarded as a reflection of the wage cost pressure, and the MAS and the MTI retain their 2 to 3 per cent forecast amid the tight labour market at home.

The official forecast for all-items inflation is being kept at 1.5 to 2.5 per cent, as the Government expects overall prices to ease in the second half due to lower imputed rentals and car prices, with Certificate of Entitlement quotas expected to rise more than expected. The trend was visible last month, when private road transport costs — which account for 11.6 per cent of the CPI basket — edged up by 2.8 per cent, down from May’s 8.1 per cent surge.

Meanwhile, accommodation inflation slowed to 0.5 per cent from 0.9 per cent in May, and is likely to remain stable going forward, said Ms Ling. “We should also continue to see moderation in property prices going forward due to the cooling measures, while the tightened foreign manpower policies will keep a lid on rental prices.”

With the structural conditions for inflationary outlook remaining the same, “I don’t think the MAS will adjust their exchange rate policy, at least until their next meeting in October this year”, CIMB’s Mr Song noted.

-By Wong Wei Han

Singapore Real Estate

Sharp rise in private home purchases 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

Singapore Home Prices Set to Extend Declines, Keppel Land Says

Source: Bloomberg / Luxury

Home prices in Singapore will probably extend declines as the government sticks with curbs, according to Keppel Land Ltd., signaling further losses for Asia’s second-most expensive housing market.

“Home prices are expected to continue to moderate,” Chief Executive Officer Ang Wee Gee said at a results briefing yesterday. “Singapore is unlikely to relax property-cooling measures in the short term.”

Residential values in the city-state slid for a third quarter in the three months to June to post the longest losing streak in five years after the government introduced loan measures last June, widening a campaign that began in 2009 to curb speculation. Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said on July 4 that a further correction in the Singapore property market would not be unexpected. Keppel Land (KPLD) stock closed yesterday at the highest in almost two months.

“I don’t see the government relaxing the curbs for a year,” said Nicholas Mak, an executive director at SLP International Property Consultants in Singapore. “Developers that have deep pockets may not be under tremendous pressure to cut prices.”

The index tracking 49 property companies in the island-state decline 0.3 percent in Singapore trading as of 11:38 a.m. local time, the first drop in eight days. Keppel Land stock rose 0.6 percent to S$3.53, heading for the highest close since April 21.

Challenging Period

Singapore’s home sales by volume fell 68 percent in June from May as developers marketed fewer projects. The government began introducing the housing-market curbs in 2009, with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real-estate taxes.

“We don’t see a major correction in the residential property market in Singapore,” said Ang after the company reported second-quarter profit rose 12 percent to S$107.2 million ($86.6 million). The first six months have been challenging as the enforcement of cooling measures in Singapore and in China continued to damp the market, said Ang.

Keppel Land’s revenue declined 7.8 percent to S$304.6 million in the three months to June, according to a statement. The developer sold 98 homes in Singapore in the first six months of the year.

An index tracking private-residential prices retreated 1.1 percent to 209.3 points in the three months to June, following a 1.3 percent decline in the previous three months, according to preliminary data released by the Urban Redevelopment Authority on July 1.

Keppel Land shares gained 5.1 percent this year compared with the 8 percent advance in the Straits Times Real Estate Index. The stock ended at S$3.51 yesterday, the highest close since May 26.

-By Pooja Thakur

Real Estate Companies' Brief

CMT tenants' sales down 3.3% in Q2

But Reit's DPU is up 6.3% at 2.69 S'pore cents - a 5.37% annualised yield

Source: Business Times / Companies

CAPITAMALL Trust - Singapore's largest shopping centre real estate investment trust - yesterday said that tenants' sales fell 3.3 per cent in the quarter ended June 30. Shopper traffic at its malls too was down 2 per cent in the same period.

It revealed this at a results briefing after announcing a 6.3 per cent year-on-year increase in second-quarter distribution per unit (DPU) to 2.69 Singapore cents. That translates to an annualised distribution yield of 5.37 per cent based on the counter's S$2.01 closing price on Tuesday. The counter ended one Singapore cent lower at S$2 yesterday. CMT released its results before the stock market opened.

Standard Chartered Equity Research yesterday maintained "underperform" call on the counter. "While CMT has underperformed the sector . . . we believe the weak outlook and capital expenditure requirements may not be fully priced in." It has an unchanged price target of S$1.97.

The shopper traffic and tenant sales figures exclude Bugis Junction, which is undergoing the second phase of refurbishment, and Westgate in Jurong, which opened its door last December.

-By Kalpana Rashiwala

CapitaMall plans more mall facelifts

Source: Straits Times / Money

UPGRADING work at some malls is going smoothly and more centres are set for a facelift, retail landlord CapitaMall Trust (CMT) said yesterday.

A new section at its JCube mall in Jurong with a "street shopping" atmosphere has also been well received by retailers, the real estate investment trust added.

CMT chief executive Wilson Tan told a briefing that refurbishment work at Bugis Junction, Tampines Mall and the IMM Building in Jurong is "progressing well".

He also said that CMT plans to begin upgrading Bukit Panjang Plaza (BPP) this quarter, citing increased competition for shoppers.

"Many of us, after a certain age we need to Botox up our face. So perhaps that's our way of going out to Botox up BPP," he quipped.

CMT will spend about $18.5 million to build a two-storey food and beverage block at BPP and another $14.2 million on rejuvenation work.

Two-thirds of the shops at J.Avenue, the new zone at JCube, have been taken up by retailers, which Mr Tan said was "very encouraging". J.Avenue, which will open in stages from September, offers lease terms as short as three months to a year, he said.

Mr Tan's remarks came as CMT posted a healthy set of results for its second quarter, buoyed by high occupancy rates across its 16 malls, including Plaza Singapura in Orchard and Junction 8 in Bishan.

Its distribution per unit (DPU) for the three months ended June 30 was 2.69 cents, 6.3 per cent higher than in the preceding year.

Net property income rose 4.4 per cent to $114 million, while distributable income climbed 6.5 per cent to $93.4 million from the previous year. This was despite tenants' sales per sq ft dropping 3.7 per cent in the quarter from last year.

Shopper traffic also slid 2 per cent in the period, which CMT said was largely due to JCube and Funan DigitaLife Mall. JCube is facing competition from new malls in the area, while Funan DigitaLife Mall has seen its visitor numbers dip, partly because of an increasing number of electronics trade fairs.

CMT units closed one cent down at $2 yesterday.

-By Melissa Tan

CapitaMall distributable income up 6.5% on-year in Q2

However, CapitaMall tenant sales per square foot fell 3.7 per cent year-on-year, while shopper traffic declined 2 per cent.

Source: Channel News Asia / Singapore

SINGAPORE: CapitaMall Trust, Singapore’s largest shopping mall landlord, reported higher distributable income for the second quarter even as its tenants suffered poorer sales during the period.

The property trust, which is managed by Southeast Asia’s biggest developer CapitaLand, said its distributable income for the April to June period rose 6.5 per cent to S$93.4 million, helped by higher rents and occupancy levels.

But it also said in its detailed earnings statement that tenant sales per square foot decreased by 3.7 per cent year-on-year, while shopper traffic decreased by 2 per cent year-on-year.

CapitaMall Trust said there is some "retail tension" within Singapore caused by macroeconomic factors like softer tourist arrivals and interest rates uncertainty, as well as the impact from policy-driven measures such as a tighter supply of foreign workers, rising wages and a stronger Singapore dollar.

Sales of music and video rose 13.1 per cent during the quarter, while sales of gift and souvenirs rose 13 per cent. Sales of IT and telecommunication products fell the most, declining by 17.2 per cent and 23.1 per cent, respectively.


To address the issue of labour shortage, CapitaMall Trust plans to set up a central new dish-washing facility catering to F&B tenants in the western part of Singapore.

“We recognise that many of the F&B outlets have difficulties finding dish washers and what we have done is we've gone out to look at a central dish washing facility at IMM itself,” said Wilson Tan, CEO of CapitaMall Trust.

He said the F&B outlets just need to send their plates and utensils to the facility, where a contractor will wash and clean the utensils before sending them back. Details about the central dish washing facility is expected to be announced at a later date.


CapitaMall Trust is also upgrading its malls to stay competitive and Bukit Panjang Plaza (BPP) will soon undergo an S$18.5-million makeover.

The asset enhancement works will involve creating a new two-storey F&B block on level two, where the existing roof garden is located, and relocating the present roof garden to level four next to an expanded public library and a new childcare centre.

The asset enhancement works should be completed by the third quarter of 2016. CMT said the projected return on investment is eight per cent.

“We need to go out and refresh, go out and make the place look good… because there's another competitor that's coming out barely 120 metres away. They will be coming on stream late 2015/2016 and if we again do not remain relevant and find our own niche that's where we have a challenge," said Mr Tan.


Meanwhile, CapitaMall Trust said the new retail zone J.Avenue at JCube is expected to open from September. About two-thirds of the 70 shops there have been taken up.

Mr Tan said: "In the second half of 2013, within 120 and 180 metres away there were two malls Jem and Westgate, which belong to CMT as well, 30% of it.

“If you look at the proximity and what the two new malls can offer, clearly JCube, being a smaller mall, would find it very difficult to compete with them. Therefore, there is a need for us to reconfigure and reposition JCube."

He added that J.Avenue will appeal to young entrepreneurs who may prefer shorter term leases at three to six months.

While there may be challenges for the retail sector, CapitaMall Trust said there is sufficient catalyst in the Singapore economy and the high employment rate here will continue to support the retail industry.

In the second quarter ended June 30, CapitaMall Trust posted a 6.3 per cent on-year increase in distribution per unit to 2.69 cents. Gross revenue climbed 2.5 per cent to S$164.3 million during the quarter. Net property income came in at S$114 million in the second quarter, up 4.4 per cent compared to the previous year. 

Malls managed by CapitaMall Trust include Tampines Mall, Junction 8, Bugis Junction, Raffles City and Plaza Singapura.

- CNA/cy/ec

New acquisitions, better rentals boost A-Reit Q1 results

Ource: Business Times / Companies

ASCENDAS Reit (A-Reit) yesterday posted a 2.5 per cent increase in distribution per unit (DPU) to 3.64 Singapore cents for its first quarter ended June 30.

The industrial Reit makes distributions semi-annually, so it will pay out its half-year distribution after its second quarter ends on Sept 30.

New acquisitions made since July last year, positive rental reversion and rental income from Nexus @one-north and A-Reit City @Jinqiao, a business park in a tech development zone in Shanghai, helped to boost its gross revenue by 8.1 per cent to S$163.2 million.

"With passing rental rates still under current market levels, A-Reit's portfolio was able to achieve positive rental reversion averaging 11.8 per cent for leases renewed in Q1 FY14/15," said CEO and executive director Tan Ser Ping.

-By Lee Meixian

Lian Beng posts record profit, higher dividends

Revenue jumps on rise in property development sales

Source: Business Times / Companies

BOOSTED by record revenue and higher gross margin, construction group Lian Beng's full-year net profit attributable to shareholders surged 19.4 per cent to a high of S$87.1 million.

The 12 months ended May 31 registered a 49.1 per cent jump in revenue to S$753.9 million. This was driven by a steep increase in property development turnover, thanks to healthy sales 

at its developments. Gross profit shot up 118.5 per cent to S$142.1 million.

"Property development sales topped S$199.5 million as a result of the full recognition of revenue from the fully-sold 55 per cent-owned industrial property development M-Space, as well as the sales from development projects: The Midtown and Midtown Residences, Spottiswoode Suites and Lincoln Suites," it said.

Revenue from its construction segment - the largest contributor responsible for over half of its overall revenue - also rose from higher recognition from its ongoing and new projects.

-By Lee Meixian

Keppel Land lifts Q2 profit despite falling sales

S$107m earnings helped by fund mgt business and some China projects

Source: Business Times / Companies

lDESPITE headwinds in the residential markets of Singapore and China, Keppel Land still racked up a decent 12.2 per cent rise in net profit to S$107.2 million for the second quarter ended June 30.

This was mainly bolstered by its fund-management business Alpha Investments, profit from some Chinese projects upon completion, as well as stronger contributions from Keppel Reit and its one-third stake in Marina Bay Financial Centre Tower 3.

But the group posted a 7.8 per cent year-on-year drop in revenue to S$304.6 million, as it sold fewer homes in China and Singapore during the quarter.

While conceding that challenging conditions in the residential markets of Singapore and China will persist, Keppel Land chief executive Ang Wee Gee noted there were still opportunities to enter new projects and build a landbank.

-By Lynette Khoo

Keppel Land turns in strong results

Source: Straits Times / Money

KEPPEL Land reported a healthy second-quarter scorecard, underpinned by its residential projects in China and divestments from its property funds.

However, sales in Singapore slowed as a result of cooling measures and the total debt servicing ratio loan rules, Keppel Land chief executive Ang Wee Gee said at a briefing yesterday.

"We are a developer, so certainly, we would welcome the Government relaxing some of these measures," he said.

"But I think the Government has stated its position that it doesn't see a need to relax these measures in the near term."

Net profit for the second quarter ended June 30 rose 12.2 per cent to $107.2 million from the same period last year.

However, revenue for the three-month period fell 7.8 per cent to $304.6 million, mainly owing to lower contributions from its Shanghai projects, 8 Park Avenue and The Springdale.

But sales from The Botanica project in Chengdu helped support the firm's bottom line, despite lower contributions from its local project Marina Bay Suites.

Earnings from property investments was also lifted by 28.2 per cent to $31.4 million on the back of higher rental income from its one-third stake in Marina Bay Financial centre Tower 3.

Net asset value per share slipped to $4.47 as at June 30, down from $4.52 as at Dec 31. Half-year earnings per share was 12.6 cents, up from 12.4 cents a year earlier. Net profit for the six-month period rose by a marginal 1.5 per cent to $195 million, while revenue rose by 9.7 per cent to $589.5 million.

As part of its efforts to plough capital into higher-yielding projects, Keppel Land also announced that it had bought a 3.2ha residential site in Jakarta and a site in Taipei to develop luxury homes.

This comes after its fund management arm Alpha Investment Partners sold Equity Plaza for $550 million last quarter to Plaza Ventures, a consortium led by Mr Sam Goi's GSH Corp.

On the residential sales front in Singapore, the developer sold 98 new homes in Singapore in the first six months of this year, down from 210 units in the same period last year.

Residential sales came mainly from The Glades, which has sold an additional 81 units in the first six months of the year.

Keppel Land's upcoming 500-unit Highline Residences in Tiong Bahru is expected to be launched in this half of the year.

Its shares rose three cents to close at $3.51 yesterday.

-By Cheryl Ong

Singapore Strategy

Source: Business Times / Singapore Markets

Daiwa Capital Markets,

July 23

WE are still "overweight" on the property developers. We expect weak home sales, rising inventory levels, and the first of at least three consecutive years of robust deliveries to weigh heavily on the physical property market in 2014.

Suntec REIT

Source: Business Times

Sun's Q2 2014 results were in line with expectations, with Q2 DPU accounting for 25 per cent and H1 2014 forming 50 per cent of our full-year forecasts. Though no details were revealed for Phase 3 of the AEI (asset enhancement initiative), which is scheduled to be completed in Q4 2014, we remain confident of the company's outlook. As the stock is trading at 5.6 per cent FY2015 yield vs the average of 5.9 per cent for its peers, we believe that SUN is fairly valued.

Global Economy & Global Real Estate

HK's luxury housing market remains bullet-proof

Source: Straits Times / World

HONG KONG - When the Opus project was unveiled in 2012, developer Swire Pacific boasted that the apartments, designed by star architect Frank Gehry, would be the most expensive in Hong Kong - and probably the world.

In that year, one of the 12 units sold for a record HK$455 million (S$72.8 million), making Opus an emblem of the city's super luxury market. Another unit sold the same year for US$55.5 million (S$69 million). It was the high-water mark of a boom time: From the 2008 financial crisis until 2013, residential property prices in Hong Kong rose by about 120 per cent.

Last year, the government sought to cool the market with tighter mortgage rules and a higher tax aimed at some high-end buyers from outside Hong Kong. Still, at the beginning of this month, Swire announced that another Opus unit had sold for US$55.5 million. The buyer was apparently local.

The sale illustrates how seemingly bullet-proof Hong Kong's super luxury housing market is, experts say. Prices have remained roughly the same even as the number of transactions has dropped, showing that developers and rich owners are happy to hang on to prized properties - even empty ones - as the rest of the market dips.

"They have holding power," said Mr Thomas Lam, head of valuation and consulting at real estate service provider Knight Frank Hong Kong. "For them, the holding costs are relatively low, and they don't need the rent."

Opus remains partly empty, however. Of the nine remaining units that Swire holds, five are leased, three are available for rent and one is being held by the firm, said company spokesman Lydia Tsui.

The government does not have statistics on how many privately held properties are empty. But some newer luxury towers in popular districts such as West Kowloon are dotted with undressed windows and empty living rooms.

The New York Times reported last month that Ms Zhang Yannan, a niece of China's President Xi Jinping, owned a villa in Hong Kong's beachside Repulse Bay area, where similar homes cost about US$30 million. According to the Times, the villa seemed vacant and "falling into disrepair".

"In most property sectors, values have either stabilised or come down," said Mr Simon Smith, head of Asia-Pacific research for real estate firm Savills. "Prices across the board are off 5 to 10 per cent since 2013. And the volume of transactions has come down even more heavily."

-From New York Times

Top-end HK properties not affected by cooling measures

Prices remain roughly the same though number of transactions drop

Source: Business Times / Property

[HONG KONG] When the Opus project was unveiled in 2012, its developer boasted that the apartments there, designed by star architect Frank Gehry, would be the most expensive in Hong Kong - and, by extension, probably the world.

That year, the developer - Swire Pacific, a Hong Kong conglomerate - sold one of the 12 units for a record HK$455 million, then about US$58.7 million, making Opus an emblem of the city's superluxury market. Another unit sold the same year for about US$55.5 million. It was the high-water mark of a boom time: From the 2008 financial crisis until 2013, residential property prices in Hong Kong rose about 120 per cent.

Last year, the government sought to cool the market with tighter mortgage rules and a higher tax aimed at some high-end buyers from outside Hong Kong. Still, at the beginning of this month, Swire announced that another Opus unit had sold for US$55.5 million. The buyer was apparently local.

The sale illustrated how seemingly bulletproof Hong Kong's superluxury housing market is, experts say. Prices have remained roughly the same even as the number of transactions has dropped, showing that developers and rich owners are happy to hang on to prized properties - even empty ones - as the rest of the market dips.

-From Hong Kong, China

Verizon slims down, delighting developers

It has sold over US$1b in buildings whose use are then converted

Source: Business Times / Property

[NEW YORK] In the merry-go-round of redevelopment projects in New York - where office buildings turn into apartment houses, and factories into offices, and so on - a utility company has become a timely and reliable source of real estate.

Verizon Communications, the telecoms giant, has over the last few years been selling many of its buildings across the city, from humble garages to elegant Art Deco towers - and some windowless hulks considered eyesores.

Rapidly changing technology has significantly shrunk Verizon's space needs. Far less equipment is now needed to allow people to make calls, as customers continue to switch from landlines to cellphones, and that freed-up space, industry analysts say, is proving a boon for developers in an airtight market.

"Their locations are such that they can be repurposed into much higher and better uses," said James Murphy, an executive managing director of Colliers International, the commercial real estate brokerage firm, and a building-sales specialist.

-From New York, US

US home-rental industry is reshaping itself

Small landlords exit market while corporate owners sell houses in bulk

Source: Business Times / Property

[NEW YORK] Alexander Philips joined the rush to buy foreclosed US homes four years ago, spending US$40 million on houses in California and Nevada to operate as rentals. Now his firm, Twinrock Partners LLC, is getting ready to sell.

"We didn't want to be the last one standing when the music stopped," said Mr Philips. "We view this as a trade, not as a business."

The US home-rental industry, transformed over the past two years by Wall Street-backed companies that were built on the rubble of the housing crash, is poised to be reshaped again as landlords like Mr Philips get out. Corporate owners with limited capital or deadlines to repay investors are now selling houses in bulk, or one by one, after a 26 per cent surge in prices from a March 2012 low. For bigger firms, swallowing smaller competitors is among the best opportunities for growth as they shift their focus to managing scattered properties.

"Smaller players are going to continue to fall behind," said Justin Chang, chief executive officer of Scottsdale, Arizona-based Colony American Homes, the third largest single-family landlord. "Even though we're only a couple of years in, it's clear we're seeing the benefits of scale."

-From New York, US

Russia turns Olympic site, Crimea into casino zones

It is hoped that the move will boost their development

Source: Business Times / Property

[MOSCOW] Russia has designated Sochi's Olympic site and the annexed Crimean peninsula as gambling areas yesterday, in a bid that casino revenues will boost their development.

Under the law signed by President Vladimir Putin, casinos will be legal in some areas of the former Olympic park in Sochi, where Russia hosted the Winter Games in February.

Additionally, the law gives regional authorities in Crimea the right to designate their own casino zones on the peninsula, which Moscow annexed in March after a separatist uprising against Ukraine.

The Sochi Games, though widely recognised as a success, cost Russia some US$50 billion.

-From Moscow, Russia

Mitsubishi Estate credit rating cut by Moody's to A2

Source: Business Times / Property

[TOKYO] Mitsubishi Estate Co's credit rating has been lowered by one notch to A2 by Moody's Investors Service, on concern that Japan's largest developer by market value is less likely to reduce debt after announcing plans to increase investment.

Mitsubishi Estate in May said it would spend as much as 900 billion yen (S$11 billion) through 2016 to develop properties in Japan including in Tokyo's Marunouchi district, which commands the highest office rent in the country.

The announcement came at a time of recovery in the property market. Land prices in Tokyo, Osaka and Nagoya - Japan's three largest metropolitan areas - rose for the first time in six years last year spurred by investment, according to a government survey.

Improving market conditions prompted Moody's to apply a stable outlook to Mitsubishi Estate's long-term senior unsecured debt, the credit-rating firm said yesterday in a statement detailing the rating cut.

-From Tokyo, Japan

Home and office project at Canary Wharf gets approval

Source: Business Times / Property

[LONDON] 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 favour of the Wood Wharf project at a meeting on Monday. The development includes shops, a hotel and 3.8 million sq ft of office space, according to a filing by the council. At 4.9 million sq ft, the project is the biggest in the company's development pipeline; and it will include a minimum of 1,700 homes.

Canary Wharf Group, controlled by Songbird Estates plc, revised the Wood Wharf plan, reducing the size of individual office buildings so that 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 m that it redesigned after the financial crisis to exclude the large trading floors typically used by banks.

Canary Wharf Group agreed to pay £90.4 million (S$190.6 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 sq ft of office and retail space in the business district that bears its name, according to its website.

-From Bloomberg

Chinese banks to offer discounted rates: poll

Over half expect the central bank to ease its lending restrictions

Source: Business Times / Property

[BEIJING] Chinese banks will probably offer discounted mortgage rates to their clients in the second half of this year as demand in the country's housing market weakens, according to a Bloomberg News survey.

Banks will resume preferential mortgage rates, according to 74 per cent of analysts and economists in a survey conducted from last Monday to Thursday. Some 56 per cent forecast banks will lower minimum down payments, while 59 per cent said that they expected the central bank to ease its mortgage restrictions. A total of 29 economists and analysts responded to the survey.

New home sales slumped 9.2 per cent in the first half of the year from a year earlier amid tighter credit, forcing developers including China Vanke Co to cut prices since March. The central bank in May called on the nation's biggest lenders to accelerate the granting of mortgages, a sign that developers' price cuts and incentives alone won't boost a slumping market and economy.

"If mortgage restrictions really loosen, it removes the biggest factor restricting home sales," said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. "That will provide very good support to property stocks."

-From Beijing, China

2 big Australian banks cut fixed mortgage rates

Source: Business Times / Property

[SYDNEY] Two of Australia's biggest banks cut their fixed-rate home loans yesterday in a move analysts said reflected lower borrowing costs and expectations that the Reserve Bank of Australia will keep rates at record lows.

Commonwealth Bank of Australia (CBA), the country's biggest lender by market value, said that it will offer a five-year fixed-rate home loan at 4.99 per cent, its lowest ever.

National Australia Bank (NAB) quickly matched the rate, its lowest in 20 years, cutting its five-year rate by as much as 70 basis points, effective tomorrow. NAB has also cut three and four year fixed rates, it said.

Other banks are also expected to follow suit.

-From Sydney, Australia

Home-Rentals Wall Street Made Say Grow or Go: Real Estate

Source: Bloomberg / Personal Finance

Alexander Philips joined the rush to buy foreclosed U.S. homes four years ago, spending $40 million on houses in California and Nevada to operate as rentals. Now his firm, Twinrock Partners LLC, is getting ready to sell.

“We didn’t want to be the last one standing when the music stopped,” Philips, 38, said in a telephone interview. “We view this as a trade, not as a business.”

The U.S. home-rental industry, transformed over the past two years by Wall Street-backed companies that were built on the rubble of the housing crash, is poised to be reshaped again as landlords like Philips get out. Corporate owners with limited capital or deadlines to repay investors are now selling houses in bulk, or one by one, after a 26 percent surge in prices from a March 2012 low. For bigger firms, swallowing smaller competitors is among the best opportunities for growth as they shift their focus to managing scattered properties.

“That consolidation phase will be bigger than the original buy phase,”Tom Barrack, whose Colony American Homes is the third-largest single-family landlord, said during an interview today at Bloomberg’s Los Angeles bureau. “Now we’ll sweep up everybody over the next two years who got stuck, who says I have home price appreciation, which they do. They bought right, but now they are stuck.”

American Homes 4 Rent, the second-biggest company in the industry, this month bought Beazer Pre-Owned Rental Homes Inc., gaining more than 1,300 houses. Barrack’s Colony American has made four bulk purchases this year.

Consolidation Phase

Starwood Waypoint Residential Trust was formed after Waypoint Homes was sold to an affiliate of Barry Sternlicht’s Starwood Capital Group LLC, which has about $36 billion of assets under management. Waypoint Homes, founded in 2009, was one of the first large-scale single-family rental operators.

“You’re starting to move into that consolidation phase,” David Singelyn, chief executive officer of Agoura Hills, California-based American Homes 4 Rent, said in a telephone interview. “There’ll be more and more transactions by us and others as time goes on.”

Private-equity firms, hedge funds and real estate investment trusts have amassed about 200,000 homes since the housing crash, largely through foreclosure auctions and purchases of individual properties. The biggest buyers have slowed such acquisitions as home prices climbed, focusing on efficiently managing properties, retaining tenants, and minimizing costs.

Blackstone Slowdown

Blackstone Group LP -- whose Invitation Homes LP division is the largest single-family landlord, with about 45,000 houses -- has decreased spending on home purchases to about $15 million to $25 million a week, down from last year’s peak of $150 million, according to a person familiar with the strategy, who asked not to be named because the information is private. Denise Dunckel, an Invitation Homes spokeswoman, declined to comment.

The largest landlords have better access to financing than their smaller counterparts, raising money by selling stock, borrowing from banks and selling debt at lower rates through bonds backed by rental properties.

Since November, Wall Street has issued $3 billion of securities backed by houses owned by Blackstone, Colony and American Homes 4 Rent, giving the landlords cash for less than 2 percent above the London Interbank Offered Rate. The debt provides leverage to increase returns on investment and buy more properties.

Silver Bay Realty Trust Corp., the first single-family landlord to go public, said yesterday it’s planning an offering of securitized loans.

‘Watershed Event’

Securitization was a “huge watershed event for the industry, and validation,” said Justin Chang, CEO of Barrack’s Colony American Homes, which has about 17,000 homes. “At the beginning, there were lots of questions about whether this is an industry or a trade. I haven’t had anybody ask me that in a long time. It’s clearly a viable business. We’re proving that; Blackstone and American Homes 4 Rent are proving that.”

While the single-family rental market is huge, with almost 14 million rental houses in the U.S., the institutional component eventually will comprise a handful of dominant firms, similar to other niche real estate sectors like public storage, according to Jade Rahmani, an analyst at Keefe Bruyette & Woods Inc. in New York.

“The bigger you are, the more efficient it becomes,” Rahmani said in a telephone interview.

The industry is being bolstered by increased demand for rentals after more than 5 million homes were lost to foreclosure and as tight lending standards limit buying. The U.S. homeownership rate, which reached a record 69.2 percent a decade ago, dropped to a 19-year low of 64.8 percent in the first quarter, according to the Census Bureau.

Rental Demand

“We’ve got this extraordinary demand for the product,” said Gary Beasley, co-CEO of Oakland, California-based Starwood Waypoint. “Homes that have been on the market for 90 days and over are 95 percent leased.”

Rising home prices and the costs of managing scattered rental properties are causing some smaller landlords to look for an exit, according to Singelyn. American Homes 4 Rent bought Beazer for about $263 million in debt and stock, its largest bulk acquisition so far. Beazer, which started in 2012 with $100 million in backing from investors led by buyout firm KKR & CO., was too small to compete, Singelyn said.

“They wanted to stay in the business,” he said. “They just didn’t think they had the scale to compete effectively.”

The larger companies have found different ways to use their scale to reduce costs and increase efficiencies, buying paint, flooring and appliances wholesale from national suppliers, for example. American Homes 4 Rent routes all rental queries and tenant questions from its markets in 22 states to a center in Las Vegas that fields about 60,000 calls a month, Singelyn said.

Reducing Turnover

The biggest potential savings may come from reducing turnover. Each time a tenant leaves, it costs the equivalent of four- or five-months’ rent, including vacancy time, leasing fees and expenses to cover new paint, flooring or carpeting, said Laurie Hawkes, president of American Residential Properties Inc., a Scottsdale-based REIT with about 7,000 houses.

Single-family dwellers are often less mobile than apartment renters, because they have children who want to stay in the same schools, according to Hawkes, who said some tenants are renewing leases for the fifth year.

Executives of the biggest single-family companies compare their business models and metrics to the apartment industry, which in the 1990s was transformed by firms creating corporate structures and then financed with institutional capital.

Renewal Rates

Apartment REITs report about 50 percent turnover annually, according to data compiled by Bloomberg. Turnover was about 25 percent at Colony American Homes, according to Chang. It’s about the same at Blackstone, according to a report by Morningstar Credit Ratings LLC. American Homes 4 Rent and American Residential Properties had 28 percent turnover rates in their most recent quarters.

Bigger may not always be better for single-family rental operators. Institutional funds that have internalized property management have to be able to maintain thousands of properties that were initially serviced by local and regional groups, said J.D. Asbell, a landlord with about 175 houses in Kansas and Missouri who also renovates and sells homes to Wall Street-backed firms.

“This is a hard business to run,” said Asbell, who has been renting homes since 1993. “The management is always going to be an issue for the big funds. That’s the key to this long term, keeping the houses occupied and getting out bad tenants that aren’t paying.”

Getting Picky

While big landlords are making bulk purchases, they also are getting choosier about the homes they buy from other operators, according to Jack Bevier, partner at Dominion Group, which purchases and renovates homes to rent in Atlanta and Baltimore.

Dominion last month sold 127 of its Atlanta homes to Rochester, New York-based Broadstone Real Estate LLC for $10 million, and 50 more houses are currently under contract.

“All of their boxes have gotten smaller and they are pickier about new acquisitions than they had been in 2012, when there was a feeding frenzy,” Bevier said.

Some early entrants are selling to individuals rather than doing bulk deals to repay investors, especially in West Coast markets that saw rapid price appreciation.

California Homes

Gregor Watson, whose Dwell Finance now owns about 5,000 rentals, has sold about 200 of the first houses he bought, mostly in the San Francisco Bay area, where prices have climbed more than 60 percent since 2009, when he began buying in the post-bubble trough. Almost all of the buyers were owner occupants, who pay a higher price than institutional landlords, since they don’t have expenses such as property management, leasing fees or vacancies, according to Watson.

The negotiation process is also easier with individual buyers, said Jonathan Shechtman, portfolio manager for residential strategies at Axonic Capital LLC, a $2.1 billion investment firm based in New York.

“We would much rather sell to John and Jane Doe looking at granite counter tops and stainless-steel appliances than institutional money looking at price based on the capitalization rates of the home,” he said.

Larger firms also are diversifying strategies as the homebuying spree fades. Progress Residential, which has more than 10,000 homes in 12 states, is shifting purchases to parts of the country where home values have seen fewer gains, and acquiring newly-constructed houses along with nonperforming loans, known as NPLs, according to President Curt Schade.

Modified Loans

“Our first choice is always to modify loans and keep the homeowner in place,” Schade said. “Our primary focus isn’t to use the NPLs to gather real estate.”

American Homes 4 Rent, Starwood Waypoint, Altisource Residential Corp. and Axonic are also buying nonperforming loans to expand their holdings of rental properties.

Instead of increasing his wager on single-family rental housing, Philips of Twinrock started buying apartments six months ago. His Newport Beach, California-based firm has spent $50 million on 1,300 units in markets such as Tulsa, Oklahoma, that offer higher returns than coastal cities like New York or San Francisco.

“Multifamily is time-tested, more of a wealth generation investment product,” he said. “It’s easier to manage.”

Twinrock’s target for liquidating its single-family rental funds is next year through 2017, so they’re not in a rush to sell, Philips said. He began to repay investors last year, after refinancing the portfolio with a bank loan in May 2013, before interest rates jumped.

“Our timing was pretty excellent,” Philips said. “Sometimes, it’s better to be lucky than good.”

-By Heather Perlberg and John Gittelsohn

Dubai Business-District Office Rents Climb 25% in Year

Source: Bloomberg / News

Office rents in Dubai’s central business district surged 25 percent in the second quarter from a year earlier amid strong economic growth and rising business confidence, according to CBRE Group Inc. (CBG)

Prime CBD rents, which account for 20 percent of the overall market, rose to 1,884 dirhams ($513) per square meter a year, CBRE said in a report today. Rents in secondary locations climbed 24 percent.

“The secondary market is picking up as a result of the lack of available space within the CBD,” Nick Maclean, CBRE’s managing director for the Middle East region, said by phone. “It’s really an overspill.”

Office values and rents tumbled with the rest of Dubai’s property market after 2008 as speculation-driven construction exceeded demand from tenants. A recovery that lifted homes, shops and hotels over the last two years is starting to trickle down to commercial buildings, which lagged behind the market as a whole. Large businesses shunned buildings sold to multiple owners under a system known as strata title in favor of properties owned by single entities. Most are in the CBD.

Within two years, a large amount of construction in the central business district is set to start, including Dubai International Financial Centre and Dubai Trade Centre, Maclean said. In the meantime, companies will be forced to look for space at existing secondary locations.

The vacancy rate for prime CBD offices fell during the past 12 months to less than 16 percent, CBRE said. That compares with 40 percent for all Dubai offices.

The supply of offices in Dubai will grow significantly, with more than 1.8 million square meters to be completed by the end of 2017. Still, most of that space will be held by multiple owners, under strata-ownership titles, shunned by large corporate occupiers and institutional investors.

Almost 500,000 square meters of office space is scheduled for completion this year, with more than 30 percent of that in the Business Bay area, CBRE said.

-By Zainab Fattah