Real News‎ > ‎2014‎ > ‎July 2014‎ > ‎

30th July 2014

Singapore Economy

Chinese tourist arrivals slump; quick rebound not expected

MH370's disappearance, Thai crisis, new China tourism laws, recent crashes dent travel confidence

Source: Business Times / Top Stories

[SINGAPORE] Big-spending tourists from China are becoming a less common sight here, and this could put a dent on the Republic's tourism earnings

And the falling number of tourists to Singapore from China could take at least another half a year to recover, according to travel agencies.

Preliminary numbers from the Singapore Tourism Board's (STB) website showed that overall visitor arrivals for January to May were down 1.7 per cent at 6.3 million from a year ago. More starkly, visitor arrivals from China fell a sharp 27.4 per cent in the same period.

According to a recent report from STB, tourist arrivals from China took a hit during the first quarter, diving 14 per cent from a year ago. The finalised numbers for the second quarter are not out yet, but anecdotal evidence from industry players is not encouraging.

-By Sheena Tan

Singapore Real Estate

Private resale prices drop after short-lived rebound

Source: Straits Times / Money

RESALE prices of private homes slid back last month after a surprise rebound that turned out to be short-lived, new data out yesterday showed.

Prices dropped 1 per cent in June from May, which consultants said reflected the continued softness in the resale market.

The price falls, outlined in the Singapore Residential Price Index flash estimates, were heaviest in the central region.

Analysts said this fall may have been caused by a growing supply of unsold private homes there.

In general, school holidays last month plus World Cup fever could have distracted buyers from looking for resale homes that month, consultants said.

The slide last month came after prices unexpectedly rose a revised 0.4 per cent in May from the previous month, which consultants had dismissed as a possible blip.

That surprise rise in May turned out to be milder than the initial estimate of a 0.8 per cent increase.

"The price increase for completed properties in May was not sustainable," said R'ST Research director Ong Kah Seng.

"Sellers are cutting prices, especially for properties put up for resale prior to June."

Completed private homes in the central region suffered the biggest price drop last month, falling 1.5 per cent from May.

This reversed the 0.5 per cent gain in central region prices from April to May.

Consultants said that the threat of an oversupply of private homes and a weak leasing market were deterring buyers from taking the plunge, particularly in the city centre.

There were 1,412 completed but unsold private homes at the end of last month, according to Urban Redevelopment Authority figures.

A majority of those were in the city centre.

Completed private homes in the suburbs saw resale prices slip 0.4 per cent from May to June, after having risen 0.3 per cent from April to May.

Those figures exclude shoebox units of up to 506 sq ft, where prices also sank 0.4 per cent last month from the previous month.

Prices of shoebox units had increased 0.4 per cent in May from April.

The price fall signals that owners of completed shoebox units are no longer able to rely on strong leasing demand for small apartments to ask for high prices from investors, Mr Ong said.

The index, compiled by the National University of Singapore, tracks a basket of 429 completed projects across the island, including newer ones such as Marina Bay Suites, Reflections at Keppel Bay and The Interlace.

-By Melissa Tan

Resale private home prices down 1% on-month in June

Prices of private homes in the central region led the decline, with a 1.5 per cent fall in June from the previous month, while prices in the non-central areas dipped 0.4 per cent, according to Singapore Residential Price Index estimates.

Source: Channel News Asia / Singapore

SINGAPORE: Resale prices of private homes fell in June after inching up in May, according to Singapore Residential Price Index (SRPI) estimates released on Tuesday (July 29).

The SRPI, compiled by the National University of Singapore’s Institute of Real Estate Studies, showed overall prices decreased by 1 per cent in June from the previous month. In May, prices rose 0.4 per cent from April.

Prices of homes in the central region led the decline, with a 1.5 per cent fall in June from the previous month. Prices in the non-central areas dipped 0.4 per cent.

The figures exclude prices for small units with a floor area of 506 sq ft and below, which also fell 0.4 per cent in June from May, the SPRI data showed.

- CNA/cy

JTC launches 2 more Tuas sites for sale

Source: Business Times / Singapore

JTC yesterday launched for sale two far-flung sites at Tuas Bay Close and Tuas South Street 7 (Plot 44) under its H2 2014 Industrial Government Land Sales (IGLS) programme.

JTC said their different land tenures and plot sizes were aimed at catering to different groups of industrialists - those who prefer to buy strata-titled industrial property and those who want the flexibility to custom-build their own facilities on smallish sites.

The 2.7ha site at Tuas Bay Close is one such site that can be strata-subdivided for sale. It is zoned for B2 development, for heavier and more pollutive industrial use such as metal stamping, welding and chemical processing. It comes with a 30-year tenure with a maximum gross plot ratio of 1.7, which means it can be developed into a project with up to 4.6ha gross floor area.

Analysts expect the plot to attract two to five bids, with a winning bid of S$65-80 psf per plot ratio (psf ppr).

-By Lee Meixian

JTC launches two industrial sites for sale

The two land parcels are at Tuas Bay Close and Tuas South Street 7, and closing dates for the tenders are in September, says JTC.

Source: Channel News Asia / Business

SINGAPORE: JTC Corporation on Tuesday (July 29) launched two industrial sites at Tuas for sale under the second half 2014 Industrial Government Land Sales (IGLS) programme.

The two sites - at Tuas Bay Close and Tuas South Street 7 - were launched as part of the Government's efforts to provide industrial space and offer more choices for industrial development, the company said in its statement.

For the Tuas Bay Close site, it has 2.7 hectares (ha) and is zoned for Business-2 development. It has a 30-year tenure with a maximum permissible gross plot ratio of 1.7. The gross plot ratio refers to the amount of gross floor area the developer can build in relation to the land area.

In addition, the 0.5-ha site at Tuas South Street 7 was successfully triggered from the Reserve List of the first half 2014 IGLS programme. It is zoned for Business-2 development, a 20-year 10-month tenure, and a maximum permissible gross plot ratio of 1.0. The minimum bid price for the land is S$3,527,300, JTC said.

Property analysts said top bids for the parcel at Tuas Bay Close is expected to range from S$67 to S$73 per square foot (psf) per plot ratio (ppr), coming up to approximately S$33.3 million to S$36.3 million in total.

SLP Internationals' Nicholas Mak said the top bid for the land parcel at Tuas South Street 7 (Plot 44) could range from S$68 to S$77 psf ppr, which adds up to S$3.69 million to S$4.18 million in total.

The closing date for the tenders are:

·         Tuas Bay Close - Sep 23, 2014  11am

·         Tuas South Street 7 - Sep 9, 2014  11am

- CNA/kk/nd

Completed condos remain on price slide

Further downside expected as supply increases, leasing demand weakens

Source: Business Times / Singapore

PRICES of completed private condos resumed their fall in June as distractions from the school vacation and World Cup fever dampened buying interests.

A looming supply of completed homes and weakening leasing demand will continue to weigh on prices, market watchers say.

Last month, the Singapore Residential Price Index (SRPI) released by the National University of Singapore (NUS) slipped one per cent month-on-month in June, after a revised 0.4 per cent rise in May.

Small units of 506 sq ft and below saw a 0.4 per cent dip in prices last month nationwide.

"Private resale home prices are expected to continue to soften with all the measures in place," said ERA Realty key executive officer Eugene Lim. "In addition, private resale market is facing competition due to the increased supply. We will continue to see more deals being closed at realistic prices."

The NUS indices, which track completed private condos and apartments, excluding executive condos, reflect transactions received as at July 21.

While the overall NUS SRPI for June reflects a 9 per cent fall from the peak in May 2013, it is still 36.1 per cent above the level in January 2008.

Excluding shoebox units, prices of completed homes in the Central Region - comprising districts 1 to 4 and districts 9 to 11 - fell 1.5 per cent in June from May, while those in non-central region edged down 0.4 per cent in June.

Official figures from URA last week showed that there are a total of 1,412 private homes that are completed but unsold as at end-June. And the bulk of these unsold units - 63.3 per cent - are located in the Core Central Region, which covers districts 9, 10, 11, downtown core and Sentosa.

Vacancy rate is also on the rise, according to URA, climbing from 6.6 per cent in the first quarter to 7.1 per cent in the second - the highest level since the 7.4 per cent recorded in the first quarter of 2006.

R'ST Research director Ong Kah Seng noted that buying interest for homes in the Central Region is very weak given ample unsold developer stock and the easing rental market as companies tighten housing budgets for expatriates.

"Even the pool of buyers of smaller/average size units in Central Region is shrinking as they usually require large loans but TDSR (total debt servicing ratio) limits put a cap to it," Mr Ong added.

The Outside Central region (OCR) that has held up slightly better so far may also experience further weakness.

Nicholas Mak, executive director of SLP International, reckoned that a higher proportion of suburban condos bought during the property boom of 2009-2013 was investment-driven, compared to that during the 2005-2007 boom.

As more units in OCR reach completion next year onwards, there will be some pressures - first on the rental market and then on resale prices, Mr Mak said.

-By Lynette Khoo

KepLand invests US$70m in New York property

Alpha Investment to manage residential development that has retail component

Source: Business Times / Companies

IN ITS very first investment in the US, Keppel Land is investing about US$70 million in a residential development in New York City.

The property, located in an established residential neighbourhood on the Upper East Side in Manhattan, will include a retail component as well.

It will be managed by Keppel's fund management subsidiary, Alpha Investment Partners.

The project will be developed by New York real estate developer Macklowe Properties, whose previous projects include luxury residential development Metropolitan Tower and 432 Park Avenue, the tallest residential building in the western hemisphere.

-By Andrea Soh

Keppel Land's $87m New York venture its first US investment

Source: Straits Times / Money

HOMEGROWN developer Keppel Land has made its first investment in the United States, in one of New York's poshest areas.

The developer has invested about US$70 million (S$87 million) in a prime residential project in Manhattan's Upper East Side, it said yesterday.

The redevelopment project, at the corner of 59th Street and Third Avenue, is near a subway station on Lexington Avenue and 59th Street.

It will be developed by Macklowe Properties, a New York real estate developer whose portfolio includes a luxury residential project, the Metropolitan Tower.

Three adjacent buildings sit on the site now.

Chief executive Ang Wee Gee said Keppel Land will be able to tap on Macklowe's knowledge of the local market.

Mr Ang said: "With this prime property, we hope to meet the demand for well-located quality homes in one of the world's leading business and financial capitals."

The redeveloped Manhattan project will have a retail component, and Keppel Land's fund management subsidiary, Alpha Investment Partners, will manage the investment.

The developer said it believes "the residential market in Manhattan remains strong", as a recent Douglas Elliman Real Estate report said Manhattan faces a low inventory for condominiums.

Listing inventory rose by 18 per cent year-on-year to 5,659 units in the second quarter, which is "still considered low for a highly competitive market".

Other Singapore developers have also taken an interest in the US market.

Luxury developer Pontiac Land is a key stakeholder of a 72-storey residential tower, to be built next to the Museum of Modern Art in midtown Manhattan, while Overseas Union Enterprise bought the US Bank Tower in Los Angeles, the tallest building in California.

And local developers seem to be still looking further afield, as property curbs have hit demand in the Republic.

For instance, City Developments and Australia's Stockland Group were reported to be eyeing Leighton Holdings' S$7 billion residential and commercial property portfolio.

The business is reportedly expected to fetch up to A$500 million (S$583 million), and bids are due tomorrow.

However, Singapore and China are still core markets for Keppel Land, said Mr Ang, who added that Keppel Land will continue to invest in key global cities with good growth potential, while remaining focused on Asia.

-By Rachael Boon

BCA gives record 186 scholarships for careers in built environment sector

Source: Straits Times / Singapore

A RECORD 186 scholarships for careers in the built environment sector - from civil engineering to project management - were awarded yesterday by the Building and Construction Authority (BCA) and its industry partners.

Recipients included A-level students as well as undergraduate degree and diploma students.

Eleven employees also got a chance to upgrade their knowledge under the new BCA-Industry Built Environment Undergraduate Sponsorship (Part-time degree) programme.

One is Mr Chia Siang Chuan, 34, who will take up a part-time degree in construction management at the BCA Academy.

"After this course, I can be a project manager and manage the construction from beginning to end," said the senior architectural assistant at ID Architects.

With its strong growth and ongoing efforts to introduce technology and improve processes, the built environment industry offers many exciting job opportunities, said guest of honour Indranee Rajah, Senior Minister of State for Law and Education. She added: "The nature of work is evolving to become more knowledge-based and design intensive."

Scholarship recipient Han Jia Min, 22, hopes to correct misconceptions of the industry.

"All (people) can see is the sweat, the sun and working with labourers," said Ms Han, who is starting the fourth year of her civil engineering degree at Nanyang Technological University and will later join Kimly Construction.

She hopes to let her peers know there is much planning and calculation behind the physical construction too.

The scholarships are funded jointly by the BCA and various companies, with recipients serving a bond of at least one or two years with their sponsor firm.

The built environment sector is also getting help with its innovation drive. From Aug 1, the existing $5 million Innovation Grant for research and development, administered by BCA, will be extended to cover more areas.

Introduced last October, the grant funds up to 70 per cent of the cost of projects involving resource efficiency and energy efficiency, under the Green Buildings R&D framework.

It will be expanded to include construction productivity. The grant is available until Oct 7, 2016 or until the $5 million is exhausted, whichever comes first.

-By Janice Heng

186 scholarships awarded to talent in built environment sector

The Building and Construction Authority says the scholarships, for both degree and diploma levels, will help the built environment sector grow the talent pool needed for its transition to become more knowledge- and technology-based.

Source: Channel News Asia / Business

SINGAPORE: Of more than 1,100 students who applied, a record 186 received Built Environment Scholarships at the degree and diploma levels on Tuesday (July 29).

There was also a record number of companies - 54 - sponsoring the scholarships this year, and of these, 11 firms awarded scholarships to three or more individuals, the Building and Construction Authority (BCA) said.

A first-time undergraduate sponsor, Surbana International Consultants, gave out 16 scholarships. Explaining the move, Surbana CEO Pang Yee Ean said: "Asia will continue to urbanise at rapid rates; in China alone, there will be more than 100 million people moving into cities by 2020. Our scholars will join us and be part of our multi-disciplinary team of experts to play an important part in this urbanisation drive."

Dr John Keung, CEO of BCA, said the strong support from the industry is heartening. "With the sector's transformation to become more knowledge- and technology-based and design-intensive, more firms are realising the importance of investing in talents to grow their businesses."

Senior Minister of State for Law and Education Indranee Rajah officiated at the BCA-Industry Environment Scholarship Award Ceremony 2014 on Tuesday.


Beyond the scholarships given out, BCA is also enhancing its existing S$5 million Innovation Grant (iGrant) from Aug 1. The grant supports and facilitates industry firms' research and development (R&D) efforts to introduce emerging, game-changing technologies that have high impact on construction productivity, the agency said.

Under the enhanced framework, the iGrant will be expanded to cater to experimental type of projects requiring the fast-tracking of proof-of-concept studies and bringing these solutions to the market, BCA said.

It added that iGrant will be available until Oct 7, 2016, or until the funds are exhausted.

- CNA/kk

Real Estate Companies' Brief

Soilbuild Reit's Q2 DPU beats forecast

Source: Business Times / Companies

JTC's revised subletting policy, which kicks in on Oct 1, will not impact Soilbuild Reit in the medium term, said Shane Hagan, chief executive officer of SB Reit Management, on the back of the real estate investment trust posting a Q2 distribution per unit (DPU) of 1.5 Singapore cents, 1.3 per cent over the IPO forecast of 1.481 Singapore cents.

This translates to an annualised DPU of 6 Singapore cents, and an annualised distribution yield of 7.5 per cent based on the Reit's closing price of 80 cents as of June 30. The distribution is payable on Sept 1.

"Only 10 per cent of our portfolio is going to be impacted ... in the future," said Mr Hagan, in reference to JTC's revised subletting policy, which requires major occupiers of space built on JTC land to take up at least 70 per cent of the total gross floor area, up from 50 per cent previously.

Specifically, three properties in Soilbuild Reit's portfolio will be affected - COS Printers, NK Ingredients, and Tellus Marine.

-By Mindy Tan

Starhill Reit's Q2 DPU up despite lower overseas revenue

Source: Business Times / Companies

STARHILL Global Reit yesterday posted a 5 per cent increase in distribution per unit (DPU) to 1.25 Singapore cents for its second quarter ended June 30.

On an annualised basis, this translates to a yield of 6.07 per cent. This is despite lower contribution from its overseas properties which led revenue to fall 1.4 per cent to S$48.4 million.

Net property income rose marginally by 0.2 per cent to S$39.2 million, however, as operating expenses for its Singapore, Japan and China properties fell.

The Reit's Singapore portfolio - which includes stakes in Orchard Road heavyweights Wisma Atria and Ngee Ann City - contributed two-thirds of its total revenue in Q2.

-By Lee Meixian

Singapore boost for Starhill Global Reit's Q2 earnings

Source: Straits Times / Money

A STRONG Singapore portfolio helped lift second-quarter earnings at Starhill Global Reit, which owns department stores here and abroad.

Distribution per unit (DPU) for the three months to June 30 was 1.25 cents, which was 5 per cent higher than the 1.19 cents a year earlier.

Net property income (NPI) for the period rose 0.2 per cent to $39.2 million, as operating expenses for Singapore, Japan and China properties declined, and gross revenue fell 1.4 per cent to $48.4 million.

Even though the Reit reported higher revenue from the Singapore operations and higher NPI, it said these were offset by weaker overseas contributions.

The Reit faced falling revenue from department store Renhe Spring Zongbei in Chengdu, China; the loss of income contribution from Tokyo project Holon L, which was sold in March; and net foreign currency movements.

YTL Starhill Global manages the Reit, which owns parts of the Wisma Atria and Ngee Ann City shopping malls in Orchard Road.

The Singapore portfolio contributed two-thirds of total revenue in the second quarter.

The Singapore portfolio's NPI rose 5.5 per cent to $25.6 million compared with the previous year, led by positive rental reversions for both the retail and office units.

YTL Starhill Global chairman Francis Yeoh said: "Tourist arrivals in Singapore have been affected by recent regional events.

"Despite this, our portfolio in Singapore continued to perform well, reflecting the quality of the assets as well as the continuous drive in repositioning our malls."

Starhill Global Reit units closed flat at 84 cents yesterday.

-By Rachael Boon

Views, Reviews & Forum

Growth of Reits correlates with rising rentals

Source: Straits Times / Forum Letter

LOOKING at the table ("SGX-listed company earnings for Q2 ended June 2014"; yesterday), what caught my attention was that real estate investment trusts (Reits) dominated the list of top earners.

There is widespread concern that Singapore is becoming too expensive to do business, because of rising manpower costs and rentals.

The growth in the number of Reits as well as their rising earnings correlate with the increase in rental and business costs in Singapore.

As a consumer, I am concerned about the impact this has on inflation and retail prices.

Of course, Reits are legitimate businesses and one cannot ban them.

Neither would doing without them lower rentals immediately.

In fact, having them gives the authorities the chance to regulate their activities and, hence, the overall rental increases. I hope someone is looking into this.

-By Wong Weng Fai

Global Economy & Global Real Estate

S&P raises rating for Iskandar developer

Source: Straits Times / Money

A CHINA-based property developer that recently made waves in Iskandar has had its credit rating upgraded by ratings agency Standard & Poor's (S&P).

The ratings on Country Garden's long-term corporate credit and outstanding senior unsecured notes were both raised from BB to BB+.

S&P also said the developer, which broke away from the norm by boldly launching 9,400 condominium units at one go in Iskandar's Danga Bay last August, has a stable outlook.

The ratings upgrade was based on expectations of steady growth in Country Garden's sales, a larger scale of operations and the developer's ability to avoid loading up on too much debt, said S&P's credit analyst Christopher Yip in a statement on Monday.

The agency also observed that Country Garden has already achieved nearly half of its "ambitious" full-year sales target of 128 billion yuan (S$25.7 billion) in the first six months of this year - "well above the industry average, despite a more challenging market".

It believes Country Garden will further diversify geographically, continuing its transition from a national property player to a regional one. The developer's sales in its home market of Guangdong province fell from 76 per cent in 2008 to 44 per cent last year, S&P noted.

However, the agency mentioned some risks from this diversification. Country Garden is now exposed to market risk in third- and fourth-tier cities in China, where there is a "heightened sensitivity to real estate industry cycles (owing) to pricing pressure and increasing supply", it said.

S&P added that Country Garden's operating margins are projected to "decline moderately" over the next few years, as a result of increasing cost pressures and low-margin projects outside the developer's home market.

The agency said it may lower its rating if Country Garden's sales or margins significantly weaken or its debt-funded expansion is more aggressive than expected. On the other hand, it may raise the rating if the developer's financial risk profile improves because of strong sales, good profitability and well-managed leverage

-By Fiona Chan

Singapore Popping Housing Bubbles London Can’t Handle

Source: Bloomberg / Luxury

Take a look at the world’s dizzying surges in the price of housing for 12 months at the end of June: London, up 20 percent. Manhattan, 18 percent. Sydney, 15.4 percent.

Then there are Singapore and Hong Kong: down 3.7 percent and 0.6 percent.

Prompted by concerns over potential property bubbles and affordability for the middle class, the governments of the two Asian cities have been reining in home prices by imposing measures including mortgage caps, taxes on property flippers, and levies on foreign buyers as high as 15 percent.

“Hong Kong has successfully cooled down the market in terms of transactions and turnover,” said Raymond Yeung, senior economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Singapore has been more effective.”

So could New York, London and other global cities facing soaring housing prices pull off the same act?

Not really. Hong Kong and Singapore’s island geographies, preponderance of public housing resulting in two-tier housing markets and citizens willing to tolerate government directives make the cities unique, according to academics and researchers. London and New York have nowhere near the same level of control over their economies and the behavior of their residents.

Having Clout

Singapore and Hong Kong, as a special administrative region of China, have governments with policy-making power over their entire geographic areas, where they are relatively free of political opposition from neighborhood groups or borough councils that stymie directives or mitigate their effectiveness. The Asian cities control the land supply and are the biggest landlords.

That allows them to implement decisive policy measures. For example, in January 2013, the Monetary Authority of Singapore, effectively the central bank and chief regulator, cut the mortgage ratio allowable on purchases of second homes while more than doubling minimum down payments from 10 percent to 25 percent. The banks had no choice but to follow.

“Imagine doing something like this in the U.S. where there are 7,000 banks and many regulators,” said Sumit Agarwal, a professor in economics, finance and real estate at the National University of Singapore. “It’s a nightmare from the policy point of view and would be impossible.”

Hong Kong and Singapore haven’t shied away from using taxes to discriminate against foreign buyers -- something other locales with surging prices have yet to do. Non-permanent residents in both cities are subject to an additional 15 percent tax when they buy property, except in Singapore where Americans are exempted by treaty.


While such actions may seem contradictory to the cities’ stated free-market principles, “affordable housing is part of the legitimacy of any government, and government has a role to play in intervening in the market in periods where there are extreme circumstances,” said Michael Klibaner, who heads Greater China research at real estate firm Jones Lang LaSalle Inc. in Hong Kong.

The U.K. government has tried some measures. After it increased the stamp duty to 7 percent on high-value properties in March 2012, price increases for homes valued from 5 million pounds to 10 million pounds ($8.5 million to $17 million) slowed from 9.7 percent to 5.8 percent in the subsequent year, according to broker Knight Frank LLP.

Bank of England Governor Mark Carney announced another set of measures last month, citing concerns over household indebtedness and the threat of a property bubble. They limit mortgages to less than 4.5 times a borrowers’ annual income and require banks to refuse loans to those failing to prove they could afford a 3 percentage-point rise in interest rates.

Stagnant Prices

They may be working. Prices in the capital stagnated in July, the first month with no growth since December 2012.

Meanwhile, the opposition Labour Party has backed away from a call for a flat tax on properties worth more than 2 million pounds, instead suggesting taxes that rise the more expensive a property is, if they win next year’s U.K. national election.

Labour’s Treasury spokesman, Ed Balls, writing in the London Evening Standard newspaper, suggested a lower band for homes valued at between 2 million pounds and 5 million pounds. Further bands would go up to 10 million pounds and 20 million pounds, with the top rate levied on properties above 20 million pounds. The thresholds would increase in line with average house prices.

Least likely to be deterred are well-heeled buyers from Russia, the Middle East and Asia looking to park their money in tony London neighborhoods, the ones who have helped drive up the prices, said Matthew Pointon, a property economist at Capital Economics Ltd. in London.

“Wealthy people who buy these houses just pay it,” said Pointon, adding that the government isn’t interested in discouraging the influx of money. “The government is always very keen to portray London as open for business to the world.”

Preferential Treatment

Foreigners in Britain enjoy preferential tax treatment over locals, as they are currently exempt from paying capital gains. This benefit will cease when new legislation takes effect in April bringing the U.K. into line with the U.S. and Australia which charge capital gains on non-residents. (Hong Kong has no capital gains tax while Singapore taxes non- residents.)

In Australia, foreigners bought a record 14 percent of new properties in the first three months of the year, based on a survey of property professionals by National Australia Bank Ltd.

In New York, there’s not much likelihood of foreign buyers facing additional costs, said Jones Lang LaSalle’s Klibaner, a native New Yorker.

“If you live in Manhattan, you aren’t going to blame the government for bad policies or become a xenophobe because too many rich Chinese and Russians are buying apartments on Central Park,” he said. “When you want to get on the property ladder, you start in Queens or Brooklyn or New Jersey.”

Election Issue

Still, affordability is very much on middle-class voters’ minds. New York Mayor Bill de Blasio, a self-described progressive who took office in January on a promise of creating more homes New Yorkers can afford, unveiled a plan in May to try to do it.

“This is the first local election in a long time where housing affordability came to the forefront,” said Christopher Mayer, Paul Milstein Professor of Real Estate, Finance and Economics at New York’s Columbia Business School. “This is going to happen in more places.”

The dominance of the private sector in the housing markets of New York and London also leaves them with less leverage than their counterparts in Asia. More than 80 percent of Singapore residents live in government-built flats, according to the website of the city’s Housing & Development Board.

Of those living in Singapore’s public housing, more than 90 percent own their apartments, the result of government policy promoting home ownership through a combination of cheap loans, housing grants and a program that allows buyers to use accumulated government pension contributions for purchases.

Public housing doesn’t carry a stigma in Singapore, where most is located in master-planned towns, with schools, sports and medical facilities in landscaped surroundings.


While Hong Kong may rank No. 1 on the Cato Institute’s global ranking of free economies, its housing policy is anything but laissez-faire. The government auctions its land to developers to trickle out new housing stock when it wants to increase supply. It also owns 76 percent of MTR Corp., the subway operator that is one of the city’s biggest property developers.

“Supply is so limited in both cities, the government is all powerful when it comes to land issues,” said Eddie Hui, a real estate professor at Hong Kong Polytechnic University. “They can be more heavy-handed.”

Foreign Suburbs

Singapore is about two-thirds the size of New York City, and Hong Kong is about 30 percent bigger. Unlike Manhattan, where residents can move to cheaper boroughs or nearby states, the far-flung suburbs of Singapore and Hong Kong are in other countries beyond their borders. (Some Singaporeans have bought homes in neighboring Malaysia, which requires a passport-control stop and a two-hour drive when traffic is heavy to reach the business district.)

“In Hong Kong and Singapore there’s nowhere else to go, so regulation is almost essential if you have a fixed supply of land,” said Columbia’s Mayer.

Singapore began introducing curbs in 2009 after home prices climbed 25 percent in two years through 2008. It stepped up with stricter measures in 2013, including a cap on mortgage payments at 60 percent of a borrower’s monthly income, higher stamp duties and an increase in real estate taxes.

In 2009, when property prices were plunging across the U.S., Hong Kong’s housing market was going into overdrive. A combination of record-low interest rates, a lack of alternative desirable investments due to a lackluster stock market and a flood of mainland buyers plunking down cash for properties sent prices soaring.

Chinese Buyers

Hong Kong began introducing a string of progressively stronger measures starting in November 2010, including a flip tax of 15 percent on properties resold within six months, and a doubling of stamp duties to 8.5 percent on properties worth HK$20 million ($2.6 million) or more.

It also slapped a 15 percent tax on purchases of homes by non-local buyers and companies, a policy aimed to deter mainland Chinese buyers whom many Hong Kong residents blamed for soaring prices.

After climbing 115 percent since January 2008, prices started dropping in the second quarter of 2013. The share of mainland buyers of luxury properties, defined as homes worth more than HK$12 million, fell from 34 percent in the third quarter of 2012 to 13 percent a year later, according to research by Centaline Property Agency in Hong Kong.

Least Affordable

Still, prices on Hong Kong island, roughly the size of Manhattan where about 1.2 million people live, are the third-most expensive in the world after Monaco and London, at $1,920 per square foot, according to the Global Property Guide website. While housing costs about half as much in the northernmost New Territories, where more than half of Hong Kong’s 7.2 million residents live, prices there rose 140 percent from 2008 through 2012.

For all Hong Kong’s successes, it remains the world’s most-unaffordable housing market, with a median home price 14.9 times gross annual median household income, according to a survey released in January by Demographia, a consulting firm in Belleville, Illinois. Singapore was given the survey’s highest rank, “severely unaffordable,” while Knight Frank’s annual wealth report placed it as No. 2 most-unaffordable in the world.

Singapore’s correction looks set to continue. After prices slid for a third consecutive quarter to June, Finance Minister Tharman Shanmugaratnam this month predicted further declines.

Less Bearish

In Hong Kong, analysts are revising previously bearish forecasts. JPMorgan & Chase Co. in a June 4 report predicts a further 5 percent drop in secondary home prices this year compared with an earlier forecast of a 20 percent decline. Citigroup Inc. said June 3 it expects prices of mass-market homes to stay flat.

Things may be picking up. Prices have climbed about 4 percent in the seven weeks since the beginning of June, according to Centaline.

The slump in Hong Kong housing prices may be illusory because transactions have all but dried up as buyers wait on the sidelines for recovery, says ANZ’s Yeung.

“It looks effective on the surface, but this is only depressed demand,” he said.

Meanwhile, the government is taking measures to increase supply. In January, it announced a policy target of 470,000 additional housing units over 10 years for both public and private housing.

Hong Kong isn’t entirely without resistance. In June, an angry mob forced its way into the Legislative Council to protest a plan to relocate villages to make way for high rises.

“Governments in Hong Kong or the U.K. or China all have the same dilemma,” said Hui, the Hong Kong Polytechnic professor. “Home prices are high, and we all know we have to do something. But when they announce measures against our interests we tell them to do it in someone else’s backyard.”

Ultimately, markets may play a greater role in solving the problem of rising prices once global interest rates start rising. At that time, said ANZ’s Yeung, “the global housing bubble, or boom, will come to an end.”

-By Frederik Balfour

Klepierre Offers to Buy Competitor Corio for $5.6 Billion

Source: Bloomberg / News

Klepierre SA (LI) offered to buy Dutch competitor Corio NV for about 4.2 billion euros ($5.6 billion) to solidify its position as Europe’s second-largest publicly traded-shopping mall operator as euro region economies recover.

Klepierre bid 1.14 of its stock for each Corio share, valuing Corio at 41.4 euros a share, the companies said in a statement today. That’s 15.5 percent more than Corio’s closing share price yesterday.

Investment in European retail properties rose by 86 percent in the second quarter from a year earlier as supermarkets and malls in cities including London and Paris benefit from urbanization, broker Jones Lang LaSalle Inc. said in a report yesterday. Recovering European economies have led to improved sales of clothing and other goods at malls, drawing more investors and pushing up values, according to the report.

“The deal was always goings to happen,” JPMorgan Chase & Co. analysts including Tim Leckie wrote in a note to clients today. “Corio has been a perennial takeover target.” Another investor is unlikely to bid for the company, JPMorgan wrote in a separate note.

The transaction would be the biggest in the European real estate industry this year, eclipsing the 1.55 billion-euro sale by Spanish property developer Metrovacesa SA of its 27 percent stake in Paris-based Gecina SA to institutional investors.

Corio rose as much as 13 percent after trading resumed today, the most in almost six years, and closed up 10 percent. Klepierre shares fell 2.8 percent in Paris trading.

Major Shareholders

Corio operates 57 shopping malls in seven countries: Italy, the Netherlands, France, Germany, Spain, Portugal and Turkey. The combined company would have 182 centers in 16 countries, according to the statement.

Simon Property Group Inc. (SPG) and BNP Paribas SA (BNP), Klepierre’s largest shareholders, and APG, which owns more than 30 percent of Utrecht-based Corio, support the combination. The acquisition requires 95 percent approval from holders of the Dutch company’s shares. There are 100.8 million shares outstanding, according to data compiled by Bloomberg.

Assuming 100 percent of Corio shares are tendered, Simon, BNP Paribas and APG will respectively hold 18.5 percent, 13.7 percent and 13.6 percent of adjusted Klepierre shares after the deal, according to the statement.

The transaction “will create the leading pan-European pure player retail property company, with an unrivaled footprint in continental Europe,” Laurent Morel, chief executive officer of Paris-based Klepierre, said in the statement.

Cost Savings

Potential annual cost savings would be about 60 million euros in three to five years, according to the statement. About half of that will come from refinancing Corio’s debt, Morel said in a phone call with reporters.

Closing is expected in the first quarter of 2015, according to the statement.

Before the announcement, Corio had climbed about 12 percent in Amsterdam trading in the past six months, twice as much as the Stoxx Europe 600 Index.

BNP Paribas and Lazard Ltd. (LAZ) advised Klepierre. Deutsche Bank AG (DBK) and Goldman Sachs Group Inc. are financial advisers to Corio and Morgan Stanley (MS) acted for APG, Corio’s biggest shareholder.

-By Neil Callanan

General Growth Adds Manhattan Retail as Rents Increase

Source: Bloomberg / News

General Growth Properties Inc. (GGP), the second-largest U.S. mall owner, is spending almost $450 million for stakes in three Manhattan properties as New York rents soar.

The company acquired half of 685 Fifth Ave. for $260.5 million and agreed to take stakes in two other properties in the city, it said in a statement yesterday when it announced its second-quarter financial results. The real estate investment trust agreed to buy 50 percent of 530 Fifth Ave. for $147.5 million, and half of 218 W. 57th St. for $40.8 million.

General Growth, which has focused on redeveloping and leasing up its malls to boost growth, also is adding properties in the major shopping districts of U.S. cities including San Francisco and Chicago, where the company is based. In New York, it already owns 200 Lafayette St., a retail and office building.

“Flagship street retail assets offer very compelling opportunities to create shareholder value,” Chief Executive Officer Sandeep Mathrani said on the company’s earnings conference call today. “If we can opportunistically grow our business in street retail, we will.”

Manhattan’s Fifth Avenue, home to stores including Tiffany & Co., is the most expensive shopping street in the U.S., and priciest in the world after Causeway Bay in Hong Kong, brokerage Cushman & Wakefield Inc. said in a November report.

Record Rents

On Fifth Avenue from 49th to 59th streets, ground-floor asking rents have reached a record $3,550 a square foot this year, up 16 percent from last year, the Real Estate Board of New York reported in May. Along Fifth Avenue from 42nd Street to Rockefeller Center, the stretch that includes 530 Fifth Ave., average rents have about doubled to more than $1,000 a square foot in three years.

General Growth “views street retail as an extension of regional malls and will only acquire assets with significant growth potential,” Nathan Isbee, an analyst at Stifel Nicolaus & Co., wrote in a note to investors today. “We think street retail will remain a small portion of GGP’s retail assets.”

General Growth fell 1.7 percent to $23.70 today. The company, the biggest U.S. mall owner after Simon Property Group Inc., has climbed 18 percent this year, compared with a 17 percent gain in the Bloomberg REIT Index.

-By Brian Louis

U.S. Homeownership Rate Falls to Lowest in 19 Years

Source: Bloomberg / Luxury

The homeownership rate in the U.S. fell to a 19-year low as rising prices and tight credit kept many first-time buyers out of the property market.

The share of Americans who own their homes was 64.7 percent in the second quarter, down from 64.8 percent in the previous three months, the Census Bureau said in a report today. The rate matched the level in the second quarter of 1995.

Housing has become less affordable and more difficult to finance for entry-level buyers, even as mortgage rates have held close to record lows. First-time purchasers accounted for 28 percent of all sales of previously owned homes in June, compared with about 40 percent historically, according to the National Association of Realtors.

“The first-time buyers are the ones who would be the net addition to homeownership,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, said in an interview. “Those people, who are generally college grads or the ones who just got married, are not owning homes like they used to. Credit is tighter, they’re laden with student loansand their incomes are lower than they used to be.”

U.S. home prices increased 9.3 percent in the 12 months through May, according to theS&P/Case-Shiller (SPCS20) 20-city index released today.

The homeownership rate for all Americans peaked at 69.2 percent in June 2004 and plunged as the housing market crashed, according to the Census Bureau.

-By Prashant Gopal

Path for Skirting U.S. Taxes Widens With REIT Blueprint

Source: Bloomberg / News

Getting a foreign address isn’t the only way American companies are skirting corporate income taxes.

Even as President Barack Obama calls for rules to stop companies from ditching tax bills by reincorporating abroad, the byzantine U.S. tax code is offering new techniques to escape the highest corporate rate in the developed world.

The shares of the biggest U.S. phone companies, including AT&T Inc. (T) and Verizon Communications Inc. (VZ), rose today amid prospects the Internal Revenue Service will allow them to pursue another tactic: placing some operations in tax-advantaged vehicles known as real estate investment trusts, or REITS. Last week, shares of containerboard makers such as International Paper Co. (IP) soared on speculation they will use another tax-free structure known as a master limited partnership, or MLP.

Companies are finding all kinds of ways to escape America’s 35 percent corporate rate, from acquiring a mailbox in Ireland to using a 54-year-old tax break originally meant to allow middle-class people to invest in real estate.

The use of foreign addresses, known as “inversion,” is getting increasing attention in Washington this year as corporations like Pfizer Inc. (PFE) and Walgreen Co. (WAG) consider such a move. Congressional Democrats held a press conference today to announce a new proposal to deny government contracts to some inverted companies, and Obama last week labeled such companies “corporate deserters.” Orrin Hatch, the top Republican on the Senate Finance Committee, said last week he may be open to short-term action to address inversions.

Tax Dodges

“It just seems like every few days there’s an effort to try to invent yet another tax dodge,” Senate Finance Chairman Ron Wyden, an Oregon Democrat, told reporters at the Capitol today. “If you just sit on the sidelines and let that happen, you’re going to have two sets of tax rules in America -- one for the people who think up these tax dodges” and one for everyone else, he said.

U.S. Treasury Secretary Jack Lew, traveling today in Iowa, said it’s urgent to prevent inversions. “We are going to work as hard as we can and look at every tool that we can use to make the law different so that this cannot happen,” Lew said.

Meanwhile, there’s little sign of a legislative threat to the use of so-called “pass-through” companies, such as REITs and MLPs, neither of which pay corporate income tax. Instead, their owners pay individual taxes on their share of the company’s income.

One of the few Democratic proposals regarding pass-throughs to get attention in recent years is one to expand the MLP rules to benefit renewable energy providers.

REIT Expansion

A draft plan from Republican House Ways and Means Chairman Dave Camp earlier this year would have prevented corporations from using tax-free spinoffs to create REITs. That and other related changes would have raised $5.9 billion in revenue over a decade. Camp’s plan also would have prevented private equity firms from being publicly traded partnerships.

The use of both REITS and MLPs has exploded in recent years, partly because of IRS rulings that allowed more and more companies to take advantage of them. Authorized under a special exception to a 1987 tax law, until recently MLPs were mostly used to hold oil and gas pipelines.

Now, in addition to pipeline giants like Kinder Morgan Energy Partners LP (KMP), the ranks of publicly traded partnerships include Blackstone Group LP (BX), the leveraged-buyout firm.

First authorized by law in 1960, REITs have enjoyed a similar expansion, as the IRS has ruled more and more companies’ activities qualify as “real estate.” These include Corrections Corp. (CXW) of America, the private prison operator, and American Tower Corp. (AMT), which owns wireless communications towers.

Windstream Ruling

Today’s surge in telecommunications stocks was fueled by news that Windstream Holdings Inc. (WIN), a Little Rock, Arkansas-based phone company, won a ruling from the IRS that a new vehicle holding its fiber and copper networks would qualify as a REIT. Last week, Memphis, Tennessee-based International Paper’s stock rose after a hedge-fund manager bought several containerboard companies and urged them to reorganize as MLPs.

The message from the IRS’s Windstream decision today “is that the technique is now widely available to any company that has real estate,” said Robert Willens, an independent corporate tax consultant. “This could include McDonald’s, J.C. Penney (JCP), utility companies, cable companies.”

The IRS has shown increasing “open-mindedness” in rulings that allow companies to spin off REITs, said Robert Wellen, a partner at Ivins, Phillips & Barker in Washington. The spinoffs have double advantages because investors are familiar with and attracted to REITs as an asset class, he said.

REIT Types

“You can attract that segment of the market and raise capital that way, and obviously the tax benefits are very important,” Wellen said.

The IRS may not have been asked until recently to consider REITs composed of assets such as casinos and cable lines, Wellen said. “Clearly they’re receptive to these innovative REIT structures,” he said. “How far this will go, who knows?”

The exodus from the U.S. corporate tax system puts more pressure on the companies that remain.

Ken Frazier, the CEO of Whitehouse Station, New Jersey-based Merck & Co. (MRK), said he hopes Congress will act, especially as Pfizer and other competitors look for a way to leave and gain an advantage.

“We would be concerned if other companies had an advantage on us,” he said in a telephone interview today. “We’re trying to get Congress to look at how all U.S. firms are at a huge disadvantage. Our belief is that a rational society will eventually get around to tax reform.”

-By Zachary R. Mider and Richard Rubin

Genworth Profit Climbs 25% on Gains at U.S. Mortgage Insurer

Source: Bloomberg / News

Genworth Financial Inc. (GNW), the provider of mortgage guarantees and long-term care coverage, said second-quarter profit increased 25 percent on gains at the business backing home loans.

Net income climbed to $176 million, or 35 cents a share, from $141 million, or 28 cents, a year earlier, Richmond, Virginia-based Genworth said today in a statement. Operating profit, which excludes some investment results, was 31 cents a share, trailing the 36-cent average estimate of 10 analysts surveyed by Bloomberg.

Chief Executive Officer Tom McInerney is counting on improved returns from mortgage insurance as he prepares for new capital standards proposed by the Federal Housing Finance Agency in the U.S. Tightened underwriting and a property-market recovery have helped the industry rebound from losses on guarantees issued before the housing market’s collapse.

“The mortgage insurance business that’s been issued and done since 2009 has been very high quality,” Steven Schwartz, an analyst with Raymond James & Associates, said before the insurer reported results.

Genworth may need as much as $550 million to meet the draft FHFA rules, the company said July 10. The standards were created to prevent a repeat of the losses that government-backed Fannie Mae and Freddie Mac faced in the 2008 credit crisis.

McInerney has cut jobs, boosted prices for long-term care insurance, sold a wealth-management operation and divested a stake in Genworth’s Australia unit as he seeks to bolster the company’s finances. The stock has climbed 4.7 percent since Dec. 31 after more than doubling in 2013, McInerney’s first year as CEO. Results were released after the close of regular trading.

-By Kelly Gilblom

Zillow Seen Dominating U.S. Home Searches With Trulia

Source: Bloomberg / Tech

Zillow Inc. (Z) purchase of Trulia Inc. (TRLA) would create a dominant search website for U.S. house hunters, reshaping an online industry the companies helped popularize.

Zillow, the largest U.S. real estate website, is seeking to buy No. 2 Trulia for as much as $2 billion in cash and stock, according to people with knowledge of the matter. An agreement may be announced as soon as next week, said one of the people, who asked not to be identified because the information is private. Talks are ongoing and may not lead to a deal.

The companies help buyers and renters find information on homes, generating revenue by selling advertising and charging Realtors to place their listings prominently. Together the Zillow and Trulia networks had more than 68 million unique visitors in June, representing about 71 percent of all visitors to ComScore’s real estate category. That includes desktop and mobile users, ComScore said. A combination would make it hard for rivals to compete, said Steve Murray, president of Real Trends Inc. in Castle Rock, Colorado.

“It’s a blockbuster,” said Murray, whose company provides research and consulting for the real estate industry. “What this says is, Zillow has been and has locked up the absolute dominant position in online real estate in the United States.”

Seattle-based Zillow rose more than 15 percent to $145.76 a share yesterday, giving it a market value of $5.8 billion. Trulia, based in San Francisco, surged 32 percent to $53.74 a share, giving it a market value of $2 billion. Zillow may pay about two-thirds of the purchase price with its own stock, one of the people familiar with the matter said.

Katie Curnutte, a spokeswoman for Zillow, declined to comment. Matt Flegal, a spokesman for Trulia, said the company doesn’t comment on speculation.

Smaller Competitors

Zillow shares have climbed sevenfold since the company went public three years ago, while Trulia has tripled since its 2012 initial public offering. They compete with companies including Move Inc., which is also publicly traded, and Redfin Corp., which is backed by venture capital firms including Greylock Partners.

A Trulia deal would be the biggest acquisition yet for Zillow Chief Executive Officer Spencer Rascoff, according to data compiled by Bloomberg, who bought New York real estate website for $50 million last year and apartment-search site HotPads Inc. for $16 million in 2012. Earlier this month, the company purchased Retsly Software Inc., a Vancouver-based real estate software company.

Zillow’s goal has long been to consolidate the industry, according to Stefan Swanepoel, a consultant and author on real estate trends.

‘Aggressive Path’

“This follows on Zillow’s aggressive path to dominate the residential real estate space and become the undisputed leader in providing consumer-convenient, one-stop home shopping information,” Swanepoel said in an e-mail. “Life for all other real estate portals will become twice as hard.”

Zillow and Trulia shares have surged in the past two years as the U.S. housing market rebounded from the worst crash since the Great Depression. Home prices have jumped 26 percent from a March 2012 low, according to the S&P/Case-Shiller index of 20 cities. Existing-home sales climbed in June to an eight-month high as listings increased, the National Association of Realtors reported this week.

Trulia’s revenue is expected to rise 76 percent this year to about $253 million, after more than doubling the previous year, estimates compiled by Bloomberg show. Last month, the company, which is led by Chief Executive Officer Pete Flint, said it would cut some jobs and take a charge in its second quarter.

Zillow’s annual revenue is expected to reach about $311 million this year, an increase of about 58 percent over last year, the data show. The company, in partnership with Yahoo! Homes!, had 53.8 million unique visitors in June, compared with about 31.6 million at Trulia, according to ComScore.

Two Players

“Long-term, we see this as a two-player market and evolving much like e-commerce” with EBay Inc. and Inc., Sean Aggarwal, chief financial officer at Trulia, said at the Bank of America Merrill Lynch Global Technology Conference in June.

He also described online real estate as a “very large category,” with real estate professionals spending about $28 billion a year on marketing. Trulia and Zillow collectively are doing about $500 million to $600 million a year in revenue, he said, leaving $27 billion plus of “potential money” that could come into that realm over the next several years.

Move Inc. (MOVE)

Neither company is currently profitable on an annual basis. No 3.-ranked Move Inc. had about 23.8 million visitors last month, ComScore’s data show. ComScore’s data also includes visitors to websites run by companies including Coldwell Banker and Re/Max Holdings Inc.

Move Inc., with a market value of about $579 million, rose as much as 7 percent yesterday. The company, the parent of, declined to comment on the report of the Zillow and Trulia talks, said Mary A.C. Fallon, a spokeswoman.

Consolidation in the industry is likely because a relatively small number of real estate agents earn enough to pay advertising subscription and software-license fees to the property sites, said Brian Boero, partner at 1000Watt LLC, a real estate marketing and strategy firm in Portland, Oregon.

“They’re all chasing the same Realtor wallet and it’s a tough battle,” Boero said. “How many real estate search sites can the category really sustain? That’s an open question.”

-By Alex Sherman, Jeffrey McCracken and Prashant Gopal

Million-Dollar U.S. Housing Loans Surge to Record Level

Source: Bloomberg / Personal Finance

Banks are handing out mortgages of as much as $10 million to the wealthy in record numbers while first-time homebuyers struggle to get loans.

Erin Gorman, managing director at Bank of New York Mellon Corp., said she’s fielding more requests for home loans of at least $2 million than ever before. She recently provided a mortgage of more than $6 million for a client’s purchase of a second property in Colorado.

“These high-net-worth borrowers do act differently than first-time buyers, who borrow because they have to,” said Gorman, who serves as the national mortgage sales director at Bank of New York Mellon’s wealth management group based in Boston. “High-net-worth borrowers don’t have to borrow. They choose to, so they’re very strategic about what, why, and when they borrow.”

Americans from San Francisco to Boston are taking out a record number of mortgages in excess of $1 million while stiff lending standards crimp total loan volume. They are borrowing while mortgage rates are still low rather than liquidate their investments amid a stock market gain of 7 percent this year.

The number of loans from $1 million to $10 million to buy single-family homes in the 100 largest metropolitan areas surged to more than 15,000 in the second quarter, the highest ever, according to property data firm CoreLogic.

At the same time, banks are restricting home loans to first-time buyers who don’t have high credit scores. In June, about 28 percent of total existing-home sales involved new buyers compared with an average of 35 percent since October 2008, according to the National Association of Realtors.

Luxury Homes

Jumbos, or loans of at least $417,000 in most areas, exceed the limit for government-controlled Fannie Mae and Freddie Mac to guarantee. The mortgages are made to the most creditworthy borrowers and are generally held by banks instead of being packaged into securities and sold to investors.

In Southern California, millionaires are boosting demand for the largest loans because of an improving economy and brisk sales of luxury homes gives them confidence in the market, said Mark Cohen, a mortgage broker at lender Cohen Financial Group in Beverly Hills. Cohen, whose average loan has increased to $1 million from $800,000 this year, said he gave a $9.9 million mortgage recently to an executive at a publicly traded company in Brentwood, a neighborhood in Los Angeles where former California Governor Arnold Schwarzenegger has lived.

Sales of homes costing at least $2 million in 30 of the biggest metropolitan areas during the first half of this year rose to the highest since at least 2006, according to CoreLogic. Sales of existing homes of $1 million and more increased 8.5 percent in June compared with a year ago, the biggest jump among all price ranges, data from the National Association of Realtors show.

Low Rates

Some borrowers are reluctant to sell part of their portfolios to pay cash for a home as the stock market reaches new highs, said Jim Francis, head of consumer lending at MUFG Union Bank, N.A., a subsidiary of Mitsubishi UFJ Financial Group Inc. Many of the bank’s clients are business owners who would rather put money into their firms instead of using it to pay for a house, he said.

Union Bank originated more than 350 loans of at least $2 million this year, said Francis. Its average loan size is about $900,000.

Interest rates are also driving demand, with borrowers getting mortgages at less than 3.5 percent and expecting rates to rise in coming months. Some customers are opting for the seven-year adjustable-rate mortgage, which as of yesterday was offered at 3.15 percent, over the five-year loan, said BNY Mellon’s Gorman.


Loan requests at BNY Mellon for at least $2 million increased 30 percent this year compared with 2013. The average mortgage increased to $1.1 million from $1 million last year, and clients generally put down about 30 percent, Gorman said.

“There is the mentality that rates are moving up,” said Gorman, whose largest loan this year was $7 million for the refinance of a second home in California.

BNP Paribas SA’s Bank of the West is granting jumbo loans to customers with fluctuating income by including other assets in its calculations. In complying with the Dodd-Frank legislation’s ability to repay requirement, the bank considers assets in retirement accounts and other investments rather than just income, said Cyndee Kendall, a regional sales manager for Northern California. That’s helped the bank grant large loans to self-employed borrowers.

Cash Deals

“Those who are buying in the super-jumbo space often have more complex financial situations,” said Kendall, whose bank received 20 percent more jumbo loan applications in the second quarter compared with the prior year. “There are a lot of affluent borrowers with assets who may not have stable income. We still feel comfortable you can justify having the ability to repay by going into the next layers.”

Some wealthy homebuyers still prefer to use cash rather than provide lenders with documentation of their assets, said David DeSantis, a Washington-based partner and managing broker at Sotheby’s International Realty. Others avoid mortgages because they don’t want to lose a bidding war to all-cash buyers, said Elyse Arbour, a real estate agent with Rodeo Realty in Brentwood.

All-cash sales made up 32 percent of existing home transactions in June compared with 31 percent a year ago, according to data from the National Association of Realtors.

Special Discounts

Lenders are luring wealthy borrowers to try to build long-term relationships as total home lending slumps amid higher credit standards. Originations are forecast to drop to $267 billion for the three months ended June 30, which would be the lowest in 17 years for the second quarter, according to the Mortgage Bankers Association.

“It’s important to us because mortgages are very often how we meet a client,” said Katherine August-deWilde, president of First Republic Bank (FRC), a jumbo lender with locations in California, Oregon, Connecticut, Florida and other states. “We generally address pricing if you have a large relationship.”

A Bank of the West wealth management client who takes out a $1.5 million loan and keeps $750,000 in a wealth management account is eligible to get half a point off the usual cost for an adjustable-rate mortgage, Bank of the West’s Kendall said.

Customers who have relationships with banks may get access to loan deals that aren’t advertised, such as borrowing against inherited investment assets rather than income, Sotheby’s DeSantis said. At BNY Mellon, more clients have been choosing a hybrid loan, which enables them to use two mortgages and get an overall lower blended rate, according to Gorman. Union Bank, Bank of the West and other lenders said they don’t have set maximum amounts for mortgages and will consider any request.

Cohen, the Beverly Hills broker, said some of his million-dollar plus borrowers end up paying off their loans before the ARM-term expires.

“These mortgages have a short shelf life,” Cohen said. “That’s just the mentality -- move within five years.”

-By Alexis Leondis