Singapore Economy Tianjin reforms open more doors for S'pore firms: Khaw Ten projects signed at 7th S'pore-Tianjin Economic and Trade Council meeting Source: Business Times / Singapore REFORMS in Tianjin, and the city's integration into the Beijing-Tianjin-Hebei economy, will bring new opportunities for Singapore companies. Said Minister for National Development Khaw Boon Wan at the seventh Singapore-Tianjin Economic and Trade Council (STETC) meeting held yesterday: "Tianjin's shift towards a market-driven economy and the integration of Beijing-Tianjin-Hebei are new developments that will create many opportunities for our companies. The council will help Singapore companies understand these developments, and also facilitate more collaboration." The Chinese government is working on a development plan to integrate Beijing, Tianjin and Hebei to improve their combined economic competitiveness in an environmentally-sustainable manner.
This will include the shift of industries and people from Beijing to Tianjin and Hebei, which results in a need to further develop inter-city transportation networks, the training of workers to meet new industrial demands and the expansion of services such as healthcare and education. -By Andrea Soh Tianjin reforms 'will create opportunities for Singapore firms' Source: Straits Times / Money SINGAPORE'S strong business ties with Tianjin - mainland China's fourth most populous city - are set to get a boost from market reforms there, officials said. The Singapore-Tianjin Economic and Trade Council (STETC) officials met yesterday in Tianjin, 120km south-east of Beijing. They oversaw 10 agreements for projects across environmental, education, health care and logistics services sectors. Minister for National Development Khaw Boon Wan, STETC's Singapore co-chairman, said: "Tianjin's shift towards a market-driven economy and the integration of Beijing-Tianjin-Hebei are new developments that will create many opportunities for our companies." The integration move would "improve the region's overall competitiveness in a green and sustainable way", he added. Industries and people are also set to move from Beijing to Tianjin and Hebei, which means inter-city transport networks need to be developed while workers have to be trained. Supporting services such as health care, education and environmental services will also be expanded - with Singapore firms already contributing in these areas. Market reforms include liberalising sectors, which Tianjin has already done for some services, to encourage more foreign investors. The education sector is one example. At the meeting, Singapore preschool firm Ednovation signed an agreement to set up kindergartens at Yanlord's developments, part of its Tianjin expansion plan. Mr Khaw added: "Our companies told me that they are also interested in the reform of Tianjin state-owned enterprises. They hope to collaborate in both shareholding and management reform." Singapore companies can also expect more government processes to improve, which will facilitate trade growth. For instance, Tianjin has already removed a minimal start-up capital requirement, and improved company registration processes and import or export clearance processes for packaging materials, since March. Singapore-Tianjin trade reached US$847 million (S$1 billion) while Singapore companies invested US$360 million in Tianjin in the first quarter this year. Noting that the likes of CapitaLand, Hyflux and Keppel have been in Tianjin for years, Mr Khaw said Singapore companies "continue to contribute and complement" the city's development. -By Rachael Boon Singapore companies expand presence in Tianjin Eight new collaborations inked on Wednesday between Singapore and Tianjin companies.Source: Channel News Asia / BusinessTIANJIN: Singapore and Tianjin companies signed eight agreements for collaboration at the Sino-Singapore Tianjin Eco-City (SSTEC) on Wednesday (July 30), further strengthening the Republic’s position to support and leverage on Tianjin’s rapid economic growth. The deals – part of the 10 signed on Wednesday at the Singapore-Tianjin Economic and Trade Council (STETC) meeting – include one by Keppel Offshore and Marine to set up a design and service outsourcing centre in SSTEC, where music company Ocean Butterflies has also agreed to set up its regional headquarters. These upcoming projects will follow the Chinese government’s ongoing efforts to shift Tianjin towards a market-driven economy while integrating the city with Beijing and Hebei province nearby to create a regional economic hub. Singapore companies should tap the opportunities provided by these developments, said Minister for National Development Khaw Boon Wan as he closed the STETC meeting. “We can expect demand for better logistics support to facilitate transportation of goods, and expansion of railways and highways... Workers will have to be trained to meet new industrial demands for higher skills,” he said. “Above all, the emphasis on environment and green growth will mean more urban solutions to be implemented. These are traditional areas of strengths which Singapore companies can contribute to.” Singapore has been growing its ties with Tianjin, with bilateral trade expanding by 34 per cent to US$2.9 billion (S$3.6 billion) in 2013 while Singapore’s cumulative investments into the city reached US$6.6 billion as of March this year, data by International Enterprise (IE) Singapore shows. A key pillar to that partnership is the Eco-City project, which is developed by a Singapore-Chinese joint venture. The project has already crossed several important milestones since its inception in 2008, and the Eco-City is on track to meet targets such as provision of 100 per cent potable water from taps for both residential and commercial uses, Mr Khaw said on Wednesday. To date, the Eco-City has attracted about 30 Singapore companies, IE Singapore told TODAY, adding to a growing Singapore business community across Tianjin that also includes companies such as CapitaLand, Hyflux, Tiong Seng and Yanlord. -TODAY/cy
http://www.channelnewsasia.com/news/business/singapore/singapore-companies/1290026.html Singapore Real Estate CapitaMalls Asia to launch pilot e-com site Source: Business Times / Singapore CAPITAMALLS Asia (CMA) will be introducing an online platform to complement physical shopping space. But unlike e-commerce sites which deliver products to consumers, CMA is eyeing Tesco's model of a "click and collect" system where customers order online and pick up their goods at the store. The online site will be a platform for JAvenue, a new retail zone in JCube mall in Jurong. The section will have a "street shopping" ambience, targeting the youth.
The website, termed as a "searchable mall", is a pilot test that starts off as a product listing platform for tenants in JAvenue. Tenants can showcase products and list information about them. The site will be launched in mid-September, the same time the retail space in JCube will be open to shoppers. It will start selling products by year-end. But in order to drive traffic to malls, consumers will collect online purchases from stores. -By Sheena Tan http://www.businesstimes.com..sg/premium/singapore/capitamalls-asia-launch-pilot-e-com-site-20140731 CapitaLand optimistic about long-term potential of Chongqing property market China's property market may be cooling, but Singapore real estate giant CapitaLand remains confident about its biggest investment in the country, which is in the southwestern city of Chongqing.Source: Channel News Asia / Singapore CHONGQING: Deputy Prime Minister Teo Chee Hean on Wednesday (July 30) led a Singapore delegation on a visit to the future Raffles City Chongqing work site. He is in Chongqing on the third day of an official trip to China. The US$3.4 billion (S$4.3 billion) future Raffles City Chongqing is designed by Moshe Safdie, the world-renowned architect behind the Marina Bay Sands in Singapore. Apart from a mall, offices and residences, it will also be a transport hub, with a ferry terminal, cruise centre, metro and bus stations when completed in 2018. Chongqing is one of China's mega-cities, and an industrial and commercial base with a population of 31 million. CapitaLand China CEO Jason Leow said he believes in the long-term potential of the Chongqing property market. “Chongqing is now putting a lot of infrastructure in place, whether it's the new airport, new ports, new bridges, you’re seeing a lot of construction activities everywher. With the 'go west' policy by the Chinese government, we expect a lot of economic activities to drive Chongqing,” he said. Also with Mr Teo is Social and Family Development Minister Chan Chun Sing. The delegation also visited the Chongqing Planning Exhibition Gallery and the Liangjiang New Area to learn more about the city's urban and infrastructural development. - CNA/xk http://www.channelnewsasia.com/news/singapore/capitaland-optimistic/1289480.html BCA gives S$8.3m for energy research Source: Business Times / Singapore THE Building and Construction Authority (BCA) has granted S$8.3 million to researchers from the National University of Singapore (NUS), Nanyang Technological University and Ngee Ann Polytechnic to develop energy-efficient technologies. The grant is part of a scheme launched in September last year, in which BCA was allocated S$15 million under the Energy Innovation Research Programme to support the development of energy-efficient and cost-effective technologies for buildings in the tropics. One of the grant recipients, Dr Lee Poh Seng from NUS, will be developing a system to integrate a novel oblique fin technology into a small capacity air-conditioning system.
This can enhance air side heat transfer and raise energy efficiency of the air conditioning system by as much as 40 per cent, he said. -By Andrea Soh S$8.3m in grants awarded to improve building energy efficiencyThe scheme, first introduced in September last year, aims
to support the development of energy efficient and cost-effective technologies
and solutions for buildings in the tropics. Source: Channel News Asia / Singapore SINGAPORE: In a bid to improve building energy efficiency, researchers from the National University of Singapore (NUS), Nanyang Technological University (NTU) and Ngee Ann Polytechnic were awarded S$8.3 million in grants by the Building and Construction Authority (BCA). Under the Building Energy Efficiency Grant Call, the public and private sectors were encouraged to collaborate and develop innovative technologies and solutions in the areas of Air-Conditioning and Mechanical Ventilation (ACMV), and Building Management and Information Systems (BMIS) for building retrofits in the tropics that can be adopted in five years’ time, BCA said in a press release issued on Wednesday (July 30). The scheme, first introduced in September last year, aims to support the development of energy efficient and cost-effective technologies and solutions for buildings in the tropics. While ACMV systems take up 40 to 60 per cent of energy used in a typical air-conditioned building, there is a need for technology that can effectively remove water from the air by using less energy that will greatly improve the efficiency of the air-conditioning system, BCA said. It also noted the need to develop cost-effective solutions so building owners and developers will adopt the new technologies. Meanwhile, a grant recipient from NUS, Dr Lee Poh Seng, will be collaborating with Daikin Air-Conditioning and four other SMEs to develop a new air-conditioning system that integrates a “novel oblique fin technology into a small capacity air-conditioning system, which can significantly enhance the air side-heat transfer”. The new research project will raise “energy efficiency of the air conditioning system potentially by as much as 30 to 40 per cent”, said Dr Lee. “More efficient buildings mean better use of resources,” said Dr John Keung, CEO of BCA. “Low Energy High-rise Buildings in the Tropics” will be possible in Singapore if researchers are provided with the “right support and environment”, he added. -TODAY/cy http://www.businesstimes.com.sg/premium/singapore/bca-gives-s83m-energy-research-20140731
http://www.channelnewsasia.com/news/singapore/s-8-3m-in-grants-awarded/1288790.html Industrial land being released by JTC won't affect us: Aims AMP Source: Business Times / Companies THE large supply of industrial land and space that JTC Corporation
is in the midst of releasing to boost supply and ease rents won't affect real
estate investment trusts such as Aims AMP Capital Industrial Reit. This is because there is still a role for the private players, Koh Wee Lih, CEO of Aims AMP Capital Industrial Reit Management, told BT yesterday. He pointed out that JTC has recently been experimenting with new innovative next-generation factories, adding that the statutory board "is not trying to come back to consolidate the whole industry scene again, but to push through a few projects to see if it works". "If it does, JTC hopes that the private sector can take over. JTC does not want to be the only landlord in town," Mr Koh said. -By Lee Meixian Real Estate Companies' Brief OUE Commercial Reit's Q2 DPU beats forecast Source: Business Times / Companies POSITIVE rental reversions boosted OUE Commercial Trust's distribution per unit (DPU) to 1.43 Singapore cents for its second quarter ended June 30 - 5.1 per cent above its forecast. This brings its first distribution, for the period starting from Jan 27 when it listed, to 2.43 Singapore cents - to be paid out on Sept 2. Net property income also rose 4.6 per cent above forecast to S$14.3 million, helped by lower property expenses on lower utilities and maintenance costs incurred.
Gross revenue was a slight 0.3 per cent below forecast, however, at S$18.7 million. -By Lee Meixian OUE Commercial Reit's Q2 DPU higher than forecast Source: Straits Times / Money OUE Commercial Reit posted stronger results than predicted for the second quarter, after accounting for lower expenses and finance costs. The trust posted a distribution per unit (DPU) of 1.43 cents for the three months to June 30, 5.1 per cent higher than its forecast of 1.36 cents for the quarter. This brings its DPU for the financial period from Jan 27, when it listed on the Singapore Exchange, to June 30 up to 2.43 cents - 4.7 per cent higher than predicted, said OUE Commercial Reit Management yesterday. This will be paid to unit holders on Sept 2. Based on the unit closing price of 80 cents on June 30, its DPU for the second quarter works out to an annualised distribution yield of 7.2 per cent. OUE Commercial Reit holds the OUE Bayfront office tower in Collyer Quay and Lippo Plaza in central Shanghai in its portfolio. Income available for distribution for the quarter was $12.5 million, 5.5 per cent more than its forecast. Net property income was also 4.6 per cent higher at $14.3 million while gross revenue fell short of expectations by 0.3 per cent at $18.7 million. "Rental reversions at both properties were positive, with OUE Bayfront and Lippo Plaza achieving renewed rentals that were respectively 6.1 per cent and 4.3 per cent high than preceding rents," said Ms Tan Shu Lin, chief executive of the manager. Occupancy at OUE Bayfront was full for the second quarter, "comparing favourably" to the occupancy rate of 95.8 per cent in the core Central Business District which includes Marina Bay and Raffles Place. However, some leases were not renewed at Lippo Plaza, which sent occupancy down to 92.9 per cent, from 95.9 per cent in the preceding quarter. Overall occupancy for the quarter ended Jun 30 was at 96.8 per cent. Costs incurred from finance charges came in at $4.2 million, 5 per cent lower than expected as the trust drew a smaller loan than it had forecasted, the firm added. Earnings per unit for the second quarter was 0.89 cents, while net asset value per unit as at June 30 was $1.06.
Its units closed half a cent up at 83 cents yesterday. -By Cheryl Ong
http://www.straitstimes.com/premium/money/story/oue-commercial-reits-q2-dpu-higher-forecast-20140731 Tuan Sing Q2 profit drops 24%, revenue down 31% It is upbeat on achieving better FY14 operational performance Source: Business Times / Companies DRAGGED by slower recognition of residential sales, Tuan Sing Holdings posted a 24 per cent decline in net profit for the second quarter ended June 30 to S$11.6 million. Revenue for the quarter dropped 31 per cent from a year before to S$81.6 million over the same period, given slower progressive recognition of sales at Seletar Park Residence and Sennett Residence and new bookings at Cluny Park Residence that was officially launched in March. For the first half of this year, Tuan Sing's net profit slipped 8 per cent to S$19.3 million while revenue slumped 22 per cent to S$142.9 million, given weaker performance from its property and industrial services divisions.
Revenue from its property division in the first half fell 19 per cent year-on-year to S$74.2 million; slower residential sales offset a 61 per cent surge in revenue contribution from investment properties, specifically the rental income from Robinson Point, which was acquired in June last year. -By Lynette Khoo Tuan Sing reports 24% drop in Q2 net profits Source: Straits Times / Money A SLOWDOWN in the private housing market weighed down second-quarter earnings for property developer Tuan Sing, it reported yesterday. Tuan Sing develops projects such as Sennett Residence in Potong Pasir and Cluny Park Residence in Bukit Timah. It posted a 24-per-cent drop in net profit to $11.6 million while revenue for the three months to June 30 dropped 31 per cent to $81.6 million. Tuan Sing said the decline in revenue was partly due to lower property sales but was cushioned by rental income from Robinson Point. The group's earnings mainly came from progressive recognition of unit sales at Seletar Park Residence and Sennett Residence, as well as the initial recognition of new bookings at Cluny Park Residence. Tuan Sing said these three private projects will account for most of its earnings this year and the next. Property developers typically use the "progressive recognition" accounting method for domestic residential projects. This involves splitting up and recognising profits from a project over the period as construction progresses. Net profit slid 8 per cent in the first half to $19.3 million and revenue fell 22 per cent to $142.9 million. Earnings per share for the quarter stood at one cent, down from 1.3 cents the previous year. Net asset value per share rose from 63.9 cents as at Dec 31 last year to 65.1 cents as at June 30 this year. The firm also said that it has bought a plot in China and is negotiating to buy the remaining 50-per-cent stake in hotel firm Grand Hotel Group, it said. It already owns half of Grand Hotel Group, which owns two five-star hotels in Australia that are managed by Hyatt International. These hotels are the Grand Hyatt Melbourne and Hyatt Regency Perth. Tuan Sing also said yesterday that it is " not averse" to selling its stakes in printed circuit board maker Gul Technologies Singapore and in golf products retailer Pan-West "when opportunities arise". It owns 43.3 per cent of GulTech and 49 per cent of Pan-West.
Tuan Sing shares closed flat at 41.5 cents yesterday. -By Melissa Tan
http://www.straitstimes.com/premium/money/story/tuan-sing-reports-24-drop-q2-net-profits-20140731 Global Economy & Global Real Estate Global Premium Hotels Q2 profit down 22.2% Source: Business Times / Companies GLOBAL Premium Hotels Limited yesterday said that its net profit for the fiscal second quarter ended June 30, 2014 fell 22.2 per cent y-o-y to S$3.81 million. Turnover slipped 5.6 per cent to S$14.52 million, due to a combination of factors including the closure of Fragrance Hotel - Elegance in the last quarter of last year due to cessation of tenancy agreement, lower revenue recognised from the other hotels, and lower contribution from Fragrance Hotel - Pearl due to temporary closure for asset enhancement works. Global said that the decrease was partially offset with the maiden revenue contribution of half a million dollars from Parc Sovereign Hotel - Tyrwhitt, which commenced operations early last month.
The group's average occupancy rate decreased to 85.7 per cent from 93.1 per cent, and average revenue per available room slipped to S$92.80 from S$95.70 in the reporting quarter. -By Carine Lee Iskandar regulator plays down fears of property glut IRDA says jobs to be created will ensure demand for thousands of homes Source: Business Times / Property ISKANDAR Regional Development Authority (IRDA), the statutory authority for regulating and driving the development of Iskandar Malaysia into an international metropolis, has played down fears of an impending property glut. Jobs to be created over the next few years will ensure demand for thousands of homes, it maintains, but concedes that improved public transport, including the proposed rail link between Singapore and Johor Bahru, would be essential in advancing the economic zone. "The MRT/BRT (bus rail transit) engineering link study has been tabled with the JMC which has until the end of 2014 to decide," said IRDA chief executive Ismail Ibrahim. JMC is the Joint Ministerial Committee established by Malaysia and Singapore.
In a recent interview, he stated that the link was targeted to be completed "by 2018 or latest by 2020". -By Pauline Ng in Kuala Lumpur Chinese investors on global real estate buying spree H1 overseas property investments up 17%, 84% jump for homes Source: Business Times / Property [HONG KONG] China's institutional investment in property overseas rose 17 per cent in the first six months of this year, with residential investment surging 84 per cent, real estate services firm Jones Lang LaSalle (JLL) said yesterday. The gains come as Chinese investors pursue opportunities outside their home turf, where the outlook for the real estate sector is overshadowed by issues such as tight financing and high inventories which are weighing on prices. London was the most popular destination for Chinese institutional investors, with a total of US$2.3 billion, as efforts by the city to draw Chinese capital into major infrastructure projects spilled into residential and commercial markets, JLL said.
San Francisco and Chicago followed with US$548 million and US$365 million, respectively. -From Hong Kong, China Not easy to follow HK, S'pore property moves Other cities don't have same control over economies and residents' behaviour Source: Business Times / Property [HONG KONG] 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 per cent. Manhattan, 18 per cent. Sydney, 15.4 per cent. Then there are Singapore and Hong Kong: down 3.7 per cent and 0.6 per cent. 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 per cent.
"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 in Hong Kong. "Singapore has been more effective." -From Hong Kong, China Q2 growth bounces back at a healthy 4% Data augurs well for stronger growth in the next 6 months Source: Business Times / Top Stories [WASHINGTON] US economic growth accelerated more than expected in the second quarter and the decline in output in the prior period was less steep than previously reported, which could bolster views for a stronger performance in the last six months of the year. Gross domestic product expanded at a 4 per cent annual rate as activity picked up broadly after shrinking at a revised 2.1 per cent pace in the first quarter, the Commerce Department said yesterday. That pushed GDP above the economy's potential growth trend, which analysts put somewhere between a 2 per cent and 2.5 per cent pace.
The economy grew 0.9 per cent in the first half of this year and growth for 2014 as a whole could average above 2 per cent. The first quarter contraction, which was mostly weather-related, was the largest in five years. -From Washington, US http://www.businesstimes.com.sg/premium/top-stories/q2-growth-bounces-back-healthy-4-20140731 Battle of the malls in Greater Kuala Lumpur Retailers feel the heat with 12 new malls joining the fray later this year amid poorer consumer spending Source: Business Times / Malaysia COMPETITION among retailers in Malaysia's Greater Kuala Lumpur area is set to intensify this year when another 12 malls are completed, with the additional 3.6 million sq ft floor space coming amidst weaker consumer spending. However, the proliferation of shopping malls is spreading to the suburbs of Kuala Lumpur and Selangor. In the first three months, two shopping malls - one in the suburb of Subang, and the other in KL Sentral - were launched adding 0.9 million sq ft of retail space.
In the coming months, more are expected. This includes the 1.35 million sq ft IOI City Mall, about 10 minutes by car from the administrative centre of Putrajaya. The mall has signed on Parkson Corporation and Golden Screen Cinemas as anchor tenants. -By Pauline Ng in Kuala Lumpur http://www.businesstimes.com.sg/premium/malaysia/battle-malls-greater-kuala-lumpur-20140731 Path to skirt US taxes widens with Reit spinoff blueprint Latest IRS ruling opens door to firms that have property, like McDonald's Source: Business Times / World [NEW YORK] 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 US tax code is offering new techniques to escape the highest corporate rate in the developed world. The shares of the biggest US phone companies, including AT&T and Verizon Communications, rose on Tuesday 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 soared on speculation that 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 per cent corporate tax 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. -From New York, US Million-dollar US home loans surging ahead Banks dishing out mortgages of up to US$10m; first-timers don't have it so easy Source: Business Times / Property [WASHINGTON] Banks in the United States are handing out mortgages of as much as US$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, said she's fielding more requests for home loans of at least US$2 million than ever before. She recently provided a mortgage of more than US$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 Ms 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 US$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 per cent this year. -From Washington, US Foreign buyers fuel concern in Miami luxury condo boom Analysts cite investor glut, slowing sales, plans for thousands of new condo units Source: Business Times / Property [MIAMI] As construction cranes crowd the coastline and developers strive to lure wealthy international buyers with brand-name towers and lavish amenities, there are signs that Miami's latest condo boom has begun to slow and a possible oversupply could temper record prices. Since mid-2011, some 175 towers with more than 27,000 units have been proposed in Miami, says real estate analyst Peter Zalewski of CondoVultures. Florida led the nation for foreign buyers in the quarter ending in March, attracting 23 per cent of US$92.2 billion of nationwide sales, according to the National Association of Realtors.
In the face of economic uncertainty and potentially higher taxes in Europe, Asia and Latin America, wealthy individuals are drawn to Miami's year- round sunshine and prices that are still low when compared with other global capitals. -From Miami, US Zillow Topping Realogy Shows Web Surge for Housing Market Source: Bloomberg / Personal Finance Zillow Inc. (Z)’s purchase of Trulia Inc. makes the online company such a force in U.S. real estate that its market value now surpasses that of Realogy Corp., owner of renowned brokerage brands from Coldwell Banker to Century 21. Zillow, the biggest U.S. real estate website, has seen its market value jump to about $5.83 billion from $4.99 billion on July 23, the day before Bloomberg News reported the deal talks with rival Trulia. Realogy, the largest residential brokerage operator, has a market value of about $5.47 billion, compared with $5.67 billion last week, data compiled by Bloomberg show. The shift underscores the growing role of the Web in U.S. home sales as buyers start their hunt for homes and mortgages online and rely less on real estate agents, a migration that has taken longer than in industries such as music or travel. While Zillow is unlikely to compete directly with brokers, whose ad dollars are its top revenue source, buying Trulia (TRLA) gives it more command over marketing fees, sparking concerns among Realtors such as Stephen FitzMaurice that costs will rise. “It will create a monster portal,” said FitzMaurice, an agent with Premiere Property Group in Portland, Oregon, who joked the new company should be called “Zilla,” in reference to Godzilla. “I don’t want the marketing of my listings and my ability to sell them -- or not -- to be dominated by one company.” Zillow said this week it is acquiring San Francisco-based Trulia, the second-biggest real estate website, for about $3.5 billion in stock. 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, including desktop and mobile users. Listings, ValuesThe companies help buyers and renters find information on homes, generating revenue by selling advertising and charging Realtors to place their listings prominently. Visitors to Zillow have forums for real estate advice and property-value estimates for homes that are on and off the market. Zillow also features a mortgage marketplace that allows borrowers to anonymously shop for home loans, comparing live, customized rates from hundreds of lenders. Customers submit requests and receive quotes in seconds and can then contact the lender they like. “Our mortgage marketplace monetizes well,” Zillow Chief Executive Officer Spencer Rascoff said on a conference call after the Trulia deal was announced. “I do believe there are synergies to be had in the mortgages business between these two companies.” Not CrazyThe market’s valuation of Zillow reflects its outlook for growth and the migration of searches online, said Steve Murray, president of Real Trends Inc. in Castle Rock, Colorado, which provides consulting for the real estate industry. “If you only look at today, you might think this market valuation is crazy, but if you look at it three to four years down the road, it’s not crazy at all,” he said. “Consumers have already voted with their feet. They’re looking online, that’s where they go for housing. And it should not be a surprise that the advertising spending is following them.” Real estate agents and brokers spent 71 percent of their $11.9 billion advertising budgets last year on online media, the highest of any industry in the U.S., according to Borrell Associates, an advertising research firm in Williamsburg, Virginia. On average, industries spend about 30 percent of advertising budgets on the Web. Rascoff said this week that real estate advertising on Zillow and Trulia accounts for less than 4 percent of the market. He has said that the company won’t compete directly with brokers on buying and selling homes. One ClickPricing for advertising will be determined by the market and customers will go elsewhere if it is too high, Rascoff said. “The audience is one click away -- they can go to any website at any time and budgets can follow audience,” Rascoff said in a telephone interview. “Nobody forces agents to buy advertising with us. They choose to advertise if they make money when they spend money on Zillow.” Move Inc. (MOVE), the No. 3 U.S. property website and operator of the National Association of Realtors’ Realtor.com, sees the merger as an opportunity to build its brand with consumers, CEO Steve Berkowitz said in an interview yesterday after the San Jose, California-based company reported a wider-than-estimated second-quarter loss. While Zillow and Trulia integrate their cultures, Realtor.com intends to focus on an “Accuracy Matters” message, he said. “Realtors are your trusted adviser, we have a human being behind our brand, not a computer program,” he said. Crash RecoveryReal estate agents are still recovering from the housing crash that reduced both the number of deals and value of commissions as home prices fell. The typical Realtor is 56 years old and closed 12 deals last year, up from a low of seven deals in 2008 and 2009, according to a survey released in May by the National Association of Realtors. U.S. residential investment grew at a 7.5 percent annualized rate in the second quarter, compared with 4 percent growth for U.S. Gross Domestic Product, the Commerce Department reported today. The growth in housing follows two quarters of negative contribution to GDP. About 42 percent of homebuyers last year started the process by looking for properties online, up from 35 percent in 2011, according to a survey from the Realtors group. Only one in 10 buyers found their real estate agent through a website. About 54 percent were referred to their agent by a friend, neighbor or relative, or used the person before, the survey showed. Broker RelationshipsThe falling homeownership rate, the growth of Wall Street-backed landlords and the increase of houses sold at auctions are all nibbling away at the dominance of the real estate agent-buyer relationship, according to Rick Sharga, executive vice president at Auction.com LLC, the largest U.S. online real estate auction firm. “I’d be shocked if we don’t see the majority of sales transactions take place online,” Sharga, whose company received a $50 million investment from Google Inc.’s venture-capital arm in March, said in a telephone interview from his office in Irvine, California. “That doesn’t lead to the conclusion that the Realtor doesn’t have a role. It’s just different.” Agents still have a key role in the transaction that won’t be diminished by the proposed merger, according to the National Association of Realtors, the industry trade group that dominates real estate listings and sales. “In the Internet age, consumers are going to go online for real estate information, but they will continue to rely on local experts when they buy and sell property,” the group said in an e-mailed statement this week. Realogy DealRealogy (RLGY), based in Madison, New Jersey, has been able to use its scale to reach agreements with Zillow and Trulia to gain placement and pricing advantages on the search portals. The company is the largest residential brokerage operator in the U.S. through its NRT LLC unit. “Our existing marketing agreements with Zillow and Trulia are important to us and they will continue with the combined entity,” Mark Panus, a spokesman for Realogy, said in an e-mail. The company declined to comment further before it reports earnings next week. Realogy shares have fallen 17 percent in the past 12 months, while Zillow has doubled. Zillow briefly passed it in market value in June before surging again in the past week. Dave Liniger, chairman and co-founder of Re/Max Holdings Inc. (RMAX), said he wouldn’t be surprised if Zillow and Trulia raise ad prices after a merger. Raising ad rates is different from muscling in on sales to consumers, he said. “If they decide to be competitors, guess what?” said Liniger, whose Denver-based company went public last year. “Re/Max would take our 200,000 listings off their site.” Younger ShoppersThe migration away from the traditional real estate model will accelerate as younger, tech-oriented shoppers become homebuyers, increasingly reliant on the web for pricing information and services, according to Stefan Swanepoel, a consultant and author on real estate trends. Zillow’s advantage is using its big data capabilities to become indispensable to both buyers and sellers as “the strongest aggregator of real estate information ever created,” Swanepoel said in a telephone interview. “If these guys get to scale quickly, what you could see is Zillow-Trulia becoming the Google for online home search activity,” Neil Doshi, senior analyst with CRT Capital in San Francisco, said in a phone interview. If the portals become a first stop for buyers and sellers, “Zillow-Trulia becomes powerful for agents. They know this is the one place they have to go to capture people in the market.” Property ‘Gatekeepers’Real estate agents will be increasingly marginalized as technology takes a greater hold, putting pressure on the value of their services, according to Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “Real estate agents used to be gatekeepers of information, which is how they made money,” Green said in a telephone interview. “I expected to see compensation compression earlier. What other business can you get the same compensation whether you’re good or bad?” The combined Zillow and Trulia will have enough weight to counterbalance the National Association of Realtors, said Paul Habibi, a lecturer at the Ziman Center for Real Estate at the University of California at Los Angeles. “They’re not the 800-pound gorilla in the room but they have the potential to be a 100-pound gorilla,” Habibi said in a telephone interview. “They’re a force to be reckoned with.” -By Prashant Gopal and John Gittelsohn |