Real News‎ > ‎2014‎ > ‎June 2014‎ > ‎

13th June 2014

Singapore Economy

Unemployment rate inches up in Q1 but remains low: Manpower ministry

The seasonally adjusted overall unemployment rate was 2 per cent in March this year, up from 1.8 per cent in December 2013.

Source: Channel News Asia / Singapore

SINGAPORE: The unemployment rate in Singapore remains low, despite rising slightly in the first quarter of the year, Ministry of Manpower (MOM) figures show.

The key findings from MOM’s “Labour Market, First Quarter 2014” report, released on Friday (June 13), were that the seasonally adjusted overall unemployment rate was 2 per cent in March this year, up from 1.8 per cent in December 2013.

Similar increases were observed for residents from 2.7 per cent to 2.9 per cent and citizens from 2.8 per cent to 3 per cent. This could reflect increased job search activity as more residents, especially the less educated, were encouraged to enter the labour force, given more job openings and an increase in wages, with the tightening of foreign manpower controls, the ministry said.

The long-term unemployment rate stayed low at 0.6 per cent in March 2014. There were 12,900 residents who had been looking for work for at least 25 weeks in March 2014, down from 13,700 in March 2013.

Total employment grew by 28,300 in the first quarter, lower than the seasonally high increase of 40,600 in the last quarter of 2013 but broadly comparable to the 28,900 in the first quarter of 2013. This brought total employment to 3,552,200 in March 2014, which was 4 per cent higher than a year ago, the report said.

The seasonally adjusted job vacancies rose for the third consecutive quarter, though the rate of increase over the quarter moderated to 3 per cent in March 2014 from 9.2 per cent in December 2013 and 5.8 per cent in September 2013.

"It could mean there's a mismatch in the skills available in the market and the people that are looking for work just don't have the right skills," said Mr Ian Grundy, the head of marketing and communications for Asia at Adecco Group.

"It could also mean that the increase in jobs, for those jobs, they're just not that attractive. They may not be paying as much, or the benefits package may not be good enough, and that the employers need to make those jobs more competitive."Some economists say that job openings are more apparent in the food and beverage, accommodation and financial services sectors," Mr Grundy said.

"These sectors have been quite reliant on foreign manpower to some extent. This appears to indicate that the available labour pool may not be making up for the change to a new labour market regime, where we are trying to be less reliant on foreign manpower," noted Assoc Prof Randolph Tan, the Deputy Director for the Centre for Applied Research at SIM University.

"In short, what it really means is that, with a tighter labour market and less access to foreign manpower, what we hope is for the resident labour pool to be able to fill the needs of employers, but that doesn't seem to be happening immediately. At least that appears to be what we are seeing in this quarter." 

The ministry’s report also highlighted that job openings continued to outnumber job seekers, though the ratio has eased. The seasonally adjusted ratio of job vacancies to unemployed persons declined from 1.43 in December 2013 to 1.33 in March 2014.

A total of 3,110 workers were made redundant in the first quarter, a decline from the 3,660 in the preceding quarter, though this was higher than the 2,120 workers retrenched in the first quarter of last year.

- CNA/cy

Singapore Real Estate

Private housing market unlikely to see price war, say analysts

Developers are not in a rush to lower prices as demand has yet to reach a standstill

Source: Today Online / Business

SINGAPORE — While more developers have taken to cutting prices to improve sales amid a property slowdown, potential home buyers anticipating a broad-based price war may be disappointed as the private residential market has yet to reach a tipping point that could trigger such a situation.

Analysts told TODAY that most developers are not in a rush to lower prices given that demand has yet to reach a standstill. Projects that have been relaunched at a discount are isolated cases that are unlikely to result in intense price competition in the market, they said.

Multiple sets of cooling measures and loan restrictions introduced last year have kept buyers on the sidelines, forcing some developers, including CapitaLand, South-east Asia’s largest listed developer, to re-launch certain projects at lower prices to generate demand.

CapitaLand in April re-launched its Sky Habitat condominium in Bishan at about 10 to 15 per cent lower than its initial launch price, helping it sell 130 units in that month alone. This was compared with the 182 units sold since Sky Habitat’s launch in April 2012.

In February, MCL Land cut prices at Hallmark Residences at Ewe Boon Road by about 10 per cent. Sales have jumped about eight times to 41 units since, versus the five sold before the discount.

And at Wheelock Properties’ The Panorama in Ang Mo Kio, a 10 to 15 per cent price cut helped offload an additional 80 to 85 units, adding to the 56 units moved since its initial launch in January.

Despite these success stories, developers are unlikely to launch into a broad-based price war, said analysts.

“If we look at the few developers that are cutting prices, their projects tend to be a bit isolated. For example, there are no other new 99-year launches near The Panorama and there’s also no similar competing project around Sky Habitat … I don’t think we’ve reached a situation where there’s a price war,” said Mr Nicholas Mak, executive director of research and consultancy at SLP International.

Singapore’s low interest-rate environment is also expected to continue to sustain demand in the long run, offering little reason for developers to slash prices too drastically.

“I think developers will not participate in a price war until interest rates start rising steadily. At the moment, there’s no indication that prices will collapse in a big way ... Many developers are doing okay financially, they just have to nudge it, offer a little discount, to keep their income stream,” said Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants.

“Many times the discounted units are the relatively unpopular ones, for example, those on lower floors or facing a less desirable direction. These units are valued at a lower price anyway, so a market-wide impact is quite limited.”

Private home prices fell for the first time in almost two years in the last three months of last year, slipping 0.9 per cent on a quarterly basis. In the first quarter of this year, prices declined another 1.3 per cent, showed Urban Redevelopment Authority (URA) data.

But recent moves by developers to reduce prices are helping to draw buyers’ attention.

In April, 745 new private homes were sold, up 55 per cent in March.

To further boost activity, developers of slow-moving projects may want to consider taking prices a little lower, said Ms Penny Yaw, head of research at HSR International Realtors.

“In recent years, we have seen property developers throwing in non-cash goodies to justify higher selling prices and to encourage sales. We think the time is ripe to take out some of these freebies and to simply reduce the selling prices … If prices were to be reduced by 15 to 20 per cent, the unsold units would move fairly quickly,” she said.

But several developers contacted by TODAY said they have no immediate plans to slash prices.

TA Corp, part of the joint venture developing The Skywoods at Dairy Farm, said: “Despite the impact of the Total Debt Servicing Ratio on overall market sentiment, we have seen encouraging take-up for The Skywoods … We are monitoring buyers’ sentiment closely and have no plans to change our marketing strategy as yet.”

Far East Organization also said it has no plans to relaunch any of its projects.

Meanwhile, buyers of projects that have since been relaunched at lower prices need not be too concerned that banks will come chasing them for a top up on their housing loans.

“I think it’s still too early for the banks to request for top ups as the price falls are still moderate and the ability of borrowers to service their housing loans remain strong,” said head of mortgage advisory at REMS Advisor Chew Ching Lien.

“While the existing owners may be sitting on paper losses, the property market moves in a cycle and valuation may come up again when these projects are completed.”

OCBC Bank’s head of consumer credit risk Joseph Wong echoed that sentiment, saying that the possibility of invoking a margin call on housing loans is low given that movements in local home prices are rather stable.

-By Lee Yen Nee

URA's landscape renewal to cover more areas

Policy extended to include residential, commercial, hotel, mixed-use projects

Source: Business Times / Business

THE Urban Redevelopment Authority (URA) yesterday announced enhancements to the 2009 Landscaping for Urban Spaces and High Rises (LUSH) programme, aimed at encouraging developers to plan for more green spaces in Singapore.

Termed LUSH 2.0, which includes the landscape replacement policy, it will now cover more geographic areas.

Developments in strategic areas must replace the full site area with green communal spaces - at least 40 per cent must be planting areas and the remaining 60 per cent landscaped communal areas.

Additionally, the policy has been expanded to cover all residential, commercial, hotel and mixed-use developments outside strategic areas to set a minimum greening standard island-wide.

-By Sheene Tan

Lush spreads its green cover further

Source: Straits Times

To encourage skyrise greenery such as roof gardens in private developments, more areas will be subject to regulations and developers given more incentives under an enhanced government scheme. Since the Landscaping for Urban Spaces and High-Rises (Lush) programme started in 2009, it has supported the addition of 40ha of new urban greenery - the size of 130 primary school fields - in new developments. 

Greener high-rise buildings under LUSH 2.0

Source: Today Online / Business

SINGAPORE — To further promote greenery in Singapore’s urban landscape, the Landscaping for Urban Spaces and High-Rises (LUSH) initiative has been expanded to cover more development types and geographical areas than its original scheme, the Urban Redevelopment Authority (URA) said yesterday.

Termed LUSH 2.0, the enhanced programme includes additional incentives and regulations to encourage developers and building owners to adopt more green features.

One of the enhancements requires a larger number of buildings to replenish greenery displaced during their development.

Bonus gross floor area (GFA) over and above Master Plan gross plot ratio limits for rooftop outdoor refreshment areas will now be extended to new developments and redevelopment proposals.

The URA will also be more flexible in considering covered areas of communal ground gardens and wider communal planter boxes for GFA exemption.

“The provision of greenery in Singapore has always been important in our planning — not just because it beautifies our city, but because we see the value of greenery in improving our quality of life. This is an effort that involves many partner agencies, as well as developers and building owners, working together to create a lush environment for people to enjoy,” said URA chief executive Ng Lang.

More than 40ha of green spaces have been added within Singapore’s urban areas since the introduction of LUSH in 2009. That is equivalent to 130 primary school fields, the authority said.

“The green message is spreading … We are pleased with what LUSH has accomplished and have decided to do more through additional incentives and regulations. Our aim is to make Singapore a great garden and a great home,” Minister for National Development Khaw Boon Wan wrote in a blog post yesterday prior to the URA’s announcement.

Developers welcomed the government’s push for more skyrise greenery.

Mr Tan Seng Chai, CapitaLand’s group chief corporate officer and chairman of the company’s sustainability steering committee, said: “Skyrise greenery not only enhances the environment by bringing building users closer to nature, but also reduces urban heat gain, which potentially translates to energy savings.”

City Developments (CDL) said besides environmental benefits, buildings with green features are also better-received by users.

“Besides the carbon and energy usage reduction that can be achieved by doing this, developments with green spaces are also fast gaining popularity as they offer added lifestyle enjoyment for users,” a CDL spokesperson said.

“The enhancements under the LUSH 2.0 programme will no doubt keep Singapore at the forefront in creating gardens in the sky, and is a step in the right direction to enhance our ‘Garden in a City’ reputation.”

-By Lee Yen Nee

$1.44b Nusajaya Tech Park breaks ground at Iskandar

Source: Straits Times

COMPANIES looking to operate in Malaysia's booming Iskandar growth corridor will soon have the option of setting up shop at the upcoming $1.44 billion Nusajaya Tech Park. A ground-breaking ceremony was held yesterday for the 210ha park, a joint venture between property developers Singapore's Ascendas and Malaysia's UEM Sunrise.

Iskandar 'complements, not competes with' Singapore industries

Ground-breaking ceremony held for Nusajaya Tech Park

Source: Business Times / Top Stories

[SINGAPORE] The trade ministers of Singapore and Malaysia yesterday emphasised that the Iskandar development region in Johor will complement, rather than compete with, Singapore's own manufacturing sector.

They stressed this at the ground-breaking ceremony of Nusajaya Tech Park, the 60:40 project between Singapore's Ascendas and Malaysia's UEM Sunrise.

The tech park, located minutes from the Tuas second-link expressway, allows Singapore companies looking to expand, as well as international firms looking to develop new supply chains in South-east Asia.

In urging Singapore companies seeking to venture overseas to consider Iskandar, Trade and Industry Minister Lim Hng Kiang said that the proximity of Singapore and Iskandar allows investors to "position their full value chain of business and manufacturing functions across both locations, hence spurring the development of complementary industries".

"With the right mix of industries and enhanced connectivity, there is potential for both countries to develop a seamless economic space," he added.

Speaking to the media later, Malaysian International Trade and Industry Minister Mustapa Mohamed remarked that the high-tech park is in line with Malaysia's objective of moving up the value chain to sustain its Economic Transformation Programme.

President and group CEO of Ascendas, Manohar Khiatani, told BT that the park is not intended for low-value labour-intensive activities, but mid to higher value-added activities that Singapore cannot contain due to its resource constraints. He likened it to a buffet spread before someone with a limited appetite.

"These activities that cannot be hosted in Singapore are equally valuable activities, and now they can be hosted in Nusajaya Tech Park, so it's like an extension of our industrial activity," he said.

Asked if international companies will prefer to locate in Iskandar over Singapore for affordablity reasons, he said: "There is clearly a trend of companies coming to Iskandar not just to arbitrage labour costs or operating costs, but to develop new supply chains in South-east Asia. Some of the end products are made in Singapore, so if they can get their suppliers who also make high value components to be based close by - whether in Singapore or Iskandar - then it just enhances the attractiveness of the whole value proposition."

The 210-hectare Nusajaya tech park will be developed in phases over nine years, although the start-up phase spanning 28 ha of ready-built facilities and land plots for build-to-suit developments will be completed by 2016.

When fully completed, the park is expected to yield nine to 10 million square feet of industrial and office space. It aims to cater to multinational companies and small and medium enterprises in growth industries such as precision engineering, electronics, light and clean manufacturing, and warehousing and logistics.

Already, the park has received 40 per cent pre-commitment for the ready-built facilities in the start-up phase. Mr Khiatani said a large proportion of them are Singapore-based companies, 

but German and Japanese firms have also expressed interest in the park. The marketing team is also going to the United States next month to promote the tech park and Iskandar region to investors.

Yesterday also saw precision engineering firm Sanwa Group of Companies, logistics and supply chain solutions partner YCH Group and Telekom Malaysia's info-communication technology unit, VADS Berhad, sign expressions of interest in the park.

The park's freehold facilities are mostly land-based factories, suited for chemical as well as marine and offshore engineering industries, but which tend to be limited in Singapore due to space constraints.

The park's facilities range from semi-detached units of 13,000 sq ft to detached factories of 42,000 sq ft, with prices averaging RM380 (S$148) per square foot (psf) - a fraction of Singapore's industrial land which transacted for S$320 to S$640 psf in the first quarter of this year. The tenures of plots in Singapore go up to a maximum of 60 years only, and even this was recently slashed.

Nusajaya Tech Park is actually Ascendas's first industrial project in Malaysia, a fact that Mr Mustapa acknowledged in his speech with a good-natured: "Better late than never!"

-By Lee Meixian

Ascendas' Nusajaya Tech Park breaks ground in Iskandar

The commercial property landlord's first large-scale industrial park development in Malaysia is expected to be one of the key economic drivers in Johor.

Source: Channel News Asia / Singapore

JOHOR: Singapore commercial property landlord Ascendas and its Malaysian partner, UEM Sunrise, broke ground for its Nusajaya Tech Park project at Iskandar Malaysia on Thursday (June 12).

The park - which will cater to key growth industries like precision engineering, electronics, clean manufacturing and logistics - has a projected gross development value of S$1.5 billion (RM3.7 billion). To be developed in three phases over nine years, it is expected to reap economic benefits for both Singapore and Malaysia.

Spanning 210 hectares, the integrated tech park will have ready-built facilities and land plots for build-to-suit developments. The first phase of the development is expected to be completed in 2016.

Ascendas says the selling price for the freehold project is about RM380 ringgit per square foot. For the built-to-suit, there will be different considerations, depending on the complexity of the building.

This is Ascendas' first large-scale industrial park development in Malaysia and it says the park has generated interest. Ascendas soft-launched 43 units of the ready-built factories in January, and about 40 per cent has been taken up. "Most of the interest comes from the smaller and medium-sized companies, many of them are Singapore-based companies," said President and Group CEO of Ascendas, Mr Manohar Khiatani.

Companies including Sanwa Group of Companies, YCH Group, and VADS Berhad have also indicated interest in the new tech park. Sanwa is exploring taking up a 72,000 sq ft facility for their precision engineering and manufacturing operations.

Meanwhile, YCH Group has teamed up with Nusajaya Tech Park to explore developing a state-of-the-art supply chain facility operated by the group within Iskandar Malaysia. VADS Berhad is exploring the setting up of a data centre in the park.

YCH Group told Channel NewsAsia that the Malaysia market currently accounts for 10 to 15 per cent of the company's revenue, and this proportion is set to grow with its potential presence in Nusajaya Tech Park.

The two trade ministers from Singapore and Malaysia joined stakeholders at the ground-breaking ceremony for Nusajaya Tech Park on Thursday. "This high-tech park is designed to complement operations of some companies in Singapore with companies in Malaysia. This marriage is a very strong marriage," said Mr Mustapa Mohamed, Malaysia's Minister of International Trade & Industry. "It goes to show how we are committed to further develop ties between Singapore and Malaysia. This place will result in a lot of spin-off activities in Iskandar, Johor, and it will be a win-win collaboration for our two countries."

"The Nusajaya Tech Park is expected to be one of the key economic drivers in Johor," he added. "When completed, it will support some 200 companies and a business community of over 20,000 people."

Singapore's Minister of Trade and Industry Lim Hng Kiang called on Singapore companies seeking to venture overseas to consider Iskandar Malaysia as an option, calling the development a strategically important one for both Malaysia and Singapore.

"We have and will continue to jointly develop industries with synergistic activities in both Singapore and Iskandar Malaysia," he said. "With the right mix of industries and enhanced connectivity, there is potential for both countries to develop a seamless economic space."

Singapore is the top foreign investor in Iskandar Malaysia, with committed investments of RM 11 billion as of April this year. The special economic zone has attracted total investments of RM 138.61 billion, of which 45 per cent have been realised, according to the Iskandar Regional Development Authority. 

- CNA/xy

HUDC estate at Hougang Ave 7 privatised

Only two HUDC estates in Singapore still yet to be privatised

Source: Channel News Asia / Singapore

SINGAPORE: The HUDC estate at Hougang Avenue 7 has been privatised under the Land Titles (Strata) Act, after it obtained the required 75 per cent majority support, the Housing and Development Board (HDB) said on Friday (June 13).

This means that the Aljunied-Hougang-Punggol East Town Council is no longer responsible for managing and maintaining the common properties of the estate, which comprises 286 units of flats at Blocks 344 to 350 Hougang Avenue 7.

The Management Corporation Strata Title Plan No. 4013 will be constituted to take over the management and maintenance of the estate’s common properties. Individual owners in the estate will own their respective strata units, as well as the common property such as car parks and open landscaped areas, as tenants-in-common, the HDB said in a statement.

Among the 18 HUDC estates in Singapore, 16 have completed the privatisation process. For the remaining two estates, Potong Pasir is currently undergoing privatisation, while Braddell View has just obtained the support level for privatisation.

- CNA/do

Real Estate Companies' Brief

Ascott inks franchise pacts in Vientiane, Bali

Source: Business Times / Companies

THE Ascott Limited, the serviced residence arm of CapitaLand, has inked its first franchise agreements in Vientiane, the capital city of Laos, and Bali in Indonesia.

An operating serviced residence in Vientiane will be rebranded as the 116-unit Somerset Vientiane in the fourth quarter and the 194-unit Citadines Kuta Beach Bali is scheduled to open in August.

The franchise agreement for Somerset Vientiane is entered with a subsidiary of Singapore-listed hospitality player LCD Global Investments Ltd.

Under the agreement, LCD's Parkview Executive Suites will be rebranded as Somerset Vientiane. Ascott will manage the serviced residence for the first two years before transitioning to a franchise arrangement.

-By Lynette Khoo

Ascott secures franchises in Vientiane, Bali

Franchising will be a key growth driver for the company, CEO Lee Chee Koon says.

Source: Channel News Asia / Business

SINGAPORE: Serviced residence operator Ascott has secured its first franchise agreements in Vientiane, Laos, and Bali, Indonesia, the company said on Thursday (June 12).

It will operate a serviced residence in Vientiane, which will be rebranded as a 116-unit Somerset Vientiane, in the fourth quarter of this year, as well as the 194-unit Citadines Kuta Beach Bali that is scheduled to open in August this year, according to its statement.

Ascott CEO Lee Chee Koon said franchising will be a key growth driver for the company. “Together with investments, management contracts and strategic alliances, franchise will bring us closer to achieving our target of 40,000 apartment units globally by 2015,” he said.

Ascott awarded the Somerset Vientiane franchise to a subsidiary of LCD Global Investments, a Singapore-listed real estate and hospitality group. Ascott will manage the serviced residence for two years before transitioning to a franchise arrangement, according to the statement.

The franchise for Citadines Kuta Beach Bali was awarded to PT Menara Permata Propertindo, it added.

- CNA/cy

Low Keng Huat Q1 net dips 4%; revenue up 36%

Source: Business Times / Companies

CONSTRUCTION group Low Keng Huat (Singapore) Limited has posted a net profit of $14.6 million for the three months ended April 30 this year (Q1 FY2015), as year-on-year Q1 revenue increased by 36 per cent to $24.2 million.

However, the profit attributable to shareholders was 4 per cent lower than that for Q1 FY2014 owing to lower profits from the construction segment.

Construction revenue increased by $7.5 million to $11.9 million for Q1 FY2015 from $4.4 million last year.

This was largely due to a $114.3 million contract awarded to the group in June 2013 for the design and building of a hotel block at Jurong Town Hall Road that is expected to be completed in the first half of 2015.

-By Lester Wong

Views, Reviews & Forum

'Locking in' the Quay to our trading history

Source: Straits Times

Robertson Quay today is home to an array of cafes, restaurants and contemporary art galleries. Round the corner in Jiak Kim Street is iconic nightclub Zouk, which has been drawing partygoers for the past 23 years. Yet the area has not always been so cosmopolitan.

Leavening touch of neighbourliness

Source: Straits Times

Many would aver instinctively that as people got more packed together in urban spaces, the less close-knit they became. There's more to it, of course, than just a reflexive lurch towards privacy triggered by cheek-by-jowl living conditions. The "kampung spirit" of olden days, that the pioneer generation are not alone in still talking about nostalgically, thrived despite the cramped conditions of makeshift homes. People are less neighbourly now perhaps because their emotional, social and instrumental needs are fulfilled increasingly by links formed outside their neighbourhood - at workplaces, schools, recreational spaces and in cyberspace.

Restore Bukit Timah Nature Reserve without closing it

Source: Straits Times

The news that the National Parks Board (NParks) is going to restore Bukit Timah Nature Reserve is welcome and long overdue ("Bukit Timah Nature Reserve to shut for repairs"; June 3). The sorry state of the trail network is the result of a lack of maintenance and effective management over many years. Now, NParks is moving to the opposite extreme and attacking it all in one huge project, resulting in the virtual closure of the reserve for two years.

Global Economy & Global Real Estate

World housing prices soar as global economy recovers

Source: Straits Times

Malaysian housing developers ignoring freebie guidelines

Source: Business Times / Top Stories

SOME seven months after more cooling measures were introduced, home prices continue to inch up as developers prefer to offer rebates than price their products lower.

Many appear to be not abiding by guidelines on "freebies". Some banks are also still basing their financing on the sales-and-purchase agreement (SPA) price rather than net selling price, a survey by the national House Buyers Association (HBA) has found.

On a more positive note, except for one small developer, the projects surveyed by HBA volunteers did not offer the easy financing developer interest bearing scheme (Dibs), which the government had banned from this year.

Brochures and other materials gathered by volunteers at various property fairs, however, indicate that many developers - even the bigger ones - are ignoring the guideline on so-called freebies.

-By Pauline Ng in Kuala Lumpur

China group to build creative hub in Sydney

A$25m tower will be tallest residential building in Australia

Source: Business Times / Property

[CANBERRA] Chinese property development group Greenland is determined to make its new project in Sydney, a new tower that will not only be the tallest residential building in Australia but will also house a creative hub featuring dance, theatre, music, film and visual arts facilities.

Mayor of Sydney Clover Moore announced on Tuesday that the A$25 million (S$29 million) creative hub will be built in the heart of the city following an agreement between her city and Greenland.

An Australian first, the hub will span 2,000 square metres over five stories.

In addition to the hub, the A$440 million, 67-story Greenland Center will feature 490 residential apartments and ground-floor retail space, while a 173-room hotel will be built on a neighbouring site in Sydney city centre.

-From Canberra, Australia

Investors turn to Japan Reits as inflation hedge

They're banking on asset price rises; stable interest rates

Source: Business Times / World

[TOKYO] Yield-hungry investors have been betting that Japanese real estate investment trusts will pay off as asset prices rise and interest rates remain stable, with the instruments growing in popularity among both retail and institutional investors.

The Tokyo Stock Exchange Reit Index pushed to 13-month highs this month, and has risen around 3 per cent so far this year, helped by the introduction in January of the Nippon Individual Savings Account (NISA).

The tax-break facility was set up to give Japanese retail investors incentive to move their funds to other assets from historically low-earning saving accounts, whose cash value erodes as the Bank of Japan slowly moves closer to meeting its 2 per cent inflation target.

"People have started realising inflation is really coming,"said Kyoya Okazawa, head of global equities and commodity derivatives at BNP Paribas in Tokyo, to explain Reits' appeal. "I think it's an inflation hedge," he said. "This kind of fear is pushing some money into higher-yielding assets instead of just bank deposits."

-From Tokyo, Japan

Manila acts to cut risk from property market

Banks ordered to adjust capital for real-estate exposure

Source: Business Times / World

[MANILA] Philippine lenders can have greater real estate exposure as long as they have enough capital buffers to stem risks identified in an industry stress test, the central bank said, as it issued new rules aimed at reducing risks arising from a growing property market.

The new regulation, which came ahead of a rate policy review on June 19, is a "pre-emptive macro-prudential policy measure" to ensure that banks' real estate exposure remains healthy, the central bank said in a statement late on Wednesday night.

But it said the new measure "does not reflect any imminent vulnerability among banks with exposure to the real estate sector". Stress tests will be conducted under the new prudential guideline to determine whether banks' capital is sufficient to absorb credit risk related to real estate lending and investments.

At present, Philippine banks are required to meet a capital adequacy ratio of 10 per cent, higher than a Basel II requirement of 8 per cent.

-From Manila, Philippines

Retail sales rise less than forecast in May

Purchases are up 0.3%; consumers take break after 3-month surge in shopping

Source: Business Times / World

[WASHINGTON] Retail sales rose less than forecast in May as American consumers took a respite following a three-month surge in shopping that has underpinned economic growth.

The 0.3 per cent increase in purchases last month followed a revised 0.5 per cent gain in April that was much larger than previously estimated, Commerce Department figures showed yesterday in Washington.

Consumers are ramping up spending as a healing job market and rising home values boost balance sheets. Higher May sales from auto lots to Lowe's Cos Inc signal vitality in household spending, which makes up about 70 per cent of the economy, though bigger wage gains may be needed to sustain the momentum.

"The more jobs there are, the more people with money in their pockets," Ward McCarthy, chief financial economist at Jefferies LLC in New York, said before the report. "One of the key components of this cycle is that consumer spending has been moderate because income growth has been moderate."

-From Washington, US

US retail sales edge higher in May

Source: Channel News Asia / Business

WASHINGTON: US retail sales rose modestly in May, lifted mainly by auto sales, but the April gain was revised sharply higher, pointing to stronger growth, government data released Thursday showed.

Retail and food services sales rose 0.3 per cent in May, after a revised 0.5 per cent gain in April, the Commerce Department said.

The previous April estimate was only 0.1 per cent.

Excluding auto sales, May retail sales edged up 0.1 per cent, according to the data which is adjusted seasonally but not for price changes.

The May numbers came in much weaker than analysts expected; the average estimate was for a 0.7 per cent rise in retail sales and a 0.4 per cent rise in ex-auto sales.

But the strong upward revisions to the April numbers indicated a better retail environment in general, analysts said.

"Retailers are on course for their best calendar quarter for over three years, providing further evidence that the US economy is warming up from the cold spell earlier in the year," said Chris Williamson, chief economist at Markit.

Year-over-year, total retail sales in May were up 4.3 per cent.

The Commerce Department said that total retail sales in March through May period were up 4.3 per cent from the same period a year ago.

Sales of motor vehicles and parts rose 1.4 per cent in May, leading the monthly gain.

Sales at gasoline stations rose 0.4 per cent, while non-store retailers' sales advanced 0.6 per cent as shoppers increasingly go online.

Department stores posted the largest sales drop, at 1.4 percent.

- AFP/nd

Economists lose sleep over weak US rebound

Unemployment and investment trends making Americans permanently poorer

Source: Business Times / World

[WASHINGTON] The Great Recession was bad enough, but the not-so-great recovery might be even worse.

It's been so weak that the long-term unemployed might become unemployable, that too little investment today might create bottlenecks tomorrow and that, taken together, we might never get back to growing like we did before the crisis.

In other words, we might be permanently poorer.

But just how much poorer? Economist Larry Ball has compared how much the Organization of Economic Cooperation and Development (OECD) thought that developed economies could grow in 2007 with how much they think those countries can grow today. The depressing answer is that, on an economy-weighted average, they think rich countries have lost 8.4 per cent of their potential output.

-From Washington, US

Thai central bank hints of rate freeze

Current level is 'still supportive of economy'

Source: Business Times / World

[BANGKOK] Thailand's current policy interest rate level is already low and still supportive of the economy, hurt by months of political unrest, the central bank chief said yesterday, reinforcing expectations that the rate will be left unchanged next week.

The army seized power on May 22 in a bid to restore order and confidence. It is taking steps to revive South-east Asia's second-largest economy that shrank 2.1 per cent in the first quarter from the previous three months.

The central bank's monetary policy committee (MPC) voted 6-1 to hold the policy rate steady at 2.0 per cent at its last meeting in April, after two cuts in March and November to shore up confidence hurt by the unrest. "The current monetary policy already supports an economic recovery. A rate of 2 per cent is relatively low, while liquidity in the system is ample," Bank of Thailand governor Prasarn Trairatvorakul told reporters.

The seven-member MPC will meet on June 18 and most economists expect rates to stay on hold again. Some analysts, however, think a cut is possible due to a sluggish economy.

-From Bangkok, Thailand

AXA Real Estate Plans to Build Australia Offices as Demand Soars

Source: Bloomberg / News

AXA Real Estate Investment Managers, a unit of Europe’s second-largest insurer, plans to develop office buildings in Australia after failing to acquire a second existing property in the country.

“It’s becoming more and more competitive,” Frank Khoo, head of Asia at Paris-based Axa SA (CS)’s property division, said in an interview in Sydney. “So one of the things we’re looking at is developing high-quality properties.” Axa Real Estate will consider developments without tenant pre-commitments in markets where demand is strong, he said.

Investor demand for Australian offices hit record highs in 2013, cutting yields on prime assets by 50 basis points in Sydney’s center and 70 points in downtown Melbourne since late 2009, CBRE Group Inc.’s first-quarter Australia Office Marketview report showed. Investors are moving to lower-quality assets to take advantage of higher yields and potential for price growth, it said.

Axa Real Estate in September partnered with local asset manager Eureka Funds Management on its first Australian purchase, the New South Wales state headquarters of Australia Post, about 3 kilometers (1.9 miles) south of Sydney’s center. The property is now valued at about A$175 million ($164 million), compared with the A$168 million the company paid, Khoo said.

The company is seeking to increase assets in Australia to as much as A$500 million by the end of the year, Khoo said. It plans to fund half of that investment increase with debt, he said. Its parent would commit about a third of the funds and the rest would come from third-party capital, he said.

Axa Real Estate is seeking buildings or land on the fringes of Sydney and Melbourne city centers. It’s also looking in secondary business districts in Sydney, including Parramatta, about 25 kilometers west of downtown Sydney, and North Sydney suburb, about 5 kilometers from the center.

AXA Real Estate has 48 billion euros ($65 billion) under management globally, according to its website. The company has $800 million in the Asia-Pacific region, Khoo said.

-By Nichola Saminather

Manhattan Apartment Rents Rose to Five-Year High in May

Source: Bloomberg / Luxury

Manhattan’s apartment market is heating up in the busiest season for moving, sending rents to a five-year high and shifting the advantage back to landlords after a brief respite for tenants.

The median monthly rent rose 3.1 percent in May from a year earlier to $3,300, the highest since February 2009, according to a report today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. The vacancy rate slipped to 1.58 percent from 1.60 percent.

Rents are rebounding after a six-month slide that started in September, when a surge in home sales helped push up apartment vacancies. Rigid mortgage standards and higher prices are tipping would-be buyers into the rental market, while employment growth is increasing the pool of potential tenants, said Jonathan Miller, president of New York-based Miller Samuel.

“Weakness in the rental market was short lived,” Miller said in an interview. “This pent-up demand from purchasers has been worked off and more people are getting hired. Rents tend to react more to rising employment than purchases.”

New York City added 75,000 jobs in the 12 months through April, according to the state Labor Department. The unemployment rate was 7.9 percent, down from 8.8 percent in April 2013.

The months from May to September are typically the busiest time for rentals as college students graduate and get jobs and families settle down before the next school year starts.

‘Gaining Momentum’

After referring in March to the New York market as “being on the pause button,” David Santee, chief operating officer of Equity Residential (EQR), said last week that the city is “gaining momentum.” His Chicago-based company is the country’s largest publicly traded apartment landlord.

At Equity Residential’s 30 New York properties, rents are up 4 percent from last year and apartments are almost 97 percent occupied, Santee said at a conference in New York sponsored by the National Association of Real Estate Investment Trusts.

Homebuyers last year rushed to complete deals as a spike in mortgage rates from near-record lows in May threatened to make homes more expensive. In the fourth quarter, Manhattan condominium and co-op sales reached the highest total for the period in 25 years of record-keeping, according to Miller. That meant landlords were facing higher vacancy rates and offering concessions, such as a free month’s rent, to fill apartments.

‘Act Quickly’

Last month, 7 percent of new leases included incentives to entice tenants, down from 9 percent in April and the lowest level since October, according to Citi Habitats, which also released a report on the Manhattan rental market today. Those offers will continue to dissipate, said Gary Malin, president of the brokerage.

“Negotiability isn’t as high as it was,” Malin said. “This is busiest time of year and there’s limited inventory. Tenants need to act quickly. An hour or two-hour delay could mean you lose the apartment.”

Joelle Getrajdman said she and her boyfriend lost one Upper East Side unit to a competing offer from a tenant already living in the building. The couple struggled to find other one-bedroom apartments in the neighborhood within their monthly budget, which was no more than $2,500.

Morgan Turkewitz, a broker at Citi Habitats, directed Getrajdman to a third-floor unit on 88th Street that was still under construction. It was one of a few apartments being remodeled in the six-story building.

“We had to be a little creative,” Turkewitz said. “This one building had apartments that were not yet listed, so we rushed over there and then immediately wound up applying.”

Unfinished Floors

It didn’t matter to Getrajdman, 27, that the stove and sink weren’t yet installed or that the floors weren’t finished.

“An hour and a half after I saw the apartment, I was in Midtown signing the lease and putting down a deposit,” said Getrajdman, who graduated last month from Rutgers University’s Robert Wood Johnson Medical School in New Brunswick, New Jersey, and moved to New York for her residency in surgery.

More renters who already live in Manhattan are staying put. The number of new leases in May fell almost 23 percent from a year earlier, suggesting tenants remained in their apartments as better deals elsewhere got harder to find, Miller said.

In Brooklyn, New York’s most populous borough, new leases tumbled 53 percent, according to Miller Samuel and Douglas Elliman. Rents jumped 8.6 percent from May 2013, bringing the monthly median to $2,800, or $500 less than in Manhattan.

Brooklyn Gap

“We were wondering at one point if Brooklyn would be as expensive as Manhattan, but the gap has widened,” said Luciane Serifovic, executive vice president and director of rentals at Douglas Elliman.

In February, the median rent in Brooklyn was just $210 less than in Manhattan, the smallest difference since Miller Samuel and Douglas Elliman began tracking the market in 2008.

Luxury apartments in Manhattan, the top 10 percent of leases by price, cost a median of $7,950 a month in May, down 2.7 percent from a year earlier. The number of new rental agreements in the category dropped 23 percent.

Among Manhattan neighborhoods, leasing costs last month were highest in Soho and Tribeca, ranging from an average of $2,610 a month for studios to $7,961 for three-bedroom units, according to Citi Habitats.

On the Upper East Side, studios leased for $1,885 on average, while three-bedroom apartments commanded $5,469, the brokerage said.

-By Heather Perlberg

Blackstone Forms Venture for $2 Billion Shopping-Center Deal

Source: Bloomberg / News

Blackstone Group LP (BX) formed a venture with DDR Corp. (DDR) to buy 76 shopping centers from American Realty Capital Properties Inc. (ARCP) for $2 billion including assumed debt.

The Blackstone Real Estate Partners VII fund will own 95 percent of a venture formed to purchase the properties, with DDR owning the rest, the companies said in a statement today. American Realty said last month it planned to sell the multitenant shopping centers to Blackstone to fund its purchase of Red Lobster’s real estate portfolio.

In January, Blackstone teamed up with DDR to buy 46 U.S. shopping centers for $1.43 billion from a unit of Elbit Imaging Ltd. Retail landlords are benefiting from rising retail sales, which rose 0.3 percent in May following a revised 0.5 percent gain in April, Commerce Department figures showed today.

The latest transaction will “produce attractive risk-adjusted returns while securing access to acquisition opportunities in the future,” Daniel B. Hurwitz, chief executive officer of Beachwood, Ohio-based DDR, said in the statement.

The venture plans to sell 29 of the properties, Joseph Tichar, senior vice president of corporate operations at DDR, said in an e-mail.

“We are in the process of evaluating assets within the portfolio that do not meet the joint venture’s investment thesis,” Tichar said.

The proposed deal includes debt of $461 million and about $800 million of new financings, according to the statement. The properties have combined space of 16.4 million square feet (1.5 million square meters).

DDR has the right of first offer to buy 10 of the assets, according to the statement. The deal is expected to close in the third quarter.

-By Neil Callanan and Brian Louis

Home Prices Fall in London’s Priciest Districts as Market Cools

Source: Bloomberg / Luxury

Home values in Kensington & Chelsea and Westminster, London’s most expensive boroughs, fell in April as a strengthening pound and potential new taxes deter wealthy foreign buyers.

The average price paid for a home in Westminster, which includes Mayfair and St. James’s, fell 2.9 percent to 1.19 million pounds ($2 million), according to data compiled by Acadata Ltd. Values in the borough dropped 14 percent from a year earlier, the real estate research firm and LSL Property Services Plc said in a report today.

U.K. home prices have soared amid near record-low borrowing costs and a growing economy. Values in London’s best areas have led gains, jumping more than 70 percent since 2009 as political and economic turmoil overseas attracted cash-rich buyers and foreign investors seeking a haven, according to Knight Frank LLP. Today’s report showed prices fell in six of London’s 10 most expensive boroughs in April and the 0.2 percent monthly gain was the lowest in 10 months.

“We are seeing a cooling of the market in some London locations, even if the 13.3 percent annual increase in prices would be categorized as ‘high’ by most market commentators,” Acadata Chairman Peter Williams said in the report.

In Kensington & Chelsea, which includes the affluent Knightsbridge neighborhood, average values fell 2.7 percent in April to 1.9 million pounds. Over the year through April, values there rose about 31 percent, the third-highest gain by a London borough after Lambeth and Tower Hamlets.

Mansion Tax

Offering prices of homes valued at 10 million pounds or more “are being reduced by 10 percent to more reasonable levels right across central London,” David Adams, managing director at broker John Taylor, said in a June 11 statement. “The Europeans are concerned about the slight chance of a mansion tax should Labour be elected.”

A weakened pound following the financial crisis helped attract foreign buyers to London properties. The U.K. currency has risen 7.5 percent against a basket of international currencies in the last 12 months. It gained 17 percent against the Russian ruble.

Home values in England and Wales rose 8.5 percent to an average of 266,013 pounds in the 12 months through May, the biggest annual increase since August 2010 and the highest value on record, according to the report.

Williams, commenting on reports that price gains are weakening, said: “The slowdown in prices, if it exists, is currently limited to the top end of the market and in prime Central London only.”

-By Neil Callanan

Carney Sees Housing Debt Risk as Rate Increases Near

Source: Bloomberg / Luxury

Mark Carney said rising U.K. mortgage debt may threaten Britain’s recovery as he signaled interest rates might start to rise earlier than anticipated.

Investors pulled forward bets on the timing of the Bank of England’s first benchmark rate increase from the record-low 0.5 percent after the central bank governor said it “could happen sooner than markets currently expect.” Speaking yesterday at the annual Mansion House speech in the City of London, he said higher borrowing costs could stretch over-leveraged households and undermine financial stability.

The pound rose after the comments, which followed a pledge from Chancellor of the Exchequer George Osborne that the BOE’s Financial Policy Committee will get new powers to curb mortgage lending as a surging housing market raises concern about a bubble. Using those measures to head off a potential crisis could allow Carney to keep interest rates on hold for longer.

Employing such macroprudential tools “might also give Mr. Carney a bit of breathing space,” Neil MacKinnon, an economist at VTB Capital in London and a former U.K. Treasury official, said in a note. “However, market economists will be bringing forward the timing of the first U.K. rate hike into the end of this year.”

MacKinnon said he will stick with his own forecast for an interest-rate increase in October. Before the speech, more than half the 29 financial institutions surveyed by Bloomberg predicted an increase in the key rate by March, while forward contracts based on the sterling overnight interbank average, or Sonia, showed investors were betting it would rise 25 basis points by May. Investors are now betting on a move by February.

Currency Strengthens

The pound reached the strongest level in 19 months against the euro as it rose for an eighth day, its longest such run since April 2010. Sterling also traded at a one-month high against the dollar. The currency was at $1.6976 and 79.94 pence per euro as of 10:15 a.m. in London.

The prospect of a BOE increase as soon as this year sets the U.K. central bank apart from the U.S. Federal Reserve and the European Central Bank. The Fed is still buying bonds to support the recovery while the ECB cut its key interest rate last week and may start quantitative easing to battle the risk of deflation.

If Britain’s strengthening economic recovery does prompt a rate increase, that raises the prospect that consumers face a test of their resilience to higher borrowing costs months before Prime Minister David Cameron seeks a second term in office in a general election.

Vulnerable U.K.

While Carney said that borrowers need to brace for policy tightening, what’s more important is the subsequent pace of rate increases. These will be “gradual and limited” because of headwinds including the strength of the pound and the weak euro-area economy, he said.

“Caution over the path of rate increases once they begin is also needed because we start at a point from which interest rates cannot easily be reduced,” he said. “The effects of an excessive or an excessively rapid tightening of monetary policy could prove damaging and difficult to undo.”

One reason for this is the U.K.’s “vulnerable position,” according to Carney. Household debt is about 140 percent of disposable income, mortgages at high loan-to-income ratios are at a record and there are signs of a drop in banks’ underwriting standards.

“This is concerning,” said Carney, who will lead a meeting of the FPC on June 17. “Over-extended borrowers could threaten the resilience of the core of the financial system.”

International Warnings

The surge in property activity has prompted organizations from the International Monetary Fund to the European Commission to say the U.K. may need to respond. Home values in England and Wales rose 8.5 percent to an average 266,013 pounds ($452,000) in the 12 months through May, Acadata Ltd. said today. There were some signs of cooling in the London market, which has driven U.K. gains, with prices in the capital rising the least in 10 months.

“The FPC is considering using macroprudential tools to insure against potential vulnerabilities associated with the housing market,” Carney said. “Doing so could reduce the need for monetary policy to be diverted to address a sector-specific risk.”

U.K. homebuilder shares fell today, with Bovis Homes Group (BVS) falling 4 percent and Barratt Developments, Taylor Wimpey, Redrow and Persimmon all showing declines.

No Hesitation

Speaking alongside Carney at the event, Osborne said the BOE “should not hesitate” to act to cool the property market if needed.

The chancellor also acknowledged the difficulties inherent in any intervention in the property market, where regional disparities mean London prices are rising more than three times as fast as the rest of the country.

“The British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us,” he said. “You can see why no one has managed yet to solve the problems of Britain’s housing market.”

On the outlook for the BOE’s benchmark rate, Carney signaled he’s not ready to push for an increase just yet, saying there is scope for more spare capacity in the economy to be used up. While the nine-person Monetary Policy Committee’s central view is that the output gap amounts to about 1-1.5 percent of gross domestic product, there’s a range of views among individual members.

The governor also said that when it comes to tackling the risks to financial stability -- and the economy -- from housing, the BOE’s macroprudential tools are the preferred weapon.

“Monetary policy is the last line of defense against financial instability,” he said. “Raising interest rates today would be the wrong response.”

“The governor’s speech effectively marks a reset in terms of the framing of the MPC debate,”David Tinsley, an economist at BNP Paribas and a former BOE official, said in a note. Previously he’d “seemingly been at pains to keep rate-rise expectations from creeping into 2014. Last night, he removed that constraint.”

-By Scott Hamilton and Jennifer Ryan

U.S. Mortgage Rates Rise for a Second Week

Source: Bloomberg / Luxury

Mortgage rates in the U.S. rose for a second week, extending an increase in borrowing costs from an eight-month low.

The average rate for a 30-year fixed mortgage was 4.2 percent this week, up from 4.14 percent, Freddie Mac said in a statement today. The average 15-year rate climbed to 3.31 percent from 3.23 percent, according to the the McLean, Virginia-based mortgage-finance company.

Homebuyers got a temporary reprieve when rates unexpectedly dropped for five straight weeks beginning in early May. Economists expect loan costs to climb in the second half of the year as the Federal Reserve continues scaling back bond purchases that have helped support housing demand. Policy makers next meet on June 17-18.

“Mortgage rates have confounded expectations by falling in the face of a strengthening economy this spring,” Keith Gumbinger, vice president of, a Riverdale, New Jersey-based mortgage-data firm, said yesterday in a telephone interview. “But now it would seem that interest rates are behaving a little more normally.”

Lower rates spurred an increase in loan applications, data from the Mortgage Bankers Association showed yesterday. In the week through June 6, the group’s purchase index rose 9.3 percent, the biggest gain since late February, and the refinancing measure increased 11 percent.

The average rate for a 30-year fixed mortgage reached a high of 4.58 percent in August. A year ago, it was 3.98 percent.

-By Prashant Gopal

Poloz Debuts Bolstered Risk Paper With Housing Focus

Source: Bloomberg / News

Bank of Canada Governor Stephen Poloz said the country’s financial system is threatened by risks from indebted consumers and a domestic housing boom as well as European and Chinese banks, emphasizing his concern through a revamped report and inaugural press conference devoted to these stresses.

The threat that China’s growing shadow banking system could disrupt financial markets has grown to “elevated” from “moderate” since December, the central bank said today in its semi-annual Financial System Review. There are elevated risks of a sharp correction in Canadian home prices and of financial stress coming from the euro area, the report said.

Poloz increased his focus on financial risks today by holding a press conference in Ottawa, the first ever devoted to the expanded 70-page report. The emphasis on the financial system as part of the bank’s inflation-targeting regime aligns Canada with counterparts such as the Bank of England and European Central Bank, which grappled with deeper recessions and bank bailouts after the 2008 credit crunch.

Canada’s main risk is “stretched valuations and some signs of overbuilding” in the housing market, Poloz, 58 said at the press conference. “After weighing the risks to financial stability through our improved framework and applying judgment, our level of comfort as policy makers remains similar to what it was six months ago.”

The report also identified a “moderate” risk of a jump in global long-term interest rates, tied to potential market reaction to the speed of monetary stimulus being unwound by the U.S. Federal Reserve. The report’s five risk categories are low, moderate, elevated, high and very high.

Housing Strength

Canada’s housing market has continued to show strength after the government tightened mortgage-lending rules on concern about overbuilding of condominiums in Toronto and Vancouver. The Teranet/National Bank home price index rose 4.6 percent from a year earlier in May, while the country’s housing agency said this week that construction starts unexpectedly accelerated last month.

The gains have also come as the Bank of Canada has kept its benchmark overnight interest rate at 1 percent since September 2010, close to a record low of 0.25 percent.

“Despite some signs of a soft landing, valuations are stretched and there are signs of overbuilding in certain segments of the housing market,” the report said, citing the condominium market in Toronto as a particular concern. The main scenario for a housing crash would be a shock that drives up unemployment and makes it harder for families to repay debts, the central bank said, adding that there is a low chance of that happening.

Household Debt

Household debt levels fell from a record in the fourth quarter as families slowed their pace of borrowing to the least in more than a decade. Credit-market debt such as mortgages increased to 164.0 percent of disposable income, compared with a revised 164.2 percent in the prior three-month period, Statistics Canada said March 14.

Such measures of consumer debt should stabilize now, Senior Deputy Governor Carolyn Wilkins said at the press conference. Poloz also said that consumer debt in Canada has a higher credit quality than in the U.S.

The governor declined to comment on yesterday’s recommendation from the the Organization for Economic Cooperation and Development that Canada should privatize the mortgage insurance provided by the government’s housing agency.

Soundest Banks

Canada has held the title of having the soundest banks for six straight years according to the World Economic Forum, the Geneva-based institution that promotes public-private cooperation and hosts an annual meeting in Davos.

European banks and governments have made some progress in the last six months in repairing their balance sheets, leading the Bank of Canada to cut its risk rating for that category to “elevated” from “high.”

China’s banking challenges pose a risk because of that country’s influence on the prices of commodities that make up a large part of Canada’s exports, the Bank of Canada said today.

The discussion of risks “will be used as additional support to underpin the Bank’s maintaining its higher accommodative stance on monetary policy when it publishes its Monetary Policy Report in July,” Randall Bartlett, senior economist at Toronto-Dominion Bank, said in a research note. “We continue to expect that the Bank of Canada will keep rates on hold until the second half of 2015.”

Poloz said today that the risks to Canada’s inflation rate remain balanced between a recent temporary jump in energy costs and slack in the wider economy.

-By Greg Quinn

China No-Money-Down Housing Echoes U.S. Subprime Loan Risks

Source: Bloomberg / Luxury

China’s home buyers are being offered no-money-down purchases in an echo of the subprime lending that triggered a U.S. economic meltdown and the global financial crisis.

Deals skirting government requirements for minimum 30 percent down payments have emerged this year from Guangzhou and Shenzhen in the south to Beijing in the north as real-estate sales slump, according to state media and statements by government agencies and developers.

Loosening down-payment requirements could erode China’s financial stability by adding to risks for property companies, lenders and an economy already heading for the weakest growth in 24 years. Government warnings to consumers indicate that officials will strive to limit such arrangements, a sign of stress in a property market with a glut of homes.

“The risk is severe for developers and third parties because there is no commitment from home buyers,” said Ding Shuang, senior China economist at Citigroup Inc in Hong Kong. “Zero down payment has appeared in the U.S. before. It basically enabled unqualified people to buy houses,” said Ding, who used to work for the International Monetary Fund.

“We need to see whether this will become widespread,” Ding said. “For now, it seems still sporadic.”

Sales Sliding

The practice threatens to add to the build-up of risks in China’s $7 trillion shadow banking industry, with developers or third parties arranging funding to cover down-payment requirements, according to Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd.

China’s home sales slid 10.2 percent by value in the first five months of this year, the statistics bureau said today. The Shanghai Stock Exchange Property Index rose 0.3 percent as of 2:09 p.m. local time, paring this year’s decline to about 4 percent.

In Guangzhou, in the southern province of Guangdong, nearly 20 housing developments rolled out no-down-payment plans to boost sales, Nanfang Daily, Guangdong’s official Communist Party newspaper, reported in April, as government agencies in Guangzhou and Shenzhen issued warnings against the practice.

“‘Zero down payment’ can’t solve home buyers’ problems of shortages of funds, and it has to rely on unconventional practices such as paying the down payment for the customer at high interest, or fraudulently inflating the property price to swindle banks out of loans,” the Urban Planning Land and Resources Commission of Shenzhen Municipality said in an April 10 statement.

Shadow Banking

Credit data released yesterday showed the government reining in shadow banking while allowing higher bank lending to support a faltering economy. New yuan loans exceeded forecasts at 870.8 billion yuan ($140 billion) for May.

Poly Real Estate Group Co. is letting buyers delay full down payments at its Central Park development in southeastern Nanjing city, the official China News Service reported June 6. Buyers can pay deposits of 50,000 yuan and then 15 percent of the home price in three months’ time. The smallest unit is about 70 square meters and costs about 1.2 million yuan, the report said.

A staff member who declined to give his name confirmed the payment details in the report when Bloomberg called the development’s sales office. A Poly investor relations officer in Guangzhou, who gave only his surname, Song, said the arrangement shouldn’t be described as “zero down payment.” “Home prices are actually pretty high,” Song said by phone on June 11. “We are helping out those college grads to buy properties as they might not be able to put down a big sum all at once.”

U.S. Frenzy

In the U.S., the mortgage frenzy last decade that ended in a meltdown featured a loosening in standards that included “no-doc” or “low-doc” loans with patchy documentation requirements, low “starter” rates that reset higher after a period of time and “interest-only” contracts that had no principal payments for a set time.

Since 2010, China’s government has required minimum 30 percent down payments for first-home buyers, with higher amounts for purchasers of second homes. Property owners’ limited leverage constrains risks, with Credit Suisse Group AG estimating in a June 4 report that China had an aggregate loan to property-value ratio of 8 percent in 2013 compared with 43 percent in the U.S.

Strict Bans

The China Banking Regulatory Commission said at an internal meeting that financial institutions should strictly ban “zero down payment” arrangements and developers arranging buyers’ down payments, reported May 14.

“It is still limited in scale right now, but it is going to be a long-term trend,” said Liu Yuan, a Shanghai-based research director for Centaline Group, a property company. Such arrangements are “between legal and illegal,” he said.

A 22 percent drop in the construction of new buildings in the first four months of 2014 highlighted the potential for property to drag down an economy projected to grow 7.3 percent this year, the slowest pace since 1990. UBS AG has estimated real-estate accounts for more than a quarter of demand in the economy, including spin-offs from construction machinery to household appliances.

“The oversupply problem is very severe,” Gan Li, director of the Survey and Research Center for China Household Finance, said in Beijing on June 10, citing a survey of 28,000 households in 29 provinces that indicated 22 percent of urban homes were vacant in 2013.

In Beijing, at a Beijing Pearl River Real Estate Development Co. project called Season Joy City, on the southern outskirts of the city, property company SouFun Holdings Ltd. is offering loans to cover up to 50 percent of the purchase price of apartments. On a hot summer morning, a couple with a toddler were the only prospective buyers, looking at models of apartment blocks in a showroom. Promotional signs said property prices “will never fall.”

-By Bloomberg News

China’s New Loans Top Estimates in Boost for Economy

Source: Bloomberg / News

China’s new yuan loans and money supply topped estimates in May as the government supports economic growth while reining in shadow banking.

Local-currency loans were 870.8 billion yuan ($140 billion), the People’s Bank of China said on its website yesterday, higher than 42 out of 43 analyst estimates in a Bloomberg News survey. M2, the broadest measure of money supply, rose 13.4 percent, compared with a median projection for 13.1 percent.

China is in danger of missing a 2014 target for economic growth of about 7.5 percent, prompting Premier Li Keqiang to speed up government spending and make limited cuts to lenders’ reserve requirements. The World Bank warned last week that rapid credit growth and debt accumulation by local governments are risks to financial stability.

“May is the first month this year we’ve seen a sizable easing of liquidity as evidenced by the strong new bank loans,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “It suggests that policy makers are turning more serious about the downside risks to the economy and began ramping up pro-growth measures.”

The PBOC’s report was released after the close of China’s stock markets. The benchmark Shanghai Composite Index fell for the first time this week on concern economic data to be released later today for May industrial output and retail sales, and January-May fixed-asset investment, will be weaker than analysts estimate. New yuan lending last month compared with the 750 billion yuan median estimate in a Bloomberg survey and 667.4 billion yuan a year earlier.

Shadow Banking

Aggregate financing, China’s broadest measure of new credit was 1.4 trillion yuan in May, matching the median analyst estimate in a Bloomberg News survey. The figure, which includes bank lending, corporate bond issuance and shadow-banking products like entrusted loans, compared with 1.55 trillion yuan in April and 1.19 trillion yuan in May last year.

New yuan loans accounted for 62.2 percent of aggregate financing in May, up from 50 percent in April and 56.1 percent a year earlier, central bank data show.

“A lot of off-balance-sheet lending is moving back onto banks’ balance sheets,” said Dong Tao, chief regional economist at Credit Suisse Group AG in Hong Kong. “So you can’t necessarily say that the increase in bank lending is a signal of looser credit. The targeted easing isn’t meant to expand the total amount of credit, but to direct it to the sectors the government wants to see more liquidity in.”

Stimulate Growth

May’s aggregate financing slowed “to a level that makes it challenging to stimulate growth in a conclusive way,” said Dariusz Kowalczyk, senior economist at Credit Agricole SA in Hong Kong. “This may convince the government to cut the reserve requirement ratio if the real-estate market continues to disappoint.”

The government has resisted lowering the reserve ratio for all banks, instead making two targeted cuts. The first, in April, applied to some small rural banks and the second, detailed by the PBOC this week, covered most city commercial banks and non-county-level rural commercial banks and cooperatives.

The PBOC has also added cash into the financial system to keep money-market costs stable.

Almost a year ago, a cash crunch saw China’s seven-day repurchase rate, a gauge of interbank funding availability, jump to a record 10.77 percent. The benchmark will average 3.5 percent this month, 331 basis points lower than a year earlier, according to the median estimate of 21 analysts and traders surveyed by Bloomberg.

Structural Change

The seven-day repo rate rose one basis point to 3.16 percent yesterday, according to a weighted average from the National Interbank Funding Center.

As China’s economic growth model shifts and structural change deepens, the asset quality of the banking industry will face more severe challenges, according to Wei Guoxiong, the chief risk officer of Industrial & Commercial Bank of China Ltd.

The financing costs of 34,000 corporate borrowers monitored by ICBC grew an average of 39.59 percent annually between 2009 and 2013, 20.1 percentage points higher than their revenue growth, Wei said in an article published on June 3 in China Finance, a central bank magazine.

-By Bloomberg News

UK minister urges BOE to clamp down on risky mortgages

Source: Business Times / Property

[LONDON] British business minister Vince Cable yesterday urged the Bank of England (BOE) to clamp down on mortgages with high loan-to-income ratios to stop booming house prices from harming the economy.

Speaking ahead of keynote annual addresses to London's financial community by finance minister George Osborne and BOE governor Mark Carney, Mr Cable said he was "concerned" about rising house prices.

Mr Cable said experience of previous housing booms showed that mortgage loans of around 3-3.5 times people's incomes were seen as stable, and that he was "appalled" to see some banks lending as much as five times income.

"This is the key area that Bank of England has got to operate into and make sure that this boom in house prices, particularly in the south of England, doesn't destabilise the whole economy," Mr Cable told BBC Radio's Today programme.

-From London, UK

Osborne to Give Bank of England New Mortgage Controls

Source: Bloomberg / Luxury

Chancellor of the Exchequer George Osborne promised the Bank of England new powers over mortgage lending to prevent the strengthening housing market derailing the recovery.

While real estate poses no immediate threat, it could do in the future unless action is taken, Osborne said his annual speech at the Mansion House in Londontonight. Under the plans, financial-stability officials would be able to cap the size of mortgages as a proportion of income or property value.

“I want to make sure the Bank of England has all the weapons it needs to guard against risks in the housing market,” Osborne said. “I want to protect those who own homes, protect those who aspire to own a home, and protect the millions who suffer when boom turns to bust.”

The move follows warnings by the European Commission and the International Monetary Fund that surging U.K. house prices and greater indebtedness may pose a threat to financial stability and the economic recovery. BOE Governor Mark Carney will deliver his own speech immediately after the chancellor.

The new controls will give Carney more power over the mortgage market than his predecessor, Mervyn King, wanted when he was governor. When the Financial Policy Committee was deciding in 2012 on the “powers of direction” it might need, it resisted requesting authority over loan-to-income and loan-to-value ratios as these would require a high level of “public acceptability.”

Loans Limits

If FPC officials think some borrowers are being offered “excessive” loans, they can limit the proportion of high loan-to-income mortgages each bank can lend and even ban new lending above a specific multiple, Osborne said. Should they judge that a dangerous bubble is developing, they will also be able to set Hong Kong-style limits on loan-to-value ratios.

Any action taken to cap loan-to-income ratios will also be applied to mortgages taken out under Help to Buy, a government program to aid people with small down payments.

Recent data on new lending shows that while loan-to-value ratios remain well below their peak, loan-to-income ratios are at a new high.

According to the Council of Mortgage lenders, first-time buyers borrowed 3.42 times their gross income in the first quarter. The ratio was 3.83 in London, where new entrants to the property market borrowed 200,000 pounds ($337,000) on average -- almost double the U.K. average.

London Surge

Nationwide Building Society estimates first-time buyers in the capital spend 55 percent of their take-home pay on mortgage payments and house prices are eight times earnings. House prices in London surged 17 percent in March from a year earlier, more than three times the pace across other U.K. regions, official data show.

“If London prices were to continue growing at these rates, that would be too fast for comfort,” Osborne said. “And the rate of price rises is now beginning to spread beyond London.”

Osborne also announced further reforms to planning rules, providing permission for 200,000 new homes. The IMF urged the government in its June 6 report on the U.K. to address the issue of housing supply, which is being partially blamed for soaring values.

Councils will be required to put in place pre-approved planning permissions on brownfield sites suitable for housing, allowing developers to get building sooner.

Osborne also said he plans to introduce criminal charges for traders who manipulate currency rates or borrowing costs. Laws imposing as much as seven years in jail for Libor manipulation will be extended to gauges used in foreign-exchange, fixed-income and commodity markets, he said.

“The integrity of the City matters to the economy of Britain,” Osborne said. “I am going to deal with abuses, tackle the unacceptable behaviour of the few, and ensure that markets are fair for the many who depend on them.”

-By Svenja O’Donnell

Cooling Sales Curb Optimism on U.S. Growth Rebound: Economy

Source: Bloomberg / Personal Finance

American consumers paused for breath in May as retail sales climbed less than forecast following an impressive three-month run, tempering forecasts for a rebound in growth this quarter.

The 0.3 percent increase in purchases last month fell short of the median estimate of economists surveyed by Bloomberg that projected a 0.6 percent advance, Commerce Department figures showed today. Receipts for April were revised up to cap the strongest three months in almost two years.

The slowdown in demand last month prompted some economists to shave forecasts for second-quarter gross domestic product just as reports this week signaled the economy slumped at the start of the year even more than previously estimated. Other data today showing consumer confidence is firming and the job market is healing brighten the outlook for the rest of 2014.

“It’s a story of gradual improvement,” said Michelle Girard, chief U.S. economist at RBS Securities Inc. in Stamford, Connecticut, and the second-best forecaster of retail sales over the past two years, according to Bloomberg data. “We’re not getting the big acceleration that many people hoped for.”

Stocks retreated, with the Standard & Poor’s 500 Index falling for a third day, as investors reacted to the disappointing data and rising tension in Iraq. The S&P 500 declined 0.5 percent to 1,934.38 at 12:57 p.m. in New York.

Gaining Confidence

Consumers’ spirits are rising as job prospects strengthen. The Bloomberg Consumer Comfort Index rose to a five-week high of 35.5 in the week ended June 8, another report today showed. A gauge of the state of the economy increased to a six-week high, while measures of personal finances and whether it’s a good time to spend also advanced.

“The most important of all economic indicators is employment, and since the jobs picture has improved, consumer attitudes are more upbeat,” said Richard Yamarone, a senior economist at Bloomberg LP in New York. “If sustained, this could result in greater spending and overall economic growth.”

Sentiment is also being underpinned by limited dismissals as companies find demand is strong enough to maintain headcounts. A report from the Labor Department today showed applications for jobless benefits held below this year’s average, rising by 4,000 to 317,000 last week. Claims so far in 2014 have averaged around 324,000.

Retail sales estimates in the Bloomberg survey of 83 economists ranged from gains of 0.2 percent to 1 percent. The Commerce Department revised April figures to show a 0.5 percent gain rather than the previously reported 0.1 percent increase.

Three-Month Gain

Receipts climbed 2.9 percent from February through April, the strongest three-month gain since July to September 2012.

Six of 13 major retail categories showed increases last month, indicating the advance wasn’t broad-based, today’s Commerce Department report showed. Auto dealers were among those showing the biggest sales advance in May. Purchases at gas stations also picked up, reflecting higher fuel costs.

Excluding those two categories, purchases were unchanged after a 0.3 percent increase in April that was previously estimated as a 0.1 percent drop.

Job gains are giving more American households the means to shop. The economy added 217,000 positions in May after a 282,000 gain the prior month.

“The incoming U.S. indicators are consistent with the substantial rebound in growth for the current quarter,” Emily Kolinski Morris, senior U.S. economist at Dearborn, Michigan-based Ford Motor Co., said on a sales call on June 3. “Recent readings on housing have improved slightly and the labor market continued its gradual recovery.”

Auto Sales

Industry figures showed demand surged in May, with purchases of cars and light trucks reaching a 16.7 million annualized pace, the highest since February 2007.

Core sales, the figures that are used to calculate GDP and exclude such things as autos, gasoline stations and building materials, were unchanged last month after a revised 0.2 percent increase in April. The prior month was previously reported as a 0.1 percent drop.

Economists at Macroeconomic Advisers in St. Louis cut their growth forecast for this quarter to 3.7 percent from 3.8 percent after the sales report. Their tracking estimate for the first quarter showed a 2.1 percent rate of contraction, which would be the worst performance since the first three months of 2009, when the economy was still in a recession.

The figures for the first three months of the year have deteriorated since a Census Bureau report yesterday showed spending on health-care services dropped last quarter compared with the gain currently estimated.

Finances Mending

Mending finances may prompt households to sustain purchases into the second half of the year. Property values in 20 U.S. cities increased 12.4 percent in March from the same month in 2013, according to an index from S&P/Case-Shiller on May 27. Stock prices have also climbed, helping those who own financial assets.

“Homeowners increasingly believe that improvements made to their homes will increase their value, and consumers’ views around personal finances continue to improve,” Robert Niblock, chief executive officer, said in a May 21 Lowe’s Cos. earnings call. “Performance has already improved in May.”

Even so, recent gains have benefited wealthier consumers more than others -- bad news for lower-end retailers.

Worse-off customers have faced tepid earnings gains. Wages posted a 2.1 percent year-over-year increase in May, near the average for the last four years. Consumer prices climbed 2 percent in the 12 months ended in April, which means incomes merely kept up with inflation.

Wal-Mart Stores Inc. is “dealing with the structural changes that are happening in the marketplace,” William S. Simon, Wal-Mart U.S. chief executive officer, said in a June 6 call. “Our income segments remain challenged.”

-By Jeanna Smialek