Real News‎ > ‎2014‎ > ‎June 2014‎ > ‎

19th June 2014

Singapore Economy

Getting private sector involved in infrastructure development

Source: Today Online / Singapore

Infrastructure is a vital component of the success of any city or country. The need for infrastructure in Singapore and the Asia-Pacific region is substantial — it has been estimated by the Asian Development Bank (ADB) that between 2010 and 2020, Asia will need to spend approximately US$8 trillion (S$10 trillion) to maintain current levels of economic growth.

Economies that successfully deliver infrastructure prosper and flourish, while those that do not cannot fully realise their potential — economic growth is hampered and quality of life reduced. Thus, how infrastructure is delivered should be a key policy focus area for governments and multilateral organisations. While governments used to fund infrastructure projects, public-private partnerships (PPPs) are an increasing trend.

There are many variants of PPPs, ranging from specified, short-term operations and maintenance contracts to contracts for up to 30 years where the private sector is responsible for the designing, building, financing and operating an infrastructure asset. A good example of a PPP infrastructure project is the Singapore Sports Hub, where the private Sports Hub consortium has a 25-year contract with the Government’s Sport Singapore to design, build, finance and operate the sports complex.

When should governments opt for or avoid a PPP model? And how can such partnerships be better utilised?


One major advantage of PPPs is that involving the private sector enables governments to benefit from private-sector innovation and investment. This can improve the project’s quality and efficiency and, in some cases, lower costs.

For example, Singapore has used PPPs in the water sector for more than a decade to meet its Four National Taps objectives. These partnerships have enabled advancements in NEWater and desalinated water, which are delivering water at a cost-effective price to residents.

Companies also benefit by exporting their technology and expertise to overseas markets. PPPs can also be used for social infrastructure. For instance, the Sports Hub draws upon a range of specialist expertise including a worldwide venue management company with a wide global network. This will hopefully help generate a host of events for elite athletes and local communities as well as deliver benefits from the facilities that would not be possible if the Government had followed a traditional approach to procurement.

Another key driver for PPPs is the budgetary constraint that governments face — very few countries can rely solely on the government to fund necessary infrastructure. This is especially true in countries where the need for infrastructure is vast. For example, PricewaterhouseCoopers estimates that Indonesia will be spending US$165 billion on infrastructure annually by 2025. In such cases, it is useful to tap private-sector capital for infrastructure building. Doing so enables the government to pay for the asset over its operating life, while transferring performance risk to the private sector.

In utilising private-sector capital, as in the case in Singapore, scrutiny from financiers can often result in increased robustness and financial viability of a project.


Countries in the region are increasingly looking to PPPs to help tackle infrastructure deficits. In the Philippines, the government has worked with the ADB to set up a PPP Center to administer and award PPP projects. The centre’s comprehensive website lists not only projects to be procured, but also interested private sector companies.

In November last year, Indonesia’s Ministry of National Development Planning issued a PPP handbook outlining 27 potential projects with a combined estimated cost of US$47.3 billion.

In embarking on a PPP, governments and private-sector infrastructure companies face common challenges. First, governments must create a sound legal and regulatory framework to procure private-sector investments. Market participants need to be sure they will be treated fairly in any competitive process, that their investments are secure and that their intellectual property is respected.

Government agencies should also critically assess the risk profiles of each project as well as industry partners involved. A common cause of failure of PPP projects is excessive risk exposure by one party. There are examples of this around the world, including in Australia, where demand and revenue risks were borne by private-sector road builders whose forecasts of usage had been overly optimistic. In such cases, even if the infrastructure has been delivered for public use by the private sector, its inability to meet revenue projections could lead to failure of the project company and other issues.

Before embarking on a PPP, it is useful for the government agencies to study what other countries have done and learn from their experience. In addition, governments must put in place resources and processes that are clear, transparent and easily understandable to enable the smooth development and procurement of projects.

There is no “right” or “wrong” sector or type of project where PPPs should or should not be used. PPPs have been used to deliver training to fighter pilots in the United Kingdom, at the ITE College West in Singapore, in prisons in Australia and New Zealand and in numerous other sectors around the world.

What is important is first giving consideration to what a government’s infrastructure needs and objectives are and then rigorously assessing what is needed to meet those needs. PPPs can often be the answer when they are delivered in the right way and when they harness the skills, capabilities and experience that the private sector has to offer.

-By Mark Rathbone & Oliver Redrup

Singapore Real Estate

Price cuts for homes in Core Central Region?

Property watchers say price cuts for some city fringe and suburban projects are likely to be done in a "very limited way" despite a lower take-up rate of such new homes over the past year.

Source: Channel News Asia / Business

SINGAPORE: Developers in Singapore have been cutting prices for some city fringe and suburban projects.

Property watchers Channel NewsAsia spoke to say price cuts are likely to be done in a "very limited way" in the city area despite a lower take-up rate of new homes there over the past year.

Developers have been launching fewer units in the city area.

For instance, in the first five months of this year, 231 units have been launched as compared to 807 new private homes in the same period last year.

The number of new private homes being bought in the city area is also getting fewer.

For example, from January to May this year, 203 units were bought compared to 1,017 new private homes sold in the same period last year.

Some analysts say the Additional Buyer's Stamp Duty has played a crucial role in keeping high-end buyers away.

Mr Ku Swee Yong, CEO of Century 21 Singapore, said: "Firstly, they (homes in the city area) appeal to foreigners, and foreigners are not back in due to that 15 per cent tax (Additional Buyer's Stamp Duty). Secondly, many of these units in the core central region are still designed with large format of 1,500, 2,000 square feet."

Some developers have turned to cutting prices to attract buyers.

Developer MCL Land of the Hallmark Residences in the Bukit Timah area trimmed prices by some 10 per cent earlier this year.

It has sold about 30 units since.

However, property watchers say developers of these luxury homes are unlikely to go to town offering discounts.

"The Qualifying Certificate (QC) which compels them (developers) to build within five years and sell within two years of TOP (Temporary Occupation Permit) - there is a penalty," said Mr Ku.

He added: "At this moment, for most developers who are holding on to their stock, paying the penalty is still worthwhile compared to giving a discount. Once you have given a discount on one unit, it hurts the valuation of the remaining units that are unsold."

Mr Desmond Sim, Head of CBRE Research Singapore, explained: "Generally by not giving direct discounts, it will help overall in the value of the project so at the end of the day, when the market turns, the value of the project is maintained and preserved."

Developers with deeper pockets, or are not hitting the deadlines stipulated under the QC scheme, may choose other strategies.

SLP's Executive Director of Research and Consultancy Nicholas Mak said some of the developers of these prime properties may choose to lengthen their marketing period, and in the meantime, turn to other areas for development such as the city-fringe or even overseas projects.

About six projects in the city area will be launched in the next few months, according to Savills Singapore's latest residential sales report.

This includes the Marina One, a mixed development at Marina Way.

The developer for this project is also behind the 660-unit Duo Residences in Bugis, which sold 600 units in the month it was launched.

The condominium was launched in November last year and according to figures from the Urban Redevelopment Authority, the 600 units were sold at prices between S$1,513 and S$2,596 per square foot (psf).

This compares to an average of S$2,300 psf the other projects in the vicinity were going for.

- CNA/fa

Shorter-tenure industrial sites to keep coming in H2

MTI says this will keep prices affordable for industrialists

Source: Business Times / Top Stories

[SINGAPORE] The government will continue to supply shorter-tenure industrial sites in the second half of the year, reiterating that this will keep prices affordable for industrialists.

Among the 15 sites with a combined area of 18.87 ha to be released for industrial use between next month and December, three are 20-year leasehold plots - the shortest leases ever offered for industrial land. Before this, the shortest had been 21 years, offered mostly for small plots in Tuas South.

Back in mid-2012, the government slashed tenures of sites sold under the Industrial Government Land Sales (IGLS) programme, capping the leasehold period at 30 years.

Tenures used to stretch for as long as 60 years.

-By Lee Meixian

Indigo Hotel, Holiday Inn Express in Joo Chiat?

IHG said to have signed MOU with developers who won site in Jan tender

Source: Business Times / Property

[SINGAPORE] Global hotel chain InterContinental Hotels Group (IHG) is said to have signed a memorandum of understanding to manage two hotels that will spring up on the former Joo Chiat Police Station site at East Coast Road. BT understands that one tower will be branded Holiday Inn Express and the other, Hotel Indigo, a boutique hotel concept aligned with the local neighbourhood story.

If the MOU leads to management contracts being inked, this will be IHG's first Hotel Indigo in Singapore.

The site is near the East Coast-Joo Chiat road junction.

In January, a joint venture between Master Contract Services and Keong Hong Construction clinched the 99-year leasehold site at an Urban Redevelopment Authority (URA) tender, for $352.8 million or $1,326.11 per square foot of potential gross floor area (GFA). Located next to the 112 Katong mall, the 88,678 sq ft site can have maximum GFA of about 266,041 sq ft. 

This includes around 13,132 sq ft in the former Joo Chiat Police Station at 86 East Coast Road, a two-storey building constructed in the 1920s and gazetted for conservation in 1993.

-By Kalpana Rashiwala

PestBusters in spat with landlord over lease renewal terms

Source: Straits Times

Local firm PestBusters is taking legal action against its landlord over what it calls "unreasonable and arbitrary" terms and conditions in its lease renewal, including a doubling of the rent.

Estate agent who referred client to moneylender gets fine reduced

Source: Today Online / Singapore

SINGAPORE — A former property agent, who was the first to have been prosecuted for moneylending offences under the Council for Estate Agencies (CEA), has succeeded in his appeal to have his fine reduced by S$10,000 to S$8,000.

At the Magistrates’ Appeal hearing yesterday, Judicial Commissioner See Kee Oon agreed with the defence’s submission that the S$18,000 fine imposed on Ghazali Mohamed Rasul had been disproportionately high.

He also said the starting point for the quantum imposed by the district judge, who had relied on cases relating to unregistered estate agents performing the work of an estate agent, may not have been “entirely appropriate”. Those cases had a sentencing range of between S$6,000 and S$8,000.

In 2011, Ghazali, 40, then a registered agent with PropNex Realty, received a S$150 kickback from a moneylender whom he had introduced to a client who was facing financial difficulties and wanted to sell his flat.

Ghazali was charged with two counts of moneylending offences under the CEA, and four other similar charges were taken into consideration.

In its written submissions on sentencing, the CEA had urged the district judge to impose a deterrent sentence of a fine of S$15,000 and two weeks in prison for each charge. It said salespersons who referred their clients to moneylenders cause serious social problems, which are aggravated for low-income clients who have little choice but to sell their homes to repay the high-interest loans. Such “underhand tactics” also bring disrepute to the industry, it said.

However, Ghazali’s lawyers Derek Kang and Andrea Gan said in written submissions that he had “absolutely no payment or commission arrangements” with the moneylender and that the payments received had been offered to him.

Mr Kang also argued that the amount involved in the case — two payments of S$150 — was “extremely modest”. He said Ghazali, who was called in for one offence, had not only pleaded guilty from the outset but also voluntarily disclosed that he had made similar referrals to three other clients and “effectively helped” build the prosecution’s case against himself.

Mr Kang also said Ghazali, who is now a taxi driver, is “living in the shadow of his mistake” and making a “much more basic living” while having to raise two young children and support his elderly parents.

-By Ashley Chia

Estate agent who referred client to moneylender gets fine reduced

Judicial Commissioner See Kee Oon agreed with the defence’s submission that the S$18,000 fine imposed on Ghazali Mohamed Rasul had been disproportionately high.

Source: Channel News Asia / Singapore

SINGAPORE: A former property agent, who was the first to have been prosecuted for moneylending offences under the Council for Estate Agencies (CEA), has succeeded in his appeal to have his fine reduced by S$10,000 to S$8,000.

At the Magistrates’ Appeal hearing on Wednesday (June 18), Judicial Commissioner See Kee Oon agreed with the defence’s submission that the S$18,000 fine imposed on Ghazali Mohamed Rasul had been disproportionately high.

He also said the starting point for the quantum imposed by the district judge, who had relied on cases relating to unregistered estate agents performing the work of an estate agent, may not have been “entirely appropriate”. Those cases had a sentencing range of between S$6,000 and S$8,000.

In 2011, Ghazali, 40, then a registered agent with PropNex Realty, received a S$150 kickback from a moneylender whom he had introduced to a client who was facing financial difficulties and wanted to sell his flat.

Ghazali was charged with two counts of moneylending offences under the CEA, and four other similar charges were taken into consideration.

In its written submissions on sentencing, the CEA had urged the district judge to impose a deterrent sentence of a fine of S$15,000 and two weeks in prison for each charge. It said salespersons who referred their clients to moneylenders cause serious social problems, which are aggravated for low-income clients who have little choice but to sell their homes to repay the high-interest loans. Such “underhand tactics” also bring disrepute to the industry, it said.

However, Ghazali’s lawyers Derek Kang and Andrea Gan said in written submissions that he had “absolutely no payment or commission arrangements” with the moneylender and that the payments received had been offered to him.

Mr Kang also argued that the amount involved in the case – two payments of S$150 – was “extremely modest”. He said Ghazali, who was called in for one offence, had not only pleaded guilty from the outset but also voluntarily disclosed that he had made similar referrals to three other clients and “effectively helped” build the prosecution’s case against himself.

Mr Kang also said Ghazali, who is now a taxi driver, is “living in the shadow of his mistake” and making a “much more basic living” while having to raise two young children and support his elderly parents.


Real Estate Companies' Brief

Singapore property

Source: Business Times 

The 1,790 units released for sale by developers in May 2014 was the highest since September 2013. The most prominent launches were Coco Palms (600 units released) and Commonwealth Towers (400 launched, 275 sold, median price S$1,626 psf).

Frasers Centrepoint Trust

Source: Business Times

Frasers Centrepoint Trust (FCT) completed the acquisition of Changi City Point (CCP) from its sponsor's joint venture Ascendas Frasers Pte Ltd on Monday. FCT first proposed to acquire the retail mall for a purchase consideration of S$305 million (or S$1,472 psf net lettable area) on April 8.

Far East Orchard CEO to retire in September

Source: Business Times / Property

[SINGAPORE] The man helming hospitality player Far East Orchard, Lucas Chow, 61, is retiring as group chief executive officer and managing director this September.

He will be succeeded by Lui Chong Chee, 54, whose last appointment was chief financial officer at another listed firm, Raffles Medical Group.

"During his tenure, Mr Chow played a pivotal role in the transformative growth of Far East Orchard" to become a major regional hospitality and property company, the group said yesterday.

After becoming group CEO in 2012, Mr Chow led a successful restructuring exercise to strengthen the group's property development and investment business.

-By Lynette Khoo

Funtasy, Bintan resort-style homes pull in S'pore investors

Buyers unfazed by Indonesian rules on foreign ownership of property

Source: Business Times / Property

[SINGAPORE] Funtasy Island, just 16 kilometres from Singapore's Sentosa Cove, has already sold 510 villas and condo apartments amounting to about $250 million.

A significant 70 per cent of the buyers are Singaporeans, according to Michael Yong, director of Funtasy Island Development Pte Ltd.

Elsewhere, Bursa-listed Landmarks Berhad will be starting the sale of 300 serviced apartments in Phase 1 of the water resort city Treasure Bay Bintan later this year.

Treasure Bay Bintan's chief operating officer, Paul Leong, told BT that the target buyers will be Singaporeans and Indonesians.

-By Lynette Khoo

Global Economy & Global Real Estate

India office space sees turnaround

Low rents, weak currency are luring global companies

Source: Business Times / Property

[SINGAPORE] Blackstone Group, the world's largest property investor, is leading a wave of investors in Indian commercial property as rents at three-year lows and Asia's worst-performing currency lured global companies.

"We are seeing rental growth in almost all markets," said Tuhin Parikh, Blackstone's senior managing director in the real estate group in Mumbai. "All the tenants facing the West are seeing a huge uptake in what they do and therefore taking large spaces in India."

Rothschild family-backed Xander Group and APG Asset Management of the Netherlands are among investors increasing their office assets in Asia's third-largest economy. New York-based Blackstone has invested US$1 billion in commercial property across India to become the largest landlord in the country among private-equity investors, said IIFL, a Mumbai-based brokerage.

Demand for Grade-A offices will climb 3 per cent to 22.9 million square feet in 2014 from last year, the first increase in three years and the highest since 2012, according to broker Cushman & Wakefield. The strongest demand will be in Bengaluru, the southern city formerly known as Bangalore, followed by the capital New Delhi and its surrounding area, the financial hub of Mumbai and Pune, a satellite town, south-east of Mumbai, the New York-based broker said.

-From Singapore

Business sentiment at Asia's top firms hits two-year high

Source: Business Times / Companies

BUSINESS sentiment among Asia's top companies is at its best in more than two years, a joint quarterly survey by Thomson Reuters and Insead has shown.

This comes as a dark cloud of political uncertainty, particularly in India and Thailand, has been lifted.

The Asia business survey received responses from 124 companies in this part of the world. These included Japanese clothes manufacturer Fast Retailing, South Korea's Hyundai Heavy Industries and Australian construction firm James hardie Industries.

No company reported a negative outlook, a historic first for the survey, which was first conducted in the second quarter of 2009.

-By Jamie Lee

Asia business sentiment at two-year high in Q2: Survey

Corporate sentiment in Singapore remains upbeat, with two of six respondents showing a positive outlook and the rest remaining neutral, according to the ThomsonReuters/INSEAD survey released on Wednesday (June 18).

Source: Channel News Asia / Asia Pacific

SINGAPORE: Business sentiment among Asia's top companies hit its highest level in more than two years in the second quarter, according to a ThomsonReuters/INSEAD survey released on Wednesday (June 18).

The ThomsonReuters/INSEAD Asia Business Sentiment Index jumped to 74 in the second quarter from 64 in the first, the highest reading since the start of 2012. A reading above 50 indicates an overall positive outlook.

The index surveyed 200 of the Asia-Pacific region's top companies in 11 economies across sectors from property, to financials and tech. Companies included Japanese clothes maker Fast Retailing, South Korea's Hyundai Heavy Industries and Australian construction materials firm James Hardie Industries. The poll, conducted by ThomsonReuters in association with INSEAD, a global management and business school, was compiled between June 2 and 13.

In Singapore, the sentiment index among companies remained unchanged at 67 with two of six respondents showing a positive outlook and the rest remaining neutral, Reuters reported. However, only three of six companies said new orders and sales increased this quarter compared with eight of nine respondents last quarter.

Leadership change gave India and Thailand sorely-needed shots in the arm, with the two key Asian markets powering a rise in the wider index with scores of 100 and 91, respectively, Reuters said.

Robust scores from China and Australia also helped lift the index with scores of 67 and 79, respectively, both up significantly from the previous quarter. Export-driven South Korea saw a steep drop to 50, from 67 in the first quarter, on weaker trade and consumer data, while Japan’s score edged down slightly to 56 from 59.

Corporate sentiment in Malaysia sank to 67 from 75 the quarter before while the Philippines held steady at the maximum score of 100. No companies from Indonesia responded to this quarter's survey.

Of the 124 companies who responded to the poll, none reported a negative outlook for the first time in the survey's history, Reuters said. It did state global economic worries, rising costs and other risks including political and regulatory uncertainty as the key business concerns.

"At the moment, stronger US growth, China providing some support to prevent collapse and the India story is still there. These are positives," said Mr Anthony Chan, senior economist for Asia at asset management firm AllianceBernstein.

However, the sentiment spike may be short-lived. India is due a "reality check" after its election boost, China's stimulus will create only a short-term lift, and there is still plenty hanging "in the balance" for Thailand after the military coup there in May, Mr Chan said.


Region-wide, resources was the strongest sector with its reading of 80 marking a three-year high, Reuters reported. The property sector was just behind, climbing to 79 from 75 the previous quarter. Shipping, food and building sectors tied for third with readings of 75. In the building sector half of the companies reported a positive outlook, helping drive a steep rise from its score of 50 in the first quarter.

The weakest sectors were financials and retail. Financials dropped to 60 from 64 the previous quarter, while rising costs dragged retail down to 69 from 75.

- CNA/cy

Hilton operates hotel in Zambia project

Source: Business Times / Property

[LUSAKA, Zambia] Zambia's state pension fund will finance a US$98 million urban regeneration project in the nation's capital that will include a 148-room hotel operated by Hilton Worldwide Holdings Inc.

"It is scheduled to be completed by mid-2015," David Chewe, investments director at Zambia's National Pension Scheme Fund Authority, said in reply to questions. "This is part of the renewal of the central business district, and it is hoped that other developers and property owners would respond positively."

The development in downtown Lusaka will include a shopping mall and office block alongside the Hilton Garden Inn, which will be managed by the hotel operator, said Mr Chewe. Hilton, the world's biggest hotel chain, is joining other operators, including Radisson Hotels International Inc and InterContinental Hotels Group plc, in establishing a presence in Zambia, Africa's second biggest copper producer.

Marriott International Inc, the second largest publicly traded hotel chain, paid about US$200 million in April for South Africa's Protea Hospitality Corp, which has seven hotels in Zambia. Africa is seeing the world's fastest pace of hotel development as investors and operators tap an expanding middle class and rising travel to compensate for slowing growth in European and US markets.

-From Lusaka, Zambia

Decision to raze Sydney mansion dismays many

Buyers' move to demolish home symbolises int'l clout of Chinese elite

Source: Business Times / Property

[SYDNEY] In recent weeks, wrecking crews have embarked on a job that symbolises the international economic clout of the Chinese elite: razing an Australian mansion with stunning views of one of the world's most picturesque harbours.

Craig-y-Mor, an elegant 106-year-old home owned over the years by several prominent Sydney businessmen, was bought in 2008 by the son and daughter-in-law of a former senior member of the Chinese Politburo for A$32.4 million (S$38 million).

The new owners, Zeng Wei and Jiang Mei, sought permission to demolish the two-storey brick house and replace it, at a cost of US$4.5 million, with a five-level modern concrete structure with huge windows. The plan horrified some neighbours and government officials, who thought the new building would be too big and unattractive. After the municipality refused to allow the demolition, Mr Zeng's lawyers appealed to a state judge, who overruled that decision.

From London to midtown Manhattan to Hong Kong's Victoria Peak, wealthy Chinese - often connected to powerful political figures - are buying up some of the world's best real estate. Australia relies on China to buy much of its two main exports, coal and iron ore. But many say there's a downside to Chinese investment: surging property prices.

-From Sydney, Australia

PestBusters in spat with landlord over lease renewal terms

Source: Bloomberg / News

The Federal Home Loan Banks jointly agreed to a three-month moratorium on admitting captive insurers, which are being used by mortgage investors to access the government-chartered system, according to three people with knowledge of the step.

The 12 FHLBs offered the move voluntarily in a letter to their regulator, the Federal Housing Finance Agency, which has voiced concern that the trend is adding risk to the system, said the people, who asked not to be named because the talks are private. Captive insurers largely serve the needs of their parents.

Lightly regulated investment firms and lenders that lack customer deposits, known as shadow banks, are flocking to FHLBs for dependable funding that often offers better terms than traditional banks or debt markets. The new memberships are drawing scrutiny from the FHFA because they may affect the safety of a system that operates with $786 billion of debt seen by investors and credit raters as being backed by taxpayers.

The freeze may slow a boom in admissions after Redwood Trust Inc. (RWT) last week said its captive insurer obtained membership in the Chicago FHLB. Redwood became the fourth real-estate investment trust focused on mortgage investments to join the network of regional lending cooperatives since October.

Annaly Joins

Annaly Capital Management Inc. (NLY), Invesco Mortgage Capital Inc. (IVR) and Two Harbors Investment Corp. (TWO) also have insurance units that have become members.

Angie Richards, a spokeswoman for the Des Moines FHLB, and Jeff Sanders, a spokesman for the Home Loan Bank in Indianapolis, declined to comment. Melissa Warden, a spokeswoman for the Chicago FHLB, didn’t immediately respond to an e-mail seeking comment. The three FHLBs are the ones that have admitted units of REITs.

Peter E. Garuccio, an FHFA spokesman, declined to immediately comment on the moratorium. He said last week in an e-mail that the overseer plans “to address the issue of captives.”

The FHLB system was set up in 1932 after a string of bank failures caused by runs on deposits, and has accepted insurers since its start. Members buy stock in the institutions and get access to low-cost, wholesale funding in return for pledging collateral such as mortgages.

While mortgage REITs’ insurance units are overseen by state regulators, the financial health of their parent companies aren’t the responsibility of any U.S. agencies.

Illicit Perception

“Captive insurance borrowing and membership in the FHLBank system raises a number of possible issues related to safety and soundness and access to the system,” FHFA head Melvin Watt said in a speech at a conference for FHLB directors in May. “You will certainly be hearing more about this as we move forward.”

Mortgage REITs’ use of captive insurers to gain membership may create “a perception of something illicit going on,” Keefe, Bruyette & Woods analyst Michael Widner wrote in a June 16 report.

In reality, “we do not see material risk, believe there are more than adequate checks and balances in place” and view the REITs as contributing to the system’s public policy objectives, Widner said. “Nevertheless, the political nature of the issue adds uncertainty to how it will develop.”

-By Jody Shenn

BlackRock, Pimco Sue Banks Over Mortage-Bond Trustee Role

Source: Bloomberg / News

BlackRock Inc. (BLK), the world’s biggest money manager, and Pacific Investment Management Co. are among investors that sued banks including Citigroup Inc. (C) and Deutsche Bank AG (DBK) over their roles as mortgage-bond trustees.

The banks knew the loans underlying trillions of dollars worth of residential mortgage-backed securities were misrepresented and failed to invoke their rights to force the sellers to buy them back or act against servicers, causing billions of dollars in losses, according to copies of the complaints reviewed by Bloomberg News. The filings couldn’t be immediately confirmed today in New York State Supreme Court in Manhattan.

Bank of New York Mellon Corp. “negligently failed to protect the trusts and certificateholders,” according to a copy of the complaint against the New York-based company. “BNYM and its responsible officers knew of pervasive, material breaches of originators’ and RMBS sponsors’ representations and warranties, and loan servicers’ material breaches, yet did nothing to protect the trusts.”

Pools of home loans securitized into bonds were central to the housing bubble that helped send the U.S. into the worst recession since the 1930s. The housing market collapsed, and the market for the securities evaporated.

Ron Gruendl, a spokesman for BNY Mellon, and Renee Calabro, a spokeswoman for Deutsche Bank, declined to comment on the suits. Juanita Gutierrez, a spokeswoman in New York for HSBC Holdings Plc (HSBA), another defendant, also declined to comment on the lawsuit.

A call to Citigroup public affairs after regular business hours went unanswered. Teri Charest, a spokeswoman for U.S. Bancorp, and Oscar Suris, a spokesman for Wells Fargo & Co. (WFC), didn’t immediately respond to voice-mail messages seeking comment on the lawsuits.

‘Unambiguous’ Standard

The Association of Institutional Investors, whose members include Pimco, asked Congress in April to create an “unambiguous fiduciary standard” for trustees of mortgage bonds without government backing as a Senate committee considered a bill that would overhaul the $9.4 trillion home-loan market by replacing U.S.-controlled Fannie Mae (FNMA) and Freddie Mac.

The money managers are pushing for Congress to step in as they did with the corporate-bond market in 1939, when the Trust Indenture Act created new duties and responsibilities for debt administrators in order to protect investors and give them the confidence to extend credit following evidence of misdeeds after the stock market crash of 1929.

Mortgage-bond investors are seeking the shift after finding they needed to band together to prod trustees into action to receive compensation from banks for loans that were riskier than promised. They also seek to change allegedly poor management of the debt by servicers.

-By Chris Dolmetsch

Zoopla Rises After IPO Prices Homes Website at $1.6 Billion

Source: Bloomberg / Luxury

Zoopla Property Group Plc, owner of real estate websites Zoopla and PrimeLocation, rose on its first day of trading as controlling shareholder Daily Mail & General Trust Plc (DMGT) profits from a surging U.K. housing market.

Zoopla was priced at 220 pence a share on the London Stock Exchange, for a market value of 918.8 million pounds ($1.6 billion). The stock rose as much as 7.3 percent to 236 pence and was up 3.9 percent at 12:18 p.m.

The IPO is the latest in a London market that has seen the busiest first half since 2011, data compiled by Bloomberg show. Zoopla’s competitor Rightmove Plc is down 20 percent this year, underperforming global peers and the FTSE 350 Real Estate Index.

Daily Mail and principal selling shareholders, other than co-founders Alex Chesterman and Simon Kain, will own a combined 52.6 percent of the stock following Zoopla’s initial public offering. The Daily Mail stake alone will amount to 33.7 percent and keeping the largest stake suggests it thinks Zoopla is under-valued, Liberum Capital Ltd. said in a note to clients.

“Zoopla’s flotation has been caught marginally offside by the Bank of England flagging that the housing market must be dampened,” Bruce Dear, head of London real estate at Eversheds LLP said in a note. “This explains their sensible ‘lower half’ pricing. How Zoopla must wish it had made its IPO run three months ago.”

Zoopla, which was merged with London-based Daily Mail’s online property-listings division in 2012, had a record 39.9 million average monthly visits to its websites in the six months through March.

Housing Boost

The U.K. housing market is getting a boost from low borrowing costs and government incentives as well as an improving economy. Bank of England policy makers said a rate increase this year may be more likely than investors anticipate.

Owners of Foxtons Group Plc, a U.K. real estate broker, raised 390 million pounds in an IPO in September. Deutsche Telekom AG agreed in November to sell 70 percent of its Scout24 unit, which includes a real-estate portal, to Hellman & Friedman LLC for about $2.1 billion.

Zoopla and PrimeLocation let users search for property to rent or buy, find brokers and compare rental and sale prices in different towns. Customers can search for a home based on commute time, and can also get advice on decoration or buying in France.

-By Ruth David and Mark Beech

Starwood Capital to Buy 7 Taubman Malls for $1.4 Billion

Source: Bloomberg / News

Starwood Capital Group, the investment firm run by Barry Sternlicht, agreed to buy seven U.S. malls from Taubman Centers Inc. (TCO) for about $1.4 billion to expand its retail holdings.

Starwood will pay $785 million in cash and assume $620 million in debt, according to a statement today from the companies. The properties include MacArthur Center in Norfolk, Virginia; the Shops at Willow Bend in Plano, Texas; and Fairlane Town Center in Dearborn, Michigan.

Starwood, based in Greenwich, Connecticut, has been building a retail real estate company through acquisitions as the U.S. economy improves. In November, it purchased a majority stake in seven malls from Westfield Group (WDC), following a similar transaction with the Sydney-based company in 2012. The deal with Bloomfield Hills, Michigan-based Taubman will expand the business to 28 properties in 15 states, Sternlicht said today.

“The Taubman portfolio broadens our relationships with higher-end department stores and in-line tenants and gives us an excellent opportunity to continue to produce attractive returns for investors,” he said in the statement.

Shares of Taubman rose 2.5 percent to $75.51 today. They’ve gained 18 percent this year.

Taubman is building new malls in the U.S., including projects in Sarasota, Florida, and San Juan, Puerto Rico. The company also has three malls under development in China and South Korea and is spending $265 million on redevelopment projects at properties in California, Colorado, Florida and Tennessee, according to the statement.

‘Transformative’ Deal

Taubman said it’s taking advantage of high investor demand for malls.

“We believe this opportunity is transformative for the company,” Chief Executive Officer Robert Taubman said on a conference call today. “Selling these centers is particularly bittersweet as we developed each and every one.”

The company estimates that the sale will increase net operating income growth as it keeps its strongest properties, Taubman said on the call. The transaction also will boost the company’s per-square-foot tenant sales, which totaled $721 last year, by more than $100, he said in the statement.

-By Brian Louis

American Homes 4 Rent Forms Venture With Alaska Fund

Source: Bloomberg / Luxury

American Homes 4 Rent (AMH), the largest publicly traded U.S. single-family home landlord, formed a joint venture with Alaska Permanent Fund Corp. to buy properties that fall outside the company’s typical investing parameters.

The venture is starting with $50 million, 80 percent of which comes from Alaska Permanent Fund, Agoura Hills, California-based American Homes 4 Rent said today in a statement. The partnership plans to buy, renovate and lease homes, the company said, without specifying the types of residences that would qualify.

Alaska Permanent Fund was an early investor in American Homes 4 Rent, one of the single-family landlords formed after the real estate crash to purchase thousands of homes at distressed prices and rent them out. Institutional buyers have invested more than $20 billion and acquired as many as 200,000 houses since 2012, according to Keefe, Bruyette & Woods Inc.

Blackstone Group LP’s Invitation Homes is the largest single-family landlord, having invested $8.5 billion on about 44,000 homes as of last month.

American Homes 4 Rent, the second-biggest, owned 25,505 single-family houses as of March 31, with an estimated book value of $4.3 billion. The average property was 11.3 years old, worth $169,019 and 1,971 square feet (183 square meters), according to a May 14 regulatory filing.

Diana Laing, chief financial officer of American Homes 4 Rent, and Michael Burns, chief executive officer of Alaska Permanent Fund, didn’t immediately respond to phone messages seeking comment on the venture’s plans.

Initial Investment

Alaska Permanent Fund, which invests state oil royalties that finance annual dividends paid to state residents, invested $750 million in American Homes 4 Rent when the company was formed in 2012. The landlord, founded by billionaire Wayne Hughes, bought out the Alaska interest last year for $904.5 million.

The announcement was made after the close of regular trading. American Homes 4 Rent was little changed today at $17.98. The shares have gained 12 percent since the company’s initial public offering last July.

-By John Gittelsohn

Blackstone Said Near Deal to Buy Hotels for $800 Million

Source: Bloomberg / News

Blackstone Group LP (BX) is close to an agreement to buy a group of select-service hotels from Clarion Partners LLC for about $800 million, according to a person with knowledge of the deal.

The agreement would be for 47 extended-stay Residence Inn and Homewood Suites hotels, with a majority located in the top 25 U.S. markets, said the person, who asked not to be identified because the transaction hasn’t been completed.

Blackstone, the largest real estate private-equity firm, has been buying select-service hotels -- properties with limited food and beverage and other services -- amid a recovery in the U.S. lodging industry. In September, an affiliate of the New York-based company agreed to buy 16 hotels from Hersha Hospitality Trust for $217 million. A $1.3 billion deal for hotel owner Apple REIT Six Inc. was completed last May, and in 2012 Blackstone bought the Motel 6 and Studio 6 budget chains.

Christine Anderson, a Blackstone spokeswoman, declined to comment. Paula Schaefer, a spokeswoman at New York-based Clarion Partners, didn’t return telephone calls seeking comment. Real Estate Alert reported the potential deal earlier today.

Investors are attracted to select-service hotels because they have lower operating costs than more upscale properties, with higher returns, according to Patrick Scholes, an analyst at SunTrust Robinson Humphrey Inc. in New York.

“If you look at many cities like San Francisco or New York, hotel real estate is trading at a premium price,” Scholes said in a telephone interview. “You’re not finding a lot of value. So you have to look a little harder by going into smaller markets or by going down in the lodging categories. You have to think more outside of the box to get better returns.”

Blackstone rose 1.1 percent today to $33.60. The shares have jumped 56 percent in the past year as stakes in companies, including hotel operator Hilton Worldwide Holdings Inc. (HLT), have soared. The firm oversees more than $270 billion across credit, private equity, hedge funds and its other businesses.

-By Nadja Brandt

Taipei Housing Prices Rising Stymie Teacher Seeking Bride

Source: Bloomberg / Luxury

High school teacher I-Chung Huang said he’s hunted in vain for a home in Taipei’s soaring market for four years, convinced that owning an apartment could help him find a wife.

“Renting is fine when you’re young, but I’m in my 30s and I have a stable income,” said Huang, who earns NT$80,000 ($2,700) a month teaching civics and writing textbooks. “I didn’t understand it then, but I do now. Taipei’s apartments aren’t for living, they’re for selling.”

First-time buyers like Huang have been shut out of the market after home pricesin Taipei almost tripled in the past 10 years, spurred by low mortgage rates. With local elections in November, Taiwan’s ruling political party has put access to housing near the top of its agenda. President Ma Ying-jeou has proposed building more affordable housing, and increasing taxes for non-owner-occupied homes to curb speculators.

“It’s a consensus that young people can’t afford to buy a home,” said Stanley Su, an analyst at Sinyi Realty Co. (9940), Taiwan’s only listed real estate broker. “The ruling party must respond to these concerns, and the opposition will have its own ideas, so inevitably there will be policy speculation. The property market will cool.”

Taipei sits at the northern tip of Taiwan, an island off China’s southeast coast that the world’s second-largest economy claims as its territory. The bustling, dense capital city is a mix of old, low-rise buildings and modern office towers, including Taipei 101, the world’s third-tallest building. The population of Taipei and New Taipei City, a municipality surrounding the capital, has grown to 6.64 million.

Record Rates

Taiwan’s housing market surged after the government relaxed rules that prompted locals to repatriate more income from mainland China, and the central bank lowered borrowing costs to buoy the economy. It grew an average 3.3 percent annually since the 2008 financial crisis, compared with 4.6 percent in the previous five years.

As bond yields and deposit rates tumbled, Taiwanese who had accumulated wealth during the 1990s technology boom poured their savings into real estate, driving up prices.

Record low mortgage rates have also spurred housing gains. The average rate in Taiwan fell 51 basis points, or 0.51 percentage point, over the past decade to 1.96 percent in April, according to central bank data going back to 1994. Rates reached an all-time low of 1.62 percent in 2010. They have been below 2 percent since February 2009.

House Prices

As quarterly economic growth slowed in the first three months of the year, hurt by weaker demand for exports, the housing market also began to cool. Transaction volumes declined 14 percent to 8,214 compared with the previous period, while Taipei’s property prices slipped 1.3 percent, according to Sinyi Realty.

The average price for a residential unit in Taipei was about NT$22.2 million ($739,187) at the end of March, according to Sinyi Realty. The average size was 32.6 ping (1,174 square feet).

In 2012, the central bank moved to damp prices. Central bank Governor Perng Fai-nan capped mortgages at 60 percent of the value of properties in Taipei and New Taipei City worth more than NT$80 million, and NT$50 million in other parts of Taiwan.

Perng also ordered banks last year to exercise discipline in extending mortgages. Taiwan’s five-biggest banks made an average NT$45 billion of housing loans each month last year, compared with NT$44.9 billion per month in 2012 and NT$19.8 billion a month in 2003, according to central bank data.

Elite One

Taiwan’s legislature took action last month to deter speculation, raising the maximum property tax rate on non-owner-occupied homes to 3.6 percent from 2 percent.

“The government has created an atmosphere of higher taxes and tighter lending, but those with real estate in their hands don’t need cash, so prices won’t immediately crash,” said Cliff So, executive director at REPro Knight Frank in Taipei, the London-based broker’s local partnership. “The government may be aiming at a gradual downward adjustment in prices, since a sharp one will do no good to the property market or the economy.”

At Elite One, a planned residential complex in Wenshan, a district surrounded by mountains at Taipei’s southern end, apartments are being offered for as much as NT$950,000 per ping, or $879 per square foot. On a recent Saturday, prospective buyers were entertained by live jazz, lectured on healthy eating, and offered a French meal in a makeshift building that doubled as a sales office on the vacant land where construction will begin in July.

Ma’s Popularity

About 70 percent of the apartments have been sold, said Dennis Pan, a manager at Jaysanlyn Construction Co., which was commissioned to market the development.

“The real demand is still there,” Pan said, speaking in the lobby of the temporary building that houses sample units. “But investors are hesitant now because of government policy. Elections are coming up, and the number one complaint is the property market.”

President Ma’s approval rating has plummeted since he was elected to his second term in 2012. Driving down property prices is one of Ma’s priorities as his party, the Kuomintang, gears up for November’s polls. Voters will pick mayors, city council members and other municipal officials.

Ma vowed upon his sixth anniversary in office last month to create 10,800 rental units in the next three years and about 11,000 homes to be sold at below market prices.

Property Taxes

Finance Minister Chang Sheng-ford said last month the government may “strengthen” property taxes and expand the tax base with a focus on luxury developments.

“Taipei’s property market is starting to gradually dip, and the momentum to rise further has weakened,” he said at a media briefing in Taipei.

Foreign investors account for a small portion of Taiwan’s housing market, unlike in London or Hong Kong, said REPro Knight Frank’s So. He attributed the property market’s surge to more funds coming back onto the island from China and a cut in estate taxes.

In 2008, the government relaxed a quota for Taiwanese companies investing in China, and businessmen that may have transferred their funds covertly to the mainland were able to bring the money back to Taiwan. A year later, the government lowered estate taxes from a top marginal rate of 50 percent to a flat 10 percent rate.

Student Protests

“Taiwan’s fixed-income rates are low and you can’t buy that many stocks, so a lot of money was put into real estate,” said So.

Home prices have jumped so much that Huang, even with a monthly salary from teaching that’s twice Taiwan’s average, can’t compete with rival bidders. He lost out when his NT$500,000-per-ping offer for a 15-ping, one-bedroom unit in Zhongshan district was trumped by a NT$550,000 bid. Huang thought the apartment would be cheaper as the building was about 20 years old, he said.

Huang, 36, founded a group early this year to fight for affordable housing, emboldened by students who staged a 24-day occupation of the legislature. They were concerned that a trade deal with China would give it greater control over Taiwan. The legislative speaker relented, suspending the trade pact’s review.

The student protests have bolstered activism for affordable housing, Huang said. His organization, the Taiwan Adequate Housing Association, educates people about housing policies and lobbies lawmakers and government officials. In October, it plans to stage an overnight sleep-in next to a luxury development in Taipei to protest rising property prices.

Next Girlfriend

“Taiwan’s young people have learned one thing recently: If we fight, there’s a chance of things changing,” said Huang, who is still looking for a bride. “But I’m going to try to persuade my next girlfriend to accept that I may rent and not buy an apartment for now.”

-By Justina Lee

Basque Nation-Building Lures Emigrants Home to Bilbao

Source: Bloomberg / U.S. Polities

Ramon de la Sota returned to Spain to help set up an investment firm -- and work toward making his Basque homeland a fully-fledged European state.

“We’re very Basque nationalist,” de la Sota, 35, a former General Electric Co. (GE) executive who studied at Insead business school in Paris, said over lunch with a group of fellow returnees in downtown Bilbao. “But independence is a long-term project. There are things we have to do first. The dream is to build an international champion based here.”

With a new king, Felipe VI, preparing to take the throne tomorrow and Scots and Catalans readying for back-to-back referendums on independence later this year, constitutional reform has been thrust on to the agenda in Spain. Yet for leaders in Bilbao, the business capital of the northern Basque region, building up the economy comes before joining the rush to redraw the map of Europe.

“We are paying very close attention to what happens in Scotland and Catalonia,” Bilbao Mayor Ibon Areso, a member of the Basque Nationalist Party, said in an interview. “But at the moment our priority is the economy and creating jobs.”

The Basque Country, which already has its own police force and collects its own taxes, was the focus of a separatist campaign by terrorist group ETA until 2011. Despite the shadow of violence, it became the richest region in Spain, with BBVA, the country’s no. 2 bank, and Iberdrola SA (IBE), the biggest power company, both based in Bilbao.

Bubble Dodged

The Basque Country dodged the worst excesses of Spain’s real-estate bubble, though the region wasn’t able to escape the economic crisis entirely. Exporters suffered after the global recession of 2009, and unemployment in Vizcaya province, which has Bilbao as its capital, jumped to 18 percent in 2012 from 11 percent two years earlier. It reached 19 percent in the first quarter.

Areso, who became mayor this year, and Andoni Aldekoa, City Hall’s chief executive officer, have a plan to counter the new age of austerity. A key plank of their strategy: The city has zero long-term debt. Even as Bilbao used public money to transform its downtown area from a post-industrial wasteland in the 1990s, its officials managed to pay off its debts in 2011.

Now Aldekoa is using the fame of Frank Gehry’s Guggenheim Museum, the centerpiece of the downtown regeneration, to attract talent and promote the region’s companies as he helps the city’s traditional industries such as autos and engineering to find a new place in the global economy.

Auto Intelligence

Take the Automotive Intelligence Center outside the city, in Amorebieta. It brings together local companies to pool their resources on research projects for the auto industry, which accounts for about 20 percent of output across the region. Under the center’s umbrella, Basque companies developed an electric drive-train for Daimler AG’s Mercedes-Benz Vito van.

Another consortium is developing carbon-fiber suspension arms to reduce the weight of vehicles by replacing the traditional pressed-steel components. The first prototypes are about to be made on site and may eventually go into production at factories in China, Brazil or Mexico as Basque companies dovetail with global supply chains.

It’s a role Bilbao has been practising since it was founded as a center for trade and commerce on the banks of the River Nervion near Spain’s northern Atlantic coast in 1300.

Industrial Heritage

The leg-irons, or “bilboes,” that Denmark’s Prince Hamlet imagines wearing in Act V of Shakespeare’s 1603 play were named after the city, and the region’s deposits of high-quality ore made it a major supplier to the U.K. during the industrial revolution.

The Basque Country’s output per person today is 132 percent of the European Union average, according to Eurostat, the EU statistics agency.

“We never lost sight of the importance of industry here,” Ines Anitua, the Automotive Intelligence Center’s managing director, said in an interview in Amorebieta, citing help from the government’s industrial strategy.

Collaboration is a key part of the Basque identity, according to Lander Jimenez, 38, an environmental engineer who grew up on a cooperative housing development near Bilbao and returned to the city with his family after living in the U.S. and the U.K.

The Basque word for relationship -- harreman -- is formed from the words for give and take, Jimenez said. His engineering firm is part of Mondragon Corp., the region’s biggest company, which is itself collectively owned and sets limits on how much its bosses can be paid relative to workers.


“We are a very self-conscious nation,” said Asier Alea, 41, who has an MBA from the Massachusetts Institute of Technology’s Sloan Management School and joined Jimenez, de la Sota and former Goldman Sachs Holdings Inc. risk manager Jon Recacoechea to discuss the reasons they’d come home.

“That can lead to a degree of clannishness,” he said. “But we’re also driven to help each other.’

Basque identity was suppressed under the dictatorship of Francisco Franco, who bombarded the region during the Spanish civil war: Guernica is about 20 miles from Bilbao. In response, the most radical sector of the nationalist movement created ETA, the guerilla group that killed more than 800 people fighting for independence. While ETA renounced violence in 2011, it still hasn’t disbanded and the legacy of that conflict still colors the debate over a possible secession.

The regional leaders yesterday called on the national government to drop its opposition to a law helping Basques who suffered police abuse under Franco receive compensation, El Pais reported.

The Basque Nationalists reclaimed control of the regional assembly in 2012 from a Socialist-led coalition winning 27 seats in the 75-strong chamber. Bildu, a party pushing directly for independence, claimed 21 seats while the Socialists, the People’s Party and UPD, who want the region to remain part of Spain, got 27 seats and 33 percent of the vote between them.

Human Chain

For all the economic focus among some, the nationalist movement as a whole isn’t shelving its push for independence. About 150,000 Basques turned out this month at an event calling for a vote on the region’s status. Basque Nationalist Party officials also joined to form a ‘‘human chain” from Durango, near Bilbao, to Pamplona in the neighboring region of Navarre, echoing ademonstration in Catalonia last year when more than a million people joined arms across the region.

That mix of tradition, sense of community and the prospect of building a Basque nation-state is pulling back members of their generation who made careers abroad, according to de la Sota and his friends. They in turn aim to make Bilbao a more attractive place for others to return to.

The next episode in the city’s development will center on Zorrotzaure, a mile-long peninsula downriver from the Guggenheim. City Hall has a 20-year program to redevelop the area on a blueprint drawn up by Zaha Hadid, the Pritzker Prize-winning architect. The first phase involves reopening the industrial-era canal that runs down one side, to turn the peninsula into an island. The diggers started work in May.

Meanwhile, Aldekoa flies round the world promoting the city’s companies. Last month he was in Singapore at the invitation of the city-state’s government with a dossier of local businesses. He’s also visited London, Mexico, and Cannes in southern France this year.

“Bilbao is the best chance the Basque Country has of developing an international hub,” said Alea, who returned with his New Yorker wife in 2007. “Had Bilbao not existed, I doubt that I would have been able to come back.”

-By Ben Sills

Berkeley Profit Beats Analysts’ Estimates as Prices Rise

Source: Bloomberg / Luxury

Berkeley Group Holdings Plc (BKG), the U.K. homebuilder focused on London and southeast England, said full-year profit climbed 40 percent as it increased prices and built almost a third more homes than at the market’s 2007 peak.

Net income increased to 292.9 million pounds ($497 million) in the 12 months through April from 209.7 million pounds a year earlier, the Cobham, England-based company said in a statement today. That beats 283 million pounds, the average of nine estimates compiled by Bloomberg.

U.K. homebuilders have reported surging sales and profit this year after mortgage lending rebounded to a six-year high and government policies reduced the amount needed by first-time buyers for down payments. Concerns that a property bubble may be forming in London has put pressure on the government and the Bank of England to take steps to cool the market.

“The last year has seen a surge of confidence within the U.K. economy,” Chairman Tony Pidgley said in the statement. “Housebuilders have been at the forefront of the return to growth.”

BOE Governor Mark Carney on June 12 signaled that borrowing costs may start to rise earlier than previously expected. That could suppress home-price gains by limiting borrowing. The central bank is also getting new powers from Chancellor of the Exchequer George Osborne to curb home loans.

Influential Factors

The U.K. housing market will remain positive if wages grow enough to compensate for higher interest rates or tighter controls on mortgage lending, Berkeley Chairman Tony Pidgley said in the statement. Monetary policy and the stability of banks are both factors influencing the housing market in the long term, he said.

Berkeley sold 3,742 new homes during the year, up from 3,712 a year earlier and 30 percent more than the peak of the market in 2007, according to today’s statement. The average sales price increased to 423,000 pounds from 354,000 pounds. The homebuilder plans to pay an interim dividend of 90 pence a share in September.

“Across all price ranges, we’re seeing good demand,” Rob Perrins, Berkeley’s managing director, said in a phone interview. The company has created 3,000 jobs this year and could add as many as 2,000 more by the year’s end.

Berkeley fell 1 percent in London trading to close at 2,238 pence. The stock has declined about 16 percent this year, making it the second-worst performer on the 10-member Bloomberg U.K. Homebuilder Index.

Rising sales, higher prices and increased payouts to shareholders have failed to lift the shares of most homebuilders this year after the homebuilder index rose 47 percent in 2013. Only two of the companies, Abbey Plc and Persimmon Plc, are up this year.

-By Jeffrey St.Onge and Patrick Gower

Spain’s Sareb Is Said to Sell Land to Castlelake at 25% Discount

Source: Bloomberg / News

Spain’s bad bank sold plots of land to Castlelake LP for 60 million euros ($81 million), about 25 percent less than their face value, two people with knowledge of the matter said.

The Minneapolis-based private-equity firm purchased sites that are part of a portfolio called Project Crossover, said the people, who asked not to be identified because the information is private. The portfolio includes sites ready for construction in Madrid, Barcelona and on the Spanish coast.

Spain set up the bad bank, known as Sareb, in 2012 to absorb 50.8 billion euros of real estate assets from lenders including the Bankia group that took state aid after the property market crashed. Sareb plans to ramp up sales this year to an average of 30 properties a day.

Sareb, based in Madrid, reported a loss of 261 million euros in 2013 after making 259 million euros of provisions for part of its loan book. The price of urban land in Spain has fallen 48 percent since its peak in the third quarter of 2007, according to the Ministry of Public Works.

Prime Minister Mariano Rajoy’s ruling PP Party, which came to power in December 2011, passed a decree in February 2012 requiring banks to speed up recognition of losses on real estate by boosting provisions for land to 80 percent from 31 percent and for unfinished developments to 65 percent from 27 percent.

A spokesman for Sareb declined to comment. Kathy Altenhoff, a Minneapolis-based spokeswoman for Castlelake didn’t respond to two e-mailed requests for comment.

-By Sharon Smyth

Homebuilders See Record Bearish Bets on Shaky Recovery

Source: Bloomberg / Personal Finance

Someone thinks the housing rebound is built on shaky foundations.

A record 180,000 puts traded on the SPDR S&P Homebuilders (XHB) exchange-traded fund on June 11, according to data compiled by Bloomberg. The contract with the highest ownership pays off in the event of a 20 percent slump by December in the ETF tracking stocks from DR Horton Inc. to Williams-Sonoma Inc.

Prospects for rising interest rates and an uneven recovery in the housing market have hurt returns this year, sending the SPDR Homebuilders ETF down 3.3 percent. While economic data yesterday showed that builders broke ground on 1 million U.S. homes in May, permits, a proxy for future construction, decreased because of fewer applications for condominiums and apartment buildings.

“There are still a lot of reservations held about homebuilders,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut June 16. “It may not be a surprise that by the end of the year, home-price gains may have run their course.”

In two transactions worth about $2.7 million, 65,000 puts on the ETF with an exercise price of $26 expiring in December changed hands on the Philadelphia options exchange, according to data compiled by Bloomberg. The trade was probably initiated by a buyer betting on a decline, according to Wilkinson.

ETF Flows

Rising concern over the housing market has led investors to withdraw money from the homebuilders fund for 13 of the last 15 weeks. About $104 million was removed last week, the most since March, data compiled by Bloomberg show. The ETF, which has a market value of $1.5 billion, climbed 0.4 percent to $32.20 yesterday.

“This could be a play on a weaker economy,” Fred Ruffy, a Chicago-based senior options strategist at Trade Alert LLC, said by phone June 16. “It could be playing a rise in interest rates too, because housing is so sensitive to changes.”

The Federal Reserve will probably raise its benchmark interest rate faster than money-market investors expect, according to a majority of economists surveyed by Bloomberg. Eurodollar futures, the world’s most actively traded short-term interest-rate contract, are underestimating the pace of tightening over the next two years, according to 55 percent of economists in the June 12-16 survey, which drew 56 responses. Fed officials conclude two-day meeting in Washington today.

Getting Pummeled

Low volatility in the equity market has suppressed options prices, making it cheaper to finance contracts that can protect against stock declines, according to Michael Purves, chief global strategist and head of equity derivatives research at Weeden & Co. in Greenwich, Connecticut.

“You’d have to have a very bearish thesis that the homebuilders are just going to get pummeled,” Purves said by phone June 16. “If this investor was long a ton of homebuilders’ stock, it probably makes sense to hedge it.”

The Chicago Board Options Exchange’s Volatility Index, which gauges the cost of options in Standard & Poor’s 500 Index (VIX) companies, fell 4.7 percent to 12.06 yesterday. The gauge reached a seven-year low earlier this month. Its European counterpart, the VStoxx Index, fell 4.3 percent to 13.73 at 7:41 a.m. in New York today.

For Paul Zemsky, head of multi-asset strategies at Voya Investment Management LLC, recent housing data is a sign of weakness in the broader economy. The number of housing starts last month was in line with the median forecast of economists surveyed by Bloomberg, a Commerce Department report showed yesterday. Permits decreased 6.4 percent to a 991,000 annualized rate.

“The starts and permits were disappointing,” Zemsky said in a phone interview from New York. Voya oversees $220 billion. “While these numbers weren’t a disaster, they weren’t a big improvement. We need to see these numbers improve soon.”

-By Callie Bost

Blackstone India Office Bets Show Turnaround: Real Estate

Source: Bloomberg / News

Blackstone Group LP (BX), the world’s largest real estate investor, is leading a wave of investors in Indian commercial property as rents at three-year lows and Asia’s worst-performing currency lured global companies.

“We are seeing rental growth in almost all markets,” said Tuhin Parikh, Blackstone’s senior managing director in the real estate group in Mumbai. “All the tenants facing the West are seeing a huge uptake in what they do and therefore taking large spaces in India.”

Blackstone, which opened its Mumbai office in 2005, Rothschild family-backed Xander Group Inc. and APG Asset Management NV of the Netherlands are among investors increasing their office assets in Asia’s third-largest economy. New York-based Blackstone has invested $1 billion in commercial real estate across India to become the largest landlord in the country among private-equity investors, said IIFL Ltd., a Mumbai-based brokerage.

Demand for Grade-A offices will climb 3 percent to 22.9 million square feet (2.1 million square meter) in 2014 from last year, the first increase in three years and the highest since 2012, according to broker Cushman & Wakefield Inc. The strongest demand will be in Bengaluru, the southern city formerly known as Bangalore, followed by the capital New Delhi and its surrounding area, the financial hub of Mumbai and Pune, a satellite town, southeast of Mumbai, the New York-based broker said.

‘Growing Sophistication’

Office rents in India’s main central business districts have declined about 5 percent since the first quarter of 2013 to the lowest since 2011, said Sigrid Zialcita, managing director of research for Asia-Pacific at Cushman & Wakefield in Singapore. Rents in Mumbai’s CBD, at $4.5 per square foot per month in the quarter ended March, compare with $6.61 in Shanghai, data from Cushman & Wakefield showed.

The Indian rupee was the worst-performer against the dollar in Asia from 2011 to 2013, dropping 26 percent. This year, the currency is the fourth-best performer in the region, up 2.4 percent, data compiled by Bloomberg showed.

“The current trend emphasizes the growing sophistication and effort made by global investors in seeking strong themes, even in seemingly challenging geographies to benefit from pockets of growth,” said Priyaranjan Kumar, the regional director of capital markets at Cushman & Wakefield in Singapore.

Xerox Corp. (XRX), the U.S. printer and photocopier pioneer, and Australia & New Zealand Banking Group Ltd., Australia’s third-largest lender, are among companies that have opened new offices in the past year as expectations that newly elected Indian Prime Minister Narendra Modi will revive the economy have grown since his landslide victory in May.

Vacancies Fall

India has been in the top five global office markets for at least the past seven years, with average annual net demand of more than 30 million square feet, Cushman & Wakefield said.

The recovery is helping to resolve a glut. India’s slowing economy had led to declines in office occupancies that froze development and prompted some builders to convert commercial projects into housing.

Office demand fell 5 percent in the first quarter to about 6.3 million square feet from 6.6 million square feet in the same period a year earlier, said property broker CBRE Group Inc. The demand is at its lowest in eight years, dropping 45 percent from the high in 2008, as inventories peaked amid more supply, IIFL said.

Vacancy rates in Mumbai, which peaked at 22.8 percent in 2012, declined to 19.7 percent in the quarter ending in March from the previous quarter, Cushman & Wakefield said. In Gurgaon, near New Delhi, they fell to 10.49 percent in the three months ended March from 12.32 percent in the December quarter, it said.

Xander, APG

Xander Group, with about $2 billion of equity capital in property assets, and a consortium led by Dutch pension fund asset manager APG announced a $300 million venture in May that will buy commercial assets across India’s main office markets. The APG-led group is seeking to capitalize on demand from companies in the information technology and financial services industries that serve global businesses from hubs across India.

“India’s top six cities have consistently witnessed the largest net absorption of office space in the Asia-Pacific region, and perhaps globally,” Sachin Doshi, head of non-listed real estate for Asia-Pacific at APG in Hong Kong said in a statement last month. “This, combined with limited new developments for office projects in India, creates a unique demand-supply gap for good quality office space.”

GIC, Ascendas

Among others, GIC Pte, Singapore’s sovereign wealth fund, and Ascendas Pte, a Singapore-based business-park developer, plan to invest as much as S$600 million ($480 million) in Indian commercial property to meet rising demand, they said in November. Through a fund, they will invest in business space in Bangalore, Chennai, New Delhi and surrounding areas, Hyderabad, Mumbai and Pune, the companies said.

Companies across Europe indicated an increased appetite for global expansion into India, according to an April 28 report by CBRE. Almost half of the firms that responded to the survey said India was their destination of choice because of rapid population growth and gradually recovering economic prospects, beating China as a preferred location, CBRE’s European Occupier Survey showed.

Xerox leased 271,000 square feet of additional office space in Bengaluru last year, according to broker Colliers International. The Norwalk, Connecticut-based firm, which has more than 10,000 employees in India, expanded “based on the high-tech growth and ability to hire quality employees in the region,” Arpana Mehra, vice president of the company’s human resources department, said in an e-mail.

Banks Expanding

Melbourne-based ANZ leased 40,000 square feet of extra office space in Bengaluru last year, according to CBRE. The new office, across the road from an older facility, added 350 people, taking the support staff to 6,350, said Stephen Ries, a spokesman for the bank.

Morgan Stanley is opening an offshore center in Bengaluru this year to support global operations, adding to existing centers in Mumbai, according to a Dec. 23 statement from the New York-based company. The firm’s Mumbai centers support functions including technology, data, operations and finance. Inc., Bank of New York Mellon Corp., and Fidelity Investments are among global companies that took up new offices in India last year, according to Colliers.

Robust Demand

Demand from such tenants is what Blackstone is after. Since its first deal in the Asia-Pacific region in 2007, Blackstone has invested $7 billion through about 30 transactions, including $3 billion of equity, according to the company. About a quarter of its Asian assets are in India.

“We see supply slowing down pretty dramatically, but demand is pretty robust, especially in the office-park business,” Parikh said.

Large office parks, where buildings are grouped together, are what makes India attractive, Parikh said. Demand for space in these parks tends to increase when Western economies, like in the U.S. and Europe now, recover, prompting companies to boost their global support functions.

Blackstone and a partner acquired an office tower in Mumbai’s Nariman Point CBD for 9 billion rupees ($152 million) in November, according to IIFL. It also bought business parks in Bengaluru and Pune last year, IIFL said.

‘Aggressive Buyers’

Blackstone has become an “aggressive buyer” in the past two years as developers faced “liquidity issues and prices corrected,” said Bhaskar Chakraborty, a Mumbai-based analyst at IIFL. “It’s strategy is to take over rent-yielding commercial projects from cash-strapped developers.”

Among office property developers, DLF Ltd. (DLFU) will benefit the most from a recovery in demand as the builder has 5 million square feet of “ready to move in” space, IIFL said. Shares of DLF, India’s largest developer, gained 24 percent this year almost recouping last year’s 28 percent decline.

Most investors are buying completed offices that are income producing assets, said V. Hari Krishna, director at Kotak Investment Advisors Ltd., a private-equity fund with about $800 million of Indian property assets. Yields for office assets have declined to between 9.5 percent and 10 percent compared with 11 percent a year ago, he said.

“Brokers say this year, demand inquiries and potential leasing is the best they have seen since 2008 across cities,” Hari Krishna said.

With Modi at the helm of the new government, there is optimism he will help jump-start the economy, said Anshuman Magazine, chairman of CBRE South Asia Pvt, in New Delhi.

The election win has prompted economists to raise growth forecasts in the world’s second-most populous nation. Morgan Stanley, Citigroup Inc. and Nomura Holdings Inc. are forecasting faster expansion in the next few years on Modi’s plans to attract investment and build more ports, roads and bridges. Morgan Stanley raised the country’s gross domestic product estimate to a four-year high of 6.5 percent in the year through March 2016 from 6.2 percent.

“Everybody has become very optimistic,” Magazine said. “The biggest frustration was decision making. Even if the new government just starts taking decisions, it will stimulate the economy, and in turn real estate demand.”

-By Pooja Thakur

Citigroup Pays Record $697 Million for Hong Kong Tower

Source: Bloomberg / News

Citigroup Inc. (C) paid a record HK$5.4 billion ($697 million) to a unit of Wheelock & Co. for a Hong Kong office tower that will bring most of its 5,000 employees in the city under one roof.

The price for the 512,000 square-foot property in the Kowloon East district is the largest ever office transaction in Hong Kong, the New York-based bank said in a statement yesterday. The tower, scheduled for completion by the end of 2015, will be used to house staff currently spread out across offices in the city, said Weber Lo, the bank’s chief executive officer for Hong Kong and Macau.

Citigroup’s purchase may mark a return of investment demand in Hong Kong’s office market as falling vacancies and high rents pose a challenge for companies seeking large office spaces. Banks and insurers, including Agricultural Bank of China Ltd. and Manulife Financial Corp., have bought buildings in the city, which is home to the highest office rents in the world after London, according to property broker Cushman & Wakefield Inc.

“The lack of supply in Hong Kong has been a challenge for many large occupiers, such as Citi, who are in Hong Kong for the long term,” said Sigrid Zialcita, managing director of research for Asia-Pacific at Cushman & Wakefield in Singapore. “Hong Kong has not lost its luster as a regional financial hub, even with competition from Singapore and Shanghai.”

Industrial Zone

The overall vacancy rate in Hong Kong fell for a second consecutive quarter in the first three months this year, to 3.6 percent, according to CBRE Group Inc., which advised on the transaction. Office rents in Central may drop as much as 5 percent this year on increased demand from mainland Chinese firms and an improved economic outlook, the realtor said.

Citigroup is paying about 20 percent more for the Kowloon tower than Manulife, which paid HK$4.5 billion last year to Wheelock for a similar-sized block at the same development, called One Bay East. The waterfront district where the two towers are located, formerly an industrial zone, is earmarked by the Hong Kong government as an alternative financial hub.

Central is Hong Kong’s main financial district, where banks including HSBC Holdings Plc and Goldman Sachs Group Inc. have their regional headquarters. Agricultural Bank, a Beijing-based lender, paid HK$4.9 billion in 2012 for a 28-story office building near Central.

‘Continued Growth’

“There aren’t many banks historically that have bought their real estate,” said Ben Dickinson, head of Hong Kong markets at broker Jones Lang LaSalle Inc. “Most banks in Hong Kong prefer to retain the flexibility leasehold occupation offers them. It’s going to be interesting to see if it changes the perception for occupiers in Hong Kong whether more people will look at purchase.”

Wheelock shares fell 0.8 percent to close at HK$32.80 in Hong Kong, compared with the 0.1 percent drop in the benchmark Hang Seng Index.

Hong Kong is one of the eight markets in Asia where the bank generates more than $1 billion of revenue annually and has close to 5,000 employees, Citigroup spokesman James Griffiths said.

The purchase “underlines our belief and confidence in Hong Kong’s continued growth as a leading global financial center and hub for some of our core regional businesses,” Stephen Bird, Citigroup’s Asia-Pacific chief executive officer, said in yesterday’s statement.

-By Michelle Yun

Costs to Myanmar's opening up

Source: Straits Times