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28th June 2014

Singapore Real Estate

Dip in private home market 'to continue'

Source: Straits Times

The half-time scorecard for private property sales will be out next week, with most in the industry bracing for a downbeat set of numbers that few expect will get any better as the year progresses. The first-quarter slowdown is likely to have lingered on into the second quarter as tough home loan curbs continue to deter buyers, consultants said yesterday.

Sentosa condos feel the blues

Source: Business Times / Top Stories

ABOUT two in five Sentosa condominium units have resold at a loss in the past year, symptomatic of the plight of luxury homes here, as financing restrictions put off buyers, industry watchers say.

Since May last year, 31 units have changed hands at six Sentosa projects: Marina Collection, Seascape, The Azure, The Berth, The Coast and The Oceanfront, according to data compiled by from URA Realis.

The profitability findings is in line with data gathered by HSR Research which shows resale prices at the plush Sentosa district falling 25 per cent to about $1,800 psf in the first five months of this year, compared to around $2,400 psf over the Jan-May 2013 period.

That said, the price movements tend to be volatile, given the single-digit number of transactions each month. There were just five transactions altogether this year, and none in the months of February, March and May.

Of the 31 transactions in the past year, profitability analysis could not be done for seven because caveats, which include information on purchase prices, were not lodged for the units. Profitability is calculated by subtracting purchase prices from selling prices. Of the remaining 24 transactions, 10 resold at a loss.

Among the loss-making transactions, four were units at The Berth, the debut project at the Cove which was launched in 2004 and completed in 2006. Three units made losses at The Oceanfront, two at the Coast, and one at the Azure.

Two in particular made seven-digit losses. A 2,982 sq ft unit at The Oceanfront sold for $5.65 million ($1,895 psf) in November last year, after it was purchased in April 2008 for $7.2 million ($2,415 psf) - a $1.55 million loss.

Another 2,820 sq ft unit at The Coast sold for $4.8 million ($1,702 psf) in January this year, two years after it was purchased at $6 million ($2,128 psf). This was a $1.2 million loss.

SLP International executive director Nicholas Mak suggests that this could be due to owners struggling to find tenants for their units amid the weak leasing market. Some may also not be able to secure high enough rental rates to service their loans. (Most Sentosa homes are bought not for own occupation, but as investment.) "So they may find it a better option to just liquidate," he said, adding that the location is also not the most convenient for expats to commute to the mainland for work.

Another industry watcher added that buyers who bought units at $2,100 psf and above appear to have "overpaid". Those who profited from their resale deals mostly bought in at lower psf prices; a handful even got their units at $800, $900-plus psf back in 2006.

Meanwhile, several Sentosa Cove units are also up for sale at auction houses here. A 2,777-sq-ft unit at Turquoise condo, put up for sale by a lender at a Colliers' auction this week, yielded no bids, despite having reduced its opening price to $4 million from its previous $5 million.

Two Sentosa homes are up for auction by DTZ, both by lenders, one at Turquoise and another at Marina Collection. Another four are for sale by private treaty (akin to private negotiations) by JLL - two at Turquoise and two at Marina Collection.

Typically, banks repossess homes and put them up for auction as part of a repayment structure when delinquent mortgagors (borrowers) are unable to find buyers and dispose of their properties themselves.

JLL's head of auction and sales, Mok Sze Sze, said: "The owners of the two Turquoise units bought them at $7 million each, which is quite difficult to match in the current market.

"Auctioning is a good method to garner all interested parties in a room to competitively bid. Potentially, the owner can also expect to get the optimum price because it's a competitive method of sale."

Meanwhile, some Sentosa condos such as Cape Royale and The Residences at W have made strategic decisions to lease out their unlaunched units instead, given current soft condo prices on the Cove.

Roaring sales in the waterfront enclave back in 2006-2008 were hit by the financial crisis and had hardly recovered when the private housing market succumbed to successive rounds of cooling measures from 2009. The way Mr Mak sees it: "For property prices anywhere, what goes up will also come down."

-By Lee Meixian

City Gate developers mum about pricing

Unit sizes on the low side with one-bedders starting from 431 sq ft

Source: Business Times / Wealth

WORLD Class Land, a unit of listed Aspial Corporation, and Fragrance Group will today open the doors to their City Gate project's showflat at its Keypoint site on Beach Road.

The 30-storey, 99-year leasehold project will include 311 apartments and 188 retail units. The apartments range from one to three-bedroom suites and dual-key units, and one to four-bedroom penthouses.

One and two-bedders range from 431 sq ft to 570 sq ft. The two and three-bedroom dual-key units are sized between 678 sq ft and 915 sq ft, while the penthouses are between 484 sq ft and 1,819 sq ft. The developers declined to provide any price indication.

Market talk is that indicative pricing for 18th floor units are: $948,000 or $2,100-plus per square foot for a one-bedroom unit, $1.178 million or $2,000-plus psf for a two-bedder, $1.388 million or $1,900-plus psf for a two-bedroom dual-key unit and $1.75 million or $1,900-plus psf for a three-bedroom dual-key unit."

-By Kalpana Rashiwala

Queenstown area set for biggest Sers project to date

Source: Straits Times

The biggest collective redevelopment for public housing is in the offing for one of the country's oldest neighbourhoods in Queenstown. Time may be up for 3,480 flats in 31 blocks along Tanglin Halt Road and Commonwealth Drive, which are slated to be demolished under the Selective En bloc Redevelopment Scheme, or Sers.

GLP beefs up plans for China, Japan, Brazil

Global development start budget for FY2015 has been raised by 38% to US$2.7b

Source: Business Times / Companies

GLOBAL Logistic Properties (GLP) is stepping up its growth plans, notably in China, where companies are vastly under- served by an inefficient logistics and transportation sector.

The Singapore-listed group, which already boasts a property portfolio in 63 cities covering 25 million square metres - the size of 3,500 football fields - has bumped up its global development start budget for fiscal year 2015 by 38 per cent to US$2.7 billion.

About US$1.7 billion has been earmarked for China, US$675 million for Japan and US$390 million for Brazil.

-By Angela Tan

Real Estate Companies' Brief

Developers' shares shine but analysts urge caution

Source: Straits Times

Property developers' shares have staged an impressive rebound in recent months but analysts remain cautious at best on their outlook. The FTSE ST Real Estate Holding and Development Index, a 17-member gauge that includes big names like CapitaLand, City Developments, Keppel Land and UOL Group, has jumped 12 per cent since its recent low onFeb 3.

S'pore-listed Reits back in popularity

Source: Straits Times

Yield-hungry investors have rekindled their love affair with Singapore real estate investment trusts (S-Reits), as fears over interest rates hikes recede. Their purchases have enabled the FTSE ST Reit Index to gain as much as 12.5 per cent since early February on the back of Reit prices climbing back to levels last seen 11 months ago.

GLP gets new chairman next month

Source: Straits Times

Logistics facilities provider Global Logistic Properties (GLP) has appointed a new chairman. Dr Seek Ngee Huat will take on the role from July 17, following the retirement of current chairman Ang Kong Hua.

Views, Reviews & Forum

Let loans be settled before transferring CPF money

Source: Straits Times

I foresee myself being in the same boat as Mr David Lee Wing Choy in a few years' time, when funds in my Central Provident Fund (CPF) Ordinary Account and Special Account are transferred to the Retirement Account (RA) at age 55 ("CPF scheme an obstacle to home-loan financing"; yesterday).

Global Economy & Global Real Estate

China property firm already reclaiming land in Johor

Source: Straits Times 

The controversy over huge reclamation works by Chinese developer Country Garden in Johor Baru has not affected similar work being undertaken nearby by another Chinese property firm. Guangzhou R&F Properties started reclaiming land at sections of its 47ha site along 1.8km of coastline near the Causeway in February, a company spokesman said.

China new home sales fall 23% in H1: survey

Source: Business Times / Wealth

SALES of new homes in China dropped 23 per cent in the first six months of 2014 from a year ago, a private survey showed yesterday, underlining a sustained downturn in the housing market after a weak start to the year.

Sales of new homes in 40 big cities fell to 89.6 million square metres in the first half of this year, compared to 116.3 million square metres in the same period last year, according to a survey by CRIC, a unit of real estate services firm E-House China.

Yet despite the 23 per cent decline in sales compared to last year, when the housing market was unusually buoyant, total transactions are still up 14 per cent from the same period in 2012. Sales are also 13 per cent higher compared to the first six months of 2011.

-From Beijing, China

Ghost buildings mar China's Manhattan

Source: Business Times / Wealth

CHINA'S project to build a replica Manhattan is taking shape against a backdrop of vacant office towers and unfinished hotels, underscoring the risks to a slowing economy from the nation's unprecedented investment boom.

The skyscraper-filled skyline of the Conch Bay district in the northern port city of Tianjin has none of a metropolis's bustle up close - presenting instead a ghost-town appearance with dirt-covered glass doors and construction on some edifices halted. The area's failure to attract tenants since the first building was finished in 2010 bodes ill across the Hai River for the separate Yujiapu development, which is modelled on New York's Manhattan and remains in progress.

"Investing here won't be better than throwing money into the water," Zhang Zhihe, 60, said during a visit to the area last week from neighbouring Hebei province to look at potential 

commercial property investments. "There will be no way out - it will be very difficult to find the next buyer."

-From Beijing, China

Lehman Haunted by $780 Million London Skyscraper Claim

Source: Bloomberg / News

A 30-story skyscraper in London’s Canary Wharf financial district continues to haunt the remnants of defunct Lehman Brothers Holdings Inc.

The business hub’s developer, Canary Wharf Group Plc, is seeking a U.S. court order for Lehman’s estate to pay $780 million in back rent and damages over the early departure of the investment bank’s European headquarters in March 2010.

Canary Wharf’s decision nine months later to forfeit the contract and sign a 999-year lease with JPMorgan Chase & Co. as the new tenant didn’t exempt Lehman from its obligations, as Lehman claims, David Tulchin, the developer’s lawyer, said yesterday in a filing in U.S. Bankruptcy Court in Manhattan.

The forfeiture “provides no basis, under English law or common sense, for Lehman to avoid its obligations to indemnify Canary Wharf for its outstanding losses,” Tulchin, of Sullivan & Cromwell LLP in New York, said in the filing.

The dispute is coming to a head as creditors of Lehman and its defunct broker, Lehman Brothers Inc., fight over remaining cash. The parent company in April began paying out about $17.9 billion in the fifth such distribution since filing the biggest bankruptcy in U.S. history at the peak of the financial crisis. Lehman said it expects to make a sixth payout Sept. 30.

Canary Wharf withdrew a threat to vote against Lehman’s liquidation plan and reduced its claims against the bankrupt firm to $780 million from $4.5 billion after Lehman agreed to reserve money to pay the obligations.

‘Maximum’ Amount

Lehman, in return, agreed to put aside enough money to pay “the maximum allowed amount” of the claims, it said in court papers.

Canary Wharf’s chief executive officer, George Iacobescu, and Lehman’s lead negotiator, Frank Bartolotta, both said in depositions in 2013 and 2014 that Lehman would be liable for the lease “no matter what” its subsidiary did, Canary Wharf said in yesterday’s filing.

Lehman contends that Canary Wharf’s forfeiture terminated the defunct bank’s obligations under the lease, according to a May 22 court filing that cited a “centuries old principle of English law” concerning landlords and tenants.

The developer argues the forfeiture was a common-sense step to avoid “massive losses” from Lehman’s early departure, a mitigation of the problem that benefited both sides, Tulchin said in his filing.

“Lehman’s attempt now to use that mitigation transaction as a basis for nullifying its obligations to indemnify Canary Wharf should be rejected,” Tulchin said.

A hearing on the matter hasn’t been scheduled.

Kimberly Macleod, a spokeswoman for Lehman, declined to comment on the dispute.


Lehman, once Canary Wharf’s largest tenant, occupied more than 1 million square feet (93,000 square meters) of office space at London’s 20-25 Bank Street in 2003 on a 30-year lease, court records show. The structure was designed and built for Lehman, Canary Wharf said in court papers.

Lehman has said it expects payouts to third-party creditors to reach at least $80.6 billion before the bankruptcy case is resolved, court records show. That estimate, made public in July, is an increase over the $65 billion recovery projected in the company’s liquidation plan approved in December 2011.

Lehman filed a Chapter 11 petition on Sept. 15, 2008, listing $613 billion in debt, after the New York-based bank failed to win U.S. government aid or attract a buyer.

Harvey Miller, Lehman’s bankruptcy lawyer, estimated in September that recoveries may rise to as much as 22 cents on the dollar as the value of Lehman’s assets increases.

The case is In re Lehman Brothers Holdings Inc., 08-bk-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

-By Erik Larson

KB Home Reports Profit as U.S. New-Home Sales Surge

Source: Bloomberg / Luxury

KB Home (KBH), the best-performing U.S. homebuilder stock in the past month, reported a profit for its fiscal second quarter as selling prices and orders increased.

Net income for the three months through May was $26.6 million, or 27 cents a share, compared with a loss of $3 million, or 4 cents, a year earlier, the Los Angeles-based company said today in a statement. The results beat the average analyst earnings estimate of 21 cents a share, according to data compiled by Bloomberg.

Sales of newly built homes in the U.S. have surged as improving employment and consumer confidence give the housing market a lift in the busiest selling season. Purchases (NHSLTOT)of new houses, tabulated when contracts are signed, jumped 18.6 percent in May, the biggest one-month gain since January 1992, according to figures from the Commerce Department. Publicly traded builders including KB Home have been increasing prices to take advantage of a tight supply of available properties.

“We extended our trend of generating solid earnings improvement in the second quarter, and remain focused on accelerating profitable growth,” Jeffrey Mezger, president and chief executive officer of KB Home, said in the statement.

Revenue in the quarter rose 8 percent from a year earlier to $565 million. Net orders increased 5 percent to 2,269 homes. The company’s contract backlog, an indication of future sales, climbed 9 percent to 3,398 homes. The average selling price increased 10 percent to $319,700.

The results were released before U.S. markets opened. KB Home yesterday fell 0.3 percent to $17.88. The stock has gained 7.6 percent in the past month, the best performance in the 11-company Standard & Poor’s Supercomposite Homebuilding Index, which advanced 2.2 percent.

-By Prashant Gopal

Spain’s Merlin Reduces IPO Size as Investor Appetite Drops

Source: Bloomberg / Luxury

Merlin Properties SA, a Spanish real estate investment trust, reduced the size of its initial public offering to 1.25 billion euros ($1.7 billion) from an earlier plan to raise about 1.5 billion euros.

Merlin will sell 125 million shares at 10 euros apiece, the REIT said in a statement today. Merlin, based in Madrid, had received 600 million euros of commitments from investors including Moore Capital Management LLC, it said in a prospectus on June 13.

Other issuers are struggling in the most active year for IPOs in Europe since 2011, data compiled by Bloomberg show. Liberty Living Plc postponed its share sale yesterday citing adverse market conditions and companies such as FinecoBank SpA in Italy have priced sales at the lower end of their original ranges.

“Each time the IPOs are getting bigger and bigger and the market is starting to be saturated,” says Gonzalo Lardies, Spanish equity fund manager at Banco Madrid, who manages 132 million euros of assets. He said 1.5 percent of his fund is invested in Lar Espana Real Estate SOCIMI SA (LRE), another Spanish REIT.

Investment in Spain by funds, private-equity firms and other financial-services companies more than doubled to 13.9 billion euros in 2013, according to Irea, a debt-restructuring firm based in Madrid. Spain last year reduced tax burdens for REIT investors, and Pacific Investment Management Co.’s Bill Gross, Quantum’s George Soros and hedge-fund manager John Paulson have all taken stakes in Spanish REITs in the last several months.

Credit Suisse Group AG (CSGN) is coordinating Merlin’s IPO and is joint book-runner along with UBS AG and Deutsche Bank AG. Freshfields Bruckhaus Deringer LLP is legal adviser.

-By Ruth David and Macarena Munoz

Carney’s Loan Cap Seen as Too Weak to Stifle Housing Boom

Source: Bloomberg / News

Bank of England Governor Mark Carney may need a bigger weapon to subdue risks from Britain’s booming property market.

Faced with house-price increases of almost 20 percent in London and calls to prevent a bubble from threatening financial stability, Carney said yesterday the bank would impose a cap on loan-to-income ratios and other limits on mortgages. BOE projections show the measures will have no immediate effect on mortgage approvals and prices, which jumped about 10 percent nationally in the past year.

Carney’s approach, while marking an unprecedented step into the housing market for U.K. authorities, was less severe than analysts had anticipated. With the BOE acknowledging the outlook for the market is “uncertain,” more restrictions may be needed to prevent Britain from returning to the boom and bust housing cycle that scarred previous decades.

“In terms of arresting increases in house prices it’s a chocolate fireguard,” said Tom Vosa, an economist at National Australia Bank (NAB) in London. “By being cautious the bank isn’t trying to over worry the market and is waiting to see what happens. That means there may be further measures down the road.”

The BOE’s Financial Policy Committee said lenders must limit the proportion of mortgages at 4.5 times income to no more than 15 percent of their new home loans. It also said banks must decline loans to borrowers who fail a new stress test that assumes an immediate 3 percentage-point increase in the benchmark rate.

Soaring Prices

In the past year, about 10 percent of loans had a loan-to-income ratio of 4.5 times or above, compared with 6.5 percent in the two years before the financial crisis. The 15 percent ceiling will begin Oct. 1, though mortgages approved before that date will be counted if not completed by the end of September.

The BOE’s central forecast published yesterday assumes house-price inflation continues at its current rate for another year before cooling to a pace in line with income growth. From now until the first quarter of 2017, prices will rise 20 percent, according to its central case, less than the 39 percent increase from 2003 to 2005.

The BOE sees a risk of faster housing gains in what it calls its “upside scenario.” Under those assumptions -- which yesterday’s action is intended to head off -- values surge 45 percent over the next three years, stretching affordability and increasing the proportion of riskier mortgages.

Missed Opportunity

The loan-to-income cap ensures that “if we were wrong about that, if for some reason price growth is faster because of expectations of individuals or income growth is not as rapid because the labor market takes longer to pick up, that the slide into riskier lending is limited,” Carney said yesterday.

Britons owed a record 1.28 trillion pounds ($2.2 trillion) on their homes in April, equal to about 76 percent of gross domestic product, BOE figures show.

“While at least doing something, the measures announced are modest,” said Matthew Poynton, an economist at Capital Economics in London. “Overall, this package seems like something of a missed opportunity. It increases the risk of a prolonged period of above-earnings increases in house prices, which are already overvalued on most metrics.”

Some economists were disappointed that the BOE imposed no regional restrictions. For instance, the share of mortgages with loan-to-income ratios more than 4.5 percent could rise in London without exceeding the national limit. The Land Registry said today that London house prices rose an annual 18.5 percent in May. Values in England and Wales rose an average 6.7 percent.

Next Step

Carney, 49, said there are other measures the bank could take to cool the housing market. These include adjusting the loan-to-income cap, making recommendations on the types of mortgages that banks extend, including on the amortization period or loan-to-value measures, or changing capital requirements. The BOE has said it will raise the key interest rate, now at a record-low 0.5 percent, as a last resort.

Carney said in a BBC interview today the BOE could begin to raise rates this year or 2015. Increases, when they come, will be “limited and gradual” and the “new normal” would be below the historical average of about 5 percent, he said.

Yesterday’s move eclipses the BOE’s decision to end incentives for mortgage lending under its Funding for Lending Scheme at the end of last year. It also highlights the breadth of the BOE’s new powers after the government in 2010 gave it new macroprudential tools and bank oversight powers as part of an overhaul of banking regulation.

Property Shortage

Carney, who joined the BOE from the Bank of Canada and is the first foreigner to lead the institution, is exercising the FPC’s powers as his first year at the central bank draws to a close. He joined the bank on July 1.

Carney’s new limits may not be enough to tame risks emanating from the capital, where a shortage of properties and overseas buyers using cash are driving up home prices.

Homebuilders are constructing more properties to take advantage of a shortage in the south of England. Home registrations by companies, made before construction begins, rose an annual 4 percent to 37,975 in the three months through May, the National House-Building Council said. The biggest increase was in the South East, where 35 percent more properties were registered. In London, there was a gain of 1 percent.

The BOE measures “will have a minimal impact on London,” said Sue Foxley, research director at Cluttons LLP in London. “We ought to make sure we provide people with homes, which is where we’re failing. We need to be more radical in terms of increasing the supply of homes in London and the southeast and take a strategic planning approach.”

The structural problems in the property market don’t necessarily fall under the BOE’s control.

“The provision of affordable homes isn’t under the Bank of England’s remand, it’s a problem for government,” said Azad Zangana, an economist at Schroder Investment Management in London. “All the bank can do is manage the monetary environment as best it can, working efficiently to provide access to credit. It shouldn’t be there to ensure members of the population can exceed appropriate lending measures.”

-By Jennifer Ryan