Real News‎ > ‎2014‎ > ‎March 2014‎ > ‎

12th March 2014

Singapore Economy

Ministry disputes findings of living affordability study

Source: Today Online / Singapore

SINGAPORE — Since 2008, households here in general are spending less on recreational and cultural activities as a proportion of their incomes. In contrast, the expenditure to income ratio for big ticket items such as housing has been generally trending upwards.

And this is an indication that living affordability here may not necessarily have improved, even though overall, households here are spending less out of their income over the years, according to a study done by National University of Singapore economics don Tilak Abeysinghe.

The study, which was interpolated from data from the Department of Statistics, was released earlier this month. It also concluded that the bottom 30 per cent household — in terms of income — are spending more than what they are earning.

Commenting on the study, the Ministry of Finance (MOF), however, pointed out that it did not take into account the fact that households in the lowest deciles, based on income from work, include a disproportionate number of retirees.

“Those who are poor are (commingled) within the lower income deciles with retirees with savings and other assets. Higher expenditures than incomes are in part shaped by this reality, as in other societies as they age,” an MOF spokesperson said.

The MOF also took issue with the study’s methodology. Among other things, it pointed out that the actual housing expenditures for lower income households are “far lower” than the imputed rentals which the study included in determining the spending.

Associate Professor Abeysinghe’s study comes on the heels of a recent Economist Intelligent Unit (EIU) report which ranked Singapore as the costliest city to live in. Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam had earlier pointed out that the EIU report was not a good representation of how life is for local residents.

On his study, Assoc Prof Abeysinghe said households are cutting back on “flexible expenditures” such as spending on recreation and culture in anticipation of paying for big-ticket items including housing and healthcare. “Otherwise there is no reason for people to spend less on recreation and culture as they are getting richer,” he said. “Economic theory simply says that people should spend more when they get richer on luxury goods.”

The study also found that expenditure-income ratio for transport has been rising for higher income groups. It attributed this to increasing private transport costs.

Assoc Prof Abeysinghe said the bottom 30 per cent of households — and not just the bottom 10 per cent or 20 per cent — require “extra attention in the Government’s welfare programmes”. He added: “If low income groups constitute a larger proportion of retirees, they could be drawing down their savings to maintain consumption expenditures.”

 Govt focused on needs of lower income: MOF

 MOF data showed that the proportion of households with at least one person aged 65 years and above is higher for lower income households.

For example, for the bottom 10 per cent households, almost seven in 10 households contain at least one elderly person while, for the top 10 per cent, it is about one in 10 households.

The ministry’s data also showed that not all the 1st decile households are poor. Compared to higher income groups, they have larger average monthly non-work income from sources such as investments, for example, and around 30 per cent of these low-income households live in a five-room HDB flat or bigger.

Its spokesperson said that for lower income households, their mortgage payments are lower than the imputed rentals because of government grants. Imputed rentals are also rising faster in line with the property market cycle whereas mortgage interest rates have fallen, she added.

Assoc Prof Abeysinghe acknowledged it “could be argued that imputed rent overestimates household expenditure”. But he said imputed rent “cannot be considered an irrelevant cost item” as it captures, to some extent, households’ mortgage payments.

The study was unable to yield any meaningful result on the expenditure-income ratio for healthcare, possibly due to data anomaly, Assoc Prof Abeysinghe said.

In terms of education expenditure, the study found that higher income groups are spending more on education while for the bottom 20 per cent of households, their spending has remained the same or decreased. “Education and social mobility are closely linked and the inability of low income groups to spend on education beyond the public school system will sustain their disadvantage,” the study said.

However, the MOF pointed out that the trend reflected the drop in share of families with children. Moreover, education subsidies have increased for lower income households.

The MOF spokesperson reiterated that the Government is “actively focused” on the needs of the lower income group, and it has significantly expanded schemes to help the lower income group.

“For most of those in the bottom third, government transfers in the form of cash and savings top-ups (not including other subsidies) provide significant supplement to their incomes,” the spokesperson said.

-By Ng Jing Yng

A smarter workforce is about more than just productivity

Source: Today Online / Others

A lot has been said in Singapore about the workforce, and much of it seems like 50 shades of the same few hot-button issues. If it is not about raising worker productivity, it is about how to achieve work-life balance, or how to negotiate a raise with your boss.

Or it’s about how Singaporeans are the unhappiest employees in the Asia-Pacific, as revealed by a Randstad survey in January.

As a society, we seem to view work as a necessary evil, something we have to do rather than want to do. But slowly through the years, and as Millenials increasingly constitute more of the working population, the nature of “work” has fundamentally changed from a means of providing basic needs, to one that provides status, satisfaction and self-fulfillment.

The narrow definition of work is being stretched and the era of manpower efficiency is drawing to a close. Sooner or later, organisations will realise they have to engage the human spirit in individuals in order to tap the most powerful computer that exists — the human mind.


The sea change is the result of four major shifts that are making the world of work increasingly interconnected, instrumental and intelligent. These four shifts are:

Social collaboration: People are connecting with each other more quickly and today’s workforce is more empowered and informed than ever before. Whether employers encourage it or not, their workforce is sharing knowledge and collaborating in new ways, inside and outside company firewalls.

Mobile prevalence: As connectivity becomes more widespread, collaboration is done more rapidly and decisions get made much faster. Information about practically every topic and sundry is not just readily available, it is accessible in real-time by a finger-tap on a smart device.

Big data and analytics: Increasingly, decisions are made less on limited information and gut feel and more based on insights extracted from the massive volumes of data generated by candidates and employees. Companies use these insights to guide whom and how they recruit, how they design their jobs to attract and retain talent, and how they manage their workplace culture.

The emerging independent worker: As human capital becomes the leading source of sustained economic value, more workers are striking out on their own. People are networking with other people and employers to pursue the work they want to do, who they want to do it with, and when and how they want to work.

Each of these shifts will either magnify or create new obstacles for employees and employers. As it is, under the current model of work, both employees and employers have their own set of challenges.

Employees struggle to gain the right skills to succeed in today’s competitive job market, find meaningful work and determine which organisation best matches their personality and lifestyle. Employers, on the other hand, struggle to find the right talent, help their employees to outperform, provide skills and training to adapt to an ever-changing marketplace, and draw out the best from the talent they already have.

But the good news is that there is a solution within the problem — a smarter workforce.


If employees understand their true talents, and in turn find work that will use their full capabilities that give them a fulfilling experience at work, both employee and the employer will indubitably benefit.

Obviously, to do that, there needs to be a shift in thinking and attitudes about work — and of course, a fundamental change in management style.

Today, with the power of technology and collaboration, those decisions are being made from the bottom up to match the flow of collective information. This makes businesses more nimble and adaptable to market change and, as a result, more successful.

At the same time, the recent advancements in human insight mean we now know what makes people good at what they do, individually and collectively. We also better understand the dynamics of talent and the science of human behaviour.

The combination of technology and human insight has produced mounds of Big Data around human behaviour and workforce tendencies that employers have been collecting for decades through their legacy human capital management (HCM) systems, but have not been able to extract and act on until recently.

So, if we can harness the power of big data and analytics with human insight, human behaviour and workforce solutions, along with social and mobile technologies, we could bring people and employers together to do more meaningful and valuable work to drive business.

In summary, a smarter workforce is smarter when:

• Behavioural science identifies what makes people good at what they do and organisations thrive because of it.

• Technology does not just drive efficiency, but also fuels collective and collaborative innovation.

• Analytics is both a predictive and management tool critical for driving continual improvement.

Ultimately a smarter workforce recognises there is power and meaning in work — if we make it so. When you can reduce time-to-hire, increase productivity, lower turnover and increase retention rates, the business wins by getting its products or services to market faster, sharing collective knowledge and being more creative and innovative.

Once companies truly understand how employees affect the bottom line, an engaged workforce is essential. It’s not just about a smarter workforce, it’s also about doing smarter business.

-By Peta Steele

Singapore Real Estate

Changes unlikely to affect valuation, say experts

Source: Straits Times

Changes to the way HDB resale transactions are conducted are unlikely to affect the valuation of a flat, said experts. Rather, they are more likely to spell a mindset change for buyers and sellers, who must learn to focus on a unit’s innate characteristics, instead of the amount of cash they stand to fork out or gain.

Rise and fall of COV – the property mover

Source: Straits Times

Deals were once forged or broken over it. Headlines roared its record-setting highs. Loved by sellers and loathed by buyers, the concept of cash over valuation dominated the Housing Board resale market for years – but perhaps no longer. In the new resale process, this cash premium or COV is not the focus of negotiations. Buyers and sellers agree on a price and get a valuation; the COV is a mere arithmetic outcome.

Better methods unlikely to hit developers' margins

Higher costs may be encountered in the short term for selected GLS sites

Source: Business Times / Top Stories

[SINGAPORE] Costs may creep up for developers in the short run as they adopt productive technologies for selected Government Land Sale (GLS) sites but margins should still be protected, some analysts say.

"We believe margins will not be compromised," said Regina Lim, head of Singapore equity research and Asean property research at Standard Chartered. "As more developers adopt prefab components, costs could decline with economies of scale."

Developers are also expected to rein in land bids in anticipation of higher construction costs due to the latest requirements.

There will be switching costs for construction companies from technology and manpower upgrades and these will be passed on to developers through their tender pricing, noted DBS Group Research analyst Alfie Yeo.

-By Lynette Khoo

MND to study if reverse mortgages should be provided by private market or govt

Source: Channel News Asia / Singapore

SINGAPORE: The National Development Ministry (MND) will study whether reverse mortgages should be provided by the private market or by the government in future.

A reverse mortgage is a loan taken up by the owner using his property as collateral.

This loan is then repaid with interest upon termination of the loan, or death, typically from the sales proceeds of the property.

In Parliament on Monday, the government announced it has begun a "serious study" on reverse mortgages as another way for seniors to monetise their flat.

Reverse mortgages were previously introduced in 2006 by NTUC Income. But the company later stopped accepting new applicants in 2009 because of the low take-up rate. Channel NewsAsia understands that there were just 24 cases during that period.

The Housing and Development Board (HDB) said the low take-up rate could have been due to factors like a lack of familiarity with the scheme and a preference for the elderly to bequeath their flat to their children.

Mohamed Ismail, CEO of PropNex, said: "Generally speaking, Singaporeans (being) Asians are still home proud. Many of them would like to hold on to an asset."

HDB also said the payouts determined by the provider at the time may not have been sufficiently attractive to the elderly.

There could have also been the fear of outliving the fixed tenure of a loan, a maximum of 28 years in the past, which would have meant owners would have to sell their property to repay the loan.

Associate Professor Chia Ngee Choon, from the Department of Economics at the National University of Singapore, said: "If the government is to be the provider, they have the advantage of economies of scale -- they are better able to risk pool, they are also able to access a cheaper cost of fund for this product."

MND noted that in the past, the government did not provide financial assistance or guarantees to commercial providers of reverse mortgages.

It said it had encouraged banks and financial institutions to offer reverse mortgages for HDB flats on commercial terms, based on providers' evaluation of the costs and financial risks involved.

Associate Professor Chia said that for the scheme to work, it will also have to provide a lifetime payout.

She said: "The second expectation is that you will never have to have a negative equity. So at the point when the house is put up for sale, the accumulated loan that has been given to you should be able to be met by the value of the property at the time."

Some property analysts said communication will be key.

Eugene Lim, key executive officer of ERA Realty Network, said: "At the end of the day, when you are at their age, a major concern is 'I need money but I do not want my house to be taken away from me'.

“The key is to explain to them clearly how the scheme works and if there is no hidden agenda and it is explained clearly, then I think there will be a buy-in.

"At the end of the day, it is how the scheme is explained. It has to be explained in a very simple way, in a way they understand.”

The government plans to consult and engage industry partners, experts and the elderly as part of the study. 

- CNA/ms

EL Dev tops bids for Yishun condo site

Source: Business Times / Singapore

EL Development trumped four other bids for a Yishun Avenue 9 site with its offer of $278.8 million.

This works out to around $450.06 per sq ft per plot ratio, exceeding consultants' expectations of $380-$431 psf ppr.

According to OrangeTee research, this marks "a historical high" for a residential non-landed government land sales site in Yishun, excluding mixed development". It beat the previous historical record for a Yishun site of $405.53 psf ppr in August 2010, where The Miltonia Residences condominium is now being built.

But Ong Teck Hui, the national director for research and consultancy at Jones Lang LaSalle, found the winning bid "modest" and the lowest for an Outside Central Region site, since the sale of the Vue 8 Residence parcel at $418 psf ppr in June 2012.

-By Lee Meixian

Residential site at Yishun Avenue 9 attracts five bids

Source: Today Online / Business Property

SINGAPORE – A residential site at Yishun Avenue 9 received only five bids at the close of the tender yesterday, indicating tempering demand in a traditionally popular district, though some analysts noted the relatively high offer by EL Development.

Notably, the margin between the first and fourth bids was less than 10 per cent, showing that developers may be mindful of the softening of the market, some analysts said.

“The bids show some level of restraint on the part of developers. This restraint is reflected in the relatively narrow margins between the first and the fourth bids that fall within a 10 per cent band,” said Mr Desmond Sim, Head of CBRE Research in Singapore.

“With the new announcement on HDB resale procedures moving away from the focus on high cash-over-valuation (COV), demand from HDB upgraders could dampen. Traditionally, COV has been the propellant for HDB upgrader demand for mass-market condominium projects,” he added.

The top bid for the 99-year leasehold site was tabled by EL Development at S$278.8 million, which works out to S$450 per sq ft per plot ratio (psf ppr).

Ms Christine Li, Head of Research and Consultancy at OrangeTee, noted that the psf ppr is a historical high for a residential non-landed Government Land Sales site in Yishun (not including mixed development). The last pure residential land tender in Yishun, which is now the Skies Miltonia, attracted a top bid of S$363.60 psf ppr in November 2011. The current record price for a land parcel is the site of The Miltonia Residences, which garnered a top bid of S$405.53 psf ppr in August 2010, she noted.

The 221,239 sq ft site, which is located along a canal and the Yishun forested area, is near a future road that will lead to Seletar Aerospace Park. While buyers can expect an unblocked view of the sea, some may be put off because it is adjacent to an industrial zone, Ms Li added.

“Sites in Yishun seem to be popular among developers, with the previous five land tenders gathering at least seven bids. Given that the subject site is neither a mixed development site nor near an MRT station, we saw the lowest number of parties contesting in Yishun since June 2010,” Ms Li said.

She expects the average selling price for units at the project, which has a maximum permissible gross floor area of 619,474 sq ft, to start from S$1,000 psf.

Yoma pushes for diverse businesses in Myanmar

Source: Straits Times

Real estate developer Yoma Strategic Holdings is ramping up its push into Myanmar by branching out into several new businesses - education, coffee, dairy products, cold storage and logistics. This follows a move by the Singapore-listed company in January to spend up to US$11.1 million (S$14 million) on a stake in Asia Beverages Co, its first foray into Myanmar's fast-growing consumer sector.

PropertyGuru considers listing in Australia or S’pore

Source: Today Online / Business

SINGAPORE — Online property portal group PropertyGuru is seeking to launch an initial public offering within the next 18 months, with Singapore or Australia the most likely listing destination, the company’s Chief Executive said yesterday.

If the company lists in Singapore, it would be the first online property portal to list in the city-state, while in Australia, it would be the second after ipropertygroup, which raised A$37 million (S$42 million) in its 2007 IPO.

“An IPO remains in the pipeline,” Mr Steve Melhuish, co-founder and Chief Executive of PropertyGuru, said in a statement. He did not elaborate on the size of the planned offering.

PropertyGuru lists properties for sale and rent in four Asian countries — Singapore, Thailand, Indonesia and Malaysia. The company, which was founded in 2006 in Singapore, secured an investment of S$60 million in 2012 from Deutsche Telekom.

In the statement, the company said visits to its websites across the four countries grew by 19 per cent to reach 125 million last year, while property listings increased by 60 per cent to 805,060 at the end of last year. It said Singapore topped its Web views, with 57 per cent of its Web traffic coming from the city-state. DOW JONES

Sports Facilities Master Plan

Source: Straits Times

Under the Sports Facilities Master Plan (SFMP), which is part of the Vision 2030 blueprint for sports in Singapore, facilities will be organised into four tiers to cater to sporting needs at national, regional, town and neighbourhood levels.

Global Economy & Global Real Estate

UOA ventures into Myanmar property market

Its first project comprises business and residential areas

Source: Business Times / Companies

UNITED Overseas Australia (UOA) has joined the growing list of global companies venturing into the emerging Myanmar market.

Yesterday, the Australia and Singapore listed property-related company said that it has formally agreed to pay US$24 million for an 80 per cent stake in a Myanmar company which owns and has the rights to develop 2.414 acres (0.977 hectare) of land in Dagon Township, Yangon region.

UOA estimated the cost of the first development project comprising commercial and residential areas will be US$80 million, which will be funded from internal cash flow.

Following a due diligence announced in January, a formal share purchase agreement to buy 80 per cent of Wa Minn Properties Development Company Limited has been signed by UOA's group chairman and chief executive officer Kong Chong Soon.

-By Angela Tan

China model offers GLP diversification

Source: Business Times / Companies

GLOBAL Logistic Properties (GLP), which boasts being the leading provider of modern logistics facilities in China, Japan and Brazil, has moved rapidly in recent months to further strengthen its foothold in the vast and growing Chinese mainland market. A notable development was the recent landmark deal for the investment of up to US$2.5 billion from a group of Chinese companies for around a third of its China subsidiary and a small portion of the listed entity.

By bringing onboard key players such as Bank of China Group Investment (wholly owned by Bank of China) and private equity firm Hopu, GLP is tapping deep-pocketed and well-connected players that can help it gain access to land and monetise land reserves.

GLP, which has come a long way since its listing on the Singapore Exchange mainboard in October 2010, has good reason to be focused on the world's second-largest economy. With a population of more than 1.3 billion and a rapidly growing economy, China has a big appetite for logistics space. Current logistics space per capita there is only around 1/12th that of the US.

According to a study published in the McKinsey Quarterly, China also has the second largest online retail market, with websites such as Tmall and Taobao that are comparable to eBay. Revenue estimates for the e-commerce industry in 2012 were around US$210 billion, with a compounded annual growth rate of 120 per cent since 2003.

-By Raphael Lim

Australia's business conditions weaken in Feb: survey

Source: Business Times / World

[SYDNEY] Business condi-tions in Australia back-pedalled sharply in February, reversing around half of post-election gains, a widely watched monthly business survey released yesterday by National Australia Bank (NAB) found.

The NAB monthly business survey shows that business conditions dropped five points to zero index points in February, while business confidence eased off slightly in the month, falling two points to seven index points.

NAB says business confidence softened in the country in February but remains marginally above trend levels, suggesting that firms remain hopeful of a recovery despite mixed signals on business activity.

"As expected, the sharp turnaround in manufacturing recorded last month was largely unwound, and is now more consistent with the difficult environment that continues to face Australian manufacturers," the report noted.

-From Sydney, Australia

White House projects higher growth this year

It expects 3.1% growth this year while unemployment is expected to ease to 6.9%

Source: Business Times / World

[WASHINGTON] The White House has forecast that the country will experience more robust economic growth in 2014 than last year and a further pick-up in the economy for 2015.

Under a White House projection, the US economy is expected to expand by 3.1 per cent this year, faster than last year's 1.7 per cent. Growth would pick up to 3.4 per cent in 2015, the White House said.

The administration also forecast that unemployment would ease to an average of 6.9 per cent in 2014. The jobless rate, which reached a high of 10 per cent in 2009, fell to a five-year low of 6.6 per cent in January.

Many economists say that the unemployment rate has dropped in part because many people have stopped looking for work. The US labour force participation rate has fallen from over 66 per cent before the start of the recession to 63 per cent.

-From Washington, US

Dubai’s First IPO in Five Years as REIT Seeks $136 Million

Source: Bloomberg / News

Emirates Reit, the United Arab Emirates-based real estate investment trust, will sell shares on Nasdaq Dubai in the first initial public offering in the sheikdom in at least five years.

The company is seeking a minimum of 500 million dirhams ($136 million) for acquisitions and investments, it said in Dubai today. Books will open in two weeks and build over 10 days, according to Karim Schoeib, chief executive officer of investment banking at Shuaa Capital PSC (SHUAA), one of the bookrunners on the deal. Drake & Skull International (DSI) was the last company to raise funds on one of Dubai’s two stock exchanges, listing in March 2009.

Emirates Reit wants to capitalize on resurgent interest in real estate in Dubai, where economic growth and property prices have rebounded since 2009. Home prices may jump as much as 40 percent this year, according to the emirate’s Land Department and the economy may expand 4.7 percent after recording the fastest growth in six years in 2013.

Nasdaq Dubai, established in September 2005 to encourage international investment into the Middle East, has struggled with a lack of listings and low trading volumes and has 10 companies listed. The Bank of London & The Middle East Plc, the largest Islamic bank in Europe, in October listed on the exchange but didn’t raise any capital.

Liquidity Expected

Emirates Reit, which is based in the Dubai International Financial Center, considered listing on other exchanges but decided on Nasdaq Dubai because “liquidity is coming very soon,” Sylvain Vieujot, the company’s executive deputy chairman, said at a press event. As a Shariah-compliant company focused on investing in Dubai it also made more sense to list in the emirate, he said.

Emirates Reit was established in 2010 by Dubai Islamic Bank PJSC (DIB) and France-based Eiffel Management to invest in real estate. Its portfolio has a total value of 1.2 billion dirhams, according to the company website. DIB, the world’s oldest Islamic lender, owns 32.4 percent of the company, and Dubai Holding LLC holds about 28 percent through two subsidiaries.

Shuaa and Emirates NBD Capital will act as joint bookrunners on the deal. Abu Dhabi Commercial Bank PJSC, DIB and EFG-Hermes UAE Ltd. are co-lead managers for the sale.

Dubai’s benchmark DFM General Index declined 1.4 percent today.

-By Matthew Martin

African Barrick Falls Most in 14 Months in London on Sale

Source: Bloomberg / News 

African Barrick Gold Plc (ABG) slumped the most in 14 months in London trading after its parent, the world’s biggest producer of the metal, sold a 10 percent stake.

The unit of Barrick Gold Corp. (ABX) fell as much as 17 percent, the largest drop since Jan. 8, 2013. The parent sold 41 million shares to institutions for $188 million, cutting its stake to 64 percent less than four years after an initial public offering.

“This sale confirms that the parent is an ongoing seller and has been a potential seller since the 2010 IPO left it with more shares than it had hoped,” Citigroup Inc. said. “Having a parent keen to dispose of stock does not help with the image that Barrick has been an uncomfortable investor in Africa.”

African Barrick declined 15 percent to 262 pence by 11:55 a.m. in London, valuing it at 1.2 billion pounds ($2 billion).

Barrick Gold, based in Toronto, sold shares in its African arm for 275 pence apiece, it said yesterday in a statement. UBS AG, JPMorgan Chase & Co. and Royal Bank of Canada managed the sale. The parent had already held talks with China National Gold Group Corp. in 2012 over selling its majority stake, with discussions ending in January of last year without agreement.

Barrick Chief Executive Officer Jamie Sokalsky is seeking to boost profit and returns after gold’s biggest annual drop in three decades last year. He cut output forecasts and spending, and sold about $1 billion of assets in the past eight months. The company also suspended construction of its delayed and over budget Pascua-Lama project on the Argentina-Chile border.

Realize Liquidity

“This transaction allows us to realize some liquidity,” Sokalsky said in the statement. It’s part of the “program to optimize and lower the average cost of our portfolio.”

African Barrick has been dogged by setbacks since it first listed, struggling to meet production targets. When listed, it planned annual output of 1 million ounces by 2014. Instead, the company has posted declines for three years and been surpassed by rivals Randgold Resources Ltd. and Petropavlovsk Plc.

CEO Greg Hawkins quit in August and Brad Gordon was hired as a replacement to try to reverse the company’s fortunes. African Barrick, which operates mines in Tanzania, in January reported its first annual increase in production since listing.

“This is a positive step by Barrick which significantly increases our free float,” Gordon said in a separate statement today. “The placing is a reflection of the increased interest in the business as a result of the progress we are making.”

The company’s shares are still up 13 percent in the past 12 months, while the 30-member Philadelphia Stock Exchange Gold and Silver Index has declined 25 percent.

-By Liezel Hill and Thomas Biesheuvel

Office Towers Better Than Bonds Luring Global Investors

Source: Bloomberg / Personal Finance

In a world devoid of yield, even the lowest-returning real estate is attracting new investors.

A unit of CBRE Group Inc. (CBG) is investing $200 million for a group of Asian insurers in core real estate -- typically high-quality, well-leased buildings such as prime office towers, shopping centers and apartments. Blackstone Group LP (BX), the largest manager of high-return property funds, is expanding into the core business amid client demand. JPMorgan Chase & Co. (JPM) has a waiting list for investors to enter its $21 billion U.S. core fund, the country’s biggest.

Investors flocked to the most stable real estate after the global credit meltdown in 2008 caused the collapse of several high-risk property fund managers that relied on debt financing, including Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc.’s Whitehall unit. While the increased demand may reduce returns, core buildings are now luring more international buyers seeking a haven and investors trying to hedge against inflation.

“There has been a lot of demand for core globally,” said Tamara Larsen, a senior research analyst at Seattle-based asset manager Russell Investments. “Perhaps the low-hanging fruit in the immediate aftermath of the financial crisis isn’t nearly as plentiful as it was before, but there’s still potential to find compelling investment opportunities.”

The benchmark Open-end Diversified Core Equity Index measuring real estate returns had a 12.5 percent annualized three-year net return through 2013, well above the roughly 8 percent average in the past four decades, according to the National Council of Real Estate Investment Fiduciaries, which compiles the index. The gauge is known by the acronym ODCE, pronounced “odyssey.”

Bond Returns

By comparison, the Moody’s Baa corporate bond index, a fixed-income benchmark that many investors view as having the same moderate risk profile as commercial real estate, yielded an average of 5.2 percent during the same three-year period.

Core funds continue to attract net investment, according to NCREIF, the Chicago-based trade group for real estate investment managers. The 21 funds in the benchmark ODCE index saw net inflows of $2.7 billion in 2013, after net increases of $5.6 billion in 2012 and $7.1 billion in 2011, according to NCREIF. The rebound followed net outflows in both 2008 and 2009 totaling $5.2 billion.

Many investors also are adding so-called core-plus assets, which refers to buildings that might require a little extra work but are still viewed as much lower risk than distressed properties. The Asian clients of CBRE Global Investors are seeking to make mezzanine loans as well as acquire equity stakes in properties, said Matt Khourie, chief executive officer of the Los Angeles-based unit of CBRE Group.

Asia, Europe

“The interest has not really abated from the Asian or the European investors,” Khourie said. “There’s a greater focus on certainty from Asia and parts of Europe. Current income is the big driver there and getting a 5 percent plus-or-minus current return is a very attractive element.”

The 5 percent to 6 percent yield from income alone that a typical core building generates is more attractive than the roughly 2.8 percent return of the 10-year Treasury note, Khourie said. The separate account with Asian insurance companies will invest in the U.S. and Europe.

A group of Korean investors led by Korea Post bought the 49-story office tower at 161 N. Clark St. in Chicago last October in the Seoul-based postal system’s largest overseas real estate purchase. CBRE Global Investors acquired the building on behalf of the investor group. The seller was Tishman Speyer Properties LP.

Lower Debt

Core buildings usually carry debt levels of about 40 percent or less, whereas a typical opportunistic asset might have debt of 60 percent or more. At the opposite end of the risk/reward continuum, real estate opportunity funds aim for returns of at least 15 percent by using large amounts of debt to buy assets in need of turnaround.

In addition to forming separate accounts with clients, both CBRE Global Investors and New York-based Blackstone are among the firms raising or planning to raise new funds for core and core-plus real estate. CBRE got a $125 million pledge from the Illinois Municipal Retirement Fund last October for its CBRE U.S. Core Partners LP fund, according to the pension fund’s website. Khourie declined to comment on fundraising.

The real estate investment universe is enormous, representing almost $29 trillion of value, the vast majority of which are core assets. The U.S. accounts for about a fourth, or $7.3 trillion, of the worldwide total, said Doug Herzbrun, global head of research at CBRE Global Investors.

“It’s a huge asset class,” Herzbrun said. “Buildings shift in and out of the core category depending on their leasing profile.”

Leasing Rates

To be considered core, a property generally has to be readily re-leasable and be at least 85 percent occupied for an office building and 90 percent for retail, apartment and industrial buildings, Herzbrun said. Core returns are largely generated from rental income, rather than price appreciation. The U.S. office occupancy rate averaged 83.1 percent in the fourth quarter of last year, while apartment occupancies averaged 95.9 percent, according to Reis Inc., a New York-based property research firm.

The renewed popularity of core real estate has made some investors move to higher-risk investments as property prices rallied, said Russell’s Larsen. Just 5.2 percent of last year’s 13.9 percent gross return in the ODCE Index came from income, with the bulk from property price appreciation, a reversal of the historic pattern, where income provided most of the return.

“We expect to see positive returns but not as strong as they have been,” said Larsen. “The last few years was a great time to invest in U.S. core and now we’re seeing investors, including those making initial allocations, move up the risk spectrum or consider other markets that might offer a better fit.”

Price Gains

Commercial property prices in the U.S. jumped 13 percent last year to just 8 percent below their November 2007 peak, according to an index by Moody’s Investors Service and Real Capital Analytics Inc. In major markets -- which have the most core real estate -- prices climbed 2.5 percent above their previous highs.

Investor demand for core real estate is partly being driven by a perception that such assets offer a hedge against inflation, a desirable quality as the economy expands and interest rates climb, said Michael Acton, research director at AEW Capital Management in Boston, a real estate investment manager. The firm oversees about $27 billion.

Increases in the cost of land and development boost replacement values, bolstering existing real estate. A stronger economy also tends to translate into higher rents. The flip side is rising interest rates increase borrowing costs, reducing what prospective buyers are willing to pay, and some landlords might not see the benefit of higher rents if they’re locked into long-term leases.

‘Really Safe’

“Bonds might not help investors in an environment where interest rates increase or inflation goes back to normal levels,” Acton said. “High-quality commercial properties might be generating a 5 percent current yield and investors can’t find that in anything that feels really safe. The whole point of the core strategy is it’s the portion of real estate that’s not going to keep them up at night.”

Blackstone made its first core real estate purchase in December, buying a 29 percent stake in Edens, a South Carolina-based shopping-center landlord, for $718 million. It plans to invest $250 million on expanding the company.

As the largest company in private-equity real estate, Blackstone sees many potential investments whose likely returns, duration, debt levels or other characteristics don’t fit the requirements of its opportunity funds, said Peter Rose, a spokesman for the firm. A.J. Agarwal, a senior partner who previously worked on U.S. acquisitions for the opportunity funds, is overseeing the new core business.

Blackstone Expansion

The move into core real estate is part of a rapid expansion by Blackstone’s property unit. The division started a real estate debt business after the credit crisis that it has built up to more than $10 billion of assets and expanded in Asian and European property investments. It manages about $79 billion in real estate assets.

Core funds charge lower fees than opportunity funds. They also tend to be open-ended vehicles such as mutual funds that investors can exit quarterly. Opportunity funds, by contrast, have a finite life and investors are locked up for terms of about 10 years.

JPMorgan’s Strategic Property Fund last year acquired two core buildings in New York, the 31-story office tower at 425 Lexington Ave. and a majority stake in 195 Broadway in lower Manhattan, with a combined value of more than $1 billion.

“Overall the world is starved for yield,” said Mark Zytko, co-CEO of Mesa West Capital, a Los Angeles-based real estate lender. Given the combination of current income and value protection, “globally, core real estate is viewed as an attractive place to be.”

-By Hui-yong Yu

Blackstone Said to Plan $5.5 Billion Gates Global Bid With TPG

Source: Bloomberg / Personal Finance

Blackstone Group Inc. and TPG Capital are preparing to offer about $5.5 billion for auto-parts and industrial products maker Gates Global Inc., a person with knowledge of the matter said.

Bids for Gates Global, which is being sold by Onex Corp. and Canada Pension Plan Investment Board, are due later this week, said the person, asking not to be identified discussing confidential information.

Gates Global’s owners have been working with banks on a sale or IPO and could fetch $6 billion, people familiar with the matter told Bloomberg in December. The company filed for a U.S. IPO later that month.

Gates, which is based in Denver, was acquired in 1996 by London-based Tomkins Ltd. The British engineering firm was purchased 14 years later for about $4.5 billion by Onex and Canada Pension.

Gates manufactures power transmission belts, fluid products and other industrial equipment for customers such as Deere & Co., Daimler AG and Bombardier Inc. (BBD/B) The company posted sales of about $2.9 billion in the year through September 2013, a December filing for an initial public offering shows.

Spokesmen for Blackstone and TPG declined to comment on their interest in Gates Global, which was earlier reported by the Wall Street Journal. A spokeswoman for Canada Pension also declined to comment, while officials at Onex didn’t reply to phone calls seeking comment.

-By Jodi Xu

London’s Dulwich to Boost Yoma Plan for ‘Upmarket’ Myanmar Homes

Source: Bloomberg / News

Yoma Strategic Holdings Ltd. (YOMA), a developer of Myanmar properties, will build more “upmarket” homes and boost prices by as much as 30 percent with plans for a school overseen by London’s Dulwich College in a Yangon suburb.

The company said today it reached an agreement with Dulwich for the international school in the Thanlyin township. Singapore-based Yoma’s site for the education facility, which will also include a local private school, is adjacent to its Star City housing development that will include 9,000 homes, according to Chief Executive Officer Andrew Rickards.

“It will attract a certain level of expatriates to live there,” Rickards said in an interview in Singapore. “Having a school next to your residential development is a big boost.”

Yoma, which gets almost all of its sales from Myanmar, is positioning itself to take advantage as the natural gas-rich Southeast Asian nation the size of Texas reconnects with the global economy after five decades of isolation during military rule.

Real estate will make up half of its revenue in five years, down from 90 percent now, as the company expands into new businesses including agriculture, tourism, education and automotive, Rickards said in a briefing today.

Dulwich is also opening the first British independent school in Singapore in August. The college’s alumni include novelist Raymond Chandler and Eddie George, a former Bank of England governor.

‘Well Sustained’

“The demand will be very well sustained going forward,” said Tan Ai Teng, an analyst at DBS Group Holdings Ltd., who has a buy recommendation on the stock. “It’s a very good move on the part of Yoma to put premier education institutions near their site.”

Yoma shares rose 1.4 percent to 72 Singapore cents as of 11:24 a.m. local time, set for the highest close in more than a month. The gain helped pare losses this year to 4 percent, compared with a 0.8 percent decline in the Singapore benchmark Straits Times Index. (FSSTI)

Yoma is raising the specifications of the apartments at its Star City project, also in Thanlyin, with an expected increase in demand because of the new schools, Rickards said.

“We’re probably also going to build a slightly more luxurious product on the estate, partly driven by the sort of people we think would be coming to live there, now that we have Dulwich College coming,” he said.

-By Jasmine Ng