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14th March 2014

Singapore Economy

No more drawdown from national granite stockpile

Last month's supply disruption has eased; situation returning to normal: Khaw

Source: Business Times / Singapore 

THE government will no longer be releasing granite from the national stockpile, as last month's supply disruption has eased.

In a blog entry posted yesterday evening, National Development Minister Khaw Boon Wan said that applications for granite stockpile release will be suspended from today.

The temporary measure, put in place on Feb 5, had allowed builders to apply to the Building and Construction Authority (BCA) for granite, after a shortage from Indonesia led to construction delays.

Said Mr Khaw: "Five weeks after the activation of the plan, I am glad that the situation is returning to normal. Since early March, we have seen a steady resumption of granite supply from Indonesia.

-By Kelly tay

Granite supply disruption is reminder not to take things for granted: Khaw

Source: Channel News Asia / Singapore

SINGAPORE: National Development Minister Khaw Boon Wan said a recent disruption of granite supply from Indonesia is a useful reminder not to take things for granted.

Writing in his blog post on Thursday, Mr Khaw said Singapore has limited resources and the country's dependency for any natural resource is at stake at any time.

Therefore, a source diversification strategy has helped the construction industry tide over the granite supply disruption.

And together with the national stockpile, it has buffered Singapore well.

The granite supply disruption from Indonesia happened six weeks ago. Mr Khaw said, fortunately, Singapore was prepared for such surprises.

First, Singapore has a national granite stockpile to help the industry tide over any temporary disruption.

Second, as part of the country's diversification strategy, all importers are required to have a small supply from distant regional sources, even during normal times.

Third, there is a "drawer plan" to respond to such temporary disruptions.

Mr Khaw said the government had put that plan into action.

Singapore activated release of granite from the national stockpile and encouraged importers to ramp up supply from distant sources.

Five weeks after the activation of the plan, Mr Khaw said the situation is returning to normal.

Since early March, there has been a steady resumption of granite supply from Indonesia.

Supplies from other sources are coming in readily, and there has been no request to draw down from the national stockpile for the last 13 days.

Accordingly, the government will suspend the application for granite stockpile release from March 14.

But Mr Khaw stressed Singapore must not be complacent.

He said the stockpile will be replenished.

More importantly, the Building and Construction Authority will continue to promote the use of steel, drywalls and recycled concrete aggregates, so as to reduce Singapore's reliance on imports of natural aggregates. 

- CNA/gn

Buyers and sellers starting to go by past transactions

Source: Straits Times 

Despite uncertainty over the new Housing Board resale process, buyers and sellers are adapting to the practice of looking at past transactions rather than valuations, said property agents. Few intend to get private valuations ahead of the official HDB valuation, they added.

Some sellers 'may exploit loophole'

Source: Straits Times 

With few comparable transactions to go by, anxious sellers of rare units may try to exploit a loophole in new Housing Board rules, several property agents said. New rules dictate that only the buyer or his agent can apply for HDB-approved valuations after a price has been agreed with the seller. Sellers no longer get a copy as they do not need it in theory, unlike buyers who need it to apply for bank loans.

COVs: Confined to history?

Source: Today Online / Business

On Monday, a piece of Singapore’s public housing story was consigned to the annals of history after National Development Minister Khaw Boon Wan said in Parliament that buyers and sellers of Housing and Development Board (HDB) resale flats must agree on a price before seeking an official valuation for the purpose of applying for an HDB housing loan.

Cash-over-valuation (COV) — the difference between the flat’s selling price and its official valuation — which had dominated the HDB resale market for years, will no longer exist, in theory at least. In a practice that is unique to Singapore — it exists nowhere else in the world — almost all HDB flat sellers had hitherto obtained a valuation before marketing their property, usually as a guide to its worth in the market.

To re-focus the market’s attention on the selling price, the HDB will now provide daily updates of recent resale transactions as soon as they are lodged. Sellers and their agents can now use them as comparables to set the initial asking price for their flats.

Will it work? That depends on whether COVs remain relevant to the market. If the difference between the selling price and valuation remains high, the COV will continue to exist, whether by the same name or by any other. And marketing agents will continue to compile such data.

The most frequent comment by property experts following Monday’s announcement is that buyers will now have to be extra vigilant. They will have to negotiate very hard lest the valuation falls way short of the agreed price. And if buyers cannot come up with the cash, they will have to pull out of the deal. But don’t buyers do this already?

So, will it come down to the appraisers on the HDB’s valuation panel? Will they give an appropriate premium to some of a flat’s positive features?

After all, some of the very high COVs reported by the media in the past were the result of the valuer not fully appreciating the market’s take on the flat.

Personally, I feel that these valuations could have been executed better: It is inexcusable for the valuation to be so vastly different from the selling price, sometimes by as much as 15 per cent, unless there are very good reasons. One often-quoted reason is the long time lag between valuation and sale, and the effects of this may be compounded by fast-changing market conditions.

But now the timing of the official valuation — after a price is agreed — means that any lag period between the actual sale and the date of valuation will only be as long as the time a buyer takes to request a valuation and its delivery.

Previously, new market comparables were made available to valuers only once every two weeks. And if the flat is exposed on the market for six weeks, it means the valuation could be outdated by as much as two months or even longer, if it takes more time to sell the property.

Needless to say, a lot can happen in two months.

The biggest help to a valuation being done under the new system is that the property would have been exposed to the market for a period of time.

Every property is unique simply because it does not occupy the exact same location as any other, and property is all about location. Comparables are after all comparables, not the real deal. And the adjustment process is not an exact science.

The marketing ends when the seller feels he has received the best offer under the prevailing circumstances. If that is not the best indication of the value the market attaches to the property, what is?

So, we can expect most official valuations to be very close to the agreed price in the absence of suspicious circumstances where the sale is not concluded at arm’s length. The days of COVs rising to as high as S$80,000 to S$90,000 should be a thing of the past — notwithstanding rapidly changing market conditions.

If the HDB feels that resale prices are rising too quickly and not supported by the fundamentals, it can always lower its loan quantum to below 80 per cent, just as the banks do with private housing transactions when they feel the market has become too bubbly. Or it can even call for partial capital repayment as market conditions change.

-By Colin Tan

Savvy in real estate

A key finding in the Knight Frank Wealth Report, released just last week, points to real estate as still a favoured asset class among ultra high net worth individuals, with Singapore one of the top choices for a second home. But anyone wanting to enter the Singapore property market right now should be crystal clear about their objective. Market fundamentals aside, the Total Debt Servicing Ratio (TDSR) framework rolled out last June has dealt a huge blow to Singapore's property market by tightening individuals' access to loans for the purchase of all types of properties, not just residential.

Singapore Real Estate

Ascott wins Yangon, Wuhan management contracts

Source: Business Times / Companies

THE Ascott, CapitaLand's wholly-owned serviced residence unit, has secured management contracts for its first property in Yangon, Myanmar, and its third property in Wuhan, China.

Both are slated to open in 2018.

Somerset Kabar Aye Yangon will have 153 units and is part of a mixed-use development with a luxury condominium. It is a 15-minute drive from downtown Yangon.

Located in Wuhan's economic and development zone, Somerset Zhuankou Wuhan will offer 245 units, and is also part of a mixed- use development comprising office, retail and residential components.

-By Sheena Tan

First Reit buys another hospital in West Java

The $31m deal will grow portfolio to 15 properties and raise asset base by 3.8%

Source: Business Times / Companies

FIRST Real Estate Investment Trust (First Reit) has agreed to buy Siloam Hospitals Purwakarta in West Java, Indonesia, for $31 million in a move that will boost its asset base to $1.09 billion and position the Singapore-listed healthcare Reit for future acquisitions.

The acquisition, which amounts to $31.88 million if professional and other expenses are included, will be made by First Reit's subsidiary, Finura Investments Pte Ltd, from PT Purimas Elok Asri (PT PEA), which is an indirect subsidiary of PT Metropolis Propertindo Utama (PT MPU).

At $31 million, the purchase price represents a 17.3 per cent discount to the higher of the two independent valuations. Three valuations were obtained: $31 million, $37.47 million and $37.50 million.

"This investment offers a unique opportunity for First Reit to invest in a growing niche market in Purwakarta, West Java, which has a population of almost one million. It also enhances the diversification of our portfolio across locations and medical specialisations, thereby strengthening First Reit's asset base and maintaining an attractive cash flow and yield profile," said Albert Cheok, chairman of Bowsprit, First Reit's manager.

-By Angela Tan

PLife Reit buys Japan healthcare assets

Source: Business Times / Companies

BANKING on the resurgence of Japan's economy and the growth of the country's healthcare industry for an ageing population, Parkway Life Reit (PLife Reit) is acquiring two nursing homes and an extended-stay lodging facility for the elderly in Osaka city for a combined three billion yen (S$37 million).

The nursing homes are Maison des Centenaire Hannan and Maison des Centenaire Ohhama, while Sunhill Miyako is the extended-stay elderly lodging facility.

Through its special-purpose vehicle, Parkway Life Japan, the Reit has signed two Tokumei Kumiai (silent partnership) agreements with unnamed Japan-incorporated operators for the acquisitions.

In turn, these operators have entered into separate conditional sale-and-purchase deals with the vendor and existing operator, Miyako Enterprise, to buy the three properties. The special-purpose vehicle will inject funds into the operators, which will then acquire the properties from Miyako. This is similar to the holding structure for all its previous acquisitions in Japan, the 

Reit said.

-By Lee Meixian

Views, Reviews & Forum

Tweak rules for improvement works in private estates

Source: Straits Times

The Building and Construction Authority's Accessibility Fund that provides for the upgrading of existing residential buildings to install necessary accessibility features is very useful. However, in a private residential estate, before we can tap this fund, we need to obtain approval from the subsidiary proprietor.

Property valuers follow guidelines, not prices

Source: Straits Times

We refer to the comment made by Mr Mohamed Ismail Gafoor of PropNex Realty that "HDB-appointed valuers could follow the practice in the private market, and largely match their valuations to the reported price" in an article ("Rise and fall of COV - the property mover"; Wednesday).

Keep rental rates stable

Source: Straits Times

It was reported that the Government will make data on rental rates available for small and medium-sized businesses, so they can make informed decisions on the renewal of their leases ("Rental data to be more transparent"; March 7). This will not solve the problem of crippling rental cost in a tight market, but could make the situation worse.

High rents hit small businesses

Source: Straits Times

I read with dismay the impending closure of the famous Nasi Padang River Valley in Zion Road ("Famous nasi padang stall winding up"; Wednesday). Among reasons cited by the owner were rising rental costs and manpower woes, reasons often cited by small business owners who lack the resources of large corporations to meet rising costs. The increasing number of closures of small enterprises may dent our efforts to promote and protect our heritage.

HDB loan rate tied to CPF interest rate

Source: Straits Times

We thank Mr Sia Kor Ong for his feedback ("Keep HDB loan rate lower than banks'"; Tuesday). Flat buyers can choose to finance their homes with an HDB loan or a bank loan. They are advised to study their options carefully and decide on a loan package that best suits their needs over the long term.

Many uncertainties with new system

Source: Straits Times

In place of a better alternative, the cash over valuation (COV) system has served the resale market well ("Deals not decided on COV under new HDB resale rules";Tuesday). Under the previous system, the buyer knew in advance exactly how much he had to pay in cash, and could work out his finances with his banker before any commitment. So did the seller.

Revised HDB resale process will cause uncertainty

Source: Today Online / Voices

The revised Housing and Development Board resale procedures will create uncertainty rather than stability (“HDB resale: Parties must agree on price before valuation”; March 11).

First, the new practice requires a seller and buyer to negotiate the price based on daily, published transacted prices. How should they proceed, though, if there is no comparable data for negotiation?

It is like entering a market without knowing the price of the goods one wants to buy, negotiating blindly and hoping to agree on a price. This creates unnecessary anxiety for both parties.

Second, a buyer must now obtain the valuation report after the option-to-purchase is signed. If he realises that the negotiated price is way above valuation, he can withdraw from the deal, but it will mean forfeiting his deposit. Or, to avoid the forfeiture, he would have to pay a price above the valuation.

-By Tan Chee Keong

Real estate body must clarify guidelines for online property ads

Source: Today Online / Voices

While I welcome the Council for Estate Agencies (CEA) initiative to launch an online guide on foreign property purchases, I also call on the organisation to review its guidelines for online advertisements.

Traditionally, newspaper classified adverts have been the main platform for properties on sale. In this Internet age, though, many buyers rely on search engines to find out about the latest launches.

For example, Google AdWords, which are text adverts consisting of limited characters, is becoming a popular channel. It is regarded as the online equivalent of classified adverts. Unfortunately, the CEA’s guidelines lack clarity pertaining to AdWords.

The CEA says the salesperson’s name, registration number and contact number, as well as the estate agent’s name and licence number, must be stated in all adverts, including online, with the exception of classified adverts.

But there are countless variations of online adverts. The term “online advertising” is too broad. It would help if the CEA could clarify the following: Does online advertising include AdWords?

If so, is it reasonable to insist on the aforementioned details of the salesperson and estate agent in an advert limited to a 25-character headline and two 35-character text lines? If the CEA requires so much information in a short-text advert, would this not penalise salespersons and estate agents with long names?

In classified adverts, the registration and licence numbers and the estate agent’s name are not required. Logically, should not the same considerations be applied to AdWords?

A quick Google search would reveal numerous AdWords results that omit the required information. There are two possibilities: Either the salespersons are unaware of the guidelines or the CEA’s requirements are too vague. The CEA should keep up with technology.

-By Alicia Lau

Global Economy & Global Real Estate

Johor tops in unsold property in Malaysia

As at end-Sept 2013, the state had 15,077 residential units unsold: Landserve

Source: Business Times / Malaysia

MALAYSIA'S Johor state still has the largest number of unsold residential unitsin the country despite it having registered a 22 per cent drop in the property overhang to 2,637 units at the end of Q3 last year, from the 3,389 units left unsold in the three months before.

Nearly four in five or 2,102 of the completed units are located in the district of Johor Baru, and most of them (2,089) have been in the market for more than two years, according to property consultancy Landserve Sdn Bhd.

With the special economic zone of Iskandar Malaysia driving growth, particularly in real estate, the southern state saw 7,100 units launched in the first nine months of 2013, more than in any other state. The bulk of the units were unveiled in the first six months of last year, Landserve noted in its January/February report.

It attributed the quicker pace of take-up in unsold properties in Q3 to competitive mortgage rates and the deferred financing Developer Interest Bearing Scheme (Dibs). Since the October Malaysian budget however, Dibs has been banned and real property gains taxes have been made more punitive, dampening sentiment. The minimum floor price for foreigners has also been raised to RM1 million (S$386,510) from RM500,000 although key interest rates remain unchanged.

-By Pauline Ng in Kuala Lumpur

UK house price growth eases in February

Strong expectations for rising prices and activity suggest recovery still has a long way to run: poll

Source: Business Times / Property

[LONDON] British house prices rose at the slowest pace in six months in February, but strong expectations for rising prices and activity suggest the housing market recovery still has a long way to run, a survey showed yesterday.

The Royal Institution of Chartered Surveyors (Rics) said that its main house price balance measure eased last month to +45, its lowest since August, from +52 in January, downwardly revised from +53 reported earlier.

February's reading was below all forecasts in a Reuters poll of economists that predicted an unchanged balance of +52.

Rics suggested the easing in levels of activity last month may have been down in part to bad weather, with rain, wind and flooding making people less inclined to go out and view houses.

-From London, UK

Local govt curbs hit China home sales for Jan and Feb

Value falls 5% to 598b yuan, volume dips 1.2%

Source: Business Times / Property

[SHANGHAI] China's home sales fell in the first two months of the year as local government property measures to rein in rising prices weakened buyer sentiment.

The value of homes sold fell 5 per cent to 598.5 billion yuan (S$123 billion) from the same period a year earlier, the National Bureau of Statistics said yesterday. That compared with an almost doubling in sales in the first two months of 2013. The government doesn't provide data for individual months and releases a compounded figure throughout the year.

"The bad figures from the property sector are sending the government an alarm that it will somehow need to relax restrictions on the sector," said Jack Gong, a Hong Kong-based property analyst at Orient Finance. "The economy is slowing down obviously and property is intertwined with so many other industries."

Premier Li Keqiang said yesterday that there's some flexibility around the nation's target of 7.5 per cent growth this year, without specifying how much of a slowdown leaders would tolerate. The government will curb demand for housing among investors and will regulate the housing market "differently in different cities", Mr Li said at a press conference in Beijing.

-From Shanghai, China

HK-listed China developer's profit up 23% at HK$23b

Source: Business Times / Property

[SHANGHAI] China Overseas Land & Investment, the country's biggest developer by market value listed in Hong Kong, said that 2013 profit climbed 23 per cent on gains from property revaluations and sales.

Net income rose to HK$23 billion (S$3.7 billion), or HK$2.81 a share, from HK$18.7 billion or $HK2.29 a share a year earlier, the company said in a Hong Kong stock exchange filing yesterday. That compares with the HK$22 billion average estimate from 11 analysts surveyed by Bloomberg News. Sales rose 28 per cent to HK$82.47 billion.

The state-owned developer benefited from its focus on so- called first-tier cities, which include Beijing and Shanghai, as home prices rose more than 15 per cent in December in those two cities from a year ago, according to the National Bureau of Statistics data. China Premier Li Keqiang last year held off from imposing nationwide property curbs, while at least 10 Chinese cities announced local measures.

"The coming year, 2014, is expected to be complex and ever-changing, affected by the unfavourable global political and economic environment," chairman and chief executive officer Hao Jianmin said in the statement. "The group will continue to adhere to prudent financial management and will increase the speed with which it collects the proceeds of sales."

-From Shanghai, China

Google hunts for retail space in NY Soho

It is considering 131 Greene Street for its first stand-alone retail outlet

Source: Business Times / Property

[NEW YORK] Google has been prowling Manhattan's Soho neighbourhood in search of a location for its first stand-alone retail outlet, according to a local real estate broker.

The search-engine company, which has expanded its reach into smartphones, computerised eyewear and laptops, is considering leasing at 131 Greene St, said Faith Hope Consolo, chairman of the retail group at Douglas Elliman Real Estate.

The property is around the corner from Apple's first New York store, on Prince Street. Google may be looking at other locations as well, according to Ms Consolo, who said that she showed company representatives retail space elsewhere.

"Google has been looking in Soho for a long time," she said. "They want to be near Apple, and they've been concentrating on Greene Street. There are different streets that are in vogue, that have become hot, and it's just now that Greene Street has become the street in Soho."

-From New York, US

Falling Manhattan condo rents offer respite

Source: Business Times / Property

[NEW YORK] Manhattan apartment dwellers are getting some relief after two years of rent increases that brought tenant costs close to a new peak.

The median monthly rent fell 2.8 per cent last month from a year earlier to US$3,100, according to a report yesterday by appraiser Miller Samuel and brokerage Douglas Elliman Real Estate. It was the sixth straight decline. The vacancy rate rose to 1.87 per cent from 1.69 per cent, while owner concessions also climbed.

Manhattan landlords have retreated after 23 months of raising prices to make up for ground lost during the recession. Median rents increased 15 per cent from the bottom in November 2009 and were approaching the 2006 high of US$3,265 a month before they began to slide in September.

Some tenants are being drawn into the sales market, while those who remain leasers are resisting higher rates, according to Jonathan Miller, president of New York-based Miller Samuel.

-From New York, US

Chinese developer, theme park operator tumble in HK debuts

Investors may be experiencing IPO fatigue, with 17 firms listing in HK so far this year: Analysts

Source: Today Online / Business 

HONG KONG — Shares in a Chinese theme park operator and those in a real estate developer sank on their Hong Kong debut yesterday as worries about the weakness in China’s economy left the overall stock market trading at around a one-month low.

Haichang Holdings, which operates amusement parks in China, finished at its intraday low of HK$2.02 (S$0.33), below its initial public offering price of HK$2.45 a share.

Sunshine 100 China Holdings, a real estate developer backed by United States private equity firm Warburg Pincus, fell as low as HK$3.05 before finishing at HK$3.74. Its IPO price was HK$4.00 per share.

Yesterday, the benchmark Hang Seng Index ended 0.7 per cent lower at 21,756.1 points, the lowest close since Feb 10. Retail and institutional investors had shown tepid demand for both stocks during the IPO process, in contrast to the massive rush seen for some offerings earlier this year that spurred some shares to log double-digit gains as they started trading.

Analysts said investors may have started to show “IPO fatigue”, as 17 firms have listed in Hong Kong so far this year, raising US$4.7 billion (S$6 billion), according to data from Thomson Reuters.

The IPO for Sunshine 100, a commercial and residential real estate developer in second- and third-tier Chinese cities, saw retail demand only 0.6 times the number of shares on offer, compared with deals that were oversubscribed more than 1,000 times last month.

The retail portion of Haichang’s deal generated 4.65 times more orders than the shares on offer, while its institutional tranche was moderately oversubscribed, the company said in a securities filing on Wednesday.

Jittery investors may also have been avoiding risky assets ahead of a batch of data released yesterday showing that momentum in the Chinese economy is slowing.

The weak demand for yesterday’s offerings contrasts with other new listings earlier this year. Nightclub operator Magnum Entertainment Group Holdings saw the highest-ever level of oversubscription for a Hong Kong IPO. It listed in January after it was more than 3,000 times oversubscribed.

Pork producer Huisheng International Holdings had the second-highest-ever level of oversubscription, with retail investors generating demand 2,188 times the number of orders last month. REUTERS

New World Development to Take Unit Private for $2.4 Billion

Source: Bloomberg / News

Billionaire Cheng Yu-tung’s New World Development Ltd. (17) offered HK$18.6 billion ($2.4 billion) to take its China property unit private after shares in the arm traded below net asset value for more than six years.

Shareholders of New World China Land Ltd. (917) will get HK$6.8 a share, 32 percent more than the last closing price before today, the companies said in a joint statement to the Hong Kong stock exchange today. The unit’s shares surged while New World Development plunged the most since October 2011 after the company also said it will raise HK$14 billion selling rights shares at a 36 percent discount.

“It makes sense strategically,” wrote Bank of America Merrill Lynch analyst Matthew Chow in a report today. “New World Group does not need two separate platforms for doing property in Hong Kong and China. The privatization would allow New World China to utilize its parent’s bigger balance sheet as China property development is still capex intensive if it wants to expand.”

New World China rose 29 percent to HK$6.62 at the midday break in Hong Kong, the most since its debut in 1999. Its parent fell 15 percent to HK$8.20, the most since Oct. 18, 2011. The shares had been suspended since March 11.

New World, with businesses in property, infrastructure, hotels and retail, fell the most on Hang Seng Property Index, which tracks the nine-biggest Hong Kong-listed builders.

Withdrawing Shares

New World China’s shares “have habitually been traded at a discount to their attributable net asset value,” the companies said. The offer provides an opportunity to its shareholders “to receive cash at a price significantly above the prevailing market price,” they said.

The property unit said it will apply to withdraw its listing on the Hong Kong stock exchange. The offer value of HK$18.6 billion is based on the assumption that all New World China options are vested and exercised in full.

New World China, which focuses on property developments in 22 Chinese cities including Beijing and Shanghai, entered the mainland market in early 1980s and went public in Hong Kong in 1999, according to its website.

“Rather than have two middle-weight entities in their respective fields that are not as widely followed as they would like, a larger combined entity would give the company more operational flexibility and larger market cap to warrant greater investor attention,” Robert Fong, a Hong Kong-based property analyst at Bloomberg Industries, said.

Rights Issue

Separately, New World Development said it plans to issue as many as 2.26 billion rights shares at HK$6.20 each. The issue is based on one right share for every three shares, according to the statement.

New World Development will use the proceeds to finance development projects and land bank expansion, the company said.

The market “did not have a very good memory” last time when New World did a rights issue in 2011, which diluted the book value per share, according to Chow.

Profit excluding property revaluations at rose 3 percent to HK$4.21 billion for the six months ended Dec. 31 from a year earlier, the company said on Feb. 26.

Cheng, 88, is 36th on the Bloomberg Billionaires Index with a net worth of $20.4 billion. In 2012, he retired as chairman of the developer he helped found four decades ago and also from Chow Tai Fook Jewellery Group Ltd., the world’s largest listed jewelry chain. He was replaced by son Henry Cheng.

HSBC Holdings Plc and Quam Capital are the financial advisers on the deal.

-By Bloomberg News

U.S. Mortgage Rates Climb With 30-Year Average at 4.37%

Source: Bloomberg / Personal Finance

U.S. mortgage rates increased as the improving job market bolstered speculation that the Federal Reserve will keep scaling back its stimulus.

The average rate for a 30-year fixed mortgage was 4.37 percent this week, up from 4.28 percent, Freddie Mac said today. The average 15-year rate rose to 3.38 percent from 3.32 percent, the McLean, Virginia-based mortgage-finance company said.

Yields (USGG10YR) for 10-year U.S. Treasuries, a benchmark for mortgage rates, climbed after a Labor Department report last week showed the U.S. added 175,000 jobs in February, more than economists predicted. The gain fueled expectations that the Central Bank will continue cutting the bond purchases that have kept borrowing costs low.

“The jobs report is one of the primary indicators of the health of the economy, and the extent to which it beat expectations suggested that the recovery seems to be moving along quite well,” Erin Lantz, director of mortgages at Seattle-based Zillow Inc., said in a telephone interview yesterday. “As the economy improves, we expect the government can wind down its stimulus program and let the economy move forward on its own.”

-By Prashant Gopal

Osborne Told to Curtail U.K. Housing Stimulus to Prevent Bubble

Source: Bloomberg / Luxury

U.K. Chancellor of the Exchequer George Osborne should scale back his housing-market stimulus next week to prevent prices spiraling, according to a survey of economists.

Almost three-quarters of 33 analysts in a monthly survey by Bloomberg said property in the U.K. is at risk of overheating. The poll, published today, also showed that more than 80 percent said Osborne should use his March 19 budget to curtail the Help-to-Buy program, which allows people to buy a home with a down payment of as little as 5 percent.

“House prices are already in frothy territory,” said Philip Rush, an economist at Nomura International Plc in London. Help to Buy “is encouraging a worsening of fragilities, creating the illusion of wealth by subsidizing house prices and encouraging a further leveraging up.”

Introduced by Osborne a year ago, the incentive program has helped boost mortgage lending. This stimulus, combined with a strengthening recovery and record-low interest rates, has bolstered demand for property and fueled concern that a bubble may be forming.

While the program has stoked the market, Rush said politically it wouldn’t make sense for Osborne to curtail it before next year’s general election. The chancellor has said the plan is helping “aspiring families” to own a home.

Price Surge

Data released today by Acadata showed house prices soared the most in almost two years in February as London continued to power growth. Bank of England Governor Mark Carney, who ended his institution’s support for housing loans this year, told lawmakers on March 11 that officials “have to be alive” to the possibility that rapid increases will spread beyond the capital.

“In London, the market clearly is overheating, but the rest of the regions aren’t benefiting as much,” said Brian Hilliard, a former BOE official who is now an economist at Societe Generale SA in London. “Osborne will be reluctant to do anything. The increase isn’t just caused by Help to Buy, it’s caused by other factors, like foreign buyers, too.”

Economists in the Bloomberg survey were divided over how Osborne should scale back the stimulus. Twenty-eight percent said he could increase the minimum size of down payment needed to access the program, while 25 percent said Help to Buy should be restricted to first-time buyers.

Twenty-two percent said the chancellor should lower the maximum price of houses that can be bought with the plan’s help from 600,000 pounds. According to the statistics office, the average U.K. house price in December was 249,792 pounds. In London, the average was 449,551 pounds.

Economic Outlook

Asked when the BOE will begin raising interest rates, 53 percent predicted the first half of 2015, little changed from last month’s survey. In the survey, 58 percent of respondents said Carney’s forward guidance on rates has been effective, up from 46 percent last month.

Economists have become more optimistic about the outlook. The economy will expand 2.7 percent this year, according to the median estimate in the poll, up from 2.6 percent last month. In 2015, growth will slow to 2.5 percent. Inflation will be 1.8 percent at the end of this quarter and average 2 percent this year, the economists predicted.

“Growth was certainly strong the past quarters,” said Duncan de Vries, an economist at Nibc Bank NV in The Hague. “Prospects remain very uncertain as a consequence of the highly-indebted economy.”

-By Emma Charlton and Andre Tartar

London Powers U.K. House-Price Growth to Fastest for 21 Months

Source: Bloomberg / Luxury

U.K. house prices soared the most in almost two years in February to a record as demand for homes rose and London continued to power growth, Acadata said.

Values in England and Wales increased 1 percent from January to 257,951 pounds ($431,000), the real-estate researcher and LSL Property Services Plc said today. That’s the biggest monthly increase since May 2012. All 10 regions tracked by the report registered annual growth in the most recent three months, with London jumping 10.9 percent.

“We are seeing a further strengthening of buyer demand, which combined with a thumping start to the year from the mortgage market, has bolstered confidence,” said Richard Sexton, a director at property appraisal firm e.surv, a unit of LSL. “The market in the capital is steaming ahead at a fast pace, with price growth double that of any other region.”

Home values in England and Wales rose 6 percent from a year earlier and showed “sustained acceleration” in the past three months, according to the report. Transactions totaled 65,750, down from 67,350 in January and 44 percent higher than in February 2013.

Low borrowing costs and government incentives have boosted demand for property, fueling concern that prices may spiral. Bank of England Governor Mark Carney told U.K. lawmakers this week that policy makers are monitoring the market “very closely” and “have to be alive” to the possibility that overheating in London may spread.

Help to Buy

A separate report today underlines the impact of Help to Buy, a Treasury program that allows people to buy a home with a down payment of as little as 5 percent.

Banks offered 11,138 loans to homebuyers with a down payment of less than 15 percent in February, up 74 percent from a year earlier and the most since April 2008, e.surv said. The average loan covered 63.5 percent of the purchase, the highest ratio since the onset of the financial crisis in August 2007.

“Banks are far more willing to lend to borrowers with a limited savings pot,” Sexton said. “New buyers are keen to get on the ladder before house prices rise beyond their reach, and they are utilizing the Help to Buy scheme to get an initial foothold.”

Other reports have suggested price growth may have cooled last month, in part because of adverse weather in some parts of the country. A gauge of values published yesterday by the Royal Institution of Chartered Surveyors fell to 45 in February from 52 a month earlier.

-By Emma Charlton

Oil-Fouled Waters Spoil Niger Delta as Homes Abandoned

Source: Bloomberg / Sustainability

Goi is gone, given over to nature.

Residents of the former fishing and farming community of 3,000 in the Ogoni region of southeast Nigeria, fed up with the third and largest oil spill in five years due to sabotage of pipelines, packed up and left the village in 2009-2010.

“We had to move because if we caught fish and opened it up, we found oil; if we harvested cassava, we found it soaked with crude,” Eric Dooh said under the shade of wild date palms by his abandoned tin-roof home. “Our well where we got water became contaminated with crude and we decided to seal it up.”

The 45-year-old teacher spoke against the backdrop of a blackened swamp, the fouled Goi River ebbing by reflecting an oily sheen, the odor of raw crude omnipresent. What remains of Goi is the legacy of the Niger delta, heartland of the oil industry that supplies four-fifths of Nigeria’s state revenue and is now soiled by spills, sabotage and contaminated waters.

About 240,000 barrels of crude, close to what spilled in 1989 when the Exxon Valdez tanker ran aground off Alaska, leaks on average each year where some of Earth’s most lucrative oil deposits exist. Spills, gas-flaring and discharges are ruining Niger delta waters with oil and cancer-causing chemicals, according to a study in the Journal of the Nigerian Medical Association.

For delta inhabitants of Africa’s most populous nation and the continent’s second-biggest economy, the bad waters put health and livelihoods at risk, drawing scant attention from a government battling a four-year-old insurgency by Islamist militants wracking northeast Nigeria while planning for elections next year.

Human Cargo

Oil prices rose 0.1 percent to $98.13 per barrel as of 2:22 p.m. in London after declining during the previous three days, according to data complied by Bloomberg.

Goi’s collapse as a community is the latest chapter in a checkered Niger delta history where European merchants engaged in the slave trade in the 15th century. Bonny on Nigeria’s coast served as an export terminal for human cargo that flowed down the region’s rivers. By the 19th century, the area was named “Oil Rivers” for its palm oil.

Inhabited mainly by ethnic minorities including the Ijaw, the area was first explored for oil by Royal Dutch Shell Plc (RDSA) in 1939 after the company was granted the concession for all of Nigeria while it was still a British colony. Exports began in 1958, oil majors including Exxon Mobil Corp. (XOM), Chevron Corp., Eni SpA (ENI) and Total SA (FP) soon followed, and remain.

Competition for the financial benefits of being an oil community has sparked conflict among the delta’s ethnic mix, fomenting unrest in a region now suffering from kidnappings, pipeline sabotage, piracy and crude theft.

Abandoned Relics

Today visitors to Goi are warned off with signs from the Hydrocarbon Pollution Restoration Project of the Federal Ministry of Petroleum Resources that declare in red and white: “Prohibition! Contaminated Area, Please Keep Off.”

Once-rich alluvial soils of the delta are often no longer viable for crops as more than a half-century of oil production and related damage continue to take a toll.

In Dooh’s case, he inherited a bakery, poultry and three fish ponds from his father yet left with the rest of the village when spills tainted everything from drinking supplies to food. What irritates Goi residents is that no one received compensation for the loss of homes and community.

That’s in part because Nigeria, Africa’s biggest oil producer, is a land of 170 million residents with at least 1,500 communities in an uneasy alliance with energy titans.

A first glimpse of the 70,000-square-kilometer (27,000-square-mile) delta shows a verdant area the size of Scotland southeast of Lagos and fed by the Niger River that flows from the Guinea Highlands.

Theft, Sabotage

Within the delta, about 5,280 oil wells are linked by 7,000 kilometers (2,700 miles) of pipelines. About 80 percent are owned by Shell, which operates most of the onshore fields in Nigeria.

Shell, Exxon Mobil, Chevron (CVX), Total and Eni all run joint ventures with state-owned Nigerian National Petroleum Corp. that pump more than 90 percent of the country’s oil.

Shell estimates oil leaks due to theft and sabotage in its Nigeria operations have risen from about half in 2008 to at least 80 percent. Competitors in Nigeria report similar figures relative to the size of their operations, with those at offshore fields less common than on land.

Contamination Levels

The amount of spoiled water has grown with discoveries of cadmium, lead, chromium and nickel in dozens of delta rivers above “maximum contaminant levels” set by the U.S. Environmental Protection Agency, according to a 2010 study by the Environmental Chemistry and Toxicology Research Unit of the Nnamdi Azikiwe University in the southern city of Awka.

A report in 2011 by the United Nations Environment Programme found measurements of the carcinogen benzene in water wells surpassed World Health Organization recommendations.

Though Goi has no oil wells, it’s in a mangrove-studded plain 40 kilometers from Nigeria’s oil industry capital,Port Harcourt, between Shell’s Bodo East and Bodo West oilfields.

While Shell stopped production in the region in 1993 after violent protests, its trunk lines supplying the Bonny Export Terminal on the coast from outlying fields still pass through the area. The pipelines are frequent targets for oil thieves.

Attacks by militants campaigning for a greater share of the delta’s wealth cut 28 percent of Nigeria’s output from 2006 to 2008, according to data compiled by Bloomberg.

Production Recovered

Though production recovered after fighters accepted a government amnesty and disarmed, it hit a four-year low in 2013 when former combatants returned to gangs tapping crude from pipelines for local refining or sale to vessels off shore, taking an estimated 100,000 barrels daily.

While regulations governing the oil industry in Nigeria require energy companies to clean spills and pay compensation to affected communities, exceptions are made for those blamed on sabotage.

The share of such pipeline ruptures has increased from about a third 20 years ago to two-thirds now, according to Petroleum Ministry data, sparking disputes with communities and leaving scores of spill sites including at Goi uncleaned.

Shell said its cleanup efforts have been stopped by locals in Goi who insist they be paid compensation first.

“Attempts to visit the site and begin cleanup work in late 2011 and in the first half of 2012 were unsuccessful because the local community refused to grant ‘freedom to operate’ for cleanup teams,” Jonathan French, Shell’s spokesman in London, said Feb. 14 in an e-mail. “Without the consent of local communities, we cannot do the required work.”

Seawater Intrusion

Exxon Mobil, Total and state-owned NNPC didn’t respond to requests by e-mail and phone for comment.

South of the Ogoni area on the coast, communities are seeing increasing intrusion of seawater into freshwater sources used for drinking, according to the Nigerian Hydrological Services Agency, a unit of the Water Resources Ministry. Drilling deeper for potable water has yielded saltier water.

Inhabitants of the affected areas, who are resorting to harvesting rainwater, are at risk of contaminants as well from hundreds of gas flares that fill the atmosphere, leaving them only the option of “purchasing water from merchants coming from the hinterland in boats,” the agency said in a statement.

The agency, set up in 2010 to address Nigeria’s water quality, plans a new survey of the delta to update the impact of oil operations and create “an early warning system” on water-contamination risks.

Spill Compensation

Chevron, commenting on how it deals with water-quality threats, said by e-mail all its operations in Nigeria “are done with a strong commitment to protecting people and the environment.”

Eni said in a Feb. 21 e-mail that its Nigeria Agip Oil Co. unit takes appropriate measures to ensure quality of water in case of spills including immediate containment, prompt cleanup and follow-up inspections.

In Goi, as in many places impacted by spills blamed on sabotage, inhabitants are demanding compensation before any cleanup, according to Dooh.

Not satisfied with Nigerian law, Dooh joined three farmers with the support of the environmental group Friends of the Earth and filed a lawsuit in 2008 against Shell at The Hague.

The court held Shell liable last year in the case of one of the farmers and dismissed the others, including Dooh’s, on the grounds that Nigerian law doesn’t hold oil companies responsible for spills caused by sabotage.

Dooh, an ethnic Ogoni from the same minority that writer and environmentalist Ken Saro-Wiwa belonged -- hanged by the military for his activism in 1995, has returned to local courts in search of compensation. He’s awaiting a ruling.

-By Dulue Mbachu

Manhattan Apartment Tenants Get Relief as Rents Decline

Source: Bloomberg / Personal Finance

Manhattan apartment dwellers are getting some relief after two years of rent increases that brought tenant costs close to a new peak.

The median monthly rent fell 2.8 percent in February from a year earlier to $3,100, according to a report today by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the sixth straight decline. The vacancy rate rose to 1.87 percent from 1.69 percent, while owner concessions also climbed.

Manhattan landlords have retreated after 23 months of raising prices to make up for ground lost during the recession. Median rents increased 15 percent from the bottom in November 2009 and were approaching the 2006 high of $3,265 a month before they began to slide in September. Some tenants are being drawn into the sales market, while those who remain leasers are resisting higher rates, according to Jonathan Miller, president of New York-based Miller Samuel.

“The owners were pushing and pushing and pushing and they weren’t relenting in any way shape or form,” Gary Malin, president of brokerage Citi Habitats, which also released a report on the Manhattan rental market today. “They just assumed they could continue.”

Buyers rushed to complete purchases as a spike in mortgage rates from near-record lows in May threatened to make homes more costly. In the fourth quarter, Manhattan condominium and co-op sales reached the highest total for the period in 25 years of record-keeping, according to Miller Samuel and Douglas Elliman. The surge in deals helped push up the apartment vacancy rate and reduce some of the landlords’ pricing power, Miller said.

Taking ‘Pause’

“New York, in our assessment, is simply taking a pause,” David Santee, chief operating officer of Equity Residential (EQR), the country’s largest publicly traded apartment landlord, said on the company’s Feb. 5 earnings call.

At Equity Residential’s 26 Manhattan properties, the number of tenants moving out to buy apartments increased almost 20 percent in the final three months of last year, Santee said.

“If we see decreases in traffic then we know that maybe we pushed too far with our rents,” Tom Lebling, senior vice president of property management at Chicago-based Equity Residential, said in an interview yesterday. “If we see increases in people’s notices to vacate, we realize we may have to back off.”

The company still expects rent increases for lease renewals at its Manhattan buildings to average 4 percent in the first quarter, Santee said on the call.

Landlord Concessions

Landlords offered concessions, such as a month’s free rent, on 9 percent of all new Manhattan leases in February, up from 5.5 percent a year earlier, according to Miller Samuel and Douglas Elliman. The number of new lease agreements climbed 3.1 percent, suggesting tenants were leaving their apartments in search of better deals elsewhere, Miller said.

Some tenants may have headed to Brooklyn. Rents in the borough, New York’s most populous, surged 12 percent in February, bringing the monthly median to $2,890, or just $210 less than in Manhattan, Miller Samuel and Douglas Elliman said. The spread is the narrowest it’s been since the firms began tracking the market in January 2008.

Citi Habitats in its report said 12 percent of new leases in February included incentives, up from 8 percent a year earlier and the most in two years. The sweeteners helped push the vacancy rate to 1.5 percent, down from 1.62 percent in January and the lowest since September, the brokerage said.

Website Search

Garn Nibley and his wife didn’t want to pay a broker’s fee, so they searched websites for a two-bedroom apartment, setting a monthly budget of no more than $3,000. Responding to an online advertisement, they connected with Lorett Vigon, a broker at Citi Habitats, who agreed to help them find a place that met their needs and on their financial terms.

Vigon directed the couple to a 750-square-foot (70-square-meter) duplex on East 32nd Street in Murray Hill that had one bedroom plus two separate loft spaces. It was one of three vacancies in the 71-unit building and the asking rent was $3,495.

The landlord didn’t want the apartments to go empty “and they were willing to work with us to help make it happen,” Vigon said.

A two-year lease was offered with no cost increases and one free month. Vigon waived her usual fee of 15 percent of the annual rent and agreed to accept $3,495 instead.

“It was effectively a no-fee condition,” said Nibley, 55, a pilot for American Airlines.

Highest Rents

Average monthly rents in Murray Hill ranged from $2,160 for a studio to $4,856 for a three-bedroom in February, according to Citi Habitats.

The Soho and Tribeca neighborhoods had the city’s highest leasing costs, with studios averaging $2,413 a month and three-bedroom units commanding $8,403, the brokerage said.

Rents in Manhattan may have plateaued, according to Miller. While improving employment will continue to support current prices, income isn’t growing at a pace that might suggest any sharp increases in rents this year, he said.

New York City added 94,800 jobs in the 12 months through January and average hourly earnings increased less than 1 percent, according to the state Labor Department.

-By Oshrat Carmiel