Real News‎ > ‎2014‎ > ‎March 2014‎ > ‎

19th March 2014

Singapore Real Estate

Prices dip for housing units at uncompleted projects

Source: Straits Times

Selling prices at some uncompleted projects have fallen over the past three months - by anything from just over 1 per cent to 7 per cent - possibly as developers aim to clear units that have been on the market for some time. Urban Vista in Tanah Merah, The Glades nearby and D'Leedon have all recorded declines in their median prices from December to last month, Urban Redevelopment Authority (URA) figures show.

First of DBSS flats enter resale market

Source: Channel News Asia / Singapore

SINGAPORE: The first three of the Housing and Development Board's Design, Build and Sell Scheme (DBSS) flats have entered the resale market.

The flats, which are located in Tampines, have found buyers after the sellers served their minimum occupation period of five years.

The first two five-room DBSS resale units will be sold for S$671,000 and S$699,000.

A five-room DBSS flat typically sold for between S$308,000 and S$450,000 when they were first introduced.

Another DBSS resale flat - a four-room unit - will be sold for S$582,000.

Such four-room DBSS units typically sold for between S$288,000 and S$410,000 when launched.

DBSS flats are of a higher design quality than regular Housing and Development Board (HDB) units.

These resale flats come under new rules, where buyers and sellers have to agree on a price before units receive their valuation.

David Poh, managing director at PropNex David Poh & Associates, said: "Now for a buyer to buy a flat, you do not know what the valuation is.

"So whatever you've actually agreed to buy and maybe, in one or two weeks' time when you see the valuation, it could be lower than expected. So you probably have to pay more than the cash you've actually expected to pay."

- CNA/xq

Real Estate Companies' Brief

OUE, Lippo, Caesars in S Korea casino project

Group gets nod to build country's first foreign-owned IR

Source: Business Times / Top Stories

[SINGAPORE] A consortium consisting of OUE Limited, Lippo Group and Nevada-based casino operator Caesars Entertainment has received preliminary approval from the South Korean government to build the country's first foreign-owned casino integrated resort (IR).

This project will comprise hotel, retail, convention and residential components. It will also feature a foreigners-only casino that will be operated by Caesars Entertainment or one of its affiliated companies.

OUE, which is 55 per cent owned by Hong Kong-listed Lippo Group and backed by Indonesia's Riady family, will focus mainly on the hotel component and convention centre of the project. It has an undisclosed significant stake in the project.

According to OUE, phase one of the project is estimated to cost about 855 billion Korean won (S$1 billion), covering a total development gross floor area of over 150,000 square metres on a 4.3 hectare site in Incheon, west of Seoul.

It is expected to be ready in time for the 2018 Winter Olympics in Pyeongchang, South Korea.

OUE executive chairman Stephen Riady said that OUE is bringing to the project its expertise in developing and operating large-scale hospitality, retail and commercial properties.

Caesars, the largest owner of US casinos, is also entering the South Korean market for the first time. It may elect to include Caesars Growth Partners LLC - a joint venture between Caesars Entertainment and Caesars Acquisition Company - in the development of the project.

If roped in, Caesars Growth Partners may provide the capital investment while Caesars Entertainment will act as the operator and share in the management fee associated with the project.

"We are excited about the opportunity to expand our network and brands to Asia," said Gary Loveman, chairman, CEO and president of Caesars Entertainment. "Foreign visitation to South Korea has grown significantly, and we look forward to creating a world-class destination to further support Korea's economic growth and tourism goals."

The decision to allow foreign-run casinos came as South Korea is planning to draw 10 million Chinese visitors each year by 2020, up from 4.3 million last year, according to the Korea Tourism Organization.

The full price tag for the new integrated resort project is estimated to be as much as 2.3 trillion won. It may add more than 890 billion won in tourism income from new visitors and create more than 8,000 jobs during construction from 2014 and 2018, according to the Ministry of Culture, Sports and Tourism of the Republic of Korea. The new casino resort will be pitting itself against 17 existing casinos in South Korea.

An OUE spokesman said that it is too early to assess the impact and contribution of this project to the group's bottom line.

OUE's participation is still subject to certain conditions, including further negotiation and finalisation of definitive transaction documents as well as compliance with pre-approval conditions, third-party financing and finalisation of the project costs.

-By Lynette Khoo

South Korea Approves Foreign-Run Casino to Lure Chinese Bettors

Source: Bloomberg / Luxury

South Korea approved construction of its first foreign-owned casino resort as Asia’s fourth-largest economy seeks to emulate Macau and Singapore in attracting more tourism spending from China.

The gambling, hotel and shopping project, a joint venture between Las Vegas-based Caesars Entertainment Corp. (CZR) and Lippo Ltd. (226), a Hong Kong-listed property developer, will be near Incheon International Airport west of Seoul, South Korea’s tourism ministry said in a briefing today. The ministry granted preliminary approval for the first part of a project valued at as much as 2.3 trillion won ($2.2 billion).

The decision to allow foreign integrated resort operators to compete against South Korea’s 17 existing casinos comes after President Park Geun Hye pledged to bolster service industries to reduce the country’s dependence on exports. Chinese tourists make up more than a third of visitors to South Korea, where Japan’s Sega Sammy Holdings Inc. (6460) and casino operator Genting Singapore Plc (GENS) also seek licenses to build.

“Korea is the optimal location to draw Chinese bettors,” Song Hak Jun, a professor in the hotel and convention management department at Pai Chai University in Daejon, South Korea, said before today’s announcement. “Everyone’s competing to absorb China’s outbound tourist demand. Having casino resorts will initially bring explosive growth to Korea, too.”

Shares Rally

Lippo soared 36 percent to a record close of HK$5.79 in Hong Kong trading, while the benchmark Hang Seng Index gained 0.5 percent.

Paradise Co. (034230), Korea’s biggest casino operator, gained 4.4 percent to 33,150 won as of the close in Seoul trading. The shares earlier gained as much as 14 percent to a record.

Grand Korea Leisure Co., a state-owned casino operator, gained 2 percent to 43,950 won, outperforming the benchmark Kospi Index’s 0.7 percent rise.

The Caesars-Lippo venture plans to spend 743.7 billion won in the first phase of the project by 2018 and a total of 2.3 trillion won eventually as it builds the casino, hotels, residential buildings, convention centers and shopping malls, the ministry said in the statement.

South Korea plans to draw 10 million Chinese visitors a year by 2020, compared with 4.3 million last year, an increase of 53 percent from 2012, according to data from Korea Tourism Organization. Chinese visitors made up 36 percent of foreign visitors to Korea in 2013, and accounted for 41 percent of visits to the country’s casinos in 2012, according to the latest official data.

Landscape Changer

All but one of South Korea’s 17 casinos are open only to foreigners. Their combined revenue was 2.46 trillion won in 2012, the latest available data show, and they attracted 5.4 million bettors. Revenue at foreigners-only casinos grew by an average of 15 percent a year for the five years through 2012, the data show.

The proposed casino at Incheon will only be open to foreigners, the tourism ministry said. The project may add more than 890 billion won in tourism income from new visitors and create more than 8,000 jobs during construction from 2014 and 2018, the ministry said.

“It’s going to change the landscape of Korean casinos because it’ll be the first integrated resort-style foreigners-only casino,” D.S. Kim, a Hong Kong-based analyst at BNP Paribas Securities Asia said by phone. “The existing casinos in Korea are like gambling dens which do not offer any non-gaming amenities such as spa, restaurants or entertainment shows. They simply cannot cater for large groups of visitors.”

2018 Olympics

The venture plans to open the Incheon resort in time for the 2018 Winter Olympics in Pyeongchang, South Korea, Caesars said in an e-mailed statement today.

Caesars, the largest owner of U.S. casinos, is entering the South Korean market after failing to secure a license in Macau, the only place in China where casinos are legal.

The Las Vegas-based casino operator’s net loss tripled to $1.76 billion in the fourth quarter as it reported higher write-downs, according a March 11 statement. The company, struggling to reduce debt as Americans cut back gambling spending, this month said it sold four casinos to an affiliate for $2.2 billion.

Caesars and rivals Las Vegas Sands Corp., Wynn Resorts Ltd., and Melco Crown Entertainment Ltd. (6883) have said they are interested in a gambling resort in Japan should the country legalize casinos. Japan’s government has said it is considering eliminating the casino ban as a way to boost tourism and stimulate economic growth.

Incheon Interest

Meanwhile Sega Sammy, the video game and pachinko machine company, and Paradise, are also seeking to spend 1.9 trillion won to build a hotel, foreigners-only casino and a shopping mall in Incheon. The companies plan to complete the first part of the project by 2017, Paradise said in October.

Genting Singapore, Southeast Asia’s largest casino operator by market value, said in February it will develop a $2.2 billion casino resort on South Korea’s Jeju island with Chinese property company Landing International Development Ltd.

“The approval of the Caesars-Lippo project will be a watershed to gauge the government’s will toward the casino industry,” Thomas Bae, a service industry analyst at Woori Investment & Securities Co. in Seoul, said before today’s announcement. “The casino industry has superb growth potential and if the regulatory hurdle is lowered, it would further bolster foreign investors’ appetite in the industry.”

-By Seonjin Cha and Vinicy Chan

Suntec Reit tops with YTD returns of 11.1%

Source: Business Times / Companies

SUNTEC Reit, which owns prime office and retail space in Singapore's central business district, has been named the best performing real estate investment trust (Reit) year-to-date, with a total return of 11.1 per cent.

This is according to a "Singapore Exchange (SGX) My Gateway" report released yesterday.

CapitaRetail China Trust, the first pure-play China retail Reit to be based in Singapore, boasted the second highest year-to-date returns of 8.4 per cent, followed by Cambridge Industrial Trust, with total returns of 5.5 per cent so far this year.

Total returns are calculated by adding the change in unit price to distributions per unit year-to-date, and then dividing this sum by its 2013 year-end unit price.

-By Lee Meixian

Views, Reviews & Forum

Valuations are meant to be a guide for bank loans

Source: Today Online / Voices

There appears to be a misconception regarding the use of a valuation report for resale flats (“HDB resale rule might shore up prices”; March 15).

To quote the Housing and Development Board: “Resale transactions are conducted on a ‘willing-buyer, willing-seller’ basis. The resale price is open to negotiation and mutually agreed upon by buyers and sellers.

“If the resale price you pay for the flat is above the market valuation, the difference has to be paid for in cash.”

This means a buyer and seller can set a transacted price that varies according to market conditions.

A valuation to determine market value is used to guide financial institutions that lend money to buyers, not to fix a base price for negotiation.

-By Patrick Sio

Global Economy & Global Real Estate

M'sia industrial land prices seen rising by 10%

Growth in manufacturing activity, supply shortage cited

Source: Business Times / Malaysia

AMID a supply shortage, prices of industrial land in Malaysia are expected to rise by double digits this year on the back of an expansion in manufacturing activity.

In major towns and cities, rents are forecast to rise by a 10th.

Foo Gee Jen, managing director of C H Williams Talhar & Wong, yesterday projected prices for industrial land to rise by 10-15 per cent this year, and other property segments, by just below 10 per cent.

Underscoring the strong demand for industrial premises but slow pipeline of supply, occupancy in the Klang Valley is at nearly 100 per cent.

-By Pauline Ng in Kuala Lumpur

Chinese property developer near insolvency: sources

Zhejiang Xingrun owes billions to banks, individuals

Source: Business Times / Top Stories

[HONG KONG] A Chinese property developer owing billions of yuan to banks and individuals is on the verge of insolvency, and its owner has been detained for illegal fund-raising, government sources in the city where the company is headquartered told Reuters yesterday, confirming domestic media reports.

The state-owned China News Services, quoting anonymous sources, reported on Monday that Zhejiang Xingrun Real Estate Co, based in Fenghua city in eastern Zhejiang province, is on the brink of bankruptcy, owing 15 domestic banks 2.4 billion yuan (S$490.1 million) and individual investors another 1.1 billion yuan.

An employee in the Fenghua city government's financial office, who spoke on condition of anonymity, broadly confirmed the reports about the company's troubles, but said the debt amounts were exaggerated.

Wang Ruilin, in charge of the city's real estate management office, also confirmed the reports and said that the company's owner and his son had both been detained for illegal fund-raising.

-From Hong Kong, China

BOJ easing pushes up land prices in Japanese cities

But government official rejects notion of an asset bubble building up\

Source: Business Times / World

LAND prices in some major Japanese cities rose last year for the first time in many years - by more than 10 per cent in certain parts of Tokyo - as a result of the Bank of Japan's aggressive monetary easing, but a government official yesterday rejected the idea that an asset bubble was building up.

Prices of residential land in the major metropolitan areas of Tokyo, Osaka and Nagoya rose by an average of 0.5 per cent last year, while commercial land prices went up by an average of 1.6 per cent. Both were the first upticks in six years, said the Ministry of Land, Infrastructure, Transport and Tourism.

Tokyo recorded the highest commercial land price increase of 2.2 per cent among prefectures; it was followed by Osaka, Aichi and Miyagi. The highest land price in Japan was 29.6 million yen (S$370,000) per square metres at Yamano Music Company's head office in Tokyo's Ginza shopping district, Kyodo news agency said.

Japan experienced massive inflation in land prices during the bubble economy period from 1985 to 1990, to the point where the grounds of the Imperial Palace in Tokyo were worth as much as the entire state of California for a while. After the bubble burst, prices reverted more or less to their 1985 levels.

-By Anthony Rowley in Tokyo

China FDI slowed sharply last month

Source: Today Online / Business

BEIJING — China attracted US$19.3 billion (S$24.5 billion) in foreign direct investment (FDI) in the first two months of the year, up 10.4 per cent from the same period a year ago, said the Commerce Ministry yesterday, indicating a sharp slowdown last month due to the Chinese New Year holidays.

The ministry did not release data solely for February due to seasonal distortions caused by the holidays, when factories, offices and shops often close for long periods, said spokesman Shen Danyang yesterday. Based on the published data, FDI last month was US$8.6 billion, Reuters calculations showed, up 4.1 per cent from a year earlier and slowing sharply from the 16.1 per cent increase in January.

FDI from the top 10 Asian economies rose 11.6 per cent in the first two months to US$16.9 billion, while investment from the United States jumped 43.3 per cent to US$711 million and that from the European Union fell 13.8 per cent to US$1.1 billion, said the ministry.

“Despite weak international investment and the fact that we face various problems in our development, the FDI data shows that foreign investors are still very confident,” said Mr Shen.

Meanwhile, outbound direct investment by Chinese firms totalled US$11.54 billion in the period from January to February, down 37.2 per cent from a year earlier, it added.

The sharp drop was due to a high comparison base caused by offshore oil-and-gas producer CNOOC’s US$15 billion acquisition of Canada’s Nexen last year, said Mr Shen. REUTERS

Asian developers fuelling Sydney’s office conversions

Trend reflects low interest rates that have drawn foreign buyers to Australia’s housing market

Source: Today Online / Business

SYDNEY — Developers are finding more lucrative uses for older commercial sites in a booming housing market, as the supply of new office space in Australian cities surges and tenant demand falters.

Almost 47,000 sq m of office space was withdrawn from the market last year to turn into apartments, said Jones Lang LaSalle — the most since the broker began keeping track in 2007 and almost double the 25,794 sq m in 2012. Developers last year bought A$364 million (S$419.7 million) worth of office buildings in Sydney to turn into apartments, said broker Colliers International.

The increase in conversions has been driven by the entry of Asian developers, including Singapore’s Far East Organization Centre and Chinese state-owned Greenland Holding Group, said Ms Rupa Ganguli, Director of Australian Residential Research at Jones Lang LaSalle.

Greenland’s purchase of the 50-year-old former water board office in downtown Sydney for A$107.5 million, as well as the acquisition by Far East and Australian pension fund CBUS Super of two buildings overlooking the city’s Hyde Park for A$143 million and A$59 million respectively were among the biggest transactions for conversion last year, Colliers said.

“You’ve got a lot of new buildings being developed and a lot of tenants moving out of older buildings into newer ones,” said Mr David Milton, Managing Director for Residential at CBRE Group. He added that with the values it has seen in residential, the best use for outdated office buildings is conversion to apartments.

The trend reflects record-low interest rates that have drawn foreign buyers and domestic investors to Australia’s housing market, boosting dwelling prices. At the same time, an unemployment rate at a decade-high of 6 per cent has weighed on office demand.

The average apartment price in Sydney, where about half the conversions were located last year, based on the Jones Lang LaSalle figures, rose more than 10 per cent in the year ending Feb 28 to a record A$573,323, said the RP Data-Rismark Home Value Index. The average price in Melbourne rose 7 per cent to A$488,827 — also a historical high.

In contrast, Sydney’s office vacancy rate climbed to 9 per cent at the start of the year from 7.2 per cent a year earlier, Colliers said. In Melbourne, this figure increased to 8.7 per cent from 6.9 per cent a year ago, and is expected to rise to 9.7 per cent by the end of this year.

But conversions are not without risks. Replacing an office building with apartments can take as many as four years, from application for government approvals to the end of construction, said Mr Milton.

In that amount of time, following its peak in July 2006, the United States housing market plunged 28 per cent, the S&P/Case-Shiller price index showed.

Far East, Singapore’s biggest closely-held developer, bought 227 Elizabeth Street in Sydney late last year. Jones Lang LaSalle, which marketed the property, highlighted the opportunity for conversion and a tentative design by PTW Architects to create 114 apartments and some retail space.

Conversion is a “possible long-term plan”, though Far East does not currently have any concrete proposals, said a company spokeswoman.

Far East has since bought a 23-storey office building in Sydney’s centre for A$151.8 million from the New South Wales state government. The late 1960s building could be converted to a hotel, retail and residential complex, said a statement from Mr Andrew Constance, New South Wales Minister for Finance and Services.

Far East has also bought two towers near Hyde Park from closely-held developer Kyko Group for A$127 million. BLOOMBERG

Stockland Takes 19.9% Australand Stake as CapitaLand Exits

Source: Bloomberg / Luxury

Stockland, Australia’s biggest diversified property trust, bought a 19.9 percent stake in Australand Property Group (ALZ) as Southeast Asia’s largest developer CapitaLand Ltd. (CAPL) sold the last of its holdings.

Stockland plans to explore “strategic opportunities with Australand” after purchasing 115.2 million shares in the company at an average price of A$3.78, a 2.8 percent discount to yesterday’s closing price, according to a regulatory statement. CapitaLand said it will use the proceeds from the sale of its A$849 million ($775 million), 39 percent stake in Singapore and China, and to repay debt.

The A$435.5 million purchase is the latest in a number of transactions among Australia’s property trusts. Chief Executive Officer Mark Steinert, who joined Stockland (SGP) in January 2013, has said he wants to increase the company’s exposure to retail and industrial properties. Australand also offers a landbank that would assist Stockland’s residential development business.

“Australand has a diverse and complementary portfolio of assets, including a quality industrial portfolio and medium density residential projects that are well aligned with our strategy,” Steinert said in the statement.

Shares in Australand rose 4.6 percent to a more than five year high of A$4.07 at 3:26 p.m. in Sydney trading. Shares in Stockland fell 2.3 percent to A$3.76, while CapitaLand dropped 1.1 percent to S$2.71 in Singapore trading.

A block trade of 135.32 million Australand shares was sold at A$3.72 each, a 4.4 percent discount to yesterday’s closing price of A$3.89. Another parcel of 90.9 million shares was sold at A$3.80 each, a 2.3 percent discount.

Full Takeover

“Overlapping businesses don’t immediately mean a combination makes sense,” Morgan Stanley’s Australian property analysts,John Meredith, Lou Pirenc and John Lee, said in a research note. Stockland “cannot extract any synergies, either through cost reduction or restructuring Australand’s debt, without launching a full takeover for the group, which could be quite expensive.”

Stockland’s stake in the Australian developer is just below the 20 percent threshold that would trigger a takeover bid under Australian regulations.

“I expect a full bid to be forthcoming in the not too distant future,” Winston Sammut, who helps oversee about A$100 million, including Stockland shares, as managing director of Sydney-based Maxim Asset Management, said by phone. “Strategically, Australand is a fit for Stockland, which has exposures to all segments, industrial, commercial and residential.”

Favorable Market

CapitaLand in November sold a third of its 59 percent stake or 115.7 million shares at A$3.685 each through Citigroup Inc. GPT Group, a Sydney-based diversified property trust, in May dropped an offer to buy Australand’s commercial and development units after failing to agree on a price.

“We have decided to divest our remaining stake in Australand now as market conditions are favorable and Australand’s share price has performed strongly in the past few months,” CapitaLand President Lim Ming Yan said in a statement.

Management Re-Focus

“CapitaLand is trying to improve its return on equities and the business in Australia had lower ROEs,” Singapore-based Vikrant Pandey, an analyst at UOB Kay Hian Pte, said. “CapitaLand feels there are better opportunities in China to deploy these funds.”

Dexus Property Group, Australia’s biggest listed office landlord, and partner Canada Pension Plan Investment Board won a takeover battle for an office fund managed by Commonwealth Bank of Australia when GPT said in January it wouldn’t raise its offer.

Overseas investor interest in Australian property could weaken in 2014 after the country attracted a significant volume of foreign investment over the past few years, CBRE Group Inc. said in its 2014 investor intentions survey.

Residential prices in Australia rose 9.5 percent in February from a year earlier, according to the RP Data-Rismark home value index.

The selldown by CapitaLand triggered a change of control under Australand’s $170 million United States private placement note, giving note holders a right to put their notes to Australand. Australand has begun discussions with the note holders, according to a separate statement.

-By Iain McDonald and Narayanan Somasundaram

CommonWealth REIT Holders Vote to Oust Board, Corvex Says

Source: Bloomberg / News

Shareholders representing 81 percent of CommonWealth (CWH) REIT’s stock have voted to remove the company’s board, according to Corvex Management LP and Related Cos., the investors leading a campaign to overthrow management.

CommonWealth has five business days, or until March 25, to have the consents inspected and the results declared, Corvex and Related said in a statement today. A two-thirds majority is required to remove the U.S. office landlord’s board.

Corvex and Related, which together own 9.6 percent of CommonWealth, began their campaign to oust the trustees about a year ago. They have argued that the ownership of an external management firm by CommonWealth President Adam Portnoy and his father, Barry, a company founder, has led to conflicts of interest and underperformance at the real estate investment trust. Both Portnoys are directors of Newton, Massachusetts-based CommonWealth, which pays fees to the management company.

“The shareholders have exercised their rights and we look forward to working with the trustees in the coming days to arrange for an orderly transition process that best protects the interests of all shareholders,” Keith Meister of Corvex and Jeff Blau of Related said in the statement. “We will immediately reach out to the trustees to begin these discussions.”

A message left for Tim Bonang, CommonWealth’s director of investor relations, wasn’t immediately returned.

Zell Slate

Corvex and Related, based in New York, have proposed a slate of board candidates led by billionaire investor Sam Zell and David Helfand, co-president of Zell’s Equity Group Investments. The two agreed to serve as CommonWealth’s chairman and chief executive officer, respectively, if a new board is chosen.

An entity affiliated with Zell and Helfand will have an option to acquire as many as 4 million CommonWealth shares, Corvex and Related said last month.

The dissident group has argued the Portnoys are more concerned about collecting fees for their firm, REIT Management & Research LLC, than operating CommonWealth for the benefit of all stockholders because the father and son don’t own many shares themselves. Fees paid to RMR rose 40 percent from 2007 to 2013, while the shares fell 68 percent, Corvex and Related said in a March 12 presentation to investors.

Downtown Buildings

CommonWealth has denied Corvex and Related’s claims of conflicts of interest and said it is focused on buying office buildings in U.S. downtowns and selling suburban properties to boost shareholder value.

The company in September announced changes to its corporate governance after conversations with investors who said they wanted RMR’s financial incentives to be more aligned with shareholders. The changes were made in December, according to the REIT.

The statement from Corvex and Related was released after the close of U.S. trading. CommonWealth shares fell 1.4 percent to $26.81 today. They gained 16 percent in the past 12 months. In the five years ended Feb. 25, 2013, the day before Corvex and Related made their first public filings on CommonWealth, the stock fell 45 percent, compared with an 11 percent advance in the Bloomberg REIT Index.

The shares “face a tough road ahead,” even with a victory by the activists, Michael Knott and Bayle Smith, analysts with REIT research firm Green Street Advisors Inc., wrote in a March 17 report. CommonWealth “has a scattered portfolio with lower-quality, shallow markets, increasing the difficulty of transition.”

Buyout Bid

The effort to oust the directors is the second by Corvex and Related. Last year, the group said its plan had support from holders of more than 70 percent of CommonWealth’s shares. The process was challenged by the REIT and ruled invalid by an arbitration panel, which said the investors could try again.

Before attempting to remove the board, Corvex and Related offered to buy CommonWealth for $24.50 a share, or $2.9 billion. The REIT rejected the bid, saying it was conditional and didn’t include a financing plan.

-By Brian Louis

China Home-Price Growth Slows in Big Cities on Tight Credit

Source: Bloomberg / Luxury

Chinese new-home price growth slowed last month, led by the four cities the government defines as first tier, amid tighter credit to rein in excessive borrowing and individual city measures to curb property prices.

Prices in Beijing and the southern business hub of Shenzhen each rose 0.2 percent in February from a month earlier, the National Bureau of Statistics said today. That was the slowest pace since October 2012. They added 0.4 percent in Shanghai, the smallest increase since November 2012, and gained 0.5 percent in Guangzhou. Prices climbed in 57 of the 70 cities tracked by the government. That compares with 62 in January.

“Overall, we see the property sector as becoming increasingly a major and more real risk to growth and financial stability this year,” said Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole CIB, in an e-mailed reply to questions on the data.

The government will curb demand for housing among investors and regulate the home market “differently in different cities,” Premier Li Keqiang said last week. It has also been reining in lending that lend to excessive borrowing and now is sparking defaults. A closely held Chinese real estate developer with 3.5 billion yuan ($566 million) of debt has collapsed and its largest shareholder was detained, government officials familiar with the matter said yesterday.

The Shanghai Stock Exchange Property Index fell 0.9 percent at the close of trading, the only measure declining among the five industry groups on the benchmark Shanghai Composite Index, which rose 0.1 percent.

Tighter Credit

At least 10 Chinese cities stepped up measures to calm local property markets at the end of last year.

Credit growth trailed analysts’ estimates in February as aggregate financing was 938.7 billion yuan, the People’s Bank of China said March 10, less than the 1.31 trillion yuan median estimate of analysts surveyed by Bloomberg News.

Home prices in the eastern city of Wenzhou led the drop among the 70 cities where prices declined by falling 0.2 percent from a month earlier and 3.9 percent from the same period last year.

Private data also showed cooling signs. Home-price growth slowed for a second month in February by 10.8 percent from a year earlier, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner.

Developer Collapse

Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay creditors that include more than 15 banks, with China Construction Bank Corp. holding more than 1 billion yuan of its debt, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.

The collapse of the developer is likely to be negative for sentiment of equity investors, with increasing concerns about liquidity and homebuyers staying on the sidelines to await further cuts in home prices, Barclays Plc property analysts, led by Alvin Wong, wrote in a report yesterday.

“The risks lie mostly with those local developers in third- and fourth-tier cities,” said Lan Shen, a Beijing-based economist at Standard Chartered Plc. “These developers have a lot to do with shadow banking, with limited access for financing.”

About 80 percent of home sales in China come from non-listed developers, according to estimates by UBS AG.

Negative Sentiment

Zhejiang Xingrun is based in the eastern town of Fenghua. The city of Ningbo has jurisdiction over Fenghua, which is the birthplace of former Chinese nationalist leader Chiang Kai-Shek.

Home prices in Ningbo rose 0.3 percent last month from January and 6.1 percent from a year earlier, today’s data showed. That was compared with a 0.5 percent gain in January from December and 7.3 percent from a year earlier.

Home sales fell 5 percent in the first two months of the year from 2013, while new property construction fell 27 percent, the statistics bureau data showed last week.

New home price gains in first-tier cities also slowed from a year earlier. Housing values in Shanghai, Guangzhou and Shenzhen all rose 16 percent, respectively, from a year earlier, the slowest pace since at least August. Prices in Beijing jumped 12 percent, the lowest since May.

Existing-home prices were unchanged in Beijing last month from a month earlier and increased 0.6 percent in Shanghai, according to the data.

“The property cycle is turning downwards and the government has noticed that each city has different supply issues,” Yao Wei, China economist at Societe Generale SA in Hong Kong, who is ranked the most accurate forecaster of China’s gross domestic product by Bloomberg, said before today’s release. “Credit and liquidity are the key factors for the property sector, while easing mortgages is probably the easiest thing to do.”

-By Bloomberg News

NYC’s Socony-Mobil Tower Said on Market for $900 Million

Source: Bloomberg / News

The midtown Manhattan office tower known as the Socony-Mobil Building is on the market with an asking price of about $900 million, a person with knowledge of the seller’s plans said.

Hiro Real Estate Co., a Japanese investment firm, is seeking to sell the long-term leasehold, which would give the buyer rights to control the 1.7 million-square-foot (158,000-square-meter) landmark at 150 E. 42nd St., said the person, who asked not to be named because the marketing effort is private.

Centrally located buildings in the world’s financial centers have been commanding buyer interest, even in the face of low yields. The Mobil property occupies an entire city block across the street from the Chrysler Building and half a block east of Grand Central Terminal. The 42-story, steel-clad tower is about 90 percent occupied, according to the person.

“Given the location, a stone’s throw from Grand Central, this is exactly the type of asset the market is clamoring for right now,” said Dan Fasulo, managing director at New York-based Real Capital Analytics Inc., a research firm that tracks commercial real estate sales worldwide.

Fasulo said he expects a “deep and diverse” pool of potential buyers, including real estate investment trusts, foreign investors, wealthy individuals and pension funds.

Wells Fargo

The building has two dominant tenants, Wells Fargo & Co. (WFC) and Mount Sinai Hospital, each with about 500,000 square feet, according to the person. The hospital is close to completing a long-term renewal of its rental agreement, the person said.

The owner of a leasehold pays a fee to the landowner in exchange for the right to control the building on the site and collect rents from its tenants. Hiro leases the ground on which the tower stands from the Goelet family, whose investments in Manhattan real estate date to the first half of the 19th century, according to papers in the library of Salve Regina University in Newport, Rhode Island.

The Japanese company has worked out a deal to extend the leasehold for 99 years, said the person with knowledge of the matter.

Calls to Hiro’s New York office and to Louis Frost, an attorney who has represented the Goelet family’s affairs, weren’t returned.

The Mobil tower has about 50,000 square feet of retail space at its base, with Ann Inc.’s Loft clothing chain, CVS Caremark Corp. and Starbucks Corp. among its tenants. The store occupants are paying rents that are well below prevailing rates for the neighborhood, the person said.

Office Rents

Asking office rents in the skyscraper average $58 to $65 a square foot, according to data from research firm CoStar Inc. In the Grand Central submarket, asking rents averaged $64.19 a square foot at the end of February, figures from brokerage Cassidy Turley show.

Douglas Harmon and Adam Spies, brokers at Eastdil Secured LLC, are representing Hiro. Martha Wallau, a spokeswoman for Eastdil, didn’t return a call seeking comment on the offering.

Hiro took over the ground lease from Mobil Corp., predecessor of oil company Exxon Mobil Corp., in 1987, a period when Japanese investors were active buyers of New York real estate, acquiring properties such as Rockefeller Center.

The tower was the largest metal-clad building in the world when it opened in 1956, featuring stainless steel patterns with a “delicate, almost floral” finish, according to a 1995 story in the New York Times.

The building is managed by New York-based representatives from CBRE Group Inc., according to Hiro’s North American website. Philip Russo, a CBRE spokesman, said the brokerage wouldn’t comment on the offering.

-By David M. Levitt

Dubai Eases Laws to Double Hotel Rooms Ahead of 2020 Expo

Source: Bloomberg / Luxury

Dubai plans to almost double the number of hotel rooms by 2020 as it expects a surge of visitors to the desert sheikhdom ahead of that year’s World Expo.

The emirate that spent more than $110 billion to transform itself into the Middle East’s commercial and entertainment hub is seeking to attract 20 million tourists annually by the end of the decade, Helal Saeed Almarri, director general of the Dubai Tourism and Commerce Marketing, said in an interview yesterday. To do that, it needs to raise the number of hotel rooms to as many as 160,000, many of them not in the luxury category Dubai is known for, he said.

“None of these rooms are being built specifically for the Expo or any one event,” Almarri said. “They’re being built purely because of the core tourism numbers. Dubai won’t turn into a ghost town after the Expo.”

Dubai, part of the seven-member United Arab Emirates, lured 11 million tourists last year, up 11 percent from 2012, contributing to economic expansion of 4.9 percent, the fastest pace in six years. Tourism accounted for about 20 percent of gross domestic product in 2013, and is forecast to increase between 7 percent and 9 percent through 2020, Almarri said.

East and West

While Saudi Arabia and India represented two of the biggest markets for Dubai in 2013, according to DTCM data, the emirate draws tourists from both East and West. Dubai airport passenger traffic grew 14 percent in 2013 after expanding 13 percent a year earlier. It hit a record 6.4 million in January.

“We have a very fragmented source markets, no single market exceeds 10 percent of tourists,” Almarri said, “That is obviously very positive for us, because it allows us to circumvent any anomalies in terms of economies or currencies.”

The emirate’s expanding hospitality industry helped boost mall and retail revenue for Emaar Properties PJSC. (EMAAR) The developer of the Middle East’s biggest shopping center, Dubai Mall, plans to raise as much as $2.45 billion from selling 25 percent of Emaar Malls Group, the company said March 15. It’s seeking to list shares on Nasdaq Dubai and in London before mid-June, Chairman Mohamed Alabbar said in an interview today.

Dubai, whose economy shrank 2.4 percent and was near default in 2009, plans to spend about $8 billion ahead of the Expo. To help fund the promotion of Dubai’s tourism and trade industries, it will impose a tax as high as 20 dirhams ($5.45) per room for each night, depending on the hotel category, starting March 31.

Easier Laws

Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum moved in January to speed up hotel projects. The period required for preliminary consent was cut to two months from as many as six, and a one-stop approval center was established. Government land for developers of three- and four-star hotels will be granted on “favorable” terms, the DTCM said in January.

Officials want to boost the supply of more affordable hotels to cater to business travelers and holidaying families. About a third of Dubai’s 85,000 rooms are in luxury hotels. It’s offering to waive fees if landowners change development plans to build cheaper accommodation, and as much as a five-year exemption from a 10 percent fee on revenue.

“In 2020, five-star hotels rooms will still be the majority, but we’d need the three and four-star category” to build a more balanced market, Almarri said.

-By Dana El Baltaji

Housing Starts in U.S. Little Changed From Stronger January

Source: Bloomberg / Luxury

Housing starts in the U.S. were little changed in February after declining less than previously estimated a month earlier, indicating the home-building industry is stabilizing after bad winter weather curbed construction.

The 0.2 percent decrease to 907,000 homes at an annualized rate last month followed a revised 909,000 pace in January, figures from the Commerce Department in Washington showed today. The median estimate in a Bloomberg survey called for a 910,000 rate after a previously reported 880,000 in January.

Warmer temperatures, a pickup in demand during the spring selling season and limited housing supply may help fuel further gains in new residential construction. The outlook for the industry later this year depends on whether hiring picks up enough to overcome higher mortgage rates and home prices.

“We will see improvement as the year goes on and weather improves,” said David Sloan, a senior economist at 4cast Inc. in New York and the top-ranked forecaster of starts in the last two years, according to data compiled by Bloomberg. “The pace of increase will be fairly moderate. It suggests we’re going to get respectable economic growth, but maybe not a strong acceleration.”

Estimates of 82 economists surveyed by Bloomberg ranged from 792,000 to 986,000. The February pace was the slowest in four months.

Another report showed consumer prices rose 0.1 percent in February for a second month, according to the Labor Department. More than half the increase was due to higher food costs.

Stock-index futures held earlier gains after the figures, with the contract on the Standard & Poor’s 500 Index maturing in June rising 0.4 percent to 1,857.4 at 8:43 a.m. in New York.

Building Permits

Permits (NHSPATOT) filed for future projects increased 7.7 percent to a 1.02 million pace in February, the most since October and reflecting a surge in applications for apartment-building construction. One-family home-building permits dropped for a third straight month to the lowest level in a year. The median forecast in the Bloomberg survey called for a 960,000 rate.

Work on single-family houses rose 0.3 percent to a 583,000 rate in February from 581,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings decreased 1.2 percent to an annual rate of 324,000.

Two of four regions showed increases in groundbreaking last month, led by the Midwest and South.

February ended with its coldest final week since 2003, according to Berwyn, Pennsylvania-based weather data provider Planaytics Inc., The second week of the month was the snowiest such period since 2007.

Winter Weather

Inclement weather has extended beyond builders. It also kept customers from visiting car dealerships and retailers, weighing on sentiment. The University of Michigan’s measure of U.S. consumer confidence declined to a four-month low in March, data last week showed.

Confidence among U.S. homebuilders rose less than forecast in March, with more builders reporting bad conditions than good. The National Association of Home Builders/Wells Fargo index of builder sentiment climbed to 47 this month from 46 in February, a report from the Washington-based group showed yesterday. Readings below 50 mean more survey respondents signaled poor market conditions.

Beyond weather, borrowing costs have increased for buyers. The rate on a 30-year fixed mortgage from Freddie Mac rose to 4.37 percent in the week ended March 13, up from 3.63 percent a year earlier.

Homebuilder Hovnanian Enterprises Inc., which reported a wider loss for its fiscal first quarter as inclement weather extended construction times and slowed demand, sees better times ahead for the industry.

‘Temporary Pause’

“We believe this is a temporary pause in the industry’s recovery,” Ara Hovnanian, chief executive officer New Jersey’s largest homebuilder, said in a statement on March 5. “Based on the level of housing starts across the country, we continue to believe the homebuilding industry is still in the early stages of recovery.”

Lean inventories will probably keep builders busy. A report from the Commerce Department last month showed the months’ supply of new homes declined to 4.7 in January, the fewest since June, from 5.2 at the end of 2013.

Lowe’s Cos., the Mooresville, North Carolina-based home-improvement retailer, also remains optimistic about the outlook for the housing industry.

“Those key drivers you think about, disposable income, employment, home prices continuing to appreciate, and then the housing turnover that I spoke to, all of those help support a healthy home improvement industry that we see out there,” Chief Executive Officer Robert Niblock said during a March 13 conference call. “There’s a few challenges. Credit remains tight.”

-By Jeanna Smialek

Developers’ Bonds Decline Amid China Housing Bankruptcy

Source: Bloomberg / News

Stocks and bonds issued by some Chinese real estate companies extended a slump after the collapse of a developer stoked concern defaults are starting to mount as the economy slows and the government reins in lending.

The 8.75 percent notes due 2018 sold by Evergrande Real Estate Group Ltd., the nation’s fourth-largest developer by market value, fell 1 cent on the dollar today, sending the yield to 10.562 percent, the highest on record, DBS Bank Ltd. prices show. The yield on Agile Propery Holdings Ltd.’s February 2017 notes jumped 20 basis points to 7.459 percent, the highest since they were sold last month, according to Australia & New Zealand Banking Group Ltd. prices.

Government officials familiar with the matter said yesterday that closely-held Zhejiang Xingrun Real Estate Co. doesn’t have enough cash to repay 3.5 billion yuan ($566 million) of debt. The housing market in the world’s second-biggest economy is cooling with the value of home sales falling 5 percent in the first two months of the year after local governments stepped up measures to curb rising prices. The 7.5 percent economic expansion targeted by China this year would be the slowest since 1990.

“Chinese developers are extremely exposed to the easy credit that’s used to finance purchases and investment,” said Patrick Chovanec, the New York-based chief strategist at Silvercrest Asset Management Group LLC, which oversees $14.1 billion in assets. “When credit is reined in even slightly, it undercuts demand. This is potentially an inflection point.”

Onshore Default

The collapse comes less than two weeks after Shanghai Chaori Solar Energy Science & Technology Co. became the first company in China to default on its onshore corporate bonds. Multiple calls to the chairman’s office and financial department at Zhejiang Xingrun weren’t answered today.

China will face more credit risks in its $4.2 trillion onshore bond market following Chaori Solar, according to China International Capital Corp. The investment bank flagged 12 companies with outstanding onshore bonds in “great need” of more scrutiny after changes in the debt profiles of the issuers, it said in a March 14 report.

“Looking at the second quarter, we think the worst of credit risk is far from over,” CICC bond analysts Ji Jiangfan, Zhang Li, Xu Yan and Wang Zhifei said. “Lower-rated bonds’ credit premiums may stay at high levels or rise to new highs.”

Property Losses

Speculative-grade Chinese debt lost 1.1 percent in the four days through yesterday, the worst slide since Jan. 28, according to an index compiled by Bank of America Merrill Lynch. Sixty-nine of 106 securities in the measure are from real estate developers.

The Shanghai Property Index fell 0.9 percent, as half of its 24 members declined. The gauge has dropped 10.2 percent this year and touched a 17-month low on March 10.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. climbed for the first time in seven days yesterday, rising 0.8 percent to 97.16. The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., added 0.1 percent to $33.07.

The yield on Evergrade’s $1.35 billion of 13 percent bonds due January 2015 rose 29 basis points, or 0.29 percentage point, to 8.908 percent today, the highest since July, BNP Paribas SA prices show. The notes are rated at BB- by Standard & Poor’s, or three levels below investment grade. Shenzhen-based Kaisa Group Holdings Ltd. (1638)’s 8.875 percent notes due 2018 dropped to a seven-month low yesterday, sending the yield past 10 percent for the first time since August.

Zhejiang Xingrun

Zhejiang Xingrun, based in the eastern town of Fenghua in Zhejiang Province, doesn’t have cash to repay creditors that include more than 15 banks, according to the officials, who asked not to be named because they weren’t authorized to discuss the matter. The company’s majority shareholder and his son, its legal representative, have been detained and face charges of illegal fundraising, the officials said.

The company is the largest property developer at risk of bankruptcy in recent years and more companies may run into trouble as sales decline and funding becomes limited, according to Nomura Holdings Inc.

‘More Serious’

“This is a far more serious situation than Chaori Solar’s default, as it hits right at the heart of China’s property boom,” Mark Bayley, a credit strategist at Aquasia Pty in Sydney, said in a report today. “The real danger now is that banks will considerably tighten liquidity afforded to the real estate and property development sectors.”

At least 10 Chinese cities stepped up measures to cool local property markets at the end of last year with Shenzhen, Shanghai and Guangzhou raising the minimum down payments for second homes to 70 percent from 60 percent.

New-home price growth slowed last month led by Beijing, Shenzhen, Shanghai and Guangzhou, the four cities the government defines as first tier, the National Bureau of Statistics said today. Prices in Beijing and Shenzhen each rose 0.2 percent in February from a month earlier while they added 0.4 percent in Shanghai, the smallest increase since November 2012, and gained 0.5 percent in Guangzhou. Prices advanced in 57 of the 70 cities the government tracks, versus 62 in January.

The collapse of Zhejiang Xingrun Real Estate doesn’t necessarily herald the start of defaults in rated dollar bonds sold by other Chinese developers, according to Charles Macgregor, Lucror Analytics Pte.’s Singapore-based head of Asia.

Secondary Trade

“We don’t believe investors holding U.S. dollar-denominated property bonds should be concerned, given generally sound issuer fundamentals and low probability of default,” Macgregor said.

Some 66 percent of new Chinese developer dollar bonds sold this year are trading below their issue price, according to data compiled by Bloomberg.

Chinese property shares slid to a 16-month low in February after Industrial Bank Co. suspended mezzanine financing for developers, adding to concern that smaller developers may default on their borrowings amid the government’s property curbs and an economic slowdown.

American depositary receipts of SouFun Holdings Ltd. (SFUN), China’s biggest real-estate information website, slipped 0.4 percent to $82.80 yesteday, extending a seven-day decline to 15 percent. E-House China Holdings Ltd. (EJ), based in Shanghai, sank 2.6 percent to $14.08.

-By Ye Xie and David Yong