Real News‎ > ‎2014‎ > ‎March 2014‎ > ‎

25th March 2014

Singapore Economy 

Feb inflation sinks to 4-year low, but expected to rise again

MAS still unlikely to ease monetary policy, say economists

Source: Business Times / Top Stories

[SINGAPORE] Singapore's inflation rate eased more than expected to a four-year low of 0.4 per cent in February, but economists were careful not to make too much of the fall.

They say pent-up wage pressures, rising food prices and a weakening Singapore dollar may drive inflation back up above 2 per cent in the next few months, leaving the central bank with little reason to ease monetary policy at its upcoming April meeting.

The consumer price index (CPI) rose just 0.4 per cent year-on-year in February - smaller than January's inflation of 1.4 per cent and the 0.9 per cent median inflation forecast of Bloomberg's poll of 18 economists.

But much of this was due to an unusually high base of comparison in February 2013, and had been anticipated by the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) in their commentary on January's CPI.

Mizuho economist Vishnu Varathan said: "The softer inflation slip is as transient as it is hollow."

The 7.1 per cent drop in private road transport costs, a main contributor to last month's low inflation, was due to the surge in COE premiums in January last year that was captured in February 2013's CPI, alongside lower petrol pump prices.

Such a base effect will not last over the next few months, as January 2013 was the peak for COE premiums, which tumbled after car loan curbs were implemented in February last year, several economists said.

Citi economists Kit Wei Zheng and Brian Tan said in a note that "as if intending to discourage overly aggressive disinflationary expectations" from forming based on February's near-zero inflation, MAS and MTI stated yesterday that headline inflation is "expected to rise over the next few months due to base effects associated with COE premiums".

In February, core inflation, which excludes accommodation and private transport costs, was also tempered by high-base effects on food and services inflation. Core inflation eased to 1.6 per cent from 2.2 per cent in January.

This came as food inflation slowed to 2.3 per cent from 3 per cent in January. Non-cooked food prices fell after the Chinese New Year and from last year's high base; prices of non-cooked items had spiked during Chinese New Year, which was in February last year.

Services inflation too, slowed to 2.1 per cent in February from January's 2.9 per cent on base effects. MAS and MTI noted that household services costs had been high in February last year due to the new rule on a mandatory weekly rest day for foreign domestic workers.

But both food and services inflation could rise in coming months.

Mr Varathan said: "Higher food inflation may be lurking around the corner, given that the confluence of adverse weather and geopolitics has already triggered a surge in key crop prices." Even with the Thai rice glut, higher crop prices could feed into food inflation in three to six months, he added.

This would be more of a risk if the Singapore dollar continues to weaken against the US dollar, said ANZ economist Ng Weiwen.

However, MAS and MTI expect imported inflation to remain "generally subdued" as a result of spare production capacity and ample supply buffers in the commodity markets. They expect inflation in the months ahead to be driven more strongly by firms raising prices of consumer services more significantly, passing on their rising wage costs to customers.

This is especially since another round of foreign worker levy hikes will take effect in July 2014, said UOB economist Francis Tan. Companies most likely to pass costs on include those in the healthcare, cooked food, education and recreation sectors, he said, pointing out that healthcare inflation hit 4 per cent in February - the fastest pace of cost increases among the categories in the CPI basket.

One factor that might temper an inflation rebound is the slower pace of increase in imputed rentals on owner-occupied accommodation expected, as more housing supply joins the market. OCBC economist Selena Ling said for the first time since November 2009, CPI excluding accommodation dipped 0.1 per cent year-on-year in February.

But wage pressures are expected to dominate and send headline inflation rebounding to as high as 3 per cent by April, going by Credit Suisse economist Michael Wan's estimates.

Economists agree that the central bank is unlikely to depart from its current tight monetary stance when its next policy statement comes out next month. They expect MAS to stick to its current policy of allowing a modest and gradual appreciation in the Singapore dollar nominal effective exchange rate.

"In addition, prospects for GDP growth look quite good this year, with Europe climbing out of recessionary mire, coupled with the US generally looking more buoyant," said Mr Wan.

The government continues to expect both headline and core inflation to be in the range of 2 to 3 per cent for the full year.

-By Teh Shi Ning

February inflation at four-year low, but may pick up pace

Consumer price index rose 0.4%, below economists’ consensus estimate of 0.8% rise

Source: Today Online / Business

SINGAPORE — Consumer prices rose at the slowest pace in four years last month, official data showed yesterday, but inflation may pick up pace in the coming months, economists warned, as persistently high labour and business costs are passed on to consumers on items such as healthcare, education and cooked food.

The consumer price index (CPI) for last month rose 0.4 per cent following January’s 1.4 per cent increase, the Monetary Authority of Singapore and the Ministry of Trade and Industry said in a joint statement, the lowest since January 2010 and below the economists’ consensus estimate of a 0.8 per cent rise. This was largely due to the high base from the same month last year when the Chinese New Year had pushed up food costs, while car prices were lifted by record premiums for Certificates of Entitlement (COEs).

Private road transport costs fell 7.1 per cent last month after January’s 3.5 per cent drop. “This is coming down from a peak in January last year, when COEs for small cars were the highest since at least 2002. But the premiums had been on a decline since March last year due to government measures such as curbs on auto loans,” said UOB economist Francis Tan. “Similarly, due to measures to cool the housing market and greater housing supply this year and the next, the appreciation in accommodation costs has been slowing,” he added.

The rise in accommodation costs slowed to 2 per cent last month from 2.4 per cent in the previous month. Accommodation and private road transport prices account for about 31 per cent of the CPI basket. Food prices occupy another 22 per cent, and in February, food inflation was 2.3 per cent, down from 3 per cent a month earlier.

“This was due to the correction in non-cooked food prices after the Chinese New Year (in January this year), as well as the high base last year when Chinese New Year was in February,” said CIMB economist Song Seng Wun.

The latest CPI reading marks the fourth straight month of slower inflation since it rose to 2.6 per cent last November. But the easing of core inflation — which excludes accommodation and private road transport costs — was less pronounced, even as it slowed to 1.6 per cent last month from 2.2 per cent previously.

And with businesses here facing high labour costs, consumer prices are set to “normalise down the road”, said Credit Suisse analyst Michael Wan.

“With the labour market still structurally tight, we expect wage growth to continue trending higher over the next two years, which will likely add to the core inflation,” he said. “We can expect core inflation to rise from the current rates to around 3 per cent by the end of the year.” As a result, “healthcare costs will continue to rise. In fact, they have been rising since a low in November last year to 4 per cent last month. Other potential areas include education and cooked food,” said Mr Tan.

“Fortunately, the government’s focus on supporting senior citizens in this year’s Budget will help alleviate some of the pressure,” he added.

On a month-on-month basis, the CPI fell 0.1 per cent from January, as costs fell after the Chinese New Year.

-By Wong Wei Han

Singapore Real Estate

Q1 investment sales of property remain sluggish

Deals originating from public sector make up majority of transactions. Final figure to be a bit higher than Q4's $3.9b: Savills

Source: Business Times / Property

INVESTMENT sales of Singapore property - which cover big-ticket deals of at least $10 million - have continued to languish in the first quarter, according to separate figures from CBRE and Savills.

Deals originating from the public sector accounted for the lion's share of transactions - the first time this has happened in nearly three years. This was on the back of state land sales. Sale of residential sites under the Government Land Sales (GLS) Programme made up 49 per cent of the $3.8 billion total investment sales volume in this quarter (up to March 21), said CBRE.

Savills's figures reflect the tally as at March 20 at $3.8 billion, and the property consultancy predicts the final figure will come in slightly higher than the $3.9 billion clocked in the fourth quarter of last year. Both figures are the lowest since Q4 2009's $3.3 billion.

Savills blamed the weak investment sales showing in the first quarter partly on a slowdown in transactions arising from the Chinese New Year festivities but more significantly, the Total Debt Servicing Ratio, as well as still-high asking prices resulting in a price gap between buyers and sellers.

-By Kalpana Rashiwala

Sub-800 sq ft units' share of new sales hits record

Spike is due to 500-800 sq ft units, not shoebox units

Source: Business Times / Top Stories

[SINGAPORE] Small units of up to 800 square feet made up a record proportion, 47.6 per cent, of non-landed private homes sold by developers last year. This was up from 43.4 per cent a year earlier.

A caveats analysis by CBRE found that the over 40 per cent share started in 2011.

"This is a function of supply," said CBRE Research associate director Desmond Sim, "as developers have been reducing unit sizes to keep the absolute price quantum affordable to buyers especially investors, who have been slapped with successively tighter loan limits in recent years."

The spike in small units' share, however, is not due to the so-called shoebox apartments (below 500 sq ft) but to 500-800 sq ft units.

The property consulting group's analysis - which excluded executive condos, a public-private housing hybrid - found that 500-800 sq ft units' proportion has increased steadily to 34.4 per cent last year, from 29.7 per cent in 2012, 25.9 per cent in 2011 and 18.9 per cent in 2010.

This reflects the trend of developers minting more compact two- and three-bedders in a bid to keep absolute price quantums within buyers' reach - despite higher per square foot prices.

Meanwhile, the share of shoebox units dropped to 13.2 per cent last year, from 13.8 per cent in 2012 and the high of 15.1 per cent in 2011.

Analysts attribute this partly to an Urban Redevelopment Authority cap, effective Nov 4, 2012, on the number of homes in new non-landed residential projects Outside the Central Area, based on an average unit size of 70 square metres (753.47 sq ft) gross floor area.

The growing share of small homes in the past few years is also reflected in a contraction in median unit sizes - the figure has shrunk 30.6 per cent to 829 sq ft last year from 1,195 sq ft in 2009. Over the same period, the median per square foot price increased 47.2 per cent to $1,354 from $920, while the median lumpsum unit price rose 12 per cent to $1.08 million from $965,000.

Market watchers note that the end of the global financial crisis was marked by an era of unprecedented money-printing by governments in many parts of the world, creating a surge of global liquidity and low interest rates.

This has resulted in investors snapping up properties in many markets - including Singapore, driving up suburban condo prices.

To counter this, some developers began building a higher ratio of small units to keep lumpsum prices affordable and widen the pool of potential buyers.

Developers have also found that small units help investors overcome the lower loan-to-value limits introduced for those with at least one existing home mortgage and seeking to buy more residential properties.

And with the Total Debt Servicing Ratio framework rolled out last June, financial institutions are required, when granting property loans to individuals, to cap a borrower's total monthly debt obligations to no more than 60 per cent of gross monthly income.

"Thus, it has become increasingly difficult for potential homebuyers to obtain a loan, if they do not have enough cash," noted Mr Sim.

Developers told BT that in 2009, after the global crisis, they were building two-bedroom apartments of typically around 900-950 sq ft. This has shrunk to 700-750 sq ft compact two-bedders today. Over the same period, three-bedroom units have been compressed from 1,100-1,150 sq ft to around 950 sq ft.

Frasers Centrepoint Homes CEO Cheang Kok Kheong said that demand for compact units comes from young couples to baby boomers/retirees. "Most buyers still want the master bedroom and kitchen to be sufficiently sized. We're also seeing creative storage solutions - for instance, above wardrobes, near the ceiling (by moving air-con pipes to the side) and insertion of linen storage areas along the corridor between the living room and bedrooms."

Looking ahead, Mr Sim said that in light of reduced spending power of buyers post-TDSR, developers are likely to stick to the strategy of carving out a high ratio of affordable homes. "Hence, we will continue to see small-format homes making up a high proportion of new home sales."

Mr Cheang reckoned that if more study/library space is provided as part of a development's common facilities, compact apartment sizes could potentially be trimmed a further 5-10 per cent. "But we've not done that because our customers are not ready."

Agreeing, another developer said that unit sizes are unlikely to shrink further for the time being. "However, the proportion of developer sales in the sub-800 sq ft category may still go up because TDSR has reduced loan availability and the still-high property prices force buyers to look at compact units to keep within their budget."

-By Kalpana Rashiwala

Firm puts 38 units at Draycott luxury condo up for sale

Source: Straits Times

An investment holding company owned by the family that developed The Draycott is putting 38 units in the luxury development up for sale. The 34-storey condominium, near Orchard Road, with its distinctive cylindrical shape, was one of Singapore's tallest condos when completed in the 1980s.

38 units at The Draycott up for sale

Source: Business Times / Property

THE investment holding company of the family (Tan Chwee Boon Pte Ltd) that developed The Draycott has put up 38 units for sale by expression of interest.

The portfolio has been independently valued at $1,900 per square foot, which translates to an absolute price of $198 million.

The total strata area for the 38 units is about 104,429 square feet, and represents around 31 per cent by share value and strata area of the whole development. Of the 38 units, 30 are located in the tower block and face Goodwood Hill.

The development comprises a total of 133 units. Completed in the 1980s, the 34-storey development was one of the tallest condominium buildings then. It is located along Draycott Park and next to Ardmore Park.

-By Mindy Tan

Coping with high industrial rents

Source: Straits Times

In 2011, the factory occupied by local fragrance maker Senses International was sold by government agency JTC to a private sector firm. Soon after, rent for the company's 7,000 sq ft space at Tai Seng was bumped up by a hefty 70 per cent.

Servcorp launches new serviced office at Metropolis Tower 2

Source: Business Times / Property

AUSTRALIA-LISTED Servcorp will launch its fifth serviced office in Singapore for sale today - a 14,000 sq ft space that occupies half the eighth floor of The Metropolis Tower 2 in Buona Vista.

The new serviced office will have 36 fully managed office suites and meeting rooms. It also comes with service facilities ranging from receptionist and secretarial support, to information and communication technology (ICT) infrastructure.

In an interview with The Business Times, Servcorp's chief operating officer, Marcus Moufarrige, said that serviced residences may be a more cost-efficient alternative for companies seeking premium office space amid rising rents for traditional prime offices.

While rents for serviced offices are not necessarily cheaper, the total cost of ownership is, said the son of Servcorp's founder, Alfred Moufarrige.

-By Lee Meixian

K-Green Trust seeks wider investment mandate

Source: Business Times / Companies

KEPPEL Infrastructure Fund Management Pte Ltd (KIFM), as trustee-manager of K-Green Trust (KGT), has proposed an expansion of its investment mandate to cover a wider range of infrastructure assets. It is also proposing a change in sponsor to Keppel Infrastructure (KI) following a group reorganisation last year.

Currently, KGT owns Senoko Waste-to-Energy Plant, Keppel Seghers Tuas Waste-to-Energy Plant and Keppel Seghers Ulu Pandan NEWater Plant.

Yesterday, KIFM explained that when the trust was listed in 2010, it had focused on "green" infrastructure assets, which reflected the business focus of its sponsor, Keppel Integrated Engineering (KIE), at the time of listing.

However, in May 2013, KIE was reorganised under KI. KI has three core business platforms in Gas-to-Power, Waste-to-Energy and X-to-Energy, the latter of which spearheads strategic developments into alternative energy sources, energy conversion and integration of the energy value chain, as well as encapsulates other energy infrastructure businesses such as district heating and cooling.

-By Angela Tan

UIC's SingLand offer 'fair and reasonable'

Source: Business Times / Companies

INDEPENDENT directors (IDs) of Singapore Land (SingLand) yesterday advised shareholders to either accept the takeover offer from United Industrial Corporation (UIC) or sell their shares in the open market if they can obtain a higher price by doing so.

Their independent financial adviser (IFA), ANZ has made this recommendation, saying that the financial terms of the offer are "fair and reasonable and not prejudicial to the interests of the shareholders in the context of an offer involving no change in control of the company".

ANZ also said that it was not aware of any indication that UIC will raise the offer price.

In the circular sent out to shareholders, the IDs said they concurred with the recommendations given by ANZ.

-By Lynette Khoo

Oxley puts 90m yuan into China venture

Source: Business Times / Companies

OXLEY Holdings, through its 50 per cent-owned associate KAP Holdings (China), has invested 90 million yuan (S$18.54 million) in Sino-Singapore KAP Construction, a 50:50 joint venture set up by the associate and Beijing Jin Hua Tong Da Real Estate Development (BJJHTD) to undertake property development in China. The JV firm has a registered capital of 36 million yuan. BJJHTD is a 45 per cent-owned associate of KSH Holdings.

Utd Engineers in talks to sell UE E&C stake

Source: Business Times 

Responding to a Singapore Exchange query on the recent unusual price movements in its shares, UE E&C said yesterday that its controlling shareholder, United Engineers Ltd (UEL), is in discussions with a third party on the sale of UEL's shareholding in UE E&C. This "may or may not lead to a general offer", UE E&C said, adding that it was not aware of any other possible explanation for the share trading activity.

Keppel prize sponsorship extended by $1.75m

Source: Business Times / Singapore

KEPPEL Corporation has extended its sponsorship of the Lee Kuan Yew World City Prize with a further commitment of $1.75 million. The contribution will go towards another five cycles of the biennial award, from 2020 to 2028.

The accolade recognises cities and key leaders for displaying foresight, good governance, and innovation in tackling urban challenges, to bring about social, economic, and environmental benefits to their communities.

The announcement was made in conjunction with the conferment of the Lee Kuan Yew World City Prize 2014 to the city of Suzhou in China's Jiangsu province. Keppel's extended support doubles the current sponsorship amount, bringing its total commitment to $3.5 million. It has been the sole sponsor of the prize since its inauguration in 2010. The award consists of $300,000 cash, a gold medallion, and an award certificate.

Said Keppel CEO Loh Chin Hua: "We are honoured to be associated with this award of distinction which provides a meaningful platform for cities to share their experience and 

breakthroughs in urban solutions."

Ascott Residence Trust

Source: Business Times

Another Japan rental housing property. Ascott Residence Trust (ART) has acquired a rental housing property in Fukuoka named Infini Garden for 6.3 billion yen (about S$78.2 million) and with an Ebitda yield of 6.6 per cent. On a pro forma basis, the accretive acquisition is expected to have increased FY2013 distribution per unit (DPU) by 2.1 per cent from 8.40 cents to 8.58 cents.

Global Economy & Global Real Estate

Singapore developers with China exposure on firm footing

These firms have diversified financing sources, strong credit-worthiness

Source: Business Times / Property

FINANCING cost is on the rise for property developers in China on continued concerns over potentially more defaults by debt-laden local players, but Singapore developers with significant China exposure - with their diversified financing sources and strong credit-worthiness - are not expected to suffer from this credit squeeze.

Ken Wong, Barclays' head of bond syndicate for Asia ex-Japan, said: "Singapore developers are larger, and have strong balance sheets. They have the benefit of financing locally in Singapore and they have the support of local banks."

He added that there was now a clear differentiation on credit, and that credit was being examined more vigorously, given the default situation in China; there will be greater differentiation between BB-rated (non-speculative) and diversified national developers on the one hand, and small localised developers on the other hand.

The recent collapse of small domestic developer Zhejiang Xingrun Real Estate Co, which failed to repay some 3.5 billion yuan (S$718.5 million) in debts, is viewed as having a wider impact than the onshore bond default by Chinese solar company, Shanghai Chaori Solar Energy Science & Technology Co.

-By Lynette Khoo

S'pore banks stronger than HK's despite consumer debt surge

Source: Straits Times

Singapore banks are in better shape than their Hong Kong counterparts, even though consumer debt has surged in both cities, a new report has found. The report, by Barclays Capital, said Singapore banks are in a stronger position as they have more defensive asset qualities than Hong Kong banks.

Household debt downside risk for bank ratings: Fitch

But banks are much better protected in case asset quality worsens, it says

Source: Business Times / Malaysia

FITCH Ratings has flagged Malaysia's stubbornly rising household debt as a "downside" risk for bank ratings going forward, although it conceded that Malaysian financial institutions were much better protected in the event of worsening asset quality.

Despite its guarded approval, the rating agency's warning illustrates some of the scepticism in financial markets regarding Malaysia's resolve in tackling long-standing financial problems - from 15 years of budget deficits and growing national debt to decisiveness in combating waste and corruption.

In a report yesterday on the latest central bank report, Fitch said that Malaysian household debt was among the highest in Asia, reaching 86.8 per cent of gross domestic product (GDP) at end-2013 from 80.5 per cent the previous year.

The agency has been cautious about Malaysia, first downgrading its credit outlook to "negative" from "stable" last July. It has not stopped since.

-By S Jayasankaran in Kuala Lumpur

Brazil tackles housing gap head on

Total investment in its minha casa, minha vida project from 2011-2014 comes to US$527 million

Source: Business Times / Editorial & Opinion

MINHA casa, minha vida, Brazilian Portuguese for "my house, my life", is a federal government programme to cut Brazil's housing shortage by building millions of low-priced homes for the country's growing middle class.

Launched in 2009, the government had initially committed to building one million homes to spur home ownership among low and mid-income families by 2011. The first phase of the project has been completed. In March 2010, the government announced phase two of the project to develop an additional two million units to further narrow the housing deficit in Brazil. Phase two is slated to be completed by 2014.

The most populous country in Latin America, Brazil is also the fifth most populous nation in the world. In December 2013, the Financial Times reported the total housing deficit in Brazil as being close to eight million, including a 40,000 housing shortfall in Natal, the capital and largest city of Rio Grande do Norte, a north-eastern state in Brazil, with a population of about 800,000 people. Natal is one of the host cities of the Fifa World Cup and several minha casa, minha vida housing projects.

Total investment into minha casa, minha vida from 2011-2014 has been US$527 million. Of this sum, US$205 million came from state-owned companies and the private sector which had been engaged to develop this large-scale initiative. The rest of the funding is from the government.

-By Chan Yi Wen

Escalator sounds death knell for small HK shops

With the easier access at Sai Ying Pun, gentrification will edge out the businesses

Source: Business Times / Property

[HONG KONG] The streets around Centre Street, in the Hong Kong neighbourhood of Sai Ying Pun, are a microcosm of the vibrant, small-business life that makes this city as colourful as it is. There are shops selling large, wobbling blocks of fresh tofu, bean sprouts and papayas. There are tiny stalls selling fish balls, pork, noodles or copy books to local schoolchildren. There are hardware stores, cheap clothing outlets and clattering car repair shops, whose shrines to the Chinese Earth God provide a colourful counterpoint to the oil-stained floors inside.

Much of this life, however, is in the process of disappearing, as a new architectural addition to Centre Street - an outdoor escalator that grinds up the street's steep incline under a modernist roof - takes its toll on the neighbourhood's commercial ecosystem.

Hong Kong is an exceedingly hilly city. The high-rises that house its residents and the offices that have turned the former British colony into an international financial hub are wedged between the sea and steep peaks. In days of yore, wealthy residents had themselves carried in sedan chairs when they wanted to travel to the higher reaches of the city. In 1888, a tram began trundling up and down the steep incline to Victoria Peak.

More recently, urban planners hit upon the concept of outdoor escalators to make uphill districts more accessible, especially during the hot and humid months. A little over two decades ago, an escalator that winds uphill in about 20 segments and has become a tourist attraction in its own right began operations in an area now known as Soho. That escalator brought more than just convenience. It quickly acted as a magnet for Western-style restaurants, bars, boutiques and wealthy residents - and helped gentrify the neighbourhood around it.

-From Hong Kong, China

China’s Urbanization Loses Momentum as Growth Slows 

Source: Bloomberg / News

The pace of migration of rural Chinese to cities, a dynamic hailed by Premier Li Keqiang as key to the nation’s development, is set to slow by a third in coming years, deepening economic-growth concerns.

A government report released this month projected a 6.3 percentage-point rise in the share of people living in cities from 2013 to 2020 -- down from a 9.4-point gain the previous seven years. Nomura Holdings Inc. estimates that slower urbanization will slice as much as half a percentage point from annual gross domestic product growth over the next half decade.

“In the past 30 years we turned farmers into factory workers, triggering massive gains in productivity and hence growth,” said Ken Peng, Asia Pacific investment strategist at Citigroup Inc.’s private-bank business in Hong Kong. “Now those gains are diminishing.”

Li, who asked an arm of China’s cabinet to work with the World Bank on an urban-planning strategy released today, is under increasing pressure to take steps to address weakening economic expansion. A private report yesterday indicated a fifth straight slowdown in manufacturing in the world’s second-largest economy.

The premier, who has advocated an urbanization-growth strategy for two decades, is up against a shrinking pool of rural workers, rising local-government debt and unhealthy air pollution in almost all big cities. Diminishing returns from urbanization make it tougher to achieve economic goals including this year’s 7.5 percent expansion target.

Denser Cities

Today’s report from the World Bank and the State Council’s Development Research Center, which helped inform the government’s plan, recommends changes including on land use to spur more-efficient and denser cities. That can save China $1.4 trillion from a projected $5.3 trillion in infrastructure spending over the next 15 years, World Bank Chief Operating Officer Sri Mulyani Indrawati said in a speech today.

“You cannot go on with the same urbanization model,” Sri Mulyani said in a separate interview.

A Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to an eight-month low in March, a preliminary report yesterday showed, after fixed-asset investment for the first two months of the year was the lowest for the period since 2001.

Take Action

The slowdown is stoking speculation that China will accelerate spending or loosen monetary policy to aid growth. “The government will have to take action soon,” and possible moves include “announcing additional urbanization-related fiscal spending,” Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd., said in a note yesterday.

China has shifted more than 300 million people into cities since 1995 -- about twice the population of Russia -- and Li must find a way to accommodate almost as many again from the countryside without further wrecking the environment. The nation’s 731 million metropolitan dwellers, already 1/10 of the world’s population, use three times more energy than their countryside peers, according to the World Bank.

The government plans to steer city migration onto a more environmentally friendly and people-focused path, saying the “greatest potential for expanding domestic demand lies in urbanization.”

Urban Population

The urbanization blueprint, issued by the Communist Party and State Council on March 16, targets having 60 percent of the population in urban areas by 2020, up from 53.7 percent in 2013 and 44.3 percent in 2006.

Today’s report projects about 70 percent of the population, or 1 billion people will be city residents by 2030, which “implies a slowdown in urbanization compared with the past two decades.” Urban real estate investment is “unlikely to grow more rapidly than GDP in the coming years,” the report said.

UBS AG says migration won’t act as a stimulus for expansion. A broader deceleration in urbanization is “part and parcel of China’s slowdown in trend growth,” said Wang Tao, chief China economist in Hong Kong. “There is less surplus labor in rural areas.”

A slowing pace of urbanization could reduce average annual growth by 0.5 percentage point in the next five years from gains in the previous decade, according to Zhang Zhiwei, Nomura’s Hong Kong-based chief China economist.

Gains may also be constrained by the plan’s emphasis on smaller cities over bigger ones. The government plans to remove restrictions on obtaining household registration permits in small cities and towns, while strictly controlling populations of cities with more than 5 million urban residents.

Markets’ Role

“I can’t think of any country except North Korea that basically tells people where they can live,” said Yukon Huang, a former World Bank country head for China. “It actually goes against the principles they have espoused” of giving markets a decisive role, said Huang, now a senior associate at the Carnegie Endowment for International Peace in Washington.

Not all the projections indicate a slowdown. City residents with household registrations known as hukou, which give access to benefits including education and health care, are targeted to increase by about 20 million annually in the next seven years, up from 13 million a year in the past decade, UBS estimates.

Today’s World Bank report proposes changes to the residency-registration system so migrants can get access to services while maintaining hukou for land rights.

Local-government debt that has leapt 253 percent since 2008, air pollution and a potential slowdown in governments’ land sales will constrain the urban strategy, Nomura’s Zhang and colleagues wrote in a Feb. 25 report.

“The idea of continued urban growth still dominates conventional wisdom, which we now regard as optimistic,” Zhang said.

-By Bloomberg News

Marriott Adds Luxury Nigeria Hotels Amid West Africa Travel Boom

Source: Bloomberg / Luxury

Marriott International Inc. (MAR), the owner of brands including the Ritz-Carlton and Renaissance, is strengthening its position in West Africa as economic growth in Nigeria and Ghana boost travel and tourism.

Protea Hospitality Holdings, which Bethesda, Maryland-based Marriott agreed to buy for $186 million in January, is building five-star and three-star hotels in Lagos, Nigeria’s commercial capital, adding 400 rooms to the 700 it has in the country, Danny Bryer, director of sales, marketing and revenue for Protea, said in e-mailed response to questions.

“With the surging Nigerian economy resulting in companies around the world seeking to do business, demand for quality hotel rooms is expected to increase substantially over the next few years,” said Bryer.

Marriott, the largest publicly traded hotel chain after Hilton Worldwide Holdings Inc. (HLT), will almost double its rooms in Africa to about 23,000 with the acquisition of Protea, helping it expand in a continent where a growing middle class and rising travel are fueling the fastest pace of hotel development in the world. The number of hotels in Nigeria rose 88 percent to 6,200 in the two years through December, according to the country’s tourism development agency.

Economic growth in Africa’s biggest oil producer will accelerate this year from an estimated 6.4 percent in 2013, driven by services, trade and agriculture, the Washington-based International Monetary Fund said March 7.

Motivating Investors

“Improvements in the nation’s economic outlook are motivations to investors,” Sally Mbanefo, director general of the Nigerian Tourism Development Corp., said in an e-mailed response to questions. Hotel rooms jumped to 186,000 from 99,000 over the past two years.

Protea’s expansion plans in Nigeria focus on Port Harcourt in the oil-rich Niger Delta, the nation’s capital Abuja and the southeastern state of Enugu, according to Bryer. Domestic tourism revenue in Nigeria is targeted to triple to $12 billion within a decade, creating more than 400,000 jobs, Mbanefo said.

“If just 20 percent of Nigeria’s approximately 160 million population spend 10 percent of their per capita income of over $2,000 on domestic tourism, we will have an annual domestic tourism market of $12 billion,” she said.

Hotel investors and operators, finding growth slowing in mature European and U.S. markets, are expanding in Africa as the continent is buoyed by increasing trade with countries including China and rising demand for services such as lodging.

Expansion Focus

“Protea currently has 10 operational hotels in Nigeria and around 115 in total in seven African countries, with two more scheduled to open in Ghana and Rwanda,” Bryer said.

With the Ghana oilfields also creating demand for business travel, Protea will open a 130-room hotel in Takoradi in the country’s western region later this year, he said.

“For the moment, we’re focused on Nigeria and Ghana, but further expansion into other West African countries cannot be ruled out,” he said.

Ghana’s economy, which has outpaced the average for sub-Saharan Africa for the past 10 years, will expand 4.8 percent, below the 5.5 percent increase last year, Samir Jahjah, country representative for the IMF said Feb. 27.

-By Emele Onu

Sekisui, Taisei Find Defects in Tokyo Apartment Complex

Source: Bloomberg / Luxury

Sekisui House Ltd. (1928) said it found defects in a Tokyo residential complex being built by Taisei Corp. (1801) and is rebuilding parts of the project where apartments sell for as much as $3.5 million. Shares of both companies fell.

Taisei last month found about 20 columns out of 34 posts were missing some reinforcing metals in the building that will be 30 stories when completed next year in Shirokane, a neighborhood where many corporate executives live, Keiji Kobayashi, a Tokyo-based spokesman at Sekisui, said in a phone interview yesterday. Taisei is now fixing the defects by breaking the concrete and adding the necessary metals at the project sold by Sekisui, he said.

The defects came to light after Mitsubishi Estate Co. said one of its residential complexes in central Tokyo, built by Kajima Corp. (1812), is being rebuilt after construction flaws were found. Demand for homes has risen ahead of a sales tax increase to 8 percent from 5 percent in April. Housing starts rose to 980,025 units in 2013, the highest in five years, according to a land ministry report on Jan. 31.

“After the incident with Mitsubishi Estate, people are becoming very sensitive to this kind of information,” said Masahiro Mochizuki, an analyst at Credit Suisse Group AG. “A shortage of labor and rising material costs seems to have added a burden to the construction companies.”

Shares Drop

Sekisui shares fell 1 percent to 1,197 yen at the close of trading in Tokyo, the lowest since Aug. 30, while Taisei dropped 2.9 percent to 441 yen.

The error, found during a routine check, was made because building plans were misread, Kobayashi said. Taisei will finish fixing the building in early April and the quality of the property won’t be affected, he said, adding that the Tokyo-based builder will be responsible for any extra costs for the reinforcements. Akihiko Shimo, a Tokyo-based spokesman at Taisei, declined to comment.

Sekisui started construction of the complex in January 2013 and sold 218 units in September, with the most-expensive going for 359 million yen ($3.5 million), according to the Osaka-based company’s website. It plans to sell the rest of the apartments in the 334-unit building starting next month, it said. The handover of the apartments is expected in July 2015, it said.

“The construction companies have to secure skillful workers who can offer high-quality construction,” said Mochizuki. “Without securing skillful workers, a simple failure could reoccur.”

Demand to rebuild after the March 2011 earthquake and tsunami has contributed to the worst shortage of construction workers since 1994, according to labor ministry data. Forty-one percent of construction companies in a November survey said they didn’t have enough workers, while just 3 percent reported a surplus.

-By Takahiko Hyuga and Kathleen Chu

Billionaire Developer Lures Rich Chinese to Gated Polo Community

Source: Bloomberg / Luxury

Pan Sutong proudly displays the 4.5-liter jeroboam of 1900 Chateau Latour he uncorked on Dec. 8 after his two thoroughbreds placed first and second in their respective races at the Hong Kong Jockey Club.

Over a lunch prepared by his personal chef of mussels with lobster jelly, wild salmon with carrot-and-caviar puree and lamb wrapped with Parma ham, Pan describes the lifestyle he’s packaging for China’s elite, based on fast horses, haute cuisine and fine wine.

It’s taking shape at Fortune Heights, Bloomberg Pursuits will report in its Spring 2014 issue -- an ultraexclusive gated community in the city of Tianjin, a 35-minute bullet-train ride from Beijing. Its 64 mansions will have cellars stocked with first-growth Bordeaux, gold-plated shower heads and commanding views of emerald polo grounds, Pan says.

Anchored by the Tianjin Goldin Metropolitan Polo Club, the villas are part of a $5 billion, 89-hectare (220-acre) development that’s expected to include a 117-story office tower that has risen to almost half its planned height, an upscale shopping mall, a Las Vegas–style theater, a convention center and dozens of apartment blocks, four of which are nearly sold out.“I’m not satisfied with three Michelin stars or Robert Parker’s 100 points,” Pan says. “We want to put everything that is high-end into one community, where horses are front and center.” China is minting more millionaires than any other emerging economy, according to the 2013 Asia-Pacific Wealth Report from Capgemini and RBC Wealth Management, which puts their ranks at 643,000, up 14.3 percent from 2012.

Turnkey Sophistication

Property developers in China have been building pricey villas overlooking golf courses for decades; now, by replacing fairways with the Kentucky bluegrass of polo fields, Pan is introducing the country’s nouveaux riches to a whole new level of turnkey sophistication.

“He has a certain savoir-faire that differentiates him from people who have only money,” says Winfried Engelbrecht-Bresges, chief executive officer of the Hong Kong Jockey Club. “He wants to create an experience that is not only a property but a lifestyle.”

It’s a lifestyle that’s part Donald Trump, part British aristocracy. Pan’s Gulfstream G550 jets him to homes in Hong Kong, London, Los Angeles and Tianjin, where he’s building a 6,500-square-meter (70,000-square-foot) mansion that’s bigger than Candyland, the late Aaron Spelling’s former 5,100-square-meter house in L.A. And he hobnobs with princes Harry and William at a charity polo match he sponsors at England’s exclusive Beaufort Polo Club each June.

Polo Club

The furnishings headed for his Tianjin manse may be faux Louis XV, but the polo club it overlooks is the real deal. “The general facilities are outstanding, and not many sporting clubs in the world are more elegant,” Richard Caleel, president of the Federation of International Polo said by telephone from Santa Barbara, California.

It’s stocked with more than 200 top-of-the-line ponies from Argentina and Australia, and each January, the club stages the Snow Polo World Cup, which fields top international teams. At last year’s event, Pan flew in opera singers from Buenos Aires, offered a course called “Deconstructing Molecular Gastronomy” and treated guests to a tasting of wines from Chateau Haut-Brion, one of only five Bordeaux estates with the top premier cru classification.

Pan, 51, never even made it past high school. Born in Shaoguan, in Guangdong province, he was brought up by his paternal grandmother in Guangzhou until her death from cancer when he was 13, at which point he moved to San Marino, California, to live with his stepgrandmother.

Skipping School

He spent most of his time skipping school and hanging out in the family’s chain of Chinese restaurants, so he never learned to speak much English. After five years, he moved to Hong Kong and, with a loan from his family, set up a business dealing in Japanese electronics.

Ten years later, he moved into manufacturing in southern China, eventually commanding 90 percent of China’s production of karaoke monitors through his Matsunichi Communication Holdings Ltd. In 2002, Pan listed the company (since renamed Goldin Properties Holdings Ltd.) on the Hong Kong Stock Exchange.

Five years later, he branched out into real estate when he acquired the Tianjin parcel. As of mid-March, his controlling stakes in Goldin Properties and its sister company, Goldin Financial Holdings Ltd., were worth some $2.8 billion.

First Winery

Three years ago, Pan bought his first winery, paying $50 million for Sloan Estate, a Rutherford, California, producer of Bordeaux-style reds whose most recent vintage, the 2009, sells for $367 a bottle.

Last April, Pan snapped up Chateau Le Bon Pasteur from one of Bordeaux’s foremost winemaking families, along with Chateau Rolland-Maillet in St.-Emilion and Chateau Bertineau St.-Vincent in Lalande de Pomerol.

More acquisitions are planned. “We are aggressively still in investment mode,” says Jenny Pan, his 26-year-old daughter, who took over the running of Sloan after a two-year stint working in wealth management at Goldman Sachs Group Inc. in New York. “The Bordeaux and Sloan vineyards are only the first few in a hundred-step journey to build up our business.”

As Chinese President Xi Jinping’s crackdown on corruption enters its second year, conspicuous consumption of Patek Philippe watches and Louis Vuitton handbags is still frowned upon, something that makes Pan’s offering of a discreet lifestyle behind closed doors appealing.

‘Less Ostentatious’

“People are moving towards a less ostentatious display of wealth,” says Michael Klibaner, regional head of research at real estate firm Jones Lang LaSalle Inc. in Hong Kong.

Though Klibaner finds the idea of a polo club “a bit gimmicky,” he says it’s a smart alternative at a time when China has imposed a ban on building any more golf courses.

William Lin, a Tianjin-based Internet entrepreneur and the first Chinese member to take up polo at the club, says the limited popularity of the game isn’t the point.

“Most people who buy apartments here won’t play but will like a lifestyle where they can watch out the window,” he says. “As the Chinese make more money, they will need to know which kind of high-class lifestyle they should follow.”

-By Frederik Balfour

Lloyds Targets More Overseas Property Lending as Values Gain

Source: Bloomberg / Personal Finance

Lloyds Banking Group Plc (LLOY) will step up lending to real estate buyers in mainland Europe as competition among credit providers increases in the U.K.

The overseas markets must have “a reliable enforcement regime and a decent amount of liquidity, so we are looking at opportunities in France, Germany, the Netherlands, potentially Scandinavia,” John Feeney, head of corporate real estate, said in an interview. The lending will be to existing U.K. clients, he said.

Lloyds, which made about 7 billion pounds ($11.5 billion) of new real estate loans last year, is growing its property loan book ahead of repayments by customers, Feeney said. The London-based bank, forced to seek a bailout in 2008 after its takeover of HBOS Plc, is nearing an end to selling non-essential mainland European assets. Last week, it agreed to sell 494 million pounds of European real estate loans for 235 million pounds.

“We are now very much focused on new lending, so that’s really where our energies are now consumed,” Feeney said in the March 12 interview at the MIPIM real estate conference in Cannes, France.

Pan-European real estate funds had a total return, comprised of changes in real estate values and rental income, of 5.2 percent for the year through December, according to Investment Property Databank Ltd. That was the most since September 2011, the research firm said.

Multiple Offers

Investors have set aside $129 billion to buy European real estate, a 7 percent increase from six months earlier, broker DTZ said in a report published on March 12. U.K. projects that were shunned by buyers at the start of last year are now being sold and the investors are receiving multiple offers from lenders to finance the purchases, he said.

“There’s very little discrimination happening in terms of leverage between core London assets and in some cases regional assets of quite questionable quality,” he said. “There is very little premium associated with the additional risk you take on in the regions.”

An increase in lending by overseas banks is one reason for the surge in competition. German lenders aren’t subject to the same regulatory rules as U.K. banks, so they can offer more attractive credit terms to buyers of the best properties, Feeney said. At the same time, Asian buyers of U.K. properties are borrowing from lenders based in their own country.

‘Strange Phenomenon’

“The pricing is consistent with the Asian market as opposed to the local market, and I find that a fairly strange phenomenon,” Feeney said. “It would be a fairly odd thing for Lloyds to follow a core U.K. client to Singapore and undercut the local market.”

The bank’s real estate lending unit wants to make more loans to small businesses because there’s less competition from other lenders, Feeney said.

The biggest real estate loan that Lloyds advanced last year was 500 million pounds. In cases like that, “we’re generally placing a very significant component of risk to make the returns work,” he said. “If we were simply lending on balance sheet, the returns would be uncompetitive.”

Feeney said he’ll “focus entirely on return of capital,” and he declined to say how much the bank plans to grow its real estate loan book this year. “We’ll have an opportunity to do more volume than we did last year,” he said.

Lloyds, the U.K.’s second-biggest publicly owned bank, will sell more portions of loans it makes to customers to reduce its risk, according to Feeney.

“If you’re doing silly lending, the market tends to find you out,” he said. “If you have access to the market and you’re distributing risk, you can bring your balance sheet up and down in line with your broader corporate requirements.”

-By Neil Callanan

Berggruen Earmarks $413 Million for Portugal’s Rundown Buildings

Source: Bloomberg / Luxury

Billionaire Nicolas Berggruen and two Portuguese partners plan to spend as much as 300 million euros ($413 million) this year on rundown buildings in Portugal as the country’s real estate market rebounds.

Berggruen, Jose Luis Pinto Basto and Miguel Pais do Amaral had planned to spend about 1 billion euros in new commercial property in Portugal through their holding company Edge Berggruen Investments. A jump in demand for such assets led them to switch focus to old buildings, Pinto Basto said by phone.

Lisbon’s City Council estimates there are about 4,300 empty or half-empty buildings in the capital after a law that froze rents for decades started being phased out in 2012 and tenants began to move out. Portugal’s government forecasts the economy will expand 1.2 percent in 2014 after declining last year and investors are returning to the real estate market.

“Lisbon and Oporto are probably the European cities with the biggest potential in terms of investment in property rehabilitation,” Pinto Basto said. “We’re studying a series of deals under this scope. Berggruen is very interested in this.”

Spending on commercial real estate in Portugal tripled to 322 million euros in 2013 compared with a year earlier, according to Cushman & Wakefield Inc. Since the beginning of 2013, Edge Berggruen has made 1.6 billion euros of offers for commercial property in Portugal. None of bids were successful, Pinto Basto said.

“We decided to change our focus to buildings in need of being revamped,” said Pinto Basto. Edge Berggruen is talking to the Lisbon City Council, state-owned companies and funds that invest in old buildings for investment opportunities. Nicolas Berggruen, a German-American who travels the world in a Gulfstream IV jet while living in top hotels, owns 50 percent of the holding company.

-By Henrique Almeida