Singapore Real Estate Three 99-year sites up for tender in govt land sale 1,300 new homes expected from ECs in Yishun, condo in Margaret Drive Source: Business Times / Top Stories [SINGAPORE] More private homes are in the pipeline as the government released three 99-year leasehold sites this month that are expected to yield 1,300 more units. The two executive condominium (EC) sites at Yishun Street 51 are put up for tender from the confirmed list of the Government Land Sales (GLS) programme for the first half of this year, while the residential site at Margaret Drive will be made available on the reserve list. The Yishun sites are expected to yield 1,010 units. Parcel A has a maximum gross floor area (GFA) of 50,302 square metres (sq m) while Parcel B has a GFA of 51,139 sq m. The closing date for these two EC sites in Yishun is May 22, the Housing and Development Board (HDB) said yesterday. As for the condominium site at Margaret Drive, it will be triggered for sale when an acceptable offer is lodged. With a permissible gross floor area of 22,195 sq m, it is expected to yield 275 units, the Urban Redevelopment Authority said. Analysts noted that this land parcel has a good location - nestled in an established residential estate with nearby schools and amenities and within walking distance to Commonwealth MRT station. It is also close to a wide range of shopping and dining options, including Queensway Shopping Centre, Ikea Alexandra and the upcoming Alexandra Central. But they are not expecting the site at Margaret Drive to be triggered for sale in the next six months given the challenge of pricing such a project now. "Land prices in the vicinity of Alexandra/Queenstown have risen significantly, developers may have difficulty maintaining their profit margin for this site as the current market seems to favour projects that are perceived as value-for-money," said Christine Li, head of research and consultancy at OrangeTee. Ms Li noted that the supply situation in the Alexander/Queenstown area could be a concern for developers, as there are at least four other projects in the pipeline this year located at Commonwealth Avenue, Prince Charles Crescent (Parcel A and B) and Kim Tian Road. Ong Kah Seng, director at R'ST Research, said that if developers submit very high land bids for centrally located sites, they might have to be prepared to sell the properties at almost break-even prices. He expects the top land bid to come in at $780-880 per square foot per plot ratio (psf ppr). "If triggered, it will be in the second half of 2014, earliest in the third quarter," he added. "There's also a handful of other well located sites in reserve list for developers to choose from - such as sites in Sterling Road, Alexandra View (Parcel A), Toa Payoh Lorong 6 and Lorong Lew Lian." Consultants note that the top bids for the two EC sites in Yishun could be submitted by the same developer, as in the case of the Choa Chu Kang Grove sites. Some, however, caution that there may be an oversupply of ECs in the north and north-east regions of Singapore. Nicholas Mak, executive director at SLP International, said there are six new EC developments that are yet to be launched for sale to home buyers. These include the sites at Canberra Drive and Anchorvale Crescent that were sold this year, as well as the upcoming tender at Sembawang Avenue in May. But Mr Mak added that he still expects the future EC projects on the Yishun sites to enjoy healthy interest from local HDB upgraders if they are priced attractively. He is expecting four to eight bids per site, with the top bids coming in the range of $330-366 psf ppr. Mr Ong of R'ST Research said he expects the top bid for each Yishun site to be "fairly realistic" at $330-370 psf ppr. "Following the cooling measures for ECs implemented in December, the five EC site tender closures in January and February already reflected that there is developers' consensus that EC land prices cannot exceed $400 psf ppr," Mr Ong said.
"If the land is bought at around $400 psf or near $400 psf, then it couldn't offer developers the flexibility to lower the sale price should the mortgage servicing ratio (MSR) cap indeed adversely affect demand for new ECs," he said. -By Lynette Khoo
http://www.straitstimes.com/premium/money/story/govt-releases-three-residential-sites-sale-20140328 More properties up for auction but few sold Only six of the 132 units in Q1, up from 120 in Q4, snapped up for $17.87m Source: Business Times / Property THE number of properties put up for sale via auction is increasing as more sellers are turning to the auction market when they find it hard to move sales in the secondary market. But selling units in the auction market isn't always quicker as there are cautious buyers staying on the sidelines. Data from Colliers International showed that a total of 132 properties were put up for sale via auction in the first three months of this year, up from 120 properties in Q4.
Despite the increased supply, only six properties were sold in Q1 for a total of $17.87 million. This is a 76.5 per cent decline from the $76.08 million a year ago, which was bolstered by the sale of four high-value properties. -By Lynette Khoo http://www.businesstimes.com.sg/specials/property/more-properties-auction-few-sold-20140328 More home buyers opt for fixed-rate loans As rates head up, take-up for such loans at DBS jumps to 50% this month from 30% Source: Business Times / Top Stories [SINGAPORE] Interest rates are rising and home buyers are taking cover. One in two home buyers took up fixed-rate loans from DBS Bank this month, up from 30 per cent earlier in the year, the bank said. This is a shift. Anecdotal evidence has it that an estimated 70 per cent of home buyers have been going for floating-rate loans, with interest rates having plunged to historical lows following the 2008 Great Financial Crisis. The key three-month Sibor (Singapore interbank offered rate) has risen to 0.40568 per cent, up 0.9 per cent from last Thursday, when US Federal Reserve chair Janet Yellen said interest rates could rise earlier than expected. At the currrent level, the three-month 0.40568 per cent, which is pegged to most floating-rate home loans, is up 9.3 per cent from almost a year ago; its 52-week low of 0.37083 per cent was on April 11, 2013. Lui Su Kian, DBS Bank's managing director and head of deposits and secured lending, said: "We expect interest rates to increase gradually." The increase in Sibor after last week's Federal Open Market Committee (FOMC) meeting reminds home buyers that rates can change quickly in reaction to market events and that the best time to lock in an attractive set of rates is when a low-interest environment is prevailing, she said. "With concerns over rising interest rates, more buyers are enquiring about our fixed-rate programmes," she said. DBS has two fixed-rate programmes - three or five years. It is the only bank to have introduced a promotional rate of 1.88 per cent for its five-year fixed-rate programme since last November, said Ms Lui. DBS has another hybrid fixed-rate package, but that is only for HDB home buyers. Its POSB HDB Loan caps the borrower's interest rate at 2.50 per cent (the prevailing CPF concessionary rate) for the first eight years of the loan, and is always 0.10 per cent lower than HDB's concessionary loans. The POSB HDB Loan charges 1.38 per cent plus the three-month Sibor, which works out to 1.7857 per cent at the moment. Based on the prevailing pricing, borrowers will thus enjoy protection when the three-month Sibor rises above 1.12 per cent, said Ms Lui. Since last September, 80 per cent of HDB refinancers have been opting for the POSB HDB Loan, said a DBS spokeswoman. They can opt for the five-year fixed rate, 1.88 per cent package, but they prefer the certainty of eight years, said the spokeswoman. The CPF Ordinary Account rate of 2.50 per cent has remained unchanged since July 1999. That was when the formula to compute the rate was changed to 80 per cent fixed deposit rate and 20 per cent savings rate of the average of the major local banks over the preceding relevant three months. The Business Times understands that home loan customers at the other two local banks have been slower in taking up fixed-rate packages, which could be due to less competitive pricing. In addition to Sibor plus packages, OCBC Bank and United Overseas Bank offer variable interest rate loans tied to their bank board rate, which is more stable that the Sibor rate. For instance, OCBC's 4.50 per cent board rate has been unchanged since 2006. Phang Lah Hwa, the bank's head of consumer secured lending, said: "We have observed an increasing number of people enquiring about fixed-rate packages." The bank's variable interest rates package offers some level of stability, as it is based on its board rates and the bank has to inform customers of changes 30 days in advance, she said. Dennis Khoo, United Overseas Bank's head of personal financial services, said that with every market cycle, there will be different views on the best home loan option for home buyers. "What's important is for home buyers to choose the home loan option that best suits their financial needs," he said. Home loans pegged to Sibor enable home buyers to capitalise on the current low interest rate, but this rate will vary along with interest-rate movements, he said. "In a rising interest rate environment, one alternative home buyers can look at is floating board rate loans, which offer more stability than Sibor-pegged loans, as the impact of changing interest rates is not immediate," he added.
These packages also give home owners the flexibility to make partial repayments at no additional cost, he said. -By Siow Li Sen http://www.businesstimes.com.sg/premium/top-stories/more-home-buyers-opt-fixed-rate-loans-20140328 Construction sector wants to attract more locals WDA announces $3m more in new scholarships Source: Business Times / Singapore ONE way to reduce the construction sector's reliance on foreign labour is to attract more Singaporeans to the industry, said Ho Nyok Yong, president of the Singapore Contractors Association Ltd (SCAL). Dr Ho addressed industry members at a post-Budget briefing for the construction sector yesterday and chaired a dialogue with panellists from the Ministry of Finance, the Ministry of Manpower, the Building Construction Authority (BCA) and the Infocomm Development Authority. The SCAL uses "a lot of different methods" to attract locals to the industry, he said. "We go to the high schools, the universities and the polytechnics to give talks."
Dr Ho feels construction careers need a new image: "We want to come out with an advertisement - on the television, maybe just before the 10 o'clock news . . . to tell them, you know, the construction industry is very professional." -By Jaira Koh Construction sector likely to ramp up productivity this year Source: Today Online / Business SINGAPORE — While the construction sector has been a laggard in the Republic’s productivity drive, there should be a turnaround in the situation this year as a result of the measures introduced in the Budget, particularly at a time when the industry is at its busiest, the official representative for the sector said yesterday. Between S$31 billion and S$38 billion worth of contracts are expected to be awarded this year, with the majority from the public sector, data from the Building and Construction Authority (BCA) showed. This compares with the record S$35.8 billion worth of contracts awarded last year and S$30.8 billion in 2012. With even more billion-dollar contracts on the table, contractors are likely to be more inspired to take steps to increase productivity. “I would say this is a good year for everybody in the construction industry. This is a good time to increase productivity because when there are enough projects for everyone, they will be thinking about ways to reduce costs,” said Dr Ho Ngok Yong, President of the Singapore Contractors Association Limited (SCAL), on the sidelines of a Budget dialogue for its members. The slew of initiatives introduced during this year’s Budget will go a long way in helping the industry become more productive, he said. For example, the mandatory use of productive technology (for selected Government Land Sales tenders) beginning from the design and planning stage will help parties along the construction supply chain reduce reliance on manual labour, Dr Ho said. Such technology includes prefabricated bathroom units. In addition, the Government’s move to encourage the hiring of higher-skilled workers has also been welcomed, as that will improve the industry’s workforce and drive productivity, he said. Moves include extending the maximum employment period for such workers from 18 years to 22 years and allowing workers with basic skills, who earn at least S$1,600 a month and have worked in Singapore for a minimum of six years, to be upgraded automatically to higher-skilled status. Besides measures specifically designed for the construction sector, contractors can also benefit from other schemes such as the Productivity and Innovation Credit (PIC). “Many in the construction industry have already used (initiatives) such as the PIC scheme (to) buy equipment such as cranes and concrete pumps. These are relevant to the construction industry as well and I believe many can benefit from that,” said Dr Ho. During the Budget, the Government decided to extend the PIC scheme by three years to 2018. Omega Construction and Engineering is one company that lauded the extension, although it added that it hoped to see a more “exhaustive” list of equipment qualifying for the scheme, saying that many specialised tools are not included, although companies may still get approval on a case-by-case basis.
“The whole industry is very big. For instance, we’re a construction company in the process chemical industry. We build process plants, oil farms and tanks, so certain tools that we use are not in the list by the BCA … So, it’ll be good if the sources that the information is adopted from are of a wider scope,” said Project Engineer Teo Jia Jing. http://www.todayonline.com/business/construction-sector-likely-ramp-productivity-year Real Estate Companies' Brief Heeton, Lian Beng, KSH in Cambodia land deal Source: Business Times Imperial South East Asia Investment (ISEA) has inked a deal with Cambodian national Lok Oknha Sear Rithy to acquire a piece of land in Cambodia for US$64 million, with plans to redevelop the existing hotel on it. ISEA is 32.65 per cent owned by Heeton Holdings, 32.65 per cent owned by Lian Beng Group and 34.7 per cent owned by KSH Holdings.
http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140328 CDL's CES no longer subject to buyout Source: Business Times City Development Ltd's (CDL's) Hong Kong-listed City e-Solutions (CES) is no longer subject to a buyout by an independent third party. A memorandum of understanding (MOU) had earlier been accepted, after the purchaser had expressed non-binding interest in acquiring from CDL's wholly owned subsidiaries an approximate 52.52 per cent interest in the issued share capital of CES. CDL said in an announcement yesterday:
http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140328 Centurion Corporation Source: Business Times We brought a group of fund managers to visit Centurion Corp's two dormitories, namely Toh Guan and Mandai - a joint venture with Lian Beng. We were pleasantly surprised with the good facilities, comfortable living environment, and provision of welfare and social activities in the dorms which reaffirm Centurion's "managing with a heart" motto and separate them from peers'/factory-converted dorms.
http://www.businesstimes.com.sg/premium/singapore-markets/others/brokers-take-20140328 Views, Reviews & Forum A tale of two cities Source: Straits Times Prime Minister Lee Hsien Loong yesterday received London's Freedom of the City award while on a visit to the British capital. “Today, London is not just a financial hub, but a global city for talent, innovation and culture. Each time I visit - most recently in 2009 - I feel the energy and verve of the city. Were Wordsworth to visit Westminster Bridge today, he would surely sense that all that mighty heart is not lying still, but pulsing powerfully!”
http://www.straitstimes.com/premium/opinion/story/tale-two-cities-20140328 Benefits of taking prefab route Source: Straits Times We agree with Mr Paul Chan Poh Hoi that prefabrication will bring about many benefits ("Prefab is not bad"; Forum Online, last Friday). Prefabrication enables architects to create unique building features that could otherwise be too challenging to build using conventional on-site construction methods.
http://www.straitstimes.com/premium/forum-letters/story/benefits-taking-prefab-route-20140328 Global Economy & Global Real Estate Q4 GDP growth faster than estimated Expansion fuelled by strong consumer spending on services Source: Business Times / Top Stories [WASHINGTON] The US economy grew more rapidly in the fourth quarter than previously estimated as consumer spending climbed by the most in three years, showing that the expansion had momentum heading into this year's harsh winter. Gross domestic product (GDP) grew at a 2.6 per cent annualised rate from October till December, more than the 2.4 per cent gain reported last month, figures from the Commerce Department showed yesterday in Washington. Robust consumer spending on services, particularly health care, helped accelerate the expansion, a sign that this year's slowdown is partly due to heavy snowfall and freezing temperatures. Companies including retailers such as Macy's Inc are waiting for the weather to improve to get a clearer picture of the economy's health.
"The underlying strength in the economy is reasonably good, and was accelerating before we had the bad weather," David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, said before the report. "Once we get past the first quarter and we get a real GDP reading, in the second quarter we should see a rebound." -From Washington, US http://www.businesstimes.com.sg/premium/top-stories/q4-gdp-growth-faster-estimated-20140328 U.S. Mortgage Rates Rise With 30-Year at a Two-Month High Source: Bloomberg / News U.S. mortgage rates for 30-year loans rose to a two-month high, increasing borrowing costs for homebuyers as the market’s recovery showed signs of weakening. The average rate for a 30-year fixed mortgage was 4.4 percent this week, up from 4.32 percent, Freddie Mac said today in a statement. The average 15-year rate climbed to 3.42 percent from 3.32 percent, according to the McLean, Virginia-based mortgage-finance company. Housing demand has cooled as higher prices and mortgage rates cut into affordability and harsh weather in many parts of the U.S. kept would-be buyers away. New-home (NHSLTOT) purchases dropped in February to the lowest level in five months, Commerce Department data showed this week. Sales of existing houses fell last month to a 4.6 million annual rate, the fewest since July 2012, according to the National Association of Realtors. “The housing numbers have been really disappointing,” Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts, said in a telephone interview yesterday. “Most people were expecting stronger pickup in housing this year that would lift the economy into a stronger growth pattern, and that isn’t happening.” Contracts (USPHTMOM) to buy previously owned homes fell for an eighth straight month in February, the Realtors group said today. Price gains have slowed, according to the S&P/Case-Shiller index of 20 cities. In the year through January, the measure increased 13.2 percent, compared with 13.4 percent in the 12 months through December. Mortgage rates are poised to climb as the Federal Reserve continues tapering stimulus efforts that have kept borrowing costs low. Policy makers cut monthly bond purchases to $55 billion last week, from $85 billion last year. Fed Chair Janet Yellen said the program could end this fall and that the benchmark interest rate, which has been close to zero since 2008, may rise six months after that. The average 30-year mortgage rate was 3.57 percent a year earlier, according to Freddie Mac. -By Prashant Gopal Americans want big homes with green features Source: Business Times / Property [WASHINGTON] Is America's love affair with big houses finally over? Yes and no. In 2013, fewer big houses were built, but the average size for new homes continued to increase. According to US census data, the percentage of new houses built in 2013 with more than 3,000 square feet of living space declined to 31 per cent from a high of 45 per cent at the peak of the home-building boom in 2007.
At the same time, the average size for a new home built in 2013 edged towards the 3,000 sq ft benchmark figure, ballooning out to 2,679 sq ft, 160 sq ft more than the previous year, according to the National Association of Home Builders' annual survey of home trends and buyer preferences presented by Rose Quint at the International Builders Show (IBS) in Las Vegas this year. -From Washington, US http://www.businesstimes.com.sg/specials/property/americans-want-big-homes-green-features-20140328 Building sites in India idle ahead of national polls Developers and contractors get in the thick of funding election campaigns Source: Business Times / India [NEW DELHI] As India's mammoth general election (GE) approaches, jackhammer drills are quietening down at construction sites and earthmovers and cranes remain parked. Many real-estate and construction firms - their finances already squeezed by a sharp economic slowdown - are diverting funds from housing and other projects to election campaign contributions. Several projects are stalled, at least temporarily. More than other businesses, Indian developers and contractors are particularly reliant on ties with the government to acquire land or win contracts. If they fund a winner's campaign, the payoffs can be huge.
Based on past elections, such companies could end up funding a disproportionate amount of the US$5 billion that political parties are likely to spend this time to woo the country's 815 million voters. -From New Delhi, India Construction on hold as developers divert funds to Indian election campaigns Source: Today Online / India NEW DELHI — As India’s mammoth general election approaches, jackhammers are quietening down at construction sites, while earth movers and cranes remain parked. Many of the country’s real estate and construction companies — their finances already squeezed by a sharp economic slowdown — are diverting funds from housing and other projects to election campaign contributions. Many projects are stalled, at least temporarily. More than other businesses, Indian developers and contractors are reliant on ties with the government to acquire land or win contracts. If they fund a winner’s campaign, the payoffs can be huge. Based on previous elections, such companies could end up funding a disproportionate amount of the US$5 billion (S$6.3 billion) that political parties are likely to spend on the five-week election starting on April 7, as they seek to woo the country’s 815 million voters. “A lot of money will flow from real estate into the elections, much of it unaccounted for,” said Mr Santhosh Kumar, Chief Executive Officer of Operations at Jones Lang LaSalle India, which advises real estate clients, including developers. “They (developers) have to fund political candidates to facilitate future opportunities. Whoever comes into power, they have to maintain a relationship,” he told Reuters. The level of cement consumption — a barometer for wider construction activity — falls around 12 per cent during elections, a 2011 study showed. Election funding in India is highly opaque, but the amount that political parties are expected to spend is many times the legally permissible limit of US$114,000 for each of the 543 constituencies and most of the funds will come from the thriving black market or underground economy. Mr Narendra Modi, the main opposition candidate for Prime Minister, has seized on public anger at a spate of corruption scandals to galvanise support, though there is plenty of evidence to suggest that most major parties are involved in illicit campaign funding. However, declared donations also underline the importance played by specific industries. Almost one-sixth of such donations to national parties between 2004-2005 and 2011-2012, a period covering two elections, came from real estate, oil and power firms, a report by the Association for Democratic Reforms showed. While the campaign spending for this year’s general election will likely prove a boon for many businesses, they are mainly in the consumer and small retail sector. Real estate and construction are not likely to benefit. The mutual dependence between developer and politician is most acute in areas where land is in high demand, such as the fast-growing regions of Gurgaon and Noida near New Delhi. Most developers contacted by Reuters were reluctant to discuss or speak on the record about the financing of election candidates because of the sensitivity of the topic. However, several developers, including investors and analysts, explained that the sector is called upon by politicians to back campaigns either with cash or by paying for services such as hiring cars and planes or printing posters. “India hasn’t found a way to finance elections in a way that’s transparent and above board. The under-the-table and opaque nature is stark,” said Mr Milan Vaishnav of the Carnegie Endowment for International Peace, who co-wrote a paper on elections and cement consumption. India’s economic growth slowed to the lowest in a decade last fiscal year, while a drop in home sales has squeezed the liquidity that developers can use to fund political parties. Meanwhile, potential home owners are seething at the delays in getting possession of properties they have already largely paid for as developers are running out of funds, either because of the slowdown or the election. “When we went to the site, it was dead. We could count the labourers sitting and relaxing. There was no machinery working and we saw no raw materials that would be used,” said Ms Ashima, a single mother of two who was expecting to move into her new home in Noida earlier this year, but has now been told it will take another two-and-a-half years.
“They are giving all sorts of reasons for the delay — inflation, government issues and other things beyond their control,” she said. “It is a very big setback. People say India is booming. Where is it booming?” Reuters Chinese developers seek alternative financing as investors grow wary Property firms have renewed sense of urgency to raise capital after US Fed hints at rate hike Source: Today Online / Business BEIJING — China’s property developers are turning to commercial mortgage-backed securities (CMBS) and other alternative financing as creditors grow more discriminating in the face of rising concerns about the country’s real estate and debt markets. Creditors are becoming increasingly nervous because property sales in Asia’s largest economy have cooled as overall growth slows. The bankruptcy of a local developer and the country’s first domestic bond default this month have also heightened scrutiny of borrowers. The property companies have a renewed sense of urgency to raise capital after United States Federal Reserve Chairman Janet Yellen indicated the central bank, which sets the tone globally for borrowing costs, may raise interest rates as early as spring next year, from March to June 2015, sooner than many investors had anticipated. Higher rates mean higher borrowing costs, both for the companies and for their home-buying customers. Highlighting the search for alternative funding avenues, property fund MWREF this month issued the first cross-border offering of CMBS since 2006. The offer was priced at a yield lower than two US dollar bonds issued last week, said IFR, a Thomson Reuters publication. “The market will see more of these products,” said Kim Eng Securities analyst Philip Tse in Hong Kong. “It’s getting harder to borrow with liquidity so tight in the bond market. It’s getting harder for smaller companies to issue high-yield bonds.” The notes, issued through a MWREF subsidiary, Dynasty Property Investment, are backed by rental income from nine MWREF shopping malls in China and were structured to give offshore investors higher creditor status than is normally the case with foreign investors. MWREF is managed by Australian investment bank Macquarie Group, which declined to comment. Mr Bryan Feng, the Head of Investor Relations for Beijing Capital Land, which is mainly focused on middle- to high-end residential and commercial property, said the company would look at new ways to fund its business. Beijing Capital was the first Hong Kong-listed developer to issue US dollar senior perpetual capital securities last year, an equity-like security that does not dilute existing shareholders. “As market liquidity is changing constantly, we have to keep adapting and exploring different funding channels,” said Mr Feng. Chinese regulators last week allowed developers Tianjin Tianbao Infrastructure and Join.In Holding to offer a private placement of shares, opening up a fundraising avenue that had been closed for nearly four years. New rules were also unveiled last week allowing certain companies to issue preferred shares, including companies that use proceeds to acquire rivals. “As liquidity tightens and developers see more pressure ... they may consider mergers and acquisitions via preferred shares,” said Macquarie analyst David Ng. FINANCING RISKS Fears over the outlook for China’s property developers heightened this month on news that home price inflation is cooling and after Zhejiang Xingrun Real Estate became bankrupt after failing to service more than 3.5 billion yuan (S$717 million) in outstanding debt. “The bankruptcy appears to be an isolated incident, but it highlights the vulnerability of small, highly-levered developers,” said Mr Kaven Tsang, an analyst at rating service Moody’s. Still the rating firm warned that the bankruptcy could prompt banks to become more cautious in managing their exposure to the property sector. China also recorded its first domestic bond default when loss-making Shanghai Chaori Solar Energy Science and Technology failed to make an interest payment. The market jitters have slowed the pace of new debt issuance and prompted investors to demand bigger premiums to risk their capital. As at March 15, Chinese developers had issued 15 US dollar bonds raising US$7.1 billion (S$9 billion) this year, compared with 23 issues that raised US$8.1 billion in the year-earlier period. “That said, quite a number of developers have demonstrated the ability to access alternative markets, such as the offshore syndicated loan markets as another means of raising capital,” said Ms Swee Ching Lim, Singapore-based credit analyst with Western Asset Management. However, offshore syndicated loans for Chinese developers have reached US$1.2 billion so far this year, compared with US$9.8 billion for all of last year, Thomson Reuters data shows. Demonstrating the change in investor sentiment, bonds issued by Kaisa Group in January with a yield of 8.58 per cent are now yielding 9.5 per cent. Times Property issued a five-year bond this month, not callable for three years, to yield 12.825 per cent. A similar instrument from China Aoyuan Property in January was priced at 11.45 per cent. Both Kaisa and Times are in the B-rating “junk” category, which is four notches above a default rating. Property prices on the whole are still rising, but there are signs of stress in second- and third-tier cities. Early indications of property sales this month, traditionally a high season, were not promising, although final figures would not be available until next month, said Ms Agnes Wong, property analyst with Nomura in Hong Kong. That may mean developers have to cut prices and investor sentiment may worsen. The market stresses ultimately could lead to the reshaping of the property development sector, said Mr Kenneth Hoi, Chief Executive of Powerlong Real Estate Holdings, a mid-sized commercial developer.
“In the future, only the top 50 will be able to survive. Many small ones will exit the market,” he said. AGENCIES China’s Developers Face Shakeout as Easy Money Ends: Mortgages Source: Bloomberg / Luxury The collapse of a Chinese developer in a city south of Shanghai foreshadows a shakeout among the nation’s almost 90,000 real estate companies as the government reins in credit and the housing market slows. Zhejiang Xingrun Real Estate Co., a closely held developer based in Fenghua, is insolvent, with 3.5 billion yuan ($562 million) of debt. Its residential projects have been halted and authorities have detained its largest shareholder and his son, according to the city’s government. Developers have proliferated since China began allowing private home ownership in 1998, causing a surge in demand and a rally in residential prices. For years, homebuilders binged on easy credit from banks and shadow financing from non-banks at higher interest rates. Now many developers are struggling with debt as thousands of apartment buildings across the country sit empty and the government abstains from providing further stimulus for the economy. “It’s a positive sign that companies are not being propped up,” said Richard van den Berg, Hong Kong-based country manager for China at CBRE Global Investors, a unit of Los Angeles-based CBRE Group Inc. CBRE estimates there are about 30,000 “true” developers, not including construction and project companies. “That is far too many, even for a country as large as China. Consolidation needs to take place.” Policy ShiftZhejiang Xingrun’s demise comes after a policy shift by Premier Li Keqiang to tighten credit. The effort to contain surging home prices comes after they climbed 60 percent since the government’s 4 trillion yuan of fiscal stimulus in 2008 to bolster the economy after the global financial crisis. Since becoming premier in March 2013, Li has refrained from using short-term stimulus measures, aiding government attempts to rein in shadow financing through companies with little transparency known as trusts. Officials have stepped on the brakes even as economic growth was already estimated to grow 7.4 percent this year, the slowest pace since 1990, according to a Bloomberg News survey of 55 economists. China’s seven-day repurchase rate, which measures interbank funding availability, hit a record high of 10.8 percent on June 20 during the nation’s worst cash squeeze on record. China’s credit growth trailed analysts’ forecasts in February: the 938.7 billion yuan in aggregate financing fell 28 percent short of the median estimate in a Bloomberg News survey. More FailuresWith lending tight, more developers like Zhejiang Xingrun will go under, Johnson Hu, a Hong Kong-based property analyst at CIMB Securities Research, said. In 2012, there were 89,859 real estate developers in China, according to the latest data on the National Bureau of Statistics website. “Li has already signaled that as long as there are no systematic regional risks, the government won’t do much because some cases of default are inevitable,” Hu said. Earlier this month, after the annual meeting of the National People’s Congress, Li said the government will control the residential market “differently in different cities,” taking into account local conditions. Li didn’t provide more details. Li’s predecessor, Wen Jiabao, who stepped down in March 2013, had tried to curb the property market since 2010. His nationwide measures included higher down payment requirements and interest rates for second-home mortgages, increasing construction of low-cost social housing and restricting home purchases in about 40 cities. Authorities also imposed a property tax for the first time, in Shanghai and Chongqing. Price GrowthPrice gains for new homes slowed for a second month in February, rising 10.8 percent from a year earlier. That compares with 11.1 percent in January and 11.5 percent in December, according to SouFun Holdings Ltd., the biggest real estate website in China, which surveys 100 cities. The value of homes sold in January and February fell 5 percent to 598.5 billion yuan from the same two months a year earlier, the bureau of statistics said. Sales almost doubled in the first two months of 2013. Developers in regions where the housing market slowed and access to financing narrowed face rising default risks, Standard & Poor’s Ratings Services said in a Jan. 17 report. Renhe Commercial Holdings Co. and Glorious Property Holdings Ltd. (845) are two such companies, the report said, without providing information on the developers’ debt levels. Glorious PropertyGlorious Property will post a 77.3 percent increase in net gearing in 2013, according to an estimate by Samson Man, a Hong Kong-based property analyst at CMB International Capital Corp. in a Jan. 20 report. The Hong Kong-traded shares of the company, due to report full-year earnings March 28, have declined 13 percent in the past 12 months. Shares of China Vanke Co. (000002), the biggest developer traded on mainland exchanges, dropped 26 percent in the past year, even as the company sold the most apartments by value of any developer in China. That was compared with a 4.6 percent of drop of Shanghai Stock Exchange Property Index, which tracks 24 developers. The index fell 0.1 percent at the close of trading today. Net debt of Country Garden Holdings Co. (2007), the developer based in Foshan in southern China that has expanded to other parts of the country and overseas, increased to 67 percent at the end of last year compared with 54 percent in 2012, according to Bloomberg Industries analyst Robert Fong. The developer’s chief financial officer stepped down on March 19. Rebounding SalesAs the industry added leverage to tap a rebound in home sales last year, the top 500 Chinese developers’ average debt ratio reached its highest level in five years, according to a March 20 e-mailed report by the China Real Estate Association and its partners. The ratio of cash flow to short-term liabilities -- a measure of the ability to service debt -- was negative 5.7 percent compared to positive 15 percent in 2012, according to the report. The 500 companies’ sales jumped 29 percent to 3.26 trillion yuan last year, accounting for 40 percent of total housing revenue, the report said. Leverage will rise in the next 12 months for some developers as a result of “aggressive land acquisitions,” S&P said in a report March 6. Land sales in 300 cities rose 50 percent to 3.1 trillion yuan in 2013, S&P analysts led by Matthew Kong wrote in the report, citing SouFun data. Land costs on average rose 24 percent last year, they said. Record PriceFranshion Properties China Ltd. (817) paid 1O.1 billion yuan for a 96,429-square-meter (1 million-square-foot) plot of land in Shanghai in January. The total price was a record for a residential site in the city, according to China Real Estate Information Corp., or CRIC, a property data and consulting firm. Lisa Emsbo-Mattingly, director of asset allocation research at Boston-based Fidelity Investments, said Chinese developers are in the front end of the default cycle. She compared the challenge in China today to the U.S. in 2007 when the first cracks in the mortgage market appeared and blamed excessive leverage and the misallocation of capital to residential developers. “The government will be picking and choosing who gets help,” said Emsbo-Mattingly, whose firm manages $2 trillion. Fenghua, where about 500,000 people live surrounded by mountains south of Ningbo, typifies how the building boom has gone awry in China’s third- and fourth-tier cities. Fenghua is best known as the birthplace of former Chinese nationalist leader Chiang Kai-shek, who died in 1975. Empty BuildingsToday, the city is filled with pawn shops, textile and garment factories and an abundance of empty residential buildings meant to meet the needs of Chinese with rising incomes. About 67 percent of housing under construction in China last year was in less affluent cities like Fenghua, according to Nomura Holdings Inc. Ningbo, which has jurisdiction over the city, had inventory of 32 months at the end of February, compared with an average of about 15 months in 13 major cities, according to Fitch Ratings, citing data from CRIC. To slow the building frenzy, Ningbo imposed home purchase restrictions in 2011, banning local residents from buying third homes and limiting non-locals to purchasing one home. Ningbo’s home-price growth slowed for a second month in February, rising 6.1 percent compared with 7.1 percent in January, according to the National Bureau of Statistics. The oversupply of housing has caused some developers to cut prices in smaller cities. Agile Property Holdings Ltd. cut home prices at two projects in the eastern city of Changzhou and the western city of Chengdu by about 20 percent each in February and March, the company said. Zhejiang CollapseZhejiang Xingrun, the biggest developer in Fenghua, doesn’t have enough cash to repay creditors. The developer owes 2.4 billion yuan to banks, 700 million yuan to private lenders and the rest to construction companies, Xu Mengting, director of the news office at the Fenghua city government, said in an interview March 21. Zhejiang Xingrun hasn’t yet declared bankruptcy, and the local government is holding discussions with the affected commercial banks over how to resolve the issue, he said. The main reason the developer is insolvent is it “wasn’t run well,” Xu said. “Also, there may have been some impact from the land prices.” The developer’s two controlling shareholders, Shen Caixing and son Shen Mingchong, were prosecuted for illegal fundraising by local authorities, according to Fenghua’s city government. The case is ongoing and the Shens haven’t declared their innocence publicly. It “takes time for the case against the them to go forward,” Xu, the city official said. The company, founded by the elder Shen in 2000, built Yangguang Mingdu, which translates as Sunshine Tea City, a high-end residential complex. It also began work on Land of Peach Blossom Palace, a villa project where construction has been halted, in Fenghua. Shen, a local celebrity, was known as “Cement Shen” because he started out with a renovation and cement business. No BubbleThe developer’s collapse does not point to widespread weaknesses in the Chinese real estate market, according to Andy Rothman, an investment strategist with Matthews Asia in San Francisco, which manages $24.9 billion. He said he doesn’t see signs of a property bubble partly because urban income growth in China has outstripped the rise in home prices in the past eight years. He also said that Chinese buyers pay for homes either all in cash or with significant down payments, making the market very different from its counterpart in the U.S. “Is this the tip of the iceberg or a signal that there are serious problems in the Chinese real estate market? That seems highly unlikely,” Rothman said. What has changed is that the Chinese government is more willing to let private companies fail, he said. ‘Creative Destruction’“That is a good thing,” said Rothman. “If you are going to have creative destruction, some companies are doing to have to go out of business.” Private companies are likely to be more reliant on non-traditional sources like trust funding, which come with high costs, Fitch Ratings said in a report March 18. Since 2007, Chinese regulators have limited homebuilders’ ability to borrow to buy land, hurting in particular smaller developers, which have found it harder to get access to credit. The People’s Bank of China and China Banking Regulatory Commission in 2007 ordered banks not to make loans to developers that will be specifically used to finance land purchases. Investor OpportunitiesForeign investors are taking advantage of the financing restrictions and credit tightening, said CBRE’s van den Berg, adding that the firm expects to increase the amount of deals it’s doing. CBRE is in talks to buy development land in cities including Chongqing, Chengdu, Wuhan and Shenyang, he said. “If credit growth continues to slow and small- and medium-sized developers have trouble accessing credit, that should lead to opportunities for private-equity investors as those companies potentially sell assets or partner,” Chris Heady, head of Asia region real estate for New York-based Blackstone Group LP, said. Blackstone, which opened an office in Beijing in 2008, offered to buy all the shares it doesn’t already own in Tysan Holdings Ltd. for about $322 million, the Hong Kong-traded company said in August. Tysan mainly develops and invests in residential properties in Shanghai, Tianjin and Shenyang. “There will be a lot of merger-and-acquisition activities in the private sector,” said Alan Jin, Hong Kong-based China property analyst at Mizuho Securities Asia Ltd. and a native of Ningbo. “Bigger developers could take the opportunity to buy low.” -By Bloomberg News
Blackstone’s La Quinta to Raise Up to $781 Million in IPO Source: Bloomberg / Personal Finance La Quinta Holdings Inc., the midpriced hotel chain backed by Blackstone Group LP (BX), is seeking to raise as much as $781 million in its U.S. initial share sale. La Quinta, based in Irving, Texas, plans to sell 37.2 million shares for $18 to $21 each, according to a filing today with the Securities and Exchange Commission. At the high end of the range, the company would have a market value of $2.57 billion, based on 122.6 million shares that will be outstanding. La Quinta is poised to be the third lodging company Blackstone has taken public in the past five months as it seeks to take advantage of a recovery in real estate values. The firm’s Hilton Worldwide Holdings Inc. and Extended Stay America Inc., co-owned with Centerbridge Partners LP and Paulson & Co., have both jumped since their trading debuts. Blackstone acquired La Quinta in January 2006 for about $3 billion. The New York-based buyout firm explored a sale of the company before opting instead for an initial public offering, people with knowledge of the matter said in November. With today’s proposed terms, La Quinta would be floating about 30 percent of its shares in the IPO, data compiled by Bloomberg show. Blackstone will beneficially own about 66.7 percent of the common stock, according to the filing. JPMorgan Chase & Co. and Morgan Stanley are managing the offering. La Quinta is expected to price its shares on April 8, according to Bloomberg data. La Quinta operates and franchises more than 800 hotels in the U.S., Canada and Mexico, according to its website. Proceeds from the IPO will be used to repay debt, the prospectus shows. The Bloomberg U.S. Lodging Index increased 43 percent, including dividends, in the 12 months through yesterday. That’s more than twice the 21 percent total return for the Standard & Poor’s 500 Index. Hilton (HLT), the world’s biggest hotel operator, has climbed 12 percent since its Dec. 11 debut, while Extended Stay, a midpriced lodging chain, jumped 17 percent from its Nov. 12 IPO. -By Hui-yong Yu and Leslie Picker Pending Sales of Existing Homes in U.S. Decline for Eighth Month Source: Bloomberg / Luxury Contracts to purchase previously owned U.S. homes unexpectedly fell in February for an eighth straight month, a sign of further weakness in the industry. The index of pending home sales decreased 0.8 percent after a 0.2 percent drop the prior month that was previously reported as a gain, figures from the National Association of Realtors showed today in Washington. The median forecast of 39 economists surveyed by Bloomberg called for a 0.2 percent rise. Colder-than-normal weather probably played a role in discouraging prospective buyers faced with rising mortgage rates, higher prices and limited supply of cheaper properties. At the same time, the Realtors group said buyer traffic is stabilizing, which may help spur demand as temperatures warm. “For housing, it’s been primarily an issue of bad weather,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Not a lot of buyers were enticed to go out and look, and not a lot of sellers put their best foot forward” in terms of staging the property or hosting an open house. “Conditions will improve as the weather improves,” he said. Estimates in the Bloomberg survey ranged from a drop of 3 percent to a gain of 4 percent after a previously reported increase of 0.1 percent. The index fell to 93.9, the lowest since October 2011. Two of four regions -- the South and Northeast -- saw a decrease from the previous month, today’s report showed. Contract signings decreased 10.2 percent from a year earlier on an unadjusted basis, the most since April 2011, after a 9.3 percent drop in the prior 12-month period. Leading IndicatorEconomists consider pending home sales a leading indicator because they track contract signings. Existing home sales are tabulated when a contract closes, typically a month or two later. “Buyer traffic information from our monthly Realtor survey shows a modest turnaround, and some weather-delayed transactions should close in the spring,” Lawrence Yun, NAR’s chief economist, said in a statement. The weather also was a restraining factor in other parts of the housing market, recent reports showed. Purchases of new homes fell in February to the lowest level in five months, according to Commerce Department data. Sales of previously owned properties declined last month to the lowest level since July 2012, the National Association of Realtors reported. The National Association of Home Builders/Wells Fargo index of builder confidence rose less than forecast in March. Lennar UpbeatCompanies such as Lennar Corp. (LEN), the biggest homebuilder by market value, are optimistic about demand once the weather improves. “In the first quarter, we have seen clear signs that volume is returning to the market even as severe weather made conditions difficult,” Stuart Miller, Lennar’s chief executive officer, said on a conference call on March 20. “The fundamental drivers of improvement in the housing market remain a steadily improving economy with a slowly improving employment picture unlocking pent-up demand.” At the same time, an increase in borrowing costs and higher property values has curtailed some home buyers. The 30-year fixed mortgage rate averaged 4.32 percent in the week ended March 20, up from 3.54 percent around the same time a year ago, according to McLean, Virginia-based Freddie Mac. The S&P/Case-Shiller index of home prices in 20 cities climbed 13.2 percent from January 2013. Still, it was the smallest gain since August, indicating cooling prices may bring relief to buyers. -By Shobhana Chandra BOE Pledges Vigilance on U.K. Housing as Momentum Increases Source: Bloomberg / News Bank of England financial stability officials saw increasing momentum in the U.K. housing market and pledged to remain vigilant to “vulnerabilities” and to take more action if needed. The Financial Policy Committee, which met in London for its quarterly meeting on March 19, said that part of its monitoring will include testing banks’ resilience to a property “shock” and a “snap back” in interest rates. Officials decided to make no recommendations, according to minutes released today. “Given the increasing momentum, the FPC will remain vigilant to emerging vulnerabilities, will continue to monitor conditions closely, and will take further proportionate and graduated action if needed,” officials said. The BOE in November adopted measures to restrain the U.K.’s house-price boom by ending incentives as part of its credit-boosting Funding for Lending Scheme for mortgage lending, aiming to curb risks to financial stability. U.K. home-asking prices surged to a record this month, Rightmove Plc (RMV) said on March 17. “There was continued evidence of increasing momentum in the U.K. housing market, although a number of indicators remained below their long-run average levels,” the FPC said. Officials said that resilience of the U.K. banking industry had continued to improve. They still noted that lenders face increased “uncertainty about the impact of conduct costs” on their balance sheets. The FPC said observed “heightened geopolitical risks” in the past quarter, in particular from Ukraine and Chinese financial markets. They also took into account how investors will treat the prospect of rising interest rates. Risk Appetite“Apparent resilience to past developments in advanced economy monetary policy could reinforce risk appetite in a way that did not fully take account of the eventual transition expected by financial markets of monetary policy to more normal settings,” officials said. The FPC is reviewing the impact of the so-called leverage ratio on levels of U.K. lending and it set out terms of reference for that assessment. Officials expect to publish the results by November, according to a separate release provided by the BOE today. Leverage ratios are designed to curb banks’ reliance on debt by setting a minimum standard for how much capital they must hold as a percentage of all assets on their books. Banks need to do more to meet a planned binding limit, with almost 19 percent of a sample of 101 large global lenders failing to meet the standard at June 2013, the Basel Committee on Banking Supervision said this month. -By Ben Moshinsky and Scott Hamilton |