Top Stories Granite price hike is to incentivise importers: Khaw He dismisses notion that govt profiteers from supply shocks Source: Business Times / Singapore THE government has no intention of profiteering when it raised the price of its granite stockpile after a month of activating it. The move was aimed at incentivising importers to procure and buy from distant sources, Minister for National Development Khaw Boon Wan explained. "Government is profiteering? Of course, not!" Mr Khaw said in his blog yesterday after Member of Parliament Lee Bee Wah raised this question at the Budget debate. "The government did not set up the granite stockpile as a business," Mr Khaw said. "The issue of profit is not a relevant consideration because the motive in setting up such a stockpile is to help the industry cope with sudden shortages in granite."
The Building and Construction Authority (BCA) activated the national granite stockpile at $30 per tonne last month to ease a sudden shortage of granite after Indonesia, a major granite supplier to Singapore, issued new rules in January that forbid the export of raw and unprocessed granite. -By Lynette Khoo
https://mndsingapore.wordpress.com/ S'pore 'world's most expensive city' Singapore has been ranked as the world's most expensive city to live in, in a survey released yesterday by the business intelligence arm of the Economist magazine. A stronger Singdollar and rising vehicle and utility prices pushed the Republic from sixth spot last year to first among 131 cities in the study, ahead of Paris, Oslo, Zurich and Sydney. S’pore ranked world’s most expensive city by EIU Source: Channel News Asia / Singapore SINGAPORE: Singapore has jumped to the top of the Economist Intelligence Unit's (EIU) ranking of the world's most expensive cities, overtaking the likes of Tokyo and Osaka as the Singapore dollar appreciated against the yen. Singapore was ranked sixth in the EIU's survey last year, behind the two Japanese cities, Sydney, Oslo and Melbourne. According to the EIU, Osaka and Tokyo fell off the top of its cost of living ranking because of the weaker yen. Tokyo, the most expensive city to live in for 2013, fell to joint sixth place alongside Caracas, Geneva and Melbourne, while Paris is second, ahead of Oslo, Zurich and Sydney. Ten years ago, Singapore was number 18 on the list. The EIU report compares the price of products and services such as food, clothing, transport and domestic help among 140 cities with New York city as a base. According to the survey, Singapore's curbs on car ownership, which include a quota system and high taxes, make it the most expensive city to run a car. A new Toyota Corolla Altis, for example, could cost as much as US$110,000 in Singapore but only US$35,000 in Malaysia. And overall transport costs in Singapore are almost three times higher than those in New York. But the survey does not include public transport, which is most commonly used by Singaporeans. In addition, the lack of natural resources and energy supplies means Singapore is the third most expensive city for utility costs. The survey also shows that Singapore is the priciest place in the world to buy clothes, as shopping malls along the prime Orchard Road shopping belt import luxury European brands. As for housing, Singapore, being smaller in size than New York City, has seen home prices jump to record highs in recent years amid rising wealth and an influx of foreigners. But the survey does not include public housing. And it must be noted that the EIU survey is aimed at helping companies and HR managers calculate allowances for executives or expatriates being sent overseas. This means that their spending patterns may differ from locals. Hence, while cars and utilities are expensive, public transport and hawker food in Singapore are cheaper than in most developed cities. And latest data also show that in January, consumer prices in Singapore rose at their slowest pace in four years, rising by 1.4 per cent from a year ago.
- CNA/nd/ir Source: Today Online / Business SINGAPORE — The Republic has become the world’s most expensive city to live in, a report from the Economist Intelligence Unit (EIU) showed yesterday, but local economists said Singapore will remain attractive for foreign businesses and expatriates with its good governance, robust infrastructure and quality workforce. In the latest EIU report, Worldwide Cost of Living, Singapore jumped five spots from last year to go to the top of a list of 131 cities, ahead of Paris in second place and Oslo in third, while Tokyo — last year’s first — dropped to sixth due to a sharply weaker yen. This marks a huge leap from a decade ago when the Republic ranked 18th in the same survey. But the EIU described Singapore’s rise as “steady rather than spectacular”, due partly to the 40 per cent appreciation in the local currency in 10 years. In response to TODAY’s queries on the weightage of the strength of the Singapore dollar and other factors in calculating its index, the EIU only said currency appreciation does play a big part, although Singapore is also structurally expensive. The twice-yearly survey is intended as a guide for human resource managers to calculate compensation packages for expatriates and business travellers. Researchers compare more than 400 prices across 160 products and services such as food, clothing, home rents, transport, utility bills and domestic help. It is understood that some luxury items are also included. The researchers survey a range of stores from supermarkets to high-priced specialty outlets. “One of the key reasons Singapore’s ranking keeps rising is the weaker European and Japanese currencies in recent years, while the Singapore dollar continues to appreciate,” UOB economist Francis Tan said. The Singapore dollar rose by almost 2.4 per cent against the US dollar in the past three years, during which the yen fell 27 per cent against the greenback, CIMB economist Song Seng Wun noted. Aside from the effect of currency appreciation, the cost of living in Singapore has also been pushed up by high private transport costs and utility charges, the EIU said in its report. “Transport costs in Singapore are almost three times higher than in New York. In addition, as a city-state with very few natural resources to speak of, Singapore is reliant on other countries for energy and water supplies, making it the third most expensive destination for utility costs,” it said. Mr Song said: “A reputation as the world’s most expensive city might be alarming for some expatriates and multinational companies wanting to come here. But on balance, we are one of the world’s most successful economies and continue to be an attractive base for businesses to tap Asia’s growth.” Other economists shared this view. DBS economist Irvin Seah underlined Singapore’s status as the premier place for business investment despite persistent cost concerns, saying: “Investors do not just look at costs for their investment decision. We still have other competitive advantages — a good legislative framework, a competitive labour force and world-class infrastructure.” Even as Singapore is ranked as the costliest, overall inflation here has slowed, with the consumer price index rising 2.4 per cent last year, down from 4.6 per cent in 2012, in part because changes to the Certificate of Entitlement system helped cool down premiums. As a result, private transport costs fell by 3.5 per cent in January, extending the 2.8 per cent decline in December. And with the Government giving out subsidies to strengthen the social safety net for Singaporeans, “the real cost of living here is not nearly as high as suggested in the EIU survey”, Mr Tan said. However, Mr Seah warned that rising labour costs — which the EIU survey does not consider — will be a jutting issue for consumers and companies based here. “The rising labour cost — not only due to wage increases but also Government levies on the foreign workforce — is actually the biggest driver of high living cost in Singapore as it gets passed on to consumers eventually,” he said. “Singapore still has its own allure (for foreign companies and expatriates). But this continued increase in cost is definitely not helping,” Mr Seah added. -By Wong Wei Han http://www.straitstimes.com/premium/top-the-news/story/spore-worlds-most-expensive-city-20140305 http://www.channelnewsasia.com/news/singapore/s-pore-ranked-world-s/1019698.html
http://www.todayonline.com/business/singapore-worlds-costliest-city-live Survey on cities' living costs sparks debate Singapore tops list but economists feel S$ rise, expat focus skew findings Source: Business Times / Singapore SINGAPORE may have climbed five spots to claim the "unenviable title" of the world's most expensive city, according to a bi-annual ranking compiled by the Economist Intelligence Unit (EIU), but economists downplay the significance of the results. While acknowledging the undeniable existence of rising price pressures here, economists The Business Times spoke to cautioned against extrapolating that the cost of living for locals has skyrocketed. This is because two key factors - currency fluctuations and the survey's expatriate focus - would "automatically limit" such deductions. In order to achieve comparative indices, EIU's Worldwide Cost of Living survey converts each country's prices into US dollars. Therefore, a weaker yen pushed Tokyo - last year's most expensive city - down to sixth place, and this paved the way for Singapore to claim the dubious honour this time around. Therefore, Singapore's ascent to costliest city was due in part to currency fluctuations - EIU noted that over the last decade, Singapore has seen 40 per cent currency appreciation. Said UOB economist Francis Tan: "There's so much (buzz) about Singapore taking the top spot, but a lot of this has been fuelled by the fluctuations in different currencies. I wouldn't read too much into it, because next year we could be number 6 again." Mizuho Bank economist Vishnu Varathan added: "If one were to look at cost of living from the point of view of a domestic person, then currency movements arguably don't matter as much." CIMB economist Song Seng Wun was also keen to highlight the survey's expatriate focus and its purpose as a tool for determining foreigners' salaries. In its description of the survey, EIU said: "The survey itself is a purpose-built Internet tool designed to help human resources and finance managers calculate cost-of-living allowances and build compensation packages for expatriates and business travellers." Still, emphasising that the basket of goods is "fairly broad to address a lot of essentials", Jon Copestake, editor of the report, told BT: "The survey is also comparative between locations so it could be argued that if a city is most expensive for expats, then why not for everyone?" But Mizuho's Mr Varathan pointed out that "the survey has got inherent biases": "As they're looking to compare (like-for-like) items, they probably missed out on some local stuff, and that's going to work against us. For example, if we take the price of a cappuccino, it will likely set you back about $5. But that's not the same as getting Ah Poh's coffee at Golden Shoe." Limitations aside, all three economists agreed that the survey results are worth reflecting upon, especially since currency fluctuations only tell part of the story. Noting that Singapore's rising price prominence has been "steady rather than spectacular", EIU said that the city-state was the 18th most expensive city 10 years ago. It said that Singapore has some structurally expensive items that "skew the overall cost of living upwards", including cars. This has meant that transport costs in Singapore are almost three times higher than in New York. Added EIU: "In addition, as a city-state with very few natural resources to speak of, Singapore is reliant on other countries for energy and water supplies, making it the third most expensive destination for utility costs."
Although the survey's findings could suggest that Singapore may be losing its cost competitiveness, UOB's Mr Tan thinks otherwise: "There's a reason why Singapore is expensive, and there's a price to pay for everything. If (multinational corporations) want to be in a country where you push a button and things work, where there is near-zero political risk, where the business environment is vibrant - they've got to pay a premium for that." -By Kelly Tay http://www.businesstimes.com.sg/premium/singapore/survey-cities-living-costs-sparks-debate-20140305 More urgency needed for firms to raise productivity Sectors that are inefficient but growing rapidly in terms of manpower requirements pulling down overall levels: Labour chief Source: Today Online / Singapore SINGAPORE — Industries and stakeholders need a greater and broader sense of urgency to change, said labour chief Lim Swee Say as he sought to explain why productivity growth was flat last year despite media coverage of companies that were embracing innovation. There are many sectors with below-average labour productivity that are growing, he said. They include cleaning, construction, security, retail, landscaping and pest control companies, and the jobs in question include cashiers, ticket salesmen, waiters, light-goods vehicle drivers and low-end production workers. These sectors continue to be labour-intensive and use outdated tools and methods, pulling down overall labour productivity levels if no improvements are made, said Mr Lim, who is also Minister in the Prime Minister’s Office, during the budget debate in Parliament yesterday. “Worse still, they are still growing very fast in terms of manpower requirements.” It is “sad” that some companies are resisting change and would rather go out of business than change their operations, but others are leading the way, he added. Some landscaping companies are using remote-controlled grass-cutting machines, resulting in work done faster with fewer workers, who in turn earn more. In the marine sector, some welders are now operators of welding machines that enable the task to be done more quickly and consistently. And some landlords of shopping malls help tenants with recruitment and conduct on-site training to improve skills, productivity and wages. These are “common sense” illustrations, but Mr Lim said: “Unfortunately, after years of high growth in manpower and unskilled labour, common sense is not so common on the ground anymore.” Manpower will always be Singapore’s most critical resource and Mr Lim said, using bricklayers as an example, that the best ones are those who do not simply lay bricks “one by one”, but who look at building houses, schools and hospitals. Management and organisations also need to engage workers wholeheartedly, he added. Several Members of Parliament (MPs) who spoke yesterday, however, questioned if productivity and innovation grants were being optimised. Nominated MP Eugene Tan said Productivity and Innovation Credit (PIC) grants should be given to firms that are able to demonstrate productivity improvements. “I hope we are not throwing good money after vanity projects or funding electronic playthings like handphones and tablets that sometimes are bought primarily for personal use.” Dr Lee Bee Wah (Nee Soon GRC) said funds from the PIC and other schemes targeted at small and medium enterprises were not disbursed quickly enough. She highlighted two companies whose PIC grants were approved six and seven months after they applied for them. “For smaller SMEs, this is very difficult on their cash flow,” she said. As a result, some SMEs could take a conservative approach and turn a deaf ear to calls for innovation, which ultimately affects their competitiveness, said Dr Lee, who called for red tape to be reduced. Mr Zaqy Mohamad (Chua Chu Kang GRC) said small firms, especially those with 10 or fewer workers, need to be approached differently. This is because the PIC and PIC+ grants generally promote productivity improvements within companies and are more suitable for mid- to large-sized firms. “For the small-sized SMEs, we may need a more cross-industry or cross-sector productivity drive ... the Government may have to roll up its sleeves to drive transformations across a cluster of small companies at (the same) time within the business grouping or within a supply chain,” he said. Nominated MP Janice Koh drew attention to the creative industry, where many companies are small-scale, such as design, fashion or publishing firms. Their operations are often too small or too labour-intensive to benefit from automation and they rarely have enough capital to upgrade and expand.
Calling for creativity to be viewed as a national priority, Ms Koh said the vibrancy of the industry is important because it is an indication of the quality of Singapore’s ideas and enables the nation to stand out from other creative economies. -By Neo Chai Chin & Xue Jianyue Productivity gains not the only plus for firms on PIC schemePost-Budget survey finds 58% of senior executives use funds to defray operating costs Source: Today Online / Singapore SINGAPORE — Over the last two years, business software company Duration Inc has claimed a five-figure sum from the Productivity and Innovation Credit (PIC) scheme for upgrading its computers. Its founder Jonathan Chua, however, said the objective of getting the funds was “not really a matter of productivity”. “It was due to the amount of savings, as our expenses would be lower ... we would have bought the new computers anyway,” said Mr Chua, who has not actively measured the company’s productivity gains since it benefited from the scheme. The savings could be used to hire another worker, for example, he said. Laundry services company Laundry Network is another company that has tapped on national schemes to raise productivity. Apart from the PIC scheme, it has benefited from funding administered by the Employment and Employability Institute to help companies raise productivity. Laundry Network has used the funds to pay for two-thirds of the total costs of a S$300,000 laundry system and a S$200,000 IT system. As a result of the considerable outlay, the company’s overall productivity has increased by 8 per cent, said its Chief Executive Officer Chan Tai Pang, who owns two plants, six satellite Laundromats and 25 retail outlets. “Productivity increases in my industry would be limited. This is because machines can’t replace humans for everything, we still need labour to load and offload dirty laundry,” he said. Both Duration Inc and Laundry Network — as well as other companies TODAY spoke to — said the Inland Revenue Authority of Singapore (IRAS), which administers the PIC scheme, does not track companies’ productivity gains from using the scheme. Last month, Deputy Prime Minister Tharman Shanmugaratnam announced during his Budget speech that the PIC scheme will be extended by three years to 2018, at an additional cost of S$3.6 billion. Over the past two days of the Budget debate, several Members of Parliament have asked about the scheme’s effectiveness, with some calling for a review. The scheme was started in 2010, with the Government setting aside S$480 million each year for it. The figure rose to S$520 million a year when the scheme was enhanced in the 2011 Budget. In 2012, the cash payout was raised to 60 per cent, from 30 per cent, of up to S$100,000 of companies’ total expenditure. Last year, the Government introduced a PIC bonus, budgeting S$450 million over three years. According to the IRAS, two out of three small and medium enterprises (SMEs) with turnover of more than S$1 million have claimed benefits under the PIC scheme. A recent post-Budget survey conducted by KPMG among 80 senior executives found that more than half (58 per cent) admitted to using the PIC scheme to defray operating expenses, instead of using it to raise productivity. KPMG Head of Tax Tay Hong Beng said: “It is quite challenging to establish a direct relationship between expenditure on a specific item and immediate productivity outcomes. Some companies may use the PIC scheme to defray immediate operating costs by buying computer equipment or investing in training, but the improvement in productivity may only become obvious in the longer term.” Limited productivity gains Singapore’s productivity growth has been poor in the last five years, apart from a one-off surge in 2010 due to a strong cyclical recovery. Last year, there was zero productivity growth, compared with -2.6 per cent in 2012. The Ministry of Trade and Industry (MTI) and IRAS did not respond to questions put to them last week, on whether they track companies’ usage of the grants under the PIC scheme or conduct follow-up actions to advise and assist companies to improve productivity. Based corporate income tax returns filed as at November last year, about 45,500 companies — or 37 per cent of all active firms — benefited from the PIC scheme in Year of Assessment 2012. IRAS said that across all industry sectors, there was an increase in PIC adoption in YA2012. The manufacturing sector has the highest adoption rate, followed by the utilities sector and the construction sector. The construction and food and beverage industries have lagged behind others in terms of productivity improvements. The Timbre group of restaurants has claimed close to a six-figure sum from the PIC scheme, but it has seen limited productivity improvements so far. It has implemented iPad ordering systems and combination ovens, which have shaved waiting times for customers. But its Managing Director Edward Chia said: “The reason why we are not seeing a big gain in productivity is because the unit cost of labour has gone up faster than the productivity increases. The tightened labour market has led to salaries for labour going up. If it continues to tighten, then it will really place a limit on how much more productive we can be.” Under the PIC scheme, companies can apply for claims under six categories. For YA2012, 63 per cent of claims went to automation equipment, and 33 per cent went to training. Only 4 per cent of the claims are related to the other four categories — acquisition of intellectual property rights, registration of patents, trademarks and design, research and development (R&D) activities, and design projects. While some businesses and MPs have raised concerns about the stringent criteria to qualify for grants under R&D activities, some companies told TODAY that smaller firms, especially start-ups, will be more concerned about their basic needs such as equipment and staff training. Mr Vincent Wong, General Manager of search engine optimisation company Top3 Media, said the company only recently started thinking about R&D activities to develop its proprietary software. “We started off claiming for staff training and machinery, and then we focused on growing our business as an SME. Now, we need to take more time to think about what kind of software to develop that isn’t already widespread in Singapore,” he said. Start-ups which have not applied for the PIC scheme cited the criteria and the amount of paperwork involved as reasons why they are not keen to tap on the programme. Ms Tahira Sultan, President of Mobile Alliance — a group of start-ups — noted that smaller companies do not have the headcount to meet the minimum requirement of having three Singapore citizens or Permanent Residents on their books. Employees need to play their part Companies that have tapped the PIC scheme pointed out that for productivity improvements to take root, workers’ mindsets have to be changed. Enterprise development manager Kwan Lifeng of precision machining company CKE Manufacturing noted that even though firms spend money on upgrading their equipment or improving their processes, workers also have to play their part. He said: “Sometimes you plug, but people just don’t want to play. It takes a lot to persuade the staff to buy into the productivity culture. I have seen instances where the rank and file just don’t follow the work flow that the new software requires, and ... this does not fulfil the true promise of productivity.
“There is only so much the Government can do, they cannot control how far productivity measures are being utilised in each company.” -By Tan Weizhen http://www.todayonline.com/singapore/more-urgency-needed-firms-raise-productivity
http://www.todayonline.com/singapore/productivity-gains-not-only-plus-firms-pic-scheme Singapore Real Estate Metro to replace Robinsons as Centrepoint's anchor tenant Source: Business Times / Singapore HOMEGROWN department store Metro will be the new anchor tenant of The Centrepoint from May, refurbish the space vacated by Robinsons and offer shoppers a fresh retail experience by Christmas. The Business Times understands that refurbishment works will begin in May and likely be completed by the time the year-end shopping season rolls around. This will be Metro's second store along Orchard Road; its flagship store, just up the road in Paragon Shopping Centre, opened in 1987.
A Metro spokesman said: "We are in good partnership with the landlords of Paragon and Centrepoint, which will see us operating at the two malls for the long term." -By Jacquelyn Cheok
http://www.straitstimes.com/premium/money/story/metro-will-be-new-anchor-tenant-centrepoint-20140305 Real Estate Companies' Brief Reits attract capital, create high-value jobs: study Besides the oft-cited predictable income and low cost of exposure to property that Reits offer, a new study has found that this relatively new asset class has improved the way the real estate market operates, and by their nature brought about other social and economic benefits. http://www.businesstimes.com.sg/premium/singapore-markets/others/brokers-take-20140304
http://www.straitstimes.com/premium/money/story/reits-unlock-capital-create-jobs-asia-20140305 Lotte Shopping delays S$1.27b Singapore IPO Firm reportedly planned to offer yield of 6 to 7 per cent, but investors said to have wanted more Source: Today Online / Business SINGAPORE — South Korea’s Lotte Shopping has postponed a Singapore initial public offering of its mall assets that was expected to raise up to US$1 billion (S$1.27 billion), after what sources said was its unwillingness to meet investors’ demand for a lower price. A Lotte official, who declined to be named, confirmed that the company had postponed the IPO, but did not state the reason for the delay. “Realistically, a March IPO isn’t likely,” the official said, without elaboration. Lotte had planned to offer a yield of 6 to 7 per cent, but investors, who buy shares in real-estate investment trusts primarily for the dividend yield, were seeking more than that, which the company was not comfortable paying, one of the sources said. The listing has been delayed until the second quarter, the sources said. Investors’ demand for a lower price — which translates to a higher yield — reflect the challenging environment for Lotte and others planning IPOs now that the United States Federal Reserve has begun to wind down its monetary stimulus programme. Amid historically low interest rates, investors had flocked to Singapore IPOs of REITs and business trusts for their higher yields. However, the Fed’s move is pushing rates higher in the US and elsewhere, leading many investors to demand higher yields as well as return to the relative safety of developed markets. Singapore Exchange, home to nearly 50 trusts with a combined market capitalisation of around US$65 billion, dominated Asia’s market for trust listings last year. REITs now offer yields close to 7 per cent, higher than the 6 to 6.5 per cent in previous years. OUE Commercial Real Estate Investment Trust, which listed its commercial and office property assets in Singapore in January, offered an annual yield of as much as 6.8 per cent. Lotte operates 108 large stores and 31 department stores in South Korea. It reported 20.8 trillion won (S$24.4 billion) in revenue over the first nine months of last year. A successful listing would surpass the US$367 million IPO eight years ago by dry-bulk shipping company STX Pan Ocean, also in Singapore, making it the biggest overseas IPO by a Korean firm. Lotte had decided to list in Singapore to expand its business in Asia and create brand awareness. It had received listing approval from SGX last month and had been planning to test investor appetite during the pre-marketing phase before listing this month. However, it never reached the pre-marketing phase, which takes place just before a company starts taking orders from investors. Weakened sentiment towards emerging markets has also hurt share prices in Singapore. The Straits Times Index has lost 2 per cent so far this year and some recently listed trusts are trading below their IPO offering prices. OUE Commercial and Viva Industrial Trust, which listed last November, are down 1.3 and 0.6 per cent, respectively. Still, around US$3 billion of trust listings remain in the pipeline in Singapore, including a planned US$700 million offering by Indian conglomerate Larsen & Toubro, which is looking to list some of its Indian toll roads.
DOW JONES http://www.todayonline.com/business/lotte-shopping-delays-s127b-singapore-ipo Views, Reviews & Forum Raising productivity: It's personal Source: Straits Times The Budget statement, as usual, had a range of incentives to help businesses raise their productivity rate as the economy is restructured. Over the years, the emphasis has been on training workers and nudging companies to adopt technology and new processes so that productivity and incomes may grow. These efforts should be sustained as the return on investment in productivity help schemes and tax incentives has not met expectations.
http://www.straitstimes.com/premium/opinion/story/raising-productivity-its-personal-20140305 Global Economy and Global Real Estate Indonesia to woo global firms, promote industrial zones Thai unrest, rising wages in Malaysia boost its appeal Source: Business Times / Indonesia [JAKARTA] Indonesia plans to woo companies from Japan to Europe as political turmoil in Thailand and rising wages in Malaysia boost the attractiveness of South-east Asia's biggest economy. The Indonesia Investment Coordinating Board plans to visit Japan, South Korea, China, the US and Europe to promote industrial zones in central and east Java, chairman Mahendra Siregar said on Feb 28. Japanese companies, the biggest direct investors in Indonesia, are turning to the country as protests in Thailand raise risks in that nation, according to the Japan External Trade Organization.
The perception that Indonesia is now politically less risky and cheaper than some neighbours is adding to the allure of the world's fourth-most-populous nation, even as investment growth is set to cool before elections this year. The nation has overtaken China and India as the most promising country for Japanese companies for business development, according to a Japan Bank for International Cooperation survey. -From Jakarta, Indonesia Philippines to get property-price index The index for residential property will cover Manila, nearby provinces Source: Business Times / World [MANILA] The Philippine central bank is set to introduce a residential property-price index in the first half of the year as it intensifies monitoring of asset-bubble risks, deputy governor Diwa Guinigundo said. The index initially will cover Manila and nearby provinces using data including building permits and wholesale prices of construction materials of new housing units from 2006 to 2012, Mr Guinigundo, 59, said in Manila late Monday. "While there's no evidence of asset bubbles, we need to really monitor what's going on," he said. "It will provide us with a solid indicator of price movements of residential units. We want to see not just the big picture, but its components." Increased scrutiny in the Philippines comes after Hong Kong and Singapore adopted measures to cool property prices. President Benigno Aquino said last month that there is no danger of the economy overheating, downplaying the risk of asset bubbles forming.
"This strengthens the Philippines' surveillance and regulatory framework and boosts its ability to spot risks much earlier," said Jeff Ng, a Singapore-based economist at Standard Chartered. "While most of Asia including the Philippines have manageable exposure in the property sector, rising interest rates pose a key risk." -From Manila, The Philippines Philippine Index to Monitor the Risk of Property Bubble Source: Bloomberg / News The Philippine central bank is set to introduce a residential property-price index in the first half of the year as it intensifies monitoring of asset-bubble risks, Deputy Governor Diwa Guinigundo said. The index initially will cover Manila and nearby provinces using data including building permits and wholesale prices of construction materials of new housing units from 2006 to 2012, Guinigundo, 59, said in an interview in his office in Manila late yesterday. “While there’s no evidence of asset bubbles, we need to really monitor what’s going on,” he said. “It will provide us with a solid indicator of price movements of residential units. We want to see not just the big picture but its components.” Increased scrutiny in the Philippines comes after Hong Kong and Singapore adopted measures to cool property prices. President Benigno Aquino said in an interview last month there is no danger of the economy overheating, downplaying the risk of asset bubbles forming. “This strengthens the Philippines’ surveillance and regulatory framework and boosts its ability to spot risks much earlier,” said Jeff Ng, a Singapore-based economist at Standard Chartered Plc. “While most of Asia including the Philippines have manageable exposure in the property sector, rising interest rates pose a key risk.” Philippine developers Ayala Land Inc. (ALI) and Vista Land & Lifescapes, Inc. declined today while the benchmark index was little changed at 10.43 a.m. in Manila. The peso slipped 0.3 percent to 44.837 against theU.S. dollar. Rates RaisedPolicy makers in emerging nations from Turkey to Brazil have raised interest rates this year to contain inflation (PHC2II) and bolster currencies as the U.S. cuts monetary stimulus. The Philippine central bank will probably raise its benchmark to 4 percent by the end of the year, Bloomberg surveys show. Bangko Sentral ng Pilipinas has held its key interest rate at a record-low 3.5 percent since October 2012. The economy expanded 7.2 percent in 2013 after gaining 6.8 percent in 2012, the fastest two-year pace since 1954-1955, data compiled by Bloomberg show. Inflation probably accelerated to 4.3 percent in February from 4.2 percent in the previous month, according to a Bloomberg News survey ahead of a report due tomorrow. That would be the fastest pace since November 2011, according to data compiled by Bloomberg. Colliers International in February projected property prices in Manila’s financial district Makati, which climbed to a record last year, will rise a further 8 percent in 2014. Ayala, the biggest Philippine developer by revenue, reported a 30 percent increase in net income to a record last year. Liquidity ConditionsReal estate and construction activity together account for a fifth of the Philippine economy, the Oxford Business Group said in a report Feb. 27. Policy makers should closely watch the residential market as low interest rates and rising money supply may spur demand, Credit Suisse Group AG said last month. The central bank last week said it is prepared to deploy necessary measures to ensure liquidity conditions are in line with its goals of price and financial stability, after money-supply growth reached a record in January. It has exceeded 30 percent every month from July. “We are prepared to do whatever it takes to ensure liquidity is aligned with a growing economy and a deepening financial system without abetting any build-up in inflation pressures,” Guinigundo said yesterday. Singapore began introducing property curbs four years ago with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real estate taxes. Property LoansHong Kong has raised the minimum mortgage down payment six times since 2010 and imposed taxes including a doubling of the stamp duty on deals of more than HK$2 million ($258,000), plus an extra 15 percent levy on non-resident buyers. In the Philippines, property loans and investments rose 6.8 percent to a record 900.1 billion pesos ($20 billion) in the second quarter of 2013 from the previous three-month period, the central bank reported in November. Property made up 22 percent of the total loan portfolio at banks. Bangko Sentral currently caps banks’ real-estate lending at 20 percent of total outstanding loans, with some exclusions. The central bank is seeking the approval of the Philippine Statistics Authority before it can release the index, Guinigundo said. The index will gradually be expanded to include data on housing loans, existing homes, and other regions to come up with a nationwide index, he said. More banks tightened lending standards for commercial real-estate loans for a sixth consecutive quarter in the three months through December, the central bank said in January. Lenders reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest-rate floors, and lower loan-to-value ratios, it said. -By Karl Lester M. Yap and Max Estayo http://www.businesstimes.com.sg/premium/world/philippines-get-property-price-index-20140305
RBA holds rates as housing revives Recent information suggests slightly firmer consumer demand: Central bank governor Source: Today Online / Business Recent information suggests slightly firmer consumer demand: Central bank governor SYDNEY — Australia’s central bank kept rates at record lows yesterday and said the outlook was more of the same, citing signs that past cuts were working to boost housing and consumption. The Reserve Bank of Australia (RBA) acknowledged that the transition away from mining investment was proving difficult and unemployment had yet to rise further. But it also saw reason for optimism. “Recent information suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction,” RBA Governor Glenn Stevens said after the bank’s March policy meeting. “Some indicators of business conditions and confidence have shown improvement and exports are rising,” he added. “Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate.” The decision comes a day before the resource-rich country is expected to report economic growth remained subpar last quarter, though that would still extend a remarkable run of 22 years without recession. The central bank was considered almost certain to hold rates at 2.5 per cent, where they have been since a cut last August. Only a month ago, the bank all but closed the door on further easing saying evidence of a pick-up in housing, consumption and inflation argued for a period of steady policy. There was more evidence of the stimulatory effect of low rates yesterday as data showed approvals to build new homes surged 6.8 per cent in January to their highest in over a decade.
Approvals were up almost 35 per cent on the same period last year and will surely lead to a solid expansion in construction. That is important as historically a typical upswing in home building can add a couple of percentage points to growth. REUTERS -From Sydney, Australia http://www.todayonline.com/business/rba-holds-rates-housing-revives Hong Kong’s ‘Nose Bleed’ Skyscraper Office Values Beat Manhattan Source: Bloomberg / Luxury Investors are willing to pay more than twice as much for offices on the upper floors of Hong Kong skyscrapers than for equivalent space in Manhattan, broker Knight Frank LLP said. Workspace at “nose bleed” level in skyscrapers, which commands the highest rent, is selling for $69,222 a square meter (10.8 square feet) in Hong Kong compared with $42,283 in second-ranked Tokyo and $25,740 in Manhattan, the London-based broker said in a report today. Five of the 10 most expensive cities are in the Asia-Pacific region, according to the report. “Island-based cities tend to embrace the tower to maximize space,” James Roberts, head of commercial research at Knight Frank, wrote in the report. “While Hong Kong and Tokyo are too far ahead to lose first and second place, I see some competition among Manhattan, London and Singapore in the coming year.” Rents in Central, Hong Kong’s main business district, will rise 15 percent this year as demand from banks increases, Credit Suisse Group AG analysts led by Joyce Kwock forecast in a January report. Rents outside the area are climbing faster as financial-services companies seek alternative locations to the city’s Central district, which has the world’s second-most expensive office occupancy cost, according to CBRE Group Inc. Higher rents usually result in rising property values. In Manhattan, financial companies are reducing their space needs or cutting costs and technology and media firms are favoring older buildings, limiting rent gains. JPMorgan Chase & Co., the biggest U.S. lender, is moving about 2,000 employees to Brooklyn’s MetroTech Center after reviewing its property holdings, a person with direct knowledge of the plan said. Singapore, LondonSingapore, the world’s costliest city to live in, and London are the next most expensive locations -- with skyscrapers valued at $23,810 and $23,767 a square meter respectively -- and may swap places next year, Knight Frank’s Roberts said in the statement. Office rents in Singapore rose 4.2 percent in the three months to Dec. 31, the biggest increase in the Asia-Pacific region, according to broker Jones Lang LaSalle. London has “renewed confidence thanks to better than expected economic growth and rising rents in the office market,” Roberts said. “Given the economic uncertainty in emerging markets, in 2014 we will probably see some of the Asian cities slide down the table.” Sydney, Beijing, Shanghai, San Francisco and Moscow rounded out the top 10, with values ranging from $18,392 to $13,333. -By Neil Callanan and Nichola Saminather Suicide Musings Turn to $600 Million in L.A. Investments Source: Bloomberg / Luxury At 84, Los Angeles developer Jerry Snyder has $600 million of projects under construction or planned, including two apartment towers in the city’s Koreatown area and three office buildings. “My doctor asked me, ‘When are you going to quit?’” Snyder said in an interview at his 30th-floor corner office overlooking the Los Angeles County Museum of Art and La Brea Tar Pits. “So I said, ‘Are you a better doctor now than you were 10 years ago?’ He said yes. Well, I am a better builder than I was 10 years ago.” Snyder, who formed his first company when he was 19, is persevering after surviving some tough economic cycles. During the recession in the early 1990s, “suicide became an option,” he said, as values plunged on properties with millions of dollars of his personal guaranties. Six decades after entering the business, he’s about to sell his latest apartment project and intends to use the proceeds on new office buildings. “I have been hearing more and more, ‘I need more space,’” Snyder said. “When you get the ‘I need more space’ in more than one of your buildings, you know things are getting better. It’s time to build.” Snyder said he is planning a $70 million office project on Vine Street in the Hollywood section of Los Angeles, which he will start building later this year even without tenant commitments. He also said in the interview that he expects to start a $100 million building on Wilshire Boulevard, in addition to a $138 million Hollywood office development that’s already been announced. ‘Early Stages’Little office space has been added in the area in the past five years, putting Snyder ahead of the curve, said Todd Doney, vice chairman for brokerage office services at Los Angeles-based CBRE Group Inc. “We are in the early stages of the office recovery,” Doney said. “As long as we keep the economy plugging along and can continue modest job growth, the office market here should continue to improve.” Los Angeles County’s unemployment rate fell to 8.8 percent in December, the latest month for which figures are available, from 10.2 percent a year earlier, according to the state’s Employment Development Department. Average monthly asking rents at Los Angeles County office buildings climbed to $2.63 a square foot last year, up 2.3 percent from 2012, according to CBRE. Rising rents have spurred an increase in construction, with 1.3 million square feet (121,000 square meters) of office space under development, the most since late 2008, according to the brokerage. Rising ConfidenceHigher rents are driven in part by demand from entertainment and technology companies in areas such as Los Angeles’s Westside, where asking rents were $3.62 on average, CBRE data show. “We saw a rise in activity toward year-end for a number of reasons, including an increase in confidence by some Los Angeles-area companies as the national economy continued its modest recovery,”Mark Sullivan, executive vice president at New York-based commercial real estate services firm Studley Inc., said in an e-mailed statement. Snyder last month broke ground on the $138 million Hollywood office project without tenant commitments, aiming for entertainment and media-related clients. His other speculative office development in the area will be a 107,000-square-foot building on Vine across from the W Hollywood hotel, he said. He is awaiting final regulatory approval and expects to begin construction in September. ‘It’s Booming’“The office market was hit hard during the recession,” Snyder said. “But it’s pretty strong now in pockets. In Hollywood, for example, we’re right in the middle of post-production and all the ancillary businesses. It’s booming.” Some of the biggest issues facing Los Angeles office developers are the slow growth in rents and the uneven recovery, according to a fourth-quarter report by tenant representative Studley. “Other than a couple of larger renewals and some significant health-care leases, fourth-quarter leasing in most of the market was once again lackluster,” the firm said. The the majority of “employers -- particularly traditional-space users -- remain cautious and focused on cost containment.” Shrinking space requirements by tenants are adding to high vacancies, according to Doney of CBRE. Vacancies of 15.9 percent remain close to their decade peak of 16.4 percent, from 2010, CBRE data show. ‘Free Address’“People are continuing to expand the ‘free address’ concept, meaning you’re not building out space with the one-desk-per-employee concept,” Doney said. “So as tenants might sign leases, they may find they can make due with 60 percent of the original space. The question for developers has to be, will this continue at the pace it’s at, or is the pendulum swinging too far and will it mellow out again?” Kilroy Realty Corp. (KRC), a Los Angeles-based owner of commercial real estate along the West Coast, last month said it plans to develop a $300 million office-and-apartment project in Hollywood after acquiring land from the Academy of Motion Pictures Arts and Sciences, bringing the real estate investment trust’s commitments in the area to about $800 million. “When you go to invest in a speculative office development, you are still more out there on the risk curve,” said Steve Reents, Seattle-based vice president of acquisitions at Bentall Kennedy, a Canadian real estate investment adviser. Snyder got a $95 million construction loan for his Hollywood office project from a fund advised by the firm. “It was particularly important to work with a partner with a deep connection and reputation in the market and one with a strong vision of the current and future market place,” Reents said. “Jerry has that.” Drowning MammothOn the Miracle Mile stretch of Wilshire Boulevard, Snyder is planning a build-to-suit project -- a model of which, complete with a replica of a mammoth drowning in the La Brea Tar Pits, sits on his conference table -- for a client he wouldn’t identify. The 13-story building would sit next to his existing property at 5757 Wilshire Blvd., which is almost fully leased. “I build everything, but I love office,” Snyder said. “I enjoy office because I’m dealing with business people -- with professionals.” Proceeds from Snyder’s 464-unit apartment complex in Koreatown may total $310 million, GlobeSt.com said on Jan. 29, citing industry experts it didn’t name. Snyder is planning to start marketing rental units at the project, called The Vermont, in early March, and put the entire development up for sale with the help of broker Jones Lang LaSalle Inc. Neither Snyder nor Jones Lang would comment on the potential price. Buyer InterestThe property, which Snyder spent $190 million to build using a $65 million loan from Bentall Kennedy, has received “a lot of interest” from potential buyers, including U.S. real estate investment trusts and investors from Asia and Europe, he said. Snyder has shown the complex more than 20 times and expects a deal within 45 days. “He’s been a developer that has been able to see the future and execute on that,” said Bruce Korter, director of real estate at Washington Capital Management. The Seattle-based firm manages investments for union pension funds in the state and was the lead equity investor in Snyder’s Vermont project. He wouldn’t disclose the size of the company’s investment. “He’s gone through hard times and good times, and has come up a survivor,” Korter said. “We have a lot of faith in Jerry and are looking to do more business with him.” First HouseBorn in Brooklyn in 1930, Snyder broke into real estate as a general contractor working with his father. They moved to the West Coast when Snyder was a teenager and, at 19, he founded his own company, L. Snyder & Son, eventually buying an empty lot and building his first house. “I loved it,” Snyder said. “I was the producer, the director and the screenplay writer. That’s when I decided I wanted to be a developer.” He went from building one house after another to 500 at a time and, by the age of 22, was written up in the Wall Street Journal for being one of the youngest large-scale builders, developing 2,000 houses a year. Snyder, who’s lived in the Bel Air neighborhood of Los Angeles with his wife, Joan, for 32 years and also owns houses in Montana and Rancho Mirage, California, focused on building single-family homes across the U.S. for three decades before entering the commercial real estate business in 1977 and ultimately focusing on Southern California. Water GardenAfter expanding his real estate projects -- including his development of the Water Garden office complex in Santa Monica, and 10 high-rise condominium buildings next to the Hotel Coronado in San Diego County -- he almost “lost his shirt” with $144 million of personal guaranties given during the rapid appreciation of property values in the 1980s that then plunged during the U.S. recession of the early 1990s, following the collapse of the savings-and-loan industry. Snyder, who continues to arrive at his office at 9 a.m. most days, said he has since improved his financing strategies, keeping the leverage on his buildings manageable and focusing on cash flow and costs. He won’t give personal guaranties again, he said. By the time of Lehman Brothers Holdings Inc.’s 2008 demise and subsequent market crash, he had refinanced most of his properties and reaped profits from selling some of his buildings. “This last downturn we kind of skipped,” Snyder said of his company, where one of his three children also works. “But back in the ’90s, I remember sitting on the weekends with my wife, and praying, ‘Please get me out of this one.’” Snyder remains optimistic about development possibilities in the region today. “There’s an old joke about a golfer,” he said. “He’s had a terrible day. So he goes into the locker room and cuts his throat. When his friend comes in and says, ‘You want to play tomorrow?’ he holds his throat and says, ‘What time, Charlie?’ It’s just like that for me. I see things coming my way, and I say, ‘Sure, I’ll look at it.’” -By Nadja Brandt http://www.bloomberg.com/news/2014-03-04/suicide-musings-turn-to-600-million-in-l-a-investments.html Obama Budget Predicts Strongest U.S. Growth Since 2005: Economy Source: Bloomberg / Politics The U.S. economy will grow this year at its fastest pace since 2005, helping reduce the annual average unemployment rate for a fourth straight year even as market borrowing costs rise, the Obama administration predicted. Gross domestic product will expand 3.1 percent in 2014 after rising 1.9 percent last year, the administration said in forecasts accompanying its 2015 budget plan released today in Washington. The jobless rate will average 6.9 percent this year, compared with 7.4 percent last year, and average 6.4 percent in 2015, according to estimates based on information as of mid-November. The $3.9 trillion spending request anticipates an accelerating economy that’s boosting employment while moving up inflation to levels unlikely to concern Federal Reserve policy makers. The proposal says fixing the immigration system, investing in infrastructure, simplifying the tax code and improving job training would reduce the ranks of the unemployed even more. “Our own forecast is for a less rosy outlook,” said Yelena Shulyatyeva, New York-based U.S. economist at BNP Paribas, who forecasts U.S. economy to grow 2.5 percent this year. Growth estimates made now instead of in November probably would be lower because “some activity will be lost due to the bad weather,” she said. The Standard & Poor’s 500 Index rose 1.5 percent to 1,872.71 at 1:39 p.m. in New York. The Bloomberg U.S. Dollar Index, a gauge of the greenback’s value against 10 major currencies weighted by liquidity and trade flows, was 0.1 percent higher. Treasury YieldsThe estimates in the budget plan showed the annual average yield on 10-year Treasuries will advance to 3 percent in 2014, from 2.3 percent last year, and increase to 3.5 percent in 2015. The 10-year yield rose eight basis points, or 0.08 percentage point, to 2.68 percent, after dropping to 2.59 percent yesterday, the lowest since Feb. 4, according to Bloomberg Bond Trader prices. In Europe, a report showed U.K. construction growth slowed more than economists forecast in February as wet weather and flooding hampered some building activity. In Sydney, the Reserve Bank of Australia reiterated that it’s likely to maintain record-low interest rates as Governor Glenn Stevens and his board kept the overnight cash-rate target at 2.5 percent. Private ForecastsThe White House’s 2014 growth projection is higher than the 2.9 percent median forecast of economists surveyed last month by Bloomberg, while the jobless rate outlook for this year is less optimistic than the survey’s median of 6.4 percent. In November when the White House’s projections were formulated, the median estimate among private economists was for 2014 growth of 2.6 percent. Jason Furman, the White House’s chief economist, said today that since the projections were made more than three months ago, the economy has improved “more than most forecasters had expected.” If he were to revise the numbers now, the GDP outlook would be increased and the unemployment forecast would be lowered, he said without offering new numbers. “With the economy picking up speed, companies say they intend to hire more people this year,” President Barack Obama said in a statement contained in the budget proposal. The housing market is rebounding and “over half of big manufacturers say they are thinking of insourcing jobs from abroad,” he said. Tame InflationInflation as measured by the consumer price index will be 1.6 percent this year and 2 percent next year, according to the budget estimates. The Fed targets inflation of 2 percent as measured by the personal consumption expenditures index, which was lower in January than the CPI gauge. “The recovery has been durable even in the face of headwinds that have emerged in recent years,” according to budget statement, citing the rebound in housing, stronger manufacturing and more oil production. “There are encouraging signs emerging across industries.” Harsh winter weather probably contributed to economic weakness early this year, though the extent of the impact is difficult to estimate, Fed Chair Janet Yellen told the Senate Banking Committee on Feb. 27. Lower temperatures and snow storms slowed housing, manufacturing and hiring, and disrupted air travel and construction plans. Payrolls rose less than projected both in January and December, showing the weakest back-to-back gains in three years. “Our economy is moving forward and businesses are creating jobs, but our top priority must be accelerating that growth while expanding opportunity for all Americans,” according to the budget plan. Job GrowthA Labor Department report March 7 may show the nation’s unemployment rate held at a more than five-year low of 6.6 percent and employers probably added 150,000 jobs in February, according to the median of 85 estimates of economists surveyed by Bloomberg. In January, Treasury Secretary Jacob J. Lew said the economy this year isn’t restrained by the “real headwinds of budget cuts and other fiscal policies” that held it back in 2013. GDP grew at a 2.4 percent annual rate in the fourth quarter last year, compared with the government’s first estimate of 3.2 percent and a 4.1 percent growth pace the previous quarter, revised figures from the Commerce Department showed Feb. 28. Monetary policy has been supportive of growth, with the Fed keeping its benchmark short-term interest rate near zero since December 2008 while carrying out three rounds of bond buying aimed at keeping long-term borrowing costs low. The Federal Open Market Committee’s next scheduled policy meeting is March 18-19. Fed officials, who released their estimates in December, saw economic growth of 2.8 percent to 3.2 percent this year and 3 percent to 3.4 percent in 2015. The central bankers’ forecasts are based on comparisons of the fourth quarter to the same period in the prior year. The projected gain in GDP this year would be the biggest since 2005’s 3.4 percent. Obama’s budget plan today forecast 3.4 percent growth next year on an average annual basis. -By Kasia Klimasinska Starwood Will Open More Than 60 European Hotels by 2020 Source: Bloomberg / News Starwood Hotels & Resorts Worldwide Inc. (HOT) plans to open more than 60 hotels in Europe by 2020, increasing its locations by almost 40 percent, as the U.S. company taps growth in countries including Turkey and Russia. Nine of the hotels will open this year, two more than in 2013, Starwood said in a statement today. The company, based in Stamford, Connecticut, also said it agreed to open its seventh Sheraton hotel in Turkey as part of a plan to add four hotels. Starwood, which also owns the St. Regis and W brands, is being hurt by slower economic growth in regions including Asia and Europe. A surge in infrastructure development in Turkey and Russia is creating favorable conditions for expanding its hotel brands, the company said today. Starwood said its growth plan also includes Aloft and Luxury Collection hotels in Ukraine. Marriott International Inc., one of Starwood’s competitors, in 2010 announced a plan to double the number of its rooms in Europe by the end of 2015 to 80,000. Since then, the company has opened 20,000 rooms, Amy McPherson, Marriott’s Europe president, said in an interview today. The company, based in Bethesda, Maryland, has already agreed to open 8,770 rooms over the next two years, McPherson said. “The new development activities have picked up pace,” she said. Marriott owns brands including Ritz-Carlton and Renaissance. -By Andrew Blackman and Dalia Fahmy U.K. Construction Growth Slows as Floods Disrupt Building Source: Bloomberg / News U.K. construction growth slowed more than forecast in February as wet weather and flooding hampered some building activity. An index fell to 62.6 from 64.6 in January, which was the highest in more than six years, Markit Economics said today in London. The median forecast of 16 economists in a Bloomberg News survey was for a decline to 63.2. “Anecdotal evidence cited strong client demand for new projects, but there were some reports that unusually wet weather had a disruptive influence on sales during the latest survey period,” Markit said. Britain had its wettest winter for almost 250 years while rainfall in some parts of the country in February was almost 2 1/2 times the monthly average. Bank of England Governor Mark Carney has said flooding last month will affect the near-term economic outlook, though officials will look through the impact when setting policy. The BOE forecasts U.K. economic growth of 0.9 percent this quarter after the recovery broadened in the fourth quarter. Data yesterday showed U.K. mortgage approvals and house-price growth increased to the most since 2007, as the property market continued to strengthen. Markit said construction employment rose in February at the fastest pace in three months and that a majority of builders expect a rise in output this year. Residential construction growth eased in February, while commercial activity also cooled it said. Civil engineering grew at the fastest pace since the series began in April 1997, according to today’s report. Markit said there was increased spending among local authorities last month, partly in response to flooding and adverse weather. BOE policy makers meeting this week will probably keep their key interest rate at a record-low 0.5 percent while the unemployment rate hovers above the 7 percent threshold for considering an increase. -By Scott Hamilton Soho China 2013 Earnings Rise as More Properties Completed Source: Bloomberg / News Soho China Ltd. (410), the biggest developer in Beijing’s central business district, said 2013 earnings rose 33 percent as more properties were completed and booked during the year. Profit excluding property revaluations climbed to 4.44 billion yuan ($722 million), from 3.34 billion yuan a year earlier, according to a statement to the Hong Kong exchange. That compares with the 3.79 billion yuan average estimate of 17 analysts surveyed by Bloomberg News. Revenue fell to 14.6 billion yuan compared with 16.1 billion yuan in 2012. The company, which traditionally sold most of its projects, in 2012 shifted its strategy toward what it called a build-and-hold model away from a build-and-sell model, to take advantage of more stable and predictable rental income rather than sales proceeds. “Soho is in a healthy financial condition and their quick-sales strategy has helped,” Samson Man, a Hong Kong-based property analyst at CMB International Capital Corp., said before today’s release. “I’m a bit concerned about their outlook as their strategy of holding more assets is not very clear.” Man rates the stock a buy. The earnings increase was mainly due to the sale of two buildings in Beijing that was completed and booked last year, Chairman Pan Shiyi said in today’s statement. Contracted SalesSoho China announced last week that it will sell two buildings in Shanghai’s non-prime locations for about 5.23 billion yuan. Soho posted 4.69 billion yuan of contracted sales last year, it said today. That compared with 9.47 billion yuan in 2012. Including property revaluations, net income fell to 7.39 billion yuan, or 1.404 yuan a share, from 10.6 billion yuan, or a 1.897 yuan, a year earlier. Soho shares rose to the highest in two weeks, climbing 1.3 percent to HK$6.05 at close of trading in Hong Kong. The stock is down 9.4 percent this year. The company will pay a final dividend of 0.13 yuan per share. -By Bloomberg News Damac 2013 Full-Year Profit Triples as Dubai Real Estate Booms Source: Bloomberg / News Damac Real Estate Development Ltd., the Dubai-based developer that started trading in London in December, said full-year profit tripled as sales climbed and margins widened. Net income rose to $641.5 million from $212.5 million a year earlier, the company said today in its first earnings report since the listing. Revenue increased 77 percent to $1.22 billion. Bookings jumped to $2.46 billion from $661 million a year earlier. Damac, headed by founder Hussain Sajwani, started projects including Hollywood-themed apartment towers and a Trump International golf course last year. The company in November said it generated a first-half profit of $332 million and had assets valued at $2.3 billion. Last year was“transformational for Damac, Sajwani, the chairman and chief executive officer, said in the statement. ‘‘This was achieved against the backdrop of a recovery in the Dubai economy and the real estate market which allowed us to launch innovative new projects.’’ Damac plans more ‘‘measured’’ growth in the medium- to long-term, Sajwani said. Real estate companies in Dubai are benefiting from an economic recovery and a rebound in construction as the Gulf business hub prepares to host the 2020 World Expo with spending of $8 billion on infrastructure projects. Damac’s global depositary receipts have climbed 23 percent since their listing in London, giving the company a market value of $3.3 billion. -By Dana El Baltaji China Tropical Island Lures Rich Homebuyers Fleeing Smog Source: Bloomberg / Luxury Zoe Zhang, a 38-year-old housewife from Shanghai, plans to spend as much as 2 million yuan ($325,000) to breathe a little clean air. Since December, Zhang has been shopping for a home in Sanya on Hainan, a tropical island in the South China Sea that has been compared to Hawaii because of its sandy beaches and balmy weather. It also has some of China’s cleanest air. “Air quality has never been so bad in Shanghai,” Zhang said. “I simply want to have a place in Sanya for my baby and parents to fly down and stay during those heavily polluted days.” China’s smog-clogged cities, where pollution regularly exceeds World Health Organization levels considered safe, are proving a boon for Sanya, helping home prices that slumped more than 60 percent in 2011 recover. Home sales rose 48 percent last year from 2012, the biggest gain since the market crash in 2011, according toCentaline Property Agency Ltd., China’s biggest real estate brokerage. More than 80 percent of property agent Wei Yongfeng’s clients last year said they bought homes in the city for its clean air. Most were buying second or third properties outside their home cities, said Wei, who works for Verdure International Holdings Ltd., a closely held Nanjing-based developer. Prices Stabilize“What do rich people fear the most? It’s death,” said Wei, the agent for the Phoenix Watertown luxury residential complex, which includes a five-star hotel and villas facing Sanya Bay. “Hainan can offer them the best air and sunshine in China. Unlike in previous years, their first priority is no longer seeking the best investment returns.” Sanya, which is on about the same latitude as Hawaii and Miami, was China’s best-performing property market in 2010, with prices jumping 48 percent thanks to a two-year lending binge spurred by government plans to transform Hainan into a tourism destination. That came to a halt the following year, sending values down 66 percent, after the Chinese government tightened property policies to weed out speculators. Now prices are stabilizing. They climbed 4.5 percent in January from a year earlier to 25,046 yuan per square meter, according to SouFun Holdings Ltd. (SFUN), China’s biggest real estate website. That was compared with an 11 percent decline in the same period last year. Fresh AirAir quality in Haikou was the third best among 74 cities the government tracked in January, while Beijing ranked 39th and Shanghai 12th, according to China National Environment Monitoring Center. Sanya, excluded from the environment ministry’s survey, reported just one “slightly polluted” day in the fourth quarter, while Beijing’s residents suffered 189 days of polluted or heavily polluted air last year, according to the cities’ authorities. Beijing’s air pollution reached more than 18 times WHO levels, topping the organization’s hazardous threshold for a sixth day on Feb. 25, and Shanghai’s exceeded it by more than five times the same day. “Everybody in Beijing is talking about this pollution issue, and I think this is a political problem that really needs to be fixed,” Damien Ma, a fellow at the Chicago-based Paulson Institute, which promotes economic growth and environmental preservation in the U.S. and China, said on Bloomberg Television today. Dying SoonerChinese President Xi Jinping said last week that pollution was Beijing’s biggest challenge. Smog will be on the agenda as lawmakers gather for the meeting of the National People’s Congress this week in Beijing after pledging to ease pollution around the country. China currently uses coal for about 65 percent of its energy. People in northern China may be dying five years sooner than expected because of diseases caused by air pollution, an unintended result of a decades-old policy providing free coal for heat, according to a study led by the Massachusetts Institute of Technology published in July. Rich PlaygroundThe winter temperature on Hainan averages 19.2 degrees Celsius (67 degrees Fahrenheit). That compares with 6.9 degrees Celsius in Shanghai and minus 2.9 degrees Celsius in Beijing. The government unveiled a plan in December 2009 to build Hainan into an international tourism center, luring hotel chains such as Starwood Hotels & Resorts Worldwide Inc. (HOT) and Marriott International Inc., which now line Yalong Bay to Sanya’s east. The island’s status as a playground for the wealthy was enhanced with the arrival of billionaires such as Wang Dafu, the chairman of property developer Visun Group who built a marina in Sanya, 400 miles (644 kilometers) southwest of Hong Kong. Visun Royal Yacht Hotel, which opened in 2008 overlooking Sanya Bay, has 216 berths and Wang, with a net worth of $1.1 billion on the Bloomberg Billionaires Index, invested 380 million yuan to set up Hainan’s first jockey club in 2012. Least HospitableThe island has hosted the Boao Forum for Asia, a gathering of government and business leaders modeled on the World Economic Forum and the forum in Davos, Switzerland. It also is home to Hainan Airlines Co., backed by billionaire George Soros. Zhang, the housewife, said she is looking for a 100-square-meter (1,076-square-foot), two-bedroom holiday home in the tropical city, a three-hour flight from Shanghai. She plans to rent the place out when her family isn’t staying there. Because most housing sales in Sanya involve holiday homes, few buyers take out mortgages, according to broker Savills Plc and Centaline. Pollution in Beijing and Shanghai place them among the least hospitable of 40 international cities in a February report by the Shanghai Academy of Social Sciences. The study, which evaluates cities on factors including air quality, the cost of living and security, ranked Beijing 39th as pollution in the Chinese capital is “close to extreme.” Shanghai was 36th. Moscow was rated the least hospitable. ‘Relaxing Lifestyle’China’s pace of economic growth is slowing. Gross domestic product will expand 7.5 percent this year, the least since 1990, according to the median estimate in a Bloomberg News survey from Feb. 14 to Feb. 19. Meanwhile, the central bank aims to cut debt levels by making borrowing costs more expensive. That may jeopardize the recovery in Sanya’s property market, which rebounded as property prices around the country jumped last year, according to analyst Jack Gong. “There remains a question mark over whether such a recovery will be sustained,” said Gong, a Hong Kong-based property analyst at Orient Finance who went on a work trip to the island in December. “Even though buyers don’t take on mortgage loans for holiday homes in Sanya, the slower economy and tighter liquidity will gradually show an impact.” Hainan, with an economy largely dependent on real estate and tourism, saw property investment rise 35 percent to 120 billion yuan last year from 2012, while the sales value jumped 40 percent to 103 billion yuan, according to the statistics bureau of the province. That was compared with the nation’s 20 percent increase in property investment and 27 percent jump in sales in 2013, according to the National Bureau of Statistics. Agile Property Holdings Ltd. (3383), the developer controlled by Chinese billionaire Chen Zhuolin, said it sold 7.8 billion yuan at its biggest project in Sanya last year, a 30 percent increase from a year earlier. The Clearwater Bay is a 20 billion-yuan investment with residential apartments, villas, five-star hotels, a yacht club, shopping mall and golf course. Boom, BustHainan is no stranger to booms and busts. In 1993, home prices on the 34,000-square-kilometer (13,127-square-mile) island exceeded those in Beijing and Shanghai by as much a two to three times after the province was spun off from Guangdong province to become China’s biggest Special Economic Zone at the time, according to Mizuho Securities Asia Ltd. When the bubble burst in 1995, as Beijing tightened monetary policy and prodded banks into canceling loans, some developers went bankrupt, leaving unfinished real estate projects and a decade-long subdued market on Hainan. An increasing middle and wealthy class is now helping underpin demand for vacation homes, according to Savills. “Obviously there’s still a certain degree of investment sentiment today, but what you see a lot more now is actually some form of self-use as well,” said James Macdonald, Shanghai-based head of China research for Savills. “It is quite clear why people go to Sanya: It is because of the beaches, the weather, the seafood, and the luxury relaxing lifestyle. With the size of China, you need to have something unique to be able to stand out and sustain certain demand to support your property market.” -By Bloomberg News |
