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14th May 2014

Views, Reviews & Forum

Conserve only the buildings worth conserving

Source: Straits Times

Ideally, buildings representative of every era should be conserved ("Architects keen on conservation status for Pearl Bank"; last Thursday). However, the decision to do so must be based on a critical examination of the buildings' worthiness in all aspects. A decision to preserve a bad structure is no better than a decision to demolish a good one.

Another way to monetise flats

Source: Straits Times

The HDB ought to consider allowing those aged above 55 to rent a studio apartment directly from it, at a nominal sum of, say, $250 per month ($90,000 estimated cost of studio apartment divided by 30 years' lease, and divided by 12 months), for occupation. This will allow them to rent out their existing homes at market rates. The income they make can be used for their daily expenses.

Global Economy & Global Real Estate

Not much hope in Albedo's Iskandar deal going through

Current abysmal share price seen as pointing to the deal lapsing in Sept

Source: Business Times / Companies

PRETTY much no one seems to think that Catalist-listed Albedo's mammoth $1.86-billion Iskandar land deal involving a reverse takeover by Malaysian tycoon Danny Tan will stick.

Since signs emerged in mid-March that Albedo's transformational deal was on rocky ground and Mr Tan has had a change of heart, the counter has tanked to near lows of 1.1 cents, ending at 1.3 cents on Monday.

At current levels, a far cry from a high of 7.6 cents it reached in September last year and, more recently, 5.2 cents reached in mid-March this year, Albedo is a stark reminder on the perils of investing in penny stocks on the back of deals yet to be closed.

"The price tells you that despite what Albedo insists, the deal must be off," said an analyst.

-By Anita Grabriel

China Central Bank Calls for Faster Home Lending in Slump

Source: Bloomberg / Personal Finance

China’s central bank called on the nation’s biggest lenders to accelerate the granting of mortgages, a sign that developers’ prices cuts and incentives alone won’t boost a slumping housing market and economy.

The People’s Bank of China told 15 banks yesterday to “improve efficiency of service, give timely approval and distribution of mortgages to qualified buyers,” according to a statement posted on its website. It also urged lenders to give priority to families buying their first homes and strengthen their monitoring of credit risks.

Premier Li Keqiang is seeking to put a floor under a slowdown in the world’s second-largest economy. The housing market has become a drag on growth as developers, facing a surplus of empty units and falling sales, put the brakes on new construction. Home sales fell 18 percent in April from the previous month, according to data from the National Bureau of Statistics.

“China’s property sector has started a correction and that will last this year,” Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., said. “More investors are more convinced than a couple of months ago that the sector is going downwards.”

The Shanghai Stock Exchange Property Index, which tracks 24 developers listed on the city’s exchange, rose 0.3 percent, trimming this year’s decline to 4.6 percent. China Vanke Co. (000002), the nation’s biggest developer by market value, climbed 1.3 percent to 7.63 yuan in Shenzhen at the market close, after jumping as much as 4 percent, the most since March 21.

Discounts, Incentives

Developers scaled back housing starts by 25 percent in the first quarter, the biggest reduction ever, according to Nomura. To lure buyers, Vanke dropped prices in Beijing, Hangzhou and Chengdu by as much as 15 percent since March, according to China Real Estate Information Corp. Vanke and Poly Real Estate Group Co. (600048) are allowing buyers to delay making down payments for as long as three years in Changsha, the capital ofHunan province, according to realtor Centaline Group.

The central bank’s request to improve lending efficiency comes as China’s economic slump worsens, with unexpected decelerations in industrial output and investment growth.

Factory production rose 8.7 percent in April from a year earlier, according to the statistics bureau, down from 8.8 percent in March. Fixed-asset investment excluding rural households increased 17.3 percent in the first four months of the year, the slowest for the period since 2001.

Housing Restrictions

For the last four years, China has enacted restrictions to cool its housing market as prices soared. The government increased the minimum down-payment requirement for second homes to 60 percent. The first-tier cities of Beijing, Shanghai, Shenzhen and Guangzhou raised the deposit for second properties to 70 percent last year after prices jumped.

Price increases are moderating this year. They climbed 9.1 percent in April from a year earlier, slowing for a fourth month, according to SouFun Holdings Ltd., the nation’s biggest real estate website.

During the boom years, speculators using shadow financing, or non-bank loans, helped spur the construction of excess housing across China. The surplus now includes more than 10 “ghost cities” haunted by empty apartment blocks in places like northern Ordos, according to SouFun.

Empty Homes

More than 10 million homes sit empty in China, and the number could rise to 18 million within two to three years, Nicole Wong, Hong Kong-based head of property research at CLSA Ltd., said on May 12. She cited estimates based on the company’s one-year survey in 12 Chinese cities.

Chinese banks trimmed property lending in the first quarter as authorities kept liquidity tight to curb shadow financing. Mortgage lending expanded 20.1 percent in the period from a year earlier, down from 21 percent at the end of last year, according to data from the PBOC.

“The supply is abundant while demand is the question mark,” Bei Fu, Standard & Poor’s Hong Kong-based property credit analyst, said. “What exacerbates the demand uncertainty is the tightening bank lending.”

Lenders in Beijing and Shenzhen in April imposed a longer mortgage approval process, at least two months in some cases, according to Centaline Group, parent of China’s biggest real-estate brokerage that tracks home lending in 20 cities. Lenders are also charging first-time buyers interest rates 10 percent above the 6.55 percent benchmark of the central bank, ending discounts of as much as 15 percent available before November, according to Centaline.

Labor Day

During the Labor Day holiday on May 1-3, typically a time of robust sales of new homes, they dropped 47 percent in 54 cities to 236,000 square meters (2.5 million square feet) from a year earlier, according to Centaline.

“The easing loan quota and lowering mortgage rate, if implemented, should effectively boost homebuyer sentiment,” Barclays Plc Hong Kong-based property analysts, led by Alvin Wong, wrote in a report today.

To bring buyers back, developers including Shimao Property Holdings Ltd. (813) in Shanghai and Beijing-based Sino-Ocean Land Holdings Ltd. (3377) cut prices at more than 40 projects since March. Discounts have spread from smaller cities with a massive oversupply of housing to big cities including Shanghai and Guangzhou, where demand remains strong.

“Developers may increasingly adopt more flexible pricing strategies,” Credit Suisse Group AG analysts led by Hong Kong-based Jinsong Du wrote in an April 28 report. They anticipate deeper and widespread price cuts if sales don’t pick up.

Local Easing

“I’m pessimistic about China’s property market,” Du said.

At least six smaller Chinese cities since April have started relaxing curbs on home purchases by speculators and investors. Tongling, in the eastern Anhui province, will give tax breaks to first-home buyers for properties smaller than 144 square meters, the city government said May 5 on its website.

Lan Shen, a Beijing-based economist at Standard Chartered Plc, said the central government will have to provide more support for the housing market to recover.

“The PBOC statement probably still won’t give much incentive for commercial banks to make mortgage loans because this part of their business is not very profitable,” she said. “They might shorten the period of approving mortgage loans as a gesture to respond to the central bank, but not much on lowering the rate.”

Reserve Requirements

Nomura’s Zhang said that he expects further easing of lending, such as the removal of purchase restrictions in second-and third-tier cities. He said the government may also cut banks’ reserve requirements by 50 basis points in the second quarter and a further reduction in the third quarter, making it easier for developers to get financing.

UBS AG economist Wang Tao cut China’s growth forecasts by 0.2 percentage point to 7.3 percent for this year and 6.8 percent for 2015 in a May 5 report, citing a “weaker-than-previously thought” property sector. The economy expanded 7.4 percent in the first quarter, the weakest pace in six quarters.

“If home sales keep falling, price cuts will for sure spread, and probably deepen as well,” said Dai Fang, Shanghai-based analyst at Zheshang Securities Co. “Without the central government stepping in eventually to ease lending, the situation will continue and it won’t look good.”

-By Bloomberg News

American Homes Beats Blackstone With Low Rental-Bond Yields

Source: Bloomberg / Luxury

American Homes 4 Rent (AMH), the largest publicly traded U.S. single-family landlord, found investors willing to accept the lowest yields yet on bonds backed by rental homes in the third-ever offering of such debt.

The company sold $269.4 million of top-rated floating-rate notes today that pay 100 basis points, or 1 percentage point, more than a benchmark rate, said a person with knowledge of the deal. The debt, part of a $481 million transaction, was marketed yesterday at a range of 110 basis points to 115 basis points, the spread on a similar part of the market’s inaugural offering in November by Blackstone Group LP (BX)’s Invitation Homes.

Bond buyers are paying up for rental-home securities partly because of their limited supply as investors search for relatively high-yielding notes, especially variable-rate debt that will benefit when Federal Reserve raises short-term borrowing costs, said Vishal Khanduja, a money manager at Calvert Investment Management Inc. The Fed’s holding its target near zero since 2008 has helped drive investors to riskier debt.

While there are “definitely” dangers worth monitoring in the deals, such as how well landlords can fill vacancies after leases expire, the transactions are “well-structured” and poised to benefit from a shift away from homeownership, said Khanduja, whose firms oversees $13 billion and bought pieces of the first two offerings.

‘More Skeptical’

“The masses are much more skeptical of owning a home right now given the job situation and what happened in terms of owning over the last several years,” Khanduja said today in a telephone interview from Bethesda, Maryland, before the sale of the American Homes bonds, which he expected to purchase.

Institutional investors, who went on a property-buying spree following a crash in prices that led to a foreclosure crisis, are bundling their rental homes into securities to recoup cash and earn higher returns on their residual investments with cheaper financing.

“We’re very pleased with the ability to get a securitization done and lower our cost of capital, which will enhance our opportunities to buy attractive assets and enhance the returns to our stakeholders along the way,” American Homes Chief Executive Officer David Singelyn said. “We couldn’t have been happier with the response from the marketplace, which was a validation of our operating platform.”

Hedge Funds

Last month, Colony American Homes Inc. sold securities similar to the top-rated American Homes bonds at a spread of 120 basis points as part of a $513.6 million deal. Invitation Homes, the largest owner of single-family rentals, issued a total of $479.1 million of debt.

Invitation Homes is now working with Deutsche Bank AG to sell $1 billion of additional bonds, a deal whose marketing may begin within a month, a person with knowledge of the plans said last week.

The $32.6 million portion of the American Homes deal first in line for losses was sold at a margin of 325 basis points more than the one-month London interbank offered rate, said the person familiar with that deal, who cited a lack of authorization to speak publicly in asking not to be named. That compares with 365 basis points for a similar portion of the first Invitation Homes offering.

Hedge funds have been interested in the riskier notes from the deals, with the safer portions attracting investors such as insurers, Singelyn said today in a telephone interview. In today’s offering, potential buyers put in orders exceeding the amount of debt offered by between five and 15 times, depending on the class, he said.

-From Jody Shenn

RBNZ Says Lending Limits Curbed Home Sales More Than Expected

Source: Bloomberg / Luxury

New Zealand house sales fell more than expected after the introduction of mortgage lending restrictions last October, the central bank said.

Sales slumped 11 percent between October and March, the Reserve Bank of New Zealand said in its semi-annual Financial Stability Report in Wellington today. The RBNZ had expected sales to fall by between 3 percent and 8 percent in the year through October 2014, it said.

Governor Graeme Wheeler has raised interest rates twice this year to damp inflation pressures as booming dairy exports and the rebuilding of earthquake-damaged Christchurch fuel economic growth. Still, he said last week that the strength of the New Zealand dollar is holding down import prices and may reduce the pace and extent of future rate increases.

The RBNZ reiterated today it could consider removing the restrictions on high loan-to-value-ratio mortgage lending later in 2014. House prices rose 8.4 percent in April from a year earlier, the slowest annual pace in seven months, Quotable Value New Zealand, a government owned property researcher, said May 8.

“The restriction of high-LVR mortgages appears to be having the desired effect of bringing activity in the housing market back to a more desired level,” Wheeler said in the report. “The RBNZ expects the speed limit to remain in place until the housing market comes into better balance, with a more sustainable rate of house-price inflation.”

Lending Restrictions

Under the restrictions, loans for more than 80 percent of a property’s value must account for no more than 10 percent of a bank’s new lending, down from about 25 percent in mid-2013.

The restrictions have hit sales of cheaper homes the hardest, the RBNZ said. Sales of properties for less than NZ$400,000 ($345,000) fell 23 percent between October and March, it said in today’s report. First-buyer share of total home sales fell to 17 percent in February from an average 20 percent in the past two years, it said.

Before removing the LVRs, the RBNZ wants to be confident that the housing market is responding to interest-rate increases and that rising immigration isn’t causing a resurgence of house-price pressures, it said.

“A key condition for removal is a sustained moderation in house-price inflation,” it said. “In particular, house prices should be rising more closely in line with growth in household incomes.”

Wheeler raised the official cash rate in March and April, taking it to 3 percent, and has signaled further increases this year. The benchmark rate had sat at a record-low 2.5 percent for three years.

There is an 87 percent chance of a rate rise in June, according to swaps data compiled by Bloomberg late yesterday.

-By Tracy Withers

Fortress Said to Be Preparing Bid to Buy Stuyvesant Town

Source: Bloomberg / Personal Finance

May 14 (Bloomberg) -- Fortress Investment Group LLC is preparing a bid to buy Stuyvesant Town-Peter Cooper Village, the Manhattan apartment complex whose future has been in limbo since its owners defaulted on a $3 billion mortgage four years ago, according to a person familiar with the plans.

The New York-based private-equity firm is seeking financing for an offer valued at about $4.7 billion, said the person, who asked not to be identified because the discussions are private. A deal would involve bringing in equity partners to contribute cash, the person said.

Stuyvesant Town, Manhattan’s biggest rental community, is currently under the control of CWCapital Asset Management LLC, which is owned by Fortress. CWCapital is a special servicer in charge of representing bondholders after owners Tishman Speyer Properties LP and BlackRock Inc. walked away from their investment in January 2010, one of the highest-profile casualties of the property-market crash. New York apartment values have since jumped as rental demand rebounds.

“Stuytown has certainly come a long way since the depths of the crisis,” said Ben Thypin, director for market analysis at real estate research firm Real Capital Analytics Inc. The $4.7 billion value considered by Fortress “reflects that resurgence in pricing.”

Gordon Runte, a Fortress spokesman, declined to comment, as did Brian Moriarty, a CWCapital spokesman.

CWCapital said yesterday that it has begun the process of foreclosing on the property’s mezzanine debt, which is junior to the senior mortgage. That paves the way for the company to proceed with a sale of the 80-acre (32-hectare) complex.

Highest Price

As a special servicer, CWCapital must represent mortgage holders and work in its clients’ best interests to get the highest price possible, said Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor.

“Negotiating on behalf of a client against someone who ultimately reports to the same boss you report to is fraught with conflict of interest,” Gordon said in an e-mail.

Tishman Speyer and BlackRock purchased the 11,000-unit complex for $5.4 billion in 2006, a record for a New York commercial property at the time. The $3 billion senior loan that financed the transaction was carved up and bundled into commercial-mortgage bonds that also contained debt tied to offices, hotels and shopping centers.

Failed Deal

Tishman Speyer, which based its acquisition on plans to raise the cost of rent-regulated units to market rates and evict illegal occupants, defaulted after tenant litigation blocked that effort and the apartment market crumbled following the global financial crisis. The deal came to epitomize the lax lending based on unrealistic projections of future income that fueled the real estate bubble.

Stuyvesant Town was appraised at $3.4 billion in September, according to Barclays Plc, up from about $2.8 billion when CWCapital took it over. Barclays estimated in a May 2 report that the property could fetch $4 billion to $4.3 billion in a sale, which would result in zero losses to bondholders.

The jump in values underscores a rebound in Manhattan’s rental market from the depths of the recession. The median apartment rent in the borough in March was $3,200 a month, approaching the 2006 high, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate.

Never Stronger

“The Manhattan apartment market has never been stronger,” said Dave Bragg, an analyst at Green Street Advisors Inc., a Newport Beach, California-based real estate research firm. The company estimates that Manhattan apartment asset values are about 9 percent above the 2007 peak.

Tenants at the complex have sought to put together their own bid to buy the property, working with Brookfield Asset Management Inc. on a plan that would include converting apartments into condominiums as a way of paying off bondholders.

“Brookfield is still working with the Stuyvesant Town tenants’ association on a bid,” said Andrew Willis, a spokesman for the Toronto-based company.

Daniel Garodnick, a New York city councilman and lifelong resident of the complex, said tenants “are not going to sit on their hands” if a Fortress bid were to occur.

“We have seen the effects of enthusiastic buyers as they relate to rent-stabilized tenants, and it’s not necessarily a good fit,” Garodnick said in a telephone interview.

City Discussions

New York City Mayor Bill de Blasio has made creating and preserving affordable housing a key issue of his administration. The city is in “active discussions” with lenders, Garodnick and tenants in hopes of reaching a “joint approach” for Stuyvesant Town, said Alicia Glen, de Blasio’s deputy mayor for housing and economic development.

“Stuy Town and Peter Cooper Village are critical bulwarks of affordability for middle-class families,” Glen said in an e-mail. “Our housing plan emphasizes preservation, and with so many affordable units at risk in these developments, the stakes are too high to be hands-off.”

While Stuyvesant Town likely will attract many bidders, some potential buyers may be dissuaded by the complex’s troubled history, said Joshua Stein, principal of New York-based commercial real estate law firm Joshua Stein PLLC, and author of “Stein on New York Commercial Mortgage Transactions.”

“There used to be a saying: If you’re a restaurant you don’t want to open up in a place where other restaurants went out of business,” Stein said in a telephone interview. “All these bidders who otherwise might be very interested may say, ‘you know what? Too many people have had too many unpleasant surprises at this location.’”

-From Sarah Mulholland

Taylor Wimpey Climbs as House Prices Widen Margins: London Mover

Source: Bloomberg / Luxury

Taylor Wimpey Plc (TW/), the U.K.’s third-largest homebuilder by market value, rose the most in 10 months after the improving housing market prompted the company to raise expectations for profitability.

Taylor Wimpey climbed 7.6 percent, the biggest advance since July 4, to close at 114.4 pence in London. The company said it expects operating margins to widen by at least 300 basis points this year. The target for average operating margin is 20 percent from 2015 to 2017, the High Wycombe-based company said today in a statement. A basis point is 0.01 percentage point.

Britain’s housing market has been bolstered by a strengthening economy, record-low borrowing costs and the government’s Help to Buy loan-guarantee program. House prices climbed 6.8 percent in April from a year earlier, mortgage lender Halifax said this month.

Barratt Developments Plc, the second-biggest U.K. homebuilder by market value, said last week it would reach return-on-capital-employed goals significantly earlier than planned after a jump in advanced sales.

-From Patrick Gower