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28th May 2014

Singapore Real Estate

Household wealth takes knock as HDB values fall

SingStat data suggests value of holdings could be reaching inflexion point

Source: Business Times / Top Stories

[SINGAPORE] Several rounds of cooling measures and a major ramp-up of housing supply are making their impact felt on household balance sheets - with the value of HDB flats held by households falling 0.7 per cent to $412.8 billion last year - the first year-on-year decline since 2005.

The data, compiled from the Department of Statistics' website, suggests that the value of households' holdings of HDB flats could be reaching an inflexion point, after rising 6.8 per cent in 2012, 11.5 per cent in in 2011 and 14.5 per cent in 2010.

The dip in the value of households' housing assets should not worry the majority of households that have paid off their mortgages, say market watchers.

Housing assets make up close to half of households' assets and 58 per cent of their total net wealth here, unlike in the United States and Japan where financial assets account for about 60 per cent of households' portfolio. For the majority of households, HDB flat values have the biggest potential impact, with 82 per cent of Singapore residents living in HDB flats.

The fall in the value of households' holdings of HDB flats came despite the continued increase in HDB dwellings last year by 2.4 per cent to 961,800 units, and a slight increase in ownership of HDB homes to 91.8 per cent from 91.7 per cent, with the remaining proportion renting.

On the whole, Singapore's household holdings of residential assets grew the slowest in eight years with a 1.8 per cent rise in 2013, compared with a 7 per cent growth in 2012 and 10 per cent increase in 2011. This came as the property market continued softening. Resale HDB prices have begun to soften even in mature estates such as Bishan and Queenstown. Both private homes and resale HDB flats have seen weakening prices respectively, in the past two and three quarters.

The household balance sheets data from the Department of Statistics looks at all household units including Singaporeans, permanent residents (PRs), foreigners and unincorporated enterprises while its data on housing dwellings factors in only residing Singaporeans and PRs.

SLP International executive director Nicholas Mak noted that the growth in overall household assets in 2013 was slower than even during the property market trough of 2009 amid the global financial crisis.

HDB values have "reached an inflexion point", engineered by a large supply of build-to-order (BTO) flats, stricter mortgage rules and a three-year waiting period for newly minted PRs to buy resale flats, he said.

But Mr Mak noted that most HDB flat owners hold their units for the long term, so short-term fluctuations in HDB prices may not trouble them. "Only those who want to sell their HDB flats now will be concerned," he said.

It should also not be worrying to a majority of households that have paid off their mortgages. In fact, many HDB dwellers are still sitting on paper gains from the uptrend since 2006, market watchers say.

Resale HDB prices have surged some 95 per cent between 2006 and 2013 while households' holdings of public housing assets grew a compounded annual rate of 11 per cent over the past eight years.

R'ST Research director Ong Kah Seng pointed out that despite the recent decline in resale HDB prices, prices are still at near-record highs.

However, property experts are expecting a further softening of resale HDB prices amid new flats being released under HDB's BTO and Sale of Balance Flats schemes. Buyers of newly completed private housing may also decide to let go of their HDB units. This could have further implications on household balance sheets.

"Our projection is for resale HDB prices to soften by 5-8 per cent over the whole of 2014," said ERA Realty key executive officer Eugene Lim. "Lower resale prices will lead to lower valuation prices."

While the risk of households falling into negative equity is now remote, further declines in asset prices could hurt those who have pledged their assets for loans - an area where there is no clear picture as no data is available.

Citi economist Kit Wei Zheng is questioning if older individuals have pledged their private property assets to obtain more leverage, since data from MAS and the Credit Bureau showed rising debt burdens among those in their 30s to 50s.

"We suspect that the surge in debt levels with age may provide circumstantial evidence of increasing prevalence of asset-based (as opposed to income-based) borrowing amongst older borrowers," he said in a recent report.

"Given the earlier entry point of this age group into the property market at lower price levels (and greater proportion of mortgages repaid), it is also likely that this group has a larger share of overall housing equity in the economy, which it has likely tapped to obtain more personal loans," he added.

Mr Kit noted that such practices, if prevalent, "could exacerbate the feedback loop between falling asset prices, falling net worth, forced deleveraging, and further declines or volatility in asset prices".

DBS Group economist Irvin Seah reckons that those who have over-extended themselves in mortgage loans are still the minority.

The total debt servicing ratio (TDSR), which caps the total debt obligations of borrowers at 60 per cent of gross monthly income, has significantly reduced risk of households over-stretching themselves in mortgage loans and prevented borrowers from pledging their assets for loans, he said.

BT understands that banks have been undertaking stress tests on their exposure to the property market as required by MAS.

The burden of deleveraging will likely cause households to cut down on discretionary spending, Mr Kit said.

"With over 70 per cent of mortgages for owner-occupation and average loan-to-value ratios of 47.5 per cent, the risk of a substantial rise in NPLs (non-performing loans) is probably limited in our baseline scenario of a fairly tight labour market, even if house prices fall 10-15 per cent."

-By Lynette Khoo

$94m worth of property taxes exempted by Govt

Source: Straits Times

About $94 million in property tax was exempted by the Government last year. This is almost four times the $25 million in 2000, and believed to be a record. The Inland Revenue Authority of Singapore (Iras), which provided the figures, said properties which are eligible for tax exemption under the Property Tax Act fall broadly into two categories.

Developer Crown says Australia still attractive despite rising home prices

CEO expects growth rates to slow, as firm looks to open a new branch to tap demand from Asian buyers

Source: Today Online / Business

SINGAPORE — Australia still offers good residential property investment opportunities even though prices have rocketed in recent years, as a shortage in the supply of homes will continue to support the housing market, said Mr Iwan Sunito, chief executive officer of developer Crown Group.

Home prices in Australia rose by about 10 per cent last year, fuelled by record-low interest rates and increased foreign buying, leading real estate consultancy Knight Frank to rank the country as the fifth-most-overvalued property market in the world.

Despite that, the CEO said fundamentals remained favourable, especially in Sydney, where his company is based.

He said the state of New South Wales has a shortfall of about 50,000 dwelling units, a gap that developers are scrambling to fill.

“Sydney has a vacancy of 1.7 per cent and that’s extremely low because there’s a supply crisis. So when you put that in perspective — we have low interest rates, a growing population, supply shortage and a lack of developers or builders — Sydney becomes a very attractive place to invest in,” Mr Sunito told TODAY in an interview yesterday.

“Even though many foreign buyers are coming into Australia, for new apartments in the country, 70 per cent of purchases come from local buyers. That shows the strength of local demand,” he added.

Home prices in Sydney grew by a whopping 14 per cent last year. Such an acceleration in prices has given rise to fears of a property bubble forming, which in turn has prompted the country’s banking regulator to urge lenders to exercise greater prudence in handling mortgage risk.

The Australian Prudential Regulation Authority earlier this week issued guidelines that include making banks consider the geographical concentration of risky loans, limiting loan amounts according to income levels and stress-testing borrowers.

The guidelines come as signs emerge of a pullback in the housing boom Down Under, with the latest figures from the Australian Bureau of Statistics showing a slower 1.7 per cent on-quarter rise in prices in the first quarter this year, compared with a 3.5 per cent gain in the previous quarter.

That is in line with Crown’s prediction that prices in Sydney will likely grow at a slower pace of 6 per cent yearly as more demand is being met.

And to cater to the growing demand from Asian investors, the developer has embarked on an aggressive expansion plan with the setting up of its newest offshore sales and marketing office in Singapore.

Mr Sunito said: “This is part of the bigger picture of Crown’s push towards Asia. Singapore is a gateway to that push because from here we can tap into Malaysia, the Philippines and, to some extent, China.

“There are also many Indonesians based here,” he added.

This is Crown’s third overseas office after Jakarta and Surabaya, set up in July last year and January this year respectively.

The company aims to open a fourth office either in Hong Kong or Shanghai within the next year to be closer to the Chinese, currently the largest group of foreign buyers in Australia and for Crown.

“In our projects, we see a range of 15 to 30 per cent of foreign buyers, and 60 per cent of those buyers are from China. Our portfolio will continue to grow and we want to maintain a percentage of foreign buyers (and) that’s why we’re coming to Asia.”

-By Lee Yen Nee

Revamp for surveyors and valuers' institute

Source: Straits Times

Different strands of the surveying profession will have more independence following a revamp of the Singapore Institute of Surveyors and Valuers (SISV). Under the new structure, land surveyors, quantity surveyors, and valuers and general practice surveyors will have their own councils. Previously, all three disciplines had to act through a main council, which is the final decision-making body.

Court rejects couple's bid to buy house

Source: Straits Times 

A couple's bid to buy a $3.68 million house on the back of a backdated option-to-purchase form backfired in the apex court, which threw out the deal. The Court of Appeal overruled a High Court decision last year and made clear it was a matter of public policy that the court "will not assist the buyers to benefit from their own wrongdoing".

Contractor to be prosecuted for mosquito breeding at Leedon Heights

Main contractor at Leedon Residence and D’ Leedon construction sites issued four Stop Work Orders in total for mosquito breeding.

Source: Channel News Asia / Singapore

SINGAPORE: A contractor is facing prosecution for mosquito breeding at the construction sites of Leedon Residence and D'Leedon.

As of Monday (May 26), 130 of the 173 dengue cases in the cluster at Cornwall Gardens, Farrer Road, Holland Rd, and Leedon Heights, involved workers at the construction site for the condominiums. The remaining 43 people are residents in the vicinity.

The National Environment Agency (NEA) says it has issued four Stop Work Orders in total to the main contractor of the two worksites at Leedon Heights. The contractor was slapped with three Stop Work Orders to clean up its Leedon Residence site, for a total of 11 days between April 10 and May 6. Separately, it was issued a six-day Stop Work Order for its construction site for D'Leedon from May 10. 

NEA says the contractor has since stepped up its housekeeping regime and mosquito control measures. It will be prosecuted in court on June 24 for mosquito breeding.

NEA says it has observed a decrease of reported dengue cases in the area, with 13 cases in the last two weeks and the last instance of mosquito breeding found on May 20.

The agency has been stepping up inspections of construction sites ahead of the traditional peak season for dengue in the hotter months of June to October.

- CNA/ek

Sharp rise in number of dengue cases last week

Source: Channel News Asia / Singapore

SINGAPORE: The number of dengue cases has seen a spike in recent weeks, said the Ministry of the Environment and Water Resources (MEWR) in a Facebook post on Tuesday (May 27).

The spike comes ahead of the period between June and October, when dengue transmission rates are usually higher. As such, Singaporeans need to continue to protect themselves and help stop the dengue transmission cycle, the ministry said.

In its post, the MEWR said the hotter months of June to October usually see higher transmission of dengue here due to the shortened breeding and maturation cycles for the Aedes mosquitoes and shorter incubation periods for the dengue virus.

Last week, there were 437 reported cases of dengue, a sharp rise from the 292 cases reported in the previous week. Despite the rising number of cases over the past few weeks, the figures are still significantly lower than the peak of 842 reported in the third week of June last year.

As of Monday, there were 12 active clusters classified as high-risk areas that had 10 or more dengue cases. A National Environment Agency (NEA) spokesperson said there were 173 reported cases in the cluster comprising Cornwall Gardens, Farrer Road, Holland Road and Leedon Heights. Of these, 130 involved workers at the Leedon Residence construction site.

After inspections were conducted, stop-work orders were issued for the Leedon Residence and D’Leedon construction sites.

The NEA said the authorities will continue to check public areas and housing estates for potential breeding grounds daily and where necessary, it will impose “longer stop-work orders for sites where breeding is found, in order to break the transmission of the disease”.

The agency has inspected about 7,700 construction sites in the first four months of this year, up 80 per cent from the same period a year ago.


Real Estate Companies' Brief

Reits may play 'major role in shop rent hikes'

Source: Straits Times 

Real estate investment trusts (Reits), which own numerous malls across Singapore, may play a major role in shop rent hikes, business leaders say. Their views come as a Ministry of Trade and Industry (MTI) study last week found that Reit- owned malls command higher rents, likely because of their better locations and maintenance.

Buyout offer for HPL raised again - to $4.05 a share

Source: Straits Times

The consortium aiming to buy out Hotel Properties (HPL) yesterday raised its offer a second time, this time by five cents a share to $4.05. 68 Holdings, which has also extended the closing date for acceptances from June 2 to June 12, said the new offer is final - unless a competing bid arises.

Privatised CMA may mean more nimble CapitaLand

Source: Straits Times 

The next 12 days will be a tense period for CapitaLand as it waits to see if it can garner enough acceptances to privatise its subsidiary CapitaMalls Asia (CMA). It is already within touching distance of its goal, controlling 85.2 per cent of CMA as at 5pm on Monday so it needs just 4.8 per cent or another 187.1 million shares to hit the 90 per cent level that will allow it to take CMA private.

CapitaLand’s stake in CapitaMalls Asia crosses 85%

Source: Today Online / Business

SINGAPORE — CapitaLand has raised its stake in CapitaMalls Asia (CMA) to 85.2 per cent, bringing it closer to the 90 per cent mark that would enable it to delist its shopping mall arm.

CMA is one of Asia’s largest shopping mall developers and operators, with interests in more than 100 shopping malls across Singapore, China, Malaysia, Japan and India.

“We are pleased with the positive response towards our final offer price of S$2.35 per share for CMA shares,” CapitaLand, South-east Asia’s biggest developer, said in a statement yesterday. “We are optimistic that we will achieve the objective to delist CMA. With the proposed delisting and full integration of CMA, CapitaLand will be able to further harness the key strengths of our businesses in residential, shopping malls, offices, serviced residences and integrated developments to better position us for the future.”

CapitaLand’s offer for CMA will close on June 9. CHANNEL NEWSASIA

Cooling measures hit Bukit Sembawang's Q4 earnings

Source: Business Times / Companies

PROPERTY cooling and loan restriction measures have dented Bukit Sembawang Estates' fourth-quarter bottom line.

The residential property developer reported a 29.1 per cent decline in net pro-fit to $18.2 million for the three months ended March 31, 2014. This translates to earnings per share of 7.04 cents, down from 9.93 cents a year ago.

This was despite revenue rising 94.5 per cent to $89.5 million.

For the full year, net profit dipped 3 per cent to $111.3 million, on the back of a 15.1 per cent rise in revenue to $408.3 million.

-By Lee Meixian

Global Economy & Global Real Estate

UK, Germany top foreign investment ranking: study

Source: Business Times / Executive Money

[PARIS] Britain and Germany topped an annual ranking of foreign investment projects in Europe while France lagged behind though its numbers were on the rise, a study showed yesterday.

Retaining its top position, Britain saw the number of foreign investment projects in the country rise by 15 per cent last year to 799, according to Ernst and Young.

Meanwhile, Germany, Europe's biggest economy and industrial powerhouse, saw an increase of 12 per cent to 701 foreign investments.

France appeared to have halted some of its decline in recent years although the number of foreign investments grew more slowly than in Britain or Germany.

-From Paris, France

Stockland Raises Australand Bid, Values REIT at $2.3 Billion

Source: Bloomberg / News

Stockland (SGP), Australia’s biggest diversified real estate trust, sweetened its proposal to buy smaller rival Australand Property Group (ALZ) in an all-share offer valuing the target at A$2.5 billion ($2.3 billion).

Stockland offered 1.124 of its own shares for every Australand security, equivalent to A$4.35 a share, through an off-market takeover proposal, it said in a regulatory filing. The Sydney-based bidder also made an alternate proposal, with a reduced share component and cash of A$250 million, with the structure to be agreed with the target’s board, it said.

A successful takeover would give Stockland stronger industrial property and residential development books, and boost annual earnings by 5 percent, it said. Today’s bid follows Australand’s rejection on April 23 of a Stockland offer that equated to A$4.20 a share at the time, and A$4.30 based on yesterday’s closing price.

“The question is whether Australand thinks it can do better on its own,” Tony Sherlock, a Sydney-based analyst at Morningstar Inc., said by phone. A successful takeover will likely boost the return on Stockland’s commercial portfolio “because the assets owned by Australand are higher yielding.”

Australand shares fell 0.5 percent to A$4.24 as of 11:15 a.m. in Sydney. Stockland shares rose 0.8 percent to A$3.90, compared with a 0.2 percent gain in the benchmark S&P/ASX 200 index.

Deal Synergies

Australand’s board hasn’t formed a view on the proposal and will consider the offer, the Sydney-based company said in a separate statement.

Stockland is assuming synergies of at least A$15 million in the first year following an agreement, and at least A$25 million every subsequent year, it said today. It expects Australand net tangible assets to remain at A$3.56 a security, it said.

The bid is also based on Australand’s earnings forecast issued March 25, when it said it expects as much as 20 percent growth in operating earnings from 25.6 cents a share in 2013.

“The assets of both companies are complementary and it is our view that Australand and Stockland will be stronger together,” Stockland Chief Executive Officer Mark Steinert said in the statement. “The combined group would be the leading residential developer in Australia, including medium density, the leading owner and manager of shopping centers in regional locations and a top two logistics and business park owner-developer.”

Due Diligence

Stockland, which is still seeking access to Australand’s internal documents, will confirm the final proposal within four weeks, when it expects to complete the first stage of due diligence, it said. Stockland also offered Australand shareholders due diligence, it said.

Stockland on March 19 bought a 19.9 percent stake in Australand from CapitaLand Ltd. The Singaporean company sold 135.32 million shares, a 39 percent stake, for A$849 million.

Today’s proposal represents a 22.2 percent premium to the value of Australand’s tangible assets, and is 18 percent higher than the price at which CapitaLand sold, Stockland said.

-By Nichola Saminather

Strategic Buys Rest of Hotel del Coronado From Blackstone

Source: Bloomberg / News

Strategic Hotels & Resorts Inc. (BEE) agreed to buy the portion of the Hotel del Coronado it doesn’t already own from joint-venture partner Blackstone Group LP in a deal that values the property at $787 million.

The lodging company will pay $210 million for the 63.6 percent stake, and assume an existing mortgage of about $475 million, Chicago-based Strategic said in a statement. The property’s total value excludes about $18 million of cash in the venture.

Blackstone, based in New York, bought a majority stake in the San Diego-area hotel in 2011 and formed a joint venture with Strategic and KSL Resorts to recapitalize the oceanfront resort. The Hotel del Coronado, featured in the 1959 Billy Wilder film “Some Like It Hot,” was valued at about $590 million at the time of that purchase, according to Strategic.

The hotel “is experiencing excellent growth” and “is expected to outperform in the coming years given the lack of any new supply in the San Diego market,” Strategic Chief Executive Officer Raymond “Rip” Gellein said in today’s statement. “The hotel is not encumbered by a long-term hotel-management contract, which creates additional flexibility and value as owner of this property.”

The 757-room hotel’s revenue per available room, an industry measure of average daily performance, grew 11 percent in the first quarter, according to Strategic.

-By Hui-yong Yu

China’s ‘Golden Era’ for Property Over, Vanke President Says

Source: Bloomberg / News

The “golden era” for China’s property market has passed, according to China Vanke Co. (000002), the nation’s biggest developer, which is shifting its focus to homes for owner occupiers rather than investors.

“The period in which everybody makes money out of property is gone,” President Yu Liang told reporters May 26 in Dongguan, a southern city in Guangdong province. “Vanke will take a cautiously optimistic approach to face the slowdown and target those buyers who need homes for self-use.”

The housing market threatens Premier Li Keqiang’s efforts to put the brakes on a slowdown in the world’s second-largest economy that is projected to grow at the weakest pace since 1990. Moody’s Investors Service revised its credit outlook for Chinese developers to negative from stable last week, while home sales slumped 10 percent in the first four months of this year amid tight credit, reversing last year’s 27 percent jump and prompting developers including Vanke to cut prices.

“He should have seen some signs since it’s indeed difficult to make money now compared with before,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co. “Growth we’ve seen before is no longer possible and you won’t be seeing blossoms everywhere again,” he added, using a Chinese idiom to refer to the property boom seen in every city.

Price Cuts

Pressure on Chinese developers was underscored by the collapse of a developer in a city south of Shanghai in March. Moody’s forecasts year-on-year home sales growth will slow to at most 5 percent in the next 12 months, from 27 percent last year. Yu said China’s real estate market is still big enough and Vanke will keep residential property as its main business over the next 10 years.

The value of new homes sold in 2013 rose 27 percent from 2012 to 6.8 trillion yuan ($1.1 trillion), according to the National Bureau of Statistics.

While the company has offered promotions, including discounts for group purchases, “cutting prices will not solve every problem unlike in the past because that won’t help sales of some high-end homes,” Yu said. Developers including Vanke and Greentown China Holdings Ltd. have cut property prices since March to lure homebuyers, according to China Real Estate Information Corp.

‘Big Brother’

Vanke is interested in investing in industrial property and homes for the elderly, Yu said.

China’s new-home prices rose in April in the fewest cities in a year and a half, while home sales fell 18 percent from March, according to government data.

“The market is far from its big turning point,” Vanke’s board secretary, Tan Huajie, said at the same briefing. “As the big brother in the industry, we are responsible to alert risks, but it doesn’t mean we are bearish on the property market.”

The growth in the real estate industry will slow and the phase where “whoever buys makes money” is gone, even as the nation’s accelerating urbanization still promises bright prospects for the market, Vanke Chairman Wang Shi told Caixin, a financial news company, in an interview last month.

New construction has fallen 22 percent and sales, including commercial real estate, have slumped 7.8 percent this year.

While 12 of 18 economists say China has some oversupply of housing, only seven say the market is in a bubble state countrywide, according to a survey conducted from May 15 to May 20 by Bloomberg News. Half see a bubble in some cities, and a majority say the loosening of restrictions on home purchases and loans will be limited to a regional level.

Shares Rise

Vanke’s A-shares rose 1 percent to 8.25 yuan in Shenzhen trading as of 11:58 a.m. local time, extending the rally this year to 2.7 percent. A gauge tracking Shanghai-traded developers rose 0.2 percent.

The developer, which has approval from regulators to convert China-traded B-shares to shares in Hong Kong, will be listed in the city’s stock exchange as soon as late June, Yu said. He said the company doesn’t have any financing plans after the listing.

The developer is seeking to exit the B-share market, which has languished after the nation opened its local-currency stock markets to foreign investors. The company has set June 3 as the last trading day of its B-shares.

-By Bloomberg News

InterContinental Jumps After Report Company Rejected Offer

Source: Bloomberg / Luxury

InterContinental Hotels Group Plc (IHG) climbed to a record in London trading after Sky News reported that the company spurned a takeover bid that valued it at about 6 billion pounds ($10.1 billion).

InterContinental, the world’s largest provider of hotel accommodation, was up 3.4 percent to 2,302 pence at the close of trading, the highest since the company was formed in 2003. That gave the company a market value of 5.9 billion pounds.

“We consider the report to be credible and think the news will support IHG’s stock price in the coming weeks,” analysts at Exane BNP Paribas wrote in a research note yesterday. “This might launch a new M&A wave in the sector.”

Hotel companies are seeking to better compete against online travel companies. The battle against travel websites will “likely trigger a race for critical size in the atomized hotel sector,” Exane BNP Paribas said in its note. Other potential takeover targets include Accor SA, NH Hoteles SA and Rezidor Hotel Group AB, the firm said.

InterContinental, the owner of the Holiday Inn and Crowne Plaza brands, declined to comment on Sky’s May 24 report. Sky said InterContinental rejected an offer from a U.S. company “a few weeks ago” because it was too low. Sky didn’t say where it got the information.

Special Dividend

InterContinental is the best performer on the FTSE 100 index in the past three months after it announced a plan on May 2 to pay a special dividend in July. The Denham, England-based company climbed 18.8 percent during that period, while the U.K. benchmark index was little changed.

The hotel company earlier this month reported higher-than-expected first-quarter revenue as it benefited from growing demand for accommodation in the Americas, which account for about half of the company’s sales.

Accor agreed to buy hotels in Germany, the Netherlands and Switzerland for about 900 million euros, according to a statement today. The Paris-based company is the biggest operator of European hotel rooms, while InterContinental is the largest Europe-based hotel company.

-By Dalia Fahmy

Accor Agrees to Acquire $1.23 Billion of European Hotels

Source: Bloomberg / Luxury

Accor SA (AC) agreed to buy hotels in Germany, the Netherlands and Switzerland for about 900 million euros ($1.23 billion) as part of a plan to boost the company’s real estate holdings.

The purchases will contribute to earnings before interest and tax this year, the Paris-based owner of the Sofitel and Ibis brands said in a statement today. Accor is in talks with Axa Real Estate Investment Managers to finalize the purchase of 11 hotels in Switzerland with 1,592 rooms.

“These transactions send a strong signal of our capability to rapidly implement the strategy of restructuring the HotelInvest portfolio,” Chief Executive Officer Sebastien Bazin said in the statement.

Accor, Europe’s biggest hotel operator, set up its HotelInvest unit to buy properties last year after reversing a previous plan to sell assets and focus on management. Accor opened 4,449 rooms during the first three months of this year as demand grew in all of its main markets apart from France, where a sales-tax increase hurt room rates.

Accor rose 1.3 percent to 38 euros in Paris trading. The stock has gained about 11 percent this year, giving the company a market value of 8.7 billion euros.

Accor is buying 86 hotels with 11,286 rooms in Germany and the Netherlands from funds managed by Moor Park Capital Partners LLP, according to the statement. After the purchases, HotelInvest’s owned hotels will contribute about 68 percent of the unit’s net operating income compared with a medium-term target of 75 percent.

-By Neil Callanan and Dalia Fahmy

Mitsui Fudosan Shares Decline on Share Sale Plan

Source: Bloomberg / Luxury

Mitsui Fudosan Co. (8801)Japan’s biggest real estate developer, fell the most in a year in Tokyo trading after the company said it would raise as much as 324.6 billion yen ($3.2 billion) in a share sale.

The stock dropped as much as 7 percent and was heading for the biggest drop since May 23, 2013. It traded 6 percent lower at 3,139 yen as of 11:12 a.m. local time.

As part of the biggest share sale by a property company in the country in at least four decades, Mitsui Fudosan plans to sell as many as 110 million shares as it expects a boost from the 2020 Tokyo Olympics and the government’s efforts to stimulate economic growth. The proceeds will be used for real estate development as the company sees opportunities ahead of the Olympics, Mitsui Fudosan said yesterday in a filing with the finance ministry.

“Even though Mitsui Fudosan’s shares declined today because of dilution, the company’s investment plan provides a positive signal,” said Hideyuki Shinkai, who helps oversee about 58 trillion yen in assets at Norinchukin Trust & Banking Co. in Tokyo. “Following Mitsui Fudosan, there is a possibility that others may raise funds to invest.”

The 45-member Topix Real Estate Index declined 2.4 percent, the worst performer among the 33 industry groups that make up the benchmark. Shares of Mitsubishi Estate Co. (8802), Japan’s second-largest developer by sales, dropped 1.2 percent, while Sumitomo Realty & Development Co. (8830) fell 1.8 percent.

‘Exciting Time’

Real estate investment in the world’s third-largest economy has picked up since Prime Minister Shinzo Abe pledged to end 15 years of deflation and the Bank of Japan embarked on an unprecedented monetary easing. Mitsui Fudosan’s business environment has changed “dramatically” since it issued its mid-term plan in 2012 as the economy recovers, the Tokyo-based company said in the statement.

“This is an exciting time for Japanese real estate,” said Tim Gibson, head of Asia property equities at Henderson Global Investors Ltd., who helps manage about $130 billion. “They clearly believe in the recovery of Japan, that it’s not just temporary, but sustainable.”

Mitsui Fudosan shares have more than doubled in the past two years. The stock has declined 17 percent this year, compared with a 18 percent drop in the measure that tracks property companies.

“The shares went up sharply over the last two years and now are fairly valued,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. “It’s a sensible time to sell shares.”

Largest Sale

The fundraising will be the largest among Japanese real estate companies in at least 43 years, according to data compiled by Bloomberg. The last time Mitsui Fudosan sold shares to the public was in 1982 when the company issued 12 billion yen worth of securities, said Mitsutoshi Tenda, a company spokesman in Tokyo.

“The announcement is negative for the share price,” said Masahiro Mochizuki, an analyst atCredit Suisse Group AG (CSGN), in a report. “The capital increase departs from the company’s previous plan.”

Mochizuki lowered his price target for the stock to 3,700 yen from 4,300 yen, while maintaining an outperform rating.

Capital Concerns

In 2012, the company forecast net income would reach at least 110 billion yen for the fiscal year ending March 2018 as it strengthened its housing business at home and expanded overseas as part of its six-year plan. In May, Mitsui Fudosan forecast a third straight year of net income growth to 90 billion yen for the year ending March 2015 as its residential business recovers.

As much as $3.2 billion of new shares issued would account for about 10 percent of Mitsui Fudosan’s current market value, according to data compiled by Bloomberg.

“Other companies also are interested in development for the Olympic Games and many want to realize this opportunity.” said Mochizuki. “The move by Mitsui Fudosan has provoked capital concerns of other companies and that’s why we’re seeing their stocks decline.”

The sale in Japan will be managed by Daiwa Securities Group Inc. (8601), Nomura Securities Co. and SMBC Nikko Securities Inc., while the overseas sale will be managed by Daiwa Capital Markets Europe Ltd., Nomura International Plc, Merrill Lynch International and SMBC Nikko Capital Markets Ltd.

-By Kathleen Chu and Katsuyo Kuwako

Home Prices in 20 U.S. Cities Rise at Slower Pace in March

Source: Bloomberg / Luxury

Home prices in 20 U.S. cities rose at a slower pace in the year ended in March as the housing market began to weaken at the start of 2014.

The S&P/Case-Shiller index of property values increased 12.4 percent from March 2013, the smallest 12-month gain since July, after rising 12.9 percent in the year ended in February, a report from the group showed today in New York.

Still-tight lending standards for some Americans and a rise in mortgage rates since mid-2013 have slowed demand, limiting the ability of sellers to keep asking even higher prices. An increased availability of cheaper properties, faster job and income growth, and a sustained drop in borrowing costs this year would help draw more buyers into the market.

“The upward trajectory of prices remains in place, but with a slower rate of appreciation,” said Michael Gapen, senior U.S. economist at Barclays Capital Inc. in New York, whose projection for a 12 percent rise was among the closest in the Bloomberg survey. “There’s still reason to suspect that home prices will rise -- credit availability, on the margin, is actually getting better,” labor market progress is gaining strength and average income is improving, he said.

Stocks were higher, with the Standard & Poor’s 500 index rising 0.4 percent to 1,907.51 as of 9:32 a.m. in New York. Ten-year Treasury yields were little changed at 2.53 percent.

The median projection of 28 economists surveyed by Bloomberg called for an 11.8 percent advance. Estimates ranged from gains of 10.8 percent to 12 percent. The S&P/Case-Shiller index is based on a three-month average, which means the March figure was also influenced by transactions in February and January.

Quarterly Figures

Today’s S&P/Case-Shiller report also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 10.3 percent in the first quarter from the same period in 2013, down from an 11.4 percent year-over-year gain in last year’s fourth quarter, which was the biggest increase since the first quarter of 2006.

Home prices adjusted for seasonal variations increased 1.2 percent in March from the prior month, exceeding the 0.7 percent median in the Bloomberg survey. Unadjusted prices rose 0.9 percent.

The year-over-year gauge, based on records dating back to 2001, provides better indications of trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

All 20 cities in the index showed a year-over-year gain, led by a 21.2 percent climb in Las Vegas and a 20.9 percent advance in San Francisco. Cleveland showed the smallest year-over-year increase, with prices rising 3.9 percent.

Slow Recovery

Home sales have been slow to pick up from a slump in early 2014. Purchases of new homes climbed last month by 6.4 percent, the first gain in three months, to a 433,000 annualized rate, Commerce Department data showed last week. The advance was led by a 47.4 percent surge in the Midwest.

Sales of previously owned homes rose 1.3 percent in April, the first gain this year, data from the National Association of Realtors showed. The increase showed signs of underlying softness, as investors continued to play a big role in the market and the share of first-time buyers was little changed.

Housing began to cool in the middle of 2013, with residential investment becoming a drag on the economy during the last two quarters, its worst six-month performance since the first half of 2009.

The slowdown hasn’t gone unnoticed at the Federal Reserve. Policy makers cited a potential “persistent slowdown” in housing as a downside risk for growth, according to minutes of the April 29-30 policy meeting.

Mixed Indicators

“Housing indicators remain mixed,” David Blitzer, chairman of the S&P index committee, said in a statement. “Mortgage rates are near a seven-month low but recent comments from the Fed point to bank lending standards as a problem.”

The rise in borrowing costs eased in the second half of 2013, providing more incentive for buyers to come off the sidelines. The average rate on a 30-year, fixed mortgage was at 4.14 percent in the week ended May 22, down from 4.53 percent at the start of the year, according to Freddie Mac in McLean, Virginia. The latest rate is less than half its 8.52 percent average in data back to 1971.

Lowes Sales

Home-improvement retailers are looking for brighter prospects as the spring selling season heats up.

While the long winter held receipts at Lowe’s Cos. (LOW) established stores to a 0.9 percent gain in the quarter ended May 2, trailing the 5 percent increase analysts estimated, the Mooresville, North Carolina-based company maintained its forecast that revenue by that measure would advance 4 percent this year.

“We believe stronger job and income growth and gradually loosening credit conditions indicate that the environment for home improvement spending should remain favorable,” Chief Executive Officer Robert Niblock said on a May 21 earnings call.

First-quarter sales and profit trailed analysts’ estimates at Home Depot Inc. (HD), the largest home improvement retailer, ending six straight years of exceeding or meeting projections. The chain reiterated its forecast that revenue would gain 4.8 percent this year and boosted its projection for profit.

-By Michelle Jamrisko

Dubai’s Union Properties Plans Cheaper Hotels Amid Luxury Glut

Source: Bloomberg / Luxury

In Dubai, a city known for some of the world’s most luxurious hotels and penthouses, developer Union Properties PJSC (UPP) is looking to tap demand from people who want to visit the sheikhdom without breaking the bank.

The company plans to build around 1,000 hotel rooms in the next five years to address a shortage in the middle- and lower-end of the market, managing directorAhmad Al Marri said in an interview.

“Most of the demand is at the three- and four-star level, because the majority of existing affordable hotels tend to be located in the older part of Dubai,” Al Marri said. “We can’t invite people to visit the city just to have them come and find it very expensive.”

About 42 percent of the existing supply and at least 56 percent of the rooms to be built in Dubai by 2017 are five-star, which can cost 2,000 dirhams ($550) or more per night, said Matthew Green, head of United Arab Emirates research at CBRE Group Inc. Three- and four-star hotels command nightly rates of 300 dirhams to 625 dirhams, he said.

Dubai plans to almost double hotel rooms as it seeks increase annual visitors to 20 million by the end of the decade, when it will host the World Expo 2020. The emirate, which boasts iconic hotels such as the sail-shaped Burj Al Arab, is encouraging developers to construct affordable hotels to cater to business travelers and families on holiday, Helal Saeed Almarri, director general of the Dubai Department of Tourism and Commerce, said in March.

Seeking Partners

Union Properties plans to build four hotels and is looking for land plots in Business Bay and space along Sheikh Mohammad bin Zayed road owned by Dubai Investment Park, Al Marri said. The company will use its own cash to start construction and may borrow from banks or seek equity partners to complete the work, he said.

“Traditionally, Dubai has been a five-star location as most visitors tend to be wealthy nationals from the Gulf, Russia, India and China,” CBRE’s Green said. “With the rise of the conferencing business and family holidays, we are starting to see a push towards the affordable end of the market and that will continue.”

Union Properties is enjoying a revival in earnings and share price after Dubai’s 2008 property crash led to three years of annual losses. The developer sold the Ritz Carlton at the Dubai International Financial Centre in 2010 and three years later sold the Marriott hotel and swapped the Renaissance hotel for debt after it was unable to complete construction of the properties. The Courtyard Marriott at the Green Community is the company’s only remaining hotel.

Profit Rebound

The company returned to profit last year and in April paid its first dividend since 2009 after reducing debt, Al Marri said. Since then, the developer has focused on high-demand areas such as accommodation, retail and expanding residential communities, he said.

Union Properties closed at 2.15 dirhams in Dubai trading yesterday, up from a record low 0.22 dirham in January 2012. The developer is the second-best performer on the 30-member Dubai Financial Market General Index in the past six months after Arabtec Holding Co. The shares have gained 138 percent, almost twice as much as the index.

The company may raise the foreign ownership limits in its stock once the current limit of 25 percent is taken up, Al Marri said. Legally, the developer can allow foreigners to own up to 49 percent of its shares, he said.

Housing Plans

Union Properties is planning projects with a value of around 4 billion dirhams, according to the managing director. The owner of around 12 million square feet of land is working on designs for five towers with more than 800 apartments and 210 villas,he said.

A surge in shopping and tourism helped Dubai shake off the economic slump sparked by the property market crash. The sheikhdom lured 11 million tourists last year, up 11 percent from 2012. Dubai has 80,000 hotel rooms and is aiming to boost that to 160,000 by 2020, according to Almarri of the tourism department. CBRE’s Green said about 19,000 rooms will be built through 2017.

“We went through the same hardships that other developers went through, such as debt and contractors claims,” Al Marri said. “But now we see a hospitality boom is coming and we are well positioned to ride it.”

-By Zainab Fattah

Hong Kong Curbs on Visitors May Weigh on Mall-Owners’ Earnings

Source: Bloomberg / News

Hong Kong may lose as much as HK$25 billion ($3.2 billion) in retail sales if the government goes ahead with a proposal to cut Chinese tourist arrivals, according to Goldman Sachs Group Inc.

The proposal, under consideration by Hong Kong Chief Executive Leung Chun-ying, will put pressure on the earnings and asset values of landlords and retailers, analysts including Macquarie Group Ltd. and Bank of America Corp.’s Merrill Lynch & Co. unit said.

Public discontent over mainland visitors’ purchases of homes, designer handbags and daily necessities prompted street protests in Hong Kong this year that demanded the government limit arrivals. Curbs on visitors in response may crimp the city’s retail sales, about a third of which were to Chinese tourists in 2013.

“Leung’s words should serve as prelude for some upcoming measures to curb the surging number of Chinese visitors, which should help ease both the burden on public infrastructure and the growing tensions between the mainland Chinese and local residents,” Credit Suisse Group AG analyst Christiaan Tuntono wrote in a report today.

Hysan Development Co. (14), operator of its name-sake mall, is among companies with the most earnings at risk, Macquarie analysts wrote. Merrill Lynch downgraded Wharf Holdings Ltd. (4), a commercial landlord, to neutral from buy. UBS AG today removed Lifestyle International Holdings Ltd. (1212) and Sa Sa International Holdings Ltd. (178) from its Hong Kong most-preferred list and added Wharf to the least-preferred list.

Average rents in Hong Kong’s main shopping districts may decline 5 percent in the next 12 months, property broker Colliers International said earlier this month.

Chinese Shoppers

Visitors from the mainland accounted for 75 percent of Hong Kong’s 54.3 million arrivals in 2013, according to the Tourism Commission. Total arrivals jumped 12 percent last year, the fourth consecutive year of double-digit gains.

Hong Kong may take steps to slow gains in tourist arrivals as an influx of Chinese visitors stokes discontent, Leung said yesterday after the Hong Kong Economic Times reported he sought advice about a proposal to cut mainland visitors by 20 percent. The government is conducting studies and will seek public feedback, he said.

A 20 percent cut in the individual visit visa granted to the Chinese will trim retail sales in Hong Kong by 3 percent to 5 percent, according to Goldman Sachs. Chinese tourists spent HK$217 billion last year, Goldman Sachs said.

Wharf Malls

Wharf and Sunlight Real Estate Investment Trust (435) will suffer the most on their net asset values from falling Chinese tourist spending, Macquarie said.

Mainland visitors account for about 50 percent of spending at Wharf’s Harbour City mall, and about 35 percent to 40 percent at Times Square, Merrill Lynch analyst Karl Choi wrote in a note yesterday. A worst-case scenario would see an 8 percent to 10 percent drop in sales if visitors’ spending were cut by 20 percent, reducing Wharf’s turnover rent, it said.

It will be “difficult for Wharf shares to outperform until any policy change is implemented and the impact on retail sales clarified -- a process that may take some time,” Choi wrote. “Once the dust settles after the next few months, we think investors may be willing to reassess.”

The city’s Causeway Bay district was ranked the world’s most expensive shopping location for rents in 2013, ahead of New York’s Fifth Avenue, according to data compiled by Bloomberg. It cost retailers $3,017 a square foot in the district, data shows.

-By Billy Chan

Manhattan’s Billionaire Row of Condo Towers Spreads South

Source: Bloomberg / Luxury

Manhattan’s Billionaires’ Row is spreading south.

At least three new luxury condominium towers are in development on 53rd Street, following the lead of the residential skyscrapers dotting 57th Street near Central Park that are setting height and price records. They’re part of a wave of projects designed to appeal to ultra-wealthy buyers seeking the investment haven of New York real estate.

A model apartment is opening this week at the Baccarat Hotel and Residences, a 50-story tower under development on West 53rd Street and Fifth Avenue, across from the Museum of Modern Art. Singapore-based Pontiac Land Group is joining with Goldman Sachs Group Inc. and Hines to construct a 72-story condo tower on the same block. Farther east, China Vanke Co., China’s biggest publicly traded developer, is working with Aby Rosen’s RFR Holding LLC on a 61-story building on Lexington Avenue.

“The width of the 57th Street corridor has extended two blocks north to Central Park South, and at least to 53rd Street,’’ said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc. “It’s core midtown Manhattan, the center of the business district, and it continues to be morphed into this high-end residential neighborhood.”

Luxury condos on 53rd Street are poised to bring more wealthy residents to an area known for corporate offices, restaurants and tourist destinations. To the east, at 53rd Street on Park Avenue is the Seagram Building, where Wells Fargo & Co. (WFC) is a major tenant. The 21 Club restaurant is on 52nd Street between Fifth and Sixth avenues, two blocks north of Rockefeller Center. To the west, the Ed Sullivan Theater, home to the “Late Show with David Letterman,” is off 53rd and Broadway.

Baccarat Condos

Additional development on the street and in the area will enhance the neighborhood’s appeal, said Mark Gordon, a managing partner of Tribeca Associates LLC, which is backing the Baccarat project with Barry Sternlicht’s Starwood Capital Group LLC.

More than 60 percent of the 60 condos at the Baccarat have sold since sales began in March 2013, Gordon said. Several buyers have upgraded to larger units or purchased second apartments at the tower, where prices range from $3.95 million for a one-bedroom to $60 million for the two-floor penthouse, he said.

“Not everybody wants to live in the tallest building in Midtown,” Gordon said. “Buyers love that they only have to share the building with 59 families.”

57th Street

Four blocks north, Extell Development Co.’s One57 tower, reaching 1,004 feet (306 meters) and 90 stories, is opening in an area that’s come to be known as Billionaires’ Row, with four skyscrapers rising with homes in the tens of millions of dollars. It will be the city’s tallest residential building until 432 Park Ave., under development by Macklowe Properties and CIM Group, is completed at 1,397 feet.

At One57, Bill Ackman, founder of New York hedge-fund firm Pershing Square Capital Management LP, is part of an investor group that agreed to purchase one of the apartments, a duplex on the 75th and 76th floors. Recently completed deals include a $30.6 million unit on the 58th floor bought by a limited-liability company and a $17.8 million apartment that sold to Richard Kringstein, the chief executive officer of outerwear company Herman Kay Co., city property records show.

A penthouse at nearby 432 Park Ave. found a purchaser who agreed to pay $95 million. Buyers have come from South America, the Middle East, China and Russia, according to the developers.

Steinway Building

At 111 W. 57th Street, JDS Development Group and Property Markets Group are developing a luxury-condo building and conversion of the landmark Steinway building. The skyscraper will stretch to 1,350 feet. Extell also is constructing a condo tower at Broadway and 57th Street that will have New York’s first Nordstrom department store at the bottom.

The 57th and 53rd Street corridors in New York City are drawing a collection of international investors seeking to put cash in Manhattan residential real estate, according to Dylan Pichulik, CEO of XL Real Property Management, a property-management company that works with overseas buyers.

“Foreigners see Midtown as accessible to offices, theater, to Times Square,” Pichulik said. “While it’s not on a typical New Yorker’s top list of neighborhoods, there is a fair amount of interest from foreigners.”

At the Baccarat, named for the crystal established by King Louis XV, about 40 percent of the units purchased so far have been by non-U.S. residents, said Gordon, the developer. Of the domestic buyers, about half are New Yorkers, with others coming from states such as Texas and California.

Rising Supply

The new construction is adding to the inventory of luxury homes as more New York apartment owners are putting their properties on the market, seeking to profit from the surging demand. The supply of luxury apartments for sale increased 35 percent to 1,380 in the first quarter from a year earlier, with new-development listings almost doubling, according to Miller Samuel and brokerage Douglas Elliman Real Estate.

The firms define luxury homes as the top 10 percent of all sales by price. The median at that level was $5.75 million.

The high-end construction could lead to too much luxury inventory in Midtown, according to Donna Olshan, president of Olshan Realty Inc. and author of a weekly newsletter on the New York luxury market.

“The very top, the north of $10 million market, has the potential of getting saturated in a year to two years from now,” she said.

Luxury Listings

Last week, there were 77 Manhattan properties listed for $30 million or more, according to data from, a real estate website owned by Zillow Inc. The median asking price per square foot of those homes was $5,445. Two resellers are asking at least $100 million for their properties.

The Baccarat is unique because it offers buyers access to the luxury Baccarat Hotel, scheduled to open by year-end, Gordon said. Residents can use hotel services including housekeeping, a private dining room and event space with a catering kitchen, as well as a spa with a 55-foot marble pool.

The building also has more private layouts than some of the other larger towers, with homes stretching the entire floor, Gordon said.

“You can be king of the castle here,” he said. “If a buyer is interested in a 4,500-square-foot residence, they could own their own floor and have the prestige and exclusivity and security that go along with that. In some of the other competitive buildings in the area, that owner may be one of two or three on the floor.”

Price Increases

Tribeca Associates has increased prices on at least 35 of the units since its original offering plans were filed in February 2013. A 4,557-square-foot (423-square-meter) full-floor apartment on the 47th floor was listed for $27 million in April, a 23 percent markup from its initial offering price. Another unit on the 46th floor was increased to $26 million from $21.75 million in February last year, sales documents filed with New York State Attorney General Eric Schneiderman’s office.

Sales at the other two 53rd Street condo towers have yet to start. China Vanke and RFR’s building at 610 Lexington Ave. broke ground on Feb. 25. The developers declined to comment on the project’s status.

“Demand for highest-end condominiums in Midtown has never been stronger,” Rosen, co-founder of RFR, said in a February statement. “Our goal is to combine the finest residences with thoughtful, creative amenities that enhance Manhattan living.”

MoMA Space

The building from Pontiac Land and Hines is slated to reach 1,050 feet, about the height of the Chrysler Building, on a 17,000-square-foot lot near Sixth Avenue, according to Houston-based Hines. It would include 145 apartments, and 60,000 square feet on the second through fifth floors for the Museum of Modern Art to expand its galleries.

“The last time we saw a residential phenomenon like this was in the late ’70s and ’80s when about a half a dozen glass towers were built for residential use,” said Miller of Miller Samuel, referring to skyscrapers including CitySpire tower and Trump Tower in Midtown. “Developers on the 57th Street corridor are the early adopters. Now everybody is fighting to have the tallest, thinnest, most-expensive building.”

-By Heather Perlberg