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30th May 2014

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Are tightening foreign worker quotas causing construction delays?: MPs

Minister of State for National Development Desmond Lee says there are measures in place for contractors facing a manpower shortage, and quality and safety have not been compromised. 

Source: Channel News Asia / Special Report

SINGAPORE: The Housing and Development Board (HDB) has granted 36 projects a time extension in the past two years, for reasons such as changes in design and inclement weather.

Of these, liquidated damages were levied on six contractors for delays in seven projects, due to factors like poor project planning, said Minister of State for National Development Desmond Lee in Parliament on Thursday (May 29).

He was responding to a question by Mr Gan Thiam Poh, Member of Parliament for Pasir Ris-Punggol GRC. Mr Gan also asked about the measures the National Development Ministry had in place to ensure safety and quality are not compromised during the construction of HDB flats, in light of tightening foreign worker quotas.

To this, Mr Lee said HDB sets the required quality standard before construction begins, based on the construction of sample units. It also carries out audits while work is being carried out.

The housing agency adopts the Construction Quality Assessment System (CONQUAS), which is an independent benchmark of construction quality. Over the years, HDB's CONQUAS scores have been rising, added Mr Lee.

MP for Chua Chu Kang GRC Zaqy Mohamad related experiences of delays in some Lift Upgrading Programmes in his estate, with contractors saying they are unable to get foreign workers.

Mr Lee said HDB has helped contractors defray costs in the mechanisation uptake, and raised workers' skill levels through the Construction, Productivity and Capability fund. Beyond that, contractors can apply for more workers through the Man-Year Entitlement Waiver Tier, he added, but this option would incur higher levies. 

- CNA/xy

Housing an important part of CPF system: Chuan-Jin

Source: Today Online / Singapore

SINGAPORE — Ensuring that the Central Provident Fund (CPF) system caters to Singaporeans’ housing needs is an “important component” of the scheme, said Minister for Manpower Tan Chuan-Jin yesterday, in response to parliamentarians’ suggestions to tweak the system such that less CPF monies are spent on housing, leaving more for healthcare and retirement needs.

Speaking in Parliament during the debate on the President’s Address, Mr Tan also noted that higher CPF interest rates — which Members of Parliament (MPs) also called for — could mean greater risk, and explained why the use of the CPF monies should not be made more flexible.

The concerns of the MPs about the adequacy of CPF to meet Singaporeans’ needs followed the annual announcement by the Government about the raising of the Minimum Sum earlier this month. President Tony Tan, in his address at the reopening of the 12th Parliament two weeks ago, had said the Government would improve CPF savings and annuity schemes, and develop more options for seniors to monetise their homes.

Yesterday, Mr Tan said the Government has to cater for people’s housing needs. “There are those who asked whether the CPF should also, apart from providing for retirement adequacy, be looking at housing adequacy,” he said. “We believe it is an important component and this forms part of that pillar.”

The Government will make sure housing remains an option for people, not just in terms of access but also in terms of options for monetising their homes at the later stage of their lives, such that it also enhances their retirement adequacy, he said.

Last week, Ang Mo Kio GRC MP Inderjit Singh told TODAY that in tandem with more affordable housing, the CPF Board could further limit how much Singaporeans could use from their Ordinary Account to buy property, leaving more for retirement instead. Whampoa MP Heng Chee How also suggested that the allocation to the CPF sub-accounts could be tweaked.

Yesterday, Hougang MP Png Eng Huat also urged the Government to provide more flexibility in the system by offering an earlier draw-down age. Along with other MPs — including Mr Zaqy Mohamad (Chua Chu Kang GRC) and Ms Tin Pei Ling (Marine Parade GRC) — he also called for ways to provide higher returns on CPF monies to better withstand inflation.

While acknowledging that this is a fair consideration, Mr Tan pointed out that with higher returns come higher risks. “If you have funds and there is a downturn in the market, at that point of withdrawal, would it affect your returns?” he asked.

He noted that the current CPF interest rates were far higher than rates from similar products in the market, but assured that this was an area the Government is looking at in enhancing CPF Life.

Mr Tan also said there was good reason for not allowing full flexibility in the use of CPF monies. The CPF is aimed at allowing peace of mind by providing a constant stream of income in retirement.

“If you allow monies to be extracted early, prematurely, there will be concerns,” he said.

-By Siau Ming En

Singapore Real Estate

Singapore Home Prices May Drop Further, Standard Chartered Says

Source: Bloomberg / Luxury

Singapore’s home prices will probably fall further before the housing curbs introduced in the past five years are scaled back, Standard Chartered Plc (STAN)’s Southeast Asia head said.

“You would start to take away some of these measures if price growth reaches a certain level of equilibrium,” Lim Cheng Teck, chief executive officer for Asean or the Association of Southeast Asian Nations, said in an interview in Singapore yesterday. “I don’t think we are at an equilibrium yet.”

The city’s private home prices dropped by the most in almost five years following a campaign that started in 2009 to curb property market speculation, with government curbs ranging from taxes on property sales, additional levies on foreign buyers and mortgage limits.

Lim declined to predict how much of a downside he expects for home prices before housing measures would be lifted. Monetary Authority of Singapore Managing Director Ravi Menon said on May 24 that the property measures may not be permanent and will only be used from time to time, the Business Times reported, citing a speech.

Under Singapore’s loan framework, lenders must consider a borrower’s total debt when granting mortgages, the Monetary Authority, which is the central bank, said last year. A borrower’s loan repayments, including mortgages, shouldn’t exceed 60 percent of income, based on the policy guidelines.

Too Early

“It’s still too early to remove curbs,” said Donald Han, managing director of Chesterton Singapore Pte, a real estate consulting company. “The government will monitor but their fingers won’t be pressing any buttons at this point in time.”

Some developers that have cut prices by 10 percent to 15 percent are drawing buyers, he said.

Lim’s outlook mirrors those of CapitaLand Ltd. (CAPL), Singapore’s biggest developer, which said in February that the government may start easing some of its property measures if home prices drop between 5 percent and 10 percent this year. Some curbs that were introduced were for the “short term,” such as stamp duties or taxes for homebuyers, CEO Lim Ming Yan said in an interview at the time.

An index tracking private residential prices fell 1.3 percent in the first quarter, following a 0.9 percent drop from a record in the previous three months, according to government data. The latest decline is the largest since June 2009.

Declining home sales also eased demand for housing loans. Mortgages increased just 7.9 percent in March, the slowest pace since June 2007, according to central bank data.

The curbs “really prevented the bubble from forming,” Standard Chartered’s Lim said. “This downward adjustment in prices is not a very drastic and sharp drop. That would add to the stability of the market.”

Elsewhere in the region, Lim said the “big growth markets” for the bank are Indonesia, the Philippines and Malaysia. Standard Chartered, which employs 30,000 people in Southeast Asia, is “keen to participate” in the Myanmar banking sector when it’s opened to foreign lenders, he said. The bank has a representative office in Yangon.

-By Sanat Vallikappen and Pooja Thakur

Construction crunch taking toll on housing developments

Developers find it a challenge to meet deadlines with limited manpower

Source: Today Online / Singapore

SINGAPORE — The construction industry crunch has affected housing projects across the island, with construction companies saying it is a challenge to meet deadlines with the limited manpower.

Projects have been delayed, despite employees working overtime and into the night in some instances. While the structural safety of housing projects has not been compromised, given the stringent standards enforced by the Building and Construction Authority, industry players TODAY spoke to conceded that workmanship — particularly in private residential projects that may not be subject to rigorous checks — could be affected in the rush.

The construction boom in recent years has coincided with the Government’s tightening of foreign manpower. The authorities have been encouraging the construction industry, which is heavily reliant on imported labour, to improve its productivity by using automation or the prefabrication method, for example.

On Wednesday, Prime Minister Lee Hsien Loong announced that the Government is deferring S$2 billion worth of projects to ease the crunch.

Mr Jwee Quek, general manager at Parafoil Design & Engineering, said that while he only picks projects that he is sure his firm can complete, he has seen some developers cut corners to prevent losses and slipshod work is common.

A contractor who declined to be named said he had no choice but to push workers to work long hours, sometimes more than 60 hours per week. They also do not have days off unless they request for them. “If you have more people, the workload can be spread,” he said. His firm makes sure workers are paid for their time and those who worked through the night would get rest the next day.

The impact seems to be felt more keenly in projects by private developers. Over the past two years, at least five projects — executive condominium project The Canopy, Design, Build and Sell Scheme project The Peak, The Coast at Sentosa Cove, The Sail @ Marina Bay and La Dolce Vita — have made headlines after residents complained about shoddy workmanship.

Schedule, quality of BTO flats unaffected: HDB

In contrast, the quality of public housing projects has improved, based on the Construction Quality Assessment System (CONQUAS).

Responding to TODAY’s queries, a Housing and Development Board (HDB) spokesperson said the average CONQUAS score for HDB flats rose from 79.9 in 2007 to 88.5 last year. This is above the current national average CONQUAS score of 87.5, she said. The HDB attributed the higher quality partly to the use of the prefabrication method. The spokesperson noted that precast structural components produced in the factory environment typically offered much better quality compared with on-site construction. Property analysts noted that the prefab method also reduces manpower requirements, but at the expense of design.

The HDB also has a robust framework of quality assurance and checks, such as civil and structural audits and building inspection teams, the HDB spokesperson said. She added: “The quality of HDB flats has not been compromised despite the ramping-up of our building programme in the past few years.”

Still, the deadlines for 36 HDB projects were extended for a variety of reasons, including changes in design beyond the control of contractors or exceptionally inclement weather. Of these, 14 were completed in 2012 and the remaining last year.

Minister of State (National Development) Desmond Lee said yesterday in Parliament that of the 36 projects, liquidated damages were levied on six contractors for delays in seven projects because of poor project planning, coordination and execution, for instance.

The HDB spokesperson said that notwithstanding the extensions, all Build-to-Order projects in the past two years were completed within the estimated completion dates. She added: “The HDB faces the same challenges as other developers. But we will continue to do our best to deliver the flats according to schedule.”

New condos bear the brunt?

An owner of a Pasir Ris Grove condo unit, who wished to be known only as Victor, said he was dissatisfied that the parquet flooring had hollow spots and scratches when he received the keys to his unit two years ago.

Another condo owner, Mr Teo, 44, an IT manager, said he was frustrated with slow progress on problems such as slanted sliding doors and chipped floors in his unit at The Canopy.

Mr James Tan, 30, who stays at The Peak, said he found minor defects such as holes between floor tiles when he moved in. Within a year or so, the windowsill stopper no longer worked and would leak water when it rained, while the boards of his cupboard started to bend and show cracks, he said.

Mr J A Goh, assistant division director of property firm ERA Realty Network, said he had seen an increase in more serious complaints in the past two years.

Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants, noted that foreign developers tended to bring their own standards of quality and supervision, which may differ from those here.

Mr Chua Hock Tong, chief executive of construction and property company UE E&C, said there had been a record-high level of construction activity in the past few years. Yet, at the same time, the industry has been fraught with various challenges, he noted.

Mr Donald Ng, head of sales and marketing at a developer here, said his firm had processes in place, such as ensuring it does not accept handover from main contractors until defects spotted during checks have been rectified.

Noting that buyers’ expectations and demands have also increased, Mr Ng said: “If (we) had more time, (we) would spend (it) doing and laying those tiles. But not (having) enough workers means (we) don’t have enough time ... and we have to meet the standards and the demands of (the buyers), which is tough.”

-By Joy Fang

Another EC site put up for tender

Source: Business Times / Property

[SINGAPORE] The Housing and Development Board (HDB) has released another executive condominium (EC) site for tender. The site is expected to yield about 620 residential units.

The 99-year leasehold site at Sembawang Avenue is launched under the Confirmed List of the first half 2014 Government Land Sales (GLS) programme.

It has a land area of 22,189.7 square metres and has a maximum gross floor area of 62,131.2 sq m. The site is adjacent to Skypark Residences, an EC that is jointly developed by JBE Holdings and Keong Hong and was launched late last year.

Property consultants expect bidding for the site to be moderate and realistic, as seen in the winning bids for the two EC sites in Yishun that closed last week.

-By Lynette Khoo

Sembawang EC site launched, developers likely to be cautious

Source: Today Online / China

SINGAPORE – The Housing and Development Board (HDB) has released for sale an Executive Condominium (EC) site in Sembawang Avenue, with analysts saying the tender will likely attract conservative bids from developers as sentiment in the property market weakens.

The 99-year leasehold site, released from the Confirmed List of the First Half (1H) 2014 Government Land Sales (GLS) programme, sits on a 238,848sqf area. With a plot ratio of 2.8, it can be developed into a gross floor area of about 668,774sqf or about 620 homes, said the HDB yesterday.

Mr Nicholas Mak, executive director of research and consultancy at SLP International Property, said while the site’s location is not attractive, it would draw interest from developers looking to build their land banks. But he added that they would likely be cautious with their bids.

“The subject land parcel is the second EC site located along Sembawang Crescent, with the first being Skypark Residences ... As with Skypark Residences, the location of the land parcel on offer is not particularly inspiring.”

The housing estate is a quiet, non-mature neighbourhood located far from the Central Business District area, while the site is a 700m walk from Sembawang MRT Station, he noted.

“However, as the locational attributes of all EC sites in the current GLS programme 1H 2014 are more or less similar, we expect the site to still draw interest from developers who need to replenish their land banks. As such, we predict that the site would attract fairly healthy interest from five to eight bidders,” he added.

Two EC sites in Yishun, whose tenders closed last Friday, attracted top bids of about S$330 per square foot per plot ratio (psfppr) and S$335 psfppr. These were at the lower end of analysts’ range of expectations as cooling measures and loan curbs continued to dampen developers’ bids.

Under rules announced last December, EC buyers are now subject to a Mortgage Servicing Ratio of 30 per cent, while second-time applicants who buy such units from developers will have to pay a resale levy.

Mr Mak said that, based on the Yishun results, developers are likely to submit a top bid of between S$300 and S$340 psfppr for the Sembawang site. The tender will close on July 10.

Automobile association pays $43m for East Coast building

Price translates to 4.5% gross yield; purchase said to be for investment

Source: Business Times / Property

[SINGAPORE] The Automobile Association of Singapore (AAS) is buying a five-storey commercial building at the corner of East Coast Road and Chapel Close for $43 million.

The association is understood to be buying the freehold building, named Tides, as an investment property. The building is fully leased with food and beverage (F&B) outlets on Level 1, shops on Level 2 and offices on the third to fifth levels.

Located in District 15, Tides is in an established lifestyle and F&B enclave. The top two levels of the blue building are set back from the East Coast Road frontage of the property by a roof terrace above the third level. The net lettable area is 22,927 sq ft. Tides has 18 basement car-park lots.

Tenants include Italian restaurant Spizza, Artists Academy, I.Poise Jewels and an interior design firm.

-By Kalpana Rashiwala

Collective sale meeting: No-show by HPL's firms

Source: Straits Times

Firms owned by property tycoon Ong Beng Seng's Hotel Properties (HPL) recently sought to initiate the collective sale of Ming Arcade, near Orchard Road, but mysteriously failed to follow through. The HPL-linked firms, the majority owners, called for a meeting with subsidiary owners to be held last Saturday but did not turn up - angering owners who had gathered in anticipation.

JTC Food Hub to feature shared cold room facilities

It will be the first integrated, multi- tenanted complex for food producers

Source: Business Times / Singapore

THE upcoming JTC Food Hub in Senoko will feature shared integrated cold room warehouse facilities which will reduce initial start-up cost of tenants and enable them to enjoy better economies of scale and lower operating costs.

The shared facility will be operated by a third-party logistics service provider that will also offer a full suite of logistics services to tenants; JTC will be calling for proposals from interested parties to operate the integrated cold room warehouse in the coming months.

Speaking at the opening ceremony of the Singapore Food Expo yesterday, Lim Hng Kiang, Minister for Trade and Industry, said that he was glad to note that JTC Corporation will be commencing construction of the new food hub later this year.

When it is completed by 2017, it will provide key infrastructure to support the push for further productivity improvements by small and medium enterprises in the food sector, he said.

-By Mindy Tan

GIC's planned Florida golf property sale may bag $250m

Source: Straits Times

Singapore's GIC is planning to sell the Great White Course, a 52-hectare golf property adjacent to Trump National Doral Miami that may fetch US$200 million (S$250 million) as real estate prices surge in southern Florida.

GIC to Sell Florida Golf Course Bought From Paulson Group

Source: Bloomberg / Luxury

Singapore’s GIC Pte is planning to sell the Great White Course, a 130-acre golf property adjacent to Trump National Doral Miami that may fetch $200 million as real estate prices surge in southern Florida.

The sovereign-wealth fund hired CBRE Group Inc. to market the course, which it bought in February 2013 as part of its $1.5 billion acquisition of bankrupt resorts owned by a group led by hedge fund Paulson & Co. The land has permits for residential, office and retail development, according to CBRE Vice Chairman Robert Given and Senior Vice President Gerard Yetming.

Demand for real estate is climbing in Doral, 12 miles (19 kilometers) west of downtown Miami, driven by property investors from the U.S. and Latin America along with employees from companies including Miami-based Carnival Corp. (CCL) Doral’s population is projected to increase about 15 percent over the next five years, almost double the 6.9 percent growth rate projected for Miami-Dade County, according to CBRE.

“The Doral market currently is the second-largest office market in South Florida,” Given said in a telephone interview. “It’s already an international destination for in-migrating families. It has a huge consumer base. At the same time we have hit all the urban boundaries. We can’t build into the Everglades. It’s making this a high-barrier-to-entry market.”

Lay Choon Mah, a GIC spokeswoman, declined to comment on the planned sale.

Population Growth

The office-vacancy rate in Doral in the first quarter was 15.4 percent, compared with 17.4 percent statewide, according to data provided by CBRE.

Doral has benefited from the property resurgence in neighboring Miami. About 21,430 condos are proposed or under construction in Miami-Dade County, according to, which tracks development in South Florida.

Great White, operated by Trump National Doral Resort, has entitlements for the development of 66 acres (27 hectares) including as many as 2,709 condominiums, apartments and single-family homes; more than 800,000 square feet (74,000 square meters) of office space; and as much as 300,000 square feet of retail. The property is likely to sell for $150 million to $200 million, according to Given and Yetming.

GIC has been on a shopping spree for U.S. office properties. In January, Time Warner Inc. said it’s selling its headquarters space at New York’s Time Warner Center to GIC, Related Cos. and Abu Dhabi Investment Authority for $1.3 billion.

“Now is the right time for GIC to market and monetize on their large investment that was made some time ago,” Yetming said. “This is an extremely exciting area. It’s a very fast-growing community within the Miami metropolitan area.”

-By Nadja Brandt

How much you ‘save’ on property along the North-South MRT line

Source: Today Online / Business

Yesterday, you moved into the 1,000sqf condominium you bought in Novena. Today, you board the North-South MRT line for your office in Raffles Place. For every minute that you are on the MRT, you “save” S$81,479 on the purchase of your home, compared with someone who has bought a comparable unit within a kilometre of Raffles Place.

S$81,479 a minute! For the first time in your life, you wish you had a longer commute. In your case, Novena is 11 minutes from Raffles Place. You save a total of S$896,269 by living within a kilometre of Novena MRT station. Not bad for an 11-minute commute. And think of how productive you can be in those 11 minutes — for example, replying to your email messages or reading the TODAY newspaper.

Or, perhaps, you could listen to some music while you dream of how you are going to spend the S$896,269. You could buy another home or put 3.7 kids through four years at Harvard, or treat yourself and your friends to 746,891 cups of coffee from your favourite hawker stand.

In life, we make choices. When it comes to property, location is the primary determinant of how much we pay. In the case of the North-South MRT line, the general rule is that the longer your commute, the more you save.

So, after a long day at the office, instead of dreading your 38-minute commute from Raffles Place to Woodlands, plug in your earphones, sit back and dream about how you are going to spend your S$1,525,016 in savings.

-By Sam Baker

Views, Reviews & Forum

Building liveable cities is a serious business

Singapore's urban systems approach is a result of public and private sector cooperation

Source: Business Times / Editorial & Opinion

SINGAPORE has transformed from a basket case of urbanisation to one of the most liveable cities in Asia, if not the world. In the early 60s, we had a population of less than two million, yet many people lived in squatter huts and overcrowded shophouses. We had droughts, floods, pollution, traffic congestion, crime and disease. Fifty years on, in spite of our land and resource constraints, our population has tripled and residents have a higher quality of life in a clean environment, as well as a competitive economy with one of the highest gross domestic product (GDP) per capita in the world. Singapore has been consistently ranked by Monocle as among the top 25 most liveable cities in the world.

This has been accomplished with good governance and planning, through an urban systems approach. The innovative urban solutions that enabled Singapore's achievements are a result of the public sector systematically working with the private sector over the decades. Some of these solutions are now being exported as Singapore becomes a hub for urban solutions in areas like water and the environment, and in urban planning, housing and transport. Many companies have chosen to locate not just their regional business operations, but also to set up research laboratories here, for example at the Cleantech Park at Nanyang Technological University (NTU) and at PUB's Waterhub.

Clean, green and blue

In making Singapore clean, green and blue, we have developed a sewerage system to serve 100 per cent of our population and acquired expertise in used water technology when we built our sewer networks and treatment plants like the Deep Tunnel Sewerage System (DTSS) and the Changi Water Reclamation plant. We have built five NEWater plants and two desalination plants, more than any other city in such a short period. In the process, we have given companies such as Hyflux, Keppel and Sembcorp a strong edge over their competitors internationally. They have won many contracts to build and operate plants in China, the Middle East and North Africa.

-By Khoo Teng Chye

Guidelines for agents marketing foreign properties

Source: Straits Times

Mr Stuart Bygrave's letter ("Before taking plunge into UK property market..."; May 22) highlighted the potential pitfalls of Singaporeans buying properties in Britain. All property transactions handled by estate agents in Singapore, including those involving foreign properties, are regulated by the Council for Estate Agencies (CEA).

Global Economy & Global Real Estate

Iskandar reaching critical mass as investments rise

Source: Today Online / Business

SINGAPORE — Iskandar Malaysia is attracting investments that will form a critical mass to kick-start economic activity and power the region to become the special development zone that the Malaysian government envisions it to be, said Ms Sarena Cheah, joint managing director of property developer Sunway Berhad’s property development division.

And along with robust economic activity, there will be greater demand for the increasing supply of homes being constructed or planned for launch in Iskandar.

“Having many companies coming into Iskandar is a good thing … because we need the critical mass to start anything. For Iskandar to work, everyone should do well. We’ve seen nodes of activity coming up in the healthcare, education and oil and gas industries ... then residences will come in,” Ms Cheah told TODAY yesterday.

“As of the end of last year, Iskandar had committed investments of RM130 billion (S$50.7 billion) and as we understand, more than half of them have already been invested. I think that’s very well … and we’re talking about reputable companies and even the Singapore Government putting money into Iskandar,” she added.

Singapore firms such as private education provider Management Development Institute of Singapore, property developer CapitaLand and electronics manufacturer Nestronics are three that have established a presence there, despite growing worries about its diminishing cost advantages.

Ms Cheah said Singaporean interest in owning a property in Iskandar is boosted by the favourable exchange rate, which stood at 2.56 yesterday. In addition, the Medini zone within Iskandar is exempted from cooling measures implemented by the Malaysian government, which restrict foreign buyers to properties at or above RM1 million. They are also required to pay the Real Property Gains Tax of 30 per cent for units sold within five years of ownership and 5 per cent for those offloaded after the fifth year.

“There has been very strong support for the Iskandar special economic corridor and Medini being exempted from the cooling measures can actually benefit the region,” said Ms Cheah.

A report from Malaysia’s National Property Information Centre showed there were close to 300,000 homes being built or in the planning stage in Johor as at Q4 last year. In Iskandar, residential projects in the pipeline include Chinese developer Country Garden’s 9,000-unit development and a project by Iskandar Waterfront, which will yield more than 4,000 homes.

Sunway’s latest project is a 728ha township in Iskandar. Its first phase, an integrated development named Citrine, will be launched next month. TODAY understands that its 328 residential units will be offered at a starting price of around RM800 per sq ft.

-By Lee Yen Nee

U.K. House Prices Rise as Consumer Optimism Improves

Source: Bloomberg / Personal Finance

U.K. house prices rose for a 16th month and consumer confidence increased to a nine-year high on an improving outlook for the economy.

Hometrack Ltd. said home prices in England and Wales increased 0.5 percent in May after a 0.6 percent jump in April. In a separate report, GfK NOP Ltd. said its sentiment index jumped 3 points to 0 this month, the first time there hasn’t been a negative reading since April 2005.

Britain’s strengthening economic recovery has helped to boost property-market demand, creating an issue for Bank of England policy makers as price increases strain affordability. Banks have tightened up mortgage-lending criteria and the BOE’s Financial Policy Committee will assess risks posed by property at its meeting next month.

“Strong price increases, widespread talk of a possible housing bubble and recent warnings from the Bank of England on house-price inflation are starting to test the resolve of buyers,” Richard Donnell, director of research at Hometrack, said in a statement.

Property demand continued to outpace supply in May, according to Hometrack, though it said growth in demand is beginning to moderate. There were other signs of a softer market, with the share of postcodes reporting price gains slipping to 42 percent from 50 percent.

Prices in London’s commuter area in the South East led gains this month with a 0.7 percent increase, followed by a 0.6 percent rise in both the capital and the East Midlands.

Upbeat Outlook

GfK’s survey showed that optimism about the economic outlook jumped 4 points to 12 this month. A measure of people’s assessment of their personal financial situation in the next 12 months rose 1 point to 6 and an index on the climate for making major purchases rose 1 point to minus 3.

The British Chambers of Commerce raised its growth forecast for the U.K. today, and sees 3.1 percent expansion this year versus a previous estimate of 2.8 percent. The group said GDP will surpass its pre-recession peak in the current quarter, and raised its growth forecast for 2015 to 2.7 percent from 2.5 percent.

The pound rose against the dollar and traded at $1.6729 as of 10:13 a.m. London time, up 0.1 percent from yesterday.

-By Jennifer Ryan

Billionaire Lowy Vows Westfield Split as Trust Postpones Vote

Source: Bloomberg / News

Frank Lowy, the billionaire founder of Westfield Group, said Australia’s biggest shopping mall operator will press ahead with separating its global and local businesses with or without the support of its managed trust.

The board of Westfield Retail Trust (WRT) deferred a vote on the proposal yesterday, saying Lowy’s comments materially changed the outlook for its shareholders. Lowy wants to merge the group’s Australian and New Zealand operations with the trust to create Scentre Group, with A$37.9 billion ($35 billion) of domestic assets under management, and create Westfield Corp. to manage $26.6 billion of global investments.

The 83-year-old billionaire, who opened the first Westfield mall in 1959 and built the company into one of the world’s largest operators, is facing opposition to the reorganization announced in December. Some Westfield Retail shareholders say they would pay too much to take over management of the local business and it would have too much debt.

Losing the vote “will not diminish our determination to proceed with Westfield Group (WDC)’s strategic objective of separating the two businesses,” Lowy said yesterday, according to the text of a speech to the parent’s shareholders. “We will pursue that separation -- but without Westfield Retail.”

Westfield had said on April 14 it would reconsider “alternatives that deliver similar benefits” if the proposal was knocked back. Alternatives included maintaining the status quo, selling additional interests in individual Australian properties, or Westfield Corp. keeping stakes in some Australian malls.

Global Focus

While 98 percent of Westfield Group investors backed the plan, only 74 percent of proxies cast by Westfield Retail shareholders were in favor before the vote was postponed. More than 75 percent support from both entities is needed for the restructure to proceed. Westfield Retail Chairman Richard Warburton said a fresh vote on the proposal would be held in the next 10 to 14 days.

The reorganization would create a clear choice for investors wanting exposure only to Australian and New Zealand malls while allowing the other entity to expand in faster-growing retail markets including the U.S. and U.K.

Westfield Retail shareholders would own 51.4 percent of Scentre and Westfield Group investors would hold the rest under the proposal. Westfield this month said it would reduce Scentre’ debt by A$300 million, cutting its proportion to assets to 37.3 percent from 38.4 percent as of Dec. 31.

‘Too High’

“Westfield Retail is paying too high a price for the operating platform, and it’s being taken up the risk curve with a lot more debt,” said Stephen Mayne, a spokesman for the Australian Shareholders’ Association, whose members together hold more than A$20 million of Westfield Group shares and A$10 million of Westfield Retail securities. “If they’d offered 53 percent of Scentre to Westfield Retail instead of 51.4 percent, then we’d be talking.”

If it loses the vote, Westfield will begin drafting a new proposal immediately and expects to present a revised plan by the first quarter of 2015, Lowy said.

Westfield Group, which controls Westfield Retail as an external manager, proposed that Scentre pay for the right to control itself. This would turn it into a standalone company whose only ties to Westfield Corp. would be Lowy, who would chair both companies, and the Westfield branding on its malls.

While the company didn’t explicitly state the price Westfield Retail shareholders will pay for the management and development platform, Stuart Cartledge, managing director at Melbourne-based Phoenix Portfolios, in February estimated it would be about A$1.9 billion.

“Scentre Group is a better proposal, because it wouldn’t have the conflicts that an external management structure creates,” Cartledge, who voted Phoenix’s Westfield Retail shares against the plan, said by telephone before the announcement. “But it doesn’t make sense to pay a premium.”

Westfield Group shares have risen 7.5 percent this year, compared with a 3 percent gain in the benchmark S&P/ASX 200 (AS51) Index. Westfield Retail shares have climbed 9.1 percent in 2014. Both companies were halted from trading yesterday.

-By Nichola Saminather

Pending Sales of U.S. Existing Homes Increased 0.4% in April

Source: Bloomberg / Luxury

Contracts to purchase previously owned homes rose for a second month in April, a sign the residential real estate market is stabilizing after a weak start to the year.

The pending home sales index climbed 0.4 percent after a 3.4 percent increase in March that was the first gain in nine months, the National Association of Realtors said today in Washington. The median projection in a Bloomberg survey of economists called for the April index to rise 1 percent.

Housing demand has cooled as higher prices and borrowing costs put ownership out of reach for some prospective buyers. While mortgage rates have been falling in recent weeks, an improving employment outlook and easier access to credit would provide an additional push for the industry.

“The housing market is getting better,” Patrick Newport, an economist with IHS Global Insight in Lexington, Massachusetts, said before the report. “Going forward we don’t think it’s going to be a drag, it’s going to be a positive for growth.”

Estimates in the Bloomberg survey of 36 economists ranged from a decline of 1.5 percent to an advance of 4.2 percent.

Purchases fell 9.4 percent from the year prior after a 7.5 percent decrease in the 12 months that ended in March, the association reported.

The pending sales index was 97.8 on a seasonally-adjusted basis. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

Pending home sales rose 5 percent in the Midwest and 0.6 percent in the Northeast. Contract signings declined 2.9 percent in the West and 0.6 percent in the South.

Leading Indicator

Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.

“Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers’ confidence,” NAR chief economist Lawrence Yun said as the report was released.

Home sales have been slow to emerge from a slump early this year. New property sales posted their first gain in three months in April, climbing 6.4 percent to a 433,000 annualized rate, Commerce Department data showed last week.

Gains in home prices have started to cool as tight lending standards limit demand. The S&P/Case-Shiller index of property values in 20 cities climbed 12.4 percent in March from a year ago, the smallest 12-month gain since July, data this week showed.

Recent Slowdown

Housing began to slow 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.

Homebuilding subtracted 0.16 percentage point from gross domestic product in the first quarter after a 0.26 percentage-point hit in the final three months of 2013, figures from the Commerce Department showed today. The economy shrank 1 percent last quarter, the first contraction in three years.

Federal Reserve Chair Janet Yellen has flagged housing as a risk to the economy and Federal Reserve Bank of New York President William C. Dudley last week said he was surprised by the industry’s weakness.

Home-improvement retailers including Lowe’s Cos. and Home Depot Inc. (HD) are reporting improved outlooks after an unusually cold and snowy weather slowed sales.

Mixed Market

“Although signals from the housing market are mixed, with existing home sales declining in recent months while home values continue to increase, we believe stronger job and income growth and gradually loosening credit conditions indicate that the environment for home improvement spending should remain favorable,” Lowe’s Chief Executive Officer Robert Niblock said.

“Homeowners increasingly believe that improvements made to their homes will increase their value and consumers’ views around personal finances continue to improve,” Niblock said on a May 21 earnings call. “We believe underlying home improvement industry demand remains intact, despite pressures exerted by unfavorable weather in the first quarter.”

-By Lorraine Woellert

Deutsche Bank Said to Buy 680 Irish Homes From Danske

Source: Bloomberg / News

Deutsche Bank AG (DBK), Europe’s biggest investment bank, bought a portfolio of Irish rental homes from Danske Bank A/S (DANSKE) as the Danish lender pulls back from the country, two people familiar with the matter said.

Danske Bank, based in Copenhagen, agreed this week to sell 680 homes to Frankfurt-based Deutsche Bank, said the people, who declined to be identified because the details aren’t yet public. Danske seized the properties after the owners, who bought them as investments, fell behind with mortgage payments.

Donnchadh O’Leary, a Danske spokesman who works for Edelman in Dublin, confirmed the portfolio had been sold, without naming the buyer or the price. A Deutsche spokesman in London wouldn’t comment on the purchase.

Some of the world’s biggest financial firms are wagering on a rebound in the Irish property market as the country recovers from the biggest real estate crash in Western Europe. The German lender said this month that it’s raising 8 billion euros ($10.9 billion) in capital, partly to help its fixed-income business grab market share.

“Some of this new capital will undoubtedly be put to work in areas such as this in a bid to boost returns,” said Mediobanca SpA analyst Christopher Wheeler, who has a neutral rating on Deutsche Bank’s shares. “They’ve got a new confidence and a new direction.”

Acquistions such as the Danske Bank portfolio may require the lender to set aside more capital compared with other assets to protect against possible losses, according to Wheeler.

Special Situations

Deutsche Bank bought the properties through its structured credit business, according to one of the people. The division focuses on “illiquid credit, securitisations, hard-asset financing and special solutions,” according to its website.

Buy-to-let homes are among the most distressed Irish property assets. About 27 percent of 145,530 buy-to-let mortgages outstanding at the end of 2013 were in arrears, according to the Ireland’s central bank.

While Deutsche Bank joins Lone Star Funds and Paulson & Co. in buying Irish real estate assets, Danske Bank is exiting businesses there to stanch losses in the country.

“The decision to sell the properties as a portfolio reflects our decision to strategically manage down the non-core portfolio in Ireland,” Peter Hughes, head of Danske Bank’s non-core Irish assets, said. “We’re pleased with the outcome which reflects increasing investor confidence in the property market in recent months.”

About 60 percent of the properties are in Dublin and the rest are across Ireland. Many of the properties are vacant and there are no so-called principal private residences in the portfolio, Danske Bank said in a statement.

Some signs are emerging of a recovery in Ireland. Dublin homes gained 3.1 percent in April, the biggest gain in six months, and 18 percent compared with the same period in 2013, Ireland’s central statistics office said this week.

-By Donal Griffin

Mortgage-Bond Revival Cut Short as Wall Street Sidelined

Source: Bloomberg / News

Royal Bank of Scotland Group Plc banker Trez Moore says the firm’s U.S. securities arm recently created a group to buy home loans from other lenders. He’s just not seeing much opportunity for what used to come next.

The post-crisis revival in the business of bundling new mortgages into bonds without government backing and then selling them to investors is petering out. Issuance has dropped to $1.6 billion this year from more than $6 billion in the first five months of 2013 and is a speck of the $1.2 trillion that was sold annually during the U.S. housing boom of the 2000s.

“It’s just barely alive,” Moore, who worked at First Boston Corp. in the 1980s as the market was being created, told an audience of mortgage executives in New York last week.

Six years after the private mortgage-backed securities market came to a halt as it sparked a global seizure in credit, Wall Street hasn’t figured out how to regain its place in a $9.4 trillion housing-finance system lawmakers are trying to rebuild. While home buyers are being served by government programs and bank lending, a fuller revival of the market may eventually be needed to keep borrowing costs low and expand credit.

Lack of Optimism

Moore’s lack of optimism about the current state of a business known as non-agency mortgage securitization was echoed widely at the Mortgage Bankers Association conference last week that focused on the secondary market for home loans.

While lenders are hoping the market can rebound in the near-future, “Vegas is taking odds on that,” said Eric Kaplan, a managing director at mortgage company Shellpoint Partners LP, which is backed by Lewis Ranieri, a pioneer of home-loan securities.

The Federal Housing Finance Agency’s acting inspector general, Michael P. Stephens, said the non-agency market is “almost totally dormant,” citing a failure to restore investor trust after an era of “fraud and deceit.”

A dearth of confidence in the securities from bond buyers is compounding two potentially bigger roadblocks to sales.

Taxpayer-backed programs are still offering stiff competition while banks flush with record deposits are hungry for the growing share of new mortgages known as jumbo loans that are too big to qualify for government support and are even taking on more that could be packaged into U.S.-backed bonds.

Government Guarantees

U.S. agencies and government-backed firms such as Fannie Mae (FNMA) guaranteed about 76 percent of new home loans in the first two months of 2014, the least since 2007 and down from more than 90 percent in early 2010, according to data firm Black Knight Financial Services. Bank lending accounted for about 20 percent, the most since at least 2003.

JPMorgan Chase & Co. (JPM) is one of the lenders being wooed to retain lower-balance loans after housing stabilized and Fannie Mae and Freddie Mac almost doubled the fees they charge for their guarantees.

“Private capital has re-entered, but in the shape of bank portfolios,”Garry Cipponeri, director of capital markets at JPMorgan’s mortgage unit, said at the conference.

About 10 percent of home loans that JPMorgan put on its balance sheet in the fourth quarter could have been sold to Fannie Mae and Freddie Mac, the bank’s mortgage head, Kevin Watters, told analysts in February. That share and the portion of loans eligible for the firms’ guarantees the bank is retaining are higher since then, according to spokesman Jason Lobo, who declined to provide more specifics.

Jumbo Loans

The reduced taxpayer-backed share in the market is partly tied to the greater proportion of loans that are too big to qualify. Applications for jumbo mortgages of at least $729,000 for home purchases fell only 6 percent in April from a year earlier, while requests for loans of less than $150,000 fell by 21 percent, according to the Mortgage Bankers Association.

The rising jumbo share is being fueled both by a jump in home prices while Fannie Mae and Freddie Mac loan limits go unchanged, as well as the healthier state of the high-end housing market, said Tom Wind, head of EverBank Financial Corp.’s mortgage unit.

His bank, which last quarter cut down-payment requirements for loans of up to $850,000 to 10 percent from 20 percent, retains only the adjustable-rate jumbo mortgages it makes, he said. After the lender completed two securitizations of fixed-rate jumbo loans last year, other banks are now the buyers because they pay more, he said.

‘Getting Closer’

The prices offered by bond investors are “getting closer,” as relative yields demanded on new sales partially reverse a surge that occurred as last year wore on, he said in an interview.

The jump in those yields was spurred in part by the Federal Reserve’s move last May toward slowing its monthly bond purchases. Also contributing was a lack of confidence that bondholders are being adequately protected by contracts governing the deals. Market participants are seeking to address those concerns through a Structured Finance Industry Group project called RMBS 3.0.

Bond investors are getting a chance to buy housing debt without government backing, though those offerings are coming through Fannie Mae and Freddie Mac. Issuance of a new type of risk-sharing debt that the companies began selling in 2013 totals about $3.6 billion this year.

‘Roaring Success’

“They’ve been nothing less than a roaring success on every possible metric,” said Moore, a managing director at RBS (RBS) in Stamford, Connecticut. The appetite shows there’s demand for taking on mortgage credit risk at higher yields, and instead “the place where all of us struggle is at the AAA level, where there’s not a very wide and deep market at all.”

Moore, whose firm this week announced plans to cut its mortgage-trading business by two-thirds within 18 months, said he expects securitization to eventually return.

“But it will not dominate the market like it did,” he said. In the meantime, he said, potential issuers will focus on selling unpackaged loans, and such sales may even persist as a large part of what they do, as “was the norm” in the 1980s and 1990s.

-By Jody Shenn

U.S. Mortgage Rates Decline for a Fifth Week

Source: Bloomberg / Luxury

U.S. mortgage rates fell for a fifth week, reducing borrowing costs as home-price gains slow.

The average rate for a 30-year fixed mortgage was 4.12 percent this week, down from 4.14 percent and the lowest since October, Freddie Mac (FMCC) said in a statement today. The average 15-year rate slipped to 3.21 percent from 3.25 percent, the McLean, Virginia-based mortgage-finance company said.

The recovery in home prices, fueled for two years by tight inventories, has started to cool. In the year ended March 31, the S&P/Case-Shiller index of 20 cities rose 12.4 percent, the smallest gain since July, the group said two days ago.

“The pace of annual house price gains has peaked and is now starting to ease slightly,” Paul Diggle, U.S. property economist for Capital Economics Ltd. in London, said in a note to clients after the data were released. The “hit to housing demand from last year’s rise in mortgage interest rates and the unseasonably severe weather earlier this year will continue feeding through into slower house-price gains for several months to come.”

While the average 30-year rate has dropped since reaching a two-year high of 4.58 percent in August, it’s up from a near-record low of 3.35 percent in May 2013.

Contracts (USPHTMOM) to buy previously owned houses in the U.S. increased 0.4 percent in April, less than economists estimated. They are down 9.2 percent from a year earlier, the National Association of Realtors said today.

-By Prashant Gopal

AIG Sees Labor-Cost Arbitrage as Jobs Move to Philippines

Source: Bloomberg / News

American International Group Inc. (AIG), the largest commercial insurer in the U.S. and Canada, is shifting workers to locations including the Philippines and Texas to reduce costs.

“We’re talking several thousand jobs migrating to these centers,” Peter Hancock, chief executive officer of AIG’s property-casualty business, said yesterday in an investor presentation in New York. “Initially that creates some labor-cost arbitrage, but over time, it gives rise to business process optimization and finally automation.”

AIG is working to improve performance at the property-casualty business. In February, a person familiar with AIG’s plans said the company expected to cut about 1,500 jobs, partly in an effort to reduce management layers. The New York-based insurer had 64,000 employees at the end of 2013.

Hancock didn’t say from where the jobs will move. CEO Robert Benmosche has warned employees against buying homes in the New York area, people familiar with the matter said last year.

“We’re moving people out of some higher-cost cities into those lower-cost cities in America and some offshore as well,” Benmosche said in February in an interview on Bloomberg Television with Betty Liu.

AIG is moving jobs to so-called shared-services centers in locations including Olathe, Kansas; Alpharetta, Georgia; Amarillo, Texas; Bogota, Colombia; Sofia, Bulgaria; the Philippines; and Malaysia, Hancock said.

Seeking Efficiency

Moving jobs is “making us best in class in terms of efficiency,” he said at the conference, held by Sanford C. Bernstein & Co.

AIG will probably relocate about 4,000 staff to lower-cost cities by 2015, Josh Stirling, an analyst at Bernstein, said in a May 15 research note, citing a presentation from AIG executives. The insurer is also introducing a new system for managing claims and using additional data in underwriting decisions, he said.

“AIG is making progress fixing what was broken, and in time the company will benefit from the radical simplification of its legacy infrastructure,” Stirling wrote.

AIG had gained 4.8 percent this year through yesterday in New York trading, beating the 3.3 percent advance of the Standard & Poor’s 500 Index.

Hancock said keeping expenses under control can help AIG navigate insurance markets should policy prices decline in a so-called soft market.

“The single biggest weapon for managing a soft market is focus on fixed costs,” he said. “If you have high fixed costs, the temptation is to try and write dumb business to try and cover your cost base, and you’ll regret it later.”

-By Zachary Tracer