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7th May 2014

Singapore Real Estate

Wheelock to cut prices for The Panorama

Source: Today Online

Wheelock Properties's condominium project in Ang Mo Kio, The Panorama, is gearing up for a re-launch this Sunday, with agents saying that new prices could be as much as 10 per cent lower than those at the initial launch. The re-pricing comes on the heels of earlier price cutting by its rivals to hasten sales amid mounting pressure from upcoming condo launches

Sembcorp's return to property a good diversification move

Source: Business Times / Companies

SEMBCORP Industries' fo-ray back into property development, encouraged by demand from the tenants and expatriate communities at its industrial and business parks, could be a good diversification move, if executed well.

Sembcorp Industries is reactivating Sembcorp Properties, a dormant subsidiary which a decade ago developed condominiums here, including The Arris in Tanjong Pagar, The Edge at Cairnhill and The Paterson Edge in the prime central region.

The reactivated subsidiary will drive residential and commercial property development in its existing industrial parks, starting with China. The move is part of Sembcorp's efforts to build up Sembcorp Development, the group's township development arm, as a third pillar, next to its mainstay utilities and marine operations.

Granted, Sembcorp isn't jumping headlong into the property development business and actively chasing development projects - its focus remains first and foremost on its existing land bank. That said, Sembcorp Development CEO Kelvin Teo told BT during an interview that it is not opposed to casting its sights beyond the land it currently owns in time to come.

-By Lee Meixian

Real Estate Companies' Brief

Perennial China Q1 DPU unchanged at 0.95¢

Source: Business Times / Companies

PERENNIAL China Retail Trust posted a distribution per unit (DPU) of 0.95 cent for its first quarter ended March 31, 2014, unchanged from a year ago. Distributable income, too, held steady at $10.9 million.

The first quarter DPU will be paid together with the second quarter DPU before September ends. It also translates to an annualised distribution yield of 7.33 per cent.

Like the previous quarter, distributions will be made from drawdowns under an earn-out deed which is exercised when the net property income (NPI) of its portfolio falls below a certain undisclosed amount.

For the quarter, the trust posted an NPI of $209,000 on the back of $2 million in revenue, reversing from losses of $433,000 and no revenue generated in the corresponding quarter a year ago.

-By Lee Meixian

BBR Q1 net profit more than doubles

Source: Business Times / Companies

BBR Holdings' first-quarter net profit more than doubled on strong turnover.

The construction and property company said net profit for the three months ended March 31, 2014, stood at $5.04 million, up from $2.06 million for the corresponding period last year.

This translated to earnings of 1.64 cents per share, compared with 0.67 cents per share in the year-ago quarter.

Revenue surged 82.6 per cent to $143 million, on the back of increased revenue from the general construction and property development segments.

-By Jamie Lee

OUE Hospitality Trust

Source: Business Times

OUE Hospitality Trust (OUE HT) reported Q1 2014 revenue of S$29 million (+1 per cent versus IPO forecast), net property income (NPI) of S$26 million (+3 per cent) and distributable income of S$22 million (+4 per cent).

Views, Reviews & Forum

Why condo units are shrinking

Source: Straits Times

Private developers are only meeting the growing demand for smaller condominium units ("Condo units shrinking: Report"; April 28). I know of people who are holding on to their HDB flats and buying small private condo units either to rent out, or to live in while renting out their HDB units, hence turning the subsidised flats into "long-term cash cows".

Global Economy & Global Real Estate

China’s property bubble has burst: Economists

Source: Today Online / Business

BEIJING — China’s property bubble has burst and growth in Asia’s largest economy could slow sharply to less than 6 per cent this year unless the government steps in with fresh stimulus measures, economists at Nomura securities brokerage warned yesterday.

“It is no longer a question of ‘if’, but rather ‘how severe’ the property market correction will be. We are convinced that the property sector has passed a turning point,” the economists said in their research report.

Real estate and related industries account for about a fifth of the country’s total economic output. A rapid cooling of home prices will slow growth in China and in turn hurt its trading partners.

Nomura said four provinces in north China — Heilongjiang, Jilin, Inner Mongolia and Gansu — are leading indicators of the deepening problems in the real estate sector, with property investment having turned negative in the first quarter while industrial output slowed. In Heilongjiang and Jilin, property investment plunged by more than 25 per cent from the previous year.

The government is caught in a bind, said Nomura. If it stays the course and refrains from major stimulus, China’s economic growth could fall below 6 per cent this year, well short of the 7.5 per cent official target.

If it eases monetary policy, steps up fiscal stimulus and loosens property sector measures, growth could touch 7.4 per cent. However, this would worsen the current housing oversupply and delay the downturn by a year. This would result in a one-in-three chance of a hard landing by the end of next year, which Nomura defines as growth below 5 per cent for four straight quarters. In its base case, Nomura forecast Chinese gross domestic product to slow to 6.8 per cent next year.

“Painful adjustments in the sector seem inevitable in the longer run,” the economists said.

Meanwhile, more Chinese cities are rolling out measures to encourage home purchases, effectively reversing a near-five-year-old policy of reining in the property market. Ningbo, the coastal city of eastern Zhejiang province, has relaxed home purchase restrictions, the official China Securities Journal newspaper reported yesterday, citing a local industry association.

Tongling in Anhui province has introduced steps including providing tax subsidies to first-home buyers and cutting down-payment rates to 20 per cent from 30 per cent for certain buyers, the city government said on Monday.

The latest moves follow recent similar measures by three other cities — Nanning, the capital of Guangxi province; Wuxi in Jiangsu province; and Hangzhou, the capital of Zhejiang province — to ease rules for buying homes or land.

So far, the turnaround in China’s housing policy has been confined to several cities. Local governments do not always have the support of the central government when loosening housing controls. Back in 2012, Beijing forced governments in areas including Wuhu, Foshan and Chengdu to retract plans to ease real estate curbs. Yet, analysts expect Beijing will approve the easing measures this time, in line with its preference to tailor policies for different local economies in China.

UBS economists said: “If property activity weakens further, we think the central government may allow various local governments to relax home purchase restrictions and cut down the current hefty down-payment requirements.”

China’s home prices rose at double-digit rates in most cities last year, but the market started cooling late last year as the authorities clamped down on speculation and as banks made it harder for buyers and developers to get loans.

Data from the land ministry last month showed residential land price inflation cooled for the first time in nearly two years in the first quarter.

New home sales in terms of floor space in 54 major cities dropped 25 per cent in the first four months of this year from the same period a year ago, showed data from property agency Centaline. The trend of easing demand for housing continued early this month. These cities saw home sales fall 47 per cent from a year earlier in the first three days of this month during the Labour Day holiday, it added.

“There are increasing concerns of a turning point for the property market. We expect the central government would react differently this time,” said Centaline head of research Liu Yuan.

Home Sales Topping $100 Million Smash U.S. Price Records

Source: Bloomberg / Luxury

The U.S. trophy-home market is shattering price records this year as an increasing number of residential properties change hands for more than $100 million.

Barry Rosenstein, founder of hedge fund Jana Partners LLC, has purchased an 18-acre (7.3-hectare) beachfront property in East Hampton, New York, for $147 million, according to the New York Post. That would break the U.S. single-family price record of $120 million set last month with the sale of a Greenwich, Connecticut, waterfront estate on 51 acres. In Los Angeles, a 50,000-square-foot (4,600-square meter) home sold in February for $102 million in cash after a bidding war.

The world’s richest people are moving cash to real estate as they seek havens for their wealth. In the U.S., an improving economy and stocks at a record are bolstering confidence among the affluent. Home purchases of $2 million or more jumped 33 percent in January and February from a year earlier to the highest level for the two-month period in data going back to 1988, according to an analysis by DataQuick.

“Last year the stock market broke all kinds of records and when that happens, you’re going to see art and resort real estate break all kinds of records,” said Judi Desiderio, chief executive officer of Town & Country Real Estate in East Hampton.

Rosenstein bought the estate on Further Lane in East Hampton, near the mansions of Jerry Seinfeld and Steven A. Cohen, without the help of a broker, she said. The property, with formal gardens and a pond, was previously owned by the late value investor Christopher H. Browne and his partner, Andrew Gordon, the New York Post reported on May 3.

Who’s Who

“It’s sitting on a little stretch of land in East Hampton that has had the who’s who from the beginning of time,” Desiderio said. “You would recognize every name of the oceanfront owners. They are all Googleable.”

Charles Penner, a partner at New York-based Jana, declined to comment on the reported transaction.

The Greenwich property, known as Copper Beech Farm, was originally listed for $190 million. It has a 12-bedroom main house built in 1898, almost a mile (1.6 kilometers) of shorefront, two islands, a 75-foot (23-meter) pool with a spa, grass tennis court, stone carriage house and an 1,800-foot driveway. Its buyer hasn’t been disclosed.

New Benchmark

Kurt Rappaport, who represented owner Suzanne Saperstein in the $102 million sale of the 5-acre Fleur de Lys mansion in the Holmby Hills neighborhood of Los Angeles, said that property sold to a European billionaire who beat out two other bidders. Rappaport, co-founder of Westside Estate Agency, said he is negotiating for a seller of another Beverly Hills property that will probably sell for more than $100 million.

“The next benchmark will be $200 million,” Rappaport said. “This is a very small segment of the market that very few can afford but they rarely change hands, and when they do, it’s an opportunity.”

Last month, a Beverly Hills compound once owned by William Randolph Hearst went on the market for $135 million, making it the highest-priced residence for sale in California, according to listing broker Hilton & Hyland.

Real estate is attractive to foreign billionaires who “want to get their money out of what they think are potentially shaky economies,” Jeffrey Gundlach, chief executive officer of Los Angeles-based investment firm DoubleLine Capital LP, said yesterday in an interview with Matthew Winkler, editor-in-chief of Bloomberg News. There’s “huge growth at the high end” in cities such as New York and Miami.

Growing Gap

The luxury-property boom coincides with the slowdown in the broader housing market as tight credit, slow wage growth and higher prices and borrowing costs put homeownership out of reach for many Americans.

Purchases costing $1 million or more, representing 2 percent of sales, rose 7.8 percent in March from a year earlier, according to the National Association of Realtors. Transactions for $250,000 or less, which represent almost two-thirds of the market, plunged 12 percent in the period as house hunters found few available homes in that price range.

Sales of more than $100 million, while rare, underscore the growing gap between the rich and poor, said Jonathan Miller, president of New York-based appraiser Miller Samuel Inc.

“The average citizens in the U.S. are looking at this stuff like it’s happening on another planet,” Miller said. “It’s not a proxy for the remainder of the market, it’s a phenomenon happening to a tiny fraction of the top 1 percent. It’s a few dozen people paying these kinds of numbers.”

-By Prashant Gopal

Redefining infrastructure to boost growth

Source: Today Online / China & India

After several months of disappointing economic indicators, China’s State Council has unveiled a mini stimulus package, focused on social-housing construction and railway expansion.

The decision came a month after Premier Li Keqiang’s declaration that China had set its annual growth target at around 7.5 per cent — the same as last year’s goal.

The implication is clear: While consumption-driven growth remains a long-term goal for China, infrastructure will continue — at least in the short term — to serve as a key driver of China’s economy.

Of course, China is not the only economy that depends on infrastructure investment to buttress economic growth. The World Bank estimates that infrastructure investments accounted for nearly half of the acceleration in Sub-Saharan Africa’s economic growth from 2001 to 2005.

The bank said a 10 per cent increase in infrastructure investment is associated with gross domestic product growth of 1 per cent. Such investment also creates jobs, both in the short term, by creating demand for materials and labour, and in the long term, for related services.

For example, every US$100 million (S$125 million) invested in rural road maintenance translates into an estimated 25,000 to 50,000 job opportunities.

But these benefits are diluted in China, owing to its excessive reliance on public funding. Indeed, in recent years, less than 0.03 per cent of Chinese infrastructure investment — which amounted to roughly 9 per cent of GDP — was derived from private capital.


This problem is not limited to China; of the 7.2 per cent of GDP that Asian countries spend, on average, on infrastructure development, only about 0.2 per cent is privately funded. By contrast, in Latin America and the Caribbean, private capital finances, respectively, 1.9 per cent and 1.6 per cent of infrastructure investment.

Discussions within the Group of Twenty have produced two possible explanations for Asian countries’ inability to attract more private capital to infrastructure projects.

Most developing countries argue that the problem is rooted in the provision of capital, with investors preferring to fill their infrastructure portfolios with low-risk projects, and insurance companies and banks facing overly restrictive regulations. Organisation for Economic Co-operation and Development countries such as Germany counter that the problem is the lack of investment-worthy assets; there are simply not enough bankable projects available.

In fact, both explanations are correct — but neither is complete. It is time for Asia’s leaders to recognise that the lack of private funding for infrastructure projects cannot be reduced to one or even two problems, and to develop comprehensive solutions that account for the full scope of the challenge.


This requires, first and foremost, abandoning the view that infrastructure assets fit into the paradigm of traditional asset classes such as equity, debt or real estate. Infrastructure must be redefined as a new asset class, based on several considerations.

For starters, there is the public-good element of many infrastructure projects, which demands contingent government obligations such as universal coverage levels for basic services. In order to make such projects more appealing to private investors, economic externalities should be internalised and a link should be established between the internal rate of return, which matters to a commercial investor, and the economic rate of return, which matters to society.

Moreover, innovative mechanisms to supply new assets to investors would be needed — and that requires the creativity found and priced by markets. To this end, private-sector sponsors must be given space to initiate valuable projects.

The new asset class would need its own standardised risk/return profile, accounting, for example, for the political risks that public-sector involvement may imply and for the lower returns from infrastructure relative to traditional private equity.

Moreover, the risks associated with the new asset class would change as projects progress from feasibility study to construction to operation, implying that each phase would attract different sources of funding. A clear understanding of this process would enable potential investors to assess projects more effectively, which is critical to encouraging them to put up financing.

Another important consideration is the considerable technical expertise that infrastructure investments demand, which makes them more complex than most assets. Similarly, a specialised network of actors would be needed to ensure that intermediation of infrastructure transactions is efficient and cost-effective, instead of fragmented and slow, as it is now.

For countries that lack China’s strong fiscal position, the need to attract private capital to infrastructure investment is obvious. With nearly 70 per cent of Sub-Saharan Africa’s population lacking access to electricity and 65 per cent of South Asians lacking access to basic sanitation, there is no greater imperative than to plan, fund, build and maintain infrastructure assets.

But private investment in infrastructure remains vital even in countries such as China, because it brings the power and dynamism of the market, which improves the allocation of capital and promotes transparency. Indeed, more private-sector involvement would make the kind of scandals that have occurred in China’s railway sector far less likely.

In short, redefining infrastructure as a new asset class is the only credible way to attract funding for infrastructure construction, and thus to boost long-term economic growth and the employment rate. It is time for Asia’s leaders to step up.

-By Justin YiFu Lin & Kevin Lu

China Property Slump Adds Danger to Local Finances

Source: Bloomberg / News

China’s weakening property market poses an increasing danger to local governments, threatening to strain their finances and intensify an economic slowdown.

Land sales in 20 major cities fell 5 percent in March from a year earlier, the biggest drop in at least a year, according to China Real Estate Information Corp. data compiled by Bloomberg. The value of land sales in third-tier cities declined 27 percent last month, according to SouFun Holdings Ltd., the nation’s biggest real-estate website owner.

Failure to find other revenue sources increases the risk of defaults and financial turmoil that curb economic expansion already projected this year at the slowest pace since 1990. Some cities plan to reverse controls implemented to make home prices more affordable or give residency benefits to out-of-town buyers, a state-run newspaper reported this week.

“As the housing market is cooling off, we expect land-sale revenue will decline and this will add pressure on the funding capacity for local governments,” said Zhu Haibin, chief China economist with JPMorgan Chase & Co. in Hong Kong. Land sales will drop more in areas where oversupply in property is more severe, said Zhu, who previously worked at the Bank for International Settlements.

The weakness adds to the urgency of expanding China’s municipal-bond market so regional governments can sell debt directly to the public instead of through off-budget corporations called local-government financing vehicles. A sample of provincial, municipal and county administrations shows they have guaranteed repayment of about 37 percent, or 3.5 trillion yuan ($560 billion) of debt with land sales, according to a national audit report released in December.

Default Monitoring

The People’s Bank of China said yesterday it will strengthen monitoring of credit extended to LGFVs, real estate companies and industries with overcapacity to minimize risks to the financial system. The central bank will maintain a “prudent” monetary policy, according to a quarterly report.

A worsening market downturn would increase pressure on national leaders to ease monetary policy for the first time since 2012. Premier Li Keqiang and other officials have outlined plans for railway spending and tax breaks to support growth while pledging to avoid any short-term, large-scale stimulus that could exacerbate debt risks.

The government budgeted for an 11.8 percent drop in land-sales revenue in 2014, according to the Finance Ministry’s annual work report in March. Nationwide, land sales in 2013 were equivalent to about 61 percent of local-government revenue, according to figures from the Ministry of Land and Resources and the Finance Ministry.

‘Snowball’ Risk

“More policy easing in the next few months will be critical, as the property correction could snowball,” Nomura economists led by Zhang Zhiwei in Hong Kong wrote in a May 5 report. “Local governments are likely to be under even more pressure to help the property sector as their fiscal revenue generation is so highly dependent on land sales.”

Developers may have less incentive to buy land as a 25 percent plunge in new-building construction helped drag economic growth in the first three months of this year to 7.4 percent, the weakest in six quarters. Without stimulus, property-investment expansion may slow enough to push down expansion to as low as 5.8 percent, Nomura said.

“Just as happened before the property bubbles burst in the U.S. and Japan, monetary policy tightening” is playing an important role in the property downturn’s timing and pace, Zhang wrote.

‘Right Time’

HSBC Holdings Plc economists said in a May 5 report that “now is the right time” for the central bank to help private investment. Long-term interest rates “have stayed stubbornly high,” wrote analysts led by Qu Hongbin in Hong Kong.

The March collapse of closely held developer Zhejiang Xingrun Real Estate Co. may foreshadow a shakeout among the nation’s almost 90,000 real estate companies. Developers, who buy land, will probably face more challenges this year as access to funding narrows, according to a Bloomberg News survey in March.

Some small and medium-sized Chinese developers are facing financing issues and there will be more such cases in the second half of the year, according to a front-page commentary today in the China Securities Journal, which is supervised by the official Xinhua News Agency.

Local governments will feel the impact if the property market keeps cooling, said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “This does not have to be a bad thing because they can explore other methods to boost revenue -- say, selling other assets,” Shen said.

Local Assets

Businesses controlled by local administrations, which range from hotels to retailers to power generators, had assets of 43.8 trillion yuan as of the end of March, according to Ministry of Finance estimates.

“The key is the fiscal reform, to get rid of the reliance on land sales,” Shen said.

Cities including Tianjin, Hangzhou and Changsha plan to stimulate the property market by loosening home-purchase limits or letting buyers get household registration, according to a report in the China Securities Journal. Nanning, the capital of southern Guangxi province, said last month it would waive a 2011 rule discouraging speculative investment by residents of neighboring cities, Xinhua reported.

Two Lots

In Hangzhou, the capital of eastern Zhejiang province and base of China’s e-commerce giant Alibaba Group Holding Ltd., only two lots of land were sold in April, a two-year low, according to SouFun. The average land premium, or the spread between the developer’s bid and the government’s asking price, decreased to zero in April from 0.2 percent in March and 30 percent in December, SouFun said.

Zhejiang province has the highest level of reliance on land sales for revenue and may be more exposed to the volatile property market, according to a March report by Moody’s Investors Service. At the end of 2012, 66.3 percent of government debt at the provincial, municipal and county levels in Zhejiang was guaranteed by land-sale revenue, the province said in in its January debt-audit report.

“If the government wants to stabilize growth, real estate is essential,” Mizuho’s Shen said.

-By Bloomberg News

Billionaire Lowy Offers A$300 Million Westfield Split Sweetener

Source: Bloomberg / News

Westfield Group (WDC) said it plans to sweeten its restructure proposal by A$300 million ($279 million) to allay concerns raised by shareholders of the publicly traded trust it manages.

The improvement would come from a reduction in the debt of the new entity, Scentre Group, which would hold Westfield’s Australia and New Zealand malls, and would boost its net tangible assets and earnings this year, Westfield said in a regulatory filing yesterday. Investors in Westfield Retail Trust (WRT), which jointly owns the domestic malls, would still receive 51.4 percent of Scentre under the reorganization, according to the filing.

Australia’s biggest shopping center company in December proposed splitting its operations, with Scentre managing itself. The plan, which would enable the new Westfield Corp. to focus on expanding overseas, has drawn the ire of many Westfield Retail shareholders, who balked at the A$1.9 billion they would probably pay for Scentre’s management rights, as well as the high debt levels in the new vehicle.

“When is a A$300 million sweetener not a A$300 million sweetener? When I have to share half of it with someone else,” said Stuart Cartledge, managing director of Melbourne-based Phoenix Portfolios, which owns Westfield Retail shares. “The value of Scentre Group (SCG) will be enhanced by A$300 million but Westfield Retail shareholders are only entitled to about half of that.”

Lower Debt

Westfield Group shares slipped 0.1 percent to A$10.63 at the close of trading in Sydney, compared with a 0.8 percent drop in the benchmark S&P/ASX 200 index. Westfield Retail securities rose 1.3 percent to A$3.19.

Westfield Group and Westfield Retail shareholders are due to vote on the proposal May 29.

The debt held by Scentre will fall to 37.3 percent of assets from 38.4 percent under the original proposal, Westfield said. Funds from operations are expected to rise to 21.75 Australian cents a share in the year ending Dec. 31, from 21.5 cents in the earlier plan, and net tangible assets are forecast to improve by 6 cents a share to A$2.88.

Scentre is targeting a gearing range of between 30 percent and 35 percent “over time,” Westfield said yesterday, compared with its earlier target of as high as 40 percent.

‘Right Direction’

“The reduction in gearing is a step in the right direction,” John Kim, Sydney-based head of real estate research at CLSA Asia Pacific Markets, wrote in a client note dated yesterday. The A$300 million reduction “is less than half of what we estimate is fair.”

A scenario in which the ratio of net debt to total assets falls to 36.1 percent would require a further reduction of A$351 million in Scentre’s debt, Kim said. To reduce gearing to 35 percent, Scentre would need to cut debt by a further A$666 million, he said.

Westfield Corp.’s gearing would also fall to 34.4 percent from 36.3 percent after the sale of A$1.1 billion of three U.K. properties, and the adjustment announced yesterday, the company said.

Westfield made the change “in response to some concerns raised,” Chairman Frank Lowy said in the statement. “The change improves the terms on which Westfield Retail security holders are gaining their ownership interest in Westfield Group’s industry leading operating platform.”

Lowy, Australia’s fifth-richest individual with a net worth of $5.3 billion, according to the Bloomberg Billionaires Index, will be chairman of both Westfield Corp. and Scentre after the restructure.

-By Nichola Saminather

Rents soar at London skyscrapers

Source: Straits Times