The private residential leasing market has grown steadily weaker from the previous year in most districts of Singapore, with unpopular suburban locations the hardest hit. And no reprieve is in sight as latest Q3 figures show non-landed private home rentals sliding another 1.1 per cent from Q2, led by the core central region.

-By Lee Meixian

http://www.businesstimes.com.sg/real-estate/supply-glut-tightening-expat-demand-depressing-rents

Reducing workplace risks with new safety framework

Source: Business Times / Real Estate

The government will launch a public consultation exercise this week to gather views and feedback on a new mandatory framework that will incorporate the safety of construction workers in building plans. This mandatory Design for Safety (DfS) framework, will require developers to ensure that their building designs are safe, and address work-related risks and hazards upstream, said Manpower Minister Tan Chuan-Jin.

-By Lee U-Wen

http://www.businesstimes.com.sg/real-estate/reducing-workplace-risks-with-new-safety-framework

Public feedback wanted on construction workers' safety

A public consultation will be launched next week on a mandatory framework that requires developers to address risks and hazards for construction workers in their building plans.

SINGAPORE: The Manpower Ministry will launch a public consultation exercise next week, on an upcoming mandatory framework that will incorporate the safety of construction workers into building plans.

Manpower Minister Tan Chuan-Jin said the Design for Safety framework will require developers to address work-related risks and hazards. He said eliminating such hazards at the design and planning phase will lead to fewer risks to deal with during the construction and maintenance stage. Mr Tan added that his ministry had already conducted industry consultations.

Deputy Prime Minister Tharman Shanmugaratnam had said in May that the regulatory requirements and timeframe for its implementation will be announced by end of this year.

Mr Tan was speaking at the annual 5-Star Environmental, Health and Safety Awards organised by City Developments on Saturday (Nov 8). The awards recognise builders and workers for upholding safety, health and well-being standards at the workplace.

City Developments also announced that its two new worksites, which will house workers' quarters, will soon get computers and free WiFi. Over 500 workers will benefit from this when the worksites are built by next year.

"Construction workers are the foundation and unsung heroes of our building industry,” said Allen Ang, head of innovation and green building at City Developments. “We would like to recognise their contributions and further strengthen our efforts to promote their well-being holistically. Ultimately, we want our workers to return home to their families safe and healthy."  

- CNA/xq

http://www.channelnewsasia.com/news/singapore/public-feedback-wanted-on/1461358.html

From 2Q13 to 2Q14

How private housing rents have moved

Source: Business Times / Infographics

Shrinking housing budgets for expats and a supply glut of completed condo homes are key factors that have been weakening the rental market. BT compares how much rentals have fallen across various districts in Singapore within a one-year time frame: from Q2 last year before loan curbs kicked in, to Q2 this year.

http://www.businesstimes.com.sg/infographics/from-2q13-to-2q14

Keppel T&T proposes listing of Keppel DC Reit

Source: Business Times / Companies & Markets

KEPPEL Telecommunications & Transportation (Keppel T&T) will be holding an extraordinary general meeting (EGM) on Nov 25 to seek shareholders' approval for the planned listing of Keppel DC Reit on the main board of the Singapore Exchange.

Keppel T&T will also seek shareholders' approval on a proposed divestment of its interests in Keppel Digihub, Keppel Datahub 1, Gore Hill Data Centre and Citadel 100 Data Centre, and their proposed injection into Keppel DC Reit.

The initial portfolio of Keppel DC Reit is expected to comprise eight data centre properties in Asia-Pacific and Europe: Keppel Digihub and Keppel Datahub 1 in Singapore; Gore Hill Data Centre in Sydney, Australia and iseek Data Centre in Brisbane, Australia; Basis Bay Data Centre1 in Selangor, Malaysia; GV7 Data Centre in London, the United Kingdom; Almere Data Centre in Amsterdam, the Netherlands; and Citadel 100 Data Centre in Dublin, Republic of Ireland. Keppel DC Reit will be managed by a wholly-owned subsidiary of Keppel T&T, Keppel DC Reit Management Pte Ltd.

Underpinned by a surge in demand for data centres, driven by a growth in e-commerce, cloud computing, and big data, Keppel DC Reit's investment strategy is to invest in a diversified portfolio of income-producing real estate assets that are used primarily for data centre purposes. Its initial focus will be on Asia-Pacific and Europe.

The proposed listing will be subject to various conditions including obtaining the relevant regulatory approvals and the execution of definitive agreements by the relevant parties.

In a separate announcement, Keppel Land said it is planning to divest its indirect 30 per cent stakes in two separate leasehold interests for a total of S$424.8 million to Keppel DC Reit.

In an announcement to the Singapore Exchange on Monday morning, it said that it would sell its indirect 30 per cent interest in a 30-year leasehold interests in a property located at 25 Serangoon North Ave 5 (S25) for S$262.8 million. Meanwhile, it also plans to sell its indirect 30 per cent stake in a 30-year leasehold interest in a property at 25 Tampines St 92 (T25) for S$162 million.

The purchase prices took into consideration independent valuations of the properties by Knight Frank of S$262 million and S$160 million respectively as at Sept 30.

S25 is held by Keppel Digihub while T25 is held by Keppel Datahub, with both Digihub and Datahub being wholly-owned subsidiaries of Keppel Data Centres Holding. Keppel Data Centres is a joint venture company, which is in turn indirectly held by Keppel Land - via subsidiary Keppel Digihub Holdings - and KT&T (via Keppel Data Centres) in a 30:70 proportion respectively.

Keppel Land expects to receive net proceeds of about S$96 million and realise a gain of around S$65.9 million.

-By Angela Tan

http://www.businesstimes.com.sg/companies-markets/keppel-tt-proposes-listing-of-keppel-dc-reit

Ascott wins 5 more management contracts in China, marks foray into 2 new cities

Source: Business Times / Companies & Markets

CAPITALAND'S serviced residence business The Ascott has landed contracts to manage five additional properties in China, boosting its portfolio to 12,000 apartment units in the populous country.

In a release to the Singapore Exchange on Monday, CapitaLand said that Ascott will manage 1,000 more apartment units in Yinchuan, Changsha, Shenyang and Xi'an.

The new contracts mark its entry into the high-growth cities of Yinchuan and Changsha, making Ascott the first international serviced residence owner-operator there. Three properties - namely the 200-unit Citadines Xingqing Yinchuan, 150-unit Somerset Xingqing Yinchuan and 164-unit Somerset Riverside Changsha - are slated to open in 2018.

Ascott plans to launch its second property in Shenyang, the 330-unit Somerset Olympic Centre Shenyang, in 2015, and Ascott's fifth property in Xi'an, the 156-unit Somerset Xindicheng Xi'an, in 2016.

Lee Chee Koon, Ascott's chief executive, said: "China is Ascott's fastest growing market. As the world's second largest economy, it continues to present tremendous opportunities. Having crossed our target of 12,000 apartment units ahead of 2015, we are now aiming at 20,000 units in China by 2020. This is in line with our global target of 80,000 apartment units by 2020."

-By Nisha Ramchandani

http://www.businesstimes.com.sg/companies-markets/ascott-wins-5-more-management-contracts-in-china-marks-foray-into-2-new-cities

CapitaLand 'to continue China journey'

Source: Straits Times / Money

CHINA will continue to be a core market and key driver for CapitaLand in its growth strategy, especially in integrated developments, president and group chief executive Lim Ming Yan said yesterday.

The developer is on track to complete 50 projects across Asia in the next three to four years, worth a total of about $36 billion on completion. More than half of them will be in China.

Speaking at a gala dinner in Beijing to celebrate the firm's 20 years in China, Mr Lim said CapitaLand is targeting 12 new integrated developments in Asia over the next three years, about half of which will be in China.

In his speech, he recalled the firm made its first foray into China during the 1998 Asian financial crisis. The building of Raffles City Shanghai, then the largest single investment made by a Singapore firm in China, was successful, and it became a bellwether for CapitaLand's operations there.

"We feel duty-bound to provide a platform for the joint development of China and Singapore," said Mr Lim.

The celebrations included a China-Singapore Economic Development Dialogue, with Prime Minister Lee Hsien Loong as guest of honour and keynote speaker.

Mr Lim said CapitaLand will continue to sharpen its focus on five city clusters: Beijing and Tianjin; Shanghai, Hangzhou, Suzhou and Ningbo; Guangzhou and Shenzhen; Chengdu and Chongqing; and Wuhan.

"Strong bilateral ties have helped pave the way for CapitaLand's growth in China in the past two decades," he said.

"We were among the first few foreign real estate firms to enter the market, (and) have since progressed in tandem with China's urbanisation and development."

He said the company will invest further in well-located sites there to grow its pipeline of integrated developments, shopping malls and commercial and residential developments. "We will continue to actively contribute to China's economic reform and sustainable development," he said.

About 300 guests, including senior government officials, bankers, business leaders and industry experts, attended the gala dinner and dialogue.

-By Rennie Whang & Rachel Chang

http://www.straitstimes.com/premium/money/story/capitaland-continue-china-journey-20141110

OSIM, Hyflux, OCBC dominate buybacks

Source: Business Times / Companies & Markets

Buying was flat and selling among directors remained low, according to Singapore Exchange filings in the first trading week of November. Buyers outnumbered sellers with 10 companies recording 21 purchases worth S$2 million versus two firms with four disposals worth S$236,000. The buy figures were not far off from the previous week's 12 companies, 22 purchases and S$2.5 million. On the selling side, the number of firms and trades were consistent with the previous week's one company and six disposals, but the sell value was sharply down from the previous week's S$6.4 million sales.

-By Robert Halili

http://www.businesstimes.com.sg/companies-markets/osim-hyflux-ocbc-dominate-buybacks

Raising productivity: BCA replies

Source: Straits Times / Forum Letters

WE AGREE with Mr Benedict Ng Chee Keen ("Raising productivity not always about machinery"; last Tuesday) and Mr Nicholas Tan ("Rethink concept of productivity"; Forum Online, last Tuesday) that higher productivity can be achieved by changing the industry's mindset, continually challenging the status quo and redesigning work processes.

Adopting technology is one way to improve productivity and reduce our reliance on foreign workers. For example, portable traffic control units are already used by some contractors at their work sites to direct traffic away from work zones where road or construction works are in progress. With greater awareness and adoption of such technology, workers can be redeployed to higher value-added jobs.

Beyond investing in technology, both companies and individuals have to take on the responsibility of reskilling and upgrading. A key pillar is creating a productivity mindset and building a strong core of experienced and skilled workers.

With this mindset, firms can be open to new ways of doing things and optimise gains by transforming the construction process to be leaner and more integrated. For instance, architects and consultants could come up with building designs that promote productivity and reduce the need for builders to rework downstream.

In addition, there is much we can learn from advanced countries to fundamentally change the way we build.

We are working with the industry to adopt the Design for Manufacturing and Assembly approach, by moving as much construction work off-site to a controlled manufacturing environment as possible and minimising work on-site.

By promoting prefabrication across the entire construction process, construction can be done faster and with less manpower. There are also other intangible benefits, such as less noise and dust, safer workplaces and better-quality homes.

We encourage firms to continue to tap the Building and Construction Authority's Construction Productivity and Capability Fund, which supports technology adoption, skills training and upgrading, as well as process re-engineering.

More information on the fund can be found at: www.bca.gov.sg/cpcf/cpcf.html

-By Ang Lian Aik

Group Director, Construction Productivity Centre

Building and Construction Authority

http://www.straitstimes.com/premium/forum-letters/story/raising-productivity-bca-replies-20141110

Good governance can be a big sell for IPOs

A firm can signal governance intent with board diversity and going beyond number of prescribed independent directors.

At a recent preparation meeting for an initial public offering (IPO), a question which I've heard repeatedly at such meetings was posed to the company's managing director: "So, what's your narrative that makes this IPO compelling?"

-By Dr. Wilson Chew

http://www.businesstimes.com.sg/companies-markets/good-governance-can-be-a-big-sell-for-ipos

Lehman to sell Nylo New York hotel

Source: Business Times / Real Estate

http://www.businesstimes.com.sg/real-estate/lehman-to-sell-nylo-new-york-hotel

Desperate search for yield keeps global bond prices high

Source: Business Times / Banking & Finance

http://www.businesstimes.com.sg/banking-finance/desperate-search-for-yield-keeps-global-bond-prices-high

Sweden's dilemma: massive household debt amid zero interest rates

Preventing a steep fall in property prices and consumer confidence seen as a tough task for govt and regulators

http://www.businesstimes.com.sg/government-economy/swedens-dilemma-massive-household-debt-amid-zero-interest-rates

China says inflation unchanged at 1.6% in October

Source: Straits Times / Government & Economy

[BEIJING] China's inflation came in at 1.6 per cent in October, unchanged from the previous months, the government said Monday.

The consumer price index (CPI) figures released by the National Bureau of Statistics (NBS) remained at the lowest point since January 2010.

In the first 10 months of the year, the CPI rose 2.1 per cent year on year, well short of the 3.5 per cent annual target set by the government in March.

The producer price index (PPI) - a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI - fell 2.2 per cent year on year and was the weakest since March's fall of 2.3 per cent, the NBS said separately.

The slew of price indicators provided further signs that the world's second-largest economy is still facing deflationary pressures.

Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth.

The last PPI increase was in January 2012, when it rose 0.7 per cent.

http://www.businesstimes.com.sg/government-economy/china-says-inflation-unchanged-at-16-in-october

China says inflation unchanged at 1.6% in October

The consumer price index (CPI) figures released by the National Bureau of Statistics (NBS) remained at the lowest point since January 2010.

BEIJING: China's inflation came in at 1.6 per cent in October, unchanged from the previous months, the government said on Monday (Nov 10).

The consumer price index (CPI) figures released by the National Bureau of Statistics (NBS) remained at the lowest point since January 2010. In the first 10 months of the year, the CPI rose 2.1 per cent year on year, well short of the 3.5 per cent annual target set by the government in March.

The producer price index (PPI) - a measure of costs for goods at the factory gate and a leading indicator of the trend for CPI - fell 2.2 per cent year on year and was the weakest since March's fall of 2.3 per cent, the NBS said separately.

The slew of price indicators provided further signs that the world's second-largest economy is still facing deflationary pressures. Moderate inflation can be a boon to consumption as it encourages consumers to buy before prices go up, while falling prices encourage shoppers to delay purchases and companies to put off investment, both of which can hurt growth. The last PPI increase was in January 2012, when it rose 0.7 per cent. 

- AFP/nd

http://www.channelnewsasia.com/news/business/international/china-says-inflation/1463584.html

Indonesia beckons, but caution still reigns

Mindful of past scuppered deals, Singapore businesses are watching if the new president's reforms succeed

THE promise of new political leadership and a market too huge to ignore should make Indonesia a ready target for Singapore businesses and investors (See past trade and investment volumes) - but ghosts of the past may not fade so easily, especially for larger companies.

While there is a little more optimism about prospects there, Singapore businesses are watching and waiting to see if reforms succeed, mindful of how some prominent deals have been scuppered by regulatory and legal surprises in the past, observers say.

"There is a genuine sense of optimism that President Jokowi can bring in some helpful changes given his track record at the municipal level," said OCBC economist Wellian Wiranto. "The road ahead is not easy and any improvement won't be instantaneous, as the man himself has repeatedly stressed, however." President Joko Widodo was sworn in as Indonesia's president in October.

Indonesia's third-quarter GDP (gross domestic product) growth fell short of expectations earlier this week, weighed down by weak commodity exports due to restrictive trade policies and lower prices. Though private consumption held up, investment growth weakened. But economists were largely optimistic about the economy's outlook.

"We think growth will strengthen next year on lower global oil prices and an investment recovery, as both foreign direct investment and infrastructure investment pick up," said Bank of America Merrill Lynch economist Chua Hak Bin.

Singapore's businesses are not expecting rapid and sweeping economic changes to follow the political ones, said Singapore Business Federation (SBF) chief executive Ho Meng Kit. "It is a huge country that needs to embark on further reforms. Successful reform is not guaranteed."

Mr Wiranto agrees that investors are "still giving Jokowi the benefit of the doubt for now, and continue to wait for concrete measures". One major litmus test, he thinks, would be whether the new president will undertake fuel subsidy reforms despite slow economic growth.

Said SBF's Mr Ho: "Many businesses will watch and wait, to learn more about the policies of the new leaders. They are mindful of the past experience of some of our investments."

Last year, thwarted by regulatory hurdles, DBS walked away from its 16-month long, US$6.5 billion bid to buy Indonesia's Bank Danamon. Jakarta authorities had capped foreign ownership of local banks to 40 per cent. Foreign stakes any higher would require central bank approval and Bank Indonesia said that approval of DBS's intended 67 per cent stake in Danamon would hinge on whether Singapore allows Indonesia's state-controlled banks more access here.

There was also Indonesia's anti-monopoly and competition regulator's controversial ruling in 2007 that Temasek Holdings had violated business competition law - a drawn-out saga that ended only in 2011 after Temasek lost its final appeal and paid a 15 billion rupiah (S$1.6 million) fine.

Temasek subsidiaries ST Telemedia and SingTel then had stakes in two major Indonesian telcos, Indosat and Telkomsel, which the Business Competition Supervisory Commission said meant Temasek had over 50 per cent of Indonesia's cellular market. It slapped fines on Temasek, eight of its affiliates and Telkomsel, and ordered Temasek to sell off either of the indirect stakes it held in Telkomsel and Indosat within two years. ST Telemedia sold its Indosat stake to Qatar Telecom in 2008.

"The wariness is in some ways still warranted, given that a climate of nationalistic sentiment remains relatively pervasive on the ground," said Mr Wiranto. "The new government has quite a lot of items on its agenda as it is, and would not risk wasting its limited political capital on anything that can potentially turn into a backlash. They won't ratchet up the nationalistic agenda necessarily, to be sure, but it is unlikely that they would be overtly embracing perceived foreign interests, as well."

Any unwanted regulatory attention is more likely to fall on prominent foreign businesses rather than small and medium enterprises (SMEs) though. "Size does matter. In this case, the smaller businesses can be off the radar screen and enjoy lower risk of exposure," said Mr Wiranto.

Even so, AllAlloy Dynaweld is one local SME that has had to delay expansion plans in Indonesia due to regulatory changes. It was about to enter into a joint venture with an Indonesian partner, when new foreign investment rules were rolled out this year restricting foreign ownership of companies in certain sectors to 33 per cent, managing director Victor Khaw said.

"But now we are forging ahead with a new plan. We don't know how it will pan out . . . but we can't let these changes dictate our own movement," said Mr Khaw.

Indeed, past regulatory hurdles have not deterred SMEs, which are usually quick to find solutions, being smaller and more nimble, said Kurt Wee, president of the Association of Small and Medium Enterprises.

He is positive about the new political leadership in Indonesia: "I feel that the new President is minded to improve the country's economy, eradicate corruption and manage diversity issues. As such, the business operative terrain will evolve in a positive way, enabling companies to compete on a more level and hopefully more transparent playing field."

But even without the recent political changes, Singapore SMEs' business interest in Indonesia would have gained momentum, he said. "Indonesia is just too large a market to ignore," he added.

The latest DP SME Development Survey this year showed that 44 per cent of the 2,800 Singapore SMEs polled already do business in Indonesia, making it the most popular overseas market for local SMEs. That same survey also ranked Indonesia as the market that the second-largest number of SMEs intend to venture into.

Singapore's direct investments into Indonesia have risen steadily over the years, though the pace of growth slowed from the most recent peak of 26.1 per cent in 2009 to 6.81 per cent in 2012. The latest available figures, for 2012 year-end, put Singapore's direct investment stock in Indonesia at S$37.3 billion. Total trade between Singapore and Indonesia also fell 5.8 per cent to S$74.8 billion last year, from S$79.4 billion in 2012.

In terms of the industries that will offer Singapore's businesses opportunities, Mr Wee said SMEs that have a foot in Indonesia's oil and gas supporting industries are already seeing growth, with Indonesia's major plans to expand its refinery industries.

Mr Wiranto thinks the new administration's eagerness to open up Indonesia's huge maritime economic potential could open up many opportunities to Singapore businesses too.

"From infrastructure build-up of sea ports across the vast archipelago, to shipping lines to better connect different regions, as well as fisheries industry to better feed the country's quarter-billion people, these are some areas where Singapore businesses can step in and help - as well as benefit from," he says.

-By Teh Shi Ning

http://www.businesstimes.com.sg/government-economy/indonesia-beckons-but-caution-still-reigns

G20 global infrastructure hub set for Australia

Australia will fund and host a global infrastructure hub, proposed by G20 nations, in Sydney, according to The Australian newspaper.

SYDNEY: A global infrastructure hub proposed by G20 nations to help strengthen economic growth will be based in Sydney and funded by Australia, a report said on Monday (Nov 10).

The Group of 20 of the world's biggest developed and emerging economies agreed in September that a Global Infrastructure Initiative to share information about matching investors with projects would be established, but details were sketchy.

Prime Minister Tony Abbott told The Australian newspaper that the agency would not involve a new "international bureaucracy", but would act instead as a clearing house for ideas on raising commercial funds for new public works, such as roads and railways.

"It will be a significant focus for international thinking and be a way of getting our, generally speaking, quite innovative approach to infrastructure before other countries," he said ahead of the G20 leaders' summit in Brisbane this weekend. "We expect that we will probably be the main contributor to the funding but I think we have some modest contributions from some other countries that have already been earmarked."

The hub's main purpose is to cut red tape and close the "information gap" between potential investors and infrastructure projects as the G20 looks to spur world economies by shifting from government-led growth towards private sector-led growth. It has been one of Australia's main proposals during its presidency of the G20 as the grouping looks to meet a two per cent increase to its combined growth over five years through economic reform and infrastructure investment.

The newspaper said that while the US, Britain and Japan had thrown their support behind the initiative, questions were raised by India, France and others about the wisdom of setting up a new institution that could overlap with the World Bank. As a compromise, Abbott said there would be a four-year time limit on the centre to avoid creating a permanent institution, something the global economic group has never done.

"We are close to agreement - and this will be unprecedented for the G20 - to have the global infrastructure hub based in Sydney," he said. "And if it comes off, this will be the first time the G20 has agreed to the establishment of an ongoing entity. This is not an entity in perpetuity. It's an entity that will last for perhaps four years as an infrastructure financing and infrastructure ideas clearing-house but nevertheless it's not a huge international bureaucracy."

The push to raise private-sector investment in infrastructure projects around the world comes as governments battle falling revenue amid efforts to rein in budget deficits, which has hurt public-sector funding of such projects.

- AFP/rw

http://www.channelnewsasia.com/news/business/international/g20-global-infrastructure/1463642.html

Deutsche Bank Says Buy China Builder Debt on Loan Easing

Source: Bloomberg / News

Falling prices for Chinese developer debt and easier home loan rules prompted Deutsche Bank AG to put out a buy call. Morgan Stanley says that’s premature.

Dollar-denominated high-yield notes issued by Chinese builders have returned 5.4 percent this year, the least in three years after gains of 8.5 percent in 2013 and 47.9 percent in 2012, Bank of America Merrill Lynch indexes show. The securities have returned only 0.1 percent since July. Deutsche Bank, the world’s leading underwriter of junk bonds, said the slowdown has made the debentures attractive and developers’ credit quality will benefit from central bank support.

“Mortgage easing is a pivotal point and has supported home buyers’ sentiment,” said Jacphanie Cheung, a Hong Kong-based analyst at Deutsche Bank who visited the cities of Fuzhou, Changsha, Wuhan and Zhengzhou in mid-October. The policy “could be more effective in stimulating demand than a cut in the benchmark interest rate,” she said.

The view contrasts with Morgan Stanley, which said investors should avoid developers because easing steps won’t immediately revive an industry the World Bank says accounted for 16 percent of China’s economic growth last year. While home sales jumped 40 percent on month in September, prices dropped in all but one city. The collapse of a builder near Shanghai in March, tighter rules on shadow banking and detention of executives amid a corruption probe have added to concerns.

Prices Slide

The price of Agile Property Holdings Ltd.’s perpetual notes has slid 20 percent this year after billionaire chairman Chen Zhuolin was confined by prosecutors in September. The 2018 bonds of Evergrande Real Estate Group Ltd., a developer that has expanded into soccer team ownership and baby formula, have dropped 8 percent, data compiled by Bloomberg show. Debentures due that same year from Kaisa Group Holdings Ltd., a Shenzhen-based builder, have slumped 2 percent.

“Overall, it’s a challenging environment for property developers,” said Viktor Hjort, Hong Kong-based head of Asia fixed-income research at Morgan Stanley. “Only after they have run down inventories and deleveraged balance sheets, can the sector have an outlook for balanced supply and demand. That will be a fairly drawn-out process.”

Debt Mounts

The number of publicly traded real estate firms with liabilities exceeding equity has increased to 136 out of 334 from 57 in 2007, according to data compiled by Bloomberg. Moody’s Investors Service and Standard & Poor’s have warned that Renhe Commercial Holdings Co., a developer of underground shopping centers, has the highest risk of defaulting next year.

Goldman Sachs Group Inc. downgraded the Chinese real estate sector to negative from neutral on Sept. 4, citing, among other things, worsening leverage and rising stock of unsold homes. Notes from the country’s builders are the riskiest part of Asia’s bond market, it said in a Oct. 27 report.

Steve Drew, head of emerging-market credit in London at Henderson Global Investors, which managed the equivalent of $121 billion as of Sept. 30, said he is underweight China property bonds as he expects a tick-up in bad loans and defaults next year even with stimulus. That means he holds less of the debt than the benchmark used to gauge performance.

Policy Shift

Premier Li has ended a four-year campaign to contain home prices as he seeks to meet a target for economic growth of about 7.5 percent this year. Local governments in 37 out of 70 major cities have relaxed home-purchase restrictions, according to a Moody’s report last month. The central bank on Sept. 30 allowed homebuyers who have paid off existing loans to take out new mortgages.

As authorities ease monetary conditions the yield on the 10-year government bond has declined 99 basis points this year to 3.56 percent.

China will “stabilize” property-related consumption and make it easier for people to access mandatory housing savings, the State Council said in a Oct. 29 statement. Developers are also taking steps to trim expenditures, with 35 builders tracked by Deutsche Bank decreasing their spending on such acquisitions to 29 percent of their contracted sales this year from 38 percent last year.

‘Positive Outlook’

Deutsche Bank recommends investors shift assets to high-yield Chinese property notes from investment-grade peers, and prefers securities from the nation’s real estate industry rather than from industrial companies.

“Given our positive outlook on developers’ sales, together with potentially lower capital commitment for land purchases and construction, we are more optimistic on the credit outlook on developers for next year than this year,” said Cheung.

Nikko Asset Management Asia Ltd., which oversaw $168 billion of assets at the end of June, is neutral to slightly underweight as it wants to see inventories fall further, according to Leong Wai Hoong, senior portfolio manager in Asian high-yield bonds.

“The physical market is improving and has probably found a floor as some easing measures are having some positive impact on home sales,” Singapore-based Leong said. “It boils down to whether the bonds are offering enough premium, and whether we are comfortable with the level of corporate governance.”

-By Bloomberg News

http://www.bloomberg.com/news/2014-11-09/deutsche-bank-says-buy-china-builder-debt-on-loan-easing.html