Singapore Economy Labour costs up again, productivity dips further Private consumption expenditure growth slows to 1.2% Source: Business Times / Government & Economy Singapore's overall unit labour cost rose 4.4 per cent in the third quarter of 2014 - its fastest pace in over a year - as the effects of restructuring policies that are keeping the labour market tight continue to work their way through the economy. While the desired outcomes of these policies have yet to materialise - labour productivity contracted for a second straight quarter in Q3 - the Ministry of Trade and Industry (MTI) on Tuesday reiterated the need to look beyond quarterly shifts to sector-specific and longer-term gains. -By Teh Shi Ning http://www.businesstimes.com.sg/government-economy/labour-costs-up-again-productivity-dips-further Singapore Real Estate S'pore firms 'can take pole position on urban solutions' Grace Fu says Republic's expertise in sustainability can give companies an edge in contracts overseas Source: Straits Times / Money SINGAPORE'S growing expertise in the area of devising policies and processes for sustainable urban living could put local firms working in the sector in pole position for contracts overseas, according to Ms Grace Fu, Minister in the Prime Minister's Office. Ms Fu told the Responsible Business Forum on Sustainable Development yesterday that there is "business potential in exporting such solutions to the region and beyond". She cited the Building and Construction Authority's (BCA) Green Mark Scheme, which has been adopted in Indonesia and China. "This allows some of our architects and engineers, consulting businesses... to bring their experiences (with the certification framework) out to the region as well," added Ms Fu, who is also the Second Minister for the Environment and Water Resources. The BCA Green Mark Scheme was launched in 2005 to recognise best practices in environmental design and performance. Ms Fu pointed to Singapore's potential role as a "test bed for smart urban solutions", adding that collaborations among the Government, the private sector and research institutions are expected to raise the country's capabilities in domains such as water, energy, mobility and other urban solutions. The minister also urged businesses to do their part, along with the Government, in ensuring that economic development does not come at the expense of the environment. "Environmental sustainability has to feature in business decisions and be discussed in boardrooms," she said, noting that the exponential increase of the urban population and global development has come with an "irreversible" impact on the environment. "(But) companies that understand the environmental impact of their activities derive competitiveness from it," added Ms Fu. She also said that "a well-executed environmental strategy will bring about stronger consumer branding, better relations with stakeholders and greater readiness for a resource-constrained future". The three-day forum at Marina Bay Sands, which ends today, was organised by five partners, including Singapore-based media firm Global Initiatives, online publication Eco-Business and the World Wide Fund for Nature Singapore. The Straits Times was an official media partner. Last night, 10 companies were honoured at the inaugural Sustainable Business Awards in Singapore. The event was organised by Global Initiatives and PricewaterhouseCoopers to recognise companies that have instilled sustainable best practices in their long-term business strategies. Unilever Asia was crowned overall winner for its robust approach to sustainability and its commitment to enhancing livelihoods, caring for the natural environment and improving health and well-being across its supply chains. Other winners included telco SingTel for its fair workforce strategy and Loola Adventure Resort in Bintan, which was cited for its commitment to land use, biodiversity and the environment. Developer City Developments was also recognised for its work in evaluating and measuring the most significant environmental impacts of its work. -By Jacqueline Woo Fewer foreign bidders for Govt Land Sales tenders Source: Straits Times / Money THE participation of foreign developers in Government Land Sales (GLS) tenders has softened this year, on the back of the cooling residential market. JLL data shows the percentage of foreign bidders for private residential GLS plots fell to 14.8 per cent this year so far, from 21.7 per cent last year. Foreign bidders entered the fray in 2010, when the figure rose to 14.1 per cent from 5.5 per cent in 2009. The high level of participation by foreign bidders last year seems to be an outlier, bolstered by the resilience of the market then despite several cooling measures, said JLL assistant manager of research June Yang. But the total debt servicing ratio framework from June last year "clearly has a lingering impact" which could have moderated foreign developers' interest, she said. "As some of the foreign developers participating in the local scene are relatively new, there could be a stronger reason for them to take a more cautionary stance on development." Six of 14 winning bids last year, or 43 per cent, involved foreign developers, including those in joint ventures with local firms. This year, two of nine winning bids involved foreign developers.
The spike in foreign participation in 2010 came as some Chinese developers ventured abroad, in the face of strong competition in China and falling demand caused by property curbs brought in by Beijing, said SLP International executive director Nicholas Mak. A notable rise in Housing Board flat resale prices also fuelled upgraders then, said R'ST Research director Ong Kah Seng. "It is easiest for foreign developers to target the lower-tier private residential segment as they have not established themselves." This year's fall in foreign participation is also due to falling demand for suburban homes, he said. -By Rennie Whang CapitaLand, KepLand likely to benefit from Beijing's rate cut The Singapore developers stand to gain from their exposure to the Chinese residential marketSource: Business Times / Companies & Markets Two Singapore developers CapitaLand and Keppel Land are touted by analysts as potential beneficiaries of Beijing's latest lending rate cut, given their exposure to the Chinese residential market. A targeted relaxation of mortgage rates and home purchase restrictions in China this year, coupled with the lowering of interest rates, could make housing more affordable and boost buyer sentiment ahead, analysts reckon. -By Lynette Khoo 7,500 HDB flats launched, including the first ones in Tampines North It is HDB's last Build To Order-cum-Sale of Balance Flats exercise for the yearSource: Business Times / Real Estate The Housing and Development Board (HDB) on Tuesday launched its last Build To Order (BTO)-cum-Sale of Balance Flats (SBF) exercises for the year. This last launch for 2014, which includes Tampines North's first housing project featuring the first three-generation (3Gen) flats in a mature town, comprises 7,568 flats in all, from a mix of mature and non-mature towns. -By Claire Huang Over 7,500 HDB flats launched in latest sale Units under two schemes include 3,028 in sought-after mature estates Source: Straits Times / Top of The News THOSE eyeing new flats in mature estates will have a wealth of options after the Housing Board launched its latest round of flat sales yesterday. Over 7,500 units under the Build-To-Order (BTO) and Sale of Balance Flats (SBF) schemes went on sale, with 3,028 located in the sought-after mature estates. Of the 4,277 BTO units put on sale across six projects in Tampines, Sengkang, Sembawang and Yishun, 1,947 are located in two projects in the upcoming Tampines North district. Flat buyers are likely to make a beeline for these units given that they are located in a mature estate, experts said. "All the linkages and facilities there are already established," said ERA Realty key executive officer Eugene Lim. "The value of flats there is also likely to hold in the resale market." One of the projects, Tampines GreenRidges, will offer 3Gen flats for multi-generation families - a first for a mature town. Prices of these flats start at $407,000 without grants, and $397,000 with grants. Also on sale are 3,291 SBF units, which span both mature estates like Bukit Merah and non-mature estates such as Punggol. SBF units are either balance flats from earlier BTO launches, surplus Selective En bloc Redevelopment Scheme replacement flats, or repurchased flats. Changes to the Married Child Priority Scheme are kicking in with these launches. Announced last week, the enhanced scheme will set aside up to a third of new flats for married children and their parents who apply to live with or near one another. Priority will be given to two groups under the scheme: Parents and married children who apply to live under one roof, and parents who own flats in mature estates and apply for BTO flats near their married children in non-mature estates. But this is unlikely to drive up demand significantly for 3Gen flats and flats in non-mature estates, said experts. "A lot of elderly parents live in mature estates and would not want to uproot themselves," said R'ST Research director Ong Kah Seng, adding that the take-up for 3Gen flats might be lukewarm as many young couples prefer privacy. "There is also the perception that 3Gen flats might be too small." As of 5pm yesterday, the overall application rate for the Tampines BTO flats was 0.4, with 825 applicants going for 1,947 units. Personal financial consultant Eddie Su and his fiancee Cheryl Ng, both 25, are looking to buy a five-room SBF unit in Tampines. "We are getting married next year so we want our own place sooner," said Mr Su, referring to the shorter waiting period for SBF units compared with BTO flats. The latest launch brings the number of new flats put up for sale this year to 29,129, down from 33,568 last year. Applications have to be submitted by midnight on Dec 1. -By Yeo Sam Jo First Tampines North flats among 7,500 in year’s final HDB sales exercise Source: Today Online / Singapore SINGAPORE — More than 7,500 flats were offered by the Housing and Development Board (HDB) yesterday in its biggest and final sales exercise this year. The latest exercise also features the first housing project in Tampines North and the enhanced Married Child Priority Scheme, which sets aside a portion of flats for parents and married children who want to live near one another. The homes on offer include 4,277 Build-To-Order (BTO) flats across six projects in Sembawang, Sengkang, Yishun and Tampines. Another 3,291 units will be offered under the Sale of Balance Flats (SBF) exercise. Tampines North’s first housing project, Tampines GreenRidges, will also feature the first Three-Generation(3Gen) flats in a mature town, the HDB said. The other BTO flats will comprise two- to five-room units, while the SBF flats include studio apartments, two- to five-room units, 3Gen homes and executive flats. Analysts told TODAY Tampines GreenRidges, located along Tampines Avenue 9 and will yield 1,496 flats, would attract a good take-up rate because of its green features — such as an automated waste collection system — and proximity to amenities. “The Tampines developments feature lush greenery and are located near the Tampines regional centre in a mature estate, so the amenities and infrastructure are likely to be expanded to the Tampines North precinct,” said Chestertons managing director Donald Han. ERA Realty’s key executive officer Eugene Lim said the launch was probably larger this time, as the HDB wanted to meet its target of 22,4000 BTO flats for the year. “It probably also prepares us for the smaller and less frequent launches next year.” To prevent a glut in public- and private-home markets, National Development Minister Khaw Boon Wan announced last month that, from next year, the number of new BTO flats would be cut by 25 per cent to about 16,900 flats and the number of BTO exercises reduced from the current six a year to four. Analysts said the reduction is timely against the backdrop of a slow resale market. Resale prices for HDB flats had gone on a downward slide for eight consecutive months, before inching up 0.1 per cent from September to last month, the latest figures from the Singapore Real Estate Exchange on Nov 6 showed. “A 25 per cent reduction may sound drastic, but it will probably help to create a ‘soft landing’ for the resale market and prevent a rapid drop in prices,” said Mr Han, adding that the HDB resale market had suffered a steeper price drop than that of private homes over the year. Mr Han noted that the Government is now looking towards “qualitative refinements” — such as the enhanced Married Child Priority Scheme announced last week. Under the enhanced scheme, which kicks in with the latest sales exercise, up to 30 per cent of flats will be set aside for parents and married children who want to live with, or near, one another. Up to 15 per cent will also be set aside for second-timer families. Applications for the flats can be made on the HDB’s website until Dec 1.
The next BTO exercise, slated for February, will offer about 3,940 flats in Bukit Batok, Geylang and Hougang, said the HDB yesterday. -By Kelly Ng GIC and Indonesia's Rajawali Group to form property JV Source: Business Times / Real Estate GIC on Tuesday said it would partner Rajawali Group, one of the largest investment companies in Indonesia, in jointly investing up to US$500 million in equity in property projects in Indonesia - a sign of warming ties between the two investment giants. -By Jamie Lee http://www.businesstimes.com.sg/real-estate/gic-and-indonesias-rajawali-group-to-form-property-jv GIC investing in commercial property in Jakarta It inks MOU with Rajawali Group to jointly invest up to $652m in projects Source: Straits Times / Money SOVEREIGN wealth fund GIC is investing in commercial property in Indonesia's capital Jakarta, just weeks after unveiling its maiden investments in New Zealand. GIC yesterday inked a memorandum of understanding with Rajawali Group, one of the nation's largest investment companies, to jointly invest up to US$500 million (S$652 million) in equity in property projects in the country, the parties said in a joint statement. The joint venture's focus will be on Jakarta's central business district (CBD), with opportunities explored in sectors including office, retail, residential and mixed-use, they said. GIC and Rajawali had previously collaborated on a 47-storey office tower in the Jakarta CBD. GIC announced in October last year it was acquiring the tower, which offers 90,511 sq m of premium-grade office space and is part of a mixed-use development by Greenland Rajawali Utama - a company majority controlled by Rajawali Group and its property subsidiary. The development, due to be completed by the end of next year, also has the first all-suite luxury The St. Regis Jakarta hotel and a retail podium for food and beverage outlets. Capital Place is GIC's only direct asset in Indonesian real estate so far. "GIC is confident in Indonesia's long-term growth potential... An integral part of our investment strategy is to build long-term partnership with reputable local partners with strong track records like Rajawali, who also share our investment values," said Mr Loh Wai Keong, co-head of Asia, GIC Real Estate. Ms Shirley Tan, chief executive officer of Rajawali Property Group, added that the long-term partnership will allow Rajawali to develop "groundbreaking projects in Indonesia, which we believe is an exciting real-estate investment destination". Earlier this month, GIC said it was acquiring from Australia-listed Scentre Group a 49 per cent interest in five New Zealand shopping centres, in a deal said to be worth NZ$1.04 billion (S$1.06 billion). It also announced investment in a major Auckland waterfront project, with a 49 per cent stake in a joint venture with New Zealand-listed Goodman Property Trust. The joint venture will invest in Auckland's Viaduct area, with an initial portfolio of assets worth NZ$313 million.
GIC had 7 per cent of its assets in real estate as at March 31, according to its latest annual report. In its policy portfolio from April 1 last year, real estate is to comprise 9 to 13 per cent. -By Rennie Whang http://www.straitstimes.com/premium/money/story/gic-investing-commercial-property-jakarta-20141126 JTC releases 3 industrial sites in Tuas, Tampines for Business-2 development Source: Business Times / Real Estate JTC Corporation released three industrial sites on Tuesday that are zoned for Business-2 development or heavier industrial use under its second-half 2014 industrial government land sales (iGLS) programme. The one-hectare site on Tuas South Street 11 (Plot 40) and the 0.5-hectare site on Tampines Industrial Drive (Plot 8) are on the Confirmed List. -By Lynette Khoo Town councils: Finding a balance The Opposition-run AHPETC is spending more than it collects, and a third of residents have not paid their conservancy charges. Insight's Charissa Yong and Tham Yuen-C look at why this matters Source: Straits Times / Insight ALARM bells have gone off over the financial health of Aljunied-Hougang-Punggol East Town Council (AHPETC), after it failed to get its audit done on time for the third year running. AHPETC manages the Housing Board estates in the area, which includes Aljunied - comprising of the Bedok Reservoir-Punggol, Eunos, Kaki Bukit, Paya Lebar, Serangoon divisions - Hougang and Punggol East. The Workers' Party (WP) town council has been in the spotlight over the state of its finances, involving mounting arrears for service and conservancy (S&C) charges, and an operating deficit, highlighted in the annual town council report card a fortnight ago. WP chief Low Thia Khiang responded that residents were not affected because poor financial management did not impact the council's operations and services, and so did not affect the safety and living environment of the residents. Not so, countered Minister of State for National Development Desmond Lee. He argued that if the town council continued to manage its finances poorly, it would eventually be unable to pay for essential services like water, to the detriment of residents. Tell that to the residents - seven out of 10 of those interviewed by Insight did not know their council was spending more than it was collecting. Aljunied resident Muhamad Ariffin Khan, 68, a retiree, is among those who say they are not unduly worried. "It doesn't bother me, because my place is clean," he says. He echoes the general sentiment in an informal "void-deck check" conducted by Insight of 100 people living in the Opposition-run constituencies. Still, some, like business owner Nigel Wan, 34, did see the big picture. "Of course, I'm worried," says the Serangoon resident. Recognising the importance of paying for services rendered, he tells Insight: "If you expect the town council to do works for you, you have to pay for it." Following the money trail JUST what do the numbers say? From the latest figures available, the town council still has funds to fall back on. But that is from a financial statement a year ago. It could not submit this year's audited statement, required of all town councils, by the Ministry of National Development's (MND) August deadline. A town council's financial year ends in March. Going by the 2013 statement, it closed its accounts with an accumulated surplus of $1.84 million. These are reserves built up over the years that it can dip into to make up for shortfalls. A year before, it had $2.7 million. In its previous incarnation, the town council had been under the watch of the People's Action Party. Then came the General Election in 2011, when the area swung to the Opposition. The newly formed Workers' Party town council took over the functions previously carried out by Hougang Town Council and Aljunied Town Council. It then merged with Punggol East after the by-election there in January 2013. Before the election, the Aljunied Town Council had amassed $5.47 million in accumulated surplus. Part of this amount - $3.7 million - was transferred to the town council's sinking fund after the General Election, as required by law. Monies in the fund cannot be used to pay for daily operating expenses, but can be used for long-term projects. When the town councils were merged, their finances were co-mingled. This allowed the former Hougang Town Council, under WP's Mr Low, to avoid running into cashflow problems, the MND's Mr Lee said. The Hougang Town Council had a "similar approach to S&CC arrears management" as AHPETC, added Mr Lee, and had chalked up the highest arrears rate among all town councils in the 2010 financial year. It had led to the town council's independent auditor raising concerns whether the town council could afford to pay for its daily operations. Like AHPETC now, Hougang town council's finances were also in deficit then. AHPETC chairman and Aljunied GRC MP Sylvia Lim disputed in an earlier interview the suggestion that the town councils were merged so that Aljunied's funds could be used to fill the hole in Hougang. The town councils had merged to take advantage of economies of scale, she said. The MND points out that after the handover, during the period end-March 2011 to end-March 2013, the merged town council's expenditure rose by 30 per cent, from $27.3 million to $35.4 million, outstripping its income, which rose 11 per cent over the same time period. What is ringing alarm bells in getting a clearer picture of the day-to-day business operations, though, is that it was running an operating deficit of $734,000 by March last year - in short, spending more than it collected in revenue. AHPETC is the only town council with an operating deficit for the year. While it is not unheard of for town councils to run deficits - PAP town councils have done so, too, in the past - the numbers paint a picture of poor financial management, say industry experts. And over time, the town council's ability to deliver services needed by residents may be affected, as it may not be able to pay for utilities, such as lights in common areas, and for cleaning contractors, for example. While the situation could be put off, as the town council still has reserves, it may not be sustainable. Says Mr Teo Poh Siang, head of estate-management firm Wisely 98, which runs 30 condominiums: "If they have the cash, then they are fine in the immediate future. But they are drawing on their reserves. They have to be, if they have a deficit in the current year." In last year's financial statement, Ms Lim explained that operating costs had escalated. Lift maintenance costs rose from $3.6 million the year before to $4 million, for example. This posed a major challenge in managing the town, and had resulted in the operating deficit and the reduced accumulated surplus, she said. On the income side, the town council also failed to collect S&C charges - which make up the bulk of its income - from one third of its residents. MND's Mr Lee, in a statement on Nov 7, said this arrears rate of 29.4 per cent measured in April last year - up from 2.6 per cent in March 2011 - was shocking. It meant that 16,000 of its 55,000 households had defaulted on payments for three months or longer. A typical town council's arrears rate hovers around 3 per cent. The MND notes that 10,000 of the 16,000 households had stopped paying S&C charges only in the past two years. Some have raised questions about whether the defaulters were in financial hardship or were just recalcitrant. Those who run town councils say the only way to find out is to meet these residents. MPs and town council officers would typically help by finding them jobs or referring them to community development councils and welfare organisations for assistance, said Mountbatten MP and Marine Parade Town Council chairman Lim Biow Chuan. Town councils typically arrange instalment plans to help residents settle arrears, he added, and only the habitual defaulters will be taken to court. However, Mr Low Thia Khiang said that arrears were not uncommon, and residents would eventually pay up. But Associate Professor Yu Shi Ming, who heads the real estate department at the National University of Singapore, points out: "High arrears is a direct reflection of the poor financial management of the town council." All town councils know their resident households and can monitor arrears closely, he says, so to let it worsen reflects poor monitoring and management. Indeed, the MND says that the current situation could well be worse, as the town council stopped submitting its arrears reports after April last year. When Insight approached Mr Low and Ms Lim at their Meet the People sessions thrice in the last fortnight, both said the party will respond in due course. Should residents worry? WHAT all this means is that while the town council still had money to pay for its daily expenses at end-March last year, spending was outpacing collections. Marine Parade Town Council's Mr Lim tells Insight that any extras not used for daily running costs can used for town improvement projects like building playgrounds, covered linkways and exercise stations. If a town council does not have enough funds, it could be hard pressed to pay for these extras that could spruce up an estate. But the fact that town councils must be sustainable to provide these services seems lost on some residents Insight spoke to. Serangoon resident Quek Kim Hiong, 47, says that as long as her corridor and the void decks are clean, and lifts work, the council's financial health does not matter. It could explain why, despite his town council not being of the best financial health, former opposition MP Chiam See Tong managed to retain Potong Pasir constituency, election after election. Some residents of Aljunied point out that AHPETC has been there only three years, and should be cut some slack. "So far, if you compare to before the election, it is not as clean. But they have taken over for only three years, I cannot just judge like that," said Mrs May Tan, 50, who is in the import-export business. On arrears, residents are mostly sympathetic towards defaulters. Some approve of what they perceive as the WP's "soft approach". Says Punggol East resident Lim Kok Khiam, 42, who is in business development: "The town council should try to give people some time to pay. You must balance between enforcing rules and individual cases." Others are less sanguine. A fifth feel it is not right that so many residents are free-loading. Says undergraduate Darren Teo, 24, a resident of Eunos: "It's not really fair to those who pay if others don't pay. And it's irresponsible (of the town council) not to collect the money." Aljunied resident Azhar Mohammad, 30, an aircraft techician, agrees. "If they don't pay, they shouldn't get the services," he says, adding that the town council may not have enough to go around it it continues to let arrears grow. In fact, PAP town councils often face challenges collecting S&C charges, too. Says Mr Lim: "Whenever we chase people, they do get unhappy. Anytime we need to issue a demand letter, there is a political cost, but you can't run away from it. " Critics say the populist move of not chasing residents for payment will come back to bite the town council, and residents, too. "If people don't pay (their SC charges), in the end, it's going to harm us, the community," says Punggol East resident Madhura Agashe, 33. Pasir Ris-Punggol MP and town council chairman Zainal Sapari says: "It is town council's responsibility to manage residents with outstanding arrears. It is an unpleasant task but must be done to be fair to other residents, to ensure no disruption of services. If no follow-up is taken on residents with arrears, then it may encourage others to follow suit or anger residents that pay their dues timely." Who cleans up? PART of the reason why some residents like Serangoon's Madam Quek are unconcerned about AHPETC's deficit is their belief that the authorities will step in if needed. "If things get wrong, it will be referred back to the Government. What can ordinary citizens like me do about it?" says the housewife in Mandarin. Others such as Mr Benson Yap, 39, think the PAP would only be too happy to play white knight. "Wouldn't the other party be very happy to step in and help? They will want to show residents they can do a much better job," says the Aljunied resident, who is self-employed. Today, there is little recourse, other than the ballot box, for residents unhappy with a town council. The Minister for National Development has the legal power to intervene in a failing town council, but only when a certain threshold has been crossed. Under the Town Councils Act, he may appoint any person to exercise the duties of a town council when it has failed to keep any part of its common property "in a state of good and serviceable repair or in a proper and clean condition". This power also kicks in if any town council duty needs to be carried out urgently "to remove any imminent danger to the health or safety of residents". But the MND has no teeth when it comes to making sure a town council submits information, such as arrears reports, and there is no penalty if it does not do so. "This is because the TCs are supposed to be directly accountable to their residents," the ministry said on Thursday. As Prof Yu notes, "we must remember the political nature of town councils, so it is not so simple as to make the opposition town council toe the line". The ministry, though, is looking at strengthening its regulatory oversight over town councils, to "better safeguard residents' interest", it said. This is being carried out as part of a strategic review of town councils that started last year. But the notion that some residents have that the Government would be obliged to step in and bail out a failing town council might prove illusory. Apart from the financial cost of doing so, it would also have to explain to taxpayers why it was doing so and how it would make up for the shortfall. A danger of a moral hazard situation arising, where town councils realise that they do not have to exercise fiscal care, since the Government would not allow them to fail, would warn against any such intervention. As former PAP chairman Lim Boon Heng - the man behind town councils - commented last Saturday, they were set up in 1986 to test the management skills of elected Members of Parliament, "because Singaporeans rightfully would like to have choices. And if they pick people other than the tested PAP, then they should be sure that such people can manage the country". The WP, however, has tried to emphasise that its role is also about being a check and balance on the ruling party as the opposition at the national level, says Institute of Policy Studies senior researcher Gillian Koh. As for S&C arrears, it can seem popular to not chase up residents. But people with an eye for fair play "will feel that it is unfair that some might get away from fulfilling their collective responsibility to bear their share of S&C charges", she adds. "How WP will be judged in the the current controversy will be a balance between its role at the national level, and the 'fairness' principle," she says. -By Charissa Yong & Tham Yuen-C Companies' Brief Sabana Reit granted S$243m murabaha facilities Source: Business Times / Companies & Markets Sabana Shari'ah Compliant Industrial Reit has inked a new financing arrangement with several banks for commodity murabaha facilities of up to S$243 million to refinance and roll over its existing facilities. -By Anita Grabriel http://www.businesstimes.com.sg/companies-markets/sabana-reit-granted-s243m-murabaha-facilities Suntec Reit lifts market volume to S$1.8b Major reversal in Hong Kong stocks fails to faze ST Index, which closes 4.5 points higherSource: Business Times / Companies & Markets The Straits Times Index traded within a narrow band on Tuesday before ending a net 4.46 points higher at 3,344.99, unaffected by a large reversal in Hong Kong. Turnover, which has shown slight improvement over the past couple of weeks, received a large boost from a very late trade of Suntec Reit units. In total, the counter traded 180.2 million units and gained S$0.03 at S$1.935, the value of which amounted to S$347.3 million. -By R Sivanithy http://www.businesstimes.com.sg/companies-markets/suntec-reit-lifts-market-volume-to-s18b Surprise late surge in Suntec Reit trading volumes Source: Business Times / Companies & Markets Some dealers were taken aback on Tuesday when transactions involving a huge volume of 129.3 million units in Suntec Reit took place just minutes after the 5pm normal closing, sending the counter to the top of the most active stock list. In all, 180.2 million units changed hands - nine times Monday's trading volume. The unit price, too, rose three cents to hit a one-year high of S$1.935 - the same price at which the surprise trades were done during the adjustment period after normal closing. -By Lee Meixian http://www.businesstimes.com.sg/companies-markets/surprise-late-surge-in-suntec-reit-trading-volumes Keppel Reit Source: Business Times / Companies & Markets Keppel Reit on Monday obtained approval from its unitholders to acquire a one-third interest in MBFC Tower 3 for a consideration of S$1.248 billion (S$2,790 psf), inclusive of rental support amounting to S$49 million. Post-acquisition, Keppel Reit's gearing will spike up marginally to 43.8 per cent. Keppel Reit recently reported Q3 2014 results, with quarterly distribution per unit declining 6.1 per cent year-on-year due to expiry of rental support from MBFC 1 and 2 as well as higher borrowing costs. http://www.businesstimes.com.sg/companies-markets/brokers-take-23 Drop in resale flat values worries soon-to-be retiree Source: Straits Times / Forum Letters THE Housing Board should be applauded for its measures to boost the supply of flats and help applicants, especially newlyweds, obtain homes. I hope the HDB will now focus on helping the older generation. The huge supply of new flats in recent years has helped meet demand but, coupled with the property cooling measures, affected resale flat prices. I am concerned as I will be retiring in the next few years. Many people of my generation will need to downgrade to smaller flats to fund their retirement. I fear the value of my flat will continue to decline and affect my retirement fund.
Now that the demand for new flats from young couples has been met, it is time for the authorities to ease the housing loan curbs. This will help stem the decline in resale flat prices and shorten the time taken for a resale unit to find a buyer. -By Tan Lin Neo Views, Reviews & Forum Govt's role to avert chaos in property market Source: Straits Times / Forum Letters LAST Friday's report ("More homes go under the hammer in weak market") was attention-grabbing but unlikely to cause any ripples in the financial and property markets. The situation today is completely different from the sudden and massive property meltdown in the mid-1980s. Back then, the Government stepped in quickly to calm the situation after a few commercial and residential property mortgages ended in grief as a result of hasty foreclosures by banks. The banks were told to show restraint, restructure mortgage loans, forgo calling in additional securities or margins, and defer loan repayments. The decisive government intervention averted a chain reaction in the jittery financial and property markets, and saved Singapore from chaos. In contrast, during the recent sub-prime property crisis, the United States government failed to act swiftly and decisively, causing a worldwide financial meltdown. A responsible government must be ready to reassure banks that it will step in as a last resort to fund the default repayments for owner-occupied properties (and not those of speculators) rather than let them go under the hammer. The government should retain liens on the properties, and the owners should repay the government on deferred terms with conditions attached on resale, possession and settlement. It is the government's responsibility to intervene with decisive initiatives to calm financial and property markets.
While the situation here has not reached crisis levels, I hope our Government will monitor it closely and not be caught off-guard. -By Tan Kok Tim Market conditions will ensure new equilibrium for property prices Source: Today Online / Voices The Property commentary “TDSR running out of steam?” (Nov 21) suggests the current decline in property prices of only 5.2 per cent from their peak could mean that the Total Debt Servicing Ratio (TDSR) is losing effectiveness in reducing prices further. The writer offers the radical view that the only way to ensure a further drop in private non-landed prices is to increase supply, especially as current demand is seemingly not waning and is, therefore, supporting present price levels. However, my take is that it is still the early days of a major correction in residential property prices; the signs suggest that this will happen in the next two years. Already, certain facts are evident. First, interest rates are on the rise. This will contribute to higher borrowing costs, particularly for the highly leveraged. Second, new buyers still face challenges in meeting the TDSR cap, which reduces the pool of potential buyers. Third, rental vacancies are rising, with more demanding tenants. While it is more difficult to rent out older homes, newer ones face the prospect of lower rents. Both will affect the cash flow for landlords to repay their mortgages. Fourth, the number of bank auctions for residential properties have jumped fivefold from last year. Even high-end homes and those in prime districts are not spared. (“More luxury homes go under the hammer as defaults spike”; Nov 15) Fifth, more than 80,000 private homes are coming on stream, with most to be completed next year and in 2016. This will aggravate the high vacancy level of more than 20,000 units. Singapore is potentially facing an imminent oversupply. Sixth, the global outlook remains fragile, with major economies such as the European Union and Japan bordering on recession, the United States showing a fragile recovery and China having its slowest growth in decades. In our highly-connected world, the misfortunes of major economies will have negative consequences for a small country such as Singapore. The biggest worry is unemployment. If this should rear its head here, one of the first casualties will be the property market and, hence, property prices. I expect the road ahead to be tough and uncertain. Prudent investors should be fine, but the more aggressive ones would pay the price of asset deflation, which may come sooner rather than later. The Government is wise not to dismantle the TDSR framework.
There is no need for fresh initiatives either. Market conditions will ensure a new equilibrium for property prices, which had risen too high and been unsustainable for the average Singaporean. -By Raymond Koh Bock Swi http://www.todayonline.com/voices/market-conditions-will-ensure-new-equilibrium-property-prices Global Economy & Global Real Estate Blackstone plans factory homes for Aussie retirees Source: Business Times / Real Estate http://www.businesstimes.com.sg/real-estate/blackstone-plans-factory-homes-for-aussie-retirees UK mortgage approvals down in Oct Source: Business Times / Real Estate http://www.businesstimes.com.sg/real-estate/uk-mortgage-approvals-down-in-oct Home Prices in 20 U.S. Cities Increase at a Slower Pace Source: Bloomberg / Luxury Home prices in 20 U.S. cities advanced at a slower pace in the 12 months through September as the housing market continued to make gradual progress. The S&P/Case-Shiller index of property values increased 4.9 percent from September 2013, the smallest gain since October 2012, after rising 5.6 percent in the year ended in August, the group reported today in New York. Nationwide, prices rose 4.8 percent after a 5.1 percent year-to-year increase a month earlier. Housing prices have cooled this year as more properties are put up for sale and investors retreat to the market’s sidelines. Slower appreciation will probably help foster a pickup in homeownership, particularly among first-time buyers and people having trouble obtaining credit, once wage growth becomes more pronounced. “You’re getting to a market that’s a little bit healthier, it isn’t subject to these boom-bust cycles,” said Thomas Simons, an economist at Jefferies LLC in New York. “I view the market as generally being in the process of stabilizing. When prices are stable, the market functions a little better.” The median forecast of 31 economists surveyed by Bloomberg projected a 4.6 percent gain in the 12 months ended in September. Estimates ranged from 4.2 percent to 5.2 percent. Another report confirmed prices are decelerating. Property values were little changed in September, the weakest reading since November 2013, according to figures from the Federal Housing Finance Agency. In the third quarter, prices rose 0.9 percent after a 1 percent gain. Monthly GainSeasonally adjusted, prices in 20 cities increased 0.3 percent in September, matching the Bloomberg survey median, after falling 0.1 percent the prior month. Unadjusted prices were little changed. All 20 cities in the index showed a year-over-year gain, led by a 10.3 percent rise in Miami and a 9.1 percent advance in Las Vegas. Cleveland showed the smallest year-over-year increase, with prices rising 0.8 percent. The year-over-year gauge, based on records dating back to 2001, is a better indicator of trends in prices than the month-to-month data, the group has said. The panel includes Karl Case and Robert Shiller, economists who created the index. “With the economy looking better than a year ago, the housing outlook for 2015 is stable to slightly better,” David Blitzer, chairman of the S&P index committee, said in a statement. Third QuarterAmong other data today, the economy expanded more than previously forecast in the third quarter, reflecting bigger gains in consumer spending and business investment, capping the strongest six months of growth in a decade. Gross domestic product, the value of all goods and services produced, rose at a 3.9 percent annualized rate, up from an initial estimate of 3.5 percent, Commerce Department figures showed today in Washington. After the 4.6 percent increase in the second quarter, it marked the biggest back-to-back advance since late 2003. Property transactions have been picking up. Sales of previously owned homes reached a one-year high of 5.26 million at an annualized pace in October, the National Association of Realtors reported last week. It was the fifth consecutive month that the rate of purchases topped 5 million. The gains are coming without much help from those making their first-ever home purchase. The share of previously owned properties sold to first-time buyers has held below 30 percent in 18 of the last 19 months, the trade group said. Historically, entry-level buyers account for about 40 percent of the market. Mortgage RatesFor those who can obtain credit, borrowing costs are holding close to historic lows. The average 30-year, fixed-rate mortgage was 3.99 percent in the week ended Nov. 20, down from 4.22 percent a year ago, according to data from Freddie Mac in McLean, Virginia. In November 2012, the rate fell to 3.31 percent, the lowest since records began in 1971. While the housing recovery has been held back by stringent mortgage underwriting, demographic trends bode well for residential real estate as millennials and other entry-level buyers enter the market, said Allan Merrill, chief executive officer of Beazer Homes USA Inc., an Atlanta-based builder that targets first-time and move-up buyers. “We’re in the midst of a housing recovery, but it doesn’t always feel that way,” Merrill said on a Nov. 12 earnings call. “The fact is, this recovery hasn’t yet created a level of new home activity anyone anticipated and we’re prepared for that environment. But, I think it would be short sighted to give up on expectations for greater volumes in the new-home market in the coming years. The fundamentals, particularly for first-time homebuyers, are just too strong.” The U.S. requires between 1.6 million and 1.9 million new units a year to accommodate population growth and new households, which are the largest drivers of demand, according to the Joint Center for Housing Studies at Harvard University. -By Lorraine Woellert Property Companies Plan Johannesburg Listings as Index Climbs Source: Bloomberg / News The Johannesburg Stock Exchange will get listings from three property companies as shares in the industry outperform the main equities index this year. Pivotal Fund Ltd., Deneb Investments Ltd. and Acsion Ltd. will begin trading on Africa’s biggest stock exchange over the next two weeks, according to company statements and officials. The FTSE/JSE South Africa Listed Property Index gained 15 percent this year. The 165-member all-share gauge is up 9.1 percent. “We’re likely to see a continuation of listings,” Evan Robins, senior portfolio manager at Old Mutual Investment Group South Africa, said in an interview in Johannesburg today. “Property is a very widely-held asset, so if you’ve got a big portfolio, and you list it, the value on the JSE will be greater than the value they could sell it for.” The companies join the JSE as 19 of the 23 property index listings gain this year. Real estate, finance and business services expanded 2.4 percent in the third quarter on a seasonally adjusted basis from a revised 1.5 percent in the prior three months, Statistics South Africa said in its economic report released in Pretoria today. Deneb, based in Cape Town, will be unbundled from Seardel Investment Corp. (SER) as it aims to raise 1.6 billion rand ($145 million) in a share placement, Chief Financial Officer Gys Wege said by phone. Acsion, with a head office in Johannesburg, plans a private placement worth as much as 200 million rand, it said in a stock exchange statement. Pivotal, also based in Johannesburg and with a portfolio valued at about 7.8 billion rand plans to raise 1 billion rand in its private placement, it said in a separate notice. -By Neo Khanyile Vietnam Expands Foreign Property Ownership to Boost Economy Source: Bloomberg / News Vietnamese lawmakers approved a law allowing broad foreign ownership of property, as the government seeks to boost an ailing real-estate market and accelerate economic growth. Foreigners with a valid visa as well as foreign companies and international organizations operating in Vietnam now will be permitted to purchase houses and apartments, according to the National Assembly’s website yesterday. Current laws restrict ownership to foreigners married to Vietnamese and those foreigners deemed to make significant contributions to the nation’s development. The law is the latest government move to help bolster the property market, following a housing stimulus program and a low-cost home loan package. Vietnam is stepping up efforts to boost economic growth to 5.8 percent this year and clear up bad debts in the financial system, some of which are tied to property. “It is a very helpful move, a good change of policy to open up the real estate sector not only for overseas Vietnamese, but also for foreigners,” said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group. “It projects an image of an opening of the economy to foreign capital, and it might help the bad debt problem.” Real estate stocks rose. Khang An Investment Real Estate JSC leading gainers, jumped 6.7 percent, and Ba Ria-Vung Tau House Development JSC rallied 5.3 percent as of 12:16 p.m. in Ho Chi Minh City trading. The benchmark VN Index (VNINDEX) climbed 0.1 percent. More Attractive“It makes the market more attractive to Vietnam-based expats that want to buy in Vietnam,” Marc Townsend, the Ho Chi Minh City-based managing director of CBRE Group Inc.’s Vietnam unit. “The residential market is already improving so the actual implications may not be felt for a long time.” The new rules also allow maximum foreign ownership of 30 percent in any apartment building or 250 houses in a ward. Vietnamese property inventories dropped about 13 percent to 82.3 trillion dong ($3.85 billion) as of Aug. 20 from a year earlier, according to the construction ministry. The number of unsold apartments was about 17,000 units nationwide. The real estate market remains frozen and parts of the sector are unlikely to bounce back soon, the World Bank said in a July report. “Expanding the criteria for people to buy and own houses in Vietnam aims to create favorable conditions to draw foreign investment,” Uong Chu Luu, National Assembly’s vice chairman said in a statement released at the legislature yesterday. Under Vietnam’s constitution, all land belongs to the state. Land-lease certificates good for a maximum of 50 years are granted in real-estate purchases. -By Nguyen Dieu Tu Uyen and Mai Ngoc Chau Steinhoff to Buy Africa Retailer Pepkor in $5.7 Billion Deal Source: Bloomberg / News Steinhoff International Holdings Ltd. (SHF) agreed to buy Africa’s Pepkor Holdings Pty Ltd. for 62.8 billion rand ($5.7 billion), adding clothing for the first time as the furniture retailer seeks to become one of the world’s biggest discounters. Steinhoff will purchase a 92.3 percent stake in closely held Pepkor, South Africa’s biggest retailer, the Johannesburg-based company said today. Sellers including South African billionaire Christo Wiese will hold a minority stake in the enlarged business. “Having a global discount player in the top five in the world is a shared vision of Steinhoff and Pepkor,” Markus Jooste, Steinhoff’s chief executive officer, said at a Cape Town press conference. “A vision of being in all facets of retailing and have a company that can tackle the world.” The transaction, the largest purchase of a South African company in more than a decade, sent Steinhoff shares up as much as 6.1 percent in Johannesburg. In addition to African chains Pep and Ackermans, the purchase gives Steinhoff the largest non-food retailer in Poland and Australia’s Best & Less. Steinhoff’s operations span three continents, with the 2011 acquisition of Conforama adding stores in France, Spain and Italy. ‘Competitive Advantage’“The motivation strategically makes a lot of sense,” said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg. “How to build a competitive advantage is by scale -- you are able to extract synergies through logistics, group buying power and procure goods at a cheaper price. It’s a virtuous circle.” Pepkor will assist Steinhoff in its goal to tap further into discount retailing in South Africa as more shoppers seek out value amid high inflation and a 25 percent unemployment rate. South African retailers have struggled this year as the economy is set to grow at its slowest pace in five years. Steinhoff, the country’s biggest furniture company, traded 4.5 percent higher at 58.49 rand at the close in Johannesburg, valuing the retailer at 146.7 billion rand. The company in June said it’s seeking a listing on the Frankfurt Stock Exchange to increase its exposure to investors on the continent, where it was founded in 1964. 6,000 StoresThe combined business will have more than 155 billion rand in annual sales and in excess of 6,000 stores. With outlets across Africa, Australia and Eastern Europe, Pepkor operates brands including Pep, Shoe City, and John Craig. “These are two very different animals coming together and there will be a lot of work to be done,”David Shapiro, a director at Johannesburg-based money manager Sasfin Securities, said by phone. “It seems like this was a deal Wiese wanted and he was pulling the strings.” Steinhoff is paying about 14 times Pepkor’s earnings before interest, tax, depreciation and amortization. The price “looks quite expensive,” Norman-Smith said. The purchase multiples are “similar” to Shoprite Holdings Ltd., South Africa’s largest retailer, he said. Steinhoff is buying a 52.5 percent stake in Pepkor owned by Titan Premier Investments Proprietary Ltd., controlled by Wiese, and another 37.1 percent from Brait Mauritius Ltd. Brait shares fell as much as 24 percent in Johannesburg. Investec Bank Ltd. advised on the acquisition, along with Citigroup Global Markets Ltd., Deutsche Bank AG, Barclays Plc and Commerzbank AG. Titan was advised by Rand Merchant Bank and HSBC Bank Plc. No regulatory hurdles are anticipated and the deal should complete in the first half of 2015, according to Steinhoff. -By Janice Kew and Mike Cohen Caesars Swaps Jump as Lenders Said to Agree on REIT Plan Source: Bloomberg / News Swaps protecting Caesars Entertainment Corp. (CZR) investors from default jumped to a record after the largest U.S. casino operator reached an agreement with lenders to turn its biggest unit into a real estate firm, indicating the market has priced in almost certain odds of a bankruptcy filing within a year. The derivatives rose after two people with knowledge of the company’s negotiations with creditors said Caesars’ most-senior lenders agreed to the principles of a restructuring plan. Credit swaps protecting against a Caesars default for one year rose to an upfront cost of 81.5 percent, according to data provider CMA. The proposal already had the backing of some bondholders, the people said yesterday. The company needs the support of the two creditor groups to impose a reorganization plan on lower-ranking creditors that would receive little in a recovery. Caesars, which has lost money every year since 2009, has been negotiating with senior creditors to reduce Caesars Entertainment Operating Co.’s $18.4 billion of debt. It was taken private for $30.7 billion in 2008 by Apollo Global Management LLC and TPG Capital in one of the largest leveraged buyouts in history. The Las Vegas-based company gained the support of term-loan holders by offering them more cash, the people said yesterday. The proposal would put the largest unit into bankruptcy as soon as Jan. 14 and allow it to reorganize into a real estate investment trust, other people with knowledge of the matter said. Lender ExitsCaesars’ $1.25 billion of 8.5 percent, first-lien notes due February 2020 climbed 3.3 cents to 80 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. After lender Silver Point Capital LP abandoned the negotiations on Nov. 19, according to people with knowledge of the matter, Caesars revealed that it had offered the first-lien bondholders 93.8 cents in cash, equity and new debt in the restructuring. Holders of more junior securities would get a minimal amount of equity under the reorganization proposal, according to the company’s plan. The $3.6 billion of 10 percent, second-lien notes due December 2018 fell 0.5 cent to a record-low 12.5 cents today, Trace data show. Shares rose 1.1 percent to $16.31. The company has received four notices of default from creditors who say it broke an agreement when it transferred assets to an affiliate. The fourth was filed yesterday from the trustee of a first-lien bond. -By Laura J. Keller Spending by Households, Companies Propels U.S.: Economy Source: Bloomberg / Luxury The world’s largest economy grew faster in the third quarter than first estimated, capping its strongest six months in a decade, as consumers went shopping and companies boosted spending. Gross domestic product rose at a 3.9 percent annualized rate, exceeding all forecasts of economists surveyed by Bloomberg and up from an initial estimate of 3.5 percent, revised data from the Commerce Department showed today in Washington. Other reports showed consumer confidence weakened and home prices rose at a slower pace. More jobs and cheaper gasoline are giving households the means to boost spending even further going into the all-important holiday shopping season, benefiting retailers such as Wal-Mart Stores Inc. (WMT) Businesses are investing in new equipment to meet that demand, even as markets cool overseas. “The data today really bode well for 2015,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, who projected consumer spending would be revised up. “Businesses have a pretty good reading on consumer demand for their goods and services. They would not be ordering additional equipment if they did not think the consumer was going to be there down the road for them.” Consumer confidence unexpectedly declined in November to a five-month low as Americans became less upbeat about the economy and labor market. The Conference Board’s index fell to 88.7 this month from an October reading of 94.1 that was the strongest since October 2007, the New York-based private research group said today. Confidence SurveysThe report is at odds with other readings. The Thomson Reuters/University of Michigan preliminary November sentiment gauge reached a seven-year high, while the weekly Bloomberg Consumer Comfort Index rose last week to the highest level since January 2008. While Americans were feeling less upbeat this month, they also indicated they’re ready to spend more, according to the Conference Board’s figures. More planned to purchase new appliances, including televisions, vacuum cleaners and washing machines, within the next six months. Buying intentions also rose for homes and used cars. “Consumers were somewhat less positive about current business conditions and the present state of the job market,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales.” Shares EaseThe Standard & Poor’s 500 Index was little changed after closing yesterday at a record as the GDP data was offset by the drop in consumer confidence. The S&P 500 fell 0.1 percent to 2,067.03 at the close in New York. Another report showed home prices climbed at a slower pace in the 12 months through September. The S&P/Case-Shiller index of property values increased 4.8 percent from September 2013, the smallest gain since October 2012, the group reported. The rate of GDP growth last quarter followed a 4.6 percent increase in the previous three months, marking the biggest back-to-back gains since late 2003, according to the Commerce Department’s report. The median forecast of 81 economists surveyed by Bloomberg called for a 3.3 percent advance. Estimates ranged from 2.8 percent to 3.8 percent. Consumer SpendingConsumer spending, which accounts for about 70 percent of the economy, grew at a 2.2 percent annualized rate in the third quarter compared with the previously estimated 1.8 percent. The improvement was spread across durable and non-durable goods, including recreational vehicles and restaurant meals. “We probably have more momentum heading into the final quarter of the year,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose estimate of 3.8 percent growth was closest in the Bloomberg survey. “We’re probably on pace for another 3 percent to 3.5 percent growth in the final three months.” As consumers boost spending on the back of the strongest job growth since 1999, companies such as Wal-Mart may benefit. The world’s largest retailer posted third quarter earnings that beat analysts’ estimates this month as same-store sales grew for the first time in seven quarters. Consumers bought more clothing and home goods, and the company is “excited” about prospects for the holiday season, Greg Foran, chief executive officer of the company’s U.S. division, said on a Nov. 13 conference call. Fuel PricesThe drop in fuel prices “may give customers a little more discretionary spending power in the coming months,” Foran said. The average cost of a gallon of regular gasoline was $2.81 on Nov. 24, the lowest level in four years, according to automobile group AAA. Cheap gas has emboldened many consumers to step up auto purchases, with the industry poised for an unprecedented sixth straight annual sales increase next year. Deliveries of new cars and light trucks in 2015 will probably total 16.7 million, the average estimate of 12 analysts surveyed by Bloomberg News and the most in a decade. That bodes well for factory production. The GDP report wasn’t universally positive. Revised data for the second quarter showed the previously estimated increase in wages and salaries was cut almost in half and corporate profits last quarter rose less than in the prior three months. Wages and salaries rose by $51.9 billion in the second quarter from the previous three months, revised down from an initially reported $102.5 billion gain. Preliminary data showed they climbed by $66 billion in the third quarter. Incomes ‘Solid’Adjusted for inflation, the gain “is still solid,” Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut, said in a research note. The increase will probably be even bigger this quarter given the drop in fuel costs, he said. Gross domestic income, which reflects all the money earned by consumers, businesses and government agencies, rose at a 4.5 percent annualized rate in the third quarter after rising 4 percent in the prior period. Today’s report also offered a first look at corporate profits. Pretax earnings increased 2.1 percent last quarter after an 8.4 percent gain in the previous period. They were up 0.4 percent from the same time last year. Business investment in new equipment climbed at a 10.7 percent annualized rate last quarter, revised up from 7.2 percent. StockpilesA bigger increase in stockpiles last quarter than first estimated was also less of a drag on growth. Still, a surfeit of inventory could contribute to a slowing in production that will restrain growth this quarter. Excluding trade and inventories, the most volatile components of GDP, the economy expanded at a 3.2 percent pace, revised up from an initial estimate of 2.7 percent. Offsetting some of that improvement was a smaller narrowing of the trade gap than previously calculated. The smaller gap between exports and imports added 0.8 percentage point to growth, down from a prior estimate of 1.3 points. Similar contributions will be difficult to match in coming quarters as faster growth in the U.S. and slower growth among the country’s trading partners boosts imports and slows exports. Government spending showed little revision, climbing at a 4.2 percent pace, compared with the previously reported 4.6 percent rate, today’s report showed. It was the biggest gain since the second quarter of 2009. -By Victoria Stilwell Refinancing Boom Exposing Risks in U.S. Property Bonds Source: Bloomberg / News A $40 million penalty wasn’t enough to keep the owner of San Francisco’s Parkmerced apartment complex from the chance to lock in record-low interest rates and take advantage of the property’s $1.5 billion value. While a landlord willing to pay almost 63 times the average fee to refinance early is a bullish sign for commercial real estate, it’s less so for bond investors facing $295 billion of mortgages that come due during the next three years. That’s because the securities are increasingly tied to the market’s weakest properties, many of them financed during the peak of the real-estate boom in 2007, as the strongest are paid off. More property owners are jumping on a drop in financing costs and loosening terms to pay off their mortgages. That helped shrink the amount of debt maturing before the end of 2017 from $332 billion at the start of 2014, according to Bank of America data. “If you’re a well-capitalized entity, you’re going to do it,” Richard Hill, a debt analyst at Morgan Stanley, said in a telephone interview. That could leave commercial-mortgage bond investors “holding the bag on a bunch of lower-quality loans.” Properties such as skyscrapers, shopping malls, hotels and apartment complexes are attracting investors from sovereign wealth funds to insurance companies as they seek higher-yielding assets amid six years of Federal Reserve policies to hold short-term interest rates near zero. Parkmerced DealThe balance of loans made before the financial crisis will likely decline further next year as borrowers rush to refinance mortgages maturing in 2016 and 2017, debt that was taken out during the two biggest years for commercial-mortgage bond issuance, according to Credit Suisse Group AG analysts led by Roger Lehman. For Parkmerced, San Francisco’s largest apartment complex, owner Maximus Real Estate Partners refinanced its $450 million, 3.83 percent mortgage to lock in a 2.87 percent rate, data compiled by Bloomberg show. It also got an additional $773 million in loans to buy out its partner on the property, Fortress Investment Group LLC (FIG), according to documents for investors in a bond offering linked to the complex. The 9,000-resident property near Lake Merced was valued at $1.5 billion in September, the documents show. Retention RulesSuch early payments may help accelerate a new wave of bond offerings tied to the debt. Wall Street banks are on pace to issue $100 billion of securities backed by commercial real estate this year after issuance doubled to $80 billion in 2013, according to data compiled by Bloomberg. Sales, which peaked at $232 billion in 2007, are poised to climb to $140 billion in 2015, Credit Suisse analysts led by Lehman forecast in a Nov. 21 report. Sales of the securities also are being fueled by rules that will require banks to retain some portion of loans that are sold to investors as securities, according to Morgan Stanley’s Hill. That may increase financing costs when they take effect in 2016. Ray Potter, founder of R3 Funding, a New York-based firm that arranges financing for landlords and investors, said he’s advising clients not to wait to refinance as economists forecast the Fed will raise rates next year for the first time since 2006. There has been a surge in borrowers looking to refinance in the past couple of months, Potter said. ‘Lock It In’“If you like that coupon, lock it in for 10 years,” he said. While the interest rate could dip even lower, it’s not worth the risk because “when it moves higher it moves fast,” he said. In aggregate, U.S. commercial real estate values have surpassed the November 2007 peak by 0.2 percent, as measured by Moody’s/RCA Commercial Property Price Index. Prices in major markets, which include cities like New York and San Francisco, have exceeded the peak by about 13 percent, Moody’s said in a report this month. Values in smaller markets are stuck at levels that are 10 percent below the peak. Borrowers that aren’t taking advantage of cheap financing could have a problem such as a vacancy or a decline in revenues preventing them from doing so, according to Alan Todd, an analyst at Bank of America. Boosting OptimismThe buoyant real estate market is boosting optimism defaults on loans in commercial-mortgage securities won’t be as bad as first anticipated after the financial crisis. “As we get closer, the expectation is there should be increasingly less hype about the wall” of debt coming due, said Bank of America’s Todd. “What looked like a mountain in 2010 will eventually look like a foothill.” Investors may be over-estimating the recovery, said Morgan Stanley’s Hill. Even as prices for top-tier real estate in prime locations surge to new records, values for many buildings in smaller cities and towns are languishing. “The assumption that property values are now above their 2007 peak is not necessarily a fair assumption,” he said. “This begs the question: Are expectations too high now?” While debt backed by good properties in large cities shouldn’t be difficult to refinance, borrowers in large swaths of the country where values have been largely flat will come up short, R3’s Potter said. “Somebody will have to take the pain,” he said. “Something’s got to give.” -By Sarah Mulholland http://www.bloomberg.com/news/2014-11-25/refinancing-boom-exposing-risks-in-u-s-property-bonds.html Additional Articles of Interest - Local & Overseas Real Estate |