Real News‎ > ‎2015‎ > ‎February 2015‎ > ‎

13th February 2015

Singapore Economy


Bills on use of underground space tabled

Source: Business Times / Government & Economy

The government wants to make it easier to facilitate the planning and development of underground spaces in Singapore over the long term.  On Thursday, Senior Minister of State for Law Indranee Rajah introduced two Bills - the State Lands (Amendment) Bill and the Land Acquisition (Amendment) Bill.

-By Lee U-Wen


Two Bills pave way for city beneath city

Changes to offer clarity on ownership rights to underground space

Source: Straits Times / Singapore

AS LAND-SCARCE Singapore looks to develop more underground space, legal amendments were tabled yesterday to pave the way for this city beneath a city.

Two Bills were introduced in Parliament to clarify ownership rights to underground and above-ground space and to allow for the acquisition of this space.

The main focus for now is below ground. Landholders will be deemed to own the space down to 30m below a level known as the Singapore height datum (SHD) - a flat islandwide plane not varying according to land contours and pegged to the mean historical sea level - unless stated otherwise in the land title.

Land more than 30m below the SHD will belong to the State and developments at such depths are "unlikely" to affect the owner's property use, said the Ministry of Law. Most basements here, for instance, go no deeper than about 15m below the SHD.

The changes will bring clarity to an existing law that stipulates only that ownership applies to a depth that is "reasonably necessary for the use and enjoyment of the property". Piling works are unaffected by the changes.

The move follows a proposal by National Development Minister Khaw Boon Wan last September to lay out an underground master plan. This includes possible underground pedestrian links, cycling lanes, shopping areas and public spaces. The Jurong Rock Caverns is the deepest underground project here, at 150m below the SHD. So far, Fusionopolis in one-north is the deepest commercial project, at 15.8m below the SHD.

A second Bill means the Government would be able to acquire strata space below or above ground to develop public projects, without owning the surface land.

An example of above-ground use of space might be a flyover.

For underground space, land owners will be compensated for the acquired stratum at "market value", or for any subsequent damage to the surface development.

Though it is unclear how underground space will be valued, a ministry spokesman said compensation will be "site specific" .

"The boundaries of all surface land are precisely marked out," said the spokesman. "What we are trying to do is clarify the boundaries for the vertical plane of this space as well."

The Bills will not change laws that allow for compulsory acquisition of land by the Government.

The Rochor Centre housing and commercial complex in Ophir Road, for instance, was acquired to make way for a segment of the new North-South Expressway.

Mr Robson Lee, a corporate lawyer, said of the move: "The Government is planning for the future, and will need to have

legislative backing to give legal basis to do what it needs to do."

-By Cheryl Ong

Singapore Real Estate


Ong Beng Seng-linked company negotiating sale of dormitory

Price of Homestay Lodge in Kaki Bukit, which was completed in mid-2001, is said to be around S$125m

Source: Business Times / Real Estate

A privately owned vehicle of Hotel Properties managing director Ong Beng Seng and his brother-in-law David Fu is said to be negotiating to sell a foreign workers' dormitory on a sprawling site along Kaki Bukit Avenue 3.  The price is around S$125 million, according to market talk.

-By Kalpana Rashiwala          

Cautious bids again for EC site tender

However, the number of bids for Woodlands plot was seven - from three for a Fernvale site last month

Source: Business Times / Real Estate

The latest tender for an executive condo (EC) site in Woodlands has showed that developers are continuing to be cautious in their bid prices, in view of lower projected sale prices for ECs. However, the tender attracted seven bids, sharply higher than the three bids submitted at last month's EC land tender in Anchorvale Crescent in Sengkang.

-By Kalpana Rashiwala


Latest EC site bid is lowest since July 2011

Source: Straits Times / Money

DEVELOPERS continue to be wary of the executive condominium (EC) market, with another tepid showing at a tender closing yesterday.

The highest bid lodged - $278 per sq ft per plot ratio (psf ppr) - could be, if won, the lowest price on a psf ppr basis for an EC site since July 2011.

The bid from Hao Yuan Investment was also about 18.5 per cent down on the $341 psf ppr paid in May 2013 for the Bellewoods plot in Woodlands Avenue 5 and 6, the last EC land sold in the area.

Hao Yuan's bid of $103.79 million for the plot, a 1.24ha site in Woodlands Avenue 12, was 3.8 per cent above that of Allgreen Properties, which offered $99.98 million or $268 psf ppr. The one bright spot was that seven bids were received, well up on recent tenders.

The backdrop of a growing stock of 2,400 launched and unsold EC units and a further 6,000 units in the pipeline could have contributed to the low bids, said Mr Desmond Sim, CBRE research head for South-east Asia.

Still, the seven bids were twice the level seen at recent tenders for sites in Anchorvale Crescent and Sembawang Road, providing "some glimmer of cheer in what many might consider a muted market", said Ms Chia Siew Chuin, Colliers International director of research and advisory.

The break-even price for the project could be between $600 to $650 psf, with selling prices from $700 to $750 psf, experts said.

Such pricing would be similar to those of two ECs in the area that were launched in 2013.

Twin Fountains in Woodlands Avenue 6 had sold 384 of 418 units at an average price of $744 psf as at Dec 31, while Forestville EC in Woodlands Drive 16 sold 594 of 653 units at an average price of $732 psf.

In comparison, sales have faltered at Bellewoods, which was launched in November last year and is priced at an average of $800 psf. It had sold 78 of 561 units as at Dec 31.

-By Rennie Whang

JLL: S'pore office-rent growth strongest, home price fall largest in Asia-Pac in 2014

Source: Business Times / Real Estate

SINGAPORE recorded the steepest price decline in the luxury residential market in the Asia-Pacific region last year, according to JLL, even as office rents in the central business district (CBD) made the strongest gains.

Luxury home prices fell 6.1 per cent year on year in Singapore against the backdrop of flat or small price gains and generally subdued sales activities in the rest of Asia.

The strongest gains were seen in Manila (9.7 per cent), Shanghai (6.3 per cent) and Kuala Lumpur (3.4 per cent). Prices in Hong Kong increased 2.3 per cent on the back of pent-up demand arising from policy relaxation. JLL added that weak buyer sentiment and new supply should see an ongoing price correction persist in Singapore.

Meanwhile, Singapore's office rents in the CBD jumped 14.9 per cent year on year, helping the Republic keep its position as the third most expensive locality after Hong Kong and Beijing, ahead of Shanghai and Tokyo. Looking ahead, however, the impending supply is expected to dampen rental growth as early as the second half of 2015, said JLL.

Already, Singapore saw quarter-on-quarter growth slow sharply to 0.9 per cent in Q4, compared with 3.5 per cent in Q3. This will likely be echoed across other major South-east Asian markets, with new supply completions dampening rental growth. On the retail front, Singapore continued to top the charts across South-east Asia, despite average rents in shopping centres declining some 0.3 per cent in 2014.

In general, continued leasing interest from new-to-market brands supported healthy occupancy levels in Singapore. However, weakening demand drivers of retail sales (such as visitor arrivals) and rising operating costs due to continued labour shortage are putting pressure on rents, noted JLL.

Looking ahead, rents should remain stable with possibly a minor rental correction due to higher business costs associated with continuing labour shortage.


CBD rents up 14%, strongest growth in Asia-Pac

Source: Straits Times / Money

RENTS in the central business district shot up around 14 per cent last year - the strongest rise in the Asia-Pacific - but the momentum won't last, according to a report yesterday.

Consultancy JLL said the pace of increase is likely to slow within months despite the tight supply situation as a large influx of new space is looming.

Landlords had their way late last year, with demand for CBD office space in the fourth quarter boosted by a mix of expansion and relocation activities across various segments, including small financial institutions, said JLL.

Consumer goods, IT and social media firms also took up space, with LinkedIn, Facebook and Twitter moving into the CBD over the quarter.

The net take-up in the CBD was positive, at about 624,307 sq ft in the three months to Dec 31, while the vacancy rate remained stable at 6.1 per cent. Office rents rose to $8.90 psf a month as at the end of the fourth quarter, up from $8.78 in the third quarter.

Supply was added in the form of CapitaGreen, which has 700,000 sq ft of net lettable area.

JLL said office demand could rise with the growth of IT and business advisory services ahead of the formation of the Asean Economic Community later this year.

But rental growth is likely to be dampened due to new supply coming onstream next year, with pre-leasing likely to start this year. A large amount of space, especially at Marina One, is expected to add at least 1.5 million sq ft to the market. "This is likely to add pressure on landlords to lock in existing tenants by offering attractive rental rates, or longer lease periods," JLL said.

It added that modest economic growth of 2.8 per cent last year and only 3 per cent tipped for this year, plus uncertainties in major economies, "may prompt some companies to adopt a more cautionary approach towards expansion".

The total value of CBD sales transactions fell 84.5 per cent from the third quarter to $194 million in the fourth quarter, mainly because there were no major transactions en bloc.

-By Rennie Whang

Hao Yuan tops bids for Woodlands EC site

Source: Business Times / Real Estate

A 99-YEAR leasehold executive condominium (EC) housing site along Woodlands Avenue 12 has garnered seven bids at a state tender that closed on Thursday. The top bid, from Hao Yuan Investment, was S$103.79 million or nearly S$278 per square foot per plot ratio (psf ppr). The second highest bidder, Allgreen Properties, offered S$99.98 million, which works out to nearly S$268 psf ppr.

The lowest bid, from KBD Ventures, was S$70.9 million.

The land parcel can be developed into an estimated 390 EC units. ECs are a public-private housing hybrid with initial buyer eligibility and resale restrictions which are completely lifted 10 years after the completion of an EC project.

-By Kalpana Rashiwala        


Woodlands site attracts lowest EC land bid since 2011

Source: Today Online / Business

SINGAPORE — A plot of land for executive condominium (EC) development drew the lowest bid in three-and-a-half years at the close of its sale tender yesterday in a sign of persistent softness in the market for the hybrid public-private housing type.

The 133,346 sq ft site in Woodlands Avenue 12 attracted seven bids, with the top bid of S$103.8 million, or about S$278 per sq ft per plot ratio (psfppr), submitted by Hao Yuan Investment, the Housing and Development Board (HDB) said.

The 99-year leasehold site has a plot ratio of 2.8 and can yield a maximum gross floor area of 373,370 sq ft or about 390 dwelling units, said the HDB.

Property agency SLP’s executive director of research and consultancy Nicholas Mak noted that the top bid was the lowest for EC land since July 2011, when a Punggol Way site was sold for S$270 psfppr. That site was later developed into Twin Waterfalls.

Mr Chris Koh, director of property consultancy Chris International, said: “Interest in ECs has been rather lukewarm recently and units are moving at a slower pace. Buyers today are spoilt for choice because of supply, so developers have to take that into account when bidding.

“Not forgetting that HDB upgraders now have to pay resale levy to buy ECs and the slew of other measures such as 30 per cent MSR (mortgage servicing ratio) imposed on EC buyers,” he added.

EC developers are also allowed to launch units for sale only 15 months after securing land or the completion of physical foundation work, whichever is earlier.

The Woodlands site is the last of the three EC plots on the Confirmed List of the Government Land Sales (GLS) Programme for the second half of last year. The previous tenders for a site at the junction of Sembawang Road and Canberra Link, and another in Anchorvale Crescent received only two and three bids, respectively.

“The number of bids for the tender … indicates that developers are still interested to acquire EC land parcels, provided the price is attractively low,” Mr Mak said, adding that the limited EC land supply under the current GLS programme might have spurred developers to come forward.

“As the Government is offering only one EC land parcel on the Confirmed List of the first half of 2015’s GLS Programme and hence limiting the future supply of ECs, some developers could be getting less worried about a glut in the EC market 15 months down the road,” he added.

Ms Chia Siew Chuin, director of research and advisory at Colliers International, said the break-even price for the Woodlands EC project is estimated at S$620 psf, while the selling price may range from S$650 to S$700 psf.

-By Lee Yen Nee

Companies' Brief


Perennial posts profit of S$21m for six months ended Dec 31

Source: Business Times / Companies & Markets

PERENNIAL Real Estate Holdings Ltd (PREH) posted a net profit of S$20.97 million for the six months ended Dec 31, 2014 and revenue of S$21.76 million.

This marked a turnaround from the S$2.13 million of net loss incurred from the entertainment businesses of St James Holdings Ltd, which have been divested upon completion of PREH's reverse takeover (RTO) of St James on Oct 27, 2014.

Excluding the revenue of S$6.8 million relating to the entertainment business which was recognised prior to the RTO, PREH's revenue relating to real estate business for the period from Oct 28 to Dec 31 was S$15 million.

PREH's operational profits come from assets in Singapore and assets held by Perennial China Retail Trust (PCRT), which were consolidated with effect from November 2014.

It now has interests of 20-51 per cent in integrated real estate development projects located in Beijing, Chengdu, Xi'an and Zhuhai in China. In Singapore, its stakes range from 1.46 per cent to 51.61 per cent in real estate projects Chijmes, TripleOne Somerset, Capitol Singapore, House of Tan Yeok Nee, Chinatown Point and 112 Katong. 

PREH recently announced an investment of S$117.9 million for a 31.2 per cent equity stake in AXA Tower.

-By Lynette Khoo

FCL Q1 net profit jumps 55% to S$186.87m

Source: Business Times / Companies & Markets

FRASERS Centrepoint Ltd (FCL) marked a 55 per cent jump in its net profit for the fiscal first quarter ended Dec 31, 2014 to S$186.87 million as it enjoyed new income streams from the listing of a hospitality trust in July and the acquisition of Australand in August.

Group revenue almost doubled to S$1.07 billion during the first quarter from S$552.12 million in the year-ago period.

Frasers Australand, comprising Australand and Frasers Property Australia (FPA), recorded a 99 per cent year-on-year surge in profit before interest and tax (PBIT) to S$127 million as Australand's residential business received a significant boost from the completion and settlement of the Clemton Park and Discovery Point residential projects.

The listing of Frasers Hospitality Trust (FHT) in July also resulted in a new stream of contributions from the six hotels acquired by FHT from the TCC Group.

Sales of completed China developments added to the increase, partially offset by lower contributions from the tapering-off of sales in developments in FPA and the UK.

FCL said that it would seek to strengthen its income base through the Reit platforms and look at unlocking value in its portfolio through asset enhancement or repositioning efforts, as well as possible injection of stabilised assets into its Reits.

On the development front, FCL will monitor market conditions in Singapore and target to launch North Park Residences within the next few months, the group said. Meanwhile, in China, Phase 3A of Baitang One in Suzhou, as well as Phases 2A and 2B of Gemdale Megacity in Shanghai, are expected to be completed within FY14/15.

-By Lynette Khoo       

Rowsley investing US$275m in Myanmar real estate tie-up

Peter Lim-linked company taking 50% stake in firm developing a sizeable mixed development project in Yangon

Source: Business Times / Companies & Markets

Faced with oversupply headwinds for its yet-to-be launched major and only residential project in Malaysia's Iskandar, Rowsley is now joining the growing bandwagon of Singapore firms betting on Myanmar's real estate.

-By Anita Gabriel


Rowsley sinks S$373m in Yangon project

Source: Today Online / Business

SINGAPORE — Rowsley, a Singapore-listed real estate, architectural and engineering consultancy firm partly owned by billionaire Peter Lim, is making its first foray into Myanmar by investing US$275 million (S$373 million) in a mixed-use property project in Yangon.

Under the agreement signed yesterday, Rowsley will take a 50 per cent stake in a company that wholly owns HAGL Myanmar Centre, one of the country’s largest integrated projects with four office blocks, a five-star hotel, retail mall and serviced as well as residential apartments.

Rowsley’s partner in the project is Vietnam’s Hoang Anh Gia Lai Joint Stock Company (HAGL), which is undertaking the construction of the project.

“Yangon faces a severe shortage of top-grade office space, hotels and modern malls. The first phase of HAGL Myanmar Centre will be operational in 2015 and will address acute shortage of real estate in all these asset classes,” Rowsley CEO Lock Wai Han said.

Spread over more than 780,000 sq ft of land located in a prime neighbourhood next to Inya Lake in Yangon, HAGL Myanmar Centre has a lease term of 50 years and options for extensions, with the project valued at US$550 million upon completion.

It will have a total net gross floor area of almost 6.9 million sq ft when completed in 2018, comprising both residential and commercial components, Rowsley said.

The first phase of the development, started two years ago and targeted for completion by the end of the year, includes two office blocks with a net lettable area of about 870,000 sq ft, a retail mall of about 420,000 sq ft and a 400-room five-star hotel.

The second phase, comprising another two office blocks with a net lettable area exceeding 1 million sq ft and more than 1,000 serviced apartments and residential units, is expected to start next year.

Although Myanmar has registered strong economic growth in recent years after emerging from decades of isolation, the International Monetary Fund warned this week that the economy is set to grow at a slower pace of 7.8 percent in the fiscal year ending March 31 largely because of a slowdown in agriculture. 

-By Channel News Asia

Low-margin project drags Boustead Q3 net down 36%

Source: Business Times / Companies & Markets

The completion of a large property project with a very low margin meant that technology and engineering group Boustead Singapore reported a 36 per cent fall in net profit to S$11.8 million from S$18.4 million a year ago, for its third quarter ended Dec 31, 2014. Revenue went up 37 per cent to S$177.9 million from S$129.7 million a year ago. Cost of sales, however, was up 66 per cent at S$135.9 million.

-By Cai Haoxiang       

Lum Chang Q2 profit doubles on gains from weaker ringgit

Source: Business Times / Companies & Markets

CONSTRUCTION firm Lum Chang on Thursday said net profit for its fiscal second quarter more than doubled on currency gains linked to the weaker ringgit.

Net profit for the three months ended Dec 31, 2014, stood at S$7.25 million, compared to S$3.14 million a year ago.

It made a currency gain of S$1.98 million for the quarter, compared to a loss of S$516,000 a year ago. This arose mainly from the translation of the company's ringgit-denominated payables related to the purchase of a 49 per cent interest in a subsidiary.

"The loss for the corresponding period last year arose mainly in respect of the translation of the company's Malaysian ringgit-denominated receivables from a subsidiary."

Gross profit also rose 19 per cent to S$13.9 million, as a decline in revenue was weaker than that of costs.

-By Jamie Lee

Views, Reviews & Forum


No right time to remove tax breaks for Reits

The industry waits with bated breath on whether the Finance Minster's Budget 2015 will reveal an extension of these concessions.

Source: Business Times / Opinion

Since the listing of the first Singapore real estate investment trust (S-Reit) in 2002, the market for S-Reits has flourished. Today, there are 28 S-Reits and six stapled securities (Reit bundled with registered business trust) listed on Singapore Exchange (SGX) with a total market capitalisation of S$67 billion. The S-Reits achieved an average total return of 12.9 per cent in 2014, beating the Straits Times Index's 9.5 per cent return.

-By Lim Gek Khim & Ang Sau Tze

Property players should be patient

Source: Straits Times / Forum Letters

THE lobbying - namely by consultants, developers and real estate agencies - for the Government to moderate property market cooling measures by doing away with the additional buyer's stamp duty (ABSD) has been growing louder ("Cut second-home ABSD for citizens as market slides"; Feb 3).

However, is their call really warranted at this early stage of the stabilising period?

Prices of private and HDB properties have barely corrected a few percentage points since the last measures were implemented.

Interest rates for home financing have also not really witnessed a significant uptrend.

US interest rates are still benign, despite the end of the Federal Reserve's quantitative easing (QE), and other major economies are implementing various forms of QE.

While the pumping of liquidity into their systems is intended to stimulate production and investment in infrastructure, and to create jobs, sadly, such liquidity has largely been diverted to the financing of the stock markets, property development and mortgage financing - resulting in the inflation of the stock and property markets.

This is precisely the reason our Government introduced the ABSD, to discourage "hot" money from coming into Singapore to distort the local property market.

Our property prices have risen over 50 per cent in the last eight to 10 years, despite the recession of 2008-2009, when property prices in major economies fell.

So, I suggest we leave it to the Government, which has all the statistics, to do its job while all other parties exercise a bit of patience.

-By Jimmy Chan Yee Shun

Hotels have means, obligation to check guest reliability

Source: Straits Times / Forum Letters

IN HER response ("Short-term leasing has its benefits"; last Saturday) to my letter ("Potential ill effects of short-term leasing", Feb 4), Ms Bianca Sandra Overree said hotels and hostels merely want to see the page of one's passport with one's photo and name on it during identity verification.

However, unlike private residential leases, there are strict licensing regulations which require hotels and hostels to maintain extensive particulars of their guests in a register.

Compared to ad hoc landlords, professional hospitality managers possess the necessary training, experience and resources to recognise the veracity of identification documents and prohibited guests.

Operators must also obtain permits from the National Environment Agency, Fire Safety Bureau and the Building and Construction Authority - requirements which are not imposed on private landlords.

Ms Overree expressed her belief that short-term rentals will not have an effect on Singapore's residential supply.

But take a look at New York City. Short-term rentals are displacing long-term housing options during a period of record-high rents.

The city is also losing millions of dollars from lost hotel taxes.

Singapore is already the world's most expensive city ("S'pore the costliest city? That's rich"; March 6, 2014).

If landlords prefer short-term leasing, it would be more difficult and expensive for expats looking for longer-term rental here.

-By Beatrice Tang

Global Economy & Global Real Estate


China's new home prices bottomed in Jan after 8-month fall: surveys

Source: Business Times / Real Estate

Norway's SWF buys 45% stake in Times Square office tower

Norway becomes biggest foreign property buyer in America after Canada

Source: Business Times / Real Estate       

Blackstone to buy stake in six buildings

Source: Business Times / Real Estate

Hilton Worldwide to buy 5 hotels for US$1.76b

Source: Business Times / Real Estate

[NEW YORK] Hilton Worldwide Holdings Inc, the world's largest hotel operator, agreed to buy San Francisco's Parc 55 and four other properties for US$1.76 billion with proceeds from its sale of New York's Waldorf Astoria.

In addition to the 1,024-room Parc 55, the company is buying two hotels in Orlando, Florida, and two in Key West that are already managed by Hilton, according to a statement Wednesday. The sellers in the transaction include Hilton's majority owner, Blackstone Group LP.

Hilton is planning to make the acquisitions with some of the proceeds from its US$1.95 billion sale of the Waldorf Astoria to China's Anbang Insurance Group Co, which has been completed. Under US tax-deferral rules, the McLean, Virginia-based company must complete its purchases with the proceeds within 180 days of the sale's completion.

Selling in New York and buying in other markets is a way "to accelerate your room-revenue growth," Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia, said in a telephone interview. Room revenue at Key West hotels, for example, has increased faster than the US average and in New York, he said.

"New York has slowed, in great part due to all the new hotels that have been added," he said. "In markets like Key West and San Francisco, it's a very long and expensive process to build new product, which makes it a great argument to buy there."

The Parc 55 is the fourth-largest hotel in San Francisco, a top US lodging market. Hotel occupancies in the area encompassing San Francisco and San Mateo averaged 84.1 per cent last year, compared with 64.4 per cent for the US, according to STR Inc.

The sellers of the Parc 55 include New York-based Blackstone and Rockpoint Group, a Boston-based real estate private-equity firm. Blackstone also owns the two Key West resorts. The current majority owners of the Orlando properties are Chicago-based Gem Realty Capital and Farallon Capital Management, a San Francisco-based hedge-fund firm. Blackstone holds a minority interest in both properties.

Hotel values have recovered to within 15 per cent of their 2007 peak. Prices for properties in big cities climbed 15 per cent during the past year, double the gain in smaller cities, according to indexes compiled by Moody's Investors Service and Real Capital Analytics Inc.

Hilton's acquisition is slated to close this month and the approximately US$100 million that's left of the proceeds from the Waldorf sale will be used to buy additional properties within the next six months, according to the statement.

-By Bloomberg

Hedge funds exiting housing mortgage debt as prices rise

Returns at funds buying securities averaged 10.2% last year, down from 13% in 2013

Source: Business Times / Real Estate

M'sia Q4 economy defies oil slump to grow 5.8%

But analysts expect full brunt of weaker global oil and gas prices in coming months

Source: Business Time / Government & Economy       

US Dec business inventories rise less than expected

Source: Business Times / Government & Economy

With election uncertainty, UK home price growth slows: Survey

Source: Today Online / Business

LONDON — Home prices across the United Kingdom rose last month at their slowest annual pace since May 2013 and fell for a fifth straight month in London, based on a key industry survey that suggested political uncertainty ahead of a national election is crimping demand.

The Royal Institution of Chartered Surveyors (RICS) said yesterday that its monthly house price balance index sank to +7 last month from +12 in December, below all forecasts in a Reuters poll of economists. The index measures the assessment of surveyors of whether housing prices have risen or fallen on an annualised basis over the previous three months.

Britain’s housing market has been slowing since the middle of last year, when regulators required banks to make closer checks on whether borrowers would still be able to afford mortgage repayments if interest rates rise sharply.

The RICS survey showed home prices continued to fall in London, which is popular with foreign buyers including Singaporeans, with its price balance index for the city dropping to a six-year low. RICS said its survey showed an election on May 7 had been causing buyers and sellers to pause for thought.

Opinion polls show the election race is too tight to call. The opposition Labour Party has said it would introduce a tax on properties worth more than £2 million (S$4.2 million).

Meanwhile, investors are worried about the ruling Conservative Party’s pledge to hold a referendum on Britain’s European Union membership.

“Anecdotal evidence from respondents suggests a multitude of factors are affecting different markets, with political uncertainty weighing, to some extent, on all parts of the UK,” RICS said. 

-By Reuters

Commerzbank Says Property-Loan Book Cut by $18 Billion

Source: Bloomberg

(Bloomberg) -- Commerzbank AG reduced its book of unwanted property loans by 16 billion euros ($18 billion) last year by allowing deals to expire and through sales of portfolios in Spain, Portugal and Japan.

Germany’s second-largest lender had 20 billion euros of non-core commercial property debt at the end of 2014, the bank said in its annual results presentation today. A further 9 billion euros of cuts are planned by the end of 2016.

Commerzbank is selling assets it doesn’t consider to be central to its business to raise capital levels and comply with the conditions of an 18.2 billion-euro government rescue. Demand for property assets from pension funds, insurers and other investors has surged amid record-low interest rates, with about $230 billion of commercial property transactions in the fourth quarter, according to data compiled by Jones Lang LaSalle Inc., the most ever in a single quarter.

Commerzbank’s unwanted property assets are held by a so-called bad bank unit called Hypothekenbank Frankfurt AG. It wound down 10.4 billion euros of loans last year by allowing them to expire and negotiating early paybacks. It sold portfolios valued at 5.1 billion euros.

Of the 20 billion euros in non-core property loans Commerzbank still holds, it said there are about 3 billion euros of non-performing loans and 1 billion euros of borrowings classified as “higher risk.”

Shipping Assets

The bank said in August it plans to cut commercial real estate and shipping assets to about 20 billion euros by the end of 2016.

Commerzbank, which announced its exit from ship financing in 2012, said it reduced loans to the industry by 14 percent to 12 billion euros in 2014. Of the total, about 3 billion euros was non-performing debt and the lender plans to cut the portfolio to 9 billion euros by the end of 2016

Global trade plunged after the 2008 financial crisis, leading to an excess in capacity in the container shipping business that left Commerzbank and other maritime lenders, including Norddeutsche Landesbank and HSH Nordbank AG, saddled with billions of euros of bad debt.

-By Dalia Fahmy & Nicholas Brautlecht

Freddie Mac Catching Up in Apartment Boom: Mortgages

Source: Bloomberg 

(Bloomberg) -- Operating in the shadow of Freddie Mac’s business as America’s second-largest guarantor of home loans, the company’s unit serving apartment landlords is booming as borrowers take advantage of looser lending terms.

The mortgage company underwrote $21.2 billion of debt on apartment buildings in the second half of 2014, triple the total in the first six months. The surge meant the McLean, Virginia-based lender almost surpassed the larger Fannie Mae last year to become the biggest provider of U.S. apartment financing, following changes by the agency that oversees both companies.

Melvin L. Watt, who took over as director of the Federal Housing Finance Agency last year, is rolling back policies aimed at shrinking the government-controlled finance companies, letting Freddie Mac push into segments of multifamily lending that had been off limits. That’s helping bolster demand for apartment buildings, already the hottest part of the commercial real estate market, as values rise to a point of possible overinflation.

“Rents have been growing at a significantly faster clip than wages,” said Sam Chandan, president of Chandan Economics. “The outlook for rental growth is more measured than what we’ve seen over the last couple of years.”

Apartment values have been rising steadily since 2010, according to the indexes compiled by Moody’s Investors Service and Real Capital Analytics Inc. Multifamily buildings in large cities such as New York and San Francisco have had the biggest gains in the real estate recovery, with prices 40 percent higher than the record reached in November 2007, during the last boom. Those higher values will be tested when the central bank raises interest rates, a more likely prospect in 2015 after a strong jobs report this month.

Growth Room

While prices for the best apartment buildings in the highest-demand markets may be due for a correction, there’s still room for growth among properties outside the top tier, said David Brickman, head of multifamily operations at Freddie Mac.

“Nobody is building Class B properties,” Brickman said in a phone interview. “Vacancies continue to be very low.”

Both Freddie Mac and Fannie Mae boosted apartment lending during the latter half of 2014 after Watt eased restrictions on that part of their businesses, according to real estate research firm Green Street Advisors LLC. The FHFA capped their multifamily lending at $30 billion each this year -- a $4 billion increase for Freddie Mac -- after telling the companies to shrink the business in 2013.

U.S. Conservatorship

Watt succeeded Edward DeMarco, who made cutting the size of the companies a priority while he was director, a role he assumed when the FHFA was created in July 2008. Freddie Mac and Fannie Mae were seized and taken into U.S. conservatorship in September 2008 as the companies buckled under the weight of souring home loans, requiring a $187.5 billion taxpayer bailout.

The surge in volume at the end of last year was due in large part to an unexpected drop in interest rates that pulled some borrowers off the sidelines, according to Jeff Hayward, head of multifamily operations at Fannie Mae.

The demand for loans was sluggish at the start of the year, and Fannie Mae and Freddie Mac didn’t have a clear mandate from their regulator until May, according to Willy Walker, chief executive officer of Walker & Dunlop Inc. The new FHFA road map allows the lenders to exceed volume caps to serve affordable-housing needs, Walker said.

“That was really a great shot in the arm,” said Walker, whose company is a lender in the multifamily programs at Fannie Mae and Freddie Mac, which rely on partnerships with banks and other financial institutions to acquire loans.

Class B

The shift in tone at the FHFA has been especially beneficial for Class B buildings, properties that are typically at least 20 years old and may need upgrades, Green Street analysts led by Dave Bragg wrote in a report last month. Ownership of such buildings varies widely, ranging from individuals to large institutions, according to Bragg.

Freddie Mac last year started a program catering to borrowers renovating their properties, Brickman said. The short-term loans are designed to facilitate improvements prior to investors taking on longer-term debt.

New FHFA rules last year also enabled Freddie Mac to finance manufactured-housing communities and form a group dedicated to originating small apartment loans, of $1 million to $5 million. The average size of a Freddie Mac multifamily mortgage is $15 million, and loans can be as large as $450 million.

A $4 million loan to refinance debt on Nettleton Commons, a complex in Syracuse, New York, completed last month, is typical of the program.

Fannie Mae has been doing such lending, geared toward providing low-income housing, for several years.

Losing Ground

Fannie Mae is losing ground as Freddie Mac expands its programs and offers borrowers more generous terms, such as allowing landlords to defer paying off principal. Freddie Mac’s multifamily-loan volume exceeded Fannie Mae’s by more than $2 billion in the fourth quarter.

For all of 2014, Fannie Mae retained a slim lead, completing $28.9 billion in apartment financing, compared with Freddie Mac’s $28.3 billion. Combined, the two hold about $334 billion of outstanding multifamily debt, with Fannie Mae accounting for $198.4 billion as of Sept. 30.

By contrast, the companies hold more than $4 trillion of loans backed by homes occupied by their owners.

In their multifamily units, the two use different models to distribute the risk of borrowers defaulting. Fannie Mae shares in losses with the lenders it partners with, while Freddie Mac offloads losses to private investors. Fannie Mae’s model leads to a more conservative approach to underwriting.

Fannie Mae

The larger lender isn’t standing still. At the end of last year, Fannie Mae started funding borrowers with newly constructed properties that are still in the process of finding tenants for them. While buildings typically have to be least 90 percent occupied to qualify for funding from Fannie Mae, the new program allows for vacancy rates as high as 25 percent, said Hilary Provinse, a senior vice president at the company.

More than six years of near-zero interest rates engineered by the Federal Reserve have pushed all types of investors to take on more risk to generate higher returns. Fannie Mae and Freddie Mac have to get more aggressive to compete, and Freddie has been faster than Fannie to adapt, said Walker of Walker & Dunlop.

Still, the landscape remains relatively tame compared with the excess of the years leading up to the last property-market crash, Walker said.

“We’re not doing loans with either agency that say the silly underwriting of 2006 and 2007 is coming back,” he said.

The multifamily units at Fannie Mae and Freddie Mac, which have been growing steadily since 1994, emerged from the financial crisis relatively unscathed, compared with the arms that deal with individual homeowners. The companies’ track record in the industry supports their continued growth, according to Bragg of Green Street.

“We don’t necessarily think we’re taking on more risk,” said Brickman of Freddie Mac. “We’re feeling more empowered to make good loans and not as concerned about staying in a lane.”

-By Sarah Mulholland

Utilities, REITs Draw Closer as Bond Proxies: Chart of the Day

Source: Bloomberg

(Bloomberg) -- Utilities and real estate investment trusts have become more closely tied in the U.S. stock market as lower bond yields have spurred demand for their shares.

The CHART OF THE DAY compares the performance of the Standard & Poor’s 500 Utilities Index and the Bloomberg REIT Index since the beginning of last year. The 30-stock utilities gauge set a record in January as the REIT indicator, tracking 166 stocks, came within 2 percent of its February 2007 peak.

Correlation between the indicators rose to 0.960 in the period from 0.677 in 2013 and 0.584 in 2012, according to data compiled by Bloomberg. The highest possible reading is 1, which signifies two sets of figures move in lockstep.

Utility and REIT shares are connected as “bond market proxies,” Russ Koesterich, BlackRock Inc.’s chief investment strategist, wrote in a Feb. 8 report. Both are vulnerable to losses as the Federal Reserve gets ready to raise interest rates, the New York-based strategist wrote.

Dividend yields for the industry gauges were almost the same as of yesterday, according to data compiled by Bloomberg. The utility index yielded 3.42 percent, or 2 basis points less than the REIT indicator. They both surpassed the 1.99 percent yield on 10-year Treasury notes.

“The problem is that after a relentless search for yield, investors have piled into dividend-yielding stocks,” including utilities and REITs, Koesterich wrote. These shares have become “extremely expensive” as a result, he wrote.

-By David Wilson

China Hedge Fund Says Best Trade of 2014 Is Back On

Source: Bloomberg

(Bloomberg) -- The top-performing China hedge fund is piling back into property shares, reviving a trade that propelled it to a 46 percent gain in the second half of 2014.

Marco Polo Pure Asset Management has been buying developers, including Poly Real Estate Group Co. and Beijing Capital Development Co., after the industry’s benchmark gauge in Shanghai dropped as much as 19 percent from this year’s high. That same trade helped drive the fund’s gain in 2014 as China’s interest-rate cut in November sent the Shanghai Property Index to a 60 percent surge through Jan. 5, according to Aaron Boesky, Marco Polo’s chief executive officer in Hong Kong.

The first reduction in borrowing costs since 2012 is just the start of monetary easing that will send the Shanghai Composite Index to a gain of about 50 percent this year, according to Boesky. Property stocks led the index’s 53 percent rally last year as investors in the $5.1 trillion market bet central bank stimulus will boost the world’s second-largest economy from its weakest expansion since 1990.

“We are going to make a new high,” Boesky, whose Pure China fund was the top performer in the second half among China-focused hedge funds tracked by AsiaHedge Intelligence, said in an interview in Hong Kong. The government is “going to start making cost of capital cheaper and the economy faster.”

NPC Meeting

The rally in Chinese shares will probably resume after the weeklong Lunar New Year holidays that start on Feb. 18, said Boesky, who oversees more than $100 million. Property sales will also pick up and investor confidence may get a boost from next month’s National People’s Congress as President Xi Jinping outlines plans to keep the economy growing, said Chris Tang, the chief investment officer at Marco Polo.

The Shanghai Composite rose 1 percent to 3,203.83 on Friday, while the property index jumped 2 percent. Poly Real Estate climbed 3.7 percent and Beijing Capital increased 5.2 percent.

Equity investors counting on China’s monetary stimulus to drive gains are likely to be disappointed as the economy weakens further, according to John-Paul Smith, the founder of Ecstrat, a London-based research firm.

Chinese imports plunged in January by the most in more than five years, a sign of weakening domestic demand, while gauges of manufacturing and services industries fell.

“We will see the market trading somewhere 10 to 20 percent lower from here,” said Smith. “If the market goes higher in the meantime, the correction will be deeper and greater.”

Relative Value

The Shanghai Composite has gone 388 days without a drop of 10 percent from a recent high, the common definition of a correction. That’s the longest stretch since Bloomberg began compiling the data in 1990.

Even after its rally, the Shanghai Composite’s forward price-to-earnings ratio is still 15 percent below its decade average. The Shanghai Property index is valued at 8.3 times estimated earnings, a 42 percent discount versus levels during the past 10 years, according to data compiled by Bloomberg.

The housing market is poised to rebound, said Tang, who has been reducing holdings of brokerages to fund the shift toward property stocks.

Shenzhen recorded higher new-home prices in December, the first city tracked by the Chinese government to post an increase in four months, after lower interest rates boosted demand. Nationwide housing sales slumped 10 percent amid tight credit in the first 11 months of last year, according to government data, forcing developers to cut prices.

Easing Outlook

While some smaller property companies may still struggle to survive, the industry’s larger firms are better bets as they have access to cheaper financing and opportunities to buy weaker rivals, Tang said. Poly Real Estate, which has a market value of about $17 billion, has dropped 9.9 percent this year in Shanghai trading after a 97 percent jump in 2014.

China, which also cut banks’ reserve requirements this month, is likely to keep reducing those ratios along with benchmark lending rates, according to economists from Deutsche Bank AG to Bank of America Corp. Even after the reductions, China’s biggest lenders will still have to keep 19.5 percent of deposits locked up. The benchmark one-year lending rate is 5.6 percent, versus near zero in the U.S. and Europe.

“China, versus the developed world, is at the opposite end of monetary policy spectrum right now,” Boesky said. “This is the first rate cut of what will very likely be many cuts in the next two years.”

-By Kyoungwha Kim

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