Blackstone builds student dorm in City of London

Source : Business Times – 3 Dec 2009

£205m skyscraper overlooking Broadgate will open in mid-2010

The tallest tower in London’s main financial district to open next year will not house bankers or office workers – it will be a student dormitory.

The 33-story building’s owner is Blackstone Group LP, the world’s largest private-equity company. Blackstone entered the UK’s student-housing market four years ago and has so far invested more than £400 million pounds (S$911.4 million). Rents have risen even as Britain endured its worst property slump in more than three decades.

‘There is a chronic imbalance between supply and demand in this sector,’ said Stuart Grant, the Blackstone executive who oversees the student-housing unit. The average occupancy rate in the industry is 99 per cent.

The shortage of accommodation for London’s growing student population has caused average rents to rise by an annual 5 per cent over the last six years, Knight Frank LLP said in a Nov 23 report.

That compared with an average gain of 0.6 per cent for all commercial properties, according to the London-based real estate broker.

Nido Spitalfields, Blackstone’s second student hall in the UK capital, will have space for 1,204 pupils paying as much as £300 a week for an en-suite room. The 105m skyscraper is due to open in the middle of next year. It will overlook Broadgate, the office complex in the City of London that is half-owned by the New York-based company, and will cost about £205 million, according to Mr Grant.

There are 270,000 full-time students in London, according to a survey published in March by Drivers Jonas, a broker based in the city. That number will increase by about 40,000 within three years as overseas students keep flocking to London and more UK teenagers choose higher education in a weak job market, the firm estimated.

More than 60,000 people attend three of the UK capital’s largest universities: London Metropolitan, Middlesex and the University of Westminster.

‘Given the lack of finance currently available for development and the constrained pipeline, rents are likely to continue to rise for the foreseeable future,’ Knight Frank said in its report.

Nido Spitalfields will be similar to Blackstone’s first student-housing project in the UK, a pair of 16-storey towers in the King’s Cross area of north London that were completed in 2007. The property has 846 rooms, or ‘cubes’ as the company calls them. Most have 16.6 sq m to 18.4 sq m of space.

The expansive foyer, with a manned security desk alongside a kiosk selling Starbucks coffee, is spotless and the only sign of student mischief is a supermarket trolley lurking in the lift. It would not look out of place in Canary Wharf, the cluster of glass-and-steel buildings in east London occupied by companies including Barclays plc, Credit Suisse Group AG, HSBC Holdings Plc and Citigroup Inc.

Most rooms in Nido King’s Cross cost £245 to £270 per week. Internet access is free and students have the option of paying for a maid. That is expensive, even by London standards. For the same price, they could rent a local one-bedroom apartment with a separate lounge, kitchen and bathroom.

About 80 per cent of the tenants are from outside the UK, according to Blackstone’s Mr Grant. Parents are often willing to pay for accommodation, especially in the first year, if their children are guaranteed security in a city that many are probably unfamiliar with, he said. Americans and Chinese are the largest groups of foreign students.

In the US, most campuses offer some form of accommodation. Around 20 per cent of London students can live in rooms provided by their university.

‘Higher education is increasingly a global business,’ Mr Grant said. ‘We’re providing a safe environment for foreign kids coming to London.’

Blackstone plans to build a third residence for students in London next year on a site close to Notting Hill, a fashionable district in west London, Mr Grant said. The building’s 272 rooms will be available starting from 2011.

Blackstone Real Estate Advisors, the firm’s property investment and management unit, has raised more than US$29 billion since it was formed in 1992, according to the company’s website. The firm started investing in student housing and properties such as pubs and nursing homes about four years ago as European retail and office buildings were becoming too expensive, Mr Grant said. Blackstone hired brand consultant Tyler Brule in 2005 to design Nido, which means nest in Spanish and Italian.

Blackstone will operate student homes with about 2,200 beds by mid-2010. The biggest provider of this type of accommodation in the UK, Unite Group plc, has about 38,500 beds, according to its website. Unite’s biggest shareholders are Fidelity International Ltd and JPMorgan Chase & Co, according to data compiled by Bloomberg.

‘We offer some defensive characteristics in a tough economic environment,’ said Mark Allan, Unite’s chief executive officer. ‘Student accommodation is now firmly recognised by investors as providing that.’

Blackstone will probably sell the Nido business within three years, Mr Grant said. This could take the form of an initial public offering to create a real estate investment trust, he said.

The US firm has already purchased a site in Barcelona to build accommodation for 850 students and is looking at others in Paris, Sydney and Singapore.

Expats find Singapore a tad more expensive

Source : Business Times – 3 Dec 2009

S’pore moves up 3 spots to 9th position in Asia: survey

IT is not all cheap hawker food and iPods for expatriates who are based in Singapore.

The latest Cost of Living survey from ECA International has given expatriates here a stronger case to make when lobbying company headquarters for a larger expense package.

This year, Singapore climbed three spots – from 12th – to be the ninth most expensive Asian city, having been on the receiving end of both rising inflation and a strengthening Singapore dollar.

This makes Singapore a more expensive city to live in than Taipei, Shenzhen or Guangzhou.

Japanese cities dominated this year’s rankings in Asia, with Tokyo ranking first, followed by Yokohama, Nagoya and Kobe.

While Hong Kong remain more expensive than Singapore at fifth place, the gap in the cost of living has narrowed, from 15 per cent last year to 7 per cent this year.

‘While such increases are unlikely to deter companies from relocating staff to Singapore, the cost of doing do is now higher than it was a year ago,’ said Lee Quane, regional director of ECA International for Asia.

‘Companies employing international assignees are likely to be paying higher cost of living allowances to ensure that their employees continue to maintain their purchasing power while on assignment.’

Singapore’s cost of living is put into better context from a global perspective, with the island ranking only 78th this year. Even so, this represents a quantum leap in rankings, from its 97th position last year.

Globally, Luanda in Angola remained the most expensive city, with Tokyo and Oslo in second and third place respectively.

ECA International’s Cost of Living survey is carried out twice a year, comparing a basket of consumer goods and services commonly purchased by assignees in over 390 places globally.

While the survey includes items like food, clothing and motoring expenses, it does not take into account other living costs like accommodation, utilities, car purchases and school fees.

These expenses tend to make the expatriate bill significantly larger but are often compensated for in separate expatriate packages, according to ECA International.

Asia is poised for V-shaped recovery next year

Source : Business Times – 3 Dec 2009

ASIA is poised for a sharp economic recovery next year, even as developed economies in the West continue to struggle, according to Standard Chartered’s chief economist.

‘Our forecasts suggest the recovery will take the shape of an L or a U in the West and a V in the East,’ Gerard Lyons, who is also the group’s head of global research, says in a report published yesterday.

But open and export-dependent economies – Singapore, Hong Kong and Taiwan – are likely to grow below trend, due to sluggish exports to major markets in the West, the report says.

In Asia, growth will be centred on China, India and Indonesia, which have large domestic markets and relatively closed economies that cushion them from external shocks.

Overall, ‘2010 is likely to be the year of global recovery’, Mr Lyons says. ‘A double-dip recession would require either an external shock – most likely an event that drove oil prices sharply higher, such as an escalation of tension with Iran – or a policy-induced shock triggered by premature policy tightening in the West.

‘We are not predicting a double-dip, although we would not be surprised if a number of economies witnessed a negative quarter of growth at some stage.’

But even as Asia leads the global recovery, ‘we continue to stress the need to focus on levels’ – the dollar value of goods and services produced – rather than just growth rates, Mr Lyons says.

In 2008, the world’s economic output, measured by gross domestic product, was US$60.9 trillion, with advanced economies including the US, Japan, Germany, France and the UK accounting for more than half of global output, according to International Monetary Fund data.

‘If the West is not booming, the world will not boom. And the West is not going to boom,’ Mr Lyons says. ‘The US consumer, the key driver of the global economy for some time, faces a difficult outlook.’

He expects the world economy to grow 2.7 per cent next year, after shrinking an estimated 1.9 per cent this year.

Asia’s economic output is projected to expand 7 per cent in 2010, faster than this year’s estimated growth of 4.5 per cent.

Its biggest economic growth engines, China and India, are expected to expand 10 per cent and 7.5 per cent, respectively, compared with 8.5 per cent and 6.8 per cent in 2009.

S’pore is 9th most expensive Asian city

Source : Straits Times – 3 Dec 2009

A STRONGER currency and a rise in inflation have made Singapore a more expensive place for expatriates to live in, a survey has found.

Singapore jumped three spots from a year ago to become the ninth priciest Asian city in the latest cost of living ranking by human resource company ECA International.

It beat Taiwan’s Taipei and China’s Shenzhen and Guangzhou, but remained cheaper than Japan’s Tokyo and Yokohama, and China’s Beijing, Shanghai and Hong Kong.

Worldwide, Singapore’s rising cost of living catapulted it into the 78th spot on this year’s global survey, up almost 20 places from 97th last year.

The main reason for the movement – and, in fact, for most of the changes in this year’s survey – was exchange rate fluctuations, said ECA International.

The Singapore dollar has gained about 10 per cent against the US dollar since March. This has helped push up the cost of living in Singapore, compared with some neighbouring cities whose currencies are pegged to the US dollar such as Hong Kong.

According to ECA International, living costs in Singapore are now just 7 per cent lower than in Hong Kong, compared with a 15 per cent gap last year.

‘While such increases are unlikely to deter companies from relocating staff to Singapore, the cost of doing so is now higher than it was a year ago,’ said Mr Lee Quane, regional director of Asia for ECA International.

He said the stronger Singdollar, coupled with the fact that inflation here has been slightly higher than in some other Asian cities, means that companies have to pay their expat workers higher cost-of-living allowances.

The same applies to Japanese cities, which maintained their top spots in the Asia ranking as the yen soared against the greenback. South Korean locations also surged up the ranks, with Seoul jumping four places to seventh this year, after the won regained some of its lost value.

Expats in Singapore said yesterday that they feel the cost of living has gone up.

‘In terms of personal costs, day-to-day expenses have definitely increased,’ said Mr Trevor Gawne, who is from Australia and based here as managing director of Fuchs Lubricants.

He said the prices of raw food in particular, such as eggs and fresh milk, have gone up quite considerably in the past 12 months, especially if they are imported from countries like New Zealand and Australia, which have seen their currencies strengthen against the Singdollar.

But while rising costs are a concern, a bigger worry is the volatility of costs, said Mr Phillip Overmyer, an American and the chief executive of the Singapore International Chamber of Commerce.

‘What I think is a bigger concern at the corporate level is the high fluctuation we are seeing in Singapore costs in general,’ he said.

‘Housing rentals, office rentals and the prices of general goods and services have been swinging back and forth a lot over the last couple of years.’

This is worrying for companies because they cannot predict costs and plan accordingly, and it hurts Singapore’s competitiveness, he said.

Ms Laura Deal, executive director of the American Chamber of Commerce in Singapore, agreed that the extreme swings in costs ‘can really destroy budgets and cause pain for small companies’.

‘You can get caught in a really bad housing or office lease if you sign at the wrong time, and end up paying 30 per cent more than your neighbour,’ she said. ‘We think it is important for the Government to control the volatility of costs a little bit more.’

ECA International’s survey calculated the cost of living around the world based on a basket of day-to-day goods and services. The survey is done twice a year, but comparisons are made year-on-year to strip out seasonal differences.

In March, Singapore was 10th in the Asia rankings.

In the global rankings, Angola’s capital Luanda took top spot as the city with the highest cost of living in the world – many regularly used items are expensive to obtain in the city due to the country’s war-damaged infrastructure.

Other cities placed in the global top 10 included Tokyo, Yokohama, Oslo and Copenhagen.

6 whole floors sold at Marina Bay Suites preview

Source : Business Times – 3 Dec 2009

Buyers include Indonesians, Singaporeans and other Asians

ABOUT half a dozen floors at Marina Bay Suites changed hands at last week’s preview of the project, BT understands.

The buyers of the whole floors are understood to be Indonesians, Singaporeans and other Asians.

Some of them bought through companies. The foreigners are believed to be Singapore permanent residents.

In absolute terms, the biggest transaction was close to $45 million, involving at least two floors. The buyer is understood to be an Indonesian party.

Market watchers estimate that it could have cost buyers between $17 million and $18 million to purchase a whole floor at the 99-year leasehold condo based on prices at last week’s preview.

Each floor has four apartments – two three-bedroom units and two four bedders. The total saleable area per floor is slightly under 8,000 square feet.

Thomas Tan, head of marketing (residential) at Raffles Quay Asset Management (RQAM), told BT yesterday that 87 of the 90 units released for the preview have been sold.

The 87 units fetched close to $400 million, he added.

Two thirds of the units were sold to Singapore residents (including PRs). The remaining one third was sold to non-PR foreigners, including Indonesians, Malaysians, mainland Chinese, Australians and Americans.

‘We do have multiple-unit buyers, but due to client confidentiality and privacy reasons, we are unable to reveal such information,’ Mr Tan said when asked about purchases of entire floors.

RQAM is the asset manager for Marina Bay Suites, which is being developed by a joint venture involving Hongkong Land, Keppel Land and Cheung Kong Holdings.

Mr Tan declined to give details about pricing except to reiterate that ‘the average price range was between $2,200 psf and $2,500 psf’. BT understands that on an average basis, the 90 units were priced at close to $2,300 psf.

However, the range at which the apartments were sold could be about $1,800 psf to slightly over $2,600 psf.

Mr Tan said that the apartments released were from the seventh to the 40-plus floors of the 66-storey development.

The 221-unit project comprises 218 three or four-bedroom apartments and three penthouses. Currently, the plan is to begin construction of the project sometime in the first half of next year, Mr Tan said.

‘We have no immediate plans to release more units for the rest of this year but we’ll continue to register interested buyers. We’ll monitor the market and determine the price at the time of launch.’

The Sail @ Marina Bay hits $2,800 psf

December 3, 2009

The completion of the upcoming Marina Bay Sands integrated resort next year and the VIP private preview of the 221-unit Marina Bay Suites have put the spotlight back on The Sail @ Marina Bay. Sales activity at the 1,111 unit The Sail has picked up pace in recent weeks. Nine transactions were done in the first week of November alone — versus 10 deals achieved for all of October. Prices achieved in the week of Oct 30 to Nov 6 ranged from $1,744 to $2,800 psf.

The Sail was the first residential project to be launched and completed in Marina Bay, and was jointly developed by City Developments and AIG. Tower 1 (the 70-storey Marina Bay Tower with the address 6 Marina Boulevard) was launched in September 2004, followed by Tower 2 (the 63-storey Central Park Tower with the address 2 Marina Boulevard) a year later. Both towers were completed in 4Q2008, in the wake of the collapse of investment bank Lehman Brothers.

Since hitting a low of $1,146 psf in April this year, transaction prices at The Sail have been on a steady uptrend. The record-high achieved in terms of price psf was in April last year, when a 1,033 sq ft unit on the 60th floor of Tower 1 went for $3.5 million, or $3,387 psf.

Most recently, a 688 sq ft unit on the 58th floor of Tower 1 changed hands at $1.9 million, or $2,800 psf, according to caveats lodged with URA Realis. This is close to the highest price psf achieved so far this year: $2,849 psf in September, when a 936 sq ft unit on the 61st floor of the same tower was sold for $2.67 million.

According to a caveat lodged in early November, a larger unit of 1,033 sq ft on the 31st floor of Tower 1 changed hands for $2.63 million, or $2,549 psf. The owner made a quick flip, after purchasing it for $2.6 mil-lion, or $2,516 psf, in August.

Just a block away is another luxury waterfront condominium — the 428 unit Marina Bay Residences, which is expected to be completed in mid-2010. The residential tower is part of the Marina Bay Financial Centre, a mixed development by the consortium of Hongkong Land, Keppel Land and Cheung Kong (Holdings). When the luxury condominium project was first previewed in December 2006, all the units were sold out at an average price of $1,850 psf within three days.

Prices have since surged, hitting a high of $2,700 psf in May last year. The latest transaction at Marina Bay Residences was a 753 sq ft unit on the 18th floor, which went for $1.65 million, or $2,199 psf. The original owner had purchased it for $1.53 million, or $2,031 psf, in July, translating into a gain of 8%.

Market expectation is that the luxury segment has room for further price growth, as prices are estimated to be 15% to 20% below the peak level in 4Q2007. Thus, it is no surprise that the consortium held the private preview of the Marina Bay Suites near the end of the year.

Tax shadow looms over Malaysian property sales

Source : Business Times – 4 Dec 2009

Sellers rushing to beat deadline face approval hurdle

PROPERTY sellers rushing to dispose of their real estate in Malaysia in order to avoid paying real property gains tax (RPGT) could find their efforts thwarted should their disposal require government consent.

This is because obtaining official approval could push the sale date to one after Dec 31 – the last day before the reintroduction of RPGT, a tax specialist said.

KPMG Tax Services executive director Tai Lai Kok told BT that many transactions involving property could require state approval.

Under the RPGT Act, where a contract for the disposal of an asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the asset shall be regarded as taking place at the time the contract was made.

But there are two exceptions: where the acquisition or disposal requires the approval by the government or an authority or committee appointed by the government, the date of disposal shall be the date of such approval; and where the approval is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.

However, the RPGT Act does not define the term ‘government’ – whether it refers to the state or federal government. In any event, because land matters come under state control, a number of these transactions could invariably require state approval. ‘Lawyers would need to review the individual title to see what restrictions and caveats there are to ascertain if government approvals are needed.’

Lawyers said that the time taken for states to give their approval varies, some reverting in a month, and some up to six months.

‘If the property is already owned by a foreigner, it is likely the transaction would require state approval,’ Mr Tai said, adding that ‘conditional contracts’ had become an issue only because of the short ‘window period’ before RPGT is reintroduced.

He noted that the RPGT Act had introduced government approvals only in 2006.

Shortly after that, former prime minister Abdullah Ahmad Badawi allowed a blanket exemption on RPGT effective April 2007 to boost the sector, so the issue was not fully explored.

Moreover, the Finance Ministry and Inland Revenue Board had not come up with a clear indication as to how the conditional contracts apply. ‘There is a bit of a question mark there,’ Mr Tai noted.

The government is expected to rake in RM500 million (S$204 million) from RPGT next year when the tax is reintroduced at a flat 5 per cent, notwithstanding the holding period.

Because the tax was supposed to curb speculation, its across-the-board application has upset those who have held their properties for a long time – some for decades, some stretching a few generations – as the value of their assets would have greatly appreciated.

Property players have also criticised the government’s reversal in policy after less than three years as inconsistent and a deterrent to foreign investors.

This week, Gerakan – a component party of the ruling federal coalition Barisan Nasional – urged the government to scrap the proposal to reintroduce RPGT as it is ‘unfair and inappropriate’ since it would impinge on all transactions, including those not of a speculative nature.

‘In view of the serious consequences from the tax especially on the middle and low income groups, we appeal to the government to cancel the proposed 5 per cent RPGT under Budget 2010.’

S’pore and Dubai – alike, yet so different

Source : Business Times – 4 Dec 2009

Dubai lacked a development plan backed by fundamentals and prudence

IT IS really a contrasting tale of two cities.

Singapore, which is fundamentally strong, is now bracing itself for an economic recovery next year, while debt-ridden Dubai finds itself under the spotlight due to its credit woes.

But as recently as four years ago, Dubai was portraying itself as the ‘Singapore’ of the Middle East, not least because of the fact that the tiny Gulf state’s economic model closely mirrors that of the South-east Asian country in the last decade.

For example, both resource- scarce city states poured vast amounts of resources into aviation, transport, financial services and healthcare – sectors that will presumably boost the country’s development and attract plenty of foreign direct investment (FDI).

In Dubai’s case, its airport was pitched as a strategic stopover point between Asia and Europe, much like Changi Airport, while flag carrier Emirates sought to rival Singapore Airlines (SIA) by adding to its fleet of carriers, even in the face of the economic downturn.

Then there is the Dubai Aerospace Enterprise set up in 2006 to capture some airport development and operations projects in emerging markets, while Dubai Ports beat PSA International to buy P&O Ports for £3.9 billion (S$8.95 billion) in 2007.

Dubai, the world’s sixth-largest container port handler, wanted to run more terminals in China and India to tap growing economies and challenge rivals such as Singapore’s PSA International.

The Gulf state also challenged Singapore in the US$25 billion market for marine oil by setting up an exchange in 2005 to allow futures trading in marine oil at the port of Fujairah, one of the world’s top three fuel stops for ships.

The dizzying pace of development certainly represents a deliberate part of the ruling family’s strategy to transform the Gulf state into a world-class hub.

Construction spree

But beyond the similarities, key differences remain between the two, perhaps made all the more important when it comes to the crunch.

The first difference concerns the types of projects that Dubai has undertaken and the amount of debt it used to fund them.

In the past few years, Dubai went on a construction spree that included building the world’s tallest tower, the 818-metre-high Burj Dubai, and a man-made island called Palm Jumeirah.

Consider the amounts that was poured into those projects: The Burj Dubai building alone will cost an estimated US$1 billion, while US$1.5 billion was invested in the Atlantis hotel on the palm-shaped island. It is fair to ask if there is ever going to be demand for these projects, and will the tourist numbers be as claimed – a staggering 10 million hotel visitors annually by 2010. Or is it just mere hubris driven by the bubble of the past few years?

Of the US$99.6 billion worth of assets in Dubai World, close to 60 per cent or US$59.3 billion is leverage. With an unpredictable stream of cashflow, a long time horizon plus a debt-ratio higher than one, the credit crisis looks like an event that was waiting to happen.

In Singapore, state-owned Temasek Holdings started in the 1970s on a more solid footing by investing in infrastructure and providing basic services for the economy.

Temasek-linked companies such as SIA and PSA are in strategic sectors that are expected to do well in the long run, and the government investment firm certainly did not undertake any lavish property projects on the scale of Burj Dubai or the Palm developments.

Secondly, Dubai lacks a significant electronics manufacturing base that lends support to its export dollars, as the factory output accounts for just under 15 per cent of GDP. A look at the sectors into which it has poured its money (property, tourism, financial services, etc) reveals that they are all services-related – meaning that export flows can easily reverse in a matter of months, if not weeks. This inherently hampers Dubai’s ability to meet its short-term obligations especially in times of economic crisis.

Cushion

In contrast, manufacturing has been a significant contributor to Singapore’s economic growth for many years, and still accounts for about a fifth of economic activity here. This not only acts as a cushion for any downturn in the services sector, but the returns are often less volatile.

Indeed, Dubai represents all that was wrong with the pre-crisis financial world – built on hubris, loans, speculation, and the fallacy that the champagne-popping party could continue forever.

But, as the saying goes, all good things must come to an end. And the lesson from Dubai’s experience is this: without a development plan backed by fundamentals and prudence, even an oasis in the sand will end up as a mere mirage in the desert.

IMF urges HK to tighten lending rules

Source : Business Times – 4 Dec 2009

Hong Kong should consider tightening lending rules to prevent a credit-asset price cycle that may damage its economy, the International Monetary Fund said.

‘Strong capital inflows and the resultant large liquidity overhang in the financial system could potentially lead to rapid credit growth, fuelling asset markets and creating macroeconomic volatility,’ the IMF said in a report yesterday.

Money spilling into Hong Kong from unprecedented lending under China’s stimulus programme and abundant US dollar liquidity has resulted in a 30 per cent surge in property prices and a 56 per cent jump in the benchmark stock index this year.

The IMF said Hong Kong needs to supplement the ‘circuit breaker’ measures already introduced to tame asset prices.

‘We expect the authorities to address the risks of overheating asset prices by mostly using tools on the supply side,’ said Enoch Fung, an economist at Goldman Sachs Group Inc in Hong Kong. ‘The first line of defence is to ensure more prudent lending practices, particularly in the mortgage market.’

Hong Kong’s Transport and Housing Bureau on Nov 20 said it plans to tighten rules on marketing of uncompleted apartments, responding to concerns that misleading sales tactics by developers contributed to a surge in prices this year.

The proposal follows measures announced by the government on Oct 23 to raise the required downpayment on luxury homes to 40 per cent from 30 per cent in order to curb property speculation.

In terms of additional regulatory action, IMF staff said the most effective tool that could be adopted by Hong Kong is a tightening of underwriting standards including eligibility criteria for mortgage insurance.

The US Federal Reserve’s policy of keeping interest rates near zero is fuelling the wave of speculative capital that may cause the next global crisis, Hong Kong’s Chief Executive Donald Tsang said on Nov 13.

‘We have a US dollar carry trade at the moment,’ Mr Tsang said. ‘Where is the money going – it’s where the problem’s going to be: Asia. You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.’

The IMF said yesterday that ‘as yet’ the price rises in Hong Kong’s equity and mass property markets ‘do not appear out of line with regional comparators’.

Hong Kong’s economic recovery ‘remains fragile’ and exposed to the risk of a weakening of external demand, even as policy makers grapple with asset price inflation, the IMF said.

‘The economy should steadily strengthen – growing at 5 per cent in 2010 – and unemployment should decline in the coming months,’ said the report.

Hong Kong’s economy grew for a second straight quarter in the three months through Sept 30, expanding 0.4 per cent from the previous quarter as consumption and investment gained. The seasonally adjusted jobless rate for the three months to Oct 31 slid to 5.2 per cent.

S’pore’s rich bullish about property investments

Source : Business Times – 4 Dec 2009

High net worth investors here plan to increase their exposure: survey

SINGAPORE’S rich are among the most optimistic of investors when it comes to property investments, and are planning to raise their exposure to the asset class in the next two years, a new study shows.

The study, by Barclays Wealth and the Economist Intelligence Unit, found that 53 per cent of high net worth investors in Singapore expect an increase in the value of their property investments over the next two years. This is slightly more than the 49 per cent of respondents who hold the same view globally.

After bottoming in Q2 2009, private home prices in Singapore rose 15.8 per cent quarter on quarter in Q3. Analysts expect property prices to stay firm for the year ahead, and are especially upbeat about the high-end segment.

Wealthy investors here are also planning to allocate a larger proportion of their investment portfolios to property in future. Real estate investment among wealthy individuals in Singapore is set to rise to 28 per cent of the average portfolio over the next two years from 25 per cent now, according to the report. That excludes properties used as a principal residence.

Some 125 high net worth investors were surveyed in Singapore. They were part of the more than 2,000 high net worth individuals – with investable assets ranging from £500,000 (S$1.1 million) to more than £30 million – who were surveyed globally in August and September this year.

The survey showed that the high level of confidence in the potential of real estate was global, with investors in nine of the 10 markets covered – including the US, UK and Hong Kong – planning to increase their property allocation over the next two years.

‘High net worth investors are picking up on signs of a gradual economic recovery, yet continue to remain cautious of potential dangers, after many have fallen precipitously from earlier heights,’ said Didier von Daeniken, chief executive of Barclays Wealth for Asia-Pacific.

Property has always an asset of choice for Asian and Singaporean investors; and with the current recovery, interest in real estate will pick up, bankers said.

‘Property is an important asset class for Asian high net worth investors,’ said Olivier Denis, head of OCBC Private Bank. ‘The interest in the Singapore property market has always been strong and investors are constantly scanning the market for opportunity. Moving forward, we expect the interest to stay positive provided that the overall economic climate remains stable.’

Investors are once again eyeing property as prices in many markets have fallen from earlier highs, the survey found. Barclays Wealth’s survey showed that 75 per cent of high net worth investors in Singapore continue to see opportunities in the property sector.

Transactions of high-end homes – generally thought to be the domain of wealthy investors – started to pick up in Q3. The number of units transacted at more than $2,000 per square foot (psf) during the quarter is just below the number of units seen in Q1 2007 prior to the last run-up in the high-end market, noted DBS Group Research analyst Adrian Chua.

And even as the overall property market cooled in October, the high-end segment held up. Some 285 homes with a median price of more than $1,500 psf were sold in October 2009, compared with 115 in September.

‘The high-end investors are coming back but it is not the same volumes of transactions we have seen in the past (during the last boom),’ said Knight Frank chairman Tan Tiong Cheng.

He pointed out that the profile of investors buying high-end apartments in Singapore has changed. The previous boom was driven by financial sector employees flush with cash. This time around, interest is coming mostly from traditional investors who are sinking their funds into real estate as they consider those assets to be safe, Mr Tan said.

The survey also showed that more than half of Singaporean investors – 54 per cent – feel that tight credit conditions are preventing them from capitalising on opportunities. They also expect home prices to climb once credit starts to flow freely through the global economy.

But bankers cautioned against overexposure to property. ‘While it can be tempting to seek refuge in property as a safe haven, investors must be careful to avoid overexposure to an asset class that has traditionally proven to be susceptible to economic cycles,’ said Barclays’ Mr von Daeniken.

Manpreet Gill, Barclays Wealth’s strategist for Asia, called for diversification and said that Singaporean investors’ propensity to invest outside the country is positive as it reduces risk. In the survey, the investors identified the US, India, the UK and China as attractive foreign markets.

Mr Gill also added that wealthy investors here can look at real estate investment trusts (Reits) as alternatives to brick and mortar investments.

Pending sales of US existing homes up in Oct

Source : Business Times – 2 Dec 2009

The number of contracts to buy US previously owned homes unexpectedly rose in October as consumers rushed to take advantage of a tax credit that was due to expire.

The index of signed purchase agreements, or pending home sales, climbed 3.7 per cent to 114.1 after increasing 6 per cent in September, the National Association of Realtors said yesterday in Washington.

The ninth consecutive gain compares with the median forecast of a decline in a Bloomberg News survey of economists.

The administration’s incentive for first-time buyers, which last month was extended into next year and expanded to include current owners, will help housing emerge from its worst slump since the 1930s.

A jobless rate at a 26-year high and mounting foreclosures represent challenges that the industry will find difficult to overcome.

‘Housing is showing encouraging signs of recovery,’ Scott Brown, chief economist at Raymond James & Associates Inc in St Petersburg, Florida, said before the report.

‘A turnaround in the job market is a necessary condition for further improvement.’

Sales were projected to fall one per cent after an originally reported gain of 6.1 per cent in September, according to the median of 37 forecasts in a Bloomberg News survey.

Estimates ranged from a drop of 5 per cent to a 6.5 per cent increase.

A separate report yesterday showed manufacturing in the US expanded in November for a fourth consecutive month.

The Institute for Supply Management’s manufacturing index fell to 53.6, lower than economists forecast, from October’s three-year high of 55.7, according to the Tempe, Arizona-based group. Readings above 50 signal expansion.

Pending home sales are considered a leading indicator because they track contract signings.

The Realtors’ existing-home sales report tallies closings, which typically occur a month or two later. The Realtors group started publishing the index in March 2005, and data goes back to January 2001. Compared with October 2008, pending sales were up 29 per cent, the biggest year-over-year gain since records began.

More pressure on US lenders to modify mortgages

Source : Business Times – 2 Dec 2009

The Obama administration on Monday promised tougher scrutiny of lenders participating in its marquee foreclosure prevention effort and threatened to penalise companies that don’t do enough to help struggling homeowners.

The move is aimed at breaking a bottleneck in the Making Home Affordable programme, which was launched in March but has been slow to reach many borrowers.

Most of the 650,000 homeowners enrolled in the programme are stuck in its initial phase and still must prove that they qualify for reduced mortgage payments. Moving those borrowers from trial modifications into permanent ones is a key test of the effort’s effectiveness.

Treasury Department officials would not say on Monday how many loans have been permanently modified. But a recent report by the Congressional Oversight Panel, which is monitoring the government’s Troubled Assets Relief Program (TARP), found that only about one per cent of borrowers had moved from a trial modification into a permanent one.

‘In our judgment, servicers, to date, have not done a good enough job of bringing people a permanent modification solution,’ Assistant Treasury Secretary Michael Barr said in a conference call with reporters.

Under the programme, eligible homeowners can have their loans modified to reduce their mortgage payments to 31 per cent of their income. To qualify for a permanent modification, borrowers must provide extensive documentation and make three consecutive payments to prove they can afford the new loan.

To prod lenders to move more borrowers into permanent loan modifications, Treasury officials said they would use a combination of public shame and monetary penalties. Lenders’ performance will be tracked in report cards that show how many loans have been permanently modified, and teams of officials from the Treasury and Fannie Mae will visit major banks to monitor their progress.

Lenders that fail to perform will be ’subject to consequences which could include monetary penalties and sanctions’, according to a Treasury statement. Officials declined on Monday to detail what those penalties could be.

Lenders are not paid under the programme until a loan modification is made permanent, and it was unclear what additional recourse the government might have under its contracts with participating companies.

The announcement, however, failed to satisfy housing advocates.

‘The lack of conversion of these loans is at dismal levels, which means the programme has been a failure,’ said John Taylor, president of the National Community Reinvestment Coalition. ‘The government needs to take the gloves off and do something much more proactive, and I don’t think penalising is enough.’

Mr Taylor said the administration should support allowing bankruptcy judges to modify mortgages or use government bailout funds to buy these mortgages from lenders at a discount and then force their modification.

‘If you wait for voluntary compliance, you’re going to get more of what the government is already experiencing – and that’s frustration,’ he said.

CapitaLand has disciplined investment mgt strategy

Source : Business Times – 2 Dec 2009

WE refer to the Reuters report published in your paper, ‘The importance of perseverance, perfectionism and paranoia’ (BT, Nov 27).

CapitaLand has always maintained a disciplined investment management strategy since its inception, buying and selling when target returns are met. We focus on capital productivity in real estate development and investment activities, while growing a balanced and solid base of sustainable fee and rental income. Our corporate strategy is to build lasting businesses for our shareholders.

We note the article’s statement that ‘CapitaLand has not been as savvy in predicting property market cycles’. While property cycles are notoriously difficult to predict, we think CapitaLand has done credibly in riding the market movement. We have successfully realised asset values through timely divestments at the peak of the cycle. We divested most of our Singapore office assets and sold virtually the entire stock of residential units over the last two years in a rising market, yielding attractive gains. CapitaLand did not bid aggressively for commercial sites at the peak of the market.

CapitaLand did record an impairment loss of $49 million in Q2 2009 for its share in the former Char Yong Gardens site located at Cairnhill Road, near Orchard Road. This was in response to the general market weakness during a downturn in the property cycle as a result of the unprecedented global financial crisis.

On the other hand, the Orchard Turn development (comprising ION Orchard and The Orchard Residences) today has a gross project value of $3.8 billion – a significant $1.4 billion (58 per cent) increase over its project cost of about $2.4 billion. Over the last three years, we have constantly achieved a return on equity (ROE) in excess of 12 per cent while maintaining a prudent debt-to-equity ratio. Through our disciplined investment approach, we believe we will continue to deliver shareholder value across the property cycle.

Wen Khai Meng
Chief investment officer CapitaLand Ltd

S’pore office rents tumble more than half

Source : Straits Times – 2 Dec 2009

GREAT news for office tenants in Singapore but far leaner times for landlords: Office rents have plummeted by more than half in the past 12 months.

On average, they fell a whopping 53.4 per cent from their peak in the third quarter of last year to Sept 30 this year – the second-fastest rate of fall in the world. Only rents in Kiev, Ukraine, fell more quickly, by 64.6 per cent.

That meant the Republic fell from 9th spot to No.32 in the latest Top 50 most expensive markets list, according to a half-yearly global survey done by US-based consultancy CB Richard Ellis.

The occupancy cost here – rent plus local taxes and service charges – is now US$63.89 (S$88.25) per square foot (psf) a year, down 23 per cent from six months ago when it was in 15th place. That is down more than half from US$135.13 psf a year ago.

‘We’ve seen a dramatic correction in rents but in a way, it is helping businesses secure far more competitive business costs,’ said CBRE’s executive director, office services, Mr Moray Armstrong.

‘The market is now roughly where it was three years back.’ Just two years ago, Singapore was No. 1 in terms of the highest 12-month rise in occupancy costs across the globe. This threw many tenant companies into a frenzied search for cheaper digs.

CBRE said third-quarter prime office rents hit $7.50 psf on average, after falling nearly 13 per cent from the second.

The vacancy rate for Grade A space rose to 4.2 per cent, from 3.6 per cent in the second quarter and a mere 1.2 per cent a year ago.

Overall, a net 223,397 sq ft of Grade A space was left unoccupied in the first nine months of this year, taking into account new space, CBRE said. And more supply is coming.

Still, nervous office landlords can take heart from a significant pick-up in leasing activity, to a level Mr Armstrong described as ‘frenetic’.

‘It’s a phenomenon of many occupiers getting on with projects that they had to put off in the past 18 months,’ he said.

‘Right now, we’re seeing a very strong resurgence in leasing activities. There’s some evidence of upgrading… of occupiers taking advantage of more competitive rentals of quality space.’

Now that business confidence is improving, the rate of fall in office rents is set to slow, with a slight drop expected in the fourth quarter, said Mr Armstrong. ‘We are cautiously optimistic.’

In an earlier report, Colliers International had predicted a 5 per cent slide in office rents in the fourth quarter due to sustained demand weakness and growing new supply.

Indeed, office rents are not likely to head up any time soon because there is ample supply on the way, experts said.

Worldwide, London’s West End is again the world’s most expensive office market, with an occupancy cost of nearly US$185 psf. Inner central Tokyo is second at US$171.64 psf, with Tokyo’s outer central area in third place at US$139.09 psf.

Hong Kong’s central business district, which registered the fourth largest fall of 40.7 per cent worldwide, took the fourth spot with a rate of US$137.61 psf.

$100m for first collective sale this year

Source : Straits Times – 2 Dec 2009

OWNERS at the Dragon Mansion have completed the first collective sale of the year with a $100.8 million deal to sell their 72-unit condominium.

The price for the Spottiswoode Park estate near Outram was below the reserve price but the deal with boutique developer Roxy-Pacific was sealed anyway yesterday.

Owners of each of the 1,399 sq ft units will pick up $1.4 million – well above the estate’s highest transacted price of $880,000 achieved in May last year, according to the deal’s broker.

The sale of the freehold estate is a ‘positive sign’, said Credo Real Estate managing director Karamjit Singh.

‘The market has quietened down quite a bit recently but this shows there is still confidence in the market.’

Dragon Mansion owners initially wanted $120 million, or $1,020 per sq ft (psf) per plot ratio, which is significantly above collective sale prices racked up in the recent boom.

Their sale tender closed on Aug 11 with no firm bids. There were a few expressions of interest from developers keen to buy the land but clearly not prepared to pay the asking price.

Roxy’s offer came in at the end of October, when it entered into a conditional agreement to acquire the site. Its offer of $100.8 million works out to $863 per sq ft per plot ratio and includes a development charge.

Because its offer was below the owners’ reserve, a fresh set of signatures was needed. CKS Property Consultants, which brokered the deal, said it took five weeks to get just over 80 per cent of the owners to agree to the new price.

Ms Chia Mein Mein, CKS’ investment manager, said some of those who opposed the sale did not want to sell for sentimental reasons.

Dragon Mansion has a land area of 41,874 sq ft. A new development on the site could potentially yield a maximum gross floor area of about 117,000 sq ft – or about 120 apartments of 1,000 sq ft each.

Its sale price, said CKS in a statement, ’sets a new benchmark for the Spottiswoode Park area and reflects the limited availability of such freehold residential land near the central business district’.

Mr Singh said: ‘This is a vote of confidence in the mid-tier of the market’, as most of the activities in the private homes market this year have been in the mass market.

Roxy-Pacific would likely need to sell the new homes on the Dragon Mansion site for $1,400 psf to $1,500 psf.

The collective sale market, will see more activity next year with experts expecting a number of launches from as early as the first quarter.

DTZ’s senior director for investment advisory services, Mr Shaun Poh, said many estates are now keen to start the sale process.

‘We are starting some new ones and restarting some of the old ones which did not take off,’ he added.

Experts said that while some estates are keen to restart their sale at the same 2007 boom prices or higher, others may be more realistic.

Mr Singh said the collective sale sites hitting the market next year will be those that started the process recently and are priced more realistically, unlike those that were launched for sale in the third quarter.

Those estates had prices that were decided during the previous boom so price expectations were much higher, he said.

For instance, owners at the 528-unit Laguna Park in Marine Parade failed to conclude their collective sale at the price they wanted and chose to let their collective sale agreement lapse.

Later this month, CKS will launch the 124-unit Mayfair Gardens in the Bukit Timah area for collective sale.

The estate started the process early last year and obtained 80 per cent approval in March.

‘Recently, we have been getting a lot of inquiries from owners. There may be some short-term uncertainty in the property market, but owners are looking further ahead,’ said Ms Chia.

Under the new – and stricter – rules that came into force in late 2007, it will take quite some time, possibly at least nine to 12 months, to prepare a collective sale. This includes appointing the marketing agent and gathering enough signatures in order to launch the sale, she said.

Bedok Court, Pine Grove and Tulip Garden are some of the other estates that have a group of pro-collective sale owners looking to restart the process.

Office rentals slide to a competitive perch

Source : Business Times – 2 Dec 2009

Falling occupancy costs place S’pore at 32nd spot; period of stability on the cards

Following a year-long slide in prime office rentals, Singapore’s office occupancy costs have become far more competitive.

Fourteen months ago, the island was the ninth most expensive place to rent offices. By end-March this year, it had slid to 15th spot and by the end of the third quarter, many others had become relatively more expensive and Singapore stood at No 32, according to CB Richard Ellis.

The property consultancy’s latest global office rent survey covered a total of 179 markets and the rankings were in US dollar terms.

CBRE also measured in local currency terms year-on-year changes in prime office rents as at end-Q3. The 53.4 per cent drop for Singapore was surpassed only by Kiev, which suffered a 64.6 per cent decline.

For the latest semi-annual survey, prime office rents in US dollars in six Asia-Pacific markets were higher than Singapore’s – Tokyo’s Inner Central and Outer Central markets, Hong Kong (Central CBD), Mumbai (CBD), New Delhi (CBD) and Hong Kong (Citywide). However, office occupancy costs in Singapore were still higher than Seoul, Perth, Shanghai’s Pudong and Puxi districts and Sydney.

London’s West End regained its status as the world’s most expensive office market, overtaking Tokyo (Inner Central).

Almost three quarters or 131 of the 179 markets tracked posted declines in prime office occupancy costs for the 12-month period ending Sept 30, 2009. Of these, nearly 50 saw double-digit percentage decreases.

‘The office market may be on the cusp of moving from intensive care to the stabilisation stage – the first step to getting back to good health,’ says CBRE global chief economist Raymond Torto.

Forty-one markets reported year-on-year rental increases in Q3. Aberdeen and Rio de Janeiro both grew by more than 10 per cent.

According to CBRE data, Singapore’s gross average monthly rentals for prime and Grade A office space both fell about 53 per cent from their respective peaks of $16.10 per square foot and $18.80 psf in Q3 last year to $7.50 psf and $8.80 psf in Q3 this year.

The quarter-on-quarter rental declines in Q3 2009 – of 12.8 per cent for prime space and 13.3 per cent for Grade A offices – were smaller than falls in the preceding three quarters. CBRE executive director (office services) Moray Armstrong is predicting far smaller declines in the current quarter.

Cushman & Wakefield research director Ang Choon Beng says that monthly prime average rentals at Raffles Place eased 2.6 per cent in the first six weeks of this quarter from end-September. ‘We’re likely to end Q4 with a total drop of about 4-5 per cent from Q3.’

Mr Ang feels that office rents would remain soft next year in the face of considerable new supply.

Mr Armstrong points out that a strong revival in office leasing activity has ’surpassed what we could have anticipated six months ago’.

After three quarters of negative take-up, demand for office space finally turned positive, albeit modestly so, in Q3.

‘I don’t see a dramatic rebound in positive take-up in Q4 2009,’ he says. ‘However, all the leasing activity we’re seeing right now is likely to underpin a return to positive take-up in 2010.

‘We’re entering a more stable period for office rents over the next six to 12 months.’

Agreeing, Knight Frank chairman Tan Tiong Cheng says: ‘With improving business sentiment, landlords firstly will not be panicky and tenants will also give up squeezing (landlords). Hence, the short-term outlook for office rents is more positive.

‘The rest depends on government policy. The authorities believe that keeping office rents affordable will help in Singapore’s competitiveness . . . And they have a range of ammunition to ensure this – including the transitional office scheme, business parks, and considerable amount of good- quality office land set aside for development in Paya Lebar and Jurong East.’

Buying a home: freehold vs leasehold

Source : Business Times – 1 Dec 2009

NICHOLAS MAK examines how both tenures perform in rising and falling markets as well as in collective sales

THE question of whether to own freehold or leasehold property seems a perennial one, with pros and cons shifting with market cycles and new trends. Here, we examine the issue from the perspective of both a home owner and investor, and see how both tenures perform in rising and falling markets as well as in collective sales.

The chief attraction of 99-year leasehold property is that it is typically priced lower than a comparable freehold property. As a result, they are popular with HDB upgraders as entry-level private properties. Most mass-market homes are 99-year leasehold condominiums, with prices ranging from $500 per sq ft to $900 per sq ft. A typical family-size apartment could cost anything from $600,000 to $1.2 million.

For investors, leasehold properties usually offer a higher rental yield because of their lower capital cost. However, the higher yield merely compensates the owner for the decaying lease.

One of the more apparent disadvantages of owning a 99-year leasehold property is that the length of the lease is contracting daily. All else being equal, this would result in falling property value. However, certain external factors could slow the decline in value, such as if the property is sought after by tenants or buyers. This could be due to a prime location, improving infrastructure (such as a proposed MRT station nearby), or good amenities or popular schools in the vicinity.

When it comes to collective sales, there are usually fewer opportunities for them with 99-year homes. One reason is that many of them are still relatively new and in good condition. Thus, the owners do not feel any urgency to sell their homes collectively.

A more pertinent reason is that the premium payable to the government to top up a 99-year lease is quite high, based on the existing formula. And since developers factor the premium as part of the total land cost, the higher the premium the less the owner of the ageing leasehold would get in any collective sale.

As such, collective sales are not attractive to many owners of 99-year leasehold apartments unless the expense of maintaining their ageing properties are so high that a collective sale becomes the cheaper alternative.

A key benefit of owning freehold real estate is that the land value does not generally depreciate in the long term. Although all properties are subject to market fluctuations, the price of freehold land tends to be more stable than that of leasehold land over time. However, the value of a freehold property could still decrease over time due to the depreciating value of the ageing building. Over the long term, while the value of freehold land may increase or remain little changed, the value of the building would decline.

One factor that supports the value of freehold land in Singapore is its scarcity. Since all the land sold by the government is leasehold, the amount of freehold land would not increase. In fact, it might shrink over time if the government makes acquisitions of such land.

Another advantage of owning a freehold property is the potential of a windfall from a collective sale. If the value of the freehold land increases while the value of the ageing building declines, it could reach a stage where the redevelopment value of the property is worth more than the utility value of the existing building. As a result, the property owners may find a collective sale of their property to a developer to be highly profitable.

Some developers looking to acquire residential land for development may also prefer freehold land to ageing 99-year leasehold property because freehold land would not require the payment of a hefty premium for extending the lease.

For all these reasons, freehold residential properties are generally priced higher than 99-year leaseholds. The price range of freehold non-landed properties is also wider than that of comparable leasehold properties. Depending on the location, freehold property prices could vary from $600 psf to $4,000 psf or more. The majority of high-end residential properties are freehold.

For investors, one disadvantage of freehold property is the lower rental yield, a function of the higher cost of the property.

Also, while freehold properties have a higher likelihood of a collective sale than their leasehold counterparts, that can prove to be a double-edged sword. The property boom of 2005 to 2008 whipped up a collective sale frenzy. But some property owners who sold for a windfall found they could not get a replacement home in the same location from their proceeds. As the collective sale boom was powered by surging property prices, by the time en-bloc property sellers received their proceeds, the prices of comparable replacement homes would have moved out of reach.

Now, we look at the price performance of freehold and leasehold properties. Although freehold properties are usually priced higher than their leasehold counterparts, their rate of appreciation does not always outperform.

There were two property cycles between end-1998 and mid-2009. The first market boom, which started at end-1998 and ended in mid-2000, was a bottom-up price recovery. Demand started in the mass-market sector and moved up to the mid-tier and finally the high-end segment.

During this 18-month period, the average price of 99-year condominiums rose faster than that of freehold homes. The average price of freehold condominiums grew by 38.2 per cent, while the average price of 99-year leasehold condominiums surged by 46.2 per cent.

But on the way down, leasehold home prices also fell more steeply. On the downcycle between mid-2000 and the first half of 2004, the average price of leasehold condominiums fell 26.1 per cent, steeper than the freehold price decline of 17.6 per cent.

The most recent boom that lasted four years from mid-2004 to mid-2008 started with high-end property and gradually filtered down to the mass market.

Even when the mass-market sector started to pick up in 2007, the momentum in the high-end segment did not let up. As a result, freehold condominium prices jumped by an impressive 64.7 per cent on average, while the average leasehold property price rose some 50 per cent.

When the property market here started to contract in mid-2008 due to the global financial crisis, freehold condominium prices fell 26.5 per cent year on year, just slightly more than 99-year leaseholds, which dropped by 23.8 per cent.

What this study shows is that if the upswing in the property market is bottom-up, leasehold condominiums could outperform freehold ones. Conversely, if the boom is top down, freehold condominiums would deliver superior results. However, this study also illustrates that the faster the rise, the harder the fall. So in a top-down property boom, owners of freehold condominiums who had enjoyed a sharper price appreciation should be nimble enough to lock in their gains before the downtrend sets in.

In comparing freehold and leasehold residential properties, there is no conclusive evidence to show that one is better than the other. Ultimately, the decision boils down to budget and preference.

The writer is a real estate lecturer at Ngee Ann Polytechnic

Is cash really king?

Source : Business Times – 1 Dec 2009

Does holding excessive cash provide security or is it time to analyse cash allocation?

‘A dollar today is worth more than a dollar tomorrow.’ This adage used to describe a common desire of many investors to secure their wealth rather than grow it is a good explanation for why we see so much cash in investors’ portfolios at the moment.

Despite the return of a modest appetite for riskier investments in recent months, investors still seem very much attached to cold hard cash. This is despite historically low interest rates. The need for security, a cultural bias as well as mistrust of many investment products that exist are all valid reasons why investors hold on to cash. But how much cash should one hold to prevent it from becoming a destroyer, rather than a preserver of wealth?

Holding excess cash can result in a sub-optimal investment portfolio and lower the portfolio returns. Opportunity costs from lost alternative investment opportunities and the effect of inflation on the yield of the cash held are examples of how cash can turn into a wealth destroyer if it is not managed correctly.

To determine the optimum cash allocation investors should view cash as they would any other investment and apply a systematic approach to the investment process. In this low interest rate environment investors may seek extra yield pick up through the inclusion of alternative liquidity solutions (ALS). ALS are often structured money market products which behave much like cash, often providing the investor with daily liquidity and capital and accrued interest protection but giving much higher returns than typical call and fixed term deposit products. However, even in the world of cash there is no such thing as a free lunch and in return for these enhanced returns the investor will have to bear some additional risks not typically associated with regular cash deposits.

It is important to understand some of the psychological motivations that drive investors to hold excessive cash. Cash provides perceived safety and security. Compared to innovative products, cash enjoys a reputation as being simple and has the key benefit of daily liquidity. The easy to understand nature of fixed term and call deposits gives cash a competitive advantage over more complex investments. As a result investors feel more comfortable with cash and tend to neglect other often more suitable products.

Cash is also closely linked to some of our most basic needs. Abraham Maslow’s hierarchy of needs places the need for safety after our physiological needs in terms of importance. In today’s society cash provides investors with a sense of security against the many uncertainties that we face. However, this sense of security is often misplaced especially when considering the wealth damaging effects of inflation.

With the knowledge that an investor will always hold cash, how should they determine the appropriate allocation of cash within the overall portfolio? By applying a systematic process to understand why cash is being held, and if the levels of cash being held are warranted, it is possible to determine an optimal cash portfolio allocation.

Cash allocation analysis

There are three major reasons for holding cash that can be looked at in the context of a cash allocation analysis. (see table)

# Consumption Cash (transaction motive): This is cash that is needed for financing future cash consumption, for example, to pay bills and consumption which goes beyond your monthly income. The higher an investor’s income, the more they consume, meaning that consumption cash typically increases with personal wealth. When considering the amount of consumption cash needed an investor should ask themselves whether or not they will be purchasing fixed assets in the near future or if they have any big-ticket expenses coming up such as tax bills, etc.

# Iron Reserve (Precautionary Cash): Iron reserve cash is cash that is held to provide security against unforeseen events. This is cash that is needed to sleep well. Even though this cash may remain untouched for many years it can be seen as a constant source of liquidity, providing a comforting element to an investor’s financial holdings.

# Asset Portfolio (Speculative): Cash should also be held as liquidity for future investments in stocks and bonds. This cash is normally of a speculative nature. As a rule of thumb, about 5 per cent of the value of your investment portfolio should be held as cash to service the needs of the investment portfolio.

An investor seeking to determine their optimum cash allocation should then look at each of the buckets above and consider the following questions:

# What are my annual consumption expenses and what should be set aside to cover this (eg. two times annual living expenses).

# What is my risk attitude and how important is it for me to have cash set aside to sleep well at night (ie. how much risk and return do I want).

# What does my investment portfolio look like, how much cash should I set aside to service this?

Once cash has been allocated into these three buckets, any cash that is left over can be considered excess liquidity which should be invested into a higher yielding diversified investment portfolio. To assist with this process UBS Wealth Management has built a research-based framework to help investors make better investment decisions. The framework takes into consideration the investor’s needs as well as the current portfolio allocation and provides fact-based research about appropriate products.

Alternative liquidity solutions

It is clear that a systematic cash analysis is essential to define an investor’s actual cash needs. By performing such an analysis it is possible to identify excess liquidity for reinvestment into other products, and it is possible to identify cash needed for near term consumption as well as cash needed to sleep well at night. As cash in both the consumption and the iron reserve bucket does not necessarily get used straightaway (particularly true for iron reserve cash) this cash runs the risk that inflation might lessen its worth (eg. 0.5 per cent earned on a fixed deposit versus 2-3 per cent long term inflation)

Given the low interest rate environment and the superior returns that can be achieved from some of the ALS products that are available today, leaving cash in fixed deposit products is not the best option.

An ALS is typically structured in note or certificate form and behaves much like cash in that it can provide the investor with daily liquidity and typically provide capital and accrued interest protection. The benefit is that the returns are often superior to traditional deposits.

It is, however, only with some additional risks that some of these ALS products are able to offer returns that are higher than basic money market instruments. As ALS are not considered deposits they do not enjoy the deposit protection schemes that many governments around the world have implemented post financial crisis. They also require the investor to take on the credit risk of the issuer of the product, meaning he is fully exposed to the potential default of the issuer.

Some of the more complicated ALS products do not provide daily liquidity. Investors should consider this liquidity risk and be prepared for the fact that there may not be an active secondary market or they may be charged a fee for early redemption. Finally, some of the more complicated products may also face market volatility risk as the daily value is marked to market.

Such products are therefore not for everyone, but if investors understand the risks they can be an attractive addition to a cash portfolio.

The recent market volatility has created a flight to safe haven assets such as cash. However, with interest rates at historically low levels, excessive cash holding might perhaps be doing more damage to your wealth than good. Undertaking regular reviews of your cash needs and carefully identifying the parts of your portfolio which can benefit from investing in products such as ALS is key to avoiding the undesirable effects of too much cash – value erosion through inflation, and investment opportunity costs. More importantly, identifying excess liquidity which can then be put to work in a well-diversified portfolio can help to raise your overall return and should be considered a key activity in the successful management of your investment portfolio.

EMMANUEL BUCAILLE – Managing Director and Head of Products at UBS Wealth Management Singapore

Wealthy investors regain appetite for property

Source : Global Edge – 1 Dec 2009

Confidence in the real estate sector is returning among high-net-worth individuals according to new survey from Barclays Wealth.

Over the next two years, 35% of the survey’s respondents said they plan to increase the proportion of their portfolios dedicated to real estate, excluding their primary residences.

The average allocation to real estate among respondents was 28% internationally and 23% in the US. Investors in nine out of ten countries expect to increase their allocation to real estate by 1% to 4% over the next two years, raising the global average allocation to 30%.

Investors who plan to increase their real estate stakes believe that the asset class holds better long-term prospects than other more complex financial instruments, which many blame for igniting the financial crisis. Additionally, thanks to the recent turmoil in nearly all real estate markets around the world, investors believe there are many bargains to be had in the property sector.

Residential more attractive than commercial property

According to the report, investors are less enthusiastic about commercial real estate, due to rising unemployment rates worldwide but 45% of respondents believe there are significant opportunities in residential markets, although tight credit markets are inhibiting their ability to take advantage.

US, UK, China & India are favoured markets

More than three-quarters of respondents predominantly invest in their domestic market. However, when asked what other markets are attractive to them right now, the U.S. ranked number one, followed by China, the U.K and India, in that order. U.S. real estate is particularly appealing because of recent price declines, the falling dollar and long-term positive prospects for the U.S. economy.

The report, commissioned by Barclays Wealth and written by the Economist Intelligence Unit (EIU), was based on a survey of more than 2000 individuals in 10 countries with over $800,000 in investable assets.

CDL open to raising South Beach stake

Source : Business Times – 1 Dec 2009

City Developments Ltd (CDL) says it is open to exploring the possibility to raise its stake in the South Beach project – in which Dubai World also has a share – if such an opportunity arises.

‘South Beach is an iconic development and one which has excellent potential,’ a CDL spokesperson noted.

She added that the joint venture company that owns the South Beach site may also choose to issue further notes if more funds are required in due course and it is open to any note holder and/or shareholder to subscribe for the notes.

CDL bought the South Beach site in 2007 jointly with Dubai World and El-Ad Group for $1.69 billion. In June this year, the JV company refinanced an earlier $1.2 billion land loan through an $800 million two-year secured bank loan and $400 million five-year secured convertible notes. Hong Kong’s Nan Fung group subscribed for $205 million of the notes while CDL mopped up the remaining $195 million.

Dubai World is now asking all providers of financing to itself and its unit Nakheel to ’standstill’ and extend debt maturities until at least May 30, 2010.

South Beach will have offices, hotels, residences and and retail space. Some market watchers suggest that in addition to the options outlined by CDL yesterday, another avenue for the JV company to fund the site’s development would be to sell all or part of the project. If the apartments are launched and sold, sales proceeds would help to fund part of the development’s construction. The hotels could also be divested to CDL’s hotel units Millennium & Copthorne Hotels plc and CDL Hospitality Trusts, or a third-party buyer. Alternatively, the entire development, when completed, could be spun off into a real estate investment trust. Rough calculations show that Dubai World and El-Ad would have pumped in about $200 million each of equity in the project. As at Sept 30, 2009, CDL had cash and cash equivalents of about $979.5 million at group level. Market watchers reckon the South Beach consortium partners may have received offers for their stakes from potential buyers.

CDL said in August that South Beach’s construction is likely to begin around Q3 2010, with CDL and Nan Fung probably the ones that will pump in further money. El-Ad and Dubai World are likely to be passive investors who may see their share in the project diluted.

Singapore plunges from #9 to #32 in global office rental price list

Source : Channel NewsAsia – 1 Dec 2009

Office rentals in Singapore have plunged dramatically, causing it to fall to the 32nd spot in a list of the world’s most expensive office market.

Previously, Singapore took 9th spot on the list in the year-ago period and was in 15th place just six months ago.

Property consultant CB Richard Ellis (CBRE) said Tuesday Singapore saw a 53.4 per cent on-year decline in rents.

Singapore’s office occupancy cost now stands at US$63.89 per square foot per annum.

A year ago, the rent here stood at US$135.13 per square foot per annum.

Singapore saw the second steepest on-year drop in rentals, behind only Kiev, which fell by 64.4 per cent.

London’s West End is again the world’s most expensive office market with rents at US$184.85 per square foot per annum.

Tokyo’s Inner Central district came in second, with Tokyo’s Outer Central district in third spot.

Rounding up the top five are Hong Kong’s central business district in fourth place and Moscow finishing fifth on the list.

CBRE said office markets worldwide are experiencing declines in prime office occupancy costs.

Overall, prime office occupancy costs saw an average on-year drop of 7.7 per cent worldwide.

The semi-annual Global Office Rents Survey by CBRE tracks office occupancy costs in nearly 180 cities around the globe.

Singapore’s growth momentum to be sustained for 2010, say economists

Source : Channel NewsAsia – 1 Dec 2009

Economists from OCBC Bank expect Singapore’s economic growth momentum to be sustained for 2010.

OCBC said the economy is expected to grow 4 per cent in 2010 – at the mid point of the government’s official forecast of 3-5 per cent expansion.

However, concerns are mounting about asset bubbles and rising inflation.

The problems currently facing Dubai World have been isolated so far. But observers expect similar “speed bumps” to show up over the next few years, suggesting that the global economy is just slowly recovering.

For Singapore, OCBC said the economy is expected to grow on-year in the fourth quarter and at least in the first half of 2010, barring unforeseen events.

Economists said there is lingering policy concern on potential asset bubbles, including the property market. And they expect the opening of the two integrated resorts next year to generate more demand for homes from foreign workers and investors.

Selena Ling, Head, Treasury Research & Strategy, OCBC said: “Mainly because of the record low interest rates we are seeing in the G3 economies, a lot of money has been sitting on the side lines in the wake of Lehman Brothers.

“Obviously with the pick up in economic numbers, the risk appetite is coming back. They are all searching for yield and emerging markets like Asia, because we have been relatively less impacted by financial deleveraging process (and it) does look relatively attractive from a medium term point of view.”

OCBC said investors will continue to buy into the commodities and China growth stories. It said the key concern now is not a double dip but rising inflation and slow expansion, as energy prices and wages rise.

OCBC also expects the Singapore dollar to appreciate, if recovery in the economy and export stays on track.

“The countries that are highly exposed to the global export cycles, the Taiwan dollar, Singapore dollar, the Malaysian ringgit… (they) are expected to play some catch up in 2010, to other currencies that have strong domestic growth dynamics,” said Emmanuel Ng, Currency Economist, OCBC.

“So we do expect some catch up by the Singapore dollar next year, especially if the MAS tightens policy,” he added.

The Monetary Authority of Singapore is due to review its Singapore dollar policy in April 2010.

Dragon Mansion sold for S$101m

Source : Channel NewsAsia – 1 Dec 2009

Dragon Mansion at 18 Spottiswoode Park Road has become the first successful en bloc sale in Singapore this year.

The property was sold to a unit of Roxy-Pacific Holdings for S$100.8m including the development charge. That translates to about S$863 per square foot per plot ratio.

CKS Property Consultants launched a tender for the site in July, after it obtained consent from more than 80 per cent of the owners to proceed with the sale.

The collective sale is subject to approval from the Strata Titles Board. Each owner of the 72 units of 3-bedroom apartments is expected to receive S$1.4m in sale proceeds.

The freehold site has a land area of about 42,000 square feet and is designated for residential use with a plot ratio of 2.8. CKS Property Consultants said the new development could potentially accommodate some 120 units of 1,000-square-foot apartments.

The brokers said the sale price sets a new benchmark for the Spottiswoode Park area, and reflects the limited availability of such freehold residential land near the Central Business District.

CKS Property Consultants is also the marketing agent for Mayfair Gardens in the prime Bukit Timah area. It said consent has already been obtained from more than 80 per cent of the owners to proceed with the sale and the collective sale tender will be launched soon.

China risks bubble from property stimulus

Source : Business Times – 24 Nov 2009

China should immediately halt some of its real estate stimulus policies, or risk inflating a bubble that in its bursting would wreak financial and even social trouble, a central bank newspaper said yesterday.

Debate is heating up in China about whether and how to wind down loose monetary policy and heavy spending, with officials voicing worries about asset price rises but also fearful that the broader economic recovery remains fragile.

An opinion piece in the Financial News, a newspaper published by the central bank, said that rampant speculation in the country’s property market was akin to a time bomb that could threaten future growth.

‘If China does not exit its stimulus policy . . . property prices and the market may go out of control,’ it says.

China’s housing prices have been rising since March, propelled by a slew of government measures from lower downpayments and mortgage rates to tax cuts.

Rising prices have encouraged developers to break ground on new projects, with real estate investment up an annual 18.9 per cent in the first 10 months of the year, compared with a mere 1.0 per cent rise in the first two months.

While the government has welcomed this surge in building activity, which is an important pillar of the economy, some officials now worry that property development is outstripping end-user demand in some locales and that prices are not affordable for ordinary citizens.

The article noted that expectations of a wind-down in stimulus policies were, in part, driving current transaction levels. November, traditionally a slack month, had been busy as people front-loaded purchases before a value-added tax exemption expired at end of the year, it said.

Separately, a senior government researcher said that China had to place the prevention of asset bubbles at the centre of any exit strategy that it devises for its broader stimulus policies.

He Fan, an economist at the Chinese Academy of Social Sciences, a top think tank in Beijing, said that if the central bank raised interest rates too early, it might only serve to suck in speculative capital from abroad and drive asset prices still higher.

But if Beijing moves too slowly to absorb the vast liquidity sloshing around the economy, asset markets will turn frothy on domestic momentum alone, in turn drawing in hot money from abroad, he said in a research note.

Targeting the exit strategy at problem spots will be the way to handle this dilemma, by, for example, suppressing property price rises or slowing the pace of loan growth, he said.

But China should not tighten its fiscal policy, according to Chen Dongqi, deputy head of the macro economic research institute under the National Development and Reform Commission, China’s powerful economic planner.

Iskandar zone not affected by debt debacle: Johor

Source : Business Times – 30 Nov 2009

The Malaysian state of Johor says its economic zone, which has the nation’s largest number of Middle Eastern investors, should be unscathed by the Dubai debt crisis, reports said yesterday.

Dubai World, the city state’s flagship conglomerate announced last Wednesday that it was seeking a six-month reprieve from its US$59 billion debt payments, sending global stocks into a nosedive on fears of a default.

Johor Chief Minister Abdul Ghani Othman told the Star daily only one Dubai company, Damac Properties, had invested in the Iskandar special economic zone.

‘Since only one company from Dubai is involved in Iskandar, we don’t think the Dubai financial crisis would have an effect on the regional growth area,’ he told the paper. ‘Most of the investors in the growth area are from Saudi Arabia, Kuwait and Abu Dhabi.’

He did not say how much Damac had invested in Iskandar, where the company is involved in a project on an 8 hectare site.

An aide to Mr Abdul Ghani confirmed his comments to AFP on condition of anonymity, saying the Dubai company had yet to begin operations in the area.

He said total investment for Iskandar, which was launched in 2006, had hit US$13 billion so far, with about 15 per cent coming from Middle Eastern investors.

Almost three times bigger than neighbouring Singapore, the Iskandar region will be Malaysia’s largest economic zone upon completion in 2025, by which time the government hopes to have created 800,000 jobs and attracted around US$100 billion in investment.

Dubai World rejected sale of distressed assets: report

Source : Business Times – 30 Nov 2009

Dubai World refused to offload assets at fire-sale prices to repay obligations, forcing it to seek a debt standstill, a newspaper report yesterday quoted an unnamed source at the government-controlled firm as saying.

Stocks from Tokyo to New York have been haunted by concern that banks were exposed to state companies in Dubai, though world leaders expressed confidence in the global economic recovery last Friday despite the fears.

‘The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices,’ al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the centre of Dubai’s debt crisis.

Last Wednesday, the government of Dubai asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, as it restructured the Dubai World group.

The restructuring is expected to focus on property and foreign investments which have been worst hit by the economic crisis, the source said.

Dubai’s woes could hit the fragile US real estate market

Source : Business Times – 30 Nov 2009

Dubai World, with US$59b of debt, set off a global stock market selloff last week

Dubai’s debt woes could further unhinge an already fragile US commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly interconnected world.

A state-owned investment conglomerate Dubai World, with US$59 billion of liabilities, set off a global stock market selloff last week after it said it wants to restructure its debt, including at its property subsidiary Nakheel.

‘This downturn has had more of a global impact,’ said Tony Ciochetti, chairman of Massachusetts Institute of Technology’s Center for Real Estate in Cambridge, Massachusetts.

‘As I try to explain to my students, with a global economy, we’re all attached at the hip financially in some way, shape or form,’ he added.

The Dubai news also cast doubt over the strength of the fledgling US economic recovery, and the prospects for a bottoming of property prices.

On Friday alone, the Dow Jones US Real Estate Index fell 2.9 per cent, nearly twice the decline of broader US market indexes. ‘Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower,’ wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida.

In the US, Dubai World’s portfolio includes several well-known properties, and the fallout could have a larger impact on the entire real estate market.

The company is a partner with casino operator MGM Mirage in the US$8.5 billion CityCenter project, which would add 6,000 rooms to a Las Vegas Strip gambling corridor already saturated with unoccupied hotel rooms.

Nakheel, perhaps best known as the developer of Dubai’s palm-shaped islands, also carries the Mandarin Oriental and W hotels in New York in its portfolio, and has a 50 per cent stake in the Fontainebleau Miami Beach resort.

And, through its Istithmar affiliate, Dubai World controls the upscale retailer Barneys New York Inc.

The main threat to US commercial property from Dubai World woes may be ‘potential for contagion’, said Sam Chandan, chief economist at Real Estate Econometrics LLC in New York. ‘It has the potential to spill over into the broader perception of real estate development and real estate as being a very risky area for exposure,’ Mr Chandan said.

Many have already been burned.

US commercial real estate values have already fallen 42.9 per cent from their 2007 peak, Moody’s Investors Service said. Last month, delinquencies on US commercial real estate loans that were packaged into commercial mortgage-backed securities reached 4.8 per cent, more than six times the year earlier level, according to Trepp LLC in New York.

In a Nov 23 report, Moody’s analyst Nick Levidy said prices could bottom at 45-55 per cent below their peak, implying an additional 5-28 per cent decline, but in a ’stress case’ could drop 65 per cent from their peak. Like US investors, foreign investors were enticed through much of this decade to buy US real estate aided by cheap credit and the hope that property prices would steadily rise for a long time.

Currency fluctuations also provided a boost. And the US dollar lost about one-third of its value against a basket of currencies since late 2002, making it easier for foreign investors to scoop up US real estate even when valuations grew too rich for investors at home.

Dubai World’s holdings go far beyond real estate. It has a 20 per cent stake in Canada’s Cirque du Soleil, and also invests in the global bank Standard Chartered Plc and New York boutique investment bank Perella Weinberg Partners.

Other investments go farther afield – or under water. Dubai World is suing a former executive in a case arising from a wayward foray into submarine financing. But Mr Ciochetti suggested that it is premature to quantify Dubai World’s impact on US commercial real estate.

‘It is hard to focus on any one particular participant and then generalise about the whole market,’ he said. ‘It illustrates that very few places and participants in the commercial real estate market are totally exempt from the global economic crisis.’