China, Korea face housing market bust

Source : Business Times - 30 Oct 2008

Analysts say both countries have to take more steps to spur demand

China and South Korea have moved to prop up their frazzled housing markets but probably need to do much more to avoid major price slides that could ruin developers, damage banks and threaten the region’s economies.

A share price collapse this week for Chinese property developers such as Guangzhou R&F and China Overseas Land suggests that many investors believe a housing market bust is on the cards, despite a policy U-turn by Beijing.

‘Investors might just be throwing in the towel,’ UBS analyst Eric Wong said of the sharp drop, which saw some stocks lose as much as 35 per cent of their value over Monday and Tuesday. The Chinese government, fearing a price bubble, was in market cooling mode only a year ago, squeezing developers with a clampdown on loans and hatching moves to stamp out speculation.

New home prices then slumped by up to 40 per cent in the southern cities of Guanzhou and Shenzhen as sales dried up, and property firms began slashing prices across the country to keep cash flowing in.

The outlook grew even dimmer as the global credit crisis began to buffet Asia and batter its financial markets, stalling the region’s once-roaring economies.

So last week Beijing unveiled cuts in taxes, mortgages and down payments on homes in an effort to breathe life into a property industry that accounts for about 10 per cent of gross domestic product (GDP) in the world’s fourth-largest economy. But the country’s biggest developer, China Vanke Co, reported on Tuesday a 13 per cent decline in net profit and a nearly 30 per cent drop in sales volume, in another reminder of how deep-seated the problems are.

If the housing market fails to perk up, analysts say policy makers will probably resort to macro-economic measures to spur demand, such as cutting taxes and interest rates.

‘The usual monetary cocktail is a blunt instrument but it’s longer lasting,’ said UBS’s Mr Wong, adding that Beijing might also raise export subsidies and hike pay at state companies.

On the property side, the government could reel back on its measures to dissuade people from buying apartments as investments and tell banks to start lending to developers again, Mr Wong said.

In South Korea, where around half the country’s personal wealth is tied up in property, the government pledged five trillion won (S$5.3 billion) last week to buy unsold homes and land from developers to prevent mass bankruptcies in the industry.

An interest rate cut of 75 basis points followed on Monday as policy makers tried to keep the global financial storm at bay.

The steps are a reaction to slowing economic growth and a steep climb in the number of unsold new homes on the market, which rose 43 per cent to a record 160,595 units in July from the end of 2007, according to government data.

Just as in China, the government had a hand in slowing the market in early 2007, tightening restrictions on mortgages and buying second homes.

Analysts believe freeing up finance for homebuyers is the answer, not just taking homes off the market. Apartment prices in the most expensive districts in Seoul and in satellite towns have fallen up to 20 per cent from their peaks in 2006.

‘The measures came too late and are too weak,’ Daiwa Institute of Research analyst Hyo Yim said of the government’s action to shore up the property market.

The government should loosen rules on mortgage lending and cut back taxes on owners of two or more homes, Mr Yim said.

Mortgage debt in South Korea is still only a quarter of GDP, compared to 61 per cent in Australia, and 105 per cent in the United States, according to CLSA. In China, home loans equal only 12 per cent of GDP.

‘The government cracked down on so-called speculative buyers, but people won’t buy homes if they don’t expect prices to rise,’ said Mr Yim, adding that the housing market would probably not recover before 2010.

Many of South Korea’s 12,000 builders face a cash crunch as credit dries up and home sales slow, with 88 firms defaulting in the first nine months of 2008, up 17 per cent from a year earlier.

Even top developers are not immune to such worries, with shares in GS Construction, Hyundai Development and Samsung Engineering tumbling between 37 and 50 per cent in the last month.

But some analysts are suggesting that South Korean construction stocks may have bottomed thanks to the government’s actions, with valuations at historical lows and at a 30 per cent discount in price/earnings terms to the overall stock market. BNP Paribas analyst Jae Rhee has a 12-month target stock price for Hyundai Development that is double its current price. And the potential upside for GS Construction and Samsung Engineering is about 70 per cent, he wrote in a report last week.

Chinese developers are now trading at near 70 per cent discounts to net asset value, and at 7.4 times forecast 2008 earnings, according to Citigroup analyst Oscar Choi, who believes the stocks have been sold off ‘indiscriminately’.

And Beijing will do all it can to stop a property market crash, said CLSA analyst Nicole Wong, who has a buy rating on New World China Land and Agile Property.

‘Policy is very supportive; basically they’re underwriting a put option on market,’ she said. ‘For sure the government will take further steps if the downward spiral doesn’t stop.’ - Reuters

Tokyo residential property set for full-blown decline

Source : Business Times - 28 Oct 2008

Japan’s slowing economy and the credit crisis has damped commercial, residential demand

Tokyo residential property prices may be poised for a major decline because of excess housing supply and flagging demand, said Minoru Mori, chairman of Japan’s biggest privately held developer. ‘We foresee full-blown drops in residential property prices,’ Mori Building Co’s chairman said in an Oct 25 interview in Shanghai.

Japan’s slowing economy and the credit crisis that tightened lending has damped demand for commercial and residential property in Japan. The slump in Tokyo’s condominium market may last longer than the drop after Japan’s asset-price bubble burst in 1990, according to an estimate by the Real Estate Economic Research Institute.

Condo supply in Tokyo fell 24 per cent for the first six months of the year from the same period a year earlier. The number of new condos put up for sale in Tokyo, which stayed above 80,000 units since 1999, fell to 69,194 units in 2007 because sales declined and inventories rose. Commercial real estate is holding up better than residential property, said Mr Mori.

‘Tokyo’s commercial property market remains relatively healthy. The current price decline probably won’t be more than 10 per cent,’ Mr Mori said.

Tokyo-based Mori has scrambled to manage the impact of the global financial market turmoil. Lehman Brothers Holdings Inc, which last month filed for the largest bankruptcy in history, was a tenant of the developer’s Roppongi Hills complex, occupying 275,000 square feet of office space.

Nomura Holdings Inc, which agreed to buy Lehman’s European and Asian assets, has expressed an interest in taking over Lehman’s lease at Roppongi Hills, Mr Mori said in the interview. Japan’s biggest brokerage also ‘hinted’ at possibly increasing the floor space it leases at the complex, he said.

Other tenants at the complex such as Goldman Sachs Group Inc are under long- term agreements that incorporate increases in the rents they pay, Mr Mori said. ‘On a contractual basis, we don’t foresee any problems,’ he said.

The capital value of grade A office buildings in Tokyo’s commercial business districts fell 2 per cent on average as of March from three months earlier, according to an estimate by Jones Lang LaSalle.

As commercial prices declined, Mr Mori said now is the time to prepare for land acquisition for large-sized projects similar to Roppongi Hills. ‘We have plans to introduce second, third, fourth and fifth Roppongi Hills,’ said Mr Mori. ‘This is a good time to plan for large-size projects.’

Mori is in talks with local residents to redevelop Toranomon-Roppongi. The developer plans to build a 46-storey commercial tower and a six-floor residential building on a 15,350 square metre site in 2009.

Other projects under planning include Loop Road No 2 from Toranomon to Shimbashi in central Tokyo and a waterfront development project in Yokohama, according to the company’s website.

These projects will require infrastructure such as roads and large blocks of available land, both of which may take some time, he said.

Mori Building’s Shanghai World Financial Center, China’s tallest building, was opened to the public on Aug 30. Space in the building was leased ‘faster than expected’ to near 50 per cent of capacity currently from 40 per cent in August, Mr Mori said.

Japanese financial institutions such as Mizuho Financial Group Inc and Sumitomo Mitsui Financial Group Inc have taken space, he said. Demand for space may slow with the opening of new office developments in Shanghai, such as Sun Hung Kai Properties Ltd’s Shanghai IFC complex, located next to Mori’s building.

‘As new developments come on line, it might be difficult to enjoy the same occupancy rates as before, and net demand might decline somewhat,’ Mr Mori said.

Banyan Tree’s villa sale still on

Source : Straits Times - 9 Oct 2008

BANYAN Tree Holdings is going ahead with the second sale exhibition of its hotel-based properties despite some of the worst economic news in years.

It will sell the residences - mostly villas in its hotel operations - in Phuket, Bangkok, Bintan, Lijiang (China) and the Seychelles under a leaseback scheme.

The listed resort operator is proceeding with the exhibition at the Fullerton Hotel as a delay might not make much difference, said group managing director Ariel Vera. ‘Our buyers have to be high net worth individuals so the credit crunch will not be a problem for (them).’

Still, buying sentiment has been hit.

‘The crisis is still unfolding. Even those with money are waiting for prices to drop before they buy,’ said Mr Nicholas Mak, Knight Frank’s director of research and consultancy.

‘There’s a great amount of uncertainty and caution in the market, even in the luxury property sector.’

Sales of Banyan Tree Residences, as the hotel properties are known, have defied the mood and risen this year.

In the first half, Banyan Tree sold 44 residences - mostly in Phuket. This was up from seven in the first half of last year, when the Banyan Tree Residences concept was launched.

Prices start from US$600,000 (S$880,000), with those in Phuket costing between US$1.75 million and US$4 million each.

Buyers can either get a fixed return of 6 per cent of their purchase price for six years - this works out to about 5.1 per cent net for a property in Bintan or Phuket - or one-third of the net room revenue for six years.

Mr Michael Ng, managing director of Savills Singapore, which is helping to market the residences, said there are keen investors around. ‘A lot of people are getting out of equities and looking for alternative investments,’ he said.

To entice buyers, Banyan Tree is offering a 3 per cent discount, up from 2 per cent last year.

Those who buy a higher-priced property will also receive free lifetime membership to the Banyan Tree private collection of hotels around the world.

Those looking to exit their investment will have to find their own buyers. There is no buyback guarantee, but Mr Vera said they have acquired some back from those who have upgraded to bigger residences.

Banyan Tree’s villa sale still on

Source : Straits Times - 9 Oct 2008

BANYAN Tree Holdings is going ahead with the second sale exhibition of its hotel-based properties despite some of the worst economic news in years.

It will sell the residences - mostly villas in its hotel operations - in Phuket, Bangkok, Bintan, Lijiang (China) and the Seychelles under a leaseback scheme.

The listed resort operator is proceeding with the exhibition at the Fullerton Hotel as a delay might not make much difference, said group managing director Ariel Vera. ‘Our buyers have to be high net worth individuals so the credit crunch will not be a problem for (them).’

Still, buying sentiment has been hit.

‘The crisis is still unfolding. Even those with money are waiting for prices to drop before they buy,’ said Mr Nicholas Mak, Knight Frank’s director of research and consultancy.

‘There’s a great amount of uncertainty and caution in the market, even in the luxury property sector.’

Sales of Banyan Tree Residences, as the hotel properties are known, have defied the mood and risen this year.

In the first half, Banyan Tree sold 44 residences - mostly in Phuket. This was up from seven in the first half of last year, when the Banyan Tree Residences concept was launched.

Prices start from US$600,000 (S$880,000), with those in Phuket costing between US$1.75 million and US$4 million each.

Buyers can either get a fixed return of 6 per cent of their purchase price for six years - this works out to about 5.1 per cent net for a property in Bintan or Phuket - or one-third of the net room revenue for six years.

Mr Michael Ng, managing director of Savills Singapore, which is helping to market the residences, said there are keen investors around. ‘A lot of people are getting out of equities and looking for alternative investments,’ he said.

To entice buyers, Banyan Tree is offering a 3 per cent discount, up from 2 per cent last year.

Those who buy a higher-priced property will also receive free lifetime membership to the Banyan Tree private collection of hotels around the world.

Those looking to exit their investment will have to find their own buyers. There is no buyback guarantee, but Mr Vera said they have acquired some back from those who have upgraded to bigger residences.

Sands may spin Macau retail into property fund

Source : Business Times - 16 Oct 2008

But it says it’s under no pressure for a fire sale despite funding problems

Las Vegas Sands Corp might spin off billions of dollars of Macau retail assets into a property fund, but is under no pressure for a quick sale despite problems funding ambitious casino expansion, an executive said.

The company, which runs the giant Venetian Macao casino and is building more hotels and casinos in the territory, floated the idea of selling its shops into a listed property trust a couple of years ago.

But with stock markets tanking in the last year, hitting real estate investment trusts (Reits) hard, Las Vegas Sands is now considering packaging the property into a fund for institutional investors.

‘It’s something we’ll look at, whether it’s a wholesale fund or a Reit,’ David Sylvester, the company’s head of retail in Asia, told Reuters in an interview.

Las Vegas Sands has 1.3 million square feet of leased retail space at its Grand Canal Shoppes, attached to the Venetian casino, and at the newly opened Four Seasons Hotel next door.

The firm is also building another 850,000-sq-ft shopping centre, scheduled to open by the end of 2009 on the Cotai Strip - reclaimed land that Las Vegas Sands chairman Sheldon Adelson has vowed to turn into a ‘neon alley’ of hotels, casinos and entertainment venues.

‘We’re talking multiples of billions of dollars,’ Mr Sylvester said, declining to give an exact value of what he thought the retail assets were worth. He added that Las Vegas Sands would retain a controlling stake in any fund.

‘We don’t want to sell them off because we want involvement,’ he said. ‘Obviously we’d like to have a majority share so we can manage it.’

Mr Adelson, the son of a cab driver who built a casino empire in Las Vegas before turning to the Chinese gambling enclave of Macau, injected his own capital into Las Vegas Sands last month through the purchase of US$475 million of convertible senior notes.

He told Reuters at the time that Las Vegas Sands was reconsidering efforts to obtain US$5.25 billion in financing for the Cotai Strip and was likely to instead seek smaller-scale financing for individual projects.

Analysts say the firm needs about US$1.5 billion to complete projects on two plots of land on the Cotai Strip, and is likely to find refinancing of its Macau debt difficult, or at least expensive.

‘I know that funding is an issue, and we’re sorting it out as a group,’ Mr Sylvester said. ‘But it’s not creating a fire sale.’

However, investors would be eager to buy into the retail assets, Mr Sylvester added.

‘All the way through we’ve had property investors interested,’ he said. ‘It’s blue-chip retail in Asia, which is hard to get your hands on because it’s closely held.’

With the likes of De Beers, Chanel and Louis Vuitton as tenants, the Four Seasons is raking in US$160 per sq ft in retail rent each year, while the Venetian Macao is taking US$130.

Retail makes up about a fifth of total revenue at the Venetian Macao. For the full year the Venetian Macao’s revenue is forecast to reach US$1.97 billion, according to JPMorgan analysts.

Macau’s casino revenue had been growing at break-neck speed since 2002, when it allowed foreign operators to compete with a former monopoly owner Stanley Ho.

But revenue fell 3.5 per cent in September from a year earlier because the Chinese authorities restricted visa approvals for people travelling to the former Portuguese enclave, the only place in China where casinos are legal.

Beijing has become increasingly nervous about Macau because of its impact on society and its use by corrupt officials to launder money, analysts say.

Mr Sylvester said the Venetian was better placed than most casinos, because only 27 per cent of its visitors were from mainland China. ‘With the integrated resort model, based on a three-night stay, we’re deliberately going for the broad Asian market.’

The average stay now for those who book a hotel room at the Venetian Macao is just under two nights, Mr Sylvester added.

HK luxury housing market unruffled by economic turmoil

Source : Business Times - 26 Sep 2008

SO far this year the financial turmoil elsewhere has had surprisingly little effect on the luxury residential housing markets in Hong Kong and Singapore.

Following the demise of Lehman Brothers, the takeover of Merrill Lynch, and the strong possibility of future consolidation in the financial sector, it is difficult to gauge the number of European and American expats who are likely to continue to be posted to Hong Kong and Singapore. However, banks and other major multinational corporations are looking at the higher levels of growth in Asia to support future revenues, given the slowdown in the United States and European Union.

That should provide some support for demand for high-end property in Hong Kong and Singapore, as leading locations for multi national headquarters for a range of industries.

Wealthy Asian expats are continuing to invest, where they are cash rich and less dependent on debt financing. China’s new rich are buying in Hong Kong.

The discussions in the press about a downturn in the housing markets, particularly in Hong Kong, so far this year have not been seen at the luxury high end of the residential market.

Megan Walters, Asia economist for Cushman and Wakefield, commented: ‘It is too soon to tell what effect the Wall Street crisis will have on the luxury residential market in Hong Kong, but people always want prime property. It is always in demand reflecting the lower risk and lower yields than that on secondary property, and invariably luxury and prime property occupy the same area of the market.’

Buying luxury residential property in leading cities can be an excellent investment, but the returns are a complicated three-way play between the point in the property cycle, long-term growth prospects and foreign currency exchange movements, as well as the particular characteristics of what may turn out to be a hot new location in a city.

The cost of buying a 120 sq m apartment in Hong Kong is comparable with buying one in London, New York or Tokyo. An apartment in a decent neighbourhood is in the order of US$1.2-1.9 million or about US$ 4,000 to US$6,000 per metre per month to rent.

Luxury property in Hong Kong can reach five times those figures, and with the level of wealth distribution much more unequal than in the US, UK and Japan, there are sufficient numbers of wealthy purchasers to support the prices. The Gini co-efficient is a measure of wealth distribution, where 0 is total equality and 100 is total inequality with very rich and very poor. Hong Kong has a higher Gini co-efficient than Japan, the UK and USA.

In terms of where is the best long-term bet to buy a property, at the luxury end of the market, it is interesting to look at the GDP per capita figures for Hong Kong compared to those for the USA, UK and Japan.

There are no restrictions on foreigners buying in Hong Kong.

Investment yields in Hong Kong are comparable at around 4 per cent for prime 120 sq m apartment in a good neighbourhood, about the same as New York, London and Tokyo.

Foreign investors can occasionally see buying overseas property as more risky due to a lack of familiarity with local rules. For those looking to buy in Hong Kong, the country’s position in the World Bank Ease of Doing Business ranking shows it to rate higher than Japan and the UK demonstrating no great risk to investments. From the property cycle perspective, luxury apartments at this level exhibit similar risk characteristics compared to other international cities and consequently exhibit similar returns.

In Hong Kong, the traditional high end luxury area of the Peak is being superseded by the new Kowloon side location. Fifteen years ago it would have been unthinkable that investment bankers would want to live anywhere other than on Hong Kong Island. Now, West Kowloon is home to fund managers and their spouses, with all the restaurants, shopping and gyms that are a prerequisite for some to lead a luxurious life style. The new Kowloon Station where the ICC is being developed is now home to prime office, retail, residential and hotel properties and prices are at historical highs.

Traditional high-end areas are Mid-Levels, Southside of HK Island and The Peak. The Peak is the traditional area for high net worth purchasers. Severn 8, a luxury town house development, concluded a transaction at HK$56,000 (S$10,220) psf in June, and developer Sun Hung Kai Properties also achieved a record price for an apartment when they sold a penthouse unit in their Arch development above Kowloon Station for HK$41,100 psf. This now holds the record price for an apartment surpassing Mid-Levels.

For those that want houses, developers are also focusing on building villa properties in the New Territories close to the border with Guangdong Province. Wealthy factory owners in the Shenzhen SEZ prefer to live close to the border and high quality properties are between HK$5,000-9,000 per sq ft.

Gary Knowles, head of residential services at Cushman and Wakefield’s Hong Kong office, suggested that ‘the expat community in Hong Kong has grown on the back of the financial sector. Due to the rapid increase in office rents, many banks have moved their back office to less expensive locations and the relocation of the airport to Chek Lap Kok has led to an increase in popular residential locations away from the more traditional areas of HK Island and Sai Kung’.

Other infrastructure developments are also affecting popular locations, with the Bridge Link to Macau and Zhuhai new rail links between the New Territories and HK Island as well as the redevelopment of the old Kai Tak Airport. The new Airport Express link has seen a plentiful supply of new residential properties built on the West Kowloon reclamation above the Airport Express stations.

Land sale auctions in Hong Kong have been limited and the majority of new residential developments are being generated by Urban Renewal Authority redeveloping older areas of HK and Kowloon.

Upcoming luxury developments are The Cullinan above Kowloon Station (which will be HK’s tallest glass wall residential building) and the latest phase of Residence Bel-Air in Pokfulam on the Island.

The writer is managing director, Cushman & Wakefield Singapore

Monaco now has the costliest luxury homes

Source : Business Times - 25 Sep 2008

It overtook London with an average price increase of 30% to £3,762 psf

London was overtaken by Monaco as the world’s most expensive location for luxury homes as job cuts by banks and the prospect of lower bonuses discouraged buyers.

Cooling demand: Average prices for houses and apartments in London’s nine most expensive neighbourhoods fell for the first time in five years in August

The average price of London’s most expensive houses and apartments rose 1.8 per cent to £3,291 a square foot in the second quarter from a year earlier, according to an index compiled by Knight Frank LLP.

In Monaco, the average increase was 30 per cent to £3,762, the property broker said on Tuesday in a statement.

‘The prime residential market is weakening across the world, due to the fallout from the credit crunch and declining economic conditions in western markets,’ said Liam Bailey, Knight Frank’s head of residential research.

Demand from the 300,000 people who work in financial services, which has underpinned London’s luxury-housing market, has dropped as companies in the industry slash personnel costs.

Lehman Brothers Holdings Inc, which filed the biggest bankruptcy in history, employed about 4,500 here.

Average prices for houses and apartments in London’s nine most expensive neighbourhoods fell for the first time in five years in August, as the prospect of a recession weighed on demand, a separate index compiled by Knight Frank showed last month.

The City of London Corporation, the municipal authority for London’s main financial district, estimates that 42,000 jobs will be lost during the next year.

Alongside the financial centres of London and New York in Knight Frank’s index come homes on the French Riviera and chalets in the French Alps, reflecting demand from high net worth individuals, notably from Russia, who are also buyers of ’super prime’ properties here and in New York.

In London, Monaco and New York, prices of properties worth at least £10 million (S$26 million) have continued to climb, with some newly constructed or refurbished homes fetching in excess of £7,000 a square foot, Mr Bailey said.

‘Demand is not going to evaporate,’ he said. ‘Wealth creation and accumulation in emerging economies and in specific high-end service sector activities will continue.’

Property risks back in spotlight

Source : Business Times - 20 Sep 2008

Developers with overseas exposure stay upbeat amid downturn

THE property business has come full circle for listed developers here. A few years ago, with land prices on the upswing and intensifying competition in Singapore, many property companies ventured overseas into untapped markets in search of better returns. Their overseas units flourished. And for the past few years, these units have been fattening the bottom lines of many property firms here.

While the going was good, there was a tendency, when it came to evaluating such companies, to overlook the commonly-acknowledged risks inherent in developing markets - such as changing regulatory environments and the tendency of foreign investors to flee when the going gets even a bit rough. But now, with the property markets in China (and to a lesser extent Vietnam) taking a beating - in part due to government actions - those risks are being thrown into the spotlight once again.

Last week, China Vanke, China’s largest listed property developer, reported a 35 per cent drop in its August real estate sales. The developer also reportedly cut prices in Nanjing, Guangzhou, Shanghai and Beijing by as much as 20 per cent. Soon after, news emerged of other developers following suit with substantial price cuts.

There are no signs of the Chinese government stepping out to halt the slump in the property market. In an announcement by the People’s Bank of China in late August, the central bank continued to call on commercial banks to tighten their lending to property developers and restated its curbs on bank loans directly for land purchases by developers.

‘We think recent price cuts could further depress pricing of residential properties and lead to prolonged weakness in an already ailing China property market as other developers may undercut prices for their properties and buyers are likely to avoid the market on concerns of further price cuts,’ said OCBC Investment Research analyst Foo Sze Ming.

In Vietnam, prices could also head south. Like in China, the government in Vietnam is fighting inflation with various regulatory measures to cool the economy. A liquidity crunch also means that smaller and non-reputable developers could be forced out of the market.

Many Singapore-listed property companies have targeted China, Vietnam, and also India, another emerging market, for expansion over the past few years. Now, with the property market in Singapore taking a pause, developers with large stakes in these emerging markets, such as CapitaLand, Keppel Land and GuocoLand, have to assure investors that they have not over-stretched themselves.

Partly in response to the negative news flow about China’s property market over the past few weeks, property stocks with exposure in that country have been punished by the market over the past week. Adding to the problem was the current global stock market turmoil.

But looking ahead, analysts are throwing their weight behind those developers who have stayed put in Singapore. Kim Eng Research, for example, said yesterday that its picks for the sector are Singapore-centric property developers City Developments and Wing Tai as beta plays for a recovery in the Singapore property market in the future.

On their part, developers with assets in emerging markets have been pointing to the strong fundamentals in these countries. Growing middle classes, increasing disposable incomes and housing affordabilities as well as rapid urbanisation are all key drivers for real estate demand, they say. Some also point out that their overseas exposure is not as large as their presence in the relatively more stable Singapore.

‘CapitaLand’s exposure in China is a balanced one with exposure to the residential, commercial, retail, serviced residence and financial services sectors across multiple regions,’ said Lim Ming Yan, chief executive of CapitaLand China. As at June 30, 2008, CapitaLand’s assets in China came to some $7.4 billion and accounted for 27 per cent of CapitaLand’s total assets.

CapitaLand’s presence in Vietnam, on the other hand, is much smaller, the developer said. ‘CapitaLand is relatively early in expansion in Vietnam and our current exposure is just under one per cent of the group’s total balance sheet,’ said Chen Lian Pang, chief executive for South-east Asia for CapitaLand Commercial.

Similarly, both Keppel Land and GuocoLand have stressed that their portfolios are balanced.

Some developers, sitting on a pile of cash, are also taking this opportunity to hunt for distressed assets they could pick up at bargain prices. ‘I am still looking to buy in those markets (China and Vietnam) but only if the price is right,’ a developer told BT. If smaller developers are forced to sell because of refinancing or other issues, bigger companies could buy assets and wait for the market to turn around, he said.

CapitaLand shared the view. With its strong balance sheet, the developer is in a very good position to take advantage of the current market to continue to expand selectively in China and Vietnam, it said.

Australia seen luring global property funds

Source : Business Times - 18 Sep 2008

Middle East, German investors seeking out deals in commercial property market

With US$12 billion of commercial buildings up for grabs and its currency weakening, Australia is becoming a prime target for global funds keen to snap up bargains offloaded by troubled property trusts.

The Australian commercial property market, long dominated by local players, has held its value because of low vacancy rates. But highly leveraged real estate investment trusts are in trouble because the global credit crunch has raised borrowing costs.

Cashed-up Middle East investors and German funds with low-risk, low-return expectations are sniffing out deals, says Robert White, president of New York-based research firm Real Capital Analytics.

‘A lot of investors want to invest in Asia Pacific for allocation reasons but they’re scared of China, and there are limited opportunities in other markets,’ he said. ‘So Australia has emerged as a very attractive market for Germans, for Middle East investors.’

Australian developer Ashington said earlier this month that it was seeking foreign investors to stump up a A$200 million (S$228 million) fund to buy buildings during what it believes will be a short window in 2009 for bargain hunting.

And Abu Dhabi Investment Authority, the world’s largest sovereign wealth fund, wants to expand its property portfolio in Australia, according to UAE newspaper reports. About A$15 billion worth of assets are up for sale in Australia, according to consultants DTZ. And Australian property firms, which have traditionally relied on superannuation pension funds, are also looking to partner foreign funds to broaden their capital base.

The global credit crunch has hit Australian property firms hard, especially Reits, which are now looking to raise funds to cut their borrowing levels after debt spreads more than doubled in the last six months to about 110 basis points.

The refinancing problems of shopping mall operator Centro Properties Group and Allco Finance Group Ltd have hogged the headlines, but the whole stockmarket sector has been dragged down about 40 per cent since October.

Macquarie Office Trust said during the full year to June that it made asset sales totalling A$340 million while GPT Group plans to sell holiday resorts.

A fall in the currency and expected further cuts in interest rates are enticing many investors, said Jane Murray, Asia-Pacific head of research for Jones Lang LaSalle The Australian dollar has fallen about 18 per cent against the US dollar since a peak in July on expectations that global economic turmoil will drag down commodity prices and prompt interest rate cuts.

‘It may not be a long-term phenomenon because obviously the Australian market will recover,’ Ms Murray said. ‘But over the next year or even two years, we will see many more purchases done by international players.’

In 2007, overseas investors spent about A$15 billion on Australian commercial property - half of total transactions - with a slew of highly leveraged deals before the credit crunch hit.

So far this year the going has been slow, according to DTZ, with foreign investors spending A$1.5 billion, or about 21 per cent of the total recorded up to the end of August. Market fundamentals still look solid as a mining boom has brought office vacancy rates down to an average 4.2 per cent across the country. Office yields are also high at 7 per cent in the first half of 2008, compared with 6.7 per cent in the United States, 5.2 per cent in Singapore and 4.7 per cent in Japan.

But some funds see better value elsewhere. Henry Chin, a strategist at Deutsche Bank’s property investment arm RREEF, said a clampdown on bank lending was hampering growth in Australian property.

He prefers China and South Korea, where office vacancy rates are below 2 per cent and new supply is tight.

But although global funds are drawn to high growth markets such as China and India, many conclude that Australia offers the best returns compared to risk, according to Alistair Meadows, a director at DTZ.

‘After six to 12 months of looking hard into these markets, they fall back to a default position and look at Australia as offering good transparency,’ Mr Meadows said.

Australia, where nearly 70 per cent of investment-grade buildings are securitised, ranks second in the world for property market transparency, behind Canada, according to a Jones Lang LaSalle index. Japan comes in at 26 on the list, with China’s main cities at 49 and India at 50. — Reuters

China’s August property prices rise 5.3%

Source : Business Times - 16 Sep 2008

China’s urban property prices in August rose 5.3 per cent from a year earlier, down from a rise of 7.0 per cent in July, extending a trend of sagging property inflation that began early this year.

Average property prices across 70 large- and medium-sized cities dropped 0.1 per cent in August compared with July, the National Development and Reform Commission said on its website on Tuesday.

It compiles the figures together with the National Bureau of Statistics.

Price rises in some cities remain steep, while a couple top cities showed declines.

Average housing prices in Beijing in August were still 8.9 per cent higher than a year earlier. The annual property price rise in Hefei, capital of the Anhui province, was even higher, at 9.7 per cent.

Prices grew the fastest in Haikou, capital of China’s most southern province, at an annual pace of 11.4 per cent.

The southern cities of Shenzhen and Guangzhou were the only cities to experience price declines, of 6.4 per cent and 1.8 per cent, respectively.

China, Vietnam landbanks may hit developers

Source : Business Times - 15 Sep 2008

AMID the doom and gloom in the local property market, concerns are also beginning to mount about Singapore developers’ exposure to the China and Vietnam markets.

Recent news out of China’s property market has been grim. Many Chinese developers are reportedly cutting selling prices as the sector feels the heat from previously-introduced government measures to cool the market, coupled with a slowing economy.

CIMB’s Hong Kong/China property analyst Alice Chong, for one, believes that while price cuts are not widespread yet, anecdotal evidence suggests that transaction prices have fallen by about 10 per cent so far this year. Going into 2009, she expects another 5-10 per cent decline in prices as the sector enters a correction phase. Regions that she is particularly negative on are Shenzhen, Guangzhou, Beijing and Shanghai.

Vietnam, previously South-east Asia’s property darling, could go the same route. Like in China, the government in Vietnam is fighting inflation with various regulatory measures to cool the economy. In line with this, there is a danger of prices heading south.

Singapore developers, who have sharply raised their exposures in the two countries over the past three years, could be hit. Investors here, who have been tracking falling property prices in Singapore closely, should also keep a wary eye on the property markets in China and Vietnam.

CapitaLand, for example, had some 30 per cent of total assets, worth $7.4 billion in all, in China, Macau and Hong Kong in the first half of 2008. The developer has more than 35,000 homes in the pipeline and stakes in over 20 million square feet of net lettable area in office and retail assets in China.

Analysts think that this exposure could prove to be a bugbear for the company in the near term.

Recent reports suggest that the fundamentals in the Chinese property sector are weakening. Construction costs have risen by around 10 per cent year-to-date. As inventory levels continue to rise, developers who deferred sales in the first half of 2008 are coming under pressure to move their units and cut prices.

Kim Eng Research, for one, recently marked down its average selling price (ASP) assumptions for China by 10-15 per cent, and downgraded CapitaLand’s stock to a ‘hold’. In the same vein, CIMB noted that a 10 per cent fall in residential selling prices will result in a 2 per cent fall in its revalued net asset value (RNAV) estimate for CapitaLand.

A weakening economy is also putting pressure on capital value estimates for CapitaLand’s commercial and retail properties. ‘Assuming the market values for all asset classes are scaled back by 10 per cent, we estimate that CapitaLand’s RNAV will fall by around 3.5 per cent,’ CIMB noted in a report.

In the same vein, Keppel Land is also similarly facing rising short-term operating risks in China and Vietnam.

About 17 per cent of KepLand’s total assets were invested in China as at end-June 2008. The developer also revealed in July - in a bid to reassure investors about the situation in Vietnam - that some $360 million, or 6.5 per cent, of group’s total assets as at the Q1 2008 - were in Vietnam, including office buildings and serviced apartments.

Another developer that is big in both China and Vietnam is Guocoland, which has more than 50 per cent of its assets overseas.

Vietnam is suffering from high inflation and a widening trade deficit, and there are fears of a dong devaluation. A liquidity crunch also means that smaller and non-reputable developers will be forced out of the market.

While Singaporean developers in China and Vietnam are neither small nor disreputable, they will be forced to cut prices if other developers do so.

Right now, none can pinpoint with any certainty where the markets in both countries are heading. But investors should bear in mind that, for several Singapore developers, the dangers could come from outside - even if the property market in Singapore stages some sort of recovery.

Rendezvous Hotels and Resorts in India joint venture

Source : Business Times - 13 Sep 2008

RENDEZVOUS Hotels & Resorts International (RHI), a subsidiary of The Straits Trading Company, has entered into a joint venture (JV) with Chennai-based developer XS Real Properties (XS Real).

RHI, which operates the iconic Rendezvous Hotel at Bras Basah Road, said the JV company called Rendezvous India Hospitality Pte Ltd will manage hotels and resorts in India.

Recent Indian government estimates put demand for additional hotel rooms to be about 150,000 rooms in areas such as Mumbai, Delhi and Chennai.

RHI will own 51 per cent of the JV company and will open and operate hotels under its management.

XS Real is expected to introduce new business opportunities to the JV company.

On its latest venture, RHI chief executive Alan Featherby said: ‘This complements our recently announced move into the Middle East and supports our already strong growth in other regional areas, particularly China, South-east Asia and Australia.’

XS Real vice-chairman SG Prabhakaran added that with an acute shortage of hotel rooms in India, across the mid and luxury segment, the JV company hopes to bring in two brands - Rendezvous and Marque - to address the needs of this segment.

Mr Prabhakaran added that the entry into this field will see XS Real move up the value chain and use its expertise in building and construction for asset management.

He added: ‘Stand-alone hotels which are not able to retain their market share for the lack of a brand, international expertise, network would be the ideal partners to enter management contracts’.

Straits Trading was taken over by the Tecity group of companies earlier this year. Chew Gek Khim, who heads Tecity, is the granddaughter of the late Tan Chin Tuan, who was chairman of Straits Trading from 1965 to 1992. When she assumed the reins of the company, she said she would work with Straits Trading’s management on a strategic review to ‘take the company to new heights’.

NZ house sales slump to 26-year low

Source : Business Times - 11 Sep 2008

Sales of New Zealand houses fell to a 26-year low last month as interest rates close to a record curtailed demand for property.

Weak demand: The median house price last month fell to NZ$330,000 from NZ$350,000 a year earlier - a drop of 5.7 per cent

The number of homes sold dropped 34 per cent to 4,220 last month from 6,394 a year earlier, according to a report from the Real Estate Institute of New Zealand Inc.

The median house price dropped 5.7 per cent.

Slowing consumer spending and a plunge in the housing market tipped New Zealand’s economy into a recession in the first half of this year, prompting Reserve Bank governor Alan Bollard to cut interest rates for the first time in five years in July.

The central bank will probably cut borrowing costs again today, according to all 15 economists surveyed by Bloomberg News.

‘The underlying fundamentals for housing demand remains weak, with mortgage rates still at high levels,’ said Jane Turner, economist at ASB Bank Ltd in Auckland. ‘It is tough going for households financially, and they need interest rates to be much lower to provide any real improvement.’

An over-supply of houses in the market will weigh on prices, she said.

Buyers are staying on the sidelines, forcing vendors to either take their property off the market or accept a lower price.

‘Economists are on the money with predictions of a 5-10 per cent decrease’ in prices, said Murray Cleland, national president of the institute. ‘Much will depend on the Reserve Bank’s decision. The expected decrease will take the pressure off mortgage costs.’

The median house price fell to NZ$330,000 (S$316,509) from NZ$350,000 a year earlier. Prices dropped NZ$10,000 from July.

The median time it took to sell a house was 55 days compared to 33 days in August last year. Still, the number of days it took to sell declined from a record-high of 58 in July.

Ms Turner said that wet weather last month may have added to the slump in sales, keeping buyers at home rather than inspecting properties.

China banks urged to monitor exposure to property sector

Source : Business Times - 4 Sep 2008

China’s banking regulator has urged lenders to stress-test the impact of a cooling real estate market and to set aside more cash to cover potential losses from property loans, local media reported yesterday.

‘Banks must closely monitor changes in the real estate market and seek to limit the impact on them from the difficulties the property industry is facing in raising funds,’ the Beijing Times quoted Liu Mingkang, head of the China Banking Regulatory Commission, as saying.

China’s banks have cut lending to the property sector, especially since late last year, in the face of stringent lending quotas and stagnant property prices in some markets.

They provided 398.8 billion yuan (S$83.6 billion) in new loans to property developers and home buyers in the first half of this year, down 30 per cent from a year earlier, according to figures from the central bank. Total loans to the property sector accounted for 18 per cent of Chinese banks’ local currency lending by the end of June, at 5.2 trillion yuan.

Mr Liu urged banks to carry out thorough estimates of their exposure to the sector and set aside more provisions to fend off systemic risks to the banking industry.

China’s property market has entered a downturn after a raft of government measures to rein in excessive price rises and investment growth. In the southern city of Shenzhen, 1.7 billion yuan in mortgage loans had turned sour by the end of June, up 13.8 per cent from the start of the year, the People’s Daily reported.

Tiger Woods Dubai masterplan unveiled

Source : Asia Property Report - 28 Aug 2008

Tiger Woods, the world´s number one golfer, today officially unveiled the new master plan for The Tiger Woods Dubai, the exclusive residential golf community development and a member of Tatweer.

Scheduled for completion in 2009, The Tiger Woods Dubai fittingly combines the vision of Tatweer with that of Tiger Woods. A world-class location designed to meet the needs of those who seek excellence and exclusivity in every dimension of their lives, it is well placed to complement the lifestyle of a financially dynamic metropolis such as Dubai.

Abdulla Al Gurg, Project Director, The Tiger Woods Dubai, said: “The Tiger Woods Dubai has become one of the most highly anticipated developments in the region. The project will stand testimony to our hard work and superior quality standards.

“Tiger Woods´ name brings enormous value to the project and we are proud to share with him some of the key developments that have taken place since he reviewed the project during his last visit.”

The Tiger Woods Dubai will encompass the first Tiger Woods designed 13 million sq feet golf course Al Ruwaya, which will offer only 200 memberships with residents of the community being given top priority. In addition, Al Ruwaya will also include a professionally-staffed golf academy, a 139,000 sq.
feet clubhouse with premium amenities and a high-end destination spa.

Currently, landscaping is in progress for the 7,800 yard, par 72 championship-quality course, which includes dramatic elevations, stunning water features and an overall design thatwill challenge and entertain golfers of all skill levels.

Tiger Woods has overseen all facets of the golf course´s design and development, contributing enormously to its distinct features. Through a choice of six tees and the careful use of topography, length, width, wind direction, hazard placement and contouring, Woods has created a unique series of holes that will test the mental toughness of a professional as much as their physical stamina, while rewarding only calculated risk taking.

Tiger Woods said: “I am proud of my partnership with Tatweer, which has excelled in developing The Tiger Woods Dubai project and bringing it to this advanced stage. With its remarkable commitment, Tatweer has demonstrated its capability to implement the project according to the scheduled timeframe.

“The master plan reflects the phenomenal dimension this project has taken since it was first conceived, and will serve to enhance its overall stature as one of the world´s most ambitious developments. The design of Al Ruwaya will reflect what I truly love about golf and I hope, will prove to be a challenging and strategic course for players of all levels.”

Luxury residences at The Tiger Woods Dubai will include 22 palaces, 75 mansions, and 100 signature villas. All residences will be situated on large land areas: palaces (100,000 sq. ft), mansions (50,000 sq. ft), large villas (30,000 sq. ft) and will include cutting-edge home technology and exquisite landscaped gardens. While master guidelines have been carefully chosen to ensure that the entire community enjoys amenities of the highest standards of quality and consistency.

The 360,000 sq. feet luxury boutique hotel will include 90 suites and 14 bungalows in sizes varying from 1,600-9,500 sq. feet. The hotel will target top-tier clientele and boasts a 10,000 sq. feet swimming pool, as well as one of Dubai´s most exquisite spas. The interiors of the hotel will be designed by renowned Lebanese designer Elie Saab and reflect his personalized style that is defined by a fusion of simplicity, luxury and modernism.

In addition The Tiger Woods Dubai will also feature a Guy Savoy restaurant and an upscale retail area for residents, members, and guests.

New Dubai registration law to curb speculation

Source : Business Times - 28 Aug 2008

Sales of unfinished properties must be registered before they can be resold

Dubai has issued a new law to regulate the sale of real estate still under construction in an effort to curb speculation that has sent property prices in the Gulf Arab emirate skyrocketing, an official said on Tuesday.

Under the law issued this week, sales of off-plan properties in Dubai must be registered with the department before they can be resold, Marwan bin Ghalita, chief executive of the Dubai Real Estate Regulatory Authority (RERA), said.

Standard Chartered Bank warned in July that Dubai’s property market showed signs of overheating as speculators betting on quick gains inflate prices of units still under construction.

‘It will help to curb speculation,’ Mr Marwan said of the mew law. ‘In Dubai we are introducing laws step by step . . . Now everything is going to be transparent because it is with the Land Department.’

Dubai property prices have surged 79 per cent since the beginning of 2007, Morgan Stanley said earlier in the month.

Demand for real estate in Dubai, home to the world’s tallest tower and three man-made islands in the shape of palms, has surged since the government first allowed foreigners to invest in properties in 2002.

The government passed a freehold property law in 2006 granting foreigners the right to own properties at selected developments.

The off-plan law follows the issuance of a mortgage law last week as part of a drive to regulate the Gulf Arab business hub’s booming real estate sector.

It will also prevent master and sub-developers from charging transfer fees on off-plan sales, Mr Marwan said. Developers however can be paid administration fees of 1,000-3,000 dirhams (S$386-1,157) for each transaction after approval by the Land Department, he said.

Property prices will probably jump 35 per cent this year and another 8.5 per cent in 2009, when they are expected to peak as Dubai takes measures to weed out short-term speculators, a Reuters poll showed on Tuesday.

The analysts said property prices would fall at least 15 per cent from peak to trough. — Reuters

Super luxury real estate development in Mumbai

Source: www.indiaprwire.com - August 27, 2008

A study of ´Super Luxury´ real estate development by Master Sun Consulting pinpoints to the new superbly profitable high end niche in India.The super luxury development & its demand is unfazed by a slow down in the real estate industry in general. Super premium housing is growing at 25-30%, luxury housing has already grabbed a 10% of the housing market in value terms. Analysts say the country has seen an unmatched surge in demand.

Super Luxury in a Growth Orbit
India, with a 20.5 per cent increase in the number of HNWIs to 100,015 recorded the second-highest growth rate in HNWIs globally, said the annual World Wealth Report by Merrill Lynch and Cap Gemini. India trailed only Singapore, where the increase in HNWIs grew by 21.2 per cent. The HNWIs are keen to flaunt their wealth & acquire prestige assets. Realizing the market for super-luxury homes, more and more developers are coming up with million dollar homes in formats ranging from condominiums and suburban town houses to golf villas. These millionaires could be professionals earning in the excess of 1 crore per annum, industrialists and businessmen. Add to this list NRIs from the US and the UK and one can conclude that super premium housing in India is on a high-growth trajectory.

Along with high disposable incomes there are other trends that are fuelling the demand for super luxury homes. Members of the joint family who are breaking away invest money from their ancestral property in new super luxury developments. Besides the super rich are upgrading from old buildings (which no amenities to speak of) to new buildings which have a pool, a gym, liftmen and a concierge, not to mention enough parking for family’s many cars.

The Mumbai’s richest live in ‘Presidential Apartments’
Presidential apartments are super-premium apartments in exclusive neighbourhoods, with oodles of space, the most luxurious of interiors, named architects, private lifts, landscaped gardens, and every facility that could be required such as a gym, swimming pool, security and CCTV, children´s play areas.

These apartments are large; typically in the 4,000 to 7,000 sq ft range, though some can go as large as 10,000 sq ft. Some of the presidential apartments have as many as 8-10 bedrooms. The prices for these average Rs 30,000-35,000 per sq feet and above. On average, 20,000 sq ft of space can cost as much as Rs 60 crore (Rs 600 million).

The characteristic feature of a presidential apartment is its privacy and exclusivity, rather than the amenities offered. So you have one apartment per floor, with the habitable floors starting from the 10th floor level or above, in order to rise above the clutter of the buildings around. Besides space, these buildings have top-notch clientele, people that each of the prospective buyers would like to associate with. Most are sold by invitation only to the chosen few to maintain the exclusivity of the community.

Super Luxury Addresses in Mumbai
The super luxury addresses in Mumbai are Nariman Point, Cuffe Parade, Napeansea Road, Colaba, Carmichael Road, Altamount Road and Worli. Some of them have been listed below.

Imperial Towers on Kambala Hill, Tardeo, South Mumbai.
Developed by Shapoorji Pallonji along with S D Corporation, Imperial Towers has two 65-storey towers. Designed by Mumbai architect Hafeez Contractor, apartments will begin only on the twelfth floor, with the first 11 reserved for parking and common utilities like a fitness centre. The Imperial offers sea-views by virtue of its height, and a resort-like gardens and fountains on top of the parking-structure podium, with hanging gardens that mask the structure itself.

Each apartment, sized 2,550-10,105 sq ft, will be designed specifically for the buyer. Brokers say the smallest flat here will cost Rs 6- 7 crores. Imperial towers have two 25,000 sq ft penthouses on top. At a conservative Rs 50,000 a sq ft, each of these penthouses could cost Rs 125 crore.

K Raheja’s Project at Altmount Road
Altamount Road, the 2-km stretch of real estate in upmarket South Mumbai, is the hottest address in Mumbai — tall trees, quiet by lanes and thick foliage.Standing tall at 36 storeys, the building on the old Chattan Bungalow site at Altamount Road, being developed by K Raheja Universal. The first 12 stories offer just amenities. The remaining 24 storey have 12 duplex apartments stacked on top of each other. Each apartment has its own huge terrace and an elevator to take the car right up to the living room. The whole building itself is on a hill, enhancing the view. The price tag is Rs.15-25 Crore.

Lodha Solitaire, on Napean Sea Road in South Mumbai
The area of Lodha Solitaire is 30,000 sq ft. The target possession is in 2008. There are 7 apartments and 1 duplex penthouse. Lodha Builders is selling a 7,200 sq ft apartment for Rs 4.32 Crore, which comes to Rs 60,000 a sq ft. The project highlights are beautiful décor and spectacular sea views. Amenities include an infinity-edge swimming pool and mini-theatre.

Lodha Bellissimo, Mahalakshmi, South Mumbai
Lodha Bellissimo is a 50 storey building, with views of the race course and Arabian Sea situated in the west and an extensive breathtaking garden in the east. Apart from the sprawling garden at the ground level, there is one garden at every four floors. This means that there are over ten flats that come with a garden and sundeck area. Since it is inviting to South Mumbai’s richest of the rich, the Lodha Bellissimo promises a three-level parking to accommodate 500 cars within the premises, with valet service for all. The project will only be ready in the middle of 2009. The flats will only be given to people ‘by invitation’.” The building will be providing 3 and 4 BHK flats at Rs. 4 to Rs. 8 crores.

Lodha Bellissimo has three phases A, B and C. While A & B are already launched and are under construction, which are expected to get complete by September 2009, Bellissimo C is set to get complete by December 2010. Bellissimo C is being sold at the rate of Rs 25,000 per sq ft. Bellissimo A & B have already been sold out.

Residents will have the luxury of access to all the ‘club facilities’, a yoga and meditation pavilion, a hi-tech gym, separate swimming pools for adults and kids, a tennis court with floodlights, squash court, multipurpose hall for basketball, volleyball and badminton, indoor games arena, a well-stocked library, a café, a banquet hall and a cricket pitch.

Villa Orb at Napeansea Road
Orbit Corporation Ltd is set to deliver Villa Orb, an extravaganza costing Rs 55,000-Rs 60,000 a square feet along the upscale Napeansea Road, Mumbai beachfront.Villa Orb consists of seven apartments of 7,500 sq ft each with one apartment per floor. There are eight floors to park over 80 cars.A top floor penthouse will make up a total of eight residential floors of the 18-storeyed super structure, which will also house a gym, squash court, snooker and table tennis tables, swimming pool and health club on the 9th and 10th floor. The façade will have a cladding of Italian marble. An air-conditioned lobby, piped music in common area and a 24- hour concierge system make up the rest.

Clients are offered a bare shell structure to opt for the number of bedrooms they prefer — either four or five. The concept of relating the number of parking slots to the number of built-up units appears to be of a bygone era here. “It’s one for each bedroom we are thinking of, if not more,” says Mr Yadav. Moreover, the company claims to be first in using stainless steel in reinforcement

Investing in India’s real estate sector

Source : Business Times - 27 Aug 2008

INVESTMENT in the Indian real estate sector continues to grow, albeit the pace may be slowing just a little. Foreign developers as well as private equity funds remain bullish, long-term, on India’s property market.

Not only is investment flowing into the ‘first-tier’ cities, but attractive real-estate deals are also being negotiated and signed in ’second-tier’ cities such as Indore, Jaipur and Cochin.

From a foreign investor’s perspective, the recent correction in real estate prices in some parts of India is good news in that it could result in land being available at attractive values.

But although Indian property may make an attractive investment for foreign investors, it is important that they address some of the regulatory issues prior to making an investment.

According to India’s current foreign direct investment (FDI) policy, 100 per cent FDI is allowed under the automatic route - that is, without requiring government approval - for the construction and development projects that include housing, commercial premises, resorts, educational institutions, recreational facilities, city and regional-level infrastructure and townships.

But this is subject to certain conditions:

~ Minimum area for development under each project should be:

i) 10ha in the case of services housing plots; or

ii) 50,000 sq m in the case of construction development projects.

iii) In case the project is a combination of the two, any one of the two conditions would have to be met.

~ Minimum capitalisation of US$10 million for wholly owned subsidiaries and US$5 million for joint ventures with Indian parties.

~ The funds have to be brought in within six months of commencement of business of the company.

~ The original investment is subject to a lock-in period of three years from the completion of minimum capitalisation.

~ At least 50 per cent of the project must be developed within a period of five years from the date of obtaining all statutory clearances.

~ Investors would not be permitted to sell undeveloped plots.

Though the investment policy seems straightforward, investors still need to address some key issues and comply with other regulatory requirements.

For example, when it comes to funding, India’s exchange control regulations permit external commercial borrowings (ECBs) - that is, commercial loans in the form of bank loans, buyers’ credits, suppliers’ credits, and loans from shareholders.

There are several restrictions on the end use of ECB funds. One of these is that the proceeds of ECBs cannot be used for the purpose of acquiring real estate in India. Accordingly, ECBs cannot be used for real estate development in India.

Preference shares are also considered as ECBs and, likewise, cannot be used to invest in a real estate project in India.

The only exception is the use of compulsory convertible preference shares or fully and mandatorily convertible debentures, which would be treated as part of equity and would be considered as FDI.

Therefore, apart from pure equity funding, only compulsory convertible preference shares and fully and mandatorily convertible debentures can be used. This would tend to minimise the options available for funding a project in India because all funds would have to be in the form of equity or instruments which can be converted into equity.

As per the FDI regulations, a foreign investor’s original investment ‘cannot be repatriated before a period of three years from completion of minimum capitalisation’.

Original investment

The question therefore arises as to the meaning of the term ‘original investment’. Should the term be interpreted as ‘minimum capitalisation’ or should it be interpreted to mean the funds brought into the company in the first six months?

Since the term is not defined, it becomes important to have a correct interpretation, as the ‘original investment’ is subject to a three-year lock-in period. The view that seems to be emerging is that funds brought into the company in the initial six months - that is, the minimum capitalisation of the commencement of business - is the original investment and subject to the lock-in period.

However, the risk is that if an amount in excess of the minimum capitalisation is invested during the first six months, the entire amount would be treated as ‘original investment’ and would be subject to lock-in. To minimise this risk, only funds to the extent of minimum capitalisation should be invested during the first six months.

Investors in real estate have to bring the funds into India within six months of ‘commencement of business’. Again, the term ‘commencement of business’ has not been defined. It can be interpreted in various ways; for instance, in the construction business it could mean the point at which construction actually commences.

The view emerging from Indian regulators is that the term ‘commencement of business’ means when the shareholders agreement or joint venture agreement is signed. Accordingly, the funds have to be invested within six months upon signing the agreement.

Finally, there are questions surrounding partially completed projects. The FDI guidelines do not clarify whether FDI would be permitted into these.

The question would arise as to the meaning of ‘partially developed’. In this connection the view appears to be that if the project is less than 25 per cent complete, FDI would be permitted. However, in this case it may be prudent to seek prior approval of the Foreign Investment Promotion Board before making an investment.

Given the fact that India desperately needs good-quality housing and commercial space, the current slowdown in deals in India is likely to be temporary.

In due course, growth in the Indian real estate sector will resume with more acquisitions and consolidation. But foreign investors planning to enter India’s real estate sector need to address a number of regulatory issues before they go in.

The writer is the head of tax of BDO Raffles in Singapore. The views expressed in this article are his own

Rate cut relief but it’s no panacea for Aussie Reits

Source : Business Times - 26 Aug 2008

With Australia poised to cut interest rates, beleaguered property trusts could see their rental yields become more attractive, but the bad news flow that has battered the sector may rumble on.

Australia’s highly leveraged real estate investment trusts (Reits) have suffered as the global credit crunch lifted borrowing rates and raised questions about a practice of using non-rental income to boost dividend payments.

With debt spreads widening to about 110 basis points from 50 basis points six months ago, GPT Group, Mirvac Group and Babcock & Brown Ltd have issued profit warnings and seen their share prices dive.

Centro Properties Group set off the bearish mood when concerns about debt refinancing emerged early this year.

The property index has lost 42 per cent since a peak last October, but has picked up over 20 per cent since mid-July.

Some analysts say the sector is still 20 per cent undervalued, and rate cuts would ease pressure on the securities, which pay most of their rent to investors as dividends.

After more than a decade of expansion backed by a commodity boom, Australia’s economy is now seeing signs of weakness, with consumer spending sapped by rising fuel and mortgage costs.

The Reserve Bank of Australia (RBA), the central bank, has said it would not wait for inflation to fall before lowering interest rates, giving the clearest indication it would ease monetary policy next month.

‘As the RBA begins the easing cycle, this will make Reits more attractive from a yield perspective,’ said Merrill Lynch analyst John P Kim.

The weighted average dividend yield for Australian Reits is 7.8 per cent, slightly above the central bank’s cash target rate of 7.25 per cent and compared with a 10-year government bond yield of 5.8 per cent .

‘The large-cap A-Reits will benefit the most, as equity and global property investors revisit the sector, now that one of the major headwinds against the industry appears to be headed for a reversal,’ Mr Kim added.

During the last two periods of falling interest rates, in 1996-98 and in 2001, Reit prices rose 6.7 per cent in the following 12 months, according to UBS.

UBS says groups active in residential development or which have large domestic floating debt exposure should benefit most, pointing to Stockland Group and Mirvac as examples.

Affordability has become an issue for Australia’s nearly A$3 trillion (S$3.7 trillion) residential market. Home prices have jumped five-fold in 20 years, while household income has only doubled, so lower borrowing costs should offer homebuyers some relief.

But even if the central bank cuts its policy rate, lenders could still be reluctant to adjust their views of risk for property trusts, said Clement Chong, vice-president and senior analyst for Moody’s Investors Service.

‘One has to wonder whether the cut in the funding cost will be passed on to corporate borrowers,’ Mr Chong said. ‘It’s a bit hard to build a rate-cuts case at this point.’

In May, Moody’s said it maintained a stable outlook on the ratings of Australian Reits over the next 12 months, but warned that a challenging credit environment and softening property fundamentals in some overseas markets were risks.

Dugald Higgins, associate director for property research firm Property Investment Research, said a deteriorating global economy could hurt Reit earnings, as commercial property values and rents suffer in Australia and the United States, where many Australian trusts own shopping malls, offices and warehouses.

‘It will only take a piece of bad news to hit the market and I imagine we will see a lot of people jump ship again,’ he said.

‘Valuations, fundamentals are still pretty much out the window and have been in the last six months and I don’t see that changing a lot throughout the rest of this year.’

Last week, Babcock & Brown, which has listed real estate vehicles, saw its share prices tumble after a profit warning due partly to revaluation of real estate assets. Babcock & Brown shares have crashed to below A$4 from almost A$35 in June 2007.

Office vacancy rates in Australia crept higher in July, prompting property executives to predict the global credit crunch will take its toll on rents and the value of buildings.

As the market braces for Reits’ earnings announcements, investors will watch property valuations to see whether the trusts apply mark-to-market accounting.

The practice, which has gained ground in Britain, relies on indices rather than appraisals of individual buildings, and allows companies to adjust their asset valuations faster.

‘Typically in Australia, we’ve still got six monthly valuations,’ said Tim Nation, director of international investment at DTZ.

‘It just inherently slows down the ability for asset values to reflect where the market thinks the pricing should be.’ - Reuters

UAE mortgage market seen growing 220% in next 3 years

Source : Business Times - 26 Aug 2008

The mortgage market of the oil-rich United Arab Emirates (UAE) is projected to grow 220 per cent to 64 billion dirhams (S$24.7 billion) in the next three years, local newspaper Gulf News reported yesterday.

According to a study by the Dubai-based real estate company Bonyan International Investment Group, syariah-compliant house financing will make up more than 60 per cent of the figure.

The UAE is viewed by global investors as the best market for capital gains growth, and has been identified as the only Gulf country to witness an increase in consumer confidence for the second half of this year, Bonyan said.

‘This can be attributed to the UAE’s pioneering move to allow foreigners to invest in local property, which created outstanding opportunities for world-class developers to attract investors to the country,’ it noted.

Capital gains and income yields have been much higher in the UAE than most other international property markets, with investors acquiring investments with no personal income or capital gains taxes.

The UAE has seen a boom in its real estate sector since 2002, when Dubai, the UAE’s commercial and financial hub, gave foreign investors the green light to buy property on a freehold basis.

The government of Dubai issued a 35-article mortgage law last Tuesday in a bid to regulate the emirate’s booming real estate market. — Xinhua