Asian Property Markets On Investors' Radar

Source : The Business Times, November 25, 2008

Top picks are Japan, Australia, China, HK and Singapore

(HONG KONG) Asia's battered property markets are starting to attract strong interest from investors, with Japan, Australia, China, Hong Kong and Singapore among their top picks in the region.

Property fund manager LaSalle Investment Management, which raised a US$3 billion fund in August, expects Hong Kong and Singapore to recover first from the financial turmoil.

Said regional director David Edwards: 'We are seeing a decline in values throughout the region. There are properties that are being sold at much lower prices than the market's perception of their values.'

ING Real Estate plans to double its investments in Asia to US$1 billion, with most of its investors in Europe wanting to diversity into the region, said the firm's Asia-Pacific managing director, Nicholas Wong.

ING invested mostly in China and Japan, he said, and was now marketing a US$750 million fund to build Chinese housing. Several Asian markets were already 30-40 per cent off their peaks, he said.

And a Reuters poll last week found that analysts believe that Hong Kong and Singapore prices are set to fall by at least a fifth in the next year.

'Most of our clients are from the UK and Europe and traditionally, they invest only at home,' Mr Wong said. 'Now, they want global exposure and most of them want to go to Asia for diversification.'

With Hong Kong, Japan and Singapore in recession, Asian developers are battling falling demand and tighter credit, even after efforts by central banks to encourage lending by slashing key rates.

In Hong Kong, the de facto central bank has lowered its base rate twice in the last month, while in China, monetary authorities have cut borrowing costs three times since mid-September.

'The risk of bankruptcies are still higher throughout Asia and most financial institutions are not out of the woods yet,' said Kelvin Lau, economist at Standard Chartered Bank. 'That's why overall lending conditions have not yet returned to normal.'

In Japan, more than 400 small and medium-sized developers have gone out of business this year as the residential market slowed and as credit dried up. But the tough environment is not stopping property investors from prowling the region for bargains.

'The present environment is incredibly difficult. As a business, we are taking a cautious approach. But we are still looking,' said LaSalle's Mr Edwards.

LaSalle has so far invested US$10 billion in Asia and nearly half the amount is in Japan, he said. The company is also keen on Australia and China, he added.

Other investors were optimistic that some property segments would recover soon. China's ailing housing market, for instance, may stabilise in about six months and recover in two years, before most other Asian countries, said Cheng Soon Lau, managing director at Invesco Real Estate Asia.

Invesco is planning to invest directly in China, Japan, Hong Kong and Singapore, buying office blocks and building housing.

Managers of securities funds are becoming less worried that investors will withdraw money, according to Chris Reilly, director of property for Asia at Henderson Global Investors. 'Right now, there is really not much redemption,' he said. 'The cycle of redemption was more severe in the last 2007 and early 2008, the period when retail investors are quite scared.' - Reuters

British Business Spaces At Record Low Values

Source : The Business Times, November 25, 2008

Retail premises among the hardest hit as businesses struggle to pay rents

COMMERCIAL property in Britain has hit its lowest point in more than 20 years as capital values slump and the economic downturn puts pressure on business rents.

No letting up: Tenants are increasingly facing insolvency as the credit crunch in Britain rips through corporate balance sheets

Retail premises are among those hardest hit as Britain's economy heads for a sharp contraction, with businesses struggling to pay rents and in turn forcing down the value of properties.

Last month alone, commercial property prices dropped by a record 4.3 per cent compared with September, with the market overall falling by a staggering 28 per cent from a June 2007 peak.

Figures from the Investment Property Databank (IPD) have shown that in October, prices for retail, office and industrial property suffered their biggest monthly drop in 22 years.

'We have seen a pretty dramatic drop off in capital values in the commercial property sector,' explains Ed Stansfield, property economist at Capital Economics. 'What's happened is the economic outlook has taken a big hammering over the last nine months . . . and it's pushing capital values down.'

The fallout from the downturn has taken a toll on the country's biggest commercial property companies, including British Land, Capital & Regional (C&R) and Great Portland Estates.

British Land announced last week that the value of its property portfolio has slumped by more than £1 billion (S$2.28 billion) in the past six months.

C&R has warned that its tenants are facing mounting pressure from the financial crisis while Great Portland Estates, which owns numerous properties in London, said that demand from tenants looking for substantial space had dropped sharply.

Tenants are increasingly facing insolvency as the credit crunch in Britain rips through corporate balance sheets. Against this backdrop, C&R said that it has doubled its provisions for tenant defaults to £1.5 million.

Capital Economics expects the commercial sector to continue its decline for some time, with an anticipated floor of 45 per cent below the mid-2007 peak.

'We think the economy is headed for the worst recession since the 1980s, if not the post war period,' Mr Stansfield said. 'It's going to be pretty widespread.'

According to the IPD, the retail property sector has been hardest hit in terms of monthly falls in capital values, dropping by 4.7 per cent last month.

Property consultant CB Richard Ellis has also tracked a substantial decline in commercial property values, reporting that these had dropped by 4.6 per cent last month.

The CB Richard Ellis Monthly Index suggests that prices have dropped 17.6 per cent in the year to date, as prices are put in line with the gloomy economic outlook for Britain.

According to the property consultant, overall property rents fell 0.5 per cent last month. In Central London however, the figure was 2.5 per cent.

'More companies are exercising break clauses in leases,' says Mr Stansfield. 'They are also re-negotiating rents or moving to get lower rents.'

He said that London had long been considered overpriced, hence the steeper decline in values.

Cognita Wins Site To Set Up School

Source : The Business Times, November 25, 2008

Group runs more than 45 schools in UK and Spain

education group Cognita has been awarded a state site at the former Upper Serangoon Secondary School, to set up an international school.

This is the first time that a Request-for-Interest (RFI) exercise has been conducted to award state land sites for foreign system schools (FSS).

Cognita plans to set up the Stamford American International School, offering a US-based curriculum. It expects its first intake next September, with an initial 600 students. This will eventually expand to 2,500 students, easing the tight supply of FSS places offering American-style education.

Based in the United Kingdom, Cognita owns and operates over 45 independent schools in the UK and Spain.

It acquired the Australian International School of Singapore last year, and recently set up its Asian Regional Headquarters in Singapore.

The RFI exercise, which started in mid-August, saw proposals being assessed based on a matrix of factors.

These include quality of project, ability to meet market demand and investment commitment such as the ability to begin classes in academic year 2009.

'Singapore Land Authority (SLA) will work closely with Cognita to assist them to ensure that they can kickstart their operations and redevelopment plans quickly,' said Teo Cher Hian, SLA's director of Land Operations (Private).

Mr Teo added that despite the current economic climate, SLA still sees sustained demand for state properties for international schools.

To date, 19 international schools are using state properties as campuses.

New Mall In Serangron Central

Source : The Straits Times, Nov 25, 2008

Serangoon Central will have a new mall come end-2010.

Designed as an eco-friendly mall, the yet-to-be-named mall will be set amidst lush garden enclaves and landscaped sky terraces. -- PHOTO: GOLD RIDGE

The six-storey mall will be the epicentre of the integrated transport hub comprising a new 16-bay Serangoon Bus Interchange and the Serangoon MRT station.

It will offer a range of shopping and entertainment features, such as a 24-hour retail and food and beverage zone, a 10-screen cineplex. games arcade, pet lovers' enclave and unique balcony dining establishments. There will also be a 500-seat food court, a 60,000 sq ft hypermarket and a 50,000 sq ft department store.

Designed as an eco-friendly mall, the yet-to-be-named mall will be set amidst lush garden enclaves and landscaped sky terraces.

Gold Ridge - which counts institutional investors from USA and Europe as shareholders - is the developer and Pramerica Real Estate Investors (Asia) is the investment manager for the mall investors.

Total investment in the project is estimated at $1.3 billion.

Germany Is In Recession

Source : The Straits Times, Nov 25, 2008

FRANKFURT - THE German economy is in recession with the world's leading exporter falling victim to the global financial crisis, final figures from national statistics service Destatis showed on Tuesday.

Corporate investment has suffered in turn from a sharp decline in business confidence. -- PHOTO: AFP

Europe's biggest economy contracted by 0.5 per cent in the third quarter, more than expected, following a contraction of a revised 0.4 per cent in the second quarter, meeting the technical definition for a recession of consecutive quarterly negative growth.

The figure released on Tuesday matched Destatis' preliminary number for gross domestic product (GDP) provided on Nov 13.

Although Destatis noted slight improvement in domestic demand, that 'was counteracted by a highly negative trend of net exports,' it said.

The world's leading exporter has been hit by weakening activity in its major markets while domestic consumption has remained at low levels.

Corporate investment has suffered in turn from a sharp decline in business confidence.

A panel of top economists that advised the government has warned that growth would come to a halt next year, and estimated that economic activity would expand this year by 1.7 per cent.

UniCredit Markets chief German economist Andreas Rees commented that 'the latest GDP components offered a bitter foretaste of what lies ahead for German companies and consumers alike in 2009.

He expected the German recession to last until mid 2009.

'Moreover, we do not want to put lipstick on a pig,' Mr Rees added.

'There is no upside, but a lot of downside risk to our forecast. Accordingly, we expect the German economy to shrink 0.9 per cent (or more) in 2009 which would be the worst performance since the 1950s.' -- AFP

China Growth To Slow

Source : The Straits Times, Nov 25, 2008

The World Bank predicts China's GDP to slow to around 7.5% in 2009.

BEIJING - CHINA'S growth will slow to 7.5 per cent next year - the lowest rate since 1990 - as the global financial crisis takes a greater toll on the world's fourth-largest economy, the World Bank said on Tuesday.

China's downturn - signs of which emerged in the third quarter - will worsen in the first half of 2009 as exports weaken, World Bank economist Louis Kuijs said as the bank issued a quarterly economic report. -- PHOTO: BLOOMBERG

The multilateral lender cut its forecast for 2009 growth from 9.2 per cent but said Beijing's multibillion-dollar stimulus plan will help smooth the sharp edges of steep declines in global and domestic demand. It expects 9.4 per cent growth this year.

China's downturn - signs of which emerged in the third quarter - will worsen in the first half of 2009 as exports weaken, World Bank economist Louis Kuijs said as the bank issued a quarterly economic report.

The country has been relatively unaffected by the global crisis so far because its banks are healthy and exports are strong but 'we will see that impact intensify in 2009,' Mr Kuijs said.

Conditions should improve later in 2009 but any firm forecast was difficult amid the global turmoil, he said.

Beijing's stimulus plan announced on Nov 9 should help to shield China from the global downturn by buoying growth and employment, said the World Bank's China representative, Mr David Dollar. The US$586 billion (S$888 billion) plan calls for injecting money into the economy through spending on construction, tax cuts and aid to the poor and farmers.

'We are confident that China has the tools to keep its growth rate at a healthy level and most importantly to create about the number of jobs it needs,' Mr Dollar said.

Beijing announced the stimulus after China's growth slowed to 9 per cent in the latest quarter from 11.9 per cent last year. The unexpectedly sharp downturn alarmed communist leaders, who worry about job losses - especially in export industries, which have been hit hard by weak global demand - and possible unrest.

If China's growth next year falls to the World Bank's projected 7.5 per cent, it would be the weakest since 1990's 3.8 per cent rate and just below the 7.6 per cent reported in 1999.

The World Bank forecast is in line with projections by investment banks, which have cut their China outlook several times as global conditions worsened.

Mr Kuijs said Beijing has room to cut interest rates further and needs to take additional steps to stimulate growth as spending by consumers and companies weakens.

'We feel that confidence and fundamentals for the private sector have weakened quite a bit over the past half-year. We are less optimistic about private sector consumption than we were a half-year ago,' he said.

Weaker export prospects and a sharp downturn in real estate sales have made private companies reluctant to expand and hire new workers, Mr Kuijs said.

Mr Dollar and Mr Kuijs said Beijing's promise of more spending on social programmes and aid to the poor countryside should help to boost growth. The stimulus is meant to boost consumer spending, but analysts say the key to doing that will be to ease the financial worries of Chinese families, which save heavily to pay for health, schooling and retirement.

'Our view is that additional money put into rural health and education and rural minimum income support program would be effective fiscal stimulus and would help to improve the quality of life in the countryside,' Mr Dollar said.

He also said Beijing is talking with the World Bank about providing financing for loans to other developing countries.

Mr Dollar said the talks were at an early stage and he could not give any other details.

'The World Bank group is talking to China about ways in which it could contribute some additional financing to the World Bank group that would help developing countries. But that's at an early stage,' he said.

'It would involve China directly or indirectly lending money to other developing countries.'

British Prime Minister Gordon Brown and other leaders have appealed to Beijing to use part of its US$1.9 trillion in reserves to help expand a loan fund for countries hurt by the financial crisis.

China has promised to cooperate with international efforts but has yet to say whether it will offer financial help. -- AP

Crisis Hits Office Rents

Source : The Straits Times, Nov 25, 2008

OFFICE rents in London's West End, midtown Manhattan and Tokyo fell in the third quarter for the first time in almost seven years as the global financial crisis cut demand, CB Richard Ellis Group said.

'London's West End or places that are showing declines right now are the leading edge of what's going to happen the next six months, obviously,' Mr Torto said. -- PHOTO: BLOOMBERG

The total office occupancy cost in the West End was 139.50 pounds (S$319.50) per square foot a year in the 12 months ended Sept 30, down 5.1 per cent from a year earlier, Los Angeles-based CB Richard Ellis said on Tuesday in its semi-annual global-office survey.

Rents in London, midtown Manhattan and central Tokyo last fell from a year earlier in January 2002, during the last recession, Bloomberg news reported.

Rents fell in the three cities as the economic crisis dampened demand for space among banks and investment companies.

Rents worldwide are likely to fall for the rest of this year and the first quarter of 2009 as the financial crisis spreads throughout the world's economies, Mr Raymond Torto, CB Richard Ellis's global chief economist, said in an interview with Bloomberg.

'London's West End or places that are showing declines right now are the leading edge of what's going to happen the next six months, obviously,' Mr Torto said.

Even as financial centers showed declines, office costs in the 172 markets CB Richard Ellis tracks increased 8 per cent on average in the past year, almost double the global inflation rate. Three of the five fastest-growing cities were in the Middle East, with costs up the most in Abu Dhabi, with a 95 per cent rise.

'You've got a lot of places that are not feeling the effects of the financial crisis,' Mr Torto said. 'Not every place is a financial centre.'

Tokyo, Manhattan
Total office occupancy costs dropped 5.3 per cent to US$184.26 (S$279.30) per square foot annually in central Tokyo, and 9.9 per cent to US$151.69 in outlying wards of Tokyo, said CB Richard Ellis, the world's largest commercial real estate brokerage.

In midtown Manhattan, they dropped 2.7 per cent to US$98.08. Total office occupancy costs are rents plus other service charges by landlords.

Even with the rent decline, London's West End remained the world's most expensive office market in the third quarter, CB Richard Ellis said. It was followed by Moscow, where office costs rose 30 per cent to US$234.73 a square foot, and Hong Kong's central business district, where they rose 29 per cent to US$231.59.

Tokyo gains
Central Tokyo was the fourth most expensive office market in the third quarter, followed by Mumbai's central business district, with annual occupancy costs of US$170.85 a square foot; Dubai, at US$156.53; Tokyo's outer wards; London; Singapore, at US$135.13; Hong Kong's prime districts, at US$132.97; and Abu Dhabi.

Among the 50 office markets with the fastest-growing office costs, only nine were in North America in the third quarter, down from 15 when CB Richard Ellis last reported rankings six months ago. 'The slowing economic situation in North America has started to dampen occupancy cost growth rates,' CB Richard Ellis said in today's report.

The Asia Pacific region had the fastest growth in office costs in the third quarter, with an average increase of 26 per cent, CB Richard Ellis said.

Ho Chi Minh City, Vietnam, had the fastest growth in rents worldwide after Abu Dhabi, with total occupancy costs rising 51 per cent to US$92.83 in the third quarter, the brokerage said.

'Places like Abu Dhabi or Ho Chi Minh City, there is a theme to why they're at the top of the list,' Mr Torto said.

'The theme is that they're new places for financial markets. They don't have a lot of quality space, and the little bit that there is, is wildly bid up.'