Tuesday, April 7, 2009

Foreclosures Put Tenants At Risk

Source : The Business Times, April 7, 2009

California banks unwilling to be landlords are evicting tenants

(SAN FRANCISCO) Laura Hecox was baffled when an officer from the San Diego County sheriff's department came to her home in February and said she was being evicted. She hadn't missed a rent payment on her four-bedroom house since moving there a year-and-a-half earlier.

In a fix: If banks in California were to rent all of last year's foreclosed rental properties - estimated at 81,500 units - they could collect more than US$1b in annual rent, based on the median rent in 2007

'They told me to leave, to get a few things together,' said Ms Hecox, 37, who lives with and supports her four kids and mother. 'I got booted out just like that.'

Ms Hecox didn't know the home she was renting in Chula Vista, California, about 10 miles north of the Mexican border, was in foreclosure because her landlord was a year behind on mortgage payments.

The new owner was a group of investors led by JPMorgan Chase, the third- biggest US home lender.

In California, home to the most foreclosures in the country last year and about 5 million renter households, residents who are current on rent payments face eviction by banks unwilling to be landlords. At least one-third of the state's 267,000 foreclosure sales in 2008 were rental units, said Dean Preston, executive director of Tenants Together, a San Francisco- based non-profit group for renters' rights.

While thousands of tenants search for places to live, banks are losing out on the potential to collect monthly rent cheques and flooding the market with empty houses that are declining in value. That's because they don't have the infrastructure or staff to deal with rental buildings, said William Acheson, an analyst at Benchmark Co LLC in New York.

'Banks are notoriously bad property managers,' said Mr Acheson, who tracks real estate investment trusts. 'If they can sell them at a 60 per cent discount, they will.'

Bank of America, JPMorgan and Wells Fargo account for more than half of residential mortgages nationally, and are the biggest home lenders in California, according to Inside Mortgage Finance, a Bethesda, Maryland-based newsletter. All three are facing surging defaults from tumbling home prices and the highest unemployment in a quarter century.

'We don't have the capacity to be long-term landlords,' said JPMorgan spokesman Gary Kishner in response to a question about Ms Hecox. 'We work with tenants on their transition from a property and that may include cash for keys.' The bank said it placed an eviction notice on Ms Hecox's door in September. It was addressed to the landlord and 'all others in possession,' according a copy of the document.

More than 20 per cent of properties in the US facing foreclosure are rentals, according to a December report from the National Low Income Housing Coalition in Washington. Renters make up about 40 per cent of families facing eviction.

In California, more than 225,000 people in rental units lived in properties that went through foreclosure last year, according to a March 31 report from Tenants Together. The group estimates they occupied about 81,500 units.

Were banks to rent all those properties, they could collect more than US$1 billion in annual rent, based on the median California rent in 2007, according to the US Census Bureau.

Ms Hecox, who works the overnight shift at a job-referral service, was met at her front door in the early afternoon on Tuesday, Feb 24, by an officer from the sheriff's department and a real estate agent. They told her the home had been sold at an auction and she needed to leave. Ms Hecox had been paying US$2,250 a month, half from government assistance.

The property was taken back by the lenders on Aug 29 at an appraised value of US$243,000, 60 per cent less than the outstanding balance on the mortgage, according to the trustee's deed. JPMorgan's Washington Mutual Inc unit serviced the loan, which had been wrapped up into a security, and now has the property in its name.

Officers serve eviction notices when ordered by the court and aren't responsible for determining who occupies a property, said San Diego County Assistant Sheriff Kim Quaco. He said an eviction notice was posted on Ms Hecox's door 11 days before she was forced to leave.

Fannie Mae and Freddie Mac, the mortgage-finance companies under federal control, have formal policies for renting to tenants. Starting in January, the companies hired property managers to reach out to renters and offer them new leases at market rates.

Management fees equal about 10 per cent of a renter's monthly payments, said Norman Miller, professor of real estate at the University of San Diego.

The costs are outweighed by the economic benefits, which include the income stream from monthly cheques and the upkeep provided by renters, according to Freddie Mac spokesman Brad German, who said about 20 per cent of the 29,000 properties that they own nationwide are occupied by a former owner or renter.

'Vacant properties can be magnets for vandalism and crime and also have a negative effect on property values in the immediate vicinity,' said Mr German.

Rising delinquencies contributed to fourth-quarter losses at Charlotte, North Carolina-based Bank of America, which owns Countrywide Financial Corp, and at San Francisco- based Wells Fargo, owner of Wachovia Corp. JPMorgan, in New York, recorded a 76 per cent fall in profit.

Bank of America spokeswoman Jumana Bauwens said the company follows Freddie and Fannie policies on any of their loans it services and is examining the programmes to see if they are 'viable for our organisation.'

Wells Fargo spokesman Kevin Waetke, referring to a document released by the bank in April 2008, said the bank deals with renters on a case-by-case basis. It doesn't have a 'summary eviction' policy, he said.

Most California cities require new owners give tenants 30-60 days to move, according to the state Department of Consumer Affairs. - Bloomberg

Sentosa Dream Gets Hazy

Source : The Business Times, April 6, 2009

Fewer than 1,000 homes at Sentosa Cove are likely to be completed by end of 2009; several developers are delaying their projects further

It was supposed to be Asia's answer to glitzy Monaco, but plans to remake Sentosa into an island playground where rich foreigners and locals live and play are going to take longer than expected to materialise.

While key hotel projects and the Resorts World at Sentosa integrated resort are largely on schedule, things are not going as well at Sentosa Cove, the stretch of land on the island set aside for mainly residential use.

The plan was for some 2,500 oceanfront villas, waterway bungalows, hillside mansions and upscale condominiums to be built on the 117-hectare site. Earlier projections were that the bulk of the new homes would be ready by 2010.

But industry sources now say fewer than 1,000 homes are likely to be completed by the end of this year, and several developers are expected to delay their projects further.

City Developments, for example, has postponed its $580 million project comprising luxury apartments, shops and a five-star, 320-room Westin Hotel, originally slated to open this year.

One problem is that sales and prices of new homes on the island have dropped sharply in the last two quarters, exacerbated by the number of foreigners leaving Singapore.

Sentosa Cove was popular with foreigners as they could get permission to own land there with relative ease.

'The bulk of purchasers of luxury homes, both on the mainland and on Sentosa, were foreigners,' said Tay Huey Ying, director for research and advisory at Colliers International.

Colliers' data, based on caveats lodged, shows that only one non-landed residential unit in Sentosa was sold in Q4 2008. In the first three months of this year, the number rose slightly to eight.

This is a far cry from transaction volumes at the height of the property boom in 2007. In Q1 2007, some 279 non-landed homes were sold in Sentosa. In Q2 that year, the transaction volume was 243.

Prices have also come down. Colliers' data shows that the transacted price of non-landed properties at Sentosa Cove averaged $1,318 per square foot (psf) in Q1 2009 - down 45.8 per cent from the peak average of $2,431 psf recorded exactly one year ago in Q1 2008.

It should be noted, however, that these averages are based on small transaction volumes of eight units for Q1 2009, and 33 units for Q1 2008.

Occupancy levels are low too. Even for properties that are completed and fully sold, not every unit is occupied, said Nicholas Mak, director of research and consultancy at Knight Frank. At the fully sold The Berth by the Cove, which obtained its temporary occupation permit in 2006, occupancy is at 93-94 per cent, but market watchers say islandwide, the occupancy levels are much lower.

The picture is, however, somewhat brighter for other new and upcoming developments on the island.

Luxury hotel Capella Singapore, which opened its doors last week, is seeing strong demand - despite the fact that room rates start at $750. 'Response in our first week has been very positive, with an average of about 70 rooms per night,' revealed general manager Michael Luible. The hotel has 111 rooms.

Mr Luible acknowledged that the hotel would not escape the effects of the economic slowdown, but pointed out that its guests are high net worth individuals who will continue to travel. 'We will, of course, monitor the economic situation carefully and plan our strategies accordingly,' he added.

Resorts World at Sentosa remains on-track for its soft opening, which will see Universal Studios, four of its six hotels as well as the casino ready in Q1 2010.

The four hotels - Hotel Michael, Maxims Tower, Festive Hotel and Hard Rock Hotel - will add about 1,350 rooms to Singapore's inventory. The rest of the resort, which includes a spa and Maritime Museum, will open progressively thereafter.

Indeed, hopes are now pinned on the integrated resort which is designed to draw in visitors.

According to Suzanne Ho, deputy director of communications for Sentosa, foreign visitor arrivals have dipped since last September, in line with the downward trend of tourist arrivals into Singapore.

The lower visitor numbers are affecting food and beverage operators adversely. Ken Hasegawa, manager of Japanese restaurant Si Bon, reckoned that revenue has fallen by about 20 per cent recently.

Similarly, at Cool Deck, a bar along Siloso Beach, business is slow. Selina Huang, Cool Deck's assistant manager, attributed the decrease to falling tourist arrivals. Just three months ago, close to 90 per cent of the bar's clientele were tourists, most of whom stayed at the Rasa Sentosa Hotel. Now, only 40 per cent of patrons are tourists, she noted.

The decrease in demand is prompting some outlets to modify their pricing. Even il Lido Italian Restaurant has cut prices by about 20 per cent on average in response to a 40 to 50 per cent decrease in revenue over the past three months. Its seven-course meal now costs $120 instead of $180, and it has removed some expensive items - such as truffles and caviar - from the menu.

'Resistance Level' For Condo-Style HDB Flats: $500,000

Source : The Straits Times, April 7, 2009

Few takers likely above this price due to weak market and restrictions

THE tightening property market and demand for smaller homes have created a dilemma for the HDB's design, build and sell scheme (DBSS) - price flats over $500,000 and buyers could stay away.

That price point has been cited as the 'resistance level' for home seekers with less cash to spend but a wealth of options in a buyer's market.

Experts said DBSS homes - public flats designed, built and sold by private developers - are sandwiched in a fast- narrowing price gap between private condominiums and HDB flats.

Natura Loft in Bishan recently ran big ads for its unsold units. -- LIANHE ZAOBAO FILE PHOTO.

To move units, these condo-style homes will have to be priced at about $500,000 or less - under an equivalent- sized flat in a private condo - but that may erode any profits for the developers.

'These are the same people who will buy your resale HDB flat,' said Knight Frank director Nicholas Mak.

PropNex chief executive Mohamed Ismail agreed: 'The resistance level of HDB buyers is around the $500,000 level. If they are going to be priced above $450 per sq ft (psf), they may face resistance.

'Buyers may head for the private market where they can get better value for $500 psf to just below $600 psf.'

Mass-market condos that offer full facilities, such as Rosewood Suites in Woodlands and Caspian in Jurong, have units in that price range. Developers have lowered their prices of some mass-market projects by 20 to 25 per cent while HDB resale prices are also falling, though at a slower pace.

Two DBSS projects are expected to be released for sale this month. The first is a 1,203-unit project in Toa Payoh with three-, four- and five-room flats.

And Parc Lumiere in Simei will have 360 units - 120 four-room and 240 five- room flats. A Hoi Hup-led consortium won the tender for the Toa Payoh site at about $160 psf per plot ratio last August, while Sim Lian won the Simei site at $137 psf last June.

Mr Mak estimated the break-even price of the Toa Payoh project at $430 psf to $460 psf and a bit less at Parc Lumiere - $400 psf to $440 psf.

'Demand for DBSS flats depends a lot on the price,' said Associate Professor Sing Tien Foo from the National University of Singapore's real estate department.

The price has to be much lower than that for private flats as there are restrictions involved, particularly on buyers' income.

Assuming a buyer has a monthly household income of $8,000 - the ceiling for a DBSS flat purchase - and negligible savings, he could take up an 80 per cent loan over 20 years to buy a DBSS flat costing at most $550,000, he said.

The first DBSS project, launched at the end of 2006 when private condos were moving beyond the reach of many HDB upgraders, was an instant hit.

Five-room units were priced at just $308,000 to $450,000, compared with close to $700,000 and more at the other three DBSS projects. The latest - Natura Loft in Bishan - recently ran big advertisements to market its unsold units.

'There are pros and cons to buying a DBSS flat. It is good for people who do not want to pay for facilities. Condos have a lot of facilities but you have to pay a higher maintenance fee,' said Prof Sing.

The problem now is that DBSS flat developers have cost constraints and may not be able to lower their prices to a level attractive to HDB buyers, he said.

These developers rushed into the market during the boom, thinking it was a sure-win product. Their risks are keenly felt now that the market has come down considerably, experts said.

'At the end of the day, people must remember that DBSS flats are essentially an HDB product,' said Mr Mak. 'They will likely go through what ECs (executive condominiums) went through until the market recovers.'

Such condos were very hot at one point before demand slumped. 'The down market just makes it harder for DBSS to differentiate itself,' said Prof Sing.

Crunch Time For Building Sector

Source : The Straits Times, April 06 2009

Smaller firms and those relying on private projects most affected.

CONSTRUCTION firms that rely heavily on private-sector projects face tough times ahead as more property developers delay building works.

Even public spending recently earmarked for infrastructure work may not be enough to tide contractors over the slump in demand, as 60 per cent of such spending is for specialised civil engineering works which a typical contractor cannot take on.


The Government recently pledged $18 billion to $20 billion for public infrastructure works this year, and another $15 billion to $17 billion each for next year and 2011.

Of the amount, 40 per cent is for building works such as schools, hospitals and museums, said the Building and Construction Authority (BCA).

The other 60 per cent will go to civil engineering contracts such as extending the Downtown MRT Line and the widening of the expressways.

Industry experts told The Straits Times that contractors which build private residential condominiums will feel the full brunt of the global recession - likely to be after next year, when existing projects are completed.

While the private sector contributed an estimated $20 billion in construction demand last year, this is expected to plunge to between $5 billion and $9 billion this year.

Revenue from private residential projects, in particular, is expected to drop from $6.5 billion last year to just $1.7 billion to $2.3 billion this year, said BCA.

Contractors say this figure could be worse come 2010 and beyond, and it looks like the public pie will not be big enough for everyone.

Mr Lim Yew Soon, managing director of a unit of local builder Evan Lim & Co, noted that civil engineering projects are very specialised, which 'only very few' experienced contractors can carry out.

The rest of the industry has to fight for the remaining 40 per cent of public building work, if private-sector projects all but dry up.

A check on BCA's online directory showed three times the number of contractors listed for building works - 2,751 - compared to 975 for civil engineering.

'A lot of these private projects have been shelved for obvious market reasons,' said Mr Desmond Hill, president of the Singapore Contractors Association.

'Credit is tight, and it's difficult to get financing to build projects, especially if people are not buying,' he said.

Those who strictly depend on private- sector projects may begin to get worried next year, he added, and this will have a knock-on effect on the smaller specialist sub-contractors.

Keppel Land, for example, announced recently it has deferred the construction of two projects - Marina Bay Suites in Marina Bay and Madison Residences in Bukit Timah - because of the downturn.

Late last year, a City Developments- led consortium deferred construction of the mega development South Beach on Beach Road, while developers such as GuocoLand have postponed redevelopment plans for acquired collective sale sites, and putting them back on the rental market.

'It's obvious private-sector work has dried up, there's no question about it,' said CIMB-GK Research construction industry analyst Lawrence Lye.

Even companies which have begun foundation works have been told to stop completely, he said. 'It's no surprise that everybody will now try to compete for public-sector projects.'

Firms such as Yongnam will survive the recession better as they specialise in civil engineering, and will have plenty of public-sector work, he added.

Mainboard-listed construction firms Lian Beng Group and KSH Holdings, on the other hand, are contractors that have built numerous condominiums and are now turning their eye to the public pie.

KSH Holdings recently had one of its contracts - Madison Residences - put on hold. Its executive chairman and managing director Choo Chee Onn said that currently, 50 per cent of its projects are private, and it expects to bid for more public ones in the future.

Lian Beng's executive chairman, Mr Ong Pang Aik, has a similar strategy.

Both are A1-grade contractors, a status which allows them to tender for public- sector construction projects of unlimited value.

Mr Hill estimates that construction industry revenue needs to hit $22 billion a year on average to sustain the building sector. If this demand is not there, firms might start to go under and professionals will get laid off or leave the industry, as in the last construction industry bust following the Sars crisis of 2003.

When the market eventually recovers, the industry might find itself short on local manpower, just as it did in the recent boom, he added.

All eyes are now on the market and whether developers will launch enough projects from the massive land bank they accumulated in the run-up to the 2007 property boom to sustain the industry.

CIMB-GK's Mr Lye said the bigger, fitter contractors are likely to survive the tough couple of years ahead.

Smaller firms are at greater risk. If their order book is small, all it takes is just a few cancelled or delayed projects to sink them, he said.

Property Issues Hog Spotlight

Source : The Straits Times, April 06 2009

Rising home sales and prices in both US and UK give local property developers a boost.

THE large capitalised property counters put in a good showing last week, undeterred by the news that home prices here had shrank 14 per cent in the first quarter of this year.

News that pending home sales in the United States had risen while home prices in Britain rose last month for the first time since October 2007 gave local property developers a fillip.

CapitaLand was up 11.6 per cent in just a week, rising from $2.42 to $2.70. City Developments climbed 12.6 per cent in the space of a week.

These property counters outperformed the benchmark Straits Times Index, which rose by only 4.3 per cent over the same period.

One call warrant issued by Macquarie Securities on CapitaLand would have given the holder a whopping return of 53.8 per cent. Expiring next month, with an exercise price of $2.816 and a conversion ratio of 1,000 shares to 1,657 warrants, the CapitaLand warrant rose 3.5 cents to 10 cents. But only 10,000 units changed hands for this particular warrant.

An active warrant which offered a conversion ratio of 1,000 shares to 1,657 warrants and an exercise price of $2.319 was 3.5 cents higher at 29 cents. Nearly six million units were traded.

Keppel Corp was another counter on the rise. It rose 9 per cent in just a week, closing at $5.75 on Friday. A call warrant issued by Macquarie rose 23 per cent or 1.5 cents to eight cents. About 50,000 units were traded. The warrant expires in October, has an exercise price of $6.80 and a conversion ratio of one share to 12 warrants.

A call warrant lets an investor buy into a stock or index at a preset price over three to nine months. A put warrant lets an investor sell the stock or index at a preset price.