Wednesday, May 6, 2009

Q1 Aussie Home Prices Dive On Low Demand

Source : The Business Times, May 5, 2009

Index measuring the weighted average of house values fell 6.7% from 2008

(SYDNEY) Australian house prices fell by a record annual amount in the three months through March as the nation's first recession since 1991 and surging unemployment sapped demand for property.

Cheaper property: A sign advertising a home for sale in Perth. Australia's biggest quarterly drop was in Perth, where prices fell 10.1per cent in the first quarter from a year earlier

An index measuring the weighted average of prices for established houses in the eight capital cities slumped 6.7 per cent from a year earlier, after dropping a revised 3.9 per cent in the fourth quarter, the Australian Bureau of Statistics said in Sydney yesterday. It was the biggest decline since the bureau began recording prices in 1986.

To prevent Australia's property market suffering a US-style slump as the nation enters its first recession in two decades, central bank governor Glenn Stevens cut borrowing costs last month to a 49-year low of 3 per cent. The government also tried to stoke demand for homes by increasing grants in October for first-time buyers to as much as A$21,000 (S$22,914).

'It's a sizeable drop and isn't surprising,' said Matt Robinson, an economist at Moody's in Sydney. 'We had a period where people just didn't know how bad things were going to get, and no amount of monetary policy stimulus and first-home-owners grants were going to encourage them to buy.'

The Australian dollar traded at 73.68 US cents at 12.42 pm in Sydney from 73.59 cents just before the report was released. The two-year government bond yield was unchanged at 3.26 per cent.

Prices fell 2.2 per cent from the fourth quarter, when they declined a revised 1.2 per cent. The median estimate of 15 economists surveyed by Bloomberg News was for no change. Economists also forecast a 3.9 per cent annual decrease.

While annual declines in Australian house prices have accelerated since the December quarter, falls in the UK have slowed. The average cost of a home in England and Wales fell 0.3 per cent in April, the smallest drop in 12 months, Hometrack Ltd said on April 27. Prices fell 10.1 per cent from a year earlier, after sliding an annual 10.3 per cent in March.

The drop in home prices in the 20 major US cities slowed in February for the first time since 2007. The S&P/Case-Shiller index's 18.6 per cent decrease compared with a record 19 per cent decline the month before.

Australia's biggest quarterly drop was in Perth, where prices fell 10.1 per cent in the first quarter from a year earlier. Prices fell 7.3 per cent in Sydney, 6.7 per cent in Melbourne, 6.3 per cent in Brisbane, 5.1 per cent in Canberra and 1.9 per cent in Adelaide. Darwin rose 10.8 per cent and Hobart increased 0.6 per cent.

'Our forecast is for house prices to fall 10 per cent from peak to trough' in Australia, said Helen Kevans, an economist at JPMorgan Chase & Co in Sydney. 'The acute shortage of new homes and accelerating population growth will, however, prevent falls similar to those in weaker offshore markets.'

Demand for property may be curbed as the unemployment rate climbs.

The jobless rate probably rose to 5.9 per cent last month, the highest level in almost six years, according to the median forecast of 19 economists surveyed by Bloomberg News. The employment figures will be released on May 7.

A separate report published yesterday by Australia & New Zealand Banking Group Ltd showed job advertisements in newspapers and on the Internet tumbled 7.5 per cent in April, taking the decline from a year earlier to a record 49.9 per cent.

The worsening employment market also shows signs of eroding pricing power for landlords. TD Securities Ltd said yesterday that rents fell 2 per cent in April, after sliding by around 3 per cent in the previous two months.

Mr Stevens and his board will keep the overnight cash rate target at 3 per cent today to gauge whether a record 4.25 percentage points of rate cuts since early September and government spending will spur the economy out of a recession, according to 18 of 19 economists surveyed by Bloomberg. -- Bloomberg

UAE Grants Multi-Entry Visas To Foreign Homeowners

Source : The Business Times, May 5, 2009

(DUBAI) The United Arab Emirates (UAE) said it would grant expatriate homeowners multiple-entry visit visas enabling them to stay six months at a time if they own properties worth at least one million dirhams (S$402,061).

Much-awaited legislation: Foreign homeowners in UAE will be allowed to stay six months at a time if they own properties worth at least one million dirhams

Property buyers had been waiting for legislation for years to clarify their residency rights in the second-largest Arab economy after many of the country's seven emirates allowed foreign investment in property in recent years.

Still, analysts said the government decree, issued on Saturday, needed more details on which properties would be eligible amid a real estate downturn that dragged Dubai property prices down 41 per cent in the first quarter.

'Greater clarity regarding visa and ownership rights of property owners would help to increase transparency and hence confidence in the market, perhaps providing a positive trigger for demand,' EFG-Hermes said in a research note.

Some developers in Dubai - home to the world's tallest tower and man-made islands shaped as palm fronds - had been offering foreign property buyers promises of residency visas if they bought properties.

But, according to a decree issued by UAE Minister of Interior Sheikh Saif bin Zayed al-Nahayan, 'owners of built-up properties can stay for six months from the date of entry into the country.'

After six months, owners would have to leave the country and would be granted re-entry only if they meet certain conditions, including that their property be wholly owned, built, worth least one million dirhams and fit for accommodation by a family.

The owner should also have a fixed income of no less than 10,000 dirhams a month, or the equivalent in a foreign currency.

The visit visa does not give the owner the right to work in the UAE, the decree said.

The UAE, the world's third-largest oil exporter, is a federation of seven emirates including Abu Dhabi and Dubai, each of which has adopted separate rules regarding foreign ownership of real estate.

'More clarity is needed,' said Sana Kapadia, vice-president, equity research at EFG-Hermes in Dubai. 'It depends whether it means one million dirhams at the time of purchase or if it is the current selling price.'

Real estate prices in Dubai, for instance, have tumbled 41 per cent in the first three months of 2009, according to property consultants Colliers.

Home prices rallied during a six-year boom spurred by Dubai's decision in 2002 to allow foreigners to invest in some properties on a freehold basis.

Now, many units are now selling for less than one million dirhams, according to real estate brokers.

'You'll find an apartment in Discovery Gardens, International City and Jumeirah Lake Towers for less,' said Vincent Easton, an independent property analyst.

Prices are even lower in smaller emirates such as Ajman and Ras al-Khaimah, he said, adding that the one million dirham benchmark could refer to a country-wide average price. -- Reuters

Office Rents In Asia Slump 7.9% In Q1: CBRE

Source : The Business Times, May 5, 2009

Singapore, Hong Kong see steepest fall; leasing activity remains subdued

Office rents across Asia sank in the first quarter of this year - with Singapore and Hong Kong suffering the sharpest declines - a report by CB Richard Ellis (CBRE) shows.

Overall office rents in Asia fell 7.9 per cent quarter-on-quarter in Q1, after a 7.3 per cent decline in Q4 2008, according to the CBRE Asia Office Rental Index. Rents have now declined 18.5 per cent from their peak in Q2 2008.

Asia's major financial centres - Singapore and Hong Kong - continued to see the biggest falls. Rents in Singapore dropped 18.6 per cent, while those in Hong Kong declined 14 per cent. On an annualised basis, corrections in Singapore and Hong Kong have now exceeded 34 per cent, CBRE said.

'The Asian office property market deteriorated further during the first quarter of 2009 as companies continued to down-size and cut back on costs,' it said.

Leasing activity remained subdued across the region, with transactions dominated by renewals, although a few deals involving companies relocating to cheaper premises were concluded.

Across many markets, landlords were forced to offer more concessions to retain and attract tenants, CBRE noted: 'In some major Asian office markets, they are displaying a new willingness to negotiate lease restructuring with tenants they desire to retain.'

In Singapore and Hong Kong, the rise in vacancies was 'less than what might have been expected and availability remains tight', CBRE said. But the amount of shadow space due to sub-letting activity continued to rise.

A number of hedge funds in Hong Kong were considering sub-leasing and surrender options during the quarter, while landlords remained under significant pressure to reduce rents still further.

Likewise, Knight Frank said yesterday in a report on Singapore that there are signs that tenants are seeking to cut their occupation costs and, in some cases, are trying to sub-let space.

'Landlords have needed to offer reduced rents and incentives to retain existing tenants,' Knight Frank said. 'There is substantial new supply expected in 2009, which may further dampen rental prospects.'

Leasing activity in the Hong Kong office market has likewise slowed, with corporate occupiers continuing to down-size amid the financial crisis.

'A number of occupiers appear to be attempting to surrender office space by seeking replacement tenants, while some companies have moved from Central Hong Kong to Kowloon East to save occupation costs,' Knight Frank said in its report.

Current DC Rates Too High For Lush To Be An Incentive

Source : The Straits Times, May 5, 2009

A NEW initiative called Landscaping for Urban Spaces and High-Rises (Lush) - launched last week by the Urban Redevelopment Authority - offers a gross floor area (GFA) incentive scheme for buildings in the Orchard and Downtown Core planning areas to promote roof-top greenery.

This additional GFA can be used only for Outdoor Refreshment Areas (ORAs) at roof-top level if owners provide roof-top landscaping. A Development Charge (DC) or land premium, where applicable, is payable for this additional GFA.

The DC system, now used in Singapore, is based on the principle of sharing of enhanced land value. Since July 18, 2007, DC rates have been pegged at 70 per cent of land value, up from 50 per cent previously.

The 30 per cent balance is free, which is supposed to give the owner an incentive to undertake development work.

Under the fixed-rate system, the DC rate is an average value within a geographical sector. Applying it to a multi-storey development on a specific site, it is also an average value for that development.

As building intensifies or plot ratio increases, the additional floor area inevitably goes to higher floors. DC rates, therefore, work in favour of office and residential developments, where higher floors command higher value, but vice-versa for shopping centre and industrial/warehouse developments.

By levying the DC rate on a roof-top retail floor area, the 30 per cent benefit to the owner for undertaking the development is diminished. For example, take a typical five-storey shopping centre development where the DC rate is $7,000 per sq m (psm) of GFA.

The implied average land value of $10,000 psm would be at third-storey level. As rental and capital values decrease progressively towards higher floors, the land value of the floor area on the fifth storey roof-top could well drop more than 30 per cent to below $7,000 psm. There is, therefore, no financial incentive for the building owner to participate in such an initiative.

That's just the DC component of cost. There will be other elements to consider, such as the cost of landscaping the roof-top and building the ORA, as well as the installation of additional mechanical and electrical equipment if necessary.

Most important is the accessibility of roof-top space. To install a new pair of escalators just to service a 200 sq m of ORA would not be cost-effective.

If the DC rates for roof-top ORA remain pegged at 70 per cent, how effective this initiative will be in promoting roof-top greenery will depend on the movement of the DC rates in the next few DC reviews.

The current DC rates for commercial use for the Orchard and Downtown Core planning areas, ranging from $4,550 psm in the Rochor Road area to $11,200 psm in the Scotts Road area, are near an all-time high.

The DC rates have to drop to make the Lush initiative attractive to building owners. And the drop has to be significant - and occur before the three-year validity period of the new scheme is over.

The writer is the owner of Landmark Property Advisers, a boutique property agency specialising in investment sales and property advisory services

Buyer Resells 19 Of 20 Fernhill Units

Source : The Straits Times, May 05 2009

Chinese firm receives 'pay up' notice from developer MCL Land after missing payments.

A CHINESE investor that failed to pay up for 20 of the apartments it bought at MCL Land's The Fernhill condominium has managed to resell 19 of those units.

Concordia had bought all 25 units in The Fernhill in January 2007 under the deferred payment scheme. Last month, it failed to pay in full for 20 units. -- PHOTO: MCL LAND

Concordia Overseas, controlled by a Hong Kong resident named Chan Ki, was reported to have missed about $30 million in payments that were due when the project was completed recently, according to reports by the Business Times (BT).

Concordia had reportedly bought all 25 units in the freehold condominium, located off Stevens Road, in January 2007 at $1,410 per sq ft (psf). It then resold five units within the year, at an average price of almost $2,200 psf, according to BT.

The apartments were all bought under the deferred payment scheme, which allows a purchaser to pay an upfront deposit for the apartments - in this case 20 per cent - and then defer the rest of the payments until the units are completed.

But when the time came to pay in full for the remaining 20 units, Concordia failed to do so. MCL Land, a subsidiary of Hongkong Land, sent a payment notice last month but did not receive the money.

Under the sale and purchase agreement, MCL Land is now entitled to give 21 days' notice to Concordia to rescind the agreement. If Concordia does not make payment by the end of the 21 days, it will forfeit its 20 per cent deposit and MCL Land can take back the units and resell them.

In a filing to the Singapore Exchange yesterday, MCL Land said the 21-day notice period will start today.

It also said it has been informed by Concordia's lawyers that Concordia has successfully resold 19 units and will complete the sale this month, before the 21-day period expires.

If this happens, the units will not be forfeited and MCL Land will be able to recognise the revenue and profit from these units in its second-quarter results, the developer added.

MCL Land did not book the income from these 20 units when it released its first-quarter results last week. It included profit only from the five units that had been resold in 2007.

The Fernhill deal is being closely watched by the property industry as one of the first major examples of negative fallout from the deferred payment scheme, which was removed in October 2007.

Now that home values are falling, developers who sold projects at the peak of the market are on edge. If an apartment has lost more in value than the initial 20 per cent downpayment, the developer will find itself out of pocket if the buyer walks away from the agreement.