Wednesday, May 20, 2009

Property Sector Outlook 'Uncertain'

Source : The Straits Times, May 20, 2009

DESPITE the recent uptick in property interest in some countries, the outlook for the sector remains uncertain, an Asian real estate conference heard yesterday.

The view from an apartment in Hong Kong's Peak district. Singapore, Hong Kong and Tokyo are attractive over the medium to long term as they have 'quite large commercial markets' and sustainable economies, says Invista Real Estate chief executive Duncan Owen. -- PHOTO: BLOOMBERG

Speaking at Cityscape Asia 2009, Mr Stuart Labrooy, chief executive of Malaysia-based Axis Reit Management, said the full effects of the credit crisis 'have not yet reached Asia'.

Property valuations in Asia, he said, will probably bottom out in the second half of the year, but there was no telling when the recovery will come.

Also speaking during a panel discussion on the impact of the downturn on Asian real estate, Mr Blake Olafson, Arcapita's head of Asia real estate group, said the industry was now focusing on the basics.

He added: 'If you're a pension fund manager, that's what you'll do - not suddenly try to become a real estate developer in some Tier 3 city in China. There's a greater sense of realism in the market, and a return to looking at fundamental cash flows, not just internal rate of return deals.'

Invista Real Estate chief executive Duncan Owen said Singapore, Hong Kong and Tokyo are attractive over the medium to long term as they have 'quite large commercial markets', sustainable economies and increasing market transparency.

The fact that the Singapore market is now badly affected like other markets is an opportunity for them, he added.

Invista, Britain's largest-listed property fund manager, recently bought the Asian real estate business of Babcock & Brown, which gave it offices in Singapore and Hong Kong.

In his keynote address, Singapore's Urban Redevelopment Authority group director (strategic planning) Richard Hoo acknowledged that the economic climate was now more challenging than during last year's Cityscape Asia.

Today's focus, he said, was on 'enhancing our readiness' when the economy improves.

Yesterday's Cityscape Asia exhibition was quieter than previous events. Just 40 exhibitors have set up booths this year, and the organiser is expecting more than 3,000 people to visit over its three-day period ending tomorrow.

Last year, it attracted 5,520 real estate professionals and 70 exhibitors.

The 2007 event - inaugurated by National Development Minister Mah Bow Tan - drew 4,689 participants and 125 exhibitors.

Interest Absorption Greasing Market - Selectively

Source : The Business Times, May 19, 2009

Is the interest absorption scheme (IAS) helping to grease home sales?

The answer seems to be yes, if there is no price premium charged by developers for the IAS. However, if developers charge more in exchange for interest absorption, then the buyers' profile may decide whether they opt for IAS, industry players say.

Generally, buyers in projects targeted primarily at owner occupiers, such as suburban, mass-market condos prefer to buy on normal progress payment scheme (NPS) rather than IAS, under which they may pay only the initial 20 per cent with no further payments until the project is completed.

For example, slightly over a quarter of those who bought 626 units at Caspian near Jurong Lake since its release in February and 100 units at Waterfront Waves in the Bedok Reservoir area relaunched at lower prices since March have opted for IAS.

At Double Bay Residences in Simei, the proportion of IAS buyers is said to be higher, at 40-50 per cent. At Mi Casa in Choa Chu Kang, no buyer has opted for IAS. Those who bought on IAS in these projects paid 2 or 3 per cent more for their units. The thinking is that mass-market home buyers are usually more price sensitive and prefer NPS if it costs them less, say property pundits.

Projects that have drawn investors may see more buyers inclined to opt for IAS even though there is a price premium. Here, again, the quantum of premium may matter.

For instance, Frasers Centrepoint, which is charging 2 per cent more under IAS for Martin Place Residences, has found that 75 per cent of those who picked up the 80 units in the condo over the weekend opted for IAS. On the other hand, only 5 per cent of buyers of the 109 units that CapitaLand sold since last Friday at The Wharf Residence (nearby) chose IAS. This could be due to the heftier premium of 5 per cent for IAS.

However, some observers suggest another reason: Wharf Residence could have drawn a fair number of short-term investors.

With IAS, buyers have to immediately sign up for a housing loan (even if they don't need to make a drawdown until much later). And they will have to pay a penalty if they redeem their loan early.

'So short-term buyers in an investment grade project may prefer to opt for NPS to avoid being tied down to a loan and having to pay a penalty to the bank for early loan repayment,' explains Knight Frank executive director Peter Ow.

Agreeing, EL Development managing director Lim Yew Soon told BT that feedback from some buyers who chose NPS for its Illuminaire On Devonshire project (despite the group not charging any price premium for IAS) indicates that they did not intend to hold their units till the project was completed.

The penalty for early loan redemption is typically said to about 1.5 per cent of the loan quantum. 'So it may be a deterrent for smaller speculators,' as Mr Lim suggests. However, this may not be a serious issue for deep-pocketed investors eyeing bigger gains.

'Investors are taking advantage of IAS, which is the old DPS (deferred payment scheme) all over again, except that you have to talk to the banks earlier. Essentially IAS, like DPS, provides a financial option on the real estate market. By paying just 20 per cent of the value of the property, you can take a (bet) that property prices will appreciate by when it's time to pay up,' said a property analyst.

Under IAS, buyers have to sign up at once for a home loan. This is unlike DPS, where they could wait much later, closer to the project receiving Temporary Occupation Permit, when they have to pay the bulk of the purchase price to the developer.

Still, some like Mr Ow argue that IAS does not encourage speculation. 'Whether speculation kicks in depends on the stage of the market. In today's condition, only the very brave will come in to speculate.

'IAS involves obtaining a bank loan approval upfront and banks are cautious about granting loans to property investors. It is quite unlikely banks will approve mortgages for those buying multiple units in a project.'

Others point out the current buying flurry does not stem from IAS. 'The buying interest seems spurred by positive sentiments about the market as people are drawn to buy/upgrade due to reasonable prices,' a spokesman for Far East Organization said.

Anson House Sold For $85m

Source : The Business Times, May 20, 2009

Macquarie-managed fund's loss partly offset by currency movements

In the second transaction of an office block in the past few days, a fund managed by Australia's Macquarie Bank has sold Anson House. The price is said to be about $85 million or slightly over $1,100 per square foot of net lettable area (NLA).

Sold via private treaty: Anson House boasts tenants such as ArcelorMittal, GE Group and Swire Shipping, and is about 98.5per cent leased

The 13-storey office block, which was completed 11 years ago, is on a site with a remaining lease of about 87 years.

Anson House boasts tenants such as ArcelorMittal, GE Group and Swire Shipping, and is about 98.5 per cent leased. The net yield on the investment based on the $85 million transaction price would be more than 6 per cent, BT understands.

Sources suggest the purchaser could be a group of high net worth individuals with a presence in Singapore and Australia. The office block was sold via private treaty.

The Macquarie Bank-managed fund which sold Anson House had bought the office block for $129.5 million in 2007. However, its loss should be partly offset by the Singapore dollar's appreciation against the Australian dollar, market watchers say.

The sale-and-purchase agreement for Anson House is said to have been inked on Monday, the same day that BT reported the sale of the freehold Parakou Building at the Robinson Road/McCallum Street junction, for $81.38 million or $1,280 psf of NLA.

It was acquired by a unit of Cathay Organisation, controlled by Choo Meileen. The seller, New Star Asset Management Group (now part of Henderson Group), also owns One Phillip Street, for which it is said to have recently received offers of about $1,500 psf.

But industry observers reckon New Star would be under less pressure to sell the 999-year leasehold property - for which it paid $2,736 psf early last year - now that it has already divested one asset in Singapore.

'The market is starting to see a return of confidence for office investment sales deals,' notes Cushman & Wakefield Singapore managing director Donald Han, pointing to an uptick in activity and prices of strata offices.

BT recently reported a sweet spot is surfacing among high net worth investors from Singapore and the region for office blocks here priced between $1,100 and $1,300 psf, and involving lump sum investments of $70-100 million.

Opportunities For Property Investors

Source : The Business Times, May 19, 2009


Cityscape Asia, the annual real estate exhibition and conference, opens amid talk of 'green shoots' of recovery for Asian economies

THESE are troubled times, and the global real estate sector has borne the brunt of the sub-prime fallout.

But now the property world is turning its attention to Asia as investors are hoping that 2009 will be the year to begin picking up undervalued assets ahead of economies in the region emerging from the global financial crisis, say the organisers of Cityscape Asia.

Making deals: The property world is turning its attention to Asia as investors expect that 2009 will be the year to pick up undervalued assets ahead of economies in the region emerging from the global financial crisis

The annual real estate exhibition and conference - which is being held in Singapore from today until Thursday - comes amid talk of 'green shoots' of recovery for the Singapore and global economies.

Cityscape Asia focuses on all aspects of real estate development.

The real estate investment market in the Asia-Pacific region and the rest of the world saw a further contraction of market volume in the first quarter of 2009 against the backdrop of the global financial turmoil and the sustained problem of a credit crunch. However, analysts are beginning to see opportunities as the world and Asia rides out the crisis.

'Established firms, family enterprises and individuals with cash reserves, limited debt and an appetite for risk are expected to be among the first to begin searching the Asian market for bargains in the coming months,' said Graham Wood, group exhibition director of Cityscape.

This year's Cityscape Asia will examine topics relevant to the downturn such as surviving the global financial crisis, the future for real estate funds, and markets to invest in for long-term growth and returns.

But long-standing topics such as Asian real estate investment trusts (Reits), green investments and the retail scene in Asia will also be explored.

Attracting interest: An apartment building in Beijing under construction. In the first quarter of 2009, China's residential property sector staged a recovery, with transactions in some cities rebounding to levels not seen in years

More than 4,000 top deal-makers from leading developers, banks, institutional investors and investment authorities, as well as senior officers from the foremost private equity funds and investment advisory firms will gather in Singapore over these three days to discuss key issues and investment opportunities.

This year, more networking functions and face-to-face interaction have been factored in to ensure that delegates have ample opportunity to conduct real business at Cityscape Asia. Participants could well walk away from the conference with signed deals.

Cityscape Asia is an extension of the successful Cityscape Dubai exhibition, which has grown to include Abu Dhabi, India, Saudi Arabia, Russia, the United States and Latin America.

The Singapore conference will focus on Asia. It will discuss and debate the recovery, opportunities, and the strategies adopted by leading real estate investment and development firms across Singapore, Malaysia, the Philippines, Thailand, Vietnam, Hong Kong, Indonesia, China and India.

In its recent inaugural Asia-Pacific investment market overview report, Colliers International said that opportunities remain in the region for investors. 'Although the regional real estate investment market in Q1 2009 was relatively quiet and despite the fact that the market will continue to be challenged by the economic environment for the rest of 2009, we believe there are still potential investment opportunities in the region in the coming quarters,' said Piers Brunner, Colliers' chief operating officer for Asia.

Real estate investment yields in the Asia- Pacific region have gone up further by 25-75 basis points in the first quarter of the year as investors held back from entering the real estate market, Colliers said. This should make investing more attractive now compared to a few quarters ago.

One market that will be much debated at this year's Cityscape Asia is China. 'In current times, the brightest light glows in China with the economy seeing a huge inventory adjustment,' said DTZ in April.

In the first quarter of 2009, mainland China's residential property sector staged a recovery of sorts, with transactions in some cities rebounding to levels not seen in years. However, the recovery did not spill over to the commercial sector as office markets in the major cities remained sluggish with fewer transactions amid declining rents and prices. A recovery in China could do much to help property markets in the rest of the region, analysts said.

Cityscape Asia also incorporates a host of 'mini events' designed to create business opportunities, such as developer project showcases, interactive discussion forums and investor roundtables.

Developers and other stakeholders from Europe and the US will be at Cityscape Asia looking for Asian investors. In its May bulletin, Citi Private Bank said that it expects to see a new global consumerism marked by a thrifty West and an affluent East, which should see investment flow from the East to the West.

Just one example - Philippe Chaix, director of La Defense, the prime office district of Paris, will be in Singapore during the conference to discuss the future of business property in the French capital, specifically, what it means for Asian investors.

London is also expected to get its share of attention. Asian interest in London properties is growing on the back of a devaluation in the pound, market watchers say. For example, the value of the British pound has fallen about 30 per cent against the Singapore dollar since December 2007. With London property prices down by about 15 per cent from their peak, Singaporean investors could reap savings of about 45 per cent off prices if they choose to invest in London.

Property Investors Going Back To Basics

Source : The Business Times, May 20 2009

There's more stress now on asset management.

THE property investment landscape has changed significantly because of the global financial crisis, speakers at a panel discussion said yesterday.

For a start, investors are going 'back to basics', said Blake Olafson, director and head of the Asia real estate group at international investment bank Arcapita.

For example, pension funds that used to invest in riskier asset classes are now beginning to redirect their investments into less risky assets, he said.

Agreeing that the industry is going back to basics, John Evans, managing director of Tractus Asia, said: 'Looking at it from a global economic perspective, the Asian real estate market had become a market where everyone was trying to get in, everyone was becoming a property developer.'

Mr Olafson and Mr Evans were speaking at Cityscape Asia, an annual real estate exhibition and conference aimed at investors.

The 'back-to-basics' approach includes a focus on making existing assets work harder.

'There's a lot more emphasis around true asset management, a shift towards hiring third-party facilities managers, and much more effort is going into tenant retention strategies,' Mr Olafson said. 'Before the downturn the focus was on building development, now asset management has become a lot more important.'

Players in the industry are going back to their core competencies and this, combined with tighter credit conditions, is driving a 'flight to quality' and a focus on assets that generate cashflows from day one, he said. 'There is liquidity, but it is being driven towards good quality projects.'

Panellists agreed that liquidity is beginning to return to the Asian market, although banks are still very selective about which projects to back.

Speakers were also quizzed about when they expect real estate markets to emerge from the current slump. In response, the panellists said there was no way to put a timeline to recovery.

'Everyone is trying to tell where the bottom is,' said panellist Stuart Labrooy, chief executive of Malaysia's Axis Reit Management. 'I think the full effects of the recession have not reached Asia yet.'

Property valuations should start to bottom out in Asia in the second half of 2009, he said.

More than 3,000 real estate developers, investors and regulators are expected to attend Cityscape Asia, which focuses on all aspects of real estate development, on May 19, 20 and 21.

Asia-Pac Market For Factory Space Falls

Source : The Business Times, May 19, 2009

Rents, demand for industrial property hit by financial crisis, says Colliers

Industrial property markets in the Asia-Pacific region deteriorated from October 2008 to March 2009 as the global financial crisis rolled on, Colliers International said in a report yesterday.

And more declines are expected. 'The economies of most cities in the Asia-Pacific region are likely to be in recession in the next 12 months notwithstanding the interest rate cuts and large stimulus budget,' Colliers said. 'As such, demand for industrial property is likely to stay weak.'

Except for Jakarta and Shanghai - where rents, land and capital values are expected to hold - those in other cities surveyed are forecast to decline as much as 30 per cent over the next 12 months.

In Singapore, average rents and capital values of factory space dipped 12.8 per cent and 17.6 per cent respectively between October 2008 and March 2009, compared with growth of 6.4 and 6.9 per cent in previous April-September 2008 review period.

'The decline in exports as a result of the contraction in global demand led to excess capacity at manufacturing plants and prompted many firms to shelve expansion plans or downsize premises, leading to lower demand for industrial property,' Colliers said.

Weakening exports also resulted in softer demand for warehousing space. Average rents and capital values of this space dropped 13 and 13.3 per cent respectively in the six months under review.

The Singapore government has cut its 2009 economic growth forecast to between minus-10 and minus-13 per cent, from between minus-6 and minus-9 per cent. And this will weigh heavily on demand for industrial property in the next 12 months, Colliers said. It reckons land prices, capital values and industrial rents here could drop as much as 15 per cent in that time.

Rents for high-spec industrial building space will also be hit, according to Colliers. 'Moving forward, the influx of high-spec space completing in 2009, amounting to an estimated 2.5 million sq ft, coupled with sluggish demand, are likely to exert downward pressure of up to 30 per cent on rents in the next 12 months,' it said.

Australian Housing Most Affordable In Seven Years

Source : The Business Times, May 19, 2009

(MELBOURNE) Static house prices and low interest rates have improved housing affordability for first- time buyers, to the best levels in seven years, a survey says.

The Housing Industry Association (HIA)-Commonwealth Bank of Australia housing affordability index for first home buyers rose 22.3 index points in the March quarter to 175.8 points.

'This took housing affordability to levels not seen since 2002,' the report said. 'Further drops in interest rates and moderation in house prices in some regions drove continued improvement in housing affordability,' it added.

Moreover, the index was 69.9 points higher than in Q1 2008 - an improvement of 66 per cent.

HIA CEO Chris Lamont told the Australian Associated Press that despite the current economic conditions, 'there has never been a better time to enter home ownership'.

Mr Lamont said the boost to the first homeowner grant, when combined with significant builder discounts on housing and land packages, had increased the number of people entering the new home market.

'The grant has been highly successful in creating and securing jobs in the residential construction sector,' Mr Lamont said.

'It is also assisting in boosting the supply of housing, which we know to be grossly short of the nation's requirements,' he added.

Among the state capital cities, housing affordability improved most in Sydney, Adelaide and Hobart. -- Bernama

UK Homes Repossess Rate Up By 23%: CML

Source : The Business Times, May 19, 2009

Trend appears less dire than previously forecast, say mortgage lenders

(LONDON) Home repossessions in the United Kingdom rose by 23 per cent in the first quarter, although the trend appears to be less dire than previously forecast, the Council of Mortgage Lenders said last Friday.

All for sale: The Council said last Thursday that 31,000 mortgages were advanced in March, up from 24,000 in February. There was also a rise in the number of first-time buyers to 12,500 during the month, accounting for 40per cent of all loans, the highest since April 2005

The Council, which had predicted a total of 75,000 repossessions this year, said that there were 12,800 repossessions in the first three months of the year, up from 10,400 in the fourth quarter.

'Although repossessions are still rising, the CML now thinks its 75,000 forecast looks pessimistic for the year as a whole, and expects to revise the figure downwards in its next housing market forecast update,' the group's report said.

The government separately reported that court orders for repossession had dropped by 43 per cent in the first quarter compared to the last three months of 2008.

However, the Ministry of Justice also reported that 3,461 companies became bankrupt in the quarter, up 2 per cent from the previous quarter, and that personal bankruptcies rose 9 per cent to 16,775.

The number of loans with arrears of more than 2.5 per cent of the mortgage balance rose to 205,300, up 12 per cent from the fourth quarter, the CML said.

'It is quite clear that the number of arrears cases is rising far more markedly than the number of repossessions,' said Michael Coogan, the council's director-general.

'Lenders are demonstrably increasing the forbearance they are offering, while many struggling borrowers have gained some breathing space through lower interest rates feeding through to lower monthly payments.'

The Council said last Thursday that 31,000 mortgages were advanced in March, up from 24,000 in February.

There was also a rise in the number of first-time buyers to 12,500 during the month, accounting for 40 per cent of all loans, the highest proportion since April 2005.

Members of the Council of Mortgage Lenders accounted for 98 per cent of the nation's mortgage lending. The Ministry of Justice said that 17,054 mortgage possession orders were made in the first quarter; 47 per cent were suspended, normally on condition of the borrower meeting requirements set by the court.

The ministry attributed the 43 per cent drop in orders to new rules on efforts that must be made by borrowers and lenders to resolve a problem before an order is sought. It is not yet clear, the ministry said, whether the new procedure is delaying rather than reducing repossessions.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said he believed that government efforts to combat repossession were working.

'As these schemes begin to have a meaningful impact over the coming months, the likelihood is that the number of claims issued will continue to weaken,' Mr Rubinsohn said. -- AP

UK Office Property Values Fall 2.3% In April

Source : The Business Times, May 19, 2009

(LONDON) Falling rents helped to drive British commercial property values down a further 2.3 per cent in April, although the month-on-month rate of decline has slowed substantially, data showed on Friday.

Investment Property Databank (IPD), which compiles benchmark data used as the basis for trading in Britain's property derivatives market, said UK commercial property rental values hit a 16-year low in April, offsetting relief from the slowdown in falling values.

The index registered a 3.1 per cent drop in March.

'The demand shock has been so severe, given the breadth of industries affected by the downturn and the scale of companies downsizing, that office relocations and expansions have been off the agenda,' IPD research director Malcolm Frodsham said. 'Given the pace of rental adjustment to date, it suggests that when the wider economy does recover that the UK commercial property market will be well placed to recover from a low base.'

IPD said April's decline in values was the shallowest since August 2008, the month before the collapse of US investment bank Lehman Brothers.

UK commercial property is now on average 42.7 per cent cheaper to buy than at the peak of the market in June 2007.

Average office prices have fallen 42.6 per cent since then, compared with falls of 44.4 per cent for shops and 39.4 per cent for industrial and warehouse real estate.

IPD said UK commercial property generated a minus 17.9 per cent six-month total return in April, compared with a 1.9 per cent six-month total return for UK equities measured by the FTSE All Share Index.

Bonds, tracked by the FTSE UK Gilts Index (5-15 years), have returned 11.2 per cent over the same period. -- Reuters