Weak pound helping to fuel demand, but few sellers as most await GE outcome

Luxury home prices in central London rose last month at the fastest annual pace since April 2008 as a growing number of buyers chased fewer properties on the market, Knight Frank LLP said.

Values of houses and apartments costing more than £1 million (S$2.2 million) climbed 11.5 per cent from a year earlier, the London-based property broker said in a statement yesterday. The 1.1 per cent gain from December was the 10th straight monthly advance and the smallest since last August. Prices remain 12 per cent lower than the market’s peak in March 2008.

‘There still seems to be considerable life left in the recovery in pricing,’ Liam Bailey, head of residential research at Knight Frank in London, said in the statement. ‘While buyers are back in force, vendors are few and far between.’

Some potential sellers are waiting to put houses on the market until they see how the outcome of the UK general election, which must be held by June, affects regulation of the financial industry and taxation of banker bonuses, Mr Bailey said.

There is also concern that the withdrawal of the government’s economic stimulus package and cuts in public spending will impact the housing market.

Most of Knight Frank’s offices in central London have 15 per cent to 20 per cent fewer properties for sale than normal for this time of year, the broker said.

At the same time, the number of potential buyers in January was 15 per cent higher than the five-year average. ‘Slim pickings are the fuel that has been driving this market bounce,’ Mr Bailey said. Some venders are starting to price their homes close to or even above peak levels again, which is a risky strategy ‘for anything other than perfect properties’. ‘The market has not been truly tested by a well-stocked larder,’ he said.

A shortage of properties can create a domino effect, as potential sellers wait until they have more choice of places to buy themselves, Mr Bailey said.

The pound’s weakness in the past two years has fuelled demand for British real estate by making it more affordable for overseas buyers. That has helped encourage property funds to raise more money to buy luxury homes.

The Prime London Capital Fund, the only open-ended property fund investing in prime central London residential real estate, has more than tripled funds under management to about £40 million, it said in an e-mailed statement on Jan 26. That followed an investment by Lee Hing Development Ltd, a Hong Kong-based property investment company, and its chairman.

‘Prime London property has been incredibly resilient over the last couple of difficult years and has acted as a good protector of wealth,’ said Stephen Yorke, chief executive officer of D&G Investment Management Ltd, the fund’s manager.

South African Investors London Central Portfolio Ltd has raised £4.5 million in equity for its London Central Residential Recovery Fund, the only closed-end fund investing in the market. Hugh Best, its manager, said that he expects to achieve his target of £10 million by next month’s deadline, helped by South African investors. The fund will be able to invest as much as £23 million, including debt financing.

Prices of luxury properties in central London surged 82 per cent during the last boom, between January 2005 and March 2008, according to Knight Frank’s data.

The broker compiles its luxury index from estimated values of properties in the Mayfair, St John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighbourhoods of London.

January prices rose the most in Kensington, Knightsbridge and Notting Hill, the district where Conservative opposition leader David Cameron lives.

Residential development land prices in districts favoured by bankers, such as Kensington and Chelsea, rose 7 per cent in the fourth quarter of last year, more than anywhere else in the UK, the broker said in a separate report on Tuesday.

Urban land prices are still 51 per cent below the peak in 2007.

Source: Business Times, 4 Feb 2010

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.

Doing nothing about these underwater mortgages could encourage more walk-aways, dealing another blow to the fragile US economy.

‘People like me are beginning to feel like suckers,’ Mr Koellmann said. ‘Why not let it go in default and rent a better place for less?’

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan-modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 per cent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.

‘We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,’ assistant Treasury secretary for financial stability Herbert M Allison Jr said in a recent briefing.

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 per cent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June – about 10 per cent of all Americans with mortgages.

‘We’re now at the point of maximum vulnerability,’ said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. ‘People’s emotional attachment to their property is melting into the air.’

Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.

‘Since the beginning of December, I’ve advised 60 people to walk away,’ said Steve Walsh, a mortgage broker in Scottsdale, Arizona. ‘Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.’

Mr Walsh is taking his own advice, recently defaulting on a rental property he owns. ‘The sun will come up tomorrow,’ he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call ‘house arrest’.

Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 per cent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.

Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighbourhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust.

The US Treasury falls into the sceptical camp. ‘The overwhelming bulk of people who have negative equity stay in their homes and keep paying,’ said Michael S Barr, assistant Treasury secretary for financial institutions.

It would cost about US$745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.

Using government money to do that would be seen as unfair by many taxpayers, Mr Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy. ‘It’s not an easy area,’ he said.

Source: Business Times, 4 Feb 2010

It’s interested in commercial property but chairman says buying land not easy

Hong Kong-listed developer Hang Lung Properties aims to invest US$2-3 billion over the next couple of years into China if it finds good opportunities in the country’s commercial property sector, a top executive said.

Although Hang Lung expected robust retail sales in China, second-half turnover would likely fall short of the HK$9.7 billion (S$1.7 billion) logged in the fiscal first half ended Dec 31 as the earlier part of the financial year saw strong sales in Hong Kong residential property, chairman Ronnie Chan told Reuters on the sidelines of the PERE Forum: Asia yesterday.

‘If I had the choice, I would love to invest in another US$2-3 billion worth of projects (in China), but land acquisition is just so difficult,’ Mr Chan said. ‘I will just have to see what kind of land I can buy.’

In October last year, Mr Chan said Hang Lung aimed to invest HK$4-5 billion in new commercial property projects in China, after committing around US$5 billion in Chinese projects as of mid-2009.

Hang Lung, which entered China in 1992, has developed two major shopping complexes in downtown Shanghai and largely focuses on office and retail projects in the mainland. In Hong Kong, where it is based, the company has a mix of residential and commercial properties.

Hang Lung, which has no debt in its net cash position, had set a target in 2003 to acquire land for 18 commercial projects in China by the end of 2009 at a total cost, including development, of HK$40 billion.

Mr Chan said office rents were under pressure in China as fast-rising property prices damped yields, although its shopping malls were performing strongly as domestic consumption was robust after the Chinese government doled out billions of dollars in stimulus during the global downturn.

‘We surprised ourselves,’ Mr Chan said. ‘We thought retail would be hurt because of the financial crisis.’

In the office space, Hang Lung was eyeing second-tier Chinese cities for rental growth, expecting rental income from China to surpass Hong Kong in the next two years when projects in Shenyang and Jinan cities are complete, he said.

Mr Chan said he saw few opportunities beyond Greater China so far, even as some Asian companies were eyeing distressed properties in Western markets such as the United States. ‘I have three problems with the United States: One, the economy is going too slow. Two, you’re playing the cycle only and the cycle is not on an upward trend. Three, it’s highly tax-related,’ Mr Chan said. ‘You can make money, but only one time.’

Hang Lung’s shares yesterday closed up 1.4 per cent, compared with the Hang Seng Index’s 2.2 per cent gain.

Source: Business Times, 4 Feb 2010

Rising interest rates will trigger defaults on Australian home loans and commercial mortgages, causing deterioration in the quality of assets underpinning mortgage-backed bonds, according to Fitch Ratings.

Three straight interest rate rises last year and further increases expected in 2010 may cause Fitch’s Dinkum Index, which measures delinquency rates on prime home loans, to climb to as much as 1.5 per cent this year from 1.21 per cent at Sept 30, the London-based risk assessor said in a report yesterday.

‘The improvement in Australia’s structured finance asset performance, which was experienced during 2009, thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010,’ David Carroll, a director in Fitch’s Australian structured finance team, said in the report. ‘Rates will continue to rise during 2010 and structured finance arrears are likely to trend up,’ he said in an interview.

Central bank governor Glenn Stevens unexpectedly kept the overnight cash rate target at 3.75 per cent on Tuesday, opting to support the economy’s acceleration and stem inflation later. Borrowing for home buying fell to a five-year low last month, according to Australian Finance Group. Colonial First State, Australia’s biggest asset manager, froze an A$850 million (S$1.06 billion) mortgage income fund to withdrawals on Jan 14 after signs that some commercial property loans may sour.

Australian household debt remains a concern, with the ratio of household debt to disposable income standing at 156 per cent as of June 2009, Fitch said.

The increase in delinquencies isn’t expected to be severe enough to affect the ratings of mortgage-backed bonds, according to Mr Carroll. Australian Finance Group says that it accounts for more than 10 per cent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 per cent less than a year earlier and the lowest level for any month since 2005.

Source: Business Times, 4 Feb 2010

The property collective sale market got an early boost with the year’s first successful deal for the freehold three-storey industrial terrace factory building at No 6 Jalan Ampas, off Balestier Road.

The three-storey strata-titled industrial factory building sits on a 27,838 sq ft land plot. Upon rezoning, the site may be redeveloped into a freehold high-rise residential development with a gross floor area of approximately 77,948 sq ft.

The property was sold for $27.5 million to a private developer, said to be an experienced player in the industrial property sector, although this will be its first foray into residential development.

Based on the selling price and an estimated development charge of $18.7 million for the rezoning of the site to residential use and a gross plot ratio of 2.8, this works out to be about $593 per square foot per plot ratio.

Analysts said that the completed development on the site could be sold at a price range of about $1,100 psf to $1,200 psf after factoring in profits as well as marketing and financing costs.

The owners of the four factory units launched the collective sale after the Urban Redevelopment Authority’s announced in 2008 that it was prepared to consider rezoning the site for residential use.

Tender for the property closed Dec 10 last year and it had attracted five offers and five other interests from developers, said Mr Tan Hong Boon, deputy managing director of Credo Real Estate, the marketing agent for the en bloc sale.

“Balestier has, over the years, emerged as a popular residential district that enjoys the convenience of being geographically central and having a whole host of commercial amenities along the main road,” Mr Tan said. The site is near Shaw Plaza that houses a major supermarket, multiplex cinemas, banks and a host of other commercial establishments.

Source: Today, 4 Feb 2010

Opening of 11 malls, revaluation gains help to boost bottomline

CAPITALAND’S shopping malls unit CapitaMalls Asia (CMA) posted a net profit of $388.1 million for 2009, its first annual result after listing late last year.

The company’s net profit rose 236 per cent from $115.6 million in 2008 as it opened a total of 11 malls last year. Revenue rose 12 per cent to $228.9 million last year from $205.2 million in 2008.

In Q4 2009, CMA recorded a net profit of $169.9 million on the back of a revenue of $66.1 million. Earnings in Q4 2008 were a negative $7 million, while revenue was $64.1 million.

CMA’s bottomline last year was boosted by a close to $178 million increase in the valuation of its properties between end-2008 and end-2009.

A large part of this was contributed by the revaluation of ION Orchard, which was valued at $3,950 per square foot (psf) at end-2009 – although this was partially offset by the downward valuations (recognised on June 30, 2009) of One-North and the portfolio of CapitaMall Trust in Singapore as well as assets in Japan and India.

CMA proposed a first and final dividend of one cent a share for 2009. The company also said that it has secured credit facilities of over $1 billion from various banks.

The company now has a total of 60 operational malls across Asia.

‘We are developing another 26 malls in Singapore, China and India, which we will open over the next few years,’ said chief executive Lim Beng Chee.

In China, the company expects to open another six malls this year. It will also open its second mall in India by the end this year. Added Mr Lim: ‘In addition to this growth pipeline, we see further development and acquisition opportunities in our key markets of Singapore, China and Malaysia, which we will actively explore to strengthen our presence in those markets.’

Mr Lim also addressed questions about the tightening credit conditions in China.

‘As a long-term investor in China, the current credit tightening measures will not hinder our expansion plan in the country,’ he said. ‘On the contrary, we are encouraged by the steps taken by the Chinese government, to ensure the sustainability of its economic growth.’

CMA shares closed unchanged at $2.25 yesterday.

Source: Business Times, 4 Feb 2010

A PRIVATE developer is paying $46.2 million to buy a freehold industrial building in Balestier and possibly launch a residential project on the site.

This is the first collective sale of the year, says Credo Real Estate which handled the deal.

The three-storey terrace factory building at 6 Jalan Ampas sits on a site spanning 27,838 sq ft, with a gross plot ratio of 2.5. The Urban Redevelopment Authority had said in 2008 that it would consider re-zoning the site for residential use, with a gross plot ratio of 2.8 upon redevelopment.

The developer will be paying $27.5 million for the plot and another $18.7 million as the estimated development charge for re-zoning the site. Altogether, the price works out to around $593 per square foot (psf) per plot ratio.

Credo did not identify the developer, though it notes that it is an ‘experienced player in the industrial property sector’ making its first foray into residential development in Singapore.

There is potential for the buyer to develop a high-rise residential project with a gross floor area of around 77,948 sq ft, Credo says.

The site is near Shaw Plaza and Balestier Plaza, and is surrounded by other residential and industrial properties.

Nearby, units at the recently launched Prestige Heights have changed hands at $1,287-$1,417 psf since December last year, based on caveats lodged.

The industrial building was put up for sale in November last year, but offers which came in by the time the tender closed on Dec 10 did not meet the reserve price.

‘It attracted over five offers and subsequently another five more expressions of interest from developers who found the offering attractive,’ says Credo deputy managing director Tan Hong Boon. The winning developer is one of the latter five which showed interest.

The festive season in December could have affected initial response to the tender, he reckons.

Source: Business Times, 4 Feb 2010

This is due to more supply here as building increased ahead of the IRs

A bungalow on Singapore’s Ocean Drive, a stretch of luxury homes lined with Bentleys and Ferraris, sold for a record S$30 million in October. In Hong Kong, a duplex one-third the size went for almost three times as much the same month.

Singapore’s luxury-home prices won’t match Hong Kong’s because an increase in building ahead of two casino projects in the city-state will see nine times the number of new apartments going up over the next three years than in Hong Kong, according to real estate broker Savills Plc.

Singapore’s high-end home prices rose 4 per cent in 2009, while Chinese buyers fuelled a 45 per cent jump in Hong Kong, Savills said.

‘Hong Kong has some unique factors which drive the super luxury market, particularly mainland buyers who have been very aggressive,’ said Simon Smith, Savills’ Hong Kong-based head of research and consulting. ‘We will always see some dramatic prices in Hong Kong that you wouldn’t necessarily see in Singapore.’

Luxury property prices in Singapore are about 19 per cent below their 2007 peak, according to a Goldman Sachs Group Inc report published Jan 13.

They may rise about 15 per cent this year, though still remain 7 per cent below their highs by the end of 2010, Goldman said. Hong Kong luxury prices, which have surpassed their mid-2008 peak, will rise 15 per cent in the next six months, Colliers International Ltd forecast in January.

Two integrated resorts (IRs) are being built in Singapore with casinos, hotels, restaurants and attractions that the government hopes will help lure 17 million visitors and triple annual tourism revenue to S$30 billion by 2015.

Genting Singapore Plc unit Resorts World Sentosa opened part of its $4.5 billion project at Sentosa last month, while Las Vegas Sands Corp said it may open the Marina Bay Sands at downtown in April after construction delays.

To make the economy less dependent on electronics manufacturing, the Singapore government in April 2005 overturned a ban on casinos that had been in place since independence in 1965. Resorts World and Marina Bay are the only two casino developments approved and the government has said there will be only two gaming operators for 10 years.

‘The integrated resort is a stale story by now,’ Tay Huey Ying, a Singapore-based director of research and consulting at Colliers, said at a property seminar on Jan 13. ‘I do not foresee a great impact. We will need another growth story to bring the foreigners back to Singapore.’

In contrast, the number of casinos in Macau, the world’s biggest casino hub and the only Chinese city where gambling is legal, more than doubled to 33 in 2009 from 2002, when tycoon Stanley Ho’s casino monopoly ended. Residential prices will increase as much as 15 per cent in the city this year, according to a Savills report on Macau published on Jan 27.

Sands China Ltd, the Macau unit of Las Vegas Sands, will open most of its stalled resort in Macau by December 2011, adding 300,000 square feet (27,871 sqm) of gaming space to the 849,000 square feet it already has, the company said.

More than 130 apartments around Singapore’s Marina Bay and 900 apartments at Sentosa Cove have yet to be put on sale. City Developments Ltd, Singapore’s second-biggest property developer, and YTL Corp, Malaysia’s biggest builder, are among those preparing to put more homes on the market this year.

About 11,000 condominiums and apartments in the prime districts, or two-fifths of the total supply in Singapore, will come onto the market over the next three years, according to Savills. This compares with 1,260 luxury homes in Hong Kong over the same period.

‘In Singapore, we’re going to see slightly elevated levels of supply in 2011 and 2012, which would moderate price growth,’ said Savills’s Mr Smith.

Henderson Land Development Co, the Hong Kong-based builder controlled by billionaire Lee Shau-kee, in October sold a 6,158 sq ft duplex apartment in the city for a world record price of HK$88,000 (S$15,960) per square foot (psf) in a transaction worth HK$439 million. Luxury homes in Hong Kong are defined as those costing at least HK$10 million or bigger than 1,000 square feet.

The 17,115 square-foot bungalow sold on Sentosa island fetched S$1,753 psf. Prices reached as high as S$5,262 psf in 2007, a peak in Singapore’s property market. Singapore luxury homes are defined by Savills as those with an average price of between S$1,900 and S$2,000 psf in the city-state’s prime districts.

Surging prices have raised concerns of a property market bubble in Hong Kong. The government tightened down-payment requirements for luxury homes for the first time since 1991 and suspended mortgage insurance for rental properties in October.

Singapore’s government said in September it will push for more sites to be sold and will bar interest-only mortgages for uncompleted housing projects. Still, authorities aren’t likely to clamp down too much on the luxury end of the market, said Donald Han, the Singapore-based managing director of Cushman & Wakefield, a real-estate advisory company.

‘The high-end market is less of a concern, it’s more of a private playground for the rich,’ Mr Han said.

Foreigners can buy condominiums and apartments in Singapore, though Sentosa Cove is the only place where they are allowed to own landed homes.

Wealthy Malaysians and Indonesians have been the main buyers of luxury properties in the city-state. Now rich buyers from Russia, Norway, Sweden and Austria are showing interest in the high-end of the market, as well as Asian celebrities and professional golfers, said Kemmy Tan, director of international real estate at YTL Singapore Pte, which is developing 13 villas at Sentosa Cove. Mr Tan wouldn’t give any names.

To help sell the villas, Mr Tan has made sure the elevator to the basement car park of each villa is big enough to fit a Rolls Royce Phantom, which measures 5.6 metres (18.4 feet) long.

‘Most of the cars here are Bentleys, Lamborghinis and Ferraris,’ said Jason Yeo, general manager at site operator Sentosa Cove Resort Management. ‘Of course, you have the normal cars like Mercedes and BMWs too.’

Source: Business Times, 4 Feb 2010