LaSalle Investment Management, a division of the world’s second largest commercial real estate brokerage, plans to partner with Australian developers and take on more risk to invest in the nation’s property market.

The unit of US-based Jones Lang LaSalle Inc is actively seeking tie-ups in Australia to increase its investments in the office and logistics space, and may announce a deal in the first half of this year, Asia-Pacific chief investment officer Ian Mackie told reporters in Sydney on Tuesday.

‘We’re in discussions with a variety of developers,’ Mr Mackie said, without naming the companies. ‘We’re in the act of pursuing, considering, negotiating deals.’

The partnerships would aid LaSalle’s plans to increase its exposure to Australia’s commercial property market through its US$3 billion Asia Opportunity Fund III, Mr Mackie said. LaSalle, which manages some US$40 billion in real estate investments globally, expects more growth opportunities in this part of the world, particularly in prime office properties in city centres, the company said.

Australia’s lack of distressed and value properties means that LaSalle would have to move towards riskier projects to take advantage of growth and obtain the ‘mid- to high teen’ returns suitable for its opportunities fund, Mackie said.

The company will take on more risk in spending some of the remaining US$2 billion in the opportunity fund to invest in Australia, he said. LaSalle expects effective rental growth of up to 7 per cent annually for commercial properties in Australia.

‘In some countries, such as Japan, we can buy standing assets and make the sort of returns that are appealing to an opportunity fund,’ Mr Mackie said. ‘We’re under no illusion that we can do that in Australia. So we’d expect to go further out on the risk curve and become involved in development projects.’

Source: Business Times, 11 Feb 2010

But there are few takers for luxury Valentine packages

It may not be possible to buy love. But at least you can spend a fortune trying to do so in the United Arab Emirates, where luxury hotels are offering Valentine’s Day specials for mega-rich romantics.

Lovey dovey in Abu Dhabi? The Emirates Palace, which bills itself as a seven-star hotel, has the priciest Valentine offer – a seven-day stay for a cool million bucks.

‘Time to show your love to your love,’ the hotel says. Takers will have a private butler and a chauffeur-driven Maybach luxury car at their disposal, which can be ‘tailor-made to your design’.

Also included in the million-dollar deal are a romantic dinner in-suite or on a yacht at sea, helicopter flights, use of the Abu Dhabi golf course, horse riding, watching camel racing, and even making your own perfume.

A private jet is also on call for a quick shopping trip to other countries in the region during the week.

The daily Gulf News quoted sources close to the hotel as saying that a Russian businessman had expressed interest in the package.

But an employee told AFP that variations on the deal had been offered for some time, and ‘we didn’t expect to sell any of the packages’ because of the world economic crisis.

The hotel does offer a more modest three-day Valentine’s deal for about 500,000 dirhams (S$193,000). This includes in-suite dinner with live music – and a diamond necklace for the lady.

East along the coast in Dubai the prices may be lower, but opportunities to lavish largesse on one’s loved one are not hard to find.

The Palace hotel – near Burj Khalifa, the world’s tallest building – offers a deal entitled the ‘Sweet Suite Package’ for 9,999 dirhams.

The couple stays in one of the hotel’s Royal Suites, where they are treated to a candlelit dinner, French champagne and a chocolate fountain.

Spa treatment included to massage away some of those extra acquired calories.

However, there there have been few takers so far, with one hotel employee telling AFP that there has not been much interest because ‘it costs too much’.

The Kempinski Hotel in Dubai’s Mall of the Emirates has a 5,600 dirham offer, which includes a night in a suite, a four-course candlelit dinner, ‘pampering at the spa’, and breakfast for two.

And the Atlantis hotel, on the Jumeirah Palm artificial island, is offering Valentine’s packages ranging from 3,840 dirhams to 6,114 dirhams, depending on the suite.

The offer includes spa treatment, champagne, a platter of chocolate-covered fruit and access to watery attractions – including a swim with the hotel’s dolphins.

Source: Business Times, 11 Feb 2010

It is preparing to activate projects as market improves

British Land Co, the UK’s second-largest real estate investment trust, reported a third-quarter profit after commercial property values recovered.

Net income for the three months ended Dec 31 was £623 million (S$1.38 billion), or 72 pence a share, compared with a loss of £1.59 billion, or 257 pence, a year earlier, the company said in a statement on Tuesday. Net asset value rose 18 per cent to 438 pence per share.

British Land, which owns half of the Broadgate office complex in the City of London, has about £1 billion to invest after selling shares and assets.

The company is competing with other Reits and funds as a limited supply of available properties fuels price increases. Values fell by almost 50 per cent in the two years following the market’s mid-2007 peak.

‘The early signs of recovery seen in the second quarter extended right across our portfolio during the last three months of 2009,’ chief executive officer Chris Grigg said in the statement.

Rental income excluding sales and purchases grew 1.4 per cent in the quarter. Around 6 per cent of the company’s properties are vacant, according to the statement.

British Land said it’s seeking permission to redevelop two offices at Broadgate that it owns in a joint venture with Blackstone Group, according to the statement.

The company has more than 650,000 square feet of new London office space available to lease, and owns sites with potential for about four million square feet of development, said the statement.

The company is preparing to activate projects quickly as market conditions improve, it said on Tuesday.

British Land owns more than 20 million square feet of UK retail properties, specialising in large warehouses in suburban shopping parks for tenants including Currys, Next and Asda. It also owns about six million square feet of offices, with more than half located in the City of London financial district.

Average commercial property values in the United Kingdom have risen by about 9 per cent since hitting bottom in July, according to Investment Property Databank Ltd.

‘As the company has close ties with banks, we see a high chance of acquisitions coming through in 2010,’ Harm Meijer, a London-based analyst with JPMorgan Chase & Co, said in a Feb 2 note to investors. British Land may spend £500 million on properties this year, he estimated.

The company suspended most of its development programme because of the financial crisis, including the London skyscraper nicknamed the Cheesegrater that was to be the tallest building in the City.

British Land reported net income of £161 million for the three months through September 2009, after eight consecutive quarters of losses.

British Land advanced 8.2 pence, or 1.9 per cent, in London trading to 446.3 pence. The stock has gained 7.5 per cent in the last 12 months, giving the company a market value of £3.9 billion.

The value of British Land’s offices and retail parks increased 8.2 per cent to £7.9 billion, the company said.

Source: Business Times, 11 Feb 2010

Spanish banks have been told by the Bank of Spain to devalue the housing assets on their books by 20 per cent, El Mundo reported yesterday, citing sector sources.

The Bank of Spain was not immediately available for comment.

Spain’s banks hold property worth an estimated 100 billion euros (S$195.2 billion), the newspaper said, taken on over the last couple of years as property companies went bankrupt and their creditors forced to mop up their unsold assets.

Analysts are concerned the country’s banks have been keeping a lid on potential losses by valuing the homes on their books at pre-crisis levels, while real property prices have dropped by more than 14 per cent from their high in 2007.

Spain’s second largest bank BBVA shocked investors at the end of January when it reported full-year earnings with higher than expected provisions, raising broader doubts about Spanish banks’ ability to absorb a property market crash.

Source: Business Times, 11 Feb 2010

The Ritz-Carlton Hotel Co will close its five-diamond property in Las Vegas in May, after the hotel struggled with a slide in demand and revenue.

‘It’s nothing the hotel did. It’s a simple lack of business and a decline in the tourism industry,’ said Ritz-Carlton spokeswoman Vivian Deuschl.

The owners of the 348-room property, Village Hospitality LLC, an arm of Deutsche Bank, will stop funding the Ritz-Carlton Lake Las Vegas day-to-day operations on May 2.

‘That was the owner’s decision and we reluctantly agreed to go along with it,’ Ms Deuschl said.

Luxury properties have been hit hard in the past year and a half. Corporate travel and business from associations account for the bulk revenue of these hotels, but companies and groups have cut back on travel spending in the past year.

Village Hospitality, a subsidiary of Deutsche Bank’s German American Capital Corp, acquired the hotel in a non-judicial foreclosure sale in February 2009.

‘The unprecedented economic downturn has had a significant impact on the hotel’s operations,’ said Deutsche Bank spokesman Scott Helfman.

‘As a result, Village Hospitality LLC concluded that continuing to fund operations was no longer economically viable and consequently decided to close the hotel effective May 2, 2010.’

Ritz-Carlton is a division of Marriott International.

The hotel opened seven years ago and has played host to an array of celebrities including Elizabeth Taylor, Celine Dion and the late pop icon Michael Jackson.

The Ritz-Carlton Lake Las Vegas property employs some 350 people, Ms Deuschl said, some of whom may be relocated to other Ritz-Carlton properties or other Las Vegas hotels.

Located 27 kilometres from the Las Vegas Strip, the hotel boasts retail boutiques, a wedding chapel and gondola rides, according to the hotel’s website.

It received a ‘five diamond’ rating from the American Automobile Association for 2010.

Last year, revenue for US luxury hotels fell nearly 17 per cent, outpacing the 14 per cent drop in the overall industry, according to an analysis by PricewaterhouseCoopers LLC.

Revenue per available room (RevPAR), a fiscal measure of health in the industry, plummeted about 24 per cent, compared with a 16.4 per cent drop for the industry overall.

Luxury hotels have also suffered from the backlash from the so-called ‘AIG effect’, referring to the uproar caused by American International Group’s decision to fly top brokers and executives to a resort shortly after receiving a bailout check from the US government.

‘The whole demonisation of luxury meetings and companies’ pulling back on having their high-end meetings in luxury hotels – this has had a tremendous impact on Las Vegas,’ Ms Deuschl said. ‘I can’t think of another destination that has had to defend itself more against comments from politicians.’

She did not comment specifically on the hotel’s occupancy level, but said it was lower than the company would have liked.

Source: Business Times, 11 Feb 2010

Drop due to higher mortgage rates and cuts in first-home buyer grants

Australian home-loan approvals fell in December after central bank Governor Glenn Stevens raised borrowing costs for a record third month.

The number of loans granted to build or buy houses and apartments dropped 5.5 per cent to 55,632 from November, when they declined a revised 6.1 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 18 economists surveyed by Bloomberg was for a 5 per cent decline.

Mr Stevens unexpectedly left the benchmark interest rate unchanged last week at 3.75 per cent, saying information about the impact of his three previous increases is still limited. Consumer confidence fell this month, a report published yesterday by Westpac Banking Group showed.

‘The drop in demand for housing finance will owe much to higher mortgage rates and the phasing out of the expanded first-home buyer grants,’ Stephen Walters, an economist at JPMorgan Chase & Co in Sydney, said ahead of yesterday’s report.

Demand for home loans surged in the first half of 2009 after Prime Minister Kevin Rudd tripled grants to first-time buyers of new homes to A$21,000 (S$26,000), and the central bank cut borrowing costs to a half-century low of 3 per cent in April.

The government partially reduced those grants last quarter, before returning them to their original level of A$7,000 at the start of this year.

First-home buyers accounted for 21 per cent of dwellings that were financed in December, down from 22.1 per cent in November and a record 25.8 per cent in May, the statistics bureau said yesterday.

Mr Stevens and his board increased Australia’s benchmark lending rate three times from October to December as a rebound in exports to China by companies including BHP Billiton Ltd helped fuel the biggest four-month surge in hiring in more than three years.

Employers added 135,700 jobs between September and the end of 2009, driving down the unemployment rate in December to an eight-month low of 5.5 per cent.

Employers hired another 15,000 workers last month, according to the median estimate of 21 economists surveyed by Bloomberg News. The employment report will be published today.

Still, Mr Stevens said on Feb 2 that as information about the impact of the bank’s previous interest-rate increases ‘is still limited, the board judged it appropriate to hold a steady setting of monetary policy for the time being’.

Investors are betting there is a 24 per cent chance of a quarter percentage point increase in the overnight cash rate target at the central bank’s next meeting on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8.33am.

Last year’s interest rate increases added about A$150 to monthly repayments on an average A$300,000 home loan.

An index of consumer confidence dropped 2.6 per cent in February, Westpac said yesterday, citing a survey.

The value of loans to people building their own homes fell 4.7 per cent in December, yesterday’s report said. The total value of loans dropped 2.8 per cent to A$21.9 billion.

The value of loans to investors who plan to rent or resell homes advanced 1.9 per cent.

Source: Business Times, 11 Feb 2010

The number of commercial property sales in Europe climbed by more than a third in the fourth quarter, the fastest pace in three years, as cash-rich buyers returned to the market, according to CB Richard Ellis Group.

More than 1,100 transactions were completed throughout Europe, 36 per cent more than in the third quarter and 52 per cent more than a year earlier, the Los Angeles-based property broker said yesterday.

That’s about 75 per cent of the number at the market’s 2007 peak.

The sizes of transactions have also grown as investors that raised cash, including German property funds and sovereign wealth funds, compete for properties.

There were 24 purchases for more than 200 million euros (S$390.4 million) in the second half of last year, triple the number in the first half, CB Richard Ellis said.

‘There has been a significant increase in the average lot size,’ CB Richard Ellis said in the statement. ‘The combination of the recovery in values and ability of investors to complete larger transactions has driven this average up.’

Buyers’ access to debt was a crucial factor in the success of deals, the company said.

The average European sale was 23 million euros in the fourth quarter, according to the report. That compares with 49 million euros at the market’s peak in the third quarter of 2007, when there were 62 purchases for more than 200 million euros.

The total value of commercial property transactions was 25.7 billion euros in the final three months of last year, a 42 per cent increase from the previous quarter, the broker said on Jan 18.

That included one billion euros spent by German funds in December, in 13 acquisitions across seven countries.

Source: Business Times, 11 Feb 2010

Focus on capital gains intention test, loss from rental

New Zealand’s government may tighten existing rules around capital gains as part of a review of the taxation of property investment, according to Finance Minister Bill English.

Part of the government’s focus will be on the test used to assess whether a purchaser intends to be a long-term owner, Mr English said in Wellington yesterday. The government will also review whether losses from rental properties be ‘ring fenced’ so they can’t be used to offset other income for tax purposes.

Prime Minister John Key on Tuesday said that the government will announce a package of tax reforms in the May 20 budget that will buoy investment, savings and economic growth. He said that the government will make changes to the way property is taxed while ruling out recommendations for a tax on land and returns from investment property, and a ‘comprehensive’ capital gains tax.

‘What’s on the table is a discussion about the detail of the existing taxation of capital gains and whether there is more clarity and enforceability around that,’ Mr English told the finance and expenditure select committee in Wellington yesterday. ‘A good example is the intention test around the purchase of residential property.’

Mr English refused to provide further details on what form new property taxes may take.

‘We’ll have to be fairly sure about how much revenue will come from changing the taxation of property,’ he said. ‘That will take some pinning down because it’s a sector if, where you shift the rules, the behaviour shifts and you could end up not getting the revenue you expected.’

Mr Key on Tuesday said that the government’s tax reforms may include cuts to personal tax rates, and will pay for them by raising the rate of sales tax to 15 per cent from 12.5 per cent.

Mr English yesterday said that the intent of the tax changes is to encourage people to work harder and buoy economic growth.

‘The package is designed in the longer term to lift our economic performance by giving people the incentive to do the things we think are important for the economy,’ he told reporters after his testimony.

‘When you’ve got an economy where we generally do spend more than we earn, where we need more investment and savings, then we want to reduce the tax on those things that are going to help us develop better balance in the economy, and that’ll be paid for by taxes on things like consumption where we’ve had a bit of a binge,’ he said.

Source: Business Times, 11 Feb 2010

With savings earning paltry returns and inflation rising, property is seen as best bet

FAN Wenbao swears he is not in the business of speculating on property. Already the owner of one home in Xinyang, a grimy city in the poor central province of Henan, he bought two more there last year.

‘It’s an investment not to make money but to save money. Interest rates in the bank are too low,’ said Mr Fan, a real estate agent in a shiny silver suit.

‘If I buy now, the property will steadily increase in value. And at least there’s no way it can fall.’

This might sound like the talk of a speculator in most places, but Mr Fan’s is a relatively long-term view when it comes to the Chinese housing market.

He is not engaged in the kind of rapid buying and selling known as chaofang, or stir-frying of homes, that has driven prices up by 50 per cent in just a few weeks on the tropical island of Hainan, home to the country’s hottest real estate.

In Mr Fan’s hometown of Xinyang, many of whose one million people migrate to prosperous coastal areas for work, property prices rose a mere 10 per cent last year.

But that is already enough to worry the central bank nearly 1,000 km north in Beijing.

Property beckons homeowners and speculators as the one asset in China that is performing well, and authorities are stepping up efforts to prevent a potentially destabilising housing bubble from forming in the world’s third-largest economy.

Even the comparatively modest price appreciation seen in Xinyang clearly outstrips the country’s benchmark deposit rate of 2.25 per cent.

With inflation picking up and expected to flirt with 5 per cent this year, people like Mr Fan are waking up to the fact that their savings are at risk sitting in bank accounts.

Investment alternatives are few and far between in China. The stock market has been sluggish for nearly half a year and foreign investments are all but closed to ordinary people.

Property, of course, has additional appeal. ‘The old parts of the city are in bad shape. These developments are modern, spacious and full of greenery,’ said local travel agent Ma Zhong, 25, strolling through Xinyang’s new district of government buildings, shopping centres and apartment complexes, vast swathes of which are still under construction.

The big question hanging over the Chinese property sector is the extent to which demand has come from owner-occupiers as opposed to investors hoping to quickly flip homes for a profit.

Rampant price rises in recent months persuaded Beijing to begin clamping down on speculators, fearing the fallout if any bubble were left to grow to monstrous proportions.

When real interest rates fell in 2007 as inflation rose, households shifted vast amounts of savings into the stock market, fuelling a steep rally. Its sudden collapse contributed to a loss of confidence that slowed the economy over the next year.

The obvious answer now would be to raise interest rates. But doing so could draw hot money from abroad into an economy already awash in cash and make it difficult for local governments to service the piles of debt that they racked up last year.

‘Beijing’s strategy instead is to set up an ugliness contest: bank deposits are becoming unattractive, so administrative measures are used to make asset markets more unattractive still,’ said economist Paul Cavey with Macquarie Securities in Hong Kong.

He concluded in a recent client note that the government was winning the battle, for now.

A succession of pledges to crack down on reckless investment and steps to make second mortgages and transactions more costly have dampened sentiment. Programmes to build more affordable housing are also weighing on prices, even as they shape up as an engine of real estate investment in the coming years.

Sales of new apartments and existing homes in Beijing fell some 70 per cent in the first three weeks of January from a month earlier, local media reported recently. The central bank’s moves in recent weeks to curb excessive loan growth have also hastened the slide in Chinese share prices and roiled markets worldwide.

But policymakers would be premature in assuming that they have seen off a housing bubble.

Last Sunday in Xinyang was damp and chilly. The streets and shops were quiet.

Yet a steady flow of people visited the showroom of Bolin Harmonious Home, a 26-building complex that started selling its first block of apartments last year. The homes are surrounded by muddy fields, a 10-minute drive from the nearest office or mall.

‘On the first day, almost all of the 400 units sold out. We’ve got the next phase coming on sale soon and we expect strong demand over Spring Festival,’ said Zhang Jing, 28, a saleswoman, referring to the Chinese New Year holiday next week.

‘Things are developing a little bit quickly but these are great homes. They are convenient and have great potential,’ she said.

Source: Business Times, 11 Feb 2010

THE Housing Board is reviewing rules on flat ownership, to see if any encourages speculation in HDB resale flats. The review will be completed in a few months’ time, according to National Development Minister Mah Bow Tan.

The background: Resale flat prices rose by 3.9 per cent in the last quarter of last year, or by 8.2 per cent in the year. From 2007 to 2009, prices have gone up nearly 40 per cent.

Young couples complain that prices are rising beyond their reach. All manner of folk are being blamed for the rise in prices: foreigners, permanent residents, rich private-property owners who buy HDB flats for rental income, or people who ‘flip’ HDB resale flats within a year. The HDB will have its work cut out coming to grips with this issue.

But actually, what exactly is the issue? Are rising HDB resale prices an issue?

Surely not to the majority of 880,000 or so households who already own an HDB flat, to whom rising flat prices means rising asset values.

Rising prices are an issue to new households and those with no roofs over their heads. Who are they? The 25,000 couples who marry each year. Also, over 7,000 couples in a year file for divorce, which means some 7,000 ex-spouses may be searching for a new home. In 2008, nearly 80,000 people were granted PRs and another 20,000 were conferred citizenship. Presumably, many among them will want to buy a home.

All in, that’s about 132,000 people a year who may be looking for a home. Of these, about 10,000 may get a subsidised new HDB flat. About 20 per cent may go for private property. That still leaves about 95,600 people who may be eyeing an HDB resale flat.

But only a fraction of them will actually buy a resale flat, since some would already own homes, or may decide to rent or live with others. The total number of resale transactions last year was 37,205, an increase of 31 per cent over 2008.

The overall picture suggests rising demand for HDB resale flats spurred in part by immigration. PRs own less than 5 per cent of HDB flats, but last year 20 per cent of resale transactions involved them.

But if one looked at the issue rationally, high resale prices is not a Singaporeans versus non-citizens issue. In fact, old citizens should cheer PRs for boosting demand, and other PRs and new citizens should rue them for the same reason.

Is it speculation that is driving HDB resale flat prices up? HDB rules now allow a buyer of a resale flat to sell it after one year, if he did not take advantage of any government grant in buying it. The flat can be rented out after three years.

The public discussion on the ’speculative’ element in resale flats throws up two possibilities: one, some people are buying and selling HDB flats for profit, or ‘flipping’ as it is called; or that some people are buying HDB flats with the sole purpose of renting them out.

Is there evidence of ‘flipping’? Property agents have said there is hardly any. In its review, HDB should track and make public the number of people who churn resale flats for a profit from say, above 12 months to 18 months. If there is evidence of such a trend, and there are grounds to think such transactions are causing a bubble in resale flat prices, then HDB should indeed tighten the rules to weed out such short-term profit-driven demand.

(Declaration: I own an HDB resale flat I hope to sell one day at a price higher than what I paid for it – like the other 879,999 HDB flat owners.)

What of the charge that some people are buying HDB flats for rental income?

Actually, this is patently the case – and rightly so. HDB’s 2008/09 annual report states there were 22,754 flats that were sublet. No one knows how many more flats are being sublet illegally. A number of HDB flat owners will also be renting out some bedrooms for income.

HDB flats may be built for owner-occupation – hence, the eligibility criteria on citizenship, formation of family, income limits, and the five-year time bar before they can be sold.

But HDB flats after five years are bought and sold like any other commodity, with buyers concerned about investment value, resale potential, potential rental income and financing costs.

The HDB resale market has been gradually freed up over the years. Right now, an HDB flat makes for a decent investment. A four-room flat in Clementi has a median price now of $415,000 and can fetch $2,000 a month in rent – a gross yield of 5.78 per cent, much higher than bank deposits.

Rather than frown on such returns, we should acknowledge that good rental yields speak well of the health of the resale market. An HDB resale flat buyer who does not get a government grant or take up a subsidised HDB loan, gets no subsidy for his purchase. If he is prepared to abide by HDB rules and lives in the flat for three years before letting it out, there is little justification to deny him the income.

The way I see it, rising resale flat prices reflect genuine pent-up demand spurred by high levels of immigration. They do not seem to be driven by speculative frenzy. Those priced out of the market may find it emotionally satisfying to finger PRs or speculators as scapegoats than to acknowledge that the market is moving faster than one’s income and savings can keep up with.

It is important for HDB to respond appropriately to what appears to be a short-term spike in demand, which should resolve itself, since the flow of foreigners will slow. It should not over-react by tightening the rules.

Spooking the HDB resale market will dampen the private property market and cause a fall in asset values of HDB households, affecting their sense of wealth and their sense of retirement security.

Source: Straits Times, 11 Feb 2010