Long-term prospects outweigh current price volatility, says the company
(TOKYO) Mitsui Fudosan Co, Japan’s largest developer, plans to open more shopping centres in China as the company bets consumer spending will spur demand even as the government attempts to cool the housing market.

Mitsui Fudosan plans to build ‘several’ shopping centres in cities including Beijing from 2014, after completing its first mall in Shanghai by 2013, said Takehito Fukui, a project manager of the retail properties division at Mitsui Fudosan. The plan will depend on the completion of the Shanghai project.

Mitsui Fudosan, which generated less than 10 per cent of its profit overseas last fiscal year, is expanding its business in China amid rising consumer spending in the world’s fastest-growing economy. Disposable income in the country has grown an average of more than 10 per cent a year in the past decade, according to data compiled by Bloomberg based on government figures.

‘There is still plenty of room for growth in China in terms of consumer spending and we would like to continue to develop commercial properties there,’ Mr Fukui said in an interview in Tokyo on Aug 25. ‘We see China as a place to expand our business including developing and operating commercial properties.’

China has tightened property lending and cracked down on speculation since mid-April on concern last year’s record US$1.4 trillion of new loans fuelled a housing bubble that could lead to a surge in delinquent loans. The China Banking Regulatory Commission has told lenders to stress test for home prices dropping as much as 60 per cent in some cities and warned some developers may run out of cash.

Property prices in China rose at the slowest pace in six months in July and the value of sales fell 19.3 per cent from a year earlier after the government introduced measures to cool prices.

The long-term growth potential in the Chinese market outweighs the short-term volatility seen in the pricing, said Ryosuke Uematsu, Tokyo-based general manager of the overseas department at Mitsui Fudosan in the interview.

‘While the market has been suppressed at the moment, we see it as stable and attractive in the long run,’ he said.

China surpassed Japan as the world’s second-largest economy last quarter. Japan’s nominal gross domestic product for the second quarter totalled US$1.288 trillion, less than China’s US$1.337 trillion, the Japanese Cabinet Office said earlier this month.

On the residential side, Mitsui Fudosan is developing apartments in Tianjin with locally based Sino-Singapore Tianjin Eco-City Investment & Development Co and Tiong Seng Properties based in Singapore. Mitsui Fudosan also has a condominium project with a subsidiary of Marubeni Corp in Shanghai.

The Japanese developer plans to build more residential units in other areas of China, Mr Uematsu said.

The unit price per condominium has declined in China, because of the government’s policies and competition by some developers trying to sell apartments at lower prices to receive a return on investments to pay off debts, said Mr Uematsu.

The company will decide on pricing and the number of units it plans to put up in its first round of sales for the Shanghai residential project by the end of September, after studying market conditions, he said.

Mitsui Fudosan’s stock has fallen 9.3 per cent this year, compared with a 9.4 per cent drop by the 44-member Topix Real Estate Index. The stock gained 1.7 per cent to 1,413 yen at the close of trading in Tokyo yesterday. — Bloomberg

Source: Business Times, 31 Aug 2010

(KUALA LUMPUR) The property sector is likely to be downgraded if Bank Negara Malaysia imposes a lower mortgage loan-to-value ratio (LVR), says Kenanga Research.

Bank Negara is reported to have written to financial institutions to secure feedback on the possibility of capping the LVR for mortgages at 80 per cent to avert the risk of a potential property bubble.

Currently, banks can usually lend up to 90 per cent of the house value, or up to 100 per cent in selected cases, which has been handy for developers promoting their newly launched homes under interest absorption schemes like 10/90 home loan schemes.

Kenanga said in a research note yesterday it would not be surprised if Bank Negara implements the 80 per cent cap on the mortgage LVR, or at least for properties costing more than RM500,000 (S$212,200), as the government is clamping down on investment-related property acquisitions.

‘If implemented, we are likely to downgrade our sector call, as we expect property transactions to fall since deposit requirements will double, or essentially double the investment risk, limiting the number of homes that an individual can buy. We expect buyers to become more discerning when it comes to property choices, meaning stronger market leaders with branding and quality will be winners, when it comes to grabbing market share of a smaller pie,’ Kenanga explained.

It is also maintaining a ‘trading buy’ call on the property sector for now.

Kenanga said, currently, the ‘buy call’ is largely premised on strong sales achieved for developers, who are well positioned with several projects or aggressive land banking.

‘We look to review our sector and company calls in the next couple of weeks, pending further light on the matter,’ it added.

Meanwhile, OSK Research said it is unlikely that Bank Negara will enforce a strict capping of the LVR at 80 per cent across all residential property classes, but rather impose a restriction only on higher-end properties.

‘We understand, however, most banks would have an internal risk control policy limiting the LVR to 85 per cent for higher-end residential properties of more than RM700,000,’ it said.

Residential properties currently contribute to 26.6 per cent and 49.8 per cent of total industry loans and household loans respectively. — Bernama

Source: Business Times, 31 Aug 2010

AN associated firm of Roxy-Pacific Holdings has bought the freehold Toh Tuck Apartment site for $33.9 million.

Mequity, which is 45 per cent owned by Roxy-Pacific’s wholly owned subsidiary Roxy Land, will finance the purchase internally and through bank borrowings.

Roxy-Pacific said yesterday the acquisition is not expected to have a material impact on its consolidated earnings and net tangible assets per share this financial year.

The site – in the Bukit Timah area – is 40,449 square feet in area and has a plot ratio of 1.4, which allows it to be rebuilt to five storeys.

The amount Mequity paid equates to $687 per sq ft per plot ratio, including an estimated $5 million development charge.

The seller is Aik Hwa Trading, formerly a small-time developer but now in the building materials business. The existing project comprises 13 units in a four-storey block. The average size of each unit is 2,400 sq ft.

Jeff Goh, head of investment sales for HSR, which marketed the site, said that including the additional 10 per cent gross floor area allowance for balconies, 75 units ranging in size from 590 sq ft to 1,660 sq ft can be built on the site.

‘A new apartment could fetch an average of $1,300 psf,’ he said.

Source: Business Times, 31 Aug 2010

(HONG KONG) Agricultural Bank of China said yesterday that it has temporarily suspended property market loans to counter a surge in real-estate lending, but insisted the country’s property sector was ‘healthy’.

AgBank stopped giving mortgages between Aug 24 and Aug 31 ‘to ensure an even distribution of loans and to avoid a surge at the end of the month’, said Zhang Yun, AgBank’s vice-chairman.

‘But (AgBank) has no intention to stop loans to the property market,’ he told reporters at a press conference in Hong Kong to discus the company’s first-half financial results. ‘It is a temporary measure taken by (AgBank) according to its own needs.’

Chairman Xiang Junbo said government policy measures to cool overheating in China’s real estate market would help prevent ‘drastic fluctuations’, adding that the Chinese property sector is ‘developing and healthy’.

AgBank has the lowest property loan balance among its rival lenders, Mr Xiang added.

On Friday, AgBank – which this month claimed title to the world’s biggest initial public offering in a US$22.1 billion sale – said profit in the first six months rose 40.2 per cent to 45.9 billion yuan (S$9.1 billion), from 32.7 billion yuan last year.

AgBank shares closed almost 2 per cent down at HK$3.47 on the Hong Kong stock exchange yesterday.

Mr Xiang credited growth in the company’s rural lending business and lower bad-loan rates for the rosy half-year figures, but critics have speculated that AgBank’s rural-lending mandate would dent its performance as a public company.

In recent months, Chinese authorities have tightened restrictions nationwide on advance sales of new developments, introduced curbs on loans for third home purchases and raised minimum downpayments for second homes.

Chinese property prices in July rose at a slower pace, suggesting policy measures to cool the sector may be having an impact.

Last week, the Wall Street Journal reported that two of China’s biggest state-run banks – Bank of China and China Construction Bank – have cut back lending to local government investment vehicles whose borrowing has raised concerns over a bad-loan crisis. — AFP

Source: Business Times, 31 Aug 2010

Move shows govt won’t let property market slump further: analyst

(SEOUL) South Korea will ease mortgage lending rules and extend tax breaks to encourage buyers back to the property market after home sales slumped to the lowest level in almost a year and a half. Shares of builders and banks surged.

Banks will be allowed to ease restrictions on mortgage loans for first-home buyers and owners of one residence until the end of March, the government said in an e-mailed statement on Sunday. The waiver for taxes on home sales will be extended by two years until the end of 2012, the government said.

The measures are the government’s second effort in four months to revive the market, after a programme to buy unsold houses failed to spur property transactions.

The number of homes sold dropped 7.3 per cent from a year earlier in the first seven months of 2010, and the number of transactions in July was the lowest since February 2009, according to statistics compiled by the land ministry.

‘The government’s measures were stronger than the market expected,’ said Hwang Seok Kyu, a banking industry analyst at Kyobo Securities Co in Seoul. ‘It’s a strong signal that the government won’t let the property market slump further.’

An index measuring 36 construction companies rose 1.4 per cent at the 3 pm close in Seoul trading, led by Daelim Industrial Co, which gained 5.7 per cent to close at 76,600 won.

KB Financial Group Inc, owner of South Korea’s largest lender, rose 3.1 per cent, while Woori Finance Holdings Co climbed 4.2 percent.

Banks can extend as much as 50 per cent of a borrower’s annual income for purchases of homes in Seoul and 60 per cent for areas outside the capital under the so-called debt-to-income limit.

That cap will be temporarily scrapped for buyers of homes, excluding those in three so-called ‘speculative zones’ in Seoul, according to the statement on Sunday by the Ministry of Strategy and Finance, the Financial Services Commission and the Ministry of Land, Transport and Marine Affairs.

‘The measures will help those in the middle class or lower buy homes at a time when the housing prices are stabilising,’ the government said in the statement. The temporary easing of lending rules won’t hurt lenders’ asset quality, according to the government.

The measures may have little impact on boosting the market while the central bank is poised to raise interest rates, because potential borrowers will be wary of rising debt, said Kim Jae Eun, an economist at Hyundai Securities Co in Seoul.

‘This is just sending inconsistent policy signals to the market,’ Mr Kim said.

The Bank of Korea increased its benchmark interest rate to 2.25 per cent from a record-low 2 per cent in July, and signalled more hikes.

The construction industry had its biggest contraction since at least 2008 in the second quarter, according to July data by the Bank of Korea.

Construction shrank 0.8 per cent over the three months through June, the third drop in four quarters. The decline contrasts with 1.5 per cent growth in South Korea’s gross domestic product.

Combined second-quarter profit at local lenders including Kookmin Bank, South Korea’s largest, plunged 34 per cent from a year earlier after they set aside extra loan-loss reserves to help construction and shipbuilding companies restructure debts, the Financial Supervisory Service said on Aug 3.

Raising the mortgage lending ceiling probably won’t lead to an ‘explosive’ increase in banks’ lending to households, Haekyu Chang, a Seoul-based analyst at Fitch Ratings Ltd, said in a phone interview before the government’s announcement. It also won’t erode the quality of loans, he said.

‘The household debt issue can only become a concern in the very long term if it rises rapidly,’ Mr Chang said. ‘I don’t see that happening in the next one or two years.’ – Bloomberg

Source: Business Times, 31 Aug 2010

FAR East Organization yesterday released for lease 31 out of the 69 medical suites at its upcoming Novena Specialist Center. Ranging in size from 549 to 1,442 square feet, they will be rented out for $8-9 per sq ft (psf).

Novena Specialist Center is part of a $350 million hotel and commercial complex the developer is building. Besides the 69 suites, the project will also house a 428-room Oasia Hotel.

Far East is upbeat on the prospects of Novena Specialist Center, which will be ready by January 2011.

The centre is next to Far East’s existing Novena Medical Center, which was completed in 2007. That development has 145 suites. So far, 100 medical suites have been sold, while another 35 have been let for $8.50-10.50 psf.

‘With the increasing number of international patients coming to Singapore for treatment and check-ups and a growing local population, demand for medical services will increase. This translates to a rising need for medical suites,’ said Far East’s executive director GL Yap.

The number of medical tourists coming to Singapore has climbed from about 200,000 in 2003 to 646,000 in 2008. But the supply of purpose-built medical suites has not kept up with demand, Mr Yap said.

‘Occupancy at these facilities has stayed at near-full level since 2004,’ he said. ‘And leasing rates have doubled across the board now. This shows there is still pressure to satisfy this need and increase Singapore’s medical services capacity to serve demand from the region and the resident population.’

Mr Yap said the Novena medical cluster has attracted a lot of interest from groups that plan to expand their networks of clinics and doctors who intend to set up their own private practice.

The area is home to Tan Tock Seng Hospital, Johns Hopkins Singapore International Medical Centre, KK Women’s and Children’s Hospital, Thomson Medical Center, the National Neuroscience Institute, and the future Parkway Novena Hospital.

Source: Business Times, 31 Aug 2010

UNITED Industrial Corp (UIC) yesterday said that it has paid a development charge of $160.1 million to the Urban Redevelopment Authority (URA) for the redevelopment of UIC Building.

Located at 5 Shenton Way, the building will be redeveloped based on a 60 per cent residential and 40 per cent commercial scheme with a gross floor area of about 926,589 sq ft, said UIC in a statement.

It added that the redevelopment will be financed by internal funds and bank borrowings, and is not expected to have any material impact on the net tangible assets and earnings per share of the group for the current financial year ending Dec 31.

The news comes after the company said in February that it had won in-principle approval from the URA to convert the building into a mainly residential development.

It was undecided on how exactly to redevelop the property at that time, with UOL group chief executive Gwee Lian Kheng saying that it was assessing all alternatives to ensure the best use for the property.

Its announcement in February came at a time which saw numerous property developers opting to convert office buildings in the central business district for residential use amid climbing luxury home prices, and falling office rents – though the office rental market is now on the mend.

Standard Chartered Bank’s head of Asean property research Regina Lim said to BT earlier this month that the average monthly Grade A office rental value will end the year at about $10.20 per square foot, up 26 per cent from end-2009.

Earlier this month, UIC reported that net profit rose to $79.1 million for the second quarter from a net loss of $251.8 million a year ago.

Revenue rose 7 per cent to $291.8 million from $271.5 million in the corresponding period last year.

The quarter saw it book fair-value gains of $19.8 million on investment properties held by subsidiaries, as opposed to fair-value losses of $526.1 million a year earlier.

Yesterday, UIC’s counter closed one cent lower at $2.18.

Source: Business Times, 31 Aug 2010

(SINGAPORE) Property stocks slid yesterday after the government announced new measures to cool Singapore’s residential property market, even though analysts said the impact on developers is likely to be minimal.

Allgreen Properties was the biggest loser among property plays listed on the main board. The Singapore-based developer, controlled by Malaysian billionaire Robert Kuok, plunged 7 per cent to $1.06.

City Developments, Singapore’s second-largest developer by market value, sank 4.2 per cent to $11.46. UOL Group fell 1.3 per cent to $3.93 and CapitaLand, South-east Asia’s biggest developer, dipped 0.5 per cent to $3.98.

Analysts said the government’s measures are largely aimed at speculators, and that property stocks with high residential exposure are likely to be hit – although the impact may be minimal, with mid-to- high-end property developers largely unaffected. Most have maintained their ratings for the sector.

Daiwa Research put it this way: ‘We believe these cooling measures appear light. All in, this package looks to us like a mild warning from the government to be careful.’

Daiwa kept its ‘neutral’ call on property developers here.

A saving grace for many developers is that they have sold down the bulk of their inventory and, as a result, are unlikely to be adversely affected by the policies, said CIMB Research. It reiterated its ‘under-weight’ call on the property sector.

The major impact will be in the public housing and the private mass market segments, said UOB Kay Hian. ‘We see better value in the high-end segment that is less susceptible to government measures.’

It said its top picks are A-Reit, K-Reit and CDL Hospitality Trust, which have exposure to the industrial, office and hospitality space respectively and are not the targets of the government curbs.

Mid-to-high-end properties are unlikely to be affected, though their transaction volumes could be soft in the near term, said Credit Suisse.

Although the government’s moves are aimed primarily at speculators in mass market properties, such as HDB units, developers are likely to suffer a knee-jerk reaction, it said. In particular, residential property proxies like City Dev, Allgreen and Wing Tai Holdings are likely to be affected.

And while developers are expected to weather the tightening measures fairly well, downside risks lurk.

Daiwa said the government could implement tougher measures if the market remains buoyant, with price increases of over 5 per cent per quarter.

The record pipeline of residential units being planned and constructed, and global economic uncertainty could drag down property prices and rents, said Barclays Capital.

The ‘measures continue to signal that the authorities are adopting an incremental approach to deflating house price expectations’, it said.

‘Coupled with the record pipeline of residential units that are planned or under construction, as well as rising global economic uncertainties, we maintain that the risks for property prices and rents over the next four years are to the downside.’

Source: Business Times, 31 Aug 2010

(SINGAPORE) New government measures to cool the property market and curb speculation in the resale market for HDB flats could cause headaches for banks here due to the extra checks needed for home-loan applicants, but the impact on loans growth will likely be small, a check by BT shows.

‘Banks will certainly run into problems for any pre-existing loans which may have been approved but not drawn down yet, and housing loans not registered at the credit bureau,’ said Helen Neo, head of consumer banking at Maybank Singapore. ‘Banks may have to request a declaration from customers to confirm that there are no such pre-existing loans.’

Effective yesterday, home buyers with outstanding home loans must pay more cash upfront for a new house, and they may borrow no more than 70 per cent of its value, down from 80 per cent.

Housing loans have been the biggest driver of loan growth for banks here throughout the economic downturn, and the recovery since.

Total housing loans grew 22 per cent over the year to end-June, to $101.1 billion – a third of all Singapore-dollar loans by banks here, Monetary Authority of Singapore data show. Including business loans to the building and construction sector, property-related loans made up $149.7 billion, or 50.5 per cent of all Sing-dollar bank loans outstanding at the end of June.

‘I don’t think you’ll see a collapse in loan growth’ due to the new measures, said a banking analyst, who declined to be named. ‘Housing loan growth is more correlated to the completions of properties – that’s when the loans are drawn down. We’ve seen record home sales in 2007, 2009 and so far this year; those would underpin completions in the medium term.’

But if home sales slow and banks compete more aggressively to lend on fewer home purchases, that could squeeze their loan margins and hurt profits, the analyst said. ‘That’s the uncertainty.’

The new rules could also be a problem for people who want to buy a new house to live in, before selling their existing home, if they are still paying off an earlier mortgage, Ms Neo said. Such buyers can no longer borrow more than 70 per cent of the value of the new home from banks, even if they intend to stay in it.

Maybank Singapore had $4.1 billion in housing loans at the end of June. Of those, ‘less than three- quarters’ were loans for more than 70 per cent of the property’s value, a proportion that hasn’t changed much over time, Ms Neo said. ‘We focus mainly on owner-occupied properties, so there is minimal impact on our home loan portfolio.’

While lending standards by banks here are ‘still prudent’, there are signs that more housing loans are being made for over 70 per cent of the property’s value, the government said yesterday.

At OCBC Bank, ‘we have seen an increase in the number of loan applications’ asking to borrow more than 70 per cent of the value of the property, said Phang Lah Hwa, head of consumer secured lending. Most of its home loan applications are for owner occupation, but ‘we have seen an increase in the number of loan applicants for investment purposes compared to a year ago’, she added. The bank is assessing the new measures and their overall impact on its home loan business, she said.

‘The new measures are likely to affect HDB upgraders and investors who would have to commit higher cash amounts for their down payments’ if they have outstanding home loans, a DBS Group spokesman said, adding that the bank has ‘robust underwriting criteria’ for its loans.

‘There may be some near term impact on property sentiment. But in the long run, this is good for the market,’ said Chia Siew Cheng, loans division head at United Overseas Bank.

The new rules could also mean it takes longer to process home loan applications. Banks must check with the Housing & Development Board – in addition to their usual checks on a borrower’s credit record with Credit Bureau (Singapore) – to see if a home-loan applicant has a home loan outstanding.

‘If HDB is willing to enrol with the Credit Bureau as a member, the checks can be made more efficient in the processing of applications,’ Ms Neo said.

Source: Business Times, 31 Aug 2010

THE government has just announced the latest instalment in its gentle therapy of a series of calibrated measures to try and rein in the acceleration in home prices.

Is this strategy working? Or should we revisit the sledgehammer approach of May 1996 when a whole slew of anti-speculation measures were rolled out at one go?

Thus far, the measures introduced since September last year do not seem to have had their intended impact.

Last September saw the scrapping of the interest absorption scheme, which had fuelled speculation. In February this year, the government reintroduced the seller’s stamp duty and lowered the loan-to-value (LTV) limit on housing loans.

On the supply side, the government is selling a record volume of land for private housing development this year in a bid to tame property prices. So far, developers – many of whose landbanks have been dried up by strong housing sales last year – have demonstrated a voracious appetite for land and continue to drive land prices up.

Yesterday, the government announced steps which property consultants say will contain prices of HDB resale flats, a key pillar supporting the entry-level, mass-market private condo market.

In the private housing market, the sellers’ stamp duty is being extended to those who sell residential properties within three years of purchase; the shorter the holding period, the higher the stamp duty. Market watchers say this is directed at specuvestors.

For those already servicing one or more outstanding housing loans, the cash payment for a new property purchase will be doubled and the LTV limit lowered to 70 per cent. This also applies to HDB flat buyers who are taking loans from financial institutions.

Genuine first-time home buyers should not be affected. ‘Deep-pocketed investors with a longer-time investment horizon will also not be affected,’ says Knight Frank managing director (residential services) Peter Ow, who also advises individual property investors.

Weaker investors

The categories of buyers that will be affected are likely to be HDB upgraders along with speculators and weaker investors. ‘Some buyers may not be speculators but tend to really stretch themselves to invest in a second or subsequent property. If the property market were to tumble or interest rates shoot up, they could be in deep trouble,’ Mr Ow points out.

Such buyers could find it difficult to service their loans, and stand to lose their properties, while banks could chalk up non-performing loans.

The series of measures could temper demand at least for mass-market private housing. In addition, according to Mr Ow, investment demand for shoebox and other smallish apartments may be dented from first-time home buyers who were also planning to buy HDB resale flats for their own occupation since this is no longer allowed.

By most counts, residential property prices should start to moderate. Developers will hopefully tame land bids, knowing they cannot keep on expecting to sell their end products at higher and higher prices.

Supposing the market picks up again after an initial knee-jerk reaction, the government can still summon other ammunition from its arsenal – such as further raising cash downpayments and lowering LTV ratios, treating gains from selling properties within say three years of purchase as taxable income, banning subsales of properties bought from developers until the project is completed.

The calibrated approach may not create much bang though. An alternative would be to simply package everything together for greater impact – like in May 1996. The danger of such an approach is that the market can enter a tailspin if there is a confluence of negative factors. This can then be very difficult to reverse and spark economic, social and political problems. Looking back, the May 1996 anti-speculation measures were exacerbated by the onslaught of the Asian Financial Crisis, and later on the fallout from the dotcom bubble bust, Sept 11 terrorist attacks in the US and the 2003 Sars crisis in Singapore. This marked a long property slump until around 2004 – although there was a respite between 1999 and mid 2000.

Taming the property market – without killing it – is the challenge ahead for the authorities.

One may also ask to what extent Singapore’s property prices can really be subdued given high liquidity and a lack of alternative investment options to appeal to the average investor. And then there’s the government’s stated objective of increasing Singapore’s population vis-a-vis our limited land resources.

Source: Business Times, 31 Aug 2010