Recent measures to cool the property market in China, Hong Kong and Singapore are seen as the right moves to temper speculation and rapidly rising prices.

Still, industry watchers said that prices will have room to move upwards over the next two years.

This is because interest rates in Hong Kong continue to be low, and high-end property prices in Singapore are still below their peak.

Private home prices in Singapore rose by 24 per cent in the second half of last year, causing the government to step in.

Over in Hong Kong, the government also announced measures to avoid an asset bubble – after property prices rose by some 30 per cent last year.

The Chinese government is also doing its part to cool its red-hot property sector by tightening credit.

Analysts said these moves will limit price growth this year, but overall, they still expect prices to move upwards, even if at a slower pace.

Donald Han, managing director, Cushman & Wakefield, said: “With the introduction of these measures, and the fact that the government is keeping a lookout on the market, they may continue to intervene.

“We would expect the market currently to come down to between 8-15 per cent, depending on what market you are in in Asia Pacific. So it would probably come down by a few percentage points in terms of price increases.”

Analysts note that Singapore’s high-end residential market remains below 2008 peaks by some 20 per cent.

Meanwhile – they also say, the measures are only aimed at moderating the price increases.

Karamjit Singh, managing director, Credo Real Estate, said: “The measures that were announced by the Singapore government on February 19 do not address the root cause of the problem yet. The root cause of the problem is a short-term supply crunch at the lower end of the market, but it definitely helps mitigate the risk of bubbles being formed in the future.”

Experts said the factors set to drive prices higher this year are investors searching for higher yields, continuing hot money inflows and continuing low interest rates causing lower borrowing costs for buyers.

Source: Channel News Asia, 2 Mar 2010

Bank of America plans to raise new money for Merrill Lynch’s Asia property funds business instead of selling it due to a recovery in the real estate sector, sources said.

BoA was in talks with several private equity firms, including Blackstone Group and Apollo Investment Management, to sell management rights to its US$2.65 billion Asia Real Estate Opportunity Fund which the bank regarded as a non-core business, Reuters reported in July.

Despite negotiations lasting more than six months, no deal was reached because of disagreements over financial terms and the complicated structure of Merrill property funds, sources with direct knowledge of the matter told Reuters yesterday.

BoA has hired people in Beijing to raise money for a new Asia-focused property fund, the sources said, adding China remains a focus for the Merrill funds.

In China, Merrill invested a few years ago in the development of the Beijing Yintai Centre, a top-end complex where the luxury hotel Park Hyatt Beijing is located on the historic Chang An Avenue.

The sources, who were involved in the bidding process and have business ties with BoA, declined to be identified as they were not authorised to speak to the media.

‘Basically there was a lack of interest from Merrill Lynch’s part to go forward with the process,’ said a prospective bidder, who asked not to be identified.

A BoA spokesman in Hong Kong declined to comment.

Bank of America took over Merrill at the end of 2008 during the financial crisis.

In October 2008, just two months before the deal went through, Merrill closed and launched the Asia property fund with focus on Japan, China, India and South Korea.

Investors, also known as limited partners, in the Merrill property fund include many rich families and some sovereign funds in the region, said one of the sources.

Property market transactions in Asia have risen in recent months as investor confidence improves and banks start lending.

A research report released last week by property consultancy firm DTZ, for instance, showed the value of property transactions in South-east Asia rose 25 per cent in the last three months of 2009 from the preceding quarter.

Despite a clear recovery in the sector, some analysts and government officials are worried that asset bubbles were forming due to the sharp rises in property prices.

Merrill is not alone making property investments in Asia.

Rivals, including Goldman Sachs and Morgan Stanley, are long-time players in some key Asian markets like China.

In March, Morgan Stanley raised US$6 billion for a new global property fund, including money from China Investment Corp, the sovereign wealth fund.

Source: Business Times, 28 Jan 2010

Fourth quarter net profit jumps 56%; group on the prowl for more land

KEPPEL Land, which saw fourth-quarter earnings jump 56 per cent as property markets across Asia recovered, said it plans to launch more than 5,500 homes across the region for sale this year.

‘Keppel Land is moving into 2010 with optimism on the back of its stronger financial position, improving residential sales and office space take-up together with expectations of continued recovery of Asia and a return of capital flows from the West,’ chief executive Kevin Wong said yesterday.

In Singapore, KepLand will sell more units in two upmarket projects – Marina Bay Suites and Reflections at Keppel Bay – to capitalise on the opening of the integrated resorts, which is expected to boost the high end market.

And in China, the group will launch two projects in Shanghai as well as phase one (comprising about 1,700 units) of its 35.4 ha project in the Sino-Singapore Tianjin Eco City.

The developer yesterday reported that net profit for the quarter ended Dec 31, 2009, rose to $106.9 million from $68.5 million a year ago. Revenue rose 52 per cent to $300.5 million from $197.4 million.

‘Residential sales in Singapore and overseas have recovered, encouraged by signs of economic recovery and improved market sentiments,’ Keppel Land said. Revenue rose as the company saw progressive revenue recognition from the newly launched Madison Residences and The Promont in Singapore.

Higher revenue was also recognised for projects in Vietnam, India and China. Riviera Cove in Ho Chi Minh City has also recorded robust sales since its launch in November 2009, KepLand said.

The property group, however, recorded a net fair value loss of $12 million at the pre-tax level for fourth quarter 2009, mainly from completed investment properties owned by its listed office trust K-Reit Asia.

For the full year, Keppel Land’s profit rose 23 per cent to $280.4 million from $227.7 million in 2008. Revenue rose 10 per cent to $923.9 million compared with $842.2 million for 2008 on the back of higher sales.

Earnings per share for the full year rose to 24.2 cents from 22.4 cents in 2008.

Keppel Land is on the lookout for land to purchase. The company last year carried out a rights issue which raised gross proceeds of $708 million. ‘This ensures the group is well-positioned to capitalise on opportunities to acquire attractive assets at competitive prices in Singapore and overseas,’ it said.

The company also said the commercial segment is showing signs of bottoming out.

‘A flight to quality has been observed with Marina Bay Financial Centre (MBFC) and Ocean Financial Centre (OFC) chalking increased pre-commitment occupancy rates,’ Keppel Land said. MBFC saw a take-up of about 213,000 sq ft in 2009. Phase One of MBFC is now 79 per cent pre-committed and the overall occupancy for the entire MBFC stands at 68 per cent.

UBS Investment Research on Jan 22 issued a fresh ‘buy’ call on KepLand and upgraded the stock’s target price to $4.38 from $3.50.

‘On account of the higher office and luxury residential price assumptions, we upgrade our RNAV (revalued net asset value) estimate for Keppel Land by 25 per cent to $4.40 a share,’ said analyst Regina Lim.

Keppel Land shares gained one cent to end at $3.44 yesterday.

Source: Business Times, 26 Jan 2010

Move to Asia fuelled by new tax plans, more industry curbs in US, Europe

Bank of America Merrill Lynch is helping more than a dozen multibillion dollar international hedge funds set up or re-establish a presence in Hong Kong and Singapore as the US and Europe increase industry regulation.

A number of funds of hedge funds are also planning offices in the Asian cities, Dan McNicholas, head of Asia financing sales at Merrill Lynch said. Mr McNicholas spoke in a Bloomberg Television interview without mentioning any names.

Hedge-fund managers have been tempted by Hong Kong’s regulatory environment, the region’s economic growth and potential investment opportunities as US and Europe have proposed to increase taxes on the financial industry.

London Mayor Boris Johnson said that as many as 9,000 bankers may leave the UK capital’s financial district as a result of a 50 per cent tax on bonuses announced last month.

‘When you compare to New York or London, the business environment has been very friendly for managers,’ he said. In New York and London ‘you are seeing tax proposed and other restrictions on business that may make Hong Kong and Singapore attractive.’

Asia is also expected to absorb a larger proportion of global hedge fund inflows than it historically received as funds need to correct their under-allocations to the region, he said. More than 15 per cent of the US$50 billion to US$100 billion of hedge fund inflows expected in the first quarter may go to Asia, Mr McNicholas said.

Soros Fund Management and GLG Partners are among those planning a Hong Kong office, people familiar with their plans told Bloomberg last week.

‘Unlike 2006, when we often just saw junior research staff and execution traders coming to Asia, we’re seeing more senior staff choose to make the move,’ said Mr McNicholas.

The UK last month imposed a 50 per cent tax on banks for bonuses of more than £25,000 (S$56,600). It is also raising taxes on residents earning more than £150,000 a year to 50 per cent from 40 per cent.

In 2008, it introduced a fee of £30,000 for non- domiciled residents who had previously escaped its tax system.

The European Union is preparing rules for hedge funds that would restrict the amount they can borrow and force them to use banks domiciled in Europe.

In the US, President Barack Obama proposed raising taxes on fund executives in his first Budget last year. An increase would affect general partners at buyout firms, hedge funds, venture capital firms and other partnerships including real estate, oil and gas investments.

Asian equities outperformed the US in 2009, with the MSCI Asia Pacific Ex-Japan Index advancing 68 per cent last year compared with the Standard & Poor’s 500 Index’s 23 per cent gain.

Asia is leading the world’s emergence from its deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates.

China, South Korea, Taiwan, Hong Kong and 10 South-east Asian economies may expand 6.8 per cent in 2010 from 4.2 per cent last year, according to a report last month by the Asian Development Bank’s Office for Regional Economic Integration in Manila.

Emerging markets will become a leading source of investment and credit as Western economies take longer to recover from the financial crisis, Tony Tan, deputy chairman of Government of Singapore Investment Corp, said yesterday at the Commonwealth Economic Forum in Taipei. GIC manages more than US$100 billion of the city-state’s foreign reserves.

Source: Business Times, 19 Jan 2010

China’s Dec property price surge steepest in 18 months

Real estate prices in China, Singapore and Hong Kong need monitoring for signs of bubbles forming as Asia continues to grow rapidly this year, said Fred Hu, Goldman Sach Group’s chairman of Greater China.

China, Singapore and Hong Kong need to be watched for asset bubbles, especially real estate prices, Mr Hu told a conference in Taipei yesterday. He also warned of inflationary pressures in China and said that China and India would lead the way in economic growth.

Home prices in Hong Kong are at their highest in 12 years, while residential and commercial real-estate prices in 70 cities in China climbed 7.8 per cent in December, the fastest pace in 18 months. In Singapore, a record number of private homes were sold last year.

China’s economy is overheating as asset bubbles and inflation pressures build, posing a ‘major risk’ to global growth, the World Economic Forum said on Jan 14.

Hong Kong residential property prices will rise about 5 per cent this year, Credit Suisse Group AG analysts led by Hong Kong- based Cusson Leung said last week. Prices of existing homes in Hong Kong, which rose 29 per cent last year, advanced further to reach their highest in almost 12 years as at Jan 10, according to Centaline Property Agency Ltd, one of the city’s biggest.

Record-low mortgage costs, near-zero interest rates on savings deposits and buying from rich mainland Chinese stoked demand even as Hong Kong Chief Executive Donald Tsang said on Jan 14 there is no ‘obvious bubble’ in the city’s property market.

In November, Mr Tsang had warned that asset prices in cities including Hong Kong and Singapore were ‘going up to levels that are incompatible or inconsistent with the economic fundamentals.’

To help ease a shortage of homes, Hong Kong will hold its third land auction in the current financial year next month, it said last Friday.

In China, property prices rose at the fastest pace in 18 months in December, with residential and commercial real-estate values in 70 cities climbing 7.8 per cent from a year earlier, the National Development and Reform Commission said last week.

To cool speculation, the government this month reimposed a sales tax on homes sold within five years of their purchase, after cutting the taxable period to two years in January 2009 to bolster a market that was then flagging.

The central bank also raised lenders’ reserve requirements from yesterday, seeking to rein in liquidity from record lending without stalling a recovery.

A total 14,991 units were sold in 2009 in Singapore, according to Bloomberg calculations, beating the historical high of about 14,800 units set in 2007.

Source: Business Times, 19 Jan 2010

* 2009 Apac investment sales US$67b, up 22% from 2008
* Q4 2009 sales US$21.6b, down 9% from Q3

Investment sales in the Asia Pacific region’s commercial property market will keep rising in 2010, buoyed by returning economic growth and a stable banking system, global property advisor DTZ said on Monday.

Deal activity in the region totalled US$67 billion in 2009, up 22 per cent on 2008. On a quarter-by-quarter basis this marked a return to 2007 levels, DTZ said, adding fourth-quarter volumes were US$21.6 billion, down 9 per cent year-on-year.

‘Despite the fall in activity over the (fourth) quarter, we expect the upward annual trend in activity to continue into 2010,’ said David Green-Morgan, head of DTZ Asia Pacific Research, in a report.

He said this would be partially driven by economic growth returning to the majority of economies in the region, and the relatively stable banking system, which would ‘help to stimulate lending together with improving institutional allocations’.

China, Australia and Japan were the most active markets within the region, accounting for 80 per cent of fourth-quarter investment sales volumes.

Growth in the Asia Pacific commercial property market in 2009 stands in contrast to Europe, which saw investment sales more than halve in 2009 to US$112 billion, from US$53 billion.

Source: Business Times, 21 Dec 2009

RETAIL property in Asia Pacific continues to outshine other sectors as rents grow, showed a new report by DTZ.

Retail rents have performed well with growth of around 3 per cent per year since 2004 – without any significant falls. The level of growth has been maintained despite overall negative performance during the earlier part of 2009, DTZ noted.

Additionally, retail rents returned to positive growth in Q4 as the more heavily weighted markets (Shanghai and Singapore) have turned positive.

‘Retail markets are generally doing well with quarterly rental growth rates up to 8 per cent being reported during the year,’ said David Green-Morgan, head of DTZ Asia Pacific Research. ‘Strong retail sales have been sustaining retail markets across the region. Government stimulus across the region has helped sustain the retail sector and this is helping to sustain rental levels and boost prices in many locations.’

By contrast, the Asia Pacific office and industrial markets continue to be sluggish as 2009 comes to an end, DTZ said.

Over the course of the year, the office sector experienced the largest fall with a peak to trough decline in office rents of around 27 per cent so far. Industrial rents, on the other hand, have fallen around 3 per cent year-to-date, with the possibility of further falls to come. Despite more encouraging economic fundamentals across the region, occupier demand for these two sectors remains weak on the back of slow global growth, DTZ noted.

But the report also pointed out that both office and industrial sectors around the globe have either reached or are approaching the bottom of the rental cycle as many markets have reached a balance between supply and demand – albeit at a much lower level than the peak of the cycle.

In Q4, global office rents fell by 2 per cent while industrial fell by one per cent. But global retail rents grew by 0.2 per cent on the back of the gains in Asia Pacific and levelling out in Europe.

The report also noted that global capital city prime rents are highlighting the continuing trend for the flight to safety. Prime rents in the main markets have held up far better than anticipated. Rents in London City, Paris’s central business district, Hong Kong and Sydney have all levelled off during Q4 where many tier two cities continued to fall.

Source: Business Times, 19 Dec 2009

But DTZ notes that one major caveat is the capital required for de-leveraging

ABOUT US$85 billion will be available for direct investment in real estate across the Asia Pacific next year, double the US$43 billion transacted in the past 12 months, says DTZ Research.

The US$85 billion equates to 27 per cent of the US$315 billion total capital available for direct investment in real estate worldwide in 2010, DTZ says in its The Great Wall of Money report issued yesterday. The report analyses data generated by DTZ Research’s equity tracker.

It also says 2010 worldwide transaction volume should be more than double this year’s US$157 billion and could return to the level last seen in 2004.

Globally, the ratio of capital chasing real estate is about US$2 for every US$1 of deal volume. The ratio is relatively higher in Europe at closer to 2.2, compared with 2 in the Asia-Pacific and 1.8 in the Americas.

‘Asia Pacific and Europe are relative winners, with more money targeting these regions for investment than they are raising and investing elsewhere,’ DTZ’s report says. ‘Together, these regions are targets for 77 per cent combined of the total investment in 2010 but are raising only 49 per cent of available money.’

But DTZ cites one major caveat – capital required for de-leveraging. It points to the considerable amount of commercial real estate lending due for refinancing over the next two to four years.

‘While some of the available capital may be diverted to this purpose – for example, through provision of debt financing – we expect the de-leveraging and unwinding of support policies will be slowly phased in over time, limiting the immediate impact in 2010,’ it says.

Third party-managed funds are the largest investor category, accounting for 60 per cent of available equity, followed by institutions with 28 per cent and sovereign wealth funds with 6 per cent. The remainder has been raised by German open-ended funds, publicly listed companies and various private companies/high-net worth investors.

DTZ says 81 per cent of total capital raised is being directed towards multi rather than single-sector investments. Just 19 per cent of the capital has been raised to target a specific property sector only – chiefly industrial (5 per cent), office (4 per cent) and retail (3 per cent).

As well, 70 per cent of total capital is targeting two or more countries. Those investing in a single country are predominantly focused on the major liquid markets of the UK and US, accounting for 9 and 7 per cent respectively of total planned investment. Germany, China and Japan are expected to make up a combined 5 per cent of planned investment.

‘Globally, most investors are adopting multi-sector and/or multi-country strategies as part of sector and geographic diversification strategies, and reflecting the opportunistic nature of most fund mandates,’ says Nigel Almond, associate director of real estate strategy at DTZ Research.

Source: Business Times, 18 Dec 2009

Investors concerned a real estate bubble burst would derail the region’s economic recovery

Property prices in parts of Asia have risen sharply, sparking worries that bubbles are forming and prompting policymakers to rein in the sector.

Investors fear any real estate bubble burst could derail the region’s nascent economic recovery in the way the US housing sector slump brought on the worst global downturn in decades.

Here are some questions and answers on where potential bubbles are, their impact on shares, where prices are headed and policies that governments might implement next year:

Bubble threat: where does it loom largest?

China and Hong Kong face the highest risks in Asia, followed by Singapore, as property prices have risen strongly, especially in the second half, due to ample liquidity, low interest rates and a rally in stock markets.

‘If it (the China bubble) does burst, is that going to suddenly be a big burst? In this case, it’s got a big impact on the rest of Asia,’ said Jeremy Helsby, group CEO of UK-based property firm Savills .

Some cities in China and Hong Kong’s mass market have seen residential prices rise by about a third this year, while in Singapore, private home prices soared 16 per cent in the third quarter from the previous quarter, the biggest jump this decade.

‘Singapore and Hong Kong are held up as examples of the effects of excess liquidity and credit in Asia. The residential property data certainly raise cause for concern,’ said Alaistair Chan, an economist at Moody’s economy.com.

China’s aggressive stimulus measures and developers halting some projects late last year due to the economic downturn helped push up prices this year, while Hong Kong’s limited land, coupled with a government land sales hiatus boosted prices.

The bubble threat also surfaced in Australia and South Korea earlier this year though various government policies have allayed those fears.

What is the impact of potential bubbles on shares?

Property shares have been outpacing main indexes in China , Hong Kong and Singapore, with the sector sub-indices up by 70 per cent to more than doubling.

Shares of top Chinese developer China Overseas Land and Investment and Singapore’s CapitaLand, South-east Asia’s largest developer, have signifcantly outpaced their local market indexes.

While some real estate stocks are likely to continue to outperform the broad markets in 2010, gains will be muted due to wariness over governments’ tightening policies as they act to fight off the potential of a property market meltdown.

‘Next year, we won’t see the exceptional returns we’ve seen in either financials or property shares. But I do think we will see some further but moderate growth in a number of property shares,’ said Rod Cornish, division director at Macquarie Capital Advisors. If a bubble does burst, it could hamper developers and real estate agents exposed to the markets affected. For instance, if a bubble bursts in China, major developers in the market, such as Shimao Property , could see their earnings and share prices hurt, analysts said.

Where are property prices headed for next year?

Most of the huge price rises in Asia are in the residential sector as reluctance by companies to hire kept demand for office space relatively weak in the region.

Residential prices in most markets are set to stabilise next year, with rises seen gradual compared to the huge swings this year. Prices from Japan to Singapore are expected to either remain stable or rise by nearly 10 per cent.

Residential prices in China are expected to rise by as much as 5 per cent by the end of next year from now, a Reuters poll showed, less than gains logged for this year.

Comparatively, commercial prices will likely be steady or rise marginally in China, but might see a more significant increase in Singapore, analysts and industry executives say.

What kind of policies will governments come up with?

Some countries have already reacted with monetary and property-related policies to allay fears over speculation.

In December, Australia raised interest rates for a third straight time, while South Korea in September imposed mortgage lending in Seoul and nearby areas to stem a housing boom.

In the months ahead, governments in the rest of Asia will likely resort to releasing land supply, taxes and bank lending measures to stablise property prices, instead of using monetary tools, since inflation is still benign.

‘Governments are nevertheless unlikely to crack down on speculation too harshly. One worry is that this could deter legitimate investment, causing the market to slump,’ said Mr Chan at Moody’s economy.com.

Source: Business Times, 17 Dec 2009

Bank economist also does not expect a W-shape recovery

ASSET bubbles will not be a problem in Asia until 2010 and beyond, even though policymakers appear well aware of the risks of excess liquidity in the system, say OCBC analysts.

At a briefing yesterday, economist Selena Ling explained that Asian markets are still early in the recovery cycle, and that attempts to address an overheated market should come much later.

However, she says, the days of ‘easy money’ under the Greenspan era are definitely over, and the central banks in the region are cognizant of the asset bubble risks. This can be seen from the rate hikes in Australia, while the others keep a close watch on the situation.

Yesterday, Ms Ling also downplayed the likelihood of a W-shape recovery, citing factors such as the cycle of upgrades to GDP growth, corporate earnings forecasts and ratings which are expected to continue into the first half of 2010.

‘So, while growth may tail off in the second half of 2010, we don’t expect a sharp correction to the same magnitude from Q4 last year to Q1 this year,’ she said.

Turning to foreign exchange, OCBC thinks that the immediate outlook for the US dollar continues to be negative, as the economic recovery story plays out in the near-term, says FX strategist Emmanuel Ng.

Pointing to the Baltic Dry Index, which moves inversely with the US dollar and the production numbers in the OECD, Mr Ng explained that both indicators have posted sharp rebounds – an indication of higher economic activity.

Moreover, the forex markets are poised to see higher volatility if global exit strategies are not synchronised.

Under such situations, there could be a shake-up in the markets that will see the US dollar briefly ‘gaining traction against the majors’.

As for Asian currencies, OCBC said that broad dollar direction coupled with equity market performance will continue to provide underlying impetus for those units.

In particular, the pick-up in the foreign purchases of Asian currencies is expected to be sustained going into the new year.

As for ratings on local stocks, OCBC is ‘overweight’ on telecommunications, oil & gas, commodities and infrastructure.

Top picks include the three telcos, Noble, Ezra, Wilmar, Midas and Tat Hong, said investment research head Carmen Lee.

Source: Business Times, 2 Dec 2009