(BIRMINGHAM) British cities could sell assets worth billions of pounds including airports and prime real estate to plug budget holes and Birmingham is already talking to potential investors in the Middle East.

Faced with demands from Britain’s overstretched government for big spending cuts, Birmingham City Council leader Mike Whitby said that he had been approached by sovereign wealth funds and was talking with the Abu Dhabi government.

‘We would allow them to be in partnership with our assets including the National Indoor Arena (NIA), the Symphony Hall, the ICC (International Convention Centre) and the National Exhibition Centre (NEC),’ said Mr Whitby whose council serves over a million people in Britain’s second biggest city.

The NEC Group, wholly owned by the council and which groups together Britain’s biggest exhibition centre as well as other venues such as the NIA and ICC, has fixed assets worth about £750 million (S$1.55 billion) according to pre-credit crisis valuations included in the council’s most recent annual report.

NEC made an operating profit of almost £30 million last year, on revenues of £110 million.

Mr Whitby, a member of Britain’s ruling Conservative Party, said that wealthy investors had shown significant interest in the city’s ‘Big City Plan’ redevelopment during a recent trip to Kuwait when he spoke to the country’s chamber of commerce.

Such asset sales and foreign investment show how councils could invest in infrastructure despite expected cuts of 20-30 per cent in their budgets, and would help the government towards its goal of using the private sector to lead economic recovery.

One councillor who asked not to be named also said that Britain’s second biggest city could sell its stake in Birmingham Airport while a spokesman for the northern city of Liverpool said that it was conducting an ‘ongoing review of assets’.

Rural communities too are looking for ways to raise cash.

Ken Maddock, leader of Somerset County Council in the south of England, expects to sell about two-thirds of 60 farms owned by the council as it grapples with £350 million in debt.

‘Like every other council in the country, we all face huge cuts in our funding,’ he told reporters this month. ‘We will have to stop almost all our major building projects.’

Somerset’s so-called County Farm Estates run to about 7,200 acres (2,913.7 ha) which could be worth more than £40 million based on the Knight Frank Farmland Index showing English farmland selling for £5,769 an acre in the second quarter of the year.

Elsewhere in Britain, council officials say that Darlington Borough Council is in protracted talks about the sale of a stake in Newcastle Airport while authorities stretching from Camden in London and to Bolton in the north of England are reviewing the value of billions of pounds worth of property assets.

Central government is also taking a closer look at its portfolio of assets, with trophies such as state-owned bookmaker the Tote up for sale.

In Birmingham, which describes itself as Europe’s biggest local authority, Mr Whitby said that Kuwaiti lead developer Salhia International Investments has already invested about £200 million in the Beorma quarter development, the latest phase in the regeneration of the city centre.

Plans to knock down and relocate the main library and redevelop the site in the heart of the city have also caught the eye of Middle Eastern investors, said Randal Brew, a locally elected lawmaker responsible for finance.

‘We have been successful in attracting quite a lot of Arab money, the leader has gone out and marketed the city,’ Mr Brew said during a recent visit to the city by Reuters reporters. ‘It is important because it is a new source (of investment).’

The local business community is also busy forging ties with Middle Eastern investors, highlighted by a visit this month from Sheikh Ali Al-Hashimi, religious adviser in the United Arab Emirates ministry of presidential affairs.

‘We want to see if we can get sovereign wealth attracted to projects in Birmingham,’ said Noor Siddiqi, a lawyer, who organised Mr Al-Hashimi’s trip. ‘London has the attention of most of the world but other regions like Birmingham have a massive Muslim community and can relate to Muslim countries.’

One Conservative Party councillor, who asked not to be named, said that the council could raise funds by selling its 19 per cent stake in Birmingham international airport.

Britain’s sixth busiest airport is worth about £870 million, based on the £420 million that the Ontario Teachers’ Pension Plan and Australia’s Victorian Funds Management paid for a 48 per cent stake in 2007.

Such a sale would have long-term strategic and financial implications, however, and Mr Brew was less keen on sales of anything other than real estate assets, saying that he knew of no plans to sell the NEC or the council’s airport stake.

‘They generate good returns and they have a good asset value . . . Now is not the time to review those type of assets because you would not get the maximum value,’ he said.

Birmingham airport reported a net profit of £0.6 million for the year to end-March, down from £9.9 million in 2008/09. The council earned a dividend income of £0.4 million for the year to end-March, down from £2 million.

The council, which according to Mr Brew owns about 40 per cent of Birmingham, has a total capital budget for the next three years of just under £1.5 billion.

‘We will fund that by a number of means and included in that will be capital receipts from the sale of properties we have that are surplus to requirements,’ said Mr Brew.

Other big items sitting on the council’s balance sheet include about £2 billion worth of social housing, equating to a third of its total fixed assets.

‘We are looking at a number of situations,’ said Mr Brew, pointing out the city’s track record for attracting investment.

‘We have strengthened our links with China . . . we also have links with India and we’re trying to link in with their economies and bring people over.’ – Reuters

Source: Business Times, 23 Sep 2010

They will account for a greater share of the market next year, reports YOLANDE BARNES

EVEN in these globally uncertain times, there are a host of reasons for overseas buyers to come to London. The city attracts overseas buyers from countries with strong currencies who see they are getting property more cheaply than before, or those looking for a safe haven in uncertain times and even a hedge against falls in their own currency.

Volatility is inevitable in a low turnover market that is heavily dependent on highly discretionary equity buyers and demand will remain fragile against the background of economic and fiscal uncertainty in the UK, eurozone, and beyond. That said, the fundamentals of the prime central London market remain sound, provided London retains its status as a major world city and financial centre.

As such, we are forecasting some softening of values across the market in general, followed by a period of flat growth through 2011, with prime central London values being restored to peak levels in the third quarter of 2013.

The upper tiers of prime

The very top end of the market has shown slightly greater value recovery, largely propelled by international buyer activity. To date, super prime properties, which average around £5 million (S$10.4 million), rose by 1.3 per cent in the second quarter of 2010, which is now just 5.5 per cent from the peak. This suggests a resilience that is based almost exclusively on low stock levels and the sector’s appeal to international buyers. Ultra prime properties, which average £15 million and above, grew by 1.5 per cent, but that is on the basis of a delayed recovery (following later falls than the lower tiers of prime), and values remain 15.8 per cent below the peak.

International buyers are the lifeblood of this market sector, accounting for around half of all prime central London buyers, rising to 63 per cent at the top end of prime. These high net worth individuals have rebuilt their wealth by around 20 per cent over the past year and this, coupled with the benefits of a low sterling, means they remain committed buyers.

Prime London new build market

The new-build market in London is outperforming all other markets right now, with turnover several times the low levels seen in 2009.

Savills has exchanged contracts on around three times the number of prime London development units to date this year compared to the same period last year, with the total value of sales some four times higher. The average value of the properties exchanged this year exceeds £1.2 million, compared to just over £750,000 last year.

‘International investors are now very active off-plan buyers, buying in prime and more mainstream developments, while domestic buyers are once again active but are focused only on finished developments,’ says Ed Lewis, Savills’ head of London new homes.

‘For international investors, good quality mainstream new-build is seen as a rock solid mid-term investment, while the trophy apartment at the very top end of the market is the safety deposit for the super rich.’

International buyers are very comfortable buying off plan, not least because they believe they are buying into a rising market, with significant growth forecasts over the next five years.

These buyers are buying on forecast yields of 4-4.5 per cent and are looking for quality, long-term investments. Invariably, they are looking for a balanced worldwide portfolio of assets and London – which they see as a transparent world city with good rental potential – is generally their first call for residential investments.

UK buyers have not returned to the off-plan market – they are looking to cut a deal and developers, particularly in the current low stock London market, simply don’t need to make deals – but they have returned to the new- build London market, where owner occupier buyers are quickly eroding available stock.

Savills’ expectation is that international buyers will account for a greater share of the market next year, and as finished stock levels shrink, the choice of quality developments will be dominated by new starts. The firm is also seeing international investors looking beyond London. For example, it recently launched an off-plan riverside scheme in central Cambridge that has attracted significant interest.

‘The risk to international investors will come if they buy into secondary schemes in their rush to get into the London market. We advise our clients always to be mindful of their exit route and recommend a focus on quality schemes, in high-demand locations, that will offer solid long-term investments, both from a yield and capital growth perspective,’ adds Mr Lewis.

Prime central London rental market

Tenant demand, in particular from corporate tenants, has recovered well and the surplus stock that was a feature of the rental market during the downturn is either sold on to owner occupiers or rented out.

Prime central London rental growth is accelerating, with values up 2.5 per cent in the quarter. This builds on 2.8 per cent growth in the first three months of the year, and takes annual growth up to 5.6 per cent, leaving rental values just 8.8 per cent off the peak. Rents are forecast to end the year 8 per cent up on the end of 2009, with a further 7 per cent annual growth to come in 2011 and 2012.

Flats have outperformed houses over the past three months, with 9 per cent growth in rents year-on-year, compared with 6 per cent for houses. The core prime rental sector, for properties worth around £1.8 million on average, is outperforming the total market, with rental values now just 0.2 per cent off the peak. Yields are currently at 4.3 per cent and rising, reflecting a rising demand from corporate tenants benefiting from the first wave of economic recovery.

Investors don’t generally buy into prime London residential for income. However, yields are now moving up, and as rents rise and capital values stall over the autumn and early part of next year, yields can only improve.

In the mid- to long-term, London remains a capital growth investment, with capital values expected to turn back to positive by mid- to late-2011.

International tenants continue to be an important force in the market, accounting for 65 per cent of Savills prime central London demand, with financial sector employee demand slipping back from 68 per cent in 2007 to the current 54 per cent.

The writer is head of residential research, Savills

Source: Business Times, 23 Sep 2010

(HONG KONG) Without ever setting eyes on the property, Hong Kong resident Irene Chu snapped up a flat nearly 9,700km away in London, a city she has visited but has no intention of ever living in.

‘I’m not buying the high-end property. I just bought one close to the tube line and that’s a pretty safe investment,’ said the 40-something business executive who paid £pounds;215,000 (S$443,800) for her apartment.

Ms Chu isn’t alone. Over the past year, Asians have invested a total of £pounds;761 million, or more than US$1 billion, in newly built apartments in central London, up from around £pounds;250 million a year earlier, according to real estate company Knight Frank.

Asian property investors are lured by a confluence of positive factors, a weak British pound, sluggish property prices in Britain, down over 10 per cent from a record high in 2007, and low interest rates.

Coupled with that, there is also familiarity with London.

Most of the top buyers are from ex-British colonies Hong Kong, Singapore and Malaysia.

Their interest has been duly noted. Since late last year, a steady stream of British developers, such as Barratt, Berkeley Group and Ballymore Group, have been wooing affluent Asians such as Ms Chu by hosting swanky exhibitions complete with lawyers and agents on hand.

There are some worries that Britain could be headed for a double-dip recession but Asian buyers still deem London properties a good buy given housing prices in their home markets have risen sharply, creating bubble fears.

Investors also think that there is room for growth in Britain’s housing prices after the global crisis.

Colliers sold around £pounds;200 million worth of British apartments in Asia so far this year, already outpacing the £pounds;150 million for the whole of last year, to buyers in Hong Kong, Singapore, Malaysia and China.

Colliers, which helps market projects for developers, has held 26 exhibitions throughout Asia this year marketing mainly London apartments, and has plans for another 20.

Developers say that Asian buyers are used to purchasing off the plan, meaning that they are willing to place orders before the construction of the apartments are complete. — Reuters

Source: Business Times, 16 Sep 2010

Improved economy and low interest rates creating demand: Halifax

(LONDON) UK house prices unexpectedly rose for a second month in August as a strengthening economy helped support demand, Halifax said.

The average cost of a home rose 0.2 per cent from July, when it gained 0.7 per cent, the mortgage lending division of Lloyds Banking Group said in a statement yesterday. Economists had forecast a 0.5 per cent decline, based on the median of 12 estimates in a Bloomberg News survey. From a year earlier, prices rose 4.4 per cent to an average £167,953 (S$347,453).

‘The improved economy, strengthening labour market and low interest rates are all supporting housing demand,’ Martin Ellis, an economist at Halifax, said in the statement. Still, the pace of economic growth is ‘unlikely to be sustained’ and prices will probably ‘remain static’ this year, he said.

While the UK economy expanded at the fastest pace since 2001 in the second quarter, growth may wane as the government implements the biggest public spending cuts since World War II and the global economy cools. The Bank of England will probably leave its main interest rate at 0.5 per cent today and maintain its bond stimulus plan at £200 billion, according to Bloomberg News surveys of economists.

Other recent data indicate Britain’s housing market recovery is losing steam as demand from home buyers declines and banks continue to ration credit.

Nationwide Building Society said on Sept 2 that house prices fell 0.9 per cent in August, the most in six months based on its measure.

Rightmove plc, the operator of the nation’s biggest property website, said last month that asking prices for homes fell 1.7 per cent in August. — Bloomberg

Source: Business Times, 9 Sep 2010

(LONDON) UK home values dropped in August by the most in 16 months as the housing market endured a ‘modest re-pricing’ that is likely to last as long as a year, Hometrack Ltd said.

The average cost of a home fell 0.3 per cent from the previous month to £158,200 (S$332,430), the London-based property researcher said in an e-mailed statement yesterday.

That was the biggest drop since April 2009. Hometrack’s index is based on a survey of 5,100 real estate agents and surveyors.

The report adds to mounting evidence that the housing market is weakening, and economists predict data today may show that banks granted the fewest mortgages in more than a year last month. Britain’s economy ‘remains fragile’ and officials may need to expand their emergency stimulus to aid the recovery, Bank of England deputy governor Charles Bean said on Aug 28.

‘The housing market is in the process of a modest re-pricing that is likely to run for the next six to 12 months,’ Richard Donnell, Hometrack’s director of research, said in the statement. There is also ‘growing weakness on the demand side, a weakness which represents more than just a seasonal blip’.

From a year earlier, prices rose 1.5 per cent, the least in five months, Hometrack said. Demand for homes, measured by the change in new buyers registering with real estate agents, fell for a second month, dropping by 2.2 per cent.

The supply of homes ‘has improved markedly and this has reduced the support for house prices provided by the scarcity of housing for sale over 2009 and early 2010′, Mr Donnell said. Prices fell in every region apart from Wales, where they were unchanged, the report showed.

‘The deleveraging process is incomplete, the recovery remains fragile and a considerable margin of spare capacity is yet to be worked off,’ Mr Bean said at a conference in Jackson Hole, Wyoming. ‘Further policy action may yet be necessary.’

UK banks probably approved 46,500 mortgages in July, the least in 14 months, according to the median forecast of 19 economists in a Bloomberg News survey. The Bank of England will release that data today. — Bloomberg

Source: Business Times, 31 Aug 2010

PROFITABLE Plots, best known for its TV commercials featuring ex-footballers urging viewers to ‘Buy UK Land’, is being probed by the Commercial Affairs Department (CAD).

The Business Times has reported that CAD raided the offices of the Singapore-based company last week and seized documents as part of the probe.

Directors of the ‘strategic land investment firm’ had also reportedly been quizzed by the white-collar police. Although police confirmed the investigations yesterday, they declined to elaborate on the case.

Set up in Singapore in 2004, Profitable Plots deals in land and lubricant investments, among other things, and made headlines recently when angry clients stormed its Stanley Street offices demanding their payouts.

The firm has been placed on the Monetary Authority of Singapore’s Investor Alert List since the latter part of last year.

The CAD probe comes two months after a group of the firm’s disgruntled clients turned up at Speakers’ Corner to protest against the firm.

Most claimed they were owed payouts from investments in land and lubricants sold by Profitable Plots.

Some investors had parted with as much as $180,000. Many said they have yet to see their money despite persistent calls to the company.

BT said some clients have filed claims against the firm, although none have been successful so far.

The Straits Times understands that at least one client had lodged a report against the firm as far back as August last year, while a group of 20 had made a collective report late last year.

Profitable Plots’ group managing director Tim Goldring told BT he believes the CAD is duty-bound to probe complaints, but added that a small number of complaints he has encountered came from competitors or from people who do not understand the intricacies of United Kingdom land laws.

 ’And frivolous complaints could waste a lot of time for everyone,’ he was quoted as saying.

 Source: Straits Times, 27 Aug 2010

(LONDON) Office landlord Derwent London reported sustained growth in the value of its portfolio to £2.2 billion (S$4.6 billion) yesterday, easing fears of a new real estate slump as Britain’s economic prospects wilt.

Chief executive John Burns told Reuters Derwent’s signature strategy of providing affordable offices in the capital’s nascent business hubs would hold up as firms budgeted for slower expansion and higher rates of inflation.

‘We have a sort of formulaic business model, operating off the middle market for rents of £30-50 per square foot (psf) and I’m just very positive that the momentum has continued. Even over this summer period, we were making lettings,’ Mr Burns said.

‘We’re in a good position. We have been able to deal with all the crises without having a rights issue and we’ve still bought – we’ve got a lot of uncharged property that’s not mortgaged and a lot of unused (credit) facilities,’ he added.

Derwent, which marked a long-awaited return to investment with the £146 million purchase of the West End’s Central Cross building in July, posted a 17 per cent rise in first-half net asset value to 1,365 pence a share, against 18 per cent six months earlier.

The value of its portfolio has risen 10.3 per cent, or £200 million, since Dec 31, 2009.

Derwent shares gained 2.9 per cent to trade at 1,414 pence by 0844 GMT yesterday, ahead of both net asset value and a 1.2 per cent rise in UK property stocks.

It booked pretax profit of £216.4 million over the period against a pretax loss of £223.3 million a year ago, supporting its guidance for high single-digit dividend growth for the 2010 financial year.

It has recommended an interim dividend of 8.75 pence.

Derwent results coincide with renewed concern for Britain’s economic health and the lingering threat of recession.

Ten-year gilt yields plunged close to record lows on Tuesday, after Bank of England policymaker Martin Weale said economic growth forecasts may be too optimistic, further spooking investors already worried about sharp public spending cuts and rising unemployment.

Bucking the gloomy outlook, Derwent achieved 125,700 sq feet of lettings in its first half and a further 87,200 sq feet since end-June, compressing its vacancy by floorspace to one per cent, Mr Burns said.

Investors will be watching carefully to see if Derwent can cut this even further as cost-conscious tenants make beelines for its offices, with average rents about 25 per cent cheaper than its biggest rivals.

The overall vacancy rate is set to jump to about 9 per cent when developments such as the Angel Building on the outskirts of the City of London complete later this year. Mr Burns said he was confident Derwent could match the 5 per cent growth in rents achieved since December in the second half of 2010.

About one-third of the office space at Central Cross could become available for refurbishment and reletting from 2011, when a £34 psf average rent could move closer in line to the £40-plus rents at its Charlotte Building nearby.

The 24,000 sq feet of retail space could achieve rents as high as £250 psf for prime Zone A, a Derwent analyst presentation showed, citing the £300 Zone A secured by Land Securities in a recent letting nearby to Primark.

Mr Burns said consistent rental growth would be crucial to driving property values going forward.

‘We have a view that yields have to run out of steam some time even though the West End is a very special place,’ he said.

‘I don’t think the performance, in terms of valuation, will be as strong in the second half as it was in the first half. It will be finely balanced.’ – Reuters

Source: Business Times, 26 Aug 2010

Raided by CAD, the group’s MD claims some buyers don’t understand concept

(SINGAPORE) ‘Completely misguided’ is how the directors of strategic land investment firm Profitable Plots have described the complaints made against the company – complaints that have prompted the white-collar crime police to step in.

And the company, perhaps best known for its tagline ‘Buy UK Land! We did!’ – once uttered by some of the best-known names in football – is keen to set the record straight.

Last week, the Commercial Affairs Department (CAD) raided the offices of Singapore-based Profitable Plots, carted away just about every document it had and brought its directors in for questioning.

This was two months after a group of disgruntled investors turned up at Speakers’ Corner to protest against the company, claiming they were owed money. Some investors have filed claims against Profitable Plots – although none have been successful so far.

Profitable Plots’ group managing director Tim Goldring told BT he believes the complaints and the resulting CAD probe are a result of ‘people (being) frightened of what they don’t understand’ – that is, the complex business of investing in land overseas.

A case in point is a complaint brought up by an investor at Speakers’ Corner – who told Channel NewsAsia he had invested $180,000 in eight parcels of land slated for housing development in the UK, only to find out the land had been designated ‘green belt . . . (which) is basically conservation land where the prospect of development is zero or maybe 5 per cent’.

According to Mr Goldring, that belief is completely untrue. ‘Green belt land is being built on every year in the UK – you just have to adhere to certain guidelines for development (such as, maintaining a certain degree of open space),’ he said. ‘If you check the UK land use statistics, you’ll see there’s development on green belt every year. Even Prince Charles has plans to build on green belt.

‘And in this particular example, the eight parcels of land have been designated as brownfield land (which is previously used land that can be redeveloped) by the local council.’

Mr Goldring said that while he believes CAD is duty bound to investigate complaints, he has found the small number of complaints he has encountered have arisen from competitors or from people who do not understand the intricacies of UK land laws. ‘And frivolous complaints could waste a lot of time for everyone,’ he said.

Profitable Plots’ group operations director John Nordmann believes some of the unhappiness might stem from the state of the economy as a whole.

‘In the past couple of years, we have paid out in excess of $50 million to our investors,’ he said. ‘And we have done 14,000 transactions since 2004. We have never lost any money for any of our clients (a statement reiterated in bold on the company’s website), even during these tough times. A handful of people are unhappy, but given the economic situation, I guess they’d be unhappy.

‘But as a testament to our business, I can tell you that the bulk of our customers keep coming back – 70 to 75 per cent of our business is repeat business.’

Profitable Plots, part of the global strategic investment entity that is Profitable Group, was set up in Singapore in 2004. It has since opened offices in Malaysia, Brunei, Canada, the Philippines and Thailand, among various places.

It’s a company well known among football fans – thanks to an advertising campaign that ran from 2006 to 2007, with commercials that aired during just about all football matches here and featured many familiar faces on and off the pitch.

The ads had local football commentator Jamie Reeves and his Malaysian counterpart Shebby Singh – as well as former Manchester United player and Middlesborough manager Bryan Robson – telling viewers to ‘Buy UK Land! We did!’.

Steve McMahon, former Liverpool and England footballer (and also a commentator on local television), was also featured in the ad campaign and worked for a while for The Profitable Group as its group commercial director.

Source: Business Times, 26 Aug 2010

The 200,000 square-foot property known as Grand Buildings was bought by a private Russian investor, said the person, who declined to be identified, because the information isn’t public. Istithmar, a unit of Dubai World, bought the West End building in 2005 for £155 million.

Dubai World, which manages a group of businesses for the sheikhdom’s government, has said it plans to sell assets to repay creditors as it seeks to renegotiate the terms of US$23.5 billion in debt.

Istithmar sold two properties in the same district to Great Portland Estates plc in November for £10 million plus a share of the buildings’ future profits. — Bloomberg

Source: Business Times, 12 Aug 2010

(LONDON) Britain’s largest residential landlord Grainger yesterday said it remained bullish about its prospects as the wilting housing market carved out new opportunities to buy real estate at attractive discounts.

Chief executive Andrew Cunningham said Grainger, which has around £pounds;2.8 billion (S$6 billion) of assets under management, was exploiting the tougher market conditions to make well-priced acquisitions and consolidate its growth.

‘Our portfolio is continuing to prove to be resilient . . ., despite price growth in the general housing market slowing in the last few months reflecting the economic uncertainty,’ Mr Cunningham said.

Grainger said it was trading well despite gloomy market sentiment, with £pounds;67.6 million of buys in its acquisition pipeline and £pounds;154.8 million of sales completed, exchanged or in solicitors’ hands.

In the 10-month period to end-July, the company sold 593 vacant units at a sales margin of 42.6 per cent, compared with 625 units at a margin of 35.5 per cent a year earlier.

The Royal Institution of Chartered Surveyors (RICS) said this week that the balance of new buyer enquiries dropped for the second consecutive month in July, while the volume of property coming to market increased at its fastest pace since May 2007.

Confidence in the economy has taken a sharp knock since Britain’s coalition government revealed plans to slash spending by as much as a quarter to bring ballooning national debt under control.

The proposed cuts have put thousands of public sector jobs at risk and raised widespread doubt the economy will be able to match the surprise 1.1 per cent growth it posted between April and June. — Reuters

Source: Business Times, 12 Aug 2010