DESPITE the recent uptick in property interest in some countries, the outlook for the sector remains uncertain, an Asian real estate conference heard yesterday.

Speaking at Cityscape Asia 2009, Mr Stuart Labrooy, chief executive of Malaysia-based Axis Reit Management, said the full effects of the credit crisis ‘have not yet reached Asia’.

Property valuations in Asia, he said, will probably bottom out in the second half of the year, but there was no telling when the recovery will come.

Also speaking during a panel discussion on the impact of the downturn on Asian real estate, Mr Blake Olafson, Arcapita’s head of Asia real estate group, said the industry was now focusing on the basics.

He added: ‘If you’re a pension fund manager, that’s what you’ll do – not suddenly try to become a real estate developer in some Tier 3 city in China. There’s a greater sense of realism in the market, and a return to looking at fundamental cash flows, not just internal rate of return deals.’

Invista Real Estate chief executive Duncan Owen said Singapore, Hong Kong and Tokyo are attractive over the medium to long term as they have ‘quite large commercial markets’, sustainable economies and increasing market transparency.

The fact that the Singapore market is now badly affected like other markets is an opportunity for them, he added.

Invista, Britain’s largest-listed property fund manager, recently bought the Asian real estate business of Babcock & Brown, which gave it offices in Singapore and Hong Kong.

In his keynote address, Singapore’s Urban Redevelopment Authority group director (strategic planning) Richard Hoo acknowledged that the economic climate was now more challenging than during last year’s Cityscape Asia.

Today’s focus, he said, was on ‘enhancing our readiness’ when the economy improves.

Yesterday’s Cityscape Asia exhibition was quieter than previous events. Just 40 exhibitors have set up booths this year, and the organiser is expecting more than 3,000 people to visit over its three-day period ending tomorrow.

Last year, it attracted 5,520 real estate professionals and 70 exhibitors.

The 2007 event – inaugurated by National Development Minister Mah Bow Tan – drew 4,689 participants and 125 exhibitors.

Source: Straits Times, 20 May 2009

There’s more stress now on asset management

THE property investment landscape has changed significantly because of the global financial crisis, speakers at a panel discussion said yesterday.

For a start, investors are going ‘back to basics’, said Blake Olafson, director and head of the Asia real estate group at international investment bank Arcapita.

For example, pension funds that used to invest in riskier asset classes are now beginning to redirect their investments into less risky assets, he said.

Agreeing that the industry is going back to basics, John Evans, managing director of Tractus Asia, said: ‘Looking at it from a global economic perspective, the Asian real estate market had become a market where everyone was trying to get in, everyone was becoming a property developer.’

Mr Olafson and Mr Evans were speaking at Cityscape Asia, an annual real estate exhibition and conference aimed at investors.

The ‘back-to-basics’ approach includes a focus on making existing assets work harder.
‘There’s a lot more emphasis around true asset management, a shift towards hiring third-party facilities managers, and much more effort is going into tenant retention strategies,’ Mr Olafson said. ‘Before the downturn the focus was on building development, now asset management has become a lot more important.’

Players in the industry are going back to their core competencies and this, combined with tighter credit conditions, is driving a ‘flight to quality’ and a focus on assets that generate cashflows from day one, he said. ‘There is liquidity, but it is being driven towards good quality projects.’
Panellists agreed that liquidity is beginning to return to the Asian market, although banks are still very selective about which projects to back.

Speakers were also quizzed about when they expect real estate markets to emerge from the current slump. In response, the panellists said there was no way to put a timeline to recovery.

‘Everyone is trying to tell where the bottom is,’ said panellist Stuart Labrooy, chief executive of Malaysia’s Axis Reit Management. ‘I think the full effects of the recession have not reached Asia yet.’

Property valuations should start to bottom out in Asia in the second half of 2009, he said.

More than 3,000 real estate developers, investors and regulators are expected to attend Cityscape Asia, which focuses on all aspects of real estate development, on May 19, 20 and 21.

Source: Business Times, 20 May 2009

Rents, demand for industrial property hit by financial crisis, says Colliers

(SINGAPORE) Industrial property markets in the Asia-Pacific region deteriorated from October 2008 to March 2009 as the global financial crisis rolled on, Colliers International said in a report yesterday.

And more declines are expected. ‘The economies of most cities in the Asia-Pacific region are likely to be in recession in the next 12 months notwithstanding the interest rate cuts and large stimulus budget,’ Colliers said. ‘As such, demand for industrial property is likely to stay weak.’

Except for Jakarta and Shanghai – where rents, land and capital values are expected to hold – those in other cities surveyed are forecast to decline as much as 30 per cent over the next 12 months.

In Singapore, average rents and capital values of factory space dipped 12.8 per cent and 17.6 per cent respectively between October 2008 and March 2009, compared with growth of 6.4 and 6.9 per cent in previous April-September 2008 review period.

‘The decline in exports as a result of the contraction in global demand led to excess capacity at manufacturing plants and prompted many firms to shelve expansion plans or downsize premises, leading to lower demand for industrial property,’ Colliers said.

Weakening exports also resulted in softer demand for warehousing space. Average rents and capital values of this space dropped 13 and 13.3 per cent respectively in the six months under review.

The Singapore government has cut its 2009 economic growth forecast to between minus-10 and minus-13 per cent, from between minus-6 and minus-9 per cent. And this will weigh heavily on demand for industrial property in the next 12 months, Colliers said. It reckons land prices, capital values and industrial rents here could drop as much as 15 per cent in that time.

Rents for high-spec industrial building space will also be hit, according to Colliers. ‘Moving forward, the influx of high-spec space completing in 2009, amounting to an estimated 2.5 million sq ft, coupled with sluggish demand, are likely to exert downward pressure of up to 30 per cent on rents in the next 12 months,’ it said.

Source: Business Times, 19 May 2009

Cityscape Asia, the annual real estate exhibition and conference, opens amid talk of ‘green shoots’ of recovery for Asian economies

THESE are troubled times, and the global real estate sector has borne the brunt of the sub-prime fallout.

But now the property world is turning its attention to Asia as investors are hoping that 2009 will be the year to begin picking up undervalued assets ahead of economies in the region emerging from the global financial crisis, say the organisers of Cityscape Asia.

The annual real estate exhibition and conference – which is being held in Singapore from today until Thursday – comes amid talk of ‘green shoots’ of recovery for the Singapore and global economies.
Cityscape Asia focuses on all aspects of real estate development.

The real estate investment market in the Asia-Pacific region and the rest of the world saw a further contraction of market volume in the first quarter of 2009 against the backdrop of the global financial turmoil and the sustained problem of a credit crunch. However, analysts are beginning to see opportunities as the world and Asia rides out the crisis.

‘Established firms, family enterprises and individuals with cash reserves, limited debt and an appetite for risk are expected to be among the first to begin searching the Asian market for bargains in the coming months,’ said Graham Wood, group exhibition director of Cityscape.

This year’s Cityscape Asia will examine topics relevant to the downturn such as surviving the global financial crisis, the future for real estate funds, and markets to invest in for long-term growth and returns.

But long-standing topics such as Asian real estate investment trusts (Reits), green investments and the retail scene in Asia will also be explored.

More than 4,000 top deal-makers from leading developers, banks, institutional investors and investment authorities, as well as senior officers from the foremost private equity funds and investment advisory firms will gather in Singapore over these three days to discuss key issues and investment opportunities.

This year, more networking functions and face-to-face interaction have been factored in to ensure that delegates have ample opportunity to conduct real business at Cityscape Asia. Participants could well walk away from the conference with signed deals.

Cityscape Asia is an extension of the successful Cityscape Dubai exhibition, which has grown to include Abu Dhabi, India, Saudi Arabia, Russia, the United States and Latin America.

The Singapore conference will focus on Asia. It will discuss and debate the recovery, opportunities, and the strategies adopted by leading real estate investment and development firms across Singapore, Malaysia, the Philippines, Thailand, Vietnam, Hong Kong, Indonesia, China and India.

In its recent inaugural Asia-Pacific investment market overview report, Colliers International said that opportunities remain in the region for investors. ‘Although the regional real estate investment market in Q1 2009 was relatively quiet and despite the fact that the market will continue to be challenged by the economic environment for the rest of 2009, we believe there are still potential investment opportunities in the region in the coming quarters,’ said Piers Brunner, Colliers’ chief operating officer for Asia.

Real estate investment yields in the Asia- Pacific region have gone up further by 25-75 basis points in the first quarter of the year as investors held back from entering the real estate market, Colliers said. This should make investing more attractive now compared to a few quarters ago.
One market that will be much debated at this year’s Cityscape Asia is China. ‘In current times, the brightest light glows in China with the economy seeing a huge inventory adjustment,’ said DTZ in April.

In the first quarter of 2009, mainland China’s residential property sector staged a recovery of sorts, with transactions in some cities rebounding to levels not seen in years. However, the recovery did not spill over to the commercial sector as office markets in the major cities remained sluggish with fewer transactions amid declining rents and prices. A recovery in China could do much to help property markets in the rest of the region, analysts said.

Cityscape Asia also incorporates a host of ‘mini events’ designed to create business opportunities, such as developer project showcases, interactive discussion forums and investor roundtables.
Developers and other stakeholders from Europe and the US will be at Cityscape Asia looking for Asian investors. In its May bulletin, Citi Private Bank said that it expects to see a new global consumerism marked by a thrifty West and an affluent East, which should see investment flow from the East to the West.

Just one example – Philippe Chaix, director of La Defense, the prime office district of Paris, will be in Singapore during the conference to discuss the future of business property in the French capital, specifically, what it means for Asian investors.

London is also expected to get its share of attention. Asian interest in London properties is growing on the back of a devaluation in the pound, market watchers say. For example, the value of the British pound has fallen about 30 per cent against the Singapore dollar since December 2007. With London property prices down by about 15 per cent from their peak, Singaporean investors could reap savings of about 45 per cent off prices if they choose to invest in London.

Source: Business Times, 19 May 2009

Weak risk appetite, expectation gap between buyer and seller deter activity

(SINGAPORE) Asian property investment sales slumped 83 per cent quarter-on-quarter in the first three months of 2009 as risk appetite remained weak and the gap between buyer and seller expectations continued to deter activity, according to a report by CB Richard Ellis (CBRE).

Preliminary data for Q1 2009 found that Japan, Singapore and Hong Kong suffered the biggest falls in transaction volume.

The industrial property sector suffered the largest drop by market segment, plummeting 95 per cent from the same quarter a year earlier. Office transactions sank 89 per cent, while retail transactions shrank a much smaller 40 per cent.

However, there was a noticeable improvement in sentiment in some key markets in March, as the rate of economic decline appeared to ease, CBRE notes.

‘The overall property investment market in Asia was generally subdued and remained in a prolonged state of price discovery,’ its report says. ‘The period was characterised by isolated and small investment transactions across certain markets.’

The largest transaction in Q1 was the sale of the Sogo Department Shinsaibashi Store building in Osaka – which has retail space – for US$383.6 million.

Although cash rich investors continued to be interested in acquiring quality assets for the long term, the credit crunch, uncertainty over market direction and a significant gap between asking prices and what buyers are willing to pay put a dampener on activity.

Nevertheless, CBRE notes that a number of new funds were established in Q1 2009 to capitalise on opportunities arising from the current distressed market – a trend first noticed in Q3 and Q4 2008.

Market by market, CBRE’s data shows Singapore experienced a further decline in investment sales in Q1 2009, seeing only isolated transactions.

Investment sales here during the quarter totalled $204.2 million, a decline of 51.8 per cent from Q4 2008 and a fall of 97.7 per cent from a year earlier. The last time quarterly investment sales were so poor was in Q1 1998, when they totalled $49.28 million, and Q3 1998, when they were $110.62 million.

In Hong Kong, institutional investment activity evaporated as investors in Q1 this year continued to find it difficult to raise debt and equity.

However, commercial banks gradually relaxed their requirements on property lending and lower
their mortgage rates during the quarter as interbank liquidity increased after several rounds of government intervention.

Driven by these two factors, the number of investment deals under HK$100 million (S$18.8 million) picked up considerably towards the end of the quarter, as did demand for new residential housing units.

Source: Business Times, 12 May 2009

Singapore, Hong Kong see steepest fall; leasing activity remains subdued
(SINGAPORE) Office rents across Asia sank in the first quarter of this year – with Singapore and Hong Kong suffering the sharpest declines – a report by CB Richard Ellis (CBRE) shows.

Overall office rents in Asia fell 7.9 per cent quarter-on-quarter in Q1, after a 7.3 per cent decline in Q4 2008, according to the CBRE Asia Office Rental Index. Rents have now declined 18.5 per cent from their peak in Q2 2008.

Asia’s major financial centres – Singapore and Hong Kong – continued to see the biggest falls. Rents in Singapore dropped 18.6 per cent, while those in Hong Kong declined 14 per cent. On an annualised basis, corrections in Singapore and Hong Kong have now exceeded 34 per cent, CBRE said.

‘The Asian office property market deteriorated further during the first quarter of 2009 as companies continued to down-size and cut back on costs,’ it said.

Leasing activity remained subdued across the region, with transactions dominated by renewals, although a few deals involving companies relocating to cheaper premises were concluded.

Across many markets, landlords were forced to offer more concessions to retain and attract tenants, CBRE noted: ‘In some major Asian office markets, they are displaying a new willingness to negotiate lease restructuring with tenants they desire to retain.’

In Singapore and Hong Kong, the rise in vacancies was ‘less than what might have been expected and availability remains tight’, CBRE said. But the amount of shadow space due to sub-letting activity continued to rise.

A number of hedge funds in Hong Kong were considering sub-leasing and surrender options during the quarter, while landlords remained under significant pressure to reduce rents still further.

Likewise, Knight Frank said yesterday in a report on Singapore that there are signs that tenants are seeking to cut their occupation costs and, in some cases, are trying to sub-let space.

‘Landlords have needed to offer reduced rents and incentives to retain existing tenants,’ Knight Frank said. ‘There is substantial new supply expected in 2009, which may further dampen rental prospects.’

Leasing activity in the Hong Kong office market has likewise slowed, with corporate occupiers continuing to down-size amid the financial crisis.

‘A number of occupiers appear to be attempting to surrender office space by seeking replacement tenants, while some companies have moved from Central Hong Kong to Kowloon East to save occupation costs,’ Knight Frank said in its report.

Source: Business Times, 5 May 2009

Singapore, Hong Kong see steepest fall; leasing activity remains subdued

(SINGAPORE) Office rents across Asia sank in the first quarter of this year – with Singapore and Hong Kong suffering the sharpest declines – a report by CB Richard Ellis (CBRE) shows.

Overall office rents in Asia fell 7.9 per cent quarter-on-quarter in Q1, after a 7.3 per cent decline in Q4 2008, according to the CBRE Asia Office Rental Index. Rents have now declined 18.5 per cent from their peak in Q2 2008.

Asia’s major financial centres – Singapore and Hong Kong – continued to see the biggest falls. Rents in Singapore dropped 18.6 per cent, while those in Hong Kong declined 14 per cent. On an annualised basis, corrections in Singapore and Hong Kong have now exceeded 34 per cent, CBRE said.

‘The Asian office property market deteriorated further during the first quarter of 2009 as companies continued to down-size and cut back on costs,’ it said.

Leasing activity remained subdued across the region, with transactions dominated by renewals, although a few deals involving companies relocating to cheaper premises were concluded.

Across many markets, landlords were forced to offer more concessions to retain and attract tenants, CBRE noted: ‘In some major Asian office markets, they are displaying a new willingness to negotiate lease restructuring with tenants they desire to retain.’

In Singapore and Hong Kong, the rise in vacancies was ‘less than what might have been expected and availability remains tight’, CBRE said. But the amount of shadow space due to sub-letting activity continued to rise.

A number of hedge funds in Hong Kong were considering sub-leasing and surrender options during the quarter, while landlords remained under significant pressure to reduce rents still further.

Likewise, Knight Frank said yesterday in a report on Singapore that there are signs that tenants are seeking to cut their occupation costs and, in some cases, are trying to sub-let space.

‘Landlords have needed to offer reduced rents and incentives to retain existing tenants,’ Knight Frank said. ‘There is substantial new supply expected in 2009, which may further dampen rental prospects.’

Leasing activity in the Hong Kong office market has likewise slowed, with corporate occupiers continuing to down-size amid the financial crisis.

‘A number of occupiers appear to be attempting to surrender office space by seeking replacement tenants, while some companies have moved from Central Hong Kong to Kowloon East to save occupation costs,’ Knight Frank said in its report.

Source: Business Times, 5 May 2009

(SYDNEY) A US$5 billion Australian pension fund is looking at property development projects in Asia that it believes will allow it to capture future growth when an economic recovery kicks in, its chief executive said yesterday.

Hostplus, a pension fund for hospitality industry employees, has made investments in projects in Singapore and is considering others elsewhere in Asia, betting that developments rather than fully-leased properties will give it an advantage when demand for offices and retail space picks up.

‘In Malaysia, we are looking at a retail opportunity with one of our investment partners. We have a number of opportunities that are presenting themselves in Japan in the commercial sense, in the industrial area,’ Hostplus CEO David Elia told Reuters in an interview.

Hostplus seeks an internal rate of return (IRR) of 12-15 per cent for property development projects, Mr Elia said.

In his opinion, the worst may be over for Singapore’s economy.

‘It’s probably the first country that’s probably been hardest hit in terms of the Asian region. We suspect that it’s probably the first country to come out of it as well,’ he said.

‘We would like to think that once the economy recovers . . . we will be well positioned to take advantage of all that.’

Mr Elia noted that the supply of new buildings worldwide was limited due to tight lending, and construction costs have come down substantially, pointing to good opportunities for investing.
Australian pension funds have been hit hard by write-downs on unlisted property holdings as property value continues to fall, and Mr Elia said Hostplus had had to write down some of its assets.

It allocates 18 per cent of its funds to property, 4 per cent of which is in overseas markets.
‘Because we have strong liquidity coming in, it does put us in a privileged position to negotiate tremendous outcomes.

‘There are fantastic opportunities for our members going forward,’ Mr Elia said. — Reuters

Source: Business Times, 5 May 2009

(SYDNEY) A US$5 billion Australian pension fund is looking at property development projects in Asia that it believes will allow it to capture future growth when an economic recovery kicks in, its chief executive said yesterday.

Hostplus, a pension fund for hospitality industry employees, has made investments in projects in Singapore and is considering others elsewhere in Asia, betting that developments rather than fully-leased properties will give it an advantage when demand for offices and retail space picks up.

‘In Malaysia, we are looking at a retail opportunity with one of our investment partners. We have a number of opportunities that are presenting themselves in Japan in the commercial sense, in the industrial area,’ Hostplus CEO David Elia told Reuters in an interview.

Hostplus seeks an internal rate of return (IRR) of 12-15 per cent for property development projects, Mr Elia said.

In his opinion, the worst may be over for Singapore’s economy.

‘It’s probably the first country that’s probably been hardest hit in terms of the Asian region. We suspect that it’s probably the first country to come out of it as well,’ he said.

‘We would like to think that once the economy recovers . . . we will be well positioned to take advantage of all that.’

Mr Elia noted that the supply of new buildings worldwide was limited due to tight lending, and construction costs have come down substantially, pointing to good opportunities for investing.
Australian pension funds have been hit hard by write-downs on unlisted property holdings as property value continues to fall, and Mr Elia said Hostplus had had to write down some of its assets.

It allocates 18 per cent of its funds to property, 4 per cent of which is in overseas markets.
‘Because we have strong liquidity coming in, it does put us in a privileged position to negotiate tremendous outcomes.

‘There are fantastic opportunities for our members going forward,’ Mr Elia said. — Reuters

Source: Business Times, 5 May 2009

Credit crunch means it’s critical to research loan options before making commitment

Before you get tempted by that one-of-a-kind apartment in Melbourne or that previously unaffordable flat in London, it would be a good idea to check out your financing options.

Depending on where their properties are located, investors can head straight for a lender in Singapore or approach one that can refer them to the relevant overseas branch.

They can also try to find a lender in the country where the property is located, but this can be a waste of time as most lenders will not lend to a non-resident, experts said.

Banks such as Standard Chartered Bank and United Overseas Bank (UOB) will put investors in touch with their teams in the relevant markets. UOB, for instance, offers loans for overseas homes in Malaysia, Thailand and Shanghai, China – places which may not be covered by some foreign banks.

Standard Chartered Singapore can leverage on its global footprint. But, for those looking to invest in offshore homes in Australia, the United States, Canada and Europe, including Britain and France, it will refer them to Lloyds TSB Bank, an arrangement it has maintained since 2006.

Lloyds TSB and banks such as the National Australia Bank offer overseas property loans from Singapore. The former, in particular, has the widest jurisdiction when it comes to such loans as it covers 11 countries including Britain, France and New Zealand.

Overseas property loans can be taken in various currencies, but you face quite a bit of risk – including possible capital losses – as they will be subject to currency fluctuations.

‘The Australian banks with operations in Singapore had a bad time last year as many of their clients opted for Singdollar lending and got caught out on the currency exchange, losing thousands of dollars in equity and causing many margin calls,’ said Mr Steve Douglas of Smats, an Australian property finance and taxation portal.

‘Some of these banks even had to stop lending for a while, not because of a bad property market but because of bad lending practices as they did not properly inform their clients of the real risks of multi-currency lending.’

Mr Barry Lea, chief representative of Lloyds TSB Bank, said: ‘Generally, you can’t go hugely wrong matching your loan with your fixed or liquid assets. If you have the option to switch between the two, you will have the flexibility to mitigate your risks.’

Because of the global credit crunch, taking an overseas property loan is not as easy as in the past. ‘Banks have generally tightened their loan approval criteria in view of increased risks due to the ongoing financial crisis and the fall in property prices,’ said the founder of www.HousingLoanSG.com, Mr Dennis Ng.

Instead of keeping to a typical loan-to-valuation ratio of 70 per cent to 80 per cent in the past, banks are now generally more comfortable with giving a loan for up to 60 per cent to 70 per cent of a property’s valuation, experts said.

Mr Lea said the ratio can be as low as 50 per cent in some US states. It rises to 65 per cent to 70 per cent in Australia, New Zealand and Britain and can possibly be higher for single-currency loans from some lenders, he said.

A property’s valuation is also something investors should watch out for as prices in many markets are still falling. ‘Any distressed sale of properties might affect sentiment and the market valuation of properties,’ said Mr Ng. He advised investors to make sure the banks can match valuation to the purchase price as the buyer has to pay for any shortfall between the price and valuation.

Investors should apply for in- principle approval to ensure that they have a lender’s support before they buy an overseas property, said Mr Lea. ‘It will also save them time and trouble if they intend to go overseas to look for a property and they can wave it under the nose of a vendor so as to substantiate their means.’

Fees for certain countries have also increased somewhat over the last 12 months or so, to reflect a risk premium and higher capital cost of funds, said Mr Lea. For instance, the arrangement fee has gone up for British and Canadian properties, he said.

Often, investors will invest a lot of their energy in finding the right overseas property and then have little inclination to shop around for that huge overseas property loan, said Mr Lea.

Given the level of uncertainty due to the economic downturn, investors should be even more careful in considering all aspects of borrowing, and not just the interest costs, he said.

Source: Straits Times, 3 May 2009