Saturday, May 19, 2007

A plunge in a key interest rate has triggered a rush of enquiries from local borrowers about mortgages that let them cash in on cheaper money.

The rate - called the Singapore Interbank Offered Rate (Sibor) - hit a 20-month low of 2.3758 per cent yesterday and has fallen almost one percentage point since Feb 28.

This is starting to add up to cheap interest rates for home owners who took out mortgages tied to Sibor, which reflects the cost at which banks borrow money from each other.

As the Sibor falls, so do their rates. But it’s a gamble: if the Sibor rises, so does your mortgage rate.

Most are still paying slightly more than the rates offered for more standard loans. But if the Sibor keeps falling, the differential may go the other way, particularly as standard loan rates are stubbornly refusing to fall despite the banks’ access to cheaper money.

The Sibor-linked loan packages have become a hot ticket in recent months.

Borrowers like the increased transparency over how their rates are set and the chance to enjoy lower payments when the Sibor falls.

United Overseas Bank has seen ‘a healthy level’ of interest, while DBS Bank has received ‘thousands of enquiries’ over the past four months, although more traditional loans are still preferred.

The take-up rate for its Sibor-linked product ‘has increased by about seven times since January’, said Mr Koh Kar Siong, DBS’ head of secured loans for consumer banking.

Standard Chartered Bank is the latest to meet the demand with the launch yesterday of a Sibor-linked loan.

DBS charges a premium of an annual 1 per cent over the Sibor rate, while UOB and OCBC Bank add an annual 1 per cent over the three-month, six-month or nine-month Swap Offer Rates (SOR). The SOR comprise the Sibor plus a bank’s lending costs.

Stanchart adds an annual 0.5 per cent premium over the three-month SOR - now at 2.4503 per cent - for the first year. It also guarantees that the SOR will not exceed the 2.95 per cent annual rate for the first two years - a market first.

UOB’s head of loans, Mr Kevin Lam, said the ‘vast majority’ of customers taking up its package chose the three-month SOR as this rate moves faster with Sibor.

DBS and UOB said loans for Sibor-linked products are larger than the average home loans in their portfolio.

DBS’ average Sibor-loan size is about $700,000, reflecting the ‘more financially savvy investors’ who take out loans for larger properties, said Mr Koh.

They are betting that Sibor-linked rates will eventually dip below fixed and floating board rates, which range from 3.25 to 4 per cent.

These rates are not likely to be lowered for now, as banks said the drop in the Sibor is ‘a recent phenomenon’ and there is uncertainty if its decline will be sustained.

‘The general view is that mortgage rates are unlikely to be lowered this year, as they tend to lag behind deposit rates and interbank rates,’ said Mr Tan Chia Seng, Citibank’s business director.

But at least they are unlikely to rise. Any upside in rates ‘appears to be very much limited at this point in time’, Mr Koh said.

OCBC, which some mortgage brokers say has ‘not been pushing its SOR loans as aggressively as DBS and UOB’, said it has not had a big take-up of its Sibor-linked loans, despite more enquiries.

Even if Sibor fell further to make such packages more attractive, many people might remain wary as the Sibor can go up as well as down.

It was this concern that prompted Stanchart to offer a guaranteed maximum interest rate to give clients security.

That preference for predictability has seen DBS’ Home Ideal package, which is pegged to the stable CPF rate, experience a higher take-up than Sibor-linked packages.

Its take-up has shot up 13 times since last November, said Mr Koh.

Source: The Straits Times, 19 May 2007

Friday, May 18, 2007

Dubai investment firm Istithmar is in talks to buy Asian property assets worth at least US$250 million and expects its real estate portfolio in the region to double in size by the end of this year.

Istithmar, the private equity arm of the Dubai government, said yesterday that the bulk of its new acquisitions in the region would be in North Asia, in particular China.

‘We are looking across a broad range of sectors including residential, offices, hotels and retail,’ Richard Johnson, Istithmar Real Estate’s managing director, said in an interview in Singapore.

Istithmar, one of the big investment firms in the oil-rich United Arab Emirates, has a global real estate portfolio valued at US$7 billion to US$8 billion.

About half of its assets are in the US, with the Middle East and Europe accounting for 20 and 15 per cent respectively.

‘We’re expanding the portfolio and looking at how to systematically allocate more investment dollars to emerging markets. Asia has particular priority,’ Mr Johnson said.

He added that about 5 per cent of Istithmar’s global property portfolio is invested in Asia, although the firm has been active in South-east Asia in the last 12 months.

In December, it acquired a 24.99 per cent stake in Thai developer Raimon Land .‘In three years, I hope we will have a range of investments in Japan, China, India and selectively in some South-east Asian economies,’ he said.

Mr Johnson said the firm’s global expansion would be propelled by property development and asset acquisition.

‘We’ll look at development opportunities with partners. The concept of partner-based investment is very important to us,’ he said.

For its expansion in Asia, the firm has so far teamed up with a wide range of developers. For its hotels expansion in India, Istithmar has partnered InterContinental Hotels Group and easyGroup, owner of British low-cost airline easyJet.

Earlier this month, the Dubai firm entered a joint venture with Thai developer Amburaya Resorts to build a luxury hotel on the island of Koh Samui.

Istithmar, which also has a property investment in Macau, took a 9.6 per cent stake in hotels-based CDL Hospitality Trusts shortly after the property trust was spun off by Singapore’s City Developments last July.

Mr Johnson also said Istithmar was mulling a ’significant number’ of transactions around the world this year.

‘We like London and the Greater London market. We will continue to look for opportunity there, primarily for our office-based portfolio,’ he said.

Source: The Business Times, 18 May 2007
Hilton Hotels Corp, the second-largest US provider of rooms, and joint venture partner DLF Ltd will spend about US$1.5 billion to acquire land and build 50 to 75 hotels in India, said Koos Klein, Hilton’s Asia-Pacific president.

‘We feel very comfortable’ about achieving the goal in five to seven years, Mr Klein said in an interview in Singapore on Tuesday.

Hilton, based in Beverly Hills, California, will invest US$143 million building the properties.

DLF, a real estate company owned by billionaire Kushal Pal Singh, will control 74 per cent of the venture.

New Delhi-based DLF received regulatory approval this week to sell at least US$2.1 billion of shares.

The fastest pace of economic expansion in two decades is drawing more business travellers to Asia’s fourth-largest economy. Tourism may expand at a rate of 8.8 per cent a year in the next decade, behind only Montenegro and China, according to the London-based World Travel & Tourism Council. Hilton joins companies such as Accor SA and EasyHotel Ltd in entering India, where demand for accommodation at key business and leisure destinations is expected to increase at a compounded annual growth rate of 10 per cent in the next five years, according to Crisil Research, unit of a credit-rating company.

Hilton’s average revenue per room in the Asia-Pacific region grew about 15 per cent in the first three months of this year, Mr Klein said.

The development of the first few hotels will be financed with equity from the joint venture, Hilton said in an e-mail.

‘It is not likely that the joint venture will use a lot of debt building, if any, in the first stage of development,’ the statement added.

Hilton said on Nov 28 that it will build its Hilton Hotels and Hilton Garden Inn brand in India, a move made possible by its US$5.7 billion purchase of Hilton Group based in the United Kingdom.

The venture will initially build 20 hotels in cities including Chandigarh, Chennai, and Kolkata to cater to business travellers, it said.

Source: The Business Times, 18 May 2007
British insurer Prudential is raising a property fund to invest in Vietnam, hoping the firm’s reputation for caution will draw investors to the country’s opaque, but thriving, market.

Prudential Property Investment Management (PruPIM) is the first global name to vie for investor attention with property funds raised by Vietnam-based investment firms.

But Jonathan Allen, PruPIM’s Asia chief executive, is targeting 15-20 per cent internal rates of return because of a ‘fairly prudent stance on project risk’, compared to the 25 per cent returns usually bandied around for Vietnam.

Funds investing in India and China, which both rank higher than bottom-placed Vietnam on a global transparency survey by consultants Jones Lang LaSalle, aim for 25-30 per cent returns.

‘The risks are there for all to see and attendant of all emerging markets - ownership rights and titles, tax issues, regulatory approvals,’ Mr Allen told Reuters in telephone interview from London.

‘But we’re hoping to mitigate those risks through on-the-ground expertise, experience and risk controls.’

Mr Allen declined to say how much equity he expected the seven-year fund to raise, but gave a broad range of US$100 million to US$500 million. The fund’s first closing will be around the end of June or beginning of July.

Vietnam is creating a buzz in investment circles because of its entry into the World Trade Organisation in January, and an economy growing at a rate of more than 8 per cent a year.

Economic liberalisation has seen more state-owned firms list on the stock market, where prices more than doubled in 2006. The knock-on wealth effect has helped raise high-end apartment prices as much as 30 per cent this year.

Vacancy rates at top office buildings in Hanoi and Ho Chi Minh City are at rock bottom and rents have jumped about 20 per cent in the last two years to double Bangkok levels.

PruPIM, which has been investing in Vietnamese property for Prudential’s insurance business for three years, will look to invest its fund in offices, industrial and logistics buildings, and in resort property. But with few buildings on the market, it will need to partner developers on new projects.

‘The demand is outweighing the investible universe,’ Mr Allen said. ‘Vietnam is experiencing capital inflows in the same way as most markets around Asia, and that’s a dynamic that won’t go away in the short term.’

VinaLand Ltd, listed on London’s Alternative Investment Market (AIM), drew 150 investors by the time a US$407 million capital raising for Vietnamese property closed in March.

Rival Indochina Capital raised a US$265 million property fund last year, and another Vietnam fund management firm, Dragon Capital, is looking to raise a similar fund.Investors are teaming up with a raft of new developers, many of whom have turned to the property boom from activities as diverse as vehicle imports and soft drinks.

Typically, Vietnamese firms have contributed land, while the foreign partner drives the capital.

In its transparency survey, Jones Lang LaSalle said reliable market information is scarce in Vietnam, where it is tough to obtain detailed master plans for development and navigate bureaucracy.

Source: The Business Times, 18 May 2007
Construction of new homes in the US posted a small gain in April but applications for building permits plunged by the largest amount in 17 years, a dramatic sign that the country’s housing industry is still in a steep slump.

The US Commerce Department yesterday reported that construction of new homes and apartments rose by 2.5 per cent in April compared to March to a seasonally adjusted annual rate of 1.528 million units.

Even with the improvement, housing construction is 25.9 per cent lower than a year ago. And in a worrisome sign for the future, builders cut their requests for new construction permits by 8.9 per cent in April. That was the sharpest drop since a 24 per cent fall in February 1990, another period when housing was going through a significant downturn.

Housing, which had enjoyed record sales in both new and existing homes for five straight years, saw the boom end dramatically in 2006 with many formerly red-hot sales areas suffering big declines in sales and prices. The slump in housing has been a drag on the overall economy, pushing business growth down to a lacklustre 1.3 per cent in the first three months of this year, the weakest performance in four years.

A survey by the US National Association of Home Builders released on Tuesday indicated that there are more troubles to come as builder sentiment fell to a reading of just 30, matching the low point in the current downturn set last September.

Meanwhile, industrial production in the US rose more than forecast last month as cold weather boosted electricity demand and manufacturers stepped up output after whittling down excess inventories.

The 0.7 per cent increase in production at factories, mines and utilities followed a revised 0.3 per cent decrease in March that was bigger than originally reported, Federal Reserve figures showed yesterday. Capacity utilisation, which measures the proportion of plants in use, rose to 81.6 per cent from 81.2 per cent in March.

Source: The Business Times, 18 May 2007
Tokyo office vacancies will drop by 2009 to half of last year’s level as existing buildings are redeveloped, Mori Building Co, Japan’s largest private real estate developer, said in a report.

Office supply in Tokyo’s 23 wards will decline by an estimated 46 per cent to 0.64 million square metres in 2008, from a forecast of 1.19 million sq m this year, according to a survey by Mori. That will push vacancy rates down to 1.4 per cent in 2009, from 2.8 per cent in 2006, as demand grows because corporations are expected to hire more staff, Mori said.

‘Rents are rising and will likely rise further,’ said Takeshi Fujita, a Tokyo-based analyst at Deutsche Securities. ‘Earnings at large developers will continue to improve, I think.’

Mori estimates that 35 per cent of the space that will become available between this year and 2011 will be existing buildings remodelled to meet demand for modern, earthquake-resistant office blocks. Demand for large office buildings in Japan’s capital was 1.57 million sq m in 2006, exceeding the supply of 1.54 million sq m. That caused the vacancy rate to drop from the 2005 level of 3.2 per cent, the fourth consecutive year of declines, Mori said.

The vacancy rate is expected to fall to an estimated 1.9 per cent in 2008, says the survey. The survey targets sites with more than 10,000 sq m of space among buildings built after 1986.

Source: The Business Times, 18 May 2007
Japan’s property market could become more transparent if the Financial Services Agency decides to monitor private property funds in addition to listed Reits as expected, analysts said yesterday.

The country’s property market has drawn gobs of money, prompting regulators to seek more disclosure and closer monitoring of private funds in the sector.

Japan is set to introduce a financial products exchange law in September, bringing private funds under scrutiny to see if the prices they pay in real estate transactions and their assessments of future rental income are appropriate.

Funds with 50 or more investors will also be required to register with the agency, while those with less than 50 will have to file reports to it. Some other steps were outlined in a report released by the FSA last month.

‘The FSA’s reasoning is to eliminate erring entities, and that should be good. There will also be little impact on those already in the market,’ said Go Saito, analyst at JP Morgan.

Investment vehicles such as special purpose companies and private funds are frequently used by property investors to keep their balance sheets from expanding and to ease their tax burden.

The market for private property funds expanded to 6.1 trillion yen (S$77 billion) as of the end of December, up 38 per cent from a year earlier, according to STB Research Institute Co Ltd. During the same time, the Japan Reit market expanded to 5.4 trillion yen, up 59 per cent.

‘It seems that the market has turned a bit overheated. Still, there are investors who think the Japanese property market has upside potential and money keeps coming in,’ said Yasuo Ide, independent analyst at Ide Financial Real Estate Research.

Mr Ide said some players who cannot afford to have qualified staff and set up a system to meet all the new requirements will likely withdraw from the market. ‘Those that have not much financial backing and lack know-how will be eliminated,’ he added.

The steps could also force some smaller players to exit the market, which may help a little in keeping returns on property investments from falling further, said Machio Honda, analyst at Deutsche Securities Inc.

‘This could mean that some property assets would come up for grabs and that should help Reit funds that have had a hard time buying properties in the competitive market,’ he said.

On the other hand, Japan also needs some more deregulation steps to make the Reit market more attractive, Mr Ide said. ‘It’s only Japan where the government does such screening of property entities. Some people would question the move.’

Source: The Business Times, 18 May 2007
Frasers Centrepoint Trust (FCT) yesterday said it has paid $46.6 million to buy 27 per cent of a Malaysian real estate investment trust (Reit), kick-starting its overseas expansion.

FCT is buying 84.6 million units - or 27 per cent - of Hektar Real Estate Investment Trust (H-Reit). H-Reit was listed on Bursa Malaysia in December last year, and is now the only Malaysian-listed Reit investing purely in retail assets, FCT said.

The strategic partnership will also see FCT’s parent company Frasers Centrepoint Limited (FCL) acquire 40 per cent of H-Reit’s manager Hektar Asset Management Sdn Bhd. FCL will gain board and exco representation in the management company.

FCT paid RM1.21 (53 Singapore cents) for each unit in H-Reit, a slight premium to its closing price of RM1.18 yesterday. The trust will start to see contributions from its new purchase in the July-September financial quarter this year, said Christopher Tang, chief executive of FCT’s management team.

H-Reit owns two suburban retail malls with a total net lettable area of 944,500 sq ft in Malaysia at present. The malls - Subang Parade in Selangor and Mahkota Parade in Melaka - house more than 230 major international and domestic retailers and enjoy a combined footfall of more than 279,000 people per week.

‘The Reit gives us a platform to grow further in Malaysia,’ said Mr Tang. ‘We want to use it as a vehicle to acquire more properties.’

FCT has chosen Malaysia as its first overseas market to expand into because of its familiarity, said Mr Tang. In addition, FCT’s parent company FCL has a strong network in the country. Both H-Reit’s sponsor Hektar Group and FCL will work together to rebrand the Reit and the malls in its portfolio. FCT also said there could be possible collaboration between the two parent companies in real estate projects, providing a steady acquisition pipeline for H-Reit.

Mr Tang also said that the FCT is eyeing China’s second-tier cities for future acquisition opportunities as it looks to continue expanding overseas. However, the majority of growth in the near future will come from Singapore, where the Reit has yet to exercise its option to acquire the flagship The Centrepoint.

FCT’s shares closed one cent down at $1.76.

Source: The Business Times, 18 May 2007
CapitaLand may have made the bulk of its earnings for last year and the first quarter of this year from Singapore - reversing an earlier trend of earning mostly overseas - but the group plans to stick with its strategy of emphasising overseas business.

CapitaLand Group president and chief executive Liew Mun Leong told BT: ‘Our strategic thinking is that Singapore is still a small market. You are talking about (developer sales) of 10,000 to 11,000 private homes a year. To me, that is very small for a large real estate company.

‘We are the smallest country in South-east Asia, but we have the largest real estate company in terms of market capitalisation in Asia ex-Japan and Hong Kong. How do we do it? Because we export real estate.’ Mr Liew argues that the bigger share of earnings from Singapore lately has more to do with the rise in property prices here. ‘But in actual volume, it’s still very small.‘

Last year, the group sold 954 homes in Singapore worth a total $1.23 billion, but in China it sold 1,722 homes for $522.5 million. In Australia, the group, through listed subsidiary Australand, sold 2,355 residential land lots, houses and apartments last year for a total $1.19 billion.

‘Our strategy to go overseas has intensified as in the long term, the market is outside (Singapore). The (local) market cannot sustain for too long. Because the Singapore market, no matter what, it’s only 10,000 to 11,000 units. How much can you grow to? 15,000 units? Nothing compared to China.’

For the financial year ended December 2006, Singapore accounted for 51.2 per cent of group earnings before interest and tax (ebit) of $1.82 billion, up from a 20.9 per cent share of group ebit of $860.3 million in 2005. In Q1, Singapore’s share increased further to 83.5 per cent of group ebit, which was $819.5 million.

Besides wanting to overcome the limited Singapore market, another reason for CapitaLand to continue venturing overseas is to diversify its risk profile. The latter issue has gained importance with the implementation of Financial Reporting Standard 40 (FRS 40) - Investment Property from the start of this year.

FRS 40 requires fair value gains and losses on investment properties to be included in the profit and loss account. This will create greater volatility in the P&L account.

While things are rosy now in the Singapore property market, the hit will come when the market falters, and reductions in valuations of investment properties will dent the bottom lines of Singapore-listed property groups.

‘If the property clock in Singapore is down, maybe China is up, maybe Australia is up. That is the whole (rationale) of investing overseas, that I spread my risk geographically.‘

Even when it is down in (the whole of) Asia, now that I am going to oil-rich countries - like Abu Dhabi, Russia - I’ve got balance. That’s the whole approach of our strategy. And that’s (also part of) the whole argument why we should invest outside Singapore.’

The volatility in earnings arising from FRS 40 would be amplified for a property company that is only in Singapore. ‘But we are large and we are distributed. If you put everything in one country and the thing goes down, you sink,’ Mr Liew said.

However, the implementation of FRS 40 also means that the ‘concept of operational profit as separate from valuation gains should no longer exist because that is part of your accounting process’, Mr Liew said.

For CapitaLand, that would mean it may no longer have to endure remarks from its detractors that its bottom line has been fat because of gains from selling sizeable assets, whether to external parties, as in the divestment of Temasek Tower and subsidiary Raffles Holdings’ entire hotel business, or to property trusts within the group, as happened for the sale of the Raffles City retail, office and hotel complex.

With FRS 40, ‘whether I sell Temasek Tower or don’t sell Temasek Tower, I am going to make the profit or loss based on the (value of the property) going (up or) down. Because of FRS 40, you have to recognise that as performance.’

Source: The Business Times, 18 May 2007

The tender for Gilstead View in the Newton area closed yesterday with a top bid of $96 million, which works out to $1,036-1,056 psf per plot ratio

The tender for Gilstead View in the Newton area closed yesterday with a top bid of $96 million, which works out to $1,036-1,056 psf per plot ratio inclusive of development charges (DC) estimated to range from $7 million to $9 million, sources say. This is higher than the $990 psf ppr achieved for the nearby Elmira Heights last month.

And in the Telok Blangah area, Bukit Sembawang bagged Fairways Condo for $244.3 million or about $785 psf ppr inclusive of estimated development charges of $8.45 million and $2.43 million for buying an adjoining piece of state land.

Both collective sale sites are freehold.

Colliers International brokered the Fairways Condo deal while Jones Lang LaSalle handled Gilstead View’s tender.

JLL is said to have received more than five bids when the tender closed yesterday. Market watchers suggested that a party linked to Tiong Aik group may have put in the top bid for Gilstead View, but they added that it remains to be seen who bags the property, depending on factors including the negotiations on conditions accompanying the various bids.

Sources say the range in the estimated DC quantum ($7 million to $9 million) for Gilstead View is because the site’s development baseline has yet to be confirmed.

Gilstead View has a 35,510 sq ft land area and is zoned for residential use with a 2.8 plot ratio (ratio of maximum potential gross floor area to land area) and 30-storey building height. The site can be redeveloped into a new condo with about 65 units averaging 1,500 sq ft. Assuming Gilstead View is sold for about $1,056 psf ppr, the break-even cost for a new condo project on the plot could be around $1,500 psf, according to industry observers.

Fairways Condominium has a freehold land area of 146,532 sq ft, and together with the adjoining state land of about 8,288 sq ft the total area adds up to 154,820 sq ft. The Fairways site is zoned for residential use with 2.1 plot ratio.

Based on the $785 psf ppr that Bukit Sembawang paid for the site, analysts estimate a break-even cost of around $1,200 psf for a new condo on the site.

Bukit Sembawang can build a 24-storey condo with about 250 units averaging 1,300 sq ft on the Fairways and adjoining state site. Market watchers expect the group to take around a year to launch the new project.

Inclusive of the latest acquisition of Fairways Condo, Bukit Sembawang has a residential landbank of about 4.2 million sq ft which can be developed into about 2,050 homes. The bulk of this land (around 3.8 million sq ft) is in Seletar Hills.

Source: The Business Times, 18 May 2007
Rental rates for luxury homes in Singapore have outstripped those in Hong Kong for the first time.

This is according to corporate leasing agents Savills.

And it says this is due largely to the short supply of rental units in the prime residential districts amid the recent spate of en bloc sales in Singapore.

Savills also notes that this is pricing some expatriates out of the prime areas.

It is now more expensive to rent a luxury apartment in Singapore than in Hong Kong.

According to corporate leasing agents Savill, a unit in the prime districts of 9, 10 and 11 could cost up to 10 percent more than a similar unit in Hong Kong’s most prestigious locations.

For example, a 3,000 square feet unit at Regency Park can fetch $18,000 per month in rental, more than the $16,500 being asked for a same-size unit in Mid-Levels.

Simon Hill, Regional Director, Corporate Real Estate, Savills, said: “The expats certainly have an obsession in particular with districts 9, 10, and 11. Their social structure is there, their friends, work colleagues, they are close to all the facilities. And there is, if you like, a snob value of being there too.

“We are now urging prospective tenants to consider other areas because the stock is in such short supply. As I often say, particularly to the English expats that are coming out here - ‘you have to consider that 9, 10, 11 is like living in Chelsea or Knightsbridge in London, and would you expect to live in Chelsea or Knightsbridge in London?’. And normally the answer is, ‘no of course not’.”

But increasingly these expatriates - who are mainly mid- to high-level executives of multi-national companies - are looking at units in other areas such as the East Coast and Buona Vista.

And some have even deemed it more economically-prudent to buy the unit, rather than rent.

Savills says the difficulty of finding affordable housing has prompted some MNCs to reconsider locating staff in Singapore.

Simon Hill, Regional Director, Corporate Real Estate, Savills, said: “We’ve had at least three corporates say they are putting on hold the number of people coming into the country until they can work out what’s happening with the housing packages.

“Companies and employees are much, much more portable now, and I think that if the situation continues there will be pressure. For everything that Singapore has to offer, if we can’t find places for people to live, then they will have to go elsewhere, it’s fairly fundamental.”

Overall rental rates for apartments and condominiums in Singapore jumped 8 percent in the first three months of this year.

Source: Channel NewsAsia, 18 May 2007

CDL Hospitality Real Estate Investment Trust (CDL H-Reit) has purchased the Novotel Clarke Quay in a deal that prices the 398-room hotel at $219.8 mil

CDL Hospitality Real Estate Investment Trust (CDL H-Reit) has purchased the Novotel Clarke Quay in a deal that prices the 398-room hotel at $219.8 million or about $552,000 per room.

The amount comprises a purchase amount of $201 million and assumption of potential liability of about $18.8 million. The hotel site has a remaining lease of about 70 years.

For the seller, a Lehman Brothers entity, the divestment represents a doubling of its investment. Lehman bought the hotel, then known as Hotel New Otani, in 2004 for $82 million from a Wuthelam Group-controlled entity and spent a further $19 million renovating it, resulting in an all-in investment of around $101 million. It later appointed French hotel chain Accor to manage the hotel under the four-star Novotel brand.

Jones Lang LaSalle Hotels brokered the latest sale.

CDL H-Reit is part of a stapled group, CDL Hospitality Trusts, which is listed on the Singapore Exchange.

Singapore-listed City Developments Ltd’s London-listed hotel arm, Millennium & Copthorne Hotels (M&C), has a 39 per cent stake in CDL Hospitality Trusts.

The yield-accretive acquisition of Novotel Clarke Quay will boost CDL Hospitality Trusts’ Singapore hotel room count by around 20 per cent to 2,324, making it Singapore’s biggest hotel owner, in terms of number of rooms. The acquisition will also see the value of the trusts’ properties grow from about $1.1 billion to $1.3 billion.

CDL H-Reit will enter a lease agreement appointing the hotel’s incumbent manager Accor SA to manage and operate the hotel under the Novotel flag until end-2020, for a fee that works out to a tad below 10 per cent of the hotel’s gross operating profit. The projected annualised property yield of the hotel for this year is about 5.5 per cent, higher than the 3.9 per cent implied property yield for CDL H-Reit’s current portfolio for the current year.

The acquisition is forecast to boost annualised 2007 distribution per unit (based on Q1 2007 results) by 8.9 per cent, from 7.10 cents to 7.73 cents. Vincent Yeo, CEO of M&C Reit Management Ltd, the manager of CDL H-Reit, said that assuming the acquisition of Novotel Clarke Quay is fully funded by debt, the trusts’ gearing ratio will increase from 35 per cent to 46 per cent. He said that while the trust is on the lookout for more hotel acquisitions in the Asia-Pacific - in countries like China, India, Philippines and Vietnam - Singapore still remains one of his favourite markets because of its growth potential and risk profile.

For Q1 2007, CDL Hospitality Trusts’ Singapore hotels achieved a 25.4 per cent year-on-year increase in revenue per available room (RevPar). ‘Based on the strong performance so far in the second quarter, the industry players expect a much higher year-on-year RevPar growth in Q2. And we expect that to be the same for the hotels in the CDL Hospitality Trusts.’

The acquisition of Novotel Clarke Quay will increase CDL Hospitality Trusts’ exposure to the strong Singapore hotel market, which is expected to benefit from continuing strong growth in visitor arrivals and minimal new hotel room supply this year and next.

Source: The Business Times, 18 May 2007

These are good times to own real estate. On average, private home prices have risen nearly 20 per cent in the past two years

These are good times to own real estate. On average, private home prices have risen nearly 20 per cent in the past two years, and the trajectory appears stable. Property purchases become more compelling with each passing week. Who can argue against people building equity through the homes they live in? But as everyone knows, rising prices also have sparked a new wave of feverish speculation. And newly released data from Credit Bureau Singapore give a hint of the level of activity: As of March, the number of people with two or more mortgages had risen to around 41,000, up 58 per cent from a year ago and 106 per cent from two years back.

Is there reason to worry? Not at the moment. A certain level of speculation is normal for any market; it keeps prices buoyant, generating wealth. Without speculation, markets would stagnate. Indeed, so long as price trends remain comfortable, there is little danger. In fact, other figures from CBS show that even as the total number of mortgages has risen, the number of delinquent accounts has actually fallen; in percentage terms, it dipped to 2.23 per cent in February from 2.80 per cent in March last year. The market is in a sweet spot. That, however, is no reason to be incautious. The economy is completely exposed to external factors. Although the internal attributes of the economy remain strong and are gaining vigour, buyers must understand that global macroeconomics plays a role in Singapore’s fortunes. They need only think back to the late 1990s for a cautionary tale.

Because of this, there is no argument for suspending normal prudential calculations despite the bullish tone of the market. Of course, owner-occupied real estate, a favoured form of investment, is one thing; whatever happens, people have to live somewhere and a mortgage payment is not unlike rent. But speculative investments can be a burden if things turn sour for any number of reasons. And property ownership involves maintenance costs, so investors must be reasonably certain of their future cash flow. But the key issue is to be wary of the point at which reasonable speculation tips over into the unhealthy zone, when the bulls become too exuberant. When markets self-correct, they can be punishing. And as properties are illiquid investments, it is harder to get out than to get in. Hence, although times now are good for a punt on properties, nothing comes without risk. It is best to think twice about one’s appetite for risk before signing for a second mortgage loan.

Source: The Straits Times, 18 May 2007

Angst in Anaheim

Angst in Anaheim


Friday, May 18, 2007

National headlines have declared a rift in the 50-year relationship between the Walt Disney Co and the city of Anaheim, California. Disney has sued the city - for the first time - to block a mixed-income housing development, and is leading efforts to get two measures on the ballot that would determine the future development of sites near its Disneyland resort.
While most of the coverage and commentary have focused on Disney's heavy-handed response, the underlying story is one of greater significance to many California communities: the lack of affordable housing.

More than 200 workers and residents attended the April 24 Anaheim City Council meeting during which the project was approved. Many people shared their stories of raising children in overcrowded and substandard apartments, mobile homes and motel rooms. Their message was clear: If we are good enough to work here, then we should be able to live here in high-quality, affordable homes.

At the meeting, Councilwoman Lorri Galloway captured the reality of Anaheim's resort-area neighborhoods with some startling statistics: 6,000 low-wage jobs - with wages averaging less than US$15 (HK$117) an hour - were added in the resort district since 2000, but no new homes affordable to those workers were developed.

The rental vacancy rate is less than 4 percent, and a worker must earn about US$29 an hour to afford the typical two- bedroom apartment. Many workers must double and triple up in overcrowded homes, and about 850 homes near the resort are categorized as "extremely substandard" and lack basic plumbing and kitchen facilities. As a result, Anaheim ranks fifth in the nation among cities with the most overcrowded housing conditions.

More than 35,000 Orange County residents are homeless, according to the latest figures, and more than half of them are members of working families with children. For many of its resort-area workers, Anaheim is clearly not the happiest place on Earth to live.

Disney's opposition to the housing proposal may seem simple enough: Disneyland is the city's economic engine, and the resort area is zoned only for projects with compatible commercial uses. "This [resort] district pays for police services and fire services and parks and repairs," Disney spokesman Rob Doughty said. "This is the major funding source for this city, and it perplexes us as to why they would jeopardize it."

However, Disney's position points to a major, if not the major, problem California communities face. Proposition 13 limitations on commercial and residential property tax increases have made local governments dependent on sales and hotel "bed" taxes to pay for community services. All too often elected leaders feel compelled to choose the development of new hotels, shopping centers and auto malls over new homes, regardless of the housing needs.

Others in the community have argued that Disney and the city have no role in "subsidizing" housing for low-wage workers. But this "let the market prevail" argument ignores more than 70 years of federal, state and local involvement in the housing market. Generations of families have achieved homeownership through federally subsidized and guaranteed loans. One form of "subsidy" is the more than US$70 billion devoted to mortgage interest deductions, a program that helps mostly middle- and high-income homeowners.

Local and state governments also play important roles. Anaheim has invested heavily in rehabilitation loans for substandard apartments, facilitated the redevelopment of small "in-fill" sites as moderately priced homes, and partnered developers to construct new rental communities.

This summer a nonprofit developer will open the first rental housing development affordable to low-wage working families to be built in the city in more than 15 years. Unfortunately, these efforts have not been able to keep pace with housing prices and the rising number of low-wage jobs.

If the resort area is to be reserved for sales-tax generating uses, then housing development sites in every other neighborhood should be identified. The city should provide incentives to developers to build mixed-income rental and homeownership communities on underused commercial and residential sites. An impact fee to help pay for housing construction should be attached to all large-scale commercial development that generates low-wage jobs. The city should require that a portion of all new housing be affordable to low-wage workers.

Most crucially, Disney and the business community must move beyond their "let them live elsewhere" attitude and instead play a role in identifying solutions and support efforts at boosting housing opportunities for all income levels. LOS ANGELES TIMES

New Zealand house prices continue climb

New Zealand house prices continue climb

Friday, May 18, 2007

The annual pace of New Zealand house value growth accelerated for the third straight month in April, but higher interest rates were expected to slow the market over coming weeks, government agency Quotable Value said.
The agency's residential house price index rose 10.6 percent in the month from a year earlier, up from a 9.8 percent rise in March and a 9.3 percent gain in February.

The pace of growth had been slowing through 2006 after peaking at 16.8 percent growth in January last year.

"The market has continued unabated over the last month on the back of stronger-than-anticipated migration and high levels of employment creating steady demand, especially in the lower end of the market," QV spokesman Blue Hancock said.

The Reserve Bank of New Zealand raised the cash rate April 26 for the second month in a row, setting it at 7.75 percent on concerns about growing inflation pressures stemming from the robust housing market and strong domestic spending.

But Hancock said: "With the higher interest rates and the onset of the winter season, we can expect the market to slow over the coming weeks."

The QV data showed the average sale price for New Zealand houses was NZ$366,032 (HK$2.11 million), up 0.8 percent on March.

Prices in the main regions showed strength, with the capital Wellington rising 13.4 percent and Christchurch up 11.8 percent on a year ago.

Auckland, the biggest population and commercial center, rose 6.6 percent, off the 7.5 percent growth marked in March from a year earlier.

The monthly residential price report is based on sale prices of properties over the past three months compared with sales over the corresponding three- month period a year earlier.


Thursday, May 17, 2007

This may signal expats, PRs opting to buy instead of rent: Savills

The number of new residential leases have fallen by 50 per cent in the first quarter of 2007 to 4,493, compared to Q1 2006, posing a bit of a conundrum in an otherwise buoyant property market.

Data from Savills Singapore also reveal that vacancies have fallen from an average of 6.1 per cent in Q4 2006 to about 5.9 per cent in February, suggesting that underlying demand in the leasing market is still healthy.

Nevertheless, Savills director Simon Hill thinks that the drop in the number of leases could signal the rise of several new trends in the market, the most compelling of which is that permanent residents and expats here have decided that rents have risen too high and are now opting to buy instead.

Mr Hill, who heads the residential leasing division at Savills, believes that the number who have opted to buy instead of rent has increased by as much as 20 per cent quarter-on-quarter. ‘The Australians and the English are especially keen,’ he added.

Other factors - like the contraction of available units due to collective sales and more simply, the extension of leases - could also contribute to the drop in new leases. However, figures showing that the number of foreigners and PRs buying property has increased seems to support the push factor of spiralling rents.

For Q1 2007, the official rental index (non-landed) increased by 8 per cent quarter-on-quarter and 23 per cent year-on-year, while Savills notes that for the first three months of the year, foreigners and expats bought 1,550 units or 27.7 per cent of the 5,592 units transacted compared to 23 per cent or 4,534 units for the whole of 2006.

The increased interest from foreigners and PRs would bode well for the market if not for the repercussions already being felt.

Another trend that Mr Hill has noted is that MNCs are begining to cut back on the number of foreign postings here. ‘So far, I have encountered three multinational corporations that have decided to put on hold the decision to move more people to Singapore. One of the reasons is that housing allowances have had to be increased,’ he said.

He says there have been instances where housing allowances have had to be doubled.

Expats have traditionally favoured Districts 9,10 and 11, but Mr Hill says these districts are ’slowly pricing themselves out of the expat market’. The firm is now advising people to consider other districts.

How this trend plays out will certainly have an impact on the market here.

That property prices are still comparatively cheap is in Singapore’s favour. Data compiled by Savills reveals that average prices for high-end homes are still the highest in London at $8,900 psf, followed by Monaco ($5,000 psf), New York ($4,500 psf), Tokyo ($3,400 psf) and Hong Kong ($3,100 psf). And although prices for super-luxury homes have topped $4,000 psf here, the average price for high-end property is still $1,762 says Savills. By comparison, super-luxury prices in London are said to have crossed $14,000 psf.

Source: The Business Times, 17 May 2007

Sunday, May 13, 2007

Property agent Goh Chong Liang, first accused of cheating in December last year, was yesterday slapped with 35 additional charges in a district court.

The 37-year-old father of two is accused of having perpetrated a $900,000 cashback scam between December 2003 and March last year.

A cashback deal refers to a property seller declaring a price higher than the actual transacted sum - helping the buyer get a bigger bank loan and thus providing him with instant cash.

The cash difference is kept by the buyer, or split between the two parties.

Yesterday, Goh’s case was moved to the Bail Court in the afternoon for the bail amount to be reviewed.

The prosecution said the sum - set at $300,000 in December last year - should be raised to $900,000.

District Judge Danielle Yeow asked the two sides to make submissions on issues such as Goh’s family background and cooperation with investigators - which would help determine if the accused is a flight risk.

She also allowed Goh’s lawyer, Mr Peter Fernando, and police prosecutor Shabbir Yusuf to agree on a bail amount - which they did, at a total of $600,000.

The first charge against Goh in December last year concerned the selling price of a Bukit Batok flat. He allegedly duped a bank into believing it was $312,000, when the actual price was only $285,000.

This led the bank to approve a $292,000 loan to the buyers of the flat.

Investigations into Goh have brought up a name the courts are becoming increasingly familiar with - David Rasif.

The runaway lawyer and his former partner David Tan - though not charged with any crime - are alleged to have conspired to help Goh pull off the cashback scam.

It was not mentioned exactly what their role was.

Rasif, 42, disappeared on June 5 last year - allegedly with $12 million of clients’ money.

Goh, who could be jailed for up to seven years if convicted, will return to court on May 15.

Source: The Straits Times, 12 May 2007