BT : Retreat in US property after tax credit removed short-lived: analysts

Business Times - 03 Jun 2010

Retreat in US property after tax credit removed short-lived: analysts

Low mortgage rates and improving jobs market will underpin the sector

(NEW YORK) The retreat in the US housing market after the government halted its hefty tax credit in April should be short-lived, say analysts, and the market may resume its path to stability.

Home sales surged in April before the month-end deadline to take advantage of the credit and demand dropped sharply in the following weeks. But mortgage rates near record lows and an improving jobs market will help underpin the sector, even without the artificial stimulus of tax breaks, said analysts.

A housing sector rebound is seen as a key pillar in the economy's recovery, which has gained steam as consumer spending picks up while manufacturing activity, which has led the upswing, stays strong.

'It's back to a fundamentals market where there are no gimmicks,' said Mike Fratantoni, vice-president of research and economics at the Mortgage Bankers Association (MBA).

The first-time homebuyer credit, as well as US$1.4 trillion in debt purchases by the Federal Reserve, served their purpose: lowering mortgage rates and restoring life to the worst housing slump since the Depression.

Sales of new homes, juiced by the tax credit deadline, leaped almost 15 per cent in April to a two-year high. Existing home sales jumped 7.6 per cent in April and almost 23 per cent in the year.

But applications to buy homes plummeted by nearly a third to 13-year lows after tax credits of up to US$8,000 ended on April 30, proving that the incentive pulled sales forward, the Mortgage Bankers Association found.

Despite the recent drop-off, sales should stay elevated through the summer and then flat-line, said many analysts.

'Job growth has returned even more quickly than we anticipated and mortgage rates are trending down again below 5 per cent. Both will spur real home buying activity,' wrote John Burns Real Estate Consulting.

Deutsche Bank expects that housing will have a lesser hangover from federal incentives than many fear, akin to the auto market after the cash-for-clunkers programme ended last year.

'We believe that improving economic confidence, home price stabilisation and rising household incomes will provide an important tailwind to home resales - sufficient to offset the expired incentives,' Joseph LaVorgna and Carl Riccadonna wrote in a Deutsche report.

US non-farm payrolls rose by 290,000 in April, the fastest pace in four years, and a Reuters polls forecasts employers added another 513,000 jobs in May.

Trulia.com, a real estate website, said that Internet real estate searches are picking up after sinking in the first two weeks following April's spike.

'While there was a big hangover effect after the tax credit, we're starting to see people come back and searching again' in the latter part of May, said Ken Shuman of Trulia.

In data Trulia compiled for Reuters, cities across the country showed on-line property searches in the first two weeks of May erased a good chunk if not all of the activity in the last two weeks of the tax credit.

In Miami Beach, Florida, searches rose 2.8 per cent in the last two weeks of April compared with the prior two weeks, and then fell 6.6 per cent in the first two weeks of May. Memphis, Tennessee searches sank 29.1 per cent in the first two May weeks after a 10.9 per cent jump the prior two weeks.

'We do think there will be more market correction in some areas and we don't expect to see major price gains anywhere,'added Mr Shuman. 'We're not expecting a major double dip either, we're more in the flat-lining group.'

Stability would be welcome after a crash that swept prices down 30 per cent on average before gaining traction.

And few expect the housing market to turn bubbly, with unemployment and underemployment still high and banks seen repossessing nearly one million homes this year.

Households are also busy rebuilding balance sheets and are still as much as US$9 trillion dollars down in net worth from the peak, MBA's Mr Fratantoni noted. The MBA forecasts a 5 per cent drop in sales in the second quarter, having factored in the applications dive this month that followed April's spike.

It will be some months before it's clear whether the housing market is really on the road to recovery.

Mark Linne, executive vice-president of AppraisalWorld, said data at summer's end will better reflect the housing market's health, without the artificial prop of the tax credit.

'If we go through the summer and it's not robust and doesn't show any signs of life, then it continues like the groundhog thing - we wait through another winter.' - Reuters

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.



Staying strong: Despite the recent drop-off, sales should stay elevated through the summer and then flat-line, say analysts

BT : KepLand uses rights proceeds for Lakeside site

Business Times - 03 Jun 2010

KepLand uses rights proceeds for Lakeside site

KEPPEL Land said in an update yesterday that it has used another $75.8 million of the proceeds from its rights issue last year, which netted the developer a total of $700.6 million.

KepLand, the property arm of Keppel Corporation, has now used $666.6 million of the proceeds from the rights issue.

The latest amount will be used to fund a quarter of the cost of a 99-year leasehold residential plot near Lakeside MRT Station, which KepLand won in a government land tender last month. The property group put in the top bid of $303 million - or $499 per sq ft per plot ratio - for the site, trumping 13 other bidders.

KepLand has said that it plans to develop a condominium with about 550 units - ranging from 500 sq ft to 1,400 sq ft - on the land parcel, which marked the developer's first acquisition of a pure residential site in Singapore in six years.

The units will be in one-bedroom to four-bedroom configurations as well as penthouses. The project is expected to be launch ready by the end of this year and completed at the end of 2013, KepLand said last month.

KepLand shares gained 2 cents to close at $3.46 yesterday.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

BT : Financial woes ahead for property developers: report

Business Times - 03 Jun 2010

Financial woes ahead for property developers: report

(BEIJING) China's property developers will have financial difficulties in the future as the liability ratio of 13 of the country's top 50 listed developers had already exceeded 70 per cent, yesterday's Shanghai Securities News reported.

The government's recent property market tightening will continue to slow the market in the second half of the year, said the newspaper, citing a report released by China Real Estate Appraisal (CRA) on Tuesday.

The report indicated that centrally administered state-owned property developers had fared better than other enterprises amid the government tightening measures.

Stock prices of listed property developers had slumped well over 20 per cent since the government introduced macro control measures in April.

China Overseas Land and Investment Ltd, subsidiary of the centrally administered China State Construction Engineering Corporation, had maintained rapid growth and replaced China Vanke Co as the country's largest listed property developer by market value, said the CRA report.

Total assets of the top 50 listed property enterprises hit 1.78 trillion yuan (S$367.8 billion) at the end of 2009, up 38.8 per cent year on year, it said.

Total revenue of these companies rose 48.3 per cent year on year to stand at 406.04 billion yuan, while net profit topped 83.84 billion yuan, up 67.38 per cent\. \-- Xinhua

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

BT : State land tenders still fetching record prices

Business Times - 03 Jun 2010

State land tenders still fetching record prices

Top bid for condo plot near Potong Pasir MRT is $607 psf ppr

By KALPANA RASHIWALA

A STATE tender for a 99-year leasehold private housing site next to Potong Pasir MRT Station has fetched a record land price for the area - $607 per square foot per plot ratio (psf ppr).

This is also the second highest price paid for a 99-year condo site sold by the state in Singapore's Rest of Central Region.

However, analysts point out that save for the top two bids - both of which were from foreign parties (Qingdao Construction of China and SP Setia Bhd of Malaysia) - the offers, from local players, were within expectations.

DTZ's South-east Asia research head Chua Chor Hoon observed that 'more foreign players are entering the local property development market as they see growth opportunities in Singapore'.

'As they've no or very little landbank in Singapore, they have to bid more aggressively than local developers to gain a foothold.'

Yesterday's tender drew a whopping 15 bids, as the plot's relatively small size rendered the total investment quantum affordable to a wider pool of contenders.

The competition among them, as well as the plot's choice location next to an MRT station close to the city, helped to create a bullish top bid, say industry players.

There was a significant gap between the top two bids, which came in at around $600 psf ppr, and the next three bids (from Koh Brothers, Far East Organization and Allgreen Properties), which congregated around the $500 psf ppr level. The lowest offer, from Hong Leong Group, was $321 psf ppr.

When the 53,516 sq ft site at Pheng Geck Avenue was launched in April, analysts had predicted bids of $450-560 psf ppr.

Qingdao Construction director Zuo Haibin acknowledged that his company's bid was 'not cheap', but noted that it had not been able to clinch any sites at state tenders in the past eight months.

Qingdao's breakeven cost is likely to be around $950 psf; it will handle the project's construction as well.

Mr Zuo added that the company is looking at an average selling price of about $1,000-1,050 psf, although the actual pricing will depend on market conditions at the time of launch, which is expected by year-end.

CBRE Research said that units at 8@ Woodleigh and Woodsville 28 nearby were transacted in the subsale market at $865-1,130 psf in January-April this year. Both projects are also 99-year leasehold.

Qingdao's proposed scheme comprises 150-160 apartments, ranging from one to four-bedders. There will be two levels of basement carparking.

This will be Qingdao's third property development here. It is developing Natura Loft, a Design, Build and Sell Scheme project in Bishan, for HDB.

The company also has a 20 per cent stake in a light industrial development in the Kallang Pudding area.

Mr Zuo told BT that Qingdao plans to list its operations here on the Singapore bourse around late-2011 or early-2012. The company is part of QingJian Group in China.

Other bidders at yesterday's tender included Frasers Centrepoint, Sing Holdings, Hoi Hup, Sim Lian Land and Wah Khiaw Developments.

Colliers International said yesterday's top bid was 5 per cent shy of the $639 psf ppr that Wing Tai and Greatearth paid for the Ascentia Sky plot in the Alexandra Road area in December 2007.

That is the record price for condo land sold by the state in Rest of Central Region.

Qingdao Construction's bid is also 40 per cent above the $434 psf ppr that Frasers Centrepoint paid for the Woodsville 28 site in July 2007.

However, that site is farther from the MRT station.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

BT : S'pore developers tread softly amid China curbs

Business Times - 03 Jun 2010

S'pore developers tread softly amid China curbs

As tighter measures kick in, they will monitor situation before new launches

By UMA SHANKARI

(SINGAPORE) Even as China developers continue to delay home sales, their Singapore-listed counterparts are ploughing ahead with their Chinese project launches.

But some Singapore developers concede that they will be monitoring the market closely before fixing future launches. They also expect demand from homebuyers to soften over the rest of the year as the impact of China's recent tightening measures kick in.

Already, property signings in Beijing slumped nearly 70 per cent to 3,357 in May from April, the Shanghai Securities News reported on Tuesday citing data from bjfdc.gov.cn. In Shanghai, China's financial centre, transactions may have dropped about 70 per cent to 2,550 signings, and in the industrial city of Shenzhen, sales fell 62 per cent, the paper reported.

But the five developers BT contacted said that they have yet to see a significant drop-off in home sales.

CapitaLand, which has a pipeline of around 20,000 units in China, said that it sold over 200 homes in April and May. It remains 'on track' to launch three new residential projects in the second half of the year, a spokesman said.

Keppel Land also said that there is no change in the launch schedule of its projects, which are mostly townships, for this year.

'We target to launch another 3,400 homes across different cities in China this year, although we will monitor the market closely and adjust our sale launches accordingly,' said a Keppel Land spokesman.

Sales for Keppel Land's China properties have been 'encouraging'. The developer said it sold over 900 homes in its townships in April and May.

China-based Yanlord Land also said that it remains 'on track' with its delivery and development schedule. And GuocoLand, which has a 1,176-unit residential project in Tianjin in its portfolio, is now monitoring the market before fixing a launch date.

For now, most property groups are bracing themselves for a short-term fall in transaction volumes.

'The market remains volatile owing to concerns over new and potential government tightening measures,' said a spokesman for Yanlord Land. 'Many homebuyers have adopted a more cautious approach towards purchases, and this may lead to near-term softening of demand over the next 3-6 months.'

Said Ho Bee Investment's executive director Ong Chong Hua: 'The tightening measures are expected to continue to cool the market in terms of volume as well as capital values for the rest of the year.'

But the measures are healthy as they will prevent a bubble from forming and create a more sustainable and healthy residential market, Mr Ong added: 'In the mid to longer term, we are very confident about the residential market as it is underpinned by the shortage of homes to house a huge population base which has become more affluent through the last decade of rapid economic growth.'

Ho Bee's projects in China are still in the early stages of design and development, and so there are no launches planned yet.

Keppel Land also expects buying volume to taper down in the short term.

China has in recent weeks announced several measures to cool the property market as it tries to peel back a stimulus plan and a US$1.4 trillion lending binge that revived economic growth while raising the risk of asset bubbles.

Its government has restricted pre-sales by developers, curbed loans for third-home purchases, raised minimum mortgage rates and tightened downpayment requirements for second-home purchases.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.

BT : Mezzanine loans revive as confidence returns

Business Times - 03 Jun 2010

Mezzanine loans revive as confidence returns

But banks' delay in foreclosing on defaulted loans seen as a drag

(NEW YORK) The W Hotel in Union Square has had an eventful six months. The 270-room hotel in New York City changed hands in December after the private equity division of Dubai World defaulted on a US$117 million mezzanine loan in the face of dwindling business. But the lender, LEM Mezzanine, could itself lose the hotel in the coming months as a result of its filing for bankruptcy protection this year.

Mezzanine loans, which are secured by stock or other ownership stakes in a company, became a popular form of secondary financing during the real estate boom, offering high returns to investors and high interest rates for borrowers. There is an estimated US$100 billion in mezzanine loans outstanding across the country, and when the economy slowed and business slumped they became a special headache for borrowers.

But despite built-in risks, lenders say mezzanine loans are beginning to resurface, albeit slowly.

'It's become something people want to do again,' said William Shanahan, vice-chairman at CB Richard Ellis who specialises in investment properties in New York. 'I think it's fair to say that right now, the desire to place mezzanine debt outweighs the demand for it, but a lot of people are looking to put mezzanine loans on their properties. There are a number of players out there right now.'

Like the level between the first and second floors for which it is named, mezzanine loans come second in priority to the first mortgage.

The loans are typically secured by stock in the company, so that if a property owner defaults, he risks not only handing over the keys to his building but also the equity tied to the asset. By comparison, when a borrower defaults on a first mortgage, only the property itself is at stake.

As a result, many building owners who financed property at the height of the real estate bubble, including the proprietors of the W Hotel and the Hancock Tower in Boston, were at the mercy of mezzanine lenders after the economy turned down, profits shrank and junior loans swirled into default.

In March last year, Normandy Real Estate Partners, based in New Jersey, took control of the Hancock Tower, the tallest building in New England, by quietly buying up mezzanine debt shortly after the property's owner, Broadway Partners, defaulted on loan payments.

But as banks begin to provide more senior financing on commercial assets and investor confidence returns to the market, so too will increased demand for new mezzanine loans, lenders said.

Since January, an estimated US$374 million in mezzanine and other secondary loans have been issued across the country, an increase from just US$210 million in all of last year, according to data provided by Jones Lang LaSalle, the Chicago-based commercial real estate services firm.

Typically, borrowers who are unable to secure all of their financing needs for a property acquisition with a first mortgage have few options other than a mezzanine loan, mainly because first mortgage lenders usually demand locked-in agreements barring a second mortgage with similar terms.

'Little by little, you're going to have more liquidity in the market, which means the volume of mezzanine lending is going to increase,' said Bruce Batkin, the president of Terra Capital Partners, a real estate investment company based in New York. 'I think that's going to be happening in the second half of the year.'

The Pembrook Group, a fund management company based in Harrison, NY, is expected to originate as much as US$100 million in mezzanine debt by the end of the year, including half a dozen pending deals in Chicago, California, Florida and Texas, said John Garth, a managing director in the New York City office of the six-year-old company.

In late January, the group placed a US$12 million mezzanine loan at an office park outside Pittsburgh owned by the Keystone Property Group, which secured a US$42 million mortgage from Deutsche Bank, Mr Garth said.

'Money has become much more available and at much more attractive rates in the last 90 days, and business is getting signed up and closed,' said Mr Garth, who said that Pembrook originated about US$250 million in mezzanine loans in 2006, at the peak of the market. 'It's literally been since the first of February that we've seen a lot of competition on high-quality deals, from Wall Street shops, banks and insurance companies.'

At the Partners Group, a private asset manager based in Switzerland, demand for mezzanine loans has escalated significantly since January, said Eliza Bailey, a senior vice-president in the company's San Francisco office. She predicted that by the end of this year, the group would place upwards of US$300 million in mezzanine debt, both nationally and globally.

Among the Partners Group's recent deals, she said, was a US$10 million mezzanine loan on a portfolio of commercial buildings throughout the United States, as well as an US$11.3 million loan on a collection of residential assets in Germany.

'It's improved dramatically in 2010 as far as the quality of the new asset deals that are in the market,' Ms Bailey said. 'There's more visibility to value the underlying assets, and there's a little bit more of a market acceptance of where we are in the cycle. In 2009, I don't think anybody was clear about where we were or where we were headed.'

Dan Gorczycki, a managing director at Savills, said that until banks ramped up efforts to foreclose on defaulted loans, rather than extend them indefinitely, mezzanine lending opportunities would continue to be relatively scarce. The so-called extend-and-pretend strategy practised by banks, he said, has prevented many commercial properties from returning to the market and, subsequently, from being refinanced with the help of mezzanine debt.

'Now that the market's recovered, some banks are getting tougher, but other banks are saying, 'Let's give these guys some more time to work things out',' . Mr Gorczycki said.

'When nobody's forced to sell, there's nothing left to buy,' he added\. \-- NYT

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.



Another owner? The W Hotel may change hands again as LEM Mezzanine files for bankruptcy protection