Jul 13, 2010
China property prices fall due to govt curbs
BEIJING: Chinese property prices last month recorded their first monthly fall since February last year, providing further evidence that a government drive to let the air out of an inflated market is working.
Average prices in 70 cities edged down 0.1 per cent from May, lowering the annual property inflation rate to 11.4 per cent last month, from 12.4 per cent in the year to May and April's reading of 12.8 per cent, the National Bureau of Statistics said yesterday.
Coming on the heels of much slower import growth and a controlled moderation in bank lending, the figures reinforced the conviction of many economists that no further policy tightening is on the cards.
However, with surprisingly resilient exports offsetting softer domestic investment, the consensus is that Beijing will not be rushed into relaxing policy until clearer signals emerge from the all-important property and construction sectors.
The government, determined to squeeze out speculators, refuses to back down by reversing curbs imposed in April; developers do not want to waver because they paid high prices for land last year and have a bullish long-term outlook; and home buyers are sitting on the sidelines, said Mr Dong Tao, chief China economist at Credit Suisse in Hong Kong
Engineering a soft landing in the housing market is critical. To prick a bubble that had developed in big cities such as Beijing and Shanghai, the government in April raised down-payments, ended mortgage discounts, tightened rules on loans to developers and made it harder to buy multiple homes.
Although annual property inflation has fallen for two months in a row, underlying demand remains strong and few home buyers expect a sharp decline in prices, said Mr Zhang Huadong, a property analyst with Xiangcai Securities in Shanghai.
'It's very unlikely that the government will relax its policy of curbing demand,' he said. 'If policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.'
REUTERS
Tuesday, July 13, 2010
BT : Prime City of London office rents up 25%
Business Times - 13 Jul 2010
Prime City of London office rents up 25%
Recession-driven discounts, lack of office space fuelling rise: NB Real Estate
(LONDON) Prime office rents in the City of London financial district have gained nearly 25 per cent since January, with recession-driven discounts pushing tenant demand, property consultancy NB Real Estate said yesterday.
The six-month rise was the strongest period of rental growth since reliable records began in 1988, NB Real Estate said. It has been part-fuelled by a lull in the development of high quality office space.
'The recession saw a collapse in new construction starts in the City. Tenants are now locked in bidding wars over the dwindling supply of grade A space, which is driving up rents,' said James Gillett, director of City Offices at NB Real Estate.
The amount of available office space in the City at the end of the second quarter of this year was 6.8 million square feet, down 28 per cent on the year earlier period.
Many London businesses are making a so-called 'flight to quality' as offices previously considered too expensive are now affordable, Mr Gillett said.
Average rents for prime offices in London rose from £42.50 (S$88) a square foot in January to £53 a sq ft at end-June, NB Real Estate said in a statement.
London rents are still well below their third-quarter 2007 peak of £69.50 a sq ft, said NB Real Estate, a unit of Capita Group.
Secondary office stock has remained relatively immune to the rent rises. Mr Gillett expects that to change once the supply of primary office stock dries up, which he said was likely due to the lack of new construction projects.
'The shortage of new space will become more acute over the next few years. There have been no significant construction starts in the City this year, as lack of development finance continues to be a concern,' Mr Gillett said.
Docklands office rents gained 6.7 per cent in the second quarter of this year to £40 a sq ft. Rents in London's West End theatre district held at £67.50 a sq ft, after a 3.8 per cent hike in the first-quarter this year. -- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Prime City of London office rents up 25%
Recession-driven discounts, lack of office space fuelling rise: NB Real Estate
(LONDON) Prime office rents in the City of London financial district have gained nearly 25 per cent since January, with recession-driven discounts pushing tenant demand, property consultancy NB Real Estate said yesterday.
The six-month rise was the strongest period of rental growth since reliable records began in 1988, NB Real Estate said. It has been part-fuelled by a lull in the development of high quality office space.
'The recession saw a collapse in new construction starts in the City. Tenants are now locked in bidding wars over the dwindling supply of grade A space, which is driving up rents,' said James Gillett, director of City Offices at NB Real Estate.
The amount of available office space in the City at the end of the second quarter of this year was 6.8 million square feet, down 28 per cent on the year earlier period.
Many London businesses are making a so-called 'flight to quality' as offices previously considered too expensive are now affordable, Mr Gillett said.
Average rents for prime offices in London rose from £42.50 (S$88) a square foot in January to £53 a sq ft at end-June, NB Real Estate said in a statement.
London rents are still well below their third-quarter 2007 peak of £69.50 a sq ft, said NB Real Estate, a unit of Capita Group.
Secondary office stock has remained relatively immune to the rent rises. Mr Gillett expects that to change once the supply of primary office stock dries up, which he said was likely due to the lack of new construction projects.
'The shortage of new space will become more acute over the next few years. There have been no significant construction starts in the City this year, as lack of development finance continues to be a concern,' Mr Gillett said.
Docklands office rents gained 6.7 per cent in the second quarter of this year to £40 a sq ft. Rents in London's West End theatre district held at £67.50 a sq ft, after a 3.8 per cent hike in the first-quarter this year. -- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
BT : Is the world heading for another recession?
Business Times - 13 Jul 2010
Is the world heading for another recession?
Asia could come to the world's rescue as the austerity drive takes hold in Europe, US
By SHAHID JAVED BURKI
IN RECENT months, economic policy around the world has taken a major wrong turn and, according to some economists, the global economy may be heading towards another recession. If that were to happen, the Great Recession of 2008-09 may turn into the Great Double-dip Recession of 2008-11.
This may degenerate into a depression, the first since the late 1930s. The main reason for this unhappy turn in events is the policy-induced weakness in aggregate demand. This is more evident in Europe but may also happen in the United States.
Deep political divisions in the United States are preventing the Obama administration from assisting the unemployed as their benefits run out. Republicans in the Senate, with some help from conservative Democrats, have blocked US$77 billion in aid to the unemployed proposed by the administration.
The German government has pledged US$100 billion in tax increases and spending cuts even though the economy continues to operate well below capacity. The newly installed Cameron-Craig government in London has also opted for austerity. The French are also pulling back sharply.
Perhaps most troubling of all is that the G-20 governments that recently met in Toronto failed to agree on a common framework for guiding the world economy back to full recovery. We know from the history of the world economy that when national governments are left to work on their own they are likely to work against each other rather than in support of one another. That happened in the period before World War II and produced the Great Depression.
Does this mean that the world is headed not only towards a double-dip recession but perhaps to a full-fledged depression? The answer is probably no because the large economies of Asia have not - at least not yet - joined the politically popular austerity drive in the countries on both sides of the Atlantic. Asia may come to the world's rescue and in the process acquire greater economic heft.
Economic downturns - their depth and duration - are exceedingly hard to predict. This is especially the case when governments actively intervene to shorten their duration and reduce their depth. Sometimes the cures that are used may worsen the situation rather than reduce the impact of the downturn. The 2008-09 downturn, by far the most severe of the several that have hit the global economy over the last six decades, was supposed to have ended by the time the year 2009 was in its third quarter.
The conventional measure - two successive quarters of growth - when applied to this downturn seemed to suggest that the recession was over. Not so, said Christina Romer, the chair of President Barack Obama's Council of Economic Advisors. According to her, she would be prepared to say that the Great Recession had ended only when the rate of unemployment in the United States declined to 5.5 per cent of the labour force. That may not happen for many quarters.
On the other hand, Larry Summers, the other important economic policymaker in the Obama White House, and US Treasury Secretary Timothy Geithner prefer the conventional interpretation. They believe that the aim of policymakers should now be to manage the recovery, determining the time when governments should begin the process of reducing the amount of stimulation used to prevent the economies from going into a free fall.
President Obama's challenge is to balance three different types of advice he is receiving from the people who work in his White House. The most vocal are those who watch politics, among them Rahm Emannuel, his chief of staff, and David Axelrod, his senior advisor.
Both are worried that given the sharp increase in the levels of public debt and associated fiscal deficits it would be politically costly - perhaps suicidal - to continue to stimulate the economy by using the printing press. Already, the 'Tea Party' movement has gained a great deal of political ground. It has developed its campaign by suggesting that the mountain of debt the United States has built up will have a severe impact on future generations as they begin to pay off the accumulated debt through higher taxes and reduced consumption.
Mr Summers and Mr Geithner are the sources of the second line of advice to the US president. They are not averse to continuing with some stimulation and providing compensation to the millions of people who remain unemployed - both positions are unpopular with the Republicans - but they also want to focus attention on reforming the financial system through better regulation. According to them, the president needs to spend his political capital on bringing about structural changes in the economy so that the economy does not go through another spin as it did in 2008-09.
The third line of advice comes from people such as Ms Romer who fear that by exiting more rapidly than the current situation warrants the economy may head towards a double-dip recession rather than continued recovery. This group has the support of some private economists with powerful credentials.
The most prominent among these is Paul Krugman, a Nobel Prize-winning Princeton professor and a columnist at The New York Times. 'Many economists, myself included, regard this turn to austerity as a huge mistake,' he wrote in a recent article. 'It raises memories of 1937, when FDR's premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And in Germany, a few scholars see parallels to the policies of Heinrich Bruning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.'
While both the European Union and the US are projected to see growth of only one per cent in their respective GDPs in 2010, the Asian countries are expected to do much better. Led by China, Asia is becoming the engine of global growth and may save the world economy from plunging into a double-dip recession.
Asia's help is coming in many ways. Recent German data illustrates the deep structural changes taking place in the global economy would not have been possible without economic expansion in Asia. Since May last year when continental Europe was in the midst of the worst economic downturn in the post-war period, German exports have risen 28.8 per cent.
Sales to non-European markets buoyed the trend; they increased by 39.5 per cent. 'Without China we would have hardly seen this recovery,' said Hannes Hesse, managing director of the VDMA engineering associates. According to Deither Klingelnberg, a maker of machine tools, Asian and emerging markets demand is the main driving force for the on-going recovery of German manufacturing and exports.
'It's China, China, China by a long way, then India, Brazil, then Russia - and the US remains weak, as do many of our European markets,' he said. While China may begin to slow down the unsustainably high rate of growth of recent months, growth will remain close to 10 per cent.
Some other large Asian economies may step forward. For instance, there is a lot of life in Indonesia which could begin to spend more by relying not just on taxes but also on borrowing. Emerging Asia as whole, with a quarter of the world's gross domestic product, has less than 8 per cent of its outstanding bonds.
Increasing the ratio will help not only to increase domestic demand, it could also put a floor under which the global economy would not fall. Asia then has become the economic area that will begin to carry a great deal of water for the global economy. But for that to happen, the West must not turn totally away from expansion and move towards austerity.
To use another metaphor, Asia is developing broad shoulders but they can carry only so much burden for the moment.
The writer is a senior visiting fellow at the Institute of South Asian Studies. He is a former vice-president of the World Bank and served as Pakistan's finance minister in 1996-97
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Is the world heading for another recession?
Asia could come to the world's rescue as the austerity drive takes hold in Europe, US
By SHAHID JAVED BURKI
IN RECENT months, economic policy around the world has taken a major wrong turn and, according to some economists, the global economy may be heading towards another recession. If that were to happen, the Great Recession of 2008-09 may turn into the Great Double-dip Recession of 2008-11.
This may degenerate into a depression, the first since the late 1930s. The main reason for this unhappy turn in events is the policy-induced weakness in aggregate demand. This is more evident in Europe but may also happen in the United States.
Deep political divisions in the United States are preventing the Obama administration from assisting the unemployed as their benefits run out. Republicans in the Senate, with some help from conservative Democrats, have blocked US$77 billion in aid to the unemployed proposed by the administration.
The German government has pledged US$100 billion in tax increases and spending cuts even though the economy continues to operate well below capacity. The newly installed Cameron-Craig government in London has also opted for austerity. The French are also pulling back sharply.
Perhaps most troubling of all is that the G-20 governments that recently met in Toronto failed to agree on a common framework for guiding the world economy back to full recovery. We know from the history of the world economy that when national governments are left to work on their own they are likely to work against each other rather than in support of one another. That happened in the period before World War II and produced the Great Depression.
Does this mean that the world is headed not only towards a double-dip recession but perhaps to a full-fledged depression? The answer is probably no because the large economies of Asia have not - at least not yet - joined the politically popular austerity drive in the countries on both sides of the Atlantic. Asia may come to the world's rescue and in the process acquire greater economic heft.
Economic downturns - their depth and duration - are exceedingly hard to predict. This is especially the case when governments actively intervene to shorten their duration and reduce their depth. Sometimes the cures that are used may worsen the situation rather than reduce the impact of the downturn. The 2008-09 downturn, by far the most severe of the several that have hit the global economy over the last six decades, was supposed to have ended by the time the year 2009 was in its third quarter.
The conventional measure - two successive quarters of growth - when applied to this downturn seemed to suggest that the recession was over. Not so, said Christina Romer, the chair of President Barack Obama's Council of Economic Advisors. According to her, she would be prepared to say that the Great Recession had ended only when the rate of unemployment in the United States declined to 5.5 per cent of the labour force. That may not happen for many quarters.
On the other hand, Larry Summers, the other important economic policymaker in the Obama White House, and US Treasury Secretary Timothy Geithner prefer the conventional interpretation. They believe that the aim of policymakers should now be to manage the recovery, determining the time when governments should begin the process of reducing the amount of stimulation used to prevent the economies from going into a free fall.
President Obama's challenge is to balance three different types of advice he is receiving from the people who work in his White House. The most vocal are those who watch politics, among them Rahm Emannuel, his chief of staff, and David Axelrod, his senior advisor.
Both are worried that given the sharp increase in the levels of public debt and associated fiscal deficits it would be politically costly - perhaps suicidal - to continue to stimulate the economy by using the printing press. Already, the 'Tea Party' movement has gained a great deal of political ground. It has developed its campaign by suggesting that the mountain of debt the United States has built up will have a severe impact on future generations as they begin to pay off the accumulated debt through higher taxes and reduced consumption.
Mr Summers and Mr Geithner are the sources of the second line of advice to the US president. They are not averse to continuing with some stimulation and providing compensation to the millions of people who remain unemployed - both positions are unpopular with the Republicans - but they also want to focus attention on reforming the financial system through better regulation. According to them, the president needs to spend his political capital on bringing about structural changes in the economy so that the economy does not go through another spin as it did in 2008-09.
The third line of advice comes from people such as Ms Romer who fear that by exiting more rapidly than the current situation warrants the economy may head towards a double-dip recession rather than continued recovery. This group has the support of some private economists with powerful credentials.
The most prominent among these is Paul Krugman, a Nobel Prize-winning Princeton professor and a columnist at The New York Times. 'Many economists, myself included, regard this turn to austerity as a huge mistake,' he wrote in a recent article. 'It raises memories of 1937, when FDR's premature attempt to balance the budget helped plunge a recovering economy back into severe recession. And in Germany, a few scholars see parallels to the policies of Heinrich Bruning, the chancellor from 1930 to 1932, whose devotion to financial orthodoxy ended up sealing the doom of the Weimar Republic.'
While both the European Union and the US are projected to see growth of only one per cent in their respective GDPs in 2010, the Asian countries are expected to do much better. Led by China, Asia is becoming the engine of global growth and may save the world economy from plunging into a double-dip recession.
Asia's help is coming in many ways. Recent German data illustrates the deep structural changes taking place in the global economy would not have been possible without economic expansion in Asia. Since May last year when continental Europe was in the midst of the worst economic downturn in the post-war period, German exports have risen 28.8 per cent.
Sales to non-European markets buoyed the trend; they increased by 39.5 per cent. 'Without China we would have hardly seen this recovery,' said Hannes Hesse, managing director of the VDMA engineering associates. According to Deither Klingelnberg, a maker of machine tools, Asian and emerging markets demand is the main driving force for the on-going recovery of German manufacturing and exports.
'It's China, China, China by a long way, then India, Brazil, then Russia - and the US remains weak, as do many of our European markets,' he said. While China may begin to slow down the unsustainably high rate of growth of recent months, growth will remain close to 10 per cent.
Some other large Asian economies may step forward. For instance, there is a lot of life in Indonesia which could begin to spend more by relying not just on taxes but also on borrowing. Emerging Asia as whole, with a quarter of the world's gross domestic product, has less than 8 per cent of its outstanding bonds.
Increasing the ratio will help not only to increase domestic demand, it could also put a floor under which the global economy would not fall. Asia then has become the economic area that will begin to carry a great deal of water for the global economy. But for that to happen, the West must not turn totally away from expansion and move towards austerity.
To use another metaphor, Asia is developing broad shoulders but they can carry only so much burden for the moment.
The writer is a senior visiting fellow at the Institute of South Asian Studies. He is a former vice-president of the World Bank and served as Pakistan's finance minister in 1996-97
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
BT : HK should regulate sales of apartments: lawmaker
Business Times - 13 Jul 2010
HK should regulate sales of apartments: lawmaker
More transparency on developers' sales tactics needed
(HONG KONG) The government should regulate Hong Kong developers' sales tactics to increase transparency, a lawmaker said yesterday, as the territory's Parliament held a special session on the collapse of HK$2.67 billion (S$474.89 million) of apartment sales by Henderson Land Development Co.
The Parliament held the meeting, which Henderson declined to attend, to discuss the 20 luxury apartment sales that fell through, prompting legislators' calls for the government to investigate the transactions.
The government increased its scrutiny of developers after Henderson said in October that it sold an apartment at 39 Conduit Road in the Mid-Levels district on Hong Kong Island for a record HK$88,000 a square foot.
'What's happening is a failure of existing regulations,' Wong Kwok-hing, chairman of the Legislative Council's Housing Committee, said at the meeting to discuss the collapsed sales.
Henderson said in a press release its appearance in yesterday's meeting would be 'inappropriate' because it has 'sufficiently disclosed' details on the transactions and an investigation is still under way.
The government, which is trying to curb a 38 per cent surge in home prices since the beginning of 2009, introduced in June nine rules on new home sales, including the use of show flats developers use to entice buyers before a building is completed. Those measures have no statutory power and are rules the Real Estate Developers Association 'advise' its members to follow, Mr Wong said.
Hong Kong's government has sought details from Henderson, controlled by billionaire Lee Shau-kee, on the sale agreements after 20 of the 24 sales at 39 Conduit Road were cancelled.
Henderson has repeatedly denied any wrongdoing in the way it handled the transactions. Yesterday it said in a statement published in the South China Morning Post that 'the company strongly rejects' allegations that there have been irregularities in the sale of the apartments.
The government has submitted all the letters exchanged between Henderson and the Lands Department to the Legislative Council (Legco), Permanent Secretary for Transport and Housing Duncan Pescod told lawmakers yesterday. He and other government officials attending the meeting declined to comment on the investigations into the collapsed sales.
Hong Kong police and other law enforcement agencies are investigating the sales at 39 Conduit Road, Transport and Housing Secretary Eva Cheng told lawmakers during a July 5 Legco session. Ms Cheng declined to specify the other agencies and give a schedule for the investigation.
The lawmakers will meet again to discuss the sales, Mr Wong said, without giving a date. The meeting was attended by officials from the government's Lands Department and Housing Authority.
'Setting up legislations to regulate apartment sales would be unnecessary,' said Patrick Chow, head of research at property agency Ricacorp Ltd in Hong Kong. 'All we need is more clearly defined rules.'
Henderson shares rose 0.6 per cent to HK$47.50 at the close of trading in Hong Kong. -- Bloomberg
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
HK should regulate sales of apartments: lawmaker
More transparency on developers' sales tactics needed
(HONG KONG) The government should regulate Hong Kong developers' sales tactics to increase transparency, a lawmaker said yesterday, as the territory's Parliament held a special session on the collapse of HK$2.67 billion (S$474.89 million) of apartment sales by Henderson Land Development Co.
The Parliament held the meeting, which Henderson declined to attend, to discuss the 20 luxury apartment sales that fell through, prompting legislators' calls for the government to investigate the transactions.
The government increased its scrutiny of developers after Henderson said in October that it sold an apartment at 39 Conduit Road in the Mid-Levels district on Hong Kong Island for a record HK$88,000 a square foot.
'What's happening is a failure of existing regulations,' Wong Kwok-hing, chairman of the Legislative Council's Housing Committee, said at the meeting to discuss the collapsed sales.
Henderson said in a press release its appearance in yesterday's meeting would be 'inappropriate' because it has 'sufficiently disclosed' details on the transactions and an investigation is still under way.
The government, which is trying to curb a 38 per cent surge in home prices since the beginning of 2009, introduced in June nine rules on new home sales, including the use of show flats developers use to entice buyers before a building is completed. Those measures have no statutory power and are rules the Real Estate Developers Association 'advise' its members to follow, Mr Wong said.
Hong Kong's government has sought details from Henderson, controlled by billionaire Lee Shau-kee, on the sale agreements after 20 of the 24 sales at 39 Conduit Road were cancelled.
Henderson has repeatedly denied any wrongdoing in the way it handled the transactions. Yesterday it said in a statement published in the South China Morning Post that 'the company strongly rejects' allegations that there have been irregularities in the sale of the apartments.
The government has submitted all the letters exchanged between Henderson and the Lands Department to the Legislative Council (Legco), Permanent Secretary for Transport and Housing Duncan Pescod told lawmakers yesterday. He and other government officials attending the meeting declined to comment on the investigations into the collapsed sales.
Hong Kong police and other law enforcement agencies are investigating the sales at 39 Conduit Road, Transport and Housing Secretary Eva Cheng told lawmakers during a July 5 Legco session. Ms Cheng declined to specify the other agencies and give a schedule for the investigation.
The lawmakers will meet again to discuss the sales, Mr Wong said, without giving a date. The meeting was attended by officials from the government's Lands Department and Housing Authority.
'Setting up legislations to regulate apartment sales would be unnecessary,' said Patrick Chow, head of research at property agency Ricacorp Ltd in Hong Kong. 'All we need is more clearly defined rules.'
Henderson shares rose 0.6 per cent to HK$47.50 at the close of trading in Hong Kong. -- Bloomberg
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
BT : China property prices see first fall in 17 months
Business Times - 13 Jul 2010
China property prices see first fall in 17 months
Some banks resume making mortgages on third homes
(BEIJING) Chinese property prices in June recorded their first monthly fall since February 2009, providing further evidence that a government drive to let the air out of an inflated market is working.
Average prices in 70 cities edged down 0.1 per cent from May, lowering the annual property inflation rate to 11.4 per cent in June from 12.4 per cent in the year to May and April's reading of 12.8 per cent, the National Bureau of Statistics said yesterday.
Coming on the heels of much slower import growth and a controlled moderation in bank lending, the figures reinforced the conviction of many economists that no further policy tightening is on the cards.
However, with surprisingly resilient exports offsetting softer domestic investment, the consensus is that Beijing will not be rushed into relaxing policy either until clearer signals emerge from the all-important property and construction sectors.
'Currently the Chinese property market's at a crossroads. It's a game of who blinks first,' said Dong Tao, chief China economist at Credit Suisse in Hong Kong.
The government, determined to squeeze out speculators, refuses to back down by reversing curbs imposed in April; developers don't want to waver because they paid high prices for land last year and have a bullish long-term outlook; and home buyers are sitting on the sidelines, Mr Tao said.
'One of these three key players needs to blink first and change their stance,' he said. 'I see policy in a pause mode. Whether that lasts till the end of the year is not entirely clear to me. It all depends on who blinks first.'
Engineering a soft landing in the housing market is critical. To prick a bubble that, by common consent, had developed in big cities such as Beijing and Shanghai, the government in April raised down payments, ended mortgage discounts, tightened rules on loans to developers and made it harder to buy multiple homes.
Although annual property inflation has subsequently fallen for two months in a row, underlying demand remains strong and few home buyers expect a sharp decline in prices, said Zhang Huadong, a property analyst with Xiangcai Securities in Shanghai.
'It's very unlikely that the government will relax its policy of curbing demand,' Mr Zhang said. 'If - and I mean if - policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.'
The Securities Times reported yesterday that banks in major cities, including Shanghai and Shenzhen, had resumed making mortgages on third homes, in what the newspaper took as a sign that the government was easing its grip.
But Mr Tao with Credit Suisse and Liu Kun, a property analyst with Great Wall Securities in Shenzhen, said banks were just probing Beijing's determination to implement its curbs firmly. 'The government is unlikely to announce measures to adjust its previous policies until the first half of next year,' Mr Liu said.
Economists at Bank of America-Merrill Lynch agreed. 'Banks always like to test the resolve of policymakers. We are glad to see more people are coming around to our view that there will be no policy reversal and policy easing very soon on the property front,' they said in a note to clients.
Bringing prices down is a political imperative for the ruling Communist Party.
Buying an apartment in a big city is now beyond the reach of ordinary people, reminding them of the inequalities that blight China and thus posing a potential threat to the social harmony that is President Hu Jintao's ideological leitmotif.
Yet the government does not want to squeeze the life out of a sector that makes up 10 per cent of national output and 25 per cent of fixed asset investment and drives sales of everything from furnishing to electrical appliances and even cars. Construction also accounts for half of China's steel consumption.
To square the circle, the government is ramping up the construction of low-income housing, though many analysts doubt it can meet its ambitious targets\. \-- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Building affordable homes: As buying an apartment in a big Chinese city is now beyond the reach of ordinary people, the government is ramping up the construction of low-income housing
China property prices see first fall in 17 months
Some banks resume making mortgages on third homes
(BEIJING) Chinese property prices in June recorded their first monthly fall since February 2009, providing further evidence that a government drive to let the air out of an inflated market is working.
Average prices in 70 cities edged down 0.1 per cent from May, lowering the annual property inflation rate to 11.4 per cent in June from 12.4 per cent in the year to May and April's reading of 12.8 per cent, the National Bureau of Statistics said yesterday.
Coming on the heels of much slower import growth and a controlled moderation in bank lending, the figures reinforced the conviction of many economists that no further policy tightening is on the cards.
However, with surprisingly resilient exports offsetting softer domestic investment, the consensus is that Beijing will not be rushed into relaxing policy either until clearer signals emerge from the all-important property and construction sectors.
'Currently the Chinese property market's at a crossroads. It's a game of who blinks first,' said Dong Tao, chief China economist at Credit Suisse in Hong Kong.
The government, determined to squeeze out speculators, refuses to back down by reversing curbs imposed in April; developers don't want to waver because they paid high prices for land last year and have a bullish long-term outlook; and home buyers are sitting on the sidelines, Mr Tao said.
'One of these three key players needs to blink first and change their stance,' he said. 'I see policy in a pause mode. Whether that lasts till the end of the year is not entirely clear to me. It all depends on who blinks first.'
Engineering a soft landing in the housing market is critical. To prick a bubble that, by common consent, had developed in big cities such as Beijing and Shanghai, the government in April raised down payments, ended mortgage discounts, tightened rules on loans to developers and made it harder to buy multiple homes.
Although annual property inflation has subsequently fallen for two months in a row, underlying demand remains strong and few home buyers expect a sharp decline in prices, said Zhang Huadong, a property analyst with Xiangcai Securities in Shanghai.
'It's very unlikely that the government will relax its policy of curbing demand,' Mr Zhang said. 'If - and I mean if - policy were relaxed, there would be another surge in property prices. It would be a disaster for the market.'
The Securities Times reported yesterday that banks in major cities, including Shanghai and Shenzhen, had resumed making mortgages on third homes, in what the newspaper took as a sign that the government was easing its grip.
But Mr Tao with Credit Suisse and Liu Kun, a property analyst with Great Wall Securities in Shenzhen, said banks were just probing Beijing's determination to implement its curbs firmly. 'The government is unlikely to announce measures to adjust its previous policies until the first half of next year,' Mr Liu said.
Economists at Bank of America-Merrill Lynch agreed. 'Banks always like to test the resolve of policymakers. We are glad to see more people are coming around to our view that there will be no policy reversal and policy easing very soon on the property front,' they said in a note to clients.
Bringing prices down is a political imperative for the ruling Communist Party.
Buying an apartment in a big city is now beyond the reach of ordinary people, reminding them of the inequalities that blight China and thus posing a potential threat to the social harmony that is President Hu Jintao's ideological leitmotif.
Yet the government does not want to squeeze the life out of a sector that makes up 10 per cent of national output and 25 per cent of fixed asset investment and drives sales of everything from furnishing to electrical appliances and even cars. Construction also accounts for half of China's steel consumption.
To square the circle, the government is ramping up the construction of low-income housing, though many analysts doubt it can meet its ambitious targets\. \-- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Building affordable homes: As buying an apartment in a big Chinese city is now beyond the reach of ordinary people, the government is ramping up the construction of low-income housing
BT : New Zealand home prices fall in June
Business Times - 13 Jul 2010
New Zealand home prices fall in June
(WELLINGTON) New Zealand house prices fell for the second month in a row in June, according to official data yesterday, offering further evidence that the central bank can afford to be gradual in raising interest rates.
Quotable Value (QV) said its residential house price index rose 5.2 per cent in the year to June, slowing from a 5.6 per cent rise in May.
Although the index is still up on a year ago, the gain is mostly due to a big rise late last year and the recent decline indicates that prices have effectively been falling for the past two months, the government agency said.
It added the market has retreated with fewer properties up for sale and buyers being cautious and selective.
'There are still sellers who have unrealistic price expectations in the face of present slow market conditions,' said QV valuation manager Glenda Whitehead.
She said properties seen as being poorly maintained were also being bypassed, while forced or mortgagee sales were weighing on prices as well.
The softness in the property sector, once a key inflation concern for the central bank when it raised rates to a record high, is now seen as one factor why it will be cautious as it raises them.
'I think house price growth will flatline for some time and for the Reserve Bank it will be a factor in them pausing eventually in their tightening,' said Goldman Sachs JBWere economist Philip Borkin.
The Reserve Bank of New Zealand (RBNZ) last month raised its cash rate to 2.75 per cent from a record low 2.5 per cent where it had been held for a year.
Financial markets are pricing in an 84 per cent chance of another quarter percentage point rate rise to 3 per cent on July 29. In the latest Reuters poll 19 of 20 economists expect a rise this month, with the cash rate seen at 3.75 per cent by year's end.
QV said there was no sign yet that a pending clampdown on the favourable tax treatment enjoyed by rental property outlined in the May budget is having any impact on the market.
'Any changes . . . will likely take effect over the next twelve months as the various tax changes are implemented, and will also depend on whether investors decide to sell as a result of the changes,' said Ms Whitehead.
The national average sale price in June rose 0.4 per cent to NZ$404,715 (S$395 860), against a 0.5 per cent rise in May.
House prices in Auckland, New Zealand's biggest city, were 7.9 per cent higher compared with 8.8 per cent in May\. \-- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
New Zealand home prices fall in June
(WELLINGTON) New Zealand house prices fell for the second month in a row in June, according to official data yesterday, offering further evidence that the central bank can afford to be gradual in raising interest rates.
Quotable Value (QV) said its residential house price index rose 5.2 per cent in the year to June, slowing from a 5.6 per cent rise in May.
Although the index is still up on a year ago, the gain is mostly due to a big rise late last year and the recent decline indicates that prices have effectively been falling for the past two months, the government agency said.
It added the market has retreated with fewer properties up for sale and buyers being cautious and selective.
'There are still sellers who have unrealistic price expectations in the face of present slow market conditions,' said QV valuation manager Glenda Whitehead.
She said properties seen as being poorly maintained were also being bypassed, while forced or mortgagee sales were weighing on prices as well.
The softness in the property sector, once a key inflation concern for the central bank when it raised rates to a record high, is now seen as one factor why it will be cautious as it raises them.
'I think house price growth will flatline for some time and for the Reserve Bank it will be a factor in them pausing eventually in their tightening,' said Goldman Sachs JBWere economist Philip Borkin.
The Reserve Bank of New Zealand (RBNZ) last month raised its cash rate to 2.75 per cent from a record low 2.5 per cent where it had been held for a year.
Financial markets are pricing in an 84 per cent chance of another quarter percentage point rate rise to 3 per cent on July 29. In the latest Reuters poll 19 of 20 economists expect a rise this month, with the cash rate seen at 3.75 per cent by year's end.
QV said there was no sign yet that a pending clampdown on the favourable tax treatment enjoyed by rental property outlined in the May budget is having any impact on the market.
'Any changes . . . will likely take effect over the next twelve months as the various tax changes are implemented, and will also depend on whether investors decide to sell as a result of the changes,' said Ms Whitehead.
The national average sale price in June rose 0.4 per cent to NZ$404,715 (S$395 860), against a 0.5 per cent rise in May.
House prices in Auckland, New Zealand's biggest city, were 7.9 per cent higher compared with 8.8 per cent in May\. \-- Reuters
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
ST : Property tax not based on market rental forecasts
Jul 13, 2010
Property tax not based on market rental forecasts
MR PAUL Chan ('Surprised by sharp tax hike on owner-occupied homes'; July 3) was under the impression that the Inland Revenue Authority of Singapore (Iras) estimates the annual value of properties in advance of market trends. He also felt that increases in the annual value of a property based on market rentals were not right for owner-occupiers.
His view reflects a frequent misconception about property tax. It is in fact a tax on property ownership, and is levied irrespective of whether the property is tenanted. This is unlike income tax, which is imposed on only properties that are rented out.
The property tax is pegged to the annual value of the property, which is determined based on market rentals of similar properties prevailing at the time of assessment. It does not take into account any forecast or estimate of future movements in market rentals.
Iras' practice is consistent with that in places such as Britain, the United States, Hong Kong and Australia, which also levy property tax based on prevailing market values rather than on the actual receipts derived from renting out a property.
Iras reviews annual values each year. It will increase or decrease annual values based on prevailing market rentals. The reliance on market rentals leads to less volatility in estimates of annual value and hence, the property tax payable, compared to relying on the market price of properties bought and sold, which tends to go through more pronounced cycles.
The annual value of Mr Chan's property was in fact reduced in past market declines, the most recent one being last year.
The Government introduced in Budget 2010 a progressive property tax schedule for owner-occupied residential properties from next year. Under the new progressive schedule, all HDB flat owners and the vast majority of residential property owners will enjoy an effective property tax rate lower than 4 per cent of annual value.
Deanna Choo (Ms)
Director (Corporate Communications)
Inland Revenue Authority of Singapore
Property tax not based on market rental forecasts
MR PAUL Chan ('Surprised by sharp tax hike on owner-occupied homes'; July 3) was under the impression that the Inland Revenue Authority of Singapore (Iras) estimates the annual value of properties in advance of market trends. He also felt that increases in the annual value of a property based on market rentals were not right for owner-occupiers.
His view reflects a frequent misconception about property tax. It is in fact a tax on property ownership, and is levied irrespective of whether the property is tenanted. This is unlike income tax, which is imposed on only properties that are rented out.
The property tax is pegged to the annual value of the property, which is determined based on market rentals of similar properties prevailing at the time of assessment. It does not take into account any forecast or estimate of future movements in market rentals.
Iras' practice is consistent with that in places such as Britain, the United States, Hong Kong and Australia, which also levy property tax based on prevailing market values rather than on the actual receipts derived from renting out a property.
Iras reviews annual values each year. It will increase or decrease annual values based on prevailing market rentals. The reliance on market rentals leads to less volatility in estimates of annual value and hence, the property tax payable, compared to relying on the market price of properties bought and sold, which tends to go through more pronounced cycles.
The annual value of Mr Chan's property was in fact reduced in past market declines, the most recent one being last year.
The Government introduced in Budget 2010 a progressive property tax schedule for owner-occupied residential properties from next year. Under the new progressive schedule, all HDB flat owners and the vast majority of residential property owners will enjoy an effective property tax rate lower than 4 per cent of annual value.
Deanna Choo (Ms)
Director (Corporate Communications)
Inland Revenue Authority of Singapore
ST : HDB blocks to harness power from the sun
Jul 13, 2010
HDB blocks to harness power from the sun
Solar panels will help power common-area services for 3,000 flats
By Esther Teo
SOLAR panels will be installed at 30 HDB blocks in six precincts across the island, in a $2.3 million initiative announced yesterday.
The roof panels will be able to power all common-area services, such as lighting, lifts and pumps.
The green initiative will allow the precincts - Jurong, Aljunied, Telok Blangah, Bishan, Ang Mo Kio and Jalan Besar - to each save about $40,000 a year, the HDB said yesterday.
Installation of the panels - they will cover a total area 1.5 times the size of a football field and serve about 3,000 flats - is expected to begin in the fourth quarter of this year.
Each block will have about 150 of the panels, which measure 1.8m by 1m and should last for 20 years or more.
Housing Board chief executive Tay Kim Poh said that as the largest developer in Singapore, HDB could play a leading role in supporting efforts towards sustainable development.
'We see a lot of potential in developing clean, renewable energy; and particularly solar energy, given our extensive coverage of HDB blocks all over Singapore,' he added.
Solar panels were installed in Serangoon North and Wellington Circle in pilot projects in 2008.
But since then, the price of producing solar energy has dropped by more than half, said Mr Tay, making it the right time to carry out more testbedding projects.
However, residents should not expect lower service and conservancy charges, as the HDB says that any savings will be used to defer rising energy costs.
Norwegian company Renewable Energy Corporation was awarded the contract in an open tender, and will produce the panels in its Tuas plant.
The initiative announced yesterday marks the second phase of the Solar Capability Building Programme, which was first approved by the Inter-Ministerial Committee for Sustainable Development in April last year.
Under the programme, 30 HDB precincts will be funded with $31 million over five years for solar panel installation.
The expertise developed could eventually be exported to other tropical countries, the HDB said.
The first phase of the installation was carried out in Tampines, Bukit Panjang, Marine Parade and the Tanjong Pagar in January.
That has achieved net zero energy usage for common services.
Mr Tay said these installations had helped the HDB better understand how to install and maintain the panels.
The HDB also announced a collaboration with engineering consultancy Camp Dresser and McKee yesterday.
They will develop a modelling tool to come up with indicators that can measure performance in areas such as water and waste reduction on sustainability environmental targets in Punggol.
Research and development will be carried out to further enhance Punggol's potential as an eco-town for the tropics.
'The short-term benefits reaped from the Punggol project will help to achieve long-term results in... future planning and design processes,' the HDB said.
esthert@sph.com.sg
--------------------------------------------------------------------------------
SUNNY OUTLOOK
'We see a lot of potential in developing clean, renewable energy; and particularly solar energy, given our extensive coverage of HDB blocks all over Singapore.'
HDB chief executive Tay Kim Poh. He says as the largest developer in Singapore, HDB could play a leading role in supporting efforts towards sustainable development.
The solar panels being installed in six precincts are expected to cut power bills for each of them by around $40,000 a year, a saving which will be used to defer rising energy costs. -- PHOTO: HDB
HDB blocks to harness power from the sun
Solar panels will help power common-area services for 3,000 flats
By Esther Teo
SOLAR panels will be installed at 30 HDB blocks in six precincts across the island, in a $2.3 million initiative announced yesterday.
The roof panels will be able to power all common-area services, such as lighting, lifts and pumps.
The green initiative will allow the precincts - Jurong, Aljunied, Telok Blangah, Bishan, Ang Mo Kio and Jalan Besar - to each save about $40,000 a year, the HDB said yesterday.
Installation of the panels - they will cover a total area 1.5 times the size of a football field and serve about 3,000 flats - is expected to begin in the fourth quarter of this year.
Each block will have about 150 of the panels, which measure 1.8m by 1m and should last for 20 years or more.
Housing Board chief executive Tay Kim Poh said that as the largest developer in Singapore, HDB could play a leading role in supporting efforts towards sustainable development.
'We see a lot of potential in developing clean, renewable energy; and particularly solar energy, given our extensive coverage of HDB blocks all over Singapore,' he added.
Solar panels were installed in Serangoon North and Wellington Circle in pilot projects in 2008.
But since then, the price of producing solar energy has dropped by more than half, said Mr Tay, making it the right time to carry out more testbedding projects.
However, residents should not expect lower service and conservancy charges, as the HDB says that any savings will be used to defer rising energy costs.
Norwegian company Renewable Energy Corporation was awarded the contract in an open tender, and will produce the panels in its Tuas plant.
The initiative announced yesterday marks the second phase of the Solar Capability Building Programme, which was first approved by the Inter-Ministerial Committee for Sustainable Development in April last year.
Under the programme, 30 HDB precincts will be funded with $31 million over five years for solar panel installation.
The expertise developed could eventually be exported to other tropical countries, the HDB said.
The first phase of the installation was carried out in Tampines, Bukit Panjang, Marine Parade and the Tanjong Pagar in January.
That has achieved net zero energy usage for common services.
Mr Tay said these installations had helped the HDB better understand how to install and maintain the panels.
The HDB also announced a collaboration with engineering consultancy Camp Dresser and McKee yesterday.
They will develop a modelling tool to come up with indicators that can measure performance in areas such as water and waste reduction on sustainability environmental targets in Punggol.
Research and development will be carried out to further enhance Punggol's potential as an eco-town for the tropics.
'The short-term benefits reaped from the Punggol project will help to achieve long-term results in... future planning and design processes,' the HDB said.
esthert@sph.com.sg
--------------------------------------------------------------------------------
SUNNY OUTLOOK
'We see a lot of potential in developing clean, renewable energy; and particularly solar energy, given our extensive coverage of HDB blocks all over Singapore.'
HDB chief executive Tay Kim Poh. He says as the largest developer in Singapore, HDB could play a leading role in supporting efforts towards sustainable development.
The solar panels being installed in six precincts are expected to cut power bills for each of them by around $40,000 a year, a saving which will be used to defer rising energy costs. -- PHOTO: HDB
BT : HDB makes $2.3m solar panel purchase
Business Times - 13 Jul 2010
HDB makes $2.3m solar panel purchase
To be mounted on 30 blocks in Q4, panels save $40,000 per year per precinct
By MELISSA TAN
THE Housing Development Board (HDB) yesterday announced a $2.3 million purchase of 4,348 solar panels from Norwegian energy firm Renewable Energy Corporation. This is the largest solar panel procurement in Singapore to date.
These new solar panels, to be produced at REC's plant in Tuas, will be installed in Q4 this year in six precincts across Singapore: Ang Mo Kio, Bishan, Aljunied, Jalan Besar, Telok Blangah and Jurong. The installation will cover about 3,000 residential units, or about 30 HDB slab blocks.
The total energy-producing capacity of these panels is nearly 1MWp (megawatt peak). A watt peak is a measure of power output commonly used in relation to photovoltaic solar energy devices.
According to HDB, one block's solar panels can generate enough energy from one day's sunlight to power all of its common area services - like corridor lighting and lifts - for that entire day. These consume around 600 kWh each month on average. The excess energy goes back into the power grid. 'That will save money for the town councils, which will eventually translate to savings for the residents as well,' said HDB chief executive Tay Kim Poh.
In total, the solar panels are expected to produce 170 MWh of energy each year - 'a total savings of about $40,000 per year per precinct', according to a HDB spokesman.
The planned installation is part of HDB's Solar Capability Building Program, which is fully funded by the Inter-Ministerial Committee for Sustainable Development. The committee has set aside $31 million for HDB to install solar panels in 30 precincts over the next five years.
HDB's pilot solar panel installation was in Serangoon and Wellington in December 2008, and since then the price of solar panels has dropped by more than half from $5.17 per Wp to $2.33 per Wp. It is currently in the process of installing solar panels in Tampines, Bukit Panjang, Marine Parade and Tanjong Pagar.
HDB will also collaborate with American environmental engineering firm Camp Dresser & McKee to study the development of Punggol Town as 'Singapore's first eco-town', Mr Tay said.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
HDB makes $2.3m solar panel purchase
To be mounted on 30 blocks in Q4, panels save $40,000 per year per precinct
By MELISSA TAN
THE Housing Development Board (HDB) yesterday announced a $2.3 million purchase of 4,348 solar panels from Norwegian energy firm Renewable Energy Corporation. This is the largest solar panel procurement in Singapore to date.
These new solar panels, to be produced at REC's plant in Tuas, will be installed in Q4 this year in six precincts across Singapore: Ang Mo Kio, Bishan, Aljunied, Jalan Besar, Telok Blangah and Jurong. The installation will cover about 3,000 residential units, or about 30 HDB slab blocks.
The total energy-producing capacity of these panels is nearly 1MWp (megawatt peak). A watt peak is a measure of power output commonly used in relation to photovoltaic solar energy devices.
According to HDB, one block's solar panels can generate enough energy from one day's sunlight to power all of its common area services - like corridor lighting and lifts - for that entire day. These consume around 600 kWh each month on average. The excess energy goes back into the power grid. 'That will save money for the town councils, which will eventually translate to savings for the residents as well,' said HDB chief executive Tay Kim Poh.
In total, the solar panels are expected to produce 170 MWh of energy each year - 'a total savings of about $40,000 per year per precinct', according to a HDB spokesman.
The planned installation is part of HDB's Solar Capability Building Program, which is fully funded by the Inter-Ministerial Committee for Sustainable Development. The committee has set aside $31 million for HDB to install solar panels in 30 precincts over the next five years.
HDB's pilot solar panel installation was in Serangoon and Wellington in December 2008, and since then the price of solar panels has dropped by more than half from $5.17 per Wp to $2.33 per Wp. It is currently in the process of installing solar panels in Tampines, Bukit Panjang, Marine Parade and Tanjong Pagar.
HDB will also collaborate with American environmental engineering firm Camp Dresser & McKee to study the development of Punggol Town as 'Singapore's first eco-town', Mr Tay said.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
BT : Cavenagh Mansions and Goodrich Park Condo sold
Business Times - 13 Jul 2010
Cavenagh Mansions and Goodrich Park Condo sold
Malaysian developer buys Cavenagh for $42.38m; BBR buys Goodrich for $86m
By KALPANA RASHIWALA
CAVENAGH Mansions and Goodrich Park Condominium have been sold following their respective tender closings last week. Both sites are freehold.
Cavenagh Mansions, a District 9 site, is said to have been sold for $42.38 million to a Malaysian developer. The price works out to about $1,025 per square foot of potential gross floor area inclusive of an estimated $267,000 development charge (DC).
Cavenagh Mansions was sold by Teck Jin Pte Ltd. The existing development is about 20 years old and comprises 21 apartments. The 19,813 sq ft site is zoned for residential use with a 2.1 plot ratio under Master Plan 2008.
Knight Frank handled the sale of Cavenagh Mansions.
Over in the Upper Serangoon area, BBR Holdings has picked up Goodrich Park through a collective sale, for $86 million.
The price reflects a unit land price of about $629 psf per plot ratio. No DC is payable.
The 97,703 sq ft site at Simon Lane is zoned for residential use with a 1.4 plot ratio. The collective sale of Goodrich Park was brokered by Credo Real Estate. 'We received close to five bids,' says the company's managing director Karamjit Singh.
As the collective sale has not garnered unanimous approval from owners, it will be subject to approval from the Strata Titles Board. 'We hope that some, if not all, of the remaining owners who have yet to sign the collective sale agreement will now come on board, given the property has achieved a price higher than the $80-85 million we went to the market with,' Mr Singh said.
The existing development was built in the 1980s. Owners of the 52 units stand to receive gross sale proceeds of between $1.55 million and $1.72 million - or about 70 to 80 per cent more than what they could have obtained if they sold their units on an individual basis.
BBR says that the site, currently occupied by four blocks of four-storey walk-up apartments, can potentially be redeveloped into a five-storey condo comprising about 120 units of around 1,200 sq ft each. The company targets to launch the project sometime late next year.
The site is tucked away along a quiet cul-de-sac, yet is close to Kovan MRT Station.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Cavenagh Mansions: The freehold District 9 site of 19,813 sq ft is about 20 years old and comprises 21 apartments
Cavenagh Mansions and Goodrich Park Condo sold
Malaysian developer buys Cavenagh for $42.38m; BBR buys Goodrich for $86m
By KALPANA RASHIWALA
CAVENAGH Mansions and Goodrich Park Condominium have been sold following their respective tender closings last week. Both sites are freehold.
Cavenagh Mansions, a District 9 site, is said to have been sold for $42.38 million to a Malaysian developer. The price works out to about $1,025 per square foot of potential gross floor area inclusive of an estimated $267,000 development charge (DC).
Cavenagh Mansions was sold by Teck Jin Pte Ltd. The existing development is about 20 years old and comprises 21 apartments. The 19,813 sq ft site is zoned for residential use with a 2.1 plot ratio under Master Plan 2008.
Knight Frank handled the sale of Cavenagh Mansions.
Over in the Upper Serangoon area, BBR Holdings has picked up Goodrich Park through a collective sale, for $86 million.
The price reflects a unit land price of about $629 psf per plot ratio. No DC is payable.
The 97,703 sq ft site at Simon Lane is zoned for residential use with a 1.4 plot ratio. The collective sale of Goodrich Park was brokered by Credo Real Estate. 'We received close to five bids,' says the company's managing director Karamjit Singh.
As the collective sale has not garnered unanimous approval from owners, it will be subject to approval from the Strata Titles Board. 'We hope that some, if not all, of the remaining owners who have yet to sign the collective sale agreement will now come on board, given the property has achieved a price higher than the $80-85 million we went to the market with,' Mr Singh said.
The existing development was built in the 1980s. Owners of the 52 units stand to receive gross sale proceeds of between $1.55 million and $1.72 million - or about 70 to 80 per cent more than what they could have obtained if they sold their units on an individual basis.
BBR says that the site, currently occupied by four blocks of four-storey walk-up apartments, can potentially be redeveloped into a five-storey condo comprising about 120 units of around 1,200 sq ft each. The company targets to launch the project sometime late next year.
The site is tucked away along a quiet cul-de-sac, yet is close to Kovan MRT Station.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Cavenagh Mansions: The freehold District 9 site of 19,813 sq ft is about 20 years old and comprises 21 apartments
BT : Demand for new CityDev, UOL condos
Business Times - 12 Jul 2010
Demand for new CityDev, UOL condos
By KALPANA RASHIWALA
(SINGAPORE) UOL Group and City Developments Ltd (CDL) continued to sell units over the weekend at their new condos released last week.
UOL and LaSalle Investment Management sold a further 46 units over the weekend (as of 7 pm yesterday) at The Terrene at Bukit Timah, in addition to the 50 that they had sold as of 10 pm last Friday.
Thus far, 130 of the condo's total 172 units have been put on the market. While the initial 85 units released by Friday were priced at about $1,250 per square foot on average, the further 45 apartments offered on Saturday and Sunday were at marginally higher prices. The five-storey, 999-year leasehold condo is in the Toh Tuck/Jalan Jurong Kechil vicinity.
'We're keeping the balance 42 units for our official launch later this week, which will be tied with the start of our ad campaign. What we're most pleased about is that our penthouses and big units are still selling well. More than half of the 30 penthouses in the project have been taken up,' UOL's chief operating officer Liam Wee Sin told BT yesterday evening.
'We've combined a bit of luxury with a rustic feel,' he added. Prices of penthouses in the condo range from $1.7 million to $2.9 million.
Singaporeans form the majority of buyers, buying mainly for owner occupation, according to Peter Ow, managing director (residential services) at Knight Frank, one of the project's two marketing agents.
'Demand is still there; it's only a matter of pricing. People who are walking out of the showflat without making a purchase are doing so because the price is beyond their budget,' he added.
CDL sold another 32 units at its 368 Thomson up to 6 pm yesterday, taking total sales to 128 units. Last Friday, the group said, it had sold 96 of the 120 units released initially in the 157-unit freehold condo, which will be 36 storeys high.
Yesterday, a CDL spokeswoman said that the group released the remaining 37 units progressively over the weekend at a marginal price increase of 2-3 per cent from the initial average selling price of $1,350 per square foot.
'The majority of the 32 units we sold over the weekend were one-plus-study units. We also sold three and four bedders,' she added.
Singaporeans made up 75 per cent of the 128 units sold at the District 11 condo.
The next project CDL plans to release is likely to be a 642-unit, joint venture condo in Pasir Ris located next to the fully-sold Livia. 'It is planned for release in phases in Q3 2010,' she added.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Good take-up: CDL has sold another 32 units at its 368 Thomson (above) up to 6 pm yesterday, taking total sales to 128 units
Demand for new CityDev, UOL condos
By KALPANA RASHIWALA
(SINGAPORE) UOL Group and City Developments Ltd (CDL) continued to sell units over the weekend at their new condos released last week.
UOL and LaSalle Investment Management sold a further 46 units over the weekend (as of 7 pm yesterday) at The Terrene at Bukit Timah, in addition to the 50 that they had sold as of 10 pm last Friday.
Thus far, 130 of the condo's total 172 units have been put on the market. While the initial 85 units released by Friday were priced at about $1,250 per square foot on average, the further 45 apartments offered on Saturday and Sunday were at marginally higher prices. The five-storey, 999-year leasehold condo is in the Toh Tuck/Jalan Jurong Kechil vicinity.
'We're keeping the balance 42 units for our official launch later this week, which will be tied with the start of our ad campaign. What we're most pleased about is that our penthouses and big units are still selling well. More than half of the 30 penthouses in the project have been taken up,' UOL's chief operating officer Liam Wee Sin told BT yesterday evening.
'We've combined a bit of luxury with a rustic feel,' he added. Prices of penthouses in the condo range from $1.7 million to $2.9 million.
Singaporeans form the majority of buyers, buying mainly for owner occupation, according to Peter Ow, managing director (residential services) at Knight Frank, one of the project's two marketing agents.
'Demand is still there; it's only a matter of pricing. People who are walking out of the showflat without making a purchase are doing so because the price is beyond their budget,' he added.
CDL sold another 32 units at its 368 Thomson up to 6 pm yesterday, taking total sales to 128 units. Last Friday, the group said, it had sold 96 of the 120 units released initially in the 157-unit freehold condo, which will be 36 storeys high.
Yesterday, a CDL spokeswoman said that the group released the remaining 37 units progressively over the weekend at a marginal price increase of 2-3 per cent from the initial average selling price of $1,350 per square foot.
'The majority of the 32 units we sold over the weekend were one-plus-study units. We also sold three and four bedders,' she added.
Singaporeans made up 75 per cent of the 128 units sold at the District 11 condo.
The next project CDL plans to release is likely to be a 642-unit, joint venture condo in Pasir Ris located next to the fully-sold Livia. 'It is planned for release in phases in Q3 2010,' she added.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Good take-up: CDL has sold another 32 units at its 368 Thomson (above) up to 6 pm yesterday, taking total sales to 128 units
BT : Dubai World property arm sells off Malaysia stake
Business Times - 12 Jul 2010
Dubai World property arm sells off Malaysia stake
(DUBAI, United Arab Emirates) A property arm of struggling state conglomerate Dubai World is backing out of a plan to build luxury homes in Malaysia as it looks to shore up its finances.
The cash-strapped company's Limitless division is selling off its stake in a partnership with Malaysia's Bandar Raya Developments to develop waterfront land in the southern city of Nusajaya.
Limitless will generate about US$23.8 million in the deal, according to a regulatory filing on Malaysia's stock exchange. It said in a statement yesterday that it continues 'to review our business activity to reflect market conditions'. The company's parent Dubai World needs cash as it works to pay back US$23.5 billion in debt\. \-- AP
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Dubai World property arm sells off Malaysia stake
(DUBAI, United Arab Emirates) A property arm of struggling state conglomerate Dubai World is backing out of a plan to build luxury homes in Malaysia as it looks to shore up its finances.
The cash-strapped company's Limitless division is selling off its stake in a partnership with Malaysia's Bandar Raya Developments to develop waterfront land in the southern city of Nusajaya.
Limitless will generate about US$23.8 million in the deal, according to a regulatory filing on Malaysia's stock exchange. It said in a statement yesterday that it continues 'to review our business activity to reflect market conditions'. The company's parent Dubai World needs cash as it works to pay back US$23.5 billion in debt\. \-- AP
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
BT : The housing bubble dilemma
Business Times - 12 Jul 2010
FUTURE CHINA FORUM
The housing bubble dilemma
It has produced a series of undesirable economic, social and even political consequences, writes LIU YUNHUA
DURING the last decade, China's housing bubble has been a serious concern. The average house price in big cities like Shanghai and Beijing is now over 25,000 yuan (S$5,100) per square metre (by comparison, the resale price of HDB flats is around 15,000 yuan per square metre). Ten years ago, it was only around 5,000 yuan.
In what was an unexpected but nationwide trend, there was a quick recovery of the housing market in China after the world economic crisis in 2008. The crisis had only caused China's housing market to stagnate for half a year. In the previous 10 years, China had barely experienced any downturn in its housing market.
How was it that the housing bubble in China could last for so long? A simple explanation is market disequilibrium caused by the quick expansion of demand but limited land supply. The main factors behind the high housing demand in urban China are clear. They include rapid urbanisation over the past decade which resulted in about 200 million people moving from the rural areas to the cities; fast economic growth, which has given rise to a growing class of suddenly-rich households with strong purchasing power; and the idle capital which entered the property market - both as a store of value and for speculation due to the scarcity of other investment opportunities.
The restricted land supply, on the other hand, is simply due to the government's land supply control and China's land laws.
In view of the housing bubble, the central government has tried repeatedly to use policies to curb housing price increases. It has restricted land use for low density buildings and independent house construction. It has also restricted housing loans, as well as foreign home purchases. Unfortunately, all these policies have failed. Increasing land supply seems to be the last measure in the government's attempts to moderate the market pressure.
But supplying more land for urban development affects China's other long term national objective - protection of arable land for food security. China now faces a dilemma of whether to loosen the restrictions on land supply and forego food security or live with the housing bubble but maintain food security. Both are unappealing options.
Alongside the sizzling housing market, a series of undesirable economic, social and even political consequences are becoming evident. The society is bewildered and angered by frequent instances of corruption, huge profits of property developers, and the violence sometimes associated with land acquisition, among other issues.
The immediate economic impact of the housing bubble is the deterioration of housing affordability for low-income citizens. Official figures in China reveal that the average housing price in big cities is around eight times the average annual household income, which is much higher than the international standard of five times. In the top few big cities, the actual situation is even worse than the average. The big gap between high housing prices and low purchasing power of the majority of people has resulted in a very strange phenomenon in China, in which the vacancy rate of new housing has remained at a very high level of around 20 per cent.
In September 2008, I visited a suburb in Tianjin City, the Baodi District, where one of the largest property projects in China, comprising 8,000 independent houses, is located. Most of the completed houses were vacant. They were either purchased but not occupied, or not sold. Such developments reflect a huge waste of resources.
Why do housing prices not go down with such high vacancy rates? Part of the answer lies in the abnormally high profits of land developers in China due to their monopoly power over the limited land supply. Developers have become an obvious target among people who allege that China's wealth distribution mechanism is unfair.
How high are developers' profits? When I visited Nanjing city in January 2009 and asked one of my former students who was a CEO of a land development firm about the profit margin, his response was that even if prices were to fall by 50 per cent, his company's profit could still be maintained. This may not be true of all developers, but it does support the common belief.
Given high demand and limited land supply, the profits of developers are simply determined by the land cost. The land supply in China is, however, controlled by the government. Local governments are the only authorised direct land suppliers for urban development.
In the early years, many developers got land at low cost from local governments. Indeed, most of the biggest corruption scandals in China were related to local government land supplies. Only in recent years has strict open-bidding systems resulted in higher land prices for developers. However, even with the high land cost, developers can still partially enjoy monopoly power as housing demand expands faster.
Also, while urban municipal governments in China have the right to acquire land from villagers for urban development with central government approval, rural farmers do not have the right to sell their land, even when they are the owners. This is partly why land acquisition disputes have become one of the most high-profile social issues in China.
As a result of paying low compensation to farmers for land and charging high prices to developers, local governments have been able to use land as a significant source of capital. It is said that land profits could account for as much as two thirds of many local governments' revenue. Local governments have also relied on the housing construction as a rapid means to spur the development of other industries, especially after the crisis.
In dealing with all the complaints related to China's long-drawn housing bubble, the Chinese government must balance food security considerations, implications of the distorted housing market with economic growth imperatives. Trade-offs must be made, but change can only happen at a gradual pace. Some moderation of housing market pressure can be expected via increased land supply, the removal of incentives for speculation and provision of subsidised housing for low-income citizens. But achieving this goal could take five to ten years.
The writer is Associate Professor at the Department of Economics, Nanyang Technological University
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Unaffordable? Official figures in China reveal that the average housing price in big cities is around eight times the average annual household income, which is much higher than the international standard of five times
FUTURE CHINA FORUM
The housing bubble dilemma
It has produced a series of undesirable economic, social and even political consequences, writes LIU YUNHUA
DURING the last decade, China's housing bubble has been a serious concern. The average house price in big cities like Shanghai and Beijing is now over 25,000 yuan (S$5,100) per square metre (by comparison, the resale price of HDB flats is around 15,000 yuan per square metre). Ten years ago, it was only around 5,000 yuan.
In what was an unexpected but nationwide trend, there was a quick recovery of the housing market in China after the world economic crisis in 2008. The crisis had only caused China's housing market to stagnate for half a year. In the previous 10 years, China had barely experienced any downturn in its housing market.
How was it that the housing bubble in China could last for so long? A simple explanation is market disequilibrium caused by the quick expansion of demand but limited land supply. The main factors behind the high housing demand in urban China are clear. They include rapid urbanisation over the past decade which resulted in about 200 million people moving from the rural areas to the cities; fast economic growth, which has given rise to a growing class of suddenly-rich households with strong purchasing power; and the idle capital which entered the property market - both as a store of value and for speculation due to the scarcity of other investment opportunities.
The restricted land supply, on the other hand, is simply due to the government's land supply control and China's land laws.
In view of the housing bubble, the central government has tried repeatedly to use policies to curb housing price increases. It has restricted land use for low density buildings and independent house construction. It has also restricted housing loans, as well as foreign home purchases. Unfortunately, all these policies have failed. Increasing land supply seems to be the last measure in the government's attempts to moderate the market pressure.
But supplying more land for urban development affects China's other long term national objective - protection of arable land for food security. China now faces a dilemma of whether to loosen the restrictions on land supply and forego food security or live with the housing bubble but maintain food security. Both are unappealing options.
Alongside the sizzling housing market, a series of undesirable economic, social and even political consequences are becoming evident. The society is bewildered and angered by frequent instances of corruption, huge profits of property developers, and the violence sometimes associated with land acquisition, among other issues.
The immediate economic impact of the housing bubble is the deterioration of housing affordability for low-income citizens. Official figures in China reveal that the average housing price in big cities is around eight times the average annual household income, which is much higher than the international standard of five times. In the top few big cities, the actual situation is even worse than the average. The big gap between high housing prices and low purchasing power of the majority of people has resulted in a very strange phenomenon in China, in which the vacancy rate of new housing has remained at a very high level of around 20 per cent.
In September 2008, I visited a suburb in Tianjin City, the Baodi District, where one of the largest property projects in China, comprising 8,000 independent houses, is located. Most of the completed houses were vacant. They were either purchased but not occupied, or not sold. Such developments reflect a huge waste of resources.
Why do housing prices not go down with such high vacancy rates? Part of the answer lies in the abnormally high profits of land developers in China due to their monopoly power over the limited land supply. Developers have become an obvious target among people who allege that China's wealth distribution mechanism is unfair.
How high are developers' profits? When I visited Nanjing city in January 2009 and asked one of my former students who was a CEO of a land development firm about the profit margin, his response was that even if prices were to fall by 50 per cent, his company's profit could still be maintained. This may not be true of all developers, but it does support the common belief.
Given high demand and limited land supply, the profits of developers are simply determined by the land cost. The land supply in China is, however, controlled by the government. Local governments are the only authorised direct land suppliers for urban development.
In the early years, many developers got land at low cost from local governments. Indeed, most of the biggest corruption scandals in China were related to local government land supplies. Only in recent years has strict open-bidding systems resulted in higher land prices for developers. However, even with the high land cost, developers can still partially enjoy monopoly power as housing demand expands faster.
Also, while urban municipal governments in China have the right to acquire land from villagers for urban development with central government approval, rural farmers do not have the right to sell their land, even when they are the owners. This is partly why land acquisition disputes have become one of the most high-profile social issues in China.
As a result of paying low compensation to farmers for land and charging high prices to developers, local governments have been able to use land as a significant source of capital. It is said that land profits could account for as much as two thirds of many local governments' revenue. Local governments have also relied on the housing construction as a rapid means to spur the development of other industries, especially after the crisis.
In dealing with all the complaints related to China's long-drawn housing bubble, the Chinese government must balance food security considerations, implications of the distorted housing market with economic growth imperatives. Trade-offs must be made, but change can only happen at a gradual pace. Some moderation of housing market pressure can be expected via increased land supply, the removal of incentives for speculation and provision of subsidised housing for low-income citizens. But achieving this goal could take five to ten years.
The writer is Associate Professor at the Department of Economics, Nanyang Technological University
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
Unaffordable? Official figures in China reveal that the average housing price in big cities is around eight times the average annual household income, which is much higher than the international standard of five times
BT : No stronger property market in the world than China
Business Times - 12 Jul 2010
FUTURE CHINA FORUM
No stronger property market in the world than China
AS soon as Jamie Dimon, CEO and chairman of JPMorgan Chase, sat next to me at Beijing's Grand Hyatt Hotel after delivering his keynote address at an investment conference, he popped an abrupt question to me: 'So, are you worried about the Chinese government's recent measures to manage the property bubble?'
Somewhat to his surprise, I replied: 'I would be worried if the government doesn't do anything about it.' To clarify, I added: 'We are a long-term player in China. We have been here for 15 years, and have seen several cycles including the painful Asian crisis. We prefer a more orderly and stable property market instead of an excessively speculative one.'
I then asked him: 'Is there a stronger property market in the world than China?' He thought for a short moment and said: 'No.'
As one of the most well-known Wall Street bankers in the world today, Jamie Dimon is not alone in his concern about China's property boom. Many alarm bells have been raised previously, the most stirring being the remark by James Chanos, a hedge fund short-selling expert who proclaimed early this year that the property boom in China looked like 'Dubai times 1000 - or worse'.
Jim Rogers, a well-known international investor, rebutted that Mr Chanos' remarks showed 'a lack of understanding about Dubai and China. Dubai's economy is built on real estate speculation, whereas China's is not. It is just part of the Chinese economy'.
So what is our view then? How do the recently introduced measures affect CapitaLand?
Unstoppable growth
China is a huge country with the world's largest population. It is a continent economy with 1.3 billion people, and had not too long ago embraced a 'market' economy. Over the last 30 years, it has grown 'miraculously' at an average of 10 per cent per annum. It is now the largest manufacturer and exporter in the world and enjoys huge trade surpluses.
It has prudently built up the world's largest foreign exchange reserves of US$2.4 trillion. With a GDP per capita of US$3,687 in 2009, up from about US$100 in 1965, the country has progressed exponentially. In every sense, its growth seems unstoppable.
Urbanisation & housing demands
With such growth, China is experiencing the largest urbanisation in human history. Currently, the urbanisation level in China is still relatively low at 46.6 per cent which was Japan's in 1965. Between 1990 and 2030, China's urban population is forecast to increase by 560 million, more than 100 million larger than the combined population of the United States (309 million) and Japan (128 million). Given such rapid urbanisation, China will easily need 10 to 15 million new homes every year.
The China Economic Information Network estimates that with such urbanisation, the number of cities in China will increase from the current 660 to beyond 1,000 by 2014. This has resulted in the property sector playing catch-up to meet the housing needs required in China's cities. It did not help that more than 20 years ago, the government halted its subsidised public housing programme to let the private sector take over the massive housing needs of the country. The physical demand for homes is growing acutely without adequate supply, particularly for the non high-end housing sector.
Is there a housing bubble?
The answer is not so straightforward.
First, it is important to understand that China is not one big homogeneous market. Home prices vary from first to third-tier cities and for different spectrum of homes. For example, a mid-end apartment in Shanghai can cost five times more than a similar one in Zhengzhou, the capital of Henan province. Even in Shanghai, where every affluent Chinese in the country aspires to own an apartment, there is a huge price discrepancy between different tiers of apartments. High-end apartments may cost up to five or seven times a mid-tier apartment. The market is very segmented.
Next, we must look at affordability for the average Chinese. A practical measure is the affordability ratio, defined as the mortgage debt payable per month over monthly household income. Banks will not lend if the buyer's affordability ratio exceeds 50 per cent. Surveys show that now, the average affordability ratio is around 40 per cent for 70 major cities. This is similar to Singapore.
For the key gateway cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, the ratios have exceeded 50 per cent. But only about 50 per cent of homebuyers will take up a mortgage. Also, statistics have shown that only 20 per cent of buyers are 'bubble building' investors or speculators. My conclusion is that there is a property bubble building up but it is limited to the four gateway cities. The same cannot be said of the other cities, or when considering the mid-end market.
China's experience of rising property prices is quite unlike those experienced in the US and other developed countries. In China, household income growth today still outpaces its house price growth. This was not so for US, UK and Japan before their property prices crashed.
Between 2004 and 2009, cumulative property prices growth in China rose by 72 per cent, while cumulative household income growth increased by 82 per cent. Contrast this with the household income growth against house prices from 1995 to 2007 for the US and UK respectively (48 per cent vs 114 per cent and 36 per cent vs 220 per cent) and for Japan between 1976 and 1990 (126 per cent vs 190 per cent).
As long as demand for housing remains unmet and household income continues to grow faster than home prices, property prices will continue to escalate.
The Chinese government has intervened with rapid cooling measures such as restricting apartment sizes to 90 sq m, curbing speculation by raising deposits to as much as 50 per cent for second-home buyers and restricting lending for third-home buyers, banning non-resident foreign buyers, restricting bank lending capacity, and aggressively supplying more land for 'economical' housing. The government further demonstrated their seriousness here by only allowing 16 out of 94 of their major state owned enterprises to continue with their non-core property business.
Will there be a subprime crisis?
Unlike other developed countries, China's housing mortgages constitute 12.5 per cent of the total financial institution RMB loans, whilst RMB loans to real estate developers constitute only 6.7 per cent of their entire RMB loan portfolio. The total exposure to the property sector is therefore less than 20 per cent of the total financial intended RMB loan. Another comforting view is that China's outstanding mortgage constitutes 14.3 per cent of her GDP, whilst the Eurozone figure is at 40 per cent and US at 97 per cent. As loans are limited to 70 per cent of the value of the property, its capital value will have to drop substantially before negative equity hurts the buyers.
On this basis, Chinese buyers with large household savings will be able to hold their properties unless prices drop drastically. Even if this happens, on the strength of the Chinese economy, the impact on China will not be as grave as what the US has experienced. I should add that because of the loan to value mortgage lending limits and the credit checks by banks in China, a sub-prime problem like the one in US is not a likelihood.
The rail project
An analysis of China's future would not be complete without mentioning China's ambitions to connect the country with a high speed railway (HSR) network. China already has 6,500 km of these HSR lines, effectively shrinking the entire country to 80 per cent of its original size by travel time (excluding Tibet, Xinjiang, Qinghai and the Inner Mongolia region, which account for only 5 per cent of China's population).
By 2012, there will be 13,488 km HSR network (shrinking China to 50 per cent of original size), and 28,538 km by 2014. Overall, it is estimated that the HSR will finally shrink China to 9 per cent of her original size in terms of travelling time! With this increased accessibility as part of China's overall economic development, it is believed that urbanisation and the property market will go through another enhanced phase of dramatic economic transformation.
When Dr Sun Yat Sen founded New China a century ago, he envisioned a railway network to bring economic wealth to the country, just as the railway network started the transformation of 19th century America into the world's largest economy. Now China is actively putting that strategy into reality.
Price potential
There is still immense opportunity for CapitaLand to grow in China, especially in the mid-tier property market. As at 1Q 2010, prices in Singapore's mid-end homes are 2.2 times that of Shanghai, and 2.5 times of Beijing.
When compared with Hong Kong prices, the corresponding multiples are 3.6 times and 4 times respectively. Since Beijing and Shanghai have a much larger population and with higher growth rate, the potential for growth is much greater than Singapore's or Hong Kong's.
How much longer do you think it will take for them to catch up with us on housing capital values? My guess is five to seven years! In fact, prices of some luxury apartments in Shanghai are already on par with those in Singapore.
Affordability
Looking ahead, a new segment with tremendous potential is affordable housing. Building affordable housing will somewhat ease the escalating prices that delay home ownership for middle income families. With smaller, affordable properties as their first homes, they can scale up to larger, higher-priced homes as household income increases.
CapitaLand will be looking to build affordable housing in any city where there is demand. Acquiring land at reasonable prices is very important and we will need the support of local government and local partners to source for housing sites at the right price.
Conclusion
China's rapid economic expansion is unstoppable. CapitaLand has been successful in China for the past 16 years. We have the experience, track record, reputation, capabilities and capacity to participate in the growth of China's real estate market. With all the new government controls, the property market will be harder to deal with. And local Chinese developers are getting more competitive.
But the market is immense there. To answer Jamie Dimon, we are more confident that CapitaLand will benefit from the Chinese government's measure to render stability to the property market.
To us, there is no stronger market in the world than China.
The writer is president & CEO, CapitaLand Group
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
FUTURE CHINA FORUM
No stronger property market in the world than China
AS soon as Jamie Dimon, CEO and chairman of JPMorgan Chase, sat next to me at Beijing's Grand Hyatt Hotel after delivering his keynote address at an investment conference, he popped an abrupt question to me: 'So, are you worried about the Chinese government's recent measures to manage the property bubble?'
Somewhat to his surprise, I replied: 'I would be worried if the government doesn't do anything about it.' To clarify, I added: 'We are a long-term player in China. We have been here for 15 years, and have seen several cycles including the painful Asian crisis. We prefer a more orderly and stable property market instead of an excessively speculative one.'
I then asked him: 'Is there a stronger property market in the world than China?' He thought for a short moment and said: 'No.'
As one of the most well-known Wall Street bankers in the world today, Jamie Dimon is not alone in his concern about China's property boom. Many alarm bells have been raised previously, the most stirring being the remark by James Chanos, a hedge fund short-selling expert who proclaimed early this year that the property boom in China looked like 'Dubai times 1000 - or worse'.
Jim Rogers, a well-known international investor, rebutted that Mr Chanos' remarks showed 'a lack of understanding about Dubai and China. Dubai's economy is built on real estate speculation, whereas China's is not. It is just part of the Chinese economy'.
So what is our view then? How do the recently introduced measures affect CapitaLand?
Unstoppable growth
China is a huge country with the world's largest population. It is a continent economy with 1.3 billion people, and had not too long ago embraced a 'market' economy. Over the last 30 years, it has grown 'miraculously' at an average of 10 per cent per annum. It is now the largest manufacturer and exporter in the world and enjoys huge trade surpluses.
It has prudently built up the world's largest foreign exchange reserves of US$2.4 trillion. With a GDP per capita of US$3,687 in 2009, up from about US$100 in 1965, the country has progressed exponentially. In every sense, its growth seems unstoppable.
Urbanisation & housing demands
With such growth, China is experiencing the largest urbanisation in human history. Currently, the urbanisation level in China is still relatively low at 46.6 per cent which was Japan's in 1965. Between 1990 and 2030, China's urban population is forecast to increase by 560 million, more than 100 million larger than the combined population of the United States (309 million) and Japan (128 million). Given such rapid urbanisation, China will easily need 10 to 15 million new homes every year.
The China Economic Information Network estimates that with such urbanisation, the number of cities in China will increase from the current 660 to beyond 1,000 by 2014. This has resulted in the property sector playing catch-up to meet the housing needs required in China's cities. It did not help that more than 20 years ago, the government halted its subsidised public housing programme to let the private sector take over the massive housing needs of the country. The physical demand for homes is growing acutely without adequate supply, particularly for the non high-end housing sector.
Is there a housing bubble?
The answer is not so straightforward.
First, it is important to understand that China is not one big homogeneous market. Home prices vary from first to third-tier cities and for different spectrum of homes. For example, a mid-end apartment in Shanghai can cost five times more than a similar one in Zhengzhou, the capital of Henan province. Even in Shanghai, where every affluent Chinese in the country aspires to own an apartment, there is a huge price discrepancy between different tiers of apartments. High-end apartments may cost up to five or seven times a mid-tier apartment. The market is very segmented.
Next, we must look at affordability for the average Chinese. A practical measure is the affordability ratio, defined as the mortgage debt payable per month over monthly household income. Banks will not lend if the buyer's affordability ratio exceeds 50 per cent. Surveys show that now, the average affordability ratio is around 40 per cent for 70 major cities. This is similar to Singapore.
For the key gateway cities, namely Beijing, Shanghai, Guangzhou and Shenzhen, the ratios have exceeded 50 per cent. But only about 50 per cent of homebuyers will take up a mortgage. Also, statistics have shown that only 20 per cent of buyers are 'bubble building' investors or speculators. My conclusion is that there is a property bubble building up but it is limited to the four gateway cities. The same cannot be said of the other cities, or when considering the mid-end market.
China's experience of rising property prices is quite unlike those experienced in the US and other developed countries. In China, household income growth today still outpaces its house price growth. This was not so for US, UK and Japan before their property prices crashed.
Between 2004 and 2009, cumulative property prices growth in China rose by 72 per cent, while cumulative household income growth increased by 82 per cent. Contrast this with the household income growth against house prices from 1995 to 2007 for the US and UK respectively (48 per cent vs 114 per cent and 36 per cent vs 220 per cent) and for Japan between 1976 and 1990 (126 per cent vs 190 per cent).
As long as demand for housing remains unmet and household income continues to grow faster than home prices, property prices will continue to escalate.
The Chinese government has intervened with rapid cooling measures such as restricting apartment sizes to 90 sq m, curbing speculation by raising deposits to as much as 50 per cent for second-home buyers and restricting lending for third-home buyers, banning non-resident foreign buyers, restricting bank lending capacity, and aggressively supplying more land for 'economical' housing. The government further demonstrated their seriousness here by only allowing 16 out of 94 of their major state owned enterprises to continue with their non-core property business.
Will there be a subprime crisis?
Unlike other developed countries, China's housing mortgages constitute 12.5 per cent of the total financial institution RMB loans, whilst RMB loans to real estate developers constitute only 6.7 per cent of their entire RMB loan portfolio. The total exposure to the property sector is therefore less than 20 per cent of the total financial intended RMB loan. Another comforting view is that China's outstanding mortgage constitutes 14.3 per cent of her GDP, whilst the Eurozone figure is at 40 per cent and US at 97 per cent. As loans are limited to 70 per cent of the value of the property, its capital value will have to drop substantially before negative equity hurts the buyers.
On this basis, Chinese buyers with large household savings will be able to hold their properties unless prices drop drastically. Even if this happens, on the strength of the Chinese economy, the impact on China will not be as grave as what the US has experienced. I should add that because of the loan to value mortgage lending limits and the credit checks by banks in China, a sub-prime problem like the one in US is not a likelihood.
The rail project
An analysis of China's future would not be complete without mentioning China's ambitions to connect the country with a high speed railway (HSR) network. China already has 6,500 km of these HSR lines, effectively shrinking the entire country to 80 per cent of its original size by travel time (excluding Tibet, Xinjiang, Qinghai and the Inner Mongolia region, which account for only 5 per cent of China's population).
By 2012, there will be 13,488 km HSR network (shrinking China to 50 per cent of original size), and 28,538 km by 2014. Overall, it is estimated that the HSR will finally shrink China to 9 per cent of her original size in terms of travelling time! With this increased accessibility as part of China's overall economic development, it is believed that urbanisation and the property market will go through another enhanced phase of dramatic economic transformation.
When Dr Sun Yat Sen founded New China a century ago, he envisioned a railway network to bring economic wealth to the country, just as the railway network started the transformation of 19th century America into the world's largest economy. Now China is actively putting that strategy into reality.
Price potential
There is still immense opportunity for CapitaLand to grow in China, especially in the mid-tier property market. As at 1Q 2010, prices in Singapore's mid-end homes are 2.2 times that of Shanghai, and 2.5 times of Beijing.
When compared with Hong Kong prices, the corresponding multiples are 3.6 times and 4 times respectively. Since Beijing and Shanghai have a much larger population and with higher growth rate, the potential for growth is much greater than Singapore's or Hong Kong's.
How much longer do you think it will take for them to catch up with us on housing capital values? My guess is five to seven years! In fact, prices of some luxury apartments in Shanghai are already on par with those in Singapore.
Affordability
Looking ahead, a new segment with tremendous potential is affordable housing. Building affordable housing will somewhat ease the escalating prices that delay home ownership for middle income families. With smaller, affordable properties as their first homes, they can scale up to larger, higher-priced homes as household income increases.
CapitaLand will be looking to build affordable housing in any city where there is demand. Acquiring land at reasonable prices is very important and we will need the support of local government and local partners to source for housing sites at the right price.
Conclusion
China's rapid economic expansion is unstoppable. CapitaLand has been successful in China for the past 16 years. We have the experience, track record, reputation, capabilities and capacity to participate in the growth of China's real estate market. With all the new government controls, the property market will be harder to deal with. And local Chinese developers are getting more competitive.
But the market is immense there. To answer Jamie Dimon, we are more confident that CapitaLand will benefit from the Chinese government's measure to render stability to the property market.
To us, there is no stronger market in the world than China.
The writer is president & CEO, CapitaLand Group
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
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