Asia Property Blog
Fund manager RREEF has made two senior appointments in Asia.
Terry Hwang has been appointed head of RREEF Korea and Mark Cho has been appointed head of REEF China. Cho, who assumes the role from his previous position as RREEF’s chief operating officer for Asia Pacific, will focus on both cross-border investment management strategies for RREEF in China, as well as domestic fund strategies. Hwang was previously head of acquisitions for RREEF in Korea.
The appointments are part of RREEF’s strategy to build a strong presence in its four major markets: China, Korea, Japan and Australia, while positioning it as the “cross border investment manager of choice”.
We will be profiling RREEF in the October issue of AsiaProperty, talking to Asia Pacific head Niel Thassim and chief investment officer Paul Keogh about the group’s transition from a transaction-driven business to a ’sustainable investment’ one.
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Hong Kong-listed Pioneer Global Group announced yesterday that it will buy a 50% stake in the holding company which owns 68 Yee Wo Street in Causeway Bay, in a deal valuing the 220,000 sq ft office and retail building at HK$1.92bn.
Pioneer already owns a 30% stake alongside two Angelo Gordon managed vehicles (which own 50%) and Value Creation Group Limited, with a 20% stake. Angelo Gordon has agreed to sell its stake to Pioneer.
It said the deal, which reflects a 3.65% yield, would be “a valuable investment with good potential return for the group”. With the building 87% leased it offers potential to increase rental income.
Pioneer is not along in recognising the potential of Hong Kong commercial real estate. Local investors both large and small and overseas buyers are fighting to get hold of any stock that comes on the market. Trouble is, most property owners are as positive as the prospective ones and want to hang on.
For this deal, it seems likely that Angelo Gordon is taking the opportunity to monetise a good return for funds with a limited lifespan, as has been the case with other overseas private equity sellers.
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DTZ has launched its Fair Value Index™, and the firm is so proud of its new tool it has trademarked it! Asia Pacific head of research David Green-Morgan says: “This is one of the most exciting new research products to be introduced to the direct commercial real estate market in recent years.”
The Index measures the attractiveness of investing in commercial property markets worldwide, and is the first ever forward looking commercial property index. It is based on an analysis of 180 individual markets across the globe, which are classified as hot, warn or cold depending on their attractiveness to investors.
For more information head to www.dtz.com
This looks like an interesting tool, although it remains to be seen how much practical use it is put to by investors. You will be able to read a full analysis of the Index in September’s AsiaProperty.
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The Shanghai Daily reports today that new home sales dropped 32.5% year-on-year to 7.19m sq m in Shanghai during the first five months of this year.
At the very top end of the market, the effect of China’s tightening measures is even more dramatic. In the high-end residential market, only 20 luxury units costing over RMB50,000 per sq m were sold in Shanghai during the 1st half of June, and 36 out of 45 luxury developments available for sale saw no sales at all during the same period, according to a report released by China Real Estate Information Corp.
The Chinese authorities will probably be not too displeased to see the brakes come on the luxury market. However, bearing in mind that the first three months of this year were largelu unaffected by tightening measures, the overall drop in sales for Q2 may be very dramatic.
It’s too early to tell how this will affect pricing. Some developers have cut asking prices, some have said they would rather have slower sales at the current asking price. We maintain that a correction in the Chinese housing market is a good thing, and that only speculators (of all sorts) will lose out in the longer term.
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Asian real estate executives expect business to recover gradually in 2010 and 2011 buoyed by capital inflows from domestic institutions, according to a survey from FPL Advisory Group and APREA.
The survey, released earlier this week, shows investor interest in Japan is growing at the expense of China because of concerns over a potential reversal in China.
With Asia having been less affected by the global financial crisis than the U.S. and Europe, the region’s recovery is sustainable, Peter Mitchell, CEO of APREA. “Capital flows towards Asia continue to be strong, driven by Asian sources such as sovereign wealth funds, institutions and high net worth individuals, although interest from US and European capital is also returning,” Mitchell said.
Japan is starting to look like a good buy; prices are less than half of the peak values, there is still stock coming out of distressed developers and re-balancing J-REITs and economists are forecasting GDP growth of 4% this year – stunning for Japan.
China meanwhile looks ever-riskier….
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New measures to cool China’s property market are likely soon, according to local newspaper reports covered here in Hong Kong’s The Standard.
Extension of property taxes is certainly one way to cool the market, but if, as reported, “city governments could implement the measure flexibly according to their own situation” this will be a smart move. The rate of growth and the extent of the ‘bubble’ vary enormously from city to city and it is good news that the government is recognising this.
Stamping out speculation in Shanghai should not not harm growth in second and third-tier cities.
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Hong Kong’s Swire Group had planned to raise up to $3.09bn from the demerger of its property arm and the listing of a 14% stake. The move would have allowed Swire Properties, less international than its peers, to re-focus on Mainland China developments.
The developer originally sought to sell 910m new shares, or 13.79% of its enlarged share capital, in a HK$20.75-HK$22.90 range to raise up to $2.80bn. It also had the option to raise the deal size by 15% to raise a maximum $3.09bn.
In a statement, Swire said: “In the light of the deterioration in market conditions since publication of the prospectus on 3rd May 2010, Swire Properties has formed the view that it would be inadvisable to proceed.”
With the IPO priced at a 5-14% discount to NAV, half the discount investors woould get if they bought shares in one of Swire’s Hong Kong peers, the deal looks too pricey. This is easy to say with hindsight however.
The prospect of cooling of the mainland property market must have also worried investors, although conversely that means they would have not been worried if Beijing had ignored the bubble and let the market race ahead!
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Beijing has issued rules limiting families to one new apartment purchase as authorities try to rein in rampant property speculations and soaring prices. The authorities also ordered banks to refuse home loans to those who cannot prove they have paid taxes and made social security contributions in the city for at least one year. Banks have also been told to block mortgage applications for people buying their third property.
While these measures are designed to stop speculation, they lead to further problems – home-buying is an extended family business in China and one new apartment per family may affect this. The refusal of home loans to those who come from outside Beijing will also hurt those who wish to move to the city to work, and will hardly worry Beijing-based speculators of whom there are thousands. This is reminiscent of the many government injunctions against ‘foreign speculators’ who as a class barely exist.
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China Daily reported yesterday that the Chinese Securities Regulatory Commission will block capital raising by developers. This could prevent about RMB110bn in share issues planned by 45 companies, CSRC sources said.
The move follows a raft of recent measures intended to stall rapidly rising house prices. So far this month, the minimum down payment required on the purchase of second homes was increased to 50%, from 40% and lending to buyers in this segment of the market will now cost twice the People’s Bank of China benchmark interest rate. The state council has also banned mortgages for people buying their third property, as well as imposing residency requirements on buyers.
So is this an opportunity or a threat for foreign real estate investors? The risk is that the government is being too heavy handed and actually triggers the crash it is trying to avoid. However, as I have previously said, a short sharp shock will steady the market in the longer terms, bring opportunities for investors and will not detract from the long-term positive prospects in China.
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Singapore’s Urban Redevelopment Authority says that office rents in the city-state edged up 0.4% over the first quarter, reversing a 3.3% dropin the last quarter of 2009. Prices of office properties also rose in Q1 by 1.8% quarter-on quarter, compared with 1% in Q409.
There should still be some decent opportunities in Singapore’s office sector; there is still distress to be taken advantage of and the macroeconomic picture looks pretty good. Rents are unlikely to shoot up as they did prior to the downturn but there is still room for growth as rents head back toward the long-term average.
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