HK tycoon buys prime land for top dollar

Aug 18, 2010
HK tycoon buys prime land for top dollar
HONG KONG: Hong Kong's richest man, Mr Li Ka-shing, snapped up two prime residential sites yesterday for prices well above market estimates, despite government measures to cool the overheating property market.
Mr Li's Cheung Kong Holdings bought a 7,551 sq m waterfront plot in the city's Kowloon district for HK$3.51 billion (S$612 million), with around 150 bids placed in just over an hour.
The final price was nearly twice the opening bid of HK$1.77 billion, and translates into a per-square-foot price of HK$9,597, making it the most expensive land in the district.
The whopping price exceeded estimates of HK$2.3 billion to HK$2.82 billion from analysts polled by Dow Jones Newswires.
The blue-chip developer also bought another auctioned site, a 7,326 sq m plot also in Kowloon, for HK$4.1 billion.
The price was 43.5 per cent higher than the opening bid and above the top end of the market estimate of about HK$3.9 billion.
'It so happened that the two pieces of land have excellent views and our colleagues have good developments plans for then,' Cheung Kong vice-chairman Victor Li told reporters after the auction. 'I don't think the auction prices are an indication of our outlook for property prices.'
A combination of low interest rates, ample liquidity and sound economic growth has pushed Hong Kong residential property prices up by almost 15 per cent this year, after gaining a third last year.
Hong Kong Financial Secretary John Tsang said last week that prices for large flats had exceeded previous highs in 1997 and were headed towards historic peaks, prompting the government to raise stamp duty on luxury apartments earlier this year and implement more measures last week.
'The new measures will not change the imbalance of supply and demand for residential buildings. The increase in land supply in recent months is not sufficient to satisfy the large appetite for residential flats,' Mr Charles Chan, managing director for Savills Valuation and Professional Services, said.
The government said last Friday that it would increase land supply and tighten mortgage lending to avoid a property bubble.
Mr Tsang said the government would auction three more sites before March next year, regardless of whether developers tabled an offer equal to at least 80 per cent of the government's minimum price - a requirement under the city's land auction rules.
Two of the three sites will be auctioned next month, he said.
'A large amount of hot money has flown into Hong Kong's financial system,' Mr Tsang said last week.
'There is an increased risk of a property bubble forming because interest rates are expected to continue to be very low for some time to come.'
The Hong Kong Monetary Authority warned banks that the credit risks they faced in residential mortgages were rising and unveiled measures to help them cope.
These included lowering the loan-to- valuation ceiling to 60 per cent for properties worth HK$12 million or more. The ceiling for all non-owner-occupied residential mortgages would also be lowered to 60 per cent.
Following Monday's declines on the Hong Kong stock exchange, property shares rebounded in response to the better-than-expected auction results.
Sino Land jumped 3.61 per cent to HK$13.76, Cheung Kong rose 1.05 per cent to HK$100.40 and Sun Hung Kai was up 0.46 per cent at HK$110.50.

Is there a property bubble in China?

Business Times - 20 Aug 2010


There may be a visible slowdown in housing starts and construction towards the end of this year, KELVIN TAY believes
THRUST centre stage as a result of the decline in the G-7 economies in a post-2008 credit crisis world, the Chinese economy has gained a new level of significance and scrutiny that often generates unwanted, alarmist racket.
Is there a property bubble in China? The answer bears more significance now than ever before. China's construction and real estate sectors are likely to contribute to an estimated 11 per cent of its GDP in 2010. The construction industry employs 14.3 per cent of all workers in urban areas and consumes 40 per cent of all steel and lumber produced in China.
The private residential sector currently accounts for almost 40 per cent of the buildings completed by the construction industry. Never before has the health of the Chinese construction and real estate sectors been more closely followed.
Analysing a large, diverse economy like China's is complex, to say the least. Her sheer size and diversity in terms of economic development makes nationwide average figures rather meaningless. For example, from April 2009 to April 2010, residential property prices in China rose by 15 per cent and when juxtaposed with the price declines in 2008, would hardly set alarm bells ringing.
However, a closer examination of tier 1 cities revealed that in the 12-month period to April 2010, property prices rose by 64 per cent in Beijing, 39 per cent in Shanghai and actually doubled in Shenzhen.
The tier 1 cities accounted for almost 22 per cent of urban residential property sales, rather disproportionate to their share of 8 per cent of total floor space. Prices in Beijing reached a stratospheric 28,000 yuan per square metre in the same period.
Although long documented trends of urbanisation, rural to urban migration and a shortfall in the supply of public housing have resulted in property prices in China rising steadily over the last five years, what actually fuelled the extraordinary climb in prices over the last 12 months has largely been attributed to the increasing participation of state-owned enterprises (SOEs) in the property market.
Higher price
A study conducted by researchers from the National University of Singapore and Tsinghai University found that the transaction price of land tends to be 27.4 per cent higher when it is successfully bid by an SOE.
In certain cities like Beijing, the local and central SOEs' share of developers' land purchases have reached an estimated 71 per cent in early 2010, up from about 37 per cent in 2003.
Leverage, another indication of whether an asset bubble is building, has also seen a steady increase. If we assume that only urban households have access to mortgage lending, then mortgage debt as a proportion of urban household income is near 50 per cent, which makes it a tad uncomfortable.
We also need to take into consideration that in the case of China, where a large share of household wealth exists in the form of bank deposits, it is vulnerable to various forms of asset bubbles as and when households decide to shift a certain proportion to other asset classes, including property.
Although property purchases require a larger amount of capital (initial down payment), it is clearly not a major obstacle, especially in a period when property prices are escalating and return expectations get artificially inflated.
In that sense, we view the property tightening measures announced by the Chinese government in May with measured relief.
The policies are largely aimed at stabilising the market by curbing speculative demand and at the same time, increasing the supply of housing, in particular public housing.
At this stage of its economic cycle, a slowdown in China's property market is very much welcome news. If the Chinese real estate sector continues to grow at breakneck speed with little breathing space, it would certainly magnify the risk of overheating followed by a systemic collapse. This would have serious ramifications for Asia, including Singapore.
A collapse in China's property market resulting in financial contagion might affect the Singapore property market both directly and indirectly. As of July this year, Chinese nationals are currently the second largest source of foreign buyers of property in Singapore. Any crash in China's property market and subsequent economic slowdown would probably change that equation.
Furthermore, over the past two decades, systemic crises have always negatively impacted Singapore's property market. The Asian financial crisis in July 1997, Nasdaq crash in March 2000 and the credit crisis in 2008 all resulted in double-digit declines in the local property market.
However, it is the indirect impact that is actually more worrying. Since 2007, almost all home loans in Singapore are based on floating rates. Mortgage rates are usually pegged to the three-month Singapore Interbank Offered Rate (Sibor) or three-month Singapore Offered Rate (SOR), plus a premium that ranges between 1.25 per cent and 1.75 per cent.
Spike
Therefore, if Sibor or SOR spikes up suddenly and remains at stubbornly elevated levels for a period of time, property owners tied to such loans might suddenly find their monthly mortgages taking up a disproportionate amount of their monthly income.
Have there been instances when Sibor suddenly behaved erratically? The Asian financial crisis was one such example. Sibor spiked up to a high of 7.75 per cent before finally sliding to 1.9 per cent in December 1998. The average rate of Sibor during that 18-month period hovered at 4.9 per cent. As Asia was fortunately not at the epicentre of the credit crisis in 2008, Sibor did not behave erratically but averaged around 1.3 per cent, more than twice the current rate of 0.56 per cent.
So what is the likelihood of the above scenario panning out? Fortunately, we believe the chances are slim. The sharp appreciation in property prices in China have been largely restricted to the tier 1 cities, leaving the fundamentals of the broader market intact.
Although we do not expect China's property sector or economic growth to collapse, we believe that there may be a rather visible slowdown in housing starts and construction towards the end of this year, with any possibility of a reversal of the property tightening measures and/or loosening in monetary policy likely to be in early 2011. We believe this could potentially be the catalyst for the Shanghai A-Share Composite index, which is currently the worst performing stock market in Asia ex-Japan, to outperform.

Landed home purchases by foreigners surge

Business Times - 10 Aug 2010

Landed home purchases by foreigners surge
But acquisitions of private apartments and condos slip 7.4% in Q2
By KALPANA RASHIWALA
(SINGAPORE) Foreigners including permanent residents bought 81 landed homes in Singapore in the second quarter of this year, up from 69 in Q1. And the Q2 figure is the strongest quarterly showing since Q2 2007, according to Knight Frank's analysis of URA Realis caveats information up to July 30.
District 15, which includes Katong, Telok Kurau and East Coast Road, overtook District 4 - where transactions are predominantly at Sentosa Cove - as the most popular district among foreign buyers of landed property. In Q1, District 4 was most highly sought after by such foreigners.
While foreigners picked up more landed homes in Q2 than Q1, they bought fewer private apartments and condos. The number slipped 7.4 per cent, from 2,261 units in Q1 to 2,093 in Q2, according to Knight Frank.
But Singaporeans bought more non-landed private homes in Q2 - 5,732, versus 5,315 in Q1.
Knight Frank chairman Tan Tiong Cheng said foreigners' strong interest in landed homes reflects their growing recognition of such assets as a prized commodity in land-scarce Singapore.
'The increased interest is not surprising as landed housing offers many foreigners a lifestyle closer to what they are used to in their home country,' he said. 'The added attraction is that Singapore is a very safe place, so landed housing is as secure as, say, a gated community.'
William Wong, managing director of RealStar Premier Property which specialises in selling landed homes in east and central Singapore, said permanent residents (PRs), after living in Singapore for a few years, tend to realise it's worthwhile investing in landed property.
'Bungalow prices (on per square foot of land basis) are still lower than apartment and condo prices on psf of strata area in the same location,' he said.
'On top of that, the supply of landed homes is more limited than that of condos and apartments. Landed homes also tend to maintain their value better, as the main component of, say, a bungalow's value would be the land it sits on, whereas apartment and condo values may depreciate faster as the property ages.'
PRs who choose landed property can easily get access to the facilities they would enjoy in a condo - such as a big swimming pool and gym - by joining a club, he noted.
Mr Wong said landed property transactions started to pick up in June-July, after a slow period in March-May. 'In District 15, bungalows in the Mountbatten and Meyer road areas can easily sell for about $1,000-1,100 psf of land today, compared with around $900 psf towards the end of 2009,' he said.
'In District 10, say in Coronation Road or Namly Avenue, a bungalow may cost about $1,200-$1,300 psf-plus today, up from $1,000-1,100 psf late last year.'
Besides an increase in the number of landed homes bought by foreigners in Q2, Knight Frank's report shows their share of total landed home purchases here rose from 6.3 per cent in January-March to almost 7 per cent in April-June.
The latter figure is a tad below an 8 per cent share in Q1 2007 and Q2 2008.
The 150 landed properties bought by foreigners in the first half of this year accounted for about 6.6 per cent of landed home deals in the period. On an annual basis, the share has ranged from 3 per cent in 1996 to 9 per cent in 1995 and 1997.
Knight Frank's analysis also shows PRs acquired 132 of the 150 landed homes bought by foreigners in the first half of this year.
The other 18 were bought by non-PR foreigners. This is not surprising as on mainland Singapore, being a PR is one of the major criteria a foreigner has to fulfil before being allowed to buy a landed home.
Sentosa Cove is the only place in Singapore where non-PR foreigners are allowed to buy landed homes, but this is still subject to approval by the Land Dealings (Approval) Unit, among other conditions.

Dalvey Road residential site offered for collective sale

Business Times - 06 Jul 2010

A PLUM freehold residential site at Dalvey Road has come on the market. Villa D'Este, being offered through a proposed collective sale exercise, has a land area of about 55,480 square feet. Its guide price of $115 million reflects a unit land price of about about $2,343 per square foot of potential gross floor area. No development charge is payable.
Currently Villa D'Este comprises 12 apartments sitting in an area approved by Urban Redevelopment Authority for the most exclusive housing form - Good Class Bungalows.
Based on a URA circular dated April 6, 2009 and its guidelines, Villa D'Este may be redeveloped back to apartments, provided there is no intensification of the existing approved gross floor area (GFA) and storey height.
The GFA has been verified by the URA to be about 49,071 sq ft and the developer can choose to build 13 to 14 apartments with an average size of about 3,500 sq ft each, says CB Richard Ellis, the property's marketing agent.
Ten of the the 12 owners have signed the collective sale agreement.
Villa D'Este comprises a part three-storey and part four-storey apartment development sitting on a car park podium.
The site is located in tranquil surroundings overlooking mature trees and greenery. It is also within walking distance to the Singapore Botanic Gardens.
'The new development is expected to draw keen interest from foreign buyers, especially the Chinese and Indians, who would like to live within the most prestigious Good Class Bungalow areas but are unable to own landed properties. Given its excellent attributes, several foreign parties have already expressed their keen interest to acquire the site,' CBRE said in a news release yesterday.
Villa D'Este's tender closes on August 4.