Profit squeeze spurs China builders to buy land outside auctions

JAN 21, 20166:26 AM

[HONG KONG] Chinese real estate developers plan to acquire more land outside the primary market - purchasing from other companies and through redevelopment - as escalating land costs crimp profit margins.

China's property market bottomed late last year with prices recovering in the biggest cities such as Beijing, Shanghai and Shenzhen, but costly land prices are spoiling the party for developers who must find new ways to ease the squeeze.

In a game of survival, developers are also forming ventures to jointly bid at government auctions to strengthen their chances of securing prime plots of land. "If you buy in the public market it's expensive, so we prefer mergers and acquisitions," said an executive of Greentown China who spoke on anonymity as he was not authorised to speak to the media. "Business partners and local governments are more willing to talk to us because of our (bigger corporate) background." Prices for residential land continued to accelerate in the fourth quarter, the land ministry said last week, and the trend will likely persist in the first quarter as the housing sector recovers.

Some developers say they will bid for land using more joint ventures going forward as cooperation helps to raise the bargaining power of builders and lowers competition.

Others said they would build up land banks via acquisitions and urban redevelopment, rather than through the primary market.

The bigger, listed developers have been concentrating on larger cities in the past two years to drive sales, as demand and inventory levels in these regions have been healthier.

Residential land in first-tier cities rose 10.9 per cent in the fourth quarter from a year earlier, faster than 2.9 per cent in second-tier cities and 2.5 per cent in third-tier cities.

Sunac China - a Tianjin-based developer whom analysts say is among companies with the most joint ventures - announced last week it would buy 95 per cent of Suzhou Xinyou, who has a land parcel of around 74,000 square meters in the eastern city of Suzhou, for 1.04 billion yuan (US$158.1 million). "We need to look for channels other than the primary market to acquire land; redevelopment projects are a major part of them," an official from state-backed China Resources Land told Reuters.

The company will step up land investment despite high land prices to maintain market share, so it will team up with more partners and look beyond the primary land market, the official said.

The rising cost of land has prompted developers to form partnerships, with as many as six companies working on one development.

Property data provider CRIC said that among the top 10 land sales by value, 75 per cent of the total amount was bought through partnership in 2015, compared with 73 per cent in 2014. "Land prices will go up faster than property prices as monetary easing and falling funding costs will encourage some developers to expand their balance sheet and compete in this segment of the market, squeezing future margins for all developers," CLSA analyst Nicole Wong said.

Net profit margins for Chinese developers listed in Hong Kong peaked in the first half of 2011 at about 14 per cent and have gradually eased to around 8 per cent in the first half of 2015, according to realtor and researcher Centaline Group.

Ms Wong noted that poor margins will show up on income statements in 2018 as it usually takes two years after buying land to finish building and start selling the apartments. "Getting land through urban redevelopment is one solution but it takes many years and much trouble, only big developers and state-backed enterprises can afford to do it," Ms Wong said. Urban renewal projects usually involve companies working closely with provincial governments.

REUTERS

    
 

Foreigner buying of Singapore homes hits 7-year low as Chinese sales plunge

Foreigners including the Chinese have cut their purchases of Singapore private homes to the lowest since the global financial crisis, leaving the market to depend on local buyers at a time when domestic interest rates are on the rise. 

PHOTO: REUTERS

JAN 21, 20166:19 AM

[SINGAPORE] Foreigners including the Chinese have cut their purchases of Singapore private homes to the lowest since the global financial crisis, leaving the market to depend on local buyers at a time when domestic interest rates are on the rise.

Foreigners, including permanent residents, bought 499 homes in the fourth quarter of 2015, according to data compiled by consultancy DTZ. That accounted for about 16 percent of total transactions versus more than 30 per cent in the third quarter of 2011 just before an additional stamp duty was imposed to cool the market.

While property in Singapore, along with markets like London and Sydney, is considered a safe haven, foreigners are discouraged by the high taxes imposed on their purchases. The Chinese, among the biggest foreign purchasers of Singapore private homes, bought 151 units in October-December, plunging nearly 40 per cent from a year earlier. That was also down 80 per cent from a peak in the third quarter of 2011, according to the DTZ data. The figures were based on caveats lodged as of Jan 15 with an online database maintained by the land planning authority. "Chinese money is being attracted by Australia and the UK," said Alan Cheong, senior director of research and consultancy at Savills Singapore, adding that stamp duties need to be tweaked to a level at which Singapore could capitalise on Chinese funds without attracting too much hot money. "If we continue to sit by with all these measures, we are just going to miss the boat." Local buyers may also turn cautious, with the benchmark three-month Singapore interbank offered rate (Sibor) - used to set interest rates on mortgages - on a persistent uptrend. It rose up to 1.254 per cent so far this week, the highest since October 2008.

REUTERS

    
 

Few hiding places left for investors as STI approaches 2,500

China woes, vulnerable HK dollar pummel regional stock markets, but analysts point to "fear factor" at work rather than fundamentals changing

By

Kenneth Limkenlim@sph.com.sg@KennethLimBT

PHOTO: BLOOMBERG

JAN 21, 20165:50 AM

Singapore

INVESTORS in Asia got out of risk assets like cats from a bath on Wednesday as weak Chinese economic data, falling oil prices and fears of a vulnerable Hong Kong dollar sent stock markets tumbling to multi-year lows.

The Straits Times Index (STI), Singapore's bluechip equity gauge, fell 2.98 per cent, or 78.7 points, to close at 2,559.77, a four-year low.

In Hong Kong, the Hang Seng Index shed 3.82 per cent, or 749.51 points, to finish at 18,886.30.

Coming off Tuesday's gains, Wednesday's pullback had hints of profit-taking.

"Despite yesterday's advance, the market is still flush with an overhang of sellers waiting to come out and will keep a lid on the potential to advance further," NetResearch Asia wrote in a note before Wednesday's market opened. "'Forced and voluntary liquidation' also appears to be a buzzword as some clients are faced with margins calls while others who fear stocks were still headed lower, opt to sell into strength."

Andrew Chow, head of UOB Kay Hian Research, said Wednesday's selling in the stock markets was more a case of "fear factor" at work than fundamentals changing. The analyst said stocks were close to fair value at the moment, although investor wariness could be protracted and continue to dampen prices for a while.

How low could the STI fall?

"At 2,590 for the STI, the market is factoring zero per cent corporate earnings growth for 2016 and close to -1.5 standard deviation for a blended price-to-book and price-earnings ratio. We're below that already, which says that a lot has been factored in," Mr Chow said.

Most analysts have a floor of about 2,500 for the STI.

DBS on Monday issued a report that said the probability of the index falling towards 2,500 has increased.

"Along the way down though, we do not rule out a technical rebound around 2,600, but this should be capped at 2,630 or moderately higher at 2,700," DBS wrote.

HSBC Asia equity strategist Devendra Joshi also expects Asian equities to be lacklustre in 2016 as slowing economic growth hits earnings.

"High-dividend-yield equities are a good place to hide," he said. "Also, long-term investors should start to build up positions in quality names."

The Hong Kong dollar remained under pressure on Wednesday amid speculation about whether the territory had the means to defend the currency's US-dollar peg.

The currency traded as weak as 7.8265 HK dollars for every US dollar on Wednesday, just shy of the HK$7.85 limit set by the current peg.

"With US-dollar-based rates rising, Hong Kong's currency peg necessitates that rates in Hong Kong would rise as well," said Hartmut Issel, who heads equity and credit in Asia Pacific for UBS Wealth Management. "This just happened very swiftly now and thus people are getting very nervous. This means that monetary policy in Hong Kong is effectively tightening, which in turn has the potential to curb growth . . .

"What also does not help matters is that, globally, several currency pegs have either been dismantled or are put into question by markets. Some investors have similar concerns about the Hong Kong dollar peg, although we believe it is likely to hold."

Hong Kong's currency turmoil may not be over yet, although market concerns may be overdone, Mr Issel said. "As far as interest rates in Hong Kong go, they probably need to offer a decent premium over the US rates to compensate investors for some of the uncertainties," he added.

"Given that there is no such premium yet, one cannot say that this adjustment process is finished as of now. However, if the main concern behind these developments ultimately remains a China hard landing, the recent GDP and also property numbers show clear evidence of a slowdown, but not of a crash landing, and the market response looks exaggerated."

The Singapore dollar weakened slightly, trading as much as S$1.4412 per US dollar, but staying below the S$1.45 level.

The Singdollar also received some support from the Monetary Authority of Singapore (MAS), which on Tuesday reiterated its existing policy stance of maintaining a modest appreciation of the currency.

HSBC does not expect the Singapore central bank to soften policy anytime soon.

"A common misperception in the market is that the MAS widens the policy band during periods of economic and market uncertainty to accommodate higher volatility," HSBC said. "However, the MAS's modus operandi is actually the opposite: policy will not accommodate volatility but 'provide an effective anchor for economic and financial stability during a period of global and regional uncertainties'."

The Japanese yen, however, has benefited from regional investors who have shifted allocations to cash and want to park that cash in a safe-haven currency, said IG market strategist Bernard Aw. The yen strengthened to about 115.98 yen per US dollar on Wednesday.

"The Japanese yen is a safe haven in this region," Mr Aw said.

Weak commodity prices and concerns about China also quelled investors' appetite for risk.

Oil prices continued to fall on Wednesday, with Brent crude for March delivery falling 2.7 per cent to US$27.98 per barrel in London.

DBS, however, argued that the drop in oil prices is a function of supply having run too far ahead than of demand falling. This might pose problems for oil-and-gas industry players such as rigbuilders and contractors, but for everyone else lower prices should be positive. A supply-driven glut should support growth since expanding economies will get a boost from cheap oil, the firm said.

"Many think weak demand from China is pushing prices down. The converse is true," DBS wrote. "Strong supply is pushing prices lower and this is providing an enormous benefit to China and the rest of Asia."

UBS's Mr Issel recommended finding shelter in diversification amid volatile times. Investors could even look at hedge funds, and should maintain allocation discipline.

"Diversification of portfolios is of utmost importance," Mr Issel said. "This includes holding even a portion of developed-market government debt such as US Treasuries. These positions serve as buffers in turbulent times like these. However, they do not promise solid return levels and hence we currently recommend to underweight them (but still hold some).
"

Maersk CEO says container volumes are improving in 2016

Container volumes have picked up this year after the market suffered from sluggish growth and overcapacity in 2015, according to the chief executive officer of AP Moeller-Maersk A/S. 

PHOTO: BLOOMBERG

JAN 20, 20168:15 PM

[COPENHAGEN] Container volumes have picked up this year after the market suffered from sluggish growth and overcapacity in 2015, according to the chief executive officer of AP Moeller-Maersk A/S.

"At the beginning of this year, things look a little bit better," Nils Smedegaard Andersen said in an interview. "We do expect the Asia to Europe business to develop better this year."

Maersk's container line, the world's largest, suffered last year from a toxic cocktail of too many vessels just as global trade sagged. While the industry still needs to address overcapacity, the demand side looks better, Andersen said.

"We find it difficult to believe that the European trade will continue to be negative in 2016," the CEO said, speaking at the World Economic Forum in Davos, Switzerland. "A competitive euro and very low energy prices are good for the European economy so Europe should start to pick up consumption-wise this year."

Maersk also has the ability to withstand continued low oil prices, and "would have no problems" if crude remains below $30 a barrel for the rest of the year, Andersen said.

"We are really well positioned for the future. We have a very strong balance sheet." Maersk shares pared losses of as much as 3.8 per cent, declining 1.7 per cent to 7,715 kroner as of 11:05 a.m. in Copenhagen.

"Fundamentally, there are a lot of good things going on in the global economy," Andersen said.

BLOOMBERG

    
 

Temasek taps business chiefs to advise on Europe amid expansion

JAN 20, 20166:19 PM

[SINGAPORE] Temasek Holdings Pte is tapping heads of several European companies to advise the Singapore state-owned investment firm as it increases its footprint in the region.

The investment firm said it established the Temasek European Advisory Panel, whose members include InterContinental Hotels Group Chairman Patrick Cescau, Diageo Plc Chairman Franz B. Humer and Rolls-Royce Holdings Plc Chairman Ian Davis, according to an e-mailed statement Wednesday.

Temasek has been expanding beyond Singapore since 2002 and investments in Europe currently account for 8 percent of its global portfolio exposure. The firm set up an office in London in 2014. It is the biggest shareholder in Standard Chartered Plc and has a stake in Spanish oil producer Repsol SA. The advisory panel will be followed by similar groups focusing on other key markets, according to a Temasek spokesman.

The Temasek panel will bring bring together "eminent business leaders and experts to share insights and perspectives on major political, economic, social and industry trends, with a focus on Europe," the investment company said in the statement.

BLOOMBERG

    
 

Hong Kong braces for tourism "winter" as China visitors stay away

Tour groups to Hong Kong could shrink by as much as two-thirds in the first half of this year, an industry executive said, dealing another blow to retailers and an economy facing pressure from slowing growth in China. 

PHOTO: HONG KONG TOURISM BOARD

JAN 20, 20166:44 PM

[HONG KONG] Tour groups to Hong Kong could shrink by as much as two-thirds in the first half of this year, an industry executive said, dealing another blow to retailers and an economy facing pressure from slowing growth in China.

China accounts for almost three-quarters of all visitors to Hong Kong, which relies on tourism for about 5 per cent of its GDP.

Tourism numbers, however, fell last year for the first time in more than a decade and Ricky Tse, chairman of the Hong Kong Inbound Tour Operators Association, told Reuters he expects a further decline this year as the strong Hong Kong dollar continues to drive mainland Chinese to comparatively cheaper destinations such as Japan and South Korea. "The drop will continue for sure. The winter has just begun," Tse said, adding that he expected the number of tours by Chinese visitors to fall by as much as 60 per cent in the first half of this year after halving in 2015.

Government data shows tourist arrivals to Hong Kong fell 2.5 per cent year-on-year in 2015 to 59.32 million, the first decline since 2003 when the city was hit by an outbreak of Severe Acute Respiratory Syndrome (SARS).

This decline has hit luxury retailers including Chow Tai Fook Jewellery, Cartier owner Richemont and Burberry Group PLC, with the latest available data showing overall retail sales falling for the ninth consecutive month in November, the longest period of decline in 13 years.

Chow Tai Fook, China's largest jewellery retailer by market value, said this month it will close 5-6 stores this fiscal year as tourism remains weak.

Brokerage CLSA report, forecast trips by mainland Chinese to Hong Kong and the neighbouring gambling hub of Macau to average 3 per cent growth over the next five years, compared with 16 per cent growth for all other markets. "The move away from pure shopping trips is one of the main reasons that led to the slowdown in Hong Kong," CLSA said in a recent report. "Looking into 2016, we believe the trend will continue."

REUTERS

    
 

Consumer prices in US fall, reflecting slump in commodities

The cost of living in the US dropped in December, led by a slump in commodities that's roiling global markets. 

PHOTO: AFP

JAN 20, 201610:01 PM

[WASHINGTON] The cost of living in the US dropped in December, led by a slump in commodities that's roiling global markets.

The consumer-price index declined 0.1 per cent after being little changed in November, a Labour Department report showed Wednesday. The median forecast in a Bloomberg survey of economists called for a 0.1 per cent increase. Excluding food and fuel, the so-called core index rose 0.1 per cent, less than forecast and the smallest gain in four months.

The unabated plunge in energy prices has kept inflation under wraps even as a tighter labor market provides impetus for a pickup in wage growth. Federal Reserve officials are betting prices will accelerate as they consider further increases in the benchmark interest rate.

"The thing that's been driving everything is energy - that's obviously going to weigh on this headline reading," Jacob Oubina, US economist at RBC Capital Markets LLC in New York, said before the report.

Core consumer prices were projected to rise 0.2 per cent according to the median forecast in the Bloomberg survey of economists.

For all of 2015, consumer prices climbed 0.7 per cent after rising 0.8 per cent in 2014.

Excluding food and energy, they rose 2.1 per cent last year following a 1.6 per cent increase in 2014.

BLOOMBERG

    
 

Housing starts in US unexpectedly declined 2.5% in December

New-home construction in the US unexpectedly fell in December, indicating the industry lost some momentum entering 2016. 

PHOTO: BLOOMBERG

JAN 20, 201610:10 PM

[WASHINGTON] New-home construction in the US unexpectedly fell in December, indicating the industry lost some momentum entering 2016.

Residential starts declined 2.5 per cent to a 1.15 million annualized rate, from the prior month's revised 1.18 million pace, a Commerce Department report showed Wednesday. The median forecast in a Bloomberg survey called for an increase to 1.2 million. Permits, a proxy for future construction, also fell on a decline in applications for multifamily projects.

Housing demand would benefit from faster wage growth and more broad-based access to credit, allowing more Americans to take advantage of low mortgage rates. The report showed a pickup last month in applications to build single-family homes, indicating construction will gradually advance in coming months.

"It's a matter of a giveback after an unsustainable pace of gains, rather than any germane deterioration," Millan Mulraine, deputy head of US research and strategy at TD Securities LLC in New York, said before the report.

"While the housing recovery remains on track, there hasn't been the kind of momentum that was expected. It's going to be a slow grind higher." For all of 2015, housing starts climbed 10.8 per cent to 1.11 million, the strongest year for construction since 2007.

Estimates for December starts ranged from 1.11 million to 1.3 million. The previous month was revised from a 1.17 million pace.

Permits decreased 3.9 per cent to a 1.23 million annualized rate last month, reflecting an 11.4 per cent slump in applications for multifamily projects. Permits for one-family dwellings climbed an annualized 740,000 units, the highest level in eight years.

Single-Family Homes Beginning construction of single-family houses fell 3.3 per cent to a 768,000 rate after surging 11 per cent in November.

Work on multifamily homes, such as townhouses and apartment buildings, dropped 1 per cent to an annual rate of 381,000. Data on these projects, which have led housing starts in recent years, can be volatile.

Three of four regions showed a decline in new home construction last month, led by a 12.4 per cent slump in the Midwest and a 7.6 per cent decline in the West.

The National Association of Home Builders/Wells Fargo index of homebuilder sentiment held at 60 in January, in line with the average for all of 2015, figures showed on Tuesday. Readings greater than 50 mean more respondents reported market conditions as good. The measure of buyer traffic fell and the six-month outlook cooled.

The progress of the job market will help determine the strength in housing this year. A jump in December payrolls capped the best back-to-back years for employment since 1998-99, one reason residential real-estate sales and construction also improved last year.

Demand is also expected to advance in the longer term as more young adults who delayed home ownership - in part due to the burden of student loans - improve their finances and begin to purchase entry-level homes in a bigger way.

Borrowing costs are staying low even after the Federal Reserve began raising its benchmark interest rate for the first time since 2006. The central bank has said further moves will be gradual.

Residential investment made a 0.27 per centage-point contribution to economic growth in the third quarter, when the economy grew at a 2 per cent annualized rate.

BLOOMBERG

    
 

UAE central bank halts foreign banks waivers on state-linked lending: sources

JAN 20, 20169:09 PM

[DUBAI] The United Arab Emirates (UAE) central bank has removed waivers given to foreign banks allowing them to use their group's capital reserves to calculate lending to the government and state-owned entities, sources aware of the matter told Reuters.

The change, related to 2012 legislation to counter dangers to the Gulf state's banking system from lenders accumulating large exposures to single borrowers, means foreign banks can only use the reserves of their locally-registered units to calculate lending limits.

Large international banks should be unaffected by the move, as they register the loans made in the UAE in central processing centres outside the country.

However, the sources said many regional Gulf and Asian banks, which traditionally booked UAE business within local units and predominantly lend to government entities and large companies, would be significantly impacted.

One, at a bank affected by the move, said his organisation had stopped nearly all lending to clients as it evaluated the move's implications.

The UAE central bank did not respond to a request for comment.

The 2012 rules were brought in after Dubai state-linked entities needed to restructure tens of billions of dollars of debt - a move which forced banks to set aside large amounts of cash as provisions.

According to the circular outlining the ruling, the exposure to the government and government-linked companies of branches of foreign banks in the UAE must not exceed 30 per cent of the local capital base.

Most local units are thinly capitalised so to keep the capital cost to the group to a minimum: under the 1980 UAE banking law, foreign banks must allocate capital funds to the local unit worth 40 million dirhams (US$10.9 million).

But the 2012 circular also said the central bank may give certain exemptions to the rules. For banks which received such waivers, these were not renewed as of Dec 31, sources aware of the move said. It is unclear how many banks were given waivers.

"The central bank wants to understand their exposure to UAE customers and to tighten regulations at a time when it is looking closely at the issue because of the economy," said a second source, noting the pressure being felt in the local banking market from reduced liquidity and a slowdown in economic growth due to lower oil prices.

Possible options for affected banks include switching the booking of new business to their home jurisdiction or a third country, or opening an office in the emirate's financial free zone, the Dubai International Financial Centre, the first source added.

However, those banks with branches - around 26 according to central bank data - would not be able to switch their headquarters to the free zone as they are administered by different regulators.

Some banks might not be able to use their home jurisdictions either due to cumbersome or prohibitive regulations about booking foreign assets.

REUTERS