Japan investors likely to cut back on UK property assets

Japanese investors may reduce UK property holdings, which include stakes in the largest real-estate investment trusts, as they focus on rebuilding in their home country following its strongest earthquake on record.

‘There must be the risk of a general repatriation of overseas assets by Japanese investors as they focus inwards after the earthquake,’ Mike Prew, an analyst at Nomura International Plc, said. ‘There may be some selling pressure on stocks if that happens.’

Japanese retail funds hold about 11 per cent of Land Securities Group plc, the biggest UK real estate investment trust, and 6 per cent to 8 per cent of the larger listed property companies, Mr Prew said in a March 14 report to clients.

Investors from the country have purchased £976 million (S$2 billion) of London properties since 2000, according to New York-based research group Real Capital Analytics Inc, which tracks deals larger than £10 million.

Harm Meijer, a London-based real-estate analyst at JPMorgan Chase & Co, said that his initial expectation was that Japanese investors would pull some money out of property.

Mohamed El-Erian, chief executive officer at California-based Pacific Investment Management Co, also predicts that Japanese investors in general would probably move funds back to their country, according to an interview on ‘Bloomberg Surveillance’ with Tom Keene.

Low prices attracted Japanese investors to UK Reits starting in 2009, Mr Prew said. ‘With a zero interest-rate policy and low-yielding assets in Japan, they liked the higher dividend yields and focused on the most liquid FTSE 100 stocks.’

Investors with holdings in both Land Securities and British Land Co, the second-largest UK Reit, include Sumitomo Mitsui Banking Corp, Nikko Asset Management Ltd and Nomura Holdings Inc.

Money would also flow back to Japan if insurers are forced to sell investments to raise cash for claims, said Matthew Richardson, head of European property research at a London-based division of Fidelity International Ltd, which has US$246 billion of assets under management.

‘Liquidating property investments can be expensive and takes time, so you can’t have a knee-jerk reaction,’ he said.

Japan ranked 19th among countries investing in London over the last decade, Real Capital Analytics said. Deals included Mitsubishi Estate Co’s £105 million purchase of River Plate House, where Mizuho Corporate Bank Ltd has offices, and Kajima Corp’s purchase of 5 Savile Row for £40 million in 2008, the London street famous for its tailors.

Real estate investors from Japan have invested US$11.8 billion outside their country since 2007. Spain was the most popular destination and accounted for US$5 billion and the UK was fourth, RCA said.

Date: 17 March 2011 | For the full report, please visit http://www.businesstimes.com.sg

US commercial property on the rebound

Debt investors are wagering that the worst is over for commercial real estate, driving prices on mortgage bonds to the highest in more than two years.

‘Investors have gotten more comfortable and have started putting money back into CMBS,’ Chris Callahan, head of commercial- mortgage backed bond trading at Credit Suisse Group AG, said in an interview at the Commercial Real Estate Finance Council’s conference in Washington.

‘It has gone from being the red-headed stepchild to being a viable asset class again.’

Investors are buying bonds tied to hotel, shopping centre, and skyscraper loans as more financing becomes available to borrowers, helping halt a slide in real-estate values.

US commercial property prices, which have declined 42 per cent from their peak in 2007, rose for the third consecutive month in November, Moody’s Investors Service said in a statement on Monday.

So-called junior AAA commercial-mortgage backed securities, which are less insulated from losses than senior and mezzanine AAA classes, have increased almost 21 per cent to 87 US cents on the dollar during the past three months, according to data compiled by JPMorgan Chase & Co.

The bonds, valued at about 51 US cents six months ago, are at the highest levels since June 2008, JPMorgan data show.
Some of the bonds have doubled in price after investors overestimated potential losses in the aftermath of the 2008 financial crisis, said Kent Born, a senior managing director at Chicago-based investment manager PPM America Inc, which bought the debt that year.

‘Our analysis at the time indicated that the underlying collateral wouldn’t perform nearly as badly as the deeply discounted price implied,’ said Mr Born, also speaking at the Washington-based conference. ‘That bet has definitely paid off.’

Sales of commercial- mortgage backed securities are poised to climb to US$45 billion this year, according to JPMorgan, after banks arranged US$11.5 billion of the debt in 2010.

About US$7 billion in new commercial-mortgage bond deals are in the pipeline for the next two months, he said during an interview in Washington.

‘How that US$7 billion is absorbed and how the bonds trade will be an important milestone for the market,’ he said.

Date: 27 January 2011 | For the full report, please visit http://www.businesstimes.com.sg

Commercial Real-Estate Debt Hits Two-Year High as Investors Bet Worst Over

Debt investors are wagering that the worst is over for commercial real estate, driving prices on mortgage bonds to the highest in more than two years.

“Investors have gotten more comfortable and have started putting money back into CMBS,” Chris Callahan, head of commercial-mortgage backed bond trading at Credit Suisse Group AG, said in an interview at the Commercial Real Estate Finance Council’s conference in Washington. “It has gone from being the red-headed stepchild to being a viable asset class again.”

Investors are buying bonds tied to hotel, shopping center and skyscraper loans as more financing becomes available to borrowers, helping halt a slide in real-estate values. U.S. commercial property prices, which have declined 42 percent from their peak in 2007, rose for the third consecutive month in November, Moody’s Investors Service said in a statement yesterday.

So-called junior AAA commercial-mortgage backed securities, which are less insulated from losses than senior and mezzanine AAA classes, have increased almost 21 percent to 87 cents on the dollar during the past three months, according to data compiled by JPMorgan Chase & Co. The bonds, valued at about 51 cents six months ago, are at the highest levels since June 2008, JPMorgan data show.

Some of the bonds have doubled in price after investors overestimated potential losses in the aftermath of the 2008 financial crisis, said Kent Born, a senior managing director at Chicago-based investment manager PPM America Inc., which bought the debt that year.

“Our analysis at the time indicated that the underlying collateral wouldn’t perform nearly as badly as the deeply discounted price implied,” said Born, also speaking at the Washington-based conference. “That bet has definitely paid off.”

Sales of commercial-mortgage backed securities are poised to climb to $45 billion this year, according to JPMorgan, after banks arranged $11.5 billion of the debt in 2010. Rising sales make it easier for property owners with maturing loans to refinance. Issuance plunged to $3.4 billion in 2009 compared with a record $234 billion in 2007, according to data compiled by Bloomberg.

Property financing is flowing again, easing investor worst- case scenario concern, said Brian Lancaster, an analyst at Royal Bank of Scotland Plc. About $7 billion in new commercial- mortgage bond deals are in the pipeline for the next two months, he said during an interview in Washington.

Date: 26 January 2011 | For the full report, please visit http://www.bloomberg.com

Dubai Sukuk Returns as Emaar Plans $2 Billion in Issuance: Islamic Finance

Emaar Properties PJSC plans to sell as much as $2 billion of Islamic bonds, its first in more than six years, as the developer of the world’s tallest tower in Dubai taps appetite for higher-yielding assets.

The government-controlled company said Jan. 18 it will meet fixed-income investors in Europe, Asia and the Gulf for its bond program. The yield on Dubai’s 6.396 percent Islamic note due November 2014 rose 1 basis point to 6.33 percent today, down 373 basis points from a record high of 10.06 percent on Feb. 15, according to Bloomberg data. Emaar’s sukuk will need to yield between 6.5 percent and 7 percent, said Silk Invest Ltd., a London-based fund that specializes in frontier markets.

“The sukuk should attract a wide base of investors from Asia, Middle East and North Africa,” Usman Ahmed, head of fixed-income at Emirates NBD Asset Management, a unit of the United Arab Emirates’ biggest lender which oversees $300 million in bonds, said in an e-mailed response to questions Jan. 19. “You can’t paint all Dubai-based real-estate companies with the same brush.”

Emaar’s Islamic bond program would be the first corporate sukuk offer from Dubai since the emirate received a $20 billion bailout from the Abu Dhabi government and the U.A.E.’s central bank in 2009. Tamweel PJSC, a U.A.E. mortgage lender controlled by Dubai Islamic Bank PJSC, sold 1.1 billion dirhams ($299 million) of Islamic bonds in July 2008.

Real-estate prices in Dubai slumped by almost 60 percent from their peak in mid-2008 as the credit crisis forced banks to curb lending, Ahmed Badr, analyst at Credit Suisse Group AG said Jan. 9. Property is often used as collateral for Shariah- compliant bonds.

Sukuk sales in the six-member Gulf Cooperation Council, which includes the U.A.E. and Saudi Arabia, were $4.5 billion last year, down 75 percent from a record high of $18.2 billion in 2007, according to data compiled by Bloomberg. Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, fell 15 percent last year to $17.1 billion.

Shariah-compliant debt in the six-nation Gulf Cooperation Council returned 13.6 percent last year, the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index shows. Global sukuk gained 12.8 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Bonds in developing markets rose 12.2 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Moody’s Investors Service rated Emaar’s sukuk program B1, the fourth-highest junk rating, while Standard & Poor’s rates the company’s foreign debt BB, the second-best non-investment grade. “The negative outlook reflects refinancing risks that Emaar is facing over the coming 18 months,” Moody’s said in an e-mailed statement Jan. 18.

Emaar hired HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Standard Chartered Plc to arrange the investor meetings and will issue subject to market conditions, the company said in its statement. Emaar last sold an Islamic bond in July 2004 when it issued $65 million in five-notes.

The developer issued $500 million of five-year convertible notes last month to pay contractors and convert some of its $1.4 billion of short-term loans into longer-term debt. The 7.5 percent note maturing December 2015 received more than $3 billion in bids. The yield declined 32 basis points last week to 6.35 percent, Bloomberg data show.

The company in October reported third-quarter net income dropped 7 percent to 612 million dirhams, missing analysts’ estimates, on higher costs and writedowns. About 90 percent of Emaar’s revenue is generated in Dubai, the second-largest sheikhdom in the U.A.E.

Economic growth in the country will accelerate to 3.2 percent this year, from 2.4 percent in 2010, the International Monetary Fund said in October.

“We remain confident that over the long term Dubai’s real- estate sector will recover,” John Bates, head of fixed income at Silk Invest said Jan. 20. “A number of catalysts are slowly improving the outlook, the effective bailout of Aldar, the ongoing Dubai World restructuring as well as various asset sales.”

Date: 24 January 2011 | For the full report, please visit http://www.bloomberg.com

U.S. Foreclosure Filings May Jump 20% This Year as Crisis Peaks

The number of U.S. homes receiving a foreclosure filing will climb about 20 percent in 2011, reaching a peak for the housing crisis, as unemployment remains high and banks resume seizures after a slowdown, RealtyTrac Inc. said.

“We will peak in foreclosures and probably bottom out in pricing, and that’s what we need to do in order to begin the recovery,” Rick Sharga, RealtyTrac’s senior vice president, said in an interview at Bloomberg headquarters in New York. “But it’s probably not going to feel good in the process.”

A record 2.87 million properties got notices of default, auction or repossession in 2010, a 2 percent gain from a year earlier, the Irvine, California-based data seller said today in a report. The number climbed even after a plunge in filings in the last part of the year — including a 26 percent drop in December — as lenders came under scrutiny for their practices.

Foreclosures have weighed down U.S. housing prices as the nation’s unemployment rate is stuck at more than 9 percent.
Home values may rise 0.6 percent for the year, the first annual jump since 2006, according to Fannie Mae, the largest U.S. mortgage buyer. They have fallen as much as 33 percent since peaking in 2006, based on the S&P/Case-Shiller Index of 20 cities.

Banks seized more than 1 million homes in 2010, according to RealtyTrac. That was up 14 percent from a year earlier and the most since the company began reports in 2005.

About 3 million homes have been repossessed since the housing boom ended in 2006, Sharga said. That number could balloon to about 6 million by 2013, when the housing market may “absorb the bulk of distressed properties,” he said.

“What makes this almost inevitable is the fact there are 5 million seriously delinquent loans not yet in foreclosure,” Sharga said. “They’ve got to eventually get in the pipeline unless the homeowners cure the defaults.”

As many as 250,000 foreclosure filings that would have occurred at the end of 2010 were delayed by the ongoing probe into lender practices, according to RealtyTrac. Those proceedings will be pushed into this year, resulting in an “ugly” first quarter, Sharga said.

Attorneys general in all 50 states are investigating whether banks and loan servicers used faulty documents and signatures on loan documents, a process that has come to be known as robo-signing. Companies including JPMorgan Chase & Co., Bank of America Corp. and Ally Financial Inc. halted some repossessions as they reviewed their procedures.

Foreclosure filings in December totaled 257,747, the lowest monthly tally since June 2008. The number fell 2 percent from November and 26 percent from a year earlier, the biggest annual decline in RealtyTrac records.

Date: 13 January 2011 | For the full report, please visit http://www.bloomberg.com

Brisbane Flooding May Trigger a `Big Spike’ in Home Sales, Economists Say

Brisbane may have increased home sales and construction this year once the cleanup of Australia’s third-biggest city begins after the worst floods since 1974, economists at Citigroup Inc. and JPMorgan Chase & Co. said.

“We could see an increase in activity, once the total damage assessment is made,” Josh Williamson, senior economist at Citigroup in Sydney, said in a telephone interview yesterday. “There could be a big spike in housing market activity.”

Auction clearance rates in Brisbane dropped to 22 percent in the week ended Dec. 19, the lowest among major Australian capital cities, compared with 48 percent a year ago, according to figures from real estate researcher RP Data. Brisbane home prices fell a seasonally adjusted 1 percent in the three months to November, compared with a 1.2 percent increase in Melbourne and 0.3 percent growth in Sydney, RP Data figures show.

Muddy water inundated about 12,000 homes and 2,500 businesses, smashed roads and shuttered the city center. Residents of Brisbane’s most expensive suburbs, including Newstead and Hamilton, who pay median prices of more than A$1 million ($995,000) for waterfront properties on the Brisbane River’s banks, are among those affected.

“Socially, it’s terrible to have things destroyed,” Ben Jarman, a Sydney-based economist at JPMorgan, said by phone yesterday. “But if you have to replace them, that looks good in growth numbers.”

More information about the extent of the damage is needed to gauge the long-term impact on prices, said Williamson and Jarman. By this time next year, Brisbane property price growth could be in line with the rest of the country, Jarman said.

Property sales will slow significantly over the next month as residents focus on assessing damage and put purchase decisions on hold, said Rod Cornish, Sydney-based head of property research at Macquarie Group Ltd. Buyers are also likely to turn more selective about where they buy properties, avoiding low-lying areas that have been particularly hard hit, he said.

Construction activity appears to have slowed in December in Queensland as a result of the wet weather, said Harley Dale, chief economist at developers’ industry group Housing Industry Association. Still, the damage caused by the flood is likely to spur development later in the year, he said.

“There’s likely to be a considerable short-term negative impact that will weigh heavily in the March 2011 quarter,” Dale said. “But the net outcome over the entire 2011 calendar year may turn out to be a higher level of new home building as a result of the need to rebuild homes and engage in quite considerable improvement and renovation.”

Date: 13 January 2011 | For the full report, please visit http://www.bloomberg.com