Asia Firms Go Abroad on Hong Kong to Singapore Curbs: Mortgages

Asia Firms Go Abroad on Hong Kong to Singapore Curbs: Mortgages

Developers in Singapore and Hong Kong, cities which last year implemented some of their most-restrictive curbs to rein in residential property prices, are shifting focus to the U.S., China and the U.K. as demand is stifled at home.OUE Ltd., the Singapore developer that last year agreed to buy California’s tallest building, is weighing investments in New York and Miami as it branches into the U.S. Wharf Holdings Ltd. (4), the Hong Kong builder of shopping malls and apartment buildings, is expanding in at least 14 mainland Chinese cities and Singapore’s Oxley Holdings Ltd. (OHL) plans 3,400 homes in London.

Property companies in Hong Kong and Singapore, the most-expensive Asian cities to buy a luxury residence, are venturing overseas as governments enact tighter lending restrictions and local mortgage rates are set to rise. Hong Kong home sales, which fell 38 percent in 2013 from a year earlier, will remain at similar levels this year, said broker Jones Lang LaSalle Inc. In Singapore, they may slide 30 percent after falling about 35 percent last year, according to brokerage UOB-Kay Hian Pte.

“Asian developers are diversifying into more mature markets; it helps them to tap more sophisticated capital markets and reduce risks,” said Nicholas Holt, Asia Pacific research director at Knight Frank LLP in Singapore. Prime residential properties in the region have been affected by cooling measures, with Hong Kong and Singapore the most impacted, he said.

More Curbs

Singapore began introducing curbs four years ago with some of the strictest measures implemented in 2013, including a cap on debt at 60 percent of a borrower’s income, higher stamp duties on home purchases and an increase in real estate taxes.

Hong Kong has raised the minimum mortgage down payment six times since 2010 and imposed taxes including a doubling of the stamp duty on deals of more than HK$2 million ($258,000) in February, plus an extra 15 percent levy on non-resident buyers. The average loan-to-value ratio of new mortgages in Hong Kong was 54.5 percent in November.

Fourth-quarter home prices in Singapore slid for the first time in almost two years, trimming annual gains to the smallest since 2008, data from the Urban Redevelopment Authority on Jan. 2 showed. Residential prices in Southeast Asia’s fourth-largest economy will start falling in 2014 and may decline about 5 percent to 10 percent, UOB-Kay Hian forecasts.

Asian developers are seeking opportunities as developed economies recover and property prices jump. U.S. home prices rose 13.6 percent in October from a year ago, the fastest pace in seven years and in London they rose about 11 percent in 2013 through November, according to the Land Registry.

Meanwhile, Wall Street firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. are seeing a prolonged slump in emerging-market assets that left equities trailing advanced-nation shares by the most since 1998 last year.

‘Diversify Risk’

Singapore’s economy shrank for the first time in five quarters in the three months ended Dec. 31. Hong Kong’s economy probably grew 3 percent in 2013, the government said in November, revising a forecast of as much as 3.5 percent.

“The motivation for Asian buyers to seek investments in the U.S. and Europe is to diversify risk,” said Priyaranjan Kumar, the Singapore-based regional director of capital markets at Cushman & Wakefield Inc. Cushman estimates more than $50 billion of equity from Asia will be invested in Europe and North America by 2020, he said.

OUE, run by a son of Mochtar Riady, an Indonesian tycoon who founded Lippo Group with interests in property and banks, in June bought the U.S. Bank Tower in Los Angeles for $367.5 million. The Singapore developer said in February that it sees limited growth opportunities on the island in the next two to three years. Only 17 percent of OUE’s Twin Peaks residential project in Singapore, scheduled for completion in 2015, has been sold, according to data from the Urban Redevelopment Authority.

L.A. Tower

The purchase of the Los Angeles tower was the start of the company’s plan to expand in the U.S., Mochtar Riady told Bloomberg Television in September. Future investments will be about the same size, he said, adding that he’s looking in California, New York and Miami for possible deals.

Instead of developed economies, some Hong Kong developers are seeking to tap growth in China where property prices have withstood government curbs.

About 13 cities have tightened their property policies over the past two months. China’s new home prices jumped 12 percent in December from a year earlier, the biggest gain in 2013, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner. Home sales in November rose to the highest monthly value in almost two years.

China’s Growth

Wharf will develop a 70,227-square-meter (755,917 square-foot) residential site in Hangzhou in China’s Zhejiang province with Greentown China Holdings Ltd., Wharf said in December.

The developer’s projects and land reserve in mainland China accounted for 39 percent of its total assets at the end of 2012, up from 30 percent five years earlier. Billionaire Chairman Peter Woo said in 2011 he expected projects in China to make up 50 percent of the company’s asset by this year.

Sun Hung Kai (16) Properties Ltd., Hong Kong’s second-biggest developer by market value, paid 21.8 billion yuan ($3.6 billion) for a site in Shanghai in an auction in September, a record for the city.

Hong Kong’s home prices have dropped about 4.6 percent since reaching a high in March, according to an index compiled by realtor Centaline Property Agency Ltd. Prices are expected to fall as much as 15 percent this year, said Jones Lang LaSalle.

More Cautious

“Everyone is now more cautious about the impact of rising interest rates and also the possibility of more government curbs,” said Joseph Tsang, Hong Kong-based managing director at Jones Lang LaSalle. “In 2014, we’ll likely see transactions stay low and also more pressure on home prices.”

Hong Kong-based Great Eagle Holdings Ltd. (41) bought a 28-story office building and land rights to 123 Mission Street in San Francisco for $179 million in cash, the company said in October.

Some Hong Kong builders have approached Jones Lang LaSalle about investing in London and deals may happen in the next three to six months, Tsang said in an interview in October. Cushman also has said it is seeing interest from Hong Kong developers to invest in Tokyo and Bangkok.

Oxley, a Singapore-based property developer, plans to build 3,400 homes in London after buying the 40-acre (16-hectare) Royal Wharf site at the Royal Docks on the banks of the River Thames from Ballymore Properties Holdings Ltd. for 200 million pounds ($330 million). Oxley will build homes, offices and shops, broker Knight Frank LLP said in an e-mailed statement in November.

Joint Ventures

Far East Orchard Ltd. (FEOR), a unit of Singapore’s largest closely held developer, entered Australia for the first time last year with two joint ventures. The developer, which got almost all its revenue from the island-state, is aiming to make 60 percent from outside Singapore, Chief Executive Officer Lucas Chow said in July without specifying a time frame.

Pontiac Land Group, owner of the Singapore Ritz-Carlton, said in October it plans to invest $200 million to revive plans for a 72-story residential tower adjacent to the Museum of Modern Art in midtown Manhattan.

Government measures in Asia are being tested as the U.S. Federal Reserve embarks on a tapering of stimulus that would push up interest rates in the region. The Federal Open Market Committee said in December it will trim its monthly asset purchases starting this month, taking the first step toward unwinding the stimulus as the economy strengthens.

Rising Rates

Borrowing costs in Singapore are on the way up. The average 25-to-30-year floating-mortgage rate climbed to 1.3 percent last year from about 0.9 percent a year earlier, said Keff Hui, a director at Mortgage Supermart Pte, a Singapore mortgage brokerage. Mortgage loan growth of 10.4 percent in November was the slowest since August 2009, data compiled by Bloomberg based on Monetary Authority of Singapore figures showed.

Mortgage costs in Hong Kong were little changed over the past year, though analysts at banks including Bank of America Corp. and UBS AG expect interest rates to begin rising in 2014. The average mortgage rate in the city was about 2.14 percent in October, compared with about 2.17 percent at the beginning of the year, according to mReferral Mortgage Services.

Hong Kong’s interest rates track those in the U.S. because of the local currency’s peg to the U.S. dollar. Singapore uses its currency’s exchange rate against a trade-weighted basket of currencies of its major trading partners and competitors.

Property Demand

A rebound in property demand in Asia will come in the next few years, said Simon Lo, head of Asia research and advisory at property broker Colliers International in Hong Kong.

“It’s too early to say developers in Hong Kong and Singapore are giving up their home markets because of the temporary slowdown in transactions,” said Lo. “There’s still plenty of demand for new housing in the two cities, especially if you look beyond the next two, three years.”

While growth in emerging markets economies will outstrip that in developed markets, it will expand at a slower pace. The growth rate in advanced economies will almost double to 2 percent this year, while emerging markets may expand 5.1 percent, compared with 4.5 percent in 2013, the International Monetary Fund forecast in October.

“The property measures in Singapore and Hong Kong have repressed market sentiment,” said Sigrid Zialcita, head of Asia research at Cushman. “There are incentives for the well-capitalized developers with the financial wherewithal to invest abroad.”

To contact the reporters on this story: Pooja Thakur in Singapore at pthakur@bloomberg.net; Kelvin Wong in Hong Kong at kwong40@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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