Japan’s real estate revival depends on BOJ

Offices, apartments and hotels are popping up in major cities across Japan as the BOJ’s quantitative easing and negative interest rates push bank lending to real estate developers to an all-time high.

Many developers and analysts expect the construction boom, and its economic benefits, to continue ahead of 2020 Tokyo Olympics – a welcome and very visible sign of success for the BOJ.

Real estate lending began its revival after the BOJ started quantitative easing in early 2013. It gathered pace after the central bank’s shock introduction of negative interest rates in January, which has crushed earnings and sent banks hunting for higher returns.

Domestic bank lending to the real estate sector rose 6.5 percent to 67.7 trillion yen (509 billion pounds) in the first quarter, the highest on record, according to BOJ data. The sector accounted for 14.5 percent of all domestic bank lending, the highest in five-and-a-half years.

Activity in the real estate sector is one bright spot in an otherwise disappointing assessment of Abe’s economic policies, known as “Abenomics.” Tourism-related spending is driving much of the recent activity.

Nationwide, construction of hotels and restaurants, measured by square metres, surged 93.6 percent in June from a year ago, the biggest increase in more than two years, land ministry data show.

The number of tourists visiting Japan is already at a record high after an easing of visa requirements. With Tokyo preparing to welcome visitors for the Olympics and rural areas also attracting more visitors, Japan could face a national shortage of around 41,000 hotel rooms by 2020.

Public works investment, including hotels and infrastructure for tourists, is the centrepiece of the government’s next stimulus package. Other property types are also seeing growth.

Office space in central Tokyo rose 1.7 percent in June from a year ago, the fastest gain since April 2013, data from office broker and research firm Miki Shoji Co show. In another welcome sign, growth has not been restricted to Tokyo alone. In central Nagoya, office space in June rose at the fastest annual pace in almost seven years, even if the market has been more subdued in Osaka.

And although residential housing starts fell in June for the first time in six months, the number of units is still at the highest level in a year, according to land ministry figures.

The economic benefits are considerable. The real estate and construction industries combined accounted for almost 18 percent of gross domestic product in 2014, the most recent year Cabinet Office data are available. The two sectors employ 10 percent of the workforce and have been advertising to hire more workers since late last year. More jobs means more consumption, not to mention the extra spending associated with moving into a new office or apartment.

The rise in activity has also begun feeding into wages. Wages for workers in property and leasing rose 7.3 percent in May from the same period a year ago, the fastest gain in two years, according to labour ministry data.

While wages in the construction sector fell an annual 1.4 percent in the same month, economists say a chronic shortage of construction workers should boost wages soon.

One concern was that Japan’s declining workforce means the replacement of older office buildings with shiny new ones has already exceeded demand.  Yet, last year nationwide land prices rose a mere 0.2 percent, according to the National Tax Agency, while commercial land prices rose 0.9 percent, land ministry data show. Both were the first gains in eight years – hardly the stuff of bubbles.

 

 

Heritage building affected by the new Tunnel along NSC

Part of a 1924 building at the edge of Selegie Road will be demolished, and later rebuilt, to make way for the construction of the North- South Corridor. This is despite the Ellison Building’s status as a conserved structure gazetted by the Urban Redevelopment Authority (URA). Three of the building’s 16 two- storey units will be torn down. The affected units – 235, 237 and 239 – currently occupied by a mama shop, Colonial Bistro Cafe and part of a fruit shop, are along the building’s curved facade.

The Land Transport Authority (LTA) will reconstruct and reinstate the affected part of the government-owned building to its original architectural design, under the URA’s guidance, once construction of the tunnel is completed in 2026.

The Ellison Building was built in 1924 by Isaac Ellison, a Romanian Jew. It could have been built for his wife Flora, a Baghdadi Jewish woman from Rangoon, the former capital of Myanmar.
The building has two domes and balconies. The Star of David, the Ellison name and its date of construction still sit proudly atop the relatively rundown building. Lying at the foot of the Mount Sophia conservation area, it is located within the former Jewish quarters. Some records also indicate that the building had been sold to the Government in the late 1980s.The new expressway needs to be as straight as possible to accommodate higher speeds. It said acquisitions along the route, including Rochor Centre, were necessary because of the highly built up area that includes Bukit Timah Road and Rochor Canal.

Construction of the 21.5km underground corridor is expected to take place progressively from next year.

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SC Global’s Hilltops purchase plan

High-end developer SC Global is launching a payment scheme for Hilltops luxury condominium in Cairnhill, completed in 2011 but only 20 per cent sold.

The company’s “enhanced purchase plan” comes after a slew of creative payment schemes used by developers of late. Some have been successful, such as a deferred payment scheme at OUE Twin Peaks which has helped it sell over 160 units.After a long hiatus, SC Global is seeking to sell its units now as “the market is in a mood to buy into such schemes. Buyers are looking into the next property cycle. Under the latest plan, buyers pay an upfront payment equal to 20 per cent of the unit price, and are given a two-year option to purchase the unit at a price fixed today. A total of 30 units owned and being leased out by SC Global are available under this scheme.

During the two years, buyers get an annual return of 10 per cent on the downpayment – thanks to tenancies managed by SC Global. So, a 20 per cent payment on a $3 million unit, or $600,000, would generate an annual income of $60,000 a year for the buyer.

Should the buyer eventually decide not to exercise the option, the downpayment is forfeited although he gets to keep the rental income.

Hilltop has 241 units in all, comprising two and three bedrooms from 800 sq ft to 1,700 sq ft. Prices are from $2.5 million to $6 million, or about $2,700 per sq ft (psf) to $3,000 psf – much lower than around $4,000 psf when its units were first sold in Oct 2007.

PPS for Nouvel 18 at Ardmore Park

Faced with a looming November deadline to finish selling all its units in the completed Nouvel 18 condo project in a plush District 10 locale, City Developments Ltd (CDL) is racing to stitch together a profit participation securities (PPS) scheme for the project.

The securitisation structure which CDL is proposing to potential investors and lenders will price Nouvel 18, which is located near the corner of Anderson Road and Ardmore Park, at around S$965 million; this translates into S$2,750 per square foot based on its saleable area of some 351,000 sq ft.

CDL gained full ownership of Summervale Properties, after buying out partner Wing Tai’s half-stake and was trying to wrap a potential securitisation deal involving Nouvel 18 and to clinch all necessary approvals before November 2016.

The project received Temporary Occupation Permit (TOP) in November 2014 and Summervale has to finish selling all units in the project within two years of the TOP date, as part of government conditions on foreign housing developers (which by definition includes all listed companies). Otherwise, the developer will have to pay hefty extension charges to the state for each year of extension, pro-rated to the number of unsold units in the project.

Once the proposed structure is fully in place and all the approvals given, the plan is to begin selling Nouvel 18 units in the market; the indicative target price is understood to be above S$3,000 psf.

The PPS scheme has the following highlights:

  • If the selling price achieved is higher than the S$2,750 psf entry level, the equity investors and the junior mezzanine bond holders (that is, CDL) will split the gains equally.
  • If units have to be sold below S$2,750 psf, the junior mezzanine bond holders (CDL) will take the first hit of up to nearly S$300 psf loss, translating into a selling price of at least S$2,451 psf.
  • If the selling price were to sink below S$2,450 psf, the equity investors will start to suffer a loss, according to market talk.
  • The junior mezzanine bonds will have a longer tenor of seven years, compared to five years for the other three groups of participants in the exercise – the equity investors, the banks that will provide the 60 per cent senior debt, and the senior mezzanine bond holders.
  • The longer tenor for the junior mezzanine bonds is seen as potentially catering for a situation where the units in the Nouvel 18 project could not be sold out within five years and refinancing is required from the banks.

If the PPS is not in place, CDL will have to pay extension charges, amounting to around S$38 million (or 8 per cent of the purchase price of the site) in the first year of extension. The extension charges will escalate to S$76 million (or 16 per cent of the land purchase price) in the second year and 24 per cent of the land purchase price per annum in the third and subsequent years. The extension charges are pro-rated to the number of unsold units in the development.

Japan to solve the low birth dilemma with immigration

In a recent news article, the current government under Japanese Prime Minister Shinzo Abe seems to be considering policies to increase the intake of foreign workforce into Japan. As Japan is undergoing a long term concern over its demographics and population due to low birth rate. To prevent the country from falling to below 100 million from the current 127 million, immigration is often touted to be the solution in the ageing society. However the relatively closed society of Japan has been well known to be apprehensive towards bringing in more foreigners. However with the current expansion of foreign tourism, some attitudes towards other nationalities may have changed. The lawmakers in the cabinet  said in an interview that the foreign workforce may double. The government may introduce a new visa category for sectors affecting from labour shortages, and expand a foreign trainee policy where workers are allowed entry for a limited period (from 3 years to 5 years). Foreigners currently working in Japan under this scheme ranges within a figure not exceeding 200K. Tech workers from India and Vietnam are among some of the target groups.

Together with the upcoming enthusiasm for the Olympics in 2020, this may be good news for property owners in the country as demand for rental properties may increase. 

Chinese Developer Triggered site at Marina Bay

A developer from mainland China is likely to have triggered the plum Central Boulevard site from the government’s reserve list. The applicant has undertaken to bid at least S$1.536 billion – which works out to S$1,010 per square foot per plot ratio (psf ppr) for the white site – which has to be developed into a predominantly office project.

The project will be directly and seamlessly connected to the adjacent Downtown MRT Station in addition to being linked to Raffles Place Interchange MRT station and the future Shenton Way MRT station (Thomson-East Coast Line), providing all-weather connections to the public transport nodes.

The 1.1-hectare white site is next to Asia Square Tower 1, which was sold recently for S$3.38 billion. That deal has raised Singapore’s profile again as a property investment destination to big international investors. The site boasts prominent frontages along both Central Boulevard, one of the two main roads within the area connecting to the Central Business District (CBD), and Raffles Quay. The 99-year leasehold site can be built up to 50 storeys, with a maximum gross floor area (GFA) of 141,294 sq m (1.52 million sq ft), of which at least 100,000 sq m or 70.77 per cent must be put to office use. In addition, up to 5,000 sq m GFA can be set aside for retail use.

The development is to include a child care centre facility with a minimum GFA of 500 sq m. The balance may be utilised for additional office, commercial school, hotel, serviced apartment or residential uses. The entire development – excluding the GFA for hotel, serviced apartment and residential use – can have no more than three strata lots.

The Verge found a new buyer

PROPERTY developer Lum Chang Holdings has entered into a term sheet to acquire a vehicle that owns eight-level (six storeys and two basement levels) The Verge mall in Serangoon Road.

The vehicle, Corwin Holding, also owns another eight-storey building called Chill @The Verge. Lum Chang said that The Verge has a total gross floor area of 238,527 square feet and is encumbered. It did not disclose an acquisition sum, but said that it will start due diligence and negotiations with the sellers of the vehicle. It said that it aimed to agree on the terms for the proposed deal within an exclusivity period of four weeks or another mutually set date.

The sellers of Corwin Holding are HICOM Megah Sdn Bhd, Mohamed Mustafa and Samsuddin Co Pte Ltd and BI Distributors Pte Ltd.

Kuala Lumpur-Singapore High Speed Rail on track

Announced in the middle of 2016, the highly-anticipated project in the coming decade between the neighbours Malaysia and Singapore are expected to be ready in 10 years’ time. Travellers can travel to KL from Singapore in just 90 mins by the High- Speed Rail (HSR).

The terminus in Singapore will be in Jurong East, while the one in Malaysia will be at Bandar Malaysia.  According to reports, Seremban, Ayer Keroh, Muar, Batu Pahat and Iskandar Puteri are among the transit stops.

This will spell good news for tourists and the locals alike though it may affect coach businesses across the causeway. Developers and property owners of sites near to the stations will also benefit from the development.

Funan closed for revitalization

Funan DigitaLife Mall, which was closed this July, will undergo three years of redevelopment works, according to CapitaLand Mall Trust Management on Jul 22.

This is to enhance the site’s attractiveness as a lifestyle destination in the revitalised Civic and Cultural District in Singapore. The mall will reopen in 3 years’ time and will cost $560m. it will yield 887,000 sqft of floor space, double the current size. It will be a mixed use complex of 2 office towers, serviced residences and retail components.