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from Breakingviews:

How China is stoking London’s housing bubble

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By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

It takes a long trip on the London underground to get to the Aura housing development. From Waterloo Station, 42 minutes tick by until you pull into Edgware, the stop nearest to the half-completed apartment blocks being built on land formerly occupied by a now-bankrupt football club. Attempt the journey at the weekend, when large swathes of the tube are typically shut, and you must make a detour to nearby Canon’s Park station. From there, you face a 15-minute trek taking in a boarded-up pub, a Lidl supermarket and a municipal office block with smashed ground-floor windows. In every sense, you are a long way from what estate agents like to call “prime central London.”

Yet projects like Aura say a lot about how London’s property bubble is changing. Six thousand miles away, on the thirteenth floor of Hong Kong’s Mandarin Oriental hotel, a host of investors cluster around a scale model of this latest addition to northwest London’s housing stock. Some are affluent middle-class Hong Kong couples looking to invest a couple of hundred thousand pounds for the long term. Others are looking for a quick flip. They plan to put down 10 percent of the purchase price now, wait for values to rise, and sell for a tidy profit before the development opens to residents next year.

There’s nothing new about foreign investment in London property. Since UK residential property prices bottomed in March 2009, intense overseas interest has pushed up average values in Kensington & Chelsea – the hub of prime central London – by 75 percent, according to Land Registry data. In Harrow, where Aura is located, prices have risen by just 24 percent.

from Breakingviews:

Berlin’s housing boom has lessons for London

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By Olaf Storbeck

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Berlin is becoming a bit more Londonesque. While the buses in Germany’s capital are still yellow, not red, and the locals remain grumpy, the behaviour of housing prices has a British accent. According to property website ImmoWelt.de, asking prices for one-bedroom flats have risen 53 percent in three years. The Bundesbank has warned that property prices are roughly a quarter higher than fundamentals justify. But Berlin’s boom is much less likely to last than London’s.

from Breakingviews:

Fannie investors may be using magic calculators

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By Daniel Indiviglio and Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Fannie Mae investors may be using magic calculators. With the latest reform blueprint taking shape in the U.S. Senate, hedge funds like Fairholme Capital Management have urged Washington to revitalize Fannie, the mortgage finance giant, which along with Freddie Mac was kept alive with nearly $190 billion of taxpayer cash in the aftermath of the financial crisis. The prospect has pushed up the price of Fannie’s preferred stock more than 10-fold in 18 months. But according to a Breakingviews analysis, even cheerful assumptions suggest Fannie’s business isn’t worth enough for shareholders to get much if anything back.

from Edward Hadas:

Madoff/subprime – spot the difference

Bernard Madoff still has some magic. The public finds anything connected to the fraudster’s case fascinating, from a prison interview to JPMorgan’s agreement last week to pay $2.3 billion for Madoff-related sins. And why not? Madoff was a grandmaster of the confidence trick. But there is more to it than that. His way of doing business was alarmingly close to the perfectly legal practices which brought down the financial system in 2008.

To see that, compare Madoff to a hypothetical pre-crisis hedge fund manager – one with a special interest in U.S. subprime residential mortgage securities. The common tale starts with a commitment to provide higher returns than the economy can safely offer to financial investors. Both Madoff and the hedgie took in funds without making any specific promises, but their investors’ expectations were lofty.

from Edward Hadas:

Madoff/subprime – spot the difference

Bernard Madoff still has some magic. The public finds anything connected to the fraudster’s case fascinating, from a prison interview to JPMorgan’s agreement last week to pay $2.3 billion for Madoff-related sins. And why not? Madoff was a grandmaster of the confidence trick. But there is more to it than that. His way of doing business was alarmingly close to the perfectly legal practices which brought down the financial system in 2008.

To see that, compare Madoff to a hypothetical pre-crisis hedge fund manager – one with a special interest in U.S. subprime residential mortgage securities. The common tale starts with a commitment to provide higher returns than the economy can safely offer to financial investors. Both Madoff and the hedgie took in funds without making any specific promises, but their investors’ expectations were lofty.

from India Insight:

Real estate offers lure some Indian buyers

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For around a year, Girish Kale was flirting with the idea of buying his dream house. His budget of 3.5 million to 4 million rupees ($56,000-$64,000) wasn't going to work for Mumbai, where the kind of house the auto industry professional wanted would cost upwards of 10 million rupees.

Kale, who currently lives in a rented flat in Kandivali suburb, turned instead to Pune, a university city 150 kilometres away, with a plan to opt for a so-called 80:20 payment scheme. Such schemes allow the buyer to pay 20 percent of the property’s cost initially and the remaining amount on possession after construction.

However, when the Reserve Bank of India issued a directive on Sept. 4 restricting some of these schemes, Kale’s broker put them on the back burner. The central bank’s directive might have disappointed buyers, but some still want to invest in property.

from Expert Zone:

Mall developers take to revenue-sharing to woo retailers

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Over the last five to seven years, the retail segment in India has evolved towards a more organized pricing structure. After the real estate boom of 2005-06, when property prices increased to as much as 40 percent of a retailer’s operating costs, developers seemed more willing to share the business risk. They moved from a per-square-foot rental model to versions of the minimum guarantee and/or the revenue share model. Most investment-grade properties in major cities now follow this model, unlike shopping centres in smaller cities.

In the original model, rentals varied depending on the store and location. But with increased brand awareness and rising vacancies, developers saw the need for a customized tenancy mix, adopting efficient mall management techniques while protecting retailer interests to maximize their own earnings.

from Expert Zone:

SEBI tries to get it REIT again

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Ease of funding is a key recommendation for the growth and development of the Indian realty sector in the coming decade. New instruments of funding should be allowed into the sector, especially real estate investment trusts (REITs) -- an investment mechanism that buys income-generating real estate assets and passes on the yield to investors.

In this current climate of dwindling investor sentiment and a plunging rupee, there is a need to implement funding options such as REITs for infusing much needed liquidity into the sector. The total REIT market size in the Asia-Pacific region is approximately $205 billion but India has been unable to take advantage of this funding opportunity, mainly because of the lack of an existing regulatory framework.

from Global Investing:

Banks lead the equity sector flows

Banks and financials stocks have had a pretty good year. The Thomson Reuters Global Financials index is up by more than 20% in the last 12 months, and although the detritus of the financial crisis still offers the occasional sting, investors are starting to see brighter spots for the industry.

That confidence is increasingly obvious in the fund flows.

Our corporate cousins at Lipper track more than 7,000 mutual funds and ETFs which are dedicated to specific industry sectors. Dig a little into the data in this subset of funds, and you start to get a pretty good picture of where the biggest bets have been placed.

from Breakingviews:

Foxtons makes fittingly brash London market debut

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By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Foxtons has made a fittingly brash market debut. The famously pushy London estate agent floated at the top of its price range, for a 649 million pound ($1.04 billion) valuation. A 21 percent bounce in the stock quickly added almost 140 million pounds more in value. Never mind the eye-watering prices for London houses: big investors clearly think the capital’s property market is unstoppable.

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