Global Investing

Online shopping to hit UK property investors

By Stephen Eisenhammer

As the way we shop changes,  commercial property investors might be the ones losing out.

The rise of online retail is hitting demand for bricks and mortar shops, according to analysts at Aviva Investors, and could spell an end to rental income growth over the next two decades.

An estimated 20 percent of UK retail space will become surplus to requirements in the coming years due to shoppers using the web, according to research by the British Council of Shopping Centres. David Skinner, Chief Investment Officer of Real Estate at Aviva, reckons the trend has just gone up a gear:

The growth of internet shopping has been a key issue of commercial property investors for years but the pace and scale of change has been greater than many had anticipated

According to Skinner average real rental value growth will fall to between 0 percent and 1 percent per year throughout the next two decades.

No hard landing for Chinese real estate

The desperate days when Chinese property developers offered free cars as an inducement to homebuyers look to be over.

Sales and earnings figures indicate some of the gloom is lifting as developers have enjoyed a second straight month of rising sales. Vanke, China’s biggest developer by sales, said last week that March sales had risen 24 percent year on year, while  2011 profits rose 30 percent. Another firm, China Overseas Land, posted a 21.5 percent profit rise last year.

The mood is reflected in stock prices. While the Shanghai shares index has risen less than 5  percent this year,  a sub-index of Chinese property companies has risen 13 percent. Shares in Vanke and COL are up 13 percent and 22 percent respectively. A Reuters poll of fund  managers showed that investors had upped their weighting for property stocks to 10.9 percent at the end of March, the highest level in two years.

Home is where the heartache is…

On a recent trip home to Singapore, I was startled to learn just how much housing prices in the city-state have risen in my absence.

A cousin said he had recently paid over S$600,000 — about US$465,000 — for a yet-to-be-built 99-year-lease flat. Such numbers are hardly out of place in any major metropolis but this was for a state-subsidised three-bedroom apartment.

Soaring housing prices have fueled popular discontent — little wonder as median monthly household incomes have stagnated at around S$5,000.

Act now or forever hold your (b)-piece, Obama

It appears the penny has finally dropped in Washington. Bank bailout watchdog Elizabeth Warren, chair of the Congressional Oversight Panel, has unveiled a report that outlines the shocking state of the U.S. commercial mortgage sector, which left unaided could spark “economic damage that could touch the lives of nearly every American”. The Havard Law School Professor and her panel colleagues are talking the kind of apocalyptic language that may just shake the White House and its star policy advisers into facing problems we have now rather simply obsess about those we may or may not encounter in the future. The global banking system may well need some kind of Volcker-esque guidelines to curb the next generation of excessive risk-takers but Obama is putting the cart before the horse in his efforts to haul the economy back on track. Certainly, his and the previous administration has toiled long and hard to stabilise the U.S. housing market, propping up Fannie and Freddie and their dysfunctional offspring, but the subprime mess has distracted attentions from the toxic commercial market, where the clean-up task is no less important. Warren reckons there is about $1.4 trillion worth of outstanding commercial real estate loans in the U.S that will need to be refinanced before 2014, and about half of them are already “underwater,” an industry term that refers to loans larger than the property’s current value. But bank brains are wasting too much time figuring out how the so-called “Volcker rule” might affect their operations and future profitability, instead of getting their arms around underwater real estate loans that could break their institutions in two long before the anti-risk measures even take hold. Obama’s premature challenge to their investment autonomy, which he says cultivated the collapse of banks like Lehmans, is like suturing a papercut while your jugular gapes wide open. Maybe now, as Warren’s report hammers home the threat posed by unperforming commercial real estate debt, Obama will give Wall Street a chance to refocus on the “now” and worry about “tomorrow”, tomorrow.

It appears the penny has finally dropped in Washington.

Bank bailout watchdog Elizabeth Warren, chair of the Congressional Oversight Panel, has unveiled a report that outlines the perilous state of the U.S. commercial mortgage sector, which left unaided could spark “economic damage that could touch the lives of nearly every American”.

The Havard Law School Professor and her panel colleagues are talking the kind of apocalyptic language that may just shock the White House and its star policy advisers into facing problems banks have now rather simply obsess about those they may or may not encounter in the future.

Remember the subprime crisis?

Remember the U.S. subprime crisis? Lombard Odier thinks the crisis is not over, and worse, a second wave is just ahead of us.

 ROUTE-RECOVERY/

Paul Marson, chief investment officer at the investment firm, thiknks that Alt-A and Option ARM (Adjustable Rates Mortages) mortgages are due for resets in 2010/11.

Alt-As sit somewhere between prime and subprime mortgages. Option ARMs are mortgages which required little or no documentation, where borrowers had the option of making minimum monthly payments lower than the accruded monthly interest on the loan. Given the shocking borrower quality, the hope was that house prices would continue to rise and homeowners could simply “flip” the property when the mortgage came to reset.

from Chris Wickham:

Climate change is off the agenda in Dubai

The headline in the Gulf News English language daily reads 'UAE tops world on per capita carbon footprint'.

For a place so reliably bathed in sunlight, the Dubai property explosion seems to have generated enough construction noise to drown out the environmental debate raging elsewhere in the world.

For the first-time visitor, the scale of the global construction superlatives - The Palm, made from reclaimed land jutting out defiantly into the Gulf, the skyscrapers built in a region where there is no shortage of space - is staggering.

from John Irish:

Mid-East business leaders to discuss economic recovery

Starting Monday, Reuters is inviting  business leaders from various sectors in Dubai, Riyadh and Cairo to discuss key challenges facing them in the aftermath of the global financial crisis and the lessons they have learnt.

Is the downturn over or are we set for a double-dip? Will buyers flock back to Dubai's property bonanza or will they stay away for the foreseeable future? Will the oil-reliant economies of the Gulf manage to diversify as they had hoped at the start of the boom in 2002 or will they continue to rest on their barrels of crude? Read this for a preview.

Dubai pride helps Nakheel to save face

    

By Jason Benham

 

It’s the property face of the Gulf’s business and tourist hub and the developer of palm-shaped islands visible from space – so Dubai will simply not allow property firm Nakheel to default on its huge $3.5 billion Islamic bonds which mature in December.

 

Just think of the bad publicity it would bring to the region, and there’s already been plenty of that. Another kick in the teeth is certainly not what Dubai needs. Plenty of critics have joined the ‘bash Dubai” bandwagon and several more are set to join the ranks at some stage. 

 

But any default would mark a failure for Dubai World, the state-owned conglomerate, and a castrophe for Dubai’s government, which has ploughed billions of dollars over recent years into making Dubai what it is today.

from Funds Hub:

Western investors fear Dubai’s Wild East reputation

By Jason Benham

Glitzy Dubai's property market is in trouble, there's no doubt about that. Just take a look at the hundreds of motionless cranes, unfinished projects and the expats who are leaving in droves as they lose their jobs.

Dubai's future cloudedAnd prices and rents which soared during a six-year boom have crashed since late last year. According to one resident who recently moved in the City, it now costs 150,000 dirhams to rent a three-bedroom flat on the Palm, a man-made island off the coast of the emirate, around the same it would have cost to rent a one-bedroom appartment there a year ago.

It's not just the global downturn thats the concern for Dubai's once-booming property market, but also the lack of transparency and need for greater regulation. And that's what's going to keep the western investor from splashing the cash.

Real-estate investors go back to schools

The old adage – there is no better time to go back to school than during a recession – seems to ring true for real estate investments as well.******With recession-wary workers and rising international interest driving up university applications, student home operators in the UK are enjoying near 100 percent occupancies, with rents predicted to go up 10 percent this year.******In contrast, other property classes in the UK such as offices, shopping malls and factories have seen values plunge a startling 45 percent since mid-2007. And the recession means rents are forecast to fall as much as 15 percent this year as landlords face the rising threat of tenant defaults.******As I wrote earlier, investors such as pension funds that were burnt by traditional commercial assets are now turning to the student accommodation market for the projected growth and steady returns other parts of the market aren’t delivering.******

Students pack up their dorm room after graduating from university in the city of Xian, Shaanxi Province July 3, 2004. REUTERS/China Photos WC/FA******Student homes specialists King Sturge estimates that average rents jumped 7 to 10 percent annually in the last five years and can go up 10 percent this year, although it sees the yearly increase moderating to 5-7 percent for the next few years with new entrants to the market.******Branded student housing can be very pricey and the best stuff are a far cry from crowded, slum-like dorms that some of the world’s students have to put up with: high-end versions in London that offer en-suite bathrooms, flat-screen TVs and laundry services cost up to 300 pounds a week.******With the belt-tightening that comes with a recession, parents may groan about the higher costs of student housing for their university-bound offspring.******But operators expect there will be those who are still willing stump up the cash, if only to ensure their children make it for classes.******”First year students usually can’t find housemates to rent with, and there is no guarantee the flat will be near to school,” says Gabriel Behr of the University Partnerships Programme, a student homes operator owned by funds under Barclays Private Equity, which is developing over 700 new rooms for King’s College London.******”Are parents willing to stick their kids somewhere five miles away from class?” he asked me.