Centro receives huge bailout offer

CENTRO Properties Group, the Australian owner of United States malls, has seen its market worth plunge 85 percent in the past month.

Now Centro has been approached by MFS Ltd with an offer to take over managing A$8.5 billion (US$7.6 billion) of funds, Bloomberg News reported.

The unspecified offer is for rights to manage Centro MCS's unlisted property funds, Southport, Queensland state-based MFS said in a statement on Friday to the Australian Stock Exchange. MFS fell 9.9 percent to A$3.55 at the 4:10pm close in Sydney on Friday.

Centro Chief Executive Officer Andrew Scott is seeking buyers for the Melbourne-based company or its assets to help refinance A$3.9 billion of debt by a February 15 deadline. Centro on Friday halted share trades for itself and unit Centro Retail Group.

US shopping mall vacancy rates rose last quarter to an 11-year high, a research firm said on Friday.

Selling fund management rights "won't solve half Centro's problems because the money they could raise is not enough; they need billions," said Justin Blaess, property portfolio manager at ING Investment Management in Sydney. "People are jockeying for position and MFS's response is natural."

The vacancy rate for US neighborhood and community shopping centers rose to 7.5 percent in the three months ended on December 31, from 7.3 percent in the third quarter, as the housing slump dented consumer spending, New York-based Reis Inc said in a survey.

US malls accounted for almost two-thirds of the value of Centro's A$26.6 billion of malls, the company said in its annual report in September.

MFS isn't seeking to buy property from Centro, it said in the statement.

"We have a long track record of taking over syndicates and then very quickly selling them," Craig White, deputy chief executive officer at MFS, said on Friday in a telephone interview. "How can investors assess any offer with the related-party nature of the Centro syndicate structure? You need to appoint someone like MFS who can actually assess an offer."

Jim Kelly, a spokesman speaking on behalf of Centro in Sydney, wasn't able to confirm or deny MFS's approach.

Centro shares peaked at A$10.02 on May 7, less than a month after the firm completed the acquisition of New Plan Excel Realty Trust, paying US$5.2 billion in cash and assumed debt to become the fifth-largest US mall owner.

The stock dropped 86 percent to 80.5 Australian cents in two days after Centro said on December 17 it is struggling to refinance debt because of the collapse in the US subprime mortgage market. Centro slid 25 Australian cents, or 23 percent, to 86 Australian cents on Thursday.

Centro Retail Group, the property trust managed by Centro, was also halted from trading on Friday. It plunged 24 percent to 58.5 Australian cents on Thursday, capping a 59 percent drop since Centro Properties said it was struggling to refinance debt.

Centro Properties' two most valuable assets are the Australian malls Centro Galleria in Perth and Centro Bankstown in Sydney. The two were worth a combined A$1.17 billion, or about 4.4 percent of Centro's total mall assets, the company said in its annual report.

Fund manager Centro MCS was set up in 2003 when Centro paid A$193.5 million to acquire closely held MCS Property Ltd, which then managed A$1.4 billion of assets.

House prices plunge in Beijing

HOUSE prices in Beijing dropped 19.67 percent in December from the previous month, China's Central TV reported.

The average residency price dropped to 12,180 yuan (US$1,676) per square meter from 15,162 yuan. Prices in Dongcheng, Xicheng, Chongwen and Xuanwu, the districts with the highest house prices, slumped to 18,401 yuan per square meter from 23,467 yuan, the CCTV report said yesterday, quoting SouFun Holdings Limited.

Many local property companies had to sell homes with free decorations and appliances due to the slump in sales, according to a Beijing property company, which sold only 10 percent of its new houses in Zhaoyang District since October.

Transactions in Beijing's secondhand house market shrunk 8.2 percent in December, Beijing's official online real estate trading Website said, which described the slump as abnormal.

House prices in Shenzhen and Guangzhou began to drop in October. Transactions shrank more than half in October, the biggest drop in three years. The average price in Guangzhou plunged 20 percent in December.

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Overseas investors join forces with locals

MORE overseas real estate investors are likely to turn to second-tier cities to take advantage of smoother administrative procedures and avoid the tough competition of core cities, industry experts said yesterday.

They said high quality offices and residential properties would remain highly sought after by overseas capital.

"Overseas investors, especially new players such as Winnington Capital and SEB, are opting to join forces with local developers in second-tier city projects," said Kenny Ho, head of research, Shanghai, for Jones Lang LaSalle. "Processing deals for approval appears to get more support, aided by healthy enthusiasm from local governments."

Joining forces with overseas companies is attractive to Chinese companies as they can tap into the expertise that overseas partners can deliver, the experts said.

The Shanghai market has already seen decreasing number of en bloc asset acquisitions over the past twelve months. The latest Jones Lang LaSalle market research has found that 29 en bloc purchases totalling 28 billion yuan (US$3.8 billion) were sealed during the past 2007, as compared to 32 acquisitions worth 24.2 billion yuan in the previous year.

Higher threshold and growing cost of investment, as well as an expected policy risk on overseas investment in the local market, might divert some overseas players to non-core cities for better opportunities, Colliers International said.

However, in general, the local real estate investment market will hold steady in 2008.

Globalization of real estate capital will affect China in 2008 and the subprime crisis in the US have made property funds, especially Japanese and American, search for investments with growth, Ho said.

In particular, industry experts predicted that Grade A offices and serviced apartments will continue to suck in most overseas capital in the local market.

Latest statistics showed that investment in offices and residential properties each grabbed 66 percent and 13 percent of total investment in Shanghai last year, topping all other sectors including mixed-use projects, logistics and retail facilities which each took 10 percent, seven percent and four percent, respectively.

Owners of HK firm seek shares disposal

CHEUNG Kong (Holdings) Ltd shareholders are seeking HK$4.71 billion (US$604 million) from selling stock in Hong Kong's second-biggest developer after the shares jumped 31 percent in the past six months.

Some 33.5 million shares are being offered at HK$140.50 apiece, according to an e-mail from UBS AG, the sale's arranger. The sellers of the 1.4 percent stake in the company controlled by billionaire Li Ka-shing weren't disclosed. The price is 3.8 percent lower than Wednesday's close.

Li, the richest man living in Asia with a US$23 billion fortune according to Forbes magazine, said on January 4 the global economy faces "greater turbulence" this year because of losses from subprime mortgages in the United States and measures to tighten China's economy. Cheung Kong has lagged behind some rivals, including Sun Hung Kai Properties Ltd's 72 percent surge in the past six months.

"The stock has gone up a lot, so it is probably just profit taking," said Sylvia Wong, an analyst at UOB-Kay Hian Ltd in Hong Kong, who rates Cheung Kong shares a "hold." "Hong Kong property stocks are not cheap, and their valuations reflect quite a bullish scenario."

Cheung Kong fell 2.8 percent to HK$141.9, compared with a 0.9 percent fall in the benchmark Hang Seng Index.

Property prices may rise 45 percent in Hong Kong before the end of 2009, UOB-Kay Hian estimates.

"Mr Li expressed his views last week, and the company hasn't changed from those," Cheung Kong spokeswoman Wendy Tong Barnes told Bloomberg News by phone yesterday.

Hong Kong's property market will be "very good" because of the city's inflationary environment, Li told reporters on January 4, according to Barnes.

Builders will have to pay 20% fee for hoarding land

DEVELOPERS will be charged a 20- percent fee if they hoard land plots and leave them idle for more than one year but less than two years after acquiring them, the State Council said in a notice on its Website on Monday.

The council, China's Cabinet, also said that land plots left aside for more than two years will be reclaimed by the government.

The fee, equivalent to 20 percent of the land transaction price, will be levied strictly from now, industry experts said. Previously, the fee was not regarded as obligatory since the government said it might be charged on "principle."

The tougher measures, the latest in a series of macro control policies which aim to cool the country's red-hot real estate market and curb soaring property prices, will likely impact greatly domestic land supply, industry analysts said.

"The nationwide shortage of land supply will probably be eased when such heavy-handed measures are implemented," said Xue Jianxiong, head of research at Shanghai Youwin Real Estate Information Service Co. "By imposing (the fee) stringently, the government will be able to have an overall control of its land reserves."

Land left untouched for more than two years will be taken back by the government. Plots that couldn't be legally reclaimed should be dealt with as quickly as possible in appropriate ways such as changing their designated purpose, bartering, assign temporary uses for them or retain them for government reserves, according to the notice.

The notice also said the Ministry of Land and Resources should join forces with other relevant departments to work out detailed plans regarding land appreciation fees on idle plots.

A tight land supply has been long attributed as the major reason for surging housing prices across the country.

The government's determination to implement the tough measures is certainly a good news to both home buyers and qualified developers who have been plagued by the land shortage, industry officials said.

A recent survey has found that the local supply of residential properties will likely remain tight for at least three years due to insufficient land supply over the previous years.

Prices for the city's new apartments, excluding budget homes and houses meant for relocated residents, rose more than 10 percent last year on average compared to 2006.

Businesses look elsewhere as rents soar in prime areas

THE city's Hongkou District and Hongqiao area in Changning District are emerging as two new sub-central business districts as office tenants start to seek locations away from the center of town amid limited supply and rising rents in core CBD areas, a leading real estate service provider has found.

"Tenants are demanding decentralized locations other than Pudong, fuelling the rise of new sub-CBDs such as Hongkou and Hongqiao," said Remy Chan, regional director of Asia Pacific, Jones Lang LaSalle. "CITIC's projects are putting Hongkou on the map while more high quality supply is set to bring Hongqiao back into the limelight through Metro Plaza, Dawning Center and Gubei Fortune Plaza."

In terms of the total volume, Hongkou is expected to see some 411,000 square meters of Grade A space coming into the market in the next four years whereas about 485,000 square meters' quality supply will become available in Changning during the same period, according to a year-end review released yesterday by Jones Lang LaSalle.

Office rents have been soaring in Shanghai especially in core central business districts including Jing'an, Xuhui, Luwan, Huangpu and Pudong New Area's Lujiazui.

In particular, in the People's Square area and northern Huangpu, recent acquisitions of office towers such as Central Plaza and Cross Tower have pushed the average rents in neighboring areas up by some eight percent in the fourth quarter of last year.

Citywide, total office stock stood at 3.06 million square meters at the end of 2007 with about two thirds in Puxi and overall vacancy remained at 1.6 percent.

For the whole year, rents jumped by 14 percent with those in Pudong rising even faster at 17 percent.

The year 2008 will be a defining year for the local office market with some 845,000 square meters' office spaces due to enter the market, 2.5 times more than usual, Chan added.

As most of it will be in Pudong, rental increases on the east side of the Huangpu River will begin to slow down as landlords experience growing competition from new buildings. However, rents in Puxi are expected to keep rising steadily this year .

Jobs lead to Australian home run

AUSTRALIA'S home-building approvals unexpectedly surged in November by the most in nine months as higher employment, wages and immigration spurred investment.

The number of approvals to build or renovate houses and apartments rose 8.9 percent from October when they slipped 3.6 percent, the Bureau of Statistics said in Sydney yesterday. The median estimate of 15 economists surveyed by Bloomberg News was for no change. The increase was driven by apartment building.

An acceleration in construction increases pressure on the central bank to raise borrowing costs to stem inflation, already above its three-percent ceiling. Yesterday's report also suggests investors may be switching into property amid stock-market volatility that saw Australia's benchmark index drop almost 10 percent since the start of November.

This "could add to the case for a further rate increase" when central bank policy makers meet next month, said Joshua Williamson, senior strategist at TD Securities in Sydney. "The residential housing market looks like a place to be" for investors concerned about the stock market, he said.

Building approvals surged 14.6 percent in November from a year earlier.

The Australian dollar rose to 87.48 US cents at 12:29pm in Sydney yesterday from 87.21 US cents immediately before the report and 87.44 US cents late in Asia on Monday.

The yield on the Australian government two-year bond rose three basis points to six percent. A basis point is 0.01 percentage point.

The rise in building approvals comes even as fuel prices surged and the central bank raised its benchmark lending rate to an 11-year-high of 6.75 percent in November.

Reserve Bank of Australia policy makers, headed by Governor Glenn Stevens, will review rates next month after leaving the benchmark unchanged in December on concern financial-market losses triggered by the American housing slump could spark a recession in the world's biggest economy.

Australian rate increases in November and August each added about A$42 (US$37) a month to the average A$250,000 home loan, according to the Housing Industry Association.

Rental vacancy rates are averaging 1.7 percent and are "unlikely to improve significantly during 2008," the Real Estate Institute of Australia said last week.

Yesterday's report is "very welcome from a renter's point of view, because there's a big shortfall for rental accommodation in Sydney," said Michael Workman, Commonwealth Bank of Australia's senior economist in Sydney.

Lending to consumers and businesses rose by the most in five months in November, according to a central bank report on December 31.

The economy expanded 4.3 percent in the third quarter from a year earlier, the fastest annual pace in more than three years. Employment has risen every month since October 2006, the longest run of job gains since 1980.

A report to be released today will probably show retail sales gained for a sixth month in November, increasing pressure on the central bank to raise interest rates.

China - Shanghai Property Investment - The Paris of the East

China and specifically Shanghai is one of Property Frontiers' most exciting regions from a property investment perspective. For your first investment opportunity in China please visit our Plaza Hyundai page.

Although Beijing is the capital and seat of government, Shanghai is the commercial hub of the country and is more open and westernised due to its long heritage of international trade and European influence meaning that you are more likely to see good returns in capital appreciation and rental income.

Shanghai translated means "on the sea". Standing on the mouth of the Yangtze River, it has a population of over 15 million with a large number of expatriates from around the world giving it a unique contrast. The old Chinese houses nestle side by side with grand colonial architecture and the soaring skyscrapers that have earned the city the name of "China's New York" - but considerably cheaper.

You will be able to find investment property starting from 16,000 RMB (~£1000) per square meter on the outskirts of the city but should expect to pay around 25,000 + RMB (~£1600+) per square metre for property in a good loaction near Pudong or Puxi.

For more information, or to find out whether Shanghai is right for you, please contact one of our agents on +44 (0)1865 202700 or email info@propertyfrontiers.com

Why invest in Shanghai?

From Nanjing road with its vast array of shops and the cities restaurants to the the famous Bund and to Pudong (the new finance and business areas), Shanghai offers a number of benefits for the savvy investor but why should you be interested in investing in Property in Shanghai?

• With its GDP averaging 9.5% since 1978, China has the fastest growing economy in the world

• Until July 2005 the Chinese currency was pegged to the dollar and was estimated to be around 20-40% undervalued. At this point the Chinese government decided to de-peg the currency and peg it instead to a basket of currencies, freeing it to appreciate. This means that all Chinese assets will see an increase in value over the next few years, and creates an opportunity for gain through investment in the country. Since the currency was de-pegged it has already appreciated by 3%, and although the Chinese government is holding the appreciation back to protect the economy, further rises are likely in the near future, and investor interest in China has surged as a result.

• Following its accession to the World Trade Organisaion, China is now set to become the leader of the global economy. Shanghai already provides 1/3 of China's taxes, through its immense business industry, and so as China leads the global economy Shanghai will be at the centre.

• Property prices in Shanghai are currently one third of other global centres such as London, Tokyo, New York and Hong Kong, therefore capital appreciation is set to be huge over the medium to long term. It is already the fastest growing city in the world, attracting large amounts of foreign direct investment every year. Capital growth increased from 15% in 2002, to 25.5% in 2003, and stabilised at 19% in 2004.

• Shanghai is becoming an increasingly cosmopolitan city and due to the strength of the economy there is a large and increasing amount of local wealth. Large and exclusive department stores and Gucci, Prada and Armani boutiques line the streets next to Rolls Royce and Ferrari showrooms.

• Shanghai will receive worldwide attention when it hosts parts of the Olympics in 2008. the World Expo in 2010 and Disney and Universal Studios open in the city. Some of you may have also noticed the famous brand new race track which hosts the Chinese Formula One Grand Prix every year.

• Friendly, educated and well-mannered, the Chinese are very welcoming to foreigners

• Shanghai is a very safe city with an extremely low crime rate by Western standards and build quality and furnishings is all built to high Western standards.

• Shanghai is the 'gateway to china' and Chinese government encourages foreign investment.

• Real estate is viewed by authorities as a 'key investment goal '

• Increase in population from native and foreign inflow creates a demand for residential property that outstrips the supply, keeping prices rising

• Large international corporations such as CitiBank and Philips are relocating their Asia-Pacific headquarters from Hong Kong to Shanghai

• Many of the apartments that Property Frontiers recommend to investors are fully serviced and offer guaranteed rental returns of between 5-12% over 3-18 years.

Interested to learn more? - Contact us for more information

Property Costs:

As Puxi has commercial, industrial and historical interests already established, the area is more desirable and therefore more expensive than newer areas such as Pudong. Prices range from RMB 21000/sqm for a standard serviced apartment through to RMB 27000/sqm for a high-end furnished serviced apartment with facilities, resulting in prices from £84,000 for a 55sqm studio off plan serviced apartment.

With last years incredible growth of the property market, the Chinese government implemented a variety of measures to dampen the market in the short term such as increase capital gains tax. Bearing in mind that private property ownership has only existed in China for a handful of years, the Chinese government are being very cautious about controlling all growth, and with prices in central Shanghai still a third of other global financial centres, these may be unwelcome in the short-term but are actually very sensible moves. Please be aware that the housing market in general in China is still so young and new that all factors, such as the CGT, will most likely change as they adopt more european property models.

For example, also at the moment the mortgage market is not advanced such as in the UK. You will only be able to acquire 60% finance at the best of times over a shorter repayment term, and there are no interest-only mortgages at present. Again, this should change as Banks in China are given more freedom. At the moment however, to invest in China, you do need to consider to have at least 40% of the purchase price available as a deposit.

For the purchase process, attorneys in China will be provided to manage the conveyancy procedure, for which you also need to budget between 4-5% of the purchase price to cover Stamp Duty, all fees and other taxes/duties.

For full information on purchasing a property in Shanghai, please contact us for more information or complete our online form

Is the Real Estate Cooling Down?

I posted Hard to Buy a House in Shanghai in August, 2003. One year and a quarter past. When we enter the new year of 2005, does the situation change? Is the real estate price cooling Down? The answer is definitely no.

My friends went to see a newly opened property near my apartment in Pudong (namely, Hai Shang International Garden). Their price is pretty good - 9000 RMB per sq. meter. They just opened and people rush there. There are so many people waiting to buy the houses that the development company made the following rules:

• The right to buy the house is based on lucky-draw.
  
• All buyers needs to register with their National ID and hand in 20,000 RMB first to be entiled to the lucky-draw.
  
• The winning rate will be one out of 50. That means, only one person out of 50 candidates will be granted the right to buy their houses.
  
• If you want to make sure you can buy one apartment, show them 1 million RMB in cash.
  
• The 20,000 RMB will be returned to those failed in the bid.

Sounds crazy?

7 Days and 7 Nights to Buy House

At the other property near the Centuary Park (about 20 minutes walk from my apartment), they just opened to public. People waited outside (in freezing air and experienced snow) for 7 days. They stand, eat, and sleep in the line. The price for the apartment is 16,000 RMB per sq. meter (or 2000 USD per sq. meter). This is based on the description of my friends living in that area.

Sounds crazy?

Shanghai's Real Estate Price is Still Rising

Despite of all kinds of negative information on the Shanghai real estate market, the price of the apartments kept rising in 2004 and entered the fast raising period. It is astonishing, strange, and confusing!

Posted by Jian Shuo Wang at January 3, 2005 12:03 AM

A Reality Check For Shanghai Real Estate

Property sales are cooling off. That could rock China's already shaky banks -- and even dent the economy

Six months ago, Shanghai's property market was the hottest on the planet. The story was compelling: the most dynamic city in the most dynamic economy, with affluent Chinese from both the mainland and abroad eager to pour their capital into the latest deal. Even foreigners were getting into the act: Morgan Stanley (MWD ) was part of a $90 million real estate fund for Shanghai, and individual Americans were plunking down their bucks for Shanghai flats and houses.

The whole world, it seemed, wanted in on the game. Who cared if speculators were buying and selling apartments within days? Prices had been clocking 30% annual increases from 2002 on.

Today, says local real estate agent Anthony Ip, "the situation has reversed completely." Ip recalls how developers once would hang up on him if he dared to question the price of a new property. Now desperate developers are offering perks like free parking spots, country club memberships, and even free autos as incentives. Not only have prices of some luxury apartments dropped by as much as 30%, but sales volume is off by 70%, say Ip and other agents.

Shanghai is the latest victim of the government's effort to cool a rocketing economy. Last year, Beijing made it much harder for consumers to borrow to buy cars: The result was a sharp downturn in the auto market. Now it's real estate's turn. Ever since Shanghai's government slapped a series of taxes and other levies on real estate transactions in June in an effort to rein in speculation, prices have been sliding.

How serious could things get? Very serious, according to Credit Suisse First Boston's (CSR ) Dong Tao, chief economist for Asia ex-Japan in Hong Kong. He reckons mortgages account for 40% to 50% of all bank lending in Shanghai and that Shanghai property lending accounts for a fifth of all mortgages countrywide. A Shanghai crash could slam China's already shaky banks. Property generated about one-quarter of Shanghai's 14.3% growth in gross domestic product last year. Moreover, while Shanghai accounts for just 5.4% of China's GDP, a crash could have a ripple effect. "It affects demand for materials and electronics, insurance and mortgages. It's the source of fiscal revenues and consumer confidence," Dong says. "If we see a major dip in Shanghai it will be a substantial risk to the national economy and the global commodity market."

Within the city itself, the drought of property sales has put a damper on what might be called the hustle economy. Some 4,000 small property agencies have closed their doors in the past three months. Speculators who bought flats by the half-dozen with the notion of flipping them have been left holding the keys -- stuck with empty properties and big debts to the banks.

FOREIGN PLAYERS
The optimists argue that in the long run, Shanghai property remains a good bet. The city of 20 million is a magnet for migrants from all over the country, and a favored destination for foreign companies establishing or expanding their China presence. Foreign institutions such as the Netherlands' ING Bank (ING ), Macquarie Bank of Australia, and Morgan Stanley have all made multimillion dollar investments in residential property in Shanghai. "Sure the market is soft," says Tim Grady, managing director and head of Morgan Stanley Real Estate Fund for Asia Pacific, which is an investor in a high-end apartment complex called Jinlin Tiandi, in trendy Xintiandi. "But we believe the long term is still positive -- driven by continued urbanization."

Yet in the short term, property developers have had to pull out all stops to entice buyers. In the past the flats that developers sold were empty cement shells; the buyer was expected to install his own wall paneling, flooring, and appliances. Now developers are offering finished flats equipped with kitchen and bathroom appliances, air-conditioning, and even suites of furniture. "It's fiercely competitive," says Timothy Addison, managing director of corporate finance and development at Hong Kong developer Shui On Land Ltd. Addison will give you a deal on an apartment at his Rainbow City Apartment complex: $1,840 per square meter, down from $2,215 in March.

As in every real estate bust, buyers are waiting for prices to fall further, while sellers are unwilling to make additional cuts for fear of fueling the downward spiral. "There's a liquidity vacuum," says Alan Zhang, CEO of AnJia Group, a Shanghai mortgage services provider. He says his company's business has fallen off 80% in recent months.

So who's going to blink first? Most observers figure it'll be the developers, who will keep slashing prices until business picks up. Even before the downturn, margins had fallen sharply in the wake of a big runup in the cost of construction materials such as steel, cement, and aluminum. Land prices also shot up after the government in June, 2003 introduced a process under which government land is sold through public auction rather than in backroom deals.

Some contrarians are still out there. One U.S. lawyer, who asked that his name not be used, paid $896,000 for a 700-square-meter villa in late September. "It's a good buying opportunity," he says. Will others follow his lead? Traditionally, October is a busy month for buyers, who use the Golden Week holiday to house-hunt. But should Golden Week prove a bust, Beijing may start talking up the market to restore confidence. "If prices fall more than 30%, it will point to negative equity" for mortgage holders, says Kenneth Tse, property analyst for Morgan Stanley. "That's not something the government wants to see."