LONDON, Jan 26 (Reuters) – Britain’s commercial real estate sector is increasingly feeling the pinch of higher borrowing costs, as investor enquiries declined in the fourth quarter and the outlook for the year ahead worsened, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said 83% of respondents to its quarterly commercial property survey thought the market was already in a downturn, up from 81% a quarter before. Almost half considered this downturn to be in its early stages.
RICS said investor enquiries fell across all sectors for the first time since the start of the pandemic, with a net balance of -30 of respondents citing lower investment demand.
Tarrant Parsons, senior economist at RICS, said the investment side of the commercial property market was “significantly affected” by the Bank of England’s (BoE) tighter monetary policy, and that higher borrowing costs were weighing on investor demand and hurting valuations.
The BoE’s Monetary Policy Committee raised its main rate at its last nine meetings and markets have priced in a half percentage point increase to 4% for Feb. 2.
British consumer price inflation was running at 10.5% in December, nearly five times the Bank’s 2% target.
Near-term capital value expectations dropped sharply across the board, and the industrial sector saw the weakest reading since 2011.
“Linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term,” Parsons said.
Looking at the year ahead, average capital values were forecast to fall further in all parts of Britain.
The survey of 940 companies was conducted between Dec. 7 and Jan. 13.
Reporting by Suban Abdulla; editing by David Milliken
Our Standards: The Thomson Reuters Trust Principles.
Jan 20 (Reuters) – Land Securities Group Plc (LAND.L), Britain’s top commercial property landlord, has appointed broadcaster Channel 4’s Ian Cheshire as its next chairman, the company said on Friday.
The new Landsec chairman takes over the mantle at a time when UK commercial property values are seeing a slump, pressured by rising interest rates and broader economic uncertainty.
Aggressive interest rate hikes to tame stubborn inflation and deepening recession worries are dampening a tentative recovery in the British commercial property sector from the pandemic fallout.
Cheshire, the chairman of Channel 4 and private hospital operator Spire, replaces Cressida Hogg, who was named the next chair of defence firm BAE Systems (BAES.L) last year.
He will join the Landsec board in a non-executive capacity on March 23 and take over the chairman’s role on May 16, when Hogg retires after almost five years in that position.
Cheshire, 63, is currently a non-executive director at BT Group (BT.L) and will retire from the communications firm at their annual general meeting in July.
A veteran in the retail industry, Cheshire had joined Channel 4’s board last April and was in the forefront of discussions with the British government over its now-abandoned privatisation plan.
Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Savio D’Souza and Sherry Jacob-Phillips
Our Standards: The Thomson Reuters Trust Principles.
LONDON, Jan 18 (Reuters) – Empty offices globally should be converted to apartments to address a growing housing crisis in many countries, property executives told the World Economic Forum in Davos on Wednesday.
Commercial real estate values are sliding as an economic downturn reduces demand for space among cost-conscious companies, whose employees have been spending fewer days in the office since the COVID-19 pandemic.
But this could present an opportunity to address shortages of homes, property bosses said.
“Office buildings need to be converted to residential,” said Howard Lutnick, chairman and CEO of New York-based investment firm Cantor Fitzgerald, during a panel discussion. “They will become eyesores and they need to be fixed.”
Offices are emptier than official data suggests as most buildings are still generating income for landlords. However, as these rental contracts expire, cities like New York will have a significant number of obsolete buildings, said Christian Ulbrich, CEO of global property consultancy JLL Inc. (JLL.N).
“So we have to repurpose those buildings in some form or fashion or they will be empty and will be taken down.”
Millions of workers were forced to work from home during lockdowns aimed at stalling the spread of COVID-19 in 2020. Bosses are now struggling to persuade many of those staff to give up the perks of home-working, Ulbrich added.
“You have a middle layer of managers and leaders who enjoy their home in the suburbs and don’t want to have to commute, and that obviously creates the issue of younger folk also not coming back,” he said.
But cities that have lost their Monday-to-Friday buzz could be reinvigorated if public authorities are willing to provide financial support in the conversion of under-utilised offices to homes, since repurposing existing buildings can be very costly, the panellists said.
The cost of making developments sustainable was also proving challenging, the panellists added.
“Low income housing can’t be green, it’s got to be cheap,” Lutnick said. “That is a deep conflict everywhere in the world… It’s very difficult.”
Nathalie Palladitcheff, CEO of Canada-based real estate company Ivanhoé Cambridge, said she was optimistic more buildings could be converted sustainably with investment in technology and materials.
“The best building for the planet is the building that you don’t build,” she said.
Reporting by Iain Withers, Lawrence White and Lananh Nguyen, Editing by Sinead Cruise and Bernadette Baum
Our Standards: The Thomson Reuters Trust Principles.
LONDON, Jan 17 (Reuters) – UK property investment returns fell 10.4% in 2022, in a sharp turnaround from gains of 20% in 2021, MSCI’s monthly UK property index showed on Tuesday.
Much of the losses came in the second half of the year, which saw returns of -18%, the index showed. Industrial properties make up 41.1% of the index, with office (26.3%) and retail (21.5%) the next biggest groups.
Britain’s commercial real estate market has come under pressure from high inflation and economic uncertainty.
Several open-ended property funds have put restrictions on withdrawals to prevent a stampede for the exits.
Federated Hermes has deferred redemptions since August on the FH Property Unit Trust “to allow orderly asset sales”, a spokesperson for the asset manager told Reuters, bringing property fund assets facing curbs to more than 16 billion pounds ($19.65 billion).
Earlier in January, an index published by CBRE showed UK commercial property values decreased by 13.3% as a whole in 2022, and annual total returns were down 9.1%.
Reporting by Carolyn Cohn; Editing by Nick Macfie
Our Standards: The Thomson Reuters Trust Principles.
BEIJING, Jan 16 (Reuters) – China’s new home prices fell again in December as COVID-19 outbreaks hurt demand, with Beijing expected to roll out more measures to help sustain the recovery after the dismantling of pandemic curbs last month brightened the outlook.
New home prices dropped both in monthly and annual terms, with continued weak demand a constraint to a steady recovery.
Analysts say the property sector is showing signs of recovery, but it remains uneven and more supportive policies are needed to revive sentiment in the battered market.
The sector will remain sluggish in the short term, and likely to stabilise after the second quarter of the year, said Zhang Dawei, chief analyst at property agency Centaline.
“The market needs more policies targeting improved demand, especially in tier-one cities.”
Prices in December declined 0.2% month-on-month, the fifth straight month of decline and the same pace as in November, according to Reuters calculations based on National Bureau of Statistics (NBS) data released on Monday.
From a year earlier, prices fell for the eighth month in a row, dropping 1.5% from a 1.6% slump in November.
Prices in tier-one cities remained unchanged from a month earlier in December from a decline of 0.2% in November.
Prices in Beijing and Shanghai rose at a slightly faster pace from a month earlier while prices in Shenzhen and Guangzhou fell at a slower pace, official data showed.
In December, 55 out of 70 cities saw a month-on-month decline in new home prices, four more than in November, the NBS said in an accompanying statement.
The property sector, once a key driver of the world’s second-largest economy, was severely mired last year as debt-ridden developers failed to finish stalled projects and led to mortgage boycotts by some buyers.
A flurry of property support measures for home buyers and developers in recent weeks, coupled with Beijing’s abrupt removal of its zero-COVID policy last month cheered the market.
The central bank said earlier this month that for cities where the selling prices of new homes fall for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers in phases.
According to analysts’ calculation, 38 cities are eligible for adjustable mortgage rate floors, including some second-tier cities such as Wuhan and Zhengzhou and more than 20 smaller cities.
Chinese mortgage data provider Rong360 estimates the average rate for first time home buyers in 42 major cities in December was 4.16%, down 137 basis points from a year earlier and the lowest since it started the surveys in 2015.
To relax restrictions on borrowing for property developers, regulators will improve the “three red lines” rule for 30 pilot firms, state media Xinhua reported last week. The policy restricts the amount of new borrowing property developers can raise each year by placing caps on their debt ratios.
Reporting by Liangping Gao, Ella Cao and Ryan Woo; Editing by Jacqueline Wong
Our Standards: The Thomson Reuters Trust Principles.
BEIJING/HONG KONG, Jan 13 (Reuters) – Chinese government-linked Xiamen C&D Inc (600153.SS) said on Friday it plans to acquire a 30% stake in home furnishings store operator Red Star Macalline Group (601828.SS) in a deal worth up to 6.3 billion yuan ($938 million).
The transaction, which would involve buying a 29.95% stake from Red Star Macalline’s current controlling shareholder, will require approval from the state asset regulating authority in the city of Xiamen, which controls Xiamen C&D, the company said in a stock exchange filing.
Red Star Macalline in the third quarter of 2022 reported a 8.4% fall in revenue and a 47.3% drop in net profit citing disruption caused by COVID-19 outbreaks to its businesses.
Sluggish new home sales in the world’s second largest economy have hurt demand for home decoration and furnishing, analysts have noted.
Property sales by floor area in January-November fell 23.3% from a year earlier, China’s statistics bureau reported.
For the first nine months last year, Red Star Macalline recorded total liabilities of 76.0 billion yuan versus assets of 133.7 billion yuan.
As for the firm’s controlling shareholder Red Star Macalline Holding Group, a Fitch Ratings report in September said the firm faced “heightened refinancing risks” related to its “large onshore bond maturities” over the coming 12 months.
In July 2021, Red Star Macalline Holding Group agreed to sell 70% stake in a property development unit to an entity linked to Sino-Ocean Group (3377.HK) for 4 billion yuan.
($1 = 6.7147 Chinese yuan renminbi)
Reporting by Roxanne Liu and Kane Wu; editing by Jason Neely
Our Standards: The Thomson Reuters Trust Principles.
SYDNEY/HONG KONG, Jan 13 (Reuters) – Dalian Wanda Commercial Management raised $400 million in a U.S. dollar bond, a term sheet seen by Reuters showed, in the first publicly sold dollar bond by a Chinese property-related firm since late 2021 when the sector’s debt crisis came to a head.
The company is the property services arm of commercial property developer Dalian Wanda Group.
Investor confidence in China’s property sector has been hit by a string of debt defaults, and bond exchanges to extend repayments since late 2021 when the liquidity troubles of China Evergrande Group (3333.HK) deepened, leaving companies little room to raise fresh funds offshore.
Final pricing for Wanda’s 11%, two-year bond was set with a yield of 12.375%, compared to the initial price guidance given to investors of 12.625%, the term sheet showed.
A presentation by Wanda Commercial Management Group seen by Reuters said the book received 3.7 times over-subscription, with $500 million orders from long-only funds, including Blackrock, Fidelity, Pictet AM, Invesco and PAG.
“This deal reopened the dormant China property and high-yield bond market, and received an active and positive reaction,” it added.
Dalian Wanda Group did not immediately respond to a request for comment while its commercial management arm could not be immediately reached.
Blackrock, Fidelity, Pictet AM and PAG did not immediately respond to requests for comment. Invesco declined to comment.
Unlike many other Chinese developers who focus on residential projects, Dalian Wanda Group relies on rental income and has an asset-light model. Wanda will use the proceeds to refinance existing debt and for general corporate purposes, according to the term sheet.
Moody’s assigned a rating of Ba3 to the notes, while Fitch Ratings assigned BB. Both are high-yield grades.
S&P Global said in a conference call Wanda’s issuance represented a good signal to the market, and it was positive for corporates to have multiple financing channels even though the offshore rates could be higher than onshore now.
Reporting by Scott Murdoch in Sydney and Clare Jim in Hong Kong; Editing by Lincoln Feast and Muralikumar Anantharaman
Our Standards: The Thomson Reuters Trust Principles.
HONG KONG, Jan 11 (Reuters Breakingviews) – Beijing’s efforts to cap developers’ leverage are backfiring. The “three red lines” policy on debt ratios has begun aggravating market stress and impairing balance sheets.
Frustrated by the ineffectiveness of efforts to curb speculation by hiking mortgage down payments and similar measures, regulators led by banking chief Guo Shuqing stiffened policy in 2020. They introduced formal caps on three key ratios: debt-to-cash, debt-to-assets, and debt-to-equity. Those on the wrong side of those lines found themselves almost entirely locked out of credit markets. The theory was this would compel developers to cut back on overzealous land purchases that pushed up prices, sell off excess inventory, and issue more equity to get their balance sheets back in line.
The ensuing pain was immediate and acute. Unable to refinance itself, Evergrande (3333.HK), China’s second-biggest developer, began defaulting on some of its $300 billion of liabilities, as did other peers. They also failed to complete pre-sold apartment projects in time, prompting some buyers to halt their mortgage payments.
With developers and worried investors dumping apartments onto the market to raise cash, and the rest of the economy cooling, home prices started falling. Sales volumes contracted 25% last year. Constricted cash flows made it even harder for developers to pay down debts. Indeed, the average net-debt-to-equity ratio at China’s top 80 real estate companies rose to 152% by the second quarter of 2022, nearly double what it was in mid-2020, per analysts from state-owned Chinese Academy of Social Sciences. The number of companies exceeding the cap on the debt-to-cash ratio increased too. In short there are now more property firms on the wrong side of the red lines than when the policy was first rolled out, and even the most financially healthy are struggling.
Beijing is already backing off. Officials have nudged state banks to extend more credit to some developers and facilitate acquisitions. They are also mulling letting companies in good financial condition raise debt by more than the current 15% annual limit, per Bloomberg. However, the three red lines remain in place for now. The sooner they are blurred, moved or erased, the better.
Follow @ywchen1 on Twitter
CONTEXT NEWS
China’s home sales are expected to slip by a median of 8% this year, a Reuters survey showed on Jan. 6, compared to a slump of around 25% in 2022.
The People’s Bank of China said on Jan. 5 that in cities where new homes prices have fallen both month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers.
Editing by Pete Sweeney and Katrina Hamlin
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
HONG KONG, Jan 6 (Reuters) – China’s deeply troubled property sector is set to see home sales fall for the second straight year in 2023, but the pace of declines will ease thanks to state support measures and the lifting of the government’s strict anti-COVID policies.
Property sales are expected to slip by a median of 8% this year, a Reuters survey of eight economists and analysts showed, compared to a slump of around 25% in 2022, as economic activity, household income and consumer confidence are seen rebounding in the second half.
Economists and analysts believe policymakers will roll out more support measures to stimulate home demand this year, as part of Beijing’s overall goal to bolster the $17-trillion economy after a sharp COVID-induced downturn in 2022.
Those policies could include further lowering of mortgage borrowing rates and down-payment requirements, as well as relaxing home purchase restrictions in top-tier Chinese cities, they added.
Hopes of a pickup in the economy later this year have been fuelled by China’s dismantling in December of its stringent zero-COVID policy, which likely dragged GDP growth down to just 3% last year, one of its worst years in almost half a century.
But the reversal has triggered a wave of COVID infections, which are expected to cause further economic disruptions and strain households for at least a few more months.
MORTGAGE REVOLT
China’s property sector, which accounts for a quarter of the economy, was badly hit last year as cash-squeezed developers were unable to finish apartment construction, prompting a mortgage boycott by some buyers. Citywide lockdowns to control the pandemic and layoffs also weighed heavily on buyer sentiment.
Property investment in November fell the fastest since the statistics bureau began compiling data in 2000, down 19.9% on year.
“For 2023, we expect a sequential rebound in both sales and property new starts, as property policies continue to ease, and re-opening after COVID leads to a rebound in economic activity and household income,” said UBS chief China economist Tao Wang.
“Although property sales and starts will likely be slightly weaker than in 2022, property will be much less of a drag on the economy than in 2022.”
There are some early signs of a turnaround.
New-home sales rose more than 20% over the three-day New Year holiday from a year-ago due to promotions, support policies and the gradual release of pent-up demand after high COVID-19 cases, the China Index Academy said this week.
The academy said major cities such as Beijing and Shanghai saw a rise in sales compared with last year’s New Year holiday, but sentiment remained at low levels in most small cities.
HOUSING DEMAND
Shares in embattled Chinese property developers have gained 86% since the trough in October, buoyed by a string of property easing measures and the COVID policy u-turn.
An index tracking high-yield dollar bonds of Chinese developers (.IBXXAX13) has more than doubled from its Nov. 3 low, but is still 30% lower than the beginning of this year, and 58% lower than its peak in May, 2021 after a series of defaults.
“I think the market has been ruthlessly efficient in repricing the positive policy noises that have come through,” said Tim Gibson, co-head of global property equities at Janus Henderson Investors.
“In terms of what the market needs to see, I think that really goes back to the point on the demand side.”
Gavekal Dragonomics expects a rise of 5%-10% in property sales this year, while Citi has forecast a 21% drop, citing time needed for job and home price expectations to recover, as well as a drop in new supply.
Sheldon Chan, a Hong Kong-based portfolio manager of T. Rowe, said there’s chance that the property recovery “may be slower than that the market seems to be pricing or potentially pricing”.
“We may be close to see some bottoming out in housing demand …but I don’t think we’re quite there yet,” he said.
The latest China Beige Book private economic survey was more blunt: “But forget a return to days of old: it will take considerable policy support in 2023 just to pull property out of the gutter.”
DOLLAR BOND MARKET
Despite hopes of a modest improvement in home demand this year, the sector’s recovery is expected to be a long and bumpy one, still weighed down by excesses of the past.
Many developers are expected to struggle to significantly ease their stifling funding squeeze, weighing on their ability to purchase new land and repay offshore creditors.
For many private developers, being absent from the land market last year also means they may have fewer projects for sale in 2023, in turn constraining their cash flow.
Moreover, 2023 will see a high offshore debt maturity wall totalling $141 billion, compared to $120.7 billion in 2022, data by Refinitiv show. The figure represents the amount at issue and does not reflect redemptions and defaults.
Providing good quality and unpledged asset collateral is the biggest challenge for developers in both raising domestic bonds and obtaining offshore bank loans, in which proceeds can be used for offshore repayments, three developers told Reuters, speaking on condition of anonymity because the issue is sensitive to regulators.
As a result, Cosmo Zhang, credit analyst at Vontobel Asset Management, said the sector would see more debt restructuring.
“There are still a few names we think, even if they haven’t defaulted yet, they probably still need to restructure their capital structure in the coming years, to be sustainable. Their capital structure is not sustainable.”
Editing by Sumeet Chatterjee and Kim Coghill
Our Standards: The Thomson Reuters Trust Principles.
SHANGHAI, Dec 29 (Reuters) – China Fortune Land Development Co (600340.SS) has agreed to sell equity interest and debt in four property units worth 12.4 billion yuan ($1.8 billion) to a unit of China Resources Land Ltd (CR Land) (1109.HK), the companies said.
The deal comes as Chinese regulators encourage financially sound developers to acquire projects from debt-laden rivals to ease liquidity stress in a sector crucial to China’s economy.
The transaction is part of a debt restructuring plan unveiled in October as China Fortune Land seeks various ways to ease a liquidity shortage triggered by an adverse economic environment and the pandemic, the developer said in a statement.
Proceeds from the deal “will be used mainly to repay debts … and promote the implementation of the debt restructuring plan,” China Fortune Land said in a statement late on Wednesday.
China Resources Land said in a separate statement that the target projects are in the core areas of Wuhan and Nanjing cities, which have long-term potential for development, and are in line with the company’s investment strategy.
The deal may help China Resources Land expand market share, enhance competitiveness and generate investment returns, the company said, adding the purchase would be funded by internal resources or bank financing.
China has been facilitating bank lending as well as bond and equity financing to qualified developers in an effort to aid an industry teetering under mountains of debt and stagnant property sales.
($1 = 6.9774 Chinese yuan renminbi)
Reporting by Shanghai newsroom; Editing by Stephen Coates
Our Standards: The Thomson Reuters Trust Principles.