Tag Archives: deals
Cost of land to build prime homes in Asia still rising
Prices of residential sites in Asia increased by 1.9% in the first half of 2016, down from 2.8% in the preceding six months, put office land increased from 1.9% to 2.2%. Overall development land investment volumes in Asia matched the level registered in the corresponding period last year, according to the Prime Asia Development Land Index from international real estate firm Knight Frank. As compared to the preceding six months, however, they were 40.4% lower and the index report explains that land markets tend to be more active in the second half of the year, which accounts for 60% of the transactions historically. With state owned enterprises purchasing land aggressively, China, which accounts for more than 90% of the deals in Asia, saw a 6% year on year increase in volumes while in Thailand some major deals boosted volumes by 190.4%. However, cross border land investment volumes fell by 11.5% year on year. ‘Part of the reason is that while Chinese developers have previously snatched up land in Hong Kong and Singapore, they now appeared to have joined their local counterparts to become more cautious amid the ongoing correction in housing prices in these markets,’ the report explains. As a result, China bought 88.8% less land year on year in the rest of Asia. In China, among the cities tracked, Shanghai experienced the strongest growth in prime residential land prices. ‘While the government raised the down payment requirement on second and subsequent properties as well as tightened non-locals’ purchase eligibility, shadow banking and peer to peer financing helped home buyers circumvent these rules, although authorities are closing the loopholes,’ it adds. According to the National Bureau of Statistics, residential prices in Beijing, Guangzhou and Shanghai surged by 15.3%, 12.8% and 19.5% respectively in the first half of 2016 and the report says this emboldened developers to bid for land aggressively. In particular, Shanghai saw the average premium over reserve price in residential land auctions soar to 154% in the first six months of the year from 60% in the corresponding period last year. As a result of an overhang of unsold prime housing inventory in Mumbai and New Delhi that requires an estimated four and seven years to clear respectively, the Knight Frank indices registered a decline in prime residential land prices. It adds that strong office leasing demand boosted the prices of prime office development sites in Bengaluru, which grew the fastest in the region. Similarly, prices of commercial land in Mumbai and New Delhi outperformed those of residential sites. Tokyo registered the largest increase and the report says that the negative interest rate introduced by the Bank of Japan has brought mortgage rates down, supporting housing demand. Indeed, recent condominium launches with hefty price tags were met with much enthusiasm from home buyers, with one development in Minato ward even fetching a record high average price of US$33,800 per square meter. Sites for office development in Asia also… Continue reading
Call for UK housing policy to be revised as number of first time buyers remain flat
The number of first time buyers in the UK has remained flat despite mortgages becoming more affordable than ever, new research has found. Record mortgage affordability is keeping the housing market afloat, but current housing policy needs to be revised to meet home ownership targets according to a new report by the Intermediary Mortgage Lenders Association (IMLA). Overall, it forecasts a continuing recovery in mortgage lending during 2016 and 2017, with a particular pickup in lending for house purchases by owner occupiers from an estimated £142 billion in 2015 to £155 billion in 2016 and £169 billion in 2017. However, reviewing 2015 activity, the report finds that even though mortgage affordability has hit its highest level ever, with buyers spending a record low 8.6% of their income on interest by the third quarter of 2015 and even first time buyers spending only 9.7% by November. It adds that first time buyer numbers have fallen marginally year on year, suggesting the government may need to revisit housing policy to successfully increase owner occupation levels. IMLA’s research shows that as a result of this increased affordability, first time buyer mortgage repayments are lower than average rents in every region of Britain, although this is not yet being translated into the desired increase in home ownership with factors including deposit affordability issues and tighter lending criteria also having an effect. The rise in affordability over the past year has been supported by cheap mortgage deals, alongside rising incomes. Mortgage rates are at record lows. February 2015 saw the average two year fixed rate at 75% LTV fall below 2% for the first time and by October the average two year fixed rate at 90% LTV slipped below 3% for the first time. In a trend particularly benefitting first time buyers, the last year has seen high LTV loans become substantially more affordable, with those borrowers opting for higher LTV options facing a smaller marginal cost for borrowing between 75% to 90% and between 75% to 95%. IMLA’s analysis finds the implied marginal cost of borrowing between 75% and 90% LTV, which was as high as 21.3% in the middle of 2010, had fallen to 12.9% by the end of 2014 and was only 7.8% by December 2015. However, improving affordability of higher LTV loans in 2015 did not spark a rise in aggregate high LTV lending or the number of first time buyers, which fell back slightly in the year to November 2015 compared to the same period of 2014. Deposit affordability issues and tighter lending criteria mean that not all buyers can access the deals available, even though high LTV loan repayments are now more affordable than ever, the report points out. The IMLA is concerned that the government’s decision to terminate the Help to Buy mortgage guarantee scheme at the end of the year could make it harder for first time buyers, as it may reverse the recent improvements in high LTV loan pricing. Continue reading
Global Farmland Offers Potential For Asset Deals
As the world’s population swells beyond seven billion and emerging markets’ appetite for food grows, Canadian institutions are getting increasingly hungry for agribusiness and farmland acquisitions abroad. Canada’s pension funds have long been putting their money into mining, energy and infrastructure, and more recently luxury retail brands, but now many are snapping up swathes of arable land or creating special investment vehicles to explore opportunities in agriculture. “We’ve seen this uptick in interest in investing in agricultural assets, and, I think the growing importance of food production overall in the world,” says Grant Jameson, who heads up the Canadian agribusiness practice at Norton Rose Fulbright. Canadian institutions, tired of the lacklustre returns in the market, are seeking options with better yields than gold and government bonds, such as agriculture, experts say. As the global standard of living rises, so too does consumer desire for different and fresher types of food, says Jeff Barnes, a partner at Borden Ladner Gervais LLP in Toronto. “As people get more flush, one of the small luxuries is to look a little wider for their food. And that’s going to feed agribusiness.” This year, Canada Pension Plan Investment Board launched its agriculture investment program, and made its first direct farmland investment in a portfolio of U.S. farmland. “These assets have historically delivered stable risk-adjusted returns but, more importantly, the outlook in the global agricultural market in the coming decades is positive due to increasing demand for a wide variety of agricultural products as populations and incomes rise in emerging economies,” CPP’s 2013 annual report states. CPP’s initial focus will be the U.S., Canada, Australia and New Zealand, it added. Meanwhile, the Ontario Teachers’ Pension Fund at the beginning of this year created a “natural resources” investment asset class. Teachers says it will look for “new opportunities in oil and gas and agriculture.” Last year, Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp. joined with U.S. financial services company TIAA-CREF to create a global agriculture investment vehicle, with $2-billion earmarked to buy farmland in the U.S., Australia and Brazil. In 2011, Alberta Investment Management Corp (AIMCo), joined a forestry management firm in a $415-million acquisition of Australian timberlands — options for which chief executive Leo de Bever said included reverting it to agriculture. Farmland, with its steadily rising prices, is a tantalizing investment option – and one that provides interim income by leasing it to agricultural operations, says Mr. Barnes. “From the point of view of the investor, you are buying the land and you’re leasing it back to a farmer so you’re getting current yield,” he says. “The long-term bet is that this is an asset that people believe will be extraordinary in terms of how much it increases in value.” Canadian farmland values have risen steadily over the last decade, according to Farm Credit Canada, but spiked last year. During the second half of 2012, prices on average rose 10%, which is the highest since the organization began tracking farmland prices in 1985. The cost of farmland across the country in 2013 is at record highs, according to real estate firm RE/MAX, with low inventory pushing up supply in 15 out of the 17 rural markets it tracks. The greatest upswings were in Saskatchewan and Alberta. For example, the price per acre in east central Saskatchewan was $850-$2,500 in 2013, up from $650-$1,250 just two years earlier, RE/MAX said. The price hikes in southwestern Ontario have been particularly steep, according to farmland appraiser Valco. The average rate of increase over 10 counties has been roughly 25% per year since 2010. Land can cost upwards of $15,000 per acre. Farmland values across the globe between 2002 and 2010 have risen up to 1,800%, according to the Global Farmland Index compiled by U.K.-based real estate firm Savil. The biggest upswings have been in emerging markets, such as Romania and Hungary, it said. But the fact that prices have escalated so rapidly is a problem for potential investors, says AIMCo’s Mr. de Bever. He wonders whether the investment potential for farmland has run its course. He explains that the rationale for investing in land is that, with rising demand for protein in the Far East, existing landstock will become more valuable. Yet he points out that land values operate on a long cycle, and that the recent run up in value has been compressed into a short timeframe. “It’s not clear to me that any increase in farm prices is going to be rewarded with an appropriate return.” Still, Mr. de Bever says AIMCO, and other investors, will keep an eye out for farmland acquisitions — albeit a cautious one. “My guess is that there is still going to be quite a bit of demand. My concern is that I would be very picky and make sure that you’re buying right.” Mr. Barnes expects Saskatchewan to remain attractive, where land parcels are larger and the prices are a bit better. Australia remains attractive too, given the similarity in governing structures, compared to places with more instability such as Africa, he says. Other factors that will influence future demand include the trend of using technology to convert unsuitable land into arable land, in parts of South America, Mr. de Bever says. Some parts of Africa will emerge as better investment possibilities once they stabilize politically. “It is one of the areas where you will for the next while see a lot of growth,” Mr. Barnes says. “Whether it will be ticked with pluses and minuses, I don’t know. But it’s certainly an area that is very much in the front of peoples’ minds, especially since other hard commodities like metals are not so much in the front of their mind right now.” Financial Post Continue reading
