Property Industry News

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Despite the strength of the upper echelons of the property markets, concerns about the spreading effects of the US sub-prime mortgage crisis are having effects further and further afield.

Asian bond spreads widened in Hong Kong this week, with the popular iTRAXX Asia ex-Japan high-yield index widened by 20 basis points, in turn raising the costs of protecting investors against defaults or restructuring.

The Bank of Thailand admitted it had intervened in the currency market late last week, after a sudden weakening of the Baht, caused by foreign investors shifting their money out of Asia, worried that Citigroup would be downgraded when the full effect of the US sub-prime mortgage crisis took hold.

One potential upside of the situation at the moment is to make Thailand’s property market a far more attractive investment opportunity. The baht reached 34 baht to a US dollar this week. Combined with political uncertainties over the upcoming election causing softening prices the Thai property market seems to be shifting into overdrive.

Clayton Wade, managing director of Premier International, a Thailand-based residential and commercial property consulting group, made some interesting comments in a recent interview with The Bangkok Post. “With the recent downturn in economic indicators and consumer confidence, many local investors have switched money from the stock market to a more secure sector – the Thai property market.”

Despite the many billionaires created by property investments in the US, the US domestic housing market is in a bad way right now – with more doom and gloom predicted, at least in the short term.

The latest Case-Schiller Index reports further drops in house prices, by as much as ten percent in some states. California and Florida are leading the price declines with prices in San Diego dropping by 8.3 % this year-to-date. House prices are at a six year low across the country and the average drop was 4.4%, with no end in sight.

“I think the housing market has got another year of very weak sales, falling construction and lower home prices. And all of that assumes that the economy holds together reasonably well and we don’t have a recession,” said Mark Zandi, chief economist at Moody’s Economy.com. The Joint Economic Committee estimates there will be 1.3 million foreclosures from mid-2007 through 2009 in subprime mortgages, loans provided to borrowers with weak credit histories, which will wipe out an estimated $71 billion in housing wealth directly and another $32 billion indirectly by lowering the values of neighboring homes, according to the report by the JEC’s Democratic staff.

Football legend, Sir Bobby Charlton, one of the most well-known figures in English and World football was in Dubai today, to officially launch the third season of Manchester United Soccer Schools as part of the Dubai Sports City project.

Details of the new program, which is expected to be the most successful to date, were announced at the launch event, which was attended by not only Sir Bobby, but also representatives of Dubai Sports City and presenting sponsor Milo. This is the third season of MUSS skills development sessions and is set to attract over 750 boys and girls from across the region, with over 60 nationalities creating a truly multi-cultural sporting environment.

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The US Federal Reserve probably regretted the choice of location for their end of summer conference this year. With a name like ‘Jackson Hole’ it struck a loud chord with the plight of the financial markets. Jackson Hole was the dateline of the news wire items emanating out of the conference including coverage of Robert Shiller’s lecture on 31st August, headlined ‘Housing woe could trip world slump‘.

Reading on it quickly becomes clear that the Yale professor isn’t predicting anything as big as the Great Crash and the Slump; it is ‘just’ house prices that he thinks may be due for a pummelling. At least in the case of the United States there seems no doubt that there is a substantial problem of over-supply with Shiller’s own S&P/Case – Shiller home price index registering declines of 1.6% and 3.2% respectively in the first two quarters of 2007.

However, it seems a big leap to develop a thesis that property worldwide is under threat as a result. There are enough varying circumstances in different parts of the world to give a measure of protection for property investments in a number of countries.

Our post on Sunday on Coldwell Banker’s survey of what the well-to-do American thinks about the housing market was more in tune with the spirit of the times than we realised at the time of writing: the Wall Street Journal Online had already published Jeff D. Opdyke’s article – ‘Real Estate Investors Are Heading Overseas‘. Opdyke focuses on the growing trend towards property investments (direct and through funds) abroad but there do not yet appear to be hard statistics on what proportion of US real estate investments are going outside the country.

Factors favouring overseas property investments are the weakening of the housing market in the US and the weakness of the dollar. Foreign real estate can be a hedge against both these trends Last week we commented on the likelihood that exchange rate factors contributed to the success of Morgan Stanley’s MSREF VI fund. For private investors with experience of profiting through property in the US, foreign property can represent a relatively straightforward transference of their investment skills.

The 2007 Coldwell Banker Previews International Luxury Survey has now been published and portrays a remarkable degree of optimism among respondents with regard to their own stake in the US’s real estate market. A surprising 56% of those surveyed are expecting the value of their homes to increase in the next 12 months and 10% expect the increase to be significant. Over a five-year term, 58% expect values to rise and 36% expect them to rise significantly. The survey press release doesn’t define what’s deemed to be a ‘significant’ increase in value. Nor does it let on what the percentages were for people expecting their home’s value to plateau, to fall or to fall significantly.

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Morgan Stanley’s MSREF VI fund has collected $8bn. This total will be leveraged up to in excess of $30bn to make property investments around the world but with a heavy emphasis on the Japanese market (50%) and emerging markets (25%). However, Reuters report that 30% of the fund is earmarked for Europe and 60% for Asia, which would appear not to allow as much for the Chinese and Indian markets as other reports are hinting. The MSREF series of funds currently have real estate assets worth $83.5bn and $31.6bn under management.

The new fund is intended to have a return of 20% a year, in line with Morgan Stanley’s overall success with these types of fund since 1991. To date 45% of the MSREF VI funds are reported to be committed, including the $2.4bn purchase of 12 hotels and two property management units from All Nippon Airways. It is not apparent to what extent MSREF VI will be buying up portfolios of non-performing loans in its target market, one of its customary investment strategies.

Aberdeen Property Investors, part of Aberdeen Asset Management, is to launch a commercial property fund specialising in Russia and (later on) Eastern Europe. The fund will be managed by Baltic Property Trust

Nucleus Global’s Europe/Asia Bet, One Year On – The fund’s UK property funds were sold 12 months ago and the proceeds went to European and Asian trusts (particularly Indian and German investments). Since then the fund’s performance has been only modest. It’s investment in AIM-listed Trinity Capital, which invests in Indian infrastructure has not yet delivered a good return owing to hedge funds divesting.

CB Richard Ellis Launches a US Corporate Leasing Site – The website – www.greatleasedeals.com – offers data on subleased commercial property available at a discount. Pre-approved deal terms have been negotiated by CB Richard Ellis’s own brokers. CBRE’s office vacancy and industrial availability indices for Q1 2007 were relatively stable.

Jones Lang Lasalle Merges Indian Operations with Trammell Crow Meghraj to Form Jones Lang Lasalle Meghraj. The merged entity will be headed by Mr Anuj Puri, the former Managing Director of TCM, and the Jones Lang country chief, Vincent Lottefier, will become CEO. The company will employ 2,800 and maintain offices in 10 Indian cities.

Bavaria Hotels International Signs New Management Contract in Sharjah, UAE. The contract is for the management of an all-suite property owned by Doha Real Estate. As with other Bavaria Hotel’s contracts, Siemens’ comprehensive hospitality solution will be implemented.

International Investment Bank’s Abu Dhabi Property Fund. The Bahrain bank’s new fund will start with $65m for investments in projects relating to the Emirate’s Danet Abu Dhabi Master Development Project, begun by Al Qudra Real Estate.

JER Partners Raises 809m Euros for its Third European Property Fund, The US private equity group (JER partners) classes this as an opportunistic fund, one with more flexibility in the types of property investments it can make. The fund is already committed to buying London’s Great Eastern Hotel and property portfolios in Italy and Germany.

Lehman’s Jack Malvey Says the US Housing Downturn Could Last until 2011. However, Malvey, Lehman’s chief global fixed income strategist, said that he wasn’t expecting a general economic downturn in the US. Growth and inflation prospects in the rest of the economy mean that the Federal Reserve is unlikely to be able to provide relief to mortgagees in the shape of lower interest rates.

The Governor of the Irish Central Bank is Expecting a Soft Landing for Residential Property. The irish Independent quoted John Hurley as forecasting ‘low single digit growth’ for 2007 as a whole; there has been a slight decline in Irish residential property prices in the first five months of the year after five straight years of rising prices.