Centrica PLC To reduce UK household gas and electric prices by an average of 3.2% from Jan 1st - Equivalent to £41 on average off the annual dual fuel bill1. An additional £12 customer rebate for the Government`s Warm Home Discount (WHD) scheme brings a total annual saving of £53 to the average dual fuel customer. - Announcement follows the Government`s proposed decision to make changes to the Energy Company Obligation and to introduce a rebate to customers to cover the cost of the WHD scheme. It also takes into account the agreement between the Government and electricity network companies to defer an element of electricity distribution costs in the period from April 2014 to March 2015. British Gas is passing on the benefit of all these changes to its customers in full.
* Upcoming catalysts suggest more downside than upside risk Shire has diversified its pipeline and appears ideally positioned to benefit from strong underlying growth but we believe a few upcoming clinical trial read-outs carry more downside risk than upside risk. Indeed, we believe the Lifitegrast Phase III trial and the Vyvanse in Major Depression Disorder may not have selected the right type of patients and could lead to disappointing results. Moreover, we believe Shire could face negative sentiment risk around the challenge of the Vyvanse patent in mid-2014 and prefer staying on the side-line for now, downgrading to Neutral.
*Lifitegrast remains high risk; PIII design could be selecting the wrong endpoint We believe the main short-term sentiment risk lies with Lifitegrast with Phase III expected by end 2013. Over the last decade, 14 projects for dry eye have failed and we believe most of these failures were due to the difficulty of identifying patients with pure dry eye and excluding patients with dry eye like symptoms. As we fear Lifitegrast Phase III could have failed to exclude these patients, we see the chance of success as low. Also, Eleven Biotherapeutics EBI-005 Phase II data shows a lack of correlation between OSDI and Eye Dryness improvement. This makes us believe that Shire decision to switch the symptom endpoint from OSDI to Eye Dryness in the second Phase III could be falling into the trap of selecting the wrong endpoint.
* Vyvanse patent seen as main sentiment risk – reviewing pro-drugs patent risk Although we believe the uncertainty around the validity of the Vyvanse patent could lead to sentiment headwind in 2014, our included analysis of the pro-drug patent history indicates that the historical trends are supportive of Vyvanse and we do not assume generic competition before patent expiry.
* Valuation: blend 2014 PE and probability weighted DCF We value Shire using a blend of Specialty Pharma 2014 PE (19.8x) and a DCF-based model, and fine tune our price target to 3,060p from 3,100p. We add ViroPharma to our DCF, adjust the pipeline and increase the weight of the 2014 PE to 40% (from 30%) as we believe the ViroPharma acquisition diversifies the revenues away from Vyvanse which is facing patent challenge in 2014.
Aberdeen -1% CS cut to N from OP post recent performance BMW -1% CEO says current FX headwdinds continue to remain an issue Carlsberg +1% CS add to Focus List (+ve on restructuring potential) GKN unch Spec co may bid for Boeing Wing Parts Maker ($500m) L'Oreal +0.5% Announce plans to buy back up to €500m of shares Lloyds unch Spec Osborne will signal plants this wk for gvt stk sale Miners -0.75% Copper -0.5%, China -0.7%, OZ Miners -0.8% Mittal unch Terms of the Alabama purchase inline Outokumpu +4% TKA repurchasing stainless steel assets (Terni & VDM) Premier Fds +1% Spec co in talks with investors reg funding for Hovis Petrofac -1-2% Spec co looking at Foster Wheeler (FWLT US, mkt cap ~$3b) Renault unch Spec co preparing to resume exports to Iran Repsol unch More spec a deal with Argentinian gvt to be reached this yr Thyssen -7% Sell Alabama plant for $1.5b (inline). Announce 10% cap inc Vivendi +0.5% Spec co could announce a buyback as soon as Q1
Morgan Stanley cuts 2014 Euro Zone GDP growth forecast from 0.9% to 0.5%
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Repsol’s Minority Shareholders Reject YPF Accord, Mundo Reports 2013-12-02 07:16:01.216 GMT
By Manuel Baigorri Dec. 2 (Bloomberg) -- Repsol’s minority shareholders are unhappy with compensation accord over YPF and will continue with legal action against Argentina, El Mundo reports, citing comments made by minority shareholders lobby group Aemec. * Minority holders were most affected by expropriation of YPF and will continue with litigation until a fair compensation is obtained, says Henning Wegener, director general of Aemec, the newspaper reports * Link to story in Spanish: http://tinyurl.com/pl4se2m * NOTE: Repsol to Begin Negotiations With Argentina Over YPF Accord NSN MWZG1G6S972N <GO>
For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>
To contact the reporter on this story: Manuel Baigorri in Madrid at +34-91-7009647 or mbaigorri@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at +49-30-70010-6215 or kwong11@bloomberg.net
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China Sets IPO Reform Plan Signaling End of Freeze on Listings 2013-11-30 16:01:00.1 GMT
By Bloomberg News Dec. 1 (Bloomberg) -- China’s securities regulator issued a reform plan for initial public offerings, as the government prepares to lift a more than one-year freeze on new listings in the world’s second-biggest economy. About 50 companies are expected to complete the IPO approval preparations and list or be ready to do so by the end of January, the China Securities Regulatory Commission said in a statement on its website yesterday. There are more than 760 companies in the queue for approval and it will take about a year to complete an audit of all the applications, the regulator said. China, the world’s largest IPO market in 2010, with a record $71 billion raised, hasn’t had an initial public offering since October 2012 as the CSRC cracked down on fraud and misconduct among advisers and companies. Communist Party leaders pledged last month to change the IPO system as part of a package of reforms that signaled the biggest expansion of economic freedoms since at least the 1990s. “This is positive for the long-term development of the market as both companies and stock investors will gradually have more choice under the new policy,” said He Zongyan, an analyst at Shenyin & Wanguo Securities Co. in Shanghai. “It may add downward pressure on the stock market in the short term as 50 new IPOs in the next few months may drain capital and force a correction in some inflated stocks.”
Hurt Confidence
The regulator stopped reviewing applications for listing on the country’s stock exchanges in Shanghai and Shenzhen amid concern a flood of new shares could hurt investor confidence. Xiao Gang, a former central banker and Bank of China Ltd. chairman who was named head of the CSRC in March, said Nov. 19 the shift to a looser IPO system must be gradual to avoid shocks to the market. China’s benchmark Shanghai Composite Index has dropped 2.1 percent this year and the CSI300 Index has fallen 3.3 percent, the worst performers among 20 primary equity indexes in the Asia-Pacific region tracked by Bloomberg. In a separate statement, the CSRC said it will draft rules for a trial to allow companies to sell preferred stock, based on guidance issued yesterday by the State Council, and seek public feedback on its proposals. The use of preference shares will help deepen corporate reform, provide a flexible financing tool for companies and promote the stable development of the capital market, the State Council, China’s cabinet led by Premier Li Keqiang, said in guidelines issued on the central government website.
Capital Requirements
Banks will be able to include preference shares in calculations of their tier-one capital, giving them a new financing instrument to meet capital requirements of the Basel Committee on Banking Supervision, CSRC spokesman Deng Ge said in the statement. Preference shares will also help reduce corporate debt levels, Deng said. The CSRC’s announcements build on reform pledges made in a 60-point document released by the Communist Party on Nov. 15 after its top leaders met to map out policy changes for the coming decade. They vowed to give markets a bigger role in the economy and reduce government interference. Item 12 on the list focused on improving financial markets, including moving to a registration-based system for issuing stocks and increasing the proportion of funds companies raise through direct financing.
Sole Discretion
Under current rules for domestic IPOs, companies go through a review and approval system, where a CSRC committee has the sole discretion to decide whether a company is fit for listing. The process can involve several rounds of reviews and take years, the official Xinhua News Agency said in a report yesterday. In the new system, the regulator will only be responsible for examining whether applicants are qualified, leaving investors and the markets to make their own judgment about a company’s value and the risks of buying its shares. “We want to emphasize that the market should not see the registration system as a sign that the government won’t supervise and regulate the market anymore,” an unidentified CSRC official said in a question and answer statement posted on the regulator’s website. “We will review and make sure the application materials carry accurate and adequate information but leave it to investors to decide whether such stocks are worth investing in.”
Curb Misconduct
The new rules still impose requirements and threaten penalties on IPO advisers in an effort to curb misconduct in first-time share sales. The CSRC has penalized at least three brokerages since May for inadequate due diligence on IPOs. It fined Ping An Securities Co. and barred the firm from underwriting for three months. Minsheng Securities Co. was given a warning and fined and Nanjing Securities Co. was censured. Some bankers at all three firms were barred from the industry for life. Everbright Securities said in June the CSRC had begun an investigation of the company in relation to Henan Tianfon Energy-Saving Panel Science & Technology Co.’s IPO application, which the regulator said contained falsified information. The CSRC said the following month it had concluded field investigation work and passed the case to its administrative penalties commission.
Awaiting Approval
Org Packaging Co., which makes beverage cans, and Fujian Tengxin Foods Co. were the last Chinese companies to list when they started trading in Shenzhen in October 2012. Tengxin changed its name to Haixin Foods Co. on July 4. Companies including state-owned China National Nuclear Corp. and Bank of Shanghai Co. were awaiting approval for IPOs as of Oct. 31, according to a list on the CSRC’s website. Some 83 companies have had their IPO applications cleared by the CSRC listing committee and are pending final approval, including Shaanxi Coal & Chemical Industry Group Co. and China Postal Express & Logistics Co., the regulator’s website shows. The companies may raise a combined 55.8 billion yuan ($9.2 billion), according to June estimates from Ernst & Young LLP.
For Related News and Information: China’s Path to U.S.-Style IPOs Confronts Get-Rich-Quick Culture NSN MWN4246K50YT <GO> Xiao Turns Gray as China IPO Halt Precedes Market-Abuse Rule NSN MQQRV86TTDU7 <GO> IPO Bankers Become Frogs in Hot Water Amid China Market Halt NSN MKXIBB6TTDSB <GO> Top Finance Stories: TOP FIN <GO> Top China news: TOP CHINA <GO>
--Aipeng Soo, Aibing Guo and Daryl Loo. Editors: Nerys Avery, Greg Ahlstrand
To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at +86-10-6649-7568 or asoo4@bloomberg.net; Aibing Guo in Hong Kong at +852-2977-4623 or aguo10@bloomberg.net; Daryl Loo in Beijing at +86-10-6649-7540 or dloo7@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at +852-2977-6486 or csomayaji@bloomberg.net
US Market half day session continue to have same logic that the all week with Nasdaq Outperforming...late selloff push VIX higher VIX @ 13.75 +5.93%...of course light volume @ 494mil shares...US Black Friday report cards are coming in mixed - ShopperTrack saw sales on Thanksgiving+Black Friday up just 2.3% y/y, and National Retail Federation (NRF) saw weekend spending falling to $57.4B v $59.1B y/y...Nikkei Flattish on Kuroda comments of potential more easing if economic risk materialise...China PMI higher @51.4 vs 51.1 (19m highs) but not enough to push mkt higher as equity dilution concerns overshadow the good news...However, weekend reports that CSRC may streamline IPO process by next January is dampening sentiment with particularly onerous impact on the small and midcaps - in the morning session, 187 stocks in Shanghai (6.5% of all names on the board) traded limit down...Ukraine & Thailand Protest also weighting on the sentiment...Shanghai composute -1% Shenzen -4.95%
Eur$ 1.36 S&P Fut +0.10% European Fut +0.03%
Keep an eye on : - SPAIN : Soros, Pimco Hire Advisers to Consider Spanish Deals: Expansion - ATLN VX : Actelion Says DMC Recommends Cancelation of Phase 3 Ulcer Study - AFLT RM : Aeroflot 3Q Net $544m Rises 88% vs Year Ago; Ebitda Margin 26.9% - BMW GY : *BMW’S REITHOFER: CURRENT EURO-DOLLAR LEVEL ’A CHALLENGE’: ECHOS - CNHI IM : FT Article Iveco :Iveco head expects smoother sales road - DTE GY : Deutsche Telekom’s T-Systems May Cut 6,000 Jobs: Handelsblatt - REC BB : Recticel Wins New Automotive Contracts Estimated at EU364m - SIA Main Shareholders Sign Agreement to Sale of 59.3% of Co. - SW FP : Sophie Bellon to Be Sodexo Chairwoman Jan. 2016, Le Figaro Says - TIT IM : Telecom Italia Denies It's Pursuing Sale of Tim Brazil - UBSN VX : *UBS TO BUY BACK CHF2.15B OUTSTANDING BONDS - UAQ AV : +ve BArrons's article, restructuring plan to unlock value
Up
*BARRATT DEVELOPMENTS RAISED TO BUY VS NEUTRAL AT CITI *OUTOKUMPU RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML *SWISSCOM RAISED TO BUY VS NEUTRAL AT NOMURA *TELE2 RAISED TO NEUTRAL VS REDUCE AT NOMURA
Down
*ABERDEEN ASSET MANAGEMENT CUT TO NEUTRAL AT CREDIT SUISSE *DEBENHAMS CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS *DEUTSCHE TELEKOM CUT TO NEUTRAL VS BUY AT NOMURA *HALFORDS CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN *HELLENIC PETROLEUM CUT TO SELL VS HOLD AT SOCGEN *REDROW CUT TO NEUTRAL VS BUY AT CITI *SHIRE CUT TO NEUTRAL VS BUY AT UBS *TESCO CUT TO UNDERWEIGHT VS NEUTRAL AT HSBC *VIENNA INSURANCE CUT TO HOLD VS BUY AT BERENBERG
PT Change
*ENEL PT RAISED TO EU3.3 VS EU2.7 AT DEUTSCHE BANK; KEPT AT HOLD *Prysmian PT Raised to EU20.5 vs EU19.5 at JPMorgan *SORIN PT CUT TO EU2.45 VS EU2.6 AT CITI; KEPT AT BUY
Initiation
*BAE, COBHAM, SAAB, THALES, ULTRA RESUMED NEUTRAL AT GOLDMAN *FOLLI FOLLIE RATED NEW OVERWEIGHT AT HSBC; PT EU32.5 *ROLLS-ROYCE, EADS, MEGGITT RESUMED BUY AT GOLDMAN *ESURE RATED NEW BUY AT CITI, PT 285P *JUMBO GROUP RATED NEW OVERWEIGHT AT HSBC; PT EU14.5 *OPAP RATED NEW NEUTRAL AT HSBC; PT EU10.3 *PICK N PAY STORES RATED NEW OUTPERFORM AT CREDIT SUISSE; PT R62 *QINETIQ RESUMED SELL AT GOLDMAN *STOCK SPIRITS RATED NEW OVERWEIGHT AT JPMORGAN; PT 280P *SHOPRITE HOLDINGS RATED NEW NEUTRAL AT CREDIT SUISSE; PT R185 *VIENNA INSURANCE CUT TO HOLD VS BUY AT BERENBERG *TCS RATED NEW BUY AT GOLDMAN, ADDED TO CEEMEA FOCUS LIST *WOOLWORTHS HOLDINGS RATED NEW OUTPERFORM AT CREDIT SUISSE
Country Sector Stock Call
*CARLSBERG ADDED TO CREDIT SUISSE’S FOCUS LIST
Asian Market Update: IPO resumption weighs on China equities despite better than expected PMIs
***Observations/Insights*** - Shanghai Composite traded off by as much as 2% in the morning session and Hong Kong's Hang Seng was flat after a stronger open, as equity dilution concerns overshadow better than expected manufacturing data. China's offcial PMI released over the weekend matched an 18-month high, topping expectations of a slight decline from last month's strong figures, with Output, Inventories, and Employment components all hitting multi-month high levels. HSBC final PMI was also better than expected and HSBC chief economist noted faster new business gains. However, weekend reports that CSRC may streamline IPO process by next January is dampening sentiment with particularly onerous impact on the small and midcaps - in the morning session, 187 stocks in Shanghai (6.5% of all names on the board) traded limit down. - Protests raged in Thailand and Ukraine over the weekend as demonstrators in both countries demand that the current leadership steps down. Thailand reported 5 fatalities, with the opposition leaders calling for PM Shinawatra to step down within 2 days. Protests in Ukraine are escalating despite the leadership vowing to engage in a more active dialogue with the West, with dozens of police and marchers injured in Sunday skirmishes. - US Black Friday report cards are coming in mixed - ShopperTrack saw sales on Thanksgiving+Black Friday up just 2.3% y/y, and National Retail Federation (NRF) saw weekend spending falling to $57.4B v $59.1B y/y. - Economic data from Australia was mixed/positive, as manufacturing fell into contraction, building approvals fell but less than expected, and TD inflation improved but remained well within the RBA target range. RBA is widely expected to stand pat at 2.50% in its decision tomorrow. - BOJ gov Kuroda reiterated that additional easing was still possible if economic risks materialise, just as the approval rating for the Abe cabinet fell below 50%. Separately, reports emerged of a rift between US and Japan commercial airline officials, whereby US is seemingly more agreeable to notifying China defense officials about aircraft flight plans.
***Economic Data*** - (CN) CHINA NOV MANUFACTURING PMI: 51.4 V 51.1E (matches 19-month high) - (CN) CHINA NOV HSBC/MARKIT MANUFACTURING PMI: 50.8 V 50.5E - (JP) JAPAN OCT LOANS & DISCOUNTS CORP Y/Y: 2.0% V 2.0% PRIOR - (JP) JAPAN Q3 CAPITAL SPENDING Y/Y: 1.5% (1-year high) V 3.2%E; CAPITAL SPENDING EX-SOFTWARE: 2.3% V 4.5%E - (AU) AUSTRALIA NOV TD SECURITIES INFLATION M/M: 0.2% V 0.1% PRIOR; Y/Y: 2.4% V 2.1% PRIOR (4-month high) - (AU) AUSTRALIA Q3 COMPANY OPERATING PROFIT Q/Q: 3.9% (2-year high) V 1.0%E; INVENTORIES Q/Q: -0.5% V 0.0%E - (AU) AUSTRALIA OCT BUILDING APPROVALS M/M: -1.8% V -5.0%E; Y/Y: 23.1% V 17.0%E - (AU) AUSTRALIA NOV RPDATA/RISMARK HOUSE PRICE INDEX: 0.1% V 1.3% PRIOR; median price in capital cities A$525K (record high) - (AU) AUSTRALIA NOV AIG PERFORMANCE OF MANUFACTURING INDEX (PMI): 47.7 V 53.2 PRIOR - (NZ) NEW ZEALAND Q3 TERMS OF TRADE INDEX Q/Q: 7.5% V 2.9%E (multi-year high) - (KR) SOUTH KOREA NOV TRADE BALANCE: $4.8B V $4.0BE - (KR) SOUTH KOREA NOV CPI M/M: -0.1% V -0.1%E; Y/Y: 0.9% (3-month high) V 1.0%E; CPI CORE Y/Y: 1.8% V 1.6% PRIO - (KR) SOUTH KOREA NOV HSBC/MARKIT MANUFACTURING PMI: 50.4 V 50.2 PRIOR (highest reading since May) - (ID) INDONESIA NOV HSBC/MARKIT MANUFACTURING PMI: 50.3 V 50.9 PRIOR - (VN) VIETNAM NOV HSBC/MARKIT MANUFACTURING PMI: 50.3 V 51.5 PRIOR - (TW) TAIWAN NOV HSBC/MARKIT MANUFACTURING PMI: 53.4 V 53.0 PRIOR (3rd consecutive expansion) - (UK) UK NOV HOMETRACK HOUSING SURVEY M/M: 0.5% V 0.5% PRIOR; Y/Y: 3.8% V 3.1% PRIOR
***Fixed Income/Commodities/Currencies*** - (JP) BOJ offers to buy ¥250B in 1-3yr JGBs, ¥300B in 3-5yr JGBs, and ¥400B in 5-10yr JGBs - (KR) South Korea sells 3-year govt Bonds; avg yield 3.039%
- USD is under slight pressure across the majors as markets position for a slew of critical data across the globe this week, including tomorrow's RBA decision, Thursday's ECB policy decision, and non-farm payrolls report on Friday. USD/JPY traded up toward ¥102.60 in the morning session but retreated toward ¥102.20 later in the day. AUD/USD and NZD/USD are now up for consecutive sessions after a broad sell-off for much of last week, both rising about 70pips from Friday close to $0.9160 and $0.82 respective highs. Sterling also traded sharply firmer amid speculation of a large increase in 2014 UK GDP projections by OBR this week, rising to a 2-year high above $1.64, while EUR/USD was bid slightly higher above the $1.36 handle, up about 20pips from Friday.
***Speakers/Political/In the Papers*** - (CN) China Securities Regulatory Commission (CSRC) issues statement: May streamline approval process for certain IPOs by next January - financial press - (CN) Shanghai new home sales +1.38% w/w; avg new home prices +3.76% w/w - Uwin - (CN) China Shanghai Environmental Monitoring Center issues highest danger level for air pollution today - Chinese press - (CN) PBoC Dep Gov Yi Gang (also head of FX regulator SAFE): China's $3.7T fx reserve is enough; Yuan currently very close to equilibrium - Chinese press interview - (CN) China National Development and Reform Commission (NDRC) official: China faced with upward price pressure - Chinese press - (CN) ANZ: Maintaining China Q3 GDP target of 7.5-7.6% and 2013 target of 7.6% following latest PMI data - US financial press - (CN) China Nov new residential avg price in 100 cities rose 11.0% y/y (18 consecutive rise) to CNY10.76K/sqm vs 10.7% y/y incrase in Oct - financial press
- (JP) Japan BOJ Gov Kuroda: Japan economy is moving smoothly to price target; Will not hesitate to adjust policy if risks emerge - (JP) Japan PM Abe cabinet approval rating declines 4% to 49% - Asahi News - (JP) Japan Coast Guard sighted two China vessels near the disputed Senkaku Islands - Kyodo News - (JP) JPMorgan: Maintaining a 70% chance the BOJ will announce additional easing in 2014, but odds point to an earlier easing - (JP) Japan PM Abe to hold talks with US VP Biden regarding China air defense zone
- (NZ) New Zealand Treasury: Pricing pressures starting to emerge
- (KR) US institute finds North Korea resumed missile facility construction - Kyodo News - (KR) South Korea Hyundai Research Institute (HRI) think tank: 10% increase in KRW can result in 3.4% drop in sales of manufactured goods - Korean press
- (TH) Five people killed and over 50 injured in overnight clashes between supporters of Thailand PM Shinawatra and protesters
- (US) According to ShopperTrak, US retail sales on Thanksgiving+Black Friday are up 2.3% y/y at $12.3B - US financial press
- (IS) Iceland govt to write off €24K from every mortgage of every household; Overall costs of the measure over a 4-year period to be about €900M - (GR) Greece Fin Min Stournaras: To proceed with govt plans to raise property taxes on large estates - Greek press - (FR) France Labor Min Sapin: Govt considering reform that would allow local authorities more say on less restrictions over Sunday operation of retail shops - financial press - (UR) Dozens of police and protesters injured amid continued clashes in Kiev, Ukraine on Sunday; Protesters seize the office of the Mayor - (IR) Iran nuclear chief Salehi: Iran will never abandon Arak heavy water reactor - press
***Equities*** Market Snapshot (as of 04:30 GMT): - Nikkei225 -0.9%, S&P/ASX -0.8%, Kospi -0.6%, Shanghai Composite -1.6%, Hang Seng +0.1%, Dec S&P500 +0.1% at 1,805, Feb gold -0.4% at $1,246, Jan crude oil +0.6% at $93.29/brl
Notable movers by sector: - Consumer discretionary: Esprit Holdings 330.HK +1.0% (sees profit as early as next year); Silver Base Group Holdings 886.HK -7.1% (H1 results) Huayi Brothers Media Corp 300027.CN -6.5%, Suning Commerce Group 002024.CN -8.6%, China Spacesat Co 600118.CN -8.4% (China to resume IPOs)
- Industrials: Qantas QAN.AU +0.8% (code sharing agreement), China Green Holdings Ltd 904.HK -8.8% (issues profit warning) - Materials: Metcash MTS.AU +5.7% (H1 results); Whitehaven Coal WHC.AU -1.2% (amended debt facility) - Financials: Rykadan Capital 2288.HK -3.4% (H1 results); China Merchants Securities 600999.CN +9.8%, Guoyuan Securities 000728.CN +7.9%, Sealand Securities 000750.CN +5.9%, CITIC Securities 6030.HK +6.4%, Haitong Securities 6837.HK +4.6% (China to resume IPOs); China Growth Enterprise Market (GEM) -7.1%, China Mid-to-small Board Index -4.3% (China to resume IPOs)
Overseas Money Pours Into Miami Real Estate Condo Development Surges as Foreign Buyers Stoke Demand
MIAMI—Cranes are again rising over this city, as the poster child for the real-estate collapse enjoys a new condominium boom fueled by foreign investors looking to park their money in U.S. real estate.
For several years after the housing bubble burst, a glut of towering condo buildings sat largely empty. Condo values plunged nearly 60% from peak to trough, according to the Miami Association of Realtors. Financing for buyers and developers dried up.
Now nearly all the once-vacant units are filled up, and demand is outstripping supply. There are 118 condo towers proposed in the Miami area, including 35 under construction, according to Condo Vultures LLC, a real-estate consultancy.
The 41 towers proposed for downtown will add 12,100 new units—well shy of the 22,200 units that were built during the 2003 to 2008 boom, but still a remarkable turnabout given that downtown construction was essentially dormant until 2011.
"This boom is very reminiscent of where we were a decade ago," said Peter Zalewski, principal at Condo Vultures.
While the growth feels similar to the bubble-fueled oversupply that remains a painful memory in Miami, developers note that robust international demand has created a new cash-financing model they believe is safer than the easy bank loans that fueled the last boom. They typically require buyers to put down at least 50% before closing, which means the owners would lose their money if they walked away.
Under the new payment arrangement, developers are relying more on buyers' deposits, and less on debt, to fund construction, which they say puts projects on more solid footing. And because banks have become stricter about what projects they finance, less-experienced developers are weeded out, they say.
Developer Carlos Melo relied on that financing model to build 23 Biscayne Bay, a 17-story project that last year became the first completed tower of the new cycle. He said the building is fully sold, and roughly 90% of the owners bought their units as investments and are renting them out. "They are looking to sit their money in a safe place," Mr. Melo said.
Miami is just a bigger example of a recent national tilt toward multifamily buildings—both apartments and condominiums—instead of the single-family homes that dominated during the bubble years leading up to the recession. While the majority of national construction is still of single-family homes, the recent rebound in construction activity—whether measured by new starts or permits—has been centered in multifamily buildings.
Commerce Department data released last week showed nationwide residential building permits rose to their strongest pace since June 2008, a rise that was driven by a 15% surge in multifamily permits. About one in three building permits issued this year has been for the largest multifamily category—buildings that have five or more units—according to Jed Kolko, chief economist for real-estate website Trulia. From the 1990s until the housing bubble ramped up in 2004, the share hovered around one in five.
Nationally, builders are responding to rental demand that remained strong through the recession and today's still-tepid recovery. They are also correcting the source of overbuilding during the bubble years.
"Multifamily has been a critical part of the construction recovery. During the bubble a lot of the overbuilding was in single-family homes, and as the construction market rebounds and as more people are looking for rentals, builders have responded with more multifamily construction," Mr. Kolko said.
The numbers are even more dramatic in and around Miami. In the South Florida region composed of Miami-Dade, Broward and Palm Beach counties, roughly 70% of residential construction permits issued through October have been for multifamily units.
About 7,000 rental apartment units have been proposed for Miami's greater downtown area, Condo Vultures' Mr. Zalewski said. Among the factors driving growth are high rental rates and financing that is more readily available because banks consider the rental market strong. While the median rental rate in 2009 was $1.48 a square foot, it is now $2.23 a square foot, Mr. Zalewski said.
The city's condo boom has been even stronger, fueled by foreign investors who typically pay cash and are looking to hold rentals, instead of flipping for profit as investors did in the last cycle. About 85% to 90% of new-construction buyers are foreign, mostly Latin American, estimates Alicia Cervera Lamadrid, managing partner at Cervera Real Estate, which is handling sales for 16 condo projects.
"The payment structure really separated the speculators from the well-funded," Ms. Cervera Lamadrid said.
Buyers say they are drawn to Miami's increasingly cosmopolitan vibe and cultural offerings such as the Pérez Art Museum Miami, which is set to open Dec. 4. They also consider such investments more secure than leaving their money in more economically volatile places like Argentina and Venezuela.
Miami's high-end condo market has proved especially vibrant, and has gone hand in hand with new luxury shopping destinations rising up in the Brickell financial district downtown and the Design District to the north. Some of the most lavish projects have drawn star architects like Zaha Hadid and Bjarke Ingels.
In August, Umberto Mascagni, a 24-year-old Italian who moved to Miami three years ago to study international business, put down a deposit on a $700,000 two-bedroom condo in a proposed tower overlooking Biscayne Bay that has yet to break ground. He and his father began investing in Miami real estate in 2008 and now have six additional condos they rent out. "In the past two years, the market has been crazy," Mr. Mascagni said. He is prowling for other investment opportunities, he said, but "always with open eyes, always careful."
Still, some are sounding cautionary notes. Developers are sometimes starting construction with just buyers' deposits, without lining up financing to ensure they can finish it off, said John Sumberg, managing partner of the law firm Bilzin Sumberg, who advises developers. "They figure, 'I'll get it when I need it,' " he said. But "at some point in the cycle, the lenders may say there's too much product and this isn't a good bet."
In addition, some developers are backing away from buying land because prices have risen so much, Mr. Sumberg said. That could "curb the dramatic velocity we've seen" in new construction, he said.
Carlos Rosso, who heads the condo division for the Related Group, a developer burned badly in the last cycle, said a similar bust is unlikely this time around. "As long as there's cash from buyers and banks are disciplined enough not to overextend themselves, I think this is a long market because there's so little supply," he said. His company now has 10 condo projects under way, compared with more than 30 it built in the last upcycle.
Also, the sales pace isn't as frenzied as in the last decade. "Back then, I saw lines at sales offices starting at 12:00 the night before" they opened, said Alan Ojeda, chief executive of the Rilea Group, a developer. "I don't see lines now."