Asia Digest – Beer-Maker Brewing SE-Asia’s Biggest Deal, Australia Real Estate Crash Looming


Singaporean Fraser & Neave Ltd (more commonly known as F&N), one of the world’s biggest and oldest drink makers, has recently completed the drafting of a deal which will see it selling its brewery business to Heineken NV at 5.4 billion SGD (4.3 billion USD). With further fracturing and selling of F&N’s other assets anticipated, the remaining lion’s share of the company’s revenues generator would be it’s highly lucrative real-estate portfolio. Analysts predict that an acquirer may pay as much as 7.7 billion SGD for the Frasers Centrepoint Ltd. property unit, which for various reasons is greatly under-valued by the company’s stock share price. If the subsequent sale goes through, it would be Southeast Asia’s largest real-estate deal, according to data compiled by Bloomberg.

The Centrepoint, on Orchard Road shopping district, is a 2.2-kilometer stretch of outlets and hotels boasting some of the world’s leading luxury brands, recently reported as being worth approximately 585 million SGD. Behind the property is StarHub Centre, an office block bought for 380 million SGD in 2010, for redevelopment purposes. F&N also has stakes in suburban malls, office buildings and other properties in China and Vietnam, residential projects in Singapore due to be completed in the next two years, and further land that could support 3,000 housing units.

Is Australia’s Property Market the Next Victim of the GFC?

As mentioned in previous digests, warning calls that Australia’s mining boom is coming to an (at least temporary) end have done little to curb the foreign interest in its hotel sector, at least, which is still drawing huge investments from Asian giants. This week, however, shows the first signs of cold international feet, as declining attendance at Macquarie Securities’ annual “Australian Investor Days” in Hong Kong and Singapore, an annual event hosted by the Australian banking conglomerate last week, suggests a steep drop in interest levels from Asian investors. Senior stock market analysts, similarly, issued stark warnings for an imminent estimated drop of approximately 20% in Australia’s residential property market, citing a lethal combination of a 20-year unsustainable rise in prices, coupled with ever declining affordability (particularly in and around Melbourne), and a huge reliance on mortgage fueled debt.

Coupled with the sharp decline in GDP growth in China, Australia’s top export destination, which in turn is closely tied to the failing state of economy in Europe and the USA, China’s major markets, industry sources believe that this will be “no soft landing”, with Western Australia, a region whose almost single source of income is iron ore (approximately 60% of WA’s GDP), predicted to be the first to fall. Property prices in Perth, western Australia’s capital, indeed seem to support this theory, as the city is second only to Melbourne in last month’s RE prices decline – a decline spear-headed by unit prices, which were down 7.1% year on year.

Global Gossip

* New-Zealand, Australia’s much smaller neighbor to the south, may stand to further benefit from the predicted crash in Australia’s property market, with concerned Australian investors taking their money across the Tasman sea – Asian investors are increasingly expressing interest in New Zealand’s hotel sector, following an Australian spending spree which brought sales up by 96%.

Kiwi hotels sold so far this year include Hotel So Christchurch for 19 million NZD, Wellington’s InterContinental for 50 million and Auckland’s Hyatt Regency for 59.7 million. The Hilton Auckland was also sold for an undisclosed sum. As reported in previous digests, the rebuilding of Christchurch, all-but-devastated in 2011’s disastrous earthquake, has already been drawing substantial foreign investment to New-Zealand’s shires all through-out the last year.

* Hong-Kong property prices, already at ultra-dangerous levels, with the city-state long since declared the world’s most expensive property market, continue to soar into outer space – government data shows the price index began climbing from the first quarter of 2009, passed its previous 1997 peak, and every quarter since last year has registered new highs. Hong-Kong‘s current price-to-income ratio now means that an average household has to save 18.6 years of its annual income WITHOUT CONSUMPTION, to buy a standard flat. By contrast, a resale 5-room flat in the centre of Singapore, which is also considered to be at dangerous price levels on global standards, takes 7.3 years to pay off.

* With Asian wealth swiftly taking over the crown from the west, and Asia’s middle class coming into being in a swiftly accelerating rise of spending habits, the continent’s retail market is growing exponentially. China, as expected, remains the top destination for global retailers entering the region – of the 27.87 million square meters of retail projects under construction in Asia, 82.4 percent are in China – a total of 20 out of the 42 cities where these major projects are currently under way.

(Partial list of Sources – “World Property Channel“, “China Daily“, “Seeking Alpha“, “The Australian“, “San-Francisco Chronicle“, “Perth Now“)

(Picture 1 – Beer / Darren Johnson, Picture 2 – Map & Flag of Australia / Olga Lednichenko)

About Author

Ziv Magen

Ziv Magen (G+) is an Australian, and has been living alternately in Japan and Australia for the past decade. "Born and bred" an IT project manager, he has made the transition to full-time real-estate investing several years ago, and subsequently opened a buyers' and proxy agency - assisting others in remotely capitalising on Asia's booming property market.

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