Chance to invest in distressed assets

Distressed property markets where deals are difficult to finance and yield spreads are at all-time highs provide attractive investment opportunities, according to Morgan Stanley’s real estate unit.

In the Asia-Pacific region, Morgan Stanley Real Estate Investing is most focused on China, India, Australia and Japan, said Olivier de Poulpiquet, who helps oversee $36 billion in real estate assets as the global co-head for the unit.

In India and China, demand is driven by strong demographic trends amid a dearth of financing, while in Australia and Japan, low borrowing costs are providing opportunities, he said.

Morgan Stanley, with a team of 280 globally in 11 countries dedicated to the property business, has about 45 percent of its investments in the U.S., 33 percent in Asia and about 22 percent in Europe.

In many developed markets, such as U.S., Japan and Australia, the yield spread between real estate and the risk free rate, typically the interest rate on U.S. Treasury bills, is as much as 400 basis points, de Poulpiquet said.

“Asia and the U.S. will continue to offer opportunities,” de Poulpiquet said in an interview in Singapore yesterday. “Investments in real estate have seen a flight to safety globally and in particular in the U.S. and Europe.”

Interest in property investments by institutional investors is improving as the asset class is viewed as an effective portfolio diversifier and an inflation hedge, de Poulpiquet said. Allocations to real estate by major institutions may climb from an average of 7 percent currently to 10 percent, he said, without providing a time frame for the increase.

India, China

In India and China, Morgan Stanley is finding opportunities by financing developers that are seeking money to complete projects amid a scarcity of capital, de Poulpiquet said.

In its almost three-year effort to tighten the property market, the Chinese government has raised down-payment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing, and enacted home-purchase restrictions in about 40 cities. India’s biggest developers have struggled to rein in record debt as they grapple with high borrowing costs, dwindling sales and banks’ reluctance to lend.

“The major trend in these markets is that this growth is combined with a capital constrained environment for real estate, mostly driven by government interventions and price cooling measures,” de Poulpiquet said.

“In India and China, there is less opportunity to buy existing assets but greater opportunity to pick the right developer and build to either lease or sell.”

Favorable Demographics

India will have 127 million more working age adults by 2020, while in China, the 470 million adults leaving rural areas for cities will reach a rate of 11 million per year, said de Poulpiquet.

Over the next 15 years, the total global urban space growth will reach about 82,000 square kilometers (31,660 square miles), 47 percent of which will be driven by India and China, he said.

In markets such as Shanghai, the supply of class A office spaces is relatively low while demand is forecasted to remain robust, de Poulpiquet said. In India, the trend is similar where the residential sector continues to offer interesting opportunities, he said.

In Australia, distressed assets sold by European banks which are undergoing deleveraging processes to clean up their balance sheets are attractive, said de Poulpiquet.

In Japan, Morgan Stanley is buying class B office assets in Tokyo and greater Tokyo, he said.

“In many markets globally, including Japan and Australia you can buy class B plus assets, at significant yield differential between your cost of borrowing and the real estate yield,” said de Poulpiquet. “It is a relatively safer investment with good quality yield and return profile.”

Europe will also increasingly offer attractive investments in real estate with all the level of distress in the market, he said. Still, Morgan Stanley remains “cautious” and focused on making “defensive investments” in the region as prices still have some room to fall, he said.

“Overall, we will see slower growth, more volatility but in Europe, it’s neither a doomsday scenario nor in a happy recovery and this will last for a while,” he said.- Bloomberg

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Japan's strategic offensive, from Diaoyu Islands to Nay Pyi Taw

Illustration: Liu Rui

Shinzo Abe's election has pushed the Diaoyu Islands crisis into the edge of all-out confrontation between China and Japan.

 While Japan's high-profile move on the Diaoyu Islands is a direct confrontation against its neighbor, its actions in Myanmar are a secret detour against China.

As the Diaoyu Islands dispute gripped the attention of China and the whole world, Japan's newly appointed Finance Minister Taro Aso visited Myanmar to write off its debt of 500 billion yen ($5.58 billion), followed by major financial groups covertly pushing into Myanmar's economic field.

In fields where China is also involved, Japanese financial groups, with their advanced technology, strong capital and national support, are in a race with Chinese enterprises.

They do not aim for profits at the moment, and some would rather suffer a loss.

This is not a healthy competition, but a vicious economic war which aims to drive out Chinese companies, control Myanmar's economy, and finally, cut off China's energy passageway to the Indian Ocean.

Soon after the US focused on hedging against China in Myanmar, Japan immediately started annihilating Chinese enterprises under the umbrella of the US' strategy.

China has three grand strategic projects in Myanmar - the Myitsone hydropower project, which has been forced into a total shutdown, the Monywa-Latpadantaung copper mine, where several public protests have taken place, and finally, the construction of an oil and gas pipeline between China and Myanmar, where recent signs have become increasingly disturbing.

Myanmar joins sea and land in the US' C-shaped encirclement of China, which includes the Pacific Ocean, the Indian Ocean, East Asia and South Asia.

After the US decided on an eastward strategic shift centered on encircling China, an East Asian alliance, with Japan, the Philippines and Vietnam as the axis, promptly came into being and endangered vast areas in the East China Sea and the South China Sea.

It is a fatal threat to China, which relies heavily on the sea for its trade and energy. Under such circumstances, Myanmar's vital strategic position is evident, which is why the US and Japan have concentrated on the country.

Due to the strong US-Japan alliance, it is very difficult for China to achieve a decisive breakthrough in the East China Sea and the South China Sea issues, while a westward focus may be the best solution.

However, Myanmar, one of the four westward passages, was seized initially by the US and Japan, which have launched a strategic offensive in what seems like a showdown posture.

Through the powerful intervention of the US and Japan, great changes have taken place in Myanmar's political situation, and Myanmese military forces' large-scale attack on the Kachin Independence Army is only one event that shows this. 

Thus, Myanmar has become the arena where China, the US and Japan play out a strategic game. We hope China can develop a proper strategy to deal with the situation in the new century.

After the US' public announcement of its eastward strategic shift, some Chinese have given up their fantasies about the US.

 A number of Chinese have another fantasy of China uniting with Japan to isolate the US, as Japan's national strategy aims to keep abreast with China and the US in its politics.

But the US' usefulness is much greater than China's, and will be for quite some time. Japan will align with the US strategic direction in this period, rather than move closer to China.

I suggest strategy planning departments deploy unified strategic actions with regards to Myanmar and the Diaoyu Islands from the perspective of the overall Sino-Japanese duel.

On the issue of Myanmar, China should support the normal economic activities of Chinese enterprises with State power, as Japan has done. As for the Diaoyu Islands, China must leave Japan in a defensive position by regaining the initiative instantly.

By Dai Xu
The author is director of China Institute for Marine Security and Cooperation Studies. opinion@globaltimes.com.cn

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Right person for the right job, how and what to do?

MEASURE twice, cut once is a term often used by carpenters and tailors when measuring material for a specific purpose. The point is to be very careful and judicious when measuring to avoid nasty outcomes once the wood or material has been cut.

However, this phrase is just as appropriate for the hiring process as well. Once an employee is hired, the company has to ensure that the individual assimilates well into the organisation and achieves the desired level of performance; otherwise the remedial action that needs to be taken can be very tedious and even unpleasant.

One of the many pitfalls of this situation is that employers, under the pressure of filling a vacancy, could end up hiring individuals who may not be the best fit, and as a result, could be setting a whole series of messy events into motion.

Not too long ago, one of my clients approached us to take on a sales director search. The client shared that he had been a bit too hasty in hiring the last sales director, and had failed to dive deep into the strategic value and scope of the role before making the hiring decision.

In our post mortem discussion with the client, it was clear that he had hired an individual who might have been suitable for a sales manager's position; one level below the sales director's position, but had given him the sales director role because of urgency and the lack of suitable candidates at that time.

The unfortunate result of that scenario was that the newly-hired sales director resigned after only three weeks on the job under the pressure and scope of the work, leaving a path of chaos amongst all the company's clients and suppliers. As such, half-way into its financial year, the company was forced to start looking for another candidate for the sales director role.

In this instance, the company may have benefitted from measuring twice and cutting only once, rather than having to repeat the process of hiring for the same position after such a short period of time.

Other than experience, another critical-but-often-overlooked consideration in the recruitment process is the salary range or the package offered for the role. Salaries and wages are always moving in tandem with the demand of a particular skill-set or type of profile. The more in demand a particular type of skill is, the higher the cost of acquiring that skill.

Some organisations are willing to pay above market rates for certain key positions, as the alternative of not having someone in the role may actually cost the organisation more, from a commercial standpoint. On the other hand, there are some companies which would rather keep within a certain salary band rather than pay the market rate to an individual with the right amount of experience for the job.

From my experience, it is essential to have not only a good understanding of the market salaries but also what the candidate's realistic expectation is.

If we pay too high above the market rate, this often sets a very high expectation for this person to perform. And in some instances, if the individual is unable to deliver the expected results, the risk of paying an inflated price to acquire this individual might not have paid off; and if the company had hired someone less qualified because that was all its budget could afford, then the less-experienced individual may also not be able to deliver on the expectation, as he or she may not have the knowledge, capability or necessary life-experience to do so.

Finding a solution

How can we put the measure twice cut once concept into practice?

One innovative human resource director shared with me recently that he had been trying unsuccessfully to fill a role in his department for quite some time. During this period, he was introduced to an individual who was not an ideal fit to the role in terms of experience but one who was teachable and would be able to work well with the rest of the team.

So, he crafted a role around the individual's profile and experience and got the revised role approved by the top management. This worked out well for both the company and the individual, as the expectations set were achievable and realistic. The human resource director, in this case, had to measure twice but only had to cut once as he managed to find a solution to his problem. The solution turned out to be a good one, as the individual successfully completed her probation period and met her key performance indicators.

Another client who was looking for a managing director for his company was also forced to take a less conventional route to filling his needs. The client shared with me that he had already interviewed more than 20 candidates for this role before approaching us to assist with this search. The only candidate who was given an offer turned down the job when he was counter-offered by his current employer.

As such, the client already knew the market and we were hard-pressed to come up with a new slate of candidates for the search. The client liked one of our candidates but felt he wasn't ready to take on the role of managing director yet. However, instead of disregarding a good talent, the client decided to hire the individual as an operations director.

As such, the individual was able to grow into the managing director's role and the company would also have the benefit of securing a good talent who could potentially achieve more for the company in the future.

In this example, our client knew exactly what he needed for the role and exercised some flexibility to acquire good talent rather than missing out on a high-potential candidate. In addition, he did not compromise on his requirements but was able to see beyond the immediate need to find a managing director.

Different approach

When to measure and when to cut? An important aspect of measure twice cut once, is that the person doing the measuring needs to take the time to get it right and not be in too much of a hurry to get to the cutting stage. A carpenter or tailor is a craftsman who takes pride in his work. Therefore, when we hire, it is essential to look carefully at all aspects of the role which needs to be filled and take the time to understand how a potential candidate will fit that role.

The technical expertise or hard skills are only one part of the whole equation. We should take the time to understand the personality profile of the individual, his or her motivations and long-term goals.

Most hiring managers often forget to look at options in the recruitment process. There is a finite pool of talent and the best talents would also have been earmarked by your competitors as well.

So, instead of doing the same thing and expecting a different outcome, perhaps it's worth the effort to try a different approach. Tailor the job to fit a good talent, or give the person another role to allow time for the individual to grow into the intended position. Although we may not always have the option of changing the status quo in this way, the purpose of this article is to offer another alternative solution to the talent shortage problem, and hopefully, bring about a better outcome.

Talking HR with Pauline Ng

Pauline Ng, consulting director and head of BTI Consultants, encourages every hiring manager to explore all options and leave no stone unturned when making the decision to hire by utilising assessment tools and having a comprehensive map of the talent market.

The cause of unethical activities

HUMAN beings are born the same way, yet we live and die differently.

From the cradle, we pick up habits from our parents. On growing up, we learn from our teachers and society.

Some of us attend moral classes, celebrate various days and practise rituals regularly. Yet we may still be unethical.

The four main goals that everyone competes for in life are money, energy, time and food.

Deprivation of any of these may lead to unethical behaviour.

People accumulate wealth more than they need. As the ‘haves’ constantly multiply their wants, the ‘have-nots’ are deprived from having sufficient food, clothing, shelter, energy and time.

These in turn create social problems such as conflicts (i.e. civil wars, nations against nations, terrorism, religious conflicts and personal conflicts), environmental crisis (i.e. global warming, water pollution, air pollution, food inadequacy, waste production and earthquakes/tornadoes) and social crisis (i.e. rampant corruption, AIDS/HIV, divorce rate/single parents, child abuse/violence, suicide, living together and teenage pregnancy).

Human beings become unethical due to six enemies (i.e. lust, anger, greed, fear, jealousy and hatred) embedded in our subconscious mind.

When the negative energy is activated, it emotionally influences one to be unethical.

In other word, human beings become unethical due to the influence of the negative energy unknowingly.

Although every human being has the six enemies rooted in them, the dominant energy prevails.

Some might be controlled or driven by anger, while others by jealousy.

This dominant force will influence our perception which we form from the five perceptions hearing, sensing, sight, taste and smell.

Negative perception will lead us to be unethical.

The fundamental causes originate from childhood conditioning, life experiences and the current living environment.

Childhood conditions play a vital role in the formation of a person.

Human beings are formed by the age of five years and the experience is strongly rooted in the subconscious mind.

The positive energy embedded will help them to be good citizens.

However, the negative energy (i.e. childhood wounds) will lead them to being challenging human beings due to low self-esteem caused by the feeling of being powerless, abandonment and worthlessness.

Life experiences may induce negative energy into us. Based on Abraham Maslow’s hierarchy of needs, the third need being the social need plays a vital part.

If a person is always being eliminated in the development of society and country, he/she will end up being frustrated or angry, and in turn will take revenge without realising.

This is one of the reasons for the origin of criminals, gangsters and terrorists.

The current living environment, sometimes known as peer pressure, also is vital in inducing the negative energy.

In the process of meeting the needs of others or competing for equal status, human beings carry out unethical activities such as breach of trust, corruption, bribery and even discrimination.

In a nutshell, no human being would like to harm a fellow human being.

The six enemies embedded in our subconscious mind may lead to the unethical activities.

Unethical activities will not be eradicated until we understand the actual meaning, fundamental cause and origin of the fundamental cause of being unethical.

Unethical activities can be eradicated when the vision/mission of an individual’s life is noble and the nation’s administration has good governance, transparency, control and measures.

Everyone, especially the “haves” accept that the inherent quality of human being is to have self-integrity which leads to having full control over their life and work towards the betterment of human beings.

Unethical behaviour can only be eradicated when “every pulse of us is filled with love towards fellow human beings”.

By DR RAJENDRAN MUTHUVELOO
Universiti Sains Malaysia, Penang

Penang residential prices to rise 8%

RESIDENTIAL property prices in Penang are likely to rise by 7% to 8% by the first half of 2013 due to the steady demand and a stronger gross domestic product (GDP) projection for 2013.

< Geh says new properties launched with a bundled-up financial package would be most popular.

According to the latest Finance Ministry report, the GDP forecast for 2013 is between 4.5% and 5.5%, riding on the growth in the agriculture, construction, mining, manufacturing, and services sectors.

Raine & Horne Malaysia director Michael Geh says new properties launched with a bundled-up financial package would be most popular.

“This is why this segment will perform better than those properties in the sub-sales market, where the buyer and seller have to do more paper work,” he says.

Saw says harder loans may be cause of lower volume.>

Currently, the price for terraced property in prime locations such as Tanjung Bungah and Tanjung Tokong is around RM1.2mil to RM1.5mil.

The selling price of development land in prime locations ranges between RM450 and RM1,000 per sq ft.

“The stringent guidelines for housing loan, now based on the evaluation of net income rather than on gross income and the difficulty in obtaining the desired valuation report will mean that the sales of condominiums in the secondary market will face more challenges,” he says.

The new guidelines from the Penang government for foreign purchasers to buy only high-rise and landed properties priced from RM1mil and RM2mil respectively will impact adversely on foreign property transactions in Penang, according to Geh.

“More foreigners will prefer to rent than to buy, thus one can expect rental yield in the state to increase gradually,” he adds.

According to the latest National Property Information Centre's (Napic) property market report, total transactions for residential properties in Penang hit around 18,316 for the first nine months of 2012, with a transacted value of RM5.2bil.

The whole of 2011 saw the state registering some 30,674 residential property transactions valued at RM7.7bil.

Geh says the total volume of property transacted for 2012 was unlikely to catch up with 2011's.

“That the total value of property transactions has risen although the volume transacted has decreased is not surprising, as this is normally the trend,” he adds.

PPC International Sdn Bhd director Mark Saw says the lower volume of transactions may be because housing loans are harder to obtain nowadays.

“Another reason could be that the preferred choice of properties might not be available,” he says.

Malaysian Institute of Estate Agents deputy president Siva Shanker says Malaysia is unique as property prices have not dropped following the decline in transactions.

“In fact property prices will hold and then shoot up when times are good again,” he says.

Penang Master Builders & Building Materials Dealers Association president Lim Kai Seng says construction cost will likely be maintained in the first quarter of 2013.

“Although sand prices have gone up, the smaller volume of construction jobs available is offseting the impact of rising sand prices.

”Due to the competition for jobs, construction cost will be maintained,” he says.

The price of sand per load of 30 tonnes is around RM1,200, compared to about RM800 in early 2012.

Since the price of cement went up in August, the cost of construction has increased by about 3%, Lim says.