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Business Times – 15 Aug 2008
CDL chief points to some good buys as panic-sellers offload, but he’s not alarmed
(SINGAPORE) City Developments Ltd (CDL) executive chairman Kwek Leng Beng yesterday acknowledged that there have been some cases of high-end property buyers resorting to panicselling in the secondary market. These are people who’d bought their units during the early stages of the property boom ‘It is not as alarming as what some people think. Just bear in mind, because of a couple of transactions, these few swallows do not make a summer,’ he told analysts and journalists at a briefing to announce CDL’s second quarter results.
In some cases, these desperate sellers are offloading their units at prices that may be 20-30 per cent
below current market values, providing attractive bargains for astute property investors, Mr Kwek
said.
‘There are what I call bargains because some buyers, towards Temporary Occupation Permit or even
before TOP, just want to get out as long as they make $100 psf profit. ‘As an example, there were some projects launched at $2,200 psf. Then (the price) went up to $3,400-3,500 psf. Today there are some people who have gotten so frightened, they will sell off at $1,700 psf. That is the time, if you are smart enough, you can pick up (a bargain)! Buying property is not short term. Buying property is medium to longer term.’
High-end home prices are in a period of consolidation after a sharp escalation. ‘What has gone up in
a straight line will also come down,’ as Mr Kwek put it.
‘My key advice to you is as long as you can service your instalment and with the (current) cost of
construction so high, how can you be worse off than during the bad times in ‘96 and ‘97? If you are
smart enough to pick up (a property) when some people want to commit suicide, you just pick (it) up
cheap – keep it, rent it, stay – there’s your chance.’
Saying he was not too worried about the current consolidation, he added: ‘This is the time you should
buy. This is not the time you should get out, unless of course circumstances dictate that you should
get out.’
Regaling his audience with an anecdote, Mr Kwek said: ‘For example, The Sail @ Marina Bay, we
started selling at $900 psf, and the price went up to $3,000 psf-plus. The other day, somebody told
me that his friend, a broker, said there’s one unit, ninth floor, $1,800 psf. He asked me: ‘Do you want
to buy?’ I said: ‘Which unit? I want to check. I am going for a meeting. When I come back, we’ll talk
about it.’ By the time I came back, the whole thing was gone.’
The high-end residential sector will recover ‘when the sub-prime crisis is over and the integrated
resorts are in operation’, Mr Kwek said. ‘You’ll have a lot of high rollers coming in. They come in, they
like Singapore – very clean, things get done. We have a lot of (positive) attributes but we’re always
taking them for granted.’
Mr Kwek, who is also chairman and managing director of Hong Leong Finance, said that although ‘we
don’t have Freddie Mac and Frannie Mae’ here, Asia will be hit to some extent by the sub-prime crisis.
‘However, our banks are well capitalised. Monetary Authority of Singapore is monitoring closely.’
He also recalled Minister for National Development Mah Bow Tan’s comments that ‘they don’t want to
see property prices going (up) in a straight line nor do they want to see it going down in a straight line.
So I am confident they are monitoring the whole situation’.
Much of CDL’s land bank, even in the high-end, was acquired at relatively cheap cost. ‘As an
example, for the Lucky Tower site (at Grange Road), if I were to launch my project tomorrow at
$2,500-$2,600 psf, I can still make very healthy profit compared to Cliveden (nearby) which we sold at
$3,750 psf. It’s a question of whether I want to let go at $2,500 psf or whether I should keep it.
‘Don’t forget if you go ahead and construct, you incur two sets of interest costs – on land and
construction. By the time the market improves, the (unit) sizes and the design may be outdated, so
you cannot maximise the profit from that. It’s better to keep the land and wait for a better opportunity
before you sell.
‘I’m sure some (other) developers feel the same way. I will guarantee you many of these people will
not go ahead with construction,’ Mr Kwek said.
CDL, in its results statement, also cited other reasons why a feared oversupply of new private home
completions may not materialise. Tight bank financing is making developers more cautious in their
land purchases. The sharp hike in construction costs means developers who delay their launches
may hold back their construction plans as well. Given tight construction resources, contractors may
continue to find it hard to complete projects on schedule.
Straits Times
Aug 13, 2008
THE property slowdown was clear for all to see yesterday when the tender for a condo site overlooking Bedok Reservoir closed with just one bid – and at a price well below expectations.
The Urban Redevelopment Authority (URA) will likely refuse to award the 3.2ha site, given the poor offer, consultants said.
Boon Keng Development bid $84.6 million, or $118 per sq ft (psf), for the 99-year leasehold site but consultants had expected anything from $150 to $230 psf.
Apartments on the site could sell for up to $700 psf, they said.
If Boon Keng does secure the site at the junction of Tampines Avenues 1 and 10, its break-even would be about $480 to $500 psf. It would then be able to sell the apartments for around $600 psf, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak. But he does not expect the URA to sell the land at such a low price.
The increasingly cautious mood among developers explains why the site drew only one bid.
‘If this site was not on the confirmed list, it may not be triggered for tender,’ said Mr Mak.
Confirmed list sites are tendered out at pre-determined dates regardless of whether developers have shown interest.
‘If confirmed list sites were launched for tender in an increasingly uncertain market, they would attract opportunistic bids, such as the one we witnessed today,’ said Mr Mak.
Savills Singapore’s director of business development and marketing, Mr Ku Swee Yong, who had tipped bids of $150 to $180 psf for the site, said: ‘Most developers have ample land, so unless a choice plot is available, they won’t bid.’
Rising building costs are forcing developers to look for cheaper land. In such a climate, the Government has to decide whether to lower reserve prices to ensure a steady supply of mass-market private housing, or maintain the value of plots on the sales list as they form part of the nation’s reserve, said Mr Mak.
He does not expect any residential site on the government sales list to be triggered for tender unless reserve prices are lowered. If not, there could be a sharp drop in the sale of residential land from the Government this year.
Singapore tenders out land on the reserve list if developers indicate interest by committing to a minimum bid acceptable to them.
Business Times – 12 Aug 2008
Price fears ease but Q2 growth down to 2.1% on pharma swings and electronic weakness
(SINGAPORE) Concern here over price pressures will likely take a back seat to growth risks in the
months ahead, as global inflation looks to be peaking but no quick economic rebound is expected
anytime soon in the major economies.
A senior Ministry of Trade and Industry (MTI) official yesterday described the Singapore economy -
which grew just 2.1 per cent in the second quarter – as being in a ’stretched-U’ slowdown, with
sluggish growth and probably no pickup for a while.
The Q2 growth – slowest in five quarters – brings GDP growth in the first half to 4.5 per cent, which
also happens to be the midpoint of the newly-downgraded 2008 growth forecast of 4-5 per cent. This
has been narrowed from an earlier estimate of 4-6 per cent.
With weak external demand, the 2008 forecast for Singapore’s non-oil domestic exports (NODX) has
also been slashed – by six percentage points. From growing 2-4 per cent this year, NODX are now
expected to fall by that range. It would be the first contraction in the key trade indicator since 2001.
But ‘this is not looking like a very sharp slowdown’, MTI second permanent secretary Ravi Menon said
at a media conference on the Q2 economic results. ‘So you’re not looking at a V-shape kind of
situation where there’s a sharp plunge and a sharp rebound.’
In other words, there also isn’t ‘the kind of decisive turnaround that you see in previous business
cycles’, he added. ‘It’s probably going to take a bit of time this time around. It looks like this slowdown
will continue into 2009.’
The global economic dynamics will remain fluid over the next 12-18 months, Mr Menon reckons, with recovery hinging on the state of global credit and asset markets.
‘Credit remains tight; financial institutions have become more riskaverse, weighed down by weak balance sheets which will take some time to repair,’ he notes. ‘The (US) housing market has continued to decline and probably has some way to go.’ As a result, consumer sentiment and domestic demand in the industrial economies are dampened.
Against the preceding Q1, Singapore’s GDP fell 6 per cent in Q2 in adjusted, annualised terms. A negative Q3 would spell a technical recession. While MTI does not expect one, Mr Menon said it cannot be ruled out.
‘All you need is an industry or sector to swing wildly and that could happen,’ he said. As it is, the Q2 slowdown is due largely to a sharp fall in biomedical manufacturing as the pharmaceutical companies here switched to products with lower value in the quarter.
If pharma output were excluded, GDP growth in Q2, instead of 2.1 per cent, would possibly have
been almost twice as high. DBS Bank economist Irvin Seah has estimated it at 3.6 per cent.
Electronics output was also virtually flat in Q2 in the face of weak global demand. As a result, the manufacturing sector contracted 5.2 per cent in the quarter. If the downturn persists, there would ‘probably’ be some job losses in manufacturing, Mr Menon said.
MTI expects the electronics industry to remain soft in the second half of 2008. And pharma output is
expected to be hit by competition from generic drugs and delays in new product approvals, even if the
industry’s medium-term outlook is bright. But wholesale trade and the services are ‘likely’ to remain
robust and help shore up economic growth.
And while inflationary pressures have eased, Mr Menon warned that ‘we’re not yet out of the woods’.
So ‘we’re in for a rough ride but we should stay above the water’, he said, adding that GDP growth in
the second half of the year should be ‘broadly similar’ to the first half. Full-year growth will likely come
in within the lower half of the revised forecast, he added.
Most economists here have largely ‘priced in’ the poor outlook in their forecasts, though a few – such
as the United Overseas Bank team – cut their GDP growth forecasts yesterday following the Q2
release.
Even more bearish, Standard Chartered Bank’s economists believe a technical recession here is on
the cards, and see the Singapore economy growing only 3.5 per cent in 2008. They also expect the
Monetary Authority of Singapore to start shifting – from its appreciation stance over the past 10
months – to a neutral bias on the Sing dollar.
Business Times – 12 Aug 2008
The parcel has a land area of 104,044 sq ft and GFA of 54,864 sq ft
HOTEL operators can look forward to another state property to develop – this time at Changi.
The Singapore Land Authority (SLA) yesterday launched the plot – part of a former military camp – for
public tender.
The tenancy, for an initial three years, is renewable up to 2018. The guide rental is $28,500 a month.
The parcel has a land area of 104,044 sq ft and a gross floor area (GFA) of 54,864 sq ft. It comprises
two three-storey buildings and a shed.
‘SLA is offering a number of vacant state properties for adaptive re- use, such as hotels and lifestyle
attractions, in line with the government’s vision for Changi Point as a seaview hotel, resort and
recreational destination,’ said Teo Cher Hian, SLA’s director for land operations (private).
Since last year, SLA has awarded four state properties in the Changi area for adaptive commercial reuse. Two are now restaurants, while the former Changi General Hospital is being turned into a spa resort.
Groundbreaking takes place next month and the resort is expected to be ready by next year.
The Singapore Tourism Board (STB) says leading hoteliers have expressed keen interest in the latest
property.
According to STB, mid- tier and economy hotels enjoyed average room occupancy rates of 85 and 87
per cent respectively in the first half of 2008.
Nicholas Mak, director of research and consultancy at Knight Frank, said the successful tenderer for
the Changi plot will have to come up with a unique concept.
He said the hotel needs to play on Changi’s laid- back character and is likely to be mid-tier.
The first state property to be converted for hotel use, at Chin Swee Road, is a boutique establishment
with 140 rooms. It officially opened in mid-May, with an initial occupancy rate of about 50 per cent.
Business Times – 11 Aug 2008
SINGAPORE – Singapore’s economy grew at the slowest pace in five years. The gross domestic product expanded 2.1 per cent in the second quarter, after growing 6.9 per cent in the first quarter.
The Ministry of trade and Industry said on Monday the economy was hurt by a plunge in drugs output and stagnant growth in the electronics industry.
‘The lower growth in the second quarter was mainly the result of a sharp contraction in biomedical manufacturing value-added, reflecting a switch in product mix to pharmaceutical ingredients with lower values compared to a year ago,’ MTI said in a press release.
It also said the economy shrank at a annualised rate of 6 per cent in the three months to June, the second contraction in three quarters.
The latest GDP figure was better than an advance official estimate of 1.9 per cent growth. Manufacturing shrank 5.2 per cent in the second quarter from a year earlier, while construction increased 17.4 per cent.
The service sector continued to grow at a healthy pace, thought slightly slower than in the first quarter. The financial services sector expanded 10.2 per cent while the business services was up 7.5 per cent.
The Ministry said the full-year growth target for 2008 has been cut to 4.0-5.0 per cent from 4.0-6.0 per cent, a downward revision first announced by Prime Minister Lee Hsien Loong in his National Day message on Friday.
It said the revised growth target ‘is consistent with the moderation in economic growth seen in the second quarter.’
It said the outlook for the second half of the year was not expected to improve much with major economies seeing a slowdown that would in turn affect exports from Asia, including Singapore.
MTI said it expected the ‘electronics industry to remain soft in the second half of 2008, reflecting weak demand for semiconductors.
On the short-term outlook of biomedical manufacturing, it said the sector ‘will be weighed down by global trends such as strong competion from generic drugs and delays in approvals for new pharmaceuticals.’
Business Times – 09 Aug 2008
Apart from a surge in tourism, jobs and tax receipts, Singapore’s two integrated resorts could bring in new investors
WITH expectations of a big boost to the economy, more buzz and the promise of thousands of jobs, it
is no wonder we are all a little anxious to see Singapore’s two integrated resorts (IRs) completed.
Citi analyst Chua Hak Bin believes that the biggest challenge facing the IRs now is ‘probably to
contain costs given the run-up in building material prices and completing the resorts on schedule’.
‘Getting the resorts up and ready by late 2009 or early 2010 would be regarded as a big success,’
added Dr Chua. ‘The greenlight for the integrated resorts was an important turning point for the
economy and property market. Investors could see the potential upside given the stunning growth
seen in Macau and Las Vegas,’ notes Dr Chua.
Will the IRs deliver?
Dr Chua believes that the impact from the IRs will come in two phases. ‘The first phase comes from
construction spending and improved sentiment, particularly from enhanced property values,’ he says.
‘The gains in the second phase comes from the surge in tourism, jobs and tax receipts,’ he adds.
Many have already benefited from ‘enhanced property values’ especially those who bought property
around Marina Bay and Sentosa in 2005 and 2006. But as investors now know, this ’sentiment’ driven
boost has not really been sustainable.
Dr Chua also notes that recent tourism figures suggest that visitor arrivals are being hit by a global
slowdown, stronger Singapore dollar, and higher travel costs. ‘Annual visitor arrivals could rise
sharply from the current 10.4 million, but may fall short of the government’s target of 17 million by
2015,’ he adds.
In 2006, before the sub-prime crisis set in, it was estimated that Marina Bay Sands (MBS) and
Resorts World at Sentosa (RWS) could each generate about $2.7 billion of value-add – about 0.8 per
cent of Singapore’s GDP – by 2015.
Dr Chua believes the IRs will still be a stimulus and expects GDP growth of about 0.3-0.5 percentage
points in 2010-2015. In this light, the casinos will have to perform.
The casino licence was very much the sweetener for both IR operators to pump in over $10 billion to
build the resorts. But now, even the outlook for gaming is not so certain with gaming revenues in Las
Vegas expected to fall this year.
Jonathan Galaviz of Globalysis, a Las Vegas-based boutique travel and leisure sector strategy
consultancy, says that while the casino gaming industry has been traditionally recession resistant, ‘it
is not recession proof’.
‘This is especially the case when an industry, such as airlines, indirectly inhibits the ability of tourists
to visit a destination like Las Vegas due to higher airfares,’ he adds.
And this does not bode well for other gaming capitals. ‘If East Asia were to experience a significant
economic downturn, then Macau would surely be affected, the question would only be by how much,’
says Mr Galaviz.
Singapore’s IRs are also very much modelled after the mega resorts of Las Vegas and the new
developments in Cotai, Macau. And the success of this model is still pending. ‘It will take a long period
of at least 5-10 more years to see whether the integrated resort model of entertainment in Macau has
been a successful strategic endeavour,’ Mr Galaviz says.
In the mean time, work on the IRs here continues. With barely a year to go, MBS says that, ‘a great
majority of construction works have been awarded’.
RWS said it has given out more than $2 billion worth of contracts. It added that rides and attractions
for Universal Studios Singapore are currently being designed and pre-fabricated off-site in places
such as the US and Europe.
When the IRs are up, the much anticipated ’second phase’ economic euphoria can begin. Savills
Singapore has analysed the impact of new gaming resorts on property markets and concluded that
while Singapore has undergone major structural changes, with new concepts such as waterfront
housing, integrated hotels and new retail formats, some of the impact has already been priced in.
Still, Savills director (marketing and business development) Ku Swee Yong says: ‘The publicity and
attention from tourists and high rollers could bring in new investors and many more jobs. With
Singaporeans almost fully employed, the foreign talents needed to fill these jobs add to demand for
residential units and office space.’
But Mr Ku adds: ‘The period and degree of sustainability will depend on the money spent by the
tourists, MICE groups and the spin-off they create for the economy and the financial services and
tourism sectors.’
The good news is that both are scheduled to open on time. MBS maintains that it will be completed by
December 2009 and RWS confirms it will open in early 2010. ‘As our resort is massive at 49 ha with
varied offerings, we are indeed opening in progression, starting with Universal Studios Singapore,
Hotel Michael, Maxims Residences, Hard Rock Hotel, Festive Hotel, FestiveWalk, as well as the
casino in early 2010. The rest will open progressively,’ adds RWS assistant vice president,
(communications) Robin Goh.
One of the bigger challenges at the IRs is labour. Mr Goh says: ‘Finding talent, training them, and
then retaining them – is no walk in the park.’
MBS managing director George Tanasijevich adds: ‘We are working closely with the Singapore
government and relevant government agencies to ensure there is a proper balance in the labour pool
in order to maintain a stable and competitive labour market overall. Priority will be given to
Singaporeans for all roles.’
That the IRs are projects on a national scale is not lost on the operators either.
RWS’s CEO says: ‘Singapore’s founding fathers built this country into what it is today, with very little
and within a very short time. Resorts World at Sentosa strives to replicate her success, and make
Singapore proud with a destination that will rank as Asia’s No 1 leisure spot when it opens in 2010.’
New engines drive Singapore’s property market but pitfalls remain
THE Singapore property market has weathered the storm from the US sub-prime crisis, soaring oil
prices and overall inflation, pretty well.
Runaway increases in property values in the high-end residential and prime office sectors seen in the
past couple of years, for instance, have started to ease. But they have not dived, and panic has not
set in, at least not so far.
Knight Frank managing director Tan Tiong Cheng says: ‘To some, this is a welcome breather from the
breakneck pace of increases recorded in the last 24 months.’
CB Richard Ellis chairman (Asia) Willy Shee too observes: ‘The overall market has displayed some
resilience. In the office market, there’s still demand for office space with occupiers still looking to precommit office space in yet-to-be completed buildings.’ While the private housing market is not as
buoyant as last year, transaction volumes have picked up in second quarter this year with
encouraging sales from mid and mass-market projects, he adds.
Market watchers feel that in the short-term, property values could head south, driven by near-term
fundamentals. However, the mid-term prospects for Singapore’s real estate sector are generally
considered sound. As a major developer puts it: ‘Population growth, global and regional wealth
creation, sustained government investment in infrastructure, the perennial sharpening of Singapore’s
competitive edge, limited land, security and political stability, internationalisation of the property
market – all these must be good for Singapore real estate prices in the long run.’
The Remaking of Singapore has helped create sound fundamentals for the local property market. The
government’s decision to break from the past and go ahead with developing two integrated resorts
with casinos as well as its efforts to position Singapore as a leading contender in the race among
global cities to attract wealth and talent have boosted the island’s prominence on the radars of
international property investors.
New engines for growing the Singapore economy have also been put in place and this to some extent
may also help shield the island and its property market from the full impact of what’s happening in the
US.
Investments and job creation from the IRs, Sports Hub, expansion plans for rail network and other
infrastructure projects, Singapore’s policy of welcoming foreign talent to its shores, and the strategy of
positioning Singapore as a hub for various industries – financial industry/wealth management, tourism,
education and healthcare – are expected to provide momentum for Singapore’s economy.
‘The IRs, F1, Sports Hub and Youth Olympic Games surprised observers who think that Singapore is
only a clean and safe place to do business but never a place where you can let your hair down,’
observes Knight Frank’s Mr Tan.
‘What do these initiatives mean to savvy investors? They mean that we are perceptive in discerning
changes in the global world, have the will to question old assumptions and have the courage to move
a population to accept initiatives that can be potentially divisive.
‘That the government and its people can move together to tackle challenges ahead demonstrates the
inherent strength of the country as a global city to do business and a place to live,’ Mr Tan added.
DTZ executive director Ong Choon Fah said: ‘Wealth management industry is still a very big thing
here. Wealth from high networths in Asia – China, India – is flowing into Singapore. With IRs and the
F1 race, Singapore is being marketed as a playground for the rich and famous. Family offices and
philanthropy are fast being added to the suite of services offered by private bankers.
‘The removal of estate duty has been a major boost to Singapore’s ambitions to be a wealth
management hub.’
New challenges
But the road ahead for the local property market is paved with challenges. Colliers International
director of research and advisory Tay Huey Ying argues that the ‘mid-term optimism for the Singapore
property market is underpinned by the IRs and the Marina Bay Financial Centre (MBFC). ‘If these
projects do not deliver, confidence may be shaken,’ she warns.
To be considered successful, the IRs will have to be able to continuously attract visitors year after
year and not fizzle out after the initial novelty wears off. Similarly, the MBFC can be truly considered
an achievement for Singapore’s aspirations to be a leading financial centre if the movement of tenants
into MBFC does not create a vacuum in existing office buildings that can’t be filled within a short span
of time; otherwise, it may just show there’s not that much depth in Singapore’s financial industry, Ms
Tay reckons.
In the residential property market, a short-term challenge that could materialise is if substantial
numbers of home buyers who’ve purchased private homes on deferred payment schemes in the past
few years begin to panic and dump their properties as the projects’ completion dates loom closer.
That would be the time when these buyers have to pay the bulk of the purchase price to developers,
and if some of them think they may have difficulty finding home loans, especially if they are still
holding on to several such units, they may panic and dump their properties at lower than current
market prices.
Such a scenario would be a house hunter’s dream, but could destroy wealth for the majority of
Singaporeans who already own their own homes.
‘Instead of subjecting themselves to panic selling, these property owners may wish to bear in mind
Singapore’s mid-term prospects and should try to hold their properties by securing a financing
package or a tenancy for their property,’ Ms Tay suggests.
Escalating construction costs
Escalating construction costs are another big concern going ahead. ‘The high construction costs
could translate into high purchase cost for buyers and investors of private property assets as well as
contribute to inflationary pressure for end-users of public infrastructure,’ says CBRE’s Mr Shee.
‘The high construction costs would also eat into developers’ profit margins and hence reduce the
incentive for developers to undertake new projects or acquire sites from the Government Land Sales
programme,’ he adds.
On the macro political front, Knight Frank’s Mr Tan says an immediate challenge is the confluence of
unstable political situations in three neighbouring countries – Malaysia, Thailand and Indonesia (which
will have a election next year). ‘Put simply, we’re a good property in a bad neighbourhood,’ he said.
CBRE predicts that office rentals are approaching a peak. The average monthly Grade A rental value
rose to $18.80 per square foot in Q2 this year, an increase of 43.5 per cent from the same period last
year. With completions of major office projects from 2010, including MBFC Phase 1 and 50 Collyer
Quay, the property consultancy group predicts the average Grade A office rental will ease to $12-15
psf post-2010.
On a more optimistic note, it highlights that with all the new office developments coming up, a
significant amount of future office stock will constitute world-class modern Grade A buildings. ‘Around
64 per cent of the office completions in the next five years will be Grade A quality,’ Mr Shee says.
For the private residential sector, CBRE has said a correction of residential prices to the tune of 5 to
10 per cent in the second half of this year is likely as the global economy suffers the continued
onslaught from the sub-prime mortgage meltdown and inflation.
Riding the turbulence
Colliers’ Ms Tay highlights the importance of a sound government land supply policy – ‘not just shortterm reactions’ – will help the local property market to ride out the challenges ahead.
‘For individual home buyers and sellers, they should arm themselves with the right information instead
of succumbing to herd instinct or following their emotions,’ she adds.
Knight Frank’s Mr Tan says: ‘Demand for real estate is dependent on economic prospects. With
strong economic fundamentals, I have no doubt that interest in real estate in Singapore by local and
foreign institutional investors will return once the current market turmoil blows over.
In similar vein, CBRE’s Mr Shee says: ‘Fundamentally, the long-term development of the office, retail,
residential and hospitality sectors will not change in spite of the present global financial worries.
‘It was all these government initiatives that attracted a fresh wave of foreign investment into
Singapore in the last 24 months, and it will be these developmental drivers that will continue to attract
investment from various parts of the world to Singapore.’
In just 12 months, Singapore has swung from Boom Town to seeing its slowest quarter in five
years.
ONE year ago, economic and business sentiment in Singapore was probably at an all-time high: The
property market was on a roll, banks and finance houses went on a hiring spree, and the economy,
flush with liquidity, looked headed for a fourth year of 7-9 per cent growth.
The signs spelt Boom Town everywhere you looked, and economists predicted that Singapore, restructured and reinvented, would trail only China and India among Asia’s fastest-growing economies for years to come. Whiffs of (near-irrational) exuberance were much in the air. Then, bang! Just days before National Day 2007, a global financial market meltdown threatened the party mood. The balloons popped, but as it turned out, the Singapore economy’s strong first-half momentum was enough to see it through the year. Gross domestic product (GDP) growth for 2007 still turned in at a robust 7.7 per cent.
Twelve months on, the mood is decidedly more sombre. Overnight, it seems, the property bubble (of
‘exuberance’, not so much ‘excess’ this time) burst, the buzz in the finance sector has all but fizzled,
hot hiring has cooled (with even talk of selective retrenchment in some segments), and the economy
has now seen its slowest quarter in five years.
Has there been a crack in the domestic underpinnings somewhere, or is – as is widely assumed – the
small open economy just taking hits from external headwinds?
The much-heralded US economic slowdown has finally come to pass, compounded by a sub-prime
mortgage crisis that continues to wreak havoc through not only the American economy but pretty
much globally, in second or third-round hits.
Slower growth has also set in elsewhere in the developed world, following several years of robust
performance. Not least, a surge in global energy and food prices has pushed inflation to the fore of
policy concerns in just about every part of the world.
And latest analyses by economists list more than several major economies ‘navigating towards (or
through) recession’ – including the US, Canada, Spain, Ireland, Italy, the UK and New Zealand.
Germany, France and Japan are also seen to be teetering on the brink of recession. In other words,
as RGE Monitor notes, a full-fledged G-7 recession in the making.
With this outlook, coupled with ever-present risks of yet another bout of global financial turbulence, it
is interesting to see some fairly upbeat forecasts of East Asian resilience, like the Asia Development
Bank’s (ADB) that expects the region to weather the global economic turmoil ‘relatively well’ and grow
7.6 per cent this year and next.
ADB has the Singapore economy growing 4.9 per cent in 2008 and 5.8 per cent in 2009 – probably a
little more bullish than the consensus here at this point – on the back of strong domestic demand
(driven by business investment) and buoyant exports. It’s not apparent that Singapore’s exports will
be too ‘buoyant’ this year – the official forecasts of 2008 export growth were pared a few months ago,
and still the May and June trade figures proved unexpectedly bad. Economists also generally see
Singapore – given its size, structure and exposure – as the region’s most vulnerable to a global
downturn.
Has the slowdown exposed, or widened, Singapore’s fault lines? Sure, inflation surged through the
economy, price pressures piled up. But apart from ever greater external uncertainties and a fall in
sentiment, fundamentally what has changed in the six months or so between Boom Town exuberance
in 2007 and sombre caution in 2008? Problems such as structural joblessness in older Singaporeans
and a growing income disparity have not and cannot be swept away overnight.
That said, none other than Minister Mentor Lee Kuan Yew has declared that the next five to 10 years
will be Singapore’s most promising yet as it stakes its place among the world’s top cosmopolitan
global cities.
‘We are moving to a new plateau, a new platform. You can see it visibly before your eyes,’ Mr Lee
said last month.
It’s surely a vision to inspire all Singaporeans. But, for all the spin around Singapore’s restructuring
and transformation, enhanced by a huge influx of foreign skills, some believe that its fortunes – and
Asia’s – will, for the foreseeable future, still largely be tied to the global economy. Which also means
that Singapore can and will ride on the next upturn, when – or if – it comes.
Business Times – 09 Aug 2008
Prime Raffles Place space up only 1.1% quarter on quarter: DTZ report
GROWTH in office occupancy costs in Singapore has started to taper off after the meteoric rise last year, reflecting the increased resistance to higher occupancy costs, according to a new report.
‘Apart from Raffles Place, Shenton Way/ Robinson Road/Cecil Street and decentralised areas, growth in occupancy costs in other areas like Marina Centre and Orchard Road was flat in 2Q 2008,’ said DTZ in its second-quarter office market brief.
Average occupancy cost of prime office space in Raffles Place grew only 1.1 per cent quarter on quarter to $19 per square foot per month (psf pm) in the second quarter of 2008. In the Shenton Way/Robinson Road/Cecil Street area, the average office occupancy cost rose by 2.6 per cent quarter on quarter to $11.80 psf pm, while office buildings in HarbourFront enjoyed a higher growth of 5.3 per cent to $10 psf pm.
By contrast, in the first quarter of 2008, occupancy costs continued to rise amid a dearth of supply. Prime occupancy cost in Raffles Place gained 13.9 per cent quarter on quarter to $18.80 psf pm in the first quarter of 2008, for example.
‘As more new supply come on stream, office occupancy is likely to ease and limit growth in occupancy costs in the CBD for the rest of 2008,’ said DTZ, referring to the Central Business District.
However, the report also said that the cautious business outlook and companies gravitating towards cheaper premises like decentralised office buildings, industrial properties, business parks and disused state properties are putting a downward pressure on office occupancies.
Islandwide, average occupancy eased by 0.2 percentage point quarter on quarter to 96.9 per cent in Q2 2008. As a result of occupiers moving out to cheaper locations after lease expiration, office occupancies in
Raffles Place and Marina Centre dropped by 0.3 percentage point to 97.4 per cent and 1.2 percentage points to 98.6 per cent respectively.
But over in decentralised areas like Novena and HarbourFront, occupancy levels rose by 0.4 percentage point to 99.0 per cent and 1.1 percentage points to 98.7 per cent respectively, supported by lower occupancy costs.
DTZ also released its Q2 2008 office report for Kuala Lumpur yesterday. Gross occupancy costs for prime buildings in the Malaysian city rose 3.9 per cent quarter on quarter to RM6.32 (S$2.65) psf pm in the second quarter of this year, the property firm said.
But despite this, financial institutions with presence in Singapore are considering locating call centres
in Kuala Lumpur because of cost differential and special tax breaks, DTZ said in response to a query
from BT.
Source: Business Times 5 Aug 08
Business Times – 25 Mar 2008
THE Housing and Development Board will introduce mandatory checklists for housing agents handling resale flat transactions from May 1 – a move welcomed by industry players.
The checklists cover key policies and procedures that housing agents will need to advise resale flat buyers and sellers on before they commit to a transaction, HDB said yesterday.
‘This is part of HDB’s ongoing efforts to ensure that buyers and sellers are aware of the relevant HDB purchase and financing policies when buying/selling an HDB flat,’ it said.
The move comes after a new scam involving HDB flats surfaced recently. Under the scam, a seller and buyer together report a falsely low sale price to HDB.
The buyer then pays the difference between the actual and declared price to the seller in cash, which means the seller has more cash in hand – rather than having any leftover money go back into his CPF account. To sweeten the deal, the seller usually gives the buyer a discount on the market value of the flat.
Under HDB’s new initiative, housing agents will have to submit a completed resale checklist to HDB with a resale application. Resale applications that do not comply with this requirement will be rejected and there will be ’serious penalties’ for false declarations.
Housing agents engaged by both sellers and buyers will have to go through a resale checklist with clients before an option to purchase (OTP) is granted or exercised.
Buyers and sellers who do not engage the services of housing agents need not submit a checklist. PropNex, which says it has more than 40 per cent of the public housing resale market, welcomed HDB’s move.
Public housing has many policies and financing requirements that many may not be familiar with, said PropNex chief executive Mohamed Ismail.
Most buyers tend not to read the important notes attached to OTP, he said.
The new resale checklist for housing agents engaged by buyers, for example, will ensure that buyers are aware of their rights as well as of financing matters. It will also highlight to them the fact that any form of cashback arrangement, such as over or under declaration, is punishable by law.
Similarly, the checklist for sellers’ housing agents will ensure prospective sellers understand the various eligibility rules.
Mr Ismail said that while many agents already educate potential buyers and sellers, some may not, leaving them in the dark.
‘This initiative should lead to greater transparency for buyers and sellers, and ensure a consistently high level of professionalism amongst the agents,’ he said.
Business Times – 25 Mar 2008
Housing rentals to rise 5-15% year-on-year in 2008: Knight Frank
PRIVATE housing rents are expected to grow at a slower pace this year than last year, Knight Frank said in a report yesterday.
The property consultancy firm expects a year-on-year rise of 5-15 per cent in 2008 – after a massive 40 per cent year-on-year increase in 2007.
Knight Frank’s estimates are based on the resistance of tenants and companies to even higher rents, and the limited availability of places at foreign schools for children of expatriates.
‘Due to the fact that foreign schools are full and there are long waiting lists faced by children of foreign families who relocated here, housing demand from new foreign family tenants is projected to decrease,’ Knight Frank said.
‘On top of this, foreign tenants as well as corporate HR (departments) have readjusted housing allowances this year, which constricts rental demand according to their budgets.’
Despite this, a demand-supply imbalance could still result in rental rises until a supply of new units is felt significantly from 2009.
About 8,400 new private homes will be completed this year. But the number will expand dramatically in the three years from 2009 to 2011, with an estimated 16,000 to 17,000 units completed each year.
This could put downward pressure on rents, Knight Frank said.
The same holds true for the retail sector. Knight Frank predicts that landlords could face stronger resistance from retailers to rising rents in the later part of 2008 as more space comes on stream.
‘Rents are forecast to maintain at their current level only until early 2008,’ it said. ‘Faced with a larger supply in the pipeline in the second half of 2008, island-wide prime retail rents are projected to appreciate by a relatively modest 5-10 per cent for entire 2008, compared to 22.1 per cent growth in 2007.’
Knight Frank also said growth in office rents and capital values in 2008 and 2009 will likely to be more moderate than in 2007. Office rents are forecast to rise 10-20 per cent year on year, while capital values are expected to increase 10-15 per cent year on year.
Business Times – 25 Mar 2008
PROPERTY EXPERTS GIVE SOME TIPS
Seven tips for buying a second home
Did you know, for example, that an HDB flat near an MRT station will give you a higher rental yield than most private properties?
The importance of being earnest when going en bloc
A major en bloc sales agent discusses the impact of the new legislation on collective sales introduced last year on warring owners.
Are you overpaying for your home loan?
Is the deferred payment period on the condo unit you bought a little while ago expiring soon? Read an independent mortgage broker’s advice before you go shopping for that home loan.
Aim for a landed home
So you’ve missed out buying a condo last year? Not to worry. Landed homes may become more appealing this year as they have yet to see the sharp price appreciation experienced by their non-landed counterparts.
The Straits Times March 25, 2008
THOUSANDS of applications poured in for a condo-like Housing Board project in January – but as of last week, less than two-thirds of the flats had been taken up.
About a third of the 714 units – or about 250 units – in City View @ Boon Keng remained unsold, said HSR Property Group, which is marketing the project.
These flats will be offered to the public, probably via walk-in selection.
The number of leftover units came as a surprise to market watchers, given that 3,500 applicants had vied for them.
This works out to five would-be buyers for each flat at City View, the second public housing project to be built by a private developer.
It boasts condo-like features such as timber floors, built-in wardrobes and air-conditioning.
All the applicants were given a chance to book the flats they wanted, said HSR project director Kellie Liew.
The selection process stretched over 20 days and ended last Thursday, with more than 3,000 potential deals falling through.
Developer Hoi Hup Sunway sold about 460 units, including six of the top-priced five-room units at $727,000 each, said Ms Liew.
But she added that some buyers backed out of their purchases due to the weakening property market, while others did not meet the required criteria to buy the flats.
‘We’ve been having a series of not-too-positive news about the market, so that could have affected the sentiment of the buyers,’ she said.
‘Also, some applicants were over-qualified, with combined monthly incomes of more than $8,000, so they were not eligible for the flats.’
Hoi Hup declined to comment.
Market watchers suggested that the relatively high prices for the City View units could also have proved a deterrent at crunch time.
The three-room flats were priced between $349,000 and $394,000, double the price tag of similar flats in the vicinity.
Five-room flats went for up to $727,000, which experts said was close to condominium prices.
‘Some people may have jumped on the bandwagon because of the hype, but when it was time to pick up a unit, they felt it was actually too expensive,’ said Mr Mohamed Ismail, chief executive of property agency PropNex.
‘In today’s market, there are many 99-year leasehold properties with full condo facilities that are going for less than $600 per sq ft, so some buyers may have thought twice.’
But Mr Chris Koh, director of Dennis Wee Properties, believes the remaining units could be snapped up quickly.
‘Fundamentals are still strong,’ he said. ‘We don’t see property prices sliding at all.’
He added that the situation could mirror that of The Premiere @ Tampines, the first developer-built public housing project.
The Premiere drew almost 6,000 applications for its 616 units when it was launched in 2006, but fewer than 500 units were sold when the booking process was over.
When the remaining flats were released to the public, long queues formed and would not disperse despite a downpour.
The Straits Times March 25, 2008
Such ‘payday loans’ come with high interest rates, piling on the debts
CLEVELAND (OHIO) – AS HUNDREDS of thousands of American home owners fall behind on their mortgage payments, more are turning to short-term loans with sky- high interest rates to get by.
While hard figures are hard to come by, evidence from non-profit credit and mortgage counsellors suggests that the number of people using these so-called ‘payday loans’ is growing. This is a negative sign for economic recovery as the United States housing crisis deepens.
‘We’re hearing from around the country that many folks are buried deep in payday loan debts as well as struggling with their mortgage payments,’ said Mr Uriah King, a policy associate at the Centre for Responsible Lending.
A payday loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 per cent. The average borrower ends up paying back US$793 for a US$325 loan, according to the centre.
The centre also estimates that these lenders issued more than US$28 billion (S$38.9 billion) in loans in 2005. This was the latest available figure.
In the Union Miles district of Cleveland, which has been hit hard by the crisis, all the regular banks have been replaced by payday lenders.
‘When distressed home owners come to us, it usually takes a while before we find out if they have payday loans because they don’t mention it at first,’ said Ms Lindsey Sacher, the community relations coordinator at non-profit East Side Organising Project, which works to refinance US sub-prime mortgage borrowers on the verge of default or foreclosure. ‘But by the time they come to us for help, they have nothing left.’
On top of the steep cost, payday loans have an even darker side, Ms Sacher noted. ‘We also have to contend with the fact that payday lenders are very aggressive when it comes to getting paid.’
Mr Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio, an umbrella group representing some 600 nonprofit agencies in Ohio, said the state is home to some 1,650 payday loan lenders. This is more than all of Ohio’s fast food franchises put together.
‘That’s saying something, as the people of Ohio really like their fast food,’ Mr Faith said. ‘But payday loans are insidious because people get trapped in a cycle of debt.’
Mr Robert Frank, an economics professor at Cornell University, equates payday loans with ‘handing a suicidal person a noose’.
‘These loans lead to more bankruptcies and wipe out people’s savings, which is bad for the economy,’ he said.
‘This is a problem that has been caused by deregulation’ of the US financial sector in the 1990s.
REUTERS
The Straits Times March 25, 2008
Prices jump 6.5%, driven by higher food, transport and housing costs
CONSUMER prices surged 6.5 per cent last month from a year ago, continuing a rate of increase not seen in 26 years.
Food, transport and housing costs were again the main drivers as a confluence of external and internal factors kept last month’s inflation at just a shade off January’s 6.6 per cent.
The figure – released by the Department of Statistics yesterday – was broadly within market expectations. A Bloomberg News poll of 17 economists tipped a rate of 6.8 per cent.
Experts said rising prices will persuade the Monetary Authority of Singapore (MAS) to keep its policy of allowing the local currency to strengthen, to help fight off higher prices of imported goods.
But there is less consensus as to whether the central bank will get more aggressive when it holds its scheduled review next month.
Any tightening of monetary policy will hurt an already slowing economy.
‘February’s consumer price index moderated a touch but still stayed elevated,’ said Goldman Sachs economists Mark Tan and Michael Buchanan, who expect inflation to peak at around 7 per cent in the first half of the year.
Prices of meat and poultry, cooking oils and dairy products clocked double-digit gains, while rice, cereal and fruit cost almost 10 per cent more than they did last year.
High oil prices also made themselves felt in electricity bills and at petrol pumps.
Indeed, transport costs jumped 9.6 per cent, boosted also by higher taxi fares and car prices.
Housing costs surged the most at 8.8 per cent. But this was mostly a pass-on effect from January’s one-off revision in annual home values.
Health-care costs rose 7.4 per cent from higher hospitalisation fees and medical consultation charges – and also as Chinese herbs became costlier.
Standard Chartered Bank economist Alvin Liew said sustained increases in this area are of concern, especially as the population gets older.
He noted that the sector is especially dependent on foreign nurses. Competition for these workers and the rising currencies of their home countries may be driving up wage costs in Singapore.
The statistics department also highlighted foreign maid salaries, holidays, cable subscriptions and cigarettes as other significant sources of inflation.
The Trade and Industry Ministry issued an accompanying statement yesterday, saying the ‘underlying momentum in inflation remained stable’. It expects this to decline ‘during the year’ and is retaining its forecast of 4.5 to 5.5 per cent for annual inflation.
Still, Mr Tan and Mr Buchanan believe the MAS will move next month to allow for a faster appreciation of the Singapore dollar.
‘Slowing growth is an obstacle…but in our view, the easing in fiscal settings revealed in the 2008 Budget and low interest rates will provide a buffer to growth,’ they said.
But Citigroup economist Kit Wei Zheng reckons the MAS will stay put as growth concerns take precedence.
He raised his full-year inflation forecast to 5.4 per cent, ahead of the latest data. But he also slashed his economic growth estimate to 4.7 per cent, from 5.2 per cent, citing worsening United States conditions.
Business Times – 22 Mar 2008
CHING TUAN YEE and BENJAMIN NG reflect on the planning of Singapore’s most ambitious urban project and highlight the exciting developments in store for Singaporeans and visitors alike
THE vision for Marina Bay is that of a high-quality, 24/7 live-work-play environment, one that encapsulates the essence of the global city Singapore is envisaged to be.
Waterfront business districts such as Canary Wharf in London and Pudong in Shanghai have come, in recent years, to signify urban progress and prosperity. They have raised the international profile of their respective cities while spurring growth and investment.
The Singapore example is in Marina Bay. A seamless extension of Singapore’s flourishing central business district spanning 360 hectares of prime land for development, Marina Bay is our city’s most exciting and ambitious urban project that will support our continuing growth as a major business and financial hub in Asia.
Set by the water’s edge and with our signature city skyline as a backdrop, Marina Bay is envisioned to be a Garden City by the Bay, a 24/7 destination presenting an exciting array of opportunities for people to explore new living and lifestyle options, exchange new ideas and information for business, and be entertained by rich leisure and cultural experiences in a distinctive environment.
The groundwork for the expansion of the existing CBD (Central Business District) and its transformation into a waterfront business district focused around Marina Bay had been laid as early as the late 1960s. Land adjacent to the CBD was reclaimed in phases between 1969 and 1992.
The Master Plan for Marina Bay focuses on encouraging a mix of uses (commercial, residential, hotel and entertainment) to ensure that the area remains vibrant around the clock.
The concept of ‘white’ site zoning also gives developers more flexibility to decide on the mix of uses for each site, including housing, offices, shops, hotels, recreational facilities and public spaces.
To cater for good connectivity and seamless extension, the development parcels at Marina Bay were planned based on a grid urban pattern which extends from the existing road network within the CBD.
This grid creates a flexible framework with a series of land parcels that can be amalgamated or subdivided to meet different requirements as well as changing demands and allow the phasing of developments.
Creating signature districts
In the planning of Marina Bay, specific attention was paid to creating value. The land parcels are located within a series of distinctive districts, each focusing around attractive public open spaces and tree-lined boulevards which will provide signature address locations for developments.
Along the waterfront and fronting key open spaces, building heights are kept low. This maximises views to and from individual developments further away from the waterfront, enhancing their attractiveness and creating a dynamic ’stepped-up’ skyline profile as well as more pedestrian scaled areas.
The successful development of Marina Bay is supported by state-of-the-art infrastructure. To date, the government has pumped in more than $4.5 billion to facilitate development of the area.
A Common Services Tunnel housing electrical and telecommunication cables and other utility services underground is being built, making repeated road diggings a thing of the past. An extensive road and rail network has also been planned, with three MRT stations to be built in the area as part of the new Downtown rail line.
A new vehicular and pedestrian bridge will link Bayfront to Marina Centre. The 280m pedestrian linkway – the longest in Singapore – will sport a dynamic double helix structure. Together with a new waterfront promenade, this will create a continuous walking loop connecting up the necklace of attractions and open spaces around the Bay.
Another key infrastructural project is the Marina Barrage. When officially opened in 2009, it will turn the existing water body into Singapore’s first reservoir in the city. This will serve as a new source of fresh water for Singapore and a new lifestyle attraction allowing for a variety of water-based activities and events to take place. It will also house Singapore’s tallest fountain project.
The softer touch
Having provided for much of the ‘hardware’ for the new business district, it became clear that URA had to go beyond its traditional roles of urban planning and land sales management. To this end, the Marina Bay Development Agency was set up within URA to focus on the ’software’ for developing the area. Since then, URA has embarked on a full spectrum of marketing, promotion and place management activities to showcase the uniqueness of this new destination.
To generate more buzz, a calendar of events and activities for public spaces and water bodies has been put in place in partnership with various agencies and the private sector. Signature events, like the Marina Bay Singapore New Year’s Eve Countdown, have become a new urban tradition. Marina Bay has also become the definitive venue for a host of sporting events like the F1 Powerboat Race, the Oakley City Duathlon and the Great Eastern Women’s 10km run.
The shape of things to come
While it will take more than a decade for the entire area at Marina Bay to be fully developed, a host of projects that will offer people from all walks of life exciting and attractive options to live, work and play are already taking shape. These upcoming developments have contributed significantly towards enhancing the area’s reputation as a location that offers something for everyone: a tropical living environment among lush greenery; a bustling global business hub and a lifestyle locale presenting a kaleidoscope of entertainment and leisure choices.
LIVE – by the Bay. Marina Bay has fast become one of the city’s most popular and prestigious residential addresses, with a number of outstanding projects already under construction.
The Sail @ Marina Bay will be the tallest residential development in Singapore at 245 metres when it is completed in 2009. It boasts two towers – one at 70 storeys and the other at 63 storeys. Meanwhile, the Marina Bay Financial Centre incorporates the 55-storey Marina Bay Residences, comprising 428 luxury apartments, and the Marina Bay Suites, a 66-storey development offering 221 exclusive bayside units.
WORK – by the Bay. With its prime location in the heart of Singapore’s future downtown, Marina Bay continues to be a magnet to global investors and tenants seeking premium office space in a prime location.
The development of Marina Bay will help to further position Singapore as one of Asia’s leading financial centres, doubling the size of the existing financial district. The new growth area set aside for the seamless extension of the existing financial district is more than twice the size of London’s Canary Wharf and will provide some 2.82 million square metres of office space, equivalent to the office space within Hong Kong’s main business district, Central.
Already, a nucleus of office developments is forming with the development of One Raffles Quay, the soon-to-be-completed Marina Bay Financial Centre, and the two recently sold sites at Marina View.
Several global banks and multinational corporations, including UBS, Deutsche Bank, DBS and Standard Chartered, are already located or will be locating in these developments.
PLAY – by the Bay. The ‘fun’ factor at Marina Bay is expected to be raised to a new high when the Marina Bay Sands Integrated Resort opens its doors in 2009. With its impressive design featuring a sky park and three soaring 50-storey hotel blocks with landscaped balconies, the area’s most anticipated project will add a new dimension to our city skyline.
The integrated resort is poised to be a world-class development that will house a casino, two theatres, 110,000 sq metres of meeting and convention facilities, as well as about 2,500 hotel rooms. Other attractions at the integrated resort include restaurants in the form of two floating crystal pavilions and an ArtScience Museum, the rooftop of which becomes an amphitheatre with tiered seating.
Building on Singapore’s green legacy, three world-class waterfront gardens of about 100 hectares have been planned for the area. With the first phase of the project slated for completion in 2010, the Gardens at Marina Bay will be another unique destination attraction for those visiting Singapore and a green sanctuary for people living and working in the city.
Each garden will feature a distinctive design and character. All three gardens will also be interconnected via a series of pedestrian bridges to form a larger loop along the whole waterfront and linked to surrounding developments, open public spaces, transport nodes and attractions.
Focal point for the community
Marina Bay is a prime example of a visionary masterplan that is not only well on its way to becoming a new focal point for the local community, but it has also drawn worldwide attention and interest.
Testament to this is its achievement in attracting close to $16.5 billion worth of private investments to date from international investors and developers from the US, Hong Kong, Australia, Europe as well as the Middle East.
Moving forward, Marina Bay will continue to be the centrepiece of Singapore’s urban transformation, providing the city with the opportunity to attract new investments, visitors and talents.
The URA, as the Development Agency for Marina Bay, is committed to our long-term and strategic plans to meet the area’s future development needs. We will continue to adopt a holistic and integrated approach in designing the area with people in mind, work with partners and communities to implement key infrastructure, and carry out active promotion and place management activities. We will also engage investors to garner more interesting business concepts and ideas. This will take us closer to our vision of making Marina Bay a choice destination for all, one that promises
Singaporeans and visitors alike a brand-new, live-work-play experience.
Ching Tuan Yee is Executive Architect, Urban Planning Section, Urban Redevelopment Authority, while Benjamin Ng is Place Manager, Marina Bay Development Agency, Urban Redevelopment Authority
Business Times – 24 Mar 2008
BT-UniSIM survey shows companies gloomy about next six months, despite strong orders
(SINGAPORE) Business confidence in Singapore has slumped to its lowest level since end-2004, according to the latest business climate survey by The Business Times (BT) and SIM University (UniSIM).
While sales and profit figures were largely unchanged in the three months to Dec 31, 2007, prospects have fallen dramatically for the next six months, the poll of 128 companies revealed.
This was despite companies reporting a strong pipeline of orders and new business. Some 71 per cent of the firms polled have overseas businesses.
Chow Kit Boey, director of the quarterly BT-UniSIM survey, said: ‘I think the firms may be overly pessimistic because of the grim prospects in the US economy, accompanying volatile and weak stock markets and rising oil prices.’
She said that improved orders and new business numbers suggest that the Singapore economy would not suffer too badly in the first quarter of 2008, given the low growth rate a year ago and the largely successful air show in February.
The quarter marked the 17th successive one with positive net balances in sales and orders as well as new business, she added. ‘This implies that the slowdown could be mild. It appears that the economy could grow at a faster rate in Q1 2008 than in Q4 of 2007.’
Economists polled recently by the Monetary Authority of Singapore (MAS) pared their first-quarter growth forecast to a median 5.7 per cent from 7 per cent previously, slightly higher than the 5.4 per cent recorded in Q4 2007.
The BT-UniSIM survey showed that the business prospects net balance – the difference between the percentage of optimistic and pessimistic companies – fell to 20 per cent, from 39 per cent in the third quarter of the year. This was itself a sharp drop from an average of 57 per cent for the first half of 2007, showing how confidence has crashed in recent months.
The drop was particularly severe among large and local firms, whose net balances dropped by more than half from the previous quarter. But foreign firms were about as confident as they were in the preceding three months and, intriguingly, small firms were much more upbeat – net balance for the segment tripled to 26 per cent from 8 per cent.
The overall poor sentiment was partly balanced by healthy orders and new business numbers. The overall net balance – the difference between those reporting more orders or new business and those reporting fewer – rose slightly to 39 per cent, from 32 per cent in the third quarter.
But conditions varied widely across firms. Small companies reported a net balance of minus-one per cent, though still an improvement on the previous quarter (-12 per cent). Foreign companies recorded a net balance of 51 per cent, up from 26 per cent previously.
Among sectors, financial and business services was the star performer for the quarter. It had the highest net balances in sales, profits and orders, and new business.
Firms in the construction sector were the most confident of business prospects for the next six months for the eighth quarter running.
Foreign firms recorded the best performances for Q4, with the largest increases in net balances for sales, profits and orders, and new business. Local firms saw the biggest decline, owing partly to weaker profits, said Ms Chow.
And comparing overall and overseas sales, orders and prospects showed that domestic business activities were stronger in the fourth quarter. In the previous three months, businesses found better sales and orders overseas. But small and local firms still saw better prospects from their foreign operations, while foreign and large firms were more optimistic on the local market.
Vietnam is also fast climbing the charts as a favoured investment destination. China and India were the other frontrunners but ‘Vietnam has gained much popularity as an investment destination by almost all types of firms’, said Ms Chow.
The BT-UniSIM survey was launched in 1996 and is now in its 13th year.
The Straits Times March 24, 2008
Fed cut and robust Sing$ could push interbank lending rate below 1%
SINGAPOREANS can expect cheaper mortgages but lower savings and fixed deposit rates in the months to come.
This is after a move by the United States Federal Reserve to slash a key US interest rate last week.
The Fed had cut three-quarters of a point off its federal funds rate, bringing it to 2.25 per cent, to fight a mushrooming credit crisis and a slowing US economy.
Economists in Singapore said the lowering of the Fed funds rate will have a knock- on effect in the Republic.
The Singapore Interbank Offered Rate (Sibor), or the rate at which banks lend to one another, tends to track the Fed rate.
Citigroup economist Kit Wei Zheng said: ‘For Singapore rates, the trend is downwards. We expect the Fed to cut its rate to 1 per cent and Singapore should follow with a lag.’
He lowered his forecast for the Sibor, estimating it would fall to as low as 0.75 per cent by the end of the third quarter, down from an earlier estimate of 1 per cent.
A recent report by DBS Group Research also forecast the Sibor would fall, to 0.83 per cent in the second quarter, and remain at that rate through the second half before rising next year.
The three-month Sibor fell to a 12-month low of 1.25 per cent last Monday, before recovering to 1.425 per cent on Thursday, ahead of the Good Friday public holiday.
Mr Kit said Singapore rates were also affected by the Singapore dollar’s appreciation against the US currency. He said the Singdollar is most probably at the top end of the secret trade-weighted band within which the Monetary Authority of Singapore (MAS) guides the currency.
‘With the Singdollar expected to continue appreciating, MAS will aim to moderate it by flooding the market with liquidity, which will in turn pressure interest rates downwards,’ he said.
OCBC economist Selena Ling said another consequence of the strong Singdollar would be a high inflow of foreign capital into the Republic. ‘This can also contribute to lower interest rates.’
For consumers, the net result is both good and bad.
Banks recently embarked on a mortgage loan war, with Maybank firing the first salvo last month with an aggressive three-year, fixedrate package offered at 1.68 per cent for the first year.
DBS Bank and United Overseas Bank (UOB) have also unveiled attractive packages. UOB has one that offers a zero rate in the first year.
And with Sibor-linked home loan package rates likely to head south too, it could be a good time to refinance mortgage loans, experts said.
A DBS spokesman said: ‘DBS offers transparent mortgage rates pegged to the Sibor and the CPF Ordinary Account rate, so our rates will move in tandem with market forces.’
But there is also the possibility that savings and fixed deposit rates could slump as interest rates go down.
OCBC’s vice-president for group wealth management, Mr Fabian Lum, said the bank would review its deposit rates to keep them in line with prevailing market conditions.
And while the bank has not changed its savings rate recently, it lowered its 12-month fixed deposit rate for amounts between $50,000 and $1 million to 1.2 per cent a year from 1.4 per cent earlier this month.
DBS said that its savings deposit rates had not been adjusted since 2005, but added that its fixed deposit rates are always pegged to the interbank rate and would thus be adjusted accordingly.
CIMB-GK economist Song Seng Wun said that the low interest rates did not reflect a lack of liquidity on the part of banks. ‘The loansdeposit ratio is still very strong, so banks definitely have the money to lend,’ he said.
‘But I think there is greater caution now, after what has happened in the US with the sub-prime crisis, and people are much more cautious nowadays when it comes to borrowing and lending money.’
The Straits Times March 23, 2008
Prices aren’t tumbling but it’s a good time to get a unit at a reasonable price, say experts
IT IS no secret that the residential property market is in a lacklustre mood.
With many buyers and sellers having scurried to the sidelines as the United States sub-prime woes brought about an uncertain stock market, new home sales slipped to a nine-month low last month.
For those looking to buy a home, the question is whether to buy now or later.
As fire sales have yet to hit the market and prices largely appear to be holding steady, it may not yet be a time when bargains abound everywhere.
But property experts say this may be the best time to bargain for a reasonable deal if you have something in mind.
It is a time when sellers – be it developers selling their new developments or individuals selling their properties in the resale market – are more flexible and buyers have more bargaining power, they say.
Generally, developers are still loath to lower their prices. So a good bet now is likely to be the resale market, where sellers can be more flexible, depending on their reasons for wishing to sell their property.
Completed properties also have the advantage of generating an immediate rental yield, or allowing buyers to move in any time they like, consultants say.
‘Right now, bargain-hunting may take place in the secondary market,’ says Mr Donald Han, Cushman & Wakefield’s managing director.
Some sellers may be looking to get out of the property market because they either cannot or do not wish to hold on to the asset on hand, he adds.
There are certainly desperate sellers out there, but it is not as though they are all ready to sell at a major discount or take a significant loss, says a property investor who declined to be named.
Last month, only 185 new homes were sold, down from 328 in January.
If the current standstill in the market continues, some small developers may start to lower their prices, say property consultants.
And if this happens, it will affect the entire market.
Home prices could fall, but by then, other buyers may beat potential buyers to the properties that they like.
This is why some property consultants say it is really an individual’s reading of the market on when to buy.
This is particularly so for those with a specific unit or a small project in mind, or those seeking unusual products such as suburban condominium units with pools.
The freehold 39-unit Ambrosia in Telok Kurau, for example, offers units with swimming pools, which is not common in small projects.
Its nine penthouses and two ground-floor units come with private pools and these have attracted fairly strong interest.
About 30 per cent of the five-storey development has been sold at an average price of $950 per sq ft (psf), says property consultancy Knight Frank, which is marketing the project.
‘Last year, valuation was trying to keep up with transacted prices,’ says Mr Han. ‘Now, transacted prices are keeping up with valuations.’ Mr Eric Cheng, executive director of HSR property group, says: ‘In today’s market, you can find cheap buys.’
But not all units are cheap, even if the sellers are willing to offload their homes without any profit, he adds.
For instance, some sellers at the 99-year leasehold The Rochester in Buona Vista may be keen to sell at around $1,200 psf, which could be the price they bought at last year.
But the project was launched at 2007 prices, at a time when the market was booming, he said, so they are not a real bargain.
The Straits Times – March 20, 2008
WASHINGTON – THE United States central bank cut interest rates by three-quarters of a percentage point to 2.25 per cent, less than widely expected but more than what some of its policymakers were comfortable with.
Two of the 10 voting members of the Federal Open Market Committee opposed the cut, preferring ‘less aggressive action’, according to the Federal Reserve’s statement on Tuesday. Markets had expected a bigger 1 percentage point cut.
It was the first time since September 2002 that a pair of policymakers defied their Fed colleagues, and analysts sensed a change in the central bank’s message.
‘The message was, we’re going to be vigilant about inflation,’ Mr Jerry Webman, chief economist at Oppenheimer Funds, told the Chicago Tribune.
He added: ‘We’re going to do other things which treat the problems but avoid going down the traditional monetary path straight into the jaws of inflation. The dissents were part of that message.’
In its statement, the central bank warned of further weakening in the economy and ‘considerable stress’ in financial markets. But one paragraph dwelt on the risks of inflation.
By cutting rates further, Fed chairman Ben Bernanke is placing a heavy bet that commodity prices and other leading indicators of inflation will come down on their own, aided by a slowing economy.
While allowing that ‘uncertainty about the inflation outlook has increased’, the Fed reiterated the view that slower growth and lower ‘resource utilisation’ will bring inflation back into the central bank’s comfort zone.
Given the inflation warnings, Mr Michael Lewis of Free Market said that ‘while the Fed may cut rates at the April 29-30 meeting, we expect that the easing arc is about finished’.
Mr Michael Woolfolk, currency strategist at Bank of New York Mellon, told the Chicago Tribune that the next step might be a coordinated effort by major nations to intervene in currency markets to support the US dollar.
Repeated Fed interest rate cuts, as well as a pessimistic outlook towards the US economy, has sent the greenback to record lows – worsening inflation by pushing up the prices of oil and other commodities.
REUTERS, WASHINGTON POST
Business Times – 20 Mar 2008
This poses risks as firm US recovery unlikely: consultancy
(SINGAPORE) Domestic demand in Asian countries this year look strong, but may slow down in 2009. This may present risks to regional countries as the US economy is unlikely to make a strong recovery next year, according to consultancy firm IMA Asia.
‘Many people in the United States say that (the plunge in global financial markets) will present difficulties for Asia because it would mean a slowdown in its export engine, but this is the second year of slow export growth for Asia,’ noted Richard Martin, IMA Asia managing director. ‘Last year, export growth was pretty weak; it fell from 2006 for most countries in the region.’
He believes the region will sustain its demand growth for this year. ‘We think domestic demand looks secure in China, and in South-east Asia, we see good domestic growth… we’re pretty confident that domestic demand will carry the region for a second year.’
The issue, however, is ‘what happens next year’, said Mr Martin, who was in Singapore yesterday to speak to IMA Asia’s corporate clients on the region’s economic outlook.
‘By the time we get into the third year of weak exports growth, you’re going to see some difference (in growth) in the region,’ he said, adding that the US economy is unlikely to show a strong recovery in 2009.
And that difference, he said, will boil down to two factors – the level of country risk an economy faces, and the degree of reliance it has on the global market. ‘Economies with relatively high country risk will slow down a lot and have some volatility…we also need to look at the degree of reliance on the global market, not only trade reliance but also finance reliance.’
China, for one, ‘looks fine’ as its export sector makes up only about 25 per cent of its gross domestic product, while the country’s investments are financed from its domestic savings, he said. ‘However, we’ll see quite a different impact in a number of other countries. Hong Kong and Singapore face the prospect that their growths will be halved next year, because they’re highly dependent on global trade and global finance, and it’s the financial sector flows in the bank that are being cut back here.’
‘If it was just the trade cut back, we think domestic demand would keep (both economies) going, but once we cool that off, we could see a significant drop in growth in these economies.’ In view of these factors, Mr Martin advised companies to start revising their plans for next year.
Business Times – 20 Mar 2008
It offers $305psf ppr for West Coast condo plot next to Blue Horizon
(SINGAPORE) Cheung Kong Holdings-linked Billion Rise yesterday pipped Far East Organization to emerge as top bidder for a 99-year leasehold condo site facing West Coast Park and overlooking the sea.
Billion Rise’s bid of $110.44 million or $305 per square foot per plot ratio (psf ppr) was just 1.4 per cent higher than the next highest offer of $301 psf ppr by Far East unit Tian Hock Properties.
The tender for the choice plot, next to Blue Horizon condo developed by Far East, attracted 12 bids. City Developments and TID, Allgreen Properties, Frasers Centrepoint, MCL Land, Sim Lian, a Kheng Leong unit and Hoi Hup Realty were among the other bidders. Entities linked to Alpha Investment Partners and Teambuild Construction also took part in the tender.
Yesterday’s outcome was in a sharp contrast to that at a state tender last week for a landed housing plot at Jurong West when there were just two bids – both way below market expectations. The Housing & Development Board, which conducted that tender, decided not to award the site.
On offer at yesterday’s tender, conducted by Urban Redevelopment Authority, was a more appealing site near the sea and a short drive from the VivoCity shopping and entertainment complex.
‘The plot attracted an overwhelming response of 12 bids from major and mid-size developers and contractors,’ said CB Richard Ellis executive director Li Hiaw Ho. ‘It signals developers’ confidence in the suburban segment despite the current lukewarm response to new projects.’
Notwithstanding the wide participation in yesterday’s tender, the top bid of $305 psf ppr was towards the lower end of the $260-400 psf ppr range of bids indicated by property consultants when the site was launched in January.
Industry sources suggested that Cheung Kong’s breakeven cost for the condo could be about $600- 630 psf. ‘It is likely that units in the proposed development will be sold at an average price of around $750-800 psf,’ said Knight Frank director Nicholas Mak.
Units at Blue Horizon next door were transacted at an average price of $740 psf in Q4 last year.
Market watchers had expected Cheung Kong, controlled by Hong Kong tycoon Li Ka-shing, to be awarded the latest site. The last time that a company in Mr Li’s stable was awarded a 99-year condo site in a state tender here was 11 years ago in early 1997, when Japura Pte Ltd placed the top bid of $456.51 psf ppr for a site in Bayshore Road, which it later developed into the Costa Del Sol condo that boasted sweeping views of Singapore’s eastern shoreline.
Costa Del Sol is in front of The Bayshore condo, which was developed by Far East. This time, the heavyweights took the competition to the West Coast.
Business Times – 12 Mar 2008Their purchases could account for half of 2007 transactions on the secondary market
(SINGAPORE) A record number of foreigners here have opted to purchase homes instead of renting them at ever-climbing rates.
According to an analysis of transactions of private residential properties by DTZ Debenham Tie Leung, foreigners bought 6,536 non-landed homes from the secondary market in 2007 – the largest number since 1995.
They could account for more than 50 per cent of the secondary market transactions last year. That is because while more than 20,000 non-landed homes were sold on the secondary market last year, this number includes the units from more than 100 collective sales. DTZ’s analysis does not include en bloc units – though earlier reports had put this figure at around 6,000 for the first half of 2007 alone.
Purchases by foreigners on the secondary market represent a 105 per cent increase in volume compared to 2006.
DTZ research senior director Chua Chor Hoon said that while some buyers were investors, there were also those who ‘are not on company budget and find it more worthwhile to buy rather than face escalating rentals, especially if they are going to be in Singapore for more than a couple of years’.
DTZ’s figures for 2007 reveal that rents of prime apartments and condominiums increased 45 per cent year-on-year in 2007 to average $4.80 per square foot (psf). This was attributed to the influx of expatriates and a tight supply of prime apartments, as numerous prime developments were demolished or slated for redevelopment after being collectively sold.
The percentage of foreigners buying non-landed property from the primary market (developer sales) was lower at 25.4 per cent, or 2,314 transactions out of a total of 9,089, reinforcing the assertion that foreigners are more inclined to buy a home for immediate occupation.
Indonesians and Malaysians remain the biggest foreign buyers here, accounting for 23 and 17 per cent of all foreigners in 2007 respectively, but Indians (12 per cent), Britishers (8 per cent), Chinese (7 per cent) and Koreans (7 per cent) are also well represented.
While foreigners bought non-landed homes in record numbers last year, boosting demand in the process, their absence in the landed homes sector (because of restrictions imposed by the government) did not stop a record number of landed homes being sold in the secondary market.
DTZ’s analysis reveals that of the total 5,211 landed homes sold in 2007, 4,823 were from the secondary market.
Apart from the bullish sentiment which ’spilled over’ from the non-landed sector last year, the landed sector also saw demand rise as it was still considered comparatively good value.
DTZ’s figures show that average capital values for non-landed freehold homes in the prime districts increased by 55 per cent
year-on-year to $1,480 psf.
For freehold landed homes in the prime districts, average capital values of detached homes increased 31 per cent year- onyear, while average capital values of semi-detached and terrace homes rose 29 and 27 per cent respectively.
The situation was also exacerbated by the tight supply of new launches of landed homes in the year, estimated at around 650 units.
DTZ’s Ms Chua also believes that with speculation less rampant in the landed housing sector – ‘most buyers are owneroccupiers’ – prices are expected to be more stable and could even prove ‘more resilient’ if the downturn in the global economy is protracted.
However, DTZ expects future supply of landed homes to be relatively low at just 3,100 units over the next few years, so this could push up demand and prices for both primary and secondary market landed homes.
Speculation, defined by the number of subsales, was rampant among developer sales of non-landed homes last year, hitting an all-time high of 4,631 transactions – a 312 per cent year-on-year increase over 2006.
Interestingly, while subsale transaction volume in 2007 was just 27 per cent higher than during the previous peak of 1996, the value of subsales was almost twice as high, hitting $7.9 billion.
The fourth quarter, however, marked a shift in sentiment in the property market. Only 3,947 non-landed homes were transacted in the quarter, of which just 846 were sold by developers, reflecting a 64 per cent quarter-on-quarter drop. This was one of the worst performing quarters in the last three years.
Business Times – 12 Mar 2008
Shares hit as Kuwaiti-linked fund pulls out of $815m property purchase
SHARES of Guocoland fell victim yesterday to news that a fund company managed by Kuwait Finance House (Malaysia) Berhad (KFHMB) did not exercise options to buy $814.8 million worth of apartments in Guocoland’s upmarket project here.
Following analysts’ downgrade, the stock dived as much as 19 cents or 5 per cent to an intra-day low of $3.64 before closing at $3.70, down 13 cents or 3.4 per cent. More than 420,000 shares changed hands.
But the reaction from property counters was mixed, with Ho Bee falling two cents to 95 cents and SC Global dipping four cents to $1.50. Keppel Land edged up five cents to $5.35 and CapitaLand gained 18 cents to $5.89.
The fund company managed by KFHMB had purchased options in December last year to buy 97 units at the premier freehold development Goodwood Residence. There are only 210 exclusive units on this 24,845-sq-m estate fronting the expansive Goodwood Hill. KFHMB is the Malaysian unit of Kuwait Finance House (KFH).
Guocoland said on Monday that although the options have lapsed, the parties are still in discussions, with a view to granting fresh options for units in the development.
It is not known why the fund did not exercise the options, but Guocoland said in its Monday announcement that ‘the current private residential property market appears to be cautious in Singapore’. This could have prompted its decision to market Goodwood Residence units selectively at a later date.
But in the stock market yesterday, speculation was rife over reasons for the lapse. Some cited the cautious market sentiment while others cited over-pricing of the units. There was even talk of an unsuccessful marketing campaign for these units by KFH in Dubai. The median price of $3,200 per square feet that the KFHMB fund agreed was earlier seen by some as a possible benchmark pricing for the area.
DBS Vickers yesterday cut its rating on Guocoland to ‘hold’ from ‘buy’ and lowered its target price to $4.14 from $5.60 after revising downwards its average selling price estimates for Guocoland’s high-end and mid-tier projects and ascribing a 15 per cent discount to Guocoland’s revalued net asset value.
‘We believe that the decision by KFHMB to allow these options to lapse is a sign of the weak sentiment in the physical property market currently, particularly in the high-end segment,’ the brokerage said.
But Westcomb Financial Group said it believes that this lapse of options ’should not be taken as a signal that the Singapore private residential property market has fallen drastically.
‘In fact, the buyer has overpaid their purchases in December 2007, maybe with the view that the market would continue its uptrend in 2008.’
Business Times – 12 Mar 2008
Only one other offer made; poor show seen as sign of uncertain market
IN what is seen as a sign of an uncertain property market, a landed housing parcel in Jurong West drew only two bids, and a low top bid of $11.8 million – or just $77.80 per square foot (psf) – at the close of a government land tender yesterday.
The higher bid, put in by Boon Keng Development, was significantly below what analysts had said the site could fetch.
Cushman & Wakefield managing director Donald Han, for example, reckoned that the plot would fetch $200-$250 psf of land area.
‘The price is really below expectation,’ said Mr Han yesterday. ‘But with the market sentiment being so weak, you can expect wild swings in prices. Developers will be sitting on the sidelines or might not want to bid their best prices.’
The other bid was put in by Sunway Concrete Products, a unit of Malaysian- listed Sunway Holdings. It offered $10.3 million, or $68.1 psf of land area.
Li Hiaw Ho, executive director for research at CB Richard Ellis, said that both bids were ‘relatively conservative’ and reflected the current cautious sentiment in the market.
The 99-year leasehold site on Westwood Avenue has a land area of 151,759 sq ft. Property analysts estimate that some 50-60 landed homes can be built on the site.
‘Nevertheless, based on the highest bid of $78 psf, terrace houses on this site could still be sold for $900,000 to $1 million each,’ Mr Li said. This is slightly higher than recent transactions of intermediate terrace houses in nearby Westwood Park and Westville, which were between $820,000 and $990,000 each.
Potential buyers, Mr Li added, could comprise locals working in the manufacturing firms in Jurong and Tuas, as well as academics at nearby Nanyang Technological University.
Market watchers, however, said that it is possible that the government might not award the site because of the low price.
The price looks especially low when considering other recent government sales of landed housing plots, Mr Han pointed out.
In October, the Urban Redevelopment Authority (URA) auctioned off 12 sub-divided landed housing plots near Sembawang Beach which can be developed into a total of 57 landed homes. The auction fetched a total of $37.09 million, which worked out to about $285 psf of land area on average.
And in January, the government decided not to sell a short-term office site in Aljunied because the sole bid offered too low a price. The decision followed a recent string of lower-than-expected offers for state land.
Business Times – 12 Mar 2008
SHORT-COVERING and a late afternoon rebound on Nasdaq futures saw the Singapore market’s benchmark index chalking a remarkable 80-point turnaround in intra-day trading, first plunging to a new 16-month low, then rebounding to close in positive territory. Also boosting the market are expectations that the Federal Reserve may intervene more aggressively to address the impact of the tightening credit crunch.
Nevertheless the wild gyration characterised investor nervousness amid intensifying fears of a US recession and concern that tightening money market conditions could trigger a third wave of the global credit crisis.
After initially opening at a low of 2,794.62 points, the Straits Times Index dribbled sideways for much of the morning session before a late afternoon recovery by index movers like Singapore Telecom, DBS Bank, CapitaLand, Singapore Exchange and OCBC helped the index climb to its late afternoon high at 2871.60 points. It closed at 2,860.85 points, for a net 24.26-point gain.
However, the day started with a jolt for property stocks after Kuwait Finance House pulled out of a $818.4 million deal to buy 97 of GuocoLand’s apartments in its Singapore Goodwood Residence. GuocoLand – controlled by Malaysian property tycoon Quek Leng Chan – plunged to a low at $3.64, before recovering to close with a net 13-cent loss at $3.70.
Although other leading property plays like City Developments, controlled by Mr Quek’s cousin Kwek Leng Beng, and CapitaLand recovered to end the session in positive territory, the pullout by the Kuwaiti bank is nevertheless seen as an ominous sign for the residential property market here. Analysts said the move raises fears that the property sector may be heading for a serious downturn after a sharp run-up which started in late 2006.
Meanwhile, the larger concern for many investors is not so much whether the US is already in a recession, but how long the slowdown will last. Last week, the US employment report showed the economy lost 63,000 jobs in February, bringing job losses in the first two months of 2008 to 85,000. And US consumer confidence fell sharply in March, according to the latest reading of the RBC Cash Index, which at 33.1, is the lowest reading since data tracking began in 2002.
Traders say that while many Singapore listed stocks have retraced to attractive valuation levels, fears of a potential major capitulation on Wall Street and concerns over the direction and sustainability of the Chinese market and economy is keeping investors sidelined.
In an online research report yesterday, Kim Eng said the Singapore index had a 22 per cent downside from current levels.
‘Since 1964, the five major bear markets in Singapore lasted an average of two years,’ Kim Eng’s Kelive noted. ‘The shortest one ran for 14 months (Jun ‘81 to Aug ‘82) while the longest down cycle extended 3¼ years (Dec ‘99 – Apr ‘03), albeit Sars had extended the crisis by an additional 1½ years. Within bear trends, there can be sharp rebounds as seen during Oct ‘81 – Jan ‘82 (+26 per cent), Jan-Mar ‘98 (+29 per cent) and Sept ‘01 – Mar ‘02 (+37 per cent). Assuming the current downturn lasts 14 months, the earliest that the market can expect to recover is end 2008.’
The research house sees DBS, UOB, CapitaLand, City Developments and SembCorp Industries as having the greatest downside risk among bluechips. Keppel Corp is the safest bet, it added.
March 12, 2008
The area could turn into medical hub as more private doctors set up clinics there
PRIVATE doctors are flocking to the Novena area as the squeeze on clinic space in the Orchard Road belt tightens.
The migration could turn the area into Singapore’s newest centre for private health services, some believe.
In the space of two years, developer Far East Organization has already sold or leased 92 per cent of the 145 medical suites at its new Novena Medical Centre (NMC).
Private doctors at the centre, which opened last October, are allowed to use some X-ray machines and labs in Tan Tock Seng Hospital (TTSH), which is just across the street.
Developers in the area are also setting space aside for private doctors, as well as accommodation for patients and their families.
The spill-over of demand has prompted Far East to house another 64 clinics in its 28-storey hotel in nearby Sinaran Drive. The group plans to either sell or lease the suites when ready, which is likely to be by 2010.
In Newton Road, SC Global Developments will also save space for medical suites in its upcoming office building, Newton 200.
Private specialists can also look to the Parkway Group’s new hospital in Irrawaddy Road, which is scheduled to open in July 2011. The group is setting aside 30 per cent of its space for them.
Medical suites in Novena occupy about one-third of the space that clinics in Orchard do. At about 24,154 sq m in total, they cover about the same area as Clarke Quay.
This spate of activity is fuelled by the Government’s plan to attract one million foreign patients a year by 2012.
Mr G.L. Yap, executive director for Far East Organization’s property services, said: ‘The infrastructure has to keep pace with expectations of growth.’
Foreign patients number more than 400,000 a year and come mainly from Indonesia and Malaysia, with increasing numbers from China, the Middle East and developed countries. They come for a range of treatments, including day surgery and routine health checks.
Spending on so-called medical tourism averaged about $1.3 billion in 2006 and is expected to double by 2012, according to Dr Jason Yap, director of health-care services at the Singapore Tourism Board.
The space crunch is already being felt by medical centres at Mount Elizabeth, Gleneagles, Paragon and Camden.
Company officials say that, save for three units, the buildings have been totally sold or leased out. While Paragon declined to say how many units it has, the three other centres have more than 540 suites.
The demand for medical suites has been pushing rents up, said property analysts. In the Mount Elizabeth Medical Centre, a suite was last sold for $5,000 psf, up from $4,017 last March.
Colorectal surgeon Francis Seow-Choen bought a unit at Novena two years ago because of high rents. For the past four years, he has also been renting a unit at the Mount Elizabeth Medical Centre, where rents have risen to about $18 psf, from about $8 psf four years ago.
‘The rents here have risen astronomically,’ said Dr Seow-Choen. ‘Instead of being subjected to market forces, I’ve decided to buy a unit in Novena, which as an area has a lot of potential.’
The Singapore Medical Group moved its Sports Medicine Centre from Paragon to the NMC this year, because of the space crunch and the area’s attraction as a sports and medical hub.
Dr Jimmy Lim, a cardiologist who crossed over from TTSH to set up his own clinic at the NMC, said the new clinic allows his previous patients to visit him.
‘Having a restructured hospital and now a private hospital nearby is basically going to give my patients a wider choice when they use the in-patient facility,’ he said.
Source: The Straits Times
Business Times – 11 Mar 2008
$500m site above Serangoon MRT, 3 suburban housing plots on offer
AMID the current quiet market, all eyes will be on four 99-year leasehold suburban Government Land Sale site tenders that close this month.
They comprise three private residential sites including one for landed housing, and a ‘white’ site above the Serangoon Circle Line MRT station that could potentially be worth more than $500 million.
The action kicks off today, with the closing of a tender for a landed housing parcel in Westwood Avenue, Jurong West, big enough for about 50-60 landed homes.
Cushman & Wakefield managing director Donald Han reckons the 151,759 sq ft plot could fetch about $200-250 psf of land area. The plot is next to the landed housing area at Westville. Those looking for clues on how developers read the suburban mass-market residential sector will have to train their eyes on tender closings for two plots this month, both boasting scenic locations.
One is at West Coast Crescent next to Blue Horizon condo and faces West Coast Park and overlooks the sea. The other is in Yishun, fronting Lower Seletar Reservoir and close to Singapore Orchid Country Club/Golf Course. It is also near Khatib MRT station.
Property consultants polled by BT in January, when the tenders for the two sites were launched, indicated bids of about $200-300 psf per plot ratio (ppr) for the Yishun plot.
Mr Han reckons the winning bid will be closer to $300 psf ppr, reflecting a breakeven cost of about $550-600 psf and a possible average selling price of $700-800 psf for the new condo.
As for the West Coast plot, consultants earlier indicated a wide range of bids – $260-400 psf ppr. Mr Han estimates the plot’s value at the higher end of that range, around $380-400 psf ppr as ‘it is near parks, recreational facilities and the sea’, translating to selling prices of about $850-950 psf for a new condo on the site, on a project-average basis.
He expects the Yishun and West Coast condo sites to attract at least five bids each, while the landed housing plot at Westwood Avenue could draw more bids, about five to eight.
‘Developers may be willing to look at smaller profit margins because these are sure-sell markets, given pent-up demand in the mass market. However, buyers are still price-sensitive,’ he said.
While some analysts and consultants still feel the mass-market will be relatively resilient this year, City Developments executive chairman Kwek Leng Beng recently offered a different perspective.
‘The mass market will do well, but selectively. It’s not going to be what you’ve seen before. . . people queuing up,’ he said, noting that the Housing & Development Board provides a credible alternative to mass- market private housing.
The Serangoon Central site was quietly launched in December by the Land Transport Authority. The 269,180 sq ft plot can be developed into an estimated maximum potential gross floor area (GFA) of about 850,000 sq ft excluding a bus interchange that the successful bidder will have to build. The developer will be reimbursed the cost of building the interchange.
The site can be developed into any combination of commercial, hotel, residential, and sports and recreational use.
Cushman’s Mr Han said that assuming 30-40 per cent of the GFA is for retail use and the rest for residential, the plot could be worth about $400-450 psf ppr, or a total of around $340-380 million.
‘So the breakeven cost would be about $700 psf for the residential component and the developer might be able to achieve selling prices of say $900-1,000 psf on average. The retail component will break even at about $1,200-1,400 psf,’ he reckons.
However, other property insiders say that assuming an all-retail development, which would be the ‘highest and best use’ of the site, land bids could come in closer to the $600-700 psf ppr mark (about $500 million to $600 million in total).
Suburban malls are generally valued at about $1,800-2,000 psf of net lettable area currently,’ one player pointed out.
However, another major player countered that sentiment today is subdued, and said the challenge of securing bank finance for such a big project with a likely total investment of about $1 billion or more will put a dampener on bullish bidding for this site.
The action and market watching continues next month, with at least two interesting offerings at state land tenders – a private condo site at Toa Payoh Lorong2/3, and a 1.56-hectare site in Choa Chu Kang for residential development that comes with the existing Ten Mile Junction mall.
Business Times – 11 Mar 2008
Country may face headwinds of a US recession as its stock market, property sector cool
THE beginning of Wen Jiabao’s second term seems remarkably similar to his first. In 2003, when Hu Jintao and Wen Jiabao, first took the helm as president and prime minister respectively, they were tested by the Sars crisis.
The pessimism of those like Gordon Chang in The Coming Collapse of China was at its peak. But Mr Hu and Mr Wen weathered that crisis and turned in the best five-year term performance in recent memory.
In 2007, China’s GDP reached RMB24.66 trillion (S$4.8 trillion), an average 10.6 per cent annual real growth from 2002 to 2007. In 2007, Germany defended its position as the world’s third largest economy only by a 2 per cent margin (higher than China) measured by daily-weighted exchange rate.
Also in 2007, China replaced the United States, becoming the world’s second largest goods exporter, next only to Germany. By the end of 2007, China’s foreign currency reserves ballooned to US$1.53 trillion, ranking it first in the world, 5.3 times more than at the end of 2002.
This time, when Mr Hu and Mr Wen are about to start their second term in January, China was plagued by a massive snowstorm and they weathered that too.
While many have doubts about China’s infrastructure quality and crisis control system, I simply cannot think of any other country that could have done a better job at a time when the worst snowstorm in half a century coincided with the Chinese New Year and millions of people were trying to get back home for family reunions and then go back to their places of work within the space of a few weeks.
According to Ma Kai, director of National Development and Reform Commission, China’s planning agency, from Jan 23 to March 2 – a span of 40 days – 196 million people travelled by railways and many millions by road, while the snowstorm almost paralysed the entire transportation network in many parts of China.
The 2003 Sars crisis and the 2008 snowstorms demonstrated China’s ability to overcome any shortlived crisis.
But for Mr Wen, there are much tougher challenges ahead in the first year of his second term. On March 5, at the first session of the 11th National People’s Congress (NPC), Mr Wen set China’s 2008 growth target at 8 per cent. Mr Wen’s 8 per cent target surprised none as this figure has been the regular target in the past few years. It basically comes from the 7-8 per cent long-term growth target which will quadruple China’s 2000 GDP by 2020.
In 2007, when the official target was set at 8 per cent, the real outcome was 11.4 per cent, a 13-year high. But in 2008, China could be nearer to the 8 per cent target.
The first challenge is obviously the US, one of China’s major export markets. In 2007, according to the US official figures, China replaced Canada to become the largest source of imports to the US valued at US$321.5 billion.
But the American economy may be in recession. And many economists wonder how serious it will be and how long the recession will last.
The US has a savings rate of virtually zero; its consumption was supported by an illusion of wealth.
But now more and more Americans owe more in mortgages than the real (current market) value of their homes. Worse, these people are about to pay more on their mortgages, as preferential rates come to an end. Delinquency and foreclosures can be expected and property prices will further drop, thus triggering a vicious cycle.
Some might argue that so far macro economic data only shows signs of a slowdown, not a recession. But you can really get a sense of economic fear from one person – Ben Bernanke, the Fed chairman.
In January, after having said that the sub-prime crisis was ‘containable’ for months, the Fed cut benchmark interest rate by 75 basis points (the biggest move in 23 years) just eight days ahead of a scheduled meeting. And on March 4, Mr Bernanke further urged banks to forgive a portion of mortgage principals.
As many pointed out, unlike the 2000-2001 US recession which was corporate dominated, this recession will be consumption led and therefore will have a much bigger impact on China. At the same time, the prospects for European Union, another important exports market for Chin a, will certainly not be as bright as it was. Facing domestic difficulties, the western world is very likely to practice protectionism and China may become its biggest target.
I project the contribution of net export to China’s GDP growth will be substantially lower this year than 2007.
As well, we are also witnessing the bursting of China’s own asset bubbles. On March 7, Shanghai Composite Index, covering both A and B shares listed on Shanghai Stock Exchange, closed at 4300.5, 30 per cent lower than the 6,124 historic high on Oct 16, 2007. At the same time, property, another bubble no smaller than the stock market, by and large remains intact.
Housing bubble set to burst
You might think that with improving living standard and fast urbanisation, the demand for property is huge in China. But the price is still be the biggest problem. People always see the booming economy as the reason for a bull stock market, yet it is valuation that you have to look at the end of the day.
For a young couple with a combined monthly salary RMB 15,000 (the salary for fresh graduate is only about RMB 2000-3000), the price of a 70-year tenure apartment with a gross floor area of 120 square metres in a relatively good location in Beijing is equivalent to their 10-year combined salary. While the prices in second tier cities are lower, so are people’s wages.
At the same time, property has been playing a very important role in boosting the economy. In 2007, Chinese invested RMB 2854.3 billion in property, 32.2 per cent higher than 2006, accounting for about 25 per cent of China’s fixed asset investment in urban centres. It is also a hot spot for foreign investment. In 2007, utilised foreign direct investment (FDI) in real estate reached US$17.1 billion, more than double the figure the year earlier. It accounted for 22.7 per cent of China’s total utilised FDI (excluding the financial sector).
But there are signs that the bubble is beginning to burst. Property brokers felt the pain first. Several high profile brokers have collapsed due to being overstretched and, more importantly, the reduced number of transactions.
Wang Shi, chairman of Vanke, the biggest listed property company in China, said earlier this year China’s property market had reached a turning point. Indeed, Vanke has started to offer price discounts for its housing projects in Guangdong, Chengdu, Shanghai and Beijing.
The world has witnessed a property boom in the past decade, and the collapse of the US housing bubble could trigger the falling of dominoes worldwide. The psychological impact of the collapse of the US property market on China cannot be underestimated. And measured by the relative values (and, in some cases, in absolute value), China’s property prices are even higher than in the US market.
Those who proclaimed ‘We are different’ as far as the stock market was concerned, have finally seen the law of gravity take hold. The property market is very likely to follow suit at some point.
When the bubble does burst, China’s investment growth will slow down greatly as it will influence not only property, but also the steel and the construction materials sector as well. Consequently, the country’s GDP growth will be further reduced.
Probably, China’s GDP growth will fall below 9 per cent this year, for the first time in seven years. But it is still a decent figure compared with the rest of the world.
The slowdown in the country’s exports growth should be a good reminder for China to attach more importance to how to improve product quality and add more value to its products. For instance, in 2007, China exported US$44.1 billion worth of steel products, which was the fourth most important export item by value. For a country facing growing resource shortages and environmental problems, to export steel products rather than more cars is stupid.
And more affordable housing generally will certainly better fit into Mr Hu’s ‘harmonious society’ concept.
Business Times – 11 Mar 2008
Q2 may see another dip before rebound kicks in; inflation likely to rise
(SINGAPORE) Private sector economists have pared their forecasts of Singapore’s first quarter GDP growth to a median 5.7 per cent, from 7 per cent three months earlier.
Economic growth is then expected to dip below 5 per cent in Q2 and Q3 before rebounding in the final quarter for a year-round median of 5.6 per cent, according to forecasters polled by the Monetary Authority of Singapore.
The 19 economists who took part in the survey last month – soon after the 2007 economic results were released – trimmed their forecasts following slower than expected Q4 and 2007 figures.
The economy grew 5.4 per cent in Q4 – well below median forecasts of 7.7 per cent in the December 2007 poll. Year-round GDP growth was 7.7 per cent – also below market forecasts of about 8 per cent.
According to the latest poll findings, Singapore’s 2008 economic growth will ‘most likely’ come in between 5 and 5.9 per cent – a full point below the range most expected in the previous poll.
But apparently, not everyone is too bearish. Forecasts for Q1 growth actually hit 8.8 per cent at the top end and average 5.8 per cent, only one point above the lowest estimate.
The second quarter is expected to see the year’s lowest growth of around 4.4 per cent, before a pickup to 4.8 per cent in Q3 and 6.8 per cent in Q4, according to the median estimates.
Meanwhile, the 2008 consumer inflation rate is projected to rise to 5 per cent on average. Some economists see it hitting 7 per cent in Q1, with the median forecast a bit lower at 6.3 per cent.
As for the exchange rate, the forecasts see the Singapore dollar strengthening to 1.32 per US dollar by year-end, though the estimates centre around 1.38, close to the current rate.
Goldman Sachs’ view on the Singapore economy is probably fairly typical of the market’s at this point.
The investment bank’s regional economists recently cut their forecasts of Singapore’s 2008 GDP growth to 5.5 per cent, from 6.4 per cent, ‘on the back of increased external risks’, chiefly a global slowdown led by a US recession.
But they expect the domestic growth engine to keep ‘chugging along’, supported by easier monetary conditions and an expansionary fiscal stance.
Business Times – 11 Mar 2008LAST Friday’s employment report – which was so weak that it had many economists declaring that the US is already in a recession – was bad news.
But it was actually less disturbing than what’s going on in the financial markets. The scariest thing I’ve read recently is a speech given last week by Tim Geithner, the president of the Federal Reserve Bank of New York. Mr Geithner came as close as a Fed official can to saying that the US is in the midst of a financial meltdown.
To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall. As late as August, the favourite buzzword of financial officials was ‘contained’: problems in sub-prime mortgages, we were assured, wouldn’t spread to other financial markets or to the economy as a whole. Soon afterwards, however, a full-fledged financial panic began.
Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a littleknown but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system. The Fed responded by rushing money to banks, and markets partially calmed down, for a little while. But by December the panic was back.
Again, the Fed responded by rushing money to banks, this time via a new arrangement called the Term Auction Facility. Again, the markets calmed down, for a while. But again, the respite was only temporary. Last month, another market you’ve never heard of, the US$300 billion market for auction-rate securities (don’t ask), suffered the equivalent of a bank run.
Last week, two big financial companies announced that they had been unable to raise the cash demanded by their lenders. Even Fannie Mae and Freddie Mac, the giant US government-sponsored mortgage agencies long regarded as safe places to put your money, are now having trouble attracting funds.
One consequence of the crisis is that while the Fed has been cutting the interest rate it controls – the so-called Fed funds rate – the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.
What’s going on? Mr Geithner described a vicious circle in which banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing ’significant collateral damage to market functioning’. A report released last Friday by JPMorgan Chase was even more blunt. It described what’s happening as a ’systemic margin call’, in which the whole financial system is facing demands to come up with cash it doesn’t have. The Fed’s latest plan to break this vicious circle is – as the financial website interfluidity.com cruelly but accurately describes it – to turn itself into Wall Street’s pawnbroker.
Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around US$200 billion worth of mortgage-backed securities. Some observers worry that the Fed is taking over the banks’ financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: US$200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down – there are US$11 trillion in US mortgages outstanding – it’s a drop in the bucket.
The only way the Fed’s action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past. But slap-in-the-face only works if the market’s problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that’s hard to believe.
The third time could be the charm. But I doubt it. Soon, we’ll probably have to do something real about reducing the risks investors face.
A plan to restore the credibility of municipal bond insurance would be a start (how crazy is it that New York State, rather than the federal government, is taking the lead here?). I also suspect that the feds will have to get explicit about guaranteeing the debt of Fannie and Freddie, which really are too big to fail.
Nobody wants to put taxpayers on the hook for the financial industry’s follies; we can all hope that, in the end, a bailout won’t be necessary. But hope is not a plan. — NYT
Business Times – 11 Mar 2008
But the biggest problem facing policy-makers is inflation; if it doesn’t stabilise, we may see more drastic steps
SINGAPORE has enjoyed exceptionally strong and stable gross domestic product (GDP) growth in the last few years. For many years after 1997, Singapore’s economy had suffered volatile growth even as it was buffeted by a series of shocks – the Asian crisis, the bursting of the information technology (IT) bubble and then the Sars episode.
None of them was of Singapore’s making but the city-state suffered sharp downturns in each case. It may seem that a small, open economy like Singapore’s cannot avoid being hurt by external shocks.
However, Singapore had enjoyed prolonged periods of high-growth prior to 1997 and had seemed immune to these shocks. What changed after the Asian crisis?
In our view, the big change was in the role of domestic investment activity. Prior to 1997, Singapore relied heavily on high rates of investment that were sustained over decades. This was key to the citystate’s strategy of continuously moving up the value chain – from a British naval base to a low-end manufacturing and shipping hub, and then to a major electronics producer.
The last model broke down in the late 1990s. For many years after the Asian crisis, the city-state floundered for a new strategy and investment activity became erratic. Consumption demand was in no position to compensate, with consumers worried about falling asset values and an uncertain environment.
The lack of a domestic demand dynamic meant that exports became the mainstay and, as shown in the chart opposite (see Chart 1), the economy became susceptible to external shocks.
All this has now changed as Singapore’s government and business leaders have set themselves to the task of transforming it into Asia’s ‘Global City’.
As a result, we are now seeing enormous investment projects that include the two integrated resorts, the Formula One circuit, the Gardens by the Bay, the new business district, additional MRT lines, the Orchard Road upgrade and so on.
Residential investment too has picked up as the city prepares for an accelerated pace of immigration.
Thus, in 2007, we saw fixed investment rise by 20.2 per cent which in turn drove the 7.7 per cent increase in GDP even as net exports slowed.
Note that private consumption plays a passive role with its share continuing to fall (38 per cent of GDP in 2007 compared to 45 per cent in 2001). Thus domestic demand is driven largely by swings in fixed investment.
So what does Singapore invest in? In 2007, residential construction rose 26 per cent, non-residential construction went up by 44 per cent, investment in transportation jumped 30 per cent and machinery rose 10 per cent.
In other words, Singapore is still investing in manufacturing but the focus has shifted towards creating a 21st century commercial/intellectual hub for Asia.
Looking ahead, most of the projects mentioned above are likely to run for at least another two years.
Most of them are fully funded and are likely to continue, irrespective of external events.
There have been press reports that Singapore is facing a credit squeeze that may jeopardise some projects. We see no sign of this with bank credit expanding at over 20 per cent year on year (see Chart 2).
It is possible that some people have not been able to access money but, given the explosive growth in loans, it can hardly be due to the reluctance of banks to expand.
It probably just reflects the strong demand for funds rather than the lack of supply. Thus, we feel that investment momentum will remain strong in 2008.
However, as we also expect exports to weaken due to the faltering US economy, we forecast that GDP growth will slow to 5.8 per cent this year; still a very strong level.
Despite our expectation that growth will slow in 2008, the biggest problem facing policy-makers is inflation. Consumer price inflation jumped to 6.6 per cent year on year in January. As shown in the chart above ( see Chart 3), this is an unprecedented level for this traditionally low-inflation country.
Housing-related costs have jumped especially high, but most other categories are also seeing large increases. This is now a major political issue and is being hotly debated in the media. So, will inflation naturally decline as growth slows?
In our view, slower growth in Singapore and in the world may take off some of the inflationary edge by the middle of 2008, but there is a more fundamental domestic problem. The economy is currently running at full capacity. The unemployment rate is down to 1.6 per cent (see Chart 4) which is the lowest since the Asian crisis.
Similarly, the office occupancy rate has jumped from 82 per cent in December 2003 (see Chart 5) to 93 per cent in December 2007, again levels not seen since 1997.
Thus, a GDP growth rate of 5.8 per cent is good enough to keep inflation on the boil. In a sense, this is the flip side of the investment boom that we are witnessing now.
Singapore’s government is well known for its ’supply-side’ approach to policy-making.
Characteristically, much of the response to the inflation pressure has been in terms of allowing faster population growth through immigration, encouraging more construction and so on.
Eventually these will expand capacity to keep up with growth. However, there is a more immediate need for a cyclical policy response. This has come in two ways.
First, the postponement of some large long-term public projects. Second and more importantly, the willingness to allow the Singapore dollar to appreciate at a faster pace. At the time of writing, the Singapore dollar stood at 1.39 to the US dollar. We expect it to hit 1.35 in less than six months.
If inflation still does not stabilise, we feel that we may see more drastic steps that may include a lowering of the Goods and Services Tax (GST), which has been hiked to 7 per cent.
The writer is chief economist for Deutsche Bank AG in Hong Kong
Business Times – 11 Mar 2008
Asian property and niche sectors are attracting assets
(LONDON) Many investors in alternative assets plan to invest more in real estate after poor returns from the sector in 2007, a PricewaterhouseCoopers (PwC) survey showed yesterday.
John Forbes, UK real estate leader at PwC, said some investors had been lured back to UK property after prices fell sharply.
Growth areas such as Asian property and niche sectors such as student housing were also attracting assets, he said.
PwC’s global survey, which polled 226 institutional investors and alternative investment providers in the fourth quarter of 2007, showed a gross 41 per cent of investors plan to increase real estate allocations over the next three years.
That compares with 40 per cent for private equity, 35 per cent for commodities and 33 per cent for hedge funds.
However, 21 per cent of investors planned to reduce their allocations to real estate, compared with 6 per cent for hedge funds, 15 per cent for commodities and 11 per cent for private equity.
Forbes said: ‘UK real estate capital values are down perhaps 20 to 25 per cent from the top of the market. For some types of investors that will discourage them.
‘But for opportunistic investors, who have been out of the UK market for the past two to three years, the UK is starting to look cheap so they are coming back.’
UK commercial property delivered a total return, which combines rental income and capital growth, of -3.4 per cent in 2007, as the credit crisis bit and investor sentiment soured.
The survey also showed less than half of respondents were satisfied with the performance of hedge funds, while nearly a fifth were dissatisfied.
That compares with private equity, where two- thirds were satisfied and only 7 per cent dissatisfied, or real estate, where 57 per cent were happy with performance and 11 per cent unhappy.
The survey follows a strong year for hedge funds. According to Credit Suisse/Tremont they returned 12.56 per cent in 2007.
Rob Mellor, UK financial services tax leader at PwC, said hedge funds had to become better at managing investor expectations and explaining how they achieved returns, especially when conditions turn.
Some may have feared the credit crisis would hit hedge fund returns harder than it eventually did, he said\. \– Reuters
Business Times – 11 Mar 2008
THE Urban Redevelopment Authority (URA) will market the first site in the new Ophir-Rochor corridor at the ‘Marche International des Professionals de L’Immobilier’ (MIPIM), a premier international property event in Cannes, France.
The site will be launched for sale under the Confirmed List of the Government Land Sales Programme in June.
In a statement yesterday, URA said the 2.74-hectare parcel is at Rochor Road/Ophir Road, adjacent to Parkview Square.
It also said the developer will have to include a minimum amount of office and hotel space to cater to the growth of Singapore’s financial and business services sector and tourism.
Depending on market demand, URA will release more redevelopment sites in the Ophir-Rochor area over the next five to 10 years. URA will be exhibiting plans for development of the Ophir-Rochor corridor at MIPIM Cannes.
A team led by URA, and comprising public sector agencies and private companies, will showcase investment opportunities, including key recent and upcoming developments, at the Singapore Pavilion.
‘With some of the most prominent upcoming developments and strategic sale sites that Singapore has to offer in Marina Bay and Ophir-Rochor, I am confident we will continue to attract international investors,’ said URA’s director of land administration Choy Chan Pong.
Besides plans for the Ophir-Rochor corridor, URA will exhibit plans for the extension of the existing financial district at Marina Bay.
As part of the plan to rejuvenate and grow the existing Central Business District, URA has released more plans for the Ophir-Rochor corridor to complement the Marina Bay area, featuring mixed-use developments with offices, hotels, residential and other complementary facilities in a park-like environment.
It is expected to be developed over the next 10 to 15 years.
Business Times – 11 Mar 2008
They see more scope for picking up cheaper properties in US, Europe; loans in Japan tougher
(HONG KONG) Opportunistic investors are pulling back from Asian property because they see more scope for picking up distressed assets in the United States and Europe, and loans are harder to get in Japan, one of their favourite markets.
Hedge funds have stopped dabbling in property in the region, fund managers say. And although private equity players will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.
‘Six months ago, it was quite straightforward. We didn’t have to answer questions about why to invest in Asia,’ Guy Cawthra, Asia fund strategist at Morley Fund Managers, told a recent conference in Hong Kong. ‘Now investors say ‘we might not want to invest in Asia; we want to invest in Europe, the UK and the US’.’
In the wake of the 1997-98 economic crisis, Asia – in particular, Japan and South Korea – drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as Carlyle Group .
Many made fat profits on a revival by Asian property markets, which are now mostly strong because of a shortage of new supply and still buoyant economies.
Researchers at consultants Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 per cent jump in 2007, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.
Better opportunities now lie elsewhere for investors who think they can spot a market trough and ride a recovery.
Because of tight credit and a worsening economy, US commercial real estate values could fall by 20 per cent in the next five years from their 2007 peak, JPMorgan analysts forecast, causing losses of about US$120 billion, including on commercial mortgage-backed securities.
London office values have dropped 12 per cent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 per cent decline in rental values through 2009.
‘I think a lot of investors will return to home markets,’ said Bart Coenraads, head of real estate at Fortis Investments. ‘Some will try to buy distressed core and refinance it. They could make good returns.’
Last year, total direct investment in the Asia-Pacific region jumped 27 per cent to US$121 billion – a sixth of the global total – with about half invested in Japan, which has been popular for its rock- bottom interest rates.
However, Japanese banks are getting cold feet on property, analysts say, giving loans worth only 60- 70 per cent of a building’s value, compared to 80-90 per cent a couple of years ago.
Lower debt gearing is likely to crimp returns for equity investors. But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia, said Tim Bellman, global head of strategy for ING Real Estate.
Many, such as Morgan Stanley Real Estate Funds, no longer see themselves as ‘opportunistic’, and are in Asia for the long haul.
‘Funds have been raised and platforms are set up, and they don’t want to unwind them overnight,’ Mr Bellman said. ‘But at the margin, opportunistic investors who looked at Asia are finding those opportunities back home.’
Morgan Stanley is building housing in China and taking stakes in Indian developers in a high-risk, high-return strategy. But the US investment bank also bought the Tokyo headquarters of Citigroup last month, indicating it is still interested in ‘core’ assets that are low risk but give modest returns\. \–Reuters
Business Times – 11 Mar 2008
Nervous investors hanging on to pronouncements of central bankers
(LONDON) Tight money markets and tumbling stocks and the US dollar are expected to increase worries for investors this week as pressure mounts on central banks facing what looks like the third wave of a global credit crisis.
Last week, money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.
In response, the Federal Reserve unveiled new measures to ease liquidity strains on Friday – injecting US$200 billion into the banking system – and said that it was in close consultation with central bank counterparts.
However, the Fed failed to lift the mood much. Investors, keen to see if any further plan is in the works to prevent a financial market seizure, will scrutinise words from key central bankers including Fed officials this week.
‘It’s another round of the credit crisis. Some markets are getting worse than January this time,’ said Jesper Fischer-Nielsen, interest rate strategist at Danske Bank in Copenhagen. ‘There is fear that something dramatic will happen and that fear is feeding itself. Central banks have shown great resolve to try to solve the problems (on money markets) and I’m sure they will do again.’
Philipp Hildebrand, vice-chairman of the Swiss National Bank, warned last week that the world might be in a new, more dangerous phase of the crisis.
If that is the case, the latest wave is the third one.
The first round began in August when interbank lending dried up as banks realised they did not know which was dangerously exposed to the meltdown in the US sub-prime mortgage market.
Then, late last year, pressure intensified again in the money markets – after some of the world’s biggest banks began writing off colossal sums of money – prompting top central banks to inject billions of dollars into the system.
Renewed problems in the credit market – including fears that US mortgage lender Thornburg might go bankrupt and acute cash flow problems at a Dutch fund – and concerns over slowing world growth led to a sell-off in stocks last week.
World stocks, as measured by MSCI, fell more than 3 per cent on the week while the dollar lost more than one per cent to hit record lows against a basket of six major currencies at one point last week.
Also reflecting investor jitters, two-year US Treasury yields hit a four-year low below 1.5 per cent as investors flocked to government bonds.
The cost of corporate bond insurance hit record high levels on Friday and parts of the debt market are also getting hit.
‘A funding freeze by lenders, that appears already in progress, could cause first-round casualties in Spain, Italy, Ireland, Portugal, Greece and Austria, countries collectively identified as the euro zone liability group,’ a UBS note said.
The G-10 policymakers came up with a cash injection plan late last year, with the top five central banks injecting liquidity into banks.
However, after weeks of calm, stress is building up again in money markets.
‘The level of financial stress is . . . likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,’ Goldman Sachs said in a note to clients\. \– Reuters
Business Times – 11 Mar 2008
(SINGAPORE) Singapore will provide more land for offices as part of a strategy to strengthen its position as an Asian financial centre, the government’s real estate planning agency said yesterday.
‘The new growth area set aside for the seamless extension of the existing financial district … will be more than twice the size of London’s Canary Wharf,’ the city-state’s Urban Redevelopment Authority (URA) said in a statement.
‘Over a span of more than 15 years, the development of the 85-hectare site identified for extension of the existing financial district will see the addition of around 2.82 million square metres of office space,’ it added.
Demand for office space in Singapore has grown strongly in the past three years, spurred by the growth in financial services, in particular private banking.
According to URA data, office rents soared 56 per cent last year as demand for office space rose by an average of 260,000 square metres per annum over the last three years – a 60 per cent increase from the historical average of 160,000 square metres a year.
Foreign direct investment in Singapore’s real estate was S$14.4 billion in 2007, compared to S$6.7 billion in 2006, the agency said.
Singapore is currently developing the Marina Bay Financial Centre on reclaimed land south of the existing central business district. It has also offered sites to the east and west of the business district.
The city-state, with a population of 4.6 million, has expanded its land area by more than 10 per cent since independence in 1965 through reclamation from the sea.
Developers involved in the Marina Bay project include Hong Kong developers Cheung Kong and Hongkong Land, as well as Singapore-based Keppel Land.-Reuters
Source: Business Times
March 11, 2008
It allows options for 97 condo units at Goodwood Residence to lapse
A KUWAIT bank fund that agreed in December to buy 97 units at posh Goodwood Residence for $818.4 million has let the purchase option lapse.
Kuwait Finance House has given no reason for the move, which could result in the firm having to pay developer GuocoLand multimillion-dollar penalties.
It could also be the first time a foreign institutional investor in Singapore has pulled out of such a deal, raising concerns that the property market, already hit by weaker sentiment, may be heading into a downturn.
‘While the current market is cautiously optimistic, news of such a pullout might cause it to turn more cautious,’ said Cushman and Wakefield managing director Donald Han.
GuocoLand did not provide a direct reason for the lapse but said in a statement yesterday that the private residential market in Singapore appears cautious.
The developer also said it is in talks with Kuwait Finance House, an Islamic investment bank, with ‘a view to a grant of fresh options for units in the development’.
The firm declined to comment further, citing ongoing talks. Kuwait Finance House also declined comment for the same reason.
Kuwait Finance House’s huge deal was for 97 four-bedders ranging from 2,500 sq ft to 3,900 sq ft at the former Casa Rosita site in Bukit Timah Road, near Newton Circus.
The condo has 210 freehold units on a large 24,845 sq m site fronting Goodwood Hill. The Kuwait fund’s purchase would have been the single-largest purchase of residential units under construction in Singapore.
Kuwait Finance House had agreed to buy the units at a median price of $3,200 per sq ft (psf), which would have set price benchmarks for the area. Industry sources said the price was way too high, considering that bulk purchases typically come with a discount.
‘If it were to have bought at an average of, say, $2,700 psf last December, it would still be a record for the Newton Circus area,’ said an industry source who declined to be named.
‘If it had held on for 15 to 20 years and leased the units for up to a 5 per cent yield, it may have been able to justify the deal. But if it had wanted to buy and sell, why didn’t it bargain for a rock-bottom price as the property had not been launched?’
It is believed that Kuwait Finance House was keen on flipping the units as they were marketed in Dubai recently, but the sale campaign was unsuccessful.
Another industry source, who declined to be named, said: ‘The pullout may be due to the terms of the deal. The buyer could have realised that it had bought at a higher-than-expected price, had problems flipping the units and wanted to cut its losses. ‘It could also reflect the current market and the possibility that the property market may stagnate in the next two to three years.’
The stale market appeared to have led GuocoLand to put off the launch of Goodwood Residence, scheduled initially for the first quarter.
Many developers are following suit, delaying launches until keen interest returns to the sector, which is in the doldrums with buyers and sellers staying on the sidelines.
A GuocoLand spokesman said: ‘We would be tapping selected overseas markets when we decide to launch Goodwood Residence at a later date.’
It added in its statement that the expiry of the options will not have any material financial effect on its net tangible assets per share or earnings per share for the financial year ending June 30.
Source: The Straits Times
March 11, 2008
HONG KONG – OPPORTUNISTIC investors are pulling back from Asian property because they see more scope for picking up distressed assets in the United States and Europe.
Hedge funds have stopped dabbling in property in the region, fund managers say.
Although private equity firms will continue to develop property in India and China, they are more likely to buy buildings on the cheap in the West than in Asia.
In the wake of the economic crisis from 1997- 1998, Asia, in particular Japan and South Korea, drew a raft of investment from funds run by the likes of Morgan Stanley, General Electric and private equity firms such as the Carlyle Group.
Many have made fat profits on a revival by Asian property markets, which are now mostly strong.
Researchers at Jones Lang LaSalle forecast Tokyo office prices will steady this year after a 28 per cent jump last year, while Seoul, Hong Kong, Singapore and Shanghai are still on the up.
Better opportunities, however, now lie elsewhere for investors who think they can spot a market trough.
Because of tight credit and a worsening economy, US commercial real estate values could fall by 20 per cent in the next five years from their peak last year.
London office values have dropped 12 per cent from a peak in the middle of last year, and they will be pressured further by forecasts of a 10 per cent decline in rental values through next year.
‘I think a lot of investors will return to home markets,’ said Mr Bart Coenraads, head of real estate at Fortis Investments.
‘Some will try to buy distressed core and refinance it. They could make good returns.’
Last year, total direct investment in the Asia-Pacific region jumped 27 per cent to US$121 billion (S$167.8 billion) – a sixth of the global total – with about half invested in Japan, which has been popular for its rock-bottom interest rates.
However, Japanese banks are getting cold feet on property, only giving loans worth 60 per cent to 70 per cent of a building’s value, compared to 80 per cent to 90 per cent years earlier.
But having spent years setting up teams, private equity funds are unlikely to withdraw completely from Asia.
‘Funds have been raised and platforms are set up, and they don’t want to unwind them overnight,’ said Mr Tim Bellman, global head of strategy for ING Real Estate.
‘But at the margin, opportunistic investors who looked at Asia are finding those opportunities back home.’
REUTERS
Source: The Straits Times
20m new jobseekers expected every year: labour minister
(BEIJING) China’s labour minister yesterday admitted that the booming economy faced a ‘very severe’ unemployment situation as millions of new jobseekers join the market every year.
The flood of new entrants in both urban and rural areas will continue for a long time, labour and social security minister Tian Chengping told a briefing here.
‘The employment situation that we’re currently facing is very severe,’ he told journalists. ‘The main reason is that 20 million new jobseekers emerge every year in the countryside and in the cities. This will continue for a very long time.’
Mr Tian said that measures to deal with the problem included encouraging more start-ups and providing retraining for workers with outdated skills.
Earlier last week, Premier Wen Jiabao called for more measures to boost employment, saying that the urban jobless rate should be kept below 4.5 per cent in 2008, compared with a 4.6 per cent target last year.
‘We must redouble our efforts to increase employment, a matter that is crucial to people’s well-being,’ Mr Wen told Parliament in his annual work report, the Chinese equivalent to the US president’s State of the Union address.
Unemployment and inflation are the two top priorities for Chinese policy makers, because they affect, or threaten to affect, a large proportion of the population.
The main reason the government is targeting at least 8 per cent growth every year is to ensure that enough new jobs will be created to avoid social unrest.
Compounding the problem, there is no clear picture of the extent of the jobless issue, as Chinese unemployment statistics are notoriously unreliable, and probably higher than the 4 per cent reported for the end of 2007.
They tend to understate the true scale of the problem by, for instance, not counting rural unemployment or workers laid off from state-owned enterprises. – AFP
Source: Business Times 10 Mar 08
Reports of bank’s estimate trigger speculation of interest rate hike
(BEIJING) China’s inflation likely hit a new 11-year high of 8.3 per cent last month on the back of rising food prices, state media reported yesterday, triggering speculation of a modest hike in interest rates.
Severe winter weather which crippled transport networks, and the Chinese New Year festival which traditionally brings a surge in demand, were also seen as helping to drive up the price of food and other basic commodities.
The estimate of 8.3 per cent was given by the Bank of China, the country’s second largest lender, and reported by the state news agency Xinhua.
It came ahead of tomorrow’s publication of official inflation data from the National Bureau of statistics, which is used by authorities to decide whether to tighten monetary policy.
The consumer price index (CPI) had already risen 7.1 per cent in January from a year earlier, the highest since September 1996.
‘Everybody knows it’s going to be more than 8 per cent in February. Logically, February’s CPI must be higher than January’s,’ said Chen Xingdong, Beijing-based chief economist with BNP Paribas Asia.
In its report, the Bank of China said that February’s increase in the CPI was fuelled mainly by food, which rose more than 22 per cent from a year earlier, according to Xinhua.
‘It is making things worse . . . when people expect prices to keep rising, they will spend more to avoid those future rises, which in turn will push prices up,’ it reported, quoting the bank.
The effect of the freezing weather across much of China was first felt in January, but the main impact was in February, BNP Paribas Asia’s Mr Chen argued.
Chinese New Year, the biggest consumption festival of the Chinese calendar, also came in February, adding upward pressure on the price of everything from firecrackers to plane tickets. China’s inflation is seen as triggered mainly by the relative scarcity of basic products, such as pork and other staple food items.
According to observers, this leaves economic policymakers with a dilemma when opting for the right response, even though the central bank governor said last week that there was ‘definitely room’ for more interest rate hikes.
If he does raise interest rates – the classic response to rising inflation – he could deter producers of these basic commodities, so making the problem worse.
Another problem is that since early 2007, China has hiked its interest rates six times, while the US Federal Reserve has steadily lowered them. As a result, the spread between the two has widened dramatically, with the benchmark US federal funds rate now at 3 per cent compared with 7.47 per cent for China’s one-year lending rate.
Chinese policymakers fear that a big gap between Chinese and US rates will attract more speculative funds into the economy. – AFP
Source: Business Times 10 Mar 08
China, Morocco and EEurope among new locations for global IT services providers
INDIA’S position as the No. 1 low-cost outsourcing destination is under threat, with China, Morocco and eastern European nations such as Hungary emerging as the sought-after locations by nformation technology (IT) services providers, a recent study has shown.
The study by Pierre Audoin Consultants has highlighted these new locations of choice to set up offshore sourcing centres. PAC is a European market research and strategic consulting firm.
According to the study, since January 2007, Britain’s 20 largest IT services suppliers have launched 21 new global delivery centres. However, only two of them are situated in India.
Four facilities were set up in China, while eastern Europe and Morocco had three each, the study added. The aim is to broad-base operations and not rely on one geographical location.
Although China has been slow to emerge as a global sourcing hub due to language barriers, the report found that BT Global Services, EDS, IBM and Tata Consultancy Services (TCS) have set up sourcing facilities in the country in the past 18 months.
‘India’s position as the premier low-cost IT sourcing centre is not under serious threat in the near term.
But what we are seeing is vendors (are) looking to reduce their reliability on India’s heated labour market,’ Nick Mayes, a senior consultant at Pierre Audoin Consultants, said.
In India itself, there is a movement away from the traditional IT hot spots of Bangalore and Mumbai, the study said, with this perhaps due to rising costs of operations.
IBM has set up its new centre in Delhi suburb Noida, while TCS’ expansion site has come up in Hyderabad.
While rising wages, a shrinking manpower pool and the appreciating rupee are some of the problem areas that outsourcing firms have to face in India, it is also true that the country’s position as the world’s top tech destination for outsourcing will take some beating.
Software body the National Association of Software and Service Companies has estimated that total software and services revenues should rise more than 33 per cent to reach US$64 billion in financial year 2007-2008. Software exports have been estimated to rise 28 per cent to cross US$40 billion.
Indian IT firms are looking at newer income streams from Europe and Japan to move away from dependence on the US, given the depreciating dollar.
Source: Business Times 10 Mar 08
Dow, S&P still remain above bear market threshold despite plunge
(NEW YORK) Recession may well be here, given the dismal February employment report last Friday. But on Wall Street, many investors still are having a hard time deciding how worried they should be.
The Dow Jones industrial average slid 146.70 points, or 1.2 per cent, to 11,893.69 for the day, falling through the low of 11,971 it set on Jan 22 and finishing at its weakest point in 17 months.
Yet, by the classic measure of a bear market – a drop of at least 20 per cent in share prices – the Dow is a holdout: It is down 16 per cent from its record high reached in October.
The broader Standard & Poor’s 500 index also remains above the bear- market threshold, despite mounting evidence of recession. It has lost 17.4 per cent from its October peak.
These numbers are handy enough for gauging the damage done. But what every investor would like to know is: How much worse will it get? If you figure that a 17.4 per cent drop in the S&P 500 is just a prelude to a loss of 40 per cent by the time the market’s sell-off has run its course, you might well opt to take some money off the table and wait it out.
You know what you’re going to hear from much of Wall Street at a time like this.
Brenton Luce, a portfolio manager at hedge fund Lakefront Partners in Cleveland, writes on his blog that investment pros’ usual advice to clients in down markets is to ’stay long-term focused’. That, he notes, ‘is code for ‘Yes, we have lost you a bunch of money lately. But we hope that the market turns positive soon and we hope that you stick with us until this happens’.’
It wouldn’t be surprising if the blue-chip stocks in the Dow and the S&P 500 were the last refuge for investors who have given up on other sectors of the market. Smaller stocks, for example, now are in bear-market territory, with the Russell 2,000 index of small-company issues off 22.9 per cent from its all-time high set in July.
Still, you might have expected a lot worse, given the trauma in the financial system from the housing bust and its collateral damage.
The credit crunch stemming from banks’ massive losses on delinquent home loans is showing few signs of un-crunching. Money remains very tight, and money is what financial markets need to move up.
The stock market’s slide last week was fuelled in part by worries about Fannie Mae and Freddie Mac, the two government- sponsored mortgage- finance giants that are supposed to help stabilise the housing market by stepping up their purchases of home loans. The companies’ stocks fell last week to their lowest levels in 12 years, and some investors became reluctant to buy their mortgage-backed bonds, which – in theory – are of the highest-quality.
That might have been too much for the Federal Reserve to brook. Last Friday, the central bank announced a major expansion of its emergency lending programme for banks, aiming to ease the credit squeeze.
Some market pros said that investors’ mood might actually improve if Fed officials and the White House would stop talking as if recession were avoidable.
Despite the credit markets’ continued deterioration, some money managers are betting that the stock market won’t get much worse.
A bottom ‘isn’t that far away’, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He figured that the S&P 500 could fall another 5 per cent or so, which would take it modestly over the 20 per cent loss mark.
Source: LAT-WP (Business Times 10 Mar 08)
Work starts on $7.13m project to create reservoir park with man-made island by 2010
WORK to transform the Punggol River into a scenic reservoir park, complete with a man-made island, got off the ground yesterday.
Prime Minister Lee Hsien Loong, who was at the official opening of the adjoining Anchorvale Community Club in Sengkang, symbolically released the first piece of the floating island – a clump of soil and grass – into the water.
For its design, the $7.13 million project will draw inspiration from a nearby fruit park being developed by the National Parks Board. Its pavilions will be shaped like mangosteens and its benches, like limes.
Work will be completed by 2010.
Punggol River is the first of five sites to be improved this year under the Active, Beautiful, Clean (ABC) Waters programme.
Launched by national water agency PUB in 2006, the $200 million programme is an ambitious island-wide revamp of 28 waterways.
The aim is to rejuvenate Singapore’s drainage and water-supply infrastructure, including the canals and reservoirs, and turn it into a scenic network of streams, rivers and lakes where people can enjoy water activities and even commute.
Giving a preview of the projects during the Budget debate a fortnight ago, Minister for the Environment and Water Resources Yaacob Ibrahim said, for example, that the Lower Seletar Reservoir would sport a heritage bridge, featuring story panels which will tell of the area’s kampung history.
Work on the pilot projects of Kolam Ayer and the Bedok and MacRitchie reservoirs is in its final phases and will be unveiled this year.
‘With these projects, we hope to bring waterfront living to the heartland, improve the quality of our living environment and enhance property values,’ said Dr Yaacob.
Source: The Straits Times 10 Mar 08
Investors turn more cautious, but small firms still interested in strata-titled officesALL has turned quiet on the housing front, but some other segments of the property market appear to have escaped that fate.
Still going strong in particular are sales of single office units in larger commercial buildings. Known as strata-titled offices, these properties recorded active demand in the fourth quarter last year, even as home sales were taking a breather.
A healthy 13 transactions of strata offices occurred between October and December, up from only five in the previous quarter, according to data from CB Richard Ellis (CBRE).
Most of the properties were in the city area – Suntec City, Tong Building in Orchard Road, Springleaf Tower in Anson Road – and changed hands at well above $2,000 per sq ft (psf), CBRE said.
Altogether, $750.8 million worth of strata offices were sold in the fourth quarter, bringing the total for last year to $1.7 billion – more than four times the figure for 2006.
Prices also rose solidly throughout the year. At Suntec City Tower 1, a favourite strata-office location, unit prices climbed about 50 per cent from just above $1,500 psf in January to almost $2,400 psf in December – the highest level in two years.
The steady take-up of single units is due largely to the wider boom in Singapore’s office market. A shortage of offices, even as expanding businesses push up demand for space, has boosted prices and rents across the board, drawing much interest from investors, said CBRE’s executive director of investment properties, Mr Jeremy Lake.
But in recent months, even investor demand for offices has slowed as the United States sub-prime mortgage problems spread and sentiment in the market grew more cautious.
This has hit sales of entire office buildings, but strata offices have been less affected, said Mr Shaun Poh, a senior director of investment advisory services and auctions at DTZ Debenham Tie Leung.
He attributes this to the smaller businesses that are the other main source of demand for single office units. These businesses plan to occupy the space themselves rather than lease it out for rental income.
‘Smaller units, of the $1 million to $3 million variety, are more digestible for some buyers,’ he said. ‘They appeal to end-users who are moving from renting to buying now that rents have risen so fast.’
DTZ is marketing a floor of offices at Peninsula Plaza near the City Hall area, consisting of six strata units with a total floor area of about 8,500 sq ft. The units are tenanted at about $4 psf, but rents in the building have moved up to between $7 and $8 psf, said Mr Poh.
The indicative price for the floor is $17.5 million, or about $2,050 psf. At this price, with a projected $7.50 psf rental, the net yield works out to about 4 per cent, he added.
Since the property went on the market earlier this week, DTZ has received ‘more than 10 enquiries’, Mr Poh said.
‘Some are investors looking to buy the whole floor, but we’ve also seen interest from end-users in electronics or shipping firms who are interested in buying just one or two units.’
In general, however, experts feel that strata-office sales might not be as strong in the first quarter of this year as last year.
Colliers International has not yet sold any strata offices at auction this year, after selling one a month between October and December. In December, a 3,003 sq ft unit was sold at United House, for a healthy $2,497 psf.
But Mr Poh said that, while sales might slow, prices are unlikely to fall any time soon.
‘Prices have not gone up, but neither have they come down,’ he said.
‘If they can be maintained in such an environment, and if things get a bit more optimistic, prices could even go up 10 to 20 per cent over the next year.’
Source: The Straits Times 9 Mar 08
Investors turn more cautious, but small firms still interested in strata-titled offices
ALL has turned quiet on the housing front, but some other segments of the property market appear to have escaped that fate.
Still going strong in particular are sales of single office units in larger commercial buildings. Known as strata-titled offices, these properties recorded active demand in the fourth quarter last year, even as home sales were taking a breather.
A healthy 13 transactions of strata offices occurred between October and December, up from only five in the previous quarter, according to data from CB Richard Ellis (CBRE).
Most of the properties were in the city area – Suntec City, Tong Building in Orchard Road, Springleaf Tower in Anson Road – and changed hands at well above $2,000 per sq ft (psf), CBRE said.
Altogether, $750.8 million worth of strata offices were sold in the fourth quarter, bringing the total for last year to $1.7 billion – more than four times the figure for 2006.
Prices also rose solidly throughout the year. At Suntec City Tower 1, a favourite strata-office location, unit prices climbed about 50 per cent from just above $1,500 psf in January to almost $2,400 psf in December – the highest level in two years.
The steady take-up of single units is due largely to the wider boom in Singapore’s office market. A shortage of offices, even as expanding businesses push up demand for space, has boosted prices and rents across the board, drawing much interest from investors, said CBRE’s executive director of investment properties, Mr Jeremy Lake.
But in recent months, even investor demand for offices has slowed as the United States sub-prime mortgage problems spread and sentiment in the market grew more cautious.
This has hit sales of entire office buildings, but strata offices have been less affected, said Mr Shaun Poh, a senior director of investment advisory services and auctions at DTZ Debenham Tie Leung.
He attributes this to the smaller businesses that are the other main source of demand for single office units. These businesses plan to occupy the space themselves rather than lease it out for rental income.
‘Smaller units, of the $1 million to $3 million variety, are more digestible for some buyers,’ he said. ‘They appeal to end-users who are moving from renting to buying now that rents have risen so fast.’
DTZ is marketing a floor of offices at Peninsula Plaza near the City Hall area, consisting of six strata units with a total floor area of about 8,500 sq ft. The units are tenanted at about $4 psf, but rents in the building have moved up to between $7 and $8 psf, said Mr Poh.
The indicative price for the floor is $17.5 million, or about $2,050 psf. At this price, with a projected $7.50 psf rental, the net yield works out to about 4 per cent, he added.
Since the property went on the market earlier this week, DTZ has received ‘more than 10 enquiries’, Mr Poh said.
‘Some are investors looking to buy the whole floor, but we’ve also seen interest from end-users in electronics or shipping firms who are interested in buying just one or two units.’
In general, however, experts feel that strata-office sales might not be as strong in the first quarter of this year as last year.
Colliers International has not yet sold any strata offices at auction this year, after selling one a month between October and December. In December, a 3,003 sq ft unit was sold at United House, for a healthy $2,497 psf.
But Mr Poh said that, while sales might slow, prices are unlikely to fall any time soon.
‘Prices have not gone up, but neither have they come down,’ he said.
‘If they can be maintained in such an environment, and if things get a bit more optimistic, prices could even go up 10 to 20 per cent over the next year.’
Source: The Straits Times 9 Mar 08
Payroll data indicate that probability of recession is more than 50 per cent
(WASHINGTON) US employers cut payrolls for a second straight month during February, slashing 63,000 jobs for the biggest monthly decline in nearly five years as the nation’s labour markets weakened steadily, a government report yesterday showed.
The Labor Department said that last month’s cut followed an upwardly revised loss of 22,000 jobs in January rather than the 17,000 reported a month ago. It also said that only 41,000 jobs were created in December, half the 82,000 originally reported.
‘This confirms the fears that have been lurking in the financial markets in recent weeks. The
probability of a US recession is at more than 50 per cent,’ said Richard DeKaser, chief economist for National City Corp in Cleveland.
‘The Fed has to be more aggressive,’ he added. The US central bank is expected to cut interest rates again later this month and yesterday, just before the payrolls report became public, announced new measures to add liquidity to severely strained credit markets that are near seizing up.
The Federal announced that it was increasing the amount of money it will auction to banks this month to US$100 billion. It will make two moves to increase liquidity in the credit markets. First, it will increase the size of its March 10 and 24 auctions to banks to US$50 billion each. The auctions had been set for US$30 billion apiece initially. Fed officials said that they are prepared to move to even larger amounts at future auctions if necessary.
The Fed also said that, starting yesterday, it will begin a series of repurchase transactions expected to reach US$100 billion.
US Treasury debt prices shot up in anticipation that the Fed will cut interest rates while stock futures weakened sharply. The US dollar’s value was at a record low against the euro after the unfavourable employment report was issued.
The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003.
The February jobs report was more bleak than expected.
Economists surveyed by Reuters forecast that 25,000 jobs would be added to payrolls last month.
They had forecast that the unemployment rate would edge up to 5.0 per cent.
Department officials said that February’s job losses were the largest for any month since March 2003, when 212,000 jobs were cut.
During February, the national unemployment rate eased to 4.8 per cent from 4.9 per cent in January, but that was because fewer people were in the labour force. The department said that the number of people in the workforce fell by 450,000 in February.
Job losses were widespread. Some 52,000 jobs were lost in the manufacturing industries, the largest decline since July 2003 when 92,000 jobs were cut. Construction businesses eliminated another 39,000 jobs on top of 25,000 that were cut in January, a reflection of the housing industry’s deepening woes.
Retail industries also shed jobs last month, dropping 34,000 people off their payrolls, a possible reflection of concern from businesses that hard-pressed consumers are likely to begin pulling back sharply on spending.
Source: Reuters, AFP (The Straits Times 8 Mar 08)
Banks focusing on specific targets, waging battles without fanfare
THE mortgage war finally erupted, as Singapore banks responded to a dramatic rate cut by Maybank three weeks ago – with one even offering a zero per cent package.
That attractive deal comes from United Overseas Bank (UOB), which has relaunched a package with a teaser first-year rate at rockbottom.
DBS Group Holdings has also rolled out new rates on several packages, including a fixed-rate deal that claims to be the lowest of its type here in Singapore.
Unlike the fanfare that marked the rate war in 2003, though, the battle now is focused on specific targets and is being kept under the radar.
Banks are quietly offering promotional rates on a case-by-case basis and tend to target clients with loans of well over $300,000. While the market for new mortgages has softened, banks are still busy.
‘A lot of customers are looking to refinance their loans taken less than a year ago, when interest rates were much higher,’ Mr Bryan Ong of mortgage consultancy bcgroup.com.sg said.
Maybank sparked the war with an aggressive three-year, fixed-rate package at 1.68 per cent for the first year. This promo, which ends on Monday, has sent customers ‘rushing to submit loan applications’, said Maybank consumer banking head Helen Neo.
About 80 per cent of the applications were for buying private properties with an average loan size of about $675,000. Maybank is now ‘reviewing the rates’.
Other banks have not taken the move lying down. Most have tacitly matched – or undercut – Maybank’s rates.
DBS has a new three-year, fixed-rate package with an aggregate rate of 7.64 per cent – lower than Maybank’s 7.74 per cent. It offers a 1 per cent cash rebate in the first year.
UOB has revived its FirstZero Home Loan – a three-year, fixed-rate package available ‘only for a limited period’. The bank launched this in 2003, but it was quietly taken off the market last year amid interest rate volatility.
FirstZero is now back with a zero per cent rate on the first year, 3.6 per cent on the second and 4.5 per cent on the third, making a three-year aggregate rate of 8.1 per cent.
It has hefty penalty charges and a three-year lock-in period.
Standard Chartered Bank (Stanchart) actually moved before Maybank, cutting its three-year, fixed-rate package from 3.58 per cent to 2.98 per cent in January. It also cut its two-year package by 0.55 of a percentage point to 2.88 per cent.
DBS countered this week with a 2.88 per cent average annual rate for a three-year package and a 1 per cent cash rebate on the first year.
This three-week promotion is only for customers with loan quantums of at least $300,000.
OCBC Bank had not joined the fray, with chief executive David Conner saying last month that a mortgage rate war was unlikely.
OCBC said ‘from time to time, it offers loan packages with promotional rates that are highly competitive compared to other players’.
The most popular packages now are those linked to transparent rates, like the Singapore Interbank Offered Rate (Sibor) or swap offered rate (SOR), comprising the Sibor plus a bank’s lending costs.
These are official, regularly published industry rates customers can check to see how their packages are structured.
Riding on this interest, DBS has just cut by half its rate for its 12-month, two-year, Sibor-linked loans to 0.5 per cent for the first year.
Nearly 80 per cent of Stanchart’s new customers in recent months have taken up its package offering SOR plus 0.5 per cent for the first year.
The SOR has dropped from about 3 per cent last year to about 1.5 per cent currently.
Stanchart’s head of consumer banking, Mr Ajay Kanwal, said: ‘With the interest rate environment expected to soften further, customers of SOR-linked packages will benefit even more.’
Source: The Straits Times 8 Mar 08
SPRINGFIELD (ILLINOIS) – LAWMAKERS must not be too heavy-handed as they react to the collapse of the United States sub-prime mortgage market and end up closing this source of credit forever, a senior Federal Reserve policymaker said yesterday.
St Louis Fed president William Poole said the sub-prime market was now basically shut and might never reopen if the regulatory backlash were too onerous.
‘The public policy problem is the danger that, with the sad record of so many mistakes and abuses in recent years, regulatory burdens to end the abuses will do so, but only at the cost of making sub-prime lending so costly and risky to lenders that they will have no interest in restoring this market,’ he said.
Mr Poole, who retires from the Fed at the end of this month, did not directly address the economic outlook, but stressed the housing market’s problems have been costly.
Source: REUTERS, BLOOMBERG NEWS (The Straits Times 8 Mar 08)
WASHINGTON – HOUSEHOLD wealth in the United States fell in the fourth quarter for the first time in five years, while borrowing slowed as home values plunged and lenders restricted credit, Federal Reserve figures have shown.
Net worth for households decreased by US$532.9 billion (S$739.5 billion) from the previous three months, the first decline since the third quarter of 2002, according to the Fed’s quarterly Flow of Funds report released on Thursday. Housing-related net worth dropped by US$176.4 billion.
Lower home and stock prices and reduced access to loans are prompting Americans to spend less, driving up foreclosures. A slowdown in consumer spending, which accounts for two-thirds of the economy, threatens to push the US into a recession.
‘Consumers are being squeezed from several directions,’ Fed governor Frederick Mishkin said in a speech this week.
Reduced household wealth, combined with a weakening job market and near-record fuel prices ‘are likely to restrain spending growth in the period ahead’, he said.
Owners’ equity as a share of their total real estate holdings fell to 47.9 per cent, the lowest since quarterly records began in 1951, from 48.9 per cent in the prior period.
The Fed based its calculations on a gauge of home prices published by the Office of Federal Housing Enterprise Oversight. Had the central bank used a measure of home prices developed by S&P/Case-Shiller instead, the loss in net worth would have been almost three times as much, according to JPMorgan Chase economist Michael Feroli in New York.
The drop in housing-related household net worth from October to December followed a decline of about US$600 million in the previous three months. Mortgage borrowing by households rose at a 5 per cent annual pace, the smallest gain since 1997.
Total borrowing by consumers, businesses and government agencies rose at an annual rate of 7.7 per cent last quarter compared with an 8.8 per cent gain the prior quarter, as borrowing by businesses climbed.
Total borrowing by households increased at a 5.6 per cent pace, and business borrowing rose at an annual pace of 12 per cent.
Borrowing by state and local governments climbed at a 7.6 per cent rate after rising 6.5 per cent the prior quarter, the Fed said.
Federal government borrowing rose at an annual pace of 5.1 per cent after increasing at an 8.8 per cent rate.
Source: BLOOMBERG NEWS (The Straits Times 8 Mar 08)
Biggest drop in five years another sign that economy is on the decline
WASHINGTON – THE United States unexpectedly lost jobs last month for the second consecutive month, adding to evidence that the economy is in a recession.
Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January, the Labour Department said yesterday in Washington.
The jobless rate declined to 4.8 per cent, reflecting a shrinking labour force as some people gave up looking for work.
‘All the lights are flashing red,’ said Mr Nariman Behravesh, the chief economist at Global Insight in Massachusetts, in an interview with Bloomberg Television. ‘We’re in a recession. I don’t think there is any doubt about it at this point.’
Treasury notes soared after the report on concern that the weakening labour market – combined with lower home prices, higher fuel bills and a global credit squeeze – will force consumers to cut spending further.
Minutes before the figures were released, the US Fed said it would expand two short-term auctions this month to US$100 billion (S$139 billion) to address ‘heightened liquidity pressures’ in markets.
Traders now expect Fed chairman Ben Bernanke and his team to cut their benchmark interest rate by at least three-quarters of a percentage point at or before their March 18 meeting.
Economists had projected that payrolls would rise by 23,000, following a previously reported 17,000 drop in January, according to the median of 76 forecasts in a Bloomberg News survey.
The jobless rate was forecast to rise to 5 per cent from January’s 4.9 per cent, with estimates ranging from 4.8 per cent to 5.2 per cent.
Revisions reduced by half the 82,000 increase in payrolls previously reported for December last year.
Service industries, which include banks, insurers, restaurants and retailers, added 26,000 workers last month. Retail payrolls fell by 34,100, the biggest drop in more than five years.
Payrolls at builders fell 39,000, the eighth consecutive month of cutbacks.
Home builders are trimming staff as the biggest housing slump in a quarter century deepens. Commercial building projects are also declining, indicating that firings at non-residential builders are likely to rise.
The real estate recession and financial market meltdown have led to growing dismissals at banks, mortgage and management firms.
‘There’s significant weakness in the job market because of construction declines,’ said Mr David Berson, the chief economist at California-based PMI Group, the second-largest US mortgage insurer. ‘For the next six months or so, we may get small negative numbers on payrolls.’
Manufacturing payrolls dropped by 52,000, the biggest decline since July 2003, after falling by 31,000 a month earlier. Economists had forecast a drop of 25,000.
Americans, whose spending accounts for more than two-thirds of the economy, are less upbeat about finding work, a Conference Board report showed last week. The share of consumers who said that jobs are plentiful fell and the proportion who said jobs are hard to get jumped, pushing consumer confidence down to a five- year low last month.
‘The economic situation has become distinctly less favourable,’ Mr Bernanke said in testimony to Congress last week.
The Fed chairman referred to ‘downside’ risks for the economy four times, including ‘the possibilities that the housing market or the labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further’.
Source: REUTERS (The Straits Times 8 Mar 08)
Casinos, other large projects push up cost of loans: OCBC
SINGAPORE’S two casinos and other large projects will add S$30 billion to loan demand this year, pushing up the cost of corporate loans in the city-state, said Oversea-Chinese Banking Corp on Wednesday.
Las Vegas Sands and Genting International have each borrowed about S$5 billion to build casinos, while developers will need billions to pay for residential sites purchased for redevelopment, OCBC’s head of group investment banking George Lee told Reuters.
‘The supply of Singapore dollars is going to get tighter while demand is exceptionally high… Credit spreads are going to rise and those used to borrowing at X must get used to borrowing at X plus something,’ said Mr Lee in an interview.
According to Monetary Authority of Singapore data, loans to businesses rose 27 per cent to S$130.5 billion in January from a year ago, spurred by a 46 per cent increase in building and construction loans to S$39.3 billion.
Other projects that require funding this year include an estimated S$2-2.5 billion to finance the purchase of electricity generator Tuas Power from government fund Temasek Holdings, and the refinancing of a loan to buy the building housing Singapore’s biggest bank DBS Group .
Turning to neighbouring Malaysia, which companies are looking to for lower-cost borrowings, Mr Lee said firms planning to tap the corporate bond market will see this as viable only if they have projects in Malaysia.
For companies hoping to take the borrowings overseas, any savings would be offset by the sharp rise in the cost of swapping ringgit into dollars or other foreign currencies.
While the cost of borrowing in ringgit remains extremely attractive, the swap premium has widened from 20-30 basis points late last year to about 100 basis points now, he said.
Malaysia opened its ringgit bond market to foreign corporate issuers in October, coinciding with the outbreak of the global credit crisis that has raised the cost of dollar-denominated debt.
On Monday, Export-Import Bank of Korea (KEXIM) became the first foreign firm to take advantage of the new rules by selling a total of RM1 billion (S$437.8 million) in five- and 10-year bonds.
The deal, which KEXIM said shaved 20-30 basis points off its borrowing cost, was handled by OCBC along with Malaysia’s RHB and CIMB.
OCBC, Singapore’s third largest bank, is also in the process of selling up to RM2.5 billion in lower Tier 2 bonds to augment its capital base.
Mr Lee said it made sense for OCBC to borrow in ringgit as it had operations in Malaysia and did not intend to exchange the proceeds from the bond issue to Singapore dollars .
‘For those with natural ringgit assets without the need to swap, it still makes sense,’ he said.
Source: Reuters (Business Times 7 Mar 08)
(NEW YORK) Citigroup has agreed to sell its network of retail banking branches in Amarillo, Texas, and plans to shutter other branches in the United States, the Wall Street Journal reported on its website on Wednesday.Citibank, its retail banking unit, has agreed to sell branches in Amarillo to local lender Happy State Bank for an undisclosed sum, according to an internal memo, the Journal reported on its website. The newspaper said the company confirmed the deal.Citibank also plans to close at least 11 other branches in May, including six in Florida, three in New Jersey, and one each in California and Maryland, the Journal reported citing people familiar with the matter. A Citigroup spokeswoman was not immediately available to comment.Meanwhile, Dubai International Capital LLC (DIC), the state-controlled buyout company, said it has not been approached by Citigroup for capital raising after mortgage losses wiped out half its market value.DIC has ‘not been privy to any non-public information about the company’, the company said. ‘Dubai International Capital has never expressed an opinion on the investment merits or financial condition of Citi,’ it added.Citigroup received US$7.5 billion in November from Dubai’s neighbour, Abu Dhabi, and theNew York-based company said in January it was getting another US$14.5 billion from investors, including the governments of Singapore and Kuwait.It will take a lot more money to rescue Citibank and other financial institutions from losses stemming from the collapse of the sub-prime mortgage market, DIC chief executive officer Sameer al-Ansari said on March 4.Citigroup fell 4.3 per cent that day to its lowest in nine years after Mr al-Ansari’s comments and analysts at Merrill Lynch and Goldman Sachs Group predicted a first-quarter loss on further writedowns.But, on Wednesday, investor Robert Olstein said Citigroup will not cut its dividend further or raise more capital and the shares may double over the next two years.Citigroup’s stock, which has tumbled 55 per cent in the past year, is attractive even if the biggest US bank by assets reports another US$60 billion of writedowns and loan-loss provisions over the next two years, Mr Olstein told Bloomberg Television.‘Even though there’s bad news still to come in Citibank, it’s discounted already,’ said Mr Olstein, who oversees about US$1.3 billion as chairman of Olstein Capital Management. ‘This stock in two years is going to be in the mid-40s. You’ve got to be forward looking.’ Source: Reuters, Bloomberg (Business Times 7 Mar 08)
Home foreclosures and rate of homes entering the process at record highs in Q4
(WASHINGTON) Industry data released yesterday show January pending US home sales were below analysts’ expectations and remained at the second-lowest reading on record.
The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes held at 85.9, the same reading as December and just short of a revised record low of 85.8 in August, at the start of the worldwide credit squeeze. The reading was 19.6 per cent below year-ago levels.
Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.2. Typically there is a month or two lag between when a buyer signs a home sales contract and the closing of the deal. Sales completed last month and into this month should be reflected in the January reading.
An index reading of 100 is equal to the average level of sales activity in 2001, when the index started.
Lawrence Yun, the trade group’s chief economist, said in a statement that the reading is a sign the housing market is stabilising.
‘Our members are telling us there’s been a pick-up in shopping activity,’ Mr Yun said. ‘Our hope is that the increased traffic of buyers looking at homes will translate soon into more contract offers.’
The Realtors group, which is more optimistic about the housing market than most economists, projects home sales will start to rise during the second half of the year.
It forecast yesterday that total existing home sales will fall 4.8 per cent to 5.4 million this year, then rise to 5.6 million in 2009.
The trade group projected median US home prices – the point at which half of the homes sell for less and half sell for more – will fall 1.2 per cent to US$216,300 before rising to as much as US$2 23,800 in 2009.
Meanwhile, US home foreclosures and the rate of homes entering the foreclosure process rose to record highs in the fourth quarter led by failing sub-prime loans, the Mortgage Bankers Association said yesterday.
The rate of failing loans swelled across most mortgage types but was led by a growing wave of subprime borrowers unable to make payments, the trade group said in its delinquency and foreclosure survey.
A record 0.83 per cent of US loans were entering the foreclosure process in the last three months of 2007 compared to 0.54 per cent in the same time a year earlier. The US mortgage delinquency rate of 5.82 per cent was the highest since 1985 and up from the 4.95 per cent seen in the fourth quarter of 2006.
In another development, Federal Reserve Bank of Boston president Eric Rosengren yesterday called for aggressive action on credit market problems and falling home prices that are posing a risk to the US economy.
‘There may be a significant cost to delaying needed actions that could restore confidence in the ratings process, the pricing of financial assets, and the impact of declining home prices,’ Mr Rosengren said.
Mr Rosengren said that problems that have roiled Wall Street since summer ‘are beginning to significantly affect Main Street’, with falling home prices a key element. ‘As long as housing prices continue to fall, the decline increases the risks to borrowers, lenders, markets and the economy,’ he said.
Hopes that the United States could refinance its way out of the sub-prime mortgage crisis are fading, Mr Rosengren said.
Source: AP, Reuters (Business Times 7 Mar 08)
Beige Book cites weak retail sales, slow manufacturing and housing woes
(NEW YORK) The Federal Reserve says economic growth has slowed in eight of 12 US regions since the start of the year, hurt by faltering retail sales, manufacturing and a continued decline in housing.
‘Two-thirds of the districts cited softening or weakening in the pace of business activity, while the others referred to subdued, slow or modest growth,’ the central bank said in its regional business survey, known as the Beige Book, on Wednesday.
The report provided anecdotal evidence of a cooling economy that echoed reports this week that showed a contraction in manufacturing and services last month.
Fed chairman Ben Bernanke told lawmakers last week that the central bank is prepared to lower interest rates further as needed to avert a deeper downturn.
The report noted that retail activity in most districts was weak or softening. Manufacturing was sluggish or have slowed in about half the districts.
Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by its meeting on March 18. Policy makers have lowered the rate by 2.25 percentage points since September to 3 per cent.
The Fed report also said that almost all districts reported ‘upward pressure on prices’ from higher raw materials and energy costs, though companies reported ‘mixed success’ in passing along costs in higher prices.
The Beige Book said housing remained a drag on the US economy. ‘Residential real estate markets generally remained weak,’ the report said, citing ‘tight or tightening credit standards’ in most districts.
Scarce credit, bloated inventories and falling prices continue to depress housing markets. Sales of existing homes fell in January to the lowest level since records began nine years ago, the National Association of Realtors said last month.
‘Growth risks are much more severe in the near term’ for the Fed, Bruce Kasman, chief economist at JPMorgan Chase, said. ‘Growth is pretty much stagnant right now.’
Companies reduced workers last month, the first reductions in the US in almost five years, a private report based on payrolls from ADP Employer Services showed on Wednesday.
The economy expanded 0.6 per cent at an annualised pace last quarter. Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last month.
‘I continue to expect a period of economic weakness in the near term,’ Fed governor Frederic Mishkin said on Monday. ‘With the economic outlook having deteriorated significantly and financial markets under considerable stress, the FOMC will face significant challenges.’
The Beige Book’s regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 US states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff.
The Beige Book was prepared by the Boston Fed based on information collected on or before Feb 25.
Source: Bloomberg (Business Times 7 Mar 08)
Subsale activity slows but transacted prices remain resilient
(SINGAPORE) Property prices have been bolstered by speculators in the last year. But now that speculation is on the decline, could prices follow suit?
An analysis by Savills Singapore of properties subsold last year after being bought from developers in the same year has revealed that while subsale activity dropped significantly in the last quarter, subsale prices did not, suggesting that speculators are not ready to offload their investments yet.
The number of subsales fell by 66.7, 69.1 and 39.1 per cent in the high, mid and mass-market segments respectively in the fourth quarter of last year from a quarter earlier.
However, average gains made from subsales over the developers’ sale price remained relatively stable. They came to 34.2 per cent in the high-end segment in Q4, 14 percentage points higher than the full-year average gains. In the mid-tier segment, average gains fell marginally by 2.4 points to 21.1 per cent, while in the mass-market segment, they rose 1.6 points to 17.2 per cent.
Savills director (marketing and business development) Ku Swee Yong adds: ‘Speculators appear to be holding out for better prices.’
Interestingly, Savills’s analysis also shows that there have been several speculators that have subsold on very thin profit margins of 5 per cent or less, adding credence to market talk that some speculators may be looking to offload properties at bargain prices soon.
However, while Mr Ku believes that speculators that cannot manage the mortgage payments – especially after holding for a year or more on the deferred payment scheme – might be letting go at lower profits, he does not think they represent a majority.
By his estimation, there are about 6,000 residential units that will receive TOP (temporary occupation permit) this year. ‘While there may be some dumping from those who cannot afford to pay up at the point of TOP, we do not think that it will constitute more than one per cent of the 6,000 units,’ he adds.
The situation could change next year.
‘We expect around 10,000 units to receive TOP in 2009. Those who bought using the deferred payment scheme in the last couple of years might let go if they are really speculators and cannot afford to pay,’ says Mr Ku.
But he is optimistic that the low mortgage rates may mitigate the need to sell. ‘The buyers might go for rental yield instead.’
Subsales of major new launches in the high-end sector, which include developments such as Marina Bay Residences, Scotts Square and The Orchard Residences, fell to just four transactions in Q4, compared to 32 for the full year.
Two subsales were done at less than 10 per cent above the developer’s sale price.
The average gains from subsales over the developer’s sale price were highest in the high-end market, substantiating Mr Ku’s belief that this segment could prove more resilient if the global economic downturn is prolonged. ‘There is a large proportion of buyers in the high-end market that are so rich, they buy properties with cash.’
This segment is also largely supported by foreign buyers and Mr Ku says: ‘Foreigners are not speculators.’
Last year, the mid-tier segment saw 140 subsales of newly launched developments like Sky @ Eleven, The Rochester and One North Residences.
In Q4, one subsale was transacted at just 2.3 per cent above the developer’s sale price. In the mass market, there were 49 subsales of newly launched projects such as The Parc Condominium, Casa Merah and Clementiwoods for the year.
In Q4, there were 14 subsale transactions. Three were done at less than 10 per cent above the developer’s sale price.
The number of Sky @ Eleven subsales – over 60 – was among the highest in 2007. In July and August, four units were subsold for over 50 per cent of the developer’s sale price.
But the days of huge capital gains could be over.
Mr Ku says that, based on data for January so far, subsale gains could trend downwards slightly. But he adds that there is no evidence that speculators will find themselves in negative territory yet.
Source: Business Times 7 Mar 08
(SYDNEY) Australia’s economy grew at the slowest pace in more than a year in the fourth quarter as construction declined and bottlenecks at ports cut exports.
Gross domestic product rose 0.6 per cent from the third quarter, when it increased a revised 1.1 per cent, the Bureau of Statistics said yesterday. The gain matched the median estimate of economists. The US$1 trillion economy grew 3.9 per cent from a year earlier.
A slowdown in Australia’s economy, now in its 17th year of expansion, plus the potential fallout from the global credit crisis, gives the central bank scope to delay further interest rate increases after raising borrowing costs to a 12-year high on Tuesday to stem inflation.
Yesterday’s report showed imports surged as the lowest unemployment in more than three decades spurred spending.
‘It’s still a strong economy story,’ said David de Garis, senior markets economist at National Australia Bank. ‘The question is whether domestic demand will hold up in the face of rising interest rates.’
Rising borrowing costs, tighter lending standards, the local currency’s gain and the global slowdown are ’significant dampening forces’ that will cool Australia’s economic expansion, central bank assistant governor Malcolm Edey said yesterday.
Australia’s stock market was cut to ‘underweight’ by Merrill Lynch & Co yesterday on concern rising interest rates will ‘hit consumer and banking stocks’. The nation’s benchmark S&P/ASX 200 Index has declined 21 per cent since its Nov 1 peak, meeting the definition of a bear market.
Exports fell 0.6 per cent in the three months through December from the previous quarter as miners were hampered by port and rail constraints, yesterday’s report shows. By contrast, government spending rose 1.7 per cent and household consumption climbed 1.6 per cent.
Source: Bloomberg (Business Times 6 Mar 08)
Bernanke calls for more action by banks and the govt to help millions of home owners
(WASHINGTON) However much they might oppose it on ideological grounds, the Bush administration and the Federal Reserve are inching closer towards a government rescue of distressed home owners and mortgage lenders.
Fed chairman Ben Bernanke told a group of bankers in Florida on Tuesday that ‘more can and should be done’ to help millions of people with mortgages that are often bigger than the value of their homes.
Though Mr Bernanke stopped well short of calling for a government bailout, he used his bully pulpit to try to push the banking industry into forgiving portions of many mortgages and signalled his concern that market forces would not be enough to prevent a broader economic calamity.
He also suggested that the Federal Housing Administration expand its insurance programme to let more people switch from expensive sub-prime mortgages to federally insured loans.
And he urged the two government-sponsored mortgage companies, Fannie Mae and Freddie Mac, to raise more capital so they could buy more mortgages. The companies already guarantee or hold as investments about US$1.5 trillion in mortgages.
Similarly, the Bush administration, despite its public opposition to bailouts, has set the stage for a bigger government role.
One month ago, President George Bush signed an economic stimulus bill that greatly increased the size of loans the FHA can insure, while allowing Fannie Mae and Freddie Mac to purchase significantly larger mortgages from lenders and guarantee them against default by homeowners.
The move, which administration officials had previously opposed, increases the limits on FHA, Freddie Mac and Fannie Mae mortgages from US$417,000 to as much as US$729,750.
Historically, the FHA and the mortgage companies have focused on conservative mortgages for people borrowing relatively modest sums. But they are now being encouraged to finance much bigger mortgages, in some cases to people who put almost no money down.
Last week, the administration went further by removing limits on the volume of mortgages that Fannie Mae and Freddie Mac can hold in their own portfolios. That means the two companies could buy up billions of dollars in mortgages that other investors have been too frightened to touch.
In theory, the change should not cost taxpayers. But because the companies are chartered by Congress, investors have assumed that Congress would bail them out if needed.
The Fed has been offering its own resources to soften the credit squeeze. In addition to sharply cutting interest rates, the Fed has lent more than US$160 billion to banks since mid-December.
Source: NYT (Business Times 6 Mar 08)
CHESTNUT VILLE (I and II), a mixed landed site at Dairy Farm Crescent, has been put up for collective sale and the indicative price for the combined plot is $90 million.
This represents a land price of $741 psf over the land area, inclusive of an estimated $1 million development charge.
The development currently comprises 11 townhouses and 34 walk-up maisonette units with a combined land area of about 122,677 sq ft.
Credo Real Estate, which is marketing the site, says that the site is zoned for three-storey mixed landed housing.
This means the site may yield a combination of conventional terrace houses, semi-detached and detached houses; or cluster landed housing with strata terrace houses, strata semi-detached houses and strata bungalows with communal facilities. Credo executive director Tan Hong Boon added that it commissioned a study by an architect and one of the possible schemes allows the site to be developed into 10 strata detached, 22 strata semi-detached and 27 strata terrace houses, together with another four conventional semi-detached houses and two bungalows.
Based on the indicative price of $90 million, the potential developer’s breakeven price for an intermediate strata terrace house and a conventional bungalow should be about $2.1 million and $3.8 million respectively, added Mr Tan.
Credo also pointed out that according to the Land Transport Authority, the planned Bukit Timah MRT Line is slated to include a Chestnut Station and a Hillview Station, both of which could be expected to be close to the site.
Mr Tan also expects good response for the mixed landed housing site as ‘they are not easily available in the market’.
Source: Business Times 6 Mar 08
(LONDON) Spanish property developers, having enjoyed what once seemed an unstoppable boom, could face a severe mauling unless they bow to more realistic pricing as the economy slows and banks rein in lending.
The true value of real estate is a growing bone of contention as more debt-doped property firms get into trouble, leaving creditors and opportunistic buyers to squabble over assets, as in the on-off takeover saga engulfing property firm Colonial.
James Preston, who heads the Madrid office of European property funds firm Rockspring, sees international banks and investors losing confidence in the absence of an improvement in property market transparency in Spain.
‘It can only prolong the pain and result in a protracted, ‘U-shaped’ recovery,’ he said. ‘It is doing a disservice to this market which is at the aperitif stage of a very long, foul meal.’
‘I don’t believe valuers are marking to market, full stop,’ Mr Preston said. ‘And I don’t believe valuers are reflecting the reality for any property company, quoted or otherwise, in particular in relation to land banks.’ Such scepticism is shared by other real estate experts.
‘Spanish property values are lower than people think,’ said JPMorgan analyst Harm Meijer here.
Mr Preston sees a parallel, in terms of lack of transparency, with the US sub-prime crisis, which has so far led to banks writing off up to US$160 billion and resulted in a global debt logjam as confidence in the value of mortgage-related debt collapsed.
Spain’s relatively conservative banking industry bears few US sub-prime scars. It churned out 31.6 billion euros (S$66.9 billion) in residential mortgage-backed bonds in the second half of last year, as other markets seized up, according to Moody’s. But it could yet face more trouble as an unprecedented construction boom – accounting for almost a fifth of Spain’s economic growth – slows sharply.
Across Spain, unemployment is rising faster than anywhere else in Europe. Consumer confidence is at its lowest level since Spain’s last housing crisis, in the early 1990s, according to Eurostat and Bank of Spain data.
It is not just smaller-scale builders of coastal holiday homes or speculative owners of land banks with dubious planning rights that may be vulnerable, though these are seen by analysts as most overvalued in the current climate.
Several Spanish property developers have filed for creditor protection in the last few months, while Barcelona-based Habitat last week staved off bankruptcy at the eleventh hour by refinancing 1.6 billion euros of debt.
Some of Spain’s biggest property firms – including Colonial, Metrovacesa, Martinsa Fadesa, and Realia – have also bulked up on debt, which until recently was paid back with steady cash flow in a rising market.
Unlike in the United States and other parts of Europe – where there is a clearer demarcation between housebuilders and commercial property landlords – these firms have both housing and commercial property and so are exposed to any weakness.
The Bank of Spain has said Spanish homes may be up to 30 per cent overvalued. The government, which faces general elections on March 9, expects house price growth to ease to low single digits but not turn negative. But it is no longer just housing which could be a problem.
Commercial property – pricey by regional standards – could suffer too since a slower economy will undermine corporate demand for space and drag on rental growth.
Office rental yields – a valuation measure which moves inversely to price – are 4.5 per cent in Madrid and Barcelona, a percentage point less than in London’s City district, according to data from CB Richard Ellis (CBRE).
CBRE says yields in Spain’s top two cities have risen about a quarter percentage point since the third quarter of 2007. But the correction has been more acute in Britain, which like Spain is coming off one of Europe’s biggest, longest property booms.
Office, industrial, and retail property valuations in Britain have been cut by 13-14 per cent since the summer.
Source: Reuters (Business Times 6 Mar 08)
(SINGAPORE) Sembawang Engineers & Constructors, a unit of India’s Punj Lloyd, said yesterday its orderbook has tripled from a year ago on a construction boom in Singapore.
The strong demand helped Singapore’s largest construction firm by sales raise its orderbook to $2.1 billion and boosted gross profit margins to 7-8 per cent from 1-1.5 per cent in 2006, said chief executive Alwyn Bowden.
‘We’re concentrating on infrastructure projects because these are bigger and more challenging, and are higher profile,’ Mr Bowden told Reuters in an interview.
He said that while demand for building homes and offices is expected to slow amidst an easing property market here, the impact is ‘negligible’, offset by major infrastructure investments in its key target markets of Singapore, India, and the Middle East.
These projects will not be derailed by fears of a global slowdown sparked by an ongoing credit crisis, due to strong economic growth in India and a spike in oil prices that are boosting Middle East coffers, he said.
Currently Singapore makes up 80 per cent of the firm’s orderbook. But the company aims to reduce that share and split its sales three ways between South- east Asia, India, and the Middle East.
‘We only need to grab a relatively small share of that market, to already be headed towards the same sort of levels of revenues that we achieve here and in South-east Asia,’ he said.
Shares in Punj Lloyd, India’s fifth-biggest builder, slid 6 per cent yesterday to take losses for the year to 41 per cent, underperforming an 18 per cent fall since December in the broader Bombay market.
Sembawang is currently involved in a number of high-profile projects here, including casino resorts – the Marina Bay Sands and Resorts World at Sentosa – as well as a contract to build part of a new subway line.
Source: Reuters (Business Times 6 Mar 08)
(CHICAGO) As the US housing meltdown forces hundreds of thousands of Americans from their homes, the extent to which fraud was a factor in the crisis is just coming to light.Products such as stated-income loans – known as ‘liar loans’ because no proof of income was needed – led to widespread misrepresentation by borrowers about their earnings.But far more sinister forms of fraud, including identity theft and ’straw buyers’ – those created using fake documents – are also coming into the open.Mike Reardon of nonprofit lender Neighborhood Housing Services of Chicago (NHS) points out two such properties, both boarded up, on South Rockwell Avenue in Chicago’s blue-collar South Side.The owner of one of the homes was traced to Texas, he said. ‘Turns out it was a case of identity theft,’ Mr Reardon said, shaking his head. ‘He had no idea he owned a home in Chicago.’ Across the street, he points to another boarded, slowly rotting home, which had last been sold to a woman named Susan Haas.‘I may be wrong, but I’ve been looking for months and months and I can’t find any proof Susan Haas exists,’ he said. Many fraud schemes kept running as long as cash kept flowing from Wall Street. Once the credit crunch turned off the supply of easy money, the perpetrators simply walked away. Estimates vary as to how prevalent fraud was during the boom.Arthur Prieston, chairman of the Prieston Group, which provides mortgage-fraud insurance and training to lenders, said that ‘at least 30 per cent of the loans out there contain some form of misrepresentation’. ‘But because lenders often have to sell off properties quickly to cut their losses, we will never know exactly how much mortgage fraud has been committed,’ he added.Mr Prieston estimates that mortgage-fraud losses were around US$4.2 billion for 2006, adding that figures for 2007 ‘will be much higher’. In a recent case in Chicago, he said the authorities prepared to file charges against a woman who had fraudulently bought five properties.‘When we turned up to serve papers on her, we found she was nine years old,’ he said. ‘Her uncle had stolen her identity.’ The mortgage scam known as identity theft is relatively simple – the perpetrator uses a stolen identity to buy property with no money down, then rents it to tenants until it goes into foreclosure, collecting rent but never making a mortgage payment.A far more lucrative scam, using what are known as straw buyers, was much more common, according to Boston-based real estate analyst John Anderson.‘The vast majority of the cases I’m aware of involved straw buyers,’ he said. ‘Thanks to products like stated-income loans, people walked away with a ton of free money.’All you needed was to buy a foreclosed property at a bargain price, have it falsely appraised with a grossly inflated value, then sell it to a straw buyer at a big profit. The straw buyer never makes a payment and the home goes into foreclosure. The process was often repeated over and over again.‘We’ve seen some properties that were sold like this dozens of times,’ NHS’ Mr Reardon said. ‘This artificially pushed up prices in some neighbourhoods and when those fake buyers walked away, the abandoned homes pushed prices down.’‘The real victims are the genuine borrowers who bought here at inflated prices and are stuck now with mortgages worth more than their homes,’ he added.False appraisals were also used to fool genuine borrowers. ‘We get a lot of cases involving fraud that we refer to the state attorney general,’ said Lori Gay, CEO of Los Angeles Neighborhood Housing Services, a nonprofit lender that also offers financial counselling services. ‘Some 15 to 20 per cent of the cases we see have some element of fraud.’The US Federal Bureau of Investigation saw Suspicious Activity Reports (SARs) related to mortgage fraud rise to 47,000 in 2007 from 7,000 in 2003, spokesman Stephen Kodak said.‘This year it looks like we’re on track for 60,000 SARs, which is a significant rise,’ he said. ‘This has required more allocation of manpower to mortgage fraud cases.’ Mr Prieston, the mortgage insurer, said that had major lenders been proactive in checking the identities of the people who were buying properties using stated-income loans and similar products, then a lot of fraud could have been avoided.‘A lot of lenders claim they were victimised by fraud but helped to constitute it by looking the other way,’ he said. ‘The sad fact is that the vast majority of mortgage fraud out there could have been prevented.’Mr Anderson, the Boston-based real estate analyst, is among those who were warning for years that easy credit created an easy climate for fraud. ‘The banks on Wall Street had to know there would be fraud. If they didn’t they’re morons.’ Source: Reuters (Business Times 6 Mar 08)
Spore’s aviation players have been riding the wave of growth in the sector, but there are challenges, and opportunities too
OVER the years, aviation has become the lifeblood for Singapore’s economic growth. This is despite the fact that the sector’s direct contribution to gross domestic product (GDP) is rather small – at around 5 per cent.
But the industry’s impact on the well-being of the republic was amply demonstrated in 2003, when economic activity was badly hit by the Severe Acute Respiratory Syndrome (Sars) pandemic which saw aviation grinding to almost a halt.
If anything, the sector’s importance has grown since.
Last year, Singapore Changi Airport recorded annual passenger throughput of 36.7 million – an all-time high, representing a 4.8 per cent growth over 2006. With Terminal 3 now in operation, Changi’s total capacity is now 64 million passengers.
But such traffic is only part of the picture.
Singapore is also a critical hub for air cargo, handling some 1.9 million tonnes of airfreight last year.
Despite a marginal slowdown of 0.9 per cent compared to 2006, mainly due to the softening demand for electronics in the United States, as well as the growing preference by manufacturers to ship their products by sea instead of by air, the republic’s dominance in air cargo remains well established.
Aerospace industry
Singapore is also one of Asia’s largest and most comprehensive aerospace repair and maintenance centres, controlling some 25 per cent of total Asia market share and employing some 19,000 technicians, engineers and specialists.
The Singapore aerospace industry grew by 10.4 per cent to a record $6.89 billion last year. Value added was up 8.5 per cent to $2.69 billion, while the number of people employed by the industry grew by 8.2 per cent to 19,000 in 2007.
The industry, which encompasses manufacturing and maintenance, repair and overhaul (MRO), remains one of the fastest growing sectors in Singapore, attracting almost $500 million in investment last year.
Indeed, Singapore’s MRO cluster is already globally competitive, and in no small measure due to the efforts of IE Singapore.
The agency responsible for trade and commerce has been moving aggressively to help Singapore’s aviation cluster improve its global market share by identifying new growth areas, by marketing efforts, direct introductions and government-to-government lobbying.
For example, IE helped Singapore Technologies Aerospace (STAe) to establish its key MRO presence in Panama by introducing the company to key decision makers like Panama’s Minister of Commerce and Industry Alejandro Ferrer.
Singapore’s dominance of the Asian aviation and aerospace has been due to a combination of lucky geography and sheer grit. Air traffic in the Asia-Pacific region has grown significantly in recent years. And this growth has accelerated with the emergence since 2001 of low-cost airlines in Asia.
Some industry experts call this the commodatisation of air travel. Essentially, this means that air travel has become a mass market, with people who never envisaged getting on board a plane 10 years ago actually seeing it as a natural mode of intercity travel across Asia. This has resulted in more growth for the region’s airlines, more aircraft orders, more routes being opened up, and more airport infrastructure development.
Singapore’s aviation players – Changi, the MRO industry, the suppliers and the air logistics specialists – have been successfully riding this wave. But success also brings with it challenges. One of these is the challenge from competition.
Oil-rich nations of the Middle East are aggressively expanding their aircraft fleets, and have been making headlines with large aircraft orders at international airshows. Some US$23.5 billion in new airports infrastructure is coming onstream by 2012, providing capacity for 316 million passengers annually and taking total airport capacity to 399 million.
Meanwhile, China and India, which are enjoying phenomenal growth in aviation, are collaborating with existing global players to gain a foothold in the fast-growing MRO sector.
Along with the challenges come opportunities. The demand for new aviation infrastructure means more business opportunities for well-placed players.
For example, China, India, Vietnam and countries in the Middle East will see frenzied building of new airports over the next five to 10 years. The Beijing government alone will spend S$28 billion over the next five years on 42 new airports, while in India the government has issued a mandate for upgrading infrastructure at four metro airports, seven greenfield airports and 35 nonmetro airports.
In the Middle East, 10 leading airports will spend some US$24 billion to build new facilities and expand existing ones.
Not surprisingly, Singapore has been cranking up its game in the face of such formidable challenges.
Critical role
IE Singapore helped form the 14-company strong Singapore Airport Consortium (SAC), which includes Changi Airport International and Singapore Airport Terminal Services.
Initiated in 2004 under IE Singapore’s iPartners Programme, this consortium combines the experiences and expertise of Singapore players to jointly offer complete suites of products, services and solutions to airports beyond Singapore. Services offered include airport investment, design, building, management and maintenance and training.
SAC has over the years made inroads into China, India and even the Middle East and has become an effective vehicle for marketing Singapore’s aviation capabilities and for lobbying for Singapore interests in airport projects.
In early 2007, IE Singapore introduced the SAC members to PAE, an American infrastructure company with significant presence in Vietnam that had worked on airport projects there. In recent years, SAC members have partnered PAE in new airport masterplanning for various airport projects in Danang and Ho Chi Minh City.
Going forward, agencies like IE, A-Star, the Economic Development Board and others expect to play even more critical roles in growing Singapore’s lead in Asia-Pacific aviation and aerospace.
And their roles will become increasingly critical as the industry faces new challenges from rising fuel price, a potential slowdown arising from the US credit crunch and an anticipated huge supply surge as planes ordered over the last two years are delivered.
Source: Business Times 6 Mar 08
Survey cites support from regulators to the industry as advantageous
SINGAPORE has been rated as the best location in Asia-Pacific for overall real estate investment trust (Reit) potential – for a second year.
According to the second annual Asia-Pacific Reit Survey – undertaken for financial services provider Trust Company and law firm Allens Arthur Robinson – one of Singapore’s significant advantages is the support that the industry receives from regulators such as the Monetary Authority of Singapore and the Singapore Exchange.
Senior property, finance and business experts across the Asia-Pacific are confident that the region’s Reit markets will remain strong, the survey said.
However, the findings also showed that low yields, poor regulatory processes, the effects of financial engineering and adverse taxation developments will continue to be the greatest threats to Reits in Asia-Pacific.
The experts believe that most of these threats will diminish significantly in the longer term.
The survey suggests that over the next one or two years, companies will increase the size of their existing Reits rather than launch new ones, but this trend will be reversed in the longer term of three to five years.
According to the survey’s findings, retail, commercial/office and industrial and retail property will continue to be the main focus for market growth, even though the retail, commercial and office markets have cooled in the last 12 months.
The hotel and hospital sectors are expected to heat up while industrial and infrastructure property is expected to experience slight growth. Residential property, however, will remain cold, the survey said.
The findings also showed that China, India and Vietnam are ranked as the top three hot property growth markets in Asia-Pacific for the next five years. Singapore, which ranked fourth, was the highest placed established Reit market. Good growth is also expected in Malaysia.
Vicki Allen, executive general manager of institutional services at Trust, acknowledged that since the survey was conducted, some caution has surfaced in global Reit markets. But she said that Asia-Pacific Reit markets have fared reasonably well compared with their North American and European counterparts.
Robert Clarke, a partner at Allens Arthur Robinson, suggested that regulatory flexibility is key to staying ahead. He cited Singapore as an example.
Source: Business Times 6 Mar 08
IT is becoming increasingly evident that the US housing crisis – the root cause of the US economic slowdown and the turmoil in the financial markets – is getting worse by the day. Any hopes for an economic recovery and a restoration of market stability will turn on how this crisis unfolds, and how it is dealt with.
Recent statements and actions by US policymakers provide some clues of what is to come. In a widely reported address to American community bankers on Tuesday, US Federal Reserve chairman Ben Bernanke drew attention to rising delinquency rates on mortgages (and not only the sub-prime variety) and the likely persistence of this trend. Foreclosures too will rise, he said, as house prices decline further and interest rate resets on mortgages take effect.
Suggesting that ‘this situation calls for a vigorous response’, Mr Bernanke stressed the urgency of reducing ‘preventable foreclosures’. And then he dropped what many view as a bombshell: he asked for banks to not only provide interest rate relief to borrowers, but also to write down principal in some cases – in other words, to forgive part of the mortgage loans. If not, there would be a stronger incentive to default among homeowners who are in negative equity on their mortgages. And that, in turn, would accelerate the decline in housing prices and make things even worse for already beleaguered mortgage lenders.
A day earlier, US Treasury Secretary Henry Paulson – who also acknowledged that housing ‘poses the biggest downside risk’ to the economy – urged homeowners (including those ‘underwater’ on their mortgages) to continue servicing their loans, if possible. While this might not be a wholly realistic suggestion, it underlines US officials’ anxiety to stave off foreclosures.
Whether such exhortations will succeed, however, is moot. Bankers are generally loath to take ‘haircuts’ on loans except as the very last resort; and one can hardly count on most homeowners in negative equity being content to continue servicing huge mortgages when they’re better off walking away and handing their house keys to the bank.
Absent such voluntary market-based solutions, there would appear to be a strong case for government intervention. Mr Paulson and other lawmakers have publicly maintained that they oppose any bailouts. However, at the same time, the scope and mandate given to US government agencies such as the Federal Housing Administration, Fannie Mae and Freddie Mac to guarantee or take over mortgages have been significantly expanded. US lawmakers are also examining bolder options. It is probably inevitable that some of these will involve an element of bailout, even if politicians are reluctant to admit as much.
However, whether bailouts are involved or not, US policymakers need to address the US housing market bust urgently, despite the distractions of an election year. For it is now obvious that there is a systemic risk facing the US financial system – and that market mechanisms alone cannot deal with it.
Source: Business Times 6 Mar 08
Fewer houses built as higher interest rates, credit crunch drive away buyers
(LONDON) Britain’s housebuilders are building fewer homes in the face of tighter mortgage lending and an uncertain price outlook, but slashing volumes and costs may not be enough to lure back investors to the battered sector.
Britain’s major builders completed fewer homes last year – about 76,000, down around 10 per cent on 2006 – as higher interest rates and the global credit crunch drove away buyers.
And things are set to get worse, with analysts predicting 10-16 per cent fewer new homes this year, a price fall of around 3 to 5 per cent and a drop of some 20 per cent in transactions.
Such worries have pushed shares of major housebuilders including Barratt and Taylor Wimpey down more than 50 per cent in the past six months.
The stocks have recouped some of the losses since mid-January, as value investors entered the market, but analysts warn of tougher times ahead and prolonged volatility, as data so far sends mixed signals on the market conditions.
‘Tighter credit is the major constraint, and this is unlikely to change for a while. So no one is expecting that a short, sharp shock will be followed by a swift, V-shaped recovery,’ Charles Stanley analyst Tom Gidley-Kitchin said.
Citigroup and KBC analysts agree the sector is cheap, but they caution that any revaluation is unlikely until late April and May when more solid data on the spring selling season is available.
‘A lot of this (macroeconomic and liquidity risk) is already in share prices . . . (but) our preference is to wait for another three months or so of data, as by then there will be much more evidence of either a stabilisation in the market or a clear drop in activity,’ Citigroup analysts said.
Housebuilders, in the midst of reporting 2007 results, are divided on whether the market is showing signs of recovery after its sharp downturn in the final few months of 2007.
Barratt chief executive Mark Clare, on the one hand, said last week the market was improving more quickly than he had expected.
He pointed to a 36 per cent rise in property viewings from the second half of 2007 and a return in the number of people cancelling reservations to the usual level of about 20 per cent.
These signs of hope were given a tentative boost last week by official figures. While reporting the smallest rise in mortgage lending for 21/2 years, the Bank of England also said that mortgage approvals – an indication of future lending – unexpectedly picked up in January.
But other builders such as Galliford and Redrow turned more cautious, as they prepare to spend more on incentives such as part-exchange deals and mortgage assistance to restore falling sales.
Persimmon reported a 19 per cent fall in presold homes last week versus a 14 per cent drop in January, while Barratt’s forward sales decline was 7 per cent versus 6 per cent in January.
A further weakening in house prices – which in January recorded their biggest quarterly fall in at least a decade – would be a big blow to builders, which are under additional pressure from high prices for raw materials.
Builders’ drive to cut costs, which has been so far centred on reducing labour costs, closing branches and renegotiating terms with subcontractors, will also have only limited impact on improving margins without house price rises, analysts say.
‘We see the new build sector having difficulties cutting costs as land within cost of sales is essentially fixed or rising, materials costs look likely to rise and the hoped for 5-10 per cent cut in labour costs looks hard to achieve,’ KBC analysts said.
Cazenove analysts estimate the impact of lower house prices on builders’ bottom line is four times bigger than a volume change, with a one per cent drop in prices cutting operating profits by 4 per cent.
They believe after a recent recovery, the shares of housebuilders no longer adequately price in the possibility of a recession.
UK housebuilders trade at 9.5 times forecast earnings, versus the overall market’s 11 times.
For longer-term investors, however, builders still appear a good bet, with tight supply of new stock set to continue and a massive discount to their asset values such as land.
The number of households in England is currently estimated to outgrow housing stock by 38,000 a year due to immigration and a growing number of single-member households, according to the government.
Britain already has one of the slowest rate of housing starts across Europe, ahead of only Slovakia, Poland and Germany – a fact which builders, and many industry analysts, blame on the government’s tight planning laws.
‘With an ongoing restrictive planning regime, it is unlikely that enough homes will be built to catch up demand. This is not a problem that will ease over the next few years,’ Panmure analysts said.
Source: Reuters (Business Times 6 Mar 08)
(LONDON) UK mortgage lenders probably lost £700 million (S$1.9 billion) last year to organised fraud that inflated real estate prices, according Britain’s Association of Chief Police Officers.
Mortgage fraud for profit ranges from overvaluation of newly constructed homes to deliberate ramping of commercial real estate prices, often involving mortgage brokers, appraisers and attorneys, the association said in an e-mailed statement yesterday.
Fraud for profit differs from fraud for property, where individuals inflate salaries or savings to qualify for loans.
Concerns about mortgage fraud are mounting among banks as the UK housing market cools, ending a decade of gains during which property values tripled. Mortgage approvals fell to a nine-year low in January, after lenders granted £370 billion of mortgages last year.
Mortgage fraud ‘remains a significant element of the UK’s annual fraud losses’, said Mike Bowron, commissioner of the police department of the City of London district in the UK capital. His comments accompanied a release on the report’s findings.
In one instance an individual made a profit of more than £10 million through fraud, the police association said. The release didn’t provide details of frauds committed.
Lenders should make more identity checks and seek to establish a central database to flag areas where fraud is more prevalent, police recommended in the report.
Criminal gangs use mortgage fraud as a way of laundering money and making ’significant’ incomes, the report found, because of the ‘current low risk of detection and high profit opportunities’.
London, the UK’s most expensive property market, was the most active area for fraud, the report found, accounting for 46 per cent of cases.
‘Victims of mortgage fraud range from those who purchase a newly built property only to find that their home is worth considerably less than they paid for it through to those on low incomes who, through the actions of corrupt professionals, take on a debt they simply cannot afford,’ the association said in the report.
The report was based on evidence from 47 UK police forces, government departments, insurance companies, the Financial Services Authority, lending associations and 45 mortgage providers, who represent more than 75 per cent of the market.
Source: Bloomberg (Business Times 6 Mar 08)
(SINGAPORE) The UOL Group has earmarked some $500 million – or a third of its available funds – to expand its hospitality business in Asia-Pacific over the next three years, the group’s president and chief executive Gwee Lian Kheng told BT in an interview.
The property company plans to add some 15-20 hotels and service apartment properties over the next three years, Mr Gwee said. ‘(Right now), if you ask me to put down money, I will put it into hospitality,’ he said.
For Singapore especially, the hospitality sector looks to be the brightest going forward – even as the overall property market takes a breather – Mr Gwee said.
Yesterday, UOL launched its new 126-unit service residence development called Pan Pacific Serviced Suites, which the company hopes will be the first of many service residences under the Pan Pacific brand name.
Five such properties could open in the next three years, Mr Gwee said. Next up is Pan Pacific-branded service residences in Bangkok, which will open in about a year.
In Singapore, Pan Pacific Serviced Suites is likely to be the only one of its kind, as rising property prices mean that such an offering will be ‘hard to replicate’, the company said.
‘Moving forward, our strategy is to look at high growth markets such as China, Vietnam, Thailand and Malaysia,’ Mr Gwee said.
The Singapore property, which is located right next to Somerset MRT station, cost the group $38.5 million to build. Guests can check in from early April, and pre-opening interest has been strong, UOL said.
The company explored building a small office, home office (Soho) development on the site, but decided to go with service residences in order to ride on the current international business expansion into Singapore and the corresponding growth in expatriates looking for short-term housing, as well as the chance to grow the Pan Pacific brand.
UOL bought the hotel brand last year in a bid to become a key player in hotel management in the Asia-Pacific region.
The deal brought the Pan Pacific group’s 12 hotels in the US, Canada and Asia into the UOL portfolio, adding some 3,800 rooms.
Now, UOL is looking to take the brand further with its first foray into service residences.
‘Moving into the extended serviced accommodation business is a logical extension of the brand as it is complementary to our current hotel accommodation offering,’ Mr Gwee said.
UOL itself, however, is not a newcomer to the service residences scene. It owns such a property under its Parkroyal brand, which it will maintain as a four-star property.
Pan Pacific Serviced Suites, on the other hand, is slated to be a five-star offering.
UOL also bought a hotel plot at Upper Pickering Street in a government tender in October last year. This ‘may, or may not’ be branded as a Pan Pacific hotel when it is completed by early-2011, Mr Gwee said.
For the overall property market, Mr Gwee said that UOL is ‘cautiously optimistic’ on the back of the sub- prime lending crisis in the US and the resultant credit crunch.
The developer plans to launch its ‘mid-range’ condo Breeze by the East on Upper East Coast Road as soon as it can.
Mr Gwee expects mid- level home prices to climb at least 10 per cent this year, pushed up by en-bloc sellers looking for replacement homes.
UOL shares closed four cents down at $3.65 yesterday.
Source: Business Times 6 Mar 08
But office properties should fare relatively well over the near term, say JPMorgan analysts
(NEW YORK) The US commercial real estate market could decline by as much as 20 per cent over the next five to eight years as tighter credit squeezes business property but with less ferocity than it choked the housing market.
‘We believe commercial real estate loan performance peaked in 2007 and will deteriorate on an accelerating trajectory through 2009,’ JPMorgan analysts said on a conference call on Tuesday.
They said they expect values to fall by 20 per cent from their peak last year, and losses to total about US$120 billion, or 4 per cent of the US$3.2 trillion outstanding commercial real estate loans.
Commercial Mortgage Backed Securities (CMBS) would account for about US$30 billion of the losses and collateralised debt obligations (CDOs) would account for about US$40 billion of the losses, they said.
CDOs are bonds based on pools of the riskiest CMBS bonds, leases, mezzanine loans and other real- estate related instruments.
CMBS, including CDOs, accounted for 23.6 per cent of lending at the end of the third quarter of 2007, JPMorgan said.
Problems in the CMBS market will become apparent between 2010 and 2012, as many five-year mortgages mature, the JPMorgan analysts said.
This would lead the commercial property market into a more gradual decline than the housing market, which has been slammed by losses related to sub-prime mortgages. Those losses are expected to reach US$200 billion, or 15 per cent of the US$1.25 trillion of outstanding loans, the JPMorgan analysts wrote in a report discussed on the call.
Many commercial properties have been financed with low-interest, five-year mortgages that will have to be refinanced or the properties will have to be sold.
Lenders who do not sell their loans but rather keep them on their balance sheets, such as insurance companies and commercial banks, are expected to loose US$50 billion over the five-to-eight year period, giving them enough time to adjust reserves, the JPMorgan analysts said.
‘The relatively conservative underwriting of banks and insurance companies is likely to insulate them from many of the problems that will plague loans securitised into fixed-rate CMBS,’ the JPMorgan report said.
Moody’s Investors Service recently said it expected commercial property values to decline 15-20 per cent over the next few years and the delinquency rate to increase into the 1-2 per cent range.
But Michael Pralle, former head of GE Real Estate and now president of JER Partners, a real estate private equity firm, said real estate values already have fallen by 10 per cent or 15 per cent. ‘It’s literally the arithmetic of the lending.’
He said many buyers have lowered offers as they factor in the higher costs of borrowing and lower amounts of cash available to borrow.
Office properties, the largest sector of the commercial real estate market ‘. . . should fare relatively well over the near term due to the longer-term nature of their underlying tenant leases’, the JPMorgan analysts wrote. But, they added, retail and hotel properties, which are very sensitive to changes in the overall economy, are expected to underperform.
Benjamin Lambert, chairman of commercial real estate brokerage Eastdil Secured, said values at the very top of the office market would slip slightly, but the overall market may see values decline 10 per cent or 15 per cent. Eastdil Secured is a subsidiary of Wells Fargo & Co.
JPMorgan analysts said they expected that the relatively restrained construction of offices, apartment buildings, warehouses, shopping centres and hotels that occurred between 2003 and 2007 would mitigate losses.
This compares to the residential market, which has suffered from a glut of houses for sale.
JPMorgan also said declines would not be limited to the United States, adding that UK commercial property prices are like to fall 23 per cent and commercial property prices in Europe and Australia are apt to decline by 5 per cent to 10 per cent.
Source: Reuters (Business Times 6 Mar 08)
GLOOM. Doom. Calamity. Home prices are tumbling. We’re bombarded by sombre reports. But wait. This is actually good news, because lower home prices are the only real solution to the housing collapse. The sooner prices fall, the better. The longer the adjustment takes, the longer the housing slump (weak sales, low construction, high numbers of unsold homes) will last. It’s elementary economics. Say, houses are apples. We have 1,000 apples, priced at US$1 each. They don’t sell. We can either keep the price at US$1 and watch the apples rot. Or we can cut the price until people buy. Housing is no different.
Even many economists – who should know better – describe the present situation as an oversupply of unsold homes. True, there is about 10 months’ supply of existing homes as opposed to four months a few years ago. But the real problem is insufficient demand. There aren’t more homes than there are Americans who want homes; that would be a true surplus.
There’s so much supply because many prospective customers can’t buy at today’s prices. By definition, the ‘housing bubble’ meant that home prices got too high. Easy credit, lax lending standards and panic buying raised them to foolish levels. Weak borrowers got loans. People with good credit borrowed too much. Speculators joined the circus.
Look at some numbers from the (US) National Association of Realtors. From 2000 to 2006, median family income rose almost 14 per cent to US$57,612. Over the same period, the median-priced existing home increased about 50 per cent to US$221,900. By other indicators, the increase was even greater. But home prices could not rise faster than incomes forever.
Inevitably, the bust arrived. Credit standards have now been tightened, and the (false) hope of perpetually rising home prices – along with the possibility of always selling at a profit – has evaporated. For many potential buyers, prices have to drop for housing to become affordable.
How much? No one really knows. There is no national housing market. Prices and family incomes vary by state, city and neighbourhood. Prices rose faster in some areas (Los Angeles, Miami, Phoenix) than in others (Dallas, Detroit, Minneapolis). Some economists now expect an average national decline of about 20 per cent. The Federal Reserve estimates that owner-occupied real estate is worth almost US$21 trillion. A 20 per cent reduction implies losses of about US$4 trillion.
The largest part would be paper losses for homeowners: values that rose spectacularly will now fall less spectacularly – back to roughly 2004 levels; that’s still 30 per cent or so higher than in 2000. But hundreds of billions of dollars of other losses are already being suffered by builders (from the lower value of land and home inventories), mortgage lenders (from defaulting loans), speculators and homeowners (from lost homes). Mark Zandi of Moody’s Economy.com estimates that mortgage defaults this year will exceed 2 million, up from 893,000 in 2006.
To be sure, all this weakens the economy. No one relishes evicting hundreds of thousands of families from their homes. Eroding real estate values make many consumers less willing to borrow and spend. Some economists fear a vicious downward spiral of home prices. More foreclosures depress prices, increasing foreclosures as people abandon houses where
the mortgage exceeds the value. Losses to banks and other lenders rise, and they curb lending further. Particularly vulnerable would be Fannie Mae and Freddie Mac, the two government-sponsored housing lenders.
Up to a point, there’s a case for providing relief to some mortgage borrowers. In many cases, everyone would gain if lenders and borrowers renegotiated loan terms to reduce monthly payments. Losses to both would be less than if their homes went into foreclosure and were sold. The Treasury has organised voluntary efforts. Some measures being considered by Congress (for example, overhauling the Federal Housing Administration) might help. But other proposals – particularly empowering bankruptcy judges to reduce mortgages unilaterally – would perversely hurt the housing market by raising the cost of mortgage credit. Lenders would increase interest rates or downpayments to compensate for the risk that a court might modify or nullify their loans.
The understandable impulse to minimise foreclosures should not serve as a pretext to prop up the housing market by rescuing too many strapped homeowners. Though cruel, foreclosures and falling home values have the virtue of bringing prices to a level where housing can escape its present stagnation. Helping today’s homeowners makes little sense if it penalises tomorrow’s homeowners. An unstoppable free fall of prices seems unlikely.
Slumping home construction and sales have left much pent-up demand. What will release that demand are affordable prices.
Source: The Washington Post Writers Group(Business Times 6 Mar 08)
(WASHINGTON) US regulators are watching credit cards and commercial construction loans for signs they may be the next trouble spots as strained financial markets constrain credit.
The housing downturn, with its epicentre in the sub-prime mortgage market, remained atop the list of concerns. But banking regulators and Federal Reserve officials expressed concerns on Tuesday that credit risks may extend beyond mortgages.
Federal Reserve chairman Ben Bernanke warned in a speech that mortgage delinquencies and foreclosures would likely rise and more house price declines could be expected.
Mr Bernanke’s second-in-command, Donald Kohn, said at a Senate Banking Committee hearing that the Fed was also keeping a close eye on credit card, home equity and commercial real estate loans as banks cope with a widening range of credit risks.
‘Federal Reserve supervisors are monitoring these consumer loan segments for signs of spillover from residential mortgage problems, particularly in regions showing homeowner distress, and are paying particular attention to the securitisation market for credit card loans,’ he revealed. Mr Kohn added that commercial real estate is ‘another area that requires close supervisory attention’.
Source: Reuters (Business Times 6 Mar 08)
Fed ‘making same errors’ Japan made trying to bail out everyone in 1990s
FINANCIAL guru Jim Rogers painted a doom-and-gloom picture of the United States economy yesterday and predicted that Singapore’s two investment companies would lose money on their recent investments in beleaguered banking giants.
Singapore-based Mr Rogers said investing billions of dollars in banks at this time, with the US financial sector in dire straits, was the wrong move.
He believes ‘banks will fall further’, hence his strategy of ’shorting investment banks on Wall Street’, including Citigroup and mortgage lender Fannie Mae. ‘Shorting’ means investing on the assumption that the shares will fall further.
Mr Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s and predicted the start of the commodities rally in 1999, said he was concerned by the recent bank deals made by Temasek Holdings and the Government of Singapore Investment Corporation (GIC).
‘It grieves me that Singapore is buying into these things,’ said Mr Rogers.
GIC pumped in 11 billion Swiss francs (S$14.7 billion) for a 9 per cent stake in Swiss bank UBS in December and invested US$6.88 billion (S$9.58 billion) in Citigroup a month later. In December, Temasek bought a US$4.4 billion stake in Merrill Lynch.
UBS shares have fallen by more than 30 per cent this year. Citigroup is down over 20 per cent, while Merrill Lynch is off about 5 per cent.
Mr Rogers told reporters at an ABN Amro product launch that he remained bullish on commodities but extremely bearish on equities, bonds and the greenback.
‘The only bull market I know of in the world right now is the commodities market,’ he said. ‘We’re only one-third of the way through the bull market.’
He also warned that inflation was going to get worse: ‘Demand is going higher at a time when there are supply constraints. Food inventories are at their lowest in 40 years.’
Oil prices also have the potential to go much higher, he said, adding that the US Federal Reserve was making the same mistake Japan did in the 1990s when it wanted to bail out everyone.
The US should have bitten the bullet instead of trying to put on ‘band-aids’, he added, referring to the Fed’s move of cutting interest rates to stave off a recession yet risking stoking the inflation fire.
‘The central bank is making disastrous mistakes,’ said Mr Rogers, adding that he was also ‘extremely pessimistic’ on the US dollar. The currency traded near record lows to the yen and Swiss franc yesterday.
Mr Rogers further forecast that the US sub-prime crisis would continue to haunt the world for a year or two. Even after it has ceased, he said, there will still arise other kinds of loan problems, such as with credit cards and cars.
Source: The Straits Times 6 Mar 08
IT HAS been 28 years since Singapore’s listed UOL Group launched its last serviced apartment property, the Parkroyal Residences at Beach Road.
Now, it is entering the luxury extended-stay business with the launch of its new property, Pan Pacific Serviced Suites, at 96 Somerset Road.
The new property is similar to serviced apartments but has additional luxury features such as round-the-clock personal assistants who can provide guests with local connections to business and social events.
The property is the first of five planned serviced suites that UOL is also planning in China, Vietnam, Malaysia and Thailand over the next three years, said Mr Gwee Lian Kheng, group president and chief executive of UOL yesterday.
UOL’s wholly-owned unit Pan Pacific Hospitality, which owns the Pan Pacific Hotels and Resorts group of hotels, yesterday unveiled the luxury serviced suites.
The 16-storey building next to the Somerset MRT Station houses 120 one- or two-bedroom suites and six penthouses, ranging from 527 sq ft to 1,689 sq ft in size.
UOL believes demand for luxury serviced suites will rise as the number of international visitors to the region increases.
According to the Pacific Asia Travel Association, the Asia-Pacific region saw 361.7 million visitors last year, a jump of 7.9 per cent from the year before.
Mr Gwee expects another 6 to 7 per cent rise this year.
He also said some demand should be generated from a spillover effect of the current shortage of hotel rooms in Singapore.
There are at least 26 serviced residences in Singapore with about 3,500 units in all, compared with more than 37,000 hotel rooms.
According to CB Richard Ellis, the occupancy rate for serviced apartments in Singapore was 91.2 per cent in the fourth quarter of last year, an increase of 7.5 per cent from the same period in 2006.
Mr Gwee hopes the suites, constructed at a cost of $150 million, will see an occupancy rate of at least 90 per cent after the first six months.
The suites will launch early next month, and rates will range from $10,000 to $25,000 per month, or from $420 to $1,070 per day for a minimum stay of one week.
This is at a premium of 20 to 25 per cent over the market rate, said Mr Kam Tin Seah, UOL’s senior general manager of investment and strategic development.
Pan Pacific Hospitality plans to launch its second serviced suite in Bangkok a year from now. As a group, UOL also plans to roll out between 15 and 20 new hotels and serviced suites over the next three years.
Source: The Straits Times 6 Mar 08
They are keeping a keen eye on credit card, home equity and building loans
WASHINGTON – UNITED States regulators are watching credit card and commercial construction loans for signs that they may be the next trouble spots as strained financial markets constrain credit.
The housing downturn, with its epicentre in the sub- prime mortgage market, stayed atop the list of concerns. But regulators and Federal Reserve officials expressed concerns on Tuesday that credit risks may extend beyond mortgages.
Fed chairman Ben Bernanke said on Tuesday that credit-weary banks may be better off accepting lower home loan principal amounts rather than the bigger losses that would come from foreclosures.
He warned that mortgage delinquencies and foreclosures would likely rise as house prices fall further.
Mr Bernanke’s second-in- command, Mr Donald Kohn, said at a Senate Banking Committee hearing on the same day that the Fed was also keeping a close eye on credit card, home equity and commercial real estate loans as banks cope with a widening range of credit risks.
‘Federal Reserve supervisors are monitoring these consumer loan segments for signs of spillover from residential mortgage problems, particularly in regions showing home owner distress.
‘And they are paying particular attention to the securitisation market for credit card loans,’ he said. Mr Kohn added that commercial real estate is ‘another area that requires close supervisory attention’.
He noted that while personal bankruptcy rates remained below levels prior to bankruptcy law changes implemented in 2005, they ticked higher over the first nine months of last year and ‘could be a harbinger of increasing delinquency rates on other consumer loans’.
Despite those strains, Mr Kohn said the banking sector remained sound and he saw no threat to banks’ viability.
The credit mess that began with failing US sub- prime mortgage loans has left banks saddled with tens of billions of dollars in bad debts, prompting them to tighten lending standards. That has slowed the flow of cash to firms and consumers who power the US economy.
US Comptroller of the Currency John Dugan echoed concerns that the credit troubles may spread beyond mortgage loans.
‘Although credit card earnings have been fairly robust and portfolios are currently strong, we have a heightened level of concern in this area, even before the numbers confirm any significant deterioration,’ he said.
‘We expect losses from home equity loans to continue to escalate as, unlike first mortgages, these assets are largely held on banks’ balance sheets,’ he added.
But in a sign of how the Fed is conflicted in combating the competing threats of slowing growth and rising prices, another Fed official stressed that inflation was his top concern. ‘Containing inflation is the purpose of the ship I crew for,’ said Dallas Federal Reserve president Richard Fisher.
‘If a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient,’ he said.
Source: REUTERS (The Straits Times 6 Mar 08)
Earnings per share growth of S’pore listed companies may not even make 6% this year
(SINGAPORE) Faced with a small domestic market and a very open economy, Singapore companies are highly susceptible to any global slowdown and are therefore expected to chalk up one of the slowest corporate earnings growths in Asia in 2008. This is the conclusion drawn from an aggregate of all analysts’ forecasts by StarMine Professional.
Overall, companies in Singapore may see earnings per share (EPS) improve by a mere 5.9 per cent in 2008, making it the market with the third worst outlook in Asia. Hong Kong fares even worse, with its companies expected to register a 2.5 per cent decline in EPS this year. Malaysia, too, has a negative 0.9 per cent earnings outlook.
StarMine, which compiles analysts’ estimates and provides equity research performance ratings, aggregated analysts’ forecasts of listed companies’ earnings in the coming 12 months and compared them to the trailing 12 months’ estimates.
It gives greater weight to forecasts by analysts which have proved to be the most accurate in the past, and to more recent estimates.
According to this data – called Smart Estimates – Thailand is poised to have the region’s highest growth in EPS – 50.9 per cent in the coming 12 months.
Second is China with an expected growth of 33.6 per cent. Listed companies in India, Indonesia and Korea are expected to boost their EPS by about 17 to 18 per cent each.
Some broking firms’ reports seem to conform with the big picture view presented by StarMine.
In a recent report, Merrill Lynch said that it had done a bottom-up stress test to assess the earnings risks and valuation contraction for the top 30 stocks in the Hang Seng Index (HSI).
‘In aggregate, we see potential 9 per cent downside to 2008E earnings. In this case, we would not see any earnings growth in the HSI this year,’ Merrill Lynch said.
The US investment bank, however, added that it believed the market outlook was unlikely to do worse than its assumptions. ‘The result shows that airlines, consumers, Chinese banks and insurance companies are most sensitive to either macro slowdown or poor A-share market sentiment. HK banks, utilities, oil and telecoms are the most defensive with respectable dividend yield,’ it said.
Citigroup, however, thinks that analysts and investors may still be a little over-optimistic.
‘Region-wide, a 41.5 per cent decline in earnings should not come as a surprise given that it has happened before (when the United States fell into recession),’ said its regional equity strategist Markus Rosgen. ‘A 41.5 per cent decline in 2008 earnings would leave the region on a P/E of 26.2 times, well above most investors’ comfort zone.’
And on the basis of price-to-book ratio, assuming that any upcoming recession is no better or worse than the last two, stock prices in Asia excluding Japan as a region could fall by 47 per cent from current levels, he warned.
Indeed, in the last 30 days or so, StarMine’s data showed that there have been continuous downward revisions of earnings for the region by analysts.
Sri Lanka has had the largest downgrades of earnings, by 5.3 per cent. Corporate Taiwan’s EPS estimates were also cut by 3.5 per cent compared with a month ago, while Japan’s and Singapore’s were trimmed by 2.9 and 2.5 per cent respectively.
The markets whose earnings estimates were upgraded in the last 30 days were Indonesia and India.
In aggregate, analysts bumped up their estimates of Indonesian companies by 1.7 per cent, and Indian companies by a marginal 0.4 per cent.
Generally, market prices are pegged to the growth outlook for the various markets. For example, China – with an expected earnings growth of 34 per cent – is trading at 24.7 times forward earnings and six times the book value of the companies’ assets.
In contrast, Singapore is trading at just 10.9 times its forward earnings and 2.5 times its book value.
Given that certain markets are valued richly based on the very high earnings expectations, any disappointments will have severe consequences on stock prices.
Meanwhile, there are also markets with high growth expectations but low valuation. Thailand and Korea are trading at just over 11 times their forward earnings, despite their pretty robust earnings growth expectations.
Timothy Wong, head of regional equity research with DBS Vickers Securities, explained that Thailand companies’ earnings are coming off from a low base. This accounts for the high EPS growth rates.
But the market’s overall valuation is low because it is perceived as a higher-risk emerging market.
‘On the political front, there remain a number of uncertainties, although things are moving in the right direction. And corporate earnings will come through only if the country progresses on the right course,’ he said.
As for Korea, the market has historically traded at a discount to other markets. This is due to the structure of the market where there are a lot of chaebols or conglomerates. Also, there are questions on corporate governance, said Mr Wong.
Calculations by Citigroup’s Mr Rosgen also showed investors to have very low expectations of Korea, Taiwan and Thailand, making them the three cheapest markets in Asia. ‘Given the risks in the global economy at the moment, we’d rather buy low expectations than high expectations,’ he said.
Source: Business Times 5 Mar 08
Dubai fund chief says much more is needed to rescue Citigroup, others
(DUBAI) Banks and securities firms led by Citigroup may need more money from Arab states as losses stemming from the collapse of the US sub-prime mortgage market increase, the head of Dubai International Capital said.
Citigroup, the biggest US bank by assets, received a US$7.5 billion cash infusion from Dubai’s neighbour, Abu Dhabi, on Nov 27 to replenish capital after record mortgage losses destroyed almost half its market value, leading to the departure of chief executive Charles Prince. Citigroup has since received cash from Singapore and Kuwait.
‘In my view it will take a lot more than that to rescue Citi and other financial institutions,’ Sameer al-Ansari told a private equity conference in Dubai yesterday.
Gulf states including Qatar, Kuwait and the United Arab Emirates have bought into US financial institutions such as Merrill Lynch & Co, Morgan Stanley and UBS, after they lost more than US$163 billion betting on securities backed by sub-prime mortgages.
Banks and securities firms have raised US$105 billion from selling stakes to cover sub-prime losses.
Qatari Prime Minister Sheikh Hamad bin Jasim bin Jaber al-Thani said on Feb 18 that the emirate is buying shares in Credit Suisse Group and plans to spend as much as US$15 billion on European and US bank stocks over the next year.
Abu Dhabi is Citigroup’s largest shareholder, ahead of Los Angeles-based Capital Group Cos and Saudi billionaire Prince Alwaleed bin Talal, according to Bloomberg data.
State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to US$3.2 trillion in assets.
Fuelled by record oil prices and rising currency reserves, sovereign fund assets may gain four-fold to US$12 trillion by 2015, equal to the capitalisation of the Standard & Poor’s 500 Index, according to Morgan Stanley estimates.
Merrill Lynch & Co analyst Guy Moszkowski said that Citigroup will likely post a loss for the first quarter because the largest US bank by assets may take further ‘big writedowns’.
The analyst slashed his first-quarter estimate for Citigroup to a loss of US$1.66 per share from a profit of 55 cents a share. Mr Moszkowski cut his 2008 forecast to a profit of 24 cents a share from US$2.74.
The first-quarter estimate is based on an expected US$15 billion writedown related to sub-prime mortgages and so-called collateralised debt obligations, along with a US$3 billion writedown for other investments, Merrill said.
‘We remain concerned about loss provision potential, the direction of long-term strategy, and weak markets for the capital markets business,’ Mr Moszkowski wrote.
Citigroup posted a US$9.8 billion loss for the fourth quarter, the widest in its 196-year history, and wrote down CDOs linked to sub-prime mortgages by US$20 billion. The bank’s shares have tumbled 53 per cent in the past year.
Analysts surveyed by Bloomberg on average estimate that Citigroup will post a profit of 34 cents a share this quarter, excluding some items.
Merrill also cut its first-quarter profit estimate for Bank of America Corp, the second-biggest US bank by assets, to 58 cents a share from 94 cents. The brokerage trimmed its 2008 estimate for Wachovia Corp, the country’s fourth-largest lender, to US$2.50 a share from US$3.20.
Source: Bloomberg (Business Times 5 Mar 08)
WHAT a difference a year makes. Each year, Jim Reid and his colleagues at Deutsche Bank AG publish an influential analysis of credit markets that puts current yields and fundamentals in historical perspective.
If you buy a bond from a company that might go bankrupt, then you expect to receive a higher interest rate. In an efficient and well-functioning market, the higher yield in a diversified portfolio of such bonds should offset the losses you would incur over time because of defaults. If a 10-year Treasury is yielding 4 per cent, then you should only buy a 10-year bond from a company with a good chance of defaulting if the yield is significantly higher than 4 per cent.
How much higher? That is exactly the question addressed with impressive analytical precision by the Deutsche Bank report. It provides a great thermometer reading of the bond market. The report calculates how large the default probabilities must be to command the current yields on different classes of bonds.
A comparison of this year’s report with last year’s provides a striking and even startling view of how rough the credit crisis has become.
‘Last year, spreads on high-yield bonds were so low that you could have expected to lose money if you purchased them, even if they defaulted at the lowest rate in history,’ Mr Reid, head of fundamental credit research at Deutsche Bank in London, said in an interview last week. ‘This year, spreads are so high that you can expect to make money even if they default at the highest rate in history.’
Default rate
That’s one way to say that corporate bonds look like a good buy right now. If you think about it in terms of implied default probabilities, the analysis gets downright shocking.
Looking at the iBoxx Dollar Liquid Investment Grade Index, Mr Reid and his colleagues estimated that current spreads imply that 19 per cent of five-year bonds in the index will default during the next five years. This is an unbelievably high rate.
The highest default rate for these bonds was just 2.4 per cent, and the average rate since 1970 was 0.8 per cent. From Citigroup Inc to JPMorgan Chase & Co, financial firms have been particularly hard hit in this crisis. This is apparent in Mr Reid’s numbers as well. Current prices suggest that 21 per cent of five-year bonds in the financial industry are expected to default during the next five years. This places financial bonds – the debt of some of the bluest of blue-chip firms – smack dab between single A- rated bonds (which have an implied expected default rate of 20 per cent) and BBB-rated bonds (which have an implied expected default rate of 22 per cent).
Historical record
Those implied default rates are also way outside of historical experience. The highest five-year default rate for A- rated bonds was 2.5 per cent. The most for BBB-rated bonds was 5.8
per cent. The mayhem, of course, hasn’t just affected five-year bonds. Longer maturities have even more extreme default scenarios priced in. Current prices suggest that 29 per cent of corporate bonds will default over the next 10 years. That rate is six times higher than any 10-year period since 1970.
It is worth noting that these default probabilities are probably somewhat inflated, as default risk isn’t the sole consideration when looking at bond prices. Even so, the market is pricing in a bond-market catastrophe that’s far worse than anything that has ever happened.
What should one make of these numbers? Even an optimist should be startled by what bond markets are saying. The market isn’t just expecting a downturn; it’s expecting a calamity. A University of Chicago-style believer in the absolute wisdom of markets should be loading up on canned goods and checking the fortification of his underground bunker.
A more rational response to this report might be to recognise that markets, while they are right on average, tend to overreact in both directions. A person with this sentiment would have looked at last year’s prices and concluded that they were irrationally low. Now, panic has set in and spreads are way too high, pricing in something close to the end of civilisation. The world economy has survived wars, oil embargoes and even a depression. That suggests that it can survive this, too, even if things get worse before they get better. If you believe that, then a buy-and-hold strategy on bonds looks about as good as it ever will. If enough investors see that, then this credit crunch might finally begin to ease.
Kevin Hassett is a Bloomberg News columnist. The opinions expressed are his own
Source: Bloomberg (Business Times 5 Mar 08)
(SHANGHAI) China is fast losing its manufacturing competitiveness in some industries, and companies need to upgrade their operations there to stay profitable, according to a survey released yesterday.
The study comes amid reports that thousands of manufacturers, both Chinese and foreign, are shifting operations away from coastal regions, where labour and other costs are eroding their profitability, to inland areas or other countries. The ‘China Manufacturing Competitiveness’ survey by the Shanghai Chamber of Commerce found that more than half of the 66 foreign invested companies responding believe China is losing its competitive advantage over other ‘low cost’ countries, such as Vietnam and India.
‘The days of easy China manufacturing are at an end,’ said Ted Hornbein, chairman of the American Chamber of Commerce in Shanghai’s Manufacturers Business Council. ‘You can’t just view it as a workshop anymore.’
The companies surveyed, most of which were based in eastern China near Shanghai, said wages are rising an average 9 per cent to 10 per cent a year, with costs for raw materials up more than 7 per cent, the report said.
But companies can do more to improve their own operations to counter those trends, said Ronald Haddock, vice-president of consulting firm Booz Allen Hamilton, which conducted the study.
‘China’s competitiveness is at risk,’ Mr Haddock said. ‘The question is, is there something we can do about it?’ While many low-cost makers of cheaper products such as shoes, clothing and toys are shifting production to inland regions of China where wages and other costs can be lower, or to other developing countries. Mr Haddock said the survey results showed that many manufacturers could boost profitability by improving how they operate.
If companies don’t improve their management approach, ‘we think it is going to get pretty ugly for some of them,’ he said.
A crucial strategy used by the most profitable companies surveyed was to ensure China operations fit into their global supply chains – how the companies source, make and distribute products.
‘Starting with the right mind-set is the beginning,’ Mr Haddock said.
Source: AP (Business Times 5 Mar 08)
Vigorous response needed to reduce rising foreclosures, says Fed chief
(WASHINGTON) Federal Reserve chairman Ben Bernanke called yesterday for additional action to prevent more distressed US homeowners from falling into foreclosure.
‘This situation calls for a vigorous response,’ Mr Bernanke said in a speech to a banking group in Florida.
Even with some relief efforts under way by industry and government, foreclosures and late payments on home mortgages are likely to rise ‘for a while longer’, Mr Bernanke warned.
Rising foreclosures threaten to worsen the problems in the housing market and for the US economy, which many fear is on the verge of a recession or in one already.
‘Reducing the rate of preventable foreclosures would promote economic stability for households, neighbourhoods and the nation as a whole,’ Mr Bernanke said. ‘Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done,’ the Fed chief noted.
One of the suggestions Mr Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. ‘Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,’ Mr Bernanke explained.
With low or negative equity in their home, a stressed borrower has less ability – because there is no home equity to tap – and less financial incentive to try to remain in the home, he said.
Mr Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he noted, are reluctant to write down principal. ‘They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,’ Mr Bernanke pointed out.
Still, Mr Bernanke suggested such longer-term permanent solutions may work better than shorter term and temporary ones, where the distressed homeowner could find himself in trouble again. ‘When the mortgage is ‘under water’, a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure,’ he said.
To date, permanent home mortgage modifications that have occurred have typically involved a reduction in the interest rate, while reductions of the principal balance of the loan have been quite rare, he said.
‘Measures that lead to a sustainable outcome are to be preferred to temporary palliatives, which may only put off foreclosure and perhaps increase its ultimate costs,’ Mr Bernanke said.
Lenders last year were on pace to initiate roughly 1.5 million home foreclosure proceedings, up from an average of fewer than one million new foreclosures in the preceding two years, the Fed chief said.
More than one half of the foreclosures started in 2007 were on sub-prime loans given to borrowers with blemished credit histories or low incomes.
Source: AP (Business Times 5 Mar 08)
NOVELTY Department Store Pte Ltd, part of the Novelty Group, has put the entire 18th floor of Peninsula Plaza up for sale, with a price tag of about $17.5 million or about $2,050 per square foot (psf) of strata area.
Peninsula Plaza is a 999-year leasehold building near Raffles City. DTZ is marketing the property.
The 18th floor comprises six strata units adding up to 8,514 sq ft – all of which are leased. Tenancies for five units are up for renewal/expiry later this year, while the lease on the sixth unit runs out in mid-2009.
The $17.5 million price tag reflects a passing net yield – that is based on existing contracted rents – of about 2 per cent.
However, DTZ notes that current monthly asking rents for offices in the building range from $7 psf to $8 psf.
Assuming an average rental of $7.50 psf, the $2,050 psf asking price reflects a net yield of about 3.5 per cent.
‘The potential buyer may also further capitalise on this investment opportunity and subsequently offer to resell the six strata units individually to take advantage of rising capital values of smaller strata office space,’ said DTZ senior director (investment advisory services and auction) Shaun Poh.
The property provides an opportunity to invest in ‘good quality and well maintained office space’, he said. ‘Strong demand and rising rental rates for office space in the Central business
District are expected to continue, providing income growth from the asset.’
DTZ is marketing the property through an expression of interest exercise that closes on April 1.
In December, a first-storey freehold office unit at United House, behind Le Meridien Singapore Hotel at Orchard Road, fetched $2,497 psf of strata area at an auction.
Far East Organization is said to have sold an entire office floor last year at The Central, a 99-year leasehold development above Clarke Quay MRT Station, for $3,050 psf.
Novelty Group is involved in the property and department store businesses. Its upcoming residential developments include i Residences, a freehold development with 70 apartments in the Irrawaddy Road area, and the 35-unit Evania at Upper Paya Lebar Road.
Source: Business Times 5 Mar 08
AFTER announcing eight new development projects in Vietnam last year, Keppel Land plans to launch one of these in the fourth quarter of this year.
In a statement released yesterday, Keppel Land said that it has been awarded the investment certificate by the Ho Chi Minh City People’s Committee for its new waterfront residential development in Vietnam.
The joint-venture project, to be developed in phases, is a 2,400-unit condominium development in District 7 fronting the Ca Cam River in Ho Chi Minh City. The first phase, comprising 700 units, is expected to be launched in the fourth quarter.
The total investment capital for the project is estimated to be US$206 million. Riviera Point, the joint-venture company undertaking the project, will have a registered capital of US$62 million. Keppel Land, through a wholly owned subsidiary, Elaenia Pte Ltd, will take a 75 per cent or US$46.5 million stake in Riviera, with Tan Truong Co Ltd taking the remaining 25 per cent.
Keppel Land International executive director and CEO Ang Wee Gee said that its earlier projects in Vietnam, like the fully sold Villa Riviera and Phase One of the 1,500-unit The Estella, have been well received.
‘With rising affluence and exposure afforded by travel overseas, Vietnamese home-buyers have become more discerning about quality and the lifestyle associated with their homes,’ he added.
The luxury condominium to be developed will sit on an 8.5-ha site. It will have recreational facilities including a clubhouse, a swimming pool and tennis courts and 24-hour security.
The news of the launch of this development comes after Keppel Land recently revealed plans for its Saigon Centre, a retail and financial complex of three towers, with its tallest tower of 88 storeys expected to be among the world’s tallest.
Keppel Land also has a pipeline of over 25,000 homes in the Vietnamese cities of Ho Chi Minh City, Hanoi and Dong Nai.
Source: Business Times 5 Mar 08
PMI now just above threshold between expansion and contraction
(SINGAPORE) The purchasing managers’ index (PMI) slid for a third straight month in February, with declines in export orders and output. But the electronics index edged up, even though orders were also weak.
With its latest 0.2-point drop, the PMI – a barometer of the manufacturing economy – is now down to 50.3, just above the 50-point threshold between expansion and contraction.
The electronics PMI, which had fallen in the preceding three months, surprisingly added 0.4-point to 51.2 – despite declines in key indicators such as new orders and output.
The overall PMI covers 12 manufacturing industries, including electronics.
The Singapore Institute of Purchasing & Materials Management (SIPMM) polls purchasing executives from some 150 companies every month to produce the index.
While a fall in the readings usually spells decline, February’s lower figures might also be due partly to the shorter month (rather than totally reflecting weaker demand) as the comparisons are with the preceding month, rather than year-on-year.
Still, past readings show that not every February PMI is down, and March – a much ‘bigger’ month – has also yielded lower readings.
Lau Geok Theng, associate professor at the National University of Singapore Business School and vice-chairman of the SIPMM council, reckons the slight dip in the February PMI reflects some uncertainty as markets react ’suspiciously’ to official measures taken to keep the US economy from falling into recession.
These include the proposed US$145 billion economic stimulus package and the recent 0.75-point cut in US interest rates to 3.5 per cent.
There is also a ‘wait and see’ attitude as businesses deliberate over the outcome of the upcoming election in the United States and other countries such as Malaysia, as well as in Pakistan where elections were held last month, so as to assess long-term directions and plans, he said.
According to SIPMM executive director Janice Ong, citing anecdotal evidence, local manufacturers remained cautious last month but were still expecting a surge in demand.
The PMI readings show big increases in the raw material inventory sub-indices, but marked decreases in the finished goods figures. But the latter remains above 50 points, indicating an accumulation of unsold goods.
Source: Business Times 5 Mar 08
(NEW YORK) Say the economy has fallen into recession, as so many people on and off Wall Street think. Is it time to bail out of stocks?
Selling may be the reflexive response by shareholders who have watched the value of their assets decline in step with economic indicators, but investment advisers contend that they should consider buying instead. Recessions tend to be short, and by the time one is widely acknowledged, they say, investors have often sold just in time to miss the recovery that lies around the corner.
‘People should be preparing for the next upswing because the downturn is already priced in,’ advised Ron Muhlenkamp, manager of the Muhlenkamp Fund.
Brendt Stallings, a fund manager for the TCW Group who specialises in shares of medium-size companies, suggests that investors may not be fearing the worst but that they certainly have it on their minds. And that has already registered in stock prices.
Portfolio managers who foresee a rebound concentrate their buying on segments of the economy that tend to outperform as a new growth cycle gathers momentum. They are not allocating all of their resources to such recovery plays, though, and are making allowances for conditions that seem to be different from those of other recessions.
‘The normal rotation that occurs is a move into financials and consumer cyclicals,’ Mr Muhlenkamp noted before conceding that ‘normal’ does not quite describe the financial sector and such cyclical industries as housing these days. He likes some financial stocks, notably the mortgage buyer and seller Fannie Mae, but he prefers consumer-oriented companies like appliance maker Whirlpool and two transportation companies: Harley-Davidson and Winnebago.
Continuing with his eclectic list of companies that get people from here to there, he expects the stocks of Boeing and Caterpillar to rise with, or ahead of, the economy. A point in their favour, he said, is the level of the US dollar; it is far weaker than it was during the 2001 recession, giving American exporters a competitive edge.
Barbara Walchli, manager of the Aquila Rocky Mountain Equity fund, is another advocate of transportation stocks. The sector, she said, is ‘usually one of the groups that moves fastest coming off the bottom’.
One of the fastest of the fast may be Knight Transportation, a midsize trucking concern. Ms Walchli lauded Knight’s management for keeping the company’s books free of debt, unlike rival Swift Transportation, which she said had borrowed heavily to take itself private. She also likes Avnet, a distributor of electronic components to businesses. It fits well with her expectation that businesses will open their wallets before consumers as the economy emerges from its torpor.
Mr Stallings also foresees business spending picking up sooner, and he prefers potential beneficiaries of the trend that have a global reach.
Examples include Spirit AeroSystems, a supplier of commercial airline assemblies and components, and two companies, Cognizant Technology Solutions and Resources Connection, that provide outsourced labour to fulfil administrative or technical services for other businesses.
He also expects consumers to do their fair share in helping the economy bounce back. Among his favourite recovery plays here are three chains of different sorts: P F Chang’s China Bistro, which operates restaurants; pet supply company PetSmart; and Dick’s Sporting Goods.
‘It’s an interesting time to be a bottom-up fundamental growth manager,’ Mr Stallings said. ‘Everything is on sale across the board.’
Before buying stocks to anticipate a blast-off out of recession, investors must buy the premise that a recession is here. Many do not, including John Lynch, chief market analyst at Evergreen Investments.
‘The classic ingredients for a recession have been tight monetary policy and runaway inflation, especially wage inflation, and neither of those exists today,’ Mr Lynch said, despite some signs that inflation has been increasing.
He acknowledges that a third sign of recession – fear – is here, and then some, but he still describes the economy as being in ‘the late stages of expansion’ or possibly ‘knocking on the door of a recession’. That is only likely to postpone the reckoning until next year, he said.
In his view, the best companies in which to invest between now and then are in defensive areas like health care and basic consumer items, or in segments of technology that derive much of their revenue from businesses. Despite his less positive economic outlook, he, too, anticipates strong capital spending.
Defensive selections include Procter & Gamble, Pfizer and Johnson & Johnson. Among tech stocks that he mentioned are Intel, Microsoft and Oracle.
Even investment advisers who say the economy is approaching a trough prefer to hedge against the possibility that they are wrong.
David Fording, co-manager of the William Blair Growth fund, prefers consumer businesses that derive much of their sales abroad, where economic conditions appear less fragile. Mr Fording said he recently bought shares of the retailer Coach for that reason.
‘There are a number of growth drivers for Coach in the US and, more important, it’s a global brand,’ he said. His more conventional recovery choices include Fastenal, a supplier of construction and industrial supplies, and McCormick & Schmick’s Seafood Restaurants.
Such domestically focused companies are worth owning ‘if you feel that there’s a decent probability that we’ll make it through this rough patch’, Mr Fording said.
How rough will it be? He cautioned investors to expect conditions over the short term that are uncomfortable, but not necessarily unprofitable.
‘Regardless of whether we see really negative headlines for the next three to six months,’ he said, ‘it might very well be the case that the market climbs the wall of worry and looks past
the bad news to a recovery in 2009′.
Source: NYT (Business Times 5 Mar 08)
The Republic is the best place for them to live worldwide; Baghdad ranks last
(SINGAPORE) The Republic ranks as the best place for Asian expatriates to live worldwide, according to the latest survey by human resources consultancy firm ECA International.
Singapore surpasses cosmopolitan cities such as Sydney, Melbourne and Copenhagen in Asian expatriates’ view, the survey showed. These cities are ranked second, third and fifth respectively in the top 15 locations for Asian expatriate living.
Meanwhile, Kobe (joint third with Melbourne), Yokohama (eighth), Tokyo and Hong Kong (both 15th) are the only other Asian destinations that made it to the top 15 list.
Conducted annually, the Location Ranking Survey compares living standards in 254 locations globally, taking into account climate, air quality, health services, housing and utilities, isolation, social network and leisure facilities, infrastructure, personal safety and political tensions.
‘High quality infrastructure and health facilities, combined with low health risks, air pollution, crime rates and a cosmopolitan population, make Singapore a very appealing location for Asians to live in,’ said Lee Quane, general manager of ECA International.
‘Although we did see a small deterioration in some factors, such as air quality and accommodation in 2007, it still retains its status as being the location with the best quality of living for assignees in this region.’
He explained that Singapore ‘was much more affected by haze in 2007′ compared with the preceding year, causing it to lose points in the air quality category. Meanwhile, ‘recent market developments in en bloc (property sales) had an impact on the supply of standard accommodation’.
Nevertheless, Singapore has consistently been ranked the best location for Asian expats to live for a decade, said Mr Quane, who believes that it will retain that spot despite ‘Hong Kong moving up our rankings’ this year after sliding for several years, due to improved personal security scores and the movements of locations around it.
‘We now see the narrowing in quality of living between Singapore and Hong Kong, but it is unlikely that Hong Kong will match Singapore. The main reason is (Hong Kong’s) air pollution, which is unlikely to go away any time soon,’ he explained.
At the other extreme, Baghdad is the least favourable place for Asian expats to live in, followed by Kabul (Afghanistan), Karachi (Pakistan) and Port-au-Prince (Haiti), due to the locations’ risk to personal security and their lack of suitable facilities, according to the survey.
Source: Business Times 5 Mar 08
He sees slowdown across the board; withdraws offer to guarantee bonds
NEW YORK – BILLIONAIRE investor Warren Buffett said the United States economy is in a recession and that stocks are ‘not cheap’ despite recent declines.
He also said he is no longer offering to guarantee US$800 billion (S$1.12 trillion) of municipal bonds backed by MBIA, Ambac Financial Group and FGIC, three bond insurers that ran into trouble from backing riskier debt.
Speaking on CNBC television on Monday, Mr Buffett said the economy is heading south even though gross domestic product (GDP) has not yet fallen for two straight quarters, a definition that many economists use to identify a recession.
He also said the slowing economy and the housing slump are hurting his insurance and investment company Berkshire Hathaway, whose 76 operating units sell things such as bricks, real estate brokerage services and underwear.
‘By any common sense definition, we are in a recession,’ Mr Buffett said. ‘Business is slowing down. We have retail stores in candy, home furnishings and jewellery. Across the board, I’m seeing a significant slowdown.’
Last week, the Commerce Department said America’s GDP rose at an annual rate of just 0.6 per cent in the fourth quarter.
Mr Buffett, 77, is one of the world’s richest people and is regarded by many as America’s greatest investor. Forbes magazine last September estimated his net worth at US$52 billion.
He said economic conditions have not deteriorated to the levels of 1973 and 1974, when there was a deep recession also marked by rising oil prices and falling stocks.
On Feb 12, Mr Buffett offered to reinsure US$800 billion of relatively safe municipal bonds, which are typically used to finance things such as hospitals, roads and schools. But he offered to back the bonds only at a steep premium. His offer also excluded risky debt, including securities tied to US sub-prime mortgages.
Bond insurers rejected the offer and have been seeking new sources of capital. Some have also been considering separating their municipal bond business from riskier businesses.
Mr Buffett on Monday said his earlier offer is now ‘not on the table’, and added that ‘we tossed our hat in the ring and they tossed the hat back’.
Source: REUTERS (The Straits Times 5 Mar 08)
ORLANDO – FEDERAL Reserve chairman Ben Bernanke, battling the worst United States housing recession in a quarter century, has urged lenders to forgive portions of mortgages for more borrowers whose home values have declined.
‘Efforts by both government and private sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,’ he said in a speech yesterday. ‘Principal reductions that restore some equity for the home owner may be a relatively more effective means of avoiding delinquency and foreclosure.’
Mr Bernanke’s call goes beyond the stance of the Bush administration and previous Fed comments.
By comparison, the central bank’s Feb 27 report to Congress called for lenders to ‘pursue prudent loan workouts’ through means such as modifying mortgage terms and deferring payments.
‘Delinquencies and foreclosures likely will continue to rise for a while longer,’ Mr Bernanke said in his comments to the Independent Community Bankers of America.
‘Declines in short-term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest rate resets will, nevertheless, impose stress on many households.’
In the past, home owners could refinance, though that option is now ‘largely’ gone because sales of bonds backed by sub-prime mortgages ‘have virtually halted’, Mr Bernanke said. ‘This situation calls for a vigorous response.’
He acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal.
‘They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.’
Mr Bernanke said by cutting the amount of the loan, this ‘may increase the expected payoff by reducing the risk of default and foreclosure’.
Source: BLOOMBERG NEWS, ASSOCIATED PRESS (The Straits Times 5 Mar 08)
They declare a lower price, thus keeping the difference instead of returning funds to CPF
A NEW scam involving HDB flats has surfaced, this time allowing flat sellers to pocket extra cash by craftily getting around the rules.
The so-called ‘magic dollars’ scam involves reporting a falsely low sale price to the HDB – an offence which is punishable by a jail term and/or a fine.
Agents say they are seeing these cases pop up on a more regular basis, but it is not rampant yet.
This is how it works.
The seller is typically a flat owner who bought his HDB flat at the peak of the last property boom, so he has made significant paper losses despite the recent run-up in prices.
If he sells the flat, the proceeds may be barely enough to cover the balance of his mortgage and any leftover will probably have to go back into his CPF account. So he ends up not getting his hands on any ready cash at all.
To pocket some cash or what is sometimes known as ‘magic dollars’, he strikes a deal with the buyer of his flat.
He gets the buyer to agree to declare to the HDB that the flat was sold for a much lower price. The buyer then pays the difference between the actual and declared price to the seller in cash.
To sweeten the deal, the seller usually gives the buyer a discount on the market value of the flat.
The scam is crafty because, on paper, these transactions can look flawless and are hard to detect.
Privately, the agent drafts a ‘letter of undertaking’, binding the buyer to pay the seller cash – sometimes under the pretext of paying for furniture and fixtures.
When the buyer pays up and the deal is done, the agent destroys the document and any paper trail. Neither the HDB, property agencies or lawyers will ever see it.
Everyone is a winner. The buyer gets a good deal and the seller gets some cash. But the catch is: The scam carries a jail term and/or a fine.
The deal is illegal because the seller is indirectly siphoning off money in advance from his CPF.
The HDB told The Straits Times that it was a ’serious offence’ to declare false resale prices, adding that if there was sufficient evidence, the case would be referred to the police.
Conviction could bring fines of up to $5,000 or jail of up to three years.
Such scams are not new to the market and HDB flat owners sometimes resort to them when they want to unlock cash.
In 2001, a ‘cash-back’ scheme was exposed, which involved over-declaring the agreed selling price.
It allowed the buyer to get a higher loan either from a bank or the HDB, with the ‘extra’ cash divided out among those involved.
Agency bosses told The Straits Times that they strictly discourage agents from handling these sales.
But despite the risk of getting caught, agents say such deals are popular in estates such as Simei, Pasir Ris and Bishan, which commanded high prices in the previous boom.
Some say the deals started surfacing as early as last April, when the HDB market started to pick up.
Resale prices rose 17.5 per cent last year after years in the doldrums, prompting more flat owners to think about selling their flats.
An agency boss, who declined to be named, has heard of up to 30 such cases.
PropNex chief executive Mohamed Ismail said it was hard to determine exactly how many such deals are being done, but he estimated that about 80,000 – or 10 per cent – of HDB homes are still in negative equity.
Negative equity means a flat owner’s mortgage is worth more than the home’s value now. Owners of these flats are more likely to take part in such deals.
Another agent said he is approached at least once a month to take part in such deals but he turns them down. ‘This is my rice bowl.
Why would I want to risk going to jail for just a sale?’ he said.
Source: The Straits Times 5 Mar 08
Separately, he says US economy is in recession, stocks are not cheap
(NEW YORK) Billionaire investor Warren Buffett said yesterday that the US economy is in recession and that stocks are not cheap, despite recent declines.
Speaking on CNBC television, Mr Buffett also said that he is no longer offering to guarantee US$800 billion of municipal bonds backed by MBIA Inc, Ambac Financial Group Inc and FGIC Corp, three large bond insurers.
He said that ‘from a common-sense standpoint right now, we’re in a recession’, though the US economy has not yet recorded two straight quarters of declining gross domestic product, a traditional indicator of recession.
He said that the environment is ‘nothing like ‘73 or ‘74 yet’, referring to a deep economic downturn also marked by rising oil prices, higher inflation and falling stocks. Still, he said that investors should not rule out a significant economic downturn, and that Federal Reserve chairman Ben Bernanke has a ‘very tough balancing act’ in trying to boost economic growth without kindling inflation.
Mr Buffett said that there is a fair chance that inflation may ignite in a ’serious way’.
On Friday, his insurance and investment company Berkshire Hathaway Inc reported an 18 per cent decline in fourth-quarter profit. This stemmed in part from weakness in businesses linked to housing, including units that make bricks and carpet, and that offer real estate brokerage services.
Mr Buffett said that he was finding more buying opportunities in stocks following a 16 per cent decline in the Standard & Poor’s 500 stock index from its recent high in October. ‘I find more things to look at now than I did six months or a year ago.’
But he acknowledged that conditions have changed ‘more dramatically’ in the bond market. Berkshire last year spent US$19.11 billion on stocks and US$13.39 billion on bonds.
Falling security values and liquidity have pummelled bond insurers, which normally insure relatively safe municipal bonds but also guaranteed billions of dollars of riskier debt, often tied to sub-prime mortgages.
On Feb 12, Mr Buffett offered to reinsure US$800 billion of municipal bonds, but only at a steep premium. The offer did not include the riskier debt. Bond insurers rejected the offer and have been seeking new sources of capital or possibly breaking themselves up.
Mr Buffett yesterday said that his earlier offer was ‘not on the table’. In December, he started his own bond insurer, Berkshire Hathaway Assurance Corp.
Since 1965, Mr Buffett has transformed Berkshire Hathaway Inc into a US$216 billion conglomerate by acquiring out-of-favour companies with strong earnings and management, and investing in stocks.
Berkshire’s Class A shares closed on Friday at US$140,000. Through Friday, they had risen 32 per cent in the last year.
Source: Reuters (Business Times 4 Mar 08)
BNP slashes 2008 earnings growth for industry to 31%
(HONG KONG) Investors should cut their holdings in Chinese property because of a slowdown in housing starts and home prices that will crimp earnings growth, BNP Paribas said.
The bank downgraded China real estate shares to ‘underweight’ from ‘overweight’, and slashed the 2008 earnings growth forecast for the industry to 31 per cent from 47 per cent, Hong Kong-based BNP analyst Andy So wrote in a research report published today.
‘Housing starts, bank loans and prices all showed signs of slowing down,’ Mr So said in his report. He named Hong Kong-listed Shimao Property Ltd as his top pick in the sector.
Home prices in some of China’s biggest cities including Shanghai and Shenzhen fell in the first two months of 2008 as government efforts to curb the soaring property market started to bite. The government sought to restrain the industry after home prices in 70 major cities surged 10.5 per cent in November and December from a year earlier, the most since the index began in July 2005.
Mr So reduced his price estimates for companies including Beijing Capital Land Ltd, China Overseas Land & Investment Ltd and Guangzhou R&F Properties Co.
Some smaller developers may struggle to maintain profit growth and be forced out of business as banks continue to tighten lending, Standard & Poor’s said in a Feb 28 report.
Source: Bloomberg (Business Times 4 Mar 08)
PROPERTY giant Far East Organization announced yesterday that executive director Leong Horn Kee would be leaving the company on June 30 after more than 15 years of service.Mr Leong, who served as Member of Parliament for 32 years until he retired in 2006, said that he was venturing out to work on his own ‘projects’.
‘I’m 56 years old now and I’ve had a good run in government service, GLCs, the financial sector and the private sector. It’s time to move on and I have some private business ventures in mind. Far East is in great shape and will continue to do well.’
A Colombo Plan scholar, Mr Leong started out in the Administrative Service at the Ministry of Trade in 1977. In 1984, he joined NatSteel, where he remained until 1989. Following that, he joined investment banking group NM Rothschild & Sons (S) Ltd for four years before moving on to Far East.
He was managing director of its Orchard Parade Holdings Ltd from 1993 to 2000, and managing director and CEO of Yeo Hiap Seng from mid-1999 to 2002. In recent years, he handled many of the group’s investment ventures and oversaw its internal audit operations.
‘He has been instrumental in completing our Novena Medical Centre agreement with Tan Tock Seng Hospital, and has assisted several departments in resolving various problems encountered with external agencies,’ Far East said in a statement yesterday.
Mr Leong, who has four children, is Singapore’s Non-Resident Ambassador to Mexico. He became a member of the Securities Industry Council in January.
Source: Business Times 4 Mar 08
Company holding back most project launches, analysts say
(HONG KONG) An upswing in Hong Kong home sales and prices is boosting big developers but will hardly register in earnings to be reported by Sun Hung Kai Properties this week, as the firm held back on project launches.
With rising wages and falling interest rates sparking one of the city’s legendary frenzies for property, analysts are mostly upbeat about the likes of top developer Sun Hung Kai and rival Cheung Kong (Holdings).
A correction has made stock valuations more attractive after a share price surge last year inspired by the US Federal Reserve’s aggressive rate cuts. Sun Hung Kai is trading at a 20 per cent discount to forecast end-2008 net asset value (NAV), compared to an average historical discount of about 10 per cent.
However, analyst forecasts for underlying earnings for the six months to Dec 2007 are spread widely and evenly between HK$4.7 billion (S$841 million) – which would be down 11 per cent on a year ago – and HK$6.1 billion.
‘They had no new launches except for Harbour Place,’ said Eva Lee, whose forecast for the interim half-year earnings was at the low end of the range. ‘So probably we can expect second-half sales to pick up.’
The 1,000 apartments put up for sale at the Harbour Place project, in the city’s Kowloon district, were quickly snapped up, but the profits will be booked in the second half of Sun Hung Kai’s financial year, which starts in July.
Sun Hung Kai’s earnings announcement, due on Thursday, will be the first time executives will have faced the media since the company’s chairman stepped down temporarily early this month.
Analysts have said Walter Kwok’s decision is unlikely to affect the company’s future performance.
Sun Hung Kai’s share price soared 76 per cent in the second half of calendar 2007, as Hong Kong’s currency peg led authorities to follow US interest rate cuts despite rising inflation and a local economy spurred by booming China.
But the stock has fallen 20 per cent this year and was trading at HK$133.60 at the close yesterday.
JPMorgan analyst Raymond Ngai, who expects an interim profit of HK$6.1 billion, has an overweight rating on the stock with a year-end price target of HK$159.
He expects full-year net profit to rise 35.7 per cent to HK$15.16 billion as apartment sales rise.
But Goldman Sachs analysts Anthony Wu is much more cautious, and has a neutral
recommendation, believing that apartment prices may have already peaked, having gained 10 per cent in the first two months of this year.
‘The rising risk of a prolonged global economic slowdown leads us to believe that the property market up-cycle has probably ended,’ Mr Wu wrote in a recent note.
‘Negative ripple effects will likely hurt Hong Kong’s wage growth, which is far more important than interest rates in driving property demand.’
Hong Kong apartment sales have picked up in the last few months as owning is almost as cheap as renting, and people expect tight supply to lift prices.
According to CLSA analysts, only about 14,000 new apartments will hit the market in each of the next three years, compared to an annual take-up of 20,000 when the economy was in a downturn between 1998 and 2003.
Affordability is back to 2005 levels because of interest rate cuts. So someone who rents a flat worth HK$5 million would pay on average HK$16,700, while a mortgage on 70 per cent of the value would typically mean a monthly repayment of HK$19,000.
Source: Reuters (Business Times 4 Mar 08)
It is confident of hitting target for cash-back product
(KUALA LUMPUR) Hong Leong Bank is aiming for 10 per cent growth this year in its housing loans segment, which currently has about 130,000 clients.
As part of its efforts, the bank yesterday introduced a cash-back home loan product which it said enables customers to save more on interest payment.
Chief operating officer for personal financial services, Moey Tan, said the bank was confident of achieving the target of RM1 billion (S$436 million) receivables for the new product by year-end as it was the only one in the local market to give cash rebates to home loan customers.
‘The 10 per cent cash-back will automatically be credited into the customer’s savings or current account annually from year six onwards,’ she said. Ms Tan said for a RM200,000 loan, the first payment is RM1,000 and each year the customer will receive a percentage of the cash-back amount until the end of loan tenure.
The cash-back home loan features include a repayment option and up to 90 per cent margin of financing, applicable for completed properties with a minimum loan amount of RM200,000.
Hong Leong Bank’s group managing director Yvonne Chia said housing loans today accounted for 58 per cent of total household debt and the commitment was long term, averaging from 20 to 30 years.
‘The cash-back concept was tested and validated through independent research. . .’ she said.
Source: Bernama (Business Times 4 Mar 08)
Inflation jitters a distant 3rd; terrorism fears down the list
(WASHINGTON) The combined punch of sub-prime mortgage defaults and heavy debt remains the biggest risk to the health of the US economy, a panel of business economists said yesterday.
‘NABE members are increasingly concerned over the short-term risks associated with sub-prime mortgages and other forms of indebtedness, while they continue to cast a wary eye on inflation,’ said Ellen Hughes-Cromwick, president of the National Association for Business Economists.
The conclusion was based on a survey of 259 members conducted between Feb 1 and 15 and updates a poll conducted in August.
Of the members polled for the NABE semi-annual Economic Policy Survey, 52 per cent said that the combined threat of sub-prime mortgage defaults and heavy debt was their No 1 concern, up from 32 per cent in August. Inflation was a distant third at 10 per cent in March, up from 6 per cent, the survey showed.
Only 9 per cent of the members polled said terrorism was now their top concern, compared with 20 per cent in August. ‘Fewer respondents support monetary and fiscal policies being implemented to address the credit situation, with more than one-third saying current monetary policy is too stimulative,’ said Ms Hughes-Cromwick.
Just 48 per cent judged monetary policy to be ‘about right’, a drop from 72 per cent in August and 81 per cent in March 2007.
Two-thirds of those surveyed expect short-term interest rates to decline over the next six months, with about half of those respondents expecting a cut between 25 basis points and 50 basis points, NABE said.
The Federal Reserve has aggressively cut the benchmark federal funds interest rate, bringing it down to 3 per cent from 5.25 per cent in mid-September to bolster the economy against the housing downturn and credit squeeze.
The most frequently cited concerns about lower interest rates are the threat of inflation and the sense that lower rates might ‘bail out investors who should have known better’, NABE said.
Source: Reuters (Business Times 4 Mar 08)
(LONDON) UBS AG, Europe’s biggest bank by assets, declined to the lowest level in almost five years in Swiss trading after Credit Suisse Group said the company faces further writedowns from ‘troubled’ assets.
‘Further writedowns appear likely and could be large,’ analyst Daniel Davies said yesterday in a research note. ‘Taking more pessimistic assumptions in order to estimate what losses could be incurred in actually selling this portfolio,’ writedowns from UBS’s ‘problem portfolio,’ including sub-prime investments, may total 15.5 billion francs (S$20.8 billion), Mr Davies said.
UBS lost as much as 5.1 per cent to 32.64 francs, the lowest price since May 2003.
The bank was down 4.2 per cent to 32.92 francs at 9:41am Swiss time, extending its 2008 decline to 37 per cent.
Last week, UBS chairman Marcel Ospel, facing calls for his resignation, won support at a shareholders meeting for the Zurich-based bank’s plan to replenish capital by selling convertible bonds to shareholders in Singapore and the Middle East.
Since the beginning of 2007, more than 45 of the world’s biggest banks and securities firms have taken about US$181 billion in asset writedowns and credit losses, including reserves set aside for bad loans.
Source: Bloomberg (Business Times 4 Mar 08)
US housing crisis deters first-time buyers
Greater security seen in renting as home prices fall and foreclosures surge
(BOSTON) For decades, buying a home was a key step on the path to financial security for the American middle class.
Home owners could count on a fixed mortgage payment rather than rising rent, take advantage of tax breaks, and build equity as their houses increased in value over time.
But with home prices falling and families losing their homes to foreclosure, some people who under other circumstances would be looking to buy their first home now see greater security in renting.
One such person is Lisa Chesnut, who lives in Tucson, Arizona, and works as an information systems coordinator. With a good job and two young sons, 29-year-old Chesnut and her husband, Bryan, look like classic first-time buyers.
They had considered it, until the market started to slide a year ago.
‘At first we thought, prices are falling, that’s good,’ she said in a phone interview. ‘Then we started reading about the foreclosures and the ARM (adjustable-rate mortgages) rates and people losing their homes,’ she said. ‘We thought, what if something happened where we could lose our house?’
Her big fear is falling behind on a mortgage. Having read about people who face higher payments on their adjustable-rate mortgages, she realises that being approved for a loan does not guarantee it will be affordable.
One sign that more people are choosing to remain in rental apartments while they wait out the slump comes from Equity Residential, one of the largest US apartment owners.
Fewer people have been moving out of its apartments – last year 63.3 per cent of its units changed hands, down from 64.9 per cent in 2006.
‘Turnover is slowing and the rate of moving out for home purchase we also saw slow throughout 2007,’ said Fred Tuomi, president of property management at the Chicago-based company, who oversees about 150,000 apartments nationwide.
And population projections by the National Association of Realtors (NAR) suggest hundreds of thousands of young Americans are sitting out the housing market entirely – neither buying nor renting.
‘There’s probably 700,000, maybe 800,000 people out there that are not getting into the market either as a renter or as a homebuyer,’ said Walter Molony, spokesman for the NAR. ‘Where are these folks? They’re out there, they’ve got jobs. Some of them are moving back with their parents, never left the house, they’re doubling up with roommates.’
There’s no scarcity of data to worry potential homebuyers.
Recent reports show that the average price of an existing single-family home in US metropolitan areas fell 6 per cent in the fourth quarter, while foreclosure rates in the top 100 metropolitan areas soared 78 per cent last year.
‘They’re the most nervous people I’ve ever met in my life,’ said Bob Moulton, president of Americana Mortgage Group, referring to the potential first-time buyers he speaks with.
‘They’ve seen what can go wrong in the mortgage market,’ said Mr Moulton, whose company brokers US$300 million of mortgages a year, mainly in suburban New York. ‘Everybody’s advising them, from the mother, to the father, to the uncle, their co-workers, telling them, ‘Don’t buy. Prices are coming down.’
Indeed, home ownership rates have fallen to 67.8 per cent of households at the end of last year from 69.2 per cent in 2004. That is below a 69.8 per cent rate in Britain, but still much higher than European countries such as France and Germany.
For young people who are unsure about whether to buy instead of renting, experts said the key thing to consider is how long one plans to live in a house.
During the boom years, from the late ’90s through the first half of this decade, rapidly rising house prices meant that in many parts of the country a buyer could turn an easy profit after owning a house for just a year or two.
Now young buyers should plan to stay in their homes longer than that, said Jim Gaines, a research economist at the Real Estate Center of Texas A&M University, in College Station, Texas. Even his own son, who recently married, has come to him with fears about buying real estate.
‘I told my son this, ‘Look, if you buy a home today, you better be prepared to stay in it for a minimum of five years. Don’t worry if it goes up or goes down (in value) a little bit in the next six months,’ Mr Gaines said.
That knowledge is another factor keeping some young Americans in their rental apartments.
‘A lot of people I know are in that position, where their home isn’t going to sell for what they paid for it right now,’ said Josh Stenger, a 37-year-old professor of film studies who lives in a rental apartment in Pawtucket, Rhode Island.
Prof Stenger said he has toyed with buying a house or condominium, but has held off until he was sure he would be staying put for several years.
‘I don’t foresee buying anything without planning to stay in it at least five years,’ he said. ‘If the economy was different and it looked like prices were going to start going up again, I might feel more pressure.’
Source: Reuters (Business Times 4 Mar 08)
THE JTC Corp is not deviating from its role to provide affordable factory space, said Minister for Trade and Industry Lim Hng Kiang yesterday in response to a question on whether JTC is shifting its focus with its recent plans to divest its industrial properties into a real estate investment trust (Reit).
This concern was triggered by the recent appointment of Mapletree Investments Pte Ltd (Mapletree) to establish and manage a proposed Reit which will acquire some $1.4-1.6 billion worth of JTC’s high-rise ready-built properties.
Member of Parliament Inderjit Singh raised the concern that this move will further raise the costs of industrial space here. He questioned the role of JTC, saying the earlier spinning off of Ascendas Reit has led to an increase in prices for industrial space. A-Reit, Singapore’s second Reit, was set up by JTC unit Ascendas five years ago and has since expanded by acquiring industrial buildings.
‘If we allow market forces to determine our industrial land prices, then businesses engaged in certain strategic sectors may no longer be able to compete with companies in competing economies which may not be at our stage of development and may offer companies more attractive land costs,’ Mr Singh said. He gave the example of China, where industrial land is more attractively priced.
In response, Mr Lim said: ‘JTC’s role remains the same. You must look at JTC’s role in two key areas – land and prepared industrial estates like flatted factories.’
For the flatted factories space, JTC is a small player in the market with a market share of around 20 per cent and hence takes its pricing cue from the market.
‘It is this sector that we are divesting because we believe that industrial space in Singapore is fairly competitive market,’ Mr Lim added. ‘So JTC need not stay in this area. JTC will concentrate on land.’
While the pricing of JTC’s industrial factory space is determined by the market, the pricing for land is benchmarked against competitive locations.
Mr Lim said the JTC is very careful ‘to make sure that we do not price ourselves out of the market.’
Source: Business Times 4 Mar 08
How will a US slowdown or recession affect your organisation and industry, and the Singapore economy in general? What can businesses do in the event of a slowdown?
THE US recession had already started since December 2007. I predict that the federal funds rate will drop to one per cent by September 2008. After that, we will most likely witness a rebound and rally in the market.
If the recession is more prolonged, it would at most extend by another six months to March 2009.
Investors must remember that our present recessionary cycle is very different from the US recession between July 1981 and November 1982. In one way, it is similar to the 1981-82 one because the recession hit financial institutions such as banks and savings and loans particularly hard.
The significant difference lies in the fact that we now have the sovereign wealth funds stepping in to prevent these financial institutions from closing down. In addition, we have wealth distributed from oilrich countries in the Middle East.
Singapore is positioned to ride through the stormy weather in style! In these unique circumstances,
Singapore has invested in three of the world’s most exciting banks, namely UBS, Citigroup and Merrill Lynch. We have also lined up world-class activities to ensure a continuous influx of tourist arrivals to boost domestic consumption:
These activities will allow us to meet the challenges ahead. In the event of a slowdown, Singapore businesses should take advantage of this period to upgrade themselves through higher education, visiting other countries for opportunities and consolidating.
- Clemen Chiang
CEO
Freely Business School
Singapore can weather storm
SINGAPORE had been largely dependent on the US for its export market. However, in recent years, Singapore has successfully diversified its export markets to include China and India. In addition, its ongoing projects such as the integrated resorts, the hosting of the first Formula One night race and, most recently, the hosting of the 2010 Youth Olympics, would provide plenty of opportunities for the local market especially in the construction and services industries.
Hopefully, the ongoing IR projects and the tourism dollars being projected for the F1 race in
September would be sufficient to tide us over the US slowdown.
The only other economic factor that will pose a challenge is high inflation due to the double whammy of higher prices for both petroleum and food.
As an IT security company with headquarters in the US, with Singapore as its Asean and India headquarters, we will be able to sustain our growth by tapping the current ongoing projects in Singapore, as well as growing revenues in countries such as India and Vietnam.
While striving to increase our business revenues, we have to strive even harder to keep overheads such as travel, entertainment cost, rental and even remuneration packages to a bare minimal.
Therefore, Singapore is likely to be spared the economic meltdown in spite of the slowing US economy, as we have been taking steps to minimise our dependency on the US market. This is one giant leap of faith by the Singapore government in the right direction. In the words of Prime Minister Lee Hsien Loong: ‘We have dared to bring our dreams into reality.’
- Benjamin Low
Managing Director, South-east Asia and India
Secure Computing
I THINK a lot will depend on how protracted the US recession will be. If the US slowdown lasts for two quarters, as some economists believe, then I think the Singapore economy might not be significantly affected. Singapore is now less dependent on the US than before and is quite well plugged to the Asian twin growth engines of China and India. The Singapore economy has growth momentum on its side, with many projects like the IR, F1 and now the Youth Olympics, to stay resilient. However, if the US recession turns out to be severe, then not just Singapore but the global economy will be affected.
The steel industry, on the other hand, is going through interesting times. While 2007 was a good year for the industry, 2008 is beginning to look like an equally good if not better year. Demand for steel is going from strength to strength, not just domestically but globally.
In Singapore, demand for steel will see a further boost with more public projects in addition to the existing residential and office projects. Singapore is expected to construct a new University Town to host the Youth Olympics and there are planned expenditures to further expand our rail and road infrastructure in the coming years.
Globally, besides China and India which are consuming a lot of steel, the other two BRIC countries – Russia and Brazil – which used to be net exporters of steel are now instead buying steel. Russia – which benefited from the buoyant oil market – and Brazil – which benefited from the rise of both hard and soft commodities like iron ore and wheat – are undergoing an infrastructure boom.
With the rise of commodities, there is also strong demand for steel in the shipbuilding sectors to build vessels to carry the commodities.
- Wee Piew
CEO
HG Metal Manufacturing Ltd
A SLOWDOWN in the US economy will undoubtedly have an impact on the logistics sector and UPS, but we are confident that we will continue to grow by generating greater synergy between our businesses. Being an open economy, Singapore is naturally more susceptible to external shocks.
However, the Singapore government has been successful in attracting investments, which will provide some buffer from an external slowdown. This, complemented by growth in other regions, particularly the Asia Pacific, will provide impetus for the economy.
Asia was a key growth area for UPS in 2007, and looks set to continue this year. Growing intra-Asia trade and strong demand from China and India will continue to drive trade in the region. By aligning our supply chain and parcel delivery businesses, UPS will ensure greater synergy and more competitive offerings for our clients across Asia.
Despite the challenges and a moderated economic growth forecast, UPS is positive that the
Singapore economy is resilient and diversified enough to withstand the effect of a US slowdown.
- Mary Yeo
Managing Director
UPS
EXPERTS agree that the US economy is closer to the bottom than the top. Given this, we all must brace for ways of coping in the event of a full-blown US recession. As experience has shown us, a downtrend does not mean we are in for a crash. I would say that those of us in the direct selling industry can be resilient to an economic crunch for as long as we are able to grow and expand distributorship.
Still, it remains critical to re-think business decisions having to do with the proper marshaling of resources, especially for small and medium-sized businesses which will be the hardest hit. The basics, of course – stick to budget, monitor business closely, keep collection coming in, and tighten financial control.
Others would be wrongly cutting costs by way of reducing employee incentives. I believe, on the contrary, that we must encourage pay for performance incentives.
At Best World, our strategy is two-pronged: to continue to grow company sales and to optimise employee productivity. I believe that even in bad times, we must reward people as long as they are clearly able to contribute better performance to grow the company bottom line.
This year, we have restructured our company bonus system by basing it on company profit instead of gross sales. I see this as a win-win situation, a mutually beneficial manner of giving everyone a stake in the growth and viability of the business during these critical times.
- Dora Hoan
Group CEO
Best World International Ltd
VISIONARY business leaders are already using technology to enhance sales growth, drive incremental efficiencies and deliver excellent customer service. In challenging economic times, companies must keep their eyes on the horizon while smartly managing short-term turbulence.
For example, EMC is helping companies of various sizes invest in IT infrastructure solutions that squeeze more value from flat IT budgets. Reducing the physical space needed for IT infrastructure, as well as lowering the power and cooling costs to support the infrastructure, becomes even more important in tightening economic times.
In a slowdown, it is also important – although not easy – to remain focused on product and service innovation. As a company, EMC will spend more on R&D than ever before to ensure we bring new innovation to our customers globally.
Having seen Singapore’s economic indicators, and the recent Budget, I am confident that the country as a whole, and the local and multinational companies based here, are well positioned to deal with any changes to the world economy.
- Steve Leonard
Senior Vice-President, EMC Corporation; and President, EMC Asia Pacific/Japan
EMC Corporation
THE US is in recession and I suspect this one will be protracted and will impact the rest of the world. Emerio is an IT outsourcing company with an emphasis on support and consequently, we expect our business to grow faster as US companies will need to do even more with less!
As far as the Singapore economy is concerned, there would be a short-term impact but I am confident that with Singapore’s ability to re-invent itself, we will be able to counter it and emerge stronger. A focus on Asia – not just China and India but also the rest of Asia – should see us sailing through this period.
- Harish Nim
CEO
Emerio Corporation Pte Ltd
See downturn as opportunity
THERE is too much attention paid to whether ‘an economy’ is in recession. My view is that different sectors have remarkably different dynamics which argue against a generalised view. For example, it is fairly clear that financial services, construction and probably the durable goods sector in the US are ‘in recession’.
However, agriculture, aerospace and international tourism are booming. I have been surprised at the strength of the recent retail numbers. At any point, some sectors are likely to be in recession and others booming. Asia is no different.
A lot of attention has been paid to whether or not the Asian economies and the US economy are decoupled. I’ve seen little high-quality data associated with this debate; analysts seem to quote data showing the declining percentage of exports from Asia going to the US. This is a fairly shallow understanding of decoupling.
Second, the level of coupling will, of course, vary significantly by sector. For example, I have been surprised by the extent that Chinese and Singapore-based banks have taken write-offs on the US sub-prime products – which just goes to show that ‘coupling’ can occur in mysterious ways.
I believe a number of key sectors in the US will go through a fairly deep recession. The US is a more flexible and responsive economy than most OECD economies, and will therefore restructure and recover more quickly then other countries such as Japan, Germany and France. This is one of the great strengths of the country.
The nature of most Asian companies is that they would rather lose money then downsize, though this is a generalisation. If Asian companies find markets in the US are being crimped, they will aggressively pursue other markets. A Chinese toy manufacturer will not undertake layoffs because of a US slowdown. They will ask: Where else can I sell these toys?
As a result, whether Asia is currently decoupled from the US, at the end of this down-cycle Asia will be more decoupled from it than before. But it won’t happen automatically or smoothly; Korea and India are simply not going to accept Chinese toys as easily as the US. The optimistic case is that these frictions result in new resolve for the World Trade Organization and consistent global trading rules. Of course, there are pessimistic cases.
For companies, there is the classic advice: Cut costs and find new sources of revenues. I’m a consultant – of course I would say this! Just as important is to have a clear sense of history – who were the winners and losers in your sector in the last downturn? What did they do to gain share and maintain their financial performance?
The worst thing you can do is just hunker down and wait for the next upturn. Get your management together and figure out how to convert the downturn into an opportunity. If you don’t have some great ideas – hire a consultant!
- Charles M Ormiston
Director
Bain & Company
IT IS widely misunderstood that a slowdown or a recession will affect every company that is doing business with the US. This may not be the case as there are some recession-proof industries. I consider the aftermarket tyre industry to be such an industry. A slowdown in the auto industry affects the sales of new vehicles – but existing vehicles still need tyres to ply on. Within the tyre industry, the major brands may feel more heat than the budget brands. There is a tendency to shift from an expensive branded product to a non-branded economical product in such an environment.
I have seen a surge in business recently which strengthens my belief that the market is shifting its purchasing pattern. As such, I do not think that the companies operating in the ‘budget brand’ category in the after-market auto industry will be affected. In fact, this is the time to go after business which was not accessible in the past. Now is the time that customers are actually looking for value.
As a precaution, however, it is imperative that businesses start spreading their chips into other markets and protect their existing business by investing in business/credit insurance, which will cover them adequately in case of any default.
- GS Sareen
President and CEO
Omni United (S) Pte Ltd
MY ASSESSMENT is that a US slowdown will have a material impact on Singapore only if it is prolonged and severe. This is due to our sound economic fundamentals, diversification of our economy away from manufacturing and electronics, as well as our location in a high-growth region with a large middle-class market and educated workforce.
In times of market volatility, we foresee growth opportunities over the next few years given large foreign investment flows into the region, booming regional economies that contribute to rising mass affluence, as well as higher demand for wealth planning from fast-ageing societies.
As an Asian specialist, the DBS Group is well-placed to seize these opportunities because of our experience and sound understanding of the regional markets.
Businesses caught in the slowdown can look into ways to better manage their costs, explore other potential avenues for growth, possibly in new untapped markets, consider flexible work arrangements and raising staff productivity.
- Deborah Ho
CEO
DBS Asset Management
AS THE world’s third-largest IT services provider, Fujitsu Asia provides solutions for customers in the Asean markets of Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam – but not the US. Therefore, as long as the IT demand in our target markets remains healthy, we needn’t fear that a US slowdown or recession will impact us negatively.
The Singapore economy in general should also continue to do well because we are not as dependent on the US economy as compared to, say, five years ago.
Most indicators suggest that the IT demand will remain very strong this year. For example, a recent Gartner survey of about 1,500 chief information officers (CIOs) worldwide revealed that IT expenditure is expected to surge by about 8.3 per cent in Asia this year – far outstripping the 3.3 per cent rise in the global average.
The report also identified that in 2008, the focus areas among Asian CIOs include IT infrastructure, application rollouts and other areas. The implication here is that, despite the possibility of a US slowdown or recession, Asian companies are still prepared to invest in technology to prepare themselves for future business growth.
This makes sense because it can take months or even years for an IT investment to progress from conceptualisation to rollout.
Hence, companies that delay making vital investments during a downturn could be unknowingly disadvantaging themselves when things are back on the upswing. After all, without added headroom – which IT investments can provide – for scaled-up operations, companies might be unable to capitalise on the business opportunities that an economic recovery presents.
I always believe that adversity and opportunity exist togther. A slowdown in the US may pose some challenges, but it indirectly provides an impetus for companies to prepare themselves for future growth, which is merely a matter of time. And leading IT companies like Fujitsu Asia can help companies with such preparation efforts.
- Noboru Oi
Group CEO
Fujitsu Asia Pte Ltd
WITH the US being the world’s largest economy, economists and analysts have said that any signs of slowdown could impact everyone, especially those economies or industries highly dependent on the US. Some have warned that the effects of a drop in consumer spending could impact the Asian electronics manufacturers.
That said, we see resilience in the global economies. Where there are challenges, we also see some opportunities. All the more, businesses need to focus on creating value for their customers to maintain their competitive edge and strengthen their position in the industry.
For Excelpoint, we believe that it is critical to focus on executing well to strategy, maintain a strong cash position to capture opportunities, and be prepared to make adjustments where necessary to mitigate any risks. We will continue to invest in emerging markets where our customers have ventured into, and collaborate with them and our global partners to capitalise on opportunities in those markets.
Important, too, is the continued emphasis on innovation. We want to be able to research and develop new applications and technologies with the aim to offer our customers a wider range of solutions. This will help us emerge as winners in the industry in the long run.
- Albert Phuay
Chairman and Group CEO
Excelpoint Technology Ltd
WHILE we believe that a potentially bearish US economy will have a global impact on Organisations and markets, this is an opportunity for many companies to take a hard look at how their operations can be optimised for efficiencies and how new businesses can be gained by looking beyond traditional means of getting to their customers and the marketplace.
There is a growing trend where deploying innovative technologies such as virtualisation and open source are helping businesses achieve these goals by optimising how information technology is supporting their existing business. Increasingly, businesses are also looking at more cost-effective and efficient channels to get to the business partners, customers and the marketplace by making information technology supplement their existing route to market.
We are confident that this is one way that businesses can save money and grow their businesses and give them a better chance of weathering not just this slowdown but any slowdown.
- Ong Chee Beng
Managing Director, Singapore
Sun Microsystems
IT IS still premature at this point to predict the extent of the US slowdown and to project how it will affect the Asia Pacific, and Singapore. However, with globalisation and lessons learnt from the Asian crisis, countries like Singapore are now more hedged against fluctuations from the US economy with greater investments in fast-growing markets like China and India.
I believe when one door closes, another window opens. In times of cyclical downturns, it is the onus of business leaders to proactively seek new opportunities (perhaps investing in emerging markets in the Asean region) to diversify risks and chart future growth. Many companies like us would have laid the groundwork in recent years, coupled with a long-term strategy, enabling us to ride out cyclical downturns, resulting in business continuity and growth prospects for the future.
- Bryan Low
Vice-President and Managing Director
AMD South Asia
A US downturn will almost certainly have a negative impact on Singapore’s economy, and it is unlikely that the childcare industry will be spared. At Cherie Hearts, for instance, we expect that a number of parents could look to alternative childcare options, such as home-based care by grandparents.
The best course of action that businesses can take in the face of an economic slowdown is to invest in training and development, as well as R&D. This will be our best bet in preparing ourselves to ride the economic growth once the dark clouds blow by. Cherie Hearts, for one, will be stepping up efforts on staff training, as well as curriculum research and development.
- Sam Yap SG
Group Executive Chairman
Cherie Hearts Group Int’l Pte Ltd
S’pore will be insulated by Asia
A RECENT study by technology research house Gartner shows that despite the US slowdown, Asian firms still plan to increase their annual IT budgets by about 8.3 per cent in 2008.
I believe that companies’ priority this year will be on technologies that directly improve their business performance. CA will continue to create and refine software that can help firms simplify and unify their IT operations, and which deliver tangible business value.
With regard to Singapore, the projected growth in Asia’s emerging economies should insulate us somewhat from the US slowdown, although many firms will still come under pressure to control costs.
This means that organisations should work on better tapping into their current resources. Besides using technology to streamline their operations, they should look harder at integrating technology with their people and processes. Best practices and consultancy services to achieve this are readily available, and businesses should proactively check them out.
- Brenton Smith
Managing Director and Area Manager, Asia South
CA
THE slowdown in the US may dampen business confidence and hurt our export-led economy but we will more likely be impacted by rising inflation and rapidly increasing business costs.
Many businesses are linked to regional and global customers, thus removing our reliance on just one country for trade. We are moving into Middle Eastern economies. We already have strong business links with the Chinese and Indian markets and these should help cushion the impact of the US slowdown. However, what seems to be at the forefront of many companies’ concerns is the more pressing problem of rising wages and a shortage of talent.
- Dhirendra Shantilal
Senior Vice-President, Asia Pacific
Kelly Services
FROM a geographical perspective, companies need to anticipate an economic slowdown in the US and switch activities and priorities towards growth regions like Asia. In Asia, because of the integration of global markets, developing countries will also be impacted, but this will be overshadowed by the domestic drive that we are seeing in countries such as China, India, and Southeast Asia.
Regarding the IT industry, there is no doubt that it will be impacted too. According to a recent IDC report, global technology spending will experience slower growth next year because of the current uncertain economic climate. Therefore, IT vendors and service providers must also stay ahead of the game by being flexible and making sure they adapt to these changes.
Last year, Serena Software moved to a software-as-a-service model and this is paying dividends for us now. In this environment of economic uncertainty, it is natural for companies to hold back on their capital investments to mitigate their risks. Therefore, the ability to adopt on-demand services on a pay-as-you-go basis is a perfect sourcing strategy for businesses seeking greater cost controls and flexibility during tough times.
- KC Yee
Vice-President, Asia Pacific
Serena Software
WHEN the world’s largest economy goes into a recession, most industries will be affected one way or another. Businesses need to understand that and start taking steps to balance the risks of a slowdown in the US. Businesses should look beyond the US market to cushion the downturn, if any.
Asia presents itself as an excellent opportunity for business growth.
Businesses can start by diversifying their clientele to reduce the risk of relying on a particular industry.
Riverstone, for example, is maintaining its lead in Asia for high-tech cleanroom gloves by expanding our clientele beyond the major players of hard disk drives and semiconductors.
For now, the demand for the high-tech clean-room consumables continues to grow and Riverstone intends to ride this trend.
- Wong Teek Son
Executive Chairman and CEO
Riverstone Holdings Ltd
AT AT&T, we are focusing on the strong growth engines in Asia Pacific – like China and India, but also the emerging markets in South-east Asia – and plan to continue investing in our business here to mitigate effects of a possible slowdown of the US economy.
Macro-economic data, ranging from the UN to the World Bank, shows that growth in Asia Pacific should be expected to continue, though maybe at a slightly lower rate than in the previous extraordinary years. Asia-Pacific economies are considered to be quite well-prepared to manage the continued uncertainty in the external environment coming from the US and, for example, the oil markets.
With our region continuing to be the fastest-growing region globally, a focus on such overseas opportunities can help minimise a potential dip in the US economic growth. Therefore, I would expect a continuous commitment to this region from global MNCs like AT&T. Most likely, we will see the further creation of high level jobs, continuous investments and more and more products and services being developed and managed in and out of the Asia Pacific – for a growing number of customers in this region.
- Collis Loh
Country General Manager
AT&T Business, Singapore
A US slowdown or recession will have some, but not catastrophic impact on the Singapore economy, as a growing driver of Asia’s growth has been fuelled intra-region. Thus, while the US curtails its consumption demand, this will be counter-balanced by the continued rise of Asian consumption – whether in China, India, or even Vietnam.
Having said that, in the event of a slowdown, having the right people to work and manage your business is critical to weathering a tough economic environment. The companies who emerge winners will be those that are focused on measuring and improving productivity, including that of their workforce.
- Su-Yen Wong
Managing Director, Asean
Mercer (Singapore) Pte Ltd
Be ready for tough times
TECHNOLOGY spending is normally a lagging indicator of an up or down-market. Our order book and sales pipeline currently look very strong. If we are to see slowing tech spending it will most likely hit Asia three to four months from now. So far, US multinationals, even in the financial services sector, are keeping up their spending with projects still being executed. Only one major client that I have met recently has talked of deferring a project. Companies obviously need to have a Plan B ready for any slowdown in spending. It’s important to be ready with scenarios so that we can adjust our model as any changes unfold.
- Bill Padfield
CEO
Datacraft Asia
THE US will continue to be the leading global economy for many more years. However, the print, publishing and media-related industry as a whole, my organisation included, has also diversified, doing a substantial amount of business with Britain, the Middle East and the EU countries.
On a national basis, the US is one of our main trading partners. Consequently, a US slowdown or recession would, together with many other Asian countries, definitely affect us negatively. Gloomy markets, recovery and growth are all part of the economic system.
Singapore businesses can reduce this looming negative impact by aggressively diversifying investments and export makets – which we have already done to a considerable extent.
With prudence and foresight, our businessmen could further move into Russia, the Middle East, the Korean peninsula and other Asian countries, Latin America and Africa.
Singapore businesses – especially our cash-rich investors and exporters, be they in mindshare leadership, providing services or manufactured products – should reduce over-dependence on the US.
- R Theyvendran
Chairman / Managing Director
Stamford Media International Group
A US slowdown or recession will have a negative impact on the global economy. US consumption has been instrumental in helping to boost world economies for several years. The growth of China and India is not going to be able to make up for the shortfall in US consumption in the event of a major cutback in spending in the US.
In a similar vein, manufacturers in Singapore will be negatively affected by the US slowdown as their products are mostly exported overseas. CEOs need to understand that it is no longer business as usual. Fortunately for my company, we will be able to comfortably ride out the tough times as we are a multinational company that has recognised the need to change much earlier.
For those businesses which are financially weak, it is important to restructure quickly to face the new harsh realities. They have to review their cost structure to ensure that they remain cost-competitive.
Companies need to penetrate markets such as the Middle East, China and India, whose economies are still booming. However, for weak companies, it is better to be healthy before expanding overseas, or their limited resources will be further dissipated. They should get their act together in Singapore first, such as putting in place a strong and competent management team and getting a positive cash flow. There are opportunities in the recession too as many weaker competitors will be knocked out of the race.
- Teng Yeow Heng Michael
Managing Director
TR Formac Pte Ltd
A US recession will cause uncertainties and undulations across the globe, but economic giants like China and India can cushion some of that ripple effect. As expounded by Minister Mentor Lee Kuan Yew, increased domestic consumption and investments in infrastructure, which serve to sustain a robust financial core, can also help weather the economic storm.
Local businesses, particularly SMEs, must be ever-ready for unforeseen events and have contingency plans in place during a period of decline. These include cost-cutting measures like downsizing and reducing overheads as well as increasing savings and investing in short-term assets that can be liquidated in times of need.
- T Chandroo
Chairman and CEO
Modern Montessori International
Singapore may be hit
THERE is no doubt that any slowdown or recession in the US economy will have a direct impact on the Singapore economy. Although Minister Mentor Lee Kuan Yew has stated that Singapore will not be too badly affected should the US catch a cold, prevention is better than cure.
As electronics is an important sector that exports to the US market, any contraction in the US will have immediate effect on this major industry which contributes a large percentage of the manufacturing exports. To mitigate any drastic drop in exports, IE Singapore should support our manufacturers in aggressively sourcing new emerging markets in the Middle East, South Asia and North-east Asia. A better option would be to shift the bases of production closer to the markets.
Pakistan has been identified as a pivotal centre for electronics serving the Middle East and South Asia, while North Korea is also a focal centre serving Greater China and East Asia.
It is timely for the Singapore Business Federation to organise missions to these key centres to explore, exploit and extract the opportunities for exports, investments and R&D, etc. I am confident that the electronics sector would be nimble enough to ride out any economic setback in the US. Let’s pull ahead.
- Derek Goh
Executive Chairman / Group CEO
Serial System Ltd
I BELIEVE the signs indicate that the US is in a recession or on the verge of one – with consumption going down, interest rates being reduced, and the implementation of a US$152 billion package to stimulate the economy.
In such a scenario, I would suggest that Singapore businesses take a conservative approach by containing costs, ensuring that forecasts are conservative and watch inventories. When there are opportunities to monetise assets, I would proceed, as cash is king in this situation.
Until India and China dominate the world economy, I believe that whatever happens in the US will have an adverse impact on Asia and Singapore, although this will be less than before. Singapore has taken enough precautions to fend off any cold the US might suffer, but again it depends on how badly the US will be affected, as the financial crisis continues to unfold.
- Lim Soon Hock
Managing Director
Plan-B Icag Pte Ltd
THE sub-prime mortgage crisis has now ballooned into a deepening credit crunch, leading to less liquidity for a host of financial assets and structures. Although the US Federal Reserve has reduced interest rates in recent months, there is still a crisis of confidence in the US which mirrors the experience in Asia during the 1997 financial turmoil.
Clearly, the US is already in recession. Its extent and duration will depend on how long it takes for confidence to be restored. And the signs are not good because it seems that investors, banks and markets are getting more – and not less – jittery with each passing week. The impact of the US recession on Asia may be limited if it lasts six to nine months. However, Asian economies – even Japan, China or India – are probably not strong enough to weather a prolonged economic depression in the US.
As a privately-owned bank, Rabobank is taking steps to strike a balance between supporting our long-term customers, and preparing for a possible slowdown in this part of the world. On the one hand, as a financial cooperative, we must do our best to ensure that the funding needs of our customers are met. On the other hand, as a bank with a Triple A credit rating, we must maintain prudent lending policies, exercise due diligence and read market warning signs early and accurately.
Every cloud has a silver lining, so a widespread recession could perhaps moderate the worldwide trend of rising inflation, which is caused by escalating prices of commodities, labour and land.
If Singapore enters a recession, hopefully workers will realise that wage increases cannot outpace productivity gains indefinitely without companies losing competitiveness – which may ultimately lead to employees losing their jobs.
- Goh Chong Theng
General Manager, Singapore
Rabobank International
ANY US slowdown will impact businesses here. Everyone’s hope is that it will not be a contagion with business confidence being dragged down. The flipside is that the costs of US goods and services will be lower with a weaker dollar for those who do business with the US. This sliver of opportunity should enable us to offer more attractive and competitive goods and services.
On the other hand, people are hoping that the boom in China, the Middle East and elsewhere will provide a counter-balance. Like many Singapore companies, we stand our business on many legs in different countries. We hope to re-adjust our balance even as one part of the business is down.
Indeed, it may ironically be the balance we need with the current inflation and a resource crunch.
But more worrying is the way events might turn out. The great uncertainty and turbulence might catch many businesses wrong-footed. We all need to be vigilant.
- Liu Chunlin
CEO
K&C Protective Technologies Pte Ltd
A RISING tide lifts all boats, but unfortunately, the inverse is true as well when it comes to a US recession. Asia is not decoupled from the US or any other world economy and this should come as no surprise. Access and dependency go in lock-step and capital markets are extremely efficient at providing access to virtually any market segment in any economy – the sub-prime market, for example.
Diversification is the key and where countries are not efficient at achieving balance our firms must be.
An organisation’s best hedge is a global revenue stream, a balanced product set, and access to a wide range of market sectors.
- Mark Bashrum
Regional Vice-President, Asia
ESI International
DESPITE the slowdown in the US, Singapore’s financial and construction services clearly remain the bright spots, fuelling a soft-decoupling story for Singapore from the US economy. Still, with rising inflation and a negative real interest rate environment, private banking, like other businesses, cannot completely ignore the US downturn.
Investors, regardless of their wealth bracket, behave differently in this climate. Private banking clients tend to lower their risk appetite, gravitating towards conservative products with lower yields and margins. However, my private bankers must also be able to give clients the confidence to look beyond the downturn, instead of focusing on the storm clouds. It’s essential that we take a fresh look at our clients’ changing situation or new environment. Then we make sure our products and services adapt to help clients navigate the storm and come out on top.
- Barend Janssens
Head
ABN Amro Private Banking, Asia
THE US is a major consumer of goods and services which are manufactured all over the world. In the case of electronic goods, consumer demand will fall. Singapore, as a manufacturing site for such products, will be affected. Both facility and equipment utilisation will consequently be impacted.
Following from this, there is likely to be a reduction in labour and overhead costs by businesses to keep costs low and ride through the storm.
There is no miracle solution to overcoming recession as it is part of the business cycle. During a recession, businesses have to be prudent and keep a tight control over costs. We also have to explore other markets such as China and India to sell our goods but this does not happen overnight.
The government can provide support in terms of incentives, rental reductions, property tax adjustments, energy rate cuts and other such measures which will help companies through the turbulent period.
- EH Lim
CEO
Avi-Tech Electronics
IN MY view, the US will definitely suffer a recession this year due to the sub-prime problems and this will cause a global economic meltdown. Stock markets worldwide will decline by not less than US$7 trillion. The US consumes 25 per cent of the world’s products so a recession there will affect the world’s economies. Even Singapore’s growth this year is likely to be less than 4 per cent because of it.
The travel and tour industry will also slow down. Luckily, Singapore is a debt-free country; its dollar may well be equal to the greenback at some point.
SA Tours will promote travel to the US, for enjoyment as well as to build relationships to do business there. Singapore is a marketing hub and Singaporeans can market products produced in the US throughout Asean. A recession in the US may well be an opportunity for Singaporean businessmen to do business with Americans.
- Ng Kong Yeam
Group Executive Chairman
Sino-America Tours Corporation Pte Ltd
Others
A US recession would have varying degrees of impact on multinational organisations in Singapore, as well as the local economy, given that Singapore is a major trading partner of the US. However, as for the IT industry, we don’t foresee a huge negative impact in our region as economies like Singapore are still experiencing buoyant growth and companies are investing in technology solutions to provide them competitive advantages.
In fact, we believe that a critical aspect to managing such potential risks for organisations is to have access to accurate and timely information and business intelligence tools that facilitate quick and effective decision-making.
- VR Srivatsan
Vice-President, South Asia
Business Objects
CREDIT crunch, downturn, or recession, the coming year is going to be a challenge for the global economy – and the IT industry will face the same pressures. While there’s no doubt that tighter belts will mean IT departments paying close attention to IT vendors and service providers performance, it will not be simply the case of the thumb-screws coming out.
In our case, even amid economic uncertainty last year, Interwoven’s fourth quarter and full-year performance was the highest we have ever recorded. During an economic slowdown, we can see an increase in online marketing budgets – more cost effective than traditional marketing methods. So while the spend from IT may reduce in a slowdown, we expect to have access to a larger portion of the marketing budget. The tougher times are, the more important it is for companies to measure and make the most value out of their budgets.
We anticipate that other IT vendors and service providers will also find a niche to prosper during these times of economic uncertainty. Companies are realising that business efficiency can be improved by innovating aspects of their business using IT.
- Sanjay Aurora
Vice-President of Asia Pacific
Interwoven
Source: Business Times 3 Mar 08
It faces dilemma as a rate cut could aggravate euro zone’s high inflation
FRANKFURT – THE European Central Bank (ECB) will make a cut of sorts this week – but with euro zone inflation stubbornly high, the cut will be in its growth estimates, not interest rates, said economists.
‘The ECB council will cut on Thursday its forecasts for growth in the euro zone, but not its main interest rate,’ said WestLB economist Holger Sandte, making a prediction widely shared by other experts.
The United States Federal Reserve has cut rates in recent weeks in an effort to stave off a recession, and increasing signs of a slowdown in the euro zone are adding to pressure on the ECB to follow suit.
More pessimism was generated last Friday by a sharper- than-feared fall in the European Commission’s euro zone economic sentiment indicator to its lowest level in two years.
‘What is a worry is the sharp collapse in euro zone economic confidence over the last year. This is consistent with euro zone growth dropping well below 2 per cent this year, possibly to around 1.5 per cent,’ said Bear Stearns economist David Brown.
‘The ECB is now under huge moral pressure to cut rates, especially with the euro on a surge towards US$1.55,’ he added.
But another data release last Friday showed the dilemma that ECB head Jean-Claude Trichet faces – that of stubbornly high inflation, something which a cut in rates could exacerbate.
Euro zone inflation clocked in at 3.2 per cent in January, the highest level since the launch of the euro single currency in 1999. The number was worse than expected and was well above the ECB’s preferred level of inflation of close to but less than 2 per cent.
But slowing growth is expected to dilute inflationary pressures, which in turn should allow the ECB to cut rates later this year, economists believe.
‘Under these conditions, the ECB could start cutting interest rates in spring’ and gradually lower its main lending rate to 3 per cent by the end of the year from 4 per cent currently, said BNP Paribas economist Clemente De Lucia.
Source: AGENCE FRANCE-PRESSE (The Straits Times 3 Mar 08)
His replies confirm economy is in recession: analysts
(NEW YORK) US Federal Reserve chairman Ben Bernanke didn’t utter the word, but analysts reading between the lines of his testimony to the US Congress this week say that he came as close as a central bank chief can to acknowledging the chances of recession.
Since the start of the global credit squeeze in mid-2007, the Fed has been cautious about suggesting US economic and financial conditions could get worse, in part for fear that markets might overreact.
Yet speaking before Congress on Thursday, the Fed chairman held true to his vow for greater transparency, predicting that economic growth, which slowed sharply in the fourth quarter of 2007, would not return to normal levels until at least 2010.
‘While the National Bureau of Economic Research (NBER) has yet to decide whether the US economy is in recession, Mr Bernanke’s replies have all but confirmed the economy is already in recession,’ said Ashraf Laidi, chief foreign exchange strategist at CMC Markets US in New York.
The NBER is considered the official arbiter of US recessions, but their calls tend to lag the actual start of a contractionary period by about three to six months.
Not only did Mr Bernanke offer a glum outlook for growth complicated by rising inflation, he also indicated that even his already depressed forecasts might be overly optimistic.
‘The risks to this outlook remain to the downside,’ Mr Bernanke said. ‘The risks include the possibilities that the housing market or labour market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.’
It is not difficult to see how some observers might interpret strong words as these from a measured man like Mr Bernanke as a sign of real concern.
‘If you acknowledge a recession it’s your fault, so that’s one reason not to be the first to do it,’ said Alan Skrainka, chief market strategist at Edward Jones, in St Louis, Missouri.
The threat of a prolonged recession is not negligible. What started as a US housing market slump has since spread through the financial system like a wildfire, beginning with assets directly linked to sub-prime mortgages and then extending to bonds formerly deemed safe as mistrust in the banking sector soared to new heights.
Mr Bernanke also attempted to rein in inflation expectations by saying the central bank would remain vigilant on price pressures which have become more apparent after both producer and consumer inflation jumped in data released this month.
These developments not only complicated the Fed’s task of regulating the monetary lever, but could also paradoxically worsen the economic situation. Since any possible recession is expected to be driven by a retrenchment in consumer spending, further damage to purchasing power from rising costs could force a downward spiral.
The economy is not close to a 1970s-style mix of stagnant growth and high inflation, Mr Bernanke told the Senate banking committee, but he painted a generally dour outlook and cautioned that the downturn is likely to cause some small banks to go under.
‘I don’t anticipate stagflation,’ he said.
Some analysts have become increasingly worried about that possibility after recent high readings on inflation and weak readings on growth.
‘I don’t think we’re anywhere near the situation that prevailed in the 1970s,’ he said.
Source: Reuters, LAT-WP (Business Times 1 Mar 08)
THE Urban Redevelopment Authority (URA) has launched the second phase of Sembawang Greenvale after auctioning all parcels in Phase One last October.
In the first phase, 12 sub-divided landed housing plots near Sembawang Beach were auctioned for a total of $37.09 million, which works out to about $285 per square foot (psf) of land on average.
Phase Two comprises 11 land parcels for a total of 90 dwellings. Most of these will be terrace houses.
Knight Frank director (research and consultancy) Nicholas Mak says new terrace houses in the area are now selling for $1.7 million to $2 million.
The median unit price for landed housing in District 27, where Sembawang is located, increased 12 per cent quarter-onquarter in Q4 2007, he said. ‘Therefore, in terms of bidding price, we expect the average land price of Greenvale Phase Two will be higher than that of Phase One.’
Mr Mak expects that terrace plots will fetch about $320-380 psf of land, and semi-detached plots about $300-350 psf of land.
Cushman and Wakefield managing director Donald Han believes demand for landed property will stay sound this year. But he also reckons current sentiment – hurt by the US sub-prime crisis – could see potential bidders for Sembawang Greenvale Phase Two discount their offers in the light of rising risks.
As such, he thinks bids could be 5-10 per cent below those received for Phase One.
Mr Han still believes there will be interest in the parcels, especially those that can yield more units, as developers will be able to ‘average down’ construction costs and increase profit margins.
Separately, URA said yesterday it has launched an industrial land parcel at Ubi Avenue 4/Ubi Road 2 for sale by public tender, after a developer committed to bid at least $14 million in early February.
Colliers International managing director Dennis Yeo estimated earlier that bids for the site could come in at $70-80 psf per plot ratio, translating to a breakeven cost of about $230-250 psf.
Source: Business Times 1 Mar 08
Average industrial rates up 16.8%, muted increases for most other uses
THE government yesterday announced modest, lower-than-expected increases in development charge (DC) rates for most use groups, except industrial.
‘Limited transactions in the past six months, amidst cautionary sentiment set about the US sub-prime debacle, were probably an important factor for the moderate gains this round,’ said Jones Lang LaSalle regional director and head of investments Lui Seng Fatt.
Knight Frank director Nicholas Mak said: ‘The government may feel that there has been no significant appreciation in land prices in the last few months.
‘And DC rates for most use groups – such as commercial, non-landed residential and hotel/hospital – were already at a higher base because of substantial hikes in the last revision.
‘Industrial DC rates, on the other hand, had seen only a marginal rise the previous round and hence saw the sharpest increase this time.’
DC rates, which are payable for enhancing the use of some sites or putting bigger developments on them, are revised twice yearly, on March 1 and Sept 1, and are listed according to use groups and 118 locations across Singapore.
From today, the average DC rate for commercial use has gone up 1.5 per cent – after the 42 per cent increase in the last round on Sept 1, 2007. The average rate for non-landed residential use has been raised 2.6 per cent, again much smaller than the 58 per cent hike previously, while the average rate for landed residential use has been left unchanged.
For hotel and hospital use, the latest DC rates are up 3.3 per cent on average, compared with a 23 per cent hike previously.
Industrial DC rates have jumped 16.8 per cent on average, against a 2 per cent rise previously.
JLL’s Mr Lui said that the big hike in industrial DC rates is in tandem with growing demand for backoffice space as more firms relocate out of the CBD due to high rents.
For industrial DC rates, the biggest hike of 33.3 per cent was in the Jurong/Lim Chu Kang/Kranji location, which analysts attributed to JTC Corp’s sale of two industrial sites at Jalan Tepong and Pioneer Road/Tuas Avenue 11 at about double the land values implied by the previous September 2007 industrial DC rate for the area.
Similarly, the sale of an industrial plot at Commonwealth Drive/Lane at about four times the September 2007 DC rate-implied land value was probably behind a 32 per cent hike yesterday in the industrial DC rate for the area.
Industrial DC rates were raised by 22.2 per cent each in the Kallang Way /MacPherson /Aljunied, and Braddell/ Potong Pasir/ Woodleigh areas, based on JLL’s analysis. The rate for West Coast Road/ Jurong East was upped 20.7 per cent.
Increases of 20 per cent were seen in locations such as Havelock Road, Telok Blangah, Tiong Bahru, Bukit Merah, Redhill, Alexandra and Henderson.
Commercial DC rates stayed put in Raffles Place, Marina Bay, Cecil Street and Robinson Road. Instead, the hikes were mostly outside the central business district, ‘reflecting the trend of office demand being pushed out of the CBD’, Savills Singapore director Ku Swee Yong said.
The biggest increases, of 25 and 23.3 per cent, were in the Toa Payoh/Potong Pasir and Paya Lebar/Eunos areas respectively.
The sale price of a 99-year commercial plot next to the HDB Hub in Toa Payoh in October and rising rents at SingPost Centre in Paya Lebar were likely reasons for the increases.
The Marine Parade and Tampines locations each saw a 19 per cent appreciation in commercial DC rates, apparently supported by the sale price of an office unit at Parkway Parade, and rental evidence at Tampines Mall and buildings in the Tampines Finance Park.
For non-landed residential DC rates, the biggest gain of 28.6 per cent was in Ang Mo Kio/Yio Chu Kang as well as an adjoining sector that covers Upper Thomson and Sembawang Hills. Far East Organization’s $601 psf per plot ratio top bid for a condo site next to Ang Mo Kio Hub in September last year – a record for 99-year suburban condo land – was the likely reason for the rate hikes.
The Telok Blangah and Tiong Bahru/Ayer Rajah locations each saw hikes of 22.2 per cent in non-landed residential DC rate.
CB Richard Ellis executive director Li Hiaw Ho said that the increases were probably supported by the $639 psf ppr fetched for a 99-year condo site on Alexandra Road last year. Mr Li also pointed to the sale of a freehold site on Margate Road as the likely reason for a 21.4 per cent rate hike in the Mountbatten/Meyer/Broadrick area.
For hotel use, gains of around 9-10 per cent were seen in DC rates for the traditional hotel belts in the Orchard Road, Marina Centre and Singapore River locations, as well as places like Marina Bay, Bayfront and Fullerton Road.
‘The tourism boom is expected to continue as the Singapore government drives towards the 17 million visitors goal by 2015.
Orchard Road remains Singapore’s main shopping belt, while upcoming developments in the Marina area such as the Marina Bay Sands integrated resort and the F1 race will further generate demand for hotels in the area,’ Mr Lui said.
The DC use group for hotels also includes hospitals and interestingly, the government did not raise the DC rate for the Irrawaddy Road location where a hospital site last month fetched a record price of $1,600 psf ppr from Parkway group.
A spokeswoman for the Chief Valuer said: ‘Parkway’s record bid was an isolated case. In general, there’s no compelling evidence that market values for hotel/hospital use in the area have moved up so much.’
Source: Business Times 1 Mar 08
Average industrial rates up 16.8%, muted increases for most other uses
THE government yesterday announced modest, lower-than-expected increases in development charge (DC) rates for most use groups, except industrial.
‘Limited transactions in the past six months, amidst cautionary sentiment set about the US sub-prime debacle, were probably an important factor for the moderate gains this round,’ said Jones Lang LaSalle regional director and head of investments Lui Seng Fatt.
Knight Frank director Nicholas Mak said: ‘The government may feel that there has been no significant appreciation in land prices in the last few months.
‘And DC rates for most use groups – such as commercial, non-landed residential and hotel/hospital – were already at a higher base because of substantial hikes in the last revision.
‘Industrial DC rates, on the other hand, had seen only a marginal rise the previous round and hence saw the sharpest increase this time.’
DC rates, which are payable for enhancing the use of some sites or putting bigger developments on them, are revised twice yearly, on March 1 and Sept 1, and are listed according to use groups and 118 locations across Singapore.
From today, the average DC rate for commercial use has gone up 1.5 per cent – after the 42 per cent increase in the last round on Sept 1, 2007. The average rate for non-landed residential use has been raised 2.6 per cent, again much smaller than the 58 per cent hike previously, while the average rate for landed residential use has been left unchanged.
For hotel and hospital use, the latest DC rates are up 3.3 per cent on average, compared with a 23 per cent hike previously.
Industrial DC rates have jumped 16.8 per cent on average, against a 2 per cent rise previously.
JLL’s Mr Lui said that the big hike in industrial DC rates is in tandem with growing demand for backoffice space as more firms relocate out of the CBD due to high rents.
For industrial DC rates, the biggest hike of 33.3 per cent was in the Jurong/Lim Chu Kang/Kranji location, which analysts attributed to JTC Corp’s sale of two industrial sites at Jalan Tepong and Pioneer Road/Tuas Avenue 11 at about double the land values implied by the previous September 2007 industrial DC rate for the area.
Similarly, the sale of an industrial plot at Commonwealth Drive/Lane at about four times the September 2007 DC rate-implied land value was probably behind a 32 per cent hike yesterday in the industrial DC rate for the area.
Industrial DC rates were raised by 22.2 per cent each in the Kallang Way /MacPherson /Aljunied, and Braddell/ Potong Pasir/ Woodleigh areas, based on JLL’s analysis. The rate for West Coast Road/ Jurong East was upped 20.7 per cent.
Increases of 20 per cent were seen in locations such as Havelock Road, Telok Blangah, Tiong Bahru, Bukit Merah, Redhill, Alexandra and Henderson.
Commercial DC rates stayed put in Raffles Place, Marina Bay, Cecil Street and Robinson Road. Instead, the hikes were mostly outside the central business district, ‘reflecting the trend of office demand being pushed out of the CBD’, Savills Singapore director Ku Swee Yong said.
The biggest increases, of 25 and 23.3 per cent, were in the Toa Payoh/Potong Pasir and Paya Lebar/Eunos areas respectively.
The sale price of a 99-year commercial plot next to the HDB Hub in Toa Payoh in October and rising rents at SingPost Centre in Paya Lebar were likely reasons for the increases.
The Marine Parade and Tampines locations each saw a 19 per cent appreciation in commercial DC rates, apparently supported by the sale price of an office unit at Parkway Parade, and rental evidence at Tampines Mall and buildings in the Tampines Finance Park.
For non-landed residential DC rates, the biggest gain of 28.6 per cent was in Ang Mo Kio/Yio Chu Kang as well as an adjoining sector that covers Upper Thomson and Sembawang Hills. Far East Organization’s $601 psf per plot ratio top bid for a condo site next to Ang Mo Kio Hub in September last year – a record for 99-year suburban condo land – was the likely reason for the rate hikes.
The Telok Blangah and Tiong Bahru/Ayer Rajah locations each saw hikes of 22.2 per cent in non-landed residential DC rate.
CB Richard Ellis executive director Li Hiaw Ho said that the increases were probably supported by the $639 psf ppr fetched for a 99-year condo site on Alexandra Road last year. Mr Li also pointed to the sale of a freehold site on Margate Road as the likely reason for a 21.4 per cent rate hike in the Mountbatten/Meyer/Broadrick area.
For hotel use, gains of around 9-10 per cent were seen in DC rates for the traditional hotel belts in the Orchard Road, Marina Centre and Singapore River locations, as well as places like Marina Bay, Bayfront and Fullerton Road.
‘The tourism boom is expected to continue as the Singapore government drives towards the 17 million visitors goal by 2015.
Orchard Road remains Singapore’s main shopping belt, while upcoming developments in the Marina area such as the Marina Bay Sands integrated resort and the F1 race will further generate demand for hotels in the area,’ Mr Lui said.
The DC use group for hotels also includes hospitals and interestingly, the government did not raise the DC rate for the Irrawaddy Road location where a hospital site last month fetched a record price of $1,600 psf ppr from Parkway group.
A spokeswoman for the Chief Valuer said: ‘Parkway’s record bid was an isolated case. In general, there’s no compelling evidence that market values for hotel/hospital use in the area have moved up so much.’
Source: Business Times 1 Mar 08
Small revision of fees points to dwindling deals, slow price growth
IT’S official: the property market has gone deathly quiet.
The Government barely tweaked development charges in its semi-annual revision of fees yesterday, reflecting the property sector’s subdued state over the last six months.
Development charges, which can run in the millions of dollars, are what a developer has to pay to buy and redevelop an existing site.
Average islandwide charges for office, hospital, hotel and non-landed housing sites merely inched up, while landed residential sites saw no change in the fee at all.
This marks a big reversal from last year, when the frantic pace of land acquisition led to record hikes in development charges for many sectors.
In super-hot locations, the fees were even doubled.
This time, the only major change was in the industrial sector, where charges jumped 16.8 per cent – compared to 2 per cent in the last round.
This was due to a previous low base, as well as rising demand for back-office space, which led to recent land sales at benchma